-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EOplHNgNR3MFZhjNOz2ImsDmIvGwPv6EVLkrNQ5vSgiiDknAtr6vaYFGVmumg62r Yqx1AOUhxJSZRFg6Z1hqJA== 0000950115-96-001366.txt : 19960927 0000950115-96-001366.hdr.sgml : 19960927 ACCESSION NUMBER: 0000950115-96-001366 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960926 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DVI INC CENTRAL INDEX KEY: 0000801550 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE LESSORS [6172] IRS NUMBER: 222722773 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11077 FILM NUMBER: 96635175 BUSINESS ADDRESS: STREET 1: 500 HYDE PARK CITY: DOYLESTOWN STATE: PA ZIP: 18901 BUSINESS PHONE: 2153456600 MAIL ADDRESS: STREET 1: 500 HYDE PARK CITY: DOYLESTOWN STATE: PA ZIP: 18901 FORMER COMPANY: FORMER CONFORMED NAME: DVI HEALTH SERVICES CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DVI FINANCIAL CORP DATE OF NAME CHANGE: 19911114 FORMER COMPANY: FORMER CONFORMED NAME: DIAGNOSTIC VENTURES INC DATE OF NAME CHANGE: 19880906 10-K 1 ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from ___ to ___. Commission file Number 0-16271 ------- DVI, INC -------------------------------------------------- (Exact name of registrant as specified in charter) Delaware 22-2722773 - --------------------------------------------- ------------------- (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 500 Hyde Park Doylestown, Pennsylvania 18901 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (215) 345-6600 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of each Exchange on which Registered Common Stock --------------------- par value $.005 per share New York Stock Exchange, Inc. - ------------------------- ----------------------------- (Title of Class) Securities registered pursuant to Section 12(g) of the Act: Warrants to Purchase Common Shares - -------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes _X_ No ___ The aggregate market value of the Common Stock held by nonaffiliates of the Registrant was approximately $145,513,625 based upon the last reported sale price of the Common Stock on the New York Stock Exchange on July 15, 1996. As of July 15, 1996, the Registrant had 10,495,473 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Part III incorporates information by reference from the Registrant's definitive Proxy Statement to be filed with the Commission within 120 days after the close of the Registrant's fiscal year. PART I ITEM 1. BUSINESS Overview DVI, Inc. ("DVI" or the "Company") is a specialty finance company whose core business is financing higher cost diagnostic imaging, radiation therapy and other types of sophisticated medical equipment used by outpatient healthcare centers, groups of physicians and hospitals. The Company has extensive expertise in making loans to healthcare providers in markets historically underserved by most banks and finance companies. By effectively and efficiently servicing the equipment financing needs of these healthcare providers and at the same time building productive relationships with medical equipment manufacturers seeking to arrange financing for their customers, the Company has established a niche leadership position among independent finance companies serving the medical industry. In addition to equipment financing, a small but growing part of the Company's business is making working capital loans to healthcare providers secured by their medical receivables and other collateral. Virtually all of the Company's equipment loans are structured on a fixed interest rate basis such that the full cost of the equipment and all financing costs are repaid during the financing term, which typically is five years. A high percentage of the Company's equipment loans are structured as notes secured by equipment or direct financing leases with a bargain purchase option for the equipment user; however, the Company structures a small number of its equipment loans such that it retains a residual interest in the equipment. In the past two years, the Company has grown substantially. Total equipment financing loans originated in the Company's fiscal years ended June 30, 1996, 1995 and 1994 were $316.8 million, $238.0 million and $157.4 million, respectively (not including a $76.1 million Concord Leasing portfolio purchased by the Company in fiscal 1995). The fiscal 1996 and 1995 originations represented increases of 33.1% and 51.2%, respectively, over the previous year. Net financed receivables for this business totaled $418.0 million at June 30, 1996, an increase of $35.2 million or 9.2% over the prior year. In the Company's medical receivable financing business, new commitments of credit in fiscal 1996 were $40.0 million compared with $23.9 million in fiscal 1995, an increase of 67.4%. New commitments in fiscal 1995 of $23.9 million were $18.3 million or 326.8% higher than fiscal 1994. Medical receivables funded at June 30, 1996 totaled $38.6 million, an increase of $16.1 million or 71.6% over the prior year. The Company uses asset securitization and other structured finance techniques to permanently fund most of its equipment loans and since 1991 has funded $681.5 million of equipment loans in this manner. The Company's ability to securitize loans has improved significantly in recent years which enabled it to securitize loans in the public market starting in fiscal 1994. Access to the public securitization market has lowered the Company's relative funding costs and expanded the Company's access to funding. Growth Strategy The Company is seeking to continue its growth by expanding its share of the diagnostic imaging and radiation therapy equipment financing markets and by generating financing opportunities in other areas of the healthcare industry. The principal components of this strategy are as follows: o Maximize the value of its relationships with equipment manufacturers. The Company has a close working relationship with four of the six largest manufacturers of diagnostic imaging equipment which it maintains by meeting those manufacturers' needs to arrange financing for the higher cost equipment they sell to non-hospital healthcare providers. The Company intends to continue to fulfill those needs and place greater emphasis on financing the lower cost patient treatment devices those manufacturers produce and sell such as ultrasound, nuclear medicine and X-ray equipment, and on financing equipment for their hospital customers. o Originate medical equipment loans on a wholesale basis. A growing part of the Company's equipment financing business is purchasing loans or leases originated by regional medical equipment finance companies and medical equipment manufacturers (collectively, "Originators"). The Company uses its securitization capabilities and its expertise in analyzing healthcare credits to service Originators that often need access to sources of permanent financing for the loans they originate. 2 o Generate additional business through its existing customer base. The Company enjoys relationships with a large number of users of sophisticated medical equipment. The Company believes its existing customers, particularly those that are expanding to provide additional healthcare services, can be a continuing source of equipment and medical receivable financing business. The Company's growth strategy in medical receivables financing is to focus on its existing equipment finance customer base. o Establish equipment financing relationships with manufacturers of patient treatment devices. The Company is using its reputation as a medical equipment financing specialist and its ability to finance a wide range of healthcare providers to establish its presence in the patient treatment device market. The Company recently has established relationships with manufacturers of sophisticated patient treatment devices such as surgical lasers. o International Operations. During fiscal 1996 the Company continued its efforts to expand into international markets. The Company is attempting to capitalize on the growing international market for sales of medical equipment and devices by positioning itself internationally to provide some of the financing for these sales. For example, the Company entered into a joint venture with Philips Medical Systems (a major manufacturer of medical equipment) and a subsidiary of CoreStates Financial Corp to form a corporation in Singapore, named Medical Equipment Credit Pte Ltd, that is designed to take advantage of the expanding medical equipment market in the Asia-Pacific region. The Company also has taken steps to establish operations in Australia, Thailand, Europe and - again in alignment with Philips Medical Systems - Latin America. Having international operations subjects the Company to risks inherent in operating in foreign countries. Such risks include devaluations of currency and fluctuations in currency exchange rates; imposition of limitations on conversions of foreign currencies into dollars or on remittances of dividends and other payments by foreign subsidiaries; imposition or increase of withholding or other taxes on remittances and other payments by foreign subsidiaries; hyperinflation in certain countries and imposition or increase of investment, and other, restrictions by foreign governments. Although the Company believes that such risks are acceptable, no assurance can be given that such risks will not have a material adverse effect on the Company in the future. The Company is a Delaware corporation and conducts its business operations through operating subsidiaries. The principal operating subsidiaries are DVI Financial Services Inc. ("DVI Financial Services") and DVI Business Credit Corporation ("DVI Business Credit"). The Company conducts securitizations through DVI Receivables Corp. ("DVI Receivables Corp.") and other limited purpose subsidiaries, each of which is wholly owned by DVI Financial Services. The Company also conducts other structured financings through limited purpose subsidiaries or through DVI Financial Services. The obligors under the Company's various warehouse credit facilities are DVI Financial Services or DVI Business Credit. Except as the context otherwise requires, the term "Company" refers to DVI, Inc. and its wholly owned subsidiaries. Healthcare Financing Industry Competitors in the healthcare financing business include equipment manufacturers that sell and finance their products, leasing subsidiaries of national and regional commercial banks and other leasing and finance companies. Competition among providers of equipment financing varies based on the type of healthcare provider being financed and the acquisition cost of the equipment. When hospitals acquire capital equipment directly (i.e., they accept full financial liability), competitors are numerous as lenders generally can make credit decisions based on audited financial statements that normally reflect a financial condition that is strong relative to the cost of the equipment being acquired. The competition is similar when physician specialists such as radiologists are acquiring relatively inexpensive equipment (i.e., equipment costing $200,000 or less). Many banks and finance companies are willing to make loans of this amount to physician specialists based solely on their personal net worth. Specialty finance companies, such as the Company, typically provide financing for borrowers other than those described above. Competition in medical receivable financing is similar to that in medical equipment financing. Medical receivable financing is readily available for most hospitals and for physicians seeking relatively small amounts of funding. However, for outpatient healthcare providers seeking funding in excess of approximately $500,000, the principal sources of financing generally are limited to specialty finance companies or factoring companies that purchase receivables at a discount. The 3 Company's strategy in medical receivables financing is to differentiate itself from many of its competitors by offering loans secured by medical receivables rather than purchasing receivables. Medical equipment financing providers often compete on the basis of relationships with manufacturers of the equipment being financed. General Electric Medical Systems and Siemens Medical Systems have captive equipment financing subsidiaries. The four remaining major manufacturers of diagnostic imaging equipment depend largely on relationships with financing providers, such as the Company, to finance the sale of their products. Sales and Marketing The Company generates most of its financing opportunities from two sources: (i) medical equipment manufacturers that use third parties to finance the sale of their products; and (ii) healthcare providers with whom the Company's sales organization has relationships. Generally, medical equipment manufacturers refer customers to the Company for financing because they believe the Company has the ability to understand and measure the creditworthiness of the customer's business and provide the financing necessary for the completion of the equipment sale. The Company has established a close working relationship with four of the six largest manufacturers of diagnostic imaging equipment by meeting their needs to arrange financing for the higher cost equipment they sell to non-hospital healthcare providers. These manufacturers are Hitachi Medical Systems America, Philips Medical Systems, Picker International and Toshiba America Medical Systems. The Company believes these relationships afford it a competitive advantage over other providers of medical equipment financing. The Company has a sales unit dedicated to its wholesale loan origination program ("Wholesale Program"). The Company purchases equipment loans from Originators that generally do not have access to cost effective permanent funding for their loans. The Company initiated the Wholesale Program in June 1994 and during the years ended June 30, 1996 and 1995, the Company purchased an aggregate of $92.6 million of equipment loans from 12 Originators and $63.3 million from six Originators, respectively. The Company believes that it has an opportunity to increase the volume of loans it buys in this manner because the number of companies that finance Originators has declined in the past few years. In addition to financing medical equipment, the Company also makes working capital loans under revolving lines of credit for healthcare providers that are secured by their receivables from payors such as insurance companies, large self-insured companies and governmental programs such as Medicare, and other collateral. These lines of credit are secured by pledges of (i) specific receivables due the provider, (ii) the overall receivables portfolio of the healthcare provider, and (iii) other forms of credit enhancement such as cash collateral, letters of credit and guarantees. The Company's medical receivable loan marketing specialists assist the Company's equipment loan sales force in originating medical receivables loans. The medical receivable loan business entails significant risks and capital requirements. The Company is expanding into the patient treatment device market. The Company believes its ability to finance a wide range of healthcare providers and meet the equipment financing needs of major manufacturers of diagnostic imaging equipment will help it build relationships with patient treatment device manufacturers. To establish relationships with patient treatment device manufacturers, the Company expects to train the manufacturer's sales personnel in the use of equipment financing as a sales tool and to provide equipment financing programs that make these device manufacturers more competitive. The Company believes the patient treatment device market is more diverse than the diagnostic imaging market because of the larger number of manufacturers and types of products and the greater price range of those products. The patient treatment device manufacturers targeted by the Company produce relatively high cost treatment products such as surgical lasers. The Company's sales and marketing organization consists of 25 healthcare finance specialists located in various parts of the U.S. These individuals generally have a credit industry and/or medical equipment background. The Company generally locates sales personnel in geographic areas where they have knowledge of the local market. The Company believes that sales personnel who understand local economic and political trends are a valuable component of its credit underwriting process. 4 Capital Resources and Transaction Funding The Company obtains initial funding for most of its equipment loans through "warehouse" facilities provided by banks and other financial institutions. Loans made under these facilities are repaid when the Company permanently funds its equipment loans through securitization or other limited recourse permanent funding programs, including loan sales. Typically, equipment loans will be held for 30 to 180 days before they are permanently funded. To protect its interest rate spreads during periods in which it has borrowed funds under its warehouse facilities, the Company employs a hedging strategy to mitigate the impact of changes in interest rates. The Company's hedging techniques may not necessarily be effective in all interest rate environments. Warehouse Facilities. At August 1, 1996, the Company had an aggregate maximum of $226.5 million potentially available under various warehouse facilities of which it had borrowed an aggregate of $133.3 million. These facilities are provided by a syndicate of banks that participate in a revolving credit arrangement and by an investment banking firm that the Company uses for securitizations. The loans made under these warehouse facilities bear interest at floating rates and are full resource obligations of the Company. There is no assurance that this type of warehouse financing will continue to be available to the Company on acceptable terms. If the Company were unable to arrange continued access to acceptable warehouse financing, the Company would have to curtail its loan originations, which in turn would have a material adverse effect on the Company's financial condition and operations. Since the Company uses securitization as its primary source of permanent funding, the Company requires a substantial warehousing capacity. To be cost efficient, a securitization must cover a relatively large and diverse portfolio of equipment loans. One of the basic requirements of the credit rating agencies that rate the notes issued in securitizations relates to borrower concentration and requires that no single credit (borrower) may constitute a significant portion of the pool of equipment loans being securitized (in the Company's case, the limit is generally about 3%). Because the Company's equipment loans are often in the $2.0 million range, it generally must accumulate in excess of $60 million in loans for each securitization. The credit rating agencies also have other concentration guidelines such as equipment type and the geographic location of the obligors. These requirements mean that not all of the equipment loans held in the Company's warehouse facilities at any point in time can be placed in one securitization. Permanent Funding Program. Since 1991, the most important source of permanent funding for the Company has been securitization and other forms of structured finance. Securitization is a process in which a pool of equipment loans (in the Company's case, typically 100 to 150) are transferred to a special-purpose financing vehicle which issues notes to investors. In the Company's case, the vehicle usually is an indirect wholly-owned special purpose subsidiary, with the result that the subsidiary's assets and liabilities are consolidated with the Company's for financial accounting purposes. Principal and interest on the notes are paid from the cash flows produced by the loan pool, and the notes are secured by a pledge of the assets in the loan pool as well as by other collateral. In the Company's case, equipment loans funded through securitization must be credit enhanced to receive an investment grade credit rating. Credit enhancement can be provided in a number of ways, including cash collateral, letters of credit, a subordinated "tranche" of transactions or an insurance policy. Typically, securitizations sponsored by the Company are enhanced through a combination of some or all of these methods. In the securitizations sponsored to date by the Company, the Company effectively has been required to furnish credit enhancement equal to the difference between (i) the aggregate principal amount of the equipment loans originated by the Company and transferred to the Company's special purpose finance subsidiary and the related costs of consummating the securitization and (ii) the net proceeds received by the Company in such securitizations. The requirement to provide this credit enhancement reduces the Company's liquidity and periodically requires it to obtain additional capital. There can be no assurance that the Company will be able to obtain additional capital. The Company continually seeks to improve the efficiency of financing these transactions by reducing up-front costs and minimizing the cash requirements of the Company. The Company may consider alternative structures, including senior/subordinated tranches, and alternative forms of credit enhancement, such as letters of credit and surety bonds. The transaction expenses of each securitization and other forms of structured financing will depend on market conditions, costs of securitization and the availability of credit enhancement options to the Company. The Company expects to continue to use securitization and other forms of structured financing, on both a public and private basis, as its principal source of permanent funding for the foreseeable future. The Company's financing strategy is to obtain permanent funding for most of its equipment loans through securitization and to sell the remainder of its equipment loans. The Company sells certain of its loans to reduce borrower 5 concentration and to manage the Company's leverage. When the Company sells loans, it often is required to provide credit enhancement in a lesser amount than required with securitizations. If for any reason the Company were to become unable to access the securitization market to permanently fund its equipment loans, the consequences for the Company would be materially adverse. The Company's ability to complete securitizations and other structured finance transactions depends upon a number of factors, including general conditions in the credit markets, the size and liquidity of the market for the types of receivable-backed securities issued or placed in securitizations sponsored by the Company and the overall financial performance of the Company's loan portfolio. The Company does not have binding commitments from financial institutions or investment banks to provide permanent funding for its equipment or medical receivables loans. Hedging Strategy. The Company's equipment loans are virtually all structured on a fixed interest rate basis. When the Company originates equipment loans, it bases its pricing in part on the "spread" it expects to achieve between the interest rate it charges its equipment loan customers and the effective interest cost it will pay when it permanently funds those loans. Increases in interest rates between the time the loans are originated and the time they are permanently funded could narrow, eliminate or result in a negative spread between the interest rate the Company realizes on its equipment loans and the interest rate that the Company pays under its warehouse facilities or prices a permanent funding program. To protect itself against that risk, the Company uses a hedging strategy. The Company uses derivative financial instruments, such as forward rate agreements, Treasury locks, and interest rate swaps and caps, to manage its interest rate risk. The derivatives are used to manage three components of this interest rate risk: interest sensitivity adjustments, hedging anticipated loan securitizations and sales, and interest rate spread protection. Forward rate agreements are for interest sensitivity adjustments in conjunction with cash market activities and are used to extend the repricing period of short-term floating rate warehouse facilities. Treasury locks are used to hedge the interest rate risk on anticipated loan securitizations and sales. Treasury lock transactions lock in specific rates of Treasury notes having maturities comparable to the average life of the anticipated securitizations and sales. Interest rate swaps and caps are used for interest rate spread protection to protect from rising interest rates in certain loan sale facilities where the cash flows from the loans sold are fixed rate but the borrowing costs are variable rate. There can be no assurance that the Company's hedging strategy or techniques will be effective, that the profitability of the Company will not be adversely affected during any period of changes in interest rates or that the costs of hedging will not exceed the benefits. A substantial and sustained increase in interest rates could adversely affect the Company's ability to originate loans. In certain circumstances, the Company for a variety of reasons may retain for an indefinite period certain of the equipment loans it originates. In such cases, the Company's interest rate exposure may continue for a longer period of time than the Company otherwise considers desirable. Medical Receivable Financing. The Company funds its medical receivable financing business through various sources. The Company's revolving credit agreement with a syndicate of banks permits up to $18 million to be used to warehouse accounts receivable secured loans. Warehouse facilities totaling $10 million are available at two other banks. In addition, in September 1996 the Company obtained a $50 million warehouse facility with an investment banking firm. In January 1996 the Company completed a $25 million private placement securitization of loans. This was placed with a domestic insurance company and matures in four years. While the medical receivable financing business shares certain characteristics, including an overlapping customer base, with the Company's core equipment financing business, there are many differences, including unique risks. Healthcare providers could overstate the quality and characteristics of their medical receivables, which the Company analyzes in determining the amount of the line of credit to be secured by such receivables. After the Company has established or funded a line of credit, the healthcare providers could change their billing and collection systems, accounting systems or patient records in a way that could adversely affect the Company's ability to monitor the quality and/or performance of the related medical receivables. There are substantial technical legal issues associated with creating and maintaining perfected security interests in medical receivables. Payors may attempt to offset their payments to the Company against debts owed to the payors by the healthcare providers. The Company may have a conflict of interest when the Company acts as servicer for an equipment-based securitization and originates medical receivables loans to borrowers whose previous equipment loans have been securitized. The Company's efforts to develop suitable sources of funding for its medical receivable financing business through securitization or other structured finance transactions may be constrained or hindered due to the fact that the use of structured finance transactions to fund medical receivables is a relatively new process. 6 Credit Risk. Many of the Company's customers are outpatient healthcare providers that have complex credit characteristics. Providing financing for these customers often involves a high degree of credit risk. The Company seeks to mitigate its risk of default and credit losses through its underwriting practices and loan servicing procedures and through the use of various forms of limited and non-recourse financing (in which the financing sources that permanently fund the Company's equipment loans assume some or all of the risk of default by the Company's customers); however, the Company remains exposed to some extent to potential losses resulting from defaults by obligors. Obligors' defaults could cause the company to make payments to the extent of the recourse position the Company maintains under its permanent equipment funding arrangements; could result in the loss of the cash or other collateral pledged as credit enhancement under its permanent equipment funding arrangements; or could cause the Company to lose any residual interest it may have retained in the underlying equipment. During the period after the Company initially funds an equipment loan and prior to the time it funds the loan on a permanent basis with non-recourse or limited recourse financing, the Company is exposed to full recourse liability in the event of default by the obligor. In addition, under the terms of securitizations and other types of structured finance transactions, the Company generally is required to replace or repurchase equipment loans in the event they fail to conform to the representations and warranties made by the Company, even in transactions otherwise designated as non-recourse or limited recourse. Defaults by the Company's customers also could adversely affect the Company's ability to obtain additional financing in the future, including its ability to use securitization or other forms of structured finance. The sources of such permanent funding take into account the credit performance of the equipment loans previously financed by the Company in deciding whether and on what terms to provide new financing. In addition, the credit rating agencies and insurers that are often involved in securitizations consider prior credit performance in determining the rating to be given to the securities issued in securitizations sponsored by the Company and whether and on what terms to insure such securities. Under the Company's wholesale program the Company does not work directly with the obligors at the origination of the equipment loans and therefore is not directly involved in structuring the credits and generally does not independently verify credit information supplied by the originator. Accordingly, the Company potentially faces a higher degree of risk with respect to loans it acquires when it acquires loans on a wholesale basis. Continuing Need for Capital. The Company's ability to maintain and build its financing businesses is dependent on its continued ability to obtain substantial amounts of warehouse and permanent debt financing. In addition, in order to sustain continued growth, the Company will require significant amounts of additional capital. Because of its holding company structure, the Company can seek to satisfy its requirements for additional long-term debt and/or equity capital by issuing equity or debt securities at the parent company level and then contributing the proceeds of those financings to DVI Financial Services Inc. or DVI Business Credit Corporation (which are the Company's principal operating subsidiaries and the obligors under the Company's various warehouse facilities). The Company has no binding commitments for the capital it expects it will continue to require, and its ability to obtain that capital in the future will be dependent on a number of factors including the condition of the capital markets and economic conditions generally. Competition The financing of sophisticated medical equipment is highly competitive. The Company competes with equipment manufacturers that sell and finance their own products, leasing subsidiaries of national and regional commercial banks and other leasing and financing companies. Many of the company's competitors have significantly greater financial and marketing resources than the Company. In addition, the competition in the new markets recently targeted by the Company, specifically equipment financing in the hospital market, the patient treatment device market and medical receivable financing market, may be greater than the levels of competition historically experienced by the Company. There can be no assurance that the Company will be able to compete successfully in any or all of its targeted markets. Government Regulation General. The Company's equipment financing business, while generally not directly subject to government regulation, is indirectly affected by regulation in several ways. The operation of certain types of diagnostic imaging and patient treatment equipment is regulated by federal, state and/or local authorities. For example, a shared service provider or healthcare provider using equipment financed by the Company may be required to obtain and maintain approvals from 7 governmental authorities in order to service other healthcare providers with whom it has entered into service agreements. Failure by the Company's customers to comply with these requirements could adversely affect their ability to meet their obligations to the Company. The ability of the Company's equipment financing customers to satisfy their obligations to the Company could also be adversely affected by changes in regulations which limit or prohibit the referral of patients by physicians who have invested in healthcare facilities financed by the Company. Several of the regulatory factors impacting the Company's business are discussed below. Certificate of Need Regulation. Many states regulate the acquisition of medical equipment or the provision of new services through Certificate of Need or similar programs. The Company believes these requirements have had a limited effect on its business, although there can be no assurance that future changes in those laws will not adversely affect the Company. Additionally, repeal of existing regulations of this type in jurisdictions where the Company's customers have met the specific requirements could adversely affect the Company since such customers could face increased competition. In addition, there is no assurance that expansion of the Company's equipment financing business within the hospital market will not be increasingly affected by regulations of this type. Medicare-Medicaid Fraud and Abuse Statutes. The Department of Health and Human Services ("HHS") has increased its enforcement efforts under the Medicare-Medicaid Fraud and Abuse Statutes in cases where physicians own an interest in a facility to which they refer their patients for treatment or diagnosis. These statutes prohibit the offering, payment, solicitation or receipt of remuneration directly or indirectly as an inducement to refer patients for services reimbursable in whole or in part by the Medicare-Medicaid programs. HHS has taken the position that distributions of profits from corporations or partnerships to physician investors who refer patients to the entity for a procedure which is reimbursable under Medicare (government-assisted medical care for the aged) or Medicaid (government-assisted medical care for the poor) may be a form of remuneration for referrals which is prohibited by the statute. HHS has also published safe harbor guidelines which describe the requirements which must be met to ensure that distributions of profits to a physician who has invested in an equity security issued by a business to which he or she refers patients does not violate the Medicare-Medicaid fraud and abuse statute. Further Regulation of Physician Self-Referral. Additional regulatory attention has been directed toward physician-owned healthcare facilities and other arrangements whereby physicians are compensated, directly or indirectly, for referring patients to such healthcare facilities. In 1988, legislation entitled the "Ethics in Patient Referrals Act" (H.R. 5198) was introduced which would have prohibited Medicare payments for all patient services performed by an entity in which a patient's referring physician had an investment interest. As enacted, the law prohibited only Medicare payments for patient services performed by a clinical laboratory. The Comprehensive Physician Ownership and Referral Act (H.R. 345), which was enacted by Congress in 1993 as part of the Deficit Reduction Package, is more comprehensive than H.R. 5198 and covers additional medical services including medical imaging, radiation therapy, physical rehabilitation and others. A variety of existing and pending state laws currently limit the extent to which a physician may profit from referring patients to a facility in which that physician has a proprietary or ownership interest. Many states also have laws similar to the Medicare fraud and abuse statute which are designed to prevent the receipt or payment of consideration in connection with the referral of a patient. The Company believes that as a result of these legislative initiatives, demand for new medical equipment by the outpatient healthcare facilities (which in many cases are owned by referring physicians who are directly affected by the legislation) has diminished. Employees As of July 15, 1996, the Company had 129 full-time employees consisting of 9 executive officers, 25 sales and sales management personnel, and 95 administrative, accounting and technical personnel. None of the Company's employees are covered by a collective bargaining agreement, and management believes that its relationship with its employees is good. 8 ITEM 2. PROPERTIES The Company owns no real property and leases all of its offices. The Company's principal executive offices are located in Doylestown, Pennsylvania. In total, the Company leases an aggregate of approximately 35,000 square feet of office space in various states. The Company believes that the present facilities are adequate to meet its foreseeable needs. ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any pending litigation or legal proceedings, or to the best of its knowledge any threatened litigation or legal proceedings, which, in the opinion of management, individually or in the aggregate, would have a material adverse effect on its results of operations or financial condition. 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the three months ended June 30, 1996. Executive Officers of the Registrant As of June 30, 1996, the executive officers of DVI were: Name Age Position ---- --- -------- Michael A. O'Hanlon 49 Director, President and Chief Executive Officer Steven R. Garfinkel 53 Executive Vice President and Chief Financial Officer Richard E. Miller 44 Executive Vice President Anthony J. Turek 53 Senior Vice President and Chief Credit Officer John P. Boyle 47 Vice President and Chief Accounting Officer Melvin C. Breaux 55 Vice President, Secretary and General Counsel Cynthia J. Cohn 37 Vice President Dominic A. Guglielmi 45 Vice President Alan J. Velotta 49 Vice President Michael A. O'Hanlon is the Company's president and chief executive officer and has served as such since November 1995. Mr. O'Hanlon was president and chief operating officer from September 1994 to November 1995. Previously, Mr. O'Hanlon served as executive vice president of DVI since joining the Company in March 1993. Mr. O'Hanlon also serves on the executive committee of DVI. Prior to joining the Company, Mr. O'Hanlon served as president and chief executive officer of Concord Leasing, Inc. ("Concord Leasing") for nine years. Concord Leasing provides medical, aircraft, shipping, and industrial equipment financing. U.S. Concord, Inc., a subsidiary, provides equipment financing for the medical imaging industry. Previously, Mr. O'Hanlon was a senior executive with Pitney Bowes Credit Corporation. Mr. O'Hanlon received his Master of Science degree from the University of Connecticut, and his Bachelor of Business Administration from the Philadelphia College of Textiles and Science. Mr. O'Hanlon became a director of DVI in November 1993. Steven R. Garfinkel is an executive vice president of the Company and its chief financial officer. Mr. Garfinkel also serves on the executive committee of DVI. Mr. Garfinkel joined the Company in September 1995. His responsibilities include corporate finance, loan funding, balance sheet management, accounting and financial reporting, internal control and financial planning. Mr. Garfinkel has extensive experience in developing and managing corporate finance relationships, money market funding, derivative hedging, financial planning and management information systems. Before joining DVI, Mr. Garfinkel spent his twenty-nine year career with two large bank holding companies: CoreStates Financial Corp and First Pennsylvania Corporation. For twenty years he was either controller or treasurer of those organizations. Richard E. Miller is an executive vice president of the Company who joined the Company in April 1994. Mr. Miller is president of DVI Financial Services Inc. Mr. Miller also serves on the executive committee of DVI. His primary responsibility is to manage the Company's sales organization of financing specialists that interface directly with the Company's customers. Before joining the Company, he served for six years as vice president sales for Toshiba America Medical Systems, a major distributor of medical imaging equipment. Previously, Mr. Miller was national sales manager for Thomsen CGR, a French manufacturer of medical imaging equipment, which was acquired by General Electric Medical Systems. He also previously served in sales management with General Electric Medical Systems. Mr. Miller has a Bachelor of Arts degree from Eastern University. Anthony J. Turek is a senior vice president and the chief credit officer of DVI. Mr. Turek has served in that capacity since March 1988. Mr. Turek also serves on the executive committee of DVI. Prior to joining the Company, Mr. Turek was vice president, Commercial Banking at Continental Illinois National Bank ("CINB") in Chicago from 1968 to 1988. For the five years prior to joining DVI, Mr. Turek managed the equipment leasing and transportation divisions of CINB. Prior responsibilities included management positions in the special industries, metropolitan and national divisions of CINB. Before his employment with CINB, Mr. Turek was a trust 10 officer with Bank of America. Mr. Turek received his Bachelor of Science degree from Iowa State University and his Master of Science degree from the University of Missouri. John P. Boyle is a vice president and chief accounting officer of the Company. Mr. Boyle joined the Company in January 1995. His primary responsibility is managing the Company's accounting, tax and financial reporting functions. Before joining the Company, Mr. Boyle spent seventeen years of his professional career in senior finance and accounting positions with financial services organizations. He spent the initial five years of his career with Peat Marwick Mitchell & Co. in Philadelphia. Mr. Boyle is a General Securities Principal and a CPA with almost twenty years of experience in the financial services industry. Beyond his accounting background, he has extensive experience in credit and corporate finance matters. Mr. Boyle holds a Bachelor of Arts degree from Temple University. Melvin C. Breaux is general counsel, secretary and a vice president of the Company and is general counsel and a vice president of DVI Financial Services. Prior to joining the Company in July 1995, Mr. Breaux was a partner in the Philadelphia, PA law firm of Drinker Biddle & Reath. As a member of that firm's banking and finance department, he specialized in secured and unsecured commercial lending transactions, a wide variety of other financing transactions, and the general practice of business law. Mr. Breaux received a Bachelor of Arts degree from Temple University and a Juris Doctor degree from the University of Pennsylvania School of Law. Cynthia J. Cohn has been a vice president of DVI since October 1988 and executive vice president of DVI Business Credit since January 1994. She is responsible for all sales and marketing functions of DVI Business Credit. Ms. Cohn has been employed by the Company in a sales and management capacity since July 1986. Ms. Cohn also handles certain shareholder relation functions for the Company. She served as an assistant vice president from July 1987 to October 1988. Prior to joining the Company, Ms. Cohn served as research coordinator for Cantor, Fitzgerald Co., Inc., a stock brokerage firm, from February 1983 to July 1986, where she was responsible for development and coordination of that firm's research product for both institutional and retail clientele. She holds a Bachelor of Arts degree from Ithaca College. Ms. Cohn is the daughter of Gerald L. Cohn, a director of the Company. Dominic A. Guglielmi is a vice president of DVI and the group managing director of DVI Financial Services Inc., and has served as such since the acquisition of MEF Corp. by DVI in January 1993. Prior to joining the Company, Mr. Guglielmi served as the president of the Healthcare Division of U.S. Concord, Inc. for five years where he was responsible for sales, marketing, documentation, credit/collections, financial budgeting and all aspects of strategic planning. Previously, Mr. Guglielmi held management positions with General Electric Credit Corporation and Pitney Bowes Credit Corporation. Mr. Guglielmi holds a Bachelor of Arts degree from LaSalle University. Alan J. Velotta is a group managing director of DVI Capital. Mr. Velotta joined the Company in April 1994. His primary responsibility is to manage the unit that originates medical equipment loans on a wholesale basis. Prior to joining DVI, he served as vice president-operations for Picker Financial Group, the captive leasing company of Picker International. Previously, Mr. Velotta was vice president/central division manager for Chrysler Capital Corporation. 11 PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Price Range of Common Stock The following table sets forth high and low last reported sales prices per share of Common Stock on the New York Stock Exchange, Inc. for the periods indicated: Fiscal Year Ended June 30, 1996 High Low - ------------------------------- ---- --- First Quarter................................... $13 3/4 $11 1/8 Second Quarter ................................. 14 1/2 12 3/4 Third Quarter .................................. 14 3/8 12 1/4 Fourth Quarter ................................. 15 7/8 13 Fiscal Year Ended June 30, 1995 High Low - ------------------------------- ---- --- First Quarter .................................. $11 1/4 $ 9 1/4 Second Quarter.................................. 11 1/2 9 7/8 Third Quarter .................................. 13 5/8 10 5/8 Fourth Quarter ................................. 13 1/8 11 Dividend Policy The Company has not declared or paid any cash dividends since its inception, and the Company anticipates that any future earnings will be retained for investment in corporate operations. Any declaration of dividends in the future will be determined in light of the conditions affecting the Company at that time, including, among other things, its earnings, financial condition, capital requirements, level of debt and the terms of any contractual limitations on dividends. The Company's principal warehouse facility prohibits DVI Financial Services, the Company's principal operating subsidiary, from paying cash dividends. In addition, the agreement with respect to the Company's 9-1/8% Convertible Subordinated Notes due 2002 (the "Convertible Subordinated Notes") places limitations on the payment of dividends by the Company and its subsidiaries. As of June 30, 1996, there were approximately 3,500 beneficial holders of the Company's Common Stock. 12 ITEM 6. SUMMARY CONSOLIDATED FINANCIAL AND OPERATING INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended June 30, -------------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- Statement of Operations Data: Finance and other income ................................. $ 49,013 $ 35,985 $ 20,609 $ 14,095 $ 12,539 Interest expense ......................................... 30,489 22,860 8,833 5,005 5,989 Net interest income ...................................... 18,524 13,125 11,776 9,090 6,550 Selling, general and administrative expenses ............. 9,898 7,891 6,049 5,487 3,325 Provision for possible losses on receivables ............. 1,974 1,261 1,716 248 507 Earnings from continuing operations before provision for income taxes, equity in net earnings (losses) of investees and discontinued operations ................. 14,333 7,015 4,313 4,459 4,915 Net earnings from continuing operations .................. 8,175 4,069 2,260 2,580 3,053 Net earnings from continuing operations per share ........ $ 0.81 $ 0.61 $ 0.34 $ 0.39 $ 0.57 Weighted average number of shares outstanding ............ 10,118 6,652 6,717 6,601 5,353
June 30, --------------------------------------------------------- 1996 1995 1994 1993 1992 -------- -------- -------- -------- --------- Balance Sheet Data: Cash and cash equivalents................................. $ 2,376 $ 1,953 $ 1,714 $ 2,199 $ 2,536 Cash and cash equivalents, restricted..................... 32,522 12,241 13,065 6,825 4,004 Total assets.............................................. 560,325 432,931 265,949 147,161 104,714 Borrowings under warehouse facilities..................... 168,108 155,172 34,586 45,221 31,349 Long-term debt, net....................................... 267,568 219,130 162,964 51,827 24,569 Shareholders' equity...................................... 85,263 40,250 33,993 34,664 34,006
The Company has not declared or paid any cash dividends since its inception. (See Dividend Policy.) (See Notes 2, 3 and 15 to the accompanying Consolidated Financial Statements for discussion of discontinued operations and acquisitions and the effect on operations therefrom and earnings per share calculation.) 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Equipment Financing. For accounting purposes, the Company classifies equipment loans it originates as notes secured by equipment, direct financing leases or operating leases. Notes secured by equipment and direct financing leases are generally those transactions in which the obligor has substantially all of the benefits and risks of ownership of the equipment. Operating leases are generally those which only provide for the rental of the asset. The different classifications can result in accounting treatments that provide substantially different income and costs during the transaction term. Direct financing leases and notes secured by equipment are reflected on the Company's balance sheet as "investment in direct financing leases and notes secured by equipment." For statement of operations purposes, those transactions result in amortization of finance income over the transaction term in the amounts computed using the interest method. The Company enters into two types of direct financing lease transactions, which are referred to as "conditional sales agreements" and "fair market value transactions." Conditional sales agreements and notes secured by equipment represent those transactions in which no residual interest in the underlying equipment is retained by the Company. Fair market value transactions are those transactions in which the Company retains a residual interest in the equipment. This residual interest is recorded on the Company's books as an estimate of the projected value of the financed equipment at the end of the transaction term. At the inception of notes secured by equipment and direct financing lease transactions, "unearned income" represents the amount by which the gross transaction receivables, initial direct costs and the normal estimated residual value (on fair market value transactions) exceed equipment cost. Beginning in 1993, the Company significantly reduced its emphasis on entering into fair market value transactions and adopted a strategy to reduce the dollar amount of residual interests on its balance sheet. Pursuant to this policy, the percentage of the Company's equipment financing transactions structured as loans and conditional sales agreements have increased significantly. As of June 30, 1996, residual valuation decreased to $4.3 million from $6.2 million at June 30, 1993, and from 5.3% of net financed receivables as of June 30, 1993 to 1.0% at June 30, 1996. The Company believes that loans and conditional sales agreements will constitute a high percentage of its equipment financing transactions in the future. Leases and contracts for the rental of equipment which do not meet the criteria of direct financing leases are accounted for as operating leases. Equipment under an operating lease or a rental contract is recorded on the balance sheet at the Company's cost under the caption of "equipment on operating leases" and depreciated on a straight-line basis over the estimated useful life of the equipment. The Company has classified income under the categories of "amortization of finance income," "other income" and "gain on sale of financing transactions." Amortization of finance income consists of the interest component of payments received on notes secured by equipment (or medical receivables) and direct financing leases, and is calculated using the interest method whereby the income is reported over the term of the transactions. "Other income" consists primarily of late charges, dividends on investment in investee's preferred stock, income from operating leases, income from receivable purchases and income from billing/collecting activities which the Company has curtailed. "Gain on sales of financing transactions" consists of gains recognized when the Company permanently funds transactions through whole loan sales. Notes secured by equipment and direct financing lease transactions are all "net" transactions under which the obligor must make all scheduled payments, maintain the equipment, insure the equipment again casualty loss and pay all equipment related taxes. In fair market value transactions, at the end of the initial financing term, the obligor has the option either to purchase the equipment for its fair market value, extend the financing term under renegotiated payments or return the equipment to the Company. If the equipment is returned to the Company, the Company must sell or lease the equipment to another user. In accordance with generally accepted accounting principles ("GAAP"), in transactions classified as notes secured by equipment and direct financing leases that the Company permanently funds through securitization or other structured finance transactions which the Company treats as debt, income is deferred and recognized using the interest method over the respective term of the transactions. If an obligor under a transaction defaults, the Company may not receive all or a portion of the unamortized income associated with the transaction. 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued General, (Continued) Medical Receivable Financing. In addition to its core equipment finance business, the Company provides lines of credit under which the Company makes full recourse loans to healthcare providers that are secured by medical receivables and other collateral. The interest and fee income generated from these loans are recognized over the terms of the lines of credit, which are typically one to three years, and are recorded as amortization of finance income. Results of Operations Impact of Financing Strategies on Results of Operations The Company's financing strategy is to obtain permanent funding for most of its equipment loans through securitization and to sell the remainder to reduce borrower concentration and to manage the Company's leverage. When funding loans through securitization, the issuer generally can structure the securitization so that the funding is treated for accounting purposes either as long-term debt secured by equipment loans owned by the Company, or as a sale. The accounting method to report finance income differs significantly depending on which of the two structures the issuer uses. When the Company sponsors a securitization it treats the proceeds as long-term debt on its financial statements and reports the finance income on the subordinated interest it retains in the securitization over the term of the equipment loans that are funded, whereas when the Company sells loans, it recognizes the unamortized finance income at the time the funding takes place; however, even in a funding treated as a sale, the Company may recognize servicing and/or interest income on its subordinated interest over the remaining term of the equipment loans sold. Over the past two years the Company has focused its strategy on increasing its market share. There can be no assurance that the Company's historical growth rate or current profitability can be sustained in the future. Additionally, the Company's expense levels are based in part on its expectations as to future financing volumes and the Company may be unable to adjust spending in a timely manner to compensate for a decrease in demand for financing of medical equipment and receivables. Accordingly, operating results may be adversely impacted by future fluctuations in such demand. The Company believes that general economic conditions have not had a material adverse effect on the Company's recent operating results. There can be no assurances, however, that general economic conditions will not have a material adverse effect on the Company in the future. Year Ended June 30, 1996 Compared to Year Ended June 30, 1995 Total equipment financing loans originated, excluding the Concord Leasing portfolio purchase ($76.1 million purchased in fiscal 1995), were $316.8 million in fiscal 1996 compared with $238.0 million in fiscal 1995, an increase of 33.1%. Net financed receivables for this business totaled $418.0 million at June 30, 1996, an increase of $35.2 million or 9.2% over the prior year. In the Company's medical receivable financing business, new commitments of credit in fiscal 1996 were $40.0 million compared with $23.9 million in fiscal 1995, an increase of 67.4%. Medical receivables funded at June 30, 1996 totaled $38.6 million, an increase of $16.1 million or 71.6% over the prior year. Amortization of finance income increased 32.0% to $45.3 million for the year ended June 30, 1996 from $34.3 million for the year ended June 30, 1995. The increase was primarily a result of the overall increase in the size of the Company's net financed receivables. Other income, which consists primarily of late charges and other fees, dividends on investment in investee's preferred stock, operating lease income, income from receivables purchases and income from billing/collecting activities which the Company has curtailed, increased 120.6% to $3.7 million in fiscal 1996 as compared to $1.7 million in fiscal 1995. The increase is due to the growth in the medical receivables business fees and the servicing of a larger loan portfolio. For the year ended June 30, 1996, interest expense increased 33.4% to $30.5 million from $22.9 million in the prior year. For the year ended June 30, 1996, the Company's average indebtedness (calculated based on period beginning and period ending balances) increased 41.7% to $405.0 million from $285.9 million in the prior year. The increase in interest 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued Results of Operations, (Continued) expense and average indebtedness is primarily a result of the growth of the Company's loan portfolio. As a percentage of total finance and other income, interest expense was 62.2% in the year ended June 30, 1996 compared to 63.5% in the same period a year earlier. The gain on sale of financing transactions, net, increased 152.5% to $7.7 million for the year ended June 30, 1996 compared with a gain of $3.0 million for the same period in the prior year. Loans sold during the year ended June 30, 1996 were $179.4 million compared to $115.8 million during the prior fiscal year. The increase reflects the Company's attempt to partially offset the near term costs of its newer business units and international initiatives. Net finance income was $26.2 million for the year ended June 30, 1996, as compared to $16.2 million for the year ended June 30, 1995, an increase of 62.1%. The increase was primarily a result of the overall increase in the size of the Company's loan portfolio. The Company's net interest margins on its portfolio for the years ended June 30, 1996 and 1995 were 4.02% and 4.10% respectively, which reflects increased competition, more aggressive pricing for market share growth and the sale of higher margin contracts. Selling, general and administrative expenses ("SG&A") increased 25.4% to $9.9 million for the year ended June 30, 1996 from $7.9 million for the year ended June 30, 1995. Included in the fiscal year 1996 expense is $519,000 of non-recurring expenses incurred in the third quarter ended March 31, 1996 for the defense and settlement of lawsuits primarily relating to employee matters. Excluding the impact of these legal costs, total selling, general and administrative expenses increased 18.9% over the prior fiscal year, mainly as a result of the 36.2% growth in loan originations and the 44.0% growth in average net financed assets. The majority of the 18.9% increase is due to employee-related costs resulting from the increase in employees during the year. The provision for possible losses on receivables was $2.0 million for the year ended June 30, 1996 as compared to $1.3 million for the previous year. On a quarterly basis, the Company evaluates the collectibility of its receivables and records a provision for amounts deemed uncollectible. In the opinion of management, the provisions are adequate based on current trends in the Company's delinquencies and losses. The Company's chargeoffs for the quarters ended September 30, 1995, December 31, 1995, March 31, 1996, and June 30, 1996 were $38,000, $528,000, $270,000, and $745,000 respectively, which represents 1.0%, 13.9%, 6.9%, and 20.3% respectively, of the quarter-end allowance for losses. The Company's net earnings were $8.2 million or $.81 per share for the year ended June 30, 1996 as compared to net earnings of $4.1 million or $.61 per share in the prior year. The Company's cash and cash equivalents at June 30, 1996 and June 30, 1995 were $2.4 million and $2.0 million, respectively. The following describes the changes from June 30, 1995 to June 30, 1996 in the items which had the most significant impact on the Company's cash flow during the year ended June 30, 1996. The Company's net cash used in operating activities was $74.0 million during the year ended June 30, 1996 compared to $1.5 million net cash used in operations for the year ended June 30, 1995. The increase in cash utilization during the year ended June 30, 1996 stems largely from an increase in receivables and amounts due from portfolio sale. The Company's net cash used in investing activities decreased to $22.7 million during the year ended June 30, 1996 as compared to $174.6 million for the year ended June 30, 1995. This decrease is attributed primarily to cash used to acquire equipment and to finance notes secured by equipment of $292.6 million during the year ended June 30, 1996 compared to $319.0 million for the year ended June 30, 1995. These uses of cash were offset by $283.3 million and $161.4 million of portfolio receipts net of amounts included in income and proceeds from sales of financing transactions for the same periods. The Company's net cash provided by financing activities was $97.1 million during the year ended June 30, 1996 down from $176.4 million for the year ended June 30, 1995. This results from a net increase in the Company's borrowings 16 ITEM 7.. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued Results of Operations, (Continued) under warehouse facilities of $12.9 million for the year ended June 30, 1996 as compared to a $120.6 million net increase in borrowings under warehouse facilities for the year ended June 30, 1995. Year Ended June 30, 1995 compared to Year Ended June 30, 1994 Total equipment financing loans originated, excluding the Concord Leasing portfolio purchase ($76.1 million purchased in fiscal 1995), were $238.0 million in fiscal 1995 compared with $157.4 million in fiscal 1994, an increase of 51.2%. In the Company's medical receivable financing business, new commitments of credit in fiscal 1995 were $23.9 million compared with $5.6 million in fiscal 1994, an increase of 326.8%. Amortization of finance income increased 87.7% to $34.3 million for the year ended June 30, 1995 from $18.3 million for the year ended June 30, 1994. The increase was primarily a result of the overall increase in the size of the Company's net financed receivables. Other income, which consists primarily of late charges and other fees, dividends on investment in investee's preferred stock, operating lease income, income from receivables purchases and income from billing/collecting activities, which the Company has curtailed, decreased 27.5% to $1.7 million in fiscal 1995 as compared to $2.3 million in fiscal 1994. The decrease is due primarily to a decrease in receivables financing income and operating lease income partially offset by increases to the preferred stock dividend and miscellaneous fees. For the year ended June 30, 1995, interest expense increased 158.8% to $22.9 million from $8.8 million during the same period in the prior year. For the year ended June 30, 1995, the Company's average indebtedness (calculated based on period beginning and period ending balances) increased 94.1% to $285.9 million from $147.3 million during the same period in the prior year. The increase in interest expense and average indebtedness is primarily a result of the growth of the Company's loan portfolio. As a percentage of total finance and other income, interest expense was 63.5% in the year ended June 30, 1995 compared to 42.9% in the same period a year earlier. The increase in interest expense as a percent of total finance and other income is primarily the result of (a) increased short-term interest rates when utilizing variable interest rate warehouse facilities including the Bank Revolving Credit Agreement for interim funding purposes as well as (b) increased long-term interest rates when utilizing asset securitization for permanent funding purposes. The gain on sale of financing transactions, net increased 907.3% to $3.0 million for the year ended June 30, 1995 compared with a gain of $302,000 for the same period in the prior year. The increase relates to the Company's need to fund certain loans through whole loan sales to manage borrower concentrations. Net finance income was $16.2 million for the year ended June 30, 1995, as compared to $12.1 million for the year ended June 30, 1994, an increase of 33.9%. The increase was primarily a result of the overall increase in the size of the Company's loan portfolio. Selling, general and administrative expense ("SG&A") increased 30.5% to $7.9 million for the year ended June 30, 1995 from $6.0 million for the year ended June 30, 1994. The increase primarily reflects additional personnel, and other costs associated with the growth in the Company's business. As a percentage of total finance and other income, SG&A was 21.9% for the year ended June 30, 1995 versus 29.4% for the same period in the prior year. The percentage decrease in SG&A is a result of the Company's ability to increase the volume of transactions entered into and thus the size of its loan portfolio without a proportionate increase in SG&A. The provision for possible losses on receivables was 1.3 million for the year ended June 30, 1995 as compared to $1.7 million for the same period the previous year. On a quarterly basis, the Company evaluates the collectibility of its receivables and records a provision for amounts deemed uncollectible. In the opinion of management, the provisions are adequate based on current trends in the Company's delinquencies and losses. 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued Results of Operations, (Continued) The Company's net earnings were $4.1 million or $.61 per share for the year ended June 30, 1995 as compared to net earnings from continuing operations of $2.3 million or $.34 per share in the prior year. Liquidity and Capital Resources General The Company's equipment financing business requires substantial amounts of capital and borrowings. The Company obtains warehouse funding from commercial and investment banks. The Company's warehouse borrowings are full recourse obligations, while the Company's permanent funding is obtained principally on a limited recourse basis. In the case of limited recourse funding, the Company retains some risk of loss because it shares in any losses incurred and/or it may forfeit the residual interest (if any) the Company has in the underlying financed assets should defaults occur. A substantial portion of the Company's debt represents permanent funding of equipment loans obtained on a limited recourse basis and is structured so that the cash flow from the underlying loans services the debt. Most of the Company's warehouse borrowings are used to temporarily fund the equipment loans and are repaid with the proceeds obtained from the permanent funding and cash flow from the underlying transactions. As a result of the rapid growth of the Company's equipment financing business, the amount of warehouse and permanent funding it requires has significantly increased. To meet its requirements for increased warehouse funding, the Company has expanded its warehouse facilities with banks, and has obtained warehouse facilities with investment banking firms the Company uses for its securitizations. To meet its requirement for increased permanent funding, the Company has enhanced its ability to fund equipment loans by both securitization and whole loan sales. If suitable sources of both warehouse and permanent funding are not available in the future, the Company's growth will be constrained and it may be forced to use less attractive funding sources in order to ensure its liquidity. Working capital financing for equipment financing customers is occasionally provided by the Company where the loan is adequately secured by acceptable collateral (typically accounts receivable) and the Company's other credit criteria are satisfied. In June 1994, the Company completed a $15.0 million private placement of Convertible Subordinated Notes. The agreement with respect to the Convertible Subordinated Notes contains, among other things, limitations on the Company's ability to pay dividends and to make certain other kinds of payments. That agreement also prohibits the Company from incurring additional indebtedness unless certain financial ratio tests are met. In August 1995, the Company completed a public offering of 2,875,000 shares of its common stock for which it received net proceeds of $29.0 million. In January 1996, holders of 615,605 of the Company's warrants and units, issued in February 1991, redeemed their warrants and units for shares of the Company's Common Stock at $12.00 or $12.60 per share by the final exercise date of January 26, 1996. As a result of the redemption, the Company received cash proceeds of $7.4 million. The Company believes that its present warehouse and permanent funding sources are sufficient to fund the Company's current needs for its equipment financing business. However, the Company will have to expand both its warehouse and permanent funding capacity and obtain additional equity or long-term unsecured debt financing in order to meet the Company's projected growth of its equipment financing business. Similarly, the future growth of the Company's medical receivable financing business will be dependent on the Company's ability to continue to obtain suitable funding for that business. 18 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued Liquidity and Capital Resources, (Continued) Warehouse Facilities At August 1, 1996, the Company had available an aggregate of $226.5 million under various warehouse facilities. The Company's primary credit facility, pursuant to a revolving credit agreement with a syndicate of banks (the "Agreement"), provides for the borrowing of up to $116.5 million. Borrowings under this facility bear interest based on the Company's leverage ratio as defined in the Agreement at the Company's option of (1) from prime to prime plus .125% or (2) from 1.50% up to 1.65% over the 30, 60 or 90-day LIBOR rate. Included in the Agreement is an $18.0 million sub-limit for borrowings secured by medical receivables loans originated by the Company. The Agreement is renewable annually at the bank syndicate's discretion. The Agreement also provides that if the banks elect not to renew the facility at the end of its stated term, loans then outstanding automatically convert to four-year amortizing term loans at slightly higher interest rates. The Agreement prohibits the Company from paying dividends other than dividends payable solely in shares of the Company's stock and limits borrowings to specified levels determined by ratios based on the Company's tangible net worth. As of June 30, 1996, the Company was in compliance with the financial covenants of the Agreement. The Company has a $100.0 million interim funding facility with Union Bank of Switzerland. This facility is available to fund certain equipment loans which are to be securitized. Loans made under this facility bear interest at a rate of .90% over the 30-day LIBOR rate. Borrowings under the facility are secured by certain equipment loans and the equipment financed thereunder. The facility was closed to further financings on August 31, 1996 in preparation for a securitization. The Company has two credit facilities for its medical receivables financing business. The first facility is for $3.0 million with an interest rate of prime plus 2.00% and matures in March, 1997. The second facility is for $7.0 million with an interest rate, at the Company's option, of either prime plus 1.00% or 30-day LIBOR plus 2.25% and matures in December 1996. In addition, in September 1996 the Company obtained a $50.0 million warehouse facility with an investment banking firm. The Company's use of securitization significantly affects its needs for warehouse facilities. When using securitization, the Company is required to hold loans in warehouse facilities until a sufficient quantity is accumulated to meet the various requirements of the credit rating agencies and others involved, and to make a securitization cost effective. Generally, loans totaling $50 to $100 million will be placed in each securitization pool. When the Company borrows funds through warehouse facilities, it is exposed to a certain degree of risk caused by interest rate fluctuations. Although the Company's equipment loans are structured and permanently funded on a fixed interest rate basis, it uses warehouse facilities until permanent funding is obtained. Because funds borrowed through warehouse facilities are obtained on a floating interest rate basis, the Company uses hedging techniques to protect its interest rate margins during the period that warehouse facilities are used and securitization and sales are anticipated. The Company uses derivative financial instruments, such as forward rate agreements, Treasury locks, and interest rate swaps and caps, to manage its interest rate risk. The derivatives are used to manage three components of this risk: interest sensitivity adjustments, hedging anticipated loan securitizations and sales, and interest rate spread protection. The Company's hedging techniques may not necessarily protect it from interest rate-related risks in all interest rate environments. Permanent Funding Methods The Company has completed eleven securitizations or other structured finance transactions for medical equipment financings totaling $681.5 million, including two public debt issues of $75.7 million and $90.0 million and nine private placements of debt and whole loan sales totaling $515.8 million. In January 1994, the Company filed a registration statement (Registration No. 33-74446) with the Commission to provide for the future issuance of securitized debt in a series of transactions pursuant to the Commission's "shelf" registration rule up to an aggregate of $350 million. The registration statement was declared effective by the Commission on June 23, 1994. The $75.7 and $90.0 million public debt issues were the two initial fundings under the $350 million shelf registration. The Company expects to continue to use securitization, on both a public and private basis, as its principal means to permanently fund its loans for the foreseeable future. If for any 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Continued Liquidity and Capital Resources, (Continued) reason the Company were to become unable to access the securitization market to permanently fund its equipment loans, the consequences for the Company would be materially adverse. In January 1996, the Company completed a $25.0 million private placement securitization of medical receivable loans with a domestic insurance company to fund its medical receivables financing business. The Company's use of securitization significantly affects its liquidity and capital requirements due to the amount of time required to assemble a portfolio of loans to be securitized. When using securitization, the Company is required to hold loans until a sufficient quantity is accumulated so as to attract investor interest and allow for a cost effective placement. This increases the Company's exposure to changes in interest rates and temporarily reduces its warehouse facility liquidity. Generally, the Company does not have binding commitments for permanent funding, either through securitization or whole loan sales. The Company has non-binding agreements with investment banking entities to fund future equipment loans through securitization. While the Company expects to be able to continue to obtain the permanent funding it requires for its equipment financing business, there can be no assurance that it will be able to do so. If, for any reason, any of these types of funding were unavailable in the amounts and on terms deemed reasonable by the Company, the Company's equipment financing activities would be adversely affected. The Company believes cash flows generated from operations and its warehouse facilities are sufficient to meet its near-term obligations. Income Tax Issues Historically, the Company has deferred a substantial portion of its federal and state income tax liability because of its ability to obtain depreciation deductions from transactions structured as fair market value leases. Over the past 18 months, the proportion of transactions originated by the Company structured as fair market value leases has declined significantly, and the Company expects that trend will continue. In addition, the Company disposed of a portion of its equipment residual portfolio in fiscal 1994 and may continue to do so in future periods. As a result, the Company expects that in future periods its ability to defer its income tax liability will correspondingly decline. Additionally, the Company believes its effective tax rate will increase in future periods as a result of higher state tax rates in certain regions in which the Company conducts it business. Inflation The Company does not believe that inflation has had a material effect on its operating results during the past three years. There can be no assurance that the Company's business will not be affected by inflation in the future. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements of the Company and its subsidiaries are filed on the pages listed below, as part of Part II, Item 8. 20 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Number ------ Independent Auditors' Report........................................... 22 Consolidated Balance Sheets as of June 30, 1996 and 1995............... 23-24 Consolidated Statements of Operations for the years ended June 30, 1996, 1995 and 1994...................................... 25 Consolidated Statements of Shareholders' Equity for the years ended June 30, 1996, 1995 and 1994...................................... 26 Consolidated Statements of Cash Flows for the years ended June 30, 1996, 1995 and 1994...................................... 27-29 Notes to Consolidated Financial Statements............................. 30-43 21 INDEPENDENT AUDITORS' REPORT Board of Directors and Shareholders DVI, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of DVI, Inc. and its Subsidiaries (the "Company") as of June 30, 1996 and 1995, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended June 30, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a)(2). These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of DVI, Inc. and its Subsidiaries as of June 30, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Philadelphia, Pennsylvania August 30, 1996 22 DVI, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands of dollars except share data) ASSETS
June 30 ------------------------- 1996 1995 --------- --------- Cash and cash equivalents ............................................. $ 2,376 $ 1,953 --------- --------- Cash and cash equivalents, restricted (Note 4) .............................................. 32,522 12,241 --------- --------- Amounts due from portfolio sale ....................................... 54,797 -- --------- --------- Receivables: Investment in direct financing leases and notes secured by equipment or medical receivables (Notes 5, 6, 7, 8, 12 and 16) Receivable in installments ....................................... 462,780 427,784 Receivable in installments - related parties ..................... 16,999 23,828 Notes collateralized by medical receivables ...................... 34,529 22,862 Residual valuation ............................................... 4,347 3,578 Unearned income .................................................. (65,722) (74,959) --------- --------- Net investment in direct financing leases and notes secured by equipment or medical receivables ......................... 452,933 403,093 --------- --------- Less: Allowance for possible losses on receivables .................... (3,675) (3,282) --------- --------- Net receivables ....................................................... 449,258 399,811 --------- --------- Equipment on operating leases (Note 5) (net of accumulated depreciation of $2,152 (1996) and $1,646 (1995)) ................................................... 3,845 2,722 --------- --------- Furniture and fixtures (net of accumulated depreciation of $926 (1996) and $726 (1995)) ..................................................... 1,959 1,468 --------- --------- Investments in investees (Note 6) ..................................... 7,019 7,656 --------- --------- Goodwill, net (Note 15) ............................................... 4,259 1,867 --------- --------- Other assets, including loans to shareholders of $344 (1996) and $59 (1995) (Note 12) ............................. 4,290 5,213 --------- --------- Total assets ..................................................... $ 560,325 $ 432,931 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 23 DVI, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands of dollars except share data) LIABILITIES AND SHAREHOLDERS' EQUITY
June 30 ---------------------- 1996 1995 -------- -------- Accounts payable ............................................................ $ 23,029 $ 6,023 -------- -------- Other accrued expenses ...................................................... 11,612 7,639 -------- -------- Borrowings under warehouse facilities (Note 7) .............................. 168,108 155,172 -------- -------- Deferred income taxes (Note 9) .............................................. 4,745 4,717 -------- -------- Long-term debt, net: Discounted receivables (primarily limited recourse) (Notes 5, 8 and 16) 253,759 205,376 Convertible subordinated notes (Notes 8, 10 and 12) .................... 13,809 13,754 -------- -------- Total long-term debt, net ......................................... 267,568 219,130 -------- -------- Total liabilities ............................................ 475,062 392,681 -------- -------- Commitments and contingencies (Notes 13 and 15) Shareholders' equity (Notes 6, 10, 11 and 15): Preferred Stock, $10.00 par value; authorized 100,000 shares; no shares issued Common Stock, $.005 par value; authorized 75,000,000 shares, outstanding 10,409,370 shares (1996) and 6,711,680 shares (1995) ....... 52 34 Additional capital ..................................................... 67,162 29,281 Unrealized gain on available-for-sale investments, net of deferred taxes of $769 (1995) ......................................................... -- 1,061 Retained earnings ...................................................... 18,049 9,874 -------- -------- Total shareholders' equity ........................................ 85,263 40,250 -------- -------- Total liabilities and shareholders' equity ........................ $560,325 $432,931 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 24 DVI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands of dollars except per share data)
Year Ended June 30, -------------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Finance and other income: Amortization of finance income ........................ $ 45,265 $ 34,286 $ 18,265 Other income .......................................... 3,748 1,699 2,344 ----------- ---------- ----------- Total finance and other income ................... 49,013 35,985 20,609 Interest expense ...................................... 30,489 22,860 8,833 ----------- ---------- ----------- Net interest income ........................................ 18,524 13,125 11,776 Gain on sale of financing transactions, net (Note 16) . 7,681 3,042 302 ----------- ---------- ----------- Net finance income ......................................... 26,205 16,167 12,078 Selling, general and administrative expenses .......... 9,898 7,891 6,049 Provision for possible losses on receivables (Note 5) . 1,974 1,261 1,716 ----------- ---------- ----------- Earnings from continuing operations before provision for income taxes, equity in net loss of investees and discontinued operations ................. 14,333 7,015 4,313 Provision for income taxes (Note 9) ........................ 6,092 2,946 1,811 ----------- ---------- ----------- Earnings from continuing operations before equity in net loss of investees and discontinued operations ......... 8,241 4,069 2,502 Equity in net loss of investees ............................ 66 -- 242 ----------- ---------- ----------- Earnings from continuing operations ........................ 8,175 4,069 2,260 Discontinued operations (Note 3): Loss from discontinued operations, net of tax of $51 .. -- -- 74 Loss on disposal of discontinued operations, net of tax of $2,213 ........................................... -- -- 3,071 ----------- ---------- ----------- Loss from discontinued operations ..................... -- -- 3,145 ----------- ---------- ----------- Net earnings (loss) ........................................ $ 8,175 $ 4,069 $ (885) =========== ========== =========== Net earnings (loss) per share: Primary: From continuing operations ......................... $ 0.81 $ 0.61 $ 0.34 From discontinued operations ....................... -- -- (0.47) ---------- ----------- Net earnings (loss) per share ...................... $ 0.81 $ 0.61 $ (0.13) =========== ========== =========== Fully diluted: From continuing operations ......................... $ 0.77 $ 0.60 $ 0.34 From discontinued operations ....................... -- -- (0.47) ----------- ---------- ----------- Net earnings (loss) per share ...................... $ 0.77 $ 0.60 $ (0.13) =========== ========== =========== Weighted average number of shares outstanding - primary ............................................... 10,118,000 6,652,000 6,717,000 Weighted average number of shares outstanding - fully diluted ......................................... 11,564,000 8,310,000 6,744,000
The accompanying notes are an integral part of these consolidated financial statements. 25 DVI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands of dollars)
Unrealized Common Stock Gain on $.005 Par Available- ------------------------ Additional for-Sale Shares Amount Capital Investments ---------- ------ ---------- ----------- Balances at July 1, 1993 ............................ 6,530,295 $ 33 $27,941 $ -- Issuance of common stock upon exercise of stock options ................. 37,000 214 Net loss ....................................... ---------- ---- ------- ------ Balances at June 30, 1994 ........................... 6,567,295 33 28,155 Issuance of common stock upon exercise of stock options ................. 97,216 1 626 Conversion of subordinated notes ............... 47,169 500 Unrealized gain on available-for-sale investments, net of deferred taxes of $769 1,061 Net earnings ................................... ---------- ---- ------- ------ Balances at June 30, 1995 ........................... 6,711,680 34 29,281 1,061 Issuance of common stock upon exercise of stock options and warrants ............. 822,690 4 8,934 Net proceeds from issuance of common stock ..... 2,875,000 14 28,947 Sale of available-for-sale investments, net of deferred tax benefit of $769 ....... (1,061) Net earnings ................................... ---------- ---- ------- ------ Balances at June 30, 1996 ........................... 10,409,370 $ 52 $67,162 $ -- ========== ==== ======= ====== Total Retained Shareholders' Earnings Equity -------- ------------- Balances at July 1, 1993 ............................ $ 6,690 $34,664 Issuance of common stock upon exercise of stock options ................. 214 Net loss ....................................... (885) (885) ------- ------- Balances at June 30, 1994 ........................... 5,805 33,993 Issuance of common stock upon exercise of stock options ................. 627 Conversion of subordinated notes ............... 500 Unrealized gain on available-for-sale investments, net of deferred taxes of $769 1,061 Net earnings ................................... 4,069 4,069 ------- ------- Balances at June 30, 1995 ........................... 9,874 40,250 Issuance of common stock upon exercise of stock options and warrants ............. 8,938 Net proceeds from issuance of common stock ..... 28,961 Sale of available-for-sale investments, net of deferred tax benefit of $769 ....... (1,061) Net earnings ................................... 8,175 8,175 ------- ------- Balances at June 30, 1996 ........................... $18,049 $85,263 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. 26 DVI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars)
Year Ended June 30, ----------------------------------------- 1996 1995 1994 --------- --------- --------- Cash flows from operating activities: Net earnings (loss) ....................................... $ 8,175 $ 4,069 $ (885) --------- --------- --------- Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: Equity in net loss of investees ...................... 66 242 Depreciation and amortization ........................ 7,982 7,237 1,903 Additions to allowance accounts ...................... 1,974 1,261 1,716 Gain on sale of financing transactions, net .......... (7,681) (3,042) (302) Deferred income taxes ................................ 797 1,619 (2,152) Losses related to discontinued operations ............ 5,408 Changes in assets and liabilities: (Increases) decreases in: Cash and cash equivalents, restricted .............. (20,281) 824 (6,239) Amounts due from portfolio sale .................... (54,797) Receivables ........................................ (29,505) 3,285 2,729 Other assets ....................................... 923 1,622 (679) Increases (decreases) in: Accounts payable ................................... 17,006 (17,839) 16,531 Other accrued expenses ............................. 1,323 (576) 410 --------- --------- --------- Total adjustments .................................... (82,193) (5,609) 19,567 --------- --------- --------- Net cash provided by (used in) operating activities ....... (74,018) (1,540) 18,682 --------- --------- --------- Cash flows from investing activities: Cost of equipment acquired ................................ (292,618) (319,011) (149,028) Portfolio receipts net of amounts included in income and proceeds from sales of financing transactions ........... 283,323 161,448 34,566 Net increase in notes collateralized by medical receivables (11,667) (16,855) (6,007) Furniture and fixtures additions .......................... (985) (1,026) 18 Investments in common and preferred stock of investees ............................................ (2,059) 150 Cash proceeds from sale of assets ......................... 125 Cash received from sale of common and preferred stock of investee ....................................... 1,341 828 540 --------- --------- --------- Net cash (used in) investing activities ................... (22,665) (174,616) (119,636)
(Continued) 27 DVI, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (in thousands of dollars)
Year Ended June 30, ----------------------------------------- 1996 1995 1994 --------- --------- --------- Cash flows from financing activities: Exercise of stock options and warrants ..... $ 8,938 $ 626 $ 214 Equity offering ............................ 28,961 Borrowings under: Warehouse facilities ..................... 485,585 534,633 216,113 Long-term debt ........................... 120,705 107,510 146,856 Repayments on: Warehouse facilities ..................... (472,649) (414,046) (226,748) Long-term debt ........................... (74,434) (52,328) (35,966) --------- --------- --------- Net cash provided by financing activities .. 97,106 176,395 100,469 --------- --------- --------- Net increase (decrease) in cash and cash equivalents ....................... 423 239 (485) Cash and cash equivalents, beginning of year .......................... 1,953 1,714 2,199 --------- --------- --------- Cash and cash equivalents, end of year ................................ $ 2,376 $ 1,953 $ 1,714 ========= ========= ========= Cash paid during the year for: Interest .................................... $ 29,984 $ 22,400 $ 5,579 ========= ========= ========= Income taxes ................................ $ 3,507 $ 1,650 $ 552 ========= ========= ========= Supplemental disclosures of noncash transactions: Assets acquired and liabilities assumed in connection with business acquisitions: Fair value of net assets acquired .......... $ 2,000 =========
During the year ended June 30, 1996, the Company converted a $541,000 note receivable into 435,335 shares of common stock of a domestic entity. During the year ended June 30, 1995, $500,000 of Convertible Subordinated Notes was converted into common stock. Unrealized gains on available-for-sale investments including restricted short-term investments and investments in investees total $1,061,548, net of deferred taxes of $768,707, as of June 30, 1995. (Continued) 28 DVI, INC., AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (in thousands of dollars) During the year ended June 30, 1994 the following noncash transactions occurred in conjunction with the disposal of the Company's healthcare operations segment (See Note 3). Net assets sold or written off: Furniture and fixtures.................................. $ 733 Equipment on operating leases........................... 2,615 Receivables............................................. 1,107 Other assets, net....................................... 687 ------ 5,142 ------ Liabilities assumed by Company: Accounts payable........................................ 545 Accrued liabilities..................................... 1,758 ------ 2,303 ------ Less proceeds: Cash.................................................... 125 Notes receivable........................................ 3,777 ------ 3,902 ------ Loss on disposal of assets................................... $3,543 ====== See Note 6 for discussion of additional noncash transactions. The accompanying notes are an integral part of these consolidated financial statements. 29 DVI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. NATURE OF OPERATIONS DVI, Inc. (the "Company" or "DVI") is engaged in the business of providing equipment financing and related services for users of diagnostic imaging, radiation therapy and other medical technologies. The Company's customer base consists principally of outpatient healthcare providers, physician groups and hospitals. By the terms of the underlying financing contracts, the Company's customers are generally considered in default if payment on a contract has not been received. Equipment under direct financing leases and notes secured by equipment serve as collateral for unpaid contract payments. Receivables under medical receivables financing transactions serve as collateral for unpaid contract payments. Ability to access the securitization market - The Company's ability to complete securitizations and other structured finance transactions depends upon a number of factors, including general conditions in the credit markets, the size and liquidity of the market for types of receivable-backed securities issued or placed in securitizations sponsored by the Company and the overall financial performance of the Company's loan portfolio. Additionally, the Company's ability to securitize assets is dependent upon its ability to provide credit enhancement, which reduces the Company's liquidity and periodically requires it to seek and obtain additional capital. Credit risk - Many of the Company's customers are outpatient healthcare providers that have complex credit characteristics. Providing financing for these customers involves considerable credit analysis. Continuing need for capital - The Company's ability to maintain and build its financing business is dependent on its ability to obtain substantial amounts of warehouse and permanent debt financing. Regulation and consolidation - Additional regulatory attention has been directed towards physician-owned healthcare facilities and other arrangements whereby physicians are compensated, directly or indirectly, for referring patients to such healthcare facilities. Furthermore, the market is subject to consolidation among out-patient and physician groups and with hospitals. The Company's source of customers is subject to the effects of the regulatory actions and market consolidation. Investments in foreign and initial operations - In an effort to mitigate the impact of regulation and consolidation and to expand the Company's market, the Company has initiated operations internationally and has made investments in certain emerging markets. The success and ultimate recovery of these investments is dependent upon many factors including foreign regulation, customs, currency exchange and the achievement of management's planned projections for these markets. Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation Policy - The consolidated financial statements include the accounts of DVI and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents - Cash equivalents include highly-liquid securities with original maturities of 90 days or less. Investment in Direct Financing Leases and Notes Secured by Equipment - At contract commencement, the Company records the gross contract receivable, initial direct costs, estimated residual value of the financed equipment, if any, and unearned income. At June 30, 1996 and 1995, unamortized initial direct costs amounted to $7,450,000 and $6,878,000, respectively. Initial direct costs are amortized over the life of the contract on the interest method which reflects a constant effective yield. Notes Collateralized by Medical Receivables - Notes collateralized by medical receivables consist of notes receivable resulting from working capital and other loans made to entities in the healthcare industry and receivables purchased from unrelated entities. The purchased receivables are stated at the lower of the Company's cost or the estimated collectible value. 30 DVI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued) Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued) Equipment on Operating Leases - Leases which do not meet the criteria for direct financing leases are accounted for as operating leases. Equipment on operating leases are recorded at cost and depreciated on a straight-line basis over the estimated useful life of the equipment. Rental income is recorded monthly on a straight-line basis. Initial direct costs associated with operating leases are deferred and amortized over the lease term on a straight-line basis which reflects a constant effective yield. Furniture and Fixtures - Furniture and fixtures are stated at cost less accumulated depreciation and are depreciated using the straight-line method over their estimated useful lives (generally five years). Cash and Cash Equivalents, Restricted and Investments in Investees - The Company accounts for investments in debt and equity securities in accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS No. 115 requires the classification of investments in debt and equity securities into three categories: held to maturity, trading and available-for-sale. At June 30, 1996, the Company has only available-for-sale securities which are included in restricted cash, as their maturities are less than 90 days. Equity securities classified as available-for-sale securities are reported at estimated fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of equity, net of deferred taxes. The investments in investees consist of common and nonvoting preferred equity interests in unconsolidated subsidiaries. The Company accounts for its investments in the common stock of these subsidiaries using either the cost or equity method of accounting, depending upon its ownership interests and its ability to influence the investee. The investment in the preferred stock of the investee is recorded at the lower of cost or estimated realizable value. Goodwill - Goodwill represents the excess purchase price over the net tangible assets stemming from the acquisition of Medical Equipment Finance Corporation ("MEF Corp."). (See Note 15.) Goodwill relating to the acquisition of MEF Corp. is being amortized over a fifteen year period. The Company evaluates the recoverability of its goodwill separately for each applicable business acquisition at each balance sheet date. The recoverability of goodwill is determined by comparing the carrying value of the goodwill to the estimated operating income of the related entity on an undiscounted cash flow basis. Should the carrying value of the goodwill exceed the estimated operating income for the expected period of benefit, an impairment for the excess is recorded at that time. Other Assets - Other assets consist of prepaid financing costs, equipment held for sale or release which is stated at the lower of cost or its net realizable value, and loans to shareholders primarily for financing a personal residence. Debt Issuance Costs - Debt issuance costs related to securitizations and convertible subordinated notes are offset against the related debt and are being amortized over the life of the notes using the interest method. Amortization of Finance Income - Amortization of finance income primarily consists of the interest component of payments received on notes secured by equipment (or medical receivables) and direct financing leases and is calculated using the interest method so as to approximate a level rate of return on the net investment. Gain on Sale of Financing Transactions - Gains arising from the sale of direct financing leases and investments in notes secured by equipment occur when the Company obtains permanent funding through the whole loan sale or asset securitization of a transaction to a third party. Subsequent to a sale, the Company has no or limited remaining interest in the transaction or equipment and no obligation to indemnify the purchaser in the event of a default on the transaction by the obligor, except when the sale agreement provides for participation in defined excess interest spreads or limited recourse in which the Company guarantees reimbursement under the agreement up to a specific maximum, which is of nominal value. Consequently, in the event of default by the Obligor, the lender would exercise its rights under the lien with limited or no further recourse against the Company, notwithstanding any facts or circumstances that might promulgate the lender's assertion under representations and warranties made by the Company. 31 DVI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued) Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (Continued) Other Income - Other income consists primarily of late charges, dividends on investments in investee's preferred stock and income from operating leases, income from receivables purchases and income from billing/collecting activities which the Company has curtailed.. Taxes on Income - The Company accounts for taxes under Statement of Financial Accounting Standards No. 109 ("SFAS 109"), Accounting for Income Taxes. Deferred taxes on income result from temporary differences between the reporting of income for financial statement and tax reporting purposes. Such differences arise principally from recording hedging gains and losses and from lease transactions in which the operating lease method of accounting is used for tax purposes and the financing lease method, as described above, is used for financial statement purposes. Under the operating lease method, leased equipment is recorded at cost and depreciated over the useful life of the equipment and lease payments are recorded as revenue when earned. Net Earnings (Loss) Per Share - Net earnings (loss) per share is based on the modified treasury stock method, except when the results of this method are antidilutive. In fiscal 1995 and 1994, net earnings (loss) per share is calculated using the weighted average common shares outstanding during the year because the results of the modified treasury stock method were antidilutive. For fiscal 1996 and the quarters ended June 30, 1996, March 31, 1996, December 31, 1995, September 30, 1995, June 30, 1995 and March 31, 1995, fully diluted net earnings per share is calculated using the modified treasury stock method as the exercise of stock options, warrants and the conversion of the subordinated notes has a dilutive effect on earnings per share. Derivative Interest Rate Contracts - The Company uses various interest rate contracts such as forward rate agreements, Treasury locks, interest rate swaps and caps to manage its interest rate risk from its floating rate liabilities and anticipated securitization and sale transactions. No contracts are held for trading purposes. Gains or losses from forward rate agreements used to hedge floating rate exposure within warehouse funding facilities are deferred and amortized to interest expense over the hedged period. When hedge transactions are matched to anticipated securitizations, gains or losses from the hedge transactions are deferred and amortized to interest expense over the term of the securitized transaction. When hedge transactions are matched to anticipated whole loan sales, gains or losses from the hedge transactions are recognized as part of the gain or loss on the sale. Recent Accounting Developments - The Company adopted SFAS No. 114 Accounting by Creditors for Impairment of a Loan as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures as of July 1, 1995. These statements require that impaired loans be measured based on the present value of the expected cash flows discounted at the loan's effective interest rate or the fair value of the collateral, if the loan is collateral-dependent. Under SFAS No. 114, a loan is considered impaired when, based on current information and events, it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. The adoption of SFAS No. 114 and No. 118 did not have a material impact on the Company's operations. (See Note 5.) In October 1995, The Financial Accounting Standards Board (FASB) issued SFAS No. 123, Accounting for Stock-Based Compensation. The Company has determined that it will not change to the fair value method and will continue to use Accounting Principle Board Opinion No. 25 for measurement and recognition of employee stock-based transactions. In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. This statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and is to be applied prospectively. Earlier or retroactive application is not permitted. Management has not completed an analysis of the impact of applying this new statement, however, the Company intends to begin applying this new standard, effective January 1, 1997. Reclassifications - Certain amounts as previously reported have been reclassified to conform to the year ended June 30, 1996 presentation. 32 DVI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued) Note 3. DISCONTINUED OPERATIONS In June 1993, the Company adopted a formal plan to discontinue its healthcare services segment that consisted of seven outpatient healthcare facilities which it operated or managed on a direct basis and one facility which was in the developmental stage and not yet in operation. At the end of fiscal 1993, the Company established a reserve for the divestiture of the operations and recorded a loss on discontinued operations and disposal of discontinued operations. As of June 30, 1994, the Company had disposed of or entered into definitive agreements to sell six of these outpatient healthcare facilities, had written off the investment and assets of the remaining two, and recorded an additional $3.1 million after-tax charge in excess of the amounts of estimated losses reported as of June 30, 1993 for the disposition of this segment of the Company's business. Note 4. CASH AND CASH EQUIVALENTS, RESTRICTED Cash and cash equivalents, restricted consist of cash, certificates of deposit and U.S. Treasury obligations maintained by the Company which are pledged as collateral for certain limited recourse borrowings related to direct financing leases, notes secured by equipment and operating leases. The estimated fair value and the amortized cost of U.S. Treasury obligations as of June 30, 1996 is $14,208,516. There were no sales of U.S. Treasury obligations during the year ended June 30, 1996. Note 5. INVESTMENT IN DIRECT FINANCING LEASES AND NOTES SECURED BY EQUIPMENT OR MEDICAL RECEIVABLES AND EQUIPMENT ON OPERATING LEASES Receivables in installments are receivable in monthly installments of varying amounts and are collateralized by the underlying equipment. Notes collateralized by medical receivables consist of notes receivable resulting from working capital loans and are due at maturity. Receivables from operating leases relate to noncancellable operating leases and are due in monthly installments of varying amounts. Information regarding scheduled collections for direct financing leases, notes secured by equipment or medical receivables and operating leases are as follows:
Direct Financing Leases and Notes Secured by Equipment or Operating Medical Receivables Leases ----------------------- --------- Year Ending June 30, 1997.......................... $168,767,000 $640,000 1998 ......................... 140,050,000 567,000 1999.......................... 106,907,000 557,000 2000 ......................... 61,319,000 2001.......................... 27,263,000 Thereafter.................... 10,002,000 ------------ ---------- 514,308,000 1,764,000 Residual valuation............ 4,347,000 ------------ ---------- Total......................... $518,655,000 $1,764,000 ============ ==========
33 DVI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued) Note 5. INVESTMENT IN DIRECT FINANCING LEASES AND NOTES SECURED BY EQUIPMENT OR MEDICAL RECEIVABLES AND EQUIPMENT ON OPERATING LEASES, (Continued) The total receivable balance of $518,655,000 is comprised of direct financing leases (38.9%), notes secured by equipment (53.6%), and medical receivables (7.5%). The Company is exposed to credit risk on these receivables. At June 30, 1996, of the 380 debtors, the largest concentration of credit exposure was 2.9%. Residual valuation represents the estimated amount to be received at contract termination from the disposition of equipment financed under direct financing leases and notes secured by equipment. Amounts to be realized at contract termination depend on the fair market value of the related equipment and may vary from the recorded estimate. Residual values are reviewed on an annual basis to determine if the equipment's fair market value is below its recorded value. During the years ended June 30, 1996 and 1995, the Company sold receivables to third parties realizing gains of approximately $7.7 million and $3.0 million, respectively. In connection with certain of these transactions, the Company retained subordinated interests in the receivables totaling $35,734,000 and $13,431,000 at June 30, 1996 and 1995, respectively, which are included in Receivables in installments. In accordance with provisions of SFAS No. 115, the Company classifies subordinated interests as trading securities which are recorded at fair value with any unrealized gains or losses recorded in the results of operations in the period of the change in fair value. Valuations at origination and at each reporting period are based on discounted cash flow analyses. The range of values attributable to the factors used in determining fair value is broad, accordingly, the Company's estimate of fair value is subjective. Under the purchase agreement, the Company is required to fund any losses on the receivables up to its subordinated interests. The Company maintains an allowance for estimated losses related to its subordinated interests which is included in the allowance for possible losses on receivables. At June 30, 1996, receivables amounting to $300.5 million are assigned as collateral for long-term debt (See Note 8). The following is an analysis of the allowance for possible losses on receivables as of June 30:
1996 1995 1994 ---------- ---------- ---------- Balance, beginning of year.............................. $3,282,000 $2,498,000 $1,046,000 Provision for possible losses on receivables............ 1,974,000 1,261,000 1,716,000 Recoveries ........................................... -- -- -- Write-offs.............................................. 1,581,000 477,000 264,000 ---------- ---------- ---------- Balance, end of year ................................... $3,675,000 $3,282,000 $2,498,000 ========== ========== ==========
The total carrying amount of loans on which income was suspended was $3,799,000 at June 30, 1996. The average carrying amount of such loans was $2,501,000 for the year ended June 30, 1996. Cash collected on all nonaccruing loans is applied to the carrying amount. Note 6. INVESTMENTS IN INVESTEES During the year ended June 30, 1996, the Company sold its investments in common stock of Healthcare Imaging Services, Inc. ("HIS") and Diagnostic Imaging Services, Inc. ("DIS"). The Company did not record a gain or loss on these transactions. In March 1995, the Company sold its investment in common stock of SMT Health Services, Inc. for proceeds equal to its cost of $827,989. 34 DVI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued) Note 6. INVESTMENTS IN INVESTEES, (Continued) At June 30, 1995, the Company held available-for-sale securities with a market value of $3,172,000, which it accounted for at market with the unrealized gain of $1,830,000 recorded as a component of shareholders' equity. At June 30, 1996 and 1995, the Company holds Series F and Series G preferred stock of DIS valued at $2,482,000 (2,482,000 shares) and $2,000,000 (2,000,000 shares), respectively. The Series F and G preferred stock have liquidation preferences at $1.00 per share, are redeemable at the option of DIS at $1.00 per share plus accrued dividends, are convertible into common stock of DIS at $2.482 per share for Series F and $2.00 per share for Series G, and are entitled to annual cumulative dividends ranging from $.05 per share to $.10 per share. In addition, the majority shareholder of DIS has the right to repurchase the Series F and G preferred stock for $4,482,000 plus accrued dividends through September 2001. In November 1995, the Company entered into a joint venture with two other partners to establish Medical Equipment Credit Pte. Ltd. ("MEC"). MEC pursues opportunities in the Asian-Pacific diagnostic imaging marketplace. Initial capitalization of MEC is 7,000,000 shares of common stock ($5,000,000) and ownership is based on the percentage of the initial capitalization invested by each of the three joint venture partners. The Company's ownership is 40% based on a $2,000,000 investment. The Company accounts for its investment in MEC under the equity method of accounting. In the year ended June 30, 1996, the Company converted a note receivable totaling $541,000 into 435,335 shares or 19.8% of the outstanding stock of a domestic entity. The Company accounts for this investment in this entity under the cost method of accounting as it does not exert significant influence over the entity. Note 7. BORROWINGS UNDER WAREHOUSE FACILITIES The Company's primary credit facility, pursuant to a revolving credit agreement with a syndicate of banks (the "Agreement"), provides for the borrowing of up to $116.5 million. Borrowings under this facility bear interest based on the Company's leverage ratio as defined in the Agreement at the Company's option of (1) from prime to prime plus .125% or (2) from 1.50% to 1.65% over the 30, 60 or 90-day LIBOR rate. Included in the Agreement is an $18.0 million sub-limit for borrowings secured by medical receivables loans originated by the Company. The Agreement is renewable annually at the bank syndicate's discretion. The Agreement also provides that if the banks elect not to renew the facility at the end of its stated term, the then outstanding loans automatically convert to four-year amortizing term loans at slightly higher interest rates. The Agreement prohibits the Company from paying dividends other than dividends payable solely in shares of the Company's stock and limits borrowings to specified levels determined by ratios based on the Company's tangible net worth. As of June 30, 1996, the Company was in compliance with the financial covenants of the Agreement. The Company has a $100.0 million interim funding facility with Union Bank of Switzerland. This facility is available for certain transactions which are to be securitized. This facility bears interest at a rate of .90% over the 30-day LIBOR rate. Borrowings under the facility are secured by certain equipment loans and the equipment financed thereunder. The facility was closed to further financings on August 31, 1996 in preparation for a securitization. The Company has two credit facilities for its medical receivables financing business. The first facility is for $3.0 million with an interest rate of prime plus 2.00% and matures in March 1997. The second facility is for $7.0 million with an interest rate, at the Company's option, of either prime plus 1.00% or 30-day LIBOR plus 2.25% and matures in December 1996. In addition, in September 1996 the Company obtained a $50.0 million warehouse facility with an investment banking firm. At June 30, 1996, the Company had available an aggregate of $226.5 million in interim funding facilities of which $168.1 million was utilized. Note 8. LONG-TERM DEBT The discounted receivables are discounted direct financing lease obligations, notes secured by equipment, and medical receivables which were securitized and sold to investors primarily on a limited or nonrecourse basis. They are collateralized by the underlying equipment and medical receivables (See Note 5). 35 DVI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued) Note 8. LONG-TERM DEBT (Continued) Future annual maturities of discounted receivables, net of capitalized issuance costs of $6,512,000 are as follows: Year Ending June 30, -------------------- 1997 ................................................... $76,715,000 1998 ................................................... 57,641,000 1999 ................................................... 48,812,000 2000 ................................................... 55,324,000 2001 ................................................... 11,052,000 Thereafter ............................................. 4,215,000 ----------- Total ...................................... $253,759,000 ============ All of the discounted receivables have been permanently funded through six asset securitizations which were initiated during fiscal years 1993 through 1996. Debt under these securitizations are limited recourse and bear interest at fixed rates ranging between 5.34% to 7.81% and floating interest rates of 2.25% over 30-day LIBOR. All of the receivables are serviced by the Company and the related securitization agreements require that the Company comply with certain servicing requirements, require limited cash collateral (See Note 4) or residual interests, and contain various recourse provisions. (See Note 13.) Included above is a $10.0 million facility with Warehouse Line LLC. This was an advance related to the Company's securitization of its retained subordinated positions in its securitizations and whole loan sales. The securitization transaction was completed on July 31, 1996. In June 1994, the Company completed a $14,112,000, net of issuance costs totaling $888,000, private placement of convertible subordinated notes. The notes are convertible into common shares at $10.60 per share at the discretion of the noteholders, bear interest at a rate of 9 1/8% payable in quarterly installments of interest only and mature in June 2002. During the year ended June 30, 1995, $500,000 of these notes were converted into 47,169 shares of common stock of the Company. There were no conversions in fiscal year 1996. Note 9. INCOME TAXES The provision for income taxes is comprised of the following:
Year Ended June 30, ---------------------------------------------- 1996 1995 1994 ---------- ---------- ---------- Current payable......................... $6,120,000 $ 466,000 $2,623,000 Deferred ............................... (28,000) 2,480,000 (812,000) ---------- ---------- ---------- Total ............................. $6,092,000 $2,946,000 $1,811,000 ========== ========== ==========
A reconciliation of the provision for income taxes to the amount of income tax expense that would result from applying the federal statutory rate (35%) to earnings from continuing operations is as follows: 36 DVI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued) Note 9. INCOME TAXES (Continued)
Year Ended June 30, ------------------------------------------------------------------ 1996 1995 1994 -------------------- ------------------- -------------------- Provision for income taxes at the federal statutory rate......... $4,993,000 35.0% $2,455,000 35.0% $1,509,000 35.0% State income taxes, net of federal tax benefit ............... 1,045,000 7.3% 452,000 6.4% 299,000 7.0% Other ................................ 54,000 0.4% 39,000 0.6% 3,000 -- ---------- ---- ---------- ----- ---------- ----- Total ......................... $6,092,000 42.7% $2,946,000 42.0% $1,811,000 42.0% ========== ===== ========== ===== ========== =====
The major components of the Company's net deferred tax liabilities of $4,745,000 and $4,717,000 at June 30, 1996 and 1995, respectively, are as follows:
1996 1995 ----------- ----------- Accumulated depreciation ............................... $31,820,000 $27,963,000 Deferred recognition of lease income.................... (24,762,000) (21,751,000) Alternative minimum tax credits carryforwards........... (137,000) (403,000) Gain or loss on hedging activities ..................... 1,342,000 1,444,000 Allowances for uncollectible receivables................ (1,786,000) (1,179,000) State income taxes...................................... (867,000) (401,000) Other .................................................. (865,000) (956,000) ----------- ------------ Total .......................................... $4,745,000 $ 4,717,000 =========== ============
Note 10. SHAREHOLDERS' EQUITY In August 1995, the Company completed a public offering of 2,875,000 shares of its Common Stock for which it received net proceeds of $29.0 million. The net proceeds were utilized to reduce short-term indebtedness and for general corporate purposes. In January 1996, holders of 615,605 of the Company's warrants and units issued in February 1991 redeemed their warrants and units for shares of the Company's Common Stock at $12.00 or $12.60 per share by the final exercise date of January 26, 1996. As a result of the redemption, the Company received cash proceeds of $7.4 million. Prior to June 30, 1994, the Company issued warrants to purchase a total of 80,000 common shares at prices between $7.625 and $8.375 per share to all non-employee Directors of the Company and warrants to purchase up to 35,000 common shares at $8.50 per share to an unrelated party. Additionally, in fiscal 1992, the Company issued warrants to purchase up to 200,000 shares of the Company's common stock at $18.00 per share to an underwriter as compensation for investment banking services. No compensation expense was recognized as a result of this transaction. The warrants vest at various dates through November 1996 and expire at various dates through 2003. At June 30, 1996, warrants for 250,000 common shares were exercisable and 55,000 warrants had been exercised. In June 1994, the Company issued convertible subordinated notes to related and unrelated parties which are convertible at the option of the holder into 1,415,094 shares of common stock at $10.60 per share. Subsequent to June 30, 1996, $600,000 of these notes were converted into 56,603 shares of common stock. As of July 15, 1996, cumulative conversions of these notes were $1,100,000 into 103,772 shares of common stock (see Notes 8 and 12). 37 DVI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued) Note 11. STOCK OPTION PLAN The Company has a stock option plan which currently provides for the granting of options to employees to purchase up to 1,250,000 shares of the Company's common stock at the fair market value at the date of grant. Options granted under the plan generally vest over three to five years from the date of grant and expire ten years after the date of the grant. Any unexercised options are canceled ninety days subsequent to the termination of the employee and are returned to the plan. The following table summarizes the activity under the plan for the periods indicated:
Options Exercise Price Outstanding Per Share ----------- --------------- Outstanding at July 1, 1993................................. 536,105 $ 1.44 - $13.50 Granted .................................................... 399,625 7.00 - 10.38 Exercised .................................................. (37,000) 3.00 - 8.38 Canceled ................................................... (88,868) ---------- --------------- Outstanding at June 30, 1994................................ 809,862 $ 1.44 - $13.50 Granted .................................................... 48,500 9.13 - 12.63 Exercised .................................................. (97,216) 2.68 - 12.88 Canceled ................................................... (80,852) ---------- --------------- Outstanding at June 30, 1995 ............................... 680,294 $ 1.44 - $13.50 Granted .................................................... 130,500 11.63 - 13.13 Exercised .................................................. (152,085) 1.44 - 13.50 Canceled ................................................... (37,000) ----------- --------------- Outstanding at June 30, 1996 ............................... 621,709 $ 1.75 - $13.13 =========== ===============
As of June 30, 1996, options to purchase 290,989 shares were exercisable. Note 12. RELATED PARTY TRANSACTIONS The Company's principal executive offices located in Doylestown, Pennsylvania are leased from a party related to a shareholder/director of the Company. The lease commenced in December 1994 and the Company recorded rent expense under this lease of $222,750 and $33,544 for the years ended June 30, 1996 and 1995, respectively. At June 30, 1996 and 1995, receivables in installments from investees totaled $16,999,000 and $23,828,000, respectively. In June 1995, the Company and former shareholders of MEF Corp., some of whom are also officers of the Company, entered into an agreement to set the purchase price of MEF Corp. which was approved by the stockholders of the Company in December 1995. (See Note 15.) As of June 30, 1996 and 1995, the Company had loans receivable from Company officers totaling $400,000 and $113,000, respectively. During the year ended June 30, 1996, the Company sold its investments in common stock of Healthcare Imaging Services, Inc. ("HIS") and Diagnostic Imaging Services, Inc. ("DIS"). As of June 30, 1996 and 1995, the Company had investments in preferred stock and dividends of DIS totaling $4,891,000 and $4,667,000, respectively. (See Note 6.) During the year ended June 30, 1994, the Company issued convertible subordinated notes totaling $9,550,000 to related parties. 38 DVI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued) Note 13. COMMITMENTS AND CONTINGENCIES Facility Leases - The Company leases its facilities under noncancelable operating leases with terms in excess of one year. The lease for the Company's principal facility expires in June 2005. Rent expense for the years ended June 30, 1996, 1995 and 1994 amounted to $654,000, $498,000 and $463,000, respectively. Future minimum lease payments under these leases are as follows: Future Minimum Year Ending June 30, Lease Payments -------------------- -------------- 1997............................................ $ 517,000 1998............................................ 441,000 1999 ........................................... 441,000 2000 ........................................... 430,000 2001 ........................................... 236,000 Thereafter ..................................... 943,000 ---------- Total ..................................... $3,008,000 ========== Contingencies - Under certain limited recourse agreements, the Company may be required to provide for losses incurred on uncollected lease and medical receivables previously collateralized. At June 30, 1996, the maximum contingent liability under the limited recourse agreements amounted to $60,791,000. This contingent liability, however, could be offset by any proceeds received from the resale or remarketing of available equipment financed under the agreements or outstanding medical receivables collected. The Company has receivables from and investments with DIS aggregating $21,005,000 and $24,448,000 at June 30, 1996 and 1995, respectively. DIS received a qualified opinion for a going concern on its December 31, 1995 financial statements. Additionally, the Company has net receivables from Latin American Trade Finance, Ltd. (LATF) in the amount of $845,000 at June 30, 1996. LATF is a San Francisco based investment company which specializes in financing throughout Latin America. LATF has identified some significant deals. To date, those deals have not closed and LATF has been unable to make scheduled payments to the Company. Management has performed an analysis of its recoverability of such amounts and believes that based upon the best information available, it will recover all amounts, without any loss. (See Note 12.) Litigation - The Company is involved in litigation both as a plaintiff and defendant in matters arising out of the Company's normal business activities. Management does not expect the outcome of these lawsuits to have a material adverse effect on the consolidated financial statements of the Company. Note 14. BENEFIT PLANS The Company maintains and administers an Employee Savings Plan pursuant to Internal Revenue Code Section 401(k). The Plan provides for discretionary contributions as determined by the Company's Board of Directors. The Company contributed $45,000, $39,000 and $49,000 to the Plan during the years ending June 30, 1996, 1995 and 1994, respectively. Note 15. ACQUISITIONS In January 1993, the Company acquired the outstanding shares of Medical Equipment Finance Corporation ("MEF Corp."). In December 1995, the Company's shareholders approved the issuance of 400,000 shares of the Company's common stock, as set in the purchase agreement as amended, valued at $4.65 million. The Company recorded goodwill of $4.65 million related to the acquisition. As of June 30, 1996, the 400,000 common shares were unissued but included in the earnings per share calculation. 39 DVI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued) Note 16. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS In accordance with Statement of Financial Accounting Standards No. 107 ("SFAS 107"), Disclosures About Fair Value of Financial Instruments, a summary of the estimated fair value of the Company's consolidated financial instruments at June 30, 1996 and 1995 is presented below. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is necessary to interpret market data to develop the estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
June 30, 1996 ---------------------------------------- Carrying Estimated Fair Amount Value ------------ -------------- Assets: Receivable in installments (excluding investment in direct financing leases) .................... $216,473,000 $218,301,000 Liabilities: Discounted receivables ............................. $253,759,000 $253.287,000
June 30, 1995 ---------------------------------------- Carrying Estimated Fair Amount Value ------------ -------------- Assets: Receivable in installments (excluding investment in direct financing leases) .................... $177,785,000 $182,284,000 Liabilities: Discounted receivables ............................. $205,376,000 $202,967,000
The carrying values of cash and cash equivalents, cash and short-term investments, restricted, notes collateralized by medical receivables, accounts payable, other accrued expenses, short-term bank borrowings and convertible subordinated notes approximate fair values at June 30, 1996 and 1995. The methods and assumptions used to estimate the fair values of other financial instruments are summarized as follows: Receivable in installments: The fair value of the financing contracts was estimated by discounting expected cash flows using the current rates at which loans of similar credit quality, size and remaining maturity would be made as of June 30, 1996 and 1995. The Company believes that the risk factor embedded in the entry-value interest rates applicable to performing loans for which there are no known credit concerns results in a fair valuation of such loans on an entry-value basis. In accordance with SFAS 107, the Company has excluded receivables from lease contracts of approximately $197.7 million and $199.3 million as of June 30, 1996 and 1995, respectively, from the receivable in installments fair value calculation. 40 DVI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued) Note 16. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS, (Continued) Discounted receivables: The fair value of discounted receivables, related to the securitization of leases and notes, was estimated by discounting future cash flows using rates currently available for debt with similar terms and remaining maturities. The fair value estimates presented herein were based on information available as of June 30, 1996 and 1995. Although the Company is not aware of any factors that would significantly affect the estimated fair values, such values have not been updated since June 30, 1996; therefore, current estimates of fair value may differ significantly from the amounts presented herein. Derivative activity:
June 30, 1996 June 30, 1995 ------------- ------------- Deferred Deferred Notional Fair Gains/ Notional Fair Gains/ Amount Value (Losses) Amount Value (Losses) ------------------------------------------ ---------------------------------------- SWAPS ................... $99.4 million $236,000 -- -- -- -- OPTIONS ................. $26.5 million -- -- -- -- -- FORWARDS: Treasury Locks...... $90 million ($227,000) $129,000 -- -- ($1.84 million) Forward Rate Agreements........ $200 million ($17,900) -- -- -- --
The Company uses off balance sheet derivative financial instruments to hedge interest rate risk. The Company's interest rate risk is associated with variable rate funding of the fixed rate loans and the timing difference between temporary funding through the warehouse and permanent funding through either securitization or sale. The derivatives are used to manage three components of this risk: interest sensitivity adjustments, hedging anticipated loan securitizations and sales, and interest rate spread protection. Credit risk exists for these derivative instruments in the form of the failure of the counterparty to make required payments in favor of the Company. The risk is minimized through the use of counterparties with investment grade ratings. The fair value of the derivative instruments is derived from dealer quotes. Swaps and Options: Swaps and options, primarily interest rate caps, are used to hedge the interest rate spreads for various loan sale facilities where cash flows from loans are fixed rate but the borrowing costs are variable. The interest rate swaps pay fixed rates of 5.38% to 6.74% and receive a floating rate of the H-15 composite commercial paper rate. The swaps mature in September 2000 and December 2000. The interest rate caps are fixed at 9.00% and mature in December 1996 and March 1997. Forwards: Treasury lock agreements, forward contracts, are used to hedge the interest rate risk associated with anticipated securitizations and/or sales. These instruments lock a specific Treasury rate identified to have a comparable maturity to the average life of the anticipated transaction in order to fix the rate either over the life of the securitization or to fix the sale price as applicable. The open positions at June 30, 1996 were for securitizations and sales expected to occur in the first and second quarters of fiscal 1997. In 1996, the Company deferred $211,000 in losses associated with transactions securitized compared with $1.75 million in deferred losses in 1995. In 1996, the Company recognized losses of $27,000 for loan sales compared with no recognized gains or losses in 1995. Gains and losses for securitizations are deferred and amortized over the life of the securitization. Gains and losses on sales are recognized as part of the gain or loss on the sale. 41 DVI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued) Note 16. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS, (Continued) Forward rate agreements, forward contracts, are used to hedge interest sensitivity adjustments in conjunction with cash market activities by extending the repricing period of the short term floating rate warehouse facilities. Gains and losses are deferred and amortized to interest expense over the extension period. The Company pays a fixed rate of 5.77% and receives a floating rate of one month LIBOR. These agreements mature in September 1996. Note 17. QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the quarterly results of operations for the fiscal years ended June 30, 1996 and 1995:
Three Months Ended -------------------------------------------------- September 30 December 31 March 31 June 30 ------------ ----------- -------- ------- (in thousands, except per share data) Fiscal 1996 Finance and other income.......................... $11,301 $12,061 $13,152 $12,499 Net finance income................................ 5,714 6,394 6,832 7,265 Earnings before provision for income taxes and equity in net earnings (loss) of investees... 3,191 3,510 3,690 3,942 Net earnings ................................. 1,775 2,078 2,126 2,196 Net earnings per common and common equivalent share - primary............ $ .20 $ .21 $ .20 $ .20 ===== ===== ===== ===== Net earnings per common and common equivalent share - fully diluted............. $ .19 $ .20 $ .19 $ .19 ===== ===== ===== =====
Three Months Ended -------------------------------------------------- September 30 December 31 March 31 June 30 ------------ ----------- -------- ------- (in thousands, except per share data) Fiscal 1995 Finance and other income.......................... $ 7,197 $ 8,070 $ 9,648 $11,070 Net finance income................................ 3,046 3,710 4,140 5,271 Earnings before provision for income taxes and equity in net earnings (loss) of investees... 885 1,524 2,169 2,437 Net earnings ................................. 513 893 1,249 1,414 Net earnings per common and common equivalent share - primary............ $ .08 $ .13 $ .18 $ .21 ===== ===== ===== ===== Net earnings per common and common equivalent share - fully diluted............. $ .08 $ .13 $ .17 $ .19 ===== ===== ===== =====
42 DVI, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued) Note 18. COMPENSATION AGREEMENTS In June 1995, the Company agreed in principle to adopt an employee incentive plan (the "Plan"). Under the Plan the Company has agreed to issue, subject to stockholder approval and an increase in the authorized capital stock of the Company, an aggregate of 200,000 shares of common stock of the Company (the "Incentive Shares") to certain of its employees if the last sale price of the Company's common stock is $16.00 per share or higher for 30 consecutive calendar days at any time before December 31, 1998, provided that any such employee must be employed by the Company during the above-described 30-day period in order to receive any Incentive Shares under this agreement. The Company has agreed that, if there is an event or series of events that constitutes a sale of the Company at any time prior to December 31, 1998 and the consideration to be received for each share of common stock of the Company in such sale of the Company is $13.00 or higher, the Company will issue the Incentive Shares to the employees. If the criteria for the issuance of the Company's common stock are met, the Company will record compensation expense equal to the fair value of the common shares issued. 43 ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding the Company's directors is incorporated herein by reference to the Company's definitive proxy statement filed not later than October 28, 1996, with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. Information regarding the Company's Executive Officers is set forth in Part I of this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 402 of Regulation S-K is incorporated herein by reference to the Company's definitive proxy statement filed not later than October 28, 1996 with the Securities sand Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 403 of Regulation S-K is incorporated herein by reference to the Company's definitive proxy statement filed not later than October 28, 1996, with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 404 of Regulation S-K is incorporated herein by reference to the Company's definitive proxy statement filed not later than October 28, 1996, with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) List of Documents filed as part of this Report: (1) Financial Statements: See Index to Consolidated Financial Statements included as part of this Form 10-K at Page 21. (2) Financial Statement Schedules: Schedule Page Number Description Number II. Amounts Receivable from Related Parties .... 46 All other schedules are omitted because of the absence of conditions under which they are required or because all material information required to be reported is included in the consolidated financial statements and notes thereto. (3) Exhibits: See Index to Exhibits of this Form 10-K on Page 47. (b) Reports on Form 8-K: There were no reports on Form 8-K filed during the fourth quarter of the fiscal year ended June 30, 1996. 44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DVI, INC. ------------------------------------- (Registrant) Date: September 25, 1996 By /s/MICHAEL A. O'HANLON ---------------------------------- Michael A. O'Hanlon President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- Principal Financial Officer: /s/ STEVEN R. GARFINKEL ------------------------ Steven R. Garfinkel Executive Vice President and Chief Financial Officer September 25, 1996 Principal Accounting Officer: /s/ JOHN P. BOYLE ------------------------- John P. Boyle Vice President and Chief Accounting Officer September 25, 1996 Directors Date - --------- ---- /s/GERALD L. COHN September 25, 1996 - ----------------------------- Gerald L. Cohn /s/WILLIAM S. GOLDBERG September 25, 1996 - ----------------------------- William S. Goldberg /s/JOHN E. MCHUGH September 25, 1996 - ----------------------------- John E. McHugh /s/ MICHAEL A. O'HANLON September 25, 1996 ---------------------- Michael A. O'Hanlon /s/ HARRY T. J. ROBERTS September 25, 1996 ---------------------- Harry T. J. Roberts /s/ NATHANIEL SHAPIRO September 25, 1996 ---------------------- Nathaniel Shapiro 45 DVI, INC. AND SUBSIDIARIES SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES
Balance at Beginning Balance at Name of Debtor of Year Additions Deductions End of Year - -------------- ---------- --------- ---------- ----------- Year ended June 30, 1996 - Michael A. O'Hanlon .. $59,000 $285,000 $ -0- $344,000 ======= ======== ======== ======== Year ended June 30, 1995 - Michael A. O'Hanlon .. $20,000 $ 39,000 $ -0- $ 59,000 ======= ======== ======== ======== Year ended June 30, 1994 - Michael A. O'Hanlon .. $ -0- $ 20,000 $ -0- $ 20,000 ======= ======== ======== ========
46 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 1 Form of Underwriting Agreement between the Underwriters and Registrant.(9) 4.1 Certificate of Incorporation of the Company.(2) 4.2 By-Laws of the Company.(2) 4.3 Form of Common Stock Certificate.(2) 10.1 DVI Financial Services Inc. Employee Savings Plan.(1) 10.2 Amended 1986 Incentive Stock Option Plan.(3) 10.3 Purchase Agreement dated as of October 22, 1991, by and among DMR Associates, L.P., HIS Acquisition, Inc. And DVI Financial Services Inc.(4) 10.4 Direct Stock Option Agreements, dated as of October 16, 1990, between the Company and each of the Company's directors other than Mr. Higgins.(4) 10.5 Amended and Restated Letter Agreement dated December 15, 1991 between the Company and W.I.G. Securities Limited Partnership regarding investment banking services.(4) 10.6 Warrant dated April 27, 1992, executed by the registrant on behalf of W.I.G. Securities Limited Partnership.(4) 10.7 Indemnification Agreement by and between DVI Health Services Corporation and Anthony J. Turek, dated as of August 16, 1992.(5) 10.8 Indemnification Agreement by and between DVI Health Services Corporation and David L. Higgins, dated August 20, 1992.(5) 10.9 Stock Purchase Agreement between DVI Health Services Corporation and David L. Higgins, dated August 20, 1992.(5) 10.10 Stock Purchase Agreement between DVI Health Services Corporation and Sidney Luckman, dated August 20, 1992.(5) 10.11 Stock Purchase Agreement between DVI Health Services Corporation and Hazleton National Bank, as trustee of certain trusts for the benefit of Cynthia J. Cohn and Shelly Cohn Schmidt, dated August 20, 1992.(5) 10.12 Stock Purchase Agreement between DVI Healthcare Operations, Inc. and IPS HealthCare, Inc., dated October 30, 1992.(5) 10.13 Stock Purchase Agreement between DVI Healthcare Operations, Inc. and IPS HealthCare, Inc., dated October 30, 1992.(5) 10.14 Stock Purchase Agreement between DVI Healthcare Operations, Inc. and IPS HealthCare, Inc., dated November 12, 1992.(5) 10.15 Stock Purchase Agreement between DVI Health Services Corporation and MEFC Partners L.P., dated as of January 6, 1993 (the "MEFC Agreement").(5) 10.16 First Amended and Restated Loan Agreement dated as of March 28, 1995, between DVI Financial Services Inc., the Banks signatory thereto and NatWest Bank N.A., as Agent, Prefunding Lender and a Bank.(9) 10.17 Amended and Restated Interim Loan and Security Agreement, dated as of September 13, 1994, between Prudential Securities Realty Funding Corporation and DVI Financial Services Inc. (the "Prudential Facility").(9) 10.18 Amendment to the Prudential Facility, dated as of January 9, 1995.(9) 10.19 Second Amendment to the Prudential Facility, dated as of March 10, 1995.(9) 10.20 Third Amendment to the Prudential Facility, dated as of March 31, 1995.(9) 10.21 Revival Agreement, dated as of April 21, 1995, between Prudential Securities Realty Funding Corporation and DVI Financial Services Inc.(1) 10.22 Fourth Amendment to the Prudential Facility, dated as of April 28, 1995.(1) 10.23 Fifth Amendment to the Prudential Facility, dated as of April 21, 1995.(1) 10.24 Interim Loan and Security Agreement between Prudential Securities Realty Funding Corporation and DVI Business Credit Corporation, dated as of June 7, 1995.(1) 10.25 Interim Warehouse and Security Agreement, dated as of February 2, 1995, among ContiTrade Services Corporation, DVI Financial Services Inc., and the Registrant (the Conti Facility).(1) 10.26 Credit Increase Confirmation and Amendment to the Conti Facility, dated March 2, 1995.(1) 47 Exhibit No. Description - ----------- ----------- 10.27 Note Purchase Agreement among the Registrant and the Purchasers listed therein, dated as of June 21, 1994.(7) 10.28 Amendment No. 1 to Note Purchase Agreement among the Registrant and the Purchasers listed therein, dated as of November, 1994.(1) 10.29 Credit Extension Confirmation and Amendment to the Conti Facility, dated June 30, 1995, among ContiTrade Service Corporation, DVI Financial Services Inc., the Registrant, ContiTrade Services, L.L.C. and Bankers Trust Company, as custodian.(9) 10.30 Amendment No. 1 to the MEFC Agreement dated as of June , 1995. (9) 10.31 Loan and Security Agreement dated as of July 27, 1995 between Union Bank of Switzerland, New York Branch and DVI Financial Services Inc.(10) 10.32 By-Laws of the Company and Amendment to By-Laws of the Company dated April 17, 1996. (10) 10.33 Second Amendment to Loan and Security Agreement dated as of April 30, 1996 between DVI Financial Services Inc. and Union Bank of Switzerland, New York Branch.(10) 10.34 First Amended and Restated Loan Agreement between DVI Financial Services Inc., the Banks Signatory to this Loan Agreement and NatWest Bank N.A., as Agent, Pre-Funding Lender and a Bank amended and restated as of May 1996.(10) 21 Subsidiaries of the Registrant. 24 Power of Attorney.(3) - ------------- (1) Previously filed. (2) Filed as an Exhibit to the Company's Registration Statement on Form S-3 (Registration No. 33-84604) and by this reference incorporated herein. (3) Filed previously as an Exhibit to the Company's Registration Statement on Form S-18 (Registration No. 33-8758) and by this reference incorporated herein. (4) Filed previously as an Exhibit to the Company's Form 10-K (File No. 0-16271) for the year ended June 30, 1990 and by this reference incorporated herein. (5) Filed previously as an Exhibit to the Company's Registration Statement on Form S-2 (Registration No. 33-46664) and by this reference is incorporated herein. (6) Filed previously as an Exhibit to the Company's Form 10-K (File No. 0-16271) for the year ended June 30, 1993 and by this reference is incorporated herein. (7) Filed previously as an Appendix to the Company's Consent Statement dated as of December 29, 1944 and by this reference is incorporated herein. (8) Filed previously as an Exhibit to the Company's Form 10-K/A-1 (File No. 0-16271) for the year ended June 30, 1994 and by this reference is incorporated herein. (9) Filed previously as an Exhibit to the Company's Registration Statement on Form S-1 (Registration No. 33-60547) and by this reference is incorporated herein. (10) Filed herewith. 48 EX-10.31 2 LOAN AND SECURITY AGREEMENT - ------------------------------------------------------------------------------- LOAN AND SECURITY AGREEMENT Dated as of July 27, 1995 between UNION BANK OF SWITZERLAND, NEW YORK BRANCH and DVI FINANCIAL SERVICES, INC. - ------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- RECITALS.....................................................................1 1. The Loan........................................................1 2. Terms and Conditions for All Advances...........................4 3. Purpose of Advance..............................................8 4. Secured Obligations.............................................8 5. Representations and Warranties..................................9 6. Rights of Lender; Limitations on Lender's Obligations....................................................16 7. Covenants......................................................17 (a) Further Assurances...............................17 (b) Limitation on Liens on Collateral................17 (c) Limitations on Modifications, Waivers and Extensions of Contracts.........................18 (d) Further Identification of Collateral.............18 (e) Limitation on Collection Account.................18 (f) Notices..........................................18 (g) Changes in Locations, Name, etc..................18 (h) No Transfer......................................19 (i) Compliance with Laws.............................19 (j) Financial Covenants..............................19 8. Repayment of Advances If Contract is Found Defective.....................................................19 9. Release of Lien Following Payment of Secured Obligations...................................................19 10. Servicing.....................................................20 11. No Oral Modifications; Binding Effect.........................20 12. Monthly Report................................................20 13. Events of Default.............................................20 14. Remedies Upon Default.........................................22 15. Indemnification and Expenses..............................23 16. Power of Attorney.........................................25 17. No Duty on Lender's Part..................................25 18. Limitation on Duties Regarding Preservation of Collateral................................................25 19. Powers Coupled with an Interest...........................25 20. Severability..............................................25 21. Notices...................................................26 22. Certain Definitions.......................................27 23. Section Headings..........................................28 24. No Waiver; Cumulative Remedies............................28 25. Assignment................................................29 26. Counterparts..............................................29 27. Hypothecation or Pledge of Collateral.....................29 28. Integration of Terms......................................29 29. Agreement Constitutes Security Agreement; Governing Law.............................................29 30. Forum Selection and Consent to Jurisdiction...............30 -i- 31. Waiver of Jury Trial......................................30 EXHIBITS: Exhibit A: Contract Schedule........................................A-1 Exhibit B-1: Request for Extension of Commitment Termination Date ...................................................B1-1 Exhibit B-2: Request for Extension of Maturity Date .................B2-1 Exhibit C: Form of Opinion of Counsel...............................C-1 Exhibit D-1: Notice of Borrowing.....................................D1-1 Exhibit D-2: Notice of Conversion....................................D2-1 Exhibit E: Note.....................................................E-1 Exhibit F: Guarantee of DVI, Inc....................................F-1 Exhibit G: Custodial Agreement......................................G-1 SCHEDULES: Schedule 1: Recordings and Filings...................................S-1 -ii- LOAN AND SECURITY AGREEMENT This LOAN AND SECURITY AGREEMENT, dated as of July 27, 1995 (as amended or otherwise modified from time to time, this "Agreement"), is between (i) UNION BANK OF SWITZERLAND, NEW YORK BRANCH (the "Lender"), and (ii) DVI FINANCIAL SERVICES, INC., a Delaware corporation (the "Borrower"). RECITALS WHEREAS, the Borrower intends to cause an offering of equipment lease asset-backed securities (the "Certificates") to be issued by a trust or other vehicle (the "Vehicle") to be sponsored by the Borrower, which may have the benefit of credit enhancement issued by a credit enhancer (the "Credit Enhancer"); WHEREAS, the Borrower wishes to obtain interim financing to provide interim funding for certain leases (the "Contracts") of medical diagnostic equipment (including, without limitation, renewals and replacements thereof and additions thereto, the "Equipment"), which Contracts are to be contributed to the Vehicle by the Borrower, and which Contracts and some of which Equipment shall secure the Advances (as defined herein) to be made by the Lender hereunder; and WHEREAS, the Lender has agreed, subject to the terms and conditions of this Agreement, to provide such interim funding, with a portion of the proceeds of the Certificates to be used to repay any Advances made hereunder, NOW, THEREFORE, the parties to this Agreement hereby agree as follows (an index of certain capitalized, defined terms appears in Section 22 of this Agreement): 1. The Loan. Subject to the terms of this Agreement, the Lender agrees to lend to the Borrower from time to time an aggregate principal amount not to exceed $100,000,000 at any one time outstanding to be made in one or more advances (each, an "Advance" and, collectively, "Advances"). Each Advance shall be made on a Business Day (defined below) prior to the Commitment Termination Date (each such date on which an Advance is made, a "Funding Date"); provided that the following conditions precedent have been satisfied: (a) The representations and warranties of the Borrower in Section 5 hereof shall be true and correct on and as of such Funding Date as if made on and as of such date. (b) No Default or Event of Default shall have occurred and be continuing or would exist after the making of the Advance on such Funding Date. (c) If requested by the Lender, the Lender shall have conducted a due diligence review of the contract files relating to the Contracts being pledged in connection with the Advance being made on such Funding Date, the results of which shall have been satisfactory to the Lender. (d) In connection with the first Advance, the Lender shall have received (i) a legal opinion from counsel to the Borrower, in the form of Exhibit C hereto, (ii) the Note, duly executed and delivered by the Borrower, (iii) a Guarantee of DVI, Inc., substantially in the form of Exhibit F hereto (as amended, supplemented or otherwise modified from time to time, the "Guarantee"), duly executed and delivered by DVI, Inc., and (iv) a Custodial Agreement in the form of Exhibit G hereto among Bankers Trust Company, as Custodian (the "Custodian"), the Borrower and the Lender, duly executed and delivered by the parties thereto, in form and substance satisfactory to the Lender (as amended, supplemented or otherwise modified from time to time, the "Custodial Agreement"). (e) Lender shall have received evidence to its satisfaction that all documents (including, without limitation, financing statements) shall have been properly filed, registered or recorded in each office in each jurisdiction deemed necessary by the Lender in order to create in favor of the Lender a first priority perfected Lien in the Collateral, and with respect to each FMV Contract, a financing statement on Form UCC-1 naming the Borrower as debtor and the Lender as secured party and describing the Equipment that is the subject of such FMV Contract and proceeds thereof as the collateral shall have been filed in each office in each jurisdiction required in order to create in favor of the Lender a first priority perfected Lien in such Equipment (assuming the Borrower is the owner of such Equipment). When used herein, "Lien" means any mortgage, lien, encumbrance, charge or other security interest, whether arising under contract, operation of law, judicial process or otherwise. (f) The Borrower shall have delivered to the Lender a Contract Schedule (or amended the existing Contract Schedule, as the case may be) and all other documents that it is required to deliver under this Agreement, with -2- respect to the Contracts being pledged on such Funding Date. "Contract Schedule" means a schedule of Contracts to be attached hereto as Exhibit A, setting forth the following information as to each Contract pledged to the Lender hereunder: (i) the Contract identifying number; (ii) the user's name; (iii) the street address where the Equipment is in use, including the zip code; (iv) the description of the Equipment; (v) the original number of months to maturity and the number of months remaining to maturity from the date of such Contract Schedule; (vi) the contract yield as determined in accordance with Borrower's customary practices in effect as of the date of this Agreement (the "Contract Yield"); (vii) the amount of the current monthly payment; (viii) the amount of the purchase option payment, if any; (ix) the original amount funded under the Contract; (x) the PV of such Contract as of the close of business on the date of such Contract Schedule; and (xi) whether the user has the option to purchase the Equipment at its then fair market value or at a purchase price other than a nominal purchase price as determined by the Lender (any such contract, an "FMV Contract"), the Borrower to indicate whether it believes that a Contract is an FMV Contract. (g) The Lender shall have received a certification from the Custodian under the Custodial Agreement, in form and substance satisfactory to the Lender, with respect to the Contracts being pledged in connection with the Advance being made on such Funding Date. (h) One or more releases, and such other instruments as shall be requested by the Lender, in each case in form and substance satisfactory to the Lender, from any lender or other individual, corporation, limited liability company, partnership, trust, government or agency thereof ("Person") having a Lien on the Contracts or Equipment to be financed with the proceeds of the Advance being made on such Funding Date, which releases and other instruments shall release all Liens in favor of such lender or other Person and terminate any filings of record with respect to the specific Contracts or Equipment to be financed with the proceeds of the Advance being made on such Funding Date. (i) After the making of such Advance, the outstanding principal amount of the aggregate of all Advances will not exceed the lesser of (x) 90% of the present value of the then remaining payments under the Contracts pledged to the Lender hereunder, discounted at a discount rate equal to the Prime Rate plus 1% (the "Prime Rate" being the prime or base rate of interest -3- charged by the Lender from time to time) as determined by the Lender and notified to the Borrower on the third Business Day of each week (or, in the sole discretion of the Lender following notice to the Borrower, on any Business Day) (such calculation being the "PV" of the relevant Contracts), and (y) if the Lender elects in its sole discretion to make a determination of the market value of the Contracts held as Collateral, 90% of the aggregate market value of the Contracts so held as Collateral, as such market value is determined by the Lender on any commercially reasonable basis. (j) Any general conditions for the making of Advances specified in Section 2 hereof have been satisfied and will continue to be satisfied if such Advance is made. When used herein, "Business Day" means any day on which (i) banks are not authorized or required to close in New York, New York and (ii) if the applicable Business Day relates to any computation or payment to be made with respect to LIBOR, any day on which dealings in dollar deposits are carried on in the London interbank market. 2. Terms and Conditions for All Advances. (a) The obligation of the Lender to make any Advances hereunder shall terminate on the earlier to occur of (x) November 27, 1995 and (y) the Maturity Date (such earlier date, the "Commitment Termination Date"); provided that the scheduled Commitment Termination Date may be extended from time to time, up to but not later than one year from the date of such extension, in the sole and absolute discretion of the Lender, upon the execution and delivery by the parties hereto of a Request for Extension of Commitment Termination Date substantially in the form of Exhibit B-1. (b) All Advances shall be due and payable in full on the earlier to occur of (x) January 27, 1996 and (y) the date on which any Certificate is issued (such earlier date, the "Maturity Date"); provided that the Maturity Date may be extended from time to time, up to but not later than one year from the date of such extension, in the sole and absolute discretion of the Lender, upon the execution and delivery by the parties hereto of a Request for Extension of Maturity Date substantially in the form of Exhibit B-2. (c) (i) If the Borrower wishes to receive an Advance in respect of Contracts, then the Borrower shall give the Lender written notice by no later than 11:00 a.m., New York City time, one Business Day prior to the proposed Funding Date, in the -4- case of an Advance bearing interest by reference to LIBOR (a "LIBOR Advance"), or on the proposed Funding Date, in the case of an Advance bearing interest by reference to the Quoted Rate (a "Quoted Rate Advance"), in either case specifying the amount of the proposed Advance to be advanced on such Funding Date by delivering to the Lender a Notice of Borrowing substantially in the form of Exhibit D-1. (ii) Each Advance shall be a LIBOR Advance or a Quoted Rate Advance (each, a "type" of Advance) as the Borrower shall specify in the related Notice of Borrowing. The Borrower promises to pay interest on the unpaid principal amount of each Advance for the period commencing on and including the date of such Advance to but excluding the date such Advance is paid in full, as follows: (a) at all times while such Advance is a LIBOR Advance, at a rate per annum equal to LIBOR plus .90%; and (b) at all times while such Advance is a Quoted Rate Advance, at a rate per annum equal to the Quoted Rate from time to time in effect; provided, however, that the interest rate applicable to each Advance shall be subject to Section 2(e). "Quoted Rate" shall mean, with respect to a contemplated Quoted Rate Advance, a floating rate of interest quoted by the Lender to the Borrower (which is based upon the Lender's own overnight cost of funds (which may vary from day to day) plus 90 basis points), and accepted by the Borrower, prior to the funding of such Quoted Rate Advance. "LIBOR" shall mean the rate appearing at page 3750 of the Telerate Screen as one month LIBOR and, if such rate shall not be so quoted, the rate per annum at which deposits in U.S. dollars for a period of one month are offered to the Lender in the London interbank market at approximately 11:00 a.m. (London Time) on the related Funding Date. (iii) The Borrower may convert any LIBOR Advance into a Quoted Rate Advance by giving written notice to the Lender in substantially the form of Exhibit D-2 not later than 11:00 a.m., New York City time, at least one Business Day prior to the proposed date of such conversion. Each such notice shall be effective upon receipt by the Lender. Such Advance shall be so converted on the requested date of conversion. Each conversion shall be on a Business Day; provided that each such conversion is subject to the conditions precedent that: -5- (I) The representations and warranties of the Borrower in Section 5 hereof shall be true and correct on and as of such conversion date as if made on and as of such date. (II) No Default or Event of Default shall have occurred and be continuing or would exist after the conversion of the Advance on such conversion date. (III) The Lender shall have no obligation to convert into a Quoted Rate Advance unless the Lender and the Borrower shall have agreed upon the Quoted Rate to be applicable thereto. Each Quoted Rate Advance shall automatically convert into a LIBOR Advance on the second Business Day after such Advance was made or converted into a Quoted Rate Advance, as applicable. (d) The Advances are prepayable at any time, in whole or in part, without premium or penalty but subject to Section 15(c). Any amount prepaid shall be applied to repay the outstanding principal amount of any Advances (together with interest thereon) until paid in full. Amounts prepaid may be reborrowed in accordance with the terms of this Agreement. If the Borrower intends to prepay an Advance in whole or in substantial part from a source other than the proceeds of Certificates, the Borrower shall give two (2) Business Days' prior notice thereof to the Lender. (e) If the Advances are not repaid in whole on the date when due (as such due date may be extended from time to time), the Advances shall, commencing on such due date, bear interest at a rate per annum equal to the weighted average (based upon the number and amount of all remaining payments under each Contract) of the Contract Yield on all Contracts upon which the Lender is making Advances. (f) Interest shall be calculated on the basis of a 360-day year and paid for the actual number of days elapsed. With respect to each LIBOR Advance, LIBOR shall be determined initially as of the Funding Date to but excluding the next Interest Payment Date applicable to such LIBOR Advance and shall thereafter be determined as of each Interest Payment Date to but excluding the following Interest Payment Date. The applicable interest rate for such Quoted Rate Advance shall change simultaneously with each change in the Quoted Rate. (g) Interest on each Advance is payable on each Interest Payment Date therefor and on the Maturity Date. In the event that an Advance is not repaid in full on the date when due, interest shall be payable thereafter on demand. "Interest Payment -6- Date" shall mean: (x) with respect to any LIBOR Advance, the twelfth day of the month next succeeding the Funding Date or date of conversion into a LIBOR Advance for such LIBOR Advance (or, if any such day is not a Business Day, the following Business Day); and (y) with respect to any Quoted Rate Advance, on the date of conversion of such Advance to a LIBOR Advance. (h) The Advances shall be evidenced collectively by the promissory note of the Borrower in the form of Exhibit E (as amended, supplemented or otherwise modified from time to time, the "Note") with appropriate insertions. The Lender is authorized to record the date and amount of each Advance and the date and amount of each repayment or conversion thereof on the schedule annexed to the Note (and any continuation thereof), and any such recordation shall be conclusive evidence of the accuracy of the amounts so recorded (absent manifest error); provided that the failure of the Lender to make such recordation (or any error in such recordation) shall not affect the rights and obligations of the Borrower hereunder or under the Note. (i) If at any time the outstanding principal amount of the Advances exceeds the lesser of (i) 90% of the PV of the then remaining payments under the Contracts listed on the Contract Schedule and pledged to the Lender hereunder or (ii) if the Lender elects in its sole discretion to make a determination of the market value of the Contracts held as Collateral, 90% of the aggregate market value of the Contracts so held, as such market value is determined by the Lender on any commercially reasonable basis, the Borrower shall no later than two Business Days after receipt of notice of such excess, either prepay such Advances (together with interest thereon) in part or in whole or deliver additional Collateral to the Lender, or both, such that, after giving effect to such prepayment or delivery, or both, the applicable excess is eliminated. (j) Notwithstanding anything to the contrary in this Agreement, (i) if the Lender is unable, after good faith effort, to obtain a source of funds for any proposed Advance on substantially the same economic terms as are available to the Lender as of the date of this Agreement, and as a result the cost to the Lender of making such Advance is increased by an amount which the Lender deems material, the Lender shall not be obligated to make such Advance unless the Borrower agrees to pay the Lender any additional amounts necessary to compensate the Lender for such increased cost, as notified by the Lender to the Borrower, and (ii) the Lender shall have no obligation to make any Advance hereunder if there shall have occurred any material adverse change in (A) the financial condition of the Lender, (B) the financial markets generally or (C) the secondary market for Contracts. The Lender shall promptly notify the Borrower of any determination by the Lender that any of the foregoing has occurred. -7- (k) If the Lender shall reasonably determine that the adoption or phase-in of any applicable law, rule or regulation regarding capital adequacy, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Lender or any Person controlling the Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Lender's or such controlling Person's capital as a consequence of the Lender's obligations hereunder (including, without limitation, the Lender's commitment to make Advances) to a level below that which the Lender or such controlling Person could have achieved but for such adoption, change or compliance (taking into consideration the Lender's or such controlling Person's policies with respect to capital adequacy) by an amount deemed by the Lender or such controlling Person to be material, then from time to time, within 10 days after demand by the Lender (which demand shall be accompanied by a statement setting forth the basis of such demand), the Borrower shall pay to the Lender such additional amount or amounts as will compensate the Lender or such controlling Person for such reduction. The obligations of the Borrower under this Section 2(k) shall survive any termination of this Agreement. 3. Purpose of Advance. Each Advance shall be used to finance the Contracts identified to the Lender in writing on the Contract Schedule, as the Contract Schedule may be amended from time to time. 4. Secured Obligations. The documents and instruments evidencing and relating to the Contracts (the "Contract Documents"), all rights of the Borrower thereunder (including, without limitation, all rights of the Borrower thereunder in and to the Equipment and other interests that are the subject of the Contracts), all of the Borrower's right, title and interest in and to the Equipment that is the subject of the Contracts, all books and records (including, without limitation, computer records, tapes and other computer storage media) relating to any of the foregoing, all recourse or support obligations, guaranties, indemnities and security with respect to the foregoing, all letters of credit relating thereto, and any proceeds of any of the foregoing (collectively, the "Collateral") are collateral securing the Secured Obligations. The Borrower hereby pledges and grants a security interest in all of its right, title and interest in and to the Collateral to the Lender to secure the repayment of principal of, and interest on, the Advances and all other amounts owing to the Lender hereunder (collectively, the "Secured Obligations"). The Borrower agrees to mark its computer records and tapes to evidence the Liens granted to the Lender hereunder. -8- 5. Representations and Warranties. (a) The Borrower represents and warrants to the Lender that: (i) It has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware. (ii) It is duly licensed as a licensee or is otherwise qualified in each state in which it transacts business and is not in violation of any such state's applicable laws, rules and regulations. It has the requisite corporate power and authority and legal right to own and grant a Lien on all of its right, title and interest in and to the Collateral, and to execute and deliver, engage in the transactions contemplated by, and perform and observe its obligations under this Agreement and the Note. (iii) It is not in default under any mortgage, borrowing agreement or other instrument or agreement pertaining to indebtedness for borrowed money, and the execution, delivery and performance by it of this Agreement and the Note do not constitute a default under, or conflict with, any term or provision of (A) its certificate of incorporation or by-laws or (B) any law, rule, regulation, order, judgment, writ, injunction or decree applicable to it of any court, regulatory body, administrative agency or governmental body having jurisdiction over it or its assets and will not result in any violation of any mortgage, instrument or agreement binding upon the Borrower or its property. (iv) All financial statements or certificates of the Borrower or any of its officers furnished to the Lender are true and complete and do not omit to disclose any material liabilities or other facts relevant to the Borrower's business, properties, condition (financial or otherwise) or prospects. All such financial statements have been prepared in accordance with generally accepted accounting principles. No financial statement or other financial information as of a date later than March 31, 1995 has been furnished by the Borrower to any lender that has not been furnished to the Lender. (v) Except as previously obtained and currently in full force and effect, no consent, approval, authorization or order of, registration or filing with, or notice to any governmental authority or court is required under applicable law in connection with the execution, delivery and performance by it of this Agreement and the Note where the failure to obtain any of the foregoing would materially and adversely affect the business, operations, property or financial -9- condition of the Borrower, the ability of the Borrower to perform its obligations under this Agreement or the Note, or the validity or enforceability of this Agreement or the Note. (vi) There is no action, proceeding or investigation pending or, to the best of its knowledge, threatened against it before any court, administrative agency or other tribunal (A) asserting the invalidity of this Agreement or the Note, (B) seeking to prevent the consummation of any of the transactions contemplated by this Agreement or the Note or (C) which might materially and adversely affect the validity of the Contracts or the performance by the Borrower of its obligations under, or the validity or enforceability of, this Agreement or the Note. (vii) There has been no material adverse change in the business, operations, financial condition, properties or prospects of the Borrower since March 31, 1995. (viii) This Agreement, the Note and the Custodial Agreement have each been duly authorized, executed and delivered by the Borrower, all requisite corporate action having been taken in respect of same, and each is the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms. (ix) The Borrower's principal place of business and chief executive office is at 500 Hyde Park, Doylestown, Pennsylvania 18910. (x) Immediately prior to each date on which a Contract is listed on the Contract Schedule and pledged to the Lender hereunder, the Borrower or its agent will have possession of each original Contract included or to be included on the Contract Schedule, and there are and there will be no custodial agreements in effect adversely affecting the rights of the Lender to make, or cause to be made, any delivery required hereunder. (xi) The transfer, assignment and conveyance of the Contracts and the Contract Documents by the Borrower pursuant to this Agreement are not subject to the bulk transfer or any similar statutory provisions in effect in any applicable jurisdiction. (xii) The Contracts were originated or acquired by the Borrower, and the origination and collection practices used by the Borrower with respect to each Contract have been, in all respects legal, proper, prudent and customary in the equipment financing and servicing business. With respect to Contracts acquired by the Borrower, all such Contracts are in -10- conformity with the Borrower's customary underwriting procedures. (xiii) The Borrower used no selection procedures that identified the Contracts as being less desirable or valuable than other comparable equipment leases, security agreements or installment sales contracts owned by the Borrower. (xiv) The Liens granted pursuant to this Agreement constitute fully-perfected first priority Liens in the Collateral in favor of the Lender. All filings and recordings of documents or instruments required to be made in respect of this Agreement in connection with the perfection of the Liens created hereby are listed on Schedule 1 hereto and have been made or will be made prior to or contemporaneously with the initial Funding Date. (xv) (A) All of the Contracts other than FMV Contracts are financing leases and not true leases, (B) the Borrower does not own the Equipment that is the subject of the Contracts other than FMV Contracts and (C) the Borrower has a perfected first priority Lien in the Equipment that is subject to Contracts other than FMV Contracts. (xvi) Neither the Borrower nor any subsidiary of the Borrower is (a) an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or (b) a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," within the meaning of the Public Utility Holding Company Act of 1935, as amended. (xvii) Neither the Borrower nor any subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying "margin stock" (as defined in Regulation U of the Board of Governors of the Federal Reserve System), and no proceeds of the Advances will be used for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any "margin stock" or maintaining or extending credit to others for such purpose. (xviii) As of the date hereof and immediately after giving effect to each Advance, the fair value of the property of the Borrower is greater than the fair value of the liabilities (including, without limitation, contingent liabilities) of the Borrower and the Borrower will be solvent, will be able to pay its debts as they mature and will not have -11- an unreasonably small capital to engage in the business in which it is engaged and proposes to engage. (b) With respect to each Contract delivered or to be delivered to the Lender, the Borrower represents and warrants to the Lender that: (i) Such Contract and all accompanying documents are complete and authentic and all signatures thereon are genuine. (ii) Such Contract arose from a bona fide lease to an Eligible Obligor, complying with all applicable State and Federal laws and regulations, to Persons having the legal capacity to contract and is not subject to any defense, set-off or counterclaim. "Eligible Obligor" means, at any time, a user which (1) has not been delinquent in making a payment more than two times consecutively (or in any case, more than 60 days) during the preceding 12 months; (2) is not an Affiliate of the Borrower; (3) is located in the United States; and (4) is not an agency, a department, an instrumentality or a political subdivision of the United States or of any state or local government; provided, however, that any user shall cease to be an Eligible Obligor upon three Business Days' notice by the Lender to the Borrower if the Lender reasonably and in good faith determines such user is not acceptable to the Lender. (iii) All amounts represented to be payable under such Contract are, in fact, payable in accordance with the provisions of such Contract, the first monthly payment or a down payment has been made with respect to such Contract and no payments under such Contract are more than 60 days past due. (iv) To the best of the Borrower's knowledge, all property subject to any Lien given in connection with such Contract is not subject to any encumbrance, except for Liens released simultaneously with the grant of the Lien in favor of the Lender hereunder in such Contract. (v) The Borrower held good and indefeasible title to, and was the sole owner of, the Collateral, and such Collateral is not subject to any Lien except for Liens released simultaneously with the Borrower's pledge of Collateral made herein. (vi) Such Contract conforms to the description thereof as set forth on the attached Exhibit A, and each Contract, other than an FMV Contract, is a financing lease and not a true or operating lease. -12- (vii) Such Contract has not been declared ineligible, rejected or refused as unacceptable for inclusion under the First Amended and Restated Loan Agreement, amended and restated as of March 28, 1995, between the Borrower, the banks signatory thereto and NatWest Bank N.A., as agent (as amended from time to time, the "NatWest Loan Agreement"), or under any other securitization or warehouse loan agreement entered into by the Borrower; and such Contract, if purchased by the Borrower from another lender, was not purchased because such Contract was in default to such other lender. (viii) All information in respect of such Contract set forth in the Contract Schedule is true and correct. (ix) (A) Such Contract contains provisions requiring the user to assume all risk of loss or malfunction of the related Equipment and to maintain appropriate liability insurance with respect thereto, and making the user absolutely and unconditionally liable for all payments required to be made thereunder, without any right of set-off for any reason whatsoever, subject only to the user's right of quiet enjoyment, (B) such Contract may not be terminated or prepaid unless the amount required to be paid by or on behalf of a user in respect of such prepayment is at all times equal to or in excess of the principal balance and accrued interest at the Contract Yield, (C) such Contract does not provide for the substitution, exchange or addition of any other items of Equipment pursuant to such Contract that would result in any reduction or extension of payments due under such Contract, (D) the rights with respect to such Contract are assignable by the Borrower without the consent of any Person and (E) such Contract enables the Borrower to (subject to any applicable grace, cure and notice periods) declare all payments thereunder to be immediately due and payable if the user is in default of such Contract. (x) To the best of the Borrower's knowledge after due inquiry, all requirements of applicable federal, state and local laws, and regulations thereunder, including, without limitation, usury laws, if any, in respect of such Contract have been complied with in all material respects. (xi) To the best of the Borrower's knowledge after due inquiry, such Contract represents the legal, valid and binding obligation of the user, enforceable in accordance with its terms, subject to bankruptcy, insolvency and other similar laws (including, but not limited to, principles of equity) affecting the rights of creditors generally. (xii) No instrument of release or waiver has been executed in connection with such Contract, and no user in -13- respect of such Contract has been released from its obligations thereunder, in whole or in part. (xiii) Except as otherwise reflected in the Contract Schedule, such Contract has not been amended after the date on which such Contract is listed on the Contract Schedule and pledged to the Lender hereunder in any material respect or such that the amount of any monthly payment or the total number of the monthly payments is increased or decreased. (xiv) Such Contract is not subject to any right of rescission, set-off, counterclaim or defense, including the defense of usury, and no such right of rescission, set-off, counterclaim or defense has been asserted with respect thereto. (xv) There is no proceeding or investigation pending or, to the best of Borrower's knowledge after due inquiry, threatened, before any court, regulatory body, administrative agency, or other tribunal or governmental instrumentality (A) asserting the invalidity of such Contract, (B) asserting the bankruptcy or insolvency of a user, (C) seeking to prevent payment and performance of such Contract or (D) seeking any determination or ruling that might materially and adversely affect the validity or enforceability of such Contract. (xvi) The Borrower has duly fulfilled all obligations on its part to be fulfilled under or in connection with such Contract and has done nothing to impair the rights of the Lender in such Contract or payments with respect thereto. (xvii) There is no monetary default, breach, violation or event of acceleration existing under such Contract, and no event has occurred which, with the passage of time or with notice, or both, would constitute a monetary default, breach, violation or event of acceleration that has or will cause a prepayment of Advances made in respect of such Contract pursuant to Section 12 of this Agreement; there is no non-monetary default, breach, violation or event of acceleration existing under such Contract, and no event has occurred which, with the passage of time or with notice, or both, would constitute a non-monetary default, breach, violation or event of acceleration; the Borrower has not waived any monetary or non-monetary default, breach, violation or event of acceleration in respect of such Contract; and no payment (or portion thereof) under such Contract has been written off by the Borrower as uncollectible. (xviii) All parties to such Contract had legal capacity to execute such Contract and such Contract has been duly and properly executed by such parties. -14- (xix) Such Contract was not selected by the Borrower on any basis intended to adversely affect the value of the Lender's Lien therein. (xx) Such Contract was not originated in, nor is it subject to the laws of, any jurisdiction the laws of which would make unlawful the pledge, transfer or assignment of such Contract under this Agreement, including any sale in accordance with this Agreement. (xxi) Immediately after the pledge, assignment and transfer to the Lender as herein contemplated, all necessary action will have been taken to grant a valid and enforceable first priority perfected Lien in such Contract (including the filing or amendment of Uniform Commercial Code financing statements in all applicable jurisdictions) and all payments to become due thereunder and all rights of the Borrower in the Equipment that is the subject of such Contract. (xxii) (A) Such Contract has not been sold, transferred, assigned or pledged by the Borrower to any Person other than the Lender, except for Liens released simultaneously with the grant of the Lien in favor of the Lender hereunder, (B) immediately prior to the pledge and conveyance of such Contract pursuant to Section 4 hereof, the Borrower was the sole owner of such Contract and had good and marketable title thereto, free and clear of all Liens, except for Liens released simultaneously with the grant of the Lien in favor of the Lender hereunder and (C) upon execution and delivery hereof by the Borrower, the Lender will have a first priority perfected Lien in all of the right, title and interest of the Borrower in and to such Contract and the payments to become due thereunder, free and clear of all Liens, except for the interests of users pursuant to the Contract. (xxiii) If such Contract that constitutes "chattel paper" for purposes of Sections 9-105(1)(b) and 9-308 of the Uniform Commercial Code as in effect in any applicable jurisdiction, there is only one original executed counterpart thereof and such original has been delivered to the Custodian in accordance with the Custodial Agreement. (xxiv) The Borrower's computer records have been marked to indicate that such Contract has been pledged, assigned and transferred to the Lender pursuant to this Agreement. (xxv) All insurance policies required to be maintained by such Contract are in full force and effect and such insurance policies are of a type customary for the Equipment covered thereby. -15- (xxvi) The credit standing of the related user of the Equipment subject to such Contract was approved by the Borrower using its customary practices and procedures. To the best of the Borrower's knowledge, the user is not and has never been insolvent or the subject of any bankruptcy or insolvency proceeding and the Borrower has no knowledge of any circumstance or condition with respect to such Contract, such Equipment or the user's credit standing that could reasonably be expected to cause the Lender to regard such Contract as an unacceptable security, cause such Contract to become delinquent or adversely affect the value or marketability of such Contract. (xxvii) The Equipment subject to such Contract was properly delivered to the user in good repair, without defects and in satisfactory order and, to the best of Borrower's knowledge, is in proper working order as of the date on which such Contract was pledged to the Lender and listed on the Contract Schedule. (xxviii) The PV of all Contracts owing by a single user and its Affiliates upon which Lender is making Advances shall not exceed $5,000,000 in the aggregate at any time. For purposes of the foregoing, "Affiliate" means, with respect to any Person, any other Person which, directly or indirectly, controls, is controlled by or is under common control with such Person. For purposes of this definition, "control" (together with the correlative meanings of "controlled by" and "under common control with") means possession, directly or indirectly, of the power (a) to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the directors or managing general partners (or their equivalent) of such Person or (b) to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise. (xxix) The PV of all FMV Contracts upon which Lender is making Advances shall not exceed $5,000,000 in the aggregate at any time. 6. Rights of Lender; Limitations on Lender's Obligations. (a) Anything herein to the contrary notwithstanding, the Borrower shall remain liable under each of the Contracts to which it is a party to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with and pursuant to the terms and provisions of each such Contract. The Lender shall not have any obligation or liability under any Contract by reason of, or arising out of, this Agreement or the receipt by the Lender of any payment relating to such Contract pursuant hereto, nor shall the Lender be obligated in -16- any manner to (i) perform any of the obligations of the Borrower under or pursuant to any Contract, (ii) make any payment in connection with any Contract, (iii) make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party under any Contract, (iv) present or file any claim or take any action to enforce any performance in connection with any Contract or (v) collect the payment of any amount which may have been assigned to it or to which it may be entitled at any time or times. (b) Upon the request of the Lender at any time after the occurrence and during the continuance of an Event of Default, the Borrower shall notify the parties to the Contracts to which it is a party that the Contracts have been assigned to the Lender and that payments in respect thereof shall be made directly to the Lender or the designated agent of the Lender. The Lender may, in its own name or in the name of others (including the Borrower), communicate with parties to the Contracts to verify with them to its satisfaction the existence or amount and terms of any Contract. 7. Covenants. The Borrower covenants and agrees with the Lender that, from and after the date of this Agreement until all obligations of the Borrower hereunder and under the Note are paid in full and all obligations of the Lender to make Advances have been terminated: (a) Further Assurances. At any time and from time to time, upon the written request of the Lender, and at the sole expense of the Borrower, the Borrower will promptly and duly complete and deliver such further instruments and documents and take such further actions as the Lender may reasonably request for the purpose of obtaining or preserving the full benefits to the Lender of this Agreement and of the rights and powers herein granted to the Lender, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code in effect in any jurisdiction with respect to the Lien created hereby. The Borrower hereby authorizes the Lender to file any such financing or continuation statement without the signature of the Borrower to the extent permitted by applicable law. A carbon, photographic or other reproduction of this Agreement shall be sufficient as a financing statement for filing in any jurisdiction. (b) Limitation on Liens on Collateral. The Borrower will not, nor will it permit or allow others to, create, incur or permit to exist any Lien on the Collateral, other than the Lien created hereby. The Borrower will defend the Collateral against, and will take such other action as is necessary to remove, any Lien on the Collateral, other than the Lien created hereby, and the Borrower will defend the right, title and interest of the Lender in -17- and to any of the Collateral against the claims and demands of all Persons whomsoever. (c) Limitations on Modifications, Waivers and Extensions of Contracts. The Borrower will not, nor will it permit or allow others to, amend, modify, terminate or waive any provision of any Contract to which the Borrower is a party in any manner which could reasonably be expected to materially adversely affect the value of such Contract as Collateral. The Borrower will (i) exercise promptly and diligently each and every material right which the Borrower may have under each Contract (other than any right of termination, but including the enforcement of warranty, servicing and other obligations of manufacturers and other parties) except where the failure to so act could not materially adversely affect the value of such Contract as Collateral and (ii) deliver to the Lender a copy of each material demand, notice or document received by it relating in any way to any Contract other than any such demand, notice or document relating to the delinquency of a Contract or the bankruptcy of the obligor thereunder. (d) Further Identification of Collateral. The Borrower will furnish to the Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Lender may reasonably request, all in reasonable detail. (e) Limitation on Collection Account. The Borrower will not, nor will it permit or allow others on its behalf to, establish a collection account for the receipt of payments pursuant to the Contracts with a financial institution other than one acceptable to the Lender in the exercise of its reasonable discretion and upon such terms as reasonably required by the Lender. (f) Notices. The Borrower will notify the Lender promptly, in reasonable detail, and in accordance with Section 21 of this Agreement, of (i) any Lien (other than the Lien created hereby), on, or claim asserted against, any of the Collateral, (ii) the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate market value of the Collateral or on the Lien created hereunder and (iii) the existence of circumstances requiring the Borrower, or permitting the Lender to require the Borrower, to prepay the Advances pursuant to Section 2(i), 8(b) or 12 hereof. (g) Changes in Locations, Name, etc. The Borrower will not change the location of its chief executive office/chief place of business or remove its books and records from the location specified in Section 5(a)(ix), or change its name, identity or corporate structure to such an extent that any financing statement filed by the Lender in connection with this Agreement would become seriously misleading, unless it shall have given the Lender at -18- least 30 days' prior written notice thereof; provided that any such change of location of its chief executive office/chief place of business shall be within the United States of America and within a jurisdiction in which the Uniform Commercial Code is in effect. (h) No Transfer. The Borrower will not sell, lease, transfer, assign or otherwise dispose of any Collateral, except that Borrower may transfer, assign or otherwise dispose of Collateral if the Borrower provides the Lender with at least 5 days' advance notice thereof, the Advance related to such Collateral is prepaid and upon such other terms and conditions as the Lender may reasonably specify in advance of such transfer, assignment or other disposition. (i) Compliance with Laws. At all times after a Contract has been listed on the Contract Schedule and until payment in full of the principal of, and interest on, the Advances, the Borrower will not commit any act in violation of applicable laws or regulations promulgated pursuant thereto. (j) Financial Covenants. The Borrower shall observe, perform and fulfill the provisions of Section 6.9 of the NatWest Loan Agreement, as in effect on the date hereof, which provisions are incorporated herein by reference. 8. Repayment of Advances If Contract is Found Defective. (a) Upon discovery by the Borrower or the Lender of any breach of any representation or warranty listed in Section 5 hereof, the party discovering such breach shall promptly give notice of such discovery to the other. (b) The Lender has the right, in its unreviewable discretion, to require the Borrower to prepay the amount of any Advance made in respect of any Contract (i) which breaches one or more of the representations and warranties listed in Section 5 hereof or (ii) which is determined by the Credit Enhancer to be unacceptable for inclusion in the securitized pool relating to the Certificates, in each case no later than one Business Day after notice from the Lender to the Borrower. 9. Release of Lien Following Payment of Secured Obligations. Upon payment in full of the Advances and termination of the Lender's commitment to make any Advances, the Lender shall (i) execute and deliver, at Borrower's sole cost and expense, such instruments of transfer or assignment without recourse (including Uniform Commercial Code termination statements) as shall be necessary to terminate the Lender's Lien in the Collateral and (ii) provide the written request to the Custodian referred to in Section 10 of the Custodial Agreement. -19- 10. Servicing. The Borrower shall service and administer the Contracts in accordance with due care and customary and prudent servicing procedures for equipment leases, security agreements and installment sale contracts of a similar type and, prior to the occurrence of an Event of Default, shall have full power and authority to do any and all things not inconsistent with the provisions of this Agreement which it may deem necessary or desirable in connection with such servicing and administration. 11. No Oral Modifications; Binding Effect. No provision of this Agreement shall be waived or modified except by a writing duly signed by the authorized agents of the Lender and the Borrower. This Agreement shall be binding upon the successors and permitted assigns of the parties hereto. 12. Monthly Report. The Borrower shall provide the Lender, not later than ten (10) days following the end of each month, with an accurate listing of each Contract which constitutes Collateral hereunder as of the last day of such month. With respect to any Contract, in the event that more than one monthly installment of such Contract is delinquent as of the end of any calendar month, the Borrower shall prepay the amount of the Advances made in respect of such Contract or pledge one or more replacement Contracts that (a) have remaining payments which have a PV of not less than the PV of the remaining payments under such delinquent Contract and (b) otherwise meet the requirements of this Agreement. 13. Events of Default. Each of the following shall constitute an event of default ("Event of Default") hereunder (a "Default" being any of the following whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied): (a) Failure of the Borrower to make any payment of interest or principal or any other sum which has become due, whether by acceleration or otherwise, under the terms of the Note, this Agreement or any other document evidencing or securing indebtedness of the Borrower to the Lender. (b) Failure of the Borrower to prepay Advances or pledge additional Collateral when required to do so pursuant to Section 2(i), 8(b) or 12 hereof. (c) Failure of the Borrower to observe or perform any covenant or agreement contained in Section 7(j) of this Agreement; or the failure of the Borrower to observe or perform any other covenant or agreement contained in this Agreement or the Note (and not constituting an Event of Default under any other provision of this Section 13) and the -20- continuance of such failure thirty (30) days after the occurrence of such failure. (d) Any representation or warranty made or deemed made by the Borrower herein in connection with any Advance made hereunder or in any certificate, document, financial or other statement furnished at any time under, or in connection with, this Agreement (including, without limitation, the Contract Schedule), or any representation or warranty made or deemed made by DVI, Inc. in the Guarantee, shall prove to have been incorrect in any material respect on or as of the date made. (e) The granting by the Borrower of any Lien on any Collateral to any Person other than the Lender. (f) The Borrower or any subsidiary becomes insolvent or generally fails to pay, or admits in writing its inability to pay, debts as they become due; the making of any general assignment by the Borrower or any subsidiary of the Borrower for the benefit of creditors; the appointment of a receiver or trustee for the Borrower or any subsidiary of the Borrower, or for any part of the Borrower's or any such subsidiary's assets; the institution by the Borrower or any subsidiary of the Borrower of any bankruptcy, insolvency, reorganization, arrangement or similar proceeding (under the United States Bankruptcy Code or otherwise) or of any formal or informal proceeding for the dissolution or liquidation of, settlement of claims against, or winding up of the affairs of the Borrower or such subsidiary; the institution of any such proceeding against the Borrower or any subsidiary of the Borrower if the Borrower or such subsidiary shall acquiesce in such filing or in lieu of such acquiescence fail to secure dismissal thereof within thirty (30) days thereafter; the consent by the Borrower or any subsidiary of the Borrower to any type of insolvency proceeding against the Borrower or such subsidiary (under the United States Bankruptcy Code or otherwise); the occurrence of any event or existence of any condition which could be the ground, basis or cause for any proceeding or petition described in this Section 13(f). (g) Failure by Borrower to service and administer the Contracts in substantial compliance with the servicing requirements set forth in Section 10 hereof. (h) The Custodial Agreement or the Guarantee ceases to be in full force and effect, or any party thereto so asserts in writing. (i) Any default (or event or condition which, with the lapse of time or the giving of notice, or both, would constitute a default) shall occur under the terms applicable -21- to any indebtedness of the Borrower or any subsidiary in an aggregate amount (for all indebtedness so affected) exceeding $1,000,000 if the same shall accelerate the maturity of such indebtedness or permit the holder or holders thereof, or any trustee or agent for such holder or holders, to cause such indebtedness to become due and payable prior to its expressed maturity. 14. Remedies Upon Default. (a) At any time one or more Events of Default exists, the Lender may declare the principal amount of all Notes and all other obligations hereunder to be immediately due and payable, and/or terminate the obligation of the Lender to make Advances hereunder, whereupon the obligation of the Lender to make Advances hereunder shall terminate and/or all Notes and all other obligations hereunder shall become immediately due and payable, all without presentment, demand, protest or notice of any kind; provided that upon the occurrence of an Event of Default referred to in Section 13(f), all such amounts shall immediately and automatically become due and payable without any further action by any Person, without presentment, demand, protest or notice of any kind, and the obligation of the Lender to make Advances hereunder shall immediately and automatically terminate. (b) At any time any Event of Default exists, the Lender shall have the right to obtain physical possession of all files of the Borrower relating to the Collateral and all documents relating to the Collateral which are then or may thereafter come into the possession of the Borrower or any third party acting for the Borrower, and the Borrower shall deliver to the Lender such assignments of Contracts as the Lender shall request. The Lender shall be entitled to specific performance of all agreements of the Borrower contained in this Agreement. (c) At any time any Event of Default exists, the Lender shall have the right to service (either by itself or through a designee) the Contracts and to collect and receive all further payments (including prepayments) made on or in respect of the Collateral, and if any such payments are received by the Borrower, the Borrower shall not commingle such payments received with other funds of the Borrower, shall keep such payments segregated from all other funds of the Borrower and shall promptly (and in no event later than seven (7) days following receipt thereof) pay such payments over to the Lender. In addition, the Lender shall have the right to dispose of the Collateral as provided herein, or as provided in the other documents executed in connection herewith, or in any other commercially reasonable manner, or as provided by law, and the Lender shall have all rights of a secured party on default under the Uniform Commercial Code of any applicable jurisdiction. The Borrower shall, promptly upon request by the Lender, use reasonable commercial efforts (subject, in the case of Equipment, to the rights of users under related Contracts) to assemble the -22- Collateral (other than Collateral held by the Custodian pursuant to the Custodial Agreement) at a location reasonably convenient to the Lender, as the Lender shall specify. Any notification required by law of intended disposition of the Collateral shall be deemed reasonably given if given five Business Days in advance of such disposition. Without limiting the foregoing, the Borrower shall transmit to the Lender all checks, drafts, cash and other remittances received on account of any Contract during the continuance of an Event of Default in the form received by the Borrower, but with any necessary endorsement by the Borrower to permit collection of such items. The Lender shall be entitled to place the Contracts which it recovers after any default in a pool for issuance of lease asset-backed securities at the prevailing price for such securities and to sell such securities for the prevailing price in the open market, and the Borrower agrees that any such disposition shall be a commercially reasonable disposition for purposes of the Uniform Commercial Code in any applicable jurisdiction. The Lender shall also be entitled to sell any or all of such Contracts individually for the prevailing price in the open market, and the Borrower agrees that any such disposition shall be a commercially reasonable disposition for purposes of the Uniform Commercial Code in any applicable jurisdiction. The specification in this Section 14 of manners of disposition of collateral as being commercially reasonable shall not preclude the use of other commercially reasonable methods (as contemplated by the Uniform Commercial Code as in effect in any applicable jurisdiction) at the option of the Lender. Upon disposition of the Collateral and repayment in full to the Lender of all amounts owing hereunder plus the reasonable expenses incurred (including fees and expenses of its counsel) in connection therewith, the Lender shall promptly remit any remaining proceeds to the Borrower or as required by law or as a court of competent jurisdiction shall direct. 15. Indemnification and Expenses. (a) The Borrower agrees to hold the Lender and its directors, officers, employees and agents (collectively, the "Indemnified Parties") harmless from, and indemnifies each Indemnified Party against, all liabilities, losses, damages, judgments, costs and expenses (including, without limitation, fees and disbursements of counsel) of any kind which may be imposed on, incurred by, or asserted against any Indemnified Party, whether relating to or arising out of this Agreement, the Note or any transaction contemplated hereby or thereby, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the Note or any transaction contemplated hereby or thereby, that, in each case, results from anything other than the gross negligence or willful misconduct of such Indemnified Party. In any suit, proceeding or action brought by the Lender in connection with any Contract for any sum owing thereunder, or to enforce any provisions of any Contract, the Borrower will save, indemnify and hold the Indemnified Parties harmless from and against all expense, loss or damage suffered by -23- reason of any defense, set-off, counterclaim, recoupment or reduction or liability whatsoever of the account debtor or obligor thereunder, arising out of a breach by the Borrower of any obligation thereunder or arising out of any other agreement, indebtedness or liability at any time owing to or in favor of such account debtor or obligor or its successors from the Borrower. The Borrower also agrees to reimburse the Lender for all its costs and expenses incurred in connection with the enforcement or the preservation of the Lender's rights under this Agreement, the Note or any transaction contemplated hereby or thereby, including, without limitation, the reasonable fees and disbursements of its counsel. The Borrower hereby acknowledges that, notwithstanding the fact that the Note is secured by the Collateral, the obligations of the Borrower hereunder and under the Note are recourse obligations of the Borrower. (b) The Borrower agrees to pay as and when billed by the Lender all of the out-of-pocket costs and expenses incurred by the Lender (including, without limitation, reasonable fees and disbursements of counsel) in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement, the Note or any other documents prepared in connection herewith or therewith. The Borrower agrees to pay as and when billed by the Lender all of the out-of-pocket costs and expenses incurred in connection with the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, (i) all the reasonable fees, disbursements and expenses of the Lender's counsel and (ii) all the reasonable due diligence, inspection, testing and review costs and expenses incurred by the Lender with respect to Contracts pledged as Collateral under this Agreement. (c) Upon demand by the Lender, the Borrower will indemnify the Lender against any net loss or expense (not to include any lost profit or opportunity) that the Lender may incur (including, without limitation, any net loss or expense incurred by reason of liquidation or reemployment of deposits or other funds acquired to fund any Advance), as determined by the Lender, as a result of (i) any payment or prepayment of any Advance or conversion of any LIBOR Advance on a date other than the related Interest Payment Date for such Advance or (ii) any failure of the Borrower to borrow or convert any Advance on a date specified therefor in a notice of borrowing or conversion pursuant to this Agreement (other than as a result of a default by the Lender). For this purpose, all notices to the Lender pursuant to this Agreement shall be deemed to be irrevocable. (d) The Borrower's agreements in this Section 15 shall survive the payment in full of the Note and the expiration or termination of this Agreement. -24- 16. Power of Attorney. The Borrower hereby authorizes the Lender (without requiring the Lender), at the Borrower's expense, to file such financing statements or other documents relating to the Collateral without the Borrower's signature thereon as the Lender at its option may deem appropriate, and the Borrower hereby appoints the Lender as the Borrower's attorney-in-fact (without requiring the Lender) to execute any such financing statement in the Borrower's name and to perform all other acts which the Lender deems appropriate to perfect and continue the Lien granted hereby and to protect, preserve and realize upon the Collateral, including, but not limited to, the right to endorse notes, complete blanks in documents and sign assignments on behalf of the Borrower as its attorney-in-fact. Notwithstanding the foregoing, the power of attorney hereby granted may be exercised only during the occurrence and continuance of any Event of Default hereunder. 17. No Duty on Lender's Part. The powers conferred on the Lender hereunder are solely to protect the Lender's interests in Collateral and shall not impose any duty upon it to exercise any such powers. The Lender shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to the Borrower for any act or failure to act hereunder, except for its or their own gross negligence or willful misconduct. 18. Limitation on Duties Regarding Preservation of Collateral. The Lender's sole duty with respect to the custody, safekeeping and physical preservation of any Collateral in its possession, under Section 9-207 of the Uniform Commercial Code as in effect in any jurisdiction or otherwise, shall be to deal with it in the same manner as the Lender deals with similar property for its own account. Neither the Lender nor any of its directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Borrower or otherwise. 19. Powers Coupled with an Interest. All powers of attorney, authorizations and agencies herein contained with respect to the Collateral are irrevocable and are coupled with an interest. 20. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions herein, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. -25- 21. Notices. All demands, notices and communications relating to this Agreement shall be in writing and shall be delivered to the other party at the address shown below or such other address as may hereafter be furnished to the other party. Notices given by facsimile transmission shall be deemed given when sent; notices sent by mail shall be deemed given three Business Days after the date sent by registered or certified mail, postage prepaid; and notices sent by hand shall be deemed given when received. If to the Borrower: DVI Financial Services, Inc. 4041 MacArthur Boulevard Suite 401 Newport Beach, California 92660 Attention: Chief Financial Officer Telephone: (714) 474-5821 Telecopy: (714) 474-5899 and DVI Financial Services, Inc. 500 Hyde Park Doylestown, Pennsylvania 18910 Telephone: (215) 345-6600 Telecopy: (215) 230-8108 With a copy to: NatWest Bank N.A., as Agent (the "Agent Bank") 175 Water Street 28th Floor New York, New York 10038 Attention: Leasing Division - Merily McLaughlin Telephone: (212) 602-2949 Telecopy: (212) 602-2180 If to the Lender: Union Bank of Switzerland, New York Branch 299 Park Avenue New York, New York 10171-0026 Attention: Michael J. Ahearn Telephone: (212) 821-3360 Telecopy: (212) 821-3890 -26- The Lender shall use its best efforts to provide to the Agent Bank a copy of notices delivered by it to the Borrower; provided that the Lender shall have no liability whatsoever to the Agent Bank or to any Person claiming through the Agent Bank, or to any other Person, arising from or relating to any such notice or the contents thereof or arising from or relating to the failure of the Lender to provide the Agent Bank with a copy of any such notice, and any such failure of the Lender to so provide notice to the Agent Bank shall not prejudice any of the rights of the Lender thereunder. 22. Certain Definitions. The following capitalized terms are defined in the corresponding Sections hereof specified below: "Advance" - Section 1. "Affiliate" - Section 5(b)(xxviii). "Agent Bank" - Section 21. "Agreement" - Introductory Clause. "Borrower" - Introductory Clause. "Business Day" - Section 1. "Certificates" - Recitals. "Collateral" - Section 4. "Commitment Termination Date" - Section 2(a). "Contract" - Recitals. "Contract Documents" - Section 4. "Contract Schedule" - Section 1(f). "Contract Yield" - Section 1(f). "Credit Enhancer" - Recitals. "Custodian" - Section 1(d). "Custodial Agreement" - Section 1(d). "Default" - Section 13. "Eligible Obligor" - Section 5(b)(ii). "Equipment" - Recitals. -27- "Event of Default" - Section 13. "FMV Contract" - Section 1(f). "Funding Date" - Section 1. "Guarantee" - Section 1(d). "Indemnified Parties" - Section 15. "Interest Payment Date" - Section 2(g). "Lender" - Introductory Clause. "LIBOR" - Section 2(c)(ii). "LIBOR Advance" - Section 2(c)(i). "Lien" - Section 1(e). "Maturity Date" - Section 2(b). "NatWest Loan Agreement" - Section 5(b)(vii). "Note" - Section 2(h). "Person" - Section 1(h). "Prime Rate" - Section 1(i). "PV" - Section 1(i). "Quoted Rate" - Section 2(c)(ii). "Quoted Rate Advance" - Section 2(c)(i). "Secured Obligations" - Section 4. "type" of Advance - Section 2(c)(ii). "Vehicle" - Recitals. 23. Section Headings. The Section headings used in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement nor shall they be taken into consideration in the interpretation of this Agreement. 24. No Waiver; Cumulative Remedies. The Lender shall not by any act (except by a written instrument pursuant to Section 21 hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in -28- any Event of Default or in any breach of any of the terms and conditions herein. No failure to exercise, nor any delay in exercising, on the part of the Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Lender would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 25. Assignment. The Borrower may not assign its rights or delegate its obligations under this Agreement without the prior written consent of the Lender. The Lender may assign to one or more banks or other Persons all or any part of, or may grant participations to one or more banks or other Persons in or to, any Advance or Note, and to the extent of any such assignment or participation (unless otherwise stated therein) the assignee or participant shall have the same rights and benefits hereunder and thereunder as it would if it were the Lender. The Lender shall act as agent for all such assignees. 26. Counterparts. For the purpose of facilitating the execution of this Agreement and for other purposes, this Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed to be an original, and all such counterparts shall constitute and be deemed to be one and the same instrument. 27. Hypothecation or Pledge of Collateral. Nothing in this Agreement shall preclude the Lender from engaging in repurchase transactions with any of the Collateral or otherwise pledging, repledging, hypothecating, or rehypothecating any of the Collateral, but no such transaction shall relieve the Lender of its obligations to the Borrower under this Agreement or the Custodial Agreement with respect to the Collateral. 28. Integration of Terms. This Agreement contains the entire agreement between the parties relating to the subject matter hereof and supersedes all oral statements and prior writings with respect thereto. 29. Agreement Constitutes Security Agreement; Governing Law. This Agreement is intended by the parties hereto to constitute a security agreement within the meaning of the Uniform Commercial Code of any applicable jurisdiction. This Agreement shall be governed by, and construed in accordance with, the laws of -29- the State of New York applicable to contracts made and to be performed entirely within such State. 30. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR THE NOTE, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 31. Waiver of Jury Trial. EACH OF THE BORROWER AND THE LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, THE NOTE AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. -30- IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. LENDER: UNION BANK OF SWITZERLAND, NEW YORK BRANCH By:_________________________ Name:____________________ Title:___________________ By:_________________________ Name:____________________ Title:___________________ BORROWER: DVI FINANCIAL SERVICES, INC. By:_________________________ Name:____________________ Title:___________________ -31- Exhibit A Contract Schedule [To be Delivered by the Borrower Pursuant to Section 1(f)] A-1 Exhibit B-1 REQUEST FOR EXTENSION OF COMMITMENT TERMINATION DATE Union Bank of Switzerland, New York Branch 299 Park Avenue New York, New York 10171-0029 Attention: Michael J. Ahearn Telecopy: (212) 821-3890 Confirmation: (212) 821-3360 1. Pursuant to the Loan and Security Agreement, dated as of July 27, 1995 (as amended from time to time, the "Agreement"), between you and DVI Financial Services, Inc. (the "Borrower"), the Borrower hereby requests that the Commitment Termination Date under the Agreement be extended to [insert date]. The Borrower agrees that, upon acceptance by the Lender of this Request for Extension of Commitment Termination Date by signing and dating the same below, the Borrower will be bound by the terms of the Agreement as amended by this Request for Extension of Commitment Termination Date. 2. The Borrower hereby certifies that the following statements are true and correct on the date hereof and shall be true and correct on the date of the extension of the Commitment Termination Date requested herein, before and after giving effect thereto: A. Each of the representations and warranties contained in the Agreement is true and correct in all material respects; and B. No Default or Event of Default has occurred and is continuing. 3. Unless otherwise defined in this Request for Extension of Commitment Termination Date, terms defined in the Agreement shall have their defined meanings when used herein. 4. Except as expressly modified by this Request for Extension of Commitment Termination Date, the Agreement shall continue in full force and effect. 5. This Request for Extension of Commitment Termination Date and the rights and obligations of the parties hereunder and under the Agreement as amended hereby shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York applicable to contracts made and to be performed entirely within such State. B1-1 IN WITNESS WHEREOF, the undersigned Borrower has caused this Request for Extension of Commitment Termination Date to be executed and delivered by a proper and duly authorized officer as of the day and year first above written. DVI FINANCIAL SERVICES, INC. By__________________________ Name:____________________ Title:___________________ AGREED TO AND ACCEPTED: UNION BANK OF SWITZERLAND, NEW YORK BRANCH By:_______________________ Name:__________________ Title:_________________ By:_______________________ Name:__________________ Title:_________________ B1-2 Exhibit B-2 REQUEST FOR EXTENSION OF MATURITY DATE Union Bank of Switzerland, New York Branch 299 Park Avenue New York, New York 10171-0029 Attention: Michael J. Ahearn Telecopy: (212) 821-3890 Confirmation: (212) 821-3360 1. Pursuant to the Loan and Security Agreement, dated as of July 27, 1995 (as amended from time to time, the "Agreement"), between you and DVI Financial Services, Inc. (the "Borrower"), the Borrower hereby requests that the Maturity Date under the Agreement be extended to [insert date]. The Borrower agrees that, upon acceptance by the Lender of this Request for Extension of Maturity Date by signing and dating the same below, the Borrower will be bound by the terms of the Agreement as amended by this Request for Extension of Maturity Date. 2. The Borrower hereby certifies that the following statements are true and correct on the date hereof and shall be true and correct on the date of the extension of the Maturity Date requested herein, before and after giving effect thereto: A. Each of the representations and warranties contained in the Agreement is true and correct in all material respects; and B. No Default or Event of Default has occurred and is continuing. 3. Unless otherwise defined in this Request for Extension of Maturity Date, terms defined in the Agreement shall have their defined meanings when used herein. 4. Except as expressly modified by this Request for Extension of Maturity Date, the Agreement shall continue in full force and effect. 5. This Request for Extension of Maturity Date and the rights and obligations of the parties hereunder and under the Agreement as amended hereby shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York applicable to contracts made and to be performed entirely within such State. B2-1 IN WITNESS WHEREOF, the undersigned Borrower has caused this Request for Extension of Maturity Date to be executed and delivered by a proper and duly authorized officer as of the day and year first above written. DVI FINANCIAL SERVICES, INC. By__________________________ Name:____________________ Title:___________________ AGREED TO AND ACCEPTED: UNION BANK OF SWITZERLAND, NEW YORK BRANCH By:_______________________ Name:__________________ Title:_________________ By:_______________________ Name:__________________ Title:_________________ Date: B2-2 Exhibit C [Form of Opinion of Counsel] [Letterhead of Thacher Proffitt & Wood] July __, 1995 Union Bank of Switzerland, New York Branch 299 Park Avenue New York, New York 10171-0026 Re: DVI Financial Services, Inc. Loan and Security Agreement Dear Sirs: We have acted as special counsel to DVI Financial Services, Inc. (the "Company") in connection with the negotiation, execution and delivery of the Transaction Documents (as defined herein) and the transactions contemplated thereby. Capitalized terms not otherwise defined herein are defined as set forth in Loan and Security Agreement dated the date hereof between Union Bank of Switzerland, New York Branch (the "Lender") and the Company (the "Agreement"). This opinion is given pursuant to section 1(d) of the Agreement. In this regard, we have examined and relied upon the following documents: 1. the Certificate of Incorporation and By-Laws of each of the Company and DVI, Inc., as amended to date; 2. such minutes of meetings and records of actions taken by written consent of the Company's and DVI, Inc.'s shareholders and boards of directors as we have deemed necessary and relevant; 3. Certificates of Good Standing of the Company and DVI, Inc. for the State of Delaware; 4. the Agreement; 5. the Note, dated the date hereof (the "Note"), made by the Company in your favor; 6. the Custodial Agreement, dated the date hereof, entered into by and among the Company, you and Bankers Trust Company, as Custodian (the "Custodial Agreement"); and Union Bank of Switzerland, New York Branch June __, 1995 Page C-2 7. the Guarantee, dated the date hereof, made by DVI, Inc. ("DVI, Inc.") in your favor (the "Guarantee", together with the Agreement, the Note and the Custodial Agreement, the "Transaction Documents"). Although we may have made inquiries with respect to various documents and other matters, we have not, except as specifically noted above, made any independent review or investigation of agreements, instruments, corporate records or other documents, orders, judgments, rules or other regulations or decrees by which the Company or DVI, Inc. or any of their respective property may be bound, nor have we made any independent investigation as to the existence of actions, suits, investigations or proceedings, if any, pending or threatened against the Company or DVI, Inc. We have assumed the authenticity of all documents submitted to us as originals, the genuineness of all signatures, the legal capacity of natural persons and the conformity to the originals of all documents submitted to us as copies. In making our examination of any documents, we have assumed that all parties other than the Company and DVI, Inc. had the corporate power and authority to enter into and perform all obligations thereunder, and, as to such parties, we also have assumed the due authorization by all requisite corporate action, the due execution and delivery of such documents, and the validity and binding effect and enforceability thereof. We have not verified, and are not passing upon and do not assume any responsibility for, the accuracy, completeness or fairness of information furnished orally or in writing by or on behalf of the Company in connection with the transactions contemplated by the Agreement. Based on the foregoing, we are of the opinion that: 1. The Company has been duly organized and is validly existing in good standing under the laws of the State of Delaware. The Company has the necessary corporate power and authority to enter into and perform its obligations under the Transaction Documents to which it is a party. 2. DVI, Inc. has been duly organized and is validly existing in good standing under the laws of the State of Delaware. DVI, Inc. has the necessary corporate power and authority to enter into and perform its obligations under the Guarantee. Union Bank of Switzerland, New York Branch June __, 1995 Page C-3 3. The execution and delivery by the Company and DVI, Inc., as applicable, of the Transaction Documents, and the performance of their respective obligations thereunder, have been duly authorized by all requisite corporate action on the part of the Company and DVI, Inc., as applicable, and the Transaction Documents have been executed and delivered by the Company and DVI, Inc., as applicable. The Transaction Documents are legal, valid and binding obligations of the Company and DVI, Inc., as applicable, enforceable against the Company and DVI, Inc., as applicable, in accordance with their respective terms. 4. The execution and delivery by the Company of the Transaction Documents to which it is a party, and the performance of its obligations thereunder, do not conflict with or result in a violation of the Company's Certificate of Incorporation or By-Laws. 5. The execution and delivery by DVI, Inc. of the Guarantee and the performance of its obligations thereunder, do not conflict with or result in a violation of DVI, Inc.'s Certificate of Incorporation or By-Laws. 6. No approval, authorization or other action by, or filing with, any New York or federal governmental authority is required for the execution and delivery by the Company of the Transaction Documents to which it is a party and by DVI, Inc. of the Guarantee or, if any such approval, authorization, action or filing is required, it has been obtained. 7. The provisions of the Loan Agreement are sufficient to create in favor of the Lender a valid security interest in the Company's rights in the Collateral. 8. Upon execution and delivery of the Loan Agreement, together with possession by the Custodian of the Contracts pursuant to the Custodial Agreement, and further together with the filing (with the appropriate offices of the states where the Company maintains is chief executive office and principal place of business) of financing statements in the form of Exhibit A hereto and the giving of value by the Lender in the manner contemplated by the Agreement, the Lender's security interest in the Contracts will be perfected and no further action will be necessary in order to continue the perfection of the security interest of the Lender in the Contracts, Union Bank of Switzerland, New York Branch June __, 1995 Page C-4 except that appropriate UCC continuation statements must be filed at five-year intervals. Our opinions set forth above are subject to the following qualifications: (i) Our opinions above are subject to the effect of any applicable fraudulent conveyance, transfer or obligation law and any law governing the liquidation or dissolution of, or the distribution of assets of, any Person and, insofar as they relate to enforceability, are subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally. (ii) Enforceability of the Company's and DVI, Inc.'s respective obligations under the Transaction Documents is subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and to the effect of certain laws, regulations and judicial or other decisions upon the availability and enforceability of certain covenants or remedies provided in the transaction Documents, including the remedies of specific performance and self-help; provided that the non-enforceability of any of the provisions, rights and remedies referred to in this paragraph (ii) will not, taken as a whole, materially interfere with the practical realization of the economic benefits of the rights and remedies intended thereby, except for the economic consequences of any judicial, administrative, procedural or other delay which may be imposed by, relate to or arise from applicable laws, constitutional requirements, statutes, court decisions, codes, ordinances, rules and regulations, equitable principles and all interpretations thereof. (iii) We express no opinion as to the legality, validity or enforceability of any of the following provisions contained in the Transaction Documents: (A) any provision granting or purporting to grant to the Lender the power and authority to execute documents and/or instruments (including without limitation Uniform Commercial Code financing statements), (B) any provision with respect to penalties, forfeitures, or late payment charges or increases in interest rates upon delinquency in payment or upon the occurrence of a default in excess of a rate that a court of competent jurisdiction determines to be commercially reasonable and not a penalty or forfeiture, (C) any provision purporting to waive unmatured rights, (D) any provision covenanting to take any action, the taking of which is discretionary with or subject to the Union Bank of Switzerland, New York Branch June __, 1995 Page C-5 approval of a third party or which otherwise is subject to a contingency, the fulfillment of which is not within the control of the party so covenanting, (E) any provision purporting to require the future delivery by the parties with respect to any Collateral, to the extent such delivery may be prohibited by applicable law, rule, regulation, judgment, order, decree, license, franchise, permit, or public policy any of which is not in effect on the date hereof (regardless of whether any such law, rule, regulation, judgment, order, decree, license, franchise or permit shall have any effective date on or before the date hereof), (F) any provision purporting to transfer the interest of the Lender in any insurance policies in connection with the provisions of any of the Transaction Documents, (G) any indemnification provisions to the extent that such provisions may be found to violate public policy, (H) waivers by any of the parties of, or provisions precluding any of the parties from asserting, certain claims or defenses or from obtaining certain rights and remedies, including, without limitation, the right to require marshalling, (I) subrogation rights, delay or omission of enforcement of rights or remedies, marshalling of assets, or sales in inverse order of lien priority, (J) any provision establishing evidentiary standards for suits or proceedings to enforce the Transaction Documents, (K) to the extent that rights or remedies are not exclusive, that every right or remedy is cumulative and may be exercised in addition to or with any other right or remedy, or that the election of particular remedy or remedies does not preclude recourse to one or more other remedies, (L) any provision with respect to severability, exculpation, set-off right or claims of any of the parties for damages or other remedies arising from any secured party's trespass, conversion, negligence or other disposition of collateral, and (M) any provision purporting to establish, as to third parties, non-culpability for actions by a lienholder. (iv) To the extent that the Transaction Documents refer to Collateral in which the Company has no present rights, (A) the security interest of the Lender in such Collateral will attach only upon the acquisition of rights therein by the Company and (B) Section 552 of the Federal Bankruptcy Code limits the extent to which property acquired by a debtor after the commencement of a case under the Federal Bankruptcy Code may be subject to a security interest arising from a security agreement entered into by the debtor before the commencement of such case. (v) We express no opinion as to the title of the Company or any other person or entity to any Collateral subject to the Union Bank of Switzerland, New York Branch June __, 1995 Page C-6 Transaction Documents or the value, validity or effectiveness of any of the foregoing. (vi) Our opinion set forth in paragraph 8 is subject, to the extent applicable, to (a) the limitations on perfection of security interests in proceeds resulting from the operation of UCC Section 9-306, (b) the limitations with respect to buyers in the ordinary course of business imposed by UCC Section 9-307 or UCC Section 9-308 and (c) the effect of security interests which may be perfected by any means other than by possession or by filing a financing statement pursuant to the UCC. (vii) We express no opinion in paragraph 8 with respect to any transaction excluded from Article 9 of the UCC by Section 9-104 thereof. With respect to the opinion set forth in paragraph 8, we have assumed, without any independent verification, that the law of the State of California and the law of the Commonwealth of Pennsylvania are identical to the law of the State of New York. The foregoing opinions are limited to the matters stated herein and not opinion is implied or may be inferred beyond the matters expressly stated. Our opinions are based upon and rely upon the current status of law and in all respects are subject to and may be limited by future legislation as well as by developing case law. The opinions expressed above are based solely upon applicable laws, statutes, ordinances, rules and regulations and facts, all as in existence on this date, and we express no opinion as to the effect which any future amendments, changes, additions, or modifications thereof may have upon the future performance or enforceability of the Transaction Documents, and we assume no obligation to update or supplement such opinions to reflect any facts or circumstances which may hereafter come to our attention or any changes in law which may hereafter occur. In rendering the opinions contained herein, we have assumed that you and your respective counsel did not have actual knowledge or actual notice (other than notice imputed from statutes, court decisions and other public documents) of the existence of any fact, circumstance, statute, law, code, ordinance, rule or regulation which is contrary to or inconsistent with any opinion expressed herein. We do not express any opinion concerning law other than the Delaware General Corporation Law, the law of the State of New York, the federal law of the United States and, with respect to the opinion set forth in paragraph 8 only, the law of the State of California and the law of the Commonwealth of Pennsylvania. We do Union Bank of Switzerland, New York Branch June __, 1995 Page C-7 not express any opinion, either implicitly or otherwise, on any subject not expressly addressed herein. This opinion is given to you for your sole benefit, and no other person or entity is entitled to rely hereon. Copies of this opinion letter may not be furnished to any other party or entity, nor may any portion of this letter be quoted, circulated or referred to in any other document, without our prior written consent. Very truly yours, Exhibit D-1 NOTICE OF BORROWING NO. Union Bank of Switzerland, New York Branch 299 Park Avenue New York, New York 10171-0026 Attention: Michael J. Ahearn Telecopy: (212) 821-3890 Confirmation: (212) 821-3360 Pursuant to the Loan and Security Agreement, dated as of July 27, 1995 (as amended from time to time, the "Agreement"), between you and DVI Financial Services, Inc. (the "Borrower"), the Borrower hereby requests an Advance and, in connection therewith, sets forth below the following information (all capitalized terms used herein shall have the meanings specified therefor in the Agreement): 1. The Advance is being made in respect of a Contract which is [not] an FMV Contract.(1) 2. The principal amount of the requested Advance is [$ ]. 3. The Business Day on which the Advance is to be made is [ , 199 ] (the "Funding Date"). 4. Attached hereto is a copy of [a supplement to] the Contract Schedule being submitted to the Lender in connection with the Advance requested hereby. 5. The Advance is to be a [LIBOR Advance] [Quoted Rate Advance]. The Borrower hereby certifies that the following statements are true and correct on the date hereof and shall be true and correct on the date of the Advance requested herein, before and after giving effect thereto: A. Each of the representations and warranties contained in the Agreement is true and correct in all material respects; and - -------- (1) If the Contract is an FMV Contract, Borrower must execute and deliver a UCC financing statement with respect to the related Equipment. D1-1 B. No Default or Event of Default has occurred and is continuing. DVI FINANCIAL SERVICES, INC. By: -------------------------- Name: Title: Date: [ , 199 ] D1-2 Exhibit D-2 NOTICE OF CONVERSION Union Bank of Switzerland, New York Branch 299 Park Avenue New York, New York 10171-0026 Attention: Michael J. Ahearn Telecopy: (212) 821-3890 Confirmation: (212) 821-3360 Pursuant to the Loan and Security Agreement, dated as of July 27, 1995 (as amended from time to time, the "Agreement"), between you and DVI Financial Services, Inc. (the "Borrower"), the Borrower hereby requests to convert an Advance or portion thereof from one type to another and, in connection therewith, sets forth below the following information (all capitalized terms used herein shall have the meanings specified therefor in the Agreement): The Borrower hereby requests that on , 19 , $ of the presently outstanding Advance originally made on , 19 [and $ of the presently outstanding principal amount of the Advance originally made on , 19 ], being maintained as a LIBOR Advance, be converted into a Quoted Rate Advance. The Borrower hereby certifies that the following statements are true and correct on the date hereof and shall be true and correct on the date of the Advance requested herein, before and after giving effect thereto: 1. Each of the representations and warranties contained in the Agreement is true and correct in all material respects; and 2. No Default or Event of Default has occurred and is continuing. DVI FINANCIAL SERVICES, INC. By: --------------------------- Name: Title: Date: [ , 199 ] D2-1 Exhibit E NOTE $100,000,000.00 July 27, 1995 New York, New York FOR VALUE RECEIVED, DVI FINANCIAL SERVICES, INC. (the "Borrower"), a Delaware corporation, promises to pay to the order of UNION BANK OF SWITZERLAND, NEW YORK BRANCH (the "Lender") on or before the Maturity Date (as defined in the Agreement described below), $100,000,000.00 or, if less, the outstanding principal amount of all Advances (as defined in the Agreement described below) made by the Lender to the undersigned pursuant to the Loan and Security Agreement, dated as of July 27, 1995 (as amended or otherwise modified from time to time, the "Agreement"), between the Lender and the Borrower, plus interest thereon from the date of each such Advance at the rates set forth in the Agreement. All such payment obligations (whether in respect of the aggregate principal amount of outstanding Advances made, interest thereon, or other payment obligations of the Borrower under the Agreement) shall be made in lawful money of the United States of America, in immediately available funds, on the dates and in the amounts specified in, or determined in accordance with, the Agreement. The holder of this Note is authorized to record the date and amount of each Advance, and the date and amount of each repayment of principal thereof, on the schedule annexed hereto (or any continuation thereof), and any such recordation shall be conclusive evidence of the accuracy of the amounts so recorded (absent manifest error); provided that the failure of the holder hereof to make such recordation (or any error in such recordation) shall not affect the obligations of the Borrower hereunder or under the Agreement. It is intended that the rate of interest hereon shall never exceed the maximum rate, if any, which may be legally charged on the Advances evidenced by this Note (the "Maximum Rate"), and if the provisions for interest contained in this Note would result in a rate higher than the Maximum Rate, interest shall nevertheless be limited to the Maximum Rate, and any amounts which may be paid toward interest in excess of the Maximum Rate shall be applied to the reduction of principal, or, at the option of the Lender, returned to the Borrower. All payments hereon shall be made, and all notices to the Lender required or authorized hereby shall be given, at the office of the Lender at the address designated in the Agreement, or to such other place as the Lender may from time to time direct by written notice to the Borrower. Payments remitted by the Borrower via wire transfer initiated after 4:00 p.m., New York City time, on any Business Day shall be deemed to be received on the next Business Day. E-1 The Borrower agrees to pay all the Lender's costs of collection and enforcement (including reasonable fees and disbursements of counsel) in respect of this Note when incurred. Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to them in the Agreement. Notwithstanding the pledge of the Collateral, the Borrower hereby acknowledges, admits and agrees that the Borrower's obligations under this Note are recourse obligations of the Borrower. The Borrower, and any indorsers or guarantors hereof, (a) severally waive diligence, presentment, protest and demand and also notice of protest, demand, dishonor and nonpayment of this Note, (b) expressly agree that this Note, or any payment hereunder, may be extended from time to time, and consent to the acceptance of further Collateral, the release of any Collateral for this Note and to the release of any party primarily or secondarily liable hereon, and (c) expressly agree that it will not be necessary for the Lender, in order to enforce payment of this Note, to first pursue or exhaust the Lender's remedies against the Borrower or any other party liable hereon or against any Collateral. No extension of time for the payment of this Note, or any installment hereof, made by agreement by the Lender with any person now or hereafter liable for the payment of this Note shall affect the liability under this Note of the Borrower, even if the Borrower is not a party to such agreement; provided, however, that the Lender and the Borrower, by written agreement between them, may affect the liability of the Borrower. Any reference herein to the Lender shall be deemed to include and apply to every subsequent holder of this Note. Reference is made to the Agreement for provisions concerning mandatory principal repayments, Collateral, acceleration and other material terms affecting this Note. This Note shall be governed by, and construed in accordance with, the law of the State of New York applicable to contracts made and to be performed entirely within such State. DVI FINANCIAL SERVICES, INC. By: -------------------------- Name: Title: E-2 SCHEDULE TO NOTE Schedule of Advances
Date and Date and Amount of Amount of Advance or of Repayment or of conversion from conversion into Unpaid Notation another type of another type of Interest Principal Made Advance Advance Period Balance By - ---------------- ----------------- -------- ---------- ----------- 1. QUOTED RATE ADVANCES - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ 2. LIBOR ADVANCES - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------
E-3 Exhibit F GUARANTEE Guarantee, dated as of July 27, 1995, by DVI, Inc., a Delaware corporation (the "Guarantor"), in favor of Union Bank of Switzerland, New York Branch ("Lender"). The Guarantor agrees as follows: 1. Guarantee. To induce Lender to enter into the Loan and Security Agreement, dated as of July 27, 1995 (as amended, supplemented or otherwise modified from time to time, the "Loan Agreement"), with DVI Financial Services, Inc. ("Borrower"), the Guarantor unconditionally guarantees, as primary obligor and not merely as surety, to Lender, its successors, endorsees and permitted assigns, the prompt payment and performance when due, whether by acceleration or otherwise, and at all times thereafter, of all present and future obligations and liabilities of all kinds of Borrower (whether monetary or otherwise) to Lender, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter arising, or due or to become due, including, without limitation, all obligations arising out of or in connection with the Loan Agreement or the Note (as defined in the Loan Agreement) (the "Obligations"). 2. Absolute Guarantee; Lien. The Guarantor's obligations under this Guarantee shall not be affected by the genuineness, validity, regularity, or enforceability of the Obligations or of any instrument evidencing the Obligations, or by the existence, validity, enforceability, perfection or extent of any collateral for the Obligations, or by any other circumstance relating to the Obligations which might otherwise constitute a discharge of or defense to this Guarantee. Lender makes no representation or warranty to the Guarantor regarding such matters and has no duty or responsibility to disclose to the Guarantor any circumstances that may now or hereafter affect such matters. Lender shall not be obligated to file any claim relating to the Obligations if Borrower becomes subject to a bankruptcy, reorganization or similar proceeding, and the failure of Lender to file shall not affect the Guarantor's obligations hereunder. If any payment by Borrower to Lender on account of the Obligations is rescinded or must otherwise be returned for any reason whatsoever, the Guarantor shall remain liable hereunder for such Obligations as if such payment had not been made. The Guarantor's obligations under this Guarantee constitute a guarantee of payment and not of collection. To secure all obligations of the undersigned hereunder, the Lender shall have a lien on and a security interest in all balances, credits, deposits and accounts of the undersigned now or hereafter with Lender and any and all other property of the undersigned in the possession or control of, or in transit to, the Lender or any agent or bailee of Lender. After the occurrence and F-1 during the continuance of an Event of Default (as defined in the Loan Agreement), Lender may apply any of the foregoing to the payment of the Obligations in such order of application as Lender shall elect. 3. Consents, Waivers, and Renewals. Lender may at any time and from time to time, without impairing or affecting this Guarantee, and without notice to or further consent of the Guarantor, (a) extend the time of payment of, exchange or renew any of the Obligations, (b) retain or obtain a security interest in property to secure the Obligations, or (c) make any agreement with Borrower or with any other individual or entity liable on any of the Obligations, or interested therein, for the extension, renewal, payment, compromise, discharge or release thereof, in whole or in part, or for any modification of the terms thereof or of any agreement between Lender and Borrower or any such other individual or entity. Lender may seek payment of any of the Obligations from the Guarantor, whether or not Lender shall have resorted to any collateral for the Obligations or shall have proceeded against Borrower or any other obligor principally or secondarily obligated for any of the Obligations. 4. Expenses. The Guarantor shall pay on demand all out-of-pocket expenses (including the reasonable fees and expenses of counsel) incurred by Lender in the enforcement or protection of the rights of Lender under this Guarantee, and any collateral for the Obligations shall secure such payment; provided, however, that the Guarantor shall not be liable for any expenses of Lender if no payment under this Guarantee is due. 5. No Subrogation. Notwithstanding any payment or payments made by the Guarantor hereunder, or any set-off or application of funds of the Guarantor by Lender, the Guarantor shall not be subrogated to any of the rights of Lender until Lender shall have received final payment in full in cash of all Obligations. 6. Continuing Guarantee. This Guarantee is absolute, unconditional and irrevocable and shall remain in full force and effect and be binding upon the Guarantor and its successors and permitted assigns until all of the Obligations have been satisfied in full. If any present or future Obligations are guaranteed by individuals or entities in addition to the Guarantor, the death, release or discharge, in whole or part, or the bankruptcy, liquidation, termination or dissolution, of one or more of them shall not discharge or affect the liabilities of the Guarantor hereunder. 7. No Waiver; Cumulative Rights. No failure on the part of Lender to exercise, and no delay in exercising, any right, remedy or power under this Guarantee shall operate as a waiver thereof, nor shall any single or partial exercise by Lender of any right, remedy or power hereunder preclude any other or future exercise of any right, remedy or power. No waiver or amendment of this F-2 Guarantee shall be effective unless in writing and signed by Lender. Each and every right, remedy and power hereby granted to Lender or allowed it by law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by Lender from time to time. 8. Waiver of Notice. Except as required otherwise herein, the Guarantor waives notice of the acceptance of this Guarantee, presentment to or demand of payment from anyone liable for any of the Obligations, notice of dishonor or non-payment, protest, diligence, suit, notice of any sale of any collateral for the Obligations, notice of the taking of any action by Lender against Borrower, the Guarantor, or others, and all other notices that may otherwise be required by law. 9. Representations and Warranties. A. The Guarantor is duly organized and validly existing under the law of the State of Delaware and has full corporate power and authority to execute, deliver and perform this Guarantee. B. The execution, delivery and performance of this Guarantee have been duly authorized by all necessary corporate action and do not contravene any provision of the Guarantor's Certificate of Incorporation or by-laws, as amended to date, or any law, regulation, rule, decree, order, judgment or contractual restriction binding on the Guarantor or its assets. C. All consents, licenses, authorizations and approvals of, and registrations and declarations with, any governmental authority or regulatory body necessary for the due execution, delivery and performance of this Guarantee have been obtained and remain in full force and effect and all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with, any governmental authority or regulatory body is required in connection with the execution, delivery or performance of this Guarantee. D. This Guarantee constitutes the legal, valid, and binding obligation of the Guarantor and is enforceable against the Guarantor in accordance with its terms, subject as to enforceability to bankruptcy, insolvency, reorganization, moratorium, conservatorship, receivership and other laws of general applicability relating to or affecting creditors' rights and to equitable principles of general application. 10. Assignment. The Guarantor may not assign its rights, interests or obligations under this Guarantee to any other person without the prior written consent of Lender. 11. Governing Law. This Guarantee shall be governed by, and construed in accordance with, the law of the State of New York F-3 applicable to contracts made and to be performed entirely within such State. 12. Notices. Any notice or communication to the Guarantor in respect of this Guarantee shall be in writing and delivered in person or sent by certified or registered mail or the equivalent, by courier, or by facsimile addressed to the following: DVI, Inc. 4041 MacArthur Boulevard Suite 401 Newport Beach, California 92660 Attention: Chief Financial Officer Telephone: 714-474-5821 Telecopy: 714-474-5864 and DVI, Inc. 500 Hyde Park Doylestown, Pennsylvania 18910 Telephone: (215) 345-6600 Telecopy: (215) 230-8108 Notices given by facsimile transmission shall be deemed given when sent; notices sent by mail shall be deemed given three Business Days (as defined in the Loan Agreement) after the date sent; and notices sent by hand shall be deemed given when received. Any notice or communication by the Guarantor to Lender in respect of this Guarantee shall be sufficiently given if in writing and delivered in the manner provided in the Loan Agreement. 13. Forum Selection and Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS GUARANTEE SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. THE GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. THE GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE GUARANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 14. Waiver of Jury Trial. THE GUARANTOR HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS GUARANTEE AND ANY AMENDMENT, F-4 INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. IN WITNESS WHEREOF, this Guarantee has been duly executed and delivered by the Guarantor to Lender as of the date first above written. DVI, INC. By: --------------------------------- Name: Title: F-5 Exhibit G CUSTODIAL AGREEMENT CUSTODIAL AGREEMENT, dated as of July 27, 1995 (as it may be amended or otherwise modified from time to time, this "Agreement"), among (i) UNION BANK OF SWITZERLAND, NEW YORK BRANCH (the "Lender"), (ii) BANKERS TRUST COMPANY (the "Custodian"), and (iii) DVI FINANCIAL SERVICES, INC. (the "Borrower"). RECITALS: A. The Borrower is the owner of certain equipment leases and all rights with respect thereto (including ownership of or security interests in the related equipment) (the "Contracts"); B. The Lender has agreed to provide interim financing for the Contracts pursuant to the Loan and Security Agreement referred to below; C. The Lender desires to have the Custodian take possession of certain of the Contracts, along with certain other documents specified in this Agreement, as the custodian for, and bailee of, the Lender in accordance with the terms and conditions of this Agreement; and D. The Custodian desires to enter into an agreement whereby it will serve as bailee and custodian of such Contracts and certain other documents as may from time to time be delivered to the Custodian for the benefit of the Lender. NOW, THEREFORE, the parties, intending to be legally bound, hereby agree as follows: 1. Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms shall have the following meanings when used in this Agreement: "Advance" means any advance under the Loan and Security Agreement, notice of which shall be sent to the Custodian two (2) Business Days prior to any such advance. "Agent Bank" shall have the meaning specified in Section 19 hereof. G-1 "Authorized Representatives" shall have the meaning specified in Section 18 hereof. "Broker" means the original lessor (other than the Borrower) of an item of equipment pursuant to a Contract with the user of such equipment. "Broker Agreement" means an agreement between the Borrower and a Broker, pursuant to which the Borrower acquired a Contract, or a security interest therein, from such Broker. "Business Day" means any day other than a Saturday, a Sunday or a day on which banking institutions in New York City or in the city in which the principal corporate trust office of the Custodian is located are authorized or obligated by law or executive order to be closed. "Certification" shall have the meaning specified in Section 3 hereof. "Contract Schedule" means, collectively, all schedules of Contracts delivered by the Borrower to the Lender, each such schedule to be an electronic record or floppy disk identifying: (i) the Contract identifying number; (ii) the user's name; (iii) the street address where the related equipment is in use, including the zip code; (iv) the description of such equipment; (v) the original number of months to maturity and the number of months remaining to maturity from the date of such schedule; (vi) the Contract Yield; (vii) the amount of the current monthly payment; (viii) the amount of the purchase option payment, if any; (ix) the original amount funded under the Contract; and (x) the present value of the remaining payments under the Contract as of the close of business on the date of such schedule, determined in accordance with the Loan and Security Agreement. The Contract Schedule shall be delivered to the Custodian on computer readable magnetic tape or diskette. "Contract Yield" shall mean, with respect to any Contract, the contract yield on such Contract determined in accordance with Borrower's customary practices in effect on the date hereof. "Contracts" shall have the meaning specified in the recitals. "Custodian's Contract Files" means, with respect to a Contract, those documents listed in Section 2 of this Agreement that are delivered to the Custodian with respect to such Contract and all documents subsequently delivered to the Custodian with respect to such Contract pursuant to the last sentence of Section 2. G-2 "Deficiency" means a failure of a document to correspond to the information on the Contract Schedule or the absence of a required document from a Custodian's Contract File. "Loan and Security Agreement" means the Loan and Security Agreement dated as of July 27, 1995, between the Lender and the Borrower, as amended, extended, or otherwise modified from time to time, pursuant to which the Lender agrees, subject to the terms and conditions thereof, to provide interim funding to the Borrower for Contracts. "Person" means any association, business trust, corporation, estate, governmental authority, joint venture, natural person, partnership, trust or other entity. "Request for Release and Receipt of Documents" shall have the meaning specified in Section 6 hereof. 2. Delivery of Custodian's Contract Files. At least two days prior to each Advance, or such shorter time as may be agreed to from time to time by the parties hereto, the Borrower shall deliver and release to the Custodian as custodian for, and bailee of, the Lender the following documents pertaining to each of the Contracts identified in the Contract Schedule which shall be provided to the Custodian by the Borrower: (a) The original or a certified copy of each master lease relating to each such Contract and the original supplement or schedule related thereto; (b) A copy of any user insurance policy required to be maintained by the Contracts; (c) A copy of each delivery and acceptance certificate with respect to each Contract which is a lease or a copy of each original invoice for the related equipment and the receipt of delivery related thereto with respect to each Contract which is a loan; (d) Evidence of filing of each UCC-1 financing statement executed by the related user, as debtor, and filed with the Secretary of State in each state where the equipment is located (and if necessary, with the office of the County Clerk in the county where such equipment is located), naming the Borrower as secured party (or in the case of any Contract which was acquired by a Broker Agreement, naming the Broker as secured party and the Borrower as assignee of the secured party) and the equipment as collateral; (e) A copy of any related Broker Agreement (if applicable); and G-3 (f) Any and all other documents that the Borrower shall keep on file in accordance with customary industry procedures and reasonably acceptable to the Lender relating to a Contract or the equipment subject thereto (including, without limitation, any amendments to the UCC-1 financing statements). The Custodian shall be entitled to rely upon the Contract Schedule provided by the Borrower as the conclusive schedule in its review, pursuant to Sections 3 and 16(b) hereof, of the Custodian's Contract Files delivered to it by the Borrower. From time to time, the Borrower shall forward to the Custodian for inclusion in the appropriate Custodian's Contract File any additional original loan documents evidencing any assignment or modification of a Contract approved by the Borrower. 3. Certification. Prior to the funding of any Advance, the Custodian shall review the Custodian's Contract Files delivered to the Custodian to determine the contents of each and whether each document therein purporting to be an original appears to be so on its face. Within one Business Day after the delivery to the Custodian of such Custodian's Contract Files, the Custodian shall deliver via facsimile (with the original via overnight courier) to the Lender (with a copy to the Borrower) a certificate (the "Certification"), in substantially the form annexed as Exhibit 1, to the effect that, as to each Contract listed on the related Contract Schedule attached to such Certification (other than any Contract paid in full or any Contract specifically identified in such certification as not covered by such certification), (i) all documents required to be delivered to it pursuant to Section 2(a), (b), (c), (d) and (e) of this Agreement, are in its possession, (ii) such documents have been reviewed by it and have not been mutilated, damaged, torn or otherwise physically altered (handwritten additions, changes or corrections shall not constitute physical alteration if initialled by the user) and relate to such Contract and (iii) based on its examination and only as to the foregoing documents, the information set forth on the Contract Schedule (other than items (vi), (ix) and (x) in the definition thereof) accurately reflects the information set forth in the Custodian's Contract File, with any exceptions noted as attached. 4. Deficiencies in Custodian's Contract Files. (a) If the Certification discloses that any of the documents enumerated in Section 2(a), (b), (c), (d) or (e) are missing or discloses any Deficiencies in the documents included in any Custodian's Contract Files delivered to the Custodian, then the Lender shall promptly notify the Custodian in writing that either (i) the Borrower shall deliver the missing documents noted in the Certification to the Custodian, (ii) the Lender has waived the Deficiencies noted in the Certification, (iii) the Borrower shall cure the Deficiencies within five Business Days, or (iv) the Borrower shall substitute another Contract for the deficient Contract and shall deliver to G-4 the Custodian the Custodian's Contract File with respect to the substituted Contract. (b) If the Lender's written notice states that the Borrower shall take either of the actions specified in clause (i) or (iii) of Section 4(a) above and the Borrower fails to take such actions within 30 days after the Custodian's receipt of such notice, then the Custodian shall notify the Lender and the Borrower of such failure and release or retain the deficient Custodian's Contract File in accordance with the written instructions of the Lender; provided that the Lender shall not instruct the Custodian to retain the deficient Custodian's Contract File if the Lender has not funded against the related Contract. (c) If the Lender's written notice states that the Borrower shall take the actions specified in clause (iv) of Section 4(a) above, then the Custodian shall return the deficient Custodian's Contract File to the Borrower promptly following delivery to it of the Custodian's Contract File to be substituted therefor. If the Borrower fails to deliver the substituted Custodian's Contract File to the Custodian within five days after the Custodian's receipt of such notice, then the Custodian shall notify the Lender and the Borrower of such failure and release or retain the Custodian's Contract File in accordance with the written instructions of the Lender; provided that the Lender shall not instruct the Custodian to retain the deficient Custodian's Contract File if the Lender has not funded against the related Contract. (d) Within five days after receipt by the Custodian of any additional or substituted documents pursuant to Section 4(a), the Custodian shall review such documents and deliver to the Lender and the Borrower, in the case of clauses (i), (ii) or (iii) of Section 4(a), an updated exception report, or, in the case of clause (iv) of Section 4(a), a new Certification. If the updated exception report or new Certification shall indicate any remaining Deficiencies in a Custodian's Contract File, the provisions of this Section 4 shall again be followed. 5. Obligations of the Custodian. (a) The Custodian shall segregate and maintain continuous custody of all items constituting the Custodian's Contract Files in secure facilities in accordance with customary standards for such custody. (b) With respect to the documents constituting each Custodian's Contract File that are delivered to the Custodian, the Custodian shall (i) act exclusively as the custodian for, and the bailee of, the Lender, (ii) hold all documents constituting such Custodian's Contract File received by it for the exclusive use and benefit of the Lender, and (iii) make disposition thereof only in accordance with the terms of this Agreement or with written instructions furnished by the Lender. G-5 (c) The Lender, upon the release of the Contracts from the Lien of the Loan and Security Agreement, shall notify the Custodian in writing with respect to such release, and the Custodian shall then deliver the Contracts to the Borrower or its designee within five Business Days thereafter; provided, however, that where the Borrower has designated the Custodian acting other than as Custodian under this Agreement as the Person to whom the Contracts should be delivered, the Custodian shall deliver such Contracts on the date on which such notice is provided. (d) In the event that (i) the Lender, the Borrower, or the Custodian shall be served by a third party with any type of levy, attachment, writ or court order with respect to any Custodian's Contract File or a document included within a Custodian's Contract File or (ii) a third party shall institute any court proceeding by which any Custodian's Contract File or a document included within a Custodian's Contract File shall be required to be delivered otherwise than in accordance with the provisions of this Agreement, the party receiving such service shall promptly deliver or cause to be delivered to the other parties to this Agreement copies of all court papers, orders, documents and other materials concerning such proceedings. The Custodian shall continue to hold and maintain all the Custodian's Contract Files that are the subject of such proceedings pending a final order of a court of competent jurisdiction permitting or directing disposition thereof. Upon final determination of such court, the Custodian shall dispose of such Custodian's Contract File or a document included within such Custodian's Contract File as directed by such determination or, if no such determination is made, in accordance with the provisions of this Agreement. Expenses of the Custodian incurred as a result of such proceedings shall be borne by the Borrower. 6. Release of Custodian's Contract File. From time to time and as appropriate for the servicing of any of the Contracts, the Custodian is hereby authorized, upon receipt of a written request and receipt of the Borrower acknowledged by the Lender in substantially the form annexed as Exhibit 2 (a "Request for Release and Receipt of Documents"), to release to the Borrower within five Business Days of receipt of such Request for Release and Receipt of Documents, the related Custodian's Contract File or the documents from a Custodian's Contract File set forth in such request and receipt. All documents so released to the Borrower shall be held by the Borrower in trust for the benefit of the Lender in accordance with the Loan and Security Agreement. The Borrower shall return to the Custodian each and every document previously requested from the Custodian's Contract File when the Borrower's need therefor in connection with such servicing no longer exists, unless the Advance (as defined in the Loan and Security Agreement) relating to such Contract has been paid, in which case, upon receipt of a certification to this effect from the Borrower to the Custodian in substantially the form annexed as Exhibit 2, a copy of the Borrower's prior receipt shall be returned by the Custodian to G-6 the Borrower. The Lender agrees to acknowledge, within three Business Days of receipt, any Request for Release and Receipt of Documents properly completed and submitted by the Borrower, and not to unreasonably withhold any such acknowledgement. 7. Release Upon Redelivery or Payment. Upon the redelivery of any Contract pursuant to the Loan and Security Agreement or the payment in full of any Contract, which shall be evidenced by the delivery to the Custodian of the Borrower's Request for Release and Receipt of Documents, the Custodian shall promptly release the related Custodian's Contract File to the Borrower. 8. Fees and Expenses of the Custodian. It is understood that the Custodian will charge such fees for its services, and shall be entitled to reimbursement for expenses, under this Agreement as are set forth in the separate fee letter between the Custodian and the Borrower. 9. Examination of Custodian's Contract Files. Upon reasonable prior written notice to the Custodian, the Lender and its authorized representatives at the Borrower's expense will be permitted during normal business hours to examine the Custodian's Contract Files, documents, records and other papers in the possession, or under the control, of the Custodian relating to any or all of the Contracts. 10. Transfer of Custodian's Contract Files Upon Termination. If the Custodian is furnished with written notice and satisfactory evidence from the Lender that the Loan and Security Agreement has been terminated as to any or all of the Contracts, the Custodian shall, upon written request of the Lender, release to such Persons as the Lender shall designate such Custodian's Contract Files relating to such Contracts as the Lender shall request. 11. Insurance of the Custodian. The Custodian shall, at its own expense, maintain at all times during the term of this Agreement and keep in full force and effect (a) fidelity insurance, (b) theft of documents insurance and (c) forgery insurance. All such insurance shall be in amounts, with standard coverage and subject to deductibles, as are customary for similar insurance typically maintained by banks that act as custodian in similar transactions. 12. Periodic Statements. Within five Business Days after the end of each month, or within one Business Day after the written request of the Lender, the Custodian shall provide the Lender with a list of all the Contracts for which the Custodian holds a Custodian's Contract File pursuant to this Agreement. Such list may be in the form of a copy of the Contract Schedule with manual deletions to specifically denote any Contracts paid off, G-7 liquidated, released or redelivered since the date of this Agreement. 13. Copies of Contract Documents. Within ten days after the written request and at the expense of the Lender, the Custodian shall provide the Lender with copies of the documents in the Custodian's Contract Files. 14. Resignation by and Removal of the Custodian; Successor Custodian. (a) The Custodian may at any time resign and terminate its obligations under this Agreement upon at least 60 days' prior written notice to the Borrower and the Lender. Promptly after receipt of notice of the Custodian's resignation, the Borrower shall appoint, by written instrument, a successor custodian, subject to written approval by the Lender. If the Borrower fails to appoint a successor within 30 days, the Lender shall appoint a successor custodian. One original counterpart of such instrument of appointment shall be delivered to each of the Borrower, the Custodian and the successor custodian. (b) The Lender, with or without cause, upon at least 60 days' written notice to the Custodian, may remove and discharge the Custodian (or any successor custodian thereafter appointed) from the performance of its obligations under this Agreement. A copy of such notice shall be delivered to the Borrower. Promptly after the giving of notice of removal of the Custodian, the Lender shall appoint, by written instrument, a successor custodian. One original counterpart of such instrument of appointment shall be delivered to each of the Borrower, the Custodian and the successor custodian. (c) In the event of any such resignation or removal, the Custodian shall promptly transfer to the successor custodian, as directed in writing by the Lender, all the Custodian's Contract Files being administered under this Agreement. Any such transfer of the Custodian's Contract Files arising out of the resignation of the Custodian shall be at the expense of the Custodian; and any such transfer of the Custodian's Contract Files arising out of the removal of the Custodian shall be at the expense of the Lender. 15. Indemnity. Neither the Custodian nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them hereunder or in connection herewith in good faith and believed by it or them to be within the purview of this Custodial Agreement, except for its or their own negligence, lack of good faith or wilful misconduct. The Borrower agrees to indemnify and hold harmless the Custodian, its officers, directors, employees and agents against any and all claims, losses, liabilities or expenses (including, but not limited to, attorneys' fees, court costs and costs of investigation) of any kind or nature whatsoever that may be imposed on, incurred by or asserted against it or them or in any way relating to or arising out of or in connection with this Agreement or any action taken or G-8 not taken by it or them hereunder; provided, however, that this Section 15 shall not relieve the Custodian from liability for its willful misfeasance, bad faith or negligence. The provisions of this Section 15 shall survive the resignation or removal of the Custodian and the termination of this Agreement. 16. Limitation of Liability. (a) The obligations of the Custodian shall be determined solely by the express provisions of this Agreement. No representation, warranty, covenant, agreement, obligation or duty of the Custodian shall be implied with respect to this Agreement or the Custodian's services hereunder. (b) In the Custodian's review of documents pursuant to Section 3 of this Agreement, the Custodian shall be under no duty or obligation to inspect, review or examine the Custodian's Contract Files to determine that the contents thereof are genuine, enforceable or appropriate for the represented purpose or that they have been actually recorded or that they are other than what they purport to be on their face. (c) The Custodian may rely, and shall be protected in acting or refraining to act, upon and need not verify the accuracy of any (i) oral instructions from any person the Custodian believes to be authorized to give such instructions, who shall only be, with respect to the Borrower and to the Lender, persons the Custodian believes in good faith to be Authorized Representatives, and (ii) any written instruction, notice, order, request, direction, certificate, opinion or other instrument or document believed by the Custodian to be genuine and to have been signed or presented by the proper party or parties, which, with respect to the Borrower and to the Lender, shall mean signature and presentation by Authorized Representatives. (d) The Custodian may consult with counsel with regard to legal questions arising out of or in connection with this Agreement, and the advice or opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, omitted or suffered by the Custodian in reasonable reliance, in good faith, and in accordance therewith. (e) No provision of this Agreement shall require the Custodian to expend or risk its own funds or otherwise incur financial liability in the performance of its duties under this Agreement if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity is not reasonably assured to it. (f) The Custodian shall not be responsible or liable for, and makes no representation or warranty with respect to, the validity, adequacy or perfection of any lien upon, or security interest in, any Contracts or Custodian's Contract Files purported to be granted at any time to the Lender. G-9 17. Term of Agreement. Promptly after written notice from the Lender of the termination of the Loan and Security Agreement and payment in full of all amounts owing to the Lender thereunder, the Custodian shall deliver all documents remaining in the Custodian's Contract Files to the Borrower and this Agreement shall thereupon terminate. 18. Authorized Representatives. The names of the officers of the Borrower and of the Lender who are authorized to give and receive notices, requests and instructions and to deliver certificates and documents in connection with this Agreement on behalf of Borrower and on behalf of the Lender ("Authorized Representatives") are set forth on Exhibit 3, along with the specimen signature of each such officer. From time to time, the Borrower and the Lender may, by delivering to the Custodian a revised exhibit, change the information previously given, but the Custodian shall be entitled to rely conclusively on the last exhibit until receipt of a superseding exhibit. 19. Notices. All demands, notices and communications relating to this Agreement shall be in writing and shall be deemed to have been duly given when delivered to the other party or parties at the address shown below or such other address as may hereafter be furnished to the other party or parties by like notice. If to the Borrower: DVI Financial Services, Inc. 4041 MacArthur Boulevard Suite 401 Newport Beach, California 92660 Attention: Chief Financial Officer Telephone: (714) 474-5821 Telecopy: (714) 474-5899 and DVI Financial Services, Inc. 500 Hyde Park Doylestown, Pennsylvania 18910 Telephone: (215) 345-6600 Telecopy: (215) 230-8108 in the case of notices delivered pursuant to Sections 3, 12 or 14 hereof, with a copy to NatWest Bank N.A., as Agent (the "Agent Bank") 175 Water Street 28th Floor G-10 New York, N.Y. 10038 Attention: Leasing Division - Merily McLaughlin Telephone: (212) 602-2949 Telecopy: (212) 602-2180 If to the Custodian: Bankers Trust Company Four Albany Street, 7th Floor New York, N.Y. 10006 Attention: Mortgage Custody/UBS-DVI July 27, 1995 Custodial Agreement Telephone Number: (212) 250-5371 Telecopy Number: (212) 250-1185 If to the Lender: Union Bank of Switzerland, New York Branch 299 Park Avenue New York, New York 10171-0026 Attention: Michael J. Ahearn Telephone Number: (212) 821-3360 Telecopy Number: (212) 821-3890 Each of the Lender and the Custodian shall use its best efforts to provide to the Agent Bank a copy of notices delivered by it to the Borrower; provided that neither the Lender nor the Custodian shall have any liability whatsoever to the Agent Bank or to any Person claiming through the Agent Bank or to any other Person, arising from or relating to any such notices or the contents thereof or arising from or relating to the failure of the Lender or the Custodian to provide the Agent Bank with a copy of any such notice, and any such failure of the Lender or the Custodian to so provide notice to the Agent Bank shall not prejudice any of the rights of the Lender or the Custodian hereunder. 20. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and to be entirely performed in such State. 21. Assignment. No party to this Agreement may assign its rights or delegate its obligations under this Agreement without the express written consent of the other parties, except as otherwise set forth in this Agreement; provided that the Lender may assign its rights and obligations hereunder to any affiliate of the Lender upon written notice thereof to the Borrower and the Custodian in connection with any assignment by the Lender of its rights and obligations under the Loan and Security Agreement to such affiliate. G-11 22. Hypothecation or Pledge of Contracts. Nothing in this Agreement shall preclude the Lender from engaging in repurchase transactions with any of the Contracts or otherwise pledging, repledging, hypothecating or rehypothecating any of the Contracts, but no such transaction shall relieve the Lender of its obligations to the Borrower under this Agreement or the Loan and Security Agreement. In connection with any such transaction, the Lender may direct the Custodian to release Custodian's Contract Files, or may request that, with respect to designated Custodian's Contract Files, the Custodian shall act as bailor for a third party designated by the Lender and shall acknowledge same to such third party, in accordance with a separate agreement among the Lender, the Custodian and such third party. 23. Counterparts. For the purpose of facilitating the execution of this Agreement and for other purposes, this Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed to be an original, and together shall constitute and be one and the same instrument. 24. Headings. The Section headings are not part of this Agreement and shall not be used in its interpretation. 25. Transmission of Custodian's Contract Files. Written instructions as to the method of shipment and shipper(s) the Custodian is directed to utilize in connection with transmission of contract files in the performance of the Custodian's duties hereunder shall be delivered by the Lender or the Borrower, as the case may be (the "Requesting Party"), to the Custodian prior to any shipment of any contract files hereunder. In the event the Custodian does not receive such written instructions as to the method of shipment, the Custodian is hereby authorized to use a nationally recognized overnight courier service which provides a confirmation of delivery. The Requesting Party will arrange for the provision of such services at its sole cost and expense (or, at the Custodian's option, reimburse the Custodian for all costs and expenses incurred by the Custodian in connection with such shipment) and will maintain such insurance against loss or damage to contract files as the Requesting Party deems appropriate. Without limiting the generality of the provisions of Section 15 above, it is expressly agreed that in no event shall the Custodian have any liability for any losses or damages to any person, including, without limitation, the Lender or the Borrower, as the case may be, arising out of actions of the Custodian consistent with instructions of the Requesting Party. G-12 IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. BANKERS TRUST COMPANY By:__________________________________ Name:_____________________________ Title:____________________________ UNION BANK OF SWITZERLAND, NEW YORK BRANCH By:__________________________________ Name:_____________________________ Title:____________________________ By:__________________________________ Name:_____________________________ Title:____________________________ DVI FINANCIAL SERVICES, INC. By:__________________________________ Name:_____________________________ Title:____________________________ G-13 Exhibit 1 Form of Certification Union Bank of Switzerland, New York Branch 299 Park Avenue New York, New York 10171-0026 Attention: Michael J. Ahearn Re: Custodial Agreement (the "Custodial Agreement") dated as of July 27, 1995, among Union Bank of Switzerland, New York Branch (the "Lender"), DVI Financial Services, Inc., and Bankers Trust Company (the "Custodian") Gentlemen: In accordance with the provisions of Section 3 of the Custodial Agreement, the undersigned, as Custodian, hereby certifies that, as to each Contract listed in the Contract Schedule (other than any Contract paid in full or any Contract listed on the attachment hereto), it has reviewed the documents delivered to it pursuant to Section 2(a), (b), (c), (d) and (e) of the Custodial Agreement, as specified on the related Contract Schedule, and has determined that (i) all such documents are in its possession, (ii) such documents have been reviewed by it and have not been mutilated, damaged, torn or otherwise physically altered and relate to such Contract, (iii) based on its examination, and only as to the foregoing documents, the information set forth in the Contract Schedule (with the exception of items (vi), (ix) and (x) in the definition thereof) respecting such Contract accurately reflects the information set forth in the Custodian's Contract File, with any exceptions attached hereto. This Certification is not divisible or transferable nor shall it entitle the holder hereof to possession of the Custodian's Contract Files to which it relates. The Custodian has made no independent examination of such documents beyond the review specifically required in the above-referenced Custodial Agreement. The Custodian makes no representations as to, and shall not be responsible to verify, (i) the validity, legality, enforceability, sufficiency, due authorization, recordability or genuineness of any document in any of the Custodian's Contract Files or of any of the Contracts or (ii) the collectibility, insurability, effectiveness or suitability of any such Contract. Capitalized terms used herein shall have the respective meanings assigned to them in the above-captioned Custodial Agreement. G-14 Bankers Trust Company, as Custodian By --------------------------------- Print Name: Title: G-15 Exhibit 2 REQUEST FOR RELEASE AND RECEIPT OF DOCUMENTS To: Bankers Trust Company Re: Custodial Agreement (the "Custodial Agreement") dated as of July 27, 1995, among Union Bank of Switzerland, New York Branch (the "Lender"), DVI Financial Services, Inc., and Bankers Trust Company (the "Custodian") Gentlemen: In connection with the administration of the Contracts held by you as the Custodian for the Lender, we request, the release and acknowledge receipt, of the (Custodian's Contract File/ specify documents) for the Contract described below, for the reason indicated. Please send Custodian's Contract File/ specify document to: Name: Address: Telephone No.: Attention: User's Name, Address & Zip Code: Contract Number: Reason for Requesting Documents (check one): 1. Contract Paid in Full 2. Contract Redelivered Pursuant to Section 7 of the Custodial Agreement 3. Contract Liquidated by 4. Contract substituted with alternate Contract to be delivered to the Custodian with a revised Contract Schedule indicating substitutions 5. Other (explain) G-16 If item 1, 2 or 3 above is checked, and if all or part of the Custodian's Contract File was previously released to us, please release to us our previous receipt on file with you, as well as any additional documents in your possession relating to the above specified Contract. If item 5 above is checked, upon our return of all of the above document to you as the Custodian, please acknowledge your receipt by signing in the space indicated below, and returning this form. DVI Financial Services, Inc. (Borrower) By: ------------------------- Print Name: Title: Date: ACKNOWLEDGED: Union Bank of Switzerland, New York Branch (Lender) By: ------------------------- Print Name: Title: Date: DOCUMENTS RETURNED TO THE CUSTODIAN: Bankers Trust Company (Custodian) By: ------------------------- Print Name: Title: Date: G-17 Exhibit 3 Authorized Representatives Borrower Lender G-18 Schedule 1 Recordings and Filings Jurisdiction Filing ------------ ------ Secretary of State of Pennsylvania UCC-1 Prothonotary of Bucks County, UCC-1 Pennsylvania Secretary of State of California UCC-1 S-1 EX-10.33 3 AMENDMENT TO BYLAWS AMENDMENT TO BYLAWS OF DVI, INC. The Bylaws of DVI, Inc. are hereby amended as follows: Section 7.1 is hereby deleted in its entirety and replaced with the following: Section 7.1. Officers. At its annual meeting, or at such other meeting as it may determine, or by unanimous written consent of the directors without meeting, the Board of Directors shall elect a President, a Treasurer and a Secretary, and may elect one or more Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Assistant Treasurers, Assistant Secretaries, and such other officers as the Board of Directors from time to time may designate or the business of the Corporation may require. No executive officer need be a member of the Board of Directors. Any number of offices may be held by the same person. Section 7.7 is hereby deleted in its entirety and replaced with the following: Section 7.7. The Executive Vice President(s), Senior Vice President(s) and Vice President(s). The Executive Vice President, Senior Vice President and/or Vice President, or if there are more than one, the Executive Vice Presidents, Senior Vice Presidents and/or Vice Presidents shall perform such duties as may be specifically assigned to them from time to time by the Board of Directors or the President and shall exercise such powers as the Board of Directors from time to time may prescribe. In case of the absence or disability of the President and if the Board of Directors or the President has so authorized, the Executive Vice President, or if there is more than one Executive Vice President, such Executive Vice President as the Board of Directors or the President shall designate shall perform the duties of the office of the President. Any Executive Vice President, Senior Vice President and/or Vice President shall have general authority to affix the seal of the Corporation to any instrument requiring it, and to attest the affixing by his/her signature. Dated: April 17, 1996 /S/ Melvin C. Breaux -------------------- Melvin C. Breaux Secretary APPROVED: /S/ Michael A. O'Hanlon - ----------------------- Michael A. O'Hanlon Director EX-10.34 4 SECOND AMENDMENT EXHIBIT 10.34 SECOND AMENDMENT THIS SECOND AMENDMENT dated as of April 30, 1996 (this "Amendment") is to the Loan and Security Agreement dated as of July 27, 1995, between DVI FINANCIAL SERVICES, INC. (the "Borrower") and UNION BANK OF SWITZERLAND, NEW YORK BRANCH (the "Lender") (as heretofore amended, the "Agreement"). Unless otherwise defined herein, terms defined in the Agreement are used herein as defined in the Agreement. WHEREAS, the Borrower and the Lender desire to amend the Agreement to extend the Commitment Termination Date and the Maturity Date; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto agree as follows: SECTION 1 Amendments to Agreement. Subject to the satisfaction of the condition precedent set forth in Section 3 below, the Agreement shall be amended, as of the date hereof, in accordance with Sections 1.1 through 1.2 below. 1.1 Section 2(a). Section 2(a) of the Agreement shall be amended by deleting the date "April 30, 1996" where it appears in such Section and inserting the date "August 31, 1996" in lieu thereof. 1.2 Section 2(b). Section 2(b) of the Agreement shall be amended by deleting the date "June 30, 1996" where it appears in such Section and inserting the date "October 31, 1996" in lieu thereof. SECTION 2 Representations and Warranties. The Borrower hereby certifies that the following statements, before and after giving effect to the amendments contemplated herein, are true and correct as of the date hereof: (a) each of the representations and warranties contained in the Agreement is true and correct in all material respects; and (b) no Default or Event of Default has occurred and is continuing. SECTION 3 Effectiveness. The amendments set forth in Section 1 and Section 2 above are subject to the condition precedent that the Lender shall have received each of the following documents, each in form and substance satisfactory to the Lender: 3.1 Amendment. Counterparts of this Amendment executed by the Borrower and the Lender and a counterpart of the confirmation at the foot hereof executed by DVI, Inc. 3.2 Other Documents. Such other documents as the Lender may reasonably request in connection with the Borrower's authorization, execution and delivery of this Amendment. SECTION 4 Miscellaneous. 4.1 Continuing Effectiveness, etc. As herein amended, the Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. After the condition precedent in Section 3 hereof has been satisfied, all references in the Agreement, the Custodial Agreement, the Note, the Guarantee, or any other document to the "Agreement" shall refer to the Agreement, as amended hereby. 4.2 Counterparts. This Amendment may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same Amendment. 4.3 Expenses. The Borrower agrees to pay the reasonable costs and expenses of the Lender (including, without limitation, reasonable fees and disbursements of counsel) in connection with the preparation, execution and delivery of this Amendment. 4.4 Governing Law. This Amendment and the rights and obligations of the parties hereunder and under the Agreement as amended hereby shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made and to be performed entirely within such State. 4.5 Successors and Assigns. This Amendment shall be binding upon the Borrower and the Lender and their respective successors and assigns, and shall inure to the benefit of the Borrower and the Lender and the successors and assigns of the Lender. -2- Delivered at New York, New York, as of the day and year first above written. LENDER: UNION BANK OF SWITZERLAND, NEW YORK BRANCH Name:____________________ Title:___________________ By:______________________ Name:____________________ Title:___________________ BORROWER: DVI FINANCIAL SERVICES, INC. By:______________________ Name:____________________ Title:___________________ The undersigned hereby confirms to the Lender that, after giving effect to the foregoing Amendment, its Guarantee dated as of July 27, 1995, continues in full force and effect and is the legal, valid and binding obligation of the undersigned, enforceable against the undersigned in accordance with its terms. DVI, INC. By:______________________ Name:____________________ Title:___________________ -3- EX-10.35 5 COMPOSITE AMENDMENTS COMPOSITE REFLECTING AMENDMENTS NOS. 1, 2 & 3 FIRST AMENDED AND RESTATED LOAN AGREEMENT between DVI Financial Services Inc., The Banks Signatory to this Loan Agreement and NatWest Bank N.A., as Agent, Pre-Funding Lender and a Bank $116,500,000 Facility Dated June 14, 1991 Amended and Restated as of March 28, 1995 TABLE OF CONTENTS Page ---- ARTICLE 1. DEFINITIONS.......................................................2 Section 1.1 General Definitions....................................2 Section 1.2 Borrowing Base........................................30 Section 1.3 Interpretation........................................33 ARTICLE 2. COMMITMENTS; LOANS...............................................35 Section 2.1 Loans; Credit Period; Term Conversion.................35 Section 2.2 Changes in Commitment.................................35 Section 2.3 Borrowing Notice; Borrowing Base Report................................................35 Section 2.4 Fees..................................................37 Section 2.5 Lending Offices.......................................37 Section 2.6 Disbursement of Loan Proceeds.........................37 Section 2.7 Conversions of Loans..................................38 Section 2.8 Mandatory and Optional Prepayments....................38 Section 2.9 Use of Proceeds.......................................39 Section 2.10 Principal Repayment Schedule..........................39 Section 2.11 Interest..............................................40 Section 2.12 Notes.................................................41 Section 2.13 Time and Method of Payments...........................42 Section 2.14 Computations..........................................42 Section 2.15 Minimum Borrowings, Conversions and Prepayments...........................................42 Section 2.16 Additional Costs......................................43 Section 2.17 Limitation on Types of Loans..........................45 Section 2.18 Illegality............................................46 Section 2.19 Forced Conversions....................................46 Section 2.20 Indemnification.......................................46 Section 2.21 Security Documents; Guaranties........................47 Section 2.22 Forms of Borrower Agreements..........................47 Section 2.23 Required Borrowing Documentation......................48 Section 2.24 LockBox Arrangements..................................50 Section 2.25 Pro Rata Treatment Among Banks........................51 Section 2.26 NonReceipt of Funds by the Agent......................52 Section 2.27 Sharing of Payments and Set-Off Among Banks...........................................52 Section 2.28 Several Obligations...................................53 Section 2.29 Release of Agent's Lien...............................53 -i- TABLE OF CONTENTS (continued) Page ---- Section 2.30. PreFunding Loans......................................54 ARTICLE 3. REPRESENTATIONS AND WARRANTIES....................................60 Section 3.1 Organization..........................................60 Section 3.2 Power, Authority, Consents............................61 Section 3.3 No Violation of Law or Agreements.....................62 Section 3.4 Due Execution, Validity, Enforceability........................................62 Section 3.5 Properties, Priority of Liens.........................62 Section 3.6 Judgments, Actions, Proceedings.......................63 Section 3.7 No Defaults, Compliance With Laws.....................63 Section 3.8 Burdensome Documents..................................63 Section 3.9 Financial Statements..................................63 Section 3.10 Tax Returns...........................................64 Section 3.11 Intangible Assets.....................................64 Section 3.12 Regulation U..........................................64 Section 3.13 Name Changes..........................................65 Section 3.14 Full Disclosure.......................................65 Section 3.15 Labor Disputes; Collective Bargaining Agreements; Employee Grievances.......................65 Section 3.16 Condition of Assets...................................66 Section 3.17 ERISA.................................................66 Section 3.18 NonRecourse Debt......................................66 Section 3.19 Finders or Brokers....................................67 Section 3.20 Investment Company Act; Public Utility Holding Company Act...................................67 Section 3.21 Borrowing Base Reports................................67 Section 3.22 Licenses and Approvals................................67 Section 3.23 Independent Credit Committee..........................67 ARTICLE 4. CONDITIONS TO THE LOANS..........................................67 Section 4.1 Conditions to Initial Loans...........................67 Section 4.2 Conditions to Subsequent Loans........................68 ARTICLE 5. DELIVERY OF FINANCIAL REPORTS, DOCUMENTS AND OTHER INFORMATION..................................69 Section 5.1 Annual Financial Statements and -ii- TABLE OF CONTENTS (continued) Page ---- Budgets...............................................69 Section 5.2 Quarterly Financial Statements........................69 Section 5.3 Other Information.....................................70 Section 5.4 No Default Certificate................................70 Section 5.5 Copies of Documents...................................70 Section 5.6 Notices of Defaults...................................71 Section 5.7 ERISA Notices.........................................71 Section 5.8 Borrowing Base Reports................................71 ARTICLE 6. AFFIRMATIVE COVENANTS............................................73 Section 6.1 Books and Records.....................................73 Section 6.2 Inspections and Audits................................73 Section 6.3 Maintenance and Repairs...............................74 Section 6.4 Continuance of Business...............................74 Section 6.5 Copies of Corporate Documents.........................74 Section 6.6 Perform Obligations...................................75 Section 6.7 Notice of Litigation..................................75 Section 6.8 Insurance.............................................75 Section 6.9 Financial Covenants...................................76 Section 6.10 Reportable Events.....................................77 Section 6.11 Comply with ERISA.....................................77 Section 6.12 Upgrades and Add-ons..................................77 Section 6.13 Possession of Contracts...............................77 Section 6.14 Obligor Insurance Policies............................78 Section 6.15 Preservation and Perfection of Agent's Liens.................................................79 Section 6.16 Environmental Compliance..............................79 Section 6.17 Management............................................79 ARTICLE 7. NEGATIVE COVENANTS...............................................79 Section 7.1 Indebtedness..........................................80 Section 7.2 Liens.................................................81 Section 7.3 Mergers, Acquisitions.................................84 Section 7.4 Redemptions; Distributions............................85 Section 7.5 Stock Issuance........................................87 Section 7.6 Changes in Business...................................87 Section 7.7 Prepayments...........................................87 -iii- TABLE OF CONTENTS (continued) Page ---- Section 7.8 Investments...........................................88 Section 7.9 Fiscal Year...........................................89 Section 7.10 ERISA Obligations.....................................89 Section 7.11 Amendment of Documents................................89 Section 7.12 Capital Expenditures..................................90 Section 7.13 Rental Obligations....................................90 Section 7.14 Transactions with Affiliates..........................90 Section 7.15 Changes in Calculation of Net Book Value.................................................90 Section 7.16 Non-DVI Generated Contracts...........................91 ARTICLE 8. EVENTS OF DEFAULT................................................91 Section 8.1 Payments..............................................91 Section 8.2 Covenants.............................................91 Section 8.3 Other Covenants.......................................91 Section 8.4 Other Defaults........................................92 Section 8.5 Representations and Warranties........................92 Section 8.6 Bankruptcy............................................93 Section 8.7 Judgments.............................................94 Section 8.8 ERISA.................................................94 Section 8.9 Ownership of Stock of Borrower........................94 Section 8.10 Liens.................................................94 Section 8.11 Guaranty..............................................94 Section 8.12 Parent Subordinated Debt..............................95 Section 8.13 Warehouse Loan Transactions...........................95 ARTICLE 9. THE AGENT........................................................96 Section 9.1 Appointment, Powers and Immunities....................96 Section 9.2 Reliance by Agent.....................................97 Section 9.3 Events of Default.....................................97 Section 9.4 Rights as a Bank......................................97 Section 9.5 Indemnification.......................................98 Section 9.6 Non-Reliance on Agent and other Banks.................98 Section 9.7 Failure to Act........................................99 Section 9.8 Resignation or Removal of Agent.......................99 Section 9.9 Sharing of Collateral and Payments...................100 -iv- TABLE OF CONTENTS (continued) Page ---- ARTICLE 10. MISCELLANEOUS PROVISIONS....... ...............................101 Section 10.1 Fees and Expenses; Indemnity.........................101 Section 10.2 Taxes................................................102 Section 10.3 No Set-Off of Payments...............................103 Section 10.4 Survival of Agreements...............................103 Section 10.5 Lien on and Set-off of Deposits......................103 Section 10.6 Modifications, Consents and Waivers; Entire Agreement.....................................104 Section 10.7 Remedies Cumulative..................................105 Section 10.8 Further Assurances...................................106 Section 10.9 Notices..............................................106 Section 10.10 Counterparts.........................................107 Section 10.11 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.................................107 Section 10.12 Severability.........................................108 Section 10.13 Binding Effect; No Assignment by Borrower.............................................109 Section 10.14 Assignments and Participations by Banks................................................109 Section 10.15 Scope of Agent's Lien................................111 Section 10.16 Waiver of Relief from Bankruptcy Code Stay............................................112 SCHEDULES: 1. States of Incorporation and Qualification, and Capitalization and Ownership of Stock, of DVI and its Subsidiaries 2. Consents, Waivers, Approvals; Violation of Agreements 3. Judgments, Actions, Proceedings 4. Defaults; Compliance with Laws, Regulations and Agreements 5. Burdensome Documents 6. Patents, Trademarks, Trade Names, Service Marks and Copyrights -v- 7. Name Changes, Mergers, Acquisitions; Location of Collateral 8. Labor Disputes; Collective Bargaining Agreements; Employee Grievances 9. Existing Non-Recourse and Partial Recourse Debt 10. Conditions Precedent to Original Agreement 11. Permitted Recourse Indebtedness 12. Guaranties of Obligations of Affiliates 13. Certain Restricted Investments 14. Determination of Contract Advance Rate EXHIBITS: A Form of Note B Form of Pre Funding Note C Form of Borrowing Notice D Form of Borrowing Base Report E Form of Assignment and Acceptance F Form of DBC Financing Agreements G Form of Eligible Progress Payment Agreements -vi- FIRST AMENDED AND RESTATED LOAN AGREEMENT This FIRST AMENDED AND RESTATED LOAN AGREEMENT, dated June 14, 1991 and amended and restated as of March 28, 1995 (as amended and restated, this "Agreement"), is between DVI Financial Services Inc., a Delaware corporation (the "Borrower"), the banks that have executed a signature page to this Agreement (the "Banks"), NatWest Bank N.A. (successor by merger to National Westminster Bank USA), as Pre-Funding Lender pursuant to the terms of Section 2.30 (in such capacity, the "Pre-Funding Lender"), and NatWest Bank N.A. as agent for the Banks pursuant to the terms of Article 9 (in such capacity, the "Agent"). RECITALS: (1) The Borrower, the Banks and the Agent are parties to the Loan Agreement, dated June 14, 1991, as heretofore amended, modified and supplemented (the "Original Agreement"), pursuant to which the Borrower obtained commitments for loans from the Banks in the aggregate principal sum of $79,000,000. (2) The Borrower, the Banks and the Agent wish to amend the Original Agreement to increase the maximum available loans to $116,500,000 and to make certain other changes in the terms of the Original Agreement, and to restate the Original Agreement as amended by such amendments for their convenience. (3) Following such restatement, this Agreement will set forth the definitive terms and conditions of the agreement of the Borrower, the Banks and the Agent regarding the matters covered by this Agreement as of and after the date the Original Agreement is restated, and the Original Agreement will continue to govern such terms prior to such date. NOW, THEREFORE, in consideration for the foregoing agreements and for other good and valuable consideration whose receipt and sufficiency are acknowledged, the Borrower, the Banks and the Agent agree to the following terms. -1- ARTICLE 1. DEFINITIONS Section 1.1 General Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms shall have the following meanings for purposes of this Agreement: "ADAC Contract" - means one of the Contracts listed on the attached Schedule 14 so long as (i) such Contract meets all of the criteria for being an Eligible Contract other than paragraphs (g), (j), (l) and (t) of the definition of 'Eligible Contract', and (ii) the Equipment subject to such Contract meets all of the criteria for being Eligible Equipment other than paragraph (c) of the definition of 'Eligible Equipment'. "Additional Costs" - as defined in Section 2.16. "Affiliate" - as to any Person, any other Person that directly or indirectly controls, is under common control with or is controlled by such Person. As used in this definition, "control", "under common control with" and "controlled by" mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise); provided that (i) any Person that owns, directly or indirectly, 5% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation, or 5% or more of the non-limited partnership or other ownership interests of any other Person, will be deemed to control such Person, and (ii) each shareholder, director and officer of the Borrower shall be deemed to be an Affiliate of the Borrower. "Agent's Lien" - the Liens granted to the Agent for the ratable benefit of the Banks pursuant to the Security Documents. "Applicable Law" - all applicable (i) laws, treaties and international agreements of any national government, (ii) laws of any state, province, territory, locality or other political subdivision of a national government, and (iii) rules, regulations, judgments, decrees, orders, injunctions, writs, directives, ordinances, licenses and permits of any government, governmental agency, court or arbitration authority. -2- "Applicable Lending Office" - with respect to each type of Loan for each Bank, the lending office designated for such type of Loan on such Bank's signature page to this Agreement, or such other office as such Bank may specify from time to time to the Borrower, as the office at which its Loans of such type are to be made and maintained. "Applicable Margin": during any calendar month (i) during the Credit Period, the following amounts based on the Leverage Ratio of the Borrower at the end of the second preceding calendar month (and reported before the end of the preceding month): (A) if the Leverage Ratio is less than 2:1, 0.0% for Prime Rate Loans and 1.35% for Eurodollar Loans, (B) if the Leverage Ratio is equal to or more than 2:1 and less than or equal to 4:1, 0.0% for Prime Rate Loans and 1.50% for Eurodollar Loans, (C) if the Leverage Ratio is more than 4:1, 0.125% for Prime Rate Loans and 1.65% for Eurodollar Loans, and (D) regardless of the Leverage Ratio, for the portion of the unpaid principal amount of any Loan whose proceeds were advanced by the Borrower to DBC for the DBC Financed Amount of Eligible Healthcare Receivables, 0.125% for such portion of Prime Rate Loans and 1.65% for such portion of Eurodollar Loans; and (ii) from and after the Term Conversion Date, 0.875% for Prime Rate Loans and 2.625% for Eurodollar Loans. "Assignment and Acceptance" - an Assignment and Acceptance agreement in the form attached as Exhibit E. "Assignment of Agreements" - the Assignment of Agreements, dated June 14, 1991, between Borrower and Agent, as confirmed by the Confirmation. "Assignment of Leases" - the Assignment of Leases, dated June 14, 1991, between Borrower and Agent, as confirmed by the Confirmation. "Balance of Payments" - at any date, the total unpaid regularly scheduled rental payments under a Lease or the total unpaid regularly scheduled payments under an Equipment Note, CSA or Third Party Note, in each case due or to become due during the next succeeding 84 months or the remainder, whichever is less, of the Initial Term of the applicable Eligible Contract, but not in any event including payments or amounts due directly or -3- indirectly on account of user, sales or property taxes, maintenance, repairs, management fees, insurance and similar items and net of any credits, customer deposits, rebates, offsets, holdbacks or other adjustments or commissions payable to third parties that are adjustments to such payments, and provided that the Balance of Payments with respect to an item of related Equipment is that portion of the Balance of Payments attributable to such item of Equipment. "Borrowing Availability" - the difference between (a) the Borrowing Capacity, minus (b) the aggregate outstanding balance of all Loans and all Pre-Funding Loans. "Borrowing Base" - as defined in Section 1.2(a). "Borrowing Base Report" - a report in the form attached as Exhibit D that includes a Borrowing Base computation. "Borrowing Capacity" - as defined in Section 2.1. "Borrowing Notice" - a notice in the form attached as Exhibit C, as further described in Section 2.3. "Business Day" - any day other than Saturday, Sunday or other day on which commercial banks in the city where the Principal Office is located are authorized or required to close under the laws of the State where the Principal Office is located. "Capitalized Lease Obligations" - obligations (determined in accordance with GAAP) of a Person to pay rent or other amounts under a lease (or other agreement conveying the right to use) of real or personal property that is required to be classified and accounted for as a capital lease under GAAP. "Cash Operating Expenses" - as of any date of determination, the sum of the following items actually paid in cash by the Borrower and arising out of the conduct of its business in the ordinary course: (i) interest expense on recourse debt; (ii) selling, general and administrative expenses and sales commissions, excluding amortization of initial direct costs but including any initial direct costs actually paid in cash during the current accounting period; and (iii) all other -4- expenses paid in cash; provided, however, that "Cash Operating Expenses" shall not include any bad debt expense. "Cash Receipts" - as of any date of determination, the sum of the following items actually received in cash by the Borrower and arising out of the conduct of the business of the Borrower in the ordinary course: (i) cash payments received under conditional sales agreements before Securitization; (ii) cash proceeds from the sale of fair market value lease streams net of repayment of Indebtedness; (iii) cash rental payments from operating leases (as defined in Financial Accounting Standards Board Statement No. 13); (iv) all cash payments from leases held in the portfolio of the Borrower before Securitization; (v) cash interest income, including cash profits or losses from hedging activities; (vi) cash proceeds from sales of residuals; (vii) dividends or other such payments from the lessees of the Affiliate Leases pursuant to profit sharing agreements or arrangements between the Borrower and such Affiliates, and (viii) fees, commissions and other miscellaneous income actually received in cash. "Code" - the Internal Revenue Code of 1986. "Collateral" - the collateral covered by each of the Security Documents. "Commitment" - as to each Bank, the amount set forth opposite such Bank's name on its signature pages to this Agreement under the caption "Commitment", as reduced pursuant to Sections 2.1 and 2.2. "Commitment Fee" - as defined in Section 2.4. "Confirmation" - the Confirmation, dated March 28, 1995, between the Borrower, DVI, DBC, the Banks, the Pre-Funding Lender and the Agent. "Contract" - a Lease, Equipment Note, CSA or Third Party Note, and "related Contract" means, with reference to any Equipment, the Contract covering or secured by such Equipment. "Contract Advance Rate" - a percent determined in accordance with Schedule 14 to this Loan Agreement. -5- "Contract Payments" - the aggregate amount payable under a Contract by the Obligor thereunder as rental, debt service or installment payments, including all security deposits, advance rentals, indemnity payments, insurance proceeds, purchase price payments, principal, interest, payments in connection with any purchase, renewal, termination, option or obligation and other amounts at any time made, due or to become due, whether or not earned by performance, under or pursuant to a Contract. "Contract Receivables Clause" - Section 1.2(a)(i). "Controlled Group" - all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b), 414(c) or 414(m) of the Code and Section 4001(a)(2) of ERISA. "Credit Period" - the period commencing on June 14, 1991 and ending on the Term Conversion Date. "CSA" - a conditional sale agreement or similar arrangement providing for the sale of Equipment by the Borrower, as vendor, to an Obligor and for the retention of a Lien on such Equipment to secure amounts payable by such Obligor under such CSA. "DBC" - DVI Business Credit Corporation, a Delaware corporation and wholly-owned subsidiary of DVI. "DBC Financed Amount" - at any date of determination, the sum of (i) with respect to all Eligible Healthcare Receivables purchased by DBC, the aggregate purchase price paid by DBC for such Eligible Healthcare Receivables, and (ii) with respect to all Eligible Healthcare Receivables in which a Healthcare Provider has granted a security interest and assigned its rights and interests to DBC, the then outstanding principal amount advanced by DBC with respect to, and secured by, such Eligible Healthcare Receivables, in each case as reported by the Borrower on a Borrowing Base Report. "DBC Financing Agreement" - an agreement between DBC and a Healthcare Provider substantially in one of the forms -6- attached as Exhibit F or as otherwise approved pursuant to Section 2.22 pursuant to which the Healthcare Provider has or will either (i) sell Eligible Healthcare Receivables to DBC for a purchase price not exceeding 80% of the face value of such Eligible Healthcare Receivables on their date of purchase, or (ii) grant a security interest and assign to DBC all of its rights and interests in Eligible Healthcare Receivables in connection with the borrowing from DBC of an amount not exceeding 80% of the face value of such pledged Eligible Healthcare Receivables. "DBC Guaranty" - the Guaranty Agreement, dated December 29, 1994, from DBC to the Agent, as confirmed by the Confirmation. "DBC Promissory Note" - the Promissory Note, dated December 29, 1994, from DBC to the Borrower and endorsed to the Agent. "DBC Security Agreement" - the Security Agreement, dated December 29, 1994, from DBC to the Agent, as confirmed by the Confirmation. "Default" - an event that with notice or lapse of time or both would constitute an Event of Default. "Dollars" and "$" - lawful money of the United States of America. "DVI" - DVI, Inc., a Delaware corporation and the parent of the Borrower. "Eligible Assignee" - a commercial bank or other financial institution having a combined capital and surplus of at least $50,000,000. "Eligible Contract" - a Contract that meets each of the following requirements at all times: (a) no Contract Payment is more than 60 days past due, and no other material default exists by the Obligor under such Contract or under any security or other documents executed in -7- connection with such Contract or by any other Obligor of its obligations with respect to such Contract; (b) it has not been rejected or refused as unacceptable for inclusion in a Securitization under any Warehousing Loan Agreement except on the basis of concentration issues only (including geographical, equipment type and Dollar amount); (c) it arises in the ordinary course of the Borrower's business, is the legal, valid, binding and enforceable obligation of the Obligor under such Contract, is in full force and effect and complies with all Applicable Laws, and the obligations of the Obligor have been duly authorized and have not been cancelled or terminated; (d) its Initial Term has commenced and is continuing, it is noncancellable during its Initial Term and it provides that the Obligor under such Contract will pay all amounts due without set-off, counterclaim, defense or abatement; (e) no se-offs, counterclaims, defenses or disputes exist with the Obligor or any Affiliate of the Obligor with respect to such Contract, the Obligor has not denied liability under such Contract in whole or in part, the payment of amounts due under such Contract is subject to no conditions precedent that are unsatisfied, and no agreement relating to such Contract imposes any obligation on the Borrower (other than a warranty of title) that if not performed would give rise to a right of offset, counterclaim or any other defense on the part of such Obligor to payment of any part of such Contract; (f) the forms of Contracts, including all related security documents, (i) constitute a non-cancelable Lease or a non-prepayable and non-cancelable Equipment Note, CSA or Third Party Note, (ii) can be assigned as collateral by the Borrower without Obligor consent, (iii) cannot be assigned or transferred by the Obligor except as permitted by Section 7.2, (iv) are marked in accordance with Section 6.13; and (v) include an obligation on the part of the Obligor to maintain or cause to be maintained the Equipment at the Obligor's expense in good condition, repair and working order; -8- (g) all Equipment covered by such Contract is at all times Eligible Equipment; (h) no bankruptcy or insolvency proceeding shall have been commenced by or against the Obligor under such Contract, such Obligor shall not have taken any corporate action relating to any such proceeding and no foreclosure or similar proceeding shall have been commenced by any holder of a Lien on the Equipment related to such Contract; (i) any Lease is a net-net lease with no more than 96 remaining months in the Initial Term, and any Equipment Note, CSA or Third Party Note has a final maturity date not more than 96 months in the future; (j) the Agent has received or has available to it for inspection pursuant to Section 6.2 a photocopy of the file stamped "acknowledgement copy" containing the recording information of Financing Statements filed with respect to such Contract in all appropriate and necessary offices naming the Obligor as debtor or lessee, the Borrower as Secured Party or lessor and the Agent as assignee; (k) the Obligor under such Contract is not, and any lessee under a Third Party Lease is not, the United States of America, any agency or instrumentality of the United States of America, any entity entitled to full or partial sovereign immunity or any entity as to which an assignment of claims is subject to consent; (l) each Obligor under such Contract and each lessee under a Third Party Lease is an entity duly organized and existing under the laws of its jurisdiction of organization in, or an individual legally and permanently residing in, the United States of America or a U.S. Territory; provided that the foregoing shall not preclude a Lessee or the lessee under a Third Party Lease that has no right to terminate or discontinue from making payments in the event of nonappropriation of funds by any governmental agency or body; (m) payment under such Contract is to be made in Dollars, and if such Contract is a Lease either (i) the rental payments are not determined wholly or partly by the volume of use -9- of the related Equipment, or (ii) if the rental payments are determined partly by the volume of use of the related Equipment, then only the guaranteed or fixed rental payments are included in computing the Borrowing Base; (n) the Borrower knows of no fact or circumstance that might render such Contract less valuable than it purports to be, and the Borrower has not taken any action that will impair the value of such Contract, the related Equipment or the rights of any party with respect to such Contract or the related Equipment; (o) such Contract has not been amended or rewritten in any respect, except for an Eligible Twelve-Month Restructured Lease or an upgrade; (p) the Obligor under such Contract and any lessee under a Third Party Lease are not Affiliates of the Borrower, except that a Lessee may be an Affiliate of the Borrower in accordance with Section 7.14(c); (q) in the case of a Lease, the Borrower holds good and marketable title to the Contract, all related Contract Payments and all Equipment covered by such Contract, and has granted to the Agent a valid first priority perfected Lien on all of the Borrower's right, title and interest in such Contract, Contract Payments and Equipment, subject to no Liens other than Permitted Liens, and such Lease constitutes chattel paper; (r) in the case of an Equipment Note or CSA, the Borrower holds good and marketable title to the Contract and all related Contract Payments, the Borrower has a valid first priority perfected Lien on all Equipment securing or covered by such Contract, and the Borrower has granted to the Agent a first priority perfected Lien on all of the Borrower's right, title and interest in such Contract, Contract Payments and Equipment, subject to no Liens other than Permitted Liens, and any CSA constitutes chattel paper; (s) in the case of a Third Party Note, the Borrower holds good and marketable title to the Contract and all related Contract Payments, the Borrower has a valid first priority perfected Lien on the Third Party Lease (including all payments to be made to the Obligor under the Third Party Lease) and all -10- Equipment covered by such Third Party Lease, and the Borrower has granted to the Agent a valid first priority perfected Lien on all of the Borrower's right, title and interest in such Third Party Note, Third Party Lease and Equipment, subject to no Liens other than Permitted Liens, and the related Third Party Lease constitutes chattel paper; and (t) the Borrower's and Agent's Lien on the Equipment related to any such Contract is created under and pursuant to the UCC of an applicable jurisdiction, except that for motor vehicles the appropriate endorsement on the certificate of title in favor of the Agent shall have been effected if more than six motor vehicles are included in computation of the Borrowing Base at that time or, if six or less motor vehicles are then included in computation of the Borrowing Base, the Agent has requested in writing that such endorsement be effected. "Eligible Equipment" - any item of Equipment that meets each of the following requirements at all times: (a) such Equipment is personalty and does not constitute fixtures except for fixtures that are immaterial in type or quantity; (b) such Equipment is not used primarily for personal, family or household purposes and is not consumer goods; (c) such Equipment is located at all times in one of the United States of America, a U.S. Territory in which the UCC is in effect or Washington, D.C.; (d) such Equipment is located at either the Borrower's premises (if it constitutes inventory) or the related Obligor's premises, except for Equipment with a Net Book Value of up to $3,000,000 at any time that is covered by a UCC-1 Financing Statement filed by the Borrower against the warehouseman, manufacturer or other Person in possession of such Equipment; (e) such Equipment is not installed in or affixed to other equipment which is not Collateral; -11- (f) such Equipment is in good condition, repair and working order and is insured in accordance with this Agreement and the Security Documents; (g) if such Equipment is software, the Borrower has or will have after foreclosure against the related Obligor the right to remarket such Equipment with the associated software remaining in place without obtaining any consent or approval from the licensor of such software; and (h) if such Equipment is a motor vehicle, it is a truck, trailer or tractor-trailer in or on which major medical imaging Equipment has been installed, or it is an ambulance or is otherwise used in connection with the health care industry; and "related Equipment" shall mean, when used with reference to any Contract, the Eligible Equipment covered by or securing the repayment of obligations under such Contract. "Eligible Healthcare Receivable" - a Healthcare Receivable that meets each of the following requirements at all times: (a) it is a liability of a commercial insurance company, Blue Cross/Blue Shield plan, health maintenance organization, preferred provider organization or hospital corporation organized under the laws of any jurisdiction in, and having its principal office in, the United States of America; (b) the Obligor of which is not an Affiliate of its related Healthcare Provider or any Loan Party; (c) the Obligor of which is not subject to any actions or proceedings of the type described in Section 8.6; (d) it is not a receivable arising in whole or in part under or whose payment is wholly or partially administered under (i) the health insurance program for the aged and disabled established by Title XVIII of the Social Security Act (42 U.S.C. ss.ss.1395 et seq.) and any succeeding statutes (i.e., Medicare), (ii) the medical assistance program established by Title XIX of the Social Security Act (42 U.S.C. ss.ss.1396 et seq.) and any succeeding statutes (i.e., Medicaid), or (iii) the Civilian -12- Health and Medical Program of the Uniformed Services established by 10 U.S.C. ss.ss.1071 et seq. (i.e., CHAMPUS); (e) it is denominated and payable in Dollars in the United States of America; (f) it was sold to DBC by a Healthcare Provider or in which a Healthcare Provider granted a security interest and assigned all of its rights and interests to DBC pursuant to a DBC Financing Agreement; (g) a security interest in all of DBC's right, title and interest in it has been granted to the Agent pursuant to the DBC Security Agreement, which security interest has been perfected by the filing of Financing Statements listing DBC as "Debtor" and the Agent as "Secured Party" and covering such Eligible Healthcare Receivable; (h) it is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor thereon enforceable against such Obligor in accordance with its terms; (i) it has not been satisfied, has not been and is not subject to being compromised, adjusted, modified, subordinated or rescinded and is net of contractual allowances; (j) it is not past due more than 60 days; and (k) it is paid or caused to be paid into a lockbox account established pursuant to Section 2.24. "Eligible Lease" - an Eligible Contract which is a Lease. "Eligible Progress Payment Agreement" - an agreement between the Borrower and a Lessee pursuant to which (i) the Borrower agrees to purchase Equipment that will be leased to the Lessee under a Lease and to make Progress Payments to the vendors of such Equipment before delivery and acceptance of such Equipment under such Lease, and (ii) the Lessee agrees to reimburse the Borrower for all such Progress Payments or to accept delivery of the Equipment under the Lease, in either case within nine months of the first Progress Payment, and to pay a -13- daily rental charge calculated on the basis of an agreed upon rate of interest on all unreimbursed Progress Payments from time to time, which agreement meets the following additional requirements at all times: (a) the Lease meets all of the requirements of the definition of an "Eligible Contract" applicable to a Lease except clause (c) as to the Lease not yet being in full force and effect, clause (d) as to the Initial Term having commenced, and clause (f) as to title to the Leased Property; (b) the Equipment subject to such agreement meets all of the requirements of the definition of "Eligible Equipment" except that such Equipment is work-in-progress of the manufacturer and therefore does not meet the requirements of clause (f) of the definition of "Eligible Equipment"; (c) the Obligor is not in default of any of its obligations under such agreement; (d) no set-offs, disputes, counterclaims or defenses exist by or with the vendor of such Equipment; and (e) such agreement is substantially in the form attached as Exhibit H or as otherwise approved pursuant to Section 2.22. "Eligible Six-Month Restructured Lease" - at any date, a Lease (i) under which the Borrower previously agreed to a suspension of or a substantial reduction in three or more regularly scheduled consecutive rental payments due or to become due during the Initial Term, (ii) under which all amounts payable have been paid within 15 days of the date when due for a period of at least six consecutive months following the date of commencement of payment under the restructured terms, and (iii) that meets all of the requirements of an Eligible Lease. Notwithstanding the foregoing, Eligible Six-Month Restructured Leases do not include any Eligible Twelve-Month Restructured Leases. "Eligible Three-Month Restructured Lease" - at any date, a Lease (i) under which the Borrower previously agreed to a suspension of or a substantial reduction in three or more -14- regularly scheduled consecutive rental payments due or to become due during the Initial Term, (ii) under which all amounts payable have been paid within 15 days of the date when due for a period of at least three consecutive months or for a period containing three consecutive contractual payments, whichever period is longer, following the commencement of payment under the restructured terms, and (iii) that meets all of the requirements of an Eligible Lease. Notwithstanding the foregoing, Eligible Three-Month Restructured Leases do not include any Eligible Six- Month Restructured Leases nor any Eligible Twelve-Month Restructured Leases. "Eligible Twelve-Month Restructured Lease" - an Eligible Six-Month Restructured Lease (i) under which all amounts payable have been paid within 15 days of the date when due for a period of at least 12 consecutive months following the date of commencement of payment under the restructured terms, and (ii) the Borrower has given the Agent notice that it has elected to include such Lease in the Contract Receivables Clause. "Environmental Laws and Regulations" - all Applicable Laws relating to Environmental Matters, health and safety applicable to any Loan Party. "Environmental Liability" - any liability under any Applicable Law for any release of a hazardous substance caused by the seeping, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing of hazardous wastes or other chemical substances, pollutants or contaminants into the environment, and any liability for the costs of any clean-up or other remedial action including costs arising out of security fencing, alternative water supplies, temporary evacuation and housing and other emergency assistance undertaken by any environmental regulatory body having jurisdiction over any Loan Party to prevent or minimize any actual or threatened release by any Loan Party of any hazardous wastes or other chemical substances, pollutants and contaminants into the environment that would endanger the public health or the environment. "Environmental Matter" - a release of any toxic or hazardous waste or other chemical substance, pollutant or contaminant into the environment or the generation, treatment, -15- storage or disposal of any toxic or hazardous wastes or other chemical substances. "Environmental Proceeding" - any judgment, action, proceeding or investigation pending before any court or governmental authority, bureau or agency, including any environmental regulatory body, with respect to or threatened against or affecting the Borrower or any other Loan Party or relating to the assets or liabilities of any of them, including in respect of any "facility" owned, leased or operated by any of them under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or under any state, local or municipal statute, ordinance or regulation in respect thereof, in connection with any release of any toxic or hazardous waste or other chemical substance, pollutant or contaminant into the environment, or with the generation, storage or disposal of any toxic or hazardous wastes or other chemical substances. "Equipment" - medical equipment and computer equipment that is used in the care, treatment, hospitalization, diagnosis or testing of patients in a medical setting, furniture and office equipment located at such hospital or medical setting and used in connection with such care, and trailers, trucks, vans and transportable buildings used in conjunction with diagnostic testing, therapeutic or other equipment in a medical setting. "Equipment Note" - a loan agreement, security agreement and any related agreement setting forth (i) an Obligor's agreement either to purchase Equipment from the Borrower or to repay a loan from the Borrower the proceeds of which were used to purchase Equipment from the Borrower and all other obligations of such Obligor in connection with such purchase or repayment, and (ii) granting to Borrower a security interest in such Equipment to secure all such obligations; provided that such agreements shall not include a promissory note or other instrument the possession of which is required for perfection of the Agent's Lien on such Equipment Note. "ERISA" - the Employee Retirement Income Security Act of 1974 and the regulations thereunder. "Eurodollar Base Rate" - for any Interest Period, the rate per annum (rounded upwards, if necessary, to the nearest -16- 1/16 of 1%) quoted by one of NatWest's international banking facilities selected by NatWest at approximately 10:00 a.m. New York time (or as soon thereafter as practicable) two Business Days prior to the first day of such Interest Period for the offering by NatWest to leading banks in the Eurodollar interbank market of Dollar deposits having a term comparable to such Interest Period and in an amount comparable to the principal amount of the Eurodollar Loan made by the Banks to which such Interest Period relates. "Eurodollar Business Day" - a Business Day on which dealings in Dollar deposits are carried out in the Eurodollar interbank market. "Eurodollar Loans" - Loans or portions of Loans the interest on which is determined on the basis of rates referred to in the definition of "Eurodollar Rate". "Eurodollar Rate" - for any Interest Period, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by the Agent to be equal to (x) the Eurodollar Base Rate for such Interest Period; divided by (y) 1 minus the Reserve Requirement for such Interest Period. The Agent shall use its best efforts to advise the Borrower of the Eurodollar Rate as soon as practicable after each change in the Eurodollar Rate; provided, however, that any failure of the Agent to so advise the Borrower shall not affect the rights of the Banks or the Agent or the obligations of the Borrower under this Agreement. "Event of Default" - as defined in Article 8. "Federal Funds Rate" - for any day, the weighted average of the rates on overnight federal funds transactions with member banks of the Federal Reserve System arranged by federal funds brokers as published by the Federal Reserve Bank of New York for such day or, if such day is not a Business Day, for the next preceding Business Day (or, if such rate is not so published for any such day, the average rate charged to the Agent on such day on such transactions as reasonably determined by the Agent). -17- "Fees" - the Commitment Fee and all other fees payable by the Borrower to the Agent or the Banks (including NatWest as Pre-Funding Lender and as Agent). "Financial Statements" - on any date, the most recent annual financial statements delivered pursuant to Section 5.1 and, and as amended by, the most recent quarterly financial statement delivered pursuant to Section 5.2. "Financing Statements" - UCC-form financing statements duly executed and completed and in the form necessary for perfection of a security interest under the UCC of an applicable jurisdiction when filed in the appropriate filing offices prescribed by the UCC of such jurisdiction. "GAAP" - generally accepted accounting principles as in effect from time to time and, subject to changes in such principles from time to time, consistently applied in accordance with the past practices of a Person. "Guaranty" - the Guaranty Agreement, dated June 14, 1991, from DVI to the Agent, as confirmed by the Confirmation. "Healthcare Provider" - a Person that has provided services or sold merchandise to an Obligor and sold and/or granted a security interest in the resulting Healthcare Receivable to DBC pursuant to a DBC Financing Agreement. "Healthcare Receivable" - (a) an account receivable billed by a Healthcare Provider arising from the provision of health care services (and any services or sales ancillary thereto) by the Healthcare Provider or physicians or other professionals employed thereby including the right to payment of any interest or finance charges and other obligations with respect to such account receivable; (b) all security interests or liens and the property subject thereto from time to time purporting to secure payment of such account receivable; (c) all guarantees, indemnities and warranties and proceeds thereof, proceeds of insurance policies, Financing Statements and other agreements or arrangements of whatever -18- character from time to time supporting or securing payment of such account receivable; (d) all cash collections with respect to any of the foregoing; (e) all Records with respect to any of the foregoing; and (f) all proceeds of any of the foregoing. A Healthcare Receivable is considered to be "due" for payment 120 days after being invoiced. "Healthcare Receivables Clause" - Section 1.2(a)(v). "Indebtedness" - with respect to any Person, all (i) liabilities or obligations, direct and contingent, that in accordance with GAAP would be included in determining total liabilities as shown on the liability side of a balance sheet of such Person, including contingent liabilities that in accordance with GAAP would be set forth in a specific Dollar amount on the liability side of such balance sheet and Capitalized Lease Obligations, (ii) liabilities or obligations of others for which such Person is directly or indirectly liable by way of direct guaranty, suretyship, discount, endorsement, reimbursement of amounts drawn under letters of credit, take-or-pay agreement, agreement to purchase or advance or keep in funds, other agreements having the effect of a guaranty (other than endorsements of negotiable instruments for deposit or collection in the ordinary course of business) or otherwise, whether or not such liabilities would be included in determining total liabilities as shown on a balance sheet in accordance with GAAP, (iii) obligations in respect of interest rate exchange, swap, cap and other agreements or arrangements designed to provide protection against fluctuations in interest rates, (iv) without duplication, liabilities or obligations secured by liens on any assets of such Person, whether or not such liabilities or obligations have been assumed by it, and (v) liabilities or obligations of such Person, direct or contingent, with respect to letters of credit issued for the account of such Person and bankers acceptances created for such Person. -19- "Initial Term" - as of any date of determination, (i) with respect to a Lease the period from and including the commencement date of such Lease and ending on the last day of the then current lease term that is non-cancelable by the Lessee, and (ii) with respect to any other Contract the period commencing on the date which is comparable to the commencement date under a lease and ending on the then last scheduled non-cancelable installment or maturity date. "Intangibles" - good will and other items shown as intangible on the Borrower's balance sheet. "Interest Expense" - at any date, the sum of all payments of interest on Indebtedness of the Borrower that were paid during the 12-month period immediately preceding such date, excluding interest on Non-Recourse Debt. "Interest Period" - with respect to any Eurodollar Loan, each period commencing on the date such Eurodollar Loan is made or converted from a Loan or Pre-Funding Loan of another type, or the last day of the next preceding Interest Period with respect to such Eurodollar Loan, and ending on the same day in the 1st, 2nd or 3rd calendar month thereafter as the Borrower may select as provided in Section 2.3 (subject to availability of funds), except that each such Interest Period which commences on the last Eurodollar Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Eurodollar Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (i) any Interest Period which commences prior to a Payment Date shall end no later than such Payment Date if the aggregate principal amount of the Eurodollar Loans or portions thereof to which such Interest Period would be applicable would include any portion of the aggregate principal amount of the Loans which are due and payable on such Payment Date; (ii) each Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, in the case of an Interest Period for Eurodollar Loans, if such next succeeding Eurodollar Business Day falls in the next succeeding calendar month, on the next preceding Eurodollar Business Day); (iii) no more than seven Interest Periods for Eurodollar Loans shall be in effect at the same time; and (iv) notwithstanding clause (i) above, no Interest -20- Period shall have a duration of less than one month. In the event that the Borrower fails to select the duration of any Interest Period for any Eurodollar Loan as provided in Section 2.7, such Loan will be automatically converted into a Prime Rate Loan on the last day of the preceding Interest Period for such Eurodollar Loan. "Inventory and Per Procedure Clause" - Section 1.2(a)(iii). "Investment" - in any Person by the Borrower: (a) the amount paid or committed to be paid, or the value of property or services contributed or committed to be contributed, by the Borrower for or in connection with the acquisition by the Borrower of any stock, bonds, notes, debentures, partnership or other ownership interests or other securities of such Person; and (b) the amount of any advance, loan or extension of credit to, or guaranty or other similar obligation with respect to any Indebtedness of, such Person by the Borrower and (without duplication) any amount committed to be advanced, loaned or extended to, or the payment of which is committed to be assured by a guaranty or similar obligation for the benefit of, such Person by the Borrower. "Invoiced Cost" - of any item of Eligible Equipment, the cost of such Eligible Equipment to the Borrower including sales and excise taxes, and all installation and delivery costs, as evidenced by invoice(s) of the vendor(s) of such Eligible Equipment; provided that the Invoiced Cost of Eligible Equipment subject to an Equipment Note or CSA and sold by the vendor directly to the Obligor shall be the cost charged by the vendor to such Obligor. "IRS" - Internal Revenue Service. "Lease" - any document evidencing an agreement (including all amendments, addenda or supplements) pursuant to which the Borrower leases Eligible Equipment to a Lessee. Such term includes in its meaning both unitary leases as well as -21- individual lease schedules that incorporate all terms and conditions of a master lease. "Leased Property" - all items of Eligible Equipment covered by or leased under a Lease, and all replacements and substitutions for such Eligible Equipment, and all additions, parts and accessories to such Eligible Equipment and all proceeds of such Eligible Equipment. "Lessee" - the Obligor leasing Leased Property from the Borrower under a Lease. "Leverage Ratio" - with respect to the Borrower, the ratio of (x) Total Recourse Liabilities to (y) Tangible Net Worth plus Subordinated Debt not due within the twelve-month period immediately preceding any date of computation. "Lien" - any mortgage, deed of trust, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement, any lease in the nature of a security interest, and the filing of any Financing Statement intended as security under the UCC of any jurisdiction) and any agreement to give any of the foregoing. "Loans" - as defined in Section 2.1. Loans of different types made or converted from Loans of other types on the same day (or of the same type but having different Interest Periods) shall be deemed to be separate Loans for all purposes of this Agreement. Loans do not include Pre-Funding Loans. "Loan Documents" - this Agreement, the Notes, the Guaranty, the DBC Guaranty, the Security Documents, the Pre-Funding Note, the Confirmation, any interest rate swaps or other derivative agreements limiting interest rate exposure on the Loans and the Pre-Funding Loans and all other documents executed and delivered at any time in connection with such agreements. "Loan Party" - the Borrower, DVI, DBC and any other Person that from time to time executes and delivers to the Banks or the Agent any Loan Document then in effect. -22- "Majority Banks" - at any time that no Loans are outstanding, Banks having at least 66% of the aggregate amount of the Commitments, and at any time that Loans are outstanding, Banks holding at least 66% of the aggregate principal amount of the Loans then outstanding. "Monthly Dates" - the last day of each calendar month commencing with the first such day after the date of this Agreement or, if any Eurodollar Loans are then outstanding and the last day of any calendar month is not a Eurodollar Business Day, the relevant Monthly Date shall be the next preceding Eurodollar Business Day. "NatWest" - NatWest Bank N.A. in its individual capacity. "Net Book Value" - with respect to Eligible Equipment, the Invoiced Cost of such Eligible Equipment minus accumulated depreciation with respect to such Eligible Equipment in accordance with GAAP. "Non-Current Portion" - at any date of determination, the portion of Indebtedness that matures, or at the option of the obligor may mature, more than one year after such date. "Non-Recourse Debt" - Indebtedness of any Person for borrowed money that, at all times, (i) is secured by Liens on specific assets of such Person and the proceeds of such assets that constitute the sole source of repayment to the lender or obligee of such Indebtedness, and (ii) as to which such Person is not otherwise liable for repayment in the event of a deficiency or default in payment except for liability for misrepresentations by such Person, defects in title caused by such Person or impairment of the obligee's or lender's Lien caused by such Person. "Note" - as defined in Section 2.12. "Notes Assignment Agreement" - the Notes Assignment Agreement, dated June 14, 1991, between Borrower and Agent, as confirmed by the Confirmation. -23- "Obligations" - all of the Indebtedness, liabilities and obligations of the Borrower to the Banks (including the Pre-Funding Lender) and the Agent, whether now existing or hereafter arising, under the Loan Documents. "Obligor" - any Lessee or other Person obligated in respect of a Lease, any maker of an Equipment Note, any vendee under a CSA, any obligor of a Third Party Note or any other Person obligated in respect of a Lease, Equipment Note, CSA or Third Party Note or obligated under any other asset included in the Borrowing Base other than the Borrower. "Parent Subordinated Debt" - as defined in Section 7.4(b)(ii). "Partial Recourse Debt" - Indebtedness of any Person for which such Person has only partial liability for repayment of any deficiency and the balance of which is Non-Recourse Debt. "Payment Dates" - each Monthly Date in each year commencing with the first Monthly Date after the Term Conversion Date. "PBGC" - Pension Benefit Guaranty Corporation. "Permitted Liens" - as defined in Section 7.2. "Person" - an individual, corporation, partnership, joint venture, trust or unincorporated organization, joint stock company or other similar organization, government or political subdivision of a government, court or any other legal entity, whether acting in an individual, fiduciary or other capacity. "Plan" - at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by the Borrower or any member of the Controlled Group for employees of the Borrower, or by the Borrower for any other member of such Controlled Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which the Borrower or any member of the Controlled Group is then -24- making or accruing an obligation to make contributions or has within the preceding five plan years made contributions. "Post-Default Rate" - a rate per annum equal to (i) for each Eurodollar Loan, 2% above the rate of interest in effect for such Eurodollar Loan on the date the Post-Default Rate commences until the end of the then current Interest Period for such Eurodollar Loan, and thereafter 2% above the Prime Rate as in effect from time to time plus the Applicable Margin for Prime Rate Loans, and (ii) for Prime Rate Loans and for all other amounts payable by the Borrower under the Loan Documents, 2% above the Prime Rate as in effect from time to time plus the Applicable Margin for Prime Rate Loans. "Pre-Funding Commitment" - at any date of determination, the agreement of the Pre-Funding Lenders to make Pre-Funding Loans in an amount equal to the lesser of (i) the difference between the Total Commitment as in effect on such date and the then aggregate outstanding principal amount of all Loans plus Pre-Funding Loans and (ii) $15,000,000. "Pre-Funding Commitment Fee" - as defined in Section 2.30(f)(iv). "Pre-Funding Lenders" refers to NatWest, with a Pre-Funding Commitment in the aggregate amount not to exceed $8,000,000, and CoreStates, with a Pre-Funding Commitment in the aggregate amount not to exceed $7,000,000; "Pre-Funding Loan" - as defined in Section 2.30. "Pre-Funding Note" - as defined in Section 2.30(d)(i). "Present Value" - on any date of computation of the Borrowing Base, the present value of the Balance of Payments under an Unfunded Eligible Contracts computed by discounting at a rate per annum equal to the interest rate then applicable to Prime Rate Loans. "Prime Rate" - the interest rate established from time to time by NatWest as its prime rate at the Principal Office. Notwithstanding the foregoing, the Borrower acknowledges the fact that NatWest may regularly make domestic commercial loans at -25- rates of interest less than the rates of interest referred to in the preceding sentence. Each change in any interest rate under this Agreement resulting from a change in the Prime Rate shall take effect at the time of such change in the Prime Rate. "Prime Rate Loans" - Loans or Pre-Funding Loans, or portions thereof, that bear interest at a rate based upon the Prime Rate. "Principal Office" - the principal office of NatWest, presently located at 175 Water Street, New York, New York 10038 or, if a successor Agent is named, the office of the successor Agent designated by notice of the successor Agent to the Banks and the Borrower. "Progress Payments" - amounts paid by the Borrower to vendors of Equipment subject to a Lease pursuant to an Eligible Progress Payment Agreement, net of any credits, rebates, offsets, holdbacks or other adjustments or commissions payable to third parties that are adjustments to such payments. "Progress Payments Clause" - Section 1.2(a)(ii). "Records" - all agreements pursuant to or under which an Obligor shall be obligated to pay for services rendered or merchandise sold to patients of the Healthcare Providers and all other documents, books, records and other information (including computer programs, tapes, disks, punch cards, data processing software and related property and rights) prepared and maintained by the Healthcare Providers or DBC with respect to the Healthcare Receivables and the related Obligors. "Recourse Debt" - Indebtedness of any Person as to which such Person is liable for repayment in full in the event of a deficiency or default in payment. "Regulation D" - Regulation D of the Board of Governors of the Federal Reserve System. "Regulatory Change" - any change after February 28, 1995 in United States federal, state or foreign laws or regulations or the adoption or making after such date of any interpretations, directives or requests applying to a class of -26- banks including any of the Banks of or under any United States federal, state, or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Reserve Requirement" - for any Eurodollar Loans for any Interest Period, (i) the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding $1,000,000,000 against "Eurocurrency liabilities" (as such term is used in Regulation D), and (ii) any other reserves required to be maintained by such member banks by reason of any Regulatory Change against (a) any category of liabilities which includes deposits by reference to which the Eurodollar Rate for Eurodollar Loans is to be determined as provided in the definition of "Eurodollar Rate" in this Section 1.1, or (ii) any category of extensions of credit or other assets which include Eurodollar Loans. "Restricted Investments" - as defined in Section 7.8(c). "Restructured Lease Clause" - Section 1.2(a)(iv). "Risk-Adjusted Leverage Ratio" - with respect to the Borrower, the ratio of (i) Total Recourse Liabilities to (ii) Tangible Net Worth plus Subordinated Debt not due within the twelve-month period immediately preceding any date of computation, minus the greater of (a) $1,000,000 or (b) the lesser of (1) the Borrower's unfinanced interests in Securitized accounts receivable (the so-called "C" piece) or (2) the product resulting from multiplying (A) the Borrower's actual loss experience, expressed as a decimal, times (B) five, times (C) the Borrower's total Securitized accounts receivable. "SEC" - the U.S. Securities and Exchange Commission. "Securitization" - the transfer of legal ownership in leases and other obligatory contracts and the equipment related to such contracts to a corporation (which may be an Affiliate of the transferor), trust or other bankruptcy-remote special purpose -27- entity that either uses such assets to collateralize the issuance of debt obligations or sells securities that evidence undivided interests in such assets. "Securitized" - with respect to assets, such assets after being the subject of a Securitization. "Security Agreement" - the Security Agreement, dated June 14, 1991, between Borrower and Agent, as confirmed by the Confirmation. "Security Documents" - the Security Agreement, Assignment of Leases, Assignment of Agreements, DBC Security Agreement, Notes Assignment Agreement and such other agreements, instruments and documents as the Agent may reasonably require in order to effect the purposes of the Security Agreement, Assignment of Leases, Assignment of Agreements, Notes Assignment Agreement and DBC Security Agreement. "Subordinated Debt" - unsecured Indebtedness for money borrowed that permits payments of its principal and interest only on a basis that is subordinate to the prior payment of the Obligations on terms satisfactory in form and substance to the Majority Banks as evidenced by the Agent's written consent given before the incurrence of such Indebtedness. "Subsidiary" - with respect to any Person at any time, (i) any corporation of which a majority of the securities having ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) are at the time owned by such Person and one or more Subsidiaries of such Person, and (ii) any partnership or joint venture in which such Person is a general partner or joint venturer of which a majority of the partnership or other ownership interests are at the time owned by such Person and one or more of its Subsidiaries. "Super-Majority Banks" - at any time that no Loans are outstanding, Banks having at least 75% of the aggregate amount of the Commitments, and at any time that Loans are outstanding, Banks holding at least 75% of the aggregate principal amount of the Loans then outstanding. -28- "Supporting Documents" - as defined in Section 5.8(a). "Tangible Net Worth" - the sum of additional capital, retained earnings, earned surplus and capital stock minus Intangibles and treasury stock. "Term Conversion Date" - December 31, 1996. "Term Period" - the period of time commencing on the day after the Term Conversion Date and expiring on the final date of repayment of the Loans, which shall not be later than the fourth anniversary of the Term Conversion Date. "Third Party Lease" - any document evidencing an agreement (including any amendments, addenda, or supplements thereto) pursuant to which an Obligor, as lessor, leases Equipment to another Person. Such term includes in its meaning both unitary leases and individual lease schedules which incorporate into such schedules all terms and conditions of a master lease pursuant to which such schedule is executed. "Third Party Note" - a non-recourse loan and security agreement, and all related agreements, setting forth obligations of an Obligor to the Borrower to repay a loan from the Borrower the proceeds of which were used to finance Equipment subject to a Third Party Lease and as collateral for which the Borrower has a first priority perfected Lien (that has been assigned to the Agent) on all right, title and interest of the Obligor in such Equipment and such Third Party Lease. "Total Commitment" - the aggregate sum of the Commitments of the Banks. "Total Recourse Liabilities" - at any time, as to the Borrower, the sum (without duplication) of (i) all liabilities which, in accordance with GAAP, would be shown as liabilities on the Borrower's balance sheet, including all accounts payable but excluding (to the extent included therein) Non-Recourse Debt, Subordinated Debt not due within the next 12 months, deferred income taxes payable and accrued expenses, (ii) all liabilities for which the Borrower is contingently liable, plus (iii) the recourse portion of all Partial Recourse Debt. -29- "UCC" - the Uniform Commercial Code as in effect from time to time in the State of New York unless otherwise indicated. "Unfunded" - with respect to any Contract, Contract Payment or other obligation of any Obligor, such Contract, Contract Payment or other obligation has not been sold, discounted or otherwise financed by the Borrower or granted as a Lien by the Borrower to secure any obligations (whether with or without recourse) to or with any Person other than under this Agreement and the Security Documents. "Unused Commitment" - at any date, the difference between (i) the amount of the Total Commitment as in effect on such date, and (ii) the then aggregate outstanding principal amount of all Loans. "Warehousing Lender" - the lender to the Borrower under a Warehousing Loan Agreement. "Warehousing Loan Agreement" - a loan agreement, security agreement, custody agreement and all related documents providing for advances to the Borrower with a repayment term, including all extensions and renewals, not exceeding six months for the purpose of financing the Borrower's acquisition of assets or of refinancing existing assets of the Borrower in preparation for the Securitization of such assets or other similar transactions, including (i) the Interim Loan and Security Agreement, dated as of March 16, 1994, between the Borrower and Prudential Securities Realty Funding Corporation, and (ii) the Interim Warehouse and Security Agreement, dated as of February 2, 1995, as amended by the Credit Increase Confirmation and Amendment, dated March 8, 1995, between the Borrower, DVI and ContiTrade Services Corporation. Section 1.2 Borrowing Base. (a) At any date of determination, the sum of the following clauses (i) through (v) minus clause (vi) shall constitute the "Borrowing Base": (i) Contract Receivables Clause - The Contract Advance Rate (90% on and after the Term Conversion Date) of the Present Value of the Balance of Payments under Unfunded Eligible Contracts, and 80% of the Present Value of the Balance of Payments under Unfunded ADAC Contracts; plus. -30- (ii) Progress Payments Clause - The Contract Advance Rate (90% on and after the Term Conversion Date) of Unfunded Progress Payments, provided that Unfunded Progress Payments may not be included under this Section 1.2(a)(ii) from and after the earliest to occur of (1) the last day of the month during which the Borrower receives a certificate of delivery and acceptance relating to the subject Equipment, or (2) the Borrower receives full reimbursement of such Progress Payments; plus (iii) Inventory and Per Procedure Clause - 70% of the Net Book Value of all Eligible Equipment owned by the Borrower, provided that (1) the aggregate amount included under this Section 1.2(a)(iii) shall not exceed 10% of the Total Commitment on any date, (2) Equipment included in this Section 1.2(a)(iii) must be depreciated according to GAAP, and (3) the Borrower must have an appraisal from an independent appraiser supporting the Net Book Value of Equipment included in this Section 1.2(a)(iii) that has been repossessed from a lessee; plus (iv) Restructured Lease Clause - (1) 75% of the Net Book Value of Eligible Equipment subject to an Unfunded Eligible Six-Month Restructured Lease; and (2) 75% of the Net Book Value of Eligible Equipment subject to an Unfunded Eligible Three-Month Restructured Lease, provided that the aggregate amount included under this Section 1.2(a)(iv)(2) shall not exceed $5,000,000; plus. (iv) Healthcare Receivables Clause - 85% of the DBC Financed Amount of Eligible Healthcare Receivables, provided that the aggregate amount included under this Section 1.2(a)(v) shall not exceed $18,000,000 (or, if the aggregate amount of Loans included under this Section 1.2(a)(v) has not been less than $7,000,000 for at least 30 days during the preceding 12 months, $7,000,000); minus (v) Excludable Recourse Liabilities - 100% of the amount by which (1) all accrued but unpaid federal, state and local taxes (not including deferred taxes or taxes reimbursable by an Obligor), and all recourse liabilities, contingent or otherwise, constituting equipment payables in -31- respect of Equipment included in any clause of the Borrowing Base, exceed (2) the amount of the Borrower's unrestricted cash greater than $500,000. (b) The Borrowing Base under Section 1.2(a) shall be calculated in accordance with the following principles: (i) Multiple Inclusion. At no time shall assets covered by any of the clauses of the Borrowing Base be included under any other clause. (ii) Assets and Values. At no time shall the amount originally included under any clause of the Borrowing Base with respect to any Eligible Contract exceed the lesser of the Invoiced Cost or the Net Book Value of any item of Equipment individually or items of Equipment in the aggregate covered by such Eligible Contract. At no time shall the amount originally included under any clause of the Borrowing Base with respect to any Eligible Contract purchased by the Borrower exceed the purchase price of such Eligible Contract. At no time shall the amount included under any clause of the Borrowing Base with respect to any Eligible Contract that includes a refinancing exceed the amount refinanced plus the Invoiced Cost of any upgrade or other newly purchased Equipment. (iii) Concentration Limits. At no time shall amounts included in the Borrowing Base under all Eligible Contracts between the Borrower and a single Obligor exceed 20% of the Borrower's Tangible Net Worth at such time. In addition, at no time shall amounts included in the Borrowing Base under all Eligible Contracts originated by and purchased from a Person not an Affiliate of the Borrower exceed 20% of the Borrower's Tangible Net Worth at such time, except that any individual Contracts approved by the Credit Committee in accordance with criteria applicable to Borrower-originated Contracts will be excluded from this limitation so long as, if such Contract was acquired concurrently with other Contracts from a seller or its Affiliates, all such Contracts have been individually approved or disapproved by the Credit Committee. -32- (iv) Transactions with Affiliates. At no time shall Eligible Leases with Affiliates included in clauses (i), (ii) and (iv) of the Borrowing Base exceed $5,000,000 in the aggregate. (v) No Liens. Assets included in the Borrowing Base shall be subject to no Liens other than the Agent's Lien and Permitted Liens. (vi) Representation as to No Adverse Selection. Inclusion of any assets in computation of the Borrowing Base shall be deemed to constitute a continuing representation and warranty by the Borrower to the Banks and the Agent that no selection procedures believed by the Borrower to be materially adverse to the interest of the Banks have been or are being or shall be used in selecting any contracts to be provided under any Warehousing Loan Agreement, and such contracts were and shall continue to be selected at random. (vii) Defaults by DBC. At no time shall any amounts be included under the Healthcare Receivables Clause if one or more of the following events shall have occurred and be continuing: (1) DBC shall fail to perform or observe any material term, condition or covenant of any agreement to which it is a party, including any provision obligating DBC for the payment of money in excess of $500,000; or (2) any judgment shall be rendered against DBC or any attachment, levy or execution against any of its properties for any amount in excess of $100,000 shall remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period of 30 days or more. Section 1.3 Interpretation. (a) All accounting terms used but not specifically defined in this Agreement shall have the meanings customarily given to them in accordance with GAAP. (b) All terms used in Article 9 of the UCC and not specifically defined in this Agreement are used in this Agreement as defined in Article 9 of the UCC. -33- (c) Unless otherwise indicated, any Applicable Law defined or referred to in this Agreement is intended to mean or refer to such Applicable Law as amended from time to time or any successor Applicable Law as amended from time to time. (d) Unless otherwise indicated, any agreement defined or referred to in this Agreement means or refers to such agreement as amended or supplemented from time to time or as the terms of such agreement are waived or modified in accordance with its terms. (e) Unless otherwise indicated, any definition or reference to a Person (other than an individual) in this Agreement means or refers to such Person and all divisions of such Person, regardless of their tradename or "doing business" names, and all successors and permitted assigns from time to time. (f) Terms defined in this Agreement in the singular include the plural of such terms, and terms defined in this Agreement in the plural include the singular of such terms. (g) The term "including", when used in this Agreement, means "including without limitation" and "including but not limited to". (h) Unless otherwise indicated, any reference to a specified "article", "section", "subsection", "clause", "exhibit" or "schedule" shall refer to such article, section, subsection, clause, exhibit or schedule of this Agreement. (i) The captions and headings of this Agreement are for convenience only and shall not affect the construction or interpretation of this Agreement. (j) Unless otherwise indicated, all hourly references in this Agreement shall refer to New York City time or, in the event that the Principal Office is in a time zone other than New York City's time zone, the time in the time zone in which the Principal Office is located. -34- ARTICLE 2. COMMITMENTS; LOANS Section 2.1 Loans; Credit Period; Term Conversion. Each Bank hereby agrees, on the terms and subject to the conditions of this Agreement, to make loans (the "Loans") to the Borrower during the Credit Period in an aggregate principal amount at any one time outstanding up to, but not exceeding, the lesser of the Commitment of such Bank as then in effect or such Bank's pro rata share of the Borrowing Base based on the proportion that such Bank's Commitment as then in effect bears to the Total Commitment (such lesser amount in the aggregate with respect to all of the Banks is hereinafter referred to as the "Borrowing Capacity"), and in no event may the aggregate outstanding principal amount of all Loans plus all Pre-Funding Loans exceed the lesser of the Total Commitment and the Borrowing Base. Subject to the terms of this Agreement, during the Credit Period the Borrower may borrow, prepay (as provided in Section 2.8) and reborrow the amount of the Total Commitment by means of Prime Rate Loans or Eurodollar Loans, and during the Credit Period and following the Term Conversion Date the Borrower may convert Loans of one type into Loans of another type as provided in Section 2.7. Section 2.2 Changes in Commitment. The Borrower shall be entitled at its option to reduce permanently the Total Commitment provided that the Borrower shall give notice of such reduction to the Banks as provided in Section 2.3 and that any partial reduction of the Total Commitment shall be in an amount equal to $1,000,000 or an integral multiple. The Borrower shall be entitled at its option to terminate the Total Commitment on 30 days prior notice to the Banks and the Agent. Any such termination or reduction shall be permanent and irrevocable once notice is given to any Bank or the Agent. Section 2.3 Borrowing Notice; Borrowing Base Report. (a) The Borrower shall give the Agent written notice of each reduction of the Total Commitment, each borrowing of a Pre-Funding Loan, each conversion or prepayment of a Loan and the duration of each Interest Period applicable to each Eurodollar Loan by the delivery to the Agent of a Borrowing Notice. Each such Borrowing Notice shall be effective only if received by the Agent not later than noon on the date which is: -35- (i) in the case of each notice of the borrowing, reduction or prepayment of Pre-Funding Loans and the prepayment of Eurodollar Loans, on the date of the requested borrowing, reduction or prepayment; (ii) in the case of each notice of the borrowing, reduction or prepayment of, or the conversion into, Prime Rate Loans, one Business Day before the date of the requested borrowing, reduction, prepayment or conversion; and (iii) in the case of each notice of the borrowing of or conversion into, or of the duration of an Interest Period for, Eurodollar Loans, two Eurodollar Business Days before the date of the requested prepayment or conversion or the first day of such Interest Period. Each such notice of borrowing, conversion or prepayment shall specify the amount (subject to Section 2.1) of the Pre-Funding Loans to be borrowed, the amount and type of the Loans and Pre-Funding Loans to be converted or prepaid (and, in the case of a conversion, the type of Loans to result from such conversion), and the date of borrowing, conversion or prepayment (which shall be a Business Day in the case of each borrowing, prepayment or conversion of or into Prime Rate Loans and a Eurodollar Business Day in the case of each borrowing, prepayment or conversion of or into Eurodollar Loans). Each notice of the duration of an Interest Period shall specify the Eurodollar Loans to which such Interest Period is to relate. (b) Each Borrowing Notice requesting a Loan or Pre-Funding Loan shall include a representation by the Borrower that the borrowing requested shall not on the date of borrowing exceed the Borrowing Availability, as measured by the most recent Borrowing Base Report delivered to the Banks and the Agent in accordance with the terms of this Agreement, provided that any Borrowing Notice requesting an amount exceeding the Borrowing Availability reported on the most recent Borrowing Base Report delivered to the Agent as a result of an increase in the Borrowing Base since the most recent Borrowing Base Report shall be accompanied either by a new Borrowing Base Report or by such additional Borrowing Base information and Supporting Documents as shall evidence the increase in the Borrowing Availability from -36- the most recent Borrowing Base Report and that after giving effect to the Loans and Pre-Funding Loans requested the outstanding principal amount of Loans and Pre-Funding Loans do not exceed the Borrowing Capacity as of such date. Section 2.4 Fees. (a) The Borrower shall pay to the Agent for the account of each Bank a non-refundable commitment fee (the "Commitment Fee") on the daily average amount of the Unused Commitment for the period from the date this Agreement is restated to and including the earlier of the date such Bank's Commitment is terminated or the Term Conversion Date, at the rate of (i) 1/4 of 1% per annum on that portion of the Unused Commitment equal to or less than, in Dollar amount, one-third of the Total Commitment then in effect, and (ii) 1/2 of 1% per annum on the balance of the Unused Commitment. (b) The accrued Commitment Fee shall be payable quarterly in arrears on the last day of each calendar quarter and on the earlier of the date the Commitments are terminated or the Term Conversion Date, and, in the event the Borrower reduces the Commitment as provided in Section 2.2, on the effective date of such reduction. (c) The Borrower shall pay to the Agent for the account of each Bank a non-refundable fee of $5,000 per Bank for each amendment to this Agreement and each waiver or consent granted by the Banks pursuant to this Agreement. Section 2.5 Lending Offices. The Loans of each type made by each Bank shall be made and maintained at such Bank's Applicable Lending Office for Loans of such type. Section 2.6 Disbursement of Loan Proceeds. The Borrower shall give the Agent notice of each borrowing hereunder as provided in Section 2.3. Not later than 1:00 pm on the date specified for each borrowing under this Agreement, each Bank shall transfer to the Agent by wire transfer or otherwise, but in any event in immediately available funds, the amount of the Loan to be made by it on such date, and the Agent, upon its receipt of each such amount, shall disburse such amount to the Borrower by depositing it in an account of the Borrower designated by the Borrower and maintained with the Agent. -37- Section 2.7 Conversions of Loans. The Borrower shall have the right to convert Loans of one type into Loans of another type from time to time, provided that: (i) the Borrower shall give the Agent notice of each such conversion as provided in Section 2.3; (ii) Eurodollar Loans may be converted only on the last day of an Interest Period for such Loans; and (iii) no Prime Rate Loan may be converted into a Eurodollar Loan if on the proposed date of conversion a Default or an Event of Default exists. Section 2.8 Mandatory and Optional Prepayments. (a) Notwithstanding any other provisions of this Agreement but in addition to the provisions of Section 2.8(b) below, in the event that at any time the outstanding principal amount of the Loans and Pre-Funding Loans shall at any time exceed the Borrowing Base, the Borrower shall, within three Business Days following the date on which such excess first exists (or, if sooner, concurrently with delivery of the Borrowing Base Report next due to be delivered following the date on which such excess first exists), (i) prepay any outstanding Pre-Funding Loans and then any outstanding Loans, (ii) so long as no Default or Event of Default shall then have occurred and be continuing, include additional assets in the Borrowing Base and deliver to the Agent a new Borrowing Base Report and the other documents required to be delivered to the Banks and the Agent in connection with a Borrowing Base Report under Section 2.3(b), or (iii) a combination of the actions permitted by the preceding clauses (i) and (ii), in any case including computations that show such prepayment, substitution or both are in an amount or of a value sufficient that the above-described excess under the Borrowing Base no longer exists. (b) From and after the Term Conversion Date, in the event of any sale, lease or other disposition of assets or any refinancing of any asset included in the Borrowing Base, the Borrower shall simultaneously with the consummation of such transaction prepay the Loans in an amount equal to the amount of the Loans made on the basis of the inclusion of such asset in the Borrowing Base. (c) The Borrower shall have the right to prepay the Loans and any Pre-Funding Loans from time to time in whole or in part upon notice to the Agent in accordance with Section 2.3. -38- Any Loans and Pre-Funding Loans repaid during the Credit Period may be reborrowed during the Credit Period in accordance with the terms and conditions of this Agreement. Loans prepaid after the Term Conversion Date may not be reborrowed. (d) All prepayments of Eurodollar Loans shall include payment of all interest accrued on the principal amount prepaid. No premium or penalty is required to be made with any prepayment except as otherwise provided in Section 2.20. (e) Prepayments shall be applied first to installments of the Prime Rate Loans and second to installments of Eurodollar Loans, in each case in the order of their maturity, and the Borrower shall be liable for any payments due under Section 2.20 as a result of any prepayment. Section 2.9 Use of Proceeds. The proceeds of the Loans and Pre-Funding Loans may be used solely for: (a) repayment of all outstanding Recourse Debt as more specifically set forth on the attached Schedule 12; (b) financing Eligible Contracts, Eligible Equipment and the other assets described in the Borrowing Base; (c) Investments permitted under Section 7.8; (d) other working capital purposes; and (e) in the case of Loans, the conversion of Pre-Funding Loans. Section 2.10 Principal Repayment Schedule. (a) Subject to Section 2.8, the Borrower shall pay to the Agent for the account of each Bank the principal of the Loans made by such Bank that is outstanding at the close of business on the Term Conversion Date in 48 consecutive monthly installments on the Payment Dates, each such installment to be in a principal amount equal to 1/48th of the principal amount of the Loans outstanding on the Term Conversion Date (provided that the last such payment shall be in an amount sufficient to repay in full the principal amount of such Loans). -39- (b) Except as set forth in Sections 2.16 through 2.19, all repayments made pursuant to this Section 2.10 shall be applied first to outstanding Prime Rate Loans and second to Eurodollar Loans. (c) The Borrower may request a Eurodollar Loan only if compliance with the schedule set forth in Section 2.10(a) will not result in any portion of the principal amount of such Eurodollar Loan being paid prior to the last day of the Interest Period applicable to such Eurodollar Loan. Section 2.11 Interest. (a) The Borrower shall pay to the Agent for the account of each Bank interest on the unpaid principal amount of each Loan for the period commencing on the date of such Loan until such Loan shall be paid in full at the following rates per annum: (i) during such periods such Loan is a Prime Rate Loan, the Prime Rate plus the Applicable Margin; and (ii) during such periods such Loan is a Eurodollar Loan, for each Interest Period relating to such Eurodollar Loan, the Eurodollar Rate for such Loan for such Interest Period plus the Applicable Margin. Accrued interest on each Loan shall be payable in arrears (i) on each Monthly Date commencing with the Monthly Date for June 1991, and (ii) on any date of payment or prepayment of such Loan (other than a conversion of such Loan into a Loan of another type) but only on the principal amount paid or prepaid; provided, however, that within three Business Days after each such Monthly Date, the Borrower shall (1) deliver a report to each Bank and the Agent setting forth the average weighted portion of the Loans outstanding during the preceding month whose proceeds were advanced by the Borrower to DBC for the DBC Financed Amount of Eligible Healthcare Receivables, and (2) pay to the Agent any additional amount of interest due and payable on such portion of the Loans as a result of the Applicable Margin for such portion being 0.125% (for such portion of Prime Rate Loans) or 1.65% (for such portion of Eurodollar Loans), as the case may be, instead of the Applicable Margin specified in clauses (i)(A) through (i)(C) of the definition of 'Applicable Margin'. -40- (b) Notwithstanding Section 2.11(a), if an Event of Default occurs the Borrower shall pay interest at the applicable Post-Default Rate on all Loans and on any other amount (other than interest) payable by the Borrower under this Agreement for the period commencing on the date the Event of Default occurred and ending on the earlier of the date the Event of Default is cured or the date all Loans and other amounts are paid in full. Interest payable at the Post-Default Rate shall be payable from time to time on demand of the Agent. (c) Promptly after the establishment or change of any interest rate provided for in this Agreement, the Agent will notify the Banks and the Borrower of such interest rate or change in interest rate, but the failure of the Agent to so notify the Borrower or the Banks shall not affect the obligations of the Borrower under this Agreement or the Notes in any respect. (d) The obligation of the Borrower to make payments of interest shall be subject at all times to the limitation that payments of interest shall not be required to be made to any Bank to the extent that such Bank's receipt of such interest payments would not be permissible under Applicable Laws limiting rates of interest that may be charged or collected by such Bank. Any such payments of interest that are not made as a result of the limitation referred to in the preceding sentence shall be made by the Borrower to such Bank on the earliest interest payment date or dates on which the receipt of such payments would be permissible under Applicable Laws limiting rates of interest that may be charged or collected by such Bank. Section 2.12 Notes. The Loans made by each Bank shall be evidenced by a promissory note of the Borrower in substantially the form attached as Exhibit A (the "Notes"), each dated the date of the initial borrowing of Loans from such Bank, payable to the order of such Bank in a principal amount equal to such Bank's Commitment and otherwise duly completed. The Notes shall be subject to repayment as provided in Sections 2.1, 2.10 and 2.11. All Loans made by each Bank under this Agreement, all payments and prepayments made on account of the principal of such Loans and all conversions of such Loans shall be recorded by each Bank on the schedule attached to its Note, but any failure by any Bank to make any such recordation shall not affect the obligations of the Borrower under this Agreement or the Notes to -41- repay the Loans in accordance with their respective terms. Upon payment in full of any Note, the Bank shall mark the Note "Paid" and return it to the Borrower. Section 2.13 Time and Method of Payments. All payments of principal, interest, Fees,indemnities and other amounts payable by the Borrower under the Loan Documents shall be made in Dollars, in immediately available funds, to the Agent at the Principal Office not later than noon on the date on which such payment shall become due, and the Agent or any Bank for whose account any such payment is to be made may, but shall not be obligated to, debit the amount of any such payment that is not made by such time to any ordinary deposit account of the Borrower with the Agent or such Bank. Any payment made on any date after such time shall, if the amount paid bears interest, be deemed to have been made on, and interest shall continue to accrue and be payable until, the next succeeding Business Day. If any payment of principal or interest becomes due on a day other than a Business Day, such payment may be made on the next succeeding Business Day and such extension shall be included in computing interest in connection with such payment. Each payment received by the Agent for the account of a Bank shall be paid promptly to such Bank, in like funds, for the account of such Bank's Applicable Lending Office for the Loan in respect to which such payment is made. Section 2.14 Computations. Interest on all Loans, Pre-Funding Loans and Fees shall be computed on the basis of a year of 360 days and the actual days elapsed (including the first day but excluding the last) in the period for which payable. Section 2.15 Minimum Borrowings, Conversions and Prepayments. Except for borrowings of the remaining amount of the Total Commitment, conversions and prepayments of all Loans of a particular type, conversions made pursuant to Section 2.19, conversions under Section 2.30(c) and mandatory prepayments under Section 2.8, each borrowing, conversion of Loans of one type into another and each repayment or prepayment of the principal of Loans shall be in an amount at least equal to $2,000,000, any Prime Rate Loans shall be in an amount of at least $2,000,000 and any Eurodollar Loans shall be in an amount equal to $2,000,000 or an integral multiple of $100,000 in excess of $2,000,000 (borrowings, conversions and prepayment of different types of -42- Loans at the same time are deemed separate borrowings, conversions and prepayments for purposes of this Section 2.15, one for each type). Section 2.16 Additional Costs. (a) In the event that any existing or future law, regulation or guideline or interpretation thereof by any court or administrative or governmental authority charged with the administration thereof, or the compliance by any Bank with any request or directive (whether or not having the force of law) of any such authority shall impose, modify, deem applicable or result in the application of any capital maintenance, capital ratio or similar requirement against loan commitments made by any Bank, and the result is to impose upon any Bank or increase any capital requirement applicable as a result of the making or maintenance of such Bank's Commitment or the obligation of the Borrower under this Agreement with respect to its Commitment (which imposition of capital requirements may be determined by each Bank's reasonable allocation of the aggregate of such capital increases or impositions), then, upon demand made by such Bank as promptly as practicable after it obtains knowledge that such law, regulation, guideline, interpretation, request or directive exists and determines to make such demand, the Borrower shall immediately pay to such Bank from time to time as specified by such Bank additional amounts sufficient to compensate such Bank for such imposition of or increase in capital requirements together with interest on each such amount commencing five days from the date payment of such additional costs is demanded until payment in full is made at the Post-Default Rate. A certificate setting forth in reasonable detail the amount necessary to compensate such Bank as a result of an imposition of or increase in capital requirements submitted by such Bank to the Borrower shall be conclusive as to the amount of such compensation, absent manifest error. For purposes of this Section 2.16(a), in calculating the amount necessary to compensate any Bank for any imposition of or increase in capital requirements, such Bank shall be deemed to be entitled to a rate of return on capital (after federal, state and local taxes) of 15% per annum and all references to any "Bank" shall be deemed to include any participant in such Bank's Commitment. (b) In the event that any Regulatory Change shall (i) change the basis of taxation of any amounts payable to any -43- Bank under this Agreement or the Notes in respect of any Loans (other than taxes imposed on the overall net income of such Bank for any Loans by the United States or the jurisdiction in which such Bank has its principal office), (ii) impose or modify any reserve, Federal Deposit Insurance Corporation premium or assessment, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Bank (including any of such Loans or any deposits referred to in the definition of "Eurodollar Rate" in Section 1.1), or (iii) impose any other conditions affecting this Agreement in respect of Loans (or any of such extensions of credit, assets, deposits or liabilities), and the result of any event referred to in clause (i), (ii) or (iii) above shall be to increase such Bank's costs of making or maintaining any Loans or its Commitment or to reduce any amount receivable by such Bank under this Agreement in respect of its Eurodollar Loans or its Commitment (such increases in costs and reductions in amounts receivable are hereinafter referred to as "Additional Costs"), in each case only to the extent that such Additional Costs are not included in the Eurodollar Rate applicable to such Eurodollar Loans, then upon demand made by such Bank as promptly as practicable after it obtains knowledge that such a Regulatory Change exists and determines to make such demand (a copy of which demand shall be delivered to the Agent), the Borrower shall pay to such Bank from time to time as specified by such Bank additional amounts sufficient to compensate such Bank for such Additional Costs from the date of such change, together with interest on each such amount from the date demanded until payment in full at the Post-Default Rate. All references to any "Bank" shall be deemed to include any participant in such Bank's Commitment. (c) Without limiting the effect of the foregoing provisions of this Section 2.16, in the event that, by reason of any Regulatory Change, any Bank either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Bank which includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Bank which includes Eurodollar Loans, or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then if such -44- Bank so elects by notice to the Borrower (with a copy to the Agent), the obligation of such Bank to make, and to convert Loans of any other type into, Loans of such type hereunder shall be suspended until the date such Regulatory Change ceases to be in effect and all Loans of such type then outstanding shall be converted into Prime Rate Loans or into Eurodollar Loans of another duration, as the case may be, in accordance with Sections 2.7 and 2.19. Such Bank shall promptly notify the Borrower and the Agent if such Regulatory Change ceases to be in effect. (d) Determinations by any Bank for purposes of this Section 2.16 of the effect of any Regulatory Change on its costs of making or maintaining Loans or on amounts receivable by it in respect of Loans, and of the additional amounts required to compensate such Bank in respect of any Additional Costs, when set forth in a written notice to the Borrower shall be conclusive, absent manifest error. Section 2.17 Limitation on Types of Loans. Anything herein to the contrary notwithstanding, if on or prior to the determination of an interest rate for any Eurodollar Loans for any Interest Period any Bank determines (which determination shall be conclusive) that: (a) by reason of any event affecting the money markets in the United States or the interbank Eurodollar market, quotations of interest rates for the relevant deposits are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the rate of interest for such Eurodollar Loans under this Agreement; or (b) the rates of interest referred to in the definition of "Eurodollar Base Rate" in Section 1.1 do not accurately reflect the cost to such Bank of making or maintaining such Eurodollar Loans for such Interest Period; then upon notification by such Bank to the Agent, the Agent shall give the Borrower and each Bank prompt notice of such condition and, so long as such condition remains in effect, the Banks shall be under no obligation to make new Eurodollar Loans or to convert Prime Rate Loans or refinance Pre-Funding Loans into Eurodollar Loans. If such condition remains in effect, on the last day of -45- each then current Interest Period for the outstanding Eurodollar Loans the Borrower shall either prepay such Eurodollar Loans in accordance with Section 2.8 or convert such Eurodollar Loans into Prime Rate Loans in accordance with Section 2.7. The Agent shall give the Borrower and each Bank prompt notice of the cessation of such condition. Section 2.18 Illegality. Notwithstanding any other provision in this Agreement, in the event that it becomes unlawful for any Bank or its Applicable Lending Office to (i) honor its obligation to make new Eurodollar Loans, or (ii) maintain existing Eurodollar Loans, then such Bank shall promptly notify the Borrower (with a copy to the Agent) describing such illegality in reasonable detail. Upon giving such notice to the Borrower, such Bank's obligation to make new Eurodollar Loans and to convert Prime Rate Loans into Eurodollar Loans shall be suspended until such time as such Bank may again make and maintain Eurodollar Loans, and such Bank's outstanding Eurodollar Loans shall be converted into Prime Rate Loans in accordance with Sections 2.7 and 2.19. Such Bank shall promptly notify the Borrower and the Agent of the cessation of such illegality. Section 2.19 Forced Conversions. If any Loans of any Bank are to be converted pursuant to Section 2.16(c) or 2.18, such Loans shall be converted into Loans of another type or duration, as the case may be, on the last day of the then current Interest Period for such Loan or on such earlier date as such Bank may specify to the Borrower. Until the Bank gives notice as provided in Section 2.16(c) or 2.18 that the circumstances that gave rise to such conversion no longer exist, such Bank shall not be required to make new Loans, or convert existing Loans into Loans, of the particular type to be converted pursuant to Section 2.16(c) or 2.18. Section 2.20 Indemnification. The Borrower shall pay to the Agent, upon the request of each Bank, such amount or amounts as shall compensate such Bank for any loss (including loss of profit), cost or expense incurred by such Bank (as reasonably determined by such Bank) as a result of: -46- (a) any payment, prepayment or conversion of a Eurodollar Loan held by such Bank on a date other than the last day of an Interest Period for such Eurodollar Loan; or (b) any failure by the Borrower to borrow a Eurodollar Loan from such Bank on the date specified in a Borrowing Notice delivered under Section 2.3; such compensation to include an amount equal to (i) any loss or expense suffered by such Bank during the period from the date of receipt of such early payment or prepayment or the date of such conversion or date of intended borrowing to the last day of such Interest Period if the rate of interest obtainable by such Bank upon the redeployment of an amount of funds equal to such payment, prepayment or conversion or failure to borrow or convert is less than the rate of interest applicable to such Eurodollar Loan for such Interest Period, or (ii) any loss or expense suffered by such Bank in liquidating Eurodollar or other deposits prior to maturity which correspond to the payment, prepayment, conversion, failure to borrow or failure to convert. The determination by each Bank of the amount of any such loss or expense, when set forth in a written notice to the Borrower containing such Bank's calculation of such loss in reasonable detail, shall be presumed correct in the absence of manifest error. Section 2.21 Security Documents; Guaranties. In order to secure the due payment and performance by the Borrower of the Obligations, the Borrower has entered into or caused to be entered into the Security Documents, DVI has entered into the Guaranty and DBC has entered into the DBC Guaranty. The Borrower shall execute and deliver, or cause to be executed and delivered, such other agreements, instruments and documents as the Agent may reasonably require in order to effect the purposes of the Security Documents, the Guaranty and the DBC Guaranty. Section 2.22 Forms of Borrower Agreements. The forms of DBC Financing Agreements and Eligible Progress Payment Agreements used by the Borrower and DBC are attached as Exhibits F and G, respectively, to this Agreement. From time to time either the Borrower or the Agent may propose amendments to such forms, or new forms, of agreements for purposes of any future transactions entered into by the Borrower or DBC that -47- require such forms of agreements. Upon the giving by either the Borrower or the Agent of such notice, the Borrower and the Agent shall cooperate in good faith to amend such forms or to agree upon new forms of agreements within 30 days after such notice. Section 2.23 Required Borrowing Documentation. On or before the date of delivery of a Borrowing Base Report and with respect to the assets included in the Borrowing Base: (a) Contract Receivables Clause. The Borrower shall have and maintain possession of: (i) all original master leases for Eligible Leases; (ii) the original chattel paper copy of each Eligible Lease schedule and all executed originals of such Lease schedules other than the counterparts held by the Lessee; (iii) an original of each Equipment Note, CSA and Third Party Note, including the original security and financing documents and each original schedule relating to each Equipment Note and CSA and the original chattel paper copy of each Third Party Lease; and (iv) an original of each other related document or instrument executed by an Obligor relating to an Eligible Contract or to its related Equipment. (b) Progress Payments Clause. The Borrower shall have and, except to the extent forwarded to the Agent, maintain possession of: (i) each Eligible Progress Payment Agreement, as originally executed by the Borrower and the Lessee; (ii) the original of the Borrower's purchase order, manufacturer's or other vendor's invoice and evidence of payment thereof, and bills of sale from the manufacturer of the Equipment and all owners of the related Equipment prior to the Borrower; and -48- (iii) each check evidencing payment of a Progress Payment. (c) Inventory and Per Procedure Clause. The Borrower shall have and maintain possession of: (i) warehouse receipts and other written evidence of the return of Equipment to a location under the control of the Borrower; and (ii) the original chattel paper copy of each operating lease covering Eligible Equipment included under the Inventory and Per Procedure Clause, and all executed originals of such operating leases other than the counterparts held by the lessee. (d) Restructured Leases Clause. The Borrower shall have and maintain possession of: (i) all original master leases for Eligible Six- Month Restructured Leases; and (ii) the original chattel paper copy of each Eligible Six-Month Restructured Lease schedule and all executed originals of such schedules other than the counterparts held by the Lessee. (e) Healthcare Receivables Clause. The Borrower shall have and maintain possession of all documents to be delivered to DBC pursuant to the DBC Financing Agreements. (f) With respect to the documents listed in Sections 2.23(a)-(e), the Borrower shall have and maintain original executed copies of all exhibits, schedules, annexes, amendments and supplements relating to such documents. (g) With respect to the Contract Receivables Clause, Progress Payments Clause and Restructured Lease Clause of the Borrowing Base, the Borrower shall have and maintain photocopies (and acknowledgment copies when received) of the Financing Statements (informational or otherwise) filed by the Borrower as Lessor/secured party against the Obligor covering the related Equipment, Contract Payments and other assets, as appropriate, -49- and assigned to the Agent. With respect to the Healthcare Receivables Clause, the Borrower shall have and maintain photocopies (and acknowledgment copies when received) of the Financing Statements (informational or otherwise) filed by DBC as purchaser/secured party against a Healthcare Provider or the Obligor under an Eligible Healthcare Receivable, as the case may be, and assigned to the Agent. All of such Financing Statements shall have been filed in the appropriate filing offices as necessary for perfection of a security interest in favor of the Borrower or DBC, as the case may be, and the Agent as assignee prior to the date of inclusion of any related asset in the Borrowing Base. The Borrower shall also maintain copies of letters sent to Lessees, other obligors and issuers of insurance policies as required by Section 6.14, and originals of loss payee endorsements received in response. (h) The Agent may, at any time, in the exercise of its sole discretion, require the Borrower to deliver to the Agent originals or photocopies of all of the agreements, instruments and documents referred to in this Section 2.23. Section 2.24 Lock-Box Arrangements. (a) At its own expense, the Borrower shall establish and maintain at all times with the Agent or any of the Banks lock-box arrangements into which the Borrower shall deposit all payments made under contracts included in the Borrowing Base, and notify forthwith all Obligors or other obligors who have obligations in respect of assets included in the Borrowing Base to make payments only to the above-mentioned lock-box accounts; except that (i) the Borrower may establish and maintain lock-box arrangements with other banks if such other banks have entered into a written agreement satisfactory to the Agent pursuant to which such other bank acknowledges the Lien of the Agent and waives its rights of set-off with respect to such deposits, and (ii) DBC may establish and maintain lock-box or other collection arrangements with other banks or collection agents acceptable to the Agent if such other banks or collection agents have entered into a written agreement satisfactory to the Agent. Amounts deposited in the lock-box accounts shall be disbursed to the Borrower so long as (1) any Event of Default that had occurred and has been cured to the satisfaction of the Majority Banks, and (2) after the Term Conversion Date, the obligations of the Borrower under Section 2.8 are then satisfied in full, whether from amounts -50- deposited in the lock-box or otherwise. The Banks and the Agent acknowledge that payments delivered to a lock-box account under this Section 2.24(a) that are payable to third parties (such as user taxes, maintenance, repairs, management fees (other than to Affiliates) and insurance) are not entitled to be retained by the Banks and the Agent. (b) The Borrower and each Bank confirm and acknowledge that any payments received by any Bank pursuant to lock-box arrangements existing prior to the date of this Agreement shall be received by each such Bank as agent for the Agent to be held in escrow for application and direction exclusively pursuant to the terms and conditions of this Agreement (including for application to repayment of the Loans as directed from time to time by the Agent in a manner not inconsistent with the provisions of this Agreement). Notwithstanding the provisions of Section 2.24(a), at the request of the Agent all such payments shall be turned over to the Agent from and after the date of notice to such effect given by the Agent in its sole discretion following the occurrence of any Event of Default, and the Borrower and each Bank, if so required by the Agent's notice, shall forthwith deliver notices to all Obligors and other obligors under assets included in the Borrowing Base that all payments shall be delivered directly to the lock-box accounts maintained with the Agent. Section 2.25 Pro Rata Treatment Among Banks. Except as otherwise provided in this Agreement: (a) each borrowing from the Banks under Section 2.1 will be made from the Banks and each payment of the Commitment Fee (but not the Pre-Funding Commitment Fee) shall be made for the account of the Banks pro rata according to their respective Unused Commitments; (b) each partial reduction of the Total Commitment shall be applied to the Commitments of the Banks pro rata according to each Bank's Commitment; (c) each conversion of Loans of a particular type under Section 2.7 (other than conversions provided for by Section 2.18) will be made pro rata among the Banks holding Loans of such type according to the respective principal amounts of such Loans held by such Banks; (d) each payment and prepayment of principal of or interest on Loans of a particular type will be made to the Agent for the account of the Banks holding Loans of such type pro rata in accordance with the respective unpaid principal amounts of such Loans (but not Pre-Funding Loans) held -51- by such Banks; and (e) Interest Periods for Eurodollar Loans shall be allocated among the Banks holding Eurodollar Loans pro rata according to the respective principal amounts of such Eurodollar Loans held by such Banks. Section 2.26 Non-Receipt of Funds by the Agent. Unless the Agent shall have been notified by a Bank or the Borrower prior to the date on which such Bank is to make payment to the Agent of the proceeds of a Loan or the Borrower is to make a payment to the Agent for the account of one or more of the Banks, that such Bank or the Borrower does not intend to make the required payment, the Agent may assume that the required payment has been made and may, in reliance upon such assumption, make the amount thereof available to the intended recipient on such date and, if such Bank or the Borrower, as the case may be, has not in fact made the required payment, the recipient of such payment shall on demand repay to the Agent the amount made available to it together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the Federal Funds Rate for such day (when the recipient is a Bank) or equal to the rate of interest applicable to such Loan (when the recipient is the Borrower). Section 2.27 Sharing of Payments and Set-Off Among Banks. The Borrower agrees that in addition to and without limiting any right of set-off, banker's lien or counterclaim a Bank may otherwise have, each Bank shall be entitled, at its option, to offset balances held by it at any of its offices (including under any lock-box arrangements) against any principal of or interest on any of its Loans or Pre-Funding Loans or any Fee payable to it that is not paid when due (regardless of whether such balances are then due to the Borrower), in which case it shall promptly notify the Borrower and the Agent of such offset although its failure to give such notice shall not affect the validity of such offset. If a Bank shall effect payment of any principal of or interest on its Loans through the exercise of any right of set-off, banker's lien, counterclaim or similar right, it shall promptly purchase from the other Banks participations in their Loans in such amounts, and make such other adjustments from time to time as shall be equitable, to the end that all the Banks shall share the benefit of such payment -52- pro rata in accordance with the unpaid principal and interest on their Loans and each Bank shall have a Lien on its ratable portion of the amounts received from the Borrower. To such end the Banks shall make appropriate adjustments among themselves (by the resale of participations or otherwise) if such payment is rescinded or must otherwise be restored. The Borrower agrees that any Bank so purchasing a participation in the Loans held by the other Banks may exercise all rights of set-off, banker's lien, counterclaim or similar rights with respect to such participation as fully as if such Bank were a direct holder of Loans in the amount of such participation. Nothing contained in this Section 2.27 shall require any Bank to exercise any such right or shall affect the right of any Bank to exercise and retain the benefits of exercising any such right with respect to any other indebtedness or obligation of the Borrower. Section 2.28 Several Obligations. The failure of any Bank to make any Loan to be made by it on the date specified for such Loan shall not relieve the other Banks of their respective obligations to make their Loans on such date, but no Bank shall be responsible for the failure of the other Banks to make Loans to be made by such other Banks. Section 2.29 Release of Agent's Lien. The Borrower may finance, or any Affiliate that owns properties or assets covered by the Agent's Lien may finance, specific properties or assets with Indebtedness permitted under this Agreement. In such event, on any date that the Borrowing Base exceeds the outstanding principal amount of all Loans and Pre-Funding Loans, then subject to the other terms and conditions of this Agreement the Agent shall at its election either release or subordinate the Agent's lien on and security interest in such properties and assets proposed to be used as collateral for such indebtedness, and such assets and properties shall be excluded from the Borrowing Base, upon and subject to the following conditions: (a) no Default or Event of Default then exists or would exist after giving effect to the proposed release or subordination; (b) the Borrower shall provide the Agent with at least five Business Days' prior written notice of any such proposed incurrence of Indebtedness and shall provide the -53- Agent with (i) the lender's identity, (ii) the amount and terms of the proposed Indebtedness, including whether such Indebtedness is Non-Recourse Debt, Partial Recourse Debt or Recourse Debt, (iii) the specific Leases and Leased Property being financed by such Indebtedness, and (iv) such other information as the Agent may reasonably request; (c) the Borrower shall cause to be delivered to the Agent not later than five Business Days prior to any proposed release or subordination all UCC-3 amendment statements (if appropriate) and any other agreements, instruments and documents necessary, desirable or requested by the Agent in connection with such release or subordination, and all of the foregoing shall be satisfactory in form and substance to the Agent; (d) the Borrower shall bear and pay on demand all costs and expenses, including legal fees and expenses, incurred by the Agent and the Banks in connection with the review, preparation and filing of any of the foregoing; and (e) in connection with any Indebtedness incurred by DBC, the Agent shall receive from the lender to DBC such agreements as are reasonably satisfactory to the Agent confirming that such lender will not contest the enforceability or priority of the Agent's Lien in the properties and assets of DBC. Section 2.30. Pre-Funding Loans. (a) Intent. The obligations of the Banks under this Section 2.30 shall be absolute and unconditional and shall not be affected by any circumstance including any set-off, counterclaim, recoupment, defense or other right which such Bank may have against the Pre-Funding Lenders or the Borrower, the occurrence or continuance of a Default or Event of Default, any adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower, any breach of any Loan Document by the Borrower, or any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. (b) Pre-Funding Commitment. Subject to the terms and conditions of this Agreement and in reliance upon the -54- representations and warranties set forth in this Agreement, the Pre-Funding Lenders agree to make advances (the "Pre-Funding Loans") to the Borrower from time to time until but excluding the Term Conversion Date in an aggregate principal amount not to exceed the Pre-Funding Commitment as then in effect. The Pre-Funding Lenders are not obligated to make Pre-Funding Loans during the continuation of a Default or Event of Default. (c) Borrowings. During the Credit Period, the Borrower may borrow, repay and reborrow Pre-Funding Loans in accordance with and subject to the terms and conditions of this Section 2.30. Minimum borrowings of Pre-Funding Loans shall be in a principal amount of not less than $100,000 or, if less, the remaining Pre-Funding Commitment. All Pre-Funding Loans shall be Prime Rate Loans. Pre-Funding Loans shall be entitled to all of the guaranties and securities applicable to Loans under the Loan Documents. (d) Refinancing. Each Pre-Funding Loan shall be refinanced by Loans made pursuant to Section 2.1, without demand on or notice to the Borrower, on the earliest to occur of (i) the Term Conversion Date or any earlier termination of the Commitments or the Pre-Funding Commitment, (ii) the occurrence of a Default or an Event of Default, (iii) the election of either Pre-Funding Lender as set forth in Section 2.30(i), or (iv) the election of the Borrower given by delivery of a Borrowing Notice in accordance with Section 2.3. Each such refinancing shall be for the full outstanding principal amount of the Pre-Funding Loans. The advances to be made by the Banks under this Section 2.30(d) shall be in the amounts set forth in Section 2.30(i) and such amounts shall be advanced to the Agent for the account of the Pre-Funding Lenders. All such advances by the Banks pursuant to this Section 2.30 shall constitute Loans under the Total Commitment. Any Pre-Funding Loan not refinanced as set forth in this Section 2.30 (despite the absolute obligations of refinancing set forth in this Section 2.30) shall be due and payable in full by the Borrower on demand by the Pre-Funding Lender and shall, if the Loans are then due and payable, be repaid to the Pre-Funding Lenders prior to repayment of the Loans to the Banks. -55- (e) Pre-Funding Loan Note and Records. The Pre-Funding Loans shall be evidenced by two promissory notes of the Borrower (the "Pre-Funding Loan Notes") one in substantially the form attached as Exhibit C, dated June 14, 1991, in the principal amount of $8,000,000 payable to NatWest as a Pre-Funding Lender, and the other in substantially the form attached as Exhibit C, in the principal amount of $7,000,000 payable to CoreStates as a Pre-Funding Lender, dated December 29, 1995, and otherwise duly completed. The Pre-Funding Lenders shall maintain records in which appropriate entries will be made from time to time showing the unpaid principal of the Pre-Funding Loans made, the interest accrued on the Pre-Funding Loans, payments made in respect of the principal of and interest on the Pre-Funding Loans and debits and credits in respect of other amounts payable by the Borrower to each Pre-Funding Lender pursuant to this Agreement. The entries made by the Pre-Funding Lenders in such record shall constitute prima facie evidence of (i) the Borrower's obligations in respect of the Pre-Funding Loans, (ii) payments of principal and interest made by the Borrower in respect of the Pre-Funding Loans, and (iii) any other amounts owing by the Borrower to each Pre-Funding Lender under this Agreement and payments made on such amounts, but the failure by the Pre-Funding Lenders to make such entries shall not affect the rights of the Pre-Funding Lenders or the obligations of the Borrower under this Agreement. (f) Application for Pre-Funding Loan. (1) Application for a Pre-Funding Loan (a "Pre-Funding Borrowing Notice") shall be made to the Agent by telecopy notice which must be received by the Agent before 1:00 pm on the Business Day of the requested date for borrowing (i) setting forth the amount requested to be borrowed, and (ii) otherwise in compliance with the requirements of a Borrowing Notice under Section 2.3(b). On the date for borrowing proposed in a Pre-Funding Borrowing Notice, subject to satisfaction of the applicable conditions precedent set forth in Section 4.2, the Pre-Funding Lenders will advance to the Borrower their respective pro rata share of the amount requested up to the aggregate amount of the Pre-Funding Commitment and each such Pre-Funding Lenders' Pre-Funding Commitment, and the Borrower will borrow from the Pre-Funding Lenders, the -56- amount specified in such Pre-Funding Borrowing Notice and the Borrower will then be indebted to the Pre-Funding Lenders in the amount of their respective pro-rata shares of such principal amount. The Pre-Funding Lenders will credit the amount of the Pre-Funding Loan to an account on its books in the name of the Borrower or will transmit such amount upon the Borrower's order. (2) Subject to Section 2.30(i) below, not later than 1:00 p.m. on the date specified for each borrowing of a Pre-Funding Loan under this Agreement, each Pre-Funding Lender shall transfer to the Agent by wire transfer or otherwise but, in any event, in immediately available funds, the amount of each Pre-Funding Loan to be made by it on such date, and the Agent upon its receipt of each such amount shall disburse such amount to the Borrower by depositing it in an account of the Borrower designated by the Borrower and maintained with the Agent. (3) Whenever request is made by the Borrower for a Pre-Funding Loan, any obligation of the Pre-Funding Lenders to fund such loans, shall be in the pro rata amount of their respective share of the Pre-Funding Commitment, with NatWest funding 8/15ths of each Pre-Funding Loan and CoreStates funding 7/15ths of each Pre-Funding Loan up to the aggregate amount of their respective pro rata share of the Pre-Funding Commitment. (g) Interest on Pre-Funding Loans. So long as no Event of Default has occurred and is continuing, the Borrower shall pay to the Pre-Funding Lenders interest on the unpaid principal amount of each Pre-Funding Loan for the period commencing on the date of such Pre-Funding Loan until such Pre-Funding Loan is paid in full at a rate per annum equal to the Prime Rate. If an Event of Default occurs, the Borrower shall pay interest at the Post-Default Rate for Prime Rate Loans on the Pre-Funding Loans and on any other amount payable by the Borrower under this Section 2.30 for the period commencing on the date such Event of Default occurred and ending on the earlier of the date the Event of Default is cured or the date all Pre-Funding Loans and other amounts are paid in full. Interest on each Pre-Funding Loan -57- shall be payable monthly in arrears commencing on the first Monthly Date following the making of each Pre-Funding Loan and on the date of payment in full, except that unpaid interest accrued on a Pre-Funding Loan through any date of refinancing by Loans shall be payable on the last day of the calendar month in which such refinancing occurs. (h) Prepayments of Pre-Funding Loans. Subject to the provisions of this Section 2.30(h), the Borrower shall be permitted to repay and prepay Pre-Funding Loans in whole or in part from time to time without premium or penalty. Partial prepayments may not be less than $50,000 or an integral multiple of $50,000 unless the Pre-Funding Loans are paid in full. The Borrower shall prepay the Pre-Funding Loans when required, and in the manner required, by Section 2.8. All prepayments shall be made to the Agent in respect of a Pre-Funding Loan shall be applied pro rata to the Pre-Funding Loans then outstanding for the Pre-Funding Lender, and shall be made together with interest accrued on the amount prepaid and any additional amount payable pursuant to Section 2.16, Section 2.20 or otherwise. (i) Refinancing by Banks at Election of Either Pre-Funding Lender. At any time (whether or not a Default or an Event of Default exists) either Pre-Funding Lender may, in its sole discretion, determine that it desires, to convert the Pre-Funding Loans into Loans under Section 2.1 and desires, the Banks to refinance the Pre-Funding Loans. At such time, either Pre-Funding Lender shall notify the Borrower and the Agent of such fact, the Agent shall then notify the Banks of such determination and thereafter the Banks shall on the second Business Day after the giving of such notice by the Pre-Funding Lender advance funds to the Agent for the account of the Pre-Funding Lenders in an amount equal to the product of (1) a fraction in which the numerator is such Bank's Commitment then in effect and the denominator is the Total Commitment then in effect, multiplied by (ii) the aggregate outstanding principal balance of the Pre-Funding Loans to be refinanced, which funds shall be remitted by the Agent to the Pre-Funding Lenders to be applied by the Pre-Funding Lenders to refinance the Pre-Funding Loans; provided, however, that no Bank shall be required to advance funds to the Agent in an -58- aggregate amount in excess of the amount of such Bank's Unused Commitment as in effect on such date. (ii) If prior to the making of a Loan pursuant to Section 2.30(i)(i) one of the events described in Section 8.6 shall occur, each Bank shall, on the date such Loan was to have been made, purchase an undivided participation interest equal to the product of (1) a fraction in which the numerator is such Bank's Commitment then in effect and the denominator is the Total Commitment then in effect, multiplied by (ii) the aggregate outstanding principal balance of all Pre-Funding Loans. Each Bank will immediately transfer to the Agent on behalf of the Pre-Funding Lenders, in immediately available funds, the amount of its participation and upon receipt of such amount the Agent will deliver to such Bank a participation certificate dated the date of receipt of such funds and in such amount. (iii) At any time after the Pre-Funding Lenders have received from any Bank such Bank's participating interest in a Pre-Funding Loan pursuant to Section 2.30(i)(ii) that either Pre-Funding Lender receives any payment on account of the Pre-Funding Loans, such Pre-Funding Lender will distribute to such Bank its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Bank's participating interest was outstanding and funded) in like funds as received; provided, however, that in the event that such payment received by such Pre-Funding Lender is required to be returned, such Bank will return to such Pre-Funding Lender any portion thereof previously distributed by such Pre-Funding Lender to it in like funds as such payment is required to be returned by such Pre-Funding Lender. (j) Pre-Funding Commitment Fee. The Borrower shall pay to each Pre-Funding Lender a commitment fee (the "Pre-Funding Commitment Fee") on the daily average unused amount of the Pre-Funding Commitment of such Pre-Funding Lender at 1/4 of 1% per annum on the unused Pre-Funding Commitment for the period from March 28, 1995, with respect to NatWest, and for the period from the date of this -59- amendment, with respect to CoreStates, to and including the earlier of the date on which the Pre-Funding Commitment is terminated or the Term Conversion Date. Such fee shall be payable quarterly in arrears on the last day of each calendar quarter and on the earlier of the date the Pre-Funding Commitment is terminated or the Term Conversion Date. (k) Except as otherwise provided in this Agreement (i) each borrowing from the Pre-Funding Lenders under Section 2.30 will be made from the Pre-Funding Lenders and each refinancing or partial repayment of a Pre-Funding Commitment Fee shall be made for the account of the Pre-Funding Lenders' pro rata according to their respective share of the Pre-Funding Commitment; (l) Each payment and pre-payment of principal of or interest on each such Pre-Funding Loan will be made to the Agent for the account of the Pre-Funding Lenders holding such Pre-Funding Loan pro rata in accordance with the respective unpaid principal amounts of each such loan held by each such Pre-Funding Lenders; and ARTICLE 3. REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to the Banks and the Agent that: Section 3.1 Organization. (a) Each of DVI and its Subsidiaries is duly organized and validly existing under the laws of its state of organization and has the power to own its assets and to transact the business in which it is presently engaged and in which it proposes to be engaged. The attached Schedule 1 lists each of the Subsidiaries of DVI, the state of incorporation of DVI and each of its Subsidiaries, the authorized and outstanding shares of common stock of each such corporation, the owners of the outstanding shares of common stock of the Borrower and the other Subsidiaries of DVI and the business in which each of such entities is engaged. All of the issued and outstanding shares of capital stock of the Borrower and the other Subsidiaries of DVI have been duly and validly issued, are fully paid and non-assessable and are owned by DVI free and clear of -60- any Lien except as stated on the attached Schedule 1. Except as set forth on the attached Schedule 1, no warrants, options, contracts or commitments of any kind are outstanding entitling any Person to purchase or otherwise acquire any shares of capital stock of the Borrower or any other subsidiaries of DVI, and no securities are outstanding that are convertible into or exchangeable for any shares of capital stock of the Borrower or any other subsidiaries of DVI. (b) Each of the Borrower, DVI and DBC is in good standing in its state of incorporation and in each state in which it is qualified to do business. There are no jurisdictions other than as set forth on the attached Schedule 1 in which the character of the properties owned by the Borrower or in which the transaction of the business of the Borrower as now conducted requires or will require the Borrower to qualify to do business, except jurisdictions in which the failure to so qualify would not have a material adverse effect on the Collateral or the business, operations, financial condition or assets of the Borrower. Section 3.2 Power, Authority, Consents. (a) Each Loan Party has the power to execute, deliver and perform the Loan Documents to be executed by it, (b) the Borrower has the power to borrow under this Agreement and has taken all necessary corporate action to authorize borrowing on the terms and conditions of this Agreement, and (c) each Loan Party has taken all necessary action, corporate or otherwise, to authorize the execution, delivery and performance of the Loan Documents to be executed by it. No consent or approval of any Person (including the stockholder of the Borrower or any other Loan Party), no consent or approval of any landlord or mortgagee, no waiver of any Lien or right of distraint or other similar right and no consent, license, approval, authorization or declaration of any governmental authority, bureau or agency is or will be required in connection with the execution, delivery or performance by any Loan Party or for the validity, enforcement or priority of the Loan Documents or the Agent's Lien except as set forth on the attached Schedule 2, each of which either has been duly and validly obtained on or prior to the date of the restatement of this Agreement and is now in full force and effect or is designated on the attached Schedule 2 as waived by the Majority Banks. -61- Section 3.3 No Violation of Law or Agreements. The execution, delivery and performance by each Loan Party of each Loan Document to which it is a party does not and will not violate any provision of law and does not and will not, except as set forth on the attached Schedule 2, conflict with or result in a breach of any order, writ, injunction, ordinance, resolution, decree or other similar document or instrument of any court or governmental authority, bureau or agency, domestic or foreign, or any certificate of incorporation or by-laws of such Loan Party, or create (with or without the giving of notice or lapse of time, or both) a default under or breach of any agreement, instrument, document, bond, note or indenture to which such Loan Party is a party or by which it or any of its properties or assets is bound or affected, or result in the imposition of any Lien upon any of the properties or assets owned by or used in connection with the business of such Loan Party, except for the Liens created and granted pursuant to the Security Documents. Section 3.4 Due Execution, Validity, Enforceability. Each Loan Document to which any Loan Party is a party has been duly executed and delivered by such Loan Party and constitutes the valid and legally binding obligation of such Loan Party enforceable in accordance with its terms, except that the remedy of specific performance and other equitable remedies are subject to judicial discretion and except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to or affecting the enforcement of creditors' rights generally, but such laws shall not materially interfere with the practical benefits of the Security Documents or the Liens created by the Security Documents except for (a) possible delay, (b) situations which may arise under Chapter 11 of the Bankruptcy Code, and (c) equitable orders of a Bankruptcy Court. Section 3.5 Properties, Priority of Liens. All of the properties and assets owned by the Borrower are owned by it free and clear of any Lien except as provided for in the Security Documents and Permitted Liens. The Liens created and granted by the Security Documents constitute valid, perfected Liens on the Collateral subject to no prior or equal Liens except Permitted Liens. -62- Section 3.6 Judgments, Actions, Proceedings. Except as set forth on the attached Schedule 3, no judgments, actions or proceedings are pending before any court or governmental authority, bureau or agency or, to the best of the Borrower's knowledge, threatened against or affecting the Borrower involving a claim in excess of $1,000,000 individually or $2,500,000 in the aggregate, to the best of the Borrower's knowledge no reasonable basis exist for the institution of any such action or proceeding which is probable of assertion, and the Borrower is not a plaintiff or complainant in any such actions or proceedings. Section 3.7 No Defaults, Compliance With Laws. Except as set forth on the attached Schedule 4, the Borrower is not in default under any agreement, ordinance, resolution, decree, bond, note, indenture, order or judgment to which it is a party or by which it is bound or under any other agreement or instrument by which any of the properties or assets owned by it or used in the conduct of its business is affected, and the Borrower has complied and is in compliance in all respects with all Applicable Laws the default or non-compliance with which could have a material adverse effect on the business, operations, financial condition or assets of the Borrower or on the ability of any Loan Party to perform its obligations under the Loan Documents to which it is a party. Section 3.8 Burdensome Documents. Except as set forth on the attached Schedule 5, no Loan Party is a party to or bound by, nor are any of the properties or assets owned by the Borrower used in the conduct of its businesses affected by, any agreement, ordinance, resolution, decree, bond, note, indenture, order or judgment which materially and adversely affects its business, assets or condition, financial or otherwise. Section 3.9 Financial Statements. Each of the Financial Statements is correct and complete, presents fairly the financial position of the Borrower at its date and has been prepared in accordance with GAAP. Neither DVI nor the Borrower has any material obligation, liability or commitment, direct or contingent, which is not reflected in the Financial Statements. No material adverse change in the financial position or operations of DVI or the Borrower has occurred since the date of the latest balance sheet included in the Financial Statements. -63- The fiscal year of both DVI and the Borrower is the twelve-month period ending on June 30 in each year. Section 3.10 Tax Returns. Each of DVI, the Borrower and DBC has filed all federal, state and local tax returns required to be filed by it and has paid all taxes, interest and penalties required on or before their respective due dates except for (i) taxes being contested in good faith by appropriate proceedings for which adequate reserves have been provided in DVI's, the Borrower's or DBC's financial statements according to GAAP and, to the extent required by GAAP then in effect, proper and adequate reserves are established by the Borrower and a bond is filed if necessary to avoid the creation of a Lien against any properties of DVI, the Borrower and DBC, and (ii) taxes whose nonpayment will not have a material adverse effect on the condition, financial or otherwise, of DVI, the Borrower or DBC. Except to the extent that reserves therefor are reflected in the Financial Statements, (a) no material federal, state or local tax liabilities of DVI, the Borrower or DBC are due or to become due for any tax year ended on or prior to the date of the latest balance sheet included in the Financial Statements relating to such entity, whether incurred in respect of or measured by the income of such entity, which are not properly reflected in the Financial Statements, and (b) no material claims are pending or, to the knowledge of the Borrower, proposed or threatened against DVI, the Borrower or DBC for past federal, state or local taxes except those as to which proper reserves are reflected in the Financial Statements. Section 3.11 Intangible Assets. The Borrower possesses, owns or has rights to use all necessary patents, trademarks, service marks, trademark and service mark rights, trade names, trade name rights and copyrights to conduct its business as now conducted and as proposed to be conducted, without any conflict with the patents, trademark, service mark, trademark and service mark rights, trade names, trade name rights and copyrights of any other Person, a complete listing of which is set forth on the attached Schedule 6. Section 3.12 Regulation U. No part of the proceeds received by the Borrower from the Loans or the Pre-Funding Loans will be used directly or indirectly for (a) any purpose other than as set forth in Section 2.9, or (b) the purpose of -64- purchasing or carrying, or for payment in full or in part of Indebtedness incurred for the purpose of purchasing or carrying, "margin stock" as such term is defined in ss.221.3 of Regulation G or Regulation U of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II, Part 221. Section 3.13 Name Changes. Except as set forth on the attached Schedule 7, the Borrower has not within the six years immediately preceding the date of restatement of this Agreement changed its name, been the surviving entity of a merger or consolidation or acquired all or substantially all of the assets of any Person. Schedule 7 also lists all locations of the Borrower at which the Borrower may store Equipment constituting Collateral from time to time. Section 3.14 Full Disclosure. None of the Financial Statements, nor any certificate, opinion or any other statement made or furnished in writing to the Agent or any Bank by or on behalf of the Borrower, DVI or DBC in connection with this Agreement or the transactions contemplated in this Agreement, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make such statements not misleading as of the date such statement was made. The Borrower knows of no fact that has or would in the now foreseeable future have a material adverse effect on the business, prospects or condition, financial or otherwise, of the Borrower, DVI or DBC which fact has not been set forth in this Agreement, in the Financial Statements or in a certificate, opinion or other written statement made or furnished to the Agent and the Banks. Section 3.15 Labor Disputes; Collective Bargaining Agreements; Employee Grievances. Except as set forth on the attached Schedule 8, (a) no collective bargaining agreements or other labor contracts exist covering the Borrower, (b) no union or other labor organization is seeking to organize, or to be recognized as bargaining representative for, a bargaining unit of employees of the Borrower, (c) no strike, work stoppage, material unfair labor practice claim or charge, arbitration or other material labor dispute against or affecting the Borrower or its representative employees has occurred during the five years prior to the date of the restatement of this Agreement or is pending or threatened, and (d) no actions, suits, charges, demands, claims, -65- counterclaims or proceedings are pending or, to the best of the Borrower's knowledge, threatened against the Borrower by or on behalf of, or with, its employees other than employee grievances arising in the ordinary course of business which are not, in the aggregate, material. Section 3.16 Condition of Assets. (a) All of the assets and properties of the Borrower which are reasonably necessary for the operation of its business are in good working condition, ordinary wear and tear excepted, and are able to serve the function for which they are currently being used. (b) All of the assets and properties of the Borrower subject to a Lease are in good working condition, ordinary wear and tear excepted, and are able to serve the function for which they are currently being used. Section 3.17 ERISA. (a) The Borrower does not have and has never had any Plan in connection with which there could arise a direct or contingent liability of the Borrower to the PBGC, the Department of Labor or the IRS. The Borrower is not a participating employer in any Plan under which more than one employer makes contributions, as described in Sections 4063 and 4064 of ERISA, or a multiemployer plan as defined in Section 4001(a)(3) of ERISA. (b) All references to the Borrower in this Agreement relating to ERISA shall be deemed to refer to the Borrower and all other entities which are, together with the Borrower, part of a Controlled Group. Section 3.18 Non-Recourse Debt. Except as set forth on the attached Schedule 9, none of the loan documents relating to any Non-Recourse Debt or Partial Recourse Debt of the Borrower provide that (a) the Lien of a lender of Non-Recourse Debt or Partial Recourse Debt in any equipment, leases and receivables will not be released until the Borrower has fully repaid Indebtedness owed to such lender not incurred to finance such equipment, leases and receivables, or (b) a default under such loan documents will constitute a default for the benefit of such lender under any other loan documents of the Borrower. -66- Section 3.19 Finders or Brokers. None of the Borrower, DVI or DBC has employed or agreed to employ or made use of the services of any investment banker, broker, finder, intermediary or similar Person in connection with the transactions contemplated by the Loan Documents who might be entitled to a fee or any commission that has not been paid. Section 3.20 Investment Company Act; Public Utility Holding Company Act. None of the Borrower, DVI or DBC is (i) an "investment company" or a company controlled by an "investment company" within the meaning of the Investment Company Act of 1940, or (ii) a "public utility holding company" or a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935. Section 3.21 Borrowing Base Reports. The information set forth in each Borrowing Base Report is true, correct and complete and each asset included in the Borrowing Base conforms with and satisfies the requirements for such item set forth in this Agreement, including under the respective definitions applicable to such assets. Section 3.22 Licenses and Approvals. The Borrower has all necessary licenses, permits and governmental authorizations, including licenses, permits and authorizations relating to Environmental Matters, to own and operate its properties and to carry on its business as now conducted. Section 3.23 Independent Credit Committee. The Borrower's Credit Committee has and shall continue to, in practice, exercise its judgment and reach determinations independently from those officers of the Borrower responsible for the generation and marketing of business for the Borrower. ARTICLE 4. CONDITIONS TO THE LOANS Section 4.1 Conditions to Initial Loans. The conditions precedent fulfilled in connection with the obligation of each Bank to make the initial Loans under this Agreement are set forth on the attached Schedule 10, and the Borrower, the -67- Agent and each of the Banks has copies of the documents referred to on Schedule 10. Section 4.2 Conditions to Subsequent Loans. After the initial Loan has been made under this Agreement, the obligation of each Bank or the Pre-Funding Lender to make a Loan or a Pre-Funding Loan, respectively, is subject to the fulfillment (to the satisfaction of the Agent) of the following conditions precedent: (a) The Agent shall have received a Borrowing Notice, and, with respect to Loans that exceed the Borrowing Availability as reported in the most recent Borrowing Base Report delivered to the Agent, a Borrowing Base Report or the additional Borrowing Base information and Supporting Documents required by Section 2.3(b), and all other documents required to be delivered in connection with a Borrowing Notice and Borrowing Base Report (if applicable). (b) The Borrower shall have complied and shall then be in compliance with all the terms, covenants and conditions of this Agreement and the other Loan Documents. (c) No Default or Event of Default shall have occurred and be continuing. (d) The representations and warranties contained in Article 3 shall be true with the same effect as though such representations and warranties had been made at the time of the making of such Loan, except for changes which were made in the ordinary course of business, not material and not prohibited by this Agreement. (e) The Agent shall have received a certificate, dated the date of such Loan and effective as of such date, certifying that the conditions set forth in Sections 4.2(b)-(d) are satisfied as of such date, except that such certificate shall not be required in connection with a conversion of a Loan from one type into another type that does not result in an increase in the outstanding principal amount of the Loans. (f) All legal matters incident to such proposed Loan shall be satisfactory to the Agent and counsel to the Agent. -68- ARTICLE 5. DELIVERY OF FINANCIAL REPORTS, DOCUMENTS AND OTHER INFORMATION So long as the Commitments are outstanding, any Loan remains outstanding, the Borrower is indebted to the Banks or the Agent, the Notes have not been paid in full or the Obligations have not been fully and completely performed, the Borrower shall deliver the following documents: Section 5.1 Annual Financial Statements and Budgets. (a) The Borrower shall deliver to each Bank and the Agent, as soon as available but in any event within 95 days after the last day of each fiscal year, audited consolidated and unaudited consolidating balance sheets of DVI and its Subsidiaries as at the last day of such fiscal year, and audited consolidated and unaudited consolidating statements of income and retained earnings and statements of cash flow for such fiscal year, each prepared in accordance with GAAP and certified without qualification by Deloitte & Touche L.L.P. or another firm of independent certified public accountants satisfactory to the Agent as fairly presenting the financial position and the results of operations of DVI and its Subsidiaries at the end of and for such fiscal year and as having been prepared in accordance with GAAP. (b) The Borrower shall also deliver to each Bank and the Agent, as soon as available, DVI's Annual Report on Form 10-K as filed with the SEC for each fiscal year. (c) Promptly upon receipt, the Borrower shall deliver to each Bank and the Agent copies of all other reports submitted to DVI or the Borrower by DVI's independent accountants in connection with any annual or interim audit or review of the books of DVI or the Borrower made by such accountants. Section 5.2 Quarterly Financial Statements. The Borrower shall deliver to each Bank and the Agent, as soon as available but in any event within 50 days after the end of each of the first three fiscal quarters, (a) DVI's Quarterly Report on Form 10-Q as filed with the SEC for such fiscal quarter; and -69- (b) a consolidating balance sheet of DVI and its Subsidiaries as of the last day of such quarter and consolidating statements of income and retained earnings and consolidating statements of cash flow for such fiscal quarter and on a comparative basis figures for the corresponding period of the immediately preceding fiscal year all in reasonable detail, each such statement to be certified in a certificate of Borrower's chief financial officer or chief accounting officer as fairly presenting the financial position and the results of operations of the entity to which such statement relates as at its date and for such quarter (subject to year-end audit adjustments) and as having been prepared in accordance with GAAP. Section 5.3 Other Information. Promptly after a written request, the Borrower shall deliver to each Bank and the Agent such other financial information evidencing compliance with the requirements of the Loan Documents or otherwise relating to the business, affairs and conditions of DVI or any Subsidiary as the Agent or any Bank may reasonably request from time to time. Section 5.4 No Default Certificate. At the same time it delivers the financial statements required under Sections 5.1 and 5.2, the Borrower shall deliver to each Bank and the Agent a certificate of Borrower's chief financial officer, chief accounting officer or chief credit officer to the effect that no Event of Default exists, no default exists under any other agreement to which the Borrower is a party or by which it or, to the best of its knowledge, any of its properties or assets, taken as a whole, is bound or may be materially affected, and no event which, with the giving of notice or the lapse of time or both would constitute an Event of Default or such a default exists, or, if such cannot be so certified, specifying in reasonable detail the exceptions, if any, to such statement. Such certificate shall be accompanied by a detailed calculation indicating compliance with the covenants contained in Sections 6.9, 7.12 and 7.13. Section 5.5 Copies of Documents. Promptly upon their becoming available, copies of any (a) financial statements, projections, non-routine reports, notices other than routine correspondence, requests for waivers and proxy statements delivered by the Borrower, DVI or DBC to any lending institution -70- other than the Banks, (b) correspondence or notices received by the Borrower, DVI or DBC from any federal, state or local governmental authority that regulates the operations of the Borrower, DVI or DBC relating to an actual or threatened change or development which would be materially adverse to the Borrower, DVI or DBC, (c) registration statements and any amendments and supplements thereto, and any regular and periodic reports, filed by DVI with any securities exchange or with the SEC, (d) letters of comment or correspondence sent to DVI by any such securities exchange or the SEC in relation to the affairs of DVI, the Borrower or DBC, (e) written reports submitted to DVI, the Borrower or DBC by DVI's independent accountants in connection with any annual or interim audit of the books of DVI, the Borrower or DBC made by such accountants, and (f) any appraisals received by DVI, the Borrower or DBC with respect to the properties or assets of DVI, the Borrower or DBC. Section 5.6 Notices of Defaults. The Borrower shall deliver promptly to the Agent notice of the occurrence of a Default, an Event of Default or an event which would constitute or cause a material adverse change in the condition, financial or otherwise, of the operations of the Borrower, DVI or DBC. Section 5.7 ERISA Notices. (a) Concurrently with such filing, the Borrower shall deliver to the Agent a copy of each Form 5500 which is filed with respect to each Plan with the IRS. (b) The Borrower shall also deliver to the Agent, promptly upon their becoming available, copies of (i) all correspondence with the PBGC, the Secretary of Labor or any representative of the IRS with respect to any Plan relating to an actual or threatened change or development which would be materially adverse to the Borrower, (ii) copies of all actuarial valuations received by the Borrower with respect to any Plan, and (iii) copies of any notices of Plan termination filed by any Plan Administrator (as those terms are used in ERISA) with the PBGC and of any notices from PBGC to the Borrower with respect to the intent of the PBGC to institute involuntary termination proceedings. Section 5.8 Borrowing Base Reports. (a) The Borrower shall deliver to each Bank and the Agent, as soon as -71- available but in any event within 45 days after the end of each calendar month, a Borrowing Base Report with respect to such calendar month that is certified as accurate and complete by the Borrower's chief financial officer, chief accounting officer, chief credit officer or the current Vice President-Structured Finance and that also contains the following additional information (collectively, the "Supporting Documents"): (i) a list of all motor vehicles included in the Borrowing Base as of the last day covered in such Borrowing Base Report; (ii) a list of all Contracts included in the Borrowing Base as of the last day covered in such Borrowing Base Report setting forth with respect to each Contract the name and lease number of the Obligor, the start and end dates and the monthly rentals and equipment cost; (iii) a list of all Eligible Equipment delivered off-premises for repair or storage included in the Borrowing Base as of the last day covered in such Borrowing Base Report and all related Financing Statements, as applicable; (iv) aging reports and total delinquencies as of the last day covered in such Borrowing Base Report for all receivables included in the Borrowing Base and for the Borrower as a whole; (v) a list of all Progress Payments included in the Borrowing Base as of the last day covered in such Borrowing Base Report, including the date on which such item was included in the Borrowing Base; and (vi) evidence satisfactory to the Banks and the Agent that the provisions of this Agreement have been complied with in respect of such assets, in each case dated the date of delivery, and all such other documents and information required to be delivered in connection therewith. (b) In addition to the monthly Borrowing Base Reports to be delivered pursuant to Section 5.8(a), the Borrower shall deliver to each Bank and the Agent, at the same time it delivers -72- the annual financial statements pursuant to Section 5.1, a Borrowing Base Report for the last month of the Borrower's fiscal year based on the Borrower's audited financial statements and containing the same information required under Section 5.8(a). (c) The Borrower shall deliver to each Bank and the Agent, at the same time it delivers it to any Warehousing Lender, a copy of the monthly report required to be prepared by the Borrower under any Warehousing Loan Agreement. (d) After the Term Conversion Date, the Borrower shall deliver to each Bank and the Agent, as soon as available but in any event within 45 days after the end of each calendar month, a detailed report regarding all cash receipts arising from transactions relating to assets included in the Borrowing Base. (e) The Borrower shall deliver to each Bank and the Agent, at the same time it delivers the monthly Borrowing Base Report pursuant to Section 5.8(a), a report setting forth the Borrower's average leverage ratio (i.e., assets created for each $1.00 of cash received) and the amount of C-Piece Financing incurred by Borrower." ARTICLE 6. AFFIRMATIVE COVENANTS So long as the Commitments are outstanding, any Loan remains outstanding, the Borrower is indebted to the Banks or the Agent, the Notes have not been paid in full or the Obligations have not been fully and completely performed: Section 6.1 Books and Records. The Borrower shall keep proper books of record and account in a manner reasonably satisfactory to the Agent in which full, true and correct entries shall be made of all dealings or transactions in relation to its business and activities. Section 6.2 Inspections and Audits. The Borrower shall permit the Banks and the Agent to make or cause to be made inspections and audits of any books, records and papers of any Loan Party, to make extracts from and copies of such books, records and papers, and to make inspections and examinations of any properties and facilities of any Loan Party on reasonable -73- notice, all at such reasonable times and as often as the Agent or any Bank may reasonably require, in order to assure that the Borrower and each Loan Party is and will be in compliance with its obligations under the Loan Documents or to evaluate the Banks' investment in the then outstanding Notes. In addition, the Borrower shall, and shall cause any other Loan Party to, during all business hours, provide the Banks, the Agent and the Agent's representatives full access to all of the agreements, instruments and documents referred to in Section 2.23. The Banks and the Agent, on the one hand, and the Loan Parties, on the other hand, shall bear the costs and expenses of their employees and personnel in connection with such inspections and audits, except that the Borrower shall bear the reasonable costs and expenses incurred by the Banks and the Agent in connection with (a) one annual audit of the Borrower to be performed at the request of the Agent, (b) one annual audit of DBC to be performed at the request of the Agent, and (c) any inspection, audit or examination conducted after the occurrence of and during the continuance of an Event of Default." Section 6.3 Maintenance and Repairs. The Borrower shall maintain or cause to be maintained by the Lessees in good repair, working order and condition, subject to normal wear and tear, all material properties from time to time owned by it and used in or necessary for the operation of its business, and make or cause to be made all reasonable repairs, replacements, additions and improvements to such properties. Section 6.4 Continuance of Business. The Borrower shall do or cause to be done all things reasonably necessary to preserve and keep in full force and effect its corporate existence and all permits, rights and privileges necessary for the proper conduct of its business, and shall continue to engage in the same line of business (as required by Section 7.6), including the qualification of the Borrower to do business as a foreign corporation in each jurisdiction in which failure to so qualify could have a material adverse effect on the business, operations, financial conditions or properties of the Borrower, and shall comply in all material respects with all Applicable Laws. Section 6.5 Copies of Corporate Documents. Subject to the prohibitions set forth in Section 7.11, the Borrower shall -74- promptly deliver to the Agent copies of any amendments or modifications to its, DVI's or DBC's certificate of incorporation and by-laws, certified with respect to the certificate of incorporation by the Secretary of State of its state of incorporation and, with respect to the by-laws, by the secretary or assistant secretary of the corporation. Section 6.6 Perform Obligations. (a) The Borrower shall pay and discharge all of its obligations and liabilities, including all taxes, assessments and governmental charges upon its income and properties, when due except to the extent that such obligations, liabilities, taxes, assessments and governmental charges are contested in good faith and by appropriate proceedings and, to the extent required by GAAP then in effect, proper and adequate reserves are established by the Borrower and a bond is filed if necessary to avoid the creation of a Lien against any of its properties. (b) The Borrower shall perform all its obligations under each of the Contracts. Section 6.7 Notice of Litigation. The Borrower shall promptly notify the Agent in writing of any litigation, legal proceeding or dispute involving amounts in excess of $1,000,000 individually or $2,500,000 in the aggregate affecting the Borrower, DVI or DBC, whether or not fully covered by insurance and regardless of the subject matter (excluding any actions relating to workmen's compensation claims or negligence claims relating to the use of motor vehicles, if fully covered by insurance, subject to deductibles). Section 6.8 Insurance. (a) The Borrower shall maintain with or at responsible insurance companies such insurance on such of its properties, in such amounts and against such risks as is customarily maintained by similar businesses, including maintaining or causing Lessees to maintain all-risk insurance on each item of Leased Property in an amount at least equal to the replacement value of such item. Each such policy (i) shall have a loss payable endorsement naming each of the Agent (c/o the Agent's Leasing Division), the Borrower or the Borrower's assigns as loss payee as its interests may appear, (ii) shall name the Agent as an additional named insured in respect of liability insurance, and (iii) shall state that the -75- insurers shall give the Agent prompt written notice of any nonpayment of premiums on such policy when due and 30 days prior written notice of an cancellation or material adverse change in such policy, all in form and substance satisfactory to the Agent with such additional provisions as the Agent may reasonably request. The Borrower shall file with the Agent upon its request a detailed list of the insurance then in effect, stating the names of the insurance companies, the amounts and rates of the insurance, the dates of policy expiration and the properties and risks covered by such insurance, and within 10 days after notice in writing from the Agent shall obtain such additional insurance as the Agent may reasonably request. (b) The Borrower shall carry all insurance available through the PBGC or any private insurance companies covering its obligations to the PBGC. Section 6.9 Financial Covenants. The Borrower shall maintain the following financial covenants: (a) Tangible Net Worth. The Borrower shall have at the end of each fiscal quarter Tangible Net Worth in an amount equal to or greater than the sum of (i) $35,000,000, plus (ii) 75% of net income (with no deduction for losses) for the period commencing with the first day of the calendar quarter ending September 30, 1994 and each subsequent quarter on a cumulative basis, plus (iii) 100% of any new issuance of equity. (b) Leverage Ratio. The Borrower shall maintain at all times a Leverage Ratio not greater than 5:1. (c) Risk-Adjusted Leverage Ratio. The Borrower shall maintain at all times a Risk-Adjusted Leverage Ratio not greater than 5:1. (d) Debt Service Coverage. On and before the Term Conversion Date, at the end of each fiscal quarter with respect to the 12-month period then ended, the Borrower shall have a ratio of (i) the sum of Cash Receipts minus Cash Operating Expenses plus Interest Expense, to (ii) Interest Expense of not less than 1.75:1. After the Term Conversion Date, at the end of each fiscal quarter with respect to the 12-month period then ended, the Borrower shall have a ratio of (1) the sum of Cash -76- Receipts minus Cash Operating Expenses plus Interest Expense, to (2) Interest Expense plus all mandatory schedule payments of principal on Indebtedness of not less than 1.05:1. Section 6.10 Reportable Events. (a) The Borrower shall promptly notify the Agent in writing of the occurrence of any Reportable Event, as defined in Section 4043 of ERISA, if a notice of such Reportable Event is required under ERISA to be delivered to the PBGC within 30 days after its occurrence, together with a description of such Reportable Event, a statement of the action the Borrower intends to take with respect to such Reportable Event and a copy of the notice given to the PBGC. (b) The Borrower shall promptly notify the Agent in writing if any Loan Party receives (i) any notice of any violation or administrative or judicial complaint or order having been filed or about to be filed against such Loan Party alleging violations of any Environmental Law and Regulation, or (ii) any notice from any governmental body or any other Person alleging that such Loan Party is or may be subject to any Environmental Liability, and promptly upon receipt of any such notice the Borrower shall provide the Agent with a copy of such notice together with a statement of the action such Loan Party intends to take with respect to such matter. Section 6.11 Comply with ERISA. The Borrower shall comply with all applicable provisions of ERISA now or hereafter in effect. Section 6.12 Upgrades and Add-ons. The Borrower shall deliver to the Agent, not later than simultaneously with any upgrade of or add-on to any Equipment included in the Borrowing Base, from any lender which has a Lien on such Equipment but does not finance such upgrade or add-on, the written agreement of such lender to the effect that such lender's Lien in the lease payment or receivables arising in connection with such Equipment inclusive of such upgrades and add-on shall not include the payments or receivables attributable to such upgrade or add-on. Section 6.13 Possession of Contracts. The Borrower shall clearly and conspicuously mark each file folder and sticker or otherwise label the first page of each Equipment schedule -77- (each such schedule itself a Contract incorporating the terms of a Master Lease) included in the Contract Receivables Clause, Inventory and Per Procedure Clause or Restructured Lease Clause of the Borrowing Base to indicate that a Lien in the Contract to be perfected by possession may only be perfected by possession of the chattel paper original copy. The Borrower shall at all times maintain possession of the chattel paper original copy of each Contract included in the Contract Receivables Clause, Inventory and Per Procedure Clause or Restructured Lease Clause of the Borrowing Base. The Borrower shall also maintain in each Master Lease a statement to the effect that only the chattel paper original copy of the Equipment schedule, and not such Master Lease, constitutes chattel paper the possession of which can perfect a security interest. The Borrower shall eliminate all legends stamped on any Contract included in any of the Contract Receivables Clause, Inventory and Per Procedure Clause or Restructured Lease Clause of the Borrowing Base indicating any interests of any Person in such Contract other than the Agent upon inclusion of such Contract in the Borrowing Base, and shall endorse each such Contract file and Equipment schedule (each such schedule itself a Contract incorporating the terms of a Master Lease), upon inclusion in the Borrowing Base, with a legend substantially as follows: "THIS CONTRACT (AND EQUIPMENT SCHEDULE AND MASTER LEASE THE TERMS OF WHICH IT INCORPORATES) HAS BEEN ASSIGNED TO, IS SUBJECT TO THE SECURITY INTEREST OF AND IS HELD IN TRUST FOR THE BENEFIT OF NATWEST BANK N.A., AS AGENT, PURSUANT TO THE TERMS AND CONDITIONS OF A SECURITY AGREEMENT DATED JUNE 14, 1991 AND RELATED DOCUMENTS, AS AMENDED FROM TIME TO TIME." Section 6.14 Obligor Insurance Policies. The Borrower shall deliver, simultaneously with inclusion of any asset in the Borrowing Base, a written notice to each Obligor or other obligor who is required to maintain insurance on any asset in the Borrowing Base and to its insurance policy issuer stating that such asset has been assigned as collateral to the Agent and that a loss payee endorsement shall be delivered immediately to the Borrower naming the Agent, the Borrower and the Borrower's assigns as loss payees as their respective interest may appear. -78- Section 6.15 Preservation and Perfection of Agent's Liens. Without limiting any general or specific requirements set forth in this Agreement or in any of the Security Documents, the Borrower shall take all such actions as shall be necessary or desirable to maintain the Agent's Lien as a first priority perfected Lien in the Collateral, subject to no Liens other than Permitted Liens, including with respect to Equipment the filing (and continuation) of Financing Statements in all locations in which Collateral is located naming the Borrower as Debtor and the Agent as secured party and with respect to Contracts the filing of Financing Statements in all applicable locations naming the related Obligor as debtor, the Borrower as secured party and the Agent as assignee. Section 6.16 Environmental Compliance. The Borrower shall operate all property owned or leased by it such that no obligation, including a clean-up obligation, shall arise under any Environmental Law and Regulation, which obligation would constitute a Lien on any property of any Loan Party; provided, however, that in the event that any such claim is made or any such obligation arises, such Loan Party shall, at its own cost and expense, immediately satisfy such claim or obligation. Section 6.17 Management. Each of the current President and Senior Vice President/Chief Credit Officer shall continue in such offices and shall perform their current duties, or if either shall cease to be such an executive officer or to perform such duties a successor satisfactory to the Majority Banks in their reasonable judgment, as evidenced by a written consent signed by the Majority Banks, shall have been elected or appointed within 60 days after such cessation, and thereafter this Section 6.17 shall apply to such successor. ARTICLE 7. NEGATIVE COVENANTS So long as the Commitments are outstanding, any Loan remains outstanding, the Borrower is indebted to the Banks or the Agent, the Notes have not been paid in full or the Obligations have not been fully and completely performed: -79- Section 7.1 Indebtedness. The Borrower shall not create, incur, permit to exist or have outstanding any Indebtedness except: (a) Indebtedness to the Banks, the Pre-Funding Lender and the Agent under this Agreement; (b) taxes, assessments and governmental charges, non-interest bearing accounts payable, Equipment payables not more than 90 days past due from the original due date thereof, accrued liabilities and non-interest bearing deferred liabilities other than for borrowed money (e.g., prepaid income, deferred compensation and deferred taxes), in each case incurred and continuing in the ordinary course of business; (c) Indebtedness secured by the security interests referred to in Section 7.2(d) and Capitalized Lease Obligations, in each case incurred in accordance with the limitations set forth in Section 7.12; (d) Subordinated Debt; (e) the Recourse Debt listed on the attached Schedule 11, and any additional Recourse Debt incurred after the date of the restatement of this Agreement so long as (i) such Recourse Debt has a term, including all extensions and renewals, not exceeding one year, (ii) such Recourse Debt complies with the last sentence of this Section 7.1, (iii) after giving effect to the incurrence of such Recourse Debt no Default or Event of Default will have occurred, (iv) the Agent shall have received copies of the documents providing for such Recourse Debt at least two Business Days before its incurrence, and (v) such Recourse Debt is either unsecured or is not secured by any assets subject to the Agent's Lien; (f) the Non-Recourse Debt and Partial Recourse Debt listed on the attached Schedule 9 and Non-Recourse Debt and Partial Recourse Debt hereafter incurred; and (g) the Borrower may guarantee the obligations of any Person (i) by the endorsement of negotiable instruments for deposit or collection in the ordinary course of business, (ii) as set forth in the attached Schedule 12 in respect of guaranties by -80- the Borrower of obligations of its Affiliates, or (iii) otherwise up to a maximum aggregate obligation of $3,000,000 (for purposes of this clause, "guarantee" includes any agreement, whether contingent or otherwise, to assume, endorse, be or become liable for, purchase, repurchase or otherwise acquire Indebtedness of any other Person or to purchase, sell or lease, as lessee or lessor, property or services, in any such case primarily for the purpose of enabling another person to make payment of Indebtedness or to make any payment (whether as an advance, capital contribution, purchase of an equity interest or otherwise) to assure a minimum equity, asset base, working capital or other balance sheet or financial condition in connection with the Indebtedness of another Person, or to supply funds to or in any manner invest in another Person in connection with such Person's Indebtedness). Notwithstanding the foregoing, the Borrower shall not create, incur, permit to exist or have outstanding any Indebtedness on terms and conditions setting forth affirmative or negative covenants of the Borrower or any Affiliate or events of default that are more restrictive than the covenants set forth in Articles 6 and 7 and the Events of Default, the breach of which could result in a right of the lender under such Indebtedness to accelerate payment sooner than the right of acceleration provided to the Agent and the Banks under this Agreement, other than covenants or defaults under Non-Recourse Debt that permit acceleration based on defaults under financed leases. Section 7.2 Liens. The Borrower shall not create, assume or permit to exist any Lien on any of the properties or assets of the Borrower, whether now owned or hereafter acquired, except for the following (collectively, "Permitted Liens"): (a) only to the extent arising and continuing in the ordinary course of business: (i) pledges or deposits by the Borrower under workmen's compensation laws, unemployment insurance laws, social security laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness of the Borrower) or leases to which the Borrower is a party as lessee, or deposits to secure public or statutory obligations of the -81- Borrower or deposits of cash or U.S. Government Bonds to secure surety, appeal, performance or other similar bonds to which the Borrower is a party, or deposits as security for contested taxes or import duties or for the payment of rent, (ii) Liens imposed by law, such as carriers', warehousemen's, materialmen's and mechanics' liens, or Liens arising out of judgments or awards against the Borrower or any Subsidiary with respect to which the Borrower or any Subsidiary at the time shall currently be prosecuting an appeal or proceedings for review, (iii) Liens for taxes not yet subject to penalties for non-payment and Liens for taxes the payment of which is being contested as permitted by Section 6.6 (a), (iv) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for rights of way, highways and railroad crossings, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real properties, (v) Liens incidental to the conduct of the business of the Borrower or to the ownership of its property that were not incurred in connection with Indebtedness of the Borrower or any Subsidiary, including the rights of lessors under capitalized leases, and (vi) the rights of lessees under leases of Equipment, the rights and equities of vendees under conditional sale agreements of Equipment and the rights of any person claiming under or through such lessees or vendees, so long as all of the Liens referred to in this clause (a) do not individually or in the aggregate materially detract from the value of the properties to which they relate or materially impair their use in the operation of the business, taken as a whole, of the Borrower; (b) Liens incurred only upon compliance with the terms and conditions of Section 2.29; -82- (c) the Liens of the Security Documents; (d) purchase money security interests, conditional sale arrangements and other similar Liens on motor vehicles and equipment acquired by the Borrower with the proceeds of the Indebtedness referred to in this Section 7.2(d) so long as: (i) the transaction in which such a Lien is proposed to be created is not then prohibited by this Agreement, (ii) any such Lien shall attach only to the property or asset acquired in such transaction and shall not extend to or cover any other assets or properties of the Borrower, and (iii) the Indebtedness secured or covered by any such Lien shall not exceed the lesser of the cost or fair market value of the property or asset acquired and shall not be renewed, extended or prepaid from the proceeds of any borrowing by the Borrower; (e) Liens granted by the Borrower on Equipment acquired by it within 90 days of the grant of such Lien so long as the other requirements of Section 7.2(d) are met; (f) Liens securing Non-Recourse Debt, Partial Recourse Debt and Recourse Debt permitted under this Agreement; (g) in the case of a Lease, the interests of the Lessee under such Lease and Liens permitted by such Lease of the type set forth in Section 7.2(a); (h) in the case of an Equipment Note or CSA, the interests of the Obligor in the Equipment securing or covered by such Equipment Note or CSA, Liens permitted by such Equipment Note or CSA of the type set forth in Section 7.2(a) and any other Lien in the Equipment granted by the Obligor to another Person so long as such Lien is subordinate to the interests of the Borrower and the Agent on terms such that the subordinate Lienholder cannot exercise any remedies prior to payment in full of all of the Obligor's obligations to the Borrower and, as assigned, the Agent; -83- (i) in the case of a Third Party Note, the interests of the Obligor and lessee in the Third Party Lease, Liens permitted by such Third Party Lease of the type set forth in Section 7.2(a) and any other Lien in the Equipment granted by the Obligor to another Person so long as such Lien is subordinate to the interests of the Borrower and the Agent on terms such that the subordinate Lienholder cannot exercise any remedies prior to payment in full of all of the Obligor's obligations to the Borrower and, as assigned, the Agent; (j) in the case of Equipment sold to the Borrower, with or without a related Contract, a subordinate interest retained by the seller upon the sale, on a discounted basis, of such Equipment and Eligible Contract so long as the purchase agreement between the Borrower and such seller is assignable to and has been assigned to the Agent and the interest of the seller is subordinate on terms such that the seller cannot exercise any remedies prior to recovery in full of all interests of the Borrower and, as assigned, the Agent in such Equipment and Eligible Contract; (k) Liens on items of Eligible Equipment covered by the Progress Payments Clause in the form of a purchase money security interest held by the vendor of such Equipment securing the full payment of the purchase price of such Equipment, provided that such payment is made and such related purchase money security interest is discharged upon the delivery of the certificate of delivery and acceptance by the Lessee under the Lease related to such Equipment or, if earlier, the due date of such payment in full; and (l) Liens on Borrower's interest in the over-collateralization portion of those certain Receivables covered by that Receivables Purchase Agreement, dated as of November 30, 1994, among the Borrower, as Seller, Falcon Asset Securitization Corporation, as Purchaser, and the first National Bank of Chicago, as Agent, as the foregoing capitalized terms are defined in that Agreement. Section 7.3 Mergers, Acquisitions. The Borrower shall not merge or consolidate with any Person (whether or not the Borrower is the surviving entity) or become a general partner of any partnership or acquire all or substantially all of the -84- assets or any of the capital stock of any Person or acquire any portion of the assets in the form of a lease portfolio of any Person. Section 7.4 Redemptions; Distributions. (a) The Borrower shall not purchase, redeem, retire or otherwise acquire, directly or indirectly, or make any sinking fund payments with respect to, any shares of any class of stock of the Borrower now or hereafter outstanding, or set apart any sum for any such purpose. (b) The Borrower shall not declare or pay any dividends or make any distribution of any kind on the Borrower's outstanding stock other than dividends or distributions payable solely in shares of the Borrower's common stock, or set aside any sum for any such purpose (each, a "Restricted Dividend Action"), except that the Borrower may take a Restricted Dividend Action if (i) no Default or Event of Default shall exist at the time of the taking of such Restricted Dividend Action or would exist after giving effect thereto and (ii) (A) in the case of a Restricted Dividend Action for the sole purpose of enabling DVI (the sole shareholder of the Borrower) to make a scheduled interest or scheduled principal payment on subordinated indebtedness of DVI (including the 9 1/8% Subordinated Notes due 2002 issued by DVI pursuant to that certain Note Purchase Agreement among DVI, Inc. and certain Purchasers dated as of June 21, 1994) which indebtedness is in an aggregate principal amount not greater than $22,000,000, and the incurrence of which shall have occurred by July 31, 1994 and shall have been expressly approved in advance in writing by the Agent alone (the "Parent Subordinated Debt"), (1) all of the proceeds of the Parent Subordinated Debt (net of customary expenses relating to the closing of the issuance of such Parent Subordinated Debt) shall promptly upon the receipt by DVI of such proceeds be contributed as capital to the Borrower, except that a portion of such proceeds not exceeding Three Million ($3,000,000) Dollars may be contributed to the capital of or loaned to DVI Inc.'s subsidiary, DVI Business Credit, Inc. (f/k/a A/R Advantage, Inc., (2) such Restricted Dividend Action shall be taken on the date of, and shall be in the amount of, such scheduled interest payment or scheduled principal payment, as such payments are scheduled (not by acceleration, redemption or otherwise) as shown in the above-described Note Purchase Agreement as in effect on the date of the approval thereof -85- granted by the Agent as aforesaid, (3) the proceeds of such Restricted Dividend Action shall be used by DVI solely for the concurrent payment of such scheduled interest payment or scheduled principal payment in full on the due date thereof, and shall not in any event be used for late payment or prepayment thereof (provided that the term "late payment" in respect of interest shall be deemed to exclude any particular interest payment made up to seven (7) days later than the scheduled due date thereof if such lateness results exclusively from administrative delay, but any such "administrative" late payments shall be permitted only if no Default or Event of Default (each as defined in the above-described Note Purchase Agreement) then exists under the Parent Subordinated Debt (or if an Event of Default or Default exists thereunder solely due to the lateness of such payment, such Event of Default or Default has been waived) and if all conditions of this subsection (b) shall then have been complied with in each case as of the actual proposed payment date), (4) the making of such scheduled interest payment or scheduled principal payment shall not then be prohibited by the terms of the Parent Subordinated Debt, (5) the aggregate amount of such Restricted Dividend Action and all prior such Restricted Dividend Actions in a single calendar year in respect of interest payments relating to the Parent Subordinated Debt shall not exceed $1,825,000 in respect of the above-described 9 1/8% Subordinated Notes due 2002 and shall not exceed, in respect of any other Parent Subordinated Debt approved in advance in writing by the Agent, an amount equal to the difference between $2,000,000 and the actual sum of the annual scheduled interest payments due under the above-described 9 1/8% Subordinated Notes due 2002 at the rate set forth therein and (B) in the case of a Restricted Dividend Action other than a Restricted Dividend Action referred to in clause (A) above (i.e., relating to matters other than Parent Subordinated Debt), the aggregate amount of such other Restricted Dividend Action and all prior such other Restricted Dividend Actions plus the aggregate cash investment in all Restricted Investments shall not exceed $1,600,000, provided that not less than five (5) Business Days prior to any such proposed Restricted Dividend Action the Agent shall have received a certificate executed by the president or chief executive officer of the Borrower certifying that: no Default or Event of Default then exists hereunder and no default under any other agreement to which the Borrower is a party or by which it is bound or by which any of its properties or assets taken as a -86- whole may be materially affected; the representations and warranties contained in the Loan Agreement and other Loan Documents are true and with the same effect as though made at the time of the proposed Restricted Dividend Action (except for changes which were made in the ordinary course of business, not material and not prohibited by the Loan Documents); and the Borrower and the other Loan Parties shall have complied and shall then be in compliance with all the terms, covenants and conditions of this Agreement and the other Loan Documents; and such certification shall be accompanied by a detailed calculation indicating compliance with the covenants set forth in Sections 6.9, 7.4, 7.8, 7.12 and 7.13. Section 7.5 Stock Issuance. The Borrower shall not issue any additional shares or any right or option to acquire any shares, or any security convertible into any shares, of the capital stock of the Borrower except in connection with stock dividends as permitted under Section 7.4(b). Section 7.6 Changes in Business. The Borrower shall not (a) make any material change in its business or in the nature of its operation, (b) engage in any business other than the purchase, leasing or financing of the purchase of medical, diagnostic and therapeutic equipment (including fee-for-service and joint venture arrangements under which the Borrower's revenues will be dependent on utilization levels of the Equipment) or financial advisory or consulting services relating to the foregoing, (c) liquidate or dissolve itself (or suffer any liquidation or dissolution), (d) convey, sell, lease, assign, transfer or otherwise dispose of any of its property, assets or business except in the ordinary course of business and for a fair consideration, (e) dispose of any shares of its stock or any Indebtedness, whether now owned or hereafter acquired, or (f) discount, sell, pledge, hypothecate or otherwise dispose of any such stock or accounts receivable; provided that the proceeds of any sale or lease of Equipment which results in an obligation to make a prepayment under Section 2.8 shall be applied as and within the period set forth in such Section 2.8. Section 7.7 Prepayments. The Borrower shall not make any voluntary or optional prepayment of any amounts outstanding under any Indebtedness for borrowed money that is permitted to be incurred hereunder. -87- Section 7.8 Investments. The Borrower shall not make, or suffer to exist, any Investment in any Person including any shareholder, director, officer or employee of the Borrower except: (a) Investments in: (i) obligations issued or guaranteed by the United States of America, (ii) certificates of deposit, bankers acceptances and other money market instruments issued by any bank or trust company organized under the laws of the United States of America or any State thereof and having capital and surplus in an aggregate amount not less than $250,000,000, (iii) open market commercial paper bearing the highest credit rating issued by Standard & Poor's Corporation or by another nationally recognized credit rating firm, (iv) repurchase agreements entered into with any bank or trust company organized under the laws of the United States of America or any State thereof and having capital and surplus in an aggregate amount not less than One Hundred Million ($100,000,000) Dollars relating to United States of America government obligations, (v) shares of any money market fund having net assets of not less than $100,000,000, and (vi) interest rate swaps or other derivative agreements limiting interest rate exposure on the Loans and the Pre-Funding Loans entered into with the Agent or any Bank, in each case maturing or being due or payable in full not more than 180 days after the Borrower's acquisition thereof; (b) advances to DBC evidenced by the DBC Promissory Note in an amount not to exceed the amounts set forth in the definition of "DBC Financed Amount"; -88- (c) other Investments, including the Investments listed in the attached Schedule 13 (the "Restricted Investments") so long as (i) no Default or Event of Default shall exist at the time of the making of such Restricted Investment or would exist after giving effect to such Restricted Investment, and (ii) the aggregate cash investment in all Restricted Investments plus the aggregate amount of all Restricted Dividend Actions other than those referred to in Section 7.4(b)(ii)(A) shall not exceed $1,600,000; provided, however, that (A) the Borrower shall not make, nor suffer to exist, any Investment otherwise permitted under this Section 7.8(c) if the intent of such Investment is directly or indirectly to enable DVI to make a payment on any Parent Subordinated Debt, it being the intent of the parties hereto that the terms of Section 7.4(b)(ii)(A) exclusively shall govern all distributions and payments of any type by the Borrower relating directly or indirectly to the Parent Subordinated Debt. Section 7.9 Fiscal Year. The Borrower shall not change its fiscal year. Section 7.10 ERISA Obligations. (a) The Borrower shall not be or become obligated to the PBGC other than in respect of annual premium payments in excess of $50,000. (b) The Borrower shall not be or become obligated for excise or other penalty taxes provided for in Section 4975 the Code in excess of $50,000. Section 7.11 Amendment of Documents. (a) The Borrower shall not modify, amend, supplement or terminate, or agree to modify, amend, supplement or terminate, its certificate of incorporation or by-laws, the non-recourse provisions of any Non-Recourse Debt or any Partial Recourse Debt or the terms of any Parent Subordinated Debt in a manner that would result in an Event of Default under Section 8.12. (b) The Borrower shall not permit DBC to modify, amend, supplement or terminate, or agree to modify, amend, supplement or terminate, the DBC Financing Agreement relating to any Eligible Healthcare Receivable included in the Borrowing Base so as to adversely affect the Lien in such Eligible Healthcare Receivable granted or assigned to the Agent. -89- Section 7.12 Capital Expenditures. The Borrower shall not make or be or become obligated to make Capital Expenditures in the aggregate for the Borrower and its Subsidiaries in excess of $1,000,000 in any single fiscal year. Section 7.13 Rental Obligations. The Borrower shall not enter into, or permit to remain in effect, any lease as lessee (other than Capitalized Leases which are governed by Section 7.12) if, after giving effect to such lease, the aggregate amount of all rentals and other obligations, including all percentage rents and additional rent, due from the Borrower in any single calendar year would exceed $250,000. Section 7.14 Transactions with Affiliates. Except as expressly permitted by this Agreement, the Borrower shall not directly or indirectly (a) make any Investment in an Affiliate except Restricted Investments subject to Section 7.8(c), (b) transfer, sell, lease, assign or otherwise dispose of any assets to an Affiliate, (c) merge into or consolidate with or purchase or acquire assets from an Affiliate, or (d) enter into any other transaction directly or indirectly with or for the benefit of any Affiliate (including guarantees and assumptions of obligations of an Affiliate); provided, however, that (i) payments on Investments expressly permitted by Section 7.8 may be made, (ii) any Affiliate who is an individual may serve as an employee or director of the Borrower and receive reasonable compensation for his services in such capacity, (iii) the Borrower may enter into any transaction with an Affiliate providing for the leasing of property, the rendering or receipt of services or the purchase or sale of product, inventory and other assets in the ordinary course of business if the monetary or business consideration arising therefrom would be substantially as advantageous to the Borrower as the monetary or business consideration which would obtain in a comparable arm's length transaction with a Person not an Affiliate, and (iv) the Borrower may sell working capital loans made to customers and secured by Healthcare Receivables to any Affiliate so long as the purchase price paid by such Affiliate is substantially the same as the purchase price which would be obtained in a comparable arm's length transaction with a Person not an Affiliate. Section 7.15 Changes in Calculation of Net Book Value. The Borrower shall not change the basis on which DVI or -90- the Borrower calculates Net Book Value, depreciation policy, residual value estimations, expense capitalization or other factors significantly affecting the calculation of Net Book Value or Invoiced Cost with respect to Equipment unless such change is required for compliance with GAAP. Section 7.16 Non-DVI Generated Contracts. Permit the aggregate contract receivables in the form of rental, installment or debt service payments due under all Eligible Contracts in the Borrowing Base of the Borrower derived from transactions originated by other than by the Borrower when such transactions commenced to exceed 15% at any one time of the total such contract receivables under all Eligible Contracts in the Borrowing Base. ARTICLE 8. EVENTS OF DEFAULT If any one or more of the following events ("Events of Default") shall occur and be continuing, the Commitments shall terminate and the entire unpaid balance of the principal of and interest on the Notes and the Pre-Funding Note outstanding and all other obligations and Indebtedness of the Borrower to the Banks, the Pre-Funding Lender and the Agent arising under the Loan Documents shall immediately become due and payable upon written notice to that effect given to the Borrower by the Agent (except that in the case of the occurrence of any Event of Default described in Section 8.6 no such notice shall be required), without presentment or demand for payment, notice of non-payment, protest or further notice or demand of any kind, all of which are expressly waived by the Borrower: Section 8.1 Payments. Failure to make any payment or mandatory prepayment of principal or interest upon any Notes or the Pre-Funding Note or to make any payment of any Fee when due; or, Section 8.2 Covenants. Failure to perform or observe any of the agreements of the Borrower contained in Section 6.9 or Article 7; or, Section 8.3 Other Covenants. (a) Failure by the Borrower to perform or observe any other term, condition or -91- covenant of any Loan Documents to which it is a party, including this Agreement, the Notes, the Pre-Funding Note or any of the Security Documents, which shall remain unremedied for a period of 30 days after notice thereof shall have been given to the Borrower by the Agent; or (b) Failure by any Loan Party to perform or observe any term, condition or covenant of any Loan Documents to which it is a party, including the Security Documents and the Guaranty, which shall remain unremedied for a period of 30 days after notice thereof shall have been given to the Borrower by the Agent; or Section 8.4 Other Defaults. (a) Failure to perform or observe any term, condition or covenant of any bond, note, debenture, loan agreement, indenture, guaranty, trust agreement, mortgage or similar instrument to which the Borrower is a party or by which it is bound or by which any of its properties or assets may be affected, or failure by DVI to perform or observe any term, condition or covenant of the Parent Subordinated Debt (for purposes of this Section 8.4, each of the foregoing a "Debt Instrument") so that, as a result of any such failure to perform, the Indebtedness included therein or secured or covered thereby may be declared or may become due and payable prior to the date on which such Indebtedness would otherwise become due and payable; or, (b) Any event or condition referred to in any Debt Instrument shall occur or fail to occur so that, as a result, the Indebtedness included in or secured or covered by such Debt Instrument may be declared or may become due and payable prior to the date on which such Indebtedness would otherwise become due and payable; or, (c) Failure to pay any Indebtedness for borrowed money due at final maturity or pursuant to demand under any Debt Instrument. Section 8.5 Representations and Warranties. Any representation or warranty made in writing to the Banks or the Agent in any of the Loan Documents or in connection with the making of the Loans, or any certificate, statement or report made or delivered in compliance with this Agreement, shall have been -92- false or misleading in any material respect when made or delivered; or, Section 8.6 Bankruptcy. (a) The Borrower, DVI or DBC shall make an assignment for the benefit of creditors, file a petition in bankruptcy, be adjudicated insolvent, petition or apply to any tribunal for the appointment of a receiver, custodian, or any trustee for it or a substantial part of its assets, or shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or the Borrower, DVI or DBC shall take any corporate action to authorize any of the foregoing actions; or there shall have been filed any such petition or application, or any such proceeding shall have been commenced against it, which remains undismissed for a period of 30 days or more, or any order for relief shall be entered in any such proceeding, or the Borrower, DVI or DBC by any act or omission shall indicate its consent to, approval of or acquiescence in any such petition, application or proceeding or the appointment of a custodian, receiver or any trustee for it or any substantial part of any of its properties, or shall suffer any custodianship, receivership or trusteeship to continue undischarged for a period of thirty (30) days or more; or, (b) The Borrower, DVI or DBC shall generally not pay its debts as such debts become due; or, (c) The Borrower, DVI or DBC shall have concealed, removed or permitted to be concealed or removed any part of its property with intent to hinder, delay or defraud its creditors or any of them, shall have made or suffered a transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law, shall have made any transfer of its property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid during any period while either the Borrower, DVI or DBC is insolvent, or shall have suffered or permitted, while insolvent, any creditor to obtain a Lien upon any of its property through legal proceedings or distraint which is not vacated within 30 days from the date thereof; or, -93- Section 8.7 Judgments. Any judgment against the Borrower or DVI or any attachment, levy or execution against any of its properties for any amount in excess of $1,000,000 shall remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period of 30 days or more; or, Section 8.8 ERISA. (a) With respect to the Borrower or DVI, the termination of any Plan or the institution by the PBGC of proceedings for the involuntary termination of any Plan, in either case by reason of, or which results or could result in, a "material accumulated funding deficiency" under Section 412 of the Code; or, (b) Failure by the Borrower or DVI to make required contributions in accordance with the applicable provisions of ERISA to each of the Plans hereafter established or assumed by it; or, Section 8.9 Ownership of Stock of Borrower. (a) DVI shall at any time own, beneficially and of record, less than 100% of all of the issued and outstanding shares of capital stock of the Borrower having ordinary voting rights for the election of directors; or, (b) The Pritzker family, Gerald Cohn and members of his immediate family and David Higgins, on a combined basis, shall at any time own, beneficially and of record, less than the greater of (i) 20% of all of the issued and outstanding shares of capital stock of DVI having ordinary voting rights for the election of directors, or (ii) such greater percentage as is necessary so that they constitute the single largest block of stockholders of such shares. Section 8.10 Liens. Any of the Liens created and granted to the Agent under the Security Documents shall fail to be valid, perfected first priority Liens subject to no prior or equal Liens other than Permitted Liens; or, Section 8.11 Guaranty. DVI shall take any action to rescind or revoke the Guaranty, or any court of law shall have found the Guaranty to be invalid or unenforceable, or DBC shall take any action to rescind or revoke the DBC Guaranty, or any -94- court of law shall have found the DBC Guaranty to be invalid or unenforceable; or, Section 8.12 Parent Subordinated Debt. DVI shall modify, amend, or supplement or agree to modify, amend or supplement the terms of the Parent Subordinated Debt relating to or affecting subordination or any of the repayment terms (including principal amount, interest rate, amortization schedule, payment dates or maturity date), or permit or agree to permit the Parent Subordinated Debt to be a secured obligation; or, Section 8.13 Warehouse Loan Transactions. At any time that Indebtedness is outstanding under a Warehousing Loan Agreement: (a) delivery by any Warehousing Lender of any notice (i) seeking the mandatory prepayment by the Borrower of all or a substantial portion of the outstanding Indebtedness under such Warehousing Loan Agreement, (ii) asserting that a material adverse change has occurred in the Borrower's business or financial condition, (iii) stating that an "event of default" had occurred and was continuing under such Warehousing Loan Agreement, or (iv) seeking to terminate such Warehousing Loan Agreement; or (b) failure by any Warehousing Lender to extend the Indebtedness outstanding under such Warehousing Loan Agreement if any Indebtedness shall remain outstanding after the termination or maturity date; or (c) such Warehousing Loan Agreement or any agreements, instruments or documents executed or delivered in connection therewith or pursuant thereto shall have been amended or any provision of any thereof shall have been waived or forgiven or any indulgence thereunder shall have been granted, in each case without the prior written consent of the Majority Banks, other than any extension of the maturity date or termination date; or (d) any original master lease of the Borrower shall have been received or for any reason held by the Warehousing Lender in connection with such Warehousing Loan Agreement or any Securitization or other transaction derived therefrom (which is -95- in any event subject to the prior written consent of the Majority Banks) or by a custodian for a Warehousing Lender; or (e) any "Default", "Event of Default" or their equivalent shall occur under such Warehousing Loan Agreement without regard to the giving of any notice thereunder or lapse of time or both. ARTICLE 9. THE AGENT Section 9.1 Appointment, Powers and Immunities. Each Bank hereby irrevocably appoints and authorizes the Agent to act as its agent under the Loan Documents with such powers as are specifically delegated to the Agent by the terms of the Loan Documents, together with such other powers as are reasonably incidental to such delegated powers. The Agent shall have no duties or responsibilities except those expressly set forth in the Loan Documents and shall not be a trustee for any Bank. The Agent shall not be responsible to the Banks (a) for any recitals, statements, representations or warranties contained in the Loan Documents, in any certificate or other document referred to or provided for in, or received by any of them under, the Loan Documents, (b) for the value, validity, effectiveness, genuineness, enforceability or sufficiency of the Loan Documents or any other document referred to or provided for in the Loan Documents, (c) for the collectibility of the Loans, (d) for the validity, effectiveness or value of any interest or security covered by the Security Documents, (e) for the value of any Collateral, (f) for the validity or effectiveness of any assignment, mortgage, pledge, security agreement, financing statement, document or instrument or for the filing, recording, re-filing, continuing or re-recording of any thereof, or (g) for any failure by the Borrower or any other Loan Party to perform any of its obligations under the Loan Documents, except that the Agent shall undertake to file continuation statements for the Financing Statements filed naming the Agent as secured party. In all its actions and duties, the Agent may employ agents and attorneys-in-fact and shall not be answerable, except as to money or securities received by it or its authorized agents, for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Neither the Agent nor any of its directors, officers, employees or agents shall be liable -96- or responsible for any action taken or omitted to be taken by it or them under the Loan Documents or in connection with the Loan Documents except for its or their own gross negligence or willful misconduct. Section 9.2 Reliance by Agent. The Agent shall be entitled to rely upon any certification, notice or other communication (including by telephone, telex, telegram or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper person or persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. As to any matters not expressly provided for by the Loan Documents, the Agent shall in all cases be fully protected in acting, or in refraining from acting, under the Loan Documents in accordance with instructions signed by the Majority Banks, and such instructions of the Majority Banks or other number of Banks as aforesaid and any action taken or failure to act pursuant thereto shall be binding on all of the Banks. Section 9.3 Events of Default. The Agent shall not be deemed to have knowledge of the occurrence of a Default (other than the non-payment of principal of or interest on Loans) unless the Agent has received notice from a Bank or the Borrower specifying such Default and stating that such notice is a "Notice of Default". In the event that the Agent receives such a notice of the occurrence of a Default, the Agent shall give notice thereof to the Banks (and shall give each Bank notice of each such non-payment). Subject to Section 9.7, the Agent shall take such action with respect to such Default as shall be directed by the Majority Banks. Section 9.4 Rights as a Bank. With respect to its Commitments and the Loans made by it, the Agent in its capacity as a Bank shall have the same rights and powers as any other Bank and may exercise the same as though it were not acting as the Agent, and the term "Bank" or "Banks" shall, unless the context otherwise indicates, include the Agent in its individual capacity. The Agent and its Affiliates may (without having to account therefor to any Bank) accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with the Borrower or its Affiliates as if it were not acting as the Agent, and the Agent may accept fees and other -97- consideration from the Borrower or its Affiliates for services in connection with any of the Loan Documents or otherwise without having to account for the same to the Banks. Section 9.5 Indemnification. The Banks shall indemnify the Agent (to the extent not reimbursed by the Borrower under Sections 10.1 and 10.2) ratably in accordance with the aggregate principal amount of the Loans made by the Banks (or, if no Loans are at the time outstanding, ratably in accordance with their respective Commitments) for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever imposed on, incurred by or asserted against the Agent in any way relating to or arising out of (a) the Loan Documents, (b) any other documents contemplated by or referred to in the Loan Documents, (c) the transactions contemplated by or referred to in the Loan Documents (including the costs and expenses which the Borrower is obligated to pay under Sections 10.1 and 10.2 but excluding, unless a Default has occurred and is continuing, normal administrative costs and expenses incident to the performance of its agency duties under the Loan Documents), or (d) the enforcement of any of the terms of the Loan Documents or of any other documents, provided that no Bank shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the party to be indemnified. Section 9.6 Non-Reliance on Agent and other Banks. (a) Each Bank agrees that it has, independently and without reliance on the Agent or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under the Loan Documents. (b) At the request of any Bank, NatWest shall provide it with copies of any audit undertaken by it under this Agreement, and each Bank acknowledges that any statements, written or oral, as to the financial condition or creditworthiness of the Borrower, the value or composition of the Collateral or any related matters made by the Borrower or NatWest -98- in anticipation of the restatement of this Agreement or made on or after the date of such restatement, including any audits or reviews of Borrowing Base Reports and Supporting Documents, are and shall be based on documents and material made available to NatWest by the Borrower and Persons affiliated with it or acting on its behalf and, accordingly, the accuracy, completeness and thoroughness of such documents and materials and the conclusions drawn therefrom are the sole responsibility of the Borrower and persons acting on its behalf. Any past or future review of these materials was and shall be undertaken by NatWest for its own benefit and internal use as a Bank, and any characterization of or conclusions drawn from such materials were, are or shall be shared with other Banks solely as a courtesy. NatWest disclaims any responsibility or liability, express or implied, for the data set forth in, any characterization of or any conclusions drawn such data as to the financial condition or credit analysis of the Borrower or any other Loan Party, the value or composition of the Collateral and any appraisal of it or any other matter. (c) The Agent shall not be required to keep itself informed as to the performance or observance by the Borrower of the Loan Documents or any other document referred to or provided for in the Loan Documents, or to inspect the properties or books of the Borrower. Except for notices, reports and other documents and information expressly required to be furnished to the Banks by the Agent under the Loan Documents, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the affairs, financial condition or business of the Borrower which may come into the possession of the Agent or any of its Affiliates. Section 9.7 Failure to Act. Except for action expressly required of the Agent under the Loan Documents, the Agent shall in all cases be fully justified in failing or refusing to act under the Loan Documents unless it shall be indemnified to its satisfaction by the Banks against any and all liabilities and expenses that may be incurred by it by reason of taking or continuing to take any such action. Section 9.8 Resignation or Removal of Agent. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving not less than 10 days prior written notice to the Banks and the -99- Borrower, and the Agent may be removed at any time with or without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint a successor Agent. If no successor Agent is appointed by the Majority Banks and accepts such appointment within 30 days after the retiring Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, after consultation with the Borrower, appoint a successor Agent which shall be one of the Banks. Upon the acceptance of any appointment as Agent under the Loan Documents by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations the Loan Documents. The Borrower, the Banks and the retiring Agent shall, at the Borrower's expenses, thereupon execute, deliver and file Financing Statements reflecting such change. After any retiring Agent's resignation or removal as Agent, the provisions of this Article 9 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. Section 9.9 Sharing of Collateral and Payments. In the event that at any time any Bank shall obtain payment in respect of a Note or interest thereon, or receive any collateral in respect thereof, whether voluntarily or involuntarily, through the exercise of a right of banker's lien, set-off or counterclaim against the Borrower or otherwise, in a greater proportion than any such payment obtained by any other Bank in respect of the corresponding Note held by it or interest thereon, then the Bank so receiving such greater proportionate payment shall purchase for cash from the other Bank or Banks such portion of each such other Bank's or Banks' Loan, or shall provide such other Banks with the benefits of any such collateral or the proceeds thereof, as shall be necessary to cause such Bank receiving the proportionate over-payment to share the excess payment or benefits of such collateral or proceeds ratably with each of the Banks, each of which shall have a Lien on its ratable portion of the amount described hereinafter obtained from Borrower; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from the Bank which received the proportionate over-payment, such purchase shall be -100- rescinded and the purchase price and benefits returned to the extent of such recovery, but without interest. ARTICLE 10. MISCELLANEOUS PROVISIONS Section 10.1 Fees and Expenses; Indemnity. The Borrower will promptly pay all costs of the Agent and the Banks in preparing the Loan Documents, including this restated Agreement, and all costs and expenses of the issue of the Notes and the Pre-Funding Note and of the Borrower's and the other Loan Parties' performance of and compliance with all agreements and conditions contained herein on its part to be performed or complied with (including all costs of filing or recording any assignments, mortgages, financing statements and other documents), and the reasonable fees and expenses and disbursements of special counsel to the Agent and the Banks in connection with the preparation, execution, delivery, administration, interpretation and enforcement of the Loan Documents, including this restated Agreement, and all other agreements, instruments and documents relating to this transaction, the consummation of the transactions contemplated by all such documents, the preservation of all rights of the Agent and the Banks, the negotiation, preparation, execution and delivery of any amendment, modification or supplement of or to, or any consent or waiver under, any such document (or any such instrument which is proposed but not executed and delivered) and with any claim or action threatened, made or brought against the Agent or any of the Banks arising out of or relating to any extent to the Loan Documents or the transactions contemplated by the Loan Documents. In addition, the Borrower shall promptly pay all costs and expenses (including reasonable fees and disbursements of counsel) suffered or incurred by the Agent or the Banks in connection with their respective enforcement of the payment of the Notes or the Pre-Funding Note held by each of them or any other sum due to them under the Loan Documents or any of its other rights under the Loan Documents. In addition to the foregoing, the Borrower shall indemnify the Agent and the Banks against, and hold each of them harmless from, any loss, liabilities, damages, claims, costs and expenses (including reasonable attorneys' fees and disbursements) suffered or incurred by it arising out of, resulting from or in any manner connected with the execution, delivery and performance of each of -101- the Loan Documents, the Loans and any and all transactions related to or consummated in connection with the Loans, including losses, liabilities, damages, claims, costs and expenses suffered by the Agent and the Banks in investigating, preparing for or defending against, or providing evidence, producing documents or taking any other action in respect of, any commenced or threatened litigation, administrative proceeding or investigation under any Applicable Law that is alleged to arise out of or is based upon (a) any untrue statement or alleged untrue statement of any material fact of the Borrower and its Affiliates in any document or schedule filed with the SEC or any other governmental body, (b) any omission or alleged omission to state any material fact required to be stated in such document or schedule, or necessary to make the statements made therein, in light of the circumstances under which made, not misleading, (c) any acts, practices or omission or alleged acts, practices or omissions of the Borrower or its agents related to the making of any acquisition, purchase of shares or assets pursuant thereto, financing of such purchases or the consummation of any other transactions contemplated by any such acquisitions which are alleged to be in violation of any federal securities law or of any other statute, regulation or other law of any jurisdiction applicable to the making of any such acquisition, the purchase of shares or assets pursuant thereto, the financing of such purchases or the consummation of the other transactions contemplated by any such acquisition, or (d) any withdrawals, termination or cancellation of any such proposed acquisition for any reason whatsoever. The indemnity set forth in this Section 10.1 shall be in addition to any other obligations or liabilities of the Borrower to the Agent and the Banks under this Agreement, at common law or otherwise. The provisions of this Section 10.1 shall survive the payment of the Notes and the Pre-Funding Note and the termination of this Agreement. Section 10.2 Taxes. If under any law in effect on the date of the closing of any Loan or under any retroactive provision of any law subsequently enacted a Federal, state or local tax is determined to be payable in respect of the issuance of any of the Notes or the Pre-Funding Note, or in connection with the filing or recording of any assignments, mortgages, financing statements or other documents (whether measured by the amount of indebtedness secured or otherwise) as contemplated by this Agreement, then the Borrower shall pay any such tax and all -102- interest and penalties, if any, and shall indemnify the Banks and the Agent against and save each of them harmless from any loss or damage resulting from or arising out of the nonpayment or delay in payment of any such tax. If any such tax or taxes shall be assessed or levied against any Bank or any other holder of its Note, such Bank or such other holder, as the case may be, may notify the Borrower and make immediate payment of such tax together with interest or penalties in connection with such tax, and shall thereupon be entitled to and shall receive immediate reimbursement for such tax from the Borrower. Section 10.3 No Set-Off of Payments. All payments under this Agreement, the Note and the Pre-Funding Note shall be made without set-off or counterclaim and in such amounts as may be necessary in order that such payments will result in the Banks, Pre-Funding Lender or Agent, as the case may be, receiving the amounts specified to be paid under this Agreement, the Notes and the Pre-Funding Note after withholding for or on account of (a) any present or future taxes, levies, imposts, duties or other similar charges of whatever nature imposed by any government or any political subdivision or taxing authority, other than any tax (except those referred to in clause (b) below) on or measured by the net income of the respective Bank, the Pre-Funding Lender or the Agent to which such payment is due pursuant to applicable federal, state and local income tax laws, and (b) deduction of amounts equal to the taxes on or measured by the net income of such Bank, the Pre-Funding Lender or the Agent payable with respect to the amount by which the payments required to be made under this sentence exceed the amounts specified to be paid in this Agreement, the Notes and the Pre-Funding Note. Section 10.4 Survival of Agreements. All agreements, representations and warranties made in the Loan Documents shall survive the delivery and termination of this Agreement and the issuance and payment in full of the Notes and the Pre-Funding Note. Section 10.5 Lien on and Set-off of Deposits. As security for the due payment and performance of the Obligations, the Borrower hereby grants to the Agent for the ratable benefit of the Banks a Lien on any and all deposits or other sums at any time credited by or due from the Agent or any Bank to the Borrower, whether in regular or special depository accounts or -103- otherwise, and any and all monies, securities and other property of the Borrower, and the proceeds thereof, now or hereinafter held or received by or in transit to any Bank or the Agent from or for the Borrower, whether for safekeeping, custody, pledge, transmission, collection or otherwise, and any such deposits, sums, monies, securities and other property may at any time after the occurrence and during the continuance of any Event of Default be set-off, appropriated and applied by any Bank or the Agent against any of the Obligations, whether or not any of such Obligations is then due or is secured by any collateral or, if it is so secured, whether or not the collateral held by the Agent is considered to be adequate. Section 10.6 Modifications, Consents and Waivers; Entire Agreement. (a) No modification, amendment or waiver of any provision of the Loan Documents, any other agreement, instrument and document delivered pursuant to the Loan Documents or consent to any departure by the Borrower from any of the terms or conditions of the Loan Documents shall be effective unless it is in writing and signed by the parties to such Loan Document or other agreement, instrument or document or, in the case of this Agreement, by the Agent and by the requisite Banks as set forth in Section 10.6(b). Any such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No consent to or demand on the Borrower in any case shall, of itself, entitle it to any other or further notice or demand in similar or other circumstances. (b) The provisions of this Agreement may be modified, amended or waived, or a consent given with respect to such provisions, if signed by the Agent and the Majority Banks, except that: (i) any modification, amendment, waiver or consent that has the effect of changing or waiving the Commitment of any Bank, the principal amount of the Loans to be borrowed or repaid, the maturity of any Loans, the dates for and the amount of repayment of any Loans, the interest rate or rates applicable to any Loans, a material provision of Section 1.2 (unless the modification, amendment, waiver or consent to Section 1.2 is administrative in nature) and the provisions of this Section 10.6(b) shall require the agreement of the Agent and all of the Banks; -104- (ii) any modification, amendment, waiver or consent with respect to the Pre-Funding Loans shall require the agreement of the Agent and the Pre-Funding Lender; (iii) any modification or amendment that has the effect of increasing the Total Commitment (but not the Commitment of any Bank) shall require the agreement of the Agent and the Super-Majority Banks; and (iv) any modification, amendment, waiver or consent with respect to the provisions of Section 1.2 shall require the agreement of the Agent and all of the Banks; (v) any modification, amendment, waiver or consent with respect to the provisions of Articles 1 and 2 not covered by the preceding Sections 10.6(b)(i) through (iv) shall require the agreement of the Agent and the Super-Majority Banks; and (vi) any waiver with respect to the perfection of the Agent's Lien on specific motor vehicles shall require the agreement of only the Agent. (c) The Loan Documents embody the entire agreement and understanding among the Banks, the Pre-Funding Lender, the Agent and the Borrower and supersede all prior agreements and understandings relating to the subject matter of the Loan Documents. Without limiting the generality of Article 9, no Bank shall have any claim or right of action of any kind whatsoever against the Agent in respect of any action or refraining from action which the Agent is instructed to take or refrain from (including foreclosure on the Agent's Lien) by the requisite Banks as set forth in this Section 10.6. Section 10.7 Remedies Cumulative. Each and every right granted to the Agent and each Bank under the Loan Documents or under any other document delivered in connection with the Loan Documents, or allowed them by law or equity, shall be cumulative and may be exercised from time to time. No failure on the part of the Agent, any Bank or any holder of any Note or the Pre-Funding Note to exercise, and no delay in exercising, any right shall operate as a waiver of such right, nor shall any single or partial exercise of any right preclude any other or -105- future exercise of such right or the exercise of any other right. The due payment and performance of the Borrower's Obligations shall be without regard to any counterclaim, right of offset or other claim that the Borrower may have against any Bank or the Agent and without regard to any other obligation that any Bank or the Agent may have to the Borrower, and no such counterclaim required under federal law or offset shall be asserted by the Borrower in any action, suit or proceeding instituted by any Bank or the Agent for payment or performance of the Borrower's Obligations. Upon the occurrence of an Event of Default, the Agent on behalf of the Banks shall be entitled, at its option, to place any contracts of the Borrower in a Securitization. Section 10.8 Further Assurances. At any time and from time to time, upon the request of the Agent, the Borrower shall execute, deliver and acknowledge, or cause to be executed, delivered and acknowledged, such further documents and instruments and do such other acts and things as the Agent may reasonably request in order to fully effect the purposes of the Loan Documents and any other agreements, instruments and documents delivered pursuant to or in connection with the Loans, including executing and delivering to the Agent mortgages in form and substance satisfactory to the Agent covering all real property or interests therein acquired by the Borrower (provided that any mortgage or owned property may be subject to a first mortgage if herein permitted), and all leases of real property entered into by the Borrower as tenant or lessee, after the date of this Agreement, promptly after such acquisition or the entering into of any such lease. Section 10.9 Notices. All notices, requests, reports and other communications pursuant to the Loan Documents shall be in writing and shall be delivered by hand or commercial delivery service, sent by U.S. Postal Service certified mail, return receipt requested (except for routine reports delivered pursuant to Article 5 which may be sent by first-class mail), or transmitted by telefax or telegram, addressed as follows: (a) If to any Loan Party: "c/o DVI Financial Services Inc. 500 Hyde Park -106- Doylestown, Pennsylvania 18901 Attention: Mr. Steve Garfinkel Senior Vice President Telecopier No.: 215-230-3537". (b) If to the Agent: NatWest Bank N.A. 175 Water Street New York, New York 10038 Attention: Leasing Department Telecopier No.: (212) 602-2180 with a copy (other than in the case of Borrowing Notices and reports and other documents delivered in compliance with Article 5) to: Feltman, Karesh, Major & Farbman Limited Liability Partnership Carnegie Hall Tower 152 West 57th Street New York, New York 10019 Attention: Loren M. Dollet, Esq. Telecopier No.: 212-586-0951 Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is telecopied to such party at the telecopier number specified above, when delivered by hand or by commercial delivery service to such party at its above address, on the third Business Day after the day given to the U.S. Postal Service for certified mail addressed as aforesaid, or when delivered to the telegraph company addressed as aforesaid. Any party may change the person, address or telecopier number to whom or which notices are to be given under the Loan Documents by notice duly given and actually received by the addressee under this Section 10.9. Section 10.10 Counterparts. This Agreement may be signed in any number of counterparts with the same effect as if the signatures were upon the same instrument. Section 10.11 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. (a) EACH OF THE LOAN DOCUMENTS AND ALL -107- OTHER DOCUMENTS AND INSTRUMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THE LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS ENTERED INTO IN THE STATE OF NEW YORK BY RESIDENTS OF SUCH STATE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. (b) THE BORROWER IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING AGAINST IT UNDER, ARISING OUT OF OR IN ANY MANNER RELATING TO ANY LOAN DOCUMENT MAY BE BROUGHT IN ANY COURT OF THE STATE OF NEW YORK OR ANY U.S. DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN, CITY OF NEW YORK. THE BORROWER, BY THE EXECUTION AND DELIVERY OF THIS AGREEMENT, EXPRESSLY AND IRREVOCABLY ASSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDING. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF ANY COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO ANY SUCH ACTION OR PROCEEDING BY DELIVERY OF SUCH PROCESS TO IT IN ANY MANNER PROVIDED FOR IN SECTION 10.9. THE BORROWER EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE, FORUM NON CONVENIENS OR ANY SIMILAR BASIS. THE BORROWER SHALL NOT BE ENTITLED IN ANY SUCH ACTION OR PROCEEDING TO ASSERT ANY DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF ANY STATE OTHER THAN THE STATE OF NEW YORK UNLESS SUCH DEFENSE IS ALSO GIVEN OR ALLOWED BY THE LAWS OF THE STATE OF NEW YORK. NOTHING IN THIS SECTION 10.11 SHALL AFFECT OR IMPAIR IN ANY MANNER OR TO ANY EXTENT THE RIGHT OF THE AGENT OR ANY BANK TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. (c) THE BORROWER, EACH OF THE BANKS AND THE AGENT WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS, ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO ANY LOAN DOCUMENT OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT OF ANY LOAN DOCUMENT. Section 10.12 Severability. The provisions of this Agreement are severable, and if any clause or provision of this Agreement is held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall -108- affect only such clause, provision or part in such jurisdiction and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision in this Agreement in any jurisdiction. Each of the covenants, agreements and conditions contained in this Agreement is independent, and compliance by the Borrower with any of them shall not excuse noncompliance by the Borrower with any other. Section 10.13 Binding Effect; No Assignment by Borrower. This Agreement shall be binding upon and inure to the benefit of the Borrower and its successors and to the benefit of the Banks and the Agent and their respective successors and assigns. The rights and obligations of the Borrower under this Agreement shall not be assigned or delegated without the prior written consent of the Agent and all Banks, and any purported assignment or delegation without such consent shall be void. Section 10.14 Assignments and Participations by Banks. (a) Each Bank may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment, the Loans and Pre-Funding Loans owing to it and the Notes or Pre-Funding Notes held by it) by the execution and delivery to the Agent of an Assignment and Acceptance; provided, however, that (i) each such assignment shall be of a constant and not a varying percentage of all of the assigning Bank's rights and obligations under this Agreement, (ii) the amount of the Commitment of the assigning Bank being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000 and shall be an integral multiple of $1,000,000, and (iii) the Agent's consent to the such assignment shall have been obtained. Upon such execution, delivery and consent, (1) the assignee shall be a party to this Agreement and, to the extent that rights and obligations under this Agreement have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Bank, and (2) the assigning Bank shall, to the extent that rights and obligations under this Agreement have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of an assigning Bank's rights and obligations under -109- this Agreement, such Bank shall cease to be a party to this Agreement). (b) By executing and delivering an Assignment and Acceptance, the assigning Bank and the assignee confirm to and agree with each other, the other Banks, the Agent and the Borrower as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant to this Agreement; (ii) such assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant to this Agreement; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of such financial statements and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Bank or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms of this Agreement, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Bank. (c) Upon its receipt of an Assignment and Acceptance executed by an assigning Bank and an assignee, together with any Note subject to such assignment, the Agent shall (i) accept such Assignment and Acceptance, and (ii) give prompt notice to the Borrower. Within five Business Days after its receipt of such -110- notice, the Borrower, at its own expense, shall execute and deliver to the Agent in exchange for the surrendered Note a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Bank has retained a Commitment, a new Note to the order of the assigning Bank in an amount equal to the Commitment retained by it. Such new Note shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form attached as Exhibit A. (d) Each Bank may sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement, including all or a portion of its Commitment, the Loans and Pre-Funding Loans owing to it and the Notes and Pre-Funding Notes held by it; provided, however, that (i) such Bank's obligations under this Agreement (including its Commitment) shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties to this Agreement for the performance of such obligations, (iii) such Bank shall remain the holder of any such Note for all purposes of this Agreement, and (iv) the Borrower, the Agent and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. (e) Any Bank may, in connection with any assignment or participation, or proposed assignment or participation, pursuant to this Section 10.14, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrower furnished to such Bank by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any confidential information relating to the Borrower received by it from such Bank. Section 10.15 Scope of Agent's Lien. Each Bank agrees that the Agent's Lien on the Collateral shall secure only the Obligations and shall not secure any other obligation, liability or indebtedness of the Borrower or any other Loan Party having rights in the Collateral notwithstanding the provisions of any agreement between any Bank and the Borrower or any other Loan -111- Party and whether or not the Agent or any of the other Banks are aware of such agreement. Section 10.16 Waiver of Relief from Bankruptcy Code Stay. The Borrower agrees that, in the event that Borrower, DVI, DBC or any Affiliate of such Persons shall (i) file with any bankruptcy court of competent jurisdiction or be the subject of any petition under Chapter 11 of the Bankruptcy Code, (ii) be the subject of any order for relief issued under the Bankruptcy Code, (iii) file or be the subject of any petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal or state act or law relating to bankruptcy, insolvency or other relief for debtors, (iv) have sought or consented to or acquiesced in the appointment of any trustee, receiver, conservator or liquidator, or (v) be the subject of any order, judgment or decree entered by any court of competent jurisdiction approving a petition filed against such party for any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future federal or state act or law relating to bankruptcy, insolvency or relief for debtors, the Banks and the Agent shall thereupon be entitled and the Borrower irrevocably consents to immediate and unconditional relief from any automatic stay imposed by Section 362 of the Bankruptcy Code, or otherwise, on or against the exercise of the rights and remedies otherwise available to the Banks and the Agent as provided for in this Agreement, the Notes, the Pre-Funding Loan Note, the Security Agreement, the other Security Documents and the other Loan Documents delivered in connection herewith and therewith, as otherwise provided by law, and the Borrower hereby irrevocably waives any right to object to such relief and will not contest any motion by any Banks or the Agent, in any manner requested by any Bank or the Agent, in its efforts to obtain relief from any such stay or other prohibition. [signature page follows] -112- IN WITNESS WHEREOF, the Borrower, the Banks and the Agent have duly signed and delivered this First Amended and Restated Loan Agreement on the date first above written. DVI FINANCIAL SERVICES INC. By:__________________________ Name: Title: -113- Commitment: Pre-Funding Commitment: $26,500,000 $8,000,000 NATWEST BANK N.A. (successor by merger to National Westminster Bank USA) By:_____________________________ Name: Title: Lending Office for Prime Rate and Eurodollar Loans: NatWest Bank N.A. 175 Water Street New York, New York 10038 Attention: Leasing Division Address for Notices: NatWest Bank N.A. 175 Water Street New York, New York 10038 Attention: Merily McLaughlin Telex No. 132369 Answer-Back Code: NBNA UR Telecopier No. (212) 602-2180 -114- Commitment: $15,000,000 FIRST BANK NATIONAL ASSOCIATION By:_____________________________ Name: Title: Lending Office for Prime Rate and Eurodollar Loans: First Bank Place 601 Second Avenue South Minneapolis, Minnesota 55402-4302 Attention: Mr. David A. Draxler Vice President Address for Notices: First Bank Place 601 Second Avenue South Minneapolis, Minnesota 55402-4302 Attention: Mr. David A. Draxler Vice President Telex No. N/A Answer Back Code: N/A Telecopier No. (612) 973-0824 -115- Commitment: $15,000,000 BANK HAPOALIM B.M., LOS ANGELES BRANCH By:_____________________________ Name: Title: By:_____________________________ Name: Title: Lending Office for Prime Rate and Eurodollar Loans: Bank Hapoalim B.M., Los Angeles Branch 6222 Wilshire Boulevard Los Angeles, California 90048 Attention: Ms. Lori Lake Credit Administrator Address for Notices: Bank Hapoalim B.M. Los Angeles Branch 6222 Wilshire Boulevard Los Angeles, California 90048 Attention: Mr. Craig Ciebieria Vice President Telex No.: 188610 Answer-Back Code: (BHAPOLA UT) Telecopier No. (213) 937-1439 -116- Commitment: $15,000,000 SUMITOMO BANK OF CALIFORNIA By:_____________________________ Name: Title: Lending Office for Prime Rate and Eurodollar Loans for purposes of advances, paydowns, interest payments and fee payments, and notices for such purposes: Commercial Banking Division Note Department 611 West 6th Street Los Angeles, CA 90017 Attention: Ms. Laura French Telex No. N/A Answer Back Code: N/A Telecopier No. (213) 622-1385 Lending Office for Prime Rate and Eurodollar Loans for all other purposes, and notices for all other purposes: Commercial Banking Division 20100 Magnolia Street Huntington Beach, California 92646-4632 Attention: Ms. Bonnie E. Kehe Telex No. N/A Answer Back Code: N/A Telecopier No. (714) 968-4959 -117- Commitment: Pre-Funding Commitment: $15,000,000 $7,000,000 CORESTATES BANK, N.A. By:_____________________________ Name: Title: Lending Office for Prime Rate and Eurodollar Loans: CoreStates Bank, N.A. 1500 Market Street Center Square Building - 19th Fl. F.C. 1-3-19-20 Philadelphia, PA 19102 Attention: Mr. John McDonald, AVP Audrey Wines, Loan Administrator Telephone No. (215) 973-3961 Telecopier No. (215) 973-6054 Address for Notices: CoreStates Bank, N.A. 1500 Market Street Center Square Building - 19th Fl. F.C. 1-3-19-20 Philadelphia, PA 19102 Attention: Mr. David D'Antonio Vice President Telephone No. (215) 973-7038 Telecopier No. (215) 786-7704 -118- Commitment: $15,000,000 MIDLANTIC BANK N.A. By:__________________________ Name: Title: Lending Office for Prime Rate and Eurodollar Loans: [Address] Attention: Telex No.: Answer Back Code: Telecopier No.: Address for Notices: [Address] Attention: Telex No.: Answer Back Code: Telecopier No.: -119- Commitment: $15,000,000 BHF-BANK AKTIENGESELLSCHAFT By:__________________________ Name: Title: By:__________________________ Name: Title: Lending Office for Prime Rate and Eurodollar Loans: Grand Cayman Branch c/o BHF-BANK AG New York Branch 590 Madison Avenue New York, New York 10022-2540 Attention: Renale Boston Telex No.: Answer Back Code: Telecopier No.: 212-756-5536 Address for Notices: Grand Cayman Branch c/o BHF-BANK AG New York Branch 590 Madison Avenue New York, New York 10022-2540 Attention: Renale Boston Telex No.: Answer Back Code: Telecopier No.: 212-756-5536 -120- SCHEDULE 14 Determination of Contract Advance Rate The "Contract Advance Rate" shall be determined based on the principal amount advanced to the Borrower or its wholly-owned affiliate in the C-Piece Financing as follows: C-Piece Financing Principal Amount Contract Advance Rate -------- ------------ If the aggregate principal amount advanced in the C-Piece Financing is equal to $5,200,000 or less 94.6% If the aggregate principal amount advanced in the C-Piece Financing is equal to $10,400,000 94.3 If the aggregate principal amount advanced in the C-Piece Financing is equal to $15,600,000 93.9 If the aggregate principal amount advanced in the C-Piece Financing is equal to $20,800,000 93.6 If the aggregate principal amount advanced in the C-Piece Financing is equal to $26,000,000 93.2 If the aggregate principal amount advanced in the C-Piece Financing is equal to $31,200,000 or more 92.9 If the aggregate principal amount advanced in the C-Piece Financing is equal to an amount in excess of $5,200,000, less than $31,200,000 and not listed in the above table, the Contract Advance Rate will be determined by calculating where such -1- aggregate principal amount advanced compares to the nearest higher and lower advance amounts listed in the above table and then interpolating the Contract Advance Rate (rounded to the nearest tenth of a percentage) between the respective percentages set forth in the above table. The foregoing table assumes that the Borrower's average leverage ratio (i.e., assets created for each $1.00 of cash received) equals 7.86. If the Borrower's quarterly financial statements reflect an increase in the Borrower's average leverage ratio, then the Agent may request (and shall request at the direction of the Majority Banks) that appropriate adjustments be made in the foregoing schedule, in which case the Agent and the Borrower shall agree upon a new schedule within 30 days. The new Contract Advance Rate shall take effect upon the agreement of the Agent and the Borrower and the giving of notice of the new Contract Advance Rate by the Agent to the Banks. -2- EXHIBIT B TO LOAN AGREEMENT AMENDED AND RESTATED PRE-FUNDING NOTE $_________ New York, New York __________, 19__ FOR VALUE RECEIVED, DVI FINANCIAL SERVICES INC., a Delaware corporation (the "Borrower"), hereby promises to pay to the order of [NATWEST BANK N.A. (successor by merger to National Westminster Bank USA)][CORESTATES BANK N.A.] a national banking association (the "Pre-Funding Lender") on the Term Conversion Date or on such earlier date as is provided for in the First Amended and Restated Loan Agreement dated June 14, 1991 and amended and restated as of March 28, 1995 (as amended or supplemented from time to time, the "Loan Agreement") between the Borrower, the banks signatory to the Loan Agreement (the "Banks") and NatWest Bank N.A. as a Pre-Funding Lender and as agent for the ratable benefit of the Banks (in such capacity, the "Agent"), the lesser of (i) the principal sum of __________ ($___________), or (ii) the aggregate unpaid principal amount of the Pre-Funding Loans. Capitalized terms used but not defined in this Note shall have the meanings ascribed to such terms in the Loan Agreement. The Borrower shall pay interest on the unpaid principal amount of each Pre-Funding Loan from the date of such Pre-Funding Loan until such Pre-Funding Loan is paid in full at the rates, on the dates and for the periods set forth in or established by the Loan Agreement and calculated as provided in the Loan Agreement. All indebtedness outstanding under this Note shall bear interest after maturity, whether at stated maturity, by acceleration or otherwise, at the Post-Default Rate (computed in the same manner as interest on this Note prior to maturity) and all such interest shall be payable on demand. Notwithstanding anything to the contrary in this Note, the obligation of the Borrower to make payments of interest shall be subject to the limitation that payments of interest shall not be required to be made to the Pre- Funding Lender to the extent that the Pre-Funding Lender's receipt of such interest would not be permissible under Applicable Laws limiting rates of interest that may be charged or collected by the Pre-Funding Lender. Any such payments of interest that are not made as a result of the limitation referred to in the preceding sentence shall be made by the Borrower to the Pre-Funding Lender on the earliest interest payment date or dates on which the receipt of such interest would be permissible under Applicable Laws limiting rates of interest that may be charged or collected by the Pre-Funding Lender. Payments of both principal and interest on this Note are to be made at the office of the Agent at 175 Water Street, New York, New York 10038, or such other place as the holder of this Note shall designate to the Borrower in writing, in lawful money of the United States of America in immediately available funds. This Note is a Pre-Funding Note referred to in the Loan Agreement, is secured in the manner provided in the Loan Agreement, may be prepaid on the terms and conditions set forth in the Loan Agreement and is entitled to the benefits of the Loan Agreement. The Pre-Funding Lender is authorized by the Borrower to record on the schedule to this Note (or on a supplemental schedule) the amount of each Pre-Funding Loan made by the Pre-Funding Lender to the Borrower and the amount of each payment or prepayment of principal of such Pre-Funding Loan received by the Pre-Funding Lender, although failure to make any such notation shall not affect the rights of the Pre-Funding Lender or the obligations of the Borrower under this Note. The Pre-Funding Lender may, at its option, record such matters in its internal records rather than on such schedule. Upon the occurrence of any Event of Default, the principal amount of and accrued interest on this Note may be declared due and payable in the manner and with the effect provided in the Loan Agreement. The Borrower shall pay all costs and expenses of collection, including reasonable attorneys' fees and B-1 disbursements, in the event that any action, suit or proceeding is brought by the Pre-Funding Lender to collect this Note. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO PROMISSORY NOTES ENTERED INTO IN THE STATE OF NEW YORK BY RESIDENTS OF SUCH STATE AND TO BE PAID AND PERFORMED ENTIRELY WITHIN SUCH STATE. DVI FINANCIAL SERVICES INC. By: _________________________ Name: Title: B-2 SCHEDULE TO PRE-FUNDING NOTE This Note evidences the principal amounts of the Pre-Funding Loans made by the "Pre-Funding Lender as a Pre-Funding Lender under the Loan Agreement on the dates set forth below and the payments or prepayments of principal by the Borrower as set forth below: Date Made Principal Amount of Pre-Funding Loan Made Principal Amount of Pre-Funding Loan Paid or Prepaid Balance Outstanding Initials B-3 EX-21 6 SUBSIDIARIES OF THE REGISTRANT DVI, INC. SUBSIDIARIES AND SUB-SUBSIDIARIES EXHIBIT 21 Percentage Owned by ------------------- Name of Entity/Jurisdiction of Organization Registrant Subsidiary - ------------------------------------------- ---------- ---------- DVI Financial Services Inc. (Delaware) 100% DVI Healthcare Operations, Inc. (Delaware) 100% DVI Business Credit Corporation (Delaware) 100% DVI Lease Finance Corporation II (Delaware) 100% DVI Lease Finance Corporation III (Delaware 100% DVI Lease Finance Corp. 1993-A (Delaware) 100% DVI Subordinated Securities Corp. (Delaware) 100% DVI Receivables Corp. (Delaware) 100% DVI Receivables Corp. II (Delaware) 100% DVI Business Credit Receivables Corporation (Delaware) 100% DVI Business Credit Receivables Corp. II (Delaware) 100% Westgate Imaging Center, Inc. (Delaware) 100% EX-27 7 FDS -- DVI, INC.
5 DOLLARS Year JUN-30-1996 JUN-30-1996 1 34,898 0 449,258 0 0 0 2,885 926 560,325 202,749 267,568 0 0 52 85,211 560,325 0 56,694 0 30,489 9,898 1,974 0 14,333 6,092 8,175 0 0 0 8,175 .81 .47
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