-----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, VeSkz+S+tDspV9ydOLM1+n0U2/99L41nxmPqudkLYptwy6GzhJi7avYyllV1b2Pw VCOWHOmQGSJ+t2Fqc4sR/w== 0000950137-97-001143.txt : 19970327 0000950137-97-001143.hdr.sgml : 19970327 ACCESSION NUMBER: 0000950137-97-001143 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DATRONIC EQUIPMENT INCOME FUND XVI L P CENTRAL INDEX KEY: 0000814323 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 363535958 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-16764 FILM NUMBER: 97563718 BUSINESS ADDRESS: STREET 1: 1300 E WOODFIELD RD STE 312 CITY: SCHAUMBURG STATE: IL ZIP: 60173 BUSINESS PHONE: 7082406200 MAIL ADDRESS: STREET 1: 1300 E WOODFIELD DRIVE STREET 2: SUITE 312 CITY: SCHAUMBURG STATE: IL ZIP: 60173 FORMER COMPANY: FORMER CONFORMED NAME: DATRONIC RENTAL CORPORATION EQUIPMENT INCOME FUND XVI L P DATE OF NAME CHANGE: 19870803 10-K405 1 FORM 10-K DATED DECEMBER 31, 1996 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 Commission File Number 0-16764 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. ---------------------------------------- (Exact name of Registrant as specified in its charter) Delaware 36-3535958 - ----------------------- --------------------- State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization 1300 E. Woodfield Road, Suite 312, Schaumburg, Illinois 60173 - ------------------------------------------------------- -------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (847) 240-6200 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered NONE NONE - ------------------- ----------------------------------------- Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest ------------------------------------- (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 report(s)), 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. [x] 2 PART I ITEM 1 - BUSINESS Datronic Equipment Income Fund XVI, L.P. (the "Partnership"), a Delaware Limited Partnership, was formed on April 21, 1987. The Partnership offered Units of Limited Partnership Interests (the "Units") during 1987 and 1988 raising $49,970,000 of limited partner funds. As more fully described in Part II, Item 8, Notes 1, 3, 5 and 6 during the second calendar quarter of 1992, it was learned that Edmund J. Lopinski, Jr., the president, director and majority stockholder of Datronic Rental Corp., the then general partner, in conjunction with certain other parties, may have diverted approximately $13.3 million of assets from the Datronic Partnerships and TELIF for his/their direct or indirect benefit. During 1992, a class action lawsuit was filed and subsequently certified on behalf of the limited partners in the Datronic Partnerships against DRC, various officers of DRC and various other parties. On March 4, 1993, a settlement was approved to resolve certain portions of the suit to enable the operations of the Datronic Partnerships to continue while permitting the ongoing pursuit of claims against alleged wrongdoers (the "Settlement"). In connection with the Settlement, DRC was replaced by Lease Resolution Corporation ("LRC") as General Partner of the Partnership. The Partnership was formed to acquire a variety of low-technology, high-technology and other equipment for lease to unaffiliated third parties under full payout leases as well as to acquire equipment subject to existing leases. The cash generated during the Partnership's Operating Phase from such investments was used to pay the operating costs of the Partnership, make distributions to the limited partners and the general partner (subject to certain limitations) and reinvest in additional equipment for lease. During the Partnership's Liquidating Phase, which began August 3, 1993, the cash generated from such investments is used to pay the liquidating costs of the Partnership and make cash distributions to the limited partners and the general partner (subject to certain limitations). Concurrent with the commencement of the Liquidating Phase, the Partnership ceased reinvestment in equipment and leases and began the orderly liquidation of the Partnership's assets for cash. As more fully described in Note 10 to the Partnership's financial statements included in Item 8, the Partnership's primary source of revenue is rental income from two properties acquired through foreclosure. During 1996, rental income of $118,144 was earned in accordance with a rental agreement with Thomas Chevrolet-GEO, Inc., Sacramento, California. The term of the rental agreement extends to February 1997. Remaining rents under the agreement are $32,448 for the year 1997. Additionally, during 1996, rental income of $225,000 was earned in accordance with a rental agreement with Bear - 2 - 3 Country Chrysler-Plymouth, Rancho Cordova, California. The term of the rental agreement extends to November, 1997. Remaining rents under the agreement are $220,000 for the year 1997. Both rental agreements contain renewal provisions exercisable by the lessee under certain conditions. A presentation of information about industry segments, geographic regions, raw materials or seasonality is not applicable and would not be material to an understanding of the Partnership's business taken as a whole. Since the Partnership ceased investing in leases effective August 3, 1993, a discussion of sources and availability of leases, backlog and competition is not material to an understanding of the Partnership's future activity. The Partnership has no employees. Lease Resolution Corporation ("LRC"), the General Partner, employed 47 persons at December 31, 1996 all of whom attend to the operations of the Datronic Partnerships. ITEM 2 - PROPERTIES Effective March 1, 1997, the Partnership's operations are located in leased premises of approximately 15,000 square feet in Schaumburg, Illinois. Prior to March 1, 1997, the Partnership's operations were located in leased premises of approximately 23,000 square feet owned by and leased from an affiliate of New Era Funding Corp.,("New Era") the former managing agent, in Hoffman Estates, Illinois. LRC occupies approximately 3,800 square feet of office space in Schaumburg, Illinois in a real estate property that is a Recovered Asset (see Part II, Item 8, Note 3) held for the benefit of the Datronic Partnerships. ITEM 3 - LEGAL PROCEEDINGS Reference is made to Part II, Item 8, Note 5 for a discussion of material legal proceedings involving the Partnership. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of limited partners during the fourth quarter of the fiscal year covered by this report through the solicitation of proxies or otherwise. - 3 - 4 PART II ITEM 5 - MARKET FOR THE REGISTRANT'S LIMITED PARTNERSHIP UNITS AND RELATED LIMITED PARTNER AND GENERAL PARTNER MATTERS Market Information The Units are not listed on any exchange or national market system, and there is no established public trading market for the Units. To the best of LRC's knowledge, no trading market exists for the Units that would jeopardize the Partnership's status for federal income tax purposes. As of December 31, 1996, the Partnership estimates that there were approximately 4,781 record owners of Units. Distributions Reference is made to Part II, Item 8, Notes 6 and 7 for a discussion of Classes of Limited Partners and distributions paid to limited partners and the general partner. ITEM 6 - SELECTED FINANCIAL DATA The following table sets forth selected financial data as of December 31, 1996, 1995, 1994, 1993 and 1992 and for the five years then ended. The amounts presented as of December 31, 1996, 1995, 1994 and 1993 and for the years then ended are aggregated for all Classes (A, B, and C) of Limited Partners, unless otherwise noted. As indicated in the table, prior to the Settlement on March 4, 1993, there was a single class of limited partner units. This information should be read in conjunction with the financial statements included in Item 8 which also reflects amounts for each of the classes of limited partners. - 4 - 5 Statement of Revenue and Expenses Data (in thousands, except for Unit amounts)
For the years ended December 31, 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Total Revenue $ 613 $ 890 $ 1,141 $ 2,125 $ 3,100 Total Expenses 1,374 1,115 904 2,695 3,789 ------- ------- -------- ------- ------- Net earnings (loss) $ (761) $ (225) $ 237 $ (570) $ (689) ======= ======= ======== ======= ======= Net earnings (loss) per Unit $ (6.90) ======= Class A $ (8.29) $ (2.43) $ 1.16 $ (5.57) ======= ======= ======== ======= Class B $ (7.08) $ (2.11) $ 3.08 $ (5.70) ======= ======= ======== ======= Class C $ (7.08) $ (2.11) $ 3.08 $ (5.70) ======= ======= ======== ======= Distributions per Unit (per year) $ 53.75 ======= Class A $ - $ 6.18 $ 48.34 $ 65.65 ======= ======= ======== ======= Class B $ 1.00 $ 14.07 $ 53.41 $ 48.51 ======= ======= ======== ======= Class C $ 1.00 $ 14.07 $ 53.41 $ 48.51 ======= ======= ======== ======= Weighted average number of Units outstanding 99,924 ======= Class A 38,197 38,197 38,197 38,197 ======= ======= ======== ======= Class B 61,569 61,569 61,569 61,569 ======= ======= ======== ======= Class C 127 127 127 127 ======= ======= ======== ======= Balance Sheet Data - ------------------ (in thousands) December 31, 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- Total assets $ 5,541 $ 6,764 $ 8,150 $12,718 $20,049 ======= ======= ======== ======= ======= Total liabilities $ 427 $ 828 $ 865 $ 497 $ 1,684 ======= ======= ======== ======= ======= Partners' equity $ 5,114 $ 5,936 $ 7,285 $12,221 $18,365 ======= ======= ======== ======= ======= Book value per Unit $183.79 ======= Class A $ 48.38 $ 56.67 $ 64.70 $112.45 ======= ======= ======== ======= Class B $ 54.89 $ 62.96 $ 78.51 $129.46 ======= ======= ======== ======= Class C $ 58.46 $ 66.53 $ 82.08 $133.03 ======= ======= ======== =======
- 5 - 6 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis presents information pertaining to the Partnership's operating results and financial condition. Results of Operations Year ended December 31, 1996 compared to year ended December 31, 1995 The Partnership recorded a net loss, in the aggregate for all Classes of Partners, of $760,929 in 1996 ($8.29 loss per Class A Unit and $7.08 loss per Class B and Class C Units), as compared to a net loss of $225,314 in 1995 ($2.43 loss per Class A Unit and $2.11 loss per Class B and Class C Units). (Differences between per Unit amounts for Liquidating Limited Partners and Continuing Limited Partners are attributable to income, acquisition costs and expenses associated with investments in new leases ("New Investments") since the date of the Settlement on March 4, 1993.) Significant factors influencing the 1996 results from operations included the following: - Lease income decreased $201,777 to $81,010 in 1996 compared to $282,787 in 1995. The decrease is attributable to the declining lease portfolio during 1996 as compared to 1995. - Settlement proceeds of $212,766 in 1995 resulted from a settlement with the Datronic Partnerships' former attorneys. See Note 5 to the Partnership's financial statements included in Item 8. - Interest income increased $43,605 to $188,710 in 1996 compared to $145,105 in 1995. The increase is primarily attributable to an increase in the average cash balance and interest rates and the recognition in the second quarter of 1996 of approximately $18,000 of interest previously earned on restricted cash balances. - Other income increased $93,964 to $343,144 in 1996 compared to $249,180 in 1995 due to the recognition of rental income on foreclosed properties subsequent to March 1995 as rental income. Prior to April 1995, rental income was credited to the investment in foreclosed properties, net. See Note 10 to the Partnership's financial statements included in Item 8. - Management fees-New Era represent amounts paid New Era for managing the Partnership on a day-to-day basis. These fees are affected by the amount of service performed for the Partnership. The Management Agreement with New Era was terminated on June 30, 1996. See Note 8 to the Partnership's - 6 - 7 financial statements included in Item 8 for a discussion of the Management Termination Agreement. Management fees-New Era increased $249,873 to $1,019,003 in 1996 compared to $769,130 in 1995. The increase results from the payment of approximately $611,000 in termination and non-compete fees partially offset by a decrease in the amount of service provided and the length of time in which New Era managed the activities of the Partnership in 1996(approximately $361,000). - General Partner's expense reimbursement represents amounts paid to LRC for expenses incurred in its capacity as general partner in excess of general partner distributions. As further detailed in Note 6 to the Partnership's financial statements included in Item 8, during 1996 the Partnership paid LRC an aggregate of $344,789 consisting exclusively of general partner expense reimbursement and no general partner distributions. During 1995 the Partnership paid LRC an aggregate of $113,171 consisting of general partner expense reimbursement of $94,508 and general partner distributions of $18,663. Accordingly, aggregate payments to LRC increased $231,618 to $344,789 in 1996 as compared to $113,171 in 1995. The increase results from expenses of approximately $224,000 incurred to manage the day-to-day operations of the Partnership beginning July 1, 1996 due to the termination of the management agreement with New Era, described above, plus an increase in other expenses of approximately $8,000. - Professional fees-Litigation decreased $73,963 to $141,113 in 1996 from $215,076 in 1995. This decrease is primarily due to the fees paid in 1995 in connection with the settlement with the Partnership's former attorneys. See Note 5 to the Partnership's financial statements included in Item 8. - Professional fees-Other decreased $63,202 to $391,574 in 1996 from $454,776 in 1995. This decrease is primarily due to decreases in legal fees-collections of $52,506, and other legal matters of $20,483, partially offset by an increase in consulting fees of $10,348. - Provision for loss on Diverted and other assets decreased $54,315 to $24,140 in 1996 from $78,455 in 1995. The provisions for loss are attributable to the Partnership's share of a decline in the estimated net realizable value of Recovered Assets. See Note 3 to the Partnership's financial statements included in Item 8. - 7 - 8 Year ended December 31, 1995 compared to year ended December 31, 1994 The Partnership recorded a net loss, in the aggregate for all Classes of Partners, of $225,314 in 1995 ($2.43 loss per Class A Unit and $2.11 loss per Class B and Class C Units), as compared to net earnings of $236,423 in 1994 ($1.16 gain per Class A Unit and $3.08 gain per Class B and Class C Units). (Differences between per Unit amounts for Liquidating Limited Partners and Continuing Limited Partners are attributable to income, acquisition costs, and expenses associated with New Investments.) Significant factors influencing the 1995 results from operations included the following: - Lease income decreased $783,372 to $282,787 in 1995 compared to $1,066,159 in 1994. The decrease is attributable to the declining lease portfolio during 1995 as compared to 1994. - Settlement proceeds of $212,766 resulted from a settlement with the Datronic Partnerships' former attorneys. See Note 5 to the Partnership's financial statements included in Item 8. - Interest income increased $77,018 to $145,105 in 1995 compared to $68,087 in 1994. The increase is primarily attributable to interest rate increases and a slight increase in cash balances. - Other income increased $242,523 to $249,180 in 1995 compared to $6,657 in 1994 due to the recognition of rental income collected on foreclosed properties. - Management fees-New Era represent amounts paid New Era for managing the Partnership on a day-to-day basis. Management fees-New Era decreased $134,215 to $769,130 in 1995 compared to $903,345 in 1994. These fees are affected by the amount of leases acquired during the period and services performed for the Partnership. See Note 8 to the Partnership's financial statements included in Item 8. - Professional fees-Litigation of $215,076 in 1995 and $107,848 in 1994 are fees paid in connection with the Partnership's litigation discussed in Note 5 to the Partnership's financial statements included in Item 8. - Professional fees-Other decreased $187,554 to $454,776 in 1995 from $642,330 in 1994. This decrease is primarily due to decreases in legal fees-collections of $73,583, audit fees of $27,786, consulting fees of $70,769 and other legal matters of $15,416. - The credit for lease losses decreased by $422,781 to $600,000 in 1995 compared to $1,022,781 in 1994. This decrease reflects the reversal of a 1993 provision for an account deemed to be - 8 - 9 collectible in 1994 as well as Management's ongoing assessment of potential losses inherent in the lease portfolio. - Provision for loss on Diverted and other assets increased $39,831 to $78,455 in 1995 from $38,624 in 1994. The provision for loss in 1995 is primarily attributable to the Partnership's share of a decline in the estimated net realizable value of Recovered Assets. See Note 3 to the Partnership's financial statements included in Item 8. Financial Condition at December 31, 1996 The Partnership's operating activities were initially funded by limited partner contributions. The Partnership closed its public offering on August 3, 1988 after raising $49,970,000 in gross proceeds from limited partners. During 1996, Partnership assets continued to be converted to cash in order to, generally, pay Partnership operating expenses and distributions to limited partners. During 1996, the Partnership's cash and cash equivalents decreased by $632,053 to $3,159,509 at December 31, 1996 from $3,791,562 at December 31, 1995. This decrease is primarily due to negative cash flow from operations of $1,776,659 and distributions to partners of approximately $61,696 partially offset by cash receipts from collections on leases of $1,080,515, release of restricted cash of $112,787 and recoveries on foreclosed properties of $13,000. During 1996, the Partnership's net investment in direct financing leases decreased by $475,515 to $41,479 at December 31, 1996 from $516,994 at December 31, 1995. This decrease is attributable to principal collections of approximately $1 million, partially offset by a credit for lease losses of $605,000. During 1996, Diverted and other assets, net, decreased by $24,140 to $367,877 at December 31, 1996 from $392,017 at December 31, 1995. This decrease is attributable to a decline in the estimated net realizable value of the Recovered Assets held for the benefit of the Partnerships. See Note 3 to the Partnership's financial statements included in Item 8. Restricted cash decreased by $112,787 to zero at December 31, 1996 due to the removal of claims against such cash (see Note 4 to the Partnership's financial statements included in Item 8) and distribution of such cash to the Partnership with interest in June 1996. Lessee rental deposits decreased $327,446 resulting from payments made to lessees. - 9 - 10 Partners' equity decreased approximately $823,000 during 1996 due to distributions to partners of approximately $62,000 and a net loss for the year of $761,000. Liquidity and Capital Resources The Partnership's sources of liquidity on both a long-term and short-term basis are expected to come principally from cash-on-hand and the rental of foreclosed properties. In addition, the Partnership's sources of liquidity on a long-term basis are expected to include proceeds from the sale of other assets of the Partnership including, without limitation, Diverted and other assets and foreclosed properties. Management believes that its sources of liquidity in the short and long-term are sufficient to meet its operating cash obligations and provide for the ongoing pursuit of litigation, and an orderly liquidation of the Partnership. Distributions to Class A Limited Partners were suspended after the April 1, 1995 distribution and distributions to the Class B and C Limited Partners were suspended after the January 1, 1996 distribution. In the event the Partnership accumulates funds in excess of those required for the ongoing pursuit of litigation and an orderly liquidation of the Partnership, distributions will be made at the appropriate time. During 1996, the Partnership's operating activities resulted in a use of $1,776,659 of cash. This was due principally to a net loss of $760,929, a non-cash credit for lease losses of $605,000, and decreases in accounts payable and lessee rentals of approximately $400,215 partially offset by a non-cash provision for losses on Diverted and other assets of $24,140. During the period, cash flows from investing activities totalled $1,206,302 relating primarily to principal collections on leases of $1,080,515, the release of restricted cash in the amount of $112,787, and net proceeds from the sale of a foreclosed property of $13,000. Cash flows used for financing activities during 1996 of $61,696 consisted of distributions to limited partners. The continued operation and eventual liquidation of the Partnership involves numerous complex issues which have to be resolved. These issues relate to the timing and realizability of lease-related assets, Diverted and other assets, Datronic Assets, litigation and the liquidation of the other Datronic Partnerships (see Notes 3, 5 and 9 to the Partnership's financial statements included in Item 8). These issues make it difficult to predict the time and costs necessary to operate and liquidate the Partnership in an orderly manner. As a result of these uncertainties, it is not possible to predict the timing and availability of cash for future distributions to Limited Partners. However, it is likely that the amount of future distributions, if any, to the Limited Partners will be significantly less than the amount of Partners' Equity reflected in the December 31, 1996 Balance Sheets (see financial - 10 - 11 statements included in Item 8). Impact of Inflation and Changing Prices Inflation is not expected to have any significant direct, determinable effect on the Partnership's business or financial condition. - 11 - 12 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page(s) ------- Audited Financial Statements: Report of Independent Accountants 13 - 14 Balance Sheets In Total for All Classes of Limited Partners at December 31, 1996 and 1995 15 By Class of Limited Partner December 31, 1996 16 December 31, 1995 17 Statements of Revenue and Expenses In Total for All Classes of Limited Partners for the years ended December 31, 1996, 1995 and 1994 18 By Class of Limited Partner for the years ended December 31, 1996 19 December 31, 1995 20 December 31, 1994 21 Statements of Changes in Partners' Equity For the years ended December 31, 1996, 1995 and 1994 22 Statements of Cash Flows In Total for All Classes of Limited Partners for the years ended December 31, 1996, 1995 and 1994 23 By Class of Limited Partner for the years ended December 31, 1996 24 December 31, 1995 25 December 31, 1994 26 Notes to Financial Statements 27 - 45
- 12 - 13 INDEPENDENT AUDITORS' REPORT The Partners of Datronic Equipment Income Fund XVI, L.P. We have audited the accompanying balance sheets in total for all classes of limited partners of DATRONIC EQUIPMENT INCOME FUND XVI, L.P. ( "the Partnership") as of December 31, 1996 and 1995 and the related statements of revenue and expenses in total for all classes of limited partners, of changes in partners' equity and of cash flows in total for all classes of limited partners for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements 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, the financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as of December 31, 1996 and 1995, and the results of its operations in total for all classes of limited partners and its cash flows in total for all classes of limited partners for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the Partnership's financial statements taken as a whole. As described in Note 2, the accounting records of the Partnership are maintained to reflect the interests of each of the classes of limited partners. Additional information consisting of the balance sheets by class of limited partner as of December 31, 1996 and 1995, the statements of revenue and expenses by class of limited partner and the statements of cash flows by class of limited partner for the three years in the period ended December 31, 1996 have been prepared by management solely for the information of the limited partners and are not a required part of the financial statements. This additional information has been subjected to the auditing procedures applied in the audit of the Partnership's financial statements and, in our opinion, has been allocated to the respective classes of limited partners in accordance with the terms - 13 - 14 of the Amended Partnership Agreement described in Note 6 and is fairly stated in all material respects in relation to the Partnership's financial statements taken as a whole. As explained more fully in Note 3, the former President and Majority Stockholder of Datronic Rental Corporation ("DRC"), the general partner of the Partnership until March 4, 1993, and others are alleged to have diverted, for their benefit, approximately $13 million from the Partnership and related entities--Datronic Equipment Income Funds XVII, XVIII, XIX, XX, L.P., Datronic Finance Income Fund I, L.P. and Transamerica Equipment Leasing Income Fund, L.P. (collectively "the Partnerships"). Substantially all of the assets known to have been improperly acquired with the diverted funds have been recovered for the benefit of the Partnerships. Altschuler, Melvoin and Glasser LLP Chicago, Illinois March 12, 1997 - 14 - 15 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. BALANCE SHEETS IN TOTAL FOR ALL CLASSES OF LIMITED PARTNERS
December 31, ------------------------ 1996 1995 ---- ---- ASSETS - ------ Cash and cash equivalents $3,159,509 $3,791,562 Due from management company 34,504 - Net investment in direct financing leases 41,479 516,994 Diverted and other assets, net 367,877 392,017 Investment in foreclosed properties, net 1,937,456 1,950,456 Restricted cash - 112,787 Datronic assets, net - - ---------- ---------- $5,540,825 $6,763,816 ========== ========== LIABILITIES AND PARTNERS' EQUITY - -------------------------------- Accounts payable and accrued expenses $ 278,347 $ 351,116 Lessee rental deposits 148,819 476,265 Due to management company - 151 ---------- ---------- Total liabilities 427,166 827,532 Total partners' equity 5,113,659 5,936,284 ---------- ---------- $5,540,825 $6,763,816 ========== ==========
See accompanying notes to financial statements. - 15 - 16 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. BALANCE SHEETS By Class of Limited Partner
December 31, 1996 ------------------------------------------------------- Liquidating Continuing Limited Limited Partners Partners Total -------- -------- ----- ASSETS - ------ Cash and cash equivalents $1,065,965 $2,093,544 $3,159,509 Due from management company 12,826 21,678 34,504 Net investment in direct financing leases 2,520 38,959 41,479 Diverted and other assets, net 140,676 227,201 367,877 Investment in foreclosed properties, net 740,883 1,196,573 1,937,456 Datronic assets, net - - - ---------- ---------- ---------- $1,962,870 $3,577,955 $5,540,825 ========== ========== ========== LIABILITIES AND PARTNERS' EQUITY - -------------------------------- Accounts payable and accrued expenses $ 104,052 $ 174,295 $ 278,347 Lessee rental deposits 52,777 96,042 148,819 ---------- ---------- --------- Total liabilities 156,829 270,337 427,166 Total partners' equity 1,806,041 3,307,618 5,113,659 ---------- ---------- ---------- $1,962,870 $3,577,955 $5,540,825 ========== ========== ==========
See accompanying notes to financial statements. - 16 - 17 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. BALANCE SHEETS By Class of Limited Partner
December 31, 1995 -------------------------------------------------- Liquidating Continuing Limited Limited Partners Partners Total -------- -------- ----- ASSETS - ------ Cash and cash equivalents $1,348,281 $2,443,281 $3,791,562 Net investment in direct financing leases 147,213 369,781 516,994 Diverted and other assets, net 149,907 242,110 392,017 Investment in foreclosed properties, net 745,854 1,204,602 1,950,456 Restricted cash 43,130 69,657 112,787 Datronic assets, net - - - ---------- ---------- ---------- $2,434,385 $4,329,431 $ 6,763,816 ========== ========== =========== LIABILITIES AND PARTNERS' EQUITY - -------------------------------- Accounts payable and accrued expenses $ 133,794 $ 217,322 $ 351,116 Lessee rental deposits 174,492 301,773 476,265 Due to management company 67 84 151 ---------- ---------- ----------- Total liabilities 308,353 519,179 827,532 Total partners' equity 2,126,032 3,810,252 5,936,284 ---------- ---------- ---------- $2,434,385 $4,329,431 $6,763,816 ========== ========== ==========
See accompanying notes to financial statements. - 17 - 18 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. STATEMENTS OF REVENUE AND EXPENSES IN TOTAL FOR ALL CLASSES OF LIMITED PARTNERS
For the years ended December 31, ---------------------------------------------------- 1996 1995 1994 ---- ---- ---- Revenue: Lease income $ 81,010 $ 282,787 $1,066,159 Settlement proceeds - 212,766 - Interest income 188,710 145,105 68,087 Other income 343,144 249,180 6,657 ---------- ---------- ---------- 612,864 889,838 1,140,903 ---------- ---------- ---------- Expenses: Management fees-New Era 1,019,003 769,130 903,345 General Partner's expense reimbursement 344,789 94,508 97,359 Professional fees-Litigation 141,113 215,076 107,848 Professional fees-Other 391,574 454,776 642,330 Other operating expenses 58,174 103,207 137,755 Credit for lease losses (605,000) (600,000) (1,022,781) Provision for loss on Diverted and other assets 24,140 78,455 38,624 ---------- ----------- ---------- 1,373,793 1,115,152 904,480 ---------- ----------- ---------- Net earnings (loss) $ (760,929) $ (225,314) $ 236,423 =========== ============ ========== Net earnings (loss) General Partner $ (7,609) $ (2,253) $ 2,365 =========== ============ ========== Net earnings (loss) Limited Partners $ (753,320) $ (223,061) $ 234,058 =========== ============ ==========
See accompanying notes to financial statements. - 18 - 19 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. STATEMENTS OF REVENUE AND EXPENSES BY CLASS OF LIMITED PARTNER For the year ended December 31, 1996
Liquidating Continuing Limited Limited Partners Partners Total -------- -------- ----- Revenue: Lease income $ 23,025 $ 57,985 $ 81,010 Interest income 72,139 116,571 188,710 Other income 131,218 211,926 343,144 ----------- ---------- ---------- 226,382 386,482 612,864 ----------- ---------- ---------- Expenses: Management fees-New Era 386,400 632,603 1,019,003 General Partner's expense reimbursement 129,678 215,111 344,789 Professional fees-Litigation 53,962 87,151 141,113 Professional fees-Other 149,203 242,371 391,574 Other operating expenses 20,571 37,603 58,174 Credit for lease losses (202,672) (402,328) (605,000) Provision for loss on Diverted and other assets 9,231 14,909 24,140 ----------- ---------- ---------- 546,373 827,420 1,373,793 ----------- ---------- ---------- Net loss $ (319,991) $ (440,938) $ (760,929) =========== ========== ========== Net loss-General Partner $ (3,200) $ (4,409) $ (7,609) =========== ========== ========== Net loss-Limited Partners $ (316,791) $ (436,529) $ (753,320) =========== ========== ========== Net loss per Limited Partnership Unit $ ( 8.29) $ ( 7.08) =========== ========== Weighted average number of limited partnership units outstanding 38,197 61,696 =========== ==========
See accompanying notes to financial statements. - 19 - 20 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. STATEMENTS OF REVENUE AND EXPENSES BY CLASS OF LIMITED PARTNER For the year ended December 31, 1995
Liquidating Continuing Limited Limited Partners Partners Total -------- -------- ----- Revenue: Lease income $ 89,471 $ 193,316 $ 282,787 Settlement proceeds 81,362 131,404 212,766 Interest income 55,045 90,060 145,105 Other income 95,286 153,894 249,180 --------- ---------- ---------- 321,164 568,674 889,838 --------- ---------- ---------- Expenses: Management fees-New Era 288,052 481,078 769,130 General Partner's expense reimbursement 36,140 58,368 94,508 Professional fees-Litigation 82,245 132,831 215,076 Professional fees-Other 171,306 283,470 454,776 Other operating expenses 36,488 66,719 103,207 Credit for lease losses (229,440) (370,560) (600,000) Provision for loss on Diverted and other assets 30,001 48,454 78,455 --------- ---------- ---------- 414,792 700,360 1,115,152 --------- ---------- ---------- Net loss $ (93,628) $ (131,686) $ (225,314) ========= ========== ========== Net loss-General Partner $ (936) $ (1,317) $ (2,253) ========= ========== ========== Net loss-Limited Partners $ (92,692) $ (130,369) $ (223,061) ========= ========== ========== Net loss per Limited Partnership Unit $ (2.43) $ (2.11) ========= ========== Weighted average number of limited partnership units outstanding 38,197 61,696 ========= ==========
See accompanying notes to financial statements. - 20 - 21 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. STATEMENTS OF REVENUE AND EXPENSES BY CLASS OF LIMITED PARTNER For the year ended December 31, 1994
Liquidating Continuing Limited Limited Partners Partners Total -------- -------- ----- Revenue: Lease income $ 346,264 $ 719,895 $ 1,066,159 Interest income 26,036 42,051 68,087 Other income 2,476 4,181 6,657 --------- --------- ----------- 374,776 766,127 1,140,903 --------- --------- ----------- Expenses: Management fees-New Era 338,686 564,659 903,345 General Partner's expense reimbursement 37,230 60,129 97,359 Professional fees-Litigation 41,241 66,607 107,848 Professional fees-Other 244,694 397,636 642,330 Other operating expenses 48,721 89,034 137,755 Credit for lease losses (395,127) (627,654) (1,022,781) Provision for loss on Diverted and other assets 14,770 23,854 38,624 --------- --------- ----------- 330,215 574,265 904,480 --------- --------- ----------- Net earnings $ 44,561 $ 191,862 $ 236,423 ========= ========= =========== Net earnings-General Partner $ 446 $ 1,919 $ 2,365 ========= ========= =========== Net earnings-Limited Partners $ 44,115 $ 189,943 $ 234,058 ========= ========= =========== Net earnings per Limited Partnership Unit $ 1.16 $ 3.08 ========= ========= Weighted average number of limited partnership units outstanding 38,197 61,696 ========= =========
See accompanying notes to financial statements. - 21 - 22 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. STATEMENTS OF CHANGES IN PARTNERS' EQUITY
Liquidating Continuing General Limited Limited Total Partner's Partners' Partners' Partners' Equity Equity Equity Equity ------ ------ ------ ------ Balance, December 31, 1993 $ - $4,272,849 $7,948,338 $12,221,187 Distributions to partners (33,431) (1,845,574) (3,293,781) (5,172,786) Net earnings 2,365 44,115 189,943 236,423 Allocation of General Partner's Equity 31,066 (10,439) (20,627) - --------- ---------- ----------- ----------- Balance, December 31, 1994 - 2,460,951 4,823,873 7,284,824 --------- ---------- ----------- ----------- Distributions to partners (18,663) (236,227) (868,336) (1,123,226) Net loss (2,253) (92,692) (130,369) (225,314) Allocation of General Partner's Equity 20,916 (6,000) (14,916) - --------- ---------- ----------- ----------- Balance, December 31, 1995 - 2,126,032 3,810,252 5,936,284 --------- ---------- ----------- ----------- Distributions to partners - - (61,696) (61,696) Net loss (7,609) (316,791) (436,529) (760,929) Allocation of General Partner's Equity 7,609 (3,200) (4,409) - --------- ---------- ----------- ----------- Balance, December 31, 1996 $ - $1,806,041 $ 3,307,618 $ 5,113,659 ========= ========== =========== ===========
See accompanying notes to financial statements. - 22 - 23 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. STATEMENTS OF CASH FLOWS IN TOTAL FOR ALL CLASSES OF LIMITED PARTNERS
For the years ended December 31, ------------------------------------------------------- 1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net earnings (loss) $ (760,929) $ (225,314) $ 236,423 Adjustments to reconcile net earnings (loss) to net cash used in operating activities: Credit for lease losses (605,000) (600,000) (1,022,781) Provision for loss on Diverted and other assets 24,140 78,455 38,624 Changes in assets and liabilities: Due to/from General Partner - - 1,415 Due to/from management company (34,655) (235) (1,427) Accounts payable and accrued expenses (72,769) (15,378) 59,808 Lessee rental deposits (327,446) (21,898) 84,265 ----------- ----------- ---------- (1,776,659) (784 370) (603,673) ----------- ----------- ---------- Cash flows from investing activities: Principal collections on leases 1,080,515 2,321,486 5,314,406 Sale of leases - - 846,009 Distribution of Diverted and other assets - 145,003 - Distribution of Datronic assets - 27,904 21,085 Release of Restricted cash 112,787 - - Repayments of commercial lease paper - 1,444 53,364 Investment in foreclosed properties 13,000 51,037 193,579 ----------- ----------- ---------- 1,206,302 2,546,874 6,428,443 ----------- ----------- ---------- Cash flows from financing activities: Distributions to Limited Partners (61,696) (1,104,563) (5,139,355) Distributions to General Partner - (18,663) (33,431) ----------- ----------- ---------- ( 61,696) (1,123,226) (5,172,786) ----------- ----------- ---------- Net increase (decrease) in cash and cash equivalents (632,053) 639,278 651,984 Cash and cash equivalents: Beginning of year 3,791,562 3,152,284 2,500,300 ----------- ----------- ---------- End of year $ 3,159,509 $ 3,791,562 $3,152,284 =========== =========== ==========
See accompanying notes to financial statements. - 23 - 24 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. STATEMENTS OF CASH FLOWS BY CLASS OF LIMITED PARTNER For the year ended December 31, 1996
Liquidating Continuing Limited Limited Partners Partners Total -------- -------- ----- Cash flows from operating activities: Net loss $ (319,991) $ (440,938) $ ( 760,929) Adjustments to reconcile net loss to net cash used in operating activities: Credit for lease losses (202,672) (402,328) (605,000) Provision for loss on Diverted and other assets 9,231 14,909 24,140 Changes in assets and liabilities: Due to/from management company (12,893) (21,762) (34,655) Accounts payable and accrued expenses (29,742) (43,027) (72,769) Lessee rental deposits (121,715) (205,731) (327,446) ---------- ---------- ---------- (677,782) (1,098,877) (1,776,659) ---------- ---------- ---------- Cash flows from investing activities: Principal collections on leases 347,365 733,150 1,080,515 Release of Restricted cash 43,130 69,657 112,787 Investment in foreclosed properties 4,971 8,029 13,000 ---------- ---------- ---------- 395,466 810,836 1,206,302 ---------- ---------- ---------- Cash flows from financing activities: Distributions to limited Partners - (61,696) (61,696) Distributions to General Partner - - - ---------- ---------- ---------- - (61,696) (61,696) ---------- ---------- ---------- Net decrease in cash and cash equivalents (282,316) (349,737) (632,053) Cash and cash equivalents: Beginning of year 1,348,281 2,443,281 3,791,562 ---------- ---------- ---------- End of year $1,065,965 $2,093,544 $3,159,509 ========== ========== ==========
See accompanying notes to financial statements. - 24 - 25 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. STATEMENTS OF CASH FLOWS BY CLASS OF LIMITED PARTNER For the year ended December 31, 1995
Liquidating Continuing Limited Limited Partners Partners Total -------- -------- ----- Cash flows from operating activities: Net loss $ (93,628) $ (131,686) $ (225,314) Adjustments to reconcile net loss to net cash used in operating activities: Credit for lease losses (229,440) (370,560) (600,000) Provision for loss on Diverted and other assets 30,001 48,454 78,455 Changes in assets and liabilities: Due to/from management company - (235) (235) Accounts payable and accrued expenses (7,452) (7,926) (15,378) Lessee rental deposits (11,158) (10,740) (21,898) ----------- ---------- ----------- (311,677) (472,693) (784,370) ----------- ---------- ----------- Cash flows from investing activities: Principal collections on leases 799,405 1,522,081 2,321,486 Distribution of Diverted and other assets, net 55,450 89,553 145,003 Distribution of Datronic assets 10,670 17,234 27,904 Repayments of commercial lease paper 552 892 1,444 Investment in foreclosed properties 19,517 31,520 51,037 ----------- ---------- ----------- 885,594 1,661,280 2,546,874 ----------- ---------- ----------- Cash flows from financing activities: Distributions to limited Partners (236,227) (868,336) (1,104,563) Distributions to General Partner (5,065) (13,598) (18,663) ----------- ---------- ----------- (241,292) (881,934) (1,123,226) ----------- ---------- ----------- Net increase in cash and cash equivalents 332,625 306,653 639,278 Cash and cash equivalents: Beginning of year 1,015,656 2,136,628 3,152,284 ----------- ---------- ----------- End of year $ 1,348,281 $2,443,281 $ 3,791,562 =========== ========== ===========
See accompanying notes to financial statements. - 25 - 26 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. STATEMENTS OF CASH FLOWS BY CLASS OF LIMITED PARTNER For the year ended December 31, 1994
Liquidating Continuing Limited Limited Partners Partners Total -------- -------- ----- Cash flows from operating activities: Net earnings $ 44,561 $ 191,862 $ 236,423 Adjustments to reconcile net earnings to net cash used in operating activities: Credit for lease losses (395,127) (627,654) (1,022,781) Provision for loss on Diverted and other assets 14,770 23,854 38,624 Changes in assets and liabilities: Due to/from General Partner 541 874 1,415 Due to/from management company (465) (962) (1,427) Accounts payable and accrued expenses 25,098 34,710 59,808 Lessee rental deposits 27,198 57,067 84,265 ----------- ---------- ----------- (283,424) (320,249) (603,673) ----------- ---------- -------- Cash flows from investing activities: Principal collections on leases 1,899,974 3,414,432 5,314,406 Sale of leases 214,118 631,891 846,009 Distribution of Datronic assets 8,063 13,022 21,085 Repayments of commercial lease paper 20,407 32,957 53,364 Investment in foreclosed properties 74,025 119,554 193,579 ----------- ----------- ----------- 2,216,587 4,211,856 6,428,443 ----------- ----------- ----------- Cash flows from financing activities: Distributions to limited Partners (1,845,574) (3,293,781) (5,139,355) Distributions to General Partner (10,883) (22,548) (33,431) ----------- ----------- ----------- (1,856,457) (3,316,329) (5,172,786) ----------- ----------- ----------- Net increase in cash and cash equivalents 76,706 575,278 651,984 Cash and cash equivalents: Beginning of year 938,950 1,561,350 2,500,300 ----------- ----------- ----------- End of year $ 1,015,656 $ 2,136,628 $ 3,152,284 =========== =========== ===========
See accompanying notes to financial statements. - 26 - 27 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995, AND 1994 NOTE 1 - ORGANIZATION: Datronic Equipment Income Fund XVI, L.P., a Delaware Limited Partnership (the "Partnership"), was formed on April 21, 1987 for the purpose of acquiring and leasing both high- and low-technology equipment. Concurrent with the commencement of the Liquidating Phase of the Partnership on August 3, 1993, the Partnership ceased new investment in equipment leases and began the orderly liquidation of all Partnership assets. Datronic Rental Corporation ("DRC" or "Datronic") was the general partner of the Partnership through March 4, 1993 and, as such, managed and controlled all of the Partnership's day-to-day operations. DRC was also the general partner of the following public limited partner income funds: Datronic Equipment Income Funds XVII, XVIII, XIX, and XX and Datronic Finance Income Fund I (herein referred to as "Fund XVII", "Fund XVIII", "Fund XIX", "Fund XX" and "Finance Fund I", respectively, and collectively, along with the Partnership, the "Datronic Partnerships"). DRC served as co-general partner of Transamerica Equipment Leasing Income Fund, L.P. ("TELIF"), which was formed to acquire identified equipment and leases. In connection with a partial settlement of a class action lawsuit (See Note 5), DRC was replaced by Lease Resolution Corporation ("LRC") as the general partner of the Partnership on March 4, 1993. LRC is a Delaware non-stock corporation formed for the sole purpose of acting as the general partner of the Datronic Partnerships. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: BASIS OF FINANCIAL STATEMENTS - The accounting records of the Partnership are being maintained to reflect the interests of each of the classes of limited partners (see Note 6). Each class of limited partner is not a separate legal entity holding title to individual assets nor the obligor of individual liabilities. Accordingly, assets allocated to a specific class of limited partner are available to settle claims of the Partnership as a whole. Additional information consisting of the balance sheets by class of limited partners as of December 31, 1996 and 1995, the statements of revenue and expenses by class of limited partner and the statements of cash flows by class of limited partners for the three years ended December 31, 1996 have been prepared to present allocations of the various categories of assets, liabilities, - 27 - 28 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED revenue, expenses and cash flows of the Partnership to each of the classes of limited partners in accordance with the Amended Partnership Agreement. In addition, the general partner's equity has been allocated to each class of limited partner for purposes of additional information because, the equity attributable to the general partner will be allocated to the limited partners upon final dissolution of the Partnership. For purposes of this additional information, the interests of the Class B and Class C Limited Partners have been combined as "Continuing Limited Partners." At December 31, 1996, the amounts per Unit relating to these two classes are identical with the exception that the per Unit value of Class C Limited Partners is $3.57 per Unit higher than the Class B Limited Partners because in accordance with the 1993 Settlement further described in Note 5, Class Counsel fees and expenses related to the Settlement, net of Datronic Assets, were not allocated to the Class C Limited Partners (see Notes 5 and 9). CASH EQUIVALENTS - Cash equivalents are stated at cost, which approximates market, and consist of overnight investments and amounts due (to)from the general partner (LRC) and other Datronic Partnerships. NET INVESTMENT IN DIRECT FINANCING LEASES - Net investment in direct financing leases consists of the present value of future minimum lease payments and residuals under non-cancelable lease agreements. Residuals are valued at the estimated fair market value of the underlying equipment at lease termination. Leases are classified as non-performing when it is determined that the only remaining course of collection is litigation. All balances relating to the lease are netted together and no further income is accrued when a lease is classified as non-performing. Lease income includes interest earned on the present value of lease payments and residuals (recognized over the term of the lease to yield a constant periodic rate of return), late fees, and other lease related items. ALLOWANCE FOR LEASE LOSSES - An allowance is recorded to reflect estimated losses inherent in the existing portfolio of leases. Additions to the allowance are made by means of a provision for lease losses, which is charged to expense. Credit losses are deducted from the allowance. INVESTMENT IN FORECLOSED PROPERTIES, NET -Investments in foreclosed properties, net, includes the net book value of the leases for which the properties were pledged as collateral, amounts paid to liquidate senior lender positions in the properties, and carrying costs related to the properties. These amounts are offset - 28 - 29 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED by an allowance for loss to reduce the investment to estimated net realizable value of the properties. DUE TO (FROM) GENERAL PARTNER AND OTHER DATRONIC PARTNERSHIPS - In the ordinary course of the Partnership's day-to-day operations, there are occasions when the general partner and/or other Datronic Partnerships owed amounts to and are owed amounts from the Partnership. It is the Partnership's policy not to charge (credit) interest on these payable (receivable) balances and to include them as cash equivalents. NET EARNINGS (LOSS) PER LIMITED PARTNERSHIP UNIT - Net earnings (loss) per unit is based on net earnings (loss) after giving effect to a 1% allocation to the general partner. The remaining 99% of net earnings (loss) for each of the Liquidating and Continuing Limited Partners is divided by the weighted-average number of units outstanding to arrive at net earnings (loss) per limited partnership unit for each class of limited partner. USE OF ESTIMATES - In preparing financial statements in conformity with generally accepted accounting principles, Management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3 - DIVERTED AND OTHER ASSETS: During the second calendar quarter of 1992, DRC learned that Edmund J. Lopinski, Jr., its president, a director and the majority stockholder (the "Majority Stockholder"), in conjunction with certain other parties, may have diverted approximately $13.3 million of assets (the "Asset Diversions") from the Datronic Partnerships and TELIF (collectively, the "Partnerships"), including $640,000 from the Partnership, for his/their direct or indirect benefit. Amounts diverted from the Partnerships hereafter referred to as the "Diverted Assets", of approximately $13.3 million were subsequently commingled with approximately $10.3 million of other funds and assets (the "Commingled Assets", and together with the Diverted Assets, the "Diverted and Commingled Assets"). Diverted and Commingled Assets of approximately $20.7 million were converted to assets which have been recovered for the benefit of the limited partners ("Recovered Assets"). The remainder of the Diverted and Commingled Assets of approximately $2.9 million was - 29 - 30 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED not recovered. Each of the Partnerships has been assigned an undivided pro-rata share of Recovered Assets based on each Partnership's share of the Diverted Assets hereinafter referred to as "Diverted and other assets". Accordingly, the Partnership's Diverted and other assets is equal to approximately 4.8% of Recovered Assets held for all of the Partnerships. Recovered Assets and the Partnership's interest therein are recorded at aggregate estimated net realizable value. Net realizable value equals cost net of an allowance for loss which includes provisions for valuation adjustments, investigation and recovery fees, carrying costs, and costs of disposition. The estimated net realizable value, in the aggregate for all of the Partnerships, of the remaining Recovered Assets as of December 31, 1996 is $7,622,945 and consists primarily of real estate and cash. During 1996, 1995 and 1994 aggregate provisions for loss from Diverted and other assets were recorded by the Datronic Partnerships in the amounts of $500,000, $1,625,000, and $800,000 respectively (The Partnership's share was $24,140, $78,455 and $38,624 respectively). The $500,000 provision in 1996 results from the settlement of claims during 1996 against Recovered Assets as further described in Note 5. The $1,625,000 provision in 1995 was required primarily due to a further decrease of $2,023,000 in the estimated net realizable value of a real estate development limited partnership interest (thereby reducing it to zero) partially offset by a $400,000 recovery under an employee dishonesty policy. The $800,000 provision in 1994 was required primarily due to a $2,242,000 decrease in the estimated net realizable value of a real estate development limited partnership interest partially offset by a $610,000 increase in the estimated net realizable value of a yacht and a $650,000 recovery under an employee dishonesty insurance policy. - 30 - 31 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED LRC is liquidating the Recovered Assets for the benefit of the Partnerships. LRC anticipates that this process which began in 1992 may take several more years. LRC will distribute funds to the Partnerships as they become available from the liquidation of Recovered Assets. The following is a summary of the activity related to Diverted and other assets for the Partnership for the years ended December 31, 1994, 1995, and 1996:
ALLOWANCE COST FOR LOSS NET ---------- ---------- --------- Diverted and other assets December 31, 1993 $ 892,291 $ (238,192) $ 654,099 1994 Provision for loss from Diverted and other assets - (38,624) (38,624) --------- ---------- --------- Diverted and other assets December 31, 1994 892,291 (276,816) 615,475 Distribution to the Partnership in 1995 (145,003) - (145,003) 1995 Provision for loss from Diverted and other assets - (78,455) (78,455) ---------- --------- --------- Diverted and other assets December 31, 1995 747,288 (355,271) 392,017 1996 Provision for loss from Diverted and other assets - (24,140) (24,140) ---------- --------- --------- Diverted and other assets December 31, 1996 $ 747,288 $(379,411) $ 367,877 ========== ========= =========
Due to the volatile nature of real estate values, and the inherent difficulty in estimating future costs and expenses, there exists a possibility that the recorded estimated net realizable value may be materially different than the amounts ultimately realized. NOTE 4 - RESTRICTED CASH: At December 31, 1995, Restricted Cash represented the Partnership's 6.836% undivided interest in cash claimed by the Datronic Partnerships which was subject to or may have been impacted by claims made by a former defendant of the Class Action. As further described in Note 5, during 1996 all claims against the cash were released and amounts formerly designated as restricted cash were remitted to the Partnership and are included in cash as of December 31, 1996. - 31 - 32 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE 5 - LITIGATION: Class Action Lawsuit During 1992, a class action lawsuit ("Class Action") was certified on behalf of the limited partners in the Datronic Partnerships ("the Class") against DRC, various officers of DRC and various other parties. The Class Action alleges misuse of funds, violations of the Securities Act of 1934, conversion, and fraud. The Class Action was subsequently amended to add, as defendants, Siegan, Barbakoff, Gomberg & Kane (the Datronic Partnerships' former securities counsel) ("Siegan"), Weiss and Company, (the Datronic Partnerships' independent accountants prior to 1990) ("Weiss") and Price Waterhouse (the Datronic Partnerships' independent accountants during 1990 and 1991). The amended complaint alleges breach of contract and breach of fiduciary duty. During 1993, the United States District Court for the Northern District of Illinois, Eastern Division (the "Court") approved a settlement to resolve certain portions of the suit to enable the operations of the Datronic Partnerships to continue while permitting the ongoing pursuit of claims against alleged wrongdoers (the "Settlement"). The Settlement provided for the appointment of LRC as general partner of the Datronic Partnerships, the retention of New Era Funding Corp.("New Era") to manage the day-to-day operations of the Datronic Partnerships(See Note 8), and various amendments to the Partnership Agreement (See Note 6). Additionally, the Settlement provided for the transfer of substantially all of DRC's assets net of related debt ("Datronic Assets") to LRC as agent and nominee on behalf of the Datronic Partnerships (see Note 9). During 1995, the Court dismissed all Class claims against Price Waterhouse. Class Counsel intends to appeal the dismissal order in accordance with Court rules at the appropriate time. As further described below (see Cross-Claims Against Professionals), during 1995, all Class claims against Siegan were settled. As further described below (see Other Cross-Claims), during 1996, all Class claims against an individual defendant were settled pending the outcome of certain other Partnership litigation. Cross-Claims Against Professionals During 1993, the Datronic Partnerships filed cross-claims against - 32 - 33 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED Siegan, Weiss and Price Waterhouse (collectively, "Defendants") alleging professional negligence, breach of contract, violations of Section 11 of the Securities Act of 1933 (as to Weiss and Price Waterhouse only) and breach of fiduciary duty (as to Siegan). The cross claims allege, among other things, that the actions of the Defendants contributed to the improper payment of fees and expense reimbursements ("Operating Distributions") to Datronic. If Operating Distributions were inappropriately paid, the Datronic Partnerships might be deemed to have had a receivable from Datronic for any Operating Distributions inappropriately paid to it. Since all of the assets of Datronic were transferred to LRC for the benefit of the Datronic Partnerships in connection with the Settlement (see Note 9) and Datronic has subsequently ceased operations, such receivable would be uncollectible. During 1995, the Court approved a settlement of all Class claims and all cross-claims against Siegan, whereby Siegan paid an aggregate amount of $1,775,000 ($212,766 for the Partnership). During 1995, the Court ruled it did not have jurisdiction with respect to the Datronic Partnerships' cross-claims against Price Waterhouse and Weiss. As a result, the cross-claims, excluding those alleging violations of the Securities Act of 1933, were refiled and are pending in the Circuit Court of Cook County, Illinois. Other Cross-Claims During 1992, DRC filed a cross-claim against an individual who is also a defendant of the Class Action seeking recovery of funds in excess of $1 million held in bank accounts maintained in the name of a corporation controlled by the individual. The corporation filed a cross-claim and counter-claim against DRC and others seeking judgment on two promissory notes totaling $1,452,500 allegedly issued by DRC and title to Restricted Cash and certain Recovered Assets. During 1996, the Court entered an order removing any claim that the aforementioned defendant might have had against the Partnership's Restricted Cash and Recovered Assets. Pursuant to the terms of the order, approximately $725,000 of Recovered Assets (the Partnership's interest therein is approximately $35,000 and is included in Diverted and other assets) will be held in escrow for the potential benefit of the defendant pending the outcome of certain other litigation. Furthermore, all other claims made by the defendant and the corporation controlled by the defendant against DRC and the Partnerships were withdrawn. - 33 - 34 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED Secured Lender Litigation During 1993, in connection with the liquidation of a Recovered Asset, a secured lender filed suit against LRC for an approximate $175,000 loss incurred by the secured lender. The suit was dismissed by the Court during 1995 for failure to state a claim. During 1996 the secured lender filed an appeal. Litigation Costs, Expenses and Fees Future costs, expenses and fees of the Class Action and any subsequent Class litigation will be paid in such amounts and from such sources as the Court shall determine. Future fees and costs relating to the cross-claims and of other litigation undertaken on behalf of the Partnership will be paid by the Partnership subject to the approval of LRC. It is anticipated that the Datronic Partnerships will continue to expend funds in the future in pursuit of claims described herein. In connection therewith, LRC, on behalf of the Datronic Partnerships, is currently a party to a contingent fee arrangement whereby Counsel for the Partnerships (same as Class Counsel) will charge rates which are less than their normal rates and have a right to receive a contingent fee equal to a percentage of the proceeds, if any, resulting from the cross-claims against professionals. Due to the uncertainty of the outcome of the pending litigation, no assets have been recorded in the Partnership's financial statements relating to the pending litigation discussed above. NOTE 6 - PARTNERSHIP AGREEMENT: In connection with the Settlement described in Note 5, the limited partners individually elected to become Class A, Class B or Class C Limited Partners. Class A Limited Partners elected to commence liquidation of their interest in the Partnership as of the Settlement Date (March 4, 1993). Accordingly, each Class A Limited Partner received cash distributions (in all probability all of which constituted a return of invested capital) equal to their pro rata share of the net proceeds (cash received less various expenses allowed by the Settlement) from the collection of payments on and the sale or other disposition of assets owned by the Partnership on the Settlement Date ("Existing Assets"), Datronic Assets, Diverted and other assets and temporary investments. In addition, Class A Limited Partners participate in the Class Action. Class B Limited Partners elected not to commence liquidation of - 34 - 35 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED their interest in the Partnership as of the Settlement Date. Until the Liquidating Phase of the Partnership commenced on August 3, 1993 each Class B Limited Partner received cash distributions (in all probability all of which constituted a return of invested capital) equal to 11% annually of their Adjusted Capital Contributions ("Target Distributions"). Available cash in excess of Target Distributions was invested in equipment and equipment leases ("New Investments") and temporary investments on behalf of the Class B Limited Partners. In addition, Class B Limited Partners participate in the Class Action. Class C Limited Partners elected not to participate in the Class Action. Therefore, each Class C Limited Partner preserved their claims against DRC and other Defendants, does not participate in Class Action, and did not participate in the Settlement. In all other respects, including distributions from the Partnership, Class C Limited Partners are the same as Class B Limited Partners. Distributions to Class A Limited Partners were suspended after payment of the April 1, 1995 distribution. Distributions to Class B and Class C Limited Partners were suspended after the January 1, 1996 distribution. If the Partnership obtains funds from pending litigation or additional cash is available for distribution after providing for an orderly liquidation of the Partnership, additional distributions will be made at the appropriate time. Concurrent with the commencement of the Liquidating Phase on August 3, 1993, the Partnership ceased New Investments and the General Partner began the orderly liquidation of all Partnership assets. The General Partner shall cause the Partnership to establish cash reserves sufficient to satisfy all liabilities of the Partnership and provide for future contingent liabilities of the Partnership. The remaining cash of the Partnership ("Cash Flow Available for Distribution") shall be distributed to the General Partner and the Limited Partners as discussed below. During the Liquidating Phase, net proceeds from the collection of payments on and the sale or other disposition of Existing Assets, New Investments, Datronic Assets, Diverted and other assets, proceeds from Partnership Litigation, and temporary investments related to the foregoing net of cash reserves for Partnership liabilities discussed above will be apportioned among the Class A, Class B and Class C Limited Partners, each class as a group, in accordance with each class' interest in such assets. After such net proceeds have been apportioned among the classes of Limited Partners, Liquidating Distributions shall be made to Limited Partners within each class in accordance with the positive Capital Account balance of each Limited Partner until all Limited Partners' Capital Account balances are zero, and thereafter pro rata based on - 35 - 36 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED the number of units outstanding. The Amended Partnership Agreements of the Datronic Partnerships provide for distributions to LRC, on a quarterly basis, of one percent (1%) of the Cash Flow Available for Distribution (as defined in the Partnership's prospectus). In addition, the Partnerships will reimburse LRC for expenses in excess of distributions paid to LRC. LRC distributions and expense reimbursements are being paid one quarter in advance by the Partnerships to LRC. Such advances are subject to adjustment based on LRC's actual expenses. LRC allocates its expenses to each of the Partnerships based on its activities performed for each of the Partnerships. Commencing July 1, 1996, LRC's expense reimbursement includes amounts previously paid by New Era (see Note 8). LRC is entitled to no other fees or other reimbursements from the Partnership. - 36 - 37 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED For 1996, 1995 and 1994, the following aggregate amounts are recorded by the Datronic Partnerships as distributions and expense reimbursements to LRC:
Year ended December 31, ----------------------- 1996 1995 1994 ---- ---- ---- 1% Distribution $ 104,304 $ 600,440 $ 542,271 Expense Reimbursement in excess of the 1% Distribution 2,955,260 1,261,078 1,414,302 ---------- ---------- ---------- Total $3,059,564 $1,861,518 $1,956,573 ========== ========== ==========
The Partnership's share of these amounts was:
Year ended December 31, ----------------------- 1996 1995 1994 ---- ---- ---- 1% Distribution $ - $ 18,663 $ 33,431 Expense Reimbursement in excess of the 1% Distribution 344,789 94,508 97,359 ---------- ---------- ---------- Total $ 344,789 $ 113,171 $ 130,790 ========== ========== ==========
During the first quarter of 1997, LRC received an aggregate of $1,525,913 from the Datronic Partnerships consisting of an advance of its 1% distribution and expense reimbursement for the first three months of 1997. The Partnership's share of these amounts was $167,048. NOTE 7 - PARTNERS' EQUITY: During 1996, distributions paid to the three classes of Limited Partners and to LRC aggregated:
First Second Third Fourth Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ----- Limited Partners Class A $ - $ - $ - $ - $ - Class B 61,569 - - - 61,569 Class C 127 - - - 127 ---------- -------- -------- -------- ---------- Total $ 61,696 $ - $ - $ - $ 61,696 ========== ======== ======== ======== ========== General Partner $ - $ - $ - $ - $ - ========== ======== ======== ======== ==========
- 37 - 38 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED During 1995, distributions paid to the three classes of Limited Partners and to LRC aggregated:
First Second Third Fourth Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ----- Limited Partners Class A $ 100,245 $ 74,867 $ - $ 61,115 $ 236,227 Class B 424,483 114,518 114,518 213,031 866,550 Class C 876 235 236 439 1,786 ---------- -------- ---------- ---------- ---------- Total $ 525,604 $189,620 $ 114,754 $ 274,585 $1,104,563 ========== ======== ========== ========== ========== General Partner $ 12,703 $ 5,380 $ 2,733 $ (2,153) $ 18,663 ========== ======== ========== ========== ==========
For the year ended December 31, 1996, distributions per Unit by quarter and for the year to the limited partners were:
Class A Class B Class C ------- ------- ------- 1st $ - $ 1.00 $ 1.00 2nd - - - 3rd - - - 4th - - - -------- ------- ------- Total $ - $ 1.00 $ 1.00 ======== ======== =======
For the year ended December 31, 1995, distributions per Unit by quarter and for the year to the limited partners were:
Class A Class B Class C ------- ------- ------- 1st $2.62 $ 6.89 $ 6.89 2nd 1.96 1.86 1.86 3rd - 1.86 1.86 4th 1.60 3.46 3.46 ----- ------ ------ Total $6.18 $14.07 $14.07 ===== ====== ======
At December 31, 1996 and 1995, there were 38,197 Class A Units, 61,569 Class B Units, 127 Class C Units, and one General Partner Unit outstanding. - 38 - 39 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED Funds raised by current members of each Class and cumulative distributions to limited partners by class from the Partnership's formation through December 31, 1996 are:
Funds Cumulative Raised Distributions ------ ------------- Class A $19,098,500 $15,160,208 Class B 30,784,500 24,238,299 Class C 63,500 50,835 ----------- ----------- Total $49,946,500 $39,449,342 =========== ===========
NOTE 8 - MANAGEMENT AGREEMENT: During 1993, pursuant to the terms of the Settlement, New Era was engaged to manage the affairs of the Partnership (and other Datronic Partnerships) under the direction of LRC in accordance with the terms of the Management Agreement. The Management Agreement was scheduled to terminate upon the latter of March 31, 2003 or the date upon which the Partnerships are terminated. The Management Agreement provided for the Partnerships to compensate New Era as follows: (1) Expense Reimbursement: an amount equal to the actual amounts expended in the performance of duties under the Management Agreement (the "Total Actual Operating Cost"). (2) Management Fee: an amount equal to the greater of twenty-five percent (25%) of the Total Actual Operating Cost or $1,020,000 per annum. (3) Reinvestment Fee: an amount equal to two and one-half percent (2 1/2%) of the total amounts invested in equipment leases on behalf of the Partnerships. (4) Incentive Fee: an amount equal to thirty-seven and one-half percent (37 1/2%) of the difference between budgeted and actual operating costs incurred by New Era in the performance of services to the Partnerships during the relevant period. Under the terms of the Management Agreement, the annual Management Fee and the compensation and benefits of the three principals of - 39 - 40 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED New Era, included in the Expense Reimbursement, totaled approximately $2 million per annum. Effective July 1, 1996, the Court approved a Management Termination Agreement whereby New Era relinquished its responsibilities set forth in the Management Agreement. LRC has assumed the duties previously provided by New Era. Pursuant to the terms of the Management Termination Agreement, during December, 1996, New Era was paid a termination fee of $3.2 million plus accrued interest from July 1, 1996, and, an aggregate $1.0 million plus accrued interest from July 1, 1996, was paid to the three principals of New Era in exchange for their agreement not to compete with the business of the Partnerships for a period of two years. The Partnership's share of these two payments was $611,282. Pursuant to the terms of the Management Agreement and Management Termination Agreement, New Era was paid the following by the Datronic Partnerships:
Year ended December 31, -------------------------------------------------------------- 1996 1995 1994 ---- ---- ---- Expense Reimbursement and Management Fee $3,407,202 $7,492,616 $8,716,867 Reinvestment Fee 39,688 546,924 674,683 Incentive Fee 5,809 - - Termination Fee 3,267,497 - - Non-Compete Fee 1,021,093 - - ---------- ---------- ---------- Total $7,741,289 $8,039,540 $9,391,550 ========== ========== ==========
The Partnership's share of these amounts was:
Year ended December 31, ------------------------------------------------------------- 1996 1995 1994 ---- ---- ---- Expense Reimbursement and Management Fee $ 407,052 $ 769,130 $ 903,345 Reinvestment Fee - - - Incentive Fee 669 - - Termination Fee 465,739 - - Non-Compete Fee 145,543 - - ---------- ---------- ---------- Total $1,019,003 $ 769,130 $ 903,345 ========== ========== ==========
The Expense Reimbursement, Management Fee, and Incentive Fee paid to New Era were allocated among the Datronic Partnerships based on the level of services that New Era performed for each of the - 40 - 41 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED Datronic Partnerships. Reinvestment Fees paid to New Era were allocated to the Datronic Partnerships based on the investments in new leases that were made for each specific Datronic Partnership. The Termination Fee and the Non-Compete Fees were allocated to the Datronic Partnerships in accordance with the anticipated future allocation of management fees had the Management Agreement not been terminated. All amounts paid to New Era and amounts paid to the principals of New Era under the provisions of the agreement not to compete are collectively referred to as "Management Fees - New Era" in the Statements of Revenue and Expenses. At December 31, 1996 New Era owed the Partnership $34,504 for amounts previously advanced in excess of expenses incurred. This amount is recorded as due from Management Company in the accompanying balance sheet and was repaid to the Partnership in January 1997. As part of the Management Termination Agreement, two of the principals of New Era have been retained as consultants to the Datronic Partnerships for the period July 1, 1996 to March 31, 1999. The consulting agreements provide for monthly payments aggregating $200,000 annually per consultant. The payments have been charged to the Partnerships based on the services performed for each of the Partnerships. NOTE 9 - DATRONIC ASSETS: In accordance with the Settlement (see Note 5), substantially all of DRC's assets, net of related debt, were transferred to LRC, as nominee and agent for the Datronic Partnerships for the benefit of Class A and Class B Limited Partners. Each of the Datronic Partnerships has been assigned an undivided pro-rata share of the Datronic Assets by the Court. Accordingly, the Partnership's share is equal to approximately 7.1% of total Datronic Assets. Datronic Assets are recorded at estimated net realizable value which equals estimated value net of liabilities less an allowance for future expenses including provisions for carrying costs, costs of disposition, and other costs. The estimated net realizable value, in the aggregate for the Datronic Partnerships, of the remaining Datronic Assets as of December 31, 1996 is $0 and consists of cash of $800,892 net of an allowance for future expenses of $800,892. Future gains or losses (if any) related to Datronic Assets will accrue only to the Class A and Class B Limited Partners. Due to the inherent difficulty in estimating future costs and expenses, - 41 - 42 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED there exists a possibility that recorded aggregate estimated net realizable value may be materially different than the amounts ultimately realized. LRC has liquidated substantially all of the Datronic Assets for the benefit of the Partnerships. There are, however, certain claims pending against Datronic Assets. LRC will distribute the remaining cash to the Datronic Partnerships when all claims have been resolved. NOTE 10 - INVESTMENT IN FORECLOSED PROPERTIES: During 1991 and 1992, the Partnership acquired three real estate properties through foreclosure on defaulted leases. The properties are recorded at aggregate net realizable value which equals the Partnership's cost basis less an allowance for loss which included provisions for valuation adjustments and costs of disposition. Aggregate net realizable value is as follows:
December 31, ---------------------------------------- 1996 1995 ----------- ---------- Cost $4,808,666 $4,821,666 Allowance for loss (2,871,210) (2,871,210) ---------- ---------- Net $1,937,456 $1,950,456 ========== ==========
Two of the properties are subject to lease agreements. Through the first quarter of 1995, rental receipts net of expenses were applied to the Partnership's cost basis as recoveries under the defaulted leases. Subsequent rental receipts of $343,144 in 1996 and $246,600 in 1995 have been recorded as other income. Remaining rents under the lease agreements are $252,448 for 1997. Due to the volatile nature of real estate values there exists a reasonable possibility that recorded aggregate estimated net realizable value may be materially different than the amounts ultimately realized. NOTE 11 - CONCENTRATION OF CREDIT RISK: Leasing activity is conducted throughout the United States, with emphasis in certain states such as Arizona, California, Colorado, Illinois, Minnesota, North Carolina and Oklahoma. The cost of equipment under lease typically ranges from $15,000 to $30,000. Such equipment includes, but is not limited to: general purpose plant/office equipment, telecommunications equipment, machine tool and manufacturing equipment, computers and terminals for management information systems, photocopying equipment, medical equipment, and - 42 - 43 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED transportation equipment. At December 31, 1996 approximately 31% of the Partnership's net investment in direct financing leases (31% for Liquidating and 30% for Continuing Limited Partners) is concentrated in the service industry. There are no other significant concentrations of business activity in any industry or with any one lessee. The Partnership maintains a security interest in all equipment until the lessee's obligations are fulfilled. NOTE 12 - NET INVESTMENT IN DIRECT FINANCING LEASES: The components of the net investment in direct financing leases at December 31, 1996 and 1995 are as follows:
December 31, 1996 --------------------------------------------------- Liquidating Continuing Limited Limited Partners Partners Total ----------- ----------- --------- Minimum lease payments receivable $ 47,197 $ 130,095 $ 177,292 Non-performing leases 363,032 592,661 955,693 Unearned income (1,258) (6,338) (7,596) ----------- ----------- ----------- Net investment in direct financing leases before allowance 408,971 716,418 1,125,389 Allowance for lease losses (406,451) (677,459) (1,083,910) ----------- ----------- ----------- Net investment in direct financing leases $ 2,520 $ 38,959 $ 41,479 =========== =========== =========== Amounts currently due included in net investment in direct financing leases $ 15,688 $ 28,797 $ 44,485 =========== =========== ===========
- 43 - 44 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1995 ------------------------------------------------------- Liquidating Continuing Limited Limited Partners Partners Total ----------- ----------- ---------- Minimum lease payments receivable $ 223,159 $ 537,268 $ 760,427 Non-performing leases 572,770 931,263 1,504,033 Estimated residuals 10,560 17,055 27,615 Unearned income (11,589) (34,216) (45,805) ------------ ----------- ----------- Net investment in direct financing leases before allowance 794,900 1,451,370 2,246,270 Allowance for lease losses (647,687) (1,081,589) (1,729,276) ------------ ----------- ----------- Net investment in direct financing leases $ 147,213 $ 369,781 $ 516,994 ============ =========== =========== Amounts currently due included in net investment in direct financing leases $ 69,013 $ 120,239 $ 189,252 ============ =========== ===========
An analysis of the changes in the allowance for lease losses by Class of Limited Partner for 1995 and 1996 is as follows:
Liquidating Continuing Limited Limited Partners Partners Total ----------- ---------- -------- Balance, beginning of 1995 $1,010,261 $ 1,669,720 $ 2,679,981 Reductions (229,440) (370,560) (600,000) Charge-offs (133,134) (217,571) (350,705) ---------- ----------- ----------- Balance, end of 1995 647,687 1,081,589 1,729,276 Reductions (202,672) (402,328) (605,000) Charge-offs (38,564) (1,802) (40,366) ---------- ----------- ----------- Balance, end of 1996 $ 406,451 $ 677,459 $ 1,083,910 ========== =========== ===========
The Partnership leased equipment with lease terms generally ranging from two to five years. Minimum payments scheduled to be received on leases for each of the succeeding five years ending after December 31, 1996 by Class of Limited Partner are as follows:
Liquidating Continuing Limited Limited Partners Partners Total ----------- ---------- ---------- 1997 $ 47,197 $ 114,803 $ 162,000 1998 - 15,292 15,292 1999 - - - 2000 - - - 2001 - - - ---------- ---------- ---------- $ 47,197 $ 130,095 $ 177,292 ========== ========== ==========
- 44 - 45 DATRONIC EQUIPMENT INCOME FUND XVI, L.P. NOTES TO FINANCIAL STATEMENTS - CONTINUED NOTE 13 - INCOME TAXES: No provision for Federal income taxes is necessary in the financial statements of the Partnership because, as a partnership, it is not subject to Federal income tax and the tax effect of its activities accrues to the partners. A reconciliation of net loss determined in accordance with generally accepted accounting principles and loss for Federal income tax purposes in total for all Partners and by Class of Partner for the year ended December 31, 1996 follows:
Liquidating Continuing General Limited Limited Partner Partners Partners Total --------- ----------- ---------- -------- Net loss per accompanying statements $ (7,609) $ (316,791) $ (436,529) $ (760,929) Effect of leases treated as operating leases for tax purposes (23,200) (812,152) (1,484,654) (2,320,006) Effect of principal repayments treated as income for tax purposes (3,570) (131,670) (221,719) (356,959) Provision for loss on foreclosed properties (1,503) (56,886) (91,875) (150,264) Provision for loss on Diverted and other assets 941 35,629 57,542 94,112 Provision for Class Counsel fees and expenses, net - (37,430) (60,324) (97,754) Other, net 439 16,319 27,157 43,915 --------- ----------- ----------- ------------ Loss for Federal income tax purposes in total $ (34,502) $(1,302,981) $(2,210,402) $ (3,547,885) ========= =========== =========== ============
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no changes in accountants or disagreements with accountants on accounting and financial disclosure. PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership has no employees or directors. Pursuant to the terms of the Settlement discussed in Part II, Item 8 - Note 5, LRC became general partner in 1993. LRC was formed in December 1992 in contemplation of the Settlement for the sole purpose of acting as the general partner for each of the Datronic Partnerships. LRC has a nominal net worth. The directors and executive officers of LRC, together with pertinent information concerning each of them is as follows: - 45 - 46 Directors and Executive Officers of Lease Resolution Corp. LRC, as a non-stock, not-for-profit corporation, does not have stockholders. The executive officers of LRC are also the members of the Board of Directors of LRC. None of the executive officers of LRC were previously affiliated with Datronic. While LRC's duration is perpetual, it is anticipated that it will liquidate and dissolve following the liquidation and dissolution of the last remaining Datronic Partnership. LRC's Board of Directors and executive officers, together with certain pertinent information regarding their background, are set forth below:
Director Name Position and Office Since - ---------------------- ------------------------------- ------- Donald D. Torisky Chairman of the Board and Chief Executive Officer 12/92 Robert P. Schaen Vice-Chairman of the Board and Chief Financial Officer 12/92 Arthur M. Mintz Vice-Chairman of the Board and General Counsel 12/92
Donald D. Torisky, age 58, has been associated with LRC since its inception in 1992. Mr. Torisky is also President of Barrington Management and Consulting, Inc. where he has coordinated Management consulting opportunities for national and international Fortune 500 finance companies prior to March 1993. From 1987 to 1990, Mr. Torisky worked with the TransAmerica Corporation as an Executive Vice-President and board member of the TransAmerica Finance Group. Mr. Torisky also served as the President and Chief Executive Officer of TransAmerica Commercial Finance Corporation. With TransAmerica, Mr. Torisky managed and directed a diversified financial service portfolio of $4.6 billion with branches in the United States, Canada, the United Kingdom and Australia. From 1962 to 1987, Mr. Torisky was with the Borg-Warner Corporation. In 1983 he became President and Chief Executive Officer of Borg-Warner Financial Services and an officer of Borg-Warner Corp. Mr. Torisky has completed the Advanced Management Program at the Harvard Graduate School of Business Administration. Mr. Torisky served honorably in the United States Marine Corps, and holds a license in life, accident, and health insurance and a Series 6 NASD license. - 46 - 47 Robert P. Schaen, age 70, has been associated with LRC since its inception in 1992. Prior to his association with LRC, Mr. Schaen retired from Ameritech in 1991 after 39 years of service with the Bell System and Ameritech. At his retirement he was the Vice-President and Comptroller of Ameritech. He started his Bell System career with New York Telephone Company in 1952, was promoted and transferred to AT&T in 1962, and thereafter, promoted and transferred to Illinois Bell Telephone Company in 1965 where he managed personnel, accounting, data systems and general operations prior to being elected Comptroller and Assistant Secretary. In 1983, Mr. Schaen was named Vice-President and Comptroller of Ameritech. Mr. Schaen served as a naval officer in the Pacific Theater during World War II and retired from the Naval Reserve Intelligence Service in 1968 with the rank of Commander. He graduated from Hobart College in Geneva, New York in 1948 and after graduation remained there as a mathematics and statistics instructor. In 1967 Mr. Schaen completed the Advanced Management Program at the Harvard Graduate School of Business Administration. Arthur M. Mintz, age 60, has been associated with LRC since its inception in 1992. Mr. Mintz is also Chairman of the Board of Olicon Imaging Systems, Inc., which was founded in 1991. Olicon Imaging Systems, Inc. is a teleradiology company serving approximately 800 hospitals nationwide. Since 1987, he has also served as President of AMRR Leasing Corporation and Vice President and General Counsel of Mobile M.R. Venture, Ltd. In 1983, Mr. Mintz was a founder of Diasonics, Incorporated and served as its Corporate Counsel. Diasonics was listed on the New York Stock Exchange prior to its acquisition by Elsinth in 1995. In 1957, Mr. Mintz obtained a Bachelor of Arts Degree from Northwestern University and in 1959, obtained his J.D. from Northwestern University School of Law. Thereafter, Mr. Mintz served in the United States Army and was honorably discharged. From 1965 to 1982, Mr. Mintz was a principal with the law firms of Mintz, Raskin, Rosenberg, Lewis & Cohen (1965-1975), Mintz, Raskin and Lewis (1975-1979), and Arthur M. Mintz, Ltd., P.C. (1979-1982). Any change in the compensation of a director of LRC must be approved by the other two non-interested members of the Board of Directors. ITEM 11- MANAGEMENT REMUNERATION The Partnership has no officers or directors and instead, prior to July 1, 1996, was managed by New Era, as manager, under the supervision and direction of LRC, as general partner. Effective July 1, 1996, LRC assumed full responsibility for management of the Datronic Partnerships. The Partnership Agreement, as amended, provides for LRC and New Era to receive reimbursement for their operating expenses incurred in relation to their functions as General Partner and Manager, - 47 - 48 respectively, of the Datronic Partnerships. These reimbursements as well as other fees paid to New Era are detailed in Note 8 to the Partnership's financial statements included in Item 8. Compensation paid to the Chief Executive Officer of LRC during 1996 was as follows:
Chairman of the Board and Chief All Other Executive Officer Salary Compensation(b) ----------------- ------ ------------ Donald D. Torisky $406,905 $9,000(a)
(a) Represents the value of LRC's contribution to LRC's Simplified Employee Pension Plan allocable to Mr. Torisky for services rendered during 1996. (b) Information concerning Bonus, Other Annual Compensation, Restricted Stock Award, Option/SARs and LTIP Payouts is Not Applicable This compensation was included in LRC's operating expenses reimbursed by all Datronic Partnerships. The Partnership's share of such expense reimbursements, including the 1% of Cash Flow Available for Distribution, was 11.27%. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT None. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership has no officers or directors and instead, prior to July 1, 1996, was managed by New Era, as manager, under the supervision and direction of LRC, as general partner. Effective July 1, 1996, LRC assumed full responsibility for management of the Datronic Partnerships. The Partnership Agreement, as amended, provides for LRC and New Era to receive reimbursement for their operating expenses incurred in relation to their functions as General Partner and Manager, respectively, of the Datronic Partnerships. These reimbursements as well as other fees paid to New Era are detailed in Note 8 to the Partnership's financial statements included in Item 8. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: - 48 - 49 (1) Financial Statements See index to Financial Statements included in Item 8 of this report. (2) Financial Statement Schedules None. (3) Exhibits The Exhibits listed in the Exhibit Index immediately following the signature page are filed as a part of this report. (b) Reports on Form 8-K The Partnership filed a Form 8-K, dated December 12, 1996, disclosing the approval of a Management Termination Agreement. (See Item 8, Note 8) - 49 - 50 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 on the 26th day of March 1997. DATRONIC EQUIPMENT INCOME FUND XVI, L.P. March 26, 1997 By: Lease Resolution Corporation, General Partner By: /s/ Donald D. Torisky ------------------------------- Donald D. Torisky Chairman 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 Registrant and in the capacities indicated and on the dates indicated. By: /s/ Donald D. Torisky March 26, 1997 ------------------------------ Donald D. Torisky Chairman and Chief Executive Officer, Lease Resolution Corporation, General Partner of Datronic Equipment Income Fund XVI, L.P. By: /s/ Robert P. Schaen March 26, 1997 ------------------------------ Robert P. Schaen Vice-Chairman and Chief Financial Officer, Lease Resolution Corporation, General Partner of Datronic Equipment Income Fund XVI, L.P. By: /s/ Arthur M. Mintz March 26, 1997 ------------------------------ Arthur M. Mintz Vice-Chairman and General Counsel, Lease Resolution Corporation, General Partner of Datronic Equipment Income Fund XVI, L.P.. - 50 - 51 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION - ----------- ----------- 10 Management Termination Agreement, effective July 1, 1996. 27 Financial Data Schedule, which is submitted electronically to the Securities and Exchange Commission for information only and not filed. - 51 - EX-10 2 MANAGEMENT TERMINATION AGREEMENT 1 MANAGEMENT TERMINATION AGREEMENT THIS MANAGEMENT TERMINATION AGREEMENT (this "Agreement") which shall have an effective date of July 1, 1996 (the "Effective Date"), is made and entered by and among LEASE RESOLUTION CORPORATION, a Delaware non-stock, not-for-profit corporation ("LRC"), individually and on behalf of DATRONIC EQUIPMENT INCOME FUND XVI, L.P., DATRONIC EQUIPMENT INCOME FUND XVII, L.P., DATRONIC EQUIPMENT INCOME FUND XVIII, L.P., DATRONIC EQUIPMENT INCOME FUND XIX, L.P., DATRONIC EQUIPMENT INCOME FUND XX, L.P. and DATRONIC FINANCE INCOME FUND I L.P. (collectively, the "Partnerships" and each a "Partnership"), and NEW ERA FUNDING CORP., an Illinois corporation ("New Era"), STEPHAN S. BUCKLEY ("Buckley"), KENNETH B. DROST ("Drost") and DOUGLAS E. VAN SCOY ("Van Scoy") (Buckley, Drost and Van Scoy are sometimes collectively referred to herein as the "New Era Principals"). W I T N E S S E T H: WHEREAS, LRC and the Partnerships, on the one hand, and New Era, on the other hand, are parties to those certain Management Agreements dated March 4, 1993 (collectively, the "Management Agreements" and each a "Management Agreement"), pursuant to which, among other things, New Era is vested with the obligation to manage the operations of the Partnerships' business in return for a management fee; WHEREAS, the parties are desirous of terminating the Management Agreements and New Era's rights and obligations thereunder subject to the terms and exclusions and satisfaction of the conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein set forth, it is hereby covenanted and agreed as follows: 1. Termination. Upon the terms and subject to the satisfaction of the conditions set forth in this Agreement, as of the Effective Date, LRC, the Partnerships and New Era agree to terminate the Management Agreements by executing and delivering to each other this Agreement, which execution and delivery shall constitute their agreement that neither LRC or the Partnerships on the one hand, nor New Era or the New Era Principals, on the other hand, shall have any further obligations under the Management Agreements, except as otherwise set forth herein in Section 8. The termination provided for herein, INTER ALIA, shall waive the option of New Era to purchase assets set forth in paragraph 16 of the Management Agreements. 2. Termination Fee. At the Closing (as hereinafter defined), the Partnerships, jointly and severally, shall pay New Era as a final payment of any and all sums due and payable pursuant to the Management Agreements and in lieu of any payments which would hereinafter be due pursuant to the terms of the Management Agreements, the sum of Three Million Two Hundred Thousand Dollars ($3,200,000), plus interest accrued thereon from the Effective Date until Closing at the rate of interest equivalent to the rate of interest applicable during such period for the overnight investment of excess funds maintained for the Partnerships at LaSalle National Bank (the "Overnight Rate"): 2 (a) by wire transfer of immediately available funds in accordance with the wire instructions specified by New Era; or (b) by delivery of a certified check payable to New Era. 3. Date and Place of Closing. This Agreement shall not become effective without Court approval, but shall be consummated at a closing (the "Closing") to be held on a day no later than three (3) business days after the date the transactions contemplated by this Agreement are approved by the Court (as herein defined), or such other date as shall be mutually agreed upon by the parties (the "Closing Date"), at the offices of Wolin & Rosen, Two North LaSalle Street, Chicago, Illinois 60602 at 10:00 a.m., Chicago time. 4. Consulting Agreements. At the Closing, LRC and the Partnerships, on the one hand, and each of Drost and Van Scoy (together with Drost being sometimes collectively referred to herein as the "Consultants") on the other hand, shall execute and deliver Consulting Agreements in the forms attached hereto as Exhibit A and Exhibit B. 5. Restrictive Covenants. Each of the Consultants and Buckley hereby covenant and agree that: (a) for a period of two (2) years from the Effective Date, they shall not: (i) act as the managing agent(s) of any equipment lease income fund in connection with the liquidation of any such fund; or (ii) solicit for employment any person employed by LRC on the Effective Date; and (b) at all times hereafter, they shall not use any proprietary information of LRC or the Partnerships for their gain or benefit, including but not limited to the dissolution plan for the Partnerships. 6. Restrictive Covenant Payment. In consideration of the covenants contained in Section 5 hereof, at the Closing, the Partnerships, jointly and severally, shall pay to Buckley, Drost, and Van Scoy the aggregate amount of One Million Dollars ($1,000,000), plus interest accrued thereon from the Effective Date until Closing at the Overnight Rate, by: (a) wire transfer of immediately available funds in accordance with the wire instructions specified by Buckley, Drost, and Van Scoy; or (b) delivery of certified checks payable to Buckley, Drost, and Van Scoy in such proportions as they shall direct. 7. Representations and Warranties of New Era and its Principals. New Era, Buckley, Drost and Van Scoy hereby jointly and severally represent and warrant to LRC and the Partnerships that, to the best of New Era's actual knowledge and the actual knowledge of Buckley, Drost, and Van Scoy, as of the Closing Date, (a) there are no pending or threatened 2 3 claims against LRC or the Partnerships which have not been previously disclosed in (i) the Management Representation Letters previously issued by New Era to the Partnerships' auditors in connection with their examination of the Partnerships' financial statements, and/or (ii) the Partnership's financial statements, and (b) neither New Era nor any of Buckley, Drost or Van Scoy, have caused the Partnerships to be subject to any liabilities, other than (i) those liabilities incurred in the ordinary course of the Partnership's business and pursuant to authority granted under the Management Agreements, (ii) those liabilities set forth on the Partnerships' most recent interim balance sheets, (iii) contingent liabilities arising under the employee severance plan and health plan available to all New Era employees, (iv) liabilities incurred at the direction of LRC, and (v) liabilities for which New Era would lawfully be entitled to indemnification under the Management Agreements. 8. Indemnification and Reimbursement. The parties covenant and agree that: (a) Notwithstanding the termination of the Management Agreements as provided in Section 1 hereof, the indemnification provisions of the Management Agreements as set forth in Sections 20 and 21 thereof shall survive indefinitely; (b) Without limiting subsection (a) of this Section 8, LRC and the Partnerships shall continue to reimburse each of New Era (and its existing and former affiliates, officers, directors and employees), Buckley, Drost and Van Scoy and their respective executors, heirs, beneficiaries and assigns for their respective legal fees and related expenses incurred in connection with the class action lawsuit captioned John Ventre v. Datronic Rental Corporation, et al. (or any other matter arising out of or related to the underlying facts or allegations in such action), in the same manner as such fees and expenses are paid immediately prior to the Effective Date; (c) Without limiting subsection (a) of this Section 8, LRC and the Partnerships, jointly and severally, shall indemnify, bind themselves and hold harmless each of New Era (and its existing and former shareholders, affiliates, officers, directors, agents and employees), Buckley, Drost, and Van Scoy and their respective executors, heirs, beneficiaries and assigns for any and all costs, fees, expenses, judgments or damages incurred in connection with defending themselves or otherwise responding to any actual or threatened claims or suits arising out of the termination of the Management Agreements or arising out of any other agreements (including but not limited to the Consulting Agreements) contemplated by the transactions which are the subject of this Agreement; (d) Without limiting subsection (a) of this Section 8, LRC and the Partnerships, jointly and severally, hereby agree and bind themselves to indemnify and hold harmless New Era (and its existing and former shareholders, directors, offices, employees, agents, representatives and affiliates), and Buckley, Drost and Van Scoy and their respective executors, heirs, beneficiaries and assigns from and against any and all claims and expenses arising in connection with or relating to the employment of New Era's employees pursuant to Section 11 and/or the assumption of New Era's benefits and health plans, or the provision of substantially similar plans by LRC and the Partnerships directly, pursuant to Sections 11 and 12 hereof; but, 3 4 (e) Without limiting subsection (a) of this Section 8, New Era, Buckley, Drost and Van Scoy, jointly and severally, hereby agree to indemnify and hold harmless LRC and the Partnerships (and their existing and former shareholders, directors, officers, partners, employees, agents, representatives and affiliates), from and against any and all costs, fees, expenses, judgments or damages (including reasonable attorney's fees) incurred by LRC or the Partnerships as a result of a breach by New Era, Buckley, Drost or Van Scoy of the representations and warranties contained in Section 7 of this Agreement, it being expressly agreed that the obligations to indemnify and hold harmless LRC and the Partnerships pursuant to this Section 8(e) shall not require New Era, Buckley, Drost or Van Scoy to pay, or to reimburse LRC or the Partnerships for, any liabilities for which LRC or the Partnerships would be responsible whether or not the representations and warranties contained in Section 7 hereof are true and accurate, except that New Era, Buckley, Drost and Van Scoy shall be responsible for any liabilities they have caused the Partnerships to be subject to other than those liabilities described in subsections (i)-(v) of Section 7(b) above; (f) Promptly following the receipt of notice of a claim for which indemnification would be sought under this Section 8 (a "Third Party Claim"), the party receiving the notice of the Third Party Claim (the "Indemnitee") shall (i) notify the other party (the "Indemnitor") of its existence setting forth with reasonable specificity the facts and circumstances of which the Indemnitee has received notice and (ii) if the Indemnitee expects to seek indemnification under this Section 8, specifying the basis hereunder upon which the Indemnitee's claim for indemnification is asserted. The Indemnitee shall, upon reasonable notice, tender the defense of a Third Party Claim to the Indemnitor. If: (i) the defense of a Third Party Claim is so tendered and such tender is accepted without qualification by the Indemnitor; or (ii) within thirty (30) days after the date on which written notice of a Third Party Claim has been given pursuant to this Section 8(f), the Indemnitor shall acknowledge without qualification its indemnification obligations as provided in this Section 8 in writing to the Indemnitee; then, the Indemnitor shall have the exclusive right to contest, defend and litigate the Third Party Claim and shall have the exclusive right, in its discretion exercised in good faith, and upon the advice of counsel, to settle any such matter, either before or after the initiation of litigation, at such time and upon such terms as it deems fair and reasonable, provided that at least ten (10) days prior to any such settlement, written notice of its intention to settle shall be given to the Indemnitee. The Indemnitee shall have the right to be represented by counsel at its own expense in any such matter conducted by the Indemnitor. All expenses (including without limitation reasonable attorneys' fees) incurred by the Indemnitor in connection with the foregoing shall be paid by the Indemnitor. No failure by an Indemnitor to acknowledge in writing its indemnification obligations under this Section 8 shall relieve it of such obligations to the extent they exist. If the Indemnitor fails to accept the defense of a Third Party Claim tendered pursuant to this Section 8, the Indemnitee shall have the right to contest, defend and litigate such Third Party Claim, and may settle such Third Party Claim, either before or 4 5 after the initiation of litigation, at such time and upon such terms as the Indemnitee deems fair and reasonable, provided that at least ten (10) days prior to any such settlement, written notice of its intention to settle is given to the Indemnitor. If pursuant to this Section 8, the Indemnitee so defends or settles a Third Party Claim, for which it is entitled to indemnification hereunder, as hereinabove provided, the Indemnitee shall be reimbursed by the Indemnitor, upon submission of an invoice or other evidence of incurrence, for the reasonable attorneys' fees and other expenses, including settlement costs, of defending and/or settling or satisfying the Third Party Claim; and, (g) Notwithstanding anything in this Agreement to the contrary, in the event a claim is made by or against New Era, Buckley, Drost or Van Scoy, on the one hand, by or against LRC and/or the Partnerships, on the other hand, pursuant to this Section 8 or otherwise, the claiming party (the "Claimant") shall advance to the other party (the "Respondent") up to the first Twenty Five Thousand and 00/100 Dollars ($25,000) of the Respondent's legal fees and expenses, on an as incurred basis. Payments made in accordance with this Section 8(g) shall be in the form of advances only and shall not in any way constitute a waiver of the prevailing party's right to receive reimbursement of its costs and expenses under Section 25 of this Agreement. 9. Conditional and Limited Release. LRC and the Partnerships, and each of them, on behalf of themselves and their respective predecessors, successors, trustees, receivers, guardians, partners, directors, officers, employees, shareholders, agents, executors, heirs, beneficiaries and assigns, hereby release, discharge and forever remise New Era, and its shareholders, directors, officers, employees, agents, representatives and affiliates ("New Era Parties"), Buckley, Drost, and Van Scoy, and each of them and their respective executors, heirs, beneficiaries and assigns ("Individual Parties"), from any and all nature of actions, claims, suits, debts, accounts, bonds, bills, specialties, covenants, controversies, obligations or rights, whatsoever, whether fixed or continued, known or unknown, matured or unmatured, including but not limited to those which arise out of, or relate to, the Management Agreements, the conduct of LRC's and the Partnerships' business, or the conduct of New Era or Buckley, Drost or Van Scoy prior to the date of this Agreement; provided, however, that the release given in this Section 9 shall not release any of the New Era Parties or the Individual Parties from any liabilities arising from a breach of the representations and warranties contained in Section 7 of this Agreement and/or their liabilities under paragraph 8 of this Agreement, or waive any duty of any of the New Era parties to account and/or to turn over assets of LRC and the Partnerships in accordance with Section 26 hereof. 10. Lease Obligations. LRC and the Partnerships hereby covenant and agree that until ninety (90) days after the earlier to occur of (i) the date New Era receives written notice from LRC and the Partnerships of LRC's and the Partnerships' intention to vacate the property occupied by New Era in Hoffman Estates, Illinois (the "Premises"), which notice may be given no earlier than December 1, 1996, or (ii) the date LRC and the Partnerships receive written notice from New Era or the landlord of the Premises requiring that possession thereof be surrendered which notice may be given no earlier than December 1, 1996, the Partnerships will be obligated to make all payments otherwise required to be made by New Era pursuant to the existing lease for the Premises which lease is dated September 1, 1993 by and between 2345 Pembroke Limited Partnership and New Era, but only to the extent such payments were included 5 6 within the operating budget approved for fiscal year 1997 and are required to be made or are incurred during the period during which LRC and the Partnerships occupy the Premises after the Effective Date. This Agreement is expressly conditioned upon full execution (including Landlord) of that certain Non-Disturbance Agreement attached as Exhibit C. 11. Employees and Employee Benefit Plans. LRC and the Partnerships hereby agree to offer employment to the employees of New Era identified on Exhibit D attached hereto (the "Employees") on the same terms and conditions as the Employees are employed by New Era on the Effective Date, including, but not limited to, providing to the Employees the same salary and benefits (including but not limited to severance benefits) they received from New Era. 12. Health Plans. LRC and the Partnerships hereby covenant and agree to assume all health plans of New Era which exist prior to the Closing Date (including but not limited to responsibility for unfunded portions thereof), or shall provide health coverage on substantially the same terms for each of the individuals receiving coverage under such plans who accept employment on a full-time basis with LRC, and shall assume all responsibility for ongoing or future contributions and payments under all employee health plans for each person listed on Exhibit E to the extent of (and limited by) the amount set forth for each person on Exhibit E except that LRC's and the Partnerships' obligation shall also include the self insured obligation under the New Era health and major medical plan terminated September 1, 1996, up to a maximum of $35,000 per person. 13. Consent and Waiver. The parties hereby acknowledge that it shall be a condition precedent to Closing that LRC and the Partnerships shall have received from each of the Employees (except as may be waived by LRC and the Partnerships on a case-by-case basis) an executed copy of the Consent and Waiver in the form attached hereto as Exhibit F. 14. Approval of the Court. The parties hereby covenant and agree that as soon as practicable after the execution of this Agreement, they shall present this Agreement for approval to the United States District Court for the Northern District of Illinois, Eastern Division (the "Court"), and shall use their respective best efforts to obtain such approval in an expeditious manner. Pending approval of this Agreement by the Court, the Management Agreements shall remain in force and shall not be terminated by this Agreement; and, this Agreement shall be null and void if approval of this Agreement is denied by the Court. 15. Amendments. The provisions of this Agreement may be amended or waived only by the written agreement of the parties hereto. Any waiver, permit, consent or approval of any kind or character on the part of any party of any provisions or conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing. 16. Successors and Assigns. This Agreement will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed or not. Additionally, without limiting the foregoing, it is expressly acknowledged and agreed that New Era shall be permitted to assign the termination fee paid pursuant to Section 2 hereof, or its right to receive the termination fee, to any party New Era shall elect. 6 7 17. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provisions will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of the this Agreement. 18. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience of reference only and do not constitute a part of this Agreement. 19. Notices. Any notices required, permitted or desired to be given hereunder shall be delivered personally, sent by overnight courier or mailed, registered or certified mail, return receipt requested, to the following addresses, and shall be deemed to have been received on the day of personal delivery, one business day after deposit with an overnight courier or three business days after deposit in the mail: (a) If to LRC or the Partnerships: Lease Resolution Corporation 1300 East Woodfield Road Suite 312 Schaumburg, Illinois 60173 Attn: President with a copy to: Wolin & Rosen Two North LaSalle Street Suite 1776 Chicago, Illinois 60602 Attn: Philip Wolin, Esq. (b) If to New Era: New Era Funding Corp. 2345 Pembroke Avenue Hoffman Estates, Illinois Attn: President If to Drost: New Era Funding Corp. 2345 Pembroke Avenue Hoffman Estates, Illinois 7 8 If to Buckley: New Era Funding Corp. 2345 Pembroke Avenue Hoffman Estates, Illinois If to Van Scoy: New Era Funding Corp. 2345 Pembroke Avenue Hoffman Estates, Illinois with a copy to: Saitlin, Patzik, Frank & Samotny Ltd. 150 South Wacker Drive Suite 900 Chicago, Illinois 60606 Attn: Alan B. Patzik, Esq. or to such address as any party may specify in a written notice given to the other parties hereto. 20. Governing Law. All questions concerning the construction, validity and interpretation of this Agreement and the exhibits hereto shall be governed in all respects by the internal law, and not the law of conflicts of the State of Illinois, and the performance of the obligations imposed by this Agreement shall be governed by the laws of the State of Illinois applicable to contracts made and wholly to be performed in such state. 21. Exhibits. All exhibits hereto are an integral part of this Agreement. 22. Final Agreement. This Agreement, together with those documents expressly referred to herein, constitute the final agreement of the parties concerning the matters referred to herein, and except as provided in paragraph 8, above, this Agreement supersedes all prior agreements and understandings. 23. Execution and Counterparts. This Agreement may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute one instrument. 24. Further Cooperation. At any time and from time to time, each party hereto shall promptly execute and deliver all such documents and instruments, and do all such acts and things, as the other party may reasonably request in order to further effect the purposes of this Agreement. 25. Attorneys Fees and Costs. If litigation is required to enforce the terms of this Agreement, then in addition to such other relief as may be awarded by the Court in such a case, 8 9 the prevailing party or parties shall be entitled to recover their reasonable attorneys fees and costs incurred therein. 26. True-Up of Accounts. The parties acknowledge that this Agreement has been made and entered after the effective date to have retroactive effect. Accordingly, a true-up of accounts to conform to this Agreement will be required and a true-up of actual to budgeted expenses is still required. Nothing in this Agreement will be deemed to waive said procedures. Further, in order to induce LRC and the Partnerships to execute this Agreement, the New Era parties have agreed to pay and shall pay and not be reimbursed for 50% of the severance paid and/or payable to employees of New Era terminated October 1, 1996 (in the amount of $34,000.00) and they will waive reimbursement for and grant a credit for rent and real estate taxes for the period April 1, 1996 through September 30, 1996 of $30,000.00. The $64,000.00 of payments and credits referred to above will be reflected in the true-up of expenses. 27. Availability. Buckley, Drost and Van Scoy shall each make themselves available to LRC, the Partnerships (or the investors as classes therein) and LRC's and the Partnerships' attorneys on reasonable notice (which need not be written) and without subpoena to provide information and testimony in pending, threatened or potential litigation prosecuted or defended from time to time by LRC and the Partnerships (and/or their investors as classes). Buckley, Drost and Van Scoy shall be entitled to reimbursement for reasonable costs (but not compensation for their time) expended in complying with this Section including reasonable attorneys fees provided the costs and fees are necessary and approved by LRC before they are incurred. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. LEASE RESOLUTION CORPORATION, individually and on behalf of DATRONIC EQUIPMENT INCOME FUND XVI, L.P., DATRONIC EQUIPMENT INCOME FUND XVII, L.P., DATRONIC EQUIPMENT INCOME FUND XVIII, L.P., DATRONIC EQUIPMENT INCOME FUND XIX, L.P., DATRONIC EQUIPMENT INCOME FUND XX, L.P., AND DATRONIC FINANCE INCOME FUND I., L.P. By: /s/Donald D. Torisky 11/14/96 ------------------------------- Authorized Officer NEW ERA FUNDING CORP. By: /s/Stephan S. Buckley 11/14/96 -------------------------------- Its: President ------------------------------- SIGNATURES CONTINUED ON NEXT PAGE. 9 10 /s/Kenneth B. Drost 11/14/96 ---------------------------------- KENNETH B. DROST /s/Douglas E. Van Scoy 11/14/96 ---------------------------------- DOUGLAS E. VAN SCOY /s/Stephan S. Buckley 11/14/96 ---------------------------------- STEPHAN S. BUCKLEY 10 11 CONSULTING AGREEMENT (EXHIBIT A) This CONSULTING AGREEMENT (this "Agreement") which shall have an effective date of July 1, 1996 (the "Effective Date"), is made and entered into by and between LEASE RESOLUTION CORPORATION, a Delaware not-for-profit corporation ("LRC"), individually and on behalf of each of DATRONIC EQUIPMENT INCOME FUND XVI, L.P., DATRONIC EQUIPMENT INCOME FUND XVII, L.P., DATRONIC EQUIPMENT INCOME FUND XVIII, L.P., DATRONIC EQUIPMENT INCOME FUND XIX, L.P., DATRONIC EQUIPMENT INCOME FUND XX, L.P., and DATRONIC FINANCE INCOME FUND I, L.P. (each, a "Partnership" and collectively the "Partnerships"), and DOUGLAS E. VAN SCOY ("Consultant"). Other capitalized terms shall have the respective meanings set forth elsewhere herein. W I T N E S S E T H: WHEREAS, pursuant to the terms of a Management Termination Agreement dated as of the date hereof (the "Termination Agreement"), LRC and the Partnerships have terminated those certain Management Agreements between the Partnerships, LRC and New Era Funding Corp. ("New Era") all dated as of March 4, 1993 (the "Management Agreements"); and WHEREAS, Consultant has been a director and officer of New Era for a substantial period of time and by reason thereof has acquired experience and knowledge of considerable value to LRC and the Partnerships; and WHEREAS, LRC and the Partnerships desire to obtain the benefit of Consultant's experience and knowledge through the receipt of consulting services from Consultant and Consultant is willing to render said consulting and advisory services to LRC and the Partnerships pursuant to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, it is hereby covenanted and agreed as follows: 1. Consulting Duties. (a) Consultant hereby agrees to act as a consultant to LRC and the Partnerships and agrees to render such consulting and advisory services as may reasonably be requested from time to time by members of the Board of Directors of LRC and which are equivalent in nature to the functions previously performed by Consultant on behalf of LRC and the Partnerships pursuant to the Management Agreements, provided that Consultant shall not be required to render such services for more than (i) thirty (30) hours per week during the first three (3) months after the date hereof, and (ii) twenty (20) hours per week thereafter through the remainder of the term of this Agreement provided, further, that Consultant shall not be required to perform any services which are not supervisory or executive in nature and which are inconsistent with those services customarily performed by executive personnel. (b) Except as provided in the Termination Agreement, nothing shall prevent the Consultant from engaging in other activities including, without limitation, the rendering of advice to third parties or the formation, sponsorship or management of entities and businesses similar to or in competition with the Partnerships, nor shall this Agreement limit or restrict the right of Consultant to engage in any other business or to render services of any kind to any other partnership, corporation, firm, individual, trust or association; provided that such services do 11 12 not interfere with Consultant's ability to comply with the terms and conditions of this Agreement. Consultant shall be entitled to utilize the support provided in Section 1(d) below in furtherance of such other activities provided same does not interfere with Consultant's ability to perform functions on behalf of the Partnership. (c) LRC and the Partnerships hereby covenant and agree that the Consultant shall be entitled to use the staff and resources of LRC and the Partnerships to the extent the Consultant deems reasonably necessary to perform his duties pursuant to this Agreement, and LRC and the Partnerships shall cause their respective staffs to cooperate with consultant to satisfy the obligations provided in this Section 1(c). (d) LRC and the Partnerships hereby covenant and agree that during the term of this Agreement, LRC and the Partnerships shall provide the Consultant with office space, secretarial support and other equipment and support which the Consultant deems reasonably necessary, including, without limitation, telephone, furniture, computers and related equipment, software and other items necessary for the performance of his duties. (e) The Partnerships hereby covenant and agree to reimburse the Consultant on a monthly basis for all expenses (including, without limitation, travel, lodging, meals, mobile phones, attorneys' fees and expenses) incurred by him on behalf of LRC and the Partnerships in furtherance of his duties under this Agreement. 2. Relationship of Parties. (a) The parties hereto agree that Consultant is being retained as an independent contractor and that he shall not be considered under the provisions of this Agreement or otherwise as having an employee status and LRC and the Partnerships shall not withhold any amounts of taxes or other items from the payments made to Consultant pursuant to Section 4 of this Agreement and Consultant shall be responsible for the payment of any income taxes, social security taxes or other withholdings with respect to such payments. (b) The parties hereby agree that in the event that the Internal Revenue Service (the "IRS") shall have finally determined, in a written notice to LRC or the Partnerships, that (i) the relationship between LRC and the Partnerships, on the one hand, and the Consultant, on the other hand, is an employment relationship rather than an independent contractor relationship, and (ii) that LRC and/or the Partnerships should have withheld income taxes, social security taxes or other employee withholdings from the earnings of Consultant, then Consultant shall promptly remit to LRC and the Partnerships such amounts as the IRS shall have determined are due and owing to it and which should have been withheld. LRC and the Partnerships hereby agree that the Consultant, at his election, shall be entitled to participate in the defense of the IRS proceeding or action giving rise to Consultant's obligation to remit payment to LRC and the Partnerships under this Section 2(b) and in the event Consultant shall be required to remit any amounts in accordance with this Section 2(b), LRC and the Partnerships shall execute such documents and take such additional action as Consultant shall reasonably request in connection with Consultant's efforts to recover any amounts paid by Consultant in respect of any self-employment, social security or other tax paid by Consultant in respect of the consulting fees received pursuant to Section 4 hereof. 3. Consulting Period. Unless Consultant's services are terminated pursuant to Section 5 hereof, the term of Consultant's services shall commence on the date hereof and 12 13 shall continue until March 31, 1999, and shall be subject to renewal for successive one (1) year periods upon agreement of the parties. 4. Consulting Fee. In consideration of the services rendered by Consultant under this Agreement, LRC and the Partnerships shall pay Consultant a fee of One Hundred Fifty Thousand Dollars ($150,000) for the nine (9) month period from the Effective Date to March 31, 1997 and $200,000 per year for each year thereafter of the initial term of this Agreement, and such additional amount as shall be agreed upon by the parties for any additional term. The consulting fee described in this Section 4 shall be paid in equal monthly installments on the first day of each month commencing on July 1, 1996. 5. Termination. Consultant may only be terminated for "cause" which shall mean (i) a knowing violation of law by the Consultant that materially and adversely affects the Partnerships or the ability of the Consultant to perform his duties under this Agreement, as determined by a court of competent jurisdiction; (ii) a course of either intentional misconduct or gross negligence by the Consultant in performing his duties under this Agreement, as determined by a court of competent jurisdiction; or (iii) a material breach of this Agreement by the Consultant, which has not been cured for a period of thirty (30) days following receipt of written notice from the Partnerships or LRC of either of their intent to terminate this Agreement for cause, specifying the nature of such actions constituting cause, as determined by a court of competent jurisdiction. 6. Indemnification by LRC and the Partnerships. LRC and the Partnerships hereby covenant and agree to indemnify and hold harmless the Consultant and his successors, receivers, beneficiaries, assigns and affiliates, from any and all liability, claims, damages or losses arising in the performance of his duties hereunder, and related expenses, including reasonable attorneys' fees, to the extent such liability, claims, damages or losses and related expenses are not fully reimbursed by insurance. Notwithstanding the foregoing, the Consultant shall not be entitled to indemnification or be held harmless pursuant to this Section 6 for any activity which the Consultant shall be required to indemnify or hold harmless LRC or the Partnerships pursuant to Section 7. 7. Indemnification by the Consultant. The Consultant hereby covenants and agrees to indemnify and hold harmless LRC and the Partnerships and their respective shareholders, directors, officers, agents and affiliates from any and all liability, claims, damages or losses and related expenses including reasonable attorneys' fees to the extent that such liability, claims, damages or losses and related expenses are not fully reimbursed by insurance and are incurred by reason of the Consultant's bad faith, fraud, willful misfeasance, gross negligence or reckless disregard of his duties hereunder, which such bad faith, fraud, willful misfeasance, gross negligence or reckless disregard of duties shall have been proven in a court of proper jurisdiction or admitted in writing. 8. Notices. Any notices required, permitted or desired to be given hereunder shall be delivered personally, sent by overnight courier or mailed, registered or certified mail, return receipt requested, to the following addresses, and shall be deemed to have been received on the day of personal delivery, one business day after deposit with an overnight courier or three business days after deposit in the mail: 13 14 If to Company: Lease Resolution Corporation 1300 East Woodfield Road Suite 312 Schaumburg, Illinois 60173 Attn: President with a copy to: Wolin & Rosen Two North LaSalle Street Suite 1776 Chicago, Illinois 60602 Attn: Philip Wolin, Esq. If to Consultant: Mr. Douglas E. Van Scoy 450 Circle Lane Lake Forest, Illinois 60045 with a copy to: Saitlin, Patzik, Frank & Samotny Ltd. 150 South Wacker Drive Suite 900 Chicago, Illinois 60606 Attn: Alan B. Patzik, Esq. 9. Assignment. Neither party to this Agreement may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party, provided, however, that Consultant shall be permitted to assign his rights under this Agreement to any entity controlled by Consultant. 10. Amendment and Modification. No amendment or modification of the terms of this Agreement shall be binding upon either party unless reduced to writing and signed by Consultant and a duly authorized officer of LRC. 11. Counterparts. This Agreement may be executed in two or more counterparts, any one of which shall be deemed the original without reference to the others. 12. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions and portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 13. Waiver. The failure of either party to insist, in any one or more instances, upon performance of the terms or conditions of this Agreement shall not be construed as a waiver or relinquishment of any right granted hereunder or of the future performance of any such term, covenant or condition. 14. Headings. Headings of the paragraphs in this Agreement are for reference purposes only and shall not be deemed to have any substantive effect. 15. Governing Law. The provisions of this Agreement shall be construed in accordance with the internal laws and not the choice of laws provisions of the State of Illinois. 14 15 16. Final Agreement. This Agreement, together with those documents expressly referred to herein, constitute the final agreement of the parties concerning the matters referred to herein, and supersede all prior agreements and understandings. 17. Attorney's Fees and Costs. If litigation is required to enforce the terms of this Agreement, then in addition to such relief as may be awarded by the Court in such a case, the prevailing party or parties shall be entitled to recover their reasonable attorneys fees and costs incurred therein. IN WITNESS WHEREOF, the parties hereto have executed this Consulting Agreement as of the day and year first above written. CONSULTANT /s/ Douglas E. Van Scoy -------------------------- Douglas E. Van Scoy LEASE RESOLUTION CORPORATION, FOR ITSELF AND ON BEHALF OF DATRONIC EQUIPMENT INCOME FUND XVI, L.P., DATRONIC EQUIPMENT INCOME FUND XVII, L.P., DATRONIC EQUIPMENT INCOME FUND XVIII, L.P., DATRONIC EQUIPMENT INCOME FUND XIX, L.P., DATRONIC EQUIPMENT INCOME FUND XX, L.P., AND DATRONIC FINANCE INCOME FUND I., L.P. By: /s/ Donald D. Torisky ------------------------- Authorized Officer 15 16 CONSULTING AGREEMENT (EXHIBIT B) This CONSULTING AGREEMENT (this "Agreement") which shall have an effective date of July 1, 1996 (the "Effective Date"), is made and entered into by and between LEASE RESOLUTION CORPORATION, a Delaware not-for-profit corporation ("LRC"), individually and on behalf of each of DATRONIC EQUIPMENT INCOME FUND XVI, L.P., DATRONIC EQUIPMENT INCOME FUND XVII, L.P., DATRONIC EQUIPMENT INCOME FUND XVIII, L.P., DATRONIC EQUIPMENT INCOME FUND XIX, L.P., DATRONIC EQUIPMENT INCOME FUND XX, L.P., and DATRONIC FINANCE INCOME FUND I, L.P. (each, a "Partnership" and collectively the "Partnerships"), and KENNETH B. DROST ("Consultant"). Other capitalized terms shall have the respective meanings set forth elsewhere herein. W I T N E S S E T H: WHEREAS, pursuant to the terms of a Management Termination Agreement dated as of the date hereof (the "Termination Agreement"), LRC and the Partnerships have terminated those certain Management Agreements between the Partnerships, LRC and New Era Funding Corp. ("New Era") all dated as of March 4, 1993 (the "Management Agreements"); and WHEREAS, Consultant has been a director and officer of New Era for a substantial period of time and by reason thereof has acquired experience and knowledge of considerable value to LRC and the Partnerships; and WHEREAS, LRC and the Partnerships desire to obtain the benefit of Consultant's experience and knowledge through the receipt of consulting services from Consultant and Consultant is willing to render said consulting and advisory services to LRC and the Partnerships pursuant to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, it is hereby covenanted and agreed as follows: 1. Consulting Duties. (a) Consultant hereby agrees to act as a consultant to LRC and the Partnerships and agrees to render such consulting and advisory services as may reasonably be requested from time to time by members of the Board of Directors of LRC and which are equivalent in nature to the functions previously performed by Consultant on behalf of LRC and the Partnerships pursuant to the Management Agreements, provided that Consultant shall not be required to render such services for more than (i) thirty (30) hours per week during the first three (3) months after the date hereof, and (ii) twenty (20) hours per week thereafter through the remainder of the term of this Agreement provided, further, that Consultant shall not be required to perform any services which are not supervisory or executive in nature and which are inconsistent with those services customarily performed by executive personnel. (b) Except as provided in the Termination Agreement, nothing shall prevent the Consultant from engaging in other activities including, without limitation, the rendering of advice to third parties or the formation, sponsorship or management of entities and businesses similar to or in competition with the Partnerships, nor shall this Agreement limit or restrict the right of Consultant to engage in any other business or to render services of any kind to any other partnership, corporation, firm, individual, trust or association; provided that such services do not interfere with Consultant's ability to comply with the terms and conditions of this Agreement. Consultant shall be entitled to utilize the support provided in Section 1(d) below in furtherance of such other activities provided same does not interfere with Consultant's ability to perform functions on behalf of the Partnership. 17 (c) LRC and the Partnerships hereby covenant and agree that the Consultant shall be entitled to use the staff and resources of LRC and the Partnerships to the extent the Consultant deems reasonably necessary to perform his duties pursuant to this Agreement, and LRC and the Partnerships shall cause their respective staffs to cooperate with consultant to satisfy the obligations provided in this Section 1(c). (d) LRC and the Partnerships hereby covenant and agree that during the term of this Agreement, LRC and the Partnerships shall provide the Consultant with office space, secretarial support and other equipment and support which the Consultant deems reasonably necessary, including, without limitation, telephone, furniture, computers and related equipment, software and other items necessary for the performance of his duties. (e) The Partnerships hereby covenant and agree to reimburse the Consultant on a monthly basis for all expenses (including, without limitation, travel, lodging, meals, attorneys' fees and expenses) incurred by him on behalf of LRC and the Partnerships in furtherance of his duties under this Agreement. 2. Relationship of Parties. (a) The parties hereto agree that Consultant is being retained as an independent contractor and that he shall not be considered under the provisions of this Agreement or otherwise as having an employee status and LRC and the Partnerships shall not withhold any amounts of taxes or other items from the payments made to Consultant pursuant to Section 4 of this Agreement and Consultant shall be responsible for the payment of any income taxes, social security taxes or other withholdings with respect to such payments. (b) The parties hereby agree that in the event that the Internal Revenue Service (the "IRS") shall have finally determined, in a written notice to LRC or the Partnerships, that (i) the relationship between LRC and the Partnerships, on the one hand, and the Consultant, on the other hand, is an employment relationship rather than an independent contractor relationship, and (ii) that LRC and/or the Partnerships should have withheld income taxes, social security taxes or other employee withholdings from the earnings of Consultant, then Consultant shall promptly remit to LRC and the Partnerships such amounts as the IRS shall have determined are due and owing to it and which should have been withheld. LRC and the Partnerships hereby agree that the Consultant, at his election, shall be entitled to participate in the defense of the IRS proceeding or action giving rise to Consultant's obligation to remit payment to LRC and the Partnerships under this Section 2(b) and in the event Consultant shall be required to remit any amounts in accordance with this Section 2(b), LRC and the Partnerships shall execute such documents and take such additional action as Consultant shall reasonably request in connection with Consultant's efforts to recover any amounts paid by Consultant in respect of any self-employment, social security or other tax paid by Consultant in respect of the consulting fees received pursuant to Section 4 hereof. 3. Consulting Period. Unless Consultant's services are terminated pursuant to Section 5 hereof, the term of Consultant's services shall commence on the date hereof and shall continue until March 31, 1999, and shall be subject to renewal for successive one (1) year periods upon agreement of the parties. 4. Consulting Fee. In consideration of the services rendered by Consultant under this Agreement, LRC and the Partnerships shall pay Consultant a fee of One Hundred Fifty Thousand Dollars ($150,000) for the nine (9) month period from the Effective Date to March 31, 1997 and $200,000 per year for each year thereafter of the initial term of this Agreement, and such additional amount as shall be agreed upon by the parties for any additional 17 18 term. The consulting fee described in this Section 4 shall be paid in equal monthly installments on the first day of each month commencing on July 1, 1996. 5. Termination. Consultant may only be terminated for "cause" which shall mean (i) a knowing violation of law by the Consultant that materially and adversely affects the Partnerships or the ability of the Consultant to perform his duties under this Agreement, as determined by a court of competent jurisdiction; (ii) a course of either intentional misconduct or gross negligence by the Consultant in performing his duties under this Agreement, as determined by a court of competent jurisdiction; or (iii) a material breach of this Agreement by the Consultant, which has not been cured for a period of thirty (30) days following receipt of written notice from the Partnerships or LRC of either of their intent to terminate this Agreement for cause, specifying the nature of such actions constituting cause, as determined by a court of competent jurisdiction. 6. Indemnification by LRC and the Partnerships. LRC and the Partnerships hereby covenant and agree to indemnify and hold harmless the Consultant and his successors, receivers, beneficiaries, assigns and affiliates, from any and all liability, claims, damages or losses arising in the performance of his duties hereunder, and related expenses, including reasonable attorneys' fees, to the extent such liability, claims, damages or losses and related expenses are not fully reimbursed by insurance. Notwithstanding the foregoing, the Consultant shall not be entitled to indemnification or be held harmless pursuant to this Section 6 for any activity which the Consultant shall be required to indemnify or hold harmless LRC or the Partnerships pursuant to Section 7. 7. Indemnification by the Consultant. The Consultant hereby covenants and agrees to indemnify and hold harmless LRC and the Partnerships and their respective shareholders, directors, officers, agents and affiliates from any and all liability, claims, damages or losses and related expenses including reasonable attorneys' fees to the extent that such liability, claims, damages or losses and related expenses are not fully reimbursed by insurance and are incurred by reason of the Consultant's bad faith, fraud, willful misfeasance, gross negligence or reckless disregard of his duties hereunder, which such bad faith, fraud, willful misfeasance, gross negligence or reckless disregard of duties shall have been proven in a court of proper jurisdiction or admitted in writing. 8. Notices. Any notices required, permitted or desired to be given hereunder shall be delivered personally, sent by overnight courier or mailed, registered or certified mail, return receipt requested, to the following addresses, and shall be deemed to have been received on the day of personal delivery, one business day after deposit with an overnight courier or three business days after deposit in the mail: If to Company: Lease Resolution Corporation 1300 East Woodfield Road Suite 312 Schaumburg, Illinois 60173 Attn: President with a copy to: Wolin & Rosen Two North LaSalle Street Suite 1776 Chicago, Illinois 60602 Attn: Philip Wolin, Esq. 18 19 If to Consultant: Mr. Kenneth B. Drost New Era Funding Corp. 2345 Pembroke Avenue Hoffman Estates, Illinois with a copy to: Saitlin, Patzik, Frank & Samotny Ltd. 150 South Wacker Drive Suite 900 Chicago, Illinois 60606 Attn: Alan B. Patzik, Esq. 9. Assignment. Neither party to this Agreement may assign or delegate any of its rights or obligations hereunder without first obtaining the written consent of the other party, provided, however, that Consultant shall be permitted to assign his rights under this Agreement to any entity controlled by Consultant. 10. Amendment and Modification. No amendment or modification of the terms of this Agreement shall be binding upon either party unless reduced to writing and signed by Consultant and a duly authorized officer of LRC. 11. Counterparts. This Agreement may be executed in two or more counterparts, any one of which shall be deemed the original without reference to the others. 12. Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions and portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 13. Waiver. The failure of either party to insist, in any one or more instances, upon performance of the terms or conditions of this Agreement shall not be construed as a waiver or relinquishment of any right granted hereunder or of the future performance of any such term, covenant or condition. 14. Headings. Headings of the paragraphs in this Agreement are for reference purposes only and shall not be deemed to have any substantive effect. 15. Governing Law. The provisions of this Agreement shall be construed in accordance with the internal laws and not the choice of laws provisions of the State of Illinois. 16. Final Agreement. This Agreement, together with those documents expressly referred to herein, constitute the final agreement of the parties concerning the matters referred to herein, and supersede all prior agreements and understandings. 17. Attorney's Fees and Costs. If litigation is required to enforce the terms of this Agreement, then in addition to such relief as may be awarded by the Court in such a case, the prevailing party or parties shall be entitled to recover their reasonable attorneys fees and costs incurred therein. 19 20 IN WITNESS WHEREOF, the parties hereto have executed this Consulting Agreement as of the day and year first above written. CONSULTANT /s/ Kenneth B. Drost ------------------------------ Kenneth B. Drost LEASE RESOLUTION CORPORATION, FOR ITSELF AND ON BEHALF OF DATRONIC EQUIPMENT INCOME FUND XVI, L.P., DATRONIC EQUIPMENT INCOME FUND XVII, L.P., DATRONIC EQUIPMENT INCOME FUND XVIII, L.P., DATRONIC EQUIPMENT INCOME FUND XIX, L.P., DATRONIC EQUIPMENT INCOME FUND XX, L.P., AND DATRONIC FINANCE INCOME FUND I., L.P. By: /s/ Donald D. Torisky -------------------------- Authorized Officer 20 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND THE STATEMENTS OF REVENUE AND EXPENSES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT ON FORM 10-K YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 3,159,509 0 0 0 0 0 0 0 5,540,825 0 0 0 0 0 5,113,659 5,540,825 0 612,864 0 0 58,174 (580,860) 0 0 0 0 0 0 0 (760,929) 0 0
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