<PAGE> 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 0-19466
-------
DATRONIC EQUIPMENT INCOME FUND XIX, L.P.
(Exact name of Registrant as specified in its charter)
Delaware 36-3684373
- --------------------- ---------------------------
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]
<PAGE> 2
PART I
ITEM 1 - BUSINESS
Datronic Equipment Income Fund XIX, L.P. (the "Partnership"), a Delaware
Limited Partnership, was formed on December 22, 1989. The Partnership offered
Units of Limited Partnership Interests (the "Units") during 1990 and early 1991
raising $99,892,500 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 1, 1996, 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 Liquidation Phase, the Partnership ceased reinvestment in equipment and
leases and began the orderly liquidation of the Partnership's assets for cash.
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. In addition,
since the Partnership ceased investing in leases during 1996 a discussion of
sources and availability of leases, backlog and competition is not material to
an understanding of the Partnership's future activity.
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<PAGE> 3
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 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.
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<PAGE> 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 6,782 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.
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<PAGE> 5
Statement of Revenue and
Expenses Data
(in thousands, except for
Unit amounts)
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Revenue $ 2,491 $ 3,372 $ 4,556 $ 6,359 $ 8,542
Total Expenses 4,076 5,621 6,153 6,442 7,071
------- ------- -------- ------- -------
Net earnings (loss) $(1,585) $(2,249) $ (1,597) $ (83) $ 1,471
======= ======= ======== ======= =======
Net earnings (loss)
per Unit $ 7.36
=======
Class A $ (8.20) $(10.82) $ (8.20) $ 1.48
======= ======= ======== =======
Class B $ (7.79) $(11.21) $ (7.85) $ (.80)
======= ======= ======== =======
Class C $ (7.79) $(11.21) $ (7.85) $ (.80)
======= ======= ======== =======
Distributions per Unit
(per year) $ 62.50
=======
Class A $ - $ 28.17 $ 86.56 $111.55
======= ======= ======== =======
Class B $ 30.03 $ 64.08 $ 62.49 $ 62.72
======= ======= ======== =======
Class C $ 31.05 $ 64.08 $ 62.49 $ 62.72
======= ======= ======== =======
Weighted average number
of Units outstanding 199,762
=======
Class A 33,858 33,858 33,858 33,818
======= ======= ======== =======
Class B 165,574 165,574 165,574 165,614
======= ======= ======== =======
Class C 327 327 327 327
======= ======= ======== =======
<CAPTION>
Balance Sheet Data
- ------------------
(in thousands) December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets $13,571 $21,061 $ 35,378 $50,037 $67,603
======= ======= ======== ======= =======
Total liabilities $ 834 $ 1,527 $ 1,773 $ 1,365 $ 4,439
======= ======= ======== ======= =======
Partners' equity $12,737 $19,534 $ 33,605 $48,672 $63,164
======= ======= ======== ======= =======
Book value per Unit $316.20
=======
Class A $ 63.25 $ 71.45 $ 109.49 $205.23
======= ======= ======== =======
Class B $ 68.25 $107.18 $ 181.29 $252.87
======= ======= ======== =======
Class C $ 76.88 $115.81 $ 189.92 $261.50
======= ======= ======== =======
</TABLE>
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<PAGE> 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 in 1996 of $1,585,381 ($8.20 loss per Class A Unit and $7.79 loss per
Class B and Class C Units), as compared to a net loss in 1995 of $2,248,683
($10.82 loss per Class A Unit and $11.21 loss per Class B and Class C Unit)
(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 of operations included the following:
- Lease income decreased $1,325,013 to $1,137,607 in 1996 from $2,462,620 in
1995. This decrease is attributable to the declining lease portfolio
during 1996 as compared to 1995, and a $135,000 provision for the return of
lease overpayments previously recorded as lease income.
- Settlement proceeds of $425,474 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 $869,630 to $1,353,138 in 1996 compared to
$483,508 in 1995. The increase is primarily attributable to the early
payoff of an installment contract receivable. See Note 10 to the
Partnership's financial statements included in Item 8.
- Amortization of organization and equipment acquisition costs decreased
$972,433 to $151,149 in 1996, from $1,123,582 in 1995 due to these costs
becoming fully amortized as of June, 1996.
- Management fees-New Era represent amounts paid to New Era for managing the
Partnership on a day-to-day basis. These fees are affected by the amount
of leases acquired during the period for the Continuing Limited Partners
and 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
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<PAGE> 7
Partnership's financial statements included in Item 8 for a discussion of
the Management Termination Agreement. Management fees - New Era decreased
$459,653 to $1,707,482 in 1996 compared to $2,167,135 in 1995. A decrease
of approximately $238,000 resulted from the cessation of reinvesting
activity during the period and a decrease of approximately $1,142,000
resulted from a decrease in the amount of service provided and the
length of time in which New Era managed the activities of the Partnership.
These decreases are partially offset by the Partnership's payment of
approximately $920,000 in termination and non-compete fees.
- 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 $753,889 consisting of general partner expense
reimbursement of $708,463 and general partner distributions of $45,426.
During 1995 the Partnership paid LRC an aggregate of $449,668 consisting of
general partner expense reimbursement of $213,674 and general partner
distributions of $235,994. Accordingly, aggregate payments to LRC
increased $304,221 to $753,889 in 1996 as compared to $449,668 in 1995.
The increase results from expenses of approximately $414,000 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, partially offset by an overall decrease in all other expenses of
approximately $110,000.
- Professional fees-Litigation decreased $130,691 to $315,849 in 1996 from
$446,540 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.
- Other operating expenses decreased by $155,511 to $89,163 in 1996 as
compared to $244,674 in 1995. This decrease is primarily due to decreases
in equipment sale losses.
- The provision for lease losses increased by $325,000 to $525,000 in 1996
from $200,000 in 1995. This is a result of Management's ongoing assessment
of potential losses inherent in the lease portfolio.
- Provision for loss on Diverted and other assets decreased $621,360 to
$276,160 in 1996 from $897,520 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.
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<PAGE> 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 in 1995 of $2,248,683 ($10.82 loss per Class A Unit and $11.21 loss
per Class B and Class C Units), as compared to a net loss in 1994 of $1,596,538
($8.20 loss per Class A Unit and $7.85 loss per Class B and Class C Unit)
(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 of operations included the following:
- Lease income decreased $1,529,115 to $2,462,620 in 1995 from $3,991,735 in
1994. This decrease is a result of a decrease in the average investment in
direct financing leases during 1995 as compared with 1994.
- Settlement proceeds of $425,474 resulted from a settlement with the
Datronic Partnerships' former attorneys. See Note 5 to the Partnership's
financial statements included in Item 8.
- Management fees-New Era represent amounts paid to New Era for managing the
Partnership on a day-to-day basis. Management fees-New Era decreased
$225,393 to $2,167,135 in 1995 compared to $2,392,528 in 1994. These fees
are affected by the amount of leases acquired during the period for the
Continuing Limited Partners and the amount of service performed for the
Partnership. See Note 8 to the Partnership's financial statements included
in Item 8.
- General Partner's expense reimbursement represents amounts paid to LRC for
expenses incurred in its capacity as general partner of the Partnership in
excess of the distributions of 1% of Cash Flow Available for Distribution.
Such amounts are paid in accordance with the Settlement. General Partner's
expense reimbursement decreased $103,759 to $213,674 in 1995 compared to
$317,433 in 1994. LRC's expenses are allocated to the Partnership's for
which LRC's activities are most directly performed.
- Professional fees-Litigation of $446,540 in 1995 and $329,443 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 $133,250 to $277,160 in 1995 from
$410,410 in 1994. This decrease is due to decreases in legal fees of
$68,427, consulting services of $64,823 and audit fees of $7,904.
- The provision for lease losses decreased by $309,900 to
- 8 -
<PAGE> 9
$200,000 in 1995 from $509,900 in 1994. This is a result of Management's
ongoing assessment of potential losses inherent in the lease portfolio.
- Provision for loss on Diverted and other assets increased $455,664 to
$897,520 in 1995 from $441,856 in 1994. 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.
Financial Condition at December 31, 1996
The Partnership's operating activities were initially funded by limited partner
contributions. The Partnership sold an aggregate of 199,759 Units thereby
raising $99,892,500 in gross proceeds from limited partners.
During 1996, Partnership assets continued to be converted to cash in order to,
generally, pay Partnership operating expenses, invest in new leases for the
Continuing Limited Partners and make distributions to limited partners.
During 1996, the Partnership's cash and cash equivalents increased by $301,360
to $3,577,529 at December 31, 1996 from $3,276,169 at December 31, 1995. This
increase is primarily due to cash receipts from collections on leases of
approximately $5 million, sales of leases of $931,931, release of restricted
cash of $1,076,623, cash receipts from installment contracts receivable of
$645,040, and repayments of commercial lease paper of $173,927. This increase
is partially offset by negative cash flow from operations of $1,360,613,
purchases of lease receivables of $919,590 and distributions to partners of
approximately $5.2 million (including approximately $45,000 to LRC).
During 1996, the Partnership's investment in commercial lease paper decreased
$198,927 to $84,493 at December 31, 1996 from $283,420 at December 31, 1995.
This decrease is primarily attributable to principal collections.
During 1996, the Partnership's investment in an installment contract receivable
decreased by $645,040 to zero at December 31, 1996 from $645,040 at December
31, 1995. This decrease is due to an early payoff of this receivable. See
Note 10 to the Partnership's financial statements included in Item 8.
During 1996, the Partnership's net investment in direct financing leases
decreased by $5,502,795 to $5,641,547 at December 31, 1996 from $11,144,342 at
December 31, 1995. This decrease is attributable to principal collections of
approximately $5 million sales of leases of $931,931 and a provision for lease
losses of
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<PAGE> 10
$525,000, partially offset by $919,590 of investments in additional leases.
During 1996, Diverted and other assets, net, decreased by $276,160 to
$4,208,520 at December 31, 1996 from $4,484,680 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 Partnership. See Note 3 to
the Partnership's financial statements included in Item 8.
Restricted cash decreased by $1,076,623 to zero at December 31, 1996, due to
the removal of claims against such cash and distribution of such cash to the
Partnership with interest in June, 1996.
Organization and acquisition costs decreased approximately $27,657 and
$123,491, respectively, due to full amortization of such costs to expense
during 1996.
Lessee rental deposits decreased $602,529 resulting from payments made to
lessees.
Partners' equity decreased by approximately $6.8 million during 1996 primarily
due to distributions to partners of approximately $5.2 million and net loss for
the year of approximately $1.6 million.
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 cash receipts from
lessees under leases owned by the Partnership. 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 portions of the Partnership's lease portfolios
which may be sold in bulk. Management believes that its sources of liquidity
in the short and long-term are sufficient to meet its operating cash
obligations, provide for the ongoing pursuit of litigation and an orderly
liquidation of the Partnership. Distributions to Class A Limited Partners were
suspended after the October 1, 1995 distribution. Distributions to the Class B
and Class C Limited Partners will continue as long as cash is available. 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,
additional distributions will be made at the appropriate time.
During 1996, the Partnership's operating activities resulted in a use of
$1,360,613 of cash. This was due principally to a net loss
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<PAGE> 11
of $1,585,381 and decreases in accounts payable, lessee rental deposits and due
to/from management company totalling $752,541 partially offset by non-cash
expenses of $977,309 relating to amortization and provisions for losses on
leases, Diverted and other assets and commercial paper. During the period,
cash flows from investing activities aggregated $6,873,385 relating primarily
to principal collections on leases, installment contracts and commercial lease
paper of $5,784,421, sales of leases of $931,931, and release of restricted
cash of $1,076,623, net of purchases of lease receivables for the benefit of
the Class B and C limited partners of $919,590. Cash flows used for financing
activities during 1996 of $5,211,412, consisted of distributions to limited
partners of $5,165,986 and to the general partner of $45,426.
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 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.
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<PAGE> 12
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
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 27-46
</TABLE>
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<PAGE> 13
INDEPENDENT AUDITORS' REPORT
The Partners of Datronic
Equipment Income Fund XIX, L.P.
We have audited the accompanying balance sheets in total for all classes of
limited partners of DATRONIC EQUIPMENT INCOME FUND XIX, 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
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<PAGE> 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 XVI, XVII, XVIII, 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
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<PAGE> 15
DATRONIC EQUIPMENT INCOME FUND XIX, L.P.
BALANCE SHEETS
IN TOTAL FOR ALL CLASSES OF LIMITED PARTNERS
<TABLE>
<CAPTION>
December 31,
-----------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 3,577,529 $ 3,276,169
Due from management company 59,130 -
Investments in commercial lease
paper, net 84,493 283,420
Installment contract receivable - 645,040
Net investment in direct
financing leases 5,641,547 11,144,342
Diverted and other assets, net 4,208,520 4,484,680
Restricted cash - 1,076,623
Datronic assets, net - -
Organization costs, net of
accumulated amortization
of $2,143,647 and $2,115,990,
respectively - 27,657
Acquisition costs, net of
accumulated amortization
of $3,996,760 and $3,873,269,
respectively - 123,491
----------- -----------
$13,571,219 $21,061,422
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Accounts payable and
accrued expenses $ 266,278 $ 328,565
Lessee rental deposits 567,767 1,170,296
Due to management company - 28,594
----------- -----------
Total liabilities 834,045 1,527,455
Total partners' equity 12,737,174 19,533,967
----------- -----------
$13,571,219 $21,061,422
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 16
DATRONIC EQUIPMENT INCOME FUND XIX, L.P.
BALANCE SHEETS
By Class of Limited Partner
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------
Liquidating Continuing
Limited Limited
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 1,446,892 $ 2,130,637 $ 3,577,529
Due from management company 7,747 51,383 59,130
Investments in commercial lease
paper, net 10,035 74,458 84,493
Net investment in direct
financing leases 7,047 5,634,500 5,641,547
Diverted and other assets, net 713,344 3,495,176 4,208,520
Datronic assets, net - - -
------------ ------------ ------------
$ 2,185,065 $ 11,386,154 $ 13,571,219
============ ============ ============
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Accounts payable and
accrued expenses $ 39,992 $ 226,286 $ 266,278
Lessee rental deposits 76,715 491,052 567,767
------------ ----------- -----------
Total liabilities 116,707 717,338 834,045
Total partners' equity 2,068,358 10,668,816 12,737,174
------------ ----------- -----------
$ 2,185,065 $11,386,154 $13,571,219
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE> 17
DATRONIC EQUIPMENT INCOME FUND XIX, L.P.
BALANCE SHEETS
By Class of Limited Partner
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------------
Liquidating Continuing
Limited Limited
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
ASSETS
- ------
Cash and cash equivalents $1,219,379 $ 2,056,790 $ 3,276,169
Investments in commercial lease
paper, net 22,024 261,396 283,420
Installment contract receivable 109,334 535,706 645,040
Net investment in direct
financing leases 250,405 10,893,937 11,144,342
Diverted and other assets, net 760,153 3,724,527 4,484,680
Restricted cash 182,488 894,135 1,076,623
Organization costs, net of
accumulated amortization
of $358,660 and $1,757,330,
respectively 4,688 22,969 27,657
Acquisition costs, net of
accumulated amortization
of $656,519 and $3,216,750,
respectively 20,932 102,559 123,491
---------- ----------- -----------
$2,569,403 $18,492,019 $21,061,422
========== =========== ===========
LIABILITIES AND PARTNERS' EQUITY
- --------------------------------
Accounts payable and
accrued expenses $ 46,708 $ 281,857 $ 328,565
Lessee rental deposits 173,802 996,494 1,170,296
Due to management company 64 28,530 28,594
---------- ----------- -----------
Total liabilities 220,574 1,306,881 1,527,455
Total Partners' equity 2,348,829 17,185,138 19,533,967
---------- ----------- -----------
$2,569,403 $18,492,019 $21,061,422
========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
- 17 -
<PAGE> 18
DATRONIC EQUIPMENT INCOME FUND XIX, L.P.
STATEMENTS OF REVENUE AND EXPENSES
IN TOTAL FOR ALL CLASSES OF LIMITED PARTNERS
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue:
Lease income $ 1,137,607 $ 2,462,620 $ 3,991,735
Settlement proceeds - 425,474 -
Interest income 1,353,138 483,508 564,538
----------- ----------- ----------
2,490,745 3,371,602 4,556,273
----------- ----------- ----------
Expenses:
Amortization of organization and
equipment acquisition costs 151,149 1,123,582 1,219,500
Management fees-New Era 1,707,482 2,167,135 2,392,528
General Partner's
expense reimbursement 708,463 213,674 317,433
Professional fees-Litigation 315,849 446,540 329,443
Professional fees-Other 277,860 277,160 410,410
Other operating expenses 89,163 244,674 356,741
Provision for lease losses 525,000 200,000 509,900
Provision for loss on Diverted
and other assets 276,160 897,520 441,856
Provision for loss on
commercial lease paper 25,000 50,000 175,000
----------- ----------- -----------
4,076,126 5,620,285 6,152,811
----------- ----------- -----------
Net loss $(1,585,381) $(2,248,683) $(1,596,538)
=========== =========== ===========
Net loss-General Partner $ (15,854) $ (22,487) $ (15,965)
=========== =========== ===========
Net loss-Limited Partners $(1,569,527) $(2,226,196) $(1,580,573)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
- 18 -
<PAGE> 19
DATRONIC EQUIPMENT INCOME FUND XIX, L.P.
STATEMENTS OF REVENUE AND EXPENSES
BY CLASS OF LIMITED PARTNER
For the year ended December 31, 1996
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
Revenue:
Lease income $ 10,096 $ 1,127,511 $ 1,137,607
Interest income 214,002 1,139,136 1,353,138
---------- ------------ ------------
224,098 2,266,647 2,490,745
---------- ------------ ------------
Expenses:
Amortization of organization and
equipment acquisition costs 25,620 125,529 151,149
Management fees-New Era 220,112 1,487,370 1,707,482
General Partner's
expense reimbursement 105,780 602,683 708,463
Professional fees-Litigation 53,536 262,313 315,849
Professional fees-Other 38,649 239,211 277,860
Other operating expenses 12,368 76,795 89,163
Provision for lease losses - 525,000 525,000
Provision for loss on
Diverted and other assets 46,809 229,351 276,160
Provision for loss on
commercial lease paper 1,695 23,305 25,000
---------- ------------ ------------
504,569 3,571,557 4,076,126
---------- ------------ ------------
Net loss $ (280,471) $ (1,304,910) $ (1,585,381)
========== ============ ============
Net loss-General Partner $ (2,805) $ (13,049) $ (15,854)
========== ============ ============
Net loss-Limited Partners $ (277,666) $ (1,291,861) $ (1,569,527)
========== ============ ============
Net loss per limited
partnership unit $ (8.20) $ (7.79)
========== ============
Weighted average number
of limited partnership
units outstanding 33,858 165,901
========== ============
</TABLE>
See accompanying notes to the financial statements.
- 19 -
<PAGE> 20
DATRONIC EQUIPMENT INCOME FUND XIX, L.P.
STATEMENTS OF REVENUE AND EXPENSES
BY CLASS OF LIMITED PARTNER
For the year ended December 31, 1995
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
Revenue:
Lease income $ 142,742 $ 2,319,878 $ 2,462,620
Settlement proceeds 72,118 353,356 425,474
Interest income 68,382 415,126 483,508
--------- ----------- -----------
283,242 3,088,360 3,371,602
--------- ----------- -----------
Expenses:
Amortization of organization and
equipment acquisition costs 190,447 933,135 1,123,582
Management fees-New Era 189,776 1,977,359 2,167,135
General Partner's
expense reimbursement 36,218 177,456 213,674
Professional fees-Litigation 75,689 370,851 446,540
Professional fees-Other 45,286 231,874 277,160
Other operating expenses 35,729 208,945 244,674
Provision (credit) for lease losses (76,276) 276,276 200,000
Provision for loss on
Diverted and other assets 152,130 745,390 897,520
Provision for loss on
commercial lease paper 4,238 45,762 50,000
--------- ----------- -----------
653,237 4,967,048 5,620,285
--------- ----------- -----------
Net loss $(369,995) $(1,878,688) $(2,248,683)
========= =========== ===========
Net loss-General Partner $ (3,700) $ (18,787) $ (22,487)
========= =========== ===========
Net loss-Limited Partners $(366,295) $(1,859,901) $(2,226,196)
========= =========== ===========
Net loss per limited partnership
unit $ (10.82) $ (11.21)
========= ===========
Weighted average number
of limited partnership
units outstanding 33,858 165,901
========= ===========
</TABLE>
See accompanying notes to the financial statements.
- 20 -
<PAGE> 21
DATRONIC EQUIPMENT INCOME FUND XIX, L.P.
STATEMENTS OF REVENUE AND EXPENSES
BY CLASS OF LIMITED PARTNER
For the year ended December 31, 1994
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
Revenue:
Lease income $ 420,089 $ 3,571,646 $ 3,991,735
Interest income 64,967 499,571 564,538
--------- ----------- -----------
485,056 4,071,217 4,556,273
--------- ----------- -----------
Expenses:
Amortization of organization and
equipment acquisition costs 206,705 1,012,795 1,219,500
Management fees-New Era 226,049 2,166,479 2,392,528
General Partner's expense
reimbursement 53,805 263,628 317,433
Professional fees-Litigation 55,841 273,602 329,443
Professional fees-Other 68,967 341,443 410,410
Other operating expenses 58,098 298,643 356,741
Provision for lease losses 4,286 505,614 509,900
Provision for loss on
Diverted and other assets 74,895 366,961 441,856
Provision for loss on
commercial lease paper 16,950 158,050 175,000
--------- ----------- -----------
765,596 5,387,215 6,152,811
--------- ----------- -----------
Net loss $(280,540) $(1,315,998) $(1,596,538)
========= =========== ===========
Net loss-General Partner $ (2,805) $ (13,160) $ (15,965)
========= =========== ===========
Net loss-Limited Partners $(277,735) $(1,302,838) $(1,580,573)
========= =========== ===========
Net loss per limited partnership unit $ (8.20) $ (7.85)
========= ===========
Weighted average number of limited
partnership units outstanding 33,858 165,901
========= ===========
</TABLE>
See accompanying notes to the financial statements.
- 21 -
<PAGE> 22
DATRONIC EQUIPMENT INCOME FUND XIX, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
<TABLE>
<CAPTION>
Liquidating Continuing
General Limited Limited Total
Partner's Partners' Partners' Partners'
Equity Equity Equity Equity
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $ - $ 6,908,199 $41,763,491 $48,671,690
Distributions to partners (164,527) (2,923,022) (10,382,444) (13,469,993)
Net loss (15,965) (277,735) (1,302,838) (1,596,538)
Allocation of General Partner's
Equity 180,492 (21,849) (158,643) -
---------- ----------- ----------- -----------
Balance, December 31, 1994 - 3,685,593 29,919,566 33,605,159
---------- ----------- ----------- -----------
Distributions to partners (235,994) (953,780) (10,632,735) (11,822,509)
Net loss (22,487) (366,295) (1,859,901) (2,248,683)
Allocation of General Partner's
Equity 258,481 (16,689) (241,792) -
---------- ----------- ----------- -----------
Balance, December 31, 1995 - 2,348,829 17,185,138 19,533,967
---------- ----------- ----------- -----------
Distributions to partners (45,426) - (5,165,986) (5,211,412)
Net loss (15,854) (277,666) (1,291,861) (1,585,381)
Allocation of General Partner's
Equity 61,280 (2,805) (58,475) -
--------- ---------- ---------- ------------
Balance, December 31, 1996 $ - $ 2,068,358 $10,668,816 $12,737,174
========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
- 22 -
<PAGE> 23
DATRONIC EQUIPMENT INCOME FUND XIX, L.P.
STATEMENTS OF CASH FLOWS
IN TOTAL FOR ALL CLASSES OF LIMITED PARTNERS
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,585,381) $(2,248,683) $(1,596,538)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Amortization expense 151,149 1,123,582 1,219,500
Provision for lease losses 525,000 200,000 509,900
Provision for loss on commercial
lease paper 25,000 50,000 175,000
Provision for loss on
Diverted and other assets 276,160 897,520 441,856
Changes in assets and liabilities:
Accounts payable and accrued expenses (62,288) (20,987) 49,949
Lessee rental deposits (602,529) (235,800) (114,857)
Due to/from management company (87,724) 11,086 8,008
------------ ------------ -----------
(1,360,613) (223,282) 692,818
------------ ------------ -----------
Cash flows from investing activities:
Purchases of lease receivables (919,590) (10,273,666) (11,030,125)
Principal collections on leases 4,965,454 10,236,407 15,927,416
Sales of leases 931,931 7,583,645 3,264,850
Distribution of Diverted and other assets - 1,658,816 -
Distribution of Datronic Assets - 134,402 181,580
Release of Restricted cash 1,076,623 - -
Repayments of commercial lease paper 173,927 260,618 1,425,524
Principal collections on installment
contract receivable 645,040 363,367 466,054
------------ ----------- -----------
6,873,385 9,963,589 10,235,299
------------ ---------- ------------
Cash flows from financing activities:
Distributions to Limited Partners (5,165,986) (11,586,515) (13,305,466)
Distributions to General Partner (45,426) (235,994) (164,527)
------------ ------------ ------------
(5,211,412) (11,822,509) (13,469,993)
------------ ------------ -----------
Net increase (decrease)in cash
and cash equivalents 301,360 (2,082,202) (2,541,876)
Cash and cash equivalents:
Beginning of year 3,276,169 5,358,371 7,900,247
------------ ------------ ------------
End of year $ 3,577,529 $ 3,276,169 $ 5,358,371
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
- 23 -
<PAGE> 24
DATRONIC EQUIPMENT INCOME FUND XIX, L.P.
STATEMENTS OF CASH FLOWS
BY CLASS OF LIMITED PARTNER
For the year ended December 31, 1996
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (280,471) $ (1,304,910) $ (1,585,381)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization expense 25,620 125,529 151,149
Provision for lease losses - 525,000 525,000
Provision for loss on commercial
lease paper 1,695 23,305 25,000
Provision for loss on
Diverted and other assets 46,809 229,351 276,160
Changes in assets and liabilities:
Accounts payable and
accrued expenses (6,716) (55,572) (62,288)
Lessee rental deposits (97,087) (505,442) (602,529)
Due to/from management company (7,811) (79,913) (87,724)
-------------- ------------- -------------
(317,961) (1,042,652) (1,360,613)
-------------- ------------- -------------
Cash flows from investing activities:
Purchases of lease receivables - (919,590) (919,590)
Principal collections on leases 243,358 4,722,096 4,965,454
Sales of leases - 931,931 931,931
Release of Restricted cash 182,488 894,135 1,076,623
Repayments of commercial
lease paper 10,294 163,633 173,927
Principal collections on
installment contract receivable 109,334 535,706 645,040
------------- ------------- -------------
545,474 6,327,911 6,873,385
------------- ------------- -------------
Cash flows from financing activities:
Distributions to limited partners - (5,165,986) (5,165,986)
Distributions to General Partner - (45,426) (45,426)
------------ ------------- -------------
- (5,211,412) (5,211,412)
------------ ------------- -------------
Net increase in cash and
cash equivalents 227,513 73,847 301,360
Cash and cash equivalents:
Beginning of year 1,219,379 2,056,790 3,276,169
------------- ------------- -------------
End of year $ 1,446,892 $ 2,130,637 $ 3,577,529
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
- 24 -
<PAGE> 25
DATRONIC EQUIPMENT INCOME FUND XIX, L.P.
STATEMENTS OF CASH FLOWS
BY CLASS OF LIMITED PARTNER
For the year ended December 31, 1995
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (369,995) $ (1,878,688) $ (2,248,683)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Amortization expense 190,447 933,135 1,123,582
Provision (credit) for lease losses (76,276) 276,276 200,000
Provision for loss on commercial
lease paper 4,238 45,762 50,000
Provision for loss on
Diverted and other assets 152,130 745,390 897,520
Changes in assets and liabilities:
Accounts payable and
accrued expenses 1,514 (22,501) (20,987)
Lessee rental deposits (49,177) (186,623) (235,800)
Due to/from management company (40) 11,126 11,086
----------- ------------ ------------
(147,159) (76,123) (223,282)
----------- ------------ ------------
Cash flows from investing activities:
Purchases of lease receivables - (10,273,666) (10,273,666)
Principal collections on leases 964,774 9,271,633 10,236,407
Sales of leases 36,512 7,547,133 7,583,645
Distribution of Diverted and other
assets 281,169 1,377,647 1,658,816
Distribution of Datronic assets 22,781 111,621 134,402
Repayments of commercial
lease paper 24,916 235,702 260,618
Principal collections on
installment contract receivable 61,591 301,776 363,367
------------ ------------ ------------
1,391,743 8,571,846 9,963,589
------------ ------------ ------------
Cash flows from financing activities:
Distributions to limited partners (953,780) (10,632,735) (11,586,515)
Distributions to General Partner (12,989) (223,005) (235,994)
----------- ------------ ------------
(966,769) (10,855,740) (11,822,509)
----------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents 277,815 (2,360,017) (2,082,202)
Cash and cash equivalents:
Beginning of year 941,564 4,416,807 5,358,371
----------- ------------ ------------
End of year $ 1,219,379 $ 2,056,790 $ 3,276,169
=========== ============ ============
</TABLE>
See accompanying notes to financial statements.
- 25 -
<PAGE> 26
DATRONIC EQUIPMENT INCOME FUND XIX, L.P.
STATEMENTS OF CASH FLOWS
BY CLASS OF LIMITED PARTNER
For the year ended December 31, 1994
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (280,540) $(1,315,998) $(1,596,538)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Amortization expense 206,205 1,013,295 1,219,500
Provision for lease losses 4,286 505,614 509,900
Provision for loss on commercial
lease paper 16,950 158,050 175,000
Provision for loss on
Diverted and other assets 74,895 366,961 441,856
Changes in assets and liabilities:
Accounts payable and
accrued expenses (3,358) 53,307 49,949
Lessee rental deposits (22,483) (92,374) (114,857)
Due to/from management company (380) 8,388 8,008
----------- ----------- -----------
(4,425) 697,243 692,818
----------- ----------- -----------
Cash flows from investing activities:
Purchases of lease receivables - (11,030,125) (11,030,125)
Principal collections on leases 2,069,066 13,858,350 15,927,416
Sales of leases 171,664 3,093,186 3,264,850
Distribution of Diverted and other
assets (1,497) 1,497 -
Distribution of Datronic assets 30,716 150,864 181,580
Restricted cash (216) 216 -
Repayments of commercial
lease paper 54,011 1,371,513 1,425,524
Principal collections on
installment contract receivable 78,701 387,353 466,054
----------- ----------- ------------
2,402,445 7,832,854 10,235,299
----------- ----------- ------------
Cash flows from financing activities:
Distributions to limited partners (2,923,022) (10,382,444) (13,305,466)
Distributions to General Partner (19,004) (145,523) (164,527)
----------- ------------ ------------
(2,942,026) (10,527,967) (13,469,993)
----------- ------------ ------------
Net decrease in cash and
cash equivalents (544,006) (1,997,870) (2,541,876)
Cash and cash equivalents:
Beginning of year 1,485,570 6,414,677 7,900,247
----------- ------------ ------------
End of year $ 941,564 $ 4,416,807 $ 5,358,371
=========== ============ ============
</TABLE>
See accompanying notes to financial statements.
- 26 -
<PAGE> 27
DATRONIC EQUIPMENT INCOME FUND XIX, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
NOTE 1 - ORGANIZATION:
Datronic Equipment Income Fund XIX, L.P., a Delaware Limited Partnership (the
"Partnership"), was formed on December 22, 1989 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 1, 1996, the Partnership ceased investing in new 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 XVI, XVII, XVIII, and XX and Datronic Finance Income Fund I (herein
referred to as "Fund XVI", "Fund XVII", "Fund XVIII", "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, 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
- 27 -
<PAGE> 28
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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 $8.63 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.
The Partnership's undivided interest in a lease portfolio owned by the
Partnership, Fund XVII, Fund XVIII and TELIF is accounted for under the pro
rata consolidation method (i.e., the Partnership's pro rata share of the
assets, liabilities, revenues and expenses of the lease portfolio is included
in the Partnership's financial statements).
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.
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
- 28 -
<PAGE> 29
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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 $7,325,000 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 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 55.2% 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
- 29 -
<PAGE> 30
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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
$276,160, $897,520 and $441,856 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.
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.
- 30 -
<PAGE> 31
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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:
<TABLE>
<CAPTION>
ALLOWANCE
COST FOR LOSS NET
---------- ---------- ---------
<S> <C> <C> <C>
Diverted and other assets
December 31, 1993 $ 9,969,088 $(2,486,216) $ 7,482,872
1994 Provision for loss from
Diverted and other assets - (441,856) (441,856)
---------- ----------- -----------
Diverted and other assets
December 31, 1994 9,969,088 (2,928,072) 7,041,016
Distribution to the
Partnership in 1995 (1,658,816) - (1,658,816)
1995 Provision for loss from
Diverted and other assets - (897,520) (897,520)
---------- ---------- ----------
Diverted and other assets
December 31, 1995 8,310,272 (3,825,592) 4,484,680
1996 Provision for loss from
Diverted and other assets - (276,160) (276,160)
----------- ----------- ----------
Diverted and other assets
December 31, 1996 $8,310,272 $(4,101,752) $4,208,520
=========== =========== ==========
</TABLE>
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 65.245%
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.
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
- 31 -
<PAGE> 32
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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 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
- 32 -
<PAGE> 33
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
operations, such receivables 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 ($425,474 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 $398,000 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 Partnership litigation (see Other Claims). Furthermore, all
other claims made by the defendant and the corporation controlled by the
defendant against DRC and the Partnerships were withdrawn.
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.
Other Claims
During 1994, a suit was filed on behalf of certain of the Datronic Partnerships
(including the Partnership) involved in the 1990 acquisition of a lease
portfolio against the original owner for fraud and breach of contract. During
1995, the Court dismissed the claim for lack of jurisdiction without ruling on
its merits. LRC, on behalf of the affected partnerships, filed a revised
complaint
- 33 -
<PAGE> 34
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
in the Circuit Court of Cook County, Illinois for fraud and breach of contract
in the amount of $5.5 million plus punitive damages and interest.
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 their interest
in the Partnership as of the Settlement Date. Until the Liquidating Phase of
the Partnership commenced on August 1, 1996 each Class B Limited Partner
received cash distributions (in all probability all of which constituted a
return of invested capital) equal to 12.5% annually of their Adjusted Capital
Contributions or lesser amounts if sufficient cash was not available for
distribution ("Target Distributions"). Available
- 34 -
<PAGE> 35
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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
October 1, 1995 distribution. Target Distributions to Class B and Class C
Limited Partners were reduced to an annual rate of 9% effective with the
February 1, 1996 distributions. In accordance with the Partnership Agreement,
Class B and Class C Limited Partners received their last Target Distribution on
July 1, 1996 and their first Liquidating Distribution on October 1, 1996.
Liquidating distributions to Class B and Class C Limited Partners will continue
as long as cash is available. 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 1, 1996,
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
the number of units outstanding.
The Amended Partnership Agreements of the Datronic Partnerships
- 35 -
<PAGE> 36
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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.
For 1996, 1995 and 1994, the following aggregate amounts are recorded by the
Datronic Partnerships as distributions and expense reimbursements to LRC:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
The Partnership's share of these amounts was:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
1% Distribution $ 45,426 $ 235,994 $ 164,527
Expense Reimbursement in excess
of the 1% Distribution 708,463 213,674 317,433
---------- ---------- ----------
Total $ 753,889 $ 449,668 $ 481,960
========== ========== ==========
</TABLE>
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 $338,873.
- 36 -
<PAGE> 37
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 7 - PARTNERS' EQUITY:
During 1996, distributions paid to the three classes of Limited Partners and to
LRC aggregated:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Limited Partners
Class A $ - $ - $ - $ - $ -
Class B 2,138,899 1,872,637 745,071 398,881 5,155,488
Class C 4,219 3,700 1,458 1,121 10,498
---------- ---------- ---------- ---------- ----------
Total $2,143,118 $1,876,337 $ 746,529 $ 400,002 $5,165,986
========== ========== ========== ========== ==========
General Partner $ 14,374 $ 9,690 $ 12,416 $ 8,946 $ 45,426
========== ========== ========== ========== ==========
</TABLE>
During 1995, distributions paid to the three classes of Limited Partners and to
LRC aggregated:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Limited Partners
Class A $ 149,991 $ 249,872 $ 249,872 $ 304,045 $ 953,780
Class B 2,557,487 2,602,240 2,604,611 2,847,436 10,611,774
Class C 5,051 5,140 5,146 5,624 20,961
---------- ---------- ---------- ---------- -----------
Total $2,712,529 $2,857,252 $2,859,629 $3,157,105 $11,586,515
========== ========== ========== ========== ===========
General Partner $ 86,151 $ 32,251 $ 43,386 $ 74,206 $ 235,994
========== ========== ========== ========== ===========
</TABLE>
For the year ended December 31, 1996, distributions per Unit by quarter and for
the year to the limited partners were:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1st $ - $ 12.58 $ 12.58
2nd - 11.34 11.34
3rd - 3.70 3.70
4th - 2.41 3.43
-------- ------- -------
Total $ - $ 30.03 $ 31.05
======== ======= =======
</TABLE>
For the year ended December 31, 1995, distributions per Unit by quarter and for
the year to the limited partners were:
<TABLE>
<CAPTION>
Class A Class B Class C
------- ------- -------
<S> <C> <C> <C>
1st $4.43 $15.41 $15.41
2nd 7.38 15.76 15.76
3rd 7.38 15.76 15.76
4th 8.98 17.15 17.15
----- ------ ------
Total $28.17 $64.08 $64.08
====== ====== ======
</TABLE>
- 37 -
<PAGE> 38
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
During the period from January 1, 1997 to March 12, 1997, distributions paid to
the limited partners and to LRC were:
<TABLE>
<CAPTION>
Aggregate Per Unit
--------- --------
<S> <C> <C>
Limited Partners
Class A $ - $ -
Class B 498,590 $ 3.01
Class C 1,405 $ 4.30
---------
Total $ 499,995
=========
General Partner $ 6,264
=========
</TABLE>
As further described in Note 6, distributions within each class of units during
the Liquidating Phase are based on positive Capital Account balances of each
limited partner. Accordingly, for the fourth quarter of 1996, and the period
January 1, 1997 to March 12, 1997, amounts shown above as per unit
distributions represent the average per unit distribution within each class
while actual per unit distributions varied.
At December 31, 1996 and 1995, there were 33,858 Class A Units, 165,574 Class B
Units, 327 Class C Units, and one General Partner Unit outstanding.
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:
<TABLE>
<CAPTION>
Funds Cumulative
Raised Distributions
------ -------------
<S> <C> <C>
Class A $16,929,575 $11,747,537
Class B 82,790,118 56,372,769
Class C 159,807 110,654
----------- -----------
Total $99,879,500 $68,230,960
=========== ===========
</TABLE>
- 38 -
<PAGE> 39
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
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 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 $919,902.
- 39 -
<PAGE> 40
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Pursuant to the terms of the Management Agreement and Management Termination
Agreement, New Era was paid the following by the Datronic Partnerships:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
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
========== ========== ==========
</TABLE>
The Partnership's share of these amounts was:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Expense Reimbursement
and Management Fee $ 767,028 $1,910,293 $2,116,776
Reinvestment Fee 19,034 256,842 275,752
Incentive Fee 1,518 - -
Termination Fee 700,878 - -
Non-Compete Fee 219,024 - -
--------- ---------- ----------
Total $1,707,482 $2,167,135 $2,392,528
========== ========== ==========
</TABLE>
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 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.
- 40 -
<PAGE> 41
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
At December 31, 1996 New Era owed the Partnership $59,130 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 34.3% 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, 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.
- 41 -
<PAGE> 42
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 10 - INSTALLMENT CONTRACT RECEIVABLE:
At December 31, 1995, installment contract receivable consists of the
Partnership's 35.9% undivided interest in an installment contract receivable
owned by the Partnership, Fund XVII, Fund XVIII and TELIF. Fund XX also had an
installment contract receivable from the same lessee/borrower with identical
terms, conditions and collateral. On December 31, 1996, the Partnership
received $1,152,297 in full and complete satisfaction of the installment
contract receivable described above. Interest income of approximately
$908,700, previously unrecognized due to uncertainties surrounding the
collectibility of the installment contract receivable, was recognized in the
fourth quarter of 1996.
NOTE 11 - CONCENTRATION OF CREDIT RISK:
Leasing activity is conducted throughout the United States, with emphasis in
heavily populated states such as California, Florida, New York, and Texas. The
cost of equipment under lease typically ranges from $15,000 to $30,000. Such
equipment includes, but is not limited to: machine tool equipment, printing and
graphic processing equipment, general purpose plant/office equipment,
computers and terminals for management information systems, medical equipment,
and automotive repair equipment. At December 31, 1996 approximately 4% of the
Partnership's net investment in direct financing leases are concentrated in the
automotive repair industry (14% for Liquidating and 4% for Continuing Limited
Partners).
Of the Partnership's investment in commercial lease paper, one debtor
represents approximately 91% of the amount outstanding (see Note 14).
There are no other significant concentrations of business activity in any
industry or with any one debtor. The Partnership maintains a security interest
in all equipment until the lessee's obligations are fulfilled.
NOTE 12 - TRANSACTIONS WITH AFFILIATES
The Partnership Agreement prohibits the Partnership and its affiliates from
borrowing from any of the Partnerships or otherwise from dealing with any of
the Partnerships with respect to the property or assets, except as specifically
set forth in the Partnership Agreement. Accordingly, the following
transactions may be deemed to have been in violation of the Partnership
Agreement.
During 1995 and 1994, LRC authorized the Partnership and Finance Fund I to
lease equipment to Computer Rental Corporation of America, Inc., (CRCA) in the
aggregate amounts of $536,786 and $100,000 respectively. Amounts due from CRCA
were fully repaid during 1996 and as of December 31, 1995 were included in net
investment in direct financing leases (see Note 13).
- 42 -
<PAGE> 43
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
LRC is holding the stock of CRCA, and during 1995 and 1994, controlled the
operations of CRCA for the benefit of Fund XVIII and Fund XX. Therefore, CRCA
may be deemed to be an affiliate of LRC and the aforementioned lease
transactions may be deemed violations of the Partnership Agreement.
NOTE 13 - 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:
<TABLE>
<CAPTION>
December 31, 1996
------------------------------------------------
Liquidating Continuing
Limited Limited
Partners Partners Total
----------- ------------ -----------
<S> <C> <C> <C>
Minimum lease payments receivable $ 10,214 $ 6,810,508 $ 6,820,722
Non-performing leases 65,081 1,771,808 1,836,889
Estimated residuals 1,569 9,155 10,724
Unearned income (115) (971,008) (971,123)
----------- ----------- -----------
Net investment in direct
financing leases before allowance 76,749 7,620,463 7,697,212
Allowance for lease losses (69,702) (1,985,963) (2,055,665)
----------- ----------- -----------
Net investment in direct
financing leases $ 7,047 $ 5,634,500 $ 5,641,547
=========== =========== ===========
Amounts currently due
included in net investment
in direct financing leases: $ 7,576 $ 261,553 $ 269,129
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------
Liquidating Continuing
Limited Limited
Partners Partners Total
------------ ----------- -----------
<S> <C> <C> <C>
Minimum lease payments receivable $ 147,352 $12,856,187 $13,003,539
Non-performing leases 172,362 1,586,502 1,758,864
Estimated residuals 36,247 179,069 215,316
Unearned income (9,622) (2,065,158) (2,074,780)
------------ ----------- -----------
Net investment in direct
financing leases before allowance 346,339 12,556,600 12,902,939
Allowance for lease losses (95,934) (1,662,663) (1,758,597)
------------ ----------- -----------
Net investment in direct
financing leases $ 250,405 $10,893,937 $11,144,342
============ =========== ===========
Amounts currently due
included in net investment
in direct financing leases: $ 30,119 $ 653,648 $ 683,767
============ =========== ===========
</TABLE>
- 43 -
<PAGE> 44
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
An analysis of the changes in the allowance for lease losses by Class of
Limited Partner for 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
Balance, beginning
of 1995 $ 225,428 $1,733,421 $1,958,849
Additions(reductions) (76,276) 276,276 200,000
Charge-offs (53,218) (347,034) (400,252)
---------- ---------- ----------
Balance, end of 1995 95,934 1,662,663 1,758,597
Additions - 525,000 525,000
Charge-offs (26,232) (201,700) (227,932)
---------- ---------- ----------
Balance, end of 1996 $ 69,702 $1,985,963 $2,055,665
========== ========== ==========
</TABLE>
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:
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
--------- --------- -----
<S> <C> <C> <C>
1997 $ 10,214 $ 3,296,543 $ 3,306,757
1998 - 2,004,082 2,004,082
1999 - 1,069,308 1,069,308
2000 - 440,079 440,079
2001 - 496 496
-------- ----------- -----------
$ 10,214 $ 6,810,508 $ 6,820,722
======== =========== ===========
</TABLE>
During 1996, the Partnership and Fund XX each entered into separate lease
purchase agreements with Linc Anthem Corporation to sell equipment leases at a
discount rate of 11.75% which resulted in aggregate net proceeds of
approximately $1.5 million. The Partnership proceeds were approximately
$932,000.
NOTE 14 - COMMERCIAL LEASE PAPER:
At December 31, 1996 commercial lease paper consists of non-performing notes
receivable from two lease brokers which have been placed on a non-accrual
basis whereby no interest income is currently being recorded. These
non-performing notes are secured by leases which have been recovered and are
being serviced by the Partnership. Payments received on the underlying leases
are applied to the note balances as recoveries.
- 44 -
<PAGE> 45
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
An allowance for losses has been recorded to provide for estimated losses on
the notes. An analysis of the changes in the allowance for losses follows:
<TABLE>
<CAPTION>
Liquidating Continuing
Limited Limited
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
Balance, beginning
of 1995 $ 13,470 $ 136,932 $ 150,402
Provision 4,238 45,762 50,000
Charge-offs - - -
---------- ----------- -----------
Balance, end of 1995 17,708 182,694 200,402
Provision 1,695 23,305 25,000
Charge-offs 115 (1,955) (1,840)
---------- --------- -----------
Balance, end of 1996 $ 19,518 $ 204,044 $ 223,562
========== ========== ===========
</TABLE>
The accuracy of the allowance for losses may be impacted by numerous factors
including some which may be beyond the control of the Partnership. Therefore,
it is possible that the amount realized from commercial lease paper may be
materially different than the amounts recorded. It is not practical to
estimate the fair market value of commercial lease paper due to the absence of
a readily available market.
- 45 -
<PAGE> 46
DATRONIC EQUIPMENT INCOME FUND XIX, L. P.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 15 - 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:
<TABLE>
<CAPTION>
Liquidating Continuing
General Limited Limited
Partner Partners Partners Total
--------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Net loss per accompanying
statements $ (15,854) $ (277,666) $(1,291,861) $(1,585,381)
Effect of leases treated as
operating leases for tax
purposes (2,524) (42,635) (207,249) (252,408)
Effect of principal repayments
treated as income for tax
purposes (14,156) (235,247) (1,166,212) (1,415,615)
Provision for lease losses 232 1,791 21,137 23,160
Provision for loss on
Diverted and other assets 11,306 189,712 929,533 1,130,551
Provision for Class Counsel
fees and expenses, net - (46,702) (228,384) (275,086)
Other, net 812 11,547 68,794 81,153
--------- ------------ ------------ ------------
Loss for Federal income tax
purposes in total $ (20,184) $ (399,200) $ (1,874,242) $ (2,293,626)
========= ============ ============== ============
</TABLE>
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:
- 46 -
<PAGE> 47
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:
<TABLE>
<CAPTION>
Director
Name Position and Office Since
- ------------------ -------------------------- -------
<S> <C> <C>
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
</TABLE>
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.
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
- 47 -
<PAGE> 48
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, 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:
<TABLE>
<CAPTION>
Chairman of the
Board and Chief All Other
Executive Officer Salary Compensation(b)
----------------- ------ ------------
<S> <C> <C>
Donald D. Torisky $406,905 $9,000(a)
</TABLE>
- 48 -
<PAGE> 49
(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 24.64%.
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.
- 49 -
<PAGE> 50
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:
(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 8K, dated December 12, 1996, disclosing the
approval of a Management Termination Agreement. (See Item 8, Note 8)
The Partnership filed a Form 8K, dated January 7, 1997, concerning the
disposition of a significant asset. (See Item 8, Note 10)
- 50 -
<PAGE> 51
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 XIX, 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 XIX, 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 XIX, 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 XIX, L.P.
- 51 -
<PAGE> 52
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.
- 52 -
<PAGE> 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"):
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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,
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<PAGE> 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
<PAGE> 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
<PAGE> 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
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<PAGE> 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
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<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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-Q, Report on Form 10-K
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,577,529
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,571,219
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12,737,174
<TOTAL-LIABILITY-AND-EQUITY> 13,571,219
<SALES> 0
<TOTAL-REVENUES> 2,490,745
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 89,163
<LOSS-PROVISION> 826,160
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,585,381)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
