THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT
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.
(SUBJECT TO COMPLETION, ISSUED NOVEMBER 30, 1998)
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 30, 1998)
DVI BUSINESS TRUST 1998-2
(ISSUER)
DVI RECEIVABLES CORP.
(OWNER OF ISSUER)
DVI FINANCIAL SERVICES INC.
(CONTRIBUTOR AND SERVICER)
o THE PUBLICLY OFFERED NOTES:
The issuer will issue $36,662,000 ____% of Class A-1, $118,804,000 ____% of
Class A-2, $38,767,000 ____% of Class A-3, $4,440,000 ____% of Class B and
$4,995,000 ____% of Class C asset-backed notes, Series 1998-2 (dollar amounts
are approximate).
o THE CREDIT ENHANCEMENT FOR THE PUBLICLY OFFERED NOTES:
o THE PRIVATELY OFFERED NOTES CONSIDER CAREFULLY THE RISK FACTORS
BEGINNING ON PAGE 11 IN THE
The issuer also anticipates PROSPECTUS AND PAGE S-10 OF THIS
issuing the following notes PROSPECTUS SUPPLEMENT.
that are not being offered to
the public: approximately o A note is not a deposit and
$4,995,000 of Class D Notes neither the notes nor the
and $4,995,000 of Class E underlying accounts or
Notes. The issuer will not pay receivables are insured or
the interest or principal, guaranteed by the Federal
respectively, on the Class D Deposit Insurance Corporation
or Class E notes unless and or any other governmental
until the interest or agency.
principal on the publicly
offered notes are paid first. o The notes will represent
obligations of the issuer only
o THE RESERVE ACCOUNT and will not represent
interests in or obligations of
The issuer will fund a reserve DVI Financial Services Inc. or
fund that can be used to pay any affiliate of DVI Financial
certain shortfalls in payments Services Inc.
on the notes.
o This prospectus supplement may
o THE RETAINED INTEREST be used to offer and sell the
notes only if accompanied by
The notes are senior to the the prospectus.
issuer's retained interest,
which represents the excess of
the future collections on the
assets of the issuer over the
required payments on the
publicly offered notes and the
privately offered notes.
o THE UNDERWRITING:
The underwriters will offer to the public the Class A Notes, the Class B
Notes and the Class C Notes at the following prices:
<TABLE>
<CAPTION>
CLASS A NOTES CLASS B CLASS C
A-1 NOTES A-2 NOTES A-3 NOTES NOTES NOTES
<S> <C> <C> <C> <C> <C>
Price to Public (1) ___% ___% ___% ___% ___%
Underwriting Discount (2) ___% ___% ___% ___% ___%
Proceeds to Issuer (3) ___% ___% ___% ___% ___%
</TABLE>
(1) Total price to public is approximately $___________.
(2) Total underwriting discount is approximately $___________. The issuer has
indemnified the underwriters for certain liabilities that they may incur.
(3) Total proceeds to issuer, before deducting expenses payable by issuer, are
approximately $___________.
The notes are offered subject to receipt and acceptance by the underwriters, to
prior sale and to the underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify an order without notice. It is expected
that delivery of the notes will be made in book-entry form through the
facilities of The Depository Trust Company on or about December __, 1998. You
should read "PLAN OF DISTRIBUTION" in this prospectus supplement for further
information.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE CERTIFICATES OR DETERMINED THAT THIS PROSPECTUS
SUPPLEMENT IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
---------------------------
UNDERWRITERS
LEHMAN BROTHERS INC. PRUDENTIAL SECURITIES INCORPORATED
<PAGE>
You can find a listing of the pages where capitalized terms used in the
prospectus supplement and the prospectus are defined under the respective
caption "INDEX OF DEFINED TERMS" beginning on page S-83 of the prospectus
supplement and page 38 of the prospectus.
-ii-
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
SUMMARY OF PROSPECTUS SUPPLEMENT.......................................................................................S-1
RISK FACTORS..........................................................................................................S-10
USE OF PROCEEDS.......................................................................................................S-14
PLAN OF DISTRIBUTION..................................................................................................S-14
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.....................................................................S-15
THE CONTRACTS.........................................................................................................S-15
Contracts........................................................................................................S-15
Prepayment Amount and Partial Prepayment Amount..................................................................S-18
Substitute Contracts.............................................................................................S-28
Eligibility Requirements for the Contracts.......................................................................S-29
Eligibility Requirements for Substitute Contracts................................................................S-29
DVI .................................................................................................................S-30
General..........................................................................................................S-30
Underwriting Criteria............................................................................................S-30
Portfolio Monitoring and Credit Collections......................................................................S-31
THE SERVICER..........................................................................................................S-34
Servicing........................................................................................................S-34
Servicing Compensation and Payment of Expenses...................................................................S-35
Evidence as to Compliance........................................................................................S-35
Other Servicing Procedures.......................................................................................S-35
Resignation/Removal of the Servicer..............................................................................S-36
Voluntary Termination............................................................................................S-36
DVI RECEIVABLES CORP..................................................................................................S-36
THE ISSUER............................................................................................................S-37
General..........................................................................................................S-37
THE OWNER TRUSTEE.....................................................................................................S-37
THE TRUSTEE...........................................................................................................S-37
DESCRIPTION OF THE NOTES, INDENTURE, CONTRIBUTION
AND SERVICING AGREEMENT AND TRUST AGREEMENT......................................................................S-37
General..........................................................................................................S-38
Conveyance of Trust Property.....................................................................................S-42
Limited Repurchase Obligation....................................................................................S-42
Indemnification..................................................................................................S-43
Indenture Accounts; Investment of Funds..........................................................................S-43
Reserve Account..................................................................................................S-43
Flow of Funds....................................................................................................S-45
Class A Distribution Sub-Account; Class B Distribution Sub-Account; Class C Distribution Sub-Account; Class D
Distribution Sub-Account; Class E Distribution Sub-Account...................................................S-49
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Reports to Noteholders...........................................................................................S-50
Optional Redemption..............................................................................................S-50
Indenture Events of Default and Acceleration.....................................................................S-54
Remedies.........................................................................................................S-55
Servicing Procedure..............................................................................................S-56
Payments on Contracts............................................................................................S-56
Servicer Events of Default.......................................................................................S-57
Termination of the Servicer......................................................................................S-58
Duties and Immunities of the Trustee.............................................................................S-59
PREPAYMENT AND YIELD CONSIDERATIONS...................................................................................S-59
CERTAIN LEGAL MATTERS AFFECTING AN
OBLIGOR'S RIGHTS AND OBLIGATIONS.................................................................................S-68
General..........................................................................................................S-68
The Equipment....................................................................................................S-68
MATERIAL FEDERAL INCOME TAX CONSEQUENCES..............................................................................S-70
CERTAIN STATE, LOCAL AND OTHER TAX CONSIDERATIONS.....................................................................S-75
CONSIDERATIONS FOR BENEFIT PLAN INVESTORS.............................................................................S-75
LEGAL INVESTMENT......................................................................................................S-79
RATINGS...............................................................................................................S-79
LEGAL MATTERS.........................................................................................................S-79
INDEX OF DEFINED TERMS................................................................................................S-80
</TABLE>
-iv-
<PAGE>
SUMMARY OF PROSPECTUS SUPPLEMENT
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT.
CLOSING DATE................ On or about December __, 1998.
CUT-OFF DATE................ November 30, 1998. The issuer owns all payments
due after the cut-off date on the contracts in the
trust property.
THE ISSUER.................. The issuer of the notes is DVI Business Trust
1998-2, a business trust organized under the laws
of the State of Delaware.
For more information about the issuer, you should
read the section titled "THE ISSUER" in this
prospectus supplement.
OWNER TRUSTEE............... The owner trustee of the issuer is Wilmington
Trust Company.
For more information about the owner trustee, you
should read the section titled "THE OWNER TRUSTEE"
in this prospectus supplement.
OWNER OF THE ISSUER......... The sole owner of the issuer is DVI Receivables
Corp., a Delaware corporation wholly owned by DVI
Financial Services Inc.
For more information about DVI Receivables Corp.,
you should read the section titled "DVI
RECEIVABLES CORP" in this prospectus supplement.
CONTRIBUTOR AND SERVICER.... DVI Financial Services Inc., a Delaware
corporation, is the sole owner of DVI Receivables
Corp. and the sole contributor of the assets that
comprise the trust property.
For more information about DVI Financial Services
Inc., you should read "DVI" and "THE SERVICER" in
this prospectus supplement.
TRUSTEE..................... U.S. Bank Trust National Association, a national
banking association. For more information about
the trustee, you should read the section titled
"THE TRUSTEE" in this prospectus supplement.
S-1
<PAGE>
THE TRUST PROPERTY
The trust property is all of the assets of the issuer. If an event of default
under the documents related to this transaction ever occurs (read the section of
this prospectus supplement titled "DESCRIPTION OF THE NOTES, INDENTURE,
CONTRIBUTION AND SERVICING AGREEMENT AND TRUST AGREEMENT -- INDENTURE EVENTS OF
DEFAULT AND ACCELERATION" for a description of those events) then the trustee,
acting on your behalf, could claim, foreclose upon and sell the trust property.
The trust property consists of:
THE CONTRACTS. A pool of non-cancelable contracts, which may be of any one of
the following five types:
"FINANCE LEASES" -- contracts in the form of a lease that contains an end of
term purchase option for a nominal amount;
"FAIR MARKET VALUE LEASES" -- contracts in the form of a lease that contain a
purchase option based on either (a) a stated non-nominal percentage of the
original cost of the related equipment, or (b) the fair market value of the
related equipment at the expiration, or earlier termination, of the contract;
"LEVERAGED LEASE LOANS" -- contracts in the form of loans, each of which is
o made to a lessor of the related equipment which is leased under an
equipment lease with the obligor, and
o secured by a pledge by such lessor of all of its right, title and
interest to the underlying equipment lease and the related equipment;
"LEASE RECEIVABLE PURCHASES" -- contracts in the form of a purchase of the
lessor's right to scheduled payments under an equipment lease and that is
secured by the lessor's rights in the related equipment; and
"SECURED EQUIPMENT NOTES" -- contracts in the form of a loan to the user of
the related equipment secured by such equipment.
THE CONTRACT PAYMENTS. The contracts contain provisions which require the
obligor to make the periodic, scheduled payment of rent or other payments
thereunder on a periodic basis. These payments may be in arrears or advance.
SECURITY INTEREST IN EQUIPMENT. If an obligor defaults under its contract, the
servicer, on behalf of the trustee, will be able to repossess and release or
sell the related equipment to cover the remaining unpaid payments under such
contract.
THE INSURANCE POLICIES. The issuer owns DVI Financial Services Inc.'s rights
under any property insurance policies relating to the equipment financed under
the contracts.
COLLECTION ACCOUNT AMOUNTS. The trustee will establish a bank account that
collects funds to be paid to noteholders. The issuer owns any amounts deposited
from time to time in the collection account.
RESERVE ACCOUNT AMOUNTS. The trustee will also establish a bank account that
holds reserve funds. The issuer owns any amounts on deposit in the reserve
account.
CONTRIBUTION AND SERVICING AGREEMENT RIGHTS. The issuer owns DVI Receivables
Corp.'s rights and remedies under the Contribution and Servicing Agreement.
Initially, DVI Financial Services Inc. is the servicer of the trust property.
The person who acts as servicer is responsible for servicing, making collections
and advances on and otherwise enforcing the contracts. The servicer must
exercise the degree of skill and care in performing these functions that it
customarily exercises with respect to similar assets owned by the servicer. On
each payment date, the servicer receives a monthly servicing fee from amounts on
deposit in the collection account. The servicer may resign or be removed, in
which event the trustee (or another satisfactory company) will be appointed as
successor servicer.
S-2
<PAGE>
EXCLUDED ASSETS
The trust property will not consist of either:
PURCHASE OPTION PAYMENTS. Any purchase option payments are specified in each
individual contract. In general, purchase option payments are any payment made
by the obligor under such contract to purchase the equipment covered thereby. A
purchase option payment would include any funds received in respect of any of
the following:
o an end of term purchase option for $1,
o an end of term option to purchase the equipment at a stated percentage of
the original cost of the equipment,
o an option to purchase the equipment at the fair market value of the
equipment determined at the end of the contract term, or
o an end of term option to extend the term of the lease for one or more
immediately succeeding twelve month periods.
MISCELLANEOUS PAYMENTS. These are amounts included in the obligor's payments for
which the issuer is not the ultimate beneficiary, including, but not limited to,
property taxes, sales taxes, manufacturer's maintenance costs, insurance
premiums and supplies and transaction costs.
THE CONTRACTS
DVI Financial Services Inc. selects the contracts from its portfolio of
contracts based on the criteria specified in the section in this prospectus
supplement titled "THE CONTRACTS-ELIGIBILITY REQUIREMENTS FOR THE CONTRACTS."
DVI Financial Services Inc. either originates or acquires the contracts from
others in its ordinary course of financing activities. Many of the contracts in
the trust property were previously and indirectly sold by DVI Financial Services
Inc. to a special-purpose, bankruptcy-remote limited liability company that was
wholly and indirectly owned by DVI Financial Services Inc.
THE DISCOUNTED AGGREGATE CONTRACT BALANCE. The outstanding principal balance,
discounted at a rate of 6.25% per year, of the contracts included in the
statistical information presented in this prospectus supplement is
$222,019,847.44 as of the cut-off date. We discounted the contract payments to
show what the value in today's dollars is of the total contract payments due
over time. We did not include purchase option payments or miscellaneous payments
in our calculations of discounted contract balances. For the purposes of future
calculations, except when calculating a repurchase price of a contract, we
assumed that the discounted contract balance of any defaulted contract is zero.
For a further discussion of discount rates and the contracts, you should read
the section titled "THE CONTRACTS" in this prospectus supplement.
OTHER POOL DATA. As of the cut-off date,
o the weighted average remaining term to maturity of the statistical pool of
contracts was approximately 54.04 months,
o the final scheduled payment date of the contract in the statistical pool
with the latest maturity is October, 2005, and
o the average outstanding principal balance of the contracts referenced in
the statistical pool was approximately $38,950.85.
For more data about the contracts as of the cut-off date, you should read the
section titled "THE CONTRACTS" in this prospectus supplement.
THE EQUIPMENT. The equipment is principally non-invasive medical diagnostic and
therapeutic equipment.
The contracts require the obligor to assume all responsibility with respect to
the equipment, including the obligation to pay all costs relating to its
operation, maintenance, repair, insurance and taxes. Some equipment contracts
pledged as collateral for leveraged lease loans, however, may require the
related lessor to maintain and service the equipment. Some contracts may also
require
S-3
<PAGE>
payments for which the servicer is not the ultimate beneficiary thereof and
which are not part of the trust property.
THE OBLIGORS. The obligor is the person obligated to make payments under a
contract. The term obligor is used in this prospectus supplement to include any
guarantor. The obligors under the contracts are primarily hospitals,
non-hospital medical facilities, physician groups and physicians, businesses,
institutions, and professionals (who utilize the equipment under such contract
for commercial use). No affiliates of DVI Financial Services Inc. are obligors
under any contracts. Each obligor's obligation under its contract is a full
recourse obligation.
MODIFICATIONS TO THE CONTRACTS. The terms of a contract may be modified or
adjusted by the servicer for administrative reasons. A lessee or a lessor may
also request a modification or adjustment to its contract. Such modifications or
adjustments may include either
o changes to the equipment's acceptance date, cost or components; or
o corrections of information that occur when a contract enters the servicer's
administrative servicing system.
Such modifications and adjustments could result in changes to:
o the contract's commencement date, amount of monthly payment, timing of
monthly payment, or
o the equipment.
However, such changes will not
o extend the stated maturity date of the notes,
o extend the scheduled termination date of such contract by more than 24
months,
o have a material adverse effect on the weighted average life of any class of
notes,
o affect more than twenty percent of the initial aggregate principal balance
of the contracts (discounted at the actual discount rate of ___%),
o be made to any contract that is ninety days or more delinquent,
o decrease the discounted principal balance of any contract being modified,
unless the issuer deposits an amount equal to such decrease in the
collection account.
TERMINATION OF CONTRACTS. Generally, obligors do not have the right to terminate
or prepay their contract. However, the servicer may allow either full or partial
prepayment of a contract by an obligor. In fact, the servicer historically has
permitted obligors to terminate contracts early (or, in case of contracts
covering more than one item of equipment, to partially prepay contracts) either
in connection with the execution of a new contract of replacement equipment, or
upon payment of a negotiated premium, or both.
FULL PREPAYMENTS. The servicer may only permit a full prepayment if the obligor
pays an amount at least equal to the sum of:
(1) the discounted principal balance of the contract as of the first day of
the calendar month immediately preceding such prepayment, together with
one month of interest thereon at the actual discount rate of ____%, and
(2) any unreimbursed amounts that the servicer advanced to the obligor as
permitted in the Contribution and Servicing Agreement (for further
information, you should consult the definition of "SERVICER ADVANCES"
and read the section titled "THE SERVICER" of this prospectus
supplement), and
(3) any payments due and outstanding under such contract that constitute
trust property but were not the subject of a servicer advance.
S-4
<PAGE>
PARTIAL PREPAYMENTS. The servicer may only permit an obligor to partially prepay
a contract if the obligor pays an amount equal to the difference between the
following (A) and (B).
(A) is the sum of (1) the difference between the discounted principal balance
of such contract before such prepayment is made and the discounted
principal balance of such contract after such prepayment is made and (2)
one month's interest on such difference, and
(B) is an amount equal to any of such contract payments actually received by
the servicer with respect to the prepaid portion of such contract for the
current calendar month on or before the date of such partial prepayment.
LEGAL MATTERS AFFECTING AN OBLIGOR'S RIGHTS AND OBLIGATIONS
The issuer warrants that the pledge to the trustee is a valid pledge of a
security interest in the contracts. The issuer must take any action required to
perfect the noteholders' security interest in the contracts. The issuer warrants
that the trustee, on behalf of the noteholders, has a first priority perfected
security interest in the contracts, except for liens which have priority by
operation of law, and the proceeds.
PRINCIPAL AND INTEREST ON THE OFFERED NOTES
INTEREST. The trustee pays interest on the notes on the eleventh day of each
month (or, if such eleventh day is not a business day, the next day that is a
business day) to each noteholder. The first payment date will be January 11,
1999. To be considered a noteholder for such payment, the trustee must have you
registered on its records on the fifth business day immediately preceding such
payment date as a noteholder.
We accumulate the aggregate amount of any monthly interest not previously paid
to any noteholders. The issuer will pay the aggregate amount of such overdue
interest on the next payment date to the extent that sufficient funds are
available to make such payment. Overdue interest does not itself bear interest.
PRINCIPAL. Principal payments on the notes are required to be made on each
payment date to the extent funds are available for such payments. Principal
payments will be calculated based on the decline in the aggregate discounted
contract principal balance during the prior calendar month.
FLOW OF FUNDS
On each payment date, the trustee will disburse all funds deposited in the
collection account (including any investment income with respect to monies on
deposit in the collection account) in accordance with the servicer's monthly
report in the following order of priority:
FIRST, fees to the servicer, unreimbursed advances and other servicer advances
due to the servicer;
SECOND, to the Class A noteholders, all Class A interest
THIRD, to the Class B noteholders, all Class B interest
FOURTH, to the Class C noteholders, all Class C interest
FIFTH, to the Class D noteholders, all Class D interest
SIXTH, to the Class E noteholders, all Class E Interest
SEVENTH,
IF no amortization event is happening, then :
o FIRST, to the Class A noteholders, all Class A principal
o SECOND, to the Class B noteholders, all Class B principal
o THIRD, to the Class C noteholders, all Class C principal
o FOURTH, to the Class D noteholders, all Class D principal
S-5
<PAGE>
o FIFTH, to the Class E noteholders, all Class E principal
o SIXTH, to the reserve account, the amount needed to make the reserve
account meet its deposit requirements
BUT, if an amortization event is happening and has not been waived by the
noteholders, then
o FIRST, to the Class A noteholders, all of the Class A outstanding
principal balance
o SECOND, to the Class B noteholders, all of the Class B outstanding
principal balance
o THIRD, to the Class C noteholders, all of the Class C outstanding
principal balance
o FOURTH, to the Class D noteholders, all of the Class D outstanding
principal balance
o FIFTH, to the Class E noteholders, all of the Class E outstanding
principal balance
in making the seventh group of payments outlined above if an amortization event
is happening, the trustee may also draw upon funds deposited in the reserve
account (but there still may not be enough funds in the collection account to
make all of such payments on any payment date),
EIGHTH, if the servicer is no longer DVI Financial Services Inc. and the
servicer's fee is deemed to be commercially unreasonable, the amount necessary
to make the servicing fee commercially reasonable and to cover the reasonable
costs in transferring the servicing obligations,
NINTH, any remaining funds on deposit in the collection account to the issuer,
or, if the Class F instruments have been issued, to the holder of the Class F
instruments.
For a more detailed description of how funds are paid to you, you should read
the section "DESCRIPTION OF THE NOTES, INDENTURE, CONTRIBUTION AND SERVICING
AGREEMENT AND TRUST AGREEMENT -- FLOW OF FUNDS" in this prospectus
supplement.
CREDIT ENHANCEMENT
We have provided three forms of credit enhancement. First, we have the
subordination of the different classes of notes. Second, we have a reserve
account of funds to pay certain shortfalls in payments on the notes. Third, we
have the subordination of the issuer's right to receive retained interest
amounts, until noteholders have received all amounts then payable to them.
SUBORDINATION. Subordination enhances the credit of each superior class of
notes. Notes that are subordinated in priority of payment to other classes of
notes have a lesser likelihood of receiving the regular distributions as
outlined in the "FLOW OF FUNDS" section of this prospectus supplement.
Similarly, if the trustee should ever foreclose upon the trust property, each
superior class of notes has a greater protection against realizing losses than
do notes that are subordinated.
Payments of interest on the Class D and Class E Notes are subordinate to
payments of interest on the Class A, Class B and Class C Notes, and payments of
principal on the Class D and Class E Notes are subordinate to payments of
principal on the Class A, Class B and Class C Notes.
Furthermore, the following note payments are subordinated as shown below.
S-6
<PAGE>
================================================================================
NOTE PAYMENT SUBORDINATED TO THE FULL PAYMENT OF:
- ------------ ------------------------------------
CLASS A INTEREST INTEREST ON THE CLASS A NOTES IS NOT SUBORDINATED TO ANY
OTHER NOTE PAYMENTS.
CLASS A PRINCIPAL ALL INTEREST DUE AND OVERDUE ON ALL CLASSES OF NOTES.
CLASS B INTEREST ALL INTEREST DUE AND OVERDUE ON THE CLASS A NOTES.
CLASS B PRINCIPAL IF NO AMORTIZATION EVENT IS HAPPENING:
o ALL INTEREST DUE AND OVERDUE ON ALL CLASSES OF NOTES
o ALL PRINCIPAL DUE AND OVERDUE ON THE CLASS A NOTES
IF AN AMORTIZATION EVENT IS HAPPENING:
o ALL INTEREST DUE AND OVERDUE ON ALL CLASSES OF THE
NOTES
o THE ENTIRE OUTSTANDING PRINCIPAL AMOUNT DUE ON THE
CLASS A NOTES
CLASS C INTEREST ALL INTEREST DUE AND OVERDUE ON THE CLASS A NOTES AND THE
CLASS B NOTES.
CLASS C PRINCIPAL IF NO AMORTIZATION EVENT IS HAPPENING:
o ALL INTEREST DUE AND OVERDUE ON ALL CLASSES OF THE
NOTES
o ALL PRINCIPAL DUE AND OVERDUE ON THE CLASS A NOTES AND
THE CLASS B NOTES,
IF AN AMORTIZATION EVENT IS HAPPENING
o ALL INTEREST DUE AND OVERDUE ON ALL CLASSES OF THE
NOTES
o THE ENTIRE OUTSTANDING PRINCIPAL AMOUNT DUE ON THE
CLASS A NOTES AND THE CLASS B NOTES
================================================================================
RESERVE ACCOUNT
The reserve account is a segregated trust account in the name of the trustee.
The trustee funds the reserve account on the closing date by depositing an
amount from note proceeds, and thereafter by depositing amounts otherwise
distributable to the issuer or any Class F instrumentholder. If a shortfall
arises between available funds in the collection account and principal or
interest due on the notes, the trustee will withdraw money from the reserve
account to pay the affected noteholders. However, noteholders can only be
compensated to the extent that funds are available in the reserve account. If
amounts in the reserve account exceed the amount required to be on deposit in
the reserve account, then excess amounts on deposit in the reserve account may
also be paid to the Class F instrumentholder, or, if no Class F instrument has
been issued, to the issuer.
For more information about the reserve account, you should read the section
titled "DESCRIPTION OF
S-7
<PAGE>
THE NOTES, INDENTURE, CONTRIBUTION AND SERVICING AGREEMENT AND TRUST AGREEMENT
- -- RESERVE ACCOUNT" in this prospectus supplement.
RETAINED INTEREST
The amount of notes issued by the issuer is less than all of the cash flows that
the issuer expects to receive from the trust property. We refer to the
difference between the amount of notes issued and the anticipated cash flow as
the "retained interest". At a later date, the issuer may issue a Class F
instrument with a value up to the retained interest.
POOL A CONTRACTS AND POOL B CONTRACTS
The trust property is composed of two pools of contracts. First, there are the
contracts identified on the contract schedule attached to the Contribution and
Servicing Agreement as the pool A contracts. Second, there are the contracts
identified on the contract schedule attached to the Contribution and Servicing
Agreement as the pool B contracts. The servicer's rights with regard to
substitution of contracts and purchase of all contracts in a pool differ as
between the pool A contracts and the pool B contracts. The two pools shall
comprise a single collateral pool from which payments will be made for all of
the notes.
For further information regarding the different rights of substitution and
replacement with respect to the pool A contract and the pool B contracts, you
should read the section titled "THE CONTRACTS -- SUBSTITUTE CONTRACTS" in this
prospectus supplement.
OPTIONAL REDEMPTION
The issuer may buy back either all of or some of the notes.
FULL REDEMPTION. The issuer may buy back all of, but not some of, the notes on
any payment date if:
o the issuer pays the redemption price that we have
specified;
o the aggregate outstanding discounted contract balance of all of the
contracts in pool A is less than 10% of the aggregate outstanding
discounted contract balance of all of the contracts in pool A on the
closing date; and
o the aggregate outstanding discounted contract balance of all of the
contracts in pool B is less than 20% of the aggregate outstanding
discounted contract balance of all of the contracts in pool B on the
closing date.
PARTIAL REDEMPTION. The issuer may buy back any portion (but not all) of the
notes on a payment date if
o it pays the partial redemption price, and
o the aggregate outstanding discounted contract balance of all of the
contracts in pool B is less than 20% of the aggregate outstanding
discounted contract balance of all of the contracts in pool B as of the
closing date.
For further information about the issuer's rights to buy back the notes, you
should read the section titled "DESCRIPTION OF THE NOTES, INDENTURE,
CONTRIBUTION AND SERVICING AGREEMENT AND TRUST AGREEMENT -- OPTIONAL REDEMPTION"
in this prospectus supplement.
LIMITED REPURCHASE OBLIGATION
90 days following the discovery or receipt of notice of a breach in the
Contribution and Servicing Agreement, if the breach is material and has not been
cured or waived as described therein, then DVI Financial Services Inc. must
either substitute or repurchase the contract causing the breach from the issuer.
For further information about the issuer's mandatory repurchase obligations, you
should read the section titled "DESCRIPTION OF THE NOTES, INDENTURE,
CONTRIBUTION AND SERVICING AGREEMENT AND TRUST AGREEMENT -- LIMITED REPURCHASE
S-8
<PAGE>
OBLIGATION" in this prospectus supplement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Under current law, special tax counsel to the issuer is of the opinion that the
Class A Notes, the Class B Notes and the Class C Notes will be treated as
indebtedness for federal income tax purposes.
For further information regard tax treatment of the notes, you should read the
section titled "MATERIAL FEDERAL INCOME TAX CONSEQUENCES" in this prospectus
supplement.
CONSIDERATIONS FOR BENEFIT PLAN INVESTORS
If you are buying Notes on behalf of an individual retirement account, Keogh
plan or employee benefit plan, special rules may apply to you. These rules are
described in the section called"CONSIDERATIONS FOR BENEFIT PLAN
INVESTORS." Buying Notes on behalf of an employee benefit plan may result in a
so-called "prohibited transaction" unless you meet the requirements of certain
exemptions. To assure that exemptions are available for the benefit of all
investors, you must make certain representations when you acquire notes. See
"CONSIDERATIONS FOR BENEFIT PLAN INVESTORS" IN THIS PROSPECTUS SUPPLEMENT."
RATINGS
The issuer's issuance of the notes is subject to receipt by each of the
following classes of all of the ratings set forth next to such class.
DUFF & FITCH IBCA, MOODY'S
PHELPS INC. INVESTORS
CREDIT SERVICE,
CLASS RATING CO. INC.
- -----------------------------------------------------
Class A-1 D-1+ F1+/ AAA P-1
Class A-2 AAA AAA Aaa
Class A-3 AAA AAA Aaa
Class B AA AA Aa3
Class C A A+ A2
A rating on a security is not a recommendation to buy, sell or hold securities,
and may be subject to revision or withdrawal at any time by the assigning
entity. For further information about rating, you should read the sections of
this prospectus supplement entitled "PREPAYMENT AND YIELD CONSIDERATIONS" and
"RATINGS".
RISK FACTORS
For a discussion of factors that should be considered by prospective investors
in the notes, you should read the section titled "RISK FACTORS" in this
prospectus supplement.
PERMISSIBLE TRANSFER
The Class A-1 Notes are eligible for purchase by money market funds under the
Investment Company Act of 1940, as amended.
S-9
<PAGE>
RISK FACTORS
Prospective noteholders should consider, among other things,
the following factors in connection with the purchase of the Notes.
RISKS AFFECTING COLLECTIBILITY OF THE TRUST PROPERTY
THE ISSUER, THE SERVICER OR DVI RECEIVABLES CORP. COULD BREACH THEIR OBLIGATIONS
THAT ENABLE THE TRUSTEE TO HAVE, ON YOUR BEHALF, A PERFECTED FIRST-PRIORITY
SECURITY INTEREST IN THE TRUST PROPERTY.
If either the issuer, DVI Receivables Corp. or the servicer
sells, pledges or causes the delivery of a contract in the trust property to a
person other than the trustee, then such other person would probably acquire an
interest in that contract. The interest of that other person may have priority
over the trustee's security interest. Anyone owed money by the owner of a
contract, if that debt is overdue, can foreclose upon and sell the contract.
Thus, if a person delivers a contract in the trust property to someone other
than the trustee, the trustee may not be in control of the decision concerning
whether or not to foreclose on the collateral.
In addition, the person with the highest-priority security
interest will be paid first from any payments under, or any proceeds of sale of,
a contract. Thus, if the person other than the trustee has a security interest
with higher priority than the trustee's, that person's interest in the contract
will be paid first. Only after the other person's interest is paid will the
trustee's interest be paid, and then only to the extent that there still are
sufficient funds available from the payments or proceeds.
THE OBLIGOR MAY HAVE RIGHTS THAT RESTRICT THE TRUSTEE'S ABILITY TO COLLECT ON
THE CONTRACTS FOR YOU.
An obligor might assert claims and defenses against DVI
Financial Services Inc., DVI Receivables Corp., the issuer or the trustee with
respect to the contracts or the related equipment. DVI Financial Services Inc.
warrants that, on the closing date, no such claims or defenses have been
asserted or threatened with respect to the contracts.
STATE LAWS CAN RESTRICT THE TRUSTEE'S ABILITY TO COLLECT ON THE CONTRACTS FOR
YOU.
State laws impose requirements and restrictions relating to
foreclosure sales of collateral. Such laws may also restrict the trustee's
ability to go to court and obtain a judgment that the issuer is deficient in the
payments it must make to you following such a foreclosure sale. The trustee may
not realize the full amount due on a contract (or may not realize the full
amount on a timely basis) because of the application of those requirements and
restrictions.
FAILURE TO TAKE CERTAIN ACTION, EQUIPMENT OBSOLESCENCE AND LEGAL COSTS MAY ALSO
RESTRICT THE TRUSTEE'S ABILITY TO COLLECT ON THE CONTRACTS FOR YOU.
In addition to the considerations mentioned above, other
factors that can hinder the trustee's ability to collect payments from contracts
that it foreclosed upon include:
o a failure to file UCC financing statements to perfect a
security interest,
o depreciation, obsolescence, damage or loss of any item of
equipment,
o the application of Federal and state bankruptcy and
insolvency laws,
o the expense of legal proceedings under a defaulted
contract
and other factors. If any of these circumstances occurs, the noteholders may be
subject to delays in payments and losses.
S-10
<PAGE>
EQUIPMENT OBSOLESCENCE.
If an obligor defaults on a contract, the only source of
payment for amounts due on the contract will be the income and proceeds from the
related equipment. However, the market value of our medical equipment generally
declines with age. In addition, some of our equipment may be subject to sudden,
significant declines in value because of technological advances. Because of
these factors, if the servicer or the trustee forecloses upon and sells the
equipment securing a defaulted contract, the servicer or trustee may not recover
the entire amount due on such contract.
RISKS RELATING TO THE STRUCTURE OF THE TRANSACTION
IF DVI FINANCIAL SERVICES INC. GOES BANKRUPT, A BANKRUPTCY COURT COULD TERMINATE
SOME OF THE CONTRACTS, AND YOU WOULD NOT GET ALL OF YOUR PAYMENTS.
DVI Financial Services Inc. believes that the transfer of the
contracts and the security interest in the related equipment to DVI Receivables
Corp. and the subsequent transfer to the issuer should be treated as an absolute
and unconditional transfer. However, if DVI Financial Services Inc. goes
bankrupt, a bankruptcy court could nonetheless attempt to recharacterize such
transfer as a borrowing. Such an attempt, even if unsuccessful, could result in
delays in payments on the notes.
If a bankruptcy court successfully recharacterizes the sale as
a borrowing, the court could then elect to accelerate payment of the notes and
liquidate the contracts. If an acceleration occurs, the trustee's recovery on
behalf of noteholders could be limited to the then-current value of the
contracts or the underlying equipment. In addition, if such attempt were
successful, bankruptcy law allows the bankruptcy trustee to reject leases that
it considers to be "true" leases (such as "fair market value" leases). The same
law allows the bankruptcy trustee to reject any other contract if the court
believes that any signatory to that contract has yet to finish performing its
duties thereunder. If a contract is rejected by a bankruptcy trustee for
whichever reason, the contract is terminated. An obligor would not owe any
further payments under a terminated contract. If the trust property contains a
contract that is terminated, you would then lose the right to some future
payments of interest and principal on the notes. If many contracts in the trust
property are terminated, your losses could be sizeable.
IF A LESSOR GOES BANKRUPT, A BANKRUPTCY COURT COULD REJECT AND TERMINATE ANY
FAIR MARKET VALUE CONTRACTS UNDER LEVERAGED LEASE LOANS OR OTHERWISE, AND YOU
WOULD NOT GET ALL OF YOUR PAYMENTS.
LEVERAGED LEASE LOANS. Some contracts represent leveraged
lease loans from DVI Financial Services Inc. to various lessors. Because
leveraged lease loans are secured by the lessor's pledge of its rights in
equipment and of a lease with the lessee of such equipment, rejection of the
lease by that lessor would terminate the lease, the obligor would not owe
further contract payments, and you might lose the right to some future payments
of interest and principal on the notes.
FAIR MARKET VALUE LEASES. Other contracts are fair market
value leases from DVI Financial Services, Inc. to various lessees. When DVI
Financial Services Inc. contributed these leases to DVI Receivables Corp., it
also granted a security interest in the leased equipment to DVI Receivables
Corp. DVI Receivables Corp., in turn, assigned such security interest to the
issuer along with a first priority security interest in a lease between such
lessor and the lessee.
THE RISK OF REJECTION. If a lessor under either a leveraged
lease loan or fair market value lease were to seek protection under the
Bankruptcy Code, then the lessor, as debtor-in possession, or its bankruptcy
trustee would have the option of rejecting, assuming or assigning the underlying
lease. If a lessor or bankruptcy trustee chooses to reject the lease, you could
experience delays in payment or losses on your investment.
S-11
<PAGE>
SUBORDINATED NOTES HAVE LESS LIKELIHOOD OF BEING FULLY PAID THAN DO THE SUPERIOR
CLASSES OF NOTES.
Investors who purchase subordinated notes will not receive
distributions of interest or principal on any given payment date until after the
Class A Notes and the classes of more senior subordinated notes receive their
respective distributions of interest or principal. The subordinated notes will
bear losses and delinquencies in reverse order of their priority. Depending upon
the timing of defaults and severity of losses, investors may realize less on
their investment than they originally anticipated. It may also take longer for
investors holding subordinated notes to earn a return on their investment. For
more information about subordinated notes, you should read the section of this
prospectus supplement titled "DESCRIPTION OF THE NOTES -- SUBORDINATION".
OTHER RISKS
PAYMENT OF PRINCIPAL AND INTEREST ON YOUR NOTE DEPENDS UPON THE UNPREDICTABLE
RATE OF PREPAYMENTS ON THE CONTRACTS.
The rate of payment of principal on the notes will depend,
among other things, on an unpredictable rate of prepayments on the contracts.
Therefore, the rate of payment of principal on the notes cannot be
predicted.
Prepayments on the contracts include
o partial and full prepayments (to the extent not replaced with substitute
contracts) by the obligor on the contract,
o payments upon the liquidation of defaulted contracts,
o payments upon acquisitions by DVI Financial Services Inc. of contracts from
the related trust property on account of a breach of certain
representations and warranties in the Contribution and Servicing Agreement,
and
o payments upon an optional acquisition by DVI Financial Services Inc. of
contracts from the trust property.
The rate of early terminations of contracts due to prepayments
and defaults may be influenced by a variety of economic and other factors which
are unknown at this time. You will bear the risk of reinvesting distributions of
the principal of your note. No assurance can be given as to the level of
prepayments that the contracts will
experience.
THE SERVICER OR THE ISSUER MAY SUBSTITUTE CONTRACTS IN THE TRUST PROPERTY,
CAUSING DIFFERENT PAYMENT AND PREPAYMENT RATES ON YOUR NOTE.
DVI Financial Services Inc. and the issuer have the right in
certain circumstances to replace prepaid or certain non-performing contracts.
These rights differ as between the pool A contracts and the pool B Contracts.
For further information about the servicer's rights of substitution, you should
read the section of this prospectus supplement titled "THE CONTRACTS --
SUBSTITUTE CONTRACTS". The payment flow on your notes will be different if a
substitution occurs, rather than if the issuer pays the proceeds of the
defaulted or prepaid contract through to you. The performance of such substitute
contracts could be different than the performance of the original contracts.
THE RATE OF DELINQUENCIES OF DVI FINANCIAL SERVICES INC.'S PORTFOLIO OF
CONTRACTS IS NOT AN ASSURANCE OF THE PERFORMANCE OF THE CONTRACTS IN THE TRUST
PROPERTY.
We cannot assure you that the levels of delinquencies and
losses experienced in recent years by DVI Financial Services Inc. on its entire
equipment finance portfolio are indicative of the contracts in the trust
property. Delinquencies and losses on contracts could increase significantly for
various reasons, including changes in the federal income tax law, changes in the
local, regional or national economies or other events. You should not assume
that data from DVI Financial Services Inc.'s entire portfolio of contracts is or
will be indicative of the performance of the trust property.
S-12
<PAGE>
CONTEMPLATED CHANGES IN FEDERAL HEALTH CARE REGULATIONS COULD HAVE AN ADVERSE
EFFECT ON YOUR NOTE PAYMENTS.
In recent years, the administration and Congress have
considered various changes in federal regulations and reimbursement policies
relating to health care delivery in the United States. Legislation adopted in
1999 or thereafter may affect the regulation and availability of, and the
pricing and reimbursement applicable to, health care products and services
provided by an obligor, or financing services provided by DVI Financial Services
Inc. Such regulations could affect the financial well-being of several obligors
or DVI Financial Services Inc. No one can accurately predict the effect, if any,
that any such legislation will have on the servicer or on the ability of an
obligor to satisfy its payment obligations.
THE RATINGS OF THE NOTES ARE NOT RECOMMENDATIONS AND MAY BE WITHDRAWN AT A LATER
DATE.
None of the ratings of the notes by any rating agency are
recommendations to purchase, hold or sell the notes. Ratings do not comment as
to market price or suitability for you. Moreover, the rating agencies do not
assure that the ratings will remain for any given period of time. Indeed,
whenever a rating agency that rates the notes believes that circumstances so
warrant, that rating agency may lower or withdraw its rating.
THERE MAY BE NO PURCHASER AVAILABLE IF YOU WISH TO SELL YOUR NOTE.
After the initial issuance of the notes on the closing date,
the underwriters intend to make a secondary market for the purchase of the
notes. A secondary market is one in which a noteholder sells a note to another
person. However, the underwriters have no obligation to make a secondary market.
There is no assurance that such a secondary market will develop or, if it
develops, that it will continue.
The secondary markets for asset-backed securities have
experienced periods of illiquidity in the past and can be expected to do so in
the future. Illiquidity means that you may not easily find another investor to
buy your note. Consequently, you may not be able to sell your note readily or at
prices that will enable you to realize the yield that you desire on your note.
The market values of the notes are also likely to fluctuate.
These fluctuations could be significant and result in sizable losses to you,
depending on where or when you resell your note.
REGISTERING THE NOTES IN BOOK-ENTRY FORMAT MAY MAKE IT MORE DIFFICULT TO RESELL
YOUR NOTES AND CAUSE DELAYS IN YOUR RECEIPT OF PAYMENT ON THE NOTES.
The notes are being issued in book-entry form. For more
information about book-entry form, you should read the section of this
prospectus supplement titled "DESCRIPTION OF THE NOTES--BOOK ENTRY
REGISTRATION". Registering the notes in book-entry form may make it more
difficult for you to sell your note to another investor. For further discussion
of liquidity on the secondary markets, you should read the section of this
prospectus supplement titled "RISK FACTORS--THERE MAY BE NO INVESTOR WILLING TO
PURCHASE YOUR NOTE". In most cases noteholders will only be able transfer the
notes through the Depository Trust Company or the Depository Trust Company's
participants. You may therefore have limited ability to pledge your note to a
person who does not participate in the Depository Trust Company system. Because
the trustee will first pay distributions on your note to Cede & Co., as nominee
of the Depository Trust Company, you could also experience some delay in receipt
of your note payments.
YEAR 2000 COMPUTER ERRORS COULD ADVERSELY AFFECT YOUR NOTE PAYMENTS.
The servicer believes, based on discussions with current
systems vendors, that its software applications and operational programs will
properly recognize calendar dates beginning in the year 2000. In addition, the
servicer is discussing with its customers and suppliers the possibility of any
interface difficulties relating to the year 2000 which may affect the servicer.
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 arise and affect the payments on your notes.
S-13
<PAGE>
USE OF PROCEEDS
The Issuer will use substantially all of the net proceeds from
the sale of the Notes for general corporate purposes, towards payment of the
purchase price of the Contracts to DVI Financial Services Inc. and to make the
required deposits in the reserve account (the "RESERVE ACCOUNT"). See
"DESCRIPTION OF THE NOTES, INDENTURE, CONTRIBUTION AND SERVICING AGREEMENT, AND
TRUST AGREEMENT--RESERVE ACCOUNT" for a description of the Reserve
Account.
PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in an
underwriting agreement (the "UNDERWRITING AGREEMENT") dated December __, 1998,
the Issuer has agreed to sell and Lehman Brothers Inc. and Prudential Securities
Incorporated (the "UNDERWRITERS") have severally agreed to purchase, the Class
A-1 Notes (the "CLASS A-1 NOTES"), the Class A-2 Notes (the "CLASS A-2 NOTES"),
the Class A-3 Notes (the "CLASS A-3 NOTES"; together with the Class A-1 Notes
and the Class A-2 Notes, the "CLASS A NOTES"), the Class B Notes (the "CLASS B
NOTES") and the Class C Notes (the "CLASS C NOTES"; together with the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes, the Class B Notes, the Class D
Notes (the "CLASS D NOTES"), and the Class E Notes (the "CLASS E NOTES"), the
"NOTES") in the principal amounts set forth opposite their names:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF PRINCIPAL PRINCIPAL
CLASS A-1 CLASS A-2 CLASS A-3 AMOUNT OF AMOUNT OF
UNDERWRITER NOTES NOTES NOTES CLASS B NOTES CLASS C NOTES
- ------------------------------------- --------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Lehman Brothers Inc. $ $ $ $ $
Prudential Securities Incorporated $ $ $ $ $
- ------------------------------------- --------------- --------------- --------------- --------------- -------------
Total $ $ $ $ $
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed,
subject to the terms and conditions therein, to purchase all the Class A Notes,
the Class B Notes and the Class C Notes offered hereby in the amounts set forth
above if any of such Class A Notes, the Class B Notes and the Class C Notes are
purchased.
The Issuer has been advised by the Underwriters that the
Underwriters propose initially to offer the Class A Notes, Class B Notes and
Class C Notes to the public at the respective public offering prices set forth
on the cover page of this Prospectus Supplement, and to certain dealers at such
price less a discount not in excess of --%, --%, __%, __% and __% per Class A-1
Note, Class A-2 Note, Class A-3 Note, Class B Note and Class C Note,
respectively. The Underwriters may allow and such dealers may reallow a discount
not in excess of __%, __%,__%, __% and __% per Class A-1 Note, Class A-2 Note,
Class A-3 Note, Class B Note and Class C Note, respectively, to certain other
dealers. After the initial public offering, the prices of the Notes, such
concessions and such discounts may vary.
The Issuer has been advised by the Underwriters that they
presently intend to make a market in the Class A Notes, the Class B Notes and
the Class C Notes; however, they are not obligated to do so, any market-making
may be discontinued at any time, and there can be no assurance that an active
public market for such Notes will develop.
For further information regarding any offer or sale of the
Class A Notes, the Class B Notes and the Class C Notes pursuant to this
Prospectus Supplement, see "PLAN OF DISTRIBUTION" in the Prospectus.
The Underwriting Agreement provides that DVI Financial
Services Inc. (the "CONTRIBUTOR" or "DVI") and DVI Receivables Corp. (the
"TRANSFEROR") will indemnify the Underwriters against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"SECURITIES ACT" or the "1933 ACT"), or contribute to payments the Underwriters
may be required to make in respect thereof.
S-14
<PAGE>
In connection with this offering and in compliance with
applicable law and industry practice, the Underwriters may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Class A Notes, Class B Notes and Class C Notes at a level above that which
might otherwise prevail in the open market, including stabilizing bids,
effecting syndicate covering transactions or imposing penalty bids. A
stabilizing bid means the placing of any bid or the effecting of any purchase,
for the purpose of pegging, fixing or maintaining the price of a security. A
syndicate covering transaction means the placing of any bid on behalf of the
underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with the offering. A penalty bid means an
arrangement that permits the Underwriters to reclaim a selling concession from a
syndicate member in connection with the offering when the Class A Notes, Class B
Notes and Class C Notes originally sold by the syndicate member are purchased in
syndicate covering transactions. The Underwriters are not required to engage in
any of these activities. Any such activities, if commenced, may be discontinued
at any time.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES. ADDITIONAL INFORMATION IS CONTAINED IN THE PROSPECTUS AND
PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS IN FULL. TO THE EXTENT THAT ANY STATEMENTS IN THIS PROSPECTUS
SUPPLEMENT CONFLICT WITH STATEMENTS IN THE PROSPECTUS, THE STATEMENTS IN THIS
PROSPECTUS SUPPLEMENT CONTROL.
With respect to each series of Notes offered hereby, there are
incorporated herein and in the related Supplement to the Indenture by reference
all documents and reports filed or caused to be filed by the Issuer pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination
of the offering of the related series of Notes, that relate specifically to such
related series of Notes. The Issuer will provide or cause to be provided without
charge to each person to whom this Prospectus Supplement and the related
Prospectus is delivered in connection with the offering of one or more classes
of such series of Notes, upon written or oral request of such person, a copy of
any or all such reports incorporated herein by reference, in each case to the
extent such reports relate to one or more of such classes of such series of
Notes, other than the exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents. Requests should be
directed in writing to the Issuer at the address set forth for it in the Summary
section of this Prospectus Supplement.
Unless and until Definitive Notes are issued, periodic and
annual reports containing information concerning the trust property will be
prepared by the Servicer and sent on behalf of the Issuer only to the Trustee
for the noteholders and Cede & Co., as registered holder of the Notes and the
nominee of DTC. See "DESCRIPTION OF THE NOTES, INDENTURE, CONTRIBUTION AND
SERVICING AGREEMENT AND TRUST AGREEMENT -- BOOK-ENTRY REGISTRATION" and
"DESCRIPTION OF THE NOTES, INDENTURE, CONTRIBUTION AND SERVICING AGREEMENT AND
TRUST AGREEMENT -- REPORTS TO SECURITYHOLDERS" in the accompanying Prospectus.
Such reports will not constitute financial statements prepared in accordance
with generally accepted accounting principles. The Issuer will file with the
Securities and Exchange Commission (the "COMMISSION") such periodic reports as
are required under the Securities Exchange Act of 1934, as amended and the rules
and regulations promulgated thereunder and as are otherwise agreed to by the
Commission. Copies of any such period reports may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.,
20549, at prescribed rates.
S-15
<PAGE>
THE CONTRACTS
CONTRACTS
The following defined terms with respect to the Contracts
shall have the meanings set forth below:
"AGGREGATE DISCOUNTED CONTRACT BALANCE" means the sum of the
Discounted Contract Balances of all Contracts. The "DISCOUNTED CONTRACT BALANCE"
means with respect to any Contract, on any date of determination, an amount
equal to the sum of (a) present value of each remaining Contract Payment to
become due under a Contract before the last day of the month prior to the month
of the Stated Maturity Date, discounted monthly from the last day of the
Collection Period in which such Contract Payment is to become due at a rate
equal to one-twelfth (or with respect to the period from the Closing Date to but
excluding the initial Payment Date, a fraction, the numerator of which is equal
to the number of days from the Closing Date to but excluding the initial Payment
Date, and the denominator of which is equal to 360) of the Discount Rate and (b)
one hundred percent (100%) of the unpaid balance, as of such date of
determination of Contract Payments due with respect to such Contract which were
not the subject of a Servicer Advance; PROVIDED, HOWEVER, that, except for
purposes of computing the Repurchase Amount or for computing the Discounted
Contract Balance of a Predecessor Contract, (x) on the date a Contract becomes a
Defaulted Contract, the Discounted Contract Balance for such Contract will be
zero and (y) any Purchase Option Payments shall not be included in the
Discounted Contract Balance. For purposes of calculating the Discounted Contract
Balance of a Contract, any Contract Payment for which the Contributor received
on or prior to the Cut-off Date a security deposit or an advance payment shall
be deemed to be zero.
"COLLECTION PERIOD" means, with respect to each Payment Date
related thereto, the entire calendar month immediately preceding such Payment
Date.
"DEFAULTED CONTRACT" means any Contract with respect to which
under the Contribution and Servicing Agreement, (i) any Contract Payment (or
portion thereof) is delinquent for more than 180 days as of the last day of the
calendar month or (ii) the Servicer has declined to make a Servicer Advance with
respect to any delinquent amounts in accordance with the Contribution and
Servicing Agreement on the grounds that such advance would be a Nonrecoverable
Advance or (iii) any Contract has been rejected by or on behalf of the Obligor
in a bankruptcy proceeding or (iv) the lessor with respect to any Leveraged
Lease Loan has rejected the related lease in a bankruptcy proceeding. For
purposes of clause (i), the delinquency of a Contract Payment shall be measured
based on the Contract Payments required to be made during the term of such
Contract as of the date that such Contract became part of the Trust Property
without giving effect to any modifications (except those modifications permitted
pursuant to Section 4.02 of the Contribution and Servicing Agreement), waivers
or extensions subsequently granted by the Servicer.
"DELINQUENT CONTRACT" means, as of any Determination Date, any
Contract (other than a Contract which became a Defaulted Contract prior to such
Determination Date) with respect to which the Obligor has not paid all Contract
Payments due as of the end of the immediately preceding Collection Period. The
delinquency of a Contract Payment shall be measured based on the Contract
Payments required to be made during the term of such Contract as of the date
such Contract became part of the Trust Property without giving effect to any
modifications, waivers or extensions subsequently granted by the Servicer.
"DISCOUNT RATE" means the Actual Discount Rate of ___% per
annum.
"INITIAL AGGREGATE DISCOUNTED CONTRACT BALANCE" means the
initial Aggregate Discounted Contract Balance, of the Initial Contracts, on the
Cut-off Date (calculated based on the actual Discount Rate of ___% (the "ACTUAL
DISCOUNT RATE")).
"NONRECOVERABLE ADVANCE" means any Servicer Advance previously
made in respect of a Delinquent Contract by the Servicer pursuant to the terms
of the Contribution and Servicing Agreement, which in the good faith
S-16
<PAGE>
judgment of the Servicer and pursuant to an Officer's Certificate, will not be
ultimately recoverable by the Servicer from payments by the related Obligor or
disposition of the related Equipment.
"PAYMENT DATE" means the eleventh day of each month (or if
such date is not a business day, the immediately succeeding business day),
commencing January 11, 1999.
"PREDECESSOR CONTRACT" means, with respect to any Substitute
Contract acquired by the Transferor by substitution pursuant to Section 7 of the
Contribution and Servicing Agreement, the Contract or Contracts for which such
Substitute Contract or any intervening Substitute Contract has been substituted.
"REPURCHASE AMOUNT" means, with respect to any Contract, the
sum of (1) the Discounted Contract Balance as of the first day of the Collection
Period preceding such repurchase, together with one month of interest thereon at
the Discount Rate and (2) any unreimbursed Servicer Advances with respect to
such Contract.
"SERVICER ADVANCE" means an advance made by the Servicer in
accordance with Section 5.01 of the Contribution and Servicing Agreement.
"STATED MATURITY DATE" means with respect to the Class A-2
Notes, Class A-3 Notes, the Class B Notes, the Class C Notes, the Class D Notes
and the Class E Notes, the Payment Date occurring in October 2006, and, with
respect to the Class A-1 Notes, the Payment Date occurring in December 1999.
The Contracts consist of non-cancelable Finance Leases, Fair
Market Value Leases, Leveraged Lease Loans, Lease Receivable Purchases and
Secured Equipment Notes. The Obligors are primarily hospitals, non-hospital
medical facilities, physician groups and physicians, businesses, institutions,
and professionals (who utilize the equipment under such Contract for commercial
use) throughout the United States. No affiliates of DVI are or will be Obligors
under the Contracts. The Equipment is principally non-invasive medical
diagnostic and therapeutic equipment (as more specifically set forth on the
table on page S-22 herein). The Issuer will acquire certain of the Contracts
(the "INITIAL CONTRACTS") on the Closing Date. On the Closing Date, the Notes
will be secured by the Initial Contracts, the other Trust Property as of the
Closing Date and the amounts on deposit in the Reserve Account.
A portion of the Contracts transferred by DVI to the
Transferor (which are then assigned by the Transferor to the Issuer and then
pledged to the Trustee for the benefit of the Noteholders) were acquired by DVI
from Affiliated Capital Corporation ("AFFILIATED") in an asset acquisition from
Irwin Financial Corporation and Irwin Equipment Financial Corporation on
September 30, 1998. The representations and warranties of DVI with respect to
any Contract acquired from Affiliated will be made to the same extent, and with
the same force and effect, as for all other Contracts. However, the Contracts
acquired from Affiliated were not underwritten or re-underwritten in accordance
with DVI's underwriting criteria. For a description of the underwriting criteria
applicable to these Contracts see "AFFILIATED -- CREDIT POLICIES AND PROCEDURES
OF AFFILIATED."
A portion of the Contracts transferred by DVI were originated
by third parties ("BROKERS") and acquired by DVI through purchases in the
ordinary course of business from various entities without recourse to such
entities ("BROKERED TRANSACTIONS"). It is the policy of DVI that contracts
acquired by DVI in Brokered Transactions are subject to the same underwriting
criteria that DVI applies to contracts originated by it, and contracts so
acquired are serviced by DVI. See "DVI--UNDERWRITING CRITERIA" for a description
of DVI's underwriting and credit and collection policies. It is the policy of
DVI to ensure that UCC financing statements covering the underlying Equipment
with respect to Contracts acquired by DVI in Brokered Transactions are filed
against the applicable Obligors to the same extent as such financing statements
would be filed if such Contracts were originated by DVI and to arrange for such
financing statements to be assigned to DVI. In addition, DVI files financing
statements in its favor covering the Contracts and related assets transferred to
it in Brokered Transactions against the applicable Broker.
The Contracts (other than the Leveraged Lease Loans) and the
equipment contracts pledged as collateral for a Leveraged Lease Loan are
exclusively on a "net basis", that is, the Obligor is responsible for all
operating
S-17
<PAGE>
expenses, including taxes and insurance premiums; PROVIDED, HOWEVER, that
certain equipment leases pledged as collateral for Leveraged Lease Loans may
require the lessor to maintain and service the Equipment. All Obligors are
obligated to: (1) remit all Contract Payments due; (2) operate the Equipment in
compliance with the manufacturers' instructions; (3) except as described in the
immediately preceding sentence, maintain and service the Equipment; and (4)
insure the Equipment against casualty losses, liability for bodily injury and
against property damage. Contract documentation also typically specifies that
the Obligor is responsible for compliance with all applicable laws and
regulations with respect to operation of the Equipment. Although, except as
provided above, the terms of the Contracts provide that maintenance is to be
provided by the Obligor, in certain transactions certain supplies and
transaction fees are included in the Obligor's payments and remitted to the
appropriate Broker or service provider by DVI. These fees, as well as any other
amounts included in an Obligor's payments for which DVI is not the ultimate
beneficiary, including, but not limited to, property taxes, sales taxes,
manufacturer's maintenance costs, insurance premiums and supplies and
transaction costs, do not constitute part of the Trust Property. Also not
included in the Trust Property are any Purchase Option Payments and any rights
of DVI in any accounts receivable of the Obligor pledged to DVI as collateral
for loans other than the Contract with such Obligor.
The Contracts (other than the Leveraged Lease Loans) and the
equipment leases pledged as collateral for a Leveraged Lease Loan generally do
not provide for a right of the Obligor to prepay. However, under the
Contribution and Servicing Agreement, dated as of December 1, 1998 (the
"CONTRIBUTION AND SERVICING Agreement"), among DVI, Contributor and Servicer,
and the Transferor, the Servicer is permitted to allow prepayment, in part or in
full, in an amount not less than the Prepayment Amount or Partial Prepayment
Amount, as applicable. In addition, in the event that an Obligor requests an
upgrade or trade-in of Equipment, the Servicer may remove the Equipment and
related Contract from the Trust Property, but only upon payment of an amount
equal to the Prepayment Amount or Partial Prepayment Amount, as applicable, or
upon the substitution of an Eligible Contract. The Servicer historically has
permitted obligors to terminate contracts early either in connection with the
execution of a new contract of replacement equipment, or upon payment of a
negotiated premium, or both. Any such Prepayment Amounts or Partial Prepayment
Amounts paid shall be deposited by the Servicer into the Collection Account and
shall be applied as a prepayment of the Notes.
PREPAYMENT AMOUNT AND PARTIAL PREPAYMENT AMOUNT
"PARTIAL PREPAYMENT AMOUNT" means, with respect to the
Collection Period and a Contract for which the Obligor has requested to make a
voluntary partial prepayment and for which no Substitute Contract has been
provided, an amount equal to the excess, if any, of (A) the difference between
(i) the Discounted Contract Balance of such Contract as of the first day of such
Collection Period together with one month of interest thereon at the Discount
Rate and (ii) the Discounted Contract Balance of such Contract as of the first
day of such Collection Period calculated based on the amount of each Contract
Payment payable by the Obligor after giving effect to the reduction of such
Contract Payment which will result from such partial prepayment, minus (B) any
Contract Payments actually received by the Servicer with respect to the prepaid
portion of such Contract for the current Collection Period on or before the date
of such partial prepayment.
"PREPAYMENT AMOUNT" means, with respect to any Contract, the
sum of (1) the Discounted Contract Balance as of the first day of the Collection
Period preceding such prepayment, together with one month of interest thereon at
the Discount Rate, (2) any unreimbursed Servicer Advances with respect to such
Contract and (3) any Contract Payments due and outstanding under such Contract
that are not the subject of a Servicer Advance.
DVI believes that the Contracts are representative of all
contracts owned by DVI. The Contracts have been selected by DVI and will meet
all the criteria specified herein.
DVI shall deliver to the Trustee the original counterpart of
each Contract as well as copies of documents and instruments relating to each
Contract and evidencing the security interest in the Equipment securing each
Contract (collectively, the "CONTRACT FILE"). DVI, the Transferor and the
Issuer, as the case may be, will cause its accounting records to be clearly and
unambiguously marked to show that such Contract has been transferred by DVI
S-18
<PAGE>
to the Transferor, by the Transferor to the Issuer and pledged by the Issuer to
the Trustee for the benefit of the Noteholders pursuant to the Indenture.
The statistical information presented in this Prospectus
Supplement concerning the statistical contracts (the "STATISTICAL CONTRACTS")
included in the statistical information presented herein as of the Cut-off Date
has been calculated using an assumed discount rate of 6.25% per annum (the
"ASSUMED DISCOUNT RATE"). The Aggregate Discounted Contract Balance of the
Statistical Contracts as of the Cut-off Date is $222,019,847.44 using the
Assumed Discount Rate. The Aggregate Discounted Contract Principal Balance of
the Initial Contracts as of the Cut-off Date is $___________ using the Actual
Discount Rate. The statistical distribution of such characteristics of the
Initial Contracts as of the Cut-off Date using the Actual Discount Rate will
vary somewhat from the statistical distribution of such characteristics of the
Statistical Contracts as presented in this Prospectus Supplement, although DVI
does not expect that such variance will be material. In addition, certain
Statistical Contracts included in the statistical information included herein
may not meet the eligibility requirements as of the Cut-off Date. In addition,
there may be certain Initial Contracts that are not included as Statistical
Contracts. As a result, the statistical distribution of characteristics as of
the Closing Date for the final pool of Initial Contracts will vary somewhat from
the statistical distribution of such characteristics as presented in this
Prospectus Supplement, although DVI does not expect that such variance will be
material.
Certain data with respect to the Statistical Contracts are set
forth below. References herein to percentages refer in each case to the
percentage of the aggregate Discounted Contract Balance calculated based on the
Assumed Discount Rate of the Statistical Contracts as of the Cut-off Date. As of
the Cut-off Date, the Statistical Contracts had remaining terms to maturity of 3
to 83 months. The final scheduled payment date of the Statistical Contracts with
the latest maturity will be in October, 2005. As of the Cut-off Date, the
Discounted Contract Balances of the Statistical Contracts range from $113.39 to
$4,501,710.67. No more than 2.40% of the Aggregate Discounted Contract Balance
of the Statistical Contracts is attributable to any one Obligor, and the average
Discounted Contract Balance of the Statistical Contracts is approximately
$38,950.85.
Certain information with respect to the Statistical Contracts
is set forth in the tables below. Figures may not sum exactly to the stated
totals due to rounding. Such information has been calculated on the basis of the
Assumed Discount Rate.
The statistical information in this Prospectus Supplement does
not reflect any information regarding any Contracts that are Initial Contracts
but were not Statistical Contracts. Although the addition of such Contracts may
change relative data set forth in the tables below, all Initial Contracts must
satisfy certain conditions, including that they are Eligible Contracts. See
"ELIGIBILITY REQUIREMENTS FOR THE CONTRACTS" herein.
Any references in the tables below to (i) "Number of
Contracts" treat separate equipment schedules to the same master contract as
separate Contracts, (ii) "Original Equipment Cost" means, with respect to
Contracts acquired by DVI from others, the amount recorded on DVI's records as
paid by DVI to acquire such Contract and the Broker's interest in the related
Equipment, (iii) "Discounted Contract Balance" means that the statistical
Discounted Contract Balances shown have been calculated based on an Assumed
Discount Rate of 6.25%. Management of the Issuer believes that the use of such
Assumed Discount Rate does not materially alter such information in a manner
adverse to the Noteholders.
S-19
<PAGE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY EQUIPMENT LOCATION(1)
PERCENTAGE PERCENTAGE
PERCENTAGE OF OF AGGREGATE OF AGGREGATE
NUMBER AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
LOCATION CONTRACTS CONTRACTS BALANCE BALANCE COST COST
- --------------------- ----------- -------------- ----------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Alaska 17 0.30% $ 197,555.65 0.09% $ 300,177.00 0.13%
Alabama 60 1.05 484,436.87 0.22 704,098.09 0.30
Arkansas 36 0.63 187,318.52 0.08 399,592.71 0.17
Arizona 79 1.39 12,312,124.26 5.55 11,784,073.81 4.95
California 849 14.89 39,434,519.82 17.76 41,240,295.41 17.33
Colorado 95 1.67 984,277.67 0.44 1,428,071.88 0.60
Connecticut 91 1.60 6,195,700.42 2.79 5,984,243.84 2.51
District of Columbia 19 0.33 360,529.10 0.16 443,405.84 0.19
Delaware 12 0.21 343,944.31 0.15 379,312.52 0.16
Florida 435 7.63 25,140,234.44 11.32 27,146,201.51 11.41
Georgia 156 2.74 6,143,142.35 2.77 6,455,568.23 2.71
Hawaii 36 0.63 232,811.64 0.10 442,799.60 0.19
Iowa 32 0.56 185,188.81 0.08 309,848.59 0.13
Idaho 22 0.39 155,814.02 0.07 231,097.19 0.10
Illinois 244 4.28 6,689,655.12 3.01 7,570,439.64 3.18
Indiana 83 1.46 683,460.80 0.31 962,018.01 0.40
Kansas 33 0.58 240,134.57 0.11 405,114.50 0.17
Kentucky 63 1.11 1,123,453.02 0.51 1,366,278.98 0.57
Louisiana 81 1.42 3,341,329.98 1.50 3,645,330.83 1.53
Massachusetts 98 1.72 1,649,641.39 0.74 2,026,677.90 0.85
Maryland 101 1.77 1,158,579.58 0.52 1,685,604.93 0.71
Maine 13 0.23 120,479.59 0.05 170,645.80 0.07
Michigan 142 2.49 1,198,644.32 0.54 1,882,070.94 0.79
Minnesota 71 1.25 675,354.97 0.30 1,077,989.06 0.45
Missouri 103 1.81 4,635,415.50 2.09 4,687,425.85 1.97
Mississippi 52 0.91 424,657.24 0.19 651,749.87 0.27
Montana 14 0.25 228,994.23 0.10 265,066.13 0.11
North Carolina 120 2.11 2,971,006.58 1.34 3,133,093.21 1.32
Nebraska 39 0.68 411,576.19 0.19 564,619.79 0.24
New Hampshire 14 0.25 123,515.48 0.06 153,940.04 0.06
New Jersey 294 5.16 11,124,980.47 5.01 12,046,800.76 5.06
New Mexico 34 0.60 680,360.44 0.31 811,410.49 0.34
Nevada 36 0.63 3,046,907.09 1.37 3,226,995.12 1.36
New York 574 10.07 21,876,238.39 9.85 23,002,542.51 9.67
Ohio 164 2.88 2,158,714.30 0.97 2,831,404.77 1.19
Oklahoma 58 1.02 613,284.37 0.28 803,021.47 0.34
Oregon 54 0.95 337,995.50 0.15 548,415.88 0.23
Pennsylvania 193 3.39 11,092,506.57 5.00 11,706,137.11 4.92
Rhode Island 15 0.26 347,229.51 0.16 434,444.24 0.18
South Carolina 82 1.44 2,519,086.57 1.13 3,236,161.28 1.36
South Dakota 16 0.28 136,620.49 0.06 252,298.05 0.11
Tennessee 90 1.58 2,797,217.17 1.26 3,105,247.21 1.30
Texas 526 9.23 39,164,854.05 17.64 38,968,349.64 16.38
Utah 34 0.60 1,201,248.99 0.54 1,324,369.39 0.56
Virginia 106 1.86 3,233,980.66 1.46 3,700,685.60 1.56
Vermont 7 0.12 62,681.21 0.03 100,351.50 0.04
Washington 111 1.95 2,564,142.84 1.15 2,886,012.71 1.21
Wisconsin 60 1.05 664,635.30 0.30 948,534.75 0.40
West Virginia 22 0.39 222,187.64 0.10 340,754.17 0.14
Wyoming 14 0.25 141,479.45 0.06 192,725.80 0.08
----- ------ --------------- ------ --------------- ------
Total 5,700 100.00% $222,019,847.44 100.00% $237,963,514.15 100.00%
===== ====== =============== ====== =============== =======
</TABLE>
(1) Based upon equipment addresses as reflected on the Servicer's records.
S-20
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY REMAINING CONTRACT TERM
PERCENTAGE PERCENTAGE
RANGE OF PERCENTAGE OF OF AGGREGATE OF AGGREGATE
REMAINING AGGREGATE DISCOUNTED ORIGINAL
TERMS NUMBER OF NUMBER OF DISCOUNTED CONTRACT ORIGINAL EQUIPMENT
(IN MONTHS) CONTRACTS CONTRACTS CONTRACT BALANCE BALANCE EQUIPMENT COST COST
----------- --------- --------- ---------------- ------- -------------- ----
<S> <C> <C> <C> <C> <C> <C>
1-12 1,412 24.77% 4,002,499.28 1.80% 14,398,374.50 6.05%
13-24 1,461 25.63 9,064,400.81 4.08 17,301,079.99 7.27
25-36 1,517 26.61 21,471,851.78 9.67 24,883,745.60 10.46
37-48 660 11.58 25,255,069.35 11.38 26,622,740.67 11.19
49-60 580 10.18 80,869,402.59 36.42 79,822,971.67 33.54
61-72 56 0.98 63,374,237.43 28.54 58,819,471.71 24.72
73-84 14 0.25 17,982,386.20 8.10 16,115,130.01 6.77
----- ------ --------------- ------ --------------- ------
Total 5,700 100.00% $222,019,847.44 100.00% $237,963,514.15 100.00%
===== ====== =============== ====== =============== ======
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL CONTRACT POOL BY ORIGINAL CONTRACT TERM
PERCENTAGE PERCENTAGE
RANGE OF PERCENTAGE OF AGGREGATE OF AGGREGATE
ORIGINAL OF AGGREGATE DISCOUNTED ORIGINAL
TERMS NUMBER OF NUMBER OF DISCOUNTED CONTRACT ORIGINAL EQUIPMENT
(IN MONTHS) CONTRACTS CONTRACTS CONTRACT BALANCE BALANCE EQUIPMENT COST COST
----------- --------- --------- ---------------- ------- -------------- ----
<S> <C> <C> <C> <C> <C> <C>
1-12 184 3.23% 1,137,998.23 0.51% 1,951,539.24 0.82%
13-24 377 6.61 2,044,911.90 0.92 3,541,277.14 1.49
25-36 1,116 19.58 10,773,917.02 4.85 16,209,425.92 6.81
37-48 1,346 23.61 21,887,762.15 9.86 24,955,149.52 10.49
49-60 2,147 37.67 70,646,175.73 31.82 81,965,017.58 34.44
61-72 506 8.88 82,955,437.31 37.36 79,339,349.08 33.34
Over 73 24 0.42 32,573,645.10 14.67 30,001,755.67 12.61
----- ------ --------------- ------ --------------- ------
Total 5,700 100.00% $222,019,847.44 100.00% $237,963,514.15 100.00%
===== ====== =============== ====== =============== ======
</TABLE>
S-21
<PAGE>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY TYPE OF EQUIPMENT
<TABLE>
<CAPTION>
PERCENTAGE
PERCENTAGE OF AGGREGATE PERCENTAGE
OF AGGREGATE DISCOUNTED OF AGGREGATE
NUMBER OF NUMBER OF DISCOUNTED CONTRACT ORIGINAL ORIGINAL
EQUIPMENT TYPE CONTRACTS CONTRACTS CONTRACT BALANCE BALANCE EQUIPMENT COST EQUIPMENT COST
- -------------- --------- --------- ---------------- ------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Magnetic Resonance
Imaging(1) 70 1.23% $ 92,914,494.94 41.85% $ 90,392,215.48 37.99%
Medical
Equipment(2) 2,906 50.98 44,990,218.12 20.26 54,555,043.27 22.93
Surgical(3) 504 8.84 13,637,683.71 6.14 14,638,847.16 6.15
Facilities(4) 45 0.79 12,332,615.29 5.55 11,595,399.17 4.87
Radiation Therapy(5) 7 0.12 10,749,393.53 4.84 9,765,255.19 4.10
Computer and
Peripherals(6) 386 6.77 7,893,348.96 3.56 8,808,417.80 3.70
Imaging System(7) 23 0.40 6,388,453.87 2.88 6,079,048.34 2.55
Computerized
Tomography(8) 12 0.21 6,370,243.57 2.87 6,161,251.77 2.59
Ultrasound(9) 18 0.32 5,608,441.21 2.53 5,746,058.32 2.41
Medical Devices 97 1.70 2,974,283.69 1.34 3,268,503.03 1.37
Physical Therapy(10) 367 6.44 2,763,127.08 1.24 3,974,416.93 1.67
Other 520 9.12 2,717,652.08 1.22 7,187,121.15 3.02
Laboratory 318 5.58 2,601,289.00 1.17 4,341,711.16 1.82
Mammography(11) 11 0.19 2,359,692.63 1.06 2,393,906.39 1.01
Optometry 17 0.30 1,980,582.87 0.89 1,960,235.35 0.82
Radiology(12) 9 0.16 1,708,351.60 0.77 1,652,148.29 0.69
X-Ray(13) 74 1.30 1,542,117.19 0.69 1,815,973.11 0.76
Furniture & Fixtures 202 3.54 859,079.82 0.39 1,696,731.13 0.71
Telecommunications 102 1.79 710,634.68 0.32 1,012,281.79 0.43
Urology 1 0.02 489,128.47 0.22 477,000.00 0.20
Dental Equipment 3 0.05 229,126.49 0.10 222,916.41 0.09
Patient Monitoring 8 0.14 199,888.63 0.09 219,032.91 0.09
----- ------ --------------- ------ --------------- ------
Total 5,700 100.00% $222,019,847.44 100.00% $237,963,514.15 100.00%
===== ====== =============== ====== =============== ======
</TABLE>
- --------------------
(1) Magnetic Resonance Imaging ("MRI") provides high resolution images of soft
tissues and is particularly useful for diagnosis of neurological disorders
of the spine, head and neck that would otherwise require risky exploratory
surgeries. More recently, MRI systems have become widely known for the
diagnosis of musculoskeletal injuries, most notably, knee and shoulder
problems related to sports injuries. MRI is based on the principle that
body tissues behave differently in response to the application of strong
but harmless magnetic fields which produce differentiated and contrasting
images of healthy versus diseased organs and tissues. MRI systems range in
selling price from $750,000 to $2,200,000.
(2) Medical Equipment represents all equipment located in a medical facility or
laboratory including, but not limited to, hyperbaric chambers, IV pumps,
teleradiology/telecardiology systems, blood gas analyzers, endoscopy
systems, and medical beds.
(3) Surgical equipment is patient treatment equipment used in surgical
procedures. Prices range from $5,000 to $1,000,000.
(4) Facilities are primarily specific improvements used to house MRI, CT and
Radiation Therapy units. The prices range from $50,000 to $500,000.
(5) Radiation Therapy equipment includes linear accelerators, radiation therapy
simulators and planning systems. These are used to provide radiation for
the treatment of patients diagnosed with cancer. Prices range from $100,000
to $1,500,000.
S-22
<PAGE>
(6) Computers and Peripherals are hardware and software used in practice
management, accounting, billing, patient management and research and
development within medical facilities. The cost of the computer systems
range from $5,000 to $2,000,000.
(7) Imaging Systems (excluding MRI and CT) are nuclear medicine systems that
generate metabolic or functional images to determine whether organs or
tissues function properly. Images are generated through the use of
short-lived radioactive isotopes which are ingested by or injected into
patients to study metabolic functions. As the isotopes decay, they emit
small doses of radioactivity which are detected by the nuclear medicine
camera to produce two-dimensional images. These systems range in selling
price from $50,000 to $500,000.
(8) Computerized Tomography ("CT") is used to image tumors and for motion
sensitive, yet high contrast, diagnostic studies. It produces higher
contrast images than conventional X-ray. Computerized Tomography scanners
range in selling price from $300,000 to $800,000.
(9) Ultrasound is the preferred imaging modality for obstetrics, as well as
certain vascular and cardiac studies. Ultrasound systems emit ultrasonic
sound waves which are reflected by body tissues, then recorded and
processed into images by a computer. Selling prices for ultrasound systems
range from $50,000 to $750,000.
(10) Physical Therapy equipment is used in patient rehabilitation including
treadmill machines, fitness equipment and therapy simulators. Prices range
from $5,000 to $400,000.
(11) Mammography equipment is special equipment used in the detection of breast
cancer. Selling prices range from $30,000 to $500,000.
(12) Radiology equipment is used to determine the functional state of organs.
Prices range from $50,000 to $500,000.
(13) Conventional X-ray uses ionizing radiation to produce single-dimension
images on a sheet of transparent film. Other X-ray systems are used in
diagnostic imaging studies such as peripheral and coronary angiography.
Selling prices range from $5,000 to $500,000.
S-23
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY DISCOUNTED CONTRACT BALANCE
PERCENTAGE PERCENTAGE
PERCENTAGE OF OF
OF AGGREGATE AGGREGATE
AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
RANGE OF DISCOUNTED NUMBER OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
CONTRACT BALANCES CONTRACTS CONTRACTS BALANCE BALANCE COST COST
----------------- --------- --------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
$ 0.01 - $ 5,000.00 2,446 42.91% $ 6,564,858.26 2.96% $ 18,415,712.82 7.74%
5,000.01 - 10,000.00 1,415 24.82 10,147,314.15 4.57 16,432,725.77 6.91
10,000.01 - 15,000.00 769 13.49 9,304,975.42 4.19 11,199,361.60 4.71
15,000.01 - 20,000.00 336 5.89 5,741,389.23 2.59 6,850,868.23 2.88
20,000.01 - 25,000.00 164 2.88 3,634,112.65 1.64 4,214,299.44 1.77
25,000.01 - 50,000.00 229 4.02 7,752,499.71 3.49 8,357,422.81 3.51
50,000.01 - 75,000.00 64 1.12 3,919,901.88 1.77 3,965,867.82 1.67
75,000.01 - 100,000.00 37 0.65 3,248,398.20 1.46 3,439,892.70 1.45
100,000.01 - 150,000.00 46 0.81 5,779,674.94 2.60 5,839,193.25 2.45
150,000.01 - 200,000.00 26 0.46 4,405,346.35 1.98 4,307,812.88 1.81
200,000.01 - 250,000.00 29 0.51 6,504,099.66 2.93 6,426,315.62 2.70
250,000.01 - 300,000.00 12 0.21 3,269,167.80 1.47 3,299,406.47 1.39
300,000.01 - 350,000.00 11 0.19 3,561,575.25 1.60 3,454,934.99 1.45
350,000.01 - 400,000.00 15 0.26 5,643,658.18 2.54 6,477,398.33 2.72
400,000.01 - 450,000.00 7 0.12 2,993,646.89 1.35 2,880,735.29 1.21
450,000.01 - 500,000.00 5 0.09 2,343,480.80 1.06 2,231,716.90 0.94
500,000.01 - 600,000.00 5 0.09 2,716,184.07 1.22 2,621,381.71 1.10
600,000.01 - 750,000.00 7 0.12 4,745,799.61 2.14 4,702,442.87 1.98
750,000.01 - 1,000,000.00 13 0.23 12,007,817.8 5.41 11,968,115.63 5.03
1,000,000.01 - 2,000,000.00 46 0.81 62,571,115.72 28.18 59,734,208.21 25.10
2,000,000.01 - 3,000,000.00 7 0.12 16,351,007.91 7.36 15,055,047.37 6.33
Over 3,000,000.00 11 0.19 38,813,822.94 17.48 36,088,653.44 15.17
------ ------ --------------- ------ --------------- ------
Total 5 ,700 100.00% $222,019,847.44 100.00% $237,963,514.15 100.00%
====== ====== =============== ====== =============== ======
</TABLE>
S-24
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY ORIGINAL EQUIPMENT COST
PERCENTAGE OF PERCENTAGE
PERCENTAGE AGGREGATE OF AGGREGATE
OF AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
RANGE OF ORIGINAL NUMBER OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
EQUIPMENT COSTS CONTRACTS CONTRACTS BALANCE BALANCE COST COST
--------------- --------- --------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
$ 0.01 - $ 5,000.00 757 13.28% $ 1,596,460.00 0.72% $ 2,845,821.69 1.20%
5,000.01 - 10,000.00 1,969 34.54% 8,632,266.75 3.89% 15,310,164.13 6.43
10,000.01 - 15,000.00 1,363 23.91 11,395,608.97 5.13 16,324,963.73 6.86
15,000.01 - 20,000.00 584 10.25 6,885,447.48 3.10 10,012,461.54 4.21
20,000.01 - 25,000.00 252 4.42 3,931,775.32 1.77 5,633,841.20 2.37
25,000.01 - 50,000.00 399 7.00 9,745,729.67 4.39 13,200,366.92 5.55
50,000.01 - 75,000.00 96 1.68 4,797,349.56 2.16 5,842,278.51 2.46
75,000.01 - 100,000.00 30 0.53 2,432,928.26 1.10 2,599,476.55 1.09
100,000.01 - 150,000.00 57 1.00 6,862,562.99 3.09 7,014,168.68 2.95
150,000.01 - 200,000.00 29 0.51 5,057,514.05 2.28 5,014,477.59 2.11
200,000.01 - 250,000.00 24 0.42 5,460,201.15 2.46 5,313,267.37 2.23
250,000.01 - 300,000.00 14 0.25 3,827,052.42 1.72 3,794,786.61 1.59
300,000.01 - 350,000.00 10 0.18 4,081,986.48 1.84 3,223,609.22 1.35
350,000.01 - 400,000.00 14 0.25 5,393,046.23 2.43 5,353,991.41 2.25
400,000.01 - 450,000.00 10 0.18 4,211,017.53 1.90 4,251,390.42 1.79
450,000.01 - 500,000.00 6 0.11 2,799,483.92 1.26 2,853,408.98 1.20
500,000.01 - 600,000.00 3 0.05 1,807,266.27 0.81 1,744,538.94 0.73
600,000.01 - 750,000.00 5 0.09 3,393,714.25 1.53 3,338,596.01 1.40
750,000.01 - 1,000,000.00 16 0.28 14,350,450.02 6.46 14,524,587.12 6.10
1,000,000.01 - 2,000,000.00 45 0.79 62,535,983.12 28.17 60,232,840.14 25.31
2,000,000.01 - 3,000,000.00 8 0.14 20,435,062.14 9.20 19,070,103.65 8.01
Over 3,000,000.00 9 0.16 32,386,940.84 14.59 30,464,373.74 12.80
----- ------ --------------- ------ --------------- ------
Total 5,700 100.00% $222,019,847.44 100.00% $237,963,514.15 100.00%
===== ====== =============== ====== =============== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY TEN LARGEST OBLIGORS
PERCENTAGE
OF PERCENTAGE
PERCENTAGE AGGREGATE OF AGGREGATE
OF AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINA
NUMBER OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
OBLIGOR RANKING CONTRACTS CONTRACTS BALANCE BALANCE COST COST
--------------- --------- --------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
1 2 0.04% $ 5,324,294.62 2.40% $ 5,006,305.86 2.10%
2 3 0.05 5,161,312.48 2.32 5,075,920.19 2.13
3 5 0.09 5,022,745.23 2.26 4,734,107.78 1.99
4 4 0.07 4,696,013.81 2.12 4,568,104.53 1.92
5 1 0.02 4,501,710.67 2.03 4,000,000.00 1.68
6 2 0.04 3,694,484.71 1.66 3,394,130.99 1.43
7 1 0.02 3,618,977.58 1.63 3,172,520.99 1.33
8 1 0.02 3,536,071.33 1.59 3,020,996.15 1.27
9 1 0.02 3,445,766.20 1.55 3,385,242.20 1.42
10 1 0.02 3,406,556.92 1.53 3,059,513.10 1.29
Other 5,679 99.63 179,611,913.90 80.90 198,546,672.36 83.44
----- ------ --------------- ------ --------------- ------
Total 5,700 100.00% $222,019,847.44 100.00% $237,963,514.15 100.00%
===== ====== =============== ====== =============== ======
</TABLE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL CONTRACT POOL BY CONTRACT TYPE
PERCENTAGE OF PERCENTAGE OF
PERCENTAGE AGGREGATE AGGREGATE
OF AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
NUMBER OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
CONTRACT TYPE CONTRACTS CONTRACTS BALANCE BALANCE COST COST
------------- --------- --------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Finance Leases 1,770 31.05% $ 64,842,746.88 29.21% $ 68,168,433.74 28.65%
Fair Market Value Leases 3,727 65.39 50,742,646.70 22.86 69,080,407.77 29.03
Leveraged Lease Loans 57 1.00 9,705,146.13 4.37 9,512,258.73 4.00
Secured Equipment Notes 108 1.89 92,202,216.93 41.53 86,516,828.90 36.36
Lease Receivables Purchases 38 0.67 4,527,090.80 2.04 4,685,585.01 1.97
----- ------- --------------- ------ --------------- ------
Total 5,700 100.00% $222,019,847.44 100.00% $237,963,514.15 100.00%
===== ====== =============== ====== =============== ======
</TABLE>
S-25
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF THE STATISTICAL
CONTRACT POOL BY BUSINESS TYPE
PERCENTAGE OF PERCENTAGE
PERCENTAGE AGGREGATE OF AGGREGATE
OF AGGREGATE DISCOUNTED DISCOUNTED ORIGINAL ORIGINAL
NUMBER OF NUMBER OF CONTRACT CONTRACT EQUIPMENT EQUIPMENT
BUSINESS TYPE CONTRACTS CONTRACTS BALANCE BALANCE COST COST
- ------------- --------- --------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Multi-Modality Center 46 0.81% $ 38,490,631.07 17.34% $ 37,216,976.88 15.64%
MRI Only Center 34 0.60 30,971,224.70 13.95 28,898,230.04 12.14
MRI & Other Multiple Center 26 0.46 20,370,776.55 9.18 21,083,757.88 8.86
Holding Company-Var. Center 24 0.42 19,143,794.24 8.62 17,561,056.11 7.38
Dental Center 1,566 27.47 15,323,189.40 6.90 20,314,405.35 8.54
Hospital 93 1.63 10,011,186.55 4.51 10,016,613.89 4.21
Radiation Therapy Center 14 0.25 9,499,966.17 4.28 9,025,842.12 3.79
Physician Practices 38 0.67 6,562,197.77 2.96 6,560,137.50 2.76
Outpatient Surgery Center 24 0.42 4,002,503.47 1.80 3,878,235.74 1.63
Other Multiple Center 5 0.09 3,054,625.23 1.38 2,814,103.55 1.18
Internal Medicine 306 5.37 2,568,138.40 1.16 3,796,376.19 1.60
Chiropractor 452 7.93 2,122,673.97 0.96 3,584,626.48 1.51
Family/General Practice 268 4.70 2,068,618.33 0.93 3,194,984.81 1.34
Veterinarian 315 5.53 1,869,776.10 0.84 3,429,088.13 1.44
M.D. Clinic 144 2.53 1,638,932.83 0.74 2,138,983.11 0.90
Skilled Nursing Center/
Nursing Home 16 0.28 1,623,265.55 0.73 1,672,608.65 0.70
Hyperbaric Chambers 5 0.09 1,149,874.41 0.52 1,118,946.21 0.47
Optometrist 104 1.82 1,133,866.81 0.51 1,338,879.72 0.56
Gynecology & Obstetrics 111 1.95 1,132,480.28 0.51 1,508,038.82 0.63
Eye Clinics 12 0.21 1,048,646.72 0.47 1,087,989.37 0.46
Cardiovascular Disease 62 1.09 926,490.68 0.42 1,421,555.08 0.60
Osteopath 102 1.79 893,353.80 0.40 1,245,985.47 0.52
Phys. Pract. Mgt./Mgt. Serv 3 0.05 738,287.11 0.33 780,103.22 0.33
Otolaryngology 37 0.65 674,013.34 0.30 886,697.97 0.37
Institutional Pharmacy 20 0.35 657,888.24 0.30 764,281.23 0.32
Other 1,873 32.86 44,343,445.72 19.97 52,625,010.63 22.11
----- ------ --------------- ------ --------------- -----
Total 5,700 100.00% $222,019,847.44 100.00% $237,963,514.15 100.00%
===== ====== =============== ====== =============== ======
</TABLE>
S-26
<PAGE>
SUBSTITUTE CONTRACTS
"POOL A" means the Contracts identified on the schedule of
Contracts attached to the Contribution and Servicing Agreement and the Indenture
(the "CONTRACT SCHEDULE") as constituting Pool A and the other Trust Property
related thereto.
"POOL B" means the Contracts identified on the Contract
Schedule as constituting Pool B and the other Trust Property related thereto.
"POOL A AGGREGATE DISCOUNTED CONTRACT BALANCE" means, with
respect to any date of determination, the sum of the Discounted Contract
Balances of all Contracts in Pool A.
"POOL B AGGREGATE DISCOUNTED CONTRACT BALANCE" means, with
respect to any date of determination, the sum of the Discounted Contract
Balances of all Contracts in Pool B.
Under certain circumstances, the Servicer will have the right
(but not the obligation) at any time to substitute (a "POOL A NON-PERFORMING
CONTRACT SUBSTITUTION") one or more Eligible Contracts and a security interest
in the related Equipment subject thereto (the foregoing collectively, a
"SUBSTITUTE CONTRACT") for a Pool A Contract and the related Equipment subject
thereto (the foregoing collectively, a "POOL A CONTRACT") if: (i)(A) any
Contract Payment on the Pool A Contract is delinquent for at least sixty (60)
consecutive days as of the most recent Determination Date; or (B) a bankruptcy
petition has been filed by or against the Obligor or, with respect to a
Leveraged Lease Loan, the related lessor, under any Predecessor Contract; or (C)
the Pool A Contract was initially classified as a Defaulted Contract during the
related Collection Period, (ii) certain other conditions set forth in the
Contribution and Servicing Agreement have been satisfied and (iii) the sum of
(x) the Discounted Contract Balances of all Substitute Contracts substituted
pursuant to a Pool A Non-Performing Contract Substitution and (y) amounts
deposited by the Servicer in the Collection Account in connection with all such
substitutions pursuant to a Pool A Non-Performing Contract Substitution does not
exceed 10% of the Pool A Aggregate Discounted Contract Balance as of the Closing
Date.
In addition to the Servicer's Pool A Non-Performing Contract
Substitution rights, the Servicer will have the right (but not the obligation)
at any time to substitute (a "POOL A PREPAID CONTRACT SUBSTITUTION") one or more
Substitute Contracts and a security interest in the related Equipment for a Pool
A Contract and a security interest in the related Equipment if (i) the Pool A
Contract has been prepaid, (ii) certain conditions set forth in the Contribution
and Servicing Agreement have been satisfied and (iii) the sum of (x) the
Discounted Contract Balance of all Substitute Contracts substituted pursuant to
a Pool A Prepaid Contract Substitution and (y) amounts deposited by the Servicer
in the Collection Account in connection with all such substitutions pursuant to
a Pool A Prepaid Contract Substitution does not exceed 10% of the Pool A
Aggregate Discounted Contract Balance as of the Closing Date.
Under certain circumstances, the Servicer will have the right
(but not the obligation), at any time in connection with the exercise by the
Transferor of its substitution rights, to substitute (a "POOL B GENERAL CONTRACT
SUBSTITUTION") Substitute Contracts and a security interest in the related
Equipment for a predecessor Contract in Pool B (a "POOL B CONTRACT") and a
security interest in the related Equipment if (i) certain conditions set forth
in the Contribution and Servicing Agreement have been satisfied and (ii) the sum
of (x) the Discounted Contract Balances of all Substitute Contracts substituted
under this paragraph and (y) amounts deposited by the Servicer in the Collection
Account in connection with all such substitutions under this paragraph does not
exceed 10% of the Pool B Aggregate Discounted Balance as of the Closing Date.
In addition to the Servicer's Pool B General Contract
Substitution rights, the Servicer will have the right (but not the obligation),
at any time in connection with the exercise by the Transferor of its
substitution rights, to substitute (a "POOL B PREPAID CONTRACT SUBSTITUTION")
one or more Substitute Contracts and a security interest in the related
Equipment for a Pool B Contract and a security interest in the related Equipment
if (i) the Pool B Contract has been prepaid, (ii) certain conditions set forth
in the Contribution and Servicing Agreement have been satisfied and (iii) the
sum of (x) the Discounted Contract Balance of all Substitute Contracts
substituted pursuant to Pool B Prepaid Contract Substitution and (y) amounts
deposited by the Servicer in the Collection Account in connection with all such
substitutions pursuant to Pool B Prepaid Contract Substitution does not exceed
10% of the Pool B Aggregate Discounted Contract Balance as of the Closing Date;
PROVIDED, HOWEVER, that unless the Rating Agency has given its prior consent,
S-28
<PAGE>
the sum of clauses (x) and (y) in this paragraph may not exceed 10% of the Pool
B Aggregate Discounted Balance as of the Closing Date.
ELIGIBILITY REQUIREMENTS FOR THE CONTRACTS
Any Contract transferred to the Issuer must be an eligible
contract ("ELIGIBLE CONTRACT"). Among the representations that Eligible
Contracts must satisfy are the requirements that, as of the Cut-off Date and as
to the Initial Contracts in the aggregate: (A) no Discounted Contract Balance of
any Contract will include an amount attributable to any Purchase Option Payment
for such Contract or any Contract Payment for which the Contributor (or any
predecessor in interest of the Contributor) received a security deposit on or
prior to the related Cut-off Date; (B) no item of Equipment has been
repossessed; (C) no Contract is a refinancing due to delinquencies under a prior
lease, security agreement or loan with the same Obligor relating to the
Equipment; (D) the Obligor with respect to each Contract has a place of business
in, or is organized under, the laws of any state or territory of the United
States of America; (E) each Contract has a Scheduled Termination Date of no
later than October 2005; (F) the Discounted Contract Balance of Contracts that
have, with respect to each such Contract, a final Contract Payment that is no
greater than six times any other Contract Payment (each such Contract Payment, a
"BALLOON PAYMENT") constitute not more than 4.0% of the Aggregate Discounted
Contract Balance of the Initial Contracts; (G) the Discounted Contract Balance
of Contracts (excluding Contracts that have Balloon Payments) that have
non-level payments to the date upon which such Contract is scheduled to
terminate in accordance with its terms (the "SCHEDULED TERMINATION DATE")
constitutes not more than 12.0% of the Aggregate Discounted Contract Balance of
the Initial Contracts; (H) as of the Closing Date, the sum of the Discounted
Contract Balances of all Contracts with Equipment located in any one State will
not exceed 20% of the Aggregate Discounted Principal Contract Balance of the
Initial Contracts, no single Obligor will have a Discounted Contract Balance
that exceeds 2.50% of the Aggregate Discounted Contract Balance, and the sum of
the Discounted Contract Balances of the largest seven Obligors shall not exceed
15.0% of the Aggregate Discounted Contract Balance; (I) not more than 10.0% of
the Aggregate Discounted Contract Balance of the Initial Contracts will arise
from Contracts which do not constitute loans to manufacturers, wholesalers, and
retailers of, and to prospective purchasers of, specified merchandise, insurance
and services; and (J) the Obligor under each Contract has made at least one
Contract Payment under such Contract prior to the first Payment Date occurring
after the time of signing such Contract in addition to any payment made at the
time of the signing of such Contract except for Contracts representing 1.5% of
the Aggregate Discounted Contract Balance of the Initial Contracts which
Contracts provide for the related initial Contract Payment to be due within 30
days of the Payment Date occurring in January, 1999.
ELIGIBILITY REQUIREMENTS FOR SUBSTITUTE CONTRACTS
The Servicer will have the right (but not the obligation) at
any time to substitute one or more Eligible Contracts and the Servicer's
interest in the related Equipment subject thereto (the foregoing collectively, a
"SUBSTITUTE CONTRACT") for a predecessor Contract if: (i) the predecessor
Contract has been prepaid on such Determination Date as the result of the
casualty to the related Equipment; or any Scheduled Payment on the predecessor
Contract is delinquent for at least sixty (60) consecutive days as of the most
recent Determination Date; or a bankruptcy petition has been filed by or against
the Obligor under any predecessor Contract; or the predecessor Contract was
initially classified as a Defaulted Contract during the related Collection
Period; (ii) the sum of (x) the aggregate Contract Principal Balances of all
Substitute Contracts so substituted and (y) amounts deposited by the Servicer in
the Collection Account in connection with all such substitution does not exceed
10% of the Aggregate Discounted Contract Balance as of the Closing Date; and
(iii) certain other conditions, as more specifically set forth in the
Contribution and Servicing Agreement, have been satisfied.
To become a Substitute Contract, a Contract must meet all the
criteria of an Eligible Contract. See "ELIGIBILITY REQUIREMENTS FOR THE
CONTRACTS", above, for further information thereon.
S-29
<PAGE>
DVI
GENERAL
DVI is engaged in the business of providing financing for
users of diagnostic imaging, therapeutic and other medical equipment. DVI
focuses primarily on financing technologically advanced medical equipment such
as computerized tomography ("CT"), magnetic resonance imaging ("MRI"), nuclear
medicine and radiation therapy systems, as well as lower cost medical devices,
for a customer base that consists principally of outpatient healthcare
providers, physicians and physician groups, medium-sized hospitals and shared
service providers.
DVI's policy is to provide financing to its customers in
transactions which, with very limited exceptions, take the form of direct
financing leases and loans. Most of DVI's equipment financing transactions have
a term of approximately 60 months and, in most cases, are full payout
transactions that allow DVI to recover all the costs of acquiring and financing
the equipment during the initial non-cancelable term. The equipment financed by
DVI generally ranges from $5,000 to $3,000,000 in cost.
The assets of Affiliated were acquired by DVI from Irwin
Financial Corporation and Irwin Equipment Financial Corporation on September 30,
1998. Prior to that date, Affiliated, headquartered in Northbrook, Illinois, had
operated for 15 years as a lessor of small ticket medical equipment, with an
average original equipment cost of approximately $15,000. Affiliated had
approximately 8,700 lessees which were originated primarily through direct
relationships with approximately 27 vendors and/or equipment manufacturers. Upon
acquisition of Affiliated's portfolio, DVI hired substantially all of the
employees of Affiliated and plans to operate Affiliated as a division of DVI
originating contracts for equipment with an original equipment cost of less than
$200,000.
DVI's principal office is located at 500 Hyde Park,
Doylestown, Pennsylvania 18901, and its telephone number is (215) 345-6600. DVI
is one of two wholly owned direct operating subsidiaries of DVI, Inc. DVI, on a
consolidated basis, composes the bulk of the assets of DVI, Inc. DVI, Inc. is
headquartered in Doylestown, PA, employs 283 people and its stock is traded on
the New York Stock Exchange (symbol "DVI").
DVI's servicing portfolio, at September 30, 1998, consisted of
approximately 13,162 Contracts.
UNDERWRITING CRITERIA
DVI and DVI, Inc. have established specific credit guidelines
for transactions in which the original equipment cost is in excess of $200,000,
that help identify and predict the ability of a prospective Obligor to meet its
financial obligations to DVI. DVI believes these guidelines have contributed
positively to its loss experience since its inception in July 1986. The
guidelines are flexible so as to recognize the variables that are most relevant
among different customer types within DVI's targeted markets, E.G., providers of
medical services which are not located in a licensed hospital facility
("FACILITIES"), physicians and multiple primary care physicians which have
grouped together to provide medical services ("PHYSICIAN GROUPS"), hospitals
which contain between 50 to 400 beds ("MEDIUM-SIZED Hospitals") and entities
which acquire and provide medical equipment to multiple users on a per use or
time basis ("SHARED SERVICE PROVIDERS"). Due to the large size of the company's
transactions, each transaction is analyzed and reviewed on its own merits.
Pursuant to company policy, the Credit Manager of DVI Financial Services, Inc.
has approval authority for all transactions up to $500,000. The Vice President
of Credit has approval authority for all transactions up to $750,000. The Chief
Credit Officer - U.S., with any other member of the credit committee, has
approval authority up to $1 million. The credit committee has approval authority
for all transactions greater than $1 million. If a transaction causes aggregate
customer exposure to exceed $3 million, it must receive credit committee
approval, regardless of size.
DVI has historically focused most of its equipment financing
efforts on the non-hospital sector of the medical equipment marketplace, which
DVI believes requires a rigorous credit analysis and structuring discipline.
From a credit perspective, most Facilities that operate high-cost equipment,
such as MRI systems, are businesses which have few employees, minimal inventory
and limited space requirements. Facilities provide medical service to patients
who are not admitted to a hospital, or provide various services to a hospital's
inpatients outside of the licensed hospital facility. They are normally
characterized as having a high proportion of fixed costs to total costs and, as
a result, are revenue driven. For these reasons, DVI's credit analysis is
heavily focused on understanding and substantiating the
S-30
<PAGE>
projected revenue sources of a project. DVI's credit analysis and structuring of
a project often takes from three to nine months and includes person-to-person
contact with identified patient referral sources, analysis of a physician's
patient referral history and a thorough analysis of actual and prospective
competition. Projected expenses are examined for thoroughness and compared
against the actual expenses of similar facilities financed by DVI.
DVI's intention is to become involved early in the planning
process of a financing project, as it then has the opportunity to structure the
transaction to DVI's specific credit guidelines. Among numerous factors, this
process generally involves: (i) prescribing minimum working capital and net
worth requirements; (ii) requiring outside financial support as needed in the
form of cash equity, additional collateral, guarantees or fee subordinations;
(iii) ensuring that all key parties are at risk; and (iv) establishing that the
contractual relationship with the user is well conceived and documented.
In evaluating Medium-Sized Hospital credits, DVI generally
takes a similar approach, although in the case of financially stronger hospitals
("FINANCIALLY STRONGER HOSPITALS") a modified, somewhat less stringent approach
may be applied. Financially Stronger Hospitals are hospitals which in DVI's
judgment have a consistent history of earnings, a sound capital structure and
generate sufficient cash flow to repay their short-term and long-term
obligations with an adequate margin of safety.
DVI also has made the impact on each customer of the industry
trend toward managed care an increasingly important credit measurement for the
past several years. In addition, DVI considers the ability of a prospective
Obligor to contract with managed care payors and providers to be very important.
At various stages in the structuring and credit approval
process, credit information is submitted by field sales personnel to DVI's sales
and credit personnel for discussion and structuring purposes. When fully
completed, a formal credit package is prepared and sent to the appropriate
approval body as described above.
The underwriting criteria of Affiliated are significantly
different from those of DVI and will be used prospectively by DVI on all
transactions where the cost of equipment is under approximately $200,000.
Affiliated's applications from Obligors are analyzed for approval based upon a
combination of the financial condition of the applicant as well as the credit
score of the applicant (for applicants who are individuals), which is obtained
from a national credit reporting organization. Applications are filed with the
credit department and screened for repeat customers, in which case the previous
file, credit and payment history are also analyzed. Based on such information,
an individual credit analyst assigns status to the application (approved,
declined, or request for further information or change in acceptable terms). If
the application is approved and conditions and requirements of approval are met,
an account manager or sales support representative processes the file and issues
a signed purchase order. The account is then reviewed for completion of all
requirements and signed for authorization to book the transaction. In general,
Affiliated completes UCC filings on all transactions where the cost of equipment
exceeds $20,000.
Affiliated has established specific credit guidelines for
hospitals, group practices and sole-practitioners which generally require
Obligors to (1) be in business for a certain period of time (ranging from a
minimum of one year to over two years), (2) provide financial statements,
corporate resolutions and the appropriate purchase documents, (3) provide
personal guarantees under certain circumstances, (4) provide proof of medical
license and (5) meet a certain minimum TRW credit report score requirements.
Affiliated has imposed other requirements and certain circumstances and may
consider an obligors specialty in evaluating creditworthiness.
Affiliated may allow exceptions to the foregoing requirements
as warranted, in which event, the signatures of two credit officers are
required.
PORTFOLIO MONITORING AND CREDIT COLLECTIONS
DVI as Servicer will service all Contracts constituting Trust
Property. For Contracts above approximately $200,000, key members of the credit,
sales, operations and accounting departments meet regularly to discuss the
contract portfolio delinquency report and the status of delinquent borrowers.
Delinquent obligors are contacted immediately by the collection and/or sales
department, with other staff members intervening as deemed necessary. The
collection of large-balance delinquent accounts and severely delinquent accounts
is administered
S-31
<PAGE>
personally by DVI's Director of Portfolio Management. Once DVI suspects that an
obligor may experience problems in meeting its obligations, DVI acts to identify
a new operator of the equipment in the event that the obligor defaults. Any
repossessions are handled on an individual transaction basis. Due to the
relatively small number of contracts in DVI's portfolio, management possesses a
high degree of familiarity with virtually the entire obligor base. These
procedures will also be followed by DVI in its capacity as Servicer of the
Contracts.
DVI personnel in Chicago formerly employed by Affiliated will
continue to handle collections and other servicing of Contracts originated by
Affiliated and new contracts originated by DVI below approximately $200,000. The
collection department meets monthly to review and discuss the status of certain
accounts and any trends in performance. Invoices are generated on the 10th and
25th day of each month with a nine-day grace period. Late accounts are sorted by
region and assigned by aging. For the accounts that are 10-30 days past due, an
active collection process is initiated by phone contact, and a reminder notice
is sent at 15 days past due. At 31 days past due, a final notice letter is sent
and any items $30,000 and over are included on an ongoing watch list which is
reviewed monthly with senior management. A demand letter for possession of
collateral is sent at 61-90 days past due, and accounts are reviewed with a
supervisor on a weekly basis. Contracts between $20,000 and $30,000 are included
on an ongoing watch list at 61 days, and along with all items at 91 days+ are
reviewed monthly with senior management. Any repossessed equipment is remarketed
on a best effort basis through the manufacturer and/or a network of independent
distributors.
DELINQUENCY EXPERIENCE
The following table describes DVI's delinquency experience:
DELINQUENCY EXPERIENCE
The following table sets forth certain information with respect to the
delinquencies for the contracts originated or acquired by DVI (including
contracts held by DVI in its contract portfolio and contracts sold or otherwise
permanently funded, but excluding all contracts purchased by DVI from Affiliated
(the "Affiliated Contracts")) for the periods
indicated.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
AS OF JUNE 30
-----------------------------------------------------------------------------------------------
AS OF
9/30/98 1998 1997 1996 1995 1994
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
MANAGED NET
FINANCED ASSETS(2) $985,501 $932,006 $809,090 $ 601,543 $ 473,625 $ 233,340
</TABLE>
<TABLE>
<CAPTION>
DELINQUENCIES(1) % OF % OF % OF % OF % OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL AMOUNT TOTAL
------ ----- ------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
31-60 DAYS $ 13,510 1.4 $ 15,811 1.7 $ 3,705 0.5 $ 10,352 1.7 $ 12,483 2.6 $ 3,996 1.7
61-90 DAYS 4,038 0.4 15,012 1.6 12,133 1.5 3,614 0.6 3,137 0.7 200 0.1
91+ DAYS 65,011 6.6 37,230 4.0 17,315 2.1 13,548 2.3 6,948 1.5 4,513 1.9
- --------------- -------- --- -------- --- -------- --- ------ --- ----- --- ------- ---
TOTAL
DELINQUENCIES $ 82,559 8.4 $68,053 7.3 $ 33,153 4.1 $ 27,514 4.6 $ 22,568 4.8 $ 8,709 3.7
======== === ======= === ======== === ======== === ======== === ======= ===
</TABLE>
- --------------------
(1) Delinquencies as a percentage of total managed net financed assets.
Delinquencies reflects the entire outstanding balance on delinquent
contracts, excluding any international net financed assets.
(2) Managed net financed assets consists of gross financial receivables net
of unearned income, excluding any international net financed assets.
Amounts for 1995 through 1998 are based on servicing records for the
entire servicing portfolio. Amounts for 1994 are based on financial
statements and may include additional assets.
S-32
<PAGE>
LOSS EXPERIENCE
The following table sets forth certain information with respect to
losses for contracts originated or acquired by DVI (including contracts held by
DVI in its portfolio and contracts sold or otherwise permanently funded, but
excluding all Affiliated Contracts) for the periods indicated.
LOSS EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30
-----------------------------------------------------------------
THREE MONTHS
ENDED 9/30/98 1998 1997 1996 1995 1994
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Average managed net financed
assets (1)...................... $ 1,114,029 $934,198 $717,112 $544,023 $342,353 $188,128
Net charge-offs..................... 903 1,642 436 1,475 473 264
Net charge-offs as a percentage of
average managed net financed
assets.......................... 0.32%(2) 0.18% 0.06% 0.27% 0.14% 0.14%
</TABLE>
(1) Presentation of amounts for 1995 through 1998 is based on averages of
quarterly period average balances for the entire servicing portfolio.
Presentation of amounts for 1994 is based on averages of quarterly period
end balances from the financial statements and may include additional
assets.
(2) Annualized.
The Discounted Contract Balance of the Affiliated Contracts
included in the Trust Property is equal to 19.2% of the Aggregate Discounted
Contract Balance of the Statistical Contracts included in the Trust Property.
With respect to the Affiliated portfolio at September 30, 1998, (i) contract
delinquencies over thirty days represented a total of 5.8% of Affiliated's
managed net financed assets, where the total balance on delinquent contracts was
$4,100 and the managed net financed assets were $70,737 (such amounts are
dollars in thousands), and (ii) the net charge-offs on an annualized basis for
the three month period ending September 30, 1998 represented 1.5% of
Affiliated's average managed net financed assets, where the net charge-offs were
$261 and the average managed net financed assets were $69,616 (such amounts are
dollars in thousands). Affiliated was acquired by DVI in September 1998, and
current management, accordingly, cannot certify delinquency and loss experience
in prior periods with respect to the Affiliated portfolio. The delinquency and
loss experience in prior periods with respect to the Affiliated portfolio for
most periods was not materially worse than the experience presented in the
second preceding sentence. There can be no assurance that the levels of
delinquency and loss experience reflected in the Delinquency and Loss Experience
tables with respect to DVI, or in the amounts set forth in the third preceding
sentence with respect to the Affiliated portfolio, are or will be indicative of
the performance of the Contracts included in the Trust Property for the Notes.
S-33
<PAGE>
THE SERVICER
SERVICING
The Contracts will be serviced by DVI, as Servicer, pursuant
to the Contribution and Servicing Agreement. The Contribution and Servicing
Agreement requires that servicing of the Contracts by the Servicer be carried
out in the same manner in which it services leases and equipment held for its
own account and consistent with customary practices of servicers in the
industry, but in performing its duties thereunder, the Servicer will act on
behalf and for the benefit of the Issuer, the Trustee and the holders of the
Notes, subject at all times to the provisions of the Indenture, without regard
to any relationship which the Servicer or any affiliate of the Servicer may
otherwise have with an Obligor. The Servicer shall at all times act in
accordance with the provisions of each Contract, and shall observe and comply
with all requirements of law applicable to it. Except as permitted by the terms
of any Contract following a default thereunder, the Servicer shall not take any
action which would result in the interference with the Obligor's right to quiet
enjoyment of the Equipment subject to the Contract during the term thereof.
Following each Determination Date, the Servicer shall advance and remit to the
Trustee, in such manner as will ensure that the Trustee will have immediately
available funds on account thereof by 11:00 a.m. New York time on the second
Business Day prior to the next succeeding Payment Date, a Servicer Advance in an
amount sufficient to cover all amounts due and unpaid on any Delinquent Contract
as of the related Determination Date; PROVIDED, HOWEVER, that the Servicer will
not be obligated to make a Servicer Advance with respect to (a) any Defaulted
Contract, (b) any Contract that was finally liquidated on or prior to such
Determination Date or (c) any Contract if the Servicer, in its good faith
judgment, believes that such Servicer Advance would be a Nonrecoverable Advance.
If the Servicer determines that any Servicer Advance it has made, or is
contemplating making, would be a Nonrecoverable Advance, the Servicer shall
deliver to the Trustee an Officer's Certificate stating the basis for such
determination. "OFFICER'S CERTIFICATE" means a certificate delivered to the
Trustee and signed by the Chairman, the President, a Vice President, the
Treasurer, an Assistant Treasurer, the Secretary, or an Assistant Secretary of
the relevant entity.
The Servicer, as an independent contractor on behalf of the
Issuer (as assignee of the Transferor) and for the benefit of the Noteholders,
will be responsible for managing, servicing and administering the Trust
Property, enforcing and making collections on the Contracts and for enforcing
the rights of the Issuer in any item of Equipment, all as set forth in the
Contribution and Servicing Agreement. The Servicer will be responsible, among
other duties, to (i) invoice each Obligor for all Contract Payments required to
be paid by such Obligor in such manner and to the same extent as the Servicer
does with respect to similar contracts held for its own account, (ii) maintain
with respect to each Contract and each item of Equipment, and with respect to
each payment by each Obligor and compliance by each Obligor with the provisions
of each Contract, complete and accurate records in such manner and to the same
extent as the Servicer does with respect to similar contracts held for its own
account and (iii) execute, deliver and file (or cause the same to be done) on
behalf of the Transferor, the Issuer and the Trustee, any and all tax returns
with respect to sales, use, personal property and other taxes (other than
corporate income tax returns) and any and all reports or licensing applications
required to be filed in any jurisdiction with respect to any Contract or any
item of Equipment and UCC financing statements necessary to perfect, or to
maintain the perfection of, the interest of the Trustee in the Trust Property.
The terms of a Contract may be modified or adjusted by the
Servicer for administrative reasons, at the request of a lessee or a lessor.
Such modifications or adjustments may include changes to the delivery date of
Equipment, the cost of Equipment, the components of leased Equipment or
corrections of information that occur when a Contract enters the Servicer's
administrative servicing system. Such modifications and adjustments may result
in changes to the acceptance date of the Contract, the amount of monthly payment
of such Contract, the monthly payment date of the Contract or changes to the
Equipment. However, such changes will neither (i) extend the Stated Maturity
Date of the Notes, (ii) extend by more than 24 months the Scheduled Termination
Date of such Contract, (iii) have a material adverse effect on the weighted
average life of any class of Notes, (iv) be implemented on more than twenty
percent of the Initial Aggregate Discounted Contract Balance of the Contracts,
(v) be effected upon any Contract that is ninety days or more delinquent, (vi)
decrease the Discounted Contract Balance of any Contract being so modified,
unless the Issuer deposits an amount equal to such decrease in the Collection
Account, (vii) be inconsistent with the servicing standards set forth in Section
4.01 of the Contribution and Servicing Agreement, (viii) reduce or adversely
affect, individually or in the aggregate, the Obligor's obligation to maintain,
service, insure and care for the Equipment or would permit the alteration of any
item of Equipment in any way which could adversely affect its present or future
S-34
<PAGE>
value, or (ix) otherwise adversely affect, individually or in the aggregate, the
interests of any of the Transferor, the Issuer, the Trustee or the Noteholders.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
As compensation to the Servicer for its servicing of the
Contracts, the Servicer will be entitled to receive on each Payment Date a
servicing fee (the "SERVICING FEE") from amounts on deposit in the Collection
Account equal to the product of (i) one-twelfth (or with respect to the initial
Payment Date, a fraction, the numerator of which is equal to the number of days
from the Closing Date to but excluding the initial Payment Date, and the
denominator of which is equal to 360), (ii) 0.45% and (iii) the Aggregate
Discounted Contract Balance of all Contracts as of the beginning of the related
Collection Period. The Servicing Fee (together with any portion of the Servicing
Fee that remains unpaid from prior Payment Dates) will be paid prior to
distribution of any amounts to the Noteholders. In addition, the Servicer will
be entitled to receive as additional compensation, late payment fees, the
penalty portion of interest paid on past due amounts, origination fees,
documentation fees, other administrative fees or similar charges allowed by
applicable law with respect to the Contracts, and certain other similar fees
paid by the Obligors ("SERVICING CHARGES") and earnings from any eligible
investments of amounts on deposit in the Collection Account. Payments by or on
behalf of Obligors will be allocated to scheduled payments and late fees and
other charges in accordance with the Servicer's normal practices and procedures.
The Servicing Fee will compensate the Servicer for performing
the functions of a third party servicer of similar types of contracts as an
agent for their beneficial owner, including collecting and posting all payments,
responding to inquiries of Obligors on the Contracts, investigating
delinquencies, sending payment coupons to Obligors, reporting tax information to
Obligors, paying costs of collection and disposition of defaults and policing
the collateral. The Servicing Fee also will compensate the Servicer for
administering the Contracts, accounting for collections and furnishing
statements to the Trustee, if any, with respect to distributions. The Servicing
Fee also will reimburse the Servicer for certain taxes, accounting fees, outside
auditor fees, data processing costs and other costs incurred in connection with
administering the Contracts.
All costs of servicing the Contracts in the manner required by
the Contribution and Servicing Agreement shall be borne by the Servicer, but the
Servicer shall be entitled to retain, out of any amounts actually recovered with
respect to any Contract or the Equipment subject thereto, the Servicer's actual
out-of-pocket expenses paid to third parties reasonably incurred with respect to
such Contract or Equipment. In addition, the Servicer shall be entitled to
receive on each Payment Date any unreimbursed Nonrecoverable Advances or
Servicer Advances with respect to any Defaulted Contract.
EVIDENCE AS TO COMPLIANCE
The Contribution and Servicing Agreement requires that with
each set of financial statements delivered pursuant to the Contribution and
Servicing Agreement, the Servicer will deliver an Officer's Certificate stating
(i) that the officer signing such Certificate has reviewed the relevant terms of
the Contribution and Servicing Agreement and have made, or caused to be made
under such officer's supervision, a review of the activities of the Servicer
during the period covered by the statements then being furnished, (ii) that the
review has not disclosed the existence of any Servicer Event of Default or, if a
Servicer Event of Default exists, describing its nature and what action the
Servicer has taken and is taking with respect thereto and (iii) that on the
basis of such review the officer signing such certificate is of the opinion that
during such period the Servicer has serviced the Contracts in compliance with
the required procedures except as described in such certificate.
OTHER SERVICING PROCEDURES
On the third Business Day immediately preceding each Payment
Date (each such date, a "DETERMINATION DATE"), the Servicer shall deliver a
report in writing (the "MONTHLY SERVICER REPORT") to the Trustee (who shall
forward a copy to each Noteholder) and Duff & Phelps Credit Rating Co. ("DCR"),
Fitch IBCA, Inc. ("FITCH") or Moody's Investors Service, Inc. ("MOODY'S";
together with DCR and Fitch, the "RATING AGENCIES").
S-35
<PAGE>
Upon receipt of notice from the Issuer, the Trustee or any
other person, or if the Servicer otherwise learns that the Obligor under any
Contract is in default thereunder, the Servicer will take such action as is
appropriate, consistent with the Servicer's administration of contracts held for
its own account and consistent with the customary practices of servicers in the
industry, including such action as may be necessary to cause, or attempt to
cause, the Obligor thereunder to cure such default (if the same may be cured) or
to terminate or attempt to terminate such Contract and to recover, or attempt to
recover, all damages resulting from such default.
The Servicer will use its best efforts to sell or re-lease any
Equipment subject to a Defaulted Contract or remaining subject to the lien of
the Indenture upon the expiration of the Contract to which such Equipment is
subject, in a timely manner and in a manner consistent with that utilized by the
Servicer with respect to equipment owned by it so as to maximize, to the extent
possible under then prevailing market conditions, the net proceeds from such
Equipment.
RESIGNATION/REMOVAL OF THE SERVICER
The Contribution and Servicing Agreement will provide that the
Servicer may not resign from its obligations and duties as Servicer thereunder,
except in connection with an assignment permitted by the Contribution and
Servicing Agreement or upon a determination that the Servicer's performance of
such duties is no longer permissible under applicable law. No such resignation
will become effective until the Trustee or a successor servicer has assumed the
Servicer's servicing obligations and duties under the Contribution and Servicing
Agreement. The Servicer can only be removed pursuant to a Servicer Event of
Default. See "DESCRIPTION OF THE NOTES, INDENTURE, CONTRIBUTION AND SERVICING
AGREEMENT AND TRUST AGREEMENT -- TERMINATION OF THE SERVICER" herein.
VOLUNTARY TERMINATION
At the option of the Servicer, the obligations and
responsibilities of the Servicer shall terminate on any Payment Date on which
the Pool A Aggregate Discounted Contract Balance is less than 10% of the Pool A
Aggregate Discounted Contract Balance as of the Closing Date so long as the
Servicer deposits or causes to be deposited into the Collection Account the
Repurchase Amount for each Contract.
At the option of the Servicer, the obligations and
responsibilities of the Servicer with respect to the Contracts in Pool B shall
terminate on any Payment Date on which the Pool B Aggregate Discounted Contract
Balance is less than 20% of the Pool B Aggregate Discounted Contract Balance as
of the Closing Date so long as the Servicer deposits or causes to be deposited
into the Collection Account the Repurchase Amount for each Contract in Pool B.
See "THE SERVICER -- VOLUNTARY TERMINATION" herein.
YEAR 2000 COMPUTER PROGRAMMING COMPLIANCE
The Servicer believes, based on its discussions with current
systems vendors, that its software applications and operational programs will
properly recognize calendar dates beginning in the year 2000. In addition, the
Servicer is discussing with its customers and suppliers the possibility of any
interface difficulties relating to the year 2000 which may affect the Servicer.
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 Servicer's computer systems and software of
its vendors, customers and suppliers.
DVI RECEIVABLES CORP.
DVI Receivables Corp. is a limited purpose corporation
organized under the laws of the State of Delaware on January 21, 1994. All of
the Transferor's outstanding capital stock is owned by DVI. The Transferor's
principal executive office is located at 500 Hyde Park, Doylestown,
Pennsylvania, 18901. Its telephone number is (215) 345-6600.
S-36
<PAGE>
THE ISSUER
GENERAL
The Issuer is a business trust organized under the laws of the
State of Delaware on ________ __, 1998. DVI Receivables Corp. is the sole
beneficial owner of the Issuer. The principal office of Wilmington Trust
Company, as Owner Trustee for the Issuer, is located at the Corporate Trust
Department, Rodney Square North, 1101 North Market Street, Wilmington, Delaware
19890-0001, and its telephone number is (302) 651-1000.
The Issuer will not engage in any business or investment
activities other than acquiring, owning, financing, transferring, receiving or
pledging the assets transferred to the Issuer pursuant to the Pooling and Trust
Agreement (the "TRUST AGREEMENT") with the Transferor and certain related
activities set forth in the Trust Agreement.
THE OWNER TRUSTEE
Wilmington Trust Company is the Owner Trustee under the Trust
Agreement. The principal offices of the Owner Trustee are located at Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890. The Owner
Trustee will perform limited administrative functions under the Trust Agreement.
The Owner Trustee's duties in connection with the issuance and sale of the Notes
is limited solely to the express obligations of the Owner Trustee set forth in
the Trust Agreement.
THE TRUSTEE
The Trustee, U.S. Bank Trust National Association, has its
principal corporate trust office (the "CORPORATE TRUST OFFICE") at 180 Fifth
Street, St. Paul, Minnesota 55101.
The Trustee's liability in connection with the issuance and
sale of the Notes is limited solely to the express obligations of such Trustee
set forth in the Indenture.
No resignation or removal of the Trustee and no appointment of
a successor Trustee shall become effective until the acceptance of appointment
by the successor Trustee. The Trustee may resign at any time by giving written
notice thereof to the Issuer and by mailing notice of resignation by first class
mail, postage prepaid, to the Noteholders at their addresses appearing on the
Note register (the "NOTE REGISTER"). Any successor Trustee shall meet the
financial and other standards for qualifying as a successor Trustee under the
Indenture. The Trustee may be removed at any time by written notice of the
holders of Notes evidencing more than 50% of the Voting Rights, delivered to the
Trustee and the Issuer. The Issuer may remove the Trustee under certain
circumstances set forth in the Indenture. If the Trustee shall resign, be
removed, or become incapable of acting, or if a vacancy shall occur in the
office of Trustee for any cause, the Issuer, with the consent of the holders of
Notes evidencing more than 50% of the Voting Rights, by an act of the Issuer,
shall promptly appoint a successor Trustee. If no successor Trustee shall have
been so appointed by the Issuer or the Noteholders, or if no successor Trustee
shall have accepted appointment within 30 days after notice of any such
resignation or removal, existence of incapability, or occurrence of such
vacancy, the Trustee or any Noteholder may petition any court of competent
jurisdiction for the appointment of a successor Trustee. The Issuer shall give
notice of each resignation and each removal of the Trustee and each appointment
of a successor Trustee by mailing written notice of such event by first-class
mail, postage prepaid, to all Noteholders, as their names and addresses appear
in the Note Register. Each notice shall include the name of the successor
Trustee and the address of its principal corporate trust office ("CORPORATE
TRUST OFFICE").
DESCRIPTION OF THE NOTES, INDENTURE, CONTRIBUTION
AND SERVICING AGREEMENT AND TRUST AGREEMENT
The Notes will be issued pursuant to the Indenture entered
into by and between the Issuer and the Trustee. See "THE TRUSTEE." The following
summary describes certain provisions of the Notes, the Indenture and the
Contribution and Servicing Agreement and the Trust Agreement as they relate to
the Notes, does not purport to be complete and is subject to and qualified in
its entirety by reference to such Agreements.
S-37
<PAGE>
GENERAL
The following terms used in this Prospectus Supplement shall
have the respective meanings set forth below:
"CLASS A MONTHLY INTEREST" means, for any Payment Date, the
sum of the Class A-1 Monthly Interest, the Class A-2 Monthly Interest and the
Class A-3 Monthly Interest.
"CLASS A OVERDUE INTEREST" means, for any Payment Date, the
excess, if any, of (a) the aggregate amount of Class A Monthly Interest payable
on all prior Payment Dates over (b) the aggregate amount of interest actually
paid to the Class A Noteholders on all prior Payment Dates.
"CLASS A OVERDUE PRINCIPAL" means, as of any Payment Date, the
excess, if any, of (a) the aggregate amount of Class A Monthly Principal due on
the Class A Notes on all prior Payment Dates over (b) the aggregate amount of
principal actually paid to the Class A Noteholders on all prior Payment Dates.
"CLASS A PERCENTAGE" means 87.50%.
"CLASS A-1 MONTHLY INTEREST" means, for any Payment Date, the
product of (i) the fraction of which the numerator is the actual number of days
elapsed during the related month and the denominator of which is 360 days, (ii)
the Class A-1 Note Rate and (iii) the Class A-1 Note Balance on the immediately
preceding Payment Date (or, in the case of the first Payment Date, the Closing
Date) after giving effect to all principal payments on the Class A-1 Notes on
such Payment Date. The Class A-1 Monthly Interest, with respect to each Payment
Date, shall accrue from and including the prior Payment Date to but excluding
such Payment Date, and with respect to the initial Payment Date, shall accrue
from and including the Closing Date to but excluding such Payment Date.
"CLASS A-1 MONTHLY PRINCIPAL" means (A) with respect to any
Payment Date other than the Class A-1 Stated Maturity Date, an amount equal to
the product of (a) the Class A Percentage and (b) Monthly Principal; PROVIDED,
HOWEVER, that in no event shall the Class A-1 Monthly Principal exceed the Note
Balance for the Class A-1 Notes as of such Payment Date and (B) on the Class A-1
Stated Maturity Date, the entire amount of the then Outstanding Note Balance.
"CLASS A-1 OVERDUE INTEREST" means, for any Payment Date, the
excess, if any, of (a) the aggregate amount of Class A-1 Monthly Interest
payable on all prior Payment Dates over (b) the aggregate amount of interest
actually paid to the Class A-1 Noteholders on all prior Payment Dates.
"CLASS A-1 OVERDUE PRINCIPAL" means, as of any Payment Date,
the excess, if any, of (a) the aggregate amount of Class A-1 Monthly Principal
due on the Class A-1 Notes on all prior Payment Dates over (b) the aggregate
amount of principal actually paid to the Class A-1 Noteholders on all prior
Payment Dates.
"CLASS A-2 MONTHLY INTEREST" means, for any Payment Date, the
product of (i) one-twelfth, (ii) the Class A-2 Note Rate and (iii) the Class A-2
Note Balance on the immediately preceding Payment Date (or, in the case of the
first Payment Date, the Closing Date) after giving effect to all principal
payments on the Class A-2 Notes on such Payment Date. The Class A-2 Monthly
Interest shall be calculated on a twelve month year of thirty days in each
month, except for the first Payment Date, for which interest shall accrue from
the Closing Date to but excluding such Payment Date.
"CLASS A-2 MONTHLY PRINCIPAL" means (A) prior to the Payment
Date upon which the Class A-1 Note Balance is paid in full, zero, (B) on any
Payment Date after the Class A-1 Note Balance has been reduced to zero, the
product of (x) the Class A Percentage and (y) Monthly Principal, and (C) on the
Class A-2 Stated Maturity Date, the entire amount of the then outstanding Class
A-2 Note Balance.
"CLASS A-2 OVERDUE INTEREST" means, for any Payment Date, the
excess, if any, of (a) the aggregate amount of Class A-2 Monthly Interest
payable on all prior Payment Dates over (b) the aggregate amount of interest
actually paid to the Class A-2 Noteholders on all prior Payment Dates.
S-38
<PAGE>
"CLASS A-2 OVERDUE PRINCIPAL" means, as of any Payment Date,
the excess, if any, of (a) the aggregate amount of Class A-2 Monthly Principal
due on the Class A-2 Notes on all prior Payment Dates over (b) the aggregate
amount of principal actually paid to the Class A-2 Noteholders on all prior
Payment Dates.
"CLASS A-3 MONTHLY INTEREST" means, for any Payment Date, the
product of (i) one-twelfth, (ii) the Class A-3 Note Rate and (iii) the Class A-3
Note Balance on the immediately preceding Payment Date (or, in the case of the
first Payment Date, the Closing Date) after giving effect to all principal
payments on the Class A-3 Notes on such Payment Date. The Class A-3 Monthly
Interest shall be calculated based upon a twelve month year of thirty days in
each month, except for the first Payment Date, for which interest shall accrue
from the Closing Date to but excluding such Payment Date.
"CLASS A-3 MONTHLY PRINCIPAL" means (A) prior to the Payment
Date upon which the Class A-2 Note Balance is paid in full, zero, (B) on any
Payment Date other than the Class A-3 Stated Maturity Date, the product of (x)
the Class A Percentage and (y) Monthly Principal, and (C) on the Class A-3
Stated Maturity Date, the entire amount of the then outstanding Class A-3 Note
Balance.
"CLASS A-3 OVERDUE INTEREST" means, for any Payment Date, the
excess, if any, of (a) the aggregate amount of Class A-3 Monthly Interest
payable on all prior Payment Dates over (b) the aggregate amount of interest
actually paid to the Class A-3 Noteholders on all prior Payment Dates.
"CLASS A-3 OVERDUE PRINCIPAL" means, as of any Payment Date,
the excess, if any, of (a) the aggregate amount of Class A-3 Monthly Principal
due on the Class A-3 Notes on all prior Payment Dates over (b) the aggregate
amount of principal actually paid to the Class A-3 Noteholders on all prior
Payment Dates.
"CLASS B MONTHLY INTEREST" means, for any Payment Date, the
product of (i) one-twelfth, (ii) the Class B Note Rate and (iii) the Class B
Note Balance on the immediately preceding Payment Date (or, in the case of the
first Payment Date, the Closing Date) after giving effect to all principal
payments on the Class B Notes on such Payment Date. The Class B Monthly Interest
shall be calculated based upon a twelve month year of thirty days in each month,
except for the first Payment Date, for which interest shall accrue from the
Closing Date to but excluding such Payment Date.
"CLASS B MONTHLY PRINCIPAL" means (A) on any Payment Date
other than the Class B Stated Maturity Date, the product of (x) the Class B
Percentage and (y) Monthly Principal, and (B) on the Class B Stated Maturity
Date, the entire amount of the then outstanding Class B Note Balance.
"CLASS B OVERDUE INTEREST" means, for any Payment Date, the
excess, if any, of (a) the aggregate amount of Class B Monthly Interest payable
on all prior Payment Dates over (b) the aggregate amount of interest actually
paid to the Class B Noteholders on all prior Payment Dates.
"CLASS B OVERDUE PRINCIPAL" means, as of any Payment Date, the
excess, if any, of (a) the aggregate amount of Class B Monthly Principal due on
the Class B Notes on all prior Payment Dates over (b) the aggregate amount of
principal actually paid to the Class B Noteholders on all prior Payment Dates.
"CLASS B PERCENTAGE" means 2.00%.
"CLASS C MONTHLY INTEREST" means, for any Payment Date, the
product of (i) one-twelfth, (ii) the Class C Note Rate and (iii) the Class C
Note Balance on the immediately preceding Payment Date (or, in the case of the
first Payment Date, the Closing Date) after giving effect to all principal
payments on the Class C Note on such Payment Date. The Class C Monthly Interest
shall be calculated based upon a twelve month year of thirty days in each month,
except for the first Payment Date, for which interest shall accrue from the
Closing Date to but excluding such Payment Date.
"CLASS C MONTHLY PRINCIPAL" means, (A) on any Payment Date
other than the Class C Stated Maturity Date, an amount equal to the product of
(x) the Class C Percentage and (y) the Monthly Principal and (B) on the Class C
Stated Maturity Date, the entire amount of the then outstanding Class C Note
Balance.
S-39
<PAGE>
"CLASS C OVERDUE INTEREST" means, for any Payment Date, the
excess, if any, of (a) the aggregate amount of Class C Monthly Interest payable
on all prior Payment Dates over (b) the aggregate amount of interest actually
paid to the Class C Noteholders on all prior Payment Dates.
"CLASS C OVERDUE PRINCIPAL" means, as of any Payment Date, the
excess, if any, of (a) the aggregate amount of Class C Monthly Principal due on
the Class C Notes on all prior Payment Dates over (b) the aggregate amount of
principal actually paid to the Class C Noteholders on all prior Payment Dates.
"CLASS C PERCENTAGE" means 2.25%.
"CLASS D MONTHLY INTEREST" means, for any Payment Date, the
product of (i) one-twelfth, (ii) the Class D Note Rate and (iii) the Class D
Note Balance on the immediately preceding Payment Date (or, in the case of the
first Payment Date, the Closing Date) after giving effect to all principal
payments on the Class D Notes on such Payment Date. The Class D Monthly Interest
shall be calculated based upon a twelve month year of thirty days in each month,
except for the first Payment Date, for which interest shall accrue from the
Closing Date to but excluding such Payment Date.
"CLASS D MONTHLY PRINCIPAL" means (A) on any Payment Date
other than the Class D Stated Maturity Date, the product of (x) the Class D
Percentage and (y) Monthly Principal, and (B) on the Class D Stated Maturity
Date, the entire amount of the then outstanding Class D Note Balance.
"CLASS D OVERDUE INTEREST" means, for any Payment Date, the
excess, if any, of (a) the aggregate amount of Class D Monthly Interest payable
on all prior Payment Dates over (b) the aggregate amount of interest actually
paid to the Class D Noteholders on all prior Payment Dates.
"CLASS D OVERDUE PRINCIPAL" means, as of any Payment Date, the
excess, if any, of (a) the aggregate amount of Class D Monthly Principal due on
the Class D Notes on all prior Payment Dates over (b) the aggregate amount of
principal actually paid to the Class D Noteholders on all prior Payment Dates.
"CLASS D PERCENTAGE" means 2.25%.
"CLASS E MONTHLY INTEREST" means, for any Payment Date, the
product of (i) one-twelfth, (ii) the Class E Note Rate and (iii) the Class E
Note Balance on the immediately preceding Payment Date (or, in the case of the
first Payment Date, the Closing Date) after giving effect to all principal
payments on the Class E Note on such Payment Date. The Class E Monthly Interest
shall be calculated based upon a twelve month year of thirty days in each month,
except for the first Payment Date, for which interest shall accrue from the
Closing Date to but excluding such Payment Date.
"CLASS E MONTHLY PRINCIPAL" means, (A) on any Payment Date
other than the Class E Stated Maturity Date, an amount equal to the product of
(x) the Class E Percentage and (y) the Monthly Principal and (B) on the Class E
Stated Maturity Date, the entire amount of the then outstanding Class E Note
Balance.
"CLASS E OVERDUE INTEREST" means, for any Payment Date, the
excess, if any, of (a) the aggregate amount of Class E Monthly Interest payable
on all prior Payment Dates over (b) the aggregate amount of interest actually
paid to the Class E Noteholders on all prior Payment Dates.
"CLASS E OVERDUE PRINCIPAL" means, as of any Payment Date, the
excess, if any, of (a) the aggregate amount of Class E Monthly Principal due on
the Class E Notes on all prior Payment Dates over (b) the aggregate amount of
principal actually paid to the Class E Noteholders on all prior Payment Dates.
"CLASS E PERCENTAGE" means 2.25%.
"MONTHLY INTEREST" means as of any Payment Date, the sum of
(i) the Class A Monthly Interest, (ii) the Class B Monthly Interest, (iii) the
Class C Monthly Interest, (iv) the Class D Monthly Interest, and (v) the Class E
Monthly Interest.
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"MONTHLY PRINCIPAL" means, with respect to any Payment Date,
an amount equal to the excess of (a) the Aggregate Discounted Contract Balance
at the close of business on the last day of the second preceding Collection
Period over (b) the Aggregate Discounted Contract Balance at the close of
business on the last day of the immediately preceding Collection Period.
"NOTE BALANCE" means, as of the Closing Date, $194,233,000 for
the Class A Notes cumulatively (and, with respect to each tranche thereof,
$36,662,000 for the Class A-1 Notes, $118,804,000 for the Class A-2 Notes and
$38,767,000 for the Class A-3 Notes), $4,440,000 for the Class B Notes,
$4,995,000 for the Class C Notes, $4,995,000 for the Class D Notes and
$4,995,000 for the Class E Notes and thereafter shall equal the Note Balance for
such class reduced by all principal payments on such class of Notes (dollar
amounts are approximate).
"NOTE RATE" the annualized rate of interest on the relevant
class of Notes (_____% on the Class A-1 Notes, _____% on the Class A-2 Notes,
_____% on the Class A-3 Notes, _____% on the Class B Notes, _____% on the Class
C Notes, _____% on the Class D Notes, _____% on the Class E Notes and the
interest rate set forth in the Supplement for the Class F Instruments).
"OUTSTANDING" or "OUTSTANDING" means, when used with reference
to the Notes and as of any particular date, any Note theretofore and thereupon
being authenticated and delivered except:
(i) any Note canceled by the Trustee at or before
said date;
(ii) any Note, or portion thereof, for payment of
redemption of which monies equal to the principal amount or redemption price
thereof, as the case may be, with interest to the date of maturity or
redemption, shall have theretofore been irrevocably deposited with the Trustee
(whether upon or prior to maturity or the redemption date of such Note);
(iii) any Note in lieu of or in substitution for
which another Note shall have been authenticated and delivered; and
(iv) any Note owned by the Transferor or any
Affiliate of the Transferor (except that, in determining whether the Trustee
shall be protected in relying upon any request, demand, authorization,
direction, notice, consent or waiver of Noteholders under the Indenture, only
Notes which the Trustee knows to be so owned shall be disregarded).
"OVERDUE INTEREST" means, for any Payment Date, the sum of (i)
the Class A Overdue Interest, (ii) the Class B Overdue Interest, (iii) the Class
C Overdue Interest, (iv) the Class D Overdue Interest and (v) the Class E
Overdue Interest.
The obligations evidenced by the Notes are limited recourse
obligations of the Issuer only (with such recourse limited to the extent of the
Trust Property) and are nonrecourse to DVI, the Servicer, the Trustee or any
other person. The Issuer will agree in the Indenture and in the Notes to pay to
the Class A Noteholders, the Class B Noteholders, the Class C Noteholders, the
Class D Noteholders and the Class E Noteholders in such amounts and on such
dates as are set forth in the Indenture, (a) an amount of principal equal to the
sum of (i) Monthly Principal for such Class and (ii) overdue principal for such
Class and (b) an amount of interest equal to the sum of (i) the Monthly Interest
for such Class and (ii) the Overdue Interest for such Class. Interest accrues on
the Notes from Payment Date to Payment Date, and is payable, along with required
principal, on the eleventh of each month (or, if such day is not a business day,
the immediately following business day), except that with respect to the initial
Payment Date, interest shall accrue on the Notes from the Closing Date to such
Payment Date.
The Notes will be issued, maintained and transferred on the
book-entry records of The Depository Trust Company ("DTC") and its Participants
(as defined in the Prospectus). Each Note will be initially issued as a fully
registered note, as authenticated by the Trustee in minimum denominations of
$500,000 and integral multiples of $1,000 in excess thereof, except that one
note of each Class may be issued in a different amount as may be necessary so
that the Notes of such Class evidence the full initial principal balance
thereof. The Notes will be represented by one or more certificates registered in
the name of the nominee of DTC (Notes so registered, "BOOK-ENTRY SECURITIES").
The Issuer
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has been informed by DTC that DTC's nominee will be Cede & Co. ("CEDE"). No
person acquiring an interest in the Notes (a "BENEFICIAL OWNER") will be
entitled to receive a certificate representing such person's interest (a
"DEFINITIVE SECURITY"), except as set forth below under "BOOK-ENTRY REGISTRATION
OF THE NOTES--DEFINITIVE SECURITIES." Unless and until Definitive Securities are
issued for the Notes under the limited circumstances described herein, all
references to actions by Noteholders with respect to the Notes shall refer to
actions taken by DTC upon instructions from its Participants, and all references
herein to distributions, notices, reports and statements to Noteholders with
respect to the Notes shall refer to distributions, notices, reports and
statements to DTC or Cede, as the registered holder of the Notes, for
distribution to Beneficial Owners by DTC in accordance with DTC procedures.
Payments on the Notes are required to be made by the Trustee
on each Payment Date, to persons in whose names Notes are registered as of the
Record Date. The first Payment Date for the Notes will be January 11, 1999.
Payments are required to be made by the Trustee by wire transfer of immediately
available funds, to the registered holders of such Notes (initially, Cede & Co.)
entitled thereto at the account for such Noteholder appearing in the Note
Register on the Record Date or, if no such account is so specified, then by
check mailed to the address for such Noteholder appearing in the Note Register
on such Record Date. "NOTE REGISTER" means a register kept by the Trustee in the
Corporate Trust Office in which the Trustee shall provide for the registration
of Notes and the transfer of Notes.
CONVEYANCE OF TRUST PROPERTY
On the Closing Date, DVI will convey to the Transferor, and
the Transferor will transfer to the Issuer pursuant to the Trust Agreement, all
of its right, title and interest in and to the Trust Property. The Trust
Property does not include certain amounts included in the Obligor's payments for
which DVI is not the ultimate beneficiary thereof, including, but not limited
to, property taxes, sales taxes, manufacturer's maintenance costs, insurance
premiums and supplies and transaction costs. Also not included in the Trust
Property are any Purchase Option Payments, title to the Equipment that is
subject to the Contracts that are Fair Market Value Leases that DVI originated
(although a first priority perfected security interest therein is so included),
or any rights of DVI in any accounts receivable of the Obligor pledged to DVI as
collateral for loans other than the Contract with such Obligor.
The Contracts are described on the Contract Schedule, a copy
of which has been delivered to the Trustee with respect to the Initial
Contracts. The Contract Schedule will include for each Contract, a number
identifying the Contract, the Obligor's name and address, the original maturity
of each Contract, the type of Equipment subject to each Contract, the remaining
maturity of each Contract, the Discounted Contract Balance as of the Cut-off
Date, the amount and scheduled due date of each Contract Payment due under each
of the Contracts and the original amount funded on each Contract.
DVI shall deliver to the Trustee the Contract Schedule and the
Contract File for each Contract. DVI and the Issuer, as the case may be, will
cause its accounting records to be marked to show that such Contract has been
conveyed by DVI to the Transferor, and the Transferor will cause its accounting
records to be marked to show that such Contract has been conveyed by the
Transferor to the Issuer and pledged by the Issuer to the Trustee for the
benefit of the Noteholders.
LIMITED REPURCHASE OBLIGATION
DVI will make certain representations and warranties in the
Contribution and Servicing Agreement for the benefit of the Trustee, the
Noteholders, the Issuer and the Transferor. DVI will be obligated to acquire
(through repurchase or substitution pursuant to the Contribution and Servicing
Agreement), any Contract if the breach of any representation and warranty
materially and adversely affects the interest of the Noteholders in any Contract
which has not been cured, or waived by Noteholders evidencing more than 50% of
the Voting Rights as of 90 days following the discovery or receipt of notice of
such breach. The Trustee will be granted the right to enforce such
representations and warranties directly against DVI.
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INDEMNIFICATION
The Contribution and Servicing Agreement provides that DVI, as
contributor, will defend and indemnify the Servicer, the Trustee, the
Transferor, the Issuer and the Noteholders against any and all losses, claims,
damages and liabilities to the extent that the same have been suffered by any
such party by virtue of a breach by DVI of its obligations under the
Contribution and Servicing Agreement.
Pursuant to the Contribution and Servicing Agreement, neither
the Servicer nor any of the directors, officers, employees or agents of the
Servicer shall incur any liability to the Issuer, the Trustee or the holders of
the Notes, for any action taken or not taken in good faith pursuant to the terms
of the Contribution and Servicing Agreement with respect to any Contract
(including any Defaulted Contract) or the Equipment subject thereto; PROVIDED,
HOWEVER, that this provision shall not protect the Servicer or any such person
against any breach of warranties or representations made by it in the
Contribution and Servicing Agreement or in any certificate delivered in
conjunction with the purchase of the Notes or for any liability which would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
in the performance of its duties thereunder or by reason of reckless disregard
of its obligations and duties thereunder.
INDENTURE ACCOUNTS; INVESTMENT OF FUNDS
The Servicer will establish each Lockbox Account in the name
of the Trustee for the benefit of the Noteholders. Each Lockbox Account will be
a segregated account initially established and maintained with First Union
National Bank, First National Bank of Chicago or such other Lockbox Bank as the
Servicer may select; PROVIDED, HOWEVER, that the Servicer will give the Trustee
prior written notice of any change in the location of any Lockbox Account and
the Servicer will give at least 10 days' prior written notice of the new
location to each Obligor.
The Trustee, pursuant to the Indenture, is required to
establish and maintain the Collection Account, the distribution account (the
"DISTRIBUTION ACCOUNT") and the Reserve Account, each in the name of the Trustee
and for the benefit of the Noteholders and the Issuer to the extent of their
interest therein as provided in the Indenture, the Trust Agreement and in the
Contribution and Servicing Agreement. Each such account will be one or more
segregated trust accounts held by the Trustee. The Collection Account shall be
two such accounts, which, for the purposes of the Transaction Documents, shall
be deemed one account and from which funds shall be drawn equally to make the
payments from the Collection Account pursuant to the Indenture (the "COLLECTION
ACCOUNT"). In addition, the Trustee shall establish and maintain sub-accounts of
the Distribution Account as follows: the Class A Distribution Sub- Account, the
Class B Distribution Sub-Account, the Class C Distribution Sub-Account, the
Class D Distribution Sub- Account, the Class E Distribution Sub-Account and the
Class F Distribution Sub-Account (to the extent the Class F Instruments are
issued). The Indenture permits the Servicer to direct the investment of amounts
in the Collection Account and the Reserve Account in certain types of highly
rated investments ("ELIGIBLE INVESTMENTS"). All such amounts and all investments
made with such amounts, including all income and other gain from such
investments, shall be held by the Trustee in such accounts as part of the Trust
Property as provided in the Indenture. Any net loss of principal (determined on
a month-by-month basis) resulting from such investment of the amounts in the
above accounts shall be charged to the Issuer, and upon notice thereof by the
Trustee, the Issuer shall reimburse such account within three (3) Business Days.
The Trustee shall not in any way be held liable by reason of any insufficiency
in the above accounts resulting from losses on investments made in accordance
with the Indenture (other than in its capacity as obligor under any Eligible
Investment). The Trustee shall not be liable for any investment made by it in
accordance with the Indenture on grounds that it could have made a more
favorable investment.
RESERVE ACCOUNT
"DELINQUENCY CONDITION" shall be deemed to exist on and as of
any Determination Date if (x) the quotient of (1) the sum of the Discounted
Contract Balances of all Contracts listed as more than 90 days delinquent as of
the last day of the three immediately preceding calendar months, divided by (2)
three exceeds (y) the product of (1) 0.06 and (2) the quotient of (A) the sum of
the Aggregate Discounted Contract Balance as of the last day of the three
immediately preceding Collection Periods, divided by (B) three.
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"RESERVE ACCOUNT DEPOSIT AMOUNT" means, on any Payment Date,
an amount equal to the excess of (A) the Reserve Account Required Amount over
(B) the amount on deposit in the Reserve Account (after giving effect
to any Reserve Account Draws on such Payment Date).
"RESERVE ACCOUNT REQUIRED AMOUNT" means, with respect to the
initial Payment Date, $____________ (the "INITIAL RESERVE ACCOUNT REQUIRED
AMOUNT", which equals 1% of the Initial Aggregate Discounted Contract Balance);
and, with respect to each Payment Date thereafter, the lesser of either (i) the
Initial Reserve Account Required Amount or (ii) the sum of (a) the Class A Note
Balance, (b) the Class B Note Balance, (c) the Class C Note Balance, (d) the
Class D Note Balance and (e) the Class E Note Balance; PROVIDED, HOWEVER, that
if a Restricting Event has occurred and is then continuing, then notwithstanding
the foregoing, the Reserve Account Required Amount shall be equal to the sum of
(i) the Reserve Account Required Amount on the immediately preceding Payment
Date (after giving effect to any additions to or withdrawals from the Reserve
Account on such Payment Date) and (ii) all amounts otherwise payable to the
Issuer or the Class F Instrumentholder, if any.
"RESTRICTING EVENT" means the condition that exists on any
Payment Date if any one of the following conditions exists: (i) a Delinquency
Condition exists or (ii) an Indenture Event of Default has occurred and is then
continuing.
The Reserve Account is a segregated trust account in the name
of the Trustee and will be funded through deposit of the Reserve Account Deposit
Amount from amounts otherwise distributable on the Closing Date or any Payment
Date to the Issuer or, if the Class F Instruments have been issued, to the Class
F Instrumentholders. If there exists a shortfall between the Available Funds and
interest or principal due on the related Payment Date thereto for any of the
Class A Notes, the Class B Notes, the Class C Notes, the Class D Notes and the
Class E Notes, regardless of whether an Amortization Event has occurred and is
continuing, amounts on deposit in the Reserve Account will be available to make
payments of interest to, first, the Class A Noteholders, second, the Class B
Noteholders, third, the Class C Noteholders, fourth, the Class D Noteholders,
fifth, the Class E Noteholders and then to pay principal on, first, the Class A
Notes, second, the Class B Notes, third, the Class C Notes, fourth, the Class D
Notes, fifth, the Class E Notes (and if an Amortization Event has occurred and
is continuing, the principal due on each such class shall be the entire Note
Balance for such class of Notes). Amounts on deposit in the Reserve Account may
be paid to the Class F Instrumentholder, or, if no Class F Instrument has been
issued, to the Issuer, if, and only to the extent that, such amounts in the
Reserve Account exceed the Reserve Account Required Amount.
On each Payment Date the Trustee shall promptly deposit into
the Reserve Account all amounts required to be deposited into the Reserve
Account and actually received by the Trustee pursuant to this Agreement. The
obligation of the Trustee to deposit amounts into the Reserve Account in
accordance with the terms of the Indenture shall be limited to the deposit of
amounts in the Collection Account pursuant to Section 3.04(b) thereof. The
Trustee shall not have any responsibility to determine the amount or adequacy of
funds on deposit in the Reserve Account, or the amount of any deposits to or
withdrawals from the Reserve Account. The Issuer, and any Class F
Instrumentholder, if any, by its acceptance of the Class F Instrument, agrees to
treat such assets (and all earnings thereon) (the "RESERVE ACCOUNT PROPERTY") as
its assets (and earnings) for federal, state and local tax purposes and not to
sell, transfer or otherwise dispose of its interest therein.
On each Payment Date, the Trustee shall, on the basis of the
Monthly Servicer Report, deposit in the Reserve Account, pursuant to Section
3.04(b) of the Indenture, an amount equal to the Reserve Account Deposit Amount.
If on any Payment Date, Available Funds are less than the Priority Payments, the
Trustee shall withdraw from the Reserve Account the excess of the Priority
Payments over the Available Funds in accordance with Section 3.04(c) of the
Indenture. On each Payment Date, if the balance in the Reserve Account is
greater than the Reserve Account Requirement, the Trustee shall release and, at
the instruction of the Servicer, shall pay the amount (such amount, a "RESERVE
ACCOUNT WITHDRAWAL") of the excess to the Issuer, or Class F Instrumentholder,
if any. Amounts properly paid to the Issuer, or Class F Instrumentholder, if
any, pursuant to this or the preceding paragraph, either directly from the
Distribution Account without deposit in the Reserve Account or from the Reserve
Account, shall be deemed released from the Trust Property, and the Issuer, or
Class F Instrumentholder, if any, shall not in any event thereafter be required
to refund any such paid amounts.
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With respect to the Reserve Account Property, the Issuer and
the Trustee agree that any Reserve Account Property that is held in deposit
accounts shall be held solely in the name of the Trustee, on behalf of the
Noteholders. Each such deposit account shall be subject to the exclusive custody
and control of the Trustee, and the Trustee shall have sole signature authority
with respect thereto.
Upon termination of the Indenture, any amounts on deposit in
the Reserve Account, after payment of amounts due to the Class A Noteholders,
the Class B Noteholders, the Class C Noteholders, the Class D Noteholders and
the Class E Noteholders upon the Issuer's written request to the Trustee, shall
be paid to the Issuer, or Class F Instrumentholder, if any.
FLOW OF FUNDS
The Servicer shall remit or cause the bank or trust company
(the "LOCKBOX BANK") at which each lockbox account (a "LOCKBOX ACCOUNT") is
established and maintained to remit all amounts received by them in respect of
the Contracts to the Collection Account not later than the second business day
after receipt. Notwithstanding the foregoing, if permitted by the Rating
Agencies, the Servicer will on or before the second Business Day prior to each
Payment Date remit or cause each Lockbox Bank to remit to the Collection Account
all amounts received by it on or in respect of the Contracts during such
Collection Period. The Trustee shall deposit all other amounts received by it in
respect of the Contracts in accordance with the Indenture.
Unless the Notes have been declared due and payable pursuant
to the Indenture and moneys collected by the Trustee are being applied
accordingly, the Trustee shall on each Payment Date withdraw and pay or cause to
be paid from the excess of (i) all amounts on deposit in the Collection Account
on the second Business Day preceding such Payment Date over (ii) any portion
thereof representing Contract Payments due, or voluntary prepayments deposited
therein, subsequent to the end of the related Collection Period ("AVAILABLE
FUNDS") (including any investment income with respect to monies on deposit in
the Collection Account) the amounts required, for application in the following
order of priority:
(i) to the Servicer, the Servicing Fee due to the
Servicer on such Payment Date;
(ii) to the Servicer, any unreimbursed
Nonrecoverable Advances or Servicer Advances previously made
with respect to Delinquent Contracts;
(iii) first, to the Class A Distribution Sub-Account, in
the following order of priority, the sum of: (A) the Class A-1
Monthly Interest; and (B) the Class A-1 Overdue Interest, if
any; second, to the Class A Distribution Sub-Account, in the
following order of priority, the sum of: (A) the Class A-2
Monthly Interest; and (B) the Class A-2 Overdue Interest, if
any; and third, to the Class A Distribution Sub-Account, in
the following order of priority, the sum of: (A) the Class A-3
Monthly Interest; and (B) the Class A-3 Overdue Interest, if
any;
(iv) to the Class B Distribution Sub-Account, in the
following order of priority, in the sum of:
(A) the Class B Monthly Interest; and
(B) the Class B Overdue Interest, if any;
(v) to the Class C Distribution Sub-Account, in
the following order of priority, the sum of:
(A) the Class C Monthly Interest; and
(B) the Class C Overdue Interest, if any;
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(vi) to the Class D Distribution Sub-Account, in
the following order of priority, in the sum of:
(A) the Class D Monthly Interest; and
(B) the Class D Overdue Interest, if any;
(vii) to the Class E Distribution Sub-Account, in
the following order of priority, the sum of:
(A) the Class E Monthly Interest; and
(B) the Class E Overdue Interest, if any;
(viii) PROVIDED that no Amortization Event shall have
occurred and be continuing, to the Class A Distribution
Sub-Account, in the following order of priority, the sum of:
(A) the Class A-1 Overdue Principal, if any;
(B) the Class A-1 Monthly Principal;
(C) the Class A-2 Overdue Principal, if any;
(D) the Class A-2 Monthly Principal; if any;
(E) the Class A-3 Overdue Principal, if any; and
(F) the Class A-3 Monthly Principal;
(ix) PROVIDED that no Amortization Event shall have
occurred and be continuing, to the Class B Distribution
Sub-Account, in the following order of priority, the sum of:
(A) the Class B Overdue Principal, if any; and
(B) the Class B Monthly Principal;
(x) PROVIDED that no Amortization Event shall have
occurred and be continuing, to the Class C Distribution
Sub-Account, in the following order of priority, the sum of:
(A) the Class C Overdue Principal, if any; and
(B) the Class C Monthly Principal;
(xi) PROVIDED that no Amortization Event shall have
occurred and be continuing, to the Class D Distribution
Sub-Account, in the following order of priority, the sum of:
(A) the Class D Overdue Principal, if any; and
(B) the Class D Monthly Principal;
(xii) PROVIDED that no Amortization Event shall have
occurred and be continuing, to the Class E Distribution
Sub-Account, in the following order of priority, the sum of:
(A) the Class E Overdue Principal, if any; and
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(B) the Class E Monthly Principal;
(xiii) PROVIDED that no Amortization Event shall have
occurred and be continuing, to the Reserve Account, the
Reserve Account Deposit Amount;
(xiv) if an Amortization Event shall have occurred and
is continuing and is not subject to a continuing waiver from
Noteholders evidencing not less than 662/3% of the Voting
Rights, in the following order of priority:
FIRST, to the Class A Distribution Sub-Account
the amount necessary to reduce the Class A-1 Note
Balance to zero; then, to the Class A Distribution
Sub-Account, the amount necessary to reduce the
Class A-2 Note Balance to zero and then, to the
Class A Distribution Sub-Account, the amount
necessary to reduce the Class A-3 Note Balance to
zero; PROVIDED, HOWEVER, that upon the occurrence of
a Subordination Deficiency Event, after the Class
A-1 Note Balance has been reduced to zero, the Class
A-2 Note Balance and the Class A-3 Note Balance will
be paid PRO RATA, PARI PASSU; and
SECOND, to the Class B Distribution
Sub-Account the amount necessary to reduce the Class
B Note Balance to zero; and
THIRD, to the Class C Distribution Sub-Account
the amount necessary to reduce the Class C Note
Balance to zero;
FOURTH, to the Class D Distribution
Sub-Account the amount necessary to reduce the Class
D Note Balance to zero; and
FIFTH, to the Class E Distribution Sub-Account
the amount necessary to reduce the Class E Note
Balance to zero;
(xv) if the Servicer is no longer DVI, and the Servicer
has, in its good faith and reasonable business judgment,
deemed the Servicing Fee to be commercially unreasonable,
then, to the Servicer, the amount agreed upon between the
then Servicer and the Trustee, each in their good faith and
commercially reasonable judgment, as necessary to make the
Servicing Fee commercially reasonable and to cover the
reasonable costs in transferring the servicing obligations.
(xvi) any remaining Available Funds on deposit in the
Collection Account to the Issuer, or, if the Class F
Instrument has been issued, to the Class F Distribution
Sub-Account.
If on any Payment Date, the Available Funds on deposit in the
Collection Account (the "DEPOSITED AVAILABLE FUNDS") are less than the sum
necessary to make the payments required pursuant to clauses (iii) through (xii)
inclusive and (xiv), each as applicable (the sum of such payments, the "PRIORITY
PAYMENTS"), then the Trustee shall withdraw from the Reserve Account, to the
extent that such funds are on deposit in the Reserve Account and after taking
into account payments to be made pursuant to clauses (i) and (ii) above, and
deposit into the Distribution Account for payment on such Payment Date, funds
equal to the amount of the Priority Payments less any Deposited Available Funds
(such funds, the "AVAILABLE RESERVE ACCOUNT FUNDS") for payment in accordance
with clauses (iii) through and including (xii) above, as applicable.
"SUBORDINATION DEFICIENCY EVENT" shall mean, the occurrence of
the Class A Note Balance being greater than the Aggregate Discounted Contract
Balance as of the date of determination.
"VOTING RIGHTS" shall mean, for so long as any Notes remain
outstanding, and shall encompass, for so long as any Class A Note, Class B Note,
Class C Note, Class D Note or Class E Note is outstanding, the voting rights of
each such class which shall include, as of the date of determination (i) the
votes of Class A-1 Noteholders evidencing 100% of the then-outstanding Class A-1
Note Balance, (ii) the votes of Class A-2 Noteholders evidencing 100% of the
then-outstanding Class A-2 Note Balance, (iii) the votes of the Class A-3
Noteholders evidencing 100% of the then-
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outstanding Class A-3 Note Balance, (iv) the votes of Class B Noteholders
evidencing 100% of the then-outstanding Class B Note Balance, (v) the votes of
the Class C Noteholders evidencing 100% of the then-outstanding Class C Note
Balance, (vi) the votes of Class D Noteholders evidencing 100% of the
then-outstanding Class D Note Balance and (vii) the votes of the Class E
Noteholders evidencing 100% of the then-outstanding Class E Note Balance When
none of the Class A Notes, Class B Notes, Class C Notes, Class D Notes and the
Class E Notes is outstanding, 100% of the Voting Rights shall be exercised by
the Holders of the Class F Instrument, if any.
An "AMORTIZATION EVENT" shall mean the occurrence of any one
of the following events and notice from Noteholders evidencing not
less than 662/3% of the Voting Rights to the Trustee declaring that
such event shall constitute an Amortization Event:
(i) The entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of
DVI, Inc. in an involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency,
reorganization, or other similar law or (B) a decree or order
adjudging DVI, Inc. a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement,
adjustment, or composition of or in respect of DVI, Inc. under
any applicable federal or state law, or appointing a
custodian, receiver, liquidator, assignee, trustee,
sequestrator, or other similar official of DVI, Inc. or of any
substantial part of its property, or ordering the winding up
or liquidation of its affairs, and the continuance of any such
decree or order for relief or any such other decree or order
unstayed and in effect for a period of 90 consecutive days; or
(ii) The commencement by DVI, Inc. of a voluntary case
or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization, or other similar law
or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of a
decree or order for relief in respect of DVI, Inc. in an
involuntary case or proceeding under any applicable federal or
state bankruptcy, insolvency, reorganization, or other similar
law or to the commencement of any bankruptcy or insolvency
case or proceeding against it, or the filing by it of a
petition or answer or consent seeking reorganization or relief
under any applicable federal or state law, or the consent by
it to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator, or similar official of DVI,
Inc. or of any substantial part of its property, or the making
by it of an assignment for the benefit of creditors, or DVI,
Inc.'s failure to pay its debts generally as they become due,
or the taking of corporate action by DVI, Inc. in furtherance
of any such action; or
(iii) On and as of any Determination Date, (x) the
quotient of (1) the sum of the Discounted Contract Principal
Balances of all Contracts listed as more than 90 days
delinquent as of the last day of the three immediately
preceding calendar months, divided by (2) three exceeds (y)
the product of (1) 0.08 and (2) the quotient of (A) the sum of
the Aggregate Discounted Contract Principal Balance as of the
last day of the three immediately preceding Collection
Periods, divided by (B) three; or
(iv) As of any Determination Date, the sum of Discounted
Contract Balances of all Contracts that have been classified
as Defaulted Contracts since the Closing Date (such
Discounted Contract Balances to be determined immediately
prior to the classification as a Defaulted Contract) exceeds
the product of (1) 0.06 and (2) Aggregate Discounted
Contract Balance on the Closing Date.
Noteholders evidencing not less than 662/3% of the Voting
Rights shall have the ability to waive or defer any Amortization Event. Upon the
occurrence of any Amortization Event, Noteholders evidencing not less than
662/3% of the Voting Rights shall have the right to replace DVI as Servicer with
a successor Servicer as permitted under the Contribution and Servicing
Agreement.
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CLASS A DISTRIBUTION SUB-ACCOUNT; CLASS B DISTRIBUTION SUB-ACCOUNT; CLASS C
DISTRIBUTION SUB-ACCOUNT; CLASS D DISTRIBUTION SUB-ACCOUNT; CLASS E DISTRIBUTION
SUB-ACCOUNT
(a) On each Payment Date the Trustee shall pay to the Class A
Noteholders the amounts then on deposit in the Class A Distribution Sub-Account.
Such payments are to be made, first to the Class A-1 Noteholders, PRO RATA, in
the following order of priority:
(i) the Class A-1 Monthly Interest;
(ii) the Class A-1 Overdue Interest, if any;
(iii) the Class A-1 Overdue Principal, if any;
(iv) the Class A-1 Monthly Principal; and
(v) additional principal payable pursuant to
the Indenture;
second, to the Class A-2 Noteholders, PRO RATA, the amount
then on deposit in the Class A Distribution Sub-Account. Such payments to the
Class A-2 Noteholders shall be made in the following order of priority:
(vi) the Class A-2 Monthly Interest;
(vii) the Class A-2 Overdue Interest, if any;
(viii) the Class A-2 Overdue Principal, if any;
(ix) the Class A-2 Monthly Principal; and
(x) additional principal payable pursuant to
the Indenture;
and third, to the Class A-3 Noteholders, PRO RATA, the amount
then on deposit in the Class A Distribution Sub-Account. Such payments to the
Class A-3 Noteholders shall be made in the following order of priority:
(xi) the Class A-3 Monthly Interest;
(xii) the Class A-3 Overdue Interest, if any;
(xiii) the Class A-3 Overdue Principal, if any;
(xiv) the Class A-3 Monthly Principal; and
(xv) additional principal payable pursuant
to the Indenture.
(b) On each Payment Date the Trustee shall pay to the Class B
Noteholders, PRO RATA, the amount then on deposit in the Class B Distribution
Sub-Account. Such payments to the Class B Noteholders shall be made in
the following order of priority:
(i) the Class B Monthly Interest;
(ii) the Class B Overdue Interest, if any;
(iii) the Class B Overdue Principal, if any;
(iv) the Class B Monthly Principal; and
(v) additional principal payable pursuant to
the Indenture.
(c) On each Payment Date the Trustee shall pay to the Class C
Noteholders, PRO RATA, the amount then on deposit in the Class C Distribution
Sub-Account. Such payments to the Class C Noteholders shall be made in
the following order of priority:
(i) the Class C Monthly Interest;
(ii) the Class C Overdue Interest, if any;
(iii) the Class C Overdue Principal, if any;
(iv) the Class C Monthly Principal; and
(v) additional principal payable pursuant to
the Indenture.
(d) On each Payment Date the Trustee shall pay to the Class D
Noteholders, PRO RATA, the amount then on deposit in the Class D Distribution
Sub-Account. Such payments to the Class D Noteholders shall be made in
the following order of priority:
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(i) the Class D Monthly Interest;
(ii) the Class D Overdue Interest, if any;
(iii) the Class D Overdue Principal, if any;
(iv) the Class D Monthly Principal; and
(v) additional principal payable pursuant to
the Indenture.
(e) On each Payment Date the Trustee shall pay to the Class E
Noteholders, PRO RATA, the amount then on deposit in the Class E Distribution
Sub-Account. Such payments to the Class E Noteholders shall be made in the
following order of priority:
(i) the Class E Monthly Interest;
(ii) the Class E Overdue Interest, if any;
(iii) the Class E Overdue Principal, if any;
(iv) the Class E Monthly Principal; and
(v) additional principal payable pursuant to
the Indenture.
REPORTS TO NOTEHOLDERS
Following each payment to the Noteholders, the Trustee shall
mail to the Issuer, Cede, the Rating Agencies and make available to each
Noteholder the Monthly Servicer Report furnished to the Trustee by the Servicer
on the Determination Date prior to such Payment Date pursuant to the
Contribution and Servicing Agreement or, if such report has not been received, a
written statement to such effect. The Trustee shall deliver to the Servicer, and
within two business days after the request of the Issuer, deliver to the Issuer,
a written statement setting forth the amount on deposit as of such Payment Date
in the Collection Account and the Reserve Account, in each case after giving
effect to all of the withdrawals and applications or transfers required on such
Payment Date pursuant to the Indenture.
OPTIONAL REDEMPTION
The Notes may be redeemed by the Issuer, in whole but not in
part, at the Redemption Price on any Payment Date on which the Pool A Aggregate
Discounted Contract Balance is less than 10% of the Pool A Aggregate Discounted
Contract Balance as of the Closing Date and the Pool B Aggregate Contract
Balance is less than 20% of the Pool B Aggregate Contract Balance as of the
Closing Date. In the event that the Notes are redeemed in full, an amount equal
to the sum of (i) the entire outstanding principal balance of the Notes and (ii)
accrued interest thereon at the Class A-1 Note Rate, Class A-2 Note Rate, Class
A-3 Note Rate, Class B Note Rate, Class C Note Rate, Class D Note Rate or Class
E Note Rate, as applicable, will be required to be paid to the Class A-1
Noteholders, the Class A-2 Noteholders, the Class A-3 Noteholders, the Class B
Noteholders, the Class C Noteholders, the Class D Noteholders and the Class E
Noteholders on such Payment Date.
The Notes may be redeemed in part by the Issuer at the Partial
Redemption Price on any Payment Date on which the Pool B Aggregate Discounted
Contract Balance is less than 20% of the Pool B Aggregate Discounted Contract
Balance as of the Closing Date. In the event that the Notes are redeemed in
part, an amount equal to the sum of (i) the product of (A) the quotient of (x)
the Aggregate Discounted Contract Balance of the Contracts in Pool B, divided by
(y) the Aggregate Discounted Contract Balance and (B) the entire outstanding
principal balance of the Notes, and (ii) accrued interest thereon at the Class
A-1 Note Rate, Class A-2 Note Rate, Class A-3 Note Rate, Class B Note Rate,
Class C Note Rate, Class D Note Rate or Class E Note Rate, as applicable, will
be required to be paid to the Class A-1 Noteholders, Class A-2 Noteholders,
Class A-3 Noteholders, the Class B Noteholders, the Class C Noteholders, the
Class D Noteholders and the Class E Noteholders on such Payment Date.
BOOK-ENTRY REGISTRATION OF THE NOTES
GENERAL. Beneficial Owners that are not Participants (as
defined in the Prospectus) or intermediaries but desire to purchase, sell or
otherwise transfer ownership of, or other interests in, the Class A Notes, Class
B Notes and Class C Notes (collectively, the "OFFERED NOTES") may do so only
through Participants (as defined in the Prospectus), either directly or
indirectly. In addition, Beneficial Owners will receive all distributions of
principal of and interest on the Offered Notes from the paying agent through DTC
and Participants. Accordingly, Beneficial Owners
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may experience delays in their receipt of payments. Unless and until Definitive
Securities are issued for the Offered Notes, it is anticipated that the only
registered Noteholder of such Offered Notes will be Cede, as nominee of DTC.
Beneficial Owners will not be recognized by the Trustee or the Servicer as
Noteholders, as such term is used in the Contribution and Servicing Agreement,
and Beneficial Owners will be permitted to receive information furnished to
Noteholders and to exercise the rights of Noteholders only indirectly through
DTC, its Participants and intermediaries.
Under the rules, regulations and procedures creating and
affecting DTC and its operations (the "RULES"), DTC is required to make
book-entry transfers of Offered Notes among Participants and to receive and
transmit distributions of principal of, and interest on, such Offered Notes.
Participants and intermediaries with which Beneficial Owners have accounts with
respect to such Offered Notes similarly are required to make book-entry
transfers and receive and transmit such distributions on behalf of their
respective Beneficial Owners. Accordingly, although Beneficial Owners will not
possess physical certificates evidencing their interests in the Offered Notes,
the Rules provide a mechanism by which Beneficial Owners, through their
Participants and intermediaries, will receive distributions and will be able to
transfer their interests in the Offered Notes.
None of the Issuer, the Servicer, the Transferor or the
Trustee will have any liability for any actions taken by DTC or its nominee or
Cedel or Euroclear, including, without limitation, actions for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Offered Notes held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DEFINITIVE SECURITIES. Definitive Securities will be issued
to Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
"DESCRIPTION OF THE SECURITIES--DEFINITIVE SECURITIES."
Upon the occurrence of an event described in the Prospectus in
the first paragraph under "DESCRIPTION OF THE SECURITIES--DEFINITIVE
SECURITIES," the Trustee is required to notify, through DTC, Participants who
have ownership of Offered Notes as indicated on the records of DTC of the
availability of Definitive Securities for their Offered Notes. Upon surrender by
DTC of the definitive certificates representing the Offered Notes and upon
receipt of instructions from DTC for re-registration, the Trustee will reissue
the Offered Notes as Definitive Securities issued in the respective principal
amounts owned by individual Beneficial Owners, and thereafter the Trustee and
the Servicer will recognize the holders of such Definitive Securities as
Noteholders under the Contribution and Servicing Agreement.
For additional information regarding DTC and the Offered
Notes, see "DESCRIPTION OF THE SECURITIES--BOOK-ENTRY REGISTRATION" in the
Prospectus.
BOOK-ENTRY FACILITIES. Beneficial Owners may elect to hold
their interests in the Book-Entry Securities through DTC in the United States or
through Cedel or Euroclear in Europe, if they are participants of such systems,
or indirectly through organizations which are participants in such systems. The
Book-Entry Securities of each class will be issued in one or more certificates
which equal the Outstanding Note Balance of such class and will initially be
registered in the name of Cede, the nominee of DTC. Cedel and Euroclear will
hold omnibus positions on behalf of their participants through customers'
securities accounts in Cedel's and Euroclear's names on the books of their
respective depositories which in turn will hold such positions in customers'
securities accounts in the depositories' names on the books of DTC.
Because of time zone differences, credits of securities
received in Cedel or Euroclear as a result of a transaction with a Participant
will be made during subsequent securities settlement processing and dated the
business day following the DTC settlement date. Such credits or any transactions
in such securities settled during such processing will be reported to the
relevant Euroclear Participants or Cedel Participants (each as defined below) on
such business day. Cash received in Cedel or Euroclear as a result of sales of
securities by or through a Cedel Participant or Euroclear Participant to a
Participant will be received with value on the DTC settlement date but will be
available in the relevant Cedel or Euroclear cash account only as of the
business day following settlement in DTC. For information with respect to tax
documentation procedures relating to the Securities, see "MATERIAL FEDERAL
INCOME TAX CONSEQUENCES" in this Prospectus Supplement.
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Transfers between Participants will occur in accordance with
DTC rules. Transfers between Cedel Participants and Euroclear Participants will
occur in accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or
indirectly through DTC, on the one hand, and directly or indirectly through
Cedel Participants or Euroclear Participants, on the other, will be effected in
DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by the institution acting as a depositary for
Cedel or Euroclear (such an institution in such capacity, "RELEVANT DEPOSITORY"
and collectively, the EUROPEAN DEPOSITORIES"); however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositories.
DTC, which is a New York-chartered limited purpose trust
company, performs services for its Participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC participant in the Book-Entry
Securities, whether held for its own account or as a nominee for another person.
In general, beneficial ownership of Book-Entry Securities will be subject to the
rules, regulations and procedures governing DTC and its Participants as in
effect from time to time.
Cedel is incorporated under the laws of Luxembourg as a
professional depository. Cedel holds securities for its participating
organizations ("CEDEL PARTICIPANTS") and facilitates the clearance and
settlement of securities transactions between Cedel Participants through
electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in Cedel in any of 28 currencies, including United States dollars. Cedel
provides to its Cedel Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedel interfaces with domestic
markets in several countries. As a professional depository, Cedel is subject to
regulation by the Luxembourg Monetary Institute. Cedel participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Indirect access to Cedel is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Cedel Participant, either directly
or indirectly.
Euroclear was created in 1968 to hold securities for
participants of Euroclear ("EUROCLEAR PARTICIPANTS") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 32 currencies,
including United States dollars. Euroclear includes various other services,
including securities lending and borrowing and interfaces with domestic markets
in several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York (the "EUROCLEAR
OPERATOR"), under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation (the "COOPERATIVE"). All operations are conducted by the
Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including central
banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York
banking corporation which is a member bank of the Federal Reserve System. As
such, it is regulated and examined by the Board of Governors of the Federal
Reserve System and the New York State Banking Department, as well as the Belgian
Banking Commission.
Securities clearance accounts and cash accounts with the
Euroclear Operator are governed by the Terms and Conditions Governing Use of
Euroclear and the related Operating Procedures of the Euroclear System and
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applicable Belgian law (collectively, the "TERMS AND CONDITIONS"). The Terms and
Conditions govern transfers of securities and cash within Euroclear, withdrawals
of securities and cash from Euroclear, and receipts of payments with respect to
securities in Euroclear. All securities in Euroclear are held on a fungible
basis without attribution of specific certificates to specific securities
clearance accounts. The Euroclear Operator acts under the Terms and Conditions
only on behalf of Euroclear Participants, and has no record of or relationship
with persons holding through Euroclear Participants.
Distributions on the Book-Entry Securities will be made on
each Distribution Date by the Trustee to DTC. DTC will be responsible for
crediting the amount of such payments to the accounts of the applicable
Participants in accordance with DTC's normal procedures. Each Participant will
be responsible for disbursing such payments to the Beneficial Owners of the
Book-Entry Securities that it represents and to each intermediary for which it
acts as agent. Each such intermediary will be responsible for disbursing funds
to the Beneficial Owners of the Book-Entry Securities that it represents.
Under a book-entry format, Beneficial Owners of the Book-Entry
Securities may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede. Since transactions in the
Book-Entry Securities will be effected only through DTC, participating
organizations, indirect participants and certain banks, the ability of a
Beneficial Owner to pledge Offered Notes to persons or entities that do not
participate in the DTC system, or otherwise to take actions in respect of such
Offered Notes, may be limited due to lack of a physical certificate representing
such Offered Notes. In addition, issuance of the Book-Entry Securities in
book-entry form may reduce the liquidity of such Offered Notes in the secondary
market since certain potential investors may be unwilling to purchase Offered
Notes for which they cannot obtain physical certificates.
DTC has advised the Issuer and the Trustee that, unless and
until Definitive Securities are issued, DTC will take any action permitted to be
taken by the holders of the Book-Entry Securities under the Agreement only at
the direction of one or more Participants to whose DTC accounts the Book-Entry
Securities are credited, to the extent that such actions are taken on behalf of
intermediaries whose holdings include such Book-Entry Securities. DTC may take
actions, at the direction of the related Participants, with respect to some
Offered Notes which conflict with actions taken with respect to other Offered
Notes.
Although DTC has agreed to the foregoing procedures in order
to facilitate transfers of Offered Notes among Participants of DTC, it is under
no obligation to perform or continue to perform such procedures and such
procedures may be discontinued at any time.
DTC management is aware that some computer applications,
systems, and the like for processing data ("Systems") that are dependent upon
calendar dates, including dates before, on, and after January 1, 2000, may
encounter "Year 2000 problems". DTC has informed its Participants and other
members of the financial community (the "Industry") that it has developed and is
implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC
("DTC Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is
also dependent upon other parties, including but not limited to issuers and
their agents, as well as third party vendors from whom DTC licenses software and
hardware, and third party vendors on whom DTC relies for information or the
provision of services, including telecommunication and electrical utility
service providers, among others. DTC has informed the Industry that is
contacting (and will continue to contact) third party vendors from whom DTC
acquires services to: (i) impress upon them the importance of such services
being Year 2000 complaint; and (ii) determine the extent of their efforts for
Year 2000 remediation (and, as appropriate, testing) of their services. In
addition, DTC is in the process of developing such contingency plans as it deems
appropriate.
According to DTC, the foregoing information with respect to
DTC has been provided to the Industry for information purposes only and is not
intended to serve as a representation, warranty, or contract modification of any
kind.
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INDENTURE EVENTS OF DEFAULT AND ACCELERATION
"INDENTURE EVENT OF DEFAULT" wherever used herein means any
one of the following events:
(i) default in the payment of (A) any interest on any
outstanding Class A Notes, any Class B Notes, any Class C
Notes, any Class D Notes or any Class E Notes when such
payment becomes due and payable, (B) any principal owed on
the outstanding Class A Notes, Class B Notes, Class C Notes,
Class D Notes or Class E Notes on the Stated Maturity Date
related thereto or (C) any payment of principal of or
interest on any outstanding Note when it becomes due and
payable to the extent that sufficient Available Funds are on
deposit in the Collection Account and to the extent that
sufficient Available Reserve Account Funds are on deposit in
the Reserve Account;
(ii) default in the performance, or breach, of any
covenant set forth in Sections 8.04, 8.07(c) or 8.08 of the
Indenture;
(iii) default in the performance, or breach, of any
covenant of the Issuer in the Indenture (other than a
covenant described in (ii) above), the Notes, the
Contribution and Servicing Agreement or the other
Transaction Documents and continuance of such default or
breach for a period of 30 days after the earliest of (A) any
officer of the Issuer first acquiring knowledge thereof, (B)
the Trustee's giving written notice thereof to the Issuer or
(C) the holder of any Note giving written notice thereof to
the Issuer;
(iv) if any representation or warranty of the Issuer,
its Owner Trustee, the Transferor or DVI made in the
Indenture, the Trust Agreement, the Contribution and
Servicing Agreement, respectively, or any other writing
provided to the Noteholders in connection with the foregoing
documents shall prove to be incorrect in any material
respect as of the time when the same shall have been made;
PROVIDED, HOWEVER, that the breach of any representation or
warranty made by DVI in Section 2.03 or 2.04 of the
Contribution and Servicing Agreement with respect to any of
the Contracts or the security interest in the Equipment
subject thereto shall not constitute an Indenture Event of
Default if DVI substitutes one or more Substitute Contracts
and the security interest in the Equipment subject thereto
for such Contract and Equipment in accordance with the
Contribution and Servicing Agreement or repurchases a
Contract and the security interest in the related Equipment
in accordance with the Contribution and Servicing Agreement;
(v) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of
the Issuer in an involuntary case or proceeding under any
applicable federal or state bankruptcy, insolvency,
reorganization, or other similar law or (B) a decree or
order adjudging the Issuer a bankrupt or insolvent, or
approving as properly filed a petition seeking
reorganization, arrangement, adjustment, or composition of
or in respect of the Issuer under any applicable federal or
state law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator, or other similar official
of the Issuer or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order for relief or
any such other decree or order unstayed and in effect for a
period of 90 consecutive days; or
(vi) the commencement by the Issuer of a voluntary case
or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization, or other similar law
or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of
a decree or order for relief in respect of the Issuer in an
involuntary case or proceeding under any applicable federal
or state bankruptcy, insolvency, reorganization, or other
similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, or the filing by
it of a petition or answer or consent seeking reorganization
or relief under any applicable federal or state law, or the
consent by it to the filing of such petition or to the
appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator, or
similar official of the Issuer or of any substantial part of
its property, or the making by it of an assignment for the
benefit of creditors,
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or the Issuer's failure to pay its debts generally as they
become due, or the taking of corporate action by the Issuer in
furtherance of any such action.
If an Indenture Event of Default occurs and is continuing,
then and in every such case the Trustee with the consent of the holders of Notes
evidencing not less than 662/3% of the Voting Rights, may declare the unpaid
principal amount of all the Notes to be due and payable immediately, by a notice
in writing to the Issuer (and to the Trustee if given by such Noteholders), and
upon any such declaration such principal amount shall become immediately due and
payable together with all accrued and unpaid interest thereon, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Issuer.
REMEDIES
If an Indenture Event of Default occurs and is continuing, the
Trustee shall give notice to each Noteholder as set forth in the Indenture. The
Trustee shall then take such action, if any, as may be directed by the holders
of Notes evidencing not less than 662/3% of the Voting Rights. Following any
acceleration of the Notes, the Trustee shall have all the rights, powers and
remedies with respect to the Trust Property as are available to secured parties
under the Uniform Commercial Code or other applicable law. Such rights, powers
and remedies may be exercised by the Trustee in its own name as trustee of an
express trust.
Any money collected by the Trustee pursuant to the Indenture
following an Indenture Event of Default, and any moneys that may then be held or
thereafter received by the Trustee, shall be applied in the following order, at
the date or dates fixed by the Trustee and, in case of the distribution of the
entire amount due on account of principal or interest, upon presentation of the
Notes and surrender thereof:
FIRST, to the payment of all costs and expenses of collection
incurred by the Trustee (including the reasonable fees and
expenses of any counsel to the Trustee) and all other amounts
due the Trustee under the Indenture;
SECOND, to the payment of all unreimbursed Servicer Advances
due to the Servicer;
THIRD, only in the event that DVI is no longer the Servicer,
and the Servicer has, in its good faith and reasonable
business judgment, deemed the Servicing Fee to be commercially
unreasonable, then, to the Servicer, the amount agreed upon
between the then Servicer and the Trustee, each in their good
faith and commercially reasonable judgment, as necessary to
make the Servicing Fee commercially reasonable and to cover
the reasonable costs in transferring the servicing
obligations;
FOURTH, to the payment of all accrued and unpaid interest on
the outstanding Class A Note Balance to the date of payment
thereof, ratably to each Class A Noteholder, without
preference or priority of any kind;
FIFTH, to the payment of all accrued and unpaid interest on
the outstanding Class B Note Balance to the date of payment
thereof, ratably to each Class B Noteholder without preference
or priority of any kind;
SIXTH, to the payment of all accrued and unpaid interest on
the outstanding Class C Note Balance to the date of payment
thereof, ratably to each Class C Noteholder without preference
of any kind;
SEVENTH, to the payment of all accrued and unpaid interest on
the outstanding Class D Note Balance to the date of payment
thereof, ratably to each Class D Noteholder without preference
or priority of any kind;
EIGHTH, to the payment of all accrued and unpaid interest on
the outstanding Class E Note Balance to the date of payment
thereof, ratably to each Class E Noteholder without preference
of any kind;
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NINTH, to the payment of the outstanding Class A-1 Note
Balance, and any other amounts due to the Class A-1
Noteholders, ratably, without preference or priority of any
kind until the Class A-1 Note Balance has been reduced to
zero, then (PROVIDED that a Subordination Deficiency Event has
not occurred and is continuing, in which case the outstanding
Class A-2 Note Balance and the Class A-3 Note Balance shall be
paid pro rata in accordance with their respective outstanding
Note Balances) to the payment of the outstanding Class A-2
Note Balance, and any other amounts due to the Class A-2
Noteholders, ratably, without preference or priority of any
kind, until the Class A-2 Note Balance has been reduced to
zero, then (PROVIDED that a Subordination Deficiency Event has
not occurred and is continuing, in which case the outstanding
Class A-2 Note Balance and the Class A-3 Note Balance shall be
paid pro rata in accordance with their respective outstanding
Note Balances) to the payment of the outstanding Class A-3
Note Balance, and any other amounts due to the Class A-3
Noteholders, ratably, without preference or priority of any
kind, until the Class A-3 Note Balance has been reduced to
zero;
TENTH, to the payment of the outstanding Class B Note Balance,
and any other amounts due to the Class B Noteholders ratably,
without preference or priority of any kind;
ELEVENTH, to the payment of the outstanding Class C Note
Balance, and any other amounts due to the Class C Noteholders
ratably, without preference or priority of any kind;
TWELFTH, to the payment of the outstanding Class D Note
Balance, and any other amounts due to the Class D Noteholders
ratably, without preference or priority of any kind;
THIRTEENTH, to the payment of the outstanding Class E Note
Balance, and any other amounts due to the Class E Noteholders
ratably, without preference or priority of any kind;
FOURTEENTH, to the payment of all accrued and unpaid interest
on outstanding Class F Instruments, if any, to the date of
payment thereof, ratably to each Holder of the Class F
Instruments without
preference or priority of any kind;
FIFTEENTH, to the payment of the outstanding principal balance
of the Class F Instruments, if any, and any other amounts due
to the Holders of any Class F Instruments ratably, without
preference or priority of any kind;
SIXTEENTH, in the event that DVI is the Servicer, to the
payment of all unreimbursed Servicing Fees due to the
Servicer; and
SEVENTEENTH, to the payment of the remainder, if any, to, or
at the order of, the Issuer.
SERVICING PROCEDURE
The Servicer will make reasonable efforts to collect all
payments due with respect to the Contracts comprising the Trust Property and,
will continue such collection procedures as the Servicer follows with respect to
the particular type of Contract in the particular pool it services for itself
and others. Some of such arrangements may result in the Servicer acquiring such
Contract if such Contract becomes a Defaulted Contract. The Servicer may sell
the Equipment securing the respective Defaulted Contract, if any, at a public or
private sale, or take any other action permitted by applicable law.
PAYMENTS ON CONTRACTS
All payments on the related Contracts (from whatever source)
and all proceeds of such Contracts collected in the Lockbox Account including
any investments thereon during each Collection Period will be remitted to the
Trustee or deposited into the Collection Account. Except under certain
conditions, the Servicer will be required to remit such amounts to the Trustee
or deposit such amounts into the Collection Account within two (2) Business Days
of receipt thereof. If certain Rating Agency conditions are satisfied, however,
the deposit of collections for a particular
S-56
<PAGE>
Collection Period will be made by the Servicer within two (2) Business Days
prior to the related Payment Date. Pending deposit into the Collection Account,
collections may be invested by the Servicer at its own risk and for its own
benefit, and will not be segregated from funds of the Servicer.
SERVICER EVENTS OF DEFAULT
Any of the following acts or occurrences shall constitute a
"SERVICER EVENT OF DEFAULT" by the Servicer under the Contribution and Servicing
Agreement:
(i) failure on the part of the Servicer (or for so long
as DVI is the Servicer, the Transferor) to (A) remit any payment to
the Trustee within the time period required or (B) make any Servicer
Advance;
(ii) failure to pay to the Trustee on or before the date
when due, any deposit required to be made by the Servicer pursuant to
the Contribution and Servicing Agreement;
(iii) failure on the part of either the Servicer (or for
so long as DVI is the Servicer, the Transferor) duly to observe or
perform in any material respect any other of their respective covenants
or agreements in the Contribution and Servicing Agreement (including
without limitation, failure of the Servicer to deliver a Monthly
Servicer Report on the date required or the delivery of a Monthly
Servicer Report which is materially incorrect) which failure materially
and adversely affects the rights of the Noteholders and continues
unremedied for a period of 30 days after the Servicer becomes aware of
such failure or the giving of written notice of such failure (A) to the
Servicer (or the Transferor, if applicable) by the Trustee or (B) to
the Servicer (or the Transferor, if applicable) and the Trustee by
Noteholders evidencing not less than 662/3% of the Voting Rights, taken
together;
(iv) if any representation or warranty of the Servicer
made in the Contribution and Servicing Agreement or in any certificate
or other writing delivered pursuant hereto or the Transaction Documents
or made by any successor Servicer in connection with such successor
Servicer's assumption of the duties of the Servicer shall prove to be
incorrect in any material respect as of the time when the same shall
have been made;
(v) the entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of the Servicer
(or for so long as DVI is the Servicer, the Transferor) in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization, or other similar law or (B) a
decree or order adjudging the Servicer (or for so long as DVI is the
Servicer, the Transferor) bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement,
adjustment, or composition of or in respect of the Servicer (or for so
long as DVI is the Servicer, the Transferor) under any applicable
federal or state law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator, or other similar official of the
Servicer (or for so long as DVI is the Servicer, the Transferor) or of
any substantial part of the property of either, or ordering the winding
up or liquidation of the affairs of either, and the continuance of any
such decree or order for relief or any such other decree or order
unstayed and in effect for a period of 90 consecutive days;
(vi) the commencement by the Servicer (or for so long as
DVI is the Servicer, the Transferor) of a voluntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization, or other similar law or of any other case or proceeding
to be adjudicated a bankrupt or insolvent, or the consent by either to
the entry of a decree or order for relief in respect of the Servicer
(or for so long as DVI is the Servicer, the Transferor) in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization, or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against
either, or the filing by either of a petition or answer or consent
seeking reorganization or relief under any applicable federal or state
law, or the consent by either to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator, or similar official of the
Servicer (or for so long as DVI is the Servicer, the
S-57
<PAGE>
Transferor) or of any substantial part of the property of either, or
the making by either of an assignment for the benefit of creditors, or
the failure by the Servicer (or for so long as DVI is the Servicer, the
Transferor) to pay its debts generally as they become due, or the
taking of corporate action by the Servicer (or for so long as DVI is
the Servicer, the Transferor) in furtherance of any such action;
(vii) any assignment by the Servicer, or any attempt by
the Servicer to assign its duties or rights hereunder, except as
specifically permitted hereunder;
(viii) (A) the failure of the Servicer to make one or more
payments with respect to aggregate recourse indebtedness for borrowed
money exceeding $2,000,000 or (B) the occurrence of any other event or
the existence of any other condition, the effect of which event or
condition is to cause more than $2,000,000 of aggregate recourse
indebtedness for borrowed money of the Servicer to become due before
its (or their) stated maturity or before its (or their) regularly
scheduled dates of payment, so long as such failure, event or condition
specified in either clause (A) or (B) shall be continuing and shall not
have been waived by the Person or Persons entitled to performance;
(ix) the rendering against the Servicer of a final
judgment, decree or order (all possible appeals having been exhausted)
for the payment of money in excess of $2,000,000 which is uninsured,
and the continuance of such judgment, decree or order unsatisfied and
in effect for any period of 60 consecutive days without a stay of
execution; or
(x) the occurrence of an Amortization Event (so long as
DVI is the Servicer).
TERMINATION OF THE SERVICER
If a Servicer Event of Default shall have occurred and be
continuing, the Trustee shall, upon the request of the holders of Notes
evidencing more than 662/3% of the Voting Rights, give written notice to the
Servicer of the termination of all of the rights and obligations of the Servicer
(but none of DVI's obligations thereunder, which shall survive any such
termination) under the Contribution and Servicing Agreement. On the receipt by
the Servicer of such written notice, all rights and obligations of the Servicer
under the Contribution and Servicing Agreement, including without limitation the
Servicer's right thereunder to receive Servicing Fees accruing subsequent to
such termination date, but none of DVI's obligations thereunder, shall cease and
the same shall pass to and be vested in, and assumed by the Trustee pursuant to
and under the Contribution and Servicing Agreement and the Indenture; and,
without limitation, the Trustee is authorized and empowered to execute and
deliver, on behalf of the Servicer, as attorney-in-fact or otherwise, any and
all other acts or things necessary or appropriate to effect the purposes of such
notice of termination, whether to complete the transfer and assignment of any
Contract and the related Equipment or such passing, vesting or assumption or to
cause Obligors to remit all future Contract Payments and other amounts due under
any Contract to such account as shall be specified by the Trustee.
The Servicer agrees to cooperate with the successor Servicer
in effecting the termination and transfer of the responsibilities and rights of
the Servicer to the successor Servicer, including, without limitation, the
execution and delivery of assignments of UCC financing statements, and title
transfer to the successor Servicer for administration by it of all cash amounts
which shall at the time be held by the Servicer or thereafter received with
respect to the Contracts. The Servicer also agrees to transfer to the successor
Servicer its electronic records and all other records, correspondence and
documents relating to the Contracts in the manner and at such times as the
successor Servicer shall reasonably request. The Servicer has designated the
successor Servicer its agent and attorney-in-fact to execute transfers of UCC
financing statements (including any and all financing statements naming an
individual Obligor as debtor and DVI as secured party) and any and all other
filings or instruments which may be necessary or advisable to effect such
transfer of the Servicer's responsibilities and rights hereunder. Upon any such
termination or appointment of a successor Servicer, the Trustee shall give
prompt written notice thereof to each holder of the Notes in the manner provided
in the Indenture.
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<PAGE>
DUTIES AND IMMUNITIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or
sufficiency of the Indenture, the Notes (other than the authentication thereof)
or of any Contract or related document, and will not be accountable for the use
or application by the Issuer or DVI of any funds paid to DVI in consideration of
the sale of the Notes to the investors. The Trustee will be required to perform
only those duties specifically required of it under the Indenture. However, upon
receipt of the various resolutions, certificates, statements, opinions, reports,
documents, order or other instruments required to be furnished to it, the
Trustee will be required to examine them to determine whether they conform as to
form to the requirements of the Indenture.
No recourse is available based on any provision of the
Indenture, the Notes or any Contract or assignment thereof against the Trustee,
in its individual capacity, and the Trustee has no personal obligation,
liability or duty whatsoever to any Noteholder or any other person with respect
to any such claim and such claim shall be asserted solely against the Trust
Property or any indemnitor, except for such liability as is determined to have
resulted from the Trustee's own negligence or willful misconduct.
The Servicer agrees to pay to the Trustee from time to time
such compensation for all services rendered by it under the Indenture as the
Servicer and the Trustee have agreed in writing prior to the Closing Date (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust), such payment to be made
independent of the other payment obligations of the Servicer thereunder and,
except as otherwise expressly provided in the Indenture, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements, and
advances incurred or made by the Trustee in accordance with any provision of the
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement,
or advance as may be attributable to the Trustee's negligence or bad faith.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the Notes will be directly
related to the scheduled rate of principal payments on the underlying Contracts.
If purchased at a price of other than par, the yield to maturity will also be
affected by the rate of principal payments. The extent to which the yield to
maturity of a Note is sensitive to the rate of principal payments will depend,
in part, upon the degree to which the Note is purchased at a discount or a
premium. If the purchaser of a Note purchased at a discount from its initial
principal balance calculates its anticipated yield to maturity based on an
assumed rate of payment of principal that is faster than that actually
experienced on such Note, the actual yield to maturity will be lower than that
so calculated. Conversely, if the purchaser of a Note purchased at a premium
calculates its anticipated yield to maturity based on an assumed rate of payment
of principal that is slower than that actually experienced on such Note, the
actual yield to maturity will be lower than that so calculated. The principal
payments on such Contracts may be in the form of scheduled principal payments or
liquidations due to default, casualty and the like. Any such payments will
result in payments to Noteholders of amounts which would otherwise have been
paid over the remaining term of the Contracts. Generally, prepayments on the
Contracts will tend to shorten the weighted average lives of the Notes, whereas
delays in payments on the Contracts and modifications extending the maturity of
the Contract will tend to lengthen the weighted average lives of the Notes. Any
changes in weighted average lives may adversely affect the yield to Noteholders.
In general, the rate of such payments may be influenced by a number of other
factors, including general economic conditions. The rate of payment of principal
may also be affected by any removal of the Contracts from the pool and the
deposit of the related Prepayment Amount or Partial Prepayment Amount, as
applicable, into the Collection Account.
The Contracts generally do not provide for the right of the
Obligor to prepay. However, under the Contribution and Servicing Agreement, the
Servicer is permitted to allow prepayments in an amount not less than the
Prepayment Amount or Partial Prepayment Amount, as applicable. In addition, in
the event that an Obligor requests an upgrade or trade-in of Equipment, the
Servicer may remove the Equipment and related Contract from the Trust Property,
but only upon payment of the Prepayment Amount or Partial Prepayment Amount, as
applicable. In either case, DVI may also replace such Contracts with Substitute
Contracts. See "THE CONTRACTS -- SUBSTITUTE Contracts." Any such Prepayment
Amounts or Partial Prepayment Amounts, as applicable, paid shall be remitted by
the Servicer to the Trustee or deposited into the Collection Account and shall
be applied as a prepayment of the Notes. The Servicer historically has permitted
Obligors to terminate contracts early (or, in case of contracts covering more
than one item of
S-59
<PAGE>
equipment, to partially prepay contracts) either in connection with the
execution of a new contract of replacement equipment, or upon payment of a
negotiated premium, or both.
The effective yield to Noteholders will depend upon, among
other things, the price at which the Notes are purchased, the amount of and rate
at which principal, including both scheduled and nonscheduled payments thereof,
is paid to the Noteholders.
The following tables set forth the percentage of the initial
Note Balance of the Class A-1, Class A-2, Class A-3, Class B and Class C Notes
(assuming initial Note Balances equal to $36,662,000, $118,804,000, $38,767,000,
$4,440,000 and $4,995,000 which would be outstanding on the Payment Dates set
forth below assuming a CPR of 0%, 3%, 7%, 11% and 15%, respectively, and were
calculated using the Assumed Discount Rate. Such information is hypothetical and
is set forth for illustrative purposes only. The CPR ("CONDITIONAL PAYMENT
RATE") assumes that a fraction of the Aggregate Discounted Contract Balance is
prepaid at the end of each Collection Period, which implies that each Contract
is equally likely to prepay. This fraction, expressed as a percentage, is
annualized to arrive at the Conditional Payment Rate for the Contract pool. The
CPR measures prepayments based on the outstanding Aggregate Discounted Contract
Balance, after the payment of all scheduled Contract Payments during such
Collection Period. The CPR further assumes that all Contracts are the same size
and amortize at the same rate and that each Contract will be either paid as
scheduled or prepaid in full. The information set forth herein are based upon
the timely receipt of scheduled Contract Payments, assumes that the Issuer does
not exercise its option to redeem the Notes, assumes the Closing Date is
December 10, 1998, the first Payment Date is January 11, 1999, distributions on
the Notes are made on the eleventh day of each month regardless of the day on
which the Payment Date actually occurs, no delinquencies or defaults in the
payment of principal and interest on the Contracts are experienced, no Contract
is repurchased for breach of representation or warranty or otherwise, the
Assumed Discount Rate is 6.25%, payments on the Contracts are received on the
last day of each Collection Period, the Servicing Fee is 0.45%, the initial Note
Balance of the Class D Notes is $4,995,000, the initial Note Balance of the
Class E Notes is $4,995,000, the Contract Pool consists of a single Contract
with an Aggregate Discounted Contract Balance of $221,981,508.66 on which
interest is accrued at the Assumed Discount Rate, scheduled payments on the
Contracts are timely received and no Restricting Event, Amortization Event,
Subordination Deficiency Event, Indenture Event of Default or other event of
default occurs (collectively, the "MODELING ASSUMPTIONS").
Since the tables were prepared on the basis of the Modeling
Assumptions, there are discrepancies between the characteristics of the actual
Contracts and the characteristics of the Contracts assumed in preparing the
tables. Any such discrepancies may have an effect upon the percentages of the
Note Balance outstanding and weighted average lives of the Notes set forth in
the tables. In addition, since the actual Contracts in the Trust have
characteristics which differ from those assumed in preparing the tables set
forth below, the related weighted average life may be longer or shorter than as
indicated in the tables.
The Contracts will not have the characteristics assumed above,
and there can be no assurance that (i) the Contracts will prepay at any of the
rates shown in the tables or at any other particular rate or will prepay
proportionately or (ii) the weighted average lives of the Notes will be as
calculated above. Because the rate of distributions of principal of the Notes
will be a result of the actual amortization (including prepayments) of the
Contracts, which will include Contracts that have remaining terms to stated
maturity shorter or longer than those assumed, the weighted average lives of the
Notes will differ from those set forth above, even if all of the Contracts
prepay at the indicated constant prepayment rates.
S-60
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS A-1
PREPAYMENT SPEED (CPR)
-------------------------------------------------------------------------------
Payment Date In 0.00% 3.00% 7.00% 11.00% 15.00%
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Closing Date................................ 100 100 100 100 100
January 1999................................ 91 89 87 86 84
February 1999............................... 81 78 75 71 67
March 1999.................................. 71 67 62 57 51
April 1999.................................. 61 56 49 42 35
May 1999.................................... 51 45 36 28 19
June 1999................................... 40 33 24 14 4
July 1999................................... 30 22 11 * 0
August 1999................................. 20 11 0 0 0
September 1999.............................. 10 * 0 0 0
October 1999................................ 0 0 0 0 0
November 1999............................... 0 0 0 0 0
December 1999............................... 0 0 0 0 0
- -------------------------------------------- -------------- -------------- ---------------------------- --------------
Weighted Average Life (years)............... 0.465 0.421 0.374 0.334 0.303
</TABLE>
*The percentage of the outstanding principal balance of the Class A-1 Notes is
less than 0.5% of the initial Class A-1
note principal balance.
S-61
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS A-2
PREPAYMENT SPEED (CPR)
---------------------------------------------------------------------------------
Payment Date In 0.00% 3.00% 7.00% 11.00% 15.00%
- ------------------------------------------- -------------------- ------------ ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Closing Date................................ 100 100 100 100 100
January 1999................................ 100 100 100 100 100
February 1999............................... 100 100 100 100 100
March 1999.................................. 100 100 100 100 100
April 1999.................................. 100 100 100 100 100
May 1999.................................... 100 100 100 100 100
June 1999................................... 100 100 100 100 100
July 1999................................... 100 100 100 100 97
August 1999................................. 100 100 100 96 92
September 1999.............................. 100 100 96 92 88
October 1999................................ 100 97 92 88 83
November 1999............................... 97 93 89 84 79
December 1999............................... 94 90 85 80 75
January 2000................................ 91 87 81 76 71
February 2000............................... 88 84 78 72 67
March 2000.................................. 85 80 75 69 63
April 2000.................................. 82 77 71 65 59
May 2000.................................... 79 74 68 62 56
June 2000................................... 76 71 65 58 52
July 2000................................... 73 68 61 55 49
August 2000................................. 70 65 58 52 46
September 2000.............................. 67 62 55 49 42
October 2000................................ 64 59 52 45 39
November 2000............................... 61 56 49 42 36
December 2000............................... 58 53 46 39 33
January 2001................................ 55 50 43 36 30
February 2001............................... 52 47 40 33 27
March 2001.................................. 50 44 37 31 24
April 2001.................................. 47 41 34 28 22
May 2001.................................... 44 39 32 25 19
June 2001................................... 41 36 29 23 17
July 2001................................... 39 33 26 20 14
August 2001................................. 36 31 24 18 12
September 2001.............................. 33 28 21 15 10
October 2001................................ 31 25 19 13 7
November 2001............................... 28 23 17 11 5
December 2001............................... 26 21 14 9 3
January 2002................................ 23 18 12 6 1
February 2002............................... 21 16 10 4 0
March 2002.................................. 18 13 8 2 0
April 2002.................................. 16 11 5 * 0
May 2002.................................... 13 9 3 0 0
June 2002................................... 11 7 1 0 0
July 2002................................... 9 4 0 0 0
August 2002................................. 6 2 0 0 0
September 2002.............................. 4 0 0 0 0
</TABLE>
S-62
<PAGE>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS A-2
(CONTINUED)
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
-------------------------------------------------------------------------
Payment Date In 0.00% 3.00% 7.00% 11.00% 15.00%
- -------------------------------------------- -------------- -------------- ----------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
October 2002................................ 2 0 0 0 0
November 2002............................... 0 0 0 0 0
December 2002............................... 0 0 0 0 0
- -------------------------------------------- -------------- -------------- ----------------- ---------- --------------
Weighted Average Life (years)............... 2.326 2.180 2.000 1.835 1.685
</TABLE>
*The percentage of the outstanding principal balance of the Class A-2 Notes is
less than 0.5% of the initial Class A-2 note principal balance.
S-63
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS A-3
PREPAYMENT SPEED (CPR)
---------------------------------------------------------------------------
Payment Date In 0.00% 3.00% 7.00% 11.00% 15.00%
- -------------------------------------------- -------------- -------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Closing Date........................... 100 100 100 100 100
January 1999........................... 100 100 100 100 100
February 1999.......................... 100 100 100 100 100
March 1999............................. 100 100 100 100 100
April 1999............................. 100 100 100 100 100
May 1999............................... 100 100 100 100 100
June 1999.............................. 100 100 100 100 100
July 1999.............................. 100 100 100 100 100
August 1999............................ 100 100 100 100 100
September 1999......................... 100 100 100 100 100
October 1999........................... 100 100 100 100 100
November 1999.......................... 100 100 100 100 100
December 1999.......................... 100 100 100 100 100
January 2000........................... 100 100 100 100 100
February 2000.......................... 100 100 100 100 100
March 2000............................. 100 100 100 100 100
April 2000............................. 100 100 100 100 100
May 2000............................... 100 100 100 100 100
June 2000.............................. 100 100 100 100 100
July 2000.............................. 100 100 100 100 100
August 2000............................ 100 100 100 100 100
September 2000......................... 100 100 100 100 100
October 2000........................... 100 100 100 100 100
November 2000.......................... 100 100 100 100 100
December 2000.......................... 100 100 100 100 100
January 2001........................... 100 100 100 100 100
February 2001.......................... 100 100 100 100 100
March 2001............................. 100 100 100 100 100
April 2001............................. 100 100 100 100 100
May 2001............................... 100 100 100 100 100
June 2001.............................. 100 100 100 100 100
July 2001.............................. 100 100 100 100 100
August 2001............................ 100 100 100 100 100
September 2001......................... 100 100 100 100 100
October 2001........................... 100 100 100 100 100
November 2001.......................... 100 100 100 100 100
December 2001.......................... 100 100 100 100 100
January 2002........................... 100 100 100 100 100
February 2002.......................... 100 100 100 100 98
March 2002............................. 100 100 100 100 92
April 2002............................. 100 100 100 100 86
May 2002............................... 100 100 100 95 81
June 2002.............................. 100 100 100 89 76
July 2002.............................. 100 100 97 83 70
August 2002............................ 100 100 91 78 66
September 2002......................... 100 100 85 72 61
</TABLE>
S-64
<PAGE>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS A-3
(CONTINUED)
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
--------------------------------------------------------------------------
Payment Date In 0.00% 3.00% 7.00% 11.00% 15.00%
- --------------------------------------- -------------- -------------- ---------------------------- --------------------
<S> <C> <C> <C> <C> <C>
October 2002........................... 100 94 80 67 56
November 2002.......................... 99 87 74 62 52
December 2002.......................... 92 81 69 58 48
January 2003........................... 85 75 63 53 44
February 2003.......................... 79 69 58 48 40
March 2003............................. 72 63 53 44 36
April 2003............................. 65 57 48 39 32
May 2003............................... 59 51 43 35 29
June 2003.............................. 52 46 38 31 25
July 2003.............................. 47 40 33 27 22
August 2003............................ 42 36 30 24 20
September 2003......................... 37 32 26 21 17
October 2003........................... 33 29 24 19 15
November 2003.......................... 30 26 21 17 13
December 2003.......................... 26 22 18 15 12
January 2004........................... 23 20 16 13 10
February 2004.......................... 20 17 14 11 9
March 2004............................. 18 15 12 10 8
April 2004............................. 16 13 11 8 7
May 2004............................... 13 11 9 7 6
June 2004.............................. 12 10 8 6 5
July 2004.............................. 10 8 7 5 4
August 2004............................ 8 7 6 4 3
September 2004......................... 7 6 5 4 3
October 2004........................... 6 5 4 3 3
November 2004.......................... 6 5 4 3 2
December 2004.......................... 5 4 3 3 2
January 2005........................... 5 4 3 2 2
February 2005.......................... 4 3 3 2 1
March 2005............................. 3 3 2 2 1
April 2005............................. 3 2 2 1 1
May 2005............................... 2 2 1 1 1
June 2005.............................. 2 1 1 1 1
July 2005.............................. 1 1 1 1 *
August 2005............................ 1 1 1 * *
September 2005......................... 1 1 * * *
October 2005........................... 1 * * * *
November 2005.......................... 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Weighted Average Life (years).......... 4.740 4.629 4.472 4.308 4.136
</TABLE>
*The percentage of the outstanding principal balance of the Class A-3 Notes is
less than 0.5% of the initial Class A-3 note principal balance.
S-65
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS B AND CLASS C
PREPAYMENT SPEED (CPR)
---------------------------------------------------------------------------
Payment Date In 0.00% 3.00% 7.00% 11.00% 15.00%
- -------------------------------------------- -------------- -------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Closing Date........................... 100 100 100 100 100
January 1999........................... 98 98 98 97 97
February 1999.......................... 96 96 95 95 94
March 1999............................. 95 94 93 92 91
April 1999............................. 93 92 90 89 88
May 1999............................... 91 90 88 86 85
June 1999.............................. 89 87 86 84 82
July 1999.............................. 87 85 83 81 79
August 1999............................ 85 83 81 79 76
September 1999......................... 83 81 79 76 73
October 1999........................... 81 79 76 74 71
November 1999.......................... 79 77 74 71 68
December 1999.......................... 77 75 72 69 66
January 2000........................... 75 73 70 67 63
February 2000.......................... 74 71 68 64 61
March 2000............................. 72 69 66 62 59
April 2000............................. 70 67 63 60 56
May 2000............................... 68 65 61 58 54
June 2000.............................. 66 63 59 56 52
July 2000.............................. 64 61 57 54 50
August 2000............................ 63 60 56 52 48
September 2000......................... 61 58 54 50 46
October 2000........................... 59 56 52 48 44
November 2000.......................... 57 54 50 46 42
December 2000.......................... 56 52 48 44 40
January 2001........................... 54 51 46 42 38
February 2001.......................... 52 49 44 40 37
March 2001............................. 50 47 43 39 35
April 2001............................. 49 45 41 37 33
May 2001............................... 47 44 39 35 32
June 2001.............................. 45 42 38 34 30
July 2001.............................. 44 40 36 32 29
August 2001............................ 42 39 35 31 27
September 2001......................... 40 37 33 29 26
October 2001........................... 39 36 32 28 24
November 2001.......................... 37 34 30 27 23
December 2001.......................... 36 33 29 25 22
January 2002........................... 34 31 27 24 21
February 2002.......................... 33 30 26 23 20
March 2002............................. 31 28 25 21 18
April 2002............................. 30 27 23 20 17
May 2002............................... 28 25 22 19 16
June 2002.............................. 27 24 21 18 15
July 2002.............................. 25 23 19 17 14
August 2002............................ 24 21 18 15 13
September 2002......................... 22 20 17 14 12
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
S-66
<PAGE>
PERCENTAGE INITIAL NOTE PRINCIPAL BALANCE OUTSTANDING
CLASS B AND CLASS C
(CONTINUED)
<TABLE>
<CAPTION>
PREPAYMENT SPEED (CPR)
---------------------------------------------------------------------------
Payment Date In 0.00% 3.00% 7.00% 11.00% 15.00%
- -------------------------------------------- -------------- -------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
October 2002........................... 21 19 16 13 11
November 2002.......................... 20 17 15 12 10
December 2002.......................... 18 16 14 12 10
January 2003........................... 17 15 13 11 9
February 2003.......................... 16 14 12 10 8
March 2003............................. 14 13 11 9 7
April 2003............................. 13 11 10 8 6
May 2003............................... 12 10 8 7 6
June 2003.............................. 10 9 8 6 5
July 2003.............................. 9 8 7 5 4
August 2003............................ 8 7 6 5 4
September 2003......................... 7 6 5 4 3
October 2003........................... 7 6 5 4 3
November 2003.......................... 6 5 4 3 3
December 2003.......................... 5 4 4 3 2
January 2004........................... 5 4 3 3 2
February 2004.......................... 4 3 3 2 2
March 2004............................. 4 3 2 2 2
April 2004............................. 3 3 2 2 1
May 2004............................... 3 2 2 1 1
June 2004.............................. 2 2 2 1 1
July 2004.............................. 2 2 1 1 1
August 2004............................ 2 1 1 1 1
September 2004......................... 1 1 1 1 1
October 2004........................... 1 1 1 1 1
November 2004.......................... 1 1 1 1 *
December 2004.......................... 1 1 1 1 *
January 2005........................... 1 1 1 * *
February 2005.......................... 1 1 1 * *
March 2005............................. 1 1 * * *
April 2005............................. 1 * * * *
May 2005............................... * * * * *
June 2005.............................. * * * * *
July 2005.............................. * * * * *
August 2005............................ * * * * *
September 2005......................... * * * * *
October 2005........................... * * * * *
November 2005.......................... 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
Weighted Average Life (years).......... 2.457 2.337 2.186 2.045 1.913
</TABLE>
*The percentage of the respective outstanding principal balance of each of the
Class B Notes and Class C Notes is less than 0.5% of the initial Class B and
Class C note principal balance, as the case may be.
S-67
<PAGE>
CERTAIN LEGAL MATTERS AFFECTING AN
OBLIGOR'S RIGHTS AND OBLIGATIONS
GENERAL
The Contracts are either "accounts," "instruments" or "chattel
paper" as defined in the Uniform Commercial Code in effect generally throughout
the United States. Pursuant to the Uniform Commercial Code for most purposes, a
sale of accounts or chattel paper is treated in a manner similar to a
transaction creating a security interest in accounts or chattel paper. DVI, the
Transferor and the Issuer will cause the filing of appropriate UCC-1 financing
statements to be made with the appropriate governmental authorities in the
Commonwealth of Pennsylvania or the State of Delaware to give notice of DVI's
transfer of the Contracts to the Transferor, of the SPC's transfer of the
Contracts to the Issuer and of the Issuer's pledge of the Contracts to the
Trustee. Under the Contribution and Servicing Agreement, the Servicer will be
obligated from time to time to take such actions as are necessary to protect and
perfect the Trustee's interests in the Contracts and their proceeds.
A 1993 decision of the United States Court of Appeals for the
Tenth Circuit states that, among other things, accounts sold by a company remain
property of that entity's bankruptcy estate in the event of its reorganization
or bankruptcy proceedings subsequent to the sale. Even though that decision
addressed "accounts" rather than "chattel paper" such as the Contracts, if a
court in any bankruptcy proceedings of DVI were to adopt the reasoning of the
Tenth Circuit reflected in that 1993 decision, then the Contracts would be
included in the bankruptcy estate of DVI and delays in payment of collections on
or in respect of the Contracts could occur. In addition, such a court, among
other remedies, could elect to accelerate payment of the Notes and liquidate the
Contracts and the Equipment, with the Holders of the Notes entitled to the then
outstanding Contract Principal Balance thereof and interest thereon at the
applicable Note Rate to the date of payment from the proceeds of such
liquidation. Thus, the Holders of the Notes could lose the right to future
payments of interest and might incur reinvestment losses.
THE EQUIPMENT
DVI will transfer to the Transferor, by grant or assignment, a
security interest in the Equipment; the Transferor will transfer such security
interest to the Issuer, and the Issuer will pledge such security interest to the
Trustee. In the event of a default by the Obligor, the Servicer on behalf of the
Trustee may take action to enforce such defaulted Contract and security interest
by repossession and resale of the leased Equipment. Under the UCC in most
states, a creditor such as DVI, the Transferor, the Issuer or the Trustee can,
without prior notice to the Obligor, repossess assets securing the Obligor's
obligations under a defaulted Contract by the Obligor's voluntary surrender of
such assets or by "self-help" repossession that does not involve a breach of the
peace or by judicial process.
In the event of a default by the Obligor, some jurisdictions
require that the Obligor be notified of the default and be given a time period
within which it may cure the default prior to repossession. Generally, this
right of reinstatement may be exercised on a limited number of occasions in any
one-year period.
The UCC and other state laws place restrictions on
repossession sales, including requirements that the secured party provide the
Obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held and
that any such sale be conducted in a commercially reasonable manner. The
Contribution and Servicing Agreement will require the Servicer to sell promptly
any repossessed Equipment.
Under most state laws, an Obligor has the right to redeem
collateral for its obligations prior to actual sale by paying the secured party
the unpaid balance of the obligation plus reasonable expenses for repossession,
holding and preparing the collateral for disposition and arranging for its sale,
plus, to the extent provided for in the written agreement of the parties,
reasonable attorneys' fees.
In addition, because the market value of the Equipment of the
type financed pursuant to the Contracts generally declines with age and because
of obsolescence, the net disposition proceeds of leased Equipment at any time
during the term of the Contract may be less than the outstanding balance on the
Contract principal balance which it secures. Because of this, and because other
creditors may have rights in the related leased Equipment superior to those of
the related Trust Property, the Servicer may not be able to recover the entire
amount due on a defaulted Contract in the event that the Servicer elects to
repossess and sell such leased Equipment at any time.
S-68
<PAGE>
Under the UCC and laws applicable in most states, a creditor
is entitled to obtain a deficiency judgment from an Obligor for any deficiency
on repossession and resale of the asset securing the unpaid balance of such
Obligor's contract. However, some states, including those where some of the
Obligors may be located, impose prohibitions or limitations on deficiency
judgments. In most jurisdictions, the courts, in interpreting the UCC, would
impose upon a creditor an obligation to repossess the Equipment in a
commercially reasonable manner and to "mitigate damages" in the event of an
Obligor's failure to cure a default. The creditor would be required to exercise
reasonable judgment and follow acceptable commercial practice in seizing and
disposing of the Equipment and to offset the net proceeds of such disposition
against its claim. In addition, an Obligor may successfully invoke an election
of remedies defense to a deficiency claim in the event that the Servicer's
repossession and sale of the leased Equipment is found to be a retention
discharging the Obligor from all further obligations under UCC Section 9-505(2).
If a deficiency judgment were granted, the judgment would be a personal judgment
against the Obligor for the shortfall, but a defaulting Obligor may have very
little capital or sources of income available following repossession. Therefore,
in many cases, it may not be useful to seek a deficiency judgment or, if one is
obtained, it may be settled at a significant discount.
In the event of the bankruptcy or reorganization of an
Obligor, various provisions of the Bankruptcy Reform Act of 1978, as amended
(the "BANKRUPTCY CODE"), and related laws may delay, interfere with and/or
eliminate or reduce the ability of the Trustee to enforce its rights under the
Contracts. With regard to any Contract not constituting a "true lease", the
Bankruptcy Code permits an Obligor to be treated as the owner of such Equipment.
If bankruptcy cases or proceedings were instituted in respect of an Obligor, the
Trustee could be prevented from continuing to collect payments due from or on
behalf of such Obligor or exercising any remedies assigned to the Trustee
without the approval of the bankruptcy court, and the bankruptcy court could
permit the Obligor to use, sublease, sell or dispose of the Equipment and
provide the Trustee with a lien on replacement collateral, so long as such
replacement collateral constituted "adequate protection" as defined under the
Bankruptcy Code. In the event that, as a result of the bankruptcy or
reorganization of an Obligor, the Trustee is prevented from collecting payments
with respect to a Contract and such Contract becomes a defaulted Contract,
Noteholders could experience delays in the payment of principal and interest
and/or losses on their investment.
With regard to any Contract constituting a "true lease", the
Bankruptcy Code grants to the bankruptcy trustee for an Obligor, or the Obligor
as a debtor-in-possession, a right to elect to assume or reject such an
unexpired lease. Additionally, a bankruptcy court may permit an Obligor to
assign its rights and obligations under the
Contract.
Any assumption of such Contract requires the Obligor to cure any default
thereunder (which may mean "adequate assurance" of prompt cure) and to provide
"adequate assurance" of future performance thereunder and of compensation for
any actual pecuniary loss incurred by Holders of Notes resulting from such
default. Any rejection of such Contract constitutes a breach thereof, entitling
the Trustee to return of the Equipment and to a pre-petition unsecured claim for
damages for breach of such Contract. The Trustee also would be entitled to
collect from an Obligor's bankruptcy estate any administrative rent or adequate
protection amounts payable by the Obligor as provided under the Bankruptcy Code.
Bankruptcy court approval might be necessary prior to the Trustee repossessing
the Equipment or obtaining payments on its unsecured pre-petition claims and/or
claims against the Obligor's bankruptcy estate.
Most states have adopted a version of Article 2A of the
Uniform Commercial Code ("ARTICLE 2A"), which is applicable to "true leases"
such as Fair Market Value Leases. Article 2A purports to codify many provisions
of existing common law. Although there is little precedential authority
regarding how Article 2A will be interpreted, it may, among other things, limit
enforceability of any "unconscionable" lease or "unconscionable" provision in a
lease, provide a lessee with remedies, including the right to cancel the lease
contract, for any lessor breach or default, and may add to or modify the terms
of "consumer leases" and leases where the lessee is a "merchant lessee."
However, DVI will represent that, to the best of its knowledge (i) no Contract
is a "consumer lease"; and (ii) each Obligor has accepted the Equipment leased
to it and, after reasonable opportunity to inspect and test, has continued to
make scheduled payments under the related Contract. Article 2A, moreover,
recognizes typical commercial lease "hell or high water" rental payment clauses
and validates reasonable liquidated damages provisions in the event of lessor or
lessee defaults. Article 2A also recognizes the concept of freedom of contract
and permits the parties in a commercial context a wide latitude to vary
provisions of the law.
Certain governmental and quasi-governmental entities, such as
municipalities and public hospitals, condition contract payments on the
availability of budgeted funds. If such Contracts are part of the Trust Property
and such budgeted funds are not available, the Servicer or Trustee may be forced
to repossess related Equipment and
Noteholders may experience delays and/or losses in payment.
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<PAGE>
Title 6 of the Bankruptcy Reform Act of 1994 established the
National Bankruptcy Review Commission ("NBRC") for purposes of analyzing the
nation's bankruptcy laws and making recommendations to Congress for legislative
changes to the bankruptcy laws. A similar commission was involved in developing
the Bankruptcy Code. The final NBRC report has been issued and may ultimately
lead to substantive changes to the existing Bankruptcy Code which could affect
the Contracts.
These UCC and bankruptcy provisions, in addition to the
possible decrease in value of a repossessed item of leased Equipment, may limit
the amount realized on the sale of the collateral to less than the amount due on
the related Contract.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following general discussion of the anticipated material
federal income tax consequences of the purchase, ownership and disposition of
the Notes is based upon the provisions of the Internal Revenue Code of 1986, as
amended (the "CODE"), the Treasury regulations promulgated thereunder, published
rulings of the Internal Revenue Service (the "IRS") and judicial decisions, all
in effect as of the date hereof, all of which authorities are subject to change
or differing interpretations, which could apply retroactively. The discussion
below does not purport to deal with the federal income tax consequences
applicable to all categories of investors and is directed solely to Class A,
Class B or Class C Noteholders that are institutional investors, hold the Notes
as capital assets within the meaning of section 1221 of the Code and acquire
such Notes for investment and not as a dealer or for resale. This discussion
does not address every aspect of the federal income tax laws that may be
relevant to a Class A, Class B or Class C Noteholder in light of its particular
investment circumstances, nor does it purport to deal with federal income tax
consequences applicable to all categories of Class A, Class B or Class C
Noteholders (some categories of which, such as banks, insurance companies and
foreign investors, among others, may be subject to special rules or treatment
under the federal income tax laws). Further, this discussion does not address
certain collateral tax consequences that may result from ownership of the Notes.
For purposes of this tax discussion, references to a "Noteholder" or a "holder"
are to the beneficial owner of a Note.
Class A, Class B or Class C Noteholders and preparers of tax
returns should be aware that under applicable Treasury regulations a provider of
advice on specific issues of law is not considered an income tax return preparer
unless the advice is (i) given with respect to events that have occurred at the
time the advice is rendered and is not given with respect to the consequences of
contemplated actions, and (ii) is directly relevant to the determination of an
entry on a tax return. Accordingly, Class A, Class B or Class C Noteholders
should consult their own tax advisors and tax return preparers regarding the
preparation of any item on a tax return, even where the anticipated tax
treatment has been discussed herein.
Prospective investors should be aware that the Servicer and
the Issuer will not seek any rulings from the IRS regarding any of the tax
consequences discussed herein. Further, while the Issuer will receive an opinion
of counsel, as described generally below, with respect to the federal income tax
treatment of the Notes, such opinion is not binding on the IRS or the courts,
and no assurance can be given that the IRS will not take contrary positions that
may be sustained by a court.
In addition to the federal income tax consequences described
herein, potential investors should consider the tax consequences, if any, of the
purchase, ownership and disposition of the Notes under the tax laws of any
applicable state, locality or foreign jurisdiction. See "CERTAIN STATE, LOCAL
AND OTHER TAX CONSIDERATIONS." The Servicer and the Issuer make no
representations regarding the tax consequences of purchase, ownership or
disposition of the Notes under the tax laws of any state, locality or foreign
jurisdiction. Investors considering an investment in the Notes should consult
their own tax advisors regarding such tax consequences. All investors are urged
to consult their own tax advisors in determining the federal, state, local and
foreign and any other tax consequences to them of an investment in the Notes and
the purchase, ownership and disposition thereof.
CHARACTERIZATION OF THE CLASS A, CLASS B AND CLASS C NOTES
Thacher Proffitt & Wood, special counsel to the Underwriters
("TAX COUNSEL"), is of the opinion that, under existing law, and assuming
compliance in all material respects with all provisions of the Indenture, the
Contribution and Servicing Agreement and the other Transaction Documents
relating to the issuance of the Notes, and based in part on the facts set forth
in this Prospectus Supplement and additional information and representations
(including financial calculations relating to the Contracts provided or reviewed
and verified by DVI or the Underwriters)
S-70
<PAGE>
for federal income tax purposes, the Class A Notes, the Class B Notes and the
Class C Notes will be treated as indebtedness.
Except where indicated to the contrary, the following
discussion sets forth the consequences that will follow if the Class A, Class B
and Class C Notes are treated as indebtedness for federal income tax purposes.
TAXATION OF CLASS A, CLASS B AND CLASS C NOTEHOLDERS
PAYMENTS OF INTEREST. The following discussion of federal
income taxation of the Notes is based in part upon the rules governing original
issue discount within the meaning of section 1273(a) of the Code ("OID") that
are set forth in sections 1271-1273 and 1275 of the Code and in the Treasury
regulations issued thereunder (the "OID REGULATIONS"). The OID Regulations do
not adequately address certain issues relevant to, and in some instances may not
be applicable to, securities such as the Notes.
It is not anticipated that the Class A, Class B or Class C
Notes will be treated as having been issued with OID within the meaning of
section 1273 of the Code. Rather, interest on the Notes will be taxable as
ordinary income for federal income tax purposes when received by a Class A,
Class B or Class C Noteholder using the cash method of accounting or when
accrued by a Class A, Class B or Class C Noteholder using the accrual method of
accounting. Interest received on the Notes also may constitute "investment
income" for purposes of certain limitations of the Code concerning the
deductibility of investment interest expense by taxpayers other than
corporations.
MARKET DISCOUNT. A subsequent holder who purchases a Note at a
market discount (I.E., in the case of a Note issued without OID, at a purchase
price less than its remaining stated principal amount, or in the case of a Note
issued with OID, at a purchase price less than its adjusted issue price) may be
subject to the "market discount" rules of section 1276 of the Code. These rules
provide, in part, for the treatment of gain attributable to accrued market
discount as ordinary income upon the receipt of partial principal payments or on
the sale or other disposition of the Note, and for the deferral of interest
deductions with respect to debt incurred to acquire or carry a Note purchased
with market discount. In particular, under section 1276 of the Code, a holder
who purchases a Note at a discount that exceeds DE MINIMIS market discount
generally will be required to allocate a portion of each such partial principal
payment or proceeds of disposition to accrued market discount not previously
included in income, and to recognize ordinary income to that extent. If the
provisions of section 1272(a)(6) of the Code apply to the Notes, as described
above with respect to the use of a reasonable prepayment assumption (and
adjustments resulting from actual prepayments), such provisions also would
affect the accrual of any market discount.
A Class A, Class B or Class C Noteholder may elect to include
such market discount in income currently as it accrues rather than including it
on a deferred basis in accordance with the foregoing discussion. If made, such
election will apply to all market-discount bonds acquired by such Class A, Class
B or Class C Noteholder on or after the first day of the first taxable year to
which such election applied. If such election is made, the interest deferral
rule described above will not apply and the adjusted basis of a Note will be
increased to reflect market discount included in gross income, thereby reducing
any gain (or increasing any loss) on a sale, redemption, or other taxable
disposition. Notwithstanding the above rules, market discount on a Note will be
considered to be zero if it is less than a DE MINIMIS amount. In that case, the
actual discount will be required to be allocated amounts the principal payments
to be made on such Note, and the portion of such discount allocated to each
principal payment will be required to be reported as income as each principal
payment is made, in the same manner as discussed above regarding DE MINIMIS OID.
See "ORIGINAL ISSUE DISCOUNT."
In addition, the OID Regulations permit a Class A, Class B or
Class C Noteholder to elect to accrue all interest, discount (including DE
MINIMIS market or original issue discount) and premium in income as interest,
based on a constant yield method. If such an election were made with respect to
a Note with market discount, the Class
A,
Class B or Class C Noteholder would be deemed to have made an election to
include market discount in income currently with respect to all other debt
instruments that such Noteholder owns or acquires during the taxable year of the
election or thereafter. Similarly, a Class A, Class B or Class C Noteholder that
made this election for a Note that is acquired at a premium would be deemed to
have made an election to amortize bond premium with respect to all debt
instruments that such Noteholder owns as of the beginning of the taxable year
for which the election is made or thereafter acquires. See "PREMIUM." Each of
these elections to accrue interest, discount and premium with respect to a Note
on a constant yield method or as interest would be irrevocable.
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<PAGE>
For purposes of the foregoing discussion, market discount with
respect to a Note will be considered to be DE MINIMIS for purposes of section
1276 of the Code if such market discount is less than 0.25% of the stated
redemption price of such Note multiplied by the number of complete years to
maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to OID on obligations payable in installments, the OID
Regulations refer to the weighted average maturity of obligations, and it is
likely that the same rule will be applied with respect to market discount.
Section 1276(b)(3) of the Code specifically authorizes the
Treasury Department to issue regulations providing for the method for accruing
market discount on debt instruments, the principal of which is payable in more
than one installment. Until regulations are issued by the Treasury Department,
certain rules described in the Conference Committee Report (the "COMMITTEE
REPORT") accompanying the Tax Reform Act of 1986 will apply. The Committee
Report indicates that in each accrual period market discount on Notes should
accrue, at the option of the Class A, Class B or Class C Noteholder: (i) on the
basis of a constant yield method, (ii) in the case of a Note issued without OID,
in an amount that bears the same ratio to the total remaining market discount as
the stated interest paid in the accrual period bears to the total amount of
stated interest remaining to be paid on the Note as of the beginning of the
accrual period, or (iii) in the case of a Note issued with OID, in an amount
that bears the same ratio to the total remaining market discount as the OID
accrued in the accrual period bears to the total OID remaining on the Note at
the beginning of the accrual period. Moreover, if the provisions of section
1272(a)(6) of the Code apply to the Notes, as described above with respect to
the use of a reasonable prepayment assumption, the Prepayment Assumption used in
calculating the accrual of OID also would be used in calculating the accrual of
market discount. Because the regulations referred to in this paragraph have not
been issued, it is not possible to predict what effect such regulations might
have on the tax treatment of a Note purchased at a discount in the secondary
market. The Prepayment Assumption used in calculating the accrual of OID,
premium, market discount, if any, will be equal to a CPR of 7%. No
representation is made that the Contracts will prepay at that rate or at any
other rate.
To the extent that Notes provide for monthly or other periodic
payments throughout their term, the effect of these rules may be to require
market discount to be includible in income at a rate that is not significantly
slower than the rate at which such discount would accrue if it were OID.
Moreover, in any event, a Class A, Class B or Class C Noteholder generally will
be required to treat a portion of any gain on the sale or exchange of such Note
as ordinary income to the extent of the market discount accrued to the date of
disposition under one of the foregoing methods, less any accrued market discount
previously reported as ordinary income.
PREMIUM. A Note that is purchased at a cost (excluding any
portion of such cost attributable to accrued qualified stated interest) greater
than its remaining stated redemption price will be considered to be purchased at
a premium. A Class A, Class B or Class C Noteholder may elect under section 171
of the Code to amortize such premium under the constant yield method over the
life of the Note. If made, such an election will apply to all debt instruments
having amortizable bond premium that such Noteholder owns as of the beginning of
the taxable year for which the election is made or thereafter acquires.
Amortizable premium will be treated as an offset to interest income on the
related debt instrument (with a corresponding reduction in such Noteholder's
basis of such instrument), rather than as a separate interest deduction. The OID
Regulations also permit Class A, Class B and Class C Noteholders to elect to
include all interest, discount and premium in income based on a constant yield
method, further treating the Noteholder as having made the election to amortize
premium generally. See "MARKET DISCOUNT." The Committee Report states that the
same rules that apply to accrual of market discount (which rules might, as
described above, require use of a prepayment assumption in accruing market
discount with respect to Notes without regard to whether such Notes have OID)
also will apply in amortizing bond premium under section 171 of the Code. Bond
premium on a Note held by a Class A, Class B or Class C Noteholder who does not
elect to offset the premium will decrease the gain, or increase the loss,
otherwise recognized on the sale, redemption or other taxable disposition of the
Note.
REALIZED LOSSES. Under section 166 of the Code, both corporate
holders of Notes and noncorporate holders of Notes that acquire such Notes in
connection with a trade or business should be allowed to deduct, as ordinary
losses, any losses sustained during a taxable year in which their Notes become
wholly or partially worthless as the result of one or more realized losses on
the Contracts that are allocable to such Notes. However, it appears that a
noncorporate holder that does not acquire a Note in connection with its trade or
business will not be entitled to deduct a loss under section 166 of the Code
until such holder's Note becomes wholly worthless (i.e., until its outstanding
principal balance has been reduced to zero) and that the loss will be
characterized as a short-term capital loss.
Each Class A, Class B or Class C Noteholder will be required
to accrue OID, if any, and, if such holder uses an accrual method of accounting
for federal income tax purposes, interest with respect to such Note, without
S-72
<PAGE>
giving effect to any reductions in distributions attributable to defaults or
delinquencies on the Contracts until it can be established that any such
reduction ultimately will not be recoverable. As a result, the amount of taxable
income reported in any period by the holder of a Note could exceed the amount of
economic income actually realized by the holder in such period. Although the
holder of a Note eventually will recognize a loss or reduction in income
attributable to previously accrued and included income that as the result of a
realized loss ultimately will not be realized, the law is unclear with respect
to the timing and character of such loss or reduction in income.
SALES OF NOTES. Except as described above with respect to the
market discount rules, and except as provided under section 582(c) of the Code
in the case of banks and other financial institutions, any gain or loss, equal
to the difference between the amount realized on the sale and the adjusted basis
of such Note, recognized on the sale or exchange of a Note by an investor who
holds such Note as a capital asset, will be capital gain or loss. However, a
portion of any gain that might otherwise be capital gain may be treated as
ordinary income to the extent that the Note is held as part of a "conversion
transaction" within the meaning of section 1258 of the Code. A conversion
transaction generally is one in which the taxpayer has taken two or more
positions in Notes or similar property that reduce or eliminate market risk, if
substantially all of the taxpayer's return is attributable to the time value of
the taxpayer's net investment in such transaction. The amount of gain realized
in a conversion transaction that may be recharacterized as ordinary income
generally will not exceed the amount of interest that would have accrued on the
taxpayer's net investment in such transaction at 120% of the appropriate
"applicable Federal rate" (which rate is computed and published monthly by the
IRS), subject to appropriate reduction (to the extent provided in regulations to
be issued) to reflect prior inclusion of interest or other ordinary income items
from the transaction.
Finally, taxpayers other than corporations may elect to have
net capital gain taxed at ordinary income rates rather than capital gains rates
in order to include such net capital gain in total net investment income for the
taxable year, for purposes of the rule that limits the deduction of interest on
indebtedness incurred to purchase or carry property held for investment to such
a taxpayer's net investment income.
The adjusted basis of a Note generally will equal its cost,
increased by any income previously reported (including any OID and market
discount income) by the selling Class A, Class B or Class C Noteholder and
reduced (but not below zero) by any deduction previously allowed for losses and
any amortized premium and by any payments previously received with respect to
such Note. Principal payments on the Note will be treated as amounts received
upon a sale or exchange of the Note under the foregoing rules relating to OID.
INFORMATION REPORTING. The Servicer is required to furnish or
cause to be furnished to each Class A, Class B or Class C Noteholder with each
payment a statement setting forth the amount of such payment allocable to
principal on the Note and to interest thereon. In addition, the Servicer is
required to furnish or cause to be furnished, within a reasonable time after the
end of each calendar year, to each Class A, Class B or Class C Noteholder who
was such a holder at any time during such year, a report indicating such other
customary factual information as the Servicer deems necessary to enable holders
of Notes to prepare their tax returns and will furnish comparable information to
the IRS as and when required by law to do so. If the Class A, Class B or Class C
Notes are issued with OID, the Servicer will provide or cause to be provided to
the IRS and, as applicable, to the Class A, Class B or Class C Noteholder
information statements with respect to OID as required by the Code or as such
holders of the Notes may reasonably request from time to time. For the reasons
described under "ORIGINAL ISSUE DISCOUNT" above, if the Notes are issued with
OID, such information reports, even if otherwise accepted as accurate by the
IRS, will in any event be accurate only as to the initial Class A, Class B or
Class C Noteholder that purchased their Notes at the initial offering price used
in preparing such reports. Class A, Class B or Class C Noteholders should
consult their own tax advisors to determine the amount of any OID and market
discount includible in income during a calendar year.
As applicable, the Note information reports will include a
statement of the adjusted issue price of the Notes at the beginning of each
accrual period. In addition, the reports will include information required by
regulations with respect to computing the accrual of any market discount.
Because exact computation of the accrual of market discount on a constant yield
method would require information relating to the Noteholder's purchase price
that the Servicer will not have, such regulations only require that information
pertaining to the appropriate proportionate method of accruing market discount
be provided. See "MARKET DISCOUNT."
FOREIGN INVESTORS. Class A, Class B or Class C Noteholder that
is not a "United States person" (as defined below) and is not holding the Note
in connection with a United States trade or business generally will not be
subject to United States federal income or 30% withholding tax in respect of
interest (including any accrued OID) paid on a Note, PROVIDED that the Class A,
Class B or Class C Noteholder complies to the extent necessary with certain
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identification requirements (including delivery of a statement, such as a
properly executed IRS Form W-8, signed by the Class A, Class B or Class C
Noteholder under penalties of perjury, certifying that such Class A, Class B or
Class C Noteholder is not a United States person and providing the name and
address of such Class A, Class B or Class C Noteholder). The foregoing exemption
does not apply to payments of interest (including payments in respect of any
accrued OID), received by a Class A, Class B or Class C Noteholder that either
(i) owns directly or indirectly a 10% or greater interest in the Issuer, (ii) is
a bank that is treated as receiving such interest "on an extension of credit
made pursuant to a loan agreement entered into in the ordinary course of its
trade or business," (iii) is a person within a foreign country which the IRS has
included in a list of countries that do not provide adequate exchange of
information with the United States to prevent tax evasion by United States
persons, or (iv) is a "controlled foreign corporation" (within the meaning of
section 957 of the Code) with respect to which the Issuer is a "related person"
(within the meaning of section 881(c)(3)(C) of the Code). If the Class A, Class
B or Class C Noteholder does not qualify for the foregoing exemption from
withholding, payments of interest (including payments in respect of any accrued
OID) to such Class A, Class B or Class C Noteholder may be subject to
withholding tax at a tax rate of 30%, subject to reduction (including exemption)
under any applicable tax treaty, PROVIDED the Class A, Class B or Class C
Noteholder supplies (at the time of its initial purchase, and at such subsequent
times as are required under the Treasury regulations) a properly executed IRS
Form 1001 to report its eligibility for such reduced rate or exemption.
Amounts allocable to interest (including any accrued OID)
received by a Class A, Class B or Class C Noteholder that is not a United States
person, which constitute income that is effectively connected with a United
States trade or business carried on by the Class A, Class B or Class C
Noteholder, will not be subject to withholding tax, but rather will be subject
to United States income tax at the graduated rates applicable to United States
persons, PROVIDED the Class A, Class B or Class C Noteholder supplies (at the
time of its initial purchase, and at such subsequent times as are required under
the Treasury regulations) a written statement, such as a properly executed IRS
Form 4224, that the income is, or is expected to be, effectively connected with
the conduct of a trade or business within the United States of such holder and
that such income is includible in such holder's gross income for the taxable
year. This statement must include, among other things, the name and address of
the Class A, Class B or Class C Noteholder, such holder's identifying number and
the trade or business with which the income is, or is expected to be,
effectively connected.
In addition, the foregoing rules will not apply to exempt a
United States shareholder of a controlled foreign corporation from taxation on
such United States shareholder's allocable portion of the interest income
received by such controlled foreign corporation.
For these purposes, "UNITED STATES PERSON" means a citizen or
resident of the United States, a corporation, partnership or any other entity
created or organized in, or under the laws of, the United States or any
political subdivision thereof (except, in the case of a partnership, to the
extent provided in regulations) or an estate whose income is subject to United
States federal income tax regardless of its source, or a trust other than a
"foreign trust" as described in Section 7701(a)(31) of the Code. Class A, Class
B or Class C Noteholders who are not United States persons should consult their
own tax advisors regarding the tax consequences of purchasing, owning or
disposing of a Note.
BACKUP WITHHOLDING. Payments of interest and principal, as
well as payments of proceeds from the sale of Notes, may be subject to the
"backup withholding tax" under section 3406 of the Code at a rate of 31% if
recipients of such payments fail to furnish to the payor certain information,
including their taxpayer identification numbers, or otherwise fail to establish
an exemption from such tax. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability. Furthermore, certain penalties may be
imposed by the IRS on a recipient of payments that is required to supply
information but that does not do so in the proper manner. Information returns
will be sent annually to the IRS and each Class A, Class B and Class C
Noteholder setting forth the amount of interest paid on the Notes and the amount
of any federal income tax withheld thereon.
NEW WITHHOLDING REGULATIONS. The Treasury Department has
issued new regulations (the "NEW WITHHOLDING REGULATIONS") which make certain
modifications to the withholding and information reporting rules described
above. The New Withholding Regulations attempt to unify certification
requirements and modify reliance standards. The New Withholding Regulations will
generally be effective for payments made after December 31, 1999, subject to
certain transition rules. Prospective investors are urged to consult their tax
advisors regarding the New Withholding Regulations.
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CERTAIN STATE, LOCAL AND OTHER TAX CONSIDERATIONS
Investors should consult their own tax advisors regarding
whether the purchase of the Notes, either alone or in conjunction with an
investor's other activities, may subject an investor to any state or local taxes
based, for example, on an assertion that the investor is either "doing business"
in, or deriving income from a source located in, any state or local
jurisdiction. Additionally, potential investors should consider, and consult
their own tax advisors regarding, the state, local, foreign and other tax
consequences of purchasing, owning or disposing of a Note. State, local and
foreign tax laws may differ substantially from the corresponding federal tax
law, and the foregoing discussion does not purport to describe any aspect of the
tax laws of any state, local, foreign or other jurisdiction.
THE FEDERAL TAX CONSEQUENCES SET FORTH ABOVE ARE INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A CLASS A,
CLASS B OR CLASS C NOTEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS
SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
CONSIDERATIONS FOR BENEFIT PLAN INVESTORS
INVESTORS AFFECTED
A federal law called the Employee Retirement Income Security
Act of 1974, as amended, or "ERISA", the Code and a variety of state laws may
affect your decision whether to invest in Notes if you are investing for:
o a pension or other employee benefit plan of employers in the
private sector that are regulated under ERISA, referred to
as an "ERISA plan,"
o an individual retirement account or annuity, called an
"IRA", or a pension or other benefit plan for self-employed
individuals, called a "Keogh plan,"
o a pension and other benefit plan for the employees of state
and local governments, called a "government plans," or
o an insurance company general or separate account, a bank
collective investment fund and other pooled investment
vehicle which includes the assets of ERISA plans, IRAs,
Keogh plans, and/or government plans.
A summary of the effects of those laws follows.
FIDUCIARY STANDARDS FOR ERISA PLANS AND RELATED INVESTMENT VEHICLES
ERISA imposes standards of fiduciary conduct on those who are
responsible for operating ERISA plans or investing their assets. These standards
include requirements that fiduciaries act prudently in making investment
decisions and diversify investments so as to avoid large losses unless under the
circumstances it is clearly prudent not to do so. If you are a fiduciary of an
ERISA plan, you are subject to these standards in deciding whether to invest the
plan's assets in Notes. You may find the full text of the applicable standards
of fiduciary conduct in section 404 of ERISA. If you are a fiduciary of an ERISA
Plan, you should consult with your advisors concerning your investment decision
in the context of section 404 of ERISA.
PROHIBITED TRANSACTION ISSUES FOR ERISA PLANS, KEOGH PLANS, IRAS AND RELATED
INVESTMENT VEHICLES
GENERAL. Certain transactions involving the assets of an ERISA
plan, a Keogh plan or an IRA, called "prohibited transactions", may result in
the imposition of excise taxes and, in the case of an ERISA plan, civil money
penalties. A prohibited transaction occurs when a person with a pre-existing
relationship to an ERISA plan or IRA, known as a "party in interest" or a
"disqualified person", engages in a transaction involving the assets of the plan
or IRA. You may find the laws applicable to prohibited transactions in section
406 of ERISA and section 4975 of the Code.
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There are statutory and regulatory prohibited transaction exemptions, as well as
administrative exemptions granted by the United States Department of Labor.
Prohibited transactions exemptions waive the excise taxes and civil money
penalties for certain prohibited transactions which are structured to satisfy
prescribed conditions.
PURCHASE AND SALE OF NOTES. If an ERISA plan, a Keogh plan, an
IRA or a related investment vehicle acquires Notes from, or sells Notes to, a
party in interest or a disqualified person, a prohibited transaction may occur.
In such a case, the party in interest or disqualified person might be liable for
excise taxes unless a prohibited transaction exemption is available. Where a
prohibited transaction involves an ERISA plan or related investment vehicle, the
fiduciary who causes or permits the prohibited transaction may also be liable
for civil money penalties.
TRANSACTIONS INCIDENTAL TO THE OPERATION OF THE ISSUER.
Transactions involving the assets of the Issuer may also give rise to prohibited
transactions to the extent that an investment in Notes causes the assets of the
Issuer to be considered assets (commonly known as "plan assets") of an ERISA
plan, a Keogh plan, an IRA or a related investment vehicle. Whether an
investment in Notes will cause the Issuer's assets to be treated as plan assets
depends on whether the Notes are debt or equity investments for purposes of
ERISA. The United States Department of Labor has issued regulations, commonly
known as the "plan asset regulations", which define debt and equity investments.
The plan asset regulations appear at 12 C.F.R. ss.2510.3-101.
Under the plan asset regulations, the Issuer's assets will not
be "plan assets" of an ERISA plan, Keogh plan, IRA or related investment vehicle
that purchases Notes if the Notes are considered debt. For this purpose, the
Notes will be debt if they are treated as indebtedness under applicable local
law and do not have any substantial equity features. The term "substantial
equity features" has no definition under the plan asset regulations. In the
absence of such a definition, we cannot assure you that the Notes, either when
they are issued or at any later date, will have no substantial equity features.
Thus, we cannot assure you that the Notes will be treated as debt.
To the extent that the Notes do not constitute debt for
purposes of ERISA, they will constitute equity investments unless (1) the Issuer
is an operating company or a venture capital operating company as defined in the
plan asset regulations, (2) the Notes are "publicly offered securities" as
defined in the plan asset regulations, (3) "benefit plan investors" as defined
in the plan asset regulations do not own 25% or more of the Notes or any other
class of equity security issued by the Issuer. In this case, an ERISA plan,
Keogh plan, IRA or related investment vehicle that acquires a Note would also
acquire an undivided interest in each asset of the Issuer. This would cause all
of the Issuer's assets to be plan assets under the plan asset regulations. If
the Notes are treated as equity investment under the plan asset regulations, we
cannot assure you that any of these exceptions will apply.
POSSIBLE EXEMPTIVE RELIEF
The United States Department of Labor has issued Prohibited
Transaction Class Exemptions, or PTCEs, which conditionally waive the excise
taxes and civil money penalties that might otherwise apply to certain types of
transactions. A PTCE's exemptive relief is available to any party to any
transaction which satisfies the conditions of the exemption. A partial listing
of the PTCEs which may be available for investments in Notes follows. Each of
these exemptions is available only if specified conditions are satisfied and may
provide relief for some, but not all, of the prohibited transactions that a
particular transaction may cause. You should consult with your advisors
regarding the specific scope, terms and conditions of an exemption before
relying on that exemption's availability to you.
CLASS EXEMPTIONS FOR PURCHASES AND SALES OF NOTES. The
following exemptions may apply to a purchase or sale of Notes between an ERISA
plan, a Keogh plan, an IRA or related investment vehicle, on the one hand, and a
party in interest or disqualified person, on the other hand:
o PTCE 84-14, which exempts certain transactions approved on
behalf of the plan by a qualified professional asset
manager, or "QPAM".
o PTCE 86-128, which exempts certain transactions between a
plans and certain broker-dealers.
o PTCE 90-1, which exempts certain transactions entered into
by insurance company pooled separate accounts in which plans
have made investments.
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o PTCE 91-38, which exempts certain transactions entered into
by bank collective investment funds in which plans have made
investments.
o PTCE 96-23, which exempts certain transaction approved on
behalf of a plan by an in-house investment manager, or
"INHAM".
These exemptions do not expressly address prohibited transactions that might
result from transactions incidental to the operation of the Issuer. We cannot
assure you that a purchase or sale of Notes in reliance on one of these
exemptions will not give rise to indirect prohibited transactions as a result of
the operation of the Issuer for which there is no exemption.
CLASS EXEMPTION FOR PURCHASES AND SALES OF NOTES AND
TRANSACTIONS INCIDENTAL TO THE OPERATION OF THE ISSUER. PTCE 95-60, which
exempts certain transactions involving insurance company general accounts, may
apply to purchases and sales of Notes. It also provides express exemptions for
prohibited transactions that may result from transactions incidental to the
operation of the Issuer. If this exemption applies to your purchase or sale of
Notes, it will also apply to prohibited transaction that may result from
transactions incident to the operation of the Issuer.
STATUTORY EXEMPTION FOR INSURANCE COMPANY GENERAL ACCOUNTS. In
addition to the PTCEs described above, a temporary statutory exemption may be
available if you are investing on behalf of an insurance company general account
that includes plan assets. This exemption appears in section 401(c) of ERISA.
Section 401(c) of ERISA requires the United States Department of Labor to issue
regulations defining when an insurance company general account will be deemed to
include plan assets and, hence, be subject to the ERISA prohibited transaction
rules. Generally, until 18 months after the issuance of such regulations, no
person will be subject to liability for prohibited transactions that result from
the inclusion of plan assets in an insurance company general account. If you are
investing on behalf of an insurance company general account, section 401(c)
generally provides an exemption for your purchases and sales of Notes, as well
as prohibited transactions resulting from transactions incident to the operation
of the Issuer, until 18 months after the issuance of regulations. This will be
the case as long as you have not acted to avoid the regulations or committed a
breach of fiduciary responsibilities which would also constitute a violation of
federal or state criminal law. If you are investing on behalf of an insurance
company general account, we cannot assure that the purchase or sale of Notes,
the continued holding of Notes previously purchased, or transactions incidental
to the operation of the Issuer, more than 18 months after the issuance of final
regulations would qualify for further exemptive relief.
GOVERNMENT PLANS
Government plans are generally not subject to the fiduciary
standards of ERISA or the prohibited transaction rules of ERISA or the Code.
However, many states have enacted laws which established standards of fiduciary
conduct, legal investment rules, or other requirements for investment
transactions involving the assets of government plans. If you are considering
investing in Notes on behalf of a government plan, you should consult with your
advisors regarding the requirements of applicable state law.
REQUIRED REPRESENTATIONS OF INVESTORS
In view of the investor-specific nature of the conditions on
the exemptive relief available under the PTCEs and section 401(c) of ERISA we
are requiring each investor to determine whether it is investing plan assets in
the Notes and, if it is, to determine that appropriate exemptive relief from
ERISA's prohibited transaction provisions is available. The Notes will be issued
and transferred only in book-entry form through The Depository Trust Company,
whose issuance and transfer procedures do not permit us to secure written
representations from each investor and subsequent transferee. As a result, the
Indenture provides that by purchasing a Note, you will be deemed to have
represented by such purchase to the Issuer, the Trustee, the Servicer and any
successor Servicer that one or any combination of the following statements is
true:
(1) if you are investing on behalf of an insurance company,
the source of funds to be used by such Noteholder is an "insurance
company general account" within the meaning of Department of Labor
Prohibited Transaction Exemption ("PTE") 95-60 (issued July 12, 1995)
and there is no Plan with respect to which the amount of the general
account reserves and liabilities for all contracts held by or on behalf
of such plan, exceed ten percent (10%) of the total reserves and
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liabilities of such general account (exclusive of separate account
liabilities) plus surplus, as set forth in the NAIC Annual Statement
(within the meaning of PTE 95-60) filed by the insurance company with
the insurance company's state of domicile and the purchase and holding
of the Note is exempt from the prohibited transaction rules of section
4975(c) of the Code and section 406(a) of ERISA under PTCE 95-60;
(2) such funds constitute assets of one or more insurance
company pooled separate accounts within the meaning of PTE 90-1 (issued
January 29, 1990) maintained by you, and there is no Plan whose assets
in such separate account exceed 10% of the total assets as of the date
of such purchase and the purchase and holding of the Note is exempt
from the prohibited transaction rules of section 4975(c) of the Code
and section 406(a) of ERISA under PTCE 90-1;
(3) such funds constitute assets of a bank collective
investment fund within the meaning of PTE 91-38 (issued June 12, 1991)
maintained by you, and there is no employee benefit plan whose assets
in such collective investment fund exceed 10% of the total assets as of
the date of such purchase and the purchase and holding of the Note is
exempt from the prohibited transaction rules of section 4975(c) of the
Code and section 406(a) of ERISA under PTCE 91-38;
(4) you are acquiring the Notes for the account of one or more
pension funds, trust funds or agency accounts, each of which is a
"governmental plan" as defined in Section 3(32) of ERISA and the
purchase and holding of Notes will not violate any state or other law
relating to such governmental plan;
(5) the source of funds is managed by a "qualified
professional asset manager" or "QPAM" (as defined in Part V of PTE
84-14, issued March 13, 1984), or an "INHAM" (as defined in part V of
PTE 96-23, issued April 10, 1996) and the purchase and holding of the
Note is exempt from the prohibited transaction rules of Section 4975(c)
of the Code and section 406(a) of ERISA under PTCE 84-14 or PTCE 96-23;
(6) you are acquiring the Notes for the account of an
insurance company general account and the purchase and holding of the
Note is exempt from the prohibited transaction rules of section 4975(c)
of the Code and Section 406(a) of ERISA under section 401(c) of ERISA,
the conditions of which are met and you will transfer your interest in
the Notes if and at such time as such representation is no longer true
and correct;
(7) the proposed acquisition or transfer will qualify for a
statutory or administrative prohibited transaction exemption under
ERISA and the Code or will not give rise to a transaction described in
Section 406(a) of ERISA or Section 4975(c)(1) of the Code for which a
statutory or administrative exemption is unavailable; or
(8) such funds consists of funds which do not constitute "plan
assets" within the meaning of Department of Labor Regulation 29 C.F.R.
ss. 2510.3-101.
If you are investing on behalf of more than one party or using more than one
source of funds, you must make, and will be deemed to have made one (but not
necessarily the same) of these representations as to each party or source of
funds.
If the Notes are issued as definitive securities, the transfer
of Notes to you will not be registered by the Trustee unless you provide the
Issuer, the Trustee, the Servicer and any successor Servicer with a
representation that one or any combination of statements (1) through (8) in the
preceding paragraph is an accurate representation as to all sources of funds you
are using to pay the purchase price of the Notes.
THIS DISCUSSION IS A GENERAL DISCUSSION OF SOME OF THE RULES
WHICH APPLY TO ERISA PLANS, KEOGH PLANS, IRAS, GOVERNMENT PLANS AND THEIR
RELATED INVESTMENT VEHICLES. PRIOR TO MAKING AN INVESTMENT IN NOTES, PROSPECTIVE
PLAN INVESTORS SHOULD CONSULT WITH THEIR LEGAL AND OTHER ADVISORS CONCERNING THE
IMPACT OF ERISA AND THE CODE (AND, PARTICULARLY IN THE CASE OF GOVERNMENT PLANS
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AND RELATED INVESTMENT VEHICLES, ANY ADDITIONAL STATE LAW CONSIDERATIONS), AND
THE POTENTIAL CONSEQUENCES IN THEIR SPECIFIC CIRCUMSTANCES.
LEGAL INVESTMENT
The Class A-1 Notes will be eligible securities for purchase
by money market funds under the Investment Company Act of 1940, as amended.
RATINGS
As a condition to the issuance of the Class A Notes, the Class
A-1 Notes must be rated "D-1+" by DCR , "F1+/AAA" by Fitch and "P-1" by Moody's,
the Class A-2 Notes and the Class A-3 Notes must be rated "AAA" or "Aaa", as
applicable by the Rating Agencies, the Class B Notes must be rated "AA" or
"Aa3", as applicable, by the Rating Agencies, and the Class C Notes must be
rated "A", "A+" or "A2", as applicable, by the Rating Agencies. A rating on a
security is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time. The ratings assigned to the Notes
address the likelihood of the receipt by Class A Noteholders, Class B
Noteholders and Class C Noteholders of all distributions to which such
Noteholders are entitled. The ratings assigned to the Notes do not represent any
assessment of the likelihood that principal prepayments might differ from those
originally anticipated or address the possibility that Class A Noteholders,
Class B Noteholders and Class C Noteholders might suffer a lower than
anticipated yield.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Notes
will be passed upon for the Transferor, the Contributor and the Servicer by
Melvin C. Breaux, Esq., general counsel to such parties, by Thacher Proffitt &
Wood, New York, New York, special counsel to the Underwriters and by Richards,
Layton & Finger, special counsel to the Owner Trustee.
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INDEX OF DEFINED TERMS
1933 Act..................................................................14, 52
Actual Discount Rate..........................................................16
Affiliated....................................................................17
Affiliated Contracts..........................................................32
Aggregate Discounted Contract Balance.........................................16
Amortization Event............................................................48
Article 2A....................................................................69
Assumed Discount Rate.........................................................18
Available Funds...............................................................45
Available Reserve Account Funds...............................................47
Balloon Payment...............................................................29
Bankruptcy Code...............................................................69
Beneficial Owner..............................................................42
Book-Entry Securities.........................................................41
Brokered Transactions.........................................................17
Brokers.......................................................................17
Cede .........................................................................42
Cedel Participants............................................................52
Class A Monthly Interest......................................................38
Class A Notes.................................................................14
Class A Overdue Interest......................................................38
Class A Overdue Principal.....................................................38
Class A Percentage............................................................38
Class A-1 Monthly Interest....................................................38
Class A-1 Monthly Principal...................................................38
Class A-1 Notes...............................................................14
Class A-1 Overdue Interest....................................................38
Class A-1 Overdue Principal...................................................38
Class A-2 Monthly Interest....................................................38
Class A-2 Monthly Principal...................................................38
Class A-2 Notes...............................................................14
Class A-2 Overdue Interest....................................................38
Class A-2 Overdue Principal...................................................39
Class A-3 Monthly Interest....................................................39
Class A-3 Monthly Principal...................................................39
Class A-3 Notes...............................................................14
Class A-3 Overdue Interest....................................................39
Class A-3 Overdue Principal...................................................39
Class B Monthly Interest......................................................39
Class B Monthly Principal.....................................................39
Class B Notes.................................................................14
Class B Overdue Interest......................................................39
Class B Overdue Principal.....................................................39
Class B Percentage............................................................39
Class C Monthly Interest......................................................39
Class C Monthly Principal.....................................................39
Class C Notes.................................................................14
Class C Overdue Interest......................................................40
Class C Overdue Principal.....................................................40
Class C Percentage............................................................40
Class D Monthly Interest......................................................40
Class D Monthly Principal.....................................................40
Class D Notes.................................................................14
Class D Overdue Interest......................................................40
Class D Overdue Principal.....................................................40
Class D Percentage............................................................40
Class E Monthly Interest......................................................40
Class E Monthly Principal.....................................................40
Class E Notes.................................................................14
Class E Overdue Interest......................................................40
Class E Overdue Principal.....................................................40
Class E Percentage............................................................40
Code .........................................................................70
Collection Account............................................................43
Collection Period.............................................................16
Commission....................................................................15
Committee Report..............................................................72
Conditional Payment Rate......................................................60
Considerations for Benefit Plan Investors......................................9
Contract File.................................................................18
Contract Schedule.............................................................28
Contributor...................................................................14
Cooperative...................................................................52
Corporate Trust Office........................................................37
CT .....................................................................23, 30
DCR .........................................................................35
Defaulted Contract............................................................16
Definitive Security...........................................................42
Delinquency Condition.........................................................43
Delinquent Contract...........................................................16
Deposited Available Funds.....................................................47
Determination Date............................................................35
Discount Rate.................................................................16
Discounted Contract Balance...................................................16
Distribution Account..........................................................43
DTC .........................................................................41
DVI .........................................................................14
Eligible Contract.............................................................29
Eligible Investments..........................................................43
ERISA.........................................................................75
Euroclear Operator............................................................52
Euroclear Participants........................................................52
Facilities....................................................................30
Fair Market Value Leases.......................................................2
Finance Leases.................................................................2
Financially Stronger Hospitals................................................31
Fitch.........................................................................35
Indenture Event of Default....................................................54
Initial Aggregate Discounted Contract Balance.................................16
Initial Contracts.............................................................17
Initial Reserve Account Required Amount.......................................44
IRS .........................................................................70
Lease Receivable Purchases.....................................................2
Leveraged Lease Loans..........................................................2
Lockbox Account...............................................................45
Lockbox Bank..................................................................45
Medium-Sized Hospitals........................................................30
Modeling Assumptions..........................................................60
Monthly Interest..............................................................40
Monthly Principal.............................................................41
Monthly Servicer Report.......................................................35
Moody's.......................................................................35
MRI .....................................................................22, 30
NBRC .........................................................................70
Nonrecoverable Advance........................................................16
Note Balance..................................................................41
Note Rate.....................................................................41
Note Register.............................................................37, 42
Notes.........................................................................14
Offered Notes.................................................................50
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Officer's Certificate.........................................................34
OID .........................................................................71
OID Regulations...............................................................71
Outstanding...................................................................41
Overdue Interest..............................................................41
Partial Prepayment Amount.....................................................18
Payment Date..................................................................16
Physician Groups..............................................................30
Pool A........................................................................28
Pool A Aggregate Discounted Contract Balance..................................28
Pool A Contract...............................................................28
Pool A Non-Performing Contract Substitution...................................28
Pool A Prepaid Contract Substitution..........................................28
Pool B........................................................................28
Pool B Aggregate Discounted Contract Balance..................................28
Pool B Contract...............................................................28
Pool B General Contract Substitution..........................................28
Pool B Prepaid Contract Substitution..........................................28
Predecessor Contract..........................................................17
Prepayment Amount.............................................................18
Priority Payments.............................................................47
PTE .........................................................................77
Rating Agencies...............................................................35
Repurchase Amount ............................................................17
Reserve Account...............................................................14
Reserve Account Deposit Amount................................................44
Reserve Account Property......................................................44
Reserve Account Required Amount...............................................44
Reserve Account Withdrawal....................................................44
Restricting Event.............................................................44
Rules.........................................................................51
Scheduled Termination Date.................................................4, 29
Secured Equipment Notes........................................................2
Securities Act................................................................14
Servicer Advance..............................................................17
Servicer Event of Default.....................................................57
Servicing Charges.............................................................35
Servicing Fee.................................................................35
Shared Service Providers......................................................30
Stated Maturity Date..........................................................17
Statistical Contracts.........................................................18
Subordination Deficiency Event................................................47
Substitute Contract.......................................................28, 29
Tax Counsel...................................................................70
Terms and Conditions..........................................................53
Transferor....................................................................14
Trust Agreement...............................................................37
Underwriters..................................................................14
Underwriting Agreement........................................................14
United States person..........................................................74
Voting Rights.................................................................47
S-81
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<PAGE>
PROSPECTUS
- ----------
ASSET BACKED SECURITIES ISSUABLE IN SERIES
DVI RECEIVABLES CORP.
COMPANY
DVI FINANCIAL SERVICES INC.
SERVICER
This Prospectus describes certain Asset Backed Notes (the "Notes") and
Asset Backed Certificates (the "Certificates" and, together with the Notes, the
"Securities") that may be sold from time to time in one or more series, in
amounts, at prices and on terms to be determined at the time of sale and to be
set forth in a supplement to this Prospectus (each a "Prospectus Supplement").
Each series of Securities may include one or more classes (each, a "Class") of
Notes and one or more Classes of Certificates, which will be issued either by
DVI Receivables Corp. (the "Company"), a wholly owned subsidiary of DVI
Financial Services Inc. ("DVI"), or by a trust (each a "Trust") to be formed by
the Company for the purpose of issuing one or more series of such Securities.
The Company or a Trust, as appropriate, issuing Securities as described in this
Prospectus and the related Prospectus Supplement shall be referred to herein as
the "Issuer."
Each Class of Securities of any series will either represent
indebtedness of the Issuer secured by a segregated pool of assets (the "Trust
Property") (such Securities, the "Notes") or will evidence beneficial ownership
in the Trust Property (such Securities, the "Certificates"), as described herein
and in the related Prospectus Supplement. The Trust Property will consist of a
pool of notes secured by equipment, noncancelable equipment finance leases,
conditional sales agreements or loans from DVI to Lessors secured by a pledge of
noncancelable equipment finance contracts and the related equipment ("Loans";
together with the foregoing, the "Contracts"), together in each case with
payments and proceeds received relating thereto that are payable after the
Cut-off Date set forth in the related Prospectus Supplement (the "Cut-off Date")
(the "Receivables"), all as more fully described herein and in the related
Prospectus Supplement. The Trust Property may also include interests in the
underlying equipment, which is principally medical diagnostic and therapeutic
equipment, together with the proceeds thereof (the "Equipment"). If and to the
extent specified in the related Prospectus Supplement, credit enhancement with
respect to the Trust Property or any Class of Securities may include any one or
more of the following: a financial guaranty insurance policy issued by an
insurance company, subordination of one or more Classes of Securities, a reserve
account, overcollateralization, letters of credit, credit or liquidity
facilities, third party payments or other support, cash deposits or other
arrangements. The Receivables will have been originated by DVI or acquired by
DVI from others in DVI's ordinary course of financing activities. The Company
will acquire the Receivables from DVI on or prior to the date of issuance of the
related Securities, as described herein and the related Prospectus Supplement.
A series of Securities may include one or more Classes of Securities
entitled to principal distributions, with disproportionate, nominal or no
interest distributions, or to interest distributions, with disproportionate,
nominal or no principal distributions. The rights of one or more Classes of
Securities within any series may be senior or subordinate to the rights of one
or more of the other Classes of Securities. A series may include one or more
Classes of Securities which differ as to the timing, sequential order, priority
of payment, interest rate or amount of distributions of principal or interest or
both. Information regarding each Class of Securities of a series, and certain
characteristics of the Receivables, will be set forth in the related Prospect
Supplement.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
--------------------
THE NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND THE
CERTIFICATES OF A GIVEN SERIES REPRESENT BENEFICIAL INTERESTS IN
THE RELATED TRUST ONLY AND NEITHER NOTES NOR CERTIFICATES
REPRESENT INTERESTS IN OR OBLIGATIONS OF DVI OR ANY OF
ITS AFFILIATES OTHER THAN THE ISSUER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
--------------------
Offers of the Securities may be made through one or more different
methods, including offerings through underwriters as more fully described under
"Plan of Distribution" herein and in the related Prospectus Supplement. Prior to
issuance, there will have been no market for the Securities of any series and
there can be no assurance that a secondary market for the Securities will
develop, or if it does develop, it will continue. Retain this Prospectus for
future reference. This Prospectus may not be used to consummate sales of a
series of Securities unless accompanied by a Prospectus Supplement.
The date of this Prospectus is November 30, 1998
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Securities offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement which is available for
inspection without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission at
Seven World Trade Center, 13th Floor, New York, New York 10048 and at the
Northwestern Atrium, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of the Registration Statement may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by the Company or the Servicer on
behalf of a Trust relating to any series of Securities referred to in the
accompanying Prospectus Supplement with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), after the date of this Prospectus and prior to the
termination of any offering of the Securities issued by the Company or a Trust
shall be deemed to be incorporated by reference into this Prospectus and the
related Prospectus Supplement and to be a part of hereof and thereof from the
respective dates of filing of such documents. Any statement continued herein or
in a document all or any portion of which is incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus and the related Prospectus Supplement to the
extent that a statement contained herein or in any other subsequently filed
document which also is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus or the related Prospectus Supplement.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning any Security and the related
Trust will be provided to the Securityholders. See "Description of the
Securities-Reports to Securityholders." If the Securities of a series are to be
issued in book-entry form, such reports will be provided to the Securityholder
of record and beneficial owners of such Securities will have to rely on the
procedures described herein under "Description of Securities-Book-Entry
Registration."
The Servicer will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus (not including exhibits to the
information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates). Requests for such copies should be directed to: DVI Financial
Services Inc., 500 Hyde Park, Doylestown, Pennsylvania 18901, Attention: Lisa J.
Cruikshank, Vice President, (215) 230-6375, fax number (215) 230-5328.
i
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS AND BY REFERENCE TO
THE INFORMATION WITH RESPECT TO THE SECURITIES OF ANY SERIES CONTAINED IN THE
RELATED PROSPECTUS SUPPLEMENT TO BE PREPARED AND DELIVERED IN CONNECTION WITH
THE OFFERING OF EACH SERIES OF SECURITIES. CERTAIN CAPITALIZED TERMS USED IN
THIS PROSPECTUS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROSPECTUS AND IN THE
RELATED PROSPECTUS SUPPLEMENT. A LISTING OF THE PAGES ON WHICH SOME OF SUCH
TERMS ARE DEFINED IS FOUND IN THE "INDEX OF DEFINED TERMS."
Issuer ................................With respect to each series of
Securities, either the Company or the
Trust to be formed for the purpose of
issuing such Securities. See "The
Issuer."
Servicer.................................DVI Financial Services Inc., a Delaware
corporation (the "Servicer" or "DVI").
The principal office of DVI is 500 Hyde
Park, Doylestown, Pennsylvania 18901,
and its telephone number is (215)
345-6600. Its facsimile number is (215)
230-5328. See "The Originator and
Servicer."
Originator...............................The Company will acquire the
Receivables from DVI (the
"Originator"). See "The Originator and
Servicer."
Trustee..................................The Trustee for each series of
Securities will be specified in the
related Prospectus Supplement. See "The
Trustee."
The Securities...........................Each class (a "Class") of Securities of
any series will either represent
indebtedness of the Issuer secured by a
segregated pool of assets (the "Trust
Property") (such Securities, "Notes")
or will evidence beneficial ownership
in the Trust Property (such Securities,
"Certificates"), as described herein
and in the related Prospectus
Supplement. The Trust Property will
consist of a pool of notes secured by
equipment, non-cancelable equipment
finance leases, conditional sales
agreements, or loans from DVI to
various lessors ("Lessors") secured by
a pledge of a noncancelable equipment
finance contract and the related
equipment ("Loan"; together with the
foregoing, the "Contracts"), together
in each case with all payments and
proceeds received relating thereto that
are payable after the Cut-off Date set
forth in the related Prospectus
Supplement (the "Cut-off Date") other
than certain amounts included in the
Obligor's payments for which DVI is not
the ultimate beneficiary, including,
but not limited to, property taxes,
sales taxes, manufacturer's maintenance
costs, insurance premiums and supplies
and transaction costs (the
"Receivables"). The "Obligor" is the
obligor under each Contract, including
any guarantor. The Trust Property may
also include interests in the
underlying equipment, which is
principally medical diagnostic and
therapeutic equipment, together with
the proceeds thereof (the "Equipment").
See "The Trust Property." If and to the
extent specified in the related
Prospectus Supplement, credit
enhancement ("Credit Enhancement") may
be provided with respect to the Trust
Property or any Class of Securities.
See "Credit Enhancement" below. The
Receivables will have been originated
by DVI or acquired by DVI from others
in DVI's
1
<PAGE>
ordinary course of financing
activities. The Company will acquire
the Receivables from DVI on or prior to
the date of issuance of the related
Securities, as described herein and in
the related Prospectus Supplement.
Each Class of Notes will be issued
pursuant to an indenture (each, an
"Indenture") by and between the Issuer
and the trustee named in such Indenture
(the "Indenture Trustee"). Each
Indenture will describe the related
pool of Receivables comprising the
Trust Property and securing the Notes.
Each Class of Certificates will be
issued and each Trust will be
established pursuant to an Agreement
(each, a "Pooling Agreement") by and
between the Issuer and the Trustee
named therein. Each Pooling Agreement
will describe the related pool of
Receivables held by the Trust.
The Receivables comprising the Trust
Property will be serviced by the
Servicer pursuant to a servicing
agreement (each, a "Servicing
Agreement") by and between the Servicer
and the Company and/or the related
Trustee.
The contractual arrangements relating
to the establishment of a Trust, if
any, the servicing of the related
Receivables and the issuance of the
related Securities may be contained in
a single agreement, or in several
agreements which combine certain
aspects of the Pooling Agreement, the
Servicing Agreement and the Indenture
described above (for example, a pooling
and servicing agreement, or a servicing
and collateral management agreement).
For purposes of this Prospectus, the
term "Trust Agreements" for a Class of
Securities means, collectively, and
except as otherwise described in the
related Prospectus Supplement, any and
all agreements relating to the
establishment of a Trust, if any, the
servicing of the related Receivables
and the issuance of the related
Securities. The term "Trustee" means
any and all persons acting as a trustee
pursuant to a Trust Agreement. See
"Description of the Trust Agreements."
SECURITIES WILL BE NON-RECOURSE TO THE
ORIGINATOR.
The Securities will not be obligations,
either recourse or nonrecourse, of the
Servicer, the Originator or any person
other than the Issuer. The Notes of a
given series represent obligations of
the Issuer, and the Certificates of a
given series represent beneficial
interests in the related Trust only,
and neither Notes nor Certificates
represent interests in or obligations
of DVI or any of its respective
affiliates other than the related
Issuer and, to the extent described in
the related Prospectus Supplement, the
Company. The Notes and Certificates
will not be guaranteed by any
government agency or other person. In
the case of Certificates, the sole
source of payment will be the assets of
such Trust. In the case of Notes, the
sole source of payment will be assets
comprising the related Trust Property.
2
<PAGE>
Notwithstanding the foregoing, and as
to be described in the related
Prospectus Supplement, certain types of
Credit Enhancement, such as a letter of
credit, a Policy, a special hazard
policy, a reserve fund or other form of
Credit Enhancement may constitute a
full recourse obligation of the issuer
of such Credit Enhancement. See
"Description of the Securities."
GENERAL NATURE OF THE SECURITIES AS
INVESTMENTS.
All of the Securities offered pursuant
to this Prospectus and the related
Prospectus Supplement will be rated in
one of the four highest rating
categories by one or more Rating
Agencies. See "Ratings."
Additionally, all of the Securities
offered pursuant to this Prospectus and
the related Prospectus Supplement will
be of the fixed-income type ("Fixed
Income Securities"). Fixed Income
Securities may be in the form of
Certificates or Notes.
Each series or Class of Fixed Income
Securities offered pursuant to this
Prospectus may have a different
Interest Rate, which may be a fixed or
adjustable Interest Rate. The related
Prospectus Supplement will specify the
Interest Rate for each series or Class
of Fixed Income Securities described
therein, or the initial Interest Rate
and the method for determining
subsequent changes to the Interest
Rate.
A series may include one or more
Classes of Fixed Income Securities
("Strip Securities") entitled (i) to
principal distributions with
disproportionate, nominal or no
interest distributions, or (ii) to
interest distributions, with
disproportionate, nominal or no
principal distributions. In addition, a
series of Securities may include two or
more Classes of Fixed Income Securities
that differ as to timing, sequential
order, priority of payment, Interest
Rate or amount of distribution of
principal or interest or both, or as to
which distributions of principal or
interest or both on any Class may be
made upon the occurrence of specified
events, in accordance with a schedule
or formula, or on the basis of
collections from designated portions of
the related pool of Receivables, or may
include one or more Classes of Fixed
Income Securities ("Accrual
Securities") as to which certain
accrued interest will not be
distributed but rather will be added to
the principal balance (or nominal
balance, in the case of Accrual
Securities which are also Strip
Securities) thereof on each Payment
Date, as hereinafter defined, or in the
manner described in the related
Prospectus Supplement.
If so provided in the related
Prospectus Supplement, a series may
include one or more other Classes of
Fixed Income Securities (collectively,
the "Senior Securities") that are
senior to one or more other Classes of
Fixed Income Securities (collectively,
the "Subordinate Securities") in
respect of
3
<PAGE>
certain distributions of principal and
interest and allocations of losses on
Receivables.
In addition, certain Classes of Senior
(or Subordinate) Securities may be
senior to or subordinate to other
Classes of Senior (or Subordinate)
Securities in respect of such
distributions or losses. See
"Description of the
Securities-General."
GENERAL PAYMENT TERMS OF SECURITIES.
As provided in the related Trust
Agreements and as described in the
related Prospectus Supplement, the
holders of the Securities (the
"Securityholders") will be entitled to
receive payments on their Securities on
specified dates (each, a "Payment
Date"). Payment Dates with respect to
Fixed Income Securities will occur
monthly, quarterly or semi-annually, as
described in the related Prospectus
Supplement.
The related Prospectus Supplement will
describe a date (the "Record Date")
preceding such Payment Date, as of
which the Trustee or its paying agent
will fix the identity of the
Securityholders for the purpose of
receiving payments on the next
succeeding Payment Date. Unless
otherwise described in the related
Prospectus Supplement, the Payment Date
will be the same day of each month (or,
in the case of quarterly-pay
Securities, the same day of every third
month; and in the case of semi-annual
pay Securities, the same day of every
sixth month; or if such day is not a
day on which commercial banks in New
York, New York and in the city in which
the Trustee's principal corporate trust
office ("Corporate Trust Office") is
located are required to be open for
commercial banking business (a
"Business Day"), the next following
Business Day) and the Record Date will
be the close of business as of the last
day of the calendar month that precedes
the calendar month in which such
Payment Date occurs.
Each Trust Agreement will describe a
period (each, a "Remittance Period")
antecedent to each Payment Date (for
example, in the case of monthly-pay
Securities, the calendar month
preceding the month in which a Payment
Date occurs). Unless otherwise provided
in the related Prospectus Supplement,
collections received on or with respect
to the related Receivables constituting
the Trust Property during a Remittance
Period will be required to be remitted
by the Servicer to the related Trustee
prior to the related Payment Date and
will be used to fund payments to
Securityholders on such Payment Date.
As may be described in the related
Prospectus Supplement, the related
Trust Agreements may provide that all
or a portion of the payments collected
on or with respect to the related
Receivables may be applied by the
related Trustee to the acquisition of
additional Receivables (the "Additional
Receivables") during a specified period
(rather than be used to fund payments
of principal to Securityholders during
such period) with the result that the
related Securities will possess an
4
<PAGE>
interest-only period, also commonly
referred to as a revolving period,
which will be followed by an
amortization period. Any such interest
only or revolving period may, upon the
occurrence of certain events to be
described in the related Prospectus
Supplement, terminate prior to the end
of the specified period and result in
the earlier than expected amortization
of the related Securities. As a result,
the actual yield may be less than the
anticipated yield.
In addition, and as may be described in
the related Prospectus Supplement, the
related Trust Agreements may provide
that all or a portion of such collected
payments may be retained by the Trustee
(and held in certain temporary
investments, including Receivables) for
a specified period prior to being used
to fund payments of principal to
Securityholders.
Such retention and temporary investment
by the Trustee of such collected
payments may be required by the related
Trust Agreements for the purpose of (a)
slowing the amortization rate of the
related Securities relative to the rent
payment schedule of the related
Receivables, or (b) attempting to match
the amortization rate of the related
Securities to an amortization schedule
established at the time such Securities
are issued. Any such feature applicable
to any Securities may terminate upon
the occurrence of events to be
described in the related Prospectus
Supplement, resulting in distributions
to the specified Securityholders and an
acceleration of the amortization of
such Securities. See "Description of
the Securities-General Payment Terms of
Securities."
If and to the extent provided in the
related Prospectus Supplement, the
Company will be obligated (subject only
to the availability thereof) to acquire
from the Originator and to either
transfer to a Trust or pledge to a
Trustee on behalf of Securityholders,
Additional Receivables from time to
time during any Pre-Funding Period
specified in the related Prospectus
Supplement.
No Investment Companies..................Neither the Company nor any Trust will
register as an "investment company"
under the Investment Company Act of
1940, as amended (the "Investment
Company Act").
The Company's Interest...................With respect to each Trust, the
"Company's Interest" at any time
represents the rights to the related
Trust Property remaining after
satisfaction of all Securityholders'
interests in such Trust Property. The
Company's Interest in any Trust
Property will fluctuate as the
aggregate Discounted Contract Balance
of such Trust Property changes from
time to time. In addition, the Company
may issue or cause one or more of the
Trusts (such a Trust, a "Master Trust")
to issue additional series of
Securities from time to time and any
such issuance will have the effect of
decreasing the Company's Interest in
the related Trust Property to the
extent of the aggregate principal
amount of the Securities. A portion of
the Company's Interest may be sold
5
<PAGE>
separately in one or more public or
private transactions. See "Description
of the Securities-Master Trusts."
Master Trusts; Issuance
of Additional Series.....................As may be described in the related
Prospectus Supplement, a Trust
Agreement will authorize the Trustee to
issue certificates (the "Company's
Certificates") evidencing the Company's
Interest in a Master Trust, which
initially will be held by the Company,
and may provide that, pursuant to any
one or more supplements to such Trust
Agreement, the Company may cause the
related Trustee to issue one or more
new series of Securities and
accordingly cause a reduction in the
related Company's Interest in such
Master Trust represented by the related
Company's Certificate. Under each such
Trust Agreement (each, a "Master Trust
Agreement"), the Company may determine
the terms of any such new series. See
"Description of the Securities-Master
Trusts."
The Company may cause the related
Trustee to offer any such new series to
the public or other investors, in
transactions either registered under
the Securities Act or exempt from
registration thereunder, directly or
through one or more underwriters or
placement agents, in fixed-price
offerings or in negotiated transactions
or otherwise.
A new series to be issued by a Trust
which has a series outstanding may,
unless otherwise described in the
related Prospectus Supplement, only be
issued upon satisfaction of the
conditions described herein under
"Description of the Securities-Master
Trusts" including, among others, that
such issuance will not affect the
rating given to any existing series
issued by such Master Trust. Securities
secured by Receivables held by a Master
Trust shall be entitled to moneys
received relating to such Receivables
on an equal and pro rata basis with
other Securities issued pursuant to the
other Trust Agreements by such Master
Trust. See "Description of the
Securities-Master Trusts."
Cross-Collateralization..................Unless otherwise provided in the
related Trust Agreements and described
in the related Prospectus Supplement.
the source of payment for Securities of
each series will be the assets of the
related Trust Property only.
However, as may be described in the
related Prospectus Supplement, a series
or Class of Securities may include the
right to receive moneys from a common
pool of Credit Enhancement which may be
available for more than one series of
Securities, such as a master reserve
account, master insurance policy,
master collateral pool consisting of
similar Receivables, or other forms of
cross-collateralization.
Notwithstanding the foregoing, unless
specifically described in the related
Prospectus Supplement, no payment
received on any Receivable held as
Trust Property may be applied to the
payment of Securities issued in respect
of any other Trust Property (except to
the limited extent that certain
collections in excess of the
6
<PAGE>
amounts needed to pay the related
Securities may be deposited in a common
master reserve account or an
overcollateralization account that
provides Credit Enhancement for more
than one series of Securities issued
pursuant to the related Trust
Agreement). If a form of Credit
Enhancement covers more than one series
of Securities, Securityholders of any
such series will be subject to the risk
that such Credit Enhancement will be
exhausted by the claims of
Securityholders of other series. See
"Description of the Trust
Agreements-Credit Enhancements."
Trust Property...........................As specified in the related Prospectus
Supplement, the Trust Property will
consist of the related Receivables, and
may include the related Equipment. The
Contracts are contracts for the finance
or lease of the Equipment, entitling
the lessor thereunder (the "Lessor") to
payments of rent and related payments
and to either the return of the
Equipment at the termination of the
related Contract or payment for the
residual value of the Equipment at the
election of the Obligor thereunder. The
Receivables will be originated by DVI
or acquired by DVI from others in DVI's
ordinary course of financing
activities. The Contracts will
generally be notes, loans, operating
leases, finance leases or conditional
sales agreements. The related
Prospectus Supplement will describe the
characteristics of the Receivables
included in Trust Property relating to
the Securities offered pursuant to this
Prospectus and the related Prospectus
Supplement. See "The Trust Property."
Pursuant to a Contribution Agreement,
the Company will receive the related
Receivables from the Originator at or
prior to the time the related
Securities are issued. The Company will
either transfer such Receivables to a
Trust pursuant to a Pooling Agreement
or pledge the Company's right, title
and interests in and to such
Receivables to a Trustee on behalf of
Securityholders pursuant to an
Indenture. The Receivables transferred
to a Trust or pledged to a Trustee
shall have a Discounted Contract
Balance specified in the related
Prospectus Supplement. The rights and
benefits of the Company under such
Contribution Agreement will be assigned
to the Trustee on behalf of the related
Securityholders. The obligations of the
Company and the Servicer under such
Trust Agreements include those
specified below and in the related
Prospectus Supplement. The "Discounted
Contract Balance" of a Contract as of
any Cut-off Date is the present value
of all of the remaining payments
scheduled to be made with respect to
such Contract, discounted at a rate
specified in the related Prospectus
Supplement and the applicable Trust
Agreement. See "The Trust Property" and
"Description of the Trust
Agreements-Assignment of the
Receivables Pursuant to Contribution
Agreement."
In addition, if so specified in the
related Prospectus Supplement, the
Trust Property will include monies on
deposit in a Pre-Funding Account (the
"Pre-Funding Account") to be
established with the Trustee, which
will be used to acquire Additional
Receivables from time to time during
the "Pre-
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Funding Period" specified in the
related Prospectus Supplement. If and
to the extent specified in the related
Prospectus Supplement, Credit
Enhancement may be provided with
respect to the Trust Property or any
Class of Securities. See "The Trust
Property."
Book-Entry Registration..................Unless otherwise specified in the
related Prospectus Supplement, the
Securities will be represented by
global securities registered in the
name of Cede & Co. ("Cede"), as nominee
of The Depository Trust Company
("DTC"), or another nominee. ln such
case, Securityholders will not be
entitled to receive definitive
securities representing such holders'
interests, except in certain
circumstances described in the related
Prospectus Supplement. See "Description
of the Securities-Book-Entry
Registration" and "-Definitive
Securities."
Credit
Enhancement..............................If and to the extent specified in the
related Prospectus Supplement, Credit
Enhancement with respect to any Class
or Classes of Securities may include
any one or more of the following: a
financial guaranty insurance policy
issued by an insurer (a "Policy"),
subordination of one or more other
classes of Securities, a reserve
account, overcollateralization, letters
of credit, credit or liquidity
facilities, third party payments or
other support, cash deposits or other
arrangements.
Unless otherwise specified in the
related Prospectus Supplement, any form
of Credit Enhancement will have certain
limitations and exclusions from
coverage thereunder which will be
described in the related Prospectus
Supplement. See "Description of the
Trust Agreements-Credit Enhancements."
Contribution Agreement...................Unless otherwise provided in the
related Prospectus Supplement, the
Company will be obligated to acquire
from the related Trust Property, and
DVI will be obligated to acquire from
the Company contemporaneously, any
Receivable if the interest of the
Securityholders therein is materially
adversely affected by a breach of any
representation or warranty made by the
Company or DVI with respect to such
Receivable, which breach has not been
cured. The Company's acquisition
obligation is subject to DVI's
acquisition of such Receivable from the
Company. See "Description of the Trust
Agreements-Assignment of the
Receivables Pursuant to Sales
Agreement" and the related Prospectus
Supplement.
Servicer's Compensation..................Unless otherwise specified in the
related Prospectus Supplement, the
Servicer shall be entitled to receive a
fee for servicing the Receivables equal
to a specified percentage of the
Discounted Contract Balance of such
Receivables, as set forth in the
related Prospectus Supplement. See
"Description of the Trust
Agreements-Servicing Compensation"
herein and the related Prospectus
Supplement.
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Certain Legal Matters
Affecting an Obligor's
Rights and Obligations...................With respect to the transfer of the
Receivables to the related Trust
pursuant to a Pooling Agreement or the
pledge of the Company's right, title
and interests in and to such
Receivables on behalf of
Securityholders pursuant to an
Indenture, the Company will warrant, in
each case, that the transfer by it is
either a valid transfer and assignment
of the Receivables to the Trust or the
pledge of a security interest in the
Receivables. The Company will be
required to take such action as is
required to perfect either the Trust's
or the Securityholders' security
interest in the Receivables. The
Company will warrant that if the
transfer or pledge by it to the Trust
or to the Securityholders is deemed to
be a pledge to the Trust or to the
Securityholders of a security interest
in the Receivables, then the Trust or
the Securityholders will have a first
priority perfected security interest
therein, except for certain liens which
have priority over previously perfected
security interests by operation of law,
and, with certain exceptions, in the
proceeds thereof. If the Company, the
Servicer or the Trustee, while in
possession of a Receivables, sells or
pledges and delivers such a Receivable
to another party, in violation of the
related Trust Agreements, there is a
risk that such other party could
acquire an interest in such Receivable
having priority over that of the
related Trust or the Securityholders.
Unless otherwise specified in the
related Prospectus Supplement, because
of the administrative burden and
expense that would be entailed in so
doing, neither the Originator nor the
Company has filed or will be required
to file Uniform Commercial Code ("UCC")
financing statements identifying the
Equipment as collateral pledged in
favor of the related Trust or the
Trustee on behalf of the
Securityholders. In the absence of such
filings, any security interest in the
Equipment will not be perfected in
favor of the related Trust or Trustee.
Upon request, the Originator and/or the
Company will be required to make such
filings with respect to defaulted
Receivables. See "Certain Legal Matters
Affecting an Obligor's Rights and
Obligations."
Optional Termination.....................The Company, or, if specified in the
related Prospectus Supplement, certain
other entities may, at their respective
options, effect early retirement of a
series of Securities under the
circumstances and in the manner set
forth herein under "Description of the
Trust Agreements-Termination" and the
related Prospectus Supplement.
Tax Considerations.......................The Prospectus Supplement for each
series of Securities will summarize,
subject to the limitations stated
therein, the anticipated material
federal income tax considerations
relevant to the purchase, ownership and
disposition of such Securities. See
"Material Federal Income Tax
Consequences" in the related Prospectus
Supplement.
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<PAGE>
ERISA Considerations.....................The Prospectus Supplement for each
series of Securities will summarize,
subject to the limitations discussed
therein, considerations under the
Employee Retirement Income Act of 1974,
as amended ("ERISA") relevant to the
purchase of such Securities by employee
benefit plans and individual retirement
accounts. See "ERISA Considerations" in
the related Prospectus Supplement.
Ratings..................................Each Class of Securities offered
pursuant to this Prospectus and the
related Prospectus Supplement will be
rated in one of the four highest rating
categories by one or more "national
statistical rating organizations" as
defined in the Securities Exchange Act
of 1934, as amended (the "Exchange
Act"), and commonly referred to as
"Rating Agencies." Such ratings will
address, in the opinion of such Rating
Agencies, the likelihood of the receipt
by the related Securityholders of all
distributions to which such
Securityholders are entitled. Such
ratings will neither address any
prepayment or yield considerations
applicable to any Securities nor
constitute a recommendation to buy,
sell or hold any Securities and may be
subject to revision or withdrawal at
any time. See "Ratings" in the related
Prospectus Supplement.
The ratings expected to be received
with respect to any Securities will be
set forth in the related Prospectus
Supplement.
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RISK FACTORS
Prospective Securityholders should consider, among other
things, the following factors in connection with the purchase of the Securities:
LIMITED LIQUIDITY. There can be no assurance that a secondary
market for the Securities of any series or Class will develop or, if it does
develop, that it will provide Securityholders with liquidity of investment or
that it will continue for the life of such Securities. The Prospectus Supplement
for any series of Securities may indicate that an underwriter specified therein
intends to establish and maintain a secondary market in such Securities;
however, no underwriter will be obligated to do so. Unless otherwise specified
in the related Prospectus Supplement, the Securities will not be listed on any
securities exchange.
OWNERSHIP OF RECEIVABLES. In connection with the issuance of
any series of Securities, the Originator will contribute the Receivables to the
Company. The Originator will warrant in a Contribution Agreement that the
transfer of the Receivables by it to the Company is a valid assignment, transfer
and conveyance of such Receivables. The Company will warrant in a Trust
Agreement (x) if the Company retains title to the Receivables, that it has
granted to the Trust for the benefit of Securityholders a valid first priority
perfected security interest in such Receivables or (y) if the Company transfers
such Receivables to a Trust, that the transfer of the Receivables by it to such
Trust is either a valid assignment, transfer and conveyance of the Receivables
to the Trust or a pledge to the Trustee on behalf of the Securityholders of a
valid first priority perfected security interest in such Receivables. Unless
otherwise stated in the related Prospectus Supplement, initially DVI, as
Servicer, will hold the original counterparts of the Contracts as well as copies
of documents and instruments relating to each Contract and evidencing the
security interest in the Equipment securing each Contract (collectively the
"Contract File"); PROVIDED that upon the occurrence of a Servicer Event of
Default, the Trustee may take possession of such original documents as necessary
to protect the Securityholders' rights, powers and remedies with respect to the
Trust Property. If the Company, the Servicer or the Trustee, while in possession
of the Contracts, sells or pledges and delivers such Contracts to another party,
in violation of the Contribution Agreement or the Trust Agreements, there is a
risk that such other party could acquire an interest in such Contracts having a
priority over the Issuer's interest. However, DVI or the Company, as the case
may be, has caused the electronic ledger, the Contract File (including the
Contract, unless otherwise specified in the related Prospectus Supplement) with
respect to each Contract and the list of receivables (the "List of Receivables")
to be clearly and unambiguously marked to show that such Contract has been
contributed by DVI to the Company and pledged by the Company to the Trustee for
the benefit of the Securityholders pursuant to the applicable Trust Agreements.
The Originator and the Company will make certain representations and warranties
with respect to the ownership of the Receivables as of the date of the transfer
to the Company and the Trust, if any, respectively. Unless otherwise provided in
the related Prospectus Supplement, the Company will be obligated to acquire from
the related Trust Property any Receivables if the interest of the
Securityholders therein is materially adversely affected by a breach of any
representation or warranty made by the Company or the Originator with respect to
such Receivable, which breach has not been cured. The Originator will be
obligated to acquire any such Receivable from the Company pursuant to the
related Contribution Agreement contemporaneously with the Company's acquisition
of any such Receivable from the applicable Trust Property. The obligation of the
Company to acquire any such Receivable with respect to which the Originator has
breached a representation or warranty is subject to the Originator's acquisition
of such Receivable from the Company.
SECURITY INTEREST IN THE EQUIPMENT. The Originator will also
contribute all of its right, title and interest in and to the Equipment to the
Company. The Contribution Agreement requires the Originator to make certain
representations and warranties with respect to the transfer of title and
priority of such security interest in the Equipment. The Company will either
transfer the Equipment to a Trust or will pledge all of its right, title and
interest in and to such Equipment to secure the Securities. Pursuant to a Trust
Agreement, the Company will warrant (x) if the Company transfers such Equipment
to a Trust, that such transfer is either a valid assignment, transfer and
conveyance of such Equipment to the Trust or a grant to the Trust
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<PAGE>
of a valid security interest in such Equipment or (y) if the Company retains
title, that it has granted to the Trustee for the benefit of Securityholders a
valid security interest in such Equipment. Unless otherwise specified in the
related Prospectus Supplement, because of the administrative burden and expense
that would be entailed in so doing, neither DVI nor the Company has filed or
will be required to file UCC financing statements identifying the Equipment as
collateral pledged in favor of the related Trust or the Trustee on behalf of the
Securityholders. In the absence of such filings, any security interest in the
Equipment will not be perfected in favor of the related Trust or Trustee. In
most states, an assignment such as those under the Contribution Agreement and
the applicable Trust Agreement should be an effective conveyance of an existing
security interest in the Equipment (but not of an ownership interest in the
Equipment) without the filing of such UCC financing statements, and the assignee
should succeed to the assignor's rights as secured party against the transferees
and creditors of the Obligor. However, if the assignment was determined not to
be an effective conveyance of a security interest in the Equipment, or if the
Obligor of the Equipment relocated to another state or resold the Equipment in
another state without re-perfection of the security interest in such state, of
if there has been fraud, the Trust may not have a perfected security interest in
such Equipment. In the event of a breach of the Company's warranty which has a
material and adverse effect on the interests of the Trust in a Receivable and
which remains uncured, the only recourse of the Trust would be to require the
Company to repurchase the affected Receivable.
RESTRICTIONS ON RECOVERIES. Unless otherwise specified in the
related Prospectus Supplement, the Contracts provide that the obligations of the
Obligors thereunder are absolute and unconditional, regardless of any defense,
set-off or abatement which the Obligor may have against the Originator or any
other person or entity whatsoever. Obligors of the Equipment may be entitled to
assert against the Originator, the Company, or the Trust, if any, claims and
defenses which they have against the Originator with respect to the Receivables.
The Originator will warrant that no claims or defenses have been asserted or
threatened with respect to the Contracts and that all requirements of applicable
law with respect to the Contracts have been satisfied.
In the event that the Company or the Trustee must rely on
repossession and disposition of Equipment to recover scheduled payments due on
defaulted Contracts, the Issuer may not realize the full amount due on a
Contract (or may not realize the full amount on a timely basis). Other factors
that may affect the ability of the Issuer to realize the full amount due on a
Contract include the lack of financing statements to perfect the security
interest in the Equipment, depreciation, obsolescence, damage or loss of any
item of Equipment, and the application of Federal and state bankruptcy and
insolvency laws. As a result, the Securityholders may be subject to delays in
receiving payments and suffer loss of their investment in the Securities.
RECEIVABLE SUBSTITUTIONS. DVI may have the right in certain
circumstances to replace prepaid or defaulted Receivables with substitute
Receivables. See "The Receivables" in the related Prospectus Supplement. In the
event of a substitution, Securityholders will experience different payment flows
than if the proceeds of the defaulted or prepaid Receivable had been paid
through to Securityholders.
INSOLVENCY AND BANKRUPTCY MATTERS. The Company has taken steps
in structuring the transactions contemplated hereby that are intended to ensure
that the voluntary or involuntary application for relief by the Originator under
the United States Bankruptcy Code or similar applicable state laws ("Insolvency
Laws") will not result in consolidation of the assets and liabilities of the
Company with those of the Originator. These steps include the creation of the
Company as a separate, limited-purpose subsidiary pursuant to articles of
incorporation containing certain limitations (including restrictions on the
nature of the Company's business and a restriction on the Company's ability to
commence a voluntary case or proceeding under any Insolvency Law without the
prior unanimous affirmative vote of all its directors). However, there can be no
assurance that the activities of the Company would not result in a court
concluding that the assets and liabilities of the Company should be consolidated
with those of the Originator in a proceeding under any Insolvency Law. See "The
Company."
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<PAGE>
In addition, while the Originator is the Servicer, cash
collections held by the Originator may, subject to certain conditions, be
commingled and used for the benefit of the Originator prior to each Payment Date
and, in the event of the bankruptcy of the Originator, the Company, a Trust or
Trustee may not have a perfected security interest in such collections.
The Originator will warrant in a Contribution Agreement that
the transfer of the Receivables by Originator to the Company will be treated as
a valid assignment, transfer and conveyance of the Receivables. However, in the
event of an insolvency of the Originator, a court, among other remedies, could
attempt to recharacterize the transfer of the Receivables by the Originator to
the Company as a borrowing by the Originator from the Company or the related
Securityholder, secured by a pledge of such Receivables. Such an attempt, even
if unsuccessful, could result in delays in payments on the Securities. If such
an attempt were successful, a court, among other remedies, could elect to
accelerate payment of the Securityholders and liquidate the Receivables, with
the Securityholders entitled to the then outstanding principal amount thereof
and interest thereon at the applicable Interest Rate to the date of payment.
Thus, the Securityholders could lose the right to future payments of interest
and might incur reinvestment losses. Unless otherwise described in the related
Prospectus Supplement, in the event the Company is rendered insolvent, the
Trustee for a Trust, in accordance with the Trust Agreements, will promptly
sell, dispose of or otherwise liquidate the related Receivables in a
commercially reasonable manner on commercially reasonable terms. The proceeds
from any such sale, disposition or liquidation of such Receivables will be
treated as collections on such Receivables. If the proceeds from the liquidation
of the Receivables and any amount available from any Credit Enhancement, if any,
are not sufficient to pay Securities of the related series in full, such
Securityholders will incur a loss.
EQUIPMENT OBSOLESCENCE. In the event a Receivable becomes a
defaulted Contract and the Obligor has insufficient assets available to pay the
contract payments on the scheduled payment dates, the only other source of
payment (other than the applicable Credit Enhancements, if any) for such amounts
will be the income and proceeds from the disposition of the related Equipment.
Because the market value of equipment generally declines with age, in the event
of a repossession and sale of Equipment subject to a defaulted Contract, the
Issuer may not recover the entire amount due on such Receivable. Some of the
Equipment also may be subject to sudden, significant declines in value because
of technological advances. As a result, the Securityholders may be subject to
delays in payments and losses.
DELINQUENCIES. There can be no assurance that the levels of
delinquencies and losses experienced in recent years by the Originator on its
equipment lease portfolio are indicative of the performance of the Receivables
comprising any Trust Property or that such levels will continue in the future.
Delinquencies and losses could increase significantly for various reasons,
including changes in the federal income tax law, changes in the local, regional
or national economies or other events which are unknown at this time.
SUBORDINATION; LIMITED ASSETS. To the extent specified in the
related Prospectus Supplement, distributions of interest and principal on one
Class of Securities of a series will be subordinated in priority of payment to
interest and principal due on other Classes of Securities of a related series.
In addition, holders of certain Classes of Securities of any series may have the
right to take actions that are detrimental to the interests of the holders of
Securities of certain other Classes of Securities of such series. Moreover, the
Trust Property securing Securities of a related series will not include, nor is
it permitted or expected to include, any significant assets or sources of funds
other than the related Receivables and, to the extent provided in the related
Prospectus Supplement, a Pre-Funding Account, the related reserve account and
any other Credit Enhancement. The Securities issued by a Trust or by the Company
represent obligations solely of the related Trust or debt secured by the related
Trust Property, and will not represent a recourse obligation to any other assets
of the Company, the Originator, the Servicer or any other person. No series of
Securities will be insured or guaranteed by the Company, the Servicer, the
applicable Trustee or any other person or entity, except for any applicable
Credit Enhancement. Consequently, holders of the Securities of any series must
rely for repayment primarily upon payments on the Receivables and, if and to the
extent available, amounts on deposit in the Pre-Funding Account, if any, the
reserve account, if any, and any other Credit
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<PAGE>
Enhancement, all as specified in the related Prospectus Supplement. In certain
circumstances, the Originator and the Company will be required to purchase
Receivables from the related Trust with respect to which representations and
warranties with respect to the characteristics of such Receivables have been
breached. See "Description of the Trust Agreements-Sale and Assignment of
Receivables." Any delay in such purchase, or failure to purchase, could delay
payments or cause losses to Securityholders.
MASTER TRUSTS. As may be described in the related Prospectus
Supplement, a Master Trust may issue from time to time more than one series.
While the terms of any additional series will be specified in a supplement to
the related Master Trust Agreement, the provisions of such supplement and,
therefore, the terms of any additional series, will not be subject to prior
review by, or consent of, holders of the Securities of any series previously
issued by such Master Trust. Such terms may include methods for determining
applicable investor percentages and allocating collections. provisions creating
different or additional security or Credit Enhancements and any other provisions
which are made applicable only to such series. The obligation of the related
Trustee to issue any new series is subject to the condition, among others, that
such issuance will not result in any Rating Agency reducing or withdrawing its
rating of the Securities of any outstanding series (any such reduction or
withdrawal is referred to herein as a "Ratings Effect"). There can be no
assurance, however, that the terms of any series might not have an impact on the
timing or amount of payments received by a Securityholder of another series
issued by the same Master Trust. See "Description of the Securities-Master
Trusts."
BOOK-ENTRY REGISTRATION. Issuance of the Securities in
book-entry form may reduce the liquidity of such Securities in the secondary
trading market since investors may be unwilling to purchase Securities for which
they cannot obtain definitive physical securities representing such
Securityholders' interests. Since transactions in Securities will, in most
cases, be able to be effected only through DTC or DTC's participants, the
ability of a Securityholder to pledge a Security to persons or entities that do
not participate in the DTC system, or otherwise to take actions in respect to
such Securities, may be limited due to lack of a physical security representing
the Securities. Securityholders may experience some delay in their receipt of
distributions of interest on and principal of the Securities since distributions
will be forwarded by the Trustee to Cede, as nominee for DTC, and, in such
cases, DTC will forward such payments to its Participants which thereafter will
forward them to the accounts of the applicable class of Securityholders either
directly or indirectly through Indirect Participants. See "Description of the
Securities-Book-Entry Registration."
SECURITY RATING. The rating of Securities which are credit
enhanced by a letter of credit, a Policy, a special hazard policy, a reserve
fund, credit or liquidity facilities, cash deposits or other forms of Credit
Enhancement will depend primarily on the creditworthiness of the issuer of any
such external Credit Enhancement (a "Credit Enhancer"). Any reduction in the
rating assigned to the ability of the Credit Enhancer to honor its obligations
pursuant to any such Credit Enhancements below the rating initially given to the
Securities would likely result in a reduction in the rating of the Securities.
MATURITY AND PREPAYMENT CONSIDERATIONS. Because the rate of
payment of principal on the Securities will depend, among other things, on the
rate of payment on the Contracts, the rate of payment of principal on the
Securities cannot be predicted. Payments on the Contracts will include scheduled
payments as well as partial and full prepayments (to the extent not replaced
with substitute Receivables), payments upon the liquidation of defaulted
Contracts, payments upon acquisitions by the Company of Contracts from the
related Trust Property on account of a breach of certain representations and
warranties in the related Trust Agreement, payments upon an optional acquisition
by the Company of Contracts from the related Trust Property (any such voluntary
or involuntary prepayment or other early payment of a Contract, a "Prepayment)
and residual payments. The Contracts generally do not permit Prepayment at the
Obligor's option. The rate of early terminations of Contracts due to Prepayments
and defaults may be influenced by a variety of economic and other factors which
are unknown at this time. The risk of reinvesting distributions of the principal
of the Securities will be borne by the Securityholders. The yield to maturity on
Strip Securities or Securities purchased at premiums or discounts to par will be
extremely sensitive to the rate of Prepayments on the related Receivables. In
addition, the yield to maturity on certain other types of Classes of
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Securities, including Strip Securities, Accrual Securities or certain other
Classes in a series including more than one Class of Securities, may be
relatively more sensitive to the rate of Prepayment on the related Receivables
than other Classes of Securities. No assurance can be given as to the level of
Prepayments that a Trust will experience. See "The Receivables-Maturity and
Prepayment Considerations."
Securityholders should consider, in the case of Securities
purchased at a discount, the risk that a slower than anticipated rate of
Prepayments on the Receivables could result in an actual yield that is less than
the anticipated yield and, in the case of any Securities purchased at a premium,
the risk that a faster than anticipated rate of Prepayments on the
Receivables could result in an actual yield that is less than the anticipated
yield.
GOVERNMENT REGULATION. The current administration has
recommended comprehensive changes in federal regulation and reimbursement
policies relating to health care delivery in the United States. Any legislation
ultimately adopted in 1998 or thereafter, may affect the regulation and
availability of, and the pricing and reimbursement applicable to health care
products and services, including financing services provided by the Servicer.
The Servicer cannot accurately predict the effect, if any, that any such
legislation will have on the Servicer or on the ability of an Obligor to satisfy
its payment obligations.
LOANS. The Loans from DVI to various Lessors have been secured
by a pledge by the Lessor to DVI of a first priority security interest in a
noncancelable equipment finance contract and all of Lessor's right, title and
interest in the related Equipment. If a Lessor were to seek protection under the
Bankruptcy Code, then Lessor, as debtor-in possession, or a bankruptcy trustee,
would have the option of assuming, rejecting or, subject to certain conditions,
assigning to a third party any of its unexpired leases including such equipment
finance contracts. If a Lessor were to reject any of the equipment finance
contracts, then the Issuer and the Securityholders could experience delays in
payment or losses on their investment.
THE TRUST PROPERTY
The Trust Property will include, unless otherwise specified in
the related Prospectus Supplement, (i) a pool of Receivables, (ii) all payments
and proceeds (including accrued interest) due thereunder on or after the
applicable Cut-off Date other than certain amounts included in the Obligor's
payment for which DVI is not the ultimate beneficiary, including, but not
limited to, property taxes, sales taxes, manufacturer's maintenance costs,
insurance premiums and supplies and transaction costs, (iii) such amounts as
from time to time may be held in one or more accounts established and maintained
by the Servicer pursuant to the related Trust Agreements, as described below and
in the related Prospectus Supplement, (iv) security interests in the Equipment
relating to such pool of Receivables, (v) the right to proceeds from claims on
physical damage policies, if any, covering such Equipment or the related
Obligors, as the case may be, (vi) the proceeds of any such Equipment which is
repossessed, (vii) the rights of the Company under the related Contribution
Agreement and (viii) interest earned on short-term investments made by such
Trust. The Trust Property will also include, if so specified in the related
Prospectus Supplement, monies on deposit in a Pre-Funding Account, which will be
used by the Trustee to acquire or receive a security interest in Additional
Receivables from the Company from time to time during the Pre-Funding Period
specified in the related Prospectus Supplement. In addition, to the extent
specified in the related Prospectus Supplement, some combination of Credit
Enhancements may be issued to or held by the Trustee on behalf of the related
Trust Property for the benefit of the holders of one or more Classes of
Securities.
The Receivables will, unless otherwise specified in the related
Prospectus Supplement, be originated by the Originator or acquired by DVI from
others in DVI's ordinary course of financing activities. The Contracts will
generally be notes, loans, operating leases, finance leases or conditional sales
agreements. Finance Leases provide that the Lessor transfer substantially all
benefits and risks of ownership to the Obligor. In accordance with Statement of
Financial Accounting
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Standards No. 13 ("FASB 13"), a lease is classified as a Finance Lease if the
collectibility of lease payments is reasonably certain and it meets one of the
following criteria: (1) the lease transfers title and ownership of the equipment
to the Obligor by the end of the lease term; (2) the lease contains a bargain
purchase option; (3) the lease term at inception is at least 75% of the
estimated life of the equipment; or (4) the present value of the minimum lease
payments is at least 90% of the fair market value of the equipment at inception
of the lease. All leases which do not meet the criteria of Finance Leases are
classified, in accordance with FASB 13, as Operating Leases. The Receivables
will be contributed to the Company by the Originator pursuant to a Contribution
Agreement between the Originator and the Company (each, a "Contribution
Agreement). The Receivables will be selected based on the criteria specified in
the applicable Trust Agreement and described herein or in the related Prospectus
Supplement. As of the applicable Cut-off Date, in accordance with the
Contribution Agreement, no Obligor of any Receivable will be noted on the
related records of the Originator as being the subject of a bankruptcy
proceeding. No selection procedures believed by the Originator or the Company to
be adverse to the Securityholders of any series will be used in selecting the
related Receivables.
On or prior to the Closing Date on which the Securities are
delivered to Securityholders (such date to be specified in the related
Prospectus Supplement, the "Closing Date") with respect to each series of
Securities, the Company will either transfer such Receivables to a Trust
pursuant to a Trust Agreement between the Company and the Trustee or will pledge
the Company's right, title and interest in and to such Receivables to a Trustee
on behalf of Securityholders pursuant to an Indenture. The Receivables
transferred to a Trust or pledged to a Trustee shall have a Discounted Contract
Balance specified in the related Prospectus Supplement. The "Discounted Contract
Balance" of a Contract as of any Cut-off Date is the present value of all the
remaining payments scheduled to be made with respect to such Contract,
discounted at a rate specified in the related Prospectus Supplement and the
applicable Trust Agreement.
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UNDERWRITING CRITERIA
CREDIT UNDERWRITING AND REVIEW PROCESS
DVI has established specific credit guidelines that help
identify and predict the ability of a prospective Obligor to meet its financial
obligations to DVI. DVI believes these guidelines have contributed positively to
its loss experience since its inception in July 1986. The guidelines are
flexible so as to recognize the variables that are most relevant among different
customer types within DVI's targeted markets, E.G., providers of medical
services which are not located in a licensed hospital facility ("Outpatient
Healthcare Providers"), physicians and multiple primary care physicians which
have grouped together to provide medical services ("Physician Groups"),
hospitals which contain between 50 to 400 beds ("Medium-Sized Hospitals") and
entities which acquire and provide medical equipment to multiple users on a per
use or time basis ("Shared Service Providers"). Because of the relatively large
size of DVI's equipment financing transactions, each transaction is analyzed and
reviewed on its own merits. Pursuant to DVI policy, the senior credit committee
(the "Senior Credit Committee") has the final approval authority on all
financial transactions.
DVI has historically focused most of its equipment financing
efforts on the non-hospital sector of the medical equipment marketplace, which
DVI believes requires a rigorous credit analysis and structuring discipline.
From a credit perspective, most outpatient medical facilities ("Outpatient
Medical Facilities") that operate high-cost equipment. such as magnetic
resonance imaging ("MRI") systems, are businesses which have few employees,
minimal inventory and limited space requirements. Outpatient Medical Facilities
are facilities which provide medical service to patients who are not admitted to
a hospital, or provide various services to a hospital's inpatients outside of
the licensed hospital facility. They are normally characterized as having a high
proportion of fixed costs to total costs and, as a result, are revenue driven.
For these reasons, DVI's credit analysis is heavily focused on understanding and
substantiating the projected revenue sources of a project. This process often
takes from three to nine months and includes person-to-person contact with
identified patient referral sources, analysis of a physician's patient referral
history and a thorough analysis of actual and prospective competition. Projected
expenses are examined for thoroughness and compared against the actual expenses
of similar facilities financed by DVI.
DVI's policy is to become involved early in the planning
process of a project, as it then has the opportunity to structure the
transaction to DVI's specific credit guidelines. Among numerous factors, this
process generally involves: (i) prescribing minimum working capital and net
worth requirements; (ii) requiring outside financial support as needed in the
form of cash equity, additional collateral, guarantees or fee subordinations;
(iii) ensuring that all key parties are at risk; and (iv) establishing that the
contractual relationship with the user is well conceived and documented.
In evaluating Medium-Sized Hospital credits, DVI generally
takes a similar approach, although in the case of financially stronger hospitals
("Financially Stronger Hospitals") a modified, somewhat less stringent approach
may be applied. Financially Stronger Hospitals are hospitals which in DVI's
judgment have a consistent history of earnings, a sound capital structure and
generate sufficient cash flow to repay their short-term and long-term
obligations with an adequate margin of safety. DVI also has made the impact on
each customer of the industry trend toward managed care an increasingly
important credit measurement for the past several years. In addition, DVI
considers the ability of a prospective Obligor to contract with managed care
payors and providers to be very important. At various stages in the structuring
and credit approval process, credit information is submitted by field sales
personnel to DVI's sales and credit personnel for discussion and structuring
purposes. When fully completed, a formal credit package is prepared and sent to
the Senior Credit Committee.
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PORTFOLIO MONITORING AND CREDIT COLLECTIONS
Key members of the credit, sales, operations and accounting
departments meet regularly to discuss the contract portfolio delinquency report
and the status of delinquent borrowers. Delinquent Obligors are contacted
immediately by the collection and/or sales department, with other staff members
intervening as deemed necessary. The collection of large-balance delinquent
accounts and severely delinquent accounts is administered personally by DVI's
Director of Portfolio Management. Once DVI suspects that an Obligor may
experience problems in meeting its obligations. DVI acts to identify a new
operator of the equipment in the event that the Obligor defaults. Any
repossessions are handled on an individual transaction basis. Due to the
relatively small number of Contracts in DVI's portfolio, management possesses a
high degree of familiarity with virtually the entire Obligor base.
THE RECEIVABLES
RECEIVABLE POOLS
Information with respect to the Receivables comprising Trust
Property will be set forth in the related Prospectus Supplement, including, to
the extent appropriate, the composition of such Receivables and the distribution
of such Receivables by equipment type and current principal balance and/or
Discounted Contract Balance as of the applicable Cut-off Date.
DELINQUENCIES, REPOSSESSIONS, AND NET LOSSES
Certain information concerning the Originator's delinquency,
repossession and net loss experience with respect to equipment lease contracts
it has originated or acquired will be set forth in each Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, this
information will include the experience with respect to all equipment lease
contracts in the Originator's portfolio during certain specified periods,
including contracts which may not meet the criteria for selection as a
Receivable for any particular Trust Property. There can be no assurance that the
delinquency, repossession and net loss experience of any Trust Property will be
comparable to the Originator's prior experience.
MATURITY AND PREPAYMENT CONSIDERATIONS
The related Prospectus Supplement will specify if the related
Contracts will be prepayable at any time, although DVI's contracts generally may
not be prepaid at the option of the Obligors. Unless otherwise described in the
related Prospectus Supplement, each Prepayment received will shorten the
weighted average life of the related pool of Receivables and the weighted
average life of the related Securities. The rate of Prepayments on the
Receivables may be influenced by a variety of economic, financial and other
factors which are unknown at this time. In addition, under certain
circumstances, the Company or the Originator will be obligated to acquire
Receivables from the related Trust Property pursuant to the applicable Trust
Agreement or Contribution Agreement as a result of breaches of representations
and warranties. Any reinvestment risks resulting from a faster or slower
amortization of the related Securities which results from Prepayments will be
borne entirely by the related Securityholders.
The related Prospectus Supplement will set forth certain
additional information with respect to the maturity and Prepayment
considerations applicable to a particular pool of Receivables and the related
series of Securities.
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POOL FACTORS
The "Pool Factor" for each Class of Securities will be a
seven-digit decimal which the Servicer will compute prior to each distribution
with respect to such Class of Securities indicating the remaining outstanding
balance of such Class of Securities as of the applicable Payment Date, as a
fraction of the initial outstanding principal balance of such Class of
Securities. A Securityholder's portion of the aggregate outstanding principal
balance of the related Class of Securities is the product of (i) the original
denomination of such Securityholder's Security and (ii) the applicable Pool
Factor.
Unless otherwise provided in the related Prospectus Supplement
with respect to each series of Securities, the related Securityholders of record
will receive reports on or about each Payment Date concerning the payments
received on the Receivables, the Pool Balance (as such term is defined in the
related Prospectus Supplement, the "Pool Balance"), each Pool Factor and various
other items of information. In addition, Securityholders of record during any
calendar year will be furnished information for tax reporting purposes not later
than the latest date permitted by law.
USE OF PROCEEDS
Unless otherwise provided in the related Prospectus Supplement,
the proceeds from the sale of the Securities of a given series will be applied
by the related Issuer to the acquisition of the related Receivables. The Company
expects that it will make additional sales of securities similar to the
Securities from time to time, but the timing and amount of any such additional
offering will be dependent upon a number of factors, including the volume of
Contracts acquired by the Company, prevailing interest rates, availability of
funds and general market conditions.
THE ISSUER
With respect to each series of Securities, the Company will
either establish a separate Trust that will issue such Securities or the Company
will issue such Securities, in each case pursuant to the related Trust
Agreements. For purposes of this Prospectus and the related Prospectus
Supplement, the Company, if the Company issues the related Securities, or the
related Trust, if a Trust issues the related Securities, shall be referred to as
the "Issuer." The Issuer will not engage in any activity other than (i)
acquiring, holding and managing the Receivables received pursuant to the related
Trust Agreement and the other Trust Property and proceeds therefrom, (ii)
issuing the Securities of the related series, (iii) making payments, or causing
payments to be made, on such Securities and (iv) engaging in other activities
that are necessary, suitable or convenient to accomplish the foregoing or are
incidental thereto or connected therewith.
Upon the issuance of the Securities of a given series, the
proceeds from such issuance will be used to acquire Receivables from the
Originator pursuant to the related Contribution Agreement. The Servicer will
service the Receivables pursuant to the applicable Servicing Agreement, and will
be compensated for acting as the Servicer. Unless otherwise indicated in the
Prospectus Supplement, the Servicer will be appointed custodian for the related
Receivables by each Trustee and the Company in order to facilitate servicing and
to minimize administrative burden and expense.
THE COMPANY
DVI Receivables Corp, (the "Company") is a limited purpose
corporation organized under the laws of the State of Delaware on January 21,
1994. All of the Company's outstanding capital stock is owned by the Originator.
The Company's principal executive office is located at 500 Hyde Park,
Doylestown, Pennsylvania 18901. Its telephone number is (215) 345-6600.
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The Company is a wholly owned subsidiary of the Originator. The
Company does not intend to engage in any business or investment activities other
than acquiring, owning, leasing, transferring, receiving or pledging the assets
transferred to the Company pursuant to a Contribution Agreement. The Company's
articles of incorporation (the "Articles of Incorporation") limit the Company's
business and investment activities to the above purposes and to any activities
necessary, suitable or convenient to accomplish the foregoing or incidental
thereto. Pursuant to the Company's Articles of Incorporation, the limitations so
imposed on the Company's business may only be altered upon the unanimous vote of
the stockholders and the unanimous affirmative vote of all of the Company's
directors, including the Independent Director. The Company's "Independent
Director" is not permitted to be a director, officer or employee of any direct
or ultimate parent or affiliate of the Originator, PROVIDED, HOWEVER, that such
Independent Director may serve in similar capacities for other limited purpose
corporations which are affiliated with the Originator. The Company's Articles of
Incorporation require the Company, at all times, to have at least one
Independent Director. The Articles of Incorporation further prohibit the
Company, without the unanimous affirmative vote of its directors, from (1)
instituting or consenting to the institution of bankruptcy or insolvency
proceedings, (2) merging or consolidating with another corporation, (3)
incurring, assuming or guaranteeing any indebtedness other than as otherwise
provided in the Articles of Incorporation, or (4) engaging in any other actions
that would have a negative impact on whether the separate legal entity of the
Company and the Originator will be respected.
The Company has taken steps in structuring the transactions
contemplated hereby that are intended to ensure that a voluntary or involuntary
petition for relief by the Originator under any Insolvency Law will not result
in consolidation of the assets and liabilities of the Company with those of the
Originator. These steps include the creation of the Company as a separate,
limited purpose corporation having restrictive Articles of Incorporation as
described above. However, there can be no assurance that the activities of the
Company would not result in a court's concluding that the assets and liabilities
of the Company should be consolidated with those of the Originator in a
proceeding under any Insolvency Law. See "Risk Factors-Insolvency and Bankruptcy
Matters."
In addition, with respect to each Trust, the related Trustee
and all Securityholders will covenant that they will not at any time institute
against the Company any bankruptcy, reorganization or other proceeding under any
federal or state bankruptcy or similar law.
The Company will not acquire any assets other than the
Receivables and other assets transferred by the Originator pursuant to the
Contribution Agreements.
The Originator will warrant to the Company in each Contribution
Agreement that the transfer of the related Receivables by it to the Company is a
valid transfer of the Receivables to the Company. In addition, the Originator
and the Company will treat the transactions described herein and in the related
Prospectus Supplement as a transfer of the Receivables to the Company and the
Company will take all actions that are required to perfect the Company's
ownership interest in the Receivables. Notwithstanding the foregoing, the
Originator or others could later take the position that the transfer of the
Receivables to the Company is a pledge, rather than a contribution, of such
Receivables, which could adversely affect Securityholders. See "Risk
Factors-Insolvency and Bankruptcy Matters."
THE ORIGINATOR AND SERVICER
DVI is engaged in the business of providing financing for users
of diagnostic imaging, therapeutic and other sophisticated medical equipment.
DVI focuses primarily on financing technologically advanced medical equipment
such as computerized tomography ("CT"), MRI, nuclear medicine and radiation
therapy systems for a customer base that consists principally of Outpatient
Healthcare Providers, physicians and Physician Groups, Medium-Sized Hospitals
and Shared Service Providers.
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DVI's policy is to provide financing to its customers in
transactions which, with very limited exceptions. take the form of direct
financing leases and loans. Most of DVI's equipment financing transactions have
a term of approximately 60 months and, in most cases, are full payout
transactions that allow DVI to recover all the costs of acquiring and financing
the equipment during the initial non-cancelable term. The equipment financed by
DVI generally ranges from $100,000 to $2.0 million in cost.
DVI's principal office is located at 500 Hyde Park, Doylestown,
Pennsylvania 18901, and its telephone number is (215) 345-6600. The servicing
operations of DVI are located at 500 Hyde Park, Doylestown, Pennsylvania 18901,
and its telephone number is (215) 345-6600. DVI is one of two wholly owned
direct operating subsidiaries of DVI, Inc. DVI, on a consolidated basis,
comprises the bulk of the assets of DVI, Inc. DVI, Inc. is headquartered in
Doylestown, Pennsylvania, employs approximately 283 people and its stock is
traded on the New York Stock Exchange (symbol "DVI").
THE TRUSTEE
The Trustee for each series of Securities will be specified in
the related Prospectus Supplement. The Trustee's liability in connection with
the issuance and sale of the related Securities is limited solely to the express
obligations of such Trustee set forth in the related Trust Agreement. Unless
otherwise provided in the related Prospectus Supplement, the Company will be
responsible for payment of the fees of the Trustee.
With respect to each series of Securities, no resignation or
removal of the Trustee and no appointment of a successor Trustee shall become
effective until the acceptance of appointment by the successor Trustee. The
Trustee may resign for cause at any time by giving written notice thereof to the
Company and by mailing notice of resignation by first class mail, postage
prepaid, to the Securityholders of such series at their addresses appearing on
the Security register (the "Security Register"). Any successor Trustee shall
meet the financial and other standards for qualifying as a successor Trustee
under the Indenture. The Trustee may be removed at any time by written notice of
the holders of Securities (or certain Classes of Securities) evidencing not less
than 66-2/3% in aggregate outstanding principal amount of such Securities,
delivered to the Trustee and the Company. The Company may remove the Trustee
under certain circumstances set forth in the applicable Trust Agreement. If the
Trustee shall resign, be removed, or become incapable of acting, or if a vacancy
shall occur in the office of Trustee for any cause, the Company, with the
consent of the holders of Securities (or certain Classes of Securities)
evidencing not less than 66-2/3% in aggregate outstanding principal amount of
such Securities, by an act of the Company, shall promptly appoint a successor
Trustee. If no successor Trustee shall have been so appointed by the Company or
the Securityholders of such series, or if no successor Trustee shall have
accepted appointment within 30 days after notice of any such resignation or
removal, existence of incapability, or occurrence of such vacancy, the Trustee
or any Securityholder of such series may petition any court of competent
jurisdiction for the appointment of a successor Trustee. The Company shall give
notice of each resignation and each removal of the Trustee and each appointment
of a successor Trustee by mailing written notice of such event by first-class
mail, postage prepaid, to all Securityholders, as their names and addresses
appear in the Security Register. Each notice shall include the name of the
successor Trustee and the address of its principal corporate trust office
("Corporate Trust Office").
DESCRIPTION OF THE SECURITIES
GENERAL
The Securities will be issued in series. Each series of
Securities (or, in certain instances, two or more series of Securities) will be
issued pursuant to a Trust Agreement. The following summaries (together with
additional summaries under "The Description of the Trust Agreements" below)
describe all material terms and provisions relating to the Securities common to
each Trust Agreement. The summaries do not purport to be complete and are
subject to, and are qualified in their
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entirety by reference to, all of the provisions of the Trust Agreements for the
related Securities and the related Prospectus Supplement.
The Securities offered pursuant to this Prospectus and the
related Prospectus Supplement will be rated in one of the four highest rating
categories by one or more Rating Agencies.
The Securities may either represent beneficial ownership
interests in the related Receivables held by the related Trust or debt secured
by certain assets of the related Issuer.
Each series or Class of Securities offered pursuant to this
Prospectus may have a different Interest Rate, which may be a fixed or
adjustable interest rate. The related Prospectus Supplement will specify the
Interest Rate for each series or Class of Securities described therein, or the
initial Interest Rate and the method for determining subsequent changes to the
Interest Rate.
A series may include one or more Classes of Strip Securities
entitled (i) to principal distributions, with disproportionate, nominal or no
interest distributions, or (ii) to interest distributions, with
disproportionate, nominal or no principal distributions. In addition, a series
of Securities may include two or more Classes of Securities that differ as to
timing, sequential order, priority of payment, Interest Rate or amount of
distribution of principal or interest or both, or as to which distributions of
principal or interest or both on any Class may be made upon the occurrence of
specified events, in accordance with a schedule or formula, or on the basis of
collections from designated portions of the related pool of Receivables, which
series may include one or more Classes of Accrual Securities, as to which
certain accrued interest will not be distributed but rather will be added to the
principal balance (or nominal balance, in the case of Accrual Securities which
are also Strip Securities) thereof on each Payment Date, as hereinafter defined,
or in the manner described in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, a series
may include one or more other Classes of Senior Securities that are senior to
one or more other Classes of Subordinate Securities in respect of certain
distributions of principal and interest and allocations of losses on
Receivables.
In addition, certain Classes of Senior (or Subordinate)
Securities may be senior to or subordinate to other Classes of Senior (or
Subordinate) Securities in respect of such distributions or losses.
GENERAL PAYMENT TERMS OF SECURITIES
As provided in the related Trust Agreement and as described in
the related Prospectus Supplement, Securityholders will be entitled to receive
payments on their Securities on the specified Payment Dates. Payment Dates with
respect to the Securities will occur monthly, quarterly or semi-annually, as
described in the related Prospectus Supplement.
The related Prospectus Supplement will describe the Record Date
preceding such Payment Date, as of which the Trustee or its paying agent will
fix the identity of the Securityholders for the purpose of receiving payments on
the next succeeding Payment Date. Unless otherwise described in the related
Prospectus Supplement, the Payment Date will be the same day in each month (or,
in the case of quarterly-pay Securities, the same day in every third month; and
in the case of semi-annual pay Securities, the same day in every sixth month; or
if such day is not a day on which commercial banks in New York, New York and in
the city in which the Trustee's principal Corporate Trust Office is located are
required to be open for commercial banking business (a "Business Day"), the next
following Business Day) and the Record Date will be the close of business as of
the last day of the calendar month that precedes the calendar month in which
such Payment Date occurs.
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Each Trust Agreement will describe a Remittance Period
antecedent to each Payment Date (for example, in the case of monthly-pay
Securities, the calendar month preceding the month in which a Payment Date
occurs). Unless otherwise provided in the related Prospectus Supplement,
collections received on or with respect to the related Receivables held by a
Trust during a Remittance Period will be required to be remitted by the Servicer
to the related Trustee prior to the related Payment Date and will be used to
fund payments to Securityholders on such Payment Date. As may be described in
the related Prospectus Supplement, the related Trust Agreements may provide that
all or a portion of the payments collected on or with respect to the related
Receivables may be applied by the related Trustee to the acquisition of
Additional Receivables during a specified period (rather than be used to fund
payments of principal to Securityholders during such period) with the result
that the related Securities will possess an interest-only period, also commonly
referred to as a revolving period, which will be followed by an amortization
period. Any such interest only or revolving period may, upon the occurrence of
certain events to be described in the related Prospectus Supplement, terminate
prior to the end of the specified period and result in the earlier than expected
amortization of the related Securities.
In addition, and as may be described in the related Prospectus
Supplement, the related Trust Agreements may provide that all or a portion of
such collected payments may be retained by the Trustee (and held in certain
temporary investments, including Receivables) for a specified period prior to
being used to fund payments of principal to Securityholders. Such retention and
temporary investment by the Trustee of such collected payments may be required
by the related Trust Agreements for the purposes of (a) slowing the amortization
rate of the related Securities relative to the rent payment schedule of the
related Receivables, or (b) attempting to match the amortization rate of the
related Securities to an amortization schedule established at the time such
Securities are issued. Any such feature applicable to any Securities may
terminate upon the occurrence of events to be described in the related
Prospectus Supplement, resulting in distributions to the specified
Securityholders and an acceleration of the amortization of such Securities.
Unless otherwise specified in the related Prospectus
Supplement, neither the Securities nor the underlying Receivables will be
guaranteed or insured by any governmental agency or instrumentality or the
Company, DVI, the Servicer, any Originator, any Trustee or any of their
respective affiliates, except for any applicable Credit Enhancement.
Unless otherwise specified in the Prospectus Supplement with
respect to a series, Securities of each series covered by a particular Trust
Agreement will either evidence specified beneficial ownership interest in a
separate pool of Trust Property created pursuant to such Trust Agreements or
represent debt secured by the related Trust Property. To the extent that any
Trust Property includes certificates of interest or participations in
Receivables, the related Prospectus Supplement will describe the material terms
and conditions of such certificates or participations.
MASTER TRUSTS
As may be described in the related Prospectus Supplement, each
Trust Agreement may provide that, pursuant to any one or more supplements
thereto, the Company may direct the related Trustee to issue from time to time
new series subject to the conditions described below (each such issuance a
"Master Trust New Issuance"). Each Master Trust New Issuance will have the
effect of decreasing the Company's Interest in the related Master Trust. Under
each such Master Trust Agreement, the Company may designate, with respect to any
newly issued series: (i) its name or designation; (ii) its initial principal
amount (or method for calculating such amount); (iii) its Interest Rate (or
formula for the determination thereof, which may provide that such rate is a
floating rate); (iv) the Payment Dates and the date or dates from which interest
shall accrue; (v) the method for allocating collections to Securityholders of
such series; (vi) any bank accounts to be used by such series and the terms
governing the operation of any such bank accounts; (vii) the percentage used to
calculate monthly servicing fees; (viii) the provider and terms of any form of
Credit Enhancement with respect thereto; (ix) the terms on which the Securities
of such series may be repurchased or remarketed to other investors; (x) the
number of Classes of Securities of such series, and if such series consists of
more than one Class, the rights and priorities of each such Class; (xi) the
extent to
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which the Securities of such series will be issuable in book-entry form; (xii)
the priority of such series with respect to any other series; and (xiii) any
other relevant terms. None of the Company, the Servicer, the related Trustee or
any Master Trust is required or intends to obtain the consent of any
Securityholder of any outstanding series to issue any additional series.
Each Master Trust Agreement provides that the Company may
designate terms such that each Master Trust New Issuance has an amortization
period which may have a different length and begin on a different date than such
periods for any series previously issued by the related Master Trust and then
outstanding. Moreover, each Master Trust New Issuance may have the benefits of
Credit Enhancements issued by enhancement providers different from the providers
of the Credit Enhancement, if any, with respect to any series previously issued
by the related Master Trust and then outstanding. Under each Master Trust
Agreement, the related Trustee shall hold any such Credit Enhancement only on
behalf of the Securityholders to which such Credit Enhancement relates. The
Company will have the option under each Master Trust Agreement to vary among
series the terms upon which a series may be repurchased by the Issuer or
remarketed to other investors. Unless otherwise provided in a related Prospectus
Supplement, there is no limit to the number of New Issuances that the Company
may cause under a Master Trust Agreement. Each Master Trust Agreement will
terminate only as provided in the related Master Trust Agreement. There can be
no assurance that the terms of any Master Trust New Issuance might not have an
impact on the timing and amount of payments received by Securityholders of
another series issued by the same Master Trust.
Under each Master Trust Agreement and pursuant to a related
supplement, a Master Trust New Issuance may only occur upon the satisfaction of
certain conditions provided in each such Master Trust Agreement. The obligation
of the related Trustee to authenticate the Securities of any such Master Trust
New Issuance and to execute and deliver the supplement to the related Master
Trust Agreement is subject to the satisfaction of the following conditions: (a)
on or before the fifth Business Day immediately preceding the date upon which
the Master Trust New Issuance is to occur, the Company shall have given the
related Trustee, the Servicer, the Rating Agency and certain related providers
of Credit Enhancement, if any, written notice of such Master Trust New Issuance
and the date upon which the Master Trust New Issuance is to occur; (b) the
Company shall have delivered to the related Trustee a supplement to the related
Master Trust Agreement, in form reasonably satisfactory to such Trustee,
executed by each party to the related Master Trust Agreement other than such
Trustee; (c) the Company shall have delivered to the related Trustee any related
Credit Enhancement agreement; (d) the related Trustee shall have received
written confirmation from the Rating Agency that such Master Trust New Issuance
will not result in a Ratings Effect with respect to any other series or Class of
such Trust; (e) the Company shall have delivered to the related Trustee, the
Rating Agency and certain providers of Credit Enhancement, if any, an opinion of
counsel reasonably acceptable to the related Trustee that for federal income tax
purposes (i) following such Master Trust New Issuance the related Master Trust
will not be deemed to be an association (or publicly traded partnership) taxable
as a corporation, (ii) such Master Trust New Issuance will not affect the tax
characterization as debt of Securities of any outstanding series or Class issued
by such Master Trust that were characterized as debt at the time of their
issuance and (iii) such Master Trust New Issuance will not cause or constitute
an event in which gain or loss would be recognized by any Securityholders or the
related Master Trust (an opinion of counsel to the effect referred to in clauses
(i), (ii) and (iii) with respect to any action is referred to herein as a "Tax
Opinion"); and (f) any other conditions specified in any supplement. Upon
satisfaction of the above conditions, the related Trustee shall execute the
supplement to the related Master Trust Agreement and issue the Securities of
such new series.
BOOK-ENTRY REGISTRATION
DTC is a limited-purpose trust company organized under the laws
of the State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to Section 17A of the Securities Exchange
Act of 1934. DTC accepts securities for deposit from its participating
organizations ("Participants") and facilitates the clearance and settlement of
transactions in such
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securities between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks and
trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Securityholders who are not Participants or Indirect
Participants but desire to purchase, sell or otherwise transfer ownership of
Securities may do so only through Participants or Indirect Participants (unless
and until Definitive Securities are issued). In addition, Securityholders will
receive all distributions of principal and interest on the Securities through
DTC and its Participants. Under a book-entry format, Securityholders may
experience some delay in their receipt of payments, since such payments will be
forwarded by the Trustee to Cede, as nominee for DTC. DTC will forward such
payments to its Participants which thereafter will forward them to Indirect
Participants or Securityholders. It is anticipated that the only
"Securityholder" will be Cede, as nominee of DTC. Securityholders will not be
recognized by the Trustee as Securityholders, as such term will be used in the
applicable Trust Agreements, and Securityholders will only be permitted to
exercise the rights of Securityholders indirectly through DTC and its
Participants. Securityholders will not receive or be entitled to receive
Definitive Securities representing their respective interests in the Securities,
except under the limited circumstances described below.
While the Securities are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC will be
required to make book-entry transfers among Participants on whose behalf it acts
with respect to the Securities and will be required to receive and transmit
distributions of principal and interest on the Securities. Participants and
Indirect Participants with which Securityholders have accounts with respect to
the Securities will be similarly required to make book-entry transfers and
receive and transmit such payments on behalf of their respective
Securityholders.
Because DTC can only act on behalf of Participants, who in turn
act on behalf of Indirect Participants, the ability of a Securityholder to
pledge Securities to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such Securities, may be limited
due to the lack of physical certificates for such Securities.
Unless and until Definitive Securities are issued,
Securityholders who are not Participants may transfer ownership of Securities
only through Participants by instructing such Participants to transfer such
Securities, by book-entry transfer, through DTC for the account of the
purchasers of such Securities, which account is maintained with their respective
Participants. Under the Rules and in accordance with DTC's normal procedures,
transfers of ownership of Securities will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the respective Participants will make debits or credits, as the case
may be, on their records on behalf of the selling and purchasing
Securityholders.
DTC has advised the Company and the Trustee that, unless and
until Definitive Securities are issued, DTC will take any action permitted to be
taken by a Securityholder under the Trust Agreements only at the direction of
one or more Participants to whose DTC accounts the Securities are credited. DTC
may take conflicting actions with respect to different undivided interests as a
result of different directions from Participants whose holdings include such
undivided interests.
Neither the Company nor the Trustee will have any liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests of the Securities held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
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DEFINITIVE SECURITIES
Unless otherwise specified in the related Prospectus
Supplement, the Securities will be issued in fully registered, certificated form
("Definitive Securities") to the Securityholders of a given series or their
nominees, rather than to DTC or its nominee, only if (i) DTC, in respect of the
related series of Securities, advises the Company in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to such Securities or if at any time DTC shall no longer be a
clearing agency registered under the Exchange Act and any other applicable
statute or regulation, and the Company is unable to locate a qualified
successor, (ii) the Company, at its option, elects to terminate the book-entry
system through DTC or (iii) after the occurrence of an "Event of Default" under
the related Indenture or a default by the Servicer under the related Trust
Agreement, Securityholders representing at least a majority of the outstanding
principal amount of such Securities advise DTC in writing that the continuation
of a book-entry system through DTC (or a successor thereto) is no longer in such
Securityholders' best interest.
Upon the occurrence of any event described in the immediately
preceding paragraph, the applicable Trustee will be required to notify DTC of
the availability of Definitive Securities. Upon surrender by DTC of the
Definitive Securities representing such Securities and receipt of instructions
for re-registration, the applicable Trustee will reissue such Securities as
Definitive Securities to such Securityholders.
Distributions of principal of, and interest on, such Securities
will thereafter be made by the applicable Trustee in accordance with the
procedures set forth in the related Indenture or Trust Agreement directly to
holders of Definitive Securities in whose names the Definitive Securities were
registered at the close of business on the applicable Record Date specified for
such Securities in the related Prospectus Supplement. Such distributions will be
made by wire transfer of immediately available funds to the account and number
specified in the Security Register on the Record Date for such Payment Date for
such holder or by check mailed to the address of such holder as it appears on
the Security Register maintained by the applicable Trustee. All payments on the
Securities shall be paid without any requirement of presentment but each
Securityholder shall be deemed to agree, by its acceptance of the same, to
surrender such Security within the time period set forth in the applicable Trust
Agreement at the office or address specified in the notice of final
distributions to the applicable Securityholders.
Definitive Securities in respect of a given series of
Securities will be transferable and exchangeable at the offices of the
applicable Trustee or of a certificate registrar named in a notice delivered to
holders of such Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
REPORTS TO SECURITYHOLDERS
On or prior to each Payment Date with respect to each series of
Securities, the Servicer will prepare and provide to the Trustee a statement or
statements with respect to the related Trust Property. The Trustee will forward
or cause to be forwarded to each holder of record of such Class of Securities
such statement or statements on each Payment Date. Unless otherwise specified in
the related Prospectus Supplement, each such statement or statements will set
forth the information specifically described in the related Trust Agreements
which generally will include, but not be limited to, the following information:
(i) the amount of the distribution with
respect to each Class of Securities;
(ii) the amount of such distribution
allocable to principal;
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(iii) the amount of such distribution
allocable to interest;
(iv) the Pool Balance, if applicable, as of
the close of business on the last day of the related Remittance
Period;
(v) the aggregate outstanding principal
balance and the Pool Factor for each Class of Securities after
giving effect to all payments reported under (ii) above on such
Payment Date;
(vi) the amount paid to the Servicer, if
any, with respect to the related Remittance Period;
(vii) the amount of the aggregate purchase
amounts for Receivables that have been acquired, if any, for
such Remittance Period;
(viii) the amount of coverage (including any
remaining amount of coverage) under any letter of credit,
Policy, reserve account or other form of Credit Enhancement
covering default risk as of the close of business on the
applicable Payment Date and a description of any Credit
Enhancement substituted therefor; and
(ix) the amount of unreimbursed Servicer
Advances.
Each amount set forth pursuant to subclauses (i), (ii), (iii)
and (v) with respect to the Securities of any series will be expressed as a
dollar amount per $1,000 of the initial principal balance of such Securities, as
applicable.
Within the prescribed period of time for tax reporting purposes
after the end of each calendar year, the Servicer will provide to the
Securityholders a statement containing the amounts described in (ii) and (iii)
above for that calendar year and any other information required by applicable
tax laws, for the purpose of the Securityholders' preparation
of federal income tax returns.
DESCRIPTION OF THE TRUST AGREEMENTS
The following summary describes certain terms of each Trust
Agreement pursuant to which a Trust will be created and the related Securities
in respect of such Trust Property will be issued. For purposes of this
Prospectus, the term "Trust Agreements" as used with respect to a Trust means,
collectively, and except as otherwise specified, any and all agreements relating
to the establishment of the related Trust, the servicing of the related
Receivables and the issuance of the related Securities. Forms of the Trust
Agreements have been filed as exhibits to the Registration Statement of which
the Prospectus forms a part. The summary does not purport to be complete. It is
qualified in its entirety by reference to the provisions of the Trust
Agreements.
ASSIGNMENT OF THE RECEIVABLES PURSUANT TO CONTRIBUTION AGREEMENT
On the Closing Date specified with respect to any given series
of Securities, the Company will receive the related Receivables from the
Originator pursuant to a Contribution Agreement. The Company will either
transfer such Receivables to a Trust pursuant to a Trust Agreement or will
pledge the Company's right, title and interest in and to such Receivables to a
Trustee on behalf of Securityholders pursuant to an Indenture. The rights and
benefits of the Company under such Contribution Agreement will be assigned to
the Trustee on behalf of Securityholders as collateral for the Securities of
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the related series issued by a Trust or pursuant to an Indenture. The
obligations of the Company and the Servicer under such Trust Agreement include
those specified below and in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement,
the Company will be obligated to acquire its interest in any Receivable
transferred to a Trust or pledged to a Trustee on behalf of Securityholders if
the interest of the Securityholders therein is materially adversely affected by
a breach of any representation or warranty made by the Company or the Originator
with respect to such Receivable, which breach has not been cured following the
discovery by or notice to the Company of the breach. The Originator will be
obligated to acquire the Receivable from the Company pursuant to the related
Contribution Agreement contemporaneously with the Company's acquisition of its
interest in the Receivable from the applicable Trust Property. The obligation of
the Company to acquire its interest in any Receivable with respect to which the
Originator has breached a representation or warranty is subject to the
Originator's acquisition of such Receivable from the Company.
ACCOUNTS
With respect to each series of Securities, the Trustee will
establish and maintain one or more accounts, in the name of such Trustee on
behalf of the related Securityholders, into which all payments made on or with
respect to the related Receivables will be deposited (the "Collection Account").
The Trustee will also establish and maintain separate accounts, in the name of
such Trustee on behalf of such related Securityholders, in which amounts
released from the Collection Account and the reserve account or other Credit
Enhancement, if any, for distribution to such Securityholders will be deposited
and from which distributions to such Securityholders will be made (the
"Distribution Account").
Any other accounts to be established, including any reserve
account, will be described in the related Prospectus Supplement.
For any series of Securities, funds in the Collection Account,
the Distribution Account, any reserve account and other accounts identified as
such in the related Prospectus Supplement (collectively, the "Trust Accounts")
shall be invested as provided in the related Trust Agreement in Eligible
Investments. "Eligible Investments" are generally limited to investments
acceptable to the Rating Agencies as being consistent with the rating of such
Securities. Subject to certain conditions, Eligible Investments may include
securities issued by the Company or its affiliates or other trusts created by
the Company or its affiliates. Except as described below or in the related
Prospectus Supplement, Eligible Investments are limited to obligations or
securities that mature not later than the business day immediately preceding the
next distribution. However, subject to certain conditions, funds in the reserve
account may be invested in securities that will not mature prior to the date of
the next distribution and will not be sold to meet any shortfalls. Thus, the
amount of cash in any reserve account at any time may be less than the balance
of such reserve account. If the amount required to be withdrawn from any reserve
account to cover shortfalls in collections on the related Receivables exceeds
the amount of cash in such reserve account, a temporary shortfall in the amounts
distributed to the related Securityholders could result, which could, in turn,
increase the average life of the Securities of such series. Except as otherwise
specified in the related Prospectus Supplement, investment earnings on funds
deposited in the applicable Trust Accounts, net of losses and investment
expenses (collectively, "Investment Earnings"), shall be deposited in the
applicable Collection Account on each Payment Date and shall be treated as
collections of interest on the related Receivables.
The Trust Accounts will be maintained as Eligible Deposit
Accounts. "Eligible Deposit Account" means either (a) a segregated account with
an Eligible Institution or (b) a segregated trust account with the corporate
trust department of a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), having corporate trust
powers and acting as trustee for funds deposited in such account, so long as any
of the securities of such depository institution has a credit rating from each
Rating
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Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), which (i)(A) has either (w)
a long-term unsecured debt rating acceptable to the Rating Agencies or (x) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies or (B) the parent corporation of which has either (y) a
long-term unsecured debt rating acceptable to the Rating Agencies or (z) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the Federal Deposit
Insurance Corporation.
To the extent that the Originator's unsecured debt ratings are
acceptable to the Rating Agencies, amounts deposited to any Trust Account may be
commingled with the Originator's general account moneys. Any rights to so
commingle moneys will be described in the related Prospectus Supplement.
SERVICING PROCEDURE
With respect to each series of Securities, the Servicer will
make reasonable efforts to collect all payments due with respect to the
Receivables comprising the related Trust Property and, in a manner consistent
with the related Trust Agreement, will continue such collection procedures as
the Servicer follows with respect to the particular type of Receivable in the
particular pool it services for itself and others. Consistent with its normal
procedures, the Servicer may, in its discretion and on a case-by-case basis,
arrange with the Obligor on a Receivable to extend or modify the payment
schedule. Some of such arrangements (including, without limitation, any
extension of the payment schedule beyond the final scheduled Payment Date for
the related Securities) may result in the Servicer acquiring such Receivable if
such Contract becomes a defaulted Contract. The Servicer may sell the Equipment
securing the respective defaulted Contract, if any, at a public or private sale,
or take any other action permitted by applicable law. See "Certain Legal Matters
Affecting an Obligor's Rights and Obligations."
PAYMENTS ON RECEIVABLES
With respect to each series of Securities, all payments on the
related Receivables (from whatever source) and all proceeds of such Receivables
collected by the Servicer during each collection period specified in the related
Prospectus Supplement (each, a "Collection Period") will be remitted to the
Trustee or deposited into the related Collection Account. Except under certain
conditions described in the related Prospectus Supplement and the Servicing
Agreement, the Servicer will be required to remit such amounts to the Trustee or
deposit such amounts into the related Collection Account within two (2) Business
Days of receipt thereof. If certain Rating Agency conditions are satisfied, the
deposit of collections for a particular month will be made within two (2)
Business Days prior to the related Payment Date. Pending deposit into the
related Collection Account, collections may be invested by the Servicer at its
own risk and for its own benefit, and will not be segregated from funds of the
Servicer.
SERVICING COMPENSATION
Unless otherwise specified in the Prospectus Supplement or the
Servicing Agreement with respect to any series of Securities, the Servicer will
be entitled to receive a servicing fee for each Collection Period (the
"Servicing Fee") in an amount equal to the product of (i) one-twelfth, (ii) a
specified percentage per annum (as set forth in the related Prospectus
Supplement, the "Servicing Fee Rate") and (iii) the aggregate Discounted
Contract Balance as of the beginning of the previous Collection Period. Unless
otherwise disclosed in the related Prospectus Supplement and Servicing
Agreement, the Servicing Fee (together with any portion of the Servicing Fee
that remains unpaid from prior Payment Dates) will be paid prior to the
distribution to the related Securityholders.
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Unless otherwise disclosed in the related Prospectus Supplement
and Servicing Agreement, the Servicer will also collect and retain any late
fees, the penalty portion of interest paid on past due amounts and other
administrative fees or similar charges allowed by applicable law with respect to
the Receivables, and will be entitled to reimbursement for certain liabilities.
Payments by or on behalf of Obligors will be allocated to scheduled payments and
late fees and other charges in accordance with the Servicer's normal practices
and procedures.
The Servicing Fee will compensate the Servicer for performing
the functions of a third party servicer of similar types of receivables as an
agent for their beneficial owner, including collecting and posting all payments,
responding to inquiries of Obligors on the Receivables, investigating
delinquencies, sending payment coupons to Obligors, reporting tax information to
Obligors, paying costs of collection and disposition of defaults and policing
the collateral. The Servicing Fee also will compensate the Servicer for
administering the Receivables, accounting for collections and furnishing
statements to the applicable Trustee, if any, with respect to distributions. The
Servicing Fee also will reimburse the Servicer for certain taxes, accounting
fees, outside auditor fees, data processing costs and other costs incurred in
connection with administering the Receivables.
DISTRIBUTIONS
With respect to each series of Securities, beginning on the
Payment Date specified in the related Prospectus Supplement, distributions of
principal and interest (or, where applicable, of principal or interest only) on
each Class of such Securities entitled thereto will be made by the applicable
Trustee to the related Securityholders. The timing, calculation, allocation,
order, source, priorities of and requirements for each Class of Securities of
such series will be set forth in the related Prospectus Supplement.
With respect to each series of Securities, on each Payment
Date, collections on the related Receivables will be transferred from the
Collection Account to the applicable Distribution Account for distribution to
the related Securityholders, respectively, to the extent provided in the related
Prospectus Supplement. Credit Enhancement, such as a reserve account, may be
available to cover any shortfalls in the amount available for distribution on
such date, to the extent specified in the related Prospectus Supplement. As more
fully described in the related Prospectus Supplement, and unless otherwise
specified therein, distributions in respect of principal of a Class of
Securities of a given series will be subordinate to distributions in respect of
interest on such Class, and distributions in respect of the Certificates of such
series may be subordinate to payments in respect of the Notes of such series.
CREDIT ENHANCEMENTS
The amounts and types of Credit Enhancement arrangements, if
any, and the provider thereof, if applicable, with respect to each Class of
Securities of a given series will be set forth in the related Prospectus
Supplement. If and to the extent provided in the related Prospectus Supplement,
Credit Enhancement may be in the form of a Policy, subordination of one or more
Classes of Securities, reserve accounts, over-collateralization, letters of
credit, credit or liquidity facilities, third party payments or other support,
surety bonds, guaranteed cash deposits or such other arrangements as may be
described in the related Prospectus Supplement or any combination of two or more
of the foregoing. If specified in the applicable Prospectus Supplement, Credit
Enhancement for a Class of Securities may cover one or more other Classes of
Securities of the same series, and Credit Enhancement for a series of Securities
may cover one or more other series of Securities.
The presence of Credit Enhancement for the benefit of any Class
or series of Securities is intended to enhance the likelihood of receipt by the
Securityholders or such Class or series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses. Unless otherwise specified in the related Prospectus
Supplement, the Credit Enhancement for a Class or series of Securities will not
provide protection against all risks
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of loss and will not guarantee repayment of the entire principal balance and
interest thereon. If losses occur which exceed the amount covered by any Credit
Enhancement or which are not covered by any Credit Enhancement, Securityholders
of any Class or series will bear their allocable share of deficiencies, as
described in the related Prospectus Supplement. In addition, if a form of Credit
Enhancement covers more than one series of Securities, Securityholders of any
such series will be subject to the risk that such Credit Enhancement will be
exhausted by the claims of Securityholders of other series.
STATEMENTS TO TRUSTEES
On or prior to each Payment Date with respect to each series of
Securities, the Servicer will provide to the applicable Trustee as of the close
of business on the last day of the preceding related Collection Period a
statement setting forth substantially the same information as is required to be
provided in the periodic reports provided to Securityholders of such series
described under "Description of the Securities-Reports to Securityholders."
RESIGNATION, LIABILITY AND MERGER OF SERVICER
With respect to each series of Securities, each applicable
Trust Agreement will provide that DVI may not resign from its obligations and
duties as Servicer thereunder, except in connection with a permitted assignment
under such Trust Agreement or upon determination that DVI's performance of such
duties is no longer permissible under applicable law. No such resignation will
become effective until the related Trustee or a successor servicer has assumed
DVI's servicing obligations and duties under such Trust Agreement.
Each applicable Trust Agreement will further provide that
neither the Servicer nor any of its respective directors, officers, employees or
agents shall be under any liability to the related Issuer, Trustee or the
related Securityholders for any action taken or not taken in good faith pursuant
to the terms of such Trust Agreement; PROVIDED, HOWEVER, that neither the
Servicer nor any such person will be protected against any breach of
representations or warranties made by the Servicer or such person in such Trust
Agreement or for any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of reckless disregard of obligations and duties thereunder.
In addition, such Trust Agreement will provide that the Servicer is under no
obligation to appear in, prosecute, or defend any legal action that is not
incidental to its servicing responsibilities under such Trust Agreement and
that, in its opinion, may cause it to incur any expense or liability. The
Servicer may, however, undertake any reasonable action that it may deem
necessary or desirable in respect of the Trust Agreement and the rights and
duties of the parties thereto and the interests of the Securityholders
thereunder.
Under the circumstances specified in any such Trust Agreement,
any corporation or other entity into which the Servicer may be merged or
consolidated, or any corporation or other entity resulting from any merger or
consolidation to which the Servicer is a party, or any corporation or other
entity succeeding to the business of the Servicer or, with respect to its
obligations as Servicer, which corporation or other entity in each of the
foregoing cases assumes the obligations of the Servicer, will be the successor
of the Servicer under such Trust Agreement.
SERVICER DEFAULT
Except as otherwise provided in the related Prospectus
Supplement, "Servicer Default" under a Trust Agreement will consist of (i) any
failure by the Servicer to deliver to the applicable Trustee for deposit in any
of the related Trust Accounts any required payment or to direct such Trustee to
make any required distributions therefrom, which failure continues unremedied
beyond the period set forth in the Trust Agreement; (ii) any failure by the
Servicer (or for so long as DVI is the Servicer, the Company) duly to observe or
perform in any material respect any other covenant or agreement in such Trust
Agreement, which failure materially and adversely affects the rights of the
related Securityholders and which continues
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unremedied for a period of 30 days after the Servicer becomes aware of such
failure or the giving of written notice of such failure (1) to the Servicer (or
the Company, if applicable) by the applicable Trustee or (2) to the Servicer (or
the Company, if applicable) and the applicable Trustee by holders of the related
Securities, as applicable, evidencing not less than 66-2/3% of the aggregate
outstanding principal amount of the related Securities; and (iii) certain events
of insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceedings with respect to the Servicer (or for so long as DVI is the
Servicer, the Company) and certain actions by the Servicer (or for so long as
DVI is the Servicer, the Company) indicating its insolvency, reorganization
pursuant to bankruptcy proceedings or inability to pay its obligations (each, an
"Insolvency Event") .
RIGHTS UPON SERVICER DEFAULT
Unless otherwise provided in the related Prospectus Supplement,
as long as a Servicer Default under a Trust Agreement remains unremedied, the
applicable Trustee, upon the request of the holders of Securities of the related
series evidencing more than 66-2/3% of the aggregate principal amount of such
then outstanding Securities, shall terminate all the rights and obligations of
the Servicer, if any, under such Trust Agreement, whereupon a successor servicer
appointed by such Trustee or such Trustee will succeed to all the
responsibilities, duties and liabilities of the Servicer under such Trust
Agreement and will be entitled to similar compensation arrangements. If,
however. a bankruptcy trustee or similar official has been appointed for the
Servicer, and no Servicer Default other than such appointment has occurred, such
bankruptcy trustee or official may have the power to prevent the applicable
Trustee or such Securityholders from effecting a transfer of servicing. In the
event that the Trustee is unwilling or unable to so act, it may appoint, or
petition a court of competent jurisdiction for the appointment of, a successor
with a net worth of at least $50,000,000 and whose regular business includes the
servicing of a similar type of receivables. Such Trustee may make such
arrangements for compensation to be paid, which in no event may be greater than
the servicing compensation payable to the Servicer under the related Trust
Agreement.
WAIVER OF PAST DEFAULTS
Unless otherwise provided in the related Prospectus Supplement,
the holders of Securities evidencing not less than 66-2/3% of the aggregate
outstanding principal amount of the related Securities (or certain Classes of
Securities) may, on behalf of all the Securityholders of such related
Securities, waive any default by the Company in the performance of its
obligations under the related Trust Agreements and its consequences, except a
default in making any required deposits to or payments from any of the Trust
Accounts in accordance with the applicable Trust Agreements or a default in
respect of a covenant or provision under a Trust Agreement which cannot be
modified or amended without the consent of the holder of each outstanding
Security affected. No such waiver shall impair the Securityholders' rights with
respect to subsequent defaults.
EVENT OF DEFAULT UNDER TRUST AGREEMENTS
The events of default under the related Trust Agreements and
the application of any money collected by the Trustee pursuant to the related
Trust Agreements will be described in the related Prospectus Supplement.
AMENDMENT
Unless otherwise provided in the related Prospectus Supplement,
each of the Trust Agreements may be amended by written amendment by the parties
thereto, without the consent of the related Securityholders, (i) for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of such Trust Agreements or of modifying in any manner the rights of
such Securityholders provided that such action will not, in the opinion of
counsel reasonably satisfactory to the applicable Trustee, materially and
adversely affect the interests of any such Securityholders,
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(ii) to make any change to comply with applicable laws, rules or regulations or
(iii) for the purpose of issuing other Classes of Notes in accordance with the
applicable Trust Agreement. Unless otherwise specified in the related Prospectus
Supplement, the Trust Agreements may also be amended by the Company and the
applicable Trustee with the consent of the holders of Securities evidencing at
least a majority of the voting rights of such then outstanding Securities for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of such Trust Agreements or of modifying in any manner the
rights of such Securityholders; PROVIDED, HOWEVER, that no such amendment may
(i) increase or reduce in any manner the amount of, or accelerate or delay the
timing of, collections of payments on the related Receivables or distributions
that are required to be made for the benefit of such Securityholders, (ii)
reduce the aforesaid percentage of the Securities of such series which are
required to consent to any such amendment, or (iii) release any of the Trust
Property from the lien of the Trust Agreements (except as otherwise permitted
therein) or modify certain sections of the Trust Agreement, without the consent
of each affected Securityholder.
TERMINATION
The obligations of the Servicer, the Company and the applicable
Trustee pursuant to the related Trust Agreements will terminate upon the earlier
to occur of (i) the maturity or other liquidation of the last related Receivable
and the disposition of any amounts received upon liquidation of any such
remaining Receivables and (ii) the payment to Securityholders of the related
series of all amounts required to be paid to them pursuant to such Trust
Agreements. The Company or, if specified in the related Prospectus Supplement,
certain other entities may be permitted, unless otherwise specified in the
related Prospectus Supplement, at their respective options to effect early
retirement of a series of Securities, as of the end of any Collection Period
immediately preceding a Payment Date, if the note balances of the related
Contracts are less than a specified percentage (set forth in the related
Prospectus Supplement) of the initial note balances. The Trust Property will be
purchased at a price equal to the entire outstanding principal balance of the
Securities to be redeemed, together with accrued interest thereon at the
applicable interest rate. The related Securities will be redeemed following such
purchase.
As more fully described in the related Prospectus Supplement,
any outstanding Securities of the related series will be redeemed concurrently
with either of the events specified above and the subsequent distribution to the
related Securityholders of all amounts required to be distributed to them
pursuant to the applicable Trust Agreements may effect the
prepayment of the Securities of such series.
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CERTAIN LEGAL MATTERS AFFECTING AN OBLIGOR'S RIGHTS AND OBLIGATIONS
GENERAL
The Contracts that compose the Receivables are "chattel paper"
as defined in the Uniform Commercial Code in effect in the Commonwealth of
Pennsylvania (the governing laws chosen in the DVI forms of lease contract).
Pursuant to the UCC for most purposes, a sale of chattel paper is treated in a
manner similar to a transaction creating a security interest in chattel paper.
DVI and the Company will cause the filing of appropriate UCC-1 financing
statements to be made with the appropriate governmental authorities in the
Commonwealth of Pennsylvania to give notice of DVI's transfer of the Receivables
to the Company and the Company's transfer of the Receivables to a Trust, if any.
Under the applicable Trust Agreements, the Servicer will be obligated from time
to time to take such actions as are necessary to protect and perfect the Trust's
or the Trustees' interests in the Receivables and their proceeds.
Certain states, including Pennsylvania, have adopted a version
of Article 2A of the Uniform Commercial Code ("Article 2A"). Article 2A purports
to codify many provisions of existing common law. Although there is little
precedential authority regarding how Article 2A will be interpreted, it may,
among other things, limit enforceability of any "unconscionable" lease or
"unconscionable" provision in a lease, provide a lessee with remedies, including
the right to cancel the lease contract, for any lessor breach or default and may
add to or modify the terms of "consumer leases" and leases where the lessee is a
"merchant lessee." However, DVI has represented in the Contribution Agreement
that (i) no lease is a "consumer lease"; and (ii) each lessee has accepted the
equipment leased to it and, after reasonable opportunity to inspect and test,
has not notified DVI of any defects therein. Article 2A, moreover, recognizes
typical commercial lease "hell or high water" rental payment clauses and
validates reasonable liquidated damages provisions in the event of lessor or
lessee defaults. Article 2A also recognizes the concept of freedom of contract
and permits the parties in a commercial context a wide latitude to vary
provisions of the law.
THE EQUIPMENT
The Originator will convey the Originator's interest in the
Equipment to the Company. Unless otherwise specified in the related Prospectus
Supplement, because of the administrative burden and expense that would be
entailed in so doing, neither DVI nor the Company has filed or will be required
to file UCC financing statements identifying the Equipment as collateral pledged
in favor of the related Trust or the Trustee on behalf of the Securityholders.
In the absence of such filings, any security interest in the Equipment will not
be perfected in favor of the related Trust or Trustee. Upon request, DVI and/or
the Company will be required to make such filings with respect to defaulted
Receivables. Moreover, in the event of the repossession and resale of Equipment,
it may be subject to a superior lien. In such case, the senior lienholder may be
entitled to be paid the full amount of the indebtedness owed to it out of the
sale proceeds before such proceeds could be applied to the payment of claims of
the Servicer on behalf of the Trust Property.
In the event of a default by the Obligor, the Servicer on
behalf of the related Trustee may take action to enforce such defaulted Contract
by repossession and resale of the leased Equipment. Under the UCC in most
states, a creditor such as DVI or the Company can, without prior notice to the
Obligor, repossess assets securing a defaulted Contract by the Obligor's
voluntary surrender of such assets or by "self-help" repossession that does not
involve a breach of the peace or by judicial process.
In the event of a default by the Obligor, some jurisdictions
require that the Obligor be notified of the default and be given a time period
within which it may cure the default prior to repossession. Generally, this
right of reinstatement may be exercised on a limited number of occasions in any
one-year period.
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The UCC and other state laws place restrictions on repossession
sales, including requirements that the secured party provide the Obligor with
reasonable notice of the date, time and place of any public sale and/or the date
after which any private sale of the collateral may be held and that any such
sale be conducted in a commercially reasonable manner. Each applicable Trust
Agreement will require the Servicer to sell promptly any repossessed Equipment.
Under most state laws, an Obligor has the right to redeem
collateral for its obligations prior to actual sale by paying the secured party
the unpaid balance of the obligation plus reasonable expenses for repossession,
holding and preparing the collateral for disposition and arranging for its sale,
plus, to the extent provided for in the written agreement of
the parties, reasonable attorneys' fees.
In addition, because the market value of the Equipment of the
type financed pursuant to the Receivables generally declines with age and
because of obsolescence, the net disposition proceeds of leased Equipment at any
time during the term of the Contract may be less than the outstanding balance on
the Contract principal balance which it secures. Because of this, and because
other creditors may have rights in the related leased Equipment superior to
those of the related Trust Property, the Servicer may not be able to recover the
entire amount due on a defaulted Contract in the event that the Servicer elects
to repossess and sell such leased Equipment at any time.
Under the UCC and laws applicable in most states, a creditor is
entitled to obtain a deficiency judgment from an Obligor for any deficiency on
repossession and resale of the asset securing the unpaid balance of such
Obligor's contract. However, some states, including Pennsylvania, where DVI is
based and many of the Obligors may be located, impose prohibitions or
limitations on deficiency judgments. In most jurisdictions, the courts, in
interpreting the UCC, would impose upon a creditor an obligation to repossess
the Equipment in a commercially reasonable manner and to "mitigate damages" in
the event of an Obligor's failure to cure a default. The creditor would be
required to exercise reasonable judgment and follow acceptable commercial
practice in seizing and disposing of the Equipment and to offset the net
proceeds of such disposition against its claim. In addition, an Obligor may
successfully invoke an election of remedies defense to a deficiency claim in the
event that the Servicer's repossession and sale of the leased Equipment is found
to be a retention discharging the Obligor from all further obligations under UCC
Section 9-505(2). If a deficiency judgment were granted, the judgment would be a
personal judgment against the Obligor for the shortfall, but a defaulting
Obligor may have very little capital or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment or, if one is obtained, it may be settled at a significant
discount.
Certain statutory provisions, including federal and state
bankruptcy and insolvency laws, may also limit the ability of the Servicer to
repossess and resell collateral or obtain a deficiency judgment. In the event of
the bankruptcy or reorganization of an Obligor, various provisions of the
Bankruptcy Code of 1978 (the "Bankruptcy Code") and related laws may interfere
with or eliminate the ability of the Servicer or the Trustee to enforce its
rights under the Receivables. If bankruptcy proceedings were instituted in
respect of an Obligor, the Servicer or the Trustee could be prevented from
continuing to collect payments due from or on behalf of such Obligor or
exercising any remedies assigned to such Servicer or Trustee without the
approval of the bankruptcy court, and the bankruptcy court could permit the
Obligor to use or dispose of the leased Equipment and provide the Servicer or
the Trustee with a lien on substitute collateral, so long as such substitute
collateral constituted "adequate protection" as defined under the Bankruptcy
Code.
Certain governmental and quasi-governmental entities, such as
municipalities and public hospitals, condition contract payments on the
availability of budgeted funds. If such Contracts are part of the Trust Property
and such budgeted funds are not available, the Servicer or Trustee may be forced
to repossess related Equipment and Securityholders may experience delays and/or
losses in payment.
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These UCC and bankruptcy provisions, in addition to the
possible decrease in value of a repossessed item of leased Equipment, may limit
the amount realized on the sale of the collateral to less than the amount due on
the related Receivable.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The Prospectus Supplement for each series of Securities will
summarize, subject to the limitations stated therein, the anticipated material
federal income tax considerations relevant to the purchase, ownership and
disposition of such Securities.
ERISA CONSIDERATIONS
Unless otherwise specified in the related Prospectus
Supplement, the Prospectus Supplement for each series of Securities will
summarize, subject to the limitations discussed therein, considerations under
ERISA relevant to the purchase of such Securities by employee benefit plans and
individual retirement accounts.
PLAN OF DISTRIBUTION
The Securities offered hereby and by the related Prospectus
Supplement will be offered in series through one or more methods, including firm
commitment or best efforts underwriting and competitive bid. The Prospectus
Supplement prepared for each series will describe the method of offering being
utilized for that series and will state the public offering or purchase price of
such series and the net proceeds to the Company from such sale.
If underwriters are used in a sale of any Securities (other
than in connection with an underwriting on a best efforts basis), such
Securities will be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. The
members of the underwriting syndicate, if any, will be named in the Prospectus
Supplement relating to such series.
In connection with the sale of the Securities, underwriters may
receive compensation from the Company or from purchasers of the Securities in
the form of discounts, concessions or commissions. Underwriters and dealers
participating in the distribution of the Securities may be deemed to be
underwriters in connection with such Securities, and any discounts or
commissions received by them from the Company and any profit on the resale of
Securities by them may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended. The Prospectus Supplement will
describe any such compensation paid by the Company.
It is anticipated that the underwriting agreement pertaining to
the sale of any series of Securities will provide that the obligations of the
underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Securities if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Company will indemnify the
several underwriters and the underwriters will indemnify the Company against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended, or will contribute to payments required to be made in respect
thereof.
The Prospectus Supplement with respect to any series of
Securities offered by placements through dealers will contain information
regarding the nature of such offering and any agreements to be entered into
between the Company and purchasers of Securities of such series.
36
<PAGE>
The Company anticipates that the Securities offered hereby will
be sold primarily to institutional investors. Purchasers of Securities,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended, in connection with reoffers and sales by them of
Securities. Holders of Securities should consult with their legal advisors in
this regard prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters relating to the issuance of the
Securities of any series will be passed upon for the Issuer and the Servicer by
Melvin Breaux, Esq., general counsel to the Issuer and the Servicer, and by
Thacher Proffitt & Wood, New York, New York.
FINANCIAL INFORMATION
The Company has determined that its financial statements are
not material to the offering made hereby. However, any prospective purchaser who
desires to review financial information concerning the Company will upon request
be provided with a copy of the most recent financial statements of the Company.
See "Reports to Securityholders."
A Prospectus Supplement may contain the financial statements of
the related Credit Enhancer, if any.
ADDITIONAL INFORMATION
This Prospectus, together with the Prospectus Supplement for
each series of Securities, contains a summary of the material terms of the
applicable exhibits to the Registration Statement and the documents referred to
herein and therein. Copies of such exhibits are on file at the offices of the
Securities and Exchange Commission in Washington, D.C., and may be obtained at
rates prescribed by the Commission upon request to the Commission and may be
inspected, without charge, at the Commission's offices.
37
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INDEX OF DEFINED TERMS
Set forth below is a list of the defined terms used in this
Prospectus and the pages on which the definitions of such terms may be found
herein.
Accrual Securities ...........................................3
Additional Receivables ...........................................4
Articles of Incorporation ..........................................20
Bankruptcy Code ..........................................35
Business Day ...........................................4
Cede ...........................................8
Certificates ........................................i, 1
Class ........................................i, 1
Closing Date ..........................................16
Collection Account ..........................................28
Collection Period ..........................................29
Commission ...........................................i
Company .......................................i, 19
Company's Certificates ...........................................6
Company's Interest ...........................................5
Contract File ..........................................11
Contracts ........................................i, 1
Contribution Agreement ..........................................16
Corporate Trust Office .......................................4, 21
Credit Enhancement ...........................................1
Credit Enhancer ..........................................14
CT ..........................................20
Cut-off Date ........................................i, 1
Definitive Securities ..........................................26
Discounted Contract Balance .......................................7, 16
Distribution Account ..........................................28
DTC ...........................................8
DVI ....................................i, 1, 21
Eligible Deposit Account ..........................................28
Eligible Institution ..........................................28
Eligible Investments ..........................................28
Equipment ........................................i, 1
ERISA ..........................................10
Exchange Act .......................................i, 10
FASB 13 ..........................................16
Financially Stronger Hospitals ..........................................17
Fixed Income Securities ...........................................3
Indenture ...........................................2
Indenture Trustee ...........................................2
Independent Director ..........................................20
Indirect Participants ..........................................25
Insolvency Event ..........................................32
Insolvency Laws ..........................................12
Investment Company Act ...........................................5
Investment Earnings ..........................................28
Issuer .......................................i, 19
Lessor ...........................................7
Lessors ...........................................1
List of Receivables ..........................................11
Master Trust ...........................................5
Master Trust Agreement ...........................................6
Master Trust New Issuance ..........................................23
Medium-Sized Hospitals ..........................................17
MRI ..........................................17
Notes ........................................i, 1
Obligor ...........................................1
Originator ...........................................1
Outpatient Healthcare Providers ..........................................17
Outpatient Medical Facilities ..........................................17
Participants ..........................................24
Payment Date ...........................................4
Physician Groups ..........................................17
Policy ...........................................8
Pool Balance ..........................................19
Pool Factor ..........................................19
Pooling Agreement ...........................................2
Pre-Funding Account ...........................................8
Prepayment ..........................................14
Prospectus Supplement ...........................................i
Rating Agencies ..........................................10
Ratings Effect ..........................................14
Receivables ........................................i, 1
Record Date ...........................................4
Registration Statement ...........................................i
Remittance Period ...........................................4
Rules ..........................................25
Securities ...........................................i
Securities Act ...........................................i
Security Register ..........................................21
Securityholder ..........................................25
Securityholders ...........................................4
Senior Credit Committee ..........................................17
Senior Securities ...........................................4
Servicer ...........................................1
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Servicer Default ..........................................31
Servicing Agreement ...........................................2
Servicing Fee ..........................................29
Servicing Fee Rate ..........................................29
Shared Service Providers ..........................................17
Strip Securities ...........................................3
Subordinate Securities ...........................................4
Tax Opinion ..........................................24
Trust ...........................................i
Trust Accounts ..........................................28
Trust Agreements .......................................2, 27
Trust Property ........................................i, 1
Trustee ...........................................2
UCC ...........................................9
39
<PAGE>
DVI BUSINESS TRUST 1998-2,
ISSUER
$36,662,000
____% CLASS A-1
ASSET-BACKED NOTES
$118,804,000
____% CLASS A-2
ASSET-BACKED NOTES
$38,767,000
____% CLASS A-3
ASSET-BACKED NOTES
$4,440,000
____% CLASS B
ASSET-BACKED NOTES
$4,995,000
____% CLASS C
ASSET-BACKED NOTES
(DOLLAR AMOUNTS ARE APPROXIMATE)
------------------------------------
PROSPECTUS SUPPLEMENT
DATED DECEMBER __, 1998
------------------------------------
LEHMAN BROTHERS INC.
AND
PRUDENTIAL SECURITIES
INCORPORATED
UNDERWRITERS
UNTIL MARCH __, 1999 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS SUPPLEMENT AND PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
