<PAGE>
PROSPECTUS SUPPLEMENT DATED NOVEMBER 13, 2000
(TO PROSPECTUS DATED JANUARY 12, 2000)
DVI RECEIVABLES XII, L.L.C.
(ISSUER)
DVI RECEIVABLES CORP. VIII
(OWNER OF ISSUER)
DVI FINANCIAL SERVICES INC.
(SERVICER)
OUR PUBLICLY OFFERED NOTES
We are offering $39,975,000 6.7094% of class A-1, $41,000,000 6.759% of class
A-2, $74,000,000 6.808% of class A-3*, $85,804,000 7.115% of class A-4,
$4,104,000 7.063% of class B, $8,208,000 7.208% of class C and $5,472,000 7.693%
of class D asset-backed notes, Series 2000-2.
*$45,000,000 of the class A-3 notes are being sold by the issuer under this
prospectus supplement directly to an affiliate of Merrill Lynch, Pierce, Fenner
& Smith Incorporated and are not being offered by the underwriters.
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.
--------------------------------------------------------------------------------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-8 OF THIS PROSPECTUS
SUPPLEMENT AND PAGE 1 OF THE PROSPECTUS.
The notes will represent debt obligations of the issuer only.
This prospectus supplement may be used to offer and sell the publicly offered
notes only if accompanied by the prospectus.
--------------------------------------------------------------------------------
THE UNDERWRITING FOR THESE NOTES
The underwriters will publicly offer the notes at the following prices:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS B CLASS C CLASS D
NOTES NOTES NOTES NOTES NOTES NOTES NOTES
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Price to public 100.000% 99.9991% 99.9953% 99.9980% 99.9997% 99.9985% 99.9990%
------------------------------------------------------------------------------------------------------------------------------------
Underwriting discount and placement fee .225% .325% .375% .400% .400% .400% .450%
------------------------------------------------------------------------------------------------------------------------------------
Proceeds to issuer 99.7750% 99.6741% 99.6203% 99.5980% 99.5997% 99.5985% 99.5490%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
We will pay $917,781.75 as a commission and placement fee to all of the
underwriters and placement agent. We will receive $257,639,465.02 as our total
proceeds before deducting our expenses (that we estimate to be $500,000).
The underwriters will publicly offer the class A-1 notes, the class A-2 notes,
the class A-3 notes, the class A-4 notes, the class B notes, the class C notes
and class D notes to the public at the offering price listed on this cover page.
You should read "Plan of Distribution" on page S- 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.
-------------------
BANC ONE CAPITAL MARKETS, INC. MERRILL LYNCH & CO.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Prospectus Supplement...........................................................S-1
Risk Factors...............................................................................S-8
Location of Glossary......................................................................S-18
DVI Financial Services Inc................................................................S-18
General..............................................................................S-18
Underwriting Criteria................................................................S-20
Portfolio Monitoring and Credit Collections..........................................S-24
Delinquency Experience...............................................................S-24
Loss Experience......................................................................S-26
Summary of Significant Accounting Policies...........................................S-27
The Servicer..............................................................................S-28
Servicing Obligations and Procedures.................................................S-28
Servicing Compensation and Payment of Expenses ......................................S-31
Evidence of Compliance by Servicer...................................................S-32
Other Servicing Procedures...........................................................S-33
Resignation/Removal of the Servicer..................................................S-33
Voluntary Termination of Servicer Duties.............................................S-34
DVI Receivable Corp. VIII.................................................................S-34
DVI Receivables Corp. XII.................................................................S-35
The Issuer................................................................................S-35
The Trustee...............................................................................S-36
The Contracts.............................................................................S-37
Statistical Information for the Contracts............................................S-41
Substitute Contracts.................................................................S-54
Description of the Notes and Principal Transaction Documents..............................S-56
General Provisions of the Notes......................................................S-56
Conveyance of Trust Property.........................................................S-62
DVI Financial Services Inc. Repurchase Obligation for Contract Misrepresentations....S-63
Indemnification......................................................................S-64
Indenture Accounts; Investment of Funds..............................................S-64
Reserve Account......................................................................S-66
Flow of Funds to and from the Collection Account ....................................S-68
Payment of Amounts From Distribution Sub-Accounts....................................S-72
Reports to Noteholders...............................................................S-75
Optional Redemption..................................................................S-75
Indenture Events of Default and Acceleration ........................................S-76
Remedies.............................................................................S-78
Servicer Events of Default...........................................................S-81
Termination of the Servicer..........................................................S-83
Duties and Immunities of the Trustee.................................................S-83
Book-Entry Registration of the Notes.................................................S-84
Prepayment and Yield Considerations.......................................................S-90
Certain Legal Matters Affecting an Obligor's Rights and
Obligations.........................................................................S-100
General.............................................................................S-100
The Equipment.......................................................................S-101
Material Federal Income Tax Consequences.................................................S-105
Certain State, Local and Other Tax Considerations........................................S-115
Considerations for Benefit Plan Investors................................................S-116
Legal Investment.........................................................................S-122
Ratings..................................................................................S-122
Use of Proceeds..........................................................................S-123
Plan of Distribution.....................................................................S-123
Legal Matters............................................................................S-125
Where You Can Find More Inofrmation......................................................S-125
Reports to Noteholders...................................................................S-126
Glossary.................................................................................S-127
</TABLE>
-ii-
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
The following is just a summary about our publicly offered notes in this
series. You need to read the detailed information appearing elsewhere in this
supplement for a more complete understanding of these classes of securities, our
trust property and other aspects of purchasing any of these notes.
CLOSING DATE...................... On or about November 16, 2000.
CUT-OFF DATE...................... October 31, 2000.
PAYMENT DATES..................... The twelfth day of each month.
STATED MATURITY DATE.............. For the class A-1 notes, November 12, 2001,
for the class A-2 notes, January 12, 2003,
for the class A-3 notes July 12, 2004 and
for all other notes, November 12, 2008.
ISSUER............................ DVI Receivables XII, L.L.C., a Delaware
limited liability company.
OWNER OF THE ISSUER............... We, DVI Receivables Corp. VIII, a Delaware
corporation, are the sole owner of the
issuer.
CONTRIBUTOR AND SERVICER.......... DVI Financial Services Inc., a Delaware
corporation.
TRUSTEE........................... U.S. Bank Trust National Association.
TRUST PROPERTY.................... Non-cancelable contracts (such as leases
and loans) owned by the issuer, the rights
to all payments on those contracts that are
due after the cut-off date and other
property related to those contracts, such
as a security interest in equipment owned,
pledged or leased under those contracts.
For more information about the trust
property, you should read the sections
titled "The Contracts" and "Description of
the Notes and Principal Transaction
Documents -- Conveyance of Trust Property"
on pages Sand S- of this supplement,
respectively.
MINIMUM DENOMINATIONS............. $500,000.
FORM OF NOTES..................... All the publicly offered notes will be
book-entry.
S-1
<PAGE>
THE CONTRACTS
We select our contracts from DVI Financial Services Inc.'s portfolio based on
the criteria that we describe in the section of this prospectus supplement
titled "The Contracts" on page S-.
THE AGGREGATE DISCOUNTED CONTRACT BALANCE. The aggregate outstanding principal
balances, discounted at a rate of 7.75% per year, of all of the contracts in the
statistical pool described in this prospectus supplement is $272,828,157.80 as
of the initial cut-off date. We discount the outstanding payments to show their
value in present-day dollars.
CONTRACT POOL DATA. As of October 31, 2000,
o the weighted average remaining term to maturity of the statistical pool of
contracts existing at that time was approximately 56 months,
o the final scheduled payment date of the contract in the statistical pool with
the latest scheduled maturity was September 30, 2007, and
o the average outstanding principal balance of the contracts in the statistical
pool discounted at a rate of 7.75% a year on that date was approximately
$160,581.61.
The section at page S- of this supplement titled "The Contracts" contains much
more data about the contracts in the statistical pool as of October 31, 2000.
POOL A CONTRACTS AND POOL B CONTRACTS. The contracts in the trust property are
divided into two pools. A schedule to the transaction documents identifies each
contract as either a pool A contract or a pool B contract. The servicer's rights
to substitute and to repurchase contracts differ between the pool A contracts
and the pool B contracts. Except for the servicer's rights and our accounting
reports, we treat all of our contracts in the trust property as if they compose
a single collateral pool. If you want to know more about the differences between
pool A contracts and the pool B contracts, read the section titled "The
Contracts -- Substitute Contracts" on page S- of this prospectus supplement.
CONTRACT MODIFICATIONS. The person servicing and administrating the contracts,
whom we refer to as the servicer of the contracts, may modify or adjust the
terms of a contract for administrative reasons.
S-2
<PAGE>
DISTRIBUTIONS ON THE OFFERED NOTES.
The trustee will pay to investors:
INTEREST. The trustee will pay you interest on the notes on the twelfth day of
each month unless that day is not a business day. If that day is not a business
day, the trustee will pay you on the next day that is a business day.
The issuer will accumulate the aggregate amount of any monthly interest
collected in between payment dates that was not previously paid to any
noteholders as scheduled. After the issuer deposits those amounts in the
collection account, on the next payment date the trustee will pay them out as
overdue interest payments to the noteholders. The amount may not be sufficient
to pay all overdue interest. Conversely, the trustee will only pay to the
noteholders from these collected funds, to the extent those funds are
sufficient, an amount equal to all interest overdue on that payment date. In
either case, this overdue interest will not itself bear interest.
PRINCIPAL. We pay as principal an amount related to the decline in the aggregate
discounted 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
<PAGE>
PRIORITY OF DISTRIBUTIONS
On each payment date, the trustee will disburse funds deposited in the
collection account as follows:
[GRAPHIC OMITTED]
AMOUNTS IN THE COLLECTION ACCOUNT
|
GO TO PAY
|
FIRST: SERVICER FEES, REIMBURSEMENTS AND ADVANCES;
|
SECOND: INTEREST ON ALL NOTES;
| |
IF AN AMORTIZATION IF NO AMORTIZATION
EVENT IS HAPPENING: EVENT IS HAPPENING:
| |
THIRD: ALL OUTSTANDING PRINCIPAL THIRD: PRINCIPAL ON
ON THE NOTES (EVEN IF WITHDRAWALS ALL NOTES THEN
FROM THE RESERVE ACCOUNT ARE DUE;
NECESSARY TO PAY THEM); |
| FOURTH: A DEPOSIT INTO
| THE RESERVE ACCOUNT;
| |
ALL REMAINING AMOUNTS TO THE ISSUER
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- of this prospectus
supplement.
S-4
<PAGE>
CREDIT ENHANCEMENT
We have provided three forms of credit enhancement.
First, we subordinated the issuer's right to receive any amount, which we refer
to as the issuer's retained interest, withdrawn from the collection account to
all other payments on the notes 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 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- 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 10% 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 in pool B must be less than 20% of the aggregate
outstanding discounted contract balance of all of the contracts in
pool B on the closing date.
S-5
<PAGE>
PARTIAL REDEMPTION. The issuer may buy back any portion, but not all, of the
notes on a payment date if:
o the issuer first pays the partial redemption price, and
o the aggregate outstanding discounted contract balance of all of the
contracts in pool B is less than 20% 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- 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, DVI Financial Services Inc. must either substitute
for or repurchase the contract causing that breach from the issuer.
For more information about these obligations, you should read the section titled
"Description of the Notes and Principal Transaction Documents -- DVI Financial
Services Inc. Repurchase Obligation for Contract Misrepresentations" on page S-
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.
MOODY'S
INVESTORS FITCH,
CLASS SERVICE, INC. INC.
--------- ------------- ------
Class A-1 P-1 F1+
Class A-2 Aaa AAA
Class A-3 Aaa AAA
Class A-4 Aaa AAA
Class B Aa3 AA
Class C A2 A
Class D Baa2 BBB
S-6
<PAGE>
No rating on a security is a recommendation to buy, sell or hold that security.
Moreover, each rating is subject to the rating agency's revision or even
withdrawal of that rating. For further information about ratings, you should
read the sections of this prospectus supplement entitled "Prepayment and Yield
Considerations" on page S-, and "Ratings" at page S-.
PERMITTED PURCHASERS
The class A-1 notes are eligible for purchase by money market funds under the
Investment Company Act of 1940, as amended.
TAX CONSEQUENCES
Special tax counsel to the underwriters is of the opinion that under current
law, the federal government will treat the class A-1 notes, the class A-2 notes,
the class A-3 notes, the class A-4 notes, the class B notes, the class C notes
and the class D notes as indebtedness for federal income tax purposes.
If you want to know more about likely tax treatment of the notes, you should
read the section titled "Material Federal Income Tax Consequences" at page S- 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. Various
exemptions may be available for investors. You must make certain representations
when you acquire your notes, and you should read "Considerations for Benefit
Plan Investors" on page S- of this prospectus supplement for a description of
the rules and these exemptions and purchaser representations.
S-7
<PAGE>
RISK FACTORS
Prospective noteholders should consider, among other things, the
following factors in connection with the purchase of the notes.
THE RETURN ON YOUR NOTES MAY BE Losses on the contracts may occur
AFFECTED BY LOSSES ON THE CONTRACTS, due to a wide variety of causes,
WHICH COULD OCCUR DUE TO A VARIETY including adverse changes in the
OF CAUSES. obligors' financial condition. A decline
in economic conditions nationally or in
the regions where the obligors are
locaated may increase such risk of
losses.
EVENTS THAT DIMINISH THE RETURN ON YOUR NOTE
THE RETURN ON YOUR NOTE DIMINISHES Your investment is secured by your
IF THE CONTRACTS ARE DELIVERED TO trustee's security interest in the trust
SOMEONE OTHER THAN THE TRUSTEE. property, which enables the trustee to
foreclose upon the trust property and to
pay you from it if an event of default
occurs. The trustee's security interest
in the contracts is shown under law by
the trustee's possession of the
contracts. If DVI Financial Services
Inc., DVI Receivables Corp. XII, 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 in the contracts
on your behalf. Any unpaid creditor of
the owner of a contract can foreclose
upon and sell the contract. Thus, if a
person delivers a contract in the trust
property to someone other than the
trustee, the trustee may not be in
control of the decision concerning
whether or not to foreclose on that part
of the collateral or the ability to
realize any proceeds from selling it.
S-8
<PAGE>
In addition, the person with the
highest-priority security interest is
the first to receive any payments made
under, or any proceeds of sale of, a
contract. Thus, if the person other than
the trustee has a security interest with
a higher priority than the trustee's,
that person's security interest in the
contract will be paid before the trustee
can collect money for you. In addition,
not only would your trustee have to wait
for the higher-priority lienor to be
paid first, but then the trustee only
receives money to the extent that there
still are sufficient funds available
after the first person got paid.
YOUR NOTE PAYMENTS MAY BE DIMINISHED In addition to the considerations
IF THE TRUSTEE IS IMPEDED FROM mentioned above, other factors that can
REALIZING THE FULL AMOUNT DUE FROM A hinder the trustee's ability to
CONTRACT. realize amounts from contracts that it
foreclosed upon include:
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 NOTES DIMINISHES An obligor under one of the
IF ENOUGH OBLIGORS ASSERT DEFENSES contracts in the trust property might
TO THEIR PAYMENT OBLIGATIONS. assert claims and defenses against DVI
Financial Services Inc., DVI Receivables
Corp. XII, DVI Receivables Corp. VIII,
the issuer or the trustee for the
contracts or the related equipment. DVI
Financial Services Inc. warrants that,
on the closing date, no such claims or
defenses have been asserted or
threatened with respect to the
contracts. However, if enough of these
claims are asserted, your note payments
may be interrupted, delayed or even
permanently reduced.
S-9
<PAGE>
YOUR TRUSTEE MAY BE BARRED When applied to the trust property,
FROM RECEIVING THE ANTICIPATED federal and state insolvency, bankruptcy
CONTRACT PAYMENTS. or other laws may restrict the trustee's
ability to collect contract payments for
you. State laws impose requirements and
restrictions relating to foreclosure
sales of collateral. Such laws may also
restrict the trustee's ability to go to
court and obtain a judgment that the
issuer is deficient in the payments it
must make to you following such a
foreclosure sale. The trustee may not
realize the full amount due on a
contract, or may not realize the full
amount on a timely basis, because of the
application of those requirements and
restrictions. The expense of all of the
above legal proceedings will also be
deducted from your note payments.
YOUR NOTE PAYMENTS MAY BE The trustee's security interest in
DIMINISHED BY A FAILURE TO the trust property should be evidenced
FILE FINANCING STATEMENTS. by filing a financing statement. If
these statements are not executed in a
timely manner by either DVI Financial
Services Inc., DVI Receivables Corp.
XII, the issuer or the trustee, the
trustee may not have a first priority
security interest in the trust property.
Similarly, the trustee's security
interest could be adversely affected if
the servicer or any other person fails
to file and maintain any of the executed
financing statements in the appropriate
governmental offices on 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. XII and the issuer
will agree in the transaction documents
to take reasonable action required to
facilitate proper filing and maintenance
of financing statements.
S-10
<PAGE>
YOUR NOTE PAYMENTS COULD BE If an obligor defaults on a
REDUCED BY OBSOLESCENCE OF THE contract, the only source of payment for
EQUIPMENT. amounts due on the contract will be the
income and proceeds from the related
equipment. However, the market value of
our equipment declines with age. In
addition, some of our equipment may be
subject to sudden and significant
declines in value because of
technological advances. 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 NOTES MAY BE One risk of investing in asset-
PARTICULARLY SENSITIVE TO CHANGES IN backed securities like the notes is the
ECONOMIC CONDITIONS. possibility that there might be
concentration of the related equipment
or contract obligors in one or more
geographic regions. Approximately 11.95%
of the initial aggregate discounted
contract balance of the contracts have
equipment locations in New York and
approximately 11.95% of the initial
aggregate discounted contract balance of
the contracts have equipment locations
in Texas. If the regional economy or
healthcare market weakens in New York or
Texas, or in any other region having a
significant concentration of obligors
under the contracts, those contracts may
experience high rates of loss and
delinquency, resulting in losses to
noteholders. A region's economic
condition and healthcare market may be
adversely affected by a variety of
events, including natural disasters such
as earthquakes, hurricanes, floods and
eruptions, and civil disturbances such
as riots. The economic impact of these
events may also be felt in areas beyond
the region immediately affected by the
disaster or disturbance. Concentration
may result in greater losses to
noteholders than those generally present
for similar asset-backed securities
without such concentration.
S-11
<PAGE>
RISKS RELATING TO THE STRUCTURE OF THE TRANSACTION
YOUR NOTE PAYMENTS COULD BE DVI Financial Services Inc.
INTERRUPTED, DELAYED OR believes that the transfer of the
TERMINATED IF DVI FINANCIAL contracts and the security interest in
SERVICES INC. GOES BANKRUPT. the related equipment to DVI Receivables
Corp. XII and the subsequent transfer to
the issuer should be treated as an
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
future payments under a terminated
contract. If the trust property contains
a contract that is terminated, you would
then lose the right to some future
payments of interest and principal on
the notes. If many contracts in the
trust property are terminated, your
losses could be sizeable.
S-12
<PAGE>
YOUR NOTE PAYMENTS COULD BE Leveraged Lease Loans. Some
ADVERSELY AFFECTED BY A LESSOR'S contracts represent leveraged lease
DECISION TO REJECT A LEASE IN loans from DVI Financial Services Inc.
BANKRUPTCY. to various lessors. Leveraged lease
loans are secured by the lessor's pledge
of its rights in a lease and, usually,
the related equipment. As we explained
in the section above, a trustee in
bankruptcy can reject a lease, thus
terminating the lessee's duties to pay.
Thus, if the lessor goes bankrupt, even
if DVI Financial Services Inc. continues
to operate, the trustee of the
bankruptcy estate could reject the
lease. Depending upon lessor's 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. XII, it also granted a
security interest in the leased
equipment to DVI Receivables Corp. XII,
which, in turn, assigned the security
interest to the issuer along with a
first priority security interest in the
lease between DVI Financial Services
Inc. and the lessee. If a lessor under a
fair market value lease were to seek
protection under federal bankruptcy law,
then that lessor, as
debtor-in-possession (or its bankruptcy
trustee) would have the option of
rejecting, assuming or assigning the
underlying lease.
S-13
<PAGE>
YOUR RISK OF NONPAYMENT INCREASES If you purchase subordinated notes,
IF YOUR CLASS OF NOTE IS TO BE PAID then you will not receive distributions
AFTER ANOTHER CLASS. of interest or principal on any given
payment date until after the class A-1
notes and any other classes of notes
senior to yours receive their respective
distributions of interest or principal.
Therefore, the more subordinated the
priority of payment that your class of
note is with respect to other,
higher-priority classes of notes, the
greater the risk is that these other
notes will consume all funds then
available to be paid, thus leaving
insufficient amounts on that payment
date to pay your class of notes. Each
class of notes bears losses and
delinquencies in reverse order of its
priority. Depending upon the timing of
defaults and severity of losses,
investors in subordinated notes are more
likely to realize less on their
investment than they originally
anticipated. It may also take longer for
investors holding subordinated notes to
earn the expected return on their
investment than it would for investors
of relatively senior classes. For more
information about subordinated notes,
you should read the section titled
"Description of the Notes and Principal
Transaction Documents-- Flow of Funds to
and from the Collection Account" on page
S- of this prospectus supplement.
S-14
<PAGE>
OTHER RISKS
THE RATE THAT YOU RECEIVE ON YOUR The rate of payment of principal on
NOTE PAYMENTS DEPENDS UPON THE the notes will depend, among other
UNPREDICTABLE RATE OF PREPAYMENTS things, on the rate of prepayments on
ON THE CONTRACTS. the contracts. We do not know when
obligors will choose to prepay their
contracts, so we cannot predict the rate
of payment of principal on any notes.
There are different means of prepaying
contracts, as well as different types of
prepayments. Prepayments on the
contracts include:
o partial and full prepayments
(to the extent not replaced
with substitute contracts) by
the obligor on the contract,
o payments upon the liquidation
of defaulted contracts,
o payments upon acquisitions by
DVI Financial Services Inc. of
contracts from the related
trust property on account of a
breach of representations and
warranties in the contribution
and servicing agreement, and
o payments upon an optional
acquisition by DVI Financial
Services Inc. of contracts in
the trust property.
The rate of early terminations of
contracts due to prepayments and
defaults may be influenced by a variety
of economic and other factors which are
unknown at this time. You will bear the
risk of reinvesting distributions of the
principal of your note that you receive
earlier than you anticipated. No one can
assure you as to the level of
prepayments that the contracts will
experience.
S-15
<PAGE>
THE RATE OF YOUR NOTE PAYMENTS The servicer and the issuer have
CAN BE CHANGED BY THE SERVICER'S the right occasionally to replace
OR THE ISSUER'S SUBSTITUTION OF prepaid or some non-performing
CONTRACTS IN THE TRUST PROPERTY. contracts. These rights differ as
between the pool A contracts and the
pool B contracts. For further
information about the servicer's rights
of substitution, you should read the
section titled "The Contracts --
Substitute Contracts" at page S- of this
prospectus supplement. The payment flow
on your notes will be different if the
servicer substitutes one contract for
another, rather than if the issuer pays
the proceeds of the defaulted or prepaid
contract through to you, because the
substituted contract may not have a
payment schedule identical to the
removed contracts. The performance of
any substitute contracts could also be
different than the performance of the
original contracts.
YOUR NOTE PAYMENTS MAY BE AFFECTED A large amount of delinquent, or
BY AN UNEXPECTED DELINQUENCY RATE late, contract payments will affect what
OF CONTRACTS. the trustee can pay to you on a payment
date as a payment on your note. The rate
of delinquencies of DVI Financial
Services Inc.'s portfolio of contracts
is not an assurance of the performance
of the contracts in the trust property.
We cannot assure you that the levels of
delinquencies and losses experienced in
recent years by DVI Financial Services
Inc. on its entire equipment finance
portfolio are indicative of the
contracts in the trust property.
Delinquencies and losses on contracts
could increase significantly for various
reasons, including changes in the
federal income tax law, changes in the
local, regional or national economies or
other events. You should not assume that
data from DVI Financial Services Inc.'s
entire portfolio of contracts is or will
be indicative of the performance of the
trust property.
S-16
<PAGE>
YOUR NOTE PAYMENTS MAY BE AFFECTED IF In recent years, the administration
CONTRACT OBLIGORS ARE IMPAIRED BY and Congress have considered various
POSSIBLE CHANGES IN FEDERAL HEALTH changes in federal regulations and
CARE REGULATIONS. reimbursement policies relating to
health care delivery in the United
States. Legislation adopted this year or
thereafter may affect the regulation,
the 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.
THE RATINGS OF THE NOTES ARE NOT None of the ratings of the notes by
RECOMMENDATIONS AND MAY BE any rating agency are recommendations to
WITHDRAWN AT A LATER DATE. purchase, hold or sell the notes.
Ratings do not comment as to market
price or suitability for you. Moreover,
the rating agencies do not assure that
the ratings will remain for any given
period of time. Indeed, whenever a
rating agency that rates the notes
believes that circumstances justify
negative action that rating agency may
lower or withdraw its rating. A rating
agency may lower the rating it assigns
to any class of notes at any time. A
ratings downgrade will probably reduce
the value of those notes. No one has any
obligation to take any action to
maintain the ratings assigned the notes
on the closing date.
S-17
<PAGE>
LIQUIDITY RISKS
YOU MAY HAVE TO HOLD YOUR NOTES TO After the initial issuance of the
MATURITY IF THEIR MARKETABILITY IS notes on the closing date, the
LIMITED. underwriters intend to make a secondary
market for the purchase of the notes. A
secondary market is one in which a
noteholder sells its note to another
person. However, the underwriters have
no obligation to make a secondary
market. No one can assure you that such
a secondary market will develop or, if
it develops, that it will continue.
The secondary markets for
asset-backed securities have experienced
periods of illiquidity in the past and
can be expected to do so in the future.
Illiquidity means that you may not
easily find another investor to buy your
note. Consequently, you may not be able
to sell your note readily or at prices
that will enable you to realize the
yield that you desire on your note.
The market values of the notes are
also likely to fluctuate. These
fluctuations could be significant and
result in sizable losses to you,
depending on where or when you resell
your note.
LOCATION OF GLOSSARY
A glossary of the capitalized terms that we use can be found beginning
on page S-127 of this prospectus supplement.
DVI FINANCIAL SERVICES INC.
GENERAL
DVI Financial Services Inc. is a Delaware corporation with its national
headquarters located at 2500 York Road, Jamison, Pennsylvania 18929. Its
telephone number is
S-18
<PAGE>
(215) 488-5000. DVI Financial Services Inc. comprises the majority of the assets
of DVI, Inc., which owns all the stock of DVI Financial Services Inc. DVI, Inc.
is headquartered in Doylestown, PA, and its stock is traded on the New York
Stock Exchange as symbol "DVI". At September 30, 2000, DVI Financial Services
Inc. handled billing and collection of approximately 13,660 equipment finance
contracts either owned by it or by companies affiliated with it.
DVI Financial Services Inc. provides financing for users of diagnostic
imaging, therapeutic and other medical equipment. DVI Financial Services Inc.
focuses primarily on financing technologically advanced medical equipment such
as computerized tomography, magnetic resonance imaging, nuclear medicine and
radiation therapy systems, as well as lower cost medical devices. DVI Financial
Services Inc.'s customer base consists principally of outpatient healthcare
providers, physicians and physician groups, hospitals and shared service
providers.
DVI Financial Services Inc. either originates or acquires the contracts
from others in its ordinary course of financing activities. Some or all of the
contracts in the trust property were previously and may have been indirectly
sold by DVI Financial Services Inc. to a special-purpose, bankruptcy-remote
entity that was wholly and directly or indirectly owned by DVI Financial
Services Inc.
DVI Financial Services Inc.'s policy is to provide financing to its
customers in transactions which, with very limited exceptions, take the form of
direct financing leases and loans. Most of DVI Financial Services Inc.'s
equipment financing transactions have a term of 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.
S-19
<PAGE>
UNDERWRITING CRITERIA
General Guidelines. DVI Financial Services Inc. has underwriting
guidelines in place to analyze the creditworthiness and investment desirability
of individuals, partnerships, limited liability companies and corporations.
These guidelines identify certain financial performance requirements and
criteria for potential borrowers, which reflect DVI Financial Services Inc.'s
willingness to accept prudent levels of risk. However, these standards remain
flexible and individual credits are evaluated in a manner which permits
mitigating factors to be considered in the overall evaluation process.
DVI Financial Services Inc. focuses much of its lending activity in the
out-patient healthcare sector, which is characterized by emerging companies that
have a limited history and lack strong balance sheets and income performance.
This sector requires a rigorous credit analysis and structuring discipline. Most
out-patient diagnostic facilities operate high cost equipment, such as magnetic
resonance imaging systems. They have a high proportion of fixed costs to total
costs and, as a result, are dependent upon a steady flow of revenues. In these
transactions, DVI Financial Services Inc. places significant reliance on
expected future cash flow projections and the underlying assumptions about the
state of the applicant's business upon which those projections are made.
Determining the validity of financial projections requires a detailed analysis
of the expense levels and their reasonableness, as well as the projected patient
volume for the particular types of equipment or forms of procedures being used.
In each case, DVI Financial Services Inc. management's detailed knowledge of the
industry is critical to understanding the financial projections and their
reasonableness.
Transaction Analysis Standards. DVI Financial Services Inc. completes an
in-depth analysis of all transactions, including a detailed write-up outlining
the proposed 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.
S-20
<PAGE>
requires an individual to provide at least two prior years of tax returns and a
current personal financial statement.
DVI Financial Services Inc. will conduct a full analysis of the
demographics of an area, the management team that will operate the center, any
contracts that are in place (such as those with a reputable radiology group),
and the adequacy of capitalization for start-ups or relatively new operations.
For transactions with new entities, DVI Financial Services Inc. also relies
heavily upon market surveys which project patient volumes, reference checks to
verify the reputation of the principals, and an evaluation of the anticipated
composition of the receivables, as well as an evaluation of the billing and
collecting capabilities of the borrower.
An 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 profitability for
S-21
<PAGE>
the last two years and the most recent interim period. Nominal losses,
with reasonable explanation, and which do not affect the "going concern"
status of business will be considered, given a fundamental strength in
other balance sheet and income components and performance measures. Tax
returns should reflect similar income and expense figures as the
financial statements for the fiscal year. Cash flow derived should
support existing short term obligations and new financial obligations.
o Individual Tax Returns: Should validate stated sources of income on the
personal financial statement and support the ability to service personal
financial obligations. For a sole proprietor, cash flow should provide
an adequate cushion for living expenses after debt service requirements,
including any proposed financial obligations.
o Hospital Analysis: If a hospital is the lessee or will be the primary
referral for a lessee, a comparative analysis of key hospital operating
ratios and other measures should be completed. The hospital's occupancy
rate, payor mix and competitive features also should be addressed.
In cases where a transaction does not conform to all of the underwriting
criteria, DVI Financial Services Inc. identifies methods to support the
transaction without compromising credit or quality and risk. These methods
include:
o use of covenants and restrictions which identify performance goals or
limit certain activities which could diminish financial strength and
affect repayment ability,
o requesting additional collateral to support transactions. This could
take the form of cash deposit, letters of credit, other assets of the
principal obligor or third parties (subject to appraisal), and
guaranties, and
o conditioning credit approval on the completion of certain terms,
documentation or other events before formal approval is granted.
S-22
<PAGE>
Approval Process. Due to the large size of DVI Financial Services Inc.'s
transactions, DVI Financial Services Inc. analyzes and reviews each transaction
on its own merits. Pursuant to DVI Financial Services Inc. policy, the Director
of Credit has approval authority for all transactions up to $500,000. The Vice
President of Credit has approval authority for all transactions up to $750,000.
The Chief Credit Officer -- U.S. has approval authority up to $1 million. The
credit committee, which includes the above credit managers, the Chief Credit
Officer of DVI, Inc. and a member of its board of directors, has approval
authority for all transactions greater than $1 million. If a transaction causes
aggregate customer exposure to exceed $3 million, it must receive credit
committee approval, regardless of size.
DVI Strategic Partner Group. The underwriting criteria of DVI Financial
Services Inc.'s DVI Strategic Partner Group, where the equipment cost is below
$200,000, are significantly different from those of the rest of DVI Financial
Services Inc. An applicant completes a simple credit application. The credit
applications are analyzed for approval based upon a combination of the financial
condition of the applicant as well as the credit score of the applicant, which
is obtained from a national credit reporting organization. If the application is
approved and the conditions of approval are met, a signed purchase order is
issued.
The DVI Strategic Partner Group has established specific credit
guidelines for hospitals, 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, depending upon business type,
o provides acceptable financial statements, corporate resolutions and
appropriate purchase documents,
o provides personal guarantees under certain circumstances,
o provides proof of professional license, and
o meets a certain minimum TRW credit score.
S-23
<PAGE>
PORTFOLIO MONITORING AND CREDIT COLLECTIONS
Key members of DVI Financial Services Inc.'s credit, sales, operations
and accounting departments meet regularly to discuss the contract portfolio
delinquency report and the status of delinquent obligors. With guidance from
management, the collection and/or sales departments immediately contact
delinquent obligors. Due to the relatively small number of contracts in DVI
Financial Services Inc.'s portfolio, the management of DVI Financial Services
Inc. possesses a high degree of familiarity with virtually the entire obligor
base. The Director of Portfolio Management personally administers the collection
of large_balance delinquent accounts and severely delinquent accounts. Once it
suspects that an obligor may experience problems in meeting its obligations, DVI
Financial Services Inc. acts quickly to identify a new operator of the equipment
in the event that the obligor defaults. Any repossessions are handled on an
individual basis.
The DVI Strategic Partner Group handles collections and other servicing
of contracts which it has originated. Its collection department meets monthly to
review and discuss the status of certain accounts and any trends in performance.
For the accounts that are ten to thirty days past due, the DVI Strategic Partner
Group begins an active collection process. The process is initiated by telephone
contact with the obligor, and a reminder notice is sent when the contract
payment becomes fifteen days past due. When the payments are thirty-one days
past due, the DVI Strategic Partner Group sends a final notice letter. The DVI
Strategic Partner Group sends a demand letter for possession of the equipment
when the payment is sixty-one days past due. Contracts that are more than
ninety-one days past due are included on a watch list which is reviewed by
senior management each month.
DELINQUENCY EXPERIENCE
The following table sets forth information with respect to delinquencies
for the contracts originated or acquired by DVI Financial Services Inc. These
assets are of the same type as those being included in this securitization. The
data is derived from total managed domestic net financed assets, which consist
of all contracts held by DVI Financial Services Inc. on balance sheet and
serviced. The delinquency figures represent the entire outstanding balances of
those delinquent contracts. Total delinquencies for the fiscal years 1996
through 1998 exclude contracts purchased from Affiliated Capital on September
30, 1998.
S-24
<PAGE>
DELINQUENCY EXPERIENCE -- DOMESTIC SERVICING PORTFOLIO
<TABLE>
<CAPTION>
AS OF JUNE 30,
---------------------------------------------------------------------------------------
2000 1999 1998
------------------------- -------------------------- ------------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL AMOUNT % OF TOTAL
---------- ---------- ---------- ---------- ---------- ----------
(In thousands, except for percentage)
<S> <C> <C> <C> <C> <C> <C>
MANAGED NET
FINANCED ASSETS $1,447,653 $1,262,298 $932,006
31 - 60 days $ 9,985 0.7% $ 12,208 1.0% $ 15,811 1.7%
61 - 90 days 8,630 0.6% 5,288 0.4% 15,012 1.6%
91 - 120 days 3,848 0.3% 7,763 0.6% 8,259 0.9%
121 - 150 days 8,894 0.6% 5,168 0.4% 9,597 1.0%
151 - 180 days 5,402 0.4% 7,492 0.6% 4,079 0.4%
181 + days 46,142 3.2% 25,598 2.0% 15,295 1.6%
TOTAL DELINQUENCIES $ 82,901 5.7% 63,517 5.0% 68,053 7.3%
</TABLE>
AS OF JUNE 30,
----------------------------------------------------------
1997 1996
-------------------------- --------------------------
AMOUNT % OF TOTAL AMOUNT % OF TOTAL
---------- ---------- ---------- ----------
(In thousands, except for percentage)
MANAGED NET FINANCED
ASSETS $ 809,090 $ 601,543
31 - 60 days $ 3,705 0.5% $ 10,352 1.7%
61 - 90 days 12,133 1.5% 3,614 0.6%
91 - 120 days 1,088 0.1% 755 0.1%
121 - 150 days 2,419 0.3% 707 0.1%
151 - 180 days 1,715 0.2% 1,790 0.3%
181 + days 12,093 1.5% 10,296 1.7%
TOTAL DELINQUENCIES $ 33,153 4.1% 27,514 4.6%
S-25
<PAGE>
LOSS EXPERIENCE
The following table sets forth information with respect to losses for
contracts originated or acquired by DVI Financial Services Inc., including those
held by DVI Financial Services Inc. on balance sheet and serviced. These assets
are of the same type as those being included in this securitization. Average
managed net financed assets are based on quarterly period average balances for
the entire domestic servicing portfolio.
Loss Experience
---------------
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ending June 30
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Average managed net financed assets.......... $ 1,353,156 $ 1,089,031 $ 846,713 $ 704,676 $ 544,023
Net charge-offs.............................. $ 6,380 $ 5,258 $ 1,642 $ 436 $ 1,475
Net charge-offs as a percentage of average
managed net financed assets.................. 0.47% 0.48% 0.19% 0.06% 0.27%
=========== =========== ========= ========= =========
</TABLE>
The increase in delinquencies at June 30, 2000 was a result of the
growth in managed net financed assets, a bankruptcy of a borrower of $3.6
million from Third Coast Capital (a bankruptcy court order approved payment for
the entire outstanding amount on June 26, 2000), a delinquency of $4.9 million
loan to a psychiatric hospital in California that is secured by all assets
including real estate, and $3.7 million of additional delinquencies at DVI
Capital (DVI Capital discontinued operations in March 2000). All of these loans
and leases are properly collateralized or reserved and no significant losses are
anticipated. The increase in delinquencies in 1998 resulted primarily from a
delinquency of $20.0 million borrower. This delinquency had been reduced to $9.7
million at June 30, 2000, and a $1 million loss was recognized in December,
1999. 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
Allegheny Health, Education and Research Foundation 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
S-26
<PAGE>
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 contracts in a category in which the company has no
further expectation of receiving payments, when they become greater than 90 days
delinquent. At that time we consider the range of remedies available to mitigate
a potential loss. Remedies include the pursuit of underlying collateral and
guarantors (including recourse to dealers and manufacturers), draws on letters
of credit, and protecting our investment by taking control of a medical
facility's operations and replacing the existing management. 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.
S-27
<PAGE>
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,
as amended, and each contract, and will comply with all applicable requirements
of law. Except as allowed by the terms of any contract following a default under
that contract, the servicer will not take any action which would result in the
interference with the obligor's right to quiet enjoyment of the equipment during
the term of the contract.
The contracts contain provisions which require the obligor to make the
scheduled payment of rent or other payments under that contract on a periodic
basis. These payments may be in arrears or in advance. If an obligor defaults
under its contract, the servicer, on behalf of the trustee, can either repossess
and re-lease or sell the related equipment to cover the remaining unpaid
payments under such contract.
Following each monthly determination date for determining payments on
the notes, the servicer will remit a Servicer Advance to the trustee so that the
trustee will have immediately available funds by 11:00 a.m. New York time on the
second business day prior to the next payment date for the notes. Each Servicer
Advance must be sufficient to cover all amounts which were due and unpaid on any
delinquent contract on that determination date. The servicer will not be
obligated to make a Servicer Advance for:
o any defaulted contract,
o any contract that was finally liquidated on or prior to that
determination date, or for
S-28
<PAGE>
o any other contract if the servicer, in its good faith judgment, believes
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 for
o enforcing the rights of the noteholders and issuer in any item of
equipment.
The servicer will be responsible, among other duties, for:
o invoicing each obligor for all contract payments required to be paid by
it under the contracts, in the same manner as the servicer does with
respect to similar contracts owned by it,
o maintaining for each contract, each item of equipment, each payment and
each obligor, complete and accurate records in the same manner and to
the same extent as the servicer does with respect to similar contracts
held for its own account,
o on behalf of DVI Receivables Corp. XII, 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. XII, 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
S-29
<PAGE>
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 an obligor. These modifications or adjustments may include
changes to the components of the equipment or corrections of information that
occur when a contract enters the servicer's administrative servicing system.
These modifications and adjustments may result in changes to the amount of
monthly payment under that contract, the monthly payment date of the contract or
changes to the equipment. However, none of these changes will:
o extend the stated maturity date of the notes,
o extend by more than 24 months the scheduled termination date of the
contract,
o materially shorten or lengthen the weighted average life of any class of
notes,
o be done for contracts representing more than twenty percent of the
Initial Aggregate Discounted Contract Balance of the contracts,
o be done for any contract that is ninety days or more delinquent,
o decrease the Discounted Contract Balance of any contract which is
modified in this way, unless the issuer deposits an amount equal to that
decrease in the collection account,
o be inconsistent with the servicing standards set forth in Section 4.01
of the contribution and servicing agreement,
o reduce or adversely affect the obligor's obligation to maintain,
service, insure and care for the equipment or permit the alteration of
any item of equipment in any way which could adversely affect its
present or future value, or
o otherwise adversely affect, individually or in the aggregate, the
interests of any of DVI Receivables Corp. XII, the issuer, the trustee
or the noteholders.
S-30
<PAGE>
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
As compensation to the servicer for its servicing of the contracts, the
servicer will be entitled to receive on each payment date a servicing fee from
amounts on deposit in the collection account. This fee will equal the product of
(i) one-twelfth, (ii) .45% and (iii) the Aggregate Discounted Contract Balance
of all contracts at the beginning of the preceding collection period, except
that for the first collection period, the servicing fee shall equal the product
of (i) the fraction of which the numerator is the actual number of days elapsed
during the first collection period and the denominator is 360 days, (ii) .45%
and (iii) the Aggregate Discounted Contract Balance of all contracts at the
closing date. The collection period is, for a particular payment date, the
entire calendar month immediately preceding that payment date. The servicing
fee, together with any portion of the servicing fee that remains unpaid from
prior payment dates, will be paid prior to distribution of any amounts to the
noteholders.
In addition, the servicer will be entitled to receive additional
compensation in the form of servicing charges, 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
S-31
<PAGE>
disposition of defaults and policing the collateral for that contract. The
servicing fee also will compensate the servicer for administering the contracts,
accounting for collections and furnishing statements to the trustee. The
servicing fee also will reimburse the servicer for taxes, accounting fees,
outside auditor fees, data processing costs and other costs incurred in
connection with administering the contracts.
The servicer will bear all costs of servicing the contracts under the
contribution and servicing agreement. The servicer will be entitled to retain
out of amounts recovered by the servicer its actual out-of-pocket expenses paid
to third parties reasonably incurred. These retained amounts will only come from
amounts actually recovered for any contract or the related equipment. In
addition, the servicer is entitled to receive on each payment date any amounts
previously paid by it as Servicer Advances, where the servicer has not been
reimbursed and either the contract has become a defaulted contract or the amount
has been determined to be a Nonrecoverable Advance.
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.
S-32
<PAGE>
OTHER SERVICING PROCEDURES
The third business day immediately preceding each payment date is called
a determination date. On each determination date, the servicer shall deliver a
written report, called the monthly servicer report, to each rating agency and to
the trustee.
The issuer, trustee or any noteholder is entitled to notify the servicer
that an obligor is in default under its contract. If it receives that notice, or
if the servicer otherwise learns that the obligor is in default under its
contract, the servicer will take action as is customary to cause the obligor to
cure its default. If the default can not be cured, the servicer will use its
best efforts to sell or re-lease any equipment under the defaulted contract. 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
indenture or servicer event of default occurs, to act as its attorney-in-fact,
to file Uniform Commercial Code financing statements in the appropriate offices
showing the transfer of the contracts to the issuer and to do any and all other
acts as may be necessary or appropriate. The servicer will promptly execute any
document or instrument deemed necessary by the issuer or the trustee to effect
or to evidence this power of attorney. All costs associated with such filings or
instructions will be paid by the contributor.
RESIGNATION/REMOVAL OF THE SERVICER
The contribution and servicing agreement will provide that the servicer
may not resign from its obligations and duties as servicer, except in connection
with an assignment permitted by the contribution and servicing agreement or upon
a determination that the servicer's performance of its duties is no longer
permissible under applicable law. No resignation will become effective until the
trustee or a successor servicer has assumed the servicer's servicing obligations
and duties under the contribution and servicing agreement. The servicer can only
be removed if there has occurred a servicer event of default. See "Description
of the Notes and Principal Transaction Documents-- Servicer Events of Default"
at page S- of this prospectus
S-33
<PAGE>
supplement and "Description of the Notes and Principal Transaction Documents --
Termination of the Servicer" at page S- of this prospectus supplement.
VOLUNTARY TERMINATION OF SERVICER DUTIES
At the option of the servicer, on any payment date on which the Pool A
Aggregate Discounted Contract Balance is less than 10% of the Pool A Initial
Aggregate Discounted Contract Balance, and the Pool B Aggregate Discounted
Contract Balance is less than 20% of the Pool B Initial Aggregate Discounted
Contract Balance, the servicer can have the Repurchase Amount deposited into the
collection account for each remaining contract. In this case, the servicer will
have purchased all remaining trust property and the obligations and
responsibilities of the servicer shall terminate.
The servicer has the same option to terminate its obligations and
responsibilities for the contracts in Pool B, on any payment date on which the
Pool B Aggregate Discounted Contract Balance is less than 20% of the Pool B
Initial Aggregate Discounted Contract Balance. 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.
DVI RECEIVABLES CORP. VIII
DVI Receivables Corp. VIII is a limited purpose Delaware corporation
formed in December, 1998. DVI Receivables Corp. VIII is the sole owner of all of
the membership units and sole member and managing member of the issuer.
DVI Receivables Corp. VIII is also the sole owner of all of the
membership units and sole member and managing member of DVI Receivables VIII,
L.L.C., DVI Receivables X, L.L.C., and DVI Receivables, XI, L.L.C., each a
limited purpose, limited liability company formed in Delaware. In July 1999, DVI
Receivables VIII, L.L.C. issued its Asset-Backed Series 1999-1 Notes in five
classes, four of which were offered in a public sale and the fifth offered in
reliance upon the Rule 144A exemption permitted under the Securities Act of
1933, as amended. In October 1999, DVI Receivables X, L.L.C. issued its
Asset-Backed Series 1999-2 Notes in five classes, four of which were offered in
a public sale and the fifth offered in reliance upon the Rule
S-34
<PAGE>
144A exemption permitted under the Securities Act of 1933, as amended. In May
2000, DVI Receivables XI, L.L.C. issued its Asset-Backed Series 2000 Notes in
seven classes, six of which were offered in a public sale and the seventh
offered in reliance upon the Rule 144A exemption permitted under the Securities
Act of 1933, as amended.
All of the outstanding capital stock of DVI Receivables Corp. VIII is
owned by DVI Financial Services Inc. DVI Receivables Corp. VIII's principal
executive office is located at 2500 York Road, Jamison, Pennsylvania, 18929. Its
telephone number is (215) 488-5000.
DVI RECEIVABLES CORP. XII
DVI Receivables Corp. XII is a limited purpose Delaware corporation
formed in April, 2000 to facilitate the interim financing of the contracts by
the issuer. All of the outstanding capital stock of DVI Receivables Corp. XII is
owned by DVI Financial Services Inc. DVI Receivables Corp. XII's principal
executive office is located at 2500 York Road, Jamison, Pennsylvania, 18929. Its
telephone number is (215) 488-5000. 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. XII with DVI Financial Services Inc. is extremely remote.
THE ISSUER
The issuer, DVI Receivables XII, L.L.C., is a limited purpose limited
liability company organized under the laws of the State of Delaware in April,
2000. DVI Receivables Corp. VIII is the sole member of the issuer.
The issuer will not engage in any business or investment activities
other than acquiring, owning, financing, transferring, receiving or pledging the
assets transferred to the issuer and related activities described in its
organizational documents. The issuer has been organized so that, to the extent
possible, neither it nor the trust property will be involved in any bankruptcy
proceedings. For example:
o the managing member of the issuer, DVI Receivables Corp. VIII, has
at least two independent directors who are not affiliated with DVI
Financial
S-35
<PAGE>
Services Inc. The independent directors are charged with acting in
the best interests of shareholders and creditors of DVI Receivables
Corp. VIII and the wholly-owned subsidiaries of DVI Receivables
Corp. VIII, and the unanimous vote of all directors, including the
independent directors, is necessary before DVI Receivables Corp.
VIII can commence voluntary proceedings in a bankruptcy action as
to either itself or the issuer, or direct the issuer to commence
any voluntary bankruptcy proceedings,
o DVI Receivables Corp. VIII, the transferor, the servicer and the
trustee all will agree not to file, or join in the filing of, any
legal action to force the issuer into bankruptcy proceedings, and
o counsel for the underwriters will render its opinion that if DVI
Financial Services Inc. were to be the subject of bankruptcy
proceedings, then the issuer and the trust property would not be
consolidated in these 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. XII's rights and remedies under the
contribution and servicing agreement.
THE TRUSTEE
The trustee, U.S. Bank Trust National Association, has its principal
corporate trust office at 180 Fifth Street, St. Paul, Minnesota 55101.
The trustee's liability in connection with the issuance and sale of the
notes is limited solely to the express obligations of the trustee listed in the
indenture.
No resignation or removal of the trustee and no appointment of a
successor trustee will become effective until the successor trustee has accepted
appointment. The trustee may resign at any time by giving written notice of
resignation to the issuer and the noteholders. Any successor trustee must meet
the financial and other standards for qualifying as a successor trustee under
the indenture. The trustee may be removed at any time by written notice from the
holders of notes
S-36
<PAGE>
holding more than 50% of the Voting Rights. The issuer may remove the trustee
under the limited circumstances set forth in Section 7.08 of the indenture.
If the trustee resigns or is removed, the issuer, with the consent of
the holders of notes of the majority of the Voting Rights, shall promptly
appoint a successor trustee. If a successor trustee has not been appointed and
accepted appointment within 30 days after notice of resignation or removal, the
trustee or any noteholder may petition any court of competent jurisdiction for
the appointment of a successor trustee.
THE CONTRACTS
The contracts consist of non-cancelable finance leases, fair market
value leases, leveraged lease loans, lease receivable purchases and secured
equipment notes. The obligors under the contracts are primarily hospitals,
non-hospital medical facilities, physician groups and physicians, businesses,
institutions, and professionals who utilize the equipment under those contracts
for commercial use throughout the United States. No Affiliates of DVI Financial
Services Inc. are or will be obligors under the contracts. The equipment is
principally non-invasive medical diagnostic and therapeutic equipment. It is
described on the table on page S-47 of this prospectus supplement. The issuer
will acquire most of the contracts, called the initial contracts, on the closing
date. On the closing date, the notes will be secured by the initial contracts,
the other trust property and the amounts on deposit in the reserve account.
The initial contracts will be purchased by the issuer from DVI
Receivables Corp. XII under an amended and restated subsequent contract transfer
agreement, dated as of April 1, 2000, between the issuer and DVI Receivables
Corp. XII. DVI Receivables Corp. XII will have acquired the initial contracts
from DVI Financial Services Inc. under an amended and restated contribution and
servicing agreement, dated as of April 1, 2000, between DVI Financial Services
Inc. and DVI Receivables Corp. XII. 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
S-37
<PAGE>
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. XII and the issuer will
cause its accounting records to be clearly and unambiguously marked to show that
each contract has been transferred by DVI Financial Services Inc. to DVI
Receivables Corp. XII, by DVI Receivables Corp. XII to the issuer and pledged by
the issuer to the trustee for the benefit of the noteholders pursuant to the
indenture.
Some of the contracts were originated by third parties known as brokers
and acquired by DVI Financial Services Inc. through purchases in its usual
course of business from various entities to those entities. These purchases are
called brokered transactions. Contracts acquired by DVI Financial Services Inc.
in brokered transactions are purchased by it using the same credit and equipment
criteria that DVI Financial Services Inc. applies to contracts which it writes
in its own name. Contracts acquired from brokers are serviced by DVI Financial
Services Inc. See "DVI Financial Services Inc. -- Underwriting Criteria" at page
S-20 of this prospectus supplement and "DVI Financial Services Inc.'s Credit
Underwriting and Review Process" at page 6 of the prospectus, for a description
of DVI Financial Services Inc.'s underwriting and credit and collection
policies. It is the policy of DVI Financial Services Inc. to ensure that UCC
financing statements covering the underlying equipment for contracts acquired by
DVI Financial Services Inc. in brokered transactions are filed against the
applicable obligors to the same extent as those financing statements would be
filed if the contracts were originated by DVI Financial Services Inc. DVI
Financial Services Inc. also arranges for those financing statements to be
assigned to DVI Financial Services Inc. In addition, DVI Financial Services Inc.
files financing statements against the applicable broker, to protect its
interest in the contracts and the other assets transferred to it in brokered
transactions.
The contracts, other than the leveraged leased loans, and the equipment
leases pledged as collateral for leveraged leased loans are exclusively on a
"net basis", that is, the obligor is responsible for all operating expenses,
including taxes and insurance premiums; except that some equipment leases
pledged as collateral for leveraged leased loans may require the lessor to
maintain and service the equipment. All obligors are obligated to:
S-38
<PAGE>
o remit all contract payments due,
o operate the equipment in compliance with the manufacturers'
instructions,
o except for the contracts described in the immediately preceding
sentence, maintain and service the equipment, and
o insure the equipment against casualty losses, liability for bodily
injury and against property damage.
Contract documentation also typically specifies that the obligor is responsible
for compliance with all applicable laws and regulations applicable to operation
of the equipment. Although in most cases the contracts provide that the obligor
must maintain the equipment, in some transactions the obligor's rental or debt
service payments include fees for supplies and other 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 have been pledged to DVI
Financial Services Inc. as collateral for that obligor's contract.
The contracts, other than the leveraged leased loans, and the equipment
leases pledged as collateral for a leveraged lease loan, in most cases do not
provide for a right of the obligor to prepay. However, under the contribution
and servicing agreement, the servicer is permitted to allow prepayment, in part
or in full, in an amount not less than the Prepayment Amount or Partial
Prepayment Amount, as applicable. In addition, in the event that an obligor
requests an upgrade or trade-in of equipment, the servicer, after paying the
Prepayment Amount or substituting an Eligible Contract, may remove the equipment
and related contract from the trust property. The servicer historically has
permitted obligors to terminate contracts early either in connection with the
execution of a new contract of replacement equipment, or upon payment of a
negotiated payoff amount, or both. Any Prepayment Amounts or Partial Prepayment
Amounts paid by the servicer shall be deposited into the collection account and
shall be applied as a
S-39
<PAGE>
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 7.660%;
(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-37 and "The Servicer" on page
S-28 of this prospectus supplement; and
(3) any payments due and outstanding under the contract that constitute
trust property but were not the subject of a Servicer Advance.
The servicer may only permit an obligor to partially prepay a contract
if the obligor pays an amount equal to the difference between the following (1)
and (2).
(1) the difference between (A) the discounted 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.
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.
S-40
<PAGE>
A contract is a defaulted contract when either:
o any contract payment or portion of contract payment is delinquent for
more than 180 days as of the last day of the calendar month,
o the servicer has not made a Servicer Advance to cover any delinquent
amounts, on the grounds that the advance would not be recoverable,
o the contract has been rejected in a bankruptcy proceeding involving the
obligor under that contract, or
o the lessor for any leveraged lease loan has rejected the related lease
in a bankruptcy proceeding involving that lessor.
For purposes of determining the length of time that a contract is
delinquent, the delinquency of a contract payment is measured using the contract
payments required to be made during the term of the contract as it was written
on the date that the contract became part of the trust property. This does not
take into account any modifications, waivers or extensions granted by the
servicer after that date, although modifications permitted under Section 4.02 of
the contribution and servicing agreement will be taken into account.
In contrast with a defaulted contract, a delinquent contract is, as of
any determination date, any contract under which the obligor has not paid all
contract payments which were due at the end of the prior calendar month.
However, a delinquent contract does not include a contract which became a
defaulted contract prior to that determination date. DVI Financial Services Inc.
will have the right, but not the obligation, to repurchase a delinquent contract
in order to more effectively service a delinquent contract and to enforce the
obligations of the obligor under the delinquent contract, but DVI Financial
Services Inc. will not repurchase more than fifteen percent of the Initial
Aggregate Discounted Contract Balance of the contracts.
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
S-41
<PAGE>
regarding the statistical contracts has been calculated using an assumed
Discount Rate of 7.75% per annum. The Aggregate Discounted Contract Balance of
the statistical contracts as of the cut-off date is $272,828,157.80 using the
assumed Discount Rate. The Aggregate Discounted Contract Balance of the initial
contracts as of the cut-off date is $273,612,728.90 using the actual Discount
Rate. The composition of the initial contracts as of the cut-off date will vary
somewhat from the composition of the statistical contracts as presented in this
prospectus supplement. DVI Financial Services Inc. does not expect that any
resulting difference will be material. We did not include purchase option
payments or miscellaneous payments in our calculations of Discounted Contract
Balances. For the purposes of future calculations, except when calculating a
repurchase price of a contract, we assumed that the Discounted Contract Balance
of any defaulted contract is zero. In addition, some statistical contracts
included in the statistical information included in this prospectus supplement
may not meet the eligibility requirements as of the cut-off date and will be
removed from the initial contracts. Also, there may be some initial contracts
that are not included as statistical contracts. As a result, the composition as
of the closing date for the final pool of initial contracts will vary somewhat
from the composition as presented in this prospectus supplement. DVI Financial
Services Inc. does not expect that any resulting variance will be material.
Detailed information for the statistical contracts is given below.
References in this prospectus supplement to percentages refer in each case to
the percentage of the Aggregate Discounted Contract Balance calculated based on
the assumed Discount Rate of the statistical contracts as of the cut-off date.
As of the cut-off date, the statistical contracts had remaining terms to
maturity of 2 to 83 months. The final scheduled payment date of the statistical
contract with the latest maturity will be in September 30, 2007. As of the
cut-off date, the Discounted Contract Balances of the statistical contracts
range from $1,887.02 to $5,117,844.60. No more than 2.62% 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 $160,581.61.
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
S-42
<PAGE>
information regarding any contracts that are included in the trust property but
were not included in the statistical contracts. Although the addition of these
contracts may change relative data given in the tables below, all initial
contracts must satisfy particular conditions, including that they are Eligible
Contracts. See "The Contracts -- Substitute Contracts" at page S-54 of this
prospectus supplement.
Any references in the tables below to
o "Number of contracts" treat separate equipment schedules to the same
master contract as separate contracts,
o "Original Equipment Cost" means, with respect to contracts acquired by
DVI Financial Services Inc. from others, the amount recorded on DVI
Financial Services Inc.'s records as paid by DVI Financial Services Inc.
to acquire that contract and the broker's interest in the related
equipment, and
o "Discounted Contract Balance" means the present value of the statistical
contracts, calculated based on an assumed Discount Rate of 7.75%. 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-43
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY EQUIPMENT LOCATION
-----------------------------------
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
PERCENTAGE OF AGGREGATE OF AGGREGATE
OF AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
NUMBER OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
EQUIPMENT LOCATION CONTRACTS CONTRACTS BALANCE BALANCE COST COST
------------------------------ ----------- -------------- -------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Alabama ...................... 21 1.24% $ 4,768,963.73 1.75% $ 6,569,770.65 2.24%
Alaska ....................... 2 0.12 19,890.50 0.01 18,666.90 0.01
Arizona ...................... 28 1.65 8,103,981.08 2.97 8,575,175.70 2.92
Arkansas ..................... 6 0.35 1,900,644.65 0.70 3,028,975.55 1.03
California ................... 228 13.42 30,160,496.38 11.05 32,474,142.95 11.05
Colorado ..................... 37 2.18 10,488,917.24 3.84 9,929,118.50 3.38
Connecticut .................. 24 1.41 882,394.31 0.32 961,208.70 0.33
Delaware ..................... 1 0.06 40,140.72 0.01 44,666.00 0.02
District of Columbia ......... 4 0.24 1,635,679.73 0.60 1,545,793.19 0.53
Florida ...................... 182 10.71 29,112,139.05 10.67 31,541,563.17 10.73
Georgia ...................... 50 2.94 7,728,741.11 2.83 7,485,689.20 2.55
Hawaii ....................... 2 0.12 119,392.24 0.04 152,876.18 0.05
Idaho ........................ 14 0.82 665,767.30 0.24 773,419.76 0.26
Illinois ..................... 73 4.30 7,719,104.34 2.83 10,508,242.91 3.58
Indiana ...................... 39 2.30 1,544,319.40 0.57 2,851,898.21 0.97
Iowa ......................... 10 0.59 643,369.68 0.24 1,252,190.69 0.43
Kansas ....................... 8 0.47 120,963.08 0.04 122,150.07 0.04
Kentucky ..................... 15 0.88 2,747,176.25 1.01 2,547,138.64 0.87
Louisiana .................... 14 0.82 501,474.00 0.18 514,151.52 0.17
Maine ........................ 5 0.29 201,773.73 0.07 213,939.01 0.07
Maryland ..................... 38 2.24 4,678,215.29 1.71 4,695,837.05 1.60
Massachusetts ................ 46 2.71 4,367,517.58 1.60 8,392,482.48 2.86
Michigan ..................... 55 3.24 5,148,401.90 1.89 5,267,398.77 1.79
Minnesota .................... 9 0.53 2,065,080.36 0.76 1,923,351.16 0.65
Mississippi .................. 10 0.59 6,779,590.34 2.48 6,321,996.25 2.15
Missouri ..................... 25 1.47 4,077,155.11 1.49 3,979,266.26 1.35
Montana ...................... 4 0.24 1,426,430.40 0.52 1,620,264.13 0.55
Nebraska ..................... 7 0.41 2,840,210.53 1.04 2,694,751.02 0.92
Nevada ....................... 10 0.59 520,570.12 0.19 496,777.53 0.17
New Hampshire ................ 2 0.12 120,090.05 0.04 116,181.77 0.04
New Jersey ................... 71 4.18 10,523,656.75 3.86 10,865,500.82 3.70
New Mexico ................... 12 0.71 11,432,320.93 4.19 11,149,575.65 3.79
New York ..................... 166 9.77 32,606,112.21 11.95 33,813,006.36 11.50
</TABLE>
S-44
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
PERCENTAGE OF AGGREGATE OF AGGREGATE
OF AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
NUMBER OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
EQUIPMENT LOCATION CONTRACTS CONTRACTS BALANCE BALANCE COST COST
------------------------ ----------- -------------- --------------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
North Carolina ......... 41 2.41% $ 3,761,200.22 1.38% $ 3,778,479.65 1.29%
North Dakota ........... 1 0.06 5,294.32 0.00 5,600.00 0.00
Ohio ................... 46 2.71 9,229,577.85 3.38 9,010,578.39 3.07
Oklahoma ............... 10 0.59 425,529.78 0.16 653,395.59 0.22
Oregon ................. 13 0.77 1,434,792.62 0.53 1,384,651.40 0.47
Pennsylvania ........... 86 5.06 11,791,897.73 4.32 13,743,839.34 4.68
Puerto Rico ............ 15 0.88 653,178.98 0.24 649,302.40 0.22
Rhode Island ........... 6 0.35 238,855.40 0.09 252,835.48 0.09
South Carolina ......... 18 1.06 1,148,213.36 0.42 1,155,132.48 0.39
South Dakota ........... 4 0.24 171,027.37 0.06 182,524.88 0.06
Tennessee .............. 19 1.12 1,131,401.88 0.41 1,948,348.09 0.66
Texas .................. 127 7.47 32,606,083.63 11.95 33,756,369.70 11.48
Utah ................... 12 0.71 441,981.86 0.16 452,530.56 0.15
Virginia ............... 30 1.77 3,133,636.08 1.15 3,357,616.90 1.14
Washington ............. 31 1.82 7,301,926.73 2.68 6,830,006.95 2.32
West Virginia .......... 6 0.35 238,405.33 0.09 258,508.21 0.09
Wisconsin .............. 13 0.77 1,785,815.71 0.65 1,665,671.09 0.57
Wyoming ................ 3 0.18 1,638,658.86 0.60 2,396,339.07 0.82
----- ------ ---------------- ------ ---------------- ------
Total .................. 1,699 100.00% $ 272,828,157.80 100.00% $ 293,928,896.93 100.00%
===== ====== ================ ====== ================ ======
</TABLE>
Based upon equipment addresses as reflected on the Servicer's records.
S-45
<PAGE>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY REMAINING CONTRACT TERM
----------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
PERCENTAGE OF AGGREGATE OF AGGREGATE
RANGE OF OF AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
REMAINING TERMS NUMBER OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
(IN MONTHS) CONTRACTS CONTRACTS BALANCE BALANCE COST COST
----------------- ----------- -------------- ------------------ -------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1-12 ........... 66 3.88% $ 2,801,490.73 1.03% $ 15,854,476.14 5.39%
13-24 ........... 192 11.30 10,584,702.63 3.88 21,963,820.21 7.47
25-36 ........... 540 31.78 27,315,789.52 10.01 30,580,194.31 10.40
37-48 ........... 176 10.36 23,347,490.36 8.56 25,090,674.61 8.54
49-60 ........... 624 36.73 100,790,967.37 36.94 98,763,447.55 33.60
61-72 ........... 89 5.24 77,829,770.23 28.53 72,683,845.13 24.73
73-84 ........... 12 0.71 30,157,946.96 11.05 28,992,438.98 9.86
----- ------ ---------------- ------ ---------------- ------
Total ........... 1,699 100.00% $ 272,828,157.80 100.00% $ 293,928,896.93 100.00%
===== ====== ================ ====== ================ ======
</TABLE>
DISTRIBUTION OF THE STATISTICAL CONTRACT POOL BY ORIGINAL CONTRACT TERM
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
PERCENTAGE OF AGGREGATE OF AGGREGATE
RANGE OF OF AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
ORIGINAL TERMS NUMBER OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
(IN MONTHS) CONTRACTS CONTRACTS BALANCE BALANCE COST COST
---------------- ----------- -------------- ------------------ -------------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
1-12 .......... 29 1.71% $ 439,971.43 0.16% $ 902,179.35 0.31%
13-24 .......... 153 9.01 3,785,939.71 1.39 4,263,593.98 1.45
25-36 .......... 482 28.37 24,065,786.70 8.82 26,755,622.75 9.10
37-48 .......... 227 13.36 18,966,762.50 6.95 20,461,565.47 6.96
49-60 .......... 584 34.37 77,910,356.66 28.56 80,349,987.03 27.34
61-72 .......... 196 11.54 103,051,327.81 37.77 111,617,876.32 37.97
73-84 .......... 22 1.29 34,858,273.80 12.78 37,695,067.60 12.82
85-96 .......... 6 0.35 9,749,739.19 3.57 11,883,004.43 4.04
----- ------ ---------------- ------ ---------------- ------
Total .......... 1,699 100.00% $ 272,828,157.80 100.00% $ 293,928,896.93 100.00%
===== ====== ================ ====== ================ ======
</TABLE>
S-46
<PAGE>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY TYPE OF EQUIPMENT
----------------------------------
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
PERCENTAGE OF AGGREGATE OF AGGREGATE
OF AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
NUMBER OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
EQUIPMENT TYPE CONTRACTS CONTRACTS BALANCE BALANCE COST COST
------------------------------------ ----------- -------------- ------------------- -------------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Computer and Peripherals ........... 143 8.42% $ 12,494,608.81 4.58% $ 13,023,492.89 4.43%
Computerized Tomography ............ 33 1.94 21,967,541.33 8.05 22,147,087.95 7.53
Dental Equipment ................... 133 7.83 1,934,041.51 0.71 2,012,499.36 0.68
Diagnostic Equipment ............... 57 3.35 5,179,095.16 1.90 5,134,598.18 1.75
Dialysis ........................... 1 0.06 788,840.66 0.29 2,129,133.97 0.72
Facilities ......................... 104 6.12 25,011,073.79 9.17 27,693,276.48 9.42
Imaging System ..................... 47 2.77 11,729,449.98 4.30 13,157,819.80 4.48
Laboratory ......................... 13 0.77 9,547,940.07 3.50 9,251,779.73 3.15
Magnetic Resonance Imaging ......... 91 5.36 90,595,572.82 33.21 98,548,382.13 33.53
Mammography ........................ 9 0.53 648,977.48 0.24 739,457.31 0.25
Medical Devices .................... 41 2.41 2,312,458.79 0.85 2,402,573.42 0.82
Medical Equipment .................. 623 36.67 52,954,201.70 19.41 54,244,588.15 18.46
Medical Vehicles ................... 8 0.47 856,785.90 0.31 1,294,788.86 0.44
Optometry .......................... 41 2.41 3,028,302.93 1.11 2,970,940.46 1.01
Patient Monitoring ................. 102 6.00 2,743,352.15 1.01 2,788,250.44 0.95
Physical Therapy ................... 50 2.94 1,553,002.12 0.57 1,629,344.40 0.55
Radiation Therapy .................. 5 0.29 2,026,152.70 0.74 6,405,056.00 2.18
Radiology .......................... 7 0.41 2,063,789.90 0.76 1,906,987.20 0.65
Surgical Equipment ................. 110 6.47 15,727,120.86 5.76 16,137,295.12 5.49
Telecommunication .................. 10 0.59 4,155,715.81 1.52 4,838,936.65 1.65
Ultrasound ......................... 49 2.88 4,938,422.54 1.81 4,894,608.26 1.67
Urology ............................ 5 0.29 99,999.70 0.04 99,837.09 0.03
Veterinary Equipment ............... 4 0.24 17,916.79 0.01 23,091.45 0.01
X-Ray .............................. 13 0.77 453,794.30 0.17 455,071.63 0.15
----- ------ ---------------- ------ ---------------- ------
Total .............................. 1,699 100.00% $ 272,828,157.80 100.00% $ 293,928,896.93 100.00%
===== ====== ================ ====== ================ ======
</TABLE>
By way of explanation for some of the equipment types listed on the
table on page S-47:
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
S-47
<PAGE>
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.
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
S-48
<PAGE>
study metabolic functions. As the isotopes decay, they emit small
doses of radioactivity which are detected by the nuclear medicine
camera to produce two-dimensional images. These systems range in
selling price from $50,000 to $500,000.
o Computerized tomography is used to image tumors and for motion
sensitive, yet high contrast, diagnostic studies. It produces higher
contrast images than conventional X-ray. Computerized tomography
scanners range in selling price from $300,000 to $800,000.
o Ultrasound is the preferred imaging modality for obstetrics, as well as
certain vascular and cardiac studies. Ultrasound systems emit ultrasonic
sound waves which are reflected by body tissues, then recorded and
processed into images by a computer. Selling prices for ultrasound
systems range from $50,000 to $750,000.
o Physical therapy equipment is used in patient rehabilitation including
treadmill machines, fitness equipment and therapy simulators. Prices
range from $5,000 to $400,000.
o Mammography equipment is special equipment used in the detection of
breast cancer. Selling prices range from $30,000 to $500,000.
o Radiology equipment is used to determine the functional state of organs.
Prices range from $50,000 to $500,000.
o Conventional X-ray equipment uses ionizing radiation to produce
single-dimension images on a sheet of transparent film. Other X-ray
systems are used in diagnostic imaging studies such as peripheral and
coronary angiography. Selling prices range from $5,000 to $500,000.
S-49
<PAGE>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY DISCOUNTED CONTRACT BALANCE
--------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
PERCENTAGE OF AGGREGATE OF AGGREGATE
OF AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
RANGE OF DISCOUNTED NUMBER OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
CONTRACT BALANCES CONTRACTS CONTRACTS BALANCE BALANCE COST COST
------------------------------------- ----------- ------------ --------------- -------------- ------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.01-$ 25,000.00......... 816 48.03% $ 9,495,041.28 3.48% $ 10,467,379.27 3.56%
$ 25,000.01-$ 50,000.00......... 306 18.01 10,992,365.96 4.03 12,144,696.93 4.13
$ 50,000.01-$ 75,000.00......... 157 9.24 9,754,174.64 3.58 11,192,245.82 3.81
$ 75,000.01-$ 100,000.00......... 81 4.77 7,076,401.96 2.59 7,992,396.97 2.72
$ 100,000.01-$ 150,000.00......... 64 3.77 7,717,545.43 2.83 11,203,062.55 3.81
$ 150,000.01-$ 200,000.00......... 50 2.94 8,557,551.25 3.14 10,240,558.08 3.48
$ 200,000.01-$ 250,000.00......... 23 1.35 5,241,320.46 1.92 9,113,780.44 3.10
$ 250,000.01-$ 300,000.00......... 22 1.29 6,009,784.12 2.20 11,847,002.70 4.03
$ 300,000.01-$ 350,000.00......... 5 0.29 1,647,658.02 0.60 1,657,299.18 0.56
$ 350,000.01-$ 400,000.00......... 15 0.88 5,649,593.32 2.07 5,768,992.95 1.96
$ 400,000.01-$ 450,000.00......... 18 1.06 7,687,789.33 2.82 9,183,011.03 3.12
$ 450,000.01-$ 500,000.00......... 9 0.53 4,271,711.48 1.57 4,523,655.74 1.54
$ 500,000.01-$ 750,000.00......... 36 2.12 22,362,412.42 8.20 24,992,592.98 8.50
$ 750,000.01-$1,000,000.00......... 20 1.18 17,290,926.49 6.34 18,550,766.08 6.31
$1,000,000.01-$2,000,000.00......... 52 3.06 71,115,490.35 26.07 70,522,192.18 23.99
$2,000,000.01-$3,000,000.00......... 12 0.71 28,233,633.04 10.35 26,747,325.41 9.10
$3,000,000.01-$4,000,000.00......... 8 0.47 26,766,626.05 9.81 25,892,900.68 8.81
$4,000,000.01-$5,000,000.00......... 3 0.18 12,776,338.06 4.68 12,300,846.49 4.18
$5,000,000.01-$6,000,000.00......... 2 0.12 10,181,794.14 3.73 9,588,191.45 3.26
----- ------ ---------------- ------ ---------------- ------
Total ............................... 1,699 100.00% $ 272,828,157.80 100.00% $ 293,928,896.93 100.00%
===== ====== ================ ====== ================ ======
</TABLE>
S-50
<PAGE>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY ORIGINAL EQUIPMENT COST
----------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
PERCENTAGE OF AGGREGATE OF AGGREGATE
OF AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
RANGE OF ORIGINAL NUMBER OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
EQUIPMENT COST CONTRACTS CONTRACTS BALANCE BALANCE COST COST
------------------------------------ ----------- -------------- ------------------ -------------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.01-$ 25,000.00......... 796 46.85% $ 9,135,985.97 3.35% $ 9,615,266.92 3.27%
$ 25,000.01-$ 50,000.00......... 310 18.25 10,851,650.50 3.98 11,351,557.57 3.86
$ 50,000.01-$ 75,000.00......... 150 8.83 9,054,020.27 3.32 9,477,542.92 3.22
$ 75,000.01-$ 100,000.00......... 82 4.83 6,639,720.93 2.43 7,020,722.91 2.39
$ 100,000.01-$ 150,000.00......... 68 4.00 7,938,062.82 2.91 8,180,415.35 2.78
$ 150,000.01-$ 200,000.00......... 46 2.71 7,521,649.54 2.76 7,961,154.43 2.71
$ 200,000.01-$ 250,000.00......... 25 1.47 5,247,059.95 1.92 5,530,080.94 1.88
$ 250,000.01-$ 300,000.00......... 23 1.35 4,702,204.53 1.72 6,245,013.64 2.12
$ 300,000.01-$ 350,000.00......... 8 0.47 2,358,159.74 0.86 2,637,633.63 0.90
$ 350,000.01-$ 400,000.00......... 21 1.24 7,534,163.52 2.76 7,913,617.76 2.69
$ 400,000.01-$ 450,000.00......... 9 0.53 3,780,258.18 1.39 3,842,964.73 1.31
$ 450,000.01-$ 500,000.00......... 15 0.88 6,668,457.02 2.44 7,145,066.66 2.43
$ 500,000.01-$ 750,000.00......... 36 2.12 21,389,305.07 7.84 21,843,429.90 7.43
$ 750,000.01-$1,000,000.00......... 24 1.41 20,394,425.32 7.48 21,208,023.80 7.22
$1,000,000.01-$2,000,000.00......... 60 3.53 77,243,802.54 28.31 85,772,256.31 29.18
$2,000,000.01-$3,000,000.00......... 17 1.00 35,718,448.66 13.09 42,264,454.50 14.38
$3,000,000.01-$4,000,000.00......... 4 0.24 13,984,975.29 5.13 13,931,532.02 4.74
$4,000,000.01-$5,000,000.00......... 4 0.24 17,601,858.41 6.45 16,985,375.49 5.78
$5,000,000.01-$6,000,000.00......... 1 0.06 5,063,949.54 1.86 5,002,787.45 1.70
----- ------ ---------------- ------ ---------------- ------
Total .............................. 1,699 100.00% $ 272,828,157.80 100.00% $ 293,928,896.93 100.00%
===== ====== ================ ====== ================ ======
</TABLE>
S-51
<PAGE>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY TEN LARGEST OBLIGORS
-------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
PERCENTAGE OF AGGREGATE OF AGGREGATE
OF AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
NUMBER OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
OBLIGOR RANKING CONTRACTS CONTRACTS BALANCE BALANCE COST COST
----------------- ----------- -------------- ------------------ -------------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
1 ............... 2 0.12% $ 7,144,661.34 2.62% $ 7,599,125.00 2.59%
2 ............... 2 0.12 6,447,246.12 2.36 6,000,000.00 2.04
3 ............... 5 0.29 6,246,489.05 2.29 6,005,757.53 2.04
4 ............... 8 0.47 6,177,097.20 2.26 6,389,271.97 2.17
5 ............... 3 0.18 6,141,669.15 2.25 5,913,821.43 2.01
6 ............... 4 0.24 5,554,040.94 2.04 4,926,434.90 1.68
7 ............... 1 0.06 5,117,844.60 1.88 4,585,404.00 1.56
8 ............... 1 0.06 5,063,949.54 1.86 5,002,787.45 1.70
9 ............... 3 0.18 4,689,675.46 1.72 4,216,290.04 1.43
10 .............. 1 0.06 4,511,008.27 1.65 4,171,723.91 1.42
Other ........... 1,669 98.23 215,734,476.13 79.07 239,118,280.70 81.35
----- ------ ---------------- ------ ---------------- ------
Total ........... 1,699 100.00% $ 272,828,157.80 100.00% $ 293,928,896.93 100.00%
===== ====== ================ ====== ================ ======
</TABLE>
DISTRIBUTION OF THE STATISTICAL CONTRACT POOL BY CONTRACT TYPE
--------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
PERCENTAGE OF AGGREGATE OF AGGREGATE
OF AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
NUMBER OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
CONTRACT TYPE CONTRACTS CONTRACTS BALANCE BALANCE COST COST
---------------------------------- ----------- -------------- ------------------ -------------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Fair Market Value Leases ......... 361 21.25 40,351,098.62 14.79 43,944,758.75 14.95
Finance Leases ................... 938 55.21% $ 83,441,907.84 30.58% $ 91,484,755.33 31.12%
Secured Equipment Notes .......... 400 23.54 149,035,151.34 54.63 158,499,382.85 53.92
----- ------ ---------------- ------ ---------------- ------
Total ............................ 1,699 100.00% $ 272,828,157.80 100.00% $ 293,928,896.93 100.00%
===== ====== ================ ====== ================ ======
</TABLE>
S-52
<PAGE>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY BUSINESS TYPE
------------------------------
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
PERCENTAGE OF AGGREGATE OF AGGREGATE
OF AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
NUMBER OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
BUSINESS TYPE CONTRACTS CONTRACTS BALANCE BALANCE COST COST
----------------------------------- ----------- -------------- ------------------ -------------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Dental ............................ 229 13.48% $ 3,606,802.86 1.32% $ 4,942,382.94 1.68%
Diagnostic Imaging Center ......... 14 0.82 9,361,625.75 3.43 8,855,148.79 3.01
Dialysis Center ................... 2 0.12 83,995.13 0.03 80,997.09 0.03
Holding Company/Various
Centers .......................... 24 1.41 9,904,395.81 3.63 11,370,829.70 3.87
Home Health Care .................. 22 1.29 1,802,337.10 0.66 1,812,615.21 0.62
Hospital .......................... 114 6.71 20,994,825.93 7.70 23,330,940.54 7.94
Hyperbaric Chambers ............... 2 0.12 830,508.34 0.30 783,244.29 0.27
M.D. Clinic ....................... 162 9.54 12,516,181.50 4.59 12,328,351.86 4.19
Mobile MRI ........................ 8 0.47 2,497,303.01 0.92 4,356,295.74 1.48
MRI Only Center ................... 64 3.77 43,408,321.76 15.91 48,824,347.90 16.61
MRI & Other Multiple
Center ........................... 57 3.35 34,702,595.29 12.72 33,233,255.50 11.31
Multi-Modality .................... 81 4.77 45,664,896.23 16.74 44,992,493.05 15.31
Optical ........................... 69 4.06 4,734,787.85 1.74 5,446,400.04 1.85
Outpatient Surgery Center ......... 28 1.65 15,490,074.16 5.68 15,397,377.30 5.24
Physician Practices ............... 333 19.60 19,877,664.58 7.29 24,505,510.35 8.34
Positron Emission
Tomography ....................... 4 0.24 3,513,818.09 1.29 3,188,460.11 1.08
Radiation Therapy Center .......... 7 0.41 2,219,253.33 0.81 4,871,635.17 1.66
Skilled Nursing Center ............ 42 2.47 1,887,707.42 0.69 1,925,275.87 0.66
Other ............................. 437 25.72 39,731,063.66 14.56 43,683,335.48 14.86
----- ------ ---------------- ------ ---------------- ------
Total ............................. 1,699 100.00% $ 272,828,157.80 100.00% $ 293,928,896.93 100.00%
===== ====== ================ ====== ================ ======
</TABLE>
S-53
<PAGE>
SUBSTITUTE CONTRACTS
Under some circumstances, the servicer will have the right, but not the
obligation, at any time to substitute one or more Eligible Contracts and a
security interest in the equipment under that contract for a contract in a pool.
We call this Eligible Contract and related rights a substitute contract. This
right of substitution can be exercised for Pool A contracts if:
o (A) any contract payment on a Pool A contract is delinquent for at least
sixty consecutive days as of the most recent determination date; (B) a
bankruptcy petition has been filed by or against the obligor or, for a
leveraged lease loan, the related lessor, under any Predecessor
Contract; or (C) the Pool A contract became a defaulted contract for the
first time during the related collection period,
o other conditions listed in the contribution and servicing agreement have
been satisfied, and
o the sum of (x) the Discounted Contract Balances of all substitute
contracts substituted as provided for in this sentence and (y) amounts
deposited by the servicer in the collection account in connection with
all those substitutions mentioned in this sentence does not exceed 10%
of the Pool A Aggregate Discounted Contract Balance as of the closing
date.
In addition to these rights, the servicer will also have the right, but
not the obligation, at any time to substitute one or more substitute contracts
and a security interest in the related equipment for a Pool A contract and a
security interest in the related equipment. This right of substitution can be
exercised if:
o the Pool A contract has been prepaid,
o conditions listed in the contribution and servicing agreement have been
satisfied, and
S-54
<PAGE>
o the sum of (x) the Discounted Contract Balance of all substitute
contracts substituted as provided for in this sentence and those made
under section 4.02 of the contribution and servicing agreement and (y)
amounts deposited by the servicer in the collection account in
connection with all substitutions mentioned in this sentence and those
substitutions made under section 4.02 of the contribution and servicing
agreement does not exceed 10% of the Pool A Aggregate Discounted
Contract Balance as of the closing date.
Under some circumstances, the servicer will have the right, but not the
obligation, to substitute one or more Eligible Contracts and a security interest
in the related equipment for a Pool B contract. This right of substitution can
be exercised if:
o conditions listed in the contribution and servicing agreement have been
satisfied, and
o the sum of (x) the Discounted Contract Balances of all substitute
contracts substituted under this sentence and (y) amounts deposited by
the servicer in the collection account in connection with all
substitutions under this sentence does not exceed 10% of the Pool B
Aggregate Discounted Balance as of the closing date.
In addition, the servicer will have the right, but not the obligation,
at any time in connection with the exercise by DVI Receivables Corp. XII of its
substitution rights, to substitute one or more substitute contracts and a
security interest in the related equipment for a Pool B contract and a security
interest in the related equipment. This right of substitution can be exercised
if:
o the Pool B contract has been prepaid,
o conditions listed in the contribution and servicing agreement have been
satisfied, and
S-55
<PAGE>
o the sum of (x) the Discounted Contract Balance of all substitute
contracts substituted as provided for in this sentence and those made
under section 4.02 of the contribution and servicing agreement and (y)
amounts deposited by the servicer in the collection account in
connection with all substitutions mentioned in this sentence and those
substitutions made under section 4.02 of the contribution and servicing
agreement does not exceed 10% of the Pool B Aggregate Discounted
Contract Balance as of the closing date. Unless each rating agency has
given its prior consent, the sum of clauses (x) and (y) in this
paragraph may not exceed 10% of the Pool B Aggregate Discounted Balance
as of the closing date.
To become a substitute contract, a contract must meet all the criteria
of an Eligible Contract described in the glossary.
DESCRIPTION OF THE NOTES AND PRINCIPAL TRANSACTION DOCUMENTS
The notes are described on the cover page of this prospectus supplement
and will be issued under the amended and restated indenture, dated as of April
1, 2000, entered into between the issuer and the trustee. The following summary
describes some provisions of the notes, that indenture and the contribution and
servicing agreement. However, it is not complete and prospective investors
should read those agreements in their entirety.
GENERAL PROVISIONS OF THE NOTES
The notes are limited recourse obligations of the issuer only, with no
recourse to DVI Financial Services Inc., the trustee or any other person. The
issuer's liability is limited to the income and proceeds from the trust
property. The issuer will agree in the indenture and in the notes to pay each
class of noteholders the amounts of principal and interest on the dates shown in
the indenture. Each payment of principal is required to equal the sum of:
o Monthly Principal for that class, and
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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 class A-1 notes based on the actual number of
days elapsed from a payment date (or, in the case of the first payment date, the
closing date) to the following payment date, and, on the other notes, based on a
thirty day calendar month, from the twelfth calendar day of the month (or, in
the case of the first payment date, the closing date) to the eleventh calendar
day of the following month, and is payable, along with required principal, on
the twelfth day of each month, or if the day is not a business day, the
immediately following business day.
Notes that are subordinated in priority of payment to other classes of
notes have a lesser likelihood of receiving the regular distributions as
outlined in the "Flow of Funds to and from the Collection Account" section on
page S-68 of this prospectus supplement. Similarly, if the trustee should ever
foreclose upon the trust property, each superior class of notes has a greater
protection against realizing losses than do notes that are subordinated.
The following note payments are subordinated as shown below.
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Note payment Subordinated to the full payment of:
------------ ------------------------------------
Class A interest Interest on the class A notes is not subordinated
to any other note payments.
Class A principal All interest due and overdue on all classes of
notes.
Class B interest All interest due and overdue on the class A notes.
Class B principal If no Amortization Event is happening:
o all interest due and overdue on all
classes of notes, and
o all principal due and overdue on the
class A notes.
If an Amortization Event is happening:
o all interest due and overdue on all
classes of the notes, and
o the entire outstanding principal amount
due on the class A notes.
Class C interest All interest due and overdue on the class A notes
and the class B notes.
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Class C principal If no Amortization Event is happening:
o all interest due and overdue on all
classes of the notes, and
o all principal due and overdue on the
class A notes and the class B notes.
If an Amortization Event is happening:
o all interest due and overdue on all
classes of the notes, and
o the entire outstanding principal amount
due on the class A notes and the class B
notes.
Class D interest All interest due and overdue on the class A notes,
the class B notes and the class C notes.
Class D principal If no Amortization Event is happening:
o all interest due and overdue on all
classes of the notes, and
o all principal due and overdue on the
class A notes, the class B notes, and
the class C notes.
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If an Amortization Event is happening:
o all interest due and overdue on all
classes of the notes, and
o the entire outstanding principal amount
due on the class A, class B and class C
notes.
Class E interest All interest due and overdue on the class A notes,
the class B notes, the class C notes and the class
D notes.
Class E principal If no Amortization Event is happening:
o all interest due and overdue on all
classes of the notes, and
o all principal due and overdue on the
class A notes, the class B notes, the
class C notes and the class D notes.
If an Amortization Event is happening:
o all interest due and overdue on all
classes of the notes, and
o the entire outstanding principal amount
due on the class A, class B, class C and
class D notes.
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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-84 for exceptions to this rule. Unless and until definitive securities
are issued for the notes under the limited circumstances described in this
prospectus supplement, all references to actions by noteholders for the notes
shall refer to actions taken by The Depository Trust Company upon instructions
from its participants. Also, unless and until definitive securities are issued
for the notes as described in this prospectus supplement, all references in this
prospectus supplement to distributions, notices, reports and statements to
noteholders for the notes shall refer to distributions, notices, reports and
statements to The Depository Trust Company or Cede, as the registered holder of
the notes, for distribution to beneficial owners by The Depository Trust Company
in accordance with The Depository Trust Company procedures.
Payments on the notes are required to be made by the trustee on each
payment date, to persons in whose names notes are registered on the record date
for that payment date. The first payment date with respect to interest on any
note is December 12, 2000. The first payment date with respect to principal for
the class A-1 notes, class B notes, class C notes and class D notes will be
December 12, 2000. We expect the first payment date with respect to principal
for the class A-2 notes, to be July 12, 2001, for the class A-3 notes, to be
March 12, 2002 and for the class A-4 notes, to be August 12, 2003. Payments are
required to be made by the trustee by wire transfer of immediately available
funds, to the registered holders of the notes, initially, Cede & Co., appearing
in the note register on the record date. If no account is specified for a
noteholder, the trustee will mail a check to the address for that noteholder
appearing in the note register on that record date. A note register is a
register kept by the trustee in the Corporate Trust Office in which the trustee
shall provide for the registration of Notes and the transfer of notes. A
participant is a participating
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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. XII, DVI Receivables Corp. XII will transfer to the
issuer, and the issuer will pledge to the trustee, all of its right, title and
interest in and to the trust property. The trust property does not include some
amounts included in the obligor's payments to which DVI Financial Services Inc.
is not entitled, such as property taxes, sales, taxes, manufacturer's
maintenance costs, insurance premiums and supplies and transaction costs. Also
not included in the trust property are:
o any purchase option payments,
o ownership of any equipment, although the trust property includes a
security interest in that equipment, or
o any rights of DVI Financial Services Inc. in any accounts receivable of
the obligor which have been pledged to DVI Financial Services Inc. as
collateral for that obligor's contract.
In general, a purchase option payment is any payment made by the obligor
under the contract to purchase the equipment covered under the contract. A
purchase option payment would include any funds received in respect of any of
the following:
o an end of term purchase option for $1,
o an end of term option to purchase the equipment at a stated percentage
of the original cost of the equipment,
o an option to purchase the equipment at the fair market value of the
equipment determined at the end of the contract term, or
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o an end of term option to extend the term of the lease for one or more
immediately succeeding twelve month periods.
On the closing date, the issuer will have delivered a copy of the
contract schedule to the trustee for the initial contracts. The contract
schedule will include for each contract:
o a number identifying the contract,
o the obligor's name and address,
o the original maturity of each contract,
o the type of equipment subject to each contract, each contract's location
and, if available, original equipment cost,
o the remaining maturity of each contract,
o the Discounted Contract Balance as of the cut-off date,
o the type of contract and pool,
o the amount and scheduled due date of each contract payment due under
each of the contracts, and
o the commencement date of each contract.
DVI Financial Services Inc. also will deliver to the trustee the
contract file for each contract. DVI Financial Services Inc., DVI Receivables
Corp. XII 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. XII, and by DVI Receivables Corp. XII 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. XII. 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
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waived by the noteholders holding a majority of the Voting Rights within ninety
days after DVI Financial Services Inc. learns of the breach. The trustee will be
granted the right to enforce these representations and warranties directly
against DVI Financial Services Inc.
INDEMNIFICATION
The contribution and servicing agreement provides that DVI Financial
Services Inc., as contributor and servicer, will defend and indemnify itself,
the servicer, the trustee, DVI Receivables Corp. XII, the issuer and the
noteholders against any and all losses, claims, damages and liabilities suffered
by any of those parties by reason of a breach by DVI Financial Services Inc. of
its obligations under the contribution and servicing agreement.
Neither the servicer nor any of the directors, officers, employees or
agents of the servicer shall incur any liability to DVI Receivables Corp. XII,
the issuer, the trustee or the noteholders, for any action taken or not taken in
good faith under the contribution and servicing agreement relating to any
contract. This includes any defaulted contract, or the equipment under that
contract. This exception from liability does not apply to either:
o any breach of warranties or representations made by the servicer in the
contribution and servicing agreement or in any certificate delivered in
conjunction with the purchase of the notes, or
o for any liability which would otherwise be imposed by reason of willful
misfeasance or negligence in the performance of the servicer's duties
under the contribution and servicing agreement or by reason of reckless
disregard of its obligations and duties under that agreement.
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
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servicer. Not only will the servicer give the trustee prior written notice of
any change in the location of any lockbox account, but the servicer will also
give at least 10 days' prior written notice of the new location to each obligor.
The trustee, under the indenture, is required to establish and maintain
the collection account, the distribution account and the reserve account, each
in the name of the trustee and for the benefit of the noteholders and the issuer
to the extent of their interest in those accounts. Each account will be one or
more segregated trust accounts held by the trustee. In addition, the trustee
will establish and maintain sub-accounts of the distribution account for each
class of notes as needed.
The indenture permits the servicer to instruct how amounts in the
collection account and the reserve account will be invested in certain types of
highly rated investments, which are called eligible investments. All amounts
invested in eligible investments and all investments made with those amounts,
including all income and other gain from the investments, will be held by the
trustee in the accounts as part of the trust property as provided in the
indenture. Any net loss of principal, determined on a month-by-month basis,
resulting from the investment of the amounts in the collection account and
reserve accounts will be charged to the issuer. The issuer shall reimburse that
account within three business days of being notified of a net loss of principal
by the trustee. The trustee shall not in any way be held liable because of any
insufficiency in the collection account and distribution accounts resulting from
losses on investments made in accordance with the indenture unless the trustee
is the obligor under an eligible investment. The trustee shall not be liable for
any investment made by it in accordance with the indenture on grounds that it
could have made a more favorable investment.
All payments and proceeds of the contracts collected in the lockbox
account, including any investment earnings, will be deposited into the
collection account. The servicer is required to deposit the amounts into the
collection account within two business days of receipt. If rating agency
conditions are satisfied, however, the deposit of collections for a particular
collection period will be made by the servicer within two business days prior to
the related payment date. Pending deposit into the collection account,
collections may be invested by the servicer at its own risk and for its own
benefit, and will not be segregated from funds of the
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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,
o then, to the class C notes,
o then, to the class D notes, and
o then, to the class E notes.
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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 or 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 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.
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Any amounts on deposit in the reserve account, after payment of amounts
due to the noteholders and termination of the indenture, shall be paid to DVI
Receivables Corp. VIII, as managing member of the issuer, upon DVI Receivable
Corp. VIII's written request to the trustee.
FLOW OF FUNDS TO AND FROM THE COLLECTION ACCOUNT
The servicer shall remit to the collection account all amounts received
by it for the trust property not later than the second business day after
receipt. The servicer also shall cause monies in each lockbox account to be paid
to the collection account in the same time frame. However, if permitted by the
rating agencies, the servicer will only pay those monies to the collection
account on or before the second business day prior to each payment date. The
indenture instructs the trustee about which and how to deposit all other amounts
received by it.
Unless the notes have been declared due and payable under the indenture
and monies collected by the trustee are being applied accordingly, the trustee
on each payment date will withdraw and pay or cause to be paid the following
claims from the Available Funds. The Available Funds will be applied in the
following order of priority:
(1) to the servicer, the servicing fee due to the servicer on that
payment date (including, if that servicer is not DVI Financial
Services Inc., any additional amount agreed upon in good faith and
commercially reasonable judgment between such servicer and the trustee
to cover the costs of transferring the servicer operations to such
successor servicer and a fee to the trustee equal to the product of
(A) one-twelfth, (B) .01% and (C) the Aggregate Discounted Contract
Balance of all contracts at the beginning of the preceding collection
period);
(2) to the servicer, any unreimbursed Nonrecoverable Advances or
Servicer Advances previously made for delinquent contracts;
(3) first, to the Class A Distribution Sub-Account, in the following order
of priority, the sum of:
(A) the Class A-1 Monthly Interest; and
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(B) the Class A-1 Overdue Interest, if any;
second, to the Class A Distribution Sub-Account, in the following
order of priority, the sum of:
(A) the Class A-2 Monthly Interest; and
(B) the Class A-2 Overdue Interest, if any;
third, to the Class A Distribution Sub-Account, in the following order
of priority, the sum of:
(A) the Class A-3 Monthly Interest; and
(B) the Class A-3 Overdue Interest, if any;
fourth, to the Class A Distribution Sub-Account, in the following
order of priority, the sum of:
(A) the Class A-4 Monthly Interest; and
(B) the Class A-4 Overdue Interest, if any;
(4) to the Class B Distribution Sub-Account, in the following order of
priority, in the sum of the Class B Monthly Interest and any Class B Overdue
Interest;
(5) to the Class C Distribution Sub-Account, in the following order of
priority, the sum of the Class C Monthly Interest and any Class C Overdue
Interest;
(6) to the Class D Distribution Sub-Account, in the following order of
priority, in the sum of the Class D Monthly Interest and any Class D Overdue
Interest;
(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;
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(8) as long as no Amortization Event shall have occurred and be
continuing, to the Class A Distribution Sub-Account, in the following
order of priority, the sum of:
(A) the Class A-1 Overdue Principal, if any;
(B) the Class A-1 Monthly Principal;
(C) the Class A-2 Overdue Principal, if any;
(D) the Class A-2 Monthly Principal;
(E) the Class A-3 Overdue Principal, if any;
(F) the Class A-3 Monthly Principal;
(G) the Class A-4 Overdue Principal, if any; and
(H) the Class A-4 Monthly Principal;
(9) as long as no Amortization Event shall have occurred and be
continuing, to the Class B Distribution Sub-Account, in the following
order of priority, the sum of:
(A) any Class B Overdue Principal, if any; and
(B) the Class B Monthly Principal; then,
(10) as long as no Amortization Event shall have occurred and be
continuing, to the Class C Distribution Sub-Account, in the following
order of priority, the sum of:
(A) any Class C Overdue Principal; and
(B) the Class C Monthly Principal; then,
(11) as long as no Amortization Event shall have occurred and be
continuing, to the Class D Distribution Sub-Account, in the following
order of priority, the sum of:
(A) any Class D Overdue Principal; and
(B) the Class D Monthly Principal; then,
(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:
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(A) any Class E Overdue Principal; and
(B) the Class E Monthly Principal;
(13) as long as no Amortization Event shall have occurred and be
continuing, to the reserve account, the Reserve Account Deposit Amount;
(14) if an Amortization Event shall have occurred and be continuing and
has not been waived by noteholders with at least 66b% of the Voting
Rights, in the following order of priority:
first, to the Class A Distribution Sub-Account the
amount necessary to reduce the Class A-1 Note Balance to
zero;
then, to the Class A Distribution Sub-Account, the
amount necessary to reduce the Class A-2 Note Balance to
zero;
then, to the Class A Distribution Sub-Account, the
amount necessary to reduce the Class A-3 Note Balance to
zero; and
then, to the Class A Distribution Sub-Account, the
amount necessary to reduce the Class A-4 Note Balance to
zero;
provided, however, that upon the occurrence of a
Subordination Deficiency Event, after the Class A-1 Note
Balance has been reduced to zero, and the Class A-2 Note
Balance has been reduced to zero, then the Class A-3 Note
Balance and the Class A-4 Note Balance will be paid
proportionately without preference or priority; and
second, to the Class B Distribution Sub-Account the
amount necessary to pay the class B notes in full; and
third, to the Class C Distribution Sub-Account the
amount necessary to pay the class C notes in full;
fourth, to the Class D Distribution Sub-Account the
amount necessary to pay the class D notes in full; and
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fifth, to the Class E Distribution Sub-Account the
amount necessary to pay the class E notes in full; and then
(15) any remaining Available Funds on deposit in the collection account
will be paid to the issuer.
If on any payment date the Available Funds on deposit in the collection
account are less than the sum necessary to make the Priority Payments required
under clauses (3) through and including (12) and clause (14), each as
applicable, then the trustee shall withdraw from the reserve account, to the
extent that such funds are on deposit in the reserve account and after taking
into account payments to be made under clauses (1) and (2) above, and deposit
into the distribution accounts 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 66b% 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 66b% 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 in the Class A Distribution Sub-Account
and allocated as set forth in the "Description of the Notes and Principal
Transaction Documents -- Flow of Funds to and from the Collection Account"
section of this prospectus supplement. Such payments are to be made, first to
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the class A noteholders, proportionately, in the following order of priority:
(i) to the class A-1 noteholders, the Class A-1 Monthly
Interest;
(ii) to the class A-1 noteholders, the Class A-1 Overdue
Interest, if any;
(iii) to the class A-2 noteholders, the Class A-2 Monthly
Interest;
(iv) to the class A-2 noteholders, the Class A-2 Overdue
Interest, if any;
(v) to the class A-3 noteholders, the Class A-3 Monthly
Interest;
(vi) to the class A-3 noteholders, the Class A-3 Overdue
Interest, if any;
(vii) to the class A-4 noteholders, the Class A-4 Monthly
Interest;
(viii) to the class A-4 noteholders, the Class A-4 Overdue
Interest, if any; and
second, to the class A noteholders, proportionately, in the following
order of priority:
(i) the Class A-1 Overdue Principal, if any;
(ii) the Class A-1 Monthly Principal;
(iii) any additional class A-1 principal payable under the
indenture;
(iv) the Class A-2 Overdue Principal, if any;
(v) the Class A-2 Monthly Principal;
(vi) any additional class A-2 principal payable under the
indenture;
(vii) the Class A-3 Overdue Principal, if any;
(viii) the Class A-3 Monthly Principal; and
(ix) any additional class A-3 principal payable under the
indenture;
(x) the Class A-4 Overdue Principal, if any;
(xi) the Class A-4 Monthly Principal; and
(xi) any additional class A-4 principal payable under the
indenture;
provided, however, that in the event that a Subordination Deficiency Event has
occurred and is continuing, after the Class A-1 Note Balance and the Class A-2
Note Balance have been reduced
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to zero, the Class A-3 Note Balance and the Class A-4 Note Balance will be paid
on a pro rata, pari passu basis.
2. On each payment date the trustee shall pay to the class B noteholders
pro rata the amount then on deposit in the Class B Distribution Sub-Account and
all allocated as set forth in the "Description of the Notes and Principal
Transaction Documents -- Flow of Funds to and from the Collection Account"
section of this prospectus supplement. Payments to the class B noteholders shall
be made in the following order of priority:
(A) the Class B Monthly Interest;
(B) the Class B Overdue Interest, if any;
(C) the Class B Overdue Principal, if any;
(D) the Class B Monthly Principal; and
(E) additional principal payable under the indenture.
3. On each payment date the trustee shall pay to the class C noteholders
pro rata the amount then on deposit in the Class C Distribution Sub-Account and
allocated as set forth in the "Description of the Notes and Principal
Transaction Documents -- Flow of Funds to and from the Collection Account"
section of this prospectus supplement. Payments to the class C noteholders shall
be made in the following order of priority:
(A) the Class C Monthly Interest;
(B) the Class C Overdue Interest, if any;
(C) the Class C Overdue Principal, if any;
(D) the Class C Monthly Principal; and
(E) additional principal payable under the indenture.
4. On each payment date the trustee shall pay to the class D noteholders
pro rata the amount then on deposit in the Class D Distribution Sub-Account and
allocated as set forth in the "Description of the Notes and Principal
Transaction Documents -- Flow of Funds to and from the Collection Account"
section of this prospectus supplement. Payments to the class D noteholders shall
be made in the following order of priority:
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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
pro rata the amount then on deposit in the Class E Distribution Sub-Account and
allocated as set forth in the "Description of the Notes and Principal
Transaction Documents -- Flow of Funds to and from the Collection Account"
section of this prospectus supplement. Payments to the class E noteholders shall
be made in the following order of priority:
(A) the Class E Monthly Interest;
(B) the Class E Overdue Interest, if any;
(C) the Class E Overdue Principal, if any;
(D) the Class E Monthly Principal; and
(E) additional principal payable 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 10% of the Pool A Aggregate Discounted
Contract Balance on the closing date and the Pool B Aggregate Discounted
Contract Balance is less than 20% of the Pool B Aggregate Discounted Contract
Balance on the closing date. In the event that the notes are redeemed in full,
an amount equal to the sum of:
o the entire outstanding principal balance of the notes, and
o accrued interest on the outstanding principal balance of each class of
notes, at the Class A-1 Note Rate, Class A-2 Note Rate, Class A-3 Note
Rate, Class A-4 Note Rate, Class B Note Rate, Class C Note Rate, Class D
Note Rate and Class E Note Rate, as applicable, will be required to be paid
to the noteholders of each class.
The notes may be redeemed in part by the issuer at the Partial
Redemption Price on any payment date on which the Pool B Aggregate Discounted
Contract Balance is less than 20% of the Pool B Aggregate Discounted Contract
Balance of the contracts in Pool B as of the closing date. In the event that the
notes are redeemed in part, 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 Notes 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:
(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
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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 indenture, the notes or of any party in, the
contribution and servicing agreement or the other transaction
documents and continuance of that default or breach for a period of
thirty days after the earliest of:
(A) any officer of the issuer or transferor first
acquiring knowledge of that default or breach;
(B) the trustee's giving written notice of default or
breach to the issuer; or
(C) the holder of any note giving written notice of
default or breach to the issuer;
(4) if any representation or warranty of the issuer, DVI
Receivables Corp. XII or DVI Financial Services Inc. made in the
indenture, the subsequent contract transfer agreement and 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
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
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repurchases the affected contract and related equipment;
(5) a court with proper jurisdiction enters any kind of order
granting a so-called "involuntary" petition brought by third parties
against the issuer under any applicable federal or state bankruptcy,
etc. law and that order remains in effect for a period of ninety
consecutive days; or
(6) the issuer commences or agrees to any kind of so-called
"voluntary" petition for relief under any federal or state bankruptcy,
etc. law.
If an indenture event of default occurs and is continuing, then the
trustee, with the consent of the holders of the notes evidencing at least 66b%
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 66b% of the Voting Rights. Following any acceleration of the
notes, the trustee shall have all the rights, powers and remedies for the trust
property as are available to secured parties under the Uniform Commercial Code
or other applicable law.
Any money collected by the trustee under the indenture following an
indenture event of default, will be applied at the date or dates fixed by the
trustee and, in case of the distribution of the entire amount due on account of
principal or interest, upon presentation and surrender of the notes and any
moneys that may then be held or thereafter received by the trustee, shall be
applied in the following order:
first, to the payment of all costs and expenses of collection incurred by
the trustee,
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including the reasonable fees and expenses of its counsel, and all other
amounts due the trustee under the indenture;
second, to the payment of all unreimbursed Servicer Advances due to the
servicer;
third, only in the event that DVI Financial Services Inc. is no longer the
servicer, and the servicer has, in its good faith and reasonable business
judgment, deemed the servicing fee to be commercially unreasonable, then, to
the servicer, the amount agreed upon between the then servicer and the
trustee, each in their good faith and commercially reasonable judgment, as
necessary to make the servicing fee commercially reasonable and to cover the
reasonable costs in transferring the servicing obligations;
fourth, to pay all accrued and unpaid interest on each outstanding class A
note, pro rata, without giving any preference or priority to any class A
noteholder;
fifth, to pay all accrued and unpaid interest on each outstanding class B
note, pro rata, without giving any preference or priority to any class B
noteholder;
sixth, to pay all accrued and unpaid interest on each outstanding class C
note, pro rata, without giving any preference or priority to any class C
noteholder;
seventh, to pay of all accrued and unpaid interest on each outstanding class
D note, pro rata, without giving any preference or priority to any class D
noteholder;
eighth, to pay of all accrued and unpaid interest on each outstanding class
E note, pro rata, without giving any preference or priority to any class E
noteholder;
ninth, to pay the entire outstanding Class A-1 Note Balance, and any other
amounts due to the Class A-1 noteholders, pro rata, without any preference
or priority; then to pay the entire Class A-2 Note Balance, and any other
amounts due to the Class A-2 noteholders, pro rata, without preference or
priority; then to pay the entire Class A-3 Note Balance, and any other
amounts due to the Class A-3 noteholders,
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pro rata; and then to pay the entire Class A-4 Note Balance, and any other
amounts due to the Class A-4 noteholders, pro rata; (provided that a
Subordination Deficiency Event has not occurred and is continuing; if a
Subordination Deficiency Event has occurred and is continuing, after the
Class A-1 Note Balance has been reduced to zero, and the outstanding Class
A-2 Note Balance has been reduced to zero, the outstanding Class A-3 Note
Balance, and Class A-4 Note Balance shall be paid pro rata among the holders
of both of those classes in accordance with their respective Note Balances);
tenth, to pay the entire outstanding Class B Note Balance, and any other
amounts due to the Class B noteholders, pro rata, without giving preference
or priority to any Class B noteholder;
eleventh, to pay the entire outstanding Class C Note Balance, and any other
amounts due to the Class C noteholders, pro rata, without giving preference
or priority to any Class C noteholder;
twelfth, to pay the entire outstanding Class D Note Balance, and any other
amounts due to the Class D noteholders, pro rata, without giving preference
or priority to any Class D noteholder;
thirteenth, to pay the entire outstanding Class E Note Balance, and any
other amounts due to the class E noteholders, pro rata, without giving
preference or priority to any class E noteholder;
fourteenth, to pay all accrued and unpaid interest on any outstanding class
F instruments, if any, ratably to each holder of the class F instruments
without giving preference or priority to any class F instrumentholder; and
then to pay the entire outstanding principal balance of the class F
instruments, if any, and any other amounts due to the class F
instrumentholders, pro rata, without giving preference or priority to any
class F instrumentholders;
fifteenth, in the event that DVI Financial Services Inc. is the servicer, to
pay all
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unreimbursed servicing fees due to the servicer; and
sixteenth, the payment of the remainder, if any, to, or at the order of, the
issuer.
SERVICER EVENTS OF DEFAULT
Any of the following acts or occurrences shall constitute a servicer
event of default by the servicer under the contribution and servicing agreement:
(1) failure by the servicer, or for so long as DVI Financial Services Inc.
is the servicer, DVI Receivables Corp. XII, 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 by 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 section 4.02 of the
contribution and servicing agreement;
(3) failure on the part of either the servicer, or for so long as DVI
Financial Services Inc. is the servicer, DVI Receivables Corp. XII, 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 the noteholders and continues unremedied for a period of thirty days
after the servicer becomes aware of that failure or receives written notice of
that failure;
(4) if any representation or warranty made by either:
(A) the servicer in the contribution and servicing agreement or in
any certificate or other document delivered under any transaction
documents; or
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(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. XII, under any applicable federal or state bankruptcy, etc.
law, or if this type of order remains in effect for a period of ninety
consecutive days;
(6) the servicer, or for so long as DVI Financial Services Inc. is the
servicer, DVI Receivables Corp. XII, 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 with respect
to aggregate recourse indebtedness for borrowed money exceeding two
million dollars; or
(B) the occurrence of any other event or the existence of any other
condition, the effect of which event or condition is to cause more
than two million dollars of aggregate recourse indebtedness for
borrowed money of the servicer to become due before its or their
stated maturity or before its or their regularly scheduled dates of
payment;
and the failure, event or condition described in either clause (A) or (B)
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 two million
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dollars which is uninsured, and the continuance of this judgment, decree or
order unsatisfied and in effect for any period of sixty consecutive days
without a stay of execution; or
(10) so long as DVI Financial Services Inc. is the servicer, the
occurrence of an Amortization Event.
TERMINATION OF THE SERVICER
If a servicer event of default occurs and is continuing, the trustee
will, upon the request of the holders of notes evidencing more than 66b% of the
Voting Rights, give written notice to the servicer of the termination of all of
the rights and obligations of the servicer under the contribution and servicing
agreement. No servicer termination will release DVI Financial Services Inc. from
its obligations as contributor under that agreement. Once the servicer receives
that notice, all of its rights and obligations under the contribution and
servicing agreement will terminate and be transferred to the trustee under the
"back-up servicer" provisions of the contribution and servicing agreement and
the indenture.
The servicer agrees to cooperate with the trustee or any other successor
servicer in transferring the responsibilities and rights of the servicer to the
successor servicer, including, transferring to the successor servicer its
records, correspondence and documents relating to the contracts and other trust
property. The trustee must give prompt written notice of this 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
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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
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,
class C notes and class D notes may do so only through participants, either
directly or indirectly. The class A notes, class B notes, class C notes and
class D notes are together called the offered notes. In addition, beneficial
owners will receive all distributions of principal of and interest on the
offered notes from the paying agent through The Depository Trust Company and
participants. Accordingly, beneficial owners may experience
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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 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. XII, DVI
Receivables Corp. VIII or the trustee will have any liability for any actions
taken by The Depository Trust Company or its nominee or Clearstream Banking,
Luxembourg 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.
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Upon the occurrence of that kind of event, the trustee is required to
notify, through The Depository Trust Company, participants who have ownership of
offered notes as indicated on the records of The Depository Trust Company of the
availability of definitive securities for their offered notes. Upon surrender by
The Depository Trust Company of the definitive certificates representing the
offered notes and upon receipt of instructions from The Depository Trust Company
for re-registration, the trustee will 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 Clearstream Banking, Luxembourg 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. Clearstream
Banking, Luxembourg and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in Clearstream Banking,
Luxembourg'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
Clearstream Banking, Luxembourg 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 Clearstream Banking,
Luxembourg participants on that business day. Cash received in Clearstream
Banking, Luxembourg or Euroclear as a result of sales of securities by or
through a Clearstream Banking, Luxembourg 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 Clearstream Banking,
Luxembourg 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 Clearstream Banking,
Luxembourg 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 Clearstream Banking, Luxembourg 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 Clearstream Banking, Luxembourg 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. Clearstream Banking,
Luxembourg 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.
Clearstream Banking, Luxembourg is incorporated under the laws of
Luxembourg as a professional depository. Clearstream Banking, Luxembourg holds
securities for its participant organizations and facilitates the clearance and
settlement of securities transactions between Clearstream Banking, Luxembourg
participants through electronic book-entry changes in accounts of Clearstream
Banking, Luxembourg participants, eliminating the need for physical movement of
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certificates. Transactions may be settled in Clearstream Banking, Luxembourg in
any of 28 currencies, including United States dollars. Clearstream Banking,
Luxembourg provides to its Clearstream Banking, Luxembourg participants, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing.
Clearstream Banking, Luxembourg interfaces with domestic markets in several
countries. As a professional depository, Clearstream Banking, Luxembourg is
subject to regulation by the Luxembourg Monetary Institute. Clearstream Banking,
Luxembourg 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 Clearstream
Banking, Luxembourg is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Clearstream Banking, Luxembourg 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 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
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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.
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
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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.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the notes will be directly related to
the scheduled rate of payments on the contracts in the trust property. If
purchased at a price of other than par, the yield to maturity will also be
affected by the rate of contract payments. The extent to which the yield to
maturity of a note is sensitive to the rate of principal payments will depend,
in part, upon the size of any discount or premium. If the purchaser of a note
purchased at a discount from its initial principal balance calculates its
anticipated yield to maturity based on an assumed rate of payment of principal
that is faster than that actually experienced on that note, the actual yield to
maturity will be lower than that so calculated. On the other hand, if the
purchaser of a note purchased at a premium calculates its anticipated yield to
maturity based on an assumed rate of payment of principal that is slower than
that actually experienced on the note, the actual yield to maturity will be
lower than that so calculated.
Payments on the contracts may be in the form of scheduled contract
payments or accelerated payments resulting from default, casualty or prepayment.
These accelerated payments
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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-54 of this
prospectus supplement. Any Prepayment Amounts or Partial Prepayment Amounts paid
shall be remitted by the servicer to the trustee or deposited into the
collection account and shall be applied as a prepayment of the notes. The
servicer historically has permitted obligors to terminate contracts early, or,
in case of contracts covering more than one item of equipment, to partially
prepay contracts, either in connection with the execution of a new contract of
replacement equipment, or upon payment of a negotiated premium, or both.
The effective yield to noteholders will depend upon, among other things,
the price at which the notes are purchased, the amount of and rate at which
principal, including both scheduled and nonscheduled payments of that principal,
is paid to the noteholders.
The following tables show the percentage of the initial Note Balance of
the class A-1 notes, class A-2 notes, class A-3 notes, class A-4 notes, class B
notes, class C notes and class D notes (assuming initial Note Balances equal to
$39,975,000, $41,000,000, $74,000,000, $85,804,000, $4,104,000, $8,208,000 and
$5,472,000, respectively) which would be outstanding on the payment dates set
forth below assuming a constant payment rate of 0%, 3%, 7%, 11% and
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<PAGE>
15%, respectively. We calculated these tables using the actual Discount Rate of
7.660%. This information is hypothetical and is set forth for illustrative
purposes only. The constant 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
constant payment rate for the contract pool. The constant 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 constant 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 November 16, 2000;
o the first payment date is December 12, 2000;
o distributions on the notes are made on the twelfth day of each month
regardless of the day on which the payment date actually occurs;
o no delinquencies or defaults in the payment of principal and interest
on the contracts are experienced;
o no contract is repurchased for breach of representation or warranty
or otherwise;
o payments on the contracts are received on the last day
of each collection period;
o the servicing fee is 0.45%;
o the initial Note Balance of the class E notes is $6,840,000;
o the pool consists of a single contract with an Aggregate Discounted
Contract Balance of $273,612,728.90 on which interest is accrued at
the actual Discount Rate of 7.660%; and
o no Amortization Event, Subordination Deficiency Event, indenture
event of default or other event of default occurs.
Because the tables were prepared on the basis of the modeling
assumptions mentioned above, there are discrepancies between the characteristics
of the actual contracts and the characteristics of the contracts we assumed in
preparing the tables. Any of these discrepancies may have an effect upon the
percentages of the Note Balance outstanding and weighted average
S-92
<PAGE>
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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<PAGE>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS A-1
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
-----------------------------------------------------------
PAYMENT DATE IN 0.00% 3.00% 7.00% 11.00% 15.00%
------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
November 16, 2000 ............................... 100.00 100.00 100.00 100.00 100.00
December 12, 2000 ............................... 91.58 90.07 88.00 85.84 83.59
January 12, 2001 ................................ 82.54 79.58 75.51 71.29 66.91
February 12, 2001 ............................... 72.87 68.50 62.52 56.35 49.96
March 12, 2001 .................................. 63.01 57.30 49.50 41.47 33.20
April 12, 2001 .................................. 52.78 45.78 36.25 26.47 16.43
May 12, 2001 .................................... 42.18 33.95 22.78 11.36 0.00
June 12, 2001 ................................... 31.57 22.17 9.44 0.00 0.00
July 12, 2001 ................................... 21.06 10.54 0.00 0.00 0.00
August 12, 2001 ................................. 10.50 0.00 0.00 0.00 0.00
September 12, 2001 .............................. 0.00 0.00 0.00 0.00 0.00
October 12, 2001 ................................ 0.00 0.00 0.00 0.00 0.00
November 12, 2001 ............................... 0.00 0.00 0.00 0.00 0.00
WEIGHTED AVERAGE LIFE (YRS) TO MATURITY ......... 0.46 0.41 0.36 0.32 0.28
WEIGHTED AVERAGE LIFE (YRS) TO CALL ............. 0.46 0.41 0.36 0.32 0.28
</TABLE>
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<PAGE>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS A-2
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
-----------------------------------------------------------
PAYMENT DATE IN 0.00% 3.00% 7.00% 11.00% 15.00%
------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
November 16, 2000 ............................... 100.00 100.00 100.00 100.00 100.00
December 12, 2000 ............................... 100.00 100.00 100.00 100.00 100.00
January 12, 2001 ................................ 100.00 100.00 100.00 100.00 100.00
February 12, 2001 ............................... 100.00 100.00 100.00 100.00 100.00
March 12, 2001 .................................. 100.00 100.00 100.00 100.00 100.00
April 12, 2001 .................................. 100.00 100.00 100.00 100.00 100.00
May 12, 2001 .................................... 100.00 100.00 100.00 100.00 99.69
June 12, 2001 ................................... 100.00 100.00 100.00 96.57 83.70
July 12, 2001 ................................... 100.00 100.00 96.43 82.39 68.13
August 12, 2001 ................................. 100.00 98.94 83.75 68.39 52.86
September 12, 2001 .............................. 99.99 87.72 71.25 54.67 37.96
October 12, 2001 ................................ 89.45 76.25 58.60 40.89 23.12
November 12, 2001 ............................... 78.88 64.82 46.08 27.33 8.58
December 12, 2001 ............................... 68.29 53.42 33.66 13.96 0.00
January 12, 2002 ................................ 57.66 42.04 21.34 0.78 0.00
February 12, 2002 ............................... 46.95 30.64 9.08 0.00 0.00
March 12, 2002 .................................. 36.28 19.32 0.00 0.00 0.00
April 12, 2002 .................................. 25.61 8.07 0.00 0.00 0.00
May 12, 2002 .................................... 14.94 0.00 0.00 0.00 0.00
June 12, 2002 ................................... 4.30 0.00 0.00 0.00 0.00
July 12, 2002 ................................... 0.00 0.00 0.00 0.00 0.00
August 12, 2002 ................................. 0.00 0.00 0.00 0.00 0.00
September 12, 2002 .............................. 0.00 0.00 0.00 0.00 0.00
October 12, 2002 ................................ 0.00 0.00 0.00 0.00 0.00
November 12, 2002 ............................... 0.00 0.00 0.00 0.00 0.00
December 12, 2002 ............................... 0.00 0.00 0.00 0.00 0.00
January 12, 2003 ................................ 0.00 0.00 0.00 0.00 0.00
WEIGHTED AVERAGE LIFE (YRS) TO MATURITY ......... 1.26 1.14 1.01 0.89 0.80
WEIGHTED AVERAGE LIFE (YRS) TO CALL ............. 1.26 1.14 1.01 0.89 0.80
</TABLE>
S-94
<PAGE>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS A-3
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
----------------------------------------------------------
PAYMENT DATE IN 0.00% 3.00% 7.00% 11.00% 15.00%
------------------------------------------------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
November 16, 2000 ............................... 100.00 100.00 100.00 100.00 100.00
December 12, 2000 ............................... 100.00 100.00 100.00 100.00 100.00
January 12, 2001 ................................ 100.00 100.00 100.00 100.00 100.00
February 12, 2001 ............................... 100.00 100.00 100.00 100.00 100.00
March 12, 2001 .................................. 100.00 100.00 100.00 100.00 100.00
April 12, 2001 .................................. 100.00 100.00 100.00 100.00 100.00
May 12, 2001 .................................... 100.00 100.00 100.00 100.00 100.00
June 12, 2001 ................................... 100.00 100.00 100.00 100.00 100.00
July 12, 2001 ................................... 100.00 100.00 100.00 100.00 100.00
August 12, 2001 ................................. 100.00 100.00 100.00 100.00 100.00
September 12, 2001 .............................. 100.00 100.00 100.00 100.00 100.00
October 12, 2001 ................................ 100.00 100.00 100.00 100.00 100.00
November 12, 2001 ............................... 100.00 100.00 100.00 100.00 100.00
December 12, 2001 ............................... 100.00 100.00 100.00 100.00 96.87
January 12, 2002 ................................ 100.00 100.00 100.00 100.00 89.13
February 12, 2002 ............................... 100.00 100.00 100.00 93.22 81.53
March 12, 2002 .................................. 100.00 100.00 98.33 86.13 74.11
April 12, 2002 .................................. 100.00 100.00 91.71 79.17 66.86
May 12, 2002 .................................... 100.00 98.26 85.15 72.32 59.77
June 12, 2002 ................................... 100.00 92.10 78.68 65.59 52.85
July 12, 2002 ................................... 96.45 85.94 72.25 58.96 46.05
August 12, 2002 ................................. 90.67 79.95 66.03 52.55 39.52
September 12, 2002 .............................. 84.98 74.06 59.95 46.32 33.20
October 12, 2002 ................................ 79.22 68.15 53.87 40.15 26.98
November 12, 2002 ............................... 73.49 62.29 47.90 34.11 20.92
December 12, 2002 ............................... 67.89 56.59 42.09 28.26 15.09
January 12, 2003 ................................ 62.26 50.88 36.33 22.49 9.36
February 12, 2003 ............................... 56.58 45.16 30.59 16.79 3.74
March 12, 2003 .................................. 50.90 39.45 24.91 11.17 0.00
April 12, 2003 .................................. 44.78 33.37 18.92 5.33 0.00
May 12, 2003 .................................... 39.36 27.97 13.59 0.11 0.00
June 12, 2003 ................................... 33.99 22.65 8.36 0.00 0.00
July 12, 2003 ................................... 28.70 17.41 3.25 0.00 0.00
August 12, 2003 ................................. 23.62 12.40 0.00 0.00 0.00
September 12, 2003 .............................. 18.63 7.50 0.00 0.00 0.00
October 12, 2003 ................................ 13.60 2.59 0.00 0.00 0.00
November 12, 2003 ............................... 8.67 0.00 0.00 0.00 0.00
December 12, 2003 ............................... 3.79 0.00 0.00 0.00 0.00
January 12, 2004 ................................ 0.00 0.00 0.00 0.00 0.00
February 12, 2004 ............................... 0.00 0.00 0.00 0.00 0.00
March 12, 2004 .................................. 0.00 0.00 0.00 0.00 0.00
April 12, 2004 .................................. 0.00 0.00 0.00 0.00 0.00
May 12, 2004 .................................... 0.00 0.00 0.00 0.00 0.00
June 12, 2004 ................................... 0.00 0.00 0.00 0.00 0.00
July 12, 2004 ................................... 0.00 0.00 0.00 0.00 0.00
WEIGHTED AVERAGE LIFE (YRS) TO MATURITY ......... 2.39 2.22 2.02 1.83 1.67
WEIGHTED AVERAGE LIFE (YRS) TO CALL ............. 2.39 2.22 2.02 1.83 1.67
</TABLE>
S-95
<PAGE>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS A-4
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
-----------------------------------------------------------
PAYMENT DATE IN 0.00% 3.00% 7.00% 11.00% 15.00%
---------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
November 16, 2000 .......... 100.00 100.00 100.00 100.00 100.00
December 12, 2000 .......... 100.00 100.00 100.00 100.00 100.00
January 12, 2001 ........... 100.00 100.00 100.00 100.00 100.00
February 12, 2001 .......... 100.00 100.00 100.00 100.00 100.00
March 12, 2001 ............. 100.00 100.00 100.00 100.00 100.00
April 12, 2001 ............. 100.00 100.00 100.00 100.00 100.00
May 12, 2001 ............... 100.00 100.00 100.00 100.00 100.00
June 12, 2001 .............. 100.00 100.00 100.00 100.00 100.00
July 12, 2001 .............. 100.00 100.00 100.00 100.00 100.00
August 12, 2001 ............ 100.00 100.00 100.00 100.00 100.00
September 12, 2001 ......... 100.00 100.00 100.00 100.00 100.00
October 12, 2001 ........... 100.00 100.00 100.00 100.00 100.00
November 12, 2001 .......... 100.00 100.00 100.00 100.00 100.00
December 12, 2001 .......... 100.00 100.00 100.00 100.00 100.00
January 12, 2002 ........... 100.00 100.00 100.00 100.00 100.00
February 12, 2002 .......... 100.00 100.00 100.00 100.00 100.00
March 12, 2002 ............. 100.00 100.00 100.00 100.00 100.00
April 12, 2002 ............. 100.00 100.00 100.00 100.00 100.00
May 12, 2002 ............... 100.00 100.00 100.00 100.00 100.00
June 12, 2002 .............. 100.00 100.00 100.00 100.00 100.00
July 12, 2002 .............. 100.00 100.00 100.00 100.00 100.00
August 12, 2002 ............ 100.00 100.00 100.00 100.00 100.00
September 12, 2002 ......... 100.00 100.00 100.00 100.00 100.00
October 12, 2002 ........... 100.00 100.00 100.00 100.00 100.00
November 12, 2002 .......... 100.00 100.00 100.00 100.00 100.00
December 12, 2002 .......... 100.00 100.00 100.00 100.00 100.00
January 12, 2003 ........... 100.00 100.00 100.00 100.00 100.00
February 12, 2003 .......... 100.00 100.00 100.00 100.00 100.00
March 12, 2003 ............. 100.00 100.00 100.00 100.00 98.48
April 12, 2003 ............. 100.00 100.00 100.00 100.00 93.59
May 12, 2003 ............... 100.00 100.00 100.00 100.00 89.22
June 12, 2003 .............. 100.00 100.00 100.00 95.70 84.98
July 12, 2003 .............. 100.00 100.00 100.00 91.43 80.88
August 12, 2003 ............ 100.00 100.00 98.59 87.37 76.99
September 12, 2003 ......... 100.00 100.00 94.49 83.43 73.23
October 12, 2003 ........... 100.00 100.00 90.42 79.54 69.55
November 12, 2003 .......... 100.00 98.09 86.45 75.77 66.00
December 12, 2003 .......... 100.00 94.01 82.56 72.09 62.56
January 12, 2004 ........... 99.06 89.95 78.72 68.49 59.21
February 12, 2004 .......... 94.68 85.75 74.78 64.83 55.83
March 12, 2004 ............. 90.49 81.75 71.04 61.36 52.64
April 12, 2004 ............. 86.28 77.75 67.33 57.94 49.52
May 12, 2004 ............... 82.06 73.76 63.66 54.58 46.46
</TABLE>
S-96
<PAGE>
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
------------------------------------------------------
PAYMENT DATE IN 0.00% 3.00% 7.00% 11.00% 15.00%
------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
June 12, 2004 ................................... 77.85 69.80 60.03 51.28 43.49
July 12, 2004 ................................... 73.43 65.67 56.28 47.90 40.47
August 12, 2004 ................................. 69.46 61.96 52.91 44.87 37.76
September 12, 2004 .............................. 65.51 58.29 49.60 41.91 35.13
October 12, 2004 ................................ 61.48 54.56 46.27 38.95 32.53
November 12, 2004 ............................... 57.47 50.88 42.99 36.06 30.00
December 12, 2004 ............................... 53.57 47.31 39.83 33.29 27.59
January 12, 2005 ................................ 49.67 43.75 36.71 30.56 25.23
February 12, 2005 ............................... 45.73 40.18 33.59 27.87 22.92
March 12, 2005 .................................. 41.85 36.67 30.56 25.25 20.69
April 12, 2005 .................................. 37.97 33.19 27.55 22.69 18.52
May 12, 2005 .................................... 33.90 29.56 24.46 20.07 16.32
June 12, 2005 ................................... 30.16 26.23 21.63 17.68 14.32
July 12, 2005 ................................... 26.95 23.38 19.20 15.64 12.62
August 12, 2005 ................................. 24.04 20.80 17.03 13.82 11.11
September 12, 2005 .............................. 21.42 18.48 15.08 12.19 9.76
October 12, 2005 ................................ 19.09 16.44 13.36 10.77 8.59
November 12, 2005 ............................... 17.06 14.65 11.87 9.53 7.57
December 12, 2005 ............................... 15.11 12.94 10.45 8.36 6.61
January 12, 2006 ................................ 13.27 11.34 9.12 7.27 5.73
February 12, 2006 ............................... 11.51 9.81 7.86 6.24 4.90
March 12, 2006 .................................. 10.39 8.83 7.05 5.58 4.37
April 12, 2006 .................................. 9.33 7.91 6.30 4.96 3.87
May 12, 2006 .................................... 8.43 7.13 5.66 4.44 3.45
June 12, 2006 ................................... 7.39 6.24 4.93 3.86 2.98
July 12, 2006 ................................... 6.58 5.54 4.36 3.40 2.62
August 12, 2006 ................................. 5.78 4.86 3.81 2.96 2.27
September 12, 2006 .............................. 4.98 4.17 3.26 2.52 1.93
October 12, 2006 ................................ 4.14 3.46 2.70 2.08 1.58
November 12, 2006 ............................... 3.57 2.97 2.31 1.77 1.35
December 12, 2006 ............................... 3.07 2.55 1.98 1.51 1.14
January 12, 2007 ................................ 2.58 2.13 1.65 1.26 0.95
February 12, 2007 ............................... 2.17 1.80 1.38 1.05 0.79
March 12, 2007 .................................. 1.80 1.48 1.13 0.86 0.64
April 12, 2007 .................................. 1.28 1.05 0.80 0.61 0.45
May 12, 2007 .................................... 0.95 0.78 0.59 0.45 0.33
June 12, 2007 ................................... 0.65 0.53 0.40 0.30 0.22
July 12, 2007 ................................... 0.35 0.28 0.22 0.16 0.12
August 12, 2007 ................................. 0.14 0.11 0.09 0.06 0.05
September 12, 2007 .............................. 0.05 0.04 0.03 0.02 0.02
October 12, 2007 ................................ 0.00 0.00 0.00 0.00 0.00
WEIGHTED AVERAGE LIFE (YRS) TO MATURITY ......... 4.30 4.16 3.97 3.78 3.59
WEIGHTED AVERAGE LIFE (YRS) TO CALL ............. 4.11 3.98 3.79 3.59 3.39
</TABLE>
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<PAGE>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS B, CLASS C AND CLASS D
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
-----------------------------------------------------------
PAYMENT DATE IN 0.00% 3.00% 7.00% 11.00% 15.00%
---------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
November 16, 2000 .......... 100.00 100.00 100.00 100.00 100.00
December 12, 2000 .......... 98.60 98.35 98.01 97.65 97.28
January 12, 2001 ........... 97.10 96.61 95.93 95.23 94.51
February 12, 2001 .......... 95.49 94.77 93.78 92.75 91.69
March 12, 2001 ............. 93.86 92.91 91.62 90.28 88.91
April 12, 2001 ............. 92.16 91.00 89.42 87.79 86.13
May 12, 2001 ............... 90.40 89.03 87.18 85.28 83.35
June 12, 2001 .............. 88.64 87.08 84.96 82.81 80.62
July 12, 2001 .............. 86.89 85.15 82.79 80.40 77.97
August 12, 2001 ............ 85.14 83.22 80.63 78.01 75.37
September 12, 2001 ......... 83.40 81.31 78.50 75.68 72.83
October 12, 2001 ........... 81.60 79.35 76.35 73.33 70.31
November 12, 2001 .......... 79.80 77.41 74.22 71.02 67.83
December 12, 2001 .......... 78.00 75.47 72.10 68.75 65.41
January 12, 2002 ........... 76.19 73.53 70.00 66.50 63.03
February 12, 2002 .......... 74.36 71.59 67.92 64.28 60.69
March 12, 2002 ............. 72.55 69.66 65.86 62.11 58.41
April 12, 2002 ............. 70.73 67.74 63.82 59.97 56.18
May 12, 2002 ............... 68.91 65.84 61.81 57.86 54.00
June 12, 2002 .............. 67.10 63.94 59.82 55.80 51.88
July 12, 2002 .............. 65.28 62.05 57.84 53.76 49.79
August 12, 2002 ............ 63.50 60.21 55.93 51.79 47.78
September 12, 2002 ......... 61.75 58.40 54.06 49.87 45.84
October 12, 2002 ........... 59.98 56.58 52.19 47.98 43.93
November 12, 2002 .......... 58.22 54.78 50.36 46.12 42.07
December 12, 2002 .......... 56.50 53.03 48.57 44.32 40.27
January 12, 2003 ........... 54.77 51.27 46.80 42.55 38.51
February 12, 2003 .......... 53.03 49.51 45.04 40.80 36.79
March 12, 2003 ............. 51.28 47.76 43.29 39.07 35.10
April 12, 2003 ............. 49.40 45.89 41.45 37.27 33.35
May 12, 2003 ............... 47.73 44.23 39.81 35.67 31.79
June 12, 2003 .............. 46.08 42.60 38.21 34.10 30.28
July 12, 2003 .............. 44.46 40.99 36.63 32.58 28.82
August 12, 2003 ............ 42.90 39.45 35.13 31.13 27.44
September 12, 2003 ......... 41.36 37.94 33.67 29.73 26.10
October 12, 2003 ........... 39.82 36.43 32.22 28.34 24.79
November 12, 2003 .......... 38.30 34.96 30.81 27.00 23.52
December 12, 2003 .......... 36.80 33.50 29.42 25.69 22.30
January 12, 2004 ........... 35.30 32.05 28.05 24.41 21.10
February 12, 2004 .......... 33.74 30.56 26.65 23.10 19.89
March 12, 2004 ............. 32.25 29.13 25.32 21.87 18.76
April 12, 2004 ............. 30.75 27.71 24.00 20.65 17.65
May 12, 2004 ............... 29.24 26.29 22.68 19.45 16.56
</TABLE>
S-98
<PAGE>
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
------------------------------------------------------
PAYMENT DATE IN 0.00% 3.00% 7.00% 11.00% 15.00%
------------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
June 12, 2004 ................................... 27.74 24.87 21.39 18.27 15.50
July 12, 2004 ................................... 26.17 23.40 20.06 17.07 14.42
August 12, 2004 ................................. 24.75 22.08 18.85 15.99 13.46
September 12, 2004 .............................. 23.34 20.77 17.68 14.93 12.52
October 12, 2004 ................................ 21.91 19.44 16.49 13.88 11.59
November 12, 2004 ............................... 20.48 18.13 15.32 12.85 10.69
December 12, 2004 ............................... 19.09 16.86 14.19 11.86 9.83
January 12, 2005 ................................ 17.70 15.59 13.08 10.89 8.99
February 12, 2005 ............................... 16.30 14.32 11.97 9.93 8.17
March 12, 2005 .................................. 14.91 13.07 10.89 9.00 7.37
April 12, 2005 .................................. 13.53 11.83 9.82 8.09 6.60
May 12, 2005 .................................... 12.08 10.53 8.72 7.15 5.81
June 12, 2005 ................................... 10.75 9.35 7.71 6.30 5.10
July 12, 2005 ................................... 9.60 8.33 6.84 5.57 4.50
August 12, 2005 ................................. 8.57 7.41 6.07 4.93 3.96
September 12, 2005 .............................. 7.63 6.59 5.37 4.35 3.48
October 12, 2005 ................................ 6.80 5.86 4.76 3.84 3.06
November 12, 2005 ............................... 6.08 5.22 4.23 3.39 2.70
December 12, 2005 ............................... 5.38 4.61 3.72 2.98 2.36
January 12, 2006 ................................ 4.73 4.04 3.25 2.59 2.04
February 12, 2006 ............................... 4.10 3.50 2.80 2.23 1.75
March 12, 2006 .................................. 3.70 3.15 2.51 1.99 1.56
April 12, 2006 .................................. 3.32 2.82 2.24 1.77 1.38
May 12, 2006 .................................... 3.00 2.54 2.02 1.58 1.23
June 12, 2006 ................................... 2.63 2.22 1.76 1.37 1.06
July 12, 2006 ................................... 2.35 1.97 1.56 1.21 0.93
August 12, 2006 ................................. 2.06 1.73 1.36 1.05 0.81
September 12, 2006 .............................. 1.77 1.49 1.16 0.90 0.69
October 12, 2006 ................................ 1.48 1.23 0.96 0.74 0.56
November 12, 2006 ............................... 1.27 1.06 0.82 0.63 0.48
December 12, 2006 ............................... 1.10 0.91 0.70 0.54 0.41
January 12, 2007 ................................ 0.92 0.76 0.59 0.45 0.34
February 12, 2007 ............................... 0.77 0.64 0.49 0.37 0.28
March 12, 2007 .................................. 0.64 0.53 0.40 0.31 0.23
April 12, 2007 .................................. 0.46 0.38 0.29 0.22 0.16
May 12, 2007 .................................... 0.34 0.28 0.21 0.16 0.12
June 12, 2007 ................................... 0.23 0.19 0.14 0.11 0.08
July 12, 2007 ................................... 0.12 0.10 0.08 0.06 0.04
August 12, 2007 ................................. 0.05 0.04 0.03 0.02 0.02
September 12, 2007 .............................. 0.02 0.01 0.01 0.01 0.01
October 12, 2007 ................................ 0.00 0.00 0.00 0.00 0.00
WEIGHTED AVERAGE LIFE (YRS) TO MATURITY ......... 2.56 2.43 2.27 2.12 1.97
WEIGHTED AVERAGE LIFE (YRS) TO CALL ............. 2.49 2.36 2.20 2.05 1.90
</TABLE>
S-99
<PAGE>
CERTAIN LEGAL MATTERS AFFECTING AN
OBLIGOR'S RIGHTS AND OBLIGATIONS
GENERAL
The contracts are either "accounts," "instruments" or "chattel paper" as
defined in the Uniform Commercial Code in effect in nearly every state of the
United States. Under the Uniform Commercial Code for most purposes, a sale of
accounts or chattel paper is treated in a manner similar to a transaction
creating a security interest in accounts or chattel paper. DVI Financial
Services Inc., DVI Receivables Corp. XII 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 DVI
Receivables Corp. XII,
o DVI Receivables Corp. XII's transfer of the contracts to the issuer,
and
o the pledge of the contracts to the trustee.
Under the contribution and servicing agreement, the servicer will be obligated
from time to time to take such actions as are necessary to protect and perfect
the trustee's interests in the contracts and their proceeds.
A 1993 decision of the United States Court of Appeals for the Tenth
Circuit states that, among other things, accounts sold by an entity remain
property of that entity's bankruptcy estate in the event of its reorganization
or bankruptcy proceedings subsequent to the sale. Even though that decision
addressed "accounts" rather than "chattel paper" such as the contracts, if a
court in any bankruptcy proceedings of DVI Financial Services Inc. were to adopt
the reasoning of the Tenth Circuit reflected in that 1993 decision, then the
contracts would be included in the bankruptcy estate of DVI Financial Services
Inc. and delays in payment of collections on or in 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
S-100
<PAGE>
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. XII
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.
XII. DVI Receivables Corp. XII 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 equipment. Under the Uniform Commercial Code, a
creditor such as DVI Financial Services Inc., DVI Receivables Corp. XII, 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. However, for any equipment
which constitutes "fixtures" under local law, it may be necessary to obtain the
consent of any landlord or mortgagee of the land and building where the
equipment is located, in order for the trustee to repossess the equipment. It is
the policy of DVI Financial Services Inc. to request that such a waiver be given
before the equipment is delivered to the equipment user, but there can be no
assurance that the waiver will be given in all cases.
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
S-101
<PAGE>
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.
Under the Uniform Commercial Code and laws applicable in most states, a
creditor is entitled to obtain a so-called "deficiency judgment" from an obligor
for any shortfall between the unpaid balance of that obligor's contract and the
net proceeds received from any collateral for that contract. However, some
states, including those where some of the obligors may be located, impose
prohibitions or limitations on deficiency judgments. In most jurisdictions, the
courts, in interpreting the Uniform Commercial Code, would impose upon a
creditor an obligation to repossess the equipment in a commercially reasonable
manner and to mitigate and minimize its damages in the event of an obligor's
failure to cure a default. The creditor would be required to exercise reasonable
judgment and follow acceptable commercial practice in seizing and disposing of
the equipment and to offset the net proceeds of disposition against its claim.
In addition, an obligor may successfully invoke an election of remedies defense
to a deficiency claim in the event that the servicer's repossession and sale of
the leased equipment is found to be a retention discharging the obligor from all
further obligations under Section 9-505(2) of the Uniform Commercial Code. If a
deficiency judgment were granted, the judgment would be a personal judgment
against the obligor for the shortfall, but a defaulting obligor may have very
little capital
S-102
<PAGE>
or sources of income available following repossession. Therefore, in many cases,
it may not be useful to seek a deficiency judgment or, if one is obtained, it
may be settled at a significant discount.
In the event of the bankruptcy or reorganization of an obligor, various
provisions of the Bankruptcy Reform Act of 1978, as amended, and related laws
may delay, interfere with and/or eliminate or reduce the ability of the trustee
to enforce its rights under the contracts. With regard to any contract not
constituting a "true lease," the Bankruptcy Code permits an obligor to be
treated as the owner of the related equipment. If bankruptcy cases or
proceedings were instituted for an obligor, the trustee could be prevented from
continuing to collect payments due from or on behalf of that obligor or
exercising any remedies assigned to the trustee without the approval of the
bankruptcy court. The bankruptcy court could also permit the obligor to use,
sublease, sell or dispose of the equipment and provide the trustee with a lien
on replacement collateral, so long as the replacement collateral constituted
"adequate protection" as defined under the Bankruptcy Code. In the event that,
as a result of the bankruptcy or reorganization of an obligor, the trustee is
prevented from collecting payments with respect to a contract and that contract
becomes a defaulted contract, noteholders could experience delays in the payment
of principal and interest and/or losses on their investment.
With regard to any contract constituting a "true lease," the Bankruptcy
Code grants to the bankruptcy trustee for an obligor, or the obligor as a
debtor-in-possession, a right to elect to assume or reject that unexpired lease.
Also, a bankruptcy court may permit an obligor to assign its rights and
obligations under the contract. Any assumption of a contract requires the
obligor to cure any default under that contract, which may mean "adequate
assurance" of prompt cure, and to provide "adequate assurance" of future
performance under that contract, and of compensation for any actual pecuniary
loss incurred by noteholders resulting from the default. Any rejection of the
contract constitutes a breach of that contract, entitling the trustee to 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.
S-103
<PAGE>
Most states have adopted a version of Article 2A of the Uniform
Commercial Code, which is applicable to "true leases" such as fair market value
leases. Article 2A purports to codify many provisions of existing common law.
Although there is little precedential authority regarding how Article 2A will be
interpreted, it may, among other things, limit enforceability of any
"unconscionable" lease or "unconscionable" provision in a lease, provide a
lessee with remedies, including the right to cancel the lease contract, for any
lessor breach or default, and may add to or modify the terms of "consumer
leases" and leases where the lessee is a "merchant lessee." However, DVI
Financial Services Inc. will represent that, to the best of its knowledge (i) no
contract is a "consumer lease;" and (ii) each obligor has accepted the equipment
leased to it and, after reasonable opportunity to inspect and test, has
continued to make scheduled payments under the related contract. Article 2A,
moreover, recognizes typical commercial lease "hell or high water" rental
payment clauses and validates reasonable liquidated damages provisions in the
event of lessor or lessee defaults. Article 2A also recognizes the concept of
freedom of contract and permits the parties in a commercial context a wide
latitude to vary provisions of the law.
Certain governmental and quasi-governmental entities, like
municipalities and public hospitals, condition contract payments on the
availability of budgeted funds. If contracts are part of the trust property and
such budgeted funds are not available, the servicer or trustee may be forced to
repossess related equipment and noteholders may experience delays and/or losses
in payment.
Title 6 of the Bankruptcy Reform Act of 1994 established the National
Bankruptcy Review Commission for purposes of analyzing the nation's bankruptcy
laws and making recommendations to Congress for legislative changes to the
bankruptcy laws. A similar commission was involved in developing the Bankruptcy
Code. The final National Bankruptcy Review Commission report has been issued and
may ultimately lead to substantive changes to the existing Bankruptcy Code which
could affect the contracts.
These commercial law and bankruptcy provisions, in addition to the
possible decrease in value of a repossessed item of leased equipment, may limit
the amount realized on the sale of the collateral to less than the amount due on
the related contract.
S-104
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following general discussion of the anticipated material federal
income tax consequences of the purchase, ownership and disposition of the notes
is based upon the provisions of the Internal Revenue Code of 1986, as amended,
the Treasury regulations promulgated thereunder, published rulings of the
Internal Revenue Service and judicial decisions, all in effect as of the date of
this prospectus supplement, all of which authorities are subject to change or
differing interpretations, which could apply retroactively. The discussion below
does not purport to deal with the federal income tax consequences applicable to
all categories of investors and is directed solely to class A, class B, class C
or class D noteholders that are institutional investors, hold the notes as
capital assets within the meaning of section 1221 of the Code and acquire such
notes for investment and not as a dealer or for resale. This discussion does not
address every aspect of the federal income tax laws that may be relevant to a
class A, class B, class C or class D noteholder in light of its particular
investment circumstances, nor does it purport to deal with federal income tax
consequences applicable to all categories of class A, class B, class C or class
D noteholders. Some categories of noteholders, such as banks, insurance
companies and foreign investors, among others, may be subject to special rules
or treatment under the federal income tax laws. Further, this discussion does
not address some collateral tax consequences that may result from ownership of
the notes. For purposes of this tax discussion, references to a "noteholder" or
a "holder" are to the beneficial owner of a note.
Class A, class B, class C or class D noteholders and preparers of tax
returns should be aware that under applicable Treasury regulations a provider of
advice on specific issues of law is not considered an income tax return preparer
unless the advice is:
o given for events that have occurred at the time the advice is
rendered and is not given for the consequences of contemplated
actions, and
o is directly relevant to the determination of an entry on a tax
return. 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.
S-105
<PAGE>
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-115 of this prospectus
supplement. The servicer and the issuer make no representations regarding the
tax consequences of purchase, ownership or disposition of the notes under the
tax laws of any state, locality or foreign jurisdiction. Investors considering
an investment in the notes should consult their own tax advisors regarding such
tax consequences. All investors are urged to consult their own tax advisors in
determining the federal, state, local and foreign and any other tax consequences
to them of an investment in the notes and the purchase, ownership and
disposition of the notes.
Characterization of the Class A, Class B, Class C and Class D Notes
Thacher Proffitt & Wood, special counsel to the underwriters, is of the
opinion that, under existing law, and assuming compliance in all material
respects with all provisions of the indenture, the contribution and servicing
agreement and the other transaction documents relating to the issuance of the
notes, and based in part on the facts described in this prospectus supplement
and additional information and representations, including financial calculations
relating to the contracts provided or reviewed and verified by DVI Financial
Services Inc. or the underwriters, for federal income tax purposes, the class A
notes, the class B notes, the class C notes and the class D notes will be
treated as indebtedness.
Except where indicated to the contrary, the following discussion
describes the consequences that will follow if the class A, class B, class C and
class D notes are treated as indebtedness for federal income tax purposes.
S-106
<PAGE>
Taxation of Class A, Class B, Class C and Class D Noteholders
Payments of Interest. The following discussion of federal income
taxation of the notes is based in part upon the rules governing original issue
discount within the meaning of section 1273(a) of the Code, called OID, that are
listed in sections 1271-1273 and 1275 of the Code and in the Treasury
regulations issued under those sections, called the OID Regulations. The OID
Regulations do not adequately address some issues relevant to, and in some
instances may not be applicable to, securities such as the notes.
It is not anticipated that the class A, class B, class C or class D
notes will be treated as having been issued with OID within the meaning of
section 1273 of the Code. Rather, interest on the notes will be taxable as
ordinary income for federal income tax purposes when received by a class A,
class B, class C or class D noteholder using the cash method of accounting or
when accrued by a class A, class B, class C or class D noteholder using the
accrual method of accounting. Interest received on the Notes also may constitute
"investment income" for purposes of limitations of the Code concerning the
deductibility of investment interest expense by taxpayers other than
corporations.
Market Discount. A subsequent holder who purchases a note at a market
discount, in other words, in the case of a note issued without OID, at a
purchase price less than its remaining stated principal amount, or in the case
of a note issued with OID, at a purchase price less than its adjusted issue
price, may be subject to the "market discount" rules of section 1276 of the
Code. These rules provide, in part, for the treatment of gain attributable to
accrued market discount as ordinary income upon the receipt of partial principal
payments or on the sale or other disposition of the note, and for the deferral
of interest deductions for debt incurred to 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.
S-107
<PAGE>
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.
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.
S-108
<PAGE>
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.
Moreover, if the provisions of section 1272(a)(6) of the Code apply to
the notes, as described above for the use of a reasonable prepayment assumption,
the prepayment assumption used in calculating the accrual of OID also would be
used in calculating the accrual of market discount. Because the regulations
referred to in this paragraph have not been issued, it is not possible to
predict what effect such regulations might have on the tax treatment of a note
purchased at a discount in the secondary market. The prepayment assumption used
in calculating the accrual of OID, premium, market discount, if any, will be
equal to a CPR of 7%. We cannot predict whether the contracts will prepay at
that rate or at any other rate.
To the extent that notes provide for monthly or other periodic payments
throughout their term, the effect of these rules may be to require market
discount to be includible in income at a rate that is not significantly slower
than the rate at which such discount would accrue if it were OID. Moreover, in
any event, a class A, class B, class C or class D noteholder generally will be
S-109
<PAGE>
required to treat a portion of any gain on the sale or exchange of its note as
ordinary income to the extent of the market discount accrued to the date of
disposition under one of the foregoing methods, less any accrued market discount
previously reported as ordinary income.
Premium. A note that is purchased at a cost, excluding any portion of
that cost attributable to accrued qualified stated interest, greater than its
remaining stated redemption price will be considered to be purchased at a
premium. A class A, class B, class C or class D noteholder may elect under
section 171 of the Code to amortize that premium under the constant yield method
over the life of the note. If made, that election will apply to all debt
instruments having amortizable bond premium that the noteholder owns as of the
beginning of the taxable year for which the election is made or thereafter
acquires. Amortizable premium will be treated as an offset to interest income on
the related debt instrument, with a corresponding reduction in the noteholder's
basis of the instrument, rather than as a separate interest deduction. The OID
Regulations also permit class A, class B, class C and class D noteholders to
elect to include all interest, discount and premium in income based on a
constant yield method, further treating the noteholder as having made the
election to amortize premium generally. See "Market Discount" at page S-107 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.
S-110
<PAGE>
Each class A, class B, class C or class D noteholder will be required
to accrue OID, if any, and, if that holder uses an accrual method of accounting
for federal income tax purposes, interest for that note, without giving effect
to any reductions in distributions attributable to defaults or delinquencies on
the contracts until it can be established that any reduction of that kind
ultimately will not be recoverable. As a result, the amount of taxable income
reported in any period by the holder of a note could exceed the amount of
economic income actually realized by the holder in that period. Although the
holder of a note eventually will recognize a loss or reduction in income
attributable to previously accrued and included income that as the result of a
realized loss ultimately will not be realized, the law is unclear as to the
timing and character of such loss or reduction in income.
Sales of Notes. Except as described above for the market discount
rules, and except as provided under section 582(c) of the Code in the case of
banks and other financial institutions, any gain or loss, equal to the
difference between the amount realized on the sale and the adjusted basis of a
note, recognized on the sale or exchange of a note by an investor who holds that
note as a capital asset, will be capital gain or loss. However, a portion of any
gain that might otherwise be capital gain may be treated as ordinary income to
the extent that the note is held as part of a "conversion transaction" within
the meaning of section 1258 of the Code. A conversion transaction usually is one
in which the taxpayer has taken two or more positions in notes or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net
investment in that transaction. The amount of gain realized in a conversion
transaction that may be recharacterized as ordinary income usually will not
exceed the amount of interest that would have accrued on the taxpayer's net
investment in such transaction at 120% of the appropriate "applicable Federal
rate," which rate is computed and published monthly by the IRS, subject to
appropriate reduction to reflect prior inclusion of interest or other ordinary
income items from the transaction, but the extent of that kind of reduction
would need to be provided for in regulations which have not yet been issued.
In addition, taxpayers other than corporations may elect to have net
capital gain taxed at ordinary income rates rather than capital gains rates in
order to include that net capital gain in total net investment income for the
taxable year, for purposes of the rule that limits the deduction of interest on
indebtedness incurred to purchase or carry property held for investment to that
taxpayer's net investment income.
S-111
<PAGE>
The adjusted basis of a note generally will equal its cost, increased
by any income previously reported, including any OID and market discount income,
by the selling class A, class B, class C or class D noteholder and reduced, but
not below zero, by any deduction previously allowed for losses and any amortized
premium and by any payments previously received for that note. Principal
payments on the note will be treated as amounts received upon a sale or exchange
of the note under the foregoing rules relating to OID.
Information Reporting. The servicer is required to furnish or cause to
be furnished to each class A, class B, class C or class D noteholder with each
payment a statement setting forth the amount of that payment allocable to
principal on the note and to interest thereon. In addition, the servicer is
required to furnish or cause to be furnished, within a reasonable time after the
end of each calendar year, to each class A, class B, class C or class D
noteholder who was a holder at any time during that year, a report indicating
such other customary factual information as the servicer deems necessary to
enable holders of notes to prepare their tax returns and will furnish comparable
information to the IRS as and when required by law to do so. If the class A,
class B, class C or class D notes are issued with OID, the servicer will provide
or cause to be provided to the IRS and, as applicable, to the class A, class B,
class C or class D noteholder information statements with respect to OID as
required by the Code or as holders of those notes may reasonably request from
time to time. If the notes are issued with OID, those information reports, even
if otherwise accepted as accurate by the IRS, will in any event be accurate only
as to an initial class A, class B, class C or class D noteholder which purchased
its note at the initial offering price used in preparing those reports. Class A,
class B, class C or class D noteholders should consult their own tax advisors to
determine the amount of any OID and market discount includible in income during
a calendar year.
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-107 above.
S-112
<PAGE>
Foreign Investors. Any class A, class B, class C or class D noteholder
that is not a "United States person," as defined below, and is not holding the
note in connection with a United States trade or business generally will not be
subject to United States federal income or 30% withholding tax in respect of
interest, including any accrued OID, paid on a note, provided that the class A,
class B, class C or class D noteholder complies to the extent necessary with
certain identification requirements, including delivery of a statement, such as
a properly executed IRS Form W-8, signed by the class A, class B, class C or
class D noteholder under penalties of perjury, certifying that the class A,
class B, class C or class D noteholder is not a United States person and
providing the name and address of the class A, class B, class C or class D
noteholder. This exemption does not apply to payments of interest, including
payments in respect of any accrued OID, received by a class A, class B, class C
or class D noteholder that either:
o owns directly or indirectly a 10% or greater interest in the
issuer,
o is a bank that is treated as receiving that interest "on an
extension of credit made under a loan agreement entered into
in the ordinary course of its trade or business,"
o is a person within a foreign country which the IRS has
included in a list of countries that do not provide adequate
exchange of information with the United States to prevent tax
evasion by United States persons, or
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.
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Amounts allocable to interest, including any accrued OID, received by a
class A, class B, class C or class D noteholder that is not a United States
person, which constitute income that is effectively connected with a United
States trade or business carried on by the class A, class B, class C or class D
noteholder, will not be subject to withholding tax, but rather will be subject
to United States income tax at the graduated rates applicable to United States
persons, provided the class A, class B, class C or class D noteholder supplies,
at the time of its initial purchase, and at those subsequent times that are
required under the Treasury regulations, a written statement, such as a properly
executed IRS Form 4224, that the income is, or is expected to be, effectively
connected with the conduct of a trade or business within the United States of
that holder and that this income is includible in the holder's gross income for
the taxable year. This statement must include, among other things, the name and
address of the class A, class B, class C or class D noteholder, that holder's
identifying number and the trade or business with which the income is, or is
expected to be, effectively connected.
In addition, the foregoing rules will not apply to exempt a United
States shareholder of a controlled foreign corporation from taxation on the
United States shareholder's allocable portion of the interest income received by
such controlled foreign corporation.
For purposes of this discussion, United States person means a citizen
or resident of the United States, a corporation, partnership or any other entity
created or organized in, or under the laws of, the United States or any
political subdivision thereof, except, in the case of a partnership, to the
extent provided in regulations, or an estate whose income is subject to United
States federal income tax regardless of its source, or a trust other than a
"foreign trust" as described in Section 7701(a)(31) of the Code. Class A, class
B, class C or class D noteholders who are not United States persons should
consult their own tax advisors regarding the tax consequences of purchasing,
owning or disposing of a note.
Backup Withholding. Payments of interest and principal, as well as
payments of proceeds from the sale of notes, may be subject to the "backup
withholding tax" under section 3406 of the Code at a rate of 31% if recipients
of those payments fail to furnish to the payor certain information, including
their taxpayer identification numbers, or otherwise fail to establish an
exemption from such tax. Any amounts deducted and withheld from a distribution
to a recipient would be allowed as a credit against that recipient's federal
income tax liability. Furthermore,
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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.
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.
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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 investment fund and other pooled investment vehicle
which includes the assets of ERISA plans, IRAs, Keogh plans,
and/or government plans.
A summary of the effects of those laws follows.
FIDUCIARY STANDARDS FOR ERISA PLANS AND RELATED INVESTMENT VEHICLES
ERISA imposes standards of fiduciary conduct on those who are
responsible for operating ERISA plans or investing their assets. These standards
include requirements that fiduciaries act prudently in making investment
decisions and diversify investments so as to avoid large losses unless under the
circumstances it is clearly prudent not to do so. If you are a fiduciary of an
ERISA plan, you are subject to these standards in deciding whether to invest the
plan's assets offered notes. You may find the full text of the applicable
standards of fiduciary conduct in section 404 of ERISA. If you are a fiduciary
of an ERISA Plan, you should consult with your advisors concerning your
investment decision in the context of section 404 of ERISA.
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PROHIBITED TRANSACTION ISSUES FOR ERISA PLANS, KEOGH PLANS, IRAS AND RELATED
INVESTMENT VEHICLES
General. Certain transactions involving the assets of an ERISA plan, a
Keogh plan or an IRA, called "prohibited transactions," may result in the
imposition of excise taxes and, in the case of an ERISA plan, civil money
penalties. A prohibited transaction occurs when a person with a pre-existing
relationship to an ERISA plan or IRA, known as a "party in interest" or a
"disqualified person," engages in a transaction involving the assets of the plan
or IRA. You may find the laws applicable to prohibited transactions in section
406 of ERISA and section 4975 of the Code. There are statutory and regulatory
prohibited transaction exemptions, as well as administrative exemptions granted
by the United States Department of Labor. Prohibited transactions exemptions
waive the excise taxes and civil money penalties for some prohibited
transactions which are structured to satisfy prescribed conditions.
Purchase and Sale of Offered Notes. If an ERISA plan, a Keogh plan, an
IRA or a related investment vehicle acquires offered notes from, or sells
offered notes to, a party in interest or a disqualified person, a prohibited
transaction may occur. In that case, the party in interest or disqualified
person might be liable for excise taxes unless a prohibited transaction
exemption is available. Where a prohibited transaction involves an ERISA plan or
related investment vehicle, the fiduciary who causes or permits the prohibited
transaction may also be liable for civil money penalties.
Transactions Incidental to the Operation of the Issuer. Transactions
involving the assets of the issuer may also give rise to prohibited transactions
to the extent that an investment in offered notes causes the assets of the
issuer to be considered assets, commonly known as "plan assets," of an ERISA
plan, a Keogh plan, an IRA or a related investment vehicle. Whether an
investment in notes will cause the issuer's assets to be treated as plan assets
depends on whether the offered notes are debt or equity investments for purposes
of ERISA. The United States Department of Labor has issued regulations, commonly
known as the "plan asset regulations," which define debt and equity investments.
The plan asset regulations appear at 29 C.F.R. (Section)2510.3-101.
Under the plan asset regulations, the issuer's assets will not be "plan
assets" of an
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ERISA plan, Keogh plan, IRA or related investment vehicle that purchases offered
notes if the offered notes are considered debt. For this purpose, the offered
notes will be debt if they are treated as indebtedness under applicable local
law and do not have any substantial equity features. The term "substantial
equity features" has no definition under the plan asset regulations. In the
absence of such a definition, we cannot assure you that the offered notes,
either when they are issued or at any later date, will have no substantial
equity features. Thus, we cannot assure you that the offered notes will be
treated as debt.
To the extent that the offered notes do not constitute debt for
purposes of ERISA, they will constitute equity investments unless:
o the issuer is an operating company or a venture capital
operating company as defined in the plan asset regulations,
o the offered notes are "publicly offered securities" as defined
in the plan asset regulations,
o "benefit plan investors" as defined in the plan asset
regulations do not own 25% or more of the offered notes or any
other class of equity security issued by the issuer.
In this case, an ERISA plan, Keogh plan, IRA or related investment
vehicle that acquires an offered note would also acquire an undivided interest
in each asset of the issuer. This would cause all of the issuer's assets to be
plan assets under the plan asset regulations. If the offered notes are treated
as equity investment under the plan asset regulations, we cannot assure you that
any of these exceptions will apply.
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
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exemptions is available only if specified conditions are satisfied and may
provide relief for some, but not all, of the prohibited transactions that a
particular transaction may cause. You should consult with your advisors
regarding the specific scope, terms and conditions of an exemption before
relying on that exemption's availability to you.
Class Exemptions for Purchases and Sales of Offered Notes. The
following exemptions may apply to a purchase or sale of offered notes between an
ERISA plan, a Keogh plan, an IRA or related investment vehicle, on the one hand,
and a party in interest or disqualified person, on the other hand:
o PTCE 84-14, which exempts particular transactions approved on
behalf of the plan by a qualified professional asset manager,
or "QPAM."
o PTCE 86-128, which exempts certain transactions between a plan
and particular broker-dealers.
o PTCE 90-1, which exempts particular transactions entered into
by insurance company pooled separate accounts in which plans
have made investments.
o PTCE 91-38, which exempts particular transactions entered into
by bank collective investment funds in which plans have made
investments.
o PTCE 96-23, which exempts particular transactions 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.
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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. Under section 401(c) of ERISA, the United
States Department of Labor issued final regulations on January 5, 2000 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 July 5, 2001 (18 months after the issuance of the 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 with
respect to policies issued on or before December 31, 1998. 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 July 4, 2001. 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. Any assets of an insurance company general account which support
insurance policies issued to a plan after December 31, 1998 or for which the
insurance company does not comply with the regulations may be treated as plan
assets. 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, on or after July 5, 2001, 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
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in the offered notes on behalf of a government plan, you should consult with
your advisors regarding the requirements of applicable state law.
REQUIRED REPRESENTATIONS OF INVESTORS
We anticipate that, on the date of this prospectus supplement, the
offered notes should be treated as indebtedness without substantial equity
features for purposes of the plan asset regulations. However, even if the
offered notes are treated as indebtedness for such purposes, the acquisition or
holding of offered notes by or on behalf of an ERISA plan, a Keogh plan, an IRA
or related investment vehicle could be considered to give rise to a prohibited
transaction. A prohibited transaction could arise if the issuer, the servicer,
the trustee, an underwriter or any of their respective affiliates is or becomes
a party in interest or disqualified person with respect to such ERISA plan,
Keogh plan, IRA or related investment vehicle, unless certain exemptions from
the prohibited transaction rules were applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire an offered
note. In addition, if offered notes were treated as an equity interest in the
future, the assets of the trust could be treated as plan assets of a plan for
the purposes of ERISA and the Code. In view of the investor-specific nature of
the conditions on the exemptive relief available under the PTCEs and section
401(c) of ERISA we require each investor to determine whether it is investing
plan assets in the offered notes and, if it is, to determine that appropriate
exemptive relief from ERISA's prohibited transaction provisions is available.
The offered notes will be issued and transferred only in book-entry form through
The Depository Trust Company, whose issuance and transfer procedures do not
permit us to secure written representations from each investor and subsequent
transferee. As a result, by acquiring an offered note, each purchaser will be
deemed to represent that either:
o it is not acquiring the offered notes with the assets of an
ERISA plan, a Keogh plan, an IRA or related investment
vehicle, or
o the acquisition and holding of the offered notes will not give
rise to a nonexempt prohibited transaction under Section
406(a) of ERISA or Section 4975 of the Code.
If a purchaser invests on behalf of more than one party or uses more
than one source of funds, that purchaser will be deemed to have made one, but
not necessarily the same, of
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these representations as to each party or source of funds.
If the offered notes are issued as definitive securities, the transfer
of the offered notes to you will not be registered by the trustee unless you
represent to the issuer, the trustee, the servicer and any successor servicer
either one of the first two statements in the bulleted paragraph above is an
accurate representation as to all sources of funds you are using to pay the
purchase price of the offered notes.
THIS DISCUSSION IS A GENERAL DISCUSSION OF SOME OF THE RULES WHICH
APPLY TO ERISA PLANS, KEOGH PLANS, IRAS, GOVERNMENT PLANS AND THEIR RELATED
INVESTMENT VEHICLES. PRIOR TO MAKING AN INVESTMENT IN THE OFFERED NOTES,
PROSPECTIVE PLAN INVESTORS SHOULD CONSULT WITH THEIR LEGAL AND OTHER ADVISORS
CONCERNING THE IMPACT OF ERISA AND THE CODE, AND, PARTICULARLY IN THE CASE OF
GOVERNMENT PLANS AND RELATED INVESTMENT VEHICLES, ANY ADDITIONAL STATE LAW
CONSIDERATIONS, AND THE POTENTIAL CONSEQUENCES IN THEIR SPECIFIC CIRCUMSTANCES.
LEGAL INVESTMENT
The class A-1 notes will be eligible securities for purchase by money
market funds under the Investment Company Act of 1940, as amended.
RATINGS
As a condition to the issuance of the class A notes, the class A-1
notes must be rated "F1+" by Fitch, Inc. and "P-1" by Moody's, the class A-2
notes, the class A-3 notes, and the class A-4 notes must be rated "AAA" or
"Aaa," as applicable, by the Rating Agencies, the class B notes must be rated
"AA" or "Aa3," as applicable, by the Rating Agencies, the class C notes must be
rated "A2" or "A," as applicable, by the Rating Agencies, and the class D notes
must be rated "BBB," or "Baa2," as applicable, by the Rating Agencies. A rating
on a security is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time. The ratings assigned to the notes
address the likelihood of the receipt by class A
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noteholders, class B noteholders, class C noteholders and class D noteholders of
all distributions to which such noteholders are entitled. The ratings assigned
to the notes do not represent any assessment of the likelihood that principal
prepayments might differ from those originally anticipated or address the
possibility that class A noteholders, class B noteholders, class C noteholders
and class D noteholders might suffer a lower than anticipated yield.
USE OF PROCEEDS
The issuer will use the net proceeds from the sale of the notes for
general organizational purposes, to pay the purchase price of the trust property
to DVI Financial Services Inc. or an Affiliate thereof and to make the required
deposits in the reserve account. See "Description of the Notes and Principal
Transaction Documents C Reserve Account" at page S-66 for a description of the
reserve account.
PLAN OF DISTRIBUTION
Subject to the terms and conditions of an underwriting agreement the
issuer has agreed to sell and the underwriters have severally agreed to
purchase, the class A notes, the class B notes, the class C notes and the class
D notes, in the principal amounts listed opposite their names:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF PRINCIPAL PRINCIPAL PRINCIPAL
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 AMOUNT OF AMOUNT OF AMOUNT OF
UNDERWRITER NOTES NOTES NOTES NOTES CLASS B NOTES CLASS C NOTES CLASS D NOTES
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Banc One Capital
Markets, Inc. $19,987,500 $20,500,000 $14,500,000 $42,902,000 $2,052,000 $4,104,000 $2,736,000
Merrill Lynch,
Pierce, Fenner &
Smith Incorporated $19,987,500 $20,500,000 $14,500,000 $42,902,000 $2,052,000 $4,104,000 $2,736,000
Total $39,975,000 $41,000,000 $29,000,000 $85,804,000 $4,104,000 $8,208,000 $5,472,000
</TABLE>
In the underwriting agreement, the underwriters agree, subject to the
terms and conditions of the underwriting agreement, to purchase all the class A
notes, the class B notes, the class C notes and the class D notes offered by
this prospectus supplement in the amounts listed above if any of such class A
notes, class B notes, class C notes and class D notes are purchased.
The issuer has been advised by the underwriters that the underwriters
propose
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initially to offer the class A notes, class B notes, class C notes and class D
notes to the public at the respective public offering prices listed on the cover
page of this prospectus supplement, and to dealers at such price less a discount
not in excess of 0.105%, 0.135%, 0.240%, 0.255%, 0.240,% 0.240% and 0.270% per
class A-1 note, class A-2 note, class A-3 note, class A-4 note, class B note,
class C note and class D note, respectively. The underwriters may allow and the
dealers may reallow a discount not in excess of 0.050% per class A-1 note,
0.070% per class A-2 note, 0.120% per class A-3 note, 0.125% per class A-4 note,
0.120% per class B note, 0.120% per class C note and 0.135% per class D note to
certain dealers. After the initial public offering, the prices of the notes, any
concessions and any discounts may vary.
In addition, the issuer will sell directly to an affiliate of Merrill
Lynch, Pierce, Fenner & Smith Incorporated a total principal amount of
$45,000,000 of class A-3 notes pursuant to a note purchase agreement. The
affiliate has agreed in its note purchase agreement to purchase at the public
offering price for the class A-3 notes set forth in this prospectus supplement.
The Issuer has agreed to pay to Merrill Lynch, Pierce Fenner & Smith
Incorporated as placement agent a placement fee of 0.375% of the principal
amount of the class A-3 notes purchased by its affiliate.
The issuer has been advised by the underwriters that they presently
intend to make a market in the class A notes, the class B notes, the class C
notes and the class D notes. However, they are not obligated to do so, any
market-making may be discontinued at any time, and there can be no assurance
that an active public market for such notes will develop.
For further information regarding any offer or sale of the class A
notes, the class B notes, the class C notes and the class D notes under this
prospectus supplement, see "Plan of Distribution" at page 28 of the prospectus.
The underwriting agreement provides that DVI Financial Services Inc.
and DVI Receivables Corp. XII will indemnify the underwriters and the placement
agent against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended, or contribute to payments the underwriters
may be required to make in respect thereof.
In connection with this offering and in compliance with applicable law
and industry practice, the underwriters may over-allot or effect transactions
which stabilize, maintain or
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otherwise affect the market price of the class A notes, class B notes, class C
notes and class D notes at a level above that which might otherwise prevail in
the open market, including stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid or the effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of a security. A syndicate covering transaction means the
placing of any bid on behalf of the underwriting syndicate or the effecting of
any purchase to reduce a short position created in connection with the offering.
A penalty bid means an arrangement that permits the underwriters to reclaim a
selling concession from a syndicate member in connection with the offering when
the class A notes, class B notes, class C notes and class D notes originally
sold by the syndicate member are purchased in syndicate covering transactions.
The underwriters are not required to engage in any of these activities. Any such
activities, if commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters relating to the issuance of the notes will be
passed upon for the issuer, DVI Receivables Corp. XII and DVI Financial Services
Inc. by the general counsel to such parties, and by Thacher Proffitt & Wood, New
York, New York, special counsel to the underwriters.
WHERE YOU CAN FIND MORE INFORMATION
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT
THE OFFERING OF THE NOTES. ADDITIONAL INFORMATION IS CONTAINED IN THE PROSPECTUS
AND PROSPECTIVE 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
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filed by the issuer under to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act, prior to the termination of the offering of the applicable notes, that
relate specifically to the related series of notes. The issuer will provide or
cause to be provided without charge to each person to whom this Prospectus
supplement and the prospectus is delivered in connection with offering of the
notes, upon written or oral request of that person, a copy of any or all of the
reports incorporated in this prospectus supplement by reference. In each case,
information will be incorporated to the extent those reports relate to one or
more of classes of notes. This will not include the exhibits to those documents,
unless those exhibits are specifically incorporated by reference in those
documents. Please direct requests in writing to the issuer at its address in the
summary section of this prospectus supplement.
REPORTS TO NOTEHOLDERS
Unless and 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 C Book-Entry Registration of the Notes" at page S-84 of
this prospectus supplement, and "Description of the Securities C Reports to
Securityholders" at page 15 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 DVI,
Inc. under any applicable federal or state bankruptcy, etc., law and
that order remains in effect for a period of 90 consecutive days;
(B) DVI, Inc. commences or agrees to any kind of so-called "voluntary"
petition for relief under any federal or state bankruptcy, etc., law;
(C) as of any determination date, the quotient of (1) divided by (2)
exceeds the product of (3) and (4), where (1) equals the sum of the
Discounted Contract Balances of all contracts listed as more than 90
days delinquent as of the last day of the three immediately preceding
calendar months; (2) equals three, (3) equals 0.08 and (4)
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equals the quotient of (x) the sum of the Aggregate Discounted Contract
Balances as of the last day of the three immediately preceding
collection periods, divided by (y) three; or
(D) as of any determination date, the sum of the Discounted Contract
Balances of all contracts that have been classified as defaulted
contracts since the closing date exceeds the product of (1) 0.06 and
(2) the Aggregate Discounted Contract Balance on the closing date.
Discounted Contract Balances will be determined immediately prior to
the classification as a defaulted contract.
AVAILABLE FUNDS for any payment date, means the excess of all amounts
on deposit in the collection account on the second business day preceding that
payment date over that portion of those amounts representing contract payments
due, or voluntary prepayments deposited in the collection account, after the end
of the collection period preceding the payment date, including any investment
income with respect to monies on deposit in the collection account.
AVAILABLE RESERVE ACCOUNT FUNDS are funds equal to the amount of the
Priority Payments less any deposited Available Funds.
CLASS A DISTRIBUTION SUB-ACCOUNT is the sub-account or sub-accounts by
that name established and maintained by the trustee under the indenture.
CLASS A MONTHLY INTEREST means, for any payment date, the sum of the
Class A-1 Monthly Interest, Class A-2 Monthly Interest, Class A-3 Monthly
Interest and the Class A-4 Monthly Interest.
CLASS A MONTHLY PRINCIPAL means, for any payment date the sum of the
Class A-1 Monthly Principal, the Class A-2 Monthly Principal, the Class A-3
Monthly Principal and the Class A-4 Monthly Principal due or payable on that
payment date.
CLASS A OVERDUE INTEREST means, for any payment date, the excess, if
any, of:
(A) the aggregate amount of Class A Monthly Interest payable on all prior
payment
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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 a fraction the numerator of which is the Class
A Note Balance on the closing date and the denominator of which is the Initial
Aggregate Discounted Contract Balance.
CLASS A-1 MONTHLY INTEREST means, for any payment date, the product of:
(A) the fraction of which the numerator is the actual number of days
elapsed during the related month (or, in the case of the first payment
date, the actual number of days elapsed since the closing date) and the
denominator of which is 360 days;
(B) the class A-1 Note Rate; and
(C) the class A-1 Note Balance on the immediately preceding payment date
(or, in the case of the first payment date, the closing date) after
giving effect to all principal payments on the class A-1 notes on that
prior payment date.
The Class A-1 Monthly Interest, with respect to each payment date,
accrues from and including the prior payment date to but excluding such
payment date, and with respect to the initial payment date, accrues
from and including the closing date to, but excluding, that payment
date.
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CLASS A-1 MONTHLY PRINCIPAL means:
(A) for any payment date other than the class A-1 stated maturity date, an
amount equal to the product of (a) the Class A Percentage and (b) the
Monthly Principal; provided, however, that in no event shall the Class
A-1 Monthly Principal exceed the then outstanding Note Balance for the
Class A-1 notes as of such payment date and
(B) on the class A-1 stated maturity date, the entire amount of the then
Outstanding Class A-1 Note Balance.
CLASS A-1 NOTE RATE means 6.7094%.
CLASS A-1 OVERDUE INTEREST means, for any payment date, the excess, if
any, of:
(A) the aggregate amount of Class A-1 Monthly Interest payable on all prior
payment dates; over
(B) the aggregate amount of interest actually paid to the class A-1
noteholders on all prior payment dates.
CLASS A-1 OVERDUE PRINCIPAL means, as for any payment date, the excess,
if any, of:
(A) the aggregate amount of Class A-1 Monthly Principal due on the class
A-1 notes on all prior payment dates; over
(B) the aggregate amount of principal actually paid to the class A-1
noteholders on all prior payment dates.
CLASS A-2 MONTHLY INTEREST means, for any payment date, the product of:
(A) one-twelfth,
(B) the Class A-2 Note Rate and
(C) the Class A-2 Note Balance on the immediately preceding payment date
(or, in the case of the first payment date, the closing date) after
giving effect to all principal payments on the class A-2 notes on that
prior payment date.
The Class A-2 Monthly Interest is calculated on a twelve month year of
thirty days in each month, except for the first payment date, for which
interest accrues from the
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closing date to, but excluding, that payment date.
CLASS A-2 MONTHLY PRINCIPAL means:
(A) prior to the payment date upon which the Class A-1 Note Balance is paid
in full, zero,
(B) on any payment date on and after which the Class A-1 Note Balance has
been reduced to zero and until the Class A-2 Note Balance is paid in
full, the product of (x) the Class A Percentage and (y) the Monthly
Principal, and
(C) on the class A-2 stated maturity date, the entire amount of the then
outstanding Class A-2 Note Balance.
CLASS A-2 NOTE RATE means 6.759%.
CLASS A-2 OVERDUE INTEREST means, for any payment date, the excess, if
any, of:
(A) the aggregate amount of Class A-2 Monthly Interest payable on all prior
payment dates; over
(B) the aggregate amount of interest actually paid to the class A-2
noteholders on all prior payment dates.
CLASS A-2 OVERDUE PRINCIPAL means, for any payment date, the excess, if
any, of:
(A) the aggregate amount of Class A-2 Monthly Principal due on the class
A-2 notes on all prior payment dates; over
(B) the aggregate amount of principal actually paid to the class A-2
noteholders on all prior payment dates.
CLASS A-3 MONTHLY INTEREST means, for any payment date, the product of:
(A) one-twelfth,
(B) the Class A-3 Note Rate, and
(C) the Class A-3 Note Balance on the immediately preceding payment date
(or, in the case of the first payment date, the closing date) after
giving effect to all principal payments on the class A-3 notes on that
prior payment date.
The Class A-3 Monthly Interest is calculated based upon a twelve month
year of
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thirty days in each month, except for the first payment date, for which
interest accrues from the closing date to, but excluding, that payment
date.
CLASS A-3 MONTHLY PRINCIPAL means:
(A) prior to the payment date upon which the Class A-2 Note Balance is paid
in full, zero,
(B) on any payment date on and after which the Class A-2 Note Balance has
been reduced to zero and until the Class A-3 Note Balance is paid in
full, the product of (x) the Class A Percentage and (y) the Monthly
Principal, and
(C) on the class A-3 stated maturity date, the entire amount of the then
outstanding Class A-3 Note Balance.
CLASS A-3 NOTE RATE means 6.808%.
CLASS A-3 OVERDUE INTEREST means, for any payment date, the excess, if
any, of:
(A) the aggregate amount of Class A-3 Monthly Interest payable on all prior
payment dates; over
(B) the aggregate amount of interest actually paid to the class A-3
noteholders on all prior payment dates.
CLASS A-3 OVERDUE PRINCIPAL means, for any payment date, the excess, if
any, of:
(A) the aggregate amount of Class A-3 Monthly Principal due on the class
A-3 notes on all prior payment dates; over
(B) the aggregate amount of principal actually paid to the class A-3
noteholders on all prior payment dates.
CLASS A-4 MONTHLY INTEREST means, for any payment date, the product of:
(A) one-twelfth,
(B) the Class A-4 Note Rate and
(C) the Class A-4 Note Balance on the immediately preceding payment date
(or, in the case of the first payment date, the closing date) after
giving effect to all principal payments on the class A-4 notes on that
prior payment date.
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The Class A-4 Monthly Interest is calculated based upon a twelve month
year of thirty days in each month, except for the first payment date,
for which interest accrues from the closing date to, but excluding,
that payment date.
CLASS A-4 MONTHLY PRINCIPAL means:
(A) prior to the payment date upon which the Class A-3 Note Balance is paid
in full, zero,
(B) on any payment date on and after which the Class A-3 Note Balance has
been reduced to zero and until the Class A-4 Note Balance is paid in
full, the product of (x) the Class A Percentage and (y) the Monthly
Principal, and
(C) on the Class A-4 stated maturity date, the entire amount of the then
outstanding Class A-4 Note Balance.
CLASS A-4 NOTE RATE means 7.115%.
CLASS A-4 OVERDUE INTEREST means, for any payment date, the excess, if
any, of
(A) the aggregate amount of Class A-4 Monthly Interest payable on all prior
payment dates over
(B) the aggregate amount of interest actually paid to the class A-4
noteholders on all prior payment dates.
CLASS A-4 OVERDUE PRINCIPAL means, for any payment dates, the excess,
if any, of
(A) the aggregate amount of Class A-4 Monthly Principal due on the class
A-4 notes on all prior payment dates over
(B) the aggregate amount of principal actually paid to the class A-4
noteholders on all prior payment dates.
CLASS B DISTRIBUTION SUB-ACCOUNT is the sub-account or sub-accounts by
that name established and maintained by the trustee under the indenture.
CLASS B MONTHLY INTEREST means, for any payment date, the product of
(A) one-twelfth,
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(B) the Class B Note Rate and
(C) the Class B Note Balance on the immediately preceding payment date, or,
in the case of the first payment date, the closing date, after giving
effect to all principal payments on the class B notes on that prior
payment date.
The Class B Monthly Interest is calculated based upon a twelve month
year of thirty days in each month, except for the first payment date,
for which interest shall accrue from the closing date to, but
excluding, that payment date.
CLASS B MONTHLY PRINCIPAL means:
(A) on any payment date other than the Class B stated maturity date, the
product of (x) the Class B Percentage and (y) the Monthly Principal,
and
(B) on the Class B stated maturity date, the entire amount of the then
outstanding Class B Note Balance.
CLASS B NOTE RATE means 7.063%.
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
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(B) the aggregate amount of principal actually paid to the class B
noteholders on all prior payment dates.
CLASS B PERCENTAGE means a fraction the numerator of which is the Class
B Note Balance on the closing date and the denominator of which is the Initial
Aggregate Discounted Contract Balance.
CLASS C DISTRIBUTION SUB-ACCOUNT is the sub-account or sub-accounts by
that name established and maintained by the trustee under the indenture.
CLASS C MONTHLY INTEREST means, for any payment date, the product of
(A) one-twelfth,
(B) the Class C Note Rate and
(C) the Class C Note Balance on the immediately preceding payment date, or,
in the case of the first payment date, the closing date, after giving
effect to all principal payments on the class C note on that prior
payment date.
The Class C Monthly Interest 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 NOTE RATE means 7.208%.
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CLASS C OVERDUE INTEREST means, for any payment date, the excess, if
any, of
(A) the aggregate amount of Class C Monthly Interest payable on all prior
payment dates over
(B) the aggregate amount of interest actually paid to the class C
noteholders on all prior payment dates.
CLASS C OVERDUE PRINCIPAL means, for any payment date, the excess, if
any, of
(A) the aggregate amount of Class C Monthly Principal due on the class C
notes on all prior payment dates over
(B) the aggregate amount of principal actually paid to the class C
noteholders on all prior payment dates.
CLASS C PERCENTAGE means a fraction the numerator of which is the Class
C Note Balance on the closing date and the denominator of which is the Initial
Aggregate Discounted Contract Balance.
CLASS D DISTRIBUTION SUB-ACCOUNT is the sub-account or sub-accounts by
that name established and maintained by the trustee under the indenture.
CLASS D MONTHLY INTEREST means, for any payment date, the product of
(A) one-twelfth,
(B) the Class D Note Rate, and
(C) the Class D Note Balance on the immediately preceding payment date, or
in the 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.
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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) the Monthly Principal,
and
(B) on the Class D stated maturity date, the entire amount of the then
outstanding Class D Note Balance.
CLASS D NOTE RATE means 7.693%.
CLASS D OVERDUE INTEREST means, for any payment date, the excess, if
any, of
(A) the aggregate amount of Class D Monthly Interest payable on all prior
payment dates over
(B) the aggregate amount of interest actually paid to the class D
noteholders on all prior payment dates.
CLASS D OVERDUE PRINCIPAL means, for any payment date, the excess, if
any, of
(A) the aggregate amount of Class D Monthly Principal due on the class D
notes on all prior payment dates over
(B) the aggregate amount of principal actually paid to the class D
noteholders on all prior payment dates.
CLASS D PERCENTAGE means a fraction the numerator of which is the Class
D Note Balance on the closing date and the denominator of which is the Initial
Aggregate Discounted Contract Balance.
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CLASS E DISTRIBUTION SUB-ACCOUNT is the sub-account or sub-accounts by
that name established and maintained by the trustee under the indenture.
CLASS E MONTHLY INTEREST means, for any payment date, the product of
(A) one-twelfth,
(B) the Class E Note Rate, and
(C) the Class E Note Balance on the immediately preceding payment date, or
in the case of the first payment date, the closing date, after giving
effect to all principal payments on the class E note on that prior
payment date.
The Class E Monthly Interest shall be calculated based upon a twelve
month year of thirty days in each month, except for the first payment
date, for which interest shall accrue from the closing date to, but
excluding, that payment date.
CLASS E MONTHLY PRINCIPAL means:
(A) on any payment date other than the class E stated maturity date, an
amount equal to the product of (x) the Class E Percentage and (y) the
Monthly Principal and
(B) on the class E stated maturity date, the entire amount of the then
outstanding Class E Note Balance.
CLASS E NOTE RATE means 10.267%.
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
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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 a fraction the numerator of which is the Class
E Note Balance on the closing date and the denominator of which is the Initial
Aggregate Discounted Contract Balance.
DELINQUENCY CONDITION exists on any determination date if (x) the
quotient of (1) the sum of the Discounted Contract Balances of all contracts
listed as more than ninety days delinquent as of the last day of the three
preceding calendar months, divided by (2) three exceeds (y) the product of (1)
0.06 and (2) the quotient of (A) the sum of the Aggregate Discounted Contract
Balance as of the last day of the three preceding collection periods, divided by
(B) three.
DISCOUNTED CONTRACT BALANCE means, for any contract for the particular
date on which that balance is determined, an amount equal to the sum of:
(A) the present value of each remaining contract payment remaining due
under the contract before the last day of the calendar month preceding
the stated maturity date, discounted monthly, from the last day of the
collection period in which that contract payment is to become due, at a
rate equal to one-twelfth, or a larger 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
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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.
DISCOUNT RATE is a per annum rate that we apply to the then outstanding
scheduled payments due on a contract to calculate the value in today's dollars
of all outstanding scheduled future payments on a contract. When we use Discount
Rate with respect to the charts and statistical contracts in this prospectus
supplement as of the cut-off date, we use an assumed Discount Rate of 7.75% per
annum. Any other time we use Discount Rate, we are using the actual rate of
7.660%.
ELIGIBLE CONTRACT: means a contract that, on the day that the issuer
acquires that contract, and for the initial contracts taken as a whole, has the
following characteristics:
(A) the Discounted Contract Balance of that contract does 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
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laws of any state or territory of the United States of America;
(E) the rights and obligations of the obligor under that contract will
terminate no later than October 31, 2007;
(F) the Discounted Contract Balance of all 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 10.77% of
the Aggregate Discounted Contract Balance of all the initial contracts.
Any balloon payment must not be more than six and a half times larger
than the average contract payment on that contract;
(G) the Discounted Contract Balance of all contracts that have non-level
payments, excluding contracts that have balloon payments, is not more
than 39.33% 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 11.95% of the
Aggregate Discounted Contract Balance of all the initial contracts,
o no single obligor will have a Discounted Contract Balance that
exceeds 2.62% of the Aggregate Discounted Contract Balance,
o and the sum of the Discounted Contract Balances of the largest five
obligors does not exceed 11.79% of the Aggregate Discounted
Principal Contract Balance of all the contracts acquired by the
issuer on the closing date;
(I) not more than 10% of the Aggregate Discounted Contract Balance of the
initial contracts will arise from contracts which constitute loans to
manufacturers, wholesalers, and retailers; and
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(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 7% 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 December, 2000.
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 7.660%.
INITIAL RESERVE ACCOUNT REQUIRED AMOUNT is $4,104,190.93, which equals
1.5% of the Initial Aggregate Discounted Contract Balance.
MONTHLY INTEREST means for any payment date, the sum of
(A) the Class A Monthly Interest,
(B) the Class B Monthly Interest,
(C) the Class C Monthly Interest,
(D) the Class D Monthly Interest, and
(E) the Class E Monthly Interest.
MONTHLY PRINCIPAL means, for any payment date, an amount equal to the
excess of
(A) the Aggregate Discounted Contract Balance at the close of business on
the last day of the second preceding collection period over
(B) the Aggregate Discounted Contract Balance at the close of business on
the last day of the immediately preceding collection period.
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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, $240,779,000 for the class A
notes cumulatively (and, with respect to each class of class A notes,
$39,975,000 for the class A-1 notes, $41,000,000 for the class A-2 notes,
$74,000,000 for the class A-3 notes and $85,804,000 for the class A-4 notes),
$4,104,000 for the class B notes, $8,208,000 for the class C notes, $5,472,000
for the class D notes and $6,840,000 for the class E notes and thereafter shall
equal the note balance for each class reduced by all principal payments on that
class of notes.
NOTE RATE means the annualized rate of interest on the relevant class
of notes.
OUTSTANDING or OUTSTANDING means, when used with reference to the notes
and as of any particular date, any note theretofore and thereupon being
authenticated and delivered except:
(A) any note canceled by the trustee at or before said date;
(B) any note, or portion thereof, for payment of redemption of which monies
equal to the principal amount or redemption price thereof, as the case
may be, with interest to the date of maturity or redemption, shall have
theretofore been irrevocably deposited with the trustee (whether upon
or prior to maturity or the redemption date of such note);
(C) any note in lieu of or in substitution for which another note shall
have been authenticated and delivered; and
(D) any note owned by DVI Receivables Corp. XII or any affiliate of DVI
Receivables Corp. XII, except that, in determining whether the trustee
shall be entitled to rely upon any request, demand, authorization,
direction, notice, consent or waiver of
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noteholders under the indenture, only notes which the trustee knows to
be so owned shall be disregarded.
OVERDUE INTEREST means, for any payment date, the sum of (i) the Class
A Overdue Interest, (ii) the Class B Overdue Interest, (iii) the Class C Overdue
Interest, (iv) the Class D Overdue Interest and (v) the Class E Overdue
Interest.
PARTIAL PREPAYMENT AMOUNT means, for a particular collection period and
a contract for which the obligor wants to make a voluntary partial prepayment
and for which no substitute contract has been provided, an amount equal to the
excess, if any, of:
(A) the difference between:
(1) the Discounted Contract Balance of that contract as of the first
day of the collection period together with one month of interest on
that contract at the Discount Rate and
(2) the Discounted Contract Balance of that contract as of the first
day of the collection period calculated based on the amount of each
remaining contract payment payable by the obligor after giving effect
to the reduction of the 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 and other trust property related to the contracts.
POOL A AGGREGATE DISCOUNTED CONTRACT BALANCE means an interest in, for
any date of determination, the sum of the Discounted Contract Balances of all
contracts in Pool A.
POOL B means the contracts identified on the contract schedule as
constituting Pool B, and other trust property related to the contracts.
POOL B AGGREGATE DISCOUNTED CONTRACT BALANCE means, for any date of
determination, the sum of the Discounted Contract Balances of all contracts in
Pool B.
PREDECESSOR CONTRACT means, for any substitute contract acquired by DVI
Receivables Corp. XII by substitution under Section 7 of the contribution and
servicing agreement, the contract or contracts for which the substitute contract
has been substituted.
PREPAYMENT AMOUNT means, for any contract, the sum of
(A) the Discounted Contract Balance as of the first day of the collection
period preceding a prepayment, together with one month of interest on
the contract at the Discount Rate;
(B) any unreimbursed Servicer Advances for the contract; and
(C) any contract payments due and outstanding under a contract that are not
the subject of a Servicer Advance.
PRIORITY PAYMENTS mean, on any payment date, the sum of all payments of
interest and principal to the class A, class B, class C, class D and class E
noteholders, whether or not an Amortization Event has taken place.
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REPURCHASE AMOUNT means, for any contract, the sum of:
(A) the Discounted Contract Balance as of the first day of the collection
period preceding such repurchase, together with one month of interest
on the contract at the Discount Rate; and
(B) any unreimbursed Servicer Advances for the contract.
RESERVE ACCOUNT DEPOSIT AMOUNT means, on any payment date, an amount
equal to the excess of (A) the Reserve Account Required Amount over (B) the
amount on deposit in the reserve account after giving effect to any reserve
account draws on that payment date.
RESERVE ACCOUNT REQUIRED AMOUNT means, on the first payment date, the
Initial Reserve Account Acquired Amount; and thereafter the lesser of either (i)
the Initial Reserve Account Required Amount or (ii) the sum of (a) the Class A
Note Balance, (b) the Class B Note Balance, (c) the Class C Note Balance, (d)
the Class D Note Balance and (e) the Class E Note Balance. However, for each
payment date while a Restricting Event has occurred and is continuing, the
Reserve Account Required Amount shall be equal to the sum of (i) the Reserve
Account Required Amount on the preceding payment date after any additions to or
withdrawals from the reserve account on that payment date and (ii) all amounts
otherwise payable to the issuer on that payment date.
RESTRICTING EVENT means the condition that exists on any payment date
if: (i) a Delinquency Condition exists or (ii) an 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.
SUBORDINATION DEFICIENCY EVENT occurs when the Class A Note Balance is
greater than the Aggregate Discounted Contract Balance on the date of
determination.
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<PAGE>
VOTING RIGHTS means, the votes of class A-1 noteholders, measured by
the amount then held by each of them of the Class A-1 Note Balance outstanding
at that time. Once all class A-1 notes are no longer outstanding, "Voting
Rights" means the votes of the class A-2 noteholders, measured by the amount
then held by each of them of the Class A-2 Note Balance outstanding at that
time. Once all class A-2 notes are no longer outstanding, "Voting Rights" means
the votes of the class A-3 noteholders measured by the amount then held by each
of them of the Class A-3 Note Balance outstanding at that time. Once all class
A-3 notes are no longer outstanding, "Voting Rights" means the notes of the
class A-4 noteholders measured by the amount then held by each of them of the
Class A-4 Note Balance outstanding at that time. Once 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. Once all 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. Once 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.
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<PAGE>
DVI RECEIVABLES CORP. VIII
REGISTRANT
ASSET-BACKED SECURITIES ISSUABLE IN SERIES
--------------------------------------
PROSPECTUS SUPPLEMENT
DATED NOVEMBER 13, 2000
-------------------
BANC ONE CAPITAL MARKETS, INC. AND MERRILL LYNCH & CO.
UNDERWRITERS
Until ninety days after November 13, 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.
