<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1995
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DVI, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 22-2722773
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
500 HYDE PARK
DOYLESTOWN, PENNSYLVANIA 18901
(215) 345-6600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DAVID L. HIGGINS
500 HYDE PARK
DOYLESTOWN, PENNSYLVANIA 18901
(215) 345-6600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN A. HEALY, ESQ. STEVEN R. FINLEY, ESQ.
ROGERS & WELLS GIBSON, DUNN & CRUTCHER
200 PARK AVENUE 200 PARK AVENUE
NEW YORK, NEW YORK 10166 NEW YORK, NEW YORK 10166
(212) 878-8000 (212) 351-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
CALCULATION OF REGISTRATION FEE
============================================================================================================================
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TITLE OF SECURITIES BEING REGISTERED REGISTERED(1) PER UNIT PRICE(2) FEE(2)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.005
per share................................ 2,875,000 shares $11.75 $33,781,250 $11,649
===========================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes 375,000 shares issuable upon exercise of the Underwriters'
over-allotment option.
(2) Pursuant to Rule 457(c) under the Securities Act of 1933, the calculation of
the registration fee is based on the average of the high and low prices of
the Registrant's Common Stock reported in the consolidated reporting system
of the New York Stock Exchange on June 19, 1995.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
DVI, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS IN PART I OF FORM S-1
<TABLE>
<CAPTION>
ITEM
NO. FORM S-1 CAPTION LOCATION OF CAPTION IN PROSPECTUS
- ---- ---------------- ---------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................. Inside Front Cover Page; Outside Back Cover
Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges.............. Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Cover Page
6. Dilution................................... *
7. Selling Security Holders................... *
8. Plan of Distribution....................... Underwriting
9. Description of Securities to be
Registered................................ Prospectus Summary; Price Range of Common
Stock and Dividend Policy; Description of
Capital Stock
10. Interests of Named Experts and Counsel..... Legal Matters; Experts
11. Information with Respect to the
Registrant................................ The Company; Business; Risk Factors;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Price Range of Common Stock and
Dividend Policy; Principal Stockholders;
Shares Eligible for Future Sale; Selected
Financial Information and Other Data;
Management; Certain Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................... *
</TABLE>
- ---------------
* Not applicable or answer is in the negative.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED JUNE 23, 1995
PROSPECTUS
- --------------------------------------------------------------------------------
2,500,000 Shares
DVI, Inc.
Common Stock
- --------------------------------------------------------------------------------
All 2,500,000 shares of common stock, par value $.005 per share (the "Common
Stock"), offered hereby are being sold by DVI, Inc. (the "Company").
The Common Stock is listed on the New York Stock Exchange, Inc. (the "NYSE")
under the symbol "DVI." On June 22, 1995, the last reported sales price of the
Common Stock on the NYSE was $11.50 per share. See "Price Range of Common Stock
and Dividend Policy." Application has been made to list the shares of Common
Stock offered hereby on the NYSE.
SEE "RISK FACTORS" ON PAGES 8 TO 14 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=====================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
- -----------------------------------------------------------------------------------------------------
Total(3)......................... $ $ $
=====================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $490,000.
(3) The Company has granted to the several Underwriters a 30-day over-allotment
option to purchase up to 375,000 additional shares of Common Stock on the
same terms and conditions as set forth above. If all such additional shares
are purchased by the Underwriters, the total Price to Public will be
$ , the total Underwriting Discounts and Commissions will be
$ and the total Proceeds to Company will be $ . See
"Underwriting."
- --------------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and acceptance by the Underwriters, to prior sale and to
withdrawal, cancellation or modification of the offer without notice. Delivery
of the shares to the Underwriters is expected to be made at the office of
Prudential Securities Incorporated, One New York Plaza, New York, New York, on
or about July , 1995.
PRUDENTIAL SECURITIES INCORPORATED OPPENHEIMER & CO., INC.
July , 1995.
<PAGE> 4
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
------------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549; and at its regional offices at 7 World
Trade Center, 13th Floor, New York, New York 10048 and at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, at prescribed rates. Such
reports, proxy statements and other information can also be inspected at the
office of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
The Company has filed with the Commission a Registration Statement on Form
S-1 (which, together with all amendments thereto, is referred to in this
Prospectus as the "Registration Statement") under the Securities Act of 1933, as
amended (the "1933 Act"), with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the rules
and regulations of the Commission. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document designated as an
exhibit to the Registration Statement, reference is made to such exhibit for a
more complete description of the document involved, and each such statement
shall be deemed qualified in its entirety by such reference. Copies of the
Registration Statement may be inspected, without charge, at the offices of the
Commission, or obtained at prescribed rates from the Public Reference Section of
the Commission at the address set forth above.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus. As
used in this Prospectus (i) "Offering" refers to the offering of shares of
Common Stock made hereby, (ii) "loan portfolio" refers to the Company's net
financed receivables unless the context otherwise requires and (iii) "loan
originations" refers to equipment loans originated by the Company and equipment
loans purchased by the Company through its wholesale loan origination program.
Unless otherwise indicated, information in this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised.
THE COMPANY
DVI, Inc. (the "Company") is a specialty commercial finance company whose
core business is financing higher cost diagnostic imaging, radiation therapy and
other types of sophisticated medical equipment for outpatient healthcare
centers, groups of physicians and hospitals. Over the last 10 years, the Company
has developed extensive expertise in analyzing the credit of healthcare
providers that lack audited financial statements and detailed business plans. By
servicing the equipment financing needs of these healthcare providers and the
corresponding need for equipment manufacturers to arrange financing for their
customers, the Company has established a niche in markets underserved by most
banks and finance companies. In addition to equipment financing, a small but
growing part of the Company's business is making working capital loans to
outpatient healthcare providers secured by their medical receivables and other
collateral, and are referred to collectively in this Prospectus as "medical
receivables loans."
Virtually all of the Company's equipment loans are structured on a fixed
interest rate basis such that the full cost of the equipment and all financing
costs are repaid during the financing term, which typically is five years. The
Company's risk management strategy is to avoid risks associated with the
residual value of equipment and of loan prepayments and to minimize its exposure
to interest rate fluctuations. The Company's equipment loans are structured
principally as notes secured by equipment or direct financing leases with a
bargain purchase option for the equipment user, and are referred to collectively
in this Prospectus as "equipment loans."
In the past two years, the Company has grown substantially. In its fiscal
year ended June 30, 1994 ("fiscal 1994"), the Company's loan origination volume
increased approximately 178% to $163.0 million from $58.6 million for the fiscal
year ended June 30, 1993 ("fiscal 1993"). During the nine months ended March 31,
1995, the Company's loan origination volume increased approximately 89% to
$233.0 million from $123.0 million for the first three quarters of fiscal 1994.
The Company's net financed receivables increased approximately 100% to $234.8
million at June 30, 1994 from $117.5 million at June 30, 1993. The Company's net
financed receivables increased approximately 79% to $370.6 million at March 31,
1995 from $206.7 million at March 31, 1994.
The Company uses asset securitization ("securitization") and other
structured finance techniques to permanently fund most of its equipment loans
and since 1991 has funded $414.8 million of equipment loans in this manner. The
Company's ability to securitize loans improved significantly in recent years
which enabled it to securitize loans in the public market in fiscal 1994. Access
to the public securitization market has lowered the Company's relative funding
costs and expanded the Company's access to funding.
The Company's growth strategy is to increase the size of its loan portfolio
by expanding its share of the diagnostic imaging and radiation therapy equipment
financing markets and by generating financing opportunities in other areas of
the healthcare industry. The Company's principal means of implementing this
strategy are to (i) maximize the value of its relationships with four of the six
largest manufacturers of diagnostic imaging equipment by obtaining additional
customer referrals, (ii) originate medical equipment loans on a wholesale basis,
(iii) generate additional equipment and medical receivable financing business
directly from the Company's existing customer base, (iv) establish equipment
financing relationships with manufacturers of patient treatment devices and (v)
expand its medical receivable financing activities.
3
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered Hereby....................... 2,500,000 shares
Common Stock to be Outstanding after the 9,211,180 shares(1)
Offering........................................
Use of Proceeds................................... For working capital, temporary reduction
of existing short-term indebtedness and
general corporate purposes. See "Use of
Proceeds."
NYSE Symbol....................................... DVI
</TABLE>
- ---------------
(1) Does not include (i) 575,000 shares of Common Stock issuable upon the
exercise of outstanding warrants to purchase Common Stock resulting from the
Company's public offering of units consisting of Common Stock and warrants
to purchase Common Stock completed in February 1991, which have an exercise
price of $12.00 per share, (ii) 335,000 shares of Common Stock issuable upon
the exercise of various outstanding options and warrants to purchase Common
Stock held by third parties, which have a weighted average exercise price of
$14.30, per share (iii) 755,994 shares of Common Stock issuable upon the
exercise of various outstanding options and warrants to purchase Common
Stock available to the Company's employees and directors, which have a
weighted average exercise price of $8.50 per share, (iv) 1,367,924 shares of
Common Stock issuable upon conversion of the Company's 9 1/8% Convertible
Subordinated Notes (the "Convertible Subordinated Notes"), at a conversion
price of $10.60 per share, subject to adjustment in certain circumstances,
(v) 400,000 shares of Common Stock issuable to the former shareholders of
Medical Equipment Finance Corp. ("MEF Corp.") in connection with the
acquisition of MEF Corp., which issuance is subject to stockholder approval
and an increase in the Company's authorized capital stock or (vi) 200,000
shares of Common Stock issuable to certain employees of the Company under a
stock incentive plan, which plan is subject to stockholder approval and an
increase in the Company's authorized capital stock. See "Description of
Capital Stock," "Underwriting," "Shares Eligible for Future Sale" and Notes
10, 11, 15 and 19 to the Company's Consolidated Financial Statements located
elsewhere in this Prospectus.
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------------- -----------------
1990 1991 1992 1993 1994 1994 1995
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Finance and other income.............................. $6,972 $10,571 $14,736 $15,199 $20,911 $14,363 $26,345
Margins earned(1)..................................... 3,261 5,638 8,747 10,194 12,078 8,463 10,896
Earnings from continuing operations before provision
for income taxes, equity in net earnings (loss) of
investees and discontinued operations............... 1,444 2,843 4,915 4,459 4,313 2,872 4,578
Earnings from continuing operations................... 873 1,726 3,053 2,580 2,260 1,424 2,655
Loss from discontinued operations(2).................. 0 0 (346) (1,922) (3,145) 0 0
------ ------- ------- ------- ------- ------- -------
Net earnings (loss)(2)................................ $ 873 $ 1,726 $ 2,707 $ 658 $ (885) $ 1,424 $ 2,655
====== ======= ======= ======= ======= ======= =======
Earnings (loss) per common and common equivalent
share:
From continuing operations(2)....................... $ 0.28 $ 0.37 $ 0.57 $ 0.39 $ 0.34 $ 0.21 $ 0.39
From discontinued operations........................ 0.00 0.00 (0.06) (0.29) (0.47) 0.00 0.00
------ ------- ------- ------- ------- ------- -------
Net earnings (loss) per common and common equivalent
share............................................... $ 0.28 $ 0.37 $ 0.51 $ 0.10 $ (0.13) $ 0.21 $ 0.39
====== ======= ======= ======= ======= ======= =======
Weighted average number of common and common
equivalent shares outstanding....................... 3,173 4,728 5,353 6,601 6,717 6,716 6,870
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF MARCH 31, 1995
---------------------------------------------- ------------------------
1990 1991 1992 1993 1994 ACTUAL AS ADJUSTED(3)
------- ------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Unearned income(4)............................... $16,868 $22,211 $ 21,720 $ 24,563 $ 47,644 $ 71,681 $ 71,618
Total assets..................................... 55,479 85,084 104,714 147,161 265,949 434,847 461,418
Short-term borrowings due under warehouse
facilities..................................... 18,187 22,153 31,349 45,221 34,586 147,969 121,398
Long-term debt (primarily limited recourse)...... 22,177 36,358 24,569 51,827 148,852 218,878 218,878
Convertible subordinated notes................... 0 0 0 0 14,112 13,742 13,742
Shareholders' equity............................. 6,194 16,113 34,006 34,664 33,993 37,770 64,341
</TABLE>
<TABLE>
<CAPTION>
AS OF OR FOR THE
NINE MONTHS
AS OF OR FOR THE ENDED
YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONAL OPERATING AND OTHER DATA:
Gross financed receivables(5)........................ $68,187 $92,670 $107,306 $142,073 $282,413 $250,269 $442,268
Net financed receivables(6).......................... 51,319 70,459 85,586 117,510 234,769 206,708 370,587
Loans originated(7).................................. 42,000 39,600 46,400 58,600 163,000 123,000 233,000
Net charge-offs as a percentage of average net
financed receivables(8)............................ 0.37% 0.11% 0.05% 0.04% 0.14% 0.05% 0.08%
</TABLE>
- ---------------
(1) Margins earned consists of finance and other income less interest expense.
Expenses associated with the issuance of the Company's debt for the years
1990 through 1994, as well as the nine months ended March 31, 1994, have
been reclassified from Selling, General and Administrative Expense to
Interest Expense to conform with the March 31, 1995 presentation.
(2) On June 30, 1993, the Company formally adopted a plan to divest
substantially all of its healthcare operations, which consisted of seven
outpatient healthcare facilities that the Company operated or managed on a
direct basis and one facility which was in the development stage and not yet
in operation. At June 30, 1994, the Company had disposed of or entered into
definitive agreements to sell six of these outpatient healthcare facilities
and had written off the investment in and assets of the remaining two. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(3) Adjusted to give effect to the sale of 2,500,000 shares of Common Stock in
the Offering at an assumed public offering price of $11.50 per share after
deduction of underwriting discounts and commissions and estimated offering
expenses payable by the Company and application of the estimated net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
(4) Unearned income consists of interest income that will be recognized, using
the interest method of accounting, over the remaining life of the finance
contracts outstanding.
(5) Gross financed receivables consist of receivables in installments,
receivables in installment-related parties, residual valuation, notes
collateralized by medical receivables and equipment on operating leases.
(6) Net financed receivables consist of gross financed receivables net of
unearned income.
(7) Includes equipment loans purchased through the Company's wholesale loan
program which the Company implemented in June 1994. See "Business -- Sales
and Marketing" and " -- Loan Characteristics and Underwriting."
(8) Presentation is based on averages of period beginning and period ending
balances. See "Business -- Credit Experience."
5
<PAGE> 8
- -------------------------------------------------------------------------------
SUMMARY QUARTERLY FINANCIAL INFORMATION AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF OR FOR THE AS OF OR FOR THE
THREE MONTHS ENDED THREE MONTHS ENDED
------------------------------------------------- --------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1992 1992 1993 1993 1993 1993 1994 1994
------------- ------------ --------- -------- -------------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Finance and other
income(1)............ $ 4,321 $ 3,341 $ 3,654 $ 3,883 $ 4,262 $ 4,567 $ 5,523 $ 6,559
Margins earned(1)(2)... 3,108 2,167 2,516 2,403 2,646 2,675 3,132 3,625
Earnings from
continuing operations
before provision for
income taxes, equity
in net earnings
(loss) of investees
and discontinued
operations........... 1,896 903 1,038 622 634 1,006 1,232 1,441
Earnings from
continuing
operations........... 1,172 498 562 348 330 447 646 837
Loss from discontinued
operations(3)........ (275) (261) (520) (866) 0 0 0 (3,145)
------ ------ ------ ------ ------ ------ ------ ------
Net earnings
(loss)(3)............ $ 897 $ 237 $ 42 $ (518) $ 330 $ 447 $ 646 $ (2,308)
====== ====== ====== ====== ====== ====== ====== ======
Earnings (loss) per
common and common
equivalent share:
From continuing
operations......... $ .18 $ .08 $ .08 $ .05 $ .05 $ .07 $ .10 $ .12
From discontinued
operations(3)...... (.04) (.04) (.08) (.13) .00 .00 .00 (.47)
------ ------ ------ ------ ------ ------ ------ ------
Net earnings (loss) per
common and common
equivalent
share(4)............. $ .14 $ .04 $ .00 $ .(08) $ .05 $ .07 $ .10 $ (.35)
====== ====== ====== ====== ====== ====== ====== ======
ADDITIONAL OPERATING AND
OTHER DATA:
Gross financed
receivables(5)....... $ 102,640 $103,980 $109,620 $142,073 $173,127 $205,638 $250,269 $282,413
Net financed
receivables(6)....... 82,912 84,552 90,471 117,510 142,749 169,615 206,708 234,769
Loans originated(7).... 7,900 7,300 15,400 28,000 36,000 42,000 45,000 40,000
<CAPTION>
AS OF OR FOR THE
THREE MONTHS ENDED
---------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31,
1994 1994 1995
-------------- ------------ ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Finance and other
income(1)............ $ 7,197 $ 8,695 $ 10,453
Margins earned(1)(2)... 3,047 3,710 4,139
Earnings from
continuing operations
before provision for
income taxes, equity
in net earnings
(loss) of investees
and discontinued
operations........... 885 1,524 2,169
Earnings from
continuing
operations........... 513 893 1,249
Loss from discontinued
operations(3)........ 0 0 0
------ ------ ------
Net earnings
(loss)(3)............ $ 513 $ 893 $ 1,249
====== ====== ======
Earnings (loss) per
common and common
equivalent share:
From continuing
operations......... $ .08 $ .13 $ .18
From discontinued
operations(3)...... .00 .00 .00
------ ------ ------
Net earnings (loss) per
common and common
equivalent
share(4)............. $ .08 $ .13 $ .18
====== ====== ======
ADDITIONAL OPERATING AND
OTHER DATA:
Gross financed
receivables(5)....... $328,283 $376,567 $442,268
Net financed
receivables(6)....... 274,344 314,127 370,587
Loans originated(7).... 52,000 74,000 107,000
</TABLE>
- ---------------
(1) The sum of the items indicated for each of the three fiscal quarters
ended March 31, 1994 may not reconcile to the corresponding item for
the nine months ended March 31, 1994 included under "-- Summary
Consolidated Financial Information and Other Data" due to minor
reclassifications and the fact that the items for each of the three
fiscal quarters ended March 31, 1994 are as reported.
(2) Margins earned consists of finance and other income less interest
expense. Expenses associated with the issuance of the Company's debt
for each of the quarters in 1993 and 1994 have been reclassified from
Selling, General and Administrative Expenses to Interest Expense to
conform with the March 31, 1995 presentation.
(3) On June 30, 1993, the Company formally adopted a plan to divest
substantially all of its healthcare operations, which consisted of
seven outpatient healthcare facilities that the Company operated or
managed on a direct basis and one facility which was in the
development stage and not yet in operation. At June 30, 1994, the
Company had disposed of or entered into definitive agreements to sell
six of these outpatient healthcare facilities and had written off the
investment in and assets of the remaining two. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
(4) The sum of the items indicated for each of the three fiscal quarters
ended March 31, 1994 may not reconcile to the corresponding item for
the nine months ended March 31, 1994 included under "-- Summary
Consolidated Financial Information and Other Data" due to rounding and
to the fact that the items indicated for each of the three fiscal
quarters ended March 31, 1994 are as reported.
(5) Gross financed receivables consist of receivables in installments,
receivables in installment-related parties, residual valuation, notes
collateralized by medical receivables and equipment on operating
leases.
(6) Net financed receivables consist of gross financed receivables net of
unearned income.
(7) Includes equipment loans purchased through the Company's wholesale
loan program which the Company implemented in June 1994. See
"Business -- Sales and Marketing" and " -- Loan Characteristics and
Underwriting."
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THE COMPANY
The Company is a specialty commercial finance company whose core business
is financing higher cost diagnostic imaging, radiation therapy and other types
of sophisticated medical equipment for outpatient healthcare centers, groups of
physicians and hospitals. Over the last 10 years, the Company has developed
extensive expertise in analyzing the credit of healthcare providers that lack
audited financial statements and detailed business plans. By servicing the
equipment financing needs of these healthcare providers and the corresponding
need for equipment manufacturers to arrange financing for their customers, the
Company has established a niche in markets underserved by most banks and finance
companies. In addition to equipment financing, a small but growing part of the
Company's business is making working capital loans to outpatient healthcare
providers secured by their medical receivables and other collateral.
Virtually all of the Company's equipment loans are structured on a fixed
interest rate basis such that the full cost of the equipment and all financing
costs are repaid during the financing term, which typically is five years. The
Company's risk management strategy is to avoid risks associated with the
residual value of equipment and of loan prepayments and to minimize its exposure
to interest rate fluctuations. The Company's equipment loans are structured
principally as notes secured by equipment or direct financing leases with a
bargain purchase option for the equipment user.
In the past two years, the Company has grown substantially. In fiscal 1994,
the Company's loan origination volume increased approximately 178% to $163.0
million from $58.6 million for fiscal 1993. During the nine months ended March
31, 1995, the Company's loan origination volume increased approximately 89% to
$233.0 million from $123.0 million for the first three quarters of fiscal 1994.
The Company's net financed receivables increased approximately 100% to $234.8
million at June 30, 1994 from $117.5 million at June 30, 1993. The Company's net
financed receivables increased approximately 79% to $370.6 million at March 31,
1995 from $206.7 million at March 31, 1994.
The Company uses securitization and other structured finance techniques to
permanently fund most of its equipment loans and since 1991 has funded $414.8
million of equipment loans in this manner. The Company's ability to securitize
loans improved significantly in recent years which enabled it to securitize
loans in the public market in fiscal 1994. Access to the public securitization
market lowered the Company's relative funding costs and expanded the Company's
access to funding.
The Company's growth strategy is to increase the size of its loan portfolio
by expanding its share of the diagnostic imaging and radiation therapy equipment
financing markets and by generating financing opportunities in other areas of
the healthcare industry. The Company's principal means of implementing this
strategy are to (i) maximize the value of its relationships with four of the six
largest manufacturers of diagnostic imaging equipment by obtaining additional
customer referrals, (ii) originate medical equipment loans on a wholesale basis,
(iii) generate additional equipment and medical receivable financing business
directly from the Company's existing customer base, (iv) establish equipment
financing relationships with manufacturers of patient treatment devices and (v)
expand its medical receivable financing activities.
The Company is a Delaware corporation and conducts its business operations
through operating subsidiaries. The principal operating subsidiaries are DVI
Financial Services Inc. ("DVI Financial Services") and DVI Business Credit
Corporation ("DVI Business Credit"). The Company conducts securitizations
through DVI Receivables Corp. ("DVI Receivables Corp.") and other limited
purpose subsidiaries, each of which is wholly owned by DVI Financial Services.
The Company also conducts other structured financings through limited purpose
subsidiaries or through DVI Financial Services. The obligors under the Company's
various warehouse credit facilities are DVI Financial Services or DVI Business
Credit. The Convertible Subordinated Notes are obligations of DVI, Inc. Except
as the context otherwise requires, in this Prospectus the term "Company" refers
to DVI, Inc. and its wholly owned subsidiaries.
The Company's principal executive offices are located at 500 Hyde Park,
Doylestown, Pennsylvania 18901 (telephone: (215) 345-6600).
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RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors in addition to the other information set forth in this Prospectus
in connection with an investment in the Common Stock offered hereby.
DEPENDENCE ON WAREHOUSE FINANCING. The Company's ability to sustain the
growth of its financing business is dependent upon funding obtained through
warehouse facilities until its equipment loans are permanently funded. The funds
the Company obtains through warehouse facilities are full recourse short-term
borrowings secured primarily by the underlying equipment. These borrowings in
turn typically are repaid with the proceeds received by the Company when its
equipment loans are securitized or sold. The Company has an $81.5 million
revolving credit facility with a syndicate of banks led by NatWest Bank N.A.
("NatWest"), which is renewable annually at the bank syndicate's discretion; a
$100.0 million warehouse facility with Prudential Securities Realty Funding
Corporation, which provides warehouse financing for certain equipment loans to
be securitized through its affiliate, Prudential Securities Incorporated; a $5.5
million warehouse facility with Prudential Securities Realty Funding
Corporation, which provides warehouse financing for certain medical receivables
loans; and a $75.0 million warehouse facility with ContiTrade Services
Corporation ("ContiTrade"), which provides warehouse financing for certain
equipment loans to be securitized or otherwise permanently funded through
ContiTrade. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Warehouse
Facilities." Prudential Securities Incorporated is one of the underwriters in
the Offering. See "Underwriting." There can be no assurance that this type of
warehouse financing will continue to be available to the Company on acceptable
terms. If the Company were unable to arrange continued access to acceptable
warehouse financing, the Company would have to curtail its loan originations,
which in turn would have a material adverse effect on the Company's financial
condition and operations.
DEPENDENCE ON PERMANENT FUNDING PROGRAMS. The Company's use of
securitization as its principal form of permanent funding is an important part
of the Company's business strategy. To sustain the growth of its securitization
program, the Company will need an increasing amount of equity and/or long-term
debt financing. If for any reason the Company were to become unable to access
the securitization market to permanently fund its equipment loans, the
consequences for the Company would be materially adverse. The Company's ability
to complete securitizations and other structured finance transactions depends
upon a number of factors, including general conditions in the credit markets,
the size and liquidity of the market for the types of receivable-backed
securities issued or placed in securitizations sponsored by the Company and the
overall financial performance of the Company's loan portfolio. The Company does
not have binding commitments from financial institutions or investment banks to
provide permanent funding for its equipment or medical receivables loans.
IMPACT OF CREDIT ENHANCEMENT REQUIREMENTS. In connection with its
securitizations and other structured financings, the Company is required to
provide credit enhancement for the debt obligations issued and sold to third
parties. Typically, the credit enhancement consists of cash deposits, the
funding of subordinated tranches and/or the pledge of additional equipment loans
which are funded with the Company's capital. In the securitizations sponsored to
date by the Company, the Company effectively has been required to furnish credit
enhancement equal to the difference between (i) the aggregate principal amount
of the equipment loans originated by the Company and transferred to the
Company's special purpose finance subsidiary and the related costs of
consummating the securitization and (ii) the net proceeds received by the
Company in such securitizations. See "Business -- Capital Resources and
Transaction Funding." The requirement to provide this credit enhancement reduces
the Company's liquidity and requires it to obtain additional capital. If the
Company is unable to obtain and maintain sufficient capital, it may be required
to halt or curtail its securitization or other structured financing programs,
which in turn would have a material adverse effect on the Company's financial
condition and operations.
CREDIT RISK. Many of the Company's customers are outpatient healthcare
providers that have complex credit characteristics. Providing financing for
these customers often involves a high degree of credit risk. Although the
Company seeks to mitigate its risk of default and credit losses through its
underwriting practices
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and loan servicing procedures and through the use of various forms of limited
and non-recourse financing (in which the financing sources that permanently fund
the Company's equipment loans assume some or all of the risk of default by the
Company's customers), the Company remains exposed to potential losses resulting
from a default by an obligor. Obligors' defaults could cause the Company to make
payments to the extent of the recourse position the Company maintains under its
permanent equipment funding arrangements; could result in the loss of the cash
or other collateral pledged as credit enhancement under its permanent equipment
funding arrangements; or could require the Company to forfeit any residual
interest it may have retained in the underlying equipment. At March 31, 1995,
the Company's contingent liability under all of its limited recourse equipment
loans was approximately $36.5 million. During the period after the Company
initially funds an equipment loan and prior to the time it funds the loan on a
permanent basis with non-recourse or limited recourse financing, the Company is
exposed to full recourse liability in the event of default by the obligor. In
addition, under the terms of securitizations and other types of structured
finance transactions, the Company generally is required to replace or repurchase
equipment loans in the event they fail to conform to the representations and
warranties made by the Company, even in transactions otherwise designated as
non-recourse or limited recourse.
Defaults by the Company's customers also could adversely affect the
Company's ability to obtain additional financing in the future, including its
ability to use securitization or other forms of structured finance. The sources
of such permanent funding take into account the credit performance of the
equipment loans previously financed by the Company in deciding whether and on
what terms to make new loans. In addition, the credit rating agencies and
insurers that are often involved in securitizations consider prior credit
performance in determining the rating to be given to the securities issued in
securitizations sponsored by the Company and whether and on what terms to insure
such securities. In addition, to date, all of the Company's medical receivable
loans (as opposed to its equipment loans) have been funded on a full recourse
basis whereby the Company is fully liable for any losses that are incurred. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Under the Company's wholesale loan origination program (the "Wholesale
Program"), the Company purchases equipment loans from regional medical equipment
finance companies and equipment manufacturers (collectively, "Originators") that
generally do not have direct access to the securitization market as a source of
permanent funding for their loans. The Company does not work directly with the
borrowers at the origination of these equipment loans and therefore is not
directly involved in structuring the credits and generally does not
independently verify credit information supplied by the Originator. Accordingly,
the Company faces a higher degree of risk when it acquires loans on a wholesale
basis. The Company initiated the Wholesale Program in June 1994 and expects to
focus on this business as a significant part of the Company's growth strategy.
During the nine months ended March 31, 1995, loans originated under the
Wholesale Program constituted 23% of total loans originated during the period.
The Company has limited experience in the wholesale loan origination business
and there can be no assurance that the Company will be able to grow this
business successfully or avoid related liabilities or losses. See
"Business -- Loan Characteristics and Underwriting."
INTEREST RATE RISK. The Company's equipment loans are all structured on a
fixed interest rate basis with its customers. Prior to securitizing or selling
its loans, the Company funds its loans through short-term warehouse facilities
which bear interest at variable rates. At any point in time, the Company may be
exposed to interest rate risk on loans funded through its warehouse facilities
to the extent interest rates increase between the time the loans are initially
funded and the time they are permanently funded. Increases in interest rates
during this period could narrow, eliminate or result in a negative spread
between the interest rate the Company realizes on its equipment loans and the
interest rate that the Company pays under its warehouse facilities. To protect
itself against this risk, the Company may use a hedging strategy, including
taking short positions in U.S. Treasury securities having maturities comparable
to the maturities of the equipment loans to be securitized. There can be no
assurance, however, that the Company's hedging strategy or techniques will be
effective, that the profitability of the Company will not be adversely affected
during any period of changes in interest rates or that the costs of hedging will
not exceed the benefits. In addition, the Company is subject to margin calls on
the outstanding short positions in U.S. Treasury obligations it assumes in
connection with its
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hedging activities. If the Company is required to pay additional margin on its
short positions, the Company's capital may be adversely affected. A substantial
and sustained increase in interest rates could adversely affect the Company's
ability to originate loans. In certain circumstances, the Company for a variety
of reasons may retain for an indefinite period certain of the equipment loans it
originates. In such cases, the Company's interest rate exposure may continue for
a longer period of time. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and Note
18 to the Company's Consolidated Financial Statements contained elsewhere in
this Prospectus.
LEVERAGE. The Company is highly leveraged. As of March 31, 1995, the
Company and its consolidated subsidiaries had total debt of $380.6 million, of
which $161.7 million was full recourse debt and $218.9 million was limited
recourse debt. Of the $380.6 million of total debt, $232.6 million was long-term
debt and $148.0 million was short-term debt. Since substantially all of the net
proceeds of the Offering are expected to be applied to the temporary reduction
of short-term borrowings under the Company's warehouse facilities, the Company's
total long-term debt will not change on completion of the Offering. After
completion of the Offering, the Company will continue to have substantial debt
service requirements. The degree to which the Company is leveraged also may
impair its ability to obtain additional financing on acceptable terms.
POSSIBLE ADVERSE CONSEQUENCES FROM RECENT GROWTH. In the past two years,
the Company originated a significantly greater number of equipment loans than it
did in previous years. As a result of this rapid growth, the Company's loan
portfolio grew from $206.7 million at March 31, 1994 to $370.6 million at March
31, 1995. In light of this growth, the historical performance of the Company's
loan portfolio, including rates of credit loss, may be of limited relevance in
predicting future loan portfolio performance. Any credit or other problems
associated with the large number of equipment loans originated in the recent
past will not become apparent until sometime in the future. Further, while the
Company's loan originations have grown substantially in the past two years, the
Company's gross margins have declined significantly during the same period, and,
as a result, the Company's historical results of operations may be of limited
relevance to an investor seeking to predict the Company's future performance.
In order to support the growth of its business, the Company has added a
significant number of new operating procedures and personnel and has relocated
its headquarters from Irvine, California to Doylestown, Pennsylvania. The
Company is absorbing the effects of this relocation and the implementation of
new computer hardware and software to manage its business operations. The recent
move, the related service and support personnel turnover and the Company's
significant growth all have placed substantial new and increased pressures on
the Company's personnel. Although the Company believes the addition of new
operating procedures and personnel, together with its new computer system, will
be sufficient to enable it to meet its current operating needs, there can be no
assurance that this will be the case. If the Company does not effectively manage
its growth, or if the Company fails to sustain its historical levels of
performance in credit analysis and transaction structuring with respect to the
increased loan origination volume, the consequences will be materially adverse.
ABILITY TO SUSTAIN GROWTH. To sustain the rates of growth it has achieved
in the last two years, the Company will be required to penetrate further the
markets for lower cost diagnostic imaging equipment and for other types of
medical equipment or devices such as lasers used in patient treatment. The
Company faces significant barriers to entry in the patient treatment device
market, which is more diverse than the diagnostic imaging market because of the
larger number of manufacturers and types of products and the greater price range
of those products. The Company has limited experience in the patient treatment
device market. There can be no assurance that the Company will be able to
penetrate and compete effectively in the markets described above.
RISKS RELATED TO THE MEDICAL RECEIVABLE FINANCING BUSINESS. In July 1993,
the Company entered the medical receivable financing business and expects to
focus on this business as a part of the Company's growth strategy. The Company's
medical receivable financing business generally consists of providing loans to
healthcare providers that are secured by their receivables from payors such as
insurance companies, large self-insured companies and governmental programs and
by other collateral. The Company has limited experience in the medical
receivable financing business and there can be no assurance that the Company
will be able to
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grow this business successfully or avoid related liabilities or losses. The
Company has funded its medical receivable financing business to date through the
use of the Company's capital and a relatively small medical receivables
warehouse facility and recently, on a limited basis, through the Company's
revolving credit facility which the Company generally uses for its equipment
financing business. The growth of the Company's medical receivable financing
business is dependent on various factors including the Company's ability to
obtain additional funding facilities to finance medical receivables loans.
While the medical receivable financing business shares certain
characteristics, including an overlapping customer base, with the Company's core
equipment financing business, there are many differences, including unique
risks. Healthcare providers could overstate the quality and characteristics of
their medical receivables, which the Company analyzes in determining the amount
of the line of credit to be secured by such receivables. After the Company has
established or funded a line of credit, the healthcare providers could change
their billing and collection systems, accounting systems or patient records in a
way that could adversely affect the Company's ability to monitor the quality
and/or performance of the related medical receivables. There are substantial
technical legal issues associated with creating and maintaining perfected
security interests in medical receivables. Payors may make payments directly to
healthcare providers that have the effect (intentionally or otherwise) of
circumventing the Company's rights in and access to such payments. Payors may
attempt to offset their payments to the Company against debts owed to the payors
by the healthcare providers. In addition, as a lender whose position is secured
by receivables, the Company is likely to have less leverage in collecting
outstanding receivables in the event of a borrower's insolvency than a lender
whose position is secured by medical equipment which the borrower needs to run
its business. A customer which receives medical receivables loans from the
Company and defaults on obligations secured by such receivables may require
additional loans, or modifications to the terms of existing loans, in order to
continue operations and repay outstanding loans. The Company may have a conflict
of interest when the Company acts as servicer for an equipment-based
securitization and originates medical receivables loans to borrowers whose
previous equipment loans have been securitized. The Company's efforts to develop
suitable sources of funding for its medical receivable financing business
through securitization or other structured finance transactions may be
constrained or hindered due to the fact that the use of structured finance
transactions to fund medical receivables is a relatively new process. The
Company has not previously issued debt secured by medical receivables in the
structured finance markets. While the Company believes it has structured its
credit policies and lending practices to take account of these and other
factors, there is no assurance the Company will not realize credit losses in
connection with its medical receivable financing business or that the medical
receivable financing business will meet the Company's growth expectations.
MEDICAL EQUIPMENT MARKET. The demand for the Company's equipment financing
services is impacted by numerous factors beyond the control of the Company.
These factors include general economic conditions, including the effects of
recession or inflation, and fluctuations in supply and demand for various types
of sophisticated medical equipment resulting from, among other things,
technological and economic obsolescence and government regulation. In addition,
the demand for sophisticated medical equipment also may be negatively affected
by declining reimbursement to healthcare providers for their services from
third-party payors such as insurance companies and government programs, and the
increased use of managed healthcare plans that often restrict the use of certain
types of high technology medical equipment. For the nine months ended March 31,
1995, magnetic resonance imaging ("MRI") machines accounted for approximately
49.6% (by dollar volume) of the loans originated by the Company during such
period. Any substantial decrease in the Company's loan originations for the
purchase of MRI machines could have a material adverse effect on the Company.
HEALTHCARE REFORM. During the past half decade, large U.S. corporations
and U.S. consumers of healthcare services have substantially increased their use
of managed healthcare plans such as health maintenance organizations ("HMOs")
and preferred provider organizations ("PPOs"). This development has increased
the purchasing power of those plans, which in turn have used that power to lower
the amounts they pay for healthcare services. Since 1993, numerous proposals
have been presented to Congress to restructure the U.S. healthcare system. The
principal features of these proposals are to provide universal access to
healthcare services and to achieve overall cost containment. To date none of the
proposals initiated at the
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federal government level have been enacted. In the private sector, however, cost
containment initiatives have continued. Certain aspects of these actual and
proposed cost containment initiatives, particularly plans to eliminate payment
for duplicative procedures, may reduce the overall demand for the types of
medical equipment financed by the Company. Declining reimbursement for medical
services also could pressure hospitals, physician groups and other healthcare
providers, which form a significant portion of the Company's customer base, to
experience cash flow problems. This in turn could negatively impact their
ability to meet their financial obligations to the Company and/or reduce their
future equipment acquisitions which could adversely affect the Company. The
Company believes that the general movement toward a managed healthcare system in
the U.S. will materially reduce the demand for medical equipment and for related
financing. See "Business -- Government Regulation."
CONSEQUENCES OF GOVERNMENT REGULATION. The acquisition, use, maintenance
and ownership of most types of sophisticated medical equipment financed by the
Company are regulated by federal, state and/or local authorities. See
"Business -- Government Regulation."
DEPENDENCE ON REFERRALS AND SUPPORT FROM EQUIPMENT MANUFACTURERS. The
Company obtains a significant amount of its equipment financing business through
referrals from four primary manufacturers of diagnostic imaging equipment and
other manufacturers of medical equipment it finances. In addition, these
manufacturers often provide credit support for or assume first loss positions
with respect to equipment financing they refer to the Company. These
manufacturers are not contractually obligated to refer their customers to the
Company for equipment financing or to provide credit support or assume first
loss positions in connection with their referrals. There is no assurance that
these manufacturers will continue to refer equipment financing opportunities to
the Company or to provide credit support or assume first loss positions. If for
any reason the Company were no longer to benefit from these referrals or related
credit support and assumptions of first loss positions, its equipment financing
business would be materially adversely affected.
COMPETITION. The business of financing sophisticated medical equipment is
highly competitive. The Company competes with equipment manufacturers that sell
and finance sales of their own equipment and finance subsidiaries of national
and regional commercial banks and equipment leasing and financing companies.
Many of the Company's competitors have significantly greater financial and
marketing resources than the Company. In addition, the competition in the new
markets recently targeted by the Company, specifically equipment financing in
the hospital market and medical receivable financing market, may be greater than
the levels of competition historically experienced by the Company.
The Company believes that increased equipment loan originations during the
past two years resulted, in part, from a decrease in the number of competitors
in the higher cost medical equipment financing market and the Company's high
level of penetration in this market. There can be no assurance that new
competitive providers of financing will not enter the medical equipment
financing market in the future. To meet its long-term growth plans, the Company
must penetrate further its targeted markets for lower cost medical equipment and
medical receivable financing businesses. Such penetration may require the
Company to reduce its margins to be competitive in the lower cost medical
equipment and medical receivable financing businesses. In addition, there can be
no assurance that the Company will sustain the same level of equipment loan
originations in future periods as during the past two years or that it will be
able to meet its long-term growth objectives. See "Business -- Competition."
DISCONTINUED OPERATIONS. In June 1993, the Company adopted a formal plan
to discontinue its healthcare services segment that consisted of seven
outpatient healthcare facilities which it operated or managed on a direct basis
and one facility which was in the developmental stage and not yet in operation.
At the end of fiscal 1993, the Company established a reserve for the divestiture
of the operations and recorded a loss on discontinued operations and disposal of
discontinued operations. As of June 30, 1994, the Company had disposed of or
entered into definitive agreements to sell six of these outpatient healthcare
facilities, had written off the investment and assets of the remaining two, and
recorded an additional $3.1 million after-tax charge in excess of the amounts of
estimated losses reported as of June 30, 1993 for the disposition of this
segment of the Company's business. The Company may be subject to certain
contingent liabilities based on the prior operations of the facilities. The
consideration received by the Company from several of the
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purchasers in these transactions included promissory notes, and in some cases,
the purchasers entered into other arrangements with the Company to refinance the
medical equipment and/or other assets used in these facilities. In addition, in
connection with the disposal of these facilities, the Company retained certain
assets associated with the prior operation of the facilities, primarily accounts
receivable, which it is collecting and for which it believes it established
sufficient reserves. The purchasers who acquired the facilities and/or equipment
and other assets related to the facilities generally have limited financial
resources and substantial amounts of indebtedness in addition to their
obligations to the Company. Should one or more of the purchasers become
insolvent and be unable to meet its obligations to the Company and if the
Company is unable to successfully remarket the financed equipment and other
assets or if a significant percentage of the accounts receivable retained by the
Company prove to be uncollectible, then the Company could incur additional
losses. At March 31, 1995, the Company's aggregate maximum exposure, if all of
the purchasers of these facilities were to become insolvent and the financed
equipment and other assets were to be unsaleable, was approximately $6.9
million.
INVESTEE COMPANIES. The Company has investments in and does business with
two companies that operate diagnostic imaging equipment and accordingly is
subject to the risks of that business. As of March 31, 1995, the remaining
balances of loans made to Diagnostic Imaging Services, Inc. ("DIS") and
Healthcare Imaging Services, Inc. ("HIS") that have been permanently funded on a
limited recourse basis were approximately $7.2 million and $2.7 million,
respectively. As of March 31, 1995, the remaining balances of such loans that
have been permanently funded on a recourse basis or through internally generated
funds were approximately $15.2 million and $1.5 million, respectively. The
Company owns approximately 4.5 million shares of convertible preferred stock of
DIS having an aggregate liquidation preference of $4.5 million. In addition, as
of March 31, 1995, the Company owned approximately 9% and 17% of the common
stock of DIS and HIS, respectively. See "Business -- Other Business Activities"
and Note 6 to the Company's Consolidated Financial Statements included elsewhere
in this Prospectus.
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering, the
Company will have outstanding approximately 9,211,180 shares of Common Stock
(9,586,180 if the Underwriters' over-allotment option is exercised in full). Of
these shares of Common Stock, 8,122,880 shares, which include the 2,500,000
shares offered hereby, will be freely tradable without restriction or further
registration under the 1933 Act. All of the remaining 1,088,300 shares of Common
Stock outstanding upon completion of the Offering are restricted securities as
defined in the 1933 Act (the "Restricted Securities"). All of the Restricted
Securities and any other shares of Common Stock acquired by an officer, director
or more than 10% stockholder of the Company (each, an "affiliate") are eligible
for resale pursuant to the provisions of Rule 144 under the 1933 Act ("Rule
144") or at any time pursuant to an effective registration statement covering
such shares of Common Stock. Of these Restricted Securities, 835,013 shares of
Common Stock are subject to lock-up provisions as described below. See "Shares
Eligible for Future Sale" and "Description of Capital Stock."
The Company also has reserved or made available for issuance 3,347,685
shares of Common Stock pursuant to various options and warrants to purchase
Common Stock and the Company's 1986 Stock Incentive Plan, as amended (the
"Plan"), and the conversion of the Convertible Subordinated Notes. Of these
reserved shares, 1,009,761 shares, available for issuance pursuant to the Plan,
1,367,924 shares, issuable upon conversion of the Convertible Subordinated
Notes, 35,000 shares, issuable pursuant to the exercise of certain warrants to
purchase Common Stock, and 675,000 shares, issuable pursuant to the exercise of
warrants to purchase Common Stock and a unit option issued in a public offering
in February 1991, are covered by currently effective registration statements
under the 1933 Act and are therefore freely tradable upon issuance. The
remaining 260,000 reserved shares are Restricted Securities that are eligible
for resale upon exercise pursuant to Rule 144 or at any time pursuant to an
effective registration statement covering such shares of Common Stock. The
Company also has reserved, subject to stockholder approval and an increase in
the Company's authorized capital stock, (i) 400,000 shares of Common Stock for
issuance to the former shareholders of MEF Corp. in connection with the January
1993 acquisition of MEF Corp. and (ii) 200,000 shares of Common Stock for
issuance to certain employees of the Company under a stock incentive plan. Of
these reserved shares, 1,415,540 shares of Common Stock issuable under various
options
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and warrants and pursuant to the conversion of the Convertible Subordinated
Notes are subject to lock-up provisions as described below. See "Shares Eligible
for Future Sale" and "Description of Capital Stock."
The Company, its officers and directors and certain stockholders, certain
holders of outstanding options and warrants to purchase Common Stock and certain
holders of Convertible Subordinated Notes owning or holding options or warrants
or conversion rights for, an aggregate of 4,262,292 shares of Common Stock, have
agreed that they will not, directly or indirectly, offer, sell, offer to sell,
contract to sell, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, grant of any option
to purchase or other sale or disposition) of any shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for Common Stock or
other capital stock of the Company, or any right to purchase or acquire Common
Stock or other capital stock of the Company, for a period of 180 days after the
date of this Prospectus, without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters. See "Underwriting."
No prediction can be made as to the effect, if any, that sales of the
Common Stock or the availability of such shares for sale in the public market
will have on the market price for the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public market
under Rule 144 or otherwise could adversely affect prevailing market prices for
the Common Stock and impair the ability of the Company to raise capital through
the sale of equity securities in the future. See "Shares Eligible for Future
Sale."
DEPENDENCE UPON KEY PERSONNEL. The ability of the Company to successfully
continue its existing financing business, to expand into its targeted markets
and to develop its newer businesses depends upon the ability of the Company to
retain the services of its key management personnel, including David L. Higgins,
the Company's Chief Executive Officer, and Michael A. O'Hanlon, the Company's
President and Chief Operating Officer. The loss of any of these individuals or
an inability to attract and maintain additional qualified personnel could
adversely affect the Company. There can be no assurance that the Company will be
able to retain its existing management personnel or to attract additional
qualified personnel. See "Management."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock in the Offering are estimated to be approximately $26.6 million
($30.6 million if the Underwriters' over-allotment option is exercised in full),
assuming a public offering price of $11.50 per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
The purpose of the Offering is to provide the Company with additional
capital to fund its growth. The Company intends to utilize the net proceeds from
the Offering (i) to increase its capital base and thereby increase its access to
both warehouse and permanent funding sources; and (ii) to fund the cash
collateral required in securitizations sponsored by the Company which is equal
to the difference between (A) the aggregate principal amount of the equipment
loans originated by the Company and transferred to the Company's special purpose
finance subsidiary and the related costs of consummating the securitizations and
(B) the net proceeds received by the Company in the securitizations. See
"Business -- Capital Resources and Transaction Funding." Pending such use, the
net proceeds will be used to temporarily reduce existing short-term debt under
the Company's principal warehouse facility and for general corporate purposes.
The debt under the principal warehouse facility bears interest at the Company's
option at either a variable rate equal to the prime rate established by NatWest
plus up to an additional 25 basis points depending upon the Company's leverage
ratio from time to time or a rate of interest that varies from 150 to 180 basis
points over the one-month, two-month or three-month London interbank offered
rate ("LIBOR") depending upon the Company's leverage ratio from time to time.
Borrowings that are based on LIBOR have a term of one, two or three months, and
the rate of interest on any such borrowings remains fixed for such one-, two- or
three-month period, as the case may be. The rates charged on borrowings from any
one-, two- or three-month period to another change based on fluctuations in
LIBOR. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
14
<PAGE> 17
Prudential Securities Incorporated, one of the representatives of the
Underwriters, is an affiliate of Prudential Securities Realty Funding
Corporation, the lender under two warehouse facilities. One of these facilities
provides funding for equipment loans that are securitized through Prudential
Securities Incorporated and the other provides funding for medical receivables
loans to borrowers approved by Prudential Securities Realty Funding Corporation.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Warehouse Facilities." In the
event that the Company is unable to obtain permanent financing for the amounts
outstanding under these warehouse facilities, which totaled $22.9 million at May
31, 1995, a portion of the proceeds of the Offering may be used to repay amounts
outstanding under these two warehouse facilities. See "Underwriting" and Note 7
to the Company's Consolidated Financial Statements located elsewhere in the
Prospectus.
Pending application of the net proceeds as described above, the Company
intends to invest the net proceeds in short-term corporate investment grade or
U.S. Government interest-bearing securities.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
PRICE RANGE OF COMMON STOCK
The Common Stock has been listed on the NYSE since May 14, 1992. Prior to
that time, it was included in The Nasdaq Stock Market's National Market (the
"Nasdaq National Market") since August 7, 1990. The following table sets forth
the high and low last reported sales prices per share of Common Stock on the
NYSE for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1993
First Quarter.............................................................. $10 $ 7 1/4
Second Quarter............................................................. 9 6 5/8
Third Quarter.............................................................. 7 1/2 4 7/8
Fourth Quarter............................................................. 6 3/8 4 1/2
FISCAL YEAR ENDED JUNE 30, 1994
First Quarter.............................................................. $ 9 1/8 $ 5 3/4
Second Quarter............................................................. 12 1/2 8 3/8
Third Quarter.............................................................. 10 5/8 9 1/4
Fourth Quarter............................................................. 10 8 1/4
FISCAL YEAR ENDED JUNE 30, 1995
First Quarter.............................................................. $11 1/4 $ 9 1/4
Second Quarter............................................................. 11 1/2 9 7/8
Third Quarter.............................................................. 13 5/8 10 5/8
Fourth Quarter (through June 22, 1995)..................................... 13 1/8 11
</TABLE>
On June 22, 1995, the last reported sales price of the Common Stock on the
NYSE was $11.50 per share, and there were approximately 245 holders of record of
the Common Stock.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends since its
inception, and the Company anticipates that any future earnings will be retained
for investment in corporate operations. Any declaration of dividends in the
future will be determined in light of the conditions affecting the Company at
that time, including, among other things, its earnings, financial condition,
capital requirements, level of debt and the terms of any contractual limitations
on dividends. The Company's principal warehouse facility prohibits DVI Financial
Services, the Company's principal operating subsidiary, from paying cash
dividends. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Warehouse
Facilities." In addition, the agreement with respect to the Convertible
Subordinated Notes places limitations on the payment of dividends by the Company
and its subsidiaries.
15
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1995, and as adjusted to reflect the sale of 2,500,000 shares of Common
Stock in the Offering at an assumed public offering price of $11.50 per share
after deducting the underwriting discounts and commissions and the estimated
offering expenses payable by the Company and the application of the estimated
net proceeds therefrom. This table should be read in conjunction with the
Company's Consolidated Financial Statements and related Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1995
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term borrowings due under warehouse facilities and lines of
credit(1)........................................................... $147,969 $ 121,398
======== ========
Long-term debt (primarily limited recourse)........................... $218,878 $ 218,878
Convertible subordinated notes........................................ 13,742 13,742
-------- --------
Total long-term debt........................................ 232,620 232,620
-------- --------
Shareholders' equity:
Preferred stock, $10.00 par value, 100,000 shares authorized, no
shares issued.................................................... -- --
Common stock, $.005 par value, 13,000,000 shares authorized;
6,711,180 issued and outstanding and 9,211,180 shares as
adjusted(2)...................................................... 34 46
Additional paid-in capital.......................................... 29,276 55,835
Retained earnings................................................... 8,460 8,460
-------- --------
Total shareholders' equity.................................. 37,770 64,341
-------- --------
Total shareholders' equity and long-term debt............... $270,390 $ 296,961
======== ========
</TABLE>
- ---------------
(1) For a more detailed explanation of short-term borrowings due under warehouse
facilities see Note 7 to the Company's Consolidated Financial Statements
included elsewhere in this Prospectus.
(2) Does not include (i) 575,000 shares of Common Stock issuable upon the
exercise of outstanding warrants resulting from the Company's public
offering of units consisting of Common Stock and warrants to purchase Common
Stock completed in February 1991, which have an exercise price of $12.00 per
share, (ii) 335,000 shares of Common Stock issuable upon the exercise of
various outstanding options and warrants to purchase Common Stock held by
third parties, which have a weighted average exercise price of $14.30 per
share, (iii) 755,994 shares of Common Stock issuable upon the exercise of
various outstanding options and warrants to purchase Common Stock available
to the Company's employees and directors, which have a weighted average
exercise price of $8.50 per share, (iv) 1,367,924 shares of Common Stock
issuable upon conversion of the Convertible Subordinated Notes, at a
conversion price of $10.60 per share, subject to adjustment in certain
circumstances, (v) 200,000 shares of Common Stock issuable to certain
employees of the Company under a stock incentive plan, which plan is subject
to stockholder approval and an increase in the Company's authorized capital
stock, or (vi) 400,000 shares of Common Stock issuable to the former
shareholders of MEF Corp. in connection with the acquisition of MEF Corp.,
which issuance is subject to stockholder approval and an increase in the
Company's authorized capital stock. See "Description of Capital Stock,"
"Underwriting," "Shares Eligible for Future Sale" and Notes 10, 11, 15 and
19 to the Company's Consolidated Financial Statements located elsewhere in
this Prospectus.
16
<PAGE> 19
SELECTED FINANCIAL INFORMATION AND OTHER DATA
The following table summarizes selected financial information for the
periods presented. The Statement of Operations and Balance Sheet Data at June
30, 1993 and 1994 and for each of the three years in the period ended June 30,
1994 are derived from the Company's Financial Statements for such years audited
by Deloitte & Touche LLP, which Financial Statements are included elsewhere
herein. The Statement of Operations and Balance Sheet Data at June 30, 1990,
1991 and 1992 and for each of the two years in the period ended June 30, 1991
are derived from the Company's audited Financial Statements for such years
audited by Deloitte & Touche, which Financial Statements are not included
herein. The selected financial data for the nine months ended March 31, 1994 and
1995 have been derived from unaudited Financial Statements of the Company, but,
in the opinion of management of the Company, include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
Company's financial condition and results of operations at the end of and for
such periods. The results of operations for the nine months ended March 31, 1995
are not necessarily indicative of future results. The following data should be
read in conjunction with the Company's financial statements and related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. Summations and differences of
the numbers set forth below may not reconcile due to rounding.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------ ----------------
1990 1991 1992 1993 1994 1994 1995
------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Finance and other income:
Amortization of finance income................ $5,365 $ 8,839 $10,130 $10,826 $18,265 12,849 24,015
Gain on sale of financing transactions, net... 1,142 752 2,197 1,104 302 246 1,430
Other income(1)............................... 465 980 2,409 3,269 2,344 1,268 900
------ ------- ------- ------- ------- ------- -------
Finance and other income...................... 6,972 10,571 14,736 15,199 20,911 14,363 26,345
Interest expense.............................. 3,711 4,933 5,989 5,005 8,833 5,900 15,449
------ ------- ------- ------- ------- ------- -------
Margins earned(1)............................... 3,261 5,638 8,747 10,194 12,078 8,463 10,896
Selling, general and administrative expense..... 1,817 2,795 3,832 5,735 7,765 5,591 6,318
------ ------- ------- ------- ------- ------- -------
Earnings from continuing operations before
provision for income taxes, equity in net
earnings (loss) of investees and discontinued
operations.................................... 1,444 2,843 4,915 4,459 4,313 2,872 4,578
Provision for income taxes...................... 571 1,117 2,015 1,828 1,811 1,206 1,923
------ ------- ------- ------- ------- ------- -------
Earnings from continuing operations before
equity in net earnings (loss) of investees and
discontinued operations(2).................... 873 1,726 2,900 2,631 2,502 1,666 2,655
Equity in net earnings (loss) of investees...... 0 0 153 (51) (242) (242) 0
------ ------- ------- ------- ------- ------- -------
Net earnings (loss) from continuing
operations(2)................................. 873 1,726 3,053 2,580 2,260 1,424 2,655
Loss from discontinued operations(2)............ 0 0 (346) (1,922) (3,145) 0 0
------ ------- ------- ------- ------- ------- -------
Net earnings (loss)(2).......................... $ 873 $ 1,726 $ 2,707 $ 658 $ (885) $ 1,424 $ 2,655
====== ======== ======== ======== ======== ======== ========
Earnings (loss) per common and common equivalent
share:
From continuing operations ................... $ 0.28 $ 0.37 $ 0.57 $ 0.39 $ 0.34 $ 0.21 $ 0.39
From discontinued operations(2)............... 0.00 0.00 (0.06) (0.29) (0.47) 0.00 0.00
------ ------- ------- ------- ------- ------- -------
Net earnings (loss) per common and common
equivalent share.............................. $ 0.28 $ 0.37 $ 0.51 $ 0.10 $ (0.13) $ 0.21 $ 0.39
====== ======== ======== ======== ======== ======== ========
Weighted average number of common and common
equivalent shares outstanding................. 3,173 4,728 5,353 6,601 6,717 6,716 6,870
</TABLE>
- ---------------
(see footnotes on following page)
17
<PAGE> 20
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30, MARCH 31,
---------------------------------------------- -----------
1990 1991 1992 1993 1994 1995
------- ------- -------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Unearned income(3).............................. $16,868 $22,211 $ 21,720 $ 24,563 $ 47,644 $ 71,681
Total assets.................................... 55,479 85,084 104,714 147,161 265,949 434,847
Short-term borrowings due under warehouse
facilities.................................... 18,187 22,153 31,349 45,221 34,586 147,969
Long-term debt (primarily limited recourse)..... 22,177 36,358 24,569 51,827 148,852 218,878
Convertible subordinated notes.................. 0 0 0 0 14,112 13,742
Shareholders' equity............................ 6,194 16,113 34,006 34,664 33,993 37,770
</TABLE>
<TABLE>
<CAPTION>
AS OF
OR FOR THE
NINE MONTHS
AS OF OR FOR THE ENDED
YEAR ENDED JUNE 30, MARCH 31,
-------------------------------------------------- -----------
1990 1991 1992 1993 1994 1995
------- ------- -------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ADDITIONAL OPERATING AND OTHER DATA:
Gross financed receivables(4)............. $68,187 $92,670 $107,306 $142,073 $282,413 $ 442,268
Net financed receivables(5)............... 51,319 70,459 85,586 117,510 234,769 370,587
Loans originated(6)....................... 42,000 39,600 46,400 58,600 163,000 233,000
Net charge-offs as a percentage of average
net financed receivables(7)............. 0.37% 0.11% 0.05% 0.04% 0.14% 0.08%
</TABLE>
- ---------------
(1) Margins earned consists of finance and other income less interest expense.
Expenses associated with the issuance of the Company's debt for the years
1990 through 1994, as well as the nine months ended March 31, 1994, have
been reclassified from selling, general and administrative expenses to
interest expense to conform with the March 31, 1995 presentation.
(2) On June 30, 1993, the Company formally adopted a plan to divest
substantially all of its healthcare operations, which consisted of seven
outpatient healthcare facilities that the Company had operated or managed on
a direct basis and one facility which was in the development stage and not
yet in operation. At June 30, 1994, the Company had disposed of or entered
into definitive agreements to sell six of these outpatient healthcare
facilities and had written off the investment in and assets of the remaining
two. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(3) Unearned income consists of interest income that will be recognized, using
the interest method of accounting, over the remaining life of the finance
contracts outstanding.
(4) Gross financed receivables consist of receivables in installments,
receivables in installment-related parties, residual valuation, notes
collateralized by medical receivables and equipment on operating leases.
(5) Net financed receivables consist of gross financed receivables net of
unearned income.
(6) Includes equipment loans purchased through the Company's wholesale loan
program which the Company implemented in June 1994. See "Business -- Loan
Characteristics and Underwriting."
(7) Presentation is based on averages of period beginning and period ending
balances.
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Equipment Financing. For accounting purposes, the Company classifies
equipment loans it originates as notes secured by equipment, direct financing
leases or operating leases. Notes secured by equipment and direct financing
leases are generally those transactions in which the obligor has substantially
all of the benefits and risks of ownership of the equipment. Operating leases
are generally those which only provide for the rental of the asset. The
different classifications can result in accounting treatments that provide
substantially different income and costs during the transaction term. Direct
financing leases and notes secured by equipment are reflected on the Company's
balance sheet as "investment in direct financing leases and notes secured by
equipment." For statement of operations purposes, those transactions result in
amortization of finance income over the transaction term in the amounts computed
using the interest method.
The Company enters into two types of direct financing lease transactions,
which are referred to as "conditional sales agreements" and "fair market value
transactions." Conditional sales agreements and notes secured by equipment
represent those transactions in which no residual interest in the underlying
equipment is retained by the Company. Fair market value transactions are those
transactions in which the Company retains a residual interest in the equipment.
This residual interest is recorded on the Company's books as an estimate of the
projected value of the financed equipment at the end of the transaction term. At
the inception of notes secured by equipment and direct financing lease
transactions, "unearned income" represents the amount by which the gross
transaction receivables, initial direct costs and the nominal estimated residual
value (on fair market value transactions) exceed equipment cost.
Subsequent to the January 1993 acquisition of MEF Corp., the Company
significantly reduced its emphasis on entering into fair market value
transactions and adopted a strategy to reduce the dollar amount of residual
valuation on its balance sheet. As of March 31, 1995, residual valuation
decreased to $3.9 million from $6.2 million at June 30, 1993, and from 5% of net
financed receivables as of June 30, 1993 to 1% at March 31, 1995. Accordingly,
during this period the percentage of the Company's equipment financing
transactions structured as loans and conditional sales agreements have increased
significantly. The Company believes that loans and conditional sales agreements
will constitute a high percentage of its equipment financing transactions in the
future.
Leases and contracts for the rental of equipment which do not meet the
criteria of direct financing leases are accounted for as operating leases.
Equipment under an operating lease or a rental contract is recorded on the
balance sheet at the Company's cost under the caption of "equipment on operating
leases" and depreciated on a straight-line basis over the estimated useful life
of the equipment.
The Company has classified income under the categories of "amortization of
finance income," "gain on sale of financing transactions" and "other income."
Amortization of finance income consists of the interest component of payments
received on notes secured by equipment (or medical receivables) and direct
financing leases, and is calculated using the interest method whereby the income
is reported over the term of the transactions. "Gain on sale of financing
transactions" consists of gains recognized when the Company permanently funds
transactions through whole loan sales. "Other income" consists primarily of late
charges, income from operating leases and income from the billing and collecting
of medical receivables. The Company withdrew from the business of billing,
collecting and purchasing medical receivables late in fiscal 1994, but will
continue to record income as the receivables outstanding as of such date are
collected by the third parties that the Company hired to service these accounts.
In the event the aggregate uncollected amounts with respect to receivables the
Company purchased exceeds amounts reserved for losses with respect thereto, the
Company will record a loss.
Notes secured by equipment and direct financing lease transactions are all
noncancelable "net" transactions under which the obligor must make all scheduled
payments, maintain the equipment, insure the equipment against casualty loss and
pay all equipment related taxes. In fair market value transactions, at the end
of the initial financing term, the obligor has the option either to purchase the
equipment for its fair market
19
<PAGE> 22
value, extend the financing term under renegotiated payments or return the
equipment to the Company. If the equipment is returned to the Company, the
Company must sell or lease the equipment to another user.
In accordance with generally accepted accounting principles ("GAAP"), in
transactions classified as notes secured by equipment and direct financing
leases that the Company permanently funds through securitization or other
structured finance transactions whereby the Company treats the funds received as
debt, income is deferred and recognized using the interest method over the
respective terms of the transactions. If an obligor under a transaction
defaults, the Company may not receive all or a portion of the unamortized income
associated with the transaction.
Medical Receivable Financing. A small portion of the Company's business is
providing lines of credit under which the Company makes full recourse loans to
outpatient healthcare providers that are secured by medical receivables and
other collateral. The respective interest and fee income from these loans are
recognized over the terms of the lines of credit which are typically one to
three years and are recorded as amortization of finance income.
Discontinued Operations. In June 1993, the Company announced its decision
to dispose of seven outpatient healthcare facilities which it operated or
managed on a direct basis and one facility which was in the developmental stage
and not yet in operation. At June 30, 1993, the Company established a reserve
for the divestiture of the operations and recorded a loss on discontinued
operations and disposal of discontinued operations of $1.9 million net of tax.
This estimate was based on certain assumptions as to the likely timing of the
divestitures, the estimated proceeds to be received upon the sale of certain of
the facilities and the financial results of those operations pending
divestiture. These operations have been reflected as discontinued operations in
the Company's financial statements at June 30, 1992, 1993 and 1994. The pre-tax
loss from discontinued operations of $3.3 million at June 30, 1993 was comprised
of $2.6 million relating to actual and estimated losses from operations of this
segment through the date of disposition and $720,000 relating to estimated
losses to be incurred upon the disposition of the segment's net assets.
At June 30, 1994, the Company had disposed of or entered into definitive
agreements to sell six of these outpatient healthcare facilities and had written
off the investment in and assets of the remaining two. In connection with the
disposal of these facilities, the Company retained certain assets and
liabilities of these facilities, primarily accounts receivable and accounts
payable. The Company's results of operations for fiscal 1994 include an
additional $3.1 million net after tax change in estimate in the amounts reported
as of June 30, 1993 for the disposition of this segment of the Company's
operations. The change in estimate was comprised almost entirely of a change in
the estimate, in the quarter ended June 30, 1994, in the estimated proceeds from
the disposition of underlying healthcare operations assets which included
goodwill, other intangibles, equipment and other assets. The change in estimate
reflects the complete disposal or write-off of the discontinued operations
segment. The Company estimates that its aggregate maximum exposure, in the event
that all of the purchasers of these facilities become insolvent and the
financial equipment and other assets are unsaleable, is approximately $6.9
million. See "Risk Factors -- Discontinued Operations."
RESULTS OF OPERATIONS
Impact of Financing Strategies on Results of Operations
The Company's financing strategy is to obtain permanent funding for most of
its equipment loans through securitization and to sell the remainder to reduce
borrower concentration and to manage the Company's leverage. When funding loans
through securitization, the issuer generally can structure the securitization so
that the proceeds received are treated either as borrowed funds (i.e., debt on
the issuer's financial statements) or funds it receives as a result of the sale
of the underlying equipment loans. The accounting method to report finance
income differs significantly depending on which of the two structures the issuer
uses. When the proceeds received are treated as long-term debt, the issuer
reports finance income over the term of the equipment loans that are funded.
When the proceeds are treated as funds received from the sale of equipment
loans, the income is generally reported at the time the equipment loans are
funded. The Company uses the first alternative to recognize finance income when
it sponsors a securitization; this means the Company treats the proceeds
received as long-term debt on its financial statements and reports the finance
income over the
20
<PAGE> 23
term of the equipment loans that are funded. When the Company sells loans, it
generally recognizes the unamortized finance income at the time the funding
takes place; however, it may recognize servicing and/or interest income over the
remaining term of the equipment loans sold. Since the Company permanently funds
most of its equipment loans by securitization or other forms of structured
finance and therefore reports the finance income from these equipment loans over
approximately five years, its near-term reported earnings are comparatively
lower than they would be if the Company sold all of the loans.
Results of Operations for Nine Months Ended March 31, 1995 Compared to Nine
Months Ended
March 31, 1994
The following table sets forth certain information regarding the Company's
operations for the nine-month periods ended March 31, 1994 and 1995.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------------------
1994 1995
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Loans originated............................................... $123,000 $233,000
Amortization of finance income................................. $ 12,849 $ 24,015
Gain on sale of financing transactions, net.................... 246 1,430
Other income................................................... 1,268 900
Total finance and other income................................. 14,363 26,345
Interest expense............................................... 5,900 15,449
Margins earned................................................. 8,463 10,896
Selling, general and administrative expense (including
provision for doubtful accounts)............................. 5,591 6,318
Net earnings................................................... 1,424 2,655
Net earnings per common share.................................. $ 0.21 $ 0.39
</TABLE>
The Company originated $233.0 million of loans for the nine months ended
March 31, 1995, as compared to $123.0 million for the nine months ended March
31, 1994, an increase of 89%. This increase resulted from increased funding
capacity and efficiency and improvements in sales and marketing capabilities,
including the implementation of the Wholesale Program. Of this $110.0 million
increase, $52.7 million represented loan originations under the Wholesale
Program. The Company experienced an 87% increase in its average net financed
receivables to $302.7 million for the nine months ended March 31, 1995, from
$162.1 million for the nine months ended March 31, 1994. Average net financed
receivables is calculated based on period beginning and period ending balances.
Amortization of finance income increased 88% to $24.0 million for the nine
months ended March 31, 1995 from $12.8 million for the nine months ended March
31, 1994. The increase was primarily a result of the overall increase in the
size of the Company's net financed receivables.
The gain on sale of financing transactions, net increased 469% to $1.4
million for the nine months ended March 31, 1995 compared with a gain of
$246,000 for the same period in the prior year. The increase relates solely to
the Company's need to fund certain loans through whole loan sales to manage
borrower concentrations. See "-- Impact of Financing Strategies on Results of
Operations" and "-- General."
Other income, which consists of late charges, operating lease income, fees
from billing and collecting medical receivables, management income and other
miscellaneous items decreased 31% to $900,000 for the nine months ended March
31, 1995, as compared to $1.3 million for the nine months ended March 31, 1994.
This decrease was primarily due to the fact that the Company discontinued its
billing and collecting of medical receivables operations late in fiscal 1994.
For the nine months ended March 31, 1995, interest expense increased 163%
to $15.5 million from $5.9 million during the same period in the prior year. For
the nine months ended March 31, 1995, the
21
<PAGE> 24
Company's average indebtedness (calculated based on period beginning and period
ending balances) increased 119% to $289.1 million from $132.0 million during the
same period in the prior year. The increase in interest expense and average
indebtedness is primarily a result of the growth of the Company's loan
portfolio. As a percentage of total finance and other income, interest expense
was 59% in the nine months ended March 31, 1995, as compared to 41% in the same
period a year earlier. The increase in interest expense as a percent of total
finance and other income is primarily the result of (i) the Company's strategy
to narrow the interest rate spread between the cost of its funding and the
interest rate charged its customers in order to increase its market share, (ii)
interest rate increases that reduced the interest rate spread on loans funded by
warehouse facilities that were not protected by hedging positions and (iii) the
Company's strategy to originate equipment loans in which the residual positions
are not retained thereby reducing the Company's rate of return and its income on
the respective loans.
Margins earned were $10.9 million for the nine months ended March 31, 1995,
as compared to $8.5 million for the nine months ended March 31, 1994, an
increase of 28%. The increase was primarily a result of the overall increase in
the size of the Company's loan portfolio.
Selling, general and administrative expense ("SG&A") increased 13% to $6.3
million for the nine months ended March 31, 1995 from $5.6 million for the nine
months ended March 31, 1994. The increase primarily reflects additional
personnel, and other costs associated with the growth in the Company's business.
As a percentage of total finance and other income, SG&A was 24% for the nine
months ended March 31, 1995 versus 39% for the same period last year. The
percentage decrease in SG&A is a result of the Company's ability to increase the
volume of transactions entered into and thus the size of its loan portfolio
without a proportionate increase in SG&A.
The Company's SG&A includes the provision for doubtful accounts. That
provision was $826,000 for the nine months ended March 31, 1995 as compared to
$849,000 for the same period the previous year. The amounts are not
significantly different despite the growth in the Company's loan portfolio, and
this reflects management's judgment that the provisions are adequate based on
current trends in the Company's delinquencies and losses.
The Company's net earnings increased 93% to $2.7 million or $.39 per share
as compared to $1.4 million or $.21 per share for the same period the prior
year.
The Company's cash and cash equivalents at March 31, 1994 and March 31,
1995 were $1.3 million and $4.6 million, respectively. The increase was
attributable to the uninvested proceeds from the Company's most recent
securitization. The following describes the changes from March 31, 1994 to March
31, 1995 in the items which had the most significant impact on the Company's
cash flow during the nine months ended March 31, 1995.
The Company's net cash used in operating activities was $47.9 million
during the nine months ended March 31, 1995 compared to $21.7 million net cash
provided by operations for the nine months ended March 31, 1994. The increase in
cash utilization during the nine months ended March 31, 1995 stems largely from
a reduction in the Company's accounts payable from June 30, 1994 by $18.1
million. The decrease in accounts payable, which consists primarily of amounts
due manufacturers of equipment that the Company has financed, stems from
payments made to these manufacturers during the nine months ended March 31,
1995.
The Company's net cash used in investing activities increased to $133.3
million during the nine months ended March 31, 1995 as compared to $91.5 million
for the nine months ended March 31, 1994. This increase is attributed primarily
to cash used to acquire equipment and to finance notes secured by equipment of
$234.3 million during the nine months ended March 31, 1995 compared to of $115.5
million for the nine months ended March 31, 1994. These uses of cash were offset
by receipt of $101.2 million and $24.1 million in excess of amounts included in
income for the same periods.
The Company's net cash provided by financing activities was $184.0 million
during the nine months ended March 31, 1995 up from $69.0 million for the nine
months ended March 31, 1994. This results from an increase in the Company's
short-term debt of $113.4 million for the nine months ended March 31, 1995 as
compared to a $10.7 million increase in short-term debt for the nine months
ended March 31, 1994.
22
<PAGE> 25
Results of Operations for Year Ended June 30, 1994 Compared to Year Ended June
30, 1993
The following table sets forth certain information regarding the Company's
operations for fiscal 1994 and fiscal 1993.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
1993 1994
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Loans originated....................................................... $ 58,600 $163,000
Amortization of finance income......................................... $ 10,826 $ 18,265
Gain on sale of financing transactions, net............................ 1,104 302
Other income........................................................... 3,269 2,344
Total finance and other income......................................... 15,199 20,911
Interest expense....................................................... 5,005 8,833
Margins earned......................................................... 10,194 12,078
Selling, general and administrative expense (including provision for
doubtful accounts)................................................... 5,735 7,765
Equity in net loss of investees........................................ (51) (242)
Net earnings from continuing operations................................ 2,580 2,260
Discontinued operations:
Loss from discontinued operations, net of tax of $1,065 (1993) and
$51 (1994)........................................................ (1,497) (74)
Loss on disposal of discontinued operations, net of tax of $295
(1993) and $2,213 (1994).......................................... (425) (3,071)
Loss from discontinued operations.................................... (1,922) (3,145)
Net earnings (loss).................................................... 658 (885)
Net earnings (loss) per common and common equivalent share:
From continuing operations........................................... 0.39 0.34
From discontinued operations......................................... (0.29) (0.47)
-------- --------
Net earnings (loss) per share.......................................... $ 0.10 $ (0.13)
======== ========
</TABLE>
The Company originated $163.0 million of loans in fiscal 1994, as compared
to $58.6 million in fiscal 1993, an increase of 178%. The increase from period
to period was primarily because the Company expanded its equipment financing
capabilities as a result of its acquisition of MEF Corp. in January 1993. The
Company's average net financed receivables increased 73% to $176.1 million for
the period ended June 30, 1994, from $101.5 million for the period ended June
30, 1993. The Company experienced a decrease in its residual valuation to $3.7
million at June 30, 1994, from $6.2 million at June 30, 1993. The decrease stems
primarily from the Company's sale of residuals totalling $1.2 million and the
Company's strategy to reduce the number of loans in its portfolio in which
residual values are recorded.
Amortization of finance income increased 69% to $18.3 million for fiscal
1994 from $10.8 million for fiscal 1993. Although the Company's net financed
receivables increased significantly, the amortization of finance income did not
increase on a proportionate basis due to four factors: (i) the Company's
strategy to originate equipment loans in which residual positions are not
retained reduced the Company's rate of return on the respective transactions;
(ii) the Company has narrowed the interest rate spread between the Company's
costs of funding its equipment loans and the interest rates charged its
customers; (iii) the volume of equipment loans originated in fiscal 1994 was
greater in the second half of the year than in the first half; and (iv) the
interest rates under the Company's warehouse facilities increased during the
year which increased interest expense and thus reduced margins.
Gain on sale of financing transactions, net declined 73% to $302,000 in
fiscal 1994 from $1.1 million in fiscal 1993 due to the reduction in the number
and dollar amount of equipment loans funded through whole loan sales and the
increased use of securitization to obtain permanent funding for the Company's
equipment loans.
Other income, which consists of late charges, operating lease income, fees
from billing and collecting medical receivables, management income and other
miscellaneous items decreased 30% to $2.3 million in
23
<PAGE> 26
fiscal 1994 from $3.3 million for fiscal 1993. This decrease was due to a
decline in net operating lease income, which was partially offset by a slight
increase in receivable financing income. Net operating lease income declined 74%
to $359,000 in fiscal 1994 from $1.4 million in fiscal 1993 as a result of the
Company's strategy to reduce its originations of operating leases and the
expiration of two substantial transactions near the end of fiscal 1993.
Receivable management fees increased to $1.5 million in fiscal 1994 from $1.3
million in fiscal 1993. Although the Company's notes collateralized by medical
receivables portfolios increased significantly, receivable financing income did
not increase on a proportionate basis primarily because the increase in the
Company's volume of medical receivable loans occurred late in fiscal 1994.
Consequently, receivable financing income as a percent of the notes
collateralized by medical receivables was reduced.
Interest expense increased 76% to $8.8 million in fiscal 1994 from $5.0
million in fiscal 1993. For fiscal 1994, the Company's average indebtedness
increased 92% to $147.3 million from $76.7 million during fiscal 1993. This
increase stems primarily from an increase in the average outstanding balance of
long-term debt during fiscal 1994 as compared to fiscal 1993. As a percentage of
total finance and other income, interest expense was 42% for fiscal 1994 as
compared to 33% in fiscal 1993. The increase in interest expense as a percent of
total finance and other income is principally the result of: (i) the Company
narrowing the interest rate spread between the cost of its funding and the
interest rate charged its customers; (ii) the interest rates under the Company's
warehouse facilities increasing during the year; and (iii) the Company's
strategy to originate equipment loans in which residual positions are not
retained reducing the Company's rate of return and thus its income on the
respective equipment loans. Consequently, as a percentage of finance and other
income, interest expense increased in fiscal 1994.
Margins earned were $12.1 million in fiscal 1994 as compared to $10.2
million in fiscal 1993, an increase of 19%. The increase in fiscal 1994 over
fiscal 1993 was primarily a result of the overall increase in the size of the
Company's loan portfolio.
SG&A increased 37% to $7.8 million in fiscal 1994 from $5.7 million in
fiscal 1993. The largest component of this increase is a $1.4 million increase
in the Company's provision for doubtful accounts which in fiscal 1994 was
attributable to the growth of the Company's loan portfolio. The increase also
reflects costs associated with additional personnel and related costs incurred
in connection with the Company's acquisition of MEF Corp. during fiscal 1993,
the acquisition of Medical Device Capital Company during fiscal 1994 and the
expansion of its medical receivable financing business in fiscal 1994.
Equity in net losses of investees increased 375% to $242,000 in fiscal 1994
from $51,000 in fiscal 1993. The increase in net losses of investees is
primarily attributable to greater losses incurred by the Company's investees in
the first half of fiscal 1994 than in fiscal 1993. See "Business -- Other
Business Activities."
The Company's net earnings from continuing operations were $2.3 million, or
$.34 per share, for fiscal 1994 as compared to $2.6 million, or $0.39 per share,
for fiscal 1993 a decrease of 12%. After giving effect to its discontinued
operations, the Company's loss was $885,000, or $0.13 per share, for fiscal 1994
versus net earnings of $658,000, or $0.10 per share, for fiscal 1993. The
Company's net earnings from continuing operations did not increase in fiscal
1994 despite the growth of its loan portfolio and the increase in finance and
other income.
The Company's cash and cash equivalents at June 30, 1993 and 1994 was $2.2
million and $1.7 million, respectively. The following describes the changes from
fiscal 1993 to fiscal 1994 in the items which had the most significant impact on
the Company's cash flow during fiscal 1994.
The Company's net cash provided by operating activities increased $16.0
million to $13.0 million in fiscal 1994 from $(3.0) million in fiscal 1993. The
increase almost entirely stems from an increase in the Company's accounts
payable from June 30, 1993 to June 30, 1994 of $17.0 million. The increase in
accounts payable, which consists primarily of amounts due manufacturers of
equipment that the Company has financed, stems from the increased volume of the
Company's financing transactions near the end of fiscal 1994.
The Company's net cash used in investing activities increased $75.7 million
to $113.9 million in fiscal 1994 from $38.2 million in fiscal 1993. This
increase is attributed primarily to the cash used to acquire equipment of $86.4
million to $149.0 million in fiscal 1994 from $62.6 million in fiscal 1993.
These uses of
24
<PAGE> 27
cash were offset by receipt of $34.3 million and $28.3 million in excess of
amounts included in income for the same periods.
The Company's net cash provided by financing activities increased $59.6
million to $100.5 million in fiscal 1994 from $40.9 million in fiscal 1993. This
increase primarily resulted from an increase in the Company's long-term debt
related to securitizations from June 30, 1993 through June 30, 1994 and the
issuance of Convertible Subordinated Notes in which the Company realized net
proceeds of approximately $14.1 million in fiscal 1994.
Results of Operations for Year Ended June 30, 1993 Compared to Year Ended June
30, 1992
The following table sets forth certain information regarding the Company's
operations for fiscal 1993 and the year ended June 30, 1992 ("fiscal 1992").
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
1992 1993
------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Loans originated...................................................... $46,400 $ 58,600
Amortization of finance income........................................ $10,130 $ 10,826
Gain on sale of financing transactions, net........................... 2,197 1,104
Other income.......................................................... 2,409 3,269
Total finance and other income........................................ 14,736 15,199
Interest expense...................................................... 5,989 5,005
Margins earned........................................................ 8,747 10,194
Selling, general and administrative expense (including provision
for doubtful accounts).............................................. 3,832 5,735
Equity in net earnings (loss) of investees............................ 153 (51)
Net earnings from continuing operations............................... 3,053 2,580
Discontinued operations:
Loss from discontinued operations, net of tax of $302 (1992)
and $1,065 (1993)................................................ (346) (1,497)
Loss on disposal of discontinued operations, net of tax of $295
(1993)........................................................... -- (425)
Loss from discontinued operations................................... (346) (1,922)
Net earnings.......................................................... 2,707 658
Net earnings (loss) per common and common equivalent share:
From continuing operations.......................................... 0.57 0.39
From discontinued operations........................................ (0.06) (0.29)
------- --------
Net earnings per share................................................ $ 0.51 $ 0.10
======= ========
</TABLE>
The Company originated $58.6 million of equipment loans in fiscal 1993, as
compared to $46.4 million in fiscal 1992, an increase of 26%. The increase from
period to period was primarily because the Company expanded its equipment
financing capabilities and market presence as a result of its acquisition of MEF
Corp. in January 1993. The Company's average net financed receivables increased
30% to $101.5 million for the period ended June 30, 1993 from $78.0 million for
the period ended June 30, 1992.
Amortization of finance income increased 7% to $10.8 million for fiscal
1993 from $10.1 million for fiscal 1992. Although the Company's net financed
receivables increased significantly, the amortization of finance income did not
increase on a proportionate basis due to the fact that the volume of
originations of equipment loans in fiscal 1993 was greater in the second half of
the year than in the first half. Consequently, amortization of finance income as
a percent of the loan portfolio was reduced.
Gain on sales of financing transactions, net decreased 50% to $1.1 million
in fiscal 1993 from $2.2 million in fiscal 1992 due to the reduction in the
number and dollar amount of equipment loans funded through whole loan sales in
fiscal 1993 from fiscal 1992 levels. The use of securitization to obtain
permanent funding for the
25
<PAGE> 28
Company's equipment loans significantly reduced the Company's need to sell
equipment loans on a whole loan sale basis.
Other income, which consists of late charges, operating lease income, fees
from billing and collecting medical receivables, management income and other
miscellaneous items increased 38% to $3.3 million in fiscal 1993 as compared to
$2.4 million for fiscal 1992. This increase was due to increases in net
operating lease income and receivable financing income. Net operating lease
income increased 27% to $1.4 million in fiscal 1993 from $1.1 million in fiscal
1992 as a result of an overall increase in the Company's operating lease
portfolio in fiscal 1993 as compared to fiscal 1992. Receivable management fees
increased 135% to $1.3 million in fiscal 1993 from $553,000 in fiscal 1992. The
increase is primarily attributable to an expansion in size and scope of the
billing and collecting services and purchased/financed receivables business in
fiscal 1993 from fiscal 1992 levels. As a result, receivables associated with
purchased and financed management business increased to $2.6 million at June 30,
1993 from $536,000 at June 30, 1992.
Interest expense decreased 17% to $5.0 million in fiscal 1993 from $6.0
million in fiscal 1992. For fiscal 1993 the Company's average indebtedness
increased 33% to $76.7 million from $57.6 million during fiscal 1992. This
decrease stems from a decrease in the cost of funds obtained by the Company in
fiscal 1993 through the use of securitization and the general decline in
prevailing interest rates in fiscal 1993 compared to fiscal 1992.
Margins earned were $10.2 million in fiscal 1993 as compared to $8.7
million in fiscal 1992, an increase of 17%. The increase in fiscal 1993 over
fiscal 1992 was primarily as a result of the overall increase in the size of the
Company's loan portfolio.
SG&A increased 50% from $3.8 million in fiscal 1992 to $5.7 million in
fiscal 1993. The increase reflects costs associated with additional personnel
and related costs incurred in connection with the Company's acquisition of MEF
Corp. during fiscal 1993, the expansion of its medical receivable financing
business in both fiscal 1993 and fiscal 1992, and the increased emphasis on
financing rather than managing medical receivables for third-party healthcare
providers. SG&A relative to the Company's receivables management business
increased to $1.5 million for fiscal 1993, from $775,000 for fiscal 1992, its
initial year of operation. Additions to the Company's allowance for losses
declined to $167,000 in fiscal 1993 from $422,000 in fiscal 1992.
Equity in the net loss/earnings of investees decreased to a net loss of
$51,000 in fiscal 1993 from net earnings of $153,000 in fiscal 1992. The decline
to a net loss during fiscal 1993 from a position of net earnings in the prior
year is primarily attributable to more significant losses incurred by one of the
Company's investees in fiscal 1993.
The Company's net earnings from continuing operations were $2.6 million, or
$0.39 per share, for fiscal 1993 as compared to $3.1 million, or $0.57 per
share, for fiscal 1992. After giving effect to its discontinued operations, the
Company's net earnings were $658,000, or $0.10 per share, for fiscal 1993 and
$2.7 million, or $0.51 per share, for fiscal 1992.
LIQUIDITY AND CAPITAL RESOURCES
General
The Company's equipment financing business requires substantial amounts of
capital and borrowings. The Company obtains warehouse funding from commercial
and investment banks. The Company's warehouse borrowings are recourse
obligations, while the Company's permanent funding is obtained principally on a
limited recourse basis. In the case of limited recourse funding, the Company
retains some risk of loss because it shares in any losses incurred and/or it may
forfeit the residual interest the Company has in the underlying financed assets
(if any) should defaults occur.
A substantial portion of the Company's debt represents permanent funding of
equipment loans obtained on limited recourse basis and is structured so that the
cash flow from the underlying loans services the debt. Most of the Company's
warehouse borrowings are used to temporarily fund the equipment loans and are
repaid with the proceeds obtained from the permanent funding and cash flow from
the underlying transactions.
26
<PAGE> 29
As a result of the rapid growth of the Company's equipment financing
business, the amount of warehouse and permanent funding it requires has
significantly increased. To meet its requirements for increased warehouse
funding, the Company has expanded its warehouse facilities with banks, and has
obtained warehouse facilities with investment banking firms the Company uses for
its securitizations. To meet its requirement for increased permanent funding,
the Company has enhanced its ability to fund equipment loans by both
securitization and whole loan sales. If suitable sources of both warehouse and
permanent funding are not available in the future, the Company's growth will be
constrained and it may be forced to use less attractive funding sources in order
to ensure its liquidity.
Working capital financing for equipment financing customers is occasionally
provided by the Company where the loan is adequately secured by acceptable
collateral (typically accounts receivable) and the Company's other credit
criteria are satisfied.
In June 1994, the Company completed a $15.0 million private placement of
Convertible Subordinated Notes. The Convertible Subordinated Notes (i) are
convertible into shares of Common Stock at $10.60 per share at the discretion of
the noteholders; (ii) bear interest at a rate of 9 1/8% payable in quarterly
installments of interest only; and (iii) mature in June 2002. The proceeds
generated from the placement were utilized by the Company to repay a portion of
the existing debt under its principal warehouse facility and on a limited basis
to fund medical receivables loans. The agreement with respect to the Convertible
Subordinated Notes contains, among other things, limitations on the Company's
ability to pay dividends and to make certain other kinds of payments. That
agreement also prohibits the Company from incurring additional indebtedness
unless certain financial ratio tests are met. As of March 31, 1995, $500,000
aggregate principal of the Convertible Subordinated Notes had been converted
into 47,169 shares of Common Stock.
After giving effect to the Offering, the Company believes that its present
warehouse and permanent funding sources are sufficient to fund the Company's
current needs for its equipment financing business. However, the Company will
have to expand both its warehouse and permanent funding capacity to meet the
Company's projected growth of its equipment financing business. In addition, the
growth of the Company's medical receivable financing business is dependent on
the Company's ability to obtain suitable funding for that business. Continued
expansion of the Company's business and its continued use of securitizations
will also require additional capital that the Company may seek to obtain from
public offerings and/or private placements of equity securities and/or
additional long-term debt financing. If the Company is unable to continue to
increase its capital base, its ability to expand its financing business will be
significantly constrained.
Warehouse Facilities
At March 31, 1995, the Company had an aggregate maximum of $256.5 million
potentially available under various warehouse facilities, of which the Company
had borrowed an aggregate of $148.0 million. The Company's primary warehouse
facility, a revolving credit agreement with a syndicate of banks that was
amended and restated as of March 28, 1995 (the "Revolving Credit Agreement"),
provides the Company with $81.5 million in borrowing capacity. Borrowings under
the Revolving Credit Agreement bear interest at the Company's option at either a
variable rate equal to the prime rate established by NatWest plus up to an
additional 25 basis points depending upon the Company's leverage ratio from time
to time as defined in the Revolving Credit Agreement or a rate of interest that
varies from 150 to 180 basis points over the one-month, two-month or three-month
LIBOR based on the Company's leverage ratio from time to time. The interest
rates on the Company's borrowings under the Revolving Credit Agreement generally
are re-set at the end of each applicable LIBOR period (i.e., every one-, two- or
three-month period). The rate of interest on any such borrowings changes from
one period to another based on fluctuations in the applicable LIBOR. The
Revolving Credit Agreement is renewable annually at the bank syndicates
discretion. However, the Revolving Credit Agreement provides that if the banks
elect not to renew the facility at the end of its stated term, December 31,
1995, the outstanding loans automatically convert to four-year amortizing term
loans at slightly higher interest rates.
The Revolving Credit Agreement requires the Company to limit all of its
borrowings to specified levels determined by ratios based on the Company's
tangible net worth and, under certain circumstances, to use specified
percentages of internally generated funds to pay for equipment purchases. The
Revolving Credit
27
<PAGE> 30
Agreement also restricts the payment of dividends by DVI Financial Services to
the Company under certain circumstances. In addition, the amount of funds
available at any given time under the Revolving Credit Agreement is constrained
by the amount, type and payment status of the Company's equipment loans. If, at
any time, a significant amount of the Company's loans were to become delinquent,
the availability of credit under the Revolving Credit Agreement would be reduced
and, under other circumstances, the Company could be required to prepay a
portion of the amounts outstanding under the Revolving Credit Agreement. Since
the Revolving Credit Agreement was established, the only collateral that was
eligible for borrowing purposes was equipment loans. To fund the growth of its
medical receivable financing business, the Company requested that the banks
participating in the Revolving Credit Agreement begin to allow the Company to
use the credit facility to fund medical receivable loans. During the quarter
ended December 31, 1994, the banks agreed to permit borrowings by the Company of
up to $7.0 million collateralized by medical receivables.
The Company also has two warehouse facilities with Prudential Securities
Realty Funding Corporation. The first facility, dated as of September 13, 1994
(the "$100.0 million Prudential Facility"), provides the Company with $100.0
million in warehouse funding. Borrowings under this facility bear interest at a
variable rate equal to 75 basis points over the one-month LIBOR and are re-set
every month based on changes in the underlying, LIBOR index. The rate of
interest on any such borrowings changes from one period to another based on
fluctuations in the applicable LIBOR. The $100.0 million Prudential Facility
provides funding for equipment loans that are securitized through Prudential
Securities Incorporated. In addition, the $100.0 million Prudential Facility was
amended in March and April 1995 to allow the Company to borrow up to $4.3
million in special advances (the "Special Advances"). The Special Advances bear
interest at a variable rate equal to 150 basis points over the one-month LIBOR
until August 31, 1995. Borrowings under the $100.0 million Prudential Facility,
including the Special Advances, are secured by (i) certain equipment loans and
the equipment financed thereunder, (ii) the Company's interest in the $9.0
million, 7.13% Asset-Backed Note, Series 1994-A, Class C of DVI Receivables
Corp. and (iii) the Company's rights to receive funds from certain securitized
equipment loans. The obligation of Prudential Securities Realty Funding
Corporation to make advances under the $100.0 million Prudential Facility,
including the Special Advances, has been extended to August 31, 1995. Pursuant
to this extension, all borrowings under the $100.0 million Prudential Facility
mature on August 31, 1995.
The second facility with Prudential Securities Realty Funding Corporation,
dated as of June 7, 1995 (the "$5.5 million Prudential Facility"), provides the
Company with $5.5 million in warehouse funding to make medical receivables loans
to borrowers approved by Prudential Securities Realty Funding Corporation.
Borrowings under the $5.5 million Prudential Facility bear interest at a rate
equal to the prime rate established by Morgan Guaranty Trust Company of New
York. The borrowings are secured by medical receivables loans originated by the
Company and the underlying receivables. The $5.5 million Prudential Facility
matures on August 31, 1995.
The Company also has a $75.0 million warehouse facility dated as of
February 2, 1995 with ContiTrade, which was amended on March 2, 1995 (the "Conti
Facility"). The Conti Facility provides the Company with warehouse funding for
certain equipment loans to be securitized or otherwise permanently funded
through ContiTrade. Borrowings under the Conti Facility bear interest at a rate
equal to 150 basis points over one-month or two-month LIBOR which is fixed as to
the related funding period. The rate of interest on any such borrowings from one
period to another changes based on fluctuations in LIBOR. Borrowings under the
Conti Facility mature on June 30, 1995.
On March 31, 1995, an aggregate of approximately $148.0 million was
outstanding under all of the Company's warehouse facilities and lines of credit.
The Company's use of securitization significantly affects its need for
warehouse facilities. When using securitization, the Company is required to hold
loans in warehouse facilities until a sufficient quantity is accumulated to meet
the various requirements of the credit rating agencies and others involved and
to make a securitization cost effective. Generally, loans totalling at least $50
million must be placed in each securitization pool.
28
<PAGE> 31
When the Company borrows funds through warehouse facilities, it is exposed
to a certain degree of risk caused by interest rate fluctuations. Although the
Company's equipment loans are structured and permanently funded on a fixed
interest rate basis, it uses warehouse facilities until permanent funding is
obtained. Because funds borrowed through warehouse facilities are obtained on a
floating interest rate basis, the Company uses hedging techniques to protect its
interest rate margins during the period that warehouse facilities are used. The
Company's sole reason for using hedging techniques is to offset the loss that
occurs when loans are funded on an interim basis and interest rates rise causing
the Company's interest rate margins on the loans to decline. Therefore, gains or
losses generated through hedging techniques only benefit the Company to the
extent they offset the corresponding reduction in margin due to rising interest
rates until the loans are permanently funded. The Company's primary hedging
technique is to assume short positions in U.S. Treasury obligations of
comparable maturities to the life of its loans. To the extent hedging gains or
losses resulting from U.S. Treasury contracts are significant, the resulting
cash payments or receipts may impact the Company's liquidity. See "Risk
Factors -- Interest Rate Risk" and "Business -- Capital Resources and
Transaction Funding -- Hedging Strategy."
Permanent Funding Methods
The Company has completed seven securitizations or other structured finance
transactions totalling $414.8 million, including two public debt issues of $75.7
million and $90.0 million and five private placements of debt totalling $249.1
million. In January 1994, the Company filed a $350 million registration
statement (Registration No. 33-74446) with the Commission to provide for the
future issuance of securitized debt in a series of transactions pursuant to the
Commission's "shelf" registration rule. The registration statement was declared
effective by the Commission on June 23, 1994. The $75.7 and $90.0 million public
debt issues were the two initial fundings under the $350 million shelf
registration. The Company expects to continue to use securitization, on both a
public and private basis, as its principal means to permanently fund its loans
for the foreseeable future, except when issues of borrower concentration exist
that warrant the sale of loans.
The Company's use of securitization significantly affects its liquidity and
capital requirements due to the amount of time required to assemble a portfolio
of loans to be securitized. When using securitization, the Company is required
to hold loans until a sufficient quantity is accumulated so as to attract
investor interest and allow for a cost effective placement. This increases the
Company's exposure to changes in interest rates and temporarily reduces its
warehouse facility liquidity.
Generally, the Company does not have binding commitments for permanent
funding, either through securitization or whole loan sales. The Company has
non-binding agreements with investment banking entities to fund future equipment
loans through securitization. While the Company expects to be able to continue
to obtain the permanent funding it requires for its equipment financing
business, there can be no assurance that it will be able to do so. If, for any
reason, any of these types of funding were unavailable in the amounts and on
terms deemed reasonable by the Company, the Company's equipment financing
activities would be adversely affected. The Company believes cash flows
generated from operations and its warehouse facilities are sufficient to meet
its near-term obligations.
INCOME TAX ISSUES
Historically, the Company has deferred a substantial portion of its federal
and state income tax liability because of its ability to obtain depreciation
deductions from transactions structured as fair market value leases. Over the
past 18 months, the proportion of transactions originated by the Company
structured as fair market value leases has declined significantly, and the
Company expects that trend to continue. In addition, the Company disposed of a
portion of its equipment residual portfolio in fiscal 1994 and may continue to
do so in future periods. As a result, the Company expects that in future periods
its ability to defer its income tax liability will correspondingly decline.
29
<PAGE> 32
BUSINESS
OVERVIEW
The Company is a specialty commercial finance company whose core business
is financing higher cost diagnostic imaging, radiation therapy and other types
of sophisticated medical equipment by outpatient healthcare centers, groups of
physicians and hospitals. Over the last 10 years, the Company has developed
extensive expertise in analyzing the credit of healthcare providers that lack
audited financial statements and detailed business plans. By servicing the
equipment financing needs of these healthcare providers and the corresponding
need for equipment manufacturers to arrange financing for their customers, the
Company has established a niche in markets underserved by most banks and finance
companies. In addition to equipment financing, a small but growing part of the
Company's business is making working capital loans to outpatient healthcare
providers secured by their medical receivables and other collateral.
Virtually all of the Company's equipment loans are structured on a fixed
interest rate basis such that the full cost of the equipment and all financing
costs are repaid during the financing term, which typically is five years. The
Company's risk management strategy is to avoid risks associated with the
residual value of equipment and of loan prepayments and to minimize its exposure
to interest rate fluctuations. The Company's equipment loans are structured
principally as notes secured by equipment or direct financing leases with a
bargain purchase option for the equipment user.
In the past two years, the Company has grown substantially. In fiscal 1994,
the Company's loan origination volume increased approximately 178% to $163.0
million from $58.6 million for fiscal 1993. During the nine months ended March
31, 1995, the Company's loan origination volume increased approximately 89% to
$233.0 million from $123.0 million for the first three quarters of fiscal 1994.
The Company's net financed receivables increased approximately 100% to $234.8
million at June 30, 1994 from $117.5 million at June 30, 1993. The Company's net
financed receivables increased approximately 79% to $370.6 million at March 31,
1995 from $206.7 million at March 31, 1994.
The Company uses securitization and other structured finance techniques to
permanently fund most of its equipment loans and since 1991 has funded $414.8
million of equipment loans in this manner. The Company's ability to securitize
loans has improved significantly in recent years which enabled it to securitize
loans in the public market in fiscal 1994. Access to the public securitization
market has lowered the Company's relative funding costs and expanded the
Company's access to funding.
GROWTH STRATEGY
The Company's growth strategy is to increase the size of its loan portfolio
by expanding its share of the diagnostic imaging and radiation therapy equipment
financing markets and by generating financing opportunities in other areas of
the healthcare industry. The principal components of this strategy are as
follows:
- Maximize the value of its relationships with manufacturers. The Company
established a close working relationship with four of the six largest
manufacturers of diagnostic imaging equipment by meeting their needs to
arrange financing for the higher cost equipment they sell to non-hospital
healthcare providers. The Company intends to continue to fulfill those
needs and place greater emphasis on financing the lower cost patient
treatment devices these manufacturers produce such as ultrasound, nuclear
medicine and X-ray equipment, and on financing equipment for their
hospital customers.
- Originate medical equipment loans on a wholesale basis. A growing part
of the Company's equipment financing business is purchasing loans
originated by regional medical equipment finance companies and medical
equipment manufacturers (collectively, "Originators"). The Company uses
its securitization capabilities and its expertise in analyzing healthcare
credits to service Originators that generally do not have access to cost
effective permanent funding. See "-- Loan Characteristics and
Underwriting" and "-- Capital Resources and Transaction
Funding -- Permanent Funding Program."
- Generate additional business through its existing customer base. The
Company enjoys relationships with a large number of users of
sophisticated medical equipment. The Company believes its existing
30
<PAGE> 33
customers, particularly those that are expanding to provide additional
healthcare services, can be a continuing source of equipment and medical
receivable financing business.
- Establish equipment financing relationships with manufacturers of patient
treatment devices. The Company intends to use its reputation as a
medical equipment financing specialist and its ability to finance a wide
range of healthcare providers to establish its presence in the patient
treatment device market. The Company's objective is to build
relationships with manufacturers of sophisticated patient treatment
devices such as surgical lasers.
- Expand its medical receivables financing activity. The Company believes
that its expertise in underwriting complex healthcare credits,
established presence in the healthcare market and ability to finance
complex healthcare credits will enable it to obtain additional medical
receivable financing business from outpatient healthcare providers.
HEALTHCARE FINANCING INDUSTRY
Competitors in the healthcare financing business include equipment
manufacturers that sell and finance their products, leasing subsidiaries of
national and regional commercial banks and other leasing and financing
companies. Competition among providers of equipment financing varies based on
the type of healthcare provider being financed and the acquisition cost of the
equipment. When hospitals acquire capital equipment directly (i.e., they accept
full financial liability), competitors are numerous as lenders generally can
make credit decisions based on audited financial statements that normally
reflect a financial condition that is strong relative to the cost of the
equipment being acquired. The competition is similar when physician specialists
such as radiologists are acquiring relatively inexpensive equipment (i.e.,
$200,000 or less). Many banks and finance companies are willing to make loans of
this amount to physician specialists based solely on their personal net worth.
Specialty finance companies, such as the Company, typically provide financing
for borrowers other than those described above.
Competition in medical receivable financing is similar to that in medical
equipment financing. Medical receivable financing is readily available for most
hospitals and for physicians seeking relatively small amounts of funding.
However, for outpatient healthcare providers seeking funding in excess of
approximately $500,000, the principal sources of financing generally are limited
to specialty finance companies or factoring companies that purchase receivables
at a discount.
Medical equipment financing providers often compete on the basis of
relationships with manufacturers of the equipment being financed. General
Electric Medical Systems and Siemens Medical Systems (which according to
published sources together have approximately 40 to 50% of the U.S. market for
diagnostic imaging equipment) have captive equipment financing subsidiaries. The
four remaining major manufacturers of diagnostic imaging equipment depend
largely on relationships with financing providers, such as the Company, to
finance the sale of their products.
SALES AND MARKETING
The Company generates most of its financing opportunities from two sources:
(i) medical equipment manufacturers that use third parties to finance the sale
of their products; and (ii) healthcare providers with whom the Company's sales
organization has relationships. Generally, medical equipment manufacturers refer
customers to the Company for financing because the Company has the ability to
understand and measure the creditworthiness of the customer's business and
provide the financing necessary for the completion of the equipment sale. The
Company often assists the customer in preparing a comprehensive business and
financial plan that generally includes a demographic study of the equipment
user's market, an analysis of the local competition and the effect of managed
care on the market and the specific requirements for regulatory compliance and
working capital. The Company's sales force of financing specialists work with
the equipment user, the manufacturer and the Company's credit department to
formulate this business and financial plan.
The Company established a close working relationship with four of the six
largest manufacturers of diagnostic imaging equipment by meeting their needs to
arrange financing for the higher cost equipment they
31
<PAGE> 34
sell to non-hospital healthcare providers. These manufacturers are Hitachi
Medical Systems America, Philips Medical Systems, Picker International and
Toshiba America Medical Systems. The Company believes these relationships afford
it a competitive edge over other providers of medical equipment financing. Since
the January 1993 acquisition of MEF Corp., the Company has reorganized its sales
force with a view to increasing the volume of business it conducts with those
companies principally by focusing on the lower cost equipment sold by those
companies.
The Company has a sales unit dedicated to its Wholesale Program. The
Company purchases equipment loans from Originators that generally do not have
access to cost effective permanent funding for their loans. The Company
initiated the Wholesale Program in June 1994 and during the three fiscal
quarters ended March 31, 1995, the Company purchased an aggregate of $52.7
million of equipment loans from six Originators. The Company believes that it
has an opportunity to increase the volume of loans it buys in this manner
because the number of companies that finance Originators has declined in the
past few years. See "-- Loan Characteristics and Underwriting."
In addition to financing medical equipment, the Company also makes working
capital loans under revolving lines of credit for outpatient healthcare
providers that are secured by their receivables from payors such as insurance
companies, large self-insured companies and governmental programs such as
Medicare, and other collateral. These lines of credit are secured by (i)
specific receivables due the provider that the Company has analyzed to determine
the amount and likelihood of collection, (ii) the overall receivables portfolio
of the healthcare provider and (iii) other forms of credit enhancement such as
cash collateral, letters of credit and guarantees. The Company's two medical
receivable loan specialists assist the Company's equipment loan sales force in
originating medical receivables loans. The medical receivable loan business
entails significant risks and capital requirements. See "Risk Factors -- Risks
Related to the Medical Receivable Financing Business" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company intends to expand into the patient treatment device market. The
Company believes its ability to finance a wide range of healthcare providers and
meet the equipment financing needs of major manufacturers of diagnostic imaging
equipment will help it build relationships with patient treatment device
manufacturers. To establish relationships with patient treatment device
manufacturers, the Company expects to train their vendor personnel in the use of
equipment financing as a sales tool and to provide equipment financing programs
that make these device manufacturers more competitive. The Company believes the
patient treatment device market is more diverse than the diagnostic imaging
market because of the larger number of manufacturers and types of products and
the greater price range of those products. The patient treatment device
manufacturers targeted by the Company produce relatively high cost treatment
products such as surgical lasers.
The Company's sales and marketing organization consists of 21 healthcare
finance specialists located in various parts of the U.S. These individuals
generally have a credit industry and/or medical equipment background. The
Company generally locates sales personnel in geographic areas where they have
knowledge of the local market. The Company believes that sales personnel who
understand local economic and political trends are a valuable component of its
credit underwriting process.
PROFILE OF EQUIPMENT FINANCED
The following table sets forth information with respect to loan
originations by the Company for the seven fiscal quarters ending March 31, 1995.
Summations and differences of the numbers set forth below may not reconcile due
to rounding.
32
<PAGE> 35
LOANS ORIGINATED BY THE COMPANY
(IN THOUSANDS, EXCEPT PERCENTAGES)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------
SEPTEMBER 30, 1993 DECEMBER 31, 1993 MARCH 31, 1994 JUNE 30, 1994
-------------------- -------------------- -------------------- --------------------
DIAGNOSTIC/TREATMENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
EQUIPMENT(1) ORIGINATED OF TOTAL ORIGINATED OF TOTAL ORIGINATED OF TOTAL ORIGINATED OF TOTAL
-------------------- ---------- -------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MRI........................... $18,773 52.1% $25,185 60.0% $32,208 71.6% $19,765 49.4%
CT(2)......................... 1,022 2.8 4,917 11.7 4,645 10.3 1,149 2.9
Radiation therapy............. 467 1.3 2,869 6.8 190 0.4 6,414 16.0
Ultrasound.................... 497 1.4 523 1.2 766 1.7 968 2.4
Medical devices............... 780 2.2 915 2.2 590 1.3 140 0.4
Nuclear camera................ 887 2.5 1,342 3.2 977 2.2 1,615 4.0
X-Ray......................... 67 0.2 800 1.9 427 0.9 409 1.0
Lithotripter.................. 664 1.9 475 1.1 0.0 0.0 1,491 3.7
Lab........................... 372 1.0 30 0.1 0.0 0.0 991 2.5
Other......................... 269 0.7 3,095 7.4 4,762 10.6 122 0.3
SECURED LINES OF CREDIT(3)
--------------------------
Hospitals(4).................. 11,692 32.5 815 1.9 272 0.6 3,916 9.8
Medical receivables(5)........ 510 1.4 1,034 2.5 163 0.4 3,020 7.6
------- ----- ------- ----- ------- ----- ------- -----
Total....................... $36,000 100.0% $42,000 100.0% $45,000 100.0% $40,000 100.0%
======= ===== ======= ===== ======= ===== ======= =====
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------
SEPTEMBER 30, 1994 DECEMBER 31, 1994 MARCH 31, 1995
--------------------- -------------------- --------------------
DIAGNOSTIC/TREATMENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
EQUIPMENT(1) ORIGINATED OF TOTAL ORIGINATED OF TOTAL ORIGINATED OF TOTAL
- ------------------------------ ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
MRI........................... $29,470 56.7% $37,900 51.2% $ 48,228 45.1%
CT(2)......................... 1,735 3.3 5,513 7.5 7,828 7.3
Radiation therapy............. 2,459 4.7 2,369 3.2 6,098 5.7
Ultrasound.................... 1,325 2.6 194 0.3 5,934 5.5
Medical devices............... 4,263 8.2 2,900 3.9 4,379 4.1
Nuclear camera................ 1,752 3.4 888 1.2 3,812 3.6
X-Ray......................... 123 0.2 603 0.8 1,057 1.0
Lithotripter.................. 0.0 0.0 191 0.3 770 0.7
Lab........................... 159 0.3 103 0.1 619 0.6
Other......................... 2,314 4.5 4,601 6.2 214 0.2
SECURED LINES OF CREDIT(3)
--------------------------
Hospitals(4).................. 6,152 11.8 15,818 21.4 22,744 21.3
Medical receivables(5)........ 2,248 4.3 2,920 3.9 5,317 5.0
------- ----- ------- ----- -------- -----
Total....................... $52,000 100.0% $74,000 100.0% $107,000 100.0
======= ===== ======= ===== ======== =====
</TABLE>
- ---------------
(1) Percentages are based on the original cost of equipment financed.
(2) Computerized tomography.
(3) Percentages are based on the total dollar volume of the amounts funded under
the lines of credit.
(4) Consists of lines of credit provided to hospitals for a variety of equipment
which secure the loans made under these lines of credit. See "-- Loan
Characteristics and Underwriting."
(5) Consists of lines of credit provided to outpatient healthcare providers that
are secured by medical receivables and other forms of credit enhancement.
See "-- Loan Characteristics and Underwriting."
33
<PAGE> 36
The following table sets forth certain information with respect to the
geographic distribution of the Company's equipment loan portfolio as of March
31, 1995.
GEOGRAPHIC DISTRIBUTION OF EQUIPMENT LOAN PORTFOLIO
TOP 15 STATES
(IN THOUSANDS)
<TABLE>
<CAPTION>
STATE NET INVESTMENT(1)
--------------------------------------------------------------------- -----------------
<S> <C>
California........................................................... $ 102,608
New York............................................................. 44,672
Florida.............................................................. 32,182
New Jersey........................................................... 23,153
Texas................................................................ 22,073
Pennsylvania......................................................... 21,782
Tennessee............................................................ 9,533
Alabama.............................................................. 9,254
Illinois............................................................. 8,803
Ohio................................................................. 7,019
Arizona.............................................................. 6,955
Maryland............................................................. 6,508
Georgia.............................................................. 5,567
Indiana.............................................................. 5,202
Louisiana............................................................ 3,672
</TABLE>
- ---------------
(1) Based on cost of equipment financed.
The following table sets forth management's estimate of the approximate
cost of new equipment financed by the Company as of March 31, 1995.
COST ESTIMATE OF NEW EQUIPMENT FINANCED
<TABLE>
<CAPTION>
EQUIPMENT TYPE PRICE RANGE
--------------------------------------------------------------- ---------------------
<S> <C>
MRI............................................................ $750,000 - $2,000,000
CT............................................................. 350,000 - 1,000,000
Radiation therapy.............................................. 400,000 - 1,200,000
Diagnostic ultrasound.......................................... 50,000 - 250,000
Nuclear medicine............................................... 200,000 - 600,000
Positron emission tomography................................... 750,000 - 2,000,000
X-ray
Radiographic................................................. 40,000 - 150,000
Radiographic/Fluoroscopic.................................... 100,000 - 500,000
Special procedures........................................... 750,000 - 2,000,000
Other X-ray.................................................. 50,000 - 200,000
Image management/archiving systems............................. 50,000 - 500,000
</TABLE>
LOAN CHARACTERISTICS AND UNDERWRITING
The Company's typical equipment loan is secured by one or more pieces of
medical equipment, is a five-year contract that is not prepayable and has an
initial principal balance ranging from $300,000 to $2.0 million. The Company's
equipment loans are structured (i) on a "net" basis, requiring the obligor to
pay for
34
<PAGE> 37
equipment maintenance and all other operating expenses, including taxes and
insurance and (ii) to require the obligor to be responsible for compliance with
all applicable laws and regulations with respect to the use and operation of the
equipment. The term of the Company's equipment loans ranges from 36 to 84
months. As of March 31, 1995, approximately 90% (as measured by equipment cost)
of the Company's loan portfolio had an initial term of 72 months or less. The
Company's policy is to structure its equipment loans so that the obligor pays
for the full cost of the equipment and the financing during the financing term.
Due to the relatively large size of the Company's typical equipment loan
(which in the Company's three fiscal quarters ended March 31, 1995 averaged
$713,100), each loan is analyzed individually. The Company applies specific
credit guidelines to each of its various customers, depending on their credit
strength. All loans must be approved by the Company's credit committee (the
"Credit Committee"), which consists of three designated senior credit officers.
In addition, loans in excess of $750,000 generally require the approval of the
Company's senior credit committee (the "Senior Credit Committee"), which
consists of the two senior members of the Credit Committee and a designated
member of the Company's Board of Directors. To service the needs of its
customers, equipment manufacturers and sales organization, the Credit Committee
and Senior Credit Committee generally meet at least weekly to review and make
credit decisions on new loans.
The credit underwriting process the Company uses to evaluate non-hospital
borrowers enables it to prescribe specific working capital and net worth
requirements and specify the amount and form of any credit enhancement and/or
financial support (such as cash collateral, letter of credit, guarantees, fee
subordinations or equipment manufacturer guarantees). When analyzing hospital
credits, the credit analysis process is generally simpler and less time
consuming than the process for analyzing outpatient and physician credits due to
the financial strength of the borrower and the availability of audited financial
statements.
Under the Wholesale Program, the Company purchases loans that satisfy the
same credit guidelines that it employs to originate equipment loans on a direct
basis. The Company is not required to purchase all or any of such loans. The
Company believes that following its credit guidelines helps minimize the
Company's financial risk in connection with purchasing loans from Originators
and ensures that the loans conform to the requirements of the Company's
securitization programs. The Company selects Originators based on the type and
cost of the medical equipment they finance, the business and credit history of
Originators and the historical performance of the loans they have originated.
The Company requires Originators to use loan documentation supplied by or
acceptable to the Company and to furnish it the same general credit information
the Company requires when it originates loans on a direct basis.
The purchase price for wholesale loans is based on the present value of
remaining payments discounted at an agreed upon interest rate that is higher
than the borrowing costs the Company expects to incur when it securitizes or
otherwise permanently funds the purchased loans. Pending securitization or sale,
the Company borrows under its warehouse facilities, which bear interest at
variable rates, in order to purchase loans from Originators. Accordingly, the
Company may be exposed to interest rate risk on purchases under the Wholesale
Program to the extent interest rates increase between the time the purchases are
initially funded and the time they are permanently funded. In addition, the
Company services the loans it purchases under the Wholesale Program for the
remaining terms of the contracts. See "-- Loan Characteristics and
Underwriting."
The Company's medical receivable financing business consists primarily of
providing lines of credit under which the Company makes full recourse loans to
healthcare providers that are secured by medical receivables and other
collateral. The loan amounts range from $300,000 to $4.0 million and are based
upon the Company's evaluation of the net collectible amount of the healthcare
providers' eligible receivables. These medical receivables generally have
maturities ranging from 30 to 150 days and generally involve payors such as
insurance plans, self insured companies and governmental programs. Essentially
all of the Company's medical receivable lines of credit have terms from 12 to 36
months. The medical receivable financing business entails significant risks and
capital requirements. See "Risk Factors -- Medical Receivables" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company provides lines of credit to hospitals for the purchase of a
variety of equipment. Loans under these facilities are direct obligations of the
hospitals and are secured by the purchased equipment. In providing
35
<PAGE> 38
these lines of credit, the Company seeks to increase its financing for
healthcare providers whose audited financial statements normally reflect a
financial condition that is strong relative to the size of the line of credit.
Providing these lines of credit allows the Company to diversify the range of
medical equipment it finances and the types of loans it securitizes.
CREDIT EXPERIENCE.
The following table sets forth information with respect to the
delinquencies for the equipment loans originated by the Company (including loans
held by the Company in its loan portfolio and loans sold or otherwise
permanently funded) for the periods indicated.
DELINQUENCY EXPERIENCE(1)
<TABLE>
<CAPTION>
AS OF
AS OF JUNE 30, MARCH 31,
----------------------------------------------------------------------------------------------- ------------------
1990 1991 1992 1993 1994 1995
----------------- ----------------- ----------------- ------------------ ------------------ ------------------
% OF % OF % OF % OF % OF % OF
AMOUNT TOTAL(2) AMOUNT TOTAL(2) AMOUNT TOTAL(2) AMOUNT TOTAL(2) AMOUNT TOTAL(2) AMOUNT TOTAL(2)
------- -------- ------- -------- ------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT FOR
PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net financed
receivables(3)... $51,319 $70,459 $85,586 $117,510 $234,769 $370,587
Delinquencies(1)
31 - 60
days..... $ 183 0.4% $ 452 0.6% $ 1,099 1.3% $ 4,058 3.5% $ 3,996 1.7% $ 9,761 2.6%
61 - 90
days..... 0 0 16 0 2,616 3.1 2,095 1.8 200 .1 1,995 0.5
91 +
days..... 0 0 2,597 3.7 257 0.3 3,948 3.4 4,513 1.9 7,624 2.1
-- -- -- -- -- --
------- ------- ------- -------- -------- --------
Total
delinquencies... $ 183 0.4% $ 3,065 4.3% $ 3,972 4.7% $ 10,101 8.7% $ 8,709 3.7% $ 19,380 5.2%
======= ======= ======= ======= ======= ======= ======== ======= ======== ======= ======== =======
</TABLE>
- ---------------
(1) Under the relevant agreements, the Company's obligors generally are
considered in default if payment on a contract has not been received when
due. Information presented does not include obligations that are overdue by
less than 30 days.
(2) Delinquencies as a percentage of total net financed receivables.
Delinquencies reflects the entire outstanding balance on delinquent
contracts.
(3) Net financed receivables consists of gross financed receivables net of
unearned income. Gross financed receivables consist of receivables in
installments, receivables in installments-related parties, residual
valuation, notes collateralized by medical receivables and equipment on
operating leases.
The following table sets forth information with respect to losses for the
equipment loans originated by the Company (including loans held by the Company
in its loan portfolio and loans sold or otherwise permanently funded) for the
periods indicated.
LOSS EXPERIENCE
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------------- -----------
1990 1991 1992 1993 1994 1995
------- ------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT FOR PERCENTAGES)
Average net financed receivables(1)..... $41,418 $60,889 $78,023 $101,548 $176,140 $ 302,678
Net charge-offs......................... 154 68 37 39 248 257
Net charge-offs as a percentage of
average net financed receivables...... 0.37% 0.11% 0.05% 0.04% 0.14% 0.08%
</TABLE>
- ---------------
(1) Presentation is based on averages of period beginning and period ending
balances.
36
<PAGE> 39
The following table sets forth information with respect to reconciliation
of allowance for losses for the equipment loans originated by the Company
(including loans held by the Company in its loan portfolio and loans sold or
otherwise permanently funded) for the periods indicated. On a monthly basis, the
Company compiles information with respect to the current and anticipated
performance of its loan portfolio. The Company analyzes this information
regularly and makes an adjustment to the allowance at the end of each fiscal
quarter.
RECONCILIATION OF ALLOWANCE FOR LOSSES
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDING JUNE 30, MARCH 31,
---------------------------------------------------- -----------
1990 1991 1992 1993 1994 1995
------ ------ ------ ------- ------- -----------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Beginning allowance............ $201 $346 $697 $1,082 $1,210 $2,498
Provision for doubtful
accounts..................... 299 419 422 167 1,536 826
Net charge-offs................ (154) (68) (37) (39) (248) (257)
------ ------ ------ ------- ------- ------
Ending allowance............... $346 $697 $1,082 $1,210 $2,498 $3,067
====== ====== ====== ======= ======= =======
Net financed receivables....... 51,319 70,459 85,586 117,510 234,769 370,587
Ending allowance as a
percentage of net financed
receivables(1)............... 0.67% 0.99% 1.26% 1.03% 1.06% 0.83%
====== ====== ====== ======= ======= =======
</TABLE>
- ---------------
(1) Net financed receivables consists of gross financed receivables net of
unearned income. Gross financed receivables consists of receivables in
installments, receivables in installments -- related parties, residual
balance (after deducting unearned income), notes collateralized by medical
receivables and equipment on operating leases.
CAPITAL RESOURCES AND TRANSACTION FUNDING
The Company obtains initial funding for most of its equipment loans through
warehouse facilities. Funds borrowed through these facilities are repaid when
the Company permanently funds its equipment loans through securitization or
other limited recourse permanent funding programs. Typically, equipment loans
will be held in warehouse facilities for 30 to 180 days before they are
permanently funded. To protect its interest rate spreads during periods in which
it has borrowed funds under its warehouse facilities, the Company sometimes
employs a hedging strategy to mitigate the impact of changes in interest rates.
Warehouse Facilities. At March 31, 1995, the Company had an aggregate
maximum of $256.5 million potentially available under various warehouse
facilities of which it had borrowed an aggregate of $148.0 million. These
facilities are provided by a syndicate of banks that participate in a revolving
credit arrangement and by two investment banking firms that the Company uses for
securitization. The funds obtained through these warehouse facilities are
borrowed on a floating interest rate and full recourse basis. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Since the Company uses securitization as its primary source of permanent
funding, the Company requires a substantial warehousing capacity. To be cost
efficient, securitization must cover a relatively large and diverse portfolio of
equipment loans. One of the basic requirements of the credit rating agencies
that rate the notes issued in securitizations relates to borrower concentration
and requires that no single credit (borrower) may constitute a significant
portion of the pool of equipment loans being securitized (in the Company's case,
the limit is generally about 3%). Because the Company's equipment loans are
often in the $2.0 million range, it must generally accumulate in excess of $60
million in loans for each securitization. The credit rating agencies also have
other concentration guidelines such as equipment type and the geographic
location of the obligors. These strict requirements mean that not all of the
equipment loans held in the Company's warehouse facilities at any point in time
can be placed in one securitization.
37
<PAGE> 40
Permanent Funding Program. Since 1991, the most important source of
permanent funding for the Company has been securitization and other forms of
structured finance. Securitization is a process in which a pool of equipment
loans (in the Company's case, typically 100 to 150) are transferred to a
special-purpose financing vehicle which issues notes to investors. In the
Company's case, the vehicle usually is an indirect wholly owned special purpose
subsidiary, with the result that the subsidiary's assets and liabilities are
consolidated with the Company's for financial accounting purposes. Principal and
interest on the notes are paid from the cash flows produced by the loan pool,
and the notes are secured by a pledge of the assets in the loan pool as well as
by other collateral for other credit enhancement. In the Company's case,
equipment loans funded through securitization must be credit enhanced to receive
an investment grade credit rating. Credit enhancement can be provided in a
number of ways, including cash collateral, letters of credit, a subordinated
"strip" of transactions or an insurance policy. Typically, securitizations
sponsored by the Company are enhanced through a combination of some or all of
these methods.
The Company continually seeks to improve the efficiency of financing these
transactions by reducing upfront costs and minimizing the cash requirements of
the Company. The Company may consider alternative structures, including
senior/subordinated tranches, and alternative forms of credit enhancement, such
as letters of credit and surety bonds. The transaction expenses of each
securitization and other form of structured financing will depend on market
conditions, costs of securitization and the availability of credit enhancement
options to the Company. The Company expects to continue to use securitization
and other forms of structured financing, on both a public and private basis, as
its principal source of permanent funding for the foreseeable future.
The Company's financing strategy is to obtain permanent funding for most of
its equipment loans through securitization and to sell the remainder of its
equipment loans. Under current market conditions, the Company believes funding
equipment loans through securitization is more cost effective than selling
loans. However, the Company sells certain of its loans to reduce borrower
concentration and to manage the Company's leverage. When the Company sells
loans, it often is required to provide credit enhancement in a lesser amount
than required when it uses securitization.
The following table summarizes the Company's securitizations and other
structured finance transactions through March 31, 1995.
SECURITIZATIONS AND OTHER STRUCTURED FINANCE TRANSACTIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL
PRINCIPAL ACCOUNTING PRIVATE OR
FUNDING DATE DESIGNATION AMOUNT TREATMENT PUBLIC ISSUE
- ----------------------- ---------------------------------- --------- ---------------- ------------
<S> <C> <C> <C> <C>
May 1991............... Asset-Backed Notes, Series 1991-A $ 21,289 Debt Financing Private
April 1993............. Asset-Backed Notes, Series 1993-A 41,789 Debt Financing Private
December 1993.......... Asset-Backed Notes, Series 1993-A 73,950 Debt Financing Private
December 1993.......... Asset-Backed Notes, Series 1993-A 5,100 Debt Financing Private
June 1994.............. Asset-Backed Notes, Series 1994-A 72,675 Debt Financing Public
June 1994.............. Asset-Backed Notes, Series 1994-A 2,975 Debt Financing Public
November 1994.......... Commercial Paper 50,000 Whole Loan Sale Private
March 1995............. Asset-Backed Notes, Series 1995-A 85,500 Debt Financing Public
March 1995............. Asset-Backed Notes, Series 1995-A 4,500 Debt Financing Public
March 1995............. Asset-Backed Notes, Series 1995-1 57,000 Whole Loan Sale Private
--------
$414,778
========
</TABLE>
Hedging Strategy. The Company's equipment loans are all structured on a
fixed interest rate basis. When the Company originates equipment loans, it bases
its pricing in part on the "spread" it expects to achieve between the interest
rate it charges its equipment loan customers and the effective interest cost it
will pay when it permanently funds those loans. Increases in interest rates
between the time the loans are
38
<PAGE> 41
originated and the time they are permanently funded could narrow, eliminate or
result in a negative spread between the interest rate the Company realizes on
its equipment loans and the interest rate that the Company pays under its
warehouse facilities, To protect itself against that risk, the Company sometimes
uses a hedging strategy. When the Company hedges against this risk, it does so
either by assuming a short position in U.S. Treasury obligations of similar
maturities to the specific equipment loans being held for securitization, or by
entering into Treasury "lock" or "swap" transactions under which the Company
will either pay to or receive from a counterparty funds in amounts calculated by
reference to price movements of U.S. Treasury obligations of similar maturities
to the respective equipment loans. The Company believes this strategy can help
hedge against the interest rate risk associated with a portfolio of fixed rate
equipment loans prior to permanent funding. See "Risk Factors -- Interest Rate
Risk" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Warehouse
Facilities."
Medical Receivable Financing. Until recently, the Company has funded its
medical receivable financing business using its own working capital. During the
fiscal quarter ended December 31, 1994, the Revolving Credit Agreement was
amended to permit the Company to use up to $7.0 million of the availability
under the facility to fund loans to outpatient healthcare providers that are
secured by medical receivables. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Warehouse Facilities." The Company is seeking to develop new
sources of funding for its medical receivable financing business, including
securitization.
Continuing Need for Capital. The Company's ability to maintain and build
its financing businesses is dependent on its continued ability to obtain the
substantial amounts of warehouse and permanent debt financing it requires. In
addition, in order to sustain continued growth, the Company will require
significant amounts of additional capital. Because of its holding company
structure, the Company can seek to satisfy its requirements for additional
long-term debt and/or equity capital by issuing equity or debt securities at the
parent company level and then contributing the proceeds of those financings to
DVI Financial Services or DVI Business Credit (which are the obligors under the
Company's various warehouse facilities).
OTHER BUSINESS ACTIVITIES
General. In 1991, the Company initiated a strategy to participate in the
healthcare services business by making investments in emerging healthcare
service companies and developing or acquiring healthcare facilities that it
operated on a direct basis. Subsequent to the acquisition of MEF Corp. in
January 1993, the Company withdrew from this area to redirect capital,
management and other resources invested in the healthcare services business to
support the growth of the Company's financial services business. In March 1995,
the Company sold its equity interest in SMT Health Services, Inc., a provider of
mobile diagnostic imaging services.
Investments. In October 1991, the Company purchased an equity interest in
Healthcare Imaging Services, Inc.("HIS"), a company which provides diagnostic
imaging and lithotripsy services in the northeast U.S. HIS's common stock is
traded on the Nasdaq National Market under the symbol HISS. As of March 31,
1995, the Company owned approximately 17% of the common shares of HIS. The
800,000 common shares of HIS owned by the Company are carried on the Company's
consolidated balance sheet at book value, which approximates the market value of
HIS's common stock. As of March 31, 1995, the Company also owned approximately
9% of the common shares of Diagnostic Imaging Services, Inc. ("DIS"), a
California corporation that owns and operates medical imaging facilities in
Southern California. DIS's common stock is traded on the Nasdaq National Market
under the symbol DIAM. The Company acquired these shares as a result of the
September 1994 merger of DIS with and into IPS Health Care, Inc. ("IPS"). The
730,768 common shares of DIS owned by the Company are carried at a book value
which has been reduced to zero on the Company's consolidated balance sheet. The
Company initially made its investment in IPS, a diagnostic imaging service
company, in 1992. In addition, the Company holds two seats on the Board of
Directors of DIS. See "Risk Factors -- Investee Companies," "Certain
Transactions" and Note 6 to the Company's Consolidated Financial Statements
included elsewhere in this Prospectus.
39
<PAGE> 42
As of March 31, 1995 the remaining balance of the Company's equipment loans
with HIS was approximately $4.2 million, which consisted of approximately $2.7
million funded on a limited recourse basis and approximately $1.5 million funded
on a full recourse basis or through internally generated funds. As of March 31,
1995 the remaining balance of the Company's loans with DIS was approximately
$22.4 million, which consisted of approximately $7.2 million funded on a limited
recourse basis and approximately $15.2 million funded on a full recourse basis
or through internally generated funds. As of March 31, 1995, the Company owned
approximately 4.5 million shares of preferred stock in DIS which are carried on
the Company's consolidated balance sheet at its liquidation value which
approximates the market value of such stock. The majority stockholder of DIS has
the right to repurchase the preferred stock at $4.5 million plus accrued
dividends before September 2001.
As part of its strategy to operate exclusively as a financial services
company, the Company intends to divest its equity interests in HIS and DIS and
reduce its credit exposure to both companies. During the three-month period
ended June 30, 1994, the Company completed a series of steps which significantly
diminished its influence over HIS. Under arrangements made with HIS, the Company
agreed to allow existing equipment loans between the Company and HIS to be
refinanced through third parties and to terminate its first right of refusal for
the financing of any future equipment acquisition with HIS. In addition, upon
completion of such refinancing, the Company agreed to relinquish its seats on
the Board of Directors of HIS and to sell the common shares it owned in HIS.
During the refinancing period, the Company agreed to vote its common shares
consistent with HIS's management.
Discontinued Operations. In June 1993, the Company adopted a formal plan
to discontinue its healthcare services segment that consisted of seven
outpatient healthcare facilities which it operated or managed on a direct basis
and one facility which was in the developmental stage and not yet in operation.
At the end of fiscal 1993, the Company established a reserve for the divestiture
of the operations and recorded a loss on discontinued operations and disposal of
discontinued operations. As of June 30, 1994, the Company had disposed of or
entered into definitive agreements to sell six of these outpatient healthcare
facilities, had written off the investment and assets of the remaining two, and
recorded an additional $3.1 million after-tax charge in excess of the amounts of
estimated losses reported as of June 30, 1993 for the disposition of this
segment of the Company's business. At March 31, 1995, the Company's aggregate
maximum exposure, if all of the purchasers of these facilities were to become
insolvent and the financed equipment and other assets were to be unsaleable, was
approximately $6.9 million. See "Risk Factors -- Discontinued Operations,"
"-- Investee Companies" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
COMPETITION
The financing of sophisticated medical equipment is highly competitive. The
Company competes with equipment vendors which sell and finance sales of their
own equipment, finance subsidiaries of national and regional commercial banks
and equipment leasing and financing companies. Many of the Company's competitors
have significantly greater financial and marketing resources than the Company.
In addition, the competition in the new markets recently targeted by the
Company, specifically equipment financing in the hospital market, the patient
treatment device market and medical receivable financing market, may be greater
than the levels of competition historically experienced by the Company. There
can be no assurance that the Company will be able to compete successfully in any
or all of its targeted markets.
GOVERNMENT REGULATION
General. The Company's equipment financing business, while generally not
directly subject to government regulation, is indirectly affected by regulation
in several ways. The use, maintenance and operation of certain types of
diagnostic imaging and patient treatment equipment is regulated by federal,
state and/or local authorities. For example, a shared service provider or
healthcare provider using equipment financed by the Company may be required to
obtain and maintain approvals from governmental authorities in order to service
other healthcare providers with whom it has entered into service agreements.
Failure by the Company's customers to comply with these requirements could
adversely affect their ability to meet their obligations to
40
<PAGE> 43
the Company. The ability of the Company's equipment financing customers to
satisfy their obligations to the Company could also be adversely affected by
changes in regulations which limit or prohibit the referral of patients by
physicians who have invested in healthcare facilities financed by the Company.
Several of the regulatory factors impacting the Company's business are discussed
below.
Certificate of Need Regulation. Many states regulate the acquisition of
medical equipment or the provision of new services through Certificate of Need
or similar programs. The Company believes these requirements have had a limited
effect on its business, although there can be no assurance that future changes
in those laws will not adversely affect the Company. Additionally, repeal of
existing regulations of this type in jurisdictions where the Company's customers
have met the specific requirements could adversely affect the Company since such
customers could face increased competition. In addition, there is no assurance
that expansion of the Company's equipment financing business within the hospital
market will not be increasingly affected by regulations of this type.
Medicare-Medicaid Fraud and Abuse Statutes. The Department of Health and
Human Services ("HHS") has increased its enforcement efforts under the
Medicare-Medicaid Fraud and Abuse Statutes in cases where physicians own an
interest in a facility to which they refer their patients for treatment or
diagnosis. These statutes prohibit the offering, payment, solicitation or
receipt of remuneration directly or indirectly as an inducement to refer
patients for services reimbursable in whole or in part by the Medicare-Medicaid
programs. HHS has taken the position that distributions of profits from
corporations or partnerships to physician investors who refer patients to the
entity for a procedure which is reimbursable under Medicare (government-assisted
medical care for the aged) or Medicaid (government-assisted medical care for the
poor) may be a form of remuneration for referrals which is prohibited by the
statute. HHS has also published safe harbor guidelines which describe the
requirements which must be met to ensure that distributions of profits to a
physician who has invested in an equity security issued by a business to which
he or she refers patients does not violate the Medicare-Medicaid fraud and abuse
statute.
Further Regulation of Physician Self-Referral. Additional regulatory
attention has been directed toward physician-owned healthcare facilities and
other arrangements whereby physicians are compensated, directly or indirectly,
for referring patients to such healthcare facilities. In 1988, legislation
entitled the "Ethics in Patient Referrals Act" (H.R. 5198) was introduced which
would have prohibited Medicare payments for all patient services performed by an
entity in which a patient's referring physician had an investment interest. As
enacted, the law prohibited only Medicare payments for patient services
performed by a clinical laboratory. The Comprehensive Physician Ownership and
Referral Act (H.R. 345), which was enacted by Congress in 1993 as part of the
Deficit Reduction Package, is more comprehensive than H.R. 5198 and covers
additional medical services including medical imaging, radiation therapy,
physical rehabilitation and others. A variety of existing and pending state laws
currently limit the extent to which a physician may profit from referring
patients to a facility in which that physician has a proprietary or ownership
interest. Many states also have laws similar to the Medicare fraud and abuse
statute which are designed to prevent the receipt or payment of consideration in
connection with the referral of a patient. The Company believes that as a result
of these legislative initiatives, demand for new medical equipment by the
outpatient healthcare facilities (which in many cases are owned by referring
physicians who are directly affected by the legislation) has diminished.
EMPLOYEES
As of March 31, 1995, the Company had 95 full-time employees consisting of
10 executive officers, 21 sales and sales management personnel, and 65
administrative, accounting and technical personnel. None of the Company's
employees is covered by a collective bargaining agreement, and management
believes that its relations with its employees are good.
PROPERTIES
The Company owns no real property and leases all of its offices. The
Company's principal executive offices are located in Doylestown, Pennsylvania.
In total, the Company leases an aggregate of approximately 24,900 square feet of
office space in California, Georgia, New York, Ohio and Pennsylvania. None of
the
41
<PAGE> 44
Company's facility leases exceed a term of 60 months. The Company believes that
the present facilities are adequate to meet its foreseeable needs.
LEGAL PROCEEDINGS
The Company is not a party to any pending litigation or legal proceedings,
or to the best of its knowledge any threatened litigation or legal proceedings,
which, in the opinion of management, individually or in the aggregate, would
have a material adverse effect on its results of operations or financial
condition.
MANAGEMENT
The Directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David L. Higgins................. 49 Chairman, Chief Executive Officer and Director
Michael A. O'Hanlon.............. 48 President, Chief Operating Officer and
Director
James G. Costello................ 59 Senior Vice President and Chief Financial
Officer
Anthony J. Turek................. 51 Senior Vice President and Chief Credit Officer
John P. Boyle.................... 45 Vice President and Chief Accounting Officer
Cynthia J. Cohn.................. 36 Vice President
Dominic A. Guglielmi............. 44 Vice President
Richard E. Miller................ 43 Vice President
Tony A. Pham..................... 42 Vice President
Alan J. Zeppenfeld............... 48 Vice President
Gerald L. Cohn................... 66 Director
William R. Ingles................ 73 Director
Sidney Luckman................... 78 Director
John E. McHugh................... 66 Director
</TABLE>
Mr. Higgins is the Company's Chairman and Chief Executive Officer. Mr.
Higgins founded the Company and served as the Company's President until
September 1994. Mr. Higgins was the President and Chief Executive Officer of
Delta Health, Inc. ("Delta Health"), the predecessor company to DVI that was
acquired by the Company in 1986. Prior to founding the Company, Mr. Higgins
managed the North American sales and service operations of Elscint, Inc. for two
years ("Elscint"), a full-line manufacturer of diagnostic imaging equipment.
Previously, he held the same position for one year with Xonics Medical Systems,
Inc. ("Xonics"), also a full-line manufacturer of medical imaging equipment.
Xonics was acquired by Elscint in 1983. For five years prior, Mr. Higgins served
as President and Chief Executive Officer of Radiographic Development Corporation
("RDC"), which was acquired by Xonics in 1982. RDC was a manufacturer of
products to upgrade diagnostic imaging equipment. Mr. Higgins also serves on the
Board of Directors of HIS.
Mr. O'Hanlon is the Company's President and Chief Operating Officer and has
served as such since September 1994. Mr. O'Hanlon became a Director of the
Company in November 1993. From the time Mr. O'Hanlon joined the Company in March
1993 until September 1994, he served as Executive Vice President of the Company.
Before joining the Company, for nine years he served as President and Chief
Executive Officer of Concord Leasing, Inc. ("Concord Leasing"), a major source
of medical, aircraft, ship and industrial equipment financing. Previously, Mr.
O'Hanlon was a senior executive with Pitney Bowes Credit Corporation. Mr.
O'Hanlon is a director of DIS.
Mr. Costello is a Senior Vice President and the Chief Financial Officer of
the Company. Mr. Costello has served as a Senior Vice President since he joined
the Company in October 1993 and as Chief Financial Officer since August 1994.
Mr. Costello also serves on the Executive Committee of the Company. Before
joining the Company, for six years Mr. Costello was Executive Vice President of
Concord Leasing responsible for all capital markets/funding activities,
including term loans, commercial paper and the sale of securitized assets.
42
<PAGE> 45
During his tenure at Concord Leasing, he also served as President of Concord
Commercial Corporation. Previously, Mr. Costello was President of Unisys Finance
Corporation, and Vice President and Chief Financial Officer of Pitney Bowes
Credit Corporation. Since April, 1995, Mr. Costello has been unable to
participate on a full time basis in the day to day affairs of the Company due to
medical reasons, and his ability to do so in the future is uncertain.
Mr. Turek is a Senior Vice President and the Chief Credit Officer of the
Company. Mr. Turek has served in that capacity since joining the Company in
March 1988. Mr. Turek also serves on the Executive Committee of the Company.
Before joining the Company, Mr. Turek was Vice President, Commercial Banking at
Continental Illinois National Bank ("CINB") from 1968 to 1988. For the last five
years of his tenure at CINB, Mr. Turek managed the equipment leasing and
transportation divisions of the bank. His prior responsibilities included
management positions in the Special Industries, Metropolitan and National
Divisions of CINB. Prior to his employment with CINB, Mr. Turek was a Trust
Officer with Bank of America.
Mr. Boyle is a Vice President and the Chief Accounting Officer of the
Company. Mr. Boyle joined the Company in January 1995. His primary
responsibility is managing the Company's accounting, tax and reporting
functions. Before joining the Company, Mr. Boyle spent 17 years of his
professional career in senior finance and accounting positions with financial
services organizations. He spent the initial five years of his career with Peat
Marwick Mitchell & Co., in Philadelphia. Mr. Boyle is a General Securities
Principal and a CPA with almost 20 years of experience in the financial services
industry. Beyond his accounting background, he has extensive experience in
credit and corporate finance matters.
Ms. Cohn has been a Vice President of the Company since October 1988 and
Executive Vice President of DVI Business Credit since January 1994. Ms. Cohn has
been employed by the Company in a sales and sales management capacity since July
1986. She is responsible for the sales and marketing functions of DVI Business
Credit, the Company's medical receivables financing subsidiary. She served as an
Assistant Vice President from July 1987 to October 1988. Prior to joining the
Company, Ms. Cohn served as Research Coordinator for Cantor, Fitzgerald Co.,
Inc., a stock brokerage firm, from February 1983 to July 1986, where she was
responsible for development and coordination of the firm's research product for
both institutional and retail clientele. Ms. Cohn is the daughter of Gerald L.
Cohn.
Mr. Guglielmi is a Vice President of the Company. Mr. Guglielmi joined the
Company when it acquired MEF Corp. in January 1993. His primary responsibility
is to maximize the value of the Company's existing relationships with equipment
manufacturers and establish relationships with additional manufacturers of
medical equipment and devices. Prior to joining the Company, Mr. Guglielmi
served as the President of the Healthcare Division of U.S. Concord, Inc. for
five years where he was responsible for sales, marketing, documentation, credit
and collections, financial budgeting and all aspects of strategic planning.
Previously, Mr. Guglielmi held management positions with General Electric Credit
Corporation and Pitney Bowes Credit Corporation.
Mr. Miller is a Vice President of the Company who joined the Company in
April 1994. His primary responsibility is to manage the Company's sales
organization of financing specialists that interface directly with the Company's
customers. Before joining the Company, he served for six years as Vice President
Sales for Toshiba America Medical Systems, a major manufacturer of medical
imaging equipment. Previously, Mr. Miller was National Sales Manager for Thomsen
CGR, a French manufacturer of medical imaging equipment, which was acquired by
General Electric Medical Systems. He also previously served in sales management
with General Electric Medical Systems.
Mr. Pham is Vice President/Structured Finances and Financial Planning for
DVI Financial Services. Prior to joining DVI Financial Services in May 1994, Mr.
Pham was Director of Securitization for Advanta Leasing Corporation from August
1993. From April 1984 to July 1993, Mr. Pham was Vice President, Portfolio
Management of Concord Leasing.
Mr. Zeppenfeld is a Vice President of the Company. Mr. Zeppenfeld joined
the Company in June 1995. His primary responsibility is managing the Company's
administrative operations functions. Before joining the Company, Mr. Zeppenfeld
spent 21 years with Xerox Corporation in administrative management positions at
43
<PAGE> 46
the district, regional and headquarters levels. During his last three years at
Xerox, Mr. Zeppenfeld managed administrative operations and product development
functions for Xerox Administrative Services. Previously, Mr. Zeppenfeld held
administrative positions with General Electric and GTE Data Services.
Mr. Cohn is a Director of the Company and has served in that capacity since
1986. Mr. Cohn is a private investor. Mr. Cohn presently serves as a Director of
HIS, DIS, SMT Health Services Inc., I.V.I. Publishing, Inc. and International
Metals Acquisition Corp.. In addition to his responsibilities as a Director, Mr.
Cohn also acts as a consultant to the Company and serves on the Company's Credit
Committee. Mr. Cohn is the father of Cynthia Cohn.
Mr. Ingles is a Director of the Company and has served in that capacity
since 1986. Mr. Ingles is retired. Prior to 1986, Mr. Ingles performed
consulting services for American Medical International, an investor-owned
hospital group, Med Ventures, Inc., a medical technical evaluation concern, and
Radiation Safety Services, a radiation system monitoring and compliance entity.
Mr. Luckman is a Director of the Company and has served in that capacity
since 1987. Mr. Luckman is currently a national sales manager of Cellucraft
Products Inc., a company engaged in the manufacturing and marketing of flexible
packaging, and with which he has been associated for over 40 years. Mr. Luckman
is a member of the National Football League Hall of Fame.
Mr. McHugh is a Director of the Company and has served in that capacity
since 1990. Mr. McHugh was formerly the President of, and now serves in a
marketing and public relations capacity with, McHugh Construction and
Developers, a firm he has been associated with since 1954.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors of the Company (the "Board of Directors") has a
standing executive committee, audit committee and a compensation committee. The
Board of Directors has no nominating committee. The executive committee consists
of Messrs. Higgins, Cohn and Luckman and reviews certain policies and operations
of the Company. The executive committee met frequently during fiscal 1994.
The audit committee consists of Messrs. Cohn, Luckman and McHugh and makes
recommendations concerning the engagement of the Company's independent auditors,
consults with the independent auditors concerning the audit plan and thereafter
concerning the auditor's report and management letter. During the fiscal 1994,
the audit committee met one time.
The compensation committee consists of the entire Board of Directors and
did not meet at any times other than in the normal course of the Board of
Directors' meetings.
During fiscal 1994, the Company paid $500 to non-employee directors for
each meeting attended in person and $100 for each meeting attended by telephone.
Directors who are employed by the Company do not receive a fee for serving as
Directors.
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
The compensation committee consists of the entire Board of Directors. The
Board of Directors, sitting as the compensation committee, meets in the normal
course of the Board of Directors' meetings and reviews the annual compensation
rates of the officers and key employees of the Company, administers the
Company's compensation plans and makes recommendations in connection with such
plans. No Directors other than those serving currently on the Board of Directors
served as members of the compensation committee during fiscal 1994. No member of
that committee, other than Messrs. Higgins, Cohn, Luckman and O'Hanlon, was an
officer or employee of the Company or any of its subsidiaries during fiscal
1994. None of the executive officers of the Company has served on the board of
directors or on the compensation committee of any other entity, any of whose
officers served either on the Board of Directors or on the compensation
committee of the Company.
44
<PAGE> 47
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities paid to the Chief
Executive Officer of the Company and to the Company's four most highly
compensated executive officers other than the Chief Executive Officer who were,
at June 30, 1994, executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------- ----------------------
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS STOCK OPTIONS (SHARES)
--------------------------- ---- -------- ------- ----------------------
<S> <C> <C> <C> <C>
David L. Higgins........................... 1994 $176,923 -0- 50,000
Chairman of the Board and 1993 $216,779 -0- -0-
Chief Executive Officer 1992 $185,000 $65,000 50,000
Michael A. O'Hanlon........................ 1994 $175,000 -0- 75,000
President 1993 $ 77,404(2) -0- 15,000
Cynthia J. Cohn............................ 1994 $109,058 -0- 10,000
Vice President 1993 $148,077 -0- 10,000
1992 $182,683 $47,500 10,000
Anthony J. Turek........................... 1994 $124,256 -0- 15,000
Senior Vice President 1993 $113,279 -0- 10,000
1992 $115,500 $47,500 -0-
Dominic Guglielmi.......................... 1994 $184,545(3) -0- 10,000
Vice President 1993 $ 52,885(4) -0- 10,000
</TABLE>
- ---------------
(1) Indicates salary paid through June 24, 1994, the last regular payment date
prior to the end of fiscal 1994.
(2) Includes compensation from February 16, 1993, the date which Mr. O'Hanlon
began employment with the Company.
(3) Includes a base salary of $110,000 and commissions earned for financing
transactions of $74,545 for fiscal 1994.
(4) Includes compensation from January 4, 1993, the date which Mr. Guglielmi
began employment with the Company. Mr. Guglielmi's salary for fiscal 1993,
if stated on an annualized basis, would have been $110,000. Mr. Guglielmi
also received 10,000 stock options upon joining the Company.
45
<PAGE> 48
OPTION GRANTS IN FISCAL 1994
The following table sets forth information regarding the grant of stock
options in fiscal 1994 to the executive officers listed in the Summary
Compensation Table.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
NUMBER OF PERCENTAGE OF RATES OF STOCK
SHARES ISSUABLE TOTAL OPTIONS PRICE APPRECIATION
ON EXERCISE GRANTED TO EXERCISE OR FOR OPTION TERM(2)
OF OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME GRANTED FISCAL 1994(1) (PER SHARE) DATE 5% 10%
---- --------------- -------------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
David L. Higgins............ 50,000 12.6% $7.625 9/20/03 $239,766 $607,614
Michael A. O'Hanlon......... 25,000 6.3 7.625 9/20/03 119,883 303,807
50,000 12.6 8.875 5/23/04 279,072 707,223
Cynthia J. Cohn............. 10,000 2.5 7.625 9/20/03 47,953 121,523
Anthony J. Turek............ 15,000 3.8 7.625 9/20/03 71,930 182,284
Dominic A. Guglielmi........ 10,000 2.5 7.625 9/20/03 47,953 121,523
</TABLE>
- ---------------
(1) These options were granted pursuant to the Plan. The options vest one-third
per year on the third, fourth and fifth anniversaries, respectively, after
the date of grant. The options have a term of 10 years. Options to acquire
138,600 shares of Common Stock (with various vesting periods) also were
granted to certain other key employees of the Company in fiscal 1994.
(2) As suggested by the rules of the Commission, the Company used the assumed
rates of the Company's stock price appreciation in valuing executive stock
options. The actual value, if any, an executive may realize will depend on
the excess of the stock price over the exercise price on the date the option
is exercised, so that there is no assurance that the value realized by an
executive will be at or near the values estimated above. The Company does
not advocate or necessarily agree that the stated assumed rates of
appreciation properly determine the value of the options.
AGGREGATE OPTION EXERCISES IN
FISCAL 1994 AND FISCAL YEAR END OPTION VALUES
The following table sets forth information with respect to previously
granted options which were exercised or which remain outstanding for the
executive officers listed in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS HELD IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END AT FISCAL YEAR END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David L. Higgins................... -0- N/A 65,000 80,000 $ 138,125 $93,750
Michael A. O'Hanlon................ -0- N/A 3,000 87,000 12,000 46,875
Cynthia Cohn....................... -0- N/A 35,000 15,000 146,250 18,750
Anthony J. Turek................... -0- N/A 42,000 23,000 223,620 55,125
Dominic Guglielmi.................. -0- N/A 2,000 18,000 8,000 50,750
</TABLE>
- ---------------
(1) Represents the difference between the closing price of the Company's Common
Stock on June 30, 1994 and the exercise price of the options.
EMPLOYMENT AGREEMENTS AND INCENTIVE COMPENSATION
The Company has not entered into any employment agreements with any of its
executive officers or employees and, other than the Plan, has no long-term
incentive compensation plans. The Company, however, does provide short-term
incentive compensation to certain executive officers through the award of
quarterly and/or annual bonuses based upon certain agreed upon performance
criteria.
46
<PAGE> 49
The Board of Directors and stockholders of the Company adopted the Plan in
1986. The Plan has been amended to increase the number of shares of Common Stock
for which options, could be issued. Currently, the total number of shares for
which options could be issued is 1,250,000. Under the Plan, the number of shares
which may be issued on exercise of the options is subject to adjustments by
reason of stock splits or other similar capital events.
The Plan provides for the granting of nonstatutory stock options, as well
as incentive stock options to certain key employees and provides that the option
exercise price per share for options granted under the Plan must be at least
100% of the fair market value of the Common Stock on the date such options were
granted. Options are not transferrable under the Plan other than by will or by
laws of descent and distribution, and during the participants lifetime are
exercisable only by the participant.
EMPLOYEE SAVINGS PLAN
The Company maintains and administers an Employee Savings Plan (the
"Employee Savings Plan") pursuant to Internal Revenue Code Section 401(k). The
Employee Savings Plan provides for discretionary contributions as determined by
the Board of Directors. The Company contributed $9,245, $21,493 and $48,673 to
the Employee Savings Plan during the fiscal years ended June 30, 1992, 1993 and
1994, respectively.
CERTAIN TRANSACTIONS
DIS. Subsequent to the Company's initial investment in IPS in November
1992, the Company made additional investments in common and preferred stock of
IPS, financed various leasing transactions for magnetic resonance imaging and
other equipment, and entered into several restructuring agreements with IPS. In
those restructuring agreements, IPS issued several series of convertible
preferred stock to the Company in exchange for cash, equipment and an exchange
of debt obligations of IPS previously held by the Company. Through these
restructurings, the Company also obtained the right to appoint representatives
to IPS's Board of Directors.
In 1994, the businesses of IPS and DIS were combined through a merger (the
"IPS Merger"). In the IPS Merger, each outstanding share of common stock of DIS
was converted into approximately 4.69 shares of common stock of IPS ("IPS Common
Stock"). In addition, each stockholder of DIS received on a pro rata basis
(based on each such stockholder's percentage ownership of DIS common stock
immediately prior to the IPS Merger), options and warrants to purchase
additional shares of IPS common stock that are substantially identical in number
and terms to the options and warrants issued by IPS and outstanding immediately
prior to the IPS Merger. As a result of the IPS Merger, Norman Hames, who
formerly was the beneficial owner of approximately 95% of the outstanding
capital stock of DIS, and the other four stockholders of DIS acquired 50% of the
IPS Common Stock.
In September 1994, following the completion of the IPS Merger, the Company
exchanged all the preferred stock of IPS owned by the Company for two new series
of convertible redeemable preferred stock (Series F and Series G) of IPS. The
agreement also provided for the exchange of certain assets and liabilities of
IPS valued at approximately $164,000, the return to IPS of IPS debt obligations
valued at approximately $4.0 million, assumption by the Company of certain
assets and liabilities of IPS, the return of certain equipment previously used
by the Company to IPS. The Company did not record a gain or loss on any of the
restructuring transactions.
Subsequent to the IPS Merger and the exchange described above, IPS changed
its name to DIS.
The approximately 4.5 million shares of DIS convertible preferred stock now
held by the Company have an aggregate liquidation preference of approximately
$4.5 million, are redeemable at the option of DIS for approximately $4.5 million
plus accrued dividends, and are convertible into common stock of DIS at $2.42
per share for the Series F convertible preferred stock and $1.00 per share for
the Series G convertible preferred stock. In addition, the majority shareholder
of DIS has the right to repurchase the DIS convertible preferred stock for
approximately $4.5 million through September 2001. The Company also owns
approximately 9% of
47
<PAGE> 50
DIS's issued and outstanding common stock. Following the completion of the IPS
Merger, the Company's representatives (Mr. Higgins and Mr. Turek) resigned from
the Board of Directors of IPS.
MEF Corp. In January 1993, the Company acquired all of the outstanding
shares of common stock of MEF Corp. from MEFC Partners L.P. ("MEFC Partners").
Under the terms of the original purchase agreement, the purchase price was
payable before October 15, 1998 in cash or Common Stock of the Company, as
elected by the Company. As initially structured, the purchase price was to be
determined as a percentage of the after-tax earnings of the MEF Corp. division
of the Company during the sixty-six month period following the date of
acquisition. During the year ended June 30, 1994, management entered into
negotiations with the former shareholders of MEF Corp. to revise certain terms
of the purchase agreement. The Company and the former shareholders of MEF Corp.
agreed in June 1995 to set the purchase price of MEF Corp. at 400,000 shares of
Common Stock (the "MEFC Shares"). Michael A. O'Hanlon (President, Chief
Operating Officer and a Director of the Company), Dominic A. Guglielmi (Vice
President of the Company) and Mark H. ldzerda (an employee of DVI Financial
Services) are general partners of MEFC Partners and are entitled to receive
160,000, 100,000 and 40,000 MEFC Shares, respectively. The issuance of the MEFC
Shares is subject to stockholder approval and an increase in the authorized
capital stock of the Company. In addition, the MEFC Partners have been granted
certain registration rights with respect to the MEFC Shares. See "Description of
Capital Stock -- Outstanding Registration Rights."
48
<PAGE> 51
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of shares of Common Stock as of March 31, 1995 by each stockholder known to the
Company to be the beneficial owner of more than 5% of the outstanding shares of
Common Stock, each director and all current officers and directors as a group.
Persons named in the following table have sole voting and investment powers with
respect to all shares shown as beneficially owned by them, subject to community
property laws where applicable and other information contained in the footnotes
to the table. The information in the table below does not give effect to the
conversion of Convertible Subordinated Notes held by any of the individuals or
entities listed in such table. Information with respect to beneficial ownership
is based upon the Common Stock records and data supplied to the Company by its
stockholders.
<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING SHARES
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP COMMON STOCK
- ------------------------------------------------------- ----------------------- ------------------
<S> <C> <C>
David L. Higgins**..................................... 353,780(1)(2) 5.2%
Gerald L. Cohn**....................................... 336,666(3)(4) 5.0%
William R. Ingles**.................................... 24,999(4) *
Sidney Luckman**....................................... 24,666(4)(5) *
John E. McHugh**....................................... 50,399(4) *
Michael A. O'Hanlon***................................. 29,323(6)(7)(8) *
Canadian Imperial Bank of Commerce Trust Company
(Bahamas) Limited****................................ 1,483,739(9) 22.1%
Granite Capital, L.P.*****............................. 420,100 6.3%
All directors and officers as a group (12 persons)..... 1,918,014(10)(11) 27.3%(10)
</TABLE>
- ---------------
* Less than 1%.
** One Park Plaza, Suite 800, Irvine, California 92714.
*** 500 Hyde Park, Doylestown, Pennsylvania 18901.
**** P.O. Box N-3933, Nassau, Bahamas.
***** 375 Park Avenue, 18th Floor, New York, New York 10152.
(1) Includes 95,000 shares of Common Stock which may be purchased on the
exercise of stock options granted under the Plan.
(2) Includes 2,380 shares of Common Stock held through the Employee Savings
Plan.
(3) Does not include (a) 46,500 shares of Common Stock held of record by
Cynthia J. Cohn, who is a Vice President of the Company and one of Mr.
Cohn's daughters, in her capacity as trustee of the Cynthia J. Cohn
Revocable Trust, (b) 15,000 shares of Common Stock held of record by a
trust established for the benefit of Shelly Cohn Schmidt, another of Mr.
Cohn's daughters, and (c) 9,750 shares of Common Stock held of record by a
trust established for the benefit of Clayton Schmidt, Mr. Cohn's
grandchild, as to all of which Mr. Cohn disclaims any beneficial interest.
(4) Includes 16,666 shares of Common Stock which may be purchased on the
exercise of stock options granted under the Plan.
(5) Does not include 80,000 shares of Common Stock held of record by various
trusts established for the benefit of certain members of Mr. Luckman's
family, of which either Robert Luckman (Mr. Luckman's son) or another
individual is the trustee, as to which Mr. Luckman disclaims any
beneficial ownership.
(6) Includes 24,750 shares of Common Stock which may be purchased on the
exercise of stock options granted under the Plan.
(7) Includes 1,573 shares of Common Stock held through the Employee Savings
Plan.
49
<PAGE> 52
(8) Does not include 160,000 shares of Common Stock which Mr. O'Hanlon, a
former shareholder of MEF Corp., may become entitled to receive in
connection with the Company's acquisition of MEF Corp. See "Certain
Transactions -- MEF Corp." and "Description of Capital Stock -- MEF Corp."
(9) Held by Canadian Imperial Bank of Commerce Trust Company (Bahamas) Limited
("CIBC"), as trustee of trusts for the benefit of various descendants of
A.N. Pritzker, deceased. Does not include 56,339 shares of Common Stock
owned by Diversified Capital, L.P., a partnership comprised principally of
trusts for the benefit of various members of the Pritzker Family. CIBC is
not the trustee of such trusts. As used herein, "Pritzker Family" refers
to the lineal descendants of Nicholas J. Pritzker, deceased.
(10) Includes 233,750 shares of Common Stock which may be purchased on the
exercise of stock options granted under the Plan, in addition to those
shares of Common Stock that may be purchased on the exercise of options
set forth in footnotes (1) and (3).
(11) Does not include 100,000 shares of Common Stock which Dominic A.
Guglielmi, a vice president of the Company and a former shareholder of MEF
Corp., may become entitled to receive in connection with the Company's
acquisition of MEF Corp. See "Certain Transactions -- MEF Corp." and
"Description of Capital Stock -- MEF Corp."
50
<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 13,000,000 shares
of Common Stock and 100,000 shares of preferred stock, $10.00 per share par
value ("Preferred Stock"). As of March 31, 1995, there were 6,711,180 shares of
Common Stock issued and outstanding. No shares of Preferred Stock are
outstanding.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share on
matters to be voted upon by the stockholders of the Company. Holders of shares
of Common Stock do not have cumulative voting rights; therefore, the holders of
more than 50% of the Common Stock will have the ability to elect all of the
Company's directors. Holders of shares of Common Stock will be entitled to
receive dividends when, as and if declared by the Board of Directors and to
share ratably in the assets of the Company legally available for distribution to
its stockholders in the event of the liquidation, dissolution or winding up of
the Company, in each case subject to the rights of the holders of any Preferred
Stock issued by the Company. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights.
PREFERRED STOCK
The Company's Board of Directors has the authority, without further action
by the stockholders of the Company, to issue shares of Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions of
those shares. The issuance of Preferred Stock could adversely affect the voting
power and economic rights of holders of Common Stock and could have the effect
of delaying, deferring or preventing a change in control of the Company.
WARRANTS
In February 1991, the Company issued and sold 575,000 warrants (the "Public
Warrants") in a public offering (the "Public Offering"). The Public Warrants
currently are exercisable and each Public Warrant entitles the registered holder
to purchase one share of Common Stock at a price of $12.00 per share until
February 7, 1996, subject to adjustment. The Public Warrants are subject to
redemption by the Company at any time after issuance on not less than 30 days'
written notice, at a price of $.05 per Public Warrant, if the last sale price of
the Common Stock for any period of 20 consecutive trading days ending within 15
days of the date on which the notice of redemption is given has exceeded $13.00
per share. The Public Warrants are traded on the Nasdaq National Market.
UNITS
In connection with the Public Offering, the Company granted Stratton
Oakmont, Inc. (the "1991 Underwriter") a unit purchase option ("the Unit
Purchase Option"). In May 1995, the 1991 Underwriter assigned the Unit Purchase
Option to three of its executive officers. Accordingly, each of the three
officers has the right to purchase up to 12,500, 27,500 and 10,000 units,
respectively at a price per Unit of $12.60 until February 7, 1996, subject to
adjustment. Each Unit consists of one share of Common Stock (a "Unit Share") and
one warrant (a "Unit Warrant") to purchase one share of Common Stock at a price
of $12.00 per share. The Unit Warrants are separately transferable from the Unit
Shares immediately upon issuance. The 1991 Underwriter acted as underwriter in
connection with the Public Offering. The Unit Purchase Option may not be sold,
transferred, assigned or hypothecated except to officers of the 1991 Underwriter
or a member of the selling group for the Public Offering or any officer or
partner of any member of such selling group. The Unit Shares and shares of
Common Stock issuable upon exercise of the Unit Warrants are covered by a
currently effective registration statement and therefore will be freely
tradeable upon issuance.
The prices payable for the units upon exercise of the Unit Purchase Option
and the number of shares of Common Stock underlying the Unit Warrants are
subject to adjustment to prevent dilution.
51
<PAGE> 54
CONVERTIBLE SUBORDINATED NOTES
In June 1994, the Company issued and sold $15.0 million aggregate principal
amount of Convertible Subordinated Notes in a private placement to certain
accredited investors. Of that amount, approximately $9.6 million was sold to
officers, directors, 10% or more stockholders and investors related to such
officers, directors and stockholders. The Convertible Subordinated Notes are
convertible at a conversion price of $10.60 per share, subject to adjustment in
certain circumstances. As of March 31, 1995, $500,000 aggregate principal amount
of the Convertible Subordinated Notes had been converted into 47,169 shares of
Common Stock (the "March 1995 Conversion Shares"). The remaining outstanding
Convertible Subordinated Notes are convertible, at the option of the holders,
into up to 1,367,924 shares of Common Stock (collectively with the March 1995
Conversion Shares, the "Conversion Shares").
OTHER OUTSTANDING OPTIONS AND WARRANTS
At March 31, 1995, in addition to the Public Warrants and the Unit Purchase
Option there were options and warrants outstanding under which an aggregate of
990,994 shares of Common Stock were issuable. Of this amount, 755,994 shares are
issuable on exercise of various options or warrants issued to employees and
directors of the Company pursuant to compensatory arrangements, 200,000 shares
are issuable to W.I.G. Securities Limited Partnership ("W.I.G. Securities")
pursuant to a warrant issued as compensation for prior investment banking
services, and 35,000 shares are issuable to a holder of warrants (the "35,000
Share Warrant").
OUTSTANDING REGISTRATION RIGHTS
The Company has entered into agreements under which it has granted to
certain of its security holders rights under specified circumstances to require
the registration under the 1933 Act of shares of Common Stock held by them.
Under the first agreement, the holder of any portion of the Unit Purchase Option
has a "demand" registration right to require the Company to file a registration
statement on one occasion at any time until February 7, 1996, and also has a
"piggyback" registration right to require inclusion of the holder's shares in
any registration statement filed by the Company. Under the second agreement, the
holder of the 35,000 Share Warrant has a one-time "piggyback" registration
right. The Company has the right to reject the piggyback registration request if
the managing underwriter of the offering which is the subject of the request so
requires; however, if the Company does so, it is required to grant the holder a
one-time "demand" registration right to require filing of a registration
statement solely for the holder's shares. Under the third agreement, W.I.G.
Securities, as a holder of a warrant to purchase an aggregate of 200,000 shares
of Common Stock, has a "demand" registration right to require the Company to
file a registration statement on one occasion at any time until April 27, 1997,
and also has a "piggyback" registration right to require inclusion of the shares
issuable pursuant to the warrant in any registration statement filed by the
Company after April 27, 1995 but before May 14, 1999. Under the fourth
agreement, holders of the Convertible Subordinated Notes have three "piggyback"
registration rights, exercisable beginning after June 21, 1995, and two "demand"
registration rights, which currently are exercisable, in each case with respect
to the Conversion Shares. Under a fifth agreement, the Company is required to
register the MEFC Shares promptly after the issuance of the MEFC Shares. The
issuance of the MEFC Shares is subject to stockholder approval and an increase
in the authorized capital stock of the Company. See "-- MEF Corp." The shares of
Common Stock issuable upon exercise of the Unit Purchase Option, the Conversion
Shares and the 35,000 Share Warrant are covered by currently effective
registration statements under the 1933 Act and therefore will be freely
tradeable upon issuance.
EMPLOYEE MATTERS
As part of an employee incentive plan, the Company agreed in principle on
June 8, 1995 to issue, subject to stockholder approval and an increase in the
authorized capital stock of the Company, an aggregate of 200,000 shares of
Common Stock of the Company (the "Incentive Shares") to certain of its employees
if the last sale price (as reported in the consolidated reporting system of the
NYSE) of the Common Stock is $16.00 per share or higher for 30 consecutive
calendar days at any time before December 31, 1998, provided that any
52
<PAGE> 55
such employee must be employed by the Company during the above-described 30-day
period in order to receive any Incentive Shares under this agreement. The
Company has agreed that, if there is an event or series of events that
constitutes a sale of the Company at any time prior to December 31, 1998 and the
consideration to be received for each share of Common Stock of the Company in
such sale of the Company is $13.00 or higher, the Company will issue the
Incentive Shares to those employees.
MEF CORP.
In January 1993, the Company acquired the outstanding shares of MEF Corp.
Under the terms of the original purchase agreement, the purchase price was
payable before October 15, 1998 in cash or Common Stock of the Company, as
elected by the Company. As initially structured, the purchase price was to be
determined as a percentage of the aftertax earnings of the MEF Corp. division of
the Company during the sixty-six month period following the date of acquisition.
During the year ended June 30, 1994, management entered into negotiations with
the former shareholders of MEF Corp. to revise certain terms of the purchase
agreement. The Company and the former shareholders of MEF Corp. agreed in June
1995 to set the purchase price of MEF Corp. at 400,000 shares of Common Stock.
The issuance of these shares is subject to stockholder approval and an increase
in the authorized capital stock of the Company.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
DELAWARE ANTI-TAKEOVER LAW
The Company is governed by the provisions of Section 203 of the General
Corporation Law of the State of Delaware, an anti-takeover law. In general, the
law prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in the prescribed
manner. "Business combination" includes merger, asset sales and other
transactions resulting in a financial benefit to the interested stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock.
53
<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
approximately 9,211,180 shares of Common Stock (9,586,180 if the Underwriters'
over-allotment option is exercised in full). Of these shares of Common Stock,
8,122,880 shares, which include the 2,500,000 shares offered hereby, will be
freely tradeable without restriction or further registration under the 1933 Act.
All of the remaining 1,088,300 shares of Common Stock outstanding upon
completion of the Offering are Restricted Securities. All of the Restricted
Securities and any other shares of Common Stock acquired by an affiliate of the
Company are eligible for resale pursuant to the provision of Rule 144 or at any
time pursuant to an effective registration statement covering such shares of
Common Stock. Of these Restricted Securities, 835,013 shares of Common Stock are
subject to lock-up provisions as described below. See "Description of Capital
Stock"
The Company also has reserved or made available for issuance 3,347,685
shares of Common Stock for issuance pursuant to various options and warrants to
purchase Common Stock and the Plan, and the conversion of the Convertible
Subordinated Notes. Of these reserved shares, 1,009,761 shares, issuable
pursuant to the Plan, 1,367,924 shares, issuable upon conversion of the
Convertible Subordinated Notes, 35,000 shares, issuable pursuant to the exercise
of certain warrants to purchase Common Stock, and 675,000 shares issuable
pursuant to the exercise of warrants to purchase Common Stock and a unit option
issued in a public offering in February 1991, are covered by currently effective
registration statements under the 1933 Act and are therefore freely tradable
upon issuance. The remaining 260,000 reserved shares are Restricted Securities
that are eligible for resale upon exercise pursuant to Rule 144 or at any time
pursuant to an effective registration statement covering such shares of Common
Stock. The Company has also reserved, subject to stockholder approval and an
increase in the Company's authorized capital stock, (i) the MEFC Shares for
issuance to the former shareholders of MEF Corp. and (ii) 200,000 shares of
Common Stock for issuance to certain employees of the Company under a stock
incentive plan. Of these reserved shares, 1,415,540 shares of Common Stock
issuable under various options and warrants and pursuant to the conversion of
the Convertible Subordinated Notes are subject to lock-up provisions as
described below.
In general, under Rule 144 as currently in effect, any affiliate of the
Company or any person (or persons whose shares are aggregated in accordance with
Rule 144) who has beneficially owned "restricted securities" for at least two
years would be entitled to sell within any three-month period a number of shares
that does not exceed the greater of 1% of the outstanding shares of Common Stock
or the reported average weekly trading volume of the Common Stock for the four
calendar weeks preceding the sale. Sales under Rule 144 are also subject to
certain manner of sale restrictions and notice requirements and to the
availability of current public information concerning the Company. Persons who
have not been affiliates of the Company for at least three months and who have
beneficially held their shares of Common Stock for more than three years are
entitled to sell "restricted securities" without regard to the volume, manner of
sale, notice and public information requirements of Rule 144.
The Company, its officers and directors, certain stockholders, certain
holders of outstanding options and warrants to purchase Common Stock and certain
holders of Convertible Subordinated Notes owning or holding options or warrants
or conversion rights for an aggregate of 4,262,292 shares of Common Stock, have
agreed that they will not, directly or indirectly, offer, sell, offer to sell,
contract to sell, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, grant of any option
to purchase or other sale or disposition), of any shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for Common Stock or
other capital stock of the Company, or any right to purchase or acquire Common
Stock or other capital stock of the Company, for a period of 180 days after the
date of this Prospectus, without the prior written consent of Prudential
Securities, on behalf of the Underwriters. See "Underwriting."
No prediction can be made as to the effect, if any, that sales of the
Common Stock or the availability of such shares for sale in the public market
will have on the market price for the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public market
after the restrictions described above lapse could adversely affect prevailing
market prices for the Common Stock and impair the ability of the Company to
raise capital through the sale of equity securities in the future.
54
<PAGE> 57
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated and Oppenheimer & Co., Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase from
the Company the number of shares of Common Stock set forth below opposite their
respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Prudential Securities Incorporated................................
Oppenheimer & Co., Inc............................................
---------
Total................................................... 2,500,000
=========
</TABLE>
The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Common Stock offered hereby if any are purchased.
The Underwriters, through their Representatives, have advised the Company
that they propose to offer the Common Stock initially at the public offering
price set forth on the cover page of this Prospectus; that the Underwriters may
allow to selected dealers a concession of $ per share; and that such
dealers may reallow a concession of $ per share to certain other
dealers. After the initial public offering, the offering price and the
concessions may be changed by the Representatives.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 375,000 additional
shares of Common Stock at the initial public offering price, less underwriting
discounts and commissions, as set forth on the cover page of this Prospectus.
The Underwriters may exercise such option solely for the purpose of covering
over-allotments incurred in the sale of the shares of Common Stock offered
hereby. To the extent such option to purchase is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to 2,500,000.
The Company has agreed to indemnify the several Underwriters or contribute
to losses arising out of certain liabilities, including liabilities under the
Securities Act.
The Company, its officers and directors and certain stockholders, certain
holders of outstanding options and warrants to purchase Common Stock and certain
holders of Convertible Subordinated Notes owning or holding options or warrants
or conversion rights for, an aggregate of 4,262,292 shares of Common Stock have
agreed that they will not, directly or indirectly, offer, sell, offer to sell,
contract to sell, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, grant of any option
to purchase or other sale or disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or exercisable therefor or other
capital stock of the Company or any right to purchase or acquire shares of
Common Stock or other capital stock of the Company, for a period of 180 days
after the date of this Prospectus, without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters.
Prudential Securities Incorporated is an affiliate of Prudential Securities
Realty Funding Corporation, the warehouse facility lender under the $100.0
million Prudential Facility and the $5.5 million Prudential Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Warehouse Facilities." In the
event that the Company is unable to obtain permanent financing for the amounts
outstanding under these warehouse facilities, which totaled $22.9 million at May
31, 1995, a portion of the proceeds of the Offering may be used to repay amounts
outstanding under these warehouse facilities. See "Use of Proceeds" and Note 7
to the Company's Consolidated Financial Statements located elsewhere in the
Prospectus.
55
<PAGE> 58
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Rogers & Wells, New York, New York. Certain legal
matters will be passed upon for the Underwriters by Gibson, Dunn & Crutcher, New
York, New York.
EXPERTS
The financial statements as of June 30, 1993 and 1994 and for each of the
three years in the period ended June 30, 1994 included in this Prospectus and
the related financial statement schedules included elsewhere in the Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein and elsewhere in the registration
statement, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
56
<PAGE> 59
DVI, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report......................................................... F-2
Consolidated Balance Sheets.......................................................... F-4
Consolidated Statements of Operations................................................ F-6
Consolidated Statements of Shareholders' Equity...................................... F-7
Consolidated Statements of Cash Flows................................................ F-8
Notes to Consolidated Financial Statements........................................... F-11
</TABLE>
F-1
<PAGE> 60
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
DVI, Inc. and Subsidiaries
Irvine, California
We have audited the accompanying consolidated balance sheets of DVI, Inc.
and its Subsidiaries (the "Company") as of June 30, 1994 and 1993, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended June 30, 1994. Our audits
also included the financial statement schedules listed in the Index at Item
16(b). These consolidated financial statements and financial statement schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of DVI, Inc. and its Subsidiaries
as of June 30, 1994 and 1993, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended June 30,
1994 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Costa Mesa, California
October 3, 1994
F-2
<PAGE> 61
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-3
<PAGE> 62
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------- MARCH 31,
1993 1994 1995
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS (Note 2)............... $ 2,199,208 $ 1,713,769 $ 4,566,595
------------ ------------ ------------
RESTRICTED CASH AND CASH EQUIVALENTS (Note 4).... 6,825,485 13,064,814 49,818,082
------------ ------------ ------------
INVESTMENT IN DIRECT FINANCING LEASES AND NOTES
SECURED BY EQUIPMENT (Notes 2, 5, 6, 12 and
16):
Receivable in installments (net of allowance
for losses of $1,210,125 (1993), $2,497,916
(1994), and $3,067,032 (March 31, 1995)).... 106,046,337 250,854,526 413,319,616
Receivable in installments -- related parties
(Note 12)................................... 19,285,865 16,427,684 4,340,188
Residual valuation............................. 6,205,621 3,730,592 3,868,260
Unearned income................................ (24,562,613) (47,643,772) (71,681,240)
------------ ------------ ------------
Net investment in direct financing leases and
notes secured by equipment.................. 106,975,210 223,369,030 349,846,824
------------ ------------ ------------
OTHER RECEIVABLES (Note 2):
From sale of leases and notes secured by
equipment................................... 2,860,329 911,585 113,143
Patient service accounts receivable............ 3,258,270 3,667,123 1,588,366
Notes collateralized by medical receivables.... 2,565,451 6,006,600 14,036,369
------------ ------------ ------------
Total other receivables..................... 8,684,050 10,585,308 15,737,878
------------ ------------ ------------
EQUIPMENT ON OPERATING LEASES (Notes 2 and 5)
(net of accumulated depreciation of $1,515,344
(1993), $1,163,591 (1994), and 1,407,741 (March
31, 1995))..................................... 6,759,629 2,893,683 3,636,905
------------ ------------ ------------
FURNITURE AND FIXTURES (Note 2) (net of
accumulated depreciation of $513,600 (1993),
$525,032 (1994), and $646,250 (March 31,
1995))......................................... 1,579,241 817,135 755,823
------------ ------------ ------------
INVESTMENTS IN AND ADVANCES TO INVESTEES (Notes 2
and 6)......................................... 5,578,500 4,646,382 5,825,695
------------ ------------ ------------
GOODWILL, NET (Notes 2 and 15)................... 1,956,239 2,024,253 1,900,000
------------ ------------ ------------
OTHER ASSETS (Note 2)............................ 6,603,606 6,834,972 2,759,222
------------ ------------ ------------
TOTAL ASSETS..................................... $147,161,168 $265,949,346 $434,847,024
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 63
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------- MARCH 31,
1993 1994 1995
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
ACCOUNTS PAYABLE................................. $ 6,785,683 $ 23,861,905 $ 5,783,720
------------ ------------ ------------
OTHER ACCRUED EXPENSES........................... 4,181,190 8,215,021 7,268,806
------------ ------------ ------------
SHORT-TERM BORROWINGS (Notes 7 and 12)........... 45,221,225 34,586,373 147,969,332
------------ ------------ ------------
DEFERRED INCOME TAXES (Notes 2 and 9)............ 4,481,289 2,329,205 3,435,267
------------ ------------ ------------
LONG-TERM DEBT:
Notes payable to bank.......................... 136,070
Discounted receivables (primarily limited
recourse)
(Notes 5, 8 and 16).......................... 51,691,297 148,851,584 218,877,882
Convertible subordinated notes (Notes 8, 10 and
12).......................................... 14,112,000 13,741,981
------------ ------------ ------------
Total long-term debt, net.................... 51,827,367 162,963,584 232,619,863
------------ ------------ ------------
TOTAL LIABILITIES........................ 112,496,754 231,956,088 397,076,988
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 13 and 15)
SHAREHOLDERS' EQUITY (Notes 10, 11 and 15):
Preferred Stock, $10.00 par value; authorized,
100,000 shares; no shares issued
Common Stock, $.005 par value; authorized
13,000,000 shares, outstanding, 6,530,295
shares (1993), 6,567,295 shares (1994) and
6,711,180 shares (March 31, 1995)............ 32,652 32,836 33,556
Additional capital............................. 27,941,466 28,155,502 29,276,502
Retained earnings.............................. 6,690,296 5,804,920 8,459,978
------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY................... 34,664,414 33,993,258 37,770,036
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.................................... $147,161,168 $265,949,346 $434,847,024
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 64
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------- ---------------------------
1992 1993 1994 1994 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Finance and Other Income (Note 2)
Amortization of finance income............ $10,130,255 $10,826,020 $18,264,742 $12,272,052 $23,844,476
Receivables financing income.............. 552,873 1,295,514 1,461,677 1,011,993 326,878
Net operating lease income................ 1,146,471 1,447,264 359,353 272,137 (274,121)
Gain on sale of financing transactions,
net..................................... 2,196,547 1,103,528 302,053 245,862 1,430,083
Other income.............................. 709,590 526,226 523,314 561,188 1,018,036
----------- ----------- ----------- ----------- -----------
Finance and Other Income.................. 14,735,736 15,198,552 20,911,139 14,363,232 26,345,352
Interest expense.......................... 5,988,802 5,004,744 8,832,836 5,900,105 15,449,513
----------- ----------- ----------- ----------- -----------
Margins Earned.............................. 8,746,934 10,193,808 12,078,303 8,463,127 10,895,839
Selling, general and administrative
expense................................. 3,832,384 5,734,981 7,765,112 5,591,226 6,318,154
----------- ----------- ----------- ----------- -----------
Earnings from Continuing Operations Before
Provision for Income Taxes, Equity in Net
Earnings (Loss) of Investees and
Discontinued Operations................... 4,914,550 4,458,827 4,313,191 2,871,901 4,577,685
Provision for Income Taxes (Notes 2 and
9).................................... 2,014,965 1,828,118 1,811,540 1,206,221 1,922,627
----------- ----------- ----------- ----------- -----------
Earnings from Continuing Operations Before
Equity in Net Earnings (Loss) of Investees
and Discontinued Operations............... 2,899,585 2,630,709 2,501,651 1,665,680 2,655,058
Equity in Net Earnings (Loss) of
Investees................................. 153,314 (50,547) (242,150) (242,150)
----------- ----------- ----------- ----------- -----------
Earnings from Continuing Operations......... 3,052,899 2,580,162 2,259,501
Discontinued Operations (Note 3):
Loss from discontinued operations net of
tax
of $301,760 (1992), $1,064,529 (1993),
and $51,000 (1994)...................... 345,743 1,497,398 74,000
Loss on disposal of discontinued
operations, net of tax of $295,200
(1993) and $2,212,536 (1994)............ 424,800 3,070,877
----------- ----------- -----------
Loss from Discontinued Operations......... 345,743 1,922,198 3,144,877
----------- ----------- -----------
Net Earnings (Loss)......................... $ 2,707,156 $ 657,964 $ (885,376) $ 1,423,530 $ 2,655,058
=========== =========== =========== =========== ===========
Net Earnings (Loss) Per Common and Common
Equivalent Share (Note 2):
From Continuing Operations.............. $ 0.57 $ 0.39 $ 0.34
From Discontinued Operations............ (0.06) (0.29) (0.47)
----------- ----------- -----------
Net Earnings (Loss) Per Share............... $ 0.51 $ 0.10 $ (0.13) $ .21 $ .39
=========== =========== =========== =========== ===========
Weighted Average Number of Common and Common
Equivalent Shares Outstanding
(Note 2).................................. 5,353,000 6,601,000 6,717,000 6,716,000 6,870,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 65
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
$.005 PAR TOTAL
--------------------- ADDITIONAL RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JULY 1, 1991...... 4,986,423 $24,932 $12,762,695 $3,325,176 $16,112,803
Issuance of common stock
upon exercise of stock
options................. 18,705 94 57,554 57,648
Increase as a result of
subsidiary's sale of
stock, net of income
taxes................... 1,210,958 1,210,958
Income tax benefit arising
from the exercise of
nonstatutory stock
options and disposition
of common stock acquired
by option............... 144,998 144,998
Issuance of common stock... 1,525,000 7,625 13,764,729 13,772,354
Net earnings............... 2,707,156 2,707,156
--------- ------- ----------- ---------- -----------
BALANCE AT JUNE 30, 1992..... 6,530,128 32,651 27,940,934 6,032,332 34,005,917
Issuance of common stock
upon exercise of stock
options................. 167 1 532 533
Net earnings............... 657,964 657,964
--------- ------- ----------- ---------- -----------
BALANCE AT JUNE 30, 1993..... 6,530,295 32,652 27,941,466 6,690,296 34,664,414
Issuance of common stock
upon exercise of stock
options................. 37,000 184 214,036 214,220
Net loss................... (885,376) (885,376)
--------- ------- ----------- ---------- -----------
BALANCE AT JUNE 30, 1994..... 6,567,295 32,836 28,155,502 5,804,920 33,993,258
Issuance of common stock
upon (unaudited):
Exercise of stock
options............... 96,716 484 621,236 621,720
Conversion of
subordinate notes..... 47,169 236 499,764 500,000
Net earnings (unaudited)... 2,655,058 2,655,058
--------- ------- ----------- ---------- -----------
BALANCE AT MARCH 31, 1995
(unaudited)................ 6,711,180 $33,556 $29,276,502 $8,459,978 $37,770,036
========= ======= =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 66
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------- ------------------------------
1992 1993 1994 1994 1995
------------ ------------ ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)................ $ 2,707,156 $ 657,964 $ (885,376) $ 1,423,530 $ 2,655,058
------------ ------------ ------------- ------------ -------------
Adjustments to reconcile net (loss)
earnings to net cash provided by
(used in) operating activities:
Equity in net loss (earnings) of
investees...................... (244,053) 16,780 242,150 242,729
Gain on sale of common stock of
investee....................... (135,942)
Minority interest in
subsidiaries................... (61,827) (132,404)
Depreciation and amortization.... 3,600,621 4,515,108 1,902,873 2,347,894 4,506,319
Additions to allowance accounts,
net............................ 897,085 1,153,585 979,210 290,303 592,027
Deferred income taxes............ 1,359,726 228,923 (2,152,084) 581,490 1,106,062
Provision for discontinued
operations..................... 720,000 1,865,500
Loss on disposition of assets.... 3,542,913
Changes in assets and liabilities
(net of effects from purchase
of acquired entities):
(Increases) decreases in:
Restricted cash................ 526,568 (2,821,330) (6,239,329) (4,707,798) (36,753,268)
Accounts receivable............ (2,584,661) (4,016,448) (4,489,680) (1,313,554) (5,815,581)
Receivables from sale of leases
and notes secured by
equipment................... 1,220,731 1,212,300 1,948,744 2,860,327 798,442
Other assets................... 2,155,368 (4,207,045) (679,089) (6,567,691) 4,075,750
Increases (decreases) in:
Accounts payable............... 178,729 (475,490) 16,531,725 26,607,419 (18,078,185)
Other accrued expenses......... 1,513,983 116,464 409,889 (107,584) (946,215)
------------ ------------ ------------- ------------ -------------
Total adjustments................ 8,426,328 (3,689,557) 13,862,822 20,233,535 (50,514,649)
------------ ------------ ------------- ------------ -------------
Net cash provided by (used in)
operating activities............. 11,133,484 (3,031,593) 12,977,446 21,657,065 (47,859,591)
------------ ------------ ------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of equipment acquired......... (41,396,620) (62,633,598) (149,027,781) (115,531,546) (234,302,578)
Receipts in excess of amounts
included in income............... 22,829,899 28,288,380 34,263,640 24,084,574 101,217,862
Furniture and fixtures additions... (329,317) (1,095,433) 17,606 (611,673) (233,842)
Investments in common and preferred
stock of investees............... (1,230,000) (1,399,614) 149,998
Amounts received from minority
partners......................... 140,000 116,944
Payment for purchase of acquired
entities......................... (2,017,055) (1,435,720)
Cash proceeds from sale of
assets........................... 125,000
Cash received from sale of common
and preferred stock of
investee......................... 675,942 540,000 540,000
------------ ------------ ------------- ------------ -------------
Net cash used in investing
activities....................... (21,327,151) (38,159,041) (113,931,537) (91,518,645) (133,318,558)
------------ ------------ ------------- ------------ -------------
</TABLE>
(Continued)
F-8
<PAGE> 67
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
----------------------------------------------- ------------------------------
1992 1993 1994 1994 1995
------------ ------------ ------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock........... $ 13,772,354
Exercise of stock rights, options,
warrants and sale of units....... 57,648 $ 533 $ 214,220 $ 45,807 $ 621,720
Borrowings:
Short-term....................... 31,141,333 58,076,360 216,113,152 119,858,228 398,353,650
Long-term, net of capitalized
costs.......................... (283,517) 44,534,864 146,855,283 79,222,143 110,242,362
Repayments:
Short-term....................... (21,945,410) (44,204,047) (226,748,005) (109,177,697) (284,970,695)
Long-term........................ (12,092,871) (17,554,080) (35,965,998) (20,963,729) (40,216,062)
------------ ------------ ------------- ------------ -------------
Net cash provided by financing
activities....................... 10,649,537 40,853,630 100,468,652 68,984,752 184,030,975
------------ ------------ ------------- ------------ -------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS................... 455,870 (337,004) (485,439) (876,828) 2,852,826
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR............................ 2,080,342 2,536,212 2,199,208 2,199,208 1,713,769
------------ ------------ ------------- ------------ -------------
CASH AND CASH EQUIVALENTS, END OF
YEAR............................... $ 2,536,212 $ 2,199,208 $ 1,713,769 $ 1,322,380 $ 4,566,595
============ ============ ============= ============ =============
Cash paid during the year for:
Interest........................... $ 5,872,146 $ 5,137,310 $ 5,579,168 $ 5,586,445 $ 14,532,341
============ ============ ============= ============ =============
Income taxes....................... $ 34,229 $ 1,087,436 $ 551,848 $ 551,848 $ 1,129,755
============ ============ ============= ============ =============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS:
Assets acquired and liabilities
assumed in connection with business
acquisition
Fair value of net assets
acquired......................... $ 2,278,056 $ 1,906,008 $ 2,000,000
============ ============ =============
Liabilities assumed................ $ 261,001 $ 470,288
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE> 68
During the year ended June 30, 1994, the following non-cash transactions
occurred in conjunction with the disposal of the Company's healthcare segment
(see Note 3):
<TABLE>
<S> <C>
Net assets sold or written off:
Furniture and fixtures................................................. $ 733,065
Equipment on operating leases.......................................... 2,615,011
Receivables............................................................ 1,106,664
Other assets, net...................................................... 686,842
----------
$5,141,582
----------
Liabilities assumed by Company:
Accounts payable....................................................... $ 544,500
Accrued liabilities.................................................... 1,758,442
----------
2,302,942
----------
Less proceeds:
Cash................................................................... 125,000
Notes receivable....................................................... 3,776,611
----------
3,901,611
----------
Loss on disposal of assets............................................... $3,542,913
==========
</TABLE>
See Note 6 for discussion of additional noncash transactions.
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE> 69
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Insofar as these consolidated financial statements and notes relate to
information at March 31, 1995 and for the nine-month periods ended March 31,
1994 and 1995, they are unaudited. In the opinion of management, such unaudited
consolidated financial statements and notes thereto reflect all adjustments
consisting only of normal recurring adjustments, necessary for a fair
presentation of consolidated financial position, results of operations and cash
flows for such periods. The consolidated financial position at March 31, 1995
and consolidated results of operations for the nine months ended are not
necessarily indicative of the consolidated financial position that may be
expected at June 30, 1995 or consolidated results of operations that may be
expected for the year ending June 30, 1995.
NOTE 1. GENERAL
DVI, Inc. (the "Company" or "DVI") is engaged in the business of providing
equipment financing and related services for users of diagnostic imaging,
radiation therapy and other medical technologies. The Company's customer base
consists principally of outpatient healthcare providers, physician groups and
hospitals. By the terms of the underlying financing contracts, the Company's
customers are generally considered in default if payment on a contract has not
been received. Equipment under direct financing leases and notes secured by
equipment serve as collateral for unpaid contract payments. Receivables under
medical receivables financing transaction serve as collateral for unpaid
contract payments.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy -- The consolidated financial statements include the
accounts of DVI and its majority and wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Cash Equivalents -- Cash equivalents include highly liquid securities with
original maturities of 90 days or less.
Investment in Direct Financing Leases and Notes Secured by Equipment -- At
contract commencement, the Company records the gross contract receivable,
initial direct costs, estimated residual value of the financed equipment, if
any, and unearned income. At June 30, 1994 and 1993, unamortized initial direct
costs amounted to $5,444,135 and $3,548,361, respectively. Initial direct costs
are amortized over the life of the contract on the interest method which
reflects a constant effective yield.
Receivables from Sale of Leases and Notes Secured by Equipment -- The
receivables from sale of leases and notes secured by equipment primarily relate
to the sale of financing transactions which were complete as of the end of the
respective period.
Patient service accounts receivable -- Patient service accounts receivable
relate to billings for services performed by the Company's discontinued
healthcare segment of its business (See Note 3). The receivables have been
stated at their estimated net realizable value at June 30, 1994 and 1993.
Notes collateralized by medical receivables -- Notes collateralized by
medical receivables consist of receivables purchased from unrelated entities
(1993) and notes receivable resulting from working capital and other loans made
to entities in the healthcare industry (1994). The purchased receivables are
stated at the lower of the Company's cost or the estimated collectible value.
The notes receivable are stated at the original issuance amount net of reserves
for uncollectible amounts.
Equipment on Operating Leases -- Leases which do not meet the criteria for
direct financing leases are accounted for as operating leases. Equipment on
operating lease are recorded at cost and depreciated on a straight-line basis
over the estimated useful life of the equipment. Rental income is recorded
monthly on a straight-line basis. Initial direct costs directly associated with
operating leases are deferred and amortized over the lease term on a
straight-line basis.
F-11
<PAGE> 70
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Furniture and Fixtures -- Furniture and fixtures are stated at cost less
accumulated depreciation and are depreciated using the straight-line method over
their estimated useful lives (generally five years).
Investments in and Advances to Investees -- The investments in and advances
to investees consist of common and nonvoting preferred equity interests in
unconsolidated subsidiaries. Prior to fiscal 1994, the Company accounted for its
investments in the common stock of these subsidiaries using the equity method of
accounting. Subsequent to fiscal 1993, when the Company no longer exerted
significant influence over two of the investees, the Company began accounting
for these two investees utilizing the cost method. The Company's common stock
investment in the remaining investee is accounted for under the equity method.
The investment in the investees accounted for under the cost method are
classified as held for sale and are stated at fair value. The investment in the
common and preferred stock of the remaining entity has been classified as held
for investment because the Company does not intend to dispose of its interest in
the near-term. The investment in the common stock of the remaining investee has
been written down to zero to reflect the Company's cumulative share of equity
losses in the investee. The investment in the preferred stock has been recorded
at the lower of cost or estimated market value (See Note 6).
Goodwill -- Goodwill at June 30, 1994 represents the estimated excess
contingent purchase price over the net tangible assets stemming from the
acquisition of Medical Equipment Finance Corporation ("MEF Corp."). (See Note
15.) Goodwill at June 30, 1993 represents the excess of the purchase price over
the fair value of the net assets acquired in conjunction with the Company's
healthcare segment. Goodwill relating to the acquisition of MEF Corp. is being
amortized over a fifteen year period. Goodwill relating to the healthcare
segment was written off during fiscal 1994 in conjunction with the change in
estimate of the loss on discontinued operations (See Note 3). The Company
evaluates the recoverability of its goodwill separately for each applicable
business acquisition at each balance sheet date . The recoverability of goodwill
is determined by comparing the carrying value of the goodwill to the estimated
operating income of the related entity on an undiscounted cash flow basis.
Should the carrying value of the goodwill exceed the estimated operating income
for the expected period of benefit, an impairment for the excess is recorded at
that time.
Other assets -- Other assets consists primarily of equipment held for sale
or release and is stated at the lower of cost or its estimated market value.
Debt Issuance Costs -- Debt issuance costs related to securitizations and
convertible subordinated notes are offset against the related debt and are being
amortized over the life of the notes using the interest method.
Amortization of finance income -- Amortization of finance income primarily
consists of the amortization of unearned income which is recognized over the
term of the contract on the interest method so as to approximate a level rate of
return of the net investment. It also includes servicing fees earned for billing
and collecting services related to the assets securitizations (See Note 8) and a
gain on sale of residual interests of $799,661 during the fiscal year ended June
30, 1994.
Receivables Financing Income -- Receivables financing income is primarily
related to interest earned and fee income on notes collateralized by medical
receivables; income generated from receivable purchases; and income from
billing/collecting activities which the Company has curtailed. Interest income
on loans is recognized as earned. Income from medical receivable purchases is
recognized ratably as collections are made. Income from billing/collecting
activities is recognized as services are performed.
Gain on Sale of Financing Transactions -- Gains arising from the sale of
direct financing leases and investments in notes secured by equipment occur when
the Company obtains permanent funding through the whole loan sale of a
transaction to a third party. Subsequent to a sale, the Company has no remaining
interest in the transaction or equipment and no obligation to indemnify the
purchaser in the event of a default on the transaction by the obligor, except
when the sale agreement provides for limited recourse in which the
F-12
<PAGE> 71
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company guarantees reimbursement under the agreement up to a specific maximum,
which maximum is of nominal value. Consequently, in the event of default by the
obligor, the lender would exercise its rights under the lien with no further
recourse against the Company, notwithstanding any facts or circumstances that
might promulgate the lender's assertion under representations and warranties
made by the Company.
Taxes on Income -- The Company adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), Accounting for Income Taxes, in July 1992. The
effect of the adoption of this change in accounting principle was not
significant to the accompanying consolidated financial statements (See Note 9).
Deferred taxes on income result from temporary differences between the
reporting of income for financial statement and tax reporting purposes. Such
differences arise principally in lease transactions in which the operating lease
method of accounting is used for tax purposes and the financing lease method, as
described above, is used for financial statement purposes. Under the operating
lease method, leased equipment is recorded at cost and depreciated over the
useful life of the equipment and lease payments are recorded as revenue when
earned.
Net Earnings (Loss) Per Common and Common Equivalent Share -- The net
earnings (loss) per common and common equivalent share are calculated using the
weighted average number of common and common equivalent shares outstanding,
except where antidilutive. For earnings from continuing operations in 1994 and
net earnings in 1993 and 1992, common equivalent shares include shares issuable
upon the exercise of stock options, rights and warrants less the number of
shares assumed purchased with the proceeds available from the assumed exercise
of the options, rights and warrants. Common equivalent shares have been excluded
from the computation of net loss per common share in 1994, because their effect
would be antidilutive. The proforma net earnings per share for the year ended
June 30, 1992 and the nine months ended March 31, 1995, assuming that the net
proceeds of $13,772,354 and $26,865,078, respectively, from the Company's
offering and proposed offering of its common stock were used to repay existing
short-term debt under the Company's principal revolving credit facilities at the
beginning of that period, is $.50 and $.40, respectively, per share.
Recent Accounting Development -- The Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" as of July 1, 1994. The
impact of the adoption did not have a material impact on the Company's
operations.
Reclassifications -- Certain amounts as previously reported have been
reclassified to conform to the year ended June 30, 1994 presentation.
NOTE 3. DISCONTINUED OPERATIONS
On June 30, 1993, the Company formally adopted a plan to divest
substantially all of its healthcare operations.
The following table presents net revenues, losses and selected balance
sheet information relating to the healthcare operations segment as of, and for
the years ended, June 30, 1992, 1993 and 1994.
<TABLE>
<CAPTION>
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net service income..................................... $3,007,849 6,455,932 $6,095,397
Loss from discontinued operations, net of tax of
$301,760 (1992), $1,064,529 (1993) and $51,000
(1994)............................................... 345,743 1,497,398 74,000
Loss on disposal of discontinued operations, net of tax
$295,200 (1993) and $2,212,536 (1994)................ 424,800 3,070,877
Net assets............................................. 2,943,897 7,589,025 1,300,000
</TABLE>
F-13
<PAGE> 72
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3. DISCONTINUED OPERATIONS (CONTINUED)
In June 1993, the Company adopted a formal plan to discontinue its DVI
Healthcare Operations segment consisting of seven outpatient healthcare
facilities which it operated or managed on a direct basis and one facility which
was in the developmental stage and not yet in operation. At June 30, 1993 the
Company established a reserve for the divestiture of the operations and recorded
a loss on discontinued operations and disposal of discontinued operations of
$1.9 million net of tax. This estimate was based on certain assumptions as to
the likely timing of the divestitures, the estimated proceeds to be received
upon the sale of certain of the facilities and the financial results of those
operations pending divestiture. These operations have been reflected as
discontinued operations in the Company's financial statements at June 30, 1992,
1993 and 1994. The pretax loss from discontinued operations of $3.3 million at
June 30, 1993 was comprised of $2.6 million relating to actual and estimated
losses from operations of this segment through the date of disposition and
approximately $700,000 relating to estimated losses to be incurred upon the
disposition of the segment's net assets.
At June 30, 1994, the Company had disposed or entered into definitive
agreements to sell five of these outpatient healthcare facilities and had
written off the investment and assets of the remaining two. In connection with
the disposal of these facilities, the Company retained certain assets and
liabilities of these facilities, primarily accounts receivable and accounts
payable. The change in estimate reflects the complete disposal or write-off of
the discontinued operations segment.
NOTE 4. RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents consist of cash and certificates of
deposit maintained by the Company which are pledged as collateral for certain
limited recourse borrowings related to direct financing leases, notes secured by
equipment and operating leases.
NOTE 5. INVESTMENT IN DIRECT FINANCING LEASES AND NOTES
SECURED BY EQUIPMENT AND EQUIPMENT ON OPERATING LEASES
Receivables in installments are receivable in monthly installments of
varying amounts and are collateralized by the underlying equipment. Receivables
from operating leases relate to noncancellable operating leases and are
receivable in monthly installments of varying amounts. Information regarding
scheduled collections for direct financing leases, notes secured by equipment
and operating leases are as follows:
<TABLE>
<CAPTION>
DIRECT FINANCING LEASES
AND NOTES SECURED OPERATING
YEAR ENDING JUNE 30, BY EQUIPMENT LEASES
-------------------- ----------------------- ---------
<S> <C> <C>
1995........................................................ $ 75,248,978 $ 462,004
1996........................................................ 62,880,283 412,009
1997........................................................ 54,643,515 304,034
1998........................................................ 44,002,771 82,500
1999........................................................ 27,108,828
Thereafter.................................................. 5,895,751
------------ ----------
269,780,126 1,260,547
Residual valuation.......................................... 3,730,592
------------ ----------
Total....................................................... $273,510,718 1,260,547
============ ==========
</TABLE>
Residual valuation represents the estimated amount to be received at
contract termination from the disposition of equipment financed under direct
financing leases and notes secured by equipment. Amounts to be realized at
contract termination depend on the fair market value of the related equipment
and may vary
F-14
<PAGE> 73
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5. INVESTMENT IN DIRECT FINANCING LEASES AND NOTES SECURED BY EQUIPMENT AND
EQUIPMENT ON OPERATING LEASES
from the recorded estimate. Residual values are reviewed on an annual basis to
determine if the equipment's fair market value is below its recorded value.
At June 30, 1994, direct financing lease receivables amounting to
$192,382,867 are assigned as collateral for the long-term debt (See Note 8).
NOTE 6. INVESTMENTS IN AND ADVANCES TO INVESTEES
At June 30, 1994, the Company held investments in three entities, SMT
Health Services, Inc. ("SMT"), Healthcare Imaging Services, Inc. ("HIS") and IPS
Health Care, Inc. ("IPS") totalling approximately 15%, 18% and 22%,
respectively, of the outstanding common stock of each entity. In September 1994,
IPS merged with Diagnostic Imaging Services, which reduced the Company's common
stock ownership from approximately 22% to 10%. At this time, the Company began
accounting for its investment in IPS on a cost basis.
The investments in these entities originally consisted of investments in
nonvoting, convertible preferred stock and voting common stock. Subsequent to
the Company's investment in SMT and HIS, those entities issued and sold shares
of their common stock in public offerings. As a result of these public
offerings, the Company increased the basis of its investment in these entities
to reflect the public offering price (See Note 2). During fiscal 1991, the
Company converted its preferred stock of HIS to common stock and then sold the
common stock in the open market for a gain of $135,942. During fiscal 1994, the
Company sold its preferred stock in SMT for $540,000 at no gain or loss. After
giving effect to the above transactions and the equity in the earnings (losses)
of the investees recorded by the Company, the Company's remaining interest in
SMT and HIS represents investments in common stock totalling $2.2 million. The
Company's investments in common stock of all of these unconsolidated entities
have historically been accounted for using the equity method of accounting
because the Company maintained significant influence over the investees.
As a part of the Company's overall strategy to operate exclusively as a
financial services company, the Company initiated a process to divest of its
interests in these investees. As a part of this process, during each of the
three months ended December 31, 1993 and March 31, 1994, the Company completed a
series of steps which significantly diminished its influence over SMT and HIS,
respectively. These steps included, among other things, arrangements with both
SMT and HIS to have all existing financing transactions between DVI and the
related entity refinanced through third party lenders and relinquishment by DVI
of its first right of refusal to finance all future equipment purchases made by
the entities. The Company also agreed that, upon completion of the refinancings,
it would relinquish its representation on the respective investees' Boards of
Directors and sell the common shares it owns in each investee. Finally, during
the refinancing process, DVI agreed to vote its common shares consistent with
each of the investee's management. As a result of the Company's significant
decline in influence over HIS and SMT, the Company's investments in those
entities have been accounted for on a cost basis since January 1, 1994 for SMT
and April 1, 1994 for HIS. Had the Company continued to account for these
investees on the equity method, the net loss for the year ended June 30, 1994
would have increased by $236,000, before offsetting any losses due to mark to
market adjustments. Prior to these dates, the Company accounted for its
investments in HIS and SMT under the equity method due to factors that existed
which the Company believes yielded it significant influence on the operating and
financial policies of these investees. These factors included the Company
providing a significant portion of the investees' equipment financing, the
Company's right of first refusal to finance all the investees' equipment
purchases and the Company's representation on the investee's Board of Directors
allowing it voting power relating to mergers, major dispositions of assets and
liquidations. The Company's investment in the equity of the common stock of IPS
continued to be accounted for under the equity method until September 1994 when
the Company's ownership of IPS declined to approximately 10% and its influence
over IPS declined significantly. Subsequent to the merger of IPS and DIS, the
Company will use the cost method to
F-15
<PAGE> 74
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6. INVESTMENTS IN AND ADVANCES TO INVESTEES (CONTINUED)
account for its investment in DIS. Any impairment in the value of these
investments is recorded at the time of reduction.
Subsequent to the Company's initial investment in IPS, the Company made
additional investments in common and preferred stock of IPS, financed various
leasing transactions for MRI and other equipment and entered into several
restructuring agreements with IPS as follows.
In August 1992, due to severe cash flow difficulties experienced by IPS,
the Company restructured certain debt of IPS. The restructuring of debt
included, among other things, the reduction of interest rates on four
transactions, extension of payment terms on certain direct finance lease
receivables, the transfer of direct patient billing and collection process to a
wholly owned subsidiary of the Company, the issuance of a working capital line
of credit to IPS, an agreement for IPS to provide consulting services to DVI,
and the appointment of two of the Officers of the Company to IPS's Board of
Directors. At the same time, the Company acquired 730,768 shares of restricted
IPS common stock from persons affiliated with the Company in exchange for
$137,019 which represented the fair value of the common stock as agreed to by
the parties.
In September 1992, one of the Company's wholly owned subsidiaries acquired
700,000, 725,000 and 420,000 shares of IPS's Series B, C and D of convertible
preferred stock, respectively for $1.00 per share. On November 12, 1992, an
additional 637,000 shares of Series E convertible preferred stock were acquired
from IPS for $1.00 per share. The preferred stock, with an aggregate value of
$2,482,000, was issued in exchange for cash of $1.12 million, exchange of debt
of $725,000 and imaging equipment valued at $637,000.
In September 1994, following the completion of a merger agreement between
IPS and Diagnostic Imaging Services, Inc., an unaffiliated entity, the Company
entered into an Agreement for the Exchange of Stock and Assets. The agreement
provided for the exchange of all the then outstanding preferred stock of IPS
owned by DVI for a new series of preferred stock (Series F). The agreement also
provided for the exchange of certain debt with a carrying value of $4 million,
assumption by DVI of certain assets and liabilities of IPS valued at
approximately $164,000, the return of certain equipment under leases with IPS to
DVI valued at approximately $2,164,000 and the issuance of Series G preferred
stock of IPS valued at $2,000,000. The Company did not record a gain or loss on
any of the restructuring transactions.
The Series F and G Preferred Stock have liquidation preferences at $1.00
per share, are redeemable at the option of IPS at $1.00 per share plus accrued
dividends, are convertible into common stock of IPS at $2.42 per share for
Series F and $1.00 per share for Series G, and are entitled to annual cumulative
dividends ranging from $.05 per share to $.10 per share. In addition, the
majority shareholder of IPS has the right to repurchase the Series F and G
preferred stock at $4,482,000 through September 2001.
NOTE 7. SHORT-TERM BANK BORROWINGS
At October 3, 1994, the Company had available to it an aggregate of $162.5
million in interim funding facilities. The Company's primary credit facility,
pursuant to a revolving credit agreement with a syndicate of banks (the "Bank
Revolving Credit Agreement"), provides for the borrowing of up to $79.0 million.
Borrowings under this facility bear interest at the Company's option at either a
variable rate equal to 25 basis points over the prime rate established by
National Westminster Bank USA or a fixed rate equal to 200 basis points over a
30-, 60- or 90-day LIBOR rate. The Revolving Credit Agreement was renewable
annually at the bank syndicate's discretion. The credit agreement also provides
that if the banks elect not to renew the facility at the end of its stated term,
then outstanding loans automatically convert to four-year amortizing term loans
at slightly higher interest rates. The Company also has a $75.0 million interim
funding facility with Prudential Securities Realty Funding Corporation (the
"Prudential Facility"). This interim funding facility is available for certain
transactions which are to be securitized under specified terms and bear interest
at a fixed rate equal to 90 basis points over the 30 day LIBOR rate. The Company
also has $8.5 million of additional interim
F-16
<PAGE> 75
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7. SHORT-TERM BANK BORROWINGS (CONTINUED)
funding facilities with other financial institutions. The Bank Revolving Credit
Agreement prohibits the Company from paying dividends other than dividends
payable solely in shares of the Company's common stock. Additionally, the Bank
Revolving Credit Agreement limits borrowings to specified levels determined by
ratios based on the Company's tangible net worth and, under certain
circumstances to use specified percentages of internally generated funds to pay
for equipment purchases. At June 30, 1994, an aggregate of approximately $34.6
million was outstanding under the Company's interim credit facilities and $97.9
million was available.
On March 28, 1995, the Bank Revolving Credit Agreement was amended and restated
to provide the Company with $81.5 million in borrowing capacity (the "Amended
and Restated Revolving Credit Agreement"). Borrowings under the Amended and
Restated Revolving Credit Agreement bear interest at the Company's option at
either a variable rate equal to up to 25 basis points over the prime rate
established by NatWest Bank N.A. depending on the Company's leverage ratio from
time to time as defined in the Amended and Restated Revolving Credit Agreement
or a rate of interest that varies from 150 to 180 basis points over a 30-, 60-
or 90-day LIBOR rate based on the Company's leverage ratio from time to time.
The Prudential Facility, as amended (the "Amended Prudential Facility"),
provides the Company with $100.0 million in warehouse funding. Borrowings under
the Amended Prudential Facility bear interest at a rate equal to 75 basis
points over the 30 day LIBOR rate. In March and April 1995, the Amended
Prudential Facility was further amended to allow the Company to borrow up to
$4.3 million in special advances (the "Special Advances"). The Special Advances
bear interest at a variable rate equal to 150 basis points over the 30-day
LIBOR until August 31, 1995. Borrowings under the Amended Prudential Facility,
including the Special Advances, are secured by (i) certain equipment loans and
the equipment financed thereunder, (ii) the Company's interest in the $9.0
million, 7.13% Asset-Backed Note, Series 1994-A, Class C of DVI Receivables
Corp. and (iii) the Company's rights to receive funds from certain securitized
equipment loans. The obligation of Prudential Securities Realty Funding
Corporation to make advances under the Amended Prudential Facility, including
the Special Advances, has been extended to August 31, 1995. Pursuant to this
extension, all borrowings under the Amended Prudential Facility mature on
August 31, 1995.
On June 7, 1995 the Company entered into a second facility with Prudential
Securities Realty Funding Corporation (the "$5.5 million Prudential Facility"),
which provides the Company with $5.5 million in warehouse funding to make
medical receivables loans to approved borrowers. Borrowings under the $5.5
million Prudential Facility bear interest at a variable rate equal to the prime
rate established by Morgan Guaranty Trust Company of New York. The borrowings
are secured by medical receivables loans originated by the Company and the
underlying receivables. This facility matures on August 31, 1995.
In addition, on February 2, 1995, the Company entered into a $75.0 million
warehouse facility with ContiTrade Services Corporation, (as amended to date,
the "Conti Facility"). The Conti Facility provides the Company with warehouse
financing for certain equipment loans to be securitized or otherwise permanently
funded through ContiTrade Services Corporation and bears interest at a rate
equal to 150 basis points over 30-or 60-day LIBOR which is fixed as to the
related funding period. Borrowings under the Conti Facility mature on June 30,
1995.
At March 31, 1995, the Company had available an aggregate of $256.5 million
in interim funding facilities, $108.5 of which was unused.
NOTE 8. LONG-TERM DEBT
The discounted receivables are payable to financial institutions, relate to
the discounting of direct financing lease obligations and notes secured by
equipment primarily on a limited or nonrecourse basis, and are collateralized by
the underlying equipment receivables (See Note 5).
F-17
<PAGE> 76
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. LONG-TERM DEBT (CONTINUED)
Future annual maturities of discounted receivables, net of capitalized
issuance costs of $2,586,379 are as follows.
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1995................................................................. $ 35,215,830
1996................................................................. 36,206,157
1997................................................................. 32,641,743
1998................................................................. 26,478,346
1999................................................................. 15,324,414
Thereafter........................................................... 2,985,094
------------
Total.............................................................. $148,851,584
============
</TABLE>
Of the total discounted receivables, $148.4 million has been permanently
funded through three asset securitization which were initiated during fiscal
years 1992 through 1994. Debt under these securitizations are limited recourse,
bear interest at rates ranging between 5.34% to 7.67% and are serviced by the
Company. The agreements require that the Company comply with certain servicing
requirements as defined in the related securitization agreement, require limited
collateral in the form of cash (See Note 4) or residual interests. Total
collateral required under these arrangements amounted to $7.4 million at June
30, 1994.
Under the Company's most recent asset securitization, permanent funding was
secured for $75.7 million of financing transactions. Approximately $55.5 million
was utilized for financing transactions completed as of June 30, 1994. The
remaining $20.2 million was received subsequent to June 30, 1994, as the
underlying financing agreements were originated.
In June 1994, the Company completed a $14,112,000, net of issuance costs
totalling $888,000, private placement of convertible subordinated notes. The
Convertible Subordinated Notes are convertible into common shares at $10.60 per
share at the discretion of the noteholders, bear interest at a rate of 9 1/8%
payable in quarterly installments of interest only and mature in June 2002.
During the nine months ended March 31, 1995, $500,000 of subordinated notes
were converted into shares of the Company's common stock.
NOTE 9. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
Currently payable...................................... $ 353,479 $ 608,998 $2,623,340
Deferred............................................... 1,661,486 1,219,120 (811,800)
---------- ---------- ----------
Total................................................ $2,014,965 $1,828,118 $1,811,540
========== ========== ==========
</TABLE>
F-18
<PAGE> 77
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
A reconciliation of the provision for income taxes to the amount of income
tax expense that would result from applying the federal statutory rate (35%) to
earnings from continuing operations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
Provision for income taxes at the federal statutory
rate................................................. $1,670,947 $1,516,001 $1,509,617
State income taxes, net of federal tax benefit......... 271,267 312,327 298,904
Other.................................................. 72,751 (210) 3,019
---------- ---------- ----------
Total................................................ $2,014,965 $1,828,118 $1,811,540
========== ========== ==========
</TABLE>
The major components of the Company's net deferred taxes of $4,481,289 and
$2,329,205 at June 30, 1993 and 1994, respectively, are as follows:
<TABLE>
<CAPTION>
1993 1994
------------ ------------
<S> <C> <C>
Accumulated depreciation........................................ $ 20,343,031 $ 23,214,892
Deferred recognition of lease income............................ (13,521,028) (18,023,343)
Net operating loss carryforwards and alternative minimum tax
credits....................................................... (1,773,334) (699,428)
Gain on investment.............................................. 841,514 696,679
Allowances for uncollectible receivables........................ (544,412) (953,372)
State income taxes.............................................. (356,658) (379,195)
Reserve for discontinued operations and loss on disposal........ (302,400) (1,193,420)
Other........................................................... (205,424) (333,608)
------------ ------------
Total......................................................... $ 4,481,289 $ 2,329,205
============ ============
</TABLE>
Included in the tax benefit for discontinued operations in fiscal 1994 of
$2,263,536 are net deferred assets of approximately $1,340,000 which are
expected to reverse during fiscal 1995.
At June 30, 1994, the Company has federal alternative minimum tax credit
carryforwards of $699,428 available to offset future taxable income.
NOTE 10. SHAREHOLDERS' EQUITY
Prior to June 30, 1994, the Company issued warrants to purchase a total of
80,000 common shares at prices between $7.625 and $8.375 per share to all
non-employee Directors of the Company and warrants to an unrelated party to
purchase up to 35,000 common shares at $8.50 per share. Additionally, in fiscal
1992, the Company issued warrants to purchase up to 200,000 shares of the
Company's common stock at $18.00 per share to an underwriter as compensation for
investment banking services. No compensation expense was recognized as a result
of this transaction. The warrants vest at various dates through November 1996
and expire at various dates through 2003. At June 30, 1994, warrants for 280,000
common shares were exercisable and none of the warrants had been exercised.
In February 1991, the Company issued 575,000 units at $10.50 per unit
(consisting of 575,000 shares of the Company's common stock and redeemable
warrants to purchase 575,000 shares of the Company's common stock at $12.00 per
share) to the public for total proceeds of $6,037,500 before net offering costs
of $999,875. As of June 30, 1994, none of these warrants had been exercised. The
warrants expire in February, 1996, and are redeemable by the Company provided
certain conditions are met. In addition, the underwriter has an option to
purchase an additional 50,000 units at $12.60 per share. The underwriter's
option is exercisable during a three-year period commencing February 7, 1993.
F-19
<PAGE> 78
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. SHAREHOLDERS' EQUITY (CONTINUED)
In June 1994, the Company issued convertible subordinated notes to related
and unrelated parties which are convertible at the option of the holder into
1,415,094 shares of common stock at $10.60 per share (See Note 8 and 12).
NOTE 11. STOCK OPTION PLAN
The Company has a stock option plan which currently provides for the
granting of options to employees to purchase up to 950,000 shares of the
Company's common stock at the fair market value at the date of grant. Options
granted under the plan generally vest over three to five years from the date of
grant and expire ten years after the date of the grant. Any unexercised options
are canceled ninety days subsequent to the termination of the employee and are
returned to the plan.
The following table summarizes the activity under the plan for the periods
indicated:
<TABLE>
<CAPTION>
OPTIONS EXERCISE PRICE
OUTSTANDING PER SHARE
----------- --------------
<S> <C> <C>
Outstanding at July 1, 1991..................................... 314,170 $1.44 - $13.38
Granted......................................................... 171,000 8.25 - 13.50
Exercised....................................................... (18,705) 1.82 - 9.63
Canceled........................................................ (41,293)
----------- --------------
Outstanding at June 30, 1992.................................... 425,172 1.44 - 13.50
Granted......................................................... 158,600 5.00 - 13.50
Exercised....................................................... (167) 3.19
Canceled........................................................ (47,500)
----------- --------------
Outstanding at June 30, 1993.................................... 536,105 1.44 - 13.50
Granted......................................................... 399,625 7.00 - 10.38
Exercised....................................................... (37,000) 3.00 - 8.38
Canceled........................................................ (88,868)
----------- --------------
Outstanding at June 30, 1994.................................... 809,862 $1.44 - $13.50
========= =============
</TABLE>
As of June 30, 1994, options to purchase 285,682 shares were exercisable.
NOTE 12. RELATED PARTY TRANSACTIONS
Until March 31, 1994, a shareholder/director of the Company was also a
director of a bank which provides the Company with short-term bank borrowings.
The Company had short-term borrowings from the bank amounting to $2,181,099 and
$2,907,696 at June 30, 1993 and 1994, respectively (See Note 7).
At June 30, 1993 and 1994, receivables in installments from investees were
$19,285,865 and $16,427,684 respectively (See Note 3).
During the year ended June 30, 1994, the Company entered into various
agreements with an investee which are described in Note 6.
During the year ended June 30, 1994, the Company issued convertible
subordinated notes totalling $9,550,000 to related parties.
During the nine months ended March 31, 1995, $500,000 of subordinated notes
were converted into shares of the Company's common stock. The effect on net
earnings had the conversion occurred at the
F-20
<PAGE> 79
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12. RELATED PARTY TRANSACTIONS (CONTINUED)
beginning of the period would not have been significant to the accompanying
consolidated financial statements.
NOTE 13. COMMITMENTS AND CONTINGENCIES
Facility Leases -- The Company leases its facilities under noncancelable
operating leases with terms in excess of one year. The lease for the Company's
principal facility expires in May 1995 and provides for fixed increased periodic
rentals which are being recognized on a straight-line basis over the lease term.
Rent expense for the years ended June 30, 1992, 1993 and 1994 amounted to
$272,895, $715,246 and $462,731 respectively. Future minimum lease payments
under these leases are as follows:
<TABLE>
<CAPTION>
FUTURE MINIMUM
YEAR ENDING JUNE 30, LEASE PAYMENTS
-------------------------------------------------------------- --------------
<S> <C>
1995........................................................ $ 662,959
1996........................................................ 393,324
1997........................................................ 270,419
1998........................................................ 130,985
1999........................................................ 108,800
Thereafter.................................................. 329,905
--------------
Total.................................................... $1,896,392
============
</TABLE>
Commitments -- Under certain limited recourse agreements, the Company may
be required to provide for losses incurred on uncollected lease receivables
previously collateralized. At June 30, 1994, the maximum contingent liability
under the limited recourse agreements amounted to $28,002,976. This contingent
liability, however, could be offset by any proceeds received from the resale or
remarketing of available equipment financed under the agreements.
Litigation -- The Company is involved in litigation both as a plaintiff and
a defendant in matters arising out of the Company's normal business activities.
Management does not expect the outcome of these lawsuits to have a material
adverse effect on the consolidated financial statements of the Company.
NOTE 14. BENEFIT PLANS
The Company maintains and administers an Employee Savings Plan pursuant to
Internal Revenue Code Section 401(k). The Plan provides for discretionary
contributions as determined by the Company's Board of Directors. The Company
contributed $9,245, $21,493 and $48,673 to the Plan during the years ending June
30, 1992, 1993 and 1994, respectively.
NOTE 15. ACQUISITIONS
In February 1992 the Company purchased from IPS Health Care, Inc. an
interest in a joint venture for $967,778 in cash and the assumption of $131,512
in liabilities. The Company's interest in this joint venture was included in the
Company's healthcare operations segment which was discontinued as of June 30,
1993 (See Note 3).
In January 1993, the Company acquired the outstanding shares of Medical
Equipment Finance Corporation ("MEF Corp."), which had only intangible assets at
the date of acquisition. Under the terms of the purchase agreement, the purchase
price is payable before October 15, 1998 in cash or common stock of DVI, as
elected by the Company. As initially structured, the purchase price was to be
determined as a percentage of the after-tax earnings of the acquired entity
during the sixty-six month period following the date
F-21
<PAGE> 80
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15. ACQUISITIONS (CONTINUED)
of acquisition, consequently, no amounts were recorded at the date of
acquisition. At June 30, 1994, no amounts were earned under the contract,
however, at that time the Company accrued $2 million as costs in excess of net
assets acquired (goodwill) which represents the Company's estimate of the
minimum amount to be payable to former shareholders of MEF Corp. Had the
acquisition occurred on July 1, 1992, the impact on the operations of the
Company would not have been significant.
During the year ended June 30, 1994, management entered into negotiations
with the former shareholders of MEF Corp. to revise certain terms of the
purchase agreement. In June 1995, the Company and the former shareholders of MEF
Corp. agreed, subject to stockholder approval and an increase in the authorized
capital stock of the Company, to set the purchase price of MEF Corp. at 400,000
shares of the Company's common stock valued at $4.65 million.
The acquisition of MEF Corp. will be accounted for as a purchase with the
costs in excess of net assets acquired being recorded as goodwill. Had the
revised purchase agreement been finalized on July 1, 1992, net income would have
decreased by $112,636, $73,970 and $55,478 and earnings per share would have
been reduced $0.017, $0.011 and $0.008 for the years ended June 30, 1993 and
1994 and the nine months ended March 31, 1995, respectively.
In February 1994, the Company acquired the outstanding shares of Medical
Device Capital Company ("MDCC"). Under the terms of the purchase agreement, the
purchase price is payable before October 15, 1999 in cash or common stock of
DVI, as elected by the Company. The purchase price is contingent and is to be
determined by a percentage of the after-tax earnings of the acquired entity
during the sixty-four month period following the date of acquisition. Had this
acquisition occurred on July 1, 1993, the impact on the operations of the
Company would not have been significant. At June 30, 1994, no amounts were
earned under the contract and due to the uncertainty of any future contingent
payments no amounts have been accrued under such agreement. Subsequent to June
30, 1994, the agreement was rescinded.
During the year ended June 30, 1994, the Company acquired additional shares
of IPS Health Care, Inc. preferred stock. (See Note 6.)
NOTE 16. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with Statement of Financial Accounting Standards No. 107
("SFAS 107"), Disclosures About Fair Value of Financial Instruments, a summary
of the estimated fair value of the Company's consolidated financial instruments
at June 30, 1994 and March 31, 1995 is presented below. The estimated fair value
amounts have been determined by the Company using available market information
and appropriate valuation methodologies. However, considerable judgment is
necessary to interpret market data to develop the estimated fair values.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the Company could realize in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
JUNE 30, 1994
----------------------------------------
CARRYING AMOUNT ESTIMATED FAIR VALUE
--------------- --------------------
<S> <C> <C>
Assets:
Receivable in installments (excluding investment in
direct financing leases).............................. $ 81,732,962 $ 85,022,168
Liabilities:
Discounted receivables................................... $ 148,851,584 $146,999,444
</TABLE>
The carrying values of cash and cash equivalents, restricted cash and cash
equivalents, receivables from sale of leases and notes secured by equipment,
patient service accounts receivable, notes collateralized by
F-22
<PAGE> 81
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
medical receivables, investment subordinated notes, accounts payable, other
accrued expenses, short-term bank borrowings, convertible subordinated notes and
deferred income taxes approximate fair values at June 30, 1994.
The methods and assumptions used to estimate the fair values of other
financial instruments are summarized as follows:
Receivable in installments:
The fair value of the financing contracts was estimated by discounting
expected cash flows using the current rates at which loans of similar credit
quality, size and remaining maturity would be made as of June 30, 1994. The
Company believes that the risk factor embedded in the entry-value interest rates
applicable to performing loans for which there are no known credit concerns
results in a fair valuation of such loans on an entry-value basis. In accordance
with SFAS 107, the Company has excluded receivables from lease contracts of
approximately $141.6 million from the receivable in installments fair value
calculation. Additionally, the receivable in installments -- related parties
balances relates exclusively to lease receivables and has therefore been
excluded from the Company's fair value calculation.
Discounted receivables:
The fair value of discounted receivables, related to the securitization of
leases and notes, was estimated by discounting future cash flows using rates
currently available for debt with similar terms and remaining maturities.
The fair value estimates presented herein were based on information
available as of June 30, 1994. Although the Company is not aware of any factors
that would significantly affect the estimated fair values, such values have not
been updated since June 30, 1994; therefore, current estimates of fair value may
differ significantly from the amounts presented herein.
F-23
<PAGE> 82
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the
fiscal years ended June 30, 1994 and 1993:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
------------ ----------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1994
Finance and other income...................... $4,262 $ 4,567 $5,523 $ 6,559
Margins earned................................ 2,646 2,675 3,132 3,625
Earnings from continuing operations before
provision for income taxes, equity in net
earnings (loss) of investees and
discontinued operations..................... 634 1,006 1,232 1,441
Earnings from continuing operations........... 330 447 646 837
Loss from discontinued operations............. 0 0 0 (3,145)
Net earnings (loss)........................... 330 447 646 (2,308)
Net earnings (loss) per common and common
equivalent share:
From continuing operations.................... $ .05 $ .07 $ .10 $ .12
From discontinued operations.................. 0 0 0 (.47)
------ ------ ------ -------
Net earnings (loss) per share................. $ .05 $ .07 $ .10 $ (.35)
====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
------------ ----------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1993
Finance and other income...................... $4,321 $ 3,341 $3,654 $ 3,883
Margins earned................................ 3,108 2,167 2,516 2,403
Earnings from continuing operations before
provision for income taxes, equity in net
earnings (loss) of investees and
discontinued operations..................... 1,896 903 1,038 622
Earnings from continuing operations........... 1,172 498 562 348
Loss from discontinued operations............. (275) (261) (520) (866)
Net earnings (loss)........................... 897 237 42 (518)
Net earnings (loss) per common and common
equivalent share:
From continuing operations.................... $ .18 $ .08 $ .08 $ .05
From discontinued operations.................. $ (.04) $ (.04) $ (.08) $ (.13)
------ ------ ------ -------
Net earnings (loss) per share................. $ .14 $ .04 $ .00 $ (.08)
====== ====== ====== =======
</TABLE>
NOTE 18. HEDGING TRANSACTIONS (UNAUDITED)
The Company's equipment loans are all structured on a fixed interest rate
basis. Although the Company permanently funds these transactions on a fixed
interest rate basis, it uses variable rate interim funding facilities until
permanent funding is obtained, generally through asset securitization. Because
funds borrowed through interim funding facilities are obtained on a floating
interest rate basis, the Company uses hedging techniques to protect its interest
rate margins during the period that interim funding facilities are used. The
Company's strategies are to hedge its portfolio by either assuming a short
position in Treasury notes of comparable maturity or entering into Treasury lock
transactions whereby DVI will either pay or receive funds
F-24
<PAGE> 83
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18. HEDGING TRANSACTIONS (UNAUDITED) (CONTINUED)
based on price movements of Treasury notes having a comparable maturity to DVI's
fixed rate portfolios. DVI believes this strategy hedges its portfolio of fixed
rate equipment financing contracts while waiting for permanent securitization
funding thus stabilizing the Company's weighted average borrowing rate. The
Company has not altered its underlying asset structure through hedging
activities but does have liabilities to cover its hedging position in the event
there is an upward movement in interest rates and a corresponding decline in the
value of the Treasury notes in which it has taken short positions or contracts.
On June 30, 1994, DVI had no outstanding derivative financial instruments.
During the nine months since June 30, 1994, the Company commenced its hedging
program by entering into $193 million of contracts and closing out $135 million.
On March 31, 1995, the Company had $58 million of outstanding financial
instruments that were matched either to specific financing transactions or DVI's
existing portfolio:
SCHEDULE OF TREASURY SHORTS
AND TREASURY LOCKS
<TABLE>
<CAPTION>
NOTIONAL AMOUNTS
NINE MONTHS
ENDED MARCH 31, 1995
--------------------
(UNAUDITED)
<S> <C>
Beginning Balance................................................. $ 0
New Contracts..................................................... 193,000,000
Terminated Contracts.............................................. (87,000,000)
Expired Contracts................................................. (48,000,000)
------------
Ending Balance.................................................... $ 58,000,000
============
</TABLE>
When DVI's hedging activities are matched to specific borrowings relating
to securitizations, gains or losses from hedging positions are reflected as a
decrease or increase in the interest expense and thus the gain or loss is spread
over the remaining term of the transactions securitized. Gains and losses from
hedging are reflected as an increase or decrease in the gain on sale proceeds
when transactions are funded through whole loan sales. At March 31, 1995 the
Company had net unrealized hedging losses of $1.2 million offset by margin
gains.
NOTE 19. COMPENSATION AGREEMENTS (UNAUDITED)
In June 1995, the Company agreed in principle to adopt an employee
incentive plan. Under the Plan the Company has agreed to issue, subject to
stockholder approval and an increase in the authorized capital stock of the
Company, an aggregate of 200,000 shares of common stock of the Company (the
"Incentive Shares") to certain of its employees if the last sale price of the
Company's common stock is $16.00 per share or higher for 30 consecutive calendar
days at any time before December 31, 1998, provided that any such employee must
be employed by the Company during the above-described 30-day period in order to
receive any Incentive Shares under this agreement. The Company has agreed that,
if there is an event or series of events that constitutes a sale of the Company
at any time prior to December 31, 1998 and the consideration to be received for
each share of common stock of the Company in such sale of the Company is $13.00
or higher, the Company will issue the Incentive Shares to the employees
described above.
F-25
<PAGE> 84
================================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES OF
COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
The Company........................... 7
Risk Factors.......................... 8
Use of Proceeds....................... 14
Price Range of Common Stock and
Dividend Policy..................... 15
Capitalization........................ 16
Selected Financial Information and
Other Data.......................... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 30
Management............................ 42
Certain Transactions.................. 47
Principal Stockholders................ 49
Description of Capital Stock.......... 51
Shares Eligible for Future Sale....... 54
Underwriting.......................... 55
Legal Matters......................... 56
Experts............................... 56
Financial Statements.................. F-1
</TABLE>
================================================================================
================================================================================
2,500,000 Shares
DVI, INC.
Common Stock
------------------
PROSPECTUS
------------------
PRUDENTIAL SECURITIES INCORPORATED
OPPENHEIMER & CO., INC.
July , 1995
================================================================================
<PAGE> 85
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities being registered, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration fee -- Securities and Exchange Commission.................. $ 11,649
NASD filing fee......................................................... 3,878
Blue Sky fees and expenses (including legal fees)....................... 15,000
Accounting fees and expenses............................................ 140,000
Legal fees and expenses................................................. 200,000
Cost of printing and engraving.......................................... 100,000
Miscellaneous........................................................... 19,473
--------
Total.............................................................. $490,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware (the
"General Corporation Law") provides, in general, that a corporation shall have
power to indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation), by reason of the fact that he is or was
a director or officer of the corporation. Such indemnity may be against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding, if the indemnitee acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation, and
with respect to any criminal action or proceeding, the indemnitee must not have
had reasonable cause to believe his conduct was unlawful.
Section 145(b) of the General Corporation Law provides, in general, that a
corporation shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director or officer of the corporation
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation.
Section 145(g) of the General Corporation Law provides in general that a
corporation shall have power to purchase and maintain insurance on behalf of any
person who is or was a director or officer of the corporation against any
liability asserted against and incurred by him in any such capacity, or arising
out of his status as such, whether or not the corporation would have the power
to indemnify him against such liability under the provisions of the law.
The Company's By-laws require the Company to indemnify each of its
directors, officers and employees to the fullest extent permitted by law in
connection with any actual or threatened action or proceeding arising out of his
service to the Company or to other organizations at the Company's request.
The Company has directors and officers liability insurance. The insurance
policy covers liability for claims made against directors and officers for their
wrongful acts involving errors, misstatements, misleading statements or acts or
omissions or neglect or breach of duty, while acting in their individual or
collective capacities for any matter claimed against them solely by reason of
their being directors or officers of the Company. The coverage includes damages,
judgments, settlements and costs of legal actions, claims or proceedings and
appeals therefrom but does not include fines or penalties imposed by law for
matters which may be deemed uninsurable under the law.
II-1
<PAGE> 86
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
1. On December 31, 1993, the Registrant issued options to purchase 10,000
shares of its common stock to each of the Registrant's three non-employee
directors. The issuance of such options was effected in reliance on the
exemption from registration under Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act").
2. On June 21, 1994, the Registrant issued and sold $15.0 million aggregate
principal amount of the Registrant's 9 1/8% Convertible Subordinated Notes Due
2002 (the "Convertible Subordinated Notes") to certain accredited investors,
including investors related to certain of the Registrant's directors and
substantial stockholders. The issuance of the Convertible Subordinated Notes was
effected in reliance on the exemption from registration under Section 4(2) of
the Securities Act.
3. On November 29, 1994, the Registrant issued 47,169 shares of its common
stock upon the conversion of $500,000 principal amount of Convertible
Subordinated Notes by an original purchaser of the Convertible Subordinated
Notes. The issuance of such common stock was effected in reliance on the
exemption from registration under Section 4(2) of the Securities Act.
4. On December 31, 1994, the Registrant issued options to purchase 10,000
shares of its common stock to each of the Registrant's three non-employee
directors. The issuance of such options was effected in reliance on the
exemption from registration under Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES:
(a) Exhibits
<TABLE>
<S> <C>
1 Form of Underwriting Agreement between the Underwriter and Registrant.(1)
3.1 Certificate of Incorporation of the Company.(2)
3.2 By-Laws of the Company.(2)
4.3 Form of Common Stock Certificate.(2)
5 Opinion of Rogers & Wells.(1)
10.2 DVI Financial Services Inc. Employee Savings Plan.(3)
10.2 Amended 1986 Incentive Stock Option Plan.(4)
10.3 Purchase Agreement dated as of October 22, 1991, by and among DMR Associates, L.P.,
HIS Acquisition, Inc. and DVI Financial Services Inc.(5)
10.4 Direct Stock Option Agreements, dated as of October 16, 1990, between the Company
and each of the Company's directors other than Mr. Higgins.(5)
10.5 Amended and Restated Letter Agreement dated December 15, 1991, between the Company
and W.I.G. Securities Limited Partnership regarding investment banking services.(5)
10.6 Warrant dated April 27, 1992, executed by the registrant on behalf of W.I.G.
Securities Limited Partnership.(5)
10.7 Indemnification Agreement by and between DVI Health Services Corporation and Anthony
J. Turek, dated as of August 16, 1992.(6)
10.8 Indemnification Agreement by and between DVI Health Services Corporation and David
L. Higgins, dated as of August 16, 1992.(6)
10.9 Stock Purchase Agreement between DVI Health Services Corporation and David L.
Higgins, dated August 20, 1992.(6)
10.10 Stock Purchase Agreement between DVI Health Services Corporation and Sidney Luckman,
dated August 20, 1992.(6)
10.11 Stock Purchase Agreement between DVI Health Services Corporation and Hazelton
National Bank, as trustee of certain trusts for the benefit of Cynthia J. Cohn and
Shelly Cohn Schmidt, dated August 20, 1992.(6)
</TABLE>
II-2
<PAGE> 87
<TABLE>
<S> <C>
10.12 Stock Purchase Agreement between DVI Healthcare Operations, Inc. and IPS HealthCare
Inc., dated October 30, 1992.(6)
10.13 Stock Purchase Agreement between DVI Healthcare Operations, Inc. and IPS HealthCare,
Inc., dated October 30, 1992.(6)
10.14 Stock Purchase Agreement between DVI Healthcare Operations, Inc. and IPS HealthCare,
Inc. dated November 12, 1992.(6)
10.15 Stock Purchase Agreement between DVI Health Services Corporation and MEFC Partners
L.P., dated as of January 6, 1993 (the "MEFC Agreement").(6)
10.16 First Amended and Restated Loan Agreement dated as of March 28, 1995, between DVI
Financial Services Inc., the Banks signatory thereto and NatWest Bank N.A., as
Agent, Prefunding Lender and a Bank.(1)
10.17 Amended and Restated Interim Loan and Security Agreement, dated as of September 13,
1994, between Prudential Securities Realty Funding Corporation and DVI Financial
Services Inc. (the "Prudential Facility").(1)
10.18 Amendment to the Prudential Facility, dated as of January 9, 1995.(1)
10.19 Second Amendment to the Prudential Facility, dated as of March 10, 1995.(1)
10.20 Third Amendment to the Prudential Facility, dated as of March 31, 1995.(1)
10.21 Revival Agreement, dated as of April 21, 1995, between Prudential Securities Realty
Funding Corporation and DVI Financial Services Inc.(1)
10.22 Fourth Amendment to the Prudential Facility, dated as of April 28, 1995.(1)
10.23 Fifth Amendment to the Prudential Facility, dated as of April 21, 1995.(1)
10.24 Interim Loan and Security Agreement between Prudential Securities Realty Funding
Corporation and DVI Business Credit Corporation, dated as of June 7, 1995.(1)
10.25 Interim Warehouse and Security Agreement, dated as of February 2, 1995, among
ContiTrade Services Corporation, DVI Financial Services, Inc. and the Registrant
(the "Conti Facility").(1)
10.26 Credit Increase Confirmation and Amendment to the Conti Facility, dated March 2,
1995.(1)
10.27 Note Purchase Agreement among the Registrant and the Purchasers listed therein,
dated as of June 21, 1994.(8)
10.28 Amendment No. 1 to Note Purchase Agreement among the Registrant and the Purchasers
listed therein, dated as of November , 1994.(1)
21 Subsidiaries of the Registrant.(9)
23.1 Consent of Rogers & Wells (contained in Exhibit 5).(1)
23.2 Consent of Deloitte & Touche LLP.(1)
24 Power of Attorney (included on page II-5 of this Registration Statement).
</TABLE>
- ---------------
(1) Filed herewith.
(2) Filed as an Exhibit to the Company's Registration Statement on Form S-3
(Registration No. 33-84604) and incorporated herein by reference.
(3) Filed previously as an Exhibit to the Company's Registration Statement on
Form S-18 (Registration No. 33-8758) and by this reference incorporated
herein.
(4) Filed previously as an Exhibit to the Company's Form 10-K (File No. 0-16271)
for the year ended June 30, 1990 and by this reference incorporated herein.
(5) Filed previously as an Exhibit to the Company's Registration Statement on
Form S-2 (Registration No. 33-46664) and by this reference is incorporated
herein.
(6) Filed previously as an Exhibit to the Company's Form 10-K (File No. 0-16271)
for the year ended June 30, 1993 and by this reference is incorporated
herein.
II-3
<PAGE> 88
(7) Filed previously as an Exhibit to the Company's Form 10-Q (File No. 0-16271)
for the quarter ended March 31, 1994 and by this reference is incorporated
herein.
(8) Filed previously as an Appendix to the Company's Consent Statement dated as
of December 29, 1994 and by this reference is incorporated herein.
(9) Filed previously as an Exhibit to the Company's Form 10-K/A-1 (File No.
0-16271) for the year ended June 30, 1994 and by this reference is
incorporated herein.
(b) Financial Statement Schedules
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------------------------------------------------------------------------
<C> <S>
II. Amounts Receivable From Related Parties and Underwriters, Promoters and
Employees Other Than Related Parties
IV. Indebtedness of and to Related Parties -- Not Current
VIII. Valuation and Qualifying Accounts
IX. Short-Term Borrowings
X. Supplementary Income Statement Information
</TABLE>
All other schedules are omitted because of the absence of conditions under
which they are required or because all material information required to be
reported is included in the consolidated financial statements and notes thereto.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described in Item 14, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 89
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Doylestown and State of Pennsylvania on the 23rd day
of June, 1995.
DVI, INC.
By: /s/ DAVID L. HIGGINS
--------------------------------------
David L. Higgins
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of DVI, Inc. hereby severally constitute David L. Higgins and Michael
A. O'Hanlon and each of them singly, our true and lawful attorneys with full
power to them, and each of them singly, to sign for us and in our names in the
capacities indicated below, any and all amendments, including post-effective
amendments, to this Registration Statement, and generally to do all such things
in our names and in our capacities as officers and directors to enable DVI, Inc.
to comply with the provisions of the Securities Act of 1933, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signature as they may be signed by our said attorneys, or any of
them, to said Registration Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---------------------------------------- ----------------------------------- --------------
<S> <C> <C>
/s/ DAVID L. HIGGINS Chief Executive Officer and June 23, 1995
- ---------------------------------------- Director (Principal Executive
David L. Higgins Officer)
/s/ MICHAEL A. O'HANLON President and Director June 23, 1995
- ----------------------------------------
Michael A. O'Hanlon
/s/ JAMES G. COSTELLO Senior Vice President (Principal June 23, 1995
- ---------------------------------------- Financial and Accounting Officer)
James G. Costello
/s/ GERALD L. COHN Director June 23, 1995
- ----------------------------------------
Gerald L. Cohn
/s/ WILLIAM R. INGLES Director June 23, 1995
- ----------------------------------------
William R. Ingles
/s/ SIDNEY LUCKMAN Director June 23, 1995
- ----------------------------------------
Sidney Luckman
/s/ JOHN E. MCHUGH Director June 23, 1995
- ----------------------------------------
John E. McHugh
</TABLE>
II-5
<PAGE> 90
DVI, INC.
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
<TABLE>
<CAPTION>
DEDUCTIONS
BALANCE AT --------------------------- (1)
BEGINNING AMOUNTS AMOUNTS BALANCE AT
NAME OF DEBTOR OF YEAR ADDITIONS COLLECTED WRITTEN OFF END OF YEAR
- -------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1992:
SMT Health Services,
Inc..................... $ 2,583,355 $ 8,927,669 $ 3,618,991 $ 0 $ 7,892,033
========== ========== ========== ======== ==========
YEAR ENDED JUNE 30, 1993:
SMT Health Services,
Inc..................... $ 7,892,033 $ 9,727,103 $ 7,581,451 $ 0 $10,037,685
IPS Health Care, Inc...... 3,755,049 756,654 2,998,395
Healthcare Imaging
Services, Inc........... 3,519,830 5,883,958 3,154,003 6,249,785
----------- ----------- ----------- --- -----------
$15,166,912 $15,611,061 $11,492,108 $ 0 $19,285,865
========== ========== ========== ======== ==========
YEAR ENDED JUNE 30, 1994:
SMT Health Services,
Inc..................... $10,037,685 $ 5,790,377 $ 7,043,333 $ 0 $ 8,784,729
IPS Health Care, Inc...... 2,998,395 130,438 864,759 2,264,074
Healthcare Imaging
Services, Inc........... 6,249,785 2,031,852 2,902,756 5,378,881
----------- ----------- ----------- --- -----------
$19,285,865 $ 7,952,667 $10,810,848 $ 0 $16,427,684
========== ========== ========== ======== ==========
</TABLE>
S-1
<PAGE> 91
DVI, INC. AND SUBSIDIARIES
SCHEDULE IV -- INDEBTEDNESS OF AND TO RELATED PARTIES -- NOT CURRENT
<TABLE>
<CAPTION>
BALANCE
NAME AT BEGINNING BALANCE AT
OF CREDITOR OF YEAR ADDITIONS DEDUCTIONS END OF YEAR
- ------------------------------------------ ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1994
Hannah S. and Samuel A. Cohn Memorial
Foundation(1)........................... $ 200,000 $ 200,000
Canadian Imperial Bank of Commerce Trust
Company as Trustee of Settlement T-1740
Trusts #14, #27, #28, #29, #30, #31,
#32, #33, #34, #35 and #36(2)........... 7,600,000 7,600,000
Luckman Family Ventures(3)................ 100,000 100,000
Gerald L. Cohn Revocable Trust(4)......... 800,000 800,000
Brenda McHugh(5).......................... 250,000 250,000
Richard Weiss and Gail Weiss Jtwros(6).... 100,000 100,000
Robert Luckman(7)......................... 100,000 100,000
Sidney Luckman Individual Retirement
Account(8).............................. 400,000 400,000
---------- ----------
$9,550,000 $ 9,550,000
========== ==========
</TABLE>
- ---------------
(1) The Hannah S. and Samuel A. Cohn Memorial Foundation (the "Foundation") is a
charitable enterprise of which Gerald L. Cohn, a Director of the Company, is
the President and a board member. Mr. Cohn has no financial interest in the
Foundation, but may be deemed for securities law purposes to be the
beneficial owner of the securities owned by the Foundation by reason of his
positions with the Foundation.
(2) Canadian Imperial Bank of Commerce Trust Company (Bahamas) Limited, as
trustee of trusts for the benefit of various descendants of A. N. Pritzker,
deceased, is the record holder of 1,483,739 shares of common stock.
(3) Luckman Family Ventures is a limited partnership in which Robert Luckman and
certain of the grandchildren of Sidney Luckman, a Director of the Company,
are general partners. Robert Luckman is the son of Sidney Luckman.
(4) The Gerald L. Cohn Revocable Trust is a trust of which Mr. Cohn is a
co-trustee and the sole beneficiary. For securities law purposes, Mr. Cohn
is deemed to be the beneficial owner of the securities owned by the Cohn
Trust.
(5) Brenda McHugh is the wife of John E. McHugh, a Director of the Company.
(6) Mr. and Mrs. Weiss are the son-in-law and daughter, respectively, of Sidney
Luckman, a Director of the Company.
(7) Robert Luckman is the son of Sidney Luckman, a Director of the Company.
(8) Sidney Luckman is a Director of the Company.
Note: At June 30, 1994 and 1993, the Company had on indebtedness of related
parties.
S-2
<PAGE> 92
DVI, INC. AND SUBSIDIARIES
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
CLASSIFICATION OF YEAR EXPENSES RECOVERIES WRITTEN OFF END OF YEAR
- ---------------------------------------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1994 --
Allowance for doubtful accounts(1).... $1,332,374 $ 1,715,576 $ 0 $ 264,125 $ 2,783,825
========== ========== ===== ======== ==========
Year ended June 30, 1993 --
Allowance for doubtful accounts(1).... $1,166,480 $ 248,069 $ 0 $ 82,175 $ 1,332,374
========== ========== ===== ======== ==========
Year ended June 30, 1992 --
Allowance for doubtful accounts(1).... $ 696,499 $ 506,503 $ 0 $ 36,522 $ 1,166,480
========== ========== ===== ======== ==========
</TABLE>
- ---------------
(1) Activity and balances in the allowance for doubtful accounts are net of
amounts from the Company's discontinued operations segment as the related
receivables are presented at their realizable value (See Note 2 to the
accompanying consolidated financial statements).
S-3
<PAGE> 93
DVI, INC. AND SUBSIDIARIES
SCHEDULE IX -- SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
MAXIMUM AVERAGE WEIGHTED
AMOUNT AMOUNT AVERAGE
WEIGHTED OUTSTANDING OUTSTANDING INTEREST
CATEGORY OF AGGREGATE BALANCE AT AVERAGE DURING DURING RATE DURING
SHORT-TERM BORROWINGS END OF YEAR INTEREST RATE THE YEAR THE YEAR THE YEAR
- -------------------------- ----------- ------------- ----------- ----------- -----------
(A) (B) (C)
<S> <C> <C> <C> <C> <C>
Year ended June 30,
1994 -- Lines of
Credit.................. $34,586,373 7.06% $88,965,943 $56,986,775 6.85%
Year ended June 30,
1993 -- Lines of
Credit.................. $45,221,225 5.65% $49,294,232 $36,621,322 6.02%
Year ended June 30,
1992 -- Lines of
Credit.................. $31,348,911 7.00% $38,793,640 $30,447,584 8.30%
</TABLE>
- ---------------
(A) Represent borrowings under the Company's equipment lease lines of credit.
(B) The average amount outstanding during the year was computed by dividing the
total of month-end outstanding principal balances by 12.
(C) The weighted average interest rate during the year was computed by dividing
the actual interest expense by the average short-term borrowing amount
outstanding.
S-4
<PAGE> 94
DVI, INC. AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Maintenance and repairs.................................... $233,934 $564,566 $531,131
</TABLE>
Taxes other than payroll and income taxes, royalties, depreciation and
amortization of intangible assets and pre-operating costs and advertising costs
are not presented inasmuch as each item does not exceed 1% of revenues as shown
in the consolidated statements of operations or is disclosed elsewhere in the
consolidated financial statements.
S-5
<PAGE> 95
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1 Form of Underwriting Agreement between the Underwriters and Registrant.(1)
4.1 Certificate of Incorporation of the Company.(2)
4.2 By-Laws of the Company.(2)
4.3 Form of Common Stock Certificate.(2)
5 Opinion of Rogers & Wells.(1)
10.1 DVI Financial Services Inc. Employee Savings Plan.(3)
10.2 Amended 1986 Incentive Stock Option Plan.(4)
10.3 Purchase Agreement dated as of October 22, 1991, by and among DMR Associates,
L.P., HIS Acquisition, Inc. and DVI Financial Services Inc.(5)
10.4 Direct Stock Option Agreements, dated as of October 16, 1990, between the Company
and each of the Company's directors other than Mr. Higgins.(5)
10.5 Amended and Restated Letter Agreement dated December 15, 1991, between the Company
and W.I.G. Securities Limited Partnership regarding investment banking
services.(5)
10.6 Warrant dated April 27, 1992, executed by the registrant on behalf of W.I.G.
Securities Limited Partnership.(5)
10.7 Indemnification Agreement by and between DVI Health Services Corporation and
Anthony J. Turek, dated as of August 16, 1992.(6)
10.8 Indemnification Agreement by and between DVI Health Services Corporation and David
L. Higgins, dated as of August 16, 1992.(6)
10.9 Stock Purchase Agreement between DVI Health Services Corporation and David L.
Higgins, dated August 20, 1992.(6)
10.10 Stock Purchase Agreement between DVI Health Services Corporation and Sidney
Luckman, dated August 20, 1992.(6)
10.11 Stock Purchase Agreement between DVI Health Services Corporation and Hazelton
National Bank, as trustee of certain trusts for the benefit of Cynthia J. Cohn and
Shelly Cohn Schmidt, dated August 20, 1992.(6)
10.12 Stock Purchase Agreement between DVI Healthcare Operations, Inc. and IPS
HealthCare Inc., dated October 30, 1992.(6)
10.13 Stock Purchase Agreement between DVI Healthcare Operations, Inc. and IPS
HealthCare, Inc., dated October 30, 1992.(6)
10.14 Stock Purchase Agreement between DVI Healthcare Operations, Inc. and IPS
HealthCare, Inc. dated November 12, 1992.(6)
10.15 Stock Purchase Agreement between DVI Health Services Corporation and MEFC Partners
L.P., dated as of January 6, 1993 (the "MEFC Agreement").(6)
10.16 First Amended and Restated Loan Agreement dated as of March 28, 1995, between DVI
Financial Services Inc., the Banks signatory thereto and NatWest Bank N.A., as
Agent, Prefunding Lender and a Bank.(1)
10.17 Amended and Restated Interim Loan and Security Agreement, dated as of September
13, 1994, between Prudential Securities Realty Funding Corporation and DVI
Financial Services Inc. (the "Prudential Facility").(1)
10.18 Amendment to the Prudential Facility, dated as of January 9, 1995.(1)
10.19 Second Amendment to the Prudential Facility, dated as of March 10, 1995.(1)
10.20 Third Amendment to the Prudential Facility, dated as of March 31, 1995.(1)
</TABLE>
<PAGE> 96
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.21 Revival Agreement, dated as of April 21, 1995, between Prudential Securities
Realty Funding Corporation and DVI Financial Services Inc.(1)
10.22 Fourth Amendment to the Prudential Facility, dated as of April 28, 1995.(1)
10.23 Fifth Amendment to the Prudential Facility, dated as of April 21, 1995.(1)
10.24 Interim Loan and Security Agreement between Prudential Securities Realty Funding
Corporation and DVI Business Credit Corporation, dated as of June 7, 1995.(1)
10.25 Interim Warehouse and Security Agreement, dated as of February 2, 1995, among
ContiTrade Services Corporation, DVI Financial Services Inc. and the Registrant
(the "Conti Facility").(1)
10.26 Credit Increase Confirmation and Amendment to the Conti Facility, dated March 2,
1995.(1)
10.27 Note Purchase Agreement among the Registrant and the Purchasers listed therein,
dated as of June 21, 1994.(8)
10.28 Amendment No. 1 to Note Purchase Agreement among the Registrant and the Purchasers
listed therein, dated as of November , 1994.(1)
21 Subsidiaries of the Registrant.(9)
23.1 Consent of Rogers & Wells (contained in Exhibit 5).(1)
23.2 Consent of Deloitte & Touche LLP.(1)
24 Power of Attorney (included on page II-5 of this Registration Statement).
</TABLE>
- ---------------
(1) Filed herewith.
(2) Filed as an Exhibit to the Company's Registration Statement on Form S-3
(Registration No. 33-84604) and incorporated herein by reference.
(3) Filed previously as an Exhibit to the Company's Registration Statement on
Form S-18 (Registration No. 33-8758) and by this reference incorporated
herein.
(4) Filed previously as an Exhibit to the Company's Form 10-K (File No. 0-16271)
for the year ended June 30, 1990 and by this reference incorporated herein.
(5) Filed previously as an Exhibit to the Company's Registration Statement on
Form S-2 (Registration No. 33-46664) and by this reference is incorporated
herein.
(6) Filed previously as an Exhibit to the Company's Form 10-K (File No. 0-16271)
for the year ended June 30, 1993 and by this reference is incorporated
herein.
(7) Filed previously as an Exhibit to the Company's Form 10-Q (File No. 0-16271)
for the quarter ended March 31, 1994 and by this reference is incorporated
herein.
(8) Filed previously as an Appendix to the Company's Consent Statement dated as
of December 29, 1994 and by this reference is incorporated herein.
(9) Filed previously as an Exhibit to the Company's Form 10-K/A-1(File No.
0-16271) for the year ended June 30, 1994 and by this reference is
incorporated herein.
<PAGE> 1
Exhibit 1
DRAFT 6/19/95 4:35 PM
DVI, Inc.
2,500,000 Shares(1)
Common Stock
UNDERWRITING AGREEMENT
June __, 1995
PRUDENTIAL SECURITIES INCORPORATED
OPPENHEIMER & CO., INC.
As Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Dear Sirs:
DVI, Inc., a Delaware corporation (the "Company"), hereby
confirms its agreement with the several underwriters named in Schedule 1 hereto
(the "Underwriters"), for whom you have been duly authorized to act as
representatives (in such capacities, the "Representatives"), as set forth
below. If you are the only Underwriters, all references herein to the
Representatives shall be deemed to be to the Underwriters.
1. Securities. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the several Underwriters
and aggregate of 2,500,000 shares (the "Firm Securities") of the Company's
Common Stock, par value $0.005 per share ("Common Stock"). The Company also
proposes to issue and sell to the several Underwriters not more than 375,000
additional shares of Common Stock if requested by the Representatives as
provided in Section 3 of this Agreement. Any and all shares of such Common
Stock to be purchased by the Underwriters pursuant to such option are referred
to herein as the "Option Securities", and the Firm
- -----------------------
(1) Plus an option to purchase from DVI, Inc. up to 375,000 additional
shares to cover over-allotments.
<PAGE> 2
Securities and any Option Securities are collectively referred to herein as the
"Securities".
2. Representations and Warranties of the Company. The
Company represents and warrants to, and agrees with, each of the several
Underwriters that:
(a) A registration statement on Form S-1 (File No. 33-_____) with respect to
the Securities, including a prospectus subject to completion, has been filed by
the Company with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Act"), and one or more
amendments to such registration statement may have been so filed. After the
execution of this Agreement, the Company will file with the Commission either
(i) if such registration statement, as it may have been amended, has been
declared by the Commission to be effective under the Act, either (A) if the
Company relies on Rule 434 under the Act, a Term Sheet (as hereinafter defined)
relating to the Securities, that shall identify the Preliminary Prospectus (as
hereinafter defined) that it supplements containing such information as is
required or permitted by Rules 434, 430A and 424(b) under the Act or (B) if the
Company does not rely on Rule 434 under the Act, a prospectus in the form most
recently included in an amendment to such registration statement (or, if no
such amendment shall have been filed, in such registration statement), with
such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act, and in the case of either (i)(A) or
(i)(B) of this sentence as have been provided to and approved by the
Representatives prior to the execution of this Agreement, or (ii) if such
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Representatives prior to the execution of this
Agreement. As used in this Agreement, the term "Registration Statement" means
such registration statement, as amended at the time when it was or is declared
effective, including all financial schedules and exhibits thereto and including
any information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); the term
"Prospectus" means: (A) if the Company relies on Rule 434 under the Act, the
Term Sheet relating to the Securities that is first filed pursuant to Rule
424(b)(7) under the Act, together with the Preliminary Prospectus identified
therein that such Term Sheet supplements; (B) if the Company does not rely on
Rule 434
2
<PAGE> 3
under the Act, the prospectus first filed with the Commission pursuant to Rule
424(b) under the Act; or (C) if the Company does not rely on Rule 434 under the
Act and if no prospectus is required to be filed pursuant to Rule 424(b) under
the Act, the prospectus included in the Registration Statement; and the term
"Term Sheet" means any term sheet that satisfies the requirements of Rule 434
under the Act. Any reference herein to the "date" of a Prospectus that
includes a Term Sheet shall mean the date of such Term Sheet.
(b) The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus. When any
Preliminary Prospectus was filed with the Commission it (i) contained all
statements required to be stated therein in accordance with, and complied in
all material respects with the requirements of, the Act and the rules and
regulations of the Commission thereunder and (ii) did not include any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. When the Registration Statement or any
amendment thereto was or is declared effective, it (i) contained or will
contain all statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements of, the
Act and the rules and regulations of the Commission thereunder and (ii) did not
or will not include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not misleading.
When the Prospectus or any Term Sheet that is a part thereof or any amendment
or supplement to the Prospectus is filed with the Commission pursuant to Rule
424(b) (or, if the Prospectus or part thereof or such amendment or supplement
is not required to be so filed, when the Registration Statement or the
amendment thereto containing such amendment or supplement to the Prospectus was
or is declared effective) and on the Firm Closing Date and any Option Closing
Date (both as hereinafter defined), the Prospectus, as amended or supplemented
at any such time, (i) contained or will contain all statements required to be
stated therein in accordance with, and complied or will comply in all material
respects with the requirements of, the Act and the rules and regulations of the
Commission thereunder and (ii) did not or will not include any untrue statement
of a material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The foregoing provisions of this paragraph (b) do
not apply to statements or omissions made in any Preliminary Prospectus, the
Registration Statement or any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company
3
<PAGE> 4
by any Underwriter through the Representatives specifically for use therein.
(c) The Company and each of its subsidiaries have
been duly organized and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation and are duly
qualified to transact business as foreign corporations and are in good standing
under the laws of all other jurisdictions where the ownership or leasing of
their respective properties or the conduct of their respective businesses
requires such qualification, except where the failure to be so qualified does
not amount to a material liability or disability to the Company and its
subsidiaries, taken as a whole.
(d) The Company and each of its subsidiaries have
full power (corporate and other) to own or lease their respective properties
and conduct their respective businesses as described in the Registration
Statement and the Prospectus or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus; and the Company has full power (corporate
and other) to enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it.
(e) The issued shares of capital stock of each of
the Company's subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable and are owned beneficially by the Company free and
clear of any security interests, liens, encumbrances, equities or claims.
(f) The Company has an authorized, issued and
outstanding capitalization as set forth in the Prospectus or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus. All of the issued
shares of capital stock of the Company have been duly authorized and validly
issued and are fully paid and nonassessable. The Firm Securities and the
Option Securities have been duly authorized and at the Firm Closing Date or the
related Option Closing Date (as the case may be), after payment therefor in
accordance herewith, will be validly issued, fully paid and nonassessable. No
holder of outstanding shares of capital stock of the Company is entitled as
such to any preemptive or other rights to subscribe for any of the Securities,
and no holder of securities of the Company has any right which has not been
fully exercised or waived to require the Company to register the offer or sale
of any securities owned by such holder under the Act in the public offering
contemplated by this agreement.
(g) The capital stock of the Company conforms
to the description thereof contained in the Prospectus or, if
4
<PAGE> 5
the Prospectus is not in existence, the most recent Preliminary Prospectus.
(h) The consolidated financial statements and
schedules of the Company and its consolidated subsidiaries included in the
Registration Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present the financial
position of the Company and its consolidated subsidiaries and the results of
operations and changes in financial condition as of the dates and periods
therein specified. Such financial statements and schedules have been prepared
in accordance with generally accepted accounting principles consistently
applied throughout the periods involved (except as otherwise noted therein).
The selected financial data set forth under the caption "Selected Financial
Information" in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) fairly present, on the basis stated in the
Prospectus (or such Preliminary Prospectus), the information included therein.
(i) Deloitte & Touche LLP, who have certified
certain financial statements of the Company and its consolidated subsidiaries
and delivered their report with respect to the audited consolidated financial
statements and schedules included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), are independent public accountants as required by the
Act and the applicable rules and regulations thereunder.
(j) The execution and delivery of this Agreement
have been duly authorized by the Company and this Agreement has been duly
executed and delivered by the Company, and is the valid and binding agreement
of the Company, enforceable against the Company in accordance with its terms.
(k) No legal or governmental proceedings are
pending to which the Company or any of its subsidiaries is a party or to which
the property of the Company or any of its subsidiaries is subject that are
required to be described in the Registration Statement or the Prospectus and
are not described therein (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus), and no such proceedings have been threatened
against the Company or any of its subsidiaries or with respect to any of their
respective properties; and no contract or other document is required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement that is not described therein (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) or
filed as required.
5
<PAGE> 6
(l) The issuance, offering and sale of the
Securities to the Underwriters by the Company pursuant to this Agreement, the
compliance by the Company with the other provisions of this Agreement and the
consummation of the other transactions herein contemplated do not (i) require
the consent, approval, authorization, registration or qualification of or with
any governmental authority, except such as have been obtained, such as may be
required under state securities or blue sky laws and, if the registration
statement filed with respect to the Securities (as amended) is not effective
under the Act as of the time of execution hereof, such as may be required (and
shall be obtained as provided in this Agreement) under the Act, or (ii)
conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage, deed of
trust, lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its subsidiaries
or any of their respective properties are bound, or the charter documents or
by-laws of the Company or any of its subsidiaries, or any statute or any
judgment, decree, order, rule or regulation of any court or other governmental
authority or any arbitrator applicable to the Company or any of its
subsidiaries.
(m) The Company has not, directly or indirectly,
(i) taken any action designed to cause or to result in, or that has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities or (ii) since the filing of the Registration
Statement (A) sold, bid for, purchased, or paid anyone any compensation for
soliciting purchases of, the Securities or (B) paid or agreed to pay to any
person any compensation for soliciting another to purchase any other securities
of the Company.
(n) None of the Company, its subsidiaries or any
employee of the Company or its subsidiaries has made any payment of funds of
the Company or its subsidiaries prohibited by law and no funds of the Company
or its subsidiaries have been set aside to be used for any payment prohibited
by law.
(o) The Securities have been approved for trading
on the New York Stock Exchange (the "NYSE").
(p) Each certificate signed by any officer of the
Company and delivered to the Representatives or counsel for the Underwriters
shall be deemed to be a representation and warranty by the Company to each
Underwriter as to the matters covered thereby.
6
<PAGE> 7
(q) Subsequent to the respective dates as of
which information is given in the Registration Statement and the Prospectus or,
if the Prospectus is not in existence, the most recent Preliminary Prospectus,
neither the Company nor any of its subsidiaries has sustained any material loss
or interference with their respective businesses or properties from fire,
flood, hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental proceeding
and there has not been any material adverse change, or any development
involving a prospective material adverse change, in the condition (financial or
otherwise), management, business prospects, net worth, or results of operations
of the Company or any of its subsidiaries, except in each case as described in
or contemplated by the Prospectus or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus.
(r) Subsequent to the respective dates as of
which information is given in the Registration Statement and the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), (1) the Company and its subsidiaries have not incurred any
material liability or obligation, direct or contingent, nor entered into any
material transaction not in the ordinary course of business; (2) the Company
has not purchased any of its outstanding capital stock, nor declared, paid or
otherwise made any dividend or distribution of any kind on its capital stock;
and (3) there has not been any material change in the capital stock, short-term
debt or long-term debt of the Company and its consolidated subsidiaries and (4)
there has not been any material change in the short-term debt or long-term debt
of the Company and its consolidated subsidiaries other than in the ordinary
course of business consistent with past practice and as described in the
Prospectus, except in each case described in clauses (1) through (4) as
described in or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(s) The Company and its subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in a
material adverse change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries, except as described in or contemplated by the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus).
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<PAGE> 8
(t) The Company will conduct its operations in a
manner that will not subject it to registration as an investment company under
the Investment Company Act of 1940, as amended, and this transaction will not
cause the Company to become an investment company subject to registration under
such Act.
(u) The Company has filed all foreign, federal,
state and local tax returns that are required to be filed or has requested
extensions thereof (except in any case in which the failure so to file would
not have a material adverse effect on the Company and its subsidiaries taken as
a whole) and has paid all taxes required to be paid by it and any other
assessment, fine or penalty levied against it, to the extent that any of the
foregoing is due and payable, except for any such assessment, fine or penalty
that is currently being contested in good faith or as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(v) Except for the shares of capital stock of
each of the subsidiaries owned by the Company and such subsidiaries, neither
the Company nor any such subsidiary owns any shares of stock or any other
equity securities of any corporation or has any equity interest in any firm,
partnership, association or other entity, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus).
(w) The Company and each of its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (1) transactions are executed in accordance with
management's general or specific authorizations; (2) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability;
(3) access to assets is permitted only in accordance with management's general
or specific authorization; and (4) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(x) No default exists, and no event has occurred
which, with notice or lapse of time or both, would constitute a default in the
due performance and observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or any of their respective properties is bound or
may be affected in any material adverse respect with regard to property,
business or operations of the Company and its subsidiaries.
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<PAGE> 9
(y) The Company has not distributed and, prior to
the later of (i) the Closing Date and (ii) the completion of the distribution
of the shares, will not distribute any offering material in connection with the
offering and sale of the Common Stock other than the Registration Statement or
any amendment thereto, any Preliminary Prospectus, the Prospectus or Term Sheet
or any amendment or supplement thereto, or other materials, if any, permitted
by the Act.
(z) Subsequent to the respective dates as of
which information is given in the Registration Statement and the Prospectus, or
if the Prospectus is not in existence, the most recent Preliminary Prospectus,
there has not been any downgrading in the ratings of any of the Company's debt
securities or preferred stock or any of the debt securities of any of its
subsidiaries or affiliates, including, without limitation any of the Company's
securitized debt securities or any action threatening such a downgrading or
placing the Company or any of its subsidiaries or affiliates under special
surveillance by any "nationally recognized rating agency" (as defined in Rule
436(g) under the Act); nor does the Company have any knowledge of any facts or
circumstances that are likely to cause such downgrading, threatened downgrading
or the placing of the Company or any of its subsidiaries or affiliates under
such surveillance.
3. Purchase, Sale and Delivery of the Securities. (a)
On the basis of the representations, warranties, agreements and covenants
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to issue and sell to each of the Underwriters, and each of the
Underwriters, severally and not jointly, agrees to purchase from the Company,
at a purchase price of $______ per share, the number of Firm Securities set
forth opposite the name of such Underwriter in Schedule 1 hereto. One or more
certificates in definitive form for the Firm Securities that the several
Underwriters have agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as the Representatives
request upon notice to the Company at least 48 hours prior to the Firm Closing
Date, shall be delivered by or on behalf of the Company to the Representatives
for the respective accounts of the Underwriters, against payment by or on
behalf of the Underwriters of the purchase price therefor by certified or
official bank check or checks drawn upon or by a New York Clearing House bank
and payable in next-day funds to the order of the Company. Such delivery of
and payment for the Firm Securities shall be made at the offices of Gibson,
Dunn & Crutcher, 200 Park Avenue, New York, New York 10166 at 9:30 A.M., New
York time, on _______ __, 1995, or at such other place, time or date as the
Representatives and the Company may agree upon or as the Representatives may
determine pursuant to Section 9 hereof, such time and date of delivery against
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<PAGE> 10
payment being herein referred to as the "Firm Closing Date". The Company will
make such certificate or certificates for the Firm Securities available for
checking and packaging by the Representatives at the offices in New York, New
York of the Company's transfer agent or registrar or of Prudential Securities
Incorporated at least 24 hours prior to the Firm Closing Date.
(b) For the purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Securities as
contemplated by the Prospectus, the Company hereby grants to the several
Underwriters an option to purchase, severally and not jointly, the Option
Securities. The purchase price to be paid for any Option Securities shall be
the same price per share as the price per share for the Firm Securities set
forth above in paragraph (a) of this Section 3, plus, if the purchase and sale
of any Option Securities take place after the Firm Closing Date and after the
Firm Securities are trading "ex-dividend", an amount equal to the dividends
payable on such Option Securities. The option granted hereby may be exercised
as to all or any part of the Option Securities from time to time within thirty
days after the date of the Prospectus (or, if such 30th day shall be a Saturday
or Sunday or a holiday, on the next business day thereafter when the NYSE is
open for trading). The Underwriters shall not be under any obligation to
purchase any of the Option Securities prior to the exercise of such option.
The Representatives may from time to time exercise the option granted hereby by
giving notice in writing or by telephone (confirmed in writing) to the Company
setting forth the aggregate number of Option Securities as to which the several
Underwriters are then exercising the option and the date and time for delivery
of and payment for such Option Securities. Any such date of delivery shall be
determined by the Representatives but shall not be earlier than two business
days or later than five business days after such exercise of the option and, in
any event, shall not be earlier than the Firm Closing Date. The time and date
set forth in such notice, or such other time on such other date as the
Representatives and the Company may agree upon or as the Representatives may
determine pursuant to Section 9 hereof, are herein called the "Option Closing
Date" with respect to such Option Securities. Upon exercise of the option as
provided herein, the Company shall become obligated to sell to each of the
several Underwriters, and, subject to the terms and conditions herein set
forth, each of the Underwriters (severally and not jointly) shall become
obligated to purchase from the Company, the same percentage of the total number
of the Option Securities as to which the several Underwriters are then
exercising the option as such Underwriter is obligated to purchase of the
aggregate number of Firm Securities, as adjusted by the Representatives in such
manner as they deem advisable to avoid fractional shares. If the option is
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<PAGE> 11
exercised as to all or any portion of the Option Securities, one or more
certificates in definitive form for such Option Securities, and payment
therefor, shall be delivered on the related Option Closing Date in the manner,
and upon the terms and conditions, set forth in paragraph (a) of this Section
3, except that reference therein to the Firm Securities and the Firm Closing
Date shall be deemed, for purposes of this paragraph (b), to refer to such
Option Securities and Option Closing Date, respectively.
(c) It is understood that either of you, individually and
not as one of the Representatives, may (but shall not be obligated to) make
payment on behalf of any Underwriter or Underwriters for any of the Securities
to be purchased by such Underwriter or Underwriters. No such payment shall
relieve such Underwriter or Underwriters from any of its or their obligations
hereunder.
4. Offering by the Underwriters. Upon your
authorization of the release of the Firm Securities, the several Underwriters
propose to offer the Firm Securities for sale to the public upon the terms set
forth in the Prospectus.
5. Covenants of the Company. The Company covenants and
agrees with each of the Underwriters that:
(a) The Company will use its best efforts to
cause the Registration Statement, if not effective at the time of execution of
this Agreement, and any amendments thereto to become effective as promptly as
possible. If required, the Company will file the Prospectus or any Term Sheet
that constitutes a part thereof and any amendment or supplement thereto with
the Commission in the manner and within the time period required by Rules 434
and 424(b) under the Act. During any time when a prospectus relating to the
Securities is required to be delivered under the Act, the Company (i) will
comply with all requirements imposed upon it by the Act and the rules and
regulations of the Commission thereunder to the extent necessary to permit the
continuance of sales of or dealings in the Securities in accordance with the
provisions hereof and of the Prospectus, as then amended or supplemented, and
(ii) will not file with the Commission the Prospectus, Term Sheet or the
amendment referred to in the second sentence of Section 2(a) hereof, any
amendment or supplement to such Prospectus, Term Sheet or any amendment to the
Registration Statement of which the Representatives shall not previously have
been advised and furnished with a copy for a reasonable period of time prior to
the proposed filing and as to which filing the Representatives shall not have
given their consent. The Company will prepare and file with the Commission, in
accordance with the rules and regulations of the Commission, promptly upon
request by the Representatives or counsel for the Underwriters, any amendments
to the Registration Statement
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<PAGE> 12
or amendments or supplements to the Prospectus that may be necessary or
advisable in connection with the distribution of the Securities by the several
Underwriters, and will use its best efforts to cause any such amendment to the
Registration Statement to be declared effective by the Commission as promptly
as possible. The Company will advise the Representatives, promptly after
receiving notice thereof, of the time when the Registration Statement or any
amendment thereto has been filed or declared effective or the Prospectus or any
amendment or supplement thereto has been filed and will provide evidence
satisfactory to the Representatives of each such filing or effectiveness.
(b) The Company will advise the Representatives,
promptly after receiving notice or obtaining knowledge thereof, of (i) the
issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or any amendment thereto or any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, (ii) the suspension of the qualification of
the Securities for offering or sale in any jurisdiction, (iii) the institution,
threatening or contemplation of any proceeding for any such purpose or (iv) any
request made by the Commission for amending the Registration Statement, for
amending or supplementing the Prospectus or for additional information. The
Company will use its best efforts to prevent the issuance of any such stop
order and, if any such stop order is issued, to obtain the withdrawal thereof
as promptly as possible.
(c) The Company will arrange for the
qualification of the Securities for offering and sale under the securities or
blue sky laws of such jurisdictions as the Representatives may designate and
will continue such qualifications in effect for as long as may be necessary to
complete the distribution of the Securities, provided, however, that in
connection therewith the Company shall not be required to qualify as a foreign
corporation or to execute a general consent to service of process in any
jurisdiction.
(d) If, at any time prior to the later of (i) the
final date when a prospectus relating to the Securities is required to be
delivered under the Act or (ii) the Option Closing Date, any event occurs as a
result of which the Prospectus, as then amended or supplemented, would include
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if for any other
reason it is necessary at any time to amend or supplement the Prospectus to
comply with the Act or the rules or regulations of the Commission thereunder,
the Company will promptly notify the Representatives thereof and, subject to
Section 5(a) hereof,
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<PAGE> 13
will prepare and file with the Commission, at the Company's expense, an
amendment to the Registration Statement or an amendment or supplement to the
Prospectus that corrects such statement or omission or effects such compliance.
(e) The Company will, without charge, provide (i)
to the Representatives and to counsel for the Underwriters a signed copy of the
registration statement originally filed with respect to the Securities and each
amendment thereto (in each case including exhibits thereto), (ii) to each other
Underwriter, a conformed copy of such registration statement and each amendment
thereto (in each case without exhibits thereto) and (iii) so long as a
prospectus relating to the Securities is required to be delivered under the
Act, as many copies of each Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto as the Representatives may reasonably request;
without limiting the application of clause (iii) of this sentence, the Company,
not later than (A) 6:00 PM, New York City time, on the date of determination of
the public offering price, if such determination occurred at or prior to 12:00
Noon, New York City time, on such date or (B) 6:00 PM, New York City time, on
the business day following the date of determination of the public offering
price, if such determination occurred after 12:00 Noon, New York City time, on
such date, will deliver to the Representatives, without charge, as many copies
of the Prospectus and any amendment or supplement thereto as the
Representatives may reasonably request for purposes of confirming orders that
are expected to settle on the Firm Closing Date.
(f) The Company, as soon as practicable, will
make generally available to its securityholders and to the Representatives a
consolidated earnings statement of the Company and its subsidiaries that
satisfies the provisions of Section 11(a) of the Act and Rule 158 thereunder.
(g) The Company will apply the net proceeds from
the sale of the Securities as set forth under "Use of Proceeds" in the
Prospectus.
(h) The Company will not, directly or indirectly,
without the prior written consent of Prudential Securities Incorporated, offer,
sell, offer to sell, contract to sell, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, grant of any option to purchase or other sale or disposition) of any
shares of Common Stock or any securities convertible into, or exchangeable or
exercisable for, shares of Common Stock for a period of 180 days after the date
hereof, except pursuant to this Agreement and except for issuances of stock
options in the ordinary course of business pursuant to bona fide employee stock
option plans operated by the Company, and for issuances pursuant to the
exercise of
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<PAGE> 14
employee stock options outstanding on the date hereof, pursuant to the
Company's dividend reinvestment plan or pursuant to the terms of convertible
securities of the Company outstanding on the date hereof.
(i) The Company will not, directly or indirectly,
(i) take any action designed to cause or to result in, or that has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities and (ii) (A) sell, bid for, purchase, attempt to
induce any person to purchase, or pay anyone any compensation for soliciting
purchases of, the Securities or (B) pay or agree to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company.
(j) If at any time during the 25-day period after
the Registration Statement becomes effective or the period prior to the Option
Closing Date, any rumor, publication or event relating to or affecting the
Company shall occur as a result of which in your opinion the market price of
the Common Stock has been or is likely to be materially affected (regardless of
whether such rumor, publication or event necessitates a supplement to or
amendment of the Prospectus), the Company will, after written notice from you
advising the Company to the effect set forth above, forthwith prepare, consult
with you concerning the substance of, and disseminate a press release or other
public statement, reasonably satisfactory to you, responding to or commenting
on such rumor, publication or event.
(k) The Company will cause the Securities to be
duly authorized for listing by the NYSE prior to the Firm Closing Date and the
Company will ensure that the Securities remain listed on the NYSE following the
Firm Closing Date.
6. Expenses.
(a) The Company will pay all costs and expenses
incident to the performance of its obligations under this Agreement, whether or
not the transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 11 hereof, including all costs and expenses
incident to (i) the printing or other production of documents with respect to
the transactions, including any costs of printing the registration statement
originally filed with respect to the Securities and any amendment thereto, any
Preliminary Prospectus, Prospectus or Term Sheet and any amendment or
supplement thereto, this Agreement and any blue sky memoranda, (ii) all
arrangements relating to the delivery to the Underwriters of copies of the
foregoing documents, (iii) the fees and disbursements of the counsel, the
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<PAGE> 15
accountants and any other experts or advisors retained by the Company, (iv)
preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Securities, including transfer agent's and registrar's fees, (v)
the qualification of the Securities under state securities and blue sky laws,
including filing fees and fees and disbursements of counsel for the
Underwriters relating thereto, (vi) the filing fees of the Commission and the
National Association of Securities Dealers, Inc. ("NASD") relating to the
Securities, (vii) any listing of the Securities on the NYSE, (viii) any
meetings with prospective investors in the Securities (other than as shall have
been specifically approved by the Representatives to be paid for by the
Underwriters) and (ix) advertising relating to the offering of the Securities
(other than as shall have been specifically approved by the Representatives to
be paid for by the Underwriters). If the sale of the Securities provided for
herein is not consummated because any condition to the obligations of the
Underwriters set forth in Section 7 hereof is not satisfied, because this
Agreement is terminated pursuant to Section 11 hereof or because of any
failure, refusal or inability on the part of the Company to perform all
obligations and satisfy all conditions on its part to be performed or satisfied
hereunder other than by reason of a default by any of the Underwriters, the
Company will reimburse the Underwriters severally upon demand for all
out-of-pocket expenses (including counsel fees and disbursements) that shall
have been incurred by them in connection with the proposed purchase and sale of
the Securities. The Company shall not in any event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions covered
by this Agreement.
(b) In addition to its obligations under Section
8(a) of this Agreement, the Company agrees that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any loss, claim, damage or liability described in
Section 8(a) of this Agreement, it will reimburse the underwriters, and each of
them, on a monthly basis (or more often, if requested) for all reasonable legal
or other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and enforceability
of the obligations of the Company to reimburse the Underwriters for such
expenses and the possibility that such payments might later be held to have
been improper by a court of jurisdiction. To the extent that any portion, or
all, of any such interim reimbursement payments are so held to have been
improper, the Underwriters receiving the same shall promptly return such
amounts to the party or parties who have paid such amounts together with
interest, compounded daily, determined
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<PAGE> 16
on the basis of the prime rate (or other commercial lending rate for borrowers
of the highest credit standing) announced from time to time by Bank of America,
NT&SA, San Francisco, California (the "Prime Rate"). Any such interim
reimbursement payments that are not made to the Underwriters within 30 days of
a request for reimbursement shall bear interest at the Prime Rate from the date
of such request until the date paid.
(c) In addition to their obligation under Section
8(a) of this Agreement, the Underwriters agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any loss, claim, damage or liability
described in Section 8(b)(i) or 8(b)(ii) of this Agreement, (in each case to
the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by any
Underwriter through the Representatives specifically for use therein), they
will reimburse the Company on a monthly basis (or more often, if requested) for
all reasonable legal or other expenses incurred by the Company in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Underwriters' obligation to
reimburse the Company for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent jurisdiction.
To the extent that any portion, or all, of any such interim reimbursement
payments are so held to have been improper, the Company shall promptly return
such amounts to the Underwriters together with interest, compounded daily,
determined on the basis of the Prime Rate. Any such interim reimbursement
payments that are not made to the Company within 30 days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request until the date paid.
(d) It is agreed that any controversy arising out
of the operation of the interim reimbursement arrangements set forth in Section
6(b) and 6(c) above, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the indemnifying parties, shall be settled
by arbitration conducted under the provisions of the Constitution and Rules of
the Board of Governors of the NYSE or pursuant to the Code of Arbitration
Procedure of the NASD. Any such arbitration must be commenced by service of a
written demand for arbitration or a written notice of intention to arbitrate,
therein electing the arbitration tribunal. If the party demanding arbitration
does not make designation of an arbitration tribunal in such demand or notice,
then the party responding to said demand or notice is authorized to do so.
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<PAGE> 17
Any such arbitration will be limited to the interpretation and obligations of
the parties under the interim reimbursement provisions contained in Sections
6(b) and 6(c) above and will not resolve the ultimate propriety or
enforceability of the obligation to indemnify for expenses that is created by
the provisions of Section 8 of this Agreement.
7. Conditions of the Underwriters' Obligations. The
obligations of the several Underwriters to purchase and pay for the Firm
Securities shall be subject, in the Representatives' sole discretion, to the
accuracy of the representations and warranties of the Company contained herein
as of the date hereof and as of the Firm Closing Date, as if made on and as of
the Firm Closing Date, to the accuracy of the statements of the Company's
officers made pursuant to the provisions hereof, to the performance by the
Company of its covenants and agreements hereunder and to the following
additional conditions:
(a) If the Registration Statement or any
amendment thereto filed prior to the Firm Closing Date has not been declared
effective as of the time of execution hereof, the Registration Statement or
such amendment shall have been declared effective not later than 11 A.M., New
York time, on the date on which the amendment to the registration statement
originally filed with respect to the Securities or to the Registration
Statement, as the case may be, containing information regarding the initial
public offering price of the Securities has been filed with the Commission, or
such later time and date as shall have been consented to by the
Representatives; if required, the Prospectus or any Term Sheet that constitutes
a part thereof and any amendment or supplement thereto shall have been filed
with the Commission in the manner and within the time period required by Rules
434 and 424(b) under the Act; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto shall have been issued, and no
proceedings for that purpose shall have been instituted or threatened or, to
the knowledge of the Company or the Representatives, shall be contemplated by
the Commission; and the Company shall have complied with any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise).
(b) The Representatives shall have received an
opinion, dated the Firm Closing Date, of Rogers & Wells, counsel for the
Company, to the effect that:
(i) the Company and each of its
subsidiaries listed in Schedule 2 hereto (the "Subsidiaries") have
been duly organized and are validly existing as corporations in good
standing under the laws of their respective jurisdictions of
incorporation and
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are duly qualified to transact business as foreign corporations and
are in good standing under the laws of all other jurisdictions where
the ownership or leasing of their respective properties or the conduct
of their respective businesses requires such qualification, except
where the failure to be so qualified does not amount to a material
liability or disability to the Company and the Subsidiaries, taken as
a whole;
(ii) the Company and each of the
Subsidiaries have corporate power to own or lease their respective
properties and conduct their respective businesses as described in the
Registration Statement and the Prospectus, and the Company has
corporate power to enter into this Agreement and to carry out all the
terms and provisions hereof to be carried out by it;
(iii) the issued shares of capital stock
of each of the Subsidiaries have been duly authorized and validly
issued, are fully paid and nonassessable and are owned beneficially by
the Company free and clear of any perfected security interests or, to
the best knowledge of such counsel, any other security interests,
liens, encumbrances, equities or claims;
(iv) the Company has an authorized,
issued and outstanding capitalization as set forth in the Prospectus;
all of the issued shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all applicable
federal and state securities laws and were not issued in violation of
or subject to any preemptive rights or other rights to subscribe for
or purchase securities; the Firm Securities have been duly authorized
by all necessary corporate action of the Company and, when issued and
delivered to and paid for by the Underwriters pursuant to this
Agreement, will be validly issued, fully paid and nonassessable; the
Securities have been duly authorized for listing, subject to official
notice of issuance, on the NYSE; no holder of outstanding shares of
capital stock of the Company is entitled as such to any preemptive or
other rights to subscribe for any of the Securities; and no holder of
securities of the Company is entitled to have such securities
registered under the Registration Statement;
(v) the statements set forth under the
heading "Description of Capital Stock" in the Prospectus, insofar as
such statements purport to summarize certain provisions of the capital
stock of the Company, provide a fair summary of such provisions; and
the statements set forth under the heading "Business -- Government
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<PAGE> 19
Regulation" in the Prospectus, insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to
therein, provide a fair summary of such legal matters, documents and
proceedings;
(vi) the execution and delivery of this
Agreement have been duly authorized by all necessary corporate action
of the Company and this Agreement has been duly executed and delivered
by the Company;
(vii) to the best knowledge of such
counsel, (A) no legal or governmental proceedings are pending to which
the Company or any of the Subsidiaries is a party or to which the
property of the Company or any of the Subsidiaries is subject that are
required to be described in the Registration Statement or the
Prospectus and are not described therein, and, to the best knowledge
of such counsel, no such proceedings have been threatened against the
Company or any of the Subsidiaries or with respect to any of their
respective properties and (B) no contract or other document is
required to be described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement
that is not described therein or filed as required;
(viii) the issuance, offering and sale of
the Securities to the Underwriters by the Company pursuant to this
Agreement, the compliance by the Company with the other provisions of
this Agreement and the consummation of the other transactions herein
contemplated do not (A) require the consent, approval, authorization,
registration or qualification of or with any governmental authority,
except such as have been obtained and such as may be required under
state securities or blue sky laws, or (B) conflict with or result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust,
lease or other agreement or instrument, described in the Registration
Statement or a material contract or listed as an Exhibit to the
Registration Statement and, to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties are bound, or the
charter documents or by-laws of the Company or any of the
Subsidiaries, or any statute or any judgment, decree, order, rule or
regulation of any court or other governmental authority or any
arbitrator known to such counsel and applicable to the Company or any
of the Subsidiaries;
(ix) such counsel has been advised by the
Staff of the Commission that the Registration Statement is effective
under the Act; any required filing of the
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<PAGE> 20
Prospectus, or any Term Sheet that constitutes a part thereof,
pursuant to Rules 434 and 424(b) has been made in the manner and
within the time period required by Rule 424(b); and no stop order
suspending the effectiveness of the Registration Statement or any
amendment thereto has been issued, and to the best knowledge of such
counsel no proceedings for that purpose have been instituted or
threatened or, to the best knowledge of such counsel, are contemplated
by the Commission;
(x) the registration statement
originally filed with respect to the Securities and each amendment
thereto and the Prospectus (in each case, other than the financial
statements and other financial and statistical information contained
therein, as to which such counsel need express no opinion) comply as
to form in all material respects with the applicable requirements of
the Act and the rules and regulations of the Commission thereunder;
and
(xi) The Company is not, and this
transaction will not cause the Company to become, an investment
company subject to registration under the Investment Company Act of
1940, as amended.
Such counsel shall also state that they have no reason to
believe that the Registration Statement, as of its effective date, contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus, as of its date or the date of such opinion,
included or includes any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Counsel may state that this belief is based upon its participation
in the preparation of the Registration Statement and the Prospectus and its
review and discussion of the contents thereof.
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials.
References to the Registration Statement and the Prospectus in
this paragraph (b) shall include any amendment or supplement thereto at the
date of such opinion.
(c) The Representatives shall have received an
opinion, dated the Firm Closing Date, of Gibson, Dunn & Crutcher, counsel for
the Underwriters, with respect to the issuance and sale of the Firm Securities,
the Registration
20
<PAGE> 21
Statement and the Prospectus, and such other related matters as the
Representatives may reasonably require, and the Company shall have furnished to
such counsel such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters.
(d) The Representatives shall have received from
Deloitte & Touche LLP a letter or letters dated, respectively, the date hereof
and the Firm Closing Date, in form and substance satisfactory to the
Representatives, to the effect that:
(i) they are independent accountants
with respect to the Company and its consolidated subsidiaries within
the meaning of the Act and the applicable rules and regulations
thereunder;
(ii) in their opinion, the audited
consolidated financial statements and schedules examined by them and
included in the Registration Statement and the Prospectus comply in
form in all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations;
(iii) on the basis of their limited review
in accordance with standards established by the American Institute of
Certified Public Accountants of any interim unaudited consolidated
condensed financial statements of the Company and its consolidated
subsidiaries as indicated in their report included in the Registration
Statement and the Prospectus, carrying out certain specified
procedures (which do not constitute an examination made in accordance
with generally accepted auditing standards) that would not necessarily
reveal matters of significance with respect to the comments set forth
in this paragraph (iii), a reading of the minute books of the
shareholders, the board of directors and any committees thereof of the
Company and each of its consolidated subsidiaries, and inquiries of
certain officials of the Company and its consolidated subsidiaries who
have responsibility for financial and accounting matters, nothing came
to their attention that caused them to believe that:
(A) the unaudited consolidated condensed
financial statements of the Company and its consolidated
subsidiaries included in the Registration Statement and the
Prospectus do not comply in form in all material respects with
the applicable accounting requirements of the Act and the
related published rules and regulations thereunder or are not
in conformity with generally accepted accounting principles
applied on a basis
21
<PAGE> 22
substantially consistent with that of the audited consolidated
financial statements included in the Registration Statement
and the Prospectus; and
(B) at a specific date not more than
five business days prior to the date of such letter, there
were any changes in the capital stock or long-term debt of the
Company and its consolidated subsidiaries or any decreases in
net current assets or stockholders' equity of the Company and
its consolidated subsidiaries, in each case compared with
amounts shown on the March 31, 1995 unaudited consolidated
balance sheet included in the Registration Statement and the
Prospectus, or for the period from ___________________, 1995
to such specified date there were any decreases, as compared
with the corresponding period in the preceding year in finance
and other income, earnings from continuing operations, or
total or per share amounts of net earnings of the Company and
its consolidated subsidiaries, except in all instances for
changes, decreases or increases set forth in such letter; and
(iv) they have carried out certain
specified procedures, not constituting an audit, with respect to
certain amounts, percentages and financial information that are
derived from the general accounting records of the Company and its
consolidated subsidiaries and are included in the Registration
Statement and the Prospectus under the captions set forth in such
letter and in Exhibit 11 to the Registration Statement, and have
compared such amounts, percentages and financial information with such
records of the Company and its consolidated subsidiaries and with
information derived from such records and have found them to be in
agreement, excluding any questions of legal interpretation.
In the event that the letters referred to above set forth any
such changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that (A) such letters shall be accompanied by a
written explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such changes,
decreases or increases do not, in the sole judgment of the Representatives,
make it impractical or inadvisable to proceed with the purchase and delivery of
the Securities as contemplated by the Registration Statement, as amended as of
the date hereof.
References to the Registration Statement and the Prospectus in
this paragraph (d) with respect to either letter referred to above shall
include any amendment or supplement thereto at the date of such letter.
22
<PAGE> 23
(e) The Representatives shall have received a
certificate, dated the Firm Closing Date, of the principal executive officer
and the principal financial or accounting officer of the Company to the effect
that:
(i) the representations and warranties
of the Company in this Agreement are true and correct as if made on
and as of the Firm Closing Date; the Registration Statement, as
amended as of the Firm Closing Date, does not include any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading, and the
Prospectus, as amended or supplemented as of the Firm Closing Date,
does not include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; and the Company has performed all covenants and
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Firm Closing Date;
(ii) no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto
has been issued, and no proceedings for that purpose have been
instituted or threatened or, to the best of the Company's knowledge,
are contemplated by the Commission; and
(iii) subsequent to the respective dates
as of which information is given in the Registration Statement and the
Prospectus, neither the Company nor any of its subsidiaries have
sustained any material loss or interference with their respective
businesses or properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding, and there has not
been any material adverse change, or any development involving a
prospective material adverse change, in the condition (financial or
otherwise), management, business prospects, net worth or results of
operations of the Company or any of its subsidiaries, except in each
case as described in or contemplated by the Prospectus (exclusive of
any amendment or supplement thereto).
(f) The Representatives shall have received from
each person who is a director or officer of the Company or who holds, in the
aggregate, at least __% of the outstanding shares of Common Stock an agreement
to the effect that such person will not, directly or indirectly, without the
prior written consent of Prudential Securities Incorporated, offer, sell, offer
to sell, contract to sell, grant any option
23
<PAGE> 24
to purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, grant of an option to purchase or other sale or
disposition) of any shares of Common Stock or any securities convertible into,
or exchangeable or exercisable for, shares of Common Stock for a period of 180
days after the date of this Agreement.
(g) On or before the Firm Closing Date, the
Representatives and counsel for the Underwriters shall have received such
further certificates, documents or other information as they may have
reasonably requested from the Company.
(h) Prior to the commencement of the offering of
the Securities, the Securities shall have been approved for trading on the
NYSE.
All opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof only if they
are reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company shall furnish to the Representatives
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representatives and counsel for the Underwriters shall
reasonably request.
The respective obligations of the several Underwriters to
purchase and pay for any Option Securities shall be subject, in their
discretion, to each of the foregoing conditions to purchase the Firm
Securities, except that all references to the Firm Securities and the Firm
Closing Date shall be deemed to refer to such Option Securities and the related
Option Closing Date, respectively.
8. Indemnification and Contribution. (a) The Company agrees
to indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Securities Exchange Act of 1934 (the "Exchange Act"), against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged
untrue statement made by the Company in Section 2 of this Agreement,
(ii) any untrue statement or alleged
untrue statement of any material fact contained in (A) the
Registration Statement or any amendment thereto, any
24
<PAGE> 25
Preliminary Prospectus, Prospectus or Term Sheet or any amendment or
supplement thereto or (B) any application or other document, or any
amendment or supplement thereto, executed by the Company or based upon
written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify the Securities under the
securities or blue sky laws thereof or filed with the Commission or
any securities association or securities exchange (each an
"Application"),
(iii) the omission or alleged omission to
state in the Registration Statement or any amendment thereto, any
Preliminary Prospectus, Prospectus or Term Sheet or any amendment or
supplement thereto, or any Application a material fact required to be
stated therein or necessary to make the statements therein not
misleading or
(iv) any untrue statement or alleged
untrue statement of any material fact contained in any audio or visual
materials used in connection with the marketing of the Securities,
including without limitation, slides, videos, films, tape recordings,
and will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such Underwriter
or such controlling person in connection with investigating, defending against
or appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement
or any amendment thereto, any Preliminary Prospectus, Prospectus or Term Sheet
or any amendment or supplement thereto or any Application in reliance upon and
in conformity with written information furnished to the Company by such
Underwriter through the Representatives specifically for use therein. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have. The Company will not, without the prior written consent of the
Underwriter or Underwriters purchasing, in the aggregate, more than fifty
percent (50%) of the Securities, settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or proceeding
in respect of which indemnification may be sought hereunder (whether or not any
such Underwriter or any person who controls any such Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party
to such claim, action, suit or proceeding), unless such settlement, compromise
or consent includes an unconditional release of all of the Underwriters and
such controlling
25
<PAGE> 26
persons from all liability arising out of such claim, action, suit or
proceeding.
(b) Each Underwriter, severally and not jointly,
will indemnify and hold harmless the Company, each of its directors, each of
its officers who signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act against any losses, claims, damages or liabilities to which
the Company or any such director, officer or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement or any amendment thereto, any Preliminary
Prospectus, Prospectus or Term Sheet or the Prospectus or any amendment or
supplement thereto, or any Application or (ii) the omission or the alleged
omission to state therein a material fact required to be stated in the
Registration Statement or any amendment thereto, any Preliminary Prospectus,
Prospectus or Term Sheet or any amendment or supplement thereto, or any
Application or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by
such Underwriter through the Representatives specifically for use therein; and,
subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability or any
action in respect thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified
party under this Section 8 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 8. In case any such action is brought
against any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party;
26
<PAGE> 27
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnifying party
shall not have the right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or parties shall have
the right to select separate counsel to defend such action on behalf of such
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof and approval
by such indemnified party of counsel appointed to defend such action, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding sentence
(it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, designated by the Representatives in
the case of paragraph (a) of this Section 8, representing the indemnified
parties under such paragraph (a) who are parties to such action or actions) or
(ii) the indemnifying party does not promptly retain counsel satisfactory to
the indemnified party or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs and
expenses of any settlement of such action effected by such indemnified party
without the consent of the indemnifying party.
(d) In circumstances in which the indemnity
agreement provided for in the preceding paragraphs of this Section 8 is
unavailable or insufficient, for any reason, to hold harmless an indemnified
party in respect of any losses, claims, damages or liabilities (or actions in
respect thereof), each indemnifying party, in order to provide for just and
equitable contribution, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
(i) the relative benefits received by the indemnifying party or parties on the
one hand and the indemnified party on the other from the offering of the
Securities or (ii) if the allocation provided by the foregoing clause (i) is
not
27
<PAGE> 28
permitted by applicable law, not only such relative benefits but also the
relative fault of the indemnifying party or parties on the one hand and the
indemnified party on the other in connection with the statements or omissions
or alleged statements or omissions that resulted in such losses, claims,
damages or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters. The relative fault of
the parties shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or the Underwriters, the parties' relative intents, knowledge,
access to information and opportunity to correct or prevent such statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Underwriters agree that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take into account
the equitable considerations referred to above in this paragraph (d).
Notwithstanding any other provision of this paragraph (d), no Underwriter shall
be obligated to make contributions hereunder that in the aggregate exceed the
total public offering price of the Securities purchased by such Underwriter
under this Agreement, less the aggregate amount of any damages that such
Underwriter has otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Prudential Securities Incorporated Master Agreement Among Underwriters.
For purposes of this paragraph (d), each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as such Underwriter,
and each director of the Company, each officer of the Company who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall
have the same rights to contribution as the Company.
28
<PAGE> 29
(e) The parties to this Agreement hereby
acknowledge that they are sophisticated business persons who were represented
by counsel during the negotiations regarding the provisions of this Agreement,
including, without limitation, the provisions of Sections 6(b), 6(c) and 6(d)
of this Agreement and this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of Sections 6(b),
6(c) and 6(d) of this Agreement and this Section 8 fairly allocate the risks in
light of the ability of the parties to investigate the Company and its business
in order to assure that adequate disclosure is made in the Registration
Statement and Prospectus as required by the Act. The parties are advised that
federal or state policy, as interpreted by the courts in certain jurisdictions,
may be contrary to certain provisions of Sections 6(b), 6(c) and 6(d) of this
Agreement and this Section 8, and the parties hereto hereby expressly waive and
relinquish any right or ability to assert such public policy as a defense to a
claim under Sections 6(b), 6(c) and 6(d) of this Agreement or this Section 8
and further agree not to attempt to assert any such defense.
9. Default of Underwriters. If one or more Underwriters
default in their obligations to purchase Firm Securities or Option Securities
hereunder and the aggregate number of such Securities that such defaulting
Underwriter or Underwriters agreed but failed to purchase is ten percent or
less of the aggregate number of Firm Securities or Option Securities to be
purchased by all of the Underwriters at such time hereunder, the other
Underwriters may make arrangements satisfactory to the Representatives for the
purchase of such Securities by other persons (who may include one or more of
the non-defaulting Underwriters, including the Representatives), but if no such
arrangements are made by the Firm Closing Date or the related Option Closing
Date, as the case may be, the other Underwriters shall be obligated severally
in proportion to their respective commitments hereunder to purchase the Firm
Securities or Option Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase. If one or more Underwriters so
default with respect to an aggregate number of Securities that is more than ten
percent of the aggregate number of Firm Securities or Option Securities, as the
case may be, to be purchased by all of the Underwriters at such time hereunder,
and if arrangements satisfactory to the Representatives are not made within 36
hours after such default for the purchase by other persons (who may include one
or more of the non-defaulting Underwriters, including the Representatives) of
the Securities with respect to which such default occurs, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or
the Company other than as provided in Section 10 hereof. In the event of any
default by one or more Underwriters as described in this Section 9, the
29
<PAGE> 30
Representatives shall have the right to postpone the Firm Closing Date or the
Option Closing Date, as the case may be, established as provided in Section 3
hereof for not more than seven business days in order that any necessary
changes may be made in the arrangements or documents for the purchase and
delivery of the Firm Securities or Option Securities, as the case may be. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section 9. Nothing herein shall relieve any
defaulting Underwriter from liability for its default.
10. Survival. The respective representations,
warranties, agreements, covenants, indemnities and other statements of the
Company, its officers and the several Underwriters set forth in this Agreement
or made by or on behalf of them, respectively, pursuant to this Agreement shall
remain in full force and effect, regardless of (i) any investigation made by or
on behalf of the Company, any of its officers or directors, any Underwriter or
any controlling person referred to in Section 8 hereof and (ii) delivery of and
payment for the Securities. The respective agreements, covenants, indemnities
and other statements set forth in Sections 6 and 8 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
11. Termination. (a) This Agreement may be terminated
with respect to the Firm Securities or any Option Securities in the sole
discretion of the Representatives by notice to the Company given prior to the
Firm Closing Date or the related Option Closing Date, respectively, in the
event that the Company shall have failed, refused or been unable to perform all
obligations and satisfy all conditions on its part to be performed or satisfied
hereunder at or prior thereto or, if at or prior to the Firm Closing Date or
such Option Closing Date, respectively,
(i) the Company or any of its
subsidiaries shall have, in the sole judgment of the Representative,
sustained any material loss or interference with their respective
businesses or properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding or there shall have
been any material adverse change, or any development involving a
prospective material adverse change (including without limitation a
change in management or control of the Company), in the condition
(financial or otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, except in each case as
described in or
30
<PAGE> 31
contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(ii) trading in the Common Stock shall
have been suspended by the Commission or the NYSE or trading in
securities generally shall have been suspended or minimum or maximum
prices shall have been established on such exchange;
(iii) a banking moratorium shall have been
declared by New York or United States authorities; or
(iv) there shall have been (A) an
outbreak or escalation of hostilities between the United States and
any foreign power, (B) an outbreak or escalation of any other
insurrection or armed conflict involving the United States or (C) any
other calamity or crisis or material adverse change in general
economic, political or financial conditions having an effect on the
U.S. financial markets that, in the sole judgment of the
Representatives, makes it impractical or inadvisable to proceed with
the public offering or the delivery of the Securities as contemplated
by the Registration Statement, as amended as of the date hereof.
(b) Termination of this Agreement pursuant to
this Section 11 shall be without liability of any party to any other party
except as provided in Section 10 hereof.
12. Information Supplied by Underwriters. The statements
set forth in the last paragraph on the front cover page and under the heading
"Underwriting" in any Preliminary Prospectus or the Prospectus (to the extent
such statements relate to the Underwriters) constitute the only information
furnished by any Underwriter through the Representatives to the Company for the
purposes of Sections 2(b) and 8 hereof. The Underwriters confirm that such
statements (to such extent) are correct.
13. Notices. All communications hereunder shall be in
writing and, if sent to any of the Underwriters, shall be delivered or sent by
mail, telex or facsimile transmission and confirmed in writing to Prudential
Securities Incorporated, One New York Plaza, New York, New York 10292,
Attention: Equity Transactions Group; and if sent to the Company, shall be
delivered or sent by mail, telex or facsimile transmission and confirmed in
writing to the Company at .
14. Successors. This Agreement shall inure to the
benefit of and shall be binding upon the several Underwriters, the Company and
their respective successors and legal
31
<PAGE> 32
representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that (i) the indemnities of the
Company contained in Section 8 of this Agreement shall also be for the benefit
of any person or persons who control any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Underwriters contained in Section 8 of this Agreement shall
also be for the benefit of the directors of the Company, the officers of the
Company who have signed the Registration Statement and any person or persons
who control the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act. No purchaser of Securities from any Underwriter shall
be deemed a successor because of such purchase.
15. Applicable Law. The validity and interpretation of
this Agreement, and the terms and conditions set forth herein, shall be
governed by and construed in accordance with the laws of the State of New York,
without giving effect to any provisions relating to conflicts of laws.
16. Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
If the foregoing correctly sets forth our understanding,
please indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute an agreement binding the
Company and each of the several Underwriters.
Very truly yours,
DVI, INC.
By
----------------------------
[Title]
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written.
PRUDENTIAL SECURITIES INCORPORATED
OPPENHEIMER & CO., INC.
32
<PAGE> 33
By PRUDENTIAL SECURITIES INCORPORATED
By
-------------------------------------
Name:
Title:
For itself and on behalf of the Representatives.
33
<PAGE> 34
SCHEDULE 1
UNDERWRITERS
Number of Firm
Securities to be
Underwriter Purchased
----------------------------------- ----------------
Prudential Securities Incorporated
Oppenheimer & Co., Inc.
---------------
Total
===============
<PAGE> 35
SCHEDULE 2
SUBSIDIARIES
Jurisdiction of
Name Incorporation
--------------------------------- --------------------
<PAGE> 1
Exhibit 5
[ROGERS AND WELLS LETTERHEAD]
June 23, 1995
DVI, Inc.
500 Hyde Park
Doylestown, Pennsylvania 18901
Gentlemen:
We have acted as counsel for DVI, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1993, as amended (the "1933 Act"), of a registration
statement on Form S-1 (the "Registration Statement") relating to the
proposed public offering of up to 2,875,000 shares (including an
over-allotment option to purchase 375,000 shares) of the Company's Common
Stock, par value $.005 per share (the "Shares").
In so acting, we have examined and relied upon originals or copies,
certified or otherwise identified to our satisfaction, of such corporate
records, documents, certificates and other instruments as in our judgment
are necessary or appropriate to enable us to render the opinions expressed
below. As to factual matters relevant to the opinions set forth below we
have, with your permission, relied upon certificates of officers of the
Company and public officials.
Based upon the foregoing, and on such examination of law as we have
deemed necessary, we are of the opinion that when the Shares have been
offered and sold as contemplated in the Registration Statement the
Shares will be validly issued, fully paid and non-assessable.
<PAGE> 2
DVI, Inc. 2 June 23, 1995
We consent to the filing of this opinion with the Commission as an
Exhibit to the Registration Statement and to the reference to this firm under
the caption "Legal Matters" in the Prospectus contained in the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the 1933 Act,
or the Rules and Regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Rogers & Wells
<PAGE> 1
Exhibit 10.16
===============================================================================
FIRST AMENDED AND RESTATED
LOAN AGREEMENT
between
DVI Financial Services Inc.,
The Banks Signatory to this Loan Agreement
- and -
NatWest Bank N.A.,
as Agent, Pre-Funding Lender and a Bank
$81,500,000 Facility
Dated June 14, 1991
Amended and Restated as of March 28, 1995
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 General Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 1.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 2. COMMITMENTS; LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.1 Loans; Credit Period; Term Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.2 Changes in Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.3 Borrowing Notice; Borrowing Base Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.4 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.5 Lending Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.6 Disbursement of Loan Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.7 Conversions of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.8 Mandatory and Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.9 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.10 Principal Repayment Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.11 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 2.12 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 2.13 Time and Method of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 2.14 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 2.15 Minimum Borrowings, Conversions and Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 2.16 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 2.17 Limitation on Types of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.18 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.19 Forced Conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 2.20 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 2.21 Security Documents; Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 2.22 Forms of Borrower Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 2.23 Required Borrowing Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 2.24 Lock-Box Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 2.25 Pro Rata Treatment Among Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 2.26 Non-Receipt of Funds by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 2.27 Sharing of Payments and Set-Off Among Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 2.28 Several Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 2.29 Release of Agent's Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 2.30 Pre-Funding Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE 3. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 3.2 Power, Authority, Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 3.3 No Violation of Law or Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 3.4 Due Execution, Validity, Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 3.5 Properties, Priority of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 3.6 Judgments, Actions, Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 3.7 No Defaults, Compliance With Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 3.8 Burdensome Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 3.9 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
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Section 3.10 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 3.11 Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 3.12 Regulation U . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 3.13 Name Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 3.14 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 3.15 Labor Disputes; Collective Bargaining Agreements; Employee Grievances . . . . . . . . . . . . . . 51
Section 3.16 Condition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 3.17 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 3.18 Non-Recourse Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 3.19 Finders or Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 3.20 Investment Company Act; Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . 52
Section 3.21 Borrowing Base Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 3.22 Licenses and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 3.23 Independent Credit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE 4. CONDITIONS TO THE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 4.1 Conditions to Initial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 4.2 Conditions to Subsequent Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE 5. DELIVERY OF FINANCIAL REPORTS,
DOCUMENTS AND OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 5.1 Annual Financial Statements and Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 5.2 Quarterly Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 5.3 Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 5.4 No Default Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 5.5 Copies of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 5.6 Notices of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 5.7 ERISA Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 5.8 Borrowing Base Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE 6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 6.1 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 6.2 Inspections and Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 6.3 Maintenance and Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 6.4 Continuance of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 6.5 Copies of Corporate Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 6.6 Perform Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 6.7 Notice of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 6.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 6.9 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 6.10 Reportable Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 6.11 Comply with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 6.12 Upgrades and Add-ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 6.13 Possession of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 6.14 Obligor Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
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Section 6.15 Preservation and Perfection of Agent's Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 6.16 Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 6.17 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
ARTICLE 7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 7.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 7.3 Mergers, Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 7.4 Redemptions; Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 7.5 Stock Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 7.6 Changes in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 7.7 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 7.8 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 7.9 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 7.10 ERISA Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 7.11 Amendment of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 7.12 Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 7.13 Rental Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 7.14 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 7.15 Changes in Calculation of Net Book Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 7.16 Non-DVI Generated Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
ARTICLE 8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.1 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.3 Other Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.4 Other Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 8.5 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 8.6 Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 8.7 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 8.8 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 8.9 Ownership of Stock of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 8.10 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 8.11 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 8.12 Parent Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 8.13 Warehouse Loan Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
ARTICLE 9. THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 9.1 Appointment, Powers and Immunities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 9.2 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 9.3 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 9.4 Rights as a Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 9.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 9.6 Non-Reliance on Agent and other Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 9.7 Failure to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 9.8 Resignation or Removal of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
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Section 9.9 Sharing of Collateral and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
ARTICLE 10. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 10.1 Fees and Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 10.2 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Section 10.3 No Set-Off of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 10.4 Survival of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 10.5 Lien on and Set-off of Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 10.6 Modifications, Consents and Waivers; Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 83
Section 10.7 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Section 10.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 10.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 10.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 10.11 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial . . . . . . . . . . . . . . . . . . 85
Section 10.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 10.13 Binding Effect; No Assignment by Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 10.14 Assignments and Participations by Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 10.15 Scope of Agent's Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
SCHEDULES:
1. States of Incorporation and Qualification, and Capitalization and Ownership of Stock, of DVI and
its Subsidiaries
2. Consents, Waivers, Approvals; Violation of Agreements
3. Judgments, Actions, Proceedings
4. Defaults; Compliance with Laws, Regulations and Agreements
5. Burdensome Documents
6. Patents, Trademarks, Trade Names, Service Marks and Copyrights
7. Name Changes, Mergers, Acquisitions; Location of Collateral
8. Labor Disputes; Collective Bargaining Agreements; Employee Grievances
9. Existing Non-Recourse and Partial Recourse Debt
10. Conditions Precedent to Original Agreement
11. Permitted Recourse Indebtedness
12. Guaranties of Obligations of Affiliates
13. Certain Restricted Investments
</TABLE>
EXHIBITS:
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<S> <C>
A Form of Note
B Form of Pre Funding Note
C Form of Borrowing Notice
D Form of Borrowing Base Report
E Form of Assignment and Acceptance
F Form of DBC Financing Agreements
G Form of Eligible Progress Payment Agreements
</TABLE>
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<PAGE> 7
FIRST AMENDED AND RESTATED
LOAN AGREEMENT
This FIRST AMENDED AND RESTATED LOAN AGREEMENT, dated June 14,
1991 and amended and restated as of March 28, 1995 (as amended and restated,
this "Agreement"), is between DVI Financial Services Inc., a Delaware
corporation (the "Borrower"), the banks that have executed a signature page to
this Agreement (the "Banks"), NatWest Bank N.A. (successor by merger to
National Westminster Bank USA), as Pre-Funding Lender pursuant to the terms of
Section 2.30 (in such capacity, the "Pre-Funding Lender"), and NatWest Bank
N.A. as agent for the Banks pursuant to the terms of Article 9 (in such
capacity, the "Agent").
RECITALS:
(1) The Borrower, the Banks and the Agent are parties to
the Loan Agreement, dated June 14, 1991, as heretofore amended, modified and
supplemented (the "Original Agreement"), pursuant to which the Borrower
obtained commitments for loans from the Banks in the aggregate principal sum of
$79,000,000.
(2) The Borrower, the Banks and the Agent wish to amend
the Original Agreement to increase the maximum available loans to $81,500,000
and to make certain other changes in the terms of the Original Agreement, and
to restate the Original Agreement as amended by such amendments for their
convenience.
(3) Following such restatement, this Agreement will set
forth the definitive terms and conditions of the agreement of the Borrower, the
Banks and the Agent regarding the matters covered by this Agreement as of and
after the date the Original Agreement is restated, and the Original Agreement
will continue to govern such terms prior to such date.
NOW, THEREFORE, in consideration for the foregoing agreements
and for other good and valuable consideration whose receipt and sufficiency are
acknowledged, the Borrower, the Banks and the Agent agree to the following
terms.
ARTICLE 1. DEFINITIONS
Section 1.1 General Definitions. In addition to the
terms defined elsewhere in this Agreement, the following terms shall have the
following meanings for purposes of this Agreement:
"Additional Costs" - as defined in Section 2.16.
"Affiliate" - as to any Person, any other Person that directly
or indirectly controls, is under common control with or is controlled by such
Person. As used in this definition,
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"control", "under common control with" and "controlled by" mean possession,
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise); provided that (i) any Person
that owns, directly or indirectly, 5% or more of the securities having ordinary
voting power for the election of directors or other governing body of a
corporation, or 5% or more of the non-limited partnership or other ownership
interests of any other Person, will be deemed to control such Person, and (ii)
each shareholder, director and officer of the Borrower shall be deemed to be an
Affiliate of the Borrower.
"Agent's Lien" - the Liens granted to the Agent for the
ratable benefit of the Banks pursuant to the Security Documents.
"Applicable Law" - all applicable (i) laws, treaties and
international agreements of any national government, (ii) laws of any state,
province, territory, locality or other political subdivision of a national
government, and (iii) rules, regulations, judgments, decrees, orders,
injunctions, writs, directives, ordinances, licenses and permits of any
government, governmental agency, court or arbitration authority.
"Applicable Lending Office" - with respect to each type of
Loan for each Bank, the lending office designated for such type of Loan on such
Bank's signature page to this Agreement, or such other office as such Bank may
specify from time to time to the Borrower, as the office at which its Loans of
such type are to be made and maintained.
"Applicable Margin" - during any calendar month (i) during the
Credit Period, the following amounts based on the Leverage Ratio of the
Borrower at the end of the second preceding calendar month (and reported before
the end of the preceding month): (A) if the Leverage Ratio is less than 2:1,
0.0% for Prime Rate Loans and 1.5% for Eurodollar Loans, (B) if the Leverage
Ratio is equal to or more than 2:1 and less than or equal to 4:1, 0.125% for
Prime Rate Loans and 1.65% for Eurodollar Loans, and (C) if the Leverage Ratio
is more than 4:1, 0.25% for Prime Rate Loans and 1.8% for Eurodollar Loans; and
(ii) from and after the Term Conversion Date, 0.875% for Prime Rate Loans and
2.625% for Eurodollar Loans.
"Assignment and Acceptance" - an Assignment and Acceptance
agreement in the form attached as Exhibit E.
"Assignment of Agreements" - the Assignment of Agreements,
dated June 14, 1991, between Borrower and Agent, as confirmed by the
Confirmation.
"Assignment of Leases" - the Assignment of Leases, dated June
14, 1991, between Borrower and Agent, as confirmed by the Confirmation.
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"Balance of Payments" - at any date, the total unpaid
regularly scheduled rental payments under a Lease or the total unpaid regularly
scheduled payments under an Equipment Note, CSA or Third Party Note, in each
case due or to become due during the next succeeding 84 months or the
remainder, whichever is less, of the Initial Term of the applicable Eligible
Contract, but not in any event including payments or amounts due directly or
indirectly on account of user, sales or property taxes, maintenance, repairs,
management fees, insurance and similar items and net of any credits, customer
deposits, rebates, offsets, holdbacks or other adjustments or commissions
payable to third parties that are adjustments to such payments, and provided
that the Balance of Payments with respect to an item of related Equipment is
that portion of the Balance of Payments attributable to such item of Equipment.
"Borrowing Availability" - the difference between (a) the
Borrowing Capacity, minus (b) the aggregate outstanding balance of all Loans
and all Pre-Funding Loans.
"Borrowing Base" - as defined in Section 1.2(a).
"Borrowing Base Report" - a report in the form attached as
Exhibit D that includes a Borrowing Base computation.
"Borrowing Capacity" - as defined in Section 2.1.
"Borrowing Notice" - a notice in the form attached as Exhibit
C, as further described in Section 2.3.
"Business Day" - any day other than Saturday, Sunday or other
day on which commercial banks in the city where the Principal Office is located
are authorized or required to close under the laws of the State where the
Principal Office is located.
"Capitalized Lease Obligations" - obligations (determined in
accordance with GAAP) of a Person to pay rent or other amounts under a lease
(or other agreement conveying the right to use) of real or personal property
that is required to be classified and accounted for as a capital lease under
GAAP.
"Cash Operating Expenses" - as of any date of determination,
the sum of the following items actually paid in cash by the Borrower and
arising out of the conduct of its business in the ordinary course: (i)
interest expense on recourse debt; (ii) selling, general and administrative
expenses and sales commissions, excluding amortization of initial direct costs
but including any initial direct costs actually paid in cash during the current
accounting period; and (iii) all other expenses paid in cash; provided,
however, that "Cash Operating Expenses" shall not include any bad debt expense.
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"Cash Receipts" - as of any date of determination, the sum of
the following items actually received in cash by the Borrower and arising out
of the conduct of the business of the Borrower in the ordinary course: (i) cash
payments received under conditional sales agreements before Securitization;
(ii) cash proceeds from the sale of fair market value lease streams net of
repayment of Indebtedness; (iii) cash rental payments from operating leases (as
defined in Financial Accounting Standards Board Statement No. 13); (iv) all
cash payments from leases held in the portfolio of the Borrower before
Securitization; (v) cash interest income, including cash profits or losses from
hedging activities; (vi) cash proceeds from sales of residuals; (vii) dividends
or other such payments from the lessees of the Affiliate Leases pursuant to
profit sharing agreements or arrangements between the Borrower and such
Affiliates, and (viii) fees, commissions and other miscellaneous income
actually received in cash.
"Code" - the Internal Revenue Code of 1986.
"Collateral" - the collateral covered by each of the Security
Documents.
"Commitment" - as to each Bank, the amount set forth opposite
such Bank's name on its signature pages to this Agreement under the caption
"Commitment", as reduced pursuant to Sections 2.1 and 2.2.
"Commitment Fee" - as defined in Section 2.4.
"Confirmation" - the Confirmation, dated March 28, 1995,
between the Borrower, DVI, DBC, the Banks, the Pre-Funding Lender and the
Agent.
"Contract" - a Lease, Equipment Note, CSA or Third Party Note,
and "related Contract" means, with reference to any Equipment, the Contract
covering or secured by such Equipment.
"Contract Payments" - the aggregate amount payable under a
Contract by the Obligor thereunder as rental, debt service or installment
payments, including all security deposits, advance rentals, indemnity payments,
insurance proceeds, purchase price payments, principal, interest, payments in
connection with any purchase, renewal, termination, option or obligation and
other amounts at any time made, due or to become due, whether or not earned by
performance, under or pursuant to a Contract.
"Contract Receivables Clause" - Section 1.2(a)(i).
"Controlled Group" - all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414(b), 414(c) or 414(m) of the Code and Section
4001(a)(2) of ERISA.
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"Credit Period" - the period commencing on June 14, 1991 and
ending on the Term Conversion Date.
"CSA" - a conditional sale agreement or similar arrangement
providing for the sale of Equipment by the Borrower, as vendor, to an Obligor
and for the retention of a Lien on such Equipment to secure amounts payable by
such Obligor under such CSA.
"DBC" - DVI Business Credit Corporation, a Delaware
corporation and wholly-owned subsidiary of DVI.
"DBC Financed Amount" - at any date of determination, the sum
of (i) with respect to all Eligible Healthcare Receivables purchased by DBC,
the aggregate purchase price paid by DBC for such Eligible Healthcare
Receivables, and (ii) with respect to all Eligible Healthcare Receivables in
which a Healthcare Provider has granted a security interest and assigned its
rights and interests to DBC, the then outstanding principal amount advanced by
DBC with respect to, and secured by, such Eligible Healthcare Receivables, in
each case as reported by the Borrower on a Borrowing Base Report.
"DBC Financing Agreement" - an agreement between DBC and a
Healthcare Provider substantially in one of the forms attached as Exhibit F or
as otherwise approved pursuant to Section 2.22 pursuant to which the Healthcare
Provider has or will either (i) sell Eligible Healthcare Receivables to DBC for
a purchase price not exceeding 80% of the face value of such Eligible
Healthcare Receivables on their date of purchase, or (ii) grant a security
interest and assign to DBC all of its rights and interests in Eligible
Healthcare Receivables in connection with the borrowing from DBC of an amount
not exceeding 80% of the face value of such pledged Eligible Healthcare
Receivables.
"DBC Guaranty" - the Guaranty Agreement, dated December 29,
1994, from DBC to the Agent, as confirmed by the Confirmation.
"DBC Promissory Note" - the Promissory Note, dated December
29, 1994, from DBC to the Borrower and endorsed to the Agent.
"DBC Security Agreement" - the Security Agreement, dated
December 29, 1994, from DBC to the Agent, as confirmed by the Confirmation.
"Default" - an event that with notice or lapse of time or both
would constitute an Event of Default.
"Dollars" and "$" - lawful money of the United States of
America.
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"DVI" - DVI, Inc., a Delaware corporation and the parent of
the Borrower.
"Eligible Assignee" - a commercial bank or other financial
institution having a combined capital and surplus of at least $50,000,000.
"Eligible Contract" - a Contract that meets each of the
following requirements at all times:
(a) no Contract Payment is more than 60 days past due,
and no other material default exists by the Obligor under such Contract or
under any security or other documents executed in connection with such Contract
or by any other Obligor of its obligations with respect to such Contract;
(b) it has not been rejected or refused as unacceptable
for inclusion in a Securitization under any Warehousing Loan Agreement except
on the basis of concentration issues only (including geographical, equipment
type and Dollar amount);
(c) it arises in the ordinary course of the Borrower's
business, is the legal, valid, binding and enforceable obligation of the
Obligor under such Contract, is in full force and effect and complies with all
Applicable Laws, and the obligations of the Obligor have been duly authorized
and have not been cancelled or terminated;
(d) its Initial Term has commenced and is continuing, it
is noncancellable during its Initial Term and it provides that the Obligor
under such Contract will pay all amounts due without setoff, counterclaim,
defense or abatement;
(e) no setoffs, counterclaims, defenses or disputes exist
with the Obligor or any Affiliate of the Obligor with respect to such Contract,
the Obligor has not denied liability under such Contract in whole or in part,
the payment of amounts due under such Contract is subject to no conditions
precedent that are unsatisfied, and no agreement relating to such Contract
imposes any obligation on the Borrower (other than a warranty of title) that if
not performed would give rise to a right of offset, counterclaim or any other
defense on the part of such Obligor to payment of any part of such Contract;
(f) the forms of Contracts, including all related
security documents, (i) constitute a non-cancelable Lease or a non-prepayable
and non-cancelable Equipment Note, CSA or Third Party Note, (ii) can be
assigned as collateral by the Borrower without Obligor consent, (iii) cannot be
assigned or transferred by the Obligor except as permitted by Section 7.2, (iv)
are marked in accordance with Section 6.13; and (v) include an obligation on
the part of the Obligor to maintain or cause to be
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maintained the Equipment at the Obligor's expense in good condition, repair and
working order;
(g) all Equipment covered by such Contract is at all
times Eligible Equipment;
(h) no bankruptcy or insolvency proceeding shall have
been commenced by or against the Obligor under such Contract, such Obligor
shall not have taken any corporate action relating to any such proceeding and
no foreclosure or similar proceeding shall have been commenced by any holder of
a Lien on the Equipment related to such Contract;
(i) any Lease is a net-net lease with no more than 96
remaining months in the Initial Term, and any Equipment Note, CSA or Third
Party Note has a final maturity date not more than 96 months in the future;
(j) the Agent has received or has available to it for
inspection pursuant to Section 6.2 a photocopy of the file stamped
"acknowledgement copy" containing the recording information of Financing
Statements filed with respect to such Contract in all appropriate and necessary
offices naming the Obligor as debtor or lessee, the Borrower as Secured Party
or lessor and the Agent as assignee;
(k) the Obligor under such Contract is not, and any
lessee under a Third Party Lease is not, the United States of America, any
agency or instrumentality of the United States of America, any entity entitled
to full or partial sovereign immunity or any entity as to which an assignment
of claims is subject to consent;
(l) each Obligor under such Contract and each lessee
under a Third Party Lease is an entity duly organized and existing under the
laws of its jurisdiction of organization in, or an individual legally and
permanently residing in, the United States of America or a U.S. Territory;
provided that the foregoing shall not preclude a Lessee or the lessee under a
Third Party Lease that has no right to terminate or discontinue from making
payments in the event of nonappropriation of funds by any governmental agency
or body;
(m) payment under such Contract is to be made in Dollars,
and if such Contract is a Lease either (i) the rental payments are not
determined wholly or partly by the volume of use of the related Equipment, or
(ii) if the rental payments are determined partly by the volume of use of the
related Equipment, then only the guaranteed or fixed rental payments are
included in computing the Borrowing Base;
(n) the Borrower knows of no fact or circumstance that
might render such Contract less valuable than it purports to be, and the
Borrower has not taken any action that will impair the
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value of such Contract, the related Equipment or the rights of any party with
respect to such Contract or the related Equipment;
(o) such Contract has not been amended or rewritten in
any respect, except for an Eligible Twelve-Month Restructured Lease or an
upgrade;
(p) the Obligor under such Contract and any lessee under
a Third Party Lease are not Affiliates of the Borrower, except that a Lessee
may be an Affiliate of the Borrower in accordance with Section 7.14(c);
(q) in the case of a Lease, the Borrower holds good and
marketable title to the Contract, all related Contract Payments and all
Equipment covered by such Contract, and has granted to the Agent a valid first
priority perfected Lien on all of the Borrower's right, title and interest in
such Contract, Contract Payments and Equipment, subject to no Liens other than
Permitted Liens, and such Lease constitutes chattel paper;
(r) in the case of an Equipment Note or CSA, the Borrower
holds good and marketable title to the Contract and all related Contract
Payments, the Borrower has a valid first priority perfected Lien on all
Equipment securing or covered by such Contract, and the Borrower has granted to
the Agent a first priority perfected Lien on all of the Borrower's right, title
and interest in such Contract, Contract Payments and Equipment, subject to no
Liens other than Permitted Liens, and any CSA constitutes chattel paper;
(s) in the case of a Third Party Note, the Borrower holds
good and marketable title to the Contract and all related Contract Payments,
the Borrower has a valid first priority perfected Lien on the Third Party Lease
(including all payments to be made to the Obligor under the Third Party Lease)
and all Equipment covered by such Third Party Lease, and the Borrower has
granted to the Agent a valid first priority perfected Lien on all of the
Borrower's right, title and interest in such Third Party Note, Third Party
Lease and Equipment, subject to no Liens other than Permitted Liens, and the
related Third Party Lease constitutes chattel paper; and
(t) the Borrower's and Agent's Lien on the Equipment
related to any such Contract is created under and pursuant to the UCC of an
applicable jurisdiction, except that for motor vehicles the appropriate
endorsement on the certificate of title in favor of the Agent shall have been
effected if more than six motor vehicles are included in computation of the
Borrowing Base at that time or, if six or less motor vehicles are then included
in computation of the Borrowing Base, the Agent has requested in writing that
such endorsement be effected.
"Eligible Equipment" - any item of Equipment that meets each
of the following requirements at all times:
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(a) such Equipment is personalty and does not constitute
fixtures except for fixtures that are immaterial in type or quantity;
(b) such Equipment is not used primarily for personal,
family or household purposes and is not consumer goods;
(c) such Equipment is located at all times in one of the
United States of America, a U.S. Territory in which the UCC is in effect or
Washington, D.C.;
(d) such Equipment is located at either the Borrower's
premises (if it constitutes inventory) or the related Obligor's premises,
except for Equipment with a Net Book Value of up to $3,000,000 at any time that
is covered by a UCC-1 Financing Statement filed by the Borrower against the
warehouseman, manufacturer or other Person in possession of such Equipment;
(e) such Equipment is not installed in or affixed to
other equipment which is not Collateral;
(f) such Equipment is in good condition, repair and
working order and is insured in accordance with this Agreement and the Security
Documents;
(g) if such Equipment is software, the Borrower has or
will have after foreclosure against the related Obligor the right to remarket
such Equipment with the associated software remaining in place without
obtaining any consent or approval from the licensor of such software; and
(h) if such Equipment is a motor vehicle, it is a truck,
trailer or tractor-trailer in or on which major medical imaging Equipment has
been installed, or it is an ambulance or is otherwise used in connection with
the health care industry;
and "related Equipment" shall mean, when used with reference to any Contract,
the Eligible Equipment covered by or securing the repayment of obligations
under such Contract.
"Eligible Healthcare Receivable" - a Healthcare Receivable
that meets each of the following requirements at all times:
(a) it is a liability of a commercial insurance company,
Blue Cross/Blue Shield plan, health maintenance organization, preferred provider
organization or hospital corporation organized under the laws of any
jurisdiction in, and having its principal office in, the United States of
America;
(b) the Obligor of which is not an Affiliate of its
related Healthcare Provider or any Loan Party;
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(c) the Obligor of which is not subject to any actions or
proceedings of the type described in Section 8.6;
(d) it is not a receivable arising in whole or in part
under or whose payment is wholly or partially administered under (i) the health
insurance program for the aged and disabled established by Title XVIII of the
Social Security Act (42 U.S.C. Section Section 1395 et seq.) and any
succeeding statutes (i.e., Medicare), (ii) the medical assistance program
established by Title XIX of the Social Security Act (42 U.S.C. Section Section
1396 et seq.) and any succeeding statutes (i.e., Medicaid), or (iii) the
Civilian Health and Medical Program of the Uniformed Services established by 10
U.S.C. Section Section 1071 et seq. (i.e., CHAMPUS);
(e) it is denominated and payable in Dollars in the
United States of America;
(f) it was sold to DBC by a Healthcare Provider or in
which a Healthcare Provider granted a security interest and assigned all of its
rights and interests to DBC pursuant to a DBC Financing Agreement;
(g) a security interest in all of DBC's right, title and
interest in it has been granted to the Agent pursuant to the DBC Security
Agreement, which security interest has been perfected by the filing of
Financing Statements listing DBC as "Debtor" and the Agent as "Secured Party"
and covering such Eligible Healthcare Receivable;
(h) it is in full force and effect and constitutes the
legal, valid and binding obligation of the Obligor thereon enforceable against
such Obligor in accordance with its terms;
(i) it has not been satisfied, has not been and is not
subject to being compromised, adjusted, modified, subordinated or rescinded and
is net of contractual allowances;
(j) it is not past due more than 60 days; and
(k) it is paid or caused to be paid into a lockbox
account established pursuant to Section 2.24.
"Eligible Lease" - an Eligible Contract which is a Lease.
"Eligible Progress Payment Agreement" - an agreement between
the Borrower and a Lessee pursuant to which (i) the Borrower agrees to purchase
Equipment that will be leased to the Lessee under a Lease and to make Progress
Payments to the vendors of such Equipment before delivery and acceptance of
such Equipment under such Lease, and (ii) the Lessee agrees to reimburse the
Borrower for all such Progress Payments or to accept delivery of the Equipment
under the Lease, in either case within nine months of the first Progress
Payment, and to pay a
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daily rental charge calculated on the basis of an agreed upon rate of interest
on all unreimbursed Progress Payments from time to time, which agreement meets
the following additional requirements at all times:
(a) the Lease meets all of the requirements of the
definition of an "Eligible Contract" applicable to a Lease except clause (c) as
to the Lease not yet being in full force and effect, clause (d) as to the
Initial Term having commenced, and clause (f) as to title to the Leased
Property;
(b) the Equipment subject to such agreement meets all of
the requirements of the definition of "Eligible Equipment" except that such
Equipment is work-in-progress of the manufacturer and therefore does not meet
the requirements of clause (f) of the definition of "Eligible Equipment";
(c) the Obligor is not in default of any of its
obligations under such agreement;
(d) no setoffs, disputes, counterclaims or defenses exist
by or with the vendor of such Equipment; and
(e) such agreement is substantially in the form attached
as Exhibit H or as otherwise approved pursuant to Section 2.22.
"Eligible Six-Month Restructured Lease" - at any date, a Lease
(i) under which the Borrower previously agreed to a suspension of or a
substantial reduction in three or more regularly scheduled consecutive rental
payments due or to become due during the Initial Term, (ii) under which all
amounts payable have been paid within 15 days of the date when due for a period
of at least six consecutive months following the date of commencement of
payment under the restructured terms, and (iii) that meets all of the
requirements of an Eligible Lease. Notwithstanding the foregoing, Eligible
Six-Month Restructured Leases do not include any Eligible Twelve-Month
Restructured Leases.
"Eligible Twelve-Month Restructured Lease" - an Eligible
Six-Month Restructured Lease (i) under which all amounts payable have been paid
within 15 days of the date when due for a period of at least 12 consecutive
months following the date of commencement of payment under the restructured
terms, and (ii) the Borrower has given the Agent notice that it has elected to
include such Lease in the Contract Receivables Clause.
"Environmental Laws and Regulations" - all Applicable Laws
relating to Environmental Matters, health and safety applicable to the any Loan
Party.
"Environmental Liability" - any liability under any Applicable
Law for any release of a hazardous substance caused by
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the seeping, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping or disposing of hazardous
wastes or other chemical substances, pollutants or contaminants into the
environment, and any liability for the costs of any clean-up or other remedial
action including costs arising out of security fencing, alternative water
supplies, temporary evacuation and housing and other emergency assistance
undertaken by any environmental regulatory body having jurisdiction over any
Loan Party to prevent or minimize any actual or threatened release by any Loan
Party of any hazardous wastes or other chemical substances, pollutants and
contaminants into the environment that would endanger the public health or the
environment.
"Environmental Matter" - a release of any toxic or hazardous
waste or other chemical substance, pollutant or contaminant into the
environment or the generation, treatment, storage or disposal of any toxic or
hazardous wastes or other chemical substances.
"Environmental Proceeding" - any judgment, action, proceeding
or investigation pending before any court or governmental authority, bureau or
agency, including any environmental regulatory body, with respect to or
threatened against or affecting the Borrower or any other Loan Party or
relating to the assets or liabilities of any of them, including in respect of
any "facility" owned, leased or operated by any of them under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, or
under any state, local or municipal statute, ordinance or regulation in respect
thereof, in connection with any release of any toxic or hazardous waste or
other chemical substance, pollutant or contaminant into the environment, or
with the generation, storage or disposal of any toxic or hazardous wastes or
other chemical substances.
"Equipment" - medical equipment and computer equipment that is
used in the care, treatment, hospitalization, diagnosis or testing of patients
in a medical setting, furniture and office equipment located at such hospital
or medical setting and used in connection with such care, and trailers, trucks,
vans and transportable buildings used in conjunction with diagnostic testing,
therapeutic or other equipment in a medical setting.
"Equipment Note" - a loan agreement, security agreement and
any related agreement setting forth (i) an Obligor's agreement either to
purchase Equipment from the Borrower or to repay a loan from the Borrower the
proceeds of which were used to purchase Equipment from the Borrower and all
other obligations of such Obligor in connection with such purchase or
repayment, and (ii) granting to Borrower a security interest in such Equipment
to secure all such obligations; provided that such agreements shall not include
a promissory note or other instrument the possession of which is required for
perfection of the Agent's Lien on such Equipment Note.
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"ERISA" - the Employee Retirement Income Security Act of 1974
and the regulations thereunder.
"Eurodollar Base Rate" - for any Interest Period, the rate per
annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) quoted by one
of NatWest's international banking facilities selected by NatWest at
approximately 10:00 a.m. New York time (or as soon thereafter as practicable)
two Business Days prior to the first day of such Interest Period for the
offering by NatWest to leading banks in the Eurodollar interbank market of
Dollar deposits having a term comparable to such Interest Period and in an
amount comparable to the principal amount of the Eurodollar Loan made by the
Banks to which such Interest Period relates.
"Eurodollar Business Day" - a Business Day on which dealings
in Dollar deposits are carried out in the Eurodollar interbank market.
"Eurodollar Loans" - Loans or portions of Loans the interest
on which is determined on the basis of rates referred to in the definition of
"Eurodollar Rate".
"Eurodollar Rate" - for any Interest Period, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by
the Agent to be equal to (x) the Eurodollar Base Rate for such Interest Period;
divided by (y) 1 minus the Reserve Requirement for such Interest Period. The
Agent shall use its best efforts to advise the Borrower of the Eurodollar Rate
as soon as practicable after each change in the Eurodollar Rate; provided,
however, that any failure of the Agent to so advise the Borrower shall not
affect the rights of the Banks or the Agent or the obligations of the Borrower
under this Agreement.
"Event of Default" - as defined in Article 8.
"Federal Funds Rate" - for any day, the weighted average of
the rates on overnight federal funds transactions with member banks of the
Federal Reserve System arranged by federal funds brokers as published by the
Federal Reserve Bank of New York for such day or, if such day is not a Business
Day, for the next preceding Business Day (or, if such rate is not so published
for any such day, the average rate charged to the Agent on such day on such
transactions as reasonably determined by the Agent).
"Fees" - the Commitment Fee and all other fees payable by the
Borrower to the Agent or the Banks (including NatWest as Pre-Funding Lender and
as Agent).
"Financial Statements" - on any date, the most recent annual
financial statements delivered pursuant to Section 5.1 and, and as amended by,
the most recent quarterly financial statement delivered pursuant to Section
5.2.
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"Financing Statements" - UCC-form financing statements duly
executed and completed and in the form necessary for perfection of a security
interest under the UCC of an applicable jurisdiction when filed in the
appropriate filing offices prescribed by the UCC of such jurisdiction.
"GAAP" - generally accepted accounting principles as in effect
from time to time and, subject to changes in such principles from time to time,
consistently applied in accordance with the past practices of a Person.
"Guaranty" - the Guaranty Agreement, dated June 14, 1991, from
DVI to the Agent, as confirmed by the Confirmation.
"Healthcare Provider" - a Person that has provided services or
sold merchandise to an Obligor and sold and/or granted a security interest in
the resulting Healthcare Receivable to DBC pursuant to a DBC Financing
Agreement.
"Healthcare Receivable" - (a) an account receivable billed by
a Healthcare Provider arising from the provision of health care services (and
any services or sales ancillary thereto) by the Healthcare Provider or
physicians or other professionals employed thereby including the right to
payment of any interest or finance charges and other obligations with respect
to such account receivable;
(b) all security interests or liens and the property subject
thereto from time to time purporting to secure payment of such account
receivable;
(c) all guarantees, indemnities and warranties and proceeds
thereof, proceeds of insurance policies, Financing Statements and other
agreements or arrangements of whatever character from time to time supporting
or securing payment of such account receivable;
(d) all cash collections with respect to any of the
foregoing;
(e) all Records with respect to any of the foregoing; and
(f) all proceeds of any of the foregoing.
A Healthcare Receivable is considered to be "due" for payment 120 days after
being invoiced.
"Healthcare Receivables Clause" - Section 1.2(a)(v).
"Indebtedness" - with respect to any Person, all (i)
liabilities or obligations, direct and contingent, that in accordance with GAAP
would be included in determining total liabilities as shown on the liability
side of a balance sheet of
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<PAGE> 21
such Person, including contingent liabilities that in accordance with GAAP
would be set forth in a specific Dollar amount on the liability side of such
balance sheet and Capitalized Lease Obligations, (ii) liabilities or
obligations of others for which such Person is directly or indirectly liable by
way of direct guaranty, suretyship, discount, endorsement, reimbursement of
amounts drawn under letters of credit, take-or-pay agreement, agreement to
purchase or advance or keep in funds, other agreements having the effect of a
guaranty (other than endorsements of negotiable instruments for deposit or
collection in the ordinary course of business) or otherwise, whether or not
such liabilities would be included in determining total liabilities as shown on
a balance sheet in accordance with GAAP, (iii) obligations in respect of
interest rate exchange, swap, cap and other agreements or arrangements designed
to provide protection against fluctuations in interest rates, (iv) without
duplication, liabilities or obligations secured by liens on any assets of such
Person, whether or not such liabilities or obligations have been assumed by it,
and (v) liabilities or obligations of such Person, direct or contingent, with
respect to letters of credit issued for the account of such Person and bankers
acceptances created for such Person.
"Initial Term" - as of any date of determination, (i) with
respect to a Lease the period from and including the commencement date of such
Lease and ending on the last day of the then current lease term that is
non-cancelable by the Lessee, and (ii) with respect to any other Contract the
period commencing on the date which is comparable to the commencement date
under a lease and ending on the then last scheduled non-cancelable installment
or maturity date.
"Intangibles" - good will and other items shown as intangible
on the Borrower's balance sheet.
"Interest Expense" - at any date, the sum of all payments of
interest on Indebtedness of the Borrower that were paid during the 12-month
period immediately preceding such date, excluding interest on Non-Recourse
Debt.
"Interest Period" - with respect to any Eurodollar Loan, each
period commencing on the date such Eurodollar Loan is made or converted from a
Loan or Pre-Funding Loan of another type, or the last day of the next preceding
Interest Period with respect to such Eurodollar Loan, and ending on the same
day in the 1st, 2nd or 3rd calendar month thereafter as the Borrower may select
as provided in Section 2.3 (subject to availability of funds), except that each
such Interest Period which commences on the last Eurodollar Business Day of a
calendar month (or on any day for which there is no numerically corresponding
day in the appropriate subsequent calendar month) shall end on the last
Eurodollar Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) any Interest Period which commences prior
to a Payment Date shall end no later than
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<PAGE> 22
such Payment Date if the aggregate principal amount of the Eurodollar Loans or
portions thereof to which such Interest Period would be applicable would
include any portion of the aggregate principal amount of the Loans which are
due and payable on such Payment Date; (ii) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, in the case of an Interest Period for Eurodollar
Loans, if such next succeeding Eurodollar Business Day falls in the next
succeeding calendar month, on the next preceding Eurodollar Business Day);
(iii) no more than seven Interest Periods for Eurodollar Loans shall be in
effect at the same time; and (iv) notwithstanding clause (i) above, no Interest
Period shall have a duration of less than one month. In the event that the
Borrower fails to select the duration of any Interest Period for any Eurodollar
Loan as provided in Section 2.7, such Loan will be automatically converted into
a Prime Rate Loan on the last day of the preceding Interest Period for such
Eurodollar Loan.
"Inventory and Per Procedure Clause" - Section 1.2(a)(iii).
"Investment" - in any Person by the Borrower:
(a) the amount paid or committed to be paid, or the value
of property or services contributed or committed to be contributed, by the
Borrower for or in connection with the acquisition by the Borrower of any
stock, bonds, notes, debentures, partnership or other ownership interests or
other securities of such Person; and
(b) the amount of any advance, loan or extension of
credit to, or guaranty or other similar obligation with respect to any
Indebtedness of, such Person by the Borrower and (without duplication) any
amount committed to be advanced, loaned or extended to, or the payment of which
is committed to be assured by a guaranty or similar obligation for the benefit
of, such Person by the Borrower.
"Invoiced Cost" - of any item of Eligible Equipment, the cost
of such Eligible Equipment to the Borrower including sales and excise taxes,
and all installation and delivery costs, as evidenced by invoice(s) of the
vendor(s) of such Eligible Equipment; provided that the Invoiced Cost of
Eligible Equipment subject to an Equipment Note or CSA and sold by the vendor
directly to the Obligor shall be the cost charged by the vendor to such
Obligor.
"IRS" - Internal Revenue Service.
"Lease" - any document evidencing an agreement (including all
amendments, addenda or supplements) pursuant to which the Borrower leases
Eligible Equipment to a Lessee. Such term includes in its meaning both unitary
leases as well as
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individual lease schedules that incorporate all terms and conditions of a
master lease.
"Leased Property" - all items of Eligible Equipment covered by
or leased under a Lease, and all replacements and substitutions for such
Eligible Equipment, and all additions, parts and accessories to such Eligible
Equipment and all proceeds of such Eligible Equipment.
"Lessee" - the Obligor leasing Leased Property from the
Borrower under a Lease.
"Leverage Ratio" - with respect to the Borrower, the ratio of
(x) Total Recourse Liabilities to (y) Tangible Net Worth plus Subordinated Debt
not due within the twelve-month period immediately preceding any date of
computation.
"Lien" - any mortgage, deed of trust, pledge, security
interest, encumbrance, lien or charge of any kind (including any conditional
sale or other title retention agreement, any lease in the nature of a security
interest, and the filing of any Financing Statement intended as security under
the UCC of any jurisdiction) and any agreement to give any of the foregoing.
"Loans" - as defined in Section 2.1. Loans of different types
made or converted from Loans of other types on the same day (or of the same
type but having different Interest Periods) shall be deemed to be separate
Loans for all purposes of this Agreement. Loans do not include Pre-Funding
Loans.
"Loan Documents" - this Agreement, the Notes, the Guaranty,
the DBC Guaranty, the Security Documents, the Pre-Funding Note, the
Confirmation, any interest rate swaps or other derivative agreements limiting
interest rate exposure on the Loans and the Pre-Funding Loans and all other
documents executed and delivered at any time in connection with such
agreements.
"Loan Party" - the Borrower, DVI, DBC and any other Person
that from time to time executes and delivers to the Banks or the Agent any Loan
Document then in effect.
"Majority Banks" - at any time that no Loans are outstanding,
Banks having at least 66% of the aggregate amount of the Commitments, and at
any time that Loans are outstanding, Banks holding at least 66% of the
aggregate principal amount of the Loans then outstanding.
"Monthly Dates" - the last day of each calendar month
commencing with the first such day after the date of this Agreement or, if any
Eurodollar Loans are then outstanding and the last day of any calendar month is
not a Eurodollar Business Day, the relevant Monthly Date shall be the next
preceding Eurodollar Business Day.
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<PAGE> 24
"NatWest" - NatWest Bank N.A. in its individual capacity.
"Net Book Value" - with respect to Eligible Equipment, the
Invoiced Cost of such Eligible Equipment minus accumulated depreciation with
respect to such Eligible Equipment in accordance with GAAP.
"Non-Current Portion" - at any date of determination, the
portion of Indebtedness that matures, or at the option of the obligor may
mature, more than one year after such date.
"Non-Recourse Debt" - Indebtedness of any Person for borrowed
money that, at all times, (i) is secured by Liens on specific assets of such
Person and the proceeds of such assets that constitute the sole source of
repayment to the lender or obligee of such Indebtedness, and (ii) as to which
such Person is not otherwise liable for repayment in the event of a deficiency
or default in payment except for liability for misrepresentations by such
Person, defects in title caused by such Person or impairment of the obligee's
or lender's Lien caused by such Person.
"Note" - as defined in Section 2.12.
"Notes Assignment Agreement" - the Notes Assignment Agreement,
dated June 14, 1991, between Borrower and Agent, as confirmed by the
Confirmation.
"Obligations" - all of the Indebtedness, liabilities and
obligations of the Borrower to the Banks (including the Pre-Funding Lender) and
the Agent, whether now existing or hereafter arising, under the Loan Documents.
"Obligor" - any Lessee or other Person obligated in respect of
a Lease, any maker of an Equipment Note, any vendee under a CSA, any obligor of
a Third Party Note or any other Person obligated in respect of a Lease,
Equipment Note, CSA or Third Party Note or obligated under any other asset
included in the Borrowing Base other than the Borrower.
"Parent Subordinated Debt" - as defined in Section 7.4(b)(ii).
"Partial Recourse Debt" - Indebtedness of any Person for which
such Person has only partial liability for repayment of any deficiency and the
balance of which is Non-Recourse Debt.
"Payment Dates" - each Monthly Date in each year commencing
with the first Monthly Date after the Term Conversion Date.
"PBGC" - Pension Benefit Guaranty Corporation.
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<PAGE> 25
"Permitted Liens" - as defined in Section 7.2.
"Person" - an individual, corporation, partnership, joint
venture, trust or unincorporated organization, joint stock company or other
similar organization, government or political subdivision of a government,
court or any other legal entity, whether acting in an individual, fiduciary or
other capacity.
"Plan" - at any time an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and is either (i) maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower, or by the
Borrower for any other member of such Controlled Group or (ii) maintained
pursuant to a collective bargaining agreement or any other arrangement under
which more than one employer makes contributions and to which the Borrower or
any member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions.
"Post-Default Rate" - a rate per annum equal to (i) for each
Eurodollar Loan, 2% above the rate of interest in effect for such Eurodollar
Loan on the date the Post-Default Rate commences until the end of the then
current Interest Period for such Eurodollar Loan, and thereafter 2% above the
Prime Rate as in effect from time to time plus the Applicable Margin for Prime
Rate Loans, and (ii) for Prime Rate Loans and for all other amounts payable by
the Borrower under the Loan Documents, 2% above the Prime Rate as in effect
from time to time plus the Applicable Margin for Prime Rate Loans.
"Pre-Funding Commitment" - at any date of determination, the
agreement of the Pre-Funding Lender to make Pre-Funding Loans in the amount
equal to the lesser of (i) the difference between the Total Commitment as in
effect on such date and the then aggregate outstanding principal amount of all
Loans plus Pre-Funding Loans, and (ii) $8,000,000.
"Pre-Funding Commitment Fee" - as defined in Section
2.30(f)(iv).
"Pre-Funding Loan" - as defined in Section 2.30.
"Pre-Funding Note" - as defined in Section 2.30(d)(i).
"Present Value" - on any date of computation of the Borrowing
Base, the present value of the Balance of Payments under an Unfunded Eligible
Contracts computed by discounting at a rate per annum equal to the interest
rate then applicable to Prime Rate Loans.
"Prime Rate" - the interest rate established from time to time
by NatWest as its prime rate at the Principal Office. Notwithstanding the
foregoing, the Borrower acknowledges the fact
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that NatWest may regularly make domestic commercial loans at rates of interest
less than the rates of interest referred to in the preceding sentence. Each
change in any interest rate under this Agreement resulting from a change in the
Prime Rate shall take effect at the time of such change in the Prime Rate.
"Prime Rate Loans" - Loans or Pre-Funding Loans, or portions
thereof, that bear interest at a rate based upon the Prime Rate.
"Principal Office" - the principal office of NatWest,
presently located at 175 Water Street, New York, New York 10038 or, if a
successor Agent is named, the office of the successor Agent designated by
notice of the successor Agent to the Banks and the Borrower.
"Progress Payments" - amounts paid by the Borrower to vendors
of Equipment subject to a Lease pursuant to an Eligible Progress Payment
Agreement, net of any credits, rebates, offsets, holdbacks or other adjustments
or commissions payable to third parties that are adjustments to such payments.
"Progress Payments Clause" - Section 1.2(a)(ii).
"Records" - all agreements pursuant to or under which an
Obligor shall be obligated to pay for services rendered or merchandise sold to
patients of the Healthcare Providers and all other documents, books, records
and other information (including computer programs, tapes, disks, punch cards,
data processing software and related property and rights) prepared and
maintained by the Healthcare Providers or DBC with respect to the Healthcare
Receivables and the related Obligors.
"Recourse Debt" - Indebtedness of any Person as to which such
Person is liable for repayment in full in the event of a deficiency or default
in payment.
"Regulation D" - Regulation D of the Board of Governors of the
Federal Reserve System.
"Regulatory Change" - any change after February 28, 1995 in
United States federal, state or foreign laws or regulations or the adoption or
making after such date of any interpretations, directives or requests applying
to a class of banks including any of the Banks of or under any United States
federal, state, or foreign laws or regulations (whether or not having the force
of law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof.
"Reserve Requirement" - for any Eurodollar Loans for any
Interest Period, (i) the average maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
under Regulation D by
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member banks of the Federal Reserve System in New York City with deposits
exceeding $1,000,000,000 against "Eurocurrency liabilities" (as such term is
used in Regulation D), and (ii) any other reserves required to be maintained by
such member banks by reason of any Regulatory Change against (a) any category
of liabilities which includes deposits by reference to which the Eurodollar
Rate for Eurodollar Loans is to be determined as provided in the definition of
"Eurodollar Rate" in this Section 1.1, or (ii) any category of extensions of
credit or other assets which include Eurodollar Loans.
"Restricted Investments" - as defined in Section 7.8(c).
"Restructured Lease Clause" - Section 1.2(a)(iv).
"Risk-Adjusted Leverage Ratio" - with respect to the Borrower,
the ratio of (i) Total Recourse Liabilities to (ii) Tangible Net Worth plus
Subordinated Debt not due within the twelve-month period immediately preceding
any date of computation, minus the greater of (a) $1,000,000 or (b) the lesser
of (1) the Borrower's unfinanced interests in Securitized accounts receivable
(the so-called "C" piece) or (2) the product resulting from multiplying (A) the
Borrower's actual loss experience, expressed as a decimal, times (B) five,
times (C) the Borrower's total Securitized accounts receivable.
"SEC" - the U.S. Securities and Exchange Commission.
"Securitization" - the transfer of legal ownership in leases
and other obligatory contracts and the equipment related to such contracts to a
corporation (which may be an Affiliate of the transferor), trust or other
bankruptcy-remote special purpose entity that either uses such assets to
collateralize the issuance of debt obligations or sells securities that
evidence undivided interests in such assets.
"Securitized" - with respect to assets, such assets after
being the subject of a Securitization.
"Security Agreement" - the Security Agreement, dated June 14,
1991, between Borrower and Agent, as confirmed by the Confirmation.
"Security Documents" - the Security Agreement, Assignment of
Leases, Assignment of Agreements, DBC Security Agreement, Notes Assignment
Agreement and such other agreements, instruments and documents as the Agent may
reasonably require in order to effect the purposes of the Security Agreement,
Assignment of Leases, Assignment of Agreements, Notes Assignment Agreement and
DBC Security Agreement.
"Subordinated Debt" - unsecured Indebtedness for money
borrowed that permits payments of its principal and interest only
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on a basis that is subordinate to the prior payment of the Obligations on terms
satisfactory in form and substance to the Majority Banks as evidenced by the
Agent's written consent given before the incurrence of such Indebtedness.
"Subsidiary" - with respect to any Person at any time, (i) any
corporation of which a majority of the securities having ordinary voting power
for the election of directors (other than securities having such power only by
reason of the happening of a contingency) are at the time owned by such Person
and one or more Subsidiaries of such Person, and (ii) any partnership or joint
venture in which such Person is a general partner or joint venturer of which a
majority of the partnership or other ownership interests are at the time owned
by such Person and one or more of its Subsidiaries.
"Super-Majority Banks" - at any time that no Loans are
outstanding, Banks having at least 75% of the aggregate amount of the
Commitments, and at any time that Loans are outstanding, Banks holding at least
75% of the aggregate principal amount of the Loans then outstanding.
"Supporting Documents" - as defined in Section 5.8(a).
"Tangible Net Worth" - the sum of additional capital, retained
earnings, earned surplus and capital stock minus Intangibles and treasury
stock.
"Term Conversion Date" - December 31, 1995.
"Term Period" - the period of time commencing on the day after
the Term Conversion Date and expiring on the final date of repayment of the
Loans, which shall not be later than the fourth anniversary of the Term
Conversion Date.
"Third Party Lease" - any document evidencing an agreement
(including any amendments, addenda, or supplements thereto) pursuant to which
an Obligor, as lessor, leases Equipment to another Person. Such term includes
in its meaning both unitary leases and individual lease schedules which
incorporate into such schedules all terms and conditions of a master lease
pursuant to which such schedule is executed.
"Third Party Note" - a non-recourse loan and security
agreement, and all related agreements, setting forth obligations of an Obligor
to the Borrower to repay a loan from the Borrower the proceeds of which were
used to finance Equipment subject to a Third Party Lease and as collateral for
which the Borrower has a first priority perfected Lien (that has been assigned
to the Agent) on all right, title and interest of the Obligor in such Equipment
and such Third Party Lease.
"Total Commitment" - the aggregate sum of the Commitments of
the Banks.
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"Total Recourse Liabilities" - at any time, as to the
Borrower, the sum (without duplication) of (i) all liabilities which, in
accordance with GAAP, would be shown as liabilities on the Borrower's balance
sheet, including all accounts payable but excluding (to the extent included
therein) Non-Recourse Debt, Subordinated Debt not due within the next 12
months, deferred income taxes payable and accrued expenses, (ii) all
liabilities for which the Borrower is contingently liable, plus (iii) the
recourse portion of all Partial Recourse Debt.
"UCC" - the Uniform Commercial Code as in effect from time to
time in the State of New York unless otherwise indicated.
"Unfunded" - with respect to any Contract, Contract Payment or
other obligation of any Obligor, such Contract, Contract Payment or other
obligation has not been sold, discounted or otherwise financed by the Borrower
or granted as a Lien by the Borrower to secure any obligations (whether with or
without recourse) to or with any Person other than under this Agreement and the
Security Documents.
"Unused Commitment" - at any date, the difference between (i)
the amount of the Total Commitment as in effect on such date, and (ii) the then
aggregate outstanding principal amount of all Loans.
"Warehousing Lender" - the lender to the Borrower under a
Warehousing Loan Agreement.
"Warehousing Loan Agreement" - a loan agreement, security
agreement, custody agreement and all related documents providing for advances
to the Borrower with a repayment term, including all extensions and renewals,
not exceeding six months for the purpose of financing the Borrower's
acquisition of assets or of refinancing existing assets of the Borrower in
preparation for the Securitization of such assets or other similar
transactions, including (i) the Interim Loan and Security Agreement, dated as
of March 16, 1994, between the Borrower and Prudential Securities Realty
Funding Corporation, and (ii) the Interim Warehouse and Security Agreement,
dated as of February 2, 1995, as amended by the Credit Increase Confirmation
and Amendment, dated March 8, 1995, between the Borrower, DVI and ContiTrade
Services Corporation.
Section 1.2 Borrowing Base. (a) At any date of
determination, the sum of the following clauses (i) through (v) minus clause
(vi) shall constitute the "Borrowing Base":
(i) Contract Receivables Clause - 95% (90% on and
after the Term Conversion Date) of the Present Value of the Balance of
Payments under Unfunded Eligible Contracts; plus
(ii) Progress Payments Clause - 95% (90% on and after
the Term Conversion Date) of Unfunded Progress
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Payments, provided that Unfunded Progress Payments may not be included
under this Section 1.2(a)(ii) from and after the earliest to occur of
(1) the last day of the month during which the Borrower receives a
certificate of delivery and acceptance relating to the subject
Equipment, or (2) the Borrower receives full reimbursement of such
Progress Payments; plus
(iii) Inventory and Per Procedure Clause - 70% of the
Net Book Value of all Eligible Equipment owned by the Borrower,
provided that (1) the aggregate amount included under this Section
1.2(a)(iii) shall not exceed 10% of the Total Commitment on any date,
(2) Equipment included in this Section 1.2(a)(iii) must be depreciated
according to GAAP, and (3) the Borrower must have an appraisal from an
independent appraiser supporting the Net Book Value of Equipment
included in this Section 1.2(a)(iii) that has been repossessed from a
lessee; plus
(iv) Restructured Lease Clause - 75% of the Net Book
Value of Eligible Equipment subject to an Unfunded Eligible Six-Month
Restructured Lease; plus
(v) Healthcare Receivables Clause - 85% of the DBC
Financed Amount of Eligible Healthcare Receivables, provided that the
aggregate amount included under this Section 1.2(a)(v) shall not
exceed $7,000,000; minus
(vi) Excludable Recourse Liabilities - 100% of the
amount by which (1) all accrued but unpaid federal, state and local
taxes (not including deferred taxes or taxes reimbursable by an
Obligor), and all recourse liabilities, contingent or otherwise,
constituting equipment payables in respect of Equipment included in any
clause of the Borrowing Base, exceed (2) the amount of the Borrower's
unrestricted cash greater than $500,000.
(b) The Borrowing Base under Section 1.2(a) shall be
calculated in accordance with the following principles:
(i) Multiple Inclusion. At no time shall assets
covered by any of the clauses of the Borrowing Base be included under
any other clause.
(ii) Assets and Values. At no time shall the amount
originally included under any clause of the Borrowing Base with respect
to any Eligible Contract exceed the lesser of the Invoiced Cost or the
Net Book Value of any item of Equipment individually or items of
Equipment in the aggregate covered by such Eligible Contract, and at no
time shall the sum of the amounts included under clauses (i) and (ii)
of the Borrowing Base with respect to an item of Equipment exceed the
Invoiced Cost for such item of Equipment;
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(iii) Concentration Limits. At no time shall amounts
included in the Borrowing Base under all Eligible Contracts between the
Borrower and a single Obligor exceed 20% of the Borrower's Tangible Net
Worth at such time. In addition, at no time shall amounts included in
the Borrowing Base under all Eligible Contracts originated by and
purchased from a Person not an Affiliate of the Borrower exceed 20% of
the Borrower's Tangible Net Worth at such time, except that any
individual Contracts approved by the Credit Committee in accordance
with criteria applicable to Borrower-originated Contracts will be
excluded from this limitation so long as, if such Contract was acquired
concurrently with other Contracts from a seller or its Affiliates, all
such Contracts have been individually approved or disapproved by the
Credit Committee.
(iv) Transactions with Affiliates. At no time shall
Eligible Leases with Affiliates included in clauses (i), (ii) and (iv)
of the Borrowing Base exceed $5,000,000 in the aggregate.
(v) No Liens. Assets included in the Borrowing Base
shall be subject to no Liens other than the Agent's Lien and Permitted
Liens.
(vi) Representation as to No Adverse Selection.
Inclusion of any assets in computation of the Borrowing Base shall be
deemed to constitute a continuing representation and warranty by the
Borrower to the Banks and the Agent that no selection procedures
believed by the Borrower to be materially adverse to the interest of
the Banks have been or are being or shall be used in selecting any
contracts to be provided under any Warehousing Loan Agreement, and such
contracts were and shall continue to be selected at random.
(vii) Defaults by DBC. At no time shall any amounts
be included under the Healthcare Receivables Clause if one or more of
the following events shall have occurred and be continuing: (1) DBC
shall fail to perform or observe any material term, condition or
covenant of any agreement to which it is a party, including any
provision obligating DBC for the payment of money in excess of
$500,000; or (2) any judgment shall be rendered against DBC or any
attachment, levy or execution against any of its properties for any
amount in excess of $100,000 shall remain unpaid, unstayed on appeal,
undischarged, unbonded or undismissed for a period of 30 days or more.
Section 1.3 Interpretation.
(a) All accounting terms used but not specifically
defined in this Agreement shall have the meanings customarily given to them in
accordance with GAAP.
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(b) All terms used in Article 9 of the UCC and not
specifically defined in this Agreement are used in this Agreement as defined in
Article 9 of the UCC.
(c) Unless otherwise indicated, any Applicable Law
defined or referred to in this Agreement is intended to mean or refer to such
Applicable Law as amended from time to time or any successor Applicable Law as
amended from time to time.
(d) Unless otherwise indicated, any agreement defined or
referred to in this Agreement means or refers to such agreement as amended or
supplemented from time to time or as the terms of such agreement are waived or
modified in accordance with its terms.
(e) Unless otherwise indicated, any definition or
reference to a Person (other than an individual) in this Agreement means or
refers to such Person and all divisions of such Person, regardless of their
tradename or "doing business" names, and all successors and permitted assigns
from time to time.
(f) Terms defined in this Agreement in the singular
include the plural of such terms, and terms defined in this Agreement in the
plural include the singular of such terms.
(g) The term "including", when used in this Agreement,
means "including without limitation" and "including but not limited to".
(h) Unless otherwise indicated, any reference to a
specified "article", "section", "subsection", "clause", "exhibit" or "schedule"
shall refer to such article, section, subsection, clause, exhibit or schedule
of this Agreement.
(i) The captions and headings of this Agreement are for
convenience only and shall not affect the construction or interpretation of
this Agreement.
(j) Unless otherwise indicated, all hourly references in
this Agreement shall refer to New York City time or, in the event that the
Principal Office is in a time zone other than New York City's time zone, the
time in the time zone in which the Principal Office is located.
ARTICLE 2. COMMITMENTS; LOANS
Section 2.1 Loans; Credit Period; Term Conversion. Each
Bank hereby agrees, on the terms and subject to the conditions of this
Agreement, to make loans (the "Loans") to the Borrower during the Credit Period
in an aggregate principal amount at any one time outstanding up to, but not
exceeding, the lesser of the Commitment of such Bank as then in effect or such
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Bank's pro rata share of the Borrowing Base based on the proportion that such
Bank's Commitment as then in effect bears to the Total Commitment (such lesser
amount in the aggregate with respect to all of the Banks is hereinafter
referred to as the "Borrowing Capacity"), and in no event may the aggregate
outstanding principal amount of all Loans plus all Pre-Funding Loans exceed the
lesser of the Total Commitment and the Borrowing Base. Subject to the terms of
this Agreement, during the Credit Period the Borrower may borrow, prepay (as
provided in Section 2.8) and reborrow the amount of the Total Commitment by
means of Prime Rate Loans or Eurodollar Loans, and during the Credit Period and
following the Term Conversion Date the Borrower may convert Loans of one type
into Loans of another type as provided in Section 2.7.
Section 2.2 Changes in Commitment. The Borrower shall be
entitled at its option to reduce permanently the Total Commitment provided that
the Borrower shall give notice of such reduction to the Banks as provided in
Section 2.3 and that any partial reduction of the Total Commitment shall be in
an amount equal to $1,000,000 or an integral multiple. The Borrower shall be
entitled at its option to terminate the Total Commitment on 30 days prior
notice to the Banks and the Agent. Any such termination or reduction shall be
permanent and irrevocable once notice is given to any Bank or the Agent.
Section 2.3 Borrowing Notice; Borrowing Base Report. (a)
The Borrower shall give the Agent written notice of each reduction of the Total
Commitment, each borrowing of a Pre-Funding Loan, each conversion or prepayment
of a Loan and the duration of each Interest Period applicable to each
Eurodollar Loan by the delivery to the Agent of a Borrowing Notice. Each such
Borrowing Notice shall be effective only if received by the Agent not later
than noon on the date which is:
(i) in the case of each notice of the borrowing,
reduction or prepayment of Pre-Funding Loans and the prepayment of
Eurodollar Loans, on the date of the requested borrowing, reduction or
prepayment;
(ii) in the case of each notice of the borrowing,
reduction or prepayment of, or the conversion into, Prime Rate Loans,
one Business Day before the date of the requested borrowing,
reduction, prepayment or conversion; and
(iii) in the case of each notice of the borrowing of
or conversion into, or of the duration of an Interest Period for,
Eurodollar Loans, two Eurodollar Business Days before the date of the
requested prepayment or conversion or the first day of such Interest
Period.
Each such notice of borrowing, conversion or prepayment shall specify the
amount (subject to Section 2.1) of the Pre-Funding
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Loans to be borrowed, the amount and type of the Loans and Pre-Funding Loans to
be converted or prepaid (and, in the case of a conversion, the type of Loans to
result from such conversion), and the date of borrowing, conversion or
prepayment (which shall be a Business Day in the case of each borrowing,
prepayment or conversion of or into Prime Rate Loans and a Eurodollar Business
Day in the case of each borrowing, prepayment or conversion of or into
Eurodollar Loans). Each notice of the duration of an Interest Period shall
specify the Eurodollar Loans to which such Interest Period is to relate.
(b) Each Borrowing Notice requesting a Loan or
Pre-Funding Loan shall include a representation by the Borrower that the
borrowing requested shall not on the date of borrowing exceed the Borrowing
Availability, as measured by the most recent Borrowing Base Report delivered to
the Banks and the Agent in accordance with the terms of this Agreement,
provided that any Borrowing Notice requesting an amount exceeding the Borrowing
Availability reported on the most recent Borrowing Base Report delivered to the
Agent as a result of an increase in the Borrowing Base since the most recent
Borrowing Base Report shall be accompanied either by a new Borrowing Base
Report or by such additional Borrowing Base information and Supporting
Documents as shall evidence the increase in the Borrowing Availability from the
most recent Borrowing Base Report and that after giving effect to the Loans and
Pre-Funding Loans requested the outstanding principal amount of Loans and
Pre-Funding Loans do not exceed the Borrowing Capacity as of such date.
Section 2.4 Fees. (a) The Borrower shall pay to the
Agent for the account of each Bank a non-refundable commitment fee (the
"Commitment Fee") on the daily average amount of the Unused Commitment for the
period from the date this Agreement is restated to and including the earlier of
the date such Bank's Commitment is terminated or the Term Conversion Date, at
the rate of (i) 1/4 of 1% per annum on that portion of the Unused Commitment
equal to or less than, in Dollar amount, one-third of the Total Commitment then
in effect, and (ii) 1/2 of 1% per annum on the balance of the Unused
Commitment.
(b) The accrued Commitment Fee shall be payable quarterly
in arrears on the last day of each calendar quarter and on the earlier of the
date the Commitments are terminated or the Term Conversion Date, and, in the
event the Borrower reduces the Commitment as provided in Section 2.2, on the
effective date of such reduction.
(c) The Borrower shall pay to the Agent for the account
of each Bank a non-refundable fee of $5,000 per Bank for each amendment to this
Agreement and each waiver or consent granted by the Banks pursuant to this
Agreement.
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Section 2.5 Lending Offices. The Loans of each type made
by each Bank shall be made and maintained at such Bank's Applicable Lending
Office for Loans of such type.
Section 2.6 Disbursement of Loan Proceeds. The Borrower
shall give the Agent notice of each borrowing hereunder as provided in Section
2.3. Not later than 1:00pm on the date specified for each borrowing under this
Agreement, each Bank shall transfer to the Agent by wire transfer or otherwise,
but in any event in immediately available funds, the amount of the Loan to be
made by it on such date, and the Agent, upon its receipt of each such amount,
shall disburse such amount to the Borrower by depositing it in an account of
the Borrower designated by the Borrower and maintained with the Agent.
Section 2.7 Conversions of Loans. The Borrower shall
have the right to convert Loans of one type into Loans of another type from
time to time, provided that: (i) the Borrower shall give the Agent notice of
each such conversion as provided in Section 2.3; (ii) Eurodollar Loans may be
converted only on the last day of an Interest Period for such Loans; and (iii)
no Prime Rate Loan may be converted into a Eurodollar Loan if on the proposed
date of conversion a Default or an Event of Default exists.
Section 2.8 Mandatory and Optional Prepayments. (a)
Notwithstanding any other provisions of this Agreement but in addition to the
provisions of Section 2.8(b) below, in the event that at any time the
outstanding principal amount of the Loans and Pre-Funding Loans shall at any
time exceed the Borrowing Base, the Borrower shall, within three Business Days
following the date on which such excess first exists (or, if sooner,
concurrently with delivery of the Borrowing Base Report next due to be
delivered following the date on which such excess first exists), (i) prepay any
outstanding Pre-Funding Loans and then any outstanding Loans, (ii) so long as
no Default or Event of Default shall then have occurred and be continuing,
include additional assets in the Borrowing Base and deliver to the Agent a new
Borrowing Base Report and the other documents required to be delivered to the
Banks and the Agent in connection with a Borrowing Base Report under Section
2.3(b), or (iii) a combination of the actions permitted by the preceding
clauses (i) and (ii), in any case including computations that show such
prepayment, substitution or both are in an amount or of a value sufficient that
the above-described excess under the Borrowing Base no longer exists.
(b) From and after the Term Conversion Date, in the event
of any sale, lease or other disposition of assets or any refinancing of any
asset included in the Borrowing Base, the Borrower shall simultaneously with
the consummation of such transaction prepay the Loans in an amount equal to the
amount of the Loans made on the basis of the inclusion of such asset in the
Borrowing Base.
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(c) The Borrower shall have the right to prepay the Loans
and any Pre-Funding Loans from time to time in whole or in part upon notice to
the Agent in accordance with Section 2.3. Any Loans and Pre-Funding Loans
repaid during the Credit Period may be reborrowed during the Credit Period in
accordance with the terms and conditions of this Agreement. Loans prepaid
after the Term Conversion Date may not be reborrowed.
(d) All prepayments of Eurodollar Loans shall include
payment of all interest accrued on the principal amount prepaid. No premium or
penalty is required to be made with any prepayment except as otherwise provided
in Section 2.20.
(e) Prepayments shall be applied first to installments of
the Prime Rate Loans and second to installments of Eurodollar Loans, in each
case in the order of their maturity, and the Borrower shall be liable for any
payments due under Section 2.20 as a result of any prepayment.
Section 2.9 Use of Proceeds. The proceeds of the Loans
and Pre-Funding Loans may be used solely for:
(a) repayment of all outstanding Recourse Debt as more
specifically set forth on the attached Schedule 12;
(b) financing Eligible Contracts, Eligible Equipment and the
other assets described in the Borrowing Base;
(c) Investments permitted under Section 7.8;
(d) other working capital purposes; and
(e) in the case of Loans, the conversion of Pre-Funding Loans.
Section 2.10 Principal Repayment Schedule. (a) Subject
to Section 2.8, the Borrower shall pay to the Agent for the account of each
Bank the principal of the Loans made by such Bank that is outstanding at the
close of business on the Term Conversion Date in 48 consecutive monthly
installments on the Payment Dates, each such installment to be in a principal
amount equal to 1/48th of the principal amount of the Loans outstanding on the
Term Conversion Date (provided that the last such payment shall be in an amount
sufficient to repay in full the principal amount of such Loans).
(b) Except as set forth in Sections 2.16 through 2.19,
all repayments made pursuant to this Section 2.10 shall be applied first to
outstanding Prime Rate Loans and second to Eurodollar Loans.
(c) The Borrower may request a Eurodollar Loan only if
compliance with the schedule set forth in Section 2.10(a) will not result in
any portion of the principal amount of such
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Eurodollar Loan being paid prior to the last day of the Interest Period
applicable to such Eurodollar Loan.
Section 2.11 Interest. (a) The Borrower shall pay to the
Agent for the account of each Bank interest on the unpaid principal amount of
each Loan for the period commencing on the date of such Loan until such Loan
shall be paid in full at the following rates per annum:
(i) during such periods such Loan is a Prime Rate
Loan, the Prime Rate plus the Applicable Margin; and
(ii) during such periods such Loan is a Eurodollar
Loan, for each Interest Period relating to such Eurodollar Loan, the
Eurodollar Rate for such Loan for such Interest Period plus the
Applicable Margin.
Accrued interest on each Loan shall be payable in arrears (i) on each Monthly
Date commencing with the Monthly Date for June 1991, and (ii) on any date of
payment or prepayment of such Loan (other than a conversion of such Loan into a
Loan of another type) but only on the principal amount paid or prepaid. The
Applicable Margin will change on the Term Conversion Date as provided in the
definition of "Applicable Margin" in Section 1.1 for any Eurodollar Loan whose
Interest Period begins before the Term Conversion Date and ends after the Term
Conversion Date.
(b) Notwithstanding Section 2.11(a), if an Event of
Default occurs the Borrower shall pay interest at the applicable Post-Default
Rate on all Loans and on any other amount (other than interest) payable by the
Borrower under this Agreement for the period commencing on the date the Event
of Default occurred and ending on the earlier of the date the Event of Default
is cured or the date all Loans and other amounts are paid in full. Interest
payable at the Post-Default Rate shall be payable from time to time on demand
of the Agent.
(c) Promptly after the establishment or change of any
interest rate provided for in this Agreement, the Agent will notify the Banks
and the Borrower of such interest rate or change in interest rate, but the
failure of the Agent to so notify the Borrower or the Banks shall not affect
the obligations of the Borrower under this Agreement or the Notes in any
respect.
(d) The obligation of the Borrower to make payments of
interest shall be subject at all times to the limitation that payments of
interest shall not be required to be made to any Bank to the extent that such
Bank's receipt of such interest payments would not be permissible under
Applicable Laws limiting rates of interest that may be charged or collected by
such Bank. Any such payments of interest that are not made as a result of the
limitation referred to in the preceding sentence shall be made by the Borrower
to such Bank on the earliest interest payment date or dates on which the
receipt of such payments would be
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permissible under Applicable Laws limiting rates of interest that may be
charged or collected by such Bank.
Section 2.12 Notes. The Loans made by each Bank shall be
evidenced by a promissory note of the Borrower in substantially the form
attached as Exhibit A (the "Notes"), each dated the date of the initial
borrowing of Loans from such Bank, payable to the order of such Bank in a
principal amount equal to such Bank's Commitment and otherwise duly completed.
The Notes shall be subject to repayment as provided in Sections 2.1, 2.10 and
2.11. All Loans made by each Bank under this Agreement, all payments and
prepayments made on account of the principal of such Loans and all conversions
of such Loans shall be recorded by each Bank on the schedule attached to its
Note, but any failure by any Bank to make any such recordation shall not affect
the obligations of the Borrower under this Agreement or the Notes to repay the
Loans in accordance with their respective terms. Upon payment in full of any
Note, the Bank shall mark the Note "Paid" and return it to the Borrower.
Section 2.13 Time and Method of Payments. All payments of
principal, interest, Fees,indemnities and other amounts payable by the Borrower
under the Loan Documents shall be made in Dollars, in immediately available
funds, to the Agent at the Principal Office not later than noon on the date on
which such payment shall become due, and the Agent or any Bank for whose
account any such payment is to be made may, but shall not be obligated to,
debit the amount of any such payment that is not made by such time to any
ordinary deposit account of the Borrower with the Agent or such Bank. Any
payment made on any date after such time shall, if the amount paid bears
interest, be deemed to have been made on, and interest shall continue to accrue
and be payable until, the next succeeding Business Day. If any payment of
principal or interest becomes due on a day other than a Business Day, such
payment may be made on the next succeeding Business Day and such extension
shall be included in computing interest in connection with such payment. Each
payment received by the Agent for the account of a Bank shall be paid promptly
to such Bank, in like funds, for the account of such Bank's Applicable Lending
Office for the Loan in respect to which such payment is made.
Section 2.14 Computations. Interest on all Loans,
Pre-Funding Loans and Fees shall be computed on the basis of a year of 360 days
and the actual days elapsed (including the first day but excluding the last) in
the period for which payable.
Section 2.15 Minimum Borrowings, Conversions and
Prepayments. Except for borrowings of the remaining amount of the Total
Commitment, conversions and prepayments of all Loans of a particular type,
conversions made pursuant to Section 2.19, conversions under Section 2.30(c)
and mandatory prepayments under Section 2.8, each borrowing, conversion of
Loans of one type into another and each repayment or prepayment of the
principal of
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Loans shall be in an amount at least equal to $2,000,000, any Prime Rate Loans
shall be in an amount of at least $2,000,000 and any Eurodollar Loans shall be
in an amount equal to $2,000,000 or an integral multiple of $100,000 in excess
of $2,000,000 (borrowings, conversions and prepayment of different types of
Loans at the same time are deemed separate borrowings, conversions and
prepayments for purposes of this Section 2.15, one for each type).
Section 2.16 Additional Costs. (a) In the event that any
existing or future law, regulation or guideline or interpretation thereof by
any court or administrative or governmental authority charged with the
administration thereof, or the compliance by any Bank with any request or
directive (whether or not having the force of law) of any such authority shall
impose, modify, deem applicable or result in the application of any capital
maintenance, capital ratio or similar requirement against loan commitments made
by any Bank, and the result is to impose upon any Bank or increase any capital
requirement applicable as a result of the making or maintenance of such Bank's
Commitment or the obligation of the Borrower under this Agreement with respect
to its Commitment (which imposition of capital requirements may be determined
by each Bank's reasonable allocation of the aggregate of such capital increases
or impositions), then, upon demand made by such Bank as promptly as practicable
after it obtains knowledge that such law, regulation, guideline,
interpretation, request or directive exists and determines to make such demand,
the Borrower shall immediately pay to such Bank from time to time as specified
by such Bank additional amounts sufficient to compensate such Bank for such
imposition of or increase in capital requirements together with interest on
each such amount commencing five days from the date payment of such additional
costs is demanded until payment in full is made at the Post-Default Rate. A
certificate setting forth in reasonable detail the amount necessary to
compensate such Bank as a result of an imposition of or increase in capital
requirements submitted by such Bank to the Borrower shall be conclusive as to
the amount of such compensation, absent manifest error. For purposes of this
Section 2.16(a), in calculating the amount necessary to compensate any Bank for
any imposition of or increase in capital requirements, such Bank shall be
deemed to be entitled to a rate of return on capital (after federal, state and
local taxes) of 15% per annum and all references to any "Bank" shall be deemed
to include any participant in such Bank's Commitment.
(b) In the event that any Regulatory Change shall (i)
change the basis of taxation of any amounts payable to any Bank under this
Agreement or the Notes in respect of any Loans (other than taxes imposed on the
overall net income of such Bank for any Loans by the United States or the
jurisdiction in which such Bank has its principal office), (ii) impose or
modify any reserve, Federal Deposit Insurance Corporation premium or
assessment, special deposit or similar requirements relating to
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any extensions of credit or other assets of, or any deposits with or other
liabilities of, such Bank (including any of such Loans or any deposits referred
to in the definition of "Eurodollar Rate" in Section 1.1), or (iii) impose any
other conditions affecting this Agreement in respect of Loans (or any of such
extensions of credit, assets, deposits or liabilities), and the result of any
event referred to in clause (i), (ii) or (iii) above shall be to increase such
Bank's costs of making or maintaining any Loans or its Commitment or to reduce
any amount receivable by such Bank under this Agreement in respect of its
Eurodollar Loans or its Commitment (such increases in costs and reductions in
amounts receivable are hereinafter referred to as "Additional Costs"), in each
case only to the extent that such Additional Costs are not included in the
Eurodollar Rate applicable to such Eurodollar Loans, then upon demand made by
such Bank as promptly as practicable after it obtains knowledge that such a
Regulatory Change exists and determines to make such demand (a copy of which
demand shall be delivered to the Agent), the Borrower shall pay to such Bank
from time to time as specified by such Bank additional amounts sufficient to
compensate such Bank for such Additional Costs from the date of such change,
together with interest on each such amount from the date demanded until payment
in full at the Post-Default Rate. All references to any "Bank" shall be deemed
to include any participant in such Bank's Commitment.
(c) Without limiting the effect of the foregoing
provisions of this Section 2.16, in the event that, by reason of any Regulatory
Change, any Bank either (i) incurs Additional Costs based on or measured by the
excess above a specified level of the amount of a category of deposits or other
liabilities of such Bank which includes deposits by reference to which the
interest rate on Eurodollar Loans is determined as provided in this Agreement
or a category of extensions of credit or other assets of such Bank which
includes Eurodollar Loans, or (ii) becomes subject to restrictions on the
amount of such a category of liabilities or assets which it may hold, then if
such Bank so elects by notice to the Borrower (with a copy to the Agent), the
obligation of such Bank to make, and to convert Loans of any other type into,
Loans of such type hereunder shall be suspended until the date such Regulatory
Change ceases to be in effect and all Loans of such type then outstanding shall
be converted into Prime Rate Loans or into Eurodollar Loans of another
duration, as the case may be, in accordance with Sections 2.7 and 2.19. Such
Bank shall promptly notify the Borrower and the Agent if such Regulatory Change
ceases to be in effect.
(d) Determinations by any Bank for purposes of this
Section 2.16 of the effect of any Regulatory Change on its costs of making or
maintaining Loans or on amounts receivable by it in respect of Loans, and of
the additional amounts required to compensate such Bank in respect of any
Additional Costs, when set forth in a written notice to the Borrower shall be
conclusive, absent manifest error.
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Section 2.17 Limitation on Types of Loans. Anything
herein to the contrary notwithstanding, if on or prior to the determination of
an interest rate for any Eurodollar Loans for any Interest Period any Bank
determines (which determination shall be conclusive) that:
(a) by reason of any event affecting the money
markets in the United States or the interbank Eurodollar market,
quotations of interest rates for the relevant deposits are not being
provided in the relevant amounts or for the relevant maturities for
purposes of determining the rate of interest for such Eurodollar Loans
under this Agreement; or
(b) the rates of interest referred to in the
definition of "Eurodollar Base Rate" in Section 1.1 do not accurately
reflect the cost to such Bank of making or maintaining such Eurodollar
Loans for such Interest Period;
then upon notification by such Bank to the Agent, the Agent shall give the
Borrower and each Bank prompt notice of such condition and, so long as such
condition remains in effect, the Banks shall be under no obligation to make new
Eurodollar Loans or to convert Prime Rate Loans or refinance Pre-Funding Loans
into Eurodollar Loans. If such condition remains in effect, on the last day of
each then current Interest Period for the outstanding Eurodollar Loans the
Borrower shall either prepay such Eurodollar Loans in accordance with Section
2.8 or convert such Eurodollar Loans into Prime Rate Loans in accordance with
Section 2.7. The Agent shall give the Borrower and each Bank prompt notice of
the cessation of such condition.
Section 2.18 Illegality. Notwithstanding any other
provision in this Agreement, in the event that it becomes unlawful for any Bank
or its Applicable Lending Office to (i) honor its obligation to make new
Eurodollar Loans, or (ii) maintain existing Eurodollar Loans, then such Bank
shall promptly notify the Borrower (with a copy to the Agent) describing such
illegality in reasonable detail. Upon giving such notice to the Borrower, such
Bank's obligation to make new Eurodollar Loans and to convert Prime Rate Loans
into Eurodollar Loans shall be suspended until such time as such Bank may again
make and maintain Eurodollar Loans, and such Bank's outstanding Eurodollar
Loans shall be converted into Prime Rate Loans in accordance with Sections 2.7
and 2.19. Such Bank shall promptly notify the Borrower and the Agent of the
cessation of such illegality.
Section 2.19 Forced Conversions. If any Loans of any Bank
are to be converted pursuant to Section 2.16(c) or 2.18, such Loans shall be
converted into Loans of another type or duration, as the case may be, on the
last day of the then current Interest Period for such Loan or on such earlier
date as such Bank may specify to the Borrower. Until the Bank gives notice as
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provided in Section 2.16(c) or 2.18 that the circumstances that gave rise to
such conversion no longer exist, such Bank shall not be required to make new
Loans, or convert existing Loans into Loans, of the particular type to be
converted pursuant to Section 2.16(c) or 2.18.
Section 2.20 Indemnification. The Borrower shall pay to
the Agent, upon the request of each Bank, such amount or amounts as shall
compensate such Bank for any loss (including loss of profit), cost or expense
incurred by such Bank (as reasonably determined by such Bank) as a result of:
(a) any payment, prepayment or conversion of a
Eurodollar Loan held by such Bank on a date other than the last day of
an Interest Period for such Eurodollar Loan; or
(b) any failure by the Borrower to borrow a
Eurodollar Loan from such Bank on the date specified in a Borrowing
Notice delivered under Section 2.3;
such compensation to include an amount equal to (i) any loss or expense
suffered by such Bank during the period from the date of receipt of such early
payment or prepayment or the date of such conversion or date of intended
borrowing to the last day of such Interest Period if the rate of interest
obtainable by such Bank upon the redeployment of an amount of funds equal to
such payment, prepayment or conversion or failure to borrow or convert is less
than the rate of interest applicable to such Eurodollar Loan for such Interest
Period, or (ii) any loss or expense suffered by such Bank in liquidating
Eurodollar or other deposits prior to maturity which correspond to the payment,
prepayment, conversion, failure to borrow or failure to convert. The
determination by each Bank of the amount of any such loss or expense, when set
forth in a written notice to the Borrower containing such Bank's calculation of
such loss in reasonable detail, shall be presumed correct in the absence of
manifest error.
Section 2.21 Security Documents; Guaranties. In order to
secure the due payment and performance by the Borrower of the Obligations, the
Borrower has entered into or caused to be entered into the Security Documents,
DVI has entered into the Guaranty and DBC has entered into the DBC Guaranty.
The Borrower shall execute and deliver, or cause to be executed and delivered,
such other agreements, instruments and documents as the Agent may reasonably
require in order to effect the purposes of the Security Documents, the Guaranty
and the DBC Guaranty.
Section 2.22 Forms of Borrower Agreements. The forms of
DBC Financing Agreements and Eligible Progress Payment Agreements used by the
Borrower and DBC are attached as Exhibits F and G, respectively, to this
Agreement. From time to time either the Borrower or the Agent may propose
amendments to such forms, or new forms, of agreements for purposes of any
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future transactions entered into by the Borrower or DBC that require such forms
of agreements. Upon the giving by either the Borrower or the Agent of such
notice, the Borrower and the Agent shall cooperate in good faith to amend such
forms or to agree upon new forms of agreements within 30 days after such
notice.
Section 2.23 Required Borrowing Documentation. On or
before the date of delivery of a Borrowing Base Report and with respect to the
assets included in the Borrowing Base:
(a) Contract Receivables Clause. The Borrower shall have
and maintain possession of:
(i) all original master leases for Eligible Leases;
(ii) the original chattel paper copy of each Eligible
Lease schedule and all executed originals of such Lease schedules
other than the counterparts held by the Lessee;
(iii) an original of each Equipment Note, CSA and
Third Party Note, including the original security and financing
documents and each original schedule relating to each Equipment Note
and CSA and the original chattel paper copy of each Third Party Lease;
and
(iv) an original of each other related document or
instrument executed by an Obligor relating to an Eligible Contract or
to its related Equipment.
(b) Progress Payments Clause. The Borrower shall have
and, except to the extent forwarded to the Agent, maintain possession of:
(i) each Eligible Progress Payment Agreement, as
originally executed by the Borrower and the Lessee;
(ii) the original of the Borrower's purchase order,
manufacturer's or other vendor's invoice and evidence of payment
thereof, and bills of sale from the manufacturer of the Equipment and
all owners of the related Equipment prior to the Borrower; and
(iii) each check evidencing payment of a Progress
Payment.
(c) Inventory and Per Procedure Clause. The Borrower
shall have and maintain possession of:
(i) warehouse receipts and other written evidence of
the return of Equipment to a location under the control of the
Borrower; and
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(ii) the original chattel paper copy of each
operating lease covering Eligible Equipment included under the
Inventory and Per Procedure Clause, and all executed originals of such
operating leases other than the counterparts held by the lessee.
(d) Restructured Leases Clause. The Borrower shall have
and maintain possession of:
(i) all original master leases for Eligible Six-Month
Restructured Leases; and
(ii) the original chattel paper copy of each Eligible
Six-Month Restructured Lease schedule and all executed originals of
such schedules other than the counterparts held by the Lessee.
(e) Healthcare Receivables Clause. The Borrower shall
have and maintain possession of all documents to be delivered to DBC pursuant
to the DBC Financing Agreements.
(f) With respect to the documents listed in Sections
2.23(a)-(e), the Borrower shall have and maintain original executed copies of
all exhibits, schedules, annexes, amendments and supplements relating to such
documents.
(g) With respect to the Contract Receivables Clause,
Progress Payments Clause and Restructured Lease Clause of the Borrowing Base,
the Borrower shall have and maintain photocopies (and acknowledgment copies
when received) of the Financing Statements (informational or otherwise) filed
by the Borrower as Lessor/secured party against the Obligor covering the
related Equipment, Contract Payments and other assets, as appropriate, and
assigned to the Agent. With respect to the Healthcare Receivables Clause, the
Borrower shall have and maintain photocopies (and acknowledgment copies when
received) of the Financing Statements (informational or otherwise) filed by DBC
as purchaser/secured party against a Healthcare Provider or the Obligor under
an Eligible Healthcare Receivable, as the case may be, and assigned to the
Agent. All of such Financing Statements shall have been filed in the
appropriate filing offices as necessary for perfection of a security interest
in favor of the Borrower or DBC, as the case may be, and the Agent as assignee
prior to the date of inclusion of any related asset in the Borrowing Base. The
Borrower shall also maintain copies of letters sent to Lessees, other obligors
and issuers of insurance policies as required by Section 6.14, and originals of
loss payee endorsements received in response.
(h) The Agent may, at any time, in the exercise of its
sole discretion, require the Borrower to deliver to the Agent originals or
photocopies of all of the agreements, instruments and documents referred to in
this Section 2.23.
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Section 2.24 Lock-Box Arrangements. (a) At its own
expense, the Borrower shall establish and maintain at all times with the Agent
or any of the Banks lock-box arrangements into which the Borrower shall deposit
all payments made under contracts included in the Borrowing Base, and notify
forthwith all Obligors or other obligors who have obligations in respect of
assets included in the Borrowing Base to make payments only to the
above-mentioned lock-box accounts; except that (i) the Borrower may establish
and maintain lock-box arrangements with other banks if such other banks have
entered into a written agreement satisfactory to the Agent pursuant to which
such other bank acknowledges the Lien of the Agent and waives its rights of
set-off with respect to such deposits, and (ii) DBC may establish and maintain
lock-box or other collection arrangements with other banks or collection agents
acceptable to the Agent if such other banks or collection agents have entered
into a written agreement satisfactory to the Agent. Amounts deposited in the
lock-box accounts shall be disbursed to the Borrower so long as (1) any Event
of Default that had occurred and has been cured to the satisfaction of the
Majority Banks, and (2) after the Term Conversion Date, the obligations of the
Borrower under Section 2.8 are then satisfied in full, whether from amounts
deposited in the lock-box or otherwise. The Banks and the Agent acknowledge
that payments delivered to a lock-box account under this Section 2.24(a) that
are payable to third parties (such as user taxes, maintenance, repairs,
management fees (other than to Affiliates) and insurance) are not entitled to
be retained by the Banks and the Agent.
(b) The Borrower and each Bank confirm and acknowledge
that any payments received by any Bank pursuant to lock- box arrangements
existing prior to the date of this Agreement shall be received by each such
Bank as agent for the Agent to be held in escrow for application and direction
exclusively pursuant to the terms and conditions of this Agreement (including
for application to repayment of the Loans as directed from time to time by the
Agent in a manner not inconsistent with the provisions of this Agreement).
Notwithstanding the provisions of Section 2.24(a), at the request of the Agent
all such payments shall be turned over to the Agent from and after the date of
notice to such effect given by the Agent in its sole discretion following the
occurrence of any Event of Default, and the Borrower and each Bank, if so
required by the Agent's notice, shall forthwith deliver notices to all Obligors
and other obligors under assets included in the Borrowing Base that all
payments shall be delivered directly to the lock-box accounts maintained with
the Agent.
Section 2.25 Pro Rata Treatment Among Banks. Except as
otherwise provided in this Agreement: (a) each borrowing from the Banks under
Section 2.1 will be made from the Banks and each payment of the Commitment Fee
(but not the Pre-Funding Commitment Fee) shall be made for the account of the
Banks pro rata according to their respective Unused Commitments; (b) each
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partial reduction of the Total Commitment shall be applied to the Commitments
of the Banks pro rata according to each Bank's Commitment; (c) each conversion
of Loans of a particular type under Section 2.7 (other than conversions
provided for by Section 2.18) will be made pro rata among the Banks holding
Loans of such type according to the respective principal amounts of such Loans
held by such Banks; (d) each payment and prepayment of principal of or interest
on Loans of a particular type will be made to the Agent for the account of the
Banks holding Loans of such type pro rata in accordance with the respective
unpaid principal amounts of such Loans (but not Pre-Funding Loans) held by such
Banks; and (e) Interest Periods for Eurodollar Loans shall be allocated among
the Banks holding Eurodollar Loans pro rata according to the respective
principal amounts of such Eurodollar Loans held by such Banks.
Section 2.26 Non-Receipt of Funds by the Agent. Unless
the Agent shall have been notified by a Bank or the Borrower prior to the date
on which such Bank is to make payment to the Agent of the proceeds of a Loan or
the Borrower is to make a payment to the Agent for the account of one or more
of the Banks, that such Bank or the Borrower does not intend to make the
required payment, the Agent may assume that the required payment has been made
and may, in reliance upon such assumption, make the amount thereof available to
the intended recipient on such date and, if such Bank or the Borrower, as the
case may be, has not in fact made the required payment, the recipient of such
payment shall on demand repay to the Agent the amount made available to it
together with interest thereon in respect of each day during the period
commencing on the date such amount was so made available by the Agent until the
date the Agent recovers such amount at a rate per annum equal to the Federal
Funds Rate for such day (when the recipient is a Bank) or equal to the rate of
interest applicable to such Loan (when the recipient is the Borrower).
Section 2.27 Sharing of Payments and Set-Off Among Banks.
The Borrower agrees that in addition to and without limiting any right of
set-off, banker's lien or counterclaim a Bank may otherwise have, each Bank
shall be entitled, at its option, to offset balances held by it at any of its
offices (including under any lock-box arrangements) against any principal of or
interest on any of its Loans or Pre-Funding Loans or any Fee payable to it that
is not paid when due (regardless of whether such balances are then due to the
Borrower), in which case it shall promptly notify the Borrower and the Agent of
such offset although its failure to give such notice shall not affect the
validity of such offset. If a Bank shall effect payment of any principal of or
interest on its Loans through the exercise of any right of set-off, banker's
lien, counterclaim or similar right, it shall promptly purchase from the other
Banks participations in their Loans in such amounts, and make such other
adjustments from time to time as shall be equitable, to the end that all the
Banks shall share the benefit of such payment
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pro rata in accordance with the unpaid principal and interest on their Loans
and each Bank shall have a Lien on its ratable portion of the amounts received
from the Borrower. To such end the Banks shall make appropriate adjustments
among themselves (by the resale of participations or otherwise) if such payment
is rescinded or must otherwise be restored. The Borrower agrees that any Bank
so purchasing a participation in the Loans held by the other Banks may exercise
all rights of set-off, banker's lien, counterclaim or similar rights with
respect to such participation as fully as if such Bank were a direct holder of
Loans in the amount of such participation. Nothing contained in this Section
2.27 shall require any Bank to exercise any such right or shall affect the
right of any Bank to exercise and retain the benefits of exercising any such
right with respect to any other indebtedness or obligation of the Borrower.
Section 2.28 Several Obligations. The failure of any Bank
to make any Loan to be made by it on the date specified for such Loan shall not
relieve the other Banks of their respective obligations to make their Loans on
such date, but no Bank shall be responsible for the failure of the other Banks
to make Loans to be made by such other Banks.
Section 2.29 Release of Agent's Lien. The Borrower may
finance specific assets with Indebtedness permitted under this Agreement. In
such event, on any date that the Borrowing Base exceeds the outstanding
principal amount of all Loans and Pre-Funding Loans, then subject to the other
terms and conditions of this Agreement the Agent shall at its election either
release or subordinate the Agent's lien on and security interest in such
properties and assets proposed to be used as collateral for such indebtedness,
and such assets and properties shall be excluded from the Borrowing Base, upon
and subject to the following conditions:
(a) no Default or Event of Default then exists or
would exist after giving effect to the proposed release or
subordination;
(b) the Borrower shall provide the Agent with at
least five Business Days' prior written notice of any such proposed
incurrence of Indebtedness and shall provide the Agent with (i) the
lender's identity, (ii) the amount and terms of the proposed
Indebtedness, including whether such Indebtedness is Non-Recourse
Debt, Partial Recourse Debt or Recourse Debt, (iii) the specific
Leases and Leased Property being financed by such Indebtedness, and
(iv) such other information as the Agent may reasonably request;
(c) the Borrower shall cause to be delivered to the
Agent not later than five Business Days prior to any proposed release
or subordination all UCC-3 amendment statements (if appropriate) and
any other agreements, instruments and documents necessary, desirable
or requested
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by the Agent in connection with such release or subordination, and all
of the foregoing shall be satisfactory in form and substance to the
Agent; and
(d) the Borrower shall bear and pay on demand all
costs and expenses, including legal fees and expenses, incurred by the
Agent and the Banks in connection with the review, preparation and
filing of any of the foregoing.
Section 2.30 Pre-Funding Loans. (a) Intent. The
obligations of the Banks under this Section 2.30 shall be absolute and
unconditional and shall not be affected by any circumstance including (i) any
set-off, counterclaim, recoupment, defense or other right which such Bank may
have against the Pre-Funding or the Borrower, (ii) the occurrence or
continuance of a Default or Event of Default, (iii) any adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower, (iv) any breach of any Loan Document
by the Borrower, or (v) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.
(b) Pre-Funding Commitment. Subject to the terms and
conditions of this Agreement and in reliance upon the representations and
warranties set forth in this Agreement, the Pre-Funding Lender agrees to make
advances (the "Pre-Funding Loans") to the Borrower from time to time until but
excluding the Term Conversion Date in an aggregate principal amount not to
exceed the Pre-Funding Commitment as then in effect. The Pre-Funding Lender is
not obligated to make Pre-Funding Loans during the continuation of a Default or
Event of Default.
(c) Borrowings. During the Credit Period, the Borrower
may borrow, repay and reborrow Pre-Funding Loans in accordance with and subject
to the terms and conditions of this Section 2.30. Minimum borrowings of
Pre-Funding Loans shall be in a principal amount of not less than $100,000 or,
if less, the remaining Pre-Funding Commitment. All Pre-Funding Loans shall be
Prime Rate Loans. Pre-Funding Loans shall be entitled to all of the guaranties
and securities applicable to Loans under the Loan Documents.
(d) Refinancing. Each Pre-Funding Loan shall be
refinanced by Loans made pursuant to Section 2.1, without demand on or notice
to the Borrower, on the earliest to occur of (i) the Term Conversion Date or
any earlier termination of the Commitments or the Pre-Funding Commitment, (ii)
the occurrence of a Default or an Event of Default, (iii) the election of the
Pre-Funding Lender as set forth in Section 2.30(i), or (iv) the election of the
Borrower given by delivery of a Borrowing Notice in accordance with Section
2.3. Each such refinancing shall be for the full outstanding principal amount
of the Pre-Funding Loans. The advances to be made by the Banks under this
Section 2.30(d) shall be in the amounts set forth in Section 2.30(i) and
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such amounts shall be advanced to the Agent for the account of the Pre-Funding
Lender. All such advances by the Banks pursuant to this Section 2.30 shall
constitute Loans under the Total Commitment. Any Pre-Funding Loan not
refinanced as set forth in this Section 2.30 (despite the absolute obligations
of refinancing set forth in this Section 2.30) shall be due and payable in full
by the Borrower on demand by the Pre-Funding Lender and shall, if the Loans are
then due and payable, be repaid to the Pre-Funding Lender prior to repayment of
the Loans to the Banks.
(e) Pre-Funding Loan Note and Records. The Pre-Funding
Loans shall be evidenced by a single promissory note of the Borrower (the
"Pre-Funding Loan Note") in substantially the form attached as Exhibit B, dated
June 14, 1991, in the principal amount of $8,000,000 and otherwise duly
completed. The Pre-Funding Lender shall maintain a record in which appropriate
entries will be made from time to time showing the unpaid principal of the
Pre-Funding Loans made, the interest accrued on the Pre-Funding Loans, payments
made in respect of the principal of and interest on the Pre-Funding Loans and
debits and credits in respect of other amounts payable by the Borrower
Pre-Funding Lender pursuant to this Agreement. The entries made by the
Pre-Funding Lender in such record shall constitute prima facie evidence of (i)
the Borrower's obligations in respect of the Pre-Funding Loans, (ii) payments
of principal and interest made by the Borrower in respect of the Pre-Funding
Loans, and (iii) any other amounts owing by the Borrower to the Pre-Funding
Lender under this Agreement and payments made on such amounts, but the failure
by the Pre-Funding Lender to make such entries shall not affect the rights of
the Pre-Funding Lender or the obligations of the Borrower under this Agreement.
(f) Application for Pre-Funding Loan. Application for a
Pre-Funding Loan (a "Pre-Funding Borrowing Notice") shall be made to the
Pre-Funding Lender by telecopy notice which must be received by the Pre-Funding
Lender before 1:00pm on the Business Day of the requested date for borrowing
(i) setting forth the amount requested to be borrowed, and (ii) otherwise in
compliance with the requirements of a Borrowing Notice under Section 2.3(b).
On the date for borrowing proposed in a Pre-Funding Borrowing Notice, subject
to satisfaction of the applicable conditions precedent set forth in Section
4.2, the Pre-Funding Lender will advance to the Borrower, and the Borrower will
borrow from the Pre-Funding Lender, the amount specified in such Pre-Funding
Borrowing Notice and the Borrower will then be indebted to the Pre-Funding
Lender in such principal amount. The Pre-Funding Lender will credit the amount
of the Pre-Funding Loan to an account on its books in the name of the Borrower
or will transmit such amount upon the Borrower's order.
(g) Interest on Pre-Funding Loans. So long as no Event
of Default has occurred and is continuing, the Borrower shall pay to the
Pre-Funding Lender interest on the unpaid
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principal amount of each Pre-Funding Loan for the period commencing on the date
of such Pre-Funding Loan until such Pre-Funding Loan is paid in full at a rate
per annum equal to the Prime Rate. If an Event of Default occurs, the Borrower
shall pay interest at the Post-Default Rate for Prime Rate Loans on the
Pre-Funding Loans and on any other amount payable by the Borrower under this
Section 2.30 for the period commencing on the date such Event of Default
occurred and ending on the earlier of the date the Event of Default is cured or
the date all Pre-Funding Loans and other amounts are paid in full. Interest on
each Pre-Funding Loan shall be payable monthly in arrears commencing on the
first Monthly Date following the making of each Pre-Funding Loan and on the
date of payment in full, except that unpaid interest accrued on a Pre-Funding
Loan through any date of refinancing by Loans shall be payable on the last day
of the calendar month in which such refinancing occurs.
(h) Prepayments of Pre-Funding Loans. Subject to the
provisions of this Section 2.30(h), the Borrower shall be permitted to repay
and prepay Pre-Funding Loans in whole or in part from time to time without
premium or penalty. Partial prepayments may not be less than $50,000 or an
integral multiple of $50,000 unless the Pre-Funding Loans are paid in full.
The Borrower shall prepay the Pre-Funding Loans when required, and in the
manner required, by Section 2.8. All prepayments shall be made to the
Pre-Funding Lender and shall be made together with interest accrued on the
amount prepaid and any additional amount payable pursuant to Section 2.16,
Section 2.20 or otherwise.
(i) Refinancing by Banks at Election of Pre-Funding
Lender. (i) At any time (whether or not a Default or an Event of Default
exists) the Pre-Funding Lender may, in its sole discretion, determine that it
desires to convert the Pre-Funding Loans into Loans under Section 2.1 and
desires the Banks to refinance the Pre-Funding Loans. At such time, the
Pre-Funding Lender shall notify the Borrower and the Agent of such fact, the
Agent shall then notify the Banks of such determination and thereafter the
Banks shall on the second Business Day after the giving of such notice by the
Pre-Funding Lender advance funds to the Agent for the account of the
Pre-Funding Lender in an amount equal to the product of (1) a fraction in which
the numerator is such Bank's Commitment then in effect and the denominator is
the Total Commitment then in effect, multiplied by (ii) the aggregate
outstanding principal balance of the Pre-Funding Loans to be refinanced, which
funds shall be remitted by the Agent to the Pre-Funding Lender to be applied by
the Pre-Funding Lender to refinance the Pre-Funding Loans; provided, however,
that no Bank shall be required to advance funds to the Agent in an aggregate
amount in excess of the amount of such Bank's Unused Commitment as in effect on
such date.
(ii) If prior to the making of a Loan pursuant to Section
2.30(i)(i) one of the events described in Section 8.6 shall occur, each Bank
shall, on the date such Loan was to have
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been made, purchase an undivided participation interest equal to the product of
(1) a fraction in which the numerator is such Bank's Commitment then in effect
and the denominator is the Total Commitment then in effect, multiplied by (ii)
the aggregate outstanding principal balance of all Pre-Funding Loans. Each
Bank will immediately transfer to the Pre-Funding Lender, in immediately
available funds, the amount of its participation and upon receipt of such
amount the Pre-Funding Lender will deliver to such Bank a participation
certificate dated the date of receipt of such funds and in such amount.
(iii) At any time after the Pre-Funding Lender has received
from any Bank such Bank's participating interest in a Pre-Funding Loan pursuant
to Section 2.30(i)(ii) that the Pre-Funding Lender receives any payment on
account of the Pre-Funding Loans, the Pre-Funding Lender will distribute to
such Bank its participating interest in such amount (appropriately adjusted, in
the case of interest payments, to reflect the period of time during which such
Bank's participating interest was outstanding and funded) in like funds as
received; provided, however, that in the event that such payment received by
the Pre-Funding Lender is required to be returned, such Bank will return to the
Pre-Funding Lender any portion thereof previously distributed by the
Pre-Funding Lender to it in like funds as such payment is required to be
returned by the Pre-Funding Lender.
(j) Pre-Funding Commitment Fee. The Borrower shall pay
to the Pre-Funding Lender for its own account a commitment fee (the
"Pre-Funding Commitment Fee") on the daily average unused amount of the
Pre-Funding Commitment at 1/4 of 1% per annum on the unused Pre-Funding
Commitment for the period from the date this Agreement is restated to and
including the earlier of the date on which the Pre-Funding Commitment is
terminated or the Term Conversion Date. Such fee shall be payable quarterly in
arrears on the last day of each calendar quarter and on the earlier of the date
the Pre-Funding Commitment is terminated or the Term Conversion Date.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Banks and the
Agent that:
Section 3.1 Organization. (a) Each of DVI and its
Subsidiaries is duly organized and validly existing under the laws of its state
of organization and has the power to own its assets and to transact the
business in which it is presently engaged and in which it proposes to be
engaged. The attached Schedule 1 lists each of the Subsidiaries of DVI, the
state of incorporation of DVI and each of its Subsidiaries, the authorized and
outstanding shares of common stock of each such corporation, the owners of the
outstanding shares of common stock of the Borrower and the other Subsidiaries
of DVI and the business in
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which each of such entities is engaged. All of the issued and outstanding
shares of capital stock of the Borrower and the other Subsidiaries of DVI have
been duly and validly issued, are fully paid and non-assessable and are owned
by DVI free and clear of any Lien except as stated on the attached Schedule 1.
Except as set forth on the attached Schedule 1, no warrants, options, contracts
or commitments of any kind are outstanding entitling any Person to purchase or
otherwise acquire any shares of capital stock of the Borrower or any other
subsidiaries of DVI, and no securities are outstanding that are convertible
into or exchangeable for any shares of capital stock of the Borrower or any
other subsidiaries of DVI.
(b) Each of the Borrower, DVI and DBC is in good standing
in its state of incorporation and in each state in which it is qualified to do
business. There are no jurisdictions other than as set forth on the attached
Schedule 1 in which the character of the properties owned by the Borrower or in
which the transaction of the business of the Borrower as now conducted requires
or will require the Borrower to qualify to do business, except jurisdictions in
which the failure to so qualify would not have a material adverse effect on the
Collateral or the business, operations, financial condition or assets of the
Borrower.
Section 3.2 Power, Authority, Consents. (a) Each Loan
Party has the power to execute, deliver and perform the Loan Documents to be
executed by it, (b) the Borrower has the power to borrow under this Agreement
and has taken all necessary corporate action to authorize borrowing on the
terms and conditions of this Agreement, and (c) each Loan Party has taken all
necessary action, corporate or otherwise, to authorize the execution, delivery
and performance of the Loan Documents to be executed by it. No consent or
approval of any Person (including the stockholder of the Borrower or any other
Loan Party), no consent or approval of any landlord or mortgagee, no waiver of
any Lien or right of distraint or other similar right and no consent, license,
approval, authorization or declaration of any governmental authority, bureau or
agency is or will be required in connection with the execution, delivery or
performance by any Loan Party or for the validity, enforcement or priority of
the Loan Documents or the Agent's Lien except as set forth on the attached
Schedule 2, each of which either has been duly and validly obtained on or prior
to the date of the restatement of this Agreement and is now in full force and
effect or is designated on the attached Schedule 2 as waived by the Majority
Banks.
Section 3.3 No Violation of Law or Agreements. The
execution, delivery and performance by each Loan Party of each Loan Document to
which it is a party does not and will not violate any provision of law and does
not and will not, except as set forth on the attached Schedule 2, conflict with
or result in a breach of any order, writ, injunction, ordinance, resolution,
decree or other similar document or instrument of any court or
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governmental authority, bureau or agency, domestic or foreign, or any
certificate of incorporation or by-laws of such Loan Party, or create (with or
without the giving of notice or lapse of time, or both) a default under or
breach of any agreement, instrument, document, bond, note or indenture to which
such Loan Party is a party or by which it or any of its properties or assets is
bound or affected, or result in the imposition of any Lien upon any of the
properties or assets owned by or used in connection with the business of such
Loan Party, except for the Liens created and granted pursuant to the Security
Documents.
Section 3.4 Due Execution, Validity, Enforceability.
Each Loan Document to which any Loan Party is a party has been duly executed
and delivered by such Loan Party and constitutes the valid and legally binding
obligation of such Loan Party enforceable in accordance with its terms, except
that the remedy of specific performance and other equitable remedies are
subject to judicial discretion and except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to or affecting the enforcement of
creditors' rights generally, but such laws shall not materially interfere with
the practical benefits of the Security Documents or the Liens created by the
Security Documents except for (a) possible delay, (b) situations which may
arise under Chapter 11 of the Bankruptcy Code, and (c) equitable orders of a
Bankruptcy Court.
Section 3.5 Properties, Priority of Liens. All of the
properties and assets owned by the Borrower are owned by it free and clear of
any Lien except as provided for in the Security Documents and Permitted Liens.
The Liens created and granted by the Security Documents constitute valid,
perfected Liens on the Collateral subject to no prior or equal Liens except
Permitted Liens.
Section 3.6 Judgments, Actions, Proceedings. Except as
set forth on the attached Schedule 3, no judgments, actions or proceedings are
pending before any court or governmental authority, bureau or agency or, to the
best of the Borrower's knowledge, threatened against or affecting the Borrower
involving a claim in excess of $1,000,000 individually or $2,500,000 in the
aggregate, to the best of the Borrower's knowledge no reasonable basis exist
for the institution of any such action or proceeding which is probable of
assertion, and the Borrower is not a plaintiff or complainant in any such
actions or proceedings.
Section 3.7 No Defaults, Compliance With Laws. Except as
set forth on the attached Schedule 4, the Borrower is not in default under any
agreement, ordinance, resolution, decree, bond, note, indenture, order or
judgment to which it is a party or by which it is bound or under any other
agreement or instrument by which any of the properties or assets owned by it or
used in the conduct of its business is affected, and the Borrower has complied
and is in compliance in all respects with
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all Applicable Laws the default or non-compliance with which could have a
material adverse effect on the business, operations, financial condition or
assets of the Borrower or on the ability of any Loan Party to perform its
obligations under the Loan Documents to which it is a party.
Section 3.8 Burdensome Documents. Except as set forth on
the attached Schedule 5, no Loan Party is a party to or bound by, nor are any
of the properties or assets owned by the Borrower used in the conduct of its
businesses affected by, any agreement, ordinance, resolution, decree, bond,
note, indenture, order or judgment which materially and adversely affects its
business, assets or condition, financial or otherwise.
Section 3.9 Financial Statements. Each of the Financial
Statements is correct and complete, presents fairly the financial position of
the Borrower at its date and has been prepared in accordance with GAAP.
Neither DVI nor the Borrower has any material obligation, liability or
commitment, direct or contingent, which is not reflected in the Financial
Statements. No material adverse change in the financial position or operations
of DVI or the Borrower has occurred since the date of the latest balance sheet
included in the Financial Statements. The fiscal year of both DVI and the
Borrower is the twelve-month period ending on June 30 in each year.
Section 3.10 Tax Returns. Each of DVI, the Borrower and
DBC has filed all federal, state and local tax returns required to be filed by
it and has paid all taxes, interest and penalties required on or before their
respective due dates except for (i) taxes being contested in good faith by
appropriate proceedings for which adequate reserves have been provided in
DVI's, the Borrower's or DBC's financial statements according to GAAP and, to
the extent required by GAAP then in effect, proper and adequate reserves are
established by the Borrower and a bond is filed if necessary to avoid the
creation of a Lien against any properties of DVI, the Borrower and DBC, and
(ii) taxes whose nonpayment will not have a material adverse effect on the
condition, financial or otherwise, of DVI, the Borrower or DBC. Except to the
extent that reserves therefor are reflected in the Financial Statements, (a) no
material federal, state or local tax liabilities of DVI, the Borrower or DBC
are due or to become due for any tax year ended on or prior to the date of the
latest balance sheet included in the Financial Statements relating to such
entity, whether incurred in respect of or measured by the income of such
entity, which are not properly reflected in the Financial Statements, and (b)
no material claims are pending or, to the knowledge of the Borrower, proposed
or threatened against DVI, the Borrower or DBC for past federal, state or local
taxes except those as to which proper reserves are reflected in the Financial
Statements.
Section 3.11 Intangible Assets. The Borrower possesses,
owns or has rights to use all necessary patents,
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trademarks, service marks, trademark and service mark rights, trade names,
trade name rights and copyrights to conduct its business as now conducted and
as proposed to be conducted, without any conflict with the patents, trademark,
service mark, trademark and service mark rights, trade names, trade name rights
and copyrights of any other Person, a complete listing of which is set forth on
the attached Schedule 6.
Section 3.12 Regulation U. No part of the proceeds
received by the Borrower from the Loans or the Pre-Funding Loans will be used
directly or indirectly for (a) any purpose other than as set forth in Section
2.9, or (b) the purpose of purchasing or carrying, or for payment in full or in
part of Indebtedness incurred for the purpose of purchasing or carrying,
"margin stock" as such term is defined in Section 221.3 of Regulation G or
Regulation U of the Board of Governors of the Federal Reserve System, 12
C.F.R., Chapter II, Part 221.
Section 3.13 Name Changes. Except as set forth on the
attached Schedule 7, the Borrower has not within the six years immediately
preceding the date of restatement of this Agreement changed its name, been the
surviving entity of a merger or consolidation or acquired all or substantially
all of the assets of any Person. Schedule 7 also lists all locations of the
Borrower at which the Borrower may store Equipment constituting Collateral from
time to time.
Section 3.14 Full Disclosure. None of the Financial
Statements, nor any certificate, opinion or any other statement made or
furnished in writing to the Agent or any Bank by or on behalf of the Borrower,
DVI or DBC in connection with this Agreement or the transactions contemplated
in this Agreement, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make such statements not misleading
as of the date such statement was made. The Borrower knows of no fact that has
or would in the now foreseeable future have a material adverse effect on the
business, prospects or condition, financial or otherwise, of the Borrower, DVI
or DBC which fact has not been set forth in this Agreement, in the Financial
Statements or in a certificate, opinion or other written statement made or
furnished to the Agent and the Banks.
Section 3.15 Labor Disputes; Collective Bargaining
Agreements; Employee Grievances. Except as set forth on the attached Schedule
8, (a) no collective bargaining agreements or other labor contracts exist
covering the Borrower, (b) no union or other labor organization is seeking to
organize, or to be recognized as bargaining representative for, a bargaining
unit of employees of the Borrower, (c) no strike, work stoppage, material
unfair labor practice claim or charge, arbitration or other material labor
dispute against or affecting the Borrower or its representative employees has
occurred during the five years prior to the date of the restatement of this
Agreement or is pending or
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threatened, and (d) no actions, suits, charges, demands, claims, counterclaims
or proceedings are pending or, to the best of the Borrower's knowledge,
threatened against the Borrower by or on behalf of, or with, its employees
other than employee grievances arising in the ordinary course of business which
are not, in the aggregate, material.
Section 3.16 Condition of Assets. (a) All of the assets
and properties of the Borrower which are reasonably necessary for the operation
of its business are in good working condition, ordinary wear and tear excepted,
and are able to serve the function for which they are currently being used.
(b) All of the assets and properties of the Borrower
subject to a Lease are in good working condition, ordinary wear and tear
excepted, and are able to serve the function for which they are currently being
used.
Section 3.17 ERISA. (a) The Borrower does not have and
has never had any Plan in connection with which there could arise a direct or
contingent liability of the Borrower to the PBGC, the Department of Labor or
the IRS. The Borrower is not a participating employer in any Plan under which
more than one employer makes contributions, as described in Sections 4063 and
4064 of ERISA, or a multiemployer plan as defined in Section 4001(a)(3) of
ERISA.
(b) All references to the Borrower in this Agreement
relating to ERISA shall be deemed to refer to the Borrower and all other
entities which are, together with the Borrower, part of a Controlled Group.
Section 3.18 Non-Recourse Debt. Except as set forth on
the attached Schedule 9, none of the loan documents relating to any
Non-Recourse Debt or Partial Recourse Debt of the Borrower provide that (a) the
Lien of a lender of Non-Recourse Debt or Partial Recourse Debt in any
equipment, leases and receivables will not be released until the Borrower has
fully repaid Indebtedness owed to such lender not incurred to finance such
equipment, leases and receivables, or (b) a default under such loan documents
will constitute a default for the benefit of such lender under any other loan
documents of the Borrower.
Section 3.19 Finders or Brokers. None of the Borrower,
DVI or DBC has employed or agreed to employ or made use of the services of any
investment banker, broker, finder, intermediary or similar Person in connection
with the transactions contemplated by the Loan Documents who might be entitled
to a fee or any commission that has not been paid.
Section 3.20 Investment Company Act; Public Utility
Holding Company Act. None of the Borrower, DVI or DBC is (i) an "investment
company" or a company controlled by an "investment company" within the meaning
of the Investment Company Act of
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1940, or (ii) a "public utility holding company" or a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" within the meaning of the Public Utility Holding Company Act of 1935.
Section 3.21 Borrowing Base Reports. The information set
forth in each Borrowing Base Report is true, correct and complete and each
asset included in the Borrowing Base conforms with and satisfies the
requirements for such item set forth in this Agreement, including under the
respective definitions applicable to such assets.
Section 3.22 Licenses and Approvals. The Borrower has all
necessary licenses, permits and governmental authorizations, including
licenses, permits and authorizations relating to Environmental Matters, to own
and operate its properties and to carry on its business as now conducted.
Section 3.23 Independent Credit Committee. The Borrower's
Credit Committee has and shall continue to, in practice, exercise its judgment
and reach determinations independently from those officers of the Borrower
responsible for the generation and marketing of business for the Borrower.
ARTICLE 4. CONDITIONS TO THE LOANS
Section 4.1 Conditions to Initial Loans. The conditions
precedent fulfilled in connection with the obligation of each Bank to make the
initial Loans under this Agreement are set forth on the attached Schedule 10,
and the Borrower, the Agent and each of the Banks has copies of the documents
referred to on Schedule 10.
Section 4.2 Conditions to Subsequent Loans. After the
initial Loan has been made under this Agreement, the obligation of each Bank or
the Pre-Funding Lender to make a Loan or a Pre-Funding Loan, respectively, is
subject to the fulfillment (to the satisfaction of the Agent) of the following
conditions precedent:
(a) The Agent shall have received a Borrowing Notice,
and, with respect to Loans that exceed the Borrowing Availability as reported
in the most recent Borrowing Base Report delivered to the Agent, a Borrowing
Base Report or the additional Borrowing Base information and Supporting
Documents required by Section 2.3(b), and all other documents required to be
delivered in connection with a Borrowing Notice and Borrowing Base Report (if
applicable).
(b) The Borrower shall have complied and shall then be in
compliance with all the terms, covenants and conditions of this Agreement and
the other Loan Documents.
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(c) No Default or Event of Default shall have occurred
and be continuing.
(d) The representations and warranties contained in
Article 3 shall be true with the same effect as though such representations and
warranties had been made at the time of the making of such Loan, except for
changes which were made in the ordinary course of business, not material and
not prohibited by this Agreement.
(e) The Agent shall have received a certificate, dated
the date of such Loan and effective as of such date, certifying that the
conditions set forth in Sections 4.2(b)-(d) are satisfied as of such date,
except that such certificate shall not be required in connection with a
conversion of a Loan from one type into another type that does not result in an
increase in the outstanding principal amount of the Loans.
(f) All legal matters incident to such proposed Loan
shall be satisfactory to the Agent and counsel to the Agent.
ARTICLE 5. DELIVERY OF FINANCIAL REPORTS,
DOCUMENTS AND OTHER INFORMATION
So long as the Commitments are outstanding, any Loan remains
outstanding, the Borrower is indebted to the Banks or the Agent, the Notes have
not been paid in full or the Obligations have not been fully and completely
performed, the Borrower shall deliver the following documents:
Section 5.1 Annual Financial Statements and Budgets. (a)
The Borrower shall deliver to each Bank and the Agent, as soon as available but
in any event within 95 days after the last day of each fiscal year, audited
consolidated and unaudited consolidating balance sheets of DVI and its
Subsidiaries as at the last day of such fiscal year, and audited consolidated
and unaudited consolidating statements of income and retained earnings and
statements of cash flow for such fiscal year, each prepared in accordance with
GAAP and certified without qualification by Deloitte & Touche L.L.P. or another
firm of independent certified public accountants satisfactory to the Agent as
fairly presenting the financial position and the results of operations of DVI
and its Subsidiaries at the end of and for such fiscal year and as having been
prepared in accordance with GAAP.
(b) The Borrower shall also deliver to each Bank and the
Agent, as soon as available, DVI's Annual Report on Form 10-K as filed with the
SEC for each fiscal year.
(c) Promptly upon receipt, the Borrower shall deliver to
each Bank and the Agent copies of all other reports submitted to DVI or the
Borrower by DVI's independent accountants in
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connection with any annual or interim audit or review of the books of DVI or
the Borrower made by such accountants.
Section 5.2 Quarterly Financial Statements. The Borrower
shall deliver to each Bank and the Agent, as soon as available but in any event
within 50 days after the end of each of the first three fiscal quarters,
(a) DVI's Quarterly Report on Form 10-Q as filed
with the SEC for such fiscal quarter; and
(b) a consolidating balance sheet of DVI and its
Subsidiaries as of the last day of such quarter and consolidating
statements of income and retained earnings and consolidating
statements of cash flow for such fiscal quarter and on a comparative
basis figures for the corresponding period of the immediately
preceding fiscal year all in reasonable detail, each such statement to
be certified in a certificate of Borrower's chief financial officer or
chief accounting officer as fairly presenting the financial position
and the results of operations of the entity to which such statement
relates as at its date and for such quarter (subject to year-end audit
adjustments) and as having been prepared in accordance with GAAP.
Section 5.3 Other Information. Promptly after a written
request, the Borrower shall deliver to each Bank and the Agent such other
financial information evidencing compliance with the requirements of the Loan
Documents or otherwise relating to the business, affairs and conditions of DVI
or any Subsidiary as the Agent or any Bank may reasonably request from time to
time.
Section 5.4 No Default Certificate. At the same time it
delivers the financial statements required under Sections 5.1 and 5.2, the
Borrower shall deliver to each Bank and the Agent a certificate of Borrower's
chief financial officer, chief accounting officer or chief credit officer to
the effect that no Event of Default exists, no default exists under any other
agreement to which the Borrower is a party or by which it or, to the best of
its knowledge, any of its properties or assets, taken as a whole, is bound or
may be materially affected, and no event which, with the giving of notice or
the lapse of time or both would constitute an Event of Default or such a
default exists, or, if such cannot be so certified, specifying in reasonable
detail the exceptions, if any, to such statement. Such certificate shall be
accompanied by a detailed calculation indicating compliance with the covenants
contained in Sections 6.9, 7.12 and 7.13.
Section 5.5 Copies of Documents. Promptly upon their
becoming available, copies of any (a) financial statements, projections,
non-routine reports, notices other than routine correspondence, requests for
waivers and proxy statements delivered by the Borrower, DVI or DBC to any
lending institution
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other than the Banks, (b) correspondence or notices received by the Borrower,
DVI or DBC from any federal, state or local governmental authority that
regulates the operations of the Borrower, DVI or DBC relating to an actual or
threatened change or development which would be materially adverse to the
Borrower, DVI or DBC, (c) registration statements and any amendments and
supplements thereto, and any regular and periodic reports, filed by DVI with
any securities exchange or with the SEC, (d) letters of comment or
correspondence sent to DVI by any such securities exchange or the SEC in
relation to the affairs of DVI, the Borrower or DBC, (e) written reports
submitted to DVI, the Borrower or DBC by DVI's independent accountants in
connection with any annual or interim audit of the books of DVI, the Borrower
or DBC made by such accountants, and (f) any appraisals received by DVI, the
Borrower or DBC with respect to the properties or assets of DVI, the Borrower
or DBC.
Section 5.6 Notices of Defaults. The Borrower shall
deliver promptly to the Agent notice of the occurrence of a Default, an Event
of Default or an event which would constitute or cause a material adverse
change in the condition, financial or otherwise, of the operations of the
Borrower, DVI or DBC.
Section 5.7 ERISA Notices. (a) Concurrently with such
filing, the Borrower shall deliver to the Agent a copy of each Form 5500 which
is filed with respect to each Plan with the IRS.
(b) The Borrower shall also deliver to the Agent,
promptly upon their becoming available, copies of (i) all correspondence with
the PBGC, the Secretary of Labor or any representative of the IRS with respect
to any Plan relating to an actual or threatened change or development which
would be materially adverse to the Borrower, (ii) copies of all actuarial
valuations received by the Borrower with respect to any Plan, and (iii) copies
of any notices of Plan termination filed by any Plan Administrator (as those
terms are used in ERISA) with the PBGC and of any notices from PBGC to the
Borrower with respect to the intent of the PBGC to institute involuntary
termination proceedings.
Section 5.8 Borrowing Base Reports. (a) The Borrower
shall deliver to each Bank and the Agent, as soon as available but in any event
within 45 days after the end of each calendar month, a Borrowing Base Report
with respect to such calendar month that is certified as accurate and complete
by the Borrower's chief financial officer, chief accounting officer, chief
credit officer or the current Vice President-Structured Finance and that also
contains the following additional information (collectively, the "Supporting
Documents"):
(i) a list of all motor vehicles included in the
Borrowing Base as of the last day covered in such Borrowing Base
Report;
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(ii) a list of all Contracts included in the
Borrowing Base as of the last day covered in such Borrowing Base
Report setting forth with respect to each Contract the name and lease
number of the Obligor, the start and end dates and the monthly rentals
and equipment cost;
(iii) a list of all Eligible Equipment delivered
off-premises for repair or storage included in the Borrowing Base as
of the last day covered in such Borrowing Base Report and all related
Financing Statements, as applicable;
(iv) aging reports and total delinquencies as of the
last day covered in such Borrowing Base Report for all receivables
included in the Borrowing Base and for the Borrower as a whole;
(v) a list of all Progress Payments included in the
Borrowing Base as of the last day covered in such Borrowing Base
Report, including the date on which such item was included in the
Borrowing Base; and
(vi) evidence satisfactory to the Banks and the Agent
that the provisions of this Agreement have been complied with in
respect of such assets, in each case dated the date of delivery, and
all such other documents and information required to be delivered in
connection therewith.
(b) In addition to the monthly Borrowing Base Reports to
be delivered pursuant to Section 5.8(a), the Borrower shall deliver to each
Bank and the Agent, at the same time it delivers the annual financial
statements pursuant to Section 5.1, a Borrowing Base Report for the last month
of the Borrower's fiscal year based on the Borrower's audited financial
statements and containing the same information required under Section 5.8(a).
(c) The Borrower shall deliver to each Bank and the
Agent, at the same time it delivers it to any Warehousing Lender, a copy of the
monthly report required to be prepared by the Borrower under any Warehousing
Loan Agreement.
(d) After the Term Conversion Date, the Borrower shall
deliver to each Bank and the Agent, as soon as available but in any event
within 45 days after the end of each calendar month, a detailed report
regarding all cash receipts arising from transactions relating to assets
included in the Borrowing Base.
ARTICLE 6. AFFIRMATIVE COVENANTS
So long as the Commitments are outstanding, any Loan remains
outstanding, the Borrower is indebted to the Banks or the Agent, the Notes have
not been paid in full or the Obligations have not been fully and completely
performed:
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Section 6.1 Books and Records. The Borrower shall keep
proper books of record and account in a manner reasonably satisfactory to the
Agent in which full, true and correct entries shall be made of all dealings or
transactions in relation to its business and activities.
Section 6.2 Inspections and Audits. The Borrower shall
permit the Banks and the Agent to make or cause to be made (and, after the
occurrence of and during the continuance of an Event of Default, at the
Borrower's expense), inspections and audits of any books, records and papers of
the Borrower and to make extracts from and copies of such books, records and
papers, and to make inspections and examinations of any properties and
facilities of the Borrower on reasonable notice, all at such reasonable times
and as often as the Agent or any Bank may reasonably require, in order to
assure that the Borrower is and will be in compliance with its obligations
under the Loan Documents or to evaluate the Banks' investment in the then
outstanding Notes. In addition, the Borrower shall during all business hours
provide the Banks, the Agent and the Agent's representatives full access to all
of the agreements, instruments and documents referred to in Section 2.23.
Section 6.3 Maintenance and Repairs. The Borrower shall
maintain or cause to be maintained by the Lessees in good repair, working order
and condition, subject to normal wear and tear, all material properties from
time to time owned by it and used in or necessary for the operation of its
business, and make or cause to be made all reasonable repairs, replacements,
additions and improvements to such properties.
Section 6.4 Continuance of Business. The Borrower shall
do or cause to be done all things reasonably necessary to preserve and keep in
full force and effect its corporate existence and all permits, rights and
privileges necessary for the proper conduct of its business, and shall continue
to engage in the same line of business (as required by Section 7.6), including
the qualification of the Borrower to do business as a foreign corporation in
each jurisdiction in which failure to so qualify could have a material adverse
effect on the business, operations, financial conditions or properties of the
Borrower, and shall comply in all material respects with all Applicable Laws.
Section 6.5 Copies of Corporate Documents. Subject to
the prohibitions set forth in Section 7.11, the Borrower shall promptly deliver
to the Agent copies of any amendments or modifications to its, DVI's or DBC's
certificate of incorporation and by-laws, certified with respect to the
certificate of incorporation by the Secretary of State of its state of
incorporation and, with respect to the by-laws, by the secretary or assistant
secretary of the corporation.
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Section 6.6 Perform Obligations. (a) The Borrower shall
pay and discharge all of its obligations and liabilities, including all taxes,
assessments and governmental charges upon its income and properties, when due
except to the extent that such obligations, liabilities, taxes, assessments and
governmental charges are contested in good faith and by appropriate proceedings
and, to the extent required by GAAP then in effect, proper and adequate
reserves are established by the Borrower and a bond is filed if necessary to
avoid the creation of a Lien against any of its properties.
(b) The Borrower shall perform all its obligations under
each of the Contracts.
Section 6.7 Notice of Litigation. The Borrower shall
promptly notify the Agent in writing of any litigation, legal proceeding or
dispute involving amounts in excess of $1,000,000 individually or $2,500,000 in
the aggregate affecting the Borrower, DVI or DBC, whether or not fully covered
by insurance and regardless of the subject matter (excluding any actions
relating to workmen's compensation claims or negligence claims relating to the
use of motor vehicles, if fully covered by insurance, subject to deductibles).
Section 6.8 Insurance. (a) The Borrower shall maintain
with or at responsible insurance companies such insurance on such of its
properties, in such amounts and against such risks as is customarily maintained
by similar businesses, including maintaining or causing Lessees to maintain
all-risk insurance on each item of Leased Property in an amount at least equal
to the replacement value of such item. Each such policy (i) shall have a loss
payable endorsement naming each of the Agent (c/o the Agent's Leasing
Division), the Borrower or the Borrower's assigns as loss payee as its
interests may appear, (ii) shall name the Agent as an additional named insured
in respect of liability insurance, and (iii) shall state that the insurers
shall give the Agent prompt written notice of any nonpayment of premiums on
such policy when due and 30 days prior written notice of an cancellation or
material adverse change in such policy, all in form and substance satisfactory
to the Agent with such additional provisions as the Agent may reasonably
request. The Borrower shall file with the Agent upon its request a detailed
list of the insurance then in effect, stating the names of the insurance
companies, the amounts and rates of the insurance, the dates of policy
expiration and the properties and risks covered by such insurance, and within
10 days after notice in writing from the Agent shall obtain such additional
insurance as the Agent may reasonably request.
(b) The Borrower shall carry all insurance available
through the PBGC or any private insurance companies covering its obligations to
the PBGC.
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Section 6.9 Financial Covenants. The Borrower shall
maintain the following financial covenants:
(a) Tangible Net Worth. The Borrower shall have at the
end of each fiscal quarter Tangible Net Worth in an amount equal to or greater
than the sum of (i) $35,000,000, plus (ii) 75% of net income (with no deduction
for losses) for the period commencing with the first day of the calendar
quarter ending September 30, 1994 and each subsequent quarter on a cumulative
basis, plus (iii) 100% of any new issuance of equity.
(b) Leverage Ratio. The Borrower shall maintain at all
times a Leverage Ratio not greater than 5:1.
(c) Risk-Adjusted Leverage Ratio. The Borrower shall
maintain at all times a Risk-Adjusted Leverage Ratio not greater than 5:1.
(d) Debt Service Coverage. On and before the Term
Conversion Date, at the end of each fiscal quarter with respect to the 12-month
period then ended, the Borrower shall have a ratio of (i) the sum of Cash
Receipts minus Cash Operating Expenses plus Interest Expense, to (ii) Interest
Expense of not less than 1.75:1. After the Term Conversion Date, at the end of
each fiscal quarter with respect to the 12-month period then ended, the
Borrower shall have a ratio of (1) the sum of Cash Receipts minus Cash
Operating Expenses plus Interest Expense, to (2) Interest Expense plus all
mandatory schedule payments of principal on Indebtedness of not less than
1.05:1.
Section 6.10 Reportable Events. (a) The Borrower shall
promptly notify the Agent in writing of the occurrence of any Reportable Event,
as defined in Section 4043 of ERISA, if a notice of such Reportable Event is
required under ERISA to be delivered to the PBGC within 30 days after its
occurrence, together with a description of such Reportable Event, a statement
of the action the Borrower intends to take with respect to such Reportable
Event and a copy of the notice given to the PBGC.
(b) The Borrower shall promptly notify the Agent in
writing if any Loan Party receives (i) any notice of any violation or
administrative or judicial complaint or order having been filed or about to be
filed against such Loan Party alleging violations of any Environmental Law and
Regulation, or (ii) any notice from any governmental body or any other Person
alleging that such Loan Party is or may be subject to any Environmental
Liability, and promptly upon receipt of any such notice the Borrower shall
provide the Agent with a copy of such notice together with a statement of the
action such Loan Party intends to take with respect to such matter.
Section 6.11 Comply with ERISA. The Borrower shall comply
with all applicable provisions of ERISA now or hereafter in effect.
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Section 6.12 Upgrades and Add-ons. The Borrower shall
deliver to the Agent, not later than simultaneously with any upgrade of or
add-on to any Equipment included in the Borrowing Base, from any lender which
has a Lien on such Equipment but does not finance such upgrade or add-on, the
written agreement of such lender to the effect that such lender's Lien in the
lease payment or receivables arising in connection with such Equipment
inclusive of such upgrades and add-on shall not include the payments or
receivables attributable to such upgrade or add-on.
Section 6.13 Possession of Contracts. The Borrower shall
clearly and conspicuously mark each file folder and sticker or otherwise label
the first page of each Equipment schedule (each such schedule itself a Contract
incorporating the terms of a Master Lease) included in the Contract Receivables
Clause, Inventory and Per Procedure Clause or Restructured Lease Clause of the
Borrowing Base to indicate that a Lien in the Contract to be perfected by
possession may only be perfected by possession of the chattel paper original
copy. The Borrower shall at all times maintain possession of the chattel paper
original copy of each Contract included in the Contract Receivables Clause,
Inventory and Per Procedure Clause or Restructured Lease Clause of the
Borrowing Base. The Borrower shall also maintain in each Master Lease a
statement to the effect that only the chattel paper original copy of the
Equipment schedule, and not such Master Lease, constitutes chattel paper the
possession of which can perfect a security interest. The Borrower shall
eliminate all legends stamped on any Contract included in any of the Contract
Receivables Clause, Inventory and Per Procedure Clause or Restructured Lease
Clause of the Borrowing Base indicating any interests of any Person in such
Contract other than the Agent upon inclusion of such Contract in the Borrowing
Base, and shall endorse each such Contract file and Equipment schedule (each
such schedule itself a Contract incorporating the terms of a Master Lease),
upon inclusion in the Borrowing Base, with a legend substantially as follows:
"THIS CONTRACT (AND EQUIPMENT SCHEDULE AND MASTER LEASE THE TERMS OF
WHICH IT INCORPORATES) HAS BEEN ASSIGNED TO, IS SUBJECT TO THE
SECURITY INTEREST OF AND IS HELD IN TRUST FOR THE BENEFIT OF NATWEST
BANK N.A., AS AGENT, PURSUANT TO THE TERMS AND CONDITIONS OF A
SECURITY AGREEMENT DATED JUNE 14, 1991 AND RELATED DOCUMENTS, AS
AMENDED FROM TIME TO TIME."
Section 6.14 Obligor Insurance Policies. The Borrower
shall deliver, simultaneously with inclusion of any asset in the Borrowing
Base, a written notice to each Obligor or other obligor who is required to
maintain insurance on any asset in the Borrowing Base and to its insurance
policy issuer stating that such asset has been assigned as collateral to the
Agent and that a loss payee endorsement shall be delivered immediately to
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the Borrower naming the Agent, the Borrower and the Borrower's assigns as loss
payees as their respective interest may appear.
Section 6.15 Preservation and Perfection of Agent's Liens.
Without limiting any general or specific requirements set forth in this
Agreement or in any of the Security Documents, the Borrower shall take all such
actions as shall be necessary or desirable to maintain the Agent's Lien as a
first priority perfected Lien in the Collateral, subject to no Liens other than
Permitted Liens, including with respect to Equipment the filing (and
continuation) of Financing Statements in all locations in which Collateral is
located naming the Borrower as Debtor and the Agent as secured party and with
respect to Contracts the filing of Financing Statements in all applicable
locations naming the related Obligor as debtor, the Borrower as secured party
and the Agent as assignee.
Section 6.16 Environmental Compliance. The Borrower shall
operate all property owned or leased by it such that no obligation, including a
clean-up obligation, shall arise under any Environmental Law and Regulation,
which obligation would constitute a Lien on any property of any Loan Party;
provided, however, that in the event that any such claim is made or any such
obligation arises, such Loan Party shall, at its own cost and expense,
immediately satisfy such claim or obligation.
Section 6.17 Management. Each of the current President
and Senior Vice President/Chief Credit Officer shall continue in such offices
and shall perform their current duties, or if either shall cease to be such an
executive officer or to perform such duties a successor satisfactory to the
Majority Banks in their reasonable judgment, as evidenced by a written consent
signed by the Majority Banks, shall have been elected or appointed within 60
days after such cessation, and thereafter this Section 6.17 shall apply to such
successor.
ARTICLE 7. NEGATIVE COVENANTS
So long as the Commitments are outstanding, any Loan remains
outstanding, the Borrower is indebted to the Banks or the Agent, the Notes have
not been paid in full or the Obligations have not been fully and completely
performed:
Section 7.1 Indebtedness. The Borrower shall not create,
incur, permit to exist or have outstanding any Indebtedness except:
(a) Indebtedness to the Banks, the Pre-Funding Lender and
the Agent under this Agreement;
(b) taxes, assessments and governmental charges,
non-interest bearing accounts payable, Equipment payables not more than 90 days
past due from the original due date thereof, accrued
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liabilities and non-interest bearing deferred liabilities other than for
borrowed money (e.g., prepaid income, deferred compensation and deferred
taxes), in each case incurred and continuing in the ordinary course of
business;
(c) Indebtedness secured by the security interests
referred to in Section 7.2(d) and Capitalized Lease Obligations, in each case
incurred in accordance with the limitations set forth in Section 7.12;
(d) Subordinated Debt;
(e) the Recourse Debt listed on the attached Schedule 11,
and any additional Recourse Debt incurred after the date of the restatement of
this Agreement so long as (i) such Recourse Debt has a term, including all
extensions and renewals, not exceeding one year, (ii) such Recourse Debt
complies with the last sentence of this Section 7.1, (iii) after giving effect
to the incurrence of such Recourse Debt no Default or Event of Default will
have occurred, (iv) the Agent shall have received copies of the documents
providing for such Recourse Debt at least two Business Days before its
incurrence, and (v) such Recourse Debt is either unsecured or is not secured by
any assets subject to the Agent's Lien;
(f) the Non-Recourse Debt and Partial Recourse Debt
listed on the attached Schedule 9 and Non-Recourse Debt and Partial Recourse
Debt hereafter incurred; and
(g) the Borrower may guarantee the obligations of any
Person (i) by the endorsement of negotiable instruments for deposit or
collection in the ordinary course of business, (ii) as set forth in the
attached Schedule 12 in respect of guaranties by the Borrower of obligations of
its Affiliates, or (iii) otherwise up to a maximum aggregate obligation of
$3,000,000 (for purposes of this clause, "guarantee" includes any agreement,
whether contingent or otherwise, to assume, endorse, be or become liable for,
purchase, repurchase or otherwise acquire Indebtedness of any other Person or
to purchase, sell or lease, as lessee or lessor, property or services, in any
such case primarily for the purpose of enabling another person to make payment
of Indebtedness or to make any payment (whether as an advance, capital
contribution, purchase of an equity interest or otherwise) to assure a minimum
equity, asset base, working capital or other balance sheet or financial
condition in connection with the Indebtedness of another Person, or to supply
funds to or in any manner invest in another Person in connection with such
Person's Indebtedness).
Notwithstanding the foregoing, the Borrower shall not create, incur, permit to
exist or have outstanding any Indebtedness on terms and conditions setting
forth affirmative or negative covenants of the Borrower or any Affiliate or
events of default that are more restrictive than the covenants set forth in
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Articles 6 and 7 and the Events of Default, the breach of which could result in
a right of the lender under such Indebtedness to accelerate payment sooner than
the right of acceleration provided to the Agent and the Banks under this
Agreement, other than covenants or defaults under Non-Recourse Debt that permit
acceleration based on defaults under financed leases.
Section 7.2 Liens. The Borrower shall not create, assume
or permit to exist any Lien on any of the properties or assets of the Borrower,
whether now owned or hereafter acquired, except for the following
(collectively, "Permitted Liens"):
(a) only to the extent arising and continuing in the
ordinary course of business:
(i) pledges or deposits by the Borrower under
workmen's compensation laws, unemployment insurance laws, social
security laws or similar legislation, or good faith deposits in
connection with bids, tenders, contracts (other than for the payment
of Indebtedness of the Borrower) or leases to which the Borrower is a
party as lessee, or deposits to secure public or statutory obligations
of the Borrower or deposits of cash or U.S. Government Bonds to secure
surety, appeal, performance or other similar bonds to which the
Borrower is a party, or deposits as security for contested taxes or
import duties or for the payment of rent,
(ii) Liens imposed by law, such as carriers',
warehousemen's, materialmen's and mechanics' liens, or Liens arising
out of judgments or awards against the Borrower or any Subsidiary with
respect to which the Borrower or any Subsidiary at the time shall
currently be prosecuting an appeal or proceedings for review,
(iii) Liens for taxes not yet subject to penalties
for non-payment and Liens for taxes the payment of which is being
contested as permitted by Section 6.6 (a),
(iv) minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of others for rights of way,
highways and railroad crossings, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real properties,
(v) Liens incidental to the conduct of the business
of the Borrower or to the ownership of its property that were not
incurred in connection with Indebtedness of the Borrower or any
Subsidiary, including the rights of lessors under capitalized leases,
and
(vi) the rights of lessees under leases of Equipment,
the rights and equities of vendees under conditional sale agreements
of Equipment and the rights of
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any person claiming under or through such lessees or vendees,
so long as all of the Liens referred to in this clause (a) do not individually
or in the aggregate materially detract from the value of the properties to
which they relate or materially impair their use in the operation of the
business, taken as a whole, of the Borrower;
(b) Liens incurred only upon compliance with the terms
and conditions of Section 2.29;
(c) the Liens of the Security Documents;
(d) purchase money security interests, conditional sale
arrangements and other similar Liens on motor vehicles and equipment acquired
by the Borrower with the proceeds of the Indebtedness referred to in this
Section 7.2(d) so long as:
(i) the transaction in which such a Lien is proposed
to be created is not then prohibited by this Agreement,
(ii) any such Lien shall attach only to the property
or asset acquired in such transaction and shall not extend to or cover
any other assets or properties of the Borrower, and
(iii) the Indebtedness secured or covered by any such
Lien shall not exceed the lesser of the cost or fair market value of
the property or asset acquired and shall not be renewed, extended or
prepaid from the proceeds of any borrowing by the Borrower;
(e) Liens granted by the Borrower on Equipment acquired
by it within 90 days of the grant of such Lien so long as the other
requirements of Section 7.2(d) are met;
(f) Liens securing Non-Recourse Debt, Partial Recourse
Debt and Recourse Debt permitted under this Agreement;
(g) in the case of a Lease, the interests of the Lessee
under such Lease and Liens permitted by such Lease of the type set forth in
Section 7.2(a);
(h) in the case of an Equipment Note or CSA, the
interests of the Obligor in the Equipment securing or covered by such Equipment
Note or CSA, Liens permitted by such Equipment Note or CSA of the type set
forth in Section 7.2(a) and any other Lien in the Equipment granted by the
Obligor to another Person so long as such Lien is subordinate to the interests
of the Borrower and the Agent on terms such that the subordinate Lienholder
cannot exercise any remedies prior to payment in full of all of
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the Obligor's obligations to the Borrower and, as assigned, the Agent;
(i) in the case of a Third Party Note, the interests of
the Obligor and lessee in the Third Party Lease, Liens permitted by such Third
Party Lease of the type set forth in Section 7.2(a) and any other Lien in the
Equipment granted by the Obligor to another Person so long as such Lien is
subordinate to the interests of the Borrower and the Agent on terms such that
the subordinate Lienholder cannot exercise any remedies prior to payment in
full of all of the Obligor's obligations to the Borrower and, as assigned, the
Agent;
(j) in the case of Equipment sold to the Borrower, with
or without a related Contract, a subordinate interest retained by the seller
upon the sale, on a discounted basis, of such Equipment and Eligible Contract
so long as the purchase agreement between the Borrower and such seller is
assignable to and has been assigned to the Agent and the interest of the seller
is subordinate on terms such that the seller cannot exercise any remedies prior
to recovery in full of all interests of the Borrower and, as assigned, the
Agent in such Equipment and Eligible Contract; and
(k) Liens on items of Eligible Equipment covered by the
Progress Payments Clause in the form of a purchase money security interest held
by the vendor of such Equipment securing the full payment of the purchase price
of such Equipment, provided that such payment is made and such related purchase
money security interest is discharged upon the delivery of the certificate of
delivery and acceptance by the Lessee under the Lease related to such Equipment
or, if earlier, the due date of such payment in full.
Section 7.3 Mergers, Acquisitions. The Borrower shall
not merge or consolidate with any Person (whether or not the Borrower is the
surviving entity) or become a general partner of any partnership or acquire all
or substantially all of the assets or any of the capital stock of any Person or
acquire any portion of the assets in the form of a lease portfolio of any
Person.
Section 7.4 Redemptions; Distributions. (a) The
Borrower shall not purchase, redeem, retire or otherwise acquire, directly or
indirectly, or make any sinking fund payments with respect to, any shares of
any class of stock of the Borrower now or hereafter outstanding, or set apart
any sum for any such purpose.
(b) The Borrower shall not declare or pay any dividends
or make any distribution of any kind on the Borrower's outstanding stock other
than dividends or distributions payable solely in shares of the Borrower's
common stock, or set aside any sum for any such purpose (each, a "Restricted
Dividend Action"),
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except that the Borrower may take a Restricted Dividend Action if (i) no
Default or Event of Default shall exist at the time of the taking of such
Restricted Dividend Action or would exist after giving effect thereto and (ii)
(A) in the case of a Restricted Dividend Action for the sole purpose of
enabling DVI (the sole shareholder of the Borrower) to make a scheduled
interest or scheduled principal payment on subordinated indebtedness of DVI
(including the 9 1/8% Subordinated Notes due 2002 issued by DVI pursuant to
that certain Note Purchase Agreement among DVI, Inc. and certain Purchasers
dated as of June 21, 1994) which indebtedness is in an aggregate principal
amount not greater than $22,000,000, and the incurrence of which shall have
occurred by July 31, 1994 and shall have been expressly approved in advance in
writing by the Agent alone (the "Parent Subordinated Debt"), (1) all of the
proceeds of the Parent Subordinated Debt (net of customary expenses relating to
the closing of the issuance of such Parent Subordinated Debt) shall promptly
upon the receipt by DVI of such proceeds be contributed as capital to the
Borrower, except that a portion of such proceeds not exceeding Three Million
($3,000,000) Dollars may be contributed to the capital of or loaned to DVI
Inc.'s subsidiary, DVI Business Credit, Inc. (f/k/a A/R Advantage, Inc., (2)
such Restricted Dividend Action shall be taken on the date of, and shall be in
the amount of, such scheduled interest payment or scheduled principal payment,
as such payments are scheduled (not by acceleration, redemption or otherwise)
as shown in the above-described Note Purchase Agreement as in effect on the
date of the approval thereof granted by the Agent as aforesaid, (3) the
proceeds of such Restricted Dividend Action shall be used by DVI solely for the
concurrent payment of such scheduled interest payment or scheduled principal
payment in full on the due date thereof, and shall not in any event be used for
late payment or prepayment thereof (provided that the term "late payment" in
respect of interest shall be deemed to exclude any particular interest payment
made up to seven (7) days later than the scheduled due date thereof if such
lateness results exclusively from administrative delay, but any such
"administrative" late payments shall be permitted only if no Default or Event
of Default (each as defined in the above-described Note Purchase Agreement)
then exists under the Parent Subordinated Debt (or if an Event of Default or
Default exists thereunder solely due to the lateness of such payment, such
Event of Default or Default has been waived) and if all conditions of this
subsection (b) shall then have been complied with in each case as of the actual
proposed payment date), (4) the making of such scheduled interest payment or
scheduled principal payment shall not then be prohibited by the terms of the
Parent Subordinated Debt, (5) the aggregate amount of such Restricted Dividend
Action and all prior such Restricted Dividend Actions in a single calendar year
in respect of interest payments relating to the Parent Subordinated Debt shall
not exceed $1,825,000 in respect of the above-described 9 1/8% Subordinated
Notes due 2002 and shall not exceed, in respect of any other Parent
Subordinated Debt approved in advance in writing by the Agent, an amount equal
to the difference between
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$2,000,000 and the actual sum of the annual scheduled interest payments due
under the above-described 9 1/8% Subordinated Notes due 2002 at the rate set
forth therein and (B) in the case of a Restricted Dividend Action other than a
Restricted Dividend Action referred to in clause (A) above (i.e., relating to
matters other than Parent Subordinated Debt), the aggregate amount of such
other Restricted Dividend Action and all prior such other Restricted Dividend
Actions plus the aggregate cash investment in all Restricted Investments shall
not exceed $1,600,000, provided that not less than five (5) Business Days prior
to any such proposed Restricted Dividend Action the Agent shall have received a
certificate executed by the president or chief executive officer of the
Borrower certifying that: no Default or Event of Default then exists hereunder
and no default under any other agreement to which the Borrower is a party or by
which it is bound or by which any of its properties or assets taken as a whole
may be materially affected; the representations and warranties contained in the
Loan Agreement and other Loan Documents are true and with the same effect as
though made at the time of the proposed Restricted Dividend Action (except for
changes which were made in the ordinary course of business, not material and
not prohibited by the Loan Documents); and the Borrower and the other Loan
Parties shall have complied and shall then be in compliance with all the terms,
covenants and conditions of this Agreement and the other Loan Documents; and
such certification shall be accompanied by a detailed calculation indicating
compliance with the covenants set forth in Sections 6.9, 7.4, 7.8, 7.12 and
7.13.
Section 7.5 Stock Issuance. The Borrower shall not issue
any additional shares or any right or option to acquire any shares, or any
security convertible into any shares, of the capital stock of the Borrower
except in connection with stock dividends as permitted under Section 7.4(b).
Section 7.6 Changes in Business. The Borrower shall not
(a) make any material change in its business or in the nature of its operation,
(b) engage in any business other than the purchase, leasing or financing of the
purchase of medical, diagnostic and therapeutic equipment (including
fee-for-service and joint venture arrangements under which the Borrower's
revenues will be dependent on utilization levels of the Equipment) or financial
advisory or consulting services relating to the foregoing, (c) liquidate or
dissolve itself (or suffer any liquidation or dissolution), (d) convey, sell,
lease, assign, transfer or otherwise dispose of any of its property, assets or
business except in the ordinary course of business and for a fair
consideration, (e) dispose of any shares of its stock or any Indebtedness,
whether now owned or hereafter acquired, or (f) discount, sell, pledge,
hypothecate or otherwise dispose of any such stock or accounts receivable;
provided that the proceeds of any sale or lease of Equipment which results in
an obligation to make a prepayment under Section 2.8 shall be applied as and
within the period set forth in such Section 2.8.
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Section 7.7 Prepayments. The Borrower shall not make any
voluntary or optional prepayment of any amounts outstanding under any
Indebtedness for borrowed money that is permitted to be incurred hereunder.
Section 7.8 Investments. The Borrower shall not make, or
suffer to exist, any Investment in any Person including any shareholder,
director, officer or employee of the Borrower except:
(a) Investments in:
(i) obligations issued or guaranteed by the United
States of America,
(ii) certificates of deposit, bankers acceptances and
other money market instruments issued by any bank or trust company
organized under the laws of the United States of America or any State
thereof and having capital and surplus in an aggregate amount not less
than $250,000,000,
(iii) open market commercial paper bearing the
highest credit rating issued by Standard & Poor's Corporation or by
another nationally recognized credit rating firm,
(iv) repurchase agreements entered into with any bank
or trust company organized under the laws of the United States of
America or any State thereof and having capital and surplus in an
aggregate amount not less than One Hundred Million ($100,000,000)
Dollars relating to United States of America government obligations,
(v) shares of any money market fund having net assets
of not less than $100,000,000, and
(vi) interest rate swaps or other derivative
agreements limiting interest rate exposure on the Loans and the
Pre-Funding Loans entered into with the Agent or any Bank,
in each case maturing or being due or payable in full not more than 180 days
after the Borrower's acquisition thereof;
(b) advances to DBC evidenced by the DBC Promissory Note
in an amount not to exceed the amounts set forth in the definition of "DBC
Financed Amount";
(c) other Investments, including the Investments listed
in the attached Schedule 13 (the "Restricted Investments") so long as (i) no
Default or Event of Default shall exist at the time of the making of such
Restricted Investment or would exist after giving effect to such Restricted
Investment, and (ii) the aggregate cash investment in all Restricted
Investments plus the
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aggregate amount of all Restricted Dividend Actions other than those referred
to in Section 7.4(b)(ii)(A) shall not exceed $1,600,000; provided, however,
that (A) the Borrower shall not make, nor suffer to exist, any Investment
otherwise permitted under this Section 7.8(c) if the intent of such Investment
is directly or indirectly to enable DVI to make a payment on any Parent
Subordinated Debt, it being the intent of the parties hereto that the terms of
Section 7.4(b)(ii)(A) exclusively shall govern all distributions and payments
of any type by the Borrower relating directly or indirectly to the Parent
Subordinated Debt.
Section 7.9 Fiscal Year. The Borrower shall not change
its fiscal year.
Section 7.10 ERISA Obligations. (a) The Borrower shall
not be or become obligated to the PBGC other than in respect of annual premium
payments in excess of $50,000.
(b) The Borrower shall not be or become obligated for
excise or other penalty taxes provided for in Section 4975 the Code in excess
of $50,000.
Section 7.11 Amendment of Documents. (a) The Borrower
shall not modify, amend, supplement or terminate, or agree to modify, amend,
supplement or terminate, its certificate of incorporation or by-laws, the
non-recourse provisions of any Non-Recourse Debt or any Partial Recourse Debt
or the terms of any Parent Subordinated Debt in a manner that would result in
an Event of Default under Section 8.12.
(b) The Borrower shall not permit DBC to modify, amend,
supplement or terminate, or agree to modify, amend, supplement or terminate,
the DBC Financing Agreement relating to any Eligible Healthcare Receivable
included in the Borrowing Base so as to adversely affect the Lien in such
Eligible Healthcare Receivable granted or assigned to the Agent.
Section 7.12 Capital Expenditures. The Borrower shall not
make or be or become obligated to make Capital Expenditures in the aggregate
for the Borrower and its Subsidiaries in excess of $1,000,000 in any single
fiscal year.
Section 7.13 Rental Obligations. The Borrower shall not
enter into, or permit to remain in effect, any lease as lessee (other than
Capitalized Leases which are governed by Section 7.12) if, after giving effect
to such lease, the aggregate amount of all rentals and other obligations,
including all percentage rents and additional rent, due from the Borrower in
any single calendar year would exceed $250,000.
Section 7.14 Transactions with Affiliates. Except as
expressly permitted by this Agreement, the Borrower shall not directly or
indirectly (a) make any Investment in an Affiliate except Restricted
Investments subject to Section 7.8(c),
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(b) transfer, sell, lease, assign or otherwise dispose of any assets to an
Affiliate, (c) merge into or consolidate with or purchase or acquire assets
from an Affiliate, or (d) enter into any other transaction directly or
indirectly with or for the benefit of any Affiliate (including guarantees and
assumptions of obligations of an Affiliate); provided, however, that (i)
payments on Investments expressly permitted by Section 7.8 may be made, (ii)
any Affiliate who is an individual may serve as an employee or director of the
Borrower and receive reasonable compensation for his services in such capacity,
(iii) the Borrower may enter into any transaction with an Affiliate providing
for the leasing of property, the rendering or receipt of services or the
purchase or sale of product, inventory and other assets in the ordinary course
of business if the monetary or business consideration arising therefrom would
be substantially as advantageous to the Borrower as the monetary or business
consideration which would obtain in a comparable arm's length transaction with
a Person not an Affiliate.
Section 7.15 Changes in Calculation of Net Book Value.
The Borrower shall not change the basis on which DVI or the Borrower calculates
Net Book Value, depreciation policy, residual value estimations, expense
capitalization or other factors significantly affecting the calculation of Net
Book Value or Invoiced Cost with respect to Equipment unless such change is
required for compliance with GAAP.
Section 7.16 Non-DVI Generated Contracts. Permit the
aggregate contract receivables in the form of rental, installment or debt
service payments due under all Eligible Contracts in the Borrowing Base of the
Borrower derived from transactions originated by other than by the Borrower
when such transactions commenced to exceed 15% at any one time of the total
such contract receivables under all Eligible Contracts in the Borrowing Base.
ARTICLE 8. EVENTS OF DEFAULT
If any one or more of the following events ("Events of
Default") shall occur and be continuing, the Commitments shall terminate and
the entire unpaid balance of the principal of and interest on the Notes and the
Pre-Funding Note outstanding and all other obligations and Indebtedness of the
Borrower to the Banks, the Pre-Funding Lender and the Agent arising under the
Loan Documents shall immediately become due and payable upon written notice to
that effect given to the Borrower by the Agent (except that in the case of the
occurrence of any Event of Default described in Section 8.6 no such notice
shall be required), without presentment or demand for payment, notice of
non-payment, protest or further notice or demand of any kind, all of which are
expressly waived by the Borrower:
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Section 8.1 Payments. Failure to make any payment or
mandatory prepayment of principal or interest upon any Notes or the Pre-Funding
Note or to make any payment of any Fee when due; or,
Section 8.2 Covenants. Failure to perform or observe any
of the agreements of the Borrower contained in Section 6.9 or Article 7; or,
Section 8.3 Other Covenants. (a) Failure by the
Borrower to perform or observe any other term, condition or covenant of any
Loan Documents to which it is a party, including this Agreement, the Notes, the
Pre-Funding Note or any of the Security Documents, which shall remain
unremedied for a period of 30 days after notice thereof shall have been given
to the Borrower by the Agent; or
(b) Failure by any Loan Party to perform or observe any
term, condition or covenant of any Loan Documents to which it is a party,
including the Security Documents and the Guaranty, which shall remain
unremedied for a period of 30 days after notice thereof shall have been given
to the Borrower by the Agent; or
Section 8.4 Other Defaults. (a) Failure to perform or
observe any term, condition or covenant of any bond, note, debenture, loan
agreement, indenture, guaranty, trust agreement, mortgage or similar instrument
to which the Borrower is a party or by which it is bound or by which any of its
properties or assets may be affected, or failure by DVI to perform or observe
any term, condition or covenant of the Parent Subordinated Debt (for purposes
of this Section 8.4, each of the foregoing a "Debt Instrument") so that, as a
result of any such failure to perform, the Indebtedness included therein or
secured or covered thereby may be declared or may become due and payable prior
to the date on which such Indebtedness would otherwise become due and payable;
or,
(b) Any event or condition referred to in any Debt
Instrument shall occur or fail to occur so that, as a result, the Indebtedness
included in or secured or covered by such Debt Instrument may be declared or
may become due and payable prior to the date on which such Indebtedness would
otherwise become due and payable; or,
(c) Failure to pay any Indebtedness for borrowed money
due at final maturity or pursuant to demand under any Debt Instrument.
Section 8.5 Representations and Warranties. Any
representation or warranty made in writing to the Banks or the Agent in any of
the Loan Documents or in connection with the making of the Loans, or any
certificate, statement or report made or delivered in compliance with this
Agreement, shall have been
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false or misleading in any material respect when made or delivered; or,
Section 8.6 Bankruptcy. (a) The Borrower, DVI or DBC
shall make an assignment for the benefit of creditors, file a petition in
bankruptcy, be adjudicated insolvent, petition or apply to any tribunal for the
appointment of a receiver, custodian, or any trustee for it or a substantial
part of its assets, or shall commence any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in effect, or the
Borrower, DVI or DBC shall take any corporate action to authorize any of the
foregoing actions; or there shall have been filed any such petition or
application, or any such proceeding shall have been commenced against it, which
remains undismissed for a period of 30 days or more, or any order for relief
shall be entered in any such proceeding, or the Borrower, DVI or DBC by any act
or omission shall indicate its consent to, approval of or acquiescence in any
such petition, application or proceeding or the appointment of a custodian,
receiver or any trustee for it or any substantial part of any of its
properties, or shall suffer any custodianship, receivership or trusteeship to
continue undischarged for a period of thirty (30) days or more; or,
(b) The Borrower, DVI or DBC shall generally not pay its
debts as such debts become due; or,
(c) The Borrower, DVI or DBC shall have concealed,
removed or permitted to be concealed or removed any part of its property with
intent to hinder, delay or defraud its creditors or any of them, shall have
made or suffered a transfer of any of its property which may be fraudulent
under any bankruptcy, fraudulent conveyance or similar law, shall have made any
transfer of its property to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid during any period while
either the Borrower, DVI or DBC is insolvent, or shall have suffered or
permitted, while insolvent, any creditor to obtain a Lien upon any of its
property through legal proceedings or distraint which is not vacated within 30
days from the date thereof; or,
Section 8.7 Judgments. Any judgment against the Borrower
or DVI or any attachment, levy or execution against any of its properties for
any amount in excess of $1,000,000 shall remain unpaid, unstayed on appeal,
undischarged, unbonded or undismissed for a period of 30 days or more; or,
Section 8.8 ERISA. (a) With respect to the Borrower or
DVI, the termination of any Plan or the institution by the PBGC of proceedings
for the involuntary termination of any Plan, in either case by reason of, or
which results or could result in, a "material accumulated funding deficiency"
under Section 412 of the Code; or,
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(b) Failure by the Borrower or DVI to make required
contributions in accordance with the applicable provisions of ERISA to each of
the Plans hereafter established or assumed by it; or,
Section 8.9 Ownership of Stock of Borrower. (a) DVI
shall at any time own, beneficially and of record, less than 100% of all of the
issued and outstanding shares of capital stock of the Borrower having ordinary
voting rights for the election of directors; or,
(b) The Pritzker family, Gerald Cohn and members of his
immediate family and David Higgins, on a combined basis, shall at any time own,
beneficially and of record, less than the greater of (i) 20% of all of the
issued and outstanding shares of capital stock of DVI having ordinary voting
rights for the election of directors, or (ii) such greater percentage as is
necessary so that they constitute the single largest block of stockholders of
such shares.
Section 8.10 Liens. Any of the Liens created and granted
to the Agent under the Security Documents shall fail to be valid, perfected
first priority Liens subject to no prior or equal Liens other than Permitted
Liens; or,
Section 8.11 Guaranty. DVI shall take any action to
rescind or revoke the Guaranty, or any court of law shall have found the
Guaranty to be invalid or unenforceable, or DBC shall take any action to
rescind or revoke the DBC Guaranty, or any court of law shall have found the
DBC Guaranty to be invalid or unenforceable; or,
Section 8.12 Parent Subordinated Debt. DVI shall modify,
amend, or supplement or agree to modify, amend or supplement the terms of the
Parent Subordinated Debt relating to or affecting subordination or any of the
repayment terms (including principal amount, interest rate, amortization
schedule, payment dates or maturity date), or permit or agree to permit the
Parent Subordinated Debt to be a secured obligation; or,
Section 8.13 Warehouse Loan Transactions. At any time
that Indebtedness is outstanding under a Warehousing Loan Agreement:
(a) delivery by any Warehousing Lender of any notice (i)
seeking the mandatory prepayment by the Borrower of all or a substantial
portion of the outstanding Indebtedness under such Warehousing Loan Agreement,
(ii) asserting that a material adverse change has occurred in the Borrower's
business or financial condition, (iii) stating that an "event of default" had
occurred and was continuing under such Warehousing Loan Agreement, or (iv)
seeking to terminate such Warehousing Loan Agreement; or
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(b) failure by any Warehousing Lender to extend the
Indebtedness outstanding under such Warehousing Loan Agreement if any
Indebtedness shall remain outstanding after the termination or maturity date;
or
(c) such Warehousing Loan Agreement or any agreements,
instruments or documents executed or delivered in connection therewith or
pursuant thereto shall have been amended or any provision of any thereof shall
have been waived or forgiven or any indulgence thereunder shall have been
granted, in each case without the prior written consent of the Majority Banks,
other than any extension of the maturity date or termination date; or
(d) any original master lease of the Borrower shall have
been received or for any reason held by the Warehousing Lender in connection
with such Warehousing Loan Agreement or any Securitization or other transaction
derived therefrom (which is in any event subject to the prior written consent
of the Majority Banks) or by a custodian for a Warehousing Lender; or
(e) any "Default", "Event of Default" or their equivalent
shall occur under such Warehousing Loan Agreement without regard to the giving
of any notice thereunder or lapse of time or both.
ARTICLE 9. THE AGENT
Section 9.1 Appointment, Powers and Immunities. Each
Bank hereby irrevocably appoints and authorizes the Agent to act as its agent
under the Loan Documents with such powers as are specifically delegated to the
Agent by the terms of the Loan Documents, together with such other powers as
are reasonably incidental to such delegated powers. The Agent shall have no
duties or responsibilities except those expressly set forth in the Loan
Documents and shall not be a trustee for any Bank. The Agent shall not be
responsible to the Banks (a) for any recitals, statements, representations or
warranties contained in the Loan Documents, in any certificate or other
document referred to or provided for in, or received by any of them under, the
Loan Documents, (b) for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of the Loan Documents or any other document
referred to or provided for in the Loan Documents, (c) for the collectibility
of the Loans, (d) for the validity, effectiveness or value of any interest or
security covered by the Security Documents, (e) for the value of any
Collateral, (f) for the validity or effectiveness of any assignment, mortgage,
pledge, security agreement, financing statement, document or instrument or for
the filing, recording, re-filing, continuing or re-recording of any thereof, or
(g) for any failure by the Borrower or any other Loan Party to perform any of
its obligations under the Loan Documents, except that the Agent shall undertake
to file continuation statements for the Financing Statements filed naming the
Agent as secured party. In
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all its actions and duties, the Agent may employ agents and attorneys-in-fact
and shall not be answerable, except as to money or securities received by it or
its authorized agents, for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Neither the Agent nor
any of its directors, officers, employees or agents shall be liable or
responsible for any action taken or omitted to be taken by it or them under the
Loan Documents or in connection with the Loan Documents except for its or their
own gross negligence or willful misconduct.
Section 9.2 Reliance by Agent. The Agent shall be
entitled to rely upon any certification, notice or other communication
(including by telephone, telex, telegram or cable) believed by it to be genuine
and correct and to have been signed or sent by or on behalf of the proper
person or persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Agent. As to any matters not
expressly provided for by the Loan Documents, the Agent shall in all cases be
fully protected in acting, or in refraining from acting, under the Loan
Documents in accordance with instructions signed by the Majority Banks, and
such instructions of the Majority Banks or other number of Banks as aforesaid
and any action taken or failure to act pursuant thereto shall be binding on all
of the Banks.
Section 9.3 Events of Default. The Agent shall not be
deemed to have knowledge of the occurrence of a Default (other than the
non-payment of principal of or interest on Loans) unless the Agent has received
notice from a Bank or the Borrower specifying such Default and stating that
such notice is a "Notice of Default". In the event that the Agent receives
such a notice of the occurrence of a Default, the Agent shall give notice
thereof to the Banks (and shall give each Bank notice of each such non-
payment). Subject to Section 9.7, the Agent shall take such action with
respect to such Default as shall be directed by the Majority Banks.
Section 9.4 Rights as a Bank. With respect to its
Commitments and the Loans made by it, the Agent in its capacity as a Bank shall
have the same rights and powers as any other Bank and may exercise the same as
though it were not acting as the Agent, and the term "Bank" or "Banks" shall,
unless the context otherwise indicates, include the Agent in its individual
capacity. The Agent and its Affiliates may (without having to account therefor
to any Bank) accept deposits from, lend money to and generally engage in any
kind of banking, trust or other business with the Borrower or its Affiliates as
if it were not acting as the Agent, and the Agent may accept fees and other
consideration from the Borrower or its Affiliates for services in connection
with any of the Loan Documents or otherwise without having to account for the
same to the Banks.
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Section 9.5 Indemnification. The Banks shall indemnify
the Agent (to the extent not reimbursed by the Borrower under Sections 10.1 and
10.2) ratably in accordance with the aggregate principal amount of the Loans
made by the Banks (or, if no Loans are at the time outstanding, ratably in
accordance with their respective Commitments) for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever imposed on,
incurred by or asserted against the Agent in any way relating to or arising out
of (a) the Loan Documents, (b) any other documents contemplated by or referred
to in the Loan Documents, (c) the transactions contemplated by or referred to
in the Loan Documents (including the costs and expenses which the Borrower is
obligated to pay under Sections 10.1 and 10.2 but excluding, unless a Default
has occurred and is continuing, normal administrative costs and expenses
incident to the performance of its agency duties under the Loan Documents), or
(d) the enforcement of any of the terms of the Loan Documents or of any other
documents, provided that no Bank shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful misconduct of the
party to be indemnified.
Section 9.6 Non-Reliance on Agent and other Banks. (a)
Each Bank agrees that it has, independently and without reliance on the Agent
or any other Bank, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Borrower and decision to enter
into this Agreement and that it will, independently and without reliance upon
the Agent or any other Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under the Loan Documents.
(b) At the request of any Bank, NatWest shall provide it
with copies of any audit undertaken by it under this Agreement, and each Bank
acknowledges that any statements, written or oral, as to the financial
condition or creditworthiness of the Borrower, the value or composition of the
Collateral or any related matters made by the Borrower or NatWest in
anticipation of the restatement of this Agreement or made on or after the date
of such restatement, including any audits or reviews of Borrowing Base Reports
and Supporting Documents, are and shall be based on documents and material made
available to NatWest by the Borrower and Persons affiliated with it or acting
on its behalf and, accordingly, the accuracy, completeness and thoroughness of
such documents and materials and the conclusions drawn therefrom are the sole
responsibility of the Borrower and persons acting on its behalf. Any past or
future review of these materials was and shall be undertaken by NatWest for its
own benefit and internal use as a Bank, and any characterization of or
conclusions drawn from such materials were, are or shall be shared with other
Banks solely as a courtesy. NatWest disclaims any responsibility or liability,
express or implied, for the data set forth in, any characterization of or any
conclusions drawn
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such data as to the financial condition or credit analysis of the Borrower or
any other Loan Party, the value or composition of the Collateral and any
appraisal of it or any other matter.
(c) The Agent shall not be required to keep itself
informed as to the performance or observance by the Borrower of the Loan
Documents or any other document referred to or provided for in the Loan
Documents, or to inspect the properties or books of the Borrower. Except for
notices, reports and other documents and information expressly required to be
furnished to the Banks by the Agent under the Loan Documents, the Agent shall
not have any duty or responsibility to provide any Bank with any credit or
other information concerning the affairs, financial condition or business of
the Borrower which may come into the possession of the Agent or any of its
Affiliates.
Section 9.7 Failure to Act. Except for action expressly
required of the Agent under the Loan Documents, the Agent shall in all cases be
fully justified in failing or refusing to act under the Loan Documents unless
it shall be indemnified to its satisfaction by the Banks against any and all
liabilities and expenses that may be incurred by it by reason of taking or
continuing to take any such action.
Section 9.8 Resignation or Removal of Agent. Subject to
the appointment and acceptance of a successor Agent as provided below, the
Agent may resign at any time by giving not less than 10 days prior written
notice to the Banks and the Borrower, and the Agent may be removed at any time
with or without cause by the Majority Banks. Upon any such resignation or
removal, the Majority Banks shall have the right to appoint a successor Agent.
If no successor Agent is appointed by the Majority Banks and accepts such
appointment within 30 days after the retiring Agent's giving of notice of
resignation or the Majority Banks' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Banks, after consultation with the
Borrower, appoint a successor Agent which shall be one of the Banks. Upon the
acceptance of any appointment as Agent under the Loan Documents by a successor
Agent, such successor Agent shall thereupon succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations the Loan
Documents. The Borrower, the Banks and the retiring Agent shall, at the
Borrower's expenses, thereupon execute, deliver and file Financing Statements
reflecting such change. After any retiring Agent's resignation or removal as
Agent, the provisions of this Article 9 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as the Agent.
Section 9.9 Sharing of Collateral and Payments. In the
event that at any time any Bank shall obtain payment in respect of a Note or
interest thereon, or receive any collateral in respect thereof, whether
voluntarily or involuntarily, through
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the exercise of a right of banker's lien, set-off or counterclaim against the
Borrower or otherwise, in a greater proportion than any such payment obtained
by any other Bank in respect of the corresponding Note held by it or interest
thereon, then the Bank so receiving such greater proportionate payment shall
purchase for cash from the other Bank or Banks such portion of each such other
Bank's or Banks' Loan, or shall provide such other Banks with the benefits of
any such collateral or the proceeds thereof, as shall be necessary to cause
such Bank receiving the proportionate over-payment to share the excess payment
or benefits of such collateral or proceeds ratably with each of the Banks, each
of which shall have a Lien on its ratable portion of the amount described
hereinafter obtained from Borrower; provided, however, that if all or any
portion of such excess payment or benefits is thereafter recovered from the
Bank which received the proportionate over-payment, such purchase shall be
rescinded and the purchase price and benefits returned to the extent of such
recovery, but without interest.
ARTICLE 10. MISCELLANEOUS PROVISIONS
Section 10.1 Fees and Expenses; Indemnity. The Borrower
will promptly pay all costs of the Agent and the Banks in preparing the Loan
Documents, including this restated Agreement, and all costs and expenses of the
issue of the Notes and the Pre-Funding Note and of the Borrower's and the other
Loan Parties' performance of and compliance with all agreements and conditions
contained herein on its part to be performed or complied with (including all
costs of filing or recording any assignments, mortgages, financing statements
and other documents), and the reasonable fees and expenses and disbursements of
special counsel to the Agent and the Banks in connection with the preparation,
execution, delivery, administration, interpretation and enforcement of the Loan
Documents, including this restated Agreement, and all other agreements,
instruments and documents relating to this transaction, the consummation of the
transactions contemplated by all such documents, the preservation of all rights
of the Agent and the Banks, the negotiation, preparation, execution and
delivery of any amendment, modification or supplement of or to, or any consent
or waiver under, any such document (or any such instrument which is proposed
but not executed and delivered) and with any claim or action threatened, made
or brought against the Agent or any of the Banks arising out of or relating to
any extent to the Loan Documents or the transactions contemplated by the Loan
Documents. In addition, the Borrower shall promptly pay all costs and expenses
(including reasonable fees and disbursements of counsel) suffered or incurred
by the Agent or the Banks in connection with their respective enforcement of
the payment of the Notes or the Pre-Funding Note held by each of them or any
other sum due to them under the Loan Documents or any of its other rights under
the Loan Documents. In addition to the foregoing, the Borrower shall indemnify
the Agent and the Banks
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against, and hold each of them harmless from, any loss, liabilities, damages,
claims, costs and expenses (including reasonable attorneys' fees and
disbursements) suffered or incurred by it arising out of, resulting from or in
any manner connected with the execution, delivery and performance of each of
the Loan Documents, the Loans and any and all transactions related to or
consummated in connection with the Loans, including losses, liabilities,
damages, claims, costs and expenses suffered by the Agent and the Banks in
investigating, preparing for or defending against, or providing evidence,
producing documents or taking any other action in respect of, any commenced or
threatened litigation, administrative proceeding or investigation under any
Applicable Law that is alleged to arise out of or is based upon (a) any untrue
statement or alleged untrue statement of any material fact of the Borrower and
its Affiliates in any document or schedule filed with the SEC or any other
governmental body, (b) any omission or alleged omission to state any material
fact required to be stated in such document or schedule, or necessary to make
the statements made therein, in light of the circumstances under which made,
not misleading, (c) any acts, practices or omission or alleged acts, practices
or omissions of the Borrower or its agents related to the making of any
acquisition, purchase of shares or assets pursuant thereto, financing of such
purchases or the consummation of any other transactions contemplated by any
such acquisitions which are alleged to be in violation of any federal
securities law or of any other statute, regulation or other law of any
jurisdiction applicable to the making of any such acquisition, the purchase of
shares or assets pursuant thereto, the financing of such purchases or the
consummation of the other transactions contemplated by any such acquisition, or
(d) any withdrawals, termination or cancellation of any such proposed
acquisition for any reason whatsoever. The indemnity set forth in this Section
10.1 shall be in addition to any other obligations or liabilities of the
Borrower to the Agent and the Banks under this Agreement, at common law or
otherwise. The provisions of this Section 10.1 shall survive the payment of
the Notes and the Pre-Funding Note and the termination of this Agreement.
Section 10.2 Taxes. If under any law in effect on the
date of the closing of any Loan or under any retroactive provision of any law
subsequently enacted a Federal, state or local tax is determined to be payable
in respect of the issuance of any of the Notes or the Pre-Funding Note, or in
connection with the filing or recording of any assignments, mortgages,
financing statements or other documents (whether measured by the amount of
indebtedness secured or otherwise) as contemplated by this Agreement, then the
Borrower shall pay any such tax and all interest and penalties, if any, and
shall indemnify the Banks and the Agent against and save each of them harmless
from any loss or damage resulting from or arising out of the nonpayment or
delay in payment of any such tax. If any such tax or taxes shall be assessed
or levied against any Bank or any other holder of its Note, such Bank or such
other holder, as the case may be, may
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notify the Borrower and make immediate payment of such tax together with
interest or penalties in connection with such tax, and shall thereupon be
entitled to and shall receive immediate reimbursement for such tax from the
Borrower.
Section 10.3 No Set-Off of Payments. All payments under
this Agreement, the Note and the Pre-Funding Note shall be made without set-off
or counterclaim and in such amounts as may be necessary in order that such
payments will result in the Banks, Pre-Funding Lender or Agent, as the case may
be, receiving the amounts specified to be paid under this Agreement, the Notes
and the Pre-Funding Note after withholding for or on account of (a) any present
or future taxes, levies, imposts, duties or other similar charges of whatever
nature imposed by any government or any political subdivision or taxing
authority, other than any tax (except those referred to in clause (b) below) on
or measured by the net income of the respective Bank, the Pre-Funding Lender or
the Agent to which such payment is due pursuant to applicable federal, state
and local income tax laws, and (b) deduction of amounts equal to the taxes on
or measured by the net income of such Bank, the Pre-Funding Lender or the Agent
payable with respect to the amount by which the payments required to be made
under this sentence exceed the amounts specified to be paid in this Agreement,
the Notes and the Pre-Funding Note.
Section 10.4 Survival of Agreements. All agreements,
representations and warranties made in the Loan Documents shall survive the
delivery and termination of this Agreement and the issuance and payment in full
of the Notes and the Pre-Funding Note.
Section 10.5 Lien on and Set-off of Deposits. As security
for the due payment and performance of the Obligations, the Borrower hereby
grants to the Agent for the ratable benefit of the Banks a Lien on any and all
deposits or other sums at any time credited by or due from the Agent or any
Bank to the Borrower, whether in regular or special depository accounts or
otherwise, and any and all monies, securities and other property of the
Borrower, and the proceeds thereof, now or hereinafter held or received by or
in transit to any Bank or the Agent from or for the Borrower, whether for
safekeeping, custody, pledge, transmission, collection or otherwise, and any
such deposits, sums, monies, securities and other property may at any time
after the occurrence and during the continuance of any Event of Default be
set-off, appropriated and applied by any Bank or the Agent against any of the
Obligations, whether or not any of such Obligations is then due or is secured
by any collateral or, if it is so secured, whether or not the collateral held
by the Agent is considered to be adequate.
Section 10.6 Modifications, Consents and Waivers; Entire
Agreement. (a) No modification, amendment or waiver of any provision of the
Loan Documents, any other agreement, instrument and document delivered pursuant
to the Loan Documents
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or consent to any departure by the Borrower from any of the terms or conditions
of the Loan Documents shall be effective unless it is in writing and signed by
the parties to such Loan Document or other agreement, instrument or document
or, in the case of this Agreement, by the Agent and by the requisite Banks as
set forth in Section 10.6(b). Any such waiver or consent shall be effective
only in the specific instance and for the purpose for which given. No consent
to or demand on the Borrower in any case shall, of itself, entitle it to any
other or further notice or demand in similar or other circumstances.
(b) The provisions of this Agreement may be modified,
amended or waived, or a consent given with respect to such provisions, if
signed by the Agent and the Majority Banks, except that:
(i) any modification, amendment, waiver or consent
that has the effect of changing or waiving the Commitment of any Bank,
the principal amount of the Loans to be borrowed or repaid, the
maturity of any Loans, the dates for and the amount of repayment of
any Loans, the interest rate or rates applicable to any Loans and the
provisions of this Section 10.6(b) shall require the agreement of the
Agent and all of the Banks;
(ii) any modification, amendment, waiver or consent
with respect to the Pre-Funding Loans shall require the agreement of
the Agent and the Pre-Funding Lender;
(iii) any modification or amendment that has the
effect of increasing the Total Commitment (but not the Commitment of
any Bank) shall require the agreement of the Agent and the
Super-Majority Banks; and
(iv) any modification, amendment waiver or consent
with respect to the provisions of Articles 1 and 2 not covered by the
preceding Sections 10.6(b)(i) through (iii) shall require the
agreement of the Agent and the Super-Majority Banks; and
(v) any waiver with respect to the perfection of the
Agent's Lien on specific motor vehicles shall require the agreement of
only the Agent.
(c) The Loan Documents embody the entire agreement and
understanding among the Banks, the Pre-Funding Lender, the Agent and the
Borrower and supersede all prior agreements and understandings relating to the
subject matter of the Loan Documents. Without limiting the generality of
Article 9, no Bank shall have any claim or right of action of any kind
whatsoever against the Agent in respect of any action or refraining from action
which the Agent is instructed to take or refrain from (including foreclosure on
the Agent's Lien) by the requisite Banks as set forth in this Section 10.6.
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Section 10.7 Remedies Cumulative. Each and every right
granted to the Agent and each Bank under the Loan Documents or under any other
document delivered in connection with the Loan Documents, or allowed them by
law or equity, shall be cumulative and may be exercised from time to time. No
failure on the part of the Agent, any Bank or any holder of any Note or the
Pre-Funding Note to exercise, and no delay in exercising, any right shall
operate as a waiver of such right, nor shall any single or partial exercise of
any right preclude any other or future exercise of such right or the exercise
of any other right. The due payment and performance of the Borrower's
Obligations shall be without regard to any counterclaim, right of offset or
other claim that the Borrower may have against any Bank or the Agent and
without regard to any other obligation that any Bank or the Agent may have to
the Borrower, and no such counterclaim required under federal law or offset
shall be asserted by the Borrower in any action, suit or proceeding instituted
by any Bank or the Agent for payment or performance of the Borrower's
Obligations. Upon the occurrence of an Event of Default, the Agent on behalf
of the Banks shall be entitled, at its option, to place any contracts of the
Borrower in a Securitization.
Section 10.8 Further Assurances. At any time and from
time to time, upon the request of the Agent, the Borrower shall execute,
deliver and acknowledge, or cause to be executed, delivered and acknowledged,
such further documents and instruments and do such other acts and things as the
Agent may reasonably request in order to fully effect the purposes of the Loan
Documents and any other agreements, instruments and documents delivered
pursuant to or in connection with the Loans, including executing and delivering
to the Agent mortgages in form and substance satisfactory to the Agent covering
all real property or interests therein acquired by the Borrower (provided that
any mortgage or owned property may be subject to a first mortgage if herein
permitted), and all leases of real property entered into by the Borrower as
tenant or lessee, after the date of this Agreement, promptly after such
acquisition or the entering into of any such lease.
Section 10.9 Notices. All notices, requests, reports and
other communications pursuant to the Loan Documents shall be in writing and
shall be delivered by hand or commercial delivery service, sent by U.S. Postal
Service certified mail, return receipt requested (except for routine reports
delivered pursuant to Article 5 which may be sent by first-class mail), or
transmitted by telefax or telegram, addressed as follows:
(a) If to any Loan Party:
c/o DVI Financial Services Inc.
500 Hyde Park
Doylestown, Pennsylvania 18901
Attention: Mr. James Costello
Senior Vice President
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Telecopier No.: 215-230-8108
(b) If to the Agent:
NatWest Bank N.A.
175 Water Street
New York, New York 10038
Attention: Leasing Department
Telecopier No.: (212) 602-2180
with a copy (other than in the case of Borrowing Notices and reports and other
documents delivered in compliance with Article 5) to:
Winston & Strawn
175 Water Street
New York, New York 10038-4981
Attention: Loren M. Dollet, Esq.
Telecopier No.: (212) 858-4700
Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is telecopied to such party at the telecopier
number specified above, when delivered by hand or by commercial delivery
service to such party at its above address, on the third Business Day after the
day given to the U.S. Postal Service for certified mail addressed as aforesaid,
or when delivered to the telegraph company addressed as aforesaid. Any party
may change the person, address or telecopier number to whom or which notices
are to be given under the Loan Documents by notice duly given and actually
received by the addressee under this Section 10.9.
Section 10.10 Counterparts. This Agreement may be signed
in any number of counterparts with the same effect as if the signatures were
upon the same instrument.
Section 10.11 Governing Law; Consent to Jurisdiction;
Waiver of Jury Trial. (a) EACH OF THE LOAN DOCUMENTS AND ALL OTHER DOCUMENTS
AND INSTRUMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THE LOAN DOCUMENTS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK APPLICABLE TO CONTRACTS ENTERED INTO IN THE STATE OF NEW YORK BY
RESIDENTS OF SUCH STATE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
(b) THE BORROWER IRREVOCABLY CONSENTS THAT ANY LEGAL
ACTION OR PROCEEDING AGAINST IT UNDER, ARISING OUT OF OR IN ANY MANNER RELATING
TO ANY LOAN DOCUMENT MAY BE BROUGHT IN ANY COURT OF THE STATE OF NEW YORK OR
ANY U.S. DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN, CITY OF NEW YORK.
THE BORROWER, BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, EXPRESSLY AND
IRREVOCABLY ASSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH
COURTS IN ANY SUCH ACTION OR PROCEEDING. THE BORROWER FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF ANY
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COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO ANY SUCH ACTION OR
PROCEEDING BY DELIVERY OF SUCH PROCESS TO IT IN ANY MANNER PROVIDED FOR IN
SECTION 10.9. THE BORROWER EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR
DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE, FORUM NON CONVENIENS OR ANY SIMILAR BASIS. THE
BORROWER SHALL NOT BE ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO ASSERT ANY
DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF
NEW YORK UNLESS SUCH DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE
OF NEW YORK. NOTHING IN THIS SECTION 10.11 SHALL AFFECT OR IMPAIR IN ANY
MANNER OR TO ANY EXTENT THE RIGHT OF THE AGENT OR ANY BANK TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY JURISDICTION OR TO
SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
(c) THE BORROWER, EACH OF THE BANKS AND THE AGENT WAIVES
TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION
WITH OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS, ANY INSTRUMENT OR DOCUMENT
DELIVERED PURSUANT TO ANY LOAN DOCUMENT OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT OF ANY LOAN DOCUMENT.
Section 10.12 Severability. The provisions of this
Agreement are severable, and if any clause or provision of this Agreement is
held invalid or unenforceable in whole or in part in any jurisdiction, then
such invalidity or unenforceability shall affect only such clause, provision or
part in such jurisdiction and shall not in any manner affect such clause or
provision in any other jurisdiction, or any other clause or provision in this
Agreement in any jurisdiction. Each of the covenants, agreements and
conditions contained in this Agreement is independent, and compliance by the
Borrower with any of them shall not excuse noncompliance by the Borrower with
any other.
Section 10.13 Binding Effect; No Assignment by Borrower.
This Agreement shall be binding upon and inure to the benefit of the Borrower
and its successors and to the benefit of the Banks and the Agent and their
respective successors and assigns. The rights and obligations of the Borrower
under this Agreement shall not be assigned or delegated without the prior
written consent of the Agent and all Banks, and any purported assignment or
delegation without such consent shall be void.
Section 10.14 Assignments and Participations by Banks. (a)
Each Bank may assign to one or more Eligible Assignees all or a portion of its
rights and obligations under this Agreement (including all or a portion of its
Commitment, the Loans and Pre-Funding Loans owing to it and the Notes or
Pre-Funding Notes held by it) by the execution and delivery to the Agent of an
Assignment and Acceptance; provided, however, that (i) each such assignment
shall be of a constant and not a varying percentage of all of the assigning
Bank's rights and obligations under this Agreement, (ii) the amount of the
Commitment of the assigning
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Bank being assigned pursuant to each such assignment (determined as of the date
of the Assignment and Acceptance with respect to such assignment) shall in no
event be less than $5,000,000 and shall be an integral multiple of $1,000,000,
and (iii) the Agent's consent to the such assignment shall have been obtained.
Upon such execution, delivery and consent, (1) the assignee shall be a party to
this Agreement and, to the extent that rights and obligations under this
Agreement have been assigned to it pursuant to such Assignment and Acceptance,
have the rights and obligations of a Bank, and (2) the assigning Bank shall, to
the extent that rights and obligations under this Agreement have been assigned
by it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all of an assigning Bank's rights and
obligations under this Agreement, such Bank shall cease to be a party to this
Agreement).
(b) By executing and delivering an Assignment and
Acceptance, the assigning Bank and the assignee confirm to and agree with each
other, the other Banks, the Agent and the Borrower as follows: (i) other than
as provided in such Assignment and Acceptance, such assigning Bank makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement, the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant to this Agreement; (ii) such assigning Bank makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Borrower or the performance or observance by the
Borrower of any of its obligations under this Agreement or any other instrument
or document furnished pursuant to this Agreement; (iii) such assignee confirms
that it has received a copy of this Agreement, together with copies of such
financial statements and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Agent, such assigning Bank or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (v) such assignee confirms that it is an Eligible Assignee;
(vi) such assignee appoints and authorizes the Agent to take such action as
agent on its behalf and to exercise such powers under this Agreement as are
delegated to the Agent by the terms of this Agreement, together with such
powers as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all of the obligations
which by the terms of this Agreement are required to be performed by it as a
Bank.
-84-
<PAGE> 91
(c) Upon its receipt of an Assignment and Acceptance
executed by an assigning Bank and an assignee, together with any Note subject
to such assignment, the Agent shall (i) accept such Assignment and Acceptance,
and (ii) give prompt notice to the Borrower. Within five Business Days after
its receipt of such notice, the Borrower, at its own expense, shall execute and
deliver to the Agent in exchange for the surrendered Note a new Note to the
order of such Eligible Assignee in an amount equal to the Commitment assumed by
it pursuant to such Assignment and Acceptance and, if the assigning Bank has
retained a Commitment, a new Note to the order of the assigning Bank in an
amount equal to the Commitment retained by it. Such new Note shall be in an
aggregate principal amount equal to the aggregate principal amount of such
surrendered Note, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form attached as Exhibit
A.
(d) Each Bank may sell participations to one or more
banks or other entities in all or a portion of its rights and obligations under
this Agreement, including all or a portion of its Commitment, the Loans and
Pre-Funding Loans owing to it and the Notes and Pre-Funding Notes held by it;
provided, however, that (i) such Bank's obligations under this Agreement
(including its Commitment) shall remain unchanged, (ii) such Bank shall remain
solely responsible to the other parties to this Agreement for the performance
of such obligations, (iii) such Bank shall remain the holder of any such Note
for all purposes of this Agreement, and (iv) the Borrower, the Agent and the
other Banks shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement.
(e) Any Bank may, in connection with any assignment or
participation, or proposed assignment or participation, pursuant to this
Section 10.14, disclose to the assignee or participant or proposed assignee or
participant any information relating to the Borrower furnished to such Bank by
or on behalf of the Borrower; provided that, prior to any such disclosure, the
assignee or participant or proposed assignee or participant shall agree to
preserve the confidentiality of any confidential information relating to the
Borrower received by it from such Bank.
Section 10.15 Scope of Agent's Lien. Each Bank agrees that
the Agent's Lien on the Collateral shall secure only the Obligations and shall
not secure any other obligation, liability or indebtedness of the Borrower or
any other Loan Party having rights in the Collateral notwithstanding the
provisions of any agreement between any Bank and the Borrower or any other Loan
Party and whether or not the Agent or any of the other Banks are aware of such
agreement.
Section 10.16 Waiver of Relief from Bankruptcy Code Stay.
The Borrower agrees that, in the event that Borrower, DVI, DBC or any Affiliate
of such Persons shall (i) file with any
-85-
<PAGE> 92
bankruptcy court of competent jurisdiction or be the subject of any petition
under Chapter 11 of the Bankruptcy Code, (ii) be the subject of any order for
relief issued under the Bankruptcy Code, (iii) file or be the subject of any
petition seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future federal
or state act or law relating to bankruptcy, insolvency or other relief for
debtors, (iv) have sought or consented to or acquiesced in the appointment of
any trustee, receiver, conservator or liquidator, or (v) be the subject of any
order, judgment or decree entered by any court of competent jurisdiction
approving a petition filed against such party for any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future federal or state act or law relating to
bankruptcy, insolvency or relief for debtors, the Banks and the Agent shall
thereupon be entitled and the Borrower irrevocably consents to immediate and
unconditional relief from any automatic stay imposed by Section 362 of the
Bankruptcy Code, or otherwise, on or against the exercise of the rights and
remedies otherwise available to the Banks and the Agent as provided for in this
Agreement, the Notes, the Pre-Funding Loan Note, the Security Agreement, the
other Security Documents and the other Loan Documents delivered in connection
herewith and therewith, as otherwise provided by law, and the Borrower hereby
irrevocably waives any right to object to such relief and will not contest any
motion by any Banks or the Agent, in any manner requested by any Bank or the
Agent, in its efforts to obtain relief from any such stay or other prohibition.
[SIGNATURE PAGE FOLLOWS]
-86-
<PAGE> 93
IN WITNESS WHEREOF, the Borrower, the Banks and the Agent have
duly signed and delivered this First Amended and Restated Loan Agreement on the
date first above written.
DVI FINANCIAL SERVICES INC.
By: /s/ Anthony J. Turek
--------------------
Name: Anthony J. Turek
Title: Senior Vice President
-87-
<PAGE> 94
Commitment: $26,500,000 NATWEST BANK N.A. (successor by
merger to National Westminster
Bank USA)
Pre-Funding
Commitment: $8,000,000
By: /s/ Mary McLaughlin
-------------------
Name: Mary McLaughlin
Title: Vice President
Lending Office for Prime Rate and
Eurodollar Loans:
NatWest Bank N.A.
175 Water Street
New York, New York 10038
Attention: Leasing Division
Address for Notices:
NatWest Bank N.A.
175 Water Street
New York, New York 10038
Attention: Merily McLaughlin
Telex No. 132369
Answer-Back Code: NBNA UR
Telecopier No. (212) 602-2180
-88-
<PAGE> 95
Commitment: $15,000,000 FIRST BANK NATIONAL ASSOCIATION
By: /s/ David A. Draxler
----------------------
Name: David A. Draxler
Title: Vice President
Lending Office for Prime Rate and
Eurodollar Loans:
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Mr. David A. Draxler
Vice President
Address for Notices:
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Mr. David A. Draxler
Vice President
Telex No. N/A
Answer Back Code: N/A
Telecopier No. (612) 973-0824
-89-
<PAGE> 96
Commitment: $10,000,000 BANK HAPOALIM B.M., LOS ANGELES
BRANCH
By: /s/ C. M. Ciebiera
--------------------
Name: C. M. Ciebiera
Title: Vice President
By: /s/ David L. Rugger
--------------------
Name: David L. Rugger
Title: Vice President
Lending Office for Prime Rate and
Eurodollar Loans:
Bank Hapoalim B.M., Los Angeles
Branch
6222 Wilshire Boulevard
Los Angeles, California 90048
Attention: Ms. Lori Lake
Credit Administrator
Address for Notices:
Bank Hapoalim B.M. Los Angeles
Branch
6222 Wilshire Boulevard
Los Angeles, California 90048
Attention: Mr. Craig Ciebieria
Vice President
Telex No.: 188610
Answer-Back Code: (BHAPOLA UT)
Telecopier No. (213) 937-1439
-90-
<PAGE> 97
Commitment: $15,000,000 SUMITOMO BANK OF CALIFORNIA
By: /s/ Bonnie Kehe
----------------------
Name: Bonnie Kehe
Title: Vice President
Lending Office for Prime Rate and
Eurodollar Loans for
purposes of advances,
paydowns, interest payments
and fee payments, and
notices for such purposes:
Commercial Banking Division
Note Department
611 West 6th Street
Los Angeles, CA 90017
Attention: Ms. Laura French
Telex No. N/A
Answer Back Code: N/A
Telecopier No. (213) 622-1385
Lending Office for Prime Rate and
Eurodollar Loans for all
other purposes, and notices
for all other purposes:
Commercial Banking Division
20100 Magnolia Street
Huntington Beach, California
92646-4632
Attention: Ms. Bonnie E. Kehe
Telex No. N/A
Answer Back Code: N/A
Telecopier No. (714) 968-4959
-91-
<PAGE> 98
Commitment: $15,000,000 CORESTATES BANK, N.A.
By: /s/ S. Scott Gates
----------------------
Name: S. Scott Gates
Title: Commercial Officer
Lending Office for Prime Rate and
Eurodollar Loans:
CoreStates Bank, N.A.
1500 Market Street
Center Square Building - 19th Fl.
F.C. 1-3-19-20
Philadelphia, PA 19102
Attention: Mr. John McDonald, AVP
Audrey Wines, Loan
Administrator
Telephone No. (215) 973-3961
Telecopier No. (215) 973-6054
Address for Notices:
CoreStates Bank, N.A.
1500 Market Street
Center Square Building - 19th Fl.
F.C. 1-3-19-20
Philadelphia, PA 19102
Attention: Mr. David D'Antonio
Vice President
Telephone No. (215) 973-7038
Telecopier No. (215) 786-7704
-92-
<PAGE> 99
SCHEDULE 1
TO
FIRST AMENDED AND RESTATED
LOAN AGREEMENT
BETWEEN
DVI FINANCIAL SERVICES INC.,
THE BANKS SIGNATORY TO THE LOAN AGREEMENT
AND
NATWEST BANK N.A., AS AGENT
<TABLE>
<CAPTION>
COMPANY STATE OF INC. OUTSTANDING OWNER CAPITAL STATE(S) OF
SHARES QUALIFICATION
<S> <C> <C> <C> <C>
DVI, Inc. Delaware 6,684,324 public CALIFORNIA
DVI Financial Delaware 2,000 DVI, Inc. ARKANSAS, CALIFORNIA,
Services Inc. COLORADO, CONNECTICUT,
FLORIDA, GEORGIA,
ILLINOIS, IDAHO, IOWA,
KANSAS, LOUISIANA,
MARYLAND, MASSACHUSETTS,
MICHIGAN, MINNESOTA,
MISSISSIPPI, NEVADA,
NEW JERSEY, NEW MEXICO,
NEW YORK, OKLAHOMA,
OREGON, OHIO,
PENNSYLVANIA, VIRGINIA,
WEST VIRGINIA, TEXAS,
TENNESSEE
DVI Healthcare Delaware 100 DVI, Inc. CALIFORNIA
Operations, Inc.
DVI Lease Finance Delaware 100 DVI, Inc. ARKANSAS, CALIFORNIA,
Corporation II LOUISIANA
DVI Lease Finance Delaware 100 DVI, Inc. ALABAMA, ARKANSAS
Corporation 1993-A CALIFORNIA, MISSISSIPPI
DVI Receivables Corp. Delaware 100 DVI, Inc. ALABAMA, CALIFORNIA,
MISSISSIPPI
DVI Business Credit Delaware 100 DVI, Inc. CALIFORNIA
Corporation
</TABLE>
<PAGE> 100
SCHEDULE 2
TO FIRST AMENDED AND RESTATED
LOAN AGREEMENT
BETWEEN
DVI FINANCIAL SERVICES INC.,
THE BANKS SIGNATORY TO THE LOAN AGREEMENT
AND
NATWEST BANK N.A.
CONSENTS WAIVERS AND APPROVALS; VIOLATION OF AGREEMENTS.
NONE
<PAGE> 101
SCHEDULE 3
TO FIRST AMENDED AND RESTATED
LOAN AGREEMENT
BETWEEN
DVI FINANCIAL SERVICES INC.,
THE BANKS SIGNATORY TO THE LOAN AGREEMENT
AND
NATWEST BANK N.A.
JUDGEMENTS, ACTIONS AND PROCEEDINGS.
NONE
<PAGE> 102
SCHEDULE 4
TO FIRST AMENDED AND RESTATED
LOAN AGREEMENT
BETWEEN
DVI FINANCIAL SERVICES INC.,
THE BANKS SIGNATORY TO THE LOAN AGREEMENT
AND
NATWEST BANK N.A.
DEFAULTS, COMPLIANCE WITH LAWS, REGULATIONS AND AGREEMENTS.
NONE
<PAGE> 103
SCHEDULE 5
TO FIRST AMENDED AND RESTATED
LOAN AGREEMENT
BETWEEN
DVI FINANCIAL SERVICES INC.,
THE BANKS SIGNATORY TO THE LOAN AGREEMENT
AND
NATWEST BANK N.A.
BURDENSOME DOCUMENTS.
NONE
<PAGE> 104
SCHEDULE 6
TO FIRST AMENDED AND RESTATED
LOAN AGREEMENT
BETWEEN
DVI FINANCIAL SERVICES INC.,
THE BANKS SIGNATORY TO THE LOAN AGREEMENT
AND
NATWEST BANK N.A.
PATENTS, TRADEMARKS, TRADE NAMES, SERVICE MARKS AND COPYRIGHTS.
NONE
<PAGE> 105
SCHEDULE 7
TO FIRST AMENDED AND RESTATED
LOAN AGREEMENT
BETWEEN
DVI FINANCIAL SERVICES INC.,
THE BANKS SIGNATORY TO THE LOAN AGREEMENT
AND
NATWEST BANK N.A., AS AGENT
NAME CHANGES, MERGERS, ACQUISITIONS.
On February 28, 1994, Borrower acquired all of the outstanding common stock of
Medical Device Capital Corporation.
LOCATION OF COLLATERAL.
Following is the list of locations where Borrower stores Equipment constituting
Collateral from time to time.
M.E.R.
2756 E. LaCadena Avenue
Riverside, CA 92507
Re-Med Par
101 Old Stone Bridge Parkway
Goodlettsville, TN 37072
<PAGE> 106
SCHEDULE 8
TO FIRST AMENDED AND RESTATED
LOAN AGREEMENT
BETWEEN
DVI FINANCIAL SERVICES INC.,
THE BANKS SIGNATORY TO THE LOAN AGREEMENT
AND
NATWEST BANK N.A.
LABOR DISPUTES, COLLECTIVE BARGAINING AGREEMENTS, EMPLOYEE GRIEVANCES.
NONE
<PAGE> 107
SCHEDULE 9
TO FIRST AMENDED AND RESTATED
LOAN AGREEMENT
BETWEEN
DVI FINANCIAL SERVICES INC.,
THE BANKS SIGNATORY TO THE LOAN AGREEMENT
AND
NATWEST BANK N.A., AS AGENT
EXISTING NON-RECOURSE AND PARTIAL RECOURSE DEBT
NON-RECOURSE DEBT AS OF MARCH 28, 1995
NONE OUTSTANDING
PARTIAL RECOURSE DEBT AS OF MARCH 28, 1995
<TABLE>
<S> <C>
UJB Leasing Corp. $174,250
USX Credit Corp. $ 30,000
</TABLE>
<PAGE> 108
Schedule 10
to
First Amended and
Restated Loan Agreement
CONDITIONS PRECEDENT FULFILLED
The obligation of each Bank to make the initial Loans made by
it under the Original Agreement were subject to the fulfillment to the
satisfaction of the Banks and the Agent, unless waived, of the following
conditions precedent:
1. The Borrower executed and delivered to each Bank its Note.
2. The Borrower:
a. executed and delivered to the Agent the Security Agreement,
the Assignment of Agreements, the Assignment of Leases, the
Notes Assignment Agreement and all other Security Documents
required to be executed by it;
b. duly executed and delivered to the Agent appropriate UCC
financing statements in order to enable the Agent to perfect
and preserve its security interest in the Collateral covered
by the Security Agreement, the Assignment of Leases, the Notes
Assignment Agreement and the Assignment of Agreements, and
delivered to the Agent lien searches relating to the Borrower
in such jurisdictions as the Agent requested;
c. delivered to the Agent each promissory note made to the
Borrower and covered by the Notes Assignment Agreement, duly
endorsed by the Borrower "Pay to the order of National
Westminster Bank USA, as Agent";
d. delivered to the Agent the evidence of insurance on the
Collateral and on the Borrower's liability insurance policies,
naming the Agent or the Borrower, as applicable, as loss payee
or additional insured as required by Section 6.8 of the
Original Agreement and the Security Documents;
e. delivered to the Agent a Borrowing Notice with respect to the
initial Loans;
f. delivered to the Agent a Borrowing Base Report including all
Supporting Documents requested by the Agent, and the Borrowing
Base was sufficient to enable the Borrower to borrow the
initial Loans;
<PAGE> 109
g. delivered to the Agent an Acceptable Appraisal with respect to
all residual values then included in the Borrowing Base
Report;
h. delivered to the Agent copies of the certificate of title
applicable to each motor vehicle owned by the Borrower
evidencing the registration of the Lien of the Agent on such
motor vehicle, and executed and delivered to the Agent all
fixture filings in appropriate form for filing relating to all
Equipment of the Borrower that constituted fixtures; and
i. otherwise duly complied with all of the terms and conditions
of the Security Documents.
3. DVI executed and delivered to the Agent its Guaranty.
4. The Agent received the Financial Statements.
5. Each of Paul Schmitt, general counsel to the Borrower and DVI, and
Messrs. Paul, Hastings, Janofsky & Walker, special counsel to the
Borrower and DVI, delivered his or its opinion with respect to the
transactions contemplated by the Original Agreement to the Agent.
6. The Agent received the list of insurance required to be in effect
under Section 6.8 of the Original Agreement.
7. The Agent received copies of the following:
a. all of the consents, approvals and waivers referred to on
Exhibit C to the Original Agreement as being delivered;
b. the certificate of incorporation of each of the Borrower and
DVI, certified by the Secretary of State of their respective
states of incorporation;
c. the by-laws of each of the Borrower and DVI, certified as true
and complete by their respective secretaries or assistant
secretaries;
d. all corporate action taken by each Loan Party (including the
shareholders of each Loan Party) to authorize the execution,
delivery and performance of each of the Loan Documents to
which it is a party;
e. good standing certificates or telegrams as of dates prior to
the date of the initial Loan with respect to each of the
Borrower and DVI from the Secretary of State of each of their
respective states of incorporation and from such other states
of qualification as the Agent requested;
f. an incumbency certificate (with specimen signatures) with
respect to each of the Borrower and DVI; and
-2-
<PAGE> 110
g. the forms of Lease and related documents, Equipment Note,
Security Agreement, Progress Payment Agreement, and documents
used in connection with all of the foregoing by the Borrower
in connection with its business.
8. The Agent received results of audits, analyses, surveys, reviews and
inspections with respect to the Collateral in form and substance
satisfactory to the Agent.
9. The Agent received a certificate to the effect that:
a. the Borrower and DVI had complied and were then in compliance
with all of the terms, covenants and conditions of the
Original Agreement and the other Loan Documents;
b. there existed no Event of Default or Default under the
Original Agreement; and
c. the representations and warranties contained in Article 3 of
the Original Agreement were true and correct on the date of
making of the initial Loans.
10. All legal matters incident to the initial Loans were reasonably
satisfactory to the Agent and counsel to the Agent.
-3-
<PAGE> 111
SCHEDULE 11
TO FIRST AMENDED AND RESTATED
LOAN AGREEMENT
BETWEEN
DVI FINANCIAL SERVICES INC.,
THE BANKS SIGNATORY TO THE LOAN AGREEMENT
AND
NATWEST BANK N.A., AS AGENT
PERMITTED RECOURSE INDEBTEDNESS.
$733,000 secured facility extended by Hazleton National Bank, Hazleton,
Pennsylvania, available for direct borrowings, letters of credit or guaranties.
Collateral is specific leases.
<PAGE> 112
SCHEDULE 12
TO FIRST AMENDED AND RESTATED
LOAN AGREEMENT
BETWEEN
DVI FINANCIAL SERVICES INC.,
THE BANKS SIGNATORY TO THE LOAN AGREEMENT
AND
NATWEST BANK N.A., AS AGENT
GUARANTIES OF OBLIGATIONS OF AFFILIATES.
West Los Angeles MRI, L.P. ("WLA"): Guaranty by DVI Financial Services Inc. of
WLA's obligations under Sublease, executed February 24, 1992, not to exceed
$200,000.
<PAGE> 113
SCHEDULE 13
TO FIRST AMENDED AND RESTATED
LOAN AGREEMENT
BETWEEN
DVI FINANCIAL SERVICES INC.,
THE BANKS SIGNATORY TO THE LOAN AGREEMENT
AND
NATWEST BANK N.A., AS AGENT
CERTAIN RESTRICTED INVESTMENTS.
<TABLE>
<S> <C>
ADVANCES TO AFFILIATES:
DVI Business Credit $9,418,581
formerly known as A/R Advantage
INVESTMENTS IN AFFILIATES:
SMT $ 828,187
HIS $1,341,377
</TABLE>
<PAGE> 114
Exhibit A
to
First Amended and
Restated Loan Agreement
FORM OF AMENDED AND RESTATED NOTE
$__________ New York, New York
March __, 1995
FOR VALUE RECEIVED, DVI FINANCIAL SERVICES INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of [NAME OF
BANK] (the "Bank") the principal sum of [BANK'S COMMITMENT] DOLLARS
($__________) or such lesser amount as shall equal the aggregate unpaid
principal amount of the Loans made by the Bank under the First Amended and
Restated Loan Agreement, dated June 14, 1991 and amended and restated as of
March __, 1995 (as amended or supplemented from time to time, the "Loan
Agreement") between the Borrower, the banks signatory to the Loan Agreement
(the "Banks") and NatWest Bank N.A., as Pre-Funding Lender and as agent for the
Banks (in such capacity, the "Agent"), in forty-eight (48) equal consecutive
monthly installments on the Payment Dates, each of such installments to be in
an amount equal to one forty-eighth (1/48th) of the principal amount of the
Loans made by the Bank outstanding at the close of business on the Term
Conversion Date; provided that the last such payment shall be in an amount
sufficient to repay in full the principal amount of such Loans. Capitalized
terms used but not defined in this Note shall have the meanings ascribed to
such terms in the Loan Agreement.
The Borrower shall pay interest on the unpaid principal amount
of each Loan from the date of such Loan until such Loan is be paid in full at
the rates, on the dates and for the periods set forth in or established by the
Loan Agreement and calculated as provided in the Loan Agreement. All
indebtedness outstanding under this Note shall bear interest after maturity,
whether at stated maturity, by acceleration or otherwise, at the Post-Default
Rate (computed in the same manner as interest on this Note prior to maturity)
and all such interest shall be payable on demand. Notwithstanding anything to
the contrary in this Note, the obligation of the Borrower to make payments of
interest shall be subject to the limitation that payments of interest shall not
be required to be made to the Bank to the extent that the Bank's receipt of
such interest would not be permissible under Applicable Laws limiting rates of
interest that may be charged or collected by the Bank. Any such payments of
interest that are not made as a result of the limitation referred to in the
preceding sentence shall be made by the Borrower to the Bank on the earliest
interest payment date or dates on which the receipt of such interest would
<PAGE> 115
be permissible under Applicable Laws limiting rates of interest that may be
charged or collected by the Bank.
Payments of both principal and interest on this Note are to be
made at the office of the Agent at 175 Water Street, New York, New York 10038
or such other place as the holder of this Note shall designate to the Borrower
in writing, in lawful money of the United States of America in immediately
available funds.
This Note is one of the Notes referred to in the Loan
Agreement, is secured in the manner provided in the Loan Agreement, may be
prepaid on the terms and conditions set forth in the Loan Agreement and is
entitled to the benefits of the Loan Agreement.
The Bank is authorized by the Borrower to record on the
schedule to this Note (or on a supplemental schedule) the amount of each Loan
made by the Bank to the Borrower and the amount of each payment or prepayment
of principal of such Loan received by the Bank, although failure to make any
such notation shall not affect the rights of the Bank or the obligations of the
Borrower under this Note. The Bank may, at its option, record such matters in
its internal records rather than on such schedule.
Upon the occurrence of any Event of Default, the principal
amount of and accrued interest on this Note may be declared due and payable in
the manner and with the effect provided in the Loan Agreement.
The Borrower shall pay all costs and expenses of collection,
including attorneys' fees and disbursements, in the event that any action, suit
or proceeding is brought by the Bank to collect this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO PROMISSORY NOTES ENTERED
INTO IN THE STATE OF NEW YORK BY RESIDENTS OF SUCH STATE AND TO BE PAID AND
PERFORMED ENTIRELY WITHIN SUCH STATE.
DVI FINANCIAL SERVICES INC.
By: _________________________
Name:
Title:
A-2
<PAGE> 116
SCHEDULE TO NOTE
This Note evidences the principal amounts of the Loans made by
the Bank under the Loan Agreement on the dates set forth below and the payments
or prepayments of principal by the Borrower as set forth below:
<TABLE>
<CAPTION>
Principal
Principal Amount of
Amount of Loan Paid Balance
Date Made Loan Made or Prepaid Outstanding Initials
- --------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C>
</TABLE>
A-3
<PAGE> 117
Exhibit B
to
First Amended and
Restated Loan Agreement
FORM OF AMENDED AND RESTATED
PRE-FUNDING NOTE
$8,000,000 New York, New York
March __, 1995
FOR VALUE RECEIVED, DVI FINANCIAL SERVICES INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of NATWEST
BANK N.A. (successor by merger to National Westminster Bank USA), a national
banking association (the "Pre-Funding Lender") on the Pre-Funding Commitment
Termination Date or on such earlier date as is provided for in the First
Amended and Restated Loan Agreement dated June 14, 1991 and amended and
restated as of March __, 1995 (as amended or supplemented from time to time,
the "Loan Agreement") between the Borrower, the banks signatory to the Loan
Agreement (the "Banks") and NatWest Bank N.A. as Pre-Funding Lender and as
agent for the ratable benefit of the Banks (in such capacity, the "Agent"), the
lesser of (i) the principal sum of EIGHT MILLION DOLLARS ($8,000,000), or (ii)
the aggregate unpaid principal amount of the Pre-Funding Loans. Capitalized
terms used but not defined in this Note shall have the meanings ascribed to
such terms in the Loan Agreement.
The Borrower shall pay interest on the unpaid principal amount
of each Pre-Funding Loan from the date of such Pre-Funding Loan until such
Pre-Funding Loan is be paid in full at the rates, on the dates and for the
periods set forth in or established by the Loan Agreement and calculated as
provided in the Loan Agreement. All indebtedness outstanding under this Note
shall bear interest after maturity, whether at stated maturity, by acceleration
or otherwise, at the Post-Default Rate (computed in the same manner as interest
on this Note prior to maturity) and all such interest shall be payable on
demand. Notwithstanding anything to the contrary in this Note, the obligation
of the Borrower to make payments of interest shall be subject to the limitation
that payments of interest shall not be required to be made to the Pre-Funding
Lender to the extent that the Pre-Funding Lender's receipt of such interest
would not be permissible under Applicable Laws limiting rates of interest that
may be charged or collected by the Pre-Funding Lender. Any such payments of
interest that are not made as a result of the limitation referred to in the
preceding sentence shall be made by the Borrower to the Pre-Funding Lender on
the earliest interest payment date or dates on which the receipt of such
interest would be permissible under Applicable Laws limiting
B-1
<PAGE> 118
rates of interest that may be charged or collected by the Pre-Funding Lender.
Payments of both principal and interest on this Note are to be
made at the office of the Pre-Funding Lender at 175 Water Street, New York, New
York 10038, or such other place as the holder of this Note shall designate to
the Borrower in writing, in lawful money of the United States of America in
immediately available funds.
This Note is the Pre-Funding Note referred to in the Loan
Agreement, is secured in the manner provided in the Loan Agreement, may be
prepaid on the terms and conditions set forth in the Loan Agreement and is
entitled to the benefits of the Loan Agreement.
The Pre-Funding Lender is authorized by the Borrower to record
on the schedule to this Note (or on a supplemental schedule) the amount of each
Pre-Funding Loan made by the Pre-Funding Lender to the Borrower and the amount
of each payment or prepayment of principal of such Pre-Funding Loan received by
the Pre-Funding Lender, although failure to make any such notation shall not
affect the rights of the Pre-Funding Lender or the obligations of the Borrower
under this Note. The Pre-Funding Lender may, at its option, record such
matters in its internal records rather than on such schedule.
Upon the occurrence of any Event of Default, the principal
amount of and accrued interest on this Note may be declared due and payable in
the manner and with the effect provided in the Loan Agreement.
The Borrower shall all pay costs and expenses of collection,
including attorneys' fees and disbursements, in the event that any action, suit
or proceeding is brought by the Pre-Funding Lender to collect this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO PROMISSORY NOTES ENTERED
INTO IN THE STATE OF NEW YORK BY RESIDENTS OF SUCH STATE AND TO BE PAID AND
PERFORMED ENTIRELY WITHIN SUCH STATE.
DVI FINANCIAL SERVICES INC.
By: _________________________
Name:
Title:
B-2
<PAGE> 119
SCHEDULE TO PRE-FUNDING NOTE
This Note evidences the principal amounts of the Pre-Funding
Loans made by the Pre-Funding Lender under the Loan Agreement on the dates set
forth below and the payments or prepayments of principal by the Borrower as set
forth below:
<TABLE>
<CAPTION>
Principal
Principal Amount of
Amount of Pre-Funding
Pre-Funding Loan Paid Balance
Date Made Loan Made or Prepaid Outstanding Initials
- --------- --------- ---------- ----------- --------
<S> <C> <C> <C> <C>
</TABLE>
B-3
<PAGE> 120
Exhibit C
to
First Amended and
Restated Loan Agreement
FORM OF BORROWING NOTICE
[Letterhead of Borrower]
NatWest Bank N.A.,
as Agent
175 Water Street
New York, New York 10038
DVI Financial Services Inc. (the "Borrower") refers to Section
2.3 of the First Amended and Restated Loan Agreement, dated June 14, 1991 and
amended and restated as of March __, 1995 (as amended or supplemented, the
"Loan Agreement") between the Borrower, the banks signatory to the Loan
Agreement and NatWest Bank N.A., as Pre-Funding Lender and Agent. Capitalized
terms used but not defined in this borrowing notice have the meanings ascribed
to such terms in the Loan Agreement.
FOR NOTICES OF BORROWING:
The Borrower requests that a [Prime Rate
Loan/Eurodollar Loan] in the amount of $_________ be made to the
account of the Borrower (Acct. No. ________ at ______________, ABA
number ____________) on ____________, 199_. [For Eurodollar Loans:
The Interest Period for such Eurodollar Loan shall be one/two/three
month(s).]
FOR NOTICES OF CONVERSION:
The Borrower requests to convert a [Prime Rate Loan
into a Eurodollar Loan/Eurodollar Loan into a Prime Rate Loan] in the
amount of $_________ on ___________, 199_. [For Conversion of a Prime
Rate Loan into a Eurodollar Loan: The Interest Period for such
Eurodollar Loan shall be one/two/three month(s).]
FOR NOTICES OF PREPAYMENT:
The Borrower requests to prepay a [Prime Rate
Loan/Eurodollar Loan] in the amount of $_________ on ___________,
199_.
FOR NOTICES OF TERMINATION/REDUCTION OF TOTAL COMMITMENT:
C-1
<PAGE> 121
The Borrower requests to [terminate/reduce] the Total
Commitment in the amount of $_________ on ___________, 199_.
The Borrower certifies that no Default or Event of Default has
occurred and is continuing. In addition, the Borrower certifies that after
giving effect to the Loans requested by this borrowing notice, the aggregate
outstanding principal amount of the Loans shall not exceed the Borrowing
Availability as measured by the most recent Borrowing Base Report delivered to
the Banks and the Agent or, if it does exceed such Borrowing Availability, the
Borrower has attached to this borrowing notice a new Borrowing Base Report or
additional Borrowing Base information and Supporting Documents evidencing an
increase in the Borrowing Availability from the most recent Borrowing Base
Report sufficient so that after giving effect to the Loans requested by this
borrowing notice the aggregate outstanding principal amount of Loans and
Pre-Funding Loans will not exceed the Borrowing Capacity as of such date.
Dated: _________, 199_
Very truly yours,
DVI FINANCIAL SERVICES INC.
By:_______________________________
Name:
Title:
C-2
<PAGE> 122
Exhibit D
to
First Amended and
Restated Loan Agreement
FORM OF BORROWING BASE REPORT
<TABLE>
<S> <C> <C>
A. CONTRACT RECEIVABLES
1. UNFUNDED ELIGIBLE FINANCE AND OPERATING LEASES
(a) Total PV of the Balance of Payments under Unfunded Eligible $__________
Finance and Operating Leases
(b) PV of Eligible Leases where advance formula is governed by $__________
value of lease stream
(c) 95% of (a) $__________
(d) PV of Eligible Leases where advance formula is governed by $__________
Equipment Cost
(e) Equipment Cost of Eligible Leases under (d) $__________
(f) Total of (c) and (e) $__________
(See additional limitations in the definition of "Eligible Contracts"
in Section 1.1 of the Loan Agreement regarding non-inclusion of
Restructured Leases until 1 year elapses)
2. UNFUNDED ELIGIBLE EQUIPMENT NOTE RECEIVABLES
(a) Total PV of Balance of Payments under Unfunded Eligible $__________
Equipment Notes
(b) PV of Contract Receivables where advance formula is $__________
governed by value of payment stream
(c) 95% of Item (a) $__________
</TABLE>
D-1
<PAGE> 123
<TABLE>
<S> <C> <C>
(d) PV of Equipment Notes where advance formula is governed by $__________
Equipment Cost
(e) Equipment Cost of Equipment Notes Leases under (d) $__________
(f) Total of (c) and (e) $__________
3. UNFUNDED ELIGIBLE CSA RECEIVABLES
(a) Total PV of Balance of Payments under Unfunded Eligible $__________
Equipment CSAs
(b) PV of CSA Receivables where advance formula is governed by $__________
value of lease stream
(c) 95% of Item (a) $__________
(d) PV of CSA Receivables where advance formula is governed by $__________
Equipment Cost
(e) Equipment Cost of Equipment CSA's under (d) $__________
(f) Total of (c) and (e) $__________
4. OBLIGOR CONCENTRATION LIMITS
(a) Maximum amount owed by any single Obligor (20% of Tangible $__________
Net Worth)
(b) List of Obligors Exceeding Concentration Limits
(1) [Name of Obligor] ineligible amount $__________
(2) [Name of Obligor] ineligible amount $__________
(3) [Name of Obligor] ineligible amount $__________
(c) Total ineligible amount in excess of (a) [sum of (b)] $__________
</TABLE>
D-2
<PAGE> 124
<TABLE>
<S> <C> <C>
B. UNFUNDED PROGRESS PAYMENTS
1. Aggregate Balance of Unfunded Progress Payments (see limitations in $__________
Section 1.2(a)(ii) of the Loan Agreement)
2. 95% of Item 1 $__________
C. INVENTORY AND PER PROCEDURE
ELIGIBLE EQUIPMENT WHETHER OR NOT SUBJECT, IDENTIFIED OR COMMITTED TO A
CONTRACT OR RENTAL AGREEMENT
1. Invoiced Cost of Eligible Equipment whether or not subject, $__________
identified or committed to a Contract or Rental Agreement
2. Accumulated Depreciation with respect to such Eligible Equipment $__________
3. Item 1 - Item 2 $__________
4. 70% of Item 3 $__________
5. Ineligible amount (if Item 4 is more than 10% of the Total $__________
Commitment, subtract 10% of the Total Commitment from Item 4)
D. RESTRUCTURED LEASES
1. Invoiced Cost of Eligible Equipment $__________
2. Accumulated Depreciation with respect to such Eligible Equipment $__________
3. Item 1 - Item 2 $__________
4. 75% of Item 3 $__________
(See limitations in definition of Eligible Six-Month Restructured Lease
in Section 1.1 of the Loan Agreement of current payments under
restructured terms prior to inclusion)
5. (a) Aggregate Balance of Payments under all Eligible Six-Month $__________
Restructured Leases
</TABLE>
D-3
<PAGE> 125
<TABLE>
<S> <C> <C>
E. HEALTHCARE RECEIVABLES
1. Total amount of Healthcare Receivables owned by DBC or in which DBC $__________
has a security interest
2. Total of Item 1 that are ineligible $__________
3. Total of Item 1 that are Eligible Healthcare Receivables $__________
4. Eligible Healthcare Receivables included in the Borrowing Base $__________
5. DBC Financed Amount of Item 4 $__________
6. 85% of Item 5 (if greater than $7,000,000, enter $7,000,000) $__________
F. BORROWING BASE TOTAL (see Section 1.2(b) of the Loan Agreement for
overall limitations)
1. Item A.l(f) plus A.2(f) plus A.3(f), MINUS A.4(c) $__________
2. Item B.2 $__________
3. Item C.4 minus, if applicable, C.5 $__________
4. Item D.4 $__________
5. Item E.6 $__________
6. Sum of Items 1 through 5 $__________
7. Excludable Liabilities (estimated):
(a) Accrued Taxes $________
(b) Account Payables $________
(c) Contingent Liabilities $________
(d) Recourse Liabilities $________
TOTAL $__________
8. Unrestricted cash minus $500,000 (if less than $0, enter $0) $__________
9. Item 7 minus Item 8 (if less than $0, enter $0) $__________
10. Borrowing Base Total (Item 6 - Item 9) $__________
G. BORROWING CAPACITY
1. Borrowing Base Total $__________
</TABLE>
D-4
<PAGE> 126
<TABLE>
<S> <C> <C>
2. Total Commitment $__________
3. Borrowing Capacity (lesser of Item 1 or Item 2) $__________
H. BORROWING AVAILABILITY
1. Borrowing Capacity $__________
2. Outstanding Principal Balance of Loans $__________
3. Item 1 - Item 2 (IF THIS IS A NEGATIVE NUMBER, BORROWER MUST $__________
PREPAY)
</TABLE>
The Borrower represents and warrants that the foregoing
information is accurate and complete as of the date first above written.
The Borrower has caused this Borrowing Base Report to be
executed and delivered by its chief financial officer, chief accounting
officer, chief credit officer or other duly authorized officer on ____________,
199_.
DVI FINANCIAL SERVICES INC.
By:__________________________
Name:
Title:
D-5
<PAGE> 127
Schedule of Supporting Documents
Requested by the Agent
___ A list of all motor vehicles included in the Borrowing Base, and
copies of all motor vehicle certificates of title evidencing the
registration of the Agent's Lien
___ A schedule of all Contracts included in the Borrowing Base, including
name, lease number and address of Obligor, start and end dates of
Contracts and monthly rental and equipment cost under Contracts
___ Aging Reports and a schedule of total delinquencies for all
receivables included in the Borrowing Base and for the Borrower as a
whole
___ A list of Progress Payments including date included in Borrowing Base
___ Other documents requested by the Agent:
___ []
___ []
___ []
D-6
<PAGE> 128
Borrowing Base Report
Compliance Certificate
This Compliance Certificate is given in connection with the
Borrowing Base Report, dated this date, delivered by DVI Financial Services
Inc. (the "Borrower") pursuant to the First Amended and Restated Loan
Agreement, dated as of March __, 1995 (as amended, modified or supplemented
from time to time, the "Loan Agreement"), between the Borrower, the Banks
signatory to the Loan Agreement and NatWest Bank N.A. as Agent, Pre-Funding
Lender and a Bank. Capitalized terms used and not defined in this Compliance
Certificate have the meanings ascribed to such terms in the Loan Agreement.
I certify as follows:
1. I am the [chief financial officer] [chief accounting
officer] [chief credit officer] of the Borrower.
2. The Borrower has complied and is in compliance with
all of the terms, covenants and conditions of the Loan Agreement and the other
Loan Documents.
3. No Default or Event of Default has occurred since the
last Compliance Certificate given under the Loan Agreement.
4. The representations and warranties contained in
Article 3 of the Loan Agreement are true as of this date except for changes
which have been made in the ordinary course of business, not material and not
prohibited by the Loan Agreement.
IN WITNESS WHEREOF, I have caused this Compliance Certificate
to be duly executed and delivered on ____________, 199_.
______________________________
Certifying Officer
D-7
<PAGE> 129
Exhibit E
to
First Amended and
Restated Loan Agreement
FORM OF ASSIGNMENT AND ACCEPTANCE
This ASSIGNMENT AND ACCEPTANCE, dated __________, 199_ (this
"Assignment"), is between [Name of Assigning Bank] (the "Assignor") and
[Name of Assignee Bank] (the "Assignee") and refers to the First Amended and
Restated Loan Agreement, dated June 14, 1991 and amended and restated as of
March __, 1995 (as amended or supplemented, the "Loan Agreement"), between DVI
Financial Services Inc. (the "Borrower"), the Assignor and the other banks
signatory to the Loan Agreement (collectively, the "Banks") and NatWest Bank
N.A., as Pre-Funding Lender and as agent for the Banks (in such capacity, the
"Agent"). Capitalized terms used but not defined in this Assignment shall have
the meanings ascribed to such terms in the Loan Agreement.
For good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the Assignor and the Assignee agree as
follows:
1. The Assignor hereby sells and assigns to the
Assignee, and the Assignee hereby purchases and assumes from the Assignor, all
of the Assignor's rights and obligations in respect of _______________________
Dollars ($_________) of the Assignor's Commitment [and the Pre-Funding
Commitment](1) as of the date of this Assignment, including the Assignor's
share of the Loans [and the Pre-Funding Loans](1) in such amount owing to the
Assignor on the date of this Assignment. After this Assignment has been
executed by Assignor and Assignee, this Assignment shall become effective at
the time (the "Effective Time") the Assignor receives an amount in immediately
available funds equal to the principal amount of the Loans [and the Pre-Funding
Loans](1) assigned to the Assignee under this Assignment.
2. The Assignor (a) represents and warrants that as of
the date of this Assignment and immediately before the Effective Time its
Commitment is and will be __________________ Dollars ($__________) and the
aggregate outstanding principal amount of Loans [and Pre-Funding Loans](1) owing
to it on the date of this Assignment (without giving effect to assignments that
have not yet become effective) is ______________________ Dollars ($__________);
(b) represents and warrants that it is the legal and beneficial
____________________
(1) To be inserted if the Pre-Funding Lender is assigning any portion of the
Pre-Funding Commitment and Pre-Funding Loans.
E-1
<PAGE> 130
owner of the interest being assigned by it under this Assignment, and that such
interest is free and clear of any adverse claim; (c) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan Agreement,
the other Loan Documents or any other instrument or document furnished pursuant
to the Loan Documents; (d) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or any
Affiliate or the performance or observance by the Borrower or any other Person
of any of their respective obligations under the Loan Agreement, the other Loan
Documents or any other instrument or document furnished pursuant to the Loan
Documents; and (e) shall deliver to the Agent promptly and as soon as
practicable the Note [and the Pre-Funding Note](2) representing the Assignor's
Commitment [and Pre-Funding Commitment](2) and request that the Agent arrange
for the Borrower to issue a new Note, dated the date of this Assignment, in the
principal amount of the Assignor's Commitment assigned by this Assignment (or
such greater amount as shall reflect the amount of the Commitments to be held
or acquired by the Assignee), payable to the order of the Assignee [and a new
Pre-Funding Note, dated the date of this Assignment, in the principal amount of
the Pre-Funding Commitment assigned by this Assignment](2).
3. The Assignee hereby (a) confirms that it has received
a copy of the Loan Agreement and the other Loan Documents, together with copies
of the most recent Financial Statements and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and the Loan Agreement; (b) agrees that
it will, independently and without reliance upon the Agent or the Banks and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Loan Agreement; (c) appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under the Loan
Agreement and the other Loan Documents as are delegated to the Agent by the
terms of the Loan Documents, together with such powers as are reasonably
incidental to such delegated powers; and (d) agrees that it will perform in
accordance with its terms all of the obligations which by the terms of the Loan
Agreement are required to be performed by it as a Bank.
4. Following the execution of this Assignment, it will
be delivered to the Agent for acceptance by the Agent. Upon the later of such
acceptance or the Effective Time, (a) the Assignee shall be a party to the Loan
Agreement and, to the extent provided in this Assignment, have the rights and
obligations of a Bank [and the Pre-Funding Lender](2) under the Loan Agreement,
and (b) the Assignor shall, to the extent provided in this Assignment,
____________________
(2) To be inserted if the Pre-Funding Lender is assigning any portion of the
Pre-Funding Commitment and Pre-Funding Loans.
E-2
<PAGE> 131
relinquish its rights and be released from its obligations under the Loan
Agreement.
5. Upon the later of acceptance by the Agent or the
Effective Time, the Agent shall make all payments under the Loan Agreement and
the Notes [and the Pre-Funding Note](2) in respect of the interest assigned by
this Assignment to the Assignee, including all payments of principal, interest
and commitment fees with respect to such assigned interest. Assignor and
Assignee shall make all appropriate adjustments in payments under the Loan
Agreement and the Notes [and the Pre-Funding Note](2) for periods prior to the
Effective Time directly between themselves.
6. This Assignment shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed in the State of New York by residents of such State. This
Assignment may be signed in any number of counterparts, all of which, when
taken together, shall constitute one and the same document.
IN WITNESS WHEREOF, the Assignor and the Assignee have duly
signed this Assignment and Acceptance on the date set forth above.
[NAME OF ASSIGNING BANK], [NAME OF ASSIGNEE BANK],
as Assignor as Assignee
By:__________________________ By:__________________________
Name: Name:
Title: Title:
Accepted this ____ day of _________, 199_.
NATWEST BANK N.A.,
as Agent
By:__________________________
Name:
Title:
E-3
<PAGE> 1
Exhibit 10.17
*****************************************************************
***
AMENDED AND RESTATED INTERIM LOAN AND SECURITY AGREEMENT
DATED AS OF SEPTEMBER 13, 1994
BETWEEN
PRUDENTIAL SECURITIES REALTY FUNDING CORPORATION
AND
DVI FINANCIAL SERVICES, INC.
*****************************************************************
***
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
RECITALS ........................................................................................ 1
</TABLE>
<TABLE>
<S> <C> <C>
Section 1: The Loan ..................................................................... 1
Section 2: Terms and Conditions for All
Advances.............................................................. 4
Section 3: Purpose of Advance.............................................................. 7
Section 4: Secured Obligations............................................................. 7
Section 5: Representations and Warranties.................................................. 8
Section 6: Rights of Lender; Limitations on
Lender's Obligations.................................................. 14
Section 7: Covenants ...................................................................... 15
(a) Further Documentation........................................ 15
(b) Limitation on Liens on
Collateral................................................... 15
(c) Limitations on Modifications,
Waivers and Extensions of
Contracts.................................................... 15
(d) Further Identification of
Collateral................................................... 15
(e) Limitation on Collection
Account...................................................... 16
(f) Notices...................................................... 16
(g) Changes in Locations,
Name, etc.................................................... 16
Section 8: Repayment of Advances if
Contract is Found Defective........................................... 16
Section 9: Release of Contract Files Following
Payment of Secured Obligations........................................ 16
Section 10: Servicing ...................................................................... 17
Section 11: No Oral Modifications; Successors
and Assigns........................................................... 17
Section 12: Monthly Report.................................................................. 17
Section 13: Events of Default............................................................... 17
Section 14: Remedies Upon Default........................................................... 19
Section 15: Indemnification and Expenses.................................................... 20
Section 16: Power of Attorney............................................................... 21
Section 17: No Duty on Lender's Part........................................................ 21
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 18: Limitation on Duties Regarding
Presentation of Collateral.............................................. 21
Section 19: Powers Coupled with an Interest.............................................. 22
Section 20: Severability................................................................. 22
Section 21: Notices ................................................................... 22
Section 22: Certain Definitions.......................................................... 23
Section 23: Paragraph Headings........................................................... 24
Section 24: No Waiver; Cumulative Remedies............................................... 24
Section 25: Assignment................................................................... 24
Section 26: Counterparts................................................................. 25
Section 27: Hypothecation or Pledge of
Collateral.............................................................. 25
Section 28: Integration of Terms......................................................... 25
Section 29: Agreement Constitutes Security
Agreement; Governing Law................................................ 25
</TABLE>
<TABLE>
<S> <C> <C>
EXHIBITS:
Exhibit A: Contract Schedule.............................................................. A-1
Exhibit B-1: Notice of Extension of Agreement............................................... B-1
Exhibit B-2: Amended and Restated Secured Note Endorsement (Extension of Termination Date).. B-3
Exhibit B-3: Opinion of Borrower's Counsel ................................................. B-4
(Extension of Termination Date)
Exhibit C: [Intentionally Omitted]........................................................ C-1
Exhibit D: Notice of Borrowing............................................................ D-1
Exhibit E: Notice of Extension of Maturity................................................ E-1
Date of Advance
Exhibit F: Amended and Restated Secured Note Endorsement
(Extension of Maturity Date of Advance)....................................... F-1
Exhibit G: Amended and Restated Secured Note.............................................. G-1
Exhibit H: Amended and Restated Guarantee of DVI INC...................................... H-1
SCHEDULES:
Schedule 1: Recordings and Filings......................................................... S-1
</TABLE>
-ii-
<PAGE> 4
AMENDED AND RESTATED INTERIM LOAN AND SECURITY AGREEMENT
AMENDED AND RESTATED INTERIM LOAN AND SECURITY AGREEMENT, dated as of September
13, 1994 (as amended or otherwise modified from time to time, the "Agreement"),
between (i) PRUDENTIAL SECURITIES REALTY FUNDING CORPORATION, a Delaware
corporation (the "Lender"), and (ii) DVI FINANCIAL SERVICES, INC., a Delaware
corporation (the "Borrower"). RECITALS WHEREAS, the Lender and the Borrower are
parties to an Interim Loan and Security Agreement, dated as of March 16, 1994,
(the "Existing Agreement") and the Borrower and the Lender desire to amend and
restate the Existing Agreement in its entirety as set forth herein; WHEREAS,
Prudential Securities Incorporated has agreed to act as underwriter of a public
offering of equipment lease asset-backed securities (the "Certificates") to be
issued by a trust (the "Trust") to be sponsored by the Borrower, which may have
the benefit of credit enhancement issued by a credit enhancer (the "Credit
Enhancer"); WHEREAS, the Borrower wishes to obtain interim financing to provide
interim funding for certain leases (the "Contracts") of equipment ("Equipment"),
which Contracts are to be contributed to the Trust by the Borrower, and which
Contracts and some of which Equipment shall secure the Advances (as defined
herein) to be made by the Lender hereunder; WHEREAS, the Lender has agreed,
subject to the terms and conditions of this Agreement, to provide such interim
funding, with a portion of the proceeds of the Certificates to be used to repay
any Advances made hereunder; NOW, THEREFORE, the parties to this Agreement agree
that the Existing Agreement is hereby amended and restated in its entirety as
provided in the heading and recitals hereto and as follows (an index of certain
capitalized, defined terms appears in Section 22 of this Agreement). Section 1.
The Loan. Subject to the terms of this Agreement, the Lender agrees to lend to
the Borrower from time to time an aggregate principal amount not to exceed
$75,000,000 at any one time outstanding to be made in one or more advances
(each, an "Advance" and, collectively, "Advances"). Each Advance shall be made
on a date prior to the Maturity Date (as defined herein) (each such date on
which an Advance is made, a "Funding Date"); provided that the following
conditions precedent have been satisfied:
(a) the representations and warranties of the Borrower in
Section 5 hereof shall be true and correct on and as of such Funding
Date as if made on and as of such date;
<PAGE> 5
(b) no Default or Event of Default shall have occurred and be
continuing or would exist after the making of the Advance on such
Funding Date;
(c) if requested by the Lender, the Lender shall have
conducted a due diligence review of contract files relating to the
Contracts being pledged in connection with the Advance being made on
such Funding Date, the results of which shall have been satisfactory to
the Lender;
(d) in connection with the first Advance, the Lender shall
have received (i) a legal opinion from counsel to the Borrower, in form
and substance satisfactory to the Lender, (ii) the Amended and Restated
Secured Note (as defined herein), duly executed and delivered by the
Borrower, (iii) an Amended and Restated Guarantee of DVI Inc.,
substantially in the form of Exhibit H attached hereto (as amended,
supplemented or otherwise modified from time to time, the "Amended and
Restated Guarantee"), duly executed and delivered by DVI Inc., and (iv)
a Custodial Agreement among Bankers Trust Company of California, N.A.,
as Custodian (the "Custodian"), the Borrower and the Lender, duly
executed and delivered by the parties thereto, in form and substance
satisfactory to the Lender (the "Custodial Agreement");
(e) all documents (including, without limitation, financing
statements) required to be filed, registered or recorded with respect
to the Collateral in order to grant or perfect the security interests
therein hereunder, shall have been properly filed, registered or
recorded in each office in each jurisdiction required in order to
create in favor of the Lender a first perfected security interest in
the Collateral, and with respect to each FMV Contract, a financing
statement on Form UCC-1 naming the Borrower as debtor and the Lender as
secured party and describing the Equipment that is the subject of such
FMV Contract and proceeds thereof as the collateral shall have been
filed in each office in each jurisdiction required in order to create
in favor of the Lender a first perfected security interest in such
Equipment if the Borrower were the owner of such Equipment; the Lender
shall have received acknowledgment copies of all such filings,
registrations and recordations stamped by the appropriate filing,
registration or recording officer (or, in lieu thereof, other evidence
satisfactory to the Lender that all such filings, registrations and
recordations have been made); and the Lender shall have received
evidence that all necessary filing, subscription and inscription fees
and all recording and other similar fees, and all taxes and other
expenses related to such filings, registrations and recordations have
been paid in full;
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(f) the Borrower shall have delivered to the Lender a Contract
Schedule (or amended the existing Contract Schedule, as the case may
be) and all other documents that it is required to deliver under this
Agreement, with respect to the Contracts being pledged on such Funding
Date. "Contract Schedule" means a schedule of Contracts to be attached
hereto as Exhibit A, setting forth the following information as to each
Contract pledged to the Lender hereunder: (i) the Contract identifying
number; (ii) the user's name; (iii) the street address where the
Equipment is in use including the zip code; (iv) the description of the
Equipment; (v) the original number of months to maturity and the number
of months remaining to maturity from the date of such Contract
Schedule; (vi) the Contract yield; (vii) the amount of the current
monthly payment; (viii) the amount of the purchase option payment, if
any; (ix) the original amount funded under the Contract; (x) the
principal balance of the Contract as of the close of business on the
date of such Contract Schedule; and (xi) whether the user has the
option to purchase the Equipment at its then fair market value or at a
purchase price other than a nominal purchase price as determined by the
Lender (any such contract, an "FMV Contract"), the Borrower to indicate
whether it believes that a Contract is an FMV Contract;
(g) the Lender shall have received a certification from the
Custodian under the Custodial Agreement, the Lender and the Custodian,
in form and substance satisfactory to the Lender, with respect to the
Contracts being pledged in connection with the Advance being made on
such Funding Date;
(h) one or more releases, and such other instruments as shall
be requested by the Lender, in each case in form and substance
satisfactory to the Lender, from any lender or other person or entity
having a lien on or security interest in the Contracts or Equipment to
be financed with the proceeds of the Advance being made on such Funding
Date, which releases and other instruments shall release all liens or
security interests in favor of such lender or other person or entity
and terminate any filings of record with respect to the specific
Contracts or Equipment to be financed with the proceeds of the Advance
being made on such Funding Date;
(i) after the making of such Advance, the outstanding
principal amount of the aggregate of all Advances will not exceed the
lesser of (x) 90% of the present value of the then remaining payments
under the Contracts pledged to the Lender hereunder, discounted at a
discount rate of the Prime Rate plus 1% (the "Prime Rate" being the
prime or base rate of interest charged by Morgan Guaranty Trust Company
of New York or such other New York money center bank as may be
designated by the Lender from time to time) as determined by
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<PAGE> 7
the Lender and notified to the Borrower on the third business day of
each week (or, in the sole discretion of the Lender following notice to
the Borrower, on any business day), and (y) if the Lender elects in its
sole discretion to make a determination of the market value of the
Contracts held as Collateral, 90% of the aggregate market value of the
Contracts so held as Collateral, as such market value is determined by
the Lender on any reasonable basis; and
(j) any general conditions for the making of Advances,
specified in Section 2 hereof, have been satisfied and will continue to
be satisfied if such Advance is made.
Section 2. Terms and Conditions for All Advances.
(a) Each outstanding Advance shall mature on the related Maturity Date, and the
obligation of the Lender to make any Advances hereunder shall terminate, on
November 30, 1994 (the "Termination Date"); provided that the Termination Date
may be extended from time to time, in the sole and absolute discretion of the
Lender, upon (i) the execution and delivery by the parties hereto of (A) a
Notice of Extension of Agreement substantially in the form of Exhibit B-1
annexed hereto and (B) an Endorsement to the Amended and Restated Secured Note,
substantially in the form of Exhibit B-2 annexed hereto, and (ii) the delivery
of an opinion of counsel to the Borrower substantially in the form of Exhibit
B-3 annexed hereto.
(b) (i) If the Borrower wishes to receive an Advance in
respect of Contracts, then the Borrower shall give the Lender written notice by
no later than 11:00 a.m. one business day prior to a Funding Date of the amount
and type of such Advance to be advanced on such Funding Date by delivering to
the Lender Notice of Borrowing substantially in the form of Exhibit D attached
hereto.
(ii) Each Advance shall bear interest from the related Funding Date to
but excluding the Maturity Date at a rate per annum equal to LIBOR plus 0.90%
and thereafter as provided in Subsection 2(e). "LIBOR" shall mean the rate
appearing at page 3750 of the Telerate Screen as one month LIBOR and, if such
rate shall not be so quoted, the rate per annum at which deposits in U.S.
dollars for a period of one month are offered by Morgan Guaranty Trust Company
of New York (or such other prime bank in the London interbank market as the
Lender shall designate) to prime banks in the London interbank market at
approximately 11:00 a.m. (London Time) on the related Funding Date.
(c) Each outstanding Advance shall mature on the related maturity date specified
for such Advance as set forth in the related Notice of Borrowing (the "Maturity
Date"); provided that the Maturity Date shall, for any Advance, be no later than
the earlier of (i) subject to the second succeeding proviso hereto, December 31,
1994 or (ii) the date upon which the Certificates related to the Contracts
funded by such Advance shall be sold to the public; provided, further, that the
Lender shall have the option, in its sole discretion, to extend the Maturity
Date of an
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<PAGE> 8
Advance from time to time for a period of up to thirty (30) days by delivering
to the Borrower notice of such election in the form of Exhibit E attached hereto
no later than thirty (30) days preceding the then scheduled Maturity Date of
such Advance; and provided, further, that if the Lender chooses to extend the
Maturity Date of an Advance and such Maturity Date is a date later than the
Termination Date of this Agreement, then the Borrower shall deliver to the
Lender an endorsement in the form of Exhibit F attached hereto. If no such
notice or endorsement, as applicable, is delivered by the Lender, such Advance
shall automatically become due and payable without any further action by the
Lender on its respective Maturity Date, and in such event the Lender may
exercise all rights and remedies available to it as the holder of a first
perfected security interest under the Uniform Commercial Code as in effect in
the State of New York (the "NY UCC"). The extension of the Maturity Date of any
Advance beyond the Termination Date of this Agreement shall not be deemed to be
an extension or renewal, beyond such Termination Date, of the Lender's
obligations to lend to the Borrower under this Agreement, and the Borrower's
obligations in respect of an Advance so extended shall survive the termination
of this Agreement.
(d) The Advances are prepayable at any time without premium or penalty, in whole
or in part. Any amounts prepaid shall be applied to repay the outstanding
principal amount of any Advances (together with interest thereon) until paid in
full. Amounts repaid may be borrowed in accordance with the terms of this
Agreement. If the Borrower intends to repay an Advance in whole or in
substantial part from a source other than the proceeds of Certificates, the
Borrower shall give two (2) business days' prior notice thereof to the Lender.
(e) If the Advances are not repaid in whole on the date when due, the Advances
shall, commencing on such due date, bear interest at a rate per annum equal to
the weighted average yield of the Contracts until repaid.
(f) Interest calculated on the basis of LIBOR shall be calculated on the basis
of a 360-day year and paid for the actual number of days elapsed. With respect
to each Advance, LIBOR shall be determined initially as of the Funding Date to
but excluding the tenth day of the next succeeding month following the related
Funding Date (such tenth day and each succeeding tenth day, an "Interest Payment
Date") and shall thereafter be determined as of each Interest Payment Date to
but excluding the following Interest Payment Date.
(g) Interest on each Advance is payable on each Interest Payment Date and on the
Maturity Date for such Advance. In the event that an Advance is not repaid in
full on the date when due, interest shall be payable thereafter on demand.
(h) The Advances shall be evidenced collectively by the secured promissory note
of the Borrower in the form attached hereto as Exhibit G (the "Amended and
Restated Secured Note"). The Lender is authorized to record the date and amount
of each Advance and the date and amount of each repayment of principal thereof
on the
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<PAGE> 9
schedule annexed to the Amended and Restated Secured Note, and any such
recordation shall be conclusive evidence of the accuracy of the amounts so
recorded (absent manifest error); provided that the failure of the Lender to
make such recordation (or any error in such recordation) shall not affect the
rights and obligations of the Borrower hereunder or under the Amended and
Restated Secured Note.
(i) Each Advance shall be repaid in full on the Maturity Date, and the Lender
shall release its security interest in and to the Contracts when all Advances
are so repaid.
(j) The Advances shall be repaid in full on the date of issuance of the
Certificates.
(k) If at any time the outstanding principal amount of the Advances exceeds the
lesser of (i) 90% of the present value of the then remaining payments under the
Contracts listed on the Contract Schedule and pledged to the Lender hereunder,
discounted at a discount rate of the Prime Rate plus 1%, as determined by the
Lender and notified to the Borrower on the third business day of each week (or,
in the sole discretion of the Lender following notice to the Borrower, on any
business day), or (ii) if the Lender elects in its sole discretion to make a
determination of the market value of the Contracts pledged to the Lender
hereunder on any business day, 90% of the aggregate market value of the
Contracts so pledged, as such market value is determined by the Lender on any
reasonable basis, the Borrower shall no later than one business day after
receipt of notice of such excess, either prepay such Advances (together with
interest thereon) in part or in whole or pledge additional Collateral (as
defined herein) to the Lender, or both, such that, after giving effect to such
prepayment or pledge, or both, (A) in the case of a prepayment or pledge
resulting from a determination made in respect of the preceding clause (i) the
aggregate unpaid principal amount of such Advances does not exceed 90% of the
present value of the then remaining payments under such Contracts pledged to the
Lender discounted at a discount rate of the Prime Rate plus 1% as determined by
the Lender and notified to the Borrower on the third business day of each week
(or, in the sole discretion of the Lender following notice to the Borrower, on
any business day) and (B) in the case of a prepayment or pledge resulting from a
determination made in respect of the preceding clause (ii), the aggregate unpaid
principal amount of such Advances does not exceed 90% of the aggregate market
value of the Contracts pledged to the Lender hereunder, as such market value is
determined by the Lender on any reasonable basis.
(l) Notwithstanding anything to the contrary in this Agreement, (i) if the
Lender is unable, after good faith effort, to obtain a source of funds for the
proposed Advance on substantially the same economic terms as are available to
the Lender as of the date of this Agreement, and as a result the cost to the
Lender of making such Advance is increased by an amount which the Lender deems
material, the Lender shall not be obligated to make such Advance unless the
Borrower agrees to pay the Lender any additional amounts necessary to compensate
the Lender for such
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<PAGE> 10
increased cost, as notified by the Lender to the Borrower, and (ii) the Lender
shall have no obligation to make any Advance hereunder if there shall have
occurred any material adverse change in (A) the financial condition of the
Lender, (B) the financial markets generally or (C) the secondary market for
Contracts. The Lender shall promptly notify the Borrower of any determination by
the Lender of any of the foregoing.
Section 3. Purpose of Advance. Each Advance shall be used to finance the
Contracts identified to the Lender in writing on the Contract Schedule, as such
Contract Schedule may be amended from time to time.
Section 4. Secured Obligations. The documents and instruments evidencing and
relating to the Contracts (the "Contract Documents"), all rights of the Borrower
thereunder (including, without limitation, all rights of the Borrower thereunder
in and to the Equipment and other interests that are the subject of the
Contract), all of the Borrower's right, title and interest in and to the
Equipment that is the subject of the Contracts, all books and records
(including, without limitation, computer records, tapes and other computer
storage media) relating to any of the foregoing, and any proceeds of any of the
foregoing (collectively, the "Collateral") are collateral securing the Secured
Obligations (as defined herein) to the Lender. The Borrower hereby pledges and
grants a security interest in all of its respective right, title and interest in
and to the Collateral to the Lender to secure the repayment of principal of, and
interest on, the Advances and all other amounts owing to the Lender hereunder
(collectively, the "Secured Obligations"). The Borrower agrees to mark its
computer records and tapes to evidence the security interests granted to Lender
hereunder.
Section 5. Representations and Warranties. (a) The Borrower represents and
warrants to the Lender that:
(i) It has been duly organized and is validly existing
as a corporation in good standing under the laws of the State of
Delaware;
(ii) It is duly licensed as a licensee or is otherwise
qualified in each state in which it transacts business and is not in
violation of any such state's applicable laws, rules and regulations.
It has the requisite corporate power and authority and legal right to
own and grant a lien on all of its right, title and interest in and to
the Collateral, and to execute and deliver, engage in the transactions
contemplated by, and perform and observe the terms and conditions of,
this Agreement and the Amended and Restated Secured Note;
(iii) At all times after a Contract has been listed on
the Contract Schedule and until payment in full of the principal of,
and interest on, the Advances, the Borrower will not commit any act in
violation of applicable laws, or regulations promulgated pursuant
thereto;
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<PAGE> 11
(iv) It is solvent and is not in default under any
mortgage, borrowing agreement or other instrument or agreement
pertaining to indebtedness for borrowed money, and the execution,
delivery and performance by it of this Agreement and the Amended and
Restated Secured Note do not conflict with any term or provision of (A)
its certificate of incorporation or by-laws or (B) any law, rule,
regulation, order, judgment, writ, injunction or decree applicable to
any of them of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it or its assets and will
not result in any violation of any such mortgage, instrument or
agreement;
(v) All financial statements or certificates of the
Borrower or any of its officers furnished to the Lender are true and
complete and do not omit to disclose any material liabilities or other
facts relevant to the Borrower's condition. All such financial
statements have been prepared in accordance with Generally Accepted
Accounting Principals. No financial statement or other financial
information as of a date later than March 31, 1994 has been furnished
by the Borrower to any lender that has not been furnished to the
Lender;
(vi) Except as previously obtained and presently in
full force and effect, no consent, approval, authorization or order of,
registration or filing with, or notice to any governmental authority or
court is required under applicable law in connection with the
execution, delivery and performance by it of this Agreement and the
Amended and Restated Secured Note where the failure to obtain any of
the foregoing would materially and adversely affect the business,
operations, property or financial condition of the Borrower, the
ability of the Borrower to perform its obligations under this Agreement
or the Amended and Restated Secured Note, or the validity or
enforceability of this Agreement or the Amended and Restated Secured
Note;
(vii) There is no action, preceding or investigation
pending or, to the best of its knowledge, threatened against it before
any court, administrative agency or other tribunal (A) asserting the
invalidity of this Agreement or the Amended and Restated Secured Note,
(B) seeking to prevent the consummation of any of the transactions
contemplated by this Agreement or the Amended and Restated Secured
Note, or (C) which might materially and adversely affect the validity
of the Contracts or the performance by the Borrower of its obligations
under, or the validity or enforceability of, this Agreement or the
Amended and Restated Secured Note;
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<PAGE> 12
(viii) There has been no material adverse change in the
business, operations, financial condition, properties or prospects of
the Borrower since March 31, 1994;
(ix) This Agreement, the Amended and Restated Secured
Note and the Custodial Agreement have each been duly authorized,
executed and delivered by the Borrower, all requisite corporate action
having been taken in respect of same, and each is legal, valid, binding
and enforceable against the Borrower in accordance with its terms;
(x) The Borrower's principal place of business and
chief executive office is at One Park Plaza, Suite 800, Irvine, CA;
(xi) Immediately prior to each date on which a Contract
is listed on the Contract Schedule and pledged to the Lender hereunder,
the Borrower or its agent will have possession of each original
Contract included or to be included on the Contract Schedule, and there
are and there will be no custodial agreements in effect adversely
affecting the rights of the Lender to make, or cause to be made, any
delivery required hereunder;
(xii) The transfer, assignment and conveyance of the
Contracts and the Contract Documents by the Borrower pursuant to this
Agreement is not subject to the bulk transfer or any similar statutory
provisions in effect in any applicable jurisdiction;
(xiii) The Contracts were originated by the Borrower, and
the origination and collection practices used by the Borrower with
respect to each Contract have been in all respects legal, proper,
prudent and customary in the Equipment financing and servicing
business;
(xiv) The Borrower used no selection procedures that
identified the Contracts as being less desirable or valuable than other
comparable equipment leases, security agreements or installment sales
contracts owned by the Borrower;
(xv) The security interests granted pursuant to this
Agreement constitute fully-perfected first priority security interests
in the Collateral in favor of the Lender. All filings and recordings of
documents or instruments required to be made in respect of this
Agreement in connection with the perfection of the security interests
created hereby are listed on Schedule 1 hereto and have been made; and
(xvi) All of the Contracts other than FMV Contracts are
financing leases and not true leases, the Borrower does
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<PAGE> 13
not own the Equipment that is the subject of the Contracts other than
FMV Contracts, and the Borrower has a perfected first priority security
interest in the Equipment that is subject to Contracts other than FMV
Contracts.
(b) With respect to every Contract delivered or to be delivered to the Lender,
the Borrower represents and warrants to the Lender that:
(i) Such Contract and all accompanying documents are
complete and authentic and all signatures thereon are genuine;
(ii) Such Contract arose from a bona fide lease, complying
with all applicable State and Federal laws and regulations, to persons
having the legal capacity to contract and is not subject to any
defense, set-off or counterclaim;
(iii) All amounts represented to be payable on such
Contract are, in fact, payable in accordance with the provisions of
such Contract;
(iv) To the best of the Borrower's knowledge, any property
subject to any security interest given in connection with such Contract
is not subject to any encumbrance, except for liens released
simultaneously with the grant of a security interest in favor of the
Lender hereunder in such Contract;
(v) The Borrower held good and indefeasible title to, and
was the sole owner of, the Collateral, and such Collateral is not
subject to any liens, charges, mortgages, participations, encumbrances,
rights of others, or other liens released simultaneously with the
Borrower's pledge of Collateral made herein;
(vi) Each Contract conforms to the description thereof as
set forth on the attached Exhibit A, and each Contract is a financing
lease and not a true or operating lease;
(vii) No Contract, if any, repurchased by the Borrower from
another lender was repurchased because such Contract was in default to
such other lender;
(viii) The information in respect of the Contract set forth
in the related Contract Schedule is true and correct;
(ix) (A) The Contract contains provisions requiring the
user to assume all risk of loss or malfunction of the related Equipment
and to maintain appropriate liability insurance with respect thereto,
and making the user absolutely and unconditionally liable for all
payments
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<PAGE> 14
required to be made thereunder, without any right of set-off for any
reason whatsoever, subject only to the user's right of quiet enjoyment,
(B) the Contract may not be terminated or prepaid unless the amount
required to be paid by or on behalf of a user in respect of such
prepayment is at all times equal to or in excess of the principal
balance and accrued interest at the Contract yield, (C) the Contract
does not provide for the substitution, exchange or addition of any
other items of Equipment pursuant to such Contract which would result
in any reduction or extension of payments due under the Contract and
(D) the rights with respect to such Contract are assignable by the
Borrower without the consent of any person;
(x) To the best of the Borrower's knowledge after due
inquiry, all requirements of applicable federal, state and local laws,
and regulations thereunder, including, without limitation, usury laws,
if any, in respect of the Contract have been complied with in all
material respects;
(xi) To the best of the Borrower's knowledge after due
inquiry, the Contract represents the legal, valid and binding payment
obligation of the user, enforceable in accordance with its terms,
subject to bankruptcy, insolvency and other laws (including, but not
limited to principles of equity) affecting the rights of creditors;
(xii) No instrument of release or waiver has been executed
in connection with the Contract, and no borrower in respect of such
Contract has been released from its obligations thereunder, in whole or
in part;
(xiii) Except as otherwise reflected in the Contract
Schedule, the Contract has not been amended after the date on which
such Contract is listed on the Contract Schedule and pledged to the
Lender hereunder in any material respect or such that the amount of any
monthly payment or the total number of the monthly payments is
increased or such that the amount of any monthly payment or the total
number of monthly payments is decreased;
(xiv) The Contract is not subject to any right of
rescission, set-off, counterclaim or defense, including the defense of
usury, and no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto;
(xv) There are no proceedings or investigations pending,
or, to the best of Borrower's knowledge after due inquiry, threatened,
before any court, regulatory body, administrative agency, or other
tribunal or governmental instrumentality (A) asserting the invalidity
of the Contract, (B) asserting the bankruptcy or insolvency of a
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<PAGE> 15
user, (C) seeking to prevent payment and performance of the Contract,
or (D) seeking any determination or ruling that might materially and
adversely affect the validity or enforceability of the Contract;
(xvi) The Borrower has duly fulfilled all obligations on its
part to be fulfilled under or in connection with the Contract and has
done nothing to impair the rights of the Lender in the Contract or
payments with respect thereto;
(xvii) There is no monetary default, breach, violation or
event of acceleration existing under the Contract, and no event has
occurred which, with the passage of time or with notice, would
constitute a monetary default, breach, violation or event of
acceleration that has or will cause a prepayment of Advances made in
respect of such Contract pursuant to Section 12 of this Agreement;
there is no non-monetary default, breach, violation or event of
acceleration existing under the Contract, and no event has occurred
which, with the passage of time or with notice, would constitute a
non-monetary default, breach, violation or event of acceleration; and
the Borrower has not waived any monetary or non-monetary default,
breach, violation or event of acceleration in respect of the Contract;
(xviii) All parties to the Contract had legal capacity to
execute them and each such Contract has been duly and properly executed
by such parties;
(xix) The Contract was not selected by the Borrower on any
basis intended to adversely affect the value of the Lender's security
interest therein;
(xx) The Contract was not originated in, nor is it subject
to the laws of, any jurisdiction the laws of which would make unlawful
the pledge, transfer or assignment of such document under this
Agreement, including any sale in accordance with this Agreement;
(xxi) Immediately after the pledge, assignment and transfer
to the Lender as herein contemplated, all necessary action will have
been taken to grant a valid and enforceable first priority perfected
security interest in such Contract (including the filing or amendment
of UCC statements in all applicable jurisdictions) and all payments to
become due thereunder and all rights of the Borrower in the Equipment
that is the subject of such Contract, except for those subsequent liens
which, by operation of law, take priority over a previously perfected
security interest;
(xxii) (A) The Contract has not been sold, transferred,
assigned or pledged by the Borrower to any Person other than the
Lender, except for liens released simultaneously with
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<PAGE> 16
the grant of a security interest in favor of the Lender hereunder, (B)
immediately prior to the pledge and conveyance of the Contract pursuant
to Section 3 hereof, the Borrower was the sole owner of the Contract
and had good and marketable title thereto, free and clear of all liens
and encumbrances, and (C) upon execution and delivery hereof by the
Borrower, the Lender will have a first perfected security interest in
all of the right, title and interest of the Borrower in and to the
Contract and the payments to become due thereunder, free and clear of
all liens and encumbrances, except for the interests of users pursuant
to the Contract;
(xxiii) There is only one original executed counterpart of
the Contract that constitutes "chattel paper" for purposes of Section
9-105(1)(b) and 9-308 of the UCC;
(xxiv) The Borrower's computer records shall have been marked
to indicate that such Contract has been pledged, assigned and
transferred to the Lender pursuant to this Agreement;
(xxv) All insurance policies required to be maintained by
the Contract are in full force and effect and such insurance policies
are of a type customary for the Equipment covered thereby;
(xxvi) The credit standing of the related user of the
Equipment was approved by the Borrower using its customary practices
and procedures. To the best of the Borrower's knowledge, the user is
not insolvent or in bankruptcy and the Borrower has no knowledge of any
circumstances or condition with respect to the Contract, the Equipment
or the user's credit standing that could reasonably be expected to
cause the lender to regard the Contract as an unacceptable security,
cause the Contract to become delinquent or adversely affect the value
or marketability of the Contract; and
(xxvii) The Equipment was properly delivered to the user in
good repair, without defects and in satisfactory order and, to the best
of Borrower's knowledge, is in proper working order as of the date on
which such Contract was pledged to the Lender and listed on the
Contract Schedule.
Section 6. Rights of Lender; Limitations on Lender's Obligations. (a) Anything
herein to the contrary notwithstanding, the Borrower shall remain liable under
each of the Contracts to which it is a party to observe and perform all the
conditions and obligations to be observed and performed by it thereunder, all in
accordance with and pursuant to the terms and provisions of each such Contract.
The Lender shall not have any obligation or liability under any Contract by
reason of, or arising out of, this Agreement or the receipt by the Lender of
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<PAGE> 17
any payment relating to such Contract pursuant hereto, nor shall the Lender be
obligated in any manner to (A) perform any of the obligations of the Borrower
under or pursuant to any Contract, (B) make any payment in connection with any
Contract, (C) make any inquiry as to the nature or the sufficiency of any
payment received by it or as to the sufficiency of any performance by any party
under any Contract, (D) present or file any claim or take any action to enforce
any performance in connection with any Contract, or (E) collect the payment of
any amounts which may have been assigned to it or to which it may be entitled at
any time or times.
(b) Upon the request of the Lender at any time after the occurrence and during
the continuance of an Event of Default, the Borrower shall notify parties to the
Contracts to which it is a party that the Contracts have been assigned to the
Lender and that payments in respect thereof shall be made directly to the Lender
or the designated agent of the Lender. The Lender may in its own name or in the
name of others communicate with parties to the Contracts to verify with them to
its satisfaction the existence or amount and terms of any Contract.
Section 7. Covenants. The Borrower covenants and agrees with the Lender that,
from and after the date of this Agreement until the obligations of the Borrower
hereunder and under the Amended and Restated Secured Note are paid in full: (a)
Further Documentation. At any time and from time to time, upon the written
request of the Lender, and at the sole expense of the Borrower, the Borrower
will promptly and duly complete and deliver such further instruments and
documents and take such further actions as the Lender may reasonably request for
the purpose of obtaining or preserving the full benefits to the Lender of this
Agreement and of the rights and powers herein granted to the Lender, including,
without limitation, the filing of any financing or continuation statements under
the Uniform Commercial Code in effect in any jurisdiction with respect to the
security interests created hereby. The Borrower also hereby authorizes the
Lender to file any such financing or continuation statement without the
signature of the Borrower to the extent permitted by applicable law. A carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement for filing in any jurisdiction.
(b) Limitation on Liens on Collateral. The Borrower will not, nor will it permit
or allow others to, create, incur or permit to exist any lien, security interest
or claim on or to the Collateral, other than the security interests created
hereby. The Borrower will defend the Collateral against, and will take such
other action as is necessary to remove, any lien, security interest or claim on
or to the Collateral, other than the security interests created hereby, and the
Borrower will defend the right, title and interest of the Lender in and to any
of the Collateral against the claims and demands of all persons whomsoever.
(c) Limitations on Modifications, Waivers and Extensions of Contracts. The
Borrower will not, nor will it permit or allow
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<PAGE> 18
others to, amend, modify, terminate or waive any provision of any Contract to
which the Borrower is a party in any manner which could reasonably be expected
to materially adversely affect the value of the Collateral. The Borrower will
not (i) fail to exercise promptly and diligently each and every material right
which the Borrower may have under each Contract (other than any right of
termination) where the failure to so act could materially adversely affect the
value of the Collateral, or (ii) fail to deliver to the Lender a copy of each
material demand, notice or document received by it relating in any way to any
Contract other than any such demand, notice or document relating to the
delinquency of a Contract or the bankruptcy of the obligor thereunder.
(d) Further Identification of Collateral. The Borrower will furnish to the
Lender from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Lender may reasonably request, all in reasonable detail.
(e) Limitation on Collection Account. The Borrower will not, nor will it permit
or allow others on its behalf, to establish a collection account, for the
receipt of payments pursuant to the Contracts, with a financial institution
other than one acceptable to the Lender in the exercise of its reasonable
discretion.
(f) Notices. The Borrower will notify the Lender promptly, in reasonable detail,
and in accordance with Section 21 of this Agreement, (i) of any lien or security
interest (other than security interests created hereby, on, or claim asserted
against, any of the Collateral, (ii) of the occurrence of any other event which
could reasonably be expected to have a material adverse effect on the aggregate
market value of the Collateral or on the security interests created hereunder,
and (iii) of the existence of circumstances requiring the Borrower, or
permitting the Lender to require the Borrower, to prepay the Advances pursuant
to Subsections 2(l) and 8(b) or Section 12 hereof.
(g) Changes in Locations, Name, etc. The Borrower will not change the location
of its chief executive office/chief place of business or remove its books and
records from the location specified in Section 4(a)(x), or change its name,
identity or corporate structure to such an extent that any financing statement
filed by the Lender in connection with this Agreement would become seriously
misleading, unless it shall have given the Lender at least 30 days prior written
notice thereof.
Section 8. Repayment of Advances If Contract is Found Defective.
(a) Upon discovery by the Borrower or the Lender of any breach of any of the
representations and warranties listed in Section 5 hereof, the party discovering
such breach shall promptly give notice of such discovery to the other.
(b) The Lender has the right to require, in its unreviewable discretion, the
Borrower to prepay the amount of any Advance made in respect of any Contract (i)
which breaches one or more of the representations and warranties listed in
Section 5 herein or (ii) which is determined by the Credit Enhancer to be
unacceptable for inclusion in the securitized pool, in each case no later than
one
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<PAGE> 19
business day after notice from the Lender to the Borrower of the discovery of
such breach.
Section 9. Release of Contract Files Following Payment of Secured Obligations.
Upon payment in full of the Advances the Lender shall execute and deliver such
instruments of transfer or assignments without recourse (including UCC
termination statements), as shall be necessary to terminate the Lender's
security interest in any Contract or Equipment which is Collateral for such
Advances and the Lender shall have no further responsibility with respect to
such Contract or Equipment.
Section 10. Servicing. The Borrower shall service and administer the Contracts
in accordance with due care and customary and prudent servicing procedures for
equipment leases, security agreements and installment sale contracts of a
similar type and, provided an Event of Default shall not have occurred
hereunder, shall have full power and authority to do any and all things not
inconsistent with the provisions of this Agreement which it may deem necessary
or desirable in connection with such servicing and administration.
Section 11. No Oral Modifications; Successors and Assigns. No provision of this
Agreement shall be waived or modified except by a writing duly signed by the
authorized agents of the Lender and the Borrower. This Agreement shall be
binding upon the successors and permitted assigns of the parties hereto.
Section 12. Monthly Report. The Borrower shall provide the Lender no later than
ten (10) days following the end of each month, with an accurate listing of each
Contract which constitutes Collateral hereunder as of the last day of such
month. With respect to any Contract, in the event that more than one monthly
installment of such Contract is delinquent as of the end of any calendar month,
the Borrower shall prepay the amount of the Advances made in respect of such
Contract or pledge one or more replacement Contracts having an aggregate unpaid
principal amount of not less than the principal amount of such delinquent
Contract and otherwise meeting the requirements of this Agreement.
Section 13. Events of Default. Each of the following shall constitute an event
of default ("Event of Default") hereunder (a "Default" being any of the
following whether or not any requirement for the giving of notice, the lapse of
time, or both, has been satisfied):
(a) Failure of the Borrower to make any payment of interest or
principal or any other sum which has become due, whether by
acceleration or otherwise, under the terms of the Amended and Restated
Secured Note, this Agreement or any other document evidencing or
securing indebtedness of the Borrower to the Lender;
(b) Failure of the Borrower to prepay Advances or pledge
additional Collateral when required to do so pursuant to Subsections
2(k) and 8(b) or Section 12 hereof;
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<PAGE> 20
(c) Failure of the Borrower to observe or perform any other
agreement contained in this Agreement thirty (30) days after the
occurrence of such failure to observe or perform such agreement;
(d) Any representation or warranty made or deemed made by the
Borrower herein in connection with any Advances made hereunder or in
any certificate, document, financial or other statement furnished at
any time under, or in connection with, this Agreement (including
without limitation, any Contract Schedule), or any representation or
warranty made or deemed made by DVI Inc. in the Amended and Restated
Guarantee, shall prove to have been incorrect in any material respect
on or as of the date made;
(e) Assignment or attempted assignment by the Borrower of this
Agreement or any rights hereunder, without first obtaining the specific
written consent of Lender, or the granting by the Borrower of any
security interest, lien or other encumbrance on any Collateral to any
person or entity other than the Lender;
(f) The filing by or against the Borrower or any subsidiary of
the Borrower of a petition for liquidation, reorganization, arrangement
or adjudication as a bankrupt or similar relief under the bankruptcy,
insolvency or similar laws of the United States or any state or
territory thereof or of any foreign jurisdiction; the failure of the
Borrower or any such subsidiary to secure dismissal of any such
petition filed against it within thirty (30) days of such filing; the
making of any general assignment by the Borrower or any subsidiary of
the Borrower for the benefit of creditors; the appointment of a
receiver or trustee for the Borrower or any subsidiary of the Borrower,
or for any part of the Borrower's or any such subsidiary's assets; the
institution by the Borrower or any subsidiary of the Borrower of any
other type of insolvency proceeding (under the Bankruptcy Code or
otherwise) or of any formal or informal proceeding, for the dissolution
or liquidation of, settlement of claims against, or winding up of the
affairs of, the Borrower or any such subsidiary; the institution of any
such proceeding against the Borrower or any subsidiary of the Borrower
if the Borrower or such subsidiary shall fail to secure dismissal
thereof within thirty (30) days thereafter; the consent by the Borrower
or any subsidiary of the Borrower to any type of insolvency proceeding
against the Borrower or such subsidiary (under the Bankruptcy Code or
otherwise); the occurrence of any event or existence of any condition
which could be the ground, basis or cause for any proceeding or
petition described in this Subsection 13(f);
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<PAGE> 21
(g) Any materially adverse change in the business, operations,
financial condition, properties or prospects of the Borrower or any
subsidiary of the Borrower, in each case as determined by the Lender in
its sole discretion, or the existence of any other condition which, in
the Lender's sole determination, constitutes an impairment of the
Borrower's ability to perform its obligations under this Agreement or
under the Amended and Restated Secured Note;
(h) Failure by Borrower to service and administer the
Contracts in substantial compliance with the servicing requirements set
forth in Section 10 hereof; and
(i) The Custodial Agreement or the Amended and Restated
Guarantee ceases to be in full force and effect, or any party thereto
so asserts in writing.
Section 14. Remedies Upon Default.
(a) Upon the occurrence of one or more Events of Default, the Lender may
immediately declare the principal amount of all Advances then outstanding under
the Amended and Restated Secured Note to be immediately due and payable,
together with all interest thereon and fees and expenses accruing under this
Agreement and terminate the obligation of the Lender to make Advances hereunder;
provided that upon the occurrence of the Event of Default referred to in
Subsection 13(f), such amounts shall immediately and automatically become due
and payable without any further action by any person or entity. Upon such
declaration or such automatic acceleration, the balance then outstanding on the
Amended and Restated Secured Note shall become immediately due and payable, and
the obligation of the Lender to make Advances hereunder shall terminate, without
presentation, demand or further notice of any kind to the Borrower.
(b) Upon the occurrence of one or more Events of Default, the Lender shall have
the right to obtain physical possession of all files of the Borrower relating to
the Collateral and all documents relating to the Collateral which are then or
may thereafter come in to the possession of the Borrower or any third party
acting for the Borrower and the Borrower shall deliver to the Lender such
assignments of contract as the Lender shall request. The Lender shall be
entitled to specific performance of all agreements of the Borrower contained in
this Agreement.
(c) Upon the occurrence of one or more
Events of Default, the Lender shall have the right to service the Contracts and
to collect and receive all further payments (including prepayments) made on or
in respect of the Collateral, and if any such payments are received by the
Borrower, the Borrower shall not commingle such payments received with other
funds of the Borrower, shall keep such payments segregated from all other funds
of the Borrower and shall promptly (and in no event later than seven (7) days
following receipt thereof) pay such payments over to the Lender. In addition,
the Lender shall have the right to dispose of the Collateral as provided herein,
or as provided in the other documents executed in connection herewith, or in any
other
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<PAGE> 22
commercially reasonable manner, or as provided by law. The Lender shall be
entitled to place the Contracts which it recovers after any default in a pool
for issuance of lease asset-backed securities at the then-prevailing price for
such securities and to sell such securities for such prevailing price in the
open market as a commercially reasonable disposition of collateral subject to
the applicable requirements of the NY UCC. The Lender shall also be entitled to
sell any or all of such Contracts individually for the prevailing price as a
commercially reasonable disposition of collateral subject to the applicable
requirements of the NY UCC. The specification in this Section 14 of manners of
disposition of collateral as being commercially reasonable shall not preclude
the use of other commercially reasonable methods (as contemplated by the NY UCC)
at the option of the Lender. Upon disposition of the Collateral and repayment in
full to the Lender of all amounts owing hereunder plus the reasonable expenses
incurred (including fees and expenses of its counsel), the Lender shall promptly
remit any remaining proceeds to the Borrower or as required by law or as a court
of competent jurisdiction shall direct.
Section 15. Indemnification and Expenses.
(a) The Borrower agrees to hold the Lender harmless from and indemnifies the
Lender against all liabilities, losses, damages, judgments, costs and expenses
of any kind which may be imposed on, incurred by, or asserted against the
Lender, whether relating to or arising out of, this Agreement, the Amended and
Restated Secured Note, or any transaction contemplated hereby or thereby, or any
amendment, supplement or modification of, or any waiver or consent under or in
respect of, this Agreement, the Amended and Restated Secured Note, or any
transaction contemplated hereby or thereby, that, in each case, results from
anything other than the Lender's gross negligence or willful misconduct. In any
suit, proceeding or action brought by the Lender in connection with any Contract
for any sum owing thereunder, or to enforce any provisions of any Contract, the
Borrower will save, indemnify and hold the Lender harmless from and against all
expense, loss or damage suffered by reason of any defense, set-off,
counterclaim, recoupment or reduction or liability whatsoever of the account
debtor or obligor thereunder, arising out of a breach by the Borrower of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or obligor or
its successors from the Borrower. The Borrower also agrees to reimburse the
Lender for all its costs and expenses incurred in connection with the
enforcement or the preservation of the Lender's rights under this Agreement, the
Amended and Restated Secured Note, or any transaction contemplated hereby or
thereby, including without limitation the reasonable fees and disbursements of
its counsel. The Borrower hereby acknowledges that, notwithstanding the fact
that the Amended and Restated Secured Note is secured by the Collateral, the
obligation of the Borrower under the Amended and Restated Secured Note is a
recourse obligation of the Borrower.
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<PAGE> 23
(b) The Borrower agrees to pay as and when billed by the Lender all of the
out-of-pocket costs and expenses incurred by the Lender in connection with the
development, preparation and execution of, and any amendment, supplement or
modification to, this Agreement, the Amended and Restated Secured Note, or any
other documents prepared in connection herewith or therewith. The Borrower
agrees to pay as and when billed by the Lender all of the out-of-pocket costs
and expenses incurred in connection with the consummation and administration of
the transactions contemplated hereby and thereby including, without limitation,
(i) all the reasonable fees, disbursements and expenses of Lender's counsel, and
(ii) all the reasonable due diligence, inspection, testing and review costs and
expenses incurred by the Lender with respect to Contracts pledged as Collateral
under this Agreement.
(c) The Borrower's agreements in this Section 15 shall survive the payment in
full of the Amended and Restated Secured Note and the expiration or termination
of this Agreement.
Section 16. Power of Attorney. The Borrower hereby authorizes the Lender
(without requiring the Lender), at the Borrower's expense, to file such
financing statements or other statements relating to the Collateral without the
Borrower's signature thereon as the Lender at its option may deem appropriate,
and the Borrower hereby appoints the Lender as the Borrower's attorney-in-fact
(without requiring the Lender) to execute any such financing statement or
statements in the Borrower's name and to perform all other acts which the Lender
deems appropriate to perfect and continue the security interest granted hereby
and to protect, preserve and realize upon the Collateral, including, but not
limited to, the right to endorse notes, complete blanks in documents and sign
assignments on behalf of the Borrower as its attorney-in-fact. This Power of
Attorney is coupled with an interest and is irrevocable without the Lender's
consent. Notwithstanding the foregoing, the power of attorney hereby granted may
be exercised only during the occurrence and continuance of any Event of Default
hereunder.
Section 17. No Duty on Lender's Part. The powers conferred on the Lender
hereunder are solely to protect the Lender's interests in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Lender shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrower for any act or failure
to act hereunder, except for its or their own gross negligence or willful
misconduct.
Section 18. Limitation on Duties Regarding Presentation of Collateral. The
Lender's sole duty with respect to the custody, safekeeping and physical
preservation of any Collateral in its possession, under Section 9-207 of the
Uniform Commercial Code as in effect in any jurisdiction or otherwise, shall be
to deal with it in the same manner as the Lender deals with similar property for
its own account. Neither the Lender nor any of its directors, officers,
employees or agents shall be liable for
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<PAGE> 24
failure to demand, collect or realize upon all or any part of the Collateral or
for any delay in doing so or shall be under any obligation to sell or otherwise
dispose of any Collateral upon the request of the Borrower or otherwise.
Section 19. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and are powers
coupled with an interest.
Section 20. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions herein, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
Section 21. Notices. All demands, notices and communications relating to this
Agreement shall be in writing and shall be deemed to have been duly given when
delivered to the other party or parties at the address shown below or such other
address as may hereafter be furnished to the other party or parties by like
notice.
If to the Borrower:
DVI Financial Services, Inc.
One Park Plaza
Suite 800
Irvine, California 92714
Attention: James Costello
Telephone: (714) 474-5821
Telecopy: (714) 474-5864
with a copy to
National Westminster Bank USA,
as Agent (the "Agent Bank")
175 Water Street
28th Floor
New York, NY 10038
Attention: Leasing Division -
Merily McLaughlin
Telephone: (212) 602-2949
Telecopy: (212) 602-2180
If to the Lender:
Prudential Securities Realty Funding Corporation
130 John Street, 24th Floor
Treasury Department
New York, New York 10292
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<PAGE> 25
Attention: Mr. William Horan
Phone Number: (212) 214-7310
Telecopy Number: (212) 214-7535;
The Lender shall use its best efforts to provide to the Agent Bank a copy of
notices delivered by it to the Borrower; provided, that the Lender shall have no
liability whatsoever, to the Agent Bank or to any person or entity claiming
through the Agent Bank or to any other person or entity, arising from or
relating to any such notices or the contents thereof or arising from or relating
to the failure of the Lender to provide the Agent Bank with a copy of any such
notice, and any such failure of the Lender to so provide notice to the the Agent
Bank shall not prejudice any of the rights of the Lender hereunder.
Section 22. Certain Definitions. The following capitalized terms are defined in
the corresponding sections specified below:
"Advance" - Section 1.
"Agreement" - Introductory Clause.
"Amended and Restated Guarantee" - Section 1(d).
"Amended and Restated Secured Note" - Section 2(h).
"Borrower" - Introductory Clause.
"Certificates" - Recitals.
"Collateral" - Section 4.
"Contract" - Recitals.
"Contract Schedule" - Section 1(f).
"Credit Enhancer" - Recitals.
"Custodian" - Section 1(h).
"Custodial Agreement" - Section 1(d).
"Default" - Section 13.
"Equipment" - Recitals.
"Event of Default" - Section 13.
"FMV Contract" - Section 1(f).
"Funding Date" - Section 1.
"Interest Payment Date" - Section 2(e).
"Lender" - Introductory Clause.
"LIBOR" - Section 2(b).
"Maturity Date" - Section 2(c).
"NY UCC" - Section 2(c).
"Prime Rate" - Section 1(i).
"Secured Obligations" - Section 4.
"Termination Date" - Section 2(a).
"Trust" - Recitals.
Section 23. Paragraph Headings. The paragraph headings used in this Agreement
are for convenience of reference only and shall not affect the construction of
this Agreement nor shall they be taken into consideration in the interpretation
of this Agreement.
Section 24. No Waiver; Cumulative Remedies. The Lender shall not by any act
(except by a written instrument pursuant to Section 11 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Event of Default or in any breach of any
of the terms and conditions herein. No failure to exercise, nor any
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<PAGE> 26
delay in exercising, on the part of the Lender, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Lender of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which the Lender would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of
any rights or remedies provided by law.
Section 25. Assignment. The Borrower may not assign its rights or delegate its
obligations under this Agreement without the express written consent of the
Lender; provided that the Lender may assign its rights and obligation hereunder
to any affiliate of the Lender upon written notice thereof to the Borrower and
the Custodian in connection with any assignment by the Lender of its rights and
obligations under the Custodial Agreement to such affiliate.
Section 26. Counterparts. For the purpose of facilitating the execution of this
Agreement and for other purposes, this Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed to be an original,
and collectively, such counterparts shall constitute and be deemed to be one and
the same instrument.
Section 27. Hypothecation or Pledge of Collateral. Nothing in this Agreement
shall preclude the Lender from engaging in repurchase transactions with any of
the Collateral or otherwise pledging, repledging, hypothecating, or
rehypothecating any of the Collateral, but no such transaction shall relieve the
Lender of its obligations to the Borrower under this Agreement or the Custodial
Agreement with respect to the Collateral.
Section 28. Integration of Terms. This Agreement contains the entire agreement
between the parties relating to the subject matter hereof and supersedes all
oral statements and prior writings with respect thereto.
SECTION 29. AGREEMENT CONSTITUTES SECURITY AGREEMENT; GOVERNING LAW. THIS
AGREEMENT IS INTENDED BY THE PARTIES HERETO TO BE GOVERNED BY NEW YORK LAW
WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE, AND TO CONSTITUTE A SECURITY
AGREEMENT WITHIN THE MEANING OF THE NY UCC.
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<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
LENDER: PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By: /s/ John M. Patrick
---------------------------
Name: John M. Patrick
Title: Senior Vice President
BORROWER: DVI FINANCIAL SERVICES, INC.
By: /s/ Tuan A. Pham
---------------------------
Name: Tuan A. Pham
Title: Vice President
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<PAGE> 28
Exhibit A
Contract Schedule
[To be Delivered by the Borrower
Pursuant to Subsection 1(e)]
A-1
<PAGE> 29
Exhibit B-1
NOTICE OF EXTENSION OF AGREEMENT NO. __________
Prudential Securities Realty Funding Corporation
130 John Street, 24th Floor
Treasury Department
New York, New York
Attention: Mr. William Horan
Telecopy: 212-214-7310
Confirmation: 212-214-7535
1. Pursuant to the Amended and Restated Interim Loan and Security
Agreement, dated as of September 13, 1994 (as amended from time to time, the
"Agreement"), between you and DVI Financial Services, Inc. (the "Borrower"),
the undersigned Borrower hereby requests that the Termination Date under the
Agreement be extended to [insert date]. The undersigned Borrower agrees that,
upon acceptance by the Lender of this Notice of Extension of Agreement No. ___
by signing and dating the same below, the Borrower will be bound by the terms
of the Agreement as amended by this Notice of Extension of Agreement in the
manner set forth in this paragraph 1 and by the terms of the Amended and
Restated Secured Note as amended by Amended and Restated Secured Note
Endorsement No. ___ delivered herewith.
2. The undersigned Borrower hereby certifies that the following
statements are true and correct on the date hereof and shall be true and
correct on the date of the extension of the Termination Date requested herein,
before and after giving effect thereto:
A. Each of the representations and warranties contained in the Agreement
are true and correct in all material respects; and
B. No Default or Event of Default has occurred and is continuing, and no
event that, with the passing of time or the giving of notice or both, would
constitute a Default or Event of Default has occurred and is continuing.
3. Unless otherwise defined in this Notice of Extension of Agreement No.
___, terms defined in the Agreement shall have their defined meanings when used
herein.
4. Except as expressly modified by this Notice of Extension of Agreement
No. ___, the Agreement shall continue in full force and effect.
B-1
<PAGE> 30
5. This Notice of Extension of Agreement No. ___ and the rights and
obligations of the parties hereunder and under the Agreement as amended hereby
shall be governed by, and construed and interpreted in accordance with, the
laws of the State of New York (without reference to choice of law doctrine).
6. The undersigned Borrower is delivering herewith to the Lender (a)
Amended and Restated Secured Note Endorsement No. ___ to the Amended and
Restated Secured Note, substantially in the form of Exhibit B-2 to the
Agreement, and (b) an opinion of counsel to the Borrower, substantially in the
form of Exhibit B-3 to the Agreement.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Notice of
Extension of Agreement No. ___ to be executed and delivered by its proper and
duly authorized officers as of the day and year first above written.
DVI FINANCIAL SERVICES, INC.
By: _______________________________
Name:
Title:
AGREED TO AND ACCEPTED:
PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By: ________________________
Name:
Title:
Date: ______________________
B-2
<PAGE> 31
Exhibit B-2
AMENDED AND RESTATED SECURED NOTE
ENDORSEMENT NO. ___
[_____________, 199__]
The undersigned Borrower hereby agrees with PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION (the "Lender") that the Amended and Restated Secured Note
of the Borrower, dated September 13, 1994 as it may have been previously
amended by endorsement, in the amount of [$___________], to which this Amended
and Restated Secured Note Endorsement No. ___ is attached, is hereby amended by
changing the Termination Date referred to therein to [___________, 199__].
This Amended and Restated Secured Note Endorsement No. ___ is given as a
renewal, rearrangement and extension of the obligations of the Borrower to the
Lender under the Amended and Restated Secured Note and is not given in
substitution therefore or extinguishment thereof. The Borrower hereby
authorizes the Lender to attach this Amended and Restated Secured Note
Endorsement No. ___ to the Amended and Restated Secured Note.
Borrower: DVI FINANCIAL SERVICES, INC.
By: _______________________________
Name:
Title:
Lender: PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By: _______________________________
Name:
Title:
B-3
<PAGE> 32
Exhibit B-3
[Letterhead of Counsel to Borrower]
[_____________, 199__]
Prudential Securities Realty Funding Corporation
199 Water Street
New York, New York 10292-0001
Gentlemen:
I am the counsel to DVI Financial Services, Inc., a Delaware corporation (the
"Borrower") and have acted as such in connection with the execution and
delivery of the following documents:
(i) the Amended and Restated Interim Loan and
Security Agreement, dated as of September 13, 1994 (the "Agreement"),
between Prudential Securities Realty Funding Corporation (the
"Lender") and the Borrower;
(ii) the Amended and Restated Secured Note, dated
September 13, 1994 (the "Note"), made by the Borrower in favor of the
Lender;
(iii) the Notice of Extension of Agreement No. __ ,
dated [ , 199_] (the "Notice of Extension"), between the
Borrower and the Lender; and
(iv) the Amended and Restated Secured Note
Endorsement No. ___, dated [ , 199_] (the "Endorsement"), to
the Amended and Restated Secured Note.
The documents described in the foregoing clauses (iii) and (iv) are hereinafter
referred to as the "Delivered Documents". This opinion is being delivered to
you pursuant to Subsection 2(a)(ii) of the Agreement. Capitalized terms used
herein and not defined herein shall have the meanings assigned to them in the
Agreement.
I have examined executed copies of the Agreement, the Note, and the Delivered
Documents. I have also examined originals or photostatic or certified copies
of all such corporate records of the Borrower, and such certificates of public
officials, certificates of corporate officers, and other documents, as I have
deemed appropriate and necessary as a basis for the opinions hereinafter
expressed. In making my examination and rendering the opinions hereinafter
expressed I have assumed (i) that the Lender, as a party to each of the
Agreement, Note and the Delivered Documents has the corporate power to enter
into and perform all of its obligations thereunder, (ii) the due authorization,
execution and delivery of each of the Agreement, Note and the Delivered
Documents by the Lender, and (iii) the
B-4
<PAGE> 33
validity and binding effect on the Lender of each of the Agreement and the
Delivered Documents. The opinions expressed below with respect to
enforceability are subject to the following additional qualifications:
(a) The effect of bankruptcy, insolvency, reorganization,
moratorium, receivership, or other similar laws of general
applicability relating to or affecting creditors' rights generally in
the event of bankruptcy, insolvency, reorganization, moratorium or
receivership.
(b) The application of general principles of equity,
including, but not limited to, the right of specific performance
(regardless of whether enforceability is considered in a proceeding in
equity or at law).
Based upon the foregoing, I am of the opinion that:
1. The Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and the Borrower is
licensed or qualified to do business in each state wherein it owns property or
is required to be so qualified or licensed.
2. The Borrower has the corporate power and legal right to execute and
deliver each of the Delivered Documents, to borrow under the Agreement and the
Note, as amended by the Delivered Documents, and to grant liens under the
Agreement, as amended by the Notice of Extension, and has taken all necessary
corporate action to authorize such borrowing and such granting of liens upon
the terms and conditions of the Agreement, as amended by the Notice of
Extension, and to authorize the execution and delivery of the Delivered
Documents. No consent of any other person or entity (including, without
limitation, stockholders of the Borrower), and no consent, license, permit,
approval or authorization of, or registration or declaration with, any
governmental authority, bureau or agency is required in connection with the
execution and delivery of the Delivered Documents or the enforceability of each
of the Agreement and the Note, as amended by the Delivered Documents.
3. Assuming for purposes of the opinion expressed in this paragraph 3
that each of the documents referred to herein is governed by the laws of the
State of California each of the Agreement and the Note, as amended by the
Delivered Documents, constitutes the legal, valid, and binding obligation of
the Borrower enforceable against the Borrower in accordance with their
respective terms.
4. The execution and delivery of the Delivered Documents and the
performance of each of the Agreement and the Note, as amended by the Delivered
Documents, (i) will not violate any provision of any existing law or regulation
or of the charter or by-laws of the Borrower or of any mortgage, indenture,
contract or other undertaking to which, to the best of my knowledge (after due
inquiry), the Borrower is a party or which is binding upon it or its assets,
and (ii) to the best of my knowledge (after due inquiry), will not result in
the creation or imposition of any
B-5
<PAGE> 34
lien, charge or encumbrance on any of its assets pursuant to the provisions of
any of the foregoing.
5. No material litigation or administrative proceeding of or before any
government body is presently pending, or, to the best of my knowledge (after
due inquiry), threatened against the Borrower or its assets.
6. No consent, approval, authorization or order of, registration or
filing with, or notice to, any governmental authority or court is required
under federal laws or the laws of the State of California for the execution and
delivery of the Delivered Documents and the performance of the Agreement or the
Note, as amended by the Delivered Documents, by the Borrower.
7. The execution and delivery of the Delivered Documents and the
performance by the Borrower of the Agreement and the Note, as amended by the
Delivered Documents, do not conflict with, result in a breach of, or constitute
a default under, any law, rule or regulation of the federal government or of
the State of Delaware.
8. The Agreement, as amended by the Notice of Extension, creates a valid
security interest in favor of the Lender in the Collateral. Financing
statements naming the Lender as secured party and the Borrower as debtor and
describing the Collateral having been filed in the jurisdictions and recording
offices listed on Schedule 1 to the Agreement, the security interests in the
Collateral created by the Agreement constitute fully-perfected first priority
security interests, and no other action is necessary to preserve or perfect
such security interests.
9. Under the laws of the State of California the stipulation of New York
law in each of the documents referred to in paragraph 3 herein is enforceable.
B-6
<PAGE> 35
I am admitted to practice law in the State of California and the foregoing
opinions are limited to the federal law of the United States and the laws of
the State of California and the General Corporation Law of the State of
Delaware.
Sincerely yours,
B-7
<PAGE> 36
Exhibit C
[Intentionally Omitted]
<PAGE> 37
Exhibit D
NOTICE OF BORROWING NO. ________
Prudential Securities Realty Funding Corporation
130 John Street, 24th Floor
Treasury Department
New York, New York
Attention: Mr. William Horan
Telecopy: 212-214-7310
Confirmation: 212-214-7535
Pursuant to the Amended and Restated Interim Loan and Security Agreement, dated
as of September 13, 1994 (as amended from time to time, the "Agreement"),
between you and DVI Financial Services, Inc. (the "Borrower"), the undersigned
Borrower hereby gives notice of its election to request an Advance and, in
connection therewith, sets forth below the following information (all
capitalized terms used herein shall have the meaning specified therefor in the
Agreement):
1. The Advance is being made in respect of a [type] Contract.
2. The principal amount of the requested Advance is [$___________].
3. The business day on which this Advance is to be made is [___________,
199__] (the "Funding Date"), one business day following the date hereof.
4. The date on which this Advance shall mature is [___________, 199__]
[no later than the earlier of (i) the Termination Date and (ii) the date upon
which the Certificates, related to the Contracts funded by such Advance, shall
be sold to the public].
5. [Attached hereto is a copy of the Contract Schedule (as defined in the
Agreement) being submitted to the Lender in connection with the Advance
requested hereby.]
The undersigned hereby certifies that the following statements are true and
correct on the date hereof and shall be true and correct on the date of the
Advance requested herein, before and after giving effect thereto:
A. Each of the representations and warranties contained in the Agreement
are true and correct in all material respects; and
B. No Default or Event of Default has occurred and is continuing, and no
event that, with the passing of time or the giving of notice or both, would
constitute a Default or Event of Default has occurred and is continuing.
D-1
<PAGE> 38
DVI FINANCIAL SERVICES, INC.
By:____________________________
Name:
Title:
Date: [ , 199__]
D-2
<PAGE> 39
Exhibit E
NOTICE OF EXTENSION
Reference is made to the Amended and Restated Interim Loan and Security
Agreement, dated as of September 13, 1994 (as amended from time to time, the
"Agreement"), between Prudential Securities Realty Funding Corporation (the
"Lender") and DVI Financial Services, Inc. (the "Borrower").
The Lender hereby notifies the Borrower pursuant to Subsection 2(c) of the
Agreement that with respect to the Advance made on [_________ __, 199_], the
Lender hereby extends the Maturity Date of such Advance to [__________ __,
199_], on which date such Advance shall be due and payable.
PRUDENTIAL SECURITIES REALTY FUNDING CORPORATION
By:_____________________________
Name:
Title:
Date: [ , 199_]
E-1
<PAGE> 40
Exhibit F
AMENDED AND RESTATED SECURED NOTE
ENDORSEMENT NO. ___
[____________, 199__]
The undersigned Borrower hereby agrees with PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION (the "Lender") that the Amended and Restated Secured Note
of the Borrower, dated September 13, 1994, as it may have been previously
amended by endorsement, in the amount of $75,000,000, to which this Amended and
Restated Secured Note Endorsement No. ___ is attached, is hereby amended by
changing the Maturity Date of the Advance in the amount of [$___________] to
[___________, 199__]; provided, however, that the extension of the Maturity
Date of the above-described Advance beyond the Termination Date of the
Agreement shall not be deemed to be an extension or renewal, beyond such
Termination Date, of the Lender's obligations to lend to the Borrower under the
Agreement, and the Borrower's obligations in respect of such Advance shall
survive the termination of the Agreement.
This Amended and Restated Secured Note Endorsement No. ___ is given as a
renewal, rearrangement and extension of the obligations of the Borrower to the
Lender under the Amended and Restated Secured Note and is not given in
substitution therefor or extinguishment thereof. The Borrower hereby
authorizes the Lender to attach this Amended and Restated Secured Note
Endorsement No. ___ to the Amended and Restated Secured Note.
Borrower: DVI FINANCIAL SERVICES, INC.
By: _______________________________
Name:
Title:
Lender: PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By: _______________________________
Name:
Title:
<PAGE> 41
Exhibit G
AMENDED AND RESTATED SECURED NOTE
$75,000,000.00 September 13, 1994
New York, New York
FOR VALUE RECEIVED, DVI FINANCIAL SERVICES, INC., a Delaware corporation, whose
address is One Park Plaza, Suite 800, Irvine, CA 92714, promises to pay to the
order of PRUDENTIAL SECURITIES REALTY FUNDING CORPORATION, a Delaware
corporation, whose address is 1220 N. Market Street, Wilmington, Delaware 19801
(the "Lender") on or before December 31, 1994, in lawful money of the United
States of America, the lesser of (a) $75,000,000.00 and (b) the outstanding
principal amount of all Advances (as defined in the Agreement) made by the
Lender to the undersigned pursuant to the that certain Amended and Restated
Interim Loan and Security Agreement, dated as of September 13, 1994 (as amended
or otherwise modified from time to time, the "Agreement"), by and between the
Lender and the Borrower, plus interest thereon from the date of each such
Advance. All such payment obligations (whether in respect of the aggregate
principal amount of outstanding Advances made, interest thereon, or other
payment obligations of the Borrower under the Agreement) shall be made in
lawful money of the United States of America, in immediately available funds,
on the dates and in the amounts, specified in, or determined in accordance
with, the Agreement.
The holder of this Amended and Restated Secured Note is authorized to record
the date and amount of each Advance, and the date and amount of each repayment
of principal thereof, on the schedule annexed hereto, and any such recordation
shall be conclusive evidence of the accuracy of the amounts so recorded (absent
manifest error); provided that the failure of the holder hereof to make such
recordation (or any error in such recordation) shall not affect the obligations
of the Borrower hereunder or under the Agreement.
It is intended that the rate of interest herein shall never exceed the maximum
rate, if any, which may be legally charged on the loan evidenced by this
Amended and Restated Secured Note (the "Maximum Rate"), and if the provisions
for interest contained in this Amended and Restated Secured Note would result
in a rate higher than the Maximum Rate, interest shall nevertheless be limited
to the Maximum Rate, and any amounts which may be paid toward interest in
excess of the Maximum Rate shall be applied to the reduction of principal, or,
at the option of the Lender, returned to the Borrower.
All payments hereon shall be made, and all notices to the Lender required or
authorized hereby shall be given, at the office of the Lender at the address
designated in the Agreement, or to such other place as the Lender may from time
to time direct by written notice to the Borrower. Payments remitted by the
Borrower via wire transfer initiated after 4:00 p.m. New York City shall be
deemed to be received on the next business day.
The Borrower agrees to pay all the Lender's costs of collection and enforcement
(including reasonable attorneys' fees and
G-1
<PAGE> 42
disbursements of Lender's counsel) in respect of this Amended and Restated
Secured Note when incurred, including, without limitation, reasonable
attorneys' fees through appellate proceedings.
Capitalized terms not otherwise defined herein shall have the respective
meanings ascribed to them in the Agreement. Notwithstanding the pledge of the
Collateral, the Borrower hereby acknowledges, admits and agrees that the
Borrower's obligations under this Amended and Restated Secured Note are
recourse obligations of the Borrower to which the Borrower pledges its
respective full faith and credit.
The Borrower, and any indorsers or guarantors hereof, (a) severally waive
diligence, presentment, protest and demand and also notice of protest, demand,
dishonor and nonpayments of this Amended and Restated Secured Note, (b)
expressly agree that this Amended and Restated Secured Note, or any payment
hereunder, may be extended from time to time, and consent to the acceptance of
further Collateral, the release of any Collateral for this Amended and Restated
Secured Note, the release of any party primarily or secondarily liable hereon,
and (c) expressly agree that it will not be necessary for the Lender, in order
to enforce payment of this Amended and Restated Secured Note, to first
institute or exhaust the Lender's remedies against the Borrower or any other
party liable hereon or against any Collateral for this Amended and Restated
Secured Note. No extension of time for the payment of this Amended and
Restated Secured Note, or any installment hereof, made by agreement by the
Lender with any person now or hereafter liable for the payment of this Amended
and Restated Secured Note, shall affect the liability under this Amended and
Restated Secured Note of the Borrower, even if the Borrower is not a party to
such agreement; provided, however, that the Lender and the Borrower, by written
agreement between them, may affect the liability of the Borrower.
Any reference herein to the Lender shall be deemed to include and apply to
every subsequent holder of this Amended and Restated Secured Note.
Reference is made to the Agreement for provisions concerning mandatory
principal repayments, Collateral, acceleration and other material terms
affecting this Amended and Restated Secured Note.
This Amended and Restated Secured Note amends and restates the Secured Note,
dated March 16, 1994, (the "Existing Secured Note") and is given as a
continuation, rearrangement and extension of, and not a novation, release or
satisfaction of the Existing Secured Note.
THIS AMENDED AND RESTATED SECURED NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER
THE LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE)
WHOSE LAWS THE BORROWER EXPRESSLY ELECTS TO APPLY TO THIS AMENDED AND RESTATED
SECURED NOTE. THE BORROWER AGREES THAT ANY ACTION OR PROCEEDING BROUGHT TO
ENFORCE OR ARISING OUT OF THIS AMENDED AND RESTATED SECURED NOTE MAY BE
COMMENCED IN THE SUPREME COURT OF THE STATE OF NEW
G-2
<PAGE> 43
YORK, BOROUGH OF MANHATTAN, OR IN THE DISTRICT COURT OF THE UNITED STATES FOR
THE SOUTHERN DISTRICT OF NEW YORK.
DVI FINANCIAL SERVICES, INC.
By:______________________________
Name:
Title:
G-3
<PAGE> 44
Schedule to Amended and Restated Secured Note
Schedule of Advances
<TABLE>
<CAPTION>
Amount
of Total
Amount of Principal Principal
Date Advance Repaid Outstanding
- ---- --------- --------- -----------
<S> <C> <C> <C>
_____________ $________________ $________________ ________________
_____________ $________________ $________________ ________________
_____________ $________________ $________________ ________________
_____________ $________________ $________________ ________________
_____________ $________________ $________________ ________________
_____________ $________________ $________________ ________________
_____________ $________________ $________________ ________________
_____________ $________________ $________________ ________________
_____________ $________________ $________________ ________________
</TABLE>
<PAGE> 45
Exhibit H
AMENDED AND RESTATED GUARANTEE OF DVI INC
Amended and Restated Guarantee, dated as of
September 13, 1994, by DVI Inc., a Delaware corporation (the "Guarantor"), in
favor of Prudential Securities Realty Funding Corporation ("Lender").
RECITAL
WHEREAS, the Guarantor guaranteed all present and
future obligations and liabilities of all kinds of DVI Financial Services,
Inc., a Delaware corporation ("Borrower") to Lender arising out of the Interim
Loan and Security Agreement, dated as of March 16, 1994, (the "Existing
Agreement"), pursuant to the Guarantee of DVI Inc., dated as of March 16, 1994,
(the "Existing Guarantee") and Borrower and Lender shall amend and restate the
Existing Agreement (as so amended and restated, the "Amended and Restated
Interim Loan and Security Agreement") and Guarantor desires to amend and
restate the Existing Guarantee;
NOW, THEREFORE, the Guarantor agrees that the
Existing Guarantee is hereby amended and restated in its entirety as provided
in the heading and recital hereto and as follows.
1. Amended and Restated Guarantee. To induce
Lender to enter into an the Amended and Restated Interim Loan Agreement, dated
as of the date hereof with Borrower, the Guarantor unconditionally guarantees
to Lender, its successors, endorsees, and permitted assigns, the prompt payment
when due of all present and future obligations and liabilities of all kinds of
Borrower to Lender arising out of the Amended and Restated Interim Loan
Agreement (the "Obligations").
2. Absolute Guarantee. The Guarantor's obligations
under this Amended and Restated Guarantee shall not be affected by the
genuineness, validity, regularity, or enforceability of the Obligations or of
any instrument evidencing the Obligations, or by the existence, validity,
enforceability, perfection, or extent of any collateral for the Obligations, or
by any other circumstance relating to the Obligations which might otherwise
constitute a discharge of or defense to this Amended and Restated Guarantee.
Lender makes no representation or warranty to the Guarantor regarding such
matters, and has no duty or responsibility to disclose to the Guarantor any
circumstances that may now or hereafter affect such matters. Lender shall not
be obligated to file any claim relating to the Obligations if Borrower becomes
subject to a bankruptcy, reorganization, or similar proceeding, and the failure
of Lender so to file shall not affect the Guarantor's obligations hereunder.
If any payment by Borrower to Lender on account of the Obligations is rescinded
or must otherwise be returned for any reason whatsoever, the
H-6
<PAGE> 46
Guarantor shall remain liable hereunder for such Obligations as if such payment
had not been made. The Guarantor's obligations under this Amended and Restated
Guarantee constitute a guarantee of payment and not of collection.
3. Consents, Waivers, and Renewals. Lender may at
any time and from time to time, either before or after the maturity thereof,
without notice to or further consent of the Guarantor, extend the time of
payment of, exchange, or surrender any collateral for, or renew, any of the
Obligations, and may also make any agreement with Borrower or with any other
individual or entity liable on any of the Obligations, or interested therein,
for the extension, renewal, payment, compromise, discharge, or release thereof,
in whole or in part, or for any modification of the terms thereof or of any
agreement between Lender and Borrower or any such other individual or entity,
without impairing or affecting this Amended and Restated Guarantee. Lender may
seek payment of any of the Obligations from the Guarantor, whether or not
Lender shall have resorted to any collateral for the Obligations or shall have
proceeded against Borrower or any other obligor principally or secondarily
obligated for any of the Obligations.
4. Expenses. The Guarantor shall pay on demand
all out-of-pocket expenses (including the reasonable fees and expenses of
Lender's counsel) incurred in the enforcement or protection of the rights of
Lender under this Amended and Restated Guarantee, and any collateral for the
Obligations shall secure such payment; provided, however, that the Guarantor
shall not be liable for any expenses of Lender if no payment under this Amended
and Restated Guarantee is due.
5. No Subrogation. Notwithstanding any payment or
payments made by the Guarantor hereunder, or any set-off or application of
funds of the Guarantor by the Lender, the Guarantor waives any right that it
may have to be subrogated to any of the rights of the Lender against the
Borrower or against any collateral security or guarantee or right of offset
held by the Lender for the payment of the Obligations or to otherwise seek
reimbursement, indemnity or contribution or any other payment from the Borrower
in respect of payments made by the Guarantor hereunder.
6. Continuing Guarantee. This Amended and
Restated Guarantee is absolute, unconditional, and irrevocable and shall remain
in full force and effect and be binding upon the Guarantor and its successors
and permitted assigns until all of the Obligations have been satisfied in full.
If any present or future Obligations are guaranteed by individuals or entities
in addition to the Guarantor, the death, release, or discharge, in whole or
part or the bankruptcy, liquidation, termination, or dissolution of one or more
of them shall not discharge or affect the liabilities of the Guarantor
hereunder.
H-7
<PAGE> 47
7. No Waiver; Cumulative Rights. No failure on
the part of Lender to exercise, and no delay in exercising, any right, remedy,
or power under this Amended and Restated Guarantee shall operate as a waiver
thereof, nor shall any single or partial exercise by Lender of any right,
remedy, or power hereunder preclude any other or future exercise of any right,
remedy, or power. Each and every right, remedy, and power hereby granted to
Lender or allowed it by law or other agreement shall be cumulative and not
exclusive of any other, and may be exercised by Lender from time to time.
8. Waiver of Notice. Except as required otherwise
herein, the Guarantor waives notice of the acceptance of this Amended and
Restated Guarantee, presentment to or demand of payment from anyone liable for
any of the Obligations, notice of dishonor or non-payment, protest, diligence,
suit, notice of any sale of any collateral for the Obligations, notice of the
taking of any action by Lender against Borrower, the Guarantor, or others, and
all other notices that may otherwise be required by law.
9. Representations and Warranties.
(a) The Guarantor is duly organized and validly
existing under the law of the State of Delaware and has full corporate power
and authority to execute, deliver, and perform this Amended and Restated
Guarantee.
(b) The execution, delivery, and performance of
this Amended and Restated Guarantee have been and remain duly authorized by all
necessary corporate action and do not contravene any provision of the
Guarantor's charter or by-laws, as amended to date, or any law, regulation,
rule, decree, order, judgment, or contractual restriction binding on the
Guarantor or its assets.
(c) All consents, licenses, authorizations, and
approvals of, and registrations and declarations with, any governmental
authority or regulatory body necessary for the due execution, delivery, and
performance of this Amended and Restated Guarantee have been obtained and
remain in full force and effect and all conditions thereof have been duly
complied with, and no other action by, and no notice to or filing with, any
governmental authority or regulatory body is required in connection with the
execution, delivery, or performance of this Amended and Restated Guarantee.
(d) This Amended and Restated Guarantee constitutes
the legal, valid, and binding obligation of the Guarantor and is enforceable
against the Guarantor in accordance with its terms, subject as to
enforceability to bankruptcy, insolvency, reorganization, moratorium,
conservatorship, receivership, and other laws of general applicability relating
to
H-8
<PAGE> 48
or affecting creditors' rights and to equitable principles of general
application.
10. Assignment. The Guarantor may not assign its
rights, interests, or obligations under this Amended and Restated Guarantee to
any other person without the prior written consent of Lender.
11. Governing Law. This Amended and Restated
Guarantee shall be governed by, and construed and enforced in accordance with,
the law of the State of New York applicable to contracts made and to be
performed within such State.
12. Notices. Any notice or communication to the
Guarantor in respect of this Amended and Restated Guarantee shall be
sufficiently given if in writing and delivered in person or sent by certified
or registered mail or the equivalent (with return receipt requested), by
courier, or by facsimile addressed to the following:
DVI Inc.
One Park Plaza
Suite 800
Irvine, California 92714
Attention: James Costello
Telephone: 714-474-5821
Telecopy: 714-474-5864
Any such notice or communication shall specifically identify the amounts to
which this Amended and Restated Guarantee relates, and shall be sufficiently
given only upon actual receipt by the Guarantor. Any notice or communication
by the Guarantor to Lender in respect of this Amended and Restated Guarantee
shall be sufficiently given if in writing and delivered in the manner provided
in the Amended and Restated Interim Loan Agreement.
IN WITNESS WHEREOF, this Amended and Restated
Guarantee has been duly executed and delivered by the Guarantor to Lender as of
the date first above written.
DVI INC.
By:_____________________________________
Name:
Title:
H-9
<PAGE> 49
Schedule 1
Recordings and Filings
[To be added]
S-1
<PAGE> 1
Exhibit 10.18
AMENDMENT TO AMENDED AND RESTATED INTERIM
LOAN AND SECURITY AGREEMENT
AMENDMENT, dated as of January 9, 1995 (this "Amendment"),
between PRUDENTIAL SECURITIES REALTY FUNDING CORPORATION, a Delaware
corporation (the "Lender"), and DVI FINANCIAL SERVICES, INC., a Delaware
corporation (the "Borrower") to the Existing Agreement referred to below.
RECITALS
The Lender and the Borrower are the parties to a certain
Amended and Restated Interim Loan and Security Agreement, dated as of September
13, 1994 (as heretofore amended, the "Existing Agreement"; as amended by this
Amendment, the "Agreement").
The Lender and the Borrower desire to amend the Existing
Agreement to increase the maximum principal amount of Advances which may at one
time be outstanding from $75,000,000 to $100,000,000.
Accordingly, in consideration of the premises, the parties
hereto agree as follows:
SECTION 1. Terms and Conditions for All Advances. Section 1
of the Existing Agreement is hereby amended by deleting the number
"$75,000,000" therein and replacing in lieu thereof the number "$100,000,000".
SECTION 2. Conditions Precedent. This Amendment shall
become effective on the date (the "Amendment Effective Date") on which the
following conditions precedent shall have been satisfied:
2.1 Delivered Documents. On the Amendment Effective Date, the
Lender shall have received the following documents, each of which shall be
satisfactory to the Lender in form and substance:
(a) this Amendment, executed and delivered by a duly
authorized officer of the Borrower;
(b) an Endorsement to Amended and Restated Secured Note
substantially in the form of Annex A hereto, executed and delivered by
a duly authorized officer of the Borrower;
(c) such other documents as the Lender may reasonably
request.
2.2 No Default. On the Amendment Effective Date, (i) the
Borrower shall be in compliance with all the terms and provisions set forth in
each Existing Agreement on its part to be
<PAGE> 2
observed or performed; (ii) the representations and warranties made and
restated by the Borrower pursuant to Section 3 of this Amendment shall be true
and complete on and as of such date with the same force and effect as if made
on and as of such date and(iii) no Default or Event of Default shall have
occurred and be continuing on such date. On the Amendment Effective Date the
Borrower shall be deemed to have certified to the Lender as set forth in this
Section 2.2.
SECTION 3. Representations and Warranties. The Borrower
hereby confirms and reaffirms the representations and warranties contained in
Section 5 of the Existing Agreement; provided, however, that references therein
to the "Agreement" shall be deemed to refer collectively to this Amendment, the
Existing Agreement, and the Agreement, each as defined herein.
SECTION 4. Limited Effect. Except as expressly amended
and modified by this Amendment, the Existing Agreement shall continue to be,
and shall remain, in full force and effect in accordance with its terms.
SECTION 5. Definitions In Existing Agreement. Unless
otherwise defined in this Amendment, terms defined in the Existing Agreement
shall have their defined meanings when used herein.
SECTION 6. Counterparts. This Amendment may be executed
by one or more of the parties hereto on any number of separate counterparts,
each of which shall be an original and all of which taken together shall
constitute one and the same instrument.
SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
[SIGNATURE PAGE FOLLOWS]
2
<PAGE> 3
IN WITNESS WHEREOF, the Lender and the Borrower have caused
this Amendment to be duly executed by their respective duly authorized
officers, all as of the day and year first above written.
PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By /s/ William J. Horan
------------------------------
Name: William J. Horan
Title: Treasurer
DVI FINANCIAL SERVICES, INC.
By /s/ Tuan A. Pham
------------------------------
Name: Tuan A. Pham
Title: Vice President
ACKNOWLEDGED AND AGREED:
DVI INC. Guarantor
By /s/ J.G. Costello
----------------------
Name: J.G. Costello
Title: Senior Vice President
3
<PAGE> 4
ENDORSEMENT TO AMENDED AND RESTATED SECURED NOTE
January 9, 1995
The undersigned Borrower hereby agrees with Prudential Realty
Funding Corporation (the "Lender") that the Amended and Restated Secured Note
of the Borrower, dated September 13, 1994, as it may have been previously
amended by endorsement, in the amount of $75,000,000, to which this Endorsement
to Amended and Restated Secured Note is attached, is hereby amended by deleting
the amount "$75,000,000.00" from each place that it is deemed to appear
therein, and by replacing in lieu thereof the number "$100,000,000".
This Endorsement to Amended and Restated Secured Note is given
as a renewal, rearrangement and extension of the obligations of the Borrower to
the Lender under the Amended and Restated Secured Note and is not given in
substitution therefor or extinguishment thereof. The Borrower hereby
authorizes the Lender to attach this Endorsement to Amended and Restated
Secured Note to the Amended and Restated Secured Note.
Borrower:
DVI FINANCIAL SERVICES, INC.
By /s/ Tuan A. Pham
--------------------------
Name: Tuan A. Pham
Title: Vice President
Lender:
PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By /s/ William J. Horan
--------------------------
Name: William J. Horan
Title: Treasurer
4
<PAGE> 5
ANNEX A
to Amendment
ENDORSEMENT TO AMENDED AND RESTATED SECURED NOTE
January 9, 1995
The undersigned Borrower hereby agrees with Prudential Realty
Funding Corporation (the "Lender") that the Amended and Restated Secured Note
of the Borrower, dated September 13, 1994, as it may have been previously
amended by endorsement, in the amount of $75,000,000, to which this Endorsement
to Amended and Restated Secured Note is attached, is hereby amended by deleting
the amount "$75,000,000.00" from each place that it is deemed to appear
therein, and by replacing in lieu thereof the number "$100,000,000".
This Endorsement to Amended and Restated Secured Note is given
as a renewal, rearrangement and extension of the obligations of the Borrower to
the Lender under the Amended and Restated Secured Note and is not given in
substitution therefor or extinguishment thereof. The Borrower hereby
authorizes the Lender to attach this Endorsement to Amended and Restated
Secured Note to the Amended and Restated Secured Note.
Borrower:
DVI FINANCIAL SERVICES, INC.
By /s/ Tuan A. Pham
--------------------------
Name: Tuan A. Pham
Title: Vice President
Lender:
PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By /s/ William J. Horan
--------------------------
Name: William J. Horan
Title: Treasurer
5
<PAGE> 1
Exhibit 10.19
SECOND AMENDMENT TO AMENDED AND RESTATED INTERIM
LOAN AND SECURITY AGREEMENT
SECOND AMENDMENT, dated as of March 10, 1995 (this
"Amendment"), between PRUDENTIAL SECURITIES REALTY FUNDING CORPORATION, a
Delaware corporation (the "Lender"), and DVI FINANCIAL SERVICES, INC., a
Delaware corporation (the "Borrower"), to the Existing Agreement referred to
below.
RECITALS
The Lender and the Borrower are parties to a certain Amended
and Restated Interim Loan and Security Agreement, dated as of September 13,
1994 (as heretofore amended, the "Existing Agreement"; as amended by this
Amendment, the "Agreement").
The Lender has requested that the Existing Agreement be
amended as provided herein and the Borrower is willing to so amend the Existing
Agreement.
Accordingly, in consideration of the premises, the parties
hereto agree as follows:
SECTION 1. The Loans. Subsection 1(i) of the Existing
Agreement is hereby amended by deleting it in its entirety and replacing in
lieu thereof the following:
"(i) after the making of such Advance, the
outstanding principal amount of the aggregate of all Advances will not
exceed the lesser of (x) 90% of the present value of the then
remaining payments under the Contracts pledged to the Lender
hereunder, discounted at the Discount Rate, as determined by the
Lender and notified to the Borrower on the third business day of each
week (or, in the sole discretion of the Lender following notice to the
Borrower, on any business day), and (y) if the Lender elects in its
sole discretion to make a determination of the market value of the
Contracts held as Collateral, 90% of the aggregate market value of the
Contracts so held as Collateral, as such market value is determined by
the Lender on any reasonable basis; and"
SECTION 2. Terms and Conditions for all Advances.
(a) Subsection 2(k)(i) of the Existing Agreement is
hereby amended by deleting the phrase "a discount rate of the Prime Rate plus
1%" in the fourth line thereof in its entirety and replacing in lieu thereof
the phrase "the Discount Rate".
(b) Subsection 2(k)(ii)(A) of the Existing Agreement is
hereby amended by deleting the phrase "a discount rate of the Prime Rate plus
1%" in the sixth line thereof in its entirety and replacing in lieu thereof the
phrase "the Discount Rate".
SECTION 3. Certain Definitions. Section 22 of the
Existing Agreement is hereby amended by adding the letter "(a)" at the
beginning of the first sentence thereof, by
<PAGE> 2
deleting the definition of "Prime Rate" - Section 1(i)." therein and by adding
the following section (b):
"(b) Unless the context otherwise requires, as used
in this Agreement, the following terms have the following meanings:
"Class A Tranche" - A hypothetical senior security issued in
connection with an Equipment Lease Structured Financing.
"Class B Tranche" - A hypothetical security issued in
connection with an Equipment Lease Structured Financing that
is subordinate to the Class A Tranche.
"Class C Tranche" - A hypothetical security issued in
connection with an Equipment Lease Structured Financing that
is subordinate to the Class A Tranche and to the Class B
Tranche.
"Discount Rate" - On any day, the rate per annum that is equal
to the sum of (i) the rate which, when compounded monthly, is
equivalent to the Weighted Average Yield when compounded
semi-annually, plus (ii) 145 basis points.
"Equipment Lease Structured Financing" - A hypothetical
three-tiered transaction employing agreements as customarily
are entered into by the Lender in structured financings in
which the Lender acts as depositor, securitizing a pool of
equipment leases bearing maturities and credit risk
characteristics comparable to the Contracts.
"Weighted Average Yield" - On any day, the rate per annum that
is equal to the sum of (i) 85.5% multiplied by the
hypothetical credit spread that would be required to induce an
investor to purchase a Class A Tranche, as reasonably
determined by the Lender, (ii) 4.5% multiplied by the
hypothetical credit spread that would be required to induce an
investor to purchase a Class B Tranche, as reasonably
determined by the Lender, (iii) 10% multiplied by the
hypothetical credit spread that would be required to induce an
investor to purchase a Class C Tranche, as reasonably
determined by the Lender, and (iv) the rate appearing on page
5 of the Telerate Screen for a 3-year maturity treasury
security (or such other page as may replace that page on that
service, or such other service as may be nominated as the
information vendor for such rate); provided, that the
percentages listed in clauses (i) - (iii), above, may be
changed by the Lender at any time and from time to time to
reflect changes in then current market conditions, which
changes shall be promptly notified to the Borrower."
SECTION 4. Conditions Precedent. This Amendment shall
become effective on the date (the "Amendment Effective Date") on which the
following conditions precedent shall have been satisfied:
2
<PAGE> 3
4.1 Delivered Documents. On the Amendment Effective
Date, the Lender shall have received the following documents, each of which
shall be satisfactory to the Lender in form and substance:
(a) this Amendment, executed and delivered by a duly
authorized office of the Borrower; and
(b) such other documents as the Lender may reasonably
request.
4.2 No Default. On the Amendment Effective Date, (i) the
Borrower shall be in compliance with all the terms and provisions set forth in
each Existing Agreement on its part to be observed or performed; (ii) the
representations and warranties made and restated by the Borrower pursuant to
Section 5 of this Amendment shall be true and complete on and as of such date
with the same force and effect as if made on and as of such date and (iii) no
Default or Event of Default shall have occurred and be continuing on such date.
On the Amendment Effective Date the Borrower shall be deemed to have certified
to the Lender as set forth in this Section 2.2.
SECTION 5. Representations and Warranties. The Borrower
hereby confirms and reaffirms the representations and warranties contained in
Section 5 of the Existing Agreement; provided, however, that references therein
to the "Agreement" shall be deemed to refer collectively to this Amendment, the
Existing Agreement, and the Agreement, each as defined herein.
SECTION 6. Limited Effect. Except as expressly amended
and modified by this Amendment, the Existing Agreement shall continue to be,
and shall remain, in full force and effect in accordance with its terms.
SECTION 7. Definitions in Existing Agreement. Unless
otherwise defined in this Amendment, terms defined in the Existing Agreement
shall have their defined meanings when used herein.
SECTION 8. Counterparts. This Amendment may be executed
by one or more of the parties hereto on any number of separate counterparts,
each of which shall be an original and all of which taken together shall
constitute one and the same instrument.
SECTION 9. GOVERNING LAW. THIS AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
[SIGNATURE PAGE FOLLOWS]
3
<PAGE> 4
IN WITNESS WHEREOF, the Lender and the Borrower have caused
this Amendment to be duly executed by their respective duly authorized
officers, all as of the day and year first above written.
PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By /s/ William J. Horan
--------------------------
Name: William J. Horan
Title: Treasurer
DVI FINANCIAL SERVICES, INC.
By /s/ Tuan A. Pham
--------------------------
Name: Tuan A. Pham
Title: Vice President
ACKNOWLEDGED AND AGREED:
DVI INC., Guarantor
By /s/ J. G. Costello
--------------------
Name: James G. Costello
Title: Senior Vice President
4
<PAGE> 1
Exhibit 10.20
THIRD AMENDMENT TO INTERIM LOAN AND
SECURITY AGREEMENT
THIRD AMENDMENT, dated as of March 31, 1995 (this "Third Amendment"),
between (i) PRUDENTIAL SECURITIES REALTY FUNDING CORPORATION, a Delaware
corporation (the "Lender"), and (ii) DVI FINANCIAL SERVICES, INC., a Delaware
corporation (the"Borrower") to the Existing Agreement referred to below.
RECITALS
The Borrower and the Lender are parties to that certain
Amended and Restated Interim Loan and Security Agreement, dated as of September
13, 1994 (as heretofore amended, the "Existing Agreement"; as amended by this
Third Amendment, the "Agreement").
Under the Existing Agreement, the Lender provides interim
financing from time to time to provide interim funding for leases of equipment
for inclusion in a Trust, which leases and equipment are pledged to secure the
Advances made by the Lender thereunder, with the proceeds of the related
Certificates being used to repay such Advances.
The Borrower and the Lender desire to amend the Existing
Agreement to additionally provide for the making of a Special Advance (as
defined below) to the Borrower secured by the Borrower's interest in the Class
C Note (as defined below) and in the Residual Interest (as defined below), each
of which evidences a percentage interest in distributions with respect to
certain asset-backed trusts as more particularly described herein.
Accordingly, the Borrower and the Lender hereby agree that the
Existing Agreement is hereby amended as follows:
SECTION 1. Recitals. The Recitals are hereby amended by
adding the following paragraph after the fourth recital therein:
"WHEREAS, The Lender has additionally agreed, subject
to the terms and conditions contained herein, to provide a Special Advance (as
defined below) secured by the Borrower's interest in the Class C Note (as
defined below) and in the Residual Interest (as defined below), each of which
evidences a percentage interest in distributions with respect to certain
asset-backed trusts as more particularly described herein."
SECTION 2. The Advances. Section 1 of the Existing Agreement
is hereby amended by:
(a) deleting the phrase "(each an 'Advance' and,
collectively, 'Advances')" at the end of the first sentence thereof and by
replacing in lieu thereof the phrase "(each an 'Advance' and, collectively,
'Advances'; provided, that Advances shall also include the Special Advance)".
<PAGE> 2
(b) deleting subsection (i) thereof and replacing in lieu
thereof the following subsection (i):
"(i) after the making of such Advance, the outstanding
principal amount of the aggregate of all Advances will not exceed the
sum of (A) the lesser of (1) 90% of the present value of the then
remaining payments under the Contracts pledged to the Lender
hereunder, discounted at the Discount Rate, as determined by the
Lender and notified to the Borrower on the third business day of each
week (or, in the sole discretion of the Lender following notice to the
Borrower, on any business day), and (2) if the Lender elects in its
sole discretion to make a determination of the market value of the
Contracts held as Collateral, 90% of the aggregate market value of the
Contracts so held as Collateral, as such market value is determined by
the Lender on any reasonable basis, and (B) 80% of the value of the
Class C Note and the Retained Interest, each as determined by the
Lender in its sole discretion, which value may be zero (except to the
extent that the Lender has received actual payments in respect
thereof) (such sum the 'Collateral Requirement'); and"
SECTION 3. Terms and Conditions for All Advances. Section
2(k) of the Existing Agreement is hereby amended by deleting it in its entirety
and replacing in lieu thereof the following Section 2(k):
"(k) If at any time the aggregate outstanding
principal amount of all Advances exceeds the Collateral Requirement,
as determined by the Lender and notified to the Borrower on the third
business day of each week (or, in the sole discretion of the Lender
following notice to the Borrower, on any business day), the Borrower
shall, no later than one business day after receipt of notice of such
excess, either prepay such Advances (together with interest thereon)
in part or in whole or pledge additional Collateral (as hereinafter
defined) to the Lender, such that after giving effect to such
prepayment or pledge the unpaid principal amount of such Advances does
not exceed the Collateral Requirement."
SECTION 4. Special Advance. The Existing Agreement is hereby
amended by adding the following Section 2A after Section 2 therein:
"Section 2A. Special Advance.
(a) Subject to the terms of this Agreement, the Lender
agrees to make an Advance to the Borrower on March 31, 1995 (such Advance, the
'Special Advance') in the principal amount of $3,500,000; provided, that the
conditions precedent in Section 2A(b) hereof have been satisfied.
(b) The following are conditions precedent to the making
of the Special Advance:
2
<PAGE> 3
(i) the representations and warranties of the
Borrower in Section 5 and Section 2A(d) hereof, shall be true and
correct on and as of such date as if made on and as of such date;
(ii) no Default or Event of Default shall have
occurred and be continuing or would exist after the making of the
Special Advance on such date; and
(iii) the Lender shall have received the following
documents, all of which shall be in form and substance satisfactory to
the Lender (A) a written request for a Borrowing from the Borrower,
listing the principal amount of the Special Advance, the business day
on which such Special Advance is to be made, and addressing the
matters in Section (b)(i) and (ii) hereof, (B) confirmation from the
Custodian, stating that the Custodian is holding the Class C Note as
custodian for, and bailee of the Lender for the exclusive use and
benefit of the Lender, and that the Custodian will make disposition
thereof only in accordance with the written instructions furnished by
the Lender, (C) an Assignment and Agreement, in form and substance
satisfactory to the Lender, duly executed and delivered by DVI
Receivables and the Borrower, (D) a financing statement on Form UCC-1,
evidencing the Borrower's grant of the security interest in the Class
C Note and the Residual Interest to the Lender hereunder, (E) the
legal opinion of counsel for the Borrower, in form and substance
satisfactory to the Lender, and (F) the consent in writing of the
Guarantor to the making of the Special Advance.
(c) In connection with the making of the Special Advance,
the Borrower hereby pledges and grants a security interest in all of its
respective right, title and interest in and to the Class C Note and the
Residual Interest to the Lender to secure the repayment of the Secured
Obligations. The Borrower agrees to mark its computer records and tapes to
evidence the security interests granted to the Lender hereunder.
(d) The Borrower represents and warrants to the Lender
that:
(i) the Class C Note and the Residual Interest are
properly described herein, the Class C Note have been duly and validly
issued and is outstanding on the Funding Date, and the Residual
Interest is in full force and effect on the Funding Date;
(ii) the Class C Note has been transferred to the
Borrower and the Residual Interest has been assigned to the Borrower
pursuant to the Assignment and Agreement in payment of the dividend
authorized by the resolution of DVI Receivables Corp. dated the date
hereof;
(iii) the Borrower is currently the record and
beneficial owner of, and has good and marketable title to, the Class C
Note and the Residual Interest, and upon receipt by the Custodian of
the Class C Note and the filing of the financing statement required by
Section 2A(b)(iii) hereof, the provisions of this Agreement are
sufficient to create in favor of the Lender, a fully perfected
first-priority security interest in and to the Class C Note and the
Residual Interest, and the Class C Note and the Residual
3
<PAGE> 4
Interest are free, clear and unencumbered by any security interests in
favor of any person or entity other than the Lender; and
(iv) all requirements for transfer to the Borrower
of the Class C Note and the assignment to the Borrower of the Residual
Interest contained in the Indentures have been satisfied.
(e) The Borrower hereby covenants that it will not sell,
assign, transfer, exchange or otherwise dispose of, or grant any option with
respect to, the Class C Note or the Residual Interest, or offer to do any of
the foregoing, or create, incur or permit to exist any lien, security interest
or option in favor of, or any claim of any person or entity with respect to,
the Class C Note or the Residual Interest, or any interest therein, and it will
defend the right, title and interest of the Lender in and to the Class C Note
or the Residual Interest against the claims and demands of all persons or
entities whomsoever.
(f) Notwithstanding anything herein to the contrary, the
Special Advance shall bear interest from March 31, 1995 to but excluding the
Special Advance Maturity Date at a rate per annum equal to LIBOR plus 1.50% and
thereafter at a rate per annum equal to LIBOR plus 3.50%,
(g) Notwithstanding anything herein to the contrary, the
Special Advance shall mature on June 30, 1995 (the 'Special Advance Maturity
Date')."
SECTION 5. Secured Obligations. Section 4 of the Existing
Agreement is hereby amended by adding the following phrase prior to the phrase
"all books and records" in the eighth line thereof:
"the Class C Note, the Residual Interest,"
SECTION 6. Events of Default. Section 13 of the Existing
Agreement is hereby amended by deleting the word "and" at the end of subsection
(h) thereof, by replacing the "." at the end of subsection (i) thereof with ";
and", and by adding the following subsection (j) at the end thereof:
"(j) Any of the Class C Note, the Residual
Interest or the Indentures cease to be in full force and effect, or
any party to the Indentures so asserts in writing, or the Borrower
fails to comply with any provision of Section 2A(e)."
SECTION 7. Certain Definitions. Section 22 of the Existing
Agreement is hereby amended by adding the following definitions in proper
alphabetical order:
"'Class C Note' means the DVI Receivables Corp. 7.13%
Asset-Backed Note, Series 1994-A, Class C, together with all
securities, certificates, payments, distributions, exchanges, options
or other rights of any nature whatsoever which may be issued or
granted to the Borrower in respect of the same while the Agreement is
in effect.
4
<PAGE> 5
'Indentures' means the collective reference to (i)
the Indenture, Series 1994-A, dated as of June 30, 1994, between DVI
Receivables Corp., as Issuer, and Bankers Trust Company, as Trustee,
and (ii) the Indenture, Series 1995-A, dated as of March 15, 1995,
between the same parties, each as may be amended, supplemented or
otherwise modified from time to time.
'Residual Interest' means all of the Borrower's
rights, assigned to it by DVI Receivables Corp., to receive funds under Section
3.04(b)(viii) of that certain Indenture, Series 1995-A, dated as of March 15,
1995, between DVI Receivables Corp. and the Trustee, and all rights incident
thereto.
'Special Advance' - Section 2A(a).
'Special Advance Maturity Date' - Section 2A(g)."
SECTION 8. Conditions Precedent. This Third Amendment shall
become effective on the date (the "Third Amendment Effective Date") on which
the Lender shall have received the following documents, each of which shall be
satisfactory to the Lender in form and substance:
(a) this Third Amendment, executed and delivered by a
duly authorized officer of the Borrower and the Guarantor;
(b) a certificate of the Borrower and the Guarantor in
respect of each of the officers who is authorized to sign on its behalf this
Third Amendment;
(c) such other documents as the Lender may reasonably
request.
SECTION 9. Limited Effect. Except as expressly amended and
modified by this Third Amendment, the Existing Agreement shall continue to be,
and shall remain, in full force and effect in accordance with its terms.
SECTION 10. Definitions in Existing Agreement. Unless
otherwise defined in this Third Amendment, terms defined in the Existing
Agreement shall have their defined meanings when used herein.
SECTION 11. Counterparts. This Third Agreement may be
executed by one or more of the parties hereto on any number of separate
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument.
SECTION 12. Governing Law. This Third Amendment shall be
governed by, and construed in accordance with, the law of the State of New
York.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
Borrower: DVI FINANCIAL SERVICES, INC.
By: /s/ Tuan A. Pham
---------------------------
Name: Tuan A. Pham
Title: Vice President
Lender: PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By: /s/ William J. Horan
---------------------------
Name: William J. Horan
Title: Treasure
CONSENTED TO:
DVI INC.
By: /s/ David L. Higgins
---------------------------
Name: David L. Higgins
Title: President
<PAGE> 1
Exhibit 10.21
REVIVAL AGREEMENT
REVIVAL AGREEMENT, dated as of April 21, 1995 (this "Revival
Agreement"), between PRUDENTIAL SECURITIES REALTY FUNDING CORPORATION, a
Delaware corporation (the "Lender"), and DVI FINANCIAL SERVICES, INC., a
Delaware corporation (the "Borrower") in respect of the Prior Agreement
referred to below.
RECITALS
The Lender and the Borrower were parties to a certain Interim
Loan and Security Agreement, dated as of September 13, 1994 (as amended, the
"Prior Agreement"; as revived and amended by this Revival Agreement, the
"Agreement").
The Lender and the Borrower desire to revive the obligation of
the Lender pursuant to Section 2(a) of the Prior Agreement as of the date
hereof and to amend the Prior Agreement as set forth below.
Accordingly, in consideration of the premises, the parties
hereto agree as follows:
SECTION 1. Revival. The parties hereto hereby agree that the
obligation of the Lender pursuant to Section 2(a) of the Prior Agreement, which
by the terms of a Notice of Extension of Agreement dated December 12, 1994
terminated as of March 31, 1995, shall be revived as of the date hereof, and as
expressly amended and modified by this Revival Agreement, the Agreement shall
be, and shall remain, in full force and effect in accordance with its terms as
of the date hereof.
SECTION 2. Terms and Conditions for All Advances. Section
2(a) of the Prior Agreement is hereby amended by deleting the date appearing
directly before the phrase "(the "Termination Date")" in the first sentence
thereof and replacing in lieu thereof the date "July 1, 1995".
SECTION 3. Conditions Precedent. This Revival Agreement
shall become effective on the date (the "Revival Agreement Effective Date") on
which the following conditions precedent shall have been satisfied:
3.1 Delivered Documents. On the Revival Agreement Effective
Date, the Lender shall have received the following documents, each of which
shall be satisfactory to the Lender and its counsel in form and substance:
(a) this Revival Agreement, executed and delivered by a
duly authorized officer of the Borrower;
(b) a custodial letter, dated as of the date hereof,
executed and delivered by Bankers Trust of California, N.A., as Custodian under
the Custodial Agreement, and acknowledged by the Borrower;
<PAGE> 2
(c) an Endorsement to Secured Note, substantially in the
form of Annex A hereto, executed and delivered by a duly authorized officer of
the Borrower; and
(d) such other agreements, sideletters, opinions of
counsel or other documents as the Lender may reasonably request.
3.2 No Default. On the Revival Agreement Effective Date, (i)
the Borrower shall be in compliance with all the terms and provisions set forth
in the Prior Agreement on its part to be observed or performed; (ii) the
representations and warranties made and restated by the Borrower pursuant to
Section 4 of this Revival Agreement shall be true and correct on and as of such
date with the same force and effect as if made on and as of such date and (iii)
no Default or Event of Default shall have occurred and be continuing on such
date. On the Revival Agreement Effective Date the Borrower shall be deemed to
have certified to the Lender as set forth in this Section 3.2.
SECTION 4. Representations and Warranties. The Borrower
hereby confirms and reaffirms the representations and warranties contained in
Section 5 of the Prior Agreement; provided, however, that references therein to
the "Agreement" shall be deemed to refer collectively to this Revival
Agreement, the Prior Agreement, and the Agreement, each as defined herein.
SECTION 5. Definitions In Prior Agreement. Unless otherwise
defined in this Revival Agreement, terms defined in the Prior Agreement shall
have their defined meanings when used herein.
SECTION 6. Counterparts. This Revival Agreement may be
executed by one or more of the parties hereto on any number of separate
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument.
SECTION 7. GOVERNING LAW. THIS REVIVAL AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
[SIGNATURE PAGE FOLLOWS]
2
<PAGE> 3
IN WITNESS WHEREOF, the Lender and the Borrower have caused
this Revival Agreement to be duly executed by their respective duly authorized
officers, all as of the day and year first above written.
PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By /s/ William J. Horan
--------------------------
Name: William J. Horan
Title: Treasurer
DVI FINANCIAL SERVICES, INC.
By /s/ Anthony J. Turek
--------------------------
Name: Anthony J. Turek
Title: Senior Vice President
<PAGE> 4
ANNEX A
TO REVIVAL AGREEMENT
ENDORSEMENT TO SECURED NOTE
April 21, 1995
The undersigned Borrower hereby agrees with Prudential Realty
Funding Corporation (the "Lender") that the Secured Note of the Borrower, dated
September 13, 1994, as it may have been previously amended by endorsement, in
the amount of $100,000,000, to which this Endorsement to Secured Note is
attached, is hereby amended by deleting the date "March 31, 1995" from each
place where it is deemed to appear therein, and by replacing in lieu thereof
the date "July 14, 1995".
This Endorsement to Secured Note is given as a renewal,
rearrangement and extension of the obligations of the Borrower to the Lender
under the Secured Note and is not given in substitution therefor or
extinguishment thereof. The Borrower hereby authorizes the Lender to attach
this Endorsement to Secured Note to the Secured Note.
Borrower:
DVI FINANCIAL SERVICES, INC.
By
--------------------------
Name:
Title:
Lender:
PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By
--------------------------
Name:
Title:
<PAGE> 1
Exhibit 10.22
FOURTH AMENDMENT TO INTERIM
LOAN AND SECURITY AGREEMENT
FOURTH AMENDMENT, dated as of April 28, 1995 (this "Fourth
Amendment"), between (i) PRUDENTIAL SECURITIES REALTY FUNDING CORPORATION, a
Delaware corporation (the "Lender"), and (ii) DVI FINANCIAL SERVICES, INC., a
Delaware corporation (the "Borrower") to the Existing Agreement referred to
below.
RECITALS
The Borrower and the Lender are parties to that certain Amended
and Restated Interim Loan and Security Agreement, dated as of September 13,
1994 (as heretofore amended, the "Existing Agreement"; as amended by this
Fourth Amendment, the "Agreement").
Under the Existing Agreement, the Lender provides interim
financing from time to time to provide interim funding for leases of equipment
for inclusion in a Trust, which leases and equipment are pledged to secure the
Advances made by the Lender thereunder, with the proceeds of the related
Certificates being used to repay such Advances.
The Borrower and the Lender desire to amend the Existing
Agreement to additionally provide for the making of a Second Special Advance
(as defined below) to the Borrower secured by the Borrower's interest in the
Class C Note and in the Residual Interest.
Accordingly, the Borrower and the Lender hereby agree that the
Existing Agreement is hereby amended as follows:
SECTION 1. Recitals. The Recitals are hereby amended by
adding the following paragraph after the fifth recital therein:
"WHEREAS, the Lender has additionally agreed, subject to
the terms and conditions contained herein, to provide a Second Special
Advance (as defined below) secured by the Borrower's interest in the
Class C Note and in the Residual Interest."
SECTION 2. The Advances. Section 1 of the Existing Agreement
is hereby amended by:
(a) deleting the phrase "(each an 'Advance' and,
collectively, 'Advances'; provided, that Advances shall also include the
Special Advance)" at the end of the first sentence thereof and by
replacing in lieu thereof the phrase "(each an 'Advance' and,
collectively, 'Advances'; provided, that Advances shall also include the
Special Advance and the Second Special Advance)".
<PAGE> 2
(b) deleting subsection (i) thereof and replacing in
lieu thereof the following subsection (i):
"(i) after the making of such Advance, the
outstanding principal amount of the aggregate of all Advances
will not exceed the sum of (A) the lesser of (1) 90% of the
present value of the then remaining payments under the Contracts
pledged to the Lender hereunder, discounted at the Discount Rate,
as determined by the Lender and notified to the Borrower on the
third business day of each week (or, in the sole discretion of
the Lender following notice to the Borrower, on any business
day), and (2) if the Lender elects in its sole discretion to make
a determination of the market value of the Contracts held as
Collateral, 90% of the aggregate market value of the Contracts so
held as Collateral, as such market value is determined by the
Lender on any reasonable basis, and (B) 90% of the value of the
Class C Note and the Retained Interest, each as determined by the
Lender in its sole discretion, which value may be zero (except to
the extent that the Lender has received actual payments in
respect thereof) (such sum the 'Collateral Requirement'; and"
SECTION 3. Special Advance. The Existing Agreement is hereby
amended by adding the following Section 2B after Section 2A therein:
"Section 2B. Second Special Advance.
(a) Subject to the terms of this Agreement, the Lender
agrees to make an Advance to the Borrower on May 1, 1995 (such Advance,
the 'Second Special Advance') in the principal amount of $775,000;
provided, that the conditions precedent in Section 2B(b) hereof have
been satisfied.
(b) The following are conditions precedent to the
making of the Second Special Advance:
(i) the representations and warranties of the
Borrower in Section 5 and Section 2A(d) hereof, shall be true and
correct on and as of such date as if made on and as of such date;
(ii) no Default or Event of Default shall have
occurred and be continuing or would exist after the making of the
Special Advance on such date; and
(iii) the Lender shall have received the following
documents, all of which shall be in the form and substance
satisfactory to the Lender (A) a written request for a Borrowing
from the Borrower, listing the principal amount of the Second
Special Advance, the business day on which such Second Special
Advance is to be made, and addressing the matters in Section
(b)(i) and (ii) hereof, (B) the consent in writing of the
Guarantor to the making of the Second Special Advance, and (C)
such financing statements, legal opinions or other
2
<PAGE> 3
documents, each in form and substance satisfactory to the Lender,
as the Lender may reasonably request.
(c) Notwithstanding anything herein to the contrary,
the Second Special Advance shall bear interest from May 1, 1995 to but
excluding the Second Special Advance Maturity Date at a rate per annum
equal to LIBOR plus 1.50% and thereafter at a rate per annum equal to
LIBOR plus 3.50%.
(d) Notwithstanding anything herein to the contrary,
the Second Special Advance shall mature on June 29, 1995 (the 'Second
Special Advance Maturity Date')."
SECTION 4. Certain Definitions. Section 22 of the Existing
Agreement is hereby amended by adding the following definition in proper
alphabetical order:
"'Second Special Advance' - Section 2B(a).
'Second Special Advance Maturity Date' - Section 2B(d)."
SECTION 5. Conditions Precedent. This Fourth Amendment shall
become effective on the date (the "Fourth Amendment Effective Date") on which
the Lender shall have received the following documents, each of which shall be
satisfactory to the Lender in form and substance:
(a) this Fourth Amendment, executed and delivered by a
duly authorized officer of the Borrower and the Guarantor;
(b) a certificate of the Borrower and the Guarantor in
respect of each of the officers who is authorized to sign on its behalf
this Fourth Amendment; and
(c) such other documents as the Lender may reasonably
request.
SECTION 6. Limited Effect. Except as expressly amended and
modified by this Fourth Amendment, the Existing Agreement shall continue to be,
and shall remain, in full force and effect in accordance with its terms.
SECTION 7. Definitions in Existing Agreement. Unless
otherwise defined in this Fourth Amendment, terms defined in the Existing
Agreement shall have their defined meanings when used herein.
SECTION 8. Counterparts. This Fourth Amendment may be
executed by one or more of the parties hereto on any number of separate
counterparts, each of which shall be an original and all of which taken
together shall constitute one and the same instrument.
SECTION 9. GOVERNING LAW. THIS FOURTH AMENDMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
Borrower: DVI FINANCIAL SERVICES, INC.
By: /s/ Tuan A. Pham
----------------------------
Name: Tuan A. Pham
Title: Vice President
Lender: PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By: /s/ William J. Horan
----------------------------
Name: William J. Horan
Title: Treasurer
CONSENTED TO:
DVI INC.
By: /s/ David L. Higgins
---------------------------
Name: David L. Higgins
Title: President
4
<PAGE> 1
Exhibit 10.23
FIFTH AMENDMENT TO INTERIM
LOAN AND SECURITY AGREEMENT
FIFTH AMENDMENT, dated as of April 21, 1995 (this "Fifth
Amendment"), between (i) PRUDENTIAL SECURITIES REALTY FUNDING CORPORATION, a
Delaware corporation (the "Lender"), and (ii) DVI FINANCIAL SERVICES, INC., a
Delaware corporation (the "Borrower") to the Existing Agreement referred to
below.
RECITALS
The Borrower and the Lender are parties to that certain Amended
and Restated Interim Loan and Security Agreement, dated as of September 13,
1994 (as heretofore amended, the "Existing Agreement"; as amended by this Fifth
Amendment, the "Agreement").
Under the Existing Agreement, the Lender provides interim
financing from time to time to provide interim funding for leases of equipment
for inclusion in a Trust, which leases and equipment are pledged to secure the
Advances made by the Lender thereunder, with the proceeds of the related
Certificates being used to repay such Advances.
The Borrower has requested that the Existing Agreement be amended
as provided herein and the Lender is willing to so amend the Existing
Agreement.
Accordingly, in consideration of the premises, the Borrower and
the Lender hereby agree that the Existing Agreement is hereby amended as
follows:
SECTION 1. Terms and Conditions for All Advances. Section
2(b)(ii) of the Existing Agreement is hereby amended by deleting the reference
to "LIBOR plus 0.90%" in the first sentence thereof and replacing in lieu
thereof "LIBOR plus 0.75%".
SECTION 2. Conditions Precedent. This Fifth Amendment shall
become effective on the date on which the Lender shall have received the
following documents, each of which shall be satisfactory to the Lender in form
and substance:
(a) this Fifth Amendment, executed and delivered by a duly
authorized officer of the Borrower and the Guarantor; and
(b) such other documents, certificates or opinions as the
Lender may reasonably request.
SECTION 3. Limited Effect. Except as expressly amended and
modified by this Fifth Amendment, the Existing Agreement shall continue to be,
and shall remain, in full force and effect in accordance with its terms.
<PAGE> 2
SECTION 4. Definitions In Existing Agreement. Unless
otherwise defined in this Fifth Amendment, terms defined in the Existing
Agreement shall have their defined meanings when used herein.
SECTION 5. Counterparts. This Fifth Amendment may be executed
by one or more of the parties hereto on any number of separate counterparts,
each of which shall be an original and all of which taken together shall
constitute one and the same instrument.
SECTION 6. GOVERNING LAW. THIS FIFTH AMENDMENT SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Fifth
Amendment to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above written.
Borrower: DVI FINANCIAL SERVICES, INC.
By: /s/ Tuan A. Pham
----------------------------
Name: Tuan A. Pham
Title: Vice President
Lender: PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By: /s/ William J. Horan
----------------------------
Name: William J. Horan
Title: Treasurer
CONSENTED TO:
DVI INC.
By: /s/ David L. Higgins
-------------------------
Name: David L. Higgins
Title: President
3
<PAGE> 1
Exhibit 10.24
EXECUTION COPY
***********************************************************
INTERIM LOAN AND SECURITY AGREEMENT
Dated as of June 7, 1995
between
PRUDENTIAL SECURITIES REALTY FUNDING CORPORATION
and
DVI BUSINESS CREDIT CORPORATION
***********************************************************
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. The Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Terms and Conditions for Advances . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3. Purpose of Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4. Secured Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 6. Rights of Lender; Limitations on
Lender's obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7. Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 8. Repayment of the Loan If Provider Loan is
Found Defective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9. Release of Provider Loan Files
Following Payment of Secured Obligations . . . . . . . . . . . . . . . . . . . . 18
Section 10. Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 11. No Oral Modifications; Successors and
Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 12. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 13. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 14. Remedies Upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 15. Indemnification and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 16. Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 17. No Duty on Lender's Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 18. Powers Coupled with an Interest . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 19. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 20. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 21. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 22. Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 23. No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 24. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 25. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 26. Hypothecation or Pledge of Collateral . . . . . . . . . . . . . . . . . . . . . . 28
Section 27. Integration of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 28. Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 29. Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 30. GOVERNING LAW; CONSENT TO JURISDICTION;
AGREEMENT CONSTITUTES SECURITY AGREEMENT . . . . . . . . . . . . . . . . . . . . 29
EXHIBITS:
Exhibit A: Secured Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A
Exhibit B-1: Notice of Extension of Agreement . . . . . . . . . . . . . . . . . . . . . . . . B-1
Exhibit B-2: Secured Note Endorsement (Extension of
Termination Date) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
Exhibit C: Opinion of Borrower's Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
Exhibit D: Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . D-1
Exhibit E: Notice of Extension of Maturity Date of
Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E-1
Exhibit F: Lender Account Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Exhibit G: Guarantee of DVI INC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1
Exhibit H: Weekly Reconciliation Report . . . . . . . . . . . . . . . . . . . . . . . . . . H-1
SCHEDULE
Schedule 1: Provider Loan Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Schedule 2: Borrower Recordings and Filings . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Schedule 3: Provider Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
</TABLE>
-ii-
<PAGE> 4
INTERIM LOAN AND SECURITY AGREEMENT, dated as of June 7, 1995 (as
amended or otherwise modified from time to time, the "Agreement"), between
PRUDENTIAL SECURITIES REALTY FUNDING CORPORATION, a Delaware corporation (the
"Lender"), and DVI BUSINESS CREDIT CORPORATION, a Delaware corporation (the
"Borrower").
WHEREAS, the Borrower wishes to obtain interim financing to fund
certain loans (the "Provider Loans") made by the Borrower to several health
care companies and service providers listed on Schedule 1 hereto (each a
"Provider" and collectively, the "Providers") secured by certain health care
account receivables payable by various obligors including without limitation
Medicaid, Medicare, other health care providers, insurance companies, health
maintenance organizations, and prepaid health care plans (the "Receivables"),
each pursuant to a Revolving Loan and Security Agreement listed on Schedule 1
hereto (each a "Provider Loan Agreement"), and which Provider Loans shall
secure the Advances (as defined herein) to be made by the Lender hereunder;
NOW, THEREFORE, the Borrower and the Lender agree as follows:
Section 1. The Loan. (a) Subject to the terms of this Agreement,
the Lender agrees to lend to the Borrower from time to time an aggregate
principal amount not to exceed at any one time outstanding 80% of the aggregate
amount outstanding in respect of the Provider Loans (after giving effect to any
simultaneous disbursements to the Providers on any given day); provided that at
no time shall outstanding Advances hereunder exceed Five Million Five Hundred
Thousand ($5,500,000) Dollars.
(b) Subject to Section 13, each outstanding Advance shall
mature on, and the obligation of the Lender to make any Advances hereunder
shall terminate, on August 31, 1995 (the "Termination Date"); provided that the
Termination Date may be extended from time to time, in the sole and absolute
discretion of the Lender, upon (i) the execution and delivery by the parties
hereto of (A) a Notice of Extension of Agreement substantially in the form of
Exhibit B-1 annexed hereto and (B) an Endorsement to the Secured Note,
substantially in the form of Exhibit B-2 annexed hereto.
(c) On or prior to the execution and delivery of this
Agreement, the Lender shall establish trust accounts titled PSRFC Lender
Account Doctors Choice Home Medical Equipment of Cargo Inc., PSRFC Lender
Account Coast Plaza Doctors Hospital, PSRFC Lender Account American Shared -
Curacare and Curecare, Inc., PSRFC Lender Account Quality Long Term Care of
Nevada, Inc. and PSRFC Lender Health Care
<PAGE> 5
Servicers, Inc. (collectively these accounts are referred to herein as the
Lender Account). The Borrower shall pay all fees incurred by the Lender in
connection with the establishment, maintenance and operation of the Lender
Account. It is the intention of the Lender and the Borrower that the Lender
Account be deemed to be owned by the Lender, however, as a precautionary
measure, the Borrower shall execute a letter in the form of Exhibit F hereto
giving notice under the Uniform Commercial Code (the "UCC") of California of
the Lender's security interest in such account and all amounts deposited
therein to the depository institution maintaining such account (the "Lender
Account Notice"). The Lender shall sweep deposits in each lockbox or blocked
accounts the Borrower has established with the Providers pursuant to the
Provider Loan Agreements (the "Provider Lockbox Accounts") to the appropriate
subaccount of the Lender Account on a daily basis and in connection therewith,
the Borrower shall be deemed to have represented and warranted during each day
of this Agreement that in respect of such amounts:
(i) the Borrower had valid title thereto, subject
to no other interest;
(ii) such amounts do not exceed, as to any
Provider, amounts owing under the related Provider Loan Agreement; and
(iii) the Borrower has or will credit the related
Provider with a reduction in its loan balance with the Borrower in an
amount equal to the amounts swept into the Lender Account in respect
of such Provider.
(d) The Borrower shall provide notices to the depository
institutions maintaining such Provider Lockbox Accounts of such sweep
arrangements, which notices shall also notify such institutions of the Lender's
security interest in the Borrower's right, title and interest in such Provider
Lockbox Accounts (the "Sweep Notices").
(e) Subject to the terms hereof, the Borrower may request
an Advance by either of the following methods:
(i) The Borrower may request funds from the Lender
directly by giving the Lender written notice by no later than 11:00
a.m. two Business Days prior to the date on which an Advance is to be
made (each such date on which an Advance is made, a "Funding Date") of
the amount of the Advance to be advanced on such Funding Date by
delivering to the Lender a Notice of Borrowing substantially in the
form of Exhibit D attached hereto; provided that unless the Lender
receives written notice of an Advance by 2:00 pm at least two Business
Days prior to a Funding Date, the Lender will not guarantee receipt
2
<PAGE> 6
of funds by the Borrower before 5:30 pm on the Funding Date. The
Lender shall not be liable to the Borrower for its inability to timely
wire Advances to the Borrower in the instance that the Lender has
funds on deposit with a financial institution sufficient to cover the
amount of the Advance, but such financial institution does not have
sufficient funds on deposit with the Federal Reserve System; or
(ii) The Borrower may request funds from the Lender
Account. In connection therewith and with the other purposes provided
in this paragraph (ii), the Lender hereby appoints the Borrower as its
disbursing agent to make such withdrawals, subject to the terms and
conditions of this Agreement. Such appointment is revocable at will
by the Lender in its sole discretion and shall be deemed automatically
revoked upon the occurrence of an Event of Default. Notwithstanding
the foregoing, but subject to all other terms of this Agreement, the
Borrower as disbursing agent may withdraw funds from the Lender
Account as follows:
(A) in reduction of amounts outstanding hereunder to the Lender;
provided however that notice of any such repayment shall be
given in writing to the Lender at least one Business Day prior
to any repayment;
(B) as an Advance for the purpose of financing the Provider Loans,
provided that such amounts are wired directly to the Provider
Accounts set forth on Schedule 1 to the Lender Notice; or
(C) for general corporate purposes, provided that a report is
delivered to the Lender by 11:30 a.m. on such day satisfactory
in form and substance to the Lender setting forth such
information as may be agreed upon by the Lender and the
Borrower from time to time to evidence the Borrower's
compliance with the terms of this Agreement. In the event the
conditions to such withdrawal are satisfied, the Lender shall
notify the depository bank at which the Lender Account is
maintained by 3:30 p.m. on the day when a conforming request
is received by the Borrower.
(f) [Reserved]
(g) The Borrower shall pay to the Lender interest at a
rate equal to the Base Rate (the "Base Rate" being the rate of interest
announced from time to time by Morgan Guaranty Trust Company of New York or
such other New York money center bank as may be designated by the Lender from
time
3
<PAGE> 7
to time as its prime or base rate) as determined by the Lender and notified to
the Borrower on the first business day of each week (or, in the sole discretion
of the Lender following notice to the Borrower, on any business day) on the
daily unpaid Advances. Interest shall be calculated on the basis of a 360-day
year and paid for the actual number of days elapsed.
(h) Outstanding Advances are prepayable at any time
without premium or penalty, in whole or in part. Any amounts prepaid shall be
applied to repay the outstanding principal amount of any Advances (together
with interest thereon) until paid in full. Amounts repaid may be borrowed in
accordance with the terms of this Agreement.
(i) Subject to Section 13, interest on outstanding
Advances is payable on the earlier of (i) the tenth day of each month (such day
an "Interest Payment Date") and (ii) the Termination Date. In the event that
an Advance is not repaid in full on the date when due, interest shall be
payable thereafter on demand.
(j) The Advances shall be evidenced collectively by the
secured promissory note of the Borrower in the form attached hereto as Exhibit
A (the "Secured Note").
(k) Notwithstanding anything to the contrary in this
Agreement, the Lender shall have no obligation to make any Advance hereunder if
(i) the Lender is unable, after good faith effort, to obtain a source of funds
for the proposed Advance on substantially the same economic terms as are
available to the Lender as of the date of this Agreement, or (ii) there shall
have occurred any material adverse change in (A) the financial condition of the
Lender, (B) the financial markets generally, or (C) the secondary market for
Provider Loans. The Lender shall promptly notify the Borrower of any such
determination by the Lender.
(l) If at any time (i) the outstanding principal amount of
all outstanding Advances exceeds the sum of (A) all amounts then on deposit in
the Lender Account and (B) 80% of the aggregate Loan Balance (as such term is
defined in each Provider Loan Agreement or the unpaid principal balance of the
Provider Loan if not so defined) of all Provider Loans, as determined by the
Lender and notified to the Borrower on the third Business Day of each week (or,
in the sole discretion of the Lender following notice to the Borrower, on any
Business Day), or (ii) the required collateral coverage test in respect of any
Provider Loan is out of compliance under the terms of the related Provider Loan
Agreement (provided that the Lender may at its option make its own
determination of the value of the related Receivables of such Provider in
determining such compliance), the Borrower shall no later than one Business Day
after receipt of notice of such excess, prepay outstanding
4
<PAGE> 8
Advances (together with interest thereon) in part or in whole to the Lender
such that, after giving effect to such prepayment, the Borrower is in
compliance with the foregoing requirements. In addition, with respect to any
Provider Loan, in the event that more than one monthly installment of such
Provider Loan is delinquent as of the end of any calendar month, the Borrower
shall prepay outstanding Advances in the amount of such installment.
(m) In the event that the Lender revokes the appointment
of the Borrower as a disbursing agent pursuant to Section 1(e)(ii) herein prior
to the occurrence of an Event of Default, the Borrower may request funds from
the Lender Account by giving Lender written notice no later than 11:30 a.m. on
any Business Day. Subject to the Section 2(b) conditions to Advances in the
Agreement and the Lender's right to request reasonable verification that the
Borrower is in compliance therewith, and the limitations set forth in Section
1(e)(i) with regard to availability of funds, the Lender shall notify the
Borrower and the depository institution at which the Lender Account is
maintained of its approval or disapproval of such withdrawal to the Borrower by
3:30 pm on such date that the Notice of Borrowing is received.
Section 2. Terms and Conditions for Advances. (a) Prior to
making the initial Advance, the following conditions precedent shall have been
satisfied:
(i) subject to Section 2(c) all documents
(including, without limitation, the financing statements and notices
described in Section 5(a)(xvi), the Lender Notice, and the Sweep
Notices required to be filed, registered or recorded with respect to
the Collateral (as defined in Section 4 hereof) in order to grant or
perfect the security interests therein hereunder, shall have been
properly filed, registered or recorded in each office in each
jurisdiction required in order to create in favor of the Lender a
first perfected security interest in the Collateral, or shall have
been delivered to Lender for filing;
(ii) the Borrower shall have delivered to the
Lender a Provider Loan Schedule and all other documents that it is
required to deliver under this Agreement, with respect to the Provider
Loans being pledged on such Funding Date. "Provider Loan Schedule"
means a schedule of Provider Loans to be attached hereto as Schedule
1, setting forth the following information as to each Provider Loan
pledged to the Lender hereunder: (A) the Provider name,;(B) the
original number of months to maturity and the number of months
remaining to maturity from the date of such Provider Loan Schedule;
(iii) the Provider Loan interest rate; (iv) the Maximum Loan
5
<PAGE> 9
percentage set forth in the Provider Loan Agreement; (v) the principal
balance of the Provider Loan as of the close of business on the date
of such Provider Loan Schedule, and (vi) the Commitment Amount/Maximum
Loan Amount under the Provider Loan;
(iii) one or more releases, and such other
instruments as shall be requested by the Lender, in each case in form
and substance satisfactory to the Lender, from any lender or other
person or entity having a lien on or security interest in the Provider
Loans or Receivables to be financed with the proceeds of the Advance
being made on such Funding Date, which releases and other instruments
shall release all liens or security interests in favor of such lender
or other person or entity and terminate any filings of record with
respect to the specific Provider Loans to be financed with the
proceeds of the Advance being made on such Funding Date;
(iv) the Lender shall have received (A) a legal
opinion from counsel to the Borrower, in form and substance
satisfactory to the Lender substantially in the form of Exhibit C with
such exceptions as are acceptable to the Lender, (B) the Secured Note
(as defined herein), duly executed and delivered by the Borrower, (C)
a Guarantee of DVI Inc., substantially in the form of Exhibit G
attached hereto (as amended, supplemented or otherwise modified from
time to time, the "Guarantee"), duly executed and delivered by DVI
Inc., (D) certified copies of the certificate of incorporation of the
Borrower and the Guarantor, (E) copies of certificates of good
standing of the Borrower and the Guarantor from the State of Delaware
dated not more than 10 Business Days from the initial Funding Date,
(F) certificates of secretaries of the Borrower and the Guarantor, (G)
certificates of officers of the Borrower and the Guarantor and (H)
delivery of the instrument, as such term is defined in the UCC,
referred to in Section 5(b)(xiv) to Bankers Trust Company of
California, N.A.; and
(v) any general conditions for the making of
Advances, specified in part (b) below, have been satisfied and will
continue to be satisfied if such Advance is made.
(b) Prior to making any Advance, the following terms and
conditions shall have been satisfied for all Advances:
(i) the representations and warranties of the
Borrower in Section 5 hereof shall he true and correct on
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and as of such Funding Date as if made on and as of such date;
(ii) no Default or Event of Default shall have
occurred and be continuing or would exist after the making of the
Advance on such Funding Date;
(iii) if requested by the Lender, the Lender shall
have conducted a due diligence review of files relating to the
Provider Loans being pledged in connection with the Advance being made
on such Funding Date, the results of which shall have been
satisfactory to the Lender; and
(iv) there shall not have been any materially
adverse change in the business, operations, financial condition,
properties or prospects of the Borrower or any subsidiary of the
Borrower, in each case as determined by the Lender in its sole
discretion, or the existence of any other condition which, in the
Lender's sole determination, constitutes a material impairment of the
Borrower's ability to perform its obligations under this Agreement or
under the Secured Note.
(c) On or before June 21, 1995, the Lender shall have
received from the Borrower, in form and substance acceptable to the Lender and
its legal counsel:
(i) legal opinions addressed to the Lender stating
that the security interest of the Lender in the Collateral is a
fully-perfected first priority security interest; and
(ii) (A) a legal opinion that the provisions of the
Provider Lockbox Agreements and the provisions of this Agreement with
respect to Receivables payable by Medicaid and Medicare comply with
applicable Federal and California law or (B) such modifications to the
Provider Lockbox Agreements as shall be acceptable to the Lender;
(iii) notices from each Provider to its respective
insurance company payors of a Receivable under a Provider Loan
Agreement reflecting (1) the assignment for security of such
Receivable to the Borrower and (2) the subsequent assignment of such
interest to the Lender which notice complies with the requirements of
California UCC Section 9-302(h) or such other law as may be applicable
thereto; and
(iv) notices to the depository institutions
maintaining each Provider Lockbox Account (A) from each Provider
stating that the Provider has granted the Borrower a first perfected
security interest in such account and (B) from the Borrower stating
that the
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Borrower has granted the Lender a perfected security interest in its
interest in such account.
The Lender shall review such deliveries and notify the Borrower of its
determination of whether such deliveries are satisfactory by the end of the
second Business Day following receipt thereof. In the event that the Borrower
has not delivered the foregoing items by the time set forth herein or the
Lender determines that such deliveries do not comply with the terms hereof, the
Lender shall not be required to make any new Advances hereunder.
Section 3. Purpose of Advance. Each Advance shall be used to
finance the Provider Loans identified to the Lender in writing on the Provider
Loan Schedule, as such Provider Loan Schedule may be amended from time to time.
Section 4. Secured Obligations. The documents and
instruments now existing or hereafter created evidencing and relating to the
Provider Loans (the "Provider Loan Documents"), all rights of the Borrower
thereunder, including, without limitation, (i) all payments made to the
Borrower by the Providers in respect of the Provider Loans, (ii) all rights of
the Borrower thereunder in and to the Receivables and other assets that are or
may become collateral for each Provider Loan, including cash, all present and
future accounts, accounts receivable, contract rights, instruments, chattel
paper, general intangibles, credits, claims, demands and any other obligations
of any kind, whether now or hereafter existing, arising out of or in connection
with the sale or lease of goods in the rendering of services or otherwise, all
as may have been provided by any Provider to the Borrower, (iii) the Provider
Lockbox Accounts and any other lockbox accounts and blocked accounts, and all
amounts deposited therein and in the Lender Account (including all the accounts
comprising the Lender Account), (iv) all guarantees executed in conjunction
with the Provider Loans, (v) all books and records (including, without
limitation, computer records, tapes and other computer storage media) relating
to any of the foregoing, (vi) any of the foregoing not in existence today but
hereafter created pursuant to or subject to the security interest of the
Provider Loan Documents and (vii) any proceeds of any of the foregoing
including insurance proceeds (collectively, the "Collateral") are collateral
securing the Secured Obligations (as defined herein) to the Lender. The Lender
Account (including all the accounts comprising the Lender Account) shall also
be deemed to be Collateral to the extent set forth in Section 1(c). The
Borrower hereby pledges and grants a security interest in all of its respective
right, title and interest in and to the Collateral to the Lender to secure the
repayment of principal of, and interest on, the Advances and all other amounts
owing to the Lender hereunder (collectively, the "Secured Obligations"). The
Borrower
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<PAGE> 12
agrees to mark its computer records and tapes to evidence the security
interests granted to Lender hereunder.
Section 5. Representations and Warranties. (a) The Borrower
represents and warrants to the Lender as of the date hereof and throughout the
term of the Agreement that:
(i) It has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of Delaware;
(ii) It is duly licensed as a licensee or is
otherwise qualified in California and each other state in which it
transacts business and is not in violation of any such state's
applicable laws, rules and regulations. It has the requisite power
and authority and legal right to own and grant a lien on all of its
right, title and interest in and to the Collateral, and to execute and
deliver, engage in the transactions contemplated by, and perform and
observe the terms and conditions of, this Agreement and the Secured
Note;
(iii) At all times after a Provider Loan has been
listed on the Provider Loan Schedule and until payment in full of the
principal of, and interest on, the Advances, the Borrower will not
commit any act in violation of applicable laws, or regulations
promulgated pursuant thereto;
(iv) It is solvent and is not in default under any
mortgage, borrowing agreement or other instrument or agreement
pertaining to indebtedness for borrowed money, and the execution,
delivery and performance by it of this Agreement and the Secured Note
do not conflict with any term or provision of (A) its certificate of
incorporation or by-laws or (B) any law, rule, regulation, order,
judgment, writ, injunction or decree applicable to any of them of any
court, regulatory body, administrative agency or governmental body
having jurisdiction over it or its assets and will not result in any
violation of any such mortgage, instrument or agreement;
(v) All financial statements or certificates of
the Borrower or any of its officers furnished to the Lender are true
and complete and do not omit to disclose any material liabilities or
other facts relevant to the Borrower's condition. All such financial
statements have been prepared in accordance with generally accepted
accounting principles. No financial statement or other financial
information as of a date later than March 31, 1995 has been furnished
by the Borrower to any lender that has not been furnished to the
Lender;
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<PAGE> 13
(vi) The Borrower has filed all federal, state and
local tax returns required to be filed by it and has not failed to pay
any taxes, or interest and penalties relating thereto, on or before
the due dates thereof;
(vii) The execution and delivery by the Borrower of
this Agreement and the performance by it hereunder will not violate
any provision of law and will not conflict with or result in a breach
of any order, writ, injunction, ordinance, resolution, decree or other
similar document or instrument of any court or governmental authority,
bureau or agency, domestic or foreign, or any certificate of
incorporation or by-laws of the Borrower, or create (with or without
the giving of notice or lapse of time, or both) a default under or
breach of any agreement, bond, note or indenture to which the Borrower
is a party, or by which it is bound or any of its properties or assets
is affected, or result in the imposition of any lien of any nature
whatsoever upon any of the properties or assets owned by or used in
connection with the business of the Borrower, except for the liens
created and granted pursuant to this Agreement.
(viii) Neither the Borrower nor any affiliate of the
Borrower is in default under any agreement, ordinance, resolution,
decree, bond, note, indenture, order or judgment to which it is a
party or by which it is bound, or any other agreement or other
instrument by which any of the properties or assets owned by it could
or used in the conduct of its business is affected, which default
could have a material adverse effect on the business, operations,
financial condition or properties of the Borrower or any affiliate or
in the ability of the Borrower to perform its obligations under this
Agreement. The Borrower and each affiliate has complied and is in
compliance in all respects with all applicable laws, ordinances and
regulations, resolutions, ordinances, decrees and other similar
documents and instruments including without limitation, 42 U.S.C.
1396(a)(32) and 42 U.S.C. 1395g(C), non-compliance with which could
have a material adverse effect on the business, operations, financial
condition or properties of the Borrower or any affiliate or the
Guarantor or on the ability of the Borrower or any affiliate or the
Guarantor to perform its obligations under this Agreement.
(ix) There is no action, preceding or investigation
pending or, to the best of its knowledge, threatened against it before
any court, administrative agency or other tribunal (i) asserting the
invalidity of this Agreement or the Secured Note, (ii) seeking to
prevent the consummation of any of the transactions contemplated by
this Agreement or the Secured Note, or
10
<PAGE> 14
(iii) which might materially and adversely affect the validity of the
Provider Loans or the performance by the Borrower of its obligations
under, or the validity or enforceability of, this Agreement or the
Secured Note;
(x) There has been no material adverse change in
the business, operations, financial condition, properties or prospects
of the Borrower since March 31, 1995;
(xi) This Agreement and the Secured Note have each
been duly authorized, executed and delivered by the Borrower, all
requisite corporate action having been taken in respect of same, and
each is legal, valid, binding and enforceable against the Borrower in
accordance with its terms;
(xii) The Borrower's principal place of business and
chief executive office is at 4041 MacArthur Blvd., Suite 401, Newport
Beach, CA 92660;
(xiii) The transfer, assignment and conveyance of the
Provider Loans and the Provider Loan Documents by the Borrower
pursuant to this Agreement is not subject to the bulk transfer or any
similar statutory provisions in effect in any applicable jurisdiction;
(xiv) The Provider Loans were originated by the
Borrower, and the origination and collection practices used by the
Borrower with respect to each Provider Loan have been in all respects
legal, proper, prudent and customary in the health care financing
business;
(xv) The security interests granted pursuant to
this Agreement constitute fully-perfected (subject to making the
filings described in the succeeding sentence) first priority security
interests in the Collateral in favor of the Lender. Not later than
June 21, 1995 all filings and recordings of documents or instruments
required to be made in respect of this Agreement in connection with
the perfection of the security interests created hereby and listed on
Schedule 2 hereto will be made;
(xvi) The Borrower has a perfected first priority
security interest in the Receivables that are subject to the Provider
Loans and in connection therewith has made UCC filings against each
Provider at each office listed on Schedule 2 and except for such
offices, there are no other offices at which it is necessary to make
such filings;
(xvii) The Borrower represents and warrants that it
has complied and is in compliance with the provisions of
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<PAGE> 15
the Fair Labor Standards Act, including, without limitation, the
minimum wage and overtime rules of that Act, and covenants that the
Borrower will continue to comply with the provisions of such Act;
(xviii) The provisions of the Provider Lockbox
Agreements and the provisions of this Agreement with respect to
Receivables payable by Medicaid and Medicare comply with applicable
Federal and California law;
(xix) the Acknowledgement and Waiver dated June 7,
1995 from the Lender to NatWest Bank, N.A. ("NatWest") adequately
describes the transactions set forth therein between NatWest and the
Borrower and its affiliates;
(xx) (A) The Borrower does not have and has never
had at any time an employee pension benefit plan which is covered by
Title IV of the Employee Retirement Income Security Act of 1974 and
the Regulations thereunder ("ERISA") or subject to the minimum funding
standards under Section 412 of the Code and is either (i) maintained
by the Borrower or any member of the Controlled Group for employees of
the Borrower, or by the Borrower for any other member of such
Controlled Group or (ii) maintained pursuant to a collective
bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which the Borrower or any
member of the Controlled Group is then making or accruing an
obligation to make contributions or has within the preceding five plan
years made contributions (a "Plan"), in connection with which there
could arise a direct or contingent liability of the Borrower to the
Pension Benefit Guaranty Corporation, the Department of Labor or the
Internal Revenue Service. The Borrower is not a participating employer
in any Plan under which more than one employer makes contributions, as
described in Sections 4063 and 4064 of ERISA, or a multiemployer plan
as defined in Section 4001(a)(3) of ERISA; and
(B) All references to the Borrower in this Agreement relating
to ERISA shall be deemed to refer to the Borrower and all other
entities which are, together with the Borrower, part of a Controlled
Group. "Controlled Group" shall be defined as members of a controlled
group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Borrower,
are treated as a single employer under Section 414(b), 414(c) or
414(m) of the Code and Section 4001(a)(2) of ERISA.
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<PAGE> 16
(b) With respect to every Provider Loan delivered or to be
delivered to the Lender, the Borrower represents and warrants to the Lender
that:
(i) The Provider Loan is evidenced by the Provider
Loan Agreement and related documents attached hereto on Schedule 3 and
such documents represent the complete agreement of the Borrower and
the Provider with respect to the subject matter thereof, are true and
complete and correct copies, and have not been amended;
(ii) Other than the Borrower's lien and the lien of
this Agreement, neither the Collateral nor the Receivables are subject
to any liens, charges, mortgages, participations, encumbrances, rights
of others, or other liens released simultaneously with the Borrower's
pledge of Collateral made herein;
(iii) The information in respect of the Provider
Loan set forth on the related Provider Loan Schedule attached hereto
as Schedule 1 is true and complete;
(iv) All requirements of applicable federal, state
and local laws, and regulations thereunder, including, without
limitation, usury laws, if any, in respect of the Provider Loan have
been complied with in all material respects;
(v) Each Provider had the legal capacity to enter
in the Provider Loan, duly authorized its execution and delivery, and
each Provider Loan represents the legal, valid and binding payment
obligation of the Provider thereunder, enforceable in accordance with
its terms, subject to bankruptcy, insolvency and other laws
(including, but not limited to principles of equity) affecting the
rights of creditors generally;
(vi) No instrument of release or waiver has been
executed in connection with the Provider Loan, and no borrower in
respect of such Provider Loan has been released from its obligations
thereunder, in whole or in part;
(vii) The Provider Loan is not subject to any right
of rescission, set-off, counterclaim or defense, including the defense
of usury, and no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto;
(viii) There are no proceedings or investigations
pending, or, to the best of Borrower's knowledge after due inquiry,
threatened, before any court, regulatory body, administrative agency,
or other tribunal or
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<PAGE> 17
governmental instrumentality (A) asserting the invalidity of the
Provider Loan, (B) asserting the bankruptcy or insolvency of a
borrower under the Provider Loan, (C) seeking to prevent payment and
performance of the Provider Loan, or (D) seeking any determination or
ruling that might materially and adversely affect the validity or
enforceability of the Provider Loan;
(ix) The Borrower has duly fulfilled all
obligations on its part to be fulfilled under or in connection with
the Provider Loan and has done nothing to impair the rights of the
Lender in the Provider Loan or payments with respect thereto;
(x) There is no monetary default, breach,
violation or event of acceleration existing under the Provider Loan,
and no event has occurred which, with the passage of time or with
notice, would constitute a monetary default, breach, violation or
event of acceleration that has or will cause a prepayment of Advances
made in respect of such Provider Loan pursuant to Section 13 of this
Agreement; there is no nonmonetary default, breach, violation or event
of acceleration existing under the Provider Loan, and no event has
occurred which, with the passage of time or with notice, would
constitute a non-monetary default, breach, violation or event of
acceleration; and the Borrower has not waived any monetary or
non-monetary default, breach, violation or event of acceleration in
respect of the Provider Loan;
(xi) The Provider Loan was not originated in, nor
is it subject to the laws of, any jurisdiction the laws of which would
make unlawful the pledge, transfer or assignment of such document or
any Collateral in respect thereof under this Agreement, including any
sale in accordance with this Agreement;
(xii) Immediately after the pledge, assignment and
transfer to the Lender as herein contemplated, all necessary action
will have been taken (except as contemplated by Section 2(c) hereof)
to grant a valid and enforceable first priority perfected security
interest (to the extent the UCC is applicable thereto) in the
Collateral (including the filing or amendment of UCC statements in all
applicable jurisdictions) and all payments to become due thereunder
and all rights of the Borrower in the Collateral, except for those
subsequent liens which, by operation of law, take priority over a
previously perfected security interest;
(xiii) (A) The Collateral has not been sold,
transferred, assigned or pledged by the Borrower to any
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<PAGE> 18
Person other than the Lender, except for liens released simultaneously
with the grant of a security interest in favor of the Lender
hereunder, (B) immediately prior to the pledge of the Collateral
pursuant to Section 3 hereof, the Borrower was the sole owner of the
Collateral and had good and marketable title thereto, free and clear
of all liens and encumbrances, and (C) upon execution and delivery
hereof by the Borrower, the Lender will have a first perfected
security interest in all of the right, title and interest of the
Borrower in and to the Collateral and the payments to become due
thereunder, free and clear of all liens and encumbrances; and
(xiv) None of the Provider Loans are evidenced by
instruments as such term is defined under the UCC, other than the
Provider Loan under which American Shared-Curacare and Curacare, Inc.
are Providers pursuant to a Loan and Security Agreement dated as of
May 17, 1995.
Section 6. Rights of Lender; Limitations on Lender's
obligations. (a) Anything herein to the contrary notwithstanding, the Borrower
shall remain liable under each of the Provider Loans to which it is a party to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with and pursuant to the terms
and provisions of each such Provider Loan. The Lender shall not have any
obligation or liability under any Provider Loan by reason of, or arising out
of, this Agreement or the receipt by the Lender of any payment relating to such
Provider Loan pursuant hereto, nor shall the Lender be obligated in any manner
to (i) perform any of the obligations of the Borrower under or pursuant to any
Provider Loan, (ii) make any payment in connection with any Provider Loan,
(iii) make any inquiry as to the nature or the sufficiency of any payment
received by it or as to the sufficiency of any performance by any party under
any Provider Loan, (iv) present or file any claim or take any action to enforce
any performance in connection with any Provider Loan, or (v) collect the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.
(b) Upon the request of the Lender at any time after the
occurrence and during the continuance of an Event of Default, the Borrower
shall notify parties to the Provider Loans to which it is a party that the
Provider Loans have been assigned to the Lender and that payments in respect
thereof shall be made directly to the Lender or the designated agent of the
Lender. The Lender may in its own name or in the name of others communicate
with parties to the Provider Loans to verify with them to its satisfaction the
existence or amount and terms of any Provider Loan.
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Section 7. Certain Covenants. The Borrower covenants and
agrees with the Lender that, from and after the date of this Agreement until
the obligations of the Borrower hereunder and under the Secured Note are paid
in full:
(a) At any time and from time to time, upon the written
request of the Lender, and at the sole expense of the Borrower, the Borrower
will promptly and duly complete and deliver such further instruments and
documents and take such further actions, or cause the Providers to take such
action, as the Lender may reasonably request for the purpose of obtaining or
preserving the full benefits to the Lender of this Agreement and of the rights
and powers herein granted to the Lender, including, without limitation, the
filing of any financing or continuation statements under the Uniform Commercial
Code in effect in any jurisdiction with respect to the security interests
created hereby and the giving of notice of the respective interests of the
Borrower and the Lender in Receivables to the insurance company payors thereof
as provided in Section 2(c). The Borrower also hereby authorizes the Lender to
file any such financing or continuation statement without the signature of the
Borrower to the extent permitted by applicable law. A carbon, photographic or
other reproduction of this Agreement shall be sufficient as a financing
statement for filing in any jurisdiction.
(b) The Borrower will not, nor will it permit or allow
others to, create, incur or permit to exist any lien, security interest or
claim on or to the Collateral, other than the security interests created
hereby. The Borrower will defend the Collateral against, and will take such
other action as is necessary to remove, any lien, security interest or claim on
or to the Collateral, other than the security interests created hereby, and the
Borrower will defend the right, title and interest of the Lender in and to any
of the Collateral against the claims and demands of all persons whomsoever.
(c) The Borrower will not, nor will it permit or allow
others to, amend, modify, terminate or waive any provision of any Provider Loan
to which the Borrower is a party in any manner which could reasonably be
expected to materially adversely affect the value of the Provider Loan or the
Collateral. The Borrower will not (i) fail to exercise promptly and diligently
each and every material right which the Borrower may have under each Provider
Loan (other than any right of termination) where the failure to so act could
materially adversely affect the value of the Collateral, or (ii) fail to
deliver to the Lender a copy of each material demand, notice or document
received by it relating in any way to any Provider Loan.
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<PAGE> 20
(d) The Borrower will not, nor will it permit or allow
others on its behalf, to establish a lockbox collection account, for the
receipt of payments pursuant to the Provider Loans, with a financial
institution other than one acceptable to the Lender in the exercise of its
reasonable discretion nor will it terminate or modify any Sweep Notice or the
location of any Provider Lockbox Accounts without the consent of the Lender.
(e) The Borrower will notify the Lender promptly, in
reasonable detail, (i) of any lien or security interest (other than security
interests created hereby, on, or claim asserted against, any of the Collateral,
(ii) of the occurrence of any other event which could reasonably be expected to
have a material adverse effect on the aggregate market value of the Collateral
or on the security interests; created hereunder, and (iii) of the existence of
circumstances requiring the Borrower, or permitting the Lender to require the
Borrower, to prepay the Advances pursuant to Sections 8(b) or 14 hereof.
(f) The Borrower will not change the location of its chief
executive office/chief place of business or remove its books and records from
the location specified in Section 5(a)(xii), or change its name, identity or
corporate structure or use any business or trade names other than its legal
name set forth in this Agreement, unless it shall have given the Lender at
least 30 days prior written notice thereof.
(g) The Borrower shall permit the Lender to make or cause
to be made (and, after the occurrence of and during the continuance of an Event
of Default, at the Borrower's expense) inspections and audits of any books,
records and papers of the Borrower and to make extracts therefrom and copies
thereof, or to make inspections and examinations of any properties and
facilities of the Borrower, on reasonable notice, at all such reasonable times
and as often as the Lender may reasonably require, in order to assure that the
Borrower is and will be in compliance with its obligations under this
Agreement.
(h) The Borrower shall pay and discharge all of its
obligations and liabilities, including, without limitation, all taxes,
assessments and governmental charges upon its income and properties when due,
unless and to the extent only that such obligations, liabilities, taxes,
assessments and governmental charges shall be contested in good faith and by
appropriate proceedings and that, to the extent required by generally accepted
accounting principles then in effect, proper and adequate book reserves
relating thereto are established by the Borrower, or, as the case may be, by
the Guarantor, and then only to the extent that a bond is filed in cases where
the filing of a bond is necessary to avoid the creation of a lien against any
of its properties.
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<PAGE> 21
(i) The Borrower shall operate its business in such a
manner that its representations and warranties in Section 5 hereto shall at all
times be true and shall give the Lender prompt notice upon discovery that any
of its representations in Section 5 hereof were not true when made or are no
longer true.
(j) The Borrower will remit to the Lender Account within
one Business Day of receipt any money it receives with respect to the
Collateral.
Section 8. Repayment of the Loan If Provider Loan is Found
Defective. (a) Upon discovery by the Borrower or the Lender of any breach of
any of the representations and warranties listed in Section 2 or 5 hereof, the
party discovering such breach shall promptly give notice of such discovery to
the other.
(b) The Lender has the right to require, in its sole
discretion, the Borrower to prepay the Advances in the amount of the unpaid
principal balance of any Provider Loan which breaches one or more of the
representations and warranties listed in Section 5(b) herein no later than one
business day after notice from the Lender to the Borrower of the discovery of
such breach.
Section 9. Release of Provider Loan Files Following Payment
of Secured Obligations. Upon payment in full of the Advances the Lender shall
execute and deliver such instruments of satisfaction (including UCC termination
statements) as shall be necessary to terminate the Lender's security interest
in any Provider Loan or Receivables which are Collateral for the Advances and
the Lender shall have no further responsibility with respect to such Provider
Loan or Receivables.
Section 10. Servicing. The Borrower shall service and
administer the Provider Loans in accordance with due care and customary and
prudent servicing procedures for loans of a similar type, in accordance with
applicable law, and -- to the extent not inconsistent with the foregoing -- in
the same manner in which it services other loans for its own account and,
provided an Event of Default shall not have occurred hereunder, shall have full
power and authority to do any and all things not inconsistent with the
provisions of this Agreement which it may deem necessary or desirable in
connection with such servicing and administration.
Section 11. No Oral Modifications; Successors and Assigns.
No provision of this Agreement shall be waived or modified except by a writing
duly signed by the authorized agents of the Lender and the Borrower. This
Agreement shall
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<PAGE> 22
be binding upon the successors and permitted assigns of the parties hereto.
Section 12. Reports. (a) The Borrower shall provide the
Lender with a report in the form of Exhibit H on the first Business Day of each
week with regard to the activity in the Lender Account during the prior week (a
"Weekly Reconciliation Report").
(b) The Borrower will immediately forward to the Lender any
Borrowing Base report, including any daily, weekly, or monthly borrowing base
updates, as well as any other reports which it receives from a Provider
pursuant to a Provider Loan and will enforce its rights under the Provider Loan
agreements to receive such reports.
(c) The Borrower will furnish to the Lender from time to
time statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral or evidencing
compliance with the terms of this Agreement as the Lender may reasonably
request, all in reasonable detail.
(d) The Borrower shall deliver to the Lender annually, as
soon as available, but in any event within ninety (90) days after the last day
of each of its fiscal years, a consolidating balance sheet of the Borrower as
of such last day of the fiscal year, and consolidating statements of income and
retained earnings and statements of cash flow, for such fiscal year, each
prepared in accordance with generally accepted accounting principles
consistently applied, in reasonable detail, and certified, by the chief
financial officer of the Borrower, as fairly presenting the financial position
and the results of operations of the Borrower as at and for the year ending on
its date and as having been prepared in accordance with generally accepted
accounting principles.
(e) The Borrower shall deliver to the Lender, as soon as
available, but in any event within forty-five (45) days after the end of each
of the Borrower's fiscal quarterly periods, a consolidating balance sheet of
the Borrower as of the last day of such quarter and consolidating statements of
retained earnings and statements of cash flow, for such quarter, and on a
comparative basis figures for the corresponding period of the immediately
preceding fiscal year, all in reasonable detail, each such statement to be
certified in a certificate of the president or chief financial officer of the
Borrower as accurately presenting the financial position and the results of
operations of the Borrower as at its date and for such quarter and as having
been prepared in accordance with generally accepted accounting principles
consistently applied (subject to year-end audit adjustments).
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<PAGE> 23
(f) At the same time as it delivers the statements required
under the provisions of Section 12(d) hereof, a certificate of the president or
chief executive officer of the Borrower to the effect that no Event of Default
hereunder and that no default under any other agreement to which the Borrower
is a party or by which it is bound, or by which, to the best knowledge of the
Borrower, any of its properties or assets, taken as a whole, may be materially
affected, and no event which, with the giving of notice or the lapse of time,
or both, would constitute such an Event of Default or default, exists, or, if
such cannot be so certified, specifying in reasonable detail the exceptions, if
any, to such statement.
(g) The Borrower shall immediately forward to the Lender
all financial statements of the Providers, including quarterly audited
financial statements, which it receives from the Providers and copies of any
due diligence audits that the Borrower conducts on the Providers.
Section 13. Events of Default. Each of the following shall
constitute an event of default ("Event of Default") hereunder (a "Default"
being any of the following whether or not any requirement for the giving of
notice, the lapse of time, or both, has been satisfied):
(a) Failure of the Borrower to make any payment of
interest or principal or any other sum which has become due, whether
by acceleration or otherwise, under the terms of the Secured Note,
this Agreement or any other document evidencing or securing
indebtedness of the Borrower to the Lender or failure of the Guarantor
to make any payment under the Guarantee;
(b) Failure of the Borrower to prepay outstanding Advances
when required to do so pursuant to Sections 1(l) or 8(b);
(c) Failure of the Borrower or the Guarantor to observe or
perform any other agreement contained in this Agreement or the
Guarantee, respectively, thirty (30) days after the occurrence of such
failure to observe or perform such agreement;
(d) Any representation or warranty made or deemed made by
the Borrower herein including in connection with any Weekly
Reconciliation Report or in any other certificate, document, financial
or other statement furnished at any time under, or in connection with,
this Agreement (including without limitation, any Provider Schedule),
or any representation or warranty made or deemed made by DVI Inc. in
the Guarantee, shall prove to have been incorrect in any material
respect on or as of the date made;
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<PAGE> 24
(e) Assignment or attempted assignment by the Borrower of
this Agreement or any rights hereunder, without first obtaining the
specific written consent of Lender, or the granting by the Borrower of
any security interest, lien or other encumbrance on any Collateral to
any person or entity other than the Lender;
(f) The filing by or against the Borrower or the Guarantor
or any subsidiary of the Borrower of a petition for liquidation,
reorganization, arrangement or adjudication as a bankrupt or similar
relief under the bankruptcy, insolvency or similar laws of the United
States or any state or territory thereof or of any foreign
jurisdiction; the failure of the Borrower or the Guarantor or any such
subsidiary to secure dismissal of any such petition filed against it
within thirty (30) days of such filing; the making of any general
assignment by the Borrower or the Guarantor or any subsidiary of the
Borrower for the benefit of creditors; the appointment of a receiver
or trustee for the Borrower or the Guarantor or any subsidiary of the
Borrower, or for any part of the Borrower's or the Guarantor's or any
such subsidiary's assets; the institution by the Borrower or the
Guarantor or any subsidiary of the Borrower or the Guarantor of any
other type of insolvency proceeding (under the Bankruptcy Code or
otherwise) or of any formal or informal proceeding, for the
dissolution or liquidation of, settlement of claims against, or
winding up of the affairs of, the Borrower or the Guarantor or any
such subsidiary; the institution of any such proceeding against the
Borrower or the Guarantor or any subsidiary of the Borrower if the
Borrower or the Guarantor or such subsidiary shall fail to secure
dismissal thereof within thirty (30) days thereafter; the consent by
the Borrower or the Guarantor or any subsidiary of the Borrower to any
type of insolvency proceeding against the Borrower or the Guarantor or
such subsidiary (under the Bankruptcy Code or otherwise); the
occurrence of any event or existence of any condition which could be
the ground, basis or cause for any proceeding or petition described in
this Section 13(f);
(g) Any materially adverse change in the business,
operations, financial condition, properties or prospects of the
Borrower or the Guarantor, in each case as determined by the Lender in
its sole discretion, or the existence of any other condition which, in
the Lender's sole determination, constitutes an impairment of the
Borrower's ability to perform its obligations under this Agreement or
under the Secured Note or the Guarantor's obligations under the
Guarantee;
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<PAGE> 25
(h) Failure by the Borrower to service and administer the
Provider Loans in substantial compliance with the servicing
requirements set forth in Section 10 hereof; provided that an Event of
Default shall not be declared under this subsection (h) until after
the Lender has delivered to the Borrower written notice of its
intention to declare an Event of Default specifying such noncompliance
and the action to be undertaken to remedy same, and such default
remains uncured for five Business Days;
(i) The Guarantee ceases to be in full force and effect,
or any party thereto so asserts in writing; or
(j) Failure of the Borrower to comply with the provisions
of Section 2(c) within the time periods set forth therein.
Section 14. Remedies Upon Default. (a) The Borrower shall
promptly give notice to the Lender of the occurrence of any Event of Default or
any event that would constitute a material adverse change in the condition,
financial or otherwise, in the operations of the Borrower. Upon the occurrence
of one or more Events of Default, the Lender may immediately declare the
principal amount of outstanding Advances then outstanding under the Secured
Note to be immediately due and payable, together with all interest thereon and
fees and expenses accruing under this Agreement and terminate the obligation of
the Lender to make Advances hereunder; provided that upon the occurrence of the
Event of Default referred to in Subsection 13(f), such amounts shall
immediately and automatically become due and payable without any further action
by any person or entity. Upon such declaration or such automatic acceleration,
the balance then outstanding on the Secured Note shall become immediately due
and payable, and the obligation of the Lender to make Advances hereunder shall
terminate, without presentation, demand or further notice of any kind to the
Borrower.
(b) Upon the occurrence of one or more Events of Default,
the Lender shall have the right to obtain physical possession of all files of
the Borrower relating to the Collateral and all documents relating to the
Collateral which are then or may thereafter come in to the possession of the
Borrower or any third party acting for the Borrower and the Borrower shall
deliver to the Lender such assignments of contract as the Lender shall request.
The Lender shall be entitled to specific performance of all agreements of the
Borrower contained in this Agreement.
(c) Upon the occurrence of one or more Events of Default,
the Lender shall have the right to service the Provider Loans and to collect
and receive all further payments
22
<PAGE> 26
(including prepayments) made on or in respect of the Collateral (except that in
respect of Receivables the obligors of which are governmental entities that
restrict collections by any party other than the Provider except by court order
or are subject to other such similar restrictions the Lender shall comply with
applicable laws then in force with respect to such Receivable), and if any such
payments are received by the Borrower, the Borrower shall not commingle such
payments received with other funds of the Borrower, shall keep such payments
segregated from all other funds of the Borrower and shall promptly (and in no
event later than the next Business Day following receipt thereof) pay such
payments over to the Lender. In addition, the Lender shall have the right to
dispose of the Provider Loans and the Collateral as provided herein, or as
provided in the other documents executed in connection herewith, or in any
other commercially reasonable manner, or as provided by law. The Lender shall
be entitled to sell any or all of such Provider Loans individually for the
prevailing price as a commercially reasonable disposition of collateral subject
to the applicable requirements of the UCC. The specification in this Section
14 of manners of disposition of collateral as being commercially reasonable
shall not preclude the use of other commercially reasonable methods (as
contemplated by the NY UCC) at the option of the Lender. Upon disposition of
the Provider Loans and repayment in full to the Lender of all amounts owing
hereunder plus the reasonable expenses incurred (including fees and expenses of
its counsel), the Lender shall promptly remit any remaining proceeds to the
Borrower or as required by law or as a court of competent jurisdiction shall
direct.
Section 15. Indemnification and Expenses. (a) The Borrower
agrees to hold the Lender harmless from and indemnifies the Lender against all
liabilities, losses, damages, judgments, costs and expenses of any kind which
may be imposed on, incurred by, or asserted against the Lender, whether
relating to or arising out of, this Agreement, the Secured Note, or any
transaction contemplated hereby or thereby, or any amendment, supplement or
modification of, or any waiver or consent under or in respect of, this
Agreement, the Secured Note, of any transaction contemplated hereby or thereby,
that, in each case, results from anything other than the Lender's gross
negligence or willful misconduct. In any suit, proceeding or action brought by
the Lender in connection with any Provider Loan for any sum owing thereunder,
or to enforce any provisions of any Provider Loan, the Borrower will save,
indemnify and hold the Lender harmless from and against all expense, loss or
damage suffered by reason of any defense, set-off, counterclaim, recoupment or
reduction or liability whatsoever of the account debtor or obligor thereunder,
arising out of a breach by the Borrower of any obligation thereunder or arising
out of any other agreement, indebtedness or liability at any time owing to or
in favor of such account
23
<PAGE> 27
debtor or obligor or its successors from the Borrower. The Borrower also
agrees to reimburse the Lender for all its costs and expenses incurred in
connection with the enforcement or the preservation of the Lender's rights
under this Agreement, the Secured Note, or any transaction contemplated hereby
or thereby, including without limitation the reasonable fees and disbursements
of its counsel. The Borrower hereby acknowledges that, notwithstanding the
fact that the Secured Note is secured by the Collateral, the obligation of the
Borrower under the Secured Note is a recourse obligation of the Borrower.
(b) The Borrower agrees to pay as and when billed by the
Lender all of the out-of-pocket costs and expenses incurred by the Lender in
connection with the development, preparation and execution of, and any
amendment, supplement or modification to, this Agreement, the Secured Note, or
any other documents prepared in connection herewith or therewith. The Borrower
agrees to pay as and when billed by the Lender all of the out-of-pocket costs
and expenses incurred in connection with the consummation and administration of
the transactions contemplated hereby and thereby including, without limitation,
(i) all the reasonable fees, disbursements and expenses of Lender's counsel,
and (ii) all the reasonable due diligence, inspection, testing and review costs
and expenses incurred by the Lender with respect to Provider Loans pledged as
Collateral under this Agreement.
(c) The Borrower shall pay all necessary filing and
recording and similar fees and all taxes and other expenses related to the
actions referred to in Section 5(a)(xvi). In addition, if, under any law in
effect on any date hereunder, or under any retroactive provision of any law
subsequently enacted, it shall be determined that any federal, state or local
tax is payable in respect of the issuance of the Secured Note, or in connection
with the filing or recording of any assignments, mortgages, financing
statements, or other documents (whether measured by the amount of indebtedness
secured or otherwise) as contemplated by this Agreement, then the Borrower will
indemnify the Lender against and hold it harmless from any loss or damage
resulting from or arising out of the nonpayment or delay in payment of any such
tax. If any such tax or taxes shall be assessed or levied against the Lender,
the Lender may notify the Borrower and make immediate payment thereof, together
with interest or penalties in connection therewith, and shall thereupon be
entitled to and shall receive immediate reimbursement therefor from the
Borrower. Notwithstanding any other provision contained in this Agreement, the
covenants and agreements of the Borrower in this Section shall survive payment
of the Notes and the termination of this Agreement.
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<PAGE> 28
(d) The Borrower's agreements in this Section 15 shall
survive the payment in full of the Secured Note and the expiration or
termination of this Agreement. The Borrower shall pay all necessary filing and
recording and similar fees and all taxes and expenses related to the actions
referred to in Section 5(a)(xvi).
Section 16. Power of Attorney. The Borrower hereby
authorizes the Lender (without requiring the Lender), at the Borrower's
expense, to file such financing statements or other statements relating to the
Collateral without the Borrower's signature thereon as the Lender at its option
may deem appropriate, and the Borrower hereby appoints the Lender as the
Borrower's attorney-in-fact (without requiring the Lender) to execute any such
financing statement or statements in the Borrower's name and to perform all
other acts which the Lender deems appropriate to perfect and continue the
security interest granted hereby and to protect, preserve and realize upon the
Collateral, including, but not limited to, the right to endorse notes, complete
blanks in documents and sign assignments on behalf of the Borrower as its
attorney-in-fact. This Power of Attorney is coupled with an interest and is
irrevocable without the Lender's consent. Notwithstanding the foregoing, the
power of attorney hereby granted may be exercised only during the occurrence
and continuance of any Event of Default hereunder.
Section 17. No Duty on Lender's Part. The powers conferred
on the Lender hereunder are solely to protect the Lender's interests in the
Collateral and shall not impose any duty upon it to exercise any such powers.
The Lender shall be accountable only for amounts that it actually receives as a
result of the exercise of such powers, and neither it nor any of its officers,
directors, employees or agents shall be responsible to the Borrower for any act
or failure to act hereunder, except for its or their own gross negligence or
willful misconduct.
Section 18. Powers Coupled with an Interest. All
authorizations and agencies herein contained with respect to the Collateral are
irrevocable and are powers coupled with an interest.
Section 19. Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions herein, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
25
<PAGE> 29
Section 20. Notices. All demands, notices and communications
relating to this Agreement shall be in writing and shall be deemed to have been
duly given when delivered to the other party or parties at the address shown
below or such other address as may hereafter be furnished to the other party or
parties by like notice.
If to the Borrower:
DVI Business Credit Corporation
4041 MacArthur Blvd.
Newport Beach, California 92660
Attention: Anthony Turek
Telephone: (714) 474-6100
Telecopy: (714) 474-6199
If to the Lender:
Prudential Securities Realty Funding Corporation
130 John Street, 24th Floor
Treasury Department
New York, New York 10292
Attention: Mr. William Horan
Telephone: (212) 214-7310
Telecopy: (212) 214-7535
With a copy to:
Prudential Securities Incorporated
One New York Plaza
12th Floor
Attention: Jonathan Rochlin
Telephone: (212) 778-7462
Telecopy: (212) 778-7533
Section 21. Certain Definitions. The following capitalized
terms are defined in the corresponding sections specified below:
"Advance" - Section 1.
"Agreement" - Introductory Clause.
"Base Rate" - Section 1(g).
"Borrower" - Introductory Clause.
"Borrowing Base" - The respective Provider Loan Agreements.
"Collateral" - Section 4.
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<PAGE> 30
"Commitments" - The respective Provider Loan Agreements.
"Controlled Group" - Section 5(a)(xx)(B).
"Default" - Section 13.
"Eligible A/R" - The respective Provider Loan Agreements.
"ERISA" - Section 5(a)(xx)(A).
"Event of Default" - Section 13.
"Funding Date" - Section 1(i).
"Guarantee" - Section 2(a)(iv).
"Interest Payment Date" - Section 1(i).
"Lender" - Introductory Clause.
"Lender Account" - Section 1(c).
"Lender Account Notice" - Section 1(c).
"Maximum Loan" - The respective Provider Loan Agreements.
"NatWest" - Section 5(a)(xix).
"NCV" - The respective Provider Loan Agreements.
"Provider" - Recitals.
"Provider Loan" - Recitals.
"Provider Loan Documents" - Section 4.
"Provider Loan Schedule" - Section 2(a)(ii).
"Provider Lockbox Accounts" - Section 1(c).
"Receivables" - Recitals.
"Secured Note" - Section 1(j).
"Secured Obligations" - Section 4.
"Sweep Notice" - Section 1(d).
"Termination Date" - Section 1(b).
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<PAGE> 31
"UCC" - Section 1(c).
"Weekly Reconciliation Report" - Section 12(a)
Section 22. Section Headings. The paragraph headings used in
this Agreement are for convenience of reference only and shall not affect the
construction of this Agreement nor shall they be taken into consideration in
the interpretation of this Agreement.
Section 23. No Waiver; Cumulative Remedies. The Lender shall
not by any act (except by a written instrument pursuant to Section 11 hereof),
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Event of Default or in any breach
of any of the terms and conditions herein. No failure to exercise, nor any
delay in exercising, on the part of the Lender, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Lender of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which the Lender would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive
of any rights or remedies provided by law.
Section 24. Assignment. The Lender may but the Borrower may
not assign its rights or delegate its obligations under this Agreement without
the express written consent of the other party herefor.
Section 25. Counterparts. For the purpose of facilitating
the execution of this Agreement and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which shall be
deemed to be an original, and collectively, such counterparts shall constitute
and be deemed to be one and the same instrument.
Section 26. Hypothecation or Pledge of Collateral. Nothing
in this Agreement shall preclude the Lender from engaging in repurchase
transactions with any of the Collateral or otherwise pledging, repledging,
hypothecating, or rehypothecating any of the Provider Loans.
Section 27. Integration of Terms. This Agreement contains
the entire agreement between the parties relating to the subject matter hereof
and supersedes all oral statements and prior writings with respect thereto.
28
<PAGE> 32
Section 28. Business Day. Business Day shall mean any day of
the year other than (a) Saturday, Sunday or (b) any day on which banks are
required, or authorized by law, to close in the State of New York or the State
of California.
Section 29. Time. All times referred to in this Agreement
shall be deemed to refer to New York City time.
SECTION 30. GOVERNING LAW; CONSENT TO JURISDICTION; AGREEMENT
CONSTITUTES SECURITY AGREEMENT. (a) THIS AGREEMENT AND THE SECURED NOTE SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED
TO CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW YORK, EXCEPT THAT THE
VALIDITY OR PERFECTION OF THE INTERESTS OF THE LENDER IN THE COLLATERAL OR
REMEDIES HEREUNDER OR THEREUNDER, IN RESPECT THEREOF, ARE GOVERNED BY THE LAWS
OF THE STATE OF CALIFORNIA.
(b) THE LENDER AND THE BORROWER HEREBY SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE
UNITED STATES DISTRICT COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK, AND
EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT
ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS
SET FORTH IN SECTION 21 HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS,
POSTAGE PREPAID. THE LENDER AND THE BORROWER EACH HEREBY WAIVE ANY OBJECTION
BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION
INSTITUTED HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE
RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL
AFFECT THE RIGHT OF EITHER THE LENDER OR THE BORROWER, AS THE CASE MAY BE, TO
SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT ITS RIGHT TO
BRING ANY ACTION OR PROCEEDING AGAINST THE LENDER OR ITS PROPERTY OR BORROWER
OR ITS PROPERTY IN THE COURT OF ANY OTHER JURISDICTION.
(c) THE LENDER AND THE BORROWER EACH HEREBY WAIVE ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN
CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE
RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
(d) THIS AGREEMENT IS INTENDED BY THE PARTIES HERETO TO
CONSTITUTE A SECURITY AGREEMENT WITHIN THE MEANING OF THE NEW YORK UCC.
29
<PAGE> 33
IN WITNESS WHEREOF, the parties have executed this
Agreement the day and year first above written.
LENDER: PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By: /s/ William J. Horan
__________________________
Name: William J. Horan
Title: Treasurer
BORROWER: DVI BUSINESS CREDIT CORPORATION
By: /s/ Anthony J.Turek
___________________________
Name: Anthony J. Turek
Title: Senior Vice President
<PAGE> 34
Exhibit A
SECURED NOTE
$5,500,000
June 7, 1995
New York, New York
FOR VALUE RECEIVED, DVI BUSINESS CREDIT CORPORATION, a
Delaware corporation, whose address is 4041 MacArthur Blvd., Newport Beach, CA
92660, promises to pay to the order of PRUDENTIAL SECURITIES REALTY FUNDING
CORPORATION, a Delaware corporation, whose address is 1220 N. Market Street,
Wilmington, Delaware 19801 (the "Lender") on or before August 31, 1995, in
lawful money of the United States of America, the lesser of (a) $5,500,000 and
(b) the outstanding principal amount of Advances (as defined in the Agreement)
made by the Lender to the undersigned pursuant to the that certain Interim Loan
and Security Agreement, dated as of June 7, 1995 (as amended or otherwise
modified from time to time, the "Agreement"), by and between the Lender and the
Borrower, plus interest thereon from the date of each such Advance at the rate
set forth in the Agreement. All such payment obligations (whether in respect
of the aggregate principal amount of outstanding Advances made, interest
thereon, or other payment obligations of the Borrower under the Agreement)
shall be made in lawful money of the United States of America, in immediately
available funds, on the dates and in the amounts, specified in, or determined
in accordance with, the Agreement.
It is intended that the rate of interest herein shall never
exceed the maximum rate, if any, which may be legally charged on the loan
evidenced by this Secured Note (the "Maximum Rate"), and if the provisions for
interest contained in this Secured Note would result in a rate higher than the
Maximum Rate, interest shall nevertheless be limited to the Maximum Rate, and
any amounts which may be paid toward interest in excess of the Maximum Rate
shall be applied to the reduction of principal, or, at the option of the
Lender, returned to the Borrower.
All payments hereon shall be made, and all notices to the
Lender required or authorized hereby shall be given, at the office of the
Lender at the address designated in the Agreement, or to such other place as
the Lender may from time to time direct by written notice to the Borrower.
Payments remitted by the Borrower via wire transfer initiated after 4:00 p.m.
New York City shall be deemed to be received on the next business day.
The Borrower agrees to pay all the Lender's costs of
collection and enforcement (including reasonable attorneys'
A-1
<PAGE> 35
fees and disbursements of Lender's counsel) in respect of this Secured Note
when incurred, including, without limitation, reasonable attorneys' fees
through appellate proceedings.
Capitalized terms not otherwise defined herein shall have the
respective meanings ascribed to them in the Agreement. Notwithstanding the
pledge of the Collateral, the Borrower hereby acknowledges, admits and agrees
that the Borrower's obligations under this Secured Note are recourse
obligations of the Borrower to which the Borrower pledges its respective full
faith and credit.
The Borrower, and any endorsers or guarantors hereof, (a)
severally waive diligence, presentment, protest and demand and also notice of
protest, demand, dishonor and nonpayments of this Secured Note, (b) expressly
agree that this Secured Note, or any payment hereunder, may be extended from
time to time, and consent to the acceptance of further Collateral, the release
of any Collateral for this Secured Note, the release of any party primarily or
secondarily liable hereon, and (c) expressly agree that it will not be
necessary for the Lender, in order to enforce payment of this Secured Note, to
first institute or exhaust the Lender's remedies against the Borrower or any
other party liable hereon or against any Collateral for this Secured Note. No
extension of time for the payment of this Secured Note, or any installment
hereof, made by agreement by the Lender with any person now or hereafter liable
for the payment of this Secured Note, shall affect the liability under this
Secured Note of the Borrower, even if the Borrower is not a party to such
agreement; provided, however, that the Lender and the Borrower, by written
agreement between them, may affect the liability of the Borrower.
Any reference herein to the Lender shall be deemed to include
and apply to every subsequent holder of this Secured Note.
Reference is made to the Agreement for provisions concerning
mandatory principal repayments, Collateral, acceleration and other material
terms affecting this Secured Note.
THIS SECURED NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE
LAWS OF THE STATE OF NEW YORK (WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE),
WHOSE LAWS THE BORROWER EXPRESSLY ELECTS TO APPLY TO THIS SECURED NOTE. THE
BORROWER AGREES THAT ANY ACTION OR PROCEEDING BROUGHT TO ENFORCE OR ARISING OUT
OF THIS SECURED NOTE MAY BE COMMENCED IN THE SUPREME COURT OF THE STATE OF NEW
YORK, BOROUGH OF MANHATTAN, OR IN THE DISTRICT COURT OF THE UNITED STATES FOR
THE SOUTHERN DISTRICT OF NEW YORK.
A-2
<PAGE> 36
THE BORROWER AND THE HOLDER OF THIS SECURED NOTE EACH HEREBY
WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR IN CONNECTION WITH THIS SECURED NOTE. INSTEAD, ANY DISPUTE
RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
DVI BUSINESS CREDIT CORPORATION
By:____________________________
Name:
Title:
A-3
<PAGE> 37
Exhibit B-1
NOTICE OF EXTENSION OF AGREEMENT NO. _______
Prudential Securities Realty Funding Corporation
130 John Street, 24th Floor
Treasury Department
New York, New York
Attention: Mr. William Horan
Telecopy: 212-214-7310
Confirmation: 212-214-7535
1. Pursuant to the Interim Loan and Security Agreement,
dated as of June 7, 1995 (as amended from time to time, the "Agreement") ,
between you and DVI Business Credit Corporation (the "Borrower"), the
undersigned Borrower hereby requests that the Termination Date under the
Agreement be extended to [insert date].
The undersigned Borrower agrees that, upon acceptance by the Lender of this
Notice of Extension of Agreement No. ___ by signing and dating the same below,
the Borrower will be bound by the terms of the Agreement as amended by this
Notice of Extension of Agreement in the manner set forth in this paragraph 1
and by the terms of the Secured Note as amended by Secured Note Endorsement No.
___ delivered herewith.
2. The undersigned Borrower hereby certifies that the
following statements are true and correct on the date hereof and shall be true
and correct on the date of the extension of the Termination Date requested
herein, before and after giving effect thereto:
A. Each of the representations and warranties contained in the
Agreement are true and correct in all material respects; and
B. No Default or Event of Default has occurred and is continuing,
and no event that, with the passing of time or the giving of
notice or both, would constitute a Default or Event of Default
has occurred and is continuing.
3. Unless otherwise defined in this Notice of Extension
of Agreement No. ___, terms defined in the Agreement shall have their defined
meanings when used herein.
4. Except as expressly modified by this Notice of
Extension of Agreement No. ___, the Agreement shall continue in Extension of
Agreement No. full force and effect.
B-1-1
<PAGE> 38
5. The undersigned Borrower is delivering herewith to the
Lender (a) Secured Note Endorsement No. ___ to the Secured Note, substantially
in the form of Exhibit B-2 to the Agreement.
6. This Notice of Extension of Agreement No. ___ and the
rights and obligations of the parties hereunder and under the Agreement as
amended hereby shall be governed by, and construed and interpreted in
accordance with, the laws of the State of New York (without reference to choice
of law doctrine).
IN WITNESS WHEREOF, the undersigned Borrower has caused this
Notice of Extension of Agreement No. ___ to be executed and delivered by its
proper and duly authorized officers as of the day and year first above written.
DVI BUSINESS CREDIT CORPORATION
By:____________________________
Name:
Title:
AGREED TO AND ACCEPTED:
PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By:____________________________
Name:
Title:
Date: _____________________
cc: [depository of Lender Account]
B-1-2
<PAGE> 39
Exhibit B-2
SECURED NOTE
ENDORSEMENT NO. ___
[__________________, 199__]
The undersigned Borrower hereby agrees with PRUDENTIAL
SECURITIES REALTY FUNDING CORPORATION (the "Lender") that the Secured Note of
the Borrower, dated June __, 1995 as it may have been previously amended by
endorsement, in the amount of [$______________], to which this Secured Note
Endorsement No. ___ is attached, is hereby amended by changing the Termination
Date referred to therein to [____________, 199__].
This Secured Note Endorsement No. ___ is given as a renewal,
rearrangement and extension of the obligations of the borrower to the Lender
under the Secured Note and is not given in substitution therefore or
extinguishment thereof. The Borrower hereby authorizes the Lender to attach
this Secured Note Endorsement No. ___ to the Secured Note.
Borrower: DVI BUSINESS CREDIT CORPORATION
By:___________________________
Name:
Title:
Lender: PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By:___________________________
Name:
Title:
B-2-1
<PAGE> 40
Exhibit C
[Letterhead of Counsel to Borrower]
[_____________, 199__]
Prudential Securities Realty Funding Corporation
130 John Street
New York, New York 10292
1. The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
2. The Borrower has the corporate power and authority to
enter into and perform the Agreement and the Note. No consent, license,
permit, order, approval or authorization of, or registration, filing, or
declaration with, or notice to, any federal or New York State governmental
authority, bureau or agency is required in connection with the enforceability
of each of the Agreement and the Note.
3. The execution and delivery by the Borrower of each of
the Agreement and the Note, and the performance of its obligations thereunder,
do not conflict with or result in a violation of the certificate of
incorporation or by-laws of the Borrower.
4. Guarantor has been duly organized and is validly
existing under the laws of the State of Delaware. The Guarantor has the
corporate power and authority to enter into and perform its obligations under
the Guarantee.
5. The execution and delivery by the Borrower and
Guarantor, as applicable, of the Guarantee, the Agreement and the Note (the
"Transaction Documents"), and the performance of their respective obligations
thereunder, have been duly authorized by all requisite corporate action on the
part of the Borrower and Guarantor, as applicable. The Transaction Documents
are legal, valid and binding obligations of the Borrower and Guarantor, as
applicable, enforceable against the Borrower and Guarantor, as applicable, in
accordance with their respective terms.
6. The execution and delivery by Guarantor of the
Guarantee, and the performance of its obligations thereunder, do not conflict
with or result in a violation of Guarantor's Certificate of Incorporation or
By-Laws.
C-1
<PAGE> 41
7. No consent, license, permit, order, approval or
authorization of, or registration, filing, or declaration with, or notice to,
any federal or New York State governmental authority, bureau or agency is
required in connection with the enforceability of the Guarantee.
C-2
<PAGE> 42
Exhibit D
NOTICE OF BORROWING NO. ______
Prudential Securities Realty Funding Corporation
130 John Street, 24th Floor
Treasury Department
New York, New York
Attention: Mr. William Horan
Telecopy: 212-214-7310
Confirmation: 212-214-7535
Pursuant to the Interim Loan and Security Agreement, dated as
of June 7, 1995 (as amended from time to time, the "Agreement"), between you
and DVI Business Credit Corporation (the "Borrower"), the undersigned Borrower
hereby gives notice of its election to request an Advance and, in connection
therewith, sets forth below the following information (all capitalized terms
used herein shall have the meaning specified therefor in the Agreement):
1. The Advance is being made in respect of a Provider
Loan [description of Provider Loan or Loans].
2. The principal amount of the requested Advance is
[$__________].
3. The business day on which this Advance is to be made
is [__________, 199__] (the "Funding Date"), two
business days following the date hereof.
4. [Attached hereto is a copy of the Provider Loan
Schedule (as defined in the Agreement) being
submitted to the Lender in connection with the
Advance requested hereby.]
5. Proceeds of the Advance should be disbursed to [bank
account information].
The undersigned hereby certifies that the following statements
are true and correct on the date hereof and shall
D-1
<PAGE> 43
be true and correct on the date of the Advance requested herein, before and
after giving effect thereto:
A. Each of the representations and warranties contained in the Agreement
are true and correct in all material respects; and
B. No Default or Event of Default has occurred and is continuing, and no
event that, with the passing of time or the giving of notice or both,
would constitute a Default or Event of Default has occurred and is
continuing.
DVI BUSINESS CREDIT CORPORATION
By:___________________________
Name:
Title:
Date: , 199__
D-2
<PAGE> 44
Exhibit E
NOTICE OF EXTENSION
Reference is made to the Interim Loan and Security Agreement,
dated as of June 7, 1995 (as amended from time to time, the "Agreement"),
between Prudential Securities Realty Funding Corporation (the "Lender" and DVI
Business Credit Corporation (the "Borrower").
The Lender hereby notifies the Borrower pursuant to Section
1(b) of the Agreement that with respect to the Advance made on [_____________
__, 199__], the Lender hereby extends the Maturity Date of such Advance to
[___________ __, 199__], on which date such Advance shall be due and payable.
PRUDENTIAL SECURITIES REALTY
FUNDING CORPORATION
By:________________________
Name:
Title:
Date: , 199__
cc: depository of Lender Account
E-1
<PAGE> 45
Exhibit F
LENDER ACCOUNT NOTICE
F-1
<PAGE> 46
Exhibit G
GUARANTEE OF DVI INC
Guarantee, dated as of June 7, 1995, by DVI Inc., a Delaware
corporation (the "Guarantor"), in favor of Prudential Securities Realty Funding
Corporation ("Lender").
WHEREAS, the Guarantor shall guarantee all present and future
obligations and liabilities of all kinds of DVI Business Credit Corporation, a
Delaware corporation ("Borrower") to Lender arising out of the Interim Loan and
Security Agreement, dated as of June 7, 1995, (the "Agreement");
NOW, THEREFORE, the Guarantor agrees as follows.
1. Guarantee. To induce Lender to enter into an the
Interim Loan Agreement, dated as of the date hereof with Borrower, the
Guarantor unconditionally guarantees to Lender, its successors, endorsees, and
permitted assigns, the prompt payment when due of all present and future
obligations and liabilities of all kinds of Borrower to Lender arising out of
the Interim Loan and Security Agreement (the "Obligations").
2. Absolute Guarantee. The Guarantor's obligations
under this Guarantee shall not be affected by the genuineness, validity,
regularity, or enforceability of the Obligations or of any instrument
evidencing the Obligations, or by the existence, validity, enforceability,
perfection, or extent of any collateral for the Obligations, or by any other
circumstance relating to the Obligations which might otherwise constitute a
discharge of or defense to this Guarantee. Lender makes no representation or
warranty to the Guarantor regarding such matters, and has no duty or
responsibility to disclose to the Guarantor any circumstances that may now or
hereafter affect such matters. Lender shall not be obligated to file any claim
relating to the Obligations if Borrower becomes subject to a bankruptcy,
reorganization, or similar proceeding, and the failure of Lender so to file
shall not affect the Guarantor's obligations hereunder. If any payment by
Borrower to Lender on account of the Obligations is rescinded or must otherwise
be returned for any reason whatsoever, the Guarantor shall remain liable
hereunder for such obligations as if such payment had not been made. This is a
guarantee of payment and not of collection and is the primary obligation of the
Guarantor. The Lender may enforce this Guarantee against the Guarantor without
prior enforcement of the Obligations against the Borrower.
3. Consents, Waivers, and Renewals. Lender may at any
time and from time to time, either before or after the
G-1
<PAGE> 47
maturity thereof, without notice to or further consent of the Guarantor, extend
the time of payment of, exchange, or surrender any collateral for, or renew,
any of the Obligations, and may also make any agreement with Borrower or with
any other individual or entity liable on any of the Obligations, or interested
therein, for the extension, renewal, payment, compromise, discharge, or release
thereof, in whole or in part, or for any modification of the terms thereof or
of any agreement between Lender and Borrower or any such other individual or
entity, without impairing or affecting this Guarantee. Lender may seek payment
of any of the Obligations from the Guarantor, whether or not Lender shall have
resorted to any collateral for the Obligations or shall have proceeded against
Borrower or any other obliger principally or secondarily obligated for any of
the Obligations.
4. Expenses. The Guarantor shall pay on demand all
out-of-pocket expenses (including the reasonable fees and expenses of Lender's
counsel) incurred in the enforcement or protection of the rights of Lender
under this Guarantee, and any collateral for the Obligations shall secure such
payment; provided, however, that the Guarantor shall not be liable for any
expenses of Lender if no payment under this Guarantee is due.
5. No Subrogation. Notwithstanding any payment or
payments made by the Guarantor hereunder, or any set-off or application of
funds of the Guarantor by the Lender, the Guarantor waives any right that it
may have to be subrogated to any of the rights of the Lender against the
Borrower or against any collateral security or guarantee or right of offset
held by the Lender for the payment of the Obligations or to otherwise seek
reimbursement, indemnity or contribution or any other payment from the Borrower
in respect of payments made by the Guarantor hereunder.
6. Continuing Guarantee. This Guarantee is absolute,
unconditional, and irrevocable and shall remain in full force and effect and be
binding upon the Guarantor and its successors and permitted assigns until all
of the obligations have been satisfied in full. If any present or future
Obligations are guaranteed by individuals or entities in addition to the
Guarantor, the death, release, or discharge, in whole or part or the
bankruptcy, liquidation, termination, or dissolution of one or more of them
shall not discharge or affect the liabilities of the Guarantor hereunder.
7. No Waiver; Cumulative Rights. No failure on the part
of Lender to exercise, and no delay in exercising, any right, remedy, or power
under this Guarantee shall operate as a waiver thereto, nor shall any single or
partial exercise
G-2
<PAGE> 48
by Lender of any right, remedy, or power hereunder preclude any other or future
exercise of any right, remedy, or power. Each and every right, remedy, and
power hereby granted to Lender or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by Lender from
time to time.
8. Waiver of Notice. Except as required otherwise
herein, the Guarantor waives notice of the acceptance of this Guarantee, notice
of the creation, renewal or accrual of any of the Obligations as notice or
proof of reliance by the Lender upon this Guarantee, presentment to or demand
of payment from anyone liable for any of the Obligations, notice of dishonor or
non-payment, protest, diligence, suit, notice of any sale of any collateral for
the obligations, notice of the taking of any action by Lender against Borrower,
the Guarantor, or others, and all other notices that may otherwise be required
by law.
9. Representations and Warranties.
(a) The Guarantor is duly organized and validly existing
under the law of the State of Delaware and has full corporate power and
authority to execute, deliver, and perform this Guarantee.
(b) The execution, delivery, and performance of this
Guarantee have been and remain duly authorized by all necessary corporate
action and do not contravene any provision of the Guarantor's charter or
by-laws, as amended to date, or any law, regulation, rule, decree, order,
judgment, or contractual restriction binding on the Guarantor or its assets.
(c) All consents, licenses, authorizations, and approvals
of, and registrations and declarations with, any governmental authority or
regulatory body necessary for the due execution, delivery, and performance of
this Guarantee have been obtained and remain in full force and effect and all
conditions thereof have been duly complied with, and no other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required in connection with the execution, delivery, or performance of this
Guarantee.
(d) This Guarantee constitutes the legal, valid, and
binding obligation of the Guarantor and is enforceable against the Guarantor in
accordance with its terms, subject as to enforceability to bankruptcy,
insolvency, reorganization, moratorium, conservatorship, receivership, and
other laws of general applicability relating to or affecting creditors, rights
generally and to equitable principles of general application.
G-3
<PAGE> 49
(e) No consent or approval of any person (including,
without limitation, stockholders of the Guarantor), no consent or approval of
any landlord or mortgagee, no waiver of any lien or right of distraint or other
similar right and no consent, license, approval, authorization or declaration
of, any governmental authority, bureau or agency is or will be required in
connection with the execution, delivery, performance, validity, enforcement or
priority of this Guaranty, or any other agreements, instruments or documents to
be executed or delivered pursuant hereto or thereto.
(f) The execution and delivery by the Guarantor of this
Agreement and the performance by it hereunder will not violate any provision of
law and will not conflict with or result in a breach of any order, writ,
injunction, ordinance, resolution, decree or other similar document or
instrument of any court or governmental authority, bureau or agency, domestic
or foreign, or any certificate of incorporation or by-laws of the Guarantor, or
create (with or without the giving of notice or lapse of time, or both) a
default under or breach of any agreement, bond, note or indenture to which the
Guarantor is a party, or by which it is bound or any of its properties or
assets is affected, or result in the imposition of any lien of any nature
whatsoever upon any of the properties or assets owned by or used in connection
with the business of the Guarantor.
(g) Neither the Guarantor nor any affiliate of the
Guarantor is in default under any agreement, ordinance, resolution,
decree, bond, note, indenture, order or judgment to which it is a party or by
which it is bound, or any other agreement or other instrument by which any of
the properties or assets owned by it could or used in the conduct of its
business is affected, which default could have a material adverse effect on the
business, operations, financial condition or properties of the Guarantor or any
affiliate or in the ability of the Guarantor to perform its obligations under
this Agreement. The Guarantor and each affiliate has complied and is in
compliance in all respects with all applicable laws, ordinances and regulations,
resolutions, ordinances, decrees and other similar documents and instruments
domestic and foreign and the regulations issued thereunder, non-compliance with
which could have a material adverse effect on the business, operations,
financial condition or properties of the Guarantor or on the ability of the
Guarantor to perform its obligations under this Agreement.
(h) There is no action, preceding or investigation pending
or, to the best of its knowledge, threatened against the Guarantor before any
court, administrative agency or other tribunal (i) asserting the invalidity of
this Guarantee, (ii) seeking to prevent the consummation of any of the
transactions
G-4
<PAGE> 50
contemplated by this Guarantee or the performance by the Guarantor of its
obligations under, or the validity or enforceability of the Guarantee.
10. Assignment. The Guarantor may not assign its rights,
interests, or obligations under this Guarantee to any other person without the
prior written consent of Lender.
11. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF
LAW PROVISIONS) OF THE STATE OF NEW YORK.
THE LENDER AND THE BORROWER HEREBY SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES
DISTRICT COURT LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK, AND EACH WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS SET FORTH
IN SECTION 21 HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE
DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE
PREPAID. THE LENDER AND THE BORROWER EACH HEREBY WAIVE ANY OBJECTION BASED ON
FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED
HEREUNDER AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS
DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL AFFECT THE
RIGHT OF EITHER THE LENDER OR THE BORROWER, AS THE CASE MAY BE, TO SERVE LEGAL
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR AFFECT ITS RIGHT TO BRING ANY
ACTION OR PROCEEDING AGAINST THE LENDER OR ITS PROPERTY OR BORROWER OR ITS
PROPERTY IN THE COURT OF ANY OTHER JURISDICTION.
THE LENDER AND THE BORROWER EACH HEREBY WAIVE ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION
WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED
IN A BENCH TRIAL WITHOUT A JURY.
12. Notices; Payments. (a) Any notice or communication
to the Guarantor in respect of this Guarantee shall be sufficiently given if in
writing and delivered in person or sent by certified or registered mail or the
equivalent (with return receipt requested), by courier, or by facsimile
addressed to the following:
DVI Inc.
500 Hyde Park
Doylestown, Pennsylvania 18901
Attention: Anthony Turek
Telephone: (215) 230-2906
Telecopy: (215) 230-3940
G-5
<PAGE> 51
Any such notice or communication shall specifically identify the amounts to
which this Guarantee relates, and shall be sufficiently given only upon actual
receipt by the Guarantor. Any notice or communication by the Guarantor to
Lender in respect of this Guarantee shall be sufficiently given if in writing
and delivered in the manner provided in the Interim Loan and Security
Agreement.
(b) all payments made by the Guarantor under or by virtue
of this Guarantee shall be paid to the Lender at such place as shall be
specified from time to time under the Agreement or as the Lender may specify to
the Guarantor.
13. This Guaranty shall be binding upon the Guarantor and
its successors and assigns, and shall inure to the benefit of the Lender and
its successors and assigns; provided, however, that the Guarantor shall not be
entitled to assign or delegate any of its rights or obligations under this
Guaranty without the prior consent of the Lender, and any purported assignment
in the absence of such consent all be void. This Guaranty embodies the entire
agreement and understanding between the Lender and the Guarantor relating to
the subject matter hereof and supersedes all prior agreements and
understandings relating to the subject matter hereof.
14. (a) The provisions of this Guaranty are severable,
and in an action or proceeding involving any state or federal bankruptcy,
insolvency or other law affecting the rights of creditors generally:
(i) If any clause or provision shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect only such clause or
provision, or part thereof, in such jurisdiction and shall not in any
manner affect such clause or provision in any other jurisdiction, or
any other clause or provision in this Guaranty in any jurisdiction, or
any other clause or provision in this Guaranty in any jurisdiction.
(ii) If the guaranty hereunder by the Guarantor would be held
or determined to be void, invalid or unenforceable on account of the
amount of the Guarantor's aggregate liability under this Guaranty,
then, notwithstanding any other provision of this Guaranty to the
contrary, the aggregate amount of such liability shall, without any
further action by any of the Lender, the Guarantor or any other
person, be automatically limited and reduced to the highest amount
that is valid and enforceable as determined in such action or
proceeding, which (without limiting the generality of the foregoing)
may be an amount that is not greater than the greater of:
G-6
<PAGE> 52
(A) the fair consideration actually received by
the Guarantor under the terms of and as a result of the
Agreement and any and all predecessor credit agreements which
the Agreement amends and restates (including, without limiting
the generality of the foregoing, and to the extent not
inconsistent with applicable federal and state laws affecting
the enforceability of guaranties, investments made in, and
capital contributions or advances made to, the Guarantor by
the Borrower with the proceeds of any credit extended under
the Agreement whether or not any such investments, capital
contributions or advances were direct or indirect, and the
release of the Guarantor from its obligations under any other
guaranty or collateral security documents, or both) in
exchange for its guaranty of the Obligations; and
(B) the excess of: (1) the amount of the fair
saleable value of the consolidated assets of the Guarantor as
of the date of this Guaranty as determined in accordance with
applicable federal and state laws governing determinations of
the insolvency of debtors as in effect on the date hereof,
over (2) the amount of all consolidated liabilities of the
Guarantor as of the date of this Guaranty, also as determined
on the basis of applicable federal and state laws governing
the insolvency of debtors as in effect on the date hereof.
(b) If any other guaranty by any one or more other
guarantors of the Guaranteed Obligations is held or determined to be void,
invalid or unenforceable, in whole or in part, such holding or determination
shall not impair or affect the validity and enforceability of:
(i) the guaranty hereunder by the Guarantor, which shall
continue in full force and effect in accordance with its terms; or
(ii) any clause or provision not void, invalid or
unenforceable.
IN WITNESS WHEREOF, this Guarantee has been duly executed and
delivered by the Guarantor to Lender as of the date first above written.
DVI INC.
By:__________________________
Name:
Title:
G-7
<PAGE> 53
Exhibit H
WEEKLY RECONCILIATION REPORT
Prudential Securities Realty Funding Corporation
130 John Street, 24th Floor
Treasury Department
New York, New York
Attention: Mr. William Horan
Telecopy: 212-214-7310
Confirmation: 212-214-7535
Pursuant to the Interim Loan and Security Agreement, dated as
of June 7, 1995 (as amended from time to time, the "Agreement"), between you
and DVI Business Credit Corporation (the "Borrower"), the undersigned Borrower
sets forth below the following information for the week ending __ __ __ (all
capitalized terms used herein shall have the meaning specified therefor in the
Agreement):
<TABLE>
<CAPTION>
Beginning
Balance in Deposits to Withdrawals from Ending Balance in
Lender Account Lender Account Lender Account Lender Account
<S> <C> <C> <C> <C>
Day 1
[Provider Name]
[Provider Name]
[Provider Name]
[Provider Name]
[Provider Name]
[Provider Name]
Day 2
[Provider Name]
[Provider Name]
[Provider Name]
[Provider Name]
[Provider Name]
[Provider Name]
Day 3
[Provider Name]
[Provider Name]
[Provider Name]
[Provider Name]
[Provider Name]
[Provider Name]
</TABLE>
H-1
<PAGE> 54
<TABLE>
<CAPTION>
Beginning
Balance in Deposits to Withdrawals from Ending Balance in
Lender Account Lender Account Lender Account Lender Account
<S> <C> <C> <C> <C>
Day 4
[Provider Name]
[Provider Name]
[Provider Name]
[Provider Name]
[Provider Name]
[Provider Name]
Day 5
[Provider Name]
[Provider Name]
[Provider Name]
[Provider Name]
[Provider Name]
[Provider Name]
</TABLE>
The undersigned hereby certifies that the following statements
are true and correct on the date hereof:
A. Each of the representations and warranties contained in the Agreement
are true and correct in all material respects; and
B. No Default or Event of Default has occurred and is continuing, and no
event that, with the passing of time or the giving of notice or both,
would constitute a Default or Event of Default has occurred and is
continuing.
DVI BUSINESS CREDIT CORPORATION
By:___________________________
Name:
Title:
Date: , 199__
cc: Mitch Harris
Asset Backed Operations
One New York Plaza
12th Floor
Telecopy: 212-778-7533
Confirmation: 212-778-7085
H-2
<PAGE> 55
Schedule 1
Provider Loan Schedule
[To be Delivered by the Borrower
Pursuant to Section 2(a)(ii)]
S-1
<PAGE> 56
Schedule 2
Borrower Recordings and Filings
[To be added]
S-2
<PAGE> 57
Schedule 3
Provider Loan Documents
[To be added]
S-3
<PAGE> 1
Exhibit 10.25
INTERIM WAREHOUSE AND
SECURITY AGREEMENT
This INTERIM WAREHOUSE AND SECURITY AGREEMENT ("Agreement"),
dated as of February 2, 1995, among CONTITRADE SERVICES CORPORATION, DVI
FINANCIAL SERVICES INC. and DVI, INC.
WHEREAS, the Lender (as defined below) wishes to lend, and the
Borrower (as defined below) wishes to borrow, subject to certain terms and
conditions, moneys in connection with an interim funding facility for certain
contracts under which the Borrower leases specified equipment to specified
users; and
WHEREAS, the Borrower wishes the Lender to make advances under
this facility in minimum amounts of $1,000,000 (or such lesser amount, only if
an amount less than $1,000,000 remains available hereunder), such advances to
accrue interest from the dates on which they are made at the rates calculated
as provided herein; and
WHEREAS, the Guarantor (as defined below), in order to induce
the Lender to enter into this Agreement, wishes to guarantee the obligations of
the Borrower in respect of such borrowed moneys and the other obligations
relating to the interim funding facility; and
WHEREAS, the Borrower expects to cause to be sold the Investor
Certificates (as defined below); and
WHEREAS, it is further expected by the Lender and the Borrower
that the proceeds from the sale of the Investor Certificates shall be applied
to repay the loan made pursuant to the interim funding facility; and
WHEREAS, the parties desire to agree upon the terms and
conditions governing such interim funding facility;
NOW, THEREFORE, in consideration of the covenants and
agreements contained herein, the parties hereto agree as follows:
1. Definitions. In addition to the terms defined
elsewhere in this Agreement, the following terms shall have the following
meanings:
"Advance" means an advance, in minimum amounts of $1,000,000
(or such lesser amount, only if an amount less than
<PAGE> 2
$1,000,000 remains available hereunder), constituting part of the Loan.
"Borrower" means DVI Financial Services Inc., a Delaware
corporation, having its principal office at One Park Plaza, Suite 800, Irvine,
California 92714.
"Broker" means the original lessor (other than the Borrower)
of an item of Equipment pursuant to a Contract with the User of such Equipment.
"Broker Agreement" means the agreement, between the Borrower
and a Broker, pursuant to which the Borrower acquired a Contract, or a security
interest therein, from such Broker.
"Broker Agreement Rights" means any and all rights of the
Borrower under a Broker Agreement to enforce any Contract and any related
Insurance Policy or other document in any related Contract File and any rights
of the Borrower under a Broker Agreement.
"Business Day" means any day other than a Saturday, Sunday or
a day on which banking institutions in New York City or Irvine, California are
authorized or obligated by law or executive order to be closed.
"Certification" means (a) the certificate delivered by the
Custodian to the Borrower and the Lender to the effect that, as to each
Contract listed in the Contract Schedule (other than any Contract paid in full
or any Contract specifically identified in such certification as not covered by
such certification), (i) all documents required to be delivered to it pursuant
to Section 2(a), (b), (c), (d), (e) and (f) of the Custodial Agreement, are in
its possession, (ii) such documents have been reviewed by it and have not been
mutilated, damaged, torn or otherwise physically altered (handwritten
additions, changes or corrections shall not constitute physical alteration if
initialled by the User) and relate to such Contract and (iii) based on its
examination and only as to the foregoing documents, the information set forth
on the Contract Schedule (other than items (iii) and (iv) in the definition
thereof) accurately reflects the information set forth in the Custodian's
Contract File, with any exceptions attached thereto, and the aggregate of the
Contract Principal Balances provided by the Borrower for the Contracts listed
on such Contract Schedule (as calculated by the Custodian) noted on such
Certification; or (b) an alternative certification procedure agreed to in
writing, from time to time, among the Borrower, the Lender and the Custodian
with respect to any particular Contracts.
"Collateral" means all documents, instruments and agreements
relating to or evidencing the Contracts, including,
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<PAGE> 3
without limitation, the Contract Files, all payments and proceeds due under
each Contract, a perfected assignment of Borrower's first priority security
interest in the Equipment via UCC-1 or UCC-3 filings, any Purchase Option
Payments and Borrower's rights under certain Insurance Policies relating to the
Contracts.
"Collateral Principal Balance" means, on any date of
calculation, the aggregate Contract Principal Balances of all Contracts which
are not either Defaulted Contracts or Delinquent Contracts. For purposes of
calculating the Collateral Principal Balance, the Contract Principal Balance of
each Defaulted Contract and each Delinquent Contract shall be zero.
"Computer Tape" means a computer tape generated by the
Borrower containing the information set forth on the Contract Schedule.
"Contract" means each of the non-cancelable, conditional sale
contracts (including security agreements, operating leases, and direct
financing equipment leases) securing the Loan, including, as applicable,
schedules, supplements and amendments, identified on the Contract Schedule
delivered pursuant hereto, under which the Borrower finances the purchase of
specified Equipment by a User or a User leases specified Equipment from the
Borrower as lessor or as successor in interest to an originating lessor, at a
specified monthly rate.
"Contract File" means with respect to each Contract, the
following documents:
a. The original or certified copy of each master lease
relating to each Contract and the original supplement or schedule
related thereto;
b. A copy of each Insurance Policy;
c. A copy of each original invoice for the related
Equipment and the receipt of delivery related thereto;
d. Evidence of filing of each UCC-1 financing statement
executed by the related User, as debtor, and filed with the Secretary
of State in each state where the Equipment is located (and if required
by such state, with the office of the County Clerk in the county where
such Equipment is located), naming the Borrower as secured party (or
in the case of any Contract which was acquired by a Broker Agreement,
naming the Broker as secured party and the Borrower as assignee of the
secured party) and the Equipment as collateral;
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<PAGE> 4
e. A copy of UCC-1 financing statements or UCC-3
assignments of financing statements originally naming the User as
debtor and the Borrower as secured party (or in the case of any
Contract which was acquired by a Broker Agreement, naming the Broker
as secured party and the Borrower as assignee of the secured party),
as applicable, to be filed in each state where the Equipment is
located with the Secretary of State of such state (and if required by
such state, with the Office of the County Clerk in the county where
such Equipment is located), executed by the Borrower, as debtor, and
naming "Bankers Trust Company, as custodian or as trustee under the
applicable custodial or trust agreement" as secured party and the
Equipment as collateral.
f. A copy of any related Broker Agreement (if
applicable).
"Contract Portfolio Acquisition" means any acquisition of
Contracts by the Borrower from a Broker pursuant to which multiple Contracts
are sold to the Borrower for a purchase price based on the entire portfolio of
Contracts purchased.
"Contract Principal Balance" means for each Contract, on any
date of calculation, the original Equipment cost of the related item of
Equipment less the sum of (a) any discounts received by the Borrower at the
time of purchase and (b) all payments received from the User prior to such
date.
"Contract Rate" means with respect to a Contract, the implied
yield relating to such Contract as calculated by the Borrower employing the
same method of calculation as the Borrower uses in the ordinary course of its
business relating to capitalized leases of a substantially similar nature to
such Contract, expressed as an annual rate which reflects payments on a
monthly, non-compounded basis.
"Contract Schedule" means, collectively, all schedules of
Contracts delivered by the Borrower to the Lender, each such schedule
identifying (i) the related Contract by the User and the state in which the
User's billing address is located, (ii) a number identifying the Contract,
(iii) the Contract Principal Balance, (iv) the Contract Rate, (v) the original
and remaining maturity of the Contract term, (vi) the Scheduled Payment for
each Contract, (vii) the original Equipment cost and (viii) the aggregate
amount of Purchase Option Payments on all Contracts.
"Custodial Agreement" means the Custodial Agreement, dated as
of February 2, 1995, entered into among the Borrower, the Lender and the
Custodian.
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<PAGE> 5
"Custodian" means Bankers Trust Company, and its successors
and assigns.
"Defaulted Contract" means a Contract with respect to which
(a) a User is delinquent in an aggregate amount equal to the amount of
Scheduled Payments due in three (3) months; (b) the Borrower has determined, in
accordance with its customary servicing procedures, that eventual payment of
any Scheduled Payment is unlikely; (c) the Borrower has accelerated the User's
unpaid Scheduled Payments due or to become due thereunder, as permitted in the
Contract; or (d) the User has (1) commenced any case, proceeding or other
action under any existing or future bankruptcy, insolvency or similar law
seeking to have an order for relief entered with respect to it, or seeking
reorganization, arrangement, adjustment, wind-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, (2) sought
appointment of a receiver, trustee, custodian or other similar official for it
or any part of its assets, (3) made a general assignment for the benefit of
creditors, or (4) taken any action in furtherance of, or consenting or
acquiescing in, any of the foregoing; provided, however, that the term
Defaulted Contract shall not include any Contract in respect of which the
Borrower has repaid the Loan pursuant to Section 11 hereof.
"Delinquent Contract" means a Contract with any Scheduled
Payment more than 60 days past due.
"Documents" means this Agreement, the Custodial Agreement and
the Secured Grid Note.
"Equipment" means any equipment leased to any User pursuant to
any Contract.
"Funding Date" means any date on which the Lender makes an
Advance to the Borrower, such dates being not more frequently than every five
(5) Business Days.
"Funding Period" means, with respect to each Advance, the
period beginning on the date the Advance is made and ending on the date on
which the Advance matures (as specified in the Secured Grid Note), which ending
date shall be no later than sixty (60) days from the date of this Agreement.
"Funding Rate" means, as to each Advance, an interest rate
equal to LIBOR (fixed as to the related Funding Period) plus 1.50%.
"Guarantee" means the Guarantee of the Guarantor in the form
attached hereto as Exhibit C.
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<PAGE> 6
"Guarantor" means DVI, Inc., a Delaware corporation.
"Insurance Policy" means with respect to an item of Equipment
and a Contract, any insurance policy required to be maintained by the User
pursuant to the related Contract that covers physical damage to the Equipment
(including policies procured by the Borrower on behalf of the User) or any
liability arising out of the use of such Equipment.
"Investor Certificates" means, collectively, all classes of
equipment finance lease-backed certificates expected to be issued by a special
purpose corporation or a trust expected to be established by the Borrower and
sold to third-party investors or purchased by the Lender.
"Lender" means ContiTrade Services Corporation, a Delaware
corporation, together with its successors and assigns.
"Leverage Ratio" means, with respect to the Borrower, the
ratio of (x) Total Recourse Liabilities to (y) Tangible Net Worth.
"LIBOR" means, as of any date of determination, the London
Interbank Offering Rate for the period of time closest to the related Funding
Period as indicated on Telerate. If LIBOR cannot be so determined, then LIBOR
shall mean the rate so quoted on such date by Union Bank of Switzerland.
"Lien" means any security interest, lien, charge, pledge,
equity, participation, mortgage or encumbrance of any kind.
"Loan" means the borrowing under this Agreement constituted of
one or more Advances up to an aggregate outstanding amount of $50,000,000.00.
"Maturity Date" means the earlier of (i) the date of the sale
of the Investor Certificates or (ii) sixty (60) days from the date of this
Agreement.
"Monthly Report" means a report of the Borrower, certified by
the Chief Financial Officer or any Vice President of the Treasury Group of the
Borrower, setting forth in such detail as the Lender may require, as of the
opening of business on the first day or the related calendar month, (A) with
respect to each Contract, (i) the information required to be included on the
Contract Schedule; (ii) whether such Contract is a Defaulted Contract or a
Delinquent Contract; and (iii) the amount of any prepayment received in respect
of such Contract and (B) with respect to all Contracts, (i) the number and
aggregate Contract Principal Balance of all Contracts which are Defaulted
Contracts; (ii) the number and aggregate
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<PAGE> 7
Contract Principal Balance of all Contracts which are Delinquent Contracts;
(iii) the aggregate amount of prepayments received in respect of all Contracts
received during the prior calendar month; and (iv) the Collateral Principal
Balance.
"Non-Current Portion" means, as of any date of determination
thereof, the portion of indebtedness which matures, or which at the option of
the obligator may mature more than one (1) year after such date.
"Non-Recourse Debt" means the indebtedness of any Person for
borrowed money which is secured by Liens on specific assets of such Person as
to which the lender or obligee thereof is to be repaid only out of such assets
or proceeds thereof and as to which such Person is not otherwise liable for
repayment in the event of a deficiency or default in payment, except for
liability for misrepresentations by such Person, defects in title caused by
such Person or impairment of the obligee's or lender's Lien caused by such
Person.
"Partial Recourse Debt" means, as to any Person, indebtedness
of such Person for which such Person has only partial liability for repayment
and deficiency and the balance of which is Non-Recourse Debt.
"Person" means any association, business trust, company,
corporation, estate, governmental authority, joint venture, natural person,
trust or other entity.
"Portfolio Purchase Price" means with respect to any Contract
Portfolio Acquisition, the purchase price paid by the Borrower to the Broker
for such Contracts less any part of the purchase price which represents the
residual value of the related Equipment and not the discounted present value of
the Scheduled Payments due under each such Contract.
"Purchase Option Payment" means with respect to a Contract,
any payment set forth in such Contract payable by the User (including any
security deposit applied in respect thereof) upon the exercise of a purchase
option for the Equipment relating to such Contract, whether or not the User
actually exercises such purchase option, or with respect to any Contract which
does not set forth a purchase option, any payment made by a User to purchase
the Equipment relating to such Contract at the end of the term of such
Contract.
"Scheduled Payment" means the periodic payment (exclusive of
any amounts in respect of insurance or taxes and reflecting any adjustment for
any partial prepayment) set forth in such Contract due from the User (including
the application of any security deposit in respect thereof).
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<PAGE> 8
"Secured Grid Note" means the secured promissory note
evidencing the Loan and in the form attached hereto as Exhibit A.
"Tangible Net Worth" means the sum of additional capital,
retained earnings, earned surplus and capital stock, minus deferred charges,
intangibles and treasury stock, all as determined in accordance with generally
accepted accounting principles consistently applied.
"Total Recourse Liabilities" means, at any time, as to the
Borrower, the sum of all liabilities which, in accordance with generally
accepted accounting principles, would be shown as liabilities on the balance
sheet including, without limitation, all accounts payable and accrued expenses,
but excluding (to the extent included therein) Non-Recourse Debt and the
Non-Current Portion of deferred income taxes payable, plus all liabilities for
which the Borrower is contingently liable plus, without duplication, the
recourse portion of the Partial Recourse Debt.
"UCC" means the Uniform Commercial Code as in effect in the
applicable jurisdiction.
"User" means any obligor, under any Contract, whose recourse
obligations thereunder constitute the principal source of payments under any
Contract, including any guarantor of such obligations.
2. The Loan. Subject to the terms of this Agreement,
Borrower hereby applies to Lender to borrow up to $50,000,000.00 to be made in
one or more Advances. The amount of each Advance shall not be more than (i)
with respect to Contracts which have been originated by the Borrower, 95% of
the aggregate Contract Principal Balance of the related Contracts on the
Funding Date pertaining thereto or (ii) with respect to any Contract Portfolio
Acquisition, 95% of the Portfolio Purchase Price. Prior to each Advance, the
Lender shall give notice in writing to the Custodian of Borrower's intention to
receive each Advance. Each Advance shall bear interest from and including the
Funding Date of such Advance through and excluding the Maturity Date at the
Funding Rate.
a. The Loan shall mature on the Maturity Date.
b. The Loan is pre-payable at any time without premium or
penalty, in whole or in part. If the Borrower intends to prepay the
Loan in whole or in substantial part from a source other than the
proceeds of the Investor Certificates, the Borrower shall give four
(4) Business Days notice to Lender.
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<PAGE> 9
c. If the Loan is not repaid in whole on or prior to the
Maturity Date, the Loan shall, commencing on the Maturity Date (and
assuming the Lender elects to continue the Loan, as hereinafter
provided) bear interest at a rate equal to the weighted average
Contract Rate less 50 basis points (such basis points representing
compensation to the Borrower as a servicing fee).
d. In the event the Loan is not repaid in whole on or prior
to the Maturity Date, the Lender shall have the option, in its sole
discretion, to continue the Loan on a month-to-month basis.
Alternatively, the Lender may, on the first day of each month
thereafter and prior to payment in full, elect not to continue the
Loan, in which event the Loan shall then become immediately due and
payable, and in such event the Lender may exercise all rights and
remedies available to it as the holder of a first perfected security
interest under the UCC and hereunder.
e. Interest on the Loan accruing through and excluding the
Maturity Date is payable on the Maturity Date. In the event that the
Loan is continued past the Maturity Date, the Lender shall have the
option, in its sole discretion, to declare (x) interest on any
outstanding portion of the Loan accruing subsequent to the Maturity
Date to be due and payable on the last day of each month during the
extended Loan term and if not paid, compounded monthly, and/or (y) the
principal portion of all Scheduled Payments received by the Borrower
during each month subsequent to the Maturity Date to be paid to the
Lender on (i) the last day of such month during the extended Loan term
or (ii) the due date.
f. All interest shall be calculated daily as 1/360 of the
applicable Funding Rate due on the principal balance of the Loan
outstanding as of the close of business on the immediately preceding
business day (or, with respect to interest accruing on an Advance on
the Funding Date of such Advance, on the amount of such Advance).
g. The Loan shall be evidenced by, and repaid in accordance
with, the Secured Grid Note duly completed, in the principal amount of
Fifty Million Dollars ($50,000,000.00), dated February 2, 1995,
payable to the Lender or its successors or assigns and maturing as to
principal on the Maturity Date. The Lender and its successors and
assigns are hereby authorized by the Borrower to endorse on the
schedule attached to the Secured Grid Note (with a copy to the
Borrower) the amount or each Advance and of each payment of principal
received by the Lender on account of the Loan, which
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<PAGE> 10
endorsement shall, in the absence of manifest error, be conclusive as
to the outstanding balance of the Loan; provided, however, that the
failure to make such notation with respect to any Advance or payment
shall not limit or otherwise affect the obligations of the Borrower
under this Agreement or the Secured Grid Note.
h. Each Advance will be made only with respect to those
Contracts for which the Lender has received a Certification from the
Custodian.
i. The Loan shall be subject to mandatory prepayment as
described in Section 11 hereof and in the Secured Grid Note.
3. Purpose of Loan. The Borrower agrees that the
Loan shall be used only to fund the Contracts identified on the Contract
Schedule delivered to the Lender prior to each Advance and for no other
purpose.
4. Contract Files and Custodian. The Borrower shall
deliver, no fewer than two Business Days (or such other period of time as may
be agreed to from time to time in writing by the parties hereto and the
Custodian) prior to any Funding Date, or heretofore has delivered, to the
Custodian on behalf of the Lender, the documents and instruments listed in
Section 2 of the Custodial Agreement in respect of the Collateral to be pledged
on such Funding Date. The Borrower hereby pledges and grants a security
interest in the Collateral to the Lender to secure the repayment of the Loan
and all of the Borrower's other obligations hereunder.
5. Guarantee. The Guarantor shall Guarantee the payment
of all amounts due hereunder and under the Secured Grid Note and the
performance of all obligations of the Borrower hereunder and under the Secured
Grid Note.
6. Representations and Warranties of the Borrower. The
Borrower hereby represents and warrants to the Lender as follows:
a. The Borrower is a corporation duly organized and
validly existing in good standing under the laws of the State of
Delaware, with full corporate power and authority to own its
properties and to conduct its business as presently conducted.
b. The Borrower is duly qualified to do business as
a foreign corporation and is in good standing, and has obtained all
necessary licenses and approvals, in all states in which the ownership
or lease of property or the conduct of its business requires such
qualification.
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<PAGE> 11
c. The Borrower has the corporate power and
authority to execute and deliver this Agreement, the Custodial
Agreement and the Secured Grid Note (the "Documents") and to carry out
their respective terms and it has duly authorized the execution,
delivery and performance of each of the Documents and the grant of a
security interest in the Collateral to the Lender by all necessary
corporate action.
d. All financial statements or certificates of the
Borrower or any of their officers furnished to the Lender are true and
complete and do not omit to disclose any material liabilities or other
facts relevant to the Borrower's condition. All such financial
statements have been prepared in accordance with generally accepted
accounting principles, consistently applied.
e. The Documents constitute legal, valid and
binding obligations of the Borrower, enforceable against the Borrower
in accordance with its terms, except that (1) such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws (whether statutory, regulatory or decisional) now or
hereafter in effect relating to creditors' rights generally and (2)
the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to certain equitable defenses and to
the discretion of the court before which any proceeding therefor may
be brought, whether a proceeding at law or in equity.
f. The consummation of the transactions contemplated
by the fulfillment of the terms of the Documents will not conflict
with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice, lapse of time or both) a default
under the Certificate of Incorporation or By-laws of the Borrower, or
any indenture, agreement, mortgage, deed of trust or other instrument
to which the Borrower is a party or by which it is bound, or result in
the creation or imposition of any Lien upon any of its material
properties pursuant to the terms of such indenture, agreement,
mortgage, deed of trust or other such instrument, other than the
Documents, or violate any law or any order, rule or regulation
applicable to the Borrower of any court or of any federal or state
regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Borrower or any of its
properties.
g. There are no proceedings or investigations to
which the Borrower is a party pending, or, to the knowledge of the
Borrower, threatened, before any court,
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<PAGE> 12
regulatory body, administrative agency or other tribunal or
governmental instrumentality (1) asserting the invalidity of the
Documents, (2) seeking to prevent the consummation of any of the
transactions contemplated by the Documents or (3) seeking any
determination or ruling that would materially and adversely affect the
performance by the Borrower of its obligations under, or the validity
or enforceability of, the Documents.
h. All approvals, authorizations, consents, orders
or other actions of any person, corporation or other organization, or
of any court, governmental agency or body or official, required in
connection with the execution and delivery of the Documents, have been
received or taken, as the case may be.
i. The Borrower's principal place of business and
chief executive office is One Park Plaza, Suite 800, Irvine,
California 92714.
j. The Borrower has granted a security interest (as
defined in the UCC) in the Collateral, which is enforceable in
accordance with the UCC upon execution and delivery of this Agreement.
Upon the filing of the financing statements described in Section
12(h), the Lender and any successor holder of the Secured Grid Note
shall have a first priority perfected security interest in such
Collateral, limited only to the extent set forth in Sections 9-306 and
9-308 of the UCC. All filings (including, without limitation, such
UCC filings) as are necessary in any jurisdiction to perfect the
interest of the Lender and any successor holder of the Secured Grid
Note in the Collateral have been made or will be made within ten (10)
days of the date hereof.
k. The affirmative and negative covenants made by
the Borrower in this Agreement are not any less stringent than any
covenant made by the Borrower in any other recourse loan/credit
agreement between the Borrower and another lender.
7. Representations and Warranties of the Guarantor. The
Guarantor hereby represents and warrants to the Lender as follows:
a. The Guarantor is a corporation duly organized and
validly existing in good standing under the laws of the State of
Delaware, with full corporate power and authority to own its
properties and to conduct its business as presently conducted.
b. The Guarantor is duly qualified to do business as
a foreign corporation and is in good
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<PAGE> 13
standing, and has obtained all necessary licenses and approvals, in
all states in which the ownership or lease of property or the conduct
of its business requires such qualification.
c. The Guarantor has the corporate power and
authority to execute and deliver the Guarantee and to carry out its
respective terms and it has duly authorized the execution, delivery
and performance of the Guarantee.
d. All financial statements or certificates of the
Guarantor or any of their officers furnished to the Lender are true
and complete and do not omit to disclose any material liabilities or
other facts relevant to the Guarantor's condition. All such financial
statements have been prepared in accordance with generally accepted
accounting principles, consistently applied.
e. This Agreement and the Guarantee each
constitute legal, valid and binding obligations of the Guarantor,
enforceable against the Guarantor in accordance with its terms, except
that (1) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws (whether statutory,
regulatory or decisional) now or hereafter in effect relating to
creditors' rights generally and (2) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to
certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought, whether a proceeding at
law or in equity.
f. The consummation of the transactions contemplated
by the fulfillment of the terms of this Agreement and the Guarantee
will not conflict with, result in any breach of any of the terms and
provisions of, or constitute (with or without notice, lapse of time or
both) a default under the Certificate of Incorporation or By-laws of
the Guarantor, or any indenture, agreement, mortgage, deed of trust or
other instrument to which the Guarantor is a party or by which it is
bound, or result in the creation or imposition of any Lien upon any of
its material properties pursuant to the terms of such indenture,
agreement, mortgage, deed of trust or other such instrument, or
violate any law or any order, rule or regulation applicable to the
Guarantor of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Guarantor or any of its properties.
g. There are no proceedings or investigations to
which the Guarantor is a party pending, or, to the knowledge of the
Guarantor, threatened, before any court,
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<PAGE> 14
regulatory body, administrative agency or other tribunal or
governmental instrumentality (1) asserting the invalidity of this
Agreement or the Guarantee, (2) seeking to prevent the consummation of
any of the transactions contemplated by this Agreement and the
Guarantee or (3) seeking any determination or ruling that would
materially and adversely affect the performance by the Guarantor of
its obligations under, or the validity or enforceability of, this
Agreement or the Guarantee.
h. All approvals, authorizations, consents, orders
or other actions of any person, corporation or other organization, or
of any court, governmental agency or body or official, required in
connection with the execution and delivery of this Agreement and the
Guarantee, have been received or taken, as the case may be.
8. Covenants of the Borrower. The Borrower hereby
covenants for the benefit of the Lender as follows:
a. Except for the conveyances hereunder, the
Borrower will not sell, pledge, assign or transfer to any other
person, or grant, create, incur, assume or suffer to exist any Lien on
any Contract now existing or hereafter created, or any interest
therein while the Loan is outstanding; the Borrower will notify the
Lender of the existence of any Lien on any Contract immediately upon
discovery thereof; and the Borrower shall defend the right, title and
interest of the Lender in to and under the applicable Contract now
existing or hereafter created, against all claims of third parties
claiming through or under the Borrower.
b. Except as set forth in the Contract forms
attached hereto as Exhibit G, the Borrower has no obligations to be
fulfilled under or in connection with each Contract and will do
nothing to impair the rights of the Lender in the Contracts. As long
as there is no default under any of the provisions of the applicable
Contract, the Borrower will not disturb the quiet and peaceful
possession of the related Equipment by the User under any Contract and
such User's unrestricted use thereof for its intended purpose.
c. The Borrower will comply, in all material
respects, with all acts, rules, regulations, orders, decrees and
directions of any governmental authority applicable to the Contracts
or any part thereof; provided, however, that the Borrower may contest
any act, regulation, order, decree or direction in any reasonable
manner which shall not materially and adversely affect the rights of
the Lender in the Contracts and the related
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<PAGE> 15
Equipment. The Borrower will comply, in all material respects, with
all requirements of law applicable to the Borrower.
d. The Borrower shall execute and file such
continuation statements and any other documents requested by the
Lender or which may be required by law to fully preserve and protect
the interest of the Lender or any of its successors or assigns in the
Contracts.
e. The Borrower will not, without providing 30 days
notice to the Lender and without filing such amendments to any
previously filed financing statements as the Lender may require, (1)
change the location of its principal executive office, or (2) change
its name, identity or corporate structure in any manner which would
make any financing statement or continuation statement filed by the
Borrower in accordance with this Agreement misleading within the
meaning of Article 9-402(7) of any applicable enactment of the UCC.
f. The Borrower will make, execute or endorse,
acknowledge, and file or deliver to the Lender from time to time such
schedules, confirmatory assignments, conveyances, transfer
endorsements, powers of attorney, certificates, reports and other
assurances or instruments and take such further steps relating to the
Lender, as the Lender may request and reasonably require.
g. The Borrower shall notify the Lender promptly
after becoming aware of any Lien on any Contract, except for any Liens
for municipal or other local taxes if such taxes shall not at the time
be due or payable without penalty.
h. The Borrower shall maintain its books and records
separate from the books and records of any other entity.
i. The Borrower shall keep in full effect its
existence, rights and franchises as a corporation under the laws of
the State of Delaware, and will obtain and preserve its qualification
to do business as a foreign corporation in each jurisdiction in which
such qualification is or shall be necessary to protect the validity
and enforceability of the Documents.
j. The Borrower will not dissolve or liquidate in
whole or in part.
k. The Borrower will not acquire any new
subsidiaries or lend or advance any moneys to, or increase its
investment in, any person or make any
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<PAGE> 16
capital contributions or expenditures without prior notice to the
Lender.
l. The Borrower will not (1) commence any case,
proceeding or other action under any existing or future bankruptcy,
insolvency or similar law seeking to have an order for relief entered
with respect to it, or seeking reorganization, arrangement,
adjustment, wind-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, (2) seek appointment of a
receiver, trustee, custodian or other similar official for it or any
part of its assets, (3) make a general assignment for the benefit of
creditors, or (4) take any action in furtherance of, or consenting or
acquiescing in, any of the foregoing.
m. The Borrower will not guarantee (directly or
indirectly), endorse or otherwise become contingently liable (directly
or indirectly) for the obligations of, or acquire or purchase any
stock, obligations or securities of or any other interest in, or
increase its capital contribution to, any other person, or merge or
consolidate with any other person without prior notice to the Lender.
n. The Borrower hereby restates and makes each of
the representations, warranties and covenants made in this Section 8
and the preceding Sections 6 and 7 at the time of each Advance.
o. The Borrower will at all times maintain
compliance with the financial covenants set forth on Exhibit B hereto.
p. The Borrower shall provide the Lender with a
Monthly Report pertaining to the status of all Contracts as of the
close of business on the last day of the prior month. The Monthly
Report for each such month shall be delivered to the Lender no later
than the fifteenth Business Day of the immediately succeeding month.
q. The Borrower will, on behalf of the Lender,
ensure that there is maintained an Insurance Policy in respect of each
Contract.
r. The Borrower will, for so long as the Loan, or
any portion thereof is outstanding, provide the Lender with quarterly
interim financial statements within sixty (60) days of the end of each
quarter.
s. The Borrower will, for so long as the Loan, or
any portion thereof is outstanding, maintain (whether
16
<PAGE> 17
solely or through its parent or any wholly-owned subsidiary) credit
lines with other lenders (excluding the Lender hereunder) in excess of
$45,000,000 and shall notify the Lender in writing of any reduction in
the aggregate balance of such credit lines or cancellation (whether in
whole or in part) of any such loan/credit agreements.
t. The Borrower shall provide the Lender with all
notices of an Event of Default by Borrower under any other loan/credit
agreement between Borrower and another lender.
9. Covenants of the Guarantor. The Guarantor hereby
covenants for the benefit of the Lender as follows:
a. The Guarantor will, for so long as the Loan,
or any portion thereof, is outstanding, own all of the voting stock of
the Borrower.
b. The Guarantor will cause the Borrower to
comply with all of Borrower's covenants set forth in Section 8 of this
Agreement.
c. The Guarantor will, for so long as the Loan,
or any portion thereof, is outstanding, promptly provide the Lender
with a true, correct and complete copy of all (i) documents it files
with the Securities and Exchange Commission, (ii) any report or other
document it provides to any of its public or private security holders,
and (iii) any press release issued by the Guarantor or any of its
consolidated subsidiaries.
d. The Guarantor will, for so long as the Loan,
or any portion thereof is outstanding, provide the Lender with (i)
quarterly interim financial statements within sixty (60) days of the
end of each quarter and (ii) any other financial statements prepared
for Guarantor's internal use within ten Business Days after they are
prepared in final form.
10. Representations and Warranties of the Borrower with
Respect to each Contract. The Borrower hereby represents and warrants to the
Lender with respect to each Contract delivered to the Custodian as follows:
a. Such Contract and all accompanying documents are
complete and authentic and all signatures thereon are genuine.
b. Such Contract arose from abona fide transaction,
complying with all applicable state and federal laws and regulations,
with persons having legal
17
<PAGE> 18
capacity to contract and is not subject to any defense, set-off or
counterclaim.
c. All amounts represented to be payable on such
Contract, as indicated on the Contract Schedule, are, in fact, payable
in accordance with the provisions of such Contract.
d. As of the date of delivery to the Custodian, no
event of default has occurred under such Contract.
e. Any property subject to any security interest
given in connection with such Contract is not subject to any Lien and
each of the Contracts expressly permits assignment and has an
enforceable waiver of defenses clause with respect to any assignee or
successor assignee.
f. The Borrower pledging such Contract hereunder
holds good and indefeasible title to, and is the sole owner of, such
Contract subject to no Lien, other than a Lien released simultaneously
with such pledge.
g. Such Contract conforms to the description thereof
as set forth on the attached Contract Schedule.
h. As to such Contract, all disclosures required by
Regulation Z of the Board of Governors of the Federal Reserve System
promulgated pursuant to the statute commonly known as the
Truth-in-Lending Act and the Notice of the Right of Rescission
required by said statute and regulation have been properly made and
given.
i. As of the date of delivery to the Custodian, such
Contract is not a Delinquent Contract.
11. Prepayment of Loan.
a. Upon discovery by the Borrower, the Guarantor
or the Lender of any breach of any of the representations, warranties
and covenants listed in Sections 6 through 10, inclusive, above, the
party discovering such breach shall promptly give notice of such
discovery to the others.
b. The Lender has the right to require, in its
sole and unreviewable discretion, the Borrower to prepay the Loan in
part to the extent of 95% of the Contract Principal Balance, plus
accrued interest thereon, of each Contract (i) which breaches one or
more of the representations, warranties and covenants listed
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<PAGE> 19
in Section 10 above; (ii) which is determined by the credit enhancer
of any class of Investor Certificates to be unacceptable for inclusion
in the securitized pool; (iii) which is identified on any Monthly
Report as a Defaulted Contract or a Delinquent Contract; or (iv) for
which a material adverse change in the financial condition of the
related User has occurred or the existence of any other condition
which, in the Lender's sole and unreviewable determination,
constitutes an impairment of the related Collateral or the User's
ability to perform its obligations under such Contract, and which
condition is not remedied within ten (10) days after written notice to
the User thereof. The Lender shall have the right to require, in its
sole and unreviewable discretion, the Borrower to prepay the Loan to
the extent of 95% of the Contract Principal Balance of each affected
Contract, plus accrued interest thereon, but in no event greater than
the outstanding balance of the Loan, in the event either the Borrower
or the Guarantor breaches one or more of the representations,
warranties or covenants listed in Sections 6 through 9, inclusive,
above.
c. The Lender shall have the right to require,
in its sole and unreviewable discretion, the Borrower to prepay the
Loan in part in the event that, and to the extent that, any payment in
excess of the Scheduled Payment is received by the Borrower in respect
of any Contract. Such partial prepayment of the Loan shall be in an
amount equal to such excess payment with respect to such Contract.
d. In the event the Collateral Principal Balance
is an amount less than 105% of the amount of the Loan, including
accrued interest thereon, then outstanding, then the Lender shall have
the right to require, in its sole and unreviewable discretion, the
Borrower to repay the Loan to the extent necessary so that the
Collateral Principal Balance is an amount equal to 105% of the amount
of the Loan, including accrued interest thereon, then outstanding.
e. The Borrower shall immediately pay over to
the Lender as partial or complete repayment of the Loan, including
accrued interest thereon, as the case may be, all amounts (not in
excess of 95% of the related Contract Principal Balance) received by
Borrower in respect of or as proceeds of any Insurance Policy that are
not required by the terms of such Contract to be paid to the User for
repair of the Equipment.
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<PAGE> 20
f. Any prepayment or repayment required by this
Section 11 shall be made within two days of the event requiring such
prepayment or repayment.
g. The Borrower shall have the right to redeem
specific Collateral at any time by prepaying the Loan in an amount
equal to 95% of the related Contract Principal Balance, plus accrued
interest thereon; provided, that the representations and warranties
set forth in Section 10 regarding each Contract remain true after
such redemption.
12. Conditions to the Lender's Obligation to Make
Advances. The Lender shall make Advances requested by the Borrower in
accordance with this Agreement, provided, that the Lender's obligation under
this Agreement shall be conditioned upon the Lender's receipt of the following,
on or before the date of the first Advance:
a. The Contract Schedule in respect of the
related Advance, certified by the President, Chief Financial Officer
or any Vice President of the Treasury Group of the Borrower.
b. Copies of resolutions of the Board of
Directors of the Borrower approving the execution, delivery and
performance of this Agreement and the transactions contemplated
hereby, certified by the Secretary of the Borrower.
c. Copies of resolutions of the Board of
Directors of the Guarantor approving the execution, delivery and
performance of this Agreement and the Guarantee and the transactions
contemplated hereby and thereby, certified by the Secretary of the
Guarantor.
d. A copy of an officially certified document,
dated not more than 30 days prior to the date of the first Advance,
evidencing the due organization and good standing of the Borrower.
e. A copy of an officially certified document,
dated not more than 30 days prior to the date of the first Advance,
evidencing the due organization and good standing of the Guarantor.
f. Copies of the Certificate of Incorporation
and By-Laws of the Borrower certified by the Secretary of the
Borrower.
g. Copies of the Certificate of Incorporation
and By-Laws of the Guarantor certified by the Secretary of the
Guarantor.
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<PAGE> 21
h. Evidence of filing of (i) UCC-1 financing
statements with the Secretary of State of California and the Office of
the County Clerk of Orange County, executed by the Borrower, as
debtor, and naming "Bankers Trust Company, as custodian or as trustee
under the applicable custodial or trust agreement" as secured party
and the Collateral as collateral and (ii) UCC-1 financing statements
or UCC-3 assignments of financing statements originally naming the
User as debtor and the Borrower as secured party (or in the case of
any Contract which was acquired by a Broker Agreement, naming the
Broker as secured party and the Borrower as assignee of the secured
party), as applicable, in each state where the Equipment is located
and filed with the Secretary of State of such state (and if required
by such state, with the office of the County Clerk in the county where
such Equipment is located), executed by the Borrower, as debtor, and
naming "Bankers Trust Company as custodian or as trustee under the
applicable custodial or trust agreement" as secured party and the
Equipment as collateral.
i. An Officers' Certificate dated the date of
the Advance, executed by the President, the Chief Financial Officer or
any Vice President of the Treasury Group of the Borrower, to the
effect that (i) the representations, warranties and covenants of the
Borrower contained in this Agreement, and the statements contained in
any certificate furnished hereunder by the Borrower are true and
correct as of the date thereof; (ii) the Borrower has performed all
agreements contained in this Agreement to be performed on its part at
or prior to the date thereof; and (iii) the incumbency and signatures
of all persons signing any document relating to the Documents and the
transactions contemplated thereby.
j. An Officers' Certificate dated the date of
the Advance, executed by the President, the Chief Financial Officer or
any Vice President of the Treasury Group of the Guarantor, to the same
effect as the Officers' Certificate of the Borrower set forth in the
immediately preceding paragraph.
k. Opinions of counsel, dated the date of the
Advance, to each of the Borrower and the Guarantor, in form and
substance satisfactory to the Lender, with respect to the matters
specified in Exhibits E and F, respectively, and such other matters as
the Lender may reasonably request.
l. An executed copy of a commitment letter by
Borrower naming ContiFinancial Services Corporation as exclusive
placement agent for the Investor Certificates.
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<PAGE> 22
m. An executed copy of the Guarantee.
n. An executed copy of the Custodial Agreement.
o. An executed copy of the Custodian's
Certification.
p. Executed counterparts of this Agreement
executed on behalf of the Borrower and the Guarantor.
q. Written notification by the Borrower at least
two (2) weeks prior to Lender's funding of each Advance.
r. Such other documents as the Lender may
request.
The foregoing documents, certificates and other instruments
shall be in form and substance reasonably satisfactory to the Lender's counsel.
At the Lender's option, the Lender may require, as a condition to its
obligation to make any Advances after the first Advance, delivery of any of the
documents, certificates and other instruments listed in this Section 12, except
subsections 12l., 12m., 12n. and 12p., updated to the date of such Advance.
13. Servicing. The Borrower shall service the Contracts
on substantially the same terms as the other contracts in Borrower's portfolio
(including any contracts the Borrower is servicing in connection with a
securitization of contracts) are currently being serviced and in any event,
with such diligence and care as is appropriate to ensure the current
collectability and realizable value of the Contracts.
14. No Oral Modifications; Successors and Assigns. No
provisions of the Documents shall be waived or modified except by a writing
duly signed by the authorized agents of the Lender and the Borrower. The
Documents shall be binding upon the successors and assigns of the parties
hereto.
15. Events of Default. Each of the following shall
constitute an "Event of Default" hereunder:
a. Failure of the Borrower to make any payment
of interest or principal or any other sum, which has become due
whether by acceleration or otherwise, under the terms of the Documents
or any other document evidencing or securing indebtedness of the
Borrower to the Lender.
22
<PAGE> 23
b. Failure of the Borrower to timely make any
prepayment or repayment required by the Lender in accordance with
Section 11 of this Agreement.
c. Assignment or attempted assignment by the
Borrower or by the Guarantor of any of its rights under any of the
Documents, or delegation or attempted delegation by the Borrower or by
the Guarantor of any of its obligations under any of the Documents,
without first obtaining the specific written consent of the Lender, or
the granting by the Borrower or the Guarantor of any Lien on any
Collateral to other than the Lender.
d. If the Borrower or the Guarantor (1) shall
generally not pay, or shall be unable to pay, or shall admit in
writing its inability to pay its debts as such debts become due; or
(2) shall make an assignment for the benefit of creditors, or petition
or apply to any tribunal for the appointment of a custodian, receiver,
or trustee for it or for a substantial part of its assets; or (3)
shall commence any proceeding under any bankruptcy, reorganization,
arrangements, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction whether now or hereafter in effect; or (4)
shall have had any such action or application filed or any such
proceeding commenced against it in which an order for relief is
entered or an adjudication or appointment is made, and which remains
undismissed for a period of sixty (60) days or more; or (5) shall
indicate, by any act or omission, its consent to, approval of, or
acquiescence in any such petition, application, proceeding, or order
for relief or the appointment of a custodian, receiver, or trustee for
all or any substantial part of its properties; or (6) shall suffer any
such custodianship, receivership, or trusteeship to continue
undischarged for a period of sixty (60) days or more or the occurrence
of any event or existence of any condition which could be the ground,
basis or cause for any action, application, proceeding or petition
described in this subsection 15(d).
e. Failure to service the Contracts on
substantially the same terms as the other contracts in Borrower's
portfolio (including any contracts the Borrower is servicing in
connection with a securitization of contracts) are currently being
serviced and in any event, with such diligence and care as is
appropriate to ensure the current collectability and realizable value
of the Contracts.
f. Notice of an Event of Default under any other
loan/credit agreement between the Borrower and another lender.
23
<PAGE> 24
g. Any materially adverse change in the
financial condition of the Borrower or the Guarantor or the existence
of any other condition which, in the Lender's sole and unreviewable
determination, constitutes an impairment of the Collateral or the
Borrower's ability to perform its obligations under the Documents or
the Guarantor's ability to guarantee such obligations, which condition
is not remedied within ten (10) days after written notice to the
Borrower thereof.
h. Failure of the Borrower (i) to deliver the
UCC filings described in item (e) in the definition of Contract File
for filing with the appropriate filing office in the applicable
jurisdictions within five (5) Business Days following the making of
the related Advance by the Lender or (ii) to deliver to the Lender
proof of such filing within three (3) Business Days after the
Borrower's receipt thereof.
i. Failure of the Borrower to deliver within ten
(10) Business Days of any Funding Date, the original executed
supplements or schedules relating to each Contract which is subject to
a master lease.
16. Remedies Upon Default.
a. Upon the happening of an Event of Default
referred to in Section 15(g), the Lender's obligation to make
additional Advances to the Borrower pursuant to this Agreement shall
cease and the principal then outstanding shall be due and payable (i)
on the Maturity Date or (ii) in the event the Loan has been continued
past the Maturity Date, on the last day of the then current month,
together with all interest thereon, and fees and expenses accruing
under any of the Documents.
b. Upon the happening of one or more Events of
Default, other than an Event of Default referred to in Section 15(g),
the Lender may immediately declare the principal of the Secured Grid
Note then outstanding to be immediately due and payable, together with
all interest thereon and fees and expenses accruing under any of the
Documents;provided, however, that upon the occurrence of one of the
Events of Default referred to in Section 15(d), such amounts shall
immediately and automatically become due and payable without any
further action by any person or entity. Upon such declaration or
automatic acceleration, the balance then outstanding on the Secured
Grid Note shall become immediately due and payable without
presentation, demand or further notice of any kind to the Borrower or
to the Guarantor. The Borrower and the Guarantor shall thereupon be
obligated to pay to
24
<PAGE> 25
the Lender the balance then outstanding on the Secured Grid Note.
c. Upon the happening of one or more Events of
Default, the Lender shall have the right to obtain physical possession
of all files of the Borrower relating to the Collateral and all
documents relating to the Collateral which are then or may thereafter
come into the possession of the Borrower or any third party acting for
the Borrower. The Lender shall be entitled to specific performance of
all agreements of the Borrower and the Guarantor contained in the
Documents.
d. Upon the happening of one or more Events of
Default, the Lender shall have the right to collect and receive all
further payments made on the Collateral, and if any such payments are
received by the Borrower, the Borrower shall not commingle the amounts
received with other funds of the Borrower and shall promptly pay them
over to the Lender. Notwithstanding Section 22 hereof, the Lender
shall have the right to dispose of the Collateral as provided herein,
or as provided in the other documents executed in connection herewith,
or in any commercially reasonable manner, or as provided by law. The
Lender shall be entitled to place the Contracts which it recovers
after any default in a pool for issuance of equipment finance
lease-backed securities at the then prevailing price for such
securities and to sell such securities for such prevailing price in
the open market as a commercially reasonable disposition of collateral
subject to the applicable requirements of the UCC. The Lender shall
also be entitled to sell any or all of such Contracts individually for
the prevailing price as a commercially reasonable disposition of
collateral subject to the applicable requirements of the UCC. The
specification in this Section of manners of disposition of collateral
as being commercially reasonable shall not preclude the use of other
commercially reasonable methods (as contemplated by the UCC) at the
option of the Lender.
17. Indemnification. The Borrower agrees to hold the
Lender harmless from and indemnifies the Lender against all liabilities,
losses, damages, judgments, costs, and expenses of any kind which may be
imposed on, incurred by, or asserted against the Lender relating to or arising
out of (i) any of the Documents or the breach by Borrower of any of its
representations, warranties and covenants contained in this Agreement or any
transaction contemplated hereby resulting from anything other than the Lender's
willful misconduct or gross negligence or (ii) any product liability claims
including, but not limited to, medical product liability
25
<PAGE> 26
claims, relating to any Contract, any User or any Equipment whatsoever. The
Borrower also agrees to reimburse the Lender for all reasonable expenses in
connection with the enforcement of any or all of the Documents, including this
indemnification provision and including without limitation the reasonable fees
and disbursements of counsel. The Borrower's agreements in this Section shall
survive the payment in full of the Secured Grid Note and the expiration or
termination of this Agreement. The Borrower hereby acknowledges that,
notwithstanding the fact that the Secured Grid Note is secured by the
Collateral, the obligations of the Borrower under the Secured Grid Note are
recourse obligations of the Borrower.
18. Partial Release. Upon the payment in full of any
Advance (including, without limitation, any interest or other amounts payable
by the Borrower with respect to such Advance) in accordance with the provisions
hereof, the security interest hereunder with respect to the Collateral pledged
on the related Funding Date shall terminate, and the Lender, at the expense of
the Borrower, will execute and deliver to the Borrower the proper instruments
(including UCC termination or partial release statements, as applicable)
acknowledging the termination of such security interest, and will duly assign,
transfer and deliver (without recourse, representation or warranty) such of the
related Collateral as may be in the possession of the Custodian and has not
theretofore been sold or otherwise applied or released pursuant to this
Agreement or the Custodial Agreement, to the Borrower, and shall take such
other action as the Borrower may reasonably request to effectuate the
foregoing.
19. Reinstatement. This Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any amount
received by the Lender in respect of the Loans is rescinded or must otherwise
be restored or returned by the Lender upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or any Guarantor or
upon the appointment of any intervenor or conservator of, or trustee or similar
official for, the Borrower, any Guarantor or any substantial part of the
Borrower's or any Guarantor's assets, or otherwise, all as though such payments
had not been made.
20. Power of Attorney. The Borrower hereby authorizes
the Lender, at the Borrower's expense, to file such financing statement or
statements relating to the Collateral without the Borrower's signature thereon
as the Lender at its option may deem appropriate, and appoints the Lender as
the Borrower's attorney-in-fact (without requiring the Lender) to execute any
such financing statement or statements in the Borrower's name and to perform
all other acts which the Lender deems appropriate to perfect and continue the
security interest granted hereby and to protect, preserve and realize
26
<PAGE> 27
upon the Collateral, including, but not limited to, the right to endorse notes,
complete blanks in documents and sign assignments on behalf of the Borrower as
its attorney-in-fact. This Power of Attorney is coupled with an interest and
is irrevocable without the Lender's consent. Notwithstanding the foregoing,
the power of attorney hereby granted shall only be effective during the
occurrence and continuance of any Event of Default hereunder.
21. Agreement Constitutes Security Agreement. This
Agreement is intended by the parties hereto to be governed by New York law, and
to constitute a security agreement within the meaning of the UCC.
22. Assignment. The rights of the Lender in the
Collateral and under the Secured Grid Note, the Guarantee and this Agreement
may be assigned to any Person, provided, that no pledge or assignment of any
portion of the Loan or the Collateral may be made to any entity for which a
significant line of business consists of the financing, by any means, of
medical equipment.
23. Notices. Any notices, consents, directions, demands
and other communications given under this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered at or
telefaxed to the respective addresses or facsimile numbers, as the case may be,
set forth on the signature page hereof for the Lender, the Borrower and the
Guarantor or to such other address or facsimile number as to which any party
shall give notice to the other parties pursuant to this Section 21.
24. Amendments. This Agreement may be amended from
time to time only by written agreement of the Lender, the Borrower and the
Guarantor. Any forbearance, failure, or delay by a party in exercising any
right, power, or remedy hereunder shall not be deemed to be a waiver thereof,
and any single or partial exercise by a party of any right, power or remedy
hereunder shall not preclude the further exercise thereof. Every right, power
and remedy of a party shall continue in full force and effect until
specifically waived by it in writing. No right, power or remedy shall be
exclusive, and each such right, power or remedy shall be cumulative and in
addition to any other right, power or remedy, whether conferred hereby or
hereafter available at law or in equity or by statute or otherwise.
25. Effect of Invalidity of Provisions. In case any one
or more of the provisions contained in this Agreement should be or become
invalid, illegal or unenforceability of the remaining provisions contained
herein shall in no way be affected, prejudiced or disturbed thereby.
27
<PAGE> 28
26. Entire Agreement. This Agreement contains the
entire agreement of the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements between them,
oral or written, of any nature whatsoever with respect to the subject matter
hereof.
27. Consent to Service. Each party irrevocably consents
to the service of process by registered or certified mail, postage prepaid, to
it at its address given pursuant to Section 21 hereof.
28. Submission to Jurisdiction; Waiver of Trial by Jury.
With respect to any claim arising out of this Agreement (a) each party
irrevocably submits to the exclusive jurisdiction of the courts of the State of
New York and the United States District Court for the Southern District of New
York, and (b) each party irrevocably waives any objection which it may have at
any time to the laying of venue of any suit, action or proceeding arising out
of or relating hereto brought in any such court, irrevocably waives any claim
that any such suit, action or proceeding brought in any such court has been
brought in any inconvenient forum and further irrevocably waives the right to
object, with respect to such claim, suit, action or proceeding brought in any
such court, that such court does not have jurisdiction over such party. To the
extent permitted by applicable law, the Lender, the Borrower and the Guarantor
each irrevocably waive all right of trial by jury in any action, proceeding or
counterclaim arising out of or in connection with this Agreement or any matter
arising hereunder.
29. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and
all of which shall constitute but one and the same instrument.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
DVI FINANCIAL SERVICES INC.
One Park Plaza
Suite 800
Irvine, California 92714
Attn: General Counsel
Facsimile No. 714/474-5899
By /s/ James G. Costello
-------------------------
Name: James G. Costello
Title: Senior Vice President
DVI, INC.
One Park Plaza
Suite 800
Irvine, California 92714
Attn: General Counsel
Facsimile No. 714/474-5899
By /s/ Cynthia J. Cohn
------------------------
Name: Cynthia J. Cohn
Title: Vice President
CONTITRADE SERVICES
CORPORATION
277 Park Avenue
New York, New York 10172
Attn: Chief Counsel
Facsimile No. 212/207-2985
By /s/ Peter Abeles
------------------------
Name: Peter Abeles
Title: Managing Director
By /s/ David P. DeMuth
------------------------
Name: David P. DeMuth
Title: Vice President
29
<PAGE> 30
STATE OF )
) SS.:
COUNTY OF )
On this 2nd day of February, 1995 before me, a Notary Public
in and for the State of , personally appeared __________________,
known to me to be the __________ of DVI Financial Services Inc., a Delaware
corporation, and which executed the within agreement and also known to me to be
the person who executed it on behalf of said corporation, and acknowledged to
me that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
_____________________________
Notary Public
My Commission Expires:
_______________________
(NOTARIAL SEAL)
30
<PAGE> 31
STATE OF )
) SS.:
COUNTY OF )
On this 2nd day of February, 1995 before me, a Notary Public
in and for the State of , personally appeared __________________,
known to me to be the __________ of DVI, Inc. a Delaware corporation, and which
executed the within agreement and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
_____________________________
Notary Public
My Commission Expires:
_______________________
(NOTARIAL SEAL)
31
<PAGE> 32
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On this 2nd day of February, 1995 before me, a Notary Public
in and for the State of New York, personally appeared David DeMuth, known to me
to be a Vice President of ContiTrade Services Corporation, a Delaware
corporation, and which executed the within agreement and also known to me to be
the person who executed it on behalf of said corporation, and acknowledged to
me that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
_____________________________
Notary Public
My Commission Expires:
_______________________
(NOTARIAL SEAL)
32
<PAGE> 33
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On this 2nd day of February, 1995 before me, a Notary Public
in and for the State of New York, personally appeared Peter Abeles, known to me
to be a Managing Director of ContiTrade Services Corporation, a Delaware
corporation, and which executed the within agreement and also known to me to be
the person who executed it on behalf of said corporation, and acknowledged to
me that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
_____________________________
Notary Public
My Commission Expires:
_______________________
(NOTARIAL SEAL)
33
<PAGE> 34
Secured Grid Note
Up to $50,000,000.00 February 2, 1995
FOR VALUE RECEIVED, the undersigned, DVI FINANCIAL SERVICES
INC., a corporation organized under the laws of the State of Delaware, whose
address is One Park Plaza, Suite 800, Irvine, California 92714 (the
"Borrower"), promises to pay to the order of CONTITRADE SERVICES CORPORATION, a
Delaware corporation, whose address is 277 Park Avenue, New York, New York
10172, (the "Lender") or any subsequent holder of this Note (the "Holder"), in
lawful money of the United States of America, the principal sum of
$50,000,000.00 or the aggregate unpaid principal amount of all Advances made to
the Borrower by the Lender pursuant to the Interim Warehouse Agreement
hereinafter referred to, whichever is less, on the Maturity Date (as
hereinafter defined) plus interest thereon from the date of such advances, in
like money, as follows:
GENERAL TERMS: Capitalized terms used herein and not defined
herein shall have the definitions given them in the Interim Warehouse and
Security Agreement, dated February 2, 1995, as heretofore amended among the
Borrower, DVI, Inc. (the "Guarantor") and the Lender (the "Interim Warehouse
Agreement").
(a) The Lender hereby agrees to loan to Borrower up to
$50,000,000.00 to be loaned in one or more advances each of which may
not be less than $1,000,000.00 (or such lesser amount, only if an
amount less than $1,000,000 remains available under the Interim
Warehouse Agreement) (each, an "Advance") as entered on the Schedule
of Advances attached hereto as Schedule I (such borrowing, in the
aggregate, the "Loan"). Such Loan shall represent up to 95% of the
aggregate Collateral Principal Balance. Each Advance shall bear
interest from and including the date the proceeds of such Advance are
advanced (such date, the "Funding Date" of such Advance) through and
excluding the Maturity Date (as hereinafter defined) at a rate equal
to LIBOR (fixed as of the related Funding Date) plus 1.50% (the
"Funding Rate").
(b) The Loan shall mature on the earlier of (i) the date of
the sale of the Investor Certificates or (ii) March 31, 1995, which
date shall be no later than sixty (60) days from the date of the
Interim Warehouse Agreement (the "Maturity Date").
(c) The Loan is pre-payable at any time without premium or
penalty, in whole or in part. If the Borrower
1
<PAGE> 35
intends to prepay the Loan in whole or in substantial part from a
source other than the proceeds of the Investor Certificates (as
defined in the Interim Warehouse Agreement), the Borrower shall give
two Business Days' notice to the Lender.
(d) If the Loan is not repaid in whole on or prior to the
Maturity Date, the Loan shall, commencing on the Maturity Date (and
assuming the Lender elects to continue the Loan, as hereinafter
provided) bear interest at a rate equal to the weighted average
Contract Rate.
(e) In the event the Loan is not repaid in whole on or prior
to the Maturity Date, the Lender shall have the option, in its sole
and unreviewable discretion, to continue the Loan on a month-to-month
basis. Alternatively, the Lender may, on the first day of each month
thereafter and prior to payment in full, elect not to continue the
Loan, in which event the Loan shall then become immediately due and
payable, and in such event the Lender may exercise all rights and
remedies available to it as the holder of a first perfected security
interest under the UCC.
(f) Interest on the Loan accruing up to and including the
Maturity Date is payable on the Maturity Date. In the event that the
Loan is continued past the Maturity Date, the Lender shall have the
option, in its sole discretion to declare (x) interest on any
outstanding portion of the Loan accruing subsequent to the Maturity
Date to be due and payable on the last day of each month during the
extended Loan term and if unpaid, compounded monthly, and/or (y) the
principal portion of all Scheduled Payments received by the Borrower
during each month subsequent to the Maturity Date to be paid to the
Lender on (i) the last day of such month during the extended Loan term
or (ii) the due date.
(g) All interest shall be calculated daily as 1/360 of the
annual interest due on the principal balance of the Loan outstanding
as of the close of business on the immediately preceding business day
(or, with respect to interest accruing on an Advance on the Funding
Date of such Advance, on the amount of such Advance).
ENDORSEMENTS OF THE SCHEDULE OF ADVANCES: The Borrower hereby
authorizes the Lender to endorse on the Schedule of Advances annexed to this
Note all Advances made to the Borrower and all payments of principal amounts in
respect of such Advances, which endorsements shall, in the absence of manifest
error, be conclusive as to the outstanding principal amount of all Advances;
provided, however, that the failure to make such notation with respect to any
Advance or payment
2
<PAGE> 36
shall not limit or otherwise affect the obligations of the Borrower under the
Interim Warehouse Agreement or this Note.
THIS NOTE IS SUBJECT TO MANDATORY PREPAYMENT AS DESCRIBED IN THE INTERIM
WAREHOUSE AGREEMENT
MAXIMUM RATE OF INTEREST: It is intended that the rate of
interest hereon shall never exceed the maximum rate, if any, which may be
legally charged on the Loan evidenced by this Note ("Maximum Rate"), and if the
provisions for interest contained in this Note would result in a rate higher
than the Maximum Rate, interest shall nevertheless be limited to the Maximum
Rate and any amounts which may be paid toward interest in excess of the Maximum
Rate shall be applied to the reduction of principal, or, at the lawfully
exercised option of the Lender, returned to the Borrower.
DUE DATE: All indebtedness evidenced hereby not paid before
the Maturity Date shall be due and payable on the Maturity Date.
PLACE OF PAYMENT: All payments hereon shall be made, and all
notices to the Lender required or authorized hereby shall be given, at the
office of the Lender at the address designated in the first paragraph of this
Note, or to such other place as the Holder may from time to time direct by
written notice to the Borrower.
PAYMENT AND EXPENSES OF COLLECTION: All amounts payable
hereunder are payable by wire transfer in immediately available funds to the
account number specified by the Lender, in lawful money of the United States.
Payments remitted by the Borrower via wire transfer initiated after 2:00 p.m.
New York City Time shall be deemed to be received on the next business day.
The Borrower agrees to pay all costs of collection when incurred, including,
without limiting the generality of the foregoing, reasonable attorneys' fees
through final, unreviewable appellate proceedings, and to perform and comply
with each of the covenants, conditions, provisions and agreements contained in
every instrument now evidencing or securing said indebtedness. If any suit or
action be instituted to enforce this Note, the Borrower promises to pay, in
addition to the cost and disbursements otherwise allowed by law, such sums as
the court may adjudge reasonable attorneys' fees in such suit or action.
SECURITY: This Note is issued pursuant to the Interim
Warehouse Agreement and is secured by a pledge of the Collateral described
therein. Notwithstanding the pledge of the Collateral, the Borrower hereby
acknowledges, admits and agrees that the Borrower's obligations under this Note
are recourse obligations of the Borrower to which the Borrower pledges its full
faith and credit.
3
<PAGE> 37
DEFAULTS: Upon the happening of an Event of Default (as
defined in the Interim Warehouse Agreement), the Lender shall have all rights
and remedies set forth in the Interim Warehouse Agreement.
The failure to exercise any of the rights and remedies set
forth in the Interim Warehouse Agreement shall not constitute a waiver of the
right to exercise the same or any other option at any subsequent time in
respect of the same event or any other event. The acceptance by the Lender of
any payment hereunder which is less than payment in full of all amounts due and
payable at the time of such payment shall not constitute a waiver of the right
to exercise any of the foregoing rights and remedies at that time or at any
subsequent time or nullify any prior exercise of any such rights and remedies
without the express consent of Lender, except as and to the extent otherwise
provided by law.
ASSIGNMENT: Except for the rights and remedies set forth in
the Interim Warehouse Agreement upon the happening of an Event of Default, no
pledge or assignment of any portion of this Note or the Collateral may be made
to any entity for which a significant line of business consists of the
financing, by any means, of medical equipment.
WAIVERS: The Borrower, and any indorsers or guarantors
hereof, severally waive diligence, presentment, protest and demand and also
notice of protest, demand, dishonor and nonpayment of this Note, and expressly
agree that this Note, or any payment hereunder, may be extended from time to
time, and consent to the acceptance of further collateral, the release of any
collateral for this Note, the release of any party primarily or secondarily
liable hereon, and that it will not be necessary for the Lender, in order to
enforce payment of this Note, to first institute or exhaust Lender's remedies
against the Borrower or any other party liable heron or against any collateral
for this Note. None of the foregoing shall affect the liability of the
Borrower and any indorsers or guarantors hereof. No extension of time for the
payment of this Note, or any installment hereof, made by agreement by the
Lender with any person now or hereafter liable for the payment of this Note,
shall affect the liability under this Note of the Borrower; provided, however,
the Lender and the Borrower, by written agreement between them, may affect the
liability of the Borrower.
TERMINOLOGY: Any reference herein to the Lender shall be
deemed to include and apply to every subsequent holder of this Note. Words of
masculine or neuter import shall be read as if written in the neuter or
masculine or feminine when appropriate.
4
<PAGE> 38
INTERIM WAREHOUSE AGREEMENT: This Note is the Secured Grid
Note referred to in the Interim Warehouse Agreement. Reference is made to the
Interim Warehouse Agreement for provisions as to mandatory principal
repayments, collateral and acceleration. In the event of a conflict between
the terms of this Note set forth herein, and the terms of this Note as set
forth in the Interim Warehouse Agreement, the latter shall govern.
APPLICABLE LAW: This Note shall be governed by and construed
under the laws of the State of New York, whose laws the Borrower expressly
elects to apply to this Note. The Borrower agrees that any action or
proceeding brought to enforce or arising out of this Note may be commenced in
the New York Supreme Court for the County of New York, or in the District Court
of the United States for the Southern District of New York.
DVI FINANCIAL SERVICES INC.
By_________________________
Name:
Title:
5
<PAGE> 39
EXHIBIT B
Financial Covenants of Borrowe
1. The Borrower shall at all times maintain a minimum
Tangible Net Worth of at least Nineteen Million ($19,000,000.00) Dollars.
2. The Borrower shall at all times have a Leverage Ratio not
exceeding a maximum of 5:1.
3. The Borrower shall at all times maintain a Debt Service
Coverage Ratio (as hereinafter defined) of 1.15:1. For purposes of this
Agreement, Debt Service Coverage Ratio means, for each twelve (12) month
period, the ratio of (i) the Borrower's adjusted net income for such period to
(ii) the Borrower's Debt Service for such period. Debt Service means, for each
twelve (12) month period (without duplication), all principal payments on the
Advances and all payments of interest, premium, fees or other amounts, made or
required to be made by the Borrower under the Documents.
B-1
<PAGE> 40
GUARANTEE
OF
DVI, INC.
FOR VALUE RECEIVED, DVI, INC., a corporation organized and
existing under the laws of the State of Delaware, (the "Guarantor"), hereby
guarantees, unconditionally, to the permitted Holder of that certain Secured
Grid Note dated February 2, 1995 (herein called the "Note"), issued to
ContiTrade Services Corporation pursuant to the terms of the Interim Warehouse
and Security Agreement, dated February 2, 1995, as heretofore amended, among
the Borrower, the Guarantor and the Lender (the "Agreement") (capitalized terms
used herein and not defined herein shall have the definitions given them in the
Interim Warehouse Agreement) the due and punctual payment of the principal of
and interest on the Note, when and as the same shall become due and payable,
whether at their respective due dates or on a declaration or otherwise, in
accordance with the terms of the Note and of the Agreement; provided, however,
that payment of interest on overdue installments of interest is hereby
guaranteed only to the extent permitted by applicable law. In case of default
by DVI Financial Services Inc. (herein called the "Borrower") in the payment of
any such principal or interest, the Guarantor agrees duly and punctually to pay
the same without demand. The Guarantor also guarantees all of the obligations
of the Borrower under the Agreement, including the indemnification provisions
thereof. The Guarantor hereby agrees that its respective obligations under
this Guarantee and the Agreement shall be unconditional, irrespective of any
invalidity, illegality, irregularity or unenforceability of the Note or the
Agreement as regards the Borrower (other than by reason of lack of
genuineness), or the absence of any action to enforce the same, the recovery of
any judgment against the Borrower or any action to enforce the same or any
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a guarantor. The Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of merger,
amalgamation, insolvency or bankruptcy of the Borrower, any right to require a
proceeding first against the Borrower, protest or notice with respect to the
Note or the indebtedness evidenced thereby and all demands whatsoever, and
covenants that this Guarantee will not be discharged except by payment in full
of the principal of and interest on the Note.
The obligations of the Guarantor under this Guarantee shall be
a continuing obligation and a fresh cause of action under this Guarantee shall
be deemed to arise in respect of each default in the payment of principal of or
interest on the Note.
C-1
<PAGE> 41
The Guarantor shall be subrogated to all rights of the Holder
of the Note against the Borrower in respect of any amount paid by the Guarantor
pursuant to the provisions of this Guarantee; provided, however, that the
Guarantor shall not be entitled to enforce, or to receive any payments arising
out of or based upon such right of subrogation until the principal of and
interest on all Notes issued under the Agreement shall have been paid in full.
No remedy for the enforcement of the rights of the Holder of
the Note to receive payment of the principal of and/or interest on the Note,
under the Note, the Agreement and hereunder, shall be exclusive of or dependent
on any other remedy.
This Guarantee has been given in accordance with the terms of
the Agreement and is subject to all applicable provisions thereof and the same
shall be deemed to be incorporated herein.
The Guarantor hereby certifies and warrants that all acts,
conditions and things required to be done and performed and to have happened
prior to the creation and issuance of this Guarantee to constitute the same
valid and legally binding obligation of the Guarantor enforceable in accordance
with its terms, have been done and performed and have happened in due and
strict compliance with all applicable law.
C-2
<PAGE> 42
This Guarantee shall be construed in accordance with and
governed by the laws of the State of New York.
By:_________________
Name:
Title:
C-3
<PAGE> 43
EXHIBIT D
Schedule of Advances
<TABLE>
<CAPTION>
Applicable
Date Amount Rate
---- ------ ----------
<S> <C> <C>
$ LIBOR + 1.50%
------------------
-------------
$ LIBOR + 1.50%
------------------
-------------
$ LIBOR + 1.50%
------------------
-------------
$ LIBOR + 1.50%
------------------
-------------
$ LIBOR + 1.50%
------------------
-------------
$ LIBOR + 1.50%
------------------
-------------
$ LIBOR + 1.50%
------------------
-------------
$ LIBOR + 1.50%
------------------
-------------
$ LIBOR + 1.50%
------------------
-------------
$ LIBOR + 1.50%
------------------
-------------
$ LIBOR + 1.50%
------------------
-------------
</TABLE>
D-1
<PAGE> 44
EXHIBIT E
[Form of Borrower's Counsel Opinion]
_____________, 199__
ContiTrade Services Corporation
277 Park Avenue
New York, NY 10172
Re: Interim Warehouse Facility
Gentlemen:
I have examined an executed copy of each of (i) the Interim Warehouse
and Security Agreement, between DVI Financial Services, Inc. ("DVI"), DVI,
Inc. and you, dated as of February 2, 1995 (the "Warehouse Agreement") and (ii)
the Custodial Agreement, among DVI, you and Bankers Trust Company, as
Custodian, dated February 2, 1995 (the "Custodial Agreement," and, together
with the Warehouse Agreement, the "Agreements").
Capitalized terms used herein, but not defined, shall have the
meanings assigned to them in the Agreements.
I have further examined original, photostatic or certified copies of
all such corporate records of DVI and DVI Health, and such certificates of
public officials, certificates of corporate officers, and other documents, and
such questions of law, as I have deemed relevant and necessary as a basis for
the opinions hereinafter expressed. In making my examinations and rendering
the opinions herein expressed, I have made the following assumptions:
(1) The parties to the Agreements (other than DVI and DVI, Inc.)
have the power to enter into and perform all of their
obligations thereunder;
(2) The due authorization, execution and delivery of the
Agreements by the parties thereto (other than DVI and DVI,
Inc.), and the validity and binding effect on the parties
thereto (other than DVI and DVI, Inc.) of the Agreements;
E-1
<PAGE> 45
(3) The genuineness of all signatures;
(4) The authenticity of all documents submitted to me as
originals and the conformity to originals of all documents
submitted to me as copies.
The opinions expressed in numbered paragraph 2 below with respect to
the enforceability of the Agreements are subject to the following additional
qualifications:
(a) The effect of bankruptcy, insolvency, reorganization,
moratorium, receivership, or other similar laws of general
applicability relating to or affecting creditors' rights
generally; and
(b) The application of general principles of equity, including
but not limited to, the right to specific performance
(regardless of whether enforceability is considered in a
proceeding in equity or at law).
Based upon the foregoing and subject to the last paragraph hereof, I
am of the opinion that:
(1) DVI has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of
Delaware, and is qualified to do business in each state
necessary to enable it to perform its obligations under the
Agreements. DVI has the requisite power and authority to
execute and deliver, engage in the transactions contemplated
by, and perform and observe the conditions of, the
Agreements.
(2) The Agreements have been duly and validly authorized,
executed and delivered by DVI, all requisite corporate
action having been taken with respect thereto, and the
Agreements constitute valid, legal and binding agreements of
DVI enforceable against DVI in accordance with their terms.
(3) Neither the execution, delivery nor performance by DVI of
the Agreements conflicts or will conflict with or results in
a breach of, or constitutes or will constitute a default
under (i) any term or provision of the certificate of
incorporation or bylaws of DVI (ii) any term or provision of
any agreement, contract, instrument or indenture, to which
DVI is a party or is bound; or (iii) any order, judgment,
writ, injunction or decree of any court or governmental
E-2
<PAGE> 46
agency or body or other tribunal having jurisdiction over
DVI.
(4) No consent, approval, authorization or order of,
registration or filing with, or notice to, any court,
governmental agency or body or other tribunal is required
for the execution, delivery and performance by DVI of the
Agreements or the consummation of any other transaction
contemplated by the Agreements, except such which have been
obtained.
(5) There are no actions, proceedings or investigations pending
or, to my knowledge, threatened against DVI before any
court, governmental agency or body or other tribunal
asserting the invalidity of the Agreements which would
materially and adversely affect the performance by DVI of
its obligations under, or the validity or enforceability of,
the Agreements.
This Opinion is furnished solely for the benefit of the addressee
hereof. It may not be relied upon by or distributed to any other person or for
any other purpose without my prior written consent.
Very truly yours,
E-3
<PAGE> 47
EXHIBIT F
[Form of Guarantor's Counsel Opinion]
____________, 199_
ContiTrade Services Corporation
277 Park Avenue
New York, NY 10172
Re: Interim Warehouse Facility
Gentlemen:
I have examined an executed copy of each of (i) the Interim Warehouse
and Security Agreement, between DVI Financial Services, Inc. ("DVI"), DVI,
Inc. and you, dated as of February 2, 1995 (the "Warehouse Agreement") and (ii)
the Custodial Agreement, among DVI, you and Bankers Trust Company, as
Custodian, dated February 2, 1995 (the "Custodial Agreement," and, together
with the Warehouse Agreement, the "Agreements").
Capitalized terms used herein, but not defined, shall have the
meanings assigned to them in the Agreements.
I have further examined original, photostatic or certified copies of
all such corporate records of DVI and DVI, Inc.) and such certificates of
public officials, certificates of corporate officers, and other documents, and
such questions of law, as I have deemed relevant and necessary as a basis for
the opinions hereinafter expressed. In making my examinations and rendering
the opinions herein expressed, I have made the following assumptions:
(1) The parties to the Agreements (other than DVI and DVI, Inc.)
have the power to enter into and perform all of their
obligations thereunder;
(2) The due authorization, execution and delivery of the
Agreements by the parties thereto (other than DVI and DVI,
Inc.), and the validity and binding effect on the parties
thereto (other than DVI and DVI, Inc.) of the Agreements;
F-1
<PAGE> 48
(3) The genuineness of all signatures;
(4) The authenticity of all documents submitted to me as
originals and the conformity to originals of all documents
submitted to me as copies.
The opinions expressed in numbered paragraph 2 below with respect to
the enforceability of the Agreements are subject to the following additional
qualifications:
(a) The effect of bankruptcy, insolvency, reorganization,
moratorium, receivership, or other similar laws of general
applicability relating to or affecting creditors' rights
generally; and
(b) The application of general principles of equity, including
but not limited to, the right to specific performance
(regardless of whether enforceability is considered in a
proceeding in equity or at law).
Based upon the foregoing and subject to the last paragraph hereof, I
am of the opinion that:
(1) DVI, Inc. has been duly organized and is validly existing as
a corporation in good standing under the laws of the State
of Delaware, and is qualified to do business in each state
necessary to enable it to perform its obligations under the
Agreements. DVI, Inc. has the requisite power and authority
to execute and deliver, engage in the transactions
contemplated by, and perform and observe the conditions of,
the Agreements.
(2) The Agreements have been duly and validly authorized,
executed and delivered by DVI, Inc., all requisite corporate
action having been taken with respect thereto, and the
Agreements constitute valid, legal and binding agreements of
DVI, Inc. enforceable against DVI, Inc. in accordance with
their terms.
(3) Neither the execution, delivery nor performance by DVI, Inc.
of the Agreements conflicts or will conflict with or results
in a breach of, or constitutes or will constitute a default
under (i) any term or provision of the certificate of
incorporation or bylaws of DVI, Inc. (ii) any term or
provision of any agreement, contract, instrument or
indenture, to which DVI, Inc. is a party or is bound; or
(iii) any order, judgment, writ, injunction or decree of any
court or
F-2
<PAGE> 49
governmental agency or body or other tribunal having
jurisdiction over DVI, Inc..
(4) No consent, approval, authorization or order of,
registration or filing with, or notice to, any court,
governmental agency or body or other tribunal is required
for the execution, delivery and performance by DVI, Inc. of
the Agreements or the consummation of any other transaction
contemplated by the Agreements, except such which have been
obtained.
(5) There are no actions, proceedings or investigations pending
or, to my knowledge, threatened against DVI, Inc. before any
court, governmental agency or body or other tribunal
asserting the invalidity of the Agreements which would
materially and adversely affect the performance by DVI, Inc.
of its obligations under, or the validity or enforceability
of, the Agreements.
This Opinion is furnished solely for the benefit of the addressee
hereof. It may not be relied upon by or distributed to any other person or for
any other purpose without my prior written consent.
Very truly yours,
F-3
<PAGE> 1
Exhibit 10.26
CREDIT INCREASE CONFIRMATION AND AMENDMENT
Dated March 2, 1995
Reference is made to (i) the Interim Warehouse and Security
Agreement, dated as of February 2, 1995 (the "Interim Warehouse Agreement")
among ContiTrade Services Corporation (the "Lender"), DVI Financial Services
Inc. (the "Borrower") and DVI, Inc. (the "Guarantor"), (ii) the Secured Grid
Note dated as of February 2, 1995 (the "Note") from the Borrower to the Lender,
(iii) the Guarantee dated as of February 2, 1995 (the "Guarantee") from the
Guarantor in favor of the Lender and (iv) the Custodial Agreement dated as of
February 2, 1995 (the "Custodial Agreement") among the Lender, the Borrower and
Bankers Trust Company, as custodian (the "Custodian"). Capitalized terms not
otherwise defined herein shall have the meaning ascribed to such terms in the
Interim Warehouse Agreement.
Section 1.
(a) The maximum Loan amount available under the Interim
Warehouse Agreement and referenced in the Note, the Guarantee and the Custodial
Agreement shall be $75,000,000.
(b) The "Maturity Date" as stated in the Interim
Warehouse Agreement and referenced in the Note, the Guarantee and the Custodial
Agreement shall be the earlier of (i) the date of the second issuance of
Investor Certificates or (ii) June 30, 1995.
Section 2.
As amended by Section 1 hereof all provisions of the Interim
Warehouse Agreement, the Note, the Guarantee and the Custodial Agreement are
reconfirmed as of the date hereof. The Borrower and the Guarantor, in
addition, hereby reconfirm and remake as of the date hereof each and every of
their respective representations, warranties and covenants set forth in the
Interim Warehouse Agreement.
DVI FINANCIAL SERVICES, INC.
By: /s/ James G. Costello
--------------------------
Name: James G. Costello
Title: Senior Vice President
<PAGE> 2
DVI, INC.
By: /s/ James G. Costello
--------------------------
Name: James G. Costello
Title: Senior Vice President
BANKERS TRUST COMPANY
By: /s/ Melissa J. Kaye
--------------------------
Name: Melissa J. Kaye
Title: Vice President
CONTITRADE SERVICES CORPORATION
By: /s/ Jerome Perelson
--------------------------
Name: Jerome Perelson
Title: President
By: /s/ Peter Abeles
--------------------------
Name: Peter Abeles
Title: Managing Director
2
<PAGE> 1
Exhibit 10.28
AMENDMENT NO. 1
TO
NOTE PURCHASE AGREEMENT
Amendment No. 1 to Note Purchase Agreement (this "Amendment") dated as
of November __, 1994 among DVI, Inc., a Delaware corporation (the "Company")
and each of the persons whose signatures appear under the heading "Purchasers"
on the signature pages to that certain Note Purchase Agreement, dated as of
June 21, 1994 (the "Purchase Agreement").
RECITALS
WHEREAS, pursuant to the Purchase Agreement the Company issued and sold
to the purchasers thereunder (the "Purchasers") an aggregate of $15,000,000 of
9 1/8% Convertible Subordinated Notes due 2002 (the "Notes");
WHEREAS, the Company wishes to amend its 1986 Incentive Stock Option
Plan (the "Plan") to (i) increase by 300,000 the number of shares of Common
Stock authorized under the Plan and (ii) authorize the issuance of such shares
of Common Stock upon proper exercise of the options under the Plan (the actions
described in clauses (i) and (ii) are collectively referred to as the "Proposed
Actions");
WHEREAS, pursuant to Section 5.7(h)(ii)(B) of the Purchase Agreement,
for certain purposes the written approval of the Proposed Actions by the owners
of a majority in principal amount of the Notes (the "Majority Owners") may be
desirable; and
WHEREAS, the Majority Owners are willing to consent to the Proposed
Actions subject to the amendment of the Purchase Agreement to provide that
beginning on the date hereof and so long as any of the Notes remain
outstanding, no Capital Stock will be granted or issued by the Company at an
exercise, conversion or exchange price per share that is less than the
Conversion Price.
NOW, THEREFORE, in consideration of the foregoing premises and the
agreements of the parties set forth herein, the Company and the Majority Owners
(on behalf of the Purchasers) agree as follows:
1. Amendment of Article VI. Article VI of the Purchase Agreement is
hereby amended by adding the following provision immediately after Section 6.21
thereof:
Section 6.22 Prohibition on Issuance of Certain Capital Stock.
So long as any Note shall remain outstanding, the Company will not,
directly or indirectly, grant or issue any Capital Stock of the Company
under any benefit
<PAGE> 2
plan or compensation program, which Capital Stock is exercisable,
convertible or exchangeable for or into Common Stock at a price per
share that is less than the Conversion Price.
2. Effectiveness of Amendment. This Amendment will become effective
prior to the effectiveness of the Proposed Actions, and any Capital Stock of
the Company granted or issued in connection with or pursuant to the Proposed
Actions shall for all purposes be subject to the provisions of Section 6.22 of
the Purchase Agreement, as amended.
3. Approval of Majority Owners. Upon execution of this Amendment by
the Company and the Majority Owners, this Amendment shall be binding upon the
Company and the Purchasers in accordance with Section 13.3 of the Purchase
Agreement.
4. Defined Terms. Unless otherwise indicated herein, capitalized terms
used in this Amendment shall have the meaning ascribed to them in the Purchase
Agreement.
5. Effect of Amendment. The Purchase Agreement shall be deemed amended
and superseded hereby in all respects necessary to permit the implementation
of this Amendment, but otherwise the Purchase Agreement shall remain in full
force and effect.
6. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Holders whose signatures appear
below under the heading "Purchasers" have executed this Amendment as of the
date first written above.
THE COMPANY:
DVI, INC.
By: /s/ David L. Higgins
----------------------------
Title: President
PURCHASERS:
-2-
<PAGE> 3
HANNAH S. AND SAMUEL A. COHN
MEMORIAL FOUNDATION
By: /s/ Martin D. Cohn
--------------------------
Title: Secretary
c/o Hazelton National Bank
101 W. Broad Street
Hazleton, PA 18201
Attention: Diana James
<PAGE> 4
LUCKMAN FAMILY VENTURES
By: /s/ Robert Luckman
--------------------------------------
Title: Trustee
c/o Robert Luckman
1210 North Avenue
Highland Park, IL 60015
PENN FOOTWEAR RETIREMENT TRUST
By: /s/ Jeff Davidowitz
--------------------------------------
Title: President
c/o Penn Footwear
Line & Grove Street
Nanticoke, PA 18634
WNC CORPORATION
By:
--------------------------------------
Title:
2 Prudential Plaza
180 North Stetson Ave.
Suite 5520
Chicago, Illinois 60601
Attention: Delbert Coleman, Chairman
GRANITE CAPITAL, L.P.
/s/ Walter F. Harrison
------------------------------------------
Walter F. Harrison, III, a general partner
<PAGE> 5
STARWOOD GROUP, L.P.
By: /s/ Robert Green
--------------------------------------
Its general partner
By: /s/ Robert Green
----------------------------------
Title: General Partner
2875 NW 191st Street
No. 701A
North Miami Beach, FL 33180
Attention: Robert Green
SASCO MARKETING, INC.
By: /s/ Sol A. Shenk
--------------------------------------
Title: President
3575 N.E. 207th Street
Suite B-15
North Miami Beach, FL 33180
Attention: Sol A. Shenk
/s/ Carlis E. Chisolm
--------------------------------------
Canadian Imperial Bank of Commerce
Trust Company (Bahamas) Limited, as
Trustee of Settlement T-1740 Trusts
#14, #27, #28, #29, #30, #31, #32,
#33, #34, #35 and #36
2nd Floor, CIBC Building
Shirley Street, Nassau Bahamas
<PAGE> 6
/s/ Edward A. Newman
--------------------------------------
Edward A. Newman
Unit 18-E
179 East Lake Shore Drive
Chicago, IL 60611
/s/ Herbert J. Siegel
--------------------------------------
Herbert J. Siegel
c/o Chris-Craft Industries
767 Fifth Avenue
New York, NY 10153
/s/ Gerald L. Cohn
--------------------------------------
Martin D. Cohn or Gerald L. Cohn as
Co-Trustee for Gerald L. Cohn
Revocable Trust
19355 Turnberry Way, TH #3
Aventura, FL 33180
/s/ Brenda McHugh
--------------------------------------
Brenda McHugh
195 Ocean Boulevard
Golden Beach, FL 33160
/s/ Sandy Jordan
--------------------------------------
Sandy Jordan
19355 Turnberry Way, Unit 7-G
Aventura, FL 33180
<PAGE> 7
/s/ Richard Weiss & /s/ Gail Weiss
------------------------------------------------
Richard Weiss and Gail Weiss, JTWROS
9050 S.W. 69 Court
Miami, FL 33156
/s/ Robert Luckman
------------------------------------------------
Robert Luckman
1210 North Avenue
Highland Park, IL 60015
/s/ Sidney Klemow
------------------------------------------------
Sidney Klemow on behalf of the S.L.K. Retirement
Trust
Fulton Court & Spring Street
Hazleton, PA 18201
/s/ Sidney Luckman
------------------------------------------------
Sidney Luckman on behalf of the Sidney Luckman
Individual Retirement Account
19500 Turnberry Way, Unit 27D
Aventura, FL 33180
/s/ William C. Bartholomay
------------------------------------------------
William C. Bartholomay
875 North Michigan Avenue, 20th Floor
Chicago, IL 60611
<PAGE> 8
/s/ Delbert Coleman & /s/ Rose Meisel
---------------------------------------
Delbert Coleman and Rose Meisel, JTWROS
c/o WNC Corporation
2 Prudential Plaza
180 North Stetson Avenue
Suite 5520
Chicago, IL 60601
<PAGE> 9
YEHUDA BEN-ARIEH RESIDUARY TRUST
/s/ Marshall E. Eisenberg
---------------------------------
Marshall E. Eisenberg, Co-Trustee
c/o Neal, Gerber & Eisenberg
Two North LaSalle Street
Suite 2200
Chicago, Illinois 60602
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of DVI, Inc.
We consent to the use in this Registration Statement of DVI, Inc. on Form S-1
of our report dated October 3, 1994, appearing in the Prospectus, which is a
part of this Registration Statement, and to the references to us under the
headings "Selected Financial Information and Other Data" and "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
- --------------------------------
June 22, 1995
Costa Mesa, California
