PROSPECTUS FILE NO. 33-37964
Filed pursuant to
Rule 424(b)(3)
DVI, INC.
575,000 Common Shares and
50,000 Units
Consisting of 50,000 Common Shares and
50,000 Redeemable Warrants
This Prospectus relates to the offer and sale of (i) up to 575,000
shares (the "1991 Warrant Shares") of common stock, $.005 par value per
share ("Common Stock"), of DVI, Inc., a Delaware corporation formerly
known as DVI Financial Corporation ("DVI" or the "Company"), issuable
upon exercise of redeemable warrants (the "1991 Warrants") to purchase
the 1991 Warrant Shares, (ii) up to 50,000 units (the "Units"), each
consisting of one share of Common Stock (a "Unit Share") and a warrant
to purchase one share of Common Stock (a "Unit Warrant," and together
with the 1991 Warrants, the "Warrants"), and (iii) up to 50,000 shares of
Common Stock (the "Unit Warrant Shares," and together with the 1991
Warrant Shares, the "Warrant Shares") issuable upon exercise of the Unit
Warrants. The Unit Warrants are immediately exercisable and are
separately transferable from the Unit Shares immediately upon issuance.
Each Warrant entitles the holder thereof to purchase, at any time until
February 7, 1996, one Warrant Share at a price of $12.00 per share,
subject to adjustment in certain events and subject to the right of the
Company to reduce the exercise price. The Warrants, other than the Unit
Warrants, are subject to redemption by the Company at $.05 per Warrant
on not less than 30 days' notice if the last sale price of the Common Stock
exceeds $13.00 per share for 20 consecutive trading days ending within 15
days of the date on which the notice of redemption is given. See
"Description of Capital Stock."
The 1991 Warrants were originally issued by the Company as part
of a public offering (the "Public Offering") of units (the "1991 Units"),
each consisting of 575,000 shares of Common Stock and the 1991
Warrants, that was consummated on February 14, 1991. In connection
with the Public Offering, the Company granted the underwriter for the
Public Offering an option (the "Unit Purchase Option") to purchase up to
50,000 Units exercisable at any time after February 7, 1993 but before
February 7, 1996 at a price per Unit of $12.60.
The Common Stock is traded in the New York Stock Exchange
("NYSE") under the symbol "DVI." On December 22, 1995, the last sale
price per share of the Common Stock as reported by the NYSE was
$14.50 per share. The 1991 Warrants are traded in the NASDAQ
National Stock Market under the symbol "DVICW." On December 12,
1995, the last reported sale price per 1991 Warrant as reported by
NASDAQ was $2.125.
The purchase of the securities offered hereby involves a
substantial degree of risk. Prospective investors should carefully
consider the factors set forth under "Risk Factors" beginning on page
8 of the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to Proceeds to
the Public Company (1)
Per Warrant Share . . . $12.00 - $12.00
Per Unit. . . . . . . . $12.60 - $12.60
Total . . . . . . . . . $8,130,000 - $8,130,000
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(1) Before deducting expenses, estimated at $45,000, payable by the Company.
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The Units and the Warrant Shares are being offered by the
Company. No fees, commissions or other expenses will be charged by the
Company in connection with the offering made by this Prospectus.
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The date of this Prospectus is December 26, 1995.
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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 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 can 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. Reports, proxy
statements and other information concerning the Company 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-2 (which, together with all amendments thereto, is
referred to in this Prospectus as the "Registration Statement") under the
Securities Act of 1933 (the "1933 Act") with respect to the Units and the
Warrant Shares offered pursuant to this Prospectus. Statements made in
this Prospectus as to the contents of any agreement or other document
referred to herein are not necessarily complete and reference is made to the
copy of such agreement or other document filed as an exhibit or schedule
to the Registration Statement. For further information, reference is made
to the Registration Statement and to the exhibits and schedules filed
therewith, which are available for inspection without charge at the principal
office of the Commission in Washington, D.C. Copies of the material
containing this information may be obtained from the Commission upon
payment of the prescribed fee.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, all of which were previously filed with
the Commission, are hereby incorporated by reference in this Prospectus:
1. The Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1995 (the "1995 10-K").
2. The Company's Quarterly Report on Form 10-Q for the
three months ended September 30, 1995.
3. All other reports filed pursuant to Section 13(a) or 15(d)
of the 1934 Act since the end of the fiscal year covered by the 1995 10-K.
Any statements contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that such statement is modified or replaced by a
statement contained in this Prospectus or in any other subsequently filed
document that also is or is deemed to be incorporated by reference into this
Prospectus. Any such statement so modified or superseded shall not be
deemed, except as so modified or replaced, to constitute a part of this
Prospectus. The Company undertakes to provide without charge to each
person to whom a copy of this Prospectus has been delivered, upon the
written or oral request of any such person, a copy of any or all of the
documents referred to above that have been or may be incorporated in this
Prospectus by reference, other than exhibits to such documents. Written
or oral requests for such copies should be directed to: DVI, Inc., 500
Hyde Park, Doylestown, Pennsylvania 18901 (Telephone: 215-345-6600),
Attention: Legal Department.
DOCUMENTS REQUIRED TO BE DELIVERED WITH THIS PROSPECTUS
The Company is required under the applicable provisions of the
1933 Act to deliver with this Prospectus its latest Annual Report on Form
10-K and its latest Quarterly Report on Form 10-Q.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere or
incorporated by reference in this Prospectus.
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; these working capital loans 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 and 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, 1995 ("fiscal 1995"), the Company's loan
origination volume increased approximately 107% to $338.0 million from
$163.0 million for the fiscal year ended June 30, 1994 ("fiscal 1994").
During the three months ended September, 1995, the Company's loan
origination volume increased approximately 54% to $80.0 million from
$52.0 million for the first quarter of fiscal 1995. The Company's net
financed receivables increased approximately 73% to $405.3 million at
June 30, 1995 from $234.8 million at June 30, 1994. The Company's net
financed receivables increased approximately 56% to $427.7 million at
September 30, 1995 from $274.3 million at September 30, 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.
Further information with respect to the Company, including
Management's Discussion and Analysis of Financial Condition and Results
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of Operations for fiscal 1995 and for the three-month periods ended
September 30, 1994 and 1995, is contained in the Annual Report on Form
10-K and the Quarterly Report on Form 10-Q which are required to be
delivered with this Prospectus. See "Documents Required to be Delivered
With This Prospectus."
The Offering
Securities offered . . . . . . . . . (1) 575,000 shares of Common
Stock issuable upon exercise
of the 1991 Warrants. Each of the
1991 Warrants entitles the holder
thereof to purchase, at any time
until February 7, 1996, one
Warrant Share at a price of
$12.00 per share (subject
to adjustment in certain events).
(2) 50,000 Units, each consisting
of one Unit Share and one
Unit Warrant to purchase one
share of Common Stock
at $12.00 per share (subject
to adjustment in certain events)
at any time until February
7, 1996. The Units are being
offered pursuant to the
Unit Purchase Option at a
price per Unit of $12.60. The
Unit Warrants are immediately
exercisable and are separately
transferable from the Unit
Shares immediately
upon issuance.
Redemption of Warrants . . . . . . . . .The 1991 Warrants are subject to
redemption by the Company at $.05
per Warrant on not less than 30 days'
written notice if the last reported
sale price of the Common Stock on the
NYSE exceeds $13.00 per share for a
period of 20 consecutive trading days
ending within 15 days of the date on
which the notice of redemption is given.
Use of proceeds. . . . . . . . . . . . .For working capital, repayment of
existing short-term indebtedness and
general corporate purposes. See "Use
of Proceeds."
Risk factors . . . . . . . . . . . . . .See "Risk Factors" for a discussion of
certain factors to be considered by
prospective investors.
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Summary Consolidated Financial Information
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended June 30 Sept. 30,
--------------------------------------- --------------------------
1991 1992 1993 1994 1995 1994 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Finance and other income $10,571 $14,736 $15,199 $20,911 $39,027 $7,197 $12,704
Margins earned(1) 5,638 8,747 10,194 12,078 16,167 3,046 5,714
Earnings from continuing operations
before provision for income taxes
equity in net earnings (loss) of
investees and discontinued
operations. . . . . . . . . . . . . 2,843 4,915 4,459 4,313 7,015 885 3,191
Earnings from continuing operations . 1,726 3,053 2,580 2,260 4,069 513 1,775
Loss from discontinued operations(2). 0 (346) (1,922) (3,145) 0 0 0
Net earnings (loss)(2) $1,726 $2,707 $658 $(885) $4,069 $513 $1,775
Earnings (loss) per common and
common equivalent share:
From continuing operations(2) . . $0.37 $0.57 $0.39 $0.34 $0.61 $0.08 $0.20
From discontinued operations. . . 0.00 (0.06) (0.29) (0.47) 0.00 0.00 0.00
Net earnings (loss) per common and
common equivalent share . . . . . . . $0.37 $0.51 $0.10 $(0.13) $0.61 $0.08 $0.20
Weighted average number of common and
common equivalent shares outstanding. 4,728 5,353 6,601 6,717 6,652 6,801 8,843
As of June 30 As of Sept. 30, 1995
----------------------------------------------- ----------------------------
1991 1992 1993 1994 1995 Actual As
Adjusted(3)
Balance Sheet Data:
Unearned income(4) $22,211 $21,720 $ 24,573 $ 47,644 $ 74,959 $ 75,051 $ 75,051
Total assets 85,084 104,714 147,161 265,949 432,931 456,047 456,047
Short-term borrowings due under
warehouse facilities . . . . . . . . . 22,153 31,349 45,221 34,586 155,173 154,573 146,488
Long-term debt (primarily limited
recourse). . . . . . . . . . . . . . . 36,358 24,569 51,827 148,852 219,130 183,517 183,517
Convertible subordinated notes . . . . 0 0 0 14,112 13,754 13,780 13,780
Shareholders' equity . . . . . . . . . 16,113 34,006 34,664 33,993 40,250 71,371 79,456
As of or for the
Three Months
As of or for the Year Ended June 30, Ended Sept. 30,
----------------------------------------------- ----------------------------
1991 1992 1993 1994 1995 1994 1995
Additional Operating and Other Data:
Gross financed receivables(5). . . . . $92,670 $107,306 $142,073 $282,413 $480,287 $328,283 $502,776
Net financed receivables(6). . . . . . 70,459 85,586 117,510 234,769 405,328 274,344 427,725
Loans originated(7). . . . . . . . . . 39,600 46,400 58,600 163,000 338,000 52,000 80,000
Net charge-offs as a percentage of
average net financed receivables(8). 0.11% 0.05% 0.04% 0.14% 0.15% 0.08% 0.01%
</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 1991 through 1994, as well as the three months ended September
30, 1994, have been reclassified from Selling, General and Administrative
Expense to Interest Expense to conform with the June 30, 1995 presentation.
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(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.
(3) Adjusted to give effect to the exercise of the Warrants, the Unit
Purchase Option and the Unit Warrants included therein.
(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.
(8)Presentation is based on averages of period beginning and period ending
balances.
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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
1995, the Company's loan origination volume increased approximately
107% to $338.0 million from $163.0 million for fiscal 1994. During the
three months ended September 30, 1995, the Company's loan origination
volume increased approximately 54% to $80.0 million from $52.0 million for
the first quarter of fiscal 1995. The Company's net financed receivables
increased approximately 73% to $405.3 million at June 30, 1995 from $234.8
million at June 30, 1994. The Company's net financed receivables increased
approximately 56% to $427.7 million at September 30, 1995 from $274.3
million at September 30, 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. The Company conducts securitizations
through 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 Company's 9 1/8% Convertible Subordinated Notes due 2002 (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
The purchase of Units and the Warrant Shares involves a substantial
degree of risk. Prospective investors should carefully consider, among
other matters, the following risks and other factors before making a
decision to purchase.
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; a $100 million warehouse facility with
Union Bank of Switzerland, which provides warehouse financing for certain
equipment loans to be securitized; 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. 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. 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 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
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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. 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.
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. 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.
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 ware-
house 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 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.
Leverage. The Company is highly leveraged. As of September 30, 1995, the
Company and its consolidated subsidiaries had total debt of $351.9 million,
of which $168.4 million was full recourse debt and $183.5 million was limited
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recourse debt. Of the $351.9 million of total debt, $197.3 million was long-
term debt and $154.6 million was short-term debt. Since the net proceeds of
the Offering are expected to be applied to working capital and 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 $291.3 million at September 30, 1994 to $436.5
million at September 30, 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 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
10
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<PAGE>
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.
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 contain-
ment. To date none of the proposals initiated at the 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.
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.
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
11
<PAGE>
Company or to provide credit support. There is no assurance that these
manufacturers will continue to provide such referrals or credit support. If
for any reason the Company were no longer to benefit from these referrals or
credit support, 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.
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.
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. The Company owns approximately 4.5
million shares of convertible preferred stock of Diagnostic Imaging Sercies,
Inc. ("DIS") having an aggregate liquidation preference of $4.5 million. In
addition, as of September 30, 1995, the Company owned approximately 8.4% and
17% of the common stock of DIS and Healthcare Imaging Services, Inc. ("HIS")
respectively.
Shares Eligible for Future Sale. Upon completion of the offering made by
this Prospectus and assuming exercise of all the Warrants, the Company will
have outstanding approximately 10,316,898 shares of Common Stock. Of these
shares of Common Stock, 9,172,880 shares, which include the 675,000 shares
offered hereby, will be freely tradable without restriction or further
registration under the 1933 Act. All of the remaining 1,144,018 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.
The Company also has reserved or made available for issuance 2,637,685
shares of Common Stock pursuant to various options 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, and
12
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<PAGE>
1,367,924 shares, issuable upon conversion of the Convertible Subordinated
Notes 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 (the
"MEF Shares") for issuance to the former shareholders of Medical Equipment
Finance Corp. ("MEF Corp.") in connection with the January 1993 acquisition
of MEF Corp. by the Company and (ii) 200,000 shares of Common Stock for
issuance to certain employees of the Company under a stock incentive plan.
See "Description of Capital Stock."
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.
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 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.
Limited Public Market and Possible Price Volatility. Trading in the Units
and Warrants is sporadic and there is no assurance that an active trading
market will be maintained for these securities. The Units and Warrants
therefore may not be as readily marketable or transferable as the stock of a
corporation whose shares are actively traded. Consequently, holders of the
Units and Warrants may not be able readily to liquidate their investment in
the event of an emergency, or otherwise. In addition, to the extent that a
market in the Units and Warrants does develop, the market price of the Units
and Warrants may be subject to substantial fluctuations.
Potential Adverse Effects of Redemption of Warrants. The Warrants, other
than the Unit Warrants, may be redeemed by the Company at any time after
issuance at a redemption price of $.05 per Warrant upon not less than 30 days'
notice if the last sale price per share of the Common Stock exceeds $13.00 per
share for any period of 20 consecutive trading days ending not more than 15
days prior to the date on which the notice of redemption is given. If the
Company gives a notice of redemption of the Warrants, the holders could be
forced to exercise the Warrants and pay the exercise price at a time when
it may be disadvantageous for them to do so, to sell the Warrants at the
current market price for the Warrants when they might otherwise wish to hold
the Warrants, or to accept the redemption price, which may be substantially
less than the market value of the Warrants at the time of redemption.
Exercise of Warrants; Non-Registration of Shares Underlying Warrants in
Certain Jurisdictions. Investors purchasing Units in this offering will not
be able to exercise the Warrants unless, at the time of exercise, the Company
has kept this Prospectus current and the offering and sale of the Warrant
Shares have been registered or qualified under the securities laws of the
state of residence of the purchaser, or an exemption from those requirements
is available. The Company intends to use its best efforts to have the
offering and sale of the Warrant Shares so registered or qualified in
each jurisdiction in which Units initially are, and the 1991 Warrants were,
sold and to keep this Prospectus current until expiration of the
Warrants. There is no assurance that the Company in fact will
be able to do so. In addition, the Unit Warrants are detachable from
the Units and are expected to trade separately from the Unit Shares
included in the Units immediately upon issuance. Although the
Company intends to seek to ensure that the Units will not knowingly be sold
to purchasers in jurisdictions in which the Units are not registered or
otherwise qualified for sale, purchasers may buy Warrants in the aftermarket
or may move to jurisdictions in which the Warrant Shares underlying the
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<PAGE>
Warrants are not so registered or qualified during the period that the
Warrants are exercisable. In this event, the Company would be unable to
issue Warrant Shares to those persons desiring to exercise their Warrants
unless and until the Warrant Shares could be registered and qualified for
sale in jurisdictions in which those purchasers reside, or an exemption from
registration or qualification could be obtained in that jurisdiction. No
assurance can be given that the Company will be able to effect any required
registration or qualification, or that exemptions will be available. The
Company will be under no obligation to seek or obtain qualifications,
registrations or exemptions in any jurisdiction, and intends to seek to do so
only in those jurisdictions in which Units initially are sold.
Effects of Warrants and Options. Under the Unit Option, Stratton Oakmont,
Inc. or certain of its assignees has the right to purchase up to 50,000 Units
at any time after February 7, 1993 but before February 7, 1996. The Units
being offered hereby include Warrants to purchase Common Stock at any time
until February 7, 1996. For the term of the Warrants, the Unit Purchase Option
and existing warrants and employee stock options, the holders thereof are
given an opportunity to profit from a rise in the market price of the
Company's Common Stock, with a resulting dilution in the interests of the
other stockholders. The terms on which the Company may obtain additional
financing during that period may be adversely affected. The holders of the
Warrants, the Unit Purchase Option and existing warrants and employee stock
options might be expected to exercise them at a time when the Company
would, in all likelihood, be able to obtain any needed capital through a new
offering of securities on terms more favorable than those provided by the
Warrants, the Unit Purchase Option and existing warrants and employee stock
options. At the time of exercise of the Warrants, the Unit Purchase Option
and existing warrants and employee stock options, the net tangible book value
of the Company's Common Stock may undergo further dilution.
Potential Future Sales Pursuant to Rule 144. Approximately 33% of the
currently outstanding shares of Common Stock are "restricted securities" as
that term is defined under Rule 144 promulgated under the 1933 Act. In
general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated) who has beneficially owned shares for at least two
years, including an "affiliate" as that term is defined under the 1933 Act, is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the then outstanding Common Stock or the
average weekly trading volume in the Common Stock in composite trading on
all exchanges during the four calendar weeks preceding such sale. A person
(or persons whose shares are aggregated) who is not deemed an affiliate of the
Company and who has beneficially owned shares for at least three years is
entitled to sell such shares under Rule 144 without regard to the volume
limitations described above. The Company is unable to predict the effect that
sales made under Rule 144 or otherwise may have upon the then prevailing
market prices of the Units, Common Stock or Warrants, although such sales
may depress such prices.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1995 and as adjusted to reflect the issuance and sale of the
Units and the Warrant Shares offered hereby and the application of the
estimated net proceeds from this offering.
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<PAGE>
<TABLE>
<CAPTION>
As of September 30, 1995
---------------------------
Actual As Adjusted
------ -----------
<S> <C> <C>
(in thousands)
Short-term borrowings due under
warehouse facilities and lines of
credit(1). . . . . . . . . . . . . . . $154,573 $146,488
Long-term debt (primarily limited
recourse). . . . . . . . . . . . . . . 183,517 183,517
Convertible subordinated notes. . . . . . 13,780 13,780
-------- --------
Total long-term debt. . . . . . . . . . . 197,297 197,297
-------- --------
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:
9,620,456 issued and outstanding and
10,295,456 shares as adjusted(2). . . 48 51
Additional paid-in capital. . . . . . . . 58,625 66,707
Retained earnings . . . . . . . . . . . . 11,649 11,649
-------- --------
Total shareholders' equity. . . . . . . 71,371 79,456
-------- --------
Total shareholders' equity and
long-term debt. . . . . . . . . . . . $268,668 $276,753
======== ========
</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 contained in the Annual Report on Form 10-K which is
required to be delivered with this Prospectus.
(2) Does not include (i) 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, (ii) 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, (iii) 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,
(iv) 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 (v) 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" and Notes to the Company's Consolidated Financial Statements
contained in the Annual Report on Form 10-K and the Quarterly Report
on Form 10-Q which are required to be delivered with this Prospectus.
USE OF PROCEEDS
The net proceeds from the sale of Units and the Warrant Shares (after
deduction of expenses associated with this offering) are estimated to be
approximately $8,085,000. These proceeds will be added to the Company's
corporate funds for working capital, to reduce temporarily existing short-term
indebtedness under the Company's principal revolving credit facility and for
general corporate purposes. The Company's indebtedness under its principal
revolving credit 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 ration 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 offering rate
("LIBOR") depending on the Company's leverage ration 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" contained in the Annual
Report on Form 10-K and the Quarterly Report on Form 10-Q which are
required to be delivered with this Prospectus.
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<PAGE>
PRICE RANGE OF COMMON STOCK AND WARRANTS
The following table sets forth the range of reported high and low sales
prices of the Common Stock on the New York Stock Exchange, Inc. (the
"NYSE") for the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1994 High Low
- ------------------------------- ---- ------
<S> <C> <C>
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 13-1/8 11
Fiscal Year Ending June 30, 1996
- --------------------------------
First Quarter $13-7/8 $ 11
Second Quarter (through December 22, 1995) 14-3/8 12-5/8
</TABLE>
The following table sets forth the range of the reported high and low
sales prices of the 1991 Warrants on the trading system now known as the
NASDAQ National Stock Market for the periods indicated.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1994 High Low
- ------------------------------- ---- ------
<S> <C> <C>
First Quarter $1-5/8 $ 1/2
Second Quarter 3-5/8 1
Third Quarter 2-3/8 1-7/8
Fourth Quarter 2 1-1/2
Fiscal Year Ended June 30, 1995
- -------------------------------
First Quarter $1-7/8 $ 7/8
Second Quarter 1-3/4 3/4
Third Quarter 2 3/4
Fourth Quarter 1-13/16 5/8
Fiscal Year Ending June 30, 1996
- --------------------------------
First Quarter $ 2 5/8
Second Quarter (through December 22, 1995) 2-7/16 1-1/4
</TABLE>
DIVIDEND POLICY
The Company has not declared or paid any cash dividends since its
inception, and the Company anticipates that all of its earnings in the near
future 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. In addition, the agreement
with respect to the Company's Convertible Subordinated Notes places
limitations on the payment of dividends by the Company and its subsidiaries.
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 September 30, 1995, there were
9,620,456 shares of Common Stock issued and outstanding. No shares of
Preferred Stock are outstanding.
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<PAGE>
Common Shares
- -------------
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
holder 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.
Units
- -----
In connection with the Public Offering, the Company granted Stratton
Oakmont, Inc. (the "1991 Underwriter") the Unit Purchase Option. Under the
Unit Purchase Option, the 1991 Underwriter may purchase up to 50,000 Units
at any time after February 7, 1993 but before February 7, 1996 at a price per
Unit of $12.60. 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.
Each Unit offered hereby consists of one Unit Share and one Unit
Warrant. The Unit Warrants are separately transferable from the Unit Shares
immediately upon issuance.
The prices payable for the Units upon exercise of the Unit Purchase
Option and the number of Unit Shares underlying the Unit Warrants are
subject to adjustment to prevent dilution.
Warrants
- --------
The Unit Warrants are exercisable immediately upon issuance. Each
Warrant entitles the registered holder to purchase one Warrant Share at a
price of $12.00 per share until February 7, 1996, subject to adjustment. The
Warrants, other than the Unit 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 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.
So long as the Common Stock is traded on the NYSE, the last sale price of
the Common Stock shall be determined by the last reported sale price, as
reported by the NYSE. If the Common Stock is no longer traded on the
NYSE or on the NASDAQ National Market System, the last sale price will
be the average of the high and low bid quotations for the Common Stock as
reported by NASDAQ. The notice of redemption will be deemed given when
mailed to the record holders of the 1991 Warrants at the addresses contained
in the Company's records. Holders of 1991 Warrants will automatically
forfeit their rights to purchase Warrant Shares issuable upon exercise of such
1991 Warrants unless the 1991 Warrants are exercised before the redemption
date specified in the notice of redemption. All of the outstanding Warrants,
except for the Unit Warrants, must be redeemed if any Warrants are
redeemed. In effect, this redemption provision would permit the Company to
cause the Warrant holders, other than holders of the Unit Warrants, to
exercise and dispose of their Warrants if the market value of the Common
Stock is at least $13.00 per share. See "Risk Factors-Potential Adverse
Effects of Redemption of Warrants."
17
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The exercise price of the Warrants and the number and kind of
Warrant Shares or other securities or property to be obtained upon exercise
of the Warrants are subject to adjustment in certain circumstances, including
a stock split of, or stock dividend on, or a subdivision, combination or
recapitalization of, the Common Stock. The exercise price of the Warrants
is subject to adjustment in the event that the Company issues and sells
Common Stock at a price which is less than the then current market price of
the Common Stock except for sales of Common Stock under certain limited
circumstances. The Warrant Agreement also requires an adjustment to be
made upon a merger or consolidation of the Company into or with another
company or the sale of all or substantially all of the assets of the Company
so as to enable Warrantholders to purchase the kind and number of shares of
stock or other securities or property (including cash) receivable in such
event by a holder of the number of shares of Common Stock that might otherwise
have been purchased upon exercise of the Warrants. No adjustment for
previously paid cash dividends, if any, will be made upon exercise of the
Warrants.
The Warrants do not confer upon the holder any voting or other
rights of a shareholder of the Company. Upon notice to the Warrantholders,
the Company has the right to reduce the exercise price or extend the
expiration date of the Warrants.
Each Warrant may be exercised upon surrender of the Warrant
certificate at any time on or prior to the expiration date or (other than with
respect to the Unit Warrants) the redemption date, if earlier, of such Warrant
at the offices of American Stock Transfer & Trust Company (the "Warrant
Agent"), with the form of "Election to Purchase" on the reverse side of the
Warrant certificate completed and executed as indicated, accompanied by
payment of the full exercise price (by certified check payable to the order of
the Company) for the number of Warrant Shares being purchased.
Investors purchasing Units in this offering and the Warrantholders
will not be able to exercise the Warrants to purchase additional Warrant
Shares unless, at the time of exercise, the Company has kept this Prospectus
current and the Warrant Shares have been registered or qualified under the
securities laws of the state of residence of the holder of such Warrants or an
exemption from the registration or qualification requirements is available.
The Company intends to use its best efforts to have the offering and sale of
Warrant Shares upon exercise of Warrants so registered or qualified in each
state in which Units initially are, and the 1991 Warrants were, sold. There
is no assurance that it will be able to do so. See "Risk Factors-Exercise of
Warrants; Non-Registration of Shares Underlying Warrants in Certain
Jurisdictions."
Convertible Subordinated Notes
- ------------------------------
In June 1994, the Company issued and sold $15 million aggregate
principal amount of Convertible Subordinated Notes in a private placement to
certain accredited investors. Of that amount, approximately $9.55 million was
sold to officers, directors, 10% or more stockholders and investors related to
such officers, directors and stockholders. The Convertible Notes are
convertible, at the option of the holders, into up to 1,415,094 shares of
Common Stock, subject to adjustment in certain circumstances. The
conversion price of the Convertible Subordinated Notes is $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 955,994 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 and 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.
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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, 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 third 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 the fourth 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 and the Conversion Shares 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 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 and Warrant Agent
- --------------------------------
The transfer agent and registrar for the Company's Common Stock
is American Stock Transfer & Trust Company, which will also serve as the
Warrant Agent for the Warrants.
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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 stock-
holder. 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.
PLAN OF DISTRIBUTION
The Units and the Warrant Shares will be offered and sold by the
Company from time to time after the date of this Prospectus. No fees,
commissions or other expenses will be charged by the Company in connection
with the offering made by this Prospectus.
The holder(s) of the Unit Purchase Option, and the brokers through
whom the sales of Unit Shares or Unit Warrant Shares are made, may be
deemed to be "underwriters" within the meaning of Section 2(11) of the 1933
Act and may be subject to applicable prospectus delivery requirements
thereunder. In addition, any profits realized by such holder(s) or such
brokers on the sale of the Unit Shares or the Unit Warrant Shares may be
deemed to be underwriting commissions.
LEGAL MATTERS
The validity of the issuance of the Units and Warrant Shares offered
hereby will be passed upon for the Company by Rogers & Wells, New York,
New York.
EXPERTS
The financial statements and the related financial statement
schedules included and incorporated in this Prospectus and elsewhere in the
Registration Statement by reference from the Company's Annual Report on
Form 10-K for the year ended June 30, 1995 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report, which is included
and incorporated herein by reference, and have been so included and
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
20
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No dealer, salesman or other person has been
authorized to give any information or to make any
representation not contained in this Prospectus
and, if given or made, such information or
representation must not be relied upon as having
been given by the Company or the Underwriter.
This Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any of the Units
offered hereby in any jurisdiction to any person to
whom it is unlawful to make such an offer in such
jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication
that there has been no change in the affairs of the
Company since the date hereof.
----------------
TABLE OF CONTENTS
Page
Available Information . . . . . . . . . . . . . 2
Incorporation of Certain Documents by
Reference . . . . . . . . . . . . . . . . . . 2
Documents Required To Be Delivered
With This Prospectus. . . . . . . . . . . . . 2
Prospectus Summary. . . . . . . . . . . . . . . 3
The Company . . . . . . . . . . . . . . . . . . 7
Risk Factors. . . . . . . . . . . . . . . . . . 8
Capitalization. . . . . . . . . . . . . . . . . 15
Use of Proceeds . . . . . . . . . . . . . . . . 15
Price Range of Common Stock
and Warrants. . . . . . . . . . . . . . . . . 16
Dividend Policy . . . . . . . . . . . . . . . . 16
Description of Capital Stock. . . . . . . . . . 17
Plan of Distribution. . . . . . . . . . . . . . 20
Legal Matters . . . . . . . . . . . . . . . . . 20
Experts . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
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DVI, INC.
575,000 Common Shares
and
50,000 Units
Consisting of 50,000
Common Shares and 50,000
Redeemable Warrants
-------------------
PROSPECTUS
-------------------
December 26, 1995
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