As filed with the Securities and Exchange Commission on December 17, 1998
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Registration No. 333-69077
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pre-effective Amendment No. 1 to
Form S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
DVI, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2722773
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
500 Hyde Park
Doylestown, Pennsylvania 18901
(215) 345-6600
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
MICHAEL A. O'HANLON
500 Hyde Park
Doylestown, Pennsylvania 18901
(215) 345-6600
(Name, address including zip code, and telephone number,
including area code, of agent for service)
With a copy to:
JOHN A. HEALY, ESQ.
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
(212) 878-8281
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box./_/
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box./X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering./_/
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box./_/
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CALCULATION OF REGISTRATION FEE
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Title of Shares to be Registered Amount to be Proposed Maximum Proposed Maximum Amount of
Registered Offering Price Aggregate Offering Registration Fee
Per Unit Price
<S> <C> <C> <C> <C> <C>
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Common Stock, par value $.005 per share 400,000 shares $17.40625 (1) $6,962,500 (1) $1,936 (1)(2)
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(1) Pursuant to Rule 457(c) under the Securities Act of 1933, the proposed
maximum offering price per unit, aggregate offering price and calculation of the
registration fee is based on the average of the high and low prices of the
Registrant's Common Stock reported in the consolidated reporting system of the
New York Stock Exchange on December 14, 1998.
(2) Of this fee, the Company previously paid $426 to the Commission in
connection with the initial filing of this Registration Statement on December
17, 1998.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this Prospectus is not complete and may be changed. We may
not sell the securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted. The
information in this Prospectus is not complete and may be changed. We may not
sell the securities until the registration statement filed with the Securities
and Exchange Commission is effective. This Prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
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PROSPECTUS (Subject to completion; Dated December 17, 1998)
DVI, INC.
400,000 SHARES OF COMMON STOCK
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Shares of the Company's common stock are traded on the New York Stock
Exchange under the symbol "DVI."
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The Common Stock offered hereby involves a high degree of risk.
See "Risk Factors" beginning on page 5.
Stockholders of the Company are selling these shares of Common Stock. The
Company will not receive any part of the proceeds from the sale by the
stockholders.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of this Prospectus. Any representation to the contrary is a
criminal offense.
You should rely only on the information contained in, or incorporated by
reference into, this Prospectus. The Company has not authorized any other person
to provide you with different information. The Company is not making an offer of
these shares in any location where the offer is not permitted.
The date of this Prospectus is December__, 1998
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION.........................................1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................1
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS..................2
THE COMPANY.................................................................3
RISK FACTORS................................................................4
USE OF PROCEEDS............................................................12
SELLING STOCKHOLDERS.......................................................12
PLAN OF DISTRIBUTION.......................................................13
EXPERTS....................................................................13
LEGAL MATTERS..............................................................13
PART II INFORMATION NOT REQUIRED IN PROSPECTUS.........................14
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i
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. The Securities and
Exchange Commission is referred to in this offering memorandum as the
"Commission." You may read and copy any document that we file at the
Commission's public reference rooms located at 450 First Street, N.W., Judiciary
Plaza, Room 1024, Washington, D.C. 20549; at regional offices of the Commission
at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and at 7 World Trade Center, New York, New York 10048. Our
filings with the Commission are also available to the public at the Commission's
web site at http://www.sec.gov. You may also read and copy these documents at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this registration statement, and later information that
we file with the Commission will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings made with the Commission under Sections 13(a), 13(c), 14, or
15(d) of the Securities Exchange Act of 1934, as amended, until such time as all
of the shares of Common Stock have been sold.
(i) Our Annual Report on Form 10-K for our fiscal year ended June 30, 1998;
(ii) Our Quarterly Report on Form 10-Q for the quarter ended September 30,
1998; and
(iii)The description of the Common Stock contained in our registration statement
on Form 8-A (which we filed with the Commission on March 27, 1992)
and the information in our prospectus contained in our registration
statement on Form S-2 (dated May 14, 1992), together with any other
documents filed with the Commission for the purpose of updating or
otherwise amending that description after the date of this registration
statement. You may request a copy of these filings, at no cost,
by writing or telephoning us at the following address:
DVI, Inc.
500 Hyde Park
Doylestown, Pennsylvania 18901
Attn: Legal Department
(215) 345-6600
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CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. Forward-looking statements are generally identifiable by use of
the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negatives of such words or variations
thereon or comparable terminology. These forward-looking statements are subject
to risks, uncertainties, and assumptions about the Company, including, among
other things:
material adverse changes in economic conditions in the
geographic areas where we finance equipment;
the possibility that difficulties may arise in
integrating the operations of acquired businesses and forming and
operating joint ventures;
competition from others;
changes in interest or currency exchange rates that
limit our ability to generate new receivables and decrease our net
interest margins;
increases in non-performing loans and credit losses;
our inability to access capital and financing on terms
acceptable to us;
changes in any domestic or foreign governmental
regulation affecting our ability to declare and pay dividends or the
manner in which we conduct business;
adverse changes, or any announcement relating to a possible
or contemplated adverse change, in the ratings obtained from any of
the independent rating agencies relating to our debt securities or
other financial instruments;
our ability and the ability of third parties with whom
we have relationships to become year 2000 and euro compliant; and
other risk factors set forth under "Risk Factors."
We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise. In light of these risks, uncertainties, and
assumptions, the forward-looking events discussed in this prospectus might not
occur.
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THE COMPANY
General. We are an independent specialty finance company that provides
asset-based financing to healthcare service providers. Our core businesses are
medical equipment finance and medical receivables finance. We provide these
services principally in the U.S. and, to a lesser extent, in Latin America,
Europe, the U.K., Asia and Australia. As of September 30, 1998, our managed net
financed assets and shareholders' equity were $1.4 billion and $177.6 million,
respectively.
We principally serve the financing needs of middle market healthcare
service providers, such as outpatient healthcare providers, medical imaging
centers, physician group practices, integrated healthcare delivery networks and
hospitals. Many of our customers are entrepreneurial companies that have
capitalized on trends affecting the healthcare delivery systems in the U.S. and
other countries to build their businesses. As a result of these trends, our
business has grown substantially. From June 30, 1995 to September 30, 1998, our
managed net financed receivables portfolio increased 183% to approximately $1.4
billion from approximately $494.9 million.
Medical Equipment Finance. Our medical equipment finance business operates by:
providing financing directly to end users of diagnostic imaging and other
sophisticated medical equipment;
providing financing directly to end users of lower cost medical devices;
providing domestic and international finance programs for vendors of
diagnostic and other sophisticated medical equipment; and
to a lesser extent, purchasing medical equipment loans and leases
originated by regional leasing companies through a wholesale loan origination
program.
Our typical equipment loans for diagnostic, patient treatment and other
sophisticated medical equipment (originated both domestically and
internationally) range from $200,000 to $3.0 million, while equipment loans for
lower cost medical devices range from $5,000 to $200,000. Virtually all of our
equipment loans are structured so that the full cost of the equipment and all
financing costs are repaid during the financing term, which typically is five
years. Because most of our equipment loans are structured as notes secured by
equipment or direct financing leases with a bargain purchase option, our
exposure to residual asset value is limited; it was $24.9 million at September
30, 1998. At September 30, 1998, our managed portfolio of equipment financing
loans was $1.2 billion.
In recent years we have expanded our international business significantly.
Internationally, we finance the purchase of diagnostic imaging and other
sophisticated medical equipment by private clinics, diagnostic centers and
hospitals. Our international business is focused on providing finance programs
for equipment manufacturers doing business in Latin America, Europe, the U.K.,
Asia and Australia. We believe our presence in these regions enhances our
relationships with certain medical equipment manufacturers and permits us to
capitalize on the growing international markets for medical equipment financing.
We view continued expansion of our relationships with medical equipment vendors
and manufacturers as an integral component of our growth strategy and intend to
continue to expand our medical equipment finance activities outside the U.S. We
also believe that by helping vendors and manufacturers finance their customers'
equipment purchases outside the U.S., we will encourage those vendors and
manufacturers to increase the financing opportunities they refer to us within
the U.S. At September 30, 1998, our managed portfolio of international equipment
loans was $171.5 million.
Medical Receivables Finance. Our medical receivables finance business
operates by:
providing lines of credit to a wide variety of healthcare providers; and
offering an interest-only revolving line of credit to financial
intermediaries that purchase receivables from healthcare providers
Substantially all of the lines of credit we provide are collateralized by
third party medical receivables due from Medicare, Medicaid, health maintenance
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organizations, referred to as "HMOs," preferred provider organizations, referred
to as "PPOs," commercial insurance companies and, to a limited extent, other
healthcare service providers. We generally advance only 70% to 85% of our
estimate of the net collectible value of the eligible receivables from third
party payors. Clients continue to bill and collect the accounts receivable,
subject to lockbox collection and sweep arrangements established for our
benefit. We conduct extensive due diligence on our potential medical receivables
clients for all of our financing programs and follow underwriting and credit
policies in providing financing to customers. Our credit risk is mitigated by
our ownership of or security interest in all receivables, eligible and
ineligible. We also recently acquired a highly sophisticated collateral tracking
system which will allow us to improve the monitoring of medical receivables. Our
medical receivables loans are structured as floating rate lines of credit. These
lines of credit typically range in size from $1.0 million to $15.0 million;
however, in certain circumstances, commitments ranging from $20.0 million to
$40.0 million are also provided to financial intermediaries for purchasing
receivables from healthcare providers. At September 30, 1998, our portfolio of
medical receivables loans was $140.0 million.
Additional Financing Services. As a result of management's belief that the
long-term care and assisted care markets and emerging growth companies have been
underserved by traditional financing sources, we established DVI Merchant
Funding and DVI Private Capital, divisions of DVI Financial Services Inc., and
recently acquired Third Coast Capital. Through DVI Merchant Funding, we provide
fee-based advisory services such as private placement, loan syndication, interim
real estate financing, mortgage loan placement and, to a lesser extent, mergers
and acquisitions advisory services to our customers operating in the long-term
care, assisted care and specialized hospital markets. Through DVI Private
Capital, we provide subordinated debt financing to our traditional customer base
and through Third Coast Capital, we provide asset-based financing, including
lease lines of credit, to emerging growth companies.
Credit Underwriting. We believe the credit underwriting process we use when
originating loans is effective in managing risk. The process follows detailed
procedures and benefits from our significant experience in evaluating the
creditworthiness of potential borrowers. We also have been successful in
resolving delinquencies. Our net charge-offs as a percentage of average managed
net financed assets were 0.28%, 0.06% and 0.15% for the years ended June 30,
1996, 1997 and 1998, respectively, and were 0.29% for the period ended September
30, 1998 (annualized). Our delinquencies (greater than a period of 30 days) as a
percentage of managed net financed assets at June 30, 1996, 1997 and 1998 were
4.3%, 3.6% and 6.9%, respectively, and were 7.2% at September 30, 1998.
RISK FACTORS
The common stock involves a significant degree of risk. Investors should
carefully consider the risk factors described below together with all of the
information set forth or incorporated by reference in this prospectus in
determining whether or not to purchase any of the Common Stock.
Dependence on Warehouse Financing and Permanent Funding Programs
In order to sustain the growth of our financing business, we depend upon
funding from warehouse facilities until we are able to fund our equipment and
other loans permanently. The funds we obtain through warehouse facilities are
full recourse short-term borrowings secured primarily by the underlying
equipment, medical receivables and other collateral. We typically repay these
borrowings with proceeds we receive when we permanently fund our equipment and
other loans.
At September 30, 1998, we had available an aggregate of approximately
$543.0 million under various warehouse facilities, of which approximately $423.0
million was available for funding equipment loans and approximately $120.0
million was available for funding medical receivables loans. We can not give any
assurance that this type of warehouse financing will continue to be available to
us on acceptable terms. If we are unable to obtain such funds on acceptable
terms, we will have to limit our equipment and other loan originations. This
would have a material adverse effect on our financial condition and results of
operations.
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Our principal form of permanent funding is securitization. Securitization
is a process in which a pool of equipment loans is transferred to a
special-purpose financing vehicle which issues notes to investors. Principal and
interest on the notes issued to investors by the securitization subsidiary 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
securitizations we sponsor, equipment loans funded through the securitizations
must be credit enhanced to receive an investment grade credit rating. In the
securitizations we have sponsored to date, we have effectively been required to
furnish credit enhancement equal to the difference between (i) the aggregate
principal amount of the equipment loans we originated and transferred to our
special-purpose finance subsidiary and the related costs of consummating the
securitization and (ii) the net proceeds received in such securitizations.
Our 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
securities we may issue or place in securitizations; and
the overall performance of our loan portfolio.
We do not have binding commitments from financial institutions or
investment banks to provide permanent funding for our equipment or medical
receivables loans. If for any reason we were unable to access the securitization
markets, and/or obtain permanent funding for our equipment or other loans, we
can not provide any assurance that our lenders would refinance or extend the
terms of our warehouse facilities for a sufficient period of time for us to
obtain permanent funding or at all. If our lenders did not refinance or extend
the terms of our warehouse facilities, we could possibly be required to repay
such facilities, the consequence of which would have a material adverse effect
on our financial condition and results of operations.
Adverse Effect of Customer Defaults and Associated Credit Risk
Many of our customers are outpatient healthcare providers. Loans to such
customers require a high degree of credit analysis. In addition, we have entered
the long-term care and assisted care submarkets and recently, have begun to
provide asset-backed financing for emerging growth companies and subordinated
debt financing to our traditional customer base, all of which require different
types of credit analysis. Although we try to reduce our risk of default and
credit losses through our underwriting practices, loan servicing procedures and
the use of various forms of non-recourse or limited recourse financing (in which
the financing sources that permanently fund our equipment and other loans assume
some or all of the risk of default by our customers), we remain exposed to
potential losses resulting from a default by a customer. Customers' defaults
could result in the following:
require us to make certain payments under our warehouse facilities;
in permanent equipment and other funding arrangements, require us to make
payments to the extent of our remaining credit enhancement position;
the loss of the cash or other collateral pledged as credit enhancement
under our permanent equipment and other funding arrangements; or
the loss of any remaining interest we may have kept in the underlying
equipment.
During the period beginning when we initially fund an equipment or other
loan to when we fund the loan on a permanent basis, we are exposed to full
recourse liability in the event of default by the borrower. While we have
typically been able to permanently fund our equipment and other loans, we may
not be able to permanently fund many of the loans in our international
portfolio. While we are currently in the process of securing permanent funding
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for our international portfolio and are exploring opportunities to permanently
fund our other financing services, with respect to such loans and services we
may be subject to credit risk for a longer period of time. In some cases, this
risk will extend for the life of the loans. In addition, the terms of
securitizations and other types of structured finance transactions generally
require us to replace or repurchase equipment and other loans in the event they
fail to conform to the representations and warranties made by us, even in
transactions otherwise designated as non-recourse or limited recourse.
Defaults by our customers could also adversely affect our ability to obtain
additional financing in the future, including our 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 and other loans previously
financed by us in deciding whether and on what terms to make new loans. In
addition, the credit rating agencies often involved in securitizations consider
prior credit performance in determining the rating to be given to the securities
issued in securitizations sponsored by us.
Under our wholesale loan origination program, we purchase equipment loans
from originators that generally do not have direct access to the securitization
market as a source of permanent funding for their loans. Our Company does not
work directly with the borrowers at the origination of these equipment loans and
therefore is not directly involved in structuring the credits. As a result, we
must independently verify credit information supplied by the originator.
Accordingly, we face a somewhat higher degree of risk when we acquire loans
under the wholesale loan origination program. During the twelve-month period
ended June 30, 1998 and the three-month period ended September 30, 1998, loans
purchased under the wholesale program constituted 13.7% and 6.5%, respectively,
of the total domestic loans originated during such periods. We can not give any
assurance that we will be able to avoid the credit risks related to wholesale
loan origination.
Adverse Effect of Fluctuating Interest Rates
When we borrow funds through warehouse facilities, we are exposed to
certain risks caused by interest rate fluctuations. Although our equipment loans
are structured and permanently funded on a fixed interest rate basis, we use
warehouse facilities until permanent funding is obtained. Since the funds we
borrow through warehouse facilities are on a floating interest rate basis, we
use hedging techniques to protect our interest rate margins during the period
that warehouse facilities are used prior to an anticipated securitization and
sale. To manage our interest rate risk, we use derivative financial instruments
such as forward rate agreements, forward market sales or purchases of treasury
securities, and interest rate swaps and caps. We use these derivatives to manage
certain components of interest rate risk including mismatches of the maturity of
assets and liabilities on our balance sheet, hedging anticipated loan
securitizations and sales and interest rate spread protection. However, we can
not give any assurance that:
our hedging strategy or techniques will be effective;
our profitability will not be adversely affected during any
period of changes in interest rates; or
the costs of hedging will not exceed the benefits.
A substantial and sustained increase in interest rates could adversely
affect our ability to originate loans. In certain circumstances and for a
variety of reasons, we may retain for an indefinite period certain of the
equipment and other loans we originate. In such cases, our interest rate
exposure may continue for a longer period of time.
Possible Adverse Consequences from Recent Growth
In the past three years, we originated a significantly greater number of
equipment, medical receivables and other loans than we did in previous years. As
a result of this growth, our managed net financed asset portfolio grew from
$494.9 million at June 30, 1995 to $1.4 billion at September 30, 1998. In light
of this growth, the historical performance of our loan portfolio, including
rates of credit loss, may not be useful in predicting future loan portfolio
performance. Any credit or other problems associated with the large number of
equipment and other loans recently originated are not yet apparent.
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Since November 1997, we have provided private placement, loan syndication,
interim real estate financing, mortgage loan placement, and, to a lesser extent,
merger and acquisition advisory services to the healthcare industry. More
recently, we have also begun to offer asset-based financing to emerging growth
companies and subordinated debt financing to our traditional customer base. We
have not provided these products and services previously. We can not give any
assurance that we will be able to market these new products and services
successfully or at all, or that if we are successful in marketing these products
and services that the returns on such products and services will be consistent
with our historical financial results.
Adverse Effect of a High Customer Concentration
At September 30, 1998, approximately 10.6% of our managed net financed
receivables were due from two of our customers and their respective affiliates,
representing 6.3% and 4.3% of managed net financed receivables, respectively. As
a result, we are subject to the risks and uncertainties of these two businesses
and their respective affiliates. Adverse conditions affecting either of these
entities could have a material adverse effect on our ability to collect the
total amount of outstanding receivables from either of these customers. While
our customer concentration has decreased as the number of our clients has
increased over time, we can not give any assurance that such concentration will
continue to decrease in the future.
Risks of International Operations; Currency Fluctuations
The portion of our medical equipment loans originated outside the U.S. was
26.0% in the fiscal year ended June 30, 1998 and 15.2% in the three month period
ended September 30, 1998. Because of our relationships with certain
manufacturers of high-cost medical equipment who are conducting business and
expanding internationally, we anticipate that equipment loans originated outside
the U.S. will become a significant portion of our loan portfolio. With the
continuing expansion of our international business, an increasing portion of our
operations may continue to be subject to certain risks, including currency
exchange risks and exchange controls and potential adverse tax consequences.
These factors could have a material adverse effect on our financial condition
and results of operations.
The growth of our international business is significantly dependent on
referrals from manufacturers of diagnostic imaging equipment and other
manufacturers of medical equipment we finance. In addition, these manufacturers
occasionally provide credit support for or assume first loss positions with
respect to equipment financing they refer to us. These manufacturers are not
contractually obligated to give these referrals or to provide credit support or
assume first loss positions in connection with their referrals and we can not
give any assurance that they will continue to do so. If for any reason we no
longer received the benefits of these referrals or related credit support and
assumptions of first loss positions, our international growth would be
materially adversely affected.
Our equipment loans are denominated in both U.S. dollars and foreign
currencies. If denominated in U.S. dollars, our operating results are subject to
fluctuation based upon changes in the exchange rates of certain currencies in
relation to the U.S. dollar. We engage in hedging activities with respect to our
foreign currency exposure and management is continuing to monitor our exposure
to currency fluctuations and our hedging policies. However, we can not give any
assurance that such hedging techniques will be successful.
We are also subject to the adverse impact devaluation would have on our
international customers' ability to make payments under equipment loans.
Although we try to account for the risk of devaluation when originating our
international equipment loans, we can not give any assurance that we will be
successful.
In Latin America, our equipment loans are subject to "transfer risks" where
a foreign government may block foreign currencies from leaving the country
during economic downturns. If a foreign government were to take any action to
block foreign currencies from leaving its country, overseas creditors such as
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our Company would be unable to collect payments on their loans. Since all of our
Latin American equipment loans are denominated in U.S. dollars, any transfer
restrictions on foreign currencies would have a material adverse effect on our
financial condition and results of operations.
Risks Related to the Medical Receivable Financing Business
Our medical receivables financing business generally consists of providing
loans to healthcare providers that are secured by their receivables. Receivables
are paid by groups such as insurance companies, governmental programs and other
healthcare providers. These loans may also be secured by other types of
collateral. While we expect to focus on this business as a significant part of
our growth strategy, we can not give any assurance that we will be able to
expand this business successfully or avoid related liabilities or losses.
The following describes the unique risks involved in the medical
receivables financing business:
Overstatements by healthcare providers of the quality and
characteristics of their medical receivables, which we analyze in
determining the amount of the line of credit to be secured by
such receivables. After our determination has been made,
healthcare providers could change their billing and collection
systems, accounting systems or patient records in a way that
could adversely affect our ability to monitor the quality and/or
performance of the related medical receivables.
Technical legal issues associated with creating and maintaining
perfected security interests in medical receivables, specifically
those generated by Medicaid and Medicare claims.
Payors may make payments directly to healthcare providers that
have the effect (intentionally or otherwise) of circumventing our
rights in such payments.
Payors may attempt to offset their payments to us against debts
owed to the payors by the healthcare providers.
As a lender whose position is secured by receivables, we are less
likely to collect outstanding receivables in the event of a
borrower's insolvency than a lender whose position is secured by
medical equipment that the borrower needs to operate its
business.
A borrower that defaults on obligations secured by medical
receivables may require additional loans, or modifications to the
terms of existing loans, in order to continue operations and
repay outstanding loans.
A conflict of interest may arise when we act as servicer for an
equipment-based securitization and originate medical receivables
loans to borrowers whose equipment loans have been securitized.
The fact that the use of structured finance transactions to fund
medical receivables is a relatively new process may impair our
efforts to develop suitable sources of funding.
Although we believe we have structured our credit policies and lending
practices to take into account these and other factors (including the recent
acquisition of a highly sophisticated collateral tracking system which will
allow us to improve the monitoring of medical receivables), we can not give any
assurance that we will not sustain credit losses in connection with our medical
receivables financing business. We also can not give assurance that the medical
receivables financing business will meet our growth expectations.
Failure to Comply with Government Regulations
Our finance business is subject to numerous federal and state laws and
regulations, which, among other things, may:
require that we obtain and maintain certain licenses and
qualifications;
limit the interest rates, fees and other charges that we are
allowed to collect;
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limit or prescribe certain other terms of our finance receivables
arrangements with clients; and
subject us to certain claims, defenses and rights of offset.
Although we believe that we are currently in compliance with applicable
statutes and regulations, we can not give any assurance that we will be able to
maintain such compliance without incurring significant expense. The failure to
comply with such statutes and regulations could have a material adverse effect
upon us. Also, the adoption of additional statutes and regulations, changes in
the interpretation and enforcement of current statutes and regulations, or the
expansion of our business into jurisdictions that have adopted more stringent
regulatory requirements than those in which we currently conduct business could
have a material adverse effect upon us.
Risks Associated with the Medical Equipment Market
Many factors beyond our control affect the demand for our equipment
financing services. In addition, to general economic conditions and fluctuations
in supply and demand, the demand for medical equipment may also be negatively
affected by reductions in reimbursement amounts paid to healthcare providers for
their services from third-party payors such as insurance companies, government
programs and other healthcare providers and increased use of managed healthcare
plans that often restrict the use of certain types of high technology medical
equipment. For the quarter ended September 30, 1998, financing for purchases of
magnetic resonance imaging machines, commonly referred to as "MRI machines,"
accounted for approximately 13% (by dollar volume) of the total loans originated
by us. Any substantial decrease in our loan originations for the purchase of MRI
machines could have a material adverse effect on the Company.
Competition
The business of financing medical equipment is highly competitive. We
compete with equipment manufacturers that sell and finance sales of their own
equipment, finance subsidiaries of national and regional commercial banks and
equipment leasing and financing companies. Many of our competitors have
significantly greater financial and marketing resources than we do. In addition,
the competition in the new markets recently targeted by our Company,
specifically the medical device financing market and medical receivables
financing market, may be greater than the levels of competition historically
experienced by us.
We believe that increased equipment loan originations during the past three
years resulted, in part, from a decrease in the number of competitors in the
higher cost medical equipment financing market and our high level of penetration
in this market. We can not give any assurance that new competitive providers of
financing will not enter the medical equipment financing market in the future.
To meet our long-term growth objectives, we must increase our presence in our
targeted markets for lower-cost medical devices and medical receivables
financing businesses. To achieve this goal we may be required to reduce our
margins to be competitive.
Dependence Upon Key Personnel
Our ability to successfully continue our existing financing business, to
expand into targeted markets and to develop our newer businesses depends upon
our ability to retain the services of key management personnel. The loss of any
of these individuals or an inability to attract and maintain additional
qualified personnel could adversely affect our Company. We can not give any
assurance that we will be able to retain existing management personnel or
attract additional qualified personnel.
Adverse Effect of Substantial Indebtedness and Leverage
We have substantial outstanding indebtedness and are highly leveraged. As
of September 30, 1998, we (including our consolidated subsidiaries) had total
debt of $679.3 million, of which $414.5 million was full recourse debt and
$264.8 million was limited recourse debt. Of the $679.3 million of total debt,
9
<PAGE>
$456.5 million was long-term debt and $222.8 million was short-term debt. We
have substantial debt service requirements. Our ability to repay indebtedness
will depend upon future operating performance. Future operating performance
depends upon the performance of our loan portfolio, the success of our business
strategy, prevailing economic conditions, levels of interest rates and
financial, business and other factors. Many of these factors are beyond our
control. The degree to which we are leveraged may also impair our ability to
obtain additional financing on acceptable terms. In addition, the indenture
related to our Senior Notes due 2004 restricts our ability to obtain
non-warehouse or limited recourse debt which may also limit our ability to
refinance existing indebtedness.
Ability to Service Debt; Negative Cash Flows and Capital Need
Although we believe that cash available from operations and financing
activities will be sufficient to enable us to make required interest payments on
our debt, we can not give any assurance that we will always be able to do so. We
may encounter liquidity problems which could affect our ability to meet our
payment obligations while attempting to withstand competitive pressures or
adverse economic conditions.
We expect to continue to operate on a negative cash flow basis as the
volume of our loan purchases and originations increases and our securitization
program grows. Our primary cash requirements include the funding of:
loan originations and purchases pending their securitization and
sale;
fees and expenses incurred in connection with the securitization
of loans;
loan originations in connection with our new financing services,
for which permanent sources of funding are still being developed;
credit enhancement requirements in connection with the
securitization and sale of the loans, which include cash
deposits, the funding of subordinated tranches, and/or the pledge
of additional equipment or other loans that are funded with our
capital;
ongoing administrative and other operating expenses;
interest and principal payments under our warehouse facilities
and other indebtedness; and
delinquent accounts, as generally required by the terms of
securitizations.
In the future, we expect our primary sources of liquidity to be existing
cash fundings under our warehouse facilities, sales of loans through
securitizations and other permanent fundings, new sources of permanent funding
which are being developed for loan originations in connection with our new
financing services, the net proceeds from the sale of further issuances of debt
or equity.
We believe these sources will be sufficient to fund our liquidity
requirements for at least the next 12 months if our future operations are
consistent with management's current growth expectations. However, because we
expect to continue to operate on a negative cash flow basis for the foreseeable
future, we will need to effect debt or equity financings regularly. The type,
timing and terms of financing selected by us will be dependent upon our cash
needs, the availability of other financing sources and the prevailing conditions
in the financial markets. We can not give any assurance that any of these
sources will be available at any given time or that they will be available on
favorable terms.
Year 2000 Concerns
We believe, based on discussions with our current systems vendors, that our
software applications and operational programs will properly recognize calendar
dates beginning in the year 2000. We have completed an assessment of our
10
<PAGE>
hardware and software systems, as well as other systems such as security systems
and elevators. Based on these assessments, the only remediation that we have
found necessary are several software packages that need to be upgraded through
"off-the-shelf" releases. The upgrades will be applied during the first quarter
of calendar 1999 and testing will be completed shortly thereafter. Since we have
no major investment in "custom" programming requiring extensive reprogramming,
we do not anticipate the need to hire year 2000 solution providers or
programmers to rewrite custom code at this time.
The software upgrades mentioned above are part of our standard maintenance,
the cost of which is already covered by our ordinary software contracts and will
not require the incurrence of any additional expense. At this time, we
anticipate that our exposure to year 2000 compliance issues will be minimal.
Our medical receivables finance business is dependent on the successful
receipt of receivables from third party payors such as Medicare and Medicaid.
Any failure of third party payors to become year 2000 compliant may result in
the inability to collect medical receivables in a timely manner or at all. This
could have a material adverse effect on our medical receivables finance
business. We are currently unaware of any other relationships with third parties
which will have a material effect on our year 2000 issues. However, we can not
provide any assurance regarding a third party's ability to become year 2000
compliant.
We have begun to identify different scenarios, including year 2000
readiness, that would cause a business interruption. Contingency plans are being
developed to resolve the most reasonably likely scenarios. Based on current
information, we believe that the year 2000 issue will not pose significant
operational problems to us.
USE OF PROCEEDS
The Company will receive no portion of the proceeds of the sale of the
shares of Common Stock offered by this prospectus.
SELLING STOCKHOLDERS
The Selling Stockholders listed in the chart below acquired the shares of
Common Stock offered by this prospectus (referred to as the Shares) in
connection with the Company's acquisition of MEF Corp. in January 1993. Under
the terms of the original purchase agreement, the Company acquired all the
outstanding shares of MEF Corp. from MEFC Partners L.P., a Delaware limited
partnership which was owned or controlled by the Selling Stockholders for a
purchase price that was payable before October 15, 1998 in cash or Common Stock,
as elected by the Company. As initially structured, the purchase price was to be
determined as a percentage of the after-tax earnings of the division of the
Company, representing the former MEF Corp., during the sixty-six month period
following the date of acquisition. However, due to the integration of former MEF
Corp. personnel and business relationships into the Company's business, the
concept of segregating the earnings of the "MEF Corp. Division" as contemplated
by the original purchase agreement became increasingly uncertain and
impractical. As a result, based on negotiations between the Company and MEFC
Partners, L.P., the purchase price of MEF Corp. was set at 400,000 shares of the
Company's Common Stock, pursuant to the terms of an amendment to the original
purchase agreement, in lieu of the original purchase price.
The table below sets forth with respect to each Selling Stockholder: (1)
his former affiliation with the Company, (2) the aggregate number of shares of
Common Stock owned by him prior to the offering made by this prospectus; (3) the
number of shares of Common Stock received by him in connection with the MEF
Corp. purchase agreement; (4) the maximum number of shares that he may offer and
sell pursuant to this prospectus; and (5) the number of shares (and percentage
of the outstanding shares) of Common Stock owned by him after the offering made
by this prospectus. Shares of Common Stock described under (2) and (5) above may
not be offered or sold pursuant to this prospectus.
11
<PAGE>
<TABLE>
<CAPTION>
Name Material Number of Shares Maximum Number of Shares
Relationship With Number of Shares of Common Stock Number of (and Percentage of
Company of Common Stock Received Shares that Outstanding
During Beneficially Pursuant to the May Be Shares)
Previous Owned Agreement Offered of Common Stock
Three Years Before Offering Hereby to be
Beneficially Owned
After Offering
<S> <C> <C> <C> <C> <C> <C>
Michael A. O'Hanlon Chief Executive 132,000 132,000 132,000 297,308 (2%)
Officer
Former Vice 88,000 88,000 88,000 *
Dominic A. Gugliegmi President
Mark H. Idzerda 80,000 80,000 80,000 *
President, DVI
Business Credit
Corp.
Former Salesman 12,500 12,500 12,500 *
Louis A. D'Esposita
Janice M. Costa 12,500 12,500 12,500 *
Administrative
Assistant
Vice President 12,500 12,500 12,500 *
Raymond D. Fear
12,500 12,500 12,500 *
Joan R. Ranieri Former
Administrative
Assistant
Vice President 12,500 12,500 12,500 *
Stephen J.
Jasiukiewicz
Salesman 12,500 12,500 12,500 *
Clay R. Stevens
Salesman 12,500 12,500 12,500 *
Paul N. Cote
Salesman 12,500 12,500 12,500 *
James V. Seiferth
* Less than 1%.
12
PLAN OF DISTRIBUTION
It is anticipated that each Selling Stockholder will offer his shares for
sale at the prices prevailing on the New York Stock Exchange (or other principal
market on which their shares are then traded) on the date of sale. Each Selling
Stockholder also may sell his shares privately, either directly to the purchaser
or through a broker or brokers. There are no arrangements or agreements with any
brokers or dealers to act as underwriters of the Shares as of the date hereof.
All costs, expenses and fees incurred in connection with the registration of
these shares, including, but not limited to, all registration and filing fees,
printing expenses and fees (if any) and disbursements of the Company's counsel
and accountants, are being paid by the Company, but all selling and other
expenses incurred by each Selling Stockholder will be paid by him.
Each Selling Stockholder, and the brokers through whom the sales of his
shares are made, may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act. In addition, any profits realized by a
Selling Stockholder or such brokers on the sale of their shares may be deemed to
be underwriting commissions. The Company has agreed to indemnify the Selling
Stockholders and any brokers through whom sales of shares are made against
certain liabilities, including liabilities under the Securities Act.
EXPERTS
The financial statements and the related financial statement schedules
included and incorporated in this Prospectus and elsewhere in the Registration
Statement by reference from the Company's Annual Report on Form 10-K for the
year ended June 30, 1998, as amended, have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report, which is included and
incorporated herein by reference, and have been so included and incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Rogers & Wells LLP, 200 Park Avenue, New York, New York
10166.
13
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Registration Fee......................................$ 1,936
Printing and Engraving................................ 1,000
Accounting Fees....................................... 5,000
Legal Fees and Expenses............................... 15,000
Blue Sky Fees and Expenses............................ 1,000
Miscellaneous Fees and Expenses.................... 8,000
Total ................................................ $ 31,936
Item 15. Indemnification of Directors and Officers
Section 145(a) of the General Corporation Law of the State of Delaware,
referred to as the "General Corporation Law," provides, in general, that a
corporation shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a director or officer of the corporation. Such indemnity
may be against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding, if the indemnitee acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, the
indemnitee must not have had reasonable cause to believe his conduct was
unlawful.
Section 145(b) of the General Corporation Law provides, in general, that a
corporation shall have power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director or officer of the corporation
against expenses (including attorney's fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation.
Section 145(g) of the General Corporation Law provides in general that a
corporation shall have power to purchase and maintain insurance on behalf of any
person who is or was a director or officer of the corporation against any
liability asserted against and incurred by him in any such capacity, or arising
out of his status as such, whether or not the corporation would have the power
to indemnify him against such liability under the provisions of the law.
The Company's By-laws require the Company to indemnify each of its
directors, officers and employees to the fullest extent permitted by law in
connection with any actual or threatened action or proceeding arising out of his
service to the Company or to other organizations at the Company's request.
The Company has agreed to indemnify the Selling Stockholder and any brokers
through whom sales of Shares are made against certain liabilities, including
liabilities under the Securities Act.
Item 16. Exhibits
(a) Exhibits
3.1* Certificate of Incorporation of the Company
3.2* By-Laws of the Company
4.1* Specimen of stock certificate for DVI's Common Stock
5.1** Opinion of Rogers & Wells LLP
10.1*** Stock Purchase Agreement dated as of January 6, 1993,
between DVI Health Services Corporation and MEFC
Partners L.P., referred to as the MEFC Agreement
10.2*** Amendment No. 1 to the MEFC Agreement
23.1** Consent of Rogers & Wells LLP
(included in Exhibit 5.1)
23.2** Consent of Deloitte & Touche LLP
24.1 Power of Attorney (see the signature page of the initial
filing of this Registration Statement)
______________
* Filed as an Exhibit to the Company's Registration Statement on
Form S-3 (Registration No. 33-84604) and incorporated herein
by reference.
** Filed herewith.
*** Filed as an exhibit to the Companys Registration Statement on Form
S-1 (Registration No. 33-60547) and incorporated herein by reference.
14
<PAGE>
(b) Financial Statements
Inapplicable.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any material
information with respect to the plan of distribution not previously disclosed in
the registration statement or any material change in the information set forth
in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the registrant's Certificate of Incorporation, By-laws,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Doylestown, Commonwealth of Pennsylvania on December
17, 1998.
DVI, INC.
By:/s/ Michael A. O'Hanlon
Name: Michael A. O'Hanlon
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
</TABLE>
<TABLE>
<CAPTION>
Signature Title Date
/s/ MICHAEL A. O'HANLON Chief Executive Officer, December 17, 1998
MICHAEL A. O'HANLON President and Director
<S> <C> <C> <C>
/s/ STEVEN R. GARFINKEL Senior Vice President and Chief December 17, 1998
STEVEN R. GARFINKEL Financial Officer
(Principal Financial Officer)
/s/ JOHN P. BOYLE Vice President and Chief December 17, 1998
JOHN P. BOYLE Accounting Officer
(Principal Accounting Officer)
Director December __, 1998
GERALD L. COHN
/s/ WILLIAM S. GOLDBERG* Director December 17, 1998
WILLIAM S. GOLDBERG
Director December __, 1998
_____________________________
JOHN E. McHUGH
/s/ NATHAN SHAPIRO* Director December 17, 1998
NATHAN SHAPIRO
/s/ HARRY T.J. ROBERTS* Director December 17, 1998
HARRY T.J. ROBERTS
By: /s/ Steven R. Garfinkel
Steven R. Garfinkel
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
3.1* Certificate of Incorporation of the Company
3.2* By-Laws of the Company
4.1* Specimen of stock certificate for DVIs Common
Stock, par value $.005 per share
5.1** Opinion of Rogers & Wells
10.1*** Stock Purchase Agreement dated as of January 6,
1993, between DVI Health Services
Corporation and MEFC Partners L.P., referred to as
the MEFC Agreement
10.2*** Amendment No. 1 to the MEFC Agreement
23.1** Consent of Rogers & Wells LLP
(included in Exhibit 5.1)
23.2** Consent of Deloitte & Touche LLP
24.1 Power of Attorney (see signature page)
_____________
* Filed as an Exhibit to the Companys Registration Statement on
Form S-3 (Registration No. 33-84604) and incorporated herein by
reference.
** Filed herewith.
*** Filed as an exhibit to the Companys Registration Statement on Form
S-1 (Registration No. 33-60547) and incorporated herein by reference.
<PAGE>
EXHIBIT 5.1
ROGERS & WELLS LLP
200 park avenue new york, ny 10166-0153
telephone 212.878.8000 facsimile 212.878.8375
December 17, 1998
DVI, Inc.
500 Hyde Park
Doylestown, Pennsylvania 18901
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as special counsel for DVI, Inc., a Delaware corporation (the
"Company"), in connection with a Registration Statement on Form S-3 (the
"Registration Statement"), filed by the Company with the Securities and Exchange
Commission (the "Commission") for registration under the Securities Act of 1933,
as amended (the "Securities Act"), of 400,000 shares (the "Offered Shares") of
the Companys common stock, par value $.005 per share (the "Common Stock"), to
be offered from time to time by a stockholder (the "Selling Stockholder") of the
Company.
In rendering the opinion expressed herein, we have examined the
Registration Statement in the form to be filed with the Commission on or about
the date hereof. In addition, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary, including the Certificate of
Incorporation and By-laws of the Company, and the corporate proceedings of the
Company relating to the authorization and issuance of the Offered Shares. As to
the factual matters relevant to the opinions set forth below we have, with your
permission, relied upon certificates of officers of the Company and public
officials.
Based upon the foregoing and on such examination of law as we have deemed
necessary, we are of the opinion that the Common Stock has been duly authorized
and validly issued to the Selling Stockholder by the Company and, when issued
and sold by the Selling Stockholder in the manner described in the Registration
Statement, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the reference to this firm under
the caption "Legal Matters" in the Prospectus contained in the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act, or the Rules and Regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Rogers & Wells LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF DELOITTE & TOUCHE LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
on Form S-3 dated December 17, 1998, of DVI, Inc., of our report dated August 7,
1998, appearing in and incorporated by reference in the Annual Report on Form
10-K of DVI, Inc. for the year ended June 30, 1998, which is part of this
Registration Statement.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
December 17, 1998
</TABLE>
