PROSPECTUS SUPPLEMENT DATED OCTOBER 25, 1999 (TO PROSPECTUS DATED JULY 12, 1999)
DVI RECEIVABLES X, L.L.C.
(ISSUER)
DVI RECEIVABLES CORP. VIII
(OWNER OF ISSUER)
DVI FINANCIAL SERVICES INC.
(SERVICER)
OUR PUBLICLY OFFERED NOTES
We are offering $31,483,000 6.17% of class A-1, $42,182,000 6.54% of class A-2,
$65,098,000 6.83% of class A-3, $99,051,000 7.22% of class A-4, $4,054,000 7.30%
of class B, $8,107,000 7.48% of class C and $5,405,000 8.25% of class D
asset-backed notes, Series 1999-2.
- --------------------------------------------------------------------------------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-8 OF THIS PROSPECTUS
SUPPLEMENT AND PAGE 1 OF THE PROSPECTUS.
The notes will represent debt obligations of the issuer only.
This prospectus supplement may be used to offer and sell the publicly offered
notes only if accompanied by the prospectus.
- --------------------------------------------------------------------------------
THE CREDIT ENHANCEMENT FOR THE NOTES
o THE RETAINED INTEREST
Each note must receive its full payment due on each payment date before we
receive and retain any funds.
o THE SUBORDINATED NOTES
We pay neither interest nor principal on any subordinated note unless and until
the interest or the principal, respectively, on each senior class of notes is
paid first.
o THE RESERVE ACCOUNT
We will fund a reserve fund that can be used to pay certain shortfalls in
payments on all of the notes.
THE UNDERWRITING FOR THESE NOTES
The underwriters will publicly offer the notes at the following prices:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS B CLASS C CLASS D
NOTES NOTES NOTES NOTES NOTES NOTES NOTES
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Price to public 100.00000% 99.99310% 99.98760% 99.99213% 99.98170% 99.99334% 99.98457%
Underwriting discount 0.175% 0.225% 0.400% 0.425% 0.400% 0.400% 0.450%
Proceeds to issuer 99.82500% 99.76810% 99.58760% 99.56713% 99.58170% 99.59334% 99.53457%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
We will pay $904,330.00 as a commission to all of the underwriters. We will
receive $254,454,776.18 as our total proceeds before deducting our expenses
(that we estimate to be $500,000).
We will publicly offer the class A-1 notes, the class A-2 notes, the class A-3
notes, the class A-4 notes, the class B notes, the class C notes and class D
notes from time to time. We might sell these notes ourselves or we might have
one or more underwriters or agents sell them for us. If we use underwriters or
agents, we will sell the class A-1 notes, class A-2 notes, class A-3 notes, the
class A-4 notes, class B notes, class C notes and class D notes at prices they
negotiate at the time of sale. You should read "PLAN OF DISTRIBUTION" on page
S-126 of this prospectus supplement for further information.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE NOTES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
---------------------------
Lehman Brothers
Prudential Securities Banc One Capital Markets, Inc.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
Summary of Prospectus Supplement................................................................................................S-1
Risk Factors....................................................................................................................S-8
Location of Glossary...........................................................................................................S-19
DVI Financial Services Inc.....................................................................................................S-19
General ..............................................................................................................S-19
Underwriting Criteria..................................................................................................S-20
Portfolio Monitoring and Credit Collections............................................................................S-24
The Servicer...................................................................................................................S-27
Servicing Obligations and Procedures...................................................................................S-27
Servicing Compensation and Payment of Expenses.........................................................................S-30
Evidence of Compliance by Servicer.....................................................................................S-32
Other Servicing Procedures.............................................................................................S-32
Resignation/Removal of the Servicer....................................................................................S-33
Voluntary Termination of Servicer Duties...............................................................................S-33
Year 2000 Computer Programming Compliance..............................................................................S-34
DVI Receivables Corp. VIII.....................................................................................................S-34
DVI Receivables Corp. X........................................................................................................S-34
The Issuer.....................................................................................................................S-35
The Trustee....................................................................................................................S-36
The Contracts..................................................................................................................S-36
Statistical Information for the Contracts..............................................................................S-41
Substitute Contracts...................................................................................................S-54
Description of the Notes and Principal Transaction
Documents..............................................................................................................S-56
General Provisions of the Notes........................................................................................S-56
Conveyance of Trust Property...........................................................................................S-62
DVI Financial Services Inc. Repurchase Obligation
for Contract Misrepresentations...............................................................................S-63
Indemnification........................................................................................................S-64
Indenture Accounts; Investment of Funds................................................................................S-65
Reserve Account........................................................................................................S-66
Flow of Funds to and from the Collection Account.......................................................................S-68
Payment of Amounts From Distribution Sub-Accounts......................................................................S-73
Reports to Noteholders.................................................................................................S-76
Optional Redemption....................................................................................................S-76
Indenture Events of Default and Acceleration...........................................................................S-77
Remedies ..............................................................................................................S-78
Servicer Events of Default.............................................................................................S-81
Termination of the Servicer............................................................................................S-83
Duties and Immunities of the Trustee...................................................................................S-84
Book-Entry Registration of the Notes...................................................................................S-85
Prepayment and Yield Considerations............................................................................................S-92
Certain Legal Matters Affecting an
Obligor's Rights and Obligations......................................................................................S-102
General .............................................................................................................S-102
The Equipment.........................................................................................................S-103
Material Federal Income Tax Consequences......................................................................................S-107
Certain State, Local and Other Tax Considerations.............................................................................S-118
Considerations for Benefit Plan Investors.....................................................................................S-118
Legal Investment..............................................................................................................S-125
Ratings ......................................................................................................................S-126
Use of Proceeds...............................................................................................................S-126
Plan of Distribution..........................................................................................................S-126
Legal Matters.................................................................................................................S-128
Where You Can Find More Information...........................................................................................S-128
Glossary......................................................................................................................S-130
</TABLE>
-i-
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING IS JUST A SUMMARY ABOUT OUR PUBLICLY OFFERED
NOTES IN THIS SERIES. YOU NEED TO READ THE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS SUPPLEMENT FOR A MORE COMPLETE UNDERSTANDING OF THESE CLASSES
OF SECURITIES, OUR TRUST PROPERTY AND OTHER ASPECTS OF PURCHASING ANY OF THESE
NOTES.
CLOSING DATE........................On or about October 28, 1999.
CUT-OFF DATE........................September 30, 1999.
PAYMENT DATES.......................The thirteenth day of each month.
STATED MATURITY DATE................For the class A-1 notes, November 13, 2000,
for the class A-2 notes, March 13, 2002, for
the class A-3 notes June 13, 2002 and for
all other notes, November 13, 2007.
ISSUER..............................DVI Receivables X, L.L.C., a Delaware
limited liability company.
OWNER OF THE ISSUER.................DVI Receivables Corp. VIII, a Delaware
corporation, is the sole owner of the
issuer.
CONTRIBUTOR AND SERVICER............DVI Financial Services Inc., a Delaware
corporation.
TRUSTEE.............................U.S. Bank Trust National Association.
TRUST PROPERTY......................Non-cancelable contracts (such as leases and
loans) owned by the issuer, the rights to
all payments on those contracts that are due
after the cut-off date and other property
related to those contracts, such as a
security interest in equipment owned,
pledged or leased under those contracts. For
more information about the trust property,
you should read the section on "THE
CONTRACTS" and "DESCRIPTION OF THE NOTES AND
PRINCIPAL TRANSACTION DOCUMENTS --
CONVEYANCE Of TRUST PROPERTY" on pages S-36
and S-62 of this supplement, respectively.
MINIMUM DENOMINATIONS...............$500,000.
FORM OF NOTES.......................All the publicly offered notes will be
book-entry.
S-1
<PAGE>
THE CONTRACTS
We select our contracts from DVI Financial Services Inc.'s portfolio based on
the criteria that we describe in the section of this prospectus supplement
titled "THE CONTRACTS" on page S-36.
THE INITIAL DISCOUNTED AGGREGATE CONTRACT BALANCE. The aggregate outstanding
principal balances, discounted at a rate of 8.00% per year, of all of the
contracts described in this prospectus supplement is $273,939,121.58 as of the
initial cut-off date. We discount the outstanding payments to show their value
in present-day dollars.
CONTRACT POOL DATA. As of September 30, 1999,
o the weighted average remaining term to maturity of the pool of contracts
existing at that time was approximately 59 months,
o the final scheduled payment date of the contract in the pool with the
latest scheduled maturity was November, 2006, and
o the average outstanding principal balance of the contracts in the pool
discounted at a rate of 8.00% a year on that date was $159,824.46.
The section at page S-36 of this supplement titled "THE CONTRACTS" contains much
more data about the contracts in the pool as of September 30, 1999.
POOL A CONTRACTS AND POOL B CONTRACTS. The contracts in the trust property are
divided into two pools. A schedule to the transaction documents identifies each
contract as either a pool A contract or a pool B contract. The servicer's rights
to substitute and to repurchase contracts differ between the pool A contracts
and the pool B contracts. Except for the servicer's rights and our accounting
reports, we treat all of our contracts in the trust property as if they compose
a single collateral pool. If you want to know more about the differences between
pool A contracts and the pool B contracts, read the section titled "THE
CONTRACTS -- SUBSTITUTE CONTRACTS" on page S-54 of this prospectus supplement.
CONTRACT MODIFICATIONS. The person servicing and administrating the contracts,
whom we refer to as the servicer of the contracts, may modify or adjust the
terms of a contract for administrative reasons.
S-2
<PAGE>
DISTRIBUTIONS ON THE OFFERED NOTES.
The trustee will pay to investors:
INTEREST. Beginning with November 15, 1999, the trustee will pay you interest on
the notes on the thirteenth day of each month unless that day is not a business
day. If that day is not a business day, the trustee will pay you on the next day
that is a business day.
The issuer will accumulate the aggregate amount of any monthly interest
collected in between payment dates that was not previously paid to any
noteholders as scheduled. After the issuer deposits those amounts in the
collection account, on the next payment date the trustee will pay them out as
overdue interest payments to the noteholders. The amount may not be sufficient
to pay all overdue interest. Conversely, the trustee will only pay to the
noteholders from these collected funds, to the extent those funds are
sufficient, an amount equal to all interest overdue on that payment date. In
either case, this overdue interest will not itself bear interest.
PRINCIPAL. We pay as principal an amount related to the decline in the aggregate
discounted principal balance during the prior collection period. The term
collection period denotes that period of time during which the issuer collects
and holds contract payments for distribution on the next payment date.
S-3
<PAGE>
PRIORITY OF DISTRIBUTIONS
On each payment date, the trustee will disburse funds deposited in the
collection account as follows:
[GRAPHIC OMITTED]
For a more detailed description of how the trustee distributes funds collected
from the trust property and how payments are prioritized, you should read the
section titled "DESCRIPTION OF THE NOTES AND PRINCIPAL TRANSACTION DOCUMENTS --
FLOW OF FUNDS TO AND FROM THE COLLECTION ACCOUNT" on page S-68 of this
prospectus supplement.
S-4
<PAGE>
CREDIT ENHANCEMENT
We have provided three forms of credit enhancement.
FIRST, we subordinated the issuer's right to receive any amount, which we refer
to as the issuer's retained interest, withdrawn from the collection account to
all other payments on the note that the trustee will make from those funds.
NEXT, we required that if the amounts deposited by the servicer in the
collection account are insufficient to fully pay all classes of notes, that
funds for notes of each relatively latter-alphabetized class be made available
first to pay the noteholders of each earlier-alphabetized class. We refer to
this concept as the subordination of one class of notes to another. We also
subordinate principal on our privately placed classes of notes to all of the
principal and interest, respectively, on our publicly offered classes.
FINALLY, we made amounts in a reserve account available to pay many, but not
all, of the shortfalls that can occur in payments on the notes. For more
information about the reserve account, you should read the section titled
"DESCRIPTION OF THE NOTES AND PRINCIPAL TRANSACTION DOCUMENTS -- RESERVE
ACCOUNT" on page S-66 of this prospectus supplement.
REDEMPTION
The issuer may choose to buy back either some or all of the notes in varying
circumstances.
FULL REDEMPTION. The issuer may choose to buy back all, but not some of, the
notes on any payment date. To exercise this option:
o the issuer must first pay the redemption price;
o the aggregate outstanding discounted principal balance of all of
the contracts in pool A must be less than 10% of the aggregate
outstanding discounted principal balance of all of the contracts in
pool A on the closing date; and
o the aggregate outstanding discounted principal balance of all of
the contracts in pool B is less than 20% of the aggregate
outstanding discounted principal balance of all of the contracts in
pool B on the closing date.
PARTIAL REDEMPTION. The issuer may buy back any portion, but not all, of the
notes on
S-5
<PAGE>
a payment date if:
o the issuer first pays the partial redemption price, and
o the aggregate outstanding discounted principal balance of all of
the contracts in pool B is less than 20% of the aggregate
outstanding discounted principal balance of all of the contracts in
pool B as of the closing date.
For further information about the issuer's rights to buy back the notes, you
should read the section titled "DESCRIPTION OF THE NOTES AND PRINCIPAL
TRANSACTION DOCUMENTS -- OPTIONAL REDEMPTION" on page S-76 of this
prospectus supplement.
LIMITED SUBSTITUTION AND REPURCHASE OBLIGATION
Ninety days after DVI Financial Services Inc. either discovers or receives
notice that a material breach of the amended and restated contribution and
servicing agreement has occurred and is continuing, DVI Financial Services Inc.
must either substitute for or repurchase the contract causing that breach from
the issuer.
For more information about these obligations, you should read the section titled
"DESCRIPTION OF THE NOTES AND PRINCIPAL TRANSACTION DOCUMENTS -- DVI FINANCIAL
SERVICES INC. REPURCHASE OBLIGATION FOR CONTRACT MISREPRESENTATIONS" on page
S-63 of this prospectus supplement.
RATINGS
We have asked a few rating agencies that are nationally recognized for their
ability to rate the creditworthiness of securities to rate these notes. The
issuer will not sell any of the notes unless each of the following classes
receive each of the ratings set forth next to that class.
DUFF &
MOODY'S PHELPS
INVESTOR CREDIT FITCH
SERVICE, RATING IBCA,
CLASS INC. CO. INC.
----- ---- --- ----
Class A-1 P-1 D-1+ F1
Class A-2 Aaa AAA AAA
Class A-3 Aaa AAA AAA
Class A-4 Aaa AAA AAA
Class B Aa3 AA AA
Class C A2 A A
Class D Baa2 BBB BBB
S-6
<PAGE>
No rating on a security is a recommendation to buy, sell or hold that security.
Moreover, each rating is subject to the rating agency's revision or even
withdrawal of that rating. For further information about ratings, you should
read the sections of this prospectus supplement entitled "PREPAYMENT AND YIELD
CONSIDERATIONS" on page S-92, and "RATINGS" at page S-126.
PERMITTED PURCHASERS
The class A-1 notes are eligible for purchase by money market funds under the
Investment Company Act of 1940, as amended.
TAX CONSEQUENCES
Special tax counsel to the underwriters is of the opinion that under current
law, the federal government will treat the class A-1 notes, the class A-2 notes,
the class A-3 notes, the class A-4 notes, the class B notes, the class C notes
and the class D notes as indebtedness for federal income tax purposes.
If you want to know more about likely tax treatment of the notes, you should
read the section titled "MATERIAL FEDERAL INCOME TAX CONSEQUENCES" at page S-107
in this prospectus supplement.
CONSIDERATIONS FOR BENEFIT PLAN INVESTORS
If you are buying notes on behalf of an individual retirement account, Keogh
plan or employee benefit plan, special rules may apply to you. If various
exemptions are to be available for all investors, you must make certain
representations when you acquire your notes. See "CONSIDERATIONS FOR BENEFIT
PLAN INVESTORS" on page S-118 of this prospectus supplement for a description of
the rules and these exemptions and purchaser representations.
S-7
<PAGE>
RISK FACTORS
Prospective noteholders should consider, among other things,
the following factors in connection with the purchase of the notes.
THE RETURN ON YOUR Losses on the contracts may occur due
NOTES MAY BE AFFECTED to a wide variety of causes, including adverse
BY LOSSES ON THE changes in the obligors' financial condition. A
CONTRACTS, WHICH COULD decline in economic conditions nationally or in
OCCUR DUE TO A VARIETY the regions where the obligors are located may
OF CAUSES. increase such risk of losses.
EVENTS THAT DIMINISH THE RETURN ON YOUR NOTE
THE RETURN ON YOUR Your investment is secured by your
NOTE DIMINISHES IF THE trustee's security interest in the trust
CONTRACTS ARE property, which enables the trustee to
DELIVERED TO SOMEONE foreclose upon the trust property and to pay
OTHER THAN THE you from it if an event of default occurs. The
TRUSTEE. trustee's security interest is shown under law
by the trustee's possession of the contracts.
If DVI Financial Services Inc., DVI Receivables
Corp. X, the issuer or the servicer sells,
pledges or causes the delivery of a contract in
the trust property to a person other than the
trustee, then that other person would probably
acquire an interest in that contract.
The interest of that other person may
have priority over the trustee's security
interest. The trustee holds that security
interest on your behalf. Any unpaid creditor of
the owner of a contract can foreclose upon and
sell the contract. Thus, if a person delivers a
contract in the trust property to someone other
than the trustee, the trustee may not be in
control of the decision concerning whether or
not to foreclose on that part of the collateral
or the ability to realize any proceeds from
selling it.
S-8
<PAGE>
In addition, the person with the
highest-priority security interest is the first
to receive any payments made under, or any
proceeds of sale of, a contract. Thus, if the
person other than the trustee has a security
interest with a higher priority than the
trustee's, that person's security interest in
the contract will be paid before the trustee
can collect money for you. In addition, not
only would your trustee have to wait for the
higher-priority lienor to be paid first, but
then the trustee only receives money to the
extent that there still are sufficient funds
available after the first person got paid.
YOUR NOTE PAYMENTS In addition to the considerations
DIMINISH IF THE TRUSTEE mentioned above, other factors that can hinder
IS IMPEDED FROM the trustee's ability to realize amounts from
REALIZING THE FULL contracts that it foreclosed upon include:
AMOUNT DUE FROM A
CONTRACT. o a failure to file UCC
financing statements to
perfect a security interest,
o depreciation, obsolescence,
damage or loss of any item of
equipment,
o the application of Federal and
state bankruptcy and
insolvency laws, and
o the expense of legal
proceedings to enforce a
defaulted contract.
THE RETURN ON YOUR An obligor under one of the contracts
NOTES DIMINISHES IF in the trust property might assert claims and
ENOUGH OBLIGORS defenses against DVI Financial Services Inc.,
ASSERT DEFENSES TO DVI Receivables Corp. X, DVI Receivables Corp.
THEIR PAYMENT VIII, the issuer or the trustee for the
OBLIGATIONS. contracts or the related equipment. DVI
Financial Services Inc. warrants that, on the
closing date, no such claims or defenses have
been asserted or threatened with respect to the
contracts. However, if enough of these claims
are asserted, your note payments may be
interrupted, delayed or even permanently
reduced.
S-9
<PAGE>
YOUR TRUSTEE MAY BE When applied to the trust property,
BARRED FROM RECEIVING federal and state insolvency, bankruptcy or
THE ANTICIPATED other laws may restrict the trustee's ability
CONTRACT PAYMENTS. to collect contract payments for you. State
laws impose requirements and restrictions
relating to foreclosure sales of collateral.
Such laws may also restrict the trustee's
ability to go to court and obtain a judgment
that the issuer is deficient in the payments it
must make to you following such a foreclosure
sale. The trustee may not realize the full
amount due on a contract, or may not realize
the full amount on a timely basis, because of
the application of those requirements and
restrictions. The expense of all of the above
legal proceedings will also be deducted from
your note payments.
YOUR NOTE PAYMENTS The trustee's security interest in the
MAY BE DIMINISHED BY trust property should be evidenced by filing a
A FAILURE TO FILE financing statement. If these statements are
FINANCING STATEMENTS. not executed in a timely manner by either DVI
Financial Services Inc., DVI Receivables Corp.
X, the issuer or the trustee, the trustee's
first priority security interest in the trust
property could lapse. Similarly, the trustee's
security interest could be impinged upon if the
servicer or any other person fails to file and
maintain any of the executed financing
statements in the appropriate governmental
offices in a timely basis as required by law.
If the trustee's security interest in the trust
property is adversely affected by any of these
events, its ability to pay you money from the
proceeds of any foreclosure sale of the
collateral may be curtailed or even terminated.
To give you greater comfort that none of these
events will happen, DVI Financial Services
Inc., DVI Receivables Corp. X and the issuer
will agree in the transaction documents to take
reasonable action required to facilitate proper
filing of financing statements.
S-10
<PAGE>
YOUR NOTE PAYMENTS If an obligor defaults on a contract,
COULD BE REDUCED BY the only source of payment for amounts due on
OBSOLESCENCE OF THE the contract will be the income and proceeds
EQUIPMENT. from the related equipment. However, the market
value of our equipment declines with age. In
addition, some of our equipment may be subject
to sudden, significant declines in value
because of technological advances and year 2000
malfunctions. Because of these factors, if
either the servicer or the trustee forecloses
upon and sells the equipment securing a
defaulted contract, the servicer or trustee may
not recover the entire amount due on such
contract.
THE RETURN ON YOUR One risk of investing in asset-backed
NOTES MAY BE securities like the notes is the possibility
PARTICULARLY SENSITIVE that there might be concentration of the
TO CHANGES IN related equipment or contract obligors in one
ECONOMIC CONDITIONS. or more geographic regions. Approximately 15.8%
of the initial aggregate discounted principal
balance of the contracts are located in Texas.
If the regional economy or healthcare market
weakens in Texas, or in any other region having
a significant concentration of obligors under
the contracts, those contracts may experience
high rates of loss and delinquency, resulting
in losses to noteholders. A region's economic
condition and healthcare market may be
adversely affected by a variety of events,
including natural disasters such as
earthquakes, hurricanes, floods and eruptions,
and civil disturbances such as riots. The
economic impact of these events may also be
felt in areas beyond the region immediately
affected by the disaster or disturbance.
Concentration may result in greater losses to
noteholders than those generally present for
similar asset-backed securities without such
concentration.
S-11
<PAGE>
RISKS RELATING TO THE STRUCTURE OF THE TRANSACTION
YOUR NOTE PAYMENTS DVI Financial Services Inc. believes
COULD BE INTERRUPTED, that the transfer of the contracts and the
DELAYED OR TERMINATED security interest in the related equipment to
IF DVI FINANCIAL DVI Receivables Corp. X and the subsequent
SERVICES INC. GOES transfer to the issuer should be treated as an
BANKRUPT. absolute and unconditional transfer -- that is,
as a sale. However, if DVI Financial Services
Inc. goes bankrupt, a bankruptcy court could
nonetheless attempt to recharacterize those
transfers as a borrowing. Such an attempt, even
if unsuccessful, could result in delays in
payments on the notes.
If a bankruptcy court successfully
recharacterizes the sale as a borrowing, the
court could then decide to accelerate payment
of the notes and liquidate the contracts. If an
acceleration occurs, the trustee's recovery on
behalf of noteholders could be limited to the
then-current value of the contracts or the
underlying equipment. In addition, if the court
does recharacterize the sale as a borrowing,
bankruptcy law allows the bankruptcy trustee
for the owner of the contracts to reject leases
that it considers to be "true" leases. We think
that some of the contracts in the trust
property are "true" leases. The same law allows
the bankruptcy trustee to reject any other
contract if the court believes that any
signatory to that contract has yet to finish
performing its duties under the contract. If a
contract is rejected by a bankruptcy trustee
for whichever reason, the contract is
terminated. An obligor would not owe any
further payments under a terminated contract.
If the trust property contains a contract that
is terminated, you would then lose the right to
some future payments of interest and principal
on the notes. If many contracts in the trust
property are terminated, your losses could be
sizeable.
S-12
<PAGE>
YOUR NOTE PAYMENTS LEVERAGED LEASE LOANS. Some contracts
COULD BE ADVERSELY represent leveraged lease loans from DVI
AFFECTED BY A LESSOR'S Financial Services Inc. to various lessors.
DECISION TO REJECT A Leveraged lease loans are secured by the
LEASE IN BANKRUPTCY. lessor's pledge of its rights in a lease and,
usually, the related equipment. As we explained
in the section above, a trustee in bankruptcy
can reject a lease, thus terminating the
lessee's duties to pay. Thus, if the lessor
goes bankrupt, even if DVI Financial Services
Inc. continues to operate, the trustee of the
lessor's bankruptcy estate could reject the
lease. Depending upon how much of the trust
property is rejected leases, you might then
lose the right to some or all future payments
of interest and principal on your notes.
FAIR MARKET VALUE LEASES. Other
contracts are "true" leases from DVI Financial
Services Inc. to various lessees. We often call
true leases "fair market value" leases, because
they contain an option for the lessee to
purchase the equipment at the end of the lease
term for its fair market value at that time.
When DVI Financial Services Inc. transferred
these leases to DVI Receivables Corp. X, it
also granted a security interest in the leased
equipment to DVI Receivables Corp. X, which, in
turn, assigned the security interest to the
issuer along with a first priority security
interest in the lease between DVI Financial
Services Inc. and the lessee. If a lessor under
a fair market value lease were to seek
protection under federal bankruptcy law, then
that lessor, as debtor-in-possession (or its
bankruptcy trustee) would have the option of
rejecting, assuming or assigning the underlying
lease.
S-13
<PAGE>
YOUR RISK OF If you purchase subordinated notes,
NONPAYMENT INCREASES then you will not receive distributions of
IF YOUR CLASS OF NOTE IS interest or principal on any given payment date
TO BE PAID AFTER until after the class A-1 notes and any other
ANOTHER CLASS. classes of notes senior to yours receive their
respective distributions of interest or
principal. Therefore, the more subordinated the
priority of payment that your class of note is
with respect to other, higher-priority classes
of notes, the greater the risk is that these
other notes will consume all funds then
available to be paid, thus leaving insufficient
amounts on that payment date to pay your class
of notes. Each class of notes bears losses and
delinquencies in reverse order of its priority.
Depending upon the timing of defaults and
severity of losses, investors in subordinated
notes are more likely to realize less on their
investment than they originally anticipated. It
may also take longer for investors holding
subordinated notes to earn the expected return
on their investment than it would for investors
of relatively senior classes. For more
information about subordinated notes, you
should read the section titled "DESCRIPTION OF
THE NOTES AND PRINCIPAL TRANSACTION DOCUMENTS--
FLOW OF FUNDS TO AND FROM THe COLLECTION
ACCOUNT" on page S-68 of this prospectus
supplement.
S-14
<PAGE>
OTHER RISKS
THE RATE THAT YOU The rate of payment of principal on the
RECEIVE YOUR NOTE notes will depend, among other things, on the
PAYMENTS DEPENDS rate of prepayments on the contracts. We do not
UPON THE know when obligors will choose to prepay their
UNPREDICTABLE RATE OF contracts, so we cannot predict the rate of
PREPAYMENTS ON THE payment of principal on any notes. There are
CONTRACTS. different means of prepaying contracts, as well
as different types of prepayments. Prepayments
on the contracts include:
o partial and full prepayments
(to the extent not replaced
with substitute contracts) by
the obligor on the contract;
o payments upon the liquidation
of defaulted contracts,
o payments upon acquisitions by
DVI Financial Services Inc. of
contracts from the related
trust property on account of a
breach of representations and
warranties in the contribution
and servicing agreement; and
o payments upon an optional
acquisition by DVI Financial
Services Inc. of contracts in
the trust property.
The rate of early terminations of
contracts due to prepayments and defaults may
be influenced by a variety of economic and
other factors which are unknown at this time.
You will bear the risk of reinvesting
distributions of the principal of your note
that you receive earlier than you anticipated.
No one can assure you as to the level of
prepayments that the contracts will experience.
S-15
<PAGE>
THE RATE OF YOUR NOTE The servicer and the issuer have the
PAYMENTS CAN BE right occasionally to replace prepaid or some
CHANGED BY THE non-performing contracts. These rights differ
SERVICER'S OR THE as between the pool A contracts and the pool B
ISSUER'S SUBSTITUTION contracts. For further information about the
OF CONTRACTS IN THE servicer's rights of substitution, you should
TRUST PROPERTY. read the section titled "THE CONTRACTS--
SUBSTITUTE CONTRACTS" at page S-54 of this
prospectus supplement. The payment flow on your
notes will be different if the servicer
substitutes one contract for another, rather
than if the issuer pays the proceeds of the
defaulted or prepaid contract through to you,
because the substituted contract may not have a
payment schedule identical to the removed
contracts. The performance of any substitute
contracts could also be different than the
performance of the original contracts.
YOUR NOTE PAYMENTS A large amount of delinquent, or late,
MAY BE AFFECTED BY AN contract payments will affect what the trustee
UNEXPECTED can pay to you on a payment date as a payment
DELINQUENCY RATE OF on your note. The rate of delinquencies of DVI
CONTRACTS. Financial Services Inc.'s portfolio of
contracts is not an assurance of the
performance of the contracts in the trust
property. We cannot assure you that the levels
of delinquencies and losses experienced in
recent years by DVI Financial Services Inc. on
its entire equipment finance portfolio are
indicative of the contracts in the trust
property. Delinquencies and losses on contracts
could increase significantly for various
reasons, including changes in the federal
income tax law, changes in the local, regional
or national economies or other events. You
should not assume that data from DVI Financial
Services Inc.'s entire portfolio of contracts
is or will be indicative of the performance of
the trust property.
S-16
<PAGE>
YOUR NOTE PAYMENTS In recent years, the administration and
MAY BE AFFECTED IF Congress have considered various changes in
CONTRACT OBLIGORS ARE federal regulations and reimbursement policies
IMPAIRED BY POSSIBLE relating to health care delivery in the United
CHANGES IN FEDERAL States. Legislation adopted this year or
HEALTH CARE thereafter may affect the regulation, the
REGULATIONS. availability, the pricing or the reimbursement
of health care products and services provided
by an obligor and hence the ability of obligors
to make their contract payments.
Financing services provided by DVI
Financial Services Inc. may also need to
change. Such regulations could affect the
financial well-being of several obligors or of
DVI Financial Services Inc. No one can
accurately predict the effect, if any, that
such legislation or regulations will have on
the servicer or on the ability of an obligor to
satisfy its payment obligations.
THE RATINGS OF THE None of the ratings of the notes by any
NOTES ARE NOT rating agency are recommendations to purchase,
RECOMMENDATIONS AND hold or sell the notes. Ratings do not comment
MAY BE WITHDRAWN AT as to market price or suitability for you.
A LATER DATE. Moreover, the rating agencies do not assure
that the ratings will remain for any given
period of time. Indeed, whenever a rating
agency that rates the notes believes that
circumstances justify negative action that
rating agency may lower or withdraw its rating.
A rating agency may lower the rating it assigns
to any class of notes at any time. A ratings
downgrade will probably reduce the value of
those notes. No one has any obligation to take
any action to maintain the ratings assigned the
notes on the closing date.
S-17
<PAGE>
LIQUIDITY RISKS
YOU MAY HAVE TO HOLD After the initial issuance of the notes
YOUR NOTES TO MATURITY on the closing date, the underwriters intend to
IF THEIR MARKETABILITY make a secondary market for the purchase of the
IS LIMITED. notes. A secondary market is one in which a
noteholder sells its note to another person.
However, the underwriters have no obligation to
make a secondary market. No one can assure you
that such a secondary market will develop or,
if it develops, that it will continue.
The secondary markets for asset-backed
securities have experienced periods of
illiquidity in the past and can be expected to
do so in the future. Illiquidity means that you
may not easily find another investor to buy
your note. Consequently, you may not be able to
sell your note readily or at prices that will
enable you to realize the yield that you desire
on your note.
The market values of the notes are also
likely to fluctuate. These fluctuations could
be significant and result in sizable losses to
you, depending on where or when you resell your
note.
YOUR NOTE PAYMENTS The servicer believes, based on
COULD BE AFFECTED BY discussions with current systems vendors, that
YEAR 2000 COMPUTER its software applications and operational
ERRORS. programs will properly recognize calendar dates
beginning in the year 2000. In addition, the
servicer has discussed with its customers and
suppliers the possibility of any interface
difficulties relating to the year 2000 which
may affect the servicer. To date, no
significant concerns have been identified;
however, there can be no assurance that there
will not be any year 2000-related operating
problems or expenses that might affect the
ability of the servicer to process and enforce
payments under the contracts. Any difficulties
of this kind could adversely affect payments on
your notes.
S-18
<PAGE>
LOCATION OF GLOSSARY
A glossary of the capitalized terms that we use can be found beginning
on page S-130 of this prospectus supplement.
DVI FINANCIAL SERVICES INC.
GENERAL
DVI Financial Services Inc. is a Delaware corporation with its
national headquarters located at 500 Hyde Park, Doylestown, Pennsylvania 18901.
Its telephone number is (215) 345-6600. DVI Financial Services Inc. comprises
the bulk of the assets of DVI, Inc., which owns all the stock of DVI Financial
Services Inc. DVI, Inc. is headquartered in Doylestown, PA, and its stock is
traded on the New York Stock Exchange as symbol "DVI". At September 30, 1999,
DVI Financial Services Inc. handled billing and collection of approximately
13,404 equipment finance contracts either owned by it or by companies affiliated
with it.
DVI Financial Services Inc. provides financing for users of
diagnostic imaging, therapeutic and other medical equipment. DVI Financial
Services Inc. focuses primarily on financing technologically advanced medical
equipment such as computerized tomography, magnetic resonance imaging, nuclear
medicine and radiation therapy systems, as well as lower cost medical devices.
DVI Financial Services Inc.'s customer base consists principally of outpatient
healthcare providers, physicians and physician groups, hospitals and shared
service providers.
DVI Financial Services Inc. either originates or acquires the
contracts from others in its ordinary course of financing activities. Some or
all of the contracts in the trust property were previously and may have been
indirectly sold by DVI Financial Services Inc. to a special-purpose,
bankruptcy-remote entity that was wholly and directly or indirectly owned by DVI
Financial Services Inc.
DVI Financial Services Inc.'s policy is to provide financing
to its customers in transactions which, with very limited exceptions, take the
form of direct financing leases and loans. Most of DVI Financial Services Inc.'s
equipment financing transactions have a term of
S-19
<PAGE>
approximately 60 months. In most cases, these transactions are so-called "full
payout" transactions that allow DVI Financial Services Inc. to recover all the
costs of acquiring and financing the equipment during the initial non-cancelable
term.
DVI Financial Services Inc.'s Equipment Finance Group will
finance equipment ranging in cost from $200,000 to $3,000,000. The DVI Strategic
Partner Group of DVI Financial Services Inc., formerly known as the Vendor
Finance Group, finances small-ticket equipment ranging in cost from $5,000 to
$200,000.
UNDERWRITING CRITERIA
GENERAL GUIDELINES. DVI Financial Services Inc. has
underwriting guidelines in place to analyze the creditworthiness and investment
desirability of individuals, partnerships and corporations. These guidelines
identify certain financial performance requirements and criteria for potential
borrowers, which reflect DVI Financial Services Inc.'s willingness to accept
prudent levels of risk. However, these standards remain flexible and individual
credits are evaluated in a manner which permits mitigating factors to be
considered in the overall evaluation process.
DVI Financial Services Inc. focuses much of its lending
activity in the out-patient healthcare sector, which is characterized by
emerging companies that have a limited history and lack strong balance sheets
and income performance. This sector requires a rigorous credit analysis and
structuring discipline. Most out-patient diagnostic facilities operate high cost
equipment, such as magnetic resonance imaging systems. They have a high
proportion of fixed costs to total costs and, as a result, are dependent upon a
steady flow of revenues. In these transactions, DVI Financial Services Inc.
places significant reliance on expected future cash flow projections and the
underlying assumptions about the state of the applicant's business upon which
those projections are made. Determining the validity of financial projections
requires a detailed analysis of the expense levels and their reasonableness, as
well as the projected patient volume for the particular types of equipment or
forms of procedures being used. In each case, DVI Financial Services Inc.
management's detailed knowledge of the industry is critical to understanding the
financial projections and their reasonableness.
TRANSACTION ANALYSIS STANDARDS. DVI Financial Services Inc.
completes an in- depth analysis of all transactions, including a detailed
write-up outlining the proposed
S-20
<PAGE>
transaction's strengths and weaknesses, which support a recommendation to
approve or decline a transaction.
DVI Financial Services Inc. requires a detailed assessment of
financial performance for at least two years plus an interim period for
transactions involving an existing hospital, partnership or corporation. DVI
Financial Services Inc. requires a business plan and a cash flow projection to
determine the capacity of start-ups, individuals, sole proprietorships, and all
physician controlled entities to service their financial obligations. DVI
Financial Services Inc. requires an individual to provide at least two prior
years of tax returns and a current personal financial statement.
DVI Financial Services Inc. will conduct a full analysis of
the demographics of an area, the management team that will operate the center,
any contracts that are in place (such as those with a reputable radiology
group), and the adequacy of capitalization for start-ups or relatively new
operations. For transactions with new entities, DVI Financial Services Inc. also
relies heavily upon market surveys which project patient volumes, reference
checks to verify the reputation of the principals, and an evaluation of the
anticipated composition of the receivables, as well as an evaluation of the
billing and collecting capabilities of the borrower.
The general guidelines used by DVI Financial Services Inc. in
evaluating a transaction are:
o Cash Flow: Measures cash available from operations to service
financial obligations. It must more than adequately meet the
additional debt service requirements of the new financial
obligation as well as existing liabilities. A benchmark of 1.5
times debt service requirements is generally acceptable.
o Leverage: Debt to tangible net worth measures ability to
withstand adversity. Leverage of 5:1 or lower is usually
considered acceptable. This reflects a moderate level of
financial obligations to net worth.
o Current Ratio: Measures the ability of current assets to meet
short-term obligations. A ratio of 1.25 provides an acceptable
measure of liquidity.
S-21
<PAGE>
o Balance Sheet and Income Statement Trends: Recent financial
performance ideally shows an upward trend in performance, but
should at least evidence profitability for the last two years
and the most recent interim period. Nominal losses, with
reasonable explanation, and which do not affect the "going
concern" status of business will be considered, given a
fundamental strength in other balance sheet and income
components and performance measures. Tax returns should
reflect similar income and expense figures as the financial
statements for the fiscal year. Cash flow derived should
support existing short term obligations and new financial
obligations.
o Individual Tax Returns: Should validate stated sources of
income on the personal financial statement and support the
ability to service personal financial obligations. For a sole
proprietor, cash flow should provide an adequate cushion for
living expenses after debt service requirements, including any
proposed financial obligations.
o Hospital Analysis: If a hospital is the lessee or will be the
primary referral for a lessee, a comparative analysis of key
hospital operating ratios and other measures should be
completed. The hospital's occupancy rate, payor mix and
competitive features also should be addressed.
In cases where a transaction does not conform to all of the
underwriting criteria, DVI Financial Services Inc. identifies methods to support
the transaction without compromising credit or quality and risk. These methods
include:
o use of covenants and restrictions which identify performance
goals or limit certain activities which could diminish
financial strength and affect repayment ability;
o requesting additional collateral to support transactions. This
could take the form of cash deposit, letters of credit, other
assets of the principal obligor or third parties (subject to
appraisal), and guaranties; and
o conditioning credit approval on the completion of certain
terms, documentation or other events before formal approval is
granted.
S-22
<PAGE>
APPROVAL PROCESS. Due to the large size of DVI Financial
Services Inc.'s transactions, DVI Financial Services Inc. analyzes and reviews
each transaction on its own merits. Pursuant to DVI Financial Services Inc.
policy, the Director of Credit has approval authority for all transactions up to
$500,000. The Vice President of Credit has approval authority for all
transactions up to $750,000. The Chief Credit Officer -- U.S. has approval
authority up to $1 million. The credit committee, which includes the above
credit managers, the Chief Credit Officer of DVI, Inc. and a member of its board
of directors, has approval authority for all transactions greater than $1
million. If a transaction causes aggregate customer exposure to exceed $3
million, it must receive credit committee approval, regardless of size.
DVI STRATEGIC PARTNER GROUP. The underwriting criteria of DVI
Financial Services Inc.'s DVI Strategic Partner Group, where the equipment cost
is below $200,000, are significantly different from those of the rest of DVI
Financial Services Inc. An applicant completes a simple credit application. The
credit applications are analyzed for approval based upon a combination of the
financial condition of the applicant as well as the credit score of the
applicant, which is obtained from a national credit reporting organization. If
the application is approved and the conditions of approval are met, a signed
purchase order is issued.
The DVI Strategic Partner Group has established specific
credit guidelines for hospital, group practices and sole practitioners. These
guidelines include, but are not restricted to, the following benchmarks for the
applicant to meet:
o has an established business for a minimum of one year to over
two years;
o provides acceptable financial statements, corporate
resolutions and appropriate purchase documents;
o provides personal guarantees under certain circumstances;
o provides proof of medical license; and
o meets a certain minimum TRW credit score.
S-23
<PAGE>
PORTFOLIO MONITORING AND CREDIT COLLECTIONS
Key members of DVI Financial Services Inc.'s credit, sales,
operations and accounting departments meet regularly to discuss the contract
portfolio delinquency report and the status of delinquent obligors. With
guidance from management, the collection and/or sales departments immediately
contact delinquent obligors. Due to the relatively small number of contracts in
DVI Financial Services Inc.'s portfolio, the management of DVI Financial
Services Inc. possesses a high degree of familiarity with virtually the entire
obligor base. The Director of Portfolio Management personally administers a
collection of large-balance delinquent accounts and severely delinquent
accounts. Once it suspects that an obligor may experience problems in meeting
its obligations, DVI Financial Services Inc. acts quickly to identify a new
operator of the equipment in the event that the obligor defaults. Any
repossessions are handled on an individual basis.
The DVI Strategic Partner Group handles collections and other
servicing of contracts which it has originated. Its collection department meets
monthly to review and discuss the status of certain accounts and any trends in
performance. For the accounts that are ten to thirty days past due, the DVI
Strategic Partner Group begins an active collection process. The process is
initiated by telephone contact with the obligor, and a reminder notice is sent
when the contract payment becomes fifteen days past due. When the payments are
thirty-one days past due, the DVI Strategic Partner Group sends a final notice
letter. The DVI Strategic Partner Group sends a demand letter for possession of
the equipment when the payment is sixty-one days past due. Contracts that are
more than ninety-one days past due are included on a watch list which is
reviewed by senior management each month.
DELINQUENCY EXPERIENCE
The following table sets forth information with respect to
delinquencies for the contracts originated or acquired by DVI Financial Services
Inc. These assets are of the same type as those being included in this
securitization. The data is derived from total managed domestic net financed
assets, which consist of all contracts held by DVI Financial Services Inc. on
balance sheet and serviced. The delinquency figures represent the entire
outstanding balances of those delinquent contracts. Total delinquencies for the
fiscal years 1995 through 1998 exclude contracts purchased from Affiliated
Capital on September 30, 1998.
S-24
<PAGE>
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE -- DOMESTIC SERVICING PORTFOLIo
AS OF JUNE 30,
--------------------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------- ---------------------------------- ------------------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL
-------------- ----------------- -------------- ------------------- ------------- ----------------
(In thousands, except for percentage)
<S> <C> <C> <C> <C> <C> <C>
MANAGED NET
FINANCED ASSETS $ 1,262,298 $ 932,006 $ 809,090
31 - 60 DAYS $ 12,208 1.0% $ 15,811 1.7% $ 3,705 0.5%
61 - 90 DAYS 5,288 0.4% 15,012 1.6% 12,133 1.5%
91 - 120 DAYS 7,763 0.6% 8,259 0.9% 1,088 0.1%
121 - 150 DAYS 5,168 0.4% 9,597 1.0% 2,419 0.3%
151 - 180 DAYS 7,492 0.6% 4,079 0.4% 1,715 0.2%
181 + DAYS 25,598 2.0% 15,295 1.6% 12,093 1.5%
TOTAL DELINQUENCIES $ 63,516 5.0% $ 68,053 7.3% $ 33,153 4.1%
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
-----------------------------------------------------------------------------------------
1996 1995
-------------------------------------------- --------------------------------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL
--------------------- ----------------------- -------------------- -----------------------
(In thousands, except for percentage)
<S> <C> <C> <C> <C>
MANAGED NET
FINANCED ASSETS $ 601,543 $ 473,625
31 - 60 DAYS $ 10,352 1.7% $ 12,483 2.6%
61 - 90 DAYS 3,614 0.6% 3,137 0.7%
91 - 120 DAYS 755 0.1% 1,387 0.3%
121 - 150 DAYS 707 0.1% 595 0.1%
151 - 180 DAYS 1,790 0.3% 151 0.0%
181 + DAYS 10,296 1.7% 4,815 1.0%
TOTAL DELINQUENCIES $ 27,514 4.6% $ 22,568 4.8%
</TABLE>
S-25
<PAGE>
LOSS EXPERIENCE
The following table sets forth information with respect to
losses for contracts originated or acquired by DVI Financial Services Inc.,
including those held by DVI Financial Services Inc. on balance sheet and
serviced. These assets are of the same type as those being included in this
securitization. Average managed net financed assets are based on quarterly
period average balances for the entire domestic servicing portfolio.
<TABLE>
<CAPTION>
Loss Experience
---------------
(dollars in thousands)
Year Ending June 30
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Average managed net financed assets...... $ 1,089,031 $ 846,713 $ 704,676 $ 544,023 $ 342,353
Net charge-offs.......................... $ 5,258 $ 1,642 $ 436 $ 1,475 $ 473
Net charge-offs as a percentage of
average managed net financed assets...... 0.48% 0.19% 0.06% 0.27% 0.14%
=========== ========= ========= ========= =========
</TABLE>
The increase in delinquencies in 1998 resulted primarily from
a $20.0 million borrower. At June 30, 1999, this delinquency had been reduced to
$10.7 million and no loss is anticipated on this account. Net charge-offs
increased in the fiscal year ended June 30, 1999 primarily due to a $2.0 million
loss resulting from the bankruptcy filing by Allegheny Health, Education and
Research Foundation and related entities in July 1998. All of the contracts have
been paid or assumed by new parties, and no further losses will be recognized.
The low loss level in 1997 appears to have resulted from normal fluctuations in
annual loss levels for a large ticket equipment finance company rather than from
any factors specific to that year.
DVI Financial Services Inc.'s historical levels of allowances
and delinquencies are not necessarily predictive of future results. Various
factors, including changes in the way obligors are paid for their services,
other developments in the healthcare industry and new technological developments
affecting the resale value of financed equipment, could cause future delinquency
and loss rates to be worse than those experienced historically.
S-26
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ALLOWANCE FOR LOSSES ON RECEIVABLES. Management regularly
estimates potential loan and lease receivable losses. An amount based on this
estimate is set aside on the company's books to be available to absorb credit
losses in our managed asset portfolio. We evaluate the allowance each quarter to
determine that it is adequate to cover possible losses. Our evaluation is based
on a continuing assessment of delinquencies, historical loss experience, asset
valuations, assessment of collateral and strength of guarantors, and legal
options to enforce management changes or sustain legal positions. That
evaluation includes estimates that may be significantly affected by changes in
economic conditions or discrete events adversely affecting specific obligors. We
believe that the allowance is adequate to provide for possible credit losses.
We generally place receivables contracts in a category in
which the company has no further expectation of receiving payments, when they
become greater than 90 days delinquent. At that time we consider the range of
remedies available to mitigate a potential loss. Remedies include the pursuit of
underlying collateral and guarantors (including recourse to dealers and
manufacturers), draws on letters of credit, and protecting our investment by
taking control of a medical facility's operations and replacing the existing
management. Receivables contracts are charged-off when a loss is considered
probable and all reasonable remedies have been pursued. The smaller delinquent
contracts arising from our vendor programs are normally charged off when they
become greater than 120 days delinquent.
THE SERVICER
SERVICING OBLIGATIONS AND PROCEDURES
DVI Financial Services Inc. will be appointed as servicer
under the contribution and servicing agreement to handle billing and collection
of all contracts constituting trust property for the notes. It will do so in the
same manner as it handles billing and collection for contracts which it owns
itself. DVI Financial Services Inc. will service the trust property consistent
with customary practices of other servicers in the medical equipment finance
industry. In performing its duties as servicer, DVI Financial Services Inc. will
act for the benefit of the transferor, the issuer, the trustee and the holders
of the notes, without regard to any relationship
S-27
<PAGE>
which the servicer or any Affiliate of the servicer may otherwise have with an
obligor under a contract. The servicer will always act consistently with the
provisions of the indenture, as amended, and each contract, and will comply with
all applicable requirements of law. Except as allowed by the terms of any
contract following a default under that contract, the servicer will not take any
action which would result in the interference with the obligor's right to quiet
enjoyment of the equipment during the term of the contract.
The contracts contain provisions which require the obligor to
make the scheduled payment of rent or other payments under that contract on a
periodic basis. These payments may be in arrears or in advance. If an obligor
defaults under its contract, the servicer, on behalf of the trustee, can either
repossess and re-lease or sell the related equipment to cover the remaining
unpaid payments under such contract.
Following each monthly determination date for determining
payments on the notes, the servicer will remit a Servicer Advance to the trustee
so that the trustee will have immediately available funds by 11:00 a.m. New York
time on the second business day prior to the next payment date for the notes.
Each Servicer Advance must be sufficient to cover all amounts which were due and
unpaid on any delinquent contract on that determination date. The servicer will
not be obligated to make a Servicer Advance for:
o any defaulted contract;
o any contract that was finally liquidated on or prior to that
determination date; or
o any other contract if the servicer, in its good faith
judgment, believes that that Servicer Advance would be a
Nonrecoverable Advance.
If the servicer determines that any Servicer Advance it has made, or is
contemplating making, would be a Nonrecoverable Advance, the servicer will
deliver to the trustee an officer's certificate stating the basis for that
determination. An officer's certificate must be signed by the Chairman, the
President, a Vice President, the Treasurer, an Assistant Treasurer, the
Secretary, or an Assistant Secretary of the relevant entity.
The servicer, for the benefit of the noteholders and the
issuer, will be responsible for:
S-28
<PAGE>
o managing, servicing and administering the trust property;
o enforcing and making collections on the contracts; and
o enforcing the rights of the noteholders and issuer in any item
of equipment.
The servicer will be responsible, among other duties, for:
o invoicing each obligor for all contract payments required to
be paid by it under the contracts, in the same manner as the
servicer does with respect to similar contracts owned by it;
o maintaining for each contract, each item of equipment, each
payment and each obligor, complete and accurate records in the
same manner and to the same extent as the servicer does with
respect to similar contracts held for its own account;
o on behalf of DVI Receivables Corp. X, the issuer and the
trustee, seeing to it that all tax returns for sales, use,
personal property and other taxes, but not corporate income
tax returns, are signed and filed; and
o on behalf of DVI Receivables Corp. X, the issuer and the
trustee, seeing to it that there are signed and filed any and
all reports or licensing applications required to be filed in
any jurisdiction for any contract or any item of equipment and
UCC financing statements necessary to perfect, or to maintain
the perfection of, the interest of the trustee in the trust
property.
The terms of a contract may be modified or adjusted by the
servicer at the request of a lessee or a lessor. These modifications or
adjustments may include changes to the components of leased equipment or
corrections of information that occur when a contract enters the servicer's
administrative servicing system. These modifications and adjustments may result
in changes to the amount of monthly payment under that contract, the monthly
payment date of the contract or changes to the equipment. However, none of these
changes will:
o extend the stated maturity date of the notes;
o extend by more than 24 months the scheduled termination date
of the contract;
S-29
<PAGE>
o materially shorten or lengthen the weighted average life of
any class of notes;
o be done for contracts representing more than twenty percent of
the Initial Aggregate Discounted Contract Balance of the
contracts;
o be done for any contract that is ninety days or more
delinquent;
o decrease the Discounted Contract Balance of any contract which
is modified in this way, unless the issuer deposits an amount
equal to that decrease in the collection account;
o be inconsistent with the servicing standards set forth in
Section 4.01 of the contribution and servicing agreement;
o reduce or adversely affect the obligor's obligation to
maintain, service, insure and care for the equipment or permit
the alteration of any item of equipment in any way which could
adversely affect its present or future value; or
o otherwise adversely affect, individually or in the aggregate,
the interests of any of DVI Receivables Corp. X, the issuer,
the trustee or the noteholders.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
As compensation to the servicer for its servicing of the
contracts, the servicer will be entitled to receive on each payment date a
servicing fee from amounts on deposit in the collection account. This fee will
equal the product of (i) one-twelfth, (ii) .45% and (iii) the Aggregate
Discounted Contract Balance of all contracts at the beginning of the preceding
collection period. The collection period is, for a particular payment date, the
entire calendar month immediately preceding that payment date. The servicing
fee, together with any portion of the servicing fee that remains unpaid from
prior payment dates, will be paid prior to distribution of any amounts to the
noteholders.
In addition, the servicer will be entitled to receive
additional compensation in the form of servicing changes, which are:
S-30
<PAGE>
o any late payment fees,
o the penalty portion of interest paid on past due amounts,
o origination fees,
o documentation fees,
o other administrative fees or similar charges allowed by
applicable law for the contracts, and
o other similar fees paid by the obligors.
The servicer also is entitled to receive all earnings from any
eligible investments in the collection account. The servicer will allocate
payments by or on behalf of obligors between amounts then payable as scheduled
payments, late fees and other charges in accordance with the servicer's normal
practices and procedures.
The servicing fee will compensate the servicer for performing
the functions of a third party servicer of similar types of contracts, including
collecting and posting all payments, responding to inquiries of obligors on the
contracts, investigating delinquencies, sending payment coupons to obligors,
reporting tax information to obligors, paying costs of collection and
disposition of defaults and policing the collateral for that contract. The
servicing fee also will compensate the servicer for administering the contracts,
accounting for collections and furnishing statements to the trustee. The
servicing fee also will reimburse the servicer for taxes, accounting fees,
outside auditor fees, data processing costs and other costs incurred in
connection with administering the contracts.
The servicer will bear all costs of servicing the contracts
under the contribution and servicing agreement. The servicer will be entitled to
retain out of amounts recovered by the servicer its actual out-of-pocket
expenses paid to third parties reasonably incurred. These retained amounts will
only come from amounts actually recovered for any contract or the related
equipment. In addition, the servicer is entitled to receive on each payment date
any amounts previously paid by it as Servicer Advances, where the servicer has
not been reimbursed and either the contract has become a defaulted contract or
the amount has been determined to be a Nonrecoverable Advance.
S-31
<PAGE>
EVIDENCE OF COMPLIANCE BY SERVICER
The contribution and servicing agreement requires that with
each set of financial statements delivered under the contribution and servicing
agreement, the servicer will deliver an officer's certificate stating:
o that the officer signing the certificate has reviewed the
activities of the servicer during the period covered by those
financial statements;
o that the review has not disclosed the existence of any
servicer event of default or, if the servicer defaults under
certain sections of the contribution and servicing agreement,
describing its nature and what action the servicer has taken
and is taking to cure the event; and
o that the officer has concluded that during that period the
servicer has serviced the contracts in compliance with the
required procedures. If not, the officer will state what were
the instances of noncompliance.
OTHER SERVICING PROCEDURES
The third business day immediately preceding each payment date
is called a determination date. On each determination date, the servicer shall
deliver a written report, called the monthly servicer report, to each rating
agency and to the trustee.
The issuer, trustee or any noteholder is entitled to notify
the servicer that an obligor is in default under its contract. If it receives
that notice, or if the servicer otherwise learns that the obligor is in default
under its contract, the servicer will take action as is customary to cause the
obligor to cure its default. If the default can not be cured, the servicer will
use its best efforts to sell or re-lease any equipment under a defaulted
contract or upon the expiration of any contract under which the equipment is
financed. It will do so in a timely manner and consistent with the servicer's
procedures for equipment owned by it, in order to maximize the net proceeds from
that equipment, to the extent possible under then prevailing market conditions.
The servicer will act in the same way as it does for its own contracts and
consistent with the customary practices of servicers in the medical equipment
finance industry.
S-32
<PAGE>
The Servicer will grant to the trustee the power in the event
an Event of Default occurs, to act as its attorney-in-fact, to file Uniform
Commercial Code financing statements in the appropriate offices showing the
transfer of the contracts to the issuer and to do any and all other acts as may
be necessary or appropriate. The servicer will promptly execute any document or
instrument deemed necessary by the issuer or the trustee to effect or to
evidence this power of attorney. All costs associated with such filings or
instructions will be paid by the contributor.
RESIGNATION/REMOVAL OF THE SERVICER
The contribution and servicing agreement will provide that the
servicer may not resign from its obligations and duties as servicer, except in
connection with an assignment permitted by the contribution and servicing
agreement or upon a determination that the servicer's performance of its duties
is no longer permissible under applicable law. No resignation will become
effective until the trustee or a successor servicer has assumed the servicer's
servicing obligations and duties under the contribution and servicing agreement.
The servicer can only be removed if there has occurred a servicer event of
default. See "DESCRIPTION OF THE NOTES AND PRINCIPAL TRANSACTION DOCUMENTS--
SERVICER EVENTS OF DEFAULT" at page S-81 of this prospectus supplement and
"DESCRIPTION OF THE NOTES AND PRINCIPAL TRANSACTION DOCUMENTS -- TERMINATIOn OF
THE SERVICER" at page S-83 of this prospectus supplement.
VOLUNTARY TERMINATION OF SERVICER DUTIES
At the option of the servicer, on any payment date on which
the Pool A Aggregate Discounted Contract Balance is less than 10% of the Pool A
Aggregate Discounted Contract Balance, and less than 20% of the Pool B Aggregate
Discounted Contract Balance each as of the closing date, the servicer can have
the Repurchase Amount deposited into the collection account for each remaining
contract. In this case, the servicer will have purchased all remaining trust
property and the obligations and responsibilities of the servicer shall
terminate.
The servicer has the same option to terminate its obligations
and responsibilities for the contracts in Pool B, on any payment date on which
the Pool B Aggregate Discounted Contract Balance is less than 20% of the Pool B
Aggregate Discounted Contract Balance as of the closing date. However, the
servicer must cause the Repurchase Amount to be deposited into the collection
account for each remaining contract in Pool B and the servicer will not have
S-33
<PAGE>
purchased all remaining trust property.
YEAR 2000 COMPUTER PROGRAMMING COMPLIANCE
Based on its discussions with current systems vendors, the
servicer believes that its software applications and operational programs will
properly recognize calendar dates beginning in the year 2000. In addition, the
servicer is discussing with its customers and suppliers the possibility of any
interface difficulties relating to the year 2000 which may affect the servicer.
To date, no significant concerns have been identified, but no one can be sure
that any year 2000-related operating problems or expenses will not arise with
the servicer's computer systems and the software of its vendors, customers and
suppliers.
DVI RECEIVABLES CORP. VIII
DVI Receivables Corp. VIII is a limited purpose Delaware
corporation formed in December, 1998. DVI Receivables Corp. VIII is the sole
owner of all of the membership units and sole member and managing member of the
Issuer.
DVI Receivables Corp. VIII is also the sole owner of all of
the membership units and sole member and managing member of DVI Receivables
VIII, L.L.C., a limited purpose, limited liability company formed in Delaware.
In July 1999, DVI Receivables VIII, L.L.C. issued its Asset-Backed Series 1999-1
Notes in five classes, four of which were offered in a public sale and the fifth
offered in reliance of the Rule 144A exemption permitted under the Securities
Act of 1933, as amended.
All of the outstanding capital stock of DVI Receivables Corp.
VIII is owned by DVI Financial Services Inc. DVI Receivables Corp. VIII's
principal executive office is located at 500 Hyde Park, Doylestown,
Pennsylvania, 18901. Its telephone number is (215) 345-6600.
DVI RECEIVABLES CORP. X
DVI Receivables Corp. X is a limited purpose Delaware
corporation formed in June, 1999. All of the outstanding capital stock of DVI
Receivables Corp. X is owned by DVI Financial Services Inc. DVI Receivables
Corp. X's principal executive office is located at 500
S-34
<PAGE>
Hyde Park, Doylestown, Pennsylvania, 18901. Its telephone number is (215)
345-6600. Counsel for the underwriters will render its opinion that if DVI
Financial Services Inc. were to be the subject of bankruptcy proceedings, the
possibility that a court would order the consolidation of DVI Receivables Corp.
X with DVI Financial Services Inc. is extremely remote.
THE ISSUER
The issuer, DVI Receivables X, L.L.C., is a limited purpose
limited liability company organized under the laws of the State of Delaware in
June, 1999. DVI Receivables Corp. VIII is the sole member of the issuer.
The issuer will not engage in any business or investment
activities other than acquiring, owning, financing, transferring, receiving or
pledging the assets transferred to the issuer and related activities described
in its organizational documents. The issuer has been organized so that, to the
extent possible, neither it nor the trust property will be involved in any
bankruptcy proceedings. For example:
o the managing member of the issuer, DVI Receivables
Corp. VIII, has at least two independent directors
who are not affiliated with DVI Financial Services
Inc. The independent directors are charged with
acting in the best interests of shareholders and
creditors of DVI Receivables Corp. VIII, and the
unanimous vote of all directors, including the
independent directors, is necessary before DVI
Receivables Corp. VIII can commence voluntary
proceedings in a bankruptcy action as to either
itself or the Issuer, or direct the issuer to
commence any voluntary bankruptcy proceedings;
o DVI Receivables Corp. VIII, the transferor, the
servicer and the trustee all will agree not to file,
or join in the filing of, any legal action to force
DVI Receivables Corp. VIII, the transferor or the
issuer into bankruptcy proceedings; and
o counsel for the underwriters will render its opinion
that if DVI Financial Services Inc. were to be the
subject of bankruptcy proceedings, the possibility
that a court would order the consolidation of DVI
Receivables
S-35
<PAGE>
X, L.L.C. with DVI Financial Services Inc. is
extremely remote.
The issuer owns DVI Financial Services Inc.'s rights under any property
insurance policies relating to the equipment financed under the contracts. The
issuer owns DVI Receivables Corp. X's rights and remedies under the contribution
and servicing agreement.
THE TRUSTEE
The trustee, U.S. Bank Trust National Association, has its
principal corporate trust office at 180 Fifth Street, St. Paul, Minnesota 55101.
The trustee's liability in connection with the issuance and
sale of the notes is limited solely to the express obligations of the trustee
listed in the indenture.
No resignation or removal of the trustee and no appointment of
a successor trustee will become effective until the successor trustee has
accepted appointment. The trustee may resign at any time by giving written
notice of resignation to the issuer and the noteholders. Any successor trustee
must meet the financial and other standards for qualifying as a successor
trustee under the indenture. The trustee may be removed at any time by written
notice from the holders of notes holding the majority of the Voting Rights. The
issuer may remove the trustee under the limited circumstances set forth in
Section 7.08 of the indenture.
If the trustee resigns or is removed, the issuer, with the
consent of the holders of notes of the majority of the Voting Rights, shall
promptly appoint a successor trustee. If a successor trustee has not been
appointed and accepted appointment within 30 days after notice of resignation or
removal, the trustee or any noteholder may petition any court of competent
jurisdiction for the appointment of a successor trustee.
THE CONTRACTS
The contracts consist of non-cancelable finance leases, fair
market value leases, leveraged lease loans, lease receivable purchases and
secured equipment notes. The obligors under the contracts are primarily
hospitals, non-hospital medical facilities, physician groups and physicians,
businesses, institutions, and professionals who utilize the equipment under
those
S-36
<PAGE>
contracts for commercial use throughout the United States. No Affiliates of DVI
Financial Services Inc. are or will be obligors under the contracts. The
equipment is principally non-invasive medical diagnostic and therapeutic
equipment. It is described on the table on page S-47 of this prospectus
supplement. The issuer will acquire most of the contracts, called the initial
contracts, on the closing date. On the closing date, the notes will be secured
by the initial contracts, the other trust property and the amounts on deposit in
the reserve account.
The initial contracts will be purchased by the issuer from DVI
Receivables Corp. X under an amended and restated subsequent contract transfer
agreement, dated as of June 1, 1999, between the issuer and DVI Receivables
Corp. X. DVI Receivables Corp. X will have acquired the initial contracts from
DVI Financial Services Inc. under an amended and restated contribution and
servicing agreement, dated as of June 1, 1999, between DVI Financial Services
Inc. and DVI Receivables Corp. X. The initial contracts will be selected from
all contracts owned by DVI Financial Services Inc. based on the selection
criteria for Eligible Contracts specified in the contribution and servicing
agreement and described in the glossary to this prospectus supplement.
DVI Financial Services Inc. believes that the contracts are
representative of all contracts owned by DVI Financial Services Inc. The
contracts have been selected by DVI Financial Services Inc. and will meet all
the criteria specified in this prospectus supplement.
DVI Financial Services Inc. shall deliver to the trustee the
original counterpart of each contract as well as copies of documents and
instruments relating to each contract and evidencing the security interest in
the equipment securing each contract. All of these counterparts, documents and
instruments are called the contract file. Each of DVI Receivables Corp. X and
the issuer will cause its accounting records to be clearly and unambiguously
marked to show that the contract has been transferred by DVI Financial Services
Inc. to DVI Receivables Corp. X, by DVI Receivables Corp. X to the issuer and
pledged by the issuer to the trustee for the benefit of the noteholders pursuant
to the indenture.
Some of the contracts were originated by third parties known
as brokers and acquired by DVI Financial Services Inc. through purchases in its
usual course of business from various entities to those entities. These
purchases are called brokered transactions. Contracts acquired by DVI Financial
Services Inc. in brokered transactions are purchased by it using the
S-37
<PAGE>
same credit and equipment criteria that DVI Financial Services Inc. applies to
contracts which it writes in its own name. Contracts acquired from brokers are
serviced by DVI Financial Services Inc. See "DVI FINANCIAL SERVICES INC. --
UNDERWRITING CRITERIA" at page S-20 of this prospectus supplement and "DVI
FINANCIAL SERVICES INC.'S CREDIT UNDERWRITING AND REVIEW PROCESS" at page 6 of
the prospectus, for a description of DVI Financial Services Inc.'s underwriting
and credit and collection policies. It is the policy of DVI Financial Services
Inc. to ensure that UCC financing statements covering the underlying equipment
for contracts acquired by DVI Financial Services Inc. in brokered transactions
are filed against the applicable obligors to the same extent as those financing
statements would be filed if the contracts were originated by DVI Financial
Services Inc. DVI Financial Services Inc. also arranges for those financing
statements to be assigned to DVI Financial Services Inc. In addition, DVI
Financial Services Inc. files financing statements against the applicable
broker, to protect its interest in the contracts and the other assets
transferred to it in brokered transactions.
The contracts, other than the leveraged leased loans, and the
equipment leases pledged as collateral for leveraged leased loans are
exclusively on a "net basis", that is, the obligor is responsible for all
operating expenses, including taxes and insurance premiums; except that some
equipment leases pledged as collateral for leveraged leased loans may require
the lessor to maintain and service the equipment. All obligors are obligated to:
o remit all contract payments due;
o operate the equipment in compliance with the manufacturers'
instructions;
o except for the contracts described in the immediately
preceding sentence, maintain and service the equipment; and
o insure the equipment against casualty losses, liability for
bodily injury and against property damage.
Contract documentation also typically specifies that the obligor is responsible
for compliance with all applicable laws and regulations applicable to operation
of the equipment. Although in most cases the contracts provide that the obligor
must maintain the equipment, in some transactions the obligor's rental or debt
service payments include fees for supplies and other
S-38
<PAGE>
transaction costs. These fees are collected by DVI Financial Services Inc. and
remitted to the appropriate broker or service provider. These fees, as well as
any other amounts included in an obligor's payments for which DVI Financial
Services Inc. is not the ultimate beneficiary, such as property taxes, sales
taxes, manufacturer's maintenance costs, insurance premiums and supplies and
transaction costs, do not constitute part of the trust property. Also not
included in the trust property are any purchase option payments and any rights
of DVI Financial Services Inc. in any accounts receivable of the obligor which
might be pledged to DVI Financial Services Inc. as collateral for other loans
not part of the trust property.
The contracts, other than the leveraged leased loans, and the
equipment leases pledged as collateral for a leveraged lease loan, in most cases
do not provide for a right of the obligor to prepay. However, under the
contribution and servicing agreement, the servicer is permitted to allow
prepayment, in part or in full, in an amount not less than the Prepayment Amount
or Partial Prepayment Amount, as applicable. In addition, in the event that an
obligor requests an upgrade or trade-in of equipment, the servicer, after paying
the Prepayment Amount or substituting an Eligible Contract, may remove the
equipment and related contract from the trust property. The servicer
historically has permitted obligors to terminate contracts early either in
connection with the execution of a new contract of replacement equipment, or
upon payment of a negotiated payoff amount, or both. Any Prepayment Amounts or
Partial Prepayment Amounts paid by the servicer shall be deposited into the
collection account and shall be applied as a prepayment of the notes.
The servicer may only permit a full prepayment if the obligor
pays an amount at least equal to the sum of:
(1) the discounted principal balance of the contract as of the
first day of the calendar month immediately preceding such
prepayment, together with one month of interest thereon at the
actual Discount Rate of 7.79407%;
(2) any unreimbursed amounts that the servicer advanced to that
obligor for that contract as permitted in the contribution and
servicing agreement, as described in"THE CONTRACTS" on page
S-36 and "THE SERVICER: on page S-29 of this prospectus
supplement; and
S-39
<PAGE>
(3) any payments due and outstanding under the contract that
constitute trust property but were not the subject of a
Servicer Advance.
The servicer may only permit an obligor to partially prepay a contract
if the obligor pays an amount equal to the difference between the following (1)
and (2).
(1) the difference between (A) the discounted principal balance of
the contract on the first day of the collection period before
the prepayment is made together with one month's interest
thereon at the discount rate and (B) the discounted principal
balance of the contract after the prepayment is made; less
(2) an amount equal to any of the contract payments actually
received by the servicer with respect to the prepaid portion
of the contract for the current calendar month on or before
the date of the partial prepayment.
The servicer will make reasonable efforts to collect all
payments under the contracts. It will use the same collection procedures as the
servicer follows for the particular type of contract it services for itself and
others. Some of these other arrangements may result in the servicer acquiring a
defaulted contract. The servicer may sell the equipment securing a defaulted
contract at a public or private sale, or take any other action permitted by
applicable law.
A contract is a defaulted contract when either:
o any contract payment or portion of contract payment is
delinquent for more than 180 days as of the last day of the
calendar month;
o the servicer has not made a Servicer Advance to cover any
delinquent amounts, on the grounds that the advance would not
be recoverable;
o the contract has been rejected in a bankruptcy proceeding
involving the obligor under that contract; or
o the lessor for any leveraged lease loan has rejected the
related lease in a bankruptcy proceeding involving that
lessor.
S-40
<PAGE>
For purposes of determining the length of time that a contract
is delinquent, the delinquency of a contract payment is measured using the
contract payments required to be made during the term of the contract as it was
written on the date that the contract became part of the trust property. This
does not take into account any modifications, waivers or extensions granted by
the servicer after that date, although modifications permitted under Section
4.02 of the contribution and servicing agreement will be taken into account.
In contrast with a defaulted contract, a delinquent contract
is, as of any determination date, any contract under which the obligor has not
paid all contract payments which were due at the end of the prior calendar
month. However, a delinquent contract does not include a contract which became a
defaulted contract prior to that determination date.
STATISTICAL INFORMATION FOR THE CONTRACTS
The statistical information presented in this prospectus
supplement concerning the contracts is referred to as the statistical contracts.
The information in this prospectus supplement regarding the statistical
contracts has been calculated using an assumed Discount Rate of 8.00% per annum.
The Aggregate Discounted Contract Balance of the initial contracts as of the
cut-off date is $273,939,121.58 using the assumed Discount Rate. The composition
of the initial contracts as of the cut-off date using the actual Discount Rate
of 7.79407% will vary somewhat from the composition of the statistical contracts
as presented in this prospectus supplement. DVI Financial Services Inc. does not
expect that any resulting difference will be material. We did not include
purchase option payments or miscellaneous payments in our calculations of
Discounted Contract Balances. For the purposes of future calculations, except
when calculating a repurchase price of a contract, we assumed that the
Discounted Contract Balance of any defaulted contract is zero. In addition, some
statistical contracts included in the statistical information included in this
prospectus supplement may not meet the eligibility requirements as of the
cut-off date and will be removed from the initial contracts. Also, there may be
some initial contracts that are not included as statistical contracts. As a
result, the composition as of the closing date for the final pool of initial
contracts will vary somewhat from the composition as presented in this
prospectus supplement. DVI Financial Services Inc. does not expect that any
resulting variance will be material.
S-41
<PAGE>
Detailed information for the statistical contracts is given
below. References in this prospectus supplement to percentages refer in each
case to the percentage of the Aggregate Discounted Contract Balance calculated
based on the assumed Discount Rate of the statistical contracts as of the
cut-off date. As of the cut-off date, the statistical contracts had remaining
terms to maturity of three to eighty-six months. The final scheduled payment
date of the statistical contract with the latest maturity will be in November,
2006. As of the cut-off date, the Discounted Contract Balances of the
statistical contracts range from $1,222.06 to $4,810,917.90. No more than 2.43%
of the Aggregate Discounted Contract Balance of the statistical contracts is
attributable to any one obligor. The average Discounted Contract Balance of the
statistical contracts is $159,824.46.
Information regarding the statistical contracts is given in
the tables below. Figures may not add up exactly to the stated totals because of
rounding. All information has been calculated on the basis of the assumed
Discount Rate.
The statistical information in this prospectus supplement does
not reflect any information regarding any contracts that are included in the
trust property but were not included in the statistical contracts. Although the
addition of these contracts may change relative data given in the tables below,
all initial contracts must satisfy particular conditions, including that they
are Eligible Contracts. See "THE CONTRACTS--SUBSTITUTE CONTRACTS" at page S-54
of this prospectus supplement.
Any references in the tables below to
o "Number of contracts" treat separate equipment schedules to
the same master contract as separate contracts;
o "Original Equipment Cost" means, with respect to contracts
acquired by DVI Financial Services Inc. from others, the
amount recorded on DVI Financial Services Inc.'s records as
paid by DVI Financial Services Inc. to acquire that contract
and the broker's interest in the related equipment; and
o "Discounted Contract Balance" means the present value of the
statistical contracts, calculated based on an assumed Discount
Rate of 8.00%. We believe
S-42
<PAGE>
that the use of the assumed Discount Rate does not materially
alter the resulting information in a way that would mislead
prospective noteholders.
S-43
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY EQUIPMENT LOCATION
Percentage Percentage
Percentage of Aggregate of Aggregate
of Aggregate Discounted Discounted Original Original
Number of Number of Contract Contract Equipment Equipment
Equipment Location Contracts Contracts Balance Balance Cost Cost
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alabama................... 26 1.52% $2,471,122.73 0.90% $2,524,713.81 0.94%
Alaska.................... 3 0.18 346,381.08 0.13 316,718.00 0.12
Arizona................... 45 2.63 8,450,282.51 3.08 7,985,253.05 2.99
Arkansas.................. 2 0.12 78,081.04 0.03 82,126.49 0.03
California................ 226 13.19 29,766,771.64 10.87 30,483,853.10 11.40
Colorado.................. 24 1.40 2,599,064.68 0.95 2,597,866.80 0.97
Connecticut............... 27 1.58 2,514,415.18 0.92 2,428,844.14 0.91
Delaware.................. 2 0.12 2,229,554.69 0.81 2,302,956.12 0.86
District of Columbia...... 4 0.23 137,964.75 0.05 136,912.32 0.05
Florida................... 153 8.93 28,571,320.83 10.43 27,675,443.46 10.35
Georgia................... 55 3.21 12,308,674.78 4.49 11,773,402.32 4.40
Hawaii.................... 2 0.12 31,369.35 0.01 32,539.50 0.01
Idaho..................... 3 0.18 87,144.10 0.03 85,069.00 0.03
Illinois.................. 62 3.62 12,560,620.25 4.59 11,935,781.50 4.46
Indiana................... 29 1.69 3,125,553.91 1.14 2,994,595.78 1.12
Iowa...................... 6 0.35 430,134.19 0.16 406,280.25 0.15
Kansas.................... 15 0.88 797,589.72 0.29 788,610.27 0.29
Kentucky.................. 14 0.82 1,965,247.40 0.72 1,849,950.79 0.69
Louisiana................. 10 0.58 239,720.61 0.09 247,707.21 0.09
Maine..................... 7 0.41 2,488,820.78 0.91 2,313,993.32 0.87
Maryland.................. 34 1.98 6,275,706.15 2.29 6,490,359.58 2.43
Massachusetts............. 43 2.51 6,002,127.01 2.19 5,758,977.54 2.15
Michigan.................. 58 3.38 1,352,278.89 0.49 1,407,290.71 0.53
Minnesota................. 5 0.29 1,594,189.41 0.58 1,584,412.25 0.59
Mississippi............... 5 0.29 60,236.52 0.02 56,359.50 0.02
Missouri.................. 39 2.28 4,234,888.22 1.55 4,029,102.75 1.51
Montana................... 1 0.06 10,256.36 0.00 9,489.30 0.00
Nebraska.................. 7 0.41 1,463,363.39 0.53 1,428,326.71 0.53
Nevada.................... 16 0.93 295,843.90 0.11 305,723.57 0.11
New Hampshire............. 7 0.41 96,647.33 0.04 102,767.85 0.04
New Jersey................ 83 4.84 17,690,216.68 6.46 17,204,777.58 6.43
New Mexico................ 7 0.41 89,545.25 0.03 94,462.37 0.04
New York.................. 212 12.37 40,701,273.95 14.86 39,127,215.25 14.63
</TABLE>
S-44
<PAGE>
<TABLE>
<CAPTION>
Percentage Percentage
Percentage of Aggregate of Aggregate
of Aggregate Discounted Discounted Original Original
Number of Number of Contract Contract Equipment Equipment
Equipment Location Contracts Contracts Balance Balance Cost Cost
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
North Carolina............ 31 1.81% $3,796,803.19 1.39% $3,670,696.97 1.37%
North Dakota.............. 1 0.06 72,571.64 0.03 71,207.95 0.03
Ohio...................... 37 2.16 6,070,863.87 2.22 6,160,676.15 2.30
Oklahoma.................. 17 0.99 1,674,448.73 0.61 1,598,294.77 0.60
Oregon.................... 10 0.58 1,225,042.74 0.45 1,136,537.25 0.42
Pennsylvania.............. 110 6.42 11,466,317.98 4.19 11,304,905.72 4.23
Puerto Rico............... 1 0.06 343,557.26 0.13 332,864.00 0.12
Rhode Island.............. 2 0.12 27,121.69 0.01 27,638.11 0.01
South Carolina............ 20 1.17 2,810,445.64 1.03 2,658,629.73 0.99
South Dakota.............. 1 0.06 159,071.53 0.06 155,723.48 0.06
Tennessee................. 24 1.40 3,405,076.35 1.24 3,324,324.98 1.24
Texas..................... 125 7.29 43,394,314.15 15.84 41,634,967.84 15.57
Utah...................... 13 0.76 748,747.11 0.27 711,074.06 0.27
Vermont................... 1 0.06 7,952.86 0.00 8,784.50 0.00
Virginia.................. 49 2.86 2,055,361.83 0.75 2,096,446.82 0.78
Washington................ 21 1.23 747,733.53 0.27 802,853.35 0.30
West Virginia............. 6 0.35 110,740.50 0.04 113,093.06 0.04
Wisconsin................. 12 0.70 4,739,448.51 1.73 5,100,221.16 1.91
Wyoming................... 1 0.06 17,095.14 0.01 15,655.50 0.01
--------- --------- ------------- --------- ------------- ---------
Total..................... 1,714 100.00% $273,939,121.58 100.00% $267,486,477.59 100.00%
--------- --------- ------------- --------- ------------- ---------
--------- --------- ------------- --------- ------------- ---------
</TABLE>
- ---------
Based upon equipment addresses as reflected on the Servicer's records.
S-45
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY REMAINING CONTRACT TERM
Percentage Percentage
Percentage of Aggregate of Aggregate
Range of of Aggregate Discounted Discounted Original Original
Remaining Terms Number of Number of Contract Contract Equipment Equipment
(in months) Contracts Contracts Balance Balance Cost Cost
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 - 12................... 3 0.18% $ 14,495.99 0.01% $ 28,739.30 0.01%
13 - 24................... 78 4.55 2,042,708.01 0.75 2,426,910.76 0.91
25 - 36................... 772 45.04 19,389,179.35 7.08 20,957,690.90 7.84
37 - 48................... 211 12.31 19,127,064.11 6.98 19,350,807.39 7.23
49 - 60................... 500 29.17 111,572,960.51 40.73 110,004,890.58 41.13
61 - 72................... 137 7.99 100,317,423.76 36.62 94,108,342.40 35.18
73>=...................... 13 0.76 21,475,289.85 7.84 20,609,096.26 7.70
--------- --------- --------------- --------- ------------- ---------
Total..................... 1,714 100.00% $273,939,121.58 100.00% $267,486,477.59 100.00%
--------- --------- --------------- --------- ------------- ---------
--------- --------- --------------- --------- ------------- ---------
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL CONTRACT POOL BY ORIGINAL TERM
Percentage Percentage
Percentage of Aggregate of Aggregate
Range of of Aggregate Discounted Discounted Original Original
Original Terms Number of Number of Contract Contract Equipment Equipment
(in months) Contracts Contracts Balance Balance Cost Cost
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1 - 12................... 1 0.06% $ 9,755.53 0.00% $ 11,750.00 0.00%
13 - 24................... 54 3.15 1,709,259.11 0.62 1,895,546.86 0.71
25 - 36................... 332 19.37 11,765,972.93 4.30 12,904,953.97 4.82
37 - 48................... 589 34.36 22,251,013.03 8.12 23,031,433.48 8.61
49 - 60................... 499 29.11 78,191,116.41 28.54 76,944,053.18 28.77
61 - 72................... 220 12.84 131,273,045.84 47.92 124,993,233.02 46.73
73>=...................... 19 1.11 28,738,958.73 10.49 27,705,507.08 10.36
--------- --------- --------------- --------- -------------- ---------
Total..................... 1,714 100.00% $273,939,121.58 100.00% $267,486,477.59 100.00%
--------- --------- --------------- --------- -------------- ---------
--------- --------- --------------- --------- -------------- ---------
</TABLE>
S-46
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY TYPE OF EQUIPMENT
Percentage Percentage
Percentage of Aggregate of Aggregate
of Aggregate Discounted Discounted Original Original
Number of Number of Contract Contract Equipment Equipment
Equipment Type Contracts Contracts Balance Balance Cost Cost
- --------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Computer and Peripherals... 39 2.28% $ 9,027,459.15 3.30% $ 9,090,098.88 3.40%
Computerized Tomography.... 13 0.76 9,171,520.01 3.35 8,830,316.97 3.30
Dialysis................... 1 0.06 33,005.72 0.01 33,234.50 0.01
Facilities................. 152 8.87 17,605,912.57 6.43 17,173,325.33 6.42
Imaging System............. 35 2.04 5,459,758.25 1.99 5,652,127.83 2.11
Laboratory................. 25 1.46 613,162.17 0.22 620,041.50 0.23
Magnetic Resonance
Imaging................... 108 6.30 107,520,605.23 39.25 104,125,838.54 38.93
Mammography................ 12 0.70 1,855,793.45 0.68 1,819,697.52 0.68
Medical Devices............ 49 2.86 3,761,097.92 1.37 3,565,877.52 1.33
Medical Equipment.......... 909 53.03 71,067,291.38 25.94 70,602,039.42 26.39
Medical Vehicles........... 26 1.52 954,380.84 0.35 972,858.28 0.36
Optometry.................. 9 0.53 5,509,354.72 2.01 5,168,984.00 1.93
Patient Monitoring......... 18 1.05 3,745,735.09 1.37 3,737,565.09 1.40
Pysical Therapy........... 38 2.22 873,329.62 0.32 840,393.13 0.31
Radiation Therapy.......... 13 0.76 9,388,747.49 3.43 8,927,082.10 3.34
Radiology.................. 7 0.41 458,545.60 0.17 445,204.45 0.17
Surgical Equipment......... 229 13.36 21,040,387.51 7.68 20,038,757.05 7.49
Telecommunication.......... 10 0.58 2,210,226.39 0.81 2,255,558.30 0.84
Ultrasound................. 12 0.70 2,149,293.29 0.78 2,131,850.35 0.80
Urology.................... 1 0.06 811,095.15 0.30 746,090.40 0.28
X-Ray...................... 7 0.41 595,628.31 0.22 577,402.81 0.22
Other...................... 1 0.06 86,791.73 0.03 132,133.62 0.05
--------- --------- --------------- --------- ------------- ---------
Total...................... 1,714 100.00% $273,939,121.58 100.00% $267,486,477.59 100.00%
--------- --------- --------------- --------- ------------- ---------
--------- --------- --------------- --------- ------------- ---------
</TABLE>
By way of explanation for some of the equipment types above:
o Magnetic resonance imaging equipment provides high resolution images of
soft tissues and is particularly useful for diagnosis of neurological
disorders of the spine, head and neck that would otherwise require risky
exploratory surgeries. More recently, MRI systems have become widely
known for the diagnosis of musculoskeletal injuries, most notably, knee
and shoulder problems related to sports injuries. MRI is based on the
principle that body tissues behave differently in response to the
application of strong but harmless magnetic fields which produce
differentiated
S-47
<PAGE>
and contrasting images of healthy versus diseased organs and tissues.
MRI systems range in selling price from $750,000 to $2,200,000.
o Medical equipment represents all equipment located in a medical facility
or laboratory including, but not limited to, hyperbaric chambers, IV
pumps, teleradiology/telecardiology systems, blood gas analyzers,
endoscopy systems, and medical beds.
o Surgical equipment is patient treatment equipment used in surgical
procedures. Prices range from $5,000 to $1,000,000.
o Facilities are primarily specific improvements used to house MRI,
computerized tomography and Radiation Therapy units. The prices range
from $50,000 to $500,000.
o Radiation therapy equipment includes linear accelerators, radiation
therapy simulators and planning systems. These are used to provide
radiation for the treatment of patients diagnosed with cancer. Prices
range from $100,000 to $1,500,000.
o Computers and peripherals are hardware and software used in practice
management, accounting, billing, patient management and research and
development within medical facilities. The cost of the computer systems
range from $5,000 to $2,000,000.
o Imaging systems, excluding MRIs and computerized tomography systems, are
nuclear medicine systems that generate metabolic or functional images to
determine whether organs or tissues function properly. Images are
generated through the use of short-lived radioactive isotopes which are
ingested by or injected into patients to study metabolic functions. As
the isotopes decay, they emit small doses of radioactivity which are
detected by the nuclear medicine camera to produce two-dimensional
images. These systems range in selling price from $50,000 to $500,000.
o Computerized tomography is used to image tumors and for motion
sensitive, yet high contrast, diagnostic studies. It produces higher
contrast images than conventional X-ray. Computerized tomography
scanners range in selling price from $300,000 to $800,000.
S-48
<PAGE>
o Ultrasound is the preferred imaging modality for obstetrics, as well as
certain vascular and cardiac studies. Ultrasound systems emit ultrasonic
sound waves which are reflected by body tissues, then recorded and
processed into images by a computer. Selling prices for ultrasound
systems range from $50,000 to $750,000.
o Physical therapy equipment is used in patient rehabilitation including
treadmill machines, fitness equipment and therapy simulators. Prices
range from $5,000 to $400,000.
o Mammography equipment is special equipment used in the detection of
breast cancer. Selling prices range from $30,000 to $500,000.
o Radiology equipment is used to determine the functional state of organs.
Prices range from $50,000 to $500,000.
o Conventional X-ray equipment uses ionizing radiation to produce
single-dimension images on a sheet of transparent film. Other X-ray
systems are used in diagnostic imaging studies such as peripheral and
coronary angiography. Selling prices range from $5,000 to $500,000.
S-49
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY DISCOUNTED CONTRACT BALANCE
Percentage Percentage
Percentage of Aggregate of Aggregate
of Aggregate Discounted Discounted Original Original
Range of Discounted Number of Number of Contract Contract Equipment Equipment
Contract Balances Contracts Contracts Balance Balance Cost Cost
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.01 - $ 25,000.00... 1,056 61.61% $ 12,633,508.84 4.61% $ 12,885,843.19 4.82%
$ 25,000.01 - $ 50,000.00... 151 8.81 5,412,813.91 1.98 5,471,616.20 2.05
$ 50,000.01 - $ 75,000.00... 101 5.89 6,188,141.24 2.26 6,250,168.46 2.34
$ 75,000.01 - $ 100,000.00... 51 2.98 4,354,755.11 1.59 4,482,851.26 1.68
$ 100,000.01 - $ 150,000.00... 52 3.03 6,264,834.39 2.29 6,320,857.29 2.36
$ 150,000.01 - $ 200,000.00... 46 2.68 7,911,990.82 2.89 7,813,949.50 2.92
$ 200,000.01 - $ 250,000.00... 33 1.93 7,366,859.87 2.69 7,318,090.25 2.74
$ 250,000.01 - $ 300,000.00... 26 1.52 7,148,090.08 2.61 7,077,726.64 2.65
$ 300,000.01 - $ 350,000.00... 18 1.05 5,900,552.75 2.15 5,788,705.92 2.16
$ 350,000.01 - $ 400,000.00... 20 1.17 7,515,887.68 2.74 7,603,236.72 2.84
$ 400,000.01 - $ 450,000.00... 16 0.93 6,824,698.26 2.49 6,986,195.95 2.61
$ 450,000.01 - $ 500,000.00... 8 0.47 3,762,033.80 1.37 3,654,993.04 1.37
$ 500,000.01 - $ 600,000.00... 12 0.70 6,525,359.79 2.38 6,401,909.84 2.39
$ 600,000.01 - $ 750,000.00... 11 0.64 7,576,829.55 2.77 7,501,480.89 2.80
$ 750,000.01 - $1,000,000.00... 24 1.40 21,193,053.64 7.74 21,304,291.30 7.96
$1,000,000.01 - $2,000,000.00... 64 3.73 84,314,071.59 30.78 80,956,402.71 30.27
$2,000,000.01 - $3,000,000.00... 13 0.76 29,603,946.36 10.81 28,283,894.61 10.57
$3,000,000.01 - $4,000,000.00... 8 0.47 26,227,587.05 9.57 24,470,600.00 9.15
$4,000,000.01 - $5,000,000.00... 4 0.23 17,214,106.85 6.28 16,913,663.82 6.32
--------- --------- --------------- --------- -------------- ---------
Total..................... 1,714 100.00% $273,939,121.58 100.00% $267,486,477.59 100.00%
--------- --------- --------------- --------- -------------- ---------
--------- --------- --------------- --------- -------------- ---------
</TABLE>
S-50
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY EQUIPMENT COST
Percentage Percentage
Percentage of Aggregate of Aggregate
of Aggregate Discounted Discounted Original Original
Range of Original Number of Number of Contract Contract Equipment Equipment
Equipment Cost Contracts Contracts Balance Balance Cost Cost
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.01 - $ 25,000.00... 1,061 61.90% $ 12,771,679.68 4.66% $ 12,977,847.28 4.85%
$ 25,000.01 - $ 50,000.00... 141 8.23 5,072,921.70 1.85 5,095,766.84 1.91
$ 50,000.01 - $ 75,000.00... 112 6.53 6,872,845.95 2.51 6,960,387.75 2.60
$ 75,000.01 - $ 100,000.00... 43 2.51 3,767,555.72 1.38 3,736,860.35 1.40
$ 100,000.01 - $ 150,000.00... 55 3.21 6,560,536.22 2.39 6,733,666.69 2.52
$ 150,000.01 - $ 200,000.00... 45 2.63 7,765,058.33 2.83 7,688,750.70 2.87
$ 200,000.01 - $ 250,000.00... 32 1.87 7,132,276.74 2.60 7,017,324.98 2.62
$ 250,000.01 - $ 300,000.00... 27 1.58 7,483,208.54 2.73 7,357,892.93 2.75
$ 300,000.01 - $ 350,000.00... 22 1.28 7,254,584.12 2.65 7,087,831.84 2.65
$ 350,000.01 - $ 400,000.00... 14 0.82 5,428,923.77 1.98 5,253,140.42 1.96
$ 400,000.01 - $ 450,000.00... 14 0.82 6,043,456.83 2.21 5,995,182.81 2.24
$ 450,000.01 - $ 500,000.00... 13 0.76 5,714,017.99 2.09 6,175,936.20 2.31
$ 500,000.01 - $ 600,000.00... 11 0.64 5,997,743.24 2.19 5,963,747.33 2.23
$ 600,000.01 - $ 750,000.00... 13 0.76 9,181,688.15 3.35 8,856,588.98 3.31
$ 750,000.01 - $1,000,000.00... 28 1.63 26,113,046.73 9.53 25,754,342.23 9.63
$1,000,000.01 - $2,000,000.00... 62 3.62 86,075,629.89 31.42 82,616,225.38 30.89
$2,000,000.01 - $3,000,000.00... 15 0.88 40,369,904.99 14.74 38,830,721.06 14.52
$3,000,000.01 - $4,000,000.00... 3 0.18 11,289,069.08 4.12 10,470,600.00 3.91
$4,000,000.01 - $5,000,000.00... 3 0.18 13,044,973.90 4.76 12,913,663.82 4.83
--------- --------- --------------- --------- --------------- ---------
Total..................... 1,714 100.00% $273,939,121.58 100.00% $267,486,477.59 100.00%
--------- --------- --------------- --------- --------------- ---------
--------- --------- --------------- --------- --------------- ---------
</TABLE>
S-51
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY TEN LARGEST OBLIGORS
Percentage Percentage
Percentage of Aggregate of Aggregate
of Aggregate Discounted Discounted Original Original
Number of Number of Contract Contract Equipment Equipment
Obligor Ranking Contracts Contracts Balance Balance Cost Cost
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1........................ 3 0.18% $ 6,656,267.09 2.43% $ 6,146,140.34 2.30%
2........................ 2 0.12 6,545,875.12 2.39 6,000,000.00 2.24
3........................ 2 0.12 6,530,134.35 2.38 6,000,000.00 2.24
4........................ 2 0.12 6,031,641.45 2.20 6,000,000.00 2.24
5........................ 2 0.12 5,525,103.72 2.02 5,017,600.00 1.88
6........................ 1 0.06 4,810,917.90 1.76 4,500,000.00 1.68
7........................ 2 0.12 4,736,126.84 1.73 5,030,297.16 1.88
8........................ 3 0.18 4,323,376.56 1.58 4,000,000.00 1.50
9........................ 5 0.29 4,308,289.32 1.57 4,192,617.98 1.57
10........................ 1 0.06 4,181,973.13 1.53 4,038,020.19 1.51
Other..................... 1,691 98.66 220,289,416.10 80.42 216,561,801.92 80.96
--------- --------- -------------- --------- --------------- ---------
Total..................... 1,714 100.00% $273,939,121.58 100.00% $267,486,477.59 100.00%
--------- --------- -------------- --------- --------------- ---------
--------- --------- -------------- --------- --------------- ---------
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL CONTRACT POOL BY CONTRACT TYPE
Percentage Percentage
Percentage of Aggregate of Aggregate
of Aggregate Discounted Discounted Original Original
Number of Number of Contract Contract Equipment Equipment
Contract Type Contracts Contracts Balance Balance Cost Cost
- ----------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Finance Leases... 738 43.06% $ 76,711,777.30 28.00% $ 73,690,218.92 27.55%
Fair Market Value
Leases.......... 668 38.97 45,307,306.70 16.54 48,103,118.30 17.98
Leveraged Lease
Loans........... 89 5.19 21,713,067.24 7.93 21,394,576.90 8.00
Secured Equipment
Notes........... 165 9.63 122,846,667.65 44.84 116,943,132.15 43.72
Lease Receivables
Purchases....... 54 3.15 7,360,302.70 2.69 7,355,431.32 2.75
--------- --------- ------------- --------- -------------- ---------
Total............ 1,714 100.00% $273,939,121.58 100.00% $267,486,477.59 100.00%
--------- --------- ------------- --------- -------------- ---------
--------- --------- ------------- --------- -------------- ---------
</TABLE>
S-52
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY BUSINESS TYPE
Percentage Percentage
Percentage of Aggregate of Aggregate
of Aggregate Discounted Discounted Original Original
Number of Number of Contract Contract Equipment Equipment
Business Type Contracts Contracts Balance Balance Cost Cost
- ------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dental Center...... 431 25.15% $ 5,874,006.73 2.14% $ 5,880,694.83 2.20%
Dialysis Center.... 4 0.23 643,949.87 0.24 615,956.74 0.23
Family/General
Center............ 66 3.85 767,349.06 0.28 805,556.77 0.30
Gynecology &
Obstetrics........ 58 3.38 676,416.45 0.25 683,828.54 0.26
Holding
Company/Various
Centers........... 36 2.10 32,859,489.11 12.00 31,003,446.62 11.59
Home Health Care... 7 0.41 2,851,129.87 1.04 2,820,848.39 1.05
Hospital........... 78 4.55 24,446,887.38 8.92 24,300,019.40 9.08
Hyperbaric
Chambers.......... 9 0.53 3,188,918.75 1.16 2,981,054.02 1.11
Internal
Medicine.......... 85 4.96 952,177.22 0.35 953,372.44 0.36
M.D. Clinic........ 29 1.69 584,294.26 0.21 602,364.34 0.23
Mobile MRI......... 4 0.23 2,586,612.37 0.94 2,433,018.98 0.91
MRI & Other
Multiple Center... 30 1.75 8,957,446.63 3.27 8,883,765.18 3.32
MRI Only Center.... 91 5.31 46,933,455.78 17.13 45,471,610.15 17.00
Multi-Modality
Center............ 79 4.61 60,512,522.05 22.09 58,792,635.03 21.98
Optical............ 16 0.93 1,705,381.51 0.62 1,677,877.32 0.63
Otolaryngology..... 20 1.17 509,987.44 0.19 526,606.47 0.20
Outpatient
Surgical.......... 45 2.63 19,771,986.54 7.22 18,757,089.84 7.01
Physician
Practice.......... 57 3.33 15,819,853.91 5.77 15,433,677.73 5.77
Radiology.......... 24 1.40 8,332,743.55 3.04 7,791,437.20 2.91
Skilled Nursing
Center............ 28 1.63 2,989,205.45 1.09 2,959,623.89 1.11
Other.............. 517 30.16 32,975,307.65 12.04 34,111,993.71 12.75
--------- --------- --------------- --------- -------------- ---------
Total.............. 1,714 100.00% $273,939,121.58 100.00% $267,486,477.59 100.00%
--------- --------- --------------- --------- -------------- ---------
--------- --------- --------------- --------- -------------- ---------
</TABLE>
S-53
<PAGE>
SUBSTITUTE CONTRACTS
Under some circumstances, the servicer will have the right,
but not the obligation, at any time to substitute one or more Eligible Contracts
and a security interest in the equipment under that contract for a contract in a
pool. We call this Eligible Contract and related rights a substitute contract.
This right of substitution can be exercised for Pool A contracts if:
o (A) any contract payment on a Pool A contract is
delinquent for at least sixty consecutive days as of
the most recent determination date; (B) a bankruptcy
petition has been filed by or against the obligor or,
for a leveraged lease loan, the related lessor, under
any Predecessor Contract; or (C) the Pool A contract
became a defaulted contract for the first time during
the related collection period;
o other conditions listed in the contribution and
servicing agreement have been satisfied; and
o the sum of (x) the Discounted Contract Balances of
all substitute contracts substituted as provided for
in this sentence and (y) amounts deposited by the
servicer in the collection account in connection with
all those substitutions mentioned in this sentence
does not exceed 10% of the Pool A Aggregate
Discounted Contract Balance as of the closing date.
In addition to these rights, the servicer will also have the
right, but not the obligation, at any time to substitute one or more substitute
contracts and a security interest in the related equipment for a Pool A contract
and a security interest in the related equipment. This right of substitution can
be exercised if:
o the Pool A contract has been prepaid;
o conditions listed in the contribution and servicing
agreement have been satisfied; and
S-54
<PAGE>
o the sum of (x) the Discounted Contract Balance of all
substitute contracts substituted as provided for in
this sentence and those made under section 4.02 of
the contribution and servicing agreement and (y)
amounts deposited by the servicer in the collection
account in connection with all substitutions
mentioned in this sentence and those substitutions
made under section 4.02 of the contribution and
servicing agreement does not exceed 10% of the Pool A
Aggregate Discounted Contract Balance as of the
closing date.
Under some circumstances, the servicer will have the right,
but not the obligation, to substitute one or more Eligible Contracts and a
security interest in the related equipment for a Pool B contract. This right of
substitution can be exercised if:
o conditions listed in the contribution and servicing
agreement have been satisfied; and
o the sum of (x) the Discounted Contract Balances of
all substitute contracts substituted under this
sentence and (y) amounts deposited by the servicer in
the collection account in connection with all
substitutions under this sentence does not exceed 10%
of the Pool B Aggregate Discounted Balance as of the
closing date.
In addition, the servicer will have the right, but not the
obligation, at any time in connection with the exercise by DVI Receivables Corp.
X of its substitution rights, to substitute one or more substitute contracts and
a security interest in the related equipment for a Pool B contract and a
security interest in the related equipment. This right of substitution can be
exercised if:
o the Pool B contract has been prepaid;
o conditions listed in the contribution and servicing
agreement have been satisfied; and
S-55
<PAGE>
o the sum of (x) the Discounted Contract Balance of all
substitute contracts substituted as provided for in
this sentence and under section 4.02 of the
contribution and servicing agreement and (y) amounts
deposited by the servicer in the collection account
in connection with all substitutions mentioned in
this sentence and those substitutions made under
section 4.02 of the contribution and servicing
agreement does not exceed 10% of the Pool B Aggregate
Discounted Contract Balance as of the closing date.
Unless each rating agency has given its prior
consent, the sum of clauses (x) and (y) in this
paragraph may not exceed 10% of the Pool B Aggregate
Discounted Balance as of the closing date.
To become a substitute contract, a contract must meet all the
criteria of an Eligible Contract described in the glossary.
DESCRIPTION OF THE NOTES AND PRINCIPAL TRANSACTION DOCUMENTS
The notes are described on the cover page of this prospectus
supplement and will be issued under the amended and restated indenture, dated as
of June 1, 1999, entered into between the issuer and the trustee. The following
summary describes some provisions of the notes, that indenture and the
contribution and servicing agreement. However, it is not complete and
prospective investors should read those agreements in their entirety.
GENERAL PROVISIONS OF THE NOTES
The notes are limited recourse obligations of the issuer only,
with no recourse to DVI Financial Services Inc., the trustee or any other
person. The issuer's liability is limited to the income and proceeds from the
trust property. The issuer will agree in the indenture and in the notes to pay
each class of noteholders the amounts of principal and interest on the dates
shown in the indenture. Each payment of principal is required to equal the sum
of:
o Monthly Principal for that class; and
S-56
<PAGE>
o Overdue Principal, if any, for that class.
Each payment of interest is required to equal the sum of:
o the Monthly Interest for that class; and
o the Overdue Interest, if any, for that class.
Interest accrues on the notes from payment date to payment
date, and is payable, along with required principal, on the thirteenth day of
each month, or if the day is not a business day, the immediately following
business day. However, for the initial payment date, interest accrues on the
notes from the closing date to the initial payment date.
Notes that are subordinated in priority of payment to other
classes of notes have a lesser likelihood of receiving the regular distributions
as outlined in the "FLOW OF FUNDS TO AND FROM THE COLLECTION ACCOUNT" section on
page S-68 of this prospectus supplement. Similarly, if the trustee should ever
foreclose upon the trust property, each superior class of notes has a greater
protection against realizing losses than do notes that are subordinated.
Payments of interest on the class E notes are subordinate to
payments of interest on the class A-1, class A-2, class A-3, class A-4, class B,
class C and class D notes, and payments of principal on the class E notes are
subordinate to payments of principal and interest on the class A-1, class A-2,
class A-3, class A-4, class B, class C and class D notes and payment of interest
on the class E notes.
Furthermore, the following note payments are subordinated as
shown below.
S-57
<PAGE>
Note payment Subordinated to the full payment of:
- ------------ ------------------------------------
Class A interest Interest on the class A notes is not
subordinated to any other note payments.
Class A principal All interest due and overdue on all classes of
notes.
Class B interest All interest due and overdue on the class A
notes.
Class B principal If NO Amortization Event is happening:
o all interest due and overdue on
all classes of notes, and
o all principal due and overdue
on the class A notes.
If an Amortization Event is happening:
o all interest due and overdue on
all classes of the notes, and
o the entire outstanding
principal amount due on the
class A notes.
Class C interest All interest due and overdue on the class A
notes and the class B notes.
S-58
<PAGE>
Class C principal If NO Amortization Event is happening:
o all interest due and overdue
on all classes of the notes,
and
o all principal due and overdue
on the class A notes and the
class B notes.
If an Amortization Event IS happening:
o all interest due and overdue
on all classes of the notes,
and
o the entire outstanding
principal amount due on the
class A notes and the class B
notes.
Class D interest All interest due and overdue on the class A
notes, the class B notes and the class C notes.
Class D principal If NO Amortization Event is happening:
o all interest due and overdue
on all classes of notes, and
o all principal due and overdue
on the class A notes, the
class B notes, and the class C
notes.
S-59
<PAGE>
If an Amortization Event is happening:
o all interest due and overdue
on all class of the notes, and
o the entire outstanding
principal amount due on the
class A, class B and class C
notes.
Class E interest All interest due and overdue on the class A
notes, the class B notes, the class C notes and
the class D notes.
Class E principal If NO Amortization Event is happening:
o all interest due and overdue
on all classes of the notes,
and
o all principal due and overdue
on the class A notes, the
class B notes, the class C
notes and the class D notes.
If an Amortization Event IS happening:
o all interest due and overdue
on all classes of the notes;
and
o the entire outstanding
principal amount due on the
class A, class B, class C and
class D notes.
S-60
<PAGE>
The notes will be issued, maintained and transferred on the
book-entry records of The Depository Trust Company and its participants. Each
note will be initially issued as a fully registered note in minimum
denominations of $500,000 and integral multiples of $1,000 above that amount.
One note of each class may be issued in a different amount as may be necessary
so that the notes of that class evidence the full initial principal balance of
that note. The notes will be represented by one or more certificates registered
in the name of "Cede & Co.", the nominee of The Depository Trust Company; notes
so registered are called book-entry securities. A person acquiring an interest
in the notes is called a beneficial owner. A beneficial owner will be entitled
to receive a certificate representing that person's interest, called a
definitive note. Please read "BOOK-ENTRY REGISTRATION OF THE NOTES -- DEFINITIVE
SECURITIES" at page S-85 for exceptions to this rule. Unless and until
definitive securities are issued for the notes under the limited circumstances
described in this prospectus supplement, all references to actions by
noteholders for the notes shall refer to actions taken by The Depository Trust
Company upon instructions from its participants. Also, unless and until
definitive securities are issued for the notes as described in this prospectus
supplement, all references in this prospectus supplement to distributions,
notices, reports and statements to noteholders for the notes shall refer to
distributions, notices, reports and statements to The Depository Trust Company
or Cede, as the registered holder of the notes, for distribution to beneficial
owners by The Depository Trust Company in accordance with The Depository Trust
Company procedures.
Payments on the notes are required to be made by the trustee
on each payment date, to persons in whose names notes are registered on the
record date for that payment date. The first payment date with respect to
interest on any note is November 15, 1999. The first payment date with respect
to principal for the class A-1 notes, class B notes, class C notes and class D
notes will be November 15, 1999. We expect the first payment date with respect
to principal for the class A-2 notes to be June 13, 2000, for the class A-3
notes, to be March 13, 2001 and for the class A-4 notes, to be June 13, 2002.
Payments are required to be made by the trustee by wire transfer of immediately
Available Funds, to the registered holders of the notes, initially, Cede & Co.,
appearing in the note register on the record date. If no account is specified
for a noteholder, the trustee will mail a check to the address for that
noteholder appearing in the note register on that record date. A note register
is a register kept by the trustee in the Corporate
S-61
<PAGE>
Trust Office in which the trustee shall provide for the registration of Notes
and the transfer of notes. A participant is a participating organization of The
Depository Trust Company.
CONVEYANCE OF TRUST PROPERTY
On or before the closing date, DVI Financial Services Inc.
will convey to DVI Receivables Corp. X, DVI Receivables Corp. X will transfer to
the issuer, and the issuer will pledge to the trustee, all of its right, title
and interest in and to the trust property. The trust property does not include
some amounts included in the obligor's payments to which DVI Financial Services
Inc. is not entitled, such as property taxes, sales, taxes, manufacturer's
maintenance costs, insurance premiums and supplies and transaction costs. Also
not included in the trust property are:
o any purchase option payments;
o ownership of any equipment, although the trust property
includes a security interest in that equipment; or
o any rights of DVI Financial Services Inc. in any accounts
receivable of the obligor which have been pledged to DVI
Financial Services Inc. as collateral for that obligor's
contract.
In general, a purchase option payment is any payment made by
the obligor under the contract to purchase the equipment covered under the
contract. A purchase option payment would include any funds received in respect
of any of the following:
o an end of term purchase option for $1;
o an end of term option to purchase the equipment at a stated
percentage of the original cost of the equipment;
o an option to purchase the equipment at the fair market value
of the equipment
S-62
<PAGE>
determined at the end of the contract term; or
o an end of term option to extend the term of the lease for one
or more immediately succeeding twelve month periods.
On the closing date, the issuer will have delivered a copy of
the contract schedule to the trustee for the initial contracts. The contract
schedule will include for each contract:
o a number identifying the contract,
o the obligor's name and address,
o the original maturity of each contract,
o the type of equipment subject to each contract, each
contract's location and, if available, original equipment
cost,
o the remaining maturity of each contract,
o the Discounted Contract Balance as of the cut-off date,
o the type of contract and pool,
o the amount and scheduled due date of each contract payment due
under each of the contracts, and
o the commencement date on each contract.
DVI Financial Services Inc. also will deliver to the trustee
the contract file for each contract. DVI Financial Services Inc. and the issuer
each will mark its accounting records to show that each contract has been
conveyed by DVI Financial Services Inc. to DVI Receivables Corp. X, and by DVI
Receivables Corp. X to the issuer, and pledged by the issuer to the trustee for
the benefit of the noteholders.
DVI FINANCIAL SERVICES INC. REPURCHASE OBLIGATION FOR CONTRACT
MISREPRESENTATIONS
DVI Financial Services Inc. will make representations and
warranties in the contribution and servicing agreement regarding the contracts
and the equipment for the benefit of the trustee, the noteholders, the issuer
and DVI Receivables Corp. X. DVI Financial Services Inc. will be obligated to
repurchase or provide a substitute contract for any contract where any
S-63
<PAGE>
misrepresentation or breach of warranty materially and adversely affects the
interest of the noteholders in that contract and the breach has not been cured
by DVI Financial Services Inc. or waived by the noteholders holding a majority
of the Voting Rights within ninety days after DVI Financial Services Inc. learns
of the breach. The trustee will be granted the right to enforce these
representations and warranties directly against DVI Financial Services Inc.
INDEMNIFICATION
The contribution and servicing agreement provides that DVI
Financial Services Inc., as contributor and servicer, will defend and indemnify
itself, the servicer, the trustee, DVI Receivable Corp. X, the issuer and the
noteholders against any and all losses, claims, damages and liabilities suffered
by any of those parties by reason of a breach by DVI Financial Services Inc. of
its obligations under the contribution and servicing agreement.
Neither the servicer nor any of the directors, officers,
employees or agents of the servicer shall incur any liability to DVI Receivables
Corp. X, the issuer, the trustee or the noteholders, for any action taken or not
taken in good faith under the contribution and servicing agreement relating to
any contract. This includes any defaulted contract, or the equipment under that
contract. This exception from liability does not apply to either:
o any breach of warranties or representations made by the
Servicer in the contribution and servicing agreement or in any
certificate delivered in conjunction with the purchase of the
notes; or
o for any liability which would otherwise be imposed by reason
of willful misfeasance or negligence in the performance of the
Servicer's duties under the contribution and servicing
agreement or by reason of reckless disregard of its
obligations and duties under that agreement.
S-64
<PAGE>
INDENTURE ACCOUNTS; INVESTMENT OF FUNDS
The servicer will establish one or more bank accounts, each
called a lockbox account, in the name of the trustee for the benefit of the
noteholders. Each lockbox account will be a segregated account initially
established and maintained with a lockbox bank selected by the servicer. Not
only will the servicer give the trustee prior written notice of any change in
the location of any lockbox account, but the servicer will also give at least 10
days' prior written notice of the new location to each obligor.
The trustee, under the indenture, is required to establish and
maintain the collection account, the distribution account and the reserve
account, each in the name of the trustee and for the benefit of the noteholders
and the issuer to the extent of their interest in those accounts. Each account
will be one or more segregated trust accounts held by the trustee. In addition,
the trustee will establish and maintain sub-accounts of the distribution account
for each class of notes as needed.
The indenture permits the servicer to instruct how amounts in
the collection account and the reserve account will be invested in certain types
of highly rated investments, which are called eligible investments. All amounts
invested in eligible investments and all investments made with those amounts,
including all income and other gain from the investments, will be held by the
trustee in the accounts as part of the trust property as provided in the
indenture. Any net loss of principal, determined on a month-by-month basis,
resulting from the investment of the amounts in the collection account and
reserve accounts will be charged to the issuer. The issuer shall reimburse that
account within three business days of being notified of a net loss of principal
by the trustee. The trustee shall not in any way be held liable because of any
insufficiency in the collection account and distribution accounts resulting from
losses on investments made in accordance with the indenture unless the trustee
is the obligor under an eligible investment. The trustee shall not be liable for
any investment made by it in accordance with the indenture on grounds that it
could have made a more favorable investment.
All payments and proceeds of the contracts collected in the
lockbox account, including any investment earnings, will be deposited into the
collection account. The servicer is
S-65
<PAGE>
required to deposit the amounts into the collection account within two business
days of receipt. If rating agency conditions are satisfied, however, the deposit
of collections for a particular collection period will be made by the servicer
within two business days prior to the related payment date. Pending deposit into
the collection account, collections may be invested by the servicer at its own
risk and for its own benefit, and will not be segregated from funds of the
servicer.
RESERVE ACCOUNT
The reserve account is a segregated trust account in the name
of the trustee and will be funded by deposit of the Reserve Account Deposit
Amount from amounts otherwise able to be distributed to the issuer on the
closing date or any payment date. If there exists a shortfall between the
Available Funds and interest or principal due on the payment date for any of the
notes, regardless of whether an Amortization Event has occurred and is
continuing, amounts on deposit in the reserve account will be available to make
payments of interest to:
o first, the class A noteholders;
o then, the class B noteholders;
o then, the class C noteholders;
o then, the class D noteholders;
o then the class E noteholders; and
then, under most circumstances, to pay principal on,
o first, the class A notes;
o then, the class B notes;
S-66
<PAGE>
o then, to the class C notes;
o then, to the class D notes; and
o then the class E notes.
If an Amortization Event has occurred and is continuing, the
principal due on each class shall be the entire Note Balance for that class of
notes. Amounts on deposit in the reserve account may be paid to the issuer, if,
and only to the extent that, the amounts in the reserve
account exceed the Reserve Account Required Amount.
The trustee will have to deposit amounts into the reserve
account only from monies then in the collection account after payment of claims
given a higher priority than the Reserve Account Deposit Amount under Section
3.04(b) of the indenture. The trustee shall not have any responsibility to
determine the amount or adequacy of funds on deposit in the reserve account, or
the amount of any deposits to or withdrawals from the reserve account. The
issuer will agree to treat assets in the reserve account and all earnings on
those assets as its assets and earnings for federal, state and local tax
purposes and not to sell, transfer or otherwise dispose of its interest in those
assets.
On each payment date, the trustee shall, on the basis of the
monthly servicer report, deposit in the reserve account an amount equal to the
Reserve Account Deposit Amount. If on any payment date, Available Funds are less
than the Priority Payments, the trustee shall withdraw from the reserve account
the amount of that shortfall, until the reserve account is depleted. On each
payment date, if the balance in the reserve account is greater than the Reserve
Account Required Amount, the trustee, if instructed by the servicer, shall pay
the amount of the excess to the issuer. The amount of the excess paid to the
issuer is a reserve account withdrawal. Amounts properly paid to the issuer,
either directly from the distribution account without deposit in the reserve
account or from the reserve account, shall be deemed released from the trust
property. The issuer shall not be required to refund any amounts properly paid
to it.
For amounts in the reserve account, the issuer and the trustee
agree that any
S-67
<PAGE>
reserve account property that is held in deposit accounts shall be held solely
in the name of the trustee, on behalf of the noteholders. Each deposit account
must be held by the trustee or by another FDIC-insured depository approved by
the rating agencies. The trustee shall have sole signature authority for those
deposit accounts.
Any amounts on deposit in the reserve account, after payment
of amounts due to the noteholders and termination of the indenture, shall be
paid to DVI Receivables Corp. X upon DVI Receivable Corp. X's written request to
the trustee.
FLOW OF FUNDS TO AND FROM THE COLLECTION ACCOUNT
The servicer shall remit to the collection account all amounts
received by it for the trust property not later than the second business day
after receipt. The servicer also shall cause monies in each lockbox account to
be paid to the collection account in the same time frame. However, if permitted
by the rating agencies, the servicer will only pay those monies to the
collection account on or before the second business day prior to each payment
date. The indenture instructs the trustee about which and how to deposit all
other amounts received by it.
Unless the notes have been declared due and payable under the
indenture and monies collected by the trustee are being applied accordingly, the
trustee on each payment date will withdraw and pay or cause to be paid the
following claims from the Available Funds. The Available Funds will be applied
in the following order of priority:
(1) to the servicer, the servicing fee due to the servicer on that
payment date (including, if that servicer is not DVI Financial Services
Inc., any additional amount agreed upon in good faith and commercially
reasonable judgement between such servicer and the trustee to cover the
costs of transferring the servicer operations to such successor
servicer);
(2) to the servicer, any unreimbursed Nonrecoverable Advances or
Servicer Advances previously made for delinquent contracts;
S-68
<PAGE>
(3) FIRST, to the Class A Distribution Sub-Account, in the following
order of priority, the sum of :
(A) the Class A-1 Monthly Interest; and
(B) the Class A-1 Overdue Interest, if any;
SECOND, to the Class A Distribution Sub-Account, in the following
order of priority, the sum of:
(A) the Class A-2 Monthly Interest; and
(B) the Class A-2 Overdue Interest, if any;
THIRD, to the Class A Distribution Sub-Account, in the following
order of priority, the sum of:
(A) the Class A-3 Monthly Interest; and
(B) the Class A-3 Overdue Interest, if any;
FOURTH, to the Class A Distribution Sub-Account, in the following
order of priority, the sum of:
(A) the Class A-4 Monthly Interest; and
(B) the Class A-4 Overdue Interest, if any;
(4) to the Class B Distribution Sub-Account, in the following order of
priority, in the sum of the Class B Monthly Interest and any Class B
Overdue Interest;
(5) to the Class C Distribution Sub-Account, in the following order of
priority, the sum of the Class C Monthly Interest and any Class C
Overdue Interest;
(6) to the Class D Distribution Sub-Account, in the following order of
priority, in the sum of the Class D Monthly Interest and any Class D
Overdue Interest;
S-69
<PAGE>
(7) to the Class E Distribution Sub-Account, in the following order of
priority, the sum of the Class E Monthly Interest and any Class E
Overdue Interest;
(8) as long as no Amortization Event shall have occurred and be
continuing, to the Class A Distribution Sub-Account, in the following
order of priority, the sum of:
(A) the Class A-1 Overdue Principal, if any;
(B) the Class A-1 Monthly Principal;
(C) the Class A-2 Overdue Principal, if any;
(D) the Class A-2 Monthly Principal;
(E) the Class A-3 Overdue Principal, if any;
(F) the Class A-3 Monthly Principal;
(G) the Class A-4 Overdue Principal, if any; and
(H) the Class A-4 Monthly Principal;
(9) as long as no Amortization Event shall have occurred and be
continuing, to the Class B Distribution Sub-Account, in the following
order of priority, the sum of:
(A) any Class B Overdue Principal, if
any; and
(B) the Class B Monthly Principal; then,
(10) as long as no Amortization Event shall have occurred and be
continuing, to the Class C Distribution Sub-Account, in the following
order of priority, the sum of:
(A) any Class C Overdue Principal; and
(B) the Class C Monthly Principal; then,
(11) as long as no Amortization Event shall have occurred and be
continuing, to the Class D Distribution Sub-Account, in the following
order of priority, the sum of:
(A) any Class D Overdue Principal; and
(B) the Class D Monthly Principal; then,
S-70
<PAGE>
(12) as long as no Amortization Event shall have occurred and be
continuing, to the Class E Distribution Sub-Account, in the following
order of priority, the sum of:
(A) any Class E Overdue Principal; and
(B) the Class E Monthly Principal;
(13) as long as no Amortization Event shall have occurred and be
continuing, to the reserve account, the Reserve Account Deposit Amount;
(14) if an Amortization Event shall have occurred and is continuing and
has not been waived by noteholders with at least 662/3% of the Voting
Rights, in the following order of priority:
FIRST, to the Class A Distribution
Sub-Account the amount necessary to reduce
the Class A-1 Note Balance to zero;
THEN, to the Class A Distribution
Sub-Account, the amount necessary to reduce
the Class A-2 Note Balance to zero;
THEN, to the Class A Distribution
Sub-Account, the amount necessary to reduce
the Class A-3 Note Balance to zero; and
THEN, to the Class A Distribution
Sub-Account, the amount necessary to reduce
the Class A-4 Note Balance to zero;
PROVIDED, HOWEVER, that upon the
occurrence of a Subordination Deficiency
Event, after the Class A-1 Note Balance has
been reduced to zero, and the Class A-2 Note
Balance has been reduced to zero, then the
Class A-3 Note Balance and the Class A- 4
Note Balance will be paid proportionately
without preference or priority; and
SECOND, to the Class B Distribution
Sub-Account the amount necessary to pay the
class B notes in full; and
THIRD, to the Class C Distribution
Sub-Account the amount necessary to pay the
class C notes in full;
S-71
<PAGE>
FOURTH, to the Class D Distribution
Sub-Account the amount necessary to pay the
class D notes in full; and
FIFTH, to the Class E Distribution
Sub-Account the amount necessary to pay the
class E notes in full; and then
(15) any remaining Available Funds on deposit in the collection account
will be paid to the issuer.
If on any payment date the Available Funds on deposit in the
collection account are less than the sum necessary to make the Priority Payments
required under clauses (3) through and including (12) and clause (14), each as
applicable, then the trustee shall withdraw from the reserve account, to the
extent that such funds are on deposit in the reserve account and after taking
into account payments to be made under clauses (1) and (2) above, and deposit
into the distribution accounts for payment on that payment date, funds equal to
the Available Reserve Account Funds. Unless a sizeable part of the trust
property is then withheld by a bankruptcy court's application of the automatic
stay pursuant to section 362 of the federal Bankruptcy Code, the trustee will
use the Available Reserve Account Funds for payment in accordance with clauses
(3) through and including (12), as applicable. On any payment date occurring
during a period in which a bankruptcy court has applied such an automatic stay
to a material portion of the trust property, then the Available Reserve Account
Funds will be used only for payment of clauses (3) through and including (7).
Noteholders evidencing 662/3% or more of the Voting Rights
shall have the ability to waive or defer any Amortization Event. Upon the
occurrence of any Amortization Event, noteholders evidencing 662/3% or more of
the Voting Rights shall have the right to replace DVI Financial Services Inc. as
servicer with a successor servicer as permitted under the contribution
and servicing agreement.
S-72
<PAGE>
PAYMENT OF AMOUNTS FROM DISTRIBUTION SUB-ACCOUNTS
1. On each payment date, the trustee shall pay to the class A
noteholders the amounts then on deposit in the class A Distribution Sub-Account
and allocated as set forth in the "DESCRIPTION OF THE NOTES AND PRINCIPAL
TRANSACTION DOCUMENTS -- FLOW OF FUNDS TO AND FROm THE COLLECTION ACCOUNT"
section of this prospectus supplement. Such payments are to be made, first to
the class A noteholders, proportionately, in the following order of priority:
(i) to the class A-1 noteholders, the Class A-1
Monthly Interest;
(ii) to the class A-1 noteholders, the Class A-1
Overdue Interest, if any;
(iii) to the class A-2 noteholders, the Class A-2
Monthly Interest;
(iv) to the class A-2 noteholders, the Class A-2
Overdue Interest, if any;
(v) to the class A-3 noteholders, the Class A-3
Monthly Interest;
(vi) to the class A-3 noteholders, the Class A-3
Overdue Interest, if any;
(vii) to the class A-4 noteholders, the Class A-4
Monthly Interest;
(viii) to the class A-4 noteholders, the Class A-4
Overdue Interest, if any;
and
second, to the class A-1 noteholders, class A-2 noteholders,
class A-3 noteholders and class A-4 noteholders, PRO RATA among the noteholders
of each such class, in the following order of priority:
(i) the Class A-1 Overdue Principal, if any;
(ii) the Class A-1 Monthly Principal;
(iii) any additional class A-1 principal payable
under the Indenture;
(iv) the Class A-2 Overdue Principal, if any;
(v) the Class A-2 Monthly Principal;
(vi) any additional class A-2 principal payable
under the Indenture;
S-73
<PAGE>
(vii) the Class A-3 Overdue Principal, if any;
(viii) the Class A-3 Monthly Principal; and
(ix) any additional class A-3 principal payable
under the Indenture;
(x) the Class A-4 Overdue Principal, if any;
(xi) the Class A-4 Monthly Principal; and
(xi) any additional class A-4 principal payable
under the Indenture;
PROVIDED, HOWEVER, that in the event that a Subordination Deficiency Event has
occurred and is continuing, after the class A-1 Note Balance and the class A-2
Note Balance have been reduced to zero, the class A-3 Note Balance and the class
A-4 Note Balance will be paid on a PRO RATA, PARI PASSU basis.
2. On each payment date the trustee shall pay to the class B
noteholders PRO RATA the amount then on deposit in the class B Distribution
Sub-Account and all allocated as set forth in the "DESCRIPTION OF THE NOTES AND
PRINCIPAL TRANSACTION DOCUMENTS -- FLOW OF FUNDS To AND FROM THE COLLECTION
ACCOUNT" section of this prospectus supplement. Payments to the class B
noteholders shall be made in the following order of priority:
(A) the Class B Monthly Interest;
(B) the Class B Overdue Interest, if any;
(C) the Class B Overdue Principal, if any;
(D) the Class B Monthly Principal; and
(E) additional principal payable to the class B
noteholders under the Indenture.
3. On each payment date the trustee shall pay to the class C
noteholders PRO RATA the amount then on deposit in the Class C Distribution
Sub-Account and allocated as set forth in the "DESCRIPTION OF THE NOTES AND
PRINCIPAL TRANSACTION DOCUMENTS -- FLOW OF FUNDS TO AND FROM THE COLLECTION
ACCOUNT" section of this prospectus supplement. Payments to the class C
noteholders shall be made in the following order of priority:
S-74
<PAGE>
(A) the Class C Monthly Interest;
(B) the Class C Overdue Interest, if any;
(C) the Class C Overdue Principal, if any;
(D) the Class C Monthly Principal; and
(E) additional principal payable to the class C
noteholders under the indenture.
4. On each payment date the trustee shall pay to the class D
noteholders PRO RATA the amount then on deposit in the Class D Distribution
Sub-Account and allocated as set forth in the "DESCRIPTION OF THE NOTES AND
PRINCIPAL TRANSACTION DOCUMENTS -- FLOW OF FUNDS TO AND FROM THE COLLECTION
ACCOUNT" section of this prospectus supplement. Payments to the class D
noteholders shall be made in the following order of priority:
(A) the Class D Monthly Interest;
(B) the Class D Overdue Interest, if any;
(C) the Class D Overdue Principal, if any;
(D) the Class D Monthly Principal; and
(E) additional principal payable to the class D
noteholders under the Indenture.
5. On each payment date the trustee shall pay to the class E
noteholders PRO RATA the amount then on deposit in the Class E Distribution
Sub-Account and allocated as set forth in the "DESCRIPTION OF THE NOTES AND
PRINCIPAL TRANSACTION DOCUMENTS -- FLOW OF FUNDS TO AND FROM THE COLLECTION
ACCOUNT" section of this prospectus supplement. Payments to the class E
noteholders shall be made in the following order of priority:
(A) the Class E Monthly Interest;
(B) the Class E Overdue Interest, if any;
(C) the Class E Overdue Principal, if any;
(D) the Class E Monthly Principal; and
(E) additional principal payable to the class E
noteholders under the Indenture.
S-75
<PAGE>
REPORTS TO NOTEHOLDERS
Following each payment to the noteholders, the trustee shall
mail to the issuer, Cede & Co., the rating agencies and make available to each
noteholder the monthly servicer report furnished to the trustee by the servicer
on the related determination date. If the report has not been received, the
trustee must provide a written statement including similar information to the
monthly servicer report. The trustee will deliver to the servicer, and within
two business days after the request of the issuer, deliver to the issuer, a
written statement setting forth the amounts on deposit in the collection account
and the reserve account as of the payment date. In each case, the trustee will
deliver the report after giving effect to all of the withdrawals and
applications or transfers required on the payment date under the indenture.
OPTIONAL REDEMPTION
The notes may be redeemed by the issuer, in whole but not in
part, at the redemption price on any payment date on which the Pool A Aggregate
Discounted Contract Balance is less than 10% of the Pool A Aggregate Discounted
Contract Balance on the closing date and the Pool B Aggregate Discounted
Contract Balance is less than 20% of the Pool B Aggregate Discounted Contract
Balance on the closing date. In the event that the notes are redeemed in full,
an amount equal to the sum of:
o the entire outstanding principal balance of the notes, and
o accrued interest on the outstanding principal balance of each
class of notes, at the class A-1 Note Rate, class A-2 Note
Rate, class A-3 Note Rate, class A-4 Note Rate, class B Note
Rate, class C Note Rate, class D Note Rate and class E Note
Rate, as applicable, will be required to be paid to the
noteholders of each class.
The notes may be redeemed in part by the issuer at the Partial
Redemption Price on any payment date on which the Pool B Aggregate Discounted
Contract Balance is less than 20% of the Aggregate Discounted Contract Balance
of the contracts in Pool B as of the closing date.
S-76
<PAGE>
INDENTURE EVENTS OF DEFAULT AND ACCELERATION
An indenture event of default means any one of the following
events:
(1) default in the payment of (A) any interest when
due on any outstanding class of notes, (B) any principal on
the Stated Maturity Date for any outstanding class of notes,
or (C) any other payment of principal or interest on any note
when it becomes due and payable and sufficient Available Funds
are on deposit in the collection account and sufficient
Available Funds are on deposit in the reserve account;
(2) default in the performance, or breach, of any
covenant of sections 8.04, 8.07(c) or 8.08 of the indenture;
(3) default in the performance, or breach, of any
other covenant of the issuer in the indenture, the notes or of
any party in, the contribution and servicing agreement or the
other transaction documents and continuance of that default or
breach for a period of thirty days after the earliest of:
(A) any officer of the issuer or transferor
first acquiring knowledge of that default or breach;
(B) the trustee's giving written notice of
default or breach to the issuer; or
(C) the holder of any note giving written
notice of default or breach to the issuer;
(4) if any representation or warranty of the issuer,
DVI Receivables Corp. X or DVI Financial Services Inc. made in
either the indenture, the subsequent contract transfer
agreement or the contribution and servicing agreement,
respectively, or any other writing provided to the noteholders
in
S-77
<PAGE>
connection with the foregoing documents shall prove to be
incorrect in any material respect as of the time when that
representation or warranty is made; HOWEVER, the breach of any
representation or warranty made by DVI Financial Services Inc.
in section 2.03 or 2.04 of the contribution and servicing
agreement for any of the contracts or the security interest in
the related equipment shall not constitute an indenture event
of default if DVI Financial Services Inc., in accordance with
the contribution and servicing agreement, substitutes one or
more substitute contracts and the security interest in the
related equipment for the affected contract and equipment or
repurchases the affected contract and related equipment;
(5) a court with proper jurisdiction enters any kind
of order granting a so-called "involuntary" petition brought
by third parties against the issuer under any applicable
federal or state bankruptcy, etc. law and that order remains
in effect for a period of ninety consecutive days; or
(6) the issuer commences or agrees to any kind of
so-called "voluntary" petition for relief under any federal or
state bankruptcy, etc. law.
If an indenture event of default occurs and is continuing,
then the trustee with the consent of the holders of the notes evidencing at
least 662/3% of the Voting Rights, may declare the unpaid principal amount of
all the notes to be due and payable immediately, by a notice in writing to the
issuer, and if the trustee makes the declaration, the entire principal amount
shall automatically become immediately due and payable together with all accrued
and unpaid interest on the notes.
REMEDIES
If an indenture event of default occurs and is continuing, the
trustee will give notice to each noteholder as described in the indenture. The
trustee must then take whatever action, if any, is directed by the holders of
notes evidencing at least 662/3% of the Voting Rights. Following any
acceleration of the notes, the trustee shall have all the rights, powers and
remedies
S-78
<PAGE>
for the trust property as are available to secured parties under the Uniform
Commercial Code or other applicable law.
Any money collected by the trustee under the indenture
following an indenture event of default, will be applied at the date or dates
fixed by the trustee and, in case of the distribution of the entire amount due
on account of principal or interest, upon presentation and surrender of the
notes and any moneys that may then be held or thereafter received by the
trustee, shall be applied in the following order:
FIRST, to the payment of all costs and expenses of collection
incurred by the trustee, including the reasonable fees and
expenses of its counsel, and all other amounts due the trustee
under the indenture;
SECOND, to the payment of all unreimbursed Servicer Advances
due to the servicer;
THIRD, only in the event that DVI Financial Services Inc. is
no longer the servicer, and the servicer has, in its good
faith and reasonable business judgment, deemed the servicing
fee to be commercially unreasonable, then, to the servicer,
the amount agreed upon between the then servicer and the
trustee, each in their good faith and commercially reasonable
judgment, as necessary to make the servicing fee commercially
reasonable and to cover the reasonable costs in transferring
the servicing obligations;
FOURTH, to pay all accrued and unpaid interest on each
outstanding class A note, PRO RATA, without giving any
preference or priority to any class A noteholder;
FIFTH, to pay all accrued and unpaid interest on each
outstanding class B note, PRO RATA, without giving any
preference or priority to any class B noteholder;
SIXTH, to pay all accrued and unpaid interest on each
outstanding class C note, PRO RATA, without giving any
preference or priority to any class C noteholder;
S-79
<PAGE>
SEVENTH, to pay of all accrued and unpaid interest on each
outstanding class D note, PRO RATA, without giving any
preference or priority to any class D noteholder;
EIGHTH, to pay of all accrued and unpaid interest on each
outstanding class E note, PRO RATA, without giving any
preference to any class E noteholder;
NINTH, to pay the entire outstanding class A-1 Note Balance,
and any other amounts due to the class A-1 noteholders, PRO
RATA, without any preference or priority; then to pay the
entire class A-2 Note Balance, and any other amounts due to
the class A-2 noteholders, PRO RATA, without preference or
priority; then to pay the entire class A-3 Note Balance, and
any other amounts due to the class A-3 noteholders, PRO RATA;
and then to pay the entire class A-4 Note Balance, and any
other amounts due to the class A-4 noteholders, PRO RATA;
(PROVIDED that a Subordination Deficiency Event has not
occurred and is continuing, in which case the outstanding
class A-3 Note Balance, and class A-4 Note Balance shall be
paid PRO RATA among the holders of all three of those classes
in accordance with their respective Note Balances);
TENTH, to pay the entire outstanding class B Note Balance, and
any other amounts due to the class B noteholders, PRO RATA,
without giving preference or priority to any class B
noteholder;
ELEVENTH, to pay the entire outstanding class C Note Balance,
and any other amounts due to the class C noteholders, PRO
RATA, without giving preference or priority to any class C
noteholder;
TWELFTH, to pay the entire outstanding class D Note Balance,
and any other amounts due to the class D noteholders, PRO
RATA, without giving preference or priority to any class D
noteholder;
THIRTEENTH, to pay the entire outstanding class E Note
Balance, and any other amounts due to the class E noteholders,
PRO RATA, without giving preference or
S-80
<PAGE>
priority to any class E noteholder;
FOURTEENTH, to pay all accrued and unpaid interest on any
outstanding class F instruments, if any, ratably to each
holder of the class F instruments without giving preference or
priority to any class F instrumentholder;
FIFTEENTH, in the event that DVI Financial Services Inc. is
the servicer, to pay all unreimbursed servicing fees due to
the servicer; and
SIXTEENTH, the payment of the remainder, if any, to, or at the
order of, the issuer.
SERVICER EVENTS OF DEFAULT
Any of the following acts or occurrences shall constitute a
servicer event of default by the servicer under the contribution and servicing
agreement:
(1) failure by the servicer (A), or for so long as DVI Financial
Services Inc. is the servicer, DVI Receivables Corp. X, to remit any
payment required by section 4.06 of the contribution and servicing
agreement to be made by it to the trustee within the time period
required or (B) to make any Servicer Advance as required;
(2) failure to pay to the trustee on or before the date when due, any
deposit required to be made by the servicer under section 4.02 of the
contribution and servicing agreement;
(3) failure on the part of either the servicer, or for so long as DVI
Financial Services Inc. is the servicer, DVI Receivables Corp. X, duly
to observe or perform in any material respect any other of their
respective covenants or agreements in the contribution and servicing
agreement which failure continues for thirty days after servicer
becomes aware of the failure. For example, a failure of the servicer to
deliver a monthly servicer report on the date required or the delivery
of a monthly servicer report which is materially incorrect, if this
failure materially and adversely affects the rights of the noteholders
and
S-81
<PAGE>
continues unremedied for a period of thirty days after the servicer
becomes aware of that failure or receives written notice of that
failure;
(4) if any representation or warranty made by either:
(A) the servicer in the contribution and servicing
agreement or in any certificate or other document
delivered under any transaction documents; or
(B) any successor servicer in connection with its
assumption of the duties of the servicer
shall prove to be incorrect in any material respect as of the time when
it was made;
(5) a court with proper jurisdiction enters any kind of order granting
a so-called "involuntary" petition brought by third parties against the
servicer, or for so long as DVI Financial Services Inc. is the
servicer, DVI Receivables Corp. X, under any applicable federal or
state bankruptcy, etc. law, or if this type of order remains in effect
for a period of ninety consecutive days;
(6) the servicer, or for so long as DVI Financial Services Inc. is the
servicer, DVI Receivables Corp. X, commences or agrees to any kind of
so-called "voluntary" petition for relief under any federal or state
bankruptcy, etc. law;
(7) any unpermitted assignment by the servicer, or any unpermitted
attempt by the servicer to assign its duties or rights under the
contribution and servicing agreement;
(8) (A) the failure of the servicer to make one or more payments with
respect to aggregate recourse indebtedness for borrowed money exceeding
two million dollars; or
(B) the occurrence of any other event or the existence of any
S-82
<PAGE>
other condition, the effect of which event or condition is to cause
more than two million dollars of aggregate recourse indebtedness for
borrowed money of the servicer to become due before its or their stated
maturity or before its or their regularly scheduled dates of payment;
and the failure, event or condition described in either clause (A) or
(B) will continue and is not waived by the person or persons entitled
to performance;
(9) the rendering against the servicer of a final judgment, decree or
order, all possible appeals having been exhausted, for the payment of
money in excess of two million dollars which is uninsured, and the
continuance of this judgment, decree or order unsatisfied and in effect
for any period of sixty consecutive days without a stay of execution;
or
(10) so long as DVI Financial Services Inc. is the servicer, the
occurrence of an Amortization Event.
TERMINATION OF THE SERVICER
If a servicer event of default occurs and is continuing, the
trustee will, upon the request of the holders of notes evidencing more than
662/3% of the Voting Rights, give written notice to the servicer of the
termination of all of the rights and obligations of the servicer under the
contribution and servicing agreement. No servicer termination will release DVI
Financial Services Inc. from its obligations as contributor under that
agreement. Once the servicer receives that notice, all of its rights and
obligations under the contribution and servicing agreement will terminate and be
transferred to the trustee under the "back-up servicer" provisions of the
contribution and servicing agreement and the indenture.
Under the contribution and servicing agreement, the servicer
agrees to cooperate with the trustee or any other successor servicer in
transferring the responsibilities and rights of the servicer to the successor
servicer, including, transferring to the successor servicer its records,
correspondence and documents relating to the contracts and other trust property.
The trustee
S-83
<PAGE>
must give prompt written notice of the outgoing servicer's termination and
transfer of servicing to each holder of the notes.
DUTIES AND IMMUNITIES OF THE TRUSTEE
The trustee makes no representations as to the validity or
sufficiency of the indenture, the notes, the subsequent contract transfer
agreement or the contribution and servicing agreement. The trustee will not be
accountable for the use or application by the issuer or DVI Financial Services
Inc. of any funds paid to DVI Financial Services Inc. in consideration of the
sale of the notes to the investors. The trustee will be required to perform only
those duties specifically required of it under the indenture.
No recourse is available based on any provision of the
indenture, the notes or any contract against the trustee, in its individual
capacity. The trustee has no personal obligation, liability or duty whatsoever
to any noteholder or any other person for any claim, except for any liability as
is determined to have resulted from the trustee's own negligence or willful
misconduct.
The servicer agrees:
(1) to pay to the trustee from time to time
compensation for all services rendered by it under the
indenture as the servicer and the trustee have agreed in
writing prior to the closing date (this payment is made
independent of the other payment obligations of the servicer);
(2) except as otherwise expressly provided in the
indenture to reimburse the trustee upon its request for all
reasonable expenses, disbursements, and advances incurred or
made by the trustee in accordance with any provision of the
indenture, including the reasonable compensation and the
expenses and disbursements of its agents and counsel, except
any expense, disbursement, or advance as may be attributable
to the trustee's negligence or bad faith;
S-84
<PAGE>
(3) on the closing date, to pay the trustee its
annual administrative fee and fees of counsel, and
(4) to pay the reasonable annual administrative fee
of each lockbox bank.
BOOK-ENTRY REGISTRATION OF THE NOTES
GENERAL. Beneficial owners that are not participants of The
Depository Trust Company or intermediaries but desire to purchase, sell or
otherwise transfer ownership of, or other interests in, the class A notes, class
B notes, class C notes and class D notes may do so only through participants,
either directly or indirectly. The class A notes, class B notes, class C notes
and class D notes are together called the offered notes. In addition, beneficial
owners will receive all distributions of principal of and interest on the
offered notes from the paying agent through The Depository Trust Company and
participants. Accordingly, beneficial owners may experience delays in their
receipt of payments. Until definitive securities are issued for the offered
notes, it is anticipated that the only registered noteholder of the offered
notes will be Cede, as nominee of The Depository Trust Company. Beneficial
owners will not be recognized by the trustee or the servicer as noteholders, as
the term is used in the contribution and servicing agreement. Beneficial owners
will be permitted to receive information furnished to noteholders and to
exercise the rights of noteholders only indirectly through The Depository Trust
Company, its participants and intermediaries.
Under the rules, regulations and procedures creating and
affecting The Depository Trust Company and its operations, The Depository Trust
Company is required to make book-entry transfers of offered notes among
participants and to receive and transmit distributions of principal of, and
interest on, those offered notes. Participants and intermediaries with which
beneficial owners have accounts relating to the offered notes also are required
to make book-entry transfers and receive and transmit distributions on behalf of
their respective beneficial owners. As a result, although beneficial owners will
not possess physical certificates evidencing their interests in the offered
notes, the rules, regulations and procedures creating and affecting The
Depository Trust Company and its operations provide a mechanism by which
beneficial
S-85
<PAGE>
owners, through their participants and intermediaries, will receive
distributions and will be able to transfer their interests in the offered notes.
None of the issuer, the servicer, DVI Receivables Corp. X, DVI
Receivables Corp. VIII or the trustee will have any liability for any actions
taken by The Depository Trust Company or its nominee or Cedel or Euroclear,
including, without limitation, actions for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the offered
notes held by Cede, as nominee for The Depository Trust Company, or for
maintaining, supervising or reviewing any records relating to the beneficial
ownership interests. For additional information regarding The Depository Trust
Company and the offered notes, see the prospectus.
DEFINITIVE SECURITIES. Definitive securities will be issued to
beneficial owners or their nominees, respectively, rather than to The Depository
Trust Company or its nominee, only under the limited conditions listed in the
prospectus.
Upon the occurrence of that kind of event, the trustee is
required to notify, through The Depository Trust Company, participants who have
ownership of offered notes as indicated on the records of The Depository Trust
Company of the availability of definitive securities for their offered notes.
Upon surrender by The Depository Trust Company of the definitive certificates
representing the offered notes and upon receipt of instructions from The
Depository Trust Company for re-registration, the trustee will re-issue the
offered notes as definitive securities issued in the respective principal
amounts owned by individual beneficial owners. Thereafter, the trustee and the
servicer will recognize the holders of the definitive securities as noteholders
under the contribution and servicing agreement.
BOOK-ENTRY FACILITIES. Beneficial owners may choose to hold
their interests in the book-entry securities through The Depository Trust
Company in the United States or through Cedel or Euroclear in Europe, if they
are participants of those systems, or indirectly through organizations which are
participants in those systems. The book-entry securities of each class will be
issued in one or more certificates which equal the Note Balance of that class
and will initially be registered in the name of Cede, the nominee of The
Depository Trust Company. Cedel
S-86
<PAGE>
and Euroclear will hold omnibus positions on behalf of their participants
through customers' securities accounts in Cedel's and Euroclear's names on the
books of their respective depositories which in turn will hold those positions
in customers' securities accounts in the depositories' names on the books of The
Depository Trust Company.
Because of time zone differences, credits of securities
received in Cedel or Euroclear as a result of a transaction with a participant
will be made during subsequent securities settlement processing and dated the
business day following the The Depository Trust Company settlement date. These
credits or any transactions in the securities settled during processing will be
reported to the relevant Euroclear participants or Cedel participants on that
business day. Cash received in Cedel or Euroclear as a result of sales of
securities by or through a Cedel participant or Euroclear participant to a
participant will be received with value on The Depository Trust Company
settlement date but will be available in the relevant Cedel or Euroclear cash
account only as of the business day following settlement in The Depository Trust
Company.
Transfers between participants will occur in accordance with
The Depository Trust Company rules. Transfers between Cedel participants and
Euroclear participants will occur in accordance with their respective rules and
operating procedures.
Cross-market transfers between persons holding directly or
indirectly through The Depository Trust Company, on the one hand, and directly
or indirectly through Cedel participants or Euroclear participants, on the
other, will be effected in The Depository Trust Company in accordance with The
Depository Trust Company rules on behalf of the relevant European international
clearing system by the institution acting as a depositary for Cedel or
Euroclear. However, these cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in that system in accordance with its rules and procedures and
within its established deadlines in European time. The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to the relevant depositary to take action to
effect final settlement on its behalf by delivering or receiving securities in
The Depository Trust Company, and making or receiving payment in accordance with
normal procedures for same day funds settlement applicable to The Depository
Trust Company. Cedel participants and Euroclear participants may not deliver
S-87
<PAGE>
instructions directly to the European Depositories.
The Depository Trust Company, which is a New York-chartered
limited purpose trust company, performs services for its participants, some of
which, and/or their representatives, own The Depository Trust Company. In
accordance with its normal procedures, The Depository Trust Company is expected
to record the positions held by each The Depository Trust Company participant in
the book-entry securities, whether held for its own account or as a nominee for
another person. In general, beneficial ownership of book-entry securities will
be subject to the rules, regulations and procedures governing The Depository
Trust Company and its participants.
Cedel is incorporated under the laws of Luxembourg as a
professional depository. Cedel holds securities for its participant
organizations and facilitates the clearance and settlement of securities
transactions between Cedel participants through electronic book-entry changes in
accounts of Cedel participants, eliminating the need for physical movement of
certificates. Transactions may be settled in Cedel in any of 28 currencies,
including United States dollars. Cedel provides to its Cedel participants, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing. Cedel
interfaces with domestic markets in several countries. As a professional
depository, Cedel is subject to regulation by the Luxembourg Monetary Institute.
Cedel participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust companies,
clearing corporations and other organizations. Indirect access to Cedel is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Cedel participant,
either directly or indirectly.
Euroclear was created in 1968 to hold securities for
participants of Euroclear and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, eliminating the need for physical movement of certificates and any risk
from lack of simultaneous transfers of securities and cash. Transactions may now
be settled in any of 32 currencies, including United States dollars. Euroclear
provides various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with The
S-88
<PAGE>
Depository Trust Company described above. Euroclear is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York under contract with
Euroclear Clearance Systems S.C., a Belgian cooperative corporation. All
operations are conducted by the Brussels, Belgium office of Morgan Guaranty
Trust Company of New York, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York, not Euroclear Clearance Systems S.C.
Euroclear Clearance Systems S.C. establishes policy for Euroclear on behalf of
Euroclear participants. Euroclear participants include banks, including central
banks, securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
participant, either directly or indirectly.
The Brussels, Belgium office of Morgan Guaranty Trust Company
is the Belgian branch of a New York banking corporation which is a member bank
of the Federal Reserve System. As such, it is regulated and examined by the
Board of Governors of the Federal Reserve System and the New York State Banking
Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the
Brussels, Belgium office of Morgan Guaranty Trust Company are governed by the
Terms and Conditions Governing Use of Euroclear and the related Operating
Procedures of the Euroclear System and applicable Belgian law. The terms and
conditions govern transfers of securities and cash within Euroclear, withdrawals
of securities and cash from Euroclear, and receipts of payments for securities
in Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Brussels, Belgium office of Morgan Guaranty Trust Company acts under the
terms and conditions only on behalf of Euroclear participants, and has no record
of or relationship with persons holding through Euroclear participants.
Distributions on the book-entry securities will be made on
each distribution date by the trustee to The Depository Trust Company. The
Depository Trust Company will be responsible for crediting the amount of those
payments to the accounts of the applicable
S-89
<PAGE>
participants in accordance with The Depository Trust Company's normal
procedures. Each participant will be responsible for disbursing those payments
to the beneficial owners of the book-entry securities that it represents and to
each intermediary for which it acts as agent. Each intermediary will be
responsible for disbursing funds to the beneficial owners of the book-entry
securities that it represents.
Under a book-entry format, beneficial owners of the book-entry
securities may experience some delay in their receipt of payments, since those
payments will be forwarded by the trustee to Cede. Since transactions in the
book-entry securities will be effected only through The Depository Trust
Company, participating organizations, indirect participants and some banks, the
ability of a beneficial owner to pledge offered notes to persons or entities
that do not participate in The Depository Trust Company system, or otherwise to
take actions relating to the offered notes, may be limited due to lack of a
physical certificate representing the offered notes. In addition, issuance of
the book-entry securities in book-entry form may reduce the liquidity of the
offered notes in the secondary market since some potential investors may be
unwilling to purchase offered notes for which they cannot obtain physical
certificates.
The Depository Trust Company has advised the issuer and the
trustee that, unless and until definitive securities are issued, The Depository
Trust Company will take any action permitted to be taken by the holders of the
book-entry securities under the agreement only at the direction of one or more
participants to whose The Depository Trust Company accounts the book-entry
securities are credited, to the extent that those actions are taken on behalf of
intermediaries whose holdings include those book-entry securities. The
Depository Trust Company may take actions, at the direction of the related
participants, for some offered notes which conflict with actions taken for other
offered notes.
Although The Depository Trust Company has agreed to the
foregoing procedures in order to facilitate transfers of offered notes among
participants of The Depository Trust Company, it is under no obligation to
perform or continue to perform those procedures and those procedures may be
discontinued at any time.
The Depository Trust Company management is aware that some
computer
S-90
<PAGE>
systems for processing data that are dependent upon calendar dates, including
dates before, on, and after January 1, 2000, may encounter so-called "Year 2000
problems". The Depository Trust Company has informed its participants and other
members of the financial community that it has developed and is implementing a
program so that its systems continue to function appropriately. This program
includes a technical assessment and a remediation plan, each of which is
complete. Additionally, The Depository Trust Company's plan includes a testing
phase, which is expected to be completed later this year.
However, The Depository Trust Company's ability to perform
properly its services is also dependent upon other parties, including but not
limited to issuers and their agents, as well as third party vendors from whom
The Depository Trust Company licenses software and hardware, and third party
vendors on whom The Depository Trust Company relies for information or the
provision of services, including telecommunication and electrical utility
service providers, among others. The Depository Trust Company has informed the
financial community that it is contacting third party vendors from whom The
Depository Trust Company acquires services to:
(1) impress upon them the importance of such services being
year 2000 compliant; and
(2) determine the extent of their efforts to make their
services year 2000 compliant. In addition, The Depository Trust Company
is in the process of developing appropriate contingency plans.
According to The Depository Trust Company, the foregoing
information relating to The Depository Trust Company has been provided to the
financial community for information purposes only and is not intended to serve
as a representation, warranty, or contract modification of any kind.
S-91
<PAGE>
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the notes will be directly
related to the scheduled rate of payments on the contracts in the trust
property. If purchased at a price of other than par, the yield to maturity will
also be affected by the rate of contract payments. The extent to which the yield
to maturity of a note is sensitive to the rate of principal payments will
depend, in part, upon the size of any discount or premium. If the purchaser of a
note purchased at a discount from its initial principal balance calculates its
anticipated yield to maturity based on an assumed rate of payment of principal
that is faster than that actually experienced on that note, the actual yield to
maturity will be lower than that so calculated. On the other hand, if the
purchaser of a note purchased at a premium calculates its anticipated yield to
maturity based on an assumed rate of payment of principal that is slower than
that actually experienced on the note, the actual yield to maturity will be
lower than that so calculated.
Payments on the contracts may be in the form of scheduled
contract payments or accelerated payments resulting from default, casualty or
prepayment. These accelerated payments will result in payments to noteholders of
amounts earlier than would otherwise have been paid over the remaining term of
the contracts. In most cases, prepayments on the contracts will tend to shorten
the weighted average lives of the notes, whereas delays in payments on the
contracts and modifications extending the maturity of the contract will tend to
lengthen the weighted average lives of the notes. Any changes in weighted
average lives may adversely affect the yield to noteholders. In general, the
rate of payments may be influenced by a number of other factors, including
general economic conditions. The rate of payment of principal may also be
affected by any removal of the contracts from the pool and the deposit of the
related Prepayment Amount or Partial Prepayment Amount, as applicable, into the
collection account.
The contracts in most cases do not provide for the right of
the obligor to prepay. However, under the contribution and servicing agreement,
the servicer is permitted to allow prepayments in an amount not less than the
Prepayment Amount or Partial Prepayment Amount, as applicable. In addition, in
the event that an obligor requests an upgrade or trade-in of equipment, the
servicer may remove the equipment and related contract from the trust property,
but only upon payment of the Prepayment Amount or Partial Prepayment Amount, as
applicable.
S-92
<PAGE>
In either case, the servicer may also replace the contracts with substitute
contracts. See "THE CONTRACTS -- SUBSTITUTE CONTRACTS" on page S-54 of this
prospectus supplement. Any Prepayment Amounts or Partial Prepayment Amounts paid
shall be remitted by the servicer to the trustee or deposited into the
collection account and shall be applied as a prepayment of the notes. The
servicer historically has permitted obligors to terminate contracts early, or,
in case of contracts covering more than one item of equipment, to partially
prepay contracts, either in connection with the execution of a new contract of
replacement equipment, or upon payment of a negotiated premium, or both.
The effective yield to noteholders will depend upon, among
other things, the price at which the notes are purchased, the amount of and rate
at which principal, including both scheduled and nonscheduled payments of that
principal, is paid to the noteholders.
The following tables show the percentage of the initial Note
Balance of the class A-1 notes, class A-2 notes, class A-3 notes, class A-4
notes, class B notes, class C notes and class D notes (assuming initial Note
Balances equal to $31,483,000, $42,182,000, $65,098,000, $99,051,000,
$4,054,000, $8,107,000 and $5,405,000, respectively) which would be outstanding
on the payment dates set forth below assuming a conditional payment rate of 0%,
3%, 7%, 11% and 15%, respectively. We calculated these tables using the actual
Discount Rate of 7.79407%. This information is hypothetical and is set forth for
illustrative purposes only. The conditional payment rate assumes that a fraction
of the Aggregate Discounted Contract Balance is prepaid at the end of each
collection period, which implies that each contract is equally likely to prepay.
We annualized this fraction and expressed it as a percentage to arrive at the
conditional payment rate for the contract pool. The conditional payment rate
measures prepayments based on the outstanding Aggregate Discounted Contract
Balance after the payment of all scheduled contract payments during the
applicable collection period. The conditional payment rate further assumes that
all contracts are the same size, amortize at the same rate and that each
contract will be either paid as scheduled or prepaid in full. The information
assumes that
o scheduled contract payments are received on time;
o the issuer does not exercise its option to redeem the notes;
o the closing date is October 28, 1999;
S-93
<PAGE>
o the first payment date is November 13, 1999;
o distributions on the notes are made on the thirteenth day of
each month regardless of the day on which the payment date
actually occurs;
o no delinquencies or defaults in the payment of principal and
interest on the contracts are experienced;
o no contract is repurchased for breach of representation or
warranty or otherwise;
o payments on the contracts are received on the last day of each
collection period;
o the servicing fee is 0.45%;
o the initial Note Balance of the class E notes is $6,756,000;
o the pool consists of a single contract with an Aggregate
Discounted Contract Balance of $270,243,724.70 on which
interest is accrued at the actual Discount Rate of 7.79407%;
and
o no Amortization Event, Subordination Deficiency Event,
indenture event of default or other event of default occurs.
Because the tables were prepared on the basis of the modeling
assumptions mentioned above, there are discrepancies between the characteristics
of the actual contracts and the characteristics of the contracts we assumed in
preparing the tables. Any of these discrepancies may have an effect upon the
percentages of the Note Balance outstanding and weighted average lives of the
notes set forth in the tables. In addition, since the actual contracts have
characteristics which differ from those we assumed when preparing the tables
below, the related weighted average life may be longer or shorter than as
indicated in the tables.
The contracts will not have the characteristics we assumed
above, and no one can assure you that either (i) the contracts will prepay at
any of the rates shown in the tables shown below or at any other particular rate
or will prepay proportionately or (ii) the weighted average lives of the notes
will be the same as the one we used. Because the rate of distributions of
principal of the notes will be a result of the actual amortization (including
prepayments) of the contracts, which will include contracts that have remaining
terms to stated maturity shorter or longer than those assumed, the weighted
average lives of the notes will differ from those set forth above, even if all
of the contracts prepay at the indicated constant prepayment rates.
S-94
<PAGE>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS A-1
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
---------------------------------------
PAYMENT DATE IN 0.00% 3.00% 7.00% 11.00% 15.00%
- ------------------------------------------------------------ ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Closing Date................................................ 100 100 100 100 100
November 1999............................................... 91 90 87 84 81
December 1999............................................... 84 80 75 70 64
January 2000................................................ 76 70 63 55 47
February 2000............................................... 66 59 49 39 28
March 2000.................................................. 56 47 35 23 10
April 2000.................................................. 46 35 21 6 0
May 2000.................................................... 35 23 6 0 0
June 2000................................................... 23 10 0 0 0
July 2000................................................... 12 0 0 0 0
August 2000................................................. 0 0 0 0 0
September 2000.............................................. 0 0 0 0 0
October 2000................................................ 0 0 0 0 0
November 2000............................................... 0 0 0 0 0
WEIGHTED AVERAGE LIFE (YEARS)............................... 0.450 0.387 0.322 0.272 0.234
</TABLE>
S-95
<PAGE>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS A-2
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
---------------------------------------
PAYMENT DATE IN 0.00% 3.00% 7.00% 11.00% 15.00%
- ------------------------------------------------------------ ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Closing Date................................................ 100 100 100 100 100
November 1999............................................... 100 100 100 100 100
December 1999............................................... 100 100 100 100 100
January 2000................................................ 100 100 100 100 100
February 2000............................................... 100 100 100 100 100
March 2000.................................................. 100 100 100 100 100
April 2000.................................................. 100 100 100 100 93
May 2000.................................................... 100 100 100 92 79
June 2000................................................... 100 100 94 80 65
July 2000................................................... 100 98 82 67 52
August 2000................................................. 100 88 71 55 38
September 2000.............................................. 91 78 60 42 25
October 2000................................................ 82 68 49 30 11
November 2000............................................... 73 58 38 18 0
December 2000............................................... 64 48 27 6 0
January 2001................................................ 55 38 16 0 0
February 2001............................................... 45 28 5 0 0
March 2001.................................................. 36 18 0 0 0
April 2001.................................................. 27 8 0 0 0
May 2001.................................................... 18 0 0 0 0
June 2001................................................... 8 0 0 0 0
July 2001................................................... 0 0 0 0 0
August 2001................................................. 0 0 0 0 0
September 2001.............................................. 0 0 0 0 0
October 2001................................................ 0 0 0 0 0
November 2001............................................... 0 0 0 0 0
December 2001............................................... 0 0 0 0 0
January 2002................................................ 0 0 0 0 0
February 2002............................................... 0 0 0 0 0
March 2002.................................................. 0 0 0 0 0
WEIGHTED AVERAGE LIFE (YEARS)............................... 1.291 1.150 0.994 0.867 0.762
</TABLE>
S-96
<PAGE>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS A-3
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
---------------------------------------
PAYMENT DATE IN 0.00% 3.00% 7.00% 11.00% 15.00%
- ------------------------------------------------------------ ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Closing Date................................................ 100 100 100 100 100
November 1999............................................... 100 100 100 100 100
December 1999............................................... 100 100 100 100 100
January 2000................................................ 100 100 100 100 100
February 2000............................................... 100 100 100 100 100
March 2000.................................................. 100 100 100 100 100
April 2000.................................................. 100 100 100 100 100
May 2000.................................................... 100 100 100 100 100
June 2000................................................... 100 100 100 100 100
July 2000................................................... 100 100 100 100 100
August 2000................................................. 100 100 100 100 100
September 2000.............................................. 100 100 100 100 100
October 2000................................................ 100 100 100 100 100
November 2000............................................... 100 100 100 100 99
December 2000............................................... 100 100 100 100 91
January 2001................................................ 100 100 100 96 83
February 2001............................................... 100 100 100 89 75
March 2001.................................................. 100 100 97 82 67
April 2001.................................................. 100 100 90 74 59
May 2001.................................................... 100 99 83 67 52
June 2001................................................... 100 93 76 60 44
July 2001................................................... 99 86 69 53 37
August 2001................................................. 93 80 63 46 30
September 2001.............................................. 87 73 56 39 23
October 2001................................................ 81 67 49 32 16
November 2001............................................... 74 60 43 26 9
December 2001............................................... 68 54 36 19 3
January 2002................................................ 62 47 29 12 0
February 2002............................................... 55 41 23 6 0
March 2002.................................................. 49 35 16 0 0
April 2002.................................................. 43 28 10 0 0
May 2002.................................................... 36 22 4 0 0
June 2002................................................... 30 16 0 0 0
July 2002................................................... 24 10 0 0 0
August 2002................................................. 18 4 0 0 0
September 2002.............................................. 12 0 0 0 0
October 2002................................................ 6 0 0 0 0
November 2002............................................... 1 0 0 0 0
December 2002............................................... 0 0 0 0 0
WEIGHTED AVERAGE LIFE (YEARS)............................... 2.407 2.221 1.994 1.792 1.614
</TABLE>
S-97
<PAGE>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS A-4
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
---------------------------------------
PAYMENT DATE IN 0.00% 3.00% 7.00% 11.00% 15.00%
- ------------------------------------------------------------ ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Closing Date................................................ 100 100 100 100 100
November 1999............................................... 100 100 100 100 100
December 1999............................................... 100 100 100 100 100
January 2000................................................ 100 100 100 100 100
February 2000............................................... 100 100 100 100 100
March 2000.................................................. 100 100 100 100 100
April 2000.................................................. 100 100 100 100 100
May 2000.................................................... 100 100 100 100 100
June 2000................................................... 100 100 100 100 100
July 2000................................................... 100 100 100 100 100
August 2000................................................. 100 100 100 100 100
September 2000.............................................. 100 100 100 100 100
October 2000................................................ 100 100 100 100 100
November 2000............................................... 100 100 100 100 100
December 2000............................................... 100 100 100 100 100
January 2001................................................ 100 100 100 100 100
February 2001............................................... 100 100 100 100 100
March 2001.................................................. 100 100 100 100 100
April 2001.................................................. 100 100 100 100 100
May 2001.................................................... 100 100 100 100 100
June 2001................................................... 100 100 100 100 100
July 2001................................................... 100 100 100 100 100
August 2001................................................. 100 100 100 100 100
September 2001.............................................. 100 100 100 100 100
October 2001................................................ 100 100 100 100 100
November 2001............................................... 100 100 100 100 100
December 2001............................................... 100 100 100 100 100
January 2002................................................ 100 100 100 100 97
February 2002............................................... 100 100 100 100 93
March 2002.................................................. 100 100 100 100 89
April 2002.................................................. 100 100 100 96 85
May 2002.................................................... 100 100 100 92 81
June 2002................................................... 100 100 99 88 78
July 2002................................................... 100 100 95 84 74
August 2002................................................. 100 100 91 80 71
September 2002.............................................. 100 99 87 77 67
October 2002................................................ 100 95 84 73 64
November 2002............................................... 100 91 80 70 61
December 2002............................................... 97 88 77 67 58
January 2003................................................ 93 84 73 63 55
February 2003............................................... 89 80 70 60 52
March 2003.................................................. 85 77 66 57 49
April 2003.................................................. 81 73 63 54 46
</TABLE>
S-98
<PAGE>
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
---------------------------------------
PAYMENT DATE IN 0.00% 3.00% 7.00% 11.00% 15.00%
- ------------------------------------------------------------ ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
May 2003.................................................... 77 69 59 51 43
June 2003................................................... 73 65 56 48 40
July 2003................................................... 69 62 53 45 38
August 2003................................................. 66 58 50 42 35
September 2003.............................................. 62 55 47 39 33
October 2003................................................ 58 51 43 36 30
November 2003............................................... 54 48 40 34 28
December 2003............................................... 51 45 37 31 26
January 2004................................................ 47 41 34 29 23
February 2004............................................... 43 38 31 26 21
March 2004.................................................. 39 34 28 23 19
April 2004.................................................. 36 31 26 21 17
May 2004.................................................... 32 28 23 19 15
June 2004................................................... 28 25 20 16 13
July 2004................................................... 25 22 18 14 12
August 2004................................................. 22 19 16 13 10
September 2004.............................................. 20 17 14 11 9
October 2004................................................ 17 15 12 9 8
November 2004............................................... 15 13 10 8 7
December 2004............................................... 13 11 9 7 6
January 2005................................................ 11 10 8 6 5
February 2005............................................... 10 8 7 5 4
March 2005.................................................. 9 7 6 5 4
April 2005.................................................. 7 6 5 4 3
May 2005.................................................... 5 4 3 2 2
June 2005................................................... 4 3 3 2 2
July 2005................................................... 3 3 2 2 1
August 2005................................................. 3 3 2 2 1
September 2005.............................................. 3 2 2 1 1
October 2005................................................ 2 2 2 1 1
November 2005............................................... 2 2 1 1 1
December 2005............................................... 2 2 1 1 1
January 2006................................................ 2 1 1 1 1
February 2006............................................... 1 1 1 1 0
March 2006.................................................. 1 1 1 1 0
April 2006.................................................. 1 1 1 0 0
May 2006.................................................... 1 1 0 0 0
June 2006................................................... 1 0 0 0 0
July 2006................................................... 0 0 0 0 0
August 2006................................................. 0 0 0 0 0
September 2006.............................................. 0 0 0 0 0
October 2006................................................ 0 0 0 0 0
November 2006............................................... 0 0 0 0 0
December 2006............................................... 0 0 0 0 0
WEIGHTED AVERAGE LIFE (YEARS)............................... 4.258 4.117 3.923 3.725 3.525
</TABLE>
S-99
<PAGE>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS B, CLASS C, CLASS D
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
---------------------------------------
PAYMENT DATE IN 0.00% 3.00% 7.00% 11.00% 15.00%
- ------------------------------------------------------------ ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Closing Date................................................ 100 100 100 100 100
November 1999............................................... 99 99 98 98 98
December 1999............................................... 98 97 97 96 95
January 2000................................................ 97 96 95 94 93
February 2000............................................... 96 95 93 92 91
March 2000.................................................. 94 93 91 90 88
April 2000.................................................. 93 91 90 88 86
May 2000.................................................... 91 90 88 85 83
June 2000................................................... 90 88 86 83 81
July 2000................................................... 88 86 84 81 78
August 2000................................................. 87 85 82 79 76
September 2000.............................................. 85 83 80 77 73
October 2000................................................ 84 81 78 74 71
November 2000............................................... 82 79 76 72 69
December 2000............................................... 80 78 74 70 66
January 2001................................................ 79 76 72 68 64
February 2001............................................... 77 74 70 66 62
March 2001.................................................. 75 72 68 64 60
April 2001.................................................. 74 71 66 62 58
May 2001.................................................... 72 69 64 60 56
June 2001................................................... 70 67 62 58 54
July 2001................................................... 69 65 61 56 52
August 2001................................................. 67 63 59 54 50
September 2001.............................................. 65 62 57 52 48
October 2001................................................ 64 60 55 50 46
November 2001............................................... 62 58 53 49 44
December 2001............................................... 60 56 51 47 42
January 2002................................................ 58 55 50 45 41
February 2002............................................... 57 53 48 43 39
March 2002.................................................. 55 51 46 42 37
April 2002.................................................. 53 49 44 40 35
May 2002.................................................... 52 48 43 38 34
June 2002................................................... 50 46 41 37 32
July 2002................................................... 48 44 40 35 31
August 2002................................................. 47 43 38 34 29
September 2002.............................................. 45 41 36 32 28
October 2002................................................ 43 40 35 31 27
November 2002............................................... 42 38 33 29 25
December 2002............................................... 40 37 32 28 24
January 2003................................................ 39 35 31 26 23
February 2003............................................... 37 33 29 25 22
March 2003.................................................. 35 32 28 24 20
April 2003.................................................. 34 30 26 22 19
</TABLE>
S-100
<PAGE>
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
---------------------------------------
PAYMENT DATE IN 0.00% 3.00% 7.00% 11.00% 15.00%
- ------------------------------------------------------------ ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
May 2003.................................................... 32 29 25 21 18
June 2003................................................... 30 27 23 20 17
July 2003................................................... 29 26 22 19 16
August 2003................................................. 27 24 21 17 15
September 2003.............................................. 26 23 19 16 14
October 2003................................................ 24 21 18 15 13
November 2003............................................... 23 20 17 14 12
December 2003............................................... 21 19 16 13 11
January 2004................................................ 19 17 14 12 10
February 2004............................................... 18 16 13 11 9
March 2004.................................................. 16 14 12 10 8
April 2004.................................................. 15 13 11 9 7
May 2004.................................................... 13 12 9 8 6
June 2004................................................... 12 10 8 7 6
July 2004................................................... 10 9 7 6 5
August 2004................................................. 9 8 7 5 4
September 2004.............................................. 8 7 6 5 4
October 2004................................................ 7 6 5 4 3
November 2004............................................... 6 5 4 3 3
December 2004............................................... 5 5 4 3 2
January 2005................................................ 5 4 3 3 2
February 2005............................................... 4 4 3 2 2
March 2005.................................................. 4 3 2 2 1
April 2005.................................................. 3 3 2 2 1
May 2005.................................................... 2 2 1 1 1
June 2005................................................... 2 1 1 1 1
July 2005................................................... 1 1 1 1 1
August 2005................................................. 1 1 1 1 1
September 2005.............................................. 1 1 1 1 0
October 2005................................................ 1 1 1 1 0
November 2005............................................... 1 1 1 0 0
December 2005............................................... 1 1 0 0 0
January 2006................................................ 1 1 0 0 0
February 2006............................................... 1 0 0 0 0
March 2006.................................................. 0 0 0 0 0
April 2006.................................................. 0 0 0 0 0
May 2006.................................................... 0 0 0 0 0
June 2006................................................... 0 0 0 0 0
July 2006................................................... 0 0 0 0 0
August 2006................................................. 0 0 0 0 0
September 2006.............................................. 0 0 0 0 0
October 2006................................................ 0 0 0 0 0
November 2006............................................... 0 0 0 0 0
December 2006............................................... 0 0 0 0 0
WEIGHTED AVERAGE LIFE (YEARS)............................... 2.721 2.578 2.399 2.232 2.076
</TABLE>
S-101
<PAGE>
CERTAIN LEGAL MATTERS AFFECTING AN
OBLIGOR'S RIGHTS AND OBLIGATIONS
GENERAL
The contracts are either "accounts," "instruments" or "chattel paper"
as defined in the Uniform Commercial Code in effect in nearly every state of the
United States. Under the Uniform Commercial Code for most purposes, a sale of
accounts or chattel paper is treated in a manner similar to a transaction
creating a security interest in accounts or chattel paper. DVI Financial
Services Inc., DVI Receivables Corp. X and the issuer will cause the filing of
appropriate UCC-1 financing statements to be made with the appropriate
governmental authorities in the Commonwealth of Pennsylvania to give notice of:
o DVI Financial Services Inc.'s transfer of the contracts to the DVI
Receivables Corp. X;
o DVI Receivables Corp. X's transfer of the contracts to the issuer; and
o the pledge of the contracts to the trustee.
Under the contribution and servicing agreement, the servicer will be obligated
from time to time to take such actions as are necessary to protect and perfect
the trustee's interests in the contracts and their proceeds.
A 1993 decision of the United States Court of Appeals for the Tenth
Circuit states that, among other things, accounts sold by an entity remain
property of that entity's bankruptcy estate in the event of its reorganization
or bankruptcy proceedings subsequent to the sale. Even though that decision
addressed "accounts" rather than "chattel paper" such as the contracts, if a
court in any bankruptcy proceedings of DVI Financial Services Inc. were to adopt
the reasoning of the Tenth Circuit reflected in that 1993 decision, then the
contracts would be included in the bankruptcy estate of DVI Financial Services
Inc. and delays in payment of collections on or in
S-102
<PAGE>
respect of the contracts could occur. In addition, the court, among other
remedies, could elect to accelerate payment of the notes and liquidate the
contracts and the equipment. The noteholders would only be entitled to the then
outstanding Aggregate Discounted Contract Balance and interest on that balance
at the applicable Note Rate to the date of payment from the proceeds of such
liquidation. Thus, the noteholders could lose the right to future payments of
interest and might incur reinvestment losses.
THE EQUIPMENT
DVI Financial Services Inc. will transfer to DVI Receivables Corp. X
by grant or assignment, a security interest in its interest, if any, in the
equipment. With respect to some contracts, DVI Financial Services Inc. will also
transfer an equity interest in the related equipment to DVI Receivables Corp. X.
DVI Receivables Corp. X will transfer a security interest, but not an ownership
interest, in all equipment to the issuer, and the issuer will pledge the
security interest to the trustee. In the event of a default by the obligor under
a contract, the servicer on behalf of the trustee may take action to enforce
that defaulted contract and the related security interest by repossession and
resale of the leased equipment. Under the Uniform Commercial Code, a creditor
such as DVI Financial Services Inc., DVI Receivables Corp. X, the issuer or the
trustee can, without prior notice to the obligor, repossess assets securing the
obligor's obligations under a defaulted contract by the obligor's voluntary
surrender of such assets or by "self-help" repossession that does not involve a
breach of the peace or by judicial process.
In the event of a default by the obligor, some jurisdictions require
that the obligor be notified of the default and be given a time period within
which it may cure the default prior to repossession. In most cases, this right
of reinstatement may be exercised on a limited number of occasions in any
one-year period.
The Uniform Commercial Code and other state laws place restrictions on
repossession sales. These restrictions include requirements that the secured
party provide the obligor with reasonable notice of the date, time and place of
any public sale and/or the date after which any private sale of the collateral
may be held and that any sale be conducted in a commercially reasonable manner.
The contribution and servicing agreement will require the
S-103
<PAGE>
servicer to sell promptly any repossessed equipment.
Under most state laws, an obligor has the right to redeem any
collateral for its obligations, prior to a foreclosure sale of that property. To
do so it must by pay the secured party the unpaid balance of the obligations
plus interest and the secured party's reasonable expenses for repossession,
holding and preparing the collateral for disposition and arranging for its sale.
In addition, to the extent provided for in the written agreement of the parties,
the obligor must pay reasonable attorneys' fees.
In addition, because the market value of the equipment of the type
financed under the contracts generally declines with age and because of
obsolescence, the net disposition proceeds of leased equipment at any time
during the term of the contract may be less than the outstanding balance on the
contract principal balance which it secures. Because of this, and because other
creditors may have rights in the related equipment superior to those of the
trustee, the servicer may not be able to recover the entire amount due on a
defaulted contract in the event that the servicer elects to repossess and sell
the related equipment under those circumstances.
Under the Uniform Commercial Code and laws applicable in most states,
a creditor is entitled to obtain a so-called "deficiency judgment" from an
obligor for any shortfall between the unpaid balance of that obligor's contract
and the net proceeds received from any collateral for that contract. However,
some states, including those where some of the obligors may be located, impose
prohibitions or limitations on deficiency judgments. In most jurisdictions, the
courts, in interpreting the Uniform Commercial Code, would impose upon a
creditor an obligation to repossess the equipment in a commercially reasonable
manner and to mitigate and minimize its damages in the event of an obligor's
failure to cure a default. The creditor would be required to exercise reasonable
judgment and follow acceptable commercial practice in seizing and disposing of
the equipment and to offset the net proceeds of disposition against its claim.
In addition, an obligor may successfully invoke an election of remedies defense
to a deficiency claim in the event that the servicer's repossession and sale of
the leased equipment is found to be a retention discharging the obligor from all
further obligations under Section 9-505(2) of the Uniform Commercial Code. If a
deficiency judgment were granted, the judgment would be a personal judgment
against the obligor for the shortfall, but a defaulting obligor may
S-104
<PAGE>
have very little capital or sources of income available following repossession.
Therefore, in many cases, it may not be useful to seek a deficiency judgment or,
if one is obtained, it may be settled at a significant discount.
In the event of the bankruptcy or reorganization of an obligor,
various provisions of the Bankruptcy Reform Act of 1978, as amended, and related
laws may delay, interfere with and/or eliminate or reduce the ability of the
trustee to enforce its rights under the contracts. With regard to any contract
not constituting a "true lease," the Bankruptcy Code permits an obligor to be
treated as the owner of the related equipment. If bankruptcy cases or
proceedings were instituted for an obligor, the trustee could be prevented from
continuing to collect payments due from or on behalf of that obligor or
exercising any remedies assigned to the trustee without the approval of the
bankruptcy court. The bankruptcy court could also permit the obligor to use,
sublease, sell or dispose of the equipment and provide the trustee with a lien
on replacement collateral, so long as the replacement collateral constituted
"adequate protection" as defined under the Bankruptcy Code. In the event that,
as a result of the bankruptcy or reorganization of an obligor, the trustee is
prevented from collecting payments with respect to a contract and that contract
becomes a defaulted contract, noteholders could experience delays in the payment
of principal and interest and/or losses on their investment.
With regard to any contract constituting a "true lease," the
Bankruptcy Code grants to the bankruptcy trustee for an obligor, or the obligor
as a debtor-in-possession, a right to elect to assume or reject that unexpired
lease. Also, a bankruptcy court may permit an obligor to assign its rights and
obligations under the contract. Any assumption of a contract requires the
obligor to cure any default under that contract, which may mean "adequate
assurance" of prompt cure, and to provide "adequate assurance" of future
performance under that contract, and of compensation for any actual pecuniary
loss incurred by noteholders resulting from the default. Any rejection of the
contract constitutes a breach of that contract, entitling the trustee to a
return of the equipment and to a pre-petition unsecured claim for damages for
breach of the contract. The trustee also would be entitled to collect from an
obligor's bankruptcy estate any administrative rent or adequate protection
amounts payable by the obligor as provided under the Bankruptcy Code. Bankruptcy
court approval might be necessary prior to the trustee repossessing the
equipment or obtaining payments on its unsecured pre-petition claims and/or
S-105
<PAGE>
claims against the obligor's bankruptcy estate.
Most states have adopted a version of Article 2A of the Uniform
Commercial Code, which is applicable to "true leases" such as fair market value
leases. Article 2A purports to codify many provisions of existing common law.
Although there is little precedential authority regarding how Article 2A will be
interpreted, it may, among other things, limit enforceability of any
"unconscionable" lease or "unconscionable" provision in a lease, provide a
lessee with remedies, including the right to cancel the lease contract, for any
lessor breach or default, and may add to or modify the terms of "consumer
leases" and leases where the lessee is a "merchant lessee." However, DVI
Financial Services Inc. will represent that, to the best of its knowledge (i) no
contract is a "consumer lease;" and (ii) each obligor has accepted the equipment
leased to it and, after reasonable opportunity to inspect and test, has
continued to make scheduled payments under the related contract. Article 2A,
moreover, recognizes typical commercial lease "hell or high water" rental
payment clauses and validates reasonable liquidated damages provisions in the
event of lessor or lessee defaults. Article 2A also recognizes the concept of
freedom of contract and permits the parties in a commercial context a wide
latitude to vary provisions of the law.
Certain governmental and quasi-governmental entities, like
municipalities and public hospitals, condition contract payments on the
availability of budgeted funds. If contracts are part of the trust property and
such budgeted funds are not available, the servicer or trustee may be forced to
repossess related equipment and noteholders may experience delays and/or losses
in payment.
Title 6 of the Bankruptcy Reform Act of 1994 established the National
Bankruptcy Review Commission for purposes of analyzing the nation's bankruptcy
laws and making recommendations to Congress for legislative changes to the
bankruptcy laws. A similar commission was involved in developing the Bankruptcy
Code. The final National Bankruptcy Review Commission report has been issued and
may ultimately lead to substantive changes to the existing Bankruptcy Code which
could affect the contracts.
These Uniform Commercial Code and bankruptcy provisions, in addition
to the
S-106
<PAGE>
possible decrease in value of a repossessed item of leased equipment, may limit
the amount realized on the sale of the collateral to less than the amount due on
the related contract.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the notes
is based upon the provisions of the Internal Revenue Code of 1986, as amended,
the Treasury regulations promulgated thereunder, published rulings of the
Internal Revenue Service and judicial decisions, all in effect as of the date of
this prospectus supplement, all of which authorities are subject to change or
differing interpretations, which could apply retroactively. The discussion below
does not purport to deal with the federal income tax consequences applicable to
all categories of investors and is directed solely to class A, class B, class C
or class D noteholders that are institutional investors, hold the notes as
capital assets within the meaning of section 1221 of the Code and acquire such
notes for investment and not as a dealer or for resale. This discussion does not
address every aspect of the federal income tax laws that may be relevant to a
class A, class B, class C or class D noteholder in light of its particular
investment circumstances, nor does it purport to deal with federal income tax
consequences applicable to all categories of class A, class B, class C or class
D noteholders. Some categories of noteholders, such as banks, insurance
companies and foreign investors, among others, may be subject to special rules
or treatment under the federal income tax laws. Further, this discussion does
not address some collateral tax consequences that may result from ownership of
the notes. For purposes of this tax discussion, references to a "noteholder" or
a "holder" are to the beneficial owner of a note.
Class A, class B, class C or class D noteholders and preparers of tax
returns should be aware that under applicable Treasury regulations a provider of
advice on specific issues of law is not considered an income tax return preparer
unless the advice is:
o given for events that have occurred at the time the advice is
rendered and is not given for the consequences of contemplated
actions; and
o is directly relevant to the determination of an entry on a tax
return.
S-107
<PAGE>
Accordingly, class A, class B, class C or class D noteholders
should consult their own tax advisors and tax return preparers
regarding the preparation of any item on a tax return, even where
the anticipated tax treatment has been discussed in this
prospectus supplement.
Prospective investors should be aware that the servicer and the issuer
will not seek any rulings from the IRS regarding any of the tax consequences
discussed in this prospectus supplement. Further, while the issuer will receive
an opinion of counsel, as described below, with respect to the federal income
tax treatment of the notes, that opinion is not binding on the IRS or the
courts, and no assurance can be given that the IRS will not take contrary
positions that may be sustained by a court.
In addition to the federal income tax consequences described in this
prospectus supplement, potential investors should consider the tax consequences,
if any, of the purchase, ownership and disposition of the notes under the tax
laws of any applicable state, locality or foreign jurisdiction. See "CERTAIN
STATE, LOCAL AND OTHER TAX CONSIDERATIONS" at page S-118 of this prospectus
supplement. The servicer and the issuer make no representations regarding the
tax consequences of purchase, ownership or disposition of the notes under the
tax laws of any state, locality or foreign jurisdiction. Investors considering
an investment in the notes should consult their own tax advisors regarding such
tax consequences. All investors are urged to consult their own tax advisors in
determining the federal, state, local and foreign and any other tax consequences
to them of an investment in the notes and the purchase, ownership and
disposition of the notes.
CHARACTERIZATION OF THE CLASS A, CLASS B, CLASS C AND CLASS D NOTES
Thacher Proffitt & Wood, special counsel to the underwriters, is of
the opinion that, under existing law, and assuming compliance in all material
respects with all provisions of the indenture, the contribution and servicing
agreement and the other transaction documents relating to the issuance of the
notes, and based in part on the facts described in this prospectus supplement
and additional information and representations, including financial calculations
relating to the contracts provided or reviewed and verified by DVI Financial
Services Inc. or the
S-108
<PAGE>
underwriters, for federal income tax purposes, the class A notes, the class B
notes, the class C notes and the class D notes will be treated as indebtedness.
Except where indicated to the contrary, the following discussion
describes the consequences that will follow if the class A, class B, class C and
class D notes are treated as indebtedness for federal income tax purposes.
TAXATION OF CLASS A, CLASS B, CLASS C AND CLASS D NOTEHOLDERS
PAYMENTS OF INTEREST. The following discussion of federal income
taxation of the notes is based in part upon the rules governing original issue
discount within the meaning of section 1273(a) of the Code, called OID, that are
listed in sections 1271-1273 and 1275 of the Code and in the Treasury
regulations issued under those sections, called the OID Regulations. The OID
Regulations do not adequately address some issues relevant to, and in some
instances may not be applicable to, securities such as the notes.
It is not anticipated that the class A, class B, class C or class D
notes will be treated as having been issued with OID within the meaning of
section 1273 of the Code. Rather, interest on the notes will be taxable as
ordinary income for federal income tax purposes when received by a class A,
class B, class C or class D noteholder using the cash method of accounting or
when accrued by a class A, class B, class C or class D noteholder using the
accrual method of accounting. Interest received on the Notes also may constitute
"investment income" for purposes of limitations of the Code concerning the
deductibility of investment interest expense by taxpayers other than
corporations.
MARKET DISCOUNT. A subsequent holder who purchases a note at a market
discount, in other words, in the case of a note issued without OID, at a
purchase price less than its remaining stated principal amount, or in the case
of a note issued with OID, at a purchase price less than its adjusted issue
price, may be subject to the "market discount" rules of section 1276 of the
Code. These rules provide, in part, for the treatment of gain attributable to
accrued market discount as ordinary income upon the receipt of partial principal
payments or on the sale or other disposition of the note, and for the deferral
of interest deductions for debt incurred to
S-109
<PAGE>
acquire or carry a note purchased with market discount. In particular, under
section 1276 of the Code, a holder who purchases a note at a discount that
exceeds DE MINIMIS market discount usually will be required to allocate a
portion of each partial principal payment or proceeds of disposition to accrued
market discount not previously included in income, and to recognize ordinary
income to that extent. If the provisions of section 1272(a)(6) of the Code apply
to the notes, as described above with respect to the use of a reasonable
prepayment assumption, and adjustments resulting from actual prepayments, those
provisions also would affect the accrual of any market discount.
Any class A, class B, class C or class D noteholder may elect to
include market discount in income currently as it accrues rather than including
it on a deferred basis in accordance with the foregoing discussion. If made,
that election will apply to all market-discount bonds acquired by that class A,
class B, class C or class D noteholder on or after the first day of the first
taxable year to which the election applied. If that election is made, the
interest deferral rule described above will not apply and the adjusted basis of
a note will be increased to reflect market discount included in gross income,
thus reducing any gain, or increasing any loss, on a sale, redemption, or other
taxable disposition. Notwithstanding the above rules, market discount on a note
will be considered to be zero if it is less than a DE MINIMIS amount. In that
case, the actual discount will be required to be allocated amounts the principal
payments to be made on that note, and the portion of discount allocated to each
principal payment will be required to be reported as income as each principal
payment is made, in the same manner as discussed above regarding DE MINIMIS OID.
In addition, the OID Regulations permit a class A, class B, class C or
class D noteholder to elect to accrue all interest, discount, including DE
MINIMIS market or original issue discount, and premium in income as interest,
based on a constant yield method. If such an election were made with respect to
a note with market discount, the class A, class B, class C or class D noteholder
would be deemed to have made an election to include market discount in income
currently with respect to all other debt instruments that the noteholder owns or
acquires during the taxable year of the election or thereafter. Similarly, a
class A, class B, class C or class D noteholder that made this election for a
note that is acquired at a premium would be deemed to have made an election to
amortize bond premium for all debt instruments that the noteholder
S-110
<PAGE>
owns as of the beginning of the taxable year for which the election is made or
later acquires. See "PREMIUM" later in this section. Each of these elections to
accrue interest, discount and premium for a note on a constant yield method or
as interest would be irrevocable.
For purposes of the foregoing discussion, market discount for a note
will be considered to be DE MINIMIS for purposes of section 1276 of the Code if
the market discount is less than 0.25% of the stated redemption price of that
note multiplied by the number of complete years to maturity remaining after the
date of its purchase. In interpreting a similar rule with respect to OID on
obligations payable in installments, the OID Regulations refer to the weighted
average maturity of obligations, and it is likely that the same rule will be
applied for market discount.
Section 1276(b)(3) of the Code specifically authorizes the Treasury
Department to issue regulations providing for the method for accruing market
discount on debt instruments, the principal of which is payable in more than one
installment. Until regulations are issued by the Treasury Department, rules
described in the Conference Committee Report accompanying the Tax Reform Act of
1986 will apply. The Committee Report indicates that in each accrual period
market discount on notes should accrue, at the option of the class A, class B,
class C or class D noteholder:
o on the basis of a constant yield method;
o in the case of a note issued without OID, in an amount that bears
the same ratio to the total remaining market discount as the
stated interest paid in the accrual period bears to the total
amount of stated interest remaining to be paid on the note as of
the beginning of the accrual period; or
o in the case of a note issued with OID, in an amount that bears
the same ratio to the total remaining market discount as the OID
accrued in the accrual period bears to the total OID remaining on
the note at the beginning of the accrual period.
S-111
<PAGE>
Moreover, if the provisions of section 1272(a)(6) of the Code apply to
the notes, as described above for the use of a reasonable prepayment assumption,
the prepayment assumption used in calculating the accrual of OID also would be
used in calculating the accrual of market discount. Because the regulations
referred to in this paragraph have not been issued, it is not possible to
predict what effect such regulations might have on the tax treatment of a note
purchased at a discount in the secondary market. The prepayment assumption used
in calculating the accrual of OID, premium, market discount, if any, will be
equal to a CPR of 7%. We cannot predict whether the contracts will prepay at
that rate or at any other rate.
To the extent that notes provide for monthly or other periodic
payments throughout their term, the effect of these rules may be to require
market discount to be includible in income at a rate that is not significantly
slower than the rate at which such discount would accrue if it were OID.
Moreover, in any event, a class A, class B, class C or class D noteholder
generally will be required to treat a portion of any gain on the sale or
exchange of its note as ordinary income to the extent of the market discount
accrued to the date of disposition under one of the foregoing methods, less any
accrued market discount previously reported as ordinary income.
PREMIUM. A note that is purchased at a cost, excluding any portion of
that cost attributable to accrued qualified stated interest, greater than its
remaining stated redemption price will be considered to be purchased at a
premium. A class A, class B, class C or class D noteholder may elect under
section 171 of the Code to amortize that premium under the constant yield method
over the life of the note. If made, that election will apply to all debt
instruments having amortizable bond premium that the noteholder owns as of the
beginning of the taxable year for which the election is made or thereafter
acquires. Amortizable premium will be treated as an offset to interest income on
the related debt instrument, with a corresponding reduction in the noteholder's
basis of the instrument, rather than as a separate interest deduction. The OID
Regulations also permit class A, class B, class C and class D noteholders to
elect to include all interest, discount and premium in income based on a
constant yield method, further treating the noteholder as having made the
election to amortize premium generally. See "MARKET DISCOUNT" at page S-109 of
this prospectus supplement. The Committee Report states that the same rules that
apply to accrual of market discount also will apply in amortizing bond premium
under
S-112
<PAGE>
section 171 of the Code. These rules might, as described above, require use of a
prepayment assumption in accruing market discount with respect to notes without
regard to whether those notes have OID. Bond premium on a note held by a class
A, class B, class C or class D noteholder who does not elect to offset the
premium will decrease the gain, or increase the loss, otherwise recognized on
the sale, redemption or other taxable disposition of the note.
REALIZED LOSSES. Under section 166 of the Code, both corporate holders
of notes and noncorporate holders of notes that acquire notes in connection with
a trade or business should be allowed to deduct, as ordinary losses, any losses
sustained during a taxable year in which their notes become wholly or partially
worthless as the result of one or more realized losses on the contracts that are
allocable to those notes. However, it appears that a noncorporate holder that
does not acquire a note in connection with its trade or business will not be
entitled to deduct a loss under section 166 of the Code until that holder's note
becomes wholly worthless, in other words, until its outstanding principal
balance has been reduced to zero, and that the loss will be characterized as a
short-term capital loss.
Each class A, class B, class C or class D noteholder will be required
to accrue OID, if any, and, if that holder uses an accrual method of accounting
for federal income tax purposes, interest for that note, without giving effect
to any reductions in distributions attributable to defaults or delinquencies on
the contracts until it can be established that any reduction of that kind
ultimately will not be recoverable. As a result, the amount of taxable income
reported in any period by the holder of a note could exceed the amount of
economic income actually realized by the holder in that period. Although the
holder of a note eventually will recognize a loss or reduction in income
attributable to previously accrued and included income that as the result of a
realized loss ultimately will not be realized, the law is unclear as to the
timing and character of such loss or reduction in income.
SALES OF NOTES. Except as described above for the market discount
rules, and except as provided under section 582(c) of the Code in the case of
banks and other financial institutions, any gain or loss, equal to the
difference between the amount realized on the sale and the adjusted basis of a
note, recognized on the sale or exchange of a note by an investor who holds that
note as a capital asset, will be capital gain or loss. However, a portion of any
gain that
S-113
<PAGE>
might otherwise be capital gain may be treated as ordinary income to the extent
that the note is held as part of a "conversion transaction" within the meaning
of section 1258 of the Code. A conversion transaction usually is one in which
the taxpayer has taken two or more positions in notes or similar property that
reduce or eliminate market risk, if substantially all of the taxpayer's return
is attributable to the time value of the taxpayer's net investment in that
transaction. The amount of gain realized in a conversion transaction that may be
recharacterized as ordinary income usually will not exceed the amount of
interest that would have accrued on the taxpayer's net investment in such
transaction at 120% of the appropriate "applicable Federal rate," which rate is
computed and published monthly by the IRS, subject to appropriate reduction to
reflect prior inclusion of interest or other ordinary income items from the
transaction, but the extent of that kind of reduction would need to be provided
for in regulations which have not yet been issued.
In addition, taxpayers other than corporations may elect to have net
capital gain taxed at ordinary income rates rather than capital gains rates in
order to include that net capital gain in total net investment income for the
taxable year, for purposes of the rule that limits the deduction of interest on
indebtedness incurred to purchase or carry property held for investment to that
taxpayer's net investment income.
The adjusted basis of a note generally will equal its cost, increased
by any income previously reported, including any OID and market discount income,
by the selling class A, class B, class C or class D noteholder and reduced, but
not below zero, by any deduction previously allowed for losses and any amortized
premium and by any payments previously received for that note. Principal
payments on the note will be treated as amounts received upon a sale or exchange
of the note under the foregoing rules relating to OID.
INFORMATION REPORTING. The servicer is required to furnish or cause to
be furnished to each class A, class B, class C or class D noteholder with each
payment a statement setting forth the amount of that payment allocable to
principal on the note and to interest thereon. In addition, the servicer is
required to furnish or cause to be furnished, within a reasonable time after the
end of each calendar year, to each class A, class B, class C or class D
noteholder who was a holder at any time during that year, a report indicating
such other customary factual
S-114
<PAGE>
information as the servicer deems necessary to enable holders of notes to
prepare their tax returns and will furnish comparable information to the IRS as
and when required by law to do so. If the class A, class B, class C or class D
notes are issued with OID, the servicer will provide or cause to be provided to
the IRS and, as applicable, to the class A, class B, class C or class D
noteholder information statements with respect to OID as required by the Code or
as holders of those notes may reasonably request from time to time. If the notes
are issued with OID, those information reports, even if otherwise accepted as
accurate by the IRS, will in any event be accurate only as to an initial class
A, class B, class C or class D noteholder which purchased its note at the
initial offering price used in preparing those reports. Class A, class B, class
C or class D noteholders should consult their own tax advisors to determine the
amount of any OID and market discount includible in income during a calendar
year.
As applicable, the note information reports will include a statement
of the adjusted issue price of the notes at the beginning of each accrual
period. In addition, the reports will include information required by
regulations for computing the accrual of any market discount. Because exact
computation of the accrual of market discount on a constant yield method would
require information relating to the noteholder's purchase price that the
servicer will not have, such regulations only require that information
pertaining to the appropriate proportionate method of accruing market discount
be provided. See "MARKET DISCOUNT" at page S-109 above.
FOREIGN INVESTORS. Any class A, class B, class C or class D noteholder
that is not a "United States person," as defined below, and is not holding the
note in connection with a United States trade or business generally will not be
subject to United States federal income or 30% withholding tax in respect of
interest, including any accrued OID, paid on a note, PROVIDED that the class A,
class B, class C or class D noteholder complies to the extent necessary with
certain identification requirements, including delivery of a statement, such as
a properly executed IRS Form W-8, signed by the class A, class B, class C or
class D noteholder under penalties of perjury, certifying that the class A,
class B, class C or class D noteholder is not a United States person and
providing the name and address of the class A, class B, class C or class D
noteholder. This exemption does not apply to payments of interest, including
payments in respect of any accrued OID, received by a class A, class B, class C
or class D noteholder that either:
S-115
<PAGE>
o owns directly or indirectly a 10% or greater interest in the
issuer;
o is a bank that is treated as receiving that interest "on an
extension of credit made under a loan agreement entered into in
the ordinary course of its trade or business;"
o is a person within a foreign country which the IRS has included
in a list of countries that do not provide adequate exchange of
information with the United States to prevent tax evasion by
United States persons; or
o is a "controlled foreign corporation," within the meaning of
section 957 of the Code, with respect to which the issuer is a
"related person," within the meaning of section 881(c)(3)(C) of
the Code.
If the class A, class B, class C or class D noteholder does not
qualify for the foregoing exemption from withholding, payments of interest,
including payments relating to any accrued OID, to that class A, class B, class
C or class D noteholder may be subject to withholding tax at a tax rate of 30%,
subject to reduction, including exemption, under any applicable tax treaty,
PROVIDED the class A, class B, class C or class D noteholder supplies at the
time of its initial purchase, and at all subsequent times as are required under
the Treasury regulations, a properly executed IRS Form 1001 to report its
eligibility for that reduced rate or exemption.
Amounts allocable to interest, including any accrued OID, received by
a class A, class B, class C or class D noteholder that is not a United States
person, which constitute income that is effectively connected with a United
States trade or business carried on by the class A, class B, class C or class D
noteholder, will not be subject to withholding tax, but rather will be subject
to United States income tax at the graduated rates applicable to United States
persons, PROVIDED the class A, class B, class C or class D noteholder supplies,
at the time of its initial purchase, and at those subsequent times that are
required under the Treasury regulations, a written statement, such as a properly
executed IRS Form 4224, that the income is, or is expected to be, effectively
connected with the conduct of a trade or business within the United States of
S-116
<PAGE>
that holder and that this income is includible in the holder's gross income for
the taxable year. This statement must include, among other things, the name and
address of the class A, class B, class C or class D noteholder, that holder's
identifying number and the trade or business with which the income is, or is
expected to be, effectively connected.
In addition, the foregoing rules will not apply to exempt a United
States shareholder of a controlled foreign corporation from taxation on the
United States shareholder's allocable portion of the interest income received by
such controlled foreign corporation.
For purposes of this discussion, United States person means a citizen
or resident of the United States, a corporation, partnership or any other entity
created or organized in, or under the laws of, the United States or any
political subdivision thereof, except, in the case of a partnership, to the
extent provided in regulations, or an estate whose income is subject to United
States federal income tax regardless of its source, or a trust other than a
"foreign trust" as described in Section 7701(a)(31) of the Code. Class A, class
B, class C or class D noteholders who are not United States persons should
consult their own tax advisors regarding the tax consequences of purchasing,
owning or disposing of a note.
BACKUP WITHHOLDING. Payments of interest and principal, as well as
payments of proceeds from the sale of notes, may be subject to the "backup
withholding tax" under section 3406 of the Code at a rate of 31% if recipients
of those payments fail to furnish to the payor certain information, including
their taxpayer identification numbers, or otherwise fail to establish an
exemption from such tax. Any amounts deducted and withheld from a distribution
to a recipient would be allowed as a credit against that recipient's federal
income tax liability. Furthermore, certain penalties may be imposed by the IRS
on a recipient of payments that is required to supply information but that does
not do so in the proper manner. Information returns will be sent annually to the
IRS and each class A, class B, class C and class D noteholder, listing the
amount of interest paid on the notes and the amount of any federal income tax
withheld on the notes.
NEW WITHHOLDING REGULATIONS. The Treasury Department has issued new
regulations which make some modifications to the withholding and information
reporting rules
S-117
<PAGE>
described above. The new withholding regulations attempt to unify certification
requirements and modify reliance standards. The new withholding regulations will
generally be effective for payments made after December 31, 2000, subject to
some transition rules. Prospective investors are urged to consult their tax
advisors regarding the new withholding regulations.
CERTAIN STATE, LOCAL AND OTHER TAX CONSIDERATIONS
Investors should consult their own tax advisors regarding whether the
purchase of the notes, either alone or in conjunction with an investor's other
activities, may subject an investor to any state or local taxes based, for
example, on an assertion that the investor is either "doing business" in, or
deriving income from a source located in, any state or local jurisdiction.
Additionally, potential investors should consider, and consult their own tax
advisors regarding, the state, local, foreign and other tax consequences of
purchasing, owning or disposing of a note. State, local and foreign tax laws may
differ substantially from the corresponding federal tax law, and the discussion
above does not purport to describe any aspect of the tax laws of any state,
local, foreign or other jurisdiction.
THE FEDERAL TAX CONSEQUENCES SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A CLASS A, CLASS B,
CLASS C OR CLASS D NOTEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS
SHOULD CONSULT THEIR TAX ADVISORS FOR THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE TAX CONSEQUENCES
UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN FEDERAL OR OTHER TAX LAWS.
CONSIDERATIONS FOR BENEFIT PLAN INVESTORS
INVESTORS AFFECTED
A federal law called the Employee Retirement Income Security Act of
1974, as amended, or "ERISA," the Code and a variety of state laws may affect
your decision whether to
S-118
<PAGE>
invest in Offered Notes if you are investing for:
o a pension or other employee benefit plan of employers in the private
sector that are regulated under ERISA, referred to as an "ERISA plan,"
o an individual retirement account or annuity, called an "IRA," or a
pension or other benefit plan for self-employed individuals, called a
"Keogh plan,"
o a pension and other benefit plan for the employees of state and local
governments, called a "government plan," or
o an insurance company general or separate account, a bank collective
investment fund and other pooled investment vehicle which includes the
assets of ERISA plans, IRAs, Keogh plans, and/or government plans.
A summary of the effects of those laws follows.
FIDUCIARY STANDARDS FOR ERISA PLANS AND RELATED INVESTMENT VEHICLES
ERISA imposes standards of fiduciary conduct on those who are
responsible for operating ERISA plans or investing their assets. These standards
include requirements that fiduciaries act prudently in making investment
decisions and diversify investments so as to avoid large losses unless under the
circumstances it is clearly prudent not to do so. If you are a fiduciary of an
ERISA plan, you are subject to these standards in deciding whether to invest the
plan's assets offered notes. You may find the full text of the applicable
standards of fiduciary conduct in section 404 of ERISA. If you are a fiduciary
of an ERISA Plan, you should consult with your advisors concerning your
investment decision in the context of section 404 of ERISA.
S-119
<PAGE>
PROHIBITED TRANSACTION ISSUES FOR ERISA PLANS, KEOGH PLANS, IRAS AND RELATED
INVESTMENT VEHICLES
GENERAL. Certain transactions involving the assets of an ERISA plan, a
Keogh plan or an IRA, called "prohibited transactions," may result in the
imposition of excise taxes and, in the case of an ERISA plan, civil money
penalties. A prohibited transaction occurs when a person with a pre-existing
relationship to an ERISA plan or IRA, known as a "party in interest" or a
"disqualified person," engages in a transaction involving the assets of the plan
or IRA. You may find the laws applicable to prohibited transactions in section
406 of ERISA and section 4975 of the Code. There are statutory and regulatory
prohibited transaction exemptions, as well as administrative exemptions granted
by the United States Department of Labor. Prohibited transactions exemptions
waive the excise taxes and civil money penalties for some prohibited
transactions which are structured to satisfy prescribed conditions.
PURCHASE AND SALE OF OFFERED NOTES. If an ERISA plan, a Keogh plan, an
IRA or a related investment vehicle acquires offered notes from, or sells
offered notes to, a party in interest or a disqualified person, a prohibited
transaction may occur. In that case, the party in interest or disqualified
person might be liable for excise taxes unless a prohibited transaction
exemption is available. Where a prohibited transaction involves an ERISA plan or
related investment vehicle, the fiduciary who causes or permits the prohibited
transaction may also be liable for civil money penalties.
TRANSACTIONS INCIDENTAL TO THE OPERATION OF THE ISSUER. Transactions
involving the assets of the issuer may also give rise to prohibited transactions
to the extent that an investment in offered notes causes the assets of the
issuer to be considered assets, commonly known as "plan assets," of an ERISA
plan, a Keogh plan, an IRA or a related investment vehicle. Whether an
investment in notes will cause the issuer's assets to be treated as plan assets
depends on whether the offered notes are debt or equity investments for purposes
of ERISA. The United States Department of Labor has issued regulations, commonly
known as the "plan asset regulations," which define debt and equity investments.
The plan asset regulations appear at 12 C.F.R. ss.2510.3-101.
S-120
<PAGE>
Under the plan asset regulations, the issuer's assets will not be
"plan assets" of an ERISA plan, Keogh plan, IRA or related investment vehicle
that purchases offered notes if the offered notes are considered debt. For this
purpose, the offered notes will be debt if they are treated as indebtedness
under applicable local law and do not have any substantial equity features. The
term "substantial equity features" has no definition under the plan asset
regulations. In the absence of such a definition, we cannot assure you that the
offered notes, either when they are issued or at any later date, will have no
substantial equity features. Thus, we cannot assure you that the offered notes
will be treated as debt.
To the extent that the offered notes do not constitute debt for
purposes of ERISA, they will constitute equity investments unless:
o the issuer is an operating company or a venture capital operating
company as defined in the plan asset regulations;
o the offered notes are "publicly offered securities" as defined in the
plan asset regulations;
o "benefit plan investors" as defined in the plan asset regulations do
not own 25% or more of the offered notes or any other class of equity
security issued by the issuer.
In this case, an ERISA plan, Keogh plan, IRA or related investment
vehicle that acquires an offered note would also acquire an undivided interest
in each asset of the issuer. This would cause all of the issuer's assets to be
plan assets under the plan asset regulations. If the offered notes are treated
as equity investment under the plan asset regulations, we cannot assure you that
any of these exceptions will apply.
S-121
<PAGE>
POSSIBLE EXEMPTIVE RELIEF
The United States Department of Labor issued Prohibited Transaction
Class Exemptions, or PTCEs, which conditionally waive the excise taxes and civil
money penalties that might otherwise apply to some types of transactions. A
PTCE's exemptive relief is available to any party to any transaction which
satisfies the conditions of the exemption. A partial listing of the PTCEs which
may be available for investments in offered notes follows. Each of these
exemptions is available only if specified conditions are satisfied and may
provide relief for some, but not all, of the prohibited transactions that a
particular transaction may cause. You should consult with your advisors
regarding the specific scope, terms and conditions of an exemption before
relying on that exemption's availability to you.
CLASS EXEMPTIONS FOR PURCHASES AND SALES OF OFFERED NOTES. The
following exemptions may apply to a purchase or sale of offered notes between an
ERISA plan, a Keogh plan, an IRA or related investment vehicle, on the one hand,
and a party in interest or disqualified person, on the other hand:
o PTCE 84-14, which exempts particular transactions approved on behalf
of the plan by a qualified professional asset manager, or "QPAM."
o PTCE 86-128, which exempts certain transactions between a plan and
particular broker-dealers.
o PTCE 90-1, which exempts particular transactions entered into by
insurance company pooled separate accounts in which plans have made
investments.
o PTCE 91-38, which exempts particular transactions entered into by bank
collective investment funds in which plans have made investments.
o PTCE 96-23, which exempts particular transaction approved on behalf of
a plan by an in-house investment manager, or "INHAM."
S-122
<PAGE>
These exemptions do not expressly address prohibited transactions that might
result from transactions incidental to the operation of the issuer. We cannot
assure you that a purchase or sale of offered notes in reliance on one of these
exemptions will not give rise to indirect prohibited transactions as a result of
the operation of the issuer for which there is no exemption.
CLASS EXEMPTION FOR PURCHASES AND SALES OF OFFERED NOTES AND
TRANSACTIONS INCIDENTAL TO THE OPERATION OF THE ISSUER. PTCE 95-60, which
exempts certain transactions involving insurance company general accounts, may
apply to purchases and sales of offered notes. It also provides express
exemptions for prohibited transactions that may result from transactions
incidental to the operation of the issuer. If this exemption applies to your
purchase or sale of offered notes, it will also apply to prohibited transaction
that may result from transactions incident to the operation of the issuer.
STATUTORY EXEMPTION FOR INSURANCE COMPANY GENERAL ACCOUNTS. In
addition to the Prohibited Transaction Class Exemptions described above, a
temporary statutory exemption may be available if you are investing on behalf of
an insurance company general account that includes plan assets. This exemption
appears in section 401(c) of ERISA. Section 401(c) of ERISA requires the United
States Department of Labor to issue regulations defining when an insurance
company general account will be deemed to include plan assets and, as a result,
be subject to the ERISA prohibited transaction rules. Generally, until 18 months
after the issuance of such regulations, no person will be subject to liability
for prohibited transactions that result from the inclusion of plan assets in an
insurance company general account. If you are investing on behalf of an
insurance company general account, section 401(c) generally provides an
exemption for your purchases and sales of offered notes, as well as prohibited
transactions resulting from transactions incident to the operation of the
issuer, until 18 months after the issuance of regulations. This will be the case
as long as you have not acted to avoid the regulations or committed a breach of
fiduciary responsibilities which would also constitute a violation of federal or
state criminal law. If you are investing on behalf of an insurance company
general account, we cannot assure that the purchase or sale of offered notes,
the continued holding of offered notes previously purchased, or transactions
incidental to the operation of the issuer, more than 18 months after the
issuance of final regulations would qualify for further exemptive relief.
S-123
<PAGE>
GOVERNMENT PLANS
Government plans are usually not subject to the fiduciary standards of
ERISA or the prohibited transaction rules of ERISA or the Code. However, many
states have enacted laws which established standards of fiduciary conduct, legal
investment rules, or other requirements for investment transactions involving
the assets of government plans. If you are considering investing in the offered
notes on behalf of a government plan, you should consult with your advisors
regarding the requirements of applicable state law.
REQUIRED REPRESENTATIONS OF INVESTORS
We anticipate that, on the date of this prospectus supplement, the
offered notes should be treated as indebtedness without substantial equity
features for purposes of the plan asset regulations. However, even if the
offered notes are treated as indebtedness for such purposes, the acquisition or
holding of offered notes by or on behalf of an ERISA plan, a Keogh plan, an IRA
or related investment vehicle could be considered to give rise to a prohibited
transaction. A prohibited transaction could arise if the issuer, the servicer,
the trustee, an underwriter or any of their respective affiliates is or becomes
a party in interest or disqualified person with respect to such ERISA plan,
Keogh plan, IRA or related investment vehicle, unless certain exemptions from
the prohibited transaction rules were applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire an offered
note. In addition, if offered notes were treated as an equity interest in the
future, the assets of the trust could be treated as plan assets of a plan for
the purposes of ERISA and the Code. In view of the investor-specific nature of
the conditions on the exemptive relief available under the PTCEs and section
401(c) of ERISA we require each investor to determine whether it is investing
plan assets in the offered notes and, if it is, to determine that appropriate
exemptive relief from ERISA's prohibited transaction provisions is available.
The offered notes will be issued and transferred only in book-entry form through
The Depository Trust Company, whose issuance and transfer procedures do not
permit us to secure written representations from each investor and subsequent
transferee. As a result, by acquiring an offered note, each purchaser will be
deemed to represent that either:
S-124
<PAGE>
o it is not acquiring the offered notes with the assets of an ERISA
plan, a Keogh plan, an IRA or related investment vehicle; or
o the acquisition and holding of the offered notes will not give rise to
a nonexempt prohibited transaction under Section 406(a) of ERISA or
Section 4975 of the Code.
If a purchaser invests on behalf of more than one party or uses more
than one source of funds, that purchaser will be deemed to have made one, but
not necessarily the same, of these representations as to each party or source of
funds.
If the offered notes are issued as definitive securities, the transfer
of the offered notes to you will not be registered by the trustee unless you
represent to the issuer, the trustee, the servicer and any successor servicer
either one of the first two statements in the bulleted paragraph above is an
accurate representation as to all sources of funds you are using to pay the
purchase price of the offered notes.
THIS DISCUSSION IS A GENERAL DISCUSSION OF SOME OF THE RULES WHICH
APPLY TO ERISA PLANS, KEOGH PLANS, IRAS, GOVERNMENT PLANS AND THEIR RELATED
INVESTMENT VEHICLES. PRIOR TO MAKING AN INVESTMENT IN THE OFFERED NOTES,
PROSPECTIVE PLAN INVESTORS SHOULD CONSULT WITH THEIR LEGAL AND OTHER ADVISORS
CONCERNING THE IMPACT OF ERISA AND THE CODE, AND, PARTICULARLY IN THE CASE OF
GOVERNMENT PLANS AND RELATED INVESTMENT VEHICLES, ANY ADDITIONAL STATE LAW
CONSIDERATIONS, AND THE POTENTIAL CONSEQUENCES IN THEIR SPECIFIC CIRCUMSTANCES.
LEGAL INVESTMENT
The class A-1 notes will be eligible securities for purchase by money
market funds under the Investment Company Act of 1940, as amended.
S-125
<PAGE>
RATINGS
As a condition to the issuance of the class A notes, the class A-1
notes must be rated "D-1+" by Duff & Phelps Credit Rating Co., "F1" by Fitch
IBCA and "P-1" by Moody's, the class A-2 notes, the class A-3 notes, and the
class A-4 notes must be rated "AAA" or "Aaa," as applicable, by the Rating
Agencies, the class B notes must be rated "AA" or "Aa3," as applicable, by the
Rating Agencies the class C notes must be rated "A" or "A2," as applicable, by
the Rating Agencies, and the class D notes must be rated "BBB," or "Baa2," as
applicable, by the Rating Agencies. A rating on a security is not a
recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time. The ratings assigned to the notes address the likelihood
of the receipt by class A noteholders, class B noteholders, class C noteholders
and class D noteholders of all distributions to which such noteholders are
entitled. The ratings assigned to the notes do not represent any assessment of
the likelihood that principal prepayments might differ from those originally
anticipated or address the possibility that class A noteholders, class B
noteholders, class C noteholders and class D noteholders might suffer a lower
than anticipated yield.
USE OF PROCEEDS
The issuer will use the net proceeds from the sale of the notes for
general organizational purposes, to pay the purchase price of the trust property
to DVI Financial Services Inc. or an Affiliate thereof and to make the required
deposits in the reserve account. See "DESCRIPTION OF THE NOTES AND PRINCIPAL
TRANSACTION DOCUMENTS -- RESERVE ACCOUNT" at page S-66 for a description of the
reserve account.
PLAN OF DISTRIBUTION
Subject to the terms and conditions of an underwriting agreement the
issuer has agreed to sell and the underwriters have severally agreed to
purchase, the class A notes, the class B notes, the class C notes and the class
D notes, in the principal amounts listed opposite their names:
S-126
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF PRINCIPAL PRINCIPAL PRINCIPAL
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 AMOUNT OF AMOUNT OF AMOUNT OF
UNDERWRITER NOTES NOTES NOTES NOTES CLASS B NOTES CLASS C NOTES CLASS D NOTES
- --------------- ------------ ----------- ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lehman Brothers $10,494,334 $14,060,668 $21,699,334 $33,017,000 $4,054,000 $8,107,000 $5,405,000
Prudential
Securities $10,494,333 $14,060,666 $21,699,333 $33,017,000 $0 $0 $0
Banc One Capital $10,494,333 $14,060,666 $21,699,333 $33,017,000 $0 $0 $0
Markets, Inc.
Total $31,483,000 $42,182,000 $65,098,000 $99,051,000 $4,054,000 $8,107,000 $5,405,000
</TABLE>
In the underwriting agreement, the underwriters agree, subject to the
terms and conditions of the underwriting agreement, to purchase all the class A
notes, the class B notes, the class C notes and the class D notes offered by
this prospectus supplement in the amounts listed above if any of such class A
notes, class B notes, class C notes and class D notes are purchased.
The issuer has been advised by the underwriters that the underwriters
propose initially to offer the class A notes, class B notes, class C notes and
class D notes to the public at the respective public offering prices listed on
the cover page of this prospectus supplement, and to dealers at such price less
a discount not in excess of 0.105%, 0.135%, 0.240%, 0.255%, 0.240,% 0.240% and
0.270% per class A-1 note, class A-2 note, class A-3 note, class A-4 note, class
B note, class C note and class D note, respectively. The underwriters may allow
and the dealers may reallow a discount not in excess of 0.050% per class A-1
note, 0.070% per class A-2 note, 0.120% per class A-3 note, 0.125% per class A-4
note, 0.120% per class B note, 0.120% per class C note and 0.135% per class D
note to certain dealers. After the initial public offering, the prices of the
notes, any concessions and any discounts may vary.
The issuer has been advised by the underwriters that they presently
intend to make a market in the class A notes, the class B notes, the class C
notes and the class D notes. However, they are not obligated to do so, any
market-making may be discontinued at any time, and there can be no assurance
that an active public market for such notes will develop.
For further information regarding any offer or sale of the class A
notes, the class B notes, the class C notes and the class D notes under this
prospectus supplement, see "PLAN OF DISTRIBUTION" at page 30 of the prospectus.
S-127
<PAGE>
The underwriting agreement provides that DVI Financial Services Inc.
and DVI Receivables Corp. X will indemnify the underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933, as
amended, or contribute to payments the underwriters may be required to make in
respect thereof.
In connection with this offering and in compliance with applicable law
and industry practice, the underwriters may over-allot or effect transactions
which stabilize, maintain or otherwise affect the market price of the class A
notes, class B notes, class C notes and class D notes at a level above that
which might otherwise prevail in the open market, including stabilizing bids,
effecting syndicate covering transactions or imposing penalty bids. A
stabilizing bid means the placing of any bid or the effecting of any purchase,
for the purpose of pegging, fixing or maintaining the price of a security. A
syndicate covering transaction means the placing of any bid on behalf of the
underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with the offering. A penalty bid means an
arrangement that permits the underwriters to reclaim a selling concession from a
syndicate member in connection with the offering when the class A notes, class B
notes, class C notes and class D notes originally sold by the syndicate member
are purchased in syndicate covering transactions. The underwriters are not
required to engage in any of these activities. Any such activities, if
commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters relating to the issuance of the notes will be
passed upon for the issuer, DVI Receivables Corp. X and DVI Financial Services
Inc. by the general counsel to such parties, and by Thacher Proffitt & Wood, New
York, New York, special counsel to the underwriters.
WHERE YOU CAN FIND MORE INFORMATION
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES. ADDITIONAL INFORMATION IS CONTAINED IN THE PROSPECTUS AND
PROSPECTIVE
S-128
<PAGE>
INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
IN FULL. TO THE EXTENT THAT ANY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT CONTAIN
MORE SPECIFIC INFORMATION THAN STATEMENTS IN THE PROSPECTUS, THE STATEMENTS IN
THIS PROSPECTUS SUPPLEMENT CONTROL.
For all notes offered by this prospectus supplement, there are
incorporated and in the related supplement to the indenture by reference all
documents and reports filed or caused to be filed by the issuer under to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the
offering of the applicable notes, that relate specifically to the related series
of notes. The issuer will provide or cause to be provided without charge to each
person to whom this Prospectus supplement and the prospectus is delivered in
connection with offering of the notes, upon written or oral request of that
person, a copy of any or all of the reports incorporated in this prospectus
supplement by reference. In each case, information will be incorporated to the
extent those reports relate to one or more of classes of notes. This will not
include the exhibits to those documents, unless those exhibits are specifically
incorporated by reference in those documents. Please direct requests in writing
to the issuer at its address in the summary section of this prospectus
supplement.
REPORTS TO NOTEHOLDERS
Unless and containing information concerning the trust property will
be prepared by the servicer and sent on behalf of the issuer only to the trustee
for the noteholders and Cede & Co., as registered holder of the notes and the
nominee of The Depository Trust Company. See "DESCRIPTION OF THE NOTES AND
PRINCIPAL TRANSACTION DOCUMENTSpage S-85 of this prospectus supplement, and
"DESCRIPTION OF THE SECURITIES -- REPORTS TO SECURITYHOLDERS" at page 17 of the
attached prospectus. These reports will not be prepared in accordance with
generally accepted accounting principles. The issuer will with the
SecuritiesandExchange Commission those required the ExchangeActand as otherwise
requiredby the Commission. Copies of any of these periodic reports may be
obtained from the Public Reference Sectionof
theCommissionat450FifthStreet,N.W.,Washington,D.C.,20549, at prescribed rates.
S-129
<PAGE>
GLOSSARY
When a term in this prospectus supplement begins with a capital
letter, it has the meaning described below:
AFFILIATE means, of any specified person, any other person (i) which
directly or indirectly controls, or whose directors or officers directly or
indirectly control, or is controlled by, or is under common control with, that
specified person, (ii) which beneficially owns or holds, or whose directors or
officers beneficially own or hold, 5% or more of any class of the voting stock
(or, in the case of an entity that is not a corporation, 5% of the equity
interest) of that specified person, or (iii) 5% or more of the voting stock (or,
in the case of an entity that is not a corporation, 5% of the equity interest)
of which is owned or held by that specified person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a person, whether through the
ownership of voting securities, by contract, or otherwise.
AGGREGATE DISCOUNTED CONTRACT BALANCE means the sum of the Discounted
Contract Balances of all contracts.
AMORTIZATION EVENT takes place when any one of the following events
occurs:
(A) a court with proper jurisdiction enters any kind of order granting a
so-called "involuntary" petition brought by third parties against DVI,
Inc. under any applicable federal or state bankruptcy, etc., law and
that order remains in effect for a period of 90 consecutive days;
(B) DVI, Inc. commences or agrees to any kind of so-called "voluntary"
petition for relief under any federal or state bankruptcy, etc., law;
(C) as of any determination date, the quotient of (1) divided by (2)
exceeds the product of (3) and (4), where (1) equals the sum of the
Discounted Contract Principal Balances of all contracts listed as more
than 90 days delinquent as of the
S-130
<PAGE>
last day of the three immediately preceding calendar months; (2)
equals three, (3) equals 0.08 and (4) equals the quotient of (x) the
sum of the Aggregate Discounted Contract Principal Balances as of the
last day of the three immediately preceding collection periods,
divided by (y) three; or
(D) as of any determination date, the sum of the Discounted Contract
Balances of all contracts that have been classified as defaulted
contracts since the closing date exceeds the product of (1) 0.06 and
(2) the Aggregate Discounted Contract Balance on the closing date.
Discounted Contract Balances will be determined immediately prior to
the classification as a defaulted contract.
AVAILABLE FUNDS for any payment date, means the excess of all amounts
on deposit in the collection account on the second business day preceding that
payment date over that portion of those amounts representing contract payments
due, or voluntary prepayments deposited in the collection account, after the end
of the collection period preceding the payment date.
AVAILABLE RESERVE ACCOUNT FUNDS are funds equal to the amount of the
Priority Payments less any deposited Available Funds.
CLASS A DISTRIBUTION SUB-ACCOUNT is the sub-account or sub-accounts by
that name established and maintained by the trustee under the indenture.
CLASS A MONTHLY INTEREST means, for any payment date, the sum of the
Class A-1 Monthly Interest, Class A-2 Monthly Interest, Class A-3 Monthly
Interest and the Class A-4 Monthly Interest.
CLASS A MONTHLY PRINCIPAL means, for any payment date the sum of the
Class A- 1 Monthly Principal, the Class A-2 Monthly Principal, the Class A-3
Monthly Principal and the Class A-4 Monthly Principal due or payable on that
payment date.
CLASS A OVERDUE INTEREST means, for any payment date, the excess, if
any, of:
S-131
<PAGE>
(a) the aggregate amount of Class A Monthly Interest payable on all prior
payment dates; over
(b) the aggregate amount of interest actually paid to the class A
noteholders on all prior payment dates.
CLASS A OVERDUE PRINCIPAL means, for any payment date, the excess, if
any, of:
(a) the aggregate amount of Class A Monthly Principal due on the class A
notes on all prior payment dates; over
(b) the aggregate amount of principal actually paid to the class A
noteholders on all prior payment dates.
CLASS A PERCENTAGE means 88.00%.
CLASS A-1 MONTHLY INTEREST means, for any payment date, the product
of:
(A) the fraction of which the numerator is the actual number of days
elapsed during the related month and the denominator of which is 360
days;
(B) the class A-1 Note Rate; and
(C) the class A-1 Note Balance on the immediately preceding payment date
(or, in the case of the first payment date, the closing date) after
giving effect to all principal payments on the class A-1 notes on such
payment date.
The Class A-1 Monthly Interest, with respect to each payment date,
accrues from and including the prior payment date to but excluding
such payment date, and with respect to the initial payment date,
accrues from and including the closing date to but excluding such
payment date.
CLASS A-1 MONTHLY PRINCIPAL means:
(A) with respect to any payment date other than the class A-1 Stated
Maturity Date, an amount equal to the product of (a) the Class A
Percentage and (b) the Monthly Principal; PROVIDED, HOWEVER, that in
no event shall the Class A-1 Monthly
S-132
<PAGE>
Principal exceed the then outstanding Note Balance for the Class A-1
notes as of such payment date and
(B) on the class A-1 stated maturity date, the entire amount of the then
outstanding Note Balance.
CLASS A-1 NOTE RATE means 6.17%.
CLASS A-1 OVERDUE INTEREST means, for any payment date, the excess, if
any, of:
(A) the aggregate amount of Class A-1 Monthly Interest payable on all
prior payment dates; over
(B) the aggregate amount of interest actually paid to the class A-1
noteholders on all prior payment dates.
CLASS A-1 OVERDUE PRINCIPAL means, as of any payment date, the excess,
if any, of:
(A) the aggregate amount of Class A-1 Monthly Principal due on the class
A-1 notes on all prior payment dates; over
(B) the aggregate amount of principal actually paid to the class A-1
noteholders on all prior payment dates.
CLASS A-2 MONTHLY INTEREST means, for any payment date, the product
of:
(A) one-twelfth,
(B) the class A-2 Note Rate and
(C) the class A-2 Note Balance on the immediately preceding payment date
(or, in the case of the first payment date, the closing date) after
giving effect to all principal payments on the class A-2 notes on such
payment date.
The Class A-2 Monthly Interest is calculated on a twelve month year of
thirty days in each month, except for the first payment date, for
which interest accrues from the closing date to but excluding such
payment date.
S-133
<PAGE>
CLASS A-2 MONTHLY PRINCIPAL means:
(A) prior to the payment date upon which the class A-1 Note Balance is
paid in full, zero,
(B) on any payment date after the class A-1 Note Balance has been reduced
to zero and until the class A-2 Note Balance is paid in full, the
product of (x) the Class A Percentage and (y) the Monthly Principal,
and
(C) on the class A-2 stated maturity date, the entire amount of the then
outstanding class A-2 Note Balance.
CLASS A-2 NOTE RATE means 6.54%.
CLASS A-2 OVERDUE INTEREST means, for any payment date, the excess, if
any, of:
(A) the aggregate amount of Class A-2 Monthly Interest payable on all
prior payment dates; over
(B) the aggregate amount of interest actually paid to the class A-2
noteholders on all prior payment dates.
CLASS A-2 OVERDUE PRINCIPAL means, as of any payment date, the excess,
if any, of:
(A) the aggregate amount of Class A-2 Monthly Principal due on the class
A-2 notes on all prior payment dates; over
(B) the aggregate amount of principal actually paid to the class A-2
noteholders on all prior payment dates.
CLASS A-3 MONTHLY INTEREST means, for any payment date, the product
of:
(A) one-twelfth,
(B) the class A-3 Note Rate and
(C) the class A-3 Note Balance on the immediately preceding payment date
(or, in the case of the first payment date, the closing date) after
giving effect to all principal payments on the class A-3 notes on such
payment date.
The Class A-3 Monthly Interest is calculated based upon a twelve month
year of
S-134
<PAGE>
thirty days in each month, except for the first payment date, for
which interest accrues from the closing date to but excluding such
payment date.
CLASS A-3 MONTHLY PRINCIPAL means:
(A) prior to the payment date upon which the class A-2 Note Balance is
paid in full, zero,
(B) on any payment date after the class A-2 Note Balance has been reduced
to zero and until the class A-3 Note Balance is paid in full, the
product of (x) the Class A Percentage and (y) the Monthly Principal,
and
(C) on the class A-3 stated maturity date, the entire amount of the then
outstanding class A-3 Note Balance.
CLASS A-3 NOTE RATE means 6.83%.
CLASS A-3 OVERDUE INTEREST means, for any payment date, the excess, if
any, of:
(A) the aggregate amount of Class A-3 Monthly Interest payable on all
prior payment dates; over
(B) the aggregate amount of interest actually paid to the class A-3
noteholders on all prior payment dates.
CLASS A-3 OVERDUE PRINCIPAL means, for any payment dates, the excess,
if any, of:
(A) the aggregate amount of Class A-3 Monthly Principal due on the class
A-3 notes on all prior payment dates; over
(B) the aggregate amount of principal actually paid to the class A-3
noteholders on all prior payment dates.
CLASS A-4 MONTHLY INTEREST means, for any payment date, the product
of:
(A) one-twelfth,
(B) the class A-4 Note Rate and
(C) the class A-4 Note Balance on the immediately preceding payment date
(or, in the case of the first payment date, the closing date) after
giving effect to all principal
S-135
<PAGE>
payments on the class A-4 notes on such payment date.
The Class A-4 Monthly Interest is calculated based upon a twelve month
year of thirty days in each month, except for the first payment date,
for which interest accrues from the closing date to but excluding such
payment date.
CLASS A-4 MONTHLY PRINCIPAL means:
(A) prior to the payment date upon which the class A-3 Note Balance is
paid in full, zero,
(B) on any payment date after the class A-3 Note Balance has been reduced
to zero and until the class A-4 Note Balance is paid in full, the
product of (x) the Class A Percentage and (y) the Monthly Principal,
and
(C) on the class A-4 stated maturity date, the entire amount of the then
outstanding class A-4 Note Balance.
CLASS A-4 NOTE RATE means 7.22%.
CLASS A-4 OVERDUE INTEREST means, for any payment date, the excess, if
any, of
(A) the aggregate amount of Class A-4 Monthly Interest payable on all
prior payment dates over
(B) the aggregate amount of interest actually paid to the class A-4
noteholders on all prior payment dates.
CLASS A-4 OVERDUE PRINCIPAL means, for any payment dates, the excess,
if any, of
(A) the aggregate amount of Class A-4 Monthly Principal due on the class
A-4 notes on all prior payment dates over
(B) the aggregate amount of principal actually paid to the class A-4
noteholders on all prior payment dates.
CLASS B DISTRIBUTION SUB-ACCOUNT is the sub-account or sub-accounts by
that name established and maintained by the trustee under the indenture.
S-136
<PAGE>
CLASS B MONTHLY INTEREST means, for any payment date, the product of
(A) one-twelfth,
(B) the class B Note Rate and
(C) the class B Note Balance on the immediately preceding payment date,
or, in the case of the first payment date, the closing date, after
giving effect to all principal payments on the class B notes on that
prior payment date.
The Class B Monthly Interest is calculated based upon a twelve month
year of thirty days in each month, except for the first payment date,
for which interest accrues from the closing date to, but excluding,
that payment date.
CLASS B MONTHLY PRINCIPAL means:
(A) on any payment date other than the class B stated maturity date, the
product of (x) the Class B Percentage and (y) the Monthly Principal,
and
(B) on the class B stated maturity date, the entire amount of the then
outstanding class B Note Balance.
CLASS B NOTE RATE means 7.30%.
CLASS B OVERDUE INTEREST means, for any payment date, the excess, if
any, of
(A) the aggregate amount of Class B Monthly Interest payable on all prior
payment dates over
(B) the aggregate amount of interest actually paid to the class B
noteholders on all prior payment dates.
S-137
<PAGE>
CLASS B OVERDUE PRINCIPAL means, for any payment date, the excess, if
any, of
(A) the aggregate amount of class B Monthly Principal due on the class B
notes on all prior payment dates over
(B) the aggregate amount of principal actually paid to the class B
noteholders on all prior payment dates.
CLASS B PERCENTAGE means 1.50%.
CLASS C DISTRIBUTION SUB-ACCOUNT is the sub-account or sub-accounts by
that name established and maintained by the trustee under the indenture.
CLASS C MONTHLY INTEREST means, for any payment date, the product of
(A) one-twelfth,
(B) the class C Note Rate and
(C) the class C Note Balance on the immediately preceding payment date,
or, in the case of the first payment date, the closing date, after
giving effect to all principal payments on the class C note on that
prior payment date.
The Class C Monthly Interest is calculated based upon a twelve month
year of thirty days in each month, except for the first payment date,
for which interest accrues from the closing date to, but excluding,
that payment date.
CLASS C MONTHLY PRINCIPAL means:
(A) on any payment date other than the class C stated maturity date, an
amount equal to the product of (x) the Class C Percentage and (y) the
Monthly Principal and
(B) on the class C stated maturity date, the entire amount of the then
outstanding class
S-138
<PAGE>
C Note Balance.
CLASS C NOTE RATE means 7.48%.
CLASS C OVERDUE INTEREST means, for any payment date, the excess, if
any, of
(A) the aggregate amount of Class C Monthly Interest payable on all prior
payment dates over
(B) the aggregate amount of interest actually paid to the class C
noteholders on all prior payment dates.
CLASS C OVERDUE PRINCIPAL means, for any payment date, the excess, if
any, of
(A) the aggregate amount of Class C Monthly Principal due on the class C
Notes on all prior payment dates over
(B) the aggregate amount of principal actually paid to the class C
noteholders on all prior payment dates.
CLASS C PERCENTAGE means 3.00%.
CLASS D DISTRIBUTION SUB-ACCOUNT is the sub-account or sub-accounts by
that name established and maintained by the trustee under the indenture.
CLASS D MONTHLY INTEREST means, for any payment date, the product of
(A) one-twelfth,
(B) the class D Note Rate and
(C) the class D Note Balance on the immediately preceding payment date, or
in the
S-139
<PAGE>
case of the first payment date, the closing date, after giving effect
to all principal payments on the class D notes on that prior payment
date.
The Class D Monthly Interest is calculated based upon a twelve month
year of thirty days in each month, except for the first payment date,
for which interest accrues from the closing date to, but excluding,
that payment date.
CLASS D MONTHLY PRINCIPAL means:
(A) on any payment date other than the class D stated maturity date, the
product of (x) the Class D Percentage and (y) the Monthly Principal,
and
(B) on the class D stated maturity date, the entire amount of the then
outstanding class D Note Balance.
CLASS D NOTE RATE means 8.25%.
CLASS D OVERDUE INTEREST means, for any payment date, the excess, if
any, of
(A) the aggregate amount of Class D Monthly Interest payable on all prior
payment dates over
(B) the aggregate amount of interest actually paid to the class D
noteholders on all prior payment dates.
CLASS D OVERDUE PRINCIPAL means, for any payment date, the excess, if
any, of
(A) the aggregate amount of Class D Monthly Principal due on the class D
notes on all prior payment dates over
(B) the aggregate amount of principal actually paid to the class D
noteholders on all prior payment dates.
S-140
<PAGE>
CLASS D PERCENTAGE means 2.00%.
CLASS E DISTRIBUTION SUB-ACCOUNT is the sub-account or sub-accounts by
that name established and maintained by the trustee under the indenture.
CLASS E MONTHLY INTEREST means, for any payment date, the product of
(A) one-twelfth,
(B) the class E Note Rate and
(C) the class E Note Balance on the immediately preceding payment date, or
in the case of the first payment date, the closing date, after giving
effect to all principal payments on the class E note on that prior
payment date.
The Class E Monthly Interest is calculated based upon a twelve month
year of thirty days in each month, except for the first payment date,
for which interest accrues from the closing date to, but excluding,
that payment date.
CLASS E MONTHLY PRINCIPAL means:
(A) on any payment date other than the class E stated maturity date, an
amount equal to the product of (x) the Class E Percentage and (y) the
Monthly Principal and
(B) on the class E stated maturity date, the entire amount of the then
outstanding class E Note Balance.
CLASS E NOTE RATE means 10.85%.
CLASS E OVERDUE INTEREST means, for any payment date, the excess, if
any, of
(A) the aggregate amount of Class E Monthly Interest payable on all prior
payment
S-141
<PAGE>
dates over
(B) the aggregate amount of interest actually paid to the class E
noteholders on all prior payment dates.
CLASS E OVERDUE PRINCIPAL means, as of any payment date, the excess,
if any, of
(A) the aggregate amount of Class E Monthly Principal due on the class E
notes on all prior payment dates over
(B) the aggregate amount of principal actually paid to the class E
noteholders on all prior payment dates.
CLASS E PERCENTAGE means 2.50%.
DELINQUENCY CONDITION exists on any determination date if (x) the
quotient of (1) the sum of the Discounted Contract Balances of all contracts
listed as more than ninety days delinquent as of the last day of the three
preceding calendar months, divided by (2) three exceeds (y) the product of (1)
0.06 and (2) the quotient of (A) the sum of the Aggregate Discounted Contract
Balance as of the last day of the three preceding collection periods, divided by
(B) three.
DISCOUNTED CONTRACT BALANCE means, for any contract for the particular
date on which that balance is determined, an amount equal to the sum of:
(A) the present value of each remaining contract payment remaining due
under the contract before the last day of the calendar month preceding
the stated maturity date, discounted monthly, from the last day of the
collection period in which that contract payment is to become due, at
a rate equal to one-twelfth, or a smaller fraction for the initial
payment date, of the Discount Rate, and
(B) 100% of the unpaid balance, for that particular date of determination,
of contract payments remaining due under that contract, but not
including any contract
S-142
<PAGE>
payment for which the servicer had to make a Servicer Advance.
However, except for purposes of computing the Repurchase Amount or for
computing the Discounted Contract Balance of a Predecessor Contract,
(1) on the date a contract becomes a defaulted contract, the
Discounted Contract Balance for that contract will be zero
and
(2) any purchase option payments will not be included in the
Discounted Contract Balance. For purposes of calculating the
Discounted Contract Balance of a contract, any contract
payment for which DVI Financial Services Inc. received on or
prior to the cut-off date a security deposit or an advance
payment shall be deemed to be zero.
DISCOUNT RATE is a per annum rate that we apply to the then
outstanding scheduled payments due on a contract to calculate the value in
today's dollars of all outstanding scheduled future payments on a contract. When
we use Discount Rate with respect to the charts and statistical contracts in
this prospectus supplement as of the cut-off date, we use an assumed Discount
Rate of 8.00% per annum. Any other time we use Discount Rate, we are using the
actual rate of 7.79407%.
ELIGIBLE CONTRACT: means a contract that, on the day that the issuer
acquires that contract, has the following characteristics and would not cause
the issuer to breach any of the following representations about the issuer's
entire pool of contracts:
(A) the Discounted Contract Balance of that contract does not include any
purchase option payment, or any contract payment for which DVI
Financial Services Inc. or anyone else received a security deposit on
or advance payment for before the cut- off date for that contract;
(B) the rights and obligations of the obligor under that contract will
terminate no later than eighty-six months after the closing date;
S-143
<PAGE>
(C) the Discounted Contract Balance of all contracts that have a balloon
payment, (I.E., a final contract payment that is significantly larger
than the other scheduled payments) is not more than 14.2% of the
Initial Aggregate Discounted Contract Balance; and furthermore, any
balloon payment due on that contract is not more than six times larger
than any other contract payment on that contract;
(D) the Discounted Contract Balance of all contracts that have non-level
payments, excluding contracts that have balloon payments, is not more
than 29.4% of the Initial Aggregate Discounted Contract Balance;
(E) the sum of the Discounted Contract Balances of all contracts with
equipment located in any one State does not exceed 16.0% of the
Aggregate Discounted Principal Contract Balance of all the contracts
acquired by the issuer on the closing date,
(F) no single obligor has a Discounted Contract Balance that exceeds 2.55%
of the Aggregate Discounted Principal Contract Balance of all the
contracts acquired by the issuer on the closing date,
(G) and the sum of the Discounted Contract Balances of the largest six
obligors does not exceed 13.5% of the Aggregate Discounted Principal
Contract Balance of all the contracts acquired by the issuer on the
closing date;
(H) not more than 10.0% of the Aggregate Discounted Contract Balance of
the contracts acquired by the issuer on the closing date arises from
contracts which constitute loans to manufacturers, wholesalers, and
retailers; and
(I) the obligor under each contract has made at least one contract payment
prior to the cut-off date for that contract in addition to any payment
made at the time of the signing of the contract. However, we allow
contracts representing 19.0% of the Aggregate Discounted Contract
Balance of the contracts acquired by the issuer on the closing date to
provide for the initial contract payment to be due within 30
S-144
<PAGE>
days of the payment date occurring in November, 1999.
INITIAL AGGREGATE DISCOUNTED CONTRACT BALANCE means the Aggregate
Discounted Contract Balance, of the initial contracts, on the cut-off date,
calculated based on the assumed Discount Rate of 8.00%.
INITIAL RESERVE ACCOUNT REQUIRED AMOUNT is $2,702,437.25 which equals
1.0% of the Aggregate Discounted Contract Balance.
MONTHLY INTEREST means as of any payment date, the sum of
(A) the Class A Monthly Interest,
(B) the Class B Monthly Interest,
(C) the Class C Monthly Interest,
(D) the Class D Monthly Interest, and
(E) the Class E Monthly Interest.
MONTHLY PRINCIPAL means, for any payment date, an amount equal to the
excess of
(A) the Aggregate Discounted Contract Balance at the close of business on
the last day of the second preceding collection period over
(B) the Aggregate Discounted Contract Balance at the close of business on
the last day of the immediately preceding collection period.
NONRECOVERABLE ADVANCE means any Servicer Advance previously made for
a delinquent contract by the servicer under the terms of the contribution and
servicing agreement,
S-145
<PAGE>
which in the good faith judgment of the servicer and as certified by an officer
of the servicer, will not be ultimately recoverable by the servicer from
payments by the obligor, or disposition of the
equipment, under that contract.
NOTE BALANCE means, on the closing date, $237,814,000 for the class A
notes cumulatively (and, with respect to each class of class A notes,
$31,483,000 for the class A-1 notes, $42,182,000 for the class A-2 notes,
$65,098,000 for the class A-3 notes and $99,051,000 for the class A-4 notes),
$4,054,000 for the class B notes, $8,107,000 for the class C notes, $5,405,000
for the class D notes and $6,756,000 for the class E notes and thereafter shall
equal the note balance for each class reduced by all principal payments on that
class of notes.
NOTE RATE means the annualized rate of interest on the relevant class
of notes.
OUTSTANDING or OUTSTANDING means, when used with reference to the
notes and as of any particular date, any note theretofore and thereupon being
authenticated and delivered except:
(A) any note canceled by the trustee at or before said date;
(B) any note, or portion thereof, for payment of redemption of which
monies equal to the principal amount or redemption price thereof, as
the case may be, with interest to the date of maturity or redemption,
shall have theretofore been irrevocably deposited with the trustee
(whether upon or prior to maturity or the redemption date of such
note);
(C) any note in lieu of or in substitution for which another note shall
have been authenticated and delivered; and
(D) any note owned by DVI Receivables Corp. X or any Affiliate of DVI
Receivables Corp. X, except that, in determining whether the trustee
shall be entitled to rely upon any request, demand, authorization,
direction, notice, consent or waiver of noteholders under the
indenture, only notes which the trustee knows to be so
S-146
<PAGE>
owned shall be disregarded.
PARTIAL PREPAYMENT AMOUNT means, for a particular collection period
and a contract for which the obligor wants to make a voluntary partial
prepayment and for which no substitute contract has been provided, an amount
equal to the excess, if any, of:
(A) the difference between:
(1) the Discounted Contract Balance of that contract as of the first
day of the collection period together with one month of interest on
that contract at the Discount Rate and
(2) the Discounted Contract Balance of that contract as of the first
day of the collection period calculated based on the amount of each
remaining contract payment payable by the obligor after giving effect
to the reduction of the contract payment which will result from the
partial prepayment, minus
(B) any contract payments actually received by the servicer for the
prepaid portion of the contract for the current collection period on
or before the date of the partial prepayment.
PARTIAL REDEMPTION PRICE means, with respect to any note offered under
this prospectus supplement, and as of any date of partial redemption fixed by
the issuer, an amount equal to the sum of (x) the product of (i) the quotient of
(A) the Aggregate Discounted Contract Balance of the contracts in Pool B as of
that date of partial redemption, divided by (B) the Aggregate Discounted
Contract Balance as of that date of partial redemption and (ii) the outstanding
Note Balance of such note offered under this prospectus supplement and (y)
interest accrued on that note to, but not including, such redemption date at the
applicable Note Rate.
POOL A means the contracts identified as constituting Pool A on the
contract schedule attached to the contribution and servicing agreement and the
indenture and other trust property related to the contracts.
S-147
<PAGE>
POOL A AGGREGATE DISCOUNTED CONTRACT BALANCE means an interest in, for
any date of determination, the sum of the Discounted Contract Balances of all
contracts in Pool A.
POOL B means the contracts identified on the contract schedule as
constituting Pool B, and other trust property related to the contracts.
POOL B AGGREGATE DISCOUNTED CONTRACT BALANCE means, for any date of
determination, the sum of the Discounted Contract Balances of all contracts in
Pool B.
PREDECESSOR CONTRACT means, for any substitute contract acquired by
DVI Receivables Corp. X by substitution under Section 7 of the contribution and
servicing agreement, the contract or contracts for which the substitute contract
has been substituted.
PREPAYMENT AMOUNT means, for any contract, the sum of
(A) the Discounted Contract Balance as of the first day of the collection
period preceding a prepayment, together with one month of interest on
the contract at the Discount Rate;
(B) any unreimbursed Servicer Advances for the contract; and
(C) any contract payments due and outstanding under a contract that are
not the subject of a Servicer Advance.
PRIORITY PAYMENTS mean, on any payment date, the sum of all payments
of interest and principal to the class A, class B, class C, class D and class E
noteholders, whether or not an Amortization Event has taken place.
REPURCHASE AMOUNT means, for any contract, the sum of:
(A) the Discounted Contract Balance as of the first day of the collection
period preceding such repurchase, together with one month of interest
on the contract at
S-148
<PAGE>
the Discount Rate; and
(B) any unreimbursed Servicer Advances for the contract.
RESERVE ACCOUNT DEPOSIT AMOUNT means, on any payment date, an amount
equal to the excess of (A) the Reserve Account Required Amount over (B) the
amount on deposit in the reserve account after giving effect to any reserve
account draws on that payment date.
RESERVE ACCOUNT REQUIRED AMOUNT means, on the first payment date, the
Initial Reserve Account Acquired Amount; and thereafter the lesser of either (i)
the Initial Reserve Account Required Amount or (ii) the sum of (a) the class A
Note Balance, (b) the class B Note Balance, (c) the class C Note Balance, (d)
the class D Note Balance and (e) the class E Note Balance. HOWEVER, for each
payment date while a Restricting Event has occurred and is continuing, the
Reserve Account Required Amount shall be equal to the sum of (i) the Reserve
Account Required Amount on the preceding payment date after any additions to or
withdrawals from the reserve account on that payment date and (ii) all amounts
otherwise payable to the issuer on that payment date.
RESTRICTING EVENT means the condition that exists on any payment date
if: (i) a Delinquency Condition exists or (ii) an indenture event of default has
occurred and is continuing.
SERVICER ADVANCE means an advance made for a contract by the servicer
in accordance with Section 5.01 of the contribution and servicing agreement.
SUBORDINATION DEFICIENCY EVENT occurs when the class A Note Balance is
greater than the Aggregate Discounted Contract Balance on the date of
determination.
VOTING RIGHTS means, the votes of class A-1 noteholders, measured by
the amount then held by each of them of the class A-1 Note Balance outstanding
at that time. After all class A-1 notes are no longer outstanding, "Voting
Rights" means the votes of the class A-2 noteholders, measured by the amount
then held by each of them of the class A-2 Note Balance outstanding at that
time. After all class A-2 notes are no longer outstanding, "Voting Rights"
S-149
<PAGE>
means that the votes of the class A-3 noteholders measured by the amount then
held by each of them of the class A-3 Note Balance outstanding at that time.
After all class A-3 notes are no longer outstanding, "Voting Rights" means the
notes of the class A-4 noteholders measured by the amount then held by each of
them of the class A-4 Note Balance outstanding at that time. After all class A
notes are no longer outstanding, "Voting Rights" means the votes of class B
noteholders, measured by the amount then held by each of them of the class B
Note Balance outstanding at that time. After all class B notes are no longer
outstanding, "Voting Rights" means the votes of the class C noteholders,
measured by the amount then held by each of them of the class C Note Balance
outstanding at that time. After all the class C notes are no longer outstanding,
"Voting Rights" means the votes of the class D noteholders, measured by the
amount then held by each of them of the class D Note Balance at that time. After
all class D notes are no longer outstanding, "Voting Rights" means the votes of
the class E noteholders measured by the amount then held by each of them of the
class E Note Balance outstanding at that time.
S-150
<PAGE>
PROSPECTUS July 12, 1999
ASSET BACKED SECURITIES ISSUABLE IN SERIES
DVI RECEIVABLES CORP. VIII DVI FINANCIAL SERVICES INC.
[Owner of] Issuer Servicer
THE OFFERED SECURITIES
Our securities will be either notes or certificates issued either by
us, DVI Receivables Corp. VIII, or by one or more subsidiaries that we may
create. We will collateralize our securities with assets that the issuer of
those securities owns. Our securities may be sold from time to time in one or
more series. Each series of our securities may include one or more classes of
securities. You can find information regarding the securities of a series and
any classes of that series in a supplement to this prospectus.
THE UNDERWRITING OF THE SECURITIES
The underwriters described in the "PLAN OF DISTRIBUTION" section in
this prospectus and in a prospectus supplement may use one or more different
methods to offer our securities. These offerings are more fully described under
the "PLAN OF DISTRIBUTION" section in this prospectus and in the related
prospectus supplement.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS DESCRIBED
UNDER "RISK FACTORS" IN THE RELATED PROSPECTUS
SUPPLEMENT ON PAGE S-10.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
RISK FACTORS......................................................................................................1
LOCATION OF GLOSSARY..............................................................................................1
THE SECURITIES....................................................................................................1
THE TRUST PROPERTY................................................................................................2
USE OF PROCEEDS...................................................................................................4
INFORMATION ABOUT THE ISSUERS.....................................................................................4
ABOUT US -- DVI RECEIVABLES CORP. VIII............................................................................4
INFORMATION ABOUT OUR PARENT -- DVI FINANCIAL SERVICES INC........................................................6
DVI Financial Services Inc.'s Credit Underwriting and Review Process.....................................6
Portfolio Monitoring and Credit Collections.............................................................11
THE TRUSTEE......................................................................................................11
THE CONTRACTS....................................................................................................12
Description of the Pool of Contracts for Each Series of Securities......................................12
Delinquencies, Repossessions, and Net Losses............................................................12
Maturity and Prepayment Considerations..................................................................13
DESCRIPTION OF THE SECURITIES....................................................................................13
General ...............................................................................................13
General Payment Terms of the Securities.................................................................14
Book-entry Registration; Definitive Securities..........................................................15
Reports to Securityholders..............................................................................15
DESCRIPTION OF THE PRINCIPAL TRANSACTION DOCUMENTS...............................................................17
Transfer of the Contracts under a Contribution and Servicing Agreement, a Sale
Agreement or a Subsequent Contract Transfer Agreement..........................................17
The Transactional Bank Accounts.........................................................................17
The Servicing Procedure.................................................................................20
Payments by the Servicer................................................................................20
Servicing Compensation..................................................................................21
Distributions on the Securities.........................................................................22
The Credit Enhancement..................................................................................22
Resignation, Liability and Merger of Servicer...........................................................23
Servicer Defaults.......................................................................................23
Rights upon a Servicer Default..........................................................................24
Events of Default under the Transaction Documents.......................................................25
Amendment of the Transaction Documents..................................................................25
Termination of the Transaction Documents................................................................26
LEGAL MATTERS AFFECTING AN OBLIGOR'S RIGHTS AND OBLIGATIONS......................................................27
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.........................................................................27
ERISA CONSIDERATIONS.............................................................................................28
PLAN OF DISTRIBUTION.............................................................................................28
LEGAL MATTERS....................................................................................................29
ii
<PAGE>
FINANCIAL INFORMATION ABOUT US...................................................................................30
WHERE YOU CAN FIND MORE INFORMATION..............................................................................30
INCORPORATION OF DOCUMENTS BY REFERENCE..........................................................................31
</TABLE>
iii
<PAGE>
RISK FACTORS
You should read and consider, among other things, the risks to holders
of our securities described in the "RISK FACTORS" section of the prospectus
supplement for your series of securities.
LOCATION OF GLOSSARY
A glossary of the capitalized terms that we use can be found on the
last page of this prospectus.
THE SECURITIES
DVI Financial Services Inc., a Delaware corporation, has formed us to
help issue series and classes of securities described in this prospectus and
each prospectus supplement. We or another issuer owned by us may also offer
classes of securities that are not available to the general public. If we or one
of our issuers offers a series of our securities by class, any single class of
securities may:
o be either senior or subordinate to the rights of one or more
of the other classes of securities, and
o differ from any other classes in terms of characteristics like
timing of payments, rights to payment, amount of interest,
principal payable, priority of payment or interest rate.
None of the securities issued by us or any one of our issuers represent
interests in or obligations of DVI Financial Services Inc. or any one of our
affiliates (other than that issuer). If an issuer offers notes, those notes
represent debt obligations of that issuer. If the securities are beneficial
ownership certificates in a trust, then those certificates represent an
ownership interest of a portion of that particular trust.
Either we or, more likely, a special purpose entity that we form will
issue our securities. If there are tax, accounting or other reasons why we are
not the most appropriate entity to issue securities, then we will create a
special purpose entity to issue one or more series of our securities. A special
purpose entity can be a limited liability company, limited liability
1
<PAGE>
partnership, a trust, a partnership, a corporation or any other legal form of
artificial person. We are a special purpose corporation. If we choose to create
a separate entity to issue our securities, we will describe in the related
prospectus supplement what form of special purpose entity that issuer has taken.
If we form a separate entity to issue any securities related to the trust
property for any series of securities, we or an affiliate of ours will transfer
to that issuer all of our or that affiliate's rights in the trust property
related to that series.
THE TRUST PROPERTY
We refer to the property that collateralizes any series of our
securities as the trust property for that series. The prospectus supplement for
each series of securities will describe the trust
property for that series. Our trust property will likely include:
o a pool of non-cancelable contracts (mostly leases and loans),
o the monies payable under those contracts after a particular
date,
o our rights in the equipment which is leased, loaned or owned
under those contracts,
o amounts payable to us under any physical damage insurance
policies for that equipment,
o all of our proceeds from any disposition of equipment in which
we may have a security interest,
o all amounts held in one or more of the bank accounts created
for each series of securities, and
o all credit enhancement we arrange for that series of
securities.
Credit enhancement is any arrangement which enhances the likelihood
that you will receive all payments owed to you as a securityholder. Credit
enhancement of a pool of assets or any class of securities may include:
2
<PAGE>
o a financial guaranty insurance policy issued by an insurance
company,
o subordination of one or more classes of securities,
o a reserve account,
o overcollateralization (the issuer's retained interest),
o a letter of credit,
o a standby loan commitment from a third party, or
o cash deposits, or other arrangements.
Relative subordination of different classes of a series of securities
also acts to enhance the creditworthiness of a class that gets paid before any
other class of securities. Subordination enhances the creditworthiness of a more
senior class of security because money which would be paid to the subordinate
class is used first to pay the more senior class. If there is not enough money
to fully pay both classes, securityholders of the later-paying, subordinate
class will not receive all amounts owed to them on time. Furthermore, neither we
nor any issuer can receive any money until all of the securityholders have
received their timely payments of interest and principal. We refer to this
subordination of an issuer's retained interest in the trust property as
overcollateralization.
Issuers affiliated with our parent corporation have tended in the past
to establish a reserve account as credit enhancement. A reserve account is a
bank account that an issuer opens at a financial institution that the issuer
finds creditworthy. The issuer deposits money, either at the closing of the
transaction or afterwards, into that reserve account to cover some or all future
shortfalls on a security.
No issuer originates contracts in its own name. Instead, a chain of
agreements conveys the trust property to each issuer. First, a contribution and
servicing agreement will be executed for each series. Under each contribution
and servicing agreement, DVI Financial Services Inc. contributes all of its
rights in the trust property to us. If we decide to establish a separate entity
to issue a series of securities, we will then transfer our rights in the trust
property in accordance
3
<PAGE>
with a subsequent contract transfer agreement. If either we or an issuer
acquires some items of trust property from a direct or indirect affiliate of
ours (other than DVI Financial Services Inc.), then either we or that issuer
will execute a sale agreement to acquire those assets. Except for any ownership
rights to the equipment, the trust property will always include all of the
rights in the contracts and the equipment held by the issuer and the entity from
which the issuer acquired the trust property. Finally, each issuer will sign an
indenture, a pooling and trust agreement or some other similar type of contract
in which that issuer will pledge the trust property to a trustee. That trustee
holds that pledge and acts under that document for the benefit of
securityholders.
USE OF PROCEEDS
Each issuer will apply proceeds from the sale of any series of
securities to acquire the related trust property, including any credit
enhancement.
INFORMATION ABOUT THE ISSUERS
No issuer other than ourselves may engage in any activity other than:
o acquiring, holding and managing the trust property related to
any series of securities,
o issuing one or more series of securities,
o arranging for payments to be made on the series of securities
issued by it, and
o engaging in other activities that are necessary, suitable or
convenient to accomplish those activities.
ABOUT US -- DVI RECEIVABLES CORP. VIII
DVI Receivables Corp. VIII is a corporation organized under the laws of
the State of Delaware. We were formed in December 1998 by DVI Financial Services
Inc., our parent. DVI Financial Services Inc. owns all of our outstanding stock.
Like the issuers, our principal executive office is located at 500 Hyde Park,
Doylestown, Pennsylvania 18901. You can telephone us at (215) 345-6600.
4
<PAGE>
We must operate so that the bankruptcy or other insolvency of DVI
Financial Services Inc. will not result in consolidation of either our assets
and liabilities or those of any issuer with the assets and liabilities of DVI
Financial Services Inc. However, we cannot assure you that a court, in a
bankruptcy proceeding, will not order such a consolidation. To protect your
interests by guarding against any such consolidation, each trustee, DVI
Financial Services Inc., DVI Receivables Corp. VIII, each issuer and all
securityholders must agree not to institute any bankruptcy, reorganization or
other proceeding against either us or any issuer.
The limitations imposed on our business activities may be altered only
upon the unanimous vote of our stockholders and the unanimous affirmative vote
of all of our directors, including each of our independent directors. An
independent director is a person who is not a director, officer or employee of
any direct or ultimate parent or affiliate of DVI Financial Services Inc.
However, an independent director may serve in similar capacities for other
special purpose entities affiliated with DVI Financial Services Inc. We will
always have at least two independent directors. All of our directors must vote
affirmatively before we can:
o begin a bankruptcy proceeding,
o merge,
o assume or incur any special debts, or
o endanger the separateness of our legal identity from that of
our parent.
DVI Financial Services Inc. warrants in each contribution and servicing
agreement that its transfer of the trust property to us is a valid transfer. In
turn, we agree to take all actions that we need to perfect our ownership
interest in the contracts. Nonetheless, DVI Financial Services Inc. or others
could take the position at a later point in time that the transfer of contracts
to us is a pledge, rather than a contribution of capital from a parent to a
subsidiary. If this position were upheld in court, the result could adversely
affect the trustee's ability to foreclose upon and sell the trust property for
your benefit.
5
<PAGE>
INFORMATION ABOUT OUR PARENT -- DVI FINANCIAL SERVICES INC.
DVI Financial Services Inc. is our parent company. It has its principal
office and its servicing operations at 500 Hyde Park, Doylestown, Pennsylvania
18901, and its telephone number is (215) 345-6600. DVI Financial Services Inc.
is a wholly owned direct operating subsidiaries of DVI, Inc. On a consolidated
basis, DVI Financial Services Inc. comprises the bulk of the assets of DVI, Inc.
DVI, Inc. is also headquartered in Doylestown, Pennsylvania, and its stock is
traded on the New York Stock Exchange (symbol "DVI").
DVI Financial Services Inc. provides financing for users of medical
equipment. It primarily finances technologically advanced medical equipment such
as computerized tomography, magnetic resonance imaging, nuclear medicine and
radiation therapy systems. It also finances lower cost medical devices for a
customer base that consists principally of outpatient healthcare providers,
physicians and physician groups, hospitals and shared service providers.
DVI Financial Services Inc. provides financing to its customers in
transactions which, with various exceptions, take the form of direct financing
leases and loans. Most of its equipment financing transactions have a term of
approximately sixty months. In most cases, those transactions allow it to
recover all the costs of acquiring and financing equipment during the initial
term of the related contract.
Two different groups of DVI Financial Servics, Inc. finance two
different types of equipment. DVI Financial Services Inc.'s Equipment Finance
Group finances equipment ranging in cost from $200,000 to $3,000,000. DVI
Financial Services Inc. finances smaller-ticket equipment that costs from $5,000
to $200,000 through its Vendor Finance Group.
DVI FINANCIAL SERVICES INC.'S CREDIT UNDERWRITING AND REVIEW PROCESS
We refer to the person responsible for making the periodic rental or
other payments as the obligor under any one of our contracts. An individual, a
business or another type of organization may qualify as an obligor.
DVI Financial Services Inc. has underwriting guidelines in place to
analyze the creditworthiness and investment desirability of obligors. While
seeking to identify financial
6
<PAGE>
performance requirements and criteria for potential obligors that reflect DVI
Financial Services Inc.'s willingness to accept prudent levels of risk, these
underwriting standards also remain flexible and evaluate individual credits in a
manner which permit DVI Financial Services Inc. to consider mitigating factors.
DVI Financial Services Inc. focuses its financing activity in the
out-patient healthcare sector. This sector has many emerging businesses with a
limited history, weak balance sheets and income performance. Meeting the
challenges presented by lending to this industry requires a rigorous analysis
credit and structuring discipline. Furthermore, most out-patient diagnostic
facilities operate high cost equipment, such as magnetic resonance systems.
These facilities tend to have a high proportion of fixed costs to total costs
and, are thus dependent upon a steady flow of revenues.
In its financing transactions with businesses in this sector, DVI
Financial Services Inc. places significant reliance on the prospective obligor's
expected future cash flow projections and the related underlying assumptions.
Determining the validity of financial projections requires a detailed analysis
of the business' projected expense levels and their reasonableness, as well as
the anticipated patient volume for the particular modality. In each case, the
detailed knowledge that the management of DVI Financial Services Inc. has of the
industry is critical to understanding the reasonableness of these financial
projections. Armed with that knowledge, DVI Financial Services Inc. also
completes an in-depth analysis that includes a detailed write-up outlining the
strengths and weaknesses of the proposed financing transaction before it either
approves or declines a financing.
For financing transactions involving an existing hospital, partnership
or corporation, DVI Financial Services Inc. requires a detailed assessment of
the prospective obligor's financial performance for at least two years plus any
interim period. Transactions with start-ups, individuals, sole proprietorships
and all physician controlled entities require the applicant to submit a business
plan and a cash flow projection. DVI Financial Services Inc. then determines the
candidate's capacity to service its financial obligations by reviewing that plan
and the accompanying projection. If the applicant is an individual, DVI
Financial Services Inc. also requires that a prospective obligor provide at
least two prior years of tax returns and a current personal financial statement.
7
<PAGE>
For start-ups or relatively new operations, DVI Financial Services
Inc. also looks at demographics of the area, the management team that will
operate the center, the contracts that are already in place with other parties
(such as those with a reputable radiology group) and the applicant's
capitalization. DVI Financial Services Inc. believes that transactions with new
entities or individual start-ups require a greater reliance upon market surveys
that project patient volumes, reference checks that verify the reputation of the
principals, analysis of the prospective obligor's anticipated composition of the
receivables and evaluations of the applicant's billing and collecting
capabilities.
DVI Financial Services Inc. looks at the following factors when
evaluating a potential financing transaction:
o CASH FLOW. DVI Financial Services Inc. measures the
cash available from the prospective obligor's
operations to service that applicant's financial
obligations. The cash flow must more than adequately
meet the additional debt service requirements of the
new financial obligation as well as any pre-existing
liabilities. Generally, DVI Financial Services Inc.
accepts a benchmark of 1.5 times debt service
requirements.
o LEVERAGE. To measure the prospective obligor's
ability to withstand adversity, DVI Financial
Services Inc. analyzes the ratio of the applicant's
debt to tangible net worth. DVI Financial Services
Inc. usually considers a ratio of 5:1 or lower
indicative of a moderate level of financial
obligations to net worth.
o CURRENT RATIO. The Equipment Finance Group will also
measure the ability of current assets to meet
short-term obligations. DVI Financial Services Inc.
believes that a ratio of 1.25 provides an acceptable
measure of liquidity.
o BALANCE SHEET AND INCOME STATEMENT TRENDS. Ideally,
these factors will show an upward trend in the
performance of the applicant's recent financial
performance, but in any case must at least evidence
profitability for the last two years and the most
recent interim period. If the applicant shows
fundamental strength in other areas of its balance
sheet, income
8
<PAGE>
components and performance measurements, DVI
Financial Services Inc. will consider a candidate
that has nominal losses, with reasonable explanation,
if those losses do not affect the "going concern"
status of the business. The applicant's tax returns
should reflect similar income and expense figures on
the financial statements for the fiscal year. Cash
flows should support the prospective obligor's
existing short-term obligations and new financial
obligations.
o INDIVIDUAL TAX RETURNS. DVI Financial Services Inc.
checks the tax returns of prospective obligors that
are individuals to validate that individual's stated
sources of income on the personal financial statement
and verify that person's ability to service personal
financial obligations. If the applicant is a sole
proprietor, cash flow should provide an adequate
cushion for the candidate's living expenses after
debt service requirements, including any proposed
financial obligations.
o HOSPITAL ANALYSIS. If a hospital is either the
obligor or the primary referral for a lessee, DVI
Financial Services Inc. will perform a comparative
analysis of key hospital operating ratios and other
measures. The analysis examines the hospital's
occupancy rate, payor mix and competitive features.
In cases where the proposed financing transaction does not conform to
all of the underwriting criteria, DVI Financial Services Inc. identifies methods
to support that transaction without compromising credit or quality and risk.
These methods include:
o using covenants and restrictions which reinforce
performance goals
o limiting some activities that could diminish
financial strength and affect repayment ability,
o requesting additional collateral to support the
contemplated transactions. This additional collateral
could take the form of cash deposits, letters of
credit, other assets of the principal obligor or
third parties (subject to appraisal) and guaranties,
and
9
<PAGE>
o conditioning credit approval on the completion of
certain terms, documentation or other events before
formal approval is granted.
Due to the large size of DVI Financial Services Inc.'s financings with
obligors, each transaction is analyzed and reviewed on its own merits. Pursuant
to DVI Inc.'s policy, its Director of Credit has approval authority for all
transactions up to $500,000. Its Vice President of Credit has approval authority
for all transactions up to $750,000. The Chief Credit Officer -- U.S. has
approval authority up to $1 million. The credit committee, which includes the
above credit managers, the Chief Credit Officer of DVI Inc. and a member of the
DVI Inc.'s board of directors, has approval authority for all transactions
greater than $1 million. If a transaction causes aggregate customer exposure to
exceed $3 million, it must receive credit committee approval, regardless of
size.
The underwriting criteria for DVI Financial Services Inc.'s Vendor
Finance Group differ from the rest of DVI Financial Services Inc. The Vendor
Finance Group tends to finance contracts related to equipment that have an
original cost of less than $200,000. A simple credit application is completed by
an applicant. The Vendor Finance Group analyzes applications for approval based
upon the financial condition of that applicant as well as the credit score that
a national credit reporting organization gave the applicant.
The Vendor Finance Group has also established specific credit
guidelines for hospitals, group practices and sole practitioners. Generally
these guidelines require those prospective obligors to:
o have been in business for a period of time ranging from a
minimum of one year to over two years,
o provide financial statements, corporate resolutions and
appropriate purchase documents,
o provide proof of medical license,
o meet a minimum TRW credit report score requirements, and
10
<PAGE>
o provide personal guarantees under certain circumstances.
PORTFOLIO MONITORING AND CREDIT COLLECTIONS
Key members of DVI Financial Services Inc.'s credit, sales, operations
and accounting departments meet regularly to discuss the contract portfolio
delinquency report and the status of delinquent obligors. With guidance from
management, the collection and/or sales departments immediately contact
delinquent obligors. Due to the relatively small number of contracts in DVI
Financial Services Inc.'s portfolio, the management of DVI Financial Services
Inc. possesses a high degree of familiarity with virtually the entire obligor
base. The Director of Portfolio Management personally administers a collection
of large-balance delinquent accounts and severely delinquent accounts. Once it
suspects that an obligor may experience problems in meeting its obligations, DVI
Financial Services Inc. acts quickly to identify a new operator of the equipment
in the event that the obligor defaults. Any repossessions are handled on an
individual basis.
The Vendor Finance Group handles collections and other servicing of
contracts which it has originated. Its collection department meets monthly to
review and discuss the status of certain accounts and any trends in performance.
For the accounts that are ten to thirty days past due, the Vendor Finance Group
begins an active collection process. The process is initiated by telephone
contact with the obligor, and a reminder notice is sent when the contract
payment becomes fifteen days past due. When the payments are thirty-one days
past due, the Vendor Finance Group sends a final notice letter. The Vendor
Finance Group sends a demand letter for possession of the equipment when the
payment is sixty-one to ninety days past due. Contracts that are more than
ninety-one days past due are included on a watch list which is reviewed by
senior management each month.
THE TRUSTEE
We will tell you in each prospectus supplement who the trustee for that
series of securities will be. You should expect, however, that the trustee's
liability for each series will be limited solely to its express obligations in
the related transaction documents. The trustee also often acts as the custodian
of the contracts. Usually the trustee fees are paid from funds in the related
collection account before any payments to securityholders are made.
11
<PAGE>
We usually require the trustee for any of our securities not to resign
or be removed until its successor has been appointed. A trustee may resign,
however, for cause at any time by giving written notice to you and other
persons. Securityholders may remove the trustee if some number of them agree to
deliver written notice of their decision to the trustee and the related issuer.
An issuer may also remove the trustee. If for any reason there is a vacancy in
the office of trustee, the issuer, acting with the consent of at least a
majority of the Voting Rights must quickly appoint a successor trustee. We
usually require that any successor trustee meet similar financial and other
qualifications as we required for the original trustee under that indenture,
trust agreement or other transaction document. If a potential successor trustee
does not accept our appointment within thirty days after we make it, either the
outgoing trustee or any securityholder of an affected series may petition any
court of competent jurisdiction for the appointment of a successor trustee. We
will give you notice of each resignation and each removal of any trustee related
to your security and each appointment of a successor trustee. Each notice that
we send to you will tell you the name of the successor trustee and the address
of its principal corporate trust office.
THE CONTRACTS
DESCRIPTION OF THE POOL OF CONTRACTS FOR EACH SERIES OF SECURITIES
Specific information about the contracts in the trust property for each
series of securities may change with respect to each series that we issue. These
changes could relate to, among other things, what kind of document the contracts
are (I.E. leases, or loans or both), the distribution of contracts by equipment
type or the then-current principal balance of the average contract. We can
calculate the value in present day dollars of any contract or pool of contracts
by multiplying each payment by a particular discount rate.
DELINQUENCIES, REPOSSESSIONS, AND NET LOSSES
We will update the information about our delinquency, repossession and
net loss experience with equipment finance contracts in each prospectus
supplement. This information will likely include our experience with the
equipment lease contracts in DVI Financial Services Inc.'s portfolio during
specified periods, including contracts which may or may not meet the criteria
for any trust property. You should be aware that no one can assure you that the
future
12
<PAGE>
delinquency, repossession and net loss experience of any issuer's trust property
will be comparable to the prior experience of DVI Financial Services Inc.'s
total contract portfolio.
MATURITY AND PREPAYMENT CONSIDERATIONS
Generally, DVI Financial Services Inc. does not own contracts under
which the obligor has the right to prepay or otherwise terminate early its
obligations under the contract. DVI Financial Services Inc. tries to discourage
prepayments because each prepayment received will shorten the weighted average
life of our related securities.
Nonetheless, despite DVI Financial Services Inc.'s efforts, the rate of
prepayments may be influenced by a variety of future economic, financial and
other factors. In addition, if DVI Financial Services Inc. has the right to
replace a contract which did not conform to the representations or warranties in
the related contribution and servicing agreement but fails to do so, then DVI
Financial Services Inc. must buy back that contract. You alone bear any
reinvestment risks resulting from a faster or slower amortization of your
security that results from prepayments.
DESCRIPTION OF THE SECURITIES
GENERAL
We or an issuer formed by us will issue securities on a
series-by-series basis at various times. We designate securities issued at the
same time by the same issuer as belonging to a particular series. Each series
will be issued under either an indenture, a trust agreement or similar kind of
transaction document. The following summaries, together with additional
summaries under "DESCRIPTION OF THE PRINCIPAL TRANSACTION DOCUMENTS" below,
describe all of the important terms and material provisions that are common to
each series of securities. The summaries do not include all material information
about each series of the securities. You will only find that information in the
prospectus supplement related to that series of securities.
The securities offered by this prospectus and the related prospectus
supplements will be rated in one of the four highest rating categories by one or
more organizations that are nationally recognized for their professional ability
to rate the creditworthiness of securities.
13
<PAGE>
Each series or class of securities offered may have different interest
rates. These rates can either be fixed or adjustable. Each prospectus supplement
specifies the interest rate for each series or class of securities offered by
that prospectus supplement, the initial interest rate and the method for
determining subsequent changes to the interest rate.
GENERAL PAYMENT TERMS OF THE SECURITIES
Securityholders will be entitled to receive payments on their
securities on the dates specified in the related transaction documents. Dates of
payment with respect to the securities can occur monthly, quarterly or
semi-annually. We will describe the payment dates for each class and series in
the prospectus supplement related to those securities.
Only securityholders that the trustee believes held securities on the
last business day of the period during which payments from contracts and other
trust property are collected will be entitled to receive payments on the next
succeeding payment date. The payment dates will be the same calendar day in each
month; or, in the case of quarterly-pay securities, the same day in every third
month; or in the case of semiannual-pay securities, the same day in every sixth
month unless, in any of these cases, that day is not a business day. If any
payment date does not fall on a business day, payments will be made on the next
day that is a business day.
Each payment date on the securities follows a period that we referred
to as a collection period. For example, in the case of securities that have a
monthly payment date, the collection period is usually, but not always, the
calendar month preceding each payment date. For a specified period only,
sometimes we allow an issuer to use some or all of the payments it collects to
acquire more contracts or other trust property. Sometimes securityholders do
not, and are not supposed to, receive any payments during this "ramp-up" period.
On other occasions, we may allow an issuer to forestall the payment of principal
for some specified time. This may result in an interest-only period, also
commonly referred to as a revolving period, which would then probably be
followed by a normal amortization period during which both principal and
interest are paid. Conversely, we might allow an issuer only to pay principal
for a while.
In addition, the trustee may retain all or a portion of collected
payments for a specified period. If the trustee temporarily holds these
collections, it must invest them in securities that mature before that temporary
period terminates. The Trustee's retention and temporary investment of these
payments may be for the purposes of either:
14
<PAGE>
o slowing the amortization rate of the related securities
relative to the underlying contracts' rent payment schedules,
or
o matching the amortization rate of the related securities to an
amortization schedule established at the time the securities
are issued.
We usually do not guarantee, and we usually do not ask anyone else to
guarantee, the securities of an issuer. Except for some possible forms of credit
enhancement (such as the issuer's retained interest), neither the securities nor
the underlying payments from the trust property will be guaranteed or insured by
any governmental agency, governmental instrumentality, DVI Receivables Corp
VIII, any affiliate of ours, DVI Financial Services Inc., any trustee or any
person servicing, administering and monitoring the trust property. We will
arrange for any credit enhancement on a series-by-series, or even class-by-class
basis.
BOOK-ENTRY REGISTRATION; DEFINITIVE SECURITIES
A series of securities may either be issued in book entry form or
registered in each securityholder's own name. Registration of your securities in
book-entry form may make it more difficult for you to sell your note to another
investor. In most cases, you will only be able to transfer your security through
The Depository Trust Company or The Depository Trust Company's participants.
Your ability to pledge your note to someone who does not participate in The
Depository Trust Company's system may be limited. Also, because trustees pay
distributions on book entry securities to Cede & Co., as nominee of The
Depository Trust Company, who in turn pays securityholders of record, you could
experience some delays in receipt of your payments on your security.
REPORTS TO SECURITYHOLDERS
On or prior to the payment date for each series, the servicer
responsible for monitoring, servicing and administrating the trust property and
payments from it will prepare and provide to the trustee of that series a
periodic statement that sets forth certain data about that series's trust
property. Usually, this statement contains data indicating the performance of
the related contract pool as of the preceding collection period. The statement
will also probably contain financial information related to the contracts during
that period. These statements will likely present the following information:
15
<PAGE>
o the amount of the total payment for each class of securities
on that payment date;
o the amount of principal payable on that payment date;
o the amount of interest payable on that payment date;
o the aggregate amount of all outstanding principal for all
contracts in that pool before and after that payment date;
o the amount, if any, of fees owed to the servicer and any other
persons to be paid from funds deposited in the collection
account on a related payment date;
o the aggregate purchase price for all contracts bought, if any,
during that collection period;
o the amount on deposit in any reserve account or the amount of
coverage, under any other form of credit enhancement , such as
a letter of credit or insurance policy, on that payment date;
and
o any other amounts owed to the servicer.
Each amount set forth in the first four bullet items with respect to
the securities of any of our series will be expressed as a dollar amount. Each
trustee will probably base its calculations regarding how to distribute money on
each payment date on the information given by the servicer in each periodic
servicer report. The trustee will also promptly forward this statement to each
securityholder.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year, the servicer will provide, or cause to be
provided, to the securityholders a statement containing the amounts described in
the second and third bullet items above and paid to securityholders for that
calendar year. The servicer will also deliver any other information required by
applicable tax laws, for the purpose of the securityholders' preparation of
federal income tax returns.
16
<PAGE>
DESCRIPTION OF THE PRINCIPAL TRANSACTION DOCUMENTS
The following summary describes the more important provisions of the
major transaction documents for each issuance of our securities. This summary is
not complete, and you should read the prospectus supplement prepared for your
series of securities to get all of the important information about your
security. If you are interested in learning more about what these documents say,
we filed forms of the contribution and servicing agreement, the subsequent
contract transfer agreement, the indenture and the trust agreement as exhibits
to this prospectus with the Securities and Exchange Commission. For more
information about how you can review these filings, please read the "WHERE YOU
CAN FIND MORE INFORMATION" section in this prospectus.
TRANSFER OF THE CONTRACTS UNDER A CONTRIBUTION AND SERVICING AGREEMENT, A SALE
AGREEMENT OR A SUBSEQUENT CONTRACT TRANSFER AGREEMENT
Each contribution and servicing agreement prescribes how DVI Financial
Services Inc. may contribute contracts and other trust property to us. In some
instances, either we or the issuer may receive the contracts from a direct or
indirect affiliate of ours under a sale agreement. Any sale agreement will be
substantially in the form of the contribution and servicing agreement. If we
have received trust property and we are not going to be the issuer related to
that trust property, we will then transfer that trust property that we receive
to the appropriate issuer in accordance with a subsequent contract transfer
agreement. Each issuer will then pledge all of its right, title and interest in
and under that trust property to a trustee under either an indenture, a pooling
and trust agreement or other similar contract. Any trustee acts on behalf of the
securityholders of securities pledged to it. We will describe to you all of the
more important obligations of the parties under the major transaction documents
for each series in the related prospectus supplement.
THE TRANSACTIONAL BANK ACCOUNTS
Each servicer will establish and maintain one or more bank accounts and
instruct obligors to send their contract payments to those accounts. Each of
these accounts acts as a lock box, preventing money owed to noteholders from
being improperly delivered or diverted. The trustee for each series will
transfer the amounts collected in the lockbox account to the corresponding
collection account every few days. Each series will have its own lockbox
account. The issuer will make sure that each lockbox account will be in the name
of the trustee for that series.
17
<PAGE>
Each trustee will, if required for its series, also open a reserve
account and a distribution account, in either case for the benefit of
securityholders. Future series may also have additional bank accounts to serve
as more credit enhancement to make the securities more attractive to prospective
securityholders.
For any series of securities, the related trustee will invest all of
the funds in the collection account, any distribution account, any reserve
account and any other similar kinds of accounts in investments that are rated at
least as high as that series of our securities. Except for funds from a reserve
account, eligible investments must be obligations or securities that mature not
later than the business day immediately preceding the next payment date of that
series. We usually permit funds from any reserve account to be invested in
securities that may not mature before the next payment date. Because reserve
account deposits can be invested in securities that have a longer maturity date,
the amount of cash in a reserve account may at any time may be less than the
balance of that reserve account. If the amount required to be withdrawn from any
reserve account to cover payment shortfalls is more than the cash on deposit in
that reserve account, you may not receive all payments owed you on a payment
date. This delay in payments will also probably increase the life of that series
of securities. Our transactions usually require that the trustee deposit all
investment earnings that matured during each collection period in the related
collection account, net of any losses and investment expenses. On each payment
date the trustee should view these earnings as collections from contracts and
pay them out accordingly.
Each bank account that is a trust account is opened for use in a
transaction involving the securities will be either:
o a segregated account with an institution of a particular
quality and investment grade creditworthiness,
o a segregated trust account with the corporate trust department
of a United States depository institution or
o any domestic branch of a foreign bank that has corporate trust
powers and is acting as trustee for funds deposited in that
account.
The kind of institution eligible to hold the transaction accounts as
segregated accounts are either:
18
<PAGE>
o the corporate trust department of the related trustee for that
particular series of securities, or
o a depository institution organized under the laws of the
United States, any state or the District of Columbia, or any
domestic branch of a foreign bank, which has either
-- a long-term unsecured debt rating acceptable to the
rating agencies that are rating that series or
-- a short-term unsecured debt rating or certificate of
deposit rating acceptable to those rating agencies;
or
o the parent corporation of that trustee, depository institution
or branch office has either:
-- a long-term unsecured debt rating acceptable to the
rating agencies rating the securities or
-- a short-term unsecured debt rating or certificate of
deposit rating acceptable to those rating agencies;
and
-- whose deposits are insured by the Federal Deposit
Insurance Corporation.
To the extent that the unsecured debt ratings of DVI Financial Services
Inc. are acceptable to the rating agencies, amounts deposited in any of these
accounts may be commingled with the general account moneys of DVI Financial
Services Inc. We will not allow DVI Financial Services Inc. to have rights to so
commingle moneys unless we tell you about it in the related prospectus
statement.
19
<PAGE>
THE SERVICING PROCEDURE
The initial servicer for each series of our securities issued by any
affiliate of ours has always been DVI Financial Services Inc. We expect DVI
Financial Services Inc. to be the servicer under each contribution and servicing
agreement that we are a party to. Regardless of who acts as servicer, each
servicer must make reasonable efforts to collect all payments due and owing on
each contract that comprises the related trust property. We will require each
servicer of our transactions to be as diligent in collecting payments for our
transactions as that servicer is with each other contract that it services for
itself and other third parties.
Our transactions will permit each servicer, in its discretion and on a
case-by-case basis, to arrange with an obligor on a contract the extension or
modification of that contract's payment schedule if the servicer, in its
professional judgment, thinks that obligor will make good its payments some time
in the near future. Some of these arrangements made by a servicer (including,
without limitation, any extension of the payment schedule beyond the final
scheduled payment date for the related securities) may result in the servicer
purchasing a defaulted contract from the trust property. We will also allow the
servicer to sell any equipment related to a Defaulted Contract at a public or
private sale, or take any other action permitted by applicable law, to try to
recoup or at least minimize the loss of payments to securityholders caused by
these defaults. After payment of some fees and expenses incurred in the
foreclosure process, the servicer must deposit into the related collection
account the cash, if any, collected from the disposition and other enforcement
of each Defaulted Contract.
PAYMENTS BY THE SERVICER
All payments on contracts, from whatever source, and all proceeds of
the contracts collected by each servicer during each collection period will
either be remitted to the related trustee or be deposited into the related
collection account. Except in unusual circumstances, each servicer must either
remit or deposit those amounts into that collection account within two business
days of the servicer's receipt of that money. If the rating agencies for the
related series of securities permit, all deposits of cash collected during a
particular collection period need only be made into the collection account two
business days prior to the related payment date. Pending deposit into the
related collection account, collections may be invested by a servicer at its own
risk and for its own benefit. These investments are not usually required to be
segregated from other investments of the servicer's. This commingling of
investments could delay the timely
20
<PAGE>
return of the funds invested by the servicer into the collection account. This
delay could cause shortfalls in payments to you on your securities.
SERVICING COMPENSATION
On each payment date we pay the related servicer a fee for the work it
did during the preceding collection period. This servicing fee is usually an
amount equal to the product of (i) one-twelfth, (ii) a specified percentage
(determined on a series-by-series basis) per annum and (iii) the aggregate
Discounted Contract balance of all contracts in the related pool as of the
beginning of the previous collection period. We pay this fee to the servicer
from funds in the related collection account, together with any portion of the
servicing fee that did not get paid on prior payment dates. Furthermore, we
usually pay this fee before making payments to you and the other
securityholders.
To earn its servicing fee, the servicer performs the functions of a
third party servicer of similar trust property as an agent for the
securityholders of that series. These functions include collecting and posting
all payments, responding to obligors' inquiries, investigating delinquencies,
sending payment coupons to obligors, reporting tax information to obligors,
paying costs of collection and disposition of defaults and policing the
contracts and other trust property. The servicing fee also compensates a
servicer for administering the contracts, accounting for collections and
furnishing any required statements to the trustee about distributions. We also
intend that the servicing fee reimburse the servicer for various taxes,
accounting fees, outside auditor fees, data processing costs and other costs
incurred in connection with administering the contracts.
As another part of its compensation, each servicer keeps any late fees,
the penalty portion of interest paid on past due amounts and other
administrative fees or similar charges allowed by applicable law and paid under
the contracts. Each servicer is also entitled to reimbursement for certain
liabilities. The servicer allocates payments by or on behalf of obligors to
scheduled payments, late fees and other charges in accordance with that
servicer's normal practices and procedures.
21
<PAGE>
DISTRIBUTIONS ON THE SECURITIES
On or prior to each series's payment date, the related servicer must
provide the applicable trustee with a statement setting forth some data about
the contracts and other trust property as of the close of business on the last
day of the preceding related collection period. You should refer to the section
of this prospectus entitled "REPORTS TO SECURITYHOLDERS" for further information
about these periodic reports from the servicer and the trustee. Based largely on
the data in this periodic servicer report, the trustee will calculate what
amount to distribute, and whom to pay, from the collection account. On each
payment date for that series, the trustee will distribute payments of principal
and interest, on each class or series to the related securityholders entitled to
those payments. We may also vary the timing, calculation, allocation, order,
source, priorities of and requirements for each class of each series of
securities. On the payment date for each series of securities, the trustee will
transfer collections on the related contracts from the collection account to any
applicable distribution account for distribution to the related securityholders.
Credit enhancement, such as money on deposit in a reserve account, may or may
not be available to cover any shortfalls in the amount available for
distribution on that payment date.
THE CREDIT ENHANCEMENT
We may or may not arrange for any security to have some form of credit
enhancement. Furthermore, each class within a series of securities that has
credit enhancement may have different amounts, types and providers of credit
enhancement. We do not expect that any credit enhancement for any class of
securities will provide protection against all risks of loss or guarantee timely
payment of all principal and interest on that claim of securities. If losses
occur which exceed the amount covered by the available credit enhancement,
securityholders of any class or series will bear their allocable share of
deficiencies. In addition, securityholders of any credit-enhanced series are
subject to the risk that the amounts made available by that credit enhancement
will be exhausted by the prior claims of other securityholders entitled to that
same source of enhancement.
22
<PAGE>
RESIGNATION, LIABILITY AND MERGER OF SERVICER
Each contribution and servicing agreement provides that the servicer
may not resign from its obligations and duties except in connection with either
a permitted assignment under that agreement or upon determination that the
servicer's performance of its duties have somehow become illegal. No resignation
of a servicer is effective until the related trustee or a successor servicer has
assumed the original servicer's obligations and duties under that contribution
and servicing agreement.
Each contribution and servicing agreement also provides that neither
the servicer nor any of its directors, officers, employees or agents will be
liable to the related issuer, trustee or securityholder for any action taken or
not taken in good faith pursuant to the terms of that agreement. Nonetheless, no
one is protected from liability for its own breach of any representation or any
warranty contained in the related contribution and servicing agreement. The
servicer or any of its directors, officers, employees or agents are also exposed
to liability arising by reason of willful misfeasance, bad faith or gross
negligence in the performance of any of their duties or by reason of reckless
disregard of their obligations and duties under that agreement.
Each contribution and servicing agreement will provide that the
servicer is under no obligation to appear in, prosecute, or defend any legal
action that is not incidental to its servicing responsibilities under that
agreement and that, in such servicer's opinion, may cause it to incur any
expense or liability. The servicer may, however, undertake any reasonable action
that it may deem necessary or desirable in respect of its contribution and
servicing agreement related to it, the rights and duties of the parties to or
the interests of the securityholders under that agreement.
The parties to each contribution and servicing agreement will agree to
view any corporation or other entity into which the servicer may be merged or
consolidated, which results from any merger or consolidation to which the
servicer is a party or which succeeds to the business of the servicer, as the
successor servicer if the new entity agrees to assume the servicer's
duties under that agreement and meets other qualifications.
SERVICER DEFAULTS
A servicer default occurs if either:
23
<PAGE>
o the servicer fails to deliver to the related trustee any
required payment or to direct that trustee to make any
required distributions, if either failure continues unremedied
for a period of time;
o the servicer materially breaches any other covenant or
agreement in its contribution and servicing agreement, if that
failure materially and adversely affects the rights of the
related securityholders. However, to constitute a servicer
default, that failure must go unremedied for a period of
thirty days after either the servicer becomes aware of that
failure or someone gives written notice of that failure to the
servicer or to us; or
o an insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings regarding the servicer
occurs or the servicer indicates its insolvency, need to
reorganize, or inability to pay its obligations in a
bankruptcy proceeding or other similar actions.
RIGHTS UPON A SERVICER DEFAULT
As long as a servicer default under a contribution and servicing
agreement remains unremedied, the related trustee, upon the request of more than
66-2/3% of the Voting Rights, must terminate all of the servicer's rights and
obligations, if any, under that agreement. That trustee must then either quickly
appoint a successor servicer or assume all the responsibilities, duties and
liabilities of the servicer. Our transaction documents will require that any
appointed successor trustee have a net worth of at least $15,000,000. We also
like to appoint as successor servicer only those persons whose regular business
includes the servicing of a similar type of equipment loans or leases. Our
transactions will pay any successor servicer similar compensation arrangements
as the initial servicer was entitled to under the related contribution and
servicing agreement unless that compensation is determined to be less than the
current market rate. If, however, a bankruptcy trustee or similar official has
been appointed to act as the servicer, and no servicer default other than that
appointment has occurred, that bankruptcy trustee or official may have the power
to prevent the trustee or the securityholders from making this kind of transfer
of servicing duties. In the event that the trustee is unwilling or unable to
transfer those servicing duties, it may appoint, or petition a court of
competent jurisdiction for the appointment of, a successor servicer.
24
<PAGE>
EVENTS OF DEFAULT UNDER THE TRANSACTION DOCUMENTS
Events that cause defaults for a series of securities also permit the
trustee to engage in special procedures in an attempt to protect the investments
of securityholders. Although this may not be true for each series or even each
class of securities, we expect to permit at least a majority of the Voting
Rights of any affected series to waive any default caused by DVI Financial
Services Inc., DVI Receivables Corp. VIII or the related issuer in the
performance of any of their respective obligations. The only defaults that we
usually do not allow securityholders to waive are
o a default in making any required deposits to or payments from
any of the accounts or
o a default concerning a covenant or provision which cannot be
modified or amended without the consent of each holder of an
affected outstanding security.
No waiver changes the securityholders' rights regarding future
defaults.
AMENDMENT OF THE TRANSACTION DOCUMENTS
The transaction documents for each series of securities can be amended
if the parties to the document in question sign a written amendment. Although
this may change for any particular series, we expect to allow parties to any
transaction document to amend that document without the consent of the related
securityholders, if the purpose of the amendment is any of the following:
o to add any provisions to, to change in any manner or to
eliminate any of the provisions of a transaction document, or
to modify rights of securityholders, as long as attorneys
approved by the trustee opine in writing that the amendment
will not materially and adversely affect the interests of the
securityholders,
o to make any change needed to comply with applicable laws,
rules or regulations, or
25
<PAGE>
o for the purpose of issuing other classes of securities in
accordance with the express terms of the applicable document
for that transaction.
The parties to a transaction document may amend that document with the
consent of at least a majority of the Voting Rights of those securities, for the
purpose
o of adding any provisions to that document,
o changing or eliminating any of the provisions of that
document,
o or otherwise modifying the securityholders' rights.
Despite this, the consent of all securityholders of the affected series will be
required to make any amendment that:
o changes the amount, accelerates or delays the timing of
collections of either contract payments or distributions made
for securityholders' benefit,
o reduces the required percentage of securityholders for a
series needed to consent to any amendment,
o releases any of the trust property from the lien of the
indenture, trust agreement or other applicable transaction
document or modifies sections of an important transaction
document.
TERMINATION OF THE TRANSACTION DOCUMENTS
The obligations of the servicer, the trustee, DVI Financial Services
Inc., DVI Receivables Corp. VIII and any issuer of a series of securities
terminate after the related issuer pays either the amounts received upon
liquidation of the latest-maturing contract in the related trust property or all
of the amounts that it owes to the related securityholders. Any series may have
circumstances under which issuer can prepay the principal amount of those
securities. If an issuer prepays an entire series of the securities, it will
purchase the trust property for that series at a price equal to the entire
outstanding principal balance of those securities together with their accrued
interest at the applicable interest rate. The issuer will also redeem all
outstanding securities of the related
26
<PAGE>
class or series that we prepay concurrently with the distribution to the related
securityholders of all amounts owed them. Any prepayment that an issuer makes
may affect the prepayment of the other classes in that series.
LEGAL MATTERS AFFECTING AN OBLIGOR'S RIGHTS AND OBLIGATIONS
Most states have adopted a version of Article 2A of the Uniform
Commercial Code, which is applicable to "true leases." A true lease is a lease
where the lessor has the benefits and burdens of ownership of the leased
equipment, as opposed to a so-called "finance lease" where the lessee has the
right to buy the leased equipment at a bargain price. Article 2A purports to
codify many provisions of existing common law on leasing. Although there have
been few court decisions interpreting Article 2A, Article 2A may, among other
things,
o limit enforceability of any unconscionable lease or provision,
o provide a lessee with remedies, including the right to cancel
the lease for any breach or default by the lessor, and
o may add to or modify the terms of "consumer leases" and leases
where the lessee is a "merchant lessee."
We do not anticipate, but can not assure you, that Article 2A will
materially and adversely affect payment to securityholders. First, Article 2A
recognizes typical commercial lease "hell or high water" rental payment clauses
and validates reasonable liquidated damages provisions in the event of lessor or
lessee defaults. Second, Article 2A also recognizes the concept of freedom of
contract and permits the parties in a commercial context a wide latitude to vary
provisions of the law. Lastly, DVI Financial Services Inc. will represent in
each contribution and servicing agreement that, to the best of its knowledge, no
contract is a "consumer lease" and no obligor has failed to accept, to inspect,
or to test the equipment leased to it.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Each class or series of securities may have different anticipated
material federal income tax considerations relevant to the purchase, ownership
and disposition of those securities. You
27
<PAGE>
should read the section of the prospectus supplement for your series that
discusses possible tax consequences applicable to your security.
ERISA CONSIDERATIONS
We will summarize in the prospectus supplement for each series
considerations under ERISA relevant to the purchase of that series by employee
benefit plans and individual retirement accounts. You should familiarize
yourself with these sections.
PLAN OF DISTRIBUTION
The securities will be offered in series through one or more methods,
including either firm commitment or best efforts underwriting and competitive
bidding. The prospectus supplement prepared for each series will describe how
the underwriters are offering that series of securities, the public offering or
the purchase price of those securities and the net proceeds that we will receive
from the sale.
If underwriters are used in any sale of securities, and if the
underwriting is not on a best efforts basis, then the underwriters will acquire
those securities for their own account and then may resell them from time to
time. These resales may occur in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices. The resale
transaction parties may negotiate any price determined either at the time of
sale or at the time of commitment.
If the underwriters for any resale of securities are broker-dealers
affiliated with us, their identities and relationships to DVI Receivables Corp.
VIII will be described in the related prospectus supplement. The cover of each
prospectus supplement will also tell you who are the managing underwriter or
underwriters of a particular series and who are the members of the underwriting
syndicate, if any.
In connection with a sale of the securities, either we, the issuer, DVI
Financial Services Inc. or purchasing securityholders may compensate
underwriters in the form of discounts, concessions or commissions. Also, a court
could deem underwriters and dealers participating in any distribution of
securities to be underwriters in connection with those securities. Any discounts
or commissions received from us or the related issuer, by those persons deemed
28
<PAGE>
underwriters, and any profit on the resale of securities by them, may be deemed
to be underwriting discounts and commissions under the Securities Act of 1933.
Each prospectus supplement will describe any compensation paid by us to the
underwriters.
We expect each underwriting agreement pertaining to the sale of any
series of securities to require that:
o the obligations of the underwriters will be subject to several
conditions precedent,
o if the underwriting is not on a best efforts basis, the
underwriters will be obligated to purchase all of the
securities if any are purchased, and
o in limited circumstances, we will either indemnify the
underwriters and the underwriters will indemnify us against
customary civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or will contribute to
payments required to be made in respect of such indemnity.
Each prospectus supplement that offers securities by placements through
dealers will contain information about the nature of the offering and any
agreements to be entered into between us and purchasers of securities of that
series.
We expect to sell the securities offered by this prospectus primarily
to institutional investors. Depending on the facts and circumstances of these
purchases, a court may decide that purchasers of securities, including dealers,
are "underwriters" within the meaning of the Securities Act of 1933, as amended,
in connection with reoffers and sales by those purchasers of securities.
Prospective securityholders should consult their legal advisors about this
possibility prior to reselling or otherwise transferring the securities.
LEGAL MATTERS
DVI's general counsel and Thacher Proffitt & Wood, New York, New York,
special counsel to the underwriters, will pass upon some of the more important
legal matters relating to the issuance of the securities.
29
<PAGE>
FINANCIAL INFORMATION ABOUT US
We have determined that our financial statements are not material to
the offering made by this prospectus. However, we will give any prospective
purchaser who asks to review our financial information a copy of the most recent
financial statements of DVI Financial Services Inc., our parent. See the section
of this prospectus entitled "DESCRIPTIONS OF THE SECURITIES -- REPORTS TO
SECURITYHOLDERS" for more information about these reports. In addition,
prospectus supplements may contain the financial statements of any provider of
material credit enhancement for the securities offered by that prospective
supplement.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus, together with the prospectus supplement for each
series of securities, contains a summary of the material terms of the applicable
exhibits to the registration statement and the related documents we mention here
and in those exhibits. We have filed copies of these exhibits at the Securities
and Exchange Commission's offices in Washington, D.C. You may obtain those
exhibits at rates prescribed by that Commission. You could also inspect those
exhibits without charge at the Commission's offices.
We have filed a registration statement with the Securities and Exchange
Commission regarding the securities offered by this prospectus. For further
information, you should refer to the registration statement which is available
for inspection without charge at either the Commission's office at 450 Fifth
Street, N.W., Washington, D.C. 20549 or the Commission's regional offices at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at the
Northwestern Atrium, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. You can obtain copies of the registration statement from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
We have not authorized anyone to give any information or to make any
representation other than those contained in this prospectus and any related
prospectus supplement. If anybody attempts to give you additional information,
you must not rely on it while making your investment or your purchasing
decisions. Neither this prospectus nor any related prospectus supplement
constitute either an offer to sell or a solicitation of an offer to buy any
securities other than the securities we offer in this prospectus. We do not
intend that either this prospectus or any prospectus supplement constitute an
offer of the securities to any person in any state or other
30
<PAGE>
jurisdiction in which an offer would be unlawful. You should not interpret the
delivery of this prospectus at any time to imply that the information in this
prospectus is correct as of any time subsequent to its date.
INCORPORATION OF DOCUMENTS BY REFERENCE
Either we or DVI Financial Services Inc. may file documents on behalf
of an issuer relating to any series of securities referred to in the
accompanying prospectus supplement with the Securities and Exchange Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended. These documents may be filed after the date of this prospectus
and prior to the termination of any offering of the related securities. You
should consider any documents filed in this way to be incorporated by reference
into this prospectus and the related prospectus supplement. Any court construing
this prospectus will likely consider those documents to be a part of this
prospectus and the related prospectus supplement from the respective dates of
filing of those documents. Any statement contained here or in another document
which is incorporated or deemed to be incorporated by reference here modifies or
supersedes this prospectus and the related prospectus supplement to the extent
that a statement contained here (or in any other subsequently filed document
which also is deemed to be incorporated by reference) modifies or supersedes
that statement. Any statement that is either modified or superseded in this way
shall not be deemed, except as so modified or superseded, to constitute a part
of this prospectus or the related prospectus supplement.
GLOSSARY
When a term in this prospectus begins with a capital letter, it has the
meaning described below:
A DEFAULTED CONTRACT is a contract in the trust property that has
either:
o a very late payment (I.E., 180 days) still
outstanding,
o a late payment and the servicer fails to advance
money in lieu of that payment because the servicer
did not believe that obligor will make good on all of
that payment.
31
<PAGE>
o an obligor that rejected the contract in a bankruptcy
proceeding, or
o if the contract involves a loan to a lessor, a lessor
that rejected the lease collateralizing that loan.
The DISCOUNTED CONTRACT BALANCE is the sum of all then-outstanding
scheduled payments due on a contract, with each future payment multiplied by the
discount rate that we select to express the value of that future payment in
present-day dollars.
The VOTING RIGHTS are, for each class of securities, all of the
securityholders of that class necessary to represent the entire principal
balance then-outstanding for that class.
32
<PAGE>
DVI RECEIVABLES CORP. VIII
REGISTRANT
ASSET-BACKED SECURITIES ISSUABLE IN SERIES
--------------------------------------
PROSPECTUS SUPPLEMENT
DATED OCTOBER 25, 1999
-------------------
LEHMAN BROTHERS
PRUDENTIAL SECURITIES
AND
BANC ONE CAPITAL MARKETS, INC.
UNDERWRITERS
Until ninety days after October 25, 1999, all dealers that effect transactions
in these securities whether or not participating in this offering, may be
required to deliver a prospectus supplement and prospectus. This is in addition
to the dealers' obligation to deliver a prospectus supplement and prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
