Prospectus Supplement dated July 21, 1999 (to Prospectus dated July 12,1999)
DVI RECEIVABLES VIII, L.L.C.
(Issuer)
DVI RECEIVABLES CORP. VIII
(Owner of Issuer)
DVI FINANCIAL SERVICES INC.
(Servicer)
OUR PUBLICLY OFFERED NOTES
We are offering $35,000,000 5.38125 % of class A-1, $40,000,000 5.850% of class
A-2, $62,400,000 6.260% of class A-3, $41,000,000 6.435% of class A-4,
$42,620,000 6.590% of class A-5, $3,768,000 6.490% of class B, $7,537,000 6.785%
of class C and $5,024,000 7.345% of class D asset-backed notes, Series 1999-1.
THE CREDIT ENHANCEMENT FOR THE NOTES --------------------------
CONSIDER CAREFULLY THE
o THE RETAINED INTEREST RISK FACTORS BEGINNING ON
Each note must receive its full payment due on PAGE S-9 OF THIS
each payment date before we receive and retain PROSPECTUS SUPPLEMENT AND
any funds. PAGE 1 OF THE PROSPECTUS.
o THE SUBORDINATED NOTES The notes will represent
We pay neither interest nor principal on any debt obligations of the
subordinated note unless and until the interest issuer only.
or the principal, respectively, on each senior
class of notes is paid first. This prospectus supplement
may be used to offer and
o THE RESERVE ACCOUNT sell the publicly offered
We will fund a reserve fund that can be used to notes only if accompanied
pay certain shortfalls in payments on all of the by the prospectus.
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 A-5 CLASS B CLASS C CLASS D
NOTES NOTES NOTES NOTES NOTES NOTES NOTES NOTES
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price to public 100% 100% 100% 100% 100% 100% 100% 100%
- ----------------------------------------------------------------------------------------------------------------------------------
Underwriting discount 0.175% 0.200% 0.400% 0.440% 0.475% 0.400% 0.400% 0.450%
- ----------------------------------------------------------------------------------------------------------------------------------
Proceeds to issuer 99.825% 99.800% 99.600% 99.560% 99.525% 99.600% 99.600% 99.550%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
We will pay $841,523.00 as a commission to all of the underwriters. We will
receive $236,507,477.00 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 A-5 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, the class A-5 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-137 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.
--------------------
PRUDENTIAL SECURITIES LEHMAN BROTHERS
<PAGE>
TABLE OF CONTENTS
Page
----
Summary of Prospectus Supplement.............................................S-1
Risk Factors.................................................................S-9
Location of Glossary........................................................S-21
DVI Financial Services Inc..................................................S-21
General ..........................................................S-21
Underwriting Criteria..............................................S-22
Portfolio Monitoring and Credit Collections
.........................................................S-26
The Servicer................................................................S-30
Servicing Obligations and Procedures...............................S-30
Servicing Compensation and Payment of
Expenses..................................................S-34
Evidence of Compliance by Servicer.................................S-35
Other Servicing Procedures.........................................S-36
Resignation/Removal of the Servicer................................S-36
Voluntary Termination of Servicer Duties...........................S-37
Year 2000 Computer Programming Compliance
.........................................................S-37
DVI Receivables Corp. VIII..................................................S-37
The Issuer..................................................................S-38
The Trustee.................................................................S-39
The Contracts...............................................................S-39
Statistical Information for the Contracts..........................S-44
Substitute Contracts...............................................S-57
Description of the Notes and Principal
Transaction Documents..............................................S-59
General Provisions of the Notes....................................S-60
Conveyance of Trust Property.......................................S-65
DVI Financial Services Inc. Repurchase
Obligation for Contract
Misrepresentations........................................S-67
Indemnification....................................................S-68
Indenture Accounts; Investment of Funds............................S-68
Reserve Account....................................................S-70
Flow of Funds to and from the Collection Account
.........................................................S-72
Payment of Amounts from Distribution Sub-
Accounts..................................................S-77
Reports to Noteholders.............................................S-80
Optional Redemption................................................S-81
Indenture Events of Default and
Acceleration..............................................S-82
Remedies ..........................................................S-84
Servicer Events of Default.........................................S-86
Termination of the Servicer........................................S-89
Duties and Immunities of the Trustee...............................S-89
Book-Entry Registration of the Notes...............................S-90
Prepayment and Yield Considerations.........................................S-98
Certain Legal Matters Affecting an
Obligor's Rights and Obligations..................................S-111
General .........................................................S-111
The Equipment.....................................................S-112
Material Federal Income Tax Consequences...................................S-116
Certain State, Local and Other Tax
Considerations....................................................S-128
Considerations for Benefit Plan Investors..................................S-128
Legal Investment...........................................................S-136
Ratings ..................................................................S-136
Use of Proceeds............................................................S-136
Plan of Distribution.......................................................S-137
Legal Matters..............................................................S-139
Where You Can Find More Information........................................S-139
Glossary ..................................................................S-141
-ii-
<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 July 27, 1999.
CUT-OFF DATE................ June 30, 1999.
PAYMENT DATES............... The thirteenth day of each month.
SCHEDULED MATURITY DATE..... For the class A-1 notes, July 13, 2000, for the
class A-2 notes, July 13, 2001, and for all
other notes, May 13, 2007
ISSUER...................... DVI Receivables VIII, 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-39 and S-65 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-39.
THE INITIAL DISCOUNTED AGGREGATE CONTRACT BALANCE. The aggregate outstanding
principal balances, discounted at a rate of 7.50% per year, of all of the
contracts described in this prospectus supplement is $249,144,085.34 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 June 30, 1999,
o the weighted average remaining term to maturity of the pool of contracts
existing at that time was approximately 57 months,
o the final scheduled payment date of the contract in the pool with the
latest scheduled maturity was April, 2006, and
o the average outstanding principal balance of the contracts in the pool
discounted at a rate of 7.50% a year on that date was $176,948.92.
The section at page S-39 of this supplement titled "THE CONTRACTS" contains much
more data about the contracts in the pool as of June 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 as 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-57 of this 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 August 13, 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
securityholders 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-72 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-70 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
S-5
<PAGE>
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 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-81 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-67 of this supplement.
S-6
<PAGE>
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 A-5 Aaa AAA AAA
Class B Aa3 AA AA
Class C A2 A A
Class D Baa2 BBB BBB
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 supplement entitled "PREPAYMENT AND YIELD
CONSIDERATIONS" on page S-98, and "RATINGS" at page S- 136.
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 A-5 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-116
in this prospectus supplement.
S-7
<PAGE>
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-128 of this supplement for a description of the rules
and these exemptions and purchaser representations.
S-8
<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 to a wide
NOTES MAY BE AFFECTED variety of causes, including adverse changes in the
BY LOSSES ON THE obligors' financial condition. A decline in economic
CONTRACTS, WHICH conditions nationally or in the regions where the
COULD OCCUR DUE TO A obligors are located may increase such risk of losses.
VARIETY OF CAUSES.
EVENTS THAT DIMINISH THE RETURN ON YOUR NOTE
THE RETURN ON YOUR Your investment is secured by your trustee's
NOTE DIMINISHES IF security interest in the trust property, which enables
THE CONTRACTS ARE the trustee to foreclose upon the trust property and to
DELIVERED TO SOMEONE pay you from it if an event of default occurs. The
OTHER THAN THE trustee's security interest is shown under law by the
TRUSTEE. trustee's possession of the contracts. If DVI Financial
Services Inc., DVI Receivables Corp. VIII, 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-9
<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 mentioned above,
DIMINISHES IF THE other factors that can hinder the trustee's ability to
TRUSTEE IS IMPEDED realize amounts from contracts that it foreclosed upon
FROM REALIZING THE include:
FULL 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 in the trust
NOTES DIMINISHES IF property might assert claims and defenses against DVI
ENOUGH OBLIGORS Financial Services Inc., DVI Receivables Corp. VIII,
ASSERT DEFENSES TO the issuer or the trustee for the contracts or the
THEIR PAYMENT related equipment. DVI Financial Services Inc. warrants
OBLIGATIONS. 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-10
<PAGE>
YOUR TRUSTEE MAY BE When applied to the trust property, federal and
BARRED FROM state insolvency, bankruptcy or other laws may restrict
RECEIVING THE the trustee's ability to collect contract payments for
ANTICIPATED CONTRACT you. State laws impose requirements and restrictions
PAYMENTS. 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 trust
MAY BE DIMINISHED property should be evidenced by filing a financing
BY A FAILURE TO FILE statement. If these statements are not executed in a
FINANCING STATEMENTS. timely manner by either DVI Financial Services Inc.,
DVI Receivables Corp. VIII or the issuer, 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. VIII and the issuer will agree in
the transaction documents to take reasonable action
required to facilitate proper filing of financing
statements.
S-11
<PAGE>
YOUR NOTE PAYMENTS If an obligor defaults on a contract, the only
COULD BE REDUCED BY source of payment for amounts due on the contract will
OBSOLESCENCE OF THE be the income and proceeds from the related equipment.
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 securities
NOTES MAY BE like the notes is the possibility that there might be
PARTICULARLY SENSITIVE concentration of the related equipment or contract
TO CHANGES IN obligors in one or more geographic regions.
ECONOMIC CONDITIONS. Approximately 21% 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-12
<PAGE>
RISKS RELATING TO THE STRUCTURE OF THE TRANSACTION
YOUR NOTE PAYMENTS DVI Financial Services Inc. believes that the
COULD BE INTERRUPTED, transfer of the contracts and the security interest in
DELAYED OR TERMINATED the related equipment to DVI Receivables Corp. VIII and
IF DVI FINANCIAL the subsequent transfer to the issuer should be treated
SERVICES INC. GOES as an absolute and unconditional transfer -- that is,
BANKRUPT. 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-13
<PAGE>
YOUR NOTE PAYMENTS LEVERAGED LEASE LOANS. Some contracts represent
COULD BE ADVERSELY leveraged lease loans from DVI Financial Services Inc.
AFFECTED BY A LESSOR'S to various lessors. Leveraged lease loans are secured
DECISION TO REJECT A by the lessor's pledge of its rights in a lease and,
LEASE IN BANKRUPTCY. 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. VIII, it also granted a security
interest in the leased equipment to DVI Receivables
Corp. VIII, 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-14
<PAGE>
YOUR RISK OF If you purchase subordinated notes, then you will
NONPAYMENT INCREASES not receive distributions of interest or principal on
IF YOUR CLASS OF NOTE IS any given payment date until after the class A-1 notes
TO BE PAID AFTER and any other classes of notes senior to yours receive
ANOTHER CLASS. 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-72 of this
prospectus supplement.
S-15
<PAGE>
OTHER RISKS
THE RATE THAT YOU The rate of payment of principal on the notes will
RECEIVE YOUR NOTE depend, among other things, on the rate of prepayments
PAYMENTS DEPENDS on the contracts. We do not know when obligors will
UPON THE choose to prepay their contracts, so we cannot predict
UNPREDICTABLE RATE OF the rate of payment of principal on any notes. There
PREPAYMENTS ON THE are different means of prepaying contracts, as well as
CONTRACTS. 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 amended
and restated 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-16
<PAGE>
THE RATE OF YOUR NOTE The servicer and the issuer have the right
PAYMENTS CAN BE occasionally to replace prepaid or some non-performing
CHANGED BY THE contracts. These rights differ as between the pool A
SERVICER'S OR THE contracts and the pool B contracts. For further
ISSUER'S SUBSTITUTION information about the servicer's rights of
OF CONTRACTS IN THE substitution, you should read the section titled "THE
TRUST PROPERTY. CONTRACTS-- SUBSTITUTE CONTRACTS" at page S-57 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, contract
MAY BE AFFECTED BY AN payments will affect what the trustee can pay to you on
UNEXPECTED a payment date as a payment on your note. The rate of
DELINQUENCY RATE OF delinquencies of DVI Financial Services Inc.'s
CONTRACTS. 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-17
<PAGE>
YOUR NOTE PAYMENTS In recent years, the administration and Congress
MAY BE AFFECTED IF have considered various changes in federal regulations
CONTRACT OBLIGORS ARE and reimbursement policies relating to health care
IMPAIRED BY POSSIBLE delivery in the United States. Legislation adopted this
CHANGES IN FEDERAL year or thereafter may affect the regulation, the
HEALTH CARE availability, the pricing and the reimbursement of
REGULATIONS. 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 rating
NOTES ARE NOT agency are recommendations to purchase, hold or sell
RECOMMENDATIONS the notes. Ratings do not comment as to market price or
AND MAY BE suitability for you. Moreover, the rating agencies do
WITHDRAWN AT A LATER not assure that the ratings will remain for any given
DATE. 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-18
<PAGE>
LIQUIDITY RISKS
YOU MAY HAVE TO After the initial issuance of the notes on the
HOLD YOUR NOTES TO closing date, the underwriters intend to make a
MATURITY IF THEIR secondary market for the purchase of the notes. A
MARKETABILITY IS secondary market is one in which a noteholder sells its
LIMITED. 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.
S-19
<PAGE>
YOUR NOTE PAYMENTS The servicer believes, based on discussions with
COULD BE AFFECTED BY current systems vendors, that its software applications
YEAR 2000 COMPUTER and operational programs will properly recognize
ERRORS. 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-20
<PAGE>
LOCATION OF GLOSSARY
A glossary of the capitalized terms that we use can be found beginning on
page S-141 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 June 30, 1999, DVI
Financial Services Inc. handled billing and collection of approximately 12,650
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
S-21
<PAGE>
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 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 Vendor Finance Group
of DVI Financial Services Inc. 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 permit 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 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.
S-22
<PAGE>
TRANSACTION ANALYSIS STANDARDS. DVI Financial Services Inc. completes
an in- depth analysis of all transactions, including a detailed write-up
outlining the proposed 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 an analysis of 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.
S-23
<PAGE>
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.
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 on 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 should
also 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
S-24
<PAGE>
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.
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.
VENDOR FINANCE GROUP. The underwriting criteria of DVI Financial
Services Inc.'s Vendor Finance 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 condition of approval are met, a signed purchase order is
issued.
The Vendor Finance 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;
S-25
<PAGE>
o provides personal guarantees under certain circumstances;
o provides proof of medical licence; and
o meets a certain minimum TRW credit score.
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.
S-26
<PAGE>
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 amounts for 1994 are based on financial
statements and may include additional assets. Also, the amount in the fiscal
year 1994 for 121-150 days, 151- 180 days and 181+ days is not available.
Figures in the fiscal year 1994 assume all delinquencies in the 121 to 150 days
category. The delinquency figures represent the entire outstanding balances of
those delinquent contracts. Total delinquencies for the fiscal years 1994
through 1998 exclude contracts purchased from Affiliated Capital on September
30, 1998.
S-27
<PAGE>
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE -- DOMESTIC SERVICING PORTFOLIO
AS OF MARCH 31, 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 $ 1,174,166 $ 932,006 $ 809,090
31 - 60 DAYS $ 12,955 1.1% $ 15,811 1.7% $ 3,705 0.5%
61 - 90 DAYS 8,047 0.7% 15,012 1.6% 12,133 1.5%
91 - 120 DAYS 4,198 0.4% 8,259 0.9% 1,088 0.1%
121 - 150 DAYS 5,860 0.5% 9,597 1.0% 2,419 0.3%
151 - 180 DAYS 1,426 0.1% 4,079 0.4% 1,715 0.2%
181 + DAYS 25,445 2.2% 15,295 1.6% 12,093 1.5%
TOTAL DELINQUENCIES $ 57,931 4.9% $ 68,053 7.3% $ 33,153 4.1%
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
--------------------------------------------------------------------------------------------
1996 1995 1994
--------------------------- ------------------------------- ------------------------------
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 $ 601,543 $ 473,625 $ 233,340
31 - 60 DAYS $ 10,352 1.7% $ 12,483 2.6% $ 3,996 1.7%
61 - 90 DAYS 3,614 0.6% 3,137 0.7% 200 0.1%
91 - 120 DAYS 755 0.1% 1,387 0.3% 4,265 1.8%
121 - 150 DAYS 707 0.1% 595 0.1% 248 0.1%
151 - 180 DAYS 1,790 0.3% 151 0.0% Not available
181 + DAYS 10,296 1.7% 4,815 0.1% Not available
TOTAL
DELINQUENCIES $ 27,514 4.6% $22,568 4.8% $ 8,709 3.7%
</TABLE>
S-28
<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. The 1994 presentation is based on
quarterly period end balances from financial statements and may include
additional assets. Percentage figures for fiscal year 1999 are annualized.
<TABLE>
<CAPTION>
LOSS EXPERIENCE
(dollars in thousands)
Year Ending June 30
Nine Months --------------------------------------------------------------
Ended
March 31,
1999 1998 1997 1996 1995 1994
------------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Average managed net financed assets... $1,054,226 $846,713 $704,676 $544,023 $342,353 $188,128
Net charge-offs....................... $ 4,391 $ 1,642 $ 436 $ 1,475 $ 473 $ 264
Net charge-offs as a percentage of
average managed net financed assets... 0.56%* 0.19% 0.06% 0.27% 0.14% 0.14%
=========== ========= ========= ========= ========= =========
*Annualized.
</TABLE>
The increase in delinquencies in 1998 resulted primarily from a $20.0
million borrower. At March 31, 1999, this delinquency had been reduced to $11.1
million and no loss is anticipated on this account. Net losses increased in the
nine months ended March 31, 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-29
<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
amended and restated 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
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<PAGE>
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
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 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
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<PAGE>
Secretary, or an Assistant Secretary of the relevant entity.
The servicer, for the benefit of the noteholders and the issuer, will
be responsible for:
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. VIII, 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. VIII, 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
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<PAGE>
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;
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 amended and restated 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. VIII, the issuer, the
trustee or the noteholders.
S-33
<PAGE>
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:
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
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<PAGE>
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
amended and restated 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.
EVIDENCE OF COMPLIANCE BY SERVICER
The amended and restated contribution and servicing agreement requires
that with each set of financial statements delivered under the amended and
restated 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
amended and restated 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.
S-35
<PAGE>
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.
RESIGNATION/REMOVAL OF THE SERVICER
The amended and restated 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 amended and
restated 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
amended and restated 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 -- TERMINATION OF THE SERVICER"
at page S-89 of this prospectus supplement.
S-36
<PAGE>
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
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 recently formed, limited purpose
Delaware corporation. 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.
S-37
<PAGE>
THE ISSUER
The issuer is a recently formed, limited purpose limited liability
company organized under the laws of the State of Delaware in December, 1998. 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 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 as to either itself
or the Issuer, or direct the issuer to commence any voluntary
bankruptcy proceedings;
o DVI Receivables Corp. VIII, 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 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, then the issuer and the trust property would not be
consolidated in those proceedings.
The issuer owns DVI Financial Services Inc.'s rights under any property
insurance policies
S-38
<PAGE>
relating to the equipment financed under the contracts. The issuer owns DVI
Receivables Corp. VIII's rights and remedies under the amended and restated
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 more than 50% 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
S-39
<PAGE>
those 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-50 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. VIII under an amended and restated subsequent contract
transfer agreement, dated as of December 1, 1998, between the issuer and DVI
Receivables Corp. VIII. DVI Receivables Corp. VIII will have acquired the
initial contracts from DVI Financial Services Inc. under an amended and restated
contribution and servicing agreement, dated as of December 1, 1998, between DVI
Financial Services Inc. and DVI Receivables Corp. VIII. 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 amended and
restated 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. VIII 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. VIII, by DVI Receivables Corp. VIII 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
S-40
<PAGE>
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 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-22 of
this prospectus supplement and "DVI FINANCIAL SERVICES INC.'S CREDIT
UNDERWRITING AND REVIEW PROCESS" at page 7 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.
S-41
<PAGE>
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 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 amended
and restated 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
7.141495%;
S-42
<PAGE>
(2) any unreimbursed amounts that the servicer advanced to that obligor
for that contract as permitted in the amended and restated
contribution and servicing agreement, as described in"THE CONTRACTS"
on page S-39 and "THE SERVICER: on page S-29 of this prospectus
supplement; and
(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;
S-43
<PAGE>
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.
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 amended and restated 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. The delinquency of a
contract payment is measured based on the contract payments required to be made
during the term of that contract as it was written on the date the contract
became part of the trust property. This does not take into account any
modifications, waivers or extensions subsequently granted by the servicer.
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 7.50% per annum. The
Aggregate Discounted Contract Balance of the initial contracts
S-44
<PAGE>
as of the cut-off date is $249,144,085.34 using the assumed Discount Rate. The
composition of the initial contracts as of the cut-off date using the actual
Discount Rate of 7.141495% 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.
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 four to eighty-two months. The final scheduled payment date of the
statistical contract with the latest maturity will be in April, 2006. As of the
cut-off date, the Discounted Contract Balances of the statistical contracts
range from $1,271.41 to $4,657,697.43. No more than 2.65% 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 $176,948.92.
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
S-45
<PAGE>
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- 57 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
7.50%. We believe that the use of the assumed Discount Rate does not
materially alter the resulting information in a way that would mislead
prospective noteholders.
S-46
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY EQUIPMENT LOCATION BASED UPON
EQUIPMENT ADDRESSES REFLECTED ON THE SERVICER'S RECORDS
Percentage Percentage
Percentage of Aggregate of Aggregate
of Aggregate Discounted Discounted Original Original
Number of Number of Contract Contract Equipment Equipment
Location Contracts Contracts Balance Balance Cost Cost
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Alabama................... 24 1.70% $ 956,869.58 0.38% $1,001,960.06 0.40%
Alaska.................... 1 0.07 659,116.96 0.26 610,000.00 0.25
Arizona................... 34 2.41 11,440,991.94 4.59 11,575,988.29 4.66
Arkansas.................. 4 0.28 3,095,527.44 1.24 2,866,379.07 1.15
California................ 205 14.56 35,863,719.88 14.39 35,274,178.25 14.20
Colorado.................. 18 1.28 1,984,299.17 0.80 2,295,480.61 0.92
Connecticut............... 17 1.21 697,979.75 0.28 754,259.52 0.30
Delaware.................. 2 0.14 1,204,280.59 0.48 1,336,850.68 0.54
Florida................... 110 7.81 25,441,351.81 10.21 24,888,133.84 10.02
Georgia................... 56 3.98 6,324,661.04 2.54 6,203,551.72 2.50
Hawaii.................... 8 0.57 3,525,415.11 1.42 3,337,909.67 1.34
Idaho..................... 4 0.28 1,325,008.15 0.53 1,299,847.31 0.52
Illinois.................. 70 4.97 9,771,007.07 3.92 9,626,468.61 3.87
Indiana................... 14 0.99 210,651.26 0.08 224,284.58 0.09
Iowa...................... 10 0.71 2,539,775.99 1.02 2,308,716.49 0.93
Kansas.................... 10 0.71 402,534.55 0.16 415,592.30 0.17
Kentucky.................. 13 0.92 404,024.82 0.16 394,989.24 0.16
Louisiana................. 21 1.49 843,255.20 0.34 807,094.06 0.32
Maine..................... 2 0.14 73,819.67 0.03 79,539.01 0.03
Maryland.................. 29 2.06 5,840,240.78 2.34 5,856,918.91 2.36
Massachusetts............. 33 2.34 1,254,923.37 0.50 1,313,448.95 0.53
Michigan.................. 40 2.84 2,855,551.80 1.15 2,904,723.67 1.17
Minnesota................. 7 0.50 1,626,237.79 0.65 1,509,376.93 0.61
Mississippi............... 11 0.78 612,269.59 0.25 656,026.28 0.26
Missouri.................. 30 2.13 4,053,499.99 1.63 4,220,727.01 1.70
Montana................... 2 0.14 61,657.54 0.02 100,232.10 0.04
Nebraska.................. 4 0.28 1,560,398.94 0.63 1,454,857.90 0.59
Nevada.................... 14 0.99 2,340,434.41 0.94 2,298,015.79 0.92
New Hampshire............. 4 0.28 176,454.45 0.07 71,845.00 0.03
New Jersey................ 54 3.84 6,825,719.45 2.74 6,542,482.56 2.63
New Mexico................ 9 0.64 410,951.52 0.16 432,119.12 0.17
New York.................. 158 11.22 19,104,083.58 7.67 19,624,170.62 7.90
</TABLE>
S-47
<PAGE>
<TABLE>
<CAPTION>
Percentage Percentage
Percentage of Aggregate of Aggregate
of Aggregate Discounted Discounted Original Original
Number of Number of Contract Contract Equipment Equipment
Location Contracts Contracts Balance Balance Cost Cost
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
North Carolina............ 19 1.35% $2,394,266.54 0.96% $2,630,633.24 1.06%
Ohio...................... 54 3.84 12,862,913.20 5.16 12,524,182.47 5.04
Oklahoma.................. 5 0.36 881,968.28 0.35 941,908.16 0.38
Oregon.................... 12 0.85 1,173,601.29 0.47 1,176,471.25 0.47
Pennsylvania.............. 68 4.83 12,627,389.79 5.07 13,847,720.11 5.57
Rhode Island.............. 5 0.36 272,480.66 0.11 288,765.33 0.12
South Carolina............ 9 0.64 5,213,297.61 2.09 4,936,738.22 1.99
Tennessee................. 16 1.14 997,646.20 0.40 1,088,212.50 0.44
Texas..................... 135 9.59 52,348,783.62 21.01 51,666,207.52 20.80
Utah...................... 8 0.57 151,928.53 0.06 156,467.66 0.06
Vermont................... 1 0.07 11,189.79 0.00 12,389.20 0.00
Virginia.................. 15 1.07 319,261.56 0.13 334,568.34 0.13
Washington................ 22 1.56 1,638,899.45 0.66 1,860,222.53 0.75
West Virgina.............. 5 0.36 997,581.79 0.40 995,965.67 0.40
Wisconsin................. 14 0.99 3,748,586.62 1.50 3,680,954.43 1.48
Wyoming................... 2 0.14 17,577.22 0.01 18,724.97 0.01
----- ------ --------------- ------ --------------- ------
Total..................... 1,408 100.00% $249,144,085.34 100.00% $248,446,299.75 100.00%
===== ====== =============== ====== =============== ======
</TABLE>
S-48
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY REMAINING CONTRACT TERM
Percentage Percentage
Range of Percentage of Aggregate of Aggregate
Remaining of Aggregate Discounted Discounted 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................... 12 0.85% $ 598,767.43 0.24% $ 672,228.09 0.27%
13 - 24................... 99 7.03 4,394,937.57 1.76 5,370,318.05 2.16
25 - 36................... 521 37.00 15,831,182.59 6.35 17,815,724.60 7.17
37 - 48................... 129 9.16 13,078,190.15 5.25 13,895,953.05 5.59
49 - 60................... 576 40.91 130,332,285.15 52.31 129,558,846.72 52.15
61 - 72................... 59 4.19 61,657,784.33 24.75 60,193,290.23 24.23
73 - 84................... 12 0.85 23,250,938.12 9.33 20,939,939.01 8.43
----- ------ --------------- ------ --------------- ------
Total..................... 1,408 100.00% $249,144,085.34 100.00% $248,446,299.75 100.00%
===== ====== =============== ====== =============== ======
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL CONTRACT POOL BY ORIGINAL CONTRACT TERM
Percentage Percentage
Range of Percentage of Aggregate of Aggregate
Original of Aggregate Discounted Discounted 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................... 5 0.36% $ 392,243.03 0.16% $ 398,928.00 0.16%
13 - 24................... 72 5.11 3,050,326.98 1.22 3,600,979.94 1.45
25 - 36................... 242 17.19 10,513,396.29 4.22 12,240,163.35 4.93
37 - 48................... 398 28.27 16,853,611.40 6.76 17,947,428.94 7.22
49 - 60................... 497 35.30 85,877,759.92 34.47 86,772,943.29 34.93
61 - 72................... 176 12.50 96,096,527.54 38.57 92,828,605.38 37.36
73 - 84................... 18 1.28 36,360,220.18 14.59 34,657,250.85 13.95
----- ------ --------------- ------ --------------- ------
Total..................... 1,408 100.00% $249,144,085.34 100.00% $248,446,299.75 100.00%
===== ====== =============== ====== =============== ======
</TABLE>
S-49
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION 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... 179 12.71% $14,604,718.01 5.86% $15,401,492.24 6.20%
Computerized............... 16 1.14 7,594,160.13 3.05 7,845,188.59 3.16
Dental Equipment........... 4 0.28 931,825.90 0.37 936,211.47 0.38
Dialysis................... 3 0.21 739,992.55 0.30 682,882.07 0.27
Facilities................. 85 6.04 14,701,419.02 5.90 15,169,379.79 6.11
Imaging System............. 39 2.77 5,219,829.72 2.10 5,406,357.37 2.18
Laboratory................. 31 2.20 1,045,927.52 0.42 1,197,530.41 0.48
Magnetic Resonance
Imaging................... 88 6.25 91,195,538.04 36.60 89,278,064.44 35.93
Mammography................ 12 0.85 1,417,365.44 0.57 1,465,887.40 0.59
Medical Devices............ 26 1.85 4,521,521.14 1.81 4,594,553.16 1.85
Medical Equipment.......... 597 42.40 54,393,913.21 21.83 54,802,087.22 22.06
Medical Vehicles........... 15 1.07 1,329,605.57 0.53 1,478,257.71 0.60
Optometry.................. 21 1.49 6,805,999.49 2.73 6,263,225.99 2.52
Patient Monitoring......... 14 0.99 513,628.08 0.21 563,883.71 0.23
Physical Therapy........... 33 2.34 813,230.01 0.33 847,695.90 0.34
Radiation Therapy.......... 4 0.28 2,055,052.90 0.82 2,022,579.70 0.81
Radiology.................. 15 1.07 8,656,137.15 3.47 8,816,886.38 3.55
Surgical................... 146 10.37 22,806,618.82 9.15 22,690,344.95 9.13
Telecommunications......... 6 0.43 403,079.77 0.16 415,465.86 0.17
Ultrasound................. 15 1.07 3,184,475.10 1.28 3,272,013.73 1.32
Urology.................... 12 0.85 3,325,722.80 1.33 2,896,819.21 1.17
X-Ray...................... 6 0.43 458,006.57 0.18 440,581.38 0.18
Other...................... 41 2.91 2,426,318.40 0.97 1,958,911.07 0.79
----- ------ --------------- ------ --------------- ------
Total...................... 1,408 100.00% $249,144,085.34 100.00% $248,446,299.75 100.00%
===== ====== =============== ====== =============== ======
</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
S-50
<PAGE>
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 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, CT 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 CTs, 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
S-51
<PAGE>
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.
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.
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<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... 803 57.03% $ 9,448,409.96 3.79% $ 10,337,828.48 4.16%
$ 25,000.01 - $ 50,000.00... 135 9.59 4,749,745.12 1.91 5,185,512.62 2.09
$ 50,000.01 - $ 75,000.00... 67 4.76 4,261,950.52 1.71 4,560,046.60 1.84
$ 75,000.01 - $ 100,000.00... 52 3.69 4,571,267.48 1.83 4,810,938.15 1.94
$ 100,000.01 - $ 150,000.00... 62 4.40 7,742,897.63 3.11 8,017,866.32 3.23
$ 150,000.01 - $ 175,000.00... 25 1.78 4,109,900.31 1.65 4,378,092.21 1.76
$ 175,000.01 - $ 200,000.00... 25 1.78 4,621,362.93 1.85 4,707,773.95 1.89
$ 200,000.01 - $ 250,000.00... 32 2.27 7,109,132.30 2.85 7,403,940.40 2.98
$ 250,000.01 - $ 300,000.00... 22 1.56 5,996,945.35 2.41 6,167,200.98 2.48
$ 300,000.01 - $ 350,000.00... 19 1.35 6,093,825.94 2.45 5,909,927.93 2.38
$ 350,000.01 - $ 400,000.00... 13 0.92 4,846,468.38 1.95 4,855,389.17 1.95
$ 400,000.01 - $ 450,000.00... 13 0.92 5,533,476.83 2.22 5,779,602.88 2.33
$ 450,000.01 - $ 500,000.00... 9 0.64 4,252,927.30 1.71 4,451,969.54 1.79
$ 500,000.01 - $ 600,000.00... 8 0.57 4,468,205.79 1.79 4,564,482.79 1.84
$ 600,000.01 - $ 750,000.00... 19 1.35 12,805,229.56 5.14 12,823,855.27 5.16
$ 750,000.01 - $1,000,000.00... 25 1.78 21,883,755.78 8.78 21,962,104.16 8.84
$1,000,000.01 - $2,000,000.00... 56 3.98 68,640,000.54 27.55 66,259,389.76 26.67
$2,000,000.01 - $3,000,000.00... 16 1.14 43,074,252.22 17.29 42,506,543.38 17.11
$3,000,000.01 - $4,000,000.00... 6 0.43 20,276,633.97 8.14 19,763,835.16 7.95
$4,000,000.01 - $5,000,000.00... 1 0.07 4,657,697.43 1.87 4,000,000.00 1.61
----- ------ --------------- ------ --------------- ------
Total..................... 1,408 100.00% $249,144,085.34 100.00% $248,446,299.75 100.00%
===== ====== =============== ====== =============== ======
</TABLE>
S-53
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY ORIGINAL 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 Costs Contracts Contracts Balance Balance Cost Cost
- -------------------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.01 - $ 25,000.00... 782 55.54% $ 8,980,076.24 3.60% $ 9,720,431.49 3.91%
$ 25,000.01 - $ 50,000.00... 147 10.44 5,004,694.83 2.01 5,255,143.42 2.12
$ 50,000.01 - $ 75,000.00... 70 4.97 4,196,567.87 1.68 4,470,993.34 1.80
$ 75,000.01 - $ 100,000.00... 45 3.20 3,743,926.65 1.50 3,950,353.42 1.59
$ 100,000.01 - $ 150,000.00... 66 4.69 7,731,212.66 3.10 8,025,884.32 3.23
$ 150,000.01 - $ 175,000.00... 29 2.06 4,571,709.17 1.83 4,692,970.91 1.89
$ 175,000.01 - $ 200,000.00... 28 1.99 5,024,529.86 2.02 5,247,465.46 2.11
$ 200,000.01 - $ 250,000.00... 26 1.85 5,676,015.13 2.28 5,801,675.62 2.34
$ 250,000.01 - $ 300,000.00... 33 2.34 8,837,479.81 3.55 9,069,603.55 3.65
$ 300,000.01 - $ 350,000.00... 19 1.35 6,010,390.47 2.41 6,150,602.82 2.48
$ 350,000.01 - $ 400,000.00... 9 0.64 3,415,547.87 1.37 3,410,958.83 1.37
$ 400,000.01 - $ 450,000.00... 9 0.64 3,830,920.75 1.54 3,839,407.55 1.55
$ 450,000.01 - $ 500,000.00... 10 0.71 4,576,723.00 1.84 4,715,120.30 1.90
$ 500,000.01 - $ 600,000.00... 11 0.78 5,700,508.40 2.29 5,847,241.59 2.35
$ 600,000.01 - $ 750,000.00... 18 1.28 12,163,781.24 4.88 12,043,248.69 4.85
$ 750,000.01 - $1,000,000.00... 34 2.41 30,442,805.54 12.22 30,340,907.47 12.21
$1,000,000.01 - $2,000,000.00... 48 3.41 59,451,223.87 23.86 57,505,519.34 23.15
$2,000,000.01 - $3,000,000.00... 15 1.07 39,728,471.87 15.95 38,246,820.70 15.39
$3,000,000.01 - $4,000,000.00... 9 0.64 30,057,500.11 12.06 30,111,950.93 12.12
----- ------ --------------- ------ --------------- ------
Total..................... 1,408 100.00% $249,144,085.34 100.00% $248,446,299.75 100.00%
===== ====== =============== ====== =============== ======
</TABLE>
S-54
<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........................ 2 0.14% $6,599,981.20 2.65% $7,000,000.00 2.82%
2........................ 2 0.14 6,249,816.20 2.51 6,000,000.00 2.42
3........................ 2 0.14 5,735,636.10 2.30 6,000,000.00 2.42
4........................ 2 0.14 5,562,453.94 2.23 5,155,063.63 2.07
5........................ 2 0.14 5,474,500.82 2.20 6,100,000.00 2.46
6........................ 6 0.43 5,385,083.42 2.16 5,356,300.15 2.16
7........................ 2 0.14 5,302,096.26 2.13 5,000,000.00 2.01
8........................ 4 0.28 5,280,969.76 2.12 4,960,506.19 2.00
9........................ 6 0.43 5,185,534.77 2.08 5,502,145.36 2.21
10........................ 1 0.07 4,657,697.43 1.87 4,000,000.00 1.61
Other..................... 1,379 97.94 193,710,315.44 77.75 193,372,284.42 77.83
----- ------ --------------- ------ --------------- ------
Total..................... 1,408 100.00% $249,144,085.34 100.00% $248,446,299.75 100.00%
===== ====== =============== ====== =============== ======
</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... 566 40.20% $77,370,122.10 31.05% $76,330,557.86 30.72%
Fair Market Value
Leases.......... 563 39.99 21,574,849.41 8.66 24,541,404.81 9.88
Leverages Lease
Loans........... 67 4.76 9,610,430.72 3.86 10,125,664.12 4.08
Secured Equipment
Notes........... 156 11.08 129,326,635.64 51.91 125,773,009.90 50.62
Lease Receivable
Purchases....... 56 3.98 11,262,047.47 4.52 11,675,663.06 4.70
----- ------ --------------- ------ --------------- ------
Total............ 1,408 100.00% $249,144,085.34 100.00% $248,446,299.75 100.00%
===== ====== =============== ====== =============== ======
</TABLE>
S-55
<PAGE>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY BUSINESS TYPE
<TABLE>
<CAPTION>
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...... 323 22.94% $ 5,613,001.56 2.25% $ 5,846,029.34 2.35%
Dialysis Center.... 2 0.14 723,467.77 0.29 665,053.46 0.27
Family/General
Center............ 53 3.76 640,045.86 0.26 680,832.45 0.27
Gynecology &
Obstetrics........ 38 2.70 448,771.79 0.18 481,842.10 0.19
Holding
Company/Various
Centers........... 51 3.62 34,824,730.76 13.98 33,399,414.37 13.44
Home Health Care... 7 0.50 1,986,079.88 0.80 2,018,555.19 0.81
Hospital........... 65 4.62 36,952,463.65 14.83 36,925,503.13 14.86
Hyperbaric
Chamber........... 9 0.64 2,758,618.82 1.11 2,811,347.91 1.13
Internal
Medicine.......... 42 2.98 532,964.52 0.21 555,405.67 0.22
Mobile MRI......... 6 0.43 352,802.92 0.14 405,436.85 0.16
MRI Only Center.... 67 4.76 39,401,070.82 15.81 38,087,964.84 15.33
MRI & Other
Multiple
Centers........... 43 3.05 28,777,498.80 11.55 27,336,932.11 11.00
Multi-Modality
Center............ 66 4.69 35,981,041.95 14.44 36,241,724.80 14.59
Optical............ 49 3.48 2,155,301.75 0.87 2,302,896.03 0.93
Osteopath.......... 18 1.28 165,646.91 0.07 191,470.80 0.08
Otolaryngology..... 24 1.70 646,007.18 0.26 580,645.13 0.23
Outpatient
Surgical.......... 25 1.78 5,709,191.71 2.29 5,832,279.09 2.35
Physician
Practice.......... 74 5.26 8,690,305.13 3.49 9,133,538.81 3.68
Radiology.......... 17 1.21 3,471,052.37 1.39 2,907,246.52 1.17
Research/Medical... 19 1.35 6,304,706.91 2.53 7,048,132.74 2.84
Skilled Nursing
Centers........... 37 2.63 4,114,421.45 1.65 4,511,466.35 1.82
Other.............. 373 26.49 28,894,892.83 11.60 30,482,582.06 12.27
----- ------ --------------- ------- --------------- ------
Total.............. 1,408 100.00% $249,144,085.34 100.00% $248,446,299.75 100.00%
===== ====== =============== ====== =============== ======
</TABLE>
S-56
<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 amended and restated 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:
S-57
<PAGE>
o the Pool A contract has been prepaid;
o conditions listed in the amended and restated contribution and
servicing agreement have been satisfied; and
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 amended and restated 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 amended and restated 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 amended and restated 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. VIII of its
substitution rights, to substitute one or more substitute contracts and a
security interest in the related equipment for
S-58
<PAGE>
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 amended and restated contribution and
servicing agreement have been satisfied; and
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 amended and restated 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 amended and restated 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 indenture entered into between the
issuer and the trustee. The following summary describes some provisions of the
notes, the indenture and the amended and restated contribution and servicing
agreement. However, it is not complete and prospective investors should read
those agreements in their entirety.
S-59
<PAGE>
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
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-72 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 A-5, class
B, class C and class D
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<PAGE>
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 A-5, 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.
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.
S-61
<PAGE>
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.
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.
S-61
<PAGE>
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.
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.
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<PAGE>
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. I
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-90 for exceptions to this rule. Unless and until definitive securities
are issued for the
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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 August 13, 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
August 13, 1999. We expect the first payment date with respect to principal for
the class A-2 notes to be March 13, 2000, for the class A-3 notes, to be
December 13, 2000, for the class A-4 notes, to be April 13, 2002 and for the
class A-5 notes, to be April 13, 2003. 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 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 the closing date, DVI Financial Services Inc. will convey to DVI
Receivables Corp. VIII, DVI Receivables Corp. VIII 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
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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, purchase option payments are 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 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:
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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. VIII, and by DVI
Receivables Corp. VIII 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 amended and restated contribution and servicing agreement regarding the
contracts and the equipment for the benefit of the trustee, the noteholders, the
issuer and DVI Receivables Corp. VIII. DVI Financial Services Inc. will be
obligated to repurchase or provide a substitute contract for any contract where
any 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.
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INDEMNIFICATION
The amended and restated 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. VIII, 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 amended and restated
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. VIII,
the issuer, the trustee or the noteholders, for any action taken or not taken in
good faith under the amended and restated 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 amended and restated 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 amended and restated contribution and servicing
agreement or by reason of reckless disregard of its obligations and
duties under that agreement.
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
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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 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
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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 to pay principal on,
o first, the class A notes;
o then, the class B notes;
o then, to the class C notes;
o then, to the class D notes; and
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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 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
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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. VIII upon DVI Receivable Corp. VIII'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;
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(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;
FIFTH, to the Class A Distribution Sub-Account, in the following
order of priority, the sum of:
(A) the Class A-5 Monthly Interest; and
(B) the Class A-5 Overdue Interest, if any; then
(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;
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(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;
(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;
(H) the Class A-4 Monthly Principal;
(I) the Class A-5 Overdue Principal, if any; and
(J) the Class A-5 Monthly Principal; then,
(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,
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(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,
(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;
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THEN, to the Class A Distribution Sub-Account, the amount
necessary to reduce the Class A-4 Note Balance to zero; and
THEN, to the Class A Distribution Sub-Account, the amount
necessary to reduce the Class A-5 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, the Class A-4 Note Balance and the Class A-5 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;
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
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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 amount of the Priority Payments
less any Available Funds deposited in the collection account for payment in
accordance with clauses (3) through and including (12), as applicable.
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 amended and restated contribution and
servicing agreement.
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;
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(ix) to the class A-5 noteholders, the Class A-5 Monthly
Interest;
(x) to the class A-5 noteholders, the Class A-5 Overdue
Interest, if any; and
second, to the class A-1 noteholders, class A-2 noteholders, class A-3
noteholders, class A-4 noteholders and the class A-5 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;
(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;
(xiii) the Class A-5 Overdue Principal, if any;
(xiv) the Class A-5 Monthly Principal; and
(xv) any additional class A-5 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 has been reduced
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to zero, the class A-3 Note Balance, the class A-4 Note Balance and the class
A-5 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:
(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
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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.
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
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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 Contract Balance
is less than 20% of the Pool B Aggregate 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 A-5 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. In the event that the notes
are redeemed in part, the partial redemption price will be an amount equal to
the sum of (i) the product of (A) the quotient of (x) the Aggregate Discounted
Contract Balance of the contracts in Pool B, divided by (y) the Aggregate
Discounted Contract Balance and (B) the entire outstanding principal balance of
the notes, and (ii) accrued interest on the outstanding principal balance at the
class A-1 Note Rate, class A-2
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Note Rate, class A-3 Note Rate, class A-4 Note Rate, class A-5 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 such class on
that payment date.
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 amended and restated
indenture, the notes or of any party in, the amended and
restated 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
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breach to the issuer;
(4) if any representation or warranty of the issuer,
DVI Receivables Corp. VIII or DVI Financial Services Inc. made
in either the indenture, the amended and restated subsequent
contract transfer agreement or the amended and restated
contribution and servicing agreement, respectively, or any
other writing provided to the noteholders in 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 amended and restated 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 amended and restated 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
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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 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;
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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;
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;
then to pay the entire class A-4 Note Balance, and any other
amounts due to the class A-4 noteholders, PRO RATA; and then
to pay the class A-5 Note Balance, and any other amounts due
to the class A-5 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, class A-4 Note Balance and class A-5 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
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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 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 amended and restated
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. VIII, to remit any
payment required by section
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4.06 of the amended and restated 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
amended and restated 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. VIII,
duly to observe or perform in any material respect any other of their
respective covenants or agreements in the amended and restated
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 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 amended and restated
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-
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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. VIII, 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. VIII, 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
amended and restated 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 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
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(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
amended and restated 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 amended and restated contribution and
servicing agreement will terminate and be transferred to the trustee under the
"back-up servicer" provisions of the amended and restated contribution and
servicing agreement and the indenture.
Under the amended and restated 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 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 amended and restated subsequent
contract transfer agreement or the amended and restated 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.
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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;
(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
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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 amended and
restated 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 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. 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
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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 amended and restated 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 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
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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 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
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
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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
includes 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 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
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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 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
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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 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
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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.
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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 amended and restated contribution and
servicing agreement, the servicer is permitted to allow prepayments in an amount
not less than the Prepayment
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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. In
either case, the servicer may also replace the contracts with substitute
contracts. See "THE CONTRACTS -- SUBSTITUTE CONTRACTS" on page S-57 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 A-5 notes, class B notes, class C notes and class D notes (assuming
initial Note Balances equal to $35,000,000, $40,000,000, $62,400,000,
$41,000,000, $42,620,000, $3,768,000, $7,537,000 and $5,024,000.00,
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 7.141495%. 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
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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 July 27, 1999;
o the first payment date is August 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 $6,282,000;
o the pool consists of a single contract with an Aggregate
Discounted Contract Balance of $251,182,193.25 on which
interest is accrued at the actual Discount Rate; 7.141495%
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
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<PAGE>
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.
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<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
Class A-1
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
August 1999..................................... 91 90 87 85 83
September 1999.................................. 82 79 74 70 65
October 1999.................................... 72 68 61 55 48
November 1999................................... 62 56 48 39 31
December 1999................................... 52 44 34 24 14
January 2000.................................... 42 33 21 9 0
February 2000................................... 31 21 8 0 0
March 2000...................................... 21 10 0 0 0
April 2000...................................... 10 0 0 0 0
May 2000........................................ 0 0 0 0 0
June 2000....................................... 0 0 0 0 0
July 2000....................................... 0 0 0 0 0
Weighted Average Life (years)................... 0.430 0.378 0.323 0.280 0.245
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
Class A-2
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
August 1999..................................... 100 100 100 100 100
September 1999.................................. 100 100 100 100 100
October 1999.................................... 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 97
February 2000................................... 100 100 100 95 83
March 2000...................................... 100 100 95 82 68
April 2000...................................... 100 98 84 69 55
May 2000........................................ 99 88 72 56 41
June 2000....................................... 90 77 61 44 27
July 2000....................................... 80 67 49 31 14
August 2000..................................... 71 57 38 19 1
September 2000.................................. 61 46 27 7 0
October 2000.................................... 52 36 16 0 0
November 2000................................... 42 26 5 0 0
December 2000................................... 32 16 0 0 0
January 2001.................................... 23 6 0 0 0
February 2001................................... 13 0 0 0 0
March 2001...................................... 4 0 0 0 0
April 2001...................................... 0 0 0 0 0
Weighted Average Life (years)................... 1.268 1.142 0.999 0.881 0.782
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
Class A-3
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
August 1999..................................... 100 100 100 100 100
September 1999.................................. 100 100 100 100 100
October 1999.................................... 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 92
October 2000.................................... 100 100 100 97 84
November 2000................................... 100 100 100 89 76
December 2000................................... 100 100 96 82 68
January 2001.................................... 100 100 89 75 61
February 2001................................... 100 97 82 68 54
March 2001...................................... 100 91 75 61 46
April 2001...................................... 96 84 69 54 39
May 2001........................................ 90 78 62 47 32
June 2001....................................... 84 72 56 40 26
July 2001....................................... 78 65 49 34 19
August 2001..................................... 72 59 43 27 13
September 2001.................................. 65 53 36 21 6
October 2001.................................... 59 46 30 15 0
November 2001................................... 53 40 24 8 0
December 2001................................... 47 34 17 2 0
January 2002.................................... 41 28 12 0 0
February 2002................................... 35 22 6 0 0
March 2002...................................... 29 16 0 0 0
April 2002...................................... 23 10 0 0 0
May 2002........................................ 17 5 0 0 0
June 2002....................................... 11 0 0 0 0
July 2002....................................... 5 0 0 0 0
August 2002..................................... 0 0 0 0 0
Weighted Average Life (years)................... 2.381 2.211 2.000 1.811 1.641
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
Class A-4
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
August 1999..................................... 100 100 100 100 100
September 1999.................................. 100 100 100 100 100
October 1999.................................... 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 91
December 2001................................... 100 100 100 100 82
January 2002.................................... 100 100 100 95 73
February 2002................................... 100 100 100 86 65
March 2002...................................... 100 100 100 78 57
April 2002...................................... 100 100 92 69 49
May 2002........................................ 100 100 83 61 41
June 2002....................................... 100 98 75 53 34
July 2002....................................... 100 90 67 46 26
August 2002..................................... 99 81 59 38 19
September 2002.................................. 90 72 50 30 12
</TABLE>
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<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>
October 2002.................................... 81 64 42 23 5
November 2002................................... 72 55 35 16 0
December 2002................................... 62 46 26 8 0
January 2003.................................... 53 38 18 1 0
February 2003................................... 45 29 11 0 0
March 2003...................................... 36 21 3 0 0
April 2003...................................... 27 13 0 0 0
May 2003........................................ 18 5 0 0 0
June 2003....................................... 10 0 0 0 0
July 2003....................................... 1 0 0 0 0
August 2003..................................... 0 0 0 0 0
Weighted Average Life (years)................... 3.541 3.389 3.179 2.964 2.756
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
Class A-5
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
August 1999..................................... 100 100 100 100 100
September 1999.................................. 100 100 100 100 100
October 1999.................................... 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.................................... 100 100 100 100 100
February 2002................................... 100 100 100 100 100
March 2002...................................... 100 100 100 100 100
April 2002...................................... 100 100 100 100 100
May 2002........................................ 100 100 100 100 100
June 2002....................................... 100 100 100 100 100
July 2002....................................... 100 100 100 100 100
August 2002..................................... 100 100 100 100 100
September 2002.................................. 100 100 100 100 100
October 2002.................................... 100 100 100 100 100
November 2002................................... 100 100 100 100 99
</TABLE>
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<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>
December 2002................................... 100 100 100 100 92
January 2003.................................... 100 100 100 100 86
February 2003................................... 100 100 100 94 80
March 2003...................................... 100 100 100 88 74
April 2003...................................... 100 100 96 81 69
May 2003........................................ 100 100 89 75 63
June 2003....................................... 100 97 82 69 58
July 2003....................................... 100 89 75 63 53
August 2003..................................... 92 82 69 57 48
September 2003.................................. 84 74 62 52 43
October 2003.................................... 76 66 56 46 38
November 2003................................... 67 59 49 41 33
December 2003................................... 59 52 43 36 29
January 2004.................................... 52 45 37 31 25
February 2004................................... 45 39 32 26 21
March 2004...................................... 39 34 28 23 18
April 2004...................................... 34 30 24 20 16
May 2004........................................ 30 26 21 17 14
June 2004....................................... 26 22 18 14 12
July 2004....................................... 22 19 15 12 10
August 2004..................................... 19 16 13 10 8
September 2004.................................. 16 14 11 9 7
October 2004.................................... 15 13 10 8 6
November 2004................................... 13 11 9 7 6
December 2004................................... 12 10 8 6 5
January 2005.................................... 11 9 7 6 4
February 2005................................... 10 8 6 5 4
March 2005...................................... 9 7 6 4 3
April 2005...................................... 8 6 5 4 3
May 2005........................................ 7 6 5 4 3
June 2005....................................... 6 5 4 3 2
July 2005....................................... 6 5 4 3 2
August 2005..................................... 5 4 3 2 2
September 2005.................................. 4 3 3 2 2
October 2005.................................... 3 3 2 2 1
November 2005................................... 3 2 2 1 1
December 2005................................... 2 2 1 1 1
January 2006.................................... 1 1 1 1 1
February 2006................................... 1 1 1 0 0
March 2006...................................... 1 0 0 0 0
April 2006...................................... 0 0 0 0 0
May 2006........................................ 0 0 0 0 0
Weighted Average Life (years)................... 4.693 4.596 4.461 4.316 4.161
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
Class B, Class C and Class D
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
August 1999..................................... 99 98 98 98 97
September 1999.................................. 97 97 96 95 95
October 1999.................................... 96 95 94 93 92
November 1999................................... 94 93 92 90 89
December 1999................................... 92 91 90 88 86
January 2000.................................... 91 89 88 86 84
February 2000................................... 89 88 85 83 81
March 2000...................................... 87 86 83 81 78
April 2000...................................... 86 84 81 79 76
May 2000........................................ 84 82 79 76 73
June 2000....................................... 82 80 77 74 71
July 2000....................................... 81 78 75 72 69
August 2000..................................... 79 76 73 70 66
September 2000.................................. 77 74 71 67 64
October 2000.................................... 75 73 69 65 62
November 2000................................... 74 71 67 63 59
December 2000................................... 72 69 65 61 57
January 2001.................................... 70 67 63 59 55
February 2001................................... 69 65 61 57 53
March 2001...................................... 67 63 59 55 51
April 2001...................................... 65 62 57 53 49
May 2001........................................ 63 60 55 51 47
June 2001....................................... 62 58 54 49 45
July 2001....................................... 60 56 52 47 43
August 2001..................................... 58 54 50 46 41
September 2001.................................. 56 53 48 44 40
October 2001.................................... 55 51 46 42 38
November 2001................................... 53 49 45 40 36
December 2001................................... 51 47 43 38 34
January 2002.................................... 49 46 41 37 33
February 2002................................... 48 44 39 35 31
March 2002...................................... 46 42 38 34 30
April 2002...................................... 44 41 36 32 28
May 2002........................................ 43 39 35 31 27
June 2002....................................... 41 38 33 29 26
July 2002....................................... 39 36 32 28 24
August 2002..................................... 38 34 30 26 23
September 2002.................................. 36 33 29 25 22
October 2002.................................... 34 31 27 24 20
November 2002................................... 33 30 26 22 19
</TABLE>
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<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>
December 2002................................... 31 28 24 21 18
January 2003.................................... 29 26 23 19 17
February 2003................................... 28 25 21 18 15
March 2003...................................... 26 23 20 17 14
April 2003...................................... 24 22 19 16 13
May 2003........................................ 23 20 17 15 12
June 2003....................................... 21 19 16 13 11
July 2003....................................... 19 17 15 12 10
August 2003..................................... 18 16 13 11 9
September 2003.................................. 16 14 12 10 8
October 2003.................................... 15 13 11 9 7
November 2003................................... 13 11 9 8 6
December 2003................................... 11 10 8 7 6
January 2004.................................... 10 9 7 6 5
February 2004................................... 9 8 6 5 4
March 2004...................................... 8 7 5 4 4
April 2004...................................... 7 6 5 4 3
May 2004........................................ 6 5 4 3 3
June 2004....................................... 5 4 3 3 2
July 2004....................................... 4 4 3 2 2
August 2004..................................... 4 3 2 2 2
September 2004.................................. 3 3 2 2 1
October 2004.................................... 3 2 2 2 1
November 2004................................... 3 2 2 1 1
December 2004................................... 2 2 2 1 1
January 2005.................................... 2 2 1 1 1
February 2005................................... 2 2 1 1 1
March 2005...................................... 2 1 1 1 1
April 2005...................................... 1 1 1 1 1
May 2005........................................ 1 1 1 1 1
June 2005....................................... 1 1 1 1 0
July 2005....................................... 1 1 1 1 0
August 2005..................................... 1 1 1 0 0
September 2005.................................. 1 1 1 0 0
October 2005.................................... 1 1 0 0 0
November 2005................................... 1 0 0 0 0
December 2005................................... 0 0 0 0 0
January 2006.................................... 0 0 0 0 0
February 2006................................... 0 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
Weighted Average Life (years)................... 2.532 2.406 2.246 2.097 1.957
</TABLE>
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<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. VIII 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. VIII;
o DVI Receivables Corp. VIII's transfer of the contracts to the
issuer; and
o the pledge of the contracts to the trustee.
Under the amended and restated 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
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<PAGE>
payment of collections on or in 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. VIII 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. VIII. DVI Receivables Corp. VIII 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. VIII, 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 UCC 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
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<PAGE>
sale of the collateral may be held and that any sale be conducted in a
commercially reasonable manner. The amended and restated contribution and
servicing agreement will require the 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 UCC 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 UCC, 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
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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 UCC
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 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
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<PAGE>
resulting from the default. Any rejection of the contract constitutes a breach
of that contract, entitling the trustee to 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 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
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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 UCC and bankruptcy provisions, in addition to the
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.
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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. 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-128 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
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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 amended and restated
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 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
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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 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
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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 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,
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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.
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
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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-119 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 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
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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 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.
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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 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.
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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-119 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:
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
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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 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.
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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 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.
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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 invest in Offered Notes if you are investing
for:
o a pension or other employee benefit plan of employers in the
private sector
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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.
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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.
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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.
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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".
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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
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transactions incidental to the operation of the issuer, more than 18 months
after the issuance of final regulations would qualify for further exemptive
relief.
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 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 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
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acquiring an offered note, each purchaser will be deemed to represent that
either:
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.
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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.
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
and "P-1" by Moody's, the class A-2 Notes, the class A-3 Notes, the class A-4
Notes and the class A-5 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- 70 for a
description of the reserve account.
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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 the
class D notes, in the principal amounts listed opposite their names:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
AMOUNT PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL AMOUNT PRINCIPAL
OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS A-5 OF CLASS B CLASS C CLASS D
UNDERWRITER NOTES NOTES NOTES NOTES NOTES NOTES NOTES NOTES
- ----------- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Prudential
Securities $21,000,000 $24,000,000 $37,440,000 $24,600,000 $25,572,000 $2,260,800 $4,522,200 $3,014,400
Lehman
Brothers $14,000,000 $16,000,000 $24,960,000 $16,400,00O $17,048,000 $1,507,200 $3,014,800 $2,009,600
Total $35,000,000 $40,000,000 $62,400,000 $41,000,000 $42,620,000 $3,768,000 $7,537,000 $5,024,000
</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, the class B notes, the class C notes and the 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 0.100%, 0.125%, 0.225%, 0.250%, 0.275%,
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 A-5 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 0.080% per class A-1 note, 0.100% per class A-2 note and 0.150%
per class A-3 note, class A-4 note, class A-5 note, class B note, class C note
and class D note to certain dealers. After the initial public offering, the
prices of the notes, any concessions and any discounts may vary.
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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.
The underwriting agreement provides that DVI Financial
Services Inc. and DVI Receivables Corp. VIII 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.
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LEGAL MATTERS
Certain legal matters relating to the issuance of the notes
will be passed upon for the issuer, DVI Receivables Corp. VIII and DVI Financial
Securities 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 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.
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REPORTS TO NOTEHOLDERS
Unless and until definitive securities are issued, periodic
and annual reports 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 DOCUMENTS -- BOOK-ENTRY REGISTRATION OF THE NOTES" at page
S-90 of the 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 file with the Securities and Exchange Commission those periodic
reports required under the Exchange Act and as otherwise required by the
Commission. Copies of any of these periodic reports may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C., 20549, at prescribed rates.
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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 and notice is given to the trustee from noteholders evidencing not
less than 662/3% of the Voting Rights declaring that the event shall constitute
an Amortization Event:
(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;
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(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
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
amended and restated 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, the Class A-4 Monthly Interest and the Class A-5 Monthly Interest.
CLASS A MONTHLY PRINCIPAL means, for any payment date the sum
of (A) the
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Class A-1 Monthly Principal, (B) the Class A-2 Monthly Principal, (C) the Class
A-3 Monthly Principal, (D) the Class A-4 Monthly Principal and (E) the Class A-5
Monthly Principal due or payable on that payment date.
CLASS A OVERDUE INTEREST means, for any payment date, the
excess, if any, of:
(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 87.99%.
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, shall accrue from and including the prior payment date
to but excluding such payment date, and with respect to the
initial payment date, shall accrue from and include the
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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) Monthly Principal; PROVIDED,
HOWEVER, that in no event shall the Class A-1 Monthly
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 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.
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The Class A-2 Monthly Interest shall be calculated on a twelve
month year of thirty days in each month, except for the first
payment date, for which interest shall accrue from the closing
date to but excluding such payment date.
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)
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 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
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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 shall be calculated based upon
a twelve month year of thirty days in each month, except for
the first payment date, for which interest shall accrue 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)
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 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:
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(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 payments on
the class A-4 notes on such payment date.
The Class A-4 Monthly Interest shall be calculated based upon
a twelve month year of thirty days in each month, except for
the first payment date, for which interest shall accrue 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)
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 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.
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CLASS A-5 MONTHLY INTEREST means, for any payment date, the
product of
(A) one-twelfth,
(B) the class A-5 Note Rate and
(C) the class A-5 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-5 notes on such payment date.
The Class A-5 Monthly Interest shall be calculated based upon
a twelve month year of thirty days in each month, except for
the first payment date, for which interest shall accrue from
the closing date to but excluding such payment date.
CLASS A-5 MONTHLY PRINCIPAL means
(A) prior to the payment date upon which the class A-4 Note
Balance is paid in full, zero,
(B) on any payment date after the class A-4 Note Balance has been
reduced to zero and until the Class A-5 Note Balance is paid
in full, the product of (x) the Class A Percentage and (y)
Monthly Principal, and
(C) on the class A-5 stated maturity date, the entire amount of
the then outstanding class A-5 Note Balance.
CLASS A-5 OVERDUE INTEREST means, for any payment date, the
excess, if any, of
(A) the aggregate amount of Class A-5 Monthly Interest payable on
all prior payment dates over
(B) the aggregate amount of interest actually paid to the class
A-5 noteholders on all prior payment dates.
CLASS A-5 OVERDUE PRINCIPAL means, for any payment dates, the
excess, if any, of
(A) the aggregate amount of Class A-5 Monthly Principal due on the
class A-5 notes on all prior payment dates over
(B) the aggregate amount of principal actually paid to the class
A-5 noteholders on
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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
amended and restated indenture.
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 shall be calculated based upon a
twelve month year of thirty days in each month, except for the
first payment date, for which interest shall accrue 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)
Monthly Principal, and
(B) on the class B stated maturity date, the entire amount of the
then outstanding class B Note Balance.
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
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(B) the aggregate amount of interest actually paid to the class B
noteholders on all prior payment dates.
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
amended and restated 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 shall be calculated based upon a
twelve month year of thirty days in each month, except for the
first payment date, for which interest shall accrue from the
closing date to, but excluding, that payment date.
CLASS C MONTHLY PRINCIPAL means,
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(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 C Note Balance.
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
amended and restated indenture.
CLASS D MONTHLY INTEREST means, for any payment date, the
product of
(A) one-twelfth,
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(B) the class D Note Rate and
(C) the class D 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 D notes on that prior payment date.
The Class D Monthly Interest shall be calculated based upon a
twelve month year of thirty days in each month, except for the
first payment date, for which interest shall accrue 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)
Monthly Principal, and
(B) on the class D stated maturity date, the entire amount of the
then outstanding class D Note Balance.
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
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(B) the aggregate amount of principal actually paid to the class D
noteholders on all prior payment dates.
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
amended and restated 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 shall be calculated based upon a
twelve month year of thirty days in each month, except for the
first payment date, for which interest shall accrue 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.
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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 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
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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 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 7.50% per annum. Any other time we use Discount Rate, we are using the
actual rate of 7.141495%.
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:
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(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-four months after the
closing date;
(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 4.5% 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 24.5% 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 22.0%
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 2.65% 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 14.1% of the Aggregate Discounted
Principal Contract Balance of all the contracts acquired by
the issuer on the closing date;
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(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 1.5% 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 days of the
payment date occurring in August, 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 7.50%.
INITIAL RESERVE ACCOUNT REQUIRED AMOUNT is $2,511,821.93 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
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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 amended
and restated contribution and servicing agreement, 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, $221,020,000 for the
class A notes cumulatively (and, with respect to each class of class A notes,
$35,000,000 for the class A-1 notes, $40,000,000 for the class A-2 notes,
$62,400,000 for the class A-3 notes, $41,000,000 for the class A-4 notes and
$42,620,000 for the class A-5 notes), $3,768,000 for the class B notes,
$7,537,000 for the class C notes, $5,024,000 for the class D notes and
$6,282,000 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
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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. VIII or any Affiliate
of DVI Receivables Corp. VIII, 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 owned shall be disregarded.
OVERDUE INTEREST means, for any payment date, the sum of (i)
the Class A Overdue Interest, (ii) the Class B Overdue Interest, (iii) the Class
C Overdue Interest, (iv) the Class D Overdue Interest and (v) the Class E
Overdue Interest.
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
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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 amended and restated contribution and
servicing agreement and the indenture and other trust property related to the
contracts.
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. VIII by substitution under Section 7 of the
amended and restated contribution and servicing agreement, the contract or
contracts for which the substitute
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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 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
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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 amended and restated
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 noteholders,
measured by the amount then held by each of them of the class A 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.
Once 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, and so on for the
class D notes and then the class E notes.
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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
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FINANCIAL INFORMATION ABOUT US...................................................................................30
WHERE YOU CAN FIND MORE INFORMATION..............................................................................30
INCORPORATION OF DOCUMENTS BY REFERENCE..........................................................................31
</TABLE>
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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
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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:
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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
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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.
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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.
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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
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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.
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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
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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
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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
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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.
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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
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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.
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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:
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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:
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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.
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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.
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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:
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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.
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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
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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.
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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.
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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:
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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.
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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
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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 of:
o 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
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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
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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
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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.
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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
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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.
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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.
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DVI RECEIVABLES CORP. VIII
REGISTRANT
ASSET-BACKED SECURITIES ISSUABLE IN SERIES
--------------------------------------
PROSPECTUS SUPPLEMENT
DATED JULY 21, 1999
-------------------
PRUDENTIAL SECURITIES
AND
LEHMAN BROTHERS
UNDERWRITERS
Until ninety days after July 21, 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.
