Registration No. _____________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
DVI RECEIVABLES CORP. VIII
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of Incorporation
or Organization)
25-1824149
(I.R.S. Employer Identification No.)
500 Hyde Park
Doylestown, Pennsylvania 18901
(215) 345-6600
(Address, Including Zip Code, and
Telephone Number, Including Area
Code, of Registrant's Principal
Executive Offices)
Lisa J. Cruikshank
DVI Receivables Corp. VIII
500 Hyde Park
Doylestown, Pennsylvania 18901
(215) 345-6600
(Name, Address, Including Zip Code,
and Telephone Number, Including
Area Code, of Agent For Service)
----------------
Copies to:
Stephen T. Whelan, Esq.
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
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Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, please check the following box. |X|
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
maximum maximum
Amount offering aggregate Amount of
Title of securities being price per offering registration
being registered registered (1) unit (2) price (2) fee (1)
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<S> <C> <C> <C> <C>
Asset-Backed Securities, issued in
Series.................................. $1,125,000,000.00 100% $1,125,000,000.00 $297,000.00
=====================================================================================================================
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(1) $107,271,000.00 aggregate principal amount of Asset-Backed Securities
registered by the Registrant under Registration Statement No. 333-74901
referred to below and not previously sold are proposed to be consolidated
in this Registration Statement concurrently with the effectiveness hereof
pursuant to Rule 429. All registration fees in connection with such unsold
amount of Asset-Backed Securities have been previously paid by the
Registrant under the foregoing Registration Statement. Accordingly, the
total amount proposed to be registered under the Registration Statement as
so consolidated as of the date of this filing is $1,232,271,000.00.
(2) Estimated solely for the purposes of calculating the registration fee on
the basis of the proposed maximum aggregate offering price.
----------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Pursuant to Rule 429 of the Securities Act of 1933, the Prospectus and
Prospectus Supplement contained in this Registration Statement also relate to
the Registrant's Registration Statement on Form S-3 (Registration Statement No.
333-74901). This Registration Statement, which is a new registration statement,
also constitutes a post-effective amendment to Registration Statement No.
333-74901. Such post-effective amendment shall hereafter become effective
concurrently with the effectiveness of this Registration Statement in accordance
with Section 8(a) of the Securities Act of 1933.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement consists of (i) a basic prospectus and (ii)
an illustrative form of prospectus supplement for use in an offering of
Asset-Backed Securities. The basic prospectus used (in either preliminary or
final form) will be accompanied by the applicable prospectus
supplement.
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Contents of Registration Statement
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Page
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<S> <C>
Form of Prospectus Supplement.......................................................................... S-1
Basic Prospectus: Form of Basic Prospectus............................................................. 1
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PROSPECTUS SUPPLEMENT DATED _________ (TO PROSPECTUS DATED ______, 2000)
[DVI _____________________]
(ISSUER)
DVI RECEIVABLES CORP. VIII
([OWNER OF] ISSUER)
DVI FINANCIAL SERVICES INC.
(SERVICER)
OUR PUBLICLY OFFERED NOTES
We are offering $__________ _____% of class A, $___________ ____% of class B and
$__________ ____% of class C asset-backed notes, Series ______.
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CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-8 OF THIS PROSPECTUS
SUPPLEMENT AND PAGE 1 OF THE PROSPECTUS.
The notes will represent debt obligations of the issuer only.
This prospectus supplement may be used to offer and sell the publicly offered
notes only if accompanied by the prospectus.
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THE CREDIT ENHANCEMENT FOR THE NOTES
o THE RETAINED INTEREST Each note must receive its full payment due on
each payment date before we receive and retain any funds.
o THE SUBORDINATED NOTES
We pay neither interest nor principal on any subordinated note unless and until
the interest or the principal, respectively, on each senior class of notes is
paid first.
o THE RESERVE ACCOUNT
We will fund a reserve fund that can be used to pay certain shortfalls in
payments on all of the notes.
THE UNDERWRITING FOR THESE NOTES
The underwriters will publicly offer the notes at the following prices:
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CLASS A NOTES CLASS B NOTES CLASS C NOTES
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Price to Public ________% ________% ________%
Underwriting Discount ________% ________% ________%
Proceeds to Issuer ________% ________% ________%
- --------------------------------------------------------------------------------
We will pay $_____ as a commission to all of the underwriters. We will receive
$________ as our total proceeds before deducting our expenses (that we estimate
to be $_______).
We will publicly offer the Class A Notes, the Class B Notes and the Class C
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 Notes, Class B Notes and Class C Notes at
prices they negotiate at the time of sale. You should read "PLAN OF
DISTRIBUTION" on page S-138 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.
_____________________
<PAGE>
UNDERWRITER[S]
[NAME OF UNDERWRITER[S]]
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<PAGE>
TABLE OF CONTENTS
Page
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SUMMARY OF PROSPECTUS SUPPLEMENT.............................................S-1
RISK FACTORS.................................................................S-8
LOCATION OF GLOSSARY........................................................S-20
DVI FINANCIAL SERVICES INC..................................................S-20
General ..........................................................S-20
Underwriting Criteria..............................................S-21
Portfolio Monitoring and Credit Collections........................S-26
THE SERVICER................................................................S-32
Servicing Obligations and Procedures...............................S-32
Servicing Compensation and Payment of Expenses
.........................................................S-35
Evidence of Compliance by Servicer.................................S-37
Other Servicing Procedures.........................................S-37
Resignation/removal of the Servicer................................S-38
Voluntary Termination of Servicer Duties...........................S-39
Year 2000 Computer Programming Compliance
.........................................................S-39
DVI RECEIVABLES CORP. VIII..................................................S-40
DVI RECEIVABLES CORP. [XI]..................................................S-40
THE ISSUER..................................................................S-41
THE TRUSTEE.................................................................S-42
THE CONTRACTS...............................................................S-42
Statistical Information for the Contracts..........................S-48
Substitute Contracts...............................................S-65
DESCRIPTION OF THE NOTES AND PRINCIPAL
TRANSACTION DOCUMENTS..............................................S-68
General Provisions of the Notes....................................S-68
Conveyance of Trust Property.......................................S-73
DVI Financial Services Inc. Repurchase Obligation
for Contract Misrepresentations...........................S-75
Indemnification....................................................S-76
Indenture Accounts; Investment of Funds............................S-76
Reserve Account....................................................S-78
Flow of Funds to and from the Collection Account...................S-80
Payment of Amounts from Distribution Sub-
accounts..................................................S-84
Reports to Noteholders.............................................S-86
Optional Redemption................................................S-86
Indenture Events of Default and
Acceleration..............................................S-87
Remedies ..........................................................S-89
Servicer Events of Default.........................................S-92
Termination of the Servicer........................................S-94
Duties and Immunities of the Trustee...............................S-95
Book-entry Registration of the Notes...............................S-96
PREPAYMENT AND YIELD CONSIDERATIONS........................................S-103
CERTAIN LEGAL MATTERS AFFECTING AN
OBLIGOR'S RIGHTS AND OBLIGATIONS..................................S-108
General .........................................................S-108
The Equipment.....................................................S-109
MATERIAL FEDERAL INCOME TAX CONSEQUENCES...................................S-114
CERTAIN STATE, LOCAL AND OTHER TAX
CONSIDERATIONS....................................................S-127
CONSIDERATIONS FOR BENEFIT PLAN INVESTORS..................................S-128
LEGAL INVESTMENT...........................................................S-136
RATINGS ..................................................................S-137
USE OF PROCEEDS............................................................S-137
PLAN OF DISTRIBUTION.......................................................S-138
LEGAL MATTERS..............................................................S-140
WHERE YOU CAN FIND MORE INFORMATION........................................S-140
GLOSSARY ..................................................................S-142
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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 _________________.
CUT-OFF DATE............... _________________.
PAYMENT DATES.............. _________________.
SCHEDULED MATURITY DATE.... _________________.
[THE ISSUER................ DVI ___________________, a __________]
[OWNER OF] THE ISSUER...... [We,] DVI Receivables Corp. VIII, a Delaware
limited liability corporation, [are the sole
owner of the issuer.]
CONTRIBUTOR AND
SERVICER................ DVI Financial Services Inc., a Delaware
corporation.
TRUSTEE.................... _________________.
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-42 and S-73 of
this supplement, respectively.
MINIMUM DENOMINATIONS...... _________________.
FORM OF NOTES.............. All the publicly offered notes will be
book-entry.
S-1
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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-42.
THE INITIAL AGGREGATE DISCOUNTED CONTRACT BALANCE. The aggregate outstanding
principal balances, discounted at a rate of ____% per year, of all of the
contracts described in this prospectus supplement is $______________ as of the
initial cut-off date. We discount the outstanding payments to show in their
value in present- day dollars.
CONTRACT POOL DATA. As of ________,
o the weighted average remaining term to maturity of the pool of contracts
existing at that time was approximately _____ months,
o the final scheduled payment date of the contract in the statistical pool
with the latest scheduled maturity was _______, ____, and
o the average outstanding principal balance of the contracts in the pool on
that date was approximately $__________.
The section at page S-42 of this supplement titled "THE CONTRACTS" contains much
more data about the contracts in the pool [as of ______, 19__.]
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-65 of this prospectus supplement.
S-2
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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.
DISTRIBUTIONS ON THE OFFERED NOTES
The trustee will pay to investors:
INTEREST. The trustee will pay you interest on the notes on the __________ day
of each _____ 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 securityholders. 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 contract 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
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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-80 of this
prospectus supplement.
S-4
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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 and interest on our privately placed class D notes and
class E 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-78 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 contract balance of all of the
contracts in pool A must be less than __% of the aggregate outstanding
discounted contract balance of all of the contracts in pool A on the
closing date; and
o the aggregate outstanding discounted contract balance of all of the
contracts
S-5
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in pool B is less than __% of the aggre gate outsta nding disco unted contr
act balan ce of all of the contr acts in pool B on the closin g date.
PARTIAL REDEMPTION. The issuer may buy back either 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 contract balance of all of the
contracts in pool B is less than __% of the aggregate outstanding
discounted contract 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-86 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 contribution and servicing agreement has
occurred and is continuing, then DVI Financial Services Inc. must either
substitute 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-75 of this prospectus supplement.
RATINGS
We have asked a few rating agencies that are nationally recognized for their
ability to rate the creditworthiness of securities to rate these notes. The
issuer will not sell any of the notes unless each of the following classes
receive each of the ratings set forth next to that class.
S-6
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[NAMES OF RATING
CLASS AGENCIES]
- --------- ----------------------
Class A
Class B
Class C
No rating on a security is a recommendation to buy, sell or hold that security.
Moreover, each rating is subject to the rating agency's revision or even
withdrawal of that rating. For further information about ratings, you should
read the sections of this prospectus supplement entitled "PREPAYMENT AND YIELD
CONSIDERATIONS" on page S-103, and "RATINGS" at page S-137.
[PERMITTED PURCHASERS
The class ___ 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 __ notes and the class __ 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-114
in this prospectus supplement.
CONSIDERATIONS FOR BENEFIT PLAN INVESTORS
If you are buying notes on behalf of an individual retirement account, Keogh
plan or employee benefit plan, special rules may apply to you. If various
exemptions are to be available for all investors, you must make certain
representations when you acquire your notes. See "CONSIDERATIONS FOR BENEFIT
PLAN INVESTORS" on page S-128 of this prospectus supplement for a description of
the rules and these exemptions and purchaser representations.
S-7
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RISK FACTORS
Prospective noteholders should consider, among other things, the
following factors in connection with the purchase of the notes.
RISK OF LOSS
THE RETURN ON YOUR NOTES Losses on the contracts may occur due to a wide
MAY BE AFFECTED A BY variety of causes, including adverse changes in
LOSSES ON THE CONTRACTS, the obligors' financial condition. decline in
WHICH COULD OCCUR DUE economic conditions nationally or in the
TO A VARIETY OF CAUSES. regions where the obligors are located may
increase such risk of losses. [Special risks
for specific loan types, such as negative
amortization or escalating payments, will be
disclosed if material to an individual
offering.]
S-8
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EVENTS THAT DIMINISH THE RETURN ON YOUR NOTE
THE RETURN ON YOUR Your investment is secured by your trustee's
NOTE DIMINISHES IF THE security interest in the trust property, which
CONTRACTS ARE enables the trustee to foreclose upon the trust
DELIVERED TO SOMEONE property and to pay you from it if an event of
OTHER THAN THE default occurs. The trustee's security interest
TRUSTEE. is shown under law by the trustee's possession
of the contracts. If DVI Financial Services
Inc., DVI Receivables Corp. [XI], 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. 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.
S-9
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YOUR NOTE PAYMENTS MAY In addition to the considerations mentioned
BE DIMINISHED IF THE above, other factors that can hinder the
TRUSTEE IS IMPEDED FROM trustee's ability to realize amounts from
REALIZING THE FULL AMOUNT contracts that it foreclosed upon include:
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
NOTES DIMINISHES IF trust property might assert claims and defenses
ENOUGH OBLIGORS against DVI Financial Services Inc., DVI
ASSERT DEFENSES TO Receivables Corp. [XI], DVI Receivables Corp.
THEIR PAYMENT VIII, the issuer or the trustee for the
OBLIGATIONS. contracts or the related equipment. DVI
Financial Services Inc. warrants that, on the
closing date, no such claims or defenses have
been asserted or threatened with respect to the
contracts. However, if enough of these claims
are asserted, your note payments may be
interrupted, delayed or even permanently
reduced.
S-10
<PAGE>
YOUR TRUSTEE MAY BE When applied to the trust property, federal and
BARRED FROM RECEIVING state insolvency, bankruptcy or other laws may
THE ANTICIPATED restrict the trustee's ability to collect
CONTRACT PAYMENTS. contract payments for you. State laws impose
requirements and restrictions relating to
foreclosure sales of collateral. Such laws may
also restrict the trustee's ability to go to
court and obtain a judgment that the issuer is
deficient in the payments it must make to you
following such a foreclosure sale. The trustee
may not realize the full amount due on a
contract, or may not realize the full amount on
a timely basis, because of the application of
those requirements and restrictions. The
expense of all of the above legal proceedings
will also be deducted from your note payments.
YOUR NOTE PAYMENTS The trustee's security interest in the trust
MAY BE DIMINISHED BY property should be evidenced by filing a
A FAILURE TO FILE financing statement. If these statements are
FINANCING STATEMENTS. not executed in a timely manner by either DVI
Financial Services Inc., DVI Receivables Corp.
[XI] 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. [XI] 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
OBSOLESCENCE OF THE contract will be the income and proceeds from
EQUIPMENT. the related equipment. However, the market
value of our equipment declines with age. In
addition, some of our equipment may be subject
to sudden, significant declines in value
because of technological advances and year 2000
malfunctions. Because of these factors, if
either the servicer or the trustee forecloses
upon and sells the equipment securing a
defaulted contract, the servicer or trustee may
not recover the entire amount due on such
contract.
THE RETURN ON YOUR One risk of investing in asset-backed
NOTES MAY BE securities like the notes is the possibility
PARTICULARLY SENSITIVE that there might be concentration of the
TO CHANGES IN related equipment or contract obligors in one
ECONOMIC CONDITIONS. or more geographic regions. Approximately ____%
of the initial aggregate discounted contract
balance of the contracts are located in
_________. If the regional economy or
healthcare market weakens in _________, 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.
[Concentrations material to an individual
offering will be disclosed.]
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
DELAYED OR TERMINATED interest in the related equipment to DVI
IF DVI FINANCIAL Receivables Corp. [XI] and the subsequent
SERVICES INC. GOES transfer to the issuer should be treated as an
BANKRUPT. absolute and unconditional transfer -- that is,
as a sale. However, if DVI Financial Services
Inc. goes bankrupt, a bankruptcy court could
nonetheless attempt to recharacterize those
transfers as a borrowing. Such an attempt, even
if unsuccessful, could result in delays in
payments on the notes. If a bankruptcy court
successfully recharacterizes the sale as a
borrowing, the court could then decide to
accelerate payment of the notes and liquidate
the contracts. If an acceleration occurs, the
trustee's recovery on behalf of noteholders
could be limited to the then-current value of
the contracts or the underlying equipment. In
addition, if the court does recharacterize the
sale as a borrowing, bankruptcy law allows the
bankruptcy trustee for the owner of the
contracts to reject leases that it considers to
be "true" leases. We think that some of the
contracts in the trust property are "true"
leases. The same law allows the bankruptcy
trustee to reject any other contract if the
court believes that any signatory to that
contract has yet to finish performing its
duties under the contract. If a contract is
rejected by a bankruptcy trustee for whichever
reason, the contract is terminated. An obligor
would not owe any further payments under a
terminated contract. If the trust property
contains a contract that is terminated, you
would then lose the right to some future
payments of interest and principal on the
notes. If many contracts in the trust property
are terminated, your losses could be sizeable.
S-13
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YOUR NOTE PAYMENTS LEVERAGED LEASE LOANS. Some contracts represent
COULD BE ADVERSELY leveraged lease loans from DVI Financial
AFFECTED BY A LESSOR'S Services Inc. to various lessors. Leveraged
DECISION TO REJECT A lease loans are secured by the lessor's pledge
LEASE IN BANKRUPTCY. of its rights in a lease and, usually, the
related equipment. As we explained in the
section above, a trustee in bankruptcy can
reject a lease, thus terminating the lessee's
duties to pay. Thus, if the lessor goes
bankrupt, even if DVI Financial Services Inc.
continues to operate, the trustee of the
lessor's bankruptcy estate could reject the
lease. Depending upon how much of the trust
property is rejected leases, you might then
lose the right to some or all future payments
of interest and principal on your notes. FAIR
MARKET VALUE LEASES. Other contracts are "true
leases" from DVI Financial Services Inc. to
various lessees. We often call true leases
"fair market value" leases, because they
contain an option for the lessee to purchase
the equipment at the end of the lease term for
its fair market value at that time. When DVI
Financial Services Inc. transferred these
leases to DVI Receivables Corp. VIII, or an
affiliate of DVI Financial Services Inc., it
also granted a security interest in the leased
equipment to that transferee. That transferee,
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
NONPAYMENT INCREASES will not receive distributions of interest or
IF YOUR CLASS OF NOTE IS principal on any given payment date until after
TO BE PAID AFTER the class A notes and any other classes of
ANOTHER CLASS. notes senior to yours receive their respective
distributions of interest or principal.
Therefore, the more subordinated the priority
of payment that your class of note is with
respect to other, higher-priority classes of
notes, the greater the risk is that these other
notes will consume all funds then available to
be paid, thus leaving insufficient amounts on
that payment date to pay your class of notes.
Each class of notes bears losses and
delinquencies in reverse order of its priority.
Depending upon the timing of defaults and
severity of losses, investors in subordinated
notes are more likely to realize less on their
investment than they originally anticipated. It
may also take longer for investors holding
subordinated notes to earn the expected return
on their investment than it would for investors
of relatively senior classes. For more
information about subordinated notes, you
should read the section titled "DESCRIPTION OF
THE NOTES AND PRINCIPAL TRANSACTION DOCUMENTS--
FLOW OF FUNDS TO AND FROM THE COLLECTION
ACCOUNT" on page S-80 of this prospectus
supplement.
OTHER RISKS
THE RATE THAT YOU The rate of payment of principal on the notes
RECEIVE YOUR NOTE will depend, among other things, on a rate of
PAYMENTS DEPENDS prepayments on the contracts. We do not know
UPON THE when obligors will choose to prepay their
UNPREDICTABLE RATE OF contracts, so we cannot predict the rate of
PREPAYMENTS ON THE payment of principal on any notes.
CONTRACTS.
There are different means of prepaying
contracts, as well as different types of
prepayments. Prepayments on the contracts
include
S-15
<PAGE>
o partial and full prepayments (to the extent
not replaced with substitute contracts) by
the obligor on the contract,
o payments upon the liquidation of defaulted
contracts,
o payments upon acquisitions by DVI Financial
Services Inc. of contracts from the related
trust property on account of a breach of
representations and warranties in the
contribution and servicing agreement, and
o payments upon an optional acquisition by DVI
Financial Services Inc. of contracts in the
trust property.
The rate of early terminations of contracts due
to prepayments and defaults may be influenced
by a variety of economic and other factors
which are unknown at this time. You will bear
the risk of reinvesting distributions of the
principal of your note that you receive earlier
than you anticipated. No one can assure you as
to the level of prepayments that the contracts
will experience.
THE RATE OF YOUR NOTE The servicer and the issuer have the right
PAYMENTS CAN BE occasionally to replace prepaid or some
CHANGED BY THE non-performing contracts. These rights differ
SERVICER'S OR THE as between the pool A contracts and the pool B
ISSUER'S SUBSTITUTION contracts. For further information about the
OF CONTRACTS IN THE servicer's rights of substitution, you should
TRUST PROPERTY. read the section titled "THE CONTRACTS--
SUBSTITUTE CONTRACTS" at page S-65 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.
S-16
<PAGE>
YOUR NOTE PAYMENTS A large amount of delinquent, or late, contract
MAY BE AFFECTED BY AN payments will affect what the trustee can pay
UNEXPECTED to you on a payment date as a payment on your
DELINQUENCY RATE OF note. The rate of delinquencies of DVI
CONTRACTS. Financial Services Inc.'s portfolio of
contracts is not an assurance of the
performance of the contracts in the trust
property. We cannot assure you that the levels
of delinquencies and losses experienced in
recent years by DVI Financial Services Inc. on
its entire equipment finance portfolio are
indicative of the contracts in the trust
property. Delinquencies and losses on contracts
could increase significantly for various
reasons, including changes in the federal
income tax law, changes in the local, regional
or national economies or other events. You
should not assume that data from DVI Financial
Services Inc.'s entire portfolio of contracts
is or will be indicative of the performance of
the trust property.
YOUR NOTE PAYMENTS In recent years, the administration and
MAY BE AFFECTED IF Congress have considered various changes in
CONTRACT OBLIGORS ARE federal regulations and reimbursement policies
IMPAIRED BY POSSIBLE relating to health care delivery in the United
CHANGES IN FEDERAL States. Legislation adopted this year or
HEALTH CARE thereafter may affect the regulation, the
REGULATIONS. availability, the pricing or the reimbursement
of health care products and services provided
by an obligor and hence the ability of obligors
to make their contract payments. Financing
services provided by DVI Financial Services
Inc. may also need to change. Such regulations
could affect the financial well-being of
several obligors or of DVI Financial Services
Inc. No one can accurately predict the effect,
if any, that any such legislation or
regulations will have on the servicer or on the
ability of an obligor to satisfy its payment
obligations.
S-17
<PAGE>
THE RATINGS OF THE None of the ratings of the notes by any rating
NOTES ARE NOT agency are recommendations to purchase, hold or
RECOMMENDATIONS AND sell the notes. Ratings do not comment as to
MAY BE WITHDRAWN AT market price or suitability for you. Moreover,
A LATER DATE. the rating agencies do not assure that the
ratings will remain for any given period of
time. Indeed, whenever a rating agency that
rates the notes believes that circumstances
justify negative action that rating agency may
lower or withdraw its rating. A rating agency
may lower the rating it assigns to any class of
notes at any time. A ratings downgrade will
probably reduce the value of those notes. No
one has any obligation to take any action to
maintain the ratings assigned the notes on the
closing date.
S-18
<PAGE>
LIQUIDITY RISKS
YOU MAY HAVE TO HOLD After the initial issuance of the notes on the
YOUR NOTES TO MATURITY closing date, the underwriters intend to make a
IF THEIR MARKETABILITY secondary market for the purchase of the notes.
IS LIMITED. A secondary market is one in which a noteholder
sells its note to another person. However, the
underwriters have no obligation to make a
secondary market. No one can assure you that
such a secondary market will develop or, if it
develops, that it will continue.
The secondary markets for asset-backed
securities have experienced periods of
illiquidity in the past and can be expected to
do so in the future. Illiquidity means that you
may not easily find another investor to buy
your note. Consequently, you may not be able to
sell your note readily or at prices that will
enable you to realize the yield that you desire
on your note.
The market values of the notes are also likely
to fluctuate. These fluctuations could be
significant and result in sizable losses to
you, depending on where or when you resell your
note.
S-19
<PAGE>
YOUR NOTE PAYMENTS The servicer believes, based on discussions
COULD BE AFFECTED BY with current systems vendors, that its software
YEAR 2000 COMPUTER applications and operational programs will
ERRORS. properly recognize calendar dates beginning in
the year 2000. In addition, the servicer has
discussed with its customers and suppliers the
possibility of any interface difficulties
relating to the year 2000 which may affect the
servicer. To date, no significant concerns have
been identified and the servicer has not
observed any such difficulties; 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.
LOCATION OF GLOSSARY
A glossary of the capitalized terms that we use can be found beginning
on page S-142 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 ___________, DVI
Financial Services Inc. handled billing and collection of approximately __
equipment finance contracts either owned by it or by companies affiliated with
it.
S-20
<PAGE>
DVI Financial Services Inc. provides financing for users of
diagnostic imaging, therapeutic and other medical equipment. DVI Financial
Services Inc. focuses primarily on financing technologically advanced medical
equipment such as computerized tomography, magnetic resonance imaging, nuclear
medicine and radiation therapy systems, as well as lower cost medical devices.
DVI Financial Services Inc.'s customer base consists principally of outpatient
healthcare providers, physicians and physician groups, hospitals and shared
service providers.
DVI Financial Services Inc. either originates or acquires the
contracts from others in its ordinary course of financing activities. Some or
all of the contracts in the trust property were previously and may have been
indirectly sold by DVI Financial Services Inc. to a special-purpose,
bankruptcy-remote entity that was wholly and directly or indirectly owned by DVI
Financial Services Inc.
DVI Financial Services Inc.'s policy is to provide financing
to its customers in transactions which, with very limited exceptions, take the
form of direct financing leases and loans. Most of DVI Financial Services Inc.'s
equipment financing transactions have a term of approximately 60 months. In most
cases, these transactions are so-called "full payout" transactions that allow
DVI Financial Services Inc. to recover all the costs of acquiring and financing
the equipment during the initial non-cancelable term.
DVI Financial Services Inc.'s Equipment Finance Group will
finance equipment ranging in cost from $200,000 to $3,000,000. The DVI Strategic
Partner Group of DVI Financial Services Inc., formerly known as the Vendor
Finance Group, finances small-ticket equipment
ranging in cost from $5,000 to $200,000.
UNDERWRITING CRITERIA
GENERAL GUIDELINES. DVI Financial Services Inc. has
underwriting guidelines in place to analyze the creditworthiness and investment
desirability of individuals, partnerships and corporations. These guidelines
identify certain financial performance requirements and criteria
S-21
<PAGE>
for potential borrowers, which reflect DVI Financial Services Inc.'s willingness
to accept prudent levels of risk. However, these standards remain flexible and
individual credits are evaluated in a manner which permits mitigating factors to
be considered in the overall evaluation process.
DVI Financial Services Inc. focuses much of its lending
activity in the out-patient healthcare sector, which is characterized by
emerging companies that have a limited history and lack strong balance sheets
and income performance. This sector requires a rigorous credit analysis and
structuring discipline. Most out-patient diagnostic facilities operate high cost
equipment, such as magnetic resonance imaging systems. They have a high
proportion of fixed costs to total costs and, as a result, are dependent upon a
steady flow of revenues. In these transactions, DVI Financial Services Inc.
places significant reliance on expected future cash flow projections and the
underlying assumptions about the state of the applicant's business upon which
those projections are made. Determining the validity of financial projections
requires a detailed analysis of the expense levels and their reasonableness, as
well as the projected patient volume for the particular types of equipment or
forms of procedures being used. In each case, DVI Financial Services Inc.
management's detailed knowledge of the industry is critical to understanding the
financial projections and their reasonableness.
TRANSACTION ANALYSIS STANDARDS. DVI Financial Services Inc.
completes an in- depth analysis of all transactions, including a detailed
write-up outlining the proposed 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.
S-22
<PAGE>
DVI Financial Services Inc. will conduct a full analysis of
the demographics of an area, the management team that will operate the center,
any contracts that are in place (such as those with a reputable radiology
group), and the adequacy of capitalization for start-ups or relatively new
operations. For transactions with new entities, DVI Financial Services Inc. also
relies heavily upon market surveys which project patient volumes, reference
checks to verify the reputation of the principals, and an evaluation of the
anticipated composition of the receivables, as well as an evaluation of the
billing and collecting capabilities of the borrower.
The most important part of the due diligence performed on a
new project is the source of referrals. Each applicant, for financing, is
required to submit a list of referral sources. The credit staff and sales staff
of DVI Financial Services Inc. contact these physicians or hospitals to
determine that the referral base is realistic and will provide sufficient cash
flow to service the debt.
The general guidelines used by DVI Financial Services Inc. in
evaluating a transaction are:
o Cash Flow: Measures cash available from operations to service
financial obligations. It must more than adequately meet the
additional debt service requirements of the new financial
obligation as well as existing liabilities. A benchmark of 1.5
times debt service requirements is generally acceptable.
o Leverage: Debt to tangible net worth measures ability to
withstand adversity. Leverage of 5:1 or lower is usually
considered acceptable. This reflects a moderate level of
financial obligations to net worth.
o Current Ratio: Measures the ability of current assets to meet
short-term obligations. A ratio of 1.25 provides an
acceptable measure of liquidity.
o Balance Sheet and Income Statement Trends: Recent financial
performance ideally shows an upward trend in performance,
but should at least evidence
S-23
<PAGE>
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 also should be addressed.
In cases where a transaction does not conform to all
of the underwriting criteria, DVI Financial Services Inc. identifies
methods to support the transaction without compromising credit, quality
and risk. These methods include:
o use of covenants and restrictions which identify performance
goals or limit certain activities which could diminish
financial strength and affect repayment ability.
o requesting additional collateral to support transactions. This
could take the form of cash deposit, letters of credit, other
assets of the principal obligor or third parties (subject to
appraisal), and guaranties.
S-24
<PAGE>
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.
DVI STRATEGIC PARTNER GROUP. The underwriting criteria of DVI
Financial Services Inc.'s DVI Strategic Partner Group, where the equipment cost
is below $200,000, are significantly different from those of the rest of DVI
Financial Services Inc. An applicant completes a simple credit application. The
credit applications are analyzed for approval based upon a combination of the
financial condition of the applicant as well as the credit score of the
applicant, which is obtained from a national credit reporting organization. If
the application is approved and the conditions of approval are met, a signed
purchase order is issued.
The DVI Strategic Partner Group has established specific
credit guidelines for hospital, group practices and sole practitioners. These
guidelines include, but are not restricted to, the following benchmarks for the
applicant to meet:
o has an established business for a minimum of one year to over
two years;
o provides acceptable financial statements, corporate
resolutions and appropriate purchase documents;
o provides personal guarantees under certain circumstances;
S-25
<PAGE>
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 DVI Strategic Partner Group handles collections and other servicing
of contracts which it has originated. Its collection department meets monthly to
review and discuss the status of certain accounts and any trends in performance.
For the accounts that are ten to thirty days past due, the DVI Strategic Partner
Group begins an active collection process. The process is initiated by telephone
contact with the obligor, and a reminder notice is sent when the contract
payment becomes fifteen days past due. When the payments are thirty-one days
past due, the DVI Strategic Partner Group sends a final notice letter. The DVI
Strategic Partner Group sends a demand letter for possession of the equipment
when the payment is sixty-one days past due. Contracts that are more than
ninety-one days past due are included on a watch list which is reviewed by
senior management each month.
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 delinquency figures represent the entire
outstanding balances of those delinquent contracts. Total delinquencies for the
fiscal years 1995 through 1998 exclude contracts purchased from Affiliated
Capital on September 30, 1998.
S-27
<PAGE>
<TABLE>
<CAPTION>
DELINQUENCY EXPERIENCE - DOMESTIC SERVICING PORTFOLIO
AS OF SEPTEMBER 30, AS OF JUNE 30,
----------------------- ----------------------------------------------------------------
1999 1999 1998 1997
---- ---- ---- ----
% OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ ----- ------ -----
(In thousands, except for percentage)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MANAGED NET FINANCED ASSETS $ 1,346,535 $ 1,262,298 $ 932,006 $ 809,090
31 - 60 DAYS $ 15,230 1.1% $ 12,208 1.0% $ 15,811 1.7% $ 3,705 0.5%
61 - 90 DAYS 8,773 0.7% 5,288 0.4% 15,012 1.6% 12,133 1.5%
91 - 120 DAYS 4,824 0.4% 7,763 0.6% 8,259 0.9% 1,088 0.1%
121 - 150 DAYS 1,855 0.1% 5,168 0.4% 9,597 1.0% 2,419 0.3%
151 - 180 DAYS 4,249 0.3% 7,492 0.6% 4,079 0.4% 1,715 0.2%
181 + DAYS 39,628 2.9% 25,598 2.0% 15,295 1.6% 12,903 1.5%
TOTAL DELINQUENCIES $ 74,557 5.5% $ 63,517 5.0% $ 68,053 7.3% $ 33,153 4.1%
</TABLE>
AS OF JUNE 30,
--------------------------------------
1996 1995
---- ----
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ -----
(In thousands, except for percentage)
MANAGED NET FINANCED ASSETS $ 601,543 $ 473,625
31 - 60 DAYS $ 10,352 1.7% $ 12,483 2.6%
61 - 90 DAYS 3,614 0.6% 3,137 0.7%
91 - 120 DAYS 755 0.1% 1,387 0.3%
121 - 150 DAYS 707 0.1% 595 0.1%
151 - 180 DAYS 1,790 0.3% 151 0.0%
181 + DAYS 10,296 1.7% 4,815 1.0%
TOTAL DELINQUENCIES $ 27,514 4.6% $ 22,568 4.8%
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 percentage figures for the three
months ended September 30, 1999 are annualized.
S-29
<PAGE>
<TABLE>
<CAPTION>
LOSS EXPERIENCE - DOMESTIC SERVICING PORTFOLIO
3 MONTHS ENDED
SEPTEMBER 30, YEAR ENDING JUNE 30,
--------------- -----------------------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
--------------- --------------- --------------- -------------- ------------- ------------------
(In thousands, except for percentage)
<S> <C> <C> <C> <C> <C> <C>
AVERAGE MANAGED
NET FINANCED ASSETS $1,282,308 $1,089,031 $846,713 $704,676 $544,023 $ 342,353
NET CHARGE-OFFS $ 1,063 $ 5,258 $ 1,642 $ 436 $ 1,475 $ 473
NET CHARGE-OFFS AS A
PERCENTAGE OF
AVERAGE MANAGED
NET FINANCED ASSETS 0.33% 0.48% 0.19% 0.06% 0.27% 0.14%
============= ============= ============ =========== =========== ============
</TABLE>
S-30
<PAGE>
The increase in delinquencies in 1998 resulted primarily from a $20.0
million borrower. This delinquency had been reduced to $10.9 million at
September 30, 1999 and the extent of any loss on this account is uncertain. Net
losses increased in the fiscal year ended June 30, 1999 primarily due to a $2.0
million loss resulting from the bankruptcy filing by Allegheny Health, Education
and Research Foundation and related entities in July 1998. All of the contracts
have been paid or assumed by new parties, and no further losses will be
recognized. The low loss level in 1997 appears to have resulted from normal
fluctuations in annual loss levels for a large ticket equipment finance company
rather than from any factors specific to that year.
DVI Financial Services Inc.'s historical levels of allowances and
delinquencies are not necessarily predictive of future results. Various factors,
including changes in the way obligors are paid for their services, other
developments in the healthcare industry and new technological developments
affecting the resale value of financed equipment, could cause future delinquency
and loss rates to be worse than those experienced historically.
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
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<PAGE>
time we consider the range of remedies available to mitigate a potential loss.
Remedies include the pursuit of underlying collateral and guarantors (including
recourse to dealers and manufacturers), draws on letters of credit, and
protecting our investment by taking control of a medical facility's operations
and replacing the existing management. Receivables contracts are charged-off
when a loss is considered probable and all reasonable remedies have been
pursued. The smaller delinquent contracts arising from our vendor programs are
normally charged off when they become greater than 120 days delinquent.
THE SERVICER
SERVICING OBLIGATIONS AND PROCEDURES
DVI Financial Services Inc. will be appointed as servicer under the
contribution and servicing agreement to handle billing and collection of all
contracts constituting trust property for the notes. It will do so in the same
manner as it handles billing and collection for contracts which it owns itself.
DVI Financial Services Inc. will service the trust property consistent with
customary practices of other servicers in the medical equipment finance
industry. In performing its duties as servicer, DVI Financial Services Inc. will
act for the benefit of the transferor, the issuer, the trustee and the holders
of the notes, without regard to any relationship 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
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<PAGE>
trustee, can either repossess and re-lease or sell the related equipment to
cover the remaining unpaid payments under such contract.
Following each monthly determination date for determining payments on the
notes, the servicer will remit a Servicer Advance to the trustee so that the
trustee will have immediately available funds by 11:00 a.m. New York time on the
second business day prior to the next payment date for the notes. Each Servicer
Advance must be sufficient to cover all amounts which were due and unpaid on any
delinquent contract on that determination date. The servicer will not be
obligated to make a Servicer Advance for:
o any defaulted contract;
o any contract that was finally liquidated on or prior to that determination
date; or
o any other contract if the servicer, in its good faith judgment, believes
that that Servicer Advance would be a Nonrecoverable Advance.
If the servicer determines that any Servicer Advance it has made, or is
contemplating making, would be a Nonrecoverable Advance, the servicer will
deliver to the trustee an officer's certificate stating the basis for that
determination. An officer's certificate must be signed by the Chairman, the
President, a Vice President, the Treasurer, an Assistant Treasurer, the
Secretary, or an Assistant Secretary of the relevant entity.
The servicer, for the benefit of the noteholders and the issuer, will be
responsible for:
o managing, servicing and administering the trust property,
o enforcing and making collections on the contracts and
o for enforcing the rights of the noteholders and issuer in any item of
equipment.
The servicer will be responsible, among other duties, for:
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<PAGE>
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. [XI], 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. [XI], the issuer and the trustee, seeing
to it that there are signed and filed any and all reports or licensing
applications required to be filed in any jurisdiction for any contract or
any item of equipment and UCC financing statements necessary to perfect, or
to maintain the perfection of, the interest of the trustee in the trust
property.
The terms of a contract may be modified or adjusted by the servicer at the
request of a lessee or a lessor. These modifications or adjustments may include
changes to the components of leased equipment or corrections of information that
occur when a contract enters the servicer's administrative servicing system.
These modifications and adjustments may result in changes to the amount of
monthly payment under that contract, the monthly payment date of the contract or
changes to the equipment. However, none of these changes will:
o extend the stated maturity date of the notes;
o extend by more than __ months the scheduled termination date of the
contract;
S-34
<PAGE>
o materially shorten or lengthen the weighted average life of any class of
notes;
o be done for contracts representing more than ______ percent of the Initial
Aggregate Discounted Contract Balance of the contracts;
o be done for any contract that is ninety days or more delinquent;
o decrease the Discounted Contract Balance of any contract which is modified
in this way, unless the issuer deposits an amount equal to that decrease in
the collection account;
o be inconsistent with the servicing standards set forth in Section [4.01] of
the contribution and servicing agreement;
o reduce or adversely affect the obligor's obligation to maintain, service,
insure and care for the equipment or permit the alteration of any item of
equipment in any way which could adversely affect its present or future
value; or
o otherwise adversely affect, individually or in the aggregate, the interests
of any of DVI Receivables Corp. [XI], the issuer, the trustee or the
noteholders.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
As compensation to the servicer for its servicing of the contracts, the
servicer will be entitled to receive on each payment date a servicing fee from
amounts on deposit in the collection account. This fee will equal the product of
(i) one-twelfth, or a smaller fraction for the initial payment date, (ii) ____%
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
S-35
<PAGE>
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
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.
S-36
<PAGE>
The servicer will bear all costs of servicing the contracts under the
contribution and servicing agreement. The servicer will be entitled to retain
out of amounts recovered by the servicer its actual out-of-pocket expenses paid
to third parties reasonably incurred. These retained amounts will only come from
amounts actually recovered for any contract or the related equipment. In
addition, the servicer is entitled to receive on each payment date any amounts
previously paid by it as Servicer Advances, where the servicer has not been
reimbursed and either the contract has become a defaulted contract or the amount
has been determined to be a Nonrecoverable Advance.
EVIDENCE OF COMPLIANCE BY SERVICER
The contribution and servicing agreement requires that with each set of
financial statements delivered under the contribution and servicing agreement,
the servicer will deliver an officer's certificate stating:
o that the officer signing the certificate has reviewed the activities of the
servicer during the period covered by those financial statements;
o that the review has not disclosed the existence of any servicer event of
default or, if the servicer defaults under certain sections of the
contribution and servicing agreement, describing its nature and what action
the servicer has taken and is taking to cure the event; and
o that the officer has concluded that during that period the servicer has
serviced the contracts in compliance with the required procedures. If not,
the officer will state what were the instances of noncompliance.
OTHER SERVICING PROCEDURES
S-37
<PAGE>
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.
The Servicer will grant to the trustee the power in the event an Event of
Default occurs, to act as its attorney-in-fact, to file Uniform Commercial Code
financing statements in the appropriate offices showing the transfer of the
contracts to the issuer and to do any and all other acts as may be necessary or
appropriate. The servicer will promptly execute any document or instrument
deemed necessary by the issuer or the trustee to effect or to evidence this
power of attorney. All costs associated with such filings or instructions will
be paid by the contributor.
RESIGNATION/REMOVAL OF THE SERVICER
The contribution and servicing agreement will provide that the servicer may
not resign from its obligations and duties as servicer, except in connection
with an assignment permitted by the contribution and servicing agreement or upon
a determination that the servicer's performance of its duties is no longer
permissible under applicable law. No resignation will become effective until the
trustee or a successor servicer has assumed the servicer's servicing
S-38
<PAGE>
obligations and duties under the contribution and servicing agreement. The
servicer can only be removed if there has occurred a servicer event of default.
See "SERVICER EVENTS OF DEFAULT" at page S-92 of this prospectus supplement and
"DESCRIPTION OF THE NOTES AND PRINCIPAL TRANSACTION DOCUMENTS -- TERMINATION OF
THE SERVICER" at page S-94 of this prospectus supplement.
VOLUNTARY TERMINATION OF SERVICER DUTIES
At the option of the servicer, on any payment date on which the Pool A
Aggregate Discounted Contract Balance is less than __% of the Pool A Aggregate
Discounted Contract Balance and less than __% of the Pool B Aggregate Discounted
Contract Balance 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 __% 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 and the servicer has not
S-39
<PAGE>
observed any such difficulties; however, no one can be sure that any year
2000-related operating problems or expenses will not arise with the servicer's
computer systems and the software of its vendors, customers and suppliers.
DVI RECEIVABLES CORP. VIII
DVI Receivables Corp. VIII is a limited purpose Delaware corporation formed
in December, 1998. DVI Receivables Corp. VIII is the sole owner of all of the
membership units and sole member and managing member of the issuer.
All of the outstanding capital stock of DVI Receivables Corp. VIII is owned
by DVI Financial Services Inc. DVI Receivables Corp. VIII's principal executive
office is located at 500 Hyde Park, Doylestown, Pennsylvania, 18901. Its
telephone number is (215) 345-6600.
DVI RECEIVABLES CORP. [XI]
DVI Receivables Corp. [XI] is a limited purpose Delaware corporation formed
in 1999 to facilitate the interim financing of the contracts by the issuer. All
of the outstanding capital stock of DVI Receivables Corp. [XI] is owned by DVI
Financial Services Inc. DVI Receivables Corp. [XI]'s principal executive office
is located at 500 Hyde Park, Doylestown, Pennsylvania 18901. Its telephone
number is (215) 345-6600. Counsel for the underwriters will render its opinion
that if DVI Financial Services Inc. were to be the subject of bankruptcy
proceedings, the possibility that a court would order the consolidation of DVI
Receivables Corp. [XI] with DVI Financial Services Inc. is extremely remote.
S-40
<PAGE>
THE ISSUER
The issuer is a recently formed, limited purpose ____________ organized
under the laws of the State of _________ in _______, 19__/20__. [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:
- 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 the
issuer, and the unanimous vote of all directors, including the independent
directors, is necessary before the issuer can commence voluntary bankruptcy
proceedings.
- 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 the issuer into
bankruptcy proceedings.
- 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 relating to the equipment financed under the contracts. The
issuer owns DVI Receivables Corp. [XI]'s rights and remedies under the
contribution and servicing agreement.
S-41
<PAGE>
THE TRUSTEE
The trustee, ___________________, has its principal corporate trust
office at ______________.
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 __ of
the indenture.
If the trustee resigns or is removed, the issuer, with the consent of
the holders of notes of the majority of the Voting Rights, shall promptly
appoint a successor trustee. If a successor trustee has not been appointed and
accepted appointment within 30 days after notice of resignation or removal, the
trustee or any noteholder may petition any court of competent jurisdiction for
the appointment of a successor trustee.
THE CONTRACTS
The contracts consist of non-cancelable finance leases, fair market
value leases, leveraged lease loans, lease receivable purchases and secured
equipment notes. The obligors under the contracts are primarily hospitals,
non-hospital medical facilities, physician groups and physicians, businesses,
institutions, and professionals who utilize the equipment under those contracts
for commercial use throughout the United States. No Affiliates of DVI Financial
S-42
<PAGE>
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-55 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. [XI] under a subsequent contract transfer agreement, dated as
of ____, between the issuer and DVI Receivables Corp. [XI]. DVI Receivables
Corp. [XI] will have acquired the initial contracts from DVI Financial Services
Inc. under a contribution and servicing agreement, dated as of ----, between DVI
Financial Services Inc. and DVI Receivables Corp. [XI]. The initial contracts
will be selected from all contracts owned by DVI Financial Services Inc. based
on the selection criteria for Eligible Contracts specified in the contribution
and servicing agreement and described in the glossary to this prospectus
supplement.
DVI Financial Services Inc. believes that the contracts are
representative of all contracts owned by DVI Financial Services Inc. The
contracts have been selected by DVI Financial Services Inc. and will meet all
the criteria specified in this prospectus supplement.
DVI Financial Services Inc. shall deliver to the trustee the original
counterpart of each contract as well as copies of documents and instruments
relating to each contract and evidencing the security interest in the equipment
securing each contract. All of these counterparts, documents and instruments are
called the contract file. Each of DVI Receivables Corp. [XI] 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. [XI], by DVI Receivables Corp. [XI] to the issuer and pledged
by the issuer to the trustee for the benefit of the noteholders pursuant to the
indenture.
S-43
<PAGE>
Some of the contracts were originated by third parties known as
brokers and acquired by DVI Financial Services Inc. through purchases in its
usual course of business from various entities to those entities. These
purchases are called brokered transactions. Contracts acquired by DVI Financial
Services Inc. in brokered transactions are purchased by it using the 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-21 of this prospectus supplement and "DVI FINANCIAL SERVICES
INC.'S CREDIT UNDERWRITING AND REVIEW PROCESS" at page 6 of the prospectus, for
a description of DVI Financial Services Inc.'s underwriting and credit and
collection policies. It is the policy of DVI Financial Services Inc. to ensure
that UCC financing statements covering the underlying equipment for contracts
acquired by DVI Financial Services Inc. in brokered transactions are filed
against the applicable obligors to the same extent as those financing statements
would be filed if the contracts were originated by DVI Financial Services Inc.
DVI Financial Services Inc. also arranges for those financing statements to be
assigned to DVI Financial Services Inc. In addition, DVI Financial Services Inc.
files financing statements against the applicable broker, to protect its
interest in the contracts and the other assets transferred to it in brokered
transactions.
The contracts, other than the leveraged leased loans, and the
equipment leases pledged as collateral for leveraged leased loans are
exclusively on a "net basis", that is, the obligor is responsible for all
operating expenses, including taxes and insurance premiums; except that some
equipment leases pledged as collateral for leveraged leased loans may require
the lessor to maintain and service the equipment. All obligors are obligated to:
o remit all contract payments due;
o operate the equipment in compliance with the manufacturers'
instructions;
S-44
<PAGE>
o except for the contracts described in the immediately preceding
sentence, maintain and service the equipment; and
o insure the equipment against casualty losses, liability for bodily
injury and against property damage.
Contract documentation also typically specifies that the obligor is responsible
for compliance with all applicable laws and regulations applicable to operation
of the equipment. Although in most cases the contracts provide that the obligor
must maintain the equipment, in some transactions the obligor's rental or debt
service payments include fees for supplies and other 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 loans in the trust property.
The contracts, other than the leveraged leased loans, and the
equipment leases pledged as collateral for a leveraged lease loan, in most cases
do not provide for a right of the obligor to prepay. However, under the
contribution and servicing agreement, the servicer is permitted to allow
prepayment, in part or in full, in an amount not less than the Prepayment Amount
or Partial Prepayment Amount, as applicable. In addition, in the event that an
obligor requests an upgrade or trade-in of equipment, the servicer, after paying
the Prepayment Amount or substituting an Eligible Contract, may remove the
equipment and related contract from the trust property. The servicer
historically has permitted obligors to terminate contracts early either in
connection with the execution of a new contract of replacement equipment, or
upon payment of a negotiated payoff amount, or both. Any Prepayment Amounts or
Partial Prepayment
S-45
<PAGE>
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 contract 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
_______%, and
(2) any unreimbursed amounts that the servicer advanced to that obligor
for that contract as permitted in the contribution and servicing
agreement, as described in"THE CONTRACTS" on page S-42, and "THE
SERVICER" on page S-32, of this prospectus supplement, and
(3) any payments due and outstanding under such 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 contract 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 contract 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.
S-46
<PAGE>
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 ___ days as of the last day of the calendar month;
o the servicer has not made a Servicer Advance to cover any delinquent
amounts, on the grounds that the advance would not be recoverable;
o the contract has been rejected in a bankruptcy proceeding involving
the obligor under that contract; or
o the lessor for any leveraged lease loan has rejected the related lease
in a bankruptcy proceeding involving that lessor.
For purposes of determining the length of time that a contract is
delinquent, the delinquency of a contract payment is measured using the contract
payments required to be made during the term of the contract as it was written
on the date that the contract became part of the trust property. This does not
take into account any modifications, waivers or extensions granted by the
servicer after that date, although modifications permitted under Section [4.02]
of the contribution and servicing agreement will be taken into account.
In contrast with a defaulted contract, a delinquent contract is, as of
any determination date, any contract under which the obligor has not paid all
contract payments
S-47
<PAGE>
which were due at the end of the prior calendar month. However, a delinquent
contract does not include a contract which became a defaulted contract prior to
that determination date.
STATISTICAL INFORMATION FOR THE CONTRACTS
The statistical information presented in this prospectus supplement
concerning the contracts is referred to as the statistical contracts. The
information in this prospectus supplement regarding the statistical contracts
has been calculated using an assumed Discount Rate of ____% per annum. The
Aggregate Discounted Contract Balance of the statistical contracts as of the
cut-off date is $_____________ using the assumed Discount Rate. The Aggregate
Discounted Contract Balance of the initial contracts as of the cut-off date is
$______________ using the actual Discount Rate. The composition of the initial
contracts as of the cut-off date using the actual Discount Rate 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
S-48
<PAGE>
terms to maturity of __to __ months. The final scheduled payment date of the
statistical contract with the latest maturity will be in _____________. As of
the cut-off date, the Discounted Contract Balances of the statistical contracts
range from $_______ to $____________. No more than ____% 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 approximately $_________.
Information regarding the statistical contracts is given in the tables
below. Figures may not add up exactly to the stated totals because of rounding.
All information has been calculated on the basis of the assumed Discount Rate.
The statistical information in this prospectus supplement does not
reflect any information regarding any contracts that are included in the trust
property but were not included in the statistical contracts. Although the
addition of these contracts may change relative data given in the tables below,
all initial contracts must satisfy particular conditions, including that they
are Eligible Contracts. See "THE CONTRACTS -- SUBSTITUTE CONTRACTS" at page S-65
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
S-49
<PAGE>
o "Discounted Contract Balance" means the present value of the
statistical contracts, calculated based on an assumed Discount Rate of
____%. 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-50
<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 OF AGGREGATE OF AGGREGATE
NUMBER AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
LOCATION CONTRACTS CONTRACTS BALANCE BALANCE COST COST
- --------------------- ------------ --------------- ------------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Alaska
Alabama
Arkansas
Arizona
California
Colorado
Connecticut
District of Columbia
Delaware
Florida
Georgia
Hawaii
Iowa
Idaho
Illinois
Indiana
Kansas
Kentuck
Louisiana
Massachusetts
Maryland
Maine
Michigan
Minnesota
Missouri
Mississippi
Montana
North Carolina
Nebraska
Nevada
New Hampshire
New Jersey
</TABLE>
S-51
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
PERCENTAGE OF OF AGGREGATE OF AGGREGATE
NUMBER AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
LOCATION CONTRACTS CONTRACTS BALANCE BALANCE COST COST
- --------------------- ------------ --------------- ------------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
New Mexico
New York
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Virginia
Vermont
Washington
Wisconsin
West Virginia
Wyoming
</TABLE>
S-52
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY REMAINING CONTRACT TERM
----------------------------------------
PERCENTAGE PERCENTAGE
RANGE OF PERCENTAGE OF OF AGGREGATE OF AGGREGATE
REMAINING NUMBER AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL
TERMS OF NUMBER OF CONTRACT CONTRACT ORIGINAL EQUIPMENT
(IN MONTHS) CONTRACTS CONTRACTS BALANCE BALANCE EQUIPMENT COST COST
- -------------- ------------ --------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
S-53
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL CONTRACT POOL BY ORIGINAL CONTRACT TERM
-----------------------------------------------------------------------
PERCENTAGE PERCENTAGE
RANGE OF NUMBER OF AGGREGATE DISCOUNTED OF AGGREGATE PERCENTAGE
ORIGINAL TERMS OF NUMBER OF CONTRACT DISCOUNTED ORIGINAL OF AGGREGATE ORIGINAL
(IN MONTHS) CONTRACTS CONTRACTS BALANCE CONTRACT BALANCE EQUIPMENT COST EQUIPMENT COST
- -------------- ------------ --------------- ------------- ---------------- --------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
S-54
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY TYPE OF EQUIPMENT
----------------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
OF AGGREGATE DISCOUNTED OF AGGREGATE ORIGINAL OF AGGREGATE
NUMBER OF NUMBER OF CONTRACT DISCOUNTED EQUIPMENT ORIGINAL
EQUIPMENT TYPE CONTRACTS CONTRACTS BALANCE CONTRACT BALANCE COST EQUIPMENT COST
- -------------- ------------ --------------- ------------- ---------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Magnetic Resonance Imaging
Medical equipment
Surgical
Facilities
Radiation Therapy
Computer and Peripherals
Imaging System
Computerized Tomography
Ultrasound
Medical Devices
Physical Therapy
Other
Laboratory
Mammography
Optometry
Radiology
X-Ray
Furniture & Fixtures
Telecommunications
Urology
Dental equipment
Patient Monitoring
</TABLE>
S-55
<PAGE>
By way of explanation for some of the equipment types above:
o Magnetic resonance imaging equipment provides high resolution images of
soft tissues and is particularly useful for diagnosis of neurological
disorders of the spine, head and neck that would otherwise require risky
exploratory surgeries. More recently, MRI systems have become widely known
for the diagnosis of musculoskeletal injuries, most notably, knee and
shoulder problems related to sports injuries. MRI is based on the principle
that body tissues behave differently in response to the application of
strong but harmless magnetic fields which produce differentiated and
contrasting images of healthy versus diseased organs and tissues. MRI
systems range in selling price from $750,000 to $2,200,000.
o Medical equipment represents all equipment located in a medical facility or
laboratory including, but not limited to, hyperbaric chambers, IV pumps,
teleradiology/telecardiology systems, blood gas analyzers, endoscopy
systems, and medical beds.
o Surgical equipment is patient treatment equipment used in surgical
procedures. Prices range from $5,000 to $1,000,000.
o Facilities are primarily specific improvements used to house MRI,
computerized tomography and radiation therapy units. The prices range from
$50,000 to $500,000.
o Radiation therapy equipment includes linear accelerators, radiation therapy
simulators and planning systems. These are used to provide radiation for
the treatment of patients diagnosed with cancer. Prices range from $100,000
to $1,500,000.
S-56
<PAGE>
o Computers and peripherals are hardware and software used in practice
management, accounting, billing, patient management and research and
development within medical facilities. The cost of the computer systems
range from $5,000 to $2,000,000.
o Imaging systems, excluding MRIs and computerized tomography systems, are
nuclear medicine systems that generate metabolic or functional images to
determine whether organs or tissues function properly. Images are generated
through the use of short-lived radioactive isotopes which are ingested by
or injected into patients to study metabolic functions. As the isotopes
decay, they emit small doses of radioactivity which are detected by the
nuclear medicine camera to produce two-dimensional images. These systems
range in selling price from $50,000 to $500,000.
o Computerized tomography is used to image tumors and for motion sensitive,
yet high contrast, diagnostic studies. It produces higher contrast images
than conventional X-ray. Computerized tomography scanners range in selling
price from $300,000 to $800,000.
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.
S-57
<PAGE>
o Conventional X-ray equipment uses ionizing radiation to produce
single-dimension images on a sheet of transparent film. Other X-ray systems
are used in diagnostic imaging studies such as peripheral and coronary
angiography. Selling prices range from $5,000 to $500,000.
S-58
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY DISCOUNTED CONTRACT BALANCE
--------------------------------------------
PERCENTAGE OF PERCENTAGE
PERCENTAGE OF AGGREGATE OF AGGREGATE
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>
</TABLE>
S-59
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY ORIGINAL EQUIPMENT COST
----------------------------------------
PERCENTAGE OF PERCENTAGE
PERCENTAGE 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>
</TABLE>
S-60
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY TEN LARGEST OBLIGORS
-------------------------------------
PERCENTAGE OF PERCENTAGE
PERCENTAGE AGGREGATE OF AGGREGATE
OF AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
NUMBER OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
OBLIGOR RATING CONTRACTS CONTRACTS BALANCE BALANCE COST COST
- --------------------- ------------ --------------- ------------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
S-61
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL CONTRACT POOL BY CONTRACT TYPE
--------------------------------------------------------------
PERCENTAGE OF PERCENTAGE OF
PERCENTAGE AGGREGATE 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
Fair Market Value Leases
Leveraged Lease Loans
Secured Equipment Notes
Lease Receivables Purchases
Total
</TABLE>
S-62
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY BUSINESS TYPE
PERCENTAGE OF PERCENTAGE
PERCENTAGE OF AGGREGATE OF AGGREGATE
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>
Multi-Modality Center
MRI Only Center
MRI & Other Multiple Center
Holding Company-Var. Center
Dental Center
Hospital
Radiation Therapy Center
Physician Practices
Outpatient Surgery Center
Other Multiple Center
Internal Medicine
Chiropractor
Family/General Practice
Veterinarian
M.D. Clinic
Skilled Nursing Center/ Nursing Home
Hyperbaric Chambers
Optometrist
Gynecology & Obstetrics
Eye Clinics
Cardiovascular Disease
Osteopath
</TABLE>
S-63
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE
PERCENTAGE OF AGGREGATE OF AGGREGATE
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>
Phys. Pract. Mgt./Mgt. Serv.
Otolaryngology
Institutional Pharmacy
Other
Total
</TABLE>
S-64
<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 __ consecutive days as of the most recent
determination date; (B) a bankruptcy petition has been filed
by or against the obligor or, for a leveraged lease loan,
the related lessor, under any Predecessor Contract; or (C)
the Pool A contract became a defaulted contract for the
first time during the related collection period;
o other conditions listed in the contribution and servicing
agreement have been satisfied; and
o the sum of (x) the Discounted Contract Balances of all
substitute contracts substituted as provided for in this
sentence and (y) amounts deposited by the servicer in the
collection account in connection with all those
substitutions mentioned in this sentence does not exceed __%
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-65
<PAGE>
o the Pool A contract has been prepaid;
o conditions listed in the 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 ___ of the
contribution and servicing agreement and (y) amounts
deposited by the servicer in the collection account in
connection with all substitutions mentioned in this sentence
and those substitutions made under section ___ of the
contribution and servicing agreement does not exceed ____%
of the Pool A Aggregate Discounted Contract Balance as of
the closing date.
Under some circumstances, the servicer will have the right, but not
the obligation, to substitute one or more Eligible Contracts and a security
interest in the related equipment for a Pool B contract. This right of
substitution can be exercised if :
o conditions listed in the contribution and servicing
agreement have been satisfied; and
o the sum of (x) the Discounted Contract Balances of all
substitute contracts substituted under this sentence and (y)
amounts deposited by the servicer in the collection account
in connection with all substitutions under this sentence
does not exceed __% of the Pool B Aggregate Discounted
Balance as of the closing date.
S-66
<PAGE>
In addition, the servicer will have the right, but not the obligation,
at any time in connection with the exercise by DVI Receivables Corp. [XI] of its
substitution rights, to substitute one or more substitute contracts and a
security interest in the related equipment for a Pool B contract and a security
interest in the related equipment. This right of substitution can be exercised
if:
o the Pool B contract has been prepaid;
o conditions listed in the contribution and servicing
agreement have been satisfied; and
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 ___ of the
contribution and servicing agreement and (y) amounts
deposited by the servicer in the collection account in
connection with all substitutions as mentioned in this
sentence and those substitutions made under section __ of
the contribution and servicing agreement does not exceed __%
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 __% 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.
S-67
<PAGE>
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 contribution and servicing agreement. However, it
is not complete and prospective investors should read those agreements in their
entirety.
GENERAL PROVISIONS OF THE NOTES
The notes are limited recourse obligations of the issuer only, with no
recourse to DVI Financial Services Inc., the trustee or any other person. The
issuer's liability is limited to the income and proceeds from the trust
property. The issuer will agree in the indenture and in the notes to pay each
class of noteholders the amounts of principal and interest on the dates shown in
the indenture. Each payment of principal is required to equal the sum of :
o Monthly Principal for that class and
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 ________ of each month, or if
the day is not a business day,
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<PAGE>
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-80 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.
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
o all principal due and overdue on the class A
notes
S-69
<PAGE>
If an Amortization Event IS happening:
o all interest due and overdue on all classes of the
notes
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
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
o the entire outstanding principal amount due on the
class A notes and the class B notes
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<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 the
notes
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 classes of the
notes
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
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
o the entire outstanding principal amount due on the
class A, class B, class C and class D notes
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-97 for exceptions to this rule. Unless and until definitive securities
are issued for the notes under the limited
S-72
<PAGE>
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 for the notes will be
________________. 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 or before the closing date, DVI Financial Services Inc. will convey
to DVI Receivables Corp. [XI], DVI Receivables Corp. [XI] will transfer to the
issuer, and the issuer will pledge to the trustee, all of its right, title and
interest in and to the trust property. The trust property does not include some
amounts included in the obligor's payments to which DVI Financial Services Inc.
is not entitled, such as property taxes, sales, taxes, manufacturer's
maintenance costs, insurance premiums and supplies and transaction costs. Also
not included in the trust property are:
S-73
<PAGE>
o any purchase option payments;
o ownership of any equipment, although the trust property includes
a security interest in that equipment; or
o any rights of DVI Financial Services Inc. in any accounts
receivable of the obligor which have been pledged to DVI
Financial Services Inc. as collateral for that obligor's
contract.
In general, a purchase option payment is any payment made by the
obligor under the contract to purchase the equipment covered under the contract.
A purchase option payment would include any funds received in respect of any of
the following:
o an end of term purchase option for $1;
o an end of term option to purchase the equipment at a stated percentage of
the original cost of the equipment;
o an option to purchase the equipment at the fair market value of the
equipment determined at the end of the contract term; or
o an end of term option to extend the term of the lease for one or more
immediately succeeding twelve month periods.
On the closing date, the issuer will have delivered a copy of the
contract schedule to the trustee for the initial contracts. The contract
schedule will include for each contract:
o a number identifying the contract,
o the obligor's name and address,
S-74
<PAGE>
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 of 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. [XI], and by DVI
Receivables Corp. [XI] to the issuer, and pledged by the issuer to the trustee
for the benefit of the noteholders.
DVI FINANCIAL SERVICES INC. REPURCHASE OBLIGATION FOR CONTRACT
MISREPRESENTATIONS
DVI Financial Services Inc. will make representations and warranties
in the contribution and servicing agreement, regarding the contracts and the
equipment, for the benefit of the trustee, the noteholders, the issuer and DVI
Receivables Corp. [XI]. 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.
S-75
<PAGE>
INDEMNIFICATION
The contribution and servicing agreement provides that DVI Financial
Services Inc., as contributor and servicer, will defend and indemnify itself,
the servicer, the trustee, DVI Receivables Corp. [XI], the issuer and the
noteholders against any and all losses, claims, damages and liabilities suffered
by any of those parties by reason of a breach by DVI Financial Services Inc. of
its obligations under the contribution and servicing agreement.
Neither the servicer nor any of the directors, officers, employees or
agents of the servicer shall incur any liability to the issuer, the trustee or
the noteholders, for any action taken or not taken in good faith under the
contribution and servicing agreement relating to any contract. This includes any
defaulted contract, or the equipment under that contract. This exception from
liability does not apply to either:
o any breach of warranties or representations made by it in the
contribution and servicing agreement or in any certificate
delivered in conjunction with the purchase of the notes or
o for any liability which would otherwise be imposed by reason of
willful misfeasance or negligence in the performance of its
duties under the contribution and servicing agreement or by
reason of reckless disregard of the Servicer's 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 in the
S-76
<PAGE>
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
S-77
<PAGE>
payment date. Pending deposit into the collection account, collections may be
invested by the servicer at its own risk and for its own benefit, and will not
be segregated from funds of the servicer.
RESERVE ACCOUNT
The reserve account is a segregated trust account in the name of the
trustee and will be funded by deposit of the Reserve Account Deposit Amount from
amounts otherwise able to be distributed to the issuer on the closing date or
any payment date. If there exists a shortfall between the Available Funds and
interest or principal due on the payment date for any of the notes, regardless
of whether an Amortization Event has occurred and is continuing, amounts on
deposit in the reserve account will be available to make payments of interest
to,
o first, the class A noteholders,
o then, the class B noteholders,
o then, the class C noteholders,
o then, the class D noteholders,
o then, the class E noteholders, and
then, under most circumstances, to pay principal on,
o first, the class A notes,
o then, the class B notes,
S-78
<PAGE>
o then, the class C notes,
o then, the class D notes, and
o then, the class E notes.
If an Amortization Event has occurred and is continuing, the principal due
on each class shall be the entire Note Balance for that class of notes. If no
Amortization Event has occurred and is continuing, 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
S-79
<PAGE>
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 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 the issuer upon the issuer'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
S-80
<PAGE>
(including, if that servicer is not DVI Financial Services Inc., any
additional amount agreed upon in good faith and commercially reasonable
judgment 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;
(3) to the Class A Distribution Sub-Account, in the following order of
priority, the sum of the Class A Monthly Interest and any Class A Overdue
Interest;
(4) to the Class B Distribution Sub-Account, in the following order of
priority, the sum of the Class B Monthly Interest and any Class B Overdue
Interest;
(5) to the Class C Distribution Sub-Account, in the following order of
priority, the sum of the Class C Monthly Interest and any Class C Overdue
Interest;
(6) to the Class D Distribution Sub-Account, in the following order of
priority, 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) any Class A Overdue Principal;
(B) the Class A Monthly Principal;
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<PAGE>
(9) as long as no Amortization Event shall have occurred and be
continuing, to the Class B Distribution Sub-Account, in the following order
of priority, the sum of:
(A) any Class B Overdue Principal, if any; and
(B) the Class B Monthly Principal; then,
(10) as long as no Amortization Event shall have occurred and be
continuing, to the Class C Distribution Sub-Account, in the following order
of priority, the sum of:
(A) any Class C Overdue Principal; and
(B) the Class C Monthly Principal; then,
(11) as long as no Amortization Event shall have occurred and be
continuing, to the Class D Distribution Sub-Account, in the following order
of priority, the sum of:
(A) any Class D Overdue Principal; and
(B) the Class D Monthly Principal; then,
(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,
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to the reserve account, the Reserve Account Deposit Amount;
(14) if an Amortization Event shall have occurred and be 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 pay the class A notes in full;
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;
and
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;
(15) any remaining Available Funds on deposit in the collection account
will be paid to the issuer.
If on any payment date the Available Funds on deposit in the
collection account are less than the sum necessary to make the Priority Payments
required under clauses (3) through and including (12) and clause (14), each as
applicable, then the trustee shall withdraw from the reserve account, to the
extent that such funds are on deposit in the reserve account and after taking
into account payments to be made under clauses (1) and (2) above, and deposit
into the
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distribution accounts in the priority described above for payment on that
payment date, funds equal to the Available Reserve Account Funds. Unless a
sizeable part of the trust property is then held by a bankruptcy court's
application of the automatic stay pursuant to Section 362 of the federal
Bankruptcy Code, the trustee will use the Available Reserve Account Funds for
payment in accordance with clauses (3) through and including (12), as
applicable. On any payment date occurring during a period in which a bankruptcy
court has applied such an automatic stay to a material portion of the trust
property, then the Available Reserve Account Funds will be used only for payment
of clauses(3) through and including (7).
Noteholders evidencing 662/3% or more of the Voting Rights shall have
the ability to waive or defer any Amortization Event. Upon the occurrence of any
Amortization Event, noteholders evidencing 662/3% or more of the Voting Rights
shall have the right to replace DVI Financial Services Inc. as servicer with a
successor servicer as permitted under the contribution and servicing agreement.
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 and allocated as set forth in the
"DESCRIPTION OF THE NOTES AND PRINCIPAL TRANSACTION DOCUMENTS-- FLOW OF FUNDS TO
AND FROM THE COLLECTION ACCOUNT" in the Class A Distribution Sub-Account.
Payments are to be made to the class A noteholders in the following order of
priority:
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(A) the Class A Monthly Interest;
(B) the Class A Overdue Interest, if any;
(C) the Class A Overdue Principal, if any;
(D) the Class A Monthly Principal; and
(E) additional principal payable under the indenture;
2. On each payment date the trustee shall pay to the class B
noteholders the amount then on deposit in the Class B Distribution Sub-Account.
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 under the indenture;
3. On each payment date the trustee shall pay to the class C
noteholders the amount then on deposit in the Class C Distribution Sub-Account.
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 under the indenture;
4. On each payment date the trustee shall pay to the class D
noteholders the amount then on deposit in the Class D Distribution Sub-Account.
Payments to the class D noteholders shall be made in the following order of
priority:
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(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 under the indenture;
5. On each payment date the trustee shall pay to the class E
noteholders the amount then on deposit in the Class E Distribution Sub-Account.
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 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 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
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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 __% of the Pool A Aggregate Discounted
Contract Balance on the closing date and the Pool B Aggregate Discounted
Contract Balance is less than __% of the Pool B Aggregate Discounted Contract
Balance on the closing date. In the event that the notes are redeemed in full,
an amount equal to the sum of
o the entire outstanding principal balance of the notes and
o accrued interest on the outstanding principal balance of each class of
notes, at the Class A Note Rate, Class B Note Rate, Class C Note Rate,
Class D Note Rate or 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 __% of the Pool B Aggregate Discounted Contract
Balance as of the closing date. In the event that the notes are redeemed in
part, 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 Note Rate, Class B Note Rate, Class C Note
Rate, Class D Note Rate or 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:
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(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 outstanding note when it becomes due and
payable and sufficient Available Funds are on deposit in the
collection account and sufficient Available Reserve Account 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 contribution and servicing agreement or the other
transaction documents and continuance of that default or breach for a
period of 30 days after the earliest of
(A) any officer of the issuer first acquiring knowledge of
that default or breach;
(B) the trustee's giving written notice of default or breach
to the issuer or;
(C) the holder of any note giving written notice of default
or breach to the issuer;
(4) if any representation or warranty of the issuer, DVI
Receivables Corp. [XI] or DVI Financial Services Inc. made in the
indenture, the subsequent contract transfer agreement, the
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
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the time when the representation or warranty is made. However, the
breach of any representation or warranty made by DVI Financial
Services Inc. in Section [2.03 or 2.04] of the contribution and
servicing agreement for any of the contracts or the security interest
in the related equipment shall not constitute an indenture event of
default if DVI Financial Services Inc., in accordance with the
contribution and servicing agreement, substitutes one or more
substitute contracts and the security interest in the related
equipment for the affected contract and equipment or repurchases the
affected contract and related equipment;
(5) a court with proper jurisdiction enters any kind of order
granting a so-called "involuntary" petition brought by third parties
against the issuer under any applicable federal or state bankruptcy,
etc. law and that order remains in effect for a period of 90
consecutive days; or
(6) the issuer commences or agrees to any kind of so-called
"voluntary" petition for relief under any federal or state bankruptcy,
etc. law.
If an indenture event of default occurs and is continuing, then the
trustee with the consent of the holders of the notes evidencing at least 662/3%
of the Voting Rights, may declare the unpaid principal amount of all the notes
to be due and payable immediately, by a notice in writing to the issuer, and if
the trustee makes the declaration, the entire principal amount shall
automatically become immediately due and payable together with all accrued and
unpaid interest on the notes.
REMEDIES
If an indenture event of default occurs and is continuing, the trustee
will give notice to each noteholder as described in the indenture. The trustee
will then take whatever action, if any, is directed by the holders of notes
evidencing at least 662/3% of the Voting Rights.
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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;
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;
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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 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 all accrued and unpaid interest on each outstanding
class E note, pro rata, without giving any preference or priority to
any class E noteholder;
NINTH, to pay the entire outstanding Class A Note Balance, and any
other amounts due to the class A noteholders, pro rata, without giving
preference or priority to any class A noteholder;
TENTH, to pay the entire outstanding Class B Note Balance, and any
other amounts due to the class B noteholders, pro rata, without giving
preference or priority to any class B noteholder;
ELEVENTH, to pay the entire outstanding Class C Note Balance, and any
other amounts due to the class C noteholders, pro rata, without giving
preference or priority to any class C noteholder;
TWELFTH, to pay the entire outstanding Class D Note Balance, and any
other amounts due to the class D noteholders, pro rata, without giving
preference or priority to any class D noteholder;
THIRTEENTH, to pay the entire outstanding Class E Note Balance, and
any other amounts due to the class E noteholders, pro rata , without
giving preference or priority to any class E noteholder;
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FOURTEENTH, to pay any amounts then due under any other securities
which may have been issued pursuant to the indenture, pro rata to each
holder of those securities without giving preference or priority to
any holder of those securities;
FIFTEENTH, in the event that DVI Financial Services Inc. is the
servicer, to pay all unreimbursed servicing fees due to the servicer;
and
SIXTEENTH, to the payment of the remainder, if any, to, or at the
order of, the issuer.
SERVICER EVENTS OF DEFAULT
Any of the following acts or occurrences shall constitute a servicer
event of default by the servicer under the contribution and servicing agreement:
(1) failure by the servicer, or for so long as DVI Financial Services
Inc. is the servicer, DVI Receivables Corp. [XI], to (A) remit any payment
to the trustee within the time period required under the contribution and
servicing agreement or (B) make any Servicer Advance which may be required
of it;
(2) failure to pay to the trustee on or before the date when due, any
deposit required to be made by the servicer under the contribution and
servicing agreement;
(3) failure on the part of either the servicer, or for so long as DVI
Financial Services Inc. is the servicer, DVI Receivables Corp. [XI], duly
to observe or perform in any material respect any other of their respective
covenants or agreements in the contribution and servicing agreement which
failure continues for thirty days after the 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
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the noteholders and continues unremedied for a period of 30 days after the
servicer becomes aware of that failure or receives written notice of that
failure;
(4) if any representation or warranty made by either
(A) the servicer in the contribution and servicing agreement or in
any certificate or other document delivered under any transaction
documents or
(B) any successor servicer in connection with its assumption of the
duties of the servicer,
shall prove to be incorrect in any material respect as of the time
when it was made;
(5) a court with proper jurisdiction enters any kind of order granting a
so-called "involuntary" petition brought by third parties against the
servicer, or for so long as DVI Financial Services Inc. is the servicer,
DVI Receivables Corp. [XI], under any applicable federal or state
bankruptcy, etc. law, or if this type of order remains in effect for a
period of 90 consecutive days;
(6) the servicer, or for so long as DVI Financial Services Inc. is the
servicer, DVI Receivables Corp. [XI], commences or agrees to any kind of
so-called "voluntary" petition for relief under any federal or state
bankruptcy, etc. law;
(7) any non-permitted assignment by the servicer, or any non-permitted
attempt by the servicer to assign its duties or rights under the
contribution and servicing agreement;
(8) (A) the failure of the servicer to make one or more payments
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with respect to aggregate recourse indebtedness for borrowed money
exceeding $_________; 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 $_________ 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) shall be continuing and shall not have been 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 $___________ which is uninsured, and the continuance of this
judgment, decree or order unsatisfied and in effect for any period of 60
consecutive days without a stay of execution; or
(10) so long as DVI Financial Services Inc. is the servicer, the
occurrence of an Amortization Event.
TERMINATION OF THE SERVICER
If a servicer event of default occurs and is continuing, the trustee
will, upon the request of the holders of notes evidencing more than 662/3% of
the Voting Rights, give written notice to the servicer of the termination of all
of the rights and obligations of the servicer under the contribution and
servicing agreement. No servicer termination will release DVI Financial Services
Inc. from its obligations as contributor under that agreement. Once the servicer
receives
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that notice, all of its rights and obligations under the contribution and
servicing agreement will terminate and be transferred to the trustee under the
"back-up servicer" provisions of the contribution and servicing agreement and
the indenture.
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 shall give prompt written notice of their
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 or of any contract or related document. The trustee
will not be accountable for the use or application by the issuer or DVI
Financial Services Inc. of any funds paid to DVI Financial Services Inc. in
consideration of the sale of the notes to the investors. The trustee will be
required to perform only those duties specifically required of it under the
indenture.
No recourse is available based on any provision of the indenture, the
notes or any contract against the trustee, in its individual capacity. The
trustee has no personal obligation, liability or duty whatsoever to any
noteholder or any other person for any claim, except for any liability as is
determined to have resulted from the trustee's own negligence or willful
misconduct.
The servicer agrees
(1) to pay to the trustee from time to time compensation for all
services rendered by it under the indenture as the servicer and the
trustee have agreed in writing prior to the closing date. This payment
is to be made
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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 other interests in, the class A notes, class B notes,
and class C notes may do so only through participants, either directly or
indirectly. The class A, class B, and class C 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 & Co., as nominee of The Depository
Trust Company. Beneficial owners will not be recognized by the trustee or the
servicer as noteholders, as the term is used in the contribution and servicing
agreement. Beneficial owners will be permitted to receive information furnished
to noteholders and to
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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. [XI], 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 & Co., as nominee for The Depository Trust Company, or for
maintaining, supervising or reviewing any records relating to the beneficial
ownership interests. For additional information regarding The Depository Trust
Company and the offered notes, see the prospectus.
DEFINITIVE SECURITIES. Definitive securities will be issued to
beneficial owners or their nominees, respectively, rather than to The Depository
Trust Company or its nominee, only under the limited conditions listed in the
prospectus.
Upon the occurrence of that kind of event, the trustee is required to
notify,
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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 reissue the offered notes as definitive
securities issued in the respective principal amounts owned by individual
beneficial owners. Thereafter the trustee and the servicer will recognize the
holders of the definitive securities as noteholders under the contribution and
servicing agreement.
BOOK-ENTRY FACILITIES. Beneficial owners may choose to hold their
interests in the book-entry securities through The Depository Trust Company in
the United States or through Cedel or Euroclear in Europe, if they are
participants of those systems, or indirectly through organizations which are
participants in those systems. The book-entry securities of each class will be
issued in one or more certificates which equal the Outstanding Note Balance of
that class and will initially be registered in the name of Cede & Co., 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 securities settlement processing and dated the business day
following The Depository Trust Company settlement date. These credits or any
transactions in the securities settled during processing will be reported to the
relevant Euroclear participants or Cedel participants on that business day. Cash
received in Cedel or Euroclear as a result of sales of securities by or through
a Cedel participant or Euroclear participant to a participant will be received
with value on The Depository Trust Company settlement date but will be available
in the relevant Cedel or Euroclear cash account only as of the business day
following settlement in The Depository Trust Company.
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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 procedures, The Depository Trust Company is expected
to record the positions held by each 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
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of securities transactions between Cedel participants through electronic
book-entry changes in accounts of Cedel participants, eliminating the need for
physical movement of certificates. Transactions may be settled in Cedel in any
of 28 currencies, including United States dollars. Cedel provides to its Cedel
participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and other organizations.
Indirect access to Cedel is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Cedel participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for
participants of Euroclear and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, eliminating the need for physical movement of certificates and any risk
from lack of simultaneous transfers of securities and cash. Transactions may now
be settled in any of 32 currencies, including United States dollars. Euroclear
provides various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with The Depository Trust Company
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York under contract with Euroclear Clearance
Systems S.C., a Belgian cooperative corporation. All operations are conducted by
the Brussels, Belgium office of Morgan Guaranty Trust Company of New York, and
all Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Brussels, Belgium office of Morgan Guaranty Trust Company of
New York, not Euroclear Clearance Systems S.C. Euroclear Clearance Systems S.C.
establishes policy for Euroclear on behalf of Euroclear participants. Euroclear
participants include banks, including central banks, securities brokers and
dealers and other professional financial intermediaries. Indirect access to
Euroclear
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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
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.
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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 & Co. Since transactions in
the book-entry securities will be effected only through The Depository Trust
Company, participating organizations, indirect participants and some banks, the
ability of a beneficial owner to pledge offered notes to persons or entities
that do not participate in The Depository Trust Company system, or otherwise to
take actions relating to the offered notes, may be limited due to lack of a
physical certificate representing the offered notes. In addition, issuance of
the book-entry securities in book-entry form may reduce the liquidity of the
offered notes in the secondary market since some potential investors may be
unwilling to purchase offered notes for which they cannot obtain physical
certificates.
The Depository Trust Company has advised the issuer and the
trustee that, unless and until definitive securities are issued, The Depository
Trust Company will take any action permitted to be taken by the holders of the
book-entry securities under the agreement only at the direction of one or more
participants to whose The Depository Trust Company accounts the book-entry
securities are credited, to the extent that those actions are taken on behalf of
intermediaries whose holdings include those book-entry securities. The
Depository Trust Company may take actions, at the direction of the related
participants, for some offered notes which conflict with actions taken for other
offered notes.
Although The Depository Trust Company has agreed to the
foregoing procedures in order to facilitate transfers of offered notes among
participants of The Depository Trust Company, it is under no obligation to
perform or continue to perform those procedures and those procedures may be
discontinued at any time.
The Depository Trust Company management is aware that some
computer 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
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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.
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 has contacted 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
has developed 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.
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
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to which the yield to maturity of a note is sensitive to the rate of principal
payments will depend, in part, upon the size of any discount or premium. If the
purchaser of a note purchased at a discount from its initial principal balance
calculates its anticipated yield to maturity based on an assumed rate of payment
of principal that is faster than that actually experienced on that note, the
actual yield to maturity will be lower than that so calculated. On the other
hand, if the purchaser of a note purchased at a premium calculates its
anticipated yield to maturity based on an assumed rate of payment of principal
that is slower than that actually experienced on the note, the actual yield to
maturity will be lower than that so calculated.
Payments on the contracts may be in the form of scheduled
contract payments or accelerated payments resulting from default, casualty or
prepayment. These accelerated payments will result in payments to noteholders of
amounts earlier than would otherwise have been paid over the remaining term of
the contracts. In most cases, prepayments on the contracts will tend to shorten
the weighted average lives of the notes, whereas delays in payments on the
contracts and modifications extending the maturity of the contract will tend to
lengthen the weighted average lives of the notes. Any changes in weighted
average lives may adversely affect the yield to noteholders. In general, the
rate of payments may be influenced by a number of other factors, including
general economic conditions. The rate of payment of principal may also be
affected by any removal of the contracts from the pool and the deposit of the
related Prepayment Amount or Partial Prepayment Amount, as applicable, into the
collection account.
The contracts in most cases do not provide for the right of
the obligor to prepay. However, under the contribution and servicing agreement,
the servicer is permitted to allow prepayments in an amount not less than the
Prepayment Amount or Partial Prepayment Amount, as applicable. In addition, in
the event that an obligor requests an upgrade or trade-in of equipment, the
servicer may remove the equipment and related contract from the trust property,
but only upon payment of the Prepayment Amount or Partial Prepayment Amount, as
applicable. In either case, the servicer may also replace the contracts with
substitute contracts. See "THE CONTRACTS -- SUBSTITUTE CONTRACTS" on page S-65
of this prospectus supplement. Any
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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 notes, class B notes, and class C notes (assuming initial
Note Balances equal to $_________, $__________, $___________, $___________,
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 ____%. This
information is hypothetical and is set forth for illustrative purposes only. The
conditional payment rate assumes that a fraction of the Aggregate Discounted
Contract Balance is prepaid at the end of each collection period, which implies
that each contract is equally likely to prepay. We annualized this fraction and
expressed it as a percentage to arrive at the conditional payment rate for the
contract pool. The conditional payment rate measures prepayments based on the
outstanding Aggregate Discounted Contract Balance after the payment of all
scheduled contract payments during the applicable collection period. The
conditional payment rate further assumes that all contracts are the same size,
amortize at the same rate and that each contract will be either paid as
scheduled or prepaid in full. The information assumes that
o scheduled contract payments are received on time;
o the issuer does not exercise its option to redeem the notes;
o the closing date is ___________;
o the first payment date is ___________;
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o distributions on the notes are made on the __________ 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 ____%;
o the pool consists of a single contract with an Aggregate
Discounted Contract Balance of $____________ on which interest
is accrued at the actual Discount Rate of ____%; and
o no Amortization Event, indenture event of default or other
event of default occurs.
Because the tables were prepared on the basis of the modeling
assumptions mentioned above, there are discrepancies between the characteristics
of the actual contracts and the characteristics of the contracts we assumed in
preparing the tables. Any of these discrepancies may have an effect upon the
percentages of the Note Balance outstanding and weighted average lives of the
notes set forth in the tables. In addition, since the actual contracts have
characteristics which differ from those we assumed when preparing the tables
below, the related weighted average life may be longer or shorter than as
indicated in the tables.
The contracts will not have the characteristics we assumed
above, and no one can assure you that either (i) the contracts will prepay at
any of the rates shown in the tables shown below or at any other particular rate
or will prepay proportionately or (ii) the weighted average lives of the notes
will be the same as the one we used. Because the rate of distributions of
principal of the notes will be a result of the actual amortization (including
prepayments) of the contracts, which will include contracts that have remaining
terms to stated maturity shorter or longer than those assumed, the weighted
average lives of the notes will differ from those set forth above, even if all
of the contracts prepay at the indicated constant prepayment rates.
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<TABLE>
<CAPTION>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS A, B, C
-------------
PREPAYMENT SPEED (CPR)
Payment Date In % % % % %
<S> <C>
</TABLE>
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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. [XI] 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. [XI].
o DVI Receivables Corp. [XI]'s transfer of the contracts to the
issuer and
o the pledge of the contracts to the trustee. Under the
contribution and servicing agreement, the servicer will be
obligated from time to time to take such actions as are
necessary to protect and perfect the trustee's interests in
the contracts and their proceeds.
A 1993 decision of the United States Court of Appeals for the
Tenth Circuit states that, among other things, accounts sold by an entity remain
property of that entity's bankruptcy estate in the event of its reorganization
or bankruptcy proceedings subsequent to the sale. Even
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though that decision addressed "accounts" rather than "chattel paper" such as
the contracts, if a court in any bankruptcy proceedings of DVI Financial
Services Inc. were to adopt the reasoning of the Tenth Circuit reflected in that
1993 decision, then the contracts would be included in the bankruptcy estate of
DVI Financial Services Inc. and delays in payment of collections on or in
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. [XI] 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. [XI]. DVI Receivables Corp. [XI] 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. [XI], 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.
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In the event of a default by the obligor, some jurisdictions
require that the obligor be notified of the default and be given a time period
within which it may cure the default prior to repossession. In most cases, this
right of reinstatement may be exercised on a limited number of occasions in any
one-year period.
The Uniform Commercial Code and other state laws place
restrictions on repossession sales. These restrictions include requirements that
the secured party provide the obligor with reasonable notice of the date, time
and place of any public sale and/or the date after which any private sale of the
collateral may be held and that any sale be conducted in a commercially
reasonable manner. The contribution and servicing agreement will require the
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.
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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
event that the servicer's repossession and sale of the leased equipment is found
to be a retention discharging the obligor from all further obligations under
Section 9-505(2) of the Uniform Commercial Code. If a deficiency judgment were
granted, the judgment would be a personal judgment against the obligor for the
shortfall, but a defaulting obligor may 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,
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sublease, sell or dispose of the equipment and provide the trustee with a lien
on replacement collateral, so long as the replacement collateral constituted
"adequate protection" as defined under the Bankruptcy Code. In the event that,
as a result of the bankruptcy or reorganization of an obligor, the trustee is
prevented from collecting payments with respect to a contract and that contract
becomes a defaulted contract, noteholders could experience delays in the payment
of principal and interest and/or losses on their investment.
With regard to any contract constituting a "true lease", the
Bankruptcy Code grants to the bankruptcy trustee for an obligor, or the obligor
as a debtor-in-possession, a right to elect to assume or reject that unexpired
lease. Also, a bankruptcy court may permit an obligor to assign its rights and
obligations under the contract. Any assumption of a contract requires the
obligor to cure any default under that contract, which may mean "adequate
assurance" of prompt cure, and to provide "adequate assurance" of future
performance under that contract, and of compensation for any actual pecuniary
loss incurred by noteholders resulting from the default. Any rejection of the
contract constitutes a breach of that contract, entitling the trustee to 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
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enforceability of any "unconscionable" lease or "unconscionable" provision in a
lease, provide a lessee with remedies, including the right to cancel the lease
contract, for any lessor breach or default, and may add to or modify the terms
of "consumer leases" and leases where the lessee is a "merchant lessee."
However, DVI Financial Services Inc. will represent that, to the best of its
knowledge (i) no contract is a "consumer lease"; and (ii) each obligor has
accepted the equipment leased to it and, after reasonable opportunity to inspect
and test, has continued to make scheduled payments under the related contract.
Article 2A, moreover, recognizes typical commercial lease "hell or high water"
rental payment clauses and validates reasonable liquidated damages provisions in
the event of lessor or lessee defaults. Article 2A also recognizes the concept
of freedom of contract and permits the parties in a commercial context a wide
latitude to vary provisions of the law.
Certain governmental and quasi-governmental entities, like
municipalities and public hospitals, condition contract payments on the
availability of budgeted funds. If contracts are part of the trust property and
such budgeted funds are not available, the servicer or trustee may be forced to
repossess related equipment and noteholders may experience delays and/or losses
in payment.
Title 6 of the Bankruptcy Reform Act of 1994 established the
National Bankruptcy Review Commission for purposes of analyzing the nation's
bankruptcy laws and making recommendations to Congress for legislative changes
to the bankruptcy laws. A similar commission was involved in developing the
Bankruptcy Code. The final National Bankruptcy Review Commission report has been
issued and may ultimately lead to substantive changes to the existing Bankruptcy
Code which could affect the contracts.
These UCC and bankruptcy provisions, in addition to the
possible decrease in
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value of a repossessed item of leased equipment, may limit the amount realized
on the sale of the collateral to less than the amount due on the related
contract.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following general discussion of the anticipated material
federal income tax consequences of the purchase, ownership and disposition of
the notes is based upon the provisions of the Internal Revenue Code of 1986, as
amended, the Treasury regulations promulgated thereunder, published rulings of
the Internal Revenue Service and judicial decisions, all in effect as of the
date of this prospectus supplement, all of which authorities are subject to
change or differing interpretations, which could apply retroactively. The
discussion below does not purport to deal with the federal income tax
consequences applicable to all categories of investors and is directed solely to
class A, class B, class C or class D noteholders that are institutional
investors, hold the notes as capital assets within the meaning of section 1221
of the Code and acquire such notes for investment and not as a dealer or for
resale. This discussion does not address every aspect of the federal income tax
laws that may be relevant to a class A, class B, class C or class D noteholder
in light of its particular investment circumstances, nor does it purport to deal
with federal income tax consequences applicable to all categories of class A,
class B, class C or class D noteholders. Some categories of noteholders, such as
banks, insurance companies and foreign investors, among others, may be subject
to special rules or treatment under the federal income tax laws. Further, this
discussion does not address some collateral tax consequences that may result
from ownership of the notes. For purposes of this tax discussion, references to
a "noteholder" or a "holder" are to the beneficial owner of a note.
Class A, class B, class C or class D noteholders and preparers
of tax returns should be aware that under applicable Treasury regulations a
provider of advice on specific
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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-127 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
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consult their own tax advisors in determining the federal, state, local and
foreign and any other tax consequences to them of an investment in the notes and
the purchase, ownership and disposition of the notes.
CHARACTERIZATION OF THE CLASS A, CLASS B, CLASS C AND CLASS D
NOTES
Thacher Proffitt & Wood, special counsel to the
underwriter[s], is of the opinion that, under existing law, and assuming
compliance in all material respects with all provisions of the indenture, the
contribution and servicing agreement and the other transaction documents
relating to the issuance of the notes, and based in part on the facts described
in this prospectus supplement and additional information and representations,
including financial calculations relating to the contracts provided or reviewed
and verified by DVI Financial Services Inc. or the underwriter[s], 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
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may not be applicable to, securities such as the notes.
It is not anticipated that the class A, class B, class C or
class D notes will be treated as having been issued with OID within the meaning
of section 1273 of the Code. Rather, interest on the notes will be taxable as
ordinary income for federal income tax purposes when received by a class A,
class B, class C or class D noteholder using the cash method of accounting or
when accrued by a class A, class B, class C or class D noteholder using the
accrual method of accounting. Interest received on the Notes also may constitute
"investment income" for purposes of limitations of the Code concerning the
deductibility of investment interest expense by taxpayers other than
corporations.
MARKET DISCOUNT. A subsequent holder who purchases a note at a
market discount, in other words, in the case of a note issued without OID, at a
purchase price less than its remaining stated principal amount, or in the case
of a note issued with OID, at a purchase price less than its adjusted issue
price, may be subject to the "market discount" rules of section 1276 of the
Code. These rules provide, in part, for the treatment of gain attributable to
accrued market discount as ordinary income upon the receipt of partial principal
payments or on the sale or other disposition of the note, and for the deferral
of interest deductions for debt incurred to 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.
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Any class A, class B, class C or class D noteholder may elect
to include market discount in income currently as it accrues rather than
including it on a deferred basis in accordance with the foregoing discussion. If
made, that election will apply to all market-discount bonds acquired by that
class A, class B, class C or class D noteholder on or after the first day of the
first taxable year to which the election applied. If that election is made, the
interest deferral rule described above will not apply and the adjusted basis of
a note will be increased to reflect market discount included in gross income,
thus reducing any gain, or increasing any loss, on a sale, redemption, or other
taxable disposition. Notwithstanding the above rules, market discount on a note
will be considered to be zero if it is less than a DE MINIMIS amount. In that
case, the actual discount will be required to be allocated amounts the principal
payments to be made on that note, and the portion of discount allocated to each
principal payment will be required to be reported as income as each principal
payment is made, in the same manner as discussed above regarding DE MINIMIS OID.
In addition, the OID Regulations permit a class A, class B,
class C or class D noteholder to elect to accrue all interest, discount,
including DE MINIMIS market or original issue discount, and premium in income as
interest, based on a constant yield method. If such an election were made with
respect to a note with market discount, the class A, class B, class C or class D
noteholder would be deemed to have made an election to include market discount
in income currently with respect to all other debt instruments that the
noteholder owns or acquires during the taxable year of the election or
thereafter. Similarly, a class A, class B, class C or class D noteholder that
made this election for a note that is acquired at a premium would be deemed to
have made an election to amortize bond premium for all debt instruments that the
noteholder 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.
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For purposes of the foregoing discussion, market discount for
a note will be considered to be DE MINIMIS for purposes of section 1276 of the
Code if the market discount is less than 0.25% of the stated redemption price of
that note multiplied by the number of complete years to maturity remaining after
the date of its purchase. In interpreting a similar rule with respect to OID on
obligations payable in installments, the OID Regulations refer to the weighted
average maturity of obligations, and it is likely that the same rule will be
applied for market discount.
Section 1276(b)(3) of the Code specifically authorizes the
Treasury Department to issue regulations providing for the method for accruing
market discount on debt instruments, the principal of which is payable in more
than one installment. Until regulations are issued by the Treasury Department,
rules described in the Conference Committee Report accompanying the Tax Reform
Act of 1986 will apply. The Committee Report indicates that in each accrual
period market discount on notes should accrue, at the option of the class A,
class B, class C or class D noteholder:
o on the basis of a constant yield method,
o in the case of a note issued without OID, in an amount that
bears the same ratio to the total remaining market discount as
the stated interest paid in the accrual period bears to the
total amount of stated interest remaining to be paid on the
note as of the beginning of the accrual period, or
o in the case of a note issued with OID, in an amount that bears
the same ratio to the total remaining market discount as the
OID accrued in the accrual period bears to the total OID
remaining on the note at the beginning of the accrual period.
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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 _%. We cannot predict whether the contracts will
prepay at that rate or at any other rate.
To the extent that notes provide for monthly or other periodic
payments throughout their term, the effect of these rules may be to require
market discount to be includible in income at a rate that is not significantly
slower than the rate at which such discount would accrue if it were OID.
Moreover, in any event, a class A, class B, class C or class D noteholder
generally will be required to treat a portion of any gain on the sale or
exchange of its note as ordinary income to the extent of the market discount
accrued to the date of disposition under one of the foregoing methods, less any
accrued market discount previously reported as ordinary income.
PREMIUM. A note that is purchased at a cost, excluding any
portion of that cost attributable to accrued qualified stated interest, greater
than its remaining stated redemption price will be considered to be purchased at
a premium. A class A, class B, class C or class D noteholder may elect under
section 171 of the Code to amortize that premium under the constant yield method
over the life of the note. If made, that election will apply to all debt
instruments having amortizable bond premium that the noteholder owns as of the
beginning of the taxable year for which the election is made or thereafter
acquires. Amortizable premium will be treated as an offset to interest income on
the related debt instrument, with a corresponding reduction in
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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-117
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 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
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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.
In addition, taxpayers other than corporations may elect to
have net capital gain
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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
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offering price used in preparing those reports. class A, class B, class C or
class D noteholders should consult their own tax advisors to determine the
amount of any OID and market discount includible in income during a calendar
year.
As applicable, the note information reports will include a
statement of the adjusted issue price of the notes at the beginning of each
accrual period. In addition, the reports will include information required by
regulations for computing the accrual of any market discount. Because exact
computation of the accrual of market discount on a constant yield method would
require information relating to the noteholder's purchase price that the
servicer will not have, such regulations only require that information
pertaining to the appropriate proportionate method of accruing market discount
be provided. See "MARKET DISCOUNT" at page S-117 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,
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o is a bank that is treated as receiving that interest "on an
extension of credit made under a loan agreement entered into
in the ordinary course of its trade or business,"
o is a person within a foreign country which the IRS has
included in a list of countries that do not provide adequate
exchange of information with the United States to prevent tax
evasion by United States persons, or
o is a "controlled foreign corporation", within the meaning of
section 957 of the Code, with respect to which the issuer is a
"related person", within the meaning of section 881(c)(3)(C)
of the Code.
If the class A, class B, class C or class D noteholder does
not qualify for the foregoing exemption from withholding, payments of interest,
including payments relating to any accrued OID, to that class A, class B, class
C or class D noteholder may be subject to withholding tax at a tax rate of 30%,
subject to reduction, including exemption, under any applicable tax treaty,
PROVIDED the class A, class B, class C or class D noteholder supplies at the
time of its initial purchase, and at all subsequent times as are required under
the Treasury regulations, a properly executed IRS Form 1001 to report its
eligibility for that reduced rate or exemption.
Amounts allocable to interest, including any accrued OID,
received by a class A, class B, class C or class D noteholder that is not a
United States person, which constitute income that is effectively connected with
a United States trade or business carried on by the class A, class B, class C or
class D noteholder, will not be subject to withholding tax, but rather will be
subject to United States income tax at the graduated rates applicable to United
States persons,
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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.
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
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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.
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.
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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 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
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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.
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
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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.
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
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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
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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".
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
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requires the United States Department of Labor to issue regulations defining
when an insurance company general account will be deemed to include plan assets
and, as a result, be subject to the ERISA prohibited transaction rules.
Generally, until 18 months after the issuance of such regulations, no person
will be subject to liability for prohibited transactions that result from the
inclusion of plan assets in an insurance company general account. If you are
investing on behalf of an insurance company general account, section 401(c)
generally provides an exemption for your purchases and sales of offered notes,
as well as prohibited transactions resulting from transactions incident to the
operation of the issuer, until 18 months after the issuance of regulations. This
will be the case as long as you have not acted to avoid the regulations or
committed a breach of fiduciary responsibilities which would also constitute a
violation of federal or state criminal law. If you are investing on behalf of an
insurance company general account, we cannot assure that the purchase or sale of
offered notes, the continued holding of offered notes previously purchased, or
transactions incidental to the operation of the issuer, more than 18 months
after the issuance of final regulations would qualify for further exemptive
relief.
GOVERNMENT PLANS
Government plans are usually not subject to the fiduciary
standards of ERISA or the prohibited transaction rules of ERISA or the Code.
However, many states have enacted laws which established standards of fiduciary
conduct, legal investment rules, or other requirements for investment
transactions involving the assets of government plans. If you are considering
investing in the offered notes on behalf of a government plan, you should
consult with your advisors regarding the requirements of applicable state law.
REQUIRED REPRESENTATIONS OF INVESTORS
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We anticipate that, on the date of this prospectus supplement,
the offered notes should be treated as indebtedness without substantial equity
features for purposes of the plan asset regulations. However, even if the
offered notes are treated as indebtedness for such purposes, the acquisition or
holding of offered notes by or on behalf of an ERISA plan, a Keogh plan, an IRA
or related investment vehicle could be considered to give rise to a prohibited
transaction. A prohibited transaction could arise if the issuer, the servicer,
the trustee, an underwriter or any of their respective affiliates is or becomes
a party in interest or disqualified person with respect to such ERISA plan,
Keogh plan, IRA or related investment vehicle, unless certain exemptions from
the prohibited transaction rules were applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire an offered
note. In addition, if offered notes were treated as an equity interest in the
future, the assets of the trust could be treated as plan assets of a plan for
the purposes of ERISA and the Code. In view of the investor-specific nature of
the conditions on the exemptive relief available under the PTCEs and section
401(c) of ERISA we require each investor to determine whether it is investing
plan assets in the offered notes and, if it is, to determine that appropriate
exemptive relief from ERISA's prohibited transaction provisions is available.
The offered notes will be issued and transferred only in book-entry form through
The Depository Trust Company, whose issuance and transfer procedures do not
permit us to secure written representations from each investor and subsequent
transferee. As a result, by acquiring an offered note, each purchaser will be
deemed to represent that either:
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
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Code.
If a purchaser invests on behalf of more than one party or
uses more than one source of funds, that purchaser will be deemed to have made
one, but not necessarily the same, of
these representations as to each party or source of funds.
If the offered notes are issued as definitive securities, the
transfer of the offered notes to you will not be registered by the trustee
unless you represent to the issuer, the trustee, the servicer and any successor
servicer either one of the first two statements in the bulleted paragraph above
is an accurate representation as to all sources of funds you are using to pay
the purchase price of the offered notes.
THIS DISCUSSION IS A GENERAL DISCUSSION OF SOME OF THE RULES
WHICH APPLY TO ERISA PLANS, KEOGH PLANS, IRAS, GOVERNMENT PLANS AND THEIR
RELATED INVESTMENT VEHICLES. PRIOR TO MAKING AN INVESTMENT IN THE OFFERED NOTES,
PROSPECTIVE PLAN INVESTORS SHOULD CONSULT WITH THEIR LEGAL AND OTHER ADVISORS
CONCERNING THE IMPACT OF ERISA AND THE CODE, AND, PARTICULARLY IN THE CASE OF
GOVERNMENT PLANS AND RELATED INVESTMENT VEHICLES, ANY ADDITIONAL STATE LAW
CONSIDERATIONS, AND THE POTENTIAL CONSEQUENCES IN THEIR SPECIFIC CIRCUMSTANCES.
LEGAL INVESTMENT
[The Class A Notes will be eligible securities for purchase by
money market funds
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under the Investment Company Act of 1940, as amended.]
RATINGS
As a condition to their issuance, the class A notes must be
rated "___" or "___", as applicable, by the Rating Agencies, the class B notes
must be rated "_____" or "_____", as applicable, by the Rating Agencies, and the
class C notes must be rated "__" or "___", 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, and class C 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, and class C 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- 78 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 underwriter[s] have severally
agreed to purchase, the class A notes, the class B notes, and the class C notes,
in the principal amounts listed opposite their names:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT PRINCIPAL AMOUNT
UNDERWRITER OF CLASS A NOTES OF CLASS B NOTES OF CLASS C NOTES
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ $ $
---------- ---------- ---------
$ $ $
========== ========== =========
Total $ $ $
---------- ---------- ---------
</TABLE>
In the underwriting agreement, the underwriter[s] agree,
subject to the terms and conditions of the underwriting agreement, to purchase
all the class A notes, the class B notes, and the class C notes offered by this
prospectus supplement in the amounts listed above if any of such class A notes,
the class B notes, and the class C notes are purchased.
The issuer has been advised by the underwriter[s] that the
underwriter[s] propose initially to offer the class A notes, class B notes, and
class C 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 ____% per note. The underwriter[s] may allow and the
dealers may reallow a discount not in excess of _____% per note to certain other
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 underwriter[s] that they
presently intend to make a market in the class A notes, the class B notes, and
the class C 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, and the class C 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. [XI] will indemnify the underwriter[s]
against certain civil liabilities, including liabilities under the Securities
Act of 1933, as amended, or contribute to payments the underwriter[s] may be
required to make in respect thereof.
In connection with this offering and in compliance with
applicable law and industry practice, the underwriter[s] may over-allot or
effect transactions which stabilize, maintain or otherwise affect the market
price of the class A notes, class B notes, and class C 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 underwriter[s] to reclaim a selling concession from
a syndicate member in connection with the offering when the class A notes, class
B notes, and class C notes originally sold by the syndicate member are purchased
in syndicate covering transactions. The underwriter[s] are not
S-139
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required to engage in any of these activities. Any such activities, if
commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters relating to the issuance of the notes
will be passed upon for the issuer, DVI Receivables Corp. [XI] 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 underwriter[s].
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
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this Prospectus supplement and the prospectus is delivered in connection with
offering of the notes, upon written or oral request of that person, a copy of
any or all of the reports incorporated in this prospectus supplement by
reference. In each case, information will be incorporated to the extent those
reports relate to one or more of classes of notes. This will not include the
exhibits to those documents, unless those exhibits are specifically incorporated
by reference in those documents. Please direct requests in writing to the issuer
at its address in the summary section of this prospectus supplement.
REPORTS TO NOTEHOLDERS
Unless and 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-96 of this prospectus supplement, and "DESCRIPTION OF THE SECURITIES --
REPORTS TO SECURITYHOLDERS" at page 17, of the attached prospectus. These
reports will not be prepared in accordance with generally accepted accounting
principles. The issuer will 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:
(A) 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 90 consecutive days; or
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(B) the issuer commences or agrees to any kind of so-called
"voluntary" petition for relief under any federal or state
bankruptcy, etc. law; or
(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 __ days delinquent as of the
last day of the _____ immediately preceding calendar months;
(2) equals _____, (3) equals _____ and (4) equals the quotient
of (x) the sum of the Aggregate Discounted Contract Principal
Balances as of the last day of the _____ immediately preceding
collection periods, divided by (y) _____; 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) ____ 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,
including any investment income with respect to monies on deposit in the
collection account will be called the "Available Funds."
AVAILABLE RESERVE ACCOUNT FUNDS are funds equal to the amount
of the Priority Payments less any deposited Available Funds.
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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
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 Note Rate and
(C) the Class A 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 notes on that prior payment date. The Class A 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 A MONTHLY PRINCIPAL means,
(A) on any payment date other than the class A stated maturity
date, the product of (a) the Class A Percentage and (b)
Monthly Principal and
(B) on the Class A Stated Maturity Date, the entire amount of the
then Outstanding Note Balance.
CLASS A OVERDUE INTEREST means, for any payment date, the
excess, if any, of (a)
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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 _____%.
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.
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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
(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 ____%.
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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,
(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
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(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 ____%.
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,
(B) the Class D Note Rate and
(C) the Class D Note Balance on the immediately preceding payment
date, or in the
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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 ____%.
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
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(B) on the class E stated maturity date, the entire amount of the
then outstanding Class E Note Balance.
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 ____%.
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 90 days delinquent as of the last day of the _____ preceding
calendar months, divided by (2) _____ exceeds (y) the product of (1) ____ and
(2) the quotient of (A) the sum of the Aggregate Discounted Contract Balance as
of the last day of the _____ preceding collection periods, divided
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by (B) _____.
DISCOUNTED CONTRACT BALANCE means, for any contract for the
particular date on which that balance is determined, an amount equal to the sum
of :
(A) the present value of each remaining contract payment remaining
due under the contract before the last day of the calendar
month preceding the stated maturity date, discounted monthly,
from the last day of the collection period in which that
contract payment is to become due, at a rate equal to
one-twelfth, or a smaller fraction for the initial payment
date, of the Discount Rate, and
(B) 100% of the unpaid balance, for that particular date of
determination, of contract payments remaining due under that
contract, but not including any contract 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 relating to a contract 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.
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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 ____% per annum. Any other time we use Discount Rate, we are using the
actual rate of _______%.
ELIGIBLE CONTRACT means a contract that, as of the cut-off
date and for the initial contracts taken as a whole:
(A) the Discounted Contract Balance of any contract will not
include any purchase option payment under that contract, or
any contract payment for which DVI Financial Services Inc. or
anyone else received a security deposit on or before the
cut-off date for that contract;
(B) no item of equipment under that contract has been repossessed;
(C) no contract is a refinancing of any delinquent amounts under a
prior lease, security agreement or loan with the same obligor
relating to the same equipment;
(D) the obligor under each contract has a place of business in, or
is organized under, the laws of any state or territory of the
United States of America;
(E) the rights and obligations of the obligor under each contract
will terminate no later than ____________;
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(F) the Discounted Contract Balance of contracts that have a
balloon payment, which means a final contract payment that is
significantly larger than the other scheduled payments, is not
more than ___% of the Aggregate Discounted Contract Balance of
all the initial contracts. Any balloon payment must not be
more than ___ times any other contract payment;
(G) the Discounted Contract Balance of contracts that have
non-level payments, excluding contracts that have balloon
payments, is not more than ____% of the Aggregate Discounted
Contract Balance of all the initial contracts;
(H) as of the closing date,
o the sum of the Discounted Contract Balances of all
contracts with equipment located in any one state
will not exceed __% of the Aggregate Discounted
Contract Balance of all the initial contracts,
o no single obligor will have a Discounted Contract
Balance that exceeds ____% of the Aggregate
Discounted Contract Balance,
o and the sum of the Discounted Contract Balances of
the largest seven obligors shall not exceed ____% of
the Aggregate Discounted Contract Balance;
(I) not more than ____% of the Aggregate Discounted Contract
Balance of the initial contracts will arise from contracts
which do not constitute loans to manufacturers, wholesalers,
and retailers of, and to prospective purchasers of, specified
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merchandise, insurance and services; and
(J) 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 ___% of the
Aggregate Discounted Contract Balance of the initial contracts
to provide for the initial contract payment to be due within
30 days of the payment date occurring in
-------------.
INITIAL AGGREGATE DISCOUNTED CONTRACT BALANCE means the
Aggregate Discounted Contract Balance, of the initial contracts, on the cut-off
date, calculated based on the actual Discount Rate of _______%.
INITIAL RESERVE ACCOUNT REQUIRED AMOUNT is $____________,
which equals __% of the Initial 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
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(E) the Class E Monthly Interest.
MONTHLY PRINCIPAL means, for any payment date, an amount equal
to the excess of
(A) the Aggregate Discounted Contract Balance at the close of
business on the last day of the second preceding collection
period over
(B) the Aggregate Discounted Contract Balance at the close of
business on the last day of the immediately preceding
collection period.
NONRECOVERABLE ADVANCE means any Servicer Advance previously
made for a delinquent contract by the servicer under the terms of the
contribution and servicing agreement, 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, $___________ for the
class A notes, $_________ for the class B notes, $_________ for the class C
notes, $_________ for the class D notes and $_________ 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.
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OUTSTANDING or OUTSTANDING means, when used with reference to
the notes and as of any particular date, any note theretofore and thereupon
being authenticated and delivered except:
(A) any note canceled by the trustee at or before said date;
(B) any note, or portion thereof, for payment of redemption of
which monies equal to the principal amount or redemption price
thereof, as the case may be, with interest to the date of
maturity or redemption, shall have theretofore been
irrevocably deposited with the trustee (whether upon or prior
to maturity or the redemption date of such note);
(C) any note in lieu of or in substitution for which another note
shall have been authenticated and delivered; and
(D) any note owned by DVI Receivables Corp. [XI] or any affiliate
of DVI Receivables Corp. [XI], 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
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contract for which the obligor wants to make a voluntary partial prepayment and
for which no substitute contract has been provided, an amount equal to the
excess, if any, of
(A) the difference between
(1) the Discounted Contract Balance of that contract as of the
first day of the collection period together with one month of
interest on that contract at the Discount Rate and
(2) the Discounted Contract Balance of that contract as of the
first day of the collection period calculated based on the
amount of each remaining contract payment payable by the
obligor after giving effect to the reduction of the contract
payment which will result from the partial prepayment, minus
(B) any contract payments actually received by the servicer for
the prepaid portion of the contract for the current collection
period on or before the date of the partial prepayment.
PARTIAL REDEMPTION PRICE means, with respect to any note
offered under this prospectus supplement, and as of any date of partial
redemption fixed by the issuer, an amount equal to the sum of (x) the product of
(i) the quotient of (A) the Aggregate Discounted Contract Balance of the
contracts in Pool B as of that date of partial redemption, divided by (B) the
Aggregate Discounted Contract Balance as of that date of partial redemption and
(ii) the outstanding Note Balance of such note offered under this prospectus
supplement and (y) interest accrued on that note to, but not including, such
redemption date at the applicable Note Rate.
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POOL A means the contracts identified as constituting Pool A
on the contract schedule attached to the contribution and servicing agreement
and the indenture.
POOL B means the contracts identified on the contract schedule
as constituting Pool B.
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 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. [XI] by substitution under Section [7] of the
contribution and servicing agreement, the contract or contracts for which the
substitute contract has been substituted.
PREPAYMENT AMOUNT means, for any contract, the sum of
(A) the Discounted Contract Balance as of the first day of the
collection period preceding a prepayment, together with one
month of interest on the contract at the Discount Rate;
(B) any unreimbursed servicer advances for the contract; and
(C) any contract payments due and outstanding under a contract
that are not the subject of a servicer advance.
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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, $_______; 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
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Delinquency Condition exists or (ii) an event of default pursuant to the
indenture has occurred and is continuing.
SERVICER ADVANCE means an advance made for a contract by the
servicer in accordance with Section [5.01] of the contribution and servicing
agreement.
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. After all the class C
notes are no longer outstanding, "Voting Rights" means the votes of the class D
noteholders, measured by the amount then held by each of them of the class D
Note Balance outstanding at that time. After all class D notes are no longer
outstanding, "Voting Rights" means the votes of the class E noteholders measured
by the amount then held by each of them of the class E Note Balance outstanding
at that time.
S-161
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DVI RECEIVABLES CORP. VIII
REGISTRANT
ASSET-BACKED SECURITIES ISSUABLE IN SERIES
------------------------------------
PROSPECTUS SUPPLEMENT
DATED _____, 2000
------------------------------------
UNTIL _________, 2000, 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.
<PAGE>
Subject to Completion
PROSPECTUS January __, 2000
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.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES
<PAGE>
AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
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TABLE OF CONTENTS
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
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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 Services, 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,
31
<PAGE>
o an obligor that rejected the contract in a bankruptcy proceeding,
or
o if the contract involves a loan to a lessor, a lessor that
rejected the lease collateralizing that loan.
The DISCOUNTED CONTRACT BALANCE is the sum of all then-outstanding
scheduled payments due on a contract, with each future payment multiplied by the
discount rate that we select to express the value of that future payment in
present-day dollars.
The VOTING RIGHTS are, for each class of securities, all of the
securityholders of that class necessary to represent the entire principal
balance then-outstanding for that class.
32
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (ITEM 14 OF FORM S-3).
The expenses expected to be incurred in connection with the issuance
and distribution of the Securities being registered, other than underwriting
compensation, are as set forth below. All such expenses, except for the filing
fee, are estimated.
Filing Fee for Registration Statement................ $ 297,000
Legal Fees and Expenses.............................. 150,000
Accounting Fees and Expenses......................... 200,000
Trustee's Fees and Expenses
(including counsel fees)...................... 150,000
Printing and Engraving Fees.......................... 100,000
Rating Agency Fees................................... 250,000
Miscellaneous........................................ 100,000
-----------
Total .............................................. $ 1,097,000
------------
INDEMNIFICATION OF DIRECTORS AND OFFICERS (ITEM 15 OF FORM S-3).
Any underwriters who execute an Underwriting Agreement in the form
filed as Exhibit 1.1 to this Registration Statement will agree to indemnify the
Registrant's directors and its officers who signed this Registration Statement
against certain liabilities which might arise under the Securities Act of 1933
from certain information furnished to the Registrant by or on behalf of such
indemnifying party.
Subsection (a) of Section 145 of the General Corporation Law of
Delaware empowers a corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, employee or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees)
<PAGE>
-2-
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification may be made in respect to any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
that despite the adjudication of liability such person is fairly and reasonably
entitled to indemnity for such expenses which the court shall deem proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful in the defense of any
action, suit or proceeding referred to in subsections (a) and (b) or in the
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification or advancement of expenses provided
for by Section 145 shall not be deemed exclusive of any other rights to which
the indemnified party may be entitled; and empowers the corporation to purchase
and maintain insurance on behalf of a director, officer, employee or agent of
the corporation against any liability asserted against him or incurred by him in
any such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
The By-Laws of the Registrant provide, in effect, that to the extent
and under the circumstances permitted by subsections (a) and (b) of Section 145
of the General Corporation Law of the State of Delaware, the Registrant (i)
shall indemnify and hold harmless each person who was or is a party or is
threatened to be made a party to any action, suit or proceeding described in
subsections (a) and (b) by reason of the fact that he is or was a director or
officer, or his testator or intestate is or was a director or officer of the
Registrant, against expenses, judgments, fines and amounts paid in settlement,
and (ii) shall indemnify and hold harmless each person who was or is a party or
is threatened to be made a party to any such action, suit or proceeding if such
person is or was serving at the request of the Registrant as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
In addition, the Indenture will provide that no director, officer,
employee or agent of the Registrant is liable to the Noteholders, except for
such person's own willful misfeasance, bad faith, gross negligence in the
performance of duties or reckless disregard of obligations and duties. The
Indenture will further provide that, with the exceptions stated above, a
director, officer, employee or agent of the Registrant is entitled to be
indemnified against any loss, liability or expense incurred in connection with
legal action relating to such Indenture and related Notes other than such
expenses related to particular Contracts.
<PAGE>
-3-
EXHIBITS (ITEM 16 OF FORM S-3).
Exhibits--
1.1 -- Form of Underwriting Agreement is incorporated by
reference from Registration Statement on Form S-3 (File No.
333-74901).
3.1 -- Certificate of Incorporation of DVI Receivables Corp.
VIII is incorporated by reference from Registration
Statement on Form S-3 (File No. 333-74901).
3.2 -- By-Laws of DVI Receivables Corp. VIII is incorporated by
reference from Registration Statement on Form S-3 (File No.
333-74901).
4.1 -- Form of Indenture is incorporated by reference from
Registration Statement on Form S-3 (File No. 333-74901).
4.2 -- Form of Trust Agreement is incorporated by reference from
Registration Statement on Form S-3 (File No. 333-74901).
4.3 -- Form of Contribution and Servicing Agreement is
incorporated by reference from Registration Statement on
Form S-3 (File No. 333-74901).
4.4 -- Form of Subsequent Contract Transfer Agreement is
incorporated by reference from Registration Statement on
Form S-3 (File No. 333-74901).
5.1 -- Opinion of Thacher Proffitt & Wood with respect to legality.
8.1 -- Opinion of Thacher Proffitt & Wood with respect to certain
tax matters (included with Exhibit 5.1).
23.1 -- Consent of Thacher Proffitt & Wood (included as part of
Exhibit 5.1 and Exhibit 8.1).
24.1 -- Power of Attorney.
<PAGE>
-4-
UNDERTAKINGS (ITEM 17 OF FORM S-3).
A. UNDERTAKINGS PURSUANT TO RULE 415.
The Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this Registration
Statement;
(i) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information in
this Registration Statement;
PROVIDED HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this Registration Statement shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
<PAGE>
-5-
B. UNDERTAKING IN RESPECT OF INDEMNIFICATION.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
<PAGE>
EXHIBIT INDEX
NUMBER DESCRIPTION
- ------ -----------
1.1 Form of Underwriting Agreement is incorporated by reference from
Registration Statement on Form S-3 (File No. 333-74901)
3.1 Certificate of Incorporation of DVI Receivables Corp. VIII is
incorporated by reference from Registration Statement on Form
S-3 (File No. 333-74901)
3.2 By-Laws of DVI Receivables Corp. VIII is incorporated by
reference from Registration Statement on Form S-3 (File No.
333-74901)
4.1 Form of Indenture is incorporated by reference from Registration
Statement on Form S-3 (File No. 333-74901)
4.2 Form of Trust Agreement is incorporated by reference from
Registration Statement on Form S-3 (File No. 333-74901)
4.3 Form of Contribution and Servicing Agreement is incorporated by
reference from Registration Statement on Form S-3 (File No. 333-
74901)
4.4 Form of Subsequent Contract Transfer Agreement is incorporated
by reference from Registration Statement on Form S-3 (File No.
333-74901)
5.1 Opinion of Thacher Proffitt & Wood with respect to legality.
8.1 Opinion of Thacher Proffitt & Wood with respect to certain tax
matters (included in Exhibit 5.1).
23.1 Consent of Thacher Proffitt & Wood (included as part of Exhibit
5.1 and Exhibit 8.1).
24.1 Power of Attorney
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, DVI
Receivables Corp. VIII certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3, reasonably believes
that the security rating requirement contained in Transaction Requirement B.5 of
Form S-3 will be met by the time of the sale of the securities registered
hereunder, and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Doylestown,
Commonwealth of Pennsylvania, as of the 12th day of January, 2000.
DVI RECEIVABLES CORP. VIII
By: /s/ John P. Boyle
----------------------------
John P. Boyle
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ John P. Boyle Director, Chief Executive January 12, 2000
- ---------------------------- Officer and Vice President
John P. Boyle
/s/ Steven R. Garfinkel Executive Vice President and January 12, 2000
- ---------------------------- Chief Financial Officer
Steven R. Garfinkel
/s/ Lisa J. Cruikshank Director and Vice President January 12, 2000
- ----------------------------
Lisa J. Cruikshank
/s/ Jeffrey M. Medaglio Director January 12, 2000
- ----------------------------
Jeffrey M. Medaglio
/s/ William A. Norris, III Director January 12, 2000
- ----------------------------
William A. Norris, III
</TABLE>
Exhibit 5.1, 8.1, 23.1
----------------------
January 12, 2000
DVI Receivables Corp. VIII
500 Hyde Park
Doylestown, PA 18901
Re: DVI Receivables Corp. VIII
Asset-Backed Notes or Certificates
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We are counsel to DVI Receivables Corp. VIII, a Delaware
corporation (the "Registrant"), in connection with the registration under the
Securities Act of 1933, as amended (the "Act"), of Asset-Backed Notes or
Certificates and the related preparation and filing of a Registration Statement
on Form S-3 (the "Registration Statement"). The Notes are issuable in series
under indentures (each such agreement, an "Indenture") between an issuer and an
indenture trustee, to be identified in the prospectus supplement for such series
of Notes. The Certificates are issuable in series under trust agreements (each
such agreement, a "Trust Agreement") between a depositor and a trustee, to be
identified in the prospectus supplement for such series of Certificates. Each
Indenture or Trust Agreement will be substantially in the form filed as an
Exhibit to the Registration Statement.
In connection with rendering this opinion letter, we have
examined the forms of the Agreements incorporated by reference in the
Registration Statement, the Registration Statement and such records and other
documents as we have deemed necessary. As to matters of fact, we have examined
and relied upon representations or certifications of officers of the Registrant
or public
<PAGE>
DVI Receivables Corp. VIII
January 12, 2000 Page 2.
officials. We have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures, the legal capacity of natural
persons and the conformity to the originals of all documents. We have assumed
that all parties, other than the Registrant, had the corporate power and
authority to enter into and perform all obligations thereunder and, as to such
parties, we also have assumed the enforceability of such documents.
In rendering this opinion letter, we express no opinion as to
the laws of any jurisdiction other than the federal income tax laws as of the
date hereof, the laws of the State of New York and the corporate laws of the
State of Delaware, nor do we express any opinion, either implicitly or
otherwise, on any issue not expressly addressed below. In rendering this opinion
letter, we have not passed upon and do not pass upon the application of "doing
business" or the securities laws of any jurisdiction. This opinion letter is
further subject to the qualification that enforceability may be limited by (i)
bankruptcy, insolvency, liquidation, receivership, moratorium, reorganization or
other laws affecting the enforcement of the rights of creditors generally and
(ii) general principles of equity, whether enforcement is sought in a proceeding
in equity or at law.
We note the actual form of the disclosure under the heading
"Material Federal Income Tax Consequences" in any prospectus and prospectus
supplement used after the date of this letter will be revised from the version
appearing in the forms of prospectus and prospectus supplements included or
incorporated by reference in the Registration Statement to reflect the federal
income tax law applicable to any series of Notes or Certificates as of the date
of the issuance of such series. Our opinion expressed below is subject to the
assumption that the above-mentioned revisions will have been made.
Based on the foregoing, we are of the opinion that:
1. When an Indenture for a series of Notes or a Trust
Agreement for a series of Certificates has been duly authorized by all necessary
action and duly executed and delivered by the parties thereto, such Indenture or
Trust Agreement, as applicable, will be a legal and valid obligation of the
applicable issuer.
2. When an Indenture for a series of Notes or a Trust
Agreement for a series of Certificates has been duly authorized by all necessary
action and duly executed and delivered by the parties thereto, and when the
Notes or Certificates of such series have been duly executed and authenticated
in accordance with the provisions of that Indenture or Trust Agreement, as
applicable, and issued and sold as contemplated in the Registration Statement
and the prospectus and prospectus supplement delivered in connection therewith,
such Notes or Certificates will be legally and validly issued and outstanding,
fully paid and non-assessable, and the holders of such Notes or Certificates
will be entitled to the benefits of that Indenture or Trust Agreement, as
applicable.
<PAGE>
DVI Receivables Corp. VIII
January 12, 2000 Page 3.
3. The description of the material federal income tax
consequences appearing under the heading "Material Federal Income Tax
Consequences" in the prospectus contained in the Registration Statement, while
not purporting to discuss all possible federal income tax consequences of an
investment in the Notes or Certificates, as applicable, is accurate with respect
to those tax consequences that are discussed.
We hereby consent to the filing of this opinion letter as an
Exhibit to the Registration Statement, and to the use of our name in the
prospectus and prospectus supplements included in the Registration Statement
under the heading "Legal Matters", and in the prospectus included in the
Registration Statement under the heading "Material Federal Income Tax
Consequences", without admitting that we are "experts" within the meaning of the
Act, and the rules and regulations thereunder, with respect to any part of the
Registration Statement, including this Exhibit. It is our position that we are
not experts within the meaning of Section 11 of the Securities Act of 1933, or
persons within the meaning of Section 11(a)(4) thereof, with respect to any
portion of the Registration Statement.
Very truly yours,
EXHIBIT 24.1
------------
DVI RECEIVABLES CORP. VIII
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints any of Lisa J. Cruikshank or Steven R. Garfinkel
as his true and lawful attorney-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities (including his capacity as director and/or officer of DVI
Receivables Corp. VIII), to sign any Registration Statement on Form S-3 and any
or all amendments thereto (including post-effective amendments) of DVI
Receivables Corp. VIII under the Securities Act of 1933, as amended, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming that said attorney-in-fact and agent, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ John P. Boyle Director, Chief Executive January 12, 2000
- ---------------------------- Officer and Vice President
John P. Boyle
/s/ Steven R. Garfinkel Executive Vice President and January 12, 2000
- ---------------------------- Chief Financial Officer
Steven R. Garfinkel
/s/ Lisa J. Cruikshank Director and Vice President January 12, 2000
- ----------------------------
Lisa J. Cruikshank
/s/ Jeffrey M. Medaglio Director January 12, 2000
- ----------------------------
Jeffrey M. Medaglio
/s/ William A. Norris, III Director January 12, 2000
- ----------------------------
William A. Norris, III
</TABLE>
