Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
PARTICIPATING INCOME PROPERTIES 1986, L.P.
------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies: units of
assigned limited partnership interests
2) Aggregate number of securities to which transaction applies: 51,687
units of assigned limited partnership interests
3) Aggregate cash, securities and other property to be received in
connection with the proposed transaction, computed pursuant to Exchange
Act Rule 0-11(c)(2): $48,534,216
4) Total fee paid: $9,707
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P.
Dear Investor:
On behalf of FFCA Management Company Limited Partnership, the general
partner of Participating Income Properties 1986, L.P. (the "Partnership"), we
are requesting your consent to sell the Partnership's interests in ten travel
plaza properties pursuant to the proposal set forth in the accompanying Consent
Solicitation Statement. Thereafter, the Partnership will be liquidated, all
assets distributed and a final Schedule K-1 issued.
Whether you own a few or many units in the Partnership, it is important
that your units be represented. We encourage you to make certain your units are
represented by signing and dating the accompanying consent card and promptly
returning it in the enclosed envelope. Please note that a consent card that is
not signed will be invalid.
Should you have any questions regarding this Consent Solicitation
Statement, please call D.F. King & Co., Inc. at (800) 848-3410.
Sincerely,
FFCA Management Company
Limited Partnership
By: /s/ Morton H. Fleischer
------------------------------------
Morton H. Fleischer, General Partner
Scottsdale, Arizona
Dated: September 11, 1998
<PAGE>
NOTICE OF CONSENT SOLICITATION
NOTICE IS HEREBY GIVEN that investors in Participating Income
Properties 1986, L.P. (the "Partnership") will be asked to consent to the
following proposal (the "Proposal") by October 26, 1998, unless extended from
time to time (the "Consent Date") by FFCA Management Company Limited Partnership
(the "General Partner"):
A proposal to authorize the General Partner to accept the terms of an
offer to purchase all of the Partnership's interests in ten travel
plazas, including real property, improvements, equipment and other
personal property, by certain special purpose companies affiliated with
Flying J Inc., for a cash payment of $48,534,216, which purchase will
be followed by a liquidation of the Partnership and final distribution
of assets as described in this Consent Solicitation Statement.
Each person (an "Investor") who holds one or more units of limited
partnership depository units ("Units") in the Partnership and is reflected as an
Investor on the books and records of the Partnership at the close of business on
September 2, 1998 (the "Record Date"), is entitled to receive notice of and to
consent to the Proposal. Valid transferees of Units after the Record Date and
prior to the Consent Date will be entitled to revoke or revise a consent
previously given by the transferor with respect to such Units before the Consent
Date. An affirmative vote of Investors holding a majority of Units is required
to approve the Proposal. FFCA Investor Services Corporation 86-B, the initial
limited partner of the Partnership (the "Initial Limited Partner") and holder of
record of the limited partnership interests in the Partnership, will deliver the
consents of the Investors to the Partnership as directed by Investors. No
meeting of Investors will be held.
All Investors are requested to complete, date and sign the enclosed
Consent Card and return it promptly in the postage paid, return-addressed
envelope provided for that purpose. By returning your Consent Card promptly you
can help the Partnership avoid the expense of follow-up mailings.
THE ENCLOSED CONSENT IS BEING SOLICITED BY THE GENERAL PARTNER. THE
GENERAL PARTNER RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSAL.
FFCA Management Company Limited Partnership
By: /s/ Morton H. Fleischer
------------------------------------
Morton H. Fleischer, General Partner
Scottsdale, Arizona
Dated: September 11, 1998
<PAGE>
TABLE OF CONTENTS
Page
GENERAL INFORMATION..........................................................1
SUMMARY......................................................................3
The Partnership.....................................................3
CFJ Properties......................................................3
The Transaction.....................................................4
Background to the Transaction.......................................5
Source and Amount of Funds..........................................5
Conditions to the Transaction.......................................6
Appraisals..........................................................6
Fairness............................................................7
Recommendation of the General Partner...............................7
Estimated Liquidating Distributions.................................7
Liquidation Procedures..............................................8
Federal Income Tax Consequences.....................................8
Special Considerations..............................................9
SPECIAL CONSIDERATIONS......................................................10
Conflicts of Interest..............................................10
Participation by Lender............................................10
Federal Income Tax Consequences....................................10
THE PARTNERSHIP.............................................................11
THE TRANSACTION.............................................................16
Purchase Agreements................................................16
Source of Funds....................................................17
Conditions to the Transaction......................................18
Closing Date.......................................................19
Benefits of Sale of Travel Plazas and Liquidation of
Partnership; Reasons for the Transaction.........................19
Detriments of Sale of the Travel Plazas and Liquidation
of Partnership....................................................20
Partnership Agreement Provisions Regarding Dissolution
of Partnership....................................................20
Insurance..........................................................21
Consent Required...................................................21
Related Sale of PIP II and PIP III Travel Plazas to the Buyer......22
Accounting Treatment...............................................22
Regulatory Requirements............................................22
Recommendation of the General Partner..............................23
FAIRNESS....................................................................23
APPRAISALS..................................................................23
THE TRAVEL PLAZAS...........................................................24
INDUSTRY....................................................................26
UNAUDITED PRO FORMA FINANCIAL INFORMATION...................................27
i
<PAGE>
TABLE OF CONTENTS
(continued)
Page
SELECTED FINANCIAL DATA.....................................................31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................................32
Liquidity and Capital Resources....................................32
Results of Operations..............................................33
Inflation..........................................................34
GENERAL PARTNER COMPENSATION................................................34
MARKET FOR UNITS AND RELATED SECURITY HOLDER MATTERS........................35
Secondary Market Information.......................................35
Third Party Tender Offers..........................................36
Unitholders........................................................36
Distributions......................................................36
CONSENT PROCEDURES..........................................................38
FEDERAL INCOME TAX CONSIDERATIONS...........................................39
Opinions of Counsel................................................39
Federal Income Tax Characterization of the Partnership.............40
Tax Consequences of the Transaction................................40
Taxation of Tax-Exempt Investors...................................42
State Tax Consequences and Withholding.............................43
ANNUAL REPORT AND OTHER DOCUMENTS...........................................43
OTHER MATTERS...............................................................43
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES......43
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES.................................-1
ii
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P.
17207 North Perimeter Drive
Scottsdale, Arizona 85255
--------------------------------------
CONSENT SOLICITATION STATEMENT
--------------------------------------
GENERAL INFORMATION
Participating Income Properties 1986, L.P. (the "Partnership") was
formed in June 1986 to invest as a co-general partner in FFCA/PIP 1986 Property
Company, a Delaware general partnership (the "Company"). The Company owns travel
plazas, including real estate, improvements, equipment and other personal
property (the "Travel Plazas"), most of which are leased to, and operated by,
CFJ Properties, a general partnership formed pursuant to a joint venture between
a subsidiary of Flying J Inc. and two subsidiaries of Conoco Inc. The general
partner of the Partnership is FFCA Management Company Limited Partnership, a
Delaware limited partnership (the "General Partner"). The initial limited
partner of the Partnership is FFCA Investor Services Corporation 86-B, a
Delaware corporation (the "Initial Limited Partner"). The Initial Limited
Partner holds legal title to the limited partnership interests of the
Partnership (the "Limited Partnership Interests"), the rights and benefits of
which are assigned to investors in the Partnership (the "Investors").
This Consent Solicitation Statement is furnished in connection with the
solicitation by the General Partner of consents directing the Initial Limited
Partner to deliver the consents of Investors to the Partnership regarding the
proposed transaction described herein (the "Transaction") on October 26, 1998, a
period of 45 days from the date of this Consent Solicitation Statement, unless
extended from time to time by the General Partner (the "Consent Date"). Each
Investor holding one or more units of assigned Limited Partnership Interests
(the "Units") of record at the close of business on September 2, 1998 (the
"Record Date") will be entitled to vote with respect to the Transaction. On the
Record Date there were 51,687 Units outstanding, each of which is entitled to
one vote. An affirmative vote of a majority of Units is required for approval of
the proposal being submitted for a vote. The consents are being solicited by the
General Partner pursuant to Section 11.4 of the Second Amended and Restated
Certificate and Agreement of Limited Partnership of the Partnership (the
"Partnership Agreement").
This Consent Solicitation Statement, the accompanying Consent Card (the
"Consent Card"), and the Notice of Consent Solicitation will be first mailed or
given to Investors on or about September 11, 1998. The Initial Limited Partner,
which is used to avoid state filing requirements when Investors transfer Units,
cannot vote its own interests in connection with this Consent Solicitation
Statement. The executive offices of the Partnership and the Initial Limited
Partner are located at 17207 North Perimeter Drive, Scottsdale, Arizona 85255,
and the telephone number is (602) 585-4500.
<PAGE>
The General Partner solicits consents by mail to give each Investor an
opportunity to direct the Initial Limited Partner to vote the number of Limited
Partnership Interests corresponding to the number of Units held by the Investor
on all matters described in this Consent Solicitation Statement. Investors are
urged to: (i) read this Consent Solicitation Statement carefully; (ii) specify
their choice in each matter by marking the appropriate box on the enclosed
Consent Card; and (iii) sign, date and return the Consent Card by mail in the
postage-paid, return addressed envelope provided for that purpose.
All Units represented by a properly executed and valid Consent Card
received prior to the Consent Date will be voted by the Initial Limited Partner
in accordance with the instructions marked thereon or otherwise as provided
therein, unless such Consent Card has previously been revoked or revised. Unless
instructions to the contrary are marked, or if no instructions are specified,
the Initial Limited Partner will treat each signed Consent Card as a direction
to vote the Units represented thereby in favor of the proposal set forth on the
Consent Card. Any Consent Card may be revoked or revised at any time prior to
the Consent Date by submitting another Consent Card bearing a later date or by
giving written notice of revocation to the Initial Limited Partner at the
Partnership's address indicated above. Any notice of revocation or revision sent
to the Partnership must include the Investor's name, the number of Units with
respect to which the prior Consent Card was given, and a statement that the
Investor revokes all previously executed Consent Cards, and must be received
prior to the Consent Date to be effective.
The information contained herein concerning the Partnership, the
General Partner and the Company has been furnished by the General Partner.
Information contained herein concerning the Buyer, as such term is defined
herein, has been furnished to the General Partner by the Buyer.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION"), NOR HAS THE COMMISSION PASSED UPON
THE FAIRNESS OR MERITS OF THIS TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
2
<PAGE>
SUMMARY
The following is a summary of certain information contained in this
Consent Solicitation Statement. This summary is not intended to be complete and
is qualified in its entirety by the more detailed information and financial
statements contained elsewhere in this Consent Solicitation Statement.
References to the Second Amended and Restated Certificate and Agreement of
Limited Partnership (the "Partnership Agreement") of Participating Income
Properties 1986, L.P. contained in this Consent Solicitation Statement are
qualified in their entirety by the terms of the Partnership Agreement previously
filed with the Securities and Exchange Commission, which is incorporated in this
Consent Solicitation Statement by reference. Copies of the Partnership Agreement
will be furnished, without charge, to any Investor who makes a written or oral
request therefor to Investor Services, FFCA Management Company Limited
Partnership, 17207 North Perimeter Drive, Scottsdale, Arizona 85255, telephone
number (602) 585-4500.
Statements contained in this Consent Solicitation Statement that are
not based on historical fact are "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements may be identified by the use of forward-looking terminology such as
"may," "will," "expect," "anticipate," "believe," "continue" or similar terms,
variations of those terms or the negative of those terms. Cautionary statements
set forth in "SPECIAL CONSIDERATIONS" and elsewhere in this Consent Solicitation
Statement identify important factors that could cause actual results to differ
materially from those in the forward-looking statements.
THE PARTNERSHIP
Participating Income Properties 1986, L.P., a Delaware limited
partnership (the "Partnership"), was organized in June 1986 to invest as a
co-general partner in FFCA/PIP 1986 Property Company, a Delaware general
partnership (the "Company"). The Company currently owns ten travel plazas,
including real property, improvements, equipment and other personal property,
located in Montana, Washington, Texas, Iowa, Idaho, Arizona, California,
Missouri and Wyoming (collectively, the "Travel Plazas"). See "THE TRAVEL
PLAZAS." Seven of the Travel Plazas are leased to, and operated by, CFJ
Properties ("CFJ Properties"), a general partnership. One of the Travel Plazas
is leased to Flying J Inc. ("Flying J") and two are leased to franchisees of
Flying J Franchise Inc. ("FJFI"), a subsidiary of Flying J and the franchisor of
the two franchised Travel Plazas. See "THE PARTNERSHIP." The general partner of
the Partnership is FFCA Management Company Limited Partnership, a Delaware
limited partnership (the "General Partner"). The individual general partner of
the General Partner is Mr. Morton Fleischer.
CFJ PROPERTIES
CFJ Properties is a joint venture between Flying J, through its
subsidiary Big West Oil Company ("Big West"), and Conoco Inc., through its
subsidiaries Douglas Oil Company of California ("Douglas Oil"), and Kayo Oil
Company ("Kayo Oil").
3
<PAGE>
THE TRANSACTION
The Company has entered into Purchase Agreements dated September 4,
1998 (the "Purchase Agreements") with certain special purpose companies
affiliated with Flying J (collectively, the "Buyer"), pursuant to which the
Buyer will acquire from the Company all of the Company's right, title and
interest to the Travel Plazas for a cash payment of $48,534,216 (the
"Transaction"). These proceeds represent an increase of approximately 40% over
the cost of the Travel Plazas paid by the Company. See "THE TRANSACTION" and
"APPRAISALS."
The obligation of the parties to consummate the Transaction is
conditioned upon the approval by an affirmative vote of Investors holding a
majority of assigned limited partnership interests of the Partnership (the
"Units"), and certain other conditions more particularly described under "THE
TRANSACTION--Conditions to the Transaction" below.
The investors of Participating Income Properties II, L.P., a Delaware
limited partnership ("PIP II"), and Participating Income Properties III Limited
Partnership, a Delaware limited partnership ("PIP III"), are being asked to
approve the sale of the assets of their respective partnerships to the Buyer
(the "Related PIP Transactions") in conjunction with the sale of the Travel
Plazas by the Company pursuant to the Purchase Agreements. Consent solicitation
statements relating to the sale of the PIP II and PIP III assets to the Buyer
have been filed with the Securities and Exchange Commission ("SEC") and mailed
to the PIP II and PIP III investors simultaneously with the mailing of this
Consent Solicitation Statement and are available to Investors upon request.
Requests should be directed to Investor Services, FFCA Management Company
Limited Partnership, 17207 North Perimeter Drive, Scottsdale, Arizona 85255,
telephone number (602) 585-4500.
If the Transaction is approved by Investors in the Partnership but not
by investors in either of the Related PIP Transactions, the Buyer has the right
not to consummate the Transaction. However, the Buyer, at its discretion, may
obligate the Company to consummate the Transaction if the Investors approve the
Transaction and other conditions to closing are met. See "THE
TRANSACTION--Conditions to the Transaction" below. Investors voting against the
Transaction do not have dissenters' rights or any rights of appraisal.
The Purchase Agreements provide that the Buyer is purchasing the Travel
Plazas from the Company with limited representations and warranties from the
Company and otherwise on an "as is," "where is" basis and with all faults. The
Purchase Agreements also provide that the Company will indemnify the Buyer for
all liabilities incurred by it in connection with the consent solicitation of
the Investors, except to the extent of the gross negligence or intentional
misconduct of the Buyer or its affiliates. In order to facilitate a prompt and
final liquidating distribution to Investors, the Partnership has purchased
insurance (the "Insurance") to protect it against potential claims and
liabilities of the Partnership and the Company arising after the liquidation and
dissolution of the Partnership relating to this consent solicitation and the
Transaction. See "THE TRANSACTION--Insurance."
4
<PAGE>
BACKGROUND TO THE TRANSACTION
The negotiations between Flying J and the General Partner leading up to
the Transaction commenced in mid-1997. At that time, representatives of Flying J
advised the General Partner that the lessees intended to exercise their options
to purchase the land, building and equipment comprising the Travel Plazas as
soon as practicable. The Flying J representatives requested the General Partner
to consider a transaction which would involve the sale of all of the travel
plazas owned by the Partnership, PIP II and PIP III (collectively, the "PIP
Travel Plazas"). During December 1997, an agreement in principle regarding the
Transaction was reached, based upon the December 31, 1996 appraised value of the
PIP Travel Plazas. See "APPRAISALS." The terms and conditions of the Purchase
Agreements were determined pursuant to arm's-length negotiations between the
General Partner and Flying J. Because Flying J intended to close and relocate
the travel plaza in Boise, Idaho, the parties agreed to consummate the sale of
the Boise travel plaza before the consummation of the Transaction. On February
20, 1998, CFJ Properties exercised its option to purchase the Boise, Idaho
travel plaza for a cash payment of $3,385,784.
SOURCE AND AMOUNT OF FUNDS
The cash required to purchase the Travel Plazas pursuant to the
Purchase Agreements will be $48,534,216 (the "Purchase Price"). The Buyer is
obligated to pay for all costs and expenses of the Transaction, including,
without limitation, the attorneys' fees of the Company and the Partnership,
title insurance expenses and premiums, escrow fees, survey expenses,
environmental audit expenses and/or environmental insurance premiums, transfer,
recording and filing fees and expenses, and mortgage taxes, if any, except that
the Buyer shall not be responsible for any expenses incurred in connection with
the consent solicitation of the Investors or liquidation of the Partnership. The
General Partner estimates that the costs and expenses associated with the
consent solicitation of the Investors and with the liquidation of the
Partnership will be approximately $360,000.
The Buyer will pay cash for the purchase of the Travel Plazas.
Financing will be provided to the Buyer with loans (the "Loans") from FFCA
Acquisition Corporation (the "Lender"), a wholly owned subsidiary of Franchise
Finance Corporation of America ("FFCA") (NYSE:FFA), with the exception of the
Ellensburg, Washington and Evanston, Wyoming Travel Plazas (collectively, the
"Franchised Travel Plazas"). The Franchised Travel Plazas will be purchased by
the Buyer with its own funds or with funds from sources other than the Loans.
FFCA is a New York Stock Exchange listed company whose primary business purpose
is to provide real estate financing to the chain restaurant industry, as well as
to the convenience store and automotive service and parts industries. The Loans
will be made pursuant to definitive loan agreements, promissory notes, deeds of
trust or mortgages, and security agreements (collectively, the "Loan
Documents"). The Lender has issued a commitment letter to Flying J (the
"Commitment Letter") with respect to the Loans. Flying J's rights and
obligations under the Commitment Letter will be assigned to the Buyer. The
Lender's rights and obligations under the Commitment Letter may be assigned to a
third-party lender not affiliated with FFCA or the Buyer.
The Lender's obligation under the Commitment Letter to make the Loans
and similar loans to be made by the Lender to the Buyer in the Related PIP
Transactions (the "Related
5
<PAGE>
Loans") is conditioned upon the satisfaction or waiver of certain conditions on
or before November 30, 1998. If the Buyer purchases a Travel Plaza with funds
from sources other than the Loans, the Buyer must pay the Lender a breakup fee
equal to 1% of the proposed Loan amount applicable to the Travel Plaza plus the
Lender's expenses incurred in connection therewith. See "THE TRANSACTION--Source
of Funds."
The terms of the Commitment Letter were determined pursuant to
arm's-length negotiations between the Lender and Flying J. Because of the size
of the Transaction and to address the issues described under "SPECIAL
CONSIDERATIONS," a special meeting of the Board of Directors of FFCA was held on
June 29, 1998, at which time the terms and conditions of the Commitment Letter
and Loans were reviewed and approved by the disinterested directors of FFCA. See
"SPECIAL CONSIDERATIONS--Conflicts of Interest."
CONDITIONS TO THE TRANSACTION
Consummation of the Transaction is conditioned upon each of the
following occurring on or before November 30, 1998: (i) approval of the
Transaction and the subsequent dissolution of the Partnership by an affirmative
vote of Investors holding a majority of Units; (ii) unless waived by the Buyer,
approval of the Related PIP Transactions and the subsequent dissolutions of PIP
II and PIP III by an affirmative vote of the PIP II and PIP III investors; and
(iii) there having been no statute, rule, order or regulation enacted or issued
by any governmental authority or by a court, which prohibits the consummation of
the Transaction. See "THE TRANSACTION--Conditions to the Transaction."
The obligation of the Buyer (but not the Company) to close the
Transaction is conditioned upon the Lender making the Loans as provided in the
Commitment Letter. This condition was added to the Purchase Agreements at the
Buyer's request. Assuming that all other conditions to the closing have been
met, the Company will be obligated to consummate the Transaction even if the
Buyer elects to fund the purchase a Travel Plaza from sources other than the
Loans. However, in such event, the Buyer would be obligated to pay the Lender a
breakup fee equal to 1% of the proposed Loan amount applicable to the Travel
Plaza plus the Lender's expenses incurred in connection therewith.
APPRAISALS
The Partnership has received appraisals as of December 31, 1996 (the
"1996 Appraisal"), and as of December 31, 1997 (the "1997 Appraisal" and
collectively with the 1996 Appraisal, the "Appraisals") from Cushman &
Wakefield, Inc. ("Cushman & Wakefield") relating to the Travel Plazas. Cushman &
Wakefield is a nationally recognized, independent and fully diversified real
estate firm with extensive valuation experience and has provided appraisals to
the Partnership since its formation.
The Transaction is based upon the agreement in principle between the
General Partner and Flying J in December 1997 that the purchase price for the
Travel Plazas, after taking into account any sale of assets, would be the
appraised value of the Travel Plazas as set forth in the 1996 Appraisal. This
agreement was subject to the condition that the 1997 Appraisal for the
Partnership would not vary by more than 5% from the 1996 Appraisal. The
difference between
6
<PAGE>
the 1996 Appraisal and the 1997 Appraisal was less than 1%. The agreement was
further subject to the condition that the appraised value as of December 31,
1997 of the PIP Travel Plazas (which include the Travel Plazas of PIP II and PIP
III) also did not vary by more than 5% from their December 31, 1996 appraisal
value. The difference between the December 31, 1996 and December 31, 1997
appraisals for the Travel Plazas did not vary by more than 5% with respect to
the Partnership, PIP II and PIP III on a combined basis. Therefore, the value
set forth in the 1996 Appraisal was used to determine the Purchase Price of the
Travel Plazas. See "APPRAISALS." The Purchase Price equals the value set forth
in the 1996 Appraisal minus the sale price of the Boise, Idaho travel plaza.
FAIRNESS
The General Partner reasonably believes that the terms of the
Transaction are fair to the Partnership and the Investors. The General Partner
has based its determination as to the fairness of the Transaction on several
factors, including but not limited to (i) the amount of the cash consideration
to be received for the Travel Plazas, (ii) prices received recently for Units in
the secondary market, including third party tender offers, (iii) the opportunity
for each Investor to vote in favor of or against the Transaction and the
subsequent dissolution of the Partnership, (iv) the Appraisals, and (v) the fact
that the Options can be currently exercised. See "FAIRNESS" and "THE
PARTNERSHIP."
RECOMMENDATION OF THE GENERAL PARTNER
The General Partner has approved the Transaction and recommends that
Investors vote in favor of the Transaction and the subsequent liquidation of the
Partnership as described herein. The General Partner has conflicts of interest
with respect to the financing of the Transaction through the Loans. See "SPECIAL
CONSIDERATIONS--Conflicts of Interest."
ESTIMATED LIQUIDATING DISTRIBUTIONS
The General Partner estimates that the sale of the ten Travel Plazas to
the Buyer for $48,534,216, followed by a distribution and liquidation of the
Partnership, will result in estimated liquidating distributions of approximately
$924 in cash per Unit. At June 30, 1998, each Investor's adjusted capital
contribution was approximately $895 per $1,000 Unit. An Investor's adjusted
capital contribution is generally the Investor's initial capital contribution
reduced by the cash distributions to the Investor of proceeds from the sale of
Partnership properties and reduced by any other cash distributions other than
cash from operations.
The following chart sets forth the cash distributions for the life of
the Partnership that Investors would have received upon the liquidation of the
Partnership had the Partnership liquidated on June 30, 1998:
7
<PAGE>
Cash Distributions Investors admitted on Investors admitted
Per $1,000 Unit January 15, 1987 on April 16, 1987
--------------- ---------------- -----------------
Cash Distributions to Date-From
Operations $1,123 $1,109
Cash Distributions to Date-Return of
Capital 105 105
Liquidating Distribution (estimated) 924 924
------ ------
Total Distributions (estimated) $2,152 $2,138
====== ======
See "UNAUDITED PRO FORMA FINANCIAL INFORMATION" for assumptions used in
calculating the estimating liquidating distributions.
LIQUIDATION PROCEDURES
As soon as practicable after the sale of the Travel Plazas to the
Buyer, the General Partner will take all steps necessary to complete the
liquidation of the Partnership. Upon liquidation of the Partnership, the General
Partner will apply and distribute the assets of the Partnership to Investors and
the General Partner in accordance with the provisions of the Partnership
Agreement. Each Investor will receive a final Schedule K-1 from the Partnership
as soon as practicable after the liquidation of the Partnership. It is estimated
that the transaction costs and expenses associated with the consent solicitation
of the Investors and with the liquidation of the Partnership (including the cost
of the Insurance) will be approximately $360,000.
FEDERAL INCOME TAX CONSEQUENCES
Separate federal income tax consequences result from the sale of the
Travel Plazas and the subsequent liquidation of the Partnership, as described
below.
o Taxable gain -- The sale of the Travel Plazas will constitute
a taxable transaction for federal income tax purposes. A
taxable gain of approximately $379 per Unit is expected to
result from the sale of the Travel Plazas, a majority of which
will be a capital gain for federal income tax purposes. This
gain is principally the result of depreciation deductions, the
benefit of which was received by the Investors during the life
of the Partnership. Each Investor will receive a final
Schedule K-1 from the Partnership reflecting this taxable
gain.
o Capital loss -- Separately, as a result of the subsequent
liquidation of the Partnership, each Investor who acquired his
Units in the initial offerings thereof is expected to
recognize a capital loss of approximately $112 per Unit.
Investors who purchased their Units after the initial
offerings may have a tax basis in their Units different from
that of Investors who acquired their Units in the initial
8
<PAGE>
offerings. As a result, such Investors may recognize a
different amount of loss from liquidation of the Partnership
than Investors who purchased Units in the initial offerings.
If the sale of the Travel Plazas and the subsequent
liquidation of the Partnership happen in the same taxable
year, the loss from liquidation would partially offset the
gain from the sale of the Travel Plazas described above.
See "SPECIAL CONSIDERATIONS--Federal Income Tax Consequences" and "FEDERAL
INCOME TAX CONSIDERATIONS."
SPECIAL CONSIDERATIONS
In evaluating the Transaction, Investors should carefully consider the
information contained under "SPECIAL CONSIDERATIONS."
9
<PAGE>
SPECIAL CONSIDERATIONS
In their evaluation of the Transaction, Investors should carefully
consider the following:
CONFLICTS OF INTEREST
The General Partner will receive a distribution in connection with the
liquidation of the Partnership as permitted under the Partnership Agreement. The
receipt by the General Partner of this distribution results in a conflict of
interest of the General Partner in recommending the Transaction. By not
recommending the Transaction, the General Partner would not receive the
distribution at this time but would continue to receive fees from the continued
operation of the Partnership.
PARTICIPATION BY LENDER
The Buyer expects to obtain the cash required to purchase the Travel
Plazas (excluding the Franchised Travel Plazas) from FFCA Acquisition
Corporation, a wholly owned subsidiary of FFCA, or from an unaffiliated third
party lender to whom the Lender has assigned its rights under the Commitment
Letter. See "THE TRANSACTION--Source of Funds." Mr. Fleischer is both the
principal owner of the General Partner and the Chairman, President and Chief
Executive Officer of FFCA. In addition, several officers and directors of
Perimeter Center Management Company, the corporate general partner of the
General Partner, are also directors and officers of FFCA. Because of these
relationships, the terms and conditions of the Purchase Agreements, Commitment
Letter and Loans were reviewed and approved by the disinterested directors of
FFCA at a special meeting of the Board of Directors of FFCA held on June 29,
1998.
FEDERAL INCOME TAX CONSEQUENCES
Separate federal income tax consequences result from the sale of the
Travel Plazas and the subsequent liquidation of the Partnership, as described
below.
o Taxable gain -- The sale of the Travel Plazas will constitute
a taxable transaction for federal income tax purposes. A
taxable gain of approximately $379 per Unit is expected to
result from the sale of the Travel Plazas, a majority of which
will be a capital gain for federal income tax purposes. This
gain is principally the result of depreciation deductions, the
benefit of which was received by the Investors during the life
of the Partnership. Each Investor will receive a final
Schedule K-1 from the Partnership reflecting this taxable
gain.
o Capital loss -- Separately, as a result of the subsequent
liquidation of the Partnership, each Investor who acquired his
Units in the initial offerings thereof is expected to
recognize a capital loss of approximately $112 per Unit.
Investors who purchased their Units after the initial
offerings may have a tax basis in their Units different from
that of Investors who acquired their Units in the initial
offerings. As a result, such Investors may recognize a
different amount of loss from liquidation of the Partnership
than Investors who purchased Units in the initial offerings.
If the sale of the Travel Plazas and the subsequent
liquidation of
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the Partnership happen in the same taxable year, the loss from
liquidation would partially offset the gain from the sale of
the Travel Plazas described above.
As a general matter, each Investor will aggregate his share of certain
gain derived from the Transaction with certain gain or loss from other sources.
Any net gain will be taxed at the rates applicable to capital gains, which
currently is 20%. However, a portion of the gain to be recognized as a result of
the sale of the real property equal to the Partnership's depreciation deductions
with respect thereto will be subject to tax at a rate of 25%. The General
Partner expects that gain to be recognized as a result of the sale of the
personal property will be characterized as ordinary income. Each Investor should
consult his or her own tax advisor as to the specific consequences of this
transaction. See "FEDERAL INCOME TAX CONSIDERATIONS."
THE PARTNERSHIP
The Partnership was organized on June 23, 1986, under the Delaware
Revised Uniform Limited Partnership Act to invest as a co-general partner of the
Company. The Partnership invested in the Travel Plazas through the Company to
avoid burdensome state filing requirements existing when the Partnership was
formed. The other co-general partner of the Company is Perimeter Center
Management Company, a Delaware corporation ("PCMC"). The Partnership is entitled
to 99.9% of all of the profits, losses and disbursable cash of the Company. The
Company was organized to acquire new and existing travel plazas, including real
property, improvements, equipment and other personal property. The Company's
Travel Plazas are located in Montana, Washington, Texas, Iowa, Idaho, Arizona,
California, Missouri and Wyoming. The General Partner of the Partnership is FFCA
Management Company Limited Partnership, a Delaware limited partnership, and its
general partners are PCMC and Mr. Morton Fleischer.
The Initial Limited Partner, which is a wholly owned subsidiary of
PCMC, was incorporated on June 23, 1986, to serve as the assignor and initial
limited partner of the Partnership and the owner of record of the Limited
Partnership Interests, the rights and benefits of which are assigned by the
Initial Limited Partner to Investors in the Partnership. The Initial Limited
Partner conducts no other business activity.
On October 10, 1986, the Partnership and the Initial Limited Partner
commenced a public offering of $75,000,000 in Units in the Partnership pursuant
to a Registration Statement on Form S-11 under the Securities Act of 1933, as
amended (the "Offering"). The Partnership and the Initial Limited Partner sold a
total of 51,687 Units to investors at $1,000 per Unit for a total of
$51,687,000. Investors acquired the following number of Units from the Initial
Limited Partner on each of the following dates: 19,865 Units on January 15,
1987; and 31,822 Units on April 16, 1987. Subsequent to that date, no Investor
has made any additional capital contribution. The Investors share in the
benefits of ownership of the Partnership's assets, including its interest in the
Company's real and personal property investments, according to the number of
Units held, in substantially the same manner as limited partners of a
partnership.
The net proceeds of the Offering totaled $45,613,778 and were fully
invested by the Partnership, through its investment in the Company, as of
September 1988, in eleven travel
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plazas (the ten Travel Plazas and the Boise, Idaho travel plaza sold to CFJ
Properties). The Travel Plaza facilities offer a full-service operation,
generally including fuel facilities, a restaurant, convenience store and other
amenities for use by the trucking industry and traveling public in general.
Seven of the Travel Plazas are leased to CFJ Properties, one is leased to Flying
J and the remaining two are leased to franchisees of FJFI. Neither the
Partnership nor the Company are affiliated with CFJ Properties, Flying J or
FJFI.
The Partnership's principal objectives through its investment in the
Company are to (i) preserve, protect and enhance Partnership capital, (ii)
provide partially tax-deferred cash distributions to Investors, (iii) provide
the potential for increased income and protection against inflation through
participation in the gross revenues of the Travel Plazas, and (iv) obtain
long-term appreciation in the value of its properties through real estate
ownership.
Real estate owned by the Company is generally leased for an original
term of 20 years. Equipment is generally leased for a term of eight years.
Lessees generally must pay the Company annual rental payments (in monthly
installments) equal to 10% of the Company's total investment in the properties.
As additional rent under the terms of each lease, the Company is entitled to
receive a portion of the operating revenues of the lessees equal to (i) 4% of
annual gross receipts derived from the Travel Plaza, excluding fuel sales, (ii)
3/10 of $.01 per gallon of fuel sold, and (iii) 4% of all amounts received by
the lessee for any lease year pursuant to any sublease by the lessee of any part
of its leased premises.
On February 1, 1991, Flying J, through its subsidiary Big West, entered
into a joint venture with two subsidiaries of Conoco Inc., Douglas Oil and Kayo
Oil, to form CFJ Properties. Flying J (and subsidiaries) is a fully integrated
oil and gas company that is engaged in the production, refining, transportation,
wholesaling and retail marketing of petroleum products and other services
through its travel plazas and gasoline stations. Flying J operates all of CFJ
Properties' travel plazas and related facilities, which included 78 interstate
travel plaza properties as of January 31, 1998. The Company owns seven of these
properties. With the exception of the Travel Plaza in Butte, Montana, Flying J
assigned its leasehold interests in the Travel Plazas to CFJ Properties and was
released by the Company with respect to its obligations under those leases.
For the majority of the leases, letters of credit issued for the
Company's benefit were substituted for rent deposits previously held by the
Company. As part of the Transaction, the Company will relinquish its rights to
those letters of credit. To the extent the Company required a lessee to furnish
a rental deposit, the rental deposits will be assigned to the Buyer.
The lessees of the Travel Plazas have options (the "Options") to
purchase the land, building and equipment comprising the Travel Plazas. Pursuant
to the Options, the real estate may be purchased commencing in the tenth year of
the lease, for a five or ten year period. The real estate may be purchased at a
price equal to the greater of (i) the appraised fair market value of the land,
building and equipment, as determined by an independent appraiser, or (ii) the
approximate cost of the land, building and equipment, plus a pro rata portion of
organizational and offering expenses of the Partnership and less any amounts
paid previously for equipment. The equipment may be purchased at the end of the
eight-year lease term at a price equal to its
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appraised fair market value. All equipment at the Travel Plazas subject to such
Options has been purchased.
The following chart shows when the lessees of the Travel Plazas will be
eligible to exercise their Options regarding the land and improvements:
Purchase Option Exercise
Travel Plaza Location Commencement Date
--------------------- -----------------
Amarillo, TX June 1998
Butte, MT July 1997
Cheyenne, WY August 1998
Clive, IA July 1998
Ellensburg, WA September 1997
Eloy, AZ August 1998
Evanston, WY December 1997
Post Falls, ID January 1997
Thousand Palms, CA July 1998
Truxton, MO July 1998
The Partnership is dependent upon CFJ Properties, its principal lessee,
since an adverse change in its financial condition could materially affect its
ability to make lease payments. During 1997, CFJ Properties and Flying J Inc.
together contributed approximately 88% of the Company's total rental and
percentage rent payments for the year.
For the fiscal year ended January 31, 1998, CFJ Properties reported net
income of $16 million on revenues of $1.3 billion. Revenues rose 7% from $1.2
billion in the prior year. The higher revenues resulted from the opening of six
new units and increases in fuel prices. Net income increased from $1.8 million
in the prior year due to higher gross profit margins.
During the fiscal year ended January 31, 1998, CFJ Properties reported
$41.7 million in net cash provided by operating activities. This cash, along
with the cash provided by financing activities, was used to make capital
expenditures. As of January 31, 1998, CFJ Properties reported cash balances of
approximately $3.8 million, with liquidity supported by net cash provided by
operating activities and a $150 million revolving line of credit with a bank. As
of January 31, 1998, CFJ Properties reported partners' capital of $155.5 million
and total assets of $463.7 million.
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CFJ Properties leases the PIP Travel Plazas and equipment under
non-cancelable operating leases, which generally expire at various dates over
the next 9 to 15 years. Payments under all CFJ Properties leases, including the
PIP Travel Plaza leases, were $17.5 million in fiscal 1998 and $17.3 million in
fiscal 1997, including percentage rent payments. Future minimum annual rent
obligations under non-cancelable leases, as projected through 2003, remain
comparable to 1997 expense amounts.
The nine Travel Plazas operated by CFJ Properties and Flying J, and
leased from the Partnership, generated a combined fuel and non-fuel gross profit
(including other income) of approximately $27.5 million during the fiscal year
ended January 31, 1998 as compared to $24.4 million in fiscal year 1997. Total
unit-level income for these nine Travel Plazas (before depreciation and
allocated corporate overhead) totaled approximately $2.8 million in 1998 with
five of the nine Travel Plazas reporting positive unit-level income. The
remaining four Travel Plazas reported net losses primarily due to higher
expenses. The combined result of the Travel Plaza unit-level income before
depreciation and allocated corporate overhead was up from $700,000 in the prior
year due largely to an increase in fuel and non-fuel sales volumes and an
increase in fuel prices. Volumes and margins were reduced in 1997 due to CFJ
Properties' curtailment of its relationship with a third party billing company
in June 1996. For CFJ Properties' fiscal year ended January 31, 1998, the
average unit-level base and percentage rent payments approximated 14.4% of the
original cost of these properties.
At June 30, 1998, those Travel Plazas that each represented over 10% of
the Partnership's total assets were located in Clive, Iowa, Amarillo, Texas,
Cheyenne, Wyoming, Eloy, Arizona and Truxton, Missouri.
Through ownership of the Travel Plazas, the Partnership and the Company
are subject to the risks associated with the underground storage of petroleum
products such as gasoline. In this regard, the Company's lessees are subject to
various federal, state and local regulations and environmental laws. These laws
and regulations affect the storing, dispensing and discharge of petroleum and
other wastes and affect the lessees both in the securing of permits for fueling
operations and in the ongoing conduct of such operations.
Federal, state and local regulatory agencies have adopted regulations
governing underground storage tanks ("USTs") that require the Company's lessees
to make certain expenditures for compliance. In particular, at the federal
level, the Resource Conservation and Recovery Act requires the Environmental
Protection Agency ("EPA") to establish a comprehensive regulatory program for
the detection, prevention and cleanup of leaking USTs. Regulations enacted by
the EPA in 1988 established requirements for (a) installing UST systems; (b)
upgrading UST systems; (c) taking corrective action in response to releases; (d)
closing UST systems; (e) keeping appropriate records; and (f) maintaining
evidence of financial responsibility for taking corrective action and
compensating third parties for bodily injury and property damage resulting from
releases. These regulations permit states to develop, administer and enforce
their own regulatory programs, incorporating requirements which are at least as
stringent as the federal standards. By the end of 1998, all USTs must be
corrosion protected, overfill/spill protected and have leak detection. These
environmental laws impose strict liability for owners and operators of faulty
and leaking storage tanks resulting in damage to the environment or third
parties.
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The Company has taken steps to (a) ensure that the lessees comply with
applicable rules and regulations; (b) mitigate any potential liabilities,
including the establishment of storage tank monitoring procedures; and (c)
require that lessees indemnify the Company for all such liabilities and obtain
environmental liability insurance, if reasonably available. The Company requires
each lessee to obtain an annual environmental audit, performed by an
environmental consulting and engineering firm, which includes the following
procedures, among others: month-end cumulative fuel inventory variance analysis;
tank tightness tests; automatic tank gauging and leak detection system operation
and calibration tests; UST excavation zone groundwater and/or soil vapor
monitoring well analysis; piping system tightness tests; piping excavation zone
groundwater and/or soil vapor monitoring well analysis; pipe leak detector
inspection and calibration tests; corrosion protection system tests; on-site
sanitary sewer treatment plant effluent analysis; and oil/water separator
inspections. The consulting and engineering firm hired by the Company to conduct
such audits also reviews on-site environmental correspondence; visually inspects
the UST system, tank and piping excavation zone monitoring wells, areas adjacent
to all petroleum above-ground tanks, the stormwater and wastewater control
systems, and the Travel Plaza facility; and discusses employee training
procedures, recent significant environmental events (if any), repair and
maintenance activities, and regulatory compliance with Travel Plaza personnel.
The most recent annual environmental audits of the Travel Plazas
indicate that some remediation is necessary at one or more of the Travel Plazas.
Under each Travel Plaza lease, the lessee is responsible for all costs
associated with correcting problems identified by such audits and is obligated
to indemnify the Partnership and the Company for all liabilities related to the
operation of the Travel Plazas, including those related to remediation. The
lessees have reviewed such environmental audits and have commenced appropriate
corrective actions. The General Partner does not believe that the corrective
actions recommended in the audits will affect the lessees' ability to make their
scheduled lease payments to the Company or have a material adverse effect upon
the Company or the Partnership.
The Company believes that its lessees are in compliance with all
applicable regulatory requirements, except as discussed above and that its
lessees have all governmental licenses and permits required for their business
operations. Management knows of no pending or threatened proceedings or
investigations under federal or state environmental laws; however, management
cannot predict the impact on the Company's lessees of new governmental
regulations and requirements. Although the Company has taken necessary steps, as
discussed above, to ensure lessee compliance with environmental regulations,
there can be no assurance that significant cleanup or compliance costs may not
be incurred which may affect the lessees' ability to make their scheduled lease
payments to the Company.
As of June 30, 1998, the Partnership, through its investment in the
Company, has invested in real estate located in nine states in the western and
central portions of the United States, and no real estate investments are
located outside of the United States. A presentation of revenues or assets by
geographic region is not applicable and would not be material to an
understanding of the Partnership's business taken as a whole.
The Partnership does not believe that any aspect of its business is
significantly seasonal in nature and no portion of the Partnership's business is
subject to renegotiation of profits or
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termination of contracts or subcontracts at the election of the United States
Government. The Partnership does not manufacture any products and therefore does
not require any raw materials in order to conduct its business.
The Partnership is managed by the General Partner and therefore has no
employees of its own. FFCA Investor Services Corporation 86-B has no employees
because it does not conduct any business operations.
The Partnership and its properties are not parties to, or subject to,
any material pending legal proceedings.
THE TRANSACTION
Investors will be asked on the Consent Date to approve the terms of the
offer by the Buyer, which includes certain special purpose companies affiliated
with Flying J or CFJ Properties, to purchase the Travel Plazas pursuant to the
terms of the Purchase Agreements, for consideration consisting of cash in the
amount of $48,534,216. The purchase will be followed by a liquidation of the
Partnership and final distribution of assets. The Buyer is not affiliated with
the General Partner or any of its partners, officers or directors or the
Partnership. The General Partner currently has no reason to believe that the
Buyer will fail to purchase the Travel Plazas.
PURCHASE AGREEMENTS
The following is a summary of certain provisions of the Purchase
Agreements and is qualified in its entirety by the specific provisions set forth
in the Purchase Agreements. The terms and conditions of the Purchase Agreements
were determined pursuant to arm's-length negotiations between the General
Partner and Flying J. The General Partner may change the terms of the Purchase
Agreements in its discretion, except for the cash sales price described below.
The Purchase Agreements provide that the Company will sell the Travel
Plazas to the Buyer, subject to certain conditions specified therein, in
exchange for cash in an aggregate amount of $48,534,216. See "APPRAISALS." The
Purchase Price represents the appraised value set forth in the 1996 Appraisal
minus the sale price of the Boise, Idaho travel plaza. The sale of all of the
Travel Plazas is intended to be an integrated and simultaneous transaction. As
of the date of this Consent Solicitation Statement, the Buyer has completed its
due diligence review of the Travel Plazas and approved the conditions of the
Purchase Agreements, including the condition of the properties, environmental
matters and title.
The Buyer is obligated to pay for all costs and expenses of the
Transaction, including, without limitation, the attorneys' fees of the Lender
and the Partnership, title insurance expenses and premiums, escrow fees, survey
expenses, environmental audit expenses and/or environmental insurance premiums,
transfer, recording and filing fees and expenses, and mortgage taxes, if any.
Notwithstanding the above, the Buyer shall not be responsible for any expenses
incurred in connection with the consent solicitation of the Investors or
liquidation of the Partnership. The Purchase Agreements provide that the Company
will indemnify the Buyer
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for all liabilities incurred by it in connection with the consent solicitation
of the Investors, except to the extent of the gross negligence or intentional
misconduct of the Buyer or its affiliates.
The Purchase Agreements provide that the Buyer is purchasing the Travel
Plazas from the Company with limited representations and warranties from the
Partnership and otherwise on an "as is," "where is" basis and with all faults.
The representations and warranties of the Company under the Purchase Agreements
will not survive the closing of the Transaction. The Purchase Agreements also
provide that the Buyer is releasing the Company from all claims or damages
relating to the condition of the Travel Plazas, including those relating to
USTs. The Purchase Agreements do not release the lessees of the Travel Plazas
from any of their obligations under the leases arising prior to the closing of
the Transaction, including indemnification obligations relating to environmental
matters.
SOURCE OF FUNDS
The Purchase Price for the Travel Plazas is $48,534,216. The Buyer is
obligated to pay for all costs and expenses of the Transaction, including,
without limitation, the attorneys' fees of the Company and the Partnership,
title insurance expenses and premiums, escrow fees, survey expenses,
environmental audit expenses and/or environmental insurance premiums, transfer,
recording and filing fees and expenses, and mortgage taxes, if any, except that
the Buyer shall not be responsible for any expenses incurred in connection with
the consent solicitation of the Investors or liquidation of the Partnership. The
General Partner estimates that the costs and expenses associated with the
consent solicitation of the Investors and with the liquidation of the
Partnership will be approximately $360,000.
The Buyer will pay cash for the purchase of the Travel Plazas.
Financing will be provided to the Buyer with loans (the "Loans") from FFCA
Acquisition Corporation (the "Lender"), a wholly owned subsidiary of FFCA, with
the exception of the Ellensburg, Washington and Evanston, Wyoming Travel Plazas
(collectively, the "Franchised Travel Plazas"). The Franchised Travel Plazas
will be purchased by the Buyer with its own funds or with funds from sources
other than the Loans. The Buyer has obtained the Commitment Letter from the
Lender with respect to the Loans. The Lender's rights and obligations under the
Commitment Letter may be assigned to a third-party lender not affiliated with
FFCA, the Buyer or CFJ Properties.
The obligation of the Buyer (but not the Company) to close the
Transaction is conditioned upon the Lender making the Loans as provided in the
Commitment Letter. This condition was added to the Purchase Agreements at the
Buyer's request. Assuming that all other conditions to the closing have been
met, the Company will be obligated to consummate the Transaction even if the
Buyer elects to fund the purchase of a Travel Plaza from sources other than the
Loans. However, in such event, the Buyer would be obligated to pay the Lender a
breakup fee equal to 1% of the proposed Loan amount applicable to the Travel
Plaza plus the Lender's expenses incurred in connection therewith. See
"--Conditions to the Transaction."
The Lender's obligation under the Commitment Letter to make the Loans
is conditioned upon the satisfaction or waiver of certain conditions on or
before November 30, 1998.
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The terms of the Commitment Letter were determined pursuant to
arm's-length negotiations between the Lender and Flying J. FFCA (the parent of
the Lender) is a New York Stock Exchange listed company whose primary business
purpose is to provide real estate financing to the chain restaurant industry, as
well as to the convenience store and automotive service and parts industries.
CONDITIONS TO THE TRANSACTION
Consummation of the Transaction is conditioned upon each of the
following occurring on or before November 30, 1998:
(i) approval of the Transaction and the subsequent dissolution of the
Partnership by an affirmative vote of Investors holding a majority of Units;
(ii) unless waived by the Buyer, approval of the Related PIP
Transactions and the subsequent dissolutions of PIP II and PIP III by an
affirmative vote of the PIP II and PIP III investors;
(iii) there having been no statute, rule, order or regulation enacted
or issued by any governmental authority or by a court, which prohibits the
consummation of the Transaction; and
(iv) unless waived, all of the parties' respective representations and
warranties are true as of the closing date of the sale of the Travel Plazas (the
"Closing Date") and all covenants have been performed on or before the Closing
Date.
If the Transaction is approved by Investors in the Partnership but not
by investors in either of the Related PIP Transactions, the Buyer has the right
not to consummate the Transaction. However, the Buyer, at its discretion, may
obligate the Company to consummate the Transaction if the Investors approve the
Transaction and other conditions to closing are met.
The obligation of the Buyer (but not the Company) to close the
Transaction is conditioned upon the Lender making the Loans as provided in the
Commitment Letter. This condition was added to the Purchase Agreements at the
Buyer's request. Assuming that all other conditions to the closing have been
met, the Company will be obligated to consummate the Transaction even if the
Buyer elects to fund the purchase of a Travel Plaza from sources other than the
Loans. However, in such event, the Buyer would be obligated to pay the Lender a
breakup fee equal to 1% of the proposed Loan amount applicable to the Travel
Plaza plus the Lender's expenses incurred in connection therewith.
The Buyer may terminate a Purchase Agreement if: (i) the Company
breaches a representation, warranty or covenant set forth in the Purchase
Agreement; (ii) the Investors do not approve the sale of the Travel Plazas to
the Buyer under the terms set forth in this Consent Solicitation Statement and
the Purchase Agreements; (iii) the PIP II and PIP III investors fail to approve
the Related PIP Transactions; (iv) the Lender fails to provide the Loans on the
terms and conditions contained in the Commitment Letter; or (v) all of the
conditions to the Company's obligation to sell the Travel Plazas have been
satisfied and the Company fails to close the Transaction.
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The Company may terminate a Purchase Agreement if: (i) the Investors do
not approve the sale of the Travel Plazas to the Buyer under the terms set forth
in this Consent Solicitation Statement and the Purchase Agreements; (ii) the
Buyer breaches a representation, warranty or covenant under the Purchase
Agreement; or (iii) all of the conditions to the Buyer's obligation to close
have been satisfied and the Buyer fails to close the purchase of the Travel
Plazas. In the event that the Company terminates a Purchase Agreement pursuant
to (i) above, neither party shall have any further obligation to the other under
the Purchase Agreement, with the exception of certain indemnity obligations of
the Buyer.
CLOSING DATE
Consummation of the Transaction shall occur on a date when all of the
conditions to closing have been satisfied or waived. The Closing Date is
anticipated to be on or before November 30, 1998.
BENEFITS OF SALE OF TRAVEL PLAZAS AND LIQUIDATION OF PARTNERSHIP;
REASONS FOR THE TRANSACTION
At the time the Partnership commenced the Offering in 1986, the
Partnership intended to hold its interests in the Travel Plazas for a period of
at least 10 years, at which point the lessees could exercise their Options to
purchase the Travel Plazas and the Partnership would be liquidated. All of the
Options are currently exercisable. Therefore, the General Partner believes that
the sale of the Travel Plazas under the terms and conditions set forth in the
Purchase Agreements is advisable at this time.
If the Options are exercised individually, there can be no assurance
that the aggregate price paid for all of the Travel Plazas would equal or exceed
the Purchase Price. Furthermore, if the Company does not sell the Travel Plazas
collectively and the lessees exercise their Options individually, this may
result in declining assets and revenue for the Partnership. Returns to Investors
would likely decrease over time as declining revenues from fewer Travel Plazas
are applied against a relatively fixed Partnership expense structure, including
fees payable to the General Partner. In 1997, the General Partner received
aggregate fees from the Partnership totaling $549,359. The fees payable to the
General Partner in the future may be more or less than those paid in 1997,
depending on the performance of the Travel Plazas. By selling the Travel Plazas
in the Transaction, payment of the ongoing disbursable cash fees to the General
Partner is avoided. The primary advantage of this strategy is that it allows for
final liquidation of the Investors' investment and a substantial distribution of
cash as described under "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
In liquidation, the Partnership will pay off existing liabilities and
debts and distribute the net liquidation proceeds to the Investors and the
General Partner in accordance with the Partnership Agreement. Existing
liabilities and debts of the Partnership are not anticipated to be substantial.
It is estimated that the transaction costs and expenses associated with the
consent solicitation of the Investors will approximate $110,500. The costs and
expenses associated with the liquidation of the Partnership, including Insurance
expenses, will be approximately $249,500. Together, it is estimated that the
costs of the Investor consent solicitation and the liquidation of the
Partnership will be approximately $360,000.
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An additional benefit of the sale of the Travel Plazas is that the
anticipated estimated liquidating distribution will be substantially higher than
recent secondary sale transactions for the Units. See "MARKET FOR UNITS AND
RELATED SECURITY HOLDER MATTERS--Secondary Market Information."
The sale of the Travel Plazas to the Buyer for $48,534,216, followed by
a distribution and liquidation of the Partnership, would result in estimated
liquidating distributions of approximately $924 in cash per Unit. At June 30,
1998, each Investor's adjusted capital contribution was approximately $895 per
$1,000 Unit. If the Partnership had been liquidated as of June 30, 1998, the
General Partner would have been entitled to receive $1,519,932 in accordance
with the Partnership Agreement. See "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
DETRIMENTS OF SALE OF THE TRAVEL PLAZAS AND LIQUIDATION OF PARTNERSHIP
The sale of the Travel Plazas pursuant to the Transaction would deprive
the Investors of any benefits from possible future appreciation and operation of
the Travel Plazas. However, representatives of Flying J have advised the General
Partner that the lessees intend to exercise the Options as soon as practicable.
The sale of all of the Travel Plazas will result in the liquidation of
the Partnership. Upon liquidation, the Investors will cease to receive periodic
tax-deferred cash distributions from the Partnership. There can be no assurance
that Investors will be able to reinvest their liquidation proceeds in an
investment that provides a rate of return similar to the periodic distributions
that Investors received from the Partnership. Furthermore, as a result of the
sale of the Travel Plazas, Investors will recognize a taxable gain. See "FEDERAL
INCOME TAX CONSIDERATIONS."
PARTNERSHIP AGREEMENT PROVISIONS REGARDING DISSOLUTION OF PARTNERSHIP
The following discussion of the provisions of the Partnership Agreement
concerning the dissolution and liquidation of the Partnership is qualified in
its entirety by the specific provisions of the Partnership Agreement.
Pursuant to Section 8.1 of the Partnership Agreement, the Partnership
will dissolve upon the occurrence of certain events, including the sale or other
disposition at one time of all or substantially all of the Partnership assets.
After the sale of the Travel Plazas as proposed in this Consent Solicitation
Statement, the General Partner will dissolve the Partnership. However, the
Partnership will not terminate until the Partnership Agreement has been
cancelled and the assets of the Partnership have been distributed.
Section 8.2 of the Partnership Agreement provides that, upon
dissolution, the General Partner may cause the Partnership's then remaining
assets to be sold in such manner as it, in its sole discretion, determines in an
effort to obtain the best prices for the assets. Following the sale of the
Travel Plazas, the General Partner does not expect that the Partnership will
have any substantial assets other than cash. Pending completion of the sale of
assets and the cancellation of the Partnership Agreement, the General Partner
will have the right to continue to operate the business of the Partnership and
otherwise deal with Partnership assets. The General Partner
20
<PAGE>
intends to liquidate the Partnership and distribute the Partnership's assets as
soon as practicable following the sale of the Travel Plazas.
Section 8.2 of the Partnership Agreement also provides that, upon the
dissolution of the Partnership, its liabilities will be paid first to third
party creditors and then to the General Partner for any loans or advances made
by it to the Partnership. Any amounts remaining will be distributed to the
Partners (and with respect to the Initial Limited Partner, for the benefit of
the Investors to the extent of their Units) in the amount of their respective
Capital Accounts, as adjusted by the provisions of the Partnership Agreement
relating to the allocation of profits and losses. As of June 30, 1998, the
General Partner's Capital Account had a deficit balance of approximately
$120,000, and the General Partner will be obligated to contribute cash to the
Partnership in the amount of the negative balance to the extent that such
deficit still exists after allocation of the gain on the sale of the Travel
Plazas. Any such cash will be distributed in the foregoing order of priority.
INSURANCE
In order to facilitate a prompt and final liquidating distribution to
Investors, the Partnership purchased the Insurance to cover certain liabilities
relating to potential securities claims and claims based on the wrongful acts
(as determined under the policy) of the partnerships and their general partners.
No claims are pending against the Partnership and the General Partner is not
aware of any threatened claims against the Partnership. The policy provides a
maximum aggregate coverage of $25,500,000 with a maximum coverage of $8,500,000
for each of the Partnership, PIP II and PIP III. There is a $100,000 deductible
per claim, per partnership. The $319,524 cost of the premium has been equally
allocated among the Partnership, PIP II and PIP III. Of the Partnership's
allocated premium, 99% has been allocated to the limited partners and paid by
the Partnership and 1% has been allocated to and paid by the General Partner.
The Insurance policy will be issued at or prior to the date of this Consent
Solicitation Statement and coverage thereunder for the Partnership will
terminate six years after the Partnership has been terminated under Delaware
law.
The purpose of the Insurance is to protect the Partnership against
claims made after its liquidation and dissolution. The General Partner selected
the Insurance rather than electing to continue the existence of the Partnership
and delaying the final liquidating distribution. Depending on potential claims,
this delay and the amounts retained could have been significant. Furthermore,
because the Purchase Agreements require the Company to indemnify the Buyer for
liabilities incurred by the Buyer in connection with the consent solicitation of
the Investors, the Company and the Buyer are additional insureds under the
Insurance.
CONSENT REQUIRED
Section 5.4(b)(i) of the Partnership Agreement requires the consent of
the Investors holding more than 50% of Units to dispose of all or substantially
all of the assets of the Partnership. The Transaction and the subsequent
liquidation of the Partnership therefore requires the affirmative vote of
Investors holding a majority of Units pursuant to the consent procedures
described herein. See "CONSENT PROCEDURES." Investors voting against the
Transaction do not have dissenters' rights or any rights of appraisal.
21
<PAGE>
RELATED SALE OF PIP II AND PIP III TRAVEL PLAZAS TO THE BUYER
The investors of PIP II and PIP III are being asked to approve the sale
of the assets of their respective partnerships to the Buyer in the Related PIP
Transactions at the time of the sale of the Travel Plazas to the Buyer pursuant
to the Purchase Agreements. Consent solicitation statements relating to the sale
of the PIP II and PIP III assets to the Buyer have been filed with the SEC and
mailed to the PIP II and PIP III investors simultaneously with the mailing of
this Consent Solicitation Statement and are available to Investors upon request.
Requests should be directed to Investor Services, FFCA Management Company
Limited Partnership, 17207 North Perimeter Drive, Scottsdale, Arizona 85255,
telephone number (602) 585-4500.
If the Transaction is approved by Investors in the Partnership but not
by investors in either of the Related PIP Transactions, the Buyer has the right
not to consummate the Transaction. However, the Buyer, at its discretion, may
obligate the Company to consummate the Transaction if the Investors approve the
Transaction and other conditions to closing are met. See "--Conditions to the
Transaction" above.
ACCOUNTING TREATMENT
The proposed sale of the Travel Plazas will be treated as a sale of the
real estate and related assets under the full accrual method. Under this method
of accounting, profit is recognized in full when the sale is consummated. See
"UNAUDITED PRO FORMA FINANCIAL INFORMATION."
REGULATORY REQUIREMENTS
Except as described below, no federal or state regulatory requirements,
other than applicable requirements related to federal and state securities laws,
if any, must be complied with in order to complete the sale of the Travel
Plazas, and no regulatory approvals must be obtained in order to complete the
sale. In addition, Investors will not have dissenter's right in the event the
Transaction is approved. Under the provisions of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and the rules and regulations thereunder, certain
acquisitions, such as the Transaction and the Related PIP Transactions, may not
be consummated unless required information has been furnished to the Antitrust
Division of the Department of Justice (the "Antitrust Division") and the Federal
Trade Commission (the "FTC") and the specified waiting requirements have been
satisfied. On September 9, 1998, the Partnership and the Buyer each filed a
Notification and Report Form for Certain Mergers and Acquisitions with the
Antitrust Division and the FTC and requested early termination of the waiting
period. Notwithstanding the termination of the waiting period, at any time
before or after the consummation of the Transaction and the Related PIP
Transactions, the Antitrust Division or the FTC could take actions under federal
antitrust laws as they deem necessary in the public interest, including seeking
to enjoin consummation of the Transaction, or seeking divestiture of a portion
of the Travel Plazas. In appropriate circumstances, private parties also may
bring legal actions under federal antitrust laws.
22
<PAGE>
RECOMMENDATION OF THE GENERAL PARTNER
THE GENERAL PARTNER HAS APPROVED THE TRANSACTION AND RECOMMENDS THAT
INVESTORS CONSENT TO THE PROPOSAL TO SELL THE TRAVEL PLAZAS AND DISSOLVE THE
PARTNERSHIP BY MARKING THE "FOR" BOX ON THE ENCLOSED CONSENT CARD. The General
Partner has conflicts of interest with respect to the proposed financing of the
Transaction through the Loans. See "SPECIAL CONSIDERATIONS--Conflicts of
Interest."
FAIRNESS
Based upon its analysis of the Transaction, the General Partner
reasonably believes that the terms of the Transaction, when considered as a
whole, are fair to the Partnership and the Investors. The General Partner has
based its determination as to the fairness of the Transaction on several
factors, including but not limited to (i) the amount of the cash consideration
to be received for the Travel Plazas, (ii) prices received recently for Units in
the secondary market, including third-party tender offers, (iii) the opportunity
for each Investor to vote in favor of or against the Transaction and the
subsequent dissolution of the Partnership, (iv) the Appraisals, and (v) the fact
that the Options can be currently exercised. See "THE TRANSACTION--Benefits of
Sale of Travel Plazas and Liquidation of Partnership; Reasons for the
Transaction" and "APPRAISALS."
In particular, the General Partner considered the fact that the sale of
the Travel Plazas to the Buyer for $48,534,216, followed by a distribution and
liquidation of the Partnership, would result in estimated liquidating
distributions of approximately $924 in cash per Unit. At June 30, 1998, each
Investor's adjusted capital contribution was $895 per $1,000 unit. See
"UNAUDITED PRO FORMA FINANCIAL INFORMATION." The anticipated estimated
liquidating distribution also would be substantially higher than recent
secondary sale transactions for the Units. See "MARKET FOR UNITS AND RELATED
SECURITY HOLDER MATTERS--Secondary Market Information."
The terms and conditions of the Purchase Agreements were determined
pursuant to arm's-length negotiations between the General Partner and Flying J.
See "SPECIAL CONSIDERATIONS--Conflicts of Interest."
APPRAISALS
The Partnership has received the 1996 Appraisal and the 1997 Appraisal
from Cushman & Wakefield, copies of which are available upon request. The
following summary of the Appraisals is qualified in its entirety by the specific
provisions set forth therein. The General Partner has not made any contacts,
other than as described in this Consent Solicitation Statement, with any outside
party regarding the preparation by the outside party of an opinion as to the
fairness of the Transaction, an appraisal of the Partnership or its assets, or
any other report with respect to the Transaction.
Cushman & Wakefield is a nationally recognized, independent and fully
diversified real estate firm with extensive valuation experience. The General
Partner elected to retain Cushman & Wakefield to render the Appraisals because
of its valuation experience and because
23
<PAGE>
it has rendered appraisals using similar methodologies to affiliates of the
General Partner since 1981 and to the Company regarding the appraised Travel
Plazas since the inception of the Partnership. The General Partner and its
affiliates have no contract, agreement or understanding with Cushman & Wakefield
regarding any future engagement.
The valuation in the Appraisals addressed the market value of the
leased fee interest in the appraised Travel Plazas as a going concern. Cushman &
Wakefield determined that the highest and best use of the appraised Travel
Plazas is their continued use as travel plazas. The 1996 Appraisal concluded
that the market value of the leased fee interest in the appraised Travel Plazas
as of December 31, 1996, was $51,920,000. The 1997 Appraisal concluded that the
market value of the leased fee interest in the appraised Travel Plazas as of
December 31, 1997, was $52,138,000. The Appraisals did not render an opinion as
to the value of other assets or liabilities of the Partnership.
The Transaction is based upon the agreement in principle between the
General Partner and Flying J reached in December 1997 that the purchase price
for the Travel Plazas, after taking into account any sale of assets, would be
the appraised value of the Travel Plazas as set forth in the 1996 Appraisal.
This agreement was subject to the condition that the 1997 Appraisal for the
Partnership would not vary by more than 5% from the 1996 Appraisal. The
difference between the 1996 Appraisal and 1997 Appraisal was less than 1%. The
agreement was further subject to the condition that the appraised value as of
December 31, 1997 of the PIP Travel Plazas (which include the Travel Plazas of
PIP II and PIP III) also did not vary by more than 5% from their December 31,
1996 appraisal value. The difference between December 31, 1996 and December 31,
1997 appraisals for the Travel Plazas did not vary by more than 5% with respect
to the Partnership, PIP II and PIP III on a combined basis.
THE TRAVEL PLAZAS
The Partnership, through its investment in the Company, acquired the
Travel Plazas during 1987 and 1988 without borrowings by the Company or the
Partnership. The Travel Plazas were acquired by the Company with the net
proceeds received by the Partnership from the Offering. The Company proposes to
sell the Travel Plazas in the Transaction.
The Travel Plazas, divided into sections which serve both the
commercial and non-commercial traveler, generally offer a multi-use,
full-service operation including fuel facilities for the storage and sale of
automotive and diesel fuels, a 24-hour restaurant, a convenience store, restroom
facilities with private showers, and other amenities designed to meet the needs
of the trucking industry and the traveling public in general. The following is a
description of the Travel Plazas, including the percentage of the Partnership's
total assets as of June 30, 1998, represented by such plaza.
AMARILLO, TEXAS. (12.3% of total assets). The Amarillo Travel Plaza was
a pre-existing Husky truck stop, renovated in 1989, and is located on a parcel
consisting of 16.32 acres of land five miles west of the Interstate 27 and
Interstate 40 interchange and four miles east of downtown Amarillo. It is leased
to CFJ Properties.
24
<PAGE>
BUTTE, MONTANA. (4.7% of total assets). The Butte Travel Plaza was a
pre-existing Husky truck stop, renovated in 1988, and is located on a parcel
consisting of approximately 9.01 acres of land along the north side of
Interstate 15 and Interstate 90. It is leased to Flying J.
CHEYENNE, WYOMING. (10.8% of total assets). The Cheyenne Travel Plaza
is a full-service travel plaza, built on a 15.2-acre parcel of land west of
Interstate 25. Downtown Cheyenne is located three miles north of the site. This
Travel Plaza is leased to CFJ Properties.
CLIVE, IOWA. (15.6% of total assets). The Clive Travel Plaza is a
full-service travel plaza, built on a parcel consisting of 26.6 acres of land,
located at the southwest corner of Interstate 35 and Interstate 80. Clive, Iowa
is located northwest of Des Moines. This Travel Plaza is leased to CFJ
Properties.
ELLENSBURG, WASHINGTON. (5.0% of total assets). The Ellensburg Travel
Plaza was a pre-existing Husky truck stop, renovated in 1987, and is located on
a parcel consisting of approximately 8.06 acres of land just south of Interstate
90 and one mile west of Interstate 82. It is leased to Broadway Truck Service,
Inc., a franchisee of FJFI.
ELOY, ARIZONA. (10.1% of total assets). The Eloy Travel Plaza is a
full-service travel plaza, built on a 15-acre parcel of land, located three
miles south of the I-8 and I-10 junction. Eloy, Arizona is located 60 miles
south of Phoenix and 53 miles north of Tucson. This Travel Plaza is leased to
CFJ Properties.
EVANSTON, WYOMING. (5.9% of total assets). The Evanston Travel Plaza is
located on a 5.42-acre parcel of land along the north side of Highway 30 and
north of Interstate 80. Evanston is approximately two miles from the Utah
border. This Travel Plaza is leased to Ottley Enterprises, Inc., a franchisee of
FJFI.
POST FALLS, IDAHO. (5.2% of total assets). The Post Falls Travel Plaza
is a full-service travel plaza, built on a parcel consisting of approximately 8
acres of land, located at the northeast off-ramp of Interstate Highway 90. It is
leased to CFJ Properties.
THOUSAND PALMS, CALIFORNIA. (9.6% of total assets). The Thousand Palms
Travel Plaza is a full-service travel plaza, built on a 5.01-acre parcel of land
north of Interstate 10. Thousand Palms is situated midway between the
Arizona/California border and Los Angeles. This Travel Plaza is leased to CFJ
Properties.
TRUXTON, MISSOURI. (10.4% of total assets). The Truxton Travel Plaza is
a full-service travel plaza, built on a parcel of land of approximately 15 acres
located south of the Interstate 70 and Highway B junction. Truxton, Missouri is
located 55 miles northwest of St. Louis. This Travel Plaza is leased to CFJ
Properties.
Independent of the Partnership, the Initial Limited Partner has no
interest in any real or personal property.
25
<PAGE>
INDUSTRY
The travel plaza/truckstop industry is both highly competitive and
highly fragmented. The Company's lessees are competing with, among others,
National Auto/Truckstops, Petro and Pilot Corporation, as well as other
national, regional and local truckstop operators, some of which may have
substantially greater financial resources than the lessees. The Company's
lessees also compete with other entities which provide hospitality goods and
services to the trucking industry and traveling public in general. The major
competitive factors include, among others, location, ease of access, brand
identification, pricing, product and service selections, customer service, store
appearance, cleanliness and safety. The Flying J Travel Plaza facilities owned
by the Company offer a full-service operation, generally including fuel
facilities, a restaurant, a convenience store and other amenities for use by the
trucking industry and traveling public in general. Flying J reports that the
Flying J travel plaza network consists of more than 100 facilities across the
U.S. interstate highway system. The Travel Plaza sites have been selected based
on traffic patterns and volumes, and access to interstate highways, among other
criteria.
According to the American Trucking Association, the trucking industry
generated more than $345 billion in gross freight revenues, representing 82% of
the nation's freight bill in 1996. This was up 4% from the prior year. Over 21
million commercial trucks registered in the United States consume approximately
41 billion gallons of fuel annually. The General Partner believes the trucking
industry is sensitive to certain aspects of the general economic environment,
such as retail sales; the level, direction and rate of change in inventories;
international trade; vendor performance; the cost and availability of fuel;
labor issues; and technology. The trucking industry is also affected by various
government policies, including economic regulations; vehicle size and weight
regulations; and health, safety and environmental protection regulations. In
particular, the profitability of the businesses operated at the Travel Plazas
are substantially dependent upon the margins available from the sale of fuel and
availability of fuel supplies. These factors also may influence the competitive
posture of one mode of transportation compared to others; however, the trucking
industry has presented itself as an affordable and timely alternative to other
methods of transportation such as air freight and rail, particularly for short
hauls.
26
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Participating Income Properties 1986, L.P. (the "Partnership") was
formed to invest as a co-general partner with Perimeter Center Management
Company ("PCMC") in FFCA/PIP 1986 Property Company (the "Company"). The general
partner of the Partnership is FFCA Management Company Limited Partnership (the
"General Partner"), of which PCMC is a general partner. The Company was
organized to purchase new and existing "Flying J Travel Plaza" facilities (the
"Travel Plazas"), including land, buildings and equipment to be leased on a net
basis to Flying J Inc. and certain franchises of Flying J Franchise Inc. The
Partnership proposes to sell the Travel Plazas in a transaction with an
unaffiliated buyer. The sale of the Travel Plazas will give rise to the
liquidation of the Partnership in accordance with the Partnership Agreement.
Dissolution of the Partnership is effective upon the closing of the Transaction,
but the Partnership does not terminate until the remaining assets of the
Partnership have been distributed as provided in the Partnership Agreement.
Set forth below is unaudited historical and pro forma consolidated
financial information for the Partnership and the Company as of June 30, 1998.
The pro forma balance sheet information has been prepared assuming that the sale
of the Travel Plazas and liquidation of the Partnership occurred on June 30,
1998, and includes estimates of transaction costs and other costs to be incurred
in connection with liquidation of the Partnership. The pro forma financial
information has been prepared assuming a $48,534,216 sale price based on the
Purchase Agreements.
The pro forma information is based on the historical consolidated
financial information of the Partnership and should be read in conjunction with
the historical consolidated financial statements and notes of the Partnership
included in this Consent Solicitation Statement. In the opinion of management,
all material adjustments necessary to reflect the effects of the transactions
have been made.
The pro forma information is unaudited and is not necessarily
indicative of the results which actually would have occurred if the transaction
had been consummated in the period presented, or on any particular date in the
future, nor does it purport to represent the financial position for future
periods.
27
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 2,354,699 $ 46,838,942(2) $49,193,641
Receivables from lessees 157,000 (157,000)(3) --
Secured notes receivable 84,729 (84,729)(3) --
Deferred costs 13,146 (13,146)(4) --
Property subject to operating leases 22,557,762 (22,557,762)(1) --
------------ ------------ -----------
Total assets $ 25,167,336 $ 24,026,305 $49,193,641
============ ============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Distribution payable to limited partners $ 1,319,539 $ (1,319,539)(5) $ --
Accounts payable and accrued liabilities 43,969 (43,969)(5) --
Payable to general partner 101,574 (101,574)(5) --
Rental deposits 114,400 (114,400)(6) --
------------ ------------ -----------
Total liabilities 1,579,482 (1,579,482) --
------------ ------------ -----------
Minority interest (15,112) 15,112(7) --
------------ ------------ -----------
Partners' capital (deficit):
General partner (160,949) 1,579,307(1) 1,418,358
Limited partners 23,763,915 24,011,368(1) 47,775,283
------------ ------------ -----------
Total partners' capital 23,602,966 25,590,675 49,193,641
------------ ------------ -----------
Total liabilities and
partners' capital $ 25,167,336 $ 24,026,305 $49,193,641
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of this
unaudited pro forma consolidated balance sheet.
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
1) Pro forma Adjustments to Partners' Capital:
The pro forma adjustments to Partners' Capital reflect the sale of the
Travel Plazas, receipt of cash proceeds and recognition of related gain in
accordance with the Partnership Agreement. The pro forma effect of the proposed
sale of the Travel Plazas is calculated as follows:
Sale proceeds $48,534,216
Book value of Travel Plazas sold 22,557,762
Gross gain on sale of Travel Plazas 25,976,454
Less: Consent solicitation costs of the proposed sale
of Travel Plazas (110,663)
Less: Allocation of gain to minority interest (25,865)
-----------
Net pro forma effect of sale on Partners' Capital $25,839,926
===========
The following is an analysis of the pro forma effect of the resulting
partnership liquidation on Partners' Capital:
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Net pro forma effect of sale on Partners' Capital $1,700,775 $24,139,151 $25,839,926
Net pro forma effect of liquidation costs (2,493) (246,758) (249,251)
Reallocation of Partners' Capital in accordance with
liquidation provision of the Partnership Agreement (118,975) 118,975 --
--------- ----------- -----------
Pro forma effect on Partners' capital $1,579,307 $24,011,368 $25,590,675
========== =========== ===========
</TABLE>
Included in the net pro forma effect on the General Partner's capital
is a subordinated real estate disposition fee equal to $1,456,026 related to the
sale of the Travel Plazas. The pro forma adjustment for liquidation costs
reflects the estimated costs to be incurred to liquidate the Partnership, such
as legal, accounting, insurance and other liquidation costs.
29
<PAGE>
2) Pro forma Adjustments to Cash:
The pro forma adjustments to cash reflect the following:
Proceeds from sale of Travel Plazas $48,534,216
Consent solicitation costs of the proposed sale of Travel Plazas (110,663)
Adjustment for consent solicitation costs paid as of June 30, 1998 13,146
Collection of receivables/proceeds from secured notes 241,729
Payment of second quarter 1998 distribution to limited partners (1,319,539)
Payment of accounts payable and accrued liabilities (43,969)
Assignment of rental deposits (114,400)
Net cash distribution to minority interest (PCMC) (10,504)
Payment of payable to General Partner (101,574)
Payment of costs incurred to liquidate (249,500)
-----------
Net pro forma effect on cash $46,838,942
===========
3) Pro forma adjustments to receivables:
Receivables from lessees are primarily due from the Buyer. As a result,
these amounts will be collected from the Buyer or other lessees prior to
liquidation of the Partnership. Secured notes receivable will be sold to the
Buyer for an amount equal to the then-outstanding principal balance of the notes
prior to liquidation of the Partnership.
4) Pro forma adjustment to deferred costs:
The pro forma adjustment reflects the recognition of deferred consent
solicitation costs incurred and paid as of June 30, 1998 related to the sale of
the Travel Plazas.
5) Pro forma adjustments to certain liabilities:
The pro forma adjustments reflect the payment of the regular quarterly
cash distributions payable to the limited partners, the payment to the General
Partner of its subordinated real estate disposition fee related to the Boise,
Idaho travel plaza sale and the payment of sales tax and other payables to third
party creditors.
6) Pro forma adjustments to rental deposits:
This pro forma adjustment reflects the assignment of rental deposits to
the Buyer upon sale of the related Travel Plazas.
7) Pro forma adjustment to minority interest:
The pro forma adjustment reflects the net effect of the gain on the
sale of the Travel Plazas allocated to the minority interest and the amount to
be distributed to the minority interest in connection with the liquidation.
30
<PAGE>
SELECTED FINANCIAL DATA
The selected financial information set forth below has been derived
from the Partnership's financial statements included herein and published
financial statements of the Partnership previously filed with the SEC and not
appearing herein. The Partnership's financial statements for each of the years
ended December 31, 1997, 1996 and 1995 have been audited by Arthur Andersen LLP,
independent public accountants. The unaudited financial data for the six months
ended June 30, 1998 and 1997, include all adjustments that the General Partner
considers necessary for a fair presentation of the financial position and the
results of operations for those periods. The selected financial data set forth
below do not purport to be complete and should be read in conjunction with
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and the Partnership's financial statements and the notes thereto
included elsewhere in this Consent Solicitation Statement.
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
(unaudited) -----------------------
-----------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 4,785,616 $ 3,091,238 $ 6,297,173 $ 6,289,831 $ 6,563,996 $ 7,179,846 $ 6,397,242
Net Income 3,716,019 2,071,939 4,239,903 4,013,518 3,944,780 4,375,249 3,606,158
Net Income Per
Unit 71.18 39.69 81.21 76.87 75.56 83.80 69.07
Total Assets 25,167,336 28,150,153 27,480,329 28,759,012 32,378,912 34,094,240 36,048,390
Distributions of
Cash From
Operations
to Investors 2,663,739 2,702,251 5,499,084 5,440,957 5,592,710 5,674,532 5,546,729
Distributions of
Cash From
Operations
Per Unit 51.54 52.28 106.39 105.27 108.20 109.79 107.31
Return of Capital
to Investors 3,385,784 -- -- -- 2,050,000 -- --
Return of Capital
Per Unit 65.51 -- -- -- 39.66 -- --
</TABLE>
The 1994 results of operations include gains totaling $653,477 on the
sale of the motel portion of the Boise, Idaho travel plaza and the sale of
approximately one-half acre of land at this travel plaza to the State of Idaho
Transportation Department. At December 31, 1995, the Partnership declared a
return of capital of $2,050,000 ($39.66 per unit) related to the 1994 sale of
the Boise, Idaho lodging premises, which was distributed in January 1996. The
remaining assets of the Boise, Idaho travel plaza were sold in February 1998 and
the June 30, 1998 results of operations include a gain of $1,725,741 related to
this sale. The Partnership declared a return of capital of $3,385,784 ($66.51
per Unit) which was distributed in April 1988. Due to the sale of the remaining
assets of the Boise, Idaho travel plaza in February 1998, rental revenues in
1998 are expected to be lower than in 1997.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership received $51,687,000 in gross proceeds from its public
offering of the Units. After deducting organizational and offering expenses,
including sales commissions, the Partnership, through the Company, invested the
net offering proceeds of $45,613,778 in 11 travel plazas. The rental payments
from lessees of the properties are the Partnership's primary source of income.
In February 1998, the Partnership sold the Boise, Idaho travel plaza to
CFJ Properties for a cash sales price of $3,385,784. The proceeds from the
Boise, Idaho travel plaza sale amounted to $65.50 per limited partnership unit
and were distributed to the limited partners in April 1998 as a partial return
of their adjusted capital contribution. The Partnership accrued a subordinated
real estate disposition fee equal to three percent of the selling price of the
Boise, Idaho travel plaza (amounting to $101,574) payable to the General
Partner. The Partnership also declared cash distributions from operations to
Investors of $1,319,034 and $1,344,705 for the quarters ended June 30, 1998 and
March 31, 1998, respectively.
As of June 30, 1998, the Partnership had cash and marketable securities
with a maturity of three months or less generally collateralized by United
States government obligations aggregating $2,354,699 of which $1,319,052 was
paid out to the Investors in July 1998 as their distribution from operations for
the second quarter of 1998. The remaining cash will be held by the Partnership
for reserves. The Partnership uses the rental revenues from the Company's
properties to meet its cash needs and those of the Company, and it is
anticipated that such revenues will be sufficient to meet all of the
Partnership's expenses and provide cash for distribution to the Investors.
The Partnership pays an affiliate of the General Partner for the
maintenance of the books and records of the Partnership and for computer,
investor and legal services performed for the Partnership. During 1997, the
affiliate of the General Partner completed the design of a new accounting
information system that was begun in 1996 and was successfully implemented on
January 1, 1998. The new system is "Year 2000" compliant, which means that the
system will be able to handle any dates that refer to the 21st century. By the
end of 1998, all of the affiliate's significant information systems that would
impact the Partnership will be "Year 2000" compliant. If the Transaction occurs,
all of the Partnership's assets will be sold, which will result in the
dissolution of the Partnership and the liquidation of the remaining Partnership
assets, net of liabilities. Under these circumstances, the "Year 2000" issue is
not anticipated to have any effect on the Partnership.
The General Partner knows of no other trends, demands, commitments,
events or uncertainties that will result in or that are reasonably likely to
result in the Partnership's liquidity increasing or decreasing in any material
way.
The Initial Limited Partner serves as the owner of record of the
Limited Partnership Interests in the Partnership, the rights and benefits of
which are assigned by the Initial Limited
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Partner to the Investors. The Initial Limited Partner has no other business
activity and has no capital resources.
RESULTS OF OPERATIONS
The Partnership, through the Company, began acquiring travel plaza
properties using the net proceeds of the Offering in 1987 and continued to
purchase properties until becoming fully invested in September 1988. The Company
received or accrued 100% of the lease payments due it from its lessees during
the six months ended June 30, 1998 and 1997 and during the years ended December
31, 1997, 1996 and 1995.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE
30, 1997. Total revenues during the six months ended June 30, 1998 increased
$1,694,378 primarily due to the gain of $1,725,741 on the sale of the Boise,
Idaho travel plaza. Proceeds from the sale generated a higher average cash
balance during the six months ended June 30, 1998, which resulted in an increase
in interest and other income of $27,808 over the comparable period in 1997.
During the quarter ended June 30, 1998, base rental revenue from the travel
plaza leases decreased to $994,100 from $1,072,248 in the prior period due to
the impact of the February 1998 sale of the Boise, Idaho travel plaza. The
Partnership received or accrued percentage rent payments of $485,184 for the
June 1998 quarter representing an increase over percentage rent payments of
$478,870 for the comparable period of the prior year. On June 1, 1996, CFJ
Properties (a lessee of the Partnership's Travel Plazas) terminated its
relationship with a large third party billing company for the trucking industry.
The billing company requested changes to its contract that were unacceptable to
CFJ Properties' management due to the significant long-term ramifications of the
proposed change on CFJ Properties' future business. The termination of this
relationship resulted in reduced volume and margins, which contributed to low
revenues from percentage rent payments in the quarter ended June 30, 1997 as
compared to the quarter ended June 30, 1998. Participating rentals for the
corresponding year-to-date periods were similarly affected, although to a
greater extent. For the quarter ended June 30, 1998, total expenses decreased by
$30,427 due to a decrease in depreciation expense related to the sale of travel
plaza property. Year-to-date total expenses increased by $48,526 primarily due
to the accrual of the general partner's subordinated disposition fee described
above, offset by a decrease in depreciation expense related to the sale of
travel plaza property.
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1996. The Partnership's total revenues increased to $6,297,173 for
the year ended December 31, 1997, from $6,289,831 for the year ended December
31, 1996. The overall increase in revenues is due to an increase in percentage
rent payments. Revenues from percentage rent payments increased to $1,897,489 in
1997 from $1,818,632 in 1996 due to higher Travel Plaza sales volumes. In June,
1996, a credit card issuer to Flying J Travel Plaza customers terminated its
relationship with the Travel Plazas. This resulted in reduced volume and
margins, which contributed to lower revenues from percentage rent payments in
1996 as compared to 1997. Partially offsetting the increase in percentage rent
payments was a decrease in rental revenues due to a partial land sale in the
first quarter of 1996, which resulted in a monthly reduction of $2,128 in rental
revenue.
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Total Partnership expenses for 1997 were $2,052,340, representing a
decrease of approximately 10% from $2,271,611 in 1996, primarily resulting from
a decrease in depreciation expense of $243,800 related to the sale of Travel
Plaza equipment in 1996. Net income for 1997 was $4,239,903 as compared to
$4,013,518 for 1996, representing an increase of approximately 6%.
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED
DECEMBER 31, 1995. The Partnership's total revenues decreased to $6,289,831 for
the year ended December 31, 1996, from $6,563,996 for the year ended December
31, 1995. Of this decrease, $81,328 was attributable to lower gains on the sale
of property in 1996 and $97,407 was attributable to lower interest income
resulting from a lower average cash balance invested since the proceeds from the
sale of the Boise travel plaza lodging facility (which were invested in
temporary investment securities in 1995) were returned to the limited partners
in January 1996. In addition, revenues from percentage rent payments decreased
$76,279 due to decreased overall Travel Plaza sales. In June 1996, a credit card
issuer to Flying J Travel Plaza customers terminated its relationship with the
Travel Plazas. As a result, volumes and margins at many Flying J Travel Plaza
locations decreased during the latter part of 1996. Also contributing to the
decrease was a decrease in rental revenue of $19,151 relating to a partial land
sale in the first quarter of 1996 which resulted in a monthly reduction of
$2,128 in rental revenue.
Total Partnership expenses for 1996 were $2,271,611, representing a
decrease of approximately 13.1% from $2,614,608 in 1995, primarily resulting
from a decrease in depreciation expense of $303,569 related to the sale of
Travel Plaza equipment in 1996 and 1995. Also contributing to the decrease in
total expenses is a general decrease in operating expenses of approximately
$24,000. Net income for 1996 was $4,013,518 as compared to $3,944,780 for 1995,
representing a difference of less than 2%.
INFLATION
Inflation may cause an increase in each Travel Plaza's gross revenues
due to price increases. This may cause an increase in rental income because a
portion of the lessees' lease payments are computed as a percentage of the
lessees' gross revenues. Thus, as gross sales increase the lease payments will
also increase. Inflation may also tend to increase the rate of capital
appreciation of the Company's properties over a period of time as gross rental
income from the properties continues to increase. Inflation may, however, have
an adverse impact on the profitability of the lessees because of increases in
operating expenses. Inflation has no impact on the Initial Limited Partner's
activities.
GENERAL PARTNER COMPENSATION
Pursuant to provisions of the Partnership Agreement, the officers and
directors of the General Partner serve in such capacities without remuneration
from the Partnership. The General Partner is entitled to be reimbursed for
certain expenses as permitted under the Partnership Agreement.
As a general partner of the Partnership, the General Partner is
entitled to one percent of all profits, gains, losses, deductions and credits
for federal income tax purposes and one percent
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of all cash flow of the Partnership. The General Partner is also entitled to a
subordinated real estate disposition fee under certain circumstances. If the
Partnership had been liquidated as of June 30, 1998, the General Partner would
have been entitled to receive $1,519,932 in accordance with the Partnership
Agreement. See "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
The Initial Limited Partner serves as assignor and initial limited
partner without compensation from the Partnership. It is not entitled to any
share of the profits, losses or cash distributions of the Partnership. The
director and officers of the Initial Limited Partner serve without compensation
from the Initial Limited Partner or the Partnership.
MARKET FOR UNITS AND RELATED SECURITY HOLDER MATTERS
SECONDARY MARKET INFORMATION
The Units are not listed on any national or regional securities
exchange or quoted in the over the counter market. There is no established
public trading market for the Units, and it is unlikely that an established
public market for the Units will develop. Secondary sales activity for the Units
has been limited and sporadic. The General Partner monitors transfers of the
Units (i) because the admission of the transferee as a substitute investor
requires the consent of the General Partner under the Partnership Agreement, and
(ii) in order to track compliance with safe harbor provisions to avoid treatment
of the Partnership as a "publicly traded partnership" for federal income tax
purposes.
Set forth in the table that follows is certain information regarding
sale transactions in the Units. Such information was obtained from Gemisys
Transfer Agents. The transactions reflected in the tables below represent only
some of the sale transactions in the Units. There have been other secondary sale
transactions in the Units, although specific information regarding such
transactions is not readily available to the General Partner. Because the
information regarding sale transactions in the Units included in the tables
below is provided without verification by the General Partner and because the
information provided does not reflect sufficient activity to cause the prices
shown to be representative of the value of the Units, such information should
not be relied upon as indicative of the ability of Investors to sell their Units
in secondary sale transactions or as to the prices at which such Units may be
sold.
While the General Partner receives some information regarding the
prices of secondary sales transactions of the Units, the General Partner does
not receive or maintain comprehensive information regarding all activities of
all broker/dealers and others known to facilitate secondary sales of the Units.
The General Partner estimates, based solely on the transfer records of the
Partnership, that the number of Units transferred in sale transactions was as
follows:
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Effective Transfer
Date as of # Sales Highs Lows Averages
---------- ------- ----- ---- --------
April 1, 1997 70 $825 $750 $785
July 1, 1997 17 $885 $750 $775
October 1, 1997 19 $926 $750 $825
January 1, 1998 25 $921 $750 $780
April 1, 1998 5 $935 $750 $790
July 1, 1998 14 $895 $685 $820
THIRD PARTY TENDER OFFERS
Investors in the Partnership have recently received unsolicited offers
to purchase their Units from third parties not affiliated with the General
Partner. Since January 1, 1997, these offers have ranged from $700 to $800 and
were at prices which the General Partner believes do not reflect the fair value
of the Units.
UNITHOLDERS
There were 4,091 record holders of the Units as of the Record Date. As
of such date, no person or group was known by the Partnership to own directly or
beneficially 5% or more of the outstanding Units of the Partnership. Neither the
General Partner nor its general partners owned Units as of the Record Date, nor
did any of the directors or officers of PCMC, the General Partner's corporate
general partner. PCMC is owned by Mr. Morton Fleischer.
The Initial Limited Partner has an interest in the Partnership as a
limited partner and it serves as the owner of record of all of the Limited
Partnership Interests, the rights and benefits of which have been assigned by
the Initial Limited Partner to the Investors. However, the Initial Limited
Partner has no right to vote its interest on any matter and it must vote the
assigned interests as directed by the Investors. The Initial Limited Partner is
a wholly owned subsidiary of PCMC.
DISTRIBUTIONS
For the two most recent fiscal years and the interim periods ended
March 31, and June 30, 1998, the Partnership made the following cash
distributions to the Investors:
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1998
Per Unit
Distribution Total
---------------------- ------------------------
Date of Number Cash from Cash from
Distribution of Units Operations Capital Operations Capital
- ------------ -------- ---------- ------- ---------- -------
June 30 51,687 $25.52 -- $1,319,052 --
March 31 51,687 26.02 $65.50 $1,344,896 $3,385,499
1997
Per Unit
Distribution Total
---------------------- ------------------------
Date of Number Cash from Cash from
Distribution of Units Operations Capital Operations Capital
- ------------ -------- ---------- ------- ---------- -------
December 31 51,687 $26.43 -- $1,366,087 --
September 30 51,687 27.68 -- 1,430,696 --
June 30 51,687 26.81 -- 1,385,728 --
March 31 51,687 25.47 -- 1,316,468 --
1996
Per Unit
Distribution Total
---------------------- ------------------------
Date of Number Cash from Cash from
Distribution of Units Operations Capital Operations Capital
- ------------ -------- ---------- ------- ---------- -------
December 31 51,687 $25.56 -- $1,321,120 --
September 30 51,687 26.92 -- 1,391,414 --
June 30 51,687 26.30 -- 1,359,368 --
March 31 51,687 26.49 -- 1,369,189 --
Cash from operations, defined as disbursable cash in the Partnership
Agreement, is distributed to the Investors. Any variations in the amount of
distributions from quarter to quarter are due to fluctuations in net cash
provided by operating activities. Cash proceeds from the sale of property, when
distributed, represent a partial return of the limited partners' initial $1,000
per Unit capital contribution. The Adjusted Capital Contribution of an Investor
is generally the Investor's initial capital contribution reduced by the cash
distributions to the Investors of proceeds from the sale of Partnership
properties and reduced by any other cash distributions
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other than from operations. The Adjusted Capital Contribution per Unit of the
Investors, as defined in the Partnership Agreement, was $895 as of June 30,
1998. On December 31, 1995, the Partnership declared a return of capital of
$2,050,000 related to the 1994 sale of the Boise, Idaho lodging premises and
equipment, which was distributed in January 1996. On March 31, 1998, the
Partnership declared a return of capital of $3,385,784 related to the February
1998 sale of the Boise, Idaho travel plaza, which was distributed in April 1998.
Any differences in the amounts of distributions set forth in the above
tables from the information contained above in "SELECTED FINANCIAL DATA" are due
to rounding the amount of distributions payable per Unit down to the nearest
whole cent and carrying any fractional cents forward from one period to the
next.
CONSENT PROCEDURES
Pursuant to the Partnership Agreement, only Investors are entitled to
consent to matters under the Partnership Agreement. The General Partner is not
entitled to vote. The Initial Limited Partner is the holder of all of the
Limited Partnership Interests in the Partnership. On the Record Date there were,
and on the Consent Date there will be, 51,687 Units representing interests in
the Limited Partnership Interests held by Investors.
Each Limited Partnership Interest is entitled to one vote on the
Consent Date. Pursuant to Sections 7.3 and 11.1 of the Partnership Agreement,
each Investor will be entitled to direct the Initial Limited Partner to vote on
the Consent Date (and the Initial Limited Partner is required to vote in
accordance with the Investor's direction) the number of Units held by the
Investor. A REFERENCE IN THIS CONSENT SOLICITATION STATEMENT TO A CONSENT OR
VOTE WITH RESPECT TO UNITS SHALL REFER TO SUCH DIRECTIONS GIVEN TO THE INITIAL
LIMITED PARTNER BY THE INVESTORS OF THE UNITS BY A PROPERLY EXECUTED CONSENT
CARD OR SUBSEQUENT REVISION THEREOF. The Initial Limited Partner has no right to
vote its interest in the Partnership.
Each Investor reflected on the books and records of the Partnership and
the Initial Limited Partner at the close of business on the Record Date will be
entitled to vote its Units regarding the proposal submitted for approval. If an
Investor validly transfers one or more Units after returning its Consent Card,
the new Investor may revoke or revise, before the Consent Date, the transferor
Investor's Consent Card with respect to the transferred Units under the
procedures described herein for revoking or revising a Consent Card.
The General Partner and its affiliates do not hold, and will not hold
as of the Consent Date, any Units. None of the officers and directors of PCMC,
which is the corporate general partner of the General Partner, hold, or will
hold as of the Consent Date, any Units.
An affirmative vote of a majority of Limited Partnership Interests, and
thus an affirmative vote of a majority of Units, is required for approval of the
proposal being submitted for a vote. Abstentions are counted in tabulations of
the proposal but are not deemed to be affirmative votes. Directions provided to
the Initial Limited Partner by the consent procedures described herein will be
tabulated by an automated system administered by D.F. King & Co., Inc.
This consent solicitation is being made by mail on behalf of the
General Partner, but may also be made without additional remuneration by
officers or employees of the General Partner by
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telephone, telegraph, facsimile transmission or personal interview. The expense
of the preparation, printing and mailing of this Consent Solicitation Statement
and the enclosed Consent Card and Notice of Consent Solicitation, and any
additional material relating to the proposal to be consented to on the Consent
Date which may be furnished to Investors by the General Partner subsequent to
the furnishing of this Consent Solicitation Statement, has been or will be borne
by the Partnership as permitted by the Partnership Agreement. The Partnership
will reimburse banks and brokers who hold Units in their name or custody, or in
the name of nominees for others, for their out-of-pocket expenses incurred in
forwarding copies of the consent materials to those persons for whom they hold
such Units. Supplementary solicitations may be made by mail, telephone or
interview by officers of the Partnership or selected securities dealers. It is
anticipated that the cost of such supplementary solicitations, if any, will not
be material. In addition, the Partnership has retained D.F. King & Co. to
solicit consents from Investors by mail, in person and by telephone. The
Partnership will pay D.F. King & Co. a fee for its services, plus reimbursement
of reasonable out-of-pocket expenses incurred in connection with the consent
solicitation, which are estimated to be approximately $35,000.
FEDERAL INCOME TAX CONSIDERATIONS
Kutak Rock, counsel for the General Partner ("Counsel"), has rendered
an opinion regarding the material federal income tax consequences associated
with the sale of the Travel Plazas, which are summarized in this section and
which may affect Investors who are individuals and citizens or residents of the
United States. The following discussion further briefly summarizes such issues
which may affect certain Investors which are tax-exempt persons. This summary
was prepared by Counsel and is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations promulgated or proposed thereunder
(the "Regulations") and published rulings and court decisions, all of which are
subject to changes which could adversely affect the Investors. Each Investor
should consult his own tax advisor as to the specific consequences of the
proposed Transaction, and the transactions related thereto, that may apply to
such Investor. No ruling from the Internal Revenue Service ("IRS") or from any
other taxing authority will be sought or obtained as to any of the following tax
issues, and neither the IRS nor the courts are bound by the discussion set forth
below.
OPINIONS OF COUNSEL
Counsel has rendered its opinion to the Partnership concerning the
material federal income tax consequences relating to the Transaction and the
related transactions. Subject to the limitations and qualifications described
below, Counsel has opined that as of the date hereof, the Partnership will be
characterized as a partnership rather than as an association taxable as a
corporation for federal income tax purposes and that the Transaction, if
consummated, will be a taxable transaction in which gain or loss is recognized
in full. Such opinions are based in part upon certain representations of the
General Partner. In addition, Counsel has rendered its opinion to the effect
that this discussion, which represents the material federal income tax
consequences associated with the Transaction, and which may affect Investors who
are individuals and citizens or residents of the United States, is correct to
the extent such discussion describes provisions of the Code or interpretations
thereof.
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FEDERAL INCOME TAX CHARACTERIZATION OF THE PARTNERSHIP
Under Section 7701 of the Code and the Regulations promulgated
thereunder, certain eligible entities are entitled to elect to be treated as a
partnership or as a corporation for federal income tax purposes. Among the types
of entities which are not eligible to elect to be treated as a partnership are
publicly traded partnerships, as described in Section 7704 of the Code.
For this purpose, a partnership will be considered publicly traded if
its interests are traded on an established securities market or are readily
tradeable on a secondary market or the substantial equivalent thereof.
Counsel has delivered its opinion to the Partnership to the effect that
as of the date hereof the Partnership is characterized as a partnership for
federal income tax purposes. Such opinion is based in part upon a number of
representations by the General Partner, including a representation concerning
the number of Units in the Partnership which were traded in each year. If the
IRS were to successfully challenge the federal income tax characterization of
the Partnership, gain or loss recognized as a result of the Transaction would be
taken into account by the Partnership rather than the Investors and, in
addition, distributions of the proceeds thereof likely would be taxable to the
Investors as dividends.
TAX CONSEQUENCES OF THE TRANSACTION
In connection with the Transaction, the assets of the Company will be
transferred to the Buyer in return for cash. The Partnership then will
immediately liquidate and distribute its share of such cash to the Investors.
Each Investor will be required to recognize a share of the income or loss of the
Partnership for its final taxable year, subject to the limits described below,
including gain or loss recognized as a result of the Transaction. Each Investor
will receive a final Schedule K-1 from the Partnership as soon as practical
after the liquidation of the Partnership. As described above, the Transaction
will constitute a taxable transaction in which gain or loss will be recognized
in full.
The amount of gain or loss recognized by the Partnership will equal its
share of the difference between (i) the sum of the amount of cash received as a
result of the Transaction and the amount of any liabilities assumed by the
Buyer, and (ii) the adjusted tax basis of its assets including the Travel
Plazas. The amount of gain or loss recognized by the Partnership as a result of
the Transaction will be allocated among its partners in accordance with the
terms of the Partnership Agreement. Each Investor will take into account his
share of such gain or loss regardless of whether he voted in favor of the
Transaction.
Under the provisions of Section 1060 of the Code, in the event of a
sale of assets which constitute a trade or business, for purposes of calculating
gain or loss, the seller will be required to segregate its assets into certain
classes. The consideration to be received for such assets will be allocated
among the classes and among assets of a particular class in accordance with
their respective fair market values. The General Partner believes that the
allocation to be used by the Partnership in connection with the Transaction
represents the fair market values of its assets. If the IRS were to successfully
challenge such allocation, the amount of ordinary income to be recognized by the
Partnership could be increased.
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The Partnership has not made an election under Section 754 of the Code.
This election, if made, would permit the Partnership to adjust the basis of its
assets to reflect the price paid by a purchaser of Units. Because this election
has not been made, the amount of gain or loss recognized by the Partnership as a
result of the Transaction will be determined solely by reference to the tax
basis of the assets and not by the purchase price paid by any Investor for his
Units. The allocation by the Partnership of each Investor's gain or loss in
connection with the Transaction will be determined by reference to the basis of
the Partnership in its underlying assets rather than by reference to the basis
of an Investor's Units. However, as described in greater detail below, the
amount of gain actually recognized by an Investor as a result of the liquidation
of the Partnership will be determined in part by reference to the tax basis of
his Units.
Except as with respect to recapture income described below, gains or
losses recognized as a result of the Transaction will be treated as realized
from the sale of assets used in a trade or business within the meaning of
Section 1231 of the Code. Each Investor will be required to net his gain or loss
from the Transaction with gains or losses of Section 1231 assets from other
sources. If the result of such netting is a loss, such loss will be treated as
an ordinary loss. Conversely, if the result of such netting is a gain, such gain
will be treated as a capital gain. In certain cases, Section 1231 gain, which
otherwise would be treated as capital gain, will be recharacterized as ordinary
income to the extent of losses from Section 1231 assets recognized during any of
the five preceding years. Each Investor should consult his own tax advisor
concerning the application of the provisions of Section 1231 of the Code. All or
a portion of any gain attributable to personal property recognized by the
Partnership as a result of the Transaction will be characterized as ordinary
income. Gain recognized as a result of the Transaction will be treated as
passive income under the provisions of Section 469 of the Code.
As a general matter, each Investor will aggregate his share of Section
1231 gain derived from the Transaction with Section 1231 gain or loss from other
sources. Any net gain will be taxed at the rates applicable to capital gains,
which currently is 20%. However, a portion of the gain to be recognized as a
result of the sale of the real property equal to the Partnership's depreciation
deductions with respect thereto will be subject to tax at a rate of 25%. The
General Partner expects that gain to be recognized as a result of the sale of
the personal property will be characterized as ordinary income.
The Transaction will not result in the recognition of material
unrelated business taxable income ("UBTI") by any tax-exempt Investor which does
not hold Units in the Partnership either as a "dealer" or as debt-financed
property within the meaning of Section 514, and is not an organization described
in Code Section 501(c)(7) (social clubs), 501(c)(9) (voluntary employees'
beneficiary associations), 501(c)(17) (supplemental unemployment benefit trusts)
or 501(c)(20) (qualified group legal services plans). The four classes of exempt
organizations noted in the previous sentence may recognize gain or loss on the
Transaction.
Upon consummation of the Transaction, the General Partner intends to
liquidate the Partnership and distribute the net proceeds to its Investors. The
taxable year of the Partnership will end at such time and each Investor in the
Partnership must report, in his taxable year that includes the Transaction, his
share of all income, gain, loss, deduction and credit for such Partnership
through the date of the Transaction (including gain or loss resulting from the
Transaction as described above). Each Investor whose taxable year is not a
calendar year could
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be required to take into income in a single taxable year his share of income of
the Partnership attributable to more than one of its taxable years.
The Partnership's share of the net proceeds of the Transaction will be
distributed among the Investors and the General Partner in a manner which will
be on a pro rata basis based on their respective capital account balances
adjusted to reflect the gain or loss recognized as a result of the Transaction.
The Investors will be required to recognize gain as a result of the distribution
of cash in liquidation of the Partnership only to the extent such distribution
exceeds the basis of their Units. If the amount of cash distributed in
liquidation of the Partnership is less than the basis of an Investor in his
Units, such Investor will be permitted to recognize a loss to the extent of such
excess.
The sale of the Travel Plazas will constitute a taxable transaction for
federal income tax purposes. The General Partner expects that a taxable gain of
approximately $379 per Unit will result from the sale of the Travel Plazas, a
majority of which will be Section 1231 or capital gain. This gain is principally
the result of depreciation deductions, the benefit of which was received by the
Investors during the life of the Partnership. In the case of Units assigned
during the year in which the Transaction occurs, gain will be allocated among
the transferor and transferee thereof based on the number of days of the year
each held such interest. Each Investor will be required to take into account a
share of the gain recognized as a result of the sale of the Travel Plazas
whether or not such Investor voted in favor of the Transaction. Each Investor
will receive a final Schedule K-1 from the Partnership reflecting this taxable
gain.
In addition, as a result of the subsequent liquidation of the
Partnership, the General Partner expects that each Investor who acquired his
Units in the initial offerings thereof will recognize a capital loss of
approximately $112 per Unit. Investors who purchased their Units after the
initial offerings may have a tax basis in their Units different from that of
Investors who acquired their Units in the initial offerings. As a result, such
Investors may recognize a different amount of loss from liquidation of the
Partnership than Investors who purchased Units in the initial offerings. If the
sale of the Travel Plazas and the subsequent liquidation of the Partnership
happen in the same taxable year, the loss from liquidation would partially
offset the gain from the sale of the Travel Plazas described above.
TAXATION OF TAX-EXEMPT INVESTORS
As a general matter, persons who are exempt from tax under the
provisions of Section 501 of the Code will be entitled to exclude from the
calculation of UBTI any capital gains, unless the properties to which the gains
are attributable are subject to acquisition indebtedness. Acquisition
indebtedness includes debt incurred to purchase or improve property and certain
debt incurred either before or after the acquisition or improvement of such
property. The Travel Plazas are not subject to acquisition indebtedness. Any
gain recharacterized as ordinary income under the provisions of Section 1245 of
the Code will be required to be included in the calculation of UBTI by Investors
who are tax-exempt persons. The General Partner anticipates that the Transaction
will not generate a material amount of UBTI for tax-exempt Investors. Each
Investor who is a tax-exempt person should consult his own tax advisor
concerning the recognition of UBTI as a result of the Transaction.
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STATE TAX CONSEQUENCES AND WITHHOLDING
The Partnership may be subject to state or local taxation in various
state or local jurisdictions, including those in which it transacts business.
The state and local tax treatment of the Partnership and its partners may not
conform to the federal income tax consequences discussed above. Consequently,
Investors should consult their own tax advisors regarding the effect of state
and local tax laws on the Transaction.
ANNUAL REPORT AND OTHER DOCUMENTS
The Partnership will, upon written request and without charge
(excluding exhibits thereto), provide by first-class mail within three business
days of receipt of such request to any person solicited hereunder a copy of the
Partnership Agreement, the Appraisals, the tax opinion of Counsel and the
Partnership's Annual Report on Form 10-K for the year ended December 31, 1997,
and Quarterly Reports on Form 10-Q for the periods ended March 31, 1998 and June
30, 1998, as filed with the Securities and Exchange Commission. Requests should
be addressed to FFCA Management Company Limited Partnership, Investors Services,
at 17207 North Perimeter Drive, Scottsdale, Arizona 85255.
OTHER MATTERS
No other business is to be presented for consideration on the Consent
Date, other than that specified in the Notice of Consent Solicitation.
NOTICE TO BANKS, BROKER-DEALERS AND
VOTING TRUSTEES AND THEIR NOMINEES
Please advise the Partnership whether other persons are the beneficial
owners of the Units for which Consents are being solicited from you, and, if so,
the number of copies of this Consent Solicitation Statement and other soliciting
materials you wish to receive in order to supply copies to the beneficial owners
of the Units.
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IT IS IMPORTANT THAT CONSENTS BE RETURNED PROMPTLY. INVESTORS ARE
REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF CONSENT AND RETURN IT
PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE. BY RETURNING YOUR CONSENT
PROMPTLY YOU CAN HELP THE PARTNERSHIP AVOID THE EXPENSE OF FOLLOW-UP MAILINGS.
AN INVESTOR MAY REVOKE OR REVISE A PRIOR CONSENT AND DIRECT THE INITIAL LIMITED
PARTNER TO VOTE LIMITED PARTNERSHIP INTERESTS CORRESPONDING TO THE NUMBER OF THE
INVESTOR'S UNITS AS SET FORTH IN THIS CONSENT SOLICITATION STATEMENT.
FFCA MANAGEMENT COMPANY
LIMITED PARTNERSHIP
By: /s/ Morton H. Fleischer
------------------------------------
Morton H. Fleischer, General Partner
Scottsdale, Arizona
Dated: September 11, 1998
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
----
Report of Independent Public Accountants....................................F-2
Financial Statements
Consolidated Balance Sheets-December 31, 1997 and 1996..................F-3
Consolidated Statements of Income for the Years ended December 31,
1997, 1996 and 1995.....................................................F-4
Consolidated Statements of Changes in Partners' Capital for the Years
ended December 31, 1997, 1996 and 1995..................................F-5
Consolidated Statements of Cash Flows for the Years ended December 31,
1997, 1996 and 1995.....................................................F-6
Notes to Consolidated Financial Statements..............................F-7
Schedule III-Schedule of Real Estate and Accumulated Depreciation as
of December 31, 1997....................................................F-12
Report of Independent Public Accountants to FFCA Investor Services
Corporation 86-B........................................................F-14
Balance Sheet-December 31, 1997 for FFCA Investor Services
Corporation 86-B........................................................F-15
Notes to Balance Sheet..................................................F-16
Unaudited Financial Statements
Consolidated Balance Sheets-June 30, 1998 and December 31, 1997.........F-17
Consolidated Statements of Income for the Three and Six Months ended
June 30, 1998 and 1997..................................................F-18
Consolidated Statement of Changes in Partners' Capital for the Six
Months ended June 30, 1998..............................................F-19
Consolidated Statements of Cash Flows for the Six Months ended
June 30, 1998 and 1997..................................................F-20
Notes to Consolidated Financial Statements..............................F-21
Balance Sheet - June 30, 1998 for FFCA Investor Services
Corporation 86-B........................................................F-22
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Participating Income Properties 1986, L.P.:
We have audited the accompanying consolidated balance sheets of PARTICIPATING
INCOME PROPERTIES 1986, L.P. (a Delaware limited partnership) and affiliate as
of December 31, 1997 and 1996, and the related consolidated statements of
income, changes in partners' capital and cash flows for each of the three years
in the period ended December 31, 1997. These financial statements and the
schedule referred to below are the responsibility of the partnership's general
partner. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Participating Income Properties
1986, L.P. and affiliate as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of Real Estate and
Accumulated Depreciation is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 6, 1998 (except with respect to the matter discussed in Note 6, as
to which the date is February 3, 1998).
F-2
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
ASSETS
CASH AND CASH EQUIVALENTS $ 2,402,680 $ 2,346,371
RECEIVABLES FROM LESSEES 161,608 149,803
SECURED NOTES RECEIVABLE 100,569 131,323
PROPERTY SUBJECT TO
OPERATING LEASES (Note 3) 24,815,472 26,131,515
------------ ------------
Total assets $ 27,480,329 $ 28,759,012
============ ============
LIABILITIES AND PARTNERS' CAPITAL
DISTRIBUTION PAYABLE TO LIMITED PARTNERS $ 1,366,497 $ 1,321,426
PAYABLE TO GENERAL PARTNER -- 10,304
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 52,297 49,704
RENTAL DEPOSITS 114,400 114,400
------------ ------------
Total liabilities 1,533,194 1,495,834
------------ ------------
MINORITY INTEREST (Note 1) (16,239) (14,923)
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General partner (171,205) (158,058)
Limited partners 26,134,579 27,436,159
------------ ------------
Total partners' capital 25,963,374 27,278,101
------------ ------------
Total liabilities and partners' capital $ 27,480,329 $ 28,759,012
============ ============
The accompanying notes are an integral part of these
consolidated balance sheets.
F-3
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
---- ---- ----
REVENUES:
Rental $4,288,989 $4,295,373 $4,314,524
Percentage rent 1,897,489 1,818,632 1,894,911
Interest and other 110,695 99,868 197,275
Gain on sale of property -- 75,958 157,286
---------- ---------- ----------
6,297,173 6,289,831 6,563,996
---------- ---------- ----------
EXPENSES:
General partner fees (Note 5) 549,359 543,553 558,712
Depreciation 1,316,043 1,559,843 1,863,412
Operating 186,938 168,215 192,484
---------- ---------- ----------
2,052,340 2,271,611 2,614,608
---------- ---------- ----------
MINORITY INTEREST IN INCOME (Note 1) 4,930 4,702 4,608
---------- ---------- ----------
NET INCOME $4,239,903 $4,013,518 $3,944,780
========== ========== ==========
NET INCOME ALLOCATED TO (Note 1):
General partner $ 42,399 $ 40,135 $ 39,448
Limited partners 4,197,504 3,973,383 3,905,332
---------- ---------- ----------
$4,239,903 $4,013,518 $3,944,780
========== ========== ==========
NET INCOME PER LIMITED PARTNERSHIP
UNIT (based on 51,687 units held by
limited partners) $ 81.21 $ 76.87 $ 75.56
========== ========== ==========
The accompanying notes are an integral part of these
consolidated statements.
F-4
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
General Limited
Partner Partners Total
------- -------- -----
BALANCE, December 31, 1994 $(126,190) $ 32,641,111 $ 32,514,921
Net income 39,448 3,905,332 3,944,780
Distributions to partners,
cash from operations (56,492) (5,592,710) (5,649,202)
Return of capital to limited
partners (Note 1) -- (2,050,000) (2,050,000)
--------- ------------ ------------
BALANCE, December 31, 1995 (143,234) 28,903,733 28,760,499
Net income 40,135 3,973,383 4,013,518
Distributions to partners,
cash from operations (54,959) (5,440,957) (5,495,916)
--------- ------------ ------------
BALANCE, December 31, 1996 (158,058) 27,436,159 27,278,101
Net income 42,399 4,197,504 4,239,903
Distributions to partners,
cash from operations (55,546) (5,499,084) (5,554,630)
--------- ------------ ------------
BALANCE, December 31, 1997 $(171,205) $ 26,134,579 $ 25,963,374
========= ============ ============
The accompanying notes are an integral part of these
consolidated statements.
F-5
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,239,903 $ 4,013,518 $ 3,944,780
Adjustments to net income:
Depreciation 1,316,043 1,559,843 1,863,412
Gain on sale of property -- (75,958) (157,286)
Minority interest in income 4,930 4,702 4,608
Change in assets and liabilities:
Decrease (increase) in receivables from lessees (11,805) (5,620) 10,817
Increase (decrease) in payable to general partner (10,304) (7,401) 17,705
Increase (decrease) in accounts payable
and accrued liabilities 2,593 (11,384) (49,309)
----------- ----------- -----------
Net cash provided by operating activities 5,541,360 5,477,700 5,634,727
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property -- 811,441 207,818
Principal collections on secured notes receivable 30,754 26,588 7,412
----------- ----------- -----------
Net cash provided by investing activities 30,754 838,029 215,230
----------- ----------- -----------
CASH FLOWS FOR FINANCING ACTIVITIES:
Partner distributions declared (Note 1) (5,554,630) (5,495,916) (5,649,202)
Return of capital to limited partners declared (Note 1) -- -- (2,050,000)
Increase (decrease) in distribution payable 45,071 (2,117,230) 2,072,402
Distributions to minority interest (6,246) (6,189) (6,312)
----------- ----------- -----------
Net cash used in financing activities (5,515,805) (7,619,335) (5,633,112)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 56,309 (1,303,606) 216,845
CASH AND CASH EQUIVALENTS, beginning of year 2,346,371 3,649,977 3,433,132
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 2,402,680 $ 2,346,371 $ 3,649,977
=========== =========== ===========
</TABLE>
Supplemental Disclosure of Noncash Investing Activity: In 1995, the Partnership
sold equipment, received a secured note in the amount of $65,341, and deferred a
gain of $1,251 on the sale.
The accompanying notes are an integral part of these
consolidated statements.
F-6
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
1) ORGANIZATION:
Participating Income Properties 1986, L.P. (the Partnership) was formed
on June 23, 1986 under the Delaware Revised Uniform Limited Partnership Act. The
Partnership invests as a co-general partner with Perimeter Center Management
Company (PCMC) in FFCA/PIP 1986 Property Company, a Delaware general partnership
(the Property Company). The general partner of the Partnership is FFCA
Management Company Limited Partnership (the General Partner) of which PCMC is a
general partner. The Property Company was organized to purchase new and existing
"Flying J Travel Plaza" facilities, including land, buildings and equipment to
be leased on a net basis to Flying J Inc. and certain franchisees of Flying J
Franchise Inc. At December 31, 1997 and 1996, eight of the eleven travel plazas
owned by the Partnership were leased to CFJ Properties (CFJ), an affiliate of
Flying J Inc., one of the travel plazas was leased to Flying J Inc. and the
remaining two were leased to franchisees that operate Flying J Travel Plazas.
"Flying J Travel Plaza" facilities offer a full-service operation, generally
including fuel facilities, a restaurant, convenience store and other amenities
for use by the trucking industry and traveling public in general. The
Partnership and the Property Company will expire December 31, 2029 and 2028,
respectively, or sooner, in accordance with the terms of their respective
agreements.
Investors acquired units of assigned limited partnership interest (the
limited partnership units) in the Partnership from FFCA Investor Services
Corporation 86-B (the Initial Limited Partner), a Delaware corporation
wholly-owned by PCMC. Holders of the units have all of the economic benefits and
substantially the same rights and powers of limited partners; therefore, they
are referred to herein as "limited partners."
The Partnership agreement provides for allocation of profits and losses
and cash distributions among its partners as follows:
Profits and Losses: Allocated 99% to the limited partners and 1% to
the General Partner.
Cash Distributions: All cash from operations, as defined, after
payment of fees to the General Partner is allocated 99% to the
limited partners and 1% to the General Partner. Cash proceeds from
the sale of property are not considered cash from operations but,
when distributed, represent a partial return of the limited
partners' initial $1,000 per unit capital contribution. There has
been one such distribution to date, therefore, the limited partner
Adjusted Capital Contribution, as defined in the Partnership
agreement, at December 31, 1997 is $960.34 per unit.
F-7
<PAGE>
The following is a reconciliation of net income to cash distributions
from operations as defined in the Partnership agreement:
1997 1996 1995
---- ---- ----
Net income $4,239,903 $4,013,518 $3,944,780
Adjustments to reconcile net income to
cash distributions declared:
Depreciation 1,316,043 1,559,843 1,863,412
Gain on sale of property -- (75,958) (157,286)
Change in minority interest (1,316) (1,487) (1,704)
---------- ---------- ----------
Cash distributions declared
from operations $5,554,630 $5,495,916 $5,649,202
========== ========== ==========
The Property Company agreement provides for allocation of profits and
losses and cash distributions among its partners as follows:
Profits and Losses: Allocated 99.9% to the Partnership and .1% to PCMC.
Cash Distributions: All cash from operations, as defined, is
allocated 99.9% to the Partnership and .1% to PCMC.
2) SIGNIFICANT ACCOUNTING POLICIES:
Consolidation and Financial Statements - The accompanying consolidated
financial statements include the accounts of the Partnership and the Property
Company in which the Partnership holds a substantial interest, as discussed in
Note 1. All significant intercompany accounts and transactions have been
eliminated in consolidation. The consolidated financial statements are prepared
on the accrual basis of accounting. The preparation of the financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Although management believes
its estimates are reasonable, actual results could differ from those estimates.
Cash and Cash Equivalents - Investment securities that are highly
liquid and have maturities of three months or less at the date of purchase are
classified as cash equivalents. Cash equivalents include United States Treasury
securities of $2,091,603 and $2,210,317 at December 31, 1997 and 1996,
respectively. Short-term investments are recorded at cost plus accrued interest,
which approximates market value.
Leases - The Partnership leases its property under long-term net leases
which are classified as operating leases. Rental revenue from operating leases
is recognized as it is earned.
Depreciation - Depreciation on buildings is provided using the
straight-line method based upon an estimated useful life of 24 years. Equipment
is depreciated over an estimated useful life of eight years, assuming a 10%
salvage value at the end of its useful life. The cost of properties includes
miscellaneous acquisition and closing costs.
F-8
<PAGE>
3) PROPERTY SUBJECT TO OPERATING LEASES:
The following is an analysis of the Partnership's investment, at cost,
in property subject to operating leases by major class at December 31, 1997 and
1996:
1997 1996
---- ----
Land $ 6,773,272 $ 6,773,272
Buildings 29,669,322 29,669,322
Equipment 626,781 626,781
--------- ---------
37,069,375 37,069,375
Less - Accumulated depreciation 12,253,903 10,937,860
----------- -----------
$24,815,472 $26,131,515
=========== ===========
Lease agreements provide for monthly base rentals equal to a percentage
of the property's cost. As additional rent, the Property Company receives a
portion of the operating revenues of the lessee equal to a percentage of gross
receipts (revenues from percentage rent) from travel plaza facilities and fuel
sales. The terms of the leases are eight years for equipment and 20 years for
land and buildings. Generally, the lessee has the option to purchase equipment
(at fair market value) at the end of the lease term and land and buildings (at
the greater of fair market value or cost) at any time after the first ten years
of the lease. Of the two equipment leases remaining at December 31, 1997, one
will expire in 1998 and the other lease is not subject to a purchase option.
During the year ended December 31, 1997, CFJ and Flying J Inc., accounting for
88% of total rental and percentage rent revenue, operated a total of nine
Partnership properties in Idaho, Montana, California, Arizona, Iowa, Missouri,
Texas and Wyoming. The Partnership is the beneficiary of a letter of credit from
CFJ in the amount of $634,300 to be used as security for CFJ Properties' lease
payments.
Minimum future rentals (excluding percentage rent) under noncancellable
operating leases as of December 31, 1997, are as follows:
Year Ending December 31,
------------------------
1998 $ 4,289,000
1999 4,289,000
2000 4,289,000
2001 4,289,000
2002 4,289,000
Thereafter 22,504,000
-----------
Total minimum future rentals $43,949,000
===========
The General Partner, the Property Company, Flying J Inc. and Flying J
Franchise Inc. have entered into an operating agreement. In the event of a
default in the payment of any amount due and payable under the lease agreements,
and upon the General Partner's written request and delivery of the defaulting
lessee's property to Flying J Inc., Flying J Inc. has agreed to operate such
defaulted lessee's property for the maximum potential lease term.
F-9
<PAGE>
4) INCOME TAXES:
The Partnership is not directly subject to income taxes; rather, each
partner is subject to income taxes on his distributable share of taxable income.
The Partnership tax returns and the amount of distributable partnership profits
or losses are subject to examination by Federal and state taxing authorities. If
examinations by taxing authorities result in changes to distributable
partnership profits or losses, the tax liabilities of the partners could be
changed accordingly.
The following is a reconciliation of net income for financial reporting
purposes to income reported for Federal income tax purposes for the years ended
December 31, 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Net income for financial reporting purposes $4,239,903 $4,013,518 $3,944,780
Differences for tax purposes in:
Depreciation 554,950 765,189 965,142
Gain on sale and other - 17,534 (375,409)
---------- ---------- ----------
Taxable income to partners $4,794,853 $4,796,241 $4,534,513
========== ========== ==========
For Federal income tax reporting purposes, taxable income to partners is
reported on the accrual basis of accounting and is classified as ordinary
income.
At December 31, 1997, the tax bases of the Partnership's assets and
liabilities exceed the amounts recorded for financial reporting purposes by
$4,688,426. This difference results primarily from the use of different
depreciation methods for financial reporting and tax reporting purposes.
5) TRANSACTIONS WITH RELATED PARTIES:
Under the terms of the Partnership agreement, the General Partner is
entitled to compensation for certain services performed in connection with
managing the affairs of the Partnership. During 1997, 1996 and 1995, fees paid
to the General Partner were as follows:
1997 1996 1995
---- ---- ----
Disbursable cash fee $549,359 $543,553 $558,712
======== ======== ========
The disbursable cash fee equals 9% of all cash received by the
Partnership (excluding sale proceeds) less Partnership operating expenses, only
to the extent the limited partners have received an annual return of 9%
(calculated quarterly) on their Adjusted Capital Contribution, as defined. A
subordinated real estate disposition fee equal to three percent of the selling
price on the disposition of any real property (subject to certain limitations)
is payable only after the limited partners have received an amount equal to
their Adjusted Capital Contribution and a cumulative, non-compounded return of
10% per annum on their Adjusted Capital Contribution.
An affiliate of the General Partner incurs expenses on behalf of the
Partnership for maintenance of the books and records and for computer, investor
and legal services performed
F-10
<PAGE>
for the Partnership. These expenses are reimbursable in accordance with the
Partnership agreement and are less than the amount which the Partnership would
have paid to independent parties for comparable services. The Partnership
reimbursed the affiliate $35,018 in 1997, $30,001 in 1996 and $29,301 in 1995
for such expenses.
6) SUBSEQUENT EVENT - POSSIBLE SALE OF SUBSTANTIALLY ALL ASSETS:
On February 2, 1998, the Partnership entered into a letter of intent
with Flying J Inc. to sell substantially all of the Partnership's assets for
cash of approximately $52 million. The sale is subject to certain conditions
specified in the letter of intent, including the negotiation and execution of
definitive sale and financing agreements with respect to the assets of the
Partnership and the approval, by vote, of a majority of the limited partner
interests. In accordance with the partnership agreement, sale of substantially
all of the assets will result in dissolution of the partnership and liquidation
of remaining Partnership assets, net of liabilities. There can be no assurance
as to the final terms of the proposed transaction, that the conditions will be
satisfied or that the proposed transaction will be consummated.
The negotiated sale price of approximately $52 million, net of book
value of the assets to be sold, would have resulted in an estimated gain of $27
million had the proposed sale taken place at December 31, 1997. Subsequent to
the proposed asset sale and conversion of other Partnership assets into cash
upon liquidation, a liquidating cash distribution will be made to investors in
accordance with the Partnership agreement. Had the sale (as proposed) occurred
at December 31, 1997, it is estimated that the liquidating cash distribution
would have been in the range of $965 to $990 per limited partnership unit. The
actual liquidating distribution to be received by investors will depend upon the
actual date and terms of the sale and the actual costs of liquidating the
Partnership.
F-11
<PAGE>
SCHEDULE III
Page 1 of 2
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Initial Cost to Partnership and
Gross Amount at December 31, 1997 Accumulated Depreciation
------------------------------------------- -------------------------------------------
Travel Plaza Date
Location Land Buildings Equipment Total Buildings Equipment Total Acquired
-------- ---- --------- --------- ----- --------- --------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eloy, AZ $ 458,740 $ 3,558,260 -- $ 4,017,000 $ 1,396,123 -- $ 1,396,123 8/88
Thousand 809,050 2,757,950 -- 3,567,000 1,091,689 -- 1,091,689 7/88
Palms, CA
Boise, ID 1,007,082 1,213,244 -- 2,220,326 556,070 -- 556,070 1/87
Post Falls, ID 351,320 1,818,680 -- 2,170,000 833,562 -- 833,562 1/87
Clive, IA 307,250 6,191,750 -- 6,499,000 2,450,901 -- 2,450,901 7/88
Truxton, MO 403,600 3,803,400 -- 4,207,000 1,505,513 -- 1,505,513 7/88
Butte, MT 242,710 1,631,290 259,000 2,133,000 676,609 233,099 909,708 7/87
Amarillo, TX 1,326,000 2,814,000 -- 4,140,000 991,571 -- 991,571 6/88
Ellensburg,WA 533,040 1,266,113 -- 1,799,153 509,575 -- 509,575 9/87
Evanston, WY 622,640 1,188,475 367,781 2,178,896 297,119 367,781 664,900 12/87*
Cheyenne, WY 711,840 3,426,160 -- 4,138,000 1,344,291 -- 1,344,291 8/88
---------- ----------- -------- ---------- ----------- -------- ---------
Total $6,773,272 $29,669,322 $626,781 $37,069,375 $11,653,023 $600,880 $12,253,903
========== =========== ======== =========== =========== ======== ===========
</TABLE>
* Restaurant reconstructed during 1991.
F-12
<PAGE>
SCHEDULE III
Page 2 of 2
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
NOTES:
(1) There are no encumbrances on properties.
(2) Cost for Federal income tax purposes is the same as cost for financial
reporting purposes.
(3) All buildings and equipment are depreciated over estimated useful lives of
24 and eight years, respectively. Substantially all of the buildings and
equipment were purchased as new properties.
(4) Transactions in real estate, equipment and accumulated depreciation during
1997, 1996 and 1995 are summarized as follows:
Accumulated
Cost Depreciation
---- ------------
Balance, December 31, 1994 $42,845,802 $12,440,927
Cost of equipment sold (2,185,260) (2,070,638)
Depreciation expense - 1,863,412
----------- -----------
Balance, December 31, 1995 40,660,542 12,233,701
Cost of land sold (248,645) -
Cost of equipment sold (3,342,522) (2,855,684)
Depreciation expense - 1,559,843
----------- -----------
Balance, December 31, 1996 37,069,375 10,937,860
Depreciation expense - 1,316,043
----------- -----------
Balance, December 31, 1997 $37,069,375 $12,253,903
=========== ===========
F-13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To FFCA Investor Services Corporation 86-B:
We have audited the accompanying balance sheet of FFCA INVESTOR SERVICES
CORPORATION 86-B (a Delaware corporation) as of December 31, 1997. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. 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
audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of FFCA Investor Services Corporation
86-B as of December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 6, 1998
F-14
<PAGE>
FFCA INVESTOR SERVICES CORPORATION 86-B
BALANCE SHEET - DECEMBER 31, 1997
ASSETS
Cash $100
Investment in Participating Income Properties 1986, L.P., at cost 100
----
Total Assets $200
====
LIABILITY
Payable to Parent (Note 2) $100
----
STOCKHOLDER'S EQUITY:
Common Stock; $1 par value; 100 shares authorized,
issued and outstanding 100
----
Liability and Stockholder's Equity $200
====
The accompanying notes are an integral part of this balance sheet.
F-15
<PAGE>
FFCA INVESTOR SERVICES CORPORATION 86-B
NOTES TO BALANCE SHEET
DECEMBER 31, 1997
(1) Operations:
FFCA Investor Services Corporation 86-B (a Delaware corporation) (86-B)
was organized on June 23, 1986 to act as the assignor limited partner in
Participating Income Properties 1986, L.P. (PIP-86).
The assignor limited partner is the owner of record of the limited
partnership units of PIP-86. All rights and powers of 86-B have been assigned to
the holders, who are the registered and beneficial owners of the units. Other
than to serve as assignor limited partner, 86-B has no other business purpose
and will not engage in any other activity or incur any debt.
(2) Related Parties:
Perimeter Center Management Company (a Delaware corporation) (PCMC) is
the sole stockholder of 86-B. The general partner of PIP-86 is an affiliate of
PCMC.
F-16
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(Unaudited)
June 30, December 31,
1998 1997
---- ----
ASSETS
CASH AND CASH EQUIVALENTS $ 2,354,699 $ 2,402,680
RECEIVABLES FROM LESSEES 157,000 161,608
SECURED NOTES RECEIVABLE 84,729 100,569
DEFERRED COSTS 13,146 --
PROPERTY SUBJECT TO OPERATING LEASES, at cost
Land 5,766,190 6,773,272
Buildings 28,456,079 29,669,322
Equipment 626,781 626,781
------------ ------------
34,849,050 37,069,375
Less - Accumulated depreciation 12,291,288 12,253,903
------------ ------------
22,557,762 24,815,472
------------ ------------
Total assets $ 25,167,336 $ 27,480,329
============ ============
LIABILITIES AND PARTNERS' CAPITAL
DISTRIBUTION PAYABLE TO LIMITED PARTNERS $ 1,319,539 $ 1,366,497
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 43,969 52,297
PAYABLE TO GENERAL PARTNER (Note 1) 101,574 --
RENTAL DEPOSITS 114,400 114,400
------------ ------------
Total liabilities 1,579,482 1,533,194
------------ ------------
MINORITY INTEREST (15,112) (16,239)
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General partner (160,949) (171,205)
Limited partners 23,763,915 26,134,579
------------ ------------
Total partners' capital 23,602,966 25,963,374
------------ ------------
Total liabilities and partners' capital $ 25,167,336 $ 27,480,329
============ ============
F-17
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
6/30/98 6/30/97 6/30/98 6/30/97
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Rental $ 994,100 $1,072,248 $2,031,925 $2,144,495
Participating rentals 485,184 478,870 945,510 892,111
Interest and other 34,896 28,480 82,440 54,632
Gain on sale of property -- -- 1,725,741 --
---------- ---------- ---------- ----------
1,514,180 1,579,598 4,785,616 3,091,238
---------- ---------- ---------- ----------
EXPENSES:
General partner fees 131,771 138,432 367,681 269,955
Depreciation 296,727 329,134 597,667 658,268
Operating 48,540 39,899 100,077 88,676
---------- ---------- ---------- ----------
477,038 507,465 1,065,425 1,016,899
---------- ---------- ---------- ----------
MINORITY INTEREST
IN INCOME 1,215 1,232 4,172 2,400
---------- ---------- ---------- ----------
NET INCOME $1,035,927 $1,070,901 $3,716,019 $2,071,939
========== ========== ========== ==========
NET INCOME ALLOCATED TO:
General partner $ 10,359 $ 10,709 $ 37,160 $ 20,719
Limited partners 1,025,568 1,060,192 3,678,859 2,051,220
---------- ---------- ---------- ----------
$1,035,927 $1,070,901 $3,716,019 $2,071,939
========== ========== ========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT (based on
51,687 units held by limited partners) $ 19.84 $ 20.51 $ 71.18 $ 39.69
========== ========== ========== ==========
</TABLE>
F-18
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(Unaudited)
Limited Partners
General ----------------------
Partner Number Total
Amount of Units Amount Amount
------ -------- ------ ------
BALANCE, December 31, 1997 $(171,205) 51,687 $ 26,134,579 $ 25,963,374
Net income 37,160 -- 3,678,859 3,716,019
Distribution to partners,
cash from operations (26,904) -- (2,663,739) (2,690,643)
Return of capital to
limited partners -- -- (3,385,784) (3,385,784)
--------- ------ ------------ ------------
BALANCE, June 30, 1998 $(160,949) 51,687 $ 23,763,915 $ 23,602,966
========= ====== ============ ============
F-19
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,716,019 $ 2,071,939
Adjustments to net income:
Depreciation 597,667 658,268
Gain on sale of property (1,725,741) --
Minority interest in income 4,172 2,400
Change in assets and liabilities:
Decrease (increase) in receivables from lessees 4,608 (15,594)
Increase in deferred costs (13,146) --
Increase (decrease) in payable to general partner 101,574 (10,304)
Decrease in accounts payable and
accrued liabilities (8,328) (4,953)
----------- -----------
Net cash provided by operating activities 2,676,825 2,701,756
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 3,385,784 --
Principal collections on secured notes receivable 15,840 14,994
----------- -----------
Net cash provided by investing activities 3,401,624 14,994
----------- -----------
CASH FLOWS FOR FINANCING ACTIVITIES:
Partner distributions declared (2,690,643) (2,729,546)
Return of capital to limited partners declared (3,385,784) --
Increase (decrease) in distribution payable (46,958) 64,663
Distributions to minority interest (3,045) (3,058)
----------- -----------
Net cash used in financing activities (6,126,430) (2,667,941)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (47,981) 48,809
CASH AND CASH EQUIVALENTS, beginning of period 2,402,680 2,346,371
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,354,699 $ 2,395,180
=========== ===========
</TABLE>
F-20
<PAGE>
PARTICIPATING INCOME PROPERTIES 1986, L.P. AND AFFILIATE
Note to Consolidated Financial Statements
June 30, 1998
1) TRANSACTIONS WITH RELATED PARTIES:
A subordinated real estate disposition fee equal to three percent of
the selling price on the disposition of any real property (subject to certain
limitations) is payable to FFCA Management Company Limited Partnership (the
general partner of Participating Income Properties 1986, L.P. (the Partnership))
only after the limited partners have received an amount equal to their Adjusted
Capital Contribution, as defined, and a cumulative, non-compounded return of 10%
per annum on their Adjusted Capital Contribution. A subordinated real estate
disposition fee amounting to $101,574 has been accrued by the Partnership
representing three percent of the selling price of the Boise Idaho travel plaza,
which was sold in February 1998 for a cash sales price of $3,385,784.
F-21
<PAGE>
FFCA INVESTOR SERVICES CORPORATION 86-B
BALANCE SHEET - JUNE 30, 1998
ASSETS
Cash $100
Investment in Participating Income Properties 1986, L.P., at cost 100
----
Total Assets $200
====
LIABILITY
Payable to Parent $100
----
STOCKHOLDER'S EQUITY
Common Stock; $l par value; 100 shares authorized,
issued and outstanding 100
----
Liability and Stockholder's Equity $200
====
Note: FFCA Investor Services Corporation 86-B (86-B) was organized on June 23,
1986 to act as the assignor limited partner in Participating Income Properties
1986, L.P. (PIP-86).
The assignor limited partner is the owner of record of the limited
partnership units of PIP-86. All rights and powers of 86-B have been assigned to
the holders, who are the registered and beneficial owners of the units. Other
than to serve as assignor limited partner, 86-B has no other business purpose
and will not engage in any other activity or incur any debt.
F-22
<PAGE>
CONSENT CARD
THIS CONSENT IS SOLICITED ON BEHALF OF
FFCA MANAGEMENT COMPANY LIMITED PARTNERSHIP
FOR PARTICIPATING INCOME PROPERTIES 1986, L.P.
The undersigned Investor of Units representing interests in Participating Income
Properties 1986, L.P., a Delaware limited partnership (the "Partnership"),
hereby directs FFCA Investor Services Corporation 86-B to consent to the
Proposal, as designated below, the Limited Partnership Interests held by FFCA
Investor Services Corporation 86-B, according to the number of Units held of
record by the undersigned.
This Consent Card when properly executed will direct the consent of FFCA
Investor Services Corporation 86-B in the manner herein indicated by the
undersigned. If properly executed and no direction is made, the holders of this
Consent Card will direct FFCA Investor Services Corporation 86-B to vote FOR the
proposal set forth on the Consent Card.
Please mark boxes [X] in ink. Sign, date and return this Consent Card promptly,
using the enclosed postage paid envelope.
Proposal to sell the Partnership's interests in the Travel Plazas pursuant to
the terms and conditions set forth in the Purchase Agreements and to dissolve
the Partnership as described in the Consent Solicitation Statement dated
September 11, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The undersigned hereby acknowledges receipt of the Notice of Consent
Solicitation, dated September 11, 1998 and the Consent Solicitation Statement
furnished therewith.
Please sign and date this Consent Card on the reverse side and mail in the
enclosed postage paid envelope.
If you have any questions, contact:
D.F. King & Co., Inc.
(800) 848-3410
<PAGE>
Please sign exactly as name appears hereon. When Units are held by joint
tenants, both should sign. Executors, administrators, trustees and other
fiduciaries, and persons signing on behalf of corporations or partnerships,
should so indicate when signing.
Dated , 1998
Authorized Signature
Title, if any
Authorized Signature
Title, if any
To save the Partnership additional vote solicitation expenses, please sign, date
and return this Consent Card promptly, using the enclosed postage paid envelope.
To have your Units voted, your Consent Card must be received by October 26,
1998.
