Filed Pursuant to
Rule 424(b)(3)
Supplement
to
Prospectus Dated May 11, 1998
800 Shares of
DVI, INC.
Common Stock
$0.005 par value per share
An aggregate 800 shares of the Company's Common Stock are
being transferred by one of the Selling Stockholders to a charitable institution
on December 31, 1998. The closing sales price of the Company's Common Stock on
December 31, 1998 as reported by the New York Stock Exchange was $18.125 per
share.
All of the 800 shares of Common Stock described above are
being transferred by the Selling Stockholder to The Federation of Jewish
Agencies of Greater Philadelphia. The transferee will resell such shares in the
manner described under the "Plan of Distribution" section in the Prospectus of
which this Supplement forms a part. Any compensation in the form of discounts,
fees or commissions and any profits on the sales of such shares may be deemed
underwriting discounts or commissions.
----------------------
The date of this Prospectus Supplement is December 31, 1998.
<PAGE>
PROSPECTUS DATED MAY 11, 1998
DVI, INC.
84,012 SHARES OF COMMON STOCK
PAR VALUE $.005 PER SHARE
This Prospectus relates to 84,012 shares (the "Shares") of Common
Stock, $.005 par value per share (the "Common Stock"), of DVI, Inc., a Delaware
corporation ("DVI" or the "Company"), which may be offered from time to time by
the persons named in this Prospectus under "Selling Stockholders." The Selling
Stockholders received the Shares in connection with the Company's acquisition of
J.G. Wentworth Partners, Inc., a Pennsylvania corporation ("JGWP"), J.G.
Wentworth Securities, Inc., a Pennsylvania corporation ("JGWS"), J.G. Wentworth
Partners, L.P., a Pennsylvania limited partnership ("Partners"), and J.G.
Wentworth Mortgage Funding, L.P., a Pennsylvania limited partnership ("JGWM"
and, together with JGWP, JGWS and Partners, the "Wentworth Entities") in
November 1997. The Company will receive no portion of the proceeds from the sale
of the Shares offered hereby.
It is anticipated that the Selling Stockholders will offer the Shares
for sale at the prices prevailing on the New York Stock Exchange ("NYSE") (or
other principal market on which the Shares are then traded) on the date of sale.
The Selling Stockholders also may sell the Shares privately, either directly to
the purchaser or through a broker or brokers. All costs, expenses and fees
incurred in connection with the registration of the Shares are being borne by
the Company, but all selling and other expenses incurred by the Selling
Stockholders will be borne by the Selling Stockholders. See "Plan of
Distribution."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
The Selling Stockholders, and the brokers through whom sales of the
Shares are made, may be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act of 1933, as amended (the "Securities Act").
In addition, any profits realized by the Selling Stockholders or such brokers on
the sale of the 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.
Shares of the Company's Common Stock are traded on the NYSE under the
symbol "DVI." On May 5, 1998, the last sale price per share for the Common
Stock, as reported on the NYSE, was $23.125. Prospective purchasers of Common
Stock are urged to obtain a current price quotation.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy the Shares offered hereby in any jurisdiction in which such
offer or solicitation may be unlawful. No person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized. Except where otherwise indicated,
neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date.
The date of this Prospectus is May 11, 1998.
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION.........................................................3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................3
THE COMPANY...................................................................4
RISK FACTORS..................................................................4
USE OF PROCEEDS..............................................................11
SELLING STOCKHOLDERS.........................................................11
PLAN OF DISTRIBUTION.........................................................12
EXPERTS......................................................................12
LEGAL MATTERS................................................................12
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; and at its
regional offices at 7 World Trade Center, 13th Floor, New York, New York 10048
and at 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661-2511.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a Web site that contains reports, proxy
statements and other information regarding registrants that file electronically
with the Commission at http://www.sec.gov. Reports, proxy statements and other
information concerning the Company can also be inspected at the office of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005.This
Prospectus constitutes a part of a Registration Statement on Form S-3 (the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus omits certain of the information contained in
the Registration Statement and the exhibits and schedules thereto, in accordance
with the rules and regulations of the Commission. For further information
concerning the Company and the Common Stock offered hereby, reference is hereby
made to the Registration Statement and the exhibits and schedules filed
therewith, which may be inspected without charge at the office of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and copies of which may be
obtained from the Commission at prescribed rates. Any statements contained
herein concerning the provisions of any document are not necessarily complete,
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Station or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission are incorporated
herein by reference:
(a) The Company's Annual Report on Form 10-K for its fiscal year ended June
30, 1997, as amended by Form 10-K/A1 dated October 28, 1997 (the "1997 10-K").
(b) The Company's Quarterly Report on Form 10-Q for the quarters ended
September 30, 1997 and December 31, 1997.
(c) The Company's Current Report on Form 8-K dated October 29, 1997.
(d) All other reports filed pursuant to Section 13(a) or 15(d) of the
Exchange Act since the end of the fiscal year covered by the 1997 10-K.
(e) The description of the Common Stock, $.005 par value, of the Company
contained in the Company's Registration Statement on Form 8-A filed March 27,
1992, and incorporating by reference the information contained in the Company's
Prospectus dated May 14, 1992, contained in the Company's Registration Statement
on Form S-2 (File No. 33-46664), together with all reports and other documents
filed with the Commission for the purpose of updating or otherwise amending that
description after the date of this Prospectus.
All documents filed by the Company after the date of the Prospectus
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment which indicates that all securities
offered hereby have been sold or which deregisters all securities then remaining
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unsold, shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the date of the filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
into this Prospectus will be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained in this Prospectus or
any other subsequently filed document which also is or is deemed to be
incorporated by reference into this Prospectus modifies or supersedes that
statement.
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO EACH PERSON TO WHOM THIS
PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF
ANY AND ALL DOCUMENTS INCORPORATED BY REFERENCE INTO THE REGISTRATION STATEMENT
OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). REQUESTS FOR SUCH COPIES SHOULD
BE DIRECTED TO: DVI, INC., 500 HYDE PARK, DOYLESTOWN, PENNSYLVANIA 18901
(TELEPHONE: 215-345-6600), ATTENTION: LEGAL DEPARTMENT.
Additional updating information with respect to the matters discussed
in this Prospectus may be provided in the future by means of appendices to this
Prospectus or other documents.
THE COMPANY
DVI, Inc. is a leading provider of asset-based financing to healthcare
service providers. Through its medical equipment finance business, the Company
finances the purchase of diagnostic imaging and other sophisticated medical
equipment and also provides vendor financing programs. Through its medical
receivables finance business, the Company provides lines of credit
collateralized by third party medical receivables to a wide variety of
healthcare providers and offers warehouse and securitization services to other
healthcare finance providers. In addition to these core businesses, the Company
has recently expanded its financing activities to include loan syndication,
private placement, bridge financing, mortgage loan placement and, to a lesser
extent, merger and acquisition advisory services. The Company operates
principally in the United States and is developing a significant presence in
Latin America as well as operations in Europe and Asia Management believes that
the Company's healthcare industry expertise and its broad range of financing
programs has positioned the Company to become the primary source of financing
for its customers.
The executive offices of the Company are located at 500 Hyde Park,
Doylestown, Pennsylvania 18901 (Telephone 215-345-6600).
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree
of risk. Prospective purchasers of Common Stock should carefully consider the
following risk factors in addition to the other information set forth in this
Prospectus Supplement, the accompanying Prospectus and the documents
incorporated by reference herein.
This Prospectus Supplement, the accompanying Prospectus and the
documents incorporated by reference herein contain certain statements that are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Those statements include, among other things, the discussions
of the Company's business strategy and expectations concerning the Company's
market position, future operations, margins, profitability, funding sources,
liquidity and capital resources. Investors in the Common Stock offered hereby
are cautioned that reliance on any forward-looking statement involves risks and
uncertainties, and that although the Company believes that the assumptions on
which the forward-looking statements contained herein are reasonable, any of the
assumptions could prove to be inaccurate, and as a result, the forward-looking
statements based on the assumptions also could be incorrect. The uncertainties
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in this regard include, but are not limited to, those identified in the risk
factors discussed below. In light of these and other uncertainties, the
inclusion of a forward-looking statement herein should not be regarded as a
representation by the Company that the Company's plans and objectives will be
achieved.
DEPENDENCE ON WAREHOUSE FINANCING. The Company's ability to sustain the
growth of its financing business is dependent upon funding obtained through
warehouse facilities until its equipment and other loans are permanently funded.
The funds the Company obtains through warehouse facilities are full recourse
short-term borrowings secured primarily by the underlying equipment, the medical
receivables and other collateral. These borrowings are in turn typically repaid
with the proceeds received by the Company when its equipment and other loans are
securitized or sold. At March 31, 1998 the Company had available an aggregate of
approximately $398.0 million under various warehouse facilities, approximately
$212.4 million of which is available for funding equipment loans and
approximately $3.4 million of which is available for funding medical receivables
loans. The Company's warehouse facilities are short-term borrowings with
maturities of less than 12 months. In the Company's experience, these facilities
are typically renewed upon their expiration. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Warehouse Facilities." There can be no assurance that this
type of warehouse financing will continue to be available to the Company on
acceptable terms. If the Company were unable to arrange continued access to
acceptable warehouse financing, the Company would have to curtail its equipment
and other loan originations, which in turn would have a material adverse effect
on the Company's financial condition and results of operations.
DEPENDENCE ON PERMANENT FUNDING PROGRAMS. The Company's use of
securitization as its principal form of permanent funding is an important part
of the Company's business strategy. If for any reason the Company were to become
unable to access the securitization markets to fund permanently its equipment
and other 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 performance of the Company's loan portfolio. The
Company does not have binding commitments from financial institutions or
investment banks to provide permanent funding for its equipment or medical
receivables loans.
IMPACT OF CREDIT ENHANCEMENT REQUIREMENTS. In connection with its
securitizations and other structured financings, the Company is required to
provide credit enhancement for the debt obligations issued and sold to third
parties. Typically, the credit enhancement consists of cash deposits, the
funding of subordinated tranches and/or the pledge of additional equipment or
other loans that are funded with the Company's capital. The requirement to
provide this credit enhancement reduces the Company's liquidity and requires it
to obtain additional capital. If the Company is unable to obtain and maintain
sufficient capital, it may be required to halt or curtail its securitization or
other structured financing programs, which in turn would have a material adverse
effect on the Company's financial condition and results of operations.
CREDIT RISK. Many of the Company's customers are outpatient healthcare
providers, the loans to whom often require a high degree of credit analysis. In
addition, the Company has recently entered the long-term care and assisted care
sub-markets which may, to a significant extent, require a different type of
credit analysis. Although the Company seeks to mitigate its risk of default and
credit losses through its underwriting practices and loan servicing procedures
and through the use of various forms of non-recourse or limited recourse
financing (in which the financing sources that permanently fund the Company's
equipment and other loans assume some or all of the risk of default by the
Company's customers), the Company remains exposed to potential losses resulting
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from a default by a customer. Customers' defaults could cause the Company to
make payments to the extent the Company is obligated to do so and in the case of
its permanent equipment and other funding arrangements to the extent of the
Company's remaining credit enhancement position; could result in the loss of the
cash or other collateral pledged as credit enhancement under its permanent
equipment and other funding arrangements; or could require the Company to
forfeit any residual interest it may have retained in the underlying equipment.
During the period after the Company initially funds an equipment or other loan
and prior to the time it funds the loan on a permanent basis, the Company is
exposed to full recourse liability in the event of default by the customer.
While the Company has typically been able to permanently fund its equipment and
other loans, many of the loans in its international portfolio may not be able to
be permanently funded or the Company is in the process of securing permanent
funding and therefore may be subject to credit risk for a longer period of time
and in some cases over the life of the loan. In addition, under the terms of
securitizations and other types of structured finance transactions, the Company
generally is required to replace or repurchase equipment and other 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 and other loans previously financed by the Company in deciding whether
and on what terms to make new loans. In addition, the credit rating agencies
that are often involved in securitizations consider prior credit performance in
determining the rating and level of credit enhancement to be given to the
securities issued in securitizations sponsored by the Company.
RISKS RELATED TO THE MEDICAL RECEIVABLES FINANCE BUSINESS. The Company
entered the medical receivables finance business in July 1993 and has focused on
this business as a part of the Company's growth strategy. The Company's medical
receivables finance business generally consists of providing loans to healthcare
providers that are secured by their receivables from payors such as insurance
companies, large self-insured companies and governmental programs and by other
collateral. While the Company expects to continue to focus on this business as a
significant part of its growth strategy, there can be no assurance that the
Company will be able to continue to expand this business successfully or avoid
related liabilities or losses. The Company has funded its medical receivables
finance business to date through the use of the Company's capital; $100.0
million in securitizations; a rated warehouse facility of $30.0 million. In
addition, the Company recently obtained a committed $95.0 million revolving
credit facility for its medical receivables finance business. The growth of the
Company's medical receivables finance business is dependent upon the Company's
ability to obtain additional funding facilities to finance medical receivables
loans.
While the medical receivables finance business shares certain
characteristics, including an overlapping customer base, with the Company's
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 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 the Company's rights in and
access to such payments. Payors may attempt to offset their payments to the
Company against debts owed to the payors by the healthcare providers. In
addition, as a lender whose position is secured by receivables, the Company is
likely to have less leverage in collecting outstanding receivables in the event
of a borrower's insolvency than a lender whose position is secured by medical
equipment that the borrower needs to run its business. A borrower that receives
medical receivables loans from the Company and defaults on obligations secured
by such receivables may require additional loans, or modifications to the terms
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of existing loans, in order to continue operations and repay outstanding loans.
The Company may have a conflict of interest when it acts as servicer for an
equipment-based securitization and originates medical receivables loans to
borrowers whose equipment loans have been securitized. While the Company
believes it has structured its credit policies and lending practices to take
into account these and other factors, there can be no assurance the Company will
not sustain credit losses in connection with its medical receivable financing
business or that the medical receivable financing business will meet the
Company's growth expectations.
INTEREST RATE RISK. When the Company borrows funds through warehouse
facilities, it is exposed to certain risks 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. The Company uses hedging techniques to protect its interest
rate margins during the period that warehouse facilities are used prior to an
anticipated securitization and sale because funds borrowed through warehouse
facilities are obtained on a floating interest rate basis. The Company uses
derivative financial instruments, such as forward rate agreements, interest rate
swaps, caps and collars, to manage its interest rate risk. The derivatives are
used to manage three components of this risk: mismatches of the maturity of
assets and liabilities on the Company's balance sheet, hedging anticipated loan
securitizations and sales, and interest rate spread protection. There can be no
assurance, however, that the Company's hedging strategy or techniques will be
effective, that the profitability of the Company will not be adversely affected
during any period of changes in interest rates or that the costs of hedging will
not exceed the benefits. 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 and other loans it originates. In such cases,
the Company's interest rate exposure may continue for a longer period of time.
SUBSTANTIAL LEVERAGE; CONTINUING NEED FOR CAPITAL. The Company has
substantial outstanding indebtedness and is highly leveraged. As of March 31,
1998, the Company and its consolidated subsidiaries had total debt of $607.6
million, of which $350.4 million was full recourse debt and $257.2 million was
limited recourse debt. Of the $607.6 million of total debt, $425.4 million was
long-term debt and $182.2 million was short-term debt. The ability of the
Company to repay its indebtedness will depend upon future operating performance,
which is subject to the performance of the Company's loan portfolio, the success
of the Company's business strategy, prevailing economic conditions, levels of
interest rates and financial, business and other factors, many of which are
beyond the Company's control. The degree to which the Company is leveraged also
may impair its ability to obtain additional financing on acceptable terms. In
addition, the indenture related to the Company's Senior Notes due 2004 restricts
the Company's ability to obtain non-warehouse or non-limited recourse
indebtedness which may also constrain the Company's ability to refinance its
existing indebtedness.
Each of the Company's warehouse facilities and permanent funding
vehicles requires the Company to provide equity or a form of recourse credit
enhancement to the respective lenders or investors and generally does not permit
the Company to fund general corporate requirements. Therefore, the actual
liquidity, or funds available to the Company to finance its growth, are limited
to the cash generated from net financed receivables and the available proceeds
of equity or debt securities issued by the Company. At times of strong
origination growth the Company's cash flows from operations are insufficient to
fund these requirements. As a result, the Company's need to fund its high growth
rates in loan origination necessitates substantial external funding to provide
the equity or capital required as recourse credit enhancement with which to
leverage borrowings. 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.
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POSSIBLE ADVERSE CONSEQUENCES FROM RECENT GROWTH. In the past three
years, the Company originated a significantly greater number of equipment,
medical receivables and other loans than it did in previous years. As a result
of this growth, the Company's net financed asset portfolio grew from $400.6
million at June 30, 1995 to $703.3 million at March 31, 1998. In light of this
growth, the historical performance of the Company's loan portfolio, including
rates of credit loss, may be of limited relevance in predicting future loan
portfolio performance. Any credit or other problems associated with the large
number of equipment and other loans originated in the recent past will not
become apparent until sometime in the future. Further, while the Company's loan
originations have grown substantially in the past three years, its net interest
margins have declined during that same period due to a general decline in
interest rates, the Company's pricing strategy, the sale of higher-yielding
loans to finance the cost of its developing domestic and international business
units and the increase in the amount of lower-yielding credit enhancements due
to the increased number of securitizations. As a result, the Company's
historical results of operations may be of limited relevance to an investor
seeking to predict the Company's future performance.
ABILITY TO SUSTAIN GROWTH. To sustain the rates of growth it has
achieved in the last three years, the Company will be required to: (i) penetrate
further the markets for medical receivables finance and medical equipment loans,
including through the development of its vendor finance programs; and (ii)
establish a presence in the long-term care and assisted care markets. The
Company faces significant barriers to entry in the long-term care and assisted
care markets, which are more diverse than the general markets for medical
equipment loan and medical receivables finance because of the larger number of
providers and types of financial products and the greater price range of those
financing alternatives. While the employees of the entities comprising DVI
Merchant Funding have experience in the long-term care and assisted care market,
the Company has not previously provided financing services to these markets. In
addition, in an effort to strengthen its relationships with medical equipment
manufacturers and the vendor finance market and to obtain access to new markets,
the Company has initiated operations internationally (including Europe and Asia)
and has made investments in certain emerging markets (such as Latin America).
The success of these investments is dependent upon many factors including
foreign regulation and business practices, currency exchange regulations and
currency fluctuations and the achievement of management's planned objectives for
these markets. There can be no assurance that the Company will be able to
penetrate and compete effectively in the markets described above.
CUSTOMER CONCENTRATION. At March 31, 1998, approximately 14.6% of
managed net financed receivables were due from two of the Company's customers
and their respective affiliates, representing 9.1% and 5.5% of managed net
financed receivables, respectively. As a result of this concentration the
Company is subject to the risks and uncertainties of these two businesses and
their respective affiliates and adverse conditions affecting either of these
entities could have a material adverse effect on the Company's ability to
collect the total amount of outstanding receivables from either of these
customers. The Company's customer concentration has decreased as the number of
its clients has increased over time; however, there can be no assurance that
such concentration will continue to decrease in the future.
INTEGRATION OF GLOBAL LOCATIONS. The Company's U.S. headquarters are
located in Doylestown, Pennsylvania. It also conducts operations
internationally, including in Asia, Europe, Australia and Latin America through
subsidiaries and joint ventures. As a result, the Company has employees and
clients operating in diverse geographic locations imposing a number of risks and
burdens on the Company, including the need to transact business with employees
and customers from diverse cultural backgrounds, who speak different languages
and operate in a number of time zones. Although the Company seeks to mitigate
the difficulties associated with operating in diverse geographic locations
through the extensive use of electronic mail, there can be no assurance that it
will not encounter unforeseen difficulties or logistical barriers in operating
in diverse locations. Furthermore, operations in widespread geographic locations
require the Company to implement and operate complex information systems that
are capable of providing timely information which can readily be consolidated.
Although the Company believes that its information systems are adequate, the
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Company may in the future have to implement new information systems.
Implementation of such new information systems may be costly and may require
training of personnel. Any failure or delay in implementing these systems,
procedures and controls on a timely basis, if necessary, or in expanding these
areas in an efficient manner at a pace consistent with the Company's business
could have a material adverse effect on the Company's business and operating
results.
MEDICAL EQUIPMENT MARKET. The demand for the Company's equipment
financing services is affected by numerous factors beyond the control of the
Company. These factors include general economic conditions, including the
effects of recession or inflation, and fluctuations in supply and demand for
various types of sophisticated medical equipment resulting from, among other
things, technological and economic obsolescence and government regulation. In
addition, the demand for sophisticated medical equipment also may be negatively
affected by reductions in the amount of reimbursement to healthcare providers
for their services from third-party payors such as insurance companies, large
self-insured companies and government programs, and the increased use of managed
healthcare plans that often restrict the use of certain types of high technology
medical equipment.
DEPENDENCE ON REFERRALS AND SUPPORT FROM EQUIPMENT MANUFACTURERS. The
Company obtains a significant amount of its equipment financing business through
referrals from manufacturers of diagnostic imaging equipment and other medical
equipment it finances. In addition, these manufacturers occasionally provide
credit support for or assume first loss positions with respect to equipment
financing they refer to the Company. These manufacturers are not contractually
obligated to refer their customers to the Company for equipment financing or to
provide credit support or assume first loss positions in connection with their
referrals. There is no assurance that these manufacturers will continue to refer
equipment financing opportunities to the Company or to provide credit support or
assume first loss positions. If for any reason the Company were no longer to
benefit from these referrals or related credit support and assumptions of first
loss positions, its equipment financing business would be materially adversely
affected.
RISKS OF INTERNATIONAL OPERATIONS; CURRENCY FLUCTUATIONS. Approximately
6.3% and 21.4% of the Company's medical equipment loans in 1997 and the nine
month period ended March 31, 1998, respectively, were originated outside the
United States. Because certain of the manufacturers of high-cost medical
equipment with whom the Company has relationships are conducting business and
expanding internationally, the Company anticipates that equipment loans
originated outside the United States will become a significant portion of its
loan portfolio. As a result, an increasing portion of the Company's 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 the Company's business and operating
results.
Although most of the Company's equipment loans are denominated in U.S.
dollars, as a result of the Company's international operations, the Company's
operating results are subject to fluctuations based upon changes in the exchange
rates of certain currencies in relation to the U.S. dollar. The Company engages
in hedging activities with respect to its foreign currency exposure and
management is continuing to monitor the Company's exposure to currency
fluctuations and the Company's hedging policies. However, there can be no
assurance that such hedging techniques will be successful. In the future, the
Company could be required to denominate its equipment loans in other currencies,
which would make the management of currency fluctuations more difficult and
expose the Company to greater risks in this regard.
NEW PRODUCT OFFERINGS. Since November 1997, the Company has provided
private placement, loan syndication, bridge financing, mortgage loan placement,
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and business, merger and acquisition consulting services to the healthcare
industry. The Company has not provided these products and services previously
and there is no assurance that the Company will be able to market these new
products and services successfully or that the return on these products and
services will be consistent with the Company's historical financial results.
FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS. The Company's finance
business is subject to numerous federal and state laws and regulations, which,
among other things, may (i) require the Company to obtain and maintain certain
licenses and qualifications, (ii) limit the interest rates, fees and other
charges that the Company is allowed to collect, (iii) limit or prescribe certain
other terms of its finance receivables arrangements with clients, and (iv)
subject the Company to certain claims, defenses and rights of offset. Although
the Company believes that it is currently in compliance with statutes and
regulations applicable to its business, there can be no assurance that the
Company 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 the Company. Furthermore, the adoption of
additional statutes and regulations, changes in the interpretation and
enforcement of current statutes and regulations, or the expansion of the
Company's business into jurisdictions that have adopted more stringent
regulatory requirements than those in which the Company currently conducts
business could have a material adverse effect upon the Company.
HEALTHCARE REFORM. During the past half decade, large U.S. corporations
and U.S. consumers of healthcare services have substantially increased their use
of managed healthcare plans such as HMOs and PPOs. This development has
increased the purchasing power of those plans, which in turn have used that
power to lower the amounts they pay for healthcare services. Since 1993,
numerous proposals have been presented to Congress to restructure the U.S.
healthcare system. The principal features of these proposals are to provide
universal access to healthcare services and to achieve overall cost containment.
To date, none of the proposals initiated at the federal government level have
been enacted. In the private sector, however, cost containment initiatives have
continued. Certain aspects of these actual and proposed cost containment
initiatives, particularly plans to eliminate payment for duplicative procedures,
may reduce the overall demand for the types of medical equipment financed by the
Company. Declining reimbursement for medical services also could cause
hospitals, physician groups and other healthcare providers, which form a
significant portion of the Company's customer base, to experience cash flow
problems. This in turn could negatively impact their ability to meet their
financial obligations to the Company and/or reduce their future equipment
acquisitions which could adversely affect the Company.
SHARES ELIGIBLE FOR FUTURE SALE. Following the Offering and the Direct
Offering, the Company will have approximately 13,570,108 shares of Common Stock
outstanding. Of these shares of Common Stock approximately 11,745,197 shares,
which include the 2,200,000 shares offered hereby, are freely tradeable without
restriction under the Securities Act, except for any shares purchased by
existing affiliates of the Company, which shares are subject to the resale
limitations of Rule 144 as promulgated under the Securities Act ("Rule 144").
All of the remaining shares of outstanding Common Stock are "restricted
securities" as that term is defined in Rule 144. Subject to the 90-day lock-up
agreement described below, these restricted securities will be eligible for sale
pursuant to Rule 144 in the public market following the consummation of the
Offering. Additional shares of Common Stock, including shares issuable upon
exercise of employee stock options and upon conversion of the Company's
Convertible Notes, will also become eligible for sale in the public market from
time to time. However, the Company, certain of its executive officers and
directors, certain stockholders and certain holders of Convertible Subordinated
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Notes, who in the aggregate will own approximately 3,526,791 shares of Common
Stock after the Offering and the Direct Offering, have agreed that, for a period
of 90 days after the date of this Prospectus Supplement, they will not, without
the prior written consent of Prudential Securities Incorporated, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or other
capital stock of the Company, or any right to purchase or acquire Common Stock
or other capital stock of the Company, subject to certain exceptions, including
the ability of the Company to grant options and issue shares of Common Stock
under the Company's existing option plans and to issue Common Stock in
acquisition transactions not involving a public offering, provided that the
recipient will be bound by that lock-up agreement. Prudential Securities
Incorporated may, in its sole discretion, at any time and without notice,
release all or any portion of the shares subject to such lock-up agreements.
Following this Offering and the Direct Offering and upon the expiration of the
lock-up agreements, sales of substantial amounts of the Company's Common Stock
in the public market pursuant to Rule 144 or otherwise, or the availability of
such shares for sale, could adversely affect the prevailing market price of the
Common Stock and impair the Company's ability to raise additional capital
through the sale of equity securities. See "Shares Eligible for Future Sale."
DEPENDENCE UPON KEY PERSONNEL. The ability of the Company to
successfully continue its existing financing business, to expand into its
targeted markets and to develop its newer businesses depends upon the ability of
the Company to retain the services of its key executive officers and senior
management personnel, including Michael A. O'Hanlon, the Company's President and
Chief Executive Officer. The loss of any of these individuals or an inability to
attract and maintain additional qualified personnel could adversely affect the
Company. There can be no assurance that the Company will be able to retain its
existing management personnel or to attract additional qualified personnel.
YEAR 2000 CONCERNS. The Company believes, based on discussions with its
current systems vendors, that its software applications and operational programs
will properly recognize calendar dates beginning in the Year 2000. In addition,
the Company is discussing with its customers and suppliers the possibility of
any interface difficulties relating to the Year 2000 which may affect the
Company. To date, no significant concerns have been identified, however, there
can be no assurance that there will not be any Year 2000-related operating
problems or expenses that will arise with the Company's computer systems and
software or in connection with the Company's interface with the computer systems
and software of its vendors and customers and suppliers.
USE OF PROCEEDS
The Company will receive no portion of the proceeds of the sale of the
Shares offered hereby.
SELLING STOCKHOLDERS
The Selling Stockholders acquired the Shares in connection with the
Company's acquisition of the Wentworth Entities in November 1997. Under the
terms of a Registration Rights Agreement dated as of November 14, 1997 by and
among the Company and the Selling Stockholders, the Company agreed to register
the Shares which may be sold by the Selling Stockholders from time to time. The
table below sets forth: (i) each Selling Stockholder's affiliation with the
Company, (ii) the aggregate number of shares of Common Stock owned by each
Selling Stockholder prior to the offering made by this Prospectus; (iii) the
maximum number of shares that each Selling Stockholder may offer and sell
pursuant to this Prospectus; and (iv) the number of shares (and percentage of
the outstanding shares) of Common Stock owned by each Selling Stockholder after
the offering made by this Prospectus.
<TABLE>
<CAPTION>
NAME MATERIAL RELATIONSHIP WITH NUMBER OF SHARES OF COMMON MAXIMUM NUMBER OF SHARES
COMPANY DURING PREVIOUS STOCK BENEFICIALLY OWNED THAT MAY BE OFFERED HEREBY
THREE YEARS BEFORE OFFERING (1)
<S> <C> <C> <C>
Gary Veloric None 37,805 37,805
James Delaney None 37,805 37,805
John L. Godfrey III (2) 8,402 8,402
- - - - - - - - - - - - - - - -
</TABLE>
(1) Acquired on November 14, 1997 in connection with the Company's
acquisition of the Wentworth Entities.
(2) Mr. Godfrey is the President of each of DVI Healthcare Financial
Advisors, Inc. and DVI Mortgage Funding, Inc., each of which are
indirectly wholly-owned subsidiaries of the Company.
PLAN OF DISTRIBUTION
It is anticipated that the Selling Stockholders will offer the Shares
for sale at the prices prevailing on the NYSE (or other principal market on
which the Shares are then traded) on the date of sale. The Selling Stockholders
also may sell the 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 Common Stock as of the date hereof. All
costs, expenses and fees incurred in connection with the registration of the
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 borne by the Company, but all selling and other
expenses incurred by the Selling Stockholders will be borne by the Selling
Stockholders.The Selling Stockholders, and the brokers through whom the sales of
the 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 the
Selling Stockholders or such brokers on the sale of the 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, 1997, 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.
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