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 III LIMITED PARTNERSHIP
-------------------------------------------------------
(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:
limited partnership assignment units
2) Aggregate number of securities to which transaction applies: 26,709
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): $27,220,000
4) Total fee paid: $5,444
[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 III LIMITED PARTNERSHIP
Dear Investor:
On behalf of FFCA Participating Management Company Limited Partnership,
the general partner of Participating Income Properties III Limited Partnership
(the "Partnership"), we are requesting your consent to sell the Partnership's
interests in three travel plaza properties, and a mortgage loan with respect to
one of the travel plazas, 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 isimportant
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 Participating Management Company
Limited Partnership
By: Franchise Finance Corporation of America III,
Managing General Partner
By: /s/ Morton H. Fleischer
------------------------------------------
Morton H. Fleischer, President and Chief
Executive Officer
Scottsdale, Arizona
Dated: September 11, 1998
<PAGE>
NOTICE OF CONSENT SOLICITATION
NOTICE IS HEREBY GIVEN that investors in Participating Income
Properties III Limited Partnership (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 Participating Management Company
Limited Partnership, a Delaware 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 three
travel plazas, including real property, improvements, equipment and
other personal property, and a mortgage loan with respect to one of the
travel plazas, by certain special purpose companies affiliated with
Flying J Inc., for a cash payment of $27,220,000, 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 assignment 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/PIP III Investor Services Corporation, 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 Participating Management Company
Limited Partnership
By: Franchise Finance Corporation of America III,
Managing General Partner
By: /s/ Morton H. Fleischer
-------------------------------------------
Morton H. Fleischer, President and
Chief Executive Officer
Scottsdale, Arizona
Dated: September 11, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
GENERAL INFORMATION .............................................................................. 1
SUMMARY .......................................................................................... 3
The Partnership ............................................................................ 3
The Lessees ................................................................................ 4
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
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 Mortgage Loan and Liquidation of
Partnership; Reasons for the Transaction ............................................ 19
Detriments of Sale of the Travel Plazas and Mortgage Loan and Liquidation of
Partnership ......................................................................... 20
Partnership Agreement Provisions Regarding Dissolution of Partnership ...................... 20
Insurance .................................................................................. 21
Consent Required ........................................................................... 22
Related Sale of PIP 86 and PIP II Travel Plazas to the Buyer ............................... 22
Accounting Treatment ....................................................................... 22
Regulatory Requirements .................................................................... 22
Recommendation of the General Partner ...................................................... 22
FAIRNESS ......................................................................................... 22
APPRAISALS ....................................................................................... 23
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
THE TRAVEL PLAZAS ................................................................................ 24
INDUSTRY ......................................................................................... 25
UNAUDITED PRO FORMA FINANCIAL INFORMATION ........................................................ 26
SELECTED FINANCIAL DATA .......................................................................... 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS .................................................................. 31
Liquidity and Capital Resources ............................................................ 31
Results of Operations ...................................................................... 31
Inflation .................................................................................. 33
GENERAL PARTNER COMPENSATION ..................................................................... 33
MARKET FOR UNITS AND RELATED SECURITY HOLDER MATTERS ............................................. 34
Secondary Market Information ............................................................... 34
Third Party Tender Offers .................................................................. 35
Unitholders ................................................................................ 35
Distributions .............................................................................. 35
CONSENT PROCEDURES ............................................................................... 37
FEDERAL INCOME TAX CONSIDERATIONS ................................................................ 38
Opinions of Counsel ........................................................................ 38
Federal Income Tax Characterization of the Partnership ..................................... 38
Tax Consequences of the Transaction ........................................................ 39
Taxation of Tax-Exempt Investors ........................................................... 41
State Tax Consequences and Withholding ..................................................... 42
ANNUAL REPORT AND OTHER DOCUMENTS ................................................................ 42
OTHER MATTERS .................................................................................... 42
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR
NOMINEES ................................................................................... 42
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES ...................................................... F-1
</TABLE>
ii
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
17207 North Perimeter Drive
Scottsdale, Arizona 85255
--------------------------------------
CONSENT SOLICITATION STATEMENT
--------------------------------------
GENERAL INFORMATION
Participating Income Properties III Limited Partnership (the
"Partnership") was formed in July 1990 primarily to purchase new and existing
"Flying J Travel Plaza" facilities, including real estate, improvements,
equipment and other personal property (the "Travel Plazas"). The Partnership is
fully invested in three Travel Plazas, two of which are leased to, and operated
by, CFJ Properties, a general partnership. The land of the remaining Travel
Plaza is leased to TFJ, a Utah general partnership, and the building is financed
by TFJ with a loan (the "Mortgage Loan") from the Partnership. The general
partner of the Partnership is FFCA Participating Management Company Limited
Partnership (the "General Partner"). The managing general partner of the General
Partner is Franchise Finance Corporation of America III, a Delaware corporation
("FFCA III"). The initial limited partner of the Partnership is FFCA/PIP III
Investor Services Corporation, 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 26,709 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 Amended and Restated 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
<PAGE>
Partner are located at 17207 North Perimeter Drive, Scottsdale, Arizona 85255,
and the telephone number is (602) 585-4500.
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 the matters described in this Consent Solicitation Statement. Investors are
urged to: (i) read this Consent Solicitation Statement carefully; (ii) specify
their choice 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 and the
General Partner 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 Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement") of Participating Income Properties III Limited
Partnership 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 Participating 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 III Limited Partnership, a Delaware
limited partnership (the "Partnership"), was organized in July 1990 to purchase
new and existing "Flying J Travel Plaza" facilities. The Partnership currently
owns two travel plazas, including real property, improvements, equipment and
other personal property, which are located in California and Virginia, and has
made a first mortgage loan for the building and equipment of a travel plaza
located in Arizona (the underlying land of which is owned by the
Partnership)(collectively, the "Travel Plazas"). See "THE TRAVEL PLAZAS." Two of
the Travel Plazas are leased to, and operated by, CFJ Properties ("CFJ
Properties"), a general partnership. With respect to the third Travel Plaza, the
land is leased to TFJ, a Utah general partnership ("TFJ"), and the building is
financed by TFJ with a loan (the "Mortgage Loan") from the Partnership. The
general partner of the Partnership is FFCA Participating Management Company
Limited Partnership, a Delaware limited partnership (the "General Partner"). The
managing general partner of the General Partner is Franchise Finance Corporation
of America III, a Delaware corporation ("FFCA III"). The other general partners
of the General Partner are Travel Plaza Management, Inc. ("TMI"), a subsidiary
of PaineWebber Group, Inc., Mr. Morton Fleischer and Mr. Paul Bagley.
3
<PAGE>
The Lessees
CFJ Properties was formed pursuant to a joint venture between Flying J
Inc. ("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"). TFJ is a general partnership
owned 49.9% by Flying J and 50.1% by Pacific Sunstone, Inc., an affiliate of
Flying J. The Partnership is not affiliated with CFJ Properties, TFJ or Flying
J.
The Transaction
The Partnership 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
Partnership has agreed to sell all of the Partnership's right, title and
interest to the Travel Plazas and the Mortgage Loan for a cash payment of
$27,220,000, which represents the value of the Travel Plazas, including the
Partnership's interest in the Mortgage Loan, as appraised by Cushman &
Wakefield, Inc. (the "Transaction"). These proceeds represent an increase of
approximately 22% over the cost of the Travel Plazas paid by the Partnership
(including the loan to TFJ for the Arizona Travel Plaza building). 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 1986, L.P., a Delaware
limited partnership ("PIP 86"), and Participating Income Properties II, L.P., a
Delaware limited partnership ("PIP II"), 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
Partnership pursuant to the Purchase Agreements. Consent solicitation statements
relating to the sale of the PIP 86 and PIP II assets to the Buyer have been
filed with the Securities and Exchange Commission ("SEC") and mailed to the PIP
86 and PIP II 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 Participating 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.
4
<PAGE>
The Purchase Agreements provide that the Buyer is purchasing the Travel
Plazas from the Partnership, as well as paying off a mortgage loan with respect
to one of the Travel Plazas, with limited representations and warranties from
the Partnership and otherwise on an "as is," "where is" basis and with all
faults. The Purchase Agreements also provide that the Partnership 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 itself against potential claims
and liabilities arising after the liquidation and dissolution of the Partnership
relating to this consent solicitation and the Transaction. See "THE
TRANSACTION--Insurance."
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 of the Travel Plazas intended to
exercise their purchase options (the "Options") with respect to the Travel
Plazas as soon as the Options are exercisable. Flying J representatives
requested the General Partner to consider a transaction which would involve all
of the travel plazas owned by the Partnership, PIP 86 and PIP II (collectively,
the "PIP Travel Plazas"). During December 1997, an agreement in principle
regarding the Transaction was reached, which agreement was 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.
Source and Amount of Funds
The funds required to purchase the Travel Plazas and the Mortgage Loan
pursuant to the Purchase Agreements will be $27,220,000 (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 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 $308,000.
The Buyer will pay cash for the purchase of the Travel Plazas and
Mortgage Loan. 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). 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
5
<PAGE>
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 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 under "SPECIAL CONSIDERATIONS," a
special meeting of the Board of Directors of FFCA was held on June 29, 1998, at
which the terms and conditions of the Commitment Letter and Loans were reviewed
and approved by the disinterested directors of FFCA. See "SPECIAL
CONSIDERATIONS--Participation by Lender."
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
86 and PIP II by an affirmative vote of the PIP 86 and PIP II 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 Partnership) 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 Partnership will be obligated to consummate the Transaction even if the
Buyer elects to fund the purchase of a Travel Plaza from a source 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 such 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
6
<PAGE>
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 and Mortgage Loan, after taking into account any sale of assets,
would be the appraised value of the Travel Plazas, including the Partnership's
interest in the Mortgage Loan, 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 the 1997 Appraisal was approximately
2.6%. 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 86 and PIP II) 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 86 and PIP II 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."
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 options relating to the Travel Plazas (the "Options") will become fully
exercisable by June 2003. See "FAIRNESS" and "THE PARTNERSHIP" (for a discussion
of the Options).
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.
Estimated Liquidating Distributions
The General Partner estimates that the sale of the three Travel Plazas
and the Mortgage Loan to the Buyer for $27,220,000, followed by a distribution
and liquidation of the Partnership, will result in estimated liquidating
distributions of approximately $1,004 in cash per Unit. At June 30, 1998, each
Investor's adjusted capital contribution was $964.16 per 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.
7
<PAGE>
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:
Cash Distributions Investors admitted on Investors admitted
Per $1,000 Unit August 30, 1991 on February 28, 1992
--------------- --------------- --------------------
Cash Distributions to Date - From
Operations $ 517 $ 495
Cash Distributions to Date - Return of
Capital 36 36
Liquidating Distribution (estimated) 1,004 1,004
----- -----
Total Distributions (estimated) $1,557 $1,535
====== ======
See "UNAUDITED PRO FORMA FINANCIAL INFORMATION" for assumptions used in
calculating the estimated liquidating distributions.
Liquidation Procedures
As soon as practicable after the sale of the Travel Plazas and Mortgage
Loan 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 $308,000.
Federal Income Tax Consequences
Separate federal income tax consequences result from the sale of the
Travel Plazas and Mortgage Loan and the subsequent liquidation of the
Partnership, as described below.
o Taxable gain -- The sale of the Travel Plazas and Mortgage Loan
will constitute a taxable transaction for federal income tax
purposes. A taxable gain of approximately $270 per Unit is
expected to result from the sale of the Travel Plazas and
Mortgage Loan, 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.
8
<PAGE>
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 $129 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
Mortgage Loan 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 and
Mortgage Loan 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."
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SPECIAL CONSIDERATIONS
In their evaluation of the Transaction, Investors should carefully
consider the following:
Participation by Lender
The Buyer expects to obtain the cash required to purchase the Travel
Plazas and Mortgage Loan 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 a general partner of the General
Partner, the President, Chief Executive Officer and majority owner of FFCA III,
and the Chairman, President and Chief Executive Officer of FFCA. In addition,
several officers and directors of FFCA III 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 Mortgage Loan and the subsequent liquidation of the
Partnership, as described below.
o Taxable gain -- The sale of the Travel Plazas and Mortgage Loan
will constitute a taxable transaction for federal income tax
purposes. A taxable gain of approximately $270 per Unit is
expected to result from the sale of the Travel Plazas and
Mortgage Loan, 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 $129 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
Mortgage Loan 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 and
Mortgage Loan 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
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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 July 9, 1990, under the Delaware
Revised Uniform Limited Partnership Act to acquire new and existing "Flying J
Travel Plaza" facilities. The Partnership currently owns two Travel Plazas,
including real property, improvements, equipment and other personal property,
which are located in California and Virginia, and holds the Mortgage Loan, which
is a first mortgage loan for the building and equipment, of a Travel Plaza
located in Arizona. The underlying land of the third Travel Plaza is owned by
the Partnership. The General Partner of the Partnership is FFCA Participating
Management Company Limited Partnership, a Delaware limited partnership. FFCA III
is the managing general partner of the General Partner. The other general
partners of the General Partner are TMI, which is a subsidiary of PaineWebber
Group, Inc., Mr. Morton Fleischer and Mr. Paul Bagley.
The Initial Limited Partner 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 April 10, 1991, the Partnership and the Initial Limited Partner
commenced a public offering of $100,000,000 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 26,709 Units to Investors at $1,000 per Unit for a total of
$26,709,000. The Investors acquired the following number of Units from the
Initial Limited Partner on each of the following dates: 14,119 Units on August
30, 1991 and 12,590 Units on February 28, 1992. Since that date, no Investor has
made any additional capital contribution. Investors share in the benefits of
ownership of the Partnership's assets, including its 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 $23,236,830. During the fiscal
years ended December 31, 1993, 1992 and 1991, the Partnership distributed cash
to the Investors totaling $957,268, which represents a partial return of the
Investors' initial $1,000 per Unit capital contribution. After deducting this
return of capital from the net proceeds of the Offering, the remaining cash
proceeds were fully invested by the Partnership in the three Travel Plazas,
which are located in Ehrenberg, Arizona (the "Ehrenberg Travel Plaza"),
Bakersfield, California (the "Bakersfield Travel Plaza") and Wytheville,
Virginia (the "Wytheville Travel Plaza"). 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
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public in general. The Wytheville Travel Plaza was acquired in December 1991,
the Bakersfield Travel Plaza was acquired in January 1993 and the Ehrenberg
Travel Plaza was acquired in June 1993.
The Partnership's principal objectives 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 operating revenues of
the Travel Plazas; and (iv) to provide potential long-term appreciation in the
value of its properties through real estate ownership.
The Bakersfield and Wytheville Travel Plazas are leased to CFJ
Properties, a general partnership formed pursuant to a joint venture between
Flying J, through its subsidiary Big West, and Conoco Inc., through its
subsidiaries Douglas Oil and Kayo Oil. With respect to the Ehrenberg Travel
Plaza, the land is leased to TFJ and the Travel Plaza building is financed by
TFJ with the Mortgage Loan from the Partnership. TFJ is a general partnership
owned 49.9% by Flying J and 50.1% by Pacific Sunstone, Inc., an affiliate of
Flying J. The operation of the Ehrenberg Travel Plaza is TFJ's sole business
activity. The Partnership is not affiliated with CFJ Properties, TFJ, Flying J
or Flying J Franchise Inc. ("FJFI"), a subsidiary of Flying J.
Real estate owned by the Partnership is leased for a term of 20 years.
If a franchisee-lessee, however, ceases to be a franchisee of Flying J prior to
the expiration of its 20-year lease term, the Partnership is entitled in its
sole discretion to terminate the lease with such franchisee-lessee. Two of the
Travel Plazas also lease equipment for a term of eight years. Lessees must pay
the Partnership annual rental payments (in monthly installments) equal to a
percentage of the Partnership's total investment in the property. With respect
to the Ehrenberg Travel Plaza, the Mortgage Loan from the Partnership to TFJ
provides for monthly installments of interest at a rate of 7% per annum until
June 30, 2003, at which time the entire principal balance is due. The Mortgage
Loan may not be prepaid in full or in part, except upon the exercise of the
Option to purchase the Travel Plaza land. The Option relating to the Ehrenberg
Travel Plaza land is exercisable beginning in June 2003. As additional rent
under the terms of the leases, the Partnership is entitled to receive a portion
of the operating revenues from the Travel Plazas subject to the lease equal to
(i) up to 3.5% of annual gross receipts derived from the non-fuel sales of such
Travel Plaza facility, and (ii) up to 3/10 of $.01 per gallon of fuel sold.
In connection with leases to CFJ Properties and franchisees of Flying
J, the General Partner granted to the lessee and to Flying J an Option to
purchase the leased equipment and real estate. The Option generally provides
that upon expiration of its equipment lease, and if the lessee is not in default
under its lease, a lessee will have an option to purchase its leased equipment
at its appraised fair market value. In addition, provided that the lessee is not
in default under its lease at the time of exercise, a lessee will have an option
exercisable from the end of the tenth year until the end of the fifteenth year
of the lease term to purchase its leased real estate at the greater of (i) the
appraised fair market value of land, building and equipment, or (ii) the
Partnership's total investment in the property plus a pro rata portion of
certain fees and less any amounts paid by such lessee to the Partnership for
equipment under the Option. The Option
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on the Wytheville Travel Plaza is exercisable beginning in December 2001, and
the Option on the Bakersfield Travel Plaza is exercisable beginning in January
2003.
The Partnership is dependent upon CFJ Properties and TFJ, which is an
affiliate of Flying J, since an adverse change in the financial condition of CFJ
Properties or TFJ could materially affect their ability to make lease and loan
payments to the Partnership. CFJ Properties was formed pursuant to a joint
venture entered into on February 1, 1991, by Flying J, through its subsidiary
Big West, and Conoco Inc., through its subsidiaries Douglas Oil and Kayo Oil.
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, including the three Travel Plazas owned by the Partnership.
Under the terms of the joint venture agreement, Big West sold to
Douglas Oil certain Flying J Travel Plazas, which Douglas Oil contributed back
to CFJ Properties. In addition to this initial contribution, Douglas Oil made
additional contributions to CFJ Properties. As its initial contribution, Big
West transferred to CFJ Properties certain leasehold interests and Flying J
Travel Plazas, and subsequently contributed to CFJ Properties various assets.
Flying J assigned its leasehold interests in the Travel Plazas owned by the
Partnership to CFJ Properties and was released by the Partnership with respect
to its obligations under those leases.
The Partnership's leases with CFJ Properties are with full recourse to
the assets of CFJ Properties, but without recourse to its joint venture
partners. A default on one lease constitutes a default on all other leases to
the same lessee by the Partnership, PIP 86 and PIP II, all of whose travel
plazas are leased to Flying J, CFJ Properties or franchisees of FJFI.
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.
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 lease payments. Future minimum annual rent
obligations under non-cancelable leases, as projected through 2003, remain
comparable to 1998 expense amounts.
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The Wytheville and Bakersfield Travel Plazas generated a combined fuel
and non-fuel gross profit (including other income) of approximately $7.7 million
during the fiscal year ended January 31, 1998 as compared to $6.8 million in
fiscal year 1997. Total travel plaza unit-level income for these two Travel
Plazas (before depreciation and allocated corporate overhead) totaled
approximately $1.5 million in fiscal 1998, with both reporting positive
unit-level income. The combined result of the Travel Plaza unit-level net income
before depreciation and allocated corporate overhead increased from $844,000 in
the prior year. This is primarily due 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' termination 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 participating rents approximated 13.4% of
the original cost of these two Travel Plazas.
Fuel and non-fuel gross profits and other income generated by the
Ehrenberg Travel Plaza, which is operated by TFJ, increased to $6.3 million in
fiscal 1998 from $6.2 million in fiscal 1997 due to an increase in fuel and
non-fuel sales volumes and an increase in fuel prices. The Travel Plaza's income
before depreciation and allocated corporate overhead for 1998 was $1.1 million
as compared to $1.2 million in 1997. Base and participating rents remained
comparable to 1997 at approximately 9% of the original cost of the property
during TFJ's fiscal year ended January 31, 1998.
Through ownership of the Travel Plazas, the Partnership is subject to
the risks associated with the underground storage of petroleum products such as
gasoline. In this regard, the Partnership'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 Partnership'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 that 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.
The Partnership 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
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monitoring procedures; and (c) require that lessees indemnify the Partnership
for all such liabilities and obtain environmental liability insurance, if
reasonably available. The Partnership 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 Partnership 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 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 and loan
payments to the Partnership or have a material adverse effect upon the
Partnership.
The Partnership 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. The General Partner knows of no pending or threatened proceedings or
investigations under federal or state environmental laws; however, management
cannot predict the impact on the Partnership's lessees of new governmental
regulations and requirements. Although the Partnership 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 or loan payments to the Partnership.
The Partnership does not have any real estate investments outside of
the United States. The Partnership does not segregate revenues or assets by
geographic region, and such a presentation 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 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 to conduct its
business.
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The Partnership is managed by the General Partner and therefore has no
employees of its own. The Initial Limited Partner 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, to purchase the Travel Plazas and the Mortgage Loan pursuant to
the terms of the Purchase Agreements, for consideration consisting of cash in
the amount of $27,220,000. 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, the general partners of the General Partner, or any of
their respective affiliates. The General Partner currently has no reason to
believe that the Buyer will fail to purchase the Travel Plazas and the Mortgage
Loan.
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 Partnership will sell the
Travel Plazas and the Mortgage Loan to the Buyer, subject to certain conditions
specified therein, in exchange for cash in an aggregate amount of $27,220,000.
See "APPRAISALS." In addition, the Purchase Agreements provide that the Buyer
will pay the accrued but unpaid interest under the Mortgage Loan as of the
closing date of the Transaction. The sale of all of the Travel Plazas and the
Mortgage Loan 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 the Mortgage Loan 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 the
liquidation of the Partnership. The Purchase Agreements provide that the
Partnership will indemnify the Buyer for all liabilities incurred by it in
connection with the consent solicitation of the Investors,
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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 and the Mortgage Loan from the Partnership 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 Partnership
under the Purchase Agreements will not survive the closing of the Transaction.
The Purchase Agreements also provide that the Buyer is releasing the Partnership
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 or
loan 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 and the Mortgage Loan is
$27,220,000. The Buyer is obligated to pay for all costs and expenses of the
Transaction, including, without limitation, the attorneys' fees of 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 $308,000.
The Buyer will pay cash for the purchase of the Travel Plazas and the
Mortgage Loan. Financing will be provided to the Buyer with loans (the "Loans")
from FFCA Acquisition Corporation (the "Lender"), a wholly owned subsidiary of
FFCA. 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, TFJ
or CFJ Properties.
The obligation of the Buyer (but not the Partnership) 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 Partnership 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 such 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
and the Related 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 the occurrence of
each of the following 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 86 and PIP II by an
affirmative vote of the PIP 86 and PIP II 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 and
Mortgage Loan (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 Partnership) to close the
Transaction also 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 Partnership 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 such Travel
Plaza plus the Lender's expenses incurred in connection therewith.
The Buyer may terminate a Purchase Agreement if: (i) the Partnership
breaches a representation, warranty or covenant set forth in the Purchase
Agreement; (ii) the Investors do not approve the sale of the Travel Plazas and
Mortgage Loan to the Buyer under the terms set forth in this Consent
Solicitation Statement and the Purchase Agreements; (iii) the PIP 86 and PIP II
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
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conditions to the Partnership's obligation to sell the Travel Plazas and the
Mortgage Loan have been satisfied and the Partnership fails to close the
Transaction.
The Partnership may terminate a Purchase Agreement if: (i) the
Investors do not approve the sale of the Travel Plazas and Mortgage Loan 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 and Mortgage Loan. In the event the Partnership
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 Mortgage Loan and
Liquidation of Partnership; Reasons for the Transaction
The General Partner believes that the sale of the Travel Plazas and the
Mortgage Loan under the terms and conditions set forth in the Purchase
Agreements is advisable at this time. At the time the Partnership commenced the
Offering in 1991, 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. See "THE PARTNERSHIP." The Options become exercisable beginning
on December 2001 in the case of the Wytheville Travel Plaza, January 2003 in the
case of the Bakersfield Travel Plaza, and June 2003 in the case of the Ehrenberg
Travel Plaza. 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 Partnership does not sell the
Travel Plazas and Mortgage Loan 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
$242,823. 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 and Mortgage Loan in the Transaction, payment of
the ongoing disbursable cash fees to the General Partner is avoided. If the
Partnership had been liquidated as of June 30, 1998, the General Partner would
not have received any liquidating distributions. See "GENERAL PARTNER
COMPENSATION."
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
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substantial. It is estimated that the transaction costs and expenses associated
with the consent solicitation of the Investors will be approximately $58,500.
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 $308,000.
An additional benefit of the sale of the Travel Plazas and the Mortgage
Loan 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 and Mortgage Loan to the Buyer for
$27,220,000, followed by a distribution and liquidation of the Partnership,
would result in estimated liquidating distributions of approximately $1,004 in
cash per Unit.
Detriments of Sale of the Travel Plazas and Mortgage Loan and
Liquidation of Partnership
The sale of the Travel Plazas and Mortgage Loan 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 and the Mortgage Loan 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 and Mortgage Loan,
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 and Mortgage Loan 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
20
<PAGE>
sole discretion, determines in an effort to obtain the best prices for the
assets. Following the sale of the Travel Plazas and Mortgage Loan, 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 intends to liquidate the Partnership and
distribute the Partnership's assets as soon as practicable following the sale of
the Travel Plazas and Mortgage Loan.
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
General Partner and the Investors 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 $24,000, 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 and Mortgage Loan. Any
such cash will be distributed in the foregoing order of priority.
Insurance
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 Partnership, PIP 86 or PIP II and their respective
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 86 and PIP II. 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 86 and PIP II. Of
the Partnership's allocated premium, 99% has been allocated to the Investors 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 Partnership to indemnify the Buyer
for liabilities incurred by the Buyer in connection with the consent
solicitation of the Investors, the Partnership and the Buyer are additional
insureds under the Insurance.
21
<PAGE>
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.
Related Sale of Pip 86 and Pip Ii Travel Plazas to the Buyer
The investors of PIP 86 and PIP II 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 86 and PIP II assets to the Buyer have been filed with the SEC and
mailed to the PIP 86 and PIP II 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 Participating Management
Company Limited Partnership, 17207 North Perimeter Drive, Scottsdale, Arizona
85255, telephone number (602) 585-4500.
Accounting Treatment
The proposed sale of the Travel Plazas and Mortgage Loan 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
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 Mortgage
Loan, 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.
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 MORTGAGE LOAN
AND DISSOLVE THE PARTNERSHIP BY MARKING THE "FOR" BOX ON THE ENCLOSED CONSENT
CARD.
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
22
<PAGE>
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 and Mortgage
Loan, (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 all of the Options will
be fully exercisable by June 2003. See "THE TRANSACTION--Benefits of Sale of
Travel Plazas and Mortgage Loan 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 and Mortgage Loan to the Buyer for $27,220,000, followed by a
distribution and liquidation of the Partnership, would result in estimated
liquidating distributions of approximately $1,004 in cash per Unit. At June 30,
1998, each Investor's adjusted capital contribution was $964.16 per 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.
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 it has rendered appraisals using similar
methodologies to affiliates of the General Partner since 1981 and to the
Partnership regarding the Travel Plazas and Mortgage Loan 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 and mortgagee's interest in the Travel Plazas as a going concern.
Cushman & Wakefield determined that the highest and best use of the Travel
Plazas is their continued use as travel plazas. The 1996 Appraisal concluded
that the market value of the leased fee and mortgagee's interest in the Travel
Plazas as of December 31, 1996, was $27,220,000. The 1997 Appraisal concluded
that the market value of the leased fee and mortgagee's interest in the Travel
Plazas as of
23
<PAGE>
December 31, 1997, was $26,510,000. 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 and Mortgage Loan, after taking into account any sale of
assets, would be the appraised value of the Travel Plazas, including the
Partnership's interest in the Mortgage Loan, 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 approximately 2.6%.
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 86 and PIP II) 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 PIP Travel Plazas did not vary by more than 5% with
respect to the Partnership, PIP 86 and PIP II on a combined basis.
THE TRAVEL PLAZAS
The Partnership acquired the Travel Plazas during the years 1991
through 1993 with the net proceeds received by the Partnership in the Offering
and without borrowings by the Partnership. The Partnership 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 three Travel Plazas, including
the percentage of the Partnership's total assets as of June 30, 1998,
represented by such Travel Plaza. The Wytheville and Bakersfield Travel Plazas
are leased to CFJ Properties. With respect to the Ehrenberg Travel Plaza, the
land is leased to TFJ and the building is financed by TFJ with Mortgage Loan
from the Partnership to TFJ. TFJ is an affiliate of Flying J.
Wytheville, Virginia. (29.8% of total assets). The Wytheville Travel
Plaza is a full-service travel plaza, built on a parcel consisting of
approximately 16.831 acres located at the interchange of Frontage Road and
Interstates 81 and 77.
Bakersfield, California. (22.5% of total assets). The Bakersfield
Travel Plaza is an existing full-service travel plaza, opened in January 1992,
located on a parcel consisting of approximately 15.4 acres at the Merced Avenue
exit of California Highway 99.
Ehrenberg, Arizona. (44.1% of total assets). Located at the
Arizona/California border on Interstate 10, the Ehrenberg Travel Plaza is an
existing operation opened in May 1988. The two-story travel plaza is situated on
an approximate 11.7 acre tract of land in the County of La Paz (formerly Yuma),
Arizona.
24
<PAGE>
Independent of the Partnership, the Initial Limited Partner has no
interest in any real or personal property.
INDUSTRY
The travel plaza/truckstop industry is both highly competitive and
highly fragmented. The Partnership'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 Partnership's
lessees also compete with other entities that 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 Partnership 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.
25
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The Partnership was formed 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 and certain franchises of FJFI. The General Partner
of the Partnership is FFCA Participating Management Company Limited Partnership,
a Delaware limited partnership. FFCA III is the managing general partner of the
General Partner. The other general partners of the General Partner are TMI, Mr.
Morton Fleischer and Mr. Paul Bagley. 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 financial
information for the Partnership as of June 30, 1998. The pro forma balance sheet
information has been prepared assuming that the sale of the Travel Plazas and
Mortgage Loan and the liquidation of the Partnership occurred on June 30, 1998,
and includes estimates of transaction costs and other costs to be incurred in
connection with the liquidation of the Partnership. The pro forma financial
information has been prepared assuming a sale price of $27,220,000 based on the
Purchase Agreements.
The pro forma information is based on the historical financial
information of the Partnership and should be read in conjunction with the
historical 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 Transaction 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.
26
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
---------------------------------
AS OF JUNE 30, 1998
-------------------
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
---------- ----------- ---------
ASSETS
- ------
<S> <C> <C> <C>
Cash and cash equivalents $ 624,687 $ 26,179,100(2) $26,803,787
Receivables from lessees 49,000 (49,000)(3) --
Mortgage loan interest receivable 45,208 (45,208)(3) --
Deferred costs 4,888 (4,888)(5)
Mortgage loan receivable 7,750,000 (7,750,000)(1) --
Property subject to operating leases 11,922,394 (11,922,394)(1) --
------------ ------------ -----------
Total assets $ 20,396,177 $ 6,407,610 $26,803,787
============ ============ ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Distribution payable to limited partners $ 579,520 $ (579,520)(4) $ --
Rental deposits and other 252,467 (252,467)(4) --
------------ ------------ -----------
Total liabilities 831,987 (831,987) --
------------ ------------ -----------
Partners' capital (deficit):
General partner (23,925) 23,925(1) --
Limited partners 19,588,115 7,215,672(1) 26,803,787
------------ ------------ -----------
Total partners' capital 19,564,190 7,239,597 26,803,787
------------ ------------ -----------
Total liabilities and partners' capital $ 20,396,177 $ 6,407,610 $26,803,787
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of this unaudited
pro forma balance sheet.
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA 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 effects of the proposed
sale of the Travel Plazas and the liquidation are calculated as follows:
<TABLE>
<S> <C>
Proceeds from sale of Travel Plazas and payoff of mortgage loan $27,220,000
Book value of Travel Plazas sold and mortgage loan balance 19,672,394
-----------
Gross gain on sale of Travel Plazas 7,547,606
Less: Consent solicitation costs of the proposed sale of Travel Plazas (58,509)
-----------
Net pro forma effect of sale on Partners' Capital $ 7,489,097
===========
</TABLE>
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 $26,420 $7,462,677 $7,489,097
Net pro forma effect of liquidation costs (2,495) (247,005) (249,500)
------- ---------- ----------
Pro forma effect on Partners' capital $23,925 $7,215,672 $7,239,597
======= ========== ==========
</TABLE>
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.
2) Pro forma Adjustments to Cash:
------------------------------
The pro forma adjustments to cash reflect the following:
<TABLE>
<S> <C>
Proceeds from sale of Travel Plazas and payoff of mortgage loan $27,220,000
Consent solicitation costs of the proposed sale of Travel Plazas (58,509)
Adjustment for consent solicitation costs paid as of June 30, 1998 4,888
Collection of receivables 94,208
Payment of second quarter 1998 distribution to limited partners (579,520)
Payment of rental deposits and other liabilities (252,467)
Payment of costs incurred to liquidate (249,500)
-----------
Net pro forma effect on cash $26,179,100
===========
</TABLE>
28
<PAGE>
3) Pro forma adjustments to receivables:
-------------------------------------
Receivables from lessees are due from the Buyer and its affiliates. These
amounts will be collected prior to liquidation of the Partnership.
4) Pro forma adjustments to liabilities:
-------------------------------------
The pro forma adjustments reflect the payment of the regular quarterly
cash distributions payable to the limited partners, the refund of rental
deposits to the lessees and the payment of other payables to third party
creditors.
5) Pro forma adjustments 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.
29
<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 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 $ 1,347,900 $ 1,320,655 $ 2,681,670 $ 2,636,853 $ 2,648,938 $ 2,634,461 $ 2,219,419
Net Income 946,670 946,681 1,893,355 1,891,905 1,889,914 1,889,998 1,536,414
Net Income Per Unit 35.09 35.09 70.18 70.13 70.05 70.05 56.95
Total Assets 20,396,177 20,842,821 20,620,916 21,078,466 21,516,076 21,985,630 22,349,710
Distributions of Cash
From Operations to
Investors 1,158,832 1,158,843 2,317,679 2,317,702 2,317,771 2,317,855 1,742,185
Distributions of Cash
From Operations Per
Unit 43.39 43.39 86.77 86.78 86.78 86.78 65.23
Return of Capital to
Investors -- -- -- -- -- -- 127,500
Return of Capital Per
Unit -- -- -- -- -- -- 4.77
</TABLE>
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership received $26,709,000 in gross proceeds from its public
offering of the Units. After deducting organizational and offering expenses,
including sales commissions, the Partnership had $23,012,902 in net proceeds for
investment in properties. As of June 30, 1993, the Partnership had used
approximately $22,390,000 to acquire or finance three travel plazas. The rental
and mortgage interest payments from lessees of the Travel Plazas are the
Partnership's primary sources of income.
The Partnership declared cash distributions from operations to Investors
of $579,416 for each of the quarters ended June 30, 1998 and March 31, 1998. 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 $624,687 of which $579,318 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 and mortgage interest revenues from
its properties to meet its cash needs, and it is anticipated that such revenues
will be sufficient to meet all of the Partnership's expenses and provide cash
for distributions 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, the rights and benefits of which are assigned by the
Initial Limited Partner to the Investors. The Initial Limited Partner has no
other business activity and has no capital resources.
Results of Operations
The Partnership began acquiring travel plaza properties using the
net proceeds of the offering in 1991. As of June 30, 1993, the Partnership was
fully invested in travel plazas. The
31
<PAGE>
Partnership received or accrued 100% of the lease and interest 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. During the six months ended June 30, 1998 (the period), the Partnership
received base rental revenue and mortgage loan interest income pursuant to its
travel plaza lease and loan arrangements in the amount of $1,060,990, which
remains unchanged from the prior period (the June quarterly amounts are
similarly unchanged). In addition, the Partnership received or accrued
participating rentals of $274,527 for the six months ended June 30, 1998,
representing an increase over participating rentals of $248,322 for the
comparable period in 1997. On June 1, 1996, CFJ Properties, which is the lessee
of two 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. This resulted in reduced volume and margins,
which contributed to low participating rental revenues in the six months ended
June 30, 1997 as compared to the six months ended June 30, 1998. Participating
rentals for the June quarterly periods were similarly affected.
Total expenses for the six months ended June 30, 1998 increased $27,256
over the comparable period of the prior year primarily due to an increase in
General Partner fees and operating expenses. As described more fully in the
Partnership Agreement, the General Partner's management fee is subordinated to a
9% return to the Investors on their Adjusted Capital Contribution, as defined.
The increase in the General Partner's management fee of $14,022 resulted
directly from the increase in the Partnership's disbursable cash (generally,
cash receipts from operations less cash operating expenses). Operating expenses
increased $13,234 during the period due to an increase in administrative
expenses related to the proposed transaction. Expenses for the June quarterly
periods were similarly affected. Net income for the six months ended June 30,
1998 remained relatively unchanged from the comparable period in 1997.
Fiscal Year Ended December 31, 1997 Compared to Fiscal Year Ended
December 31, 1996. The Partnership's total revenues for the year ended December
31, 1997 increased to $2,681,670 from $2,636,853 for the year ended December 31,
1996. The overall increase in revenues is due to an increase in participating
rentals. Participating rental revenues increased to $536,509 in 1997 from
$492,391 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 participating rental revenues in 1996 as
compared to 1997.
Total Partnership expenses in 1997 were $788,315, representing an
increase from $744,948 in 1996. The increase was primarily a result of an
increase in General Partner fees of $33,288. As described more fully in the
Partnership Agreement, the General Partner's management fee is subordinated to a
9% return to the Investors on their Adjusted Capital Contribution, as defined.
The increase in the General Partner's management fee resulted directly from the
increase in the
32
<PAGE>
Partnership's disbursable cash (generally, cash receipts from operations less
cash operating expenses).
Net income for the year ended December 31, 1997 amounted to $1,893,355 as
compared to $1,891,905 for year ended December 31, 1996.
Fiscal Year Ended December 31, 1996 Compared to Fiscal Year Ended
December 31, 1995. The Partnership's total revenues for the year ended December
31, 1996 decreased to $2,636,853 from $2,648,938 for the year ended December 31,
1995. Revenues decreased between years as a result of a decrease in
participating rental revenue of $10,707 which is attributable to decreased
overall travel plaza sales related to the termination in June 1996 by CFJ
Properties of its relationship with a third party billing company.
Expenses for 1996 were $744,948 as compared to $759,024 for 1995. This
decrease was primarily the result of decreased operating expenses in 1996. Net
income for 1996 was $1,891,905 as compared to net income of $1,889,914 for 1995.
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 Partnership'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
The General Partner is entitled to 1% of all profits, gains, losses,
deductions and credits for federal income tax purposes and a total of 1% of all
cash flow of the Partnership. The General Partner is also entitled to a
subordinated real estate disposition fee under certain circumstances and to be
reimbursed for certain expenses as permitted under the Partnership Agreement. If
the Partnership had been liquidated as of June 30, 1998, the General Partner
would not have received any liquidating distributions. 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.
33
<PAGE>
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:
Effective
Transfer Date
as of # Sales Highs Lows Averages
- ------------- ------- ----- ---- --------
April 1, 1997 5 $850 $850 $850
July 1, 1997 0 N/A N/A N/A
October 1, 1997 3 $650 $650 $650
January 1, 1998 60 $870 $650 $725
April 1, 1998 1 $820 $820 $820
July 1, 1998 6 $940 $810 $885
34
<PAGE>
Third Party Tender Offers
In June and July 1997, Investors in the Partnership received two
unsolicited offers to purchase their Units from third parties not affiliated
with the General Partner for $400 and $650 per Unit, respectively. The General
Partner does not believe these prices reflect the fair value of the Units.
Unitholders
There were 1,525 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. As of the
Record Date, Mr. Paul Bagley, an individual general partner of the General
Partner and a principal shareholder of FFCA III, which is the managing general
partner of the General Partner, owned 10 Units. TMI, which is a corporate
general partner of the General Partner, may be deemed to beneficially own 286
Units held by an affiliate as of the Record Date. Except as otherwise discussed
above, neither the General Partner nor any of its affiliates owned any Units as
of the Record Date.
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. Mr. Fleischer is the sole
stockholder of the Initial Limited Partner.
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:
1998
<TABLE>
<CAPTION>
Per Unit
Distribution Total
-------------------------- ------------------------------
Date of Number Cash from Cash from
Distribution of Units Operations Capital Operations Capital
- ------------ -------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
March 31 26,709 $21.70 -- $579,585 --
June 30 26,709 $21.69 -- $579,318 --
</TABLE>
35
<PAGE>
1997
<TABLE>
<CAPTION>
Per Unit
Distribution Total
-------------------------- ------------------------------
Date of Number Cash from Cash from
Distribution of Units Operations Capital Operations Capital
- ------------ -------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
March 31 26,709 $21.69 -- $579,318 --
June 30 26,709 21.70 -- 579,585 --
September 30 26,709 21.69 -- 579,318 --
December 31 26,709 21.69 -- 579,318 --
</TABLE>
1996
<TABLE>
<CAPTION>
Per Unit
Distribution Total
-------------------------- ------------------------------
Date of Number Cash from Cash from
Distribution of Units Operations Capital Operations Capital
- ------------ -------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
March 31 26,709 $21.70 -- $579,585 --
June 30 26,709 21.69 -- 579,318 --
September 30 26,709 21.70 -- 579,585 --
December 31 26,709 21.69 -- 579,318 --
</TABLE>
Cash from operations, defined as disbursable cash in the Partnership
Agreement, is distributed to the Investors. Cash proceeds from the sale of
property, when distributed, represent a partial return of the Investors' 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 Investor of proceeds from the sale of Partnership
properties and reduced by any other cash distributions other than from
operations. The Adjusted Capital Contribution per Unit of the Investors, as
defined in the Partnership Agreement, was $964.16 as of June 30, 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.
36
<PAGE>
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, 26,709 Units representing interests in
the Limited Partnership Interests held by Investors.
Each Limited Partnership Interests 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.
Mr. Paul Bagley, an individual general partner of the General Partner and a
principal shareholder of FFCA III, which is the managing general partner of the
General Partner, owned 10 Units as of the Record Date. TMI, which is a corporate
general partner of the General Partner, may be deemed to beneficially own 286
Units held by an affiliate as of the Record Date. Otherwise, neither the General
Partner nor any of its affiliates hold, or will hold as of the Consent Date, any
Units.
An affirmative vote of a majority of the 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 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
37
<PAGE>
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 $15,000.
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 and Mortgage Loan, 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.
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.
38
<PAGE>
For this purpose, a partnership will be considered publicly traded if its
interests are traded on an established securities market or are readily tradable
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 Partnership 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 that 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.
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
39
<PAGE>
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 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.
40
<PAGE>
The Partnership's share of the net proceeds of the Transaction will be
distributed among the Investors and the general partners 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 and Mortgage Loan will constitute a taxable
transaction for federal income tax purposes. The General Partner expects that a
taxable gain of approximately $270 per Unit will result from the sale of the
Travel Plazas and Mortgage Loan, 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 $129
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 Mortgage Loan 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.
41
<PAGE>
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 Participating 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.
42
<PAGE>
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 PARTICIPATING MANAGEMENT
COMPANY LIMITED PARTNERSHIP
By: Franchise Finance Corporation of America III,
Managing General Partner
By: /s/ Morton H. Fleischer
-----------------------------------------
Morton H. Fleischer, President and
Chief Executive Officer
Scottsdale, Arizona
Dated: September 11, 1998
43
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants ...................................................... F-2
Financial Statements
Balance Sheets - December 31, 1997 and 1996 ............................................ F-3
Statements of Income for the Years ended December 31,
1997, 1996 and 1995 .................................................................... F-4
Statements of Changes in Partners' Capital for the Years ended
December 31, 1997, 1996 and 1995 ....................................................... F-5
Statements of Cash Flows for the Years ended
December 31, 1997, 1996 and 1995 ....................................................... F-6
Notes to Financial Statements .......................................................... F-7
Schedule III - Schedule of Real Estate and Accumulated Depreciation as
of December 31, 1997 ................................................................... F-11
Report of Independent Public Accountants to
FFCA/PIP III Investor Services Corporation ............................................. F-13
Balance Sheet - December 31, 1997 for FFCA/PIP III Investor Services Corporation ....... F-14
Notes to Balance Sheet for FFCA/PIP III Investor Services Corporation .................. F-15
Unaudited Financial Statements
Balance Sheets - June 30, 1998 and December 31, 1997 ................................... F-16
Statements of Income for the Three and Six Months ended June 30, 1998
and 1997 ............................................................................... F-17
Statement of Changes in Partners' Capital for the Six Months ended
June 30, 1998 .......................................................................... F-18
Statements of Cash Flows for the Six Months ended
June 30, 1998 and 1997 ................................................................. F-19
Balance Sheet - June 30, 1998 for FFCA/PIP III Investor Services Corporation ........... F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Participating Income Properties III Limited Partnership:
We have audited the accompanying balance sheets of PARTICIPATING INCOME
PROPERTIES III LIMITED PARTNERSHIP (a Delaware limited partnership) as of
December 31, 1997 and 1996, and the related 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
III Limited Partnership as of December 31, 1997 and 1996, and the results of its
operations and its 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 7, as to which the date is February 3, 1998).
F-2
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
BALANCE SHEETS - DECEMBER 31, 1997 AND 1996
-------------------------------------------
<TABLE>
<CAPTION>
1997 1996
------------ ------------
ASSETS
------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 635,446 $ 651,261
RECEIVABLES FROM LESSEES 44,000 38,000
MORTGAGE LOAN INTEREST RECEIVABLE 45,208 45,208
MORTGAGE LOAN RECEIVABLE (Note 4) 7,750,000 7,750,000
PROPERTY SUBJECT TO OPERATING LEASES (Note 3) 12,146,262 12,593,997
------------ ------------
Total assets $ 20,620,916 $ 21,078,466
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
DISTRIBUTION PAYABLE TO LIMITED PARTNERS $ 579,590 $ 579,450
PAYABLE TO GENERAL PARTNER -- 7,720
RENTAL DEPOSITS AND OTHER 253,269 255,504
------------ ------------
Total liabilities 832,859 842,674
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General partner (21,687) (17,210)
Limited partners 19,809,744 20,253,002
------------ ------------
Total partners' capital 19,788,057 20,235,792
------------ ------------
Total liabilities and partners' capital $ 20,620,916 $ 21,078,466
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
STATEMENTS OF INCOME
--------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Rental $1,579,480 $1,579,480 $1,579,480
Participating rentals 536,509 492,391 503,098
Mortgage loan interest 542,500 542,500 542,500
Interest and other 23,181 22,482 23,860
---------- ---------- ----------
2,681,670 2,636,853 2,648,938
---------- ---------- ----------
EXPENSES:
General partner fees (Note 6) 242,823 209,535 212,053
Depreciation 447,735 449,208 451,269
Operating 97,757 86,205 95,702
---------- ---------- ----------
788,315 744,948 759,024
---------- ---------- ----------
NET INCOME $1,893,355 $1,891,905 $1,889,914
========== ========== ==========
NET INCOME ALLOCATED TO (Note 1):
General partner $ 18,934 $ 18,919 $ 18,899
Limited partners 1,874,421 1,872,986 1,871,015
---------- ---------- ----------
$1,893,355 $1,891,905 $1,889,914
========== ========== ==========
NET INCOME PER LIMITED PARTNERSHIP
UNIT (based on 26,709 units held by
limited partners) $ 70.18 $ 70.13 $ 70.05
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
----------------------------------------------------
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
BALANCE, December 31, 1994 $ (8,205) $ 21,144,474 $ 21,136,269
Net income 18,899 1,871,015 1,889,914
Distributions to partners (23,412) (2,317,771) (2,341,183)
------------ ------------ ------------
BALANCE, December 31, 1995 (12,718) 20,697,718 20,685,000
Net income 18,919 1,872,986 1,891,905
Distributions to partners (23,411) (2,317,702) (2,341,113)
------------ ------------ ------------
BALANCE, December 31, 1996 (17,210) 20,253,002 20,235,792
Net income 18,934 1,874,421 1,893,355
Distributions to partners (23,411) (2,317,679) (2,341,090)
------------ ------------ ------------
BALANCE, December 31, 1997 $ (21,687) $ 19,809,744 $ 19,788,057
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
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 $ 1,893,355 $ 1,891,905 $ 1,889,914
Adjustments to net income:
Depreciation 447,735 449,208 451,269
Change in assets and liabilities:
Decrease (increase) in receivables from lessees (6,000) 1,257 1,743
Increase (decrease) in payable to general partner (7,720) 7,720 --
Increase (decrease) in rental deposits
and other (2,235) 3,984 (18,250)
----------- ----------- -----------
Net cash provided by operating activities 2,325,135 2,354,074 2,324,676
----------- ----------- -----------
CASH FLOWS FOR FINANCING ACTIVITIES:
Partner distributions declared (Note 1) (2,341,090) (2,341,113) (2,341,183)
Increase (decrease) in distribution payable 140 (106) (35)
----------- ----------- -----------
Net cash used in financing activities (2,340,950) (2,341,219) (2,341,218)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (15,815) 12,855 (16,542)
CASH AND CASH EQUIVALENTS,
beginning of year 651,261 638,406 654,948
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 635,446 $ 651,261 $ 638,406
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1997 AND 1996
--------------------------
1) ORGANIZATION:
-------------
Participating Income Properties III Limited Partnership (the
Partnership) was formed on July 9, 1990 under the Delaware Revised Uniform
Limited Partnership Act to purchase new and existing "Flying J Travel Plaza"
facilities, including land, buildings and equipment to be leased on a net basis
to affiliates of Flying J Inc. The Partnership has also made a loan to an
affiliate of Flying J Inc. to provide financing for a travel plaza building and
equipment (the underlying land is owned by the Partnership and leased to the
affiliate). The "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 general partner of the Partnership is FFCA Participating Management
Company Limited Partnership, a Delaware limited partnership (the General
Partner). The Partnership will expire December 31, 2030, or sooner, in
accordance with the terms of the Partnership agreement.
Investors acquired units of assigned limited partnership interest (the
limited partnership units) in the Partnership from FFCA/PIP III Investor
Services Corporation (the Initial Limited Partner), a Delaware corporation
wholly-owned by an affiliate of the General Partner. 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. In addition to cash distributed from
operations, a portion of the limited partners' initial capital
contributions has been distributed as return of capital, therefore, the
limited partner Adjusted Capital Contribution, as defined in the
Partnership agreement, at December 31, 1997 is $964.16 per unit.
The following is a reconciliation of net income to cash distributions
from operations as defined in the Partnership agreement:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net income $1,893,355 $1,891,905 $1,889,914
Adjustment to reconcile net income to cash
distributions declared:
Depreciation 447,735 449,208 451,269
---------- ---------- ----------
Cash distributions declared from operations $2,341,090 $2,341,113 $2,341,183
========== ========== ==========
</TABLE>
F-7
<PAGE>
2) SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------
FINANCIAL STATEMENTS - The financial statements of the Partnership 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 $451,567 and $474,865 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 32 years. Equipment
is depreciated over an estimated useful life of eight years, assuming a 12.5%
salvage value at the end of its useful life. The cost of properties includes
miscellaneous acquisition and closing costs.
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 $ 2,684,138 $ 2,684,138
Buildings 11,010,862 11,010,862
Equipment 947,838 947,838
----------- -----------
14,642,838 14,642,838
Less - Accumulated depreciation 2,496,576 2,048,841
----------- -----------
$12,146,262 $12,593,997
=========== ===========
Lease agreements provide for monthly base rentals equal to a percentage
of the property's cost. As additional rent, the Partnership receives a portion
of the operating revenues of the lessee equal to a percentage of gross receipts
(participating rentals) from travel plaza facilities and fuel sales. The term of
the leases is 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.
All Partnership property is leased to affiliates of Flying J Inc.
Minimum future rentals (excluding participating rentals) under
noncancellable operating leases as of December 31, 1997, are as follows:
F-8
<PAGE>
Year Ending December 31,
1998 $ 1,579,000
1999 1,579,000
2000 1,579,000
2001 1,579,000
2002 1,579,000
Thereafter 15,148,000
-----------
Total minimum future rentals $23,043,000
===========
4) MORTGAGE LOAN RECEIVABLE:
-------------------------
At December 31, 1997, the Partnership had a first mortgage loan on the
building and equipment of a Partnership travel plaza located in Ehrenberg,
Arizona. The loan provides for monthly installments of interest at a rate of 7%
per annum until June 30, 2003, at which time the entire principal balance is
due. The loan may not be prepaid in full or in part, except upon exercise of the
purchase option on the related travel plaza land. The cost of the mortgage for
Federal income tax purposes is the same as the cost for financial reporting
purposes.
The fair value of the first mortgage loan is estimated by discounting
the future cash flows using the prevailing interest rate at December 31, 1997,
and is lower than its carrying amount by $180,000. Changes in the fair value of
the first mortgage loan do not result in the realization or expenditure of cash
unless the loan is actually prepaid.
5) 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:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net income for financial reporting purposes $ 1,893,355 $ 1,891,905 $ 1,889,914
Differences for tax purposes in:
Depreciation 110,017 67,797 28,828
Organization cost amortization and other (7,901) (10,719) (11,552)
----------- ----------- -----------
Taxable income to partners $ 1,995,471 $ 1,948,983 $ 1,907,190
=========== =========== ===========
</TABLE>
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
$230,299. This difference results primarily from differences in
F-9
<PAGE>
depreciation methods and the treatment of property acquisition costs for
financial reporting and tax reporting purposes.
6) 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:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Disbursable cash fee $136,483 $104,960 $107,050
Property management fee (4% of the
Partnership's gross annual property revenues) 106,340 104,575 105,003
-------- -------- --------
$242,823 $209,535 $212,053
======== ======== ========
</TABLE>
The General Partner is entitled to a disbursable cash fee equal to nine
percent of all revenues received by the Partnership less Partnership operating
expenses, only to the extent the limited partners have received an annual return
of nine percent on their Adjusted Capital Contribution, as defined. The General
Partner or its affiliate may also be entitled to a subordinated real estate
disposition fee and an incentive share of sale proceeds, as defined in the
Partnership agreement.
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 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 $28,113 in 1997,
$22,689 in 1996 and $23,777 in 1995 for such expenses.
7) 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 $27 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 sales price of approximately $27 million, net of book
value of the assets to be sold, would have resulted in an estimated gain of $7
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 $980 to $1000 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-10
<PAGE>
SCHEDULE III
Page 1 of 2
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
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 Land Buildings Equipment Total Buildings Equipment Total Date Acquired
- ------------- ---- --------- --------- ----- --------- --------- ----- -------------
Location
--------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ehrenberg, AZ $ 1,250,000 $ -- $ -- $ 1,250,000 $ -- $ -- $ -- 6/93
Bakersfield, CA 101,050 5,195,950 495,838 5,792,838 811,867 288,968 1,100,835 1/93
Wytheville, VA 1,333,088 5,814,912 452,000 7,600,000 1,105,439 290,302 1,395,741 12/91
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total $ 2,684,138 $11,010,862 $ 947,838 $14,642,838 $ 1,917,306 $ 579,270 $ 2,496,576
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
F-11
<PAGE>
SCHEDULE III
Page 2 of 2
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
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 32 and eight years, respectively. 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 $14,642,838 $1,148,364
Depreciation expense - 451,269
----------- ----------
Balance, December 31, 1995 14,642,838 1,599,633
Depreciation expense - 449,208
----------- ----------
Balance, December 31, 1996 14,642,838 2,048,841
Depreciation expense - 447,735
----------- ----------
Balance, December 31, 1997 $14,642,838 $2,496,576
=========== ==========
F-12
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To FFCA/PIP III Investor Services Corporation:
We have audited the accompanying balance sheet of FFCA/PIP III INVESTOR SERVICES
CORPORATION (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 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 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/PIP III Investor Services
Corporation as of December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona,
January 6, 1998.
F-13
<PAGE>
FFCA/PIP III INVESTOR SERVICES CORPORATION
------------------------------------------
BALANCE SHEET - DECEMBER 31, 1997
---------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $100
Investment in Participating Income Properties III Limited Partnership,
at cost 100
----
Total Assets $200
====
LIABILITY
Payable to Parent (Note 2) $100
----
STOCKHOLDER'S EQUITY
Common Stock; $l par value; 100 shares authorized,
issued and outstanding 100
----
Liability and Stockholder's Equity $200
====
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-14
<PAGE>
FFCA/PIP III INVESTOR SERVICES CORPORATION
------------------------------------------
NOTES TO BALANCE SHEET
----------------------
DECEMBER 31, 1997
-----------------
(l) Operations:
FFCA/PIP III Investor Services Corporation (a Delaware corporation)
(the Corporation) was organized on December 5, 1988, and amended on July 9, 1990
to act as the assignor limited partner in Participating Income Properties III
Limited Partnership (PIP III).
The assignor limited partner is the owner of record of the limited
partnership units of PIP III. All rights and powers of the Corporation have been
assigned to the holders, who are the registered and beneficial owners of the
units. Other than to serve as assignor limited partner, the Corporation has no
other business purpose and will not engage in any other activity or incur any
debt.
(2) Related Parties:
Morton H. Fleischer is the sole stockholder of the Corporation.
F-15
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
BALANCE SHEETS
--------------
JUNE 30, 1998 AND DECEMBER 31, 1997
-----------------------------------
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
ASSETS
------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 624,687 $ 635,446
RECEIVABLES FROM LESSEES 49,000 44,000
MORTGAGE LOAN INTEREST RECEIVABLE 45,208 45,208
DEFERRED COSTS 4,888 --
MORTGAGE LOAN RECEIVABLE 7,750,000 7,750,000
PROPERTY SUBJECT TO OPERATING LEASES, at cost
Land 2,684,138 2,684,138
Buildings 11,010,862 11,010,862
Equipment 947,838 947,838
------------ ------------
14,642,838 14,642,838
Less - Accumulated depreciation 2,720,444 2,496,576
------------ ------------
11,922,394 12,146,262
------------ ------------
Total assets $ 20,396,177 $ 20,620,916
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
DISTRIBUTION PAYABLE TO LIMITED PARTNERS $ 579,520 $ 579,590
RENTAL DEPOSITS AND OTHER 252,467 253,269
------------ ------------
Total liabilities 831,987 832,859
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General partner (23,925) (21,687)
Limited partners 19,588,115 19,809,744
------------ ------------
Total partners' capital 19,564,190 19,788,057
------------ ------------
Total liabilities and partners' capital $ 20,396,177 $ 20,620,916
============ ============
</TABLE>
F-16
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
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 $ 394,870 $ 394,870 $ 789,740 $ 789,740
Participating rentals 153,548 136,589 274,527 248,322
Mortgage loan interest 135,625 135,625 271,250 271,250
Interest and other 5,922 6,002 12,383 11,343
---------- ---------- ---------- ----------
689,965 673,086 1,347,900 1,320,655
---------- ---------- ---------- ----------
EXPENSES:
General partner fees 71,113 66,718 116,539 102,517
Depreciation 111,934 111,934 223,868 223,868
Operating 33,582 21,099 60,823 47,589
---------- ---------- ---------- ----------
216,629 199,751 401,230 373,974
---------- ---------- ---------- ----------
NET INCOME $ 473,336 $ 473,335 $ 946,670 $ 946,681
========== ========== ========== ==========
NET INCOME ALLOCATED TO:
General partner $ 4,733 $ 4,733 $ 9,467 $ 9,467
Limited partners 468,603 468,602 937,203 937,214
---------- ---------- ---------- ----------
$ 473,336 $ 473,335 $ 946,670 $ 946,681
========== ========== ========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT (based on
26,709 units held by limited partners) $ 17.54 $ 17.54 $ 35.09 $ 35.09
========== ========== ========== ==========
</TABLE>
F-17
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
-----------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1998
--------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Limited Partners
General -----------------------------
Partner Number Total
Amount of Units Amount Amount
------ ----------- ------------ ------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ (21,687) 26,709 $ 19,809,744 $ 19,788,057
Net income 9,467 -- 937,203 946,670
Distribution to partners (11,705) -- (1,158,832) (1,170,537)
------------ ------------ ------------ ------------
BALANCE, June 30, 1998 $ (23,925) 26,709 $ 19,588,115 $ 19,564,190
============ ============ ============ ============
</TABLE>
F-18
<PAGE>
PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
-------------------------------------------------------
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 $ 946,670 $ 946,681
Adjustments to net income:
Depreciation 223,868 223,868
Change in assets and liabilities:
Increase in receivables from lessees (5,000) (7,094)
Increase in deferred costs (4,888) --
Decrease in payable to general partner -- (7,720)
Decrease in rental deposits and other (802) (4,264)
----------- -----------
Net cash provided by operating activities 1,159,848 1,151,471
----------- -----------
CASH FLOWS FOR FINANCING ACTIVITIES:
Partner distributions declared (1,170,537) (1,170,549)
Increase (decrease) in distribution payable
to limited partners (70) 207
----------- -----------
Net cash used in financing activities (1,170,607) (1,170,342)
----------- -----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (10,759) (18,871)
CASH AND CASH EQUIVALENTS, beginning of period 635,446 651,261
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 624,687 $ 632,390
=========== ===========
</TABLE>
F-19
<PAGE>
FFCA/PIP III INVESTOR SERVICES CORPORATION
------------------------------------------
BALANCE SHEET - JUNE 30, 1998
-----------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $100
Investment in Participating Income Properties III Limited Partnership, 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
====
</TABLE>
Note: FFCA/PIP III Investor Services Corporation (the Corporation) was
incorporated on December 5, 1988, and amended on July 9, 1990 to act as the
assignor limited partner in Participating Income Properties III Limited
Partnership (PIP III).
The assignor limited partner is the owner of record of the limited
partnership units of PIP III. All rights and powers of the Corporation have been
assigned to the holders, who are the registered and beneficial owners of the
units. Other than to serve as assignor limited partner, the Corporation has no
other business purpose and will not engage in any other activity or incur any
debt.
F-20
<PAGE>
CONSENT CARD
THIS CONSENT IS SOLICITED ON BEHALF OF
FFCA PARTICIPATING MANAGEMENT COMPANY LIMITED PARTNERSHIP
FOR PARTICIPATING INCOME PROPERTIES III LIMITED PARTNERSHIP
The undersigned Investor of Units representing interests in Participating Income
Properties III Limited Partnership, a Delaware limited partnership (the
"Partnership"), hereby directs FFCA/PIP III Investor Services Corporation to
consent to the Proposal, as designated below, the Limited Partnership Interests
held by FFCA/PIP III Investor Services Corporation, according to the number of
Units held of record by the undersigned.
This Consent Card when properly executed will direct the consent of FFCA/PIP III
Investor Services Corporation in the manner herein indicated by the undersigned.
If properly executed and no direction is made, the holder of this Consent Card
will direct FFCA/PIP III Investor Services Corporation 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 and the
Mortgage Loan 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.
