SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ___ to ___.
Commission file Number 0-16271
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DVI, INC
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(Exact name of registrant as specified in charter)
Delaware 22-2722773
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
500 Hyde Park
Doylestown, Pennsylvania 18901
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 345-6600
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Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
on which Registered
Common Stock ---------------------
par value $.005 per share New York Stock Exchange, Inc.
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(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Warrants to Purchase
Common Shares
- --------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes _X_ No ___
The aggregate market value of the Common Stock held by nonaffiliates of
the Registrant was approximately $145,513,625 based upon the last reported sale
price of the Common Stock on the New York Stock Exchange on July 15, 1996.
As of July 15, 1996, the Registrant had 10,495,473 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Registrant's
definitive Proxy Statement to be filed with the Commission within 120 days after
the close of the Registrant's fiscal year.
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PART I
ITEM 1. BUSINESS
Overview
DVI, Inc. ("DVI" or the "Company") is a specialty finance company whose
core business is financing higher cost diagnostic imaging, radiation therapy and
other types of sophisticated medical equipment used by outpatient healthcare
centers, groups of physicians and hospitals. The Company has extensive expertise
in making loans to healthcare providers in markets historically underserved by
most banks and finance companies. By effectively and efficiently servicing the
equipment financing needs of these healthcare providers and at the same time
building productive relationships with medical equipment manufacturers seeking
to arrange financing for their customers, the Company has established a niche
leadership position among independent finance companies serving the medical
industry. In addition to equipment financing, a small but growing part of the
Company's business is making working capital loans to 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. A high percentage of the Company's equipment loans are structured as
notes secured by equipment or direct financing leases with a bargain purchase
option for the equipment user; however, the Company structures a small number of
its equipment loans such that it retains a residual interest in the equipment.
In the past two years, the Company has grown substantially. Total
equipment financing loans originated in the Company's fiscal years ended June
30, 1996, 1995 and 1994 were $316.8 million, $238.0 million and $157.4 million,
respectively (not including a $76.1 million Concord Leasing portfolio purchased
by the Company in fiscal 1995). The fiscal 1996 and 1995 originations
represented increases of 33.1% and 51.2%, respectively, over the previous year.
Net financed receivables for this business totaled $418.0 million at June 30,
1996, an increase of $35.2 million or 9.2% over the prior year. In the Company's
medical receivable financing business, new commitments of credit in fiscal 1996
were $40.0 million compared with $23.9 million in fiscal 1995, an increase of
67.4%. New commitments in fiscal 1995 of $23.9 million were $18.3 million or
326.8% higher than fiscal 1994. Medical receivables funded at June 30, 1996
totaled $38.6 million, an increase of $16.1 million or 71.6% over the
prior year.
The Company uses asset securitization and other structured finance
techniques to permanently fund most of its equipment loans and since 1991 has
funded $681.5 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 starting 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 is seeking to continue its growth 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:
o Maximize the value of its relationships with equipment
manufacturers. The Company has a close working relationship with
four of the six largest manufacturers of diagnostic imaging
equipment which it maintains by meeting those manufacturers'
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 those
manufacturers produce and sell such as ultrasound, nuclear
medicine and X-ray equipment, and on financing equipment for
their hospital customers.
o Originate medical equipment loans on a wholesale basis. A growing
part of the Company's equipment financing business is purchasing
loans or leases 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 often need access to sources of permanent
financing for the loans they originate.
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o 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 customers, particularly those that are expanding to
provide additional healthcare services, can be a continuing
source of equipment and medical receivable financing business.
The Company's growth strategy in medical receivables financing is
to focus on its existing equipment finance customer base.
o Establish equipment financing relationships with manufacturers of
patient treatment devices. The Company is using 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
recently has established relationships with manufacturers of
sophisticated patient treatment devices such as surgical lasers.
o International Operations. During fiscal 1996 the Company
continued its efforts to expand into international markets. The
Company is attempting to capitalize on the growing international
market for sales of medical equipment and devices by positioning
itself internationally to provide some of the financing for these
sales. For example, the Company entered into a joint venture with
Philips Medical Systems (a major manufacturer of medical
equipment) and a subsidiary of CoreStates Financial Corp to form
a corporation in Singapore, named Medical Equipment Credit Pte
Ltd, that is designed to take advantage of the expanding medical
equipment market in the Asia-Pacific region. The Company also has
taken steps to establish operations in Australia, Thailand,
Europe and - again in alignment with Philips Medical Systems -
Latin America.
Having international operations subjects the Company to risks
inherent in operating in foreign countries. Such risks include
devaluations of currency and fluctuations in currency exchange
rates; imposition of limitations on conversions of foreign
currencies into dollars or on remittances of dividends and other
payments by foreign subsidiaries; imposition or increase of
withholding or other taxes on remittances and other payments by
foreign subsidiaries; hyperinflation in certain countries and
imposition or increase of investment, and other, restrictions by
foreign governments. Although the Company believes that such
risks are acceptable, no assurance can be given that such risks
will not have a material adverse effect on the Company in the
future.
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. Except as the context otherwise requires, the term "Company" refers to
DVI, Inc. and its wholly owned subsidiaries.
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 finance 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., equipment
costing $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. The
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Company's strategy in medical receivables financing is to differentiate itself
from many of its competitors by offering loans secured by medical receivables
rather than purchasing receivables.
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 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 they believe
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 has 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. 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 advantage over other providers of medical equipment financing.
The Company has a sales unit dedicated to its wholesale loan
origination program ("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 years ended June 30, 1996 and 1995, the Company purchased an
aggregate of $92.6 million of equipment loans from 12 Originators and $63.3
million from six Originators, respectively. 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.
In addition to financing medical equipment, the Company also makes
working capital loans under revolving lines of credit for 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 pledges of (i) specific
receivables due the provider, (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 medical receivable
loan marketing 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.
The Company is expanding 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 the manufacturer's sales 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 25
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.
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Capital Resources and Transaction Funding
The Company obtains initial funding for most of its equipment loans
through "warehouse" facilities provided by banks and other financial
institutions. Loans made under these facilities are repaid when the Company
permanently funds its equipment loans through securitization or other limited
recourse permanent funding programs, including loan sales. Typically, equipment
loans will be held 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 employs a hedging strategy to
mitigate the impact of changes in interest rates. The Company's hedging
techniques may not necessarily be effective in all interest rate environments.
Warehouse Facilities. At August 1, 1996, the Company had an aggregate
maximum of $226.5 million potentially available under various warehouse
facilities of which it had borrowed an aggregate of $133.3 million. These
facilities are provided by a syndicate of banks that participate in a revolving
credit arrangement and by an investment banking firm that the Company uses for
securitizations. The loans made under these warehouse facilities bear interest
at floating rates and are full resource obligations of the Company. There is 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.
Since the Company uses securitization as its primary source of
permanent funding, the Company requires a substantial warehousing capacity. To
be cost efficient, a 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 generally must
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 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.
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. 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 "tranche" of transactions or an
insurance policy. Typically, securitizations sponsored by the Company are
enhanced through a combination of some or all of these methods. 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 periodically requires it
to obtain additional capital. There can be no assurance that the Company will be
able to obtain additional capital.
The Company continually seeks to improve the efficiency of financing
these transactions by reducing up-front 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 forms 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. The Company sells certain of its loans to reduce borrower
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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 with securitizations.
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.
Hedging Strategy. The Company's equipment loans are virtually 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 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 or prices
a permanent funding program. To protect itself against that risk, the Company
uses a hedging strategy. The Company uses derivative financial instruments, such
as forward rate agreements, Treasury locks, and interest rate swaps and caps, to
manage its interest rate risk. The derivatives are used to manage three
components of this interest rate risk: interest sensitivity adjustments, hedging
anticipated loan securitizations and sales, and interest rate spread protection.
Forward rate agreements are for interest sensitivity adjustments in conjunction
with cash market activities and are used to extend the repricing period of
short-term floating rate warehouse facilities. Treasury locks are used to hedge
the interest rate risk on anticipated loan securitizations and sales. Treasury
lock transactions lock in specific rates of Treasury notes having maturities
comparable to the average life of the anticipated securitizations and sales.
Interest rate swaps and caps are used for interest rate spread protection to
protect from rising interest rates in certain loan sale facilities where the
cash flows from the loans sold are fixed rate but the borrowing costs are
variable rate.
There can be no assurance 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. 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 than the Company otherwise considers desirable.
Medical Receivable Financing. The Company funds its medical receivable
financing business through various sources. The Company's revolving credit
agreement with a syndicate of banks permits up to $18 million to be used to
warehouse accounts receivable secured loans. Warehouse facilities totaling $10
million are available at two other banks. In addition, in September 1996 the
Company obtained a $50 million warehouse facility with an investment banking
firm. In January 1996 the Company completed a $25 million private placement
securitization of loans. This was placed with a domestic insurance company and
matures in four years. 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 attempt to
offset their payments to the Company against debts owed to the payors by the
healthcare providers. 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.
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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. 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 all of the risk of
default by the Company's customers); however, the Company remains exposed to
some extent to potential losses resulting from defaults by obligors. 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 cause the Company to lose 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 provide new financing. 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.
Under the Company's wholesale program the Company does not work
directly with the obligors at the origination of the 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 potentially faces a higher degree of risk with respect
to loans it acquires when it acquires loans on a wholesale basis.
Continuing Need for Capital. The Company's ability to maintain and
build its financing businesses is dependent on its continued ability to obtain
substantial amounts of warehouse and permanent debt financing. 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
Inc. or DVI Business Credit Corporation (which are the Company's principal
operating subsidiaries and the obligors under the Company's various warehouse
facilities).
The Company has no binding commitments for the capital it expects it
will continue to require, and its ability to obtain that capital in the future
will be dependent on a number of factors including the condition of the capital
markets and economic conditions generally.
Competition
The financing of sophisticated medical equipment is highly competitive.
The Company competes with equipment manufacturers that sell and finance their
own products, leasing subsidiaries of national and regional commercial banks and
other 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 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
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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 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 July 15, 1996, the Company had 129 full-time employees consisting
of 9 executive officers, 25 sales and sales management personnel, and 95
administrative, accounting and technical personnel. None of the Company's
employees are covered by a collective bargaining agreement, and management
believes that its relationship with its employees is good.
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ITEM 2. 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 35,000 square feet of
office space in various states. The Company believes that the present facilities
are adequate to meet its foreseeable needs.
ITEM 3. 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.
9
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the three
months ended June 30, 1996.
Executive Officers of the Registrant
As of June 30, 1996, the executive officers of DVI were:
Name Age Position
---- --- --------
Michael A. O'Hanlon 49 Director, President and
Chief Executive Officer
Steven R. Garfinkel 53 Executive Vice President and
Chief Financial Officer
Richard E. Miller 44 Executive Vice President
Anthony J. Turek 53 Senior Vice President and
Chief Credit Officer
John P. Boyle 47 Vice President and
Chief Accounting Officer
Melvin C. Breaux 55 Vice President, Secretary and
General Counsel
Cynthia J. Cohn 37 Vice President
Dominic A. Guglielmi 45 Vice President
Alan J. Velotta 49 Vice President
Michael A. O'Hanlon is the Company's president and chief executive
officer and has served as such since November 1995. Mr. O'Hanlon was
president and chief operating officer from September 1994 to November
1995. Previously, Mr. O'Hanlon served as executive vice president of
DVI since joining the Company in March 1993. Mr. O'Hanlon also serves
on the executive committee of DVI. Prior to joining the Company, Mr.
O'Hanlon served as president and chief executive officer of Concord
Leasing, Inc. ("Concord Leasing") for nine years. Concord Leasing
provides medical, aircraft, shipping, and industrial equipment
financing. U.S. Concord, Inc., a subsidiary, provides equipment
financing for the medical imaging industry. Previously, Mr. O'Hanlon
was a senior executive with Pitney Bowes Credit Corporation. Mr.
O'Hanlon received his Master of Science degree from the University of
Connecticut, and his Bachelor of Business Administration from the
Philadelphia College of Textiles and Science. Mr. O'Hanlon became a
director of DVI in November 1993.
Steven R. Garfinkel is an executive vice president of the Company and
its chief financial officer. Mr. Garfinkel also serves on the executive
committee of DVI. Mr. Garfinkel joined the Company in September 1995.
His responsibilities include corporate finance, loan funding, balance
sheet management, accounting and financial reporting, internal control
and financial planning. Mr. Garfinkel has extensive experience in
developing and managing corporate finance relationships, money market
funding, derivative hedging, financial planning and management
information systems. Before joining DVI, Mr. Garfinkel spent his
twenty-nine year career with two large bank holding companies:
CoreStates Financial Corp and First Pennsylvania Corporation. For
twenty years he was either controller or treasurer of those
organizations.
Richard E. Miller is an executive vice president of the Company who
joined the Company in April 1994. Mr. Miller is president of DVI
Financial Services Inc. Mr. Miller also serves on the executive
committee of DVI. 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 distributor 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. Miller has a
Bachelor of Arts degree from Eastern University.
Anthony J. Turek is a senior vice president and the chief credit
officer of DVI. Mr. Turek has served in that capacity since March 1988.
Mr. Turek also serves on the executive committee of DVI. Prior to
joining the Company, Mr. Turek was vice president, Commercial Banking
at Continental Illinois National Bank ("CINB") in Chicago from 1968 to
1988. For the five years prior to joining DVI, Mr. Turek managed the
equipment leasing and transportation divisions of CINB. Prior
responsibilities included management positions in the special
industries, metropolitan and national divisions of CINB. Before his
employment with CINB, Mr. Turek was a trust
10
<PAGE>
officer with Bank of America. Mr. Turek received his Bachelor of
Science degree from Iowa State University and his Master of Science
degree from the University of Missouri.
John P. Boyle is a vice president and 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 financial
reporting functions. Before joining the Company, Mr. Boyle spent
seventeen 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 twenty years of experience in the financial services
industry. Beyond his accounting background, he has extensive experience
in credit and corporate finance matters. Mr. Boyle holds a Bachelor of
Arts degree from Temple University.
Melvin C. Breaux is general counsel, secretary and a vice president of
the Company and is general counsel and a vice president of DVI
Financial Services. Prior to joining the Company in July 1995, Mr.
Breaux was a partner in the Philadelphia, PA law firm of Drinker Biddle
& Reath. As a member of that firm's banking and finance department, he
specialized in secured and unsecured commercial lending transactions, a
wide variety of other financing transactions, and the general practice
of business law. Mr. Breaux received a Bachelor of Arts degree from
Temple University and a Juris Doctor degree from the University of
Pennsylvania School of Law.
Cynthia J. Cohn has been a vice president of DVI since October 1988 and
executive vice president of DVI Business Credit since January 1994. She
is responsible for all sales and marketing functions of DVI Business
Credit. Ms. Cohn has been employed by the Company in a sales and
management capacity since July 1986. Ms. Cohn also handles certain
shareholder relation functions for the Company. 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 that firm's research product for both institutional and
retail clientele. She holds a Bachelor of Arts degree from Ithaca
College. Ms. Cohn is the daughter of Gerald L. Cohn, a director of the
Company.
Dominic A. Guglielmi is a vice president of DVI and the group managing
director of DVI Financial Services Inc., and has served as such since
the acquisition of MEF Corp. by DVI in January 1993. 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/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. Guglielmi holds a
Bachelor of Arts degree from LaSalle University.
Alan J. Velotta is a group managing director of DVI Capital. Mr.
Velotta joined the Company in April 1994. His primary responsibility is
to manage the unit that originates medical equipment loans on a
wholesale basis. Prior to joining DVI, he served as vice
president-operations for Picker Financial Group, the captive leasing
company of Picker International. Previously, Mr. Velotta was vice
president/central division manager for Chrysler Capital Corporation.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Price Range of Common Stock
The following table sets forth high and low last reported sales prices per share
of Common Stock on the New York Stock Exchange, Inc. for the periods indicated:
Fiscal Year Ended June 30, 1996 High Low
- ------------------------------- ---- ---
First Quarter................................... $13 3/4 $11 1/8
Second Quarter ................................. 14 1/2 12 3/4
Third Quarter .................................. 14 3/8 12 1/4
Fourth Quarter ................................. 15 7/8 13
Fiscal Year Ended June 30, 1995 High Low
- ------------------------------- ---- ---
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
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. In addition, the agreement with respect to the Company's 9-1/8%
Convertible Subordinated Notes due 2002 (the "Convertible Subordinated Notes")
places limitations on the payment of dividends by the Company and its
subsidiaries.
As of June 30, 1996, there were approximately 3,500 beneficial holders of the
Company's Common Stock.
12
<PAGE>
ITEM 6. SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Finance and other income ................................. $ 49,013 $ 35,985 $ 20,609 $ 14,095 $ 12,539
Interest expense ......................................... 30,489 22,860 8,833 5,005 5,989
Net interest income ...................................... 18,524 13,125 11,776 9,090 6,550
Selling, general and administrative expenses ............. 9,898 7,891 6,049 5,487 3,325
Provision for possible losses on receivables ............. 1,974 1,261 1,716 248 507
Earnings from continuing operations before provision for
income taxes, equity in net earnings (losses) of
investees and discontinued operations ................. 14,333 7,015 4,313 4,459 4,915
Net earnings from continuing operations .................. 8,175 4,069 2,260 2,580 3,053
Net earnings from continuing operations per share ........ $ 0.81 $ 0.61 $ 0.34 $ 0.39 $ 0.57
Weighted average number of shares outstanding ............ 10,118 6,652 6,717 6,601 5,353
</TABLE>
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- ---------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................................. $ 2,376 $ 1,953 $ 1,714 $ 2,199 $ 2,536
Cash and cash equivalents, restricted..................... 32,522 12,241 13,065 6,825 4,004
Total assets.............................................. 560,325 432,931 265,949 147,161 104,714
Borrowings under warehouse facilities..................... 168,108 155,172 34,586 45,221 31,349
Long-term debt, net....................................... 267,568 219,130 162,964 51,827 24,569
Shareholders' equity...................................... 85,263 40,250 33,993 34,664 34,006
</TABLE>
The Company has not declared or paid any cash dividends since its inception.
(See Dividend Policy.)
(See Notes 2, 3 and 15 to the accompanying Consolidated Financial Statements for
discussion of discontinued operations and acquisitions and the effect on
operations therefrom and earnings per share calculation.)
13
<PAGE>
ITEM 7. 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 normal estimated
residual value (on fair market value transactions) exceed equipment cost.
Beginning in 1993, the Company significantly reduced its emphasis on
entering into fair market value transactions and adopted a strategy to reduce
the dollar amount of residual interests on its balance sheet. Pursuant to this
policy, the percentage of the Company's equipment financing transactions
structured as loans and conditional sales agreements have increased
significantly. As of June 30, 1996, residual valuation decreased to $4.3 million
from $6.2 million at June 30, 1993, and from 5.3% of net financed receivables as
of June 30, 1993 to 1.0% at June 30, 1996. 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," "other income" and "gain on sale of financing transactions."
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. "Other income" consists primarily
of late charges, dividends on investment in investee's preferred stock, income
from operating leases, income from receivable purchases and income from
billing/collecting activities which the Company has curtailed. "Gain on sales of
financing transactions" consists of gains recognized when the Company
permanently funds transactions through whole loan sales.
Notes secured by equipment and direct financing lease transactions are
all "net" transactions under which the obligor must make all scheduled payments,
maintain the equipment, insure the equipment again 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 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 which the Company treats as debt, income is
deferred and recognized using the interest method over the respective term 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.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
General, (Continued)
Medical Receivable Financing. In addition to its core equipment finance
business, the Company provides lines of credit under which the Company makes
full recourse loans to healthcare providers that are secured by medical
receivables and other collateral. The interest and fee income generated 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.
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 funding is treated for accounting purposes either as
long-term debt secured by equipment loans owned by the Company, or as a sale.
The accounting method to report finance income differs significantly depending
on which of the two structures the issuer uses. When the Company sponsors a
securitization it treats the proceeds as long-term debt on its financial
statements and reports the finance income on the subordinated interest it
retains in the securitization over the term of the equipment loans that are
funded, whereas when the Company sells loans, it recognizes the unamortized
finance income at the time the funding takes place; however, even in a funding
treated as a sale, the Company may recognize servicing and/or interest income on
its subordinated interest over the remaining term of the equipment loans sold.
Over the past two years the Company has focused its strategy on
increasing its market share. There can be no assurance that the Company's
historical growth rate or current profitability can be sustained in the future.
Additionally, the Company's expense levels are based in part on its expectations
as to future financing volumes and the Company may be unable to adjust spending
in a timely manner to compensate for a decrease in demand for financing of
medical equipment and receivables. Accordingly, operating results may be
adversely impacted by future fluctuations in such demand. The Company believes
that general economic conditions have not had a material adverse effect on the
Company's recent operating results. There can be no assurances, however, that
general economic conditions will not have a material adverse effect on the
Company in the future.
Year Ended June 30, 1996 Compared to Year Ended June 30, 1995
Total equipment financing loans originated, excluding the Concord
Leasing portfolio purchase ($76.1 million purchased in fiscal 1995), were $316.8
million in fiscal 1996 compared with $238.0 million in fiscal 1995, an increase
of 33.1%. Net financed receivables for this business totaled $418.0 million at
June 30, 1996, an increase of $35.2 million or 9.2% over the prior year. In the
Company's medical receivable financing business, new commitments of credit in
fiscal 1996 were $40.0 million compared with $23.9 million in fiscal 1995, an
increase of 67.4%. Medical receivables funded at June 30, 1996 totaled $38.6
million, an increase of $16.1 million or 71.6% over the prior year.
Amortization of finance income increased 32.0% to $45.3 million for the
year ended June 30, 1996 from $34.3 million for the year ended June 30, 1995.
The increase was primarily a result of the overall increase in the size of the
Company's net financed receivables.
Other income, which consists primarily of late charges and other fees,
dividends on investment in investee's preferred stock, operating lease income,
income from receivables purchases and income from billing/collecting activities
which the Company has curtailed, increased 120.6% to $3.7 million in fiscal 1996
as compared to $1.7 million in fiscal 1995. The increase is due to the growth in
the medical receivables business fees and the servicing of a larger loan
portfolio.
For the year ended June 30, 1996, interest expense increased 33.4% to
$30.5 million from $22.9 million in the prior year. For the year ended June 30,
1996, the Company's average indebtedness (calculated based on period beginning
and period ending balances) increased 41.7% to $405.0 million from $285.9
million in the prior year. The increase in interest
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
Results of Operations, (Continued)
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 62.2% in the year ended June 30, 1996 compared to 63.5% in
the same period a year earlier.
The gain on sale of financing transactions, net, increased 152.5% to
$7.7 million for the year ended June 30, 1996 compared with a gain of $3.0
million for the same period in the prior year. Loans sold during the year ended
June 30, 1996 were $179.4 million compared to $115.8 million during the prior
fiscal year. The increase reflects the Company's attempt to partially offset the
near term costs of its newer business units and international initiatives.
Net finance income was $26.2 million for the year ended June 30, 1996,
as compared to $16.2 million for the year ended June 30, 1995, an increase of
62.1%. The increase was primarily a result of the overall increase in the size
of the Company's loan portfolio. The Company's net interest margins on its
portfolio for the years ended June 30, 1996 and 1995 were 4.02% and 4.10%
respectively, which reflects increased competition, more aggressive pricing for
market share growth and the sale of higher margin contracts.
Selling, general and administrative expenses ("SG&A") increased 25.4%
to $9.9 million for the year ended June 30, 1996 from $7.9 million for the year
ended June 30, 1995. Included in the fiscal year 1996 expense is $519,000 of
non-recurring expenses incurred in the third quarter ended March 31, 1996 for
the defense and settlement of lawsuits primarily relating to employee matters.
Excluding the impact of these legal costs, total selling, general and
administrative expenses increased 18.9% over the prior fiscal year, mainly as a
result of the 36.2% growth in loan originations and the 44.0% growth in average
net financed assets. The majority of the 18.9% increase is due to
employee-related costs resulting from the increase in employees during the year.
The provision for possible losses on receivables was $2.0 million for
the year ended June 30, 1996 as compared to $1.3 million for the previous year.
On a quarterly basis, the Company evaluates the collectibility of its
receivables and records a provision for amounts deemed uncollectible. In the
opinion of management, the provisions are adequate based on current trends in
the Company's delinquencies and losses. The Company's chargeoffs for the
quarters ended September 30, 1995, December 31, 1995, March 31, 1996, and June
30, 1996 were $38,000, $528,000, $270,000, and $745,000 respectively, which
represents 1.0%, 13.9%, 6.9%, and 20.3% respectively, of the quarter-end
allowance for losses.
The Company's net earnings were $8.2 million or $.81 per share for the
year ended June 30, 1996 as compared to net earnings of $4.1 million or $.61 per
share in the prior year.
The Company's cash and cash equivalents at June 30, 1996 and June 30,
1995 were $2.4 million and $2.0 million, respectively. The following describes
the changes from June 30, 1995 to June 30, 1996 in the items which had the most
significant impact on the Company's cash flow during the year ended
June 30, 1996.
The Company's net cash used in operating activities was $74.0 million
during the year ended June 30, 1996 compared to $1.5 million net cash used in
operations for the year ended June 30, 1995. The increase in cash utilization
during the year ended June 30, 1996 stems largely from an increase in
receivables and amounts due from portfolio sale.
The Company's net cash used in investing activities decreased to $22.7
million during the year ended June 30, 1996 as compared to $174.6 million for
the year ended June 30, 1995. This decrease is attributed primarily to cash used
to acquire equipment and to finance notes secured by equipment of $292.6 million
during the year ended June 30, 1996 compared to $319.0 million for the year
ended June 30, 1995. These uses of cash were offset by $283.3 million and $161.4
million of portfolio receipts net of amounts included in income and proceeds
from sales of financing transactions for the same periods.
The Company's net cash provided by financing activities was $97.1
million during the year ended June 30, 1996 down from $176.4 million for the
year ended June 30, 1995. This results from a net increase in the Company's
borrowings
16
<PAGE>
ITEM 7.. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
Results of Operations, (Continued)
under warehouse facilities of $12.9 million for the year ended June 30, 1996 as
compared to a $120.6 million net increase in borrowings under warehouse
facilities for the year ended June 30, 1995.
Year Ended June 30, 1995 compared to Year Ended June 30, 1994
Total equipment financing loans originated, excluding the Concord
Leasing portfolio purchase ($76.1 million purchased in fiscal 1995), were $238.0
million in fiscal 1995 compared with $157.4 million in fiscal 1994, an increase
of 51.2%. In the Company's medical receivable financing business, new
commitments of credit in fiscal 1995 were $23.9 million compared with $5.6
million in fiscal 1994, an increase of 326.8%.
Amortization of finance income increased 87.7% to $34.3 million for the
year ended June 30, 1995 from $18.3 million for the year ended June 30, 1994.
The increase was primarily a result of the overall increase in the size of the
Company's net financed receivables.
Other income, which consists primarily of late charges and other fees,
dividends on investment in investee's preferred stock, operating lease income,
income from receivables purchases and income from billing/collecting activities,
which the Company has curtailed, decreased 27.5% to $1.7 million in fiscal 1995
as compared to $2.3 million in fiscal 1994. The decrease is due primarily to a
decrease in receivables financing income and operating lease income partially
offset by increases to the preferred stock dividend and miscellaneous fees.
For the year ended June 30, 1995, interest expense increased 158.8% to
$22.9 million from $8.8 million during the same period in the prior year. For
the year ended June 30, 1995, the Company's average indebtedness (calculated
based on period beginning and period ending balances) increased 94.1% to $285.9
million from $147.3 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 63.5% in the year ended June 30, 1995
compared to 42.9% 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 (a) increased short-term interest rates when utilizing variable interest rate
warehouse facilities including the Bank Revolving Credit Agreement for interim
funding purposes as well as (b) increased long-term interest rates when
utilizing asset securitization for permanent funding purposes.
The gain on sale of financing transactions, net increased 907.3% to
$3.0 million for the year ended June 30, 1995 compared with a gain of $302,000
for the same period in the prior year. The increase relates to the Company's
need to fund certain loans through whole loan sales to manage borrower
concentrations.
Net finance income was $16.2 million for the year ended June 30, 1995,
as compared to $12.1 million for the year ended June 30, 1994, an increase of
33.9%. 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 30.5% to
$7.9 million for the year ended June 30, 1995 from $6.0 million for the year
ended June 30, 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 21.9% for the year ended
June 30, 1995 versus 29.4% for the same period in the prior 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 provision for possible losses on receivables was 1.3 million for
the year ended June 30, 1995 as compared to $1.7 million for the same period the
previous year. On a quarterly basis, the Company evaluates the collectibility of
its receivables and records a provision for amounts deemed uncollectible. In the
opinion of management, the provisions are adequate based on current trends in
the Company's delinquencies and losses.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
Results of Operations, (Continued)
The Company's net earnings were $4.1 million or $.61 per share for the
year ended June 30, 1995 as compared to net earnings from continuing operations
of $2.3 million or $.34 per share in the prior year.
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 full 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 (if any) the Company has in the underlying
financed assets should defaults occur.
A substantial portion of the Company's debt represents permanent
funding of equipment loans obtained on a 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.
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 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.
In August 1995, the Company completed a public offering of 2,875,000
shares of its common stock for which it received net proceeds of $29.0 million.
In January 1996, holders of 615,605 of the Company's warrants and
units, issued in February 1991, redeemed their warrants and units for shares of
the Company's Common Stock at $12.00 or $12.60 per share by the final exercise
date of January 26, 1996. As a result of the redemption, the Company received
cash proceeds of $7.4 million.
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 and obtain additional equity or long-term
unsecured debt financing in order to meet the Company's projected growth of its
equipment financing business. Similarly, the future growth of the Company's
medical receivable financing business will be dependent on the Company's ability
to continue to obtain suitable funding for that business.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
Liquidity and Capital Resources, (Continued)
Warehouse Facilities
At August 1, 1996, the Company had available an aggregate of $226.5
million under various warehouse facilities. The Company's primary credit
facility, pursuant to a revolving credit agreement with a syndicate of banks
(the "Agreement"), provides for the borrowing of up to $116.5 million.
Borrowings under this facility bear interest based on the Company's leverage
ratio as defined in the Agreement at the Company's option of (1) from prime to
prime plus .125% or (2) from 1.50% up to 1.65% over the 30, 60 or 90-day LIBOR
rate. Included in the Agreement is an $18.0 million sub-limit for borrowings
secured by medical receivables loans originated by the Company. The Agreement is
renewable annually at the bank syndicate's discretion. The Agreement also
provides that if the banks elect not to renew the facility at the end of its
stated term, loans then outstanding automatically convert to four-year
amortizing term loans at slightly higher interest rates. The Agreement prohibits
the Company from paying dividends other than dividends payable solely in shares
of the Company's stock and limits borrowings to specified levels determined by
ratios based on the Company's tangible net worth. As of June 30, 1996, the
Company was in compliance with the financial covenants of the Agreement.
The Company has a $100.0 million interim funding facility with Union
Bank of Switzerland. This facility is available to fund certain equipment loans
which are to be securitized. Loans made under this facility bear interest at a
rate of .90% over the 30-day LIBOR rate. Borrowings under the facility are
secured by certain equipment loans and the equipment financed thereunder. The
facility was closed to further financings on August 31, 1996 in preparation for
a securitization.
The Company has two credit facilities for its medical receivables
financing business. The first facility is for $3.0 million with an interest rate
of prime plus 2.00% and matures in March, 1997. The second facility is for $7.0
million with an interest rate, at the Company's option, of either prime plus
1.00% or 30-day LIBOR plus 2.25% and matures in December 1996. In addition, in
September 1996 the Company obtained a $50.0 million warehouse facility with an
investment banking firm.
The Company's use of securitization significantly affects its needs 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 totaling $50 to $100
million will be placed in each securitization pool.
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 and securitization and sales are anticipated. The Company uses
derivative financial instruments, such as forward rate agreements, Treasury
locks, and interest rate swaps and caps, to manage its interest rate risk. The
derivatives are used to manage three components of this risk: interest
sensitivity adjustments, hedging anticipated loan securitizations and sales, and
interest rate spread protection. The Company's hedging techniques may not
necessarily protect it from interest rate-related risks in all interest rate
environments.
Permanent Funding Methods
The Company has completed eleven securitizations or other structured
finance transactions for medical equipment financings totaling $681.5 million,
including two public debt issues of $75.7 million and $90.0 million and nine
private placements of debt and whole loan sales totaling $515.8 million. In
January 1994, the Company filed a 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 up to an aggregate of $350 million. 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. If for any
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued
Liquidity and Capital Resources, (Continued)
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.
In January 1996, the Company completed a $25.0 million private
placement securitization of medical receivable loans with a domestic insurance
company to fund its medical receivables financing business.
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 will 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. Additionally, the Company believes its effective tax
rate will increase in future periods as a result of higher state tax rates in
certain regions in which the Company conducts it business.
Inflation
The Company does not believe that inflation has had a material effect
on its operating results during the past three years. There can be no assurance
that the Company's business will not be affected by inflation in the future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of the Company and its
subsidiaries are filed on the pages listed below, as part of Part II, Item 8.
20
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Number
------
Independent Auditors' Report........................................... 22
Consolidated Balance Sheets as of June 30, 1996 and 1995............... 23-24
Consolidated Statements of Operations for the years ended
June 30, 1996, 1995 and 1994...................................... 25
Consolidated Statements of Shareholders' Equity for the years ended
June 30, 1996, 1995 and 1994...................................... 26
Consolidated Statements of Cash Flows for the years ended
June 30, 1996, 1995 and 1994...................................... 27-29
Notes to Consolidated Financial Statements............................. 30-43
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
DVI, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of DVI, Inc. and
its Subsidiaries (the "Company") as of June 30, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended June 30, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a)(2).
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule 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, 1996 and 1995, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended June 30, 1996
in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, 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
Philadelphia, Pennsylvania
August 30, 1996
22
<PAGE>
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars except share data)
ASSETS
<TABLE>
<CAPTION>
June 30
-------------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash and cash equivalents ............................................. $ 2,376 $ 1,953
--------- ---------
Cash and cash equivalents,
restricted (Note 4) .............................................. 32,522 12,241
--------- ---------
Amounts due from portfolio sale ....................................... 54,797 --
--------- ---------
Receivables:
Investment in direct financing leases and notes secured by equipment or
medical receivables (Notes 5, 6, 7, 8, 12 and 16)
Receivable in installments ....................................... 462,780 427,784
Receivable in installments - related parties ..................... 16,999 23,828
Notes collateralized by medical receivables ...................... 34,529 22,862
Residual valuation ............................................... 4,347 3,578
Unearned income .................................................. (65,722) (74,959)
--------- ---------
Net investment in direct financing leases and notes secured
by equipment or medical receivables ......................... 452,933 403,093
--------- ---------
Less: Allowance for possible losses on receivables .................... (3,675) (3,282)
--------- ---------
Net receivables ....................................................... 449,258 399,811
--------- ---------
Equipment on operating leases (Note 5)
(net of accumulated depreciation of $2,152 (1996) and
$1,646 (1995)) ................................................... 3,845 2,722
--------- ---------
Furniture and fixtures
(net of accumulated depreciation of $926 (1996) and
$726 (1995)) ..................................................... 1,959 1,468
--------- ---------
Investments in investees (Note 6) ..................................... 7,019 7,656
--------- ---------
Goodwill, net (Note 15) ............................................... 4,259 1,867
--------- ---------
Other assets, including loans to shareholders of
$344 (1996) and $59 (1995) (Note 12) ............................. 4,290 5,213
--------- ---------
Total assets ..................................................... $ 560,325 $ 432,931
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
23
<PAGE>
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30
----------------------
1996 1995
-------- --------
<S> <C> <C>
Accounts payable ............................................................ $ 23,029 $ 6,023
-------- --------
Other accrued expenses ...................................................... 11,612 7,639
-------- --------
Borrowings under warehouse facilities (Note 7) .............................. 168,108 155,172
-------- --------
Deferred income taxes (Note 9) .............................................. 4,745 4,717
-------- --------
Long-term debt, net:
Discounted receivables (primarily limited recourse) (Notes 5, 8 and 16) 253,759 205,376
Convertible subordinated notes (Notes 8, 10 and 12) .................... 13,809 13,754
-------- --------
Total long-term debt, net ......................................... 267,568 219,130
-------- --------
Total liabilities ............................................ 475,062 392,681
-------- --------
Commitments and contingencies (Notes 13 and 15)
Shareholders' equity (Notes 6, 10, 11 and 15):
Preferred Stock, $10.00 par value; authorized
100,000 shares; no shares issued
Common Stock, $.005 par value; authorized 75,000,000 shares,
outstanding 10,409,370 shares (1996) and 6,711,680 shares (1995) ....... 52 34
Additional capital ..................................................... 67,162 29,281
Unrealized gain on available-for-sale investments, net of deferred taxes
of $769 (1995) ......................................................... -- 1,061
Retained earnings ...................................................... 18,049 9,874
-------- --------
Total shareholders' equity ........................................ 85,263 40,250
-------- --------
Total liabilities and shareholders' equity ........................ $560,325 $432,931
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
24
<PAGE>
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands of dollars except per share data)
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------
1996 1995 1994
----------- ----------- -----------
Finance and other income:
<S> <C> <C> <C>
Amortization of finance income ........................ $ 45,265 $ 34,286 $ 18,265
Other income .......................................... 3,748 1,699 2,344
----------- ---------- -----------
Total finance and other income ................... 49,013 35,985 20,609
Interest expense ...................................... 30,489 22,860 8,833
----------- ---------- -----------
Net interest income ........................................ 18,524 13,125 11,776
Gain on sale of financing transactions, net (Note 16) . 7,681 3,042 302
----------- ---------- -----------
Net finance income ......................................... 26,205 16,167 12,078
Selling, general and administrative expenses .......... 9,898 7,891 6,049
Provision for possible losses on receivables (Note 5) . 1,974 1,261 1,716
----------- ---------- -----------
Earnings from continuing operations before
provision for income taxes, equity in net loss of
investees and discontinued operations ................. 14,333 7,015 4,313
Provision for income taxes (Note 9) ........................ 6,092 2,946 1,811
----------- ---------- -----------
Earnings from continuing operations before equity in net
loss of investees and discontinued operations ......... 8,241 4,069 2,502
Equity in net loss of investees ............................ 66 -- 242
----------- ---------- -----------
Earnings from continuing operations ........................ 8,175 4,069 2,260
Discontinued operations (Note 3):
Loss from discontinued operations, net of tax of $51 .. -- -- 74
Loss on disposal of discontinued operations, net of tax
of $2,213 ........................................... -- -- 3,071
----------- ---------- -----------
Loss from discontinued operations ..................... -- -- 3,145
----------- ---------- -----------
Net earnings (loss) ........................................ $ 8,175 $ 4,069 $ (885)
=========== ========== ===========
Net earnings (loss) per share:
Primary:
From continuing operations ......................... $ 0.81 $ 0.61 $ 0.34
From discontinued operations ....................... -- -- (0.47)
---------- -----------
Net earnings (loss) per share ...................... $ 0.81 $ 0.61 $ (0.13)
=========== ========== ===========
Fully diluted:
From continuing operations ......................... $ 0.77 $ 0.60 $ 0.34
From discontinued operations ....................... -- -- (0.47)
----------- ---------- -----------
Net earnings (loss) per share ...................... $ 0.77 $ 0.60 $ (0.13)
=========== ========== ===========
Weighted average number of shares outstanding -
primary ............................................... 10,118,000 6,652,000 6,717,000
Weighted average number of shares outstanding -
fully diluted ......................................... 11,564,000 8,310,000 6,744,000
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
25
<PAGE>
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands of dollars)
<TABLE>
<CAPTION>
Unrealized
Common Stock Gain on
$.005 Par Available-
------------------------ Additional for-Sale
Shares Amount Capital Investments
---------- ------ ---------- -----------
<S> <C> <C> <C> <C>
Balances at July 1, 1993 ............................ 6,530,295 $ 33 $27,941 $ --
Issuance of common stock upon
exercise of stock options ................. 37,000 214
Net loss .......................................
---------- ---- ------- ------
Balances at June 30, 1994 ........................... 6,567,295 33 28,155
Issuance of common stock upon
exercise of stock options ................. 97,216 1 626
Conversion of subordinated notes ............... 47,169 500
Unrealized gain on available-for-sale
investments, net of deferred taxes of $769 1,061
Net earnings ...................................
---------- ---- ------- ------
Balances at June 30, 1995 ........................... 6,711,680 34 29,281 1,061
Issuance of common stock upon exercise
of stock options and warrants ............. 822,690 4 8,934
Net proceeds from issuance of common stock ..... 2,875,000 14 28,947
Sale of available-for-sale investments,
net of deferred tax benefit of $769 ....... (1,061)
Net earnings ...................................
---------- ---- ------- ------
Balances at June 30, 1996 ........................... 10,409,370 $ 52 $67,162 $ --
========== ==== ======= ======
Total
Retained Shareholders'
Earnings Equity
-------- -------------
Balances at July 1, 1993 ............................ $ 6,690 $34,664
Issuance of common stock upon
exercise of stock options ................. 214
Net loss ....................................... (885) (885)
------- -------
Balances at June 30, 1994 ........................... 5,805 33,993
Issuance of common stock upon
exercise of stock options ................. 627
Conversion of subordinated notes ............... 500
Unrealized gain on available-for-sale
investments, net of deferred taxes of $769 1,061
Net earnings ................................... 4,069 4,069
------- -------
Balances at June 30, 1995 ........................... 9,874 40,250
Issuance of common stock upon exercise
of stock options and warrants ............. 8,938
Net proceeds from issuance of common stock ..... 28,961
Sale of available-for-sale investments,
net of deferred tax benefit of $769 ....... (1,061)
Net earnings ................................... 8,175 8,175
------- -------
Balances at June 30, 1996 ........................... $18,049 $85,263
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
26
<PAGE>
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------
1996 1995 1994
--------- --------- ---------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings (loss) ....................................... $ 8,175 $ 4,069 $ (885)
--------- --------- ---------
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Equity in net loss of investees ...................... 66 242
Depreciation and amortization ........................ 7,982 7,237 1,903
Additions to allowance accounts ...................... 1,974 1,261 1,716
Gain on sale of financing transactions, net .......... (7,681) (3,042) (302)
Deferred income taxes ................................ 797 1,619 (2,152)
Losses related to discontinued operations ............ 5,408
Changes in assets and liabilities:
(Increases) decreases in:
Cash and cash equivalents, restricted .............. (20,281) 824 (6,239)
Amounts due from portfolio sale .................... (54,797)
Receivables ........................................ (29,505) 3,285 2,729
Other assets ....................................... 923 1,622 (679)
Increases (decreases) in:
Accounts payable ................................... 17,006 (17,839) 16,531
Other accrued expenses ............................. 1,323 (576) 410
--------- --------- ---------
Total adjustments .................................... (82,193) (5,609) 19,567
--------- --------- ---------
Net cash provided by (used in) operating activities ....... (74,018) (1,540) 18,682
--------- --------- ---------
Cash flows from investing activities:
Cost of equipment acquired ................................ (292,618) (319,011) (149,028)
Portfolio receipts net of amounts included in income and
proceeds from sales of financing transactions ........... 283,323 161,448 34,566
Net increase in notes collateralized by medical receivables (11,667) (16,855) (6,007)
Furniture and fixtures additions .......................... (985) (1,026) 18
Investments in common and preferred stock
of investees ............................................ (2,059) 150
Cash proceeds from sale of assets ......................... 125
Cash received from sale of common and preferred
stock of investee ....................................... 1,341 828 540
--------- --------- ---------
Net cash (used in) investing activities ................... (22,665) (174,616) (119,636)
</TABLE>
(Continued)
27
<PAGE>
DVI, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands of dollars)
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------
1996 1995 1994
--------- --------- ---------
Cash flows from financing activities:
<S> <C> <C> <C>
Exercise of stock options and warrants ..... $ 8,938 $ 626 $ 214
Equity offering ............................ 28,961
Borrowings under:
Warehouse facilities ..................... 485,585 534,633 216,113
Long-term debt ........................... 120,705 107,510 146,856
Repayments on:
Warehouse facilities ..................... (472,649) (414,046) (226,748)
Long-term debt ........................... (74,434) (52,328) (35,966)
--------- --------- ---------
Net cash provided by financing activities .. 97,106 176,395 100,469
--------- --------- ---------
Net increase (decrease) in cash
and cash equivalents ....................... 423 239 (485)
Cash and cash equivalents,
beginning of year .......................... 1,953 1,714 2,199
--------- --------- ---------
Cash and cash equivalents,
end of year ................................ $ 2,376 $ 1,953 $ 1,714
========= ========= =========
Cash paid during the year for:
Interest .................................... $ 29,984 $ 22,400 $ 5,579
========= ========= =========
Income taxes ................................ $ 3,507 $ 1,650 $ 552
========= ========= =========
Supplemental disclosures of noncash transactions:
Assets acquired and liabilities assumed in
connection with business acquisitions:
Fair value of net assets acquired .......... $ 2,000
=========
</TABLE>
During the year ended June 30, 1996, the Company converted a $541,000 note
receivable into 435,335 shares of common stock of a domestic entity.
During the year ended June 30, 1995, $500,000 of Convertible Subordinated Notes
was converted into common stock.
Unrealized gains on available-for-sale investments including restricted
short-term investments and investments in investees total $1,061,548, net of
deferred taxes of $768,707, as of June 30, 1995.
(Continued)
28
<PAGE>
DVI, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands of dollars)
During the year ended June 30, 1994 the following noncash transactions occurred
in conjunction with the disposal of the Company's healthcare operations segment
(See Note 3).
Net assets sold or written off:
Furniture and fixtures.................................. $ 733
Equipment on operating leases........................... 2,615
Receivables............................................. 1,107
Other assets, net....................................... 687
------
5,142
------
Liabilities assumed by Company:
Accounts payable........................................ 545
Accrued liabilities..................................... 1,758
------
2,303
------
Less proceeds:
Cash.................................................... 125
Notes receivable........................................ 3,777
------
3,902
------
Loss on disposal of assets................................... $3,543
======
See Note 6 for discussion of additional noncash transactions.
The accompanying notes are an integral part of these
consolidated financial statements.
29
<PAGE>
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. NATURE OF OPERATIONS
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 transactions serve as collateral for unpaid
contract payments.
Ability to access the securitization market - 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 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. Additionally, the Company's ability
to securitize assets is dependent upon its ability to provide credit
enhancement, which reduces the Company's liquidity and periodically requires it
to seek and obtain additional capital.
Credit risk - Many of the Company's customers are outpatient healthcare
providers that have complex credit characteristics. Providing financing for
these customers involves considerable credit analysis.
Continuing need for capital - The Company's ability to maintain and build its
financing business is dependent on its ability to obtain substantial amounts of
warehouse and permanent debt financing.
Regulation and consolidation - Additional regulatory attention has been directed
towards physician-owned healthcare facilities and other arrangements whereby
physicians are compensated, directly or indirectly, for referring patients to
such healthcare facilities. Furthermore, the market is subject to consolidation
among out-patient and physician groups and with hospitals. The Company's source
of customers is subject to the effects of the regulatory actions and market
consolidation.
Investments in foreign and initial operations - In an effort to mitigate the
impact of regulation and consolidation and to expand the Company's market, the
Company has initiated operations internationally and has made investments in
certain emerging markets. The success and ultimate recovery of these investments
is dependent upon many factors including foreign regulation, customs, currency
exchange and the achievement of management's planned projections for these
markets.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy - The consolidated financial statements include the
accounts of DVI and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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, 1996 and 1995, unamortized initial direct
costs amounted to $7,450,000 and $6,878,000, respectively. Initial direct costs
are amortized over the life of the contract on the interest method which
reflects a constant effective yield.
Notes Collateralized by Medical Receivables - Notes collateralized by medical
receivables consist of notes receivable resulting from working capital and other
loans made to entities in the healthcare industry and receivables purchased from
unrelated entities. The purchased receivables are stated at the lower of the
Company's cost or the estimated collectible value.
30
<PAGE>
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
Equipment on Operating Leases - Leases which do not meet the criteria for direct
financing leases are accounted for as operating leases. Equipment on operating
leases 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 associated with operating leases are
deferred and amortized over the lease term on a straight-line basis which
reflects a constant effective yield.
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).
Cash and Cash Equivalents, Restricted and Investments in Investees - The Company
accounts for investments in debt and equity securities in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities. SFAS No. 115 requires the
classification of investments in debt and equity securities into three
categories: held to maturity, trading and available-for-sale. At June 30, 1996,
the Company has only available-for-sale securities which are included in
restricted cash, as their maturities are less than 90 days. Equity securities
classified as available-for-sale securities are reported at estimated fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of equity, net of deferred taxes.
The investments in investees consist of common and nonvoting preferred equity
interests in unconsolidated subsidiaries. The Company accounts for its
investments in the common stock of these subsidiaries using either the cost or
equity method of accounting, depending upon its ownership interests and its
ability to influence the investee. The investment in the preferred stock of the
investee is recorded at the lower of cost or estimated realizable value.
Goodwill - Goodwill represents the excess purchase price over the net tangible
assets stemming from the acquisition of Medical Equipment Finance Corporation
("MEF Corp."). (See Note 15.) Goodwill relating to the acquisition of MEF Corp.
is being amortized over a fifteen year period. 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 consist of prepaid financing costs, equipment held
for sale or release which is stated at the lower of cost or its net realizable
value, and loans to shareholders primarily for financing a personal residence.
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 interest component of payments received on notes secured by
equipment (or medical receivables) and direct financing leases and is calculated
using the interest method so as to approximate a level rate of return on the net
investment.
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 or asset
securitization of a transaction to a third party. Subsequent to a sale, the
Company has no or limited 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
participation in defined excess interest spreads or limited recourse in which
the Company guarantees reimbursement under the agreement up to a specific
maximum, which is of nominal value. Consequently, in the event of default by the
Obligor, the lender would exercise its rights under the lien with limited or 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.
31
<PAGE>
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued)
Other Income - Other income consists primarily of late charges, dividends on
investments in investee's preferred stock and income from operating leases,
income from receivables purchases and income from billing/collecting activities
which the Company has curtailed..
Taxes on Income - The Company accounts for taxes under Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. Deferred
taxes on income result from temporary differences between the reporting of
income for financial statement and tax reporting purposes. Such differences
arise principally from recording hedging gains and losses and from 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 Share - Net earnings (loss) per share is based on the
modified treasury stock method, except when the results of this method are
antidilutive. In fiscal 1995 and 1994, net earnings (loss) per share is
calculated using the weighted average common shares outstanding during the year
because the results of the modified treasury stock method were antidilutive. For
fiscal 1996 and the quarters ended June 30, 1996, March 31, 1996, December 31,
1995, September 30, 1995, June 30, 1995 and March 31, 1995, fully diluted net
earnings per share is calculated using the modified treasury stock method as the
exercise of stock options, warrants and the conversion of the subordinated notes
has a dilutive effect on earnings per share.
Derivative Interest Rate Contracts - The Company uses various interest rate
contracts such as forward rate agreements, Treasury locks, interest rate swaps
and caps to manage its interest rate risk from its floating rate liabilities and
anticipated securitization and sale transactions. No contracts are held for
trading purposes. Gains or losses from forward rate agreements used to hedge
floating rate exposure within warehouse funding facilities are deferred and
amortized to interest expense over the hedged period. When hedge transactions
are matched to anticipated securitizations, gains or losses from the hedge
transactions are deferred and amortized to interest expense over the term of the
securitized transaction. When hedge transactions are matched to anticipated
whole loan sales, gains or losses from the hedge transactions are recognized as
part of the gain or loss on the sale.
Recent Accounting Developments - The Company adopted SFAS No. 114 Accounting by
Creditors for Impairment of a Loan as amended by SFAS No. 118, Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosures as of July
1, 1995. These statements require that impaired loans be measured based on the
present value of the expected cash flows discounted at the loan's effective
interest rate or the fair value of the collateral, if the loan is
collateral-dependent. Under SFAS No. 114, a loan is considered impaired when,
based on current information and events, it is probable that a creditor will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. The adoption of SFAS No. 114 and No. 118 did not have a material
impact on the Company's operations. (See Note 5.)
In October 1995, The Financial Accounting Standards Board (FASB) issued SFAS No.
123, Accounting for Stock-Based Compensation. The Company has determined that it
will not change to the fair value method and will continue to use Accounting
Principle Board Opinion No. 25 for measurement and recognition of employee
stock-based transactions.
In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. This statement
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted. Management
has not completed an analysis of the impact of applying this new statement,
however, the Company intends to begin applying this new standard, effective
January 1, 1997.
Reclassifications - Certain amounts as previously reported have been
reclassified to conform to the year ended June 30, 1996 presentation.
32
<PAGE>
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
Note 3. 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.
Note 4. CASH AND CASH EQUIVALENTS, RESTRICTED
Cash and cash equivalents, restricted consist of cash, certificates of deposit
and U.S. Treasury obligations 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. The estimated fair
value and the amortized cost of U.S. Treasury obligations as of June 30, 1996 is
$14,208,516. There were no sales of U.S. Treasury obligations during the year
ended June 30, 1996.
Note 5. INVESTMENT IN DIRECT FINANCING LEASES AND NOTES
SECURED BY EQUIPMENT OR MEDICAL RECEIVABLES
AND EQUIPMENT ON OPERATING LEASES
Receivables in installments are receivable in monthly installments of varying
amounts and are collateralized by the underlying equipment. Notes collateralized
by medical receivables consist of notes receivable resulting from working
capital loans and are due at maturity. Receivables from operating leases relate
to noncancellable operating leases and are due in monthly installments of
varying amounts. Information regarding scheduled collections for direct
financing leases, notes secured by equipment or medical receivables and
operating leases are as follows:
<TABLE>
<CAPTION>
Direct Financing Leases
and Notes Secured
by Equipment or Operating
Medical Receivables Leases
----------------------- ---------
<S> <C> <C>
Year Ending June 30,
1997.......................... $168,767,000 $640,000
1998 ......................... 140,050,000 567,000
1999.......................... 106,907,000 557,000
2000 ......................... 61,319,000
2001.......................... 27,263,000
Thereafter.................... 10,002,000
------------ ----------
514,308,000 1,764,000
Residual valuation............ 4,347,000
------------ ----------
Total......................... $518,655,000 $1,764,000
============ ==========
</TABLE>
33
<PAGE>
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
Note 5. INVESTMENT IN DIRECT FINANCING LEASES AND NOTES
SECURED BY EQUIPMENT OR MEDICAL RECEIVABLES
AND EQUIPMENT ON OPERATING LEASES, (Continued)
The total receivable balance of $518,655,000 is comprised of direct financing
leases (38.9%), notes secured by equipment (53.6%), and medical receivables
(7.5%). The Company is exposed to credit risk on these receivables. At June 30,
1996, of the 380 debtors, the largest concentration of credit exposure was 2.9%.
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 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.
During the years ended June 30, 1996 and 1995, the Company sold receivables to
third parties realizing gains of approximately $7.7 million and $3.0 million,
respectively. In connection with certain of these transactions, the Company
retained subordinated interests in the receivables totaling $35,734,000 and
$13,431,000 at June 30, 1996 and 1995, respectively, which are included in
Receivables in installments. In accordance with provisions of SFAS No. 115, the
Company classifies subordinated interests as trading securities which are
recorded at fair value with any unrealized gains or losses recorded in the
results of operations in the period of the change in fair value. Valuations at
origination and at each reporting period are based on discounted cash flow
analyses. The range of values attributable to the factors used in determining
fair value is broad, accordingly, the Company's estimate of fair value is
subjective. Under the purchase agreement, the Company is required to fund any
losses on the receivables up to its subordinated interests. The Company
maintains an allowance for estimated losses related to its subordinated
interests which is included in the allowance for possible losses on receivables.
At June 30, 1996, receivables amounting to $300.5 million are assigned as
collateral for long-term debt (See Note 8).
The following is an analysis of the allowance for possible losses on receivables
as of June 30:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year.............................. $3,282,000 $2,498,000 $1,046,000
Provision for possible losses on receivables............ 1,974,000 1,261,000 1,716,000
Recoveries ........................................... -- -- --
Write-offs.............................................. 1,581,000 477,000 264,000
---------- ---------- ----------
Balance, end of year ................................... $3,675,000 $3,282,000 $2,498,000
========== ========== ==========
</TABLE>
The total carrying amount of loans on which income was suspended was $3,799,000
at June 30, 1996. The average carrying amount of such loans was $2,501,000 for
the year ended June 30, 1996. Cash collected on all nonaccruing loans is applied
to the carrying amount.
Note 6. INVESTMENTS IN INVESTEES
During the year ended June 30, 1996, the Company sold its investments in common
stock of Healthcare Imaging Services, Inc. ("HIS") and Diagnostic Imaging
Services, Inc. ("DIS"). The Company did not record a gain or loss on these
transactions. In March 1995, the Company sold its investment in common stock of
SMT Health Services, Inc. for proceeds equal to its cost of $827,989.
34
<PAGE>
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
Note 6. INVESTMENTS IN INVESTEES, (Continued)
At June 30, 1995, the Company held available-for-sale securities with a market
value of $3,172,000, which it accounted for at market with the unrealized gain
of $1,830,000 recorded as a component of shareholders' equity.
At June 30, 1996 and 1995, the Company holds Series F and Series G preferred
stock of DIS valued at $2,482,000 (2,482,000 shares) and $2,000,000 (2,000,000
shares), respectively. The Series F and G preferred stock have liquidation
preferences at $1.00 per share, are redeemable at the option of DIS at $1.00 per
share plus accrued dividends, are convertible into common stock of DIS at $2.482
per share for Series F and $2.00 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 DIS has the right to repurchase the Series
F and G preferred stock for $4,482,000 plus accrued dividends through
September 2001.
In November 1995, the Company entered into a joint venture with two other
partners to establish Medical Equipment Credit Pte. Ltd. ("MEC"). MEC pursues
opportunities in the Asian-Pacific diagnostic imaging marketplace. Initial
capitalization of MEC is 7,000,000 shares of common stock ($5,000,000) and
ownership is based on the percentage of the initial capitalization invested by
each of the three joint venture partners. The Company's ownership is 40% based
on a $2,000,000 investment. The Company accounts for its investment in MEC under
the equity method of accounting.
In the year ended June 30, 1996, the Company converted a note receivable
totaling $541,000 into 435,335 shares or 19.8% of the outstanding stock of a
domestic entity. The Company accounts for this investment in this entity under
the cost method of accounting as it does not exert significant influence over
the entity.
Note 7. BORROWINGS UNDER WAREHOUSE FACILITIES
The Company's primary credit facility, pursuant to a revolving credit agreement
with a syndicate of banks (the "Agreement"), provides for the borrowing of up to
$116.5 million. Borrowings under this facility bear interest based on the
Company's leverage ratio as defined in the Agreement at the Company's option of
(1) from prime to prime plus .125% or (2) from 1.50% to 1.65% over the 30, 60 or
90-day LIBOR rate. Included in the Agreement is an $18.0 million sub-limit for
borrowings secured by medical receivables loans originated by the Company. The
Agreement is renewable annually at the bank syndicate's discretion. The
Agreement also provides that if the banks elect not to renew the facility at the
end of its stated term, the then outstanding loans automatically convert to
four-year amortizing term loans at slightly higher interest rates. The Agreement
prohibits the Company from paying dividends other than dividends payable solely
in shares of the Company's stock and limits borrowings to specified levels
determined by ratios based on the Company's tangible net worth. As of June 30,
1996, the Company was in compliance with the financial covenants of the
Agreement.
The Company has a $100.0 million interim funding facility with Union Bank of
Switzerland. This facility is available for certain transactions which are to be
securitized. This facility bears interest at a rate of .90% over the 30-day
LIBOR rate. Borrowings under the facility are secured by certain equipment loans
and the equipment financed thereunder. The facility was closed to further
financings on August 31, 1996 in preparation for a securitization.
The Company has two credit facilities for its medical receivables financing
business. The first facility is for $3.0 million with an interest rate of prime
plus 2.00% and matures in March 1997. The second facility is for $7.0 million
with an interest rate, at the Company's option, of either prime plus 1.00% or
30-day LIBOR plus 2.25% and matures in December 1996. In addition, in September
1996 the Company obtained a $50.0 million warehouse facility with an investment
banking firm.
At June 30, 1996, the Company had available an aggregate of $226.5 million in
interim funding facilities of which $168.1 million was utilized.
Note 8. LONG-TERM DEBT
The discounted receivables are discounted direct financing lease obligations,
notes secured by equipment, and medical receivables which were securitized and
sold to investors primarily on a limited or nonrecourse basis. They are
collateralized by the underlying equipment and medical receivables (See Note 5).
35
<PAGE>
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 $6,512,000 are as follows:
Year Ending June 30,
--------------------
1997 ................................................... $76,715,000
1998 ................................................... 57,641,000
1999 ................................................... 48,812,000
2000 ................................................... 55,324,000
2001 ................................................... 11,052,000
Thereafter ............................................. 4,215,000
-----------
Total ...................................... $253,759,000
============
All of the discounted receivables have been permanently funded through six asset
securitizations which were initiated during fiscal years 1993 through 1996. Debt
under these securitizations are limited recourse and bear interest at fixed
rates ranging between 5.34% to 7.81% and floating interest rates of 2.25% over
30-day LIBOR. All of the receivables are serviced by the Company and the related
securitization agreements require that the Company comply with certain servicing
requirements, require limited cash collateral (See Note 4) or residual
interests, and contain various recourse provisions. (See Note 13.)
Included above is a $10.0 million facility with Warehouse Line LLC. This was an
advance related to the Company's securitization of its retained subordinated
positions in its securitizations and whole loan sales. The securitization
transaction was completed on July 31, 1996.
In June 1994, the Company completed a $14,112,000, net of issuance costs
totaling $888,000, private placement of convertible subordinated notes. The
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 year ended
June 30, 1995, $500,000 of these notes were converted into 47,169 shares of
common stock of the Company.
There were no conversions in fiscal year 1996.
Note 9. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current payable......................... $6,120,000 $ 466,000 $2,623,000
Deferred ............................... (28,000) 2,480,000 (812,000)
---------- ---------- ----------
Total ............................. $6,092,000 $2,946,000 $1,811,000
========== ========== ==========
</TABLE>
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:
36
<PAGE>
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
Note 9. INCOME TAXES (Continued)
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------------
1996 1995 1994
-------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Provision for income taxes at
the federal statutory rate......... $4,993,000 35.0% $2,455,000 35.0% $1,509,000 35.0%
State income taxes, net of
federal tax benefit ............... 1,045,000 7.3% 452,000 6.4% 299,000 7.0%
Other ................................ 54,000 0.4% 39,000 0.6% 3,000 --
---------- ---- ---------- ----- ---------- -----
Total ......................... $6,092,000 42.7% $2,946,000 42.0% $1,811,000 42.0%
========== ===== ========== ===== ========== =====
</TABLE>
The major components of the Company's net deferred tax liabilities of $4,745,000
and $4,717,000 at June 30, 1996 and 1995, respectively, are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Accumulated depreciation ............................... $31,820,000 $27,963,000
Deferred recognition of lease income.................... (24,762,000) (21,751,000)
Alternative minimum tax credits carryforwards........... (137,000) (403,000)
Gain or loss on hedging activities ..................... 1,342,000 1,444,000
Allowances for uncollectible receivables................ (1,786,000) (1,179,000)
State income taxes...................................... (867,000) (401,000)
Other .................................................. (865,000) (956,000)
----------- ------------
Total .......................................... $4,745,000 $ 4,717,000
=========== ============
</TABLE>
Note 10. SHAREHOLDERS' EQUITY
In August 1995, the Company completed a public offering of 2,875,000 shares of
its Common Stock for which it received net proceeds of $29.0 million. The net
proceeds were utilized to reduce short-term indebtedness and for general
corporate purposes.
In January 1996, holders of 615,605 of the Company's warrants and units issued
in February 1991 redeemed their warrants and units for shares of the Company's
Common Stock at $12.00 or $12.60 per share by the final exercise date of January
26, 1996. As a result of the redemption, the Company received cash proceeds of
$7.4 million.
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 purchase up to 35,000
common shares at $8.50 per share to an unrelated party. 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, 1996, warrants for 250,000
common shares were exercisable and 55,000 warrants had been exercised.
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. Subsequent to June 30,
1996, $600,000 of these notes were converted into 56,603 shares of common stock.
As of July 15, 1996, cumulative conversions of these notes were $1,100,000 into
103,772 shares of common stock (see Notes 8 and 12).
37
<PAGE>
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
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 1,250,000 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> <C>
Outstanding at July 1, 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
Granted .................................................... 48,500 9.13 - 12.63
Exercised .................................................. (97,216) 2.68 - 12.88
Canceled ................................................... (80,852)
---------- ---------------
Outstanding at June 30, 1995 ............................... 680,294 $ 1.44 - $13.50
Granted .................................................... 130,500 11.63 - 13.13
Exercised .................................................. (152,085) 1.44 - 13.50
Canceled ................................................... (37,000)
----------- ---------------
Outstanding at June 30, 1996 ............................... 621,709 $ 1.75 - $13.13
=========== ===============
</TABLE>
As of June 30, 1996, options to purchase 290,989 shares were exercisable.
Note 12. RELATED PARTY TRANSACTIONS
The Company's principal executive offices located in Doylestown, Pennsylvania
are leased from a party related to a shareholder/director of the Company. The
lease commenced in December 1994 and the Company recorded rent expense under
this lease of $222,750 and $33,544 for the years ended June 30, 1996 and 1995,
respectively.
At June 30, 1996 and 1995, receivables in installments from investees totaled
$16,999,000 and $23,828,000, respectively.
In June 1995, the Company and former shareholders of MEF Corp., some of whom are
also officers of the Company, entered into an agreement to set the purchase
price of MEF Corp. which was approved by the stockholders of the Company in
December 1995. (See Note 15.)
As of June 30, 1996 and 1995, the Company had loans receivable from Company
officers totaling $400,000 and $113,000, respectively.
During the year ended June 30, 1996, the Company sold its investments in common
stock of Healthcare Imaging Services, Inc. ("HIS") and Diagnostic Imaging
Services, Inc. ("DIS"). As of June 30, 1996 and 1995, the Company had
investments in preferred stock and dividends of DIS totaling $4,891,000 and
$4,667,000, respectively. (See Note 6.)
During the year ended June 30, 1994, the Company issued convertible subordinated
notes totaling $9,550,000 to related parties.
38
<PAGE>
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
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 June 2005. Rent expense for the years ended June
30, 1996, 1995 and 1994 amounted to $654,000, $498,000 and $463,000,
respectively. Future minimum lease payments under these leases are as follows:
Future Minimum
Year Ending June 30, Lease Payments
-------------------- --------------
1997............................................ $ 517,000
1998............................................ 441,000
1999 ........................................... 441,000
2000 ........................................... 430,000
2001 ........................................... 236,000
Thereafter ..................................... 943,000
----------
Total ..................................... $3,008,000
==========
Contingencies - Under certain limited recourse agreements, the Company may be
required to provide for losses incurred on uncollected lease and medical
receivables previously collateralized. At June 30, 1996, the maximum contingent
liability under the limited recourse agreements amounted to $60,791,000. This
contingent liability, however, could be offset by any proceeds received from the
resale or remarketing of available equipment financed under the agreements or
outstanding medical receivables collected.
The Company has receivables from and investments with DIS aggregating
$21,005,000 and $24,448,000 at June 30, 1996 and 1995, respectively. DIS
received a qualified opinion for a going concern on its December 31, 1995
financial statements. Additionally, the Company has net receivables from Latin
American Trade Finance, Ltd. (LATF) in the amount of $845,000 at June 30, 1996.
LATF is a San Francisco based investment company which specializes in financing
throughout Latin America. LATF has identified some significant deals. To date,
those deals have not closed and LATF has been unable to make scheduled payments
to the Company. Management has performed an analysis of its recoverability of
such amounts and believes that based upon the best information available, it
will recover all amounts, without any loss. (See Note 12.)
Litigation - The Company is involved in litigation both as a plaintiff and
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 $45,000, $39,000 and $49,000 to the Plan during the years ending
June 30, 1996, 1995 and 1994, respectively.
Note 15. ACQUISITIONS
In January 1993, the Company acquired the outstanding shares of Medical
Equipment Finance Corporation ("MEF Corp."). In December 1995, the Company's
shareholders approved the issuance of 400,000 shares of the Company's common
stock, as set in the purchase agreement as amended, valued at $4.65 million. The
Company recorded goodwill of $4.65 million related to the acquisition. As of
June 30, 1996, the 400,000 common shares were unissued but included in the
earnings per share calculation.
39
<PAGE>
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
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, 1996 and 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, 1996
----------------------------------------
Carrying Estimated Fair
Amount Value
------------ --------------
<S> <C> <C>
Assets:
Receivable in installments (excluding investment
in direct financing leases) .................... $216,473,000 $218,301,000
Liabilities:
Discounted receivables ............................. $253,759,000 $253.287,000
</TABLE>
<TABLE>
<CAPTION>
June 30, 1995
----------------------------------------
Carrying Estimated Fair
Amount Value
------------ --------------
<S> <C> <C>
Assets:
Receivable in installments (excluding investment
in direct financing leases) .................... $177,785,000 $182,284,000
Liabilities:
Discounted receivables ............................. $205,376,000 $202,967,000
</TABLE>
The carrying values of cash and cash equivalents, cash and short-term
investments, restricted, notes collateralized by medical receivables, accounts
payable, other accrued expenses, short-term bank borrowings and convertible
subordinated notes approximate fair values at June 30, 1996 and 1995.
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, 1996 and 1995. 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 $197.7 million and $199.3 million as of June 30, 1996 and 1995,
respectively, from the receivable in installments fair value calculation.
40
<PAGE>
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
Note 16. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS, (Continued)
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, 1996 and 1995. 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, 1996; therefore, current estimates of fair value may
differ significantly from the amounts presented herein.
Derivative activity:
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1995
------------- -------------
Deferred Deferred
Notional Fair Gains/ Notional Fair Gains/
Amount Value (Losses) Amount Value (Losses)
------------------------------------------ ----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SWAPS ................... $99.4 million $236,000 -- -- -- --
OPTIONS ................. $26.5 million -- -- -- -- --
FORWARDS:
Treasury Locks...... $90 million ($227,000) $129,000 -- -- ($1.84 million)
Forward Rate
Agreements........ $200 million ($17,900) -- -- -- --
</TABLE>
The Company uses off balance sheet derivative financial instruments to hedge
interest rate risk. The Company's interest rate risk is associated with variable
rate funding of the fixed rate loans and the timing difference between temporary
funding through the warehouse and permanent funding through either
securitization or sale. The derivatives are used to manage three components of
this risk: interest sensitivity adjustments, hedging anticipated loan
securitizations and sales, and interest rate spread protection. Credit risk
exists for these derivative instruments in the form of the failure of the
counterparty to make required payments in favor of the Company. The risk is
minimized through the use of counterparties with investment grade ratings. The
fair value of the derivative instruments is derived from dealer quotes.
Swaps and Options:
Swaps and options, primarily interest rate caps, are used to hedge the interest
rate spreads for various loan sale facilities where cash flows from loans are
fixed rate but the borrowing costs are variable. The interest rate swaps pay
fixed rates of 5.38% to 6.74% and receive a floating rate of the H-15 composite
commercial paper rate. The swaps mature in September 2000 and December 2000. The
interest rate caps are fixed at 9.00% and mature in December 1996 and
March 1997.
Forwards:
Treasury lock agreements, forward contracts, are used to hedge the interest rate
risk associated with anticipated securitizations and/or sales. These instruments
lock a specific Treasury rate identified to have a comparable maturity to the
average life of the anticipated transaction in order to fix the rate either over
the life of the securitization or to fix the sale price as applicable. The open
positions at June 30, 1996 were for securitizations and sales expected to occur
in the first and second quarters of fiscal 1997. In 1996, the Company deferred
$211,000 in losses associated with transactions securitized compared with $1.75
million in deferred losses in 1995. In 1996, the Company recognized losses of
$27,000 for loan sales compared with no recognized gains or losses in 1995.
Gains and losses for securitizations are deferred and amortized over the life of
the securitization. Gains and losses on sales are recognized as part of the gain
or loss on the sale.
41
<PAGE>
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
Note 16. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS, (Continued)
Forward rate agreements, forward contracts, are used to hedge interest
sensitivity adjustments in conjunction with cash market activities by extending
the repricing period of the short term floating rate warehouse facilities. Gains
and losses are deferred and amortized to interest expense over the extension
period. The Company pays a fixed rate of 5.77% and receives a floating rate of
one month LIBOR. These agreements mature in September 1996.
Note 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the quarterly results of operations for the fiscal
years ended June 30, 1996 and 1995:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
(in thousands, except per share data)
Fiscal 1996
<S> <C> <C> <C> <C>
Finance and other income.......................... $11,301 $12,061 $13,152 $12,499
Net finance income................................ 5,714 6,394 6,832 7,265
Earnings before provision for income taxes and
equity in net earnings (loss) of investees... 3,191 3,510 3,690 3,942
Net earnings ................................. 1,775 2,078 2,126 2,196
Net earnings per common and
common equivalent share - primary............ $ .20 $ .21 $ .20 $ .20
===== ===== ===== =====
Net earnings per common and common
equivalent share - fully diluted............. $ .19 $ .20 $ .19 $ .19
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
(in thousands, except per share data)
Fiscal 1995
<S> <C> <C> <C> <C>
Finance and other income.......................... $ 7,197 $ 8,070 $ 9,648 $11,070
Net finance income................................ 3,046 3,710 4,140 5,271
Earnings before provision for income taxes and
equity in net earnings (loss) of investees... 885 1,524 2,169 2,437
Net earnings ................................. 513 893 1,249 1,414
Net earnings per common and
common equivalent share - primary............ $ .08 $ .13 $ .18 $ .21
===== ===== ===== =====
Net earnings per common and common
equivalent share - fully diluted............. $ .08 $ .13 $ .17 $ .19
===== ===== ===== =====
</TABLE>
42
<PAGE>
DVI, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
Note 18. COMPENSATION AGREEMENTS
In June 1995, the Company agreed in principle to adopt an employee incentive
plan (the "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. If the
criteria for the issuance of the Company's common stock are met, the Company
will record compensation expense equal to the fair value of the common shares
issued.
43
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding the Company's directors is incorporated herein by
reference to the Company's definitive proxy statement filed not later than
October 28, 1996, with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
Information regarding the Company's Executive Officers is set forth in Part I of
this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is incorporated herein by
reference to the Company's definitive proxy statement filed not later than
October 28, 1996 with the Securities sand Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K is incorporated herein by
reference to the Company's definitive proxy statement filed not later than
October 28, 1996, with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 404 of Regulation S-K is incorporated herein by
reference to the Company's definitive proxy statement filed not later than
October 28, 1996, with the Securities and Exchange Commission pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) List of Documents filed as part of this Report:
(1) Financial Statements:
See Index to Consolidated Financial Statements included as part of this
Form 10-K at Page 21.
(2) Financial Statement Schedules:
Schedule Page
Number Description Number
II. Amounts Receivable from Related Parties .... 46
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.
(3) Exhibits:
See Index to Exhibits of this Form 10-K on Page 47.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the fourth quarter of the
fiscal year ended June 30, 1996.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DVI, INC.
-------------------------------------
(Registrant)
Date: September 25, 1996 By /s/MICHAEL A. O'HANLON
----------------------------------
Michael A. O'Hanlon
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
Principal Financial Officer:
/s/ STEVEN R. GARFINKEL
------------------------
Steven R. Garfinkel Executive Vice President and
Chief Financial Officer September 25, 1996
Principal Accounting Officer:
/s/ JOHN P. BOYLE
-------------------------
John P. Boyle Vice President and
Chief Accounting Officer September 25, 1996
Directors Date
- --------- ----
/s/GERALD L. COHN September 25, 1996
- -----------------------------
Gerald L. Cohn
/s/WILLIAM S. GOLDBERG September 25, 1996
- -----------------------------
William S. Goldberg
/s/JOHN E. MCHUGH September 25, 1996
- -----------------------------
John E. McHugh
/s/ MICHAEL A. O'HANLON September 25, 1996
----------------------
Michael A. O'Hanlon
/s/ HARRY T. J. ROBERTS September 25, 1996
----------------------
Harry T. J. Roberts
/s/ NATHANIEL SHAPIRO September 25, 1996
----------------------
Nathaniel Shapiro
45
<PAGE>
DVI, INC. AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES
<TABLE>
<CAPTION>
Balance at
Beginning Balance at
Name of Debtor of Year Additions Deductions End of Year
- -------------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended June 30, 1996 -
Michael A. O'Hanlon .. $59,000 $285,000 $ -0- $344,000
======= ======== ======== ========
Year ended June 30, 1995 -
Michael A. O'Hanlon .. $20,000 $ 39,000 $ -0- $ 59,000
======= ======== ======== ========
Year ended June 30, 1994 -
Michael A. O'Hanlon .. $ -0- $ 20,000 $ -0- $ 20,000
======= ======== ======== ========
</TABLE>
46
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
1 Form of Underwriting Agreement between the Underwriters and
Registrant.(9)
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)
10.1 DVI Financial Services Inc. Employee Savings Plan.(1)
10.2 Amended 1986 Incentive Stock Option Plan.(3)
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.(4)
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.(4)
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.(4)
10.6 Warrant dated April 27, 1992, executed by the registrant on
behalf of W.I.G. Securities Limited Partnership.(4)
10.7 Indemnification Agreement by and between DVI Health Services
Corporation and Anthony J. Turek, dated as of August 16,
1992.(5)
10.8 Indemnification Agreement by and between DVI Health Services
Corporation and David L. Higgins, dated August 20, 1992.(5)
10.9 Stock Purchase Agreement between DVI Health Services
Corporation and David L. Higgins, dated August 20, 1992.(5)
10.10 Stock Purchase Agreement between DVI Health Services
Corporation and Sidney Luckman, dated August 20, 1992.(5)
10.11 Stock Purchase Agreement between DVI Health Services
Corporation and Hazleton National Bank, as trustee of certain
trusts for the benefit of Cynthia J. Cohn and Shelly Cohn
Schmidt, dated August 20, 1992.(5)
10.12 Stock Purchase Agreement between DVI Healthcare Operations,
Inc. and IPS HealthCare, Inc., dated October 30, 1992.(5)
10.13 Stock Purchase Agreement between DVI Healthcare Operations,
Inc. and IPS HealthCare, Inc., dated October 30, 1992.(5)
10.14 Stock Purchase Agreement between DVI Healthcare Operations,
Inc. and IPS HealthCare, Inc., dated November 12, 1992.(5)
10.15 Stock Purchase Agreement between DVI Health Services
Corporation and MEFC Partners L.P., dated as of January 6,
1993 (the "MEFC Agreement").(5)
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.(9)
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").(9)
10.18 Amendment to the Prudential Facility, dated as of January 9,
1995.(9)
10.19 Second Amendment to the Prudential Facility, dated as of March
10, 1995.(9)
10.20 Third Amendment to the Prudential Facility, dated as of March
31, 1995.(9)
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)
47
<PAGE>
Exhibit No. Description
- ----------- -----------
10.27 Note Purchase Agreement among the Registrant and the
Purchasers listed therein, dated as of June 21, 1994.(7)
10.28 Amendment No. 1 to Note Purchase Agreement among the
Registrant and the Purchasers listed therein, dated as of
November, 1994.(1)
10.29 Credit Extension Confirmation and Amendment to the Conti
Facility, dated June 30, 1995, among ContiTrade Service
Corporation, DVI Financial Services Inc., the Registrant,
ContiTrade Services, L.L.C. and Bankers Trust Company, as
custodian.(9)
10.30 Amendment No. 1 to the MEFC Agreement dated as of June ,
1995. (9)
10.31 Loan and Security Agreement dated as of July 27, 1995 between
Union Bank of Switzerland, New York Branch and DVI Financial
Services Inc.(10)
10.32 By-Laws of the Company and Amendment to By-Laws of the
Company dated April 17, 1996. (10)
10.33 Second Amendment to Loan and Security Agreement dated as of
April 30, 1996 between DVI Financial Services Inc. and Union
Bank of Switzerland, New York Branch.(10)
10.34 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 amended and restated as of May 1996.(10)
21 Subsidiaries of the Registrant.
24 Power of Attorney.(3)
- -------------
(1) Previously filed.
(2) Filed as an Exhibit to the Company's Registration Statement on Form S-3
(Registration No. 33-84604) and by this reference incorporated herein.
(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 Appendix to the Company's Consent Statement dated
as of December 29, 1944 and by this reference is incorporated herein.
(8) 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.
(9) Filed previously as an Exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 33-60547) and by this reference is
incorporated herein.
(10) Filed herewith.
48
- -------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
Dated as of July 27, 1995
between
UNION BANK OF SWITZERLAND, NEW YORK BRANCH
and
DVI FINANCIAL SERVICES, INC.
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS.....................................................................1
1. The Loan........................................................1
2. Terms and Conditions for All Advances...........................4
3. Purpose of Advance..............................................8
4. Secured Obligations.............................................8
5. Representations and Warranties..................................9
6. Rights of Lender; Limitations on Lender's
Obligations....................................................16
7. Covenants......................................................17
(a) Further Assurances...............................17
(b) Limitation on Liens on Collateral................17
(c) Limitations on Modifications, Waivers and
Extensions of Contracts.........................18
(d) Further Identification of Collateral.............18
(e) Limitation on Collection Account.................18
(f) Notices..........................................18
(g) Changes in Locations, Name, etc..................18
(h) No Transfer......................................19
(i) Compliance with Laws.............................19
(j) Financial Covenants..............................19
8. Repayment of Advances If Contract is Found
Defective.....................................................19
9. Release of Lien Following Payment of Secured
Obligations...................................................19
10. Servicing.....................................................20
11. No Oral Modifications; Binding Effect.........................20
12. Monthly Report................................................20
13. Events of Default.............................................20
14. Remedies Upon Default.........................................22
15. Indemnification and Expenses..............................23
16. Power of Attorney.........................................25
17. No Duty on Lender's Part..................................25
18. Limitation on Duties Regarding Preservation of
Collateral................................................25
19. Powers Coupled with an Interest...........................25
20. Severability..............................................25
21. Notices...................................................26
22. Certain Definitions.......................................27
23. Section Headings..........................................28
24. No Waiver; Cumulative Remedies............................28
25. Assignment................................................29
26. Counterparts..............................................29
27. Hypothecation or Pledge of Collateral.....................29
28. Integration of Terms......................................29
29. Agreement Constitutes Security Agreement;
Governing Law.............................................29
30. Forum Selection and Consent to Jurisdiction...............30
-i-
<PAGE>
31. Waiver of Jury Trial......................................30
EXHIBITS:
Exhibit A: Contract Schedule........................................A-1
Exhibit B-1: Request for Extension of Commitment Termination
Date ...................................................B1-1
Exhibit B-2: Request for Extension of Maturity Date .................B2-1
Exhibit C: Form of Opinion of Counsel...............................C-1
Exhibit D-1: Notice of Borrowing.....................................D1-1
Exhibit D-2: Notice of Conversion....................................D2-1
Exhibit E: Note.....................................................E-1
Exhibit F: Guarantee of DVI, Inc....................................F-1
Exhibit G: Custodial Agreement......................................G-1
SCHEDULES:
Schedule 1: Recordings and Filings...................................S-1
-ii-
<PAGE>
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT, dated as of July 27, 1995
(as amended or otherwise modified from time to time, this "Agreement"), is
between (i) UNION BANK OF SWITZERLAND, NEW YORK BRANCH (the "Lender"), and
(ii) DVI FINANCIAL SERVICES, INC., a Delaware corporation (the "Borrower").
RECITALS
WHEREAS, the Borrower intends to cause an offering of
equipment lease asset-backed securities (the "Certificates") to be issued by a
trust or other vehicle (the "Vehicle") 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 medical
diagnostic equipment (including, without limitation, renewals and replacements
thereof and additions thereto, the "Equipment"), which Contracts are to be
contributed to the Vehicle 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; and
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 hereby agree as
follows (an index of certain capitalized, defined terms appears in Section 22 of
this Agreement):
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 $100,000,000 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 Business Day (defined below) prior to the Commitment
Termination Date (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>
(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 the 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 the form of Exhibit C hereto, (ii) the Note, duly
executed and delivered by the Borrower, (iii) a Guarantee of
DVI, Inc., substantially in the form of Exhibit F hereto (as
amended, supplemented or otherwise modified from time to time,
the "Guarantee"), duly executed and delivered by DVI, Inc.,
and (iv) a Custodial Agreement in the form of Exhibit G hereto
among Bankers Trust Company, 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 (as amended, supplemented or otherwise modified from
time to time, the "Custodial Agreement").
(e) Lender shall have received evidence to its
satisfaction that all documents (including, without
limitation, financing statements) shall have been properly
filed, registered or recorded in each office in each
jurisdiction deemed necessary by the Lender in order to create
in favor of the Lender a first priority perfected Lien 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 priority perfected Lien in such Equipment
(assuming the Borrower is the owner of such Equipment). When
used herein, "Lien" means any mortgage, lien, encumbrance,
charge or other security interest, whether arising under
contract, operation of law, judicial process or otherwise.
(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
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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 as determined
in accordance with Borrower's customary practices in effect as
of the date of this Agreement (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 PV of such 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, 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
individual, corporation, limited liability company,
partnership, trust, government or agency thereof ("Person")
having a Lien on 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 in favor of such lender or other Person 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 equal to the Prime
Rate plus 1% (the "Prime Rate" being the prime or base rate of
interest
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charged by the Lender from time to time) 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) (such
calculation being the "PV" of the relevant Contracts), 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 commercially reasonable basis.
(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.
When used herein, "Business Day" means any day on which (i) banks are
not authorized or required to close in New York, New York and (ii) if the
applicable Business Day relates to any computation or payment to be made with
respect to LIBOR, any day on which dealings in dollar deposits are carried on in
the London interbank market.
2. Terms and Conditions for All Advances.
(a) The obligation of the Lender to make any
Advances hereunder shall terminate on the earlier to occur of (x) November 27,
1995 and (y) the Maturity Date (such earlier date, the "Commitment Termination
Date"); provided that the scheduled Commitment Termination Date may be extended
from time to time, up to but not later than one year from the date of such
extension, in the sole and absolute discretion of the Lender, upon the execution
and delivery by the parties hereto of a Request for Extension of Commitment
Termination Date substantially in the form of Exhibit B-1.
(b) All Advances shall be due and payable in full
on the earlier to occur of (x) January 27, 1996 and (y) the date on which any
Certificate is issued (such earlier date, the "Maturity Date"); provided that
the Maturity Date may be extended from time to time, up to but not later than
one year from the date of such extension, in the sole and absolute discretion of
the Lender, upon the execution and delivery by the parties hereto of a Request
for Extension of Maturity Date substantially in the form of Exhibit B-2.
(c) (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., New York City time, one Business Day prior
to the proposed Funding Date, in the
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case of an Advance bearing interest by reference to LIBOR (a "LIBOR Advance"),
or on the proposed Funding Date, in the case of an Advance bearing interest by
reference to the Quoted Rate (a "Quoted Rate Advance"), in either case
specifying the amount of the proposed Advance to be advanced on such Funding
Date by delivering to the Lender a Notice of Borrowing substantially in the form
of Exhibit D-1.
(ii) Each Advance shall be a LIBOR Advance or a Quoted Rate
Advance (each, a "type" of Advance) as the Borrower shall specify in the
related Notice of Borrowing. The Borrower promises to pay interest on the unpaid
principal amount of each Advance for the period commencing on and including the
date of such Advance to but excluding the date such Advance is paid in full, as
follows:
(a) at all times while such Advance is a LIBOR Advance,
at a rate per annum equal to LIBOR plus .90%; and
(b) at all times while such Advance is a Quoted Rate Advance,
at a rate per annum equal to the Quoted Rate from time to time in
effect;
provided, however, that the interest rate applicable to each Advance shall be
subject to Section 2(e).
"Quoted Rate" shall mean, with respect to a contemplated Quoted Rate
Advance, a floating rate of interest quoted by the Lender to the Borrower (which
is based upon the Lender's own overnight cost of funds (which may vary from day
to day) plus 90 basis points), and accepted by the Borrower, prior to the
funding of such Quoted Rate Advance.
"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 to
the Lender in the London interbank market at approximately 11:00 a.m. (London
Time) on the related Funding Date.
(iii) The Borrower may convert any LIBOR Advance into a Quoted
Rate Advance by giving written notice to the Lender in substantially the form of
Exhibit D-2 not later than 11:00 a.m., New York City time, at least one Business
Day prior to the proposed date of such conversion. Each such notice shall be
effective upon receipt by the Lender. Such Advance shall be so converted on the
requested date of conversion. Each conversion shall be on a Business Day;
provided that each such conversion is subject to the conditions precedent that:
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(I) The representations and warranties of the
Borrower in Section 5 hereof shall be true and correct on and
as of such conversion 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 conversion
of the Advance on such conversion date.
(III) The Lender shall have no obligation to convert
into a Quoted Rate Advance unless the Lender and the Borrower
shall have agreed upon the Quoted Rate to be applicable
thereto.
Each Quoted Rate Advance shall automatically convert into a LIBOR
Advance on the second Business Day after such Advance was made or converted into
a Quoted Rate Advance, as applicable.
(d) The Advances are prepayable at any time, in
whole or in part, without premium or penalty but subject to Section 15(c). Any
amount prepaid shall be applied to repay the outstanding principal amount of any
Advances (together with interest thereon) until paid in full. Amounts prepaid
may be reborrowed in accordance with the terms of this Agreement. If the
Borrower intends to prepay 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 (as such due date may be extended from time to time), the Advances
shall, commencing on such due date, bear interest at a rate per annum equal to
the weighted average (based upon the number and amount of all remaining payments
under each Contract) of the Contract Yield on all Contracts upon which the
Lender is making Advances.
(f) Interest shall be calculated on the basis of a
360-day year and paid for the actual number of days elapsed. With respect to
each LIBOR Advance, LIBOR shall be determined initially as of the Funding Date
to but excluding the next Interest Payment Date applicable to such LIBOR Advance
and shall thereafter be determined as of each Interest Payment Date to but
excluding the following Interest Payment Date. The applicable interest rate for
such Quoted Rate Advance shall change simultaneously with each change in the
Quoted Rate.
(g) Interest on each Advance is payable on each
Interest Payment Date therefor and on the Maturity Date. In the event that an
Advance is not repaid in full on the date when due, interest shall be payable
thereafter on demand. "Interest Payment
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<PAGE>
Date" shall mean: (x) with respect to any LIBOR Advance, the twelfth day of the
month next succeeding the Funding Date or date of conversion into a LIBOR
Advance for such LIBOR Advance (or, if any such day is not a Business Day, the
following Business Day); and (y) with respect to any Quoted Rate Advance, on the
date of conversion of such Advance to a LIBOR Advance.
(h) The Advances shall be evidenced collectively by
the promissory note of the Borrower in the form of Exhibit E (as amended,
supplemented or otherwise modified from time to time, the "Note") with
appropriate insertions. The Lender is authorized to record the date and amount
of each Advance and the date and amount of each repayment or conversion thereof
on the schedule annexed to the Note (and any continuation thereof), 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 Note.
(i) If at any time the outstanding principal amount
of the Advances exceeds the lesser of (i) 90% of the PV of the then remaining
payments under the Contracts listed on the Contract Schedule and pledged to the
Lender hereunder or (ii) 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 such market value is
determined by the Lender on any commercially reasonable basis, the Borrower
shall no later than two Business Days after receipt of notice of such excess,
either prepay such Advances (together with interest thereon) in part or in whole
or deliver additional Collateral to the Lender, or both, such that, after giving
effect to such prepayment or delivery, or both, the applicable excess is
eliminated.
(j) 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 any 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 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 that any of the foregoing has
occurred.
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<PAGE>
(k) If the Lender shall reasonably determine that
the adoption or phase-in of any applicable law, rule or regulation regarding
capital adequacy, or any change in any applicable law, rule or regulation, or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender or any Person controlling
the Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on the
Lender's or such controlling Person's capital as a consequence of the Lender's
obligations hereunder (including, without limitation, the Lender's commitment to
make Advances) to a level below that which the Lender or such controlling Person
could have achieved but for such adoption, change or compliance (taking into
consideration the Lender's or such controlling Person's policies with respect to
capital adequacy) by an amount deemed by the Lender or such controlling Person
to be material, then from time to time, within 10 days after demand by the
Lender (which demand shall be accompanied by a statement setting forth the basis
of such demand), the Borrower shall pay to the Lender such additional amount or
amounts as will compensate the Lender or such controlling Person for such
reduction. The obligations of the Borrower under this Section 2(k) shall survive
any termination of this Agreement.
3. Purpose of Advance. Each Advance shall be used to
finance the Contracts identified to the Lender in writing on the
Contract Schedule, as the Contract Schedule may be amended from
time to time.
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 Contracts), 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, all recourse or support
obligations, guaranties, indemnities and security with respect to the foregoing,
all letters of credit relating thereto, and any proceeds of any of the foregoing
(collectively, the "Collateral") are collateral securing the Secured
Obligations. The Borrower hereby pledges and grants a security interest in all
of its 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 Liens granted to the Lender hereunder.
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<PAGE>
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 its
obligations under this Agreement and the Note.
(iii) It 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 Note do not constitute a
default under, or 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
it 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 mortgage, instrument or agreement binding upon the
Borrower or its property.
(iv) 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 business, properties, condition
(financial or otherwise) or prospects. 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.
(v) Except as previously obtained and currently 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
Note where the failure to obtain any of the foregoing would materially
and adversely affect the business, operations, property or financial
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<PAGE>
condition of the Borrower, the ability of the Borrower to perform its
obligations under this Agreement or the Note, or the validity or
enforceability of this Agreement or the Note.
(vi) There is no action, proceeding 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 Note, (B) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement
or the 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 Note.
(vii) There has been no material adverse change in
the business, operations, financial condition, properties or prospects
of the Borrower since March 31, 1995.
(viii) This Agreement, the 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 the legal, valid and binding obligation of the
Borrower, enforceable against the Borrower in accordance with its
terms.
(ix) The Borrower's principal place of business and
chief executive office is at 500 Hyde Park, Doylestown, Pennsylvania
18910.
(x) 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.
(xi) The transfer, assignment and conveyance of the
Contracts and the Contract Documents by the Borrower pursuant to this
Agreement are not subject to the bulk transfer or any similar statutory
provisions in effect in any applicable jurisdiction.
(xii) The Contracts were originated or acquired 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. With respect to Contracts acquired by the Borrower,
all such Contracts are in
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<PAGE>
conformity with the Borrower's customary underwriting procedures.
(xiii) 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.
(xiv) The Liens granted pursuant to this Agreement
constitute fully-perfected first priority Liens 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 Liens created hereby are listed
on Schedule 1 hereto and have been made or will be made prior to or
contemporaneously with the initial Funding Date.
(xv) (A) All of the Contracts other than FMV
Contracts are financing leases and not true leases, (B) the Borrower
does not own the Equipment that is the subject of the Contracts other
than FMV Contracts and (C) the Borrower has a perfected first priority
Lien in the Equipment that is subject to Contracts other than FMV
Contracts.
(xvi) Neither the Borrower nor any subsidiary of the
Borrower is (a) an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act
of 1940, as amended, or (b) a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935, as
amended.
(xvii) Neither the Borrower nor any subsidiary is
engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying
"margin stock" (as defined in Regulation U of the Board of Governors of
the Federal Reserve System), and no proceeds of the Advances will be
used for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any "margin stock" or maintaining or extending
credit to others for such purpose.
(xviii) As of the date hereof and immediately after
giving effect to each Advance, the fair value of the property of the
Borrower is greater than the fair value of the liabilities (including,
without limitation, contingent liabilities) of the Borrower and the
Borrower will be solvent, will be able to pay its debts as they mature
and will not have
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an unreasonably small capital to engage in the business in which it is
engaged and proposes to engage.
(b) With respect to each 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 to an Eligible
Obligor, 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. "Eligible Obligor"
means, at any time, a user which (1) has not been delinquent in making
a payment more than two times consecutively (or in any case, more than
60 days) during the preceding 12 months; (2) is not an Affiliate of the
Borrower; (3) is located in the United States; and (4) is not an
agency, a department, an instrumentality or a political subdivision of
the United States or of any state or local government; provided,
however, that any user shall cease to be an Eligible Obligor upon three
Business Days' notice by the Lender to the Borrower if the Lender
reasonably and in good faith determines such user is not acceptable to
the Lender.
(iii) All amounts represented to be payable under such
Contract are, in fact, payable in accordance with the provisions of
such Contract, the first monthly payment or a down payment has been
made with respect to such Contract and no payments under such Contract
are more than 60 days past due.
(iv) To the best of the Borrower's knowledge, all property
subject to any Lien given in connection with such Contract is not
subject to any encumbrance, except for Liens released simultaneously
with the grant of the Lien 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 Lien except for Liens released simultaneously with the
Borrower's pledge of Collateral made herein.
(vi) Such Contract conforms to the description thereof as set
forth on the attached Exhibit A, and each Contract, other than an FMV
Contract, is a financing lease and not a true or operating lease.
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<PAGE>
(vii) Such Contract has not been declared ineligible, rejected
or refused as unacceptable for inclusion under the First Amended and
Restated Loan Agreement, amended and restated as of March 28, 1995,
between the Borrower, the banks signatory thereto and NatWest Bank
N.A., as agent (as amended from time to time, the "NatWest Loan
Agreement"), or under any other securitization or warehouse loan
agreement entered into by the Borrower; and such Contract, if purchased
by the Borrower from another lender, was not purchased because such
Contract was in default to such other lender.
(viii) All information in respect of such Contract set forth
in the Contract Schedule is true and correct.
(ix) (A) Such 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
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) such 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) such Contract
does not provide for the substitution, exchange or addition of any
other items of Equipment pursuant to such Contract that would result in
any reduction or extension of payments due under such Contract, (D) the
rights with respect to such Contract are assignable by the Borrower
without the consent of any Person and (E) such Contract enables the
Borrower to (subject to any applicable grace, cure and notice periods)
declare all payments thereunder to be immediately due and payable if
the user is in default of such Contract.
(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 such Contract have been complied with in all
material respects.
(xi) To the best of the Borrower's knowledge after due
inquiry, such Contract represents the legal, valid and binding
obligation of the user, enforceable in accordance with its terms,
subject to bankruptcy, insolvency and other similar laws (including,
but not limited to, principles of equity) affecting the rights of
creditors generally.
(xii) No instrument of release or waiver has been
executed in connection with such Contract, and no user in
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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,
such 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 decreased.
(xiv) Such 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 is no proceeding or investigation 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 such
Contract, (B) asserting the bankruptcy or insolvency of a user,
(C) seeking to prevent payment and performance of such Contract or
(D) seeking any determination or ruling that might materially and
adversely affect the validity or enforceability of such Contract.
(xvi) The Borrower has duly fulfilled all obligations on its
part to be fulfilled under or in connection with such Contract and has
done nothing to impair the rights of the Lender in such Contract or
payments with respect thereto.
(xvii) There is no monetary default, breach, violation or
event of acceleration existing under such Contract, and no event has
occurred which, with the passage of time or with notice, or both, 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 such Contract, and no event has occurred
which, with the passage of time or with notice, or both, would
constitute a non-monetary default, breach, violation or event of
acceleration; the Borrower has not waived any monetary or non-monetary
default, breach, violation or event of acceleration in respect of such
Contract; and no payment (or portion thereof) under such Contract has
been written off by the Borrower as uncollectible.
(xviii) All parties to such Contract had legal capacity to
execute such Contract and such Contract has been duly and properly
executed by such parties.
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(xix) Such Contract was not selected by the Borrower on any
basis intended to adversely affect the value of the Lender's Lien
therein.
(xx) Such 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 Contract 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 Lien in
such Contract (including the filing or amendment of Uniform Commercial
Code financing 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.
(xxii) (A) Such 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 the grant of the
Lien in favor of the Lender hereunder, (B) immediately prior to the
pledge and conveyance of such Contract pursuant to Section 4 hereof,
the Borrower was the sole owner of such Contract and had good and
marketable title thereto, free and clear of all Liens, except for Liens
released simultaneously with the grant of the Lien in favor of the
Lender hereunder and (C) upon execution and delivery hereof by the
Borrower, the Lender will have a first priority perfected Lien in all
of the right, title and interest of the Borrower in and to such
Contract and the payments to become due thereunder, free and clear of
all Liens, except for the interests of users pursuant to the Contract.
(xxiii) If such Contract that constitutes "chattel paper" for
purposes of Sections 9-105(1)(b) and 9-308 of the Uniform Commercial
Code as in effect in any applicable jurisdiction, there is only one
original executed counterpart thereof and such original has been
delivered to the Custodian in accordance with the Custodial Agreement.
(xxiv) The Borrower's computer records 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 such
Contract are in full force and effect and such insurance policies are
of a type customary for the Equipment covered thereby.
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(xxvi) The credit standing of the related user of the
Equipment subject to such Contract was approved by the Borrower using
its customary practices and procedures. To the best of the Borrower's
knowledge, the user is not and has never been insolvent or the subject
of any bankruptcy or insolvency proceeding and the Borrower has no
knowledge of any circumstance or condition with respect to such
Contract, such Equipment or the user's credit standing that could
reasonably be expected to cause the Lender to regard such Contract as
an unacceptable security, cause such Contract to become delinquent or
adversely affect the value or marketability of such Contract.
(xxvii) The Equipment subject to such Contract 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.
(xxviii) The PV of all Contracts owing by a single user and
its Affiliates upon which Lender is making Advances shall not exceed
$5,000,000 in the aggregate at any time. For purposes of the foregoing,
"Affiliate" means, with respect to any Person, any other Person which,
directly or indirectly, controls, is controlled by or is under common
control with such Person. For purposes of this definition, "control"
(together with the correlative meanings of "controlled by" and "under
common control with") means possession, directly or indirectly, of the
power (a) to vote 10% or more of the securities (on a fully diluted
basis) having ordinary voting power for the directors or managing
general partners (or their equivalent) of such Person or (b) to direct
or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by contract or
otherwise.
(xxix) The PV of all FMV Contracts upon which Lender is making
Advances shall not exceed $5,000,000 in the aggregate at any time.
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 any payment relating to such Contract pursuant
hereto, nor shall the Lender be obligated in
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any manner to (i) perform any of the obligations of the Borrower under or
pursuant to any Contract, (ii) make any payment in connection with any Contract,
(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 Contract, (iv) present or file any claim or take any action to enforce any
performance in connection with any Contract or (v) collect the payment of any
amount 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 the 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 (including the Borrower),
communicate with parties to the Contracts to verify with them to its
satisfaction the existence or amount and terms of any Contract.
7. Covenants. The Borrower covenants and agrees with the
Lender that, from and after the date of this Agreement until all obligations of
the Borrower hereunder and under the Note are paid in full and all obligations
of the Lender to make Advances have been terminated:
(a) Further Assurances. 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 Lien created hereby. The Borrower 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
on the Collateral, other than the Lien created hereby. The Borrower will defend
the Collateral against, and will take such other action as is necessary to
remove, any Lien on the Collateral, other than the Lien created hereby, and the
Borrower will defend the right, title and interest of the Lender in
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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 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 such Contract as Collateral. The Borrower will (i)
exercise promptly and diligently each and every material right which the
Borrower may have under each Contract (other than any right of termination, but
including the enforcement of warranty, servicing and other obligations of
manufacturers and other parties) except where the failure to so act could not
materially adversely affect the value of such Contract as Collateral and (ii)
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 and upon such terms as reasonably required by the Lender.
(f) Notices. The Borrower will notify the Lender promptly, in
reasonable detail, and in accordance with Section 21 of this Agreement, of (i)
any Lien (other than the Lien created hereby), on, or claim asserted against,
any of the Collateral, (ii) 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 Lien created hereunder and (iii) the existence
of circumstances requiring the Borrower, or permitting the Lender to require the
Borrower, to prepay the Advances pursuant to Section 2(i), 8(b) or 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 5(a)(ix), 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
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least 30 days' prior written notice thereof; provided that any such change of
location of its chief executive office/chief place of business shall be within
the United States of America and within a jurisdiction in which the Uniform
Commercial Code is in effect.
(h) No Transfer. The Borrower will not sell, lease, transfer,
assign or otherwise dispose of any Collateral, except that Borrower may
transfer, assign or otherwise dispose of Collateral if the Borrower provides the
Lender with at least 5 days' advance notice thereof, the Advance related to such
Collateral is prepaid and upon such other terms and conditions as the Lender may
reasonably specify in advance of such transfer, assignment or other disposition.
(i) Compliance with Laws. 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.
(j) Financial Covenants. The Borrower shall observe, perform
and fulfill the provisions of Section 6.9 of the NatWest Loan Agreement, as
in effect on the date hereof, which provisions are incorporated herein by
reference.
8. Repayment of Advances If Contract is Found Defective.
(a) Upon discovery by the Borrower or the Lender of any
breach of any representation or warranty 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, in its unreviewable discretion,
to require 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 hereof or (ii) which is determined by the Credit
Enhancer to be unacceptable for inclusion in the securitized pool relating to
the Certificates, in each case no later than one Business Day after notice from
the Lender to the Borrower.
9. Release of Lien Following Payment of Secured Obligations.
Upon payment in full of the Advances and termination of the Lender's commitment
to make any Advances, the Lender shall (i) execute and deliver, at Borrower's
sole cost and expense, such instruments of transfer or assignment without
recourse (including Uniform Commercial Code termination statements) as shall be
necessary to terminate the Lender's Lien in the Collateral and (ii) provide the
written request to the Custodian referred to in Section 10 of the Custodial
Agreement.
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<PAGE>
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, prior to the occurrence of an Event of Default,
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.
11. No Oral Modifications; Binding Effect. 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.
12. Monthly Report. The Borrower shall provide the Lender, not
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 that (a) have
remaining payments which have a PV of not less than the PV of the remaining
payments under such delinquent Contract and (b) otherwise meet the requirements
of this Agreement.
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 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
Section 2(i), 8(b) or 12 hereof.
(c) Failure of the Borrower to observe or perform any covenant
or agreement contained in Section 7(j) of this Agreement; or the
failure of the Borrower to observe or perform any other covenant or
agreement contained in this Agreement or the Note (and not constituting
an Event of Default under any other provision of this Section 13) and
the
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continuance of such failure thirty (30) days after the occurrence of
such failure.
(d) Any representation or warranty made or deemed made by the
Borrower herein in connection with any Advance 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, the Contract 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.
(e) The granting by the Borrower of any Lien on any
Collateral to any Person other than the Lender.
(f) The Borrower or any subsidiary becomes insolvent or
generally fails to pay, or admits in writing its inability to pay,
debts as they become due; 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 bankruptcy, insolvency,
reorganization, arrangement or similar proceeding (under the United
States 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 such
subsidiary; the institution of any such proceeding against the Borrower
or any subsidiary of the Borrower if the Borrower or such subsidiary
shall acquiesce in such filing or in lieu of such acquiescence 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 United States 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) Failure by Borrower to service and administer the
Contracts in substantial compliance with the servicing requirements
set forth in Section 10 hereof.
(h) The Custodial Agreement or the Guarantee ceases to
be in full force and effect, or any party thereto so asserts
in writing.
(i) Any default (or event or condition which, with the lapse
of time or the giving of notice, or both, would constitute a default)
shall occur under the terms applicable
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to any indebtedness of the Borrower or any subsidiary in an aggregate
amount (for all indebtedness so affected) exceeding $1,000,000 if the
same shall accelerate the maturity of such indebtedness or permit the
holder or holders thereof, or any trustee or agent for such holder or
holders, to cause such indebtedness to become due and payable prior to
its expressed maturity.
14. Remedies Upon Default. (a) At any time one or more Events
of Default exists, the Lender may declare the principal amount of all Notes and
all other obligations hereunder to be immediately due and payable, and/or
terminate the obligation of the Lender to make Advances hereunder, whereupon the
obligation of the Lender to make Advances hereunder shall terminate and/or all
Notes and all other obligations hereunder shall become immediately due and
payable, all without presentment, demand, protest or notice of any kind;
provided that upon the occurrence of an Event of Default referred to in Section
13(f), all such amounts shall immediately and automatically become due and
payable without any further action by any Person, without presentment, demand,
protest or notice of any kind, and the obligation of the Lender to make Advances
hereunder shall immediately and automatically terminate.
(b) At any time any Event of Default exists, 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, and the Borrower shall deliver to the Lender such
assignments of Contracts as the Lender shall request. The Lender shall be
entitled to specific performance of all agreements of the Borrower contained in
this Agreement.
(c) At any time any Event of Default exists, the Lender shall
have the right to service (either by itself or through a designee) 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 commercially reasonable manner, or as provided by law, and the Lender
shall have all rights of a secured party on default under the Uniform Commercial
Code of any applicable jurisdiction. The Borrower shall, promptly upon request
by the Lender, use reasonable commercial efforts (subject, in the case of
Equipment, to the rights of users under related Contracts) to assemble the
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Collateral (other than Collateral held by the Custodian pursuant to the
Custodial Agreement) at a location reasonably convenient to the Lender, as the
Lender shall specify. Any notification required by law of intended disposition
of the Collateral shall be deemed reasonably given if given five Business Days
in advance of such disposition. Without limiting the foregoing, the Borrower
shall transmit to the Lender all checks, drafts, cash and other remittances
received on account of any Contract during the continuance of an Event of
Default in the form received by the Borrower, but with any necessary endorsement
by the Borrower to permit collection of such items. 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 prevailing price for such
securities and to sell such securities for the prevailing price in the open
market, and the Borrower agrees that any such disposition shall be a
commercially reasonable disposition for purposes of the Uniform Commercial Code
in any applicable jurisdiction. The Lender shall also be entitled to sell any or
all of such Contracts individually for the prevailing price in the open market,
and the Borrower agrees that any such disposition shall be a commercially
reasonable disposition for purposes of the Uniform Commercial Code in any
applicable jurisdiction. 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 Uniform
Commercial Code as in effect in any applicable jurisdiction) 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) in connection therewith, 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.
15. Indemnification and Expenses. (a) The Borrower agrees to
hold the Lender and its directors, officers, employees and agents (collectively,
the "Indemnified Parties") harmless from, and indemnifies each Indemnified Party
against, all liabilities, losses, damages, judgments, costs and expenses
(including, without limitation, fees and disbursements of counsel) of any kind
which may be imposed on, incurred by, or asserted against any Indemnified Party,
whether relating to or arising out of this Agreement, the 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 Note or any transaction contemplated hereby or thereby, that, in
each case, results from anything other than the gross negligence or willful
misconduct of such Indemnified Party. 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 Indemnified Parties harmless from and against all expense, loss or
damage suffered by
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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 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 Note is secured by the Collateral, the obligations of the Borrower hereunder
and under the Note are recourse obligations 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
(including, without limitation, reasonable fees and disbursements of counsel) in
connection with the development, preparation and execution of, and any
amendment, supplement or modification to, this Agreement, the 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 the 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) Upon demand by the Lender, the Borrower will indemnify the
Lender against any net loss or expense (not to include any lost profit or
opportunity) that the Lender may incur (including, without limitation, any net
loss or expense incurred by reason of liquidation or reemployment of deposits or
other funds acquired to fund any Advance), as determined by the Lender, as a
result of (i) any payment or prepayment of any Advance or conversion of any
LIBOR Advance on a date other than the related Interest Payment Date for such
Advance or (ii) any failure of the Borrower to borrow or convert any Advance on
a date specified therefor in a notice of borrowing or conversion pursuant to
this Agreement (other than as a result of a default by the Lender). For this
purpose, all notices to the Lender pursuant to this Agreement shall be deemed to
be irrevocable.
(d) The Borrower's agreements in this Section 15 shall
survive the payment in full of the Note and the expiration or
termination of this Agreement.
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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 documents 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 in the
Borrower's name and to perform all other acts which the Lender deems appropriate
to perfect and continue the Lien 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. Notwithstanding the foregoing, the power of
attorney hereby granted may be exercised only during the occurrence and
continuance of any Event of Default hereunder.
17. No Duty on Lender's Part. The powers conferred on the
Lender hereunder are solely to protect the Lender's interests in 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.
18. Limitation on Duties Regarding Preservation 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 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.
19. Powers Coupled with an Interest. All powers of attorney,
authorizations and agencies herein contained with respect to the Collateral are
irrevocable and are coupled with an interest.
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.
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21. Notices. All demands, notices and communications relating
to this Agreement shall be in writing and shall be delivered to the other party
at the address shown below or such other address as may hereafter be furnished
to the other party. Notices given by facsimile transmission shall be deemed
given when sent; notices sent by mail shall be deemed given three Business Days
after the date sent by registered or certified mail, postage prepaid; and
notices sent by hand shall be deemed given when received.
If to the Borrower:
DVI Financial Services, Inc.
4041 MacArthur Boulevard
Suite 401
Newport Beach, California 92660
Attention: Chief Financial Officer
Telephone: (714) 474-5821
Telecopy: (714) 474-5899
and
DVI Financial Services, Inc.
500 Hyde Park
Doylestown, Pennsylvania 18910
Telephone: (215) 345-6600
Telecopy: (215) 230-8108
With a copy to:
NatWest Bank N.A.,
as Agent (the "Agent Bank")
175 Water Street
28th Floor
New York, New York 10038
Attention: Leasing Division -
Merily McLaughlin
Telephone: (212) 602-2949
Telecopy: (212) 602-2180
If to the Lender:
Union Bank of Switzerland,
New York Branch
299 Park Avenue
New York, New York 10171-0026
Attention: Michael J. Ahearn
Telephone: (212) 821-3360
Telecopy: (212) 821-3890
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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 claiming through the
Agent Bank, or to any other Person, arising from or relating to any such notice
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 Agent Bank shall not prejudice any of
the rights of the Lender thereunder.
22. Certain Definitions. The following capitalized
terms are defined in the corresponding Sections hereof specified
below:
"Advance" - Section 1.
"Affiliate" - Section 5(b)(xxviii).
"Agent Bank" - Section 21.
"Agreement" - Introductory Clause.
"Borrower" - Introductory Clause.
"Business Day" - Section 1.
"Certificates" - Recitals.
"Collateral" - Section 4.
"Commitment Termination Date" - Section 2(a).
"Contract" - Recitals.
"Contract Documents" - Section 4.
"Contract Schedule" - Section 1(f).
"Contract Yield" - Section 1(f).
"Credit Enhancer" - Recitals.
"Custodian" - Section 1(d).
"Custodial Agreement" - Section 1(d).
"Default" - Section 13.
"Eligible Obligor" - Section 5(b)(ii).
"Equipment" - Recitals.
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"Event of Default" - Section 13.
"FMV Contract" - Section 1(f).
"Funding Date" - Section 1.
"Guarantee" - Section 1(d).
"Indemnified Parties" - Section 15.
"Interest Payment Date" - Section 2(g).
"Lender" - Introductory Clause.
"LIBOR" - Section 2(c)(ii).
"LIBOR Advance" - Section 2(c)(i).
"Lien" - Section 1(e).
"Maturity Date" - Section 2(b).
"NatWest Loan Agreement" - Section 5(b)(vii).
"Note" - Section 2(h).
"Person" - Section 1(h).
"Prime Rate" - Section 1(i).
"PV" - Section 1(i).
"Quoted Rate" - Section 2(c)(ii).
"Quoted Rate Advance" - Section 2(c)(i).
"Secured Obligations" - Section 4.
"type" of Advance - Section 2(c)(ii).
"Vehicle" - Recitals.
23. Section Headings. The Section 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.
24. No Waiver; Cumulative Remedies. The Lender shall not by
any act (except by a written instrument pursuant to Section 21 hereof),
delay, indulgence, omission or otherwise be deemed to have waived any right or
remedy hereunder or to have acquiesced in
-28-
<PAGE>
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 other rights or remedies provided
by law.
25. Assignment. The Borrower may not assign its rights or
delegate its obligations under this Agreement without the prior written consent
of the Lender. The Lender may assign to one or more banks or other Persons all
or any part of, or may grant participations to one or more banks or other
Persons in or to, any Advance or Note, and to the extent of any such assignment
or participation (unless otherwise stated therein) the assignee or participant
shall have the same rights and benefits hereunder and thereunder as it would if
it were the Lender. The Lender shall act as agent for all such assignees.
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 all such
counterparts shall constitute and be deemed to be one and the same
instrument.
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.
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.
29. Agreement Constitutes Security Agreement; Governing Law.
This Agreement is intended by the parties hereto to constitute a security
agreement within the meaning of the Uniform Commercial Code of any applicable
jurisdiction. This Agreement shall be governed by, and construed in accordance
with, the laws of
-29-
<PAGE>
the State of New York applicable to contracts made and to be performed entirely
within such State.
30. Forum Selection and Consent to Jurisdiction. ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION
WITH THIS AGREEMENT OR THE NOTE, SHALL BE BROUGHT AND MAINTAINED
EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. THE
BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. THE
BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY
REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR
WITHOUT THE STATE OF NEW YORK. THE BORROWER HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE
OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE
AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
31. Waiver of Jury Trial. EACH OF THE BORROWER AND THE LENDER
HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, THE NOTE AND ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY BANKING
RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT
ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE
A JURY.
-30-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
LENDER: UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By:_________________________
Name:____________________
Title:___________________
By:_________________________
Name:____________________
Title:___________________
BORROWER: DVI FINANCIAL SERVICES, INC.
By:_________________________
Name:____________________
Title:___________________
-31-
<PAGE>
Exhibit A
Contract Schedule
[To be Delivered by the Borrower
Pursuant to Section 1(f)]
A-1
<PAGE>
Exhibit B-1
REQUEST FOR EXTENSION OF COMMITMENT TERMINATION DATE
Union Bank of Switzerland,
New York Branch
299 Park Avenue
New York, New York 10171-0029
Attention: Michael J. Ahearn
Telecopy: (212) 821-3890
Confirmation: (212) 821-3360
1. Pursuant to the Loan and Security Agreement, dated as of
July 27, 1995 (as amended from time to time, the "Agreement"), between you and
DVI Financial Services, Inc. (the "Borrower"), the Borrower hereby requests that
the Commitment Termination Date under the Agreement be extended to [insert
date].
The Borrower agrees that, upon acceptance by the Lender of
this Request for Extension of Commitment Termination Date by signing and dating
the same below, the Borrower will be bound by the terms of the Agreement as
amended by this Request for Extension of Commitment Termination Date.
2. The 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 Commitment Termination Date requested herein,
before and after giving effect thereto:
A. Each of the representations and warranties contained in
the Agreement is true and correct in all material
respects; and
B. No Default or Event of Default has occurred and is
continuing.
3. Unless otherwise defined in this Request for Extension of
Commitment Termination Date, terms defined in the Agreement shall have their
defined meanings when used herein.
4. Except as expressly modified by this Request for
Extension of Commitment Termination Date, the Agreement shall continue in full
force and effect.
5. This Request for Extension of Commitment Termination Date
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 applicable to contracts made
and to be performed entirely within such State.
B1-1
<PAGE>
IN WITNESS WHEREOF, the undersigned Borrower has caused this
Request for Extension of Commitment Termination Date to be executed and
delivered by a proper and duly authorized officer as of the day and year first
above written.
DVI FINANCIAL SERVICES, INC.
By__________________________
Name:____________________
Title:___________________
AGREED TO AND ACCEPTED:
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By:_______________________
Name:__________________
Title:_________________
By:_______________________
Name:__________________
Title:_________________
B1-2
<PAGE>
Exhibit B-2
REQUEST FOR EXTENSION OF MATURITY DATE
Union Bank of Switzerland,
New York Branch
299 Park Avenue
New York, New York 10171-0029
Attention: Michael J. Ahearn
Telecopy: (212) 821-3890
Confirmation: (212) 821-3360
1. Pursuant to the Loan and Security Agreement, dated as of
July 27, 1995 (as amended from time to time, the "Agreement"), between you and
DVI Financial Services, Inc. (the "Borrower"), the Borrower hereby requests that
the Maturity Date under the Agreement be extended to [insert date].
The Borrower agrees that, upon acceptance by the Lender of
this Request for Extension of Maturity Date by signing and dating the same
below, the Borrower will be bound by the terms of the Agreement as amended by
this Request for Extension of Maturity Date.
2. The 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 Maturity Date requested herein, before and after
giving effect thereto:
A. Each of the representations and warranties contained in
the Agreement is true and correct in all material
respects; and
B. No Default or Event of Default has occurred and is
continuing.
3. Unless otherwise defined in this Request for
Extension of Maturity Date, terms defined in the Agreement shall
have their defined meanings when used herein.
4. Except as expressly modified by this Request for
Extension of Maturity Date, the Agreement shall continue in full
force and effect.
5. This Request for Extension of Maturity Date 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 applicable to contracts made and to be
performed entirely within such State.
B2-1
<PAGE>
IN WITNESS WHEREOF, the undersigned Borrower has caused this
Request for Extension of Maturity Date to be executed and delivered by a proper
and duly authorized officer as of the day and year first above written.
DVI FINANCIAL SERVICES, INC.
By__________________________
Name:____________________
Title:___________________
AGREED TO AND ACCEPTED:
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By:_______________________
Name:__________________
Title:_________________
By:_______________________
Name:__________________
Title:_________________
Date:
B2-2
<PAGE>
Exhibit C
[Form of Opinion of Counsel]
[Letterhead of Thacher Proffitt & Wood]
July __, 1995
Union Bank of Switzerland, New York Branch
299 Park Avenue
New York, New York 10171-0026
Re: DVI Financial Services, Inc.
Loan and Security Agreement
Dear Sirs:
We have acted as special counsel to DVI Financial Services, Inc. (the
"Company") in connection with the negotiation, execution and delivery of the
Transaction Documents (as defined herein) and the transactions contemplated
thereby. Capitalized terms not otherwise defined herein are defined as set forth
in Loan and Security Agreement dated the date hereof between Union Bank of
Switzerland, New York Branch (the "Lender") and the Company (the "Agreement").
This opinion is given pursuant to section 1(d) of the Agreement.
In this regard, we have examined and relied upon the following
documents:
1. the Certificate of Incorporation and By-Laws of each of
the Company and DVI, Inc., as amended to date;
2. such minutes of meetings and records of actions taken by
written consent of the Company's and DVI, Inc.'s
shareholders and boards of directors as we have deemed
necessary and relevant;
3. Certificates of Good Standing of the Company and DVI,
Inc. for the State of Delaware;
4. the Agreement;
5. the Note, dated the date hereof (the "Note"), made by the
Company in your favor;
6. the Custodial Agreement, dated the date hereof, entered
into by and among the Company, you and Bankers Trust
Company, as Custodian (the "Custodial Agreement"); and
<PAGE>
Union Bank of Switzerland,
New York Branch
June __, 1995
Page C-2
7. the Guarantee, dated the date hereof, made by DVI, Inc.
("DVI, Inc.") in your favor (the "Guarantee", together
with the Agreement, the Note and the Custodial Agreement,
the "Transaction Documents").
Although we may have made inquiries with respect to various documents
and other matters, we have not, except as specifically noted above, made any
independent review or investigation of agreements, instruments, corporate
records or other documents, orders, judgments, rules or other regulations or
decrees by which the Company or DVI, Inc. or any of their respective property
may be bound, nor have we made any independent investigation as to the existence
of actions, suits, investigations or proceedings, if any, pending or threatened
against the Company or DVI, Inc.
We have assumed the authenticity of all documents submitted to us as
originals, the genuineness of all signatures, the legal capacity of natural
persons and the conformity to the originals of all documents submitted to us as
copies. In making our examination of any documents, we have assumed that all
parties other than the Company and DVI, Inc. had the corporate power and
authority to enter into and perform all obligations thereunder, and, as to such
parties, we also have assumed the due authorization by all requisite corporate
action, the due execution and delivery of such documents, and the validity and
binding effect and enforceability thereof.
We have not verified, and are not passing upon and do not assume any
responsibility for, the accuracy, completeness or fairness of information
furnished orally or in writing by or on behalf of the Company in connection with
the transactions contemplated by the Agreement.
Based on the foregoing, we are of the opinion that:
1. The Company has been duly organized and is validly existing
in good standing under the laws of the State of Delaware. The Company
has the necessary corporate power and authority to enter into and
perform its obligations under the Transaction Documents to which it is
a party.
2. DVI, Inc. has been duly organized and is validly
existing in good standing under the laws of the State of
Delaware. DVI, Inc. has the necessary corporate power and
authority to enter into and perform its obligations under the
Guarantee.
<PAGE>
Union Bank of Switzerland,
New York Branch
June __, 1995
Page C-3
3. The execution and delivery by the Company and DVI, Inc., as
applicable, of 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 Company and DVI, Inc., as
applicable, and the Transaction Documents have been executed and
delivered by the Company and DVI, Inc., as applicable. The Transaction
Documents are legal, valid and binding obligations of the Company and
DVI, Inc., as applicable, enforceable against the Company and DVI,
Inc., as applicable, in accordance with their respective terms.
4. The execution and delivery by the Company of the
Transaction Documents to which it is a party, and the performance of
its obligations thereunder, do not conflict with or result in a
violation of the Company's Certificate of Incorporation or By-Laws.
5. The execution and delivery by DVI, Inc. of the
Guarantee and the performance of its obligations thereunder,
do not conflict with or result in a violation of DVI, Inc.'s
Certificate of Incorporation or By-Laws.
6. No approval, authorization or other action by, or filing
with, any New York or federal governmental authority is required for
the execution and delivery by the Company of the Transaction Documents
to which it is a party and by DVI, Inc. of the Guarantee or, if any
such approval, authorization, action or filing is required, it has been
obtained.
7. The provisions of the Loan Agreement are sufficient
to create in favor of the Lender a valid security interest in
the Company's rights in the Collateral.
8. Upon execution and delivery of the Loan Agreement, together
with possession by the Custodian of the Contracts pursuant to the
Custodial Agreement, and further together with the filing (with the
appropriate offices of the states where the Company maintains is chief
executive office and principal place of business) of financing
statements in the form of Exhibit A hereto and the giving of value by
the Lender in the manner contemplated by the Agreement, the Lender's
security interest in the Contracts will be perfected and no further
action will be necessary in order to continue the perfection of the
security interest of the Lender in the Contracts,
<PAGE>
Union Bank of Switzerland,
New York Branch
June __, 1995
Page C-4
except that appropriate UCC continuation statements must be filed at
five-year intervals.
Our opinions set forth above are subject to the following
qualifications:
(i) Our opinions above are subject to the effect of any applicable
fraudulent conveyance, transfer or obligation law and any law governing the
liquidation or dissolution of, or the distribution of assets of, any Person and,
insofar as they relate to enforceability, are subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting enforcement of creditors' rights generally.
(ii) Enforceability of the Company's and DVI, Inc.'s respective
obligations under the Transaction Documents is subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law) and to the effect of certain laws, regulations and judicial
or other decisions upon the availability and enforceability of certain covenants
or remedies provided in the transaction Documents, including the remedies of
specific performance and self-help; provided that the non-enforceability of any
of the provisions, rights and remedies referred to in this paragraph (ii) will
not, taken as a whole, materially interfere with the practical realization of
the economic benefits of the rights and remedies intended thereby, except for
the economic consequences of any judicial, administrative, procedural or other
delay which may be imposed by, relate to or arise from applicable laws,
constitutional requirements, statutes, court decisions, codes, ordinances, rules
and regulations, equitable principles and all interpretations thereof.
(iii) We express no opinion as to the legality, validity or
enforceability of any of the following provisions contained in the Transaction
Documents: (A) any provision granting or purporting to grant to the Lender the
power and authority to execute documents and/or instruments (including without
limitation Uniform Commercial Code financing statements), (B) any provision with
respect to penalties, forfeitures, or late payment charges or increases in
interest rates upon delinquency in payment or upon the occurrence of a default
in excess of a rate that a court of competent jurisdiction determines to be
commercially reasonable and not a penalty or forfeiture, (C) any provision
purporting to waive unmatured rights, (D) any provision covenanting to take any
action, the taking of which is discretionary with or subject to the
<PAGE>
Union Bank of Switzerland,
New York Branch
June __, 1995
Page C-5
approval of a third party or which otherwise is subject to a contingency, the
fulfillment of which is not within the control of the party so covenanting,
(E) any provision purporting to require the future delivery by the parties with
respect to any Collateral, to the extent such delivery may be prohibited by
applicable law, rule, regulation, judgment, order, decree, license, franchise,
permit, or public policy any of which is not in effect on the date hereof
(regardless of whether any such law, rule, regulation, judgment, order, decree,
license, franchise or permit shall have any effective date on or before the date
hereof), (F) any provision purporting to transfer the interest of the Lender in
any insurance policies in connection with the provisions of any of the
Transaction Documents, (G) any indemnification provisions to the extent that
such provisions may be found to violate public policy, (H) waivers by any of the
parties of, or provisions precluding any of the parties from asserting, certain
claims or defenses or from obtaining certain rights and remedies, including,
without limitation, the right to require marshalling, (I) subrogation rights,
delay or omission of enforcement of rights or remedies, marshalling of assets,
or sales in inverse order of lien priority, (J) any provision establishing
evidentiary standards for suits or proceedings to enforce the Transaction
Documents, (K) to the extent that rights or remedies are not exclusive, that
every right or remedy is cumulative and may be exercised in addition to or with
any other right or remedy, or that the election of particular remedy or remedies
does not preclude recourse to one or more other remedies, (L) any provision with
respect to severability, exculpation, set-off right or claims of any of the
parties for damages or other remedies arising from any secured party's trespass,
conversion, negligence or other disposition of collateral, and (M) any provision
purporting to establish, as to third parties, non-culpability for actions by a
lienholder.
(iv) To the extent that the Transaction Documents refer to Collateral
in which the Company has no present rights, (A) the security interest of the
Lender in such Collateral will attach only upon the acquisition of rights
therein by the Company and (B) Section 552 of the Federal Bankruptcy Code limits
the extent to which property acquired by a debtor after the commencement of a
case under the Federal Bankruptcy Code may be subject to a security interest
arising from a security agreement entered into by the debtor before the
commencement of such case.
(v) We express no opinion as to the title of the Company or any other
person or entity to any Collateral subject to the
<PAGE>
Union Bank of Switzerland,
New York Branch
June __, 1995
Page C-6
Transaction Documents or the value, validity or effectiveness of any of the
foregoing.
(vi) Our opinion set forth in paragraph 8 is subject, to the extent
applicable, to (a) the limitations on perfection of security interests in
proceeds resulting from the operation of UCC Section 9-306, (b) the limitations
with respect to buyers in the ordinary course of business imposed by UCC Section
9-307 or UCC Section 9-308 and (c) the effect of security interests which may
be perfected by any means other than by possession or by filing a financing
statement pursuant to the UCC.
(vii) We express no opinion in paragraph 8 with respect to any
transaction excluded from Article 9 of the UCC by Section 9-104 thereof. With
respect to the opinion set forth in paragraph 8, we have assumed, without any
independent verification, that the law of the State of California and the law of
the Commonwealth of Pennsylvania are identical to the law of the State of New
York.
The foregoing opinions are limited to the matters stated herein and not
opinion is implied or may be inferred beyond the matters expressly stated. Our
opinions are based upon and rely upon the current status of law and in all
respects are subject to and may be limited by future legislation as well as by
developing case law. The opinions expressed above are based solely upon
applicable laws, statutes, ordinances, rules and regulations and facts, all as
in existence on this date, and we express no opinion as to the effect which any
future amendments, changes, additions, or modifications thereof may have upon
the future performance or enforceability of the Transaction Documents, and we
assume no obligation to update or supplement such opinions to reflect any facts
or circumstances which may hereafter come to our attention or any changes in law
which may hereafter occur. In rendering the opinions contained herein, we have
assumed that you and your respective counsel did not have actual knowledge or
actual notice (other than notice imputed from statutes, court decisions and
other public documents) of the existence of any fact, circumstance, statute,
law, code, ordinance, rule or regulation which is contrary to or inconsistent
with any opinion expressed herein.
We do not express any opinion concerning law other than the Delaware
General Corporation Law, the law of the State of New York, the federal law of
the United States and, with respect to the opinion set forth in paragraph 8
only, the law of the State of California and the law of the Commonwealth of
Pennsylvania. We do
<PAGE>
Union Bank of Switzerland,
New York Branch
June __, 1995
Page C-7
not express any opinion, either implicitly or otherwise, on any
subject not expressly addressed herein.
This opinion is given to you for your sole benefit, and no other person
or entity is entitled to rely hereon. Copies of this opinion letter may not be
furnished to any other party or entity, nor may any portion of this letter be
quoted, circulated or referred to in any other document, without our prior
written consent.
Very truly yours,
<PAGE>
Exhibit D-1
NOTICE OF BORROWING NO.
Union Bank of Switzerland, New York Branch
299 Park Avenue
New York, New York 10171-0026
Attention: Michael J. Ahearn
Telecopy: (212) 821-3890
Confirmation: (212) 821-3360
Pursuant to the Loan and Security Agreement, dated as of July
27, 1995 (as amended from time to time, the "Agreement"), between you and DVI
Financial Services, Inc. (the "Borrower"), the Borrower hereby requests an
Advance and, in connection therewith, sets forth below the following information
(all capitalized terms used herein shall have the meanings specified therefor in
the Agreement):
1. The Advance is being made in respect of a Contract which
is [not] an FMV Contract.(1)
2. The principal amount of the requested Advance is
[$ ].
3. The Business Day on which the Advance is to be made is
[ , 199 ] (the "Funding Date").
4. Attached hereto is a copy of [a supplement to] the
Contract Schedule being submitted to the Lender in
connection with the Advance requested hereby.
5. The Advance is to be a [LIBOR Advance] [Quoted Rate
Advance].
The 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 Advance requested herein, before and after giving effect thereto:
A. Each of the representations and warranties contained in
the Agreement is true and correct in all material
respects; and
- --------
(1) If the Contract is an FMV Contract, Borrower must
execute and deliver a UCC financing statement with
respect to the related Equipment.
D1-1
<PAGE>
B. No Default or Event of Default has occurred and is
continuing.
DVI FINANCIAL SERVICES, INC.
By:
--------------------------
Name:
Title:
Date: [ , 199 ]
D1-2
<PAGE>
Exhibit D-2
NOTICE OF CONVERSION
Union Bank of Switzerland, New York Branch
299 Park Avenue
New York, New York 10171-0026
Attention: Michael J. Ahearn
Telecopy: (212) 821-3890
Confirmation: (212) 821-3360
Pursuant to the Loan and Security Agreement, dated as of July
27, 1995 (as amended from time to time, the "Agreement"), between you and DVI
Financial Services, Inc. (the "Borrower"), the Borrower hereby requests to
convert an Advance or portion thereof from one type to another and, in
connection therewith, sets forth below the following information (all
capitalized terms used herein shall have the meanings specified therefor in the
Agreement):
The Borrower hereby requests that on , 19 , $ of the presently outstanding
Advance originally made on , 19 [and $ of the presently outstanding principal
amount of the Advance originally made on , 19 ], being maintained as a LIBOR
Advance, be converted into a Quoted Rate Advance.
The 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 Advance requested herein, before and after giving effect thereto:
1. Each of the representations and warranties contained in
the Agreement is true and correct in all material
respects; and
2. No Default or Event of Default has occurred and is
continuing.
DVI FINANCIAL SERVICES, INC.
By:
---------------------------
Name:
Title:
Date: [ , 199 ]
D2-1
<PAGE>
Exhibit E
NOTE
$100,000,000.00 July 27, 1995
New York, New York
FOR VALUE RECEIVED, DVI FINANCIAL SERVICES, INC. (the "Borrower"), a
Delaware corporation, promises to pay to the order of UNION BANK OF SWITZERLAND,
NEW YORK BRANCH (the "Lender") on or before the Maturity Date (as defined in the
Agreement described below), $100,000,000.00 or, if less, the outstanding
principal amount of all Advances (as defined in the Agreement described below)
made by the Lender to the undersigned pursuant to the Loan and Security
Agreement, dated as of July 27, 1995 (as amended or otherwise modified from time
to time, the "Agreement"), between the Lender and the Borrower, plus interest
thereon from the date of each such Advance at the rates 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.
The holder of this 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 (or any continuation thereof), 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 hereon shall never exceed the
maximum rate, if any, which may be legally charged on the Advances evidenced by
this Note (the "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 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 time, on
any Business Day shall be deemed to be received on the next Business Day.
E-1
<PAGE>
The Borrower agrees to pay all the Lender's costs of collection and
enforcement (including reasonable fees and disbursements of counsel) in respect
of this Note when incurred.
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 Note are recourse obligations of the
Borrower.
The Borrower, and any indorsers or guarantors hereof, (a) severally
waive diligence, presentment, protest and demand and also notice of protest,
demand, dishonor and nonpayment of this Note, (b) 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 and to 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 Note, to first pursue or exhaust the Lender's remedies
against the Borrower or any other party liable hereon or against any Collateral.
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,
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 Note.
Reference is made to the Agreement for provisions concerning mandatory
principal repayments, Collateral, acceleration and other material terms
affecting this Note.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York applicable to contracts made and to be performed
entirely within such State.
DVI FINANCIAL SERVICES, INC.
By:
--------------------------
Name:
Title:
E-2
<PAGE>
SCHEDULE TO NOTE
Schedule of Advances
<TABLE>
<CAPTION>
Date and Date and
Amount of Amount of
Advance or of Repayment or of
conversion from conversion into Unpaid Notation
another type of another type of Interest Principal Made
Advance Advance Period Balance By
- ---------------- ----------------- -------- ---------- -----------
<S> <C> <C> <C> <C>
1. QUOTED RATE ADVANCES
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
2. LIBOR ADVANCES
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
E-3
<PAGE>
Exhibit F
GUARANTEE
Guarantee, dated as of July 27, 1995, by DVI, Inc., a Delaware
corporation (the "Guarantor"), in favor of Union Bank of Switzerland, New York
Branch ("Lender").
The Guarantor agrees as follows:
1. Guarantee. To induce Lender to enter into the Loan and Security
Agreement, dated as of July 27, 1995 (as amended, supplemented or otherwise
modified from time to time, the "Loan Agreement"), with DVI Financial Services,
Inc. ("Borrower"), the Guarantor unconditionally guarantees, as primary obligor
and not merely as surety, to Lender, its successors, endorsees and permitted
assigns, the prompt payment and performance when due, whether by acceleration or
otherwise, and at all times thereafter, of all present and future obligations
and liabilities of all kinds of Borrower (whether monetary or otherwise) to
Lender, howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter arising, or due or to become due,
including, without limitation, all obligations arising out of or in connection
with the Loan Agreement or the Note (as defined in the Loan Agreement) (the
"Obligations").
2. Absolute Guarantee; Lien. 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 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. The Guarantor's obligations under this Guarantee constitute a
guarantee of payment and not of collection.
To secure all obligations of the undersigned hereunder, the Lender
shall have a lien on and a security interest in all balances, credits, deposits
and accounts of the undersigned now or hereafter with Lender and any and all
other property of the undersigned in the possession or control of, or in transit
to, the Lender or any agent or bailee of Lender. After the occurrence and
F-1
<PAGE>
during the continuance of an Event of Default (as defined in the Loan
Agreement), Lender may apply any of the foregoing to the payment of the
Obligations in such order of application as Lender shall elect.
3. Consents, Waivers, and Renewals. Lender may at any time and from
time to time, without impairing or affecting this Guarantee, and without notice
to or further consent of the Guarantor, (a) extend the time of payment of,
exchange or renew any of the Obligations, (b) retain or obtain a security
interest in property to secure the Obligations, or (c) 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. 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 counsel) incurred by
Lender 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 Lender, the Guarantor shall not be subrogated to any of the rights
of Lender until Lender shall have received final payment in full in cash of all
Obligations.
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 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. No waiver or amendment of this
F-2
<PAGE>
Guarantee shall be effective unless in writing and signed by Lender. 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, 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 duly authorized by all necessary corporate action and do not
contravene any provision of the Guarantor's Certificate of Incorporation 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 and to
equitable principles of general application.
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 law of the State of New York
F-3
<PAGE>
applicable to contracts made and to be performed entirely within such State.
12. Notices. Any notice or communication to the Guarantor in
respect of this Guarantee shall be in writing and delivered in
person or sent by certified or registered mail or the equivalent,
by courier, or by facsimile addressed to the following:
DVI, Inc.
4041 MacArthur Boulevard
Suite 401
Newport Beach, California 92660
Attention: Chief Financial Officer
Telephone: 714-474-5821
Telecopy: 714-474-5864
and
DVI, Inc.
500 Hyde Park
Doylestown, Pennsylvania 18910
Telephone: (215) 345-6600
Telecopy: (215) 230-8108
Notices given by facsimile transmission shall be deemed given when sent; notices
sent by mail shall be deemed given three Business Days (as defined in the Loan
Agreement) after the date sent; and notices sent by hand shall be deemed given
when received. 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 Loan Agreement.
13. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS GUARANTEE SHALL BE
BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN
THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. THE
GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET
FORTH ABOVE. THE GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR
WITHOUT THE STATE OF NEW YORK. THE GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY
SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
14. Waiver of Jury Trial. THE GUARANTOR HEREBY WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER
THIS GUARANTEE AND ANY AMENDMENT,
F-4
<PAGE>
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP
EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
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:
F-5
<PAGE>
Exhibit G
CUSTODIAL AGREEMENT
CUSTODIAL AGREEMENT, dated as of July 27, 1995 (as it may be
amended or otherwise modified from time to time, this "Agreement"), among
(i) UNION BANK OF SWITZERLAND, NEW YORK BRANCH (the "Lender"), (ii) BANKERS
TRUST COMPANY (the "Custodian"), and (iii) DVI FINANCIAL SERVICES, INC. (the
"Borrower").
RECITALS:
A. The Borrower is the owner of certain equipment
leases and all rights with respect thereto (including
ownership of or security interests in the related equipment)
(the "Contracts");
B. The Lender has agreed to provide interim
financing for the Contracts pursuant to the Loan and Security
Agreement referred to below;
C. The Lender desires to have the Custodian take
possession of certain of the Contracts, along with certain
other documents specified in this Agreement, as the custodian
for, and bailee of, the Lender in accordance with the terms
and conditions of this Agreement; and
D. The Custodian desires to enter into an agreement
whereby it will serve as bailee and custodian of such Contracts and
certain other documents as may from time to time be delivered to the
Custodian for the benefit of the Lender.
NOW, THEREFORE, the parties, intending to be legally bound,
hereby agree as follows:
1. Definitions. In addition to the terms defined
elsewhere in this Agreement, the following terms shall have the
following meanings when used in this Agreement:
"Advance" means any advance under the Loan and Security
Agreement, notice of which shall be sent to the Custodian two (2) Business Days
prior to any such advance.
"Agent Bank" shall have the meaning specified in
Section 19 hereof.
G-1
<PAGE>
"Authorized Representatives" shall have the meaning
specified in Section 18 hereof.
"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 an agreement between the Borrower and
a Broker, pursuant to which the Borrower acquired a Contract, or a security
interest therein, from such Broker.
"Business Day" means any day other than a Saturday, a Sunday
or a day on which banking institutions in New York City or in the city in which
the principal corporate trust office of the Custodian is located are authorized
or obligated by law or executive order to be closed.
"Certification" shall have the meaning specified in
Section 3 hereof.
"Contract Schedule" means, collectively, all schedules of
Contracts delivered by the Borrower to the Lender, each such schedule to be an
electronic record or floppy disk identifying: (i) the Contract identifying
number; (ii) the user's name; (iii) the street address where the related
equipment is in use, including the zip code; (iv) the description of such
equipment; (v) the original number of months to maturity and the number of
months remaining to maturity from the date of such 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; and (x) the present value of the remaining payments under the Contract
as of the close of business on the date of such schedule, determined in
accordance with the Loan and Security Agreement. The Contract Schedule shall be
delivered to the Custodian on computer readable magnetic tape or diskette.
"Contract Yield" shall mean, with respect to any Contract, the
contract yield on such Contract determined in accordance with Borrower's
customary practices in effect on the date hereof.
"Contracts" shall have the meaning specified in the
recitals.
"Custodian's Contract Files" means, with respect to a
Contract, those documents listed in Section 2 of this Agreement that are
delivered to the Custodian with respect to such Contract and all documents
subsequently delivered to the Custodian with respect to such Contract pursuant
to the last sentence of Section 2.
G-2
<PAGE>
"Deficiency" means a failure of a document to correspond to
the information on the Contract Schedule or the absence of a required document
from a Custodian's Contract File.
"Loan and Security Agreement" means the Loan and Security
Agreement dated as of July 27, 1995, between the Lender and the Borrower, as
amended, extended, or otherwise modified from time to time, pursuant to which
the Lender agrees, subject to the terms and conditions thereof, to provide
interim funding to the Borrower for Contracts.
"Person" means any association, business trust, corporation,
estate, governmental authority, joint venture, natural person, partnership,
trust or other entity.
"Request for Release and Receipt of Documents" shall have the
meaning specified in Section 6 hereof.
2. Delivery of Custodian's Contract Files. At least two days
prior to each Advance, or such shorter time as may be agreed to from time to
time by the parties hereto, the Borrower shall deliver and release to the
Custodian as custodian for, and bailee of, the Lender the following documents
pertaining to each of the Contracts identified in the Contract Schedule which
shall be provided to the Custodian by the Borrower:
(a) The original or a certified copy of each master
lease relating to each such Contract and the original
supplement or schedule related thereto;
(b) A copy of any user insurance policy required to
be maintained by the Contracts;
(c) A copy of each delivery and acceptance
certificate with respect to each Contract which is a lease or a copy of
each original invoice for the related equipment and the receipt of
delivery related thereto with respect to each Contract which is a loan;
(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
necessary, 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;
(e) A copy of any related Broker Agreement (if
applicable); and
G-3
<PAGE>
(f) Any and all other documents that the Borrower
shall keep on file in accordance with customary industry procedures and
reasonably acceptable to the Lender relating to a Contract or the
equipment subject thereto (including, without limitation, any
amendments to the UCC-1 financing statements).
The Custodian shall be entitled to rely upon the Contract
Schedule provided by the Borrower as the conclusive schedule in its review,
pursuant to Sections 3 and 16(b) hereof, of the Custodian's Contract Files
delivered to it by the Borrower. From time to time, the Borrower shall forward
to the Custodian for inclusion in the appropriate Custodian's Contract File any
additional original loan documents evidencing any assignment or modification of
a Contract approved by the Borrower.
3. Certification. Prior to the funding of any Advance, the
Custodian shall review the Custodian's Contract Files delivered to the Custodian
to determine the contents of each and whether each document therein purporting
to be an original appears to be so on its face. Within one Business Day after
the delivery to the Custodian of such Custodian's Contract Files, the Custodian
shall deliver via facsimile (with the original via overnight courier) to the
Lender (with a copy to the Borrower) a certificate (the "Certification"), in
substantially the form annexed as Exhibit 1, to the effect that, as to each
Contract listed on the related Contract Schedule attached to such Certification
(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) and (e)
of this 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 (vi), (ix) and (x) in the
definition thereof) accurately reflects the information set forth in the
Custodian's Contract File, with any exceptions noted as attached.
4. Deficiencies in Custodian's Contract Files. (a) If the
Certification discloses that any of the documents enumerated in Section 2(a),
(b), (c), (d) or (e) are missing or discloses any Deficiencies in the documents
included in any Custodian's Contract Files delivered to the Custodian, then the
Lender shall promptly notify the Custodian in writing that either (i) the
Borrower shall deliver the missing documents noted in the Certification to the
Custodian, (ii) the Lender has waived the Deficiencies noted in the
Certification, (iii) the Borrower shall cure the Deficiencies within five
Business Days, or (iv) the Borrower shall substitute another Contract for the
deficient Contract and shall deliver to
G-4
<PAGE>
the Custodian the Custodian's Contract File with respect to the
substituted Contract.
(b) If the Lender's written notice states that the Borrower
shall take either of the actions specified in clause (i) or (iii) of Section
4(a) above and the Borrower fails to take such actions within 30 days after the
Custodian's receipt of such notice, then the Custodian shall notify the Lender
and the Borrower of such failure and release or retain the deficient Custodian's
Contract File in accordance with the written instructions of the Lender;
provided that the Lender shall not instruct the Custodian to retain the
deficient Custodian's Contract File if the Lender has not funded against the
related Contract.
(c) If the Lender's written notice states that the Borrower
shall take the actions specified in clause (iv) of Section 4(a) above, then the
Custodian shall return the deficient Custodian's Contract File to the Borrower
promptly following delivery to it of the Custodian's Contract File to be
substituted therefor. If the Borrower fails to deliver the substituted
Custodian's Contract File to the Custodian within five days after the
Custodian's receipt of such notice, then the Custodian shall notify the Lender
and the Borrower of such failure and release or retain the Custodian's Contract
File in accordance with the written instructions of the Lender; provided that
the Lender shall not instruct the Custodian to retain the deficient Custodian's
Contract File if the Lender has not funded against the related Contract.
(d) Within five days after receipt by the Custodian of any
additional or substituted documents pursuant to Section 4(a), the Custodian
shall review such documents and deliver to the Lender and the Borrower, in the
case of clauses (i), (ii) or (iii) of Section 4(a), an updated exception report,
or, in the case of clause (iv) of Section 4(a), a new Certification. If the
updated exception report or new Certification shall indicate any remaining
Deficiencies in a Custodian's Contract File, the provisions of this Section 4
shall again be followed.
5. Obligations of the Custodian. (a) The Custodian
shall segregate and maintain continuous custody of all items
constituting the Custodian's Contract Files in secure facilities in
accordance with customary standards for such custody.
(b) With respect to the documents constituting each
Custodian's Contract File that are delivered to the Custodian, the Custodian
shall (i) act exclusively as the custodian for, and the bailee of, the Lender,
(ii) hold all documents constituting such Custodian's Contract File received by
it for the exclusive use and benefit of the Lender, and (iii) make disposition
thereof only in accordance with the terms of this Agreement or with written
instructions furnished by the Lender.
G-5
<PAGE>
(c) The Lender, upon the release of the Contracts from the
Lien of the Loan and Security Agreement, shall notify the Custodian in writing
with respect to such release, and the Custodian shall then deliver the Contracts
to the Borrower or its designee within five Business Days thereafter; provided,
however, that where the Borrower has designated the Custodian acting other than
as Custodian under this Agreement as the Person to whom the Contracts should be
delivered, the Custodian shall deliver such Contracts on the date on which such
notice is provided.
(d) In the event that (i) the Lender, the Borrower, or the
Custodian shall be served by a third party with any type of levy, attachment,
writ or court order with respect to any Custodian's Contract File or a document
included within a Custodian's Contract File or (ii) a third party shall
institute any court proceeding by which any Custodian's Contract File or a
document included within a Custodian's Contract File shall be required to be
delivered otherwise than in accordance with the provisions of this Agreement,
the party receiving such service shall promptly deliver or cause to be delivered
to the other parties to this Agreement copies of all court papers, orders,
documents and other materials concerning such proceedings. The Custodian shall
continue to hold and maintain all the Custodian's Contract Files that are the
subject of such proceedings pending a final order of a court of competent
jurisdiction permitting or directing disposition thereof. Upon final
determination of such court, the Custodian shall dispose of such Custodian's
Contract File or a document included within such Custodian's Contract File as
directed by such determination or, if no such determination is made, in
accordance with the provisions of this Agreement. Expenses of the Custodian
incurred as a result of such proceedings shall be borne by the Borrower.
6. Release of Custodian's Contract File. From time to time and
as appropriate for the servicing of any of the Contracts, the Custodian is
hereby authorized, upon receipt of a written request and receipt of the Borrower
acknowledged by the Lender in substantially the form annexed as Exhibit 2 (a
"Request for Release and Receipt of Documents"), to release to the Borrower
within five Business Days of receipt of such Request for Release and Receipt of
Documents, the related Custodian's Contract File or the documents from a
Custodian's Contract File set forth in such request and receipt. All documents
so released to the Borrower shall be held by the Borrower in trust for the
benefit of the Lender in accordance with the Loan and Security Agreement. The
Borrower shall return to the Custodian each and every document previously
requested from the Custodian's Contract File when the Borrower's need therefor
in connection with such servicing no longer exists, unless the Advance (as
defined in the Loan and Security Agreement) relating to such Contract has been
paid, in which case, upon receipt of a certification to this effect from the
Borrower to the Custodian in substantially the form annexed as Exhibit 2, a copy
of the Borrower's prior receipt shall be returned by the Custodian to
G-6
<PAGE>
the Borrower. The Lender agrees to acknowledge, within three Business Days of
receipt, any Request for Release and Receipt of Documents properly completed and
submitted by the Borrower, and not to unreasonably withhold any such
acknowledgement.
7. Release Upon Redelivery or Payment. Upon the redelivery of
any Contract pursuant to the Loan and Security Agreement or the payment in full
of any Contract, which shall be evidenced by the delivery to the Custodian of
the Borrower's Request for Release and Receipt of Documents, the Custodian shall
promptly release the related Custodian's Contract File to the Borrower.
8. Fees and Expenses of the Custodian. It is understood that
the Custodian will charge such fees for its services, and shall be entitled to
reimbursement for expenses, under this Agreement as are set forth in the
separate fee letter between the Custodian and the Borrower.
9. Examination of Custodian's Contract Files. Upon reasonable
prior written notice to the Custodian, the Lender and its authorized
representatives at the Borrower's expense will be permitted during normal
business hours to examine the Custodian's Contract Files, documents, records and
other papers in the possession, or under the control, of the Custodian relating
to any or all of the Contracts.
10. Transfer of Custodian's Contract Files Upon Termination.
If the Custodian is furnished with written notice and satisfactory evidence from
the Lender that the Loan and Security Agreement has been terminated as to any or
all of the Contracts, the Custodian shall, upon written request of the Lender,
release to such Persons as the Lender shall designate such Custodian's Contract
Files relating to such Contracts as the Lender shall request.
11. Insurance of the Custodian. The Custodian shall, at its
own expense, maintain at all times during the term of this Agreement and keep in
full force and effect (a) fidelity insurance, (b) theft of documents insurance
and (c) forgery insurance. All such insurance shall be in amounts, with standard
coverage and subject to deductibles, as are customary for similar insurance
typically maintained by banks that act as custodian in similar transactions.
12. Periodic Statements. Within five Business Days after the
end of each month, or within one Business Day after the written request of the
Lender, the Custodian shall provide the Lender with a list of all the Contracts
for which the Custodian holds a Custodian's Contract File pursuant to this
Agreement. Such list may be in the form of a copy of the Contract Schedule with
manual deletions to specifically denote any Contracts paid off,
G-7
<PAGE>
liquidated, released or redelivered since the date of this Agreement.
13. Copies of Contract Documents. Within ten days after
the written request and at the expense of the Lender, the Custodian
shall provide the Lender with copies of the documents in the
Custodian's Contract Files.
14. Resignation by and Removal of the Custodian; Successor
Custodian. (a) The Custodian may at any time resign and terminate its
obligations under this Agreement upon at least 60 days' prior written notice to
the Borrower and the Lender. Promptly after receipt of notice of the Custodian's
resignation, the Borrower shall appoint, by written instrument, a successor
custodian, subject to written approval by the Lender. If the Borrower fails to
appoint a successor within 30 days, the Lender shall appoint a successor
custodian. One original counterpart of such instrument of appointment shall be
delivered to each of the Borrower, the Custodian and the successor custodian.
(b) The Lender, with or without cause, upon at least 60 days'
written notice to the Custodian, may remove and discharge the Custodian (or any
successor custodian thereafter appointed) from the performance of its
obligations under this Agreement. A copy of such notice shall be delivered to
the Borrower. Promptly after the giving of notice of removal of the Custodian,
the Lender shall appoint, by written instrument, a successor custodian. One
original counterpart of such instrument of appointment shall be delivered to
each of the Borrower, the Custodian and the successor custodian.
(c) In the event of any such resignation or removal, the
Custodian shall promptly transfer to the successor custodian, as directed in
writing by the Lender, all the Custodian's Contract Files being administered
under this Agreement. Any such transfer of the Custodian's Contract Files
arising out of the resignation of the Custodian shall be at the expense of the
Custodian; and any such transfer of the Custodian's Contract Files arising out
of the removal of the Custodian shall be at the expense of the Lender.
15. Indemnity. Neither the Custodian nor any of its directors,
officers, agents or employees shall be liable for any action taken or omitted to
be taken by it or them hereunder or in connection herewith in good faith and
believed by it or them to be within the purview of this Custodial Agreement,
except for its or their own negligence, lack of good faith or wilful misconduct.
The Borrower agrees to indemnify and hold harmless the Custodian, its officers,
directors, employees and agents against any and all claims, losses, liabilities
or expenses (including, but not limited to, attorneys' fees, court costs and
costs of investigation) of any kind or nature whatsoever that may be imposed on,
incurred by or asserted against it or them or in any way relating to or arising
out of or in connection with this Agreement or any action taken or
G-8
<PAGE>
not taken by it or them hereunder; provided, however, that this Section 15 shall
not relieve the Custodian from liability for its willful misfeasance, bad faith
or negligence. The provisions of this Section 15 shall survive the resignation
or removal of the Custodian and the termination of this Agreement.
16. Limitation of Liability. (a) The obligations of the
Custodian shall be determined solely by the express provisions of
this Agreement. No representation, warranty, covenant, agreement,
obligation or duty of the Custodian shall be implied with respect
to this Agreement or the Custodian's services hereunder.
(b) In the Custodian's review of documents pursuant to Section
3 of this Agreement, the Custodian shall be under no duty or obligation to
inspect, review or examine the Custodian's Contract Files to determine that the
contents thereof are genuine, enforceable or appropriate for the represented
purpose or that they have been actually recorded or that they are other than
what they purport to be on their face.
(c) The Custodian may rely, and shall be protected in acting
or refraining to act, upon and need not verify the accuracy of any (i) oral
instructions from any person the Custodian believes to be authorized to give
such instructions, who shall only be, with respect to the Borrower and to the
Lender, persons the Custodian believes in good faith to be Authorized
Representatives, and (ii) any written instruction, notice, order, request,
direction, certificate, opinion or other instrument or document believed by the
Custodian to be genuine and to have been signed or presented by the proper party
or parties, which, with respect to the Borrower and to the Lender, shall mean
signature and presentation by Authorized Representatives.
(d) The Custodian may consult with counsel with regard to
legal questions arising out of or in connection with this Agreement, and the
advice or opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, omitted or suffered by the Custodian
in reasonable reliance, in good faith, and in accordance therewith.
(e) No provision of this Agreement shall require the Custodian
to expend or risk its own funds or otherwise incur financial liability in the
performance of its duties under this Agreement if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity is not
reasonably assured to it.
(f) The Custodian shall not be responsible or liable for, and
makes no representation or warranty with respect to, the validity, adequacy or
perfection of any lien upon, or security interest in, any Contracts or
Custodian's Contract Files purported to be granted at any time to the Lender.
G-9
<PAGE>
17. Term of Agreement. Promptly after written notice from the
Lender of the termination of the Loan and Security Agreement and payment in full
of all amounts owing to the Lender thereunder, the Custodian shall deliver all
documents remaining in the Custodian's Contract Files to the Borrower and this
Agreement shall thereupon terminate.
18. Authorized Representatives. The names of the officers of
the Borrower and of the Lender who are authorized to give and receive notices,
requests and instructions and to deliver certificates and documents in
connection with this Agreement on behalf of Borrower and on behalf of the Lender
("Authorized Representatives") are set forth on Exhibit 3, along with the
specimen signature of each such officer. From time to time, the Borrower and the
Lender may, by delivering to the Custodian a revised exhibit, change the
information previously given, but the Custodian shall be entitled to rely
conclusively on the last exhibit until receipt of a superseding exhibit.
19. 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.
4041 MacArthur Boulevard
Suite 401
Newport Beach, California 92660
Attention: Chief Financial Officer
Telephone: (714) 474-5821
Telecopy: (714) 474-5899
and
DVI Financial Services, Inc.
500 Hyde Park
Doylestown, Pennsylvania 18910
Telephone: (215) 345-6600
Telecopy: (215) 230-8108
in the case of notices delivered
pursuant to Sections 3, 12 or 14 hereof,
with a copy to
NatWest Bank N.A., as Agent
(the "Agent Bank")
175 Water Street
28th Floor
G-10
<PAGE>
New York, N.Y. 10038
Attention: Leasing Division - Merily McLaughlin
Telephone: (212) 602-2949
Telecopy: (212) 602-2180
If to the Custodian:
Bankers Trust Company
Four Albany Street, 7th Floor
New York, N.Y. 10006
Attention: Mortgage Custody/UBS-DVI
July 27, 1995 Custodial Agreement
Telephone Number: (212) 250-5371
Telecopy Number: (212) 250-1185
If to the Lender:
Union Bank of Switzerland, New York Branch
299 Park Avenue
New York, New York 10171-0026
Attention: Michael J. Ahearn
Telephone Number: (212) 821-3360
Telecopy Number: (212) 821-3890
Each of the Lender and the Custodian shall use its best efforts to provide to
the Agent Bank a copy of notices delivered by it to the Borrower; provided that
neither the Lender nor the Custodian shall have any liability whatsoever to the
Agent Bank or to any Person claiming through the Agent Bank or to any other
Person, arising from or relating to any such notices or the contents thereof or
arising from or relating to the failure of the Lender or the Custodian to
provide the Agent Bank with a copy of any such notice, and any such failure of
the Lender or the Custodian to so provide notice to the Agent Bank shall not
prejudice any of the rights of the Lender or the Custodian hereunder.
20. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York
applicable to contracts made and to be entirely performed in such
State.
21. Assignment. No party to this Agreement may assign its
rights or delegate its obligations under this Agreement without the express
written consent of the other parties, except as otherwise set forth in this
Agreement; provided that the Lender may assign its rights and obligations
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 Loan and Security Agreement to such
affiliate.
G-11
<PAGE>
22. Hypothecation or Pledge of Contracts. Nothing in this
Agreement shall preclude the Lender from engaging in repurchase transactions
with any of the Contracts or otherwise pledging, repledging, hypothecating or
rehypothecating any of the Contracts, but no such transaction shall relieve the
Lender of its obligations to the Borrower under this Agreement or the Loan and
Security Agreement. In connection with any such transaction, the Lender may
direct the Custodian to release Custodian's Contract Files, or may request that,
with respect to designated Custodian's Contract Files, the Custodian shall act
as bailor for a third party designated by the Lender and shall acknowledge same
to such third party, in accordance with a separate agreement among the Lender,
the Custodian and such third party.
23. 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 together shall constitute and be one and the same
instrument.
24. Headings. The Section headings are not part of this
Agreement and shall not be used in its interpretation.
25. Transmission of Custodian's Contract Files. Written
instructions as to the method of shipment and shipper(s) the Custodian is
directed to utilize in connection with transmission of contract files in the
performance of the Custodian's duties hereunder shall be delivered by the Lender
or the Borrower, as the case may be (the "Requesting Party"), to the Custodian
prior to any shipment of any contract files hereunder. In the event the
Custodian does not receive such written instructions as to the method of
shipment, the Custodian is hereby authorized to use a nationally recognized
overnight courier service which provides a confirmation of delivery. The
Requesting Party will arrange for the provision of such services at its sole
cost and expense (or, at the Custodian's option, reimburse the Custodian for all
costs and expenses incurred by the Custodian in connection with such shipment)
and will maintain such insurance against loss or damage to contract files as the
Requesting Party deems appropriate. Without limiting the generality of the
provisions of Section 15 above, it is expressly agreed that in no event shall
the Custodian have any liability for any losses or damages to any person,
including, without limitation, the Lender or the Borrower, as the case may be,
arising out of actions of the Custodian consistent with instructions of the
Requesting Party.
G-12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
the day and year first above written.
BANKERS TRUST COMPANY
By:__________________________________
Name:_____________________________
Title:____________________________
UNION BANK OF SWITZERLAND, NEW YORK
BRANCH
By:__________________________________
Name:_____________________________
Title:____________________________
By:__________________________________
Name:_____________________________
Title:____________________________
DVI FINANCIAL SERVICES, INC.
By:__________________________________
Name:_____________________________
Title:____________________________
G-13
<PAGE>
Exhibit 1
Form of Certification
Union Bank of Switzerland,
New York Branch
299 Park Avenue
New York, New York 10171-0026
Attention: Michael J. Ahearn
Re: Custodial Agreement (the "Custodial Agreement")
dated as of July 27, 1995, among Union Bank of
Switzerland, New York Branch (the "Lender"), DVI
Financial Services, Inc., and Bankers Trust Company
(the "Custodian")
Gentlemen:
In accordance with the provisions of Section 3 of the
Custodial Agreement, the undersigned, as Custodian, hereby certifies that, as to
each Contract listed in the Contract Schedule (other than any Contract paid in
full or any Contract listed on the attachment hereto), it has reviewed the
documents delivered to it pursuant to Section 2(a), (b), (c), (d) and (e) of the
Custodial Agreement, as specified on the related Contract Schedule, and has
determined that (i) all such documents are in its possession, (ii) such
documents have been reviewed by it and have not been mutilated, damaged, torn or
otherwise physically altered and relate to such Contract, (iii) based on its
examination, and only as to the foregoing documents, the information set forth
in the Contract Schedule (with the exception of items (vi), (ix) and (x) in the
definition thereof) respecting such Contract accurately reflects the information
set forth in the Custodian's Contract File, with any exceptions attached hereto.
This Certification is not divisible or transferable nor shall
it entitle the holder hereof to possession of the Custodian's Contract Files to
which it relates.
The Custodian has made no independent examination of such
documents beyond the review specifically required in the above-referenced
Custodial Agreement. The Custodian makes no representations as to, and shall not
be responsible to verify, (i) the validity, legality, enforceability,
sufficiency, due authorization, recordability or genuineness of any document in
any of the Custodian's Contract Files or of any of the Contracts or (ii) the
collectibility, insurability, effectiveness or suitability of any such Contract.
Capitalized terms used herein shall have the respective
meanings assigned to them in the above-captioned Custodial Agreement.
G-14
<PAGE>
Bankers Trust Company, as Custodian
By
---------------------------------
Print Name:
Title:
G-15
<PAGE>
Exhibit 2
REQUEST FOR RELEASE AND RECEIPT OF DOCUMENTS
To: Bankers Trust Company
Re: Custodial Agreement (the "Custodial Agreement")
dated as of July 27, 1995, among Union Bank of
Switzerland, New York Branch (the "Lender"), DVI
Financial Services, Inc., and Bankers Trust Company
(the "Custodian")
Gentlemen:
In connection with the administration of the Contracts held by
you as the Custodian for the Lender, we request, the release and acknowledge
receipt, of the (Custodian's Contract File/ specify documents) for the Contract
described below, for the reason indicated.
Please send Custodian's Contract File/ specify document to:
Name:
Address:
Telephone No.:
Attention:
User's Name, Address & Zip Code:
Contract Number:
Reason for Requesting Documents (check one):
1. Contract Paid in Full
2. Contract Redelivered Pursuant to Section 7 of the
Custodial Agreement
3. Contract Liquidated by
4. Contract substituted with alternate Contract to be
delivered to the Custodian with a revised Contract Schedule
indicating substitutions
5. Other (explain)
G-16
<PAGE>
If item 1, 2 or 3 above is checked, and if all or part of the Custodian's
Contract File was previously released to us, please release to us our previous
receipt on file with you, as well as any additional documents in your possession
relating to the above specified Contract.
If item 5 above is checked, upon our return of all of the above document to you
as the Custodian, please acknowledge your receipt by signing in the space
indicated below, and returning this form.
DVI Financial Services, Inc.
(Borrower)
By:
-------------------------
Print
Name:
Title:
Date:
ACKNOWLEDGED:
Union Bank of Switzerland, New York Branch
(Lender)
By:
-------------------------
Print
Name:
Title:
Date:
DOCUMENTS RETURNED TO THE CUSTODIAN:
Bankers Trust Company
(Custodian)
By:
-------------------------
Print
Name:
Title:
Date:
G-17
<PAGE>
Exhibit 3
Authorized Representatives
Borrower
Lender
G-18
<PAGE>
Schedule 1
Recordings and Filings
Jurisdiction Filing
------------ ------
Secretary of State of Pennsylvania UCC-1
Prothonotary of Bucks County, UCC-1
Pennsylvania
Secretary of State of California UCC-1
S-1
AMENDMENT
TO
BYLAWS
OF
DVI, INC.
The Bylaws of DVI, Inc. are hereby amended as follows:
Section 7.1 is hereby deleted in its entirety and replaced with the
following:
Section 7.1. Officers.
At its annual meeting, or at such other meeting as it may
determine, or by unanimous written consent of the directors without meeting, the
Board of Directors shall elect a President, a Treasurer and a Secretary, and may
elect one or more Executive Vice Presidents, Senior Vice Presidents, Vice
Presidents, Assistant Treasurers, Assistant Secretaries, and such other officers
as the Board of Directors from time to time may designate or the business of the
Corporation may require. No executive officer need be a member of the Board of
Directors. Any number of offices may be held by the same person.
Section 7.7 is hereby deleted in its entirety and replaced with the
following:
Section 7.7. The Executive Vice President(s), Senior Vice
President(s) and Vice President(s).
The Executive Vice President, Senior Vice President and/or
Vice President, or if there are more than one, the Executive Vice Presidents,
Senior Vice Presidents and/or Vice Presidents shall perform such duties as may
be specifically assigned to them from time to time by the Board of Directors or
the President and shall exercise such powers as the Board of Directors from time
to time may prescribe. In case of the absence or disability of the President and
if the Board of Directors or the President has so authorized, the Executive Vice
President, or if there is more than one Executive Vice President, such Executive
Vice President as the Board of Directors or the President shall designate shall
perform the duties of the office of the President. Any Executive Vice President,
Senior Vice President and/or Vice President shall have general authority to
affix the seal of the Corporation to any instrument requiring it, and to attest
the affixing by his/her signature.
Dated: April 17, 1996 /S/ Melvin C. Breaux
--------------------
Melvin C. Breaux
Secretary
APPROVED:
/S/ Michael A. O'Hanlon
- -----------------------
Michael A. O'Hanlon
Director
EXHIBIT 10.34
SECOND AMENDMENT
THIS SECOND AMENDMENT dated as of April 30, 1996 (this "Amendment") is
to the Loan and Security Agreement dated as of July 27, 1995, between DVI
FINANCIAL SERVICES, INC. (the "Borrower") and UNION BANK OF SWITZERLAND, NEW
YORK BRANCH (the "Lender") (as heretofore amended, the "Agreement"). Unless
otherwise defined herein, terms defined in the Agreement are used herein as
defined in the Agreement.
WHEREAS, the Borrower and the Lender desire to amend the Agreement to
extend the Commitment Termination Date and the Maturity Date;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION 1 Amendments to Agreement. Subject to the satisfaction of the
condition precedent set forth in Section 3 below, the Agreement shall be
amended, as of the date hereof, in accordance with Sections 1.1 through 1.2
below.
1.1 Section 2(a). Section 2(a) of the Agreement shall be amended by
deleting the date "April 30, 1996" where it appears in such Section and
inserting the date "August 31, 1996" in lieu thereof.
1.2 Section 2(b). Section 2(b) of the Agreement shall be amended by
deleting the date "June 30, 1996" where it appears in such Section and inserting
the date "October 31, 1996" in lieu thereof.
SECTION 2 Representations and Warranties. The Borrower hereby certifies
that the following statements, before and after giving effect to the amendments
contemplated herein, are true and correct as of the date hereof: (a) each of the
representations and warranties contained in the Agreement is true and correct in
all material respects; and (b) no Default or Event of Default has occurred and
is continuing.
SECTION 3 Effectiveness. The amendments set forth in Section 1 and
Section 2 above are subject to the condition precedent that the Lender shall
have received each of the following documents, each in form and substance
satisfactory to the Lender:
3.1 Amendment. Counterparts of this Amendment executed by the Borrower
and the Lender and a counterpart of the confirmation at the foot hereof
executed by DVI, Inc.
<PAGE>
3.2 Other Documents. Such other documents as the Lender may
reasonably request in connection with the Borrower's authorization,
execution and delivery of this Amendment.
SECTION 4 Miscellaneous.
4.1 Continuing Effectiveness, etc. As herein amended, the Agreement
shall remain in full force and effect and is hereby ratified and confirmed in
all respects. After the condition precedent in Section 3 hereof has been
satisfied, all references in the Agreement, the Custodial Agreement, the Note,
the Guarantee, or any other document to the "Agreement" shall refer to the
Agreement, as amended hereby.
4.2 Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original but all such counterparts
shall together constitute one and the same Amendment.
4.3 Expenses. The Borrower agrees to pay the reasonable costs and
expenses of the Lender (including, without limitation, reasonable fees and
disbursements of counsel) in connection with the preparation, execution and
delivery of this Amendment.
4.4 Governing Law. This Amendment and the rights and obligations of the
parties hereunder and under the Agreement as amended hereby 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 entirely within such State.
4.5 Successors and Assigns. This Amendment shall be binding upon the
Borrower and the Lender and their respective successors and assigns, and shall
inure to the benefit of the Borrower and the Lender and the successors and
assigns of the Lender.
-2-
<PAGE>
Delivered at New York, New York, as of the day and year first above
written.
LENDER: UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
Name:____________________
Title:___________________
By:______________________
Name:____________________
Title:___________________
BORROWER: DVI FINANCIAL SERVICES, INC.
By:______________________
Name:____________________
Title:___________________
The undersigned hereby confirms to the Lender that, after giving effect
to the foregoing Amendment, its Guarantee dated as of July 27, 1995, continues
in full force and effect and is the legal, valid and binding obligation of the
undersigned, enforceable against the undersigned in accordance with its terms.
DVI, INC.
By:______________________
Name:____________________
Title:___________________
-3-
COMPOSITE
REFLECTING AMENDMENTS
NOS. 1, 2 & 3
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
$116,500,000 Facility
Dated June 14, 1991
Amended and Restated as of March 28, 1995
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1. DEFINITIONS.......................................................2
Section 1.1 General Definitions....................................2
Section 1.2 Borrowing Base........................................30
Section 1.3 Interpretation........................................33
ARTICLE 2. COMMITMENTS; LOANS...............................................35
Section 2.1 Loans; Credit Period; Term Conversion.................35
Section 2.2 Changes in Commitment.................................35
Section 2.3 Borrowing Notice; Borrowing Base
Report................................................35
Section 2.4 Fees..................................................37
Section 2.5 Lending Offices.......................................37
Section 2.6 Disbursement of Loan Proceeds.........................37
Section 2.7 Conversions of Loans..................................38
Section 2.8 Mandatory and Optional Prepayments....................38
Section 2.9 Use of Proceeds.......................................39
Section 2.10 Principal Repayment Schedule..........................39
Section 2.11 Interest..............................................40
Section 2.12 Notes.................................................41
Section 2.13 Time and Method of Payments...........................42
Section 2.14 Computations..........................................42
Section 2.15 Minimum Borrowings, Conversions and
Prepayments...........................................42
Section 2.16 Additional Costs......................................43
Section 2.17 Limitation on Types of Loans..........................45
Section 2.18 Illegality............................................46
Section 2.19 Forced Conversions....................................46
Section 2.20 Indemnification.......................................46
Section 2.21 Security Documents; Guaranties........................47
Section 2.22 Forms of Borrower Agreements..........................47
Section 2.23 Required Borrowing Documentation......................48
Section 2.24 LockBox Arrangements..................................50
Section 2.25 Pro Rata Treatment Among Banks........................51
Section 2.26 NonReceipt of Funds by the Agent......................52
Section 2.27 Sharing of Payments and Set-Off
Among Banks...........................................52
Section 2.28 Several Obligations...................................53
Section 2.29 Release of Agent's Lien...............................53
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
Section 2.30. PreFunding Loans......................................54
ARTICLE 3. REPRESENTATIONS AND WARRANTIES....................................60
Section 3.1 Organization..........................................60
Section 3.2 Power, Authority, Consents............................61
Section 3.3 No Violation of Law or Agreements.....................62
Section 3.4 Due Execution, Validity,
Enforceability........................................62
Section 3.5 Properties, Priority of Liens.........................62
Section 3.6 Judgments, Actions, Proceedings.......................63
Section 3.7 No Defaults, Compliance With Laws.....................63
Section 3.8 Burdensome Documents..................................63
Section 3.9 Financial Statements..................................63
Section 3.10 Tax Returns...........................................64
Section 3.11 Intangible Assets.....................................64
Section 3.12 Regulation U..........................................64
Section 3.13 Name Changes..........................................65
Section 3.14 Full Disclosure.......................................65
Section 3.15 Labor Disputes; Collective Bargaining
Agreements; Employee Grievances.......................65
Section 3.16 Condition of Assets...................................66
Section 3.17 ERISA.................................................66
Section 3.18 NonRecourse Debt......................................66
Section 3.19 Finders or Brokers....................................67
Section 3.20 Investment Company Act; Public Utility
Holding Company Act...................................67
Section 3.21 Borrowing Base Reports................................67
Section 3.22 Licenses and Approvals................................67
Section 3.23 Independent Credit Committee..........................67
ARTICLE 4. CONDITIONS TO THE LOANS..........................................67
Section 4.1 Conditions to Initial Loans...........................67
Section 4.2 Conditions to Subsequent Loans........................68
ARTICLE 5. DELIVERY OF FINANCIAL REPORTS,
DOCUMENTS AND OTHER INFORMATION..................................69
Section 5.1 Annual Financial Statements and
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
Budgets...............................................69
Section 5.2 Quarterly Financial Statements........................69
Section 5.3 Other Information.....................................70
Section 5.4 No Default Certificate................................70
Section 5.5 Copies of Documents...................................70
Section 5.6 Notices of Defaults...................................71
Section 5.7 ERISA Notices.........................................71
Section 5.8 Borrowing Base Reports................................71
ARTICLE 6. AFFIRMATIVE COVENANTS............................................73
Section 6.1 Books and Records.....................................73
Section 6.2 Inspections and Audits................................73
Section 6.3 Maintenance and Repairs...............................74
Section 6.4 Continuance of Business...............................74
Section 6.5 Copies of Corporate Documents.........................74
Section 6.6 Perform Obligations...................................75
Section 6.7 Notice of Litigation..................................75
Section 6.8 Insurance.............................................75
Section 6.9 Financial Covenants...................................76
Section 6.10 Reportable Events.....................................77
Section 6.11 Comply with ERISA.....................................77
Section 6.12 Upgrades and Add-ons..................................77
Section 6.13 Possession of Contracts...............................77
Section 6.14 Obligor Insurance Policies............................78
Section 6.15 Preservation and Perfection of Agent's
Liens.................................................79
Section 6.16 Environmental Compliance..............................79
Section 6.17 Management............................................79
ARTICLE 7. NEGATIVE COVENANTS...............................................79
Section 7.1 Indebtedness..........................................80
Section 7.2 Liens.................................................81
Section 7.3 Mergers, Acquisitions.................................84
Section 7.4 Redemptions; Distributions............................85
Section 7.5 Stock Issuance........................................87
Section 7.6 Changes in Business...................................87
Section 7.7 Prepayments...........................................87
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
Section 7.8 Investments...........................................88
Section 7.9 Fiscal Year...........................................89
Section 7.10 ERISA Obligations.....................................89
Section 7.11 Amendment of Documents................................89
Section 7.12 Capital Expenditures..................................90
Section 7.13 Rental Obligations....................................90
Section 7.14 Transactions with Affiliates..........................90
Section 7.15 Changes in Calculation of Net Book
Value.................................................90
Section 7.16 Non-DVI Generated Contracts...........................91
ARTICLE 8. EVENTS OF DEFAULT................................................91
Section 8.1 Payments..............................................91
Section 8.2 Covenants.............................................91
Section 8.3 Other Covenants.......................................91
Section 8.4 Other Defaults........................................92
Section 8.5 Representations and Warranties........................92
Section 8.6 Bankruptcy............................................93
Section 8.7 Judgments.............................................94
Section 8.8 ERISA.................................................94
Section 8.9 Ownership of Stock of Borrower........................94
Section 8.10 Liens.................................................94
Section 8.11 Guaranty..............................................94
Section 8.12 Parent Subordinated Debt..............................95
Section 8.13 Warehouse Loan Transactions...........................95
ARTICLE 9. THE AGENT........................................................96
Section 9.1 Appointment, Powers and Immunities....................96
Section 9.2 Reliance by Agent.....................................97
Section 9.3 Events of Default.....................................97
Section 9.4 Rights as a Bank......................................97
Section 9.5 Indemnification.......................................98
Section 9.6 Non-Reliance on Agent and other Banks.................98
Section 9.7 Failure to Act........................................99
Section 9.8 Resignation or Removal of Agent.......................99
Section 9.9 Sharing of Collateral and Payments...................100
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TABLE OF CONTENTS
(continued)
Page
----
ARTICLE 10. MISCELLANEOUS PROVISIONS....... ...............................101
Section 10.1 Fees and Expenses; Indemnity.........................101
Section 10.2 Taxes................................................102
Section 10.3 No Set-Off of Payments...............................103
Section 10.4 Survival of Agreements...............................103
Section 10.5 Lien on and Set-off of Deposits......................103
Section 10.6 Modifications, Consents and Waivers;
Entire Agreement.....................................104
Section 10.7 Remedies Cumulative..................................105
Section 10.8 Further Assurances...................................106
Section 10.9 Notices..............................................106
Section 10.10 Counterparts.........................................107
Section 10.11 Governing Law; Consent to Jurisdiction;
Waiver of Jury Trial.................................107
Section 10.12 Severability.........................................108
Section 10.13 Binding Effect; No Assignment by
Borrower.............................................109
Section 10.14 Assignments and Participations by
Banks................................................109
Section 10.15 Scope of Agent's Lien................................111
Section 10.16 Waiver of Relief from Bankruptcy
Code Stay............................................112
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
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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
14. Determination of Contract Advance Rate
EXHIBITS:
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
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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 $116,500,000 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.
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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:
"ADAC Contract" - means one of the Contracts listed on the
attached Schedule 14 so long as (i) such Contract meets all of the criteria for
being an Eligible Contract other than paragraphs (g), (j), (l) and (t) of the
definition of 'Eligible Contract', and (ii) the Equipment subject to such
Contract meets all of the criteria for being Eligible Equipment other than
paragraph (c) of the definition of 'Eligible Equipment'.
"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, "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.
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"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 1.35% for Eurodollar Loans, (B) if the Leverage Ratio is
equal to or more than 2:1 and less than or equal to 4:1, 0.0% for Prime Rate
Loans and 1.50% for Eurodollar Loans, (C) if the Leverage Ratio is more than
4:1, 0.125% for Prime Rate Loans and 1.65% for Eurodollar Loans, and
(D) regardless of the Leverage Ratio, for the portion of the unpaid principal
amount of any Loan whose proceeds were advanced by the Borrower to DBC for the
DBC Financed Amount of Eligible Healthcare Receivables, 0.125% for such portion
of Prime Rate Loans and 1.65% for such portion of 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.
"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
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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
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expenses paid in cash; provided, however, that "Cash Operating Expenses" shall
not include any bad debt expense.
"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 Advance Rate" - a percent determined in accordance
with Schedule 14 to this Loan Agreement.
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"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.
"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
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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.
"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
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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 set-off, counterclaim, defense
or abatement;
(e) no se-offs, 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 maintained the Equipment at the Obligor's
expense in good condition, repair and working order;
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(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
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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 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
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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:
(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;
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(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;
(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. ss.ss.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. ss.ss.1396 et seq.) and any succeeding
statutes (i.e., Medicaid), or (iii) the Civilian
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Health and Medical Program of the Uniformed Services established by 10 U.S.C.
ss.ss.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 set-offs, 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 Three-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
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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 three consecutive months or for a
period containing three consecutive contractual payments, whichever period is
longer, following the commencement of payment under the restructured terms, and
(iii) that meets all of the requirements of an Eligible Lease. Notwithstanding
the foregoing, Eligible Three-Month Restructured Leases do not include any
Eligible Six- Month Restructured Leases nor 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 any Loan
Party.
"Environmental Liability" - any liability under any Applicable
Law for any release of a hazardous substance caused by 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,
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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.
"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
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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).
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"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.
"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
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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 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.
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"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 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
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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.
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"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.
"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.
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"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.
"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
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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 Lenders to make Pre-Funding Loans in an 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) $15,000,000.
"Pre-Funding Commitment Fee" - as defined in
Section 2.30(f)(iv).
"Pre-Funding Lenders" refers to NatWest, with a Pre-Funding
Commitment in the aggregate amount not to exceed $8,000,000, and CoreStates,
with a Pre-Funding Commitment in the aggregate amount not to exceed $7,000,000;
"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 that NatWest may regularly make
domestic commercial loans at
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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
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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 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
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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 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.
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"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, 1996.
"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.
"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.
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"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 - The Contract
Advance Rate (90% on and after the Term Conversion Date) of the Present
Value of the Balance of Payments under Unfunded Eligible Contracts, and
80% of the Present Value of the Balance of Payments under Unfunded ADAC
Contracts; plus.
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(ii) Progress Payments Clause - The Contract Advance
Rate (90% on and after the Term Conversion Date) of Unfunded Progress
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 - (1) 75% of the Net
Book Value of Eligible Equipment subject to an Unfunded Eligible
Six-Month Restructured Lease; and (2) 75% of the Net Book Value of
Eligible Equipment subject to an Unfunded Eligible Three-Month
Restructured Lease, provided that the aggregate amount included under
this Section 1.2(a)(iv)(2) shall not exceed $5,000,000; plus.
(iv) 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
$18,000,000 (or, if the aggregate amount of Loans included under this
Section 1.2(a)(v) has not been less than $7,000,000 for at least 30
days during the preceding 12 months, $7,000,000); minus
(v) 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
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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. At no
time shall the amount originally included under any clause of the
Borrowing Base with respect to any Eligible Contract purchased by the
Borrower exceed the purchase price of such Eligible Contract. At no
time shall the amount included under any clause of the Borrowing Base
with respect to any Eligible Contract that includes a refinancing
exceed the amount refinanced plus the Invoiced Cost of any upgrade or
other newly purchased Equipment.
(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.
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(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.
(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.
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(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.
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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 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:
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(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 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
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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.
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 1:00 pm 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.
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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.
(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.
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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).
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(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 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;
provided, however, that within three Business Days after each such Monthly Date,
the Borrower shall (1) deliver a report to each Bank and the Agent setting forth
the average weighted portion of the Loans outstanding during the preceding month
whose proceeds were advanced by the Borrower to DBC for the DBC Financed Amount
of Eligible Healthcare Receivables, and (2) pay to the Agent any additional
amount of interest due and payable on such portion of the Loans as a result of
the Applicable Margin for such portion being 0.125% (for such portion of Prime
Rate Loans) or 1.65% (for such portion of Eurodollar Loans), as the case may be,
instead of the Applicable Margin specified in clauses (i)(A) through (i)(C) of
the definition of 'Applicable Margin'.
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(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 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
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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 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
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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
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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 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
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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.
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
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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
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:
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(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 future
transactions entered into by the Borrower or DBC that
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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
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(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
(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,
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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.
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
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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
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
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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, or any Affiliate that owns properties or assets covered by the Agent's
Lien may finance, specific properties or 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
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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 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;
(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; and
(e) in connection with any Indebtedness incurred by
DBC, the Agent shall receive from the lender to DBC such agreements as
are reasonably satisfactory to the Agent confirming that such lender
will not contest the enforceability or priority of the Agent's Lien in
the properties and assets of DBC.
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
any set-off, counterclaim, recoupment, defense or other right which
such Bank may have against the Pre-Funding Lenders or the Borrower, the
occurrence or continuance of a Default or Event of Default, any adverse
change in the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Borrower, any breach of any
Loan Document by the Borrower, or 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
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representations and warranties set forth in this Agreement, the
Pre-Funding Lenders agree 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 Lenders are 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 either 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 such amounts shall be advanced to the Agent for the account of the
Pre-Funding Lenders. 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 Lenders prior to repayment of
the Loans to the Banks.
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(e) Pre-Funding Loan Note and Records. The
Pre-Funding Loans shall be evidenced by two promissory notes of the
Borrower (the "Pre-Funding Loan Notes") one in substantially the form
attached as Exhibit C, dated June 14, 1991, in the principal amount of
$8,000,000 payable to NatWest as a Pre-Funding Lender, and the other in
substantially the form attached as Exhibit C, in the principal amount
of $7,000,000 payable to CoreStates as a Pre-Funding Lender, dated
December 29, 1995, and otherwise duly completed. The Pre-Funding
Lenders shall maintain records 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 to each Pre-Funding Lender pursuant to this Agreement. The
entries made by the Pre-Funding Lenders 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 each Pre-Funding Lender under this
Agreement and payments made on such amounts, but the failure by the
Pre-Funding Lenders to make such entries shall not affect the rights of
the Pre-Funding Lenders or the obligations of the Borrower under this
Agreement.
(f) Application for Pre-Funding Loan. (1) Application
for a Pre-Funding Loan (a "Pre-Funding Borrowing Notice") shall be made
to the Agent by telecopy notice which must be received by the Agent
before 1:00 pm 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 Lenders
will advance to the Borrower their respective pro rata share of the
amount requested up to the aggregate amount of the Pre-Funding
Commitment and each such Pre-Funding Lenders' Pre-Funding Commitment,
and the Borrower will borrow from the Pre-Funding Lenders, the
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amount specified in such Pre-Funding Borrowing Notice and the Borrower
will then be indebted to the Pre-Funding Lenders in the amount of their
respective pro-rata shares of such principal amount. The Pre-Funding
Lenders 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.
(2) Subject to Section 2.30(i) below, not
later than 1:00 p.m. on the date specified for each borrowing of a
Pre-Funding Loan under this Agreement, each Pre-Funding Lender shall
transfer to the Agent by wire transfer or otherwise but, in any event,
in immediately available funds, the amount of each Pre-Funding 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.
(3) Whenever request is made by the Borrower
for a Pre-Funding Loan, any obligation of the Pre-Funding Lenders to
fund such loans, shall be in the pro rata amount of their respective
share of the Pre-Funding Commitment, with NatWest funding 8/15ths of
each Pre-Funding Loan and CoreStates funding 7/15ths of each
Pre-Funding Loan up to the aggregate amount of their respective pro
rata share of the Pre-Funding Commitment.
(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 Lenders interest on the unpaid 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
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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 Agent in respect of a Pre-Funding Loan
shall be applied pro rata to the Pre-Funding Loans then outstanding for
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 Either
Pre-Funding Lender. At any time (whether or not a Default or an Event
of Default exists) either 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, either 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
Lenders 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 Lenders to be applied by the Pre-Funding Lenders to
refinance the Pre-Funding Loans; provided, however, that no Bank shall
be required to advance funds to the Agent in an
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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 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 Agent on
behalf of the Pre-Funding Lenders, in immediately available funds, the
amount of its participation and upon receipt of such amount the Agent
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 Lenders have
received from any Bank such Bank's participating interest in a
Pre-Funding Loan pursuant to Section 2.30(i)(ii) that either
Pre-Funding Lender receives any payment on account of the Pre-Funding
Loans, such 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 such Pre-Funding Lender is required to be returned,
such Bank will return to such Pre-Funding Lender any portion thereof
previously distributed by such Pre-Funding Lender to it in like funds
as such payment is required to be returned by such Pre-Funding Lender.
(j) Pre-Funding Commitment Fee. The Borrower shall pay to each
Pre-Funding Lender a commitment fee (the "Pre-Funding Commitment Fee")
on the daily average unused amount of the Pre-Funding Commitment of
such Pre-Funding Lender at 1/4 of 1% per annum on the unused
Pre-Funding Commitment for the period from March 28, 1995, with respect
to NatWest, and for the period from the date of this
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amendment, with respect to CoreStates, 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.
(k) Except as otherwise provided in this Agreement (i) each
borrowing from the Pre-Funding Lenders under Section 2.30 will be made
from the Pre-Funding Lenders and each refinancing or partial repayment
of a Pre-Funding Commitment Fee shall be made for the account of the
Pre-Funding Lenders' pro rata according to their respective share of
the Pre-Funding Commitment;
(l) Each payment and pre-payment of principal of or interest
on each such Pre-Funding Loan will be made to the Agent for the account
of the Pre-Funding Lenders holding such Pre-Funding Loan pro rata in
accordance with the respective unpaid principal amounts of each such
loan held by each such Pre-Funding Lenders; and
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 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
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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.
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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
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.
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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 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.
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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, 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
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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 ss.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 threatened, and (d) no actions, suits, charges, demands, claims,
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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.
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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 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
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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.
(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.
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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 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
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(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
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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;
(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
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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.
(e) The Borrower shall deliver to each Bank and the Agent, at
the same time it delivers the monthly Borrowing Base Report pursuant to Section
5.8(a), a report setting forth the Borrower's average leverage ratio (i.e.,
assets created for each $1.00 of cash received) and the amount of C-Piece
Financing incurred by Borrower."
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:
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 inspections and audits of
any books, records and papers of any Loan Party, to make extracts from and
copies of such books, records and papers, and to make inspections and
examinations of any properties and facilities of any Loan Party on reasonable
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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 and each Loan Party 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, and shall cause any other Loan Party to, 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.
The Banks and the Agent, on the one hand, and the Loan Parties, on the other
hand, shall bear the costs and expenses of their employees and personnel in
connection with such inspections and audits, except that the Borrower shall bear
the reasonable costs and expenses incurred by the Banks and the Agent in
connection with (a) one annual audit of the Borrower to be performed at the
request of the Agent, (b) one annual audit of DBC to be performed at the request
of the Agent, and (c) any inspection, audit or examination conducted after the
occurrence of and during the continuance of an Event of Default."
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
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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.
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
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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.
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
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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.
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
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(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 the Borrower naming the
Agent, the Borrower and the Borrower's assigns as loss payees as their
respective interest may appear.
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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:
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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 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
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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 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
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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 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;
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(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 the Obligor's obligations to the
Borrower and, as assigned, the Agent;
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(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;
(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; and
(l) Liens on Borrower's interest in the over-collateralization
portion of those certain Receivables covered by that Receivables Purchase
Agreement, dated as of November 30, 1994, among the Borrower, as Seller, Falcon
Asset Securitization Corporation, as Purchaser, and the first National Bank of
Chicago, as Agent, as the foregoing capitalized terms are defined in that
Agreement.
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
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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"), 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
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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 $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
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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.
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.
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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";
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(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
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.
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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), (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, and (iv) the Borrower may sell
working capital loans made to customers and secured by Healthcare Receivables to
any Affiliate so long as the purchase price paid by such Affiliate is
substantially the same as the purchase price which would be obtained 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
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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:
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
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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,
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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,
(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
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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
(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
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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 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
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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
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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.
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
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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 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
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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 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
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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 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
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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
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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 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
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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 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, a material
provision of Section 1.2 (unless the modification, amendment, waiver or
consent to Section 1.2 is administrative in nature) and the provisions
of this Section 10.6(b) shall require the agreement of the Agent and
all of the Banks;
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(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 Section 1.2 shall require the
agreement of the Agent and all of the Banks;
(v) 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 (iv) shall require the agreement
of the Agent and the Super-Majority Banks; and
(vi) 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.
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
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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
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<PAGE>
Doylestown, Pennsylvania 18901
Attention: Mr. Steve Garfinkel
Senior Vice President
Telecopier No.: 215-230-3537".
(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:
Feltman, Karesh, Major & Farbman
Limited Liability Partnership
Carnegie Hall Tower
152 West 57th Street
New York, New York 10019
Attention: Loren M. Dollet, Esq.
Telecopier No.: 212-586-0951
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
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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 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
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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 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
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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.
(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
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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
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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 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]
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<PAGE>
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:__________________________
Name:
Title:
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<PAGE>
Commitment:
Pre-Funding
Commitment:
$26,500,000
$8,000,000
NATWEST BANK N.A. (successor by
merger to National Westminster
Bank USA)
By:_____________________________
Name:
Title:
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
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<PAGE>
Commitment:
$15,000,000
FIRST BANK NATIONAL ASSOCIATION
By:_____________________________
Name:
Title:
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
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<PAGE>
Commitment:
$15,000,000
BANK HAPOALIM B.M., LOS ANGELES BRANCH
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title:
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
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<PAGE>
Commitment:
$15,000,000
SUMITOMO BANK OF CALIFORNIA
By:_____________________________
Name:
Title:
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
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Commitment:
Pre-Funding
Commitment:
$15,000,000
$7,000,000
CORESTATES BANK, N.A.
By:_____________________________
Name:
Title:
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
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Commitment: $15,000,000 MIDLANTIC BANK N.A.
By:__________________________
Name:
Title:
Lending Office for Prime Rate and
Eurodollar Loans:
[Address]
Attention:
Telex No.:
Answer Back Code:
Telecopier No.:
Address for Notices:
[Address]
Attention:
Telex No.:
Answer Back Code:
Telecopier No.:
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Commitment: $15,000,000 BHF-BANK AKTIENGESELLSCHAFT
By:__________________________
Name:
Title:
By:__________________________
Name:
Title:
Lending Office for Prime Rate and
Eurodollar Loans:
Grand Cayman Branch
c/o BHF-BANK AG
New York Branch
590 Madison Avenue
New York, New York 10022-2540
Attention: Renale Boston
Telex No.:
Answer Back Code:
Telecopier No.: 212-756-5536
Address for Notices:
Grand Cayman Branch
c/o BHF-BANK AG
New York Branch
590 Madison Avenue
New York, New York 10022-2540
Attention: Renale Boston
Telex No.:
Answer Back Code:
Telecopier No.: 212-756-5536
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SCHEDULE 14
Determination of Contract Advance Rate
The "Contract Advance Rate" shall be determined based on the
principal amount advanced to the Borrower or its wholly-owned affiliate in the
C-Piece Financing as follows:
C-Piece Financing Principal Amount
Contract Advance Rate
-------- ------------
If the aggregate principal amount advanced in
the C-Piece Financing is equal to
$5,200,000 or less 94.6%
If the aggregate principal amount advanced in
the C-Piece Financing is equal to
$10,400,000 94.3
If the aggregate principal amount advanced in
the C-Piece Financing is equal to
$15,600,000 93.9
If the aggregate principal amount advanced in
the C-Piece Financing is equal to
$20,800,000 93.6
If the aggregate principal amount advanced in
the C-Piece Financing is equal to
$26,000,000 93.2
If the aggregate principal amount advanced in
the C-Piece Financing is equal to
$31,200,000 or more 92.9
If the aggregate principal amount advanced in the C-Piece Financing is equal to
an amount in excess of $5,200,000, less than $31,200,000 and not listed in the
above table, the Contract Advance Rate will be determined by calculating where
such
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<PAGE>
aggregate principal amount advanced compares to the nearest higher and lower
advance amounts listed in the above table and then interpolating the Contract
Advance Rate (rounded to the nearest tenth of a percentage) between the
respective percentages set forth in the above table.
The foregoing table assumes that the Borrower's average
leverage ratio (i.e., assets created for each $1.00 of cash received) equals
7.86. If the Borrower's quarterly financial statements reflect an increase in
the Borrower's average leverage ratio, then the Agent may request (and shall
request at the direction of the Majority Banks) that appropriate adjustments be
made in the foregoing schedule, in which case the Agent and the Borrower shall
agree upon a new schedule within 30 days. The new Contract Advance Rate shall
take effect upon the agreement of the Agent and the Borrower and the giving of
notice of the new Contract Advance Rate by the Agent to the Banks.
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<PAGE>
EXHIBIT B
TO
LOAN AGREEMENT
AMENDED AND RESTATED
PRE-FUNDING NOTE
$_________ New York, New York
__________, 19__
FOR VALUE RECEIVED, DVI FINANCIAL SERVICES INC., a Delaware
corporation (the "Borrower"), hereby promises to pay to the order of [NATWEST
BANK N.A. (successor by merger to National Westminster Bank USA)][CORESTATES
BANK N.A.] a national banking association (the "Pre-Funding Lender") on the Term
Conversion Date or on such earlier date as is provided for in the First Amended
and Restated Loan Agreement dated June 14, 1991 and amended and restated as of
March 28, 1995 (as amended or supplemented from time to time, the "Loan
Agreement") between the Borrower, the banks signatory to the Loan Agreement (the
"Banks") and NatWest Bank N.A. as a Pre-Funding Lender and as agent for the
ratable benefit of the Banks (in such capacity, the "Agent"), the lesser of (i)
the principal sum of __________ ($___________), 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 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 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 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 a 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 pay all costs and expenses of collection,
including reasonable attorneys' fees and
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<PAGE>
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>
SCHEDULE TO PRE-FUNDING NOTE
This Note evidences the principal amounts of the Pre-Funding
Loans made by the "Pre-Funding Lender as a 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:
Date Made
Principal
Amount of
Pre-Funding
Loan Made
Principal
Amount of
Pre-Funding
Loan Paid
or Prepaid
Balance
Outstanding
Initials
B-3
DVI, INC.
SUBSIDIARIES AND SUB-SUBSIDIARIES
EXHIBIT 21
Percentage Owned by
-------------------
Name of Entity/Jurisdiction of Organization Registrant Subsidiary
- ------------------------------------------- ---------- ----------
DVI Financial Services Inc. (Delaware) 100%
DVI Healthcare Operations, Inc. (Delaware) 100%
DVI Business Credit Corporation (Delaware) 100%
DVI Lease Finance Corporation II (Delaware) 100%
DVI Lease Finance Corporation III (Delaware 100%
DVI Lease Finance Corp. 1993-A (Delaware) 100%
DVI Subordinated Securities Corp. (Delaware) 100%
DVI Receivables Corp. (Delaware) 100%
DVI Receivables Corp. II (Delaware) 100%
DVI Business Credit Receivables Corporation
(Delaware) 100%
DVI Business Credit Receivables Corp. II
(Delaware) 100%
Westgate Imaging Center, Inc. (Delaware) 100%
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 34,898
<SECURITIES> 0
<RECEIVABLES> 449,258
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,885
<DEPRECIATION> 926
<TOTAL-ASSETS> 560,325
<CURRENT-LIABILITIES> 202,749
<BONDS> 267,568
0
0
<COMMON> 52
<OTHER-SE> 85,211
<TOTAL-LIABILITY-AND-EQUITY> 560,325
<SALES> 0
<TOTAL-REVENUES> 56,694
<CGS> 0
<TOTAL-COSTS> 30,489
<OTHER-EXPENSES> 9,898
<LOSS-PROVISION> 1,974
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 14,333
<INCOME-TAX> 6,092
<INCOME-CONTINUING> 8,175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,175
<EPS-PRIMARY> .81
<EPS-DILUTED> .47
</TABLE>
