As filed with the Securities and Exchange Commission on January 20, 1995
REGISTRATION NO. 33-54767
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________________
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
__________________________________
AMERICAN REAL ESTATE PARTNERS, L.P.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3398766
(State of Organization) (IRS Employer Identification Number)
__________________________________
90 SOUTH BEDFORD ROAD
MT. KISCO, NY 10549
(914) 242-7700
(Address and Telephone Number of Registrant's Principal Executive Office)
__________________________________
JOHN P. SALDARELLI
AMERICAN REAL ESTATE PARTNERS, L.P.
90 SOUTH BEDFORD ROAD
MT. KISCO, NY 10549
(914) 242-7700
(Name, Address and Telephone Number of Agent for Service)
__________________________________
Copies to:
CRAIG S. MEDWICK, ESQ.
G. DAVID BRINTON, ESQ.
ROGERS & WELLS
200 PARK AVENUE
NEW YORK, NEW YORK 10166
__________________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the Registration Statement becomes effective.
________________________________
If the only securities being registered on this form are to be offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
__________________________________
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
<TABLE>
CROSS REFERENCE SHEET
FOR ITEMS IN PART I OF
FORM S-3
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<CAPTION>
<S>
Items of Form S-3 Location in Prospectus or Registration Statement
----------------- ------------------------------------------------
<C>
1. Forepart of Registration Forepart of registration statement; outside front
Statement and Outside Front cover page
Cover Page of Prospectus
2. Inside Front and Outside Back Inside front and outside back cover pages of
Cover Pages of Prospectus Prospectus
3. Summary Information, Risk Prospectus Summary; Selected Financial Information;
Factors and Ratio of Earnings Investment Considerations; Ratio of Earnings to
to Fixed Charges Combined Fixed Charges and Preferred Unit
Distributions
4. Use of Proceeds Use of Proceeds
5. Determination of Offering The Offering
Price
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution The Offering
9. Description of Securities to The Offering; Description of Securities
be Registered
10. Interests of Named Experts and Legal Matters
Counsel
11. Material Changes Not Applicable
12. Incorporation of Certain Incorporation of Certain Documents by Reference
Information by Reference
13. Disclosure of Commission Not Applicable
Position on Indemnification
for Securities Act Liabilities
</TABLE>
<PAGE>
<PAGE>
PROSPECTUS (Subject to Completion)
Dated January 20, 1995
AMERICAN REAL ESTATE PARTNERS, L.P.
SUBSCRIPTION RIGHTS, EXPIRING ____________ 1995, TO PURCHASE
DEPOSITARY UNITS REPRESENTING LIMITED PARTNER INTERESTS AND 5%
CUMULATIVE PAY-IN-KIND REDEEMABLE PREFERRED UNITS
---------------------------------
American Real Estate Partners, L.P., a Delaware limited partnership
("AREP" or the "Partnership"), is distributing at no cost to holders of record
as of the close of business on ____________, 1995 (the "Record Date") of
depositary units representing limited partner interests in the Partnership
(the "Depositary Units") one transferable subscription right (each, a
"Right") for each seven Depositary Units held. Each Right entitles the
holder thereof ("Rights Holders") to purchase, at any time prior to 5:00
p.m., New York City time, on __________, 1995 (as such date may be extended
by the Partnership as herein provided, the "Expiration Date"), at a
subscription price of $_____ (the "Subscription Price"), the following
securities (the "Basic Subscription Right"): (i) six Depositary Units and
(ii) one 5% cumulative pay-in-kind redeemable preferred unit representing a
limited partner interest in the Partnership (the "Preferred Units"). The
Subscription Price is allocable $_____ to the Depositary Units and $10 to the
Preferred Unit. The portion of the Subscription Price allocable to the
Depositary Units represents a discount to the last reported sales price for
the Depositary Units on the New York Stock Exchange, Inc. (the "NYSE") which
was $_____ on January ___, 1995. Each Rights Holder who exercises any
portion of his Basic Subscription Rights (an "Exercising Rights Holder") will
be entitled to exercise an over- subscription privilege (the
"Over-Subscription Privilege") for all or any portion of the Depositary Units
and Preferred Units that are not purchased through the exercise of Basic
Subscription Rights. If all Basic Subscription Rights are exercised, there
will be no Over-Subscription Privilege. There is no limit on the number of
Depositary Units and Preferred Units that Exercising Rights Holders may seek
to subscribe for pursuant to the Over-Subscription Privilege. The available
Preferred Units and Depositary Units will be allocated pro rata (according to
the aggregate number of Basic Subscription Rights exercised) among those
Rights Holders who exercise the Over-Subscription Privilege. The Depositary
Units and Preferred Units purchased through the exercise of Basic
Subscription Rights and the Over-Subscription Privilege must be purchased as
a unit consisting of six Depositary Units and one Preferred Unit and may not
be subscribed for separately. See "The Offering."
EXERCISING RIGHTS HOLDERS WILL HAVE NO RIGHT TO MODIFY OR RESCIND A
PURCHASE AFTER THE SUBSCRIPTION AGENT HAS RECEIVED A COMPLETED SUBSCRIPTION
CERTIFICATE. EXCEPT FOR THE GUARANTOR (DEFINED BELOW), ALL EXERCISING RIGHTS
HOLDERS MUST REMIT PAYMENT IN FULL WITH THEIR COMPLETED SUBSCRIPTION
CERTIFICATE FOR ALL DEPOSITARY UNITS AND PREFERRED UNITS SUBSCRIBED FOR
THROUGH THE EXERCISE OF BASIC SUBSCRIPTION RIGHTS AND THE OVER-SUBSCRIPTION
PRIVILEGE. SEE "THE OFFERING - PAYMENT FOR SECURITIES."
_________________, a Delaware limited partnership (the "Guarantor")
whose general partner is American Property Investors, Inc. (the "General
Partner"), the general partner of the Partnership, has agreed, subject to
certain conditions contained in the Subscription Guaranty Agreement (as
defined herein), (i) to subscribe for and purchase 1,147,248 Depositary Units
and 191,208 Preferred Units through the exercise of its Basic Subscription
Rights and (ii) to subscribe for all other Depositary Units and
Preferred Units pursuant to the Over-Subscription Privilege, and, subject to
proration as described above, to purchase such additional Depositary Units
and Preferred Units (the "Subscription Guaranty"). Therefore, assuming the
conditions in the Subscription Guaranty Agreement are satisfied, the
Partnership is assured of receiving an amount equal to the amount it would
have raised had all Basic Subscription Rights been exercised in full,
approximately $110,000,000 assuming the issuance of 2,000,000 Rights (the
"Guaranteed Amount"). No fee is being paid to the Guarantor for the
Subscription Guaranty, except that any Units (as defined herein) held by the
Guarantor will be subject to a registration rights agreement. See "The
Rights Offering - Subscription Guaranty."
Each Preferred Unit will have a liquidation preference of $10.00 and
will entitle the holder thereof to receive distributions thereon, payable
solely in additional Preferred Units, at the rate of $.50 per Preferred Unit
per annum (which is equal to a rate of 5% of the liquidation preference
thereof) payable annually on ____________ of each year (each, a "Payment
Date), commencing with the Payment Date on __________, 1996. The Preferred
Units are subject to (i) redemption at the option of the Partnership on any
Payment Date commencing with the Payment Date on _________, 2000 and (ii)
mandatory redemption by the Partnership on ________, 2010. The redemption
price is payable at the option of the Partnership either in cash or by
issuance of additional Depositary Units. See "Description of Securities - The
Preferred Units - Redemption." Holders of Preferred Units will incur taxable
income each year even though no cash is distributed. See "Description of
Securities - The Preferred Units" and "Income Tax Considerations."
The Rights are freely transferable and the Partnership will seek to
list the Rights on the NYSE. There can be no assurance, however, that the
Rights will be accepted for listing on such exchange or that a market for the
Rights will develop. The Depositary Units currently outstanding are, and
those issued on exercise of the Rights, will be, listed on the NYSE under the
Symbol "ACP." There is no existing market for the Preferred Units; however,
the Partnership will seek to list the Preferred Units on the NYSE. There can
be no assurance, however, that the Preferred Units will be accepted for
listing on such exchange or that a market for the Preferred Units will
develop.
______________________________
PROSPECTIVE PURCHASERS OF THE UNITS SHOULD CONSIDER THE SPECIFIC
INVESTMENT CONSIDERATIONS SET FORTH UNDER "INVESTMENT CONSIDERATIONS."
______________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
______________________________
[S] [C] [C]
Subscription Proceeds to
Price Partnership(1)(2)
------------------- -------------------
Per Unit . . . . . . . . . $_____ $_____
Total(3) . . . . . . . . . $__________ $__________
____________________
(1) Before deducting expenses of the Partnership estimated to be
$__________.
(2) No underwriting discounts or commissions will be paid in
connection with the offering.
(3) Assumes issuance and exercise of 2,000,000 Rights.
__________, 1995
<PAGE>
AVAILABLE INFORMATION
The Partnership is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and
other information filed by the Partnership may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Office
of the Commission: Jacob K. Javits Federal Building, 26 Federal Plaza, New
York, New York 10278. Copies of such material may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, reports and
other information concerning the Partnership may be inspected at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005.
The Partnership has filed with the Commission a Registration
Statement (the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"), with respect to the securities offered
hereby. This Prospectus omits certain information included in such
Registration Statement. For further information about the Partnership and
the securities offered hereby, reference is hereby made to such
Registration Statement and to the exhibits filed as part thereof. The
Registration Statement may be examined without charge, and copies thereof
may be obtained upon payment of a prescribed fee, at the principal office
of the Commission in Washington, D.C.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Partnership with the Commission
are incorporated in and made a part of this Prospectus by reference:
(1) the Partnership's annual report on Form 10-K, as
amended by Form 10-K/A-1 filed on December 8, 1994,
for the year ended December 31, 1993;
(2) the Partnership's quarterly reports on Form 10-Q for
the quarterly periods ended March 31, 1994, June 30,
1994 and September 30, 1994; and
(3) the Partnership's Current Report on Form 8-K filed on
August 10, 1994.
All documents filed by the Partnership pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
the termination of the offering made hereby shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of
filing such documents.
Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus, or
contained in any other document incorporated by reference herein, modifies
or supersedes such statement. Any such statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a
part of this Prospectus.
The Partnership will furnish without charge to each person to whom
this Prospectus is delivered, on the written or oral request of any such
person, a copy of any or all of the documents incorporated herein by
reference (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into such documents). Written or
telephone requests for such copies should be directed to the Partnership,
90 South Bedford Road, Mt. Kisco, New York 10549 , (914) 242-7700.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus. As used in
this Prospectus, unless the context otherwise indicates, "AREP" or the
"Partnership" means American Real Estate Partners, L.P. and its direct and
indirect subsidiaries. All references in this Prospectus to "Unitholders"
shall refer to holders of Depositary Units and holders of Preferred Units,
unless the context otherwise indicates. All references in this Prospectus
to "Units" shall refer to the Depositary Units and the Preferred Units,
unless the context otherwise indicates. All references in this Prospectus
to the aggregate number of Rights, Depositary Units and Preferred Units
issued and to numbers derived therefrom are based on the assumption that
2,000,000 Rights are issued. The number of Rights actually issued is
subject to change based on the number of Depositary Units held by each
record holder or beneficial owner due to rounding (described below).
THE PARTNERSHIP AND PURPOSE OF THE OFFERING
AREP is engaged in the business of acquiring and managing real estate
and activities related thereto. Historically, the properties owned by AREP
have been primarily office, retail, industrial, residential and hotel
properties, many of which were net-leased to tenants. By the end of the year
2000, net leases representing approximately 26% of AREP's net annual rentals
from its portfolio will be due for renewal, and by the end of the year 2002,
net leases representing approximately 40% of AREP's net annual rentals will
be due for renewal. In many of these leases, the tenant has an option to
renew at the same rents they are currently paying and in many of these leases
the tenant also has an option to purchase. The Partnership believes that
tenants acting in their best interest may be expected to renew those leases
which will be at below market rents, while leases for properties that are
less marketable (either as a result of the condition of the property or its
location) or at above-market rents may well be turned back to AREP. Since
most of AREP's properties are net leased to single corporate tenants, it is
expected that it may be difficult, or at the very least, take a fair amount
of time to re-lease or sell those properties that existing tenants decline to
re-let or purchase and the Partnership may be required to incur expenditures
to renovate properties for new tenants. In addition, the Partnership may
become responsible for the payment of certain expenses, including
maintenance, utilities, taxes, insurance and environmental compliance costs,
associated with such properties which are presently the responsibility of the
tenant. As a result, AREP could experience an impact on net revenue from
such properties in the next decade.
The Partnership has begun acquiring assets that it believes are
undervalued, such as development properties and non-performing loans, which
the General Partner (as defined herein) believes have the potential to
diversify and enhance the long-term value of AREP's portfolio and its return
on investment. The Partnership is seeking to raise additional funds to
increase its assets available for investment so that it will be in a better
position to take further advantage of investment opportunities in the real
estate market and further diversify its portfolio and mitigate against the
impact of lease expirations. There can be no assurance, however, that the
Partnership will be able to take advantage of such opportunities.
In addition, the Offering seeks to reward Unitholders by giving them
the right to purchase additional Depositary Units at a price below market
without incurring a commission charge. The distribution to Unitholders of
Rights which themselves may have intrinsic value will also afford
non-participating Unitholders the potential of receiving a cash payment upon
sale of such Rights, receipt of which may be viewed as partial compensation
for the dilution of their interest in the Partnership and the possible
adverse effect on the prevailing market price of the Depositary Units
resulting from the Offering.
A substantial portion of the proceeds will be used to fund additional
portfolio investments. In evaluating potential acquisitions, the cash flow
generated by a property will be a consideration, but the Partnership may
acquire properties that are not expected to generate positive cash flow in
the near term. While this may impact cash flow in the near term and there
can be no assurance that any property acquired by the Partnership will
increase in value or generate positive cash flow, management intends to focus
on assets that it believes are undervalued in the current real estate market
and may provide opportunities for long-term growth and diversification of its
portfolio. Investment by the Partnership in certain types of assets that may
be regarded as non-income producing, such as land or non-performing loans, is
currently restricted under the Partnership's Senior Unsecured Debt. The
holders of the Senior Unsecured Debt have agreed, however, to waive this
restriction with respect to any additional capital raised by AREP in the
Offering. The Note Agreements (as defined herein) for the Senior Unsecured
Debt contain certain other covenants restricting the activities of the
Partnership.
3
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The Partnership was formed under the laws of the State of Delaware on
February 17, 1987. Its general partner is American Property Investors,
Inc. (the "General Partner"), a Delaware corporation which is wholly owned
by Carl C. Icahn ("Icahn"). AREP's business is conducted through a
subsidiary limited partnership, American Real Estate Holdings Limited
Partnership (the "Subsidiary"), in which AREP owns a 99% limited
partnership interest. The General Partner also acts as the general partner
for the Subsidiary. The General Partner has a 1% general partnership
interest in each of AREP and the Subsidiary, and, upon completion of the
offering made hereby, the General Partner will contribute additional
capital to the Partnership in the amount necessary to maintain its 1%
general partner interest in AREP. The Subsidiary may, from time to time,
form additional subsidiaries to acquire real estate or real estate-related
assets. In connection with the acquisition, management, development and
financing of its assets, affiliates of the General Partner may be paid
certain fees and expenses. See "Investment Considerations" and "Purpose
of the Offering and Use of Proceeds."
THE OFFERING
Terms of the Offer
The Partnership is issuing to holders of record (the "Record Date
Holders") as of the close of business on ____________, 1995 (the "Record
Date") of depositary units representing its limited partner interests
("Depositary Units") one transferable subscription right (each, a "Right")
for each seven Depositary Units held. Each Right entitles the holder
thereof (the "Rights Holder") to purchase, at any time prior to 5:00 p.m.,
New York City time, on ______________, 1995 (as such date may be extended
by the Partnership as herein provided, the "Expiration Date"), at a
subscription price of $_____ (the "Subscription Price") the following
securities: (i) six Depositary Units and (ii) one 5% cumulative pay-in-
kind redeemable preferred unit representing a limited partner
interest in the Partnership (the "Preferred Units"). The number of Rights
to be issued to a Record Date Holder of a number of Depositary Units not
divisible by seven is determined by multiplying the number of Depositary
Units held by such Record Date Holder on the Record Date by .14 and then
rounding up to the nearest whole number if the fractional amount is greater
than or equal to .5 and rounding down to the nearest whole number if the
fractional amount is less than .5.
The Subscription Period shall commence on _____________, 1995 and
will end on the Expiration Date. The Rights are evidenced by subscription
certificates (the "Subscription Certificates") which will be mailed to
Record Date Holders except as discussed below under "Sale of API Nominee
Corp. Rights" and "Foreign Restrictions."
The right of a Rights Holder to acquire during the subscription
period at the Subscription Price six Depositary Units and one Preferred
Unit is hereinafter referred to as a "Basic Subscription Right." The
Depositary Units and Preferred Units purchased through the exercise of
Basic Subscription Rights must be purchased as a unit consisting of six
Depositary Units and one Preferred Unit and may not be subscribed for
separately. All Rights may be exercised immediately upon receipt and until
5:00 p.m., New York City time, on the Expiration Date. Rights Holders
exercising any of their Basic Subscription Rights are hereinafter referred
to as "Exercising Rights Holders."
Securities Offered
Each Right entitles the Rights Holder to purchase six Depositary
Units and one Preferred Unit at a Subscription Price equal to $__________.
The Subscription Price is allocable $_____ to the Depositary Units and $10
to the Preferred Unit. The portion of the Subscription Price allocable to the
Depositary Units represents a discount to the last reported slaes price of
$______ for the Depositary Units on the NYSE on January __, 1995. The
Depositary Units have been priced at a discount to the market price to reward
the Partnership's Unitholders and to make the Depositary Units attractive to
investors. The discount may result in a reduction in the market price of the
Depositary Units, however, the Partnership cannot predict what impact, if
any, such discount will have on the market price of the Depositary Units.
The Depositary Units currently trade on the NYSE under the symbol "ACP."
There is no existing market for the Preferred Units; however, the Partnership
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will seek to list the Preferred Units on the NYSE. There can be no assurance,
however, that the Preferred Units will be accepted for listing on such
exchange or that a market for the Preferred Units will develop.
Each Preferred Unit will have a liquidation preference of $10.00 and
will entitle the holder thereof to receive distributions thereon, payable
solely in additional Preferred Units, at the rate of $.50 per Preferred Unit
per annum (which is equal to a rate of 5% of the liquidation preference
thereof), payable annually on ___________ of each year (each, a "Payment Date
), commencing ___________, 1996. On any Payment Date commencing with the
Payment Date on __________, 2000, the Partnership, with the approval of the
Audit Committee of the Board of Directors of the General Partner, may opt to
redeem all, but not less than all, of the Preferred Units for a price,
payable either in cash or Depositary Units equal to the liquidation
preference of the Preferred Units, plus any accrued but unpaid distributions
thereon. See "Description of Securities - The Preferred Units - Redemption."
On _________, 2010 the Partnership must redeem all, but not less than all,
of the Preferred Units on the same terms as any optional redemption. Holders
of Preferred Units will be allocated taxable income each year equal to the
accrual of distributions, even though no cash has been distributed during the
year. See "Income Tax Considerations."
As of January 19, 1995, there were 13,812,800 Depositary Units and no
Preferred Units outstanding. After giving effect to the Offering, there will
be approximately 25,812,800 Depositary Units and approximately 2,000,000
Preferred Units outstanding depending upon the number of Rights issued
and exercised.
Over-Subscription Privilege
If all Basic Subscription Rights are not exercised in full, each
Exercising Rights Holder will be entitled to subscribe for all or any portion
of the Depositary Units and Preferred Units which were not otherwise
subscribed for by other Rights Holders (the "Over-Subscription Privilege").
The Depositary Units and Preferred Units purchased pursuant to the
Over-Subscription Privilege must be purchased as a unit consisting of six
Depositary Units and one Preferred Unit and may not be subscribed for
separately. The available Depositary Units and Preferred Units will be
allocated pro rata (according to the aggregate number of Basic Subscription
Rights exercised) among those Exercising Rights Holders who exercise the
Over-Subscription Privilege. If all Basic Subscription Rights are exercised
in full, the Over-Subscription Privilege will not be available.
Subscription Guaranty
The Guarantor, which, together with its affiliates, holds 1,365,768
Depositary Units (9.89%), has agreed, subject to certain conditions
contained in the Subscription Guaranty Agreement, (i) to subscribe for and
purchase 1,147,248 Depositary Units and 191,208 Preferred Units through the
exercise of its Basic Subscription Rights and (ii) to subscribe for all
other Depositary Units and Preferred Units pursuant to the Over-Subscription
Privilege, and, subject to proration, as described above, to purchase such
additional Depositary Units and Preferred Units (the "Subscription
Guaranty"). As a result, assuming the conditions in the Subscription
Guaranty Agreement are satisfied, the Partnership is assured of receiving
gross proceeds from the Offering in an amount equal to the amount it would
have raised had all Basic Subscription Rights been exercised in full,
approximately $110,000,000 assuming the issuance of 2,000,000 Rights (the
"Guaranteed Amount"). The Guarantor will receive certain registration rights
with respect to its Units for providing the Subscription Guaranty but will
not otherwise be compensated. See "The Partnership - Subscription Guaranty -
Registration Rights Agreement." The terms of such Subscription Guaranty and
the registration rights were reviewed and approved by the Audit Committee of
the Board of Directors of the General Partner.
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The Guarantor has applied to the Commission for an exemption
(the "Exemption") to permit the Guarantor to purchase Rights during the
Offering. If the Exemption is granted, the Guarantor intends to
purchase Rights consistent with the Exemption solely with
the intention of exercising such Rights. Any Depositary Units and Preferred
Units purchased pursuant to the exercise of any such Rights will be
acquired for investment purposes only.
If no Rights are exercised by Rights Holders other than the
Guarantor, it would beneficially own 13,365,768 Depositary Units or
approximately 51.78% of the then outstanding Depositary Units and all of
the Preferred Units.
Exercising Rights
Rights will be evidenced by Subscription Certificates (see Appendix
A) and may be exercised by completing a Subscription Certificate and
delivering it, together with full payment either by means of a notice of
guaranteed delivery (see Appendix B) or a check to Registrar and Transfer
Company (the "Subscription Agent") at the address set forth under "The
Offering - Subscription Agent." EXCEPT FOR THE GUARANTOR, ALL EXERCISING
RIGHTS HOLDERS MUST REMIT PAYMENT IN FULL WITH THEIR COMPLETED SUBSCRIPTION
CERTIFICATE FOR ALL DEPOSITARY UNITS AND PREFERRED UNITS SUBSCRIBED FOR
THROUGH THE EXERCISE OF BASIC SUBSCRIPTION RIGHTS AND THE OVER-SUBSCRIPTION
PRIVILEGE. SEE "THE OFFERING - PAYMENT FOR SECURITIES." EXERCISING RIGHTS
HOLDERS WILL HAVE NO RIGHT TO MODIFY OR RESCIND A PURCHASE AFTER THE
SUBSCRIPTION AGENT HAS RECEIVED A COMPLETED SUBSCRIPTION CERTIFICATE.
Sales of Rights
The Rights are freely transferable until the close of business on the
last Business Day (defined below) prior to the Expiration Date. The
Partnership will seek to list the Rights on the NYSE; however, there can be
no assurance that the Rights will be accepted for listing on such exchange
or that a market for the Rights will develop. Rights may be sold by a
Rights Holder on or before the last Business Day prior to the Expiration
Date. The Partnership is not responsible if Rights cannot be sold and has
not guaranteed any minimum sales price for the Rights. For purposes of
this Prospectus, a "Business Day" means any day on which trading is
conducted on the NYSE.
Sale of API Nominee Corp. Rights
Pursuant to an exchange offer which was consummated on July 1, 1987
(the "Exchange"), AREP acquired the real estate and other assets of 13
limited partnerships (the "Predecessor Partnerships"). In connection with
the Exchange, the Depositary Units of certain non-consenting investors in
the Predecessor Partnerships issued in connection with the Exchange were
registered in the name of API Nominee Corp. (the "Nominee Corp."). As of
January 18, 1995, Nominee Corp. held 161,921 Depositary Units. Unless such
non-consenting investors execute and return their transfer applications and
the certificates evidencing their interests in the Predecessor Partnerships
issued in connection with the Exchange, thereby becoming holders of record
of the Depositary Units held by Nominee Corp., prior to the Record Date,
Nominee Corp. shall use its reasonable efforts to sell the Rights issued to
Nominee Corp. and the proceeds from such sale, if any, will be held in
escrow by Nominee Corp. Neither the General Partner nor the Guarantor
intends to purchase Rights from Nominee Corp.
Foreign Restrictions
Subscription Certificates will not be mailed to Record Date Holder's
record addresses outside the United States (for these purposes, the United
States includes its territories and possessions and the District of
Columbia) ("Foreign Record Date Unitholders"). The Rights to which such
Subscription Certificates relate will be held by the Subscription Agent for
such Foreign Record Date Unitholders' accounts until instructions are
received to exercise, sell or transfer the Rights. If no instructions have
been received by 12:00 noon, New York City time, three Business Days prior
to the Expiration Date, the Subscription Agent will use its reasonable
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efforts to sell the Rights of those Foreign Record Date Unitholders. The
net proceeds, if any, from the sale of those Rights will be remitted to the
Foreign Record Date Unitholders.
<TABLE>
IMPORTANT DATES TO REMEMBER
<CAPTION>
Event Date
---- ----
<S> <C>
Record Date ________________, 1995
Subscription Period ____________, 1995 to __________, 1995
Expiration Date ________________, 1995 (unless extended)
Last Guaranteed Transfer Date ________________, 1995 (unless extended)
Payment for Depositary Units and Preferred Units
and Notice of Guaranteed Delivery Due________________, 1995 (unless extended)
Subscription Certificates due pursuant
to Notice of Guaranteed Delivery ________________, 1995 (unless extended)
</TABLE>
Additional information regarding the pertinent dates related to the
Offering can be found on pages ___ herein, and additional information
regarding the Offering may be obtained from ________, at the offices of the
Partnership at (800) 255-2737 or the Subscription Agent at (800) ________.
INVESTMENT CONSIDERATIONS
Each Rights Holder who subscribes for the purchase of Depositary
Units and Preferred Units pursuant to the Offering described in this
Prospectus shall be deemed to have applied for admission as a limited partner
of the Partnership with respect to the Units acquired and to have agreed to
be bound by all of the terms and conditions of the Partnership Agreement (as
defined herein), as from time to time in effect. See "Description of the
Partnership Agreement." Prospective purchasers of Units should carefully
consider the matters discussed under "Investment Considerations" prior to any
investment in the Partnership. Such matters include, among others:
POTENTIAL DILUTION. Upon completion of the Offering, holders of
Depositary Units who do not exercise their Basic Subscription Rights in full
will own a smaller proportional interest in the Partnership. The only way
for a Unitholder to avoid dilution is to exercise all of its Basic
Subscription Rights.
CONTROL OF THE PARTNERSHIP BY ICAHN. As of the date of this
Prospectus, the Guarantor beneficially owns approximately 9.89% of the
outstanding Depositary Units. If no Rights are exercised by Rights Holders
other than the Guarantor, the Guarantor would beneficially own approximately
51.78% of the then outstanding Depositary Units and all of the Preferred
Units. The affirmative vote of Unitholders holding more than 75% of the
total number of Depositary Units then outstanding including Depositary Units
held by the General Partner and its affiliates is required to remove the
General Partner. Thus, if after the Offering the Guarantor owns more than
25% of all outstanding Depositary Units, the General Partner will not be able
to be removed without the consent of Icahn. Moreover, the affirmative vote
of the General Partner and Unitholders owning more than 50% of the total
number of all outstanding Depositary Units then held by Unitholders,
including the Guarantor, is required to approve certain extraordinary actions
taken by the Partnership. Accordingly, if the Guarantor acquires more than
50% of all outstanding Depositary Units, Icahn, through the Guarantor, will
have control over the taking of these actions by the Partnership.
RISKS ASSOCIATED WITH ACQUISITION OF PREFERRED UNITS. The Preferred
Units call for distributions to be paid in kind. Holders of Preferred Units
will not receive any payment from the Partnership in respect thereof unless
such securities are redeemed for cash in accordance with the terms thereof
and will have no voting rights or be entitled to participate in any decisions
regarding the management of the Partnership except in certain limited
circumstances. The Preferred Units have no preemptive rights or
anti-dilution protection and they may be redeemed at the option of the
Partnership on any Payment Date commencing with the Payment Date on ____,
2000 for a price payable either in cash or Depositary Units. There is no
existing market for the Preferred Units, and there can be no assurance that a
market for the Preferred Units will develop.
UNSPECIFIED ACQUISITIONS. No properties have as yet been
identified for acquisition by the Partnership and the determination
of which properties are to be acquired will be within the sole
control of the General Partner.
CONFLICTS OF INTEREST. Affiliates of the General Partner may
realize substantial fees, commissions and other income from transactions
involving the purchase, operation, management, development, financing and
sale of the Partnership's properties, subject to certain limitations on
properties acquired from the Predecessor Partnerships. The Partnership may
also enter into management or other arrangements with the General Partner or
its affiliates. In addition, subject to the terms of the Partnership
Agreement, the General Partner has absolute discretion to act on behalf of
the Partnership with respect to all transactions with affiliates, and such
transactions may not be the result of arm's- length negotiations. The
General Partner is entitled to receive a reinvestment incentive fee for
performing certain acquisition services. Certain of the individuals who
conduct the affairs of the General Partner, and indirectly those of the
Partnership, are and will in the future be committed to the management of
other entities that own real estate and may be engaged in other business
activities. Conflicts may arise between the interests of the Partnership and
the other entities in which such individuals are involved. In addition,
affiliates of the General partner may also compete directly with the
Partnership.
NO LIMITATION ON DEBT. Upon completion of the Offering, assuming
the Partnership uses a portion of the proceeds to prepay in full its Senior
Unsecured Debt (as defined below), the Partnership will no longer be subject
to the contractual restrictions contained therein on the level of net annual
rentals it must receive from unencumbered properties or its ability to create
liens and incur debts. See "Use of Proceeds" below.
Certain Tax Considerations. Favorable tax treatment of the
Partnership and the Subsidiary depends, in large part, on the classification
of the Partnership and the Subsidiary as partnerships for federal income tax
purposes. Based on certain representations by the General Partner, counsel
to the Partnership is of the opinion that, under current law, the Partnership
and the Subsidiary will be classified as partnerships for federal income tax
purposes. However, this opinion of counsel is not binding on the Internal
Revenue Service (the "IRS") or any court and the IRS may challenge the
classification of the Partnership or the Subsidiary as a partnership. The
law is not entirely clear as to the proper method of allocation of income and
loss in the case of the issuance by a partnership of units having the
characteristics of the Depositary Units and Preferred Units. The General
Partner has modified the Partnership Agreement to provide that income will be
accrued to the Preferred Units as a "guaranteed payment" under Section 707(c)
of the Internal Revenue Code of 1986, as amended, based on the accrual of the
liquidation preference. There is no assurance that the IRS will respect this
treatment for tax purposes. In addition, certain aspects of the allocation
of taxable income and loss between existing holders of Depositary Units and
holders of Depositary Units issued upon exercise of Rights are not entirely
clear and may be subject to challenge by the IRS. Each Unitholder will be
taxed on the Unitholder's allocable share of the Partnership's taxable income
and gains and accrued guaranteed payments, whether or not any cash is
distributed to the Unitholder.
ADDITIONAL CONSIDERATIONS. The Partnership may utilize leverage in
connection with its investments which may have the effect of increasing the
risks of such investments. The Partnership's cash flow has decreased in
recent years and one of the results has been the suspension of distributions
to Unitholders. The Partnership also has significant maturing debt
requirements in the next several years and is subject to certain operating
restrictions under the agreements relating to its Senior Unsecured Debt. For
a further discussion of these and certain other considerations, investors
should carefully review "Investment Considerations" below.
USE OF PROCEEDS
The General Partner has determined that it is in the best interests of
the Partnership and its Unitholders to increase the assets of the Partnership
available for investment so that the Partnership will be in a better position
to take advantage of investment opportunities in the real estate market and
to further diversify its portfolio. While the Partnership does not have
pending any negotiations or agreements regarding property acquisitions and no
properties have been identified for investment, approximately $________ of
the proceeds from the Offering (estimated to be approximately $__ million
after payment of offering expenses which are estimated to be approximately
$__________) will be used to further diversify and expand the Partnership's
investment portfolio and subject to the negotiation of terms favorable to the
Partnership, the balance will be used to prepay its Senior Unsecured Debt. If
the Senior Unsecured Debt is not prepaid, such funds will be used for
additional portfolio investments. See "Purpose of the Offering and Use of
Proceeds."
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INVESTMENT CONSIDERATIONS
POTENTIAL DILUTION
Upon completion of the Offering contemplated hereby, holders of
Depositary Units who do not exercise their Basic Subscription Rights in full
will own a smaller proportional interest in the Partnership than would be the
case if the Offering had not been made, thereby reducing such holders'
influence on matters on which holders of Depositary Units are entitled to
vote. Therefore, the only way to avoid dilution is for a Unitholder to
exercise all of its Basic Subscription Rights. See "- Risks Associated with
Acquisition of Preferred Units." In addition, the Depositary Units have been
priced at a discount to the market price to reward the Partnership's
Unitholders and to make the Depositary Units attractive to investors. The
discount may result in a reduction in the market price of the Depositary
Units, however, the Partnership cannot predict what impact, if any, the
discount will have on the market price of the Depositary Units.
CONTROL OF THE PARTNERSHIP BY ICAHN
The Guarantor is a Delaware limited partnership. The general partner
of the Guarantor will be American Property Investors, Inc., a Delaware
corporation wholly owned by Icahn and the general partner of the Partnership.
American Property Investors, Inc. will contribute all of the Depositary
Units held by it and its affiliates to the Guarantor in exchange for its
general partnership interest in the Guarantor. The Guarantor's limited
partner will be ACF Industries, Incorporated ("ACF"), a New Jersey
corporation that is controlled by Icahn. ACF will enter into an agreement
with the Guarantor pursuant to which ACF will agree to contribute to the
Guarantor sufficient funds to permit the Guarantor to exercise all Rights
issued to it and to fulfill its obligations under the Subscription Guaranty.
The Guarantor has applied for an Exemption to permit the Guarantor to
purchase Rights during the Offering. If the Exemption is granted, the
Guarantor intends to purchase Rights consistent with the Exemption solely
with the intention of exercising them to purchase Depositary Units and
Preferred Units for investment purposes. The purchase and exercise of
additional Rights will increase the Guarantor's pro rata allocation of
Depositary Units and Preferred Units in the Over-Subscription Privilege if
the number of Depositary Units and Preferred Units subscribed for by Rights
Holders (including the Guarantor) exercising the Over-Subscription Privilege
exceeds the number available.
As of the date hereof, Icahn beneficially owns 9.89% of the
outstanding Depositary Units. Upon completion of the offering contemplated
hereby, Icahn (through the Guarantor) will, assuming no other Rights Holder
exercises his Basic Subscription Rights, acquire up to 12,000,000
additional Depositary Units (representing 46.49% of the Depositary Units
outstanding after giving effect to the Offering). In addition, assuming
that no one but the Guarantor exercises his Basic Subscription Rights,
Icahn (through the Guarantor) will acquire all of the outstanding Preferred
Units.
Under the Partnership's Amended and Restated Agreement of Limited
Partnership (as further amended to reflect the issuance of the Preferred
Units offered hereby, the "Partnership Agreement"), all decisions
concerning the management of the Partnership, including selection of the
properties in which the Partnership will invest and the payment of
distributions on the Depositary Units and the Preferred Units, are made by
the General Partner, which is wholly owned by Icahn. Unitholders have no
right or power to take part in the management of the Partnership. The
affirmative vote of Unitholders holding more than 75% of the total number
of all Depositary Units then outstanding, including Depositary Units held
by the General Partner and its affiliates, is required to remove the
General Partner. Thus, if the Guarantor owns more than 25% of all
outstanding Depositary Units after the Offering, the General Partner will
not be able to be removed pursuant to the terms of the Partnership
Agreement without Icahn's consent. Moreover, under the Partnership
Agreement, the affirmative vote of the General Partner and Unitholders
owning more than 50% of the total number of all outstanding Depositary
Units then held by Unitholders, including the Guarantor, is required to
approve, among other things, selling or otherwise disposing of all or
substantially all of the Partnership's assets in a single sale or in a
related series of multiple sales, dissolving the Partnership or electing to
continue the Partnership in certain instances, electing a successor general
partner, making certain amendments to the Partnership Agreement or causing
the Partnership, in its capacity as sole limited partner of the Subsidiary,
to consent to certain proposals submitted for the approval of the limited
partners of the Subsidiary. Accordingly, if the Guarantor acquires more
than 50% of all outstanding Depositary Units, Icahn, through the Guarantor
will have effective control over such approval rights.
8
<PAGE>
REGISTRATION RIGHTS GRANTED TO THE GUARANTOR
In consideration of the Subscription Guaranty, the Guarantor has been
granted two demand and unlimited piggyback registration rights with respect
to its Units. These registration rights are set forth in a Registration
Rights Agreement, dated the date hereof (the "Registration Rights Agreement").
Under the Registration Rights Agreement, the Partnership has agreed to pay
any expenses incurred in connection with a registration requested under the
Registration Rights Agreement. No prediction can be made as to the effect,
if any, that market sales of Units or the availability of Units for sale will
have on the market price of the Units prevailing from time to time.
Nevertheless, sales of substantial amounts of Units in the public market
could adversely affect prevailing market prices.
RISKS ASSOCIATED WITH ACQUISITION OF PREFERRED UNITS
The Preferred Units offered hereby involve certain risks to
investors, including the following:
PAYMENT-IN-KIND. The Preferred Units, by their terms, call for
distributions to be paid in kind as permitted under the partnership laws of
the State of Delaware. Consequently, holders of the Preferred Units will not
receive any payment from the Partnership in respect thereof unless such
securities are redeemed in accordance with the terms thereof.
NO ANTI-DILUTION PROTECTION. The Preferred Units
have no preemptive rights or anti-dilution protection. The Board of
Directors of the General Partner has the power, without any further action
by the Unitholders, to issue additional Units with such designations,
preferences and relative, participating or other special rights, powers and
duties, including rights, powers and duties senior to existing classes of
Depositary Units or Preferred Units.
LIMITED VOTING RIGHTS. Under the Partnership Agreement, the
holders of Preferred Units will have no voting rights and will not be
entitled to participate in any decisions regarding the management of the
Partnership except that in the event that a distribution, which is to be
paid in kind, is not made to the holders of Preferred Units on any two
Payment Dates (which Payment Dates need not be consecutive), the holders of
more than 50% of all outstanding Preferred Units, voting as a class, shall
be entitled to appoint two nominees for the Board of Directors of the
General Partner. Once elected, the nominees will be appointed to the Board
of Directors of the General Partner by Icahn. As directors, the nominees
will, in addition to their other duties, be specifically charged with
reviewing all future distributions to holders of Preferred Units. Such
directors shall serve until the full distributions accumulated on all
outstanding Preferred Units have been declared and paid or set aside for
payment. If the Guarantor acquires more than 50% of all outstanding
Preferred Units, Icahn, through the Guarantor, will have effective control
over such appointment. In addition, Icahn, as sole shareholder of the
General Partner, will effectively control if distributions are made to the
holders of Preferred Units.
ABSENCE OF PRIOR PUBLIC MARKET. There is no existing market for the
Preferred Units; however, the Partnership will seek to list the Preferred
Units on the NYSE, although there can be no assurance that they will be
accepted for listing on such exchange. No assurance can be given that the
market price or liquidity of the Preferred Units will not be adversely
affected by the possible non- listing of the Preferred Units. Of course,
even if the Preferred Units are accepted for listing on the NYSE, there can
be no assurance that a market for the Preferred Units will develop.
Therefore, an investment in the Preferred Units may be relatively illiquid.
REDEMPTION. The Preferred Units are subject to (i) redemption
at the option of the Partnership on any Payment Date commencing with the
Payment Date on _________, 2000 and (ii) mandatory redemption by the
Partnership on _________, 2010. The redemption price is payable at the option
of the Partnership either in cash or by issuance of additional Depositary
Units. See "Description of Securities - The Preferred Units." In
addition, potential investors should refer to "Certain Tax Considerations -
Tax Liabilities in Excess of Cash Distributions" for further information
regarding the tax consequences of holding Preferred Units.
UNSPECIFIED ACQUISITIONS
A substantial portion of the proceeds of this Offering are to be used
to fund the acquisition of additional properties by the Partnership. No
properties have as yet been identified for acquisition and the
determination of which properties are to be acquired will be within the sole
control of the General Partner. Investors will have no opportunity to
evaluate in advance any acquisition by the Partnership.
In evaluating potential acquisitions, the cash flow generated by a
property will be a consideration but the Partnership may acquire properties
that are not generating positive cash flow. This may impact cash flow in
9
<PAGE>
the near term (see "- Cash Flow Requirements" below) and there can be no
assurance that any property acquired by the Partnership will increase in
value or generate positive cash flow.
CONFLICTS OF INTEREST
SUBSTANTIAL FEES TO GENERAL PARTNER AND ITS AFFILIATES. The General
Partner and its affiliates may realize substantial fees, commissions and
other income from transactions involving the purchase, operation, management,
financing and sale of the Partnership's properties, subject to certain
limitations relating to properties acquired from the Predecessor Partnerships
in the Exchange. Some of such amounts may be paid regardless of the overall
profitability of the Partnership and whether any distributions have been made
to Unitholders. The amount of such income, fees or commissions that the
Gernal Partner or its affiliates can expect to receive as a result of the
investment of proceeds of this Offering is not generally determinable since
the receipt and amount of such income, fees and commissions will depend on
the circumstances of each investment. The General Partner has absolute
discretion to act on behalf of the Partnership with respect to all
transactions with affiliates, and such transactions may not be the result of
arm's-length negotiations. The Audit Committee of the Board of Directors of
the General Partner, which consists of members of the Board of Directors of
the General Partner not affiliated with the General Partner except by virtue
of such directorship, meets on an annual basis, or more often if necessary,
to review any conflicts of interest which may arise. See "Purpose of the
Offering and Use of Proceeds - Benefits to the Gernal Partner and its
Affiliates" for a discussion of the fees, commissions and other income that
may be realized by the Gernal Partner or its affiliates in connection with
the investment of the proceeds of the Offering.
10
<PAGE>
MANAGEMENT BY PERSONS NOT SOLELY DEVOTED TO AREP. Certain of the
individuals who conduct the affairs of the General Partner, and indirectly
those of the Partnership, are and will in the future be committed to the
management of other entities that own real estate and may be engaged in
other business activities. Accordingly, such individuals will not be
devoting all of their professional time to the management of the
Partnership, and conflicts may arise between the interests of the
Partnership and the other entities or business activities in which such
individuals are involved. Affiliates of the General Partner are also
engaged in real estate activities that may compete directly with the
Partnership. Conflicts of interest may arise in the future as such
affiliates and the Partnership may compete for the same properties,
purchasers and sellers of properties, lessees or mortgage financing.
OPTION PLAN FOR OFFICERS AND EMPLOYEES. AREP has also adopted a
Nonqualified Unit Option Plan (the "Plan") under which options to purchase
an aggregate of 1,416,910 Units may be granted to officers and key
employees of the General Partner and AREP who provides services to AREP.
To date, no options have been granted under the Plan.
LEVERAGED INVESTMENTS
The Partnership generally intends to use leverage in connection with
the acquisition of properties. While the use of leverage increases the
amount of funds available for investment and the aggregate amount of
depreciation available to the Partnership, it also increases the risk of
loss. As a result of the use of leverage, a relatively slight decrease in
revenues of a property may materially and adversely affect the economic
operation of the property. The Partnership is not limited in the amount of
leverage it may use with respect to a particular property and may under
appropriate circumstances finance 100% of the purchase price of a property.
In connection with the acquisition of a property, the Partnership
will evaluate the financing of a property, the funds likely to be required
to service its debt and any eventual refinancing, the existing revenue
levels generated by such property and the revenue levels expected to be
generated in the future. There can be no assurance, however, that the
property will meet its debt service requirements, or that the Partnership
will be able to refinance such debt when and if necessary. Should the
Partnership's revenues and reserves, if any, be insufficient to service any
of its debt, the Partnership will be required to seek additional funds or
suffer foreclosure. There can be no assurance that additional funds will
be available to the Partnership, nor that, if a Property is sold, the
proceeds of the sale will be sufficient to pay the balance due on the
mortgage loan or other outstanding indebtedness to which a property is
subject. Foreclosure on any property could result in tax liability to the
Unitholders, without distribution of any cash proceeds to pay such
liability.
ELIMINATION OF DISTRIBUTIONS TO HOLDERS OF DEPOSITARY UNITS
Over the last two years, the General Partner has found it necessary
to decrease and, finally, suspend the Partnership's distributions to
holders of Depositary Units. This action resulted because the
Partnership's cash flow in recent years has not been sufficient to permit
distributions to Unitholders in view of the Partnership's liquidity needs,
maturing debt obligations and capital funding requirements. See "- Cash
Flow Requirements," "-Increased Expenses Resulting from Tenant Bankruptcies"
and "- Significant Debt Requirements" below.
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<PAGE>
REDUCTION IN CASH FLOW
Generally, the cash needs of the Partnership for day-to-day operations
have been satisfied from cash flow generated from current operations. The
cash flow generated from day-to-day operations (before payment of maturing
debt obligations) has decreased in recent years, although it improved in 1994
due to the acquisition and foreclosure of certain operating properties and
the repayment of debt. Cash flow has been negatively impacted by a reduction
in operating cash flow caused by, among other things, tenant defaults and the
termination of existing leases (due to expiration, rejection in bankruptcy or
otherwise). Furthermore, the Partnership has experienced an increase in
operating expenses with respect to vacated properties and has been required
to perform maintenance and repair work in order to re-let such properties.
The Partnership also experienced increased property expenses as a result of
its acquisition of certain operating properties and has had to apply a larger
portion of its cash flow to the repayment of maturing debt obligations. See
"-Increased Expenses Resulting From Tenant Bankruptcies" and "- Significant
Debt Requirements" below for a further discussion of factors impacting the
Partnership's cash flow.
INCREASED EXPENSES RESULTING FROM TENANT BANKRUPTCIES
As a result of tenant bankruptcies, the Partnership has incurred and
expects - at least in the near term - to continue to incur certain property
expenses and other related costs. Thus far, these costs have consisted
largely of legal fees, real estate taxes and property operating expenses.
Of the Partnership's ten present and former tenants involved in bankruptcy
proceedings or reorganization, eight have rejected their leases, affecting
twenty-seven properties, all of which have been vacated. During 1992, the
Partnership began operating some of these properties through third party
management companies. The rejections have had an adverse impact on annual
cash flow (including both the decrease in revenues from lost rents, as well
as increased operating expenses). Currently none of the Partnership's
present tenants is involved in any bankruptcy proceedings.
SIGNIFICANT DEBT REQUIREMENTS
The Partnership has significant maturing debt requirements under its
two unsecured note agreements (the "Note Agreements") that it entered into
in May 1988. Under the Note Agreements, the Partnership is required to
make quarterly interest payments and annual principal payments. In May
1994, the Partnership repaid $10,000,000 of the outstanding principal
balance under the Note Agreements. Principal payments of approximately
$11,308,000 are due under such agreements annually from 1995 through 1998.
In addition to the Note Agreements, during 1994 the Partnership had
approximately $10,000,000 in maturing balloon mortgages due, approximately
$6,700,000 of which have been repaid and approximately $3,300,000 of which
have been refinanced, and approximately $6,800,000 due in 1995. During the
period 1996 through 1998 approximately $28,400,000 in maturing balloon
mortgages come due. Although the Partnership expects to be able to refinance
a portion of these maturing mortgages, it does not expect to be able to
refinance all of them and may be required to repay them from cash flow and
reserves created from time to time, thereby reducing cash flow otherwise
available for other uses.
OPERATING RESTRICTIONS UNDER NOTE AGREEMENTS
The Note Agreements contain certain covenants restricting the
activities of the Partnership. Under the Note Agreements, the Partnership
must maintain a specified level of net annual rentals from unencumbered
properties (as defined in the Note Agreements) and is restricted, in
certain respects, in its ability to create liens and incur debts.
Investment by the Partnership in certain types of assets that may be
regarded as non-income producing, such as land or non-performing loans, is
restricted under the Note Agreements. The holders of the Senior Unsecured
Debt have agreed, however, to waive this restriction with respect to any
additional capital raised by the Partnership in the Offering. While the
Partnership intends, subject to negotiating terms favorable to the
Partnership, to prepay its Senior Unsecured Debt, there can be no assurance
favorable terms will be negotiated. While the restrictions in the Note
Agreements generally have not adversely affected the Partnership's
operations in any material manner, if the Partnership encountered severe
12
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operating difficulties, certain options that management might otherwise
elect, such as seeking additional secured financing, might be limited or
prohibited.
NO LIMITATION ON DEBT
If the Partnership uses a portion of the proceeds to prepay in full
its Senior Unsecured Debt, the Partnership will no longer be subject to the
contractual restrictions contained therein on the level of net annual rentals
it must receive from unencumbered properties or its ability to create liens
and incur debts. As a result, the Partnership could become highly leveraged,
resulting in an increase in debt service that could adversely affect the
Partnership's cash flow and could increase the risk of default on the
Company's indebtedness.
CERTAIN TAX CONSIDERATIONS
There are tax considerations associated with the ownership and
exercise of the Rights. These principally relate to uncertainties as to
whether the Internal Revenue Service ("IRS") will agree with (1) the
Partnership's treatment of Preferred Units as equity, (2) the amount and
character of income to holders of Preferred Units to reflect the accrual of
liquidation preference and the difference, if any, between the Subscription
Price allocated to the Preferred Units and the stated par value of the
Preferred Units, and (3) the revaluation of the Partnership's properties
upon issuance of new Depositary Units and Preferred Units. See "Income Tax
Considerations-Certain Federal Income Tax Considerations Relating to the
Rights" and "Income Tax Considerations - Certain Federal Income Tax
Considerations Relating to the Partnership and Unitholders." Counsel to
the Partnership has issued its opinion as to the tax classification of the
Partnership and the Subsidiary and the classification of the Preferred
Units as partnership interests for federal income tax purposes. Counsel is
unable to opine as to certain issues relating to the Partnership's tax
allocations, deduction of certain expenses and the Unitholders' treatment
of interest expense on any debt incurred to purchase Preferred Units. See
"Income Tax Considerations - Legal Opinion."
In addition, there are tax considerations and certain risks
associated with an investment in the Partnership. These include:
PARTNERSHIP CLASSIFICATION. Favorable tax treatment of the
Partnership and the Subsidiary depends, in large part, on the
classification of the Partnership and the Subsidiary as partnerships for
federal income tax purposes. Based on certain representations by the
General Partner, counsel to the Partnership is of the opinion that, under
current law, the Partnership and the Subsidiary will be classified as
partnerships for federal income tax purposes. However, the opinion of
counsel is not binding upon the IRS or any court and the IRS may challenge
the classification of the Partnership or the Subsidiary as a partnership.
Counsel's opinion is based, in part, upon representations as to the net
worth of the General Partner. If the General Partner were to fail to
maintain sufficient net worth, the Partnership and the Subsidiary might be
reclassified as entities taxable as corporations.
In addition, the Partnership will cease to be taxed as a partnership
for federal income tax purposes for taxable years beginning after December
31, 1997 unless, for each year, at least 90% of the gross income of the
Partnership and the Subsidiary consists of certain qualifying income. The
General Partner expects that the Partnership will satisfy the 90% gross
income requirement so as to continue to be classified as a partnership. In
addition, for taxable years beginning before 1998, the Partnership will
cease to be classified as a partnership if it enters into a substantial new
line of business and it fails to satisfy the 90% gross income test. The
General Partner has represented to counsel that the Partnership has neither
entered into a substantial new line of business nor has it failed to
satisfy the 90% gross income test since its formation in 1987. See "Income
Tax Considerations - Certain Federal Income Tax Considerations Relating to
the Partnership and Unitholders - Partnership Classification."
If either of the Partnership or the Subsidiary were to be classified
as an association taxable as a corporation for any year, such partnership
would be taxable on its profits at the applicable corporate income tax
rates; income, losses and credits would not be passed through to the
Unitholders; and any distributions to the Unitholders would be taxable as
dividends (to the extent of the current or accumulated earnings and profits
of the Partnership or the Subsidiary, as applicable) or treated as a return
of capital to the extent of the holder's basis in his Units. The cost of
paying federal and possibly state income taxes would be a significant
liability to the Partnership or the Subsidiary and would reduce any cash
available for distribution to the Unitholders.
ALLOCATION OF PARTNERSHIP INCOME AND LOSS. The law is not entirely
clear as to the proper method of allocation of income and loss in the case
of the issuance by a partnership of units having the characteristics of the
Depositary Units and Preferred Units. The General Partner has modified
the Partnership Agreement to provide that income will be accrued to
the Preferred Units as a "guaranteed payment" under Section 707(c) of the
Internal Revenue Code based on the accrual of the liquidation preference.
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<PAGE>
See "Income Tax Considerations - Certain Income Tax Considerations Relating
to the Partnership and Unitholders - Allocation of Income and Loss." There
is no assurance that the IRS will respect this treatment for tax purposes.
In addition, certain aspects of the allocation of taxable income and loss
between existing Depositary Unitholders and holders of Depositary Units
issued upon exercise of Rights are not entirely clear and may be subject to
challenge by the IRS. See "Income Tax Considerations - Certain Federal
Income Tax Considerations Relating to the Partnership and Unitholders -
Allocation of Income and Loss." If the IRS were to dispute the
Partnership's allocation of income or losses, the result would be an
increase in the income or reduction of losses to some Unitholders and a
decrease in income or increase in losses of other Unitholders for the
taxable years involved. Affected Unitholders may be required to amend
their personal tax returns in the event of such adjustments. Any costs of
such amendment or the payment of additional taxes and interest or penalties
would be the sole responsibility of the affected Unitholder.
TAX LIABILITIES IN EXCESS OF CASH DISTRIBUTIONS. Each Unitholder
will be taxed on the Unitholder's allocable share of the Partnership's
taxable income and gains and accrued guaranteed payments, whether or not
any cash is distributed to the Unitholder. For example, sales of
properties may result in taxable income to the Partnership without
resulting cash distributions being made to Unitholders, and therefore,
Unitholders may have taxable income without the current receipt of cash if
the Partnership continues to not make cash distributions while generating
taxable income from operations or from the sale of properties.
Consequently, a Unitholder's tax liability with respect to his share of
Partnership taxable income may exceed cash actually distributed to him in a
given taxable year. The Partnership has had net taxable income in excess
of cash distributions for the years ended December 31, 1993 and 1992.
Consequently, an average Depositary Unitholder's allocable share of net
taxable income attributable to the Partnership for those tax years has
exceeded the cash distributed by the Partnership and may exceed the cash
distributed in the future. For the tax year ended December 31, 1992, the
cash distributions to Depositary Unitholders exceeded the average estimated
federal and state tax liability. However, for the 1993 tax year, the
average Depositary Unitholder's federal and state tax liability slightly
exceeded the cash distributed by the Partnership to such Depositary
Unitholders. For the tax year ending December 31, 1994, the Partnership has
generated taxable income and no cash distributions were made. In addition,
holders of Preferred Units generally will not receive cash distributions
unless the Preferred Units are redeemed for cash. Such holders will have
taxable income and a tax liability associated with Preferred Units without
receiving corresponding distributions of cash from the Partnership with
which to pay the tax. See "Income Tax Considerations - Legal Opinion."
LIABILITY OF LIMITED PARTNERS
The limitations on the liability of holders of limited partner
interests for the obligations of a limited partnership have not been clearly
established in some states. For example, if it were determined that the
Partnership had been conducting business in any state without compliance with
the applicable limited partnership statute, or that the right or the exercise
of the right by holders of limited partner interests as a group to remove or
replace the General Partner, or to make certain amendments to the Partnership
Agreement (as defined herein), constituted participation in "control" of the
Partnership's business, then the holders of limited partner interests could
be held liable for the Partnership's obligations to the same extent as a
general partner. See "Description of Partnership Agreement - Liability of
General Partners and Unitholders" for a discussion of the limitations on
liability and the implications thereof to a Unitholder.
COMPETITION
The business of investing in real estate is highly competitive.
Competition remains strong as current economic and real estate conditions
have made it more difficult to re-let upon favorable terms properties
vacated by tenants who have rejected their leases in bankruptcy or whose
leases have expired. Over recent years, vacancy rates with respect to
properties similar to the Partnership's have increased nationwide (although
this trend has been reversing for some property categories during the past
year), making it significantly more difficult to lease space at rates equal
to or more than the rates payable by former tenants. In addition, it is
anticipated that any rental property owned by the Partnership (whether
retail, office or industrial) will have substantial competition from
similar properties in the vicinity in which it is located. Also, there
continues to be an oversupply of certain types of properties for sale,
which tends to have a downward effect on prices.
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RISKS ASSOCIATED WITH REAL ESTATE INVESTMENTS
GENERAL. The ability of the Partnership to provide investors with a
return on their investment will ultimately depend on the successful
operation of properties in which the Partnership will be invested. The
Partnership's investment in properties will be subject to risks which may
be beyond its control, such as fluctuations in occupancy rates and
operating expenses, as well as defaults by tenants, including tenants
filing for bankruptcy protection. These in turn may be adversely affected
by general and local economic conditions, adverse use of adjacent or
neighboring real estate, zoning laws, over-supply of available properties,
reduced employment in areas of Partnership investments, reduced costs of
operating competing properties, increasing real property tax rates and
environmental compliance requirements. Since certain costs of real estate
ownership (principally debt service, real estate taxes and insurance) do
not generally decrease with decreases in occupancy rates, the cost of
operating a property may exceed its income.
The real estate market continues to be weak in certain areas of the
country, particularly in certain usage categories including the office and
hotel areas. While vacancy rates have declined somewhat, commercial real
estate continues to suffer from a combination of oversupply and continuing
corporate consolidation and contraction. This has intensified the existing
competition among landlords for creditworthy tenants and resulted in lower
rentals and continued concessions to tenants. In addition, most of the
Partnership's real estate assets continue to be net-leased to single
corporate tenants, and as these leases expire and the properties are re-let,
there can be no assurance that the terms of the leases will be as favorable.
Over the next six to eight years, leases accounting for approximately 40% of
the Partnership's net annual rentals are scheduled to expire. To the extent
that such leases are not renewed, the Partnership may be required to expend a
significant amount of management time and expense in attempting to re-let and
sell the unleased properties. See "Purpose of the Offering and Use of
Proceeds" for further details.
DEVELOPMENT PROPERTIES. The Partnership expects to invest in
undeveloped land and certain development properties. Undeveloped land and
development properties involve more risk than properties on which
development has been completed. Undeveloped land and development
properties do not generate any operating revenue while costs are incurred
to develop the properties. In addition, undeveloped land and development
properties incur expenditures prior to completion, including property taxes
and development costs. Also, construction may not be completed within
budget or as scheduled or projected rental levels or sales prices may not
be achieved and other unpredictable contingencies beyond the control of the
Partnership could occur. The Partnership will not be able to recoup any of
such costs until such time as these properties are either disposed of or
developed into income-producing assets. Accordingly, the greater the
length of time it takes to develop or dispose of these properties, the
greater will be the costs incurred by the Partnership without the benefit
of income from these properties, which may adversely affect the ability of
the Partnership to successfully develop such properties. Furthermore, the
ultimate disposition price of these properties may be less than the costs
incurred by the Partnership with respect thereto.
LIMITED FINANCING AVAILABILITY. Credit availability remains tight
for certain property types. Many financial institutions have continued to
limit their real estate lending activities and continue to be more
conservative with respect to the loans they are willing to make. For
example, banks and other financial institutions continue to limit the types
of properties they are willing to finance, have been performing greater
levels of due diligence which increases the time and expense of obtaining
financing and are requiring larger equity positions.
ENVIRONMENTAL MATTERS. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real property may
become liable for the costs of removal or remediation of certain hazardous
substances released on or in its property. Such laws often impose such
liability without regard to whether the owner or operator knew of, or was
responsible for, the release of such hazardous substances. If any such
substances were found in or on any property invested in by the Partnership,
the Partnership could be exposed to liability and be required to incur
substantial remediation costs. The presence of such substances or the
failure to undertake proper remediation may adversely affect the ability to
finance, refinance or dispose of such property. The Partnership will
generally require that properties in which the Partnership invests have
been subject to a Phase I environmental audit, which involves record
review, visual site assessment and personnel interviews, but does not
involve invasive procedures such as soil sampling or ground water analysis.
There can be no assurance, however, that these audits will reveal
15
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all potential liabilities or that future uses or conditions or changes in
applicable environmental laws and regulations will not result in the
creation of environmental liabilities with respect to a property.
THE PARTNERSHIP
AREP is in the business of acquiring and managing real estate.
Historically, AREP's holdings have been primarily office, retail, industrial,
residential and hotel properties. As of January 18, 1995, AREP owned 252
separate real estate assets (primarily consisting of fee and leasehold
interests) in 35 states and Canada (one property). In addition to directly
holding real property, AREP may originate or purchase mortgage loans
including non-performing mortgage loans. AREP will normally acquire
non-performing mortgage loans with a view to acquiring title to or control
over the underlying properties and recently acquired two such loans on two
residential apartment complexes located in Lexington, Kentucky. AREP
foreclosed on each of these loans and now holds title to the underlying
properties.
AREP also may retain purchase money mortgages in connection with its sale of
portfolio properties, with such terms as the General Partner deems
appropriate at the time of sale.
Certain of AREP's investments may be owned by special purpose
subsidiaries formed by AREP or by joint venture partnerships (including
joint ventures with affiliates of the General Partner) in which AREP, or
AREP together with an affiliate, has a controlling interest. For example,
AREP entered into two joint ventures with unaffiliated co-venturers in June
1994 for the purpose of developing luxury garden apartment complexes. The
first joint venture, formed as an Alabama limited liability company (the
"Alabama Venture"), will develop a 240 unit multi-family project in Hoover,
Alabama. The second joint venture, a Delaware limited partnership, will
develop a 288 unit multi-family project in Cary, North Carolina (the "North
Carolina Venture"). AREP also may indirectly acquire interests in real
estate by acquiring the securities of entities which own real estate.
All decisions with respect to the improvement, expansion,
acquisition, disposition, development, management, financing or refinancing
of properties or other investments are at the sole discretion of the
General Partner. While most of the Partnership's real estate assets are
currently net-leased to single corporate tenants, the Partnership is
endeavoring to further diversify and expand its portfolio. The General
Partner believes that in the current real estate market there are
undervalued properties available for purchase, including commercial
properties, land parcels, residential development projects, non-performing
loans and other development opportunities. The General Partner believes
that such acquisitions would assist in the diversification of the current
portfolio and the enhancement of the Partnership's return on investment.
Where opportunities exist, AREP may acquire such assets with the proceeds
of the Offering or, to the extent permitted under its senior unsecured
credit facility (the "Senior Unsecured Debt"), with sale or refinancing
proceeds which AREP retains for reinvestment rather than distributing to
Unitholders. See "Description of Partnership Agreement - Distributions of
Cash Flow - Distributions from Sales and Refinancings."
AREP was organized in the State of Delaware on February 17, 1987.
Its principal business address is 90 South Bedford Road, Mt. Kisco, New
York 10549 and its telephone number is (914) 242-7700. AREP's general
partner is American Property Investors, Inc. (the "General Partner"), a
Delaware corporation which is wholly owned by Carl C. Icahn ("Icahn").
AREP conducts its business through a subsidiary limited partnership,
American Real Estate Holdings Limited Partnership (the "Subsidiary"). AREP
owns a 99% limited partnership interest in the Subsidiary. The General
Partner acts as the general partner of the Subsidiary and has a 1% general
partnership interest in both AREP and the Subsidiary.
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RECENT EVENTS
UNITHOLDER LITIGATION. On August 15 and 16, 1994, AREP was served
with two class action complaints, both filed with the Delaware Court of
Chancery, New Castle County, in connection with the Offering, STEVEN YAVERS
v. AMERICAN REAL ESTATE PARTNERS, L.P., AMERICAN PROPERTY INVESTORS, INC.,
AND CARL C. ICAHN, C.A. No. 13682, and ALLAN HAYMES, I.R.A. v. AMERICAN
REAL ESTATE PARTNERS, L.P., AMERICAN PROPERTY INVESTORS, INC., AND CARL C.
ICAHN, C.A. No. 13687. An additional complaint relating to the Offering
has been filed with the Delaware Court of Chancery, New Castle County, and
all three have been consolidated into one action (the "Consolidated
Action").
Plaintiffs in the Consolidated Action claim that defendants have
breached fiduciary and common law duties owed to plaintiffs and plaintiffs'
putative class by engaging in self-dealing and by failing to disclose all
relevant facts regarding the Offering. Plaintiffs seek declaratory and
injunctive relief declaring the action properly maintainable as a class
action, declaring that defendants breached their fiduciary and other
duties, enjoining the Offering, ordering defendants to account for all
damages suffered by the class as a result of the alleged acts and awarding
further relief as the court deems appropriate.
By agreement among AREP and the above mentioned plaintiffs, AREP's
time to respond to the consolidated complaint has been extended to February
8, 1995. AREP believes the allegations are without merit and intends to
vigorously defend the Consolidated Action.
ENVIRONMENTAL ARBITRATION. Lockheed Missile & Space Company, Inc.
("Lockheed"), a tenant of the Partnership's leasehold property in Palo
Alto, California, has entered into a consent decree with the California
Department of Toxic Substances ("CDTS") to undertake certain environmental
remediation at this property. Lockheed has estimated that the
environmental remediation costs may be up to approximately $14,000,000. In
a non-binding determination by the CDTS, Lockheed was found responsible for
approximately 75% of such costs and the balance was allocated to other
parties. The Partnership was allocated no responsibility for any such
costs.
Lockheed has served a notice that it may exercise its statutory right
to have its liability reassessed in a binding arbitration proceeding. In
this notice of arbitration, Lockheed stated that it will attempt to have
allocated to the Partnership and to the Partnership's ground-lessor (which
may claim a right of indemnity against the Partnership) approximately 9%
and 17%, respectively, of the total remediation costs. The Partnership
believes that it has no liability for any of such costs and in any
proceeding in which such liability is asserted against the Partnership, the
Partnership intends to contest such liability vigorously. In the event any
of such liability is allocated to the Partnership, the Partnership intends
to seek indemnification for any such liability from Lockheed in accordance
with its lease.
ENVIRONMENTAL SITE ASSESSMENT PROGRAM. Most of AREP's properties
continue to be net leased to single corporate tenants and AREP believes these
tenants would be responsible for any environmental conditions existing on the
properties they lease and normally such conditions should not have a material
adverse effect on the capital expenditures, earnings or competitive position
of AREP. While most tenants have assumed responsibility for the
environmental conditions existing on their leased property, there can be no
assurance that the Partnership will not be deemed to be a responsible party
or that the tenant will bear the costs of remediation. Many of the
properties acquired by AREP in connection with the Exchange were not
subjected to any type of environmental site assessment at the time of the
acquisition. Consequently, AREP recently has undertaken to have certain
properties (approximately 66) in its portfolio which were not inspected at
the time of acquisition to be subjected to a Phase I Environmental Site
Assessment by a third party consultant. AREP has begun to notify certain
tenants of suggested monitoring and compliance actions which were recommended
by its consultant. AREP believes that under the terms of its net leases with
its tenants, the costs of any environmental problems that may be discovered
on these properties generally would be the responsibility of such tenants.
However, there can be no assurance that AREP would not be deemed to be a
responsible party or that the tenant could bear the costs of remediation. See
"Investment Considerations - Risks Associated with Real Estate Investments -
Environmental Matters."
The Phase I Environmental Assessments inconclusively indicate that
certain sites may have environmental conditions that should be further
reviewed. Based on the results of the Phase I Environmental Site Assessments,
the environmental consultant has recommended that limited Phase II
Environmental Site Investigations be conducted for approximately 20 of the
sites in order to ascertain whether there are any environmental conditions
and the anticipated cost of any remediation. AREP will notify each of the
tenants of the respective sites of the environmental consultant's
recommendations. If such tenants do not promptly arrange for Phase II
Environmental Site Investigations to be conducted, AREP may have to undertake
the same at its own cost. At the conclusion of the Phase II Environmental
Site Investigations, AREP will seek to coordinate with the tenants to attempt
to ensure that they cause any required remediation to be performed. As no
Phase II Environmental Site Investigations have been conducted by the
consultant, there can be no accurate estimation of the need for or extent of
any required remediation, or the cost thereof.
In addition to conducting such Phase I Environmental Site
Assessments, AREP has developed a site inspection program. This program is
being conducted by an in-house employee (who is an experienced construction
manager and registered architect) who visits AREP's properties and visually
inspects the premises in an effort to determine whether there is any
indication that tenants are engaged in any practices which would
potentially expose AREP to liability and to ensure that the property is
being maintained properly. There is no assurance, however, that this
program will in fact minimize any potential environmental or other cost
exposure to AREP.
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THE OFFERING
TERMS OF THE OFFER
For the purposes of this Prospectus, the Partnership has assumed
2,000,000 Rights will be issued and the aggregate number of Depositary
Units and Preferred Units have been computed accordingly. However, there
can be no assurance that 2,000,000 Rights will be issued, due to
mathematical rounding computations. Each Record Date Holder is being
issued one Right for each seven Depositary Units owned on the Record Date.
The number of Rights issued to a Record Date Holder of a number of
Depositary Units not divisible by seven is determined by multiplying the
number of Depositary Units held by such Record Date Holder on the Record
Date by .14 and then rounding up to the nearest whole number if the
fractional amount is greater than or equal to .5 and rounding down to the
nearest whole number if the fractional amount is less than .5. In the case
of Depositary Units held of record by any firm that is a member of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., or a commercial bank or a trust company or other
person that holds Depositary Units as nominee for more than one beneficial
owner (each, a "Nominee Holder"), the number of Rights issued to such
Nominee Holder will be adjusted to permit rounding up of the Rights to be
received by the beneficial owners for whom it is the holder of record only
if such Nominee Holder provides to the Partnership on or before the close
of business on _________, 1995 written representation of the number of
Rights required for such rounding. No fractional Rights will be
issued in this Offering. The Rights entitle the holders thereof to acquire
at the Subscription Price six Depositary Units and one Preferred Unit for
each Right held. The Rights are evidenced by Subscription Certificates,
which will be mailed to Record Date Holders other than Foreign Record
Date Holders.
Completed Subscription Certificates may be delivered to the
Subscription Agent at any time during the Subscription Period, which
commences __________, 1995 and ends at 5:00 p.m., New York City time on
__________, 1995, unless extended by the Partnership. All Rights may be
exercised immediately upon receipt and until 5:00 p.m., New York City time,
on the Expiration Date.
Rights may be exercised by completing a Subscription Certificate and
delivering it, together with payment in full, either by means of a notice of
guaranteed delivery or a check, to the Subscription Agent. If the Rights
Holder chooses to send a Subscription Certificate, such certificate must be
accompanied by payment in full. The method by which Rights may be
exercised and Depositary Units and Preferred Units paid for is set forth
below under "Exercise of Rights" and "Payment for Securities."
The Rights are freely transferable, and the Partnership will seek to
list the Rights for trading on the NYSE. There can be no assurance,
however, that the Rights will be listed or that a market for the Rights
will develop. See "- Sale of Rights."
The Partnership does not have the right to withdraw this Offering
after the Rights have been distributed.
SUBSCRIPTION PRICE
The Subscription Price for Depositary Units and Preferred Units
subscribed for through the exercise of Basic Subscription Rights and the
Over-Subscription Privilege will be $_____, of which $____ is allocable to
the Depositary Unit and $10.00 is allocable to the Preferred Unit.
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<PAGE>
NO MODIFICATION OR REVOCATION
ONCE A HOLDER OF RIGHTS HAS PROPERLY EXERCISED ITS BASIC SUBSCRIPTION
RIGHTS AND THE OVER-SUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE
MODIFIED OR REVOKED.
EXPIRATION OF OFFERING
This Offering will expire at 5:00 p.m., New York City time, on
___________, 1995 unless extended by the Partnership (the "Expiration
Date"). Rights will expire on the Expiration Date and thereafter may not
be exercised.
SUBSCRIPTION AGENT
The Subscription Agent is Registrar and Transfer Company, a New York
corporation. The Subscription Agent is not affiliated with either the
Partnership or Icahn. The Subscription Agent will receive for its
administration, processing, invoicing and other services as subscription
agent, a fee estimated to be approximately $______, including reimbursement
for all out-of-pocket expenses related to this Offering. Questions
regarding the Subscription Certificates should be directed to the
Subscription Agent at ________________; Rights Holders may also consult
their brokers or nominees. Signed Subscription Certificates (see Appendix
A) should be sent by mail, hand, express mail or overnight courier,
together with payment of the Subscription Price in full to Registrar and
Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016, Attn:
___________. See "- Payment for Securities."
Any questions or requests for assistance may be directed to the
Subscription Agent at (800) _________ or the Partnership at (800) 255-2737.
OVER-SUBSCRIPTION PRIVILEGE
If all Basic Subscription Rights are not exercised in full,
Depositary Units and Preferred Units not subscribed for by Exercising
Rights Holders will be offered, by means of the Over-Subscription
Privilege, to Exercising Rights Holders who wish to acquire additional
Depositary Units and Preferred Units. The Over-Subscription Privilege may
be exercised by any Rights Holder who exercised any of his Basic
Subscription Rights. Depositary Units and Preferred Units purchased
pursuant to the Over-Subscription Privilege must be purchased as a unit
consisting of six Depositary Units and one Preferred Unit and may not be
subscribed for separately. Rights Holders should indicate, on the
Subscription Certificate which they submit with respect to the exercise of
their Basic Subscription Rights, how many additional Depositary Units and
Preferred Units they are willing to acquire pursuant to the Over-
Subscription Privilege. If all Basic Subscription Rights are exercised,
the Over-Subscription Privilege may not be exercised.
The available Depositary Units and Preferred Units will be allocated
pro rata among those who over-subscribed according to the aggregate number of
Basic Subscription Rights exercised. The percentage of remaining Depositary
Units and Preferred Units each Rights Holder may acquire may be rounded up or
down to result in delivery of whole Depositary Units and Preferred Units. The
allocation process may involve a series of allocations in order to assure
that the total number of Depositary Units and Preferred Units available
pursuant to the Over-Subscription Privilege is distributed on a pro rata
basis. In the event a Rights Holder exercising the Over- Subscription
Privilege is allocated less than the number of Depositary Units and Preferred
Units than such Holder subscribed for, excess subscription payments will be
refunded. See "- Payment for Securities" below.
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SUBSCRIPTION GUARANTY
The Guarantor holds 1,365,768 Depositary Units, representing
approximately 9.89% of the outstanding Depositary Units, has agreed, subject
to certain conditions contained in the Subscription Guaranty Agreement, (i)
to subscribe for and purchase 1,147,248 Depositary Units and 191,208
Preferred Units through the exercise of its Basic Subscription Rights and
(ii) to subscribe for all other Depositary Units and Preferred Units pursuant
to the Over-Subscription Privilege, and, subject to proration as described
above, to purchase such additional Depositary Units and Preferred Units. If
no Rights are exercised by Rights Holders other than the Guarantor, the
Guarantor would beneficially own 13,365,768 Depositary Units (or
approximately 51.78% of the then outstanding Depositary Units) and all of the
Preferred Units. The Guarantor will receive certain registration rights with
respect to its Units for providing the Subscription Guaranty but will not
otherwise be compensated. See "- Registration Rights Agreement." The terms
of such Subscription Guaranty and the registration rights were reviewed and
approved by the Audit Committee of the Board of Directors of the General
Partner. In approving the terms of the Subscription Guaranty, the Audit
Committee of the Board of Directors of the General Partner considered, among
other things, the nature and terms of the securities being offered pursuant
to the Offering and the possibility that the Guarantor may increase its
ownership in the Partnership at a discount to the market price. The Audit
Committee concluded that given the business opportunities currently available
to the Partnership and its related requirement for cash to take full
advantage of such opportunities, as well as the uncertainty of market
conditions which might impact the success of the Offering were the
Subscription Guaranty not in place and the fact that the Subscription
Guaranty does not permit the Guarantor to acquire Depositary Units in the
Offering except on the same terms upon which other Unitholders may acquire
Depositary Units, the overall benefits to be received by the Partnership as a
result of the Subscription Guaranty warranted approval of such arrangement.
The members of the Audit Committee are William A. Leidesdorf and Jack G.
Wasserman. Messrs. Leidesdorf and Wasserman are not affiliated with the
General Partner or any of its affiliates, including the Guarantor and Icahn.
As a result of the Subscription Guaranty, assuming the conditions in
the Subscription Guaranty Agreement are satisfied, the Partnership is
assured of receiving an amount equal to the amount that would have been
raised had all Basic Subscription Rights been exercised in full, approximately
$110,000,000 assuming the issuance of 2,000,000 Rights (the "Guaranteed
Amount").
SUBSCRIPTION GUARANTY AGREEMENT. Upon the terms and subject to the
conditions contained in a Subscription Guaranty Agreement, dated the date
hereof (the "Subscription Guaranty Agreement"), the Guarantor has agreed (i)
to subscribe for and purchase 1,147,248 Depositary Units and 191,208
Preferred Units through the exercise of its Basic Subscription Rights and
(ii) to subscribe for all other Depositary Units and Preferred Units pursuant
to the Over-Subscription Privilege (the "Unsubscribed Units"), and, subject
to proration as described above, to purchase such additional Depositary Units
and Preferred Units.
The Subscription Guaranty Agreement provides that the obligation of
the Guarantor to pay for and accept delivery of the Unsubscribed Units is
subject to certain conditions, including the conditions that, that no stop
order suspending the effectiveness of the Registration Statement is in effect
and that no proceedings for such purpose have been instituted or threatened
by the Commission, the Partnership shall not have terminated the Offering, the
outbreak of war or other crisis, the effect of which on the financial
markets is such as to make it, in the sole judgment of the Guarantor,
impracticable or inadvisable to proceed with the Offering and approval of
certain legal matters by counsel to the Guarantor. The Guarantor is
obligated to take and pay for all of the Unsubscribed Units if any are
purchased pursuant to the Subscription Guaranty Agreement.
Delivery and payment for the Unsubscribed Units purchased by the
Guarantor shall be on the fifth Business Day after written notice is given by
the Partnership or the Subscription Agent to the Guarantor of the number and
aggregate purchase price of the Unsubscribed Units the Guarantor is obligated
to purchase pursuant to the exercise of the Over-Subscription Privilege.
No fee is being paid to the Guarantor for the Subscription Guaranty,
except that any Units held by the Guarantor will be subject to certain
registration rights. See "-Registration Rights Agreement." In addition,
the Partnership has agreed to reimburse the Guarantor for certain of its
accountable expenses in connection with the Offering in the event the
Subscription Guaranty Agreement is terminated in accordance with its terms.
The Partnership and the Guarantor have agreed to indemnify each other
against certain liabilities, including liabilities under the federal
securities laws.
REGISTRATION RIGHTS AGREEMENT. Pursuant to the Registration Rights
Agreement, the Guarantor has been granted two demand and unlimited
piggyback registration rights with respect to its Units. The Partnership
has agreed to pay any expenses incurred in connection with a registration
requested under the Registration Rights Agreement. No prediction can be
made as to the effect, if any, that market sales of Units or the
availability of Units for sale will have on the market price of the Units
prevailing from time to time. Nevertheless, sales of substantial amounts
of Units in the public market could adversely affect prevailing market
prices.
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SALE OF RIGHTS
The Rights are transferable until the close of business on the last
Business Day prior to the Expiration Date. The Partnership will seek to
list the Rights on the NYSE and, if so listed, the Rights may be sold
through a broker over the NYSE. In addition, the Rights evidenced by a
single Subscription Certificate may be transferred in whole or in part by
endorsing the Subscription Certificate for transfer in accordance with the
accompanying instructions by delivering to the Subscription Agent a
Subscription Certificate properly endorsed for transfer, with instructions
to register such portion of the Rights evidenced thereby in the name of the
transferee and to issue a new Subscription Certificate to the transferee
evidencing such transferred Rights. In such event, a new Subscription
Certificate evidencing the balance of the Rights will be issued to the
transferring Rights Holder or, if the transferring Rights Holder so
instructs, to an additional transferee.
Rights Holders wishing to transfer all or a portion of their Rights
(other than over the NYSE, if so listed), should allow up to three Business
Days prior to the Expiration Date (the "Guaranteed Transfer Date") for (i)
the transfer instructions to be received and processed by the Subscription
Agent; (ii) a new Subscription Certificate to be issued and transmitted to
the transferee or transferees with respect to transferred Rights, and to
the transferor with respect to retained Rights, if any; and (iii) the
Rights evidenced by such new Subscription Certificate to be exercised or
sold by the recipients thereof. Neither the Partnership nor the
Subscription Agent shall have any liability to a transferee or transferor
of Rights if Subscription Certificates are not received on or prior to the
Guaranteed Transfer Date.
Except for the fees charged by the Subscription Agent (which will be
paid by the Partnership as described above), all commissions, fees and
other expenses (including brokerage commissions and transfer taxes)
incurred in connection with the purchase, sale or exercise of Rights will
be for the account of the transferor of the Rights, and none of such
commissions, fees or expenses will be paid by the Partnership or the
Subscription Agent.
The Rights will be eligible for transfer through, and the exercise of
the Basic Subscription Rights (but not the Over-Subscription Privilege) may
be effected through, the facilities of The Depository Trust Company
("DTC"); Rights exercised through DTC are referred to as "DTC Exercised
Rights." The holder of a DTC Exercised Right may participate in the Over-
Subscription Privilege in respect of such DTC Exercised Right by properly
executing and delivering to the Subscription Agent, at or prior to 5:00
p.m., New York City time, on the Expiration Date, a Nominee Holder Over-
Subscription Form (see Appendix C), together with payment of the
Subscription Price for the number of Depositary Units and Preferred Units
for which the Over-Subscription Privilege is to be exercised. Copies of
the Nominee Holder Over-Subscription Form may be obtained from the
Subscription Agent.
EXERCISE OF RIGHTS
Rights may be exercised by filling in and signing the reverse side of
the Subscription Certificate which accompanies this Prospectus and mailing
it in the envelope provided, or otherwise delivering the completed and
signed Subscription Certificate to the Subscription Agent, together with
full payment of the Subscription Price for the Depositary Units and the
Preferred Units as described below under "Payment for Securities."
Completed Subscription Certificates must be received by the Subscription
Agent at the address set forth above. Rights may also be exercised through
an Exercising Rights Holder's broker or dealer, who may charge such
Exercising Rights Holder a servicing fee.
Nominees who hold Depositary Units for the account of others, such as
brokers, trustees or depositories for securities, should notify the
respective beneficial owners of such Depositary Units as soon as possible
to ascertain such beneficial owners' intentions and to obtain instructions
with respect to the Rights. If the beneficial owner so instructs, the
nominee should complete the Subscription Certificate and submit it to the
Subscription Agent with the proper payment. In addition, beneficial owners
of Depositary Units or Rights held through such a nominee should contact
the nominee and request the nominee to effect transactions in accordance
with the beneficial owner's instructions.
21
<PAGE>
EXERCISE OF OVER-SUBSCRIPTION PRIVILEGE
Any Exercising Rights Holder may participate in the Over-Subscription
Privilege, if it is granted, by indicating on their Subscription
Certificate the number of Depositary Units and Preferred Units he is
willing to acquire pursuant thereto. There is no limit on the number of
Depositary Units and Preferred Units that Exercising Rights Holders may
seek to subscribe for pursuant to the Over-Subscription Privilege.
However, the Depositary Units and Preferred Units purchased pursuant to the
exercise of the Over-Subscription Privilege must be purchased as a unit
consisting of one Depositary Unit and three Preferred Units and may not be
subscribed for separately. The number of Depositary Units and Preferred
Units issued to each Rights Holder participating in the Over-Subscription
Privilege will be allocated as described above under "Over-Subscription
Privilege."
Banks, brokers and other nominee holders of Rights will be required
to certify to the Partnership, before the Over-Subscription Privilege may
be exercised as to any particular beneficial owner, as to the aggregate
number of Basic Subscription Rights exercised and the aggregate amount of
Depositary Units and Preferred Units subscribed for pursuant to the Over-
Subscription Privilege by such beneficial owner and that such beneficial
owner exercised Basic Subscription Rights.
PAYMENT FOR SECURITIES
Delivery and payment for the Unsubscribed Units purchased by the
Guarantor shall be on the fifth Business Day after written notice is given by
the Partnership or the Subscription Agent to the Guarantor of the number and
aggregate purchase price of the Unsubscribed Units the Guarantor is obligated
to purchase pursuant to the exercise of the Over-Subscription Privilege.
Payment for Depositary Units and Preferred Units subscribed for pursuant to
the exercise of Basic Subscription Rights and the Over-Subscription Privilege
by other Exercising Rights Holders must be tendered to the Subscription Agent
along with a properly executed Subscription Certificate on or prior to the
Expiration Date. Exercising Rights Holders must choose one of the following
methods of payment:
1. An Exercising Rights Holder can send the Subscription
Certificate together with payment in full for the Depositary Units
and Preferred Units subscribed for through exercise of their Basic
Subscription Rights and the maximum number of Depositary Units and
Preferred Units the Exercising Rights Holder wishes to subscribe for
pursuant to the Over-Subscription Privilege to the Subscription Agent
based upon the Subscription Price of $_____. Subscriptions will be
accepted when payment, together with the executed Subscription
Certificate, is received by the Subscription Agent at __________;
such payment and Subscription Certificates to be received by the
Subscription Agent no later than 5:00 p.m., New York City time, on
the Expiration Date. The Subscription Agent will deposit all checks
received by it for the purchase of Depositary Units and Preferred
Units into a segregated interest-bearing account of the Partnership
(the interest from which will belong to the Partnership) pending
proration and distribution of the Depositary Units and Preferred
Units. A PAYMENT PURSUANT TO THIS METHOD MUST BE IN U.S. DOLLARS BY
MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN THE UNITED STATES,
MUST BE PAYABLE TO REGISTRAR AND TRANSFER COMPANY AS SUBSCRIPTION
AGENT FOR AMERICAN REAL ESTATE PARTNERS, L.P. AND MUST ACCOMPANY AN
EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE
TO BE ACCEPTED AND BE RECEIVED BY 5:00 P.M., NEW YORK CITY TIME, ON
THE EXPIRATION DATE.
2. Alternatively, a subscription will be accepted by the
Subscription Agent if, prior to 5:00 p.m., New York City time, on the
Expiration Date, the Subscription Agent has received a Notice of
Guaranteed Delivery (See Appendix B) by facsimile (telecopy) or
otherwise from a bank, a trust company, or a NYSE member guaranteeing
delivery of (i) payment of the full Subscription Price for the
Depositary Units and the Preferred Units subscribed for through
exercise of the Basic Subscription Right and any additional
Depositary Units and the Preferred Units subscribed for pursuant to
the Over-Subscription Privilege, and (ii) a properly completed and
executed Subscription Certificate. The Subscription Agent will not
honor a Notice of Guaranteed Delivery unless a properly completed and
executed Subscription Certificate and full payment for the Depositary
Units and the Preferred Units is received by the Subscription Agent
by the close of business on the fifth Business Day after the
Expiration Date (the "Protect Period").
22
<PAGE>
Within seven Business Days following the Protect Period, the
Subscription Agent will send to each Exercising Rights Holder (or, if the
Depositary Units are held by a Nominee Holder, to such Nominee Holder)
certificates representing the Depositary Units and the Preferred Units
purchased pursuant to exercise of the Basic Subscription Rights and, if
applicable, the Over-Subscription Privilege along with a letter explaining
the allocation of Depositary Units and the Preferred Units pursuant to the
Over-Subscription Privilege. Any excess payment to be refunded by the
Partnership to a Rights Holder who is not allocated the full amount of
Depositary Units and Preferred Units subscribed for pursuant to the Over-
Subscription Privilege will be mailed by the Subscription Agent within
seven Business Days after the Protect Period. All payments by a Rights
Holder must be in United States dollars by money order or check drawn on a
bank located in the United States and payable to Registrar and Transfer
Company, as Subscription Agent for American Real Estate Partners, L.P.
Whichever of the two methods described above is used, issuance and
delivery of certificates for the Depositary Units and the Preferred Units
purchased are subject to collection of checks and actual payment.
If an Exercising Rights Holder who acquires Depositary Units and
Preferred Units through the exercise of its Basic Subscription Rights or
pursuant to the Over-Subscription Privilege does not make payment of any
amounts due, the Partnership and the Subscription Agent reserve the right
to take any or all of the following actions: (i) find other holders of
Depositary Units or Rights for such subscribed and unpaid for Depositary
Units and Preferred Units; (ii) apply any payment actually received by it
toward the purchase of the greatest whole number of Depositary Units and
Preferred Units which could be acquired by such holder upon exercise of its
Basic Subscription Rights and/or pursuant to the Over-Subscription
Privilege; and/or (iii) exercise any and all other rights or remedies to
which it may be entitled, including, without limitation, the right to set-
off against payments actually received by it with respect to such
subscribed Depositary Units and Preferred Units.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF
THE SUBSCRIPTION PRICE TO THE PARTNERSHIP WILL BE AT THE ELECTION AND RISK
OF THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE
ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF
PAYMENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO
CLEAR, RIGHTS HOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY
MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and
eligibility of any exercise of Rights will be determined by the Partnership
whose determinations will be final and binding. The Partnership in its
sole discretion may waive any defect or irregularity or permit a defect or
irregularity to be corrected within such time as it may determine, or
reject the purported exercise of any Right. Subscriptions will not be
deemed to have been received or accepted until all irregularities have been
waived or cured within such time as the Partnership determines in its sole
discretion. The Partnership will not be under any duty to give
notification of any defect or irregularity in connection with the
submission of Subscription Certificates or incur any liability for failure
to give such notification.
SALE OF API NOMINEE CORP. RIGHTS
Pursuant to the Exchange, the Partnership acquired the real estate
and other assets of the Predecessor Partnerships. In connection with the
Exchange, the Depositary Units of certain non-consenting investors in the
Predecessor Partnerships issued in connection with the Exchange were
registered in the name of Nominee Corp. As of January 18, 1995 Nominee
Corp. held 161,921 Depositary Units. Unless such non-consenting investors
execute and return their transfer applications and the certificates
evidencing their interests in the Predecessor Partnerships issued in
connection with the Exchange, thereby becoming holders of record of the
Depositary Units held by Nominee Corp., prior to the Record Date, Nominee
Corp shall use its reasonable efforts to sell the Rights issued to Nominee
Corp. and the proceeds from such sale, if any, will be held in escrow by
Nominee Corp. Neither the General Partner nor the Guarantor intends to
purchase Rights from Nominee Corp.
23
<PAGE>
FOREIGN RECORD DATE UNITHOLDERS
Subscription Certificates will not be mailed to Foreign Record Date
Unitholders. The Rights to which such Subscription Certificates relate
will be held by the Subscription Agent for such Foreign Record Date
Unitholders' accounts until instructions are received to exercise, sell or
transfer the Rights. If no instructions have been received by 12:00 Noon,
New York City time, three Business Days prior to the Expiration Date, the
Subscription Agent will use its best efforts to sell the Rights of those
Foreign Record Date Unitholders. The net proceeds, if any, from the sale
of those Rights by the Subscription Agent will be remitted to the Foreign
Record Date Unitholder.
PURPOSE OF THE OFFERING AND USE OF PROCEEDS
PURPOSE OF THE OFFERING
GENERAL. Most of AREP's real estate assets continue to be net-leased
to single corporate tenants. By the end of the year 2000, net leases
representing approximately 26% of AREP's net annual rentals from its
portfolio will be due for renewal, and by the end of the year 2002, net
leases representing approximately 40% of AREP's net annual rentals will be
due for renewal. In many of these leases, the tenant has an option to renew
at the same rents they are currently paying and in many of these leases the
tenant also has an option to purchase. The Partnership believes that tenants
acting in their best interest may be expected to renew those leases which
will be at below market rents, while leases for properties that are less
marketable (either as a result of the condition of such property or its
location) or at above market rents may well be turned back to AREP. Since
most of AREP's properties are net leased to single corporate tenants, it is
expected that it may be difficult, or at the very least, take a fair amount
of time to re-lease or sell those properties that existing tenants decline to
re-let or purchase and the Partnership may be required to incur expenditures
to renovate properties for new tenants. In addition, the Partnership may
become responsible for the payment of certain expenses including maintenance,
utilities, taxes, insurance and environmental compliance costs, associated
with such properties which are presently the responsibility of the tenant.
As a result, AREP could experience an impact on net revenue from such
properties in the next decade.
The Partnership is seeking to raise funds in the Offering to take
advantage of investment opportunities that exist in the real estate market,
diversify its portfolio and mitigate against the impact of lease expirations.
The General Partner believes that, because of the recession and imbalances
in the real estate market in the last several years, there are significant
opportunities available to acquire undervalued properties that will enhance
the value of the Partnership's investment portfolio. If in the future these
investments enhance the Partnership's investment portfolio, the Partnership
may reinstate distributions to holders of Depositary Units. There can be no
assurance, however, that the Partnership will be able to take advantage of
any such opportunities or that distributions to holders of Depositary Units
will be reinstated. As the Partnership intends to focus on undervalued
opportunities which may provide capital appreciation, it desires to receive
funds for such investments in part through the issuance of the Preferred
Units on which distributions are payable in kind as opposed to cash.
In addition, the Offering seeks to reward Unitholders by giving them
the right to purchase additional Depositary Units, at a price below market
without incurring any commission charge. The distribution to Unitholders of
transferable Rights which themselves may have intrinsic value, will also
afford non-participating Unitholders the potential of receiving a cash
payment upon sale of such Rights, receipt of which may be viewed as partial
compensation for the dilution of their interest in the Partnership and the
possible adverse effect on the prevailing market price of the Depositary Units
resulting from the Offering.
INVESTMENT STRATEGIES. In selecting investments, the Partnership
intends to focus on assets that it believes are undervalued in the current
real estate market, such as development properties and non-performing
loans, which the General Partner believes have the potential to diversify
and enhance the long-term value of AREP's portfolio. Such investments may
require active management which could result in higher operating expenses
for the Partnership. The cash flow generated by an asset will be a
consideration, but the Partnership may acquire assets that are not
generating positive cash flow. While this may impact cash flow in the near
term and there can be no assurance that any property acquired by the
Partnership will increase in value or generate positive cash flow,
management intends to focus on assets that it believes may provide
opportunities for long-term growth and diversification of its portfolio.
24
<PAGE>
Investment by the Partnership in certain types of assets that may be
regarded as non-income producing, such as land or non-performing loans, is
currently restricted under the Partnership's Senior Unsecured Debt. The
holders of the Senior Unsecured Debt have agreed, however, to waive this
restriction with respect to any additional capital raised by AREP in the
Offering and the Partnership intends, subject to negotiating terms
favorable to the Partnership, to prepay in full the Senior Unsecured Debt
with a portion of the proceeds from the Offering.
Management will seek to identify and evaluate opportunities that
could permit an investment to be made on favorable terms. For example,
management believes that such attractive investment opportunities will be
available in the context of assets held or controlled by persons who do not
intend to hold such assets for long-term investment (such as assets of
failed financial institutions sold in connection with their interim
management by federal or state regulators and similar assets which
management believes will be available from insurance companies or financial
institutions under regulatory pressure to sell). The Partnership will also
consider investments in properties encumbered by indebtedness that is in
default, is not performing or is believed by management to be likely to be
subject to future default and properties performing at a level believed by
management to be substantially below their potential, due to identifiable
management weaknesses or temporary market conditions such as oversupply of
comparable space or stagnant or recessionary local or regional economies.
The Partnership may also elect to establish an ownership position by
first acquiring debt secured by targeted assets and then negotiating for
the ownership of some or all of the underlying equity in such assets. For
example, the Lexington, Kentucky properties were purchased at substantial
discounts through the acquisition of the mortgages secured by these
properties. The Partnership also may seek to establish a favorable
economic and negotiating position through the acquisition of other rights
or interests that provide it with leverage in negotiating the acquisition
of targeted assets.
The Partnership also will seek to acquire assets that are not in
financial distress but which, due to the particular circumstances of their
ownership, use or location present substantial opportunities for
development or long term growth.
Management also intends to continue investing in properties through
the use of special purpose subsidiaries or by joint ventures, including
joint ventures with affiliates of the General Partner, as demonstrated in
June 1994 with the investments with third party developers in the Alabama
Venture and the North Carolina Venture in which the Partnership, or the
Partnership together with an affiliate, has a controlling interest. The
Partnership also may indirectly acquire interests in real estate by
acquiring the securities of entities which may own real estate.
The determination of which properties are to be acquired will be within
the sole discretion of the Gernal Parter, and no properties have as yet been
identified for acquisition nor has the Partnership entered into any
negotiations or agreements relating to the acquisition of any properties with
the proceeds of the Offering.
BENEFITS TO THE GENERAL PARTNER AND ITS AFFILIATES. The General
Partner and its affiliates will benefit from the Offering because in their
capacity as Exercising Rights Holders, they will have the same right to
increase their investment in the Partnership as other Unitholders, including
acquiring additional Depositary Units at a price less than market. The
Guarantor also will receive certain registration rights with respect to its
Units for providing the Subscription Guaranty. See "The Offering -
Subscription Guaranty - Registration Rights Agreement." Affiliates of the
General Partner may receive fees in connection with the acquisition, sale,
financing, development and management of new properties acquired by the
Partnership. For example, to the extent that AREP acquires any properties
requiring management (e.g., operating properties that are not net leased) or
supervisory management or development services, including on site services,
it may enter into management or other arrangements with the General Partner
or its affiliates. Generally, it is contemplated that under management
arrangements, the entity managing the property would receive a management fee
(generally 3% to 6% of gross rentals depending upon the location) in payment
for its services and reimbursement for costs incurred. AREP also may pay
affiliates of the General Partner insurance brokerage commissions on
properties acquired by it, provided the cost of providing such services,
including the cost of insurance, is no greater than the cost of obtaining
comparable insurance from an unaffiliated party, as well as real estate
brokerage commissions. Moreover, AREP may enter into other transactions with
the General Partner and its affiliates, including, without limitation, buying
and selling properties from or to the General Partner or its affiliates,
joint venture developments, borrowing and lending money from or to the
General Partner or its affiliates and issuing securities to the General
Partner or its affiliates in exchange for, among other things, assets that
they now own or may acquire in the future, provided the terms of such
transactions are fair and reasonable to AREP. In addition, the General
Partner is entitled to reimbursement by the Partnership for all allocable
direct and indirect overhead expenses (including, but not limited to,
salaries and rent) incurred in the performance of its obligations.
The Partnership primarily intends to acquire properties which will
require development or active management and operation since the General
Partner believes such properties have greater potential for long-term growth.
As development and other properties are acquired, developed, constructed,
operated, leased and financed, affiliates of the General Partner may perform
acquisition functions, including the review, verification and analysis of
data and documentation with respect to potential acquisitions, and perform
development and construction oversight and other land development services,
property management and leasing services, either on a day-to-day basis or on
a supervisory management basis, and may perform other services and be
entitled to fees and reimbursement of expenses relating thereto, provided the
terms of such transactions are fair and reasonable to AREP in accordance with
the Partnership Agreement and customary to the industry.
Subject to the limitations described below, the General Partner is
also entitled to receive a reinvestment incentive fee (a "Reinvestment
Incentive Fee") for performing acquisition services equal to a percentage of
the purchase price (whether paid in cash, Units, other securities and/or with
mortgage financing) of properties (other than Predecessor Properties (as
defined below)) acquired from July 1, 1987 through July 1, 1997. This
percentage is 1% for the first five years and 1/2% for the second five years.
Although a Reinvestment Incentive Fee accrues each time a property is
acquired, Reinvestment Incentive Fees are only payable on an annual basis,
within 45 days after the end of each calendar year, if the following
subordination provisions are satisfied. Reinvestment Incentive Fees accrued
in any year will only be payable if the sum of (x) the sales price of all
Predecessor Partnership properties (the "Predecessor Properties") (net of
associated debt which encumbered these properties at the consummation of the
Exchange) sold through the end of that year and (y) the appraised value of
all Predecessor Properties which have been financed or refinanced (and not
subsequently sold), net of the amount of any refinanced debt through the end
of that year determined at the time of such financings or refinancings,
exceeds the aggregate values assigned to those Predecessor Properties for
purposes of the Exchange. If the subordination provisions are not satisfied
in any year, payment of Reinvestment Incentive Fees for that year will be
deferred. At the end of each year a new determination will be made with
respect to subordination requirements (reflecting all sales, financings and
refinancings from the consummation of the Exchange through the end of that
year) in order to ascertain whether Reinvestment Incentive Fees may be
payable irrespective of whether distributions have been made or are projected
to be made to Unitholders.
Because no investments have as yet been firmly identified, it is not
possible to state precisely what role, if any, any affiliates of the General
Partner may have in the acquisition, development or management of any new
investments. Furthermore, with the exception of the Reinvestment Incentive
Fee discussed below, it is not possible to state the amount of the income,
fees or commissions the General Partner or its affiliates might be paid in
connection with the investment of the Offering proceeds since the amount
thereof is dependent upon the specific circumstances of each investment,
including the nature of the services provided, the location of the investment
and the amount customarily paid in such locality for such services. With
respect to the Reinvestment Incentive Fee, assuming that (i) the Senior
Unsecured Debt is prepaid in full leaving approximately $60,000,000 in
Offering proceeds for new investments; (ii) the Partnership incurs
$60,000,000 in additional debt to finance new investments; (iii) the
Partnership acquires $120,000,000 in new investments prior to July 1, 1997;
and (iv) the subordination requirements are satisfied during all relevant
periods, the General Partner would be entitled to receive approximately $
600,000 in Reinvestment Incentive Fees as a result of the Offering. The
Audit Committee of the Board of Directors of the General Partner meets on an
annual basis, or more often if necessary, to review any conflicts of interest
which may arise, including the payment by the Partnership of any fees to the
General Partner or any of its affiliates.
USE OF PROCEEDS
The proceeds from the Offering are estimated to be approximately
$___________ after the payment of Offering expenses estimated to be
approximately $___________. While the Partnership does not have pending any
negotiations or agreements regarding property acquisitions utilizing the
proceeds of the Offering or identified any properties for investment, the net
proceeds of the Offering will be used to further diversify and expand the
Partnership's investment portfolio and, subject to negotiating terms
favorable to the Partnership, the balance will be used to prepay its Senior
Unsecured Debt. If the Senior Unsecured Debt is not prepaid, such funds will
be available for additional portfolio investments.
25
<PAGE>
As of December 31, 1994, the Partnership had $45,231,106 of Senior
Unsecured Debt outstanding. Pursuant to the Note Agreements, the
Partnership is required to make semi-annual interest payments and annual
principal payments. The interest rate charged on the Senior Unsecured Debt
is 9.6% per annum. Under the terms of the Note Agreements, the Partnership
deferred and capitalized 2% annually of its interest payment through May
1993. In May 1994, the Partnership repaid $10 million of its outstanding
Senior Unsecured Debt under the Note Agreements and principal payments of
approximately $11,308,000 are due annually from 1995 through the final
payment date of May 27, 1998.
The Partnership intends, subject to negotiating favorable terms, to
prepay its Senior Unsecured Debt under the Note Agreements with a portion
of the proceeds from this Offering. The Note Agreements contain certain
prepayment penalties which the Partnership would be required to pay if it
extinguishes any portion of the outstanding principal prior to its annual
due date. The Note Agreements require that such prepayment consist of 100%
of the principal amount to be prepaid plus a premium based on a formula
described therein. As of January 13, 1995 such premium would have been
approximately $1,948,000. While such penalties may be substantial,
prepayment will release the Partnership from certain covenants which
restrict its operating and investment activities, including, among others,
covenants relating to the level of net annual rentals from unencumbered
properties and the ability to create liens and incur additional debt. The
Partnership believes that this prepayment and the resulting release from
the covenants in the Note Agreements will further permit it to take
advantage of the investment opportunities that exist in the real estate
market.
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED UNIT DISTRIBUTIONS
The following table sets forth the computation of the ratio of
earnings to fixed charges for the quarters ended September 30, 1994 and
1993 and each of the years in the five-year period ended December 31, 1993.
The financial information for purposes of computing the ratio of earnings
to fixed charges has been derived from the unaudited and audited
Consolidated Financial Statements of American Real Estate Partners, L.P.
and Subsidiary (the "Company") incorporated by reference herein.
The following table also sets forth the pro forma computation of the
ratio of earnings to fixed charges and Preferred Unit distributions for the
quarter ended September 30, 1994 and the year ended December 31, 1993. The
pro forma ratio of earnings to fixed charges and Preferred Unit
distributions has been prepared by adjusting the historical Consolidated
Financial Statements of the Company to give effect to the exercise of the
Rights being offered hereby. The pro forma ratio of earnings to fixed
charges and Preferred Unit Distributions for the quarter ended September
30, 1994 and the year ended December 31, 1993 has been prepared as if the
exercise of the Rights occurred on January 1, 1993. The pro forma ratio of
earning to fixed charges and Preferred Unit Distributions does not purport
to be indicative of the ratio of earnings to fixed charges and Preferred
Unit distributions which might have occurred had the Rights been exercised
on January 1, 1993, or which may be expected to occur in the future.
<TABLE>
PERIOD ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------- ---------------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net earnings . . . . . $18,121,935 $18,421,274 $22,676,754 $11,291,877 $1 9,436,477 $18,106,059 $27,412,945
Add back fixed charges
charged to earnings . 17,565,719 18,918,647 25,386,816 26,068,454 27,443,207 27,987,781 27,974,270
----------- ----------- ----------- ----------- ----------- ----------- -----------
Earnings before
fixed charges . . $35,687,654 $37,339,921 $48,063,5703 $37,360,331 $46,879,684 $46,093,840 $55,387,215
=========== =========== =========== =========== =========== =========== ===========
Fixed Charges:
Interest expense as
reported . . . . . . $17,317,094 $18,724,571 $25,127,931 $25,859,176 $27,244,057 $27,819,859 $27,822,465
Amortization of debt
placement costs . . . 248,625 194,076 258,885 209,278 199,150 167,922 151,805
----------- ----------- ----------- ----------- ----------- ----------- -----------
25,386,816 26,068,454 27,443,207 27,987,781 27,974,270
Capitalized interest . 210,000 210,000 58,540
----------- ----------- ----------- ----------- ----------- ----------- -----------
</TABLE> 26
<PAGE>
<TABLE>
<CAPTION>
PERIOD ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------- ---------------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total Fixed charges . $17,565,719 $19,128,647 $25,596,816 $26,126,994 $27,443,207 $27,987,781 $27,974,270
=========== =========== =========== =========== =========== =========== ===========
Ratio:
Earnings/Fixed
charges: . . . . . . 2.03 1.95 1.88 1.43 1.71 1.65 1.98
----------- ----------- ----------- ----------- ----------- ----------- -----------
Pro forma Ratio of
Earnings to Fixed
Charges and Preferred
Unit Distributions
Fixed charges,
per above . . . . . $17,565,719 $19,128,647 $25,596,816
Preferred Unit
distributions(1) . . 787,500 750,000 1,000,000
----------- ----------- -----------
Total fixed charges . 18,353,219 $19,878,647 26,596,816
----------- ----------- -----------
Pro forma:
Earnings/fixed
charges: . . . . . . 1.94 1.88 1.81
----------- ----------- -----------
<FN>
_____________
<F1> (1) Assumes $20,000,000 worth of Preferred Units are issued.
</TABLE>
DESCRIPTION OF SECURITIES
The following is a brief description of (i) the Depositary Units and
certain provisions of the Depositary Agreement (the "Depositary Agreement")
related thereto, entered into among the Partnership, Registrar and Transfer
Company, as depositary (the "Depositary"), and the Unitholders and (ii) the
Preferred Units.
THE DEPOSITARY UNITS
General. The Depositary Units represent limited partner interests in
AREP. The percentage interest in AREP represented by a Depositary Unit is
equal to the ratio it bears at the time of such determination to the total
number of Depositary Units in AREP (including any undeposited Depositary
Units) outstanding, multiplied by 99%, which is the aggregate percentage
interest in AREP of all holders of Depositary Units. Subject to the rights
and preferences of the Preferred Units, each Depositary Unit evidences
entitlement to a portion of AREP's net cash flow, net proceeds from capital
transactions and allocation of AREP's net income and net loss, as
determined in accordance with the Partnership Agreement.
The Depositary Units are registered under the Securities Exchange Act
of 1934, as amended (the "1934 Act"), and the Partnership is subject to the
reporting requirements of the 1934 Act. The Partnership is required to
file periodic reports containing financial and other information with the
Commission.
The Depositary Units outstanding prior to this Offering are listed,
and the Depositary Units to be issued upon exercise of the Rights will be
listed, on the NYSE under the symbol "ACP." Depositary Units acquired
pursuant to exercise of the Rights will be freely transferable after
consummation of this Offering. Resale of Depositary Units held by the
General Partner and its affiliates will be restricted under federal
securities laws and by virtue of certain agreements of the General Partner
and its affiliates. Depositary Units are evidenced by Depositary Receipts
issued by the Depositary.
The Partnership is authorized to issue additional Depositary Units or
other securities of the Partnership from time to time to Unitholders or
additional investors without the consent or approval of Unitholders. There
is no limit to the number of Depositary Units or additional classes thereof
that may be issued. The Board of Directors of the General Partner has the
power, without any further action by the Unitholders, to issue units with
such designations, preferences and relative, participating or other special
rights, powers and duties, including rights, powers and duties senior to
existing classes of Depositary Units or Preferred Units. The Depositary
Units have no preemptive rights.
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Transfer of Depositary Units. Until a Depositary Unit has been
transferred on the books of the Depositary, the Depositary and the
Partnership will treat the record holder thereof as the absolute owner for
all purposes. A transfer of Depositary Units will not be recognized by the
Depositary or the Partnership unless and until the transferee of such
Depositary Units (individually, a "Subsequent Transferee," and
collectively, the "Subsequent Transferees") executes and delivers a
Transfer Application to the Depositary. Transfer Applications appear on
the back of each Depositary Receipt and also will be furnished at no charge
by the Depositary upon receipt of a request therefor. By executing and
delivering a Transfer Application to the Depositary, a Subsequent
Transferee automatically requests admission as a substituted Unitholder in
the Partnership, agrees to be bound by the terms and conditions of the
Partnership Agreement and grants a power of attorney to the General
Partner. On a monthly basis, the Depositary will, on behalf of Subsequent
Transferees who have submitted Transfer Applications, request the General
Partner to admit such Subsequent Transferees as substituted limited
partners in the Partnership. If the General Partner consents to such
substitution, a Subsequent Transferee will be admitted to the Partnership
as a substituted limited partner upon the recordation of such Subsequent
Transferee's name in the books and records of the Partnership. Upon such
admission, which is in the sole discretion of the General Partner, he will
be entitled to all of the rights of a limited partner under the Delaware
Act and pursuant to the Partnership Agreement. A Subsequent Transferee
will, after submitting a Transfer Application to the Depositary but before
being admitted to the Partnership as a substituted Unitholder of record,
have the rights of an assignee under the Delaware Act and the Partnership
Agreement, including the right to receive his pro rata share of
distributions.
A Subsequent Transferee who does not execute and deliver a Transfer
Application to the Depositary will not be recognized as the record holder
of Depositary Units and will only have the right to transfer or assign his
Depositary Units to a purchaser or other transferee. Therefore, such
Subsequent Transferee will neither receive distributions from the
Partnership nor be entitled to vote on Partnership matters or any other
rights to which record holders of Depositary Units are entitled under the
Delaware Act or pursuant to the Partnership Agreement. Distributions made
in respect of the Depositary Units held by such Subsequent Transferees will
continue to be paid to the transferor of such Depositary Units. A
Subsequent Transferee will be deemed to be a party to the Depositary
Agreement and to be bound by its terms and conditions whether or not such
Subsequent Transferee executes and delivers a Transfer Application to the
Depositary. A transferor will have no duty to ensure the execution of a
Transfer Application by a Subsequent Transferee and will have no liability
or responsibility if such Subsequent Transferee neglects or chooses not to
execute and deliver the Transfer Application to the Depositary.
Whenever Depositary Units are transferred, the Transfer Application
requires that a Subsequent Transferee answer a series of questions. The
required information is designed to provide the Partnership with the
information necessary to prepare its tax information return. If the
Subsequent Transferee does not furnish the required information, the
Partnership will make certain assumptions concerning this information,
which may result in the transferee receiving a lower dollar amount of
depreciation.
Withdrawal of Depositary Units from Deposit. A Unitholder may
withdraw from the Depositary the Depositary Units represented by his
Depositary Receipts upon written request and surrender of the Depositary
Receipts evidencing such Depositary Units in exchange for a certificate
issued by the Partnership evidencing the same number of Depositary Units.
A Subsequent Transferee is required to become a Unitholder of record before
being entitled to withdraw Depositary Units from the Depositary.
Depositary Units which have been withdrawn from the Depositary, and are
therefore not evidenced by Depositary Receipts, are not transferable except
upon death, by operation of law, by transfer to the Partnership or
redeposit with the Depositary. A holder of Depositary Units withdrawn from
deposit will continue to receive his respective share of distributions and
allocations of net income and losses pursuant to the Partnership Agreement.
In order to transfer Depositary Units withdrawn from the Depositary (other
than upon death, by operation of law or to the Partnership), a Unitholder
must redeposit the certificate evidencing such withdrawn Depositary Units
with the Depositary and request issuance of Depositary Receipts
representing such Depositary Units, which Depositary Receipts then may be
transferred. Any redeposit of such withdrawn Depositary Units with the
Depositary requires 60 days' advance written notice and payment to the
Depositary of a redeposit fee (initially $5.00 per 100 Depositary Units or
portion thereof), and will be subject to the satisfaction of certain other
procedural requirements under the Depositary Agreement.
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Replacement of Lost Depositary Receipts and Certificates. A
Unitholder or Subsequent Transferee who loses or has his or her certificate
for Depositary Units or Depositary Receipts stolen or destroyed may obtain
a replacement certificate or Depositary Receipt by furnishing an indemnity
bond and by satisfying certain other procedural requirements under the
Depositary Agreement.
Amendment of Depositary Agreement. Subject to the restrictions
described below, any provision of the Depositary Agreement, including the
form of Depositary Receipt, may at any time and from time to time be
amended by the mutual agreement of the Partnership and the Depositary in
any respect deemed necessary or appropriate by them, without the approval
of the holders of Depositary Units. No amendment to the Depositary
Agreement, however, may impair the right of a holder of Depositary Units to
surrender a Depositary Receipt and to withdraw any or all of the deposited
Depositary Units evidenced thereby or to redeposit Depositary Units
pursuant to the Depositary Agreement and receive a Depositary Receipt
evidencing such redeposited Depositary Units. The Depositary will furnish
notice to each record holder of a Depositary Unit, and to each securities
exchange on which Depositary Units are listed for trading, of any material
amendment made to the Depositary Agreement. Each record holder of a
Depositary Unit at the time any amendment of the Depositary Agreement
becomes effective will be deemed, by continuing to hold such Depositary
Unit, to consent and agree to the amendment and to be bound by the
Depositary Agreement as so amended.
The Depositary will give notice of the imposition of any fee or
charge (other than fees and charges provided for in the Depositary
Agreement), or change thereto, upon record holders of Depositary Units to
any securities exchange on which the Depositary Units are listed for
trading and to all record holders of Depositary Units. The imposition of
any such fee or charge, or change thereto, will not be effective until the
expiration of 30 days after the date of such notice, unless it becomes
effective in the form of an amendment to the Depositary Agreement effected
by the Partnership and the Depositary.
Termination of Depositary Agreement. The Partnership may not
terminate the Depositary Agreement unless such termination (i) is in
connection with the Partnership entering into a similar agreement with a
new depositary selected by the General Partner, (ii) is as a result of the
Partnership's receipt of an opinion of counsel to the effect that such
termination is necessary for the Partnership to avoid being treated as an
"association" taxable as a corporation for federal income tax purposes or
to avoid being in violation of any applicable federal or state securities
laws or (iii) is in connection with the dissolution of the Partnership.
The Depositary will terminate the Depositary Agreement, when directed to do
so by the Partnership, by mailing notice of such termination to the record
holders of Depositary Units then outstanding at least 60 days before the
date fixed for the termination in such notice. Termination will be
effective on the date fixed in such notice, which date must be at least 60
days after it is mailed. Upon termination of the Depositary Agreement, the
Depositary will discontinue the transfer of Depositary Units, suspend the
distribution of reports, notices and disbursements and cease to perform any
other acts under the Depositary Agreement, except in the event the
Depositary Agreement is not being terminated in connection with the
Partnership entering into a similar agreement with a new depositary, the
Depositary will assist in the facilitation of the withdrawal of Depositary
Units by holders who desire to surrender their Depositary Receipts.
Resignation or Removal of Depositary. The Depositary may resign as
Depositary and may be removed by the Partnership at any time upon 60 days'
written notice. The resignation or removal of the Depositary becomes
effective upon the appointment of a successor Depositary by the Partnership
and written acceptance by the successor Depositary of such appointment. In
the event a successor Depositary is not appointed within 75 days of
notification of such resignation or removal, the General Partner will act
as Depositary until a successor Depositary is appointed. Any corporation
into or with which the Depositary may be merged or consolidated will be the
successor Depositary without the execution or filing of any document or any
further act.
THE PREFERRED UNITS
General. The Preferred Units represent limited partner interests in
AREP and have such rights and designations as described below. The
Preferred Units will be evidenced by certificates issued by the
Partnership. The Partnership is required to file periodic reports
containing financial and other information with the Commission.
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There is no existing market for the Preferred Units and there can be
no assurance that a market for the Preferred Units will develop. The
Partnership will seek to list the Preferred Units on the NYSE, however,
there can be no assurance that the Preferred Units will be accepted for
listing on such exchange. Resale of Preferred Units held by the General
Partner and its affiliates will be restricted under federal securities laws
and by virtue of certain agreements of the General Partner and its
affiliates. The Preferred Units will not be evidenced by Depositary
Receipts.
Each Rights Holder who subscribes for the purchase of Depositary
Units and Preferred Units pursuant to the Offering shall be deemed to
have applied for admission as a limited partner of the Partnership with
respect to Units acquired and to have agreed to be bound by all of the
terms and conditions of the Partnership Agreement, as from time to time
in effect.
The Partnership is authorized to issue additional Units or other
securities of the Partnership from time to time to Unitholders or
additional investors without the consent or approval of Unitholders. There
is no limit to the number of Units or additional classes thereof that may
be issued. The Board of Directors of the General Partner has the power,
without any further action by the Unitholders to issue units with such
designations, preferences and relative, participating or other special
rights, powers and duties, including rights, powers and duties senior to
existing classes of Depositary Units or Preferred Units. The Preferred
Units have no preemptive rights.
Liquidation. Holders of the Preferred Units are entitled, subject to
the rights of creditors, in the event of any voluntary or involuntary
liquidation of the Partnership, to an amount in cash equal to $10.00 per
Preferred Unit plus any accrued and unpaid distributions. The rights of
the holders of the Preferred Units upon liquidation of the Company rank
prior to those of holders of Depositary Units issued by the Partnership.
Distributions. Each Preferred Unit will have a liquidation
preference of $10.00 and will entitle the holder thereof to receive
distributions thereon, payable solely in additional Preferred Units, at the
rate of $.50 per Preferred Unit per annum (which is equal to a rate of 5%
of the liquidation preference thereof), payable annually on _________ of
each year (each, a "Payment Date"), commencing __________, 1996. For
purposes of determining the number of new Preferred Units to be issued in
respect of distributions on existing Preferred units, new Preferred Units
will be valued at the liquidation preference thereof.
The Preferred Units, including those issued as a result of
distributions by the Partnership, will be represented by certificates
issuable solely in whole Preferred Units. No certificates representing
fractional Preferred Units will be issued, but record of ownership will be
kept on the books of the Partnership and allocations, distributions, voting
rights, rights with respect to redemption and the like shall be determined in
accordance with fractional Preferred Unit ownership.
Redemption. On any Payment Date commencing with the Payment Date on
____________, 2000, the Partnership, with the approval of the Audit Committee
of the Board of Directors of the General Partner, may opt to redeem all, but
not less than all, of the Preferred Units for a price, payable either in cash
or Depositary Units, equal to the liquidation preference of the Preferred
Units, plus any accrued but unpaid distributions thereon. For purposes of
redemption, the Preferred Units will be valued at the liquidation value
thereof and the Depositary Units will be valued at (i) if the Depositary
Units are listed or admitted to trading on one or more national securities
exchanges, the average price at which the Depositary Units had been trading
over the 20-day period immediately preceding such redemption on the principal
national securities exchange on which the Depositary Units are listed or
admitted to trading; (ii) if the Depositary Units are not listed or admitted
to trading on a national securities exchange but are quoted by NASDAQ, the
average bid price per Depositary Unit at which the Depositary Units had been
trading over the 20-day period immediately preceding such redemption, as
furnished by the National Quotation Bureau Incorporated or such other
nationally recognized quotation service as may be selected by the General
Partner for such purpose, if such Bureau is not at the time furnishing
quotations; or (iii) if the Depositary Units are not listed or admitted to
trading on a national securities exchange or quoted by NASDAQ, an amount
equal to the book value as reflected in the most recent audited financial
statement of the partnership as of the date of redemption. On __________,
2010, the Partnership must redeem the Preferred Units on the same terms as
any optional redemption.
Business Combinations. In the event that the Partnership shall
effect any capital reorganization or reclassification of its Units or shall
consolidate or merge with or into, or shall sell or transfer all or
substantially all of its assets to, any other entity, the holders of
Preferred Units then outstanding shall be entitled to receive the same kind
and amount of securities, cash, property, rights or interests as shall have
been receivable for each Depositary Unit by the holders thereof in such
reorganization, reclassification, consolidation, merger, sale or transfer had
such Preferred Units been redeemed for Depositary Units immediately prior to
such reorganization, reclassification, consolidation, merger, sale or
transfer.
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Voting Rights. So long as any Preferred Units are outstanding, the
Partnership shall not amend, alter or repeal any provisions of the
Partnership Agreement, as amended so as to alter or change the express
powers, preferences or special rights of the Preferred Units so as to
affect them adversely without the consent of the holders of at least two-
thirds of the total number of outstanding Preferred Units (including those
held by the General Partner and its affiliates), given in person or by
proxy, by vote at a meeting called for that purpose or by written consent
as permitted by the Partnership Agreement. Except as described in "-
Nomination of Additional Independent Directors," the holders of the
Preferred Units will have no other rights to vote or to participate in the
management of the Partnership.
Nomination of Additional Independent Directors. If distributions
(which are payable in kind) are not made to the holders of Preferred Units
on any two Payment Dates (which need not be consecutive), the holders of
more than 50% of all outstanding Preferred Units, including the General
Partner and its affiliates, voting as a class, shall be entitled to appoint
two nominees for the Board of Directors of the General Partner. Holders of
Preferred Units owning at least 10% of all outstanding Preferred Units,
including the General Partner and its affiliates to the extent that they
are holders of Preferred units, may call a meeting of the holders of
Preferred Units to elect such nominees. See "Description of Partnership
Agreement - Meetings; Voting Rights of Unitholders." Once elected, the
nominees will be appointed to the Board of Directors of the General Partner
by Icahn. As directors, the nominees will, in addition to their other
duties as directors, be specifically charged with reviewing all future
distributions to the holders of the Preferred Units. Such additional
directors shall serve until the full distributions accumulated on all
outstanding Preferred Units have been declared and paid or set apart for
payment. If and when all accumulated distributions on the Preferred Units
have been declared and paid or set aside for payment in full, the holders
of Preferred Units shall be divested of the special voting rights provided
by the failure to pay such distributions, subject to revesting in the event
of each and every subsequent default. Upon termination of such special
voting rights attributable to all holders of Preferred Units with respect
to payment of distributions, the term of office of each director nominated
by the holders of Preferred Units (the "Preferred Unit Directors") pursuant
to such special voting rights shall terminate and the number of directors
constituting the entire Board of Directors shall be reduced by the number
of Preferred Unit Directors. The holders of the Preferred Units will have
no other rights to participate in the management of the Partnership and
will not be entitled to vote on any matters submitted to a vote of the
holders of Depositary Units.
Transfer Agent, Registrar and Distribution Paying Agent. Registrar
and Transfer Company acts as the transfer agent, registrar and
distribution-paying agent (the "Transfer Agent") for the Preferred Units
and the Depositary Units and receives a fee from the Partnership for
serving in such capacities. All fees charged by the Transfer Agent for
transfers and withdrawals of Preferred Units are borne by the Partnership
and not by the Unitholders, except that fees similar to those customarily
paid by stockholders for surety bond premiums to replace lost or stolen
certificates, taxes or other governmental charges, special charges for
services requested by a Unitholder and other similar fees or charges are
borne by the affected Unitholder. There is no charge to Unitholders for
disbursements of the Partnership's cash distributions. The Partnership
indemnifies the Transfer Agent and its agents from certain liabilities.
The Transfer Agent may at any time resign, by notice to the
Partnership, or be removed by the Partnership, such resignation or removal
to become effective upon the appointment by the General Partner of a
successor transfer agent, registrar and distribution-paying agent and its
acceptance of such appointment. If no successor has been appointed and has
accepted such appointment within 30 days after notice of such resignation
or removal, the General Partner is authorized to act as transfer agent,
registrar and distribution-paying agent until a successor is appointed.
Transfer of Preferred Units. Until a Preferred Unit has been
transferred on the books of the Partnership, the Partnership and the
Transfer Agent will treat the record holder thereof as the absolute owner
for all purposes, notwithstanding any notice to the contrary or any
notation or other writing on the certificate representing such Preferred
Unit, except as otherwise required by law. Any transfers of a Preferred
Unit will not be recorded by the Transfer Agent or recognized by the
Partnership unless certificates representing the Preferred Units are
surrendered and the transferee executes and delivers a Transfer Application
to the Partnership. By executing and delivering a Transfer Application,
the transferee of Preferred Units is an assignee until admitted to the
Partnership as a substituted limited partner, automatically requests
admission to the Partnership as a substituted limited partner, agrees to be
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bound by the terms and conditions of the Partnership Agreement, represents
that such transferee has the capacity and authority to enter into the
Partnership Agreement and grants powers of attorney to the General Partner.
On a monthly basis, the Transfer Agent will, on behalf of transferees who
have submitted Transfer Applications, request the General Partner to admit
such transferees as substituted limited partners in the Partnership. If
the General Partner consents to such substitution, a transferee will be
admitted to the Partnership as a substituted limited partner upon the
recordation of such transferee's name in the books and records of the
Partnership. Upon such admission, which is in the sole discretion of the
General Partner, he will be entitled to all of the rights of a limited
partner under the Delaware Act and pursuant to the Partnership Agreement.
A transferee will, after submitting a Transfer Application to the
Partnership but before being admitted to the Partnership as a substituted
Unitholder of record, have the rights of an assignee under the Delaware Act
and the Partnership Agreement, including the right to receive his
distributions. Preferred Units are securities and are transferable
according to the laws governing transfers of securities.
A transferee who does not execute and deliver a Transfer Application
to the Partnership will not be recognized as the record holder of Preferred
Units and will only have the right to transfer or assign his Preferred
Units to a purchaser or other transferee. Therefore, such transferee will
neither receive distributions from the Partnership or any other rights to
which record holders of Preferred Units are entitled under the Delaware Act
or pursuant to the Partnership Agreement. Distributions made in respect of
the Preferred Units held by such transferees will continue to be paid to
the transferor of such Preferred Units. A transferor will have no duty to
ensure the execution of a Transfer Application by a transferee and will
have no liability or responsibility if such transferee neglects or chooses
not to execute and deliver the Transfer Application to the Partnership.
Whenever Preferred Units are transferred, the Transfer Application
requires that a transferee answer a series of questions. The required
information is designed to provide the Partnership with the information
necessary to prepare its tax information return. If the transferee does
not furnish the required information, the Partnership will make certain
assumptions concerning this information, which may result in the transferee
receiving a lower dollar amount of depreciation.
Replacement of Lost Preferred Unit Certificates. A Unitholder or
transferee who loses or has his or her certificate for Preferred Units
stolen or destroyed may obtain a replacement certificate by furnishing an
indemnity bond and by satisfying certain other procedural requirements
under the Partnership Agreement.
DESCRIPTION OF PARTNERSHIP AGREEMENT
The rights of a limited partner of the Partnership are set forth in
the Partnership Agreement, which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The following is a summary
of certain provisions of the Partnership Agreement and the Agreement of
Limited Partnership of the Subsidiary (the "Subsidiary Partnership
Agreement"), which is similar to the Partnership Agreement in all material
respects (except for the Preferred Units) and also is included as an
exhibit to the Registration Statement of which this Prospectus is a part.
The following summary discusses certain provisions which relate to both,
and is qualified in its entirety by reference to both the Partnership
Agreement and the Subsidiary Partnership Agreement. A reference to the
"Partnership Agreement" in this Prospectus refers to each of the
Partnership Agreement and the Subsidiary Partnership Agreement, unless
otherwise indicated.
ORGANIZATION
The Partnership and the Subsidiary were organized as limited
partnerships under the Delaware Act. The General Partner is the general
partner of both the Partnership and the Subsidiary. The Partnership owns a
99% limited partnership interest in the Subsidiary. The General Partner
owns a 1% general partnership interest in both the Partnership and the
Subsidiary. Exercising Rights Holders, who are not limited partners as of
the date of exercise of their Rights, will, following such exercise, be
admitted as limited partners of the Partnership. The limited partnership
interests of Record Date Holders who exercise their rights will be adjusted
on the books and records of the Partnership accordingly.
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PURPOSES, BUSINESS AND MANAGEMENT
The purposes and business of the Partnership are (a) to directly or
indirectly invest in, acquire, own, hold, manage, operate, sell, exchange
and otherwise dispose of interests in real estate (including a limited
partner interest in the Subsidiary) and (b) to enter into any lawful
transaction and engage in any lawful activities in furtherance of such
purposes.
The General Partner is authorized, in general, to perform all acts
necessary or appropriate to carry out the purposes and to conduct the
business of the Partnership, including the issuance of additional
Depositary Units or other securities of the Partnership (to which the
Unitholders are not required to consent). No Unitholder, in such capacity,
may take part in the operation, management or control of the business of
the Partnership. The General Partner, its affiliates and their employees
may have other business interests and engage in other activities and are
not required to manage the Partnership as their sole and exclusive
function. The Partnership Agreement generally provides that, subject to
the satisfaction of certain conditions, the General Partner and its
affiliates will be exculpated from liability for losses sustained or
liabilities incurred by the Partnership and, to the maximum extent
permitted by law, will be indemnified for all liabilities and related
expenses arising out of proceedings or claims related to the business of
the Partnership.
The authority of the General Partner is limited in certain respects.
The General Partner is prohibited, without the written consent or
affirmative vote of Unitholders owning more than 50% of the total number of
all outstanding Depositary Units then held by Unitholders, including the
General Partner and its affiliates to the extent that they are Unitholders
(a "Majority Interest"), from, among other things, selling or otherwise
disposing of all or substantially all of the Partnership's assets in a
single sale or in a related series of multiple sales, dissolving the
Partnership or electing to continue the Partnership in certain instances,
electing a successor general partner, making certain amendments to the
Partnership Agreement (see "Amendment of the Partnership Agreement") or
causing the Partnership, in its capacity as sole limited partner of the
Subsidiary, to consent to certain proposals submitted for the approval of
the limited partners of the Subsidiary. See "- Meetings; Voting Rights of
Unitholders" below, for a discussion of certain limitations on the voting
rights of Unitholders.
REMOVAL OF THE GENERAL PARTNER
Subject to the limitation on the exercise by Unitholders of voting
rights as described under "-Meetings; Voting Rights of Unitholders", the
General Partner may be removed by the written consent or affirmative vote
of holders of Depositary Units owning more than 75% of the total number of
all outstanding Depositary Units voting as a class then held by
Unitholders, including the General Partner and its affiliates to the extent
that they are holders of Depositary Units. If the Guarantor acquires more
than 25% of all outstanding Depositary Units, the General Partner will not
be able to be removed as provided above without Icahn's consent. The
Guarantor, together with its affiliates, currently holds 1,365,768
Depositary Units, representing approximately 9.89% of the outstanding
Depositary Units. Upon completion of the Offering, Icahn, through the
Guarantor and its affiliate will, assuming the exercise by all Rights
Holders of their Basic Subscription Rights, own 2,513,016 Depositary Units
(representing 9.74% of the Depositary Units outstanding after giving effect
to the Offering); if no Rights are exercised by Rights Holders other than
the Guarantor, the Guarantor will own 13,365,768 Depositary Units or
approximately 51.78% of the then outstanding Depositary Units.
Upon the removal of the General Partner as general partner of the
Partnership by holders of Depositary Units, the holders of Depositary Units
will be obligated to elect a successor general partner of the Partnership
and to continue the business of the Partnership. At the election of the
General Partner, a successor general partner will be required, at the
effective date of its admission to the Partnership as a general partner, to
purchase the General Partner's 1% general partner interest directly from
the General Partner for a price equal to its "fair market value" as
described below. If the General Partner does not elect to sell its
interest, the successor general partner will be required to contribute to
the capital of the Partnership cash in an amount equal to 1/99th of the
product of the number of Depositary Units outstanding immediately prior to
the effective date of such successor general partner's admission (but after
giving effect to the conversion described below) and the average price at
which the Depositary Units had been trading over the 20-day period
immediately preceding such successor general partner's admission.
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Thereafter, such successor general partner will be entitled to one percent
(1%) of all partnership allocations and distributions.
If the General Partner chooses not to sell its 1% General Partner
interest directly to a successor general partner, the General Partner's
general partner interest in the Partnership will be converted into
Depositary Units, with the number of Depositary Units to be received to be
based upon the "fair market value" of its General Partner interest at the
time of such removal and the average price at which the Depositary Units
had been trading over the 20-day period preceding the effective date of the
General Partner's departure. In this regard, the "fair market value" of
the departing General Partner's general partner interest is the amount that
would be distributable to the General Partner on account of such interest
if the Partnership were to dispose of all of its assets in an orderly
liquidation commencing on the effective date of such removal at a price
equal to the fair market value of those assets (discounted at the rate then
payable on one-year U.S. Treasury obligations to the effective date of such
removal to reflect the time reasonably anticipated to be necessary to
consummate such sales), as agreed upon between the departing General
Partner and its successor, or in the absence of such of an agreement, as
determined by an independent appraiser.
Upon removal of the General Partner from the Partnership, the General
Partner will also be removed as general partner of the Subsidiary and its
general partner interest therein will either be purchased by the successor
general partner or converted into Depositary Units (in which case such
successor shall also contribute to the capital of the Subsidiary) in the
same manner as provided above with respect to the Partnership.
The Partnership Agreement provides that, upon the departure of the
General Partner and the conversion of its general partner interest in the
Partnership to Depositary Units, the Partnership will, at the request of
the departing General Partner, file with the Securities and Exchange
Commission up to three registration statements under the Securities Act of
1933 registering the offering and sale of all or a portion of the
Depositary Units owned by such departing General Partner, including those
Depositary Units received upon conversion of its general partner interest
in the Partnership and the Subsidiary. The cost of the first of any such
registrations will be borne by the Partnership and the cost of any other
such registration will be borne by the departing General Partner.
WITHDRAWAL OF THE GENERAL PARTNER
The General Partner may withdraw from the Partnership after May 18,
1997, but only if: (i) such withdrawal is with the consent of a Majority
Interest; (ii) the General Partner, with the consent of a Majority
Interest, transfers all of its interest as general partner in the
Partnership; (iii) the transferee consents to be bound by the Partnership
Agreement and the transferee has the necessary legal authority to act as
successor general partner of the Partnership; and (iv) the Partnership
receives an opinion of counsel to the effect that such vote by the
Unitholders and the admission of a new general partner is in conformity
with local law, will not cause the loss of limited liability to the
Unitholders and will not cause the Partnership to be treated as an
"association" taxable as a corporation for federal income tax purposes.
Notwithstanding the foregoing, the General Partner may, without the
consent of the Unitholders (to the extent permitted by law), transfer its
interest as general partner in the Partnership to any person or entity that
has, by merger, consolidation or otherwise, acquired all or substantially
all of the assets or stock of the General Partner and continued its
business, provided that such person or entity has a net worth no less than
that of the General Partner and has accepted and agreed to be bound by the
terms and conditions of the Partnership Agreement. The General Partner
also may mortgage, pledge, hypothecate or grant a security interest in its
interest as general partner in the Partnership without the consent of
Unitholders.
DISTRIBUTIONS OF CASH FLOW TO DEPOSITARY UNITHOLDERS
Distributions from Operations. The Partnership Agreement provides
that, subject to the rights of the holders of Preferred Units to receive
their in-kind distributions, net cash flow of the Partnership for each
fiscal year or portion thereof shall be distributed quarterly, or at any
other time to the extent deemed appropriate by the General Partner in its
sole and absolute discretion, to the holders of Depositary Units and the
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General Partner in accordance with their respective ownership interests in
the Partnership. The holders of the Preferred Units are not entitled to
distributions of net cash flow of the Partnership. The General Partner has
the power and authority to retain or use Partnership assets or revenues as,
in the sole and absolute discretion of the General Partner, may be required
to satisfy the anticipated present and future cash needs of the
Partnership, whether for operations, expansion, improvements, acquisitions
or otherwise.
The Partnership's ability to pay the distributions of net cash flow
is also based on the business plan of the Partnership, which includes
retaining capital transaction proceeds for reinvestment, and an assessment
of the Partnership's ability to distribute net cash flow in the future, its
expenses, obligations, investments and reserves. The availability of net
cash flow in the future depends as well upon events and circumstances
outside the Partnership's control and no assurance can be given that the
Partnership will be able to make distributions of net cash flow or as to
the timing of the distribution.
Over the last two years, the General Partner has found it necessary
to decrease and, finally, suspend the Partnership's distributions to
holders of Depositary Units. The General Partner determined that this
action was necessary after evaluating the Partnership's anticipated cash
flows, liquidity and debt service needs and its capital funding
requirements. While payment of maturing debt obligations requires the use
of operating cash flow and the establishment of reserves in the near-term,
it should enhance AREP's equity in its investments and its cash flow in
later years. AREP does not believe it would be prudent or in the long-term
best interest of AREP to encumber or sell assets for the purpose of paying
distributions.
Distributions from Sales and Refinancings. Capital transaction
proceeds may be distributed or retained by the Partnership for reinvestment
or other Partnership purposes in the discretion of the General Partner.
Generally, the Partnership intends that capital transaction proceeds will
be reinvested, subject to the establishment of any reserves. The amount
and timing of distributions of capital transaction proceeds, if any, will
be in the sole discretion of the General Partner.
If, in the opinion of the General Partner, a combination of capital
transactions during a tax year would result in a material tax liability to
holders of Depositary Units, the General Partner may distribute a portion
of capital transaction proceeds sufficient to pay all or a portion of such
tax liability, assuming the maximum federal capital gains tax rate for
individuals. However, there can be no assurance that holders of Depositary
Units may not be required to recognize taxable income in excess of cash
distributions made in respect of such period. See "Income Tax
Considerations."
To the extent that capital transaction proceeds are distributed, such
capital transaction proceeds will be distributed by the Partnership to the
holders of Depositary Units and to the General Partner in accordance with
their respective ownership interests in the Partnership.
Generally, distributions resulting from a liquidation of the
Partnership will be made in the same manner as distributions of capital
transaction proceeds, subject to the overall requirement that distributions
be made to partners in accordance with their positive capital account
balances and the rights of the holders of Preferred Units to their
liquidation preference.
Distribution Reinvestment Plan. A Distribution Reinvestment Plan
(the "Reinvestment Plan") is available to holders of Depositary Units and
is designed to enable such holders to have their distributions from the
Partnership invested in Depositary Units.
Pursuant to the Reinvestment Plan, the Registrar and Transfer Company
(the "Agent"), as agent for the Reinvestment Plan participants will use any
distributions paid on the Depositary Units of participants to purchase
additional Depositary Units in the open market. There is no assurance such
Depositary Units will be available from other investors. If a
participant's distribution is not large enough to purchase a full
Depositary Unit, he or she will be credited with fractional Depositary
Units, computed to three decimal places. To the extent Depositary Units
are not available in the open market, the Agent will distribute cash to the
participants.
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At the time of reinvestment, each participant will pay a service
charge of 5% of the amount invested, but not less than $.75 or more than
$2.50 for each investment transaction, to the Agent, plus a proportionate
share of the cost of acquiring the Depositary units purchased for all
participants.
Holders of Depositary Units may become participants at any time by
completing and delivering to the Agent the appropriate authorization form
which will be available from the Agent and the Partnership. Participation
in the Reinvestment Plan will start the next distribution payable after
receipt of a participant's authorization form. A participant will be able
to terminate his or her participation in the Reinvestment Plan at any time
without penalty by delivering written notice to the Agent. A service
charge of $2.50 will be charged by the Agent for a termination.
Holders of Depositary Units that participate in the Reinvestment Plan
will be taxed on their share of Partnership income in the same manner as if
they received their Partnership distributions in cash; thus participants
may incur a tax liability even though they do not receive a distribution of
cash.
ALLOCATIONS OF INCOME AND LOSS
The Partnership Agreement provides, in general, that all items of
income, gain, loss and deduction are allocated to the General Partner and
to the holders of Depositary Units in accordance with their respective
percentage ownership in the Partnership. Items allocated to the holders of
Depositary Units are further allocated among them pro rata in accordance
with the respective number of Depositary Units owned by each of them. The
Partnership's taxable income and losses will be computed on an annual basis
and apportioned monthly among record holders of Depositary Units in
proportion to the number of Depositary Units owned by them as of the close
of business on the second to last day of the month in which such taxable
income or losses are apportioned, notwithstanding that cash will be
distributed quarterly to record holders of Depositary Units forty-five days
after the end of each quarter. See "Certain Federal Income Tax
Considerations." The Partnership's gains and losses from capital
transactions generally will be allocated among record holders of Depositary
Units in proportion to the number of Depositary Units owned by them as of
the close of business on the last day of the month in which such gains and
losses are realized.
Holders of Preferred Units will be treated as having received
ordinary income each year equal to the value of the liquidation preference
paid or accrued for the year. The amounts included in income by the
Preferred Unit holder will be deducted by the Partnership or capitalized,
depending upon the use of the contributed capital. See "Certain Federal
Income Tax Contributions - Certain Federal Income Tax Considerations
Relating to the Partnership and Unitholders - Allocation of Income and
Loss."
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed by the
General Partner or by holders of Depositary Units owning at least 10% of
the total number of Depositary Units outstanding then owned by all
Unitholders. Any proposed amendment (other than those described below)
must be approved by the General Partner in writing and, subject to the
limitations on the exercise by Unitholders of voting rights as described
under "- Meetings; Voting Rights of Unitholders", by at least a Majority
Interest in order to be adopted. Unless approved by the General Partner in
writing and, subject to the limitations on the exercise by Unitholders of
voting rights as described under "-Meetings; Voting Rights of Unitholders",
by all of the holders of Depositary Units, no amendment may be made to the
Partnership Agreement if such amendment, in the opinion of counsel would
result in the loss of the limited liability of Unitholders or the
Partnership as the sole limited partner of the Subsidiary or would cause
the Partnership or the Subsidiary to be treated as an association taxable
as a corporation for federal income tax purposes. In addition, no
amendment to the Partnership Agreement may be made which would: (i)
enlarge the obligations of the General Partner or any Unitholder or convert
the interest of any Unitholder into the interest of a general partner; (ii)
modify the expense reimbursement payable to the General Partner and its
affiliates pursuant to the Partnership Agreement or the fees and
compensation payable to the General Partner and its affiliates pursuant to
the Subsidiary Partnership Agreement; (iii) modify the order and method for
allocations of net income and net loss or distributions of net cash flow
from operations without the consent of the General Partner or the
Unitholders adversely affected; or (iv) amend Sections 14.01, 14.02 and
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14.03 of the Partnership Agreement concerning amendments thereof without
the consent of Unitholders owning more than 95% of the total number of
Depositary Units outstanding then held by all Unitholders.
Notwithstanding the foregoing, the General Partner may make
amendments to the Partnership Agreement without the consent of the
Unitholders, if such amendments are necessary or appropriate: (i) to
reflect a change in the name or location of the principal office of the
Partnership; (ii) to reflect the admission, substitution, termination, or
withdrawal of Unitholders in accordance with the Partnership Agreement;
(iii) to qualify the Partnership as a limited partnership or to ensure that
the Partnership will not be treated as an association taxable as a
corporation for federal income tax purposes; (iv) in connection with or as
a result of the General Partner's determination that the Partnership does
not or no longer will qualify as a partnership for federal income tax
purposes, including, without limitation, an amendment reflecting the
reorganization of the Partnership into a qualified "real estate investment
trust"; (v) to reflect a change that is of an inconsequential nature and
does not adversely affect the Unitholders in any material respect, or to
cure any ambiguity, correct or supplement any provision in the Partnership
Agreement not inconsistent with law or with other provisions, or make other
changes with respect to matters arising under the Partnership Agreement
that will not be inconsistent with law or with the provisions of the
Partnership Agreement; (vi) to satisfy any requirements, conditions, or
guidelines contained in any order, directive, opinion, ruling or regulation
of a federal or state agency or contained in federal or state law; (vii) to
facilitate the trading of the Depositary Units or comply with any
requirement or guideline of any securities exchange on which the Depositary
Units are or will be listed for trading; (viii) to make any change required
or contemplated by the Partnership Agreement; (ix) to amend any provisions
requiring any action by the General Partner if applicable provisions of the
Delaware Act related to the Partnership are amended or changed so that such
action is no longer necessary; or (x) to authorize the Partnership to issue
Units (or other securities) in one or more additional classes, or one or
more series of classes, with any designations, preferences and relative,
participating, optional or other special rights as shall be fixed by the
General Partner.
In accordance with the foregoing, the General Partner amended the
Partnership Agreement providing for the issuance of the Preferred Units
offered hereby.
ISSUANCE OF ADDITIONAL SECURITIES
The Partnership is authorized to issue additional Depositary Units or
other securities of the Partnership from time to time to Unitholders or
additional investors without the consent or approval of Unitholders. There
is no limit to the number of Depositary Units or additional classes thereof
that may be issued. The Board of Directors of the General Partner has the
power, without any further action by the Unitholders to issue securities
with such designations, preferences and relative, participating or other
special rights, powers and duties, including rights, powers and duties
senior to existing classes of Depositary Units or Preferred Units.
MEETINGS; VOTING RIGHTS OF UNITHOLDERS
Any action that is required or permitted to be taken by Unitholders
may be taken either at a meeting of the holders of Depositary Units or
Preferred Units or without a meeting if consents in writing setting forth
the action so taken are signed by holders of Depositary Units owning not
less than the minimum number of Depositary Units or Preferred Units that
would be necessary to authorize or take such action at a meeting. Meetings
of the holders of Depositary Units may be called by the General Partner or
by Unitholders owning at least 10% of the total Depositary Units
outstanding then owned by all such Unitholders. If a distribution is not
made to holders of Preferred Units for a period of two years, holders of
Preferred Units owning at least 10% of the total Preferred Units
outstanding then owned by all such holders, including the General Partner
and its affiliates, may call a meeting of the holders of Preferred Units to
elect two nominees for the Board of Directors of the General Partner. Each
nominee must be approved by holders of Preferred Units owning more than 50%
of all Preferred Units outstanding then owned by all such holders,
including the Guarantor and its affiliates. Holders of Depositary Units or
Preferred Units may vote either in person or by proxy at meetings.
Unitholders of record who constitute a Majority Interest or more than 50%
of all outstanding Preferred Units, and who are represented in person or
proxy will constitute a quorum at a meeting of holders of Depositary Units
or Preferred Units. Except as described above, the holders of Preferred
Units have no rights to call meetings and will not be entitled to vote on
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any of the matters submitted to a vote of the holders of Depositary Units.
See "- Description of Securities - Description of Preferred Units -
Nomination of Additional Independent Directors."
Matters submitted to the Unitholders for their consent will be
determined by the affirmative vote, in person or by proxy, of a Majority
Interest, except that a higher vote will be required for certain amendments
referred to above under "- Amendment of the Partnership Agreement," the
removal of the General Partner, as described above under "-Removal of the
General Partner," and the continuation of the Partnership after certain
events that would otherwise cause dissolution, as described below under "-
Termination, Dissolution and Liquidation," and as otherwise required by
law. Each Unitholder will have one vote for each Depositary Unit as to
which such Unitholder has been admitted as a Unitholder. A Subsequent
Transferee of Depositary Units who has not been admitted as a Unitholder of
record with respect to such Depositary Units will have no voting rights
with respect to such Depositary Units, even if such Subsequent Transferee
holds other Depositary Units as to which it has been admitted as a
Unitholder. The voting rights of a Unitholder who transfers a Depositary
Unit will terminate with respect to such Depositary Unit upon such
transfer, whether or not the Subsequent Transferee thereof is admitted as a
Unitholder of record with respect thereto.
The Partnership Agreement does not provide for annual meetings of the
Unitholders, and the General Partner does not anticipate calling such
meetings.
LIABILITY OF GENERAL PARTNER AND UNITHOLDERS
The General Partner will be liable for all general obligations of the
Partnership to the extent not paid by the Partnership. The General Partner
will not, however, be liable for the nonrecourse obligations of the
Partnership.
Assuming that a Unitholder does not take part in the control of the
business of the Partnership and otherwise acts in conformity with the
provisions of the Partnership Agreement, the liability of the Unitholder
will, under the Delaware Act, be limited, subject to certain possible
exceptions, generally to the amount contributed by the Unitholder or the
Unitholder's predecessor in interest to the capital of the Partnership,
plus such Unitholder's share of any undistributed Partnership income,
profits or property. However, under the Delaware Act, a Unitholder who
receives a distribution from the Partnership that is made in violation of
the Delaware Act and who knew at the time of the distribution that the
distribution was improper, is liable to the Partnership for the amount of
the distribution. Such liability or liability under other applicable
Delaware law (such as the law of fraudulent conveyances) ceases after
expiration of three years from the date of the applicable distribution.
Under the Delaware Act, a partnership is prohibited from making a
distribution to a partner to the extent that at the time of the
distribution, after giving effect to the distribution, all liabilities of
the partnership, other than liabilities to partners on account of their
partnership interests and liabilities for which the recourse of creditors
is limited to specified property of the partnership, exceed the fair value
of the assets of the partnership (except that fair value of property that
is subject to a liability for which the recourse of creditors is limited is
included in the assets of the partnership only to the extent that the fair
value of the property exceeds that liability). An assignee of a limited
partner who becomes a substituted limited partner does not, under the
Delaware Act, become liable for any obligation of the assignor to restore
prior distributions.
The Partnership conducts business through the Subsidiary in several
states. Maintenance of limited liability will require compliance with
legal requirements of those states. The Partnership is the sole limited
partner of the Subsidiary. Limitations on the liability of a limited
partner for the obligations of a limited partnership have not clearly been
established in many states; accordingly, if it were determined that the
possession or exercise of the right by the Partnership, as limited partner
of the Subsidiary, to remove the General Partner as general partner
thereof, to approve certain amendments to the Subsidiary Partnership
Agreement or to take other action pursuant to the Subsidiary Partnership
Agreement constituted "control" of the Subsidiary's business for the
purposes of the statutes of any relevant state, the Partnership and/or
Unitholders might be held personally liable for the Subsidiary's
obligations. Further, under the laws of certain states, the Partnership
might be liable for other amounts, such as the amount of any undistributed
profits to which it is entitled, with interest, or for the amount of
distributions made to the Partnership by the Subsidiary. The Partnership
and the Subsidiary will operate in a manner the General Partner deems
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reasonable, necessary and appropriate to preserve the limited liability of
the Unitholders and the Partnership.
Upon dissolution of the Partnership for any reason (including the
withdrawal or removal of the General Partner if no successor general
partner is selected), the assets of the Partnership may, in certain
instances, be distributed in kind to the Unitholders of record. If a
distribution in kind is made, the Unitholder receiving the distribution in
kind will no longer have limited liability with respect to, and will be
required to make arrangements for further operation of the assets
distributed to him and will receive the assets subject to certain operating
agreements and liabilities of the Partnership. Disposing of distributed
assets or arranging for the operation thereof could be difficult,
particularly in view of the large number of persons who could receive
undivided interests in certain events. See "-Termination, Dissolution and
Liquidation."
EXCULPATION AND INDEMNIFICATION OF THE GENERAL PARTNER
The Partnership Agreement provides that the General Partner and its
affiliates and all of their officers, directors, employees and agents will
not be liable to the Partnership or to any Unitholder for any losses
sustained or liabilities incurred as a result of any action that does not
constitute (i) a breach of that person's duty of loyalty to the Partnership
as described in the Partnership Agreement, (ii) an act or omission in bad
faith which involves intentional misconduct or a knowing violation of law or
(iii) a transaction from which an improper personal benefit is derived. The
Partnership Agreement also provides that the Partnership will indemnify the
General Partner and its affiliates, officers, directors, employees and agents
to the fullest extent permitted by law against any liability and related
expenses (including attorneys' fees) incurred in conjunction with any
proceeding in which any of them may be involved, or threatened to be
involved, as a party or otherwise, arising out of or incidental to the
business of the Partnership, if (i) such party seeking indemnification acted
in good faith and in a manner it believed to be in, or not opposed to, the
best interests of the Partnership, and, with respect to any criminal
proceeding, had no reasonable cause to believe its conduct was unlawful and
(ii) such party's conduct did not constitute willful misconduct. Unitholders
may have more limited recourse against the General Partner than would apply
absent these provisions. The Partnership may purchase and maintain liability
insurance covering the General Partner, or any other persons as the General
Partner shall determine, against any liability that may be asserted against
the General Partner or any such person in connection with the activities of
the Partnership, regardless of whether indemnification against such liability
would be permitted under the provisions of the Partnership. TO THE EXTENT
THAT SUCH INDEMNIFICATION PROVISIONS PURPORT TO INCLUDE INDEMNIFICATION FOR
LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN THE OPINION OF
THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION IS CONTRARY TO
PUBLIC POLICY AND THEREFORE UNENFORCEABLE.
NO WITHDRAWAL OF CAPITAL
A Unitholder will not have the right to request withdrawal of his
capital from the Partnership nor will a Unitholder be entitled to demand or
receive any return of his capital.
BOOKS AND REPORTS
The General Partner is required to keep complete and accurate books
with respect to the Partnership's business at the principal office of the
Partnership. The books are maintained for financial accounting purposes on
the accrual basis, in accordance with generally accepted accounting
principles. The fiscal year of the Partnership is the calendar year.
Unitholders will be entitled to have access to the Partnership books and
certain other records at reasonable times upon reasonable notice to the
General Partner, subject to certain limitations including those intended to
protect confidential business information.
The General Partner will furnish to each Unitholder, within 120 days
after the close of each fiscal year, reports containing certain financial
statements of the Partnership for such fiscal year, including a balance
sheet and statements of income, Unitholders' equity and changes in
financial position, which will be audited by a nationally recognized firm
of independent certified public accountants. In addition, after the close
of each fiscal quarter (except the fourth quarter), the General Partner
will furnish to each Unitholder a quarterly report for the fiscal quarter
containing certain financial and other information relating to the
Partnership.
Within 90 days after the close of each taxable year, the Partnership
will use its best efforts to furnish to each Unitholder as of the last day
of any month during such taxable year such information as may be required
by the Unitholders for the preparation of their individual federal, state
and local tax returns. Such information will be furnished in summary form
so that certain complex calculations normally required can be avoided. The
Partnership's ability to furnish such summary information may depend on the
cooperation of Unitholders in supplying certain information to the
Partnership.
POWER OF ATTORNEY
Pursuant to the terms of the Partnership Agreement, each investor who
receives Units pursuant to the exercise of Rights and each Subsequent
Transferee who is admitted as a Unitholder of record in the Partnership
following the consummation of the Rights Offering appoints the General
Partner and each of the General Partner's authorized officers as such
Unitholder's or substituted Unitholder's attorney-in-fact (a) to enter into
the Depositary Agreement and deposit the Depositary Units of such
Unitholder or substituted Unitholder in the deposit account established by
the Depositary, and admit the holders of Depositary Units and Preferred
Units acquired upon exercise of the Rights (to the extent such holders are
not already admitted) as limited partners in the Partnership and (b) to
make, execute, file and/or record (i) instruments with respect to any
amendment of the Partnership Agreement; (ii) conveyances and other
instruments and documents with respect to the dissolution, termination and
liquidation of the Partnership pursuant to the terms of the Partnership
Agreement; (iii) financing statements or other documents necessary to grant
or perfect a security interest, mortgage, pledge or lien on all or any of
the assets of the Partnership; (iv) instruments or papers required to
continue the business of the Partnership pursuant to the Partnership
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Agreement; (v) instruments relating to the admission of substituted limited
partners in the Partnership; and (vi) all other instruments deemed
necessary or appropriate to carry out the provisions of the Partnership
Agreement. Such power of attorney is irrevocable, will survive the
subsequent death, incompetency, dissolution, disability, incapacity,
bankruptcy or termination of the granting Unitholder, and will extend to
such Unitholder's heirs, successors and assigns.
DEATH, BANKRUPTCY OR INCOMPETENCY OF A UNITHOLDER
The death, bankruptcy or adjudication of incompetency of a Unitholder
will not dissolve the Partnership. In such event, the legal
representatives of such Unitholders will have all the rights of a
Unitholder for the purpose of settling or managing the estate and such
power as the deceased, bankruptcy or incompetent Unitholder possessed to
assess, sell or transfer any part of his interest. The transfer of
Depositary Units and Preferred Units by such legal representative to any
person or entity is subject to all of the restrictions to which such
transfer would have been subject if it had been made by the deceased,
bankrupt or incompetent Unitholder.
TERMINATION, DISSOLUTION AND LIQUIDATION
The Partnership will continue until December 31, 2085, unless sooner
dissolved or terminated and its assets liquidated upon the occurrence of
the earliest of: (i) the withdrawal, removal or bankruptcy of the General
Partner (subject to the right of the Unitholders to reconstitute and
continue the business of the Partnership by written agreement of a Majority
Interest and designation by them of a successor general partner within 90
days); (ii) the written consent or affirmative vote of a Majority Interest,
with the approval of the General Partner, to dissolve and terminate the
Partnership; (iii) the sale or other disposition of all or substantially
all of the assets of the Partnership; (iv) the Partnership's insolvency or
bankruptcy; or (v) any other event causing or requiring a dissolution under
the Delaware Act. The Unitholder's right to continue the Partnership
described in (i) above is subject to the receipt by the Partnership of an
opinion of counsel to the effect that such continuation and the selection
of a successor general partner will not result in the loss of limited
liability of the Unitholders and will not cause the Partnership to be
treated as an association taxable as a corporation for federal income tax
purposes.
Upon dissolution, the General Partner or other entity or person
authorized to wind up the affairs of the Partnership will proceed to
liquidate the assets of the Partnership and apply the proceeds of
liquidation in the order of priority set forth in the Partnership
Agreement.
INCOME TAX CONSIDERATIONS
The following is a summary of the federal income tax aspects which are
material to a typical Unitholder who is a U.S. citizen or resident regarding
the ownership, exercise or sale of Rights and the owndership and sale of
Depositary Units and Preferred Units and is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), judicial decisions, final, temporary
and proposed Treasury regulations ("Regulations") and administrative rulings
and pronouncements of the Internal Revenue Service ("IRS"). No attempt has
been made to comment on all federal income tax matters affecting the
Partnership, the Subsidiary or the Unitholders. The tax aspects of an
investment to certain categories of Unitholders (such as C corporations,
tax-exempt organizations, dealers in securities, banks, insurance companies,
real estate investment trusts or foreign persons) may differ significantly
from those described below. Prospective investors should consult their own
tax advisors about the federal, state, local and foreign income tax
consequences to them prior to exercising Rights.
This summary is based on current legal authority and there is no
assurance that legislative or administrative changes or court decisions may
not occur which would significantly modify the statements and opinions
expressed herein. The General Partner must make certain federal income tax
determinations that will impact Unitholders which may be based on factual
determinations or upon which no legal precedent or authority is available
(e.g., the allocation of the exercise price of rights between Depositary
Units and Preferred Units, the determination of the valuation of the
Partnerships' assets for purposes of making tax allocations and the proper
allocations of income and loss as between the holders of Depositary Units
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and Preferred Units). There is no assurance that the IRS will agree with
the General Partner's determinations and it is possible that the allocation
or treatment of tax items by the General Partner may be modified upon
audit.
LEGAL OPINION
Rogers & Wells, counsel to the Partnership ("Counsel"), has expressed
its opinion as to the following matters: (i) the Partnership and the
Subsidiary each will continue to be classified as a partnership for federal
income tax purposes following the issuance and exercise of the Rights and not
as an association taxable as a corporation; and (ii) it is more likely than
not that the Preferred Units will be classified as partnership interests for
federal income tax purposes rather than as debt obligations of the
Partnership and, if so, an assignee of record of a Depositary Unit or a
Preferred Unit generally will be treated as a partner of the Partnership for
federal income tax purposes from the date such person becomes the record
owner of such Unit. Counsel has based its opinion on applicable legal
authority, the facts set forth in this Prospectus and certain factual
representations made by the General Partner and its opinion is conditioned on
the accuracy of such facts. Counsel's opinion represents only its best legal
judgment, and does not bind the IRS or the courts. Thus, no assurance can be
provided that the opinions and statements set forth herein will not be
challenged by the IRS or would be sustained by a court if litigated. Due to
the factual nature of the issue, or uncertainty of the law, Counsel is not
able to opine with respect to certain issues that involve: (i) the
allocation of the Subscription Price between the Preferred Units and
Depositary Units upon exercise of Rights due to the factual nature of the
issue; (ii) whether certain expenses of the Partnership deducted as business
expenses may have to be capitalized for tax purposes due to the factual
nature of the issue; (iii) whether the allocations of income and loss of the
Partnership, including amounts reported as income to holders of Preferred
Units, will be respected for federal income tax purposes due to the absence
of authority regarding the methods used by the Partnership as described below
in "Certain Federal Income Tax Considerations Relating to the Partnership and
the Unitholders - Allocation of Income and Loss"; and (iv) whether any
interest expense on debt incurred to purchase Preferred Units will be treated
as investment interest or interest subject to the passive activity loss
limitations due to the absence of authority on this issue.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE RIGHTS
Effect of Rights Distribution. The distribution by a partnership to
its partners of rights to purchase partnership interests does not generally
give rise to taxable income to the partnership or the partners.
Accordingly, neither the Partnership nor the holders of Depositary Units
will recognize gain or loss upon the distribution of Rights.
Unitholder's Basis in Rights. Although not completely certain, the
tax basis of Rights received by a Unitholder from the Partnership likely
will be zero and the distribution of Rights will not change the tax basis
of the existing Depositary Units. If Rights received by a Unitholder are
not exercised but are allowed to expire, no loss will be allowed to the
Unitholder, unless the Right had been acquired by purchase, in which case
there will be a capital loss equal to the cost basis of the Right.
Effect of Exercise of Rights. No gain or loss will be recognized by
a Unitholder or the Partnership on the purchase of Depositary Units and
Preferred Units through the exercise of Rights. The tax basis of the
Depositary Units and Preferred Units purchased thereby will be equal to the
sum of the price paid for the Depositary Units and Preferred Units plus the
share of the Partnership's nonrecourse liabilities allocated to the
Depositary Units and Preferred Units, and the amount, if any, paid for the
Rights. See "- Unitholders' Basis in his Units."
Sale of the Rights. Any gain or loss on the sale of a Right will be
treated as a short-term capital gain or loss if the Right is a capital
asset in the hands of the seller.
Sale of the Depositary Units or the Preferred Units. Gain or loss
will be recognized by a Unitholder upon the sale of the Depositary Units or
the Preferred Units acquired upon exercise of the Rights in an amount equal
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to the difference between the amount realized on the sale and the tax basis
of the Unitholder allocable to the Depositary Units or the Preferred Units,
as the case may be. Except to the extent attributable to unrealized
receivables or certain inventory items (as determined under Section 751 of
the Code), which are not expected to be material, such gain or loss will be
a capital gain or loss if the Depositary Units or the Preferred Units are
capital assets in the hands of the holder thereof and will be a long-term
capital gain or loss if the holder's holding period in the Depositary Units
or the Preferred Units is more than one year. The holding period of the
Depositary Units and the Preferred Units purchased through exercise of
Rights likely will begin on the date of exercise.
It is the position of the IRS that a partner has a single aggregate
basis in all of the partner's partnership interests and that, to determine
gain or loss upon a sale of a part of such partnership interests, the
portion of the partner's basis allocated to the interests being sold equals
the partner's share of partnership liabilities transferred in the sale plus
the partner's aggregate tax basis (excluding basis attributable to
partnership liabilities) multiplied by the ratio of the fair market value
of the interests sold to the fair market value of all of the partner's
partnership interests. This portion may produce unexpected results if
applied to a Unitholder who owns both Depositary Units and Preferred Units
and who sells some Units while retaining other Units because the sale may
result in significantly different gains or losses than in the case of a
partner who held only the Units being sold. It is not clear whether the
IRS's ruling position applies to interests in publicly traded partnerships
represented by separate certificates.
A Unitholder who is a natural person, trust, estate, a personal
service company or a closely held "C" corporation, generally is subject to
limitations on deducting passive activity losses. Most or all of any loss
realized upon a sale or retirement of Depositary Units or Preferred Units
will be subject to these limitations. See "- Limitations on Deductibility
of Losses."
In the case of a corporate Unitholder, under Section 291(a)(1) of the
Code, a sale or other disposition of its Units might result in recapture
(to the extent of gain) as ordinary income of a portion of its allocable
share of the depreciation claimed with respect to the Partnership's
properties.
The amount realized on the sale or disposition of a Depositary Unit
includes, among other things, an allocable share of the outstanding amount
of the Partnership's nonrecourse indebtedness (including unpaid interest
accrued thereon) to the extent such amount was includable in the basis of
such Unit. Therefore, it is possible that the gain realized on the sale or
disposition of a Depositary Unit may exceed the cash proceeds of such sale
or disposition and, in some cases, the income taxes payable with respect to
such disposition may exceed such cash proceeds.
Retirement of Preferred Units. A holder of Preferred Units who does
not own any other Units may recognize a taxable gain or loss upon the
retirement of the Preferred Units in exchange for cash. Such gain or loss
would equal the difference, if any, between the amount of cash paid to the
holder and his tax basis in the Preferred Units. Such gain or loss
generally will be treated as a long-term capital gain or loss provided the
holder has held the Preferred Units for a period of one year or more.
If the holder also owns Depositary Units, the holder generally will
not recognize gain or loss upon receipt of a redemption distribution except
that gain would be recognized to the extent the amount of cash paid exceeds
the holder's basis in all of his or her Units. However, the holder may
recognize ordinary income or loss to the extent redemption proceeds are
treated as an exchange for all or part of the holder's share of the
Partnership's unrealized receivables or certain inventory items under
Section 751 of the Code.
In general, no gain or loss will be recognized by a holder of Preferred
Units if the Preferred Units are redeemed by the Partnership for Depositary
Units. The holder would take a tax basis in the Depositary Units equal to
his prior basis in the Preferred Units, adjusted for any increase or decrease
in the holder's share of the Partnership's nonrecourse liabilities. In order
to cause the Depositary Units received upon redemption to have the same book
capital accounts as other Depositary Units, the General Partner is authorized
to allocate gross income or loss to the holder to adjust his capital account
in his or her Depositary Units to equal that of the other Depositary Units of
the Partnership. Such an allocation may increase or decrease the amount of
taxable income otherwise allocable to the holder in the year of the exchange
of the Preferred Units for Depositary Units.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE PARTNERSHIP AND
UNITHOLDERS
Taxation of the Partnership and the Unitholders. A partnership
itself is not subject to any federal income tax. Assuming it is classified
as a partnership for tax purposes, the Partnership, as a partner in the
Subsidiary, is required to report on its information tax return its
distributive share of income, gain, loss, deduction and items of tax
preference, if any, of the Subsidiary. Similarly, each Unitholder is
required to report on his personal income tax return his distributive share
of Partnership income, gain, loss deduction and items of tax preference
(substantially all of which will be derived from the Subsidiary) and will
be subject to tax on his distributive share of the Partnership's taxable
income, regardless of whether any portion of that income is, in fact,
distributed to such Unitholder. Thus, holders of Depositary Units may be
required to accrue income, without the current receipt of cash if the
Partnership continues not to make cash distributions while generating
taxable income from operations or from the sale or foreclosure of
properties. Holders of Preferred Units will accrue income, without the
current receipt of cash, as discussed in "Allocation of Income and Loss,"
below. Consequently, a Unitholder's tax liability with respect to his
share of Partnership taxable income may exceed the cash actually
distributed to him in a given taxable year.
The Partnership must file a federal information tax return on Form
1065. The Partnership will provide information as to each Unitholder's
distributive share of the Partnership's income, gain, loss, deduction and
items of tax preference on a Schedule K-1 supplied to such Unitholder after
the close of the Partnership's fiscal year. In preparing such information,
the General Partner will utilize various accounting and reporting
conventions, some of which are discussed herein, to determine each
Unitholder's allocable share of income, gain, loss and deduction. There is
no assurance that the use of such conventions will produce a result that
conforms to the requirements of the Code, Regulations or IRS administrative
pronouncements and there is no assurance that the IRS will not successfully
contend that such conventions are impermissible. Any such contentions
could result in substantial expenses to the Partnership and the Unitholders
as a result of contesting such contentions, as well as an increase in tax
liability to Unitholders as a result of adjustments to their allocable
share of the Partnership's income, gain, loss and deduction. See "- Tax
Returns, Audits, Interest and Penalties."
Partnership Classification. Most of the tax benefits of the
Partnership are due to the classification of the Partnership and the
Subsidiary as partnerships for tax purposes. If either the Partnership or
the Subsidiary were treated as an association taxable as a corporation in
any taxable year, its taxable income, gains, losses, deductions and credits
would be subject to corporate income tax and would not be passed through to
its partners. In addition, distributions made to Unitholders would be
treated as either taxable dividend income (to the extent of the
Partnership's or Subsidiary's current and accumulated earnings and profits)
and the balance a non-taxable return of capital to the extent of the
partner's basis in his or her Units. Also, the reclassification of the
Partnership or the Subsidiary as an association taxable as a corporation
would be treated as a deemed incorporation of such entity upon which gain
could be recognized, and which could result in additional corporate tax.
Treatment of either the Partnership or the Subsidiary as an association
taxable as a corporation would substantially reduce the Partnership's
economic income and cash resources and would result in reduction of the
after-tax return to Unitholders.
The General Partner and the Partnership believe that the Partnership
and the Subsidiary have been properly classified as partnerships for federal
income tax purposes since the initial issuance of Depositary Units. Counsel
has advised the Partnership of its opinion that the Partnership and the
Subsidiary will continue to be treated as partnerships for federal income tax
purposes following the issuance and exercise of the Rights and the holders of
Depositary Units will continue to be treated as partners of the Partnership
for federal income tax purposes. Counsel also has expressed its opinion that
holders of Preferred Units likely will be treated as partners for federal
income tax purposes provided Preferred Units are classified as equity. See
"- Tax Treatment of Preferred Units." In rendering such opinions, Counsel
has relied on representations by the General Partner including that: (i) the
General Partner has and will maintain a minimum level of assets to satisfy
any creditors of the Partnership and the Subsidiary; (ii) the General Partner
will hold its interest as general partner in the Partnership and the
Subsidiary for its own account, and will not act under the direction of, or
as agent for, the limited partners of either partnership; (iii) the General
Partner will maintain a minimum interest of at least one percent in each item
of the Partnership's and Subsidiary's income, gain, loss, deduction and
credit; and (iv) the Partnership Agreement of the Partnership has been
modified to appropriately reflect the issuance of Preferred Units and that,
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as modified, the Partnership and the Subsidiary will operate in accordance
with their partnership agreements, and applicable state law.
In 1987, Congress added Section 7704 to the Code to tax most publicly
traded partnerships as corporations. The Partnership is a publicly traded
partnership. Section 7704 of the Code provides two relevant exceptions to
the corporate taxation of publicly traded partnerships. Section 7704(c)(2)
provides that a publicly traded partnership which is not an investment
company will not be taxed as a corporation for a taxable year if at least 90%
of its gross income for the year consists of "qualifying income". Qualifying
income includes interest, dividends, real property rents, gain from the sale
or other disposition of real property, gain from the sale or disposition of
assets held for the production of qualifying income and certain income from
currency, forwards and commodity options. The General Partner expects that
substantially all of the income of the Partnership and the Subsidiary will
consist of qualifying income. In addition, a transition rule provided in the
Revenue Act of 1987, which added Section 7704 to the Code, provides that a
partnership which was publicly traded on December 17, 1987 will continue to
be classified as a partnership through December 31, 1997, provided that it
does not acquire or commence a substantial new line of business. Recently
adopted regulations provide guidance as to what constitutes a "substantial
new line of business." The General Partner intends to limit the activities
of the Partnership and the Subsidiary so that they will not be treated as
acquiring or commencing a substantial new line of business for purposes of
this transition rule. Accordingly, for taxable years ending on or prior to
December 31, 1997, the General Partner does not anticipate that the
Partnership would be taxed as a corporation, even if it were to fail to
satisfy the 90% gross income test in one or more such years. Counsel's
opinion as to partnership classification relies on representations of the
General Partner that the Partnership and the Subsidiary will satisfy the
gross income requirement of Section 7704(c)(2) of the Code and the
requirements of Section 10211(c)(2) of the Revenue Act of 1987. Failure of
the Partnership or the Subsidiary to satisfy the transition rule and the 90%
gross income test would result in a deemed incorporation of the Partnership
or Subsidiary, respectively, as discussed above.
Tax Treatment of Preferred Units. The Partnership intends to treat
Preferred Units as equity of the Partnership for federal income tax
purposes. The Preferred Units have some characteristics in common with
debt, such as a fixed redemption date, a fixed rate of return and a right
to payment senior to distributions to holders of Depositary Units. The IRS
therefore may seek to recharacterize Preferred Units as debt of the
Partnership, rather than equity. Such a recharacterization could affect
the amount of gain or loss recognized by a Unitholder upon the sale of his
Depositary Units or Preferred Units, the deductibility of interest paid by
the Unitholder on debt incurred to acquire Preferred Units and could, under
some circumstances, affect the tax treatment of income attributable to, or
payments by the Partnership to, a holder of Preferred Units. Treatment of
Preferred Units as debt also may result in some recognition of gain or loss
upon the payment of Preferred Units with Depositary Units. However, the
Preferred Units have many of the significant characteristics of equity and
are intended by the Partnership to be equity of the Partnership. These
equity characteristics include: (i) the status of the Preferred Units as
limited partnership interests under Delaware law; (ii) the fact that
payment upon maturity is subject to the requirements of Delaware
partnership law, including limitation of payment in the event such payment
would cause the Partnership to become insolvent; (iii) the ability of the
Partnership, at its option, to redeem Preferred Units for Depositary
Units rather than make payments of cash; (iv) the subordination of the
holders of Preferred Units to other creditors of the Partnership, including
unsecured creditors; (v) the fact that holders of Preferred Units will have
more limited and different rights against the Partnership than those
available to creditors; (vi) the fact that holders of Preferred Units will
have certain rights of limited partners, including limited voting rights;
(vii) the fact that the right to payments on Preferred Units are unsecured
and will be limited to the net assets of the Partnership; and (viii) the
fact that the Partnership intends to treat Preferred Units as equity for
both financial accounting and tax reporting purposes.
Although there is limited authority which deals directly with the
issue of when a formal partnership interest will be characterized as debt
for federal income tax purposes, Counsel has advised the Partnership that
in its opinion the proposed tax treatment of Preferred Units as equity for
tax purposes more likely than not is correct and would be sustained if the
issue were fully litigated in court. The following discussion assumes that
the Preferred Units will be treated as partnership interests for federal
income tax purposes.
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Allocation of Income and Loss. Holders of Preferred Units will
accrue income in an amount equal to the accrued liquidation preference
amounts plus the difference, if any, between the portion of the
Subscription Price allocated to the Preferred Units and their par value.
Such amounts will be treated by the Partnership as "guaranteed payments"
under Section 707(c) of the Code. Holders of Preferred Units will be
required to include these amounts in ordinary income for their taxable year
within or with which the Partnership's taxable year ends, regardless of
whether they receive any distributions during such year. The Partnership
intends to deduct these amounts to the extent not required to be
capitalized.
In general, the balance of the Partnership's income, gain, loss and
deduction will be allocated 1% to the General Partner and 99% to the
holders of Depositary Units. Items allocated to the holders of Depositary
Units will be shared among them according to the respective number of
Depositary Units owned by each holder.
The Partnership Agreement's allocation provisions will be recognized
for federal income tax purposes only if they are considered to have
"substantial economic effect" and are not retroactive allocations. If any
allocation of an item fails to satisfy the "substantial economic effect"
requirement, the item will be allocated among the Unitholders based on
their respective "interests in the Partnership," determined on the basis of
all of the relevant facts and circumstances. Such a determination could
result in the income, gains, losses, deductions, or credits allocated under
the Partnership Agreement being reallocated among the Unitholders or the
General Partner. Such a reallocation, however, would not alter the
distribution of cash flow under the Partnership Agreement.
Regulations provide detailed rules for the maintenance of capital
accounts. The Regulations permit partners' capital accounts to be
increased or decreased to reflect the revaluations of partnership property
(at fair market value) on a partnership's books in connection with a
contribution or distribution of money or other property. Capital accounts
will be restated to reflect the issuance of additional Depositary Units and
Preferred Units upon the exercise of Rights.
Adjusting a partner's book capital account to reflect a property's
fair market value will create a disparity between the partner's "book"
capital account and his "tax" capital account (a "Book-Tax Disparity"),
because the tax capital account reflects only recognized tax consequences
(i.e., it reflects only the basis rather than the value of contributed
property). A Book-Tax Disparity exists because the partner has been given
credit for specific economic consequences, through the amount recorded in
his book capital account, but has not recognized the corresponding tax
consequences. Section 704(c) of the Code provides rules for the allocation
of gain, loss and certain deductions to eliminate Book-Tax Disparities by
requiring allocations that cause the partner whose book capital account
reflects built-in gain or loss to bear the tax burden or receive the tax
benefit corresponding thereto.
Allocations under Section 704(c) of the Code may require the
allocation of depreciation deductions from property contributed to a
partnership, or property whose book value is adjusted by a partnership upon
issuing additional partnership interests, away from the contributing or
previously admitted partners where there is unrealized gain inherent in
such property. If the actual depreciation deductions available with
respect to the property are insufficient to fully eliminate the Book-Tax
Disparity, the so-called "ceiling rule" limits the depreciation to that
actually realized by the partnership. This rule can prevent the full
elimination of Book-Tax Disparities and could result in less depreciation
being allocated to a person who exercises Rights than his share of book
depreciation. The result would be that holders of Depositary Units
received upon exercise of Rights may be allocated somewhat greater taxable
income than their share of the Partnership's book income.
The Partnership will attempt to correct ceiling rule problems by
making allocations of gross income to the contributing partner or the
previously admitted partner pursuant to Section 704(c) of the Code, which
should completely eliminate Book-Tax Disparities and will give the
non-contributing or newly admitted partners the equivalent of depreciation
deductions equal to book depreciation. Regulations under Section 704(c) of
the Code were recently issued. The allocations of gross income by the
Partnership may not technically comply with Section 704(c) and the
Regulations thereunder and might be challenged by the IRS. In that event,
the allocations of income (including any allocations of gross income
described above to correct a ceiling rule problem) or loss to the
Depositary Unitholders may be affected.
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Specific Regulations have been promulgated relating to partnership
allocations of losses and deductions attributable to nonrecourse
indebtedness (the "Nonrecourse Regulations"). In general, the Nonrecourse
Regulations require that deductions and credits associated with nonrecourse
debt must be allocated in accordance with the partners' interests in the
partnership. The amount of nonrecourse deductions for a partnership's
taxable year equals the net increase, if any, in the amount of that
partnership's "minimum gain" during that taxable year. Partnership minimum
gain is determined by computing, with respect to each nonrecourse liability
of the Partnership or the Subsidiary (other than a nonrecourse liability
payable to or guaranteed by a partner), the amount of book gain, if any,
that would be realized for tax purposes by disposing of the property
(subject to such liability) in a taxable transaction in full satisfaction
of such liability. The Partnership Agreement will allocate Nonrecourse
Deductions between the General Partner and holder of Depositary Units in
proportion to their shares of other income and loss.
As noted above, in general, the Partnership's income, gains, losses
and deductions are allocated 99% to the Unitholders and 1% to the General
Partner. The Partnership Agreement provides, for both book and federal
income tax purposes, certain special allocations of income and gain if a
Unitholder has a negative book capital account in excess of certain
cumulative allocations of Nonrecourse Deductions or upon a sale of a
property which had minimum gain. These allocations are required by the
Regulations.
The Partnership Agreement also requires that gain from the sale of
Partnership properties, characterized as ordinary income attributable to
prior depreciation deductions ("Recapture Income"), will be allocated (to
the extent such allocation does not alter the allocation of gain otherwise
provided for in the Partnership Agreement) among the partners (or their
successors) in the same manner in which such partners were allocated the
deductions giving rise to such Recapture Income. The Nonrecourse
Regulations and Sections 1.1245-1(e) and 1.1250(f) of the Regulations tend
to support a special allocation of Recapture Income. However, such
Regulations do not specifically address a special allocation based on the
allocation of the deductions giving rise to such Recapture Income as stated
in the Partnership Agreement. Therefore, it is not clear that the
allocation of Recapture Income will be given effect for federal income tax
purposes. If it is not, such Recapture Income will be allocated among
Depositary Unitholders and the General Partner.
Based on the analysis set forth above, the Partnership has followed
the allocations under the Partnership Agreement on the belief that they
generally should be respected under the standards of Section 704(b) of the
Code. Counsel is unable to opine to that effect, however, because the
Partnership Agreement has not been amended to reflect certain technical
changes to the Regulations adopted since formation of the Partnership,
certain methods used by the Partnership to account for Book-Tax Disparities
do not follow all technical requirements of the Regulations and because
certain allocations to preserve uniformity as among Depositary Units and
eliminate Book-Tax Disparities are not in technical compliance with the
Regulations, although such allocations are consistent with the underlying
purpose of Section 704(c) in fully eliminating Book-Tax Disparities.
Unitholder's Basis in his Units. A Unitholder's adjusted basis in
his Units is relevant in determining the gain or loss on the sale or other
disposition of his Units and the tax consequences of a distribution from
the Partnership. See "- Treatment of Gain or Loss on Sale or Disposition
of Units" and "- Treatment of Cash Distributions to Depositary Unitholders
from the Partnership." In addition, a limited partner is entitled to
deduct on his personal income tax return, subject to the limitations
discussed below, his distributive share of a partnership's net loss, if
any, to the extent of such partner's adjusted basis in his partnership
interest.
A Unitholder's initial basis in newly issued Units will be the
portion of the Subscription Price allocated to the Units, increased by (i)
his share of nonrecourse indebtedness of the Partnership and (ii) his share
of items of Partnership income and gain, and reduced, but not below zero,
by (i) his share of items of Partnership loss and deduction, and (ii) any
cash distributions received by such Unitholder from the Partnership. Cash
distributions are considered to include, for this purpose, any reductions
in the amount of the Partnership's nonrecourse indebtedness (including a
reduction due to amortization thereof). Regulations under Section 752 of
the Code employ an economic risk of loss analysis to determine (1) whether
a partnership liability is recourse or nonrecourse, and (2) the partners'
shares of any recourse liability of the partnership. Under the
regulations, a partnership liability is a recourse liability to the extent
that any partner bears the economic risk of loss for the liability. If no
partner bears the economic risk of loss for a partnership liability, the
liability is a nonrecourse liability of the partnership. A partnership's
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nonrecourse liabilities are allocated among the partners first to reflect
the partners' shares of (1) any partnership minimum gain and (2) any tax
gain that would be allocated to the partners under Section 704(c) of the
Code if the partnership disposed of all partnership property subject to one
or more nonrecourse liabilities of the partnership in full satisfaction of
the liabilities and for no other consideration. The balance of the
nonrecourse liabilities are shared by the partners according to their
interests in the partnership profits. Because Preferred Units do not share
in profits of the Partnership, other than through their cumulative
liquidation preference, the Partnership Agreement has been amended to
allocate nonrecourse liabilities solely to the General Partner and holders
of Depositary Units.
Treatment of Cash Distributions to Depositary Unitholders from the
Partnership. Cash distributions made to holders of Depositary Units will
generally be treated as a non-taxable return of capital and will not
generally increase or decrease such holders' share of taxable income or
loss from the Partnership. A return of capital generally does not result
in any recognition of gain or loss for federal income tax purposes but
reduces a Unitholder's adjusted basis in his Depositary Units.
Distributions of cash (including reductions in nonrecourse liabilities) in
excess of a Unitholder's adjusted basis in his Depositary Units immediately
prior thereto will result in the recognition of gain to the extent of such
excess. See "- Unitholder's Basis in his Units."
Limitations on Deductibility of Losses. It is not anticipated that
the Partnership will generate any tax losses. A corporate Unitholder
generally will be entitled to deduct its distributive share of any losses
of the Partnership to the extent of the tax basis of its Units at the end
of the year in which such losses occur. However, Unitholders who are
individuals, trusts, estates, personal service companies and certain
closely held C corporations are subject to limitations on deducting losses
of the Partnership. In general, losses from the Partnership's "passive
activities," such as ownership of rental real estate or operating real
estate such as hotels, may offset only subsequent Partnership income of the
Unitholder from the Partnership, but not including income accrued in
respect of Preferred Units, or gain upon the sale of Units. Disallowed
losses from passive activities may be carried forward and treated as a
deduction in the next taxable year, subject to these limitations. Closely
held corporations (a corporation more than 50% of the stock of which is
owned directly or indirectly by not more than five individuals) may not
offset portfolio income (such as interest and dividends) with passive
losses but may use passive losses to offset active business income. Any
disallowed losses from a passive activity are allowed in full when the
taxpayer disposes of his entire interest in the Partnership in a taxable
transaction. Interest incurred in passive activities and interest incurred
to purchase an interest in a passive activity (such as Depositary Units
and, possibly, Preferred Units) are not generally subject to these
limitations (and not the previously applicable investment interest
limitations). See "--Limitation on Interest Deductions."
At Risk Limitations. A Unitholder subject to the "at risk" rules
under Section 465 of the Code may not deduct from taxable income his share
of the Partnership's losses to the extent that such losses exceed the
lesser of (a) the adjusted tax basis of his Units at the end of the
Partnership's taxable year in which the loss occurs or (b) the amount the
Unitholder is considered "at risk" under Section 465 of the Code at the end
of that year. It is not contemplated that the Partnership's operations
will result in deductions or losses that would cause the application of the
"at risk" limitation.
Limitation on Interest Deductions. The deductibility of a non-
corporate taxpayer's "investment interest" expense is generally limited to
the amount of such taxpayer's "net investment income." Investment interest
expense includes (i) interest on indebtedness incurred or continued to
purchase or carry property held for investment and that is not part of a
passive activity (such as rental real estate), (ii) a partnership's
interest expense attributed to portfolio income under the passive loss
rules, and (iii) the portion of interest expense incurred or continued to
purchase or carry an interest in a passive activity (such as a Depositary
Unitholder's interest in the Partnership) to the extent attributed to
portfolio income under the passive loss rules. Net investment income
includes gross income from property held for investment gain attributable
to the disposition of property held for investment, and amounts treated as
gross portfolio income pursuant to the passive loss rules less deductible
expenses (other than interest) directly connected with the production of
investment income.
Specifically, a Depositary Unitholder would treat as investment
interest his allocable portion of the Partnership's total interest expense,
or of any margin account or other interest expense incurred to purchase or
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carry a Unit, that is attributable to the Partnership's gross portfolio
income less deductible expenses directly connected with such portfolio
income. The portion of a Depositary Unitholder's allocable share of
interest expense of the Partnership, or of any margin account or other
interest expense incurred to purchase or carry a Unit, that is attributable
to the Partnership's passive income is subject to the passive loss
limitations described above.
The income of holders of Preferred Units from the Partnership likely
will be treated as investment income. The law is not clear as to whether
margin and other interest expense of a holder of Preferred Units incurred
to acquire or hold Preferred Units will be treated as investment interest
or as interest attributable to a passive activity. If interest is treated
as passive activity interest, the interest would be subject to the passive
loss limitation discussed in "Limitations on Deductibility of Losses."
However, a literal interpretation of existing Regulations and IRS rulings
is that such interest is subject to the passive loss limitations and is not
investment interest. Investment interest deductions which are disallowed
may be carried forward and deducted in subsequent years to the extent of
net investment income in such years. Rights Holders who intend to borrow
funds to exercise their Rights should consult their tax advisors.
Deductibility of Interest Connected with Tax-Exempt Income. Section
265(a)(2) of the Code disallows any deduction for interest paid by a
taxpayer on indebtedness incurred or continued for the purpose of
purchasing or carrying a tax-exempt obligation. The IRS announced in
Revenue Procedure 72-18, 1972-1 C.B. 940, that a purpose to carry tax-
exempt obligations will be inferred whenever a taxpayer owns tax-exempt
obligations and has outstanding indebtedness which is neither directly
connected with personal expenditures nor incurred in connection with the
active conduct of a trade or business. Therefore, in the case of a
Unitholder (or a related person) owning tax-exempt obligations (or stock in
a regulated investment company which distributes exempt interest as
"dividends") the IRS might take the position that his allocable portion of
any interest paid by the Partnerships on their borrowings and any interest
paid by the Unitholder on indebtedness incurred to purchase an interest in
the Partnership should be viewed in whole or in part as incurred to enable
such Unitholder to continue carrying such tax-exempt obligations and,
therefore, that the deduction of any such interest by such Unitholder
should be disallowed in whole or in part.
Partnership Expenses. The Partnership has incurred or will incur
various expenses in connection with its ongoing administration and with the
operation of its properties. Payments for services generally are
deductible if the payments are ordinary and necessary expenses, are
reasonable in amount and are for services performed during the taxable year
in which paid or accrued. Payments for services related to the acquisition
of an asset having a useful life in excess of one year, such as brokerage
fees, generally must be capitalized into the cost basis of the acquired
property. The IRS may not agree with the Partnership's determinations as
to the deductibility of fees and expenses and might require that certain
expenses be capitalized and amortized or depreciated over a period of
years. These issues are essentially questions of fact with respect to
which Counsel cannot opine. If all or a portion of such deductions were to
be disallowed, on the basis that some of the foregoing expenses are
non-deductible syndication fees or otherwise, the Partnership's taxable
income would be increased or its losses would be reduced.
An individual's miscellaneous itemized deductions, including his
investment expenses, are deductible only to the extent they exceed 2% of
his adjusted gross income. The Tax Reform Act of 1988 also authorized the
Treasury Department to issue Regulations prohibiting an individual's
indirect deduction, through the use of pass-through entities, such as
partnerships, of expenses that could not be deducted by such individual
directly.
Offering Expenses. Expenses of issuing and marketing Units in the
Partnership ("syndication expenses") are not allowable deductions to the
Partnership or any Unitholder. Syndication expenses are defined as
expenditures connected with the issuing and marketing of interests in
partnerships. Fees payable to dealer managers and soliciting dealers,
registration fees, printing costs, selling and promotional material costs
and legal fees for securities and tax advice pertaining to registration of
the Units with the Commission are syndication expenses and, therefore, do
not qualify for amortization.
Depreciation and Cost Recovery Deductions. Real property purchased
or developed by the Subsidiary generally is subject to a 31 1/2-year or 39-
year recovery period (27 1/2-years in the case of residential rental
property), and is recovered using the straight-line method. Any personal
property acquired by the Subsidiary generally will be depreciated over a
seven-year recovery period using the double declining balance method
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(switching to straight-line at a time to maximize the depreciation
deductions). In addition, if any tax-exempt entities hold Units and the
Partnership's allocations are not considered to be "qualified allocations,"
then a portion of the Partnership's depreciation deductions, corresponding
to the tax-exempt entities' percentage interest in the Partnership, may be
required to be depreciated over somewhat longer recovery periods than those
otherwise applicable.
The Partnerships have made elections under Section 754 of the Code
and are required to adjust the basis of partnership property on the
transfer of partnership interests by the difference between the
transferee's basis for his partnership interest and the transferee's
allocable share of the basis of all partnership property. The increase or
decrease affects the basis of partnership property only with respect to the
transferee partner. The procedure for allocating the basis adjustment is
complex and there is no assurance that the IRS would not challenge the
allocations of the step-up among the Subsidiary's assets.
Pursuant to Proposed Regulation Section 1.168-2(n)(1), the Section
743(b) "step-up" allocable to depreciable, tangible assets must be recovered
over a new recovery period (7-years or 39-years, as the case may be) and will
be recovered as discussed above. Thus, under the Proposed Regulations, the
recovery period associated with the Section 743(b) adjustment will differ
from the remaining recovery period used by the Partnership to compute its
depreciation deductions in such assets. The differing useful lives will
likely result in different tax consequences for Units acquired upon exercise
of the Rights and Units already outstanding. Based on the advice of its
accountants, the General Partner has determined that there is a reasonable
and meritorious reporting position to depreciate a Section 743(b) adjustment
(or a portion thereof) using the remaining recovery period attributable to a
depreciable asset. The General Partner adopted such depreciation method,
despite its inconsistency with Proposed Regulation Section 1.168-2(n)(1). In
addition, the IRS may seek to challenge the allocation of the step-up to
depreciable assets. If the IRS were successful, the effect would be to
reduce the Partnership's cost recovery deductions.
Depreciation Recapture. There is generally no depreciation recapture
for real property that is depreciated pursuant to the straight-line method.
If real property is sold or otherwise disposed of within 12 months after it
was acquired, however, all depreciation claimed will be recaptured as
ordinary income on such disposition. All depreciation deductions
attributable to personal property are subject, to the extent of any gain
recognized, to being fully recaptured as ordinary income on a sale or other
disposition of the personal property. See "-Treatment of Gain or Loss on
Sale or Disposition of Units".
Under Section 291(a)(1) of the Code, which applies only to corporate
Unitholders, 20% of a corporate Unitholder's share of the depreciation
deductions claimed by the Partnership will be subject to recapture as
ordinary income on such disposition to the extent of the Unitholder's share
of any gain recognized, even though the Partnership and the Unitholder
might not otherwise be subject to general depreciation recapture on such
depreciation.
Tax Considerations for Tax-Exempt Entities. Unitholders who are
exempt from federal income tax (including IRAs and tax-exempt organizations
such as trusts that hold assets of employee benefit retirement plans) may
be subject to federal income tax on their allocable share of Partnership
income to the extent that such income is "unrelated business taxable
income." Tax-exempt entities (including IRAs and trusts that hold assets
of employee benefit or retirement plans) are subject to tax on certain
income derived from a trade or business regularly carried on by the
organization that is unrelated to its exempt activities (i.e., unrelated
business taxable income). Unrelated business taxable income generally does
not include rental income from real property, gain from the sale of
property other than inventory, interest, dividends, and certain other types
of passive investment income, unless such income is derived from
"debt-financed property" (as defined in Section 514 of the Code). A
Unitholder that is otherwise exempt from tax may have unrelated business
taxable income with respect to such Unitholder's distributive share of
Partnership taxable income in the proportion that the Partnership's
acquisition indebtedness bears to the Partnership's total adjusted bases
for its properties. Acquisition indebtedness could arise from indebtedness
incurred directly by a Unitholder in connection with its Units or from
indebtedness incurred by the Partnership.
Section 514(c)(9)(A) of the Code provides, as a general rule, that a
"qualified organization" (i.e., qualified corporate or government pension
plans and certain educational organizations) will not be treated as having
incurred "acquisition indebtedness" with respect to real property owned by
a partnership. Section 514(c)(9)(A) is not applicable, however, if the
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Partnership's tax allocations are not "qualified allocations." Because
allocations to the Preferred Units may prevent the Partnership from having
"qualified allocations" and the Partnership may not otherwise satisfy all
requirements for qualified allocations, the General Partner does not
anticipate that the exemption of Section 514(c)(9) will be available.
Any borrowing incurred by a qualified plan to acquire a Unit will
constitute acquisition indebtedness resulting in the qualified plan
realizing unrelated business taxable income on its income from the
Partnership in accordance with the ratio of the indebtedness to the
purchase price of his Unit.
For social clubs, voluntary employee beneficiary associations,
supplemental unemployment benefit trusts, and qualified group legal
services plans exempt from federal income taxation under Section 501(c)(7),
(c)(9), (c)(17) and (c)(20) of the Code, respectively, income from an
investment in the Partnership will constitute unrelated business taxable
income unless the organization is able to properly deduct amounts set aside
or placed in reserve for certain purposes so as to offset the unrelated
business taxable income generated by its investment in the Partnership.
Such prospective Unitholders should consult their professional tax advisors
concerning these "set aside" and reserve requirements.
The receipt of unrelated business taxable income by a tax-exempt
entity generally has no effect on its status or on the exemption from tax
of its other income. However, for certain types of tax-exempt entities,
the receipt of any unrelated business taxable income may have extremely
adverse consequences. For example, the receipt of any taxable income from
an unrelated business by a charitable remainder trust (defined under
Section 664 of the Code) during a taxable year will result in the taxation
of all of the trust's income from all sources during such year.
An entity that is subject to tax on unrelated business taxable income
would be subject to tax only to the extent that the sum of its unrelated
business taxable income, if any, from Units and from other sources exceeds
$1,000 in any particular year and would be required to file federal income
tax returns for any taxable year in which it has gross income, included in
computing unrelated business taxable income, in excess of $1,000 (whether
or not any tax was due).
Backup Withholding. Distributions to Unitholders whose Units are
held on their behalf by a "broker" may constitute "reportable payments"
under the federal income tax rules regarding "backup withholding." Backup
withholding, however, would apply only if the Unitholder (i) failed to
furnish his Social Security number or other taxpayer identification number
of the person subject to the backup withholding requirement (e.g., the
"broker") or (ii) furnished an incorrect Social Security number or taxpayer
identification number. If "backup withholding" were applicable to a
Unitholder, Partnership would be required to withhold 31% of each
distribution to such Unitholder and to pay such amount to the IRS on behalf
of such Unitholder.
Tax Considerations for Foreign Investors. A resident alien generally
is taxed in the United States as if he were a United States citizen (with
the result that this entire discussion of federal income tax considerations
generally will apply to him). In contrast, a non-resident alien is taxed
by the United States only on income arising out of (i.e., "effectively
connected with") a United States trade or business (and, under some income
tax treaties to which the United States is a party, only if such income is
effectively connected with a permanent establishment in the United States)
and on certain other types of income.
A non-resident alien, as well as a foreign corporation, trust or
estate (a "foreign person") who is a partner in a partnership engaged in a
trade or business in the United States, such as the Partnership, will be
considered to be engaged in such trade or business, even though the foreign
person is only a limited partner. The activities of the Partnership
constitute a United States trade or business for this purpose, and such
activities will be deemed to be conducted through a permanent establishment
within the meaning of the Code and applicable tax treaties. Therefore, a
foreign person who becomes a Unitholder in the Partnership will be required
to file a United States tax return on which he must report his distributive
share of the Partnership's items of income, gain, loss, deduction, and
credit, and to pay United States taxes at regular United States rates on
his share of any Partnership net income, whether ordinary income or capital
gains. Thus, the entire discussion of federal income tax considerations
also is generally applicable to foreign persons who are Unitholders.
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The Partnership may have interest income or certain other investment-
type income from United States sources that is not effectively connected
with the Partnership's business. Such income, if any, would be subject to
U.S. withholding tax at a 30% rate except to the extent that an applicable
tax treaty provides for a reduced rate or an exemption for portfolio debt
applies. Such income would be excluded in determining such Unitholder's
distributive share of the Partnership's taxable income subject to regular
tax.
The Partnership generally is required to withhold 31% of all amounts
attributable to effectively connected income that are distributed to
foreign Unitholders. Amounts withheld in excess of a Unitholder's actual
tax liability will be eligible for refund. This withholding requirement
does not apply to distributions from United States source income that are
investment income subject to the 30% withholding or that would be subject
to withholding but for an income tax treaty as described above. The
withholding requirements will be coordinated with the withholding
requirements on the disposition of United States real property interests in
order to avoid duplication.
The Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"),
as amended, generally subjects foreign persons to United States taxation at
regular United States rates, and imposes withholding requirements, on the
sales by foreign persons of United States real property interests
("USRPIs"), which include (i) interests in United States real estate and
(ii) interests in certain entities (including publicly traded partnerships)
holding United States real estate. FIRPTA generally requires foreign
persons to pay tax on the net gain from dispositions of USRPIs during the
taxable year at rates generally identical to rates imposed on U.S. persons
(but, with respect to non-resident aliens, at a minimum rate of 26%).
Further, FIRPTA provides that, unless an exception applies or under
Regulations to be promulgated, the proceeds of a sale of a partnership
interest by a foreign person are treated as received from the sale of
USRPIs to the extent of the seller's interest in the partnership's USRPIs.
It is anticipated that substantially all of the proceeds of a sale of a
Unit will be attributable to USRPIs. There is, however, an exception to
these provisions which applies to investors in publicly traded
partnerships, such as the Partnership. In general, any foreign person
owning publicly traded Depositary Units comprising not more than a 5%
interest in the Partnership will not be subject to U.S. taxation on the
disposition of such Depositary Units, and any foreign persons owning
publicly traded Depositary Units (regardless of the percentage interest
owned) will not be subject to the withholding provisions of a disposition
of such Depositary Units. This exception may not apply upon the sale of
Preferred Units or the exchange of Preferred Units for Depositary Units.
FIRPTA also subjects foreign persons to U.S. taxation at regular U.S. rates
on, and imposes certain withholding obligations with respect to,
dispositions of USRPIs by a partnership if the Partnership does not satisfy
the withholding requirement for effectively connected income, discussed
above.
In addition, the Code imposes a branch-level tax on profits of
foreign corporations engaged in a trade or business in the United States.
The amount of the tax is 30% (or lower treaty rate for branch profits or
dividends) of the earnings and profits of a U.S. branch of a foreign
corporation for the taxable year which are attributable to its income that
is effectively connected with a U.S. trade or business. Since foreign
corporate Unitholders will be considered to be engaged in a trade or
business in the United States, such Unitholders will be subject to the
branch profits tax.
A foreign person may be subject to tax on his distributive share of
the Partnership's income and gain in his country of nationality, residence
or elsewhere. The methods of taxation, if any, in such jurisdictions may
differ considerably from the United States tax system described previously,
and may be affected by the United States characterization of the
Partnership and its income. Prospective Unitholders who are foreign
persons should consult with their professional tax advisors with respect to
the potential tax effects of these and other items relating to an
investment in the Partnership.
Issuance of Additional Units. The Partnership may issue new Units to
additional investors, to finance the acquisition of additional properties,
pursuant to the Partnership's Nonqualified Unit Option Plan, under which
options to purchase an aggregate of 1,416,910 Depositary Units may be
granted to officers and certain key employees of the General Partner and
the Partnership, or to raise capital for other purposes. On any issuance
of additional Units, the capital accounts of the existing partners will be
adjusted to reflect a revaluation of the Partnership's properties (based on
their then fair market value, net of liabilities, to which they are then
subject). Any resulting unrealized gain or loss will be allocated among
the existing partners and subsequent allocations of taxable income, gain,
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loss and deduction will be allocated in such a manner as to eliminate any
Book-Tax Disparities with respect to the revalued assets. See "-
Allocation of Income and Loss."
The issuance of additional Units could also result in a decrease in a
Unitholder's percentage interest in the Partnership and thereby decrease
the Unitholder's share of nonrecourse debt. Any such reduction would be
treated as a distribution of cash. See "- Treatment of Cash Distributions
from the Partnership." In addition, a Unitholder may recognize ordinary
income to the extent that the cash distribution is treated as an exchange
of "substantially appreciated inventory" and "unrealized receivables." In
part, to avoid any constructive exchange occurring upon the Partnership's
issuance of additional Units, the Partnership Agreement provides for
special allocations of certain items of income, gain, loss or deduction.
Thus, for example, certain items of recapture income will be allocated, to
the extent possible, to the partner allocated the related depreciation
deduction.
Tax Returns, Audits, Interest and Penalties. The Partnership will
supply Schedules K-1 to Form 1065 to each Unitholder of record as of the
last day of each month after the end of each calendar year. See
"Description of Partnership Agreement - Books and Reports." The
Partnership is not obligated to provide tax information to persons who are
not such Unitholders of record.
Any Unitholder who sells or exchanges a Unit will be required to
notify the Partnership of such transaction in writing within 30 days of the
transaction (or, if earlier, by January 25 of the calendar year after the
year in which the transaction occurs). The notification is required to
include (i) the names and addresses of the transferor and the transferee;
(ii) the taxpayer identification number of the transferor and, if known, of
the transferee; and (iii) the date of the sale or exchange. A Unitholder
will not be required to notify the Partnership of a sale or exchange of a
Unit if an information return is required to be filed by a broker with
respect to such sale or exchange. Any transferor who fails to notify the
Partnership of a sale or exchange may be subject to a $50 penalty for each
such failure. The Partnership will treat any transferor Unitholder who
provides all of the information requested of the transferor on the
depositary receipt as having satisfied this notification requirement.
In addition, the Partnership must file a return notifying the IRS of
any sale or exchange of a Unit of which the Partnership has notice and
report the name and address of the transferee and the transferor who were
parties to such transaction, along with all other information required by
applicable Regulations, including the fair market value of the selling
Unitholder's allocable share of unrealized receivables (including
depreciation recapture, if any). If the Partnership does not know the
identity of the beneficial owner of the Unit, the record holder of such
Unit may be treated as the transferor or transferee, as the case may be.
If the Partnership fails to file such a return, it may be subject to a
penalty of $50 for each such failure up to an annual maximum of $250,000
(with no limit in the case of intentional disregard of the filing
requirement). The Partnership is also required to provide this information
to the transferor and the transferee. If the Partnership fails to furnish
any such information, it may be subject to a penalty of $50 per failure up
to an annual maximum of $250,000. However, the Partnership would not be
required to file a return upon the sale or exchange of a Unit with respect
to which an information return is required to be filed by a broker.
The tax treatment of items of the Partnership's income, gain, loss or
deductions or credit will be determined at the partnership level in a
unified partnership proceeding, rather than in separate proceedings with
Unitholders. With respect to proposed tax deficiency adjustments at the
administrative level, in general each partner (other than a partner owning
less than a 1% profits interest in a partnership having more than 100
partners) whose name and address is furnished to the IRS (a "notice
partner") will receive notice of the commencement of a partnership level
audit as well as notice of the final partnership administrative adjustment.
All partners have the right to participate in the partnership audit
proceeding. In general, each partner is free to negotiate his own
settlement of partnership items with the IRS. If the IRS enters into a
settlement agreement with any partner, it must offer the same settlement
terms to the other parties who request settlement. A "tax matters partner"
must be designated by the partnership who may enter into a settlement on
behalf of, and binding on, partners owning less than a 1% profits interest
in partnerships having more than 100 partners. The Partnership Agreement
designates the General Partner as the tax matters partner. Under the Code,
the tax matters partner may not settle on behalf of partners with less than
a 1% profits interest if (i) an aggregate of 5% or more of such partners
designate with the IRS a notice-partner to receive notice from the IRS on
behalf of the group or (ii) such partners notify the IRS that the tax
matters partner may not settle on their behalf. Except for the above-
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described settlement power granted the tax matters partner, any settlement
entered into by any partner (including the tax matters partner) is not
binding on any partner who does not wish to be bound thereby. However, the
tax matters partner may extend the statute of limitations for assessment of
a deficiency with respect to all partners.
Because such a proceeding will control the way in which all
Unitholders treat Partnership items and the allocation thereof, the chances
of an audit occurring are greater than they were before this proceeding was
allowed. Any adverse determination following an audit of the Partnership's
return by the appropriate taxing authorities would result in an adjustment
of the returns of Unitholders, and, under certain circumstances, they may
be precluded from separately litigating a proposed adjustment to
Partnership items. Such an adjustment could also result in an audit of
their returns and adjustments of non-Partnership, as well as Partnership,
income and loss. Audits of other limited partnerships of which the General
Partner or its affiliates are general partners could result in an audit of
the Partnership's (or a Unitholder's) return.
STATE, LOCAL AND FOREIGN INCOME TAXES
In addition to the federal income tax consequences described above,
Rights Holders should consider potential state, local and foreign tax
consequences of an investment in the Partnership and are urged to consult
their individual tax advisors in this regard. The rules of some states and
localities for computing and/or reporting taxable income may differ from
the federal rules. The Partnership owns property in thirty-five states and
Canada. Certain of these states will impose an income tax on that portion
of an individual Unitholder's distributive share of Partnership net income,
as adjusted, attributable to that state in excess of certain allowable
prorated deductions and/or personal exemptions (or credits). A number of
states and Canada also impose withholding requirements on either income or
distributions to holders who are nonresidents of such state or Canada.
Both the substantive features and the filing requirements of state
income taxation of Unitholders will vary according to several factors which
include the following: (i) the status of the Unitholder as an individual
(and, if so, his state or other jurisdiction of residence), taxable "C"
corporation, taxable "S" corporation, taxable trust, tax-exempt trust
(including IRAs and other employee benefit plans) or tax-exempt
corporation; (ii) whether the state imposes personal or corporate income
taxation or instead imposes a form of franchise, unincorporated business or
occupational taxation; (iii) whether the state will allow credits or
exemptions for income taxes to which a Unitholder is subject in his state
or other jurisdiction of residence; (iv) the level of personal exemptions
or credits allowed by the state and whether those exemptions or credits are
required to be prorated in the ratio of income sourced in the taxing state
to total income; and (v) whether the applicable tax rate structure is
applied on the basis of income sourced in the taxing jurisdiction or on the
basis of total income of a nonresident taxpayer. The Partnership may be
required and, although there is no present intention to do so, the General
Partner is allowed where not so required in its sole and absolute
discretion, to withhold state taxes from distributions to Unitholders in
some instances.
Unitholders of record on December 31 of each year will be required to
file a Canadian tax return for such year and will be subject to Canadian
taxes on their share of the Partnership's Canadian income from Partnership
operations for the entire year. Unitholders who dispose of their Units
during the year will not be subject to Canadian taxes and will not be
required to file a Canadian tax return. The amount of any Canadian tax
paid by a Unitholder will, in general, be deductible for U.S. income tax
purposes. Alternatively, at the election of the Unitholder, subject to
various conditions and limitations, the amount paid in Canada may be
credited against the Unitholder's U.S. income tax.
The state of residence of a Unitholder may also impose state, local
and foreign taxes for which such Unitholder may be liable as a result of
his investment in the Partnership. Unitholders should consult with their
individual tax advisors concerning the applicability of state, local and
foreign taxes to an investment in the Partnership.
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The summary tax consequences set forth above is for general
information only and does not address the circumstance of any particular
Unitholder. Unitholders should consult their own tax advisors as to the
specific tax consequences of the receipt, exercise or lapse of Rights and
the ownership of Units including the application of state, local and
foreign tax laws.
LEGAL MATTERS
The validity of the issuance of the Depositary Units and the
Preferred Units offered hereby has been passed upon for the Partnership by
Rogers & Wells and by its special Delaware counsel, Morris, Nichols, Arsht
& Tunnell.
EXPERTS
The financial statements and schedule of American Real Estate
Partners, L.P. and Subsidiary as of December 31, 1993 and 1992, and for
each of the years in the three-year period ended December 31, 1993, have
been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority
of said firm as experts in accounting and auditing.
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APPENDIX A
[FORM OF SUBSCRIPTION CERTIFICATE]
SUBSCRIPTION CERTIFICATE NUMBER: ____________________________
NUMBER OF RIGHTS: ____________________________
CUSIP NO: ____________________________
AMERICAN REAL ESTATE PARTNERS, L.P.
SUBSCRIPTION RIGHT FOR DEPOSITARY UNITS AND PREFERRED UNITS
This Subscription Certificate represents the number of Rights set
forth in the upper right hand corner of this Form. The registered holder
hereof is entitled to acquire the following securities: (i) six depositary
units representing limited partner interests (the "Depositary Units") in
American Real Estate Partners, L.P. (the "Partnership") and (ii) one 5%
cumulative pay-in-kind redeemable convertible preferred unit representing a
limited partner interest in the Partnership (the "Preferred Units") for each
Right held. Depositary Units and Preferred Units purchased through the
exercise of Basic Subscription Rights and the Over-Subscription Privilege
must be purchased as a unit consisting of six Depositary Units and one
Preferred Unit and may not be subscribed for separately.
To subscribe for Depositary Units and Preferred Units, the Holder
must present to Registrar and Transfer Company (the "Subscription Agent"),
prior to 5:00 p.m., New York City time, on the Expiration Date, either:
(1) a properly completed and executed Subscription Certificate and
a money order or check drawn on a bank located in the United States and
payable to Registrar and Transfer Company, as Subscription Agent for
American Real Estate Partners, L.P. for the Subscription Price of the
number of Depositary Units and Preferred Units subscribed for under its
Basic Subscription Rights and, if applicable, payment of the Subscription
Price for the number of Depositary Units and Preferred Units for which the
Over-Subscription Privilege is to be exercised; or
(2) a Notice of Guaranteed Delivery guaranteeing delivery of (i) a
properly completed and executed Subscription Certificate and (ii) a money
order or check drawn on a bank located in the United States and payable to
Registrar and Transfer Company, as Subscription Agent for American Real
Estate Partners, L.P. for the Subscription Price of the number of
Depositary Units and Preferred Units subscribed for under its Basic
Subscription Rights and, payment of the Subscription Price for the number
of Depositary Units and Preferred Units for which the Over-Subscription
Privilege is to be exercised (which certificate and full payment must then
be delivered by the close of business on the fifth Business Day after the
Expiration Date).
If the Holder of this certificate subscribes for additional
Depositary Units and Preferred Units pursuant to the Over-Subscription
Privilege, Part B of Section I of the Subscription Certificate must be
completed to indicate the maximum number of Depositary Units and Preferred
Units for which the Over-Subscription Privilege is being exercised.
No later than ______ Business Days following the Expiration Date,
the Subscription Agent will send to each Exercising Rights Holder (or, if
the Partnership's Depositary Units are held by Cede & Co. or any other
depositary or nominee, to Cede & Co. or such other depositary or nominee),
the certificates representing the Depositary Units and Preferred Units
purchased pursuant to its Basic Subscription Rights and, if applicable, in
the Over-Subscription Privilege, along with a letter explaining the
allocation of Depositary Units and Preferred Units pursuant to the Over-
Subscription Privilege. Any excess payment to be refunded by the
Partnership to a Rights Holder who is not allocated the full amount of
Depositary Units and Preferred Units subscribed for pursuant to the Over-
Subscription Privilege will be mailed by the Subscription Agent. An
Exercising Rights Holder will have no right to modify or rescind a
subscription after the Subscription Agent has received payment, either by
means of a notice of guaranteed delivery or a check. Any excess payment to
be refunded by the Partnership to a Rights Holder will be mailed by the
Subscription Agent to him as promptly as practicable.
If the Holder does not make payment of any amounts due in respect of
Depositary Units and Preferred Units subscribed for, the Partnership and
the Subscription Agent reserve the right to (i) find other Holders or
Rights Holders for the subscribed and unpaid for Depositary Units and
Preferred Units; (ii) apply any payment actually received by it toward the
purchase of the greatest whole number of Depositary Units and Preferred
Units which could be acquired by such Holder upon exercise of his Basic
Subscription Rights and/or pursuant to the Over-Subscription Privilege,
and/or (iii) exercise any and all other rights and/or remedies to which it
may be entitled, including, without limitation, the right to set-off
against payments actually received by it with respect to such subscribed
Depositary Units and Preferred Units.
The Subscription Certificate may be transferred, in the same manner
and with the same effect as in the case of a negotiable instrument payable
to specific persons, by duly completing and signing the assignment on the
reverse side hereof. Capitalized terms used but not defined in this
Subscription Certificate shall have the meanings assigned to them in the
Prospectus, dated _______ __, 1994 relating to the Rights.
AMERICAN REAL ESTATE PARTNERS, L.P.
By:_____________________________________________
THIS SUBSCRIPTION RIGHT IS TRANSFERABLE AND MAY BE COMBINED OR DIVIDED (BUT
ONLY INTO SUBSCRIPTION CERTIFICATES EVIDENCING A WHOLE NUMBER OF RIGHTS) AT
THE OFFICE OF THE SUBSCRIPTION AGENT.
Any questions regarding this Subscription Certificate and the Offer may be
directed to the Subscription Agent toll-free at (800) __________ or to the
Partnership toll-free at (800) 255-2737 or collect at (914) 242-7700.
A-1
<PAGE>
Expiration Date:_____________
<TABLE>
PLEASE COMPLETE ALL APPLICABLE INFORMATION
<CAPTION>
<S>
BY MAIL: BY OVERNIGHT COURIER: BY HAND:
<C> <C>
_____________________________ _____________________________ _____________________________
_____________________________ _____________________________ _____________________________
_____________________________ _____________________________ _____________________________
_____________________________ _____________________________ _____________________________
</TABLE>
SECTION I: TO SUBSCRIBE: I hereby irrevocably subscribe for the dollar
amount of Depositary Units and Preferred Units indicated in A and B below
upon the terms and conditions specified in the Prospectus related hereto,
receipt of which is acknowledged. I will send the Partnership a check or
money order for the Subscription Price for the number of Depositary Units
and Preferred Units indicated in A together with the Subscription Price for
the number of Depositary Units and Preferred Units indicated in B. I
hereby apply for admission as a limited partner of the Partnership with
respect to all Depositary Units and Preferred Units acquired by me and
agree to be bound by all of the terms of the Partnership Agreement, as from
time to time in effect.
Please check (X) below:
<TABLE>
<S> <C> <C> <C> <C> <C>
[ ] A. Basic ________________________= __________________.000 X $_____________________ = $___________________
Subscription (Rights Exercised) (Units Requested) (Subscription Price) (Amount Required)
Rights
[ ] B. Over- __________________.000 X $_____________________ = $__________________
Subscription (Units Requested) (Subscription Price) (Amount Required)
Privilege
[ ] C. Amount of Check or Money Order Enclosed (Total of A and B). Make check payable to = $_________________
"Registrar and Transfer Company, as Subscription Agent for American Real Estate Partners, L.P."
__________________________________________ Please provide your Day (___)____________________
Signature of Subscriber(s)/Seller(s) telephone number Evening (___)____________________
</TABLE>
<TABLE>
<S> <C>
SECTION II: TO TRANSFER RIGHTS:
For value received in the amount of $____________, _______________ of the Rights represented
by this Subscription Certificate are assigned to
_______________-________________-_______________ ________________________________________________
Social Security Number or Tax ID of Assignee (Print Full Name of Assignee)
________________________________________________ ________________________________________________
________________________________________________ ________________________________________________
Signature(s) of Assignee(s) (Print Fill Address including postal Zip Code)
</TABLE>
The signature(s) must correspond with the name(s) as written upon the face
of this Subscription Certificate, in every particular, without alteration.
IMPORTANT: For transfer, a Signature Guarantee must be provided by an
eligible financial institution as defined in Rule 17Ad-15 of the Securities
Exchange Act of 1934, as amended, subject to the standards and procedures
adopted by the issuer.
SIGNATURE GUARANTEED BY:
___________________________________________
PROCEEDS FROM THE SALE OF RIGHTS MAY BE SUBJECT TO WITHHOLDING OF U.S.
TAXES UNLESS THE SELLER'S CERTIFIED U.S. TAXPAYER IDENTIFICATION NUMBER (OR
CERTIFICATION REGARDING FOREIGN STATUS) IS ON FILE WITH THE SUBSCRIPTION
AGENT AND THE SELLER IS NOT OTHERWISE SUBJECT TO U.S. BACKUP WITHHOLDING.
[ ] CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE
DATE HEREOF AND COMPLETE THE FOLLOWING:
NAMES(S) OF REGISTERED OWNERS(S):
WINDOW TICKET NUMBER (IF ANY):
DATE OF EXECUTION OF NOTICE OF GUARANTEED DELIVERY:
NAME OF INSTITUTION WHICH GUARANTEED DELIVERY:
A-2
<PAGE>
APPENDIX B
[FORM OF NOTICE OF GUARANTEED DELIVERY]
NOTICE OF GUARANTEED DELIVERY FOR DEPOSITARY UNITS AND PREFERRED UNITS OF
AMERICAN REAL ESTATE PARTNERS, L.P.
SUBSCRIBED FOR PURSUANT TO BASIC SUBSCRIPTION RIGHTS AND
THE OVER-SUBSCRIPTION PRIVILEGE
As set forth in the Prospectus under "The Offer - Payment for
Securities," this form or one substantially equivalent hereto may be used
as a means of effecting subscription and payment for all Depositary Units
and Preferred Units of American Real Estate Partners, L.P. subscribed for
pursuant to Basic Subscription Rights and the Over-Subscription Privilege.
Such form may be delivered by hand or sent by facsimile transmission,
overnight courier or mail to the Subscription Agent.
The Subscription Agent is:
Registrar and Transfer Company
BY MAIL: BY FACSIMILE:
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
BY HAND: BY OVERNIGHT COURIER:
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
_________________________ _________________________
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION
OF INSTRUCTIONS VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN
AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY
The New York Stock Exchange member firm or bank or trust company
which completes this form must communicate the guarantee and the number of
Depositary Units and Preferred Units subscribed for (under Basic
Subscription Rights and the Over-Subscription Privilege) to the
Subscription Agent and must deliver this Notice of Guaranteed Delivery of
Payment guaranteeing delivery of (i) payment in full for all subscribed
Depositary Units and Preferred Units and (ii) a properly completed and
executed Subscription Certificate (which certificate and full payment must
then be delivered by the close of business on the fifth business day after
the Expiration Date, as defined in the Prospectus) to the Subscription
Agent prior to 5:00 p.m., New York City time, on the Expiration Date
(______________, unless extended). Failure to do so will result in a
forfeiture of the Rights.
B-1
<PAGE>
GUARANTEE
The undersigned, a member firm of the New York Stock Exchange or a
bank or trust company guarantees delivery to the Subscription Agent by the
close of business (5:00 p.m., New York City time) on the fifth Business Day
after the Expiration Date (_____________, unless extended) of (A) a
properly completed and executed Subscription Certificate and (B) payment of
the full Subscription Price for Depositary Units and Preferred Units
subscribed for pursuant to Basic Subscription Rights together with payment
of the Subscription Price for the number of Depositary Units and Preferred
Units for which the Over-Subscription Privilege is to be exercised, as
subscription for such Depositary Units and Preferred Units is indicated
herein or in the Subscription Certificate.
<TABLE>
<S> <C> <C>
________________________________________________ ________________________________________________
Number of Depositary Units and Preferred Units Number of Depositary Units and Preferred Units
Pursuant to Basic Subscription Rights for which on Over-Subscription Privilege for which you are
you are guaranteeing delivery of Rights and guaranteeing delivery of Rights and payment
payment
________________________________________________ Number of Rights to be delivered:
A. Through DTC
Method of Delivery [circle one] B. Direct to Company
Please note that if you are guaranteeing for Depositary Units and Preferred Units
subscribed for pursuant to the Over-Subscription Privilege and are a DTC participant, you must also
execute and forward to _________________________________ a Nominee Holder Over-Subscription Exercise
Form.
________________________________________________ ________________________________________________
Name of Firm Authorized Signature
________________________________________________ ________________________________________________
Address Title
________________________________________________ ________________________________________________
Zip Code Name (Please Type or Print)
________________________________________________ ________________________________________________
Name of Registered Holder (If Applicable) Date
________________________________________________
Telephone Number
</TABLE>
* IF THE RIGHTS ARE TO BE DELIVERED THROUGH DTC, A REPRESENTATIVE OF
THE COMPANY WILL PHONE YOU WITH A PROTECT IDENTIFICATION NUMBER,
WHICH NEEDS TO BE COMMUNICATED BY YOU TO DTC.
B-2
<PAGE>
APPENDIX C
[FORM OF NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM]
AMERICAN REAL ESTATE PARTNERS, L.P.
RIGHTS OFFERING
<TABLE>
NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM
PLEASE COMPLETE ALL APPLICABLE INFORMATION
<CAPTION>
<S>
BY MAIL: BY HAND: BY OVERNIGHT COURIER:
<C> <C>
To: ____________________ To: ____________________ ____________________
____________________ ____________________ ____________________
____________________ ____________________ ____________________
____________________ ____________________ ____________________
</TABLE>
THIS FORM IS TO BE USED ONLY BY NOMINEE HOLDERS TO EXERCISE THE OVER-
SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO WHICH ITS BASIC
SUBSCRIPTION RIGHTS WERE EXERCISED AND DELIVERED THROUGH THE FACILITIES OF
A COMMON DEPOSITARY. ALL OTHER EXERCISES OF OVER-SUBSCRIPTION PRIVILEGES
BY RIGHTS HOLDERS MUST BE EFFECTED BY THE DELIVERY OF SUBSCRIPTION
CERTIFICATES.
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE
PARTNERSHIP'S PROSPECTUS DATED _______________ (THE "PROSPECTUS") AND ARE
INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE
UPON REQUEST FROM THE PARTNERSHIP.
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00
PM, NEW YORK CITY TIME, ON ______________, UNLESS EXTENDED BY THE
PARTNERSHIP (THE "EXPIRATION DATE").
1. The undersigned hereby certifies to the Subscription Agent that it
is a participant in ______________________________________________________
____________________________ [Name of Depositary] (the "Depositary") and
that it has either (i) exercised Basic Subscription Rights in respect of
Rights and delivered such exercised Rights to the Subscription Agent by
means of transfer to the Depositary Account of the Partnership or (ii)
delivered to the Subscription Agent a Notice of Guaranteed Delivery in
respect of the exercise of Basic Subscription Rights and will deliver the
Rights called in for by such Notice of Guaranteed Delivery to the
Subscription Agent by means of transfer to such Depositary Account of the
Partnership.
2. The undersigned hereby exercises the Over-Subscription Privilege to
purchase, to the extent available, ______ Depositary Units and ______
Preferred Units and certifies to the Subscription Agent that such Over-
Subscription Privilege is being exercised for the account or accounts of
persons (which may include the undersigned) who are Rights Holders and on
whose behalf Basic Subscription Rights have been exercised. The
undersigned hereby applies for admission as a limited partner of the
Partnership with respect to all Depositary Units and Preferred Units
subscribed for pursuant to this Over-Subscription Privilege and agrees to
be bound by all of the terms and conditions of the Partnership Agreement,
as from time to time in effect.
3. The undersigned understands that payment of the Subscription Price
of $______ per each six Depositary Units and one Preferred Unit subscribed
for pursuant to the Over-Subscription Privilege must be received by the
Subscription Agent at or before 5:00 p.m. New York City time on the
Expiration Date and represents that such payment, in the aggregate amount
of $ either (check appropriate box):
[ ] has been or is being delivered to the Subscription Agent
pursuant to the Notice of Guaranteed Delivery referred to above
or
[ ] is being delivered to the Subscription Agent herewith
or
[ ] has been delivered separately to the Subscription Agent;
and, in the case of funds not delivered pursuant to a Notice of
Guaranteed Delivery, is or was delivered in the manner set forth
below (check appropriate box and complete information relating
thereto):
[ ] uncertified check
[ ] certified check
[ ] bank draft
<TABLE>
<S> <C>
________________________________________________ ________________________________________________
Basic Subscription Right Confirmation Number Name of Nominee Holder
________________________________________________ ________________________________________________
Depositary Participant Number Address
Contact Name:___________________________________ ________________________________________________
State Zip Code
Phone Number:___________________________________
By:_____________________________________________
Name:___________________________________________
Dated: , 1994
Title:__________________________________________
</TABLE>
C-1
<PAGE>
* PLEASE ATTACH A BENEFICIAL OWNER LISTING CONTAINING THE RECORD DATE
POSITION OF BASIC SUBSCRIPTION RIGHTS OWNED, THE NUMBER OF BASIC
SUBSCRIPTION RIGHTS SUBSCRIBED, THE NUMBER OF DEPOSITARY UNITS AND
PREFERRED UNITS SUBSCRIBED PURSUANT TO THE OVER-SUBSCRIPTION PRIVILEGE
REQUESTED BY EACH OWNER.
C-2
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THE OFFERING MADE
HEREBY TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS, AND IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MAY NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY
AMERICAN REAL ESTATE PARTNERS, L.P.
THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER OR SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED
HEREBY BY ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL
FOR SUCH PERSON TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE OF THIS PROSPECTUS.
----------
TABLE OF CONTENTS
PAGE
----
Available Information 3
Information Incorporated By
Reference 3
Prospectus Summary 4
Investment Considerations 11
The Partnership
18
The Offering
20
Purpose of the Offering and Use of
Proceeds
26
Ratio of Earnings to Fixed Charges
and Preferred Unit Distributions
30
Description of Securities
31
Description of Partnership Agreement
37
Income Tax Considerations
45
Legal Matters
59
Experts
59
<PAGE>
SUBSCRIPTION RIGHTS
EXPIRING ____________, 1995
TO PURCHASE DEPOSITARY UNITS
REPRESENTING LIMITED PARTNER
INTERESTS AND 5% CUMULATIVE PAY-IN-
KIND REDEEMABLE
PREFERRED UNITS REPRESENTING LIMITED
PARTNER INTERESTS
AMERICAN REAL ESTATE
PARTNERS, L.P.
_____________________________
PROSPECTUS
_____________________________
_____________, 1995
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
Set forth below is an estimate (except for the registration fee) of the
fees and expenses payable by the registrant in connection with the issuance
and distribution of the Depositary Units and Preferred Units:
SEC Registration Fee $ 37,435
Printing and engraving expenses *
Accountant's fees and expenses *
Legal fees and expenses *
NYSE Listing Fee *
Blue Sky fees and expenses (including counsel's fees) *
Subscription Agent Fees *
Miscellaneous ________*
Total $
========
___________________
* To be provided by amendment.
ITEM 15. Indemnification of Directors and Officers.
Indemnification of American Property Investors, Inc., in its capacity as
the general partner of American Real Estate Partners, L.P. (the
"Registrant"), and its affiliates is provided for in Section 6.15 of the
Agreement of Limited Partnership of the Registrant. Section 6.15 of the
Agreement of Limited Partnership of the Registrant provides as follows:
"6.15 (a) The Partnership shall, to the fullest extent permitted by
law, indemnify and hold harmless the General Partner, its Affiliates,
and all officers, directors, employees and agents of the General Partner
and its Affiliates (individually, an "Indemnitee") from and against any
and all losses, claims, demands, costs, damages, liabilities, joint and
several, expenses of any nature (including attorneys' fees and
disbursements), judgments, fines, settlements, and other amounts arising
from any and all claims, demands, actions, suits or proceedings, whether
civil, criminal, administrative or investigative, in which the
Indemnitee may be involved, or threatened to be involved, as a party or
otherwise by reason of its status as (x) the General Partner or an
Affiliate thereof or (y) a partner, shareholder, director, officer,
employee or agent of the General Partner or an Affiliate thereof or
(z) a person serving at the request of the Partnership in another entity
in a similar capacity, which relate to, arise out of or are incidental
to the Partnership, its property, business, affairs or the Exchange,
including, without limitation, liabilities under the federal and state
securities laws, regardless of whether the Indemnitee continues to be a
General Partner, an Affiliate, or an officer, director, employee or
agent of the General Partner or of an Affiliate thereof at the time any
such liability or expense is paid or incurred, if (i) the Indemnitee
acted in good faith and in a manner it believed to be in, or not opposed
to, the best interests of the Partnership, and, with respect to any
criminal proceeding, had no reasonable cause to believe its conduct was
unlawful and (ii) the Indemnitee's conduct did not constitute willful
misconduct. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, in and of itself, create a
presumption or otherwise constitute evidence that the Indemnitee acted
in a manner contrary to that specified in (i) or (ii) above.
(b) Expenses incurred by an Indemnitee in defending any claim,
demand, action, suit or proceeding subject to this Section 6.15 shall,
from time to time, be advanced by the Partnership prior to the final
disposition of such claim, demand, action, suit or proceeding upon
receipt by the Partnership of
II-1
<PAGE>
an undertaking by or on behalf of the Indemnitee to repay such amount
unless it shall be determined that such Person is entitled to be
indemnified as authorized in this Section 6.15.
(c) The indemnification provided by this Section 6.15 shall be
in addition to any other rights to which those indemnified may be
entitled under any agreement, vote of Record Holders, as a matter of law
or equity, or otherwise, both as to an action in the Indemnitee's
capacity as a General Partner, an Affiliate or as an officer, director,
employee or agent of a General Partner or an Affiliate, and as to an
action in another capacity, and shall continue as to an Indemnitee who
has ceased to serve in such capacity and shall inure to the benefit of
the heirs, successors, assigns and administrators of the Indemnitee.
(d) The Partnership may purchase and maintain insurance on
behalf of the General Partner and such other Persons as the General
Partner shall determine against any liability that may be asserted
against or expense that may be incurred by such Person in connection
with the Exchange and the activities of the Partnership, regardless of
whether the Partnership would have the power to indemnify such Person
against such liability under the provisions of this Agreement.
(e) Except as set forth in the next sentence below, any
indemnification hereunder shall be satisfied solely out of the assets of
the Partnership. The Record Holders shall not be subject to a personal
liability by reason of these indemnification provisions.
(f) An Indemnitee shall not be denied indemnification in whole
or in part under this Section 6.15 by reason of the fact that the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by
the terms of this Agreement.
(g) The provisions of this Section 6.15 are for the benefit of
the Indemnitees and shall not be deemed to create any rights for the
benefit of any other persons."
Indemnification of American Property Investors, Inc., in its
capacity as the general partner of American Real Estate Holdings Limited
Partnership, in which the Registrant owns a 99% limited partner interest,
and its affiliates are provided for in Section 6.13 of the Agreement of
Limited Partnership of American Real Estate Holdings Limited Partnership.
Section 6.13 of the Agreement of Limited Partnership of American Real
Estate Holdings Limited Partnership provides as follows:
"6.13 (a) The Partnership shall, to the fullest extent permitted by
law, indemnify and hold harmless the General Partner, its Affiliates,
and all officers, directors, employees and agents of the General Partner
and its Affiliates (individually, an "Indemnitee") from and against any
and all losses, claims, demands, costs, damages, liabilities, joint and
several, expenses of any nature (including attorneys' fees and
disbursements), judgments, fines, settlements, and other amounts arising
from any and all claims, demands, actions, suits or proceedings, whether
civil, criminal, administrative or investigative, in which the
Indemnitee may be involved, or threatened to be involved, as a party or
otherwise by reason of its status as (x) the General Partner or an
Affiliate thereof or (y) a partner, shareholder, director, officer,
employee or agent of the General Partner or an Affiliate thereof or
(z) a Person serving at the request of the Partnership in another entity
in a similar capacity, which relate to, arise out of or are incidental
to the Partnership, its property, business, affairs of the Exchange,
including, without limitation, liabilities under the federal or state
securities laws, regardless of whether the Indemnitee continues to be a
General Partner, an Affiliate, or an officer, director, employee or
agent of the General Partner or of an Affiliate thereof at the time any
such liability or expense is paid or incurred, if (i) the Indemnitee
acted in good faith and in a manner it believed to be in, or not opposed
to, the best interests of the Partnership, and, with respect to any
criminal proceeding, had no reasonable cause to believe its conduct was
unlawful and (ii) the Indemnitee's conduct did not constitute willful
misconduct. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, in and of itself, create a
presumption or otherwise constitute evidence that the Indemnitee acted
in a manner contrary to that specified in (i) or (ii) above.
II-2
<PAGE>
(b) Expenses incurred by an Indemnitee in defending any claim,
demand, action, suit or proceeding subject to this Section 6.13 shall,
from time to time, be advanced by the Partnership prior to the final
disposition of such claim, demand, action, suit or proceeding upon
receipt by the Partnership of an undertaking by or on behalf of the
Indemnitee to repay such amount unless it shall be determined that such
Person is entitled to be indemnified as authorized in this Section 6.13.
(c) The indemnification provided by this Section 6.13 shall be
in addition to any other rights to which those indemnified may be
entitled under any agreement, vote of Limited Partners, as a matter of
law or equity, or otherwise, both as to an action in the Indemnitee's
capacity as a General Partner, an Affiliate or as an officer, director,
employee or agent in another capacity, and shall continue as to an
Indemnitee who has ceased to serve in such capacity and shall inure to
the benefit of the heirs, successors, assigns and administrators of the
Indemnitee.
(d) The Partnership may purchase and maintain insurance on
behalf of the General Partner and such other Persons as the General
Partner shall determine against any liability that may be asserted
against or expense that may be incurred by such Person in connection
with the Exchange and the activities of the Partnership, regardless of
whether the Partnership would have the power to indemnify such Person
against such liability under the provisions of this Agreement.
(e) Except as set forth in the next sentence below, any
indemnification hereunder shall be satisfied solely out of the assets of
the Partnership. The Limited Partners shall not be subject to a
personal liability by reason of these indemnification provisions.
(f) An Indemnitee shall not be denied indemnification in whole
or in part under this Section 6.13 by reason of the fact that the
Indemnitee had an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise permitted by
the terms of this Agreement.
(g) The provisions of this Section 6.13 are for the benefit of
the Indemnitees and shall not be deemed to create any rights for the
benefit of any other persons."
Indemnification of the officers and directors of American Property
Investors, Inc. is provided for in Section 10 of its Certificate of
Incorporation and ARTICLE X of its By-Laws. Section 10 of the Certificate
of Incorporation of American Property Investors, Inc., as amended, provides
as follows:
No director will have any personal liability to the corporation or
its stockholders for monetary damages for any breach of fiduciary duty as a
director, except (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith of which involve intentional misconduct or a knowing violation of
law, (iii) under section 174 of the Delaware General Corporation Law, as
amended, or (iv) for any transaction from which the director obtained an
improper personal benefit.
ARTICLE X of the By-Laws of American Property Investors, Inc.,
provides as follows:
(a) any person made a party to any action, suit or proceeding,
by reason of the fact that he, his testator or intestate representative
is or was a director, officer or employee of the Corporation, or of any
Corporation in which he served as such at the request of the
Corporation, shall be indemnified by the Corporation against the
reasonable expenses, including attorney's fees, actually and necessarily
incurred by him in connection with the defense of such action, suit or
proceeding, or in connection with any appeal therein, except in relation
to matters as to which it shall be adjusted in such action, suit or
proceeding, or in connection with any appeal therein that such officer,
director or employee is liable for negligence or misconduct in the
performance of his duties.
(b) The foregoing right of indemnification shall not be deemed
exclusive of any other rights to which any officer or director or
employee may be entitled apart from the provisions of this section.
II-3
<PAGE>
(c) The amount of indemnity to which any officer or any
director may be entitled shall be fixed by the Board of Directors,
except that in any case where there is no disinterested majority of the
Board available, the amount shall be fixed by arbitration pursuant to
the then existing rules of the American Arbitration Association."
ITEM 16. Exhibits.
<TABLE>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
<S> <C>
4.1 - Amended and Restated Agreement of Limited Partnership of Registrant, dated as of
May 12, 1987 (the "Partnership Agreement").*
4.2 - Form of Amendment No. 1 to the Partnership Agreement.
4.3 - Amended and Restated Agreement of Limited Partnership of American Real Estate
Holdings, Limited Partnership ("AREH"), dated as of July 1, 1987.*
4.4 - Depositary Agreement dated as of May 21, 1987 among Registrant, the General
Partner and the Subscription Agent (the "Depositary Agreement").*
4.5 - Form of Amendment No. 1 to the Depositary Agreement dated _______.**
4.6 - Form of Subscription Certificate (included on pages A-1 and A-2 of the Prospectus
forming part of this Registration Statement).
4.7 - Form of Certificate representing Preferred Units.****
4.8 - Form of Subscription Guaranty Agreement dated __________ between Registrant and
____________.
4.9 - Form of Registration Rights Agreement dated _____ between Registrant and
_________.**
5 - Opinion of Rogers & Wells.****
8 - Opinion of Rogers & Wells as to certain federal income tax matters.****
10.1 - Note Purchase Agreements, dated as of May 27, 1988 among Registrant, AREH and
The Prudential Insurance Company of America (the "Note Agreements").***
10.2 - Amendment No. 1 to the Note Agreement, dated November 17, 1988.**
10.3 - Amendment No. 2 to the Note Agreement dated November 17, 1988.**
10.4 - Amendment No. 3 to the Note Agreement dated June 21, 1994.**
10.5 - Amendment No. 4 to the Note Agreement dated August 12, 1994.**
12 - Computation of Ratio of Earnings to Fixed Charges.****
23.1 - Consent of KPMG Peat Marwick.
23.2 - Consents of Rogers & Wells (included in Exhibits 5 and 8).****
99.1 - Form of Subscription Agent Agreement dated ______ between Registrant and the
Subscription Agent.**
99.2 - Form of Amended and Restated Agency Registration Agreement dated_______
between Registrant and the Subscription Agent.**
<FN>
_______________________
<F1> * Filed as an exhibit to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987 - ncorporated by reference.
<F2> ** Previously filed.
<F3> *** Filed as an Exhibit to Registrant's Current Report on Form 8-K dated May 27,
1988 - incorporated by reference.
<F4> **** To be filed by Amendment.
</TABLE>
ITEM 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made of the securities registered hereby, a post-effective
amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in this registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration
statement or any material change to such information in this
registration statement;
Provided, however, that the undertakings set forth in paragraphs (i) and
(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by the registrant pursuant to section 13 or section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by
reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to
section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(5) The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to
set forth the results of the subscription Offer. If any public
offering is to be made on terms differing from those set forth
on the cover page of the prospectus, a post-effective amendment
will be filed to set forth the terms of such offering.
(6) The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act of 1933, shall be deemed to be part of this
registration statement as of the time it was declared effective.
II-5
<PAGE>
(ii) For the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at the time shall
be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused
this Amendment No. 3 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Mount
Kisco, State of New York, on January 20, 1995.
AMERICAN REAL ESTATE PARTNERS, L.P.
By: AMERICAN PROPERTY INVESTORS, INC.
General Partner
By:________________*______________
Carl C. Icahn
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 3 to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<S>
Signature Title Date
--------- ----- ----
<C> <C>
___________________*__________________ Chairman of the Board January 20, 1995
Carl C. Icahn (Principal Executive Officer)
___________________*__________________ Director January 20, 1995
Alfred Kingsley
___________________*__________________ Director January 20, 1995
William A. Leidesdorf
___________________*__________________ Director January 20, 1995
Mark Rachesky
___________________*__________________ Director January 20, 1995
Jack G. Wasserman
/s/John P. Saldarelli Treasurer January 20, 1995
-------------------------------------- (Principal Financial Officer and
John P. Saldarelli Principal Accounting Officer)
</TABLE>
*By /s/John P. Saldarelli
----------------------------------------------
John P. Saldarelli
Attorney-In-Fact
II-7
REGISTRATION STATEMENT
ON FORM S-3
Under
THE SECURITIES ACT OF 1933
<TABLE> EXHIBIT INDEX
-------------
<CAPTION>
<S>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
<C>
Ex-4.1 - Amended and Restated Agreement of Limited Partnership of Registrant, dated as of
May 12, 1987 (the "Partnership Agreement").*
Ex-4.2 - Form of Amendment No. 1 to the Partnership Agreement.
Ex-4.3 - Amended and Restated Agreement of Limited Partnership of American Real Estate
Holdings, Limited Partnership ("AREH"), dated as of July 1, 1987.*
Ex-4.4 - Depositary Agreement dated as of May 21, 1987 among Registrant, the General
Partner and the Subscription Agent (the "Depositary Agreement").*
Ex-4.5 - Form of Amendment No. 1 to the Depositary Agreement dated _______.**
Ex-4.6 - Form of Subscription Certificate (included on pages A-1 and A-2 of the Prospectus
forming part of this Registration Statement).
Ex-4.7 - Form of Certificate representing Preferred Units.****
Ex-4.8 - Form of Subscription Guaranty Agreement dated __________ between Registrant and
____________.
Ex-4.9 - Form of Registration Rights Agreement dated _____ between Registrant and
_________.**
Ex-5 - Opinion of Rogers & Wells.****
Ex-8 - Opinion of Rogers & Wells as to certain federal income tax matters.****
Ex-10.1 - Note Purchase Agreements, dated as of May 27, 1988 among Registrant, AREH and
The Prudential Insurance Company of America (the "Note Agreements").***
Ex-10.2 - Amendment No. 1 to the Note Agreement, dated November 17, 1988.**
Ex-10.3 - Amendment No. 2 to the Note Agreement dated November 17, 1988.**
Ex-10.4 - Amendment No. 3 to the Note Agreement dated June 21, 1994.**
Ex-10.5 - Amendment No. 4 to the Note Agreement dated August 12, 1994.**
Ex-12 - Computation of Ratio of Earnings to Fixed Charges.****
Ex-23.1 - Consent of KPMG Peat Marwick.
Ex-23.2 - Consents of Rogers & Wells (included in Exhibits 5 and 8).****
Ex-99.1 - Form of Subscription Agent Agreement dated ______ between Registrant and the
Subscription Agent.**
Ex-99.2 - Form of Amended and Restated Agency Registration Agreement dated _______
between Registrant and the Subscription Agent.**
<FN>
_______________________
<F1>
* Filed as an exhibit to Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 -
incorporated by reference.
<F2>
** Previously filed.
<F3>
*** Filed as an Exhibit to Registrant's Current Report on Form 8-K dated May 27, 1988 - incorporated by
reference.
<F4>
**** To be filed by Amendment.
</TABLE>
R&W DRAFT
1/19/95
AMENDMENT NO. 1 TO THE AMENDED AND
RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF
AMERICAN REAL ESTATE PARTNERS, L.P.
Amendment No. 1 dated as of ____________, 1995 (the
"Amendment"), by and among American Property Investors, Inc., a
Delaware corporation, as general partner (the "General Partner"),
and all other persons and entities who are or shall in the future
become limited partners (the "Limited Partners") of American Real
Estate Partners, L.P., a Delaware limited partnership (the
"Partnership").
WHEREAS, the Partnership was formed pursuant to an
Agreement of Limited Partnership, dated as of April 29, 1987, which
was amended and restated in its entirety on May 12, 1987 (the
"Partnership Agreement"); and
WHEREAS, the Partnership proposes to distribute at no
cost to holders of record as of the close of business on
__________, 1995 of depositary units representing limited partner
interests in the Partnership ("Depositary Units") one subscription
right (each a "Right") for each seven Depositary Units held (the
"Rights Offering"); and
WHEREAS, pursuant to the authority expressly granted to
and vested in the General Partner by Section 4.05 of the
Partnership Agreement and in connection with the Rights Offering,
the General Partner intends to create a series of 5% cumulative
pay-in-kind redeemable preferred units representing limited partner
interests in the Partnership; and
WHEREAS, the General Partner desires to further amend the
Partnership Agreement to establish the series of Preferred Units
upon the terms and conditions set forth herein and fix the
designation and number of units thereof and fix the powers,
preferences and relative participating, optional or other special
rights, and the qualifications, limitations and restrictions
thereof and to incorporate certain changes conforming with the
Internal Revenue Code of 1986, as amended.
NOW THEREFORE, in consideration of the foregoing, the
Partnership Agreement is amended as follows:
Section 1. DEFINITIONS. Terms used but not otherwise
defined in this Amendment shall have the respective meanings
ascribed to such terms in the Partnership Agreement.
<PAGE>
Section 2. CERTAIN ADDITIONAL DEFINITIONS. As used herein
the following terms and phrases shall have the meanings set forth
below:
"ADJUSTED CAPITAL ACCOUNT" means the Capital Account
maintained for each Partner for each Fiscal Year: (i) increased by
any amounts which such Partner is obligated to restore pursuant to
any provision of this Agreement or is deemed to be obligated to
restore pursuant to the penultimate sentence of Treasury Regulation
Sections 1.704-2(g)(1) and 1.704-2(i)(5) and (ii) decreased by the
items described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5), and (6). The foregoing definition of
Adjusted Capital Account is intended to comply with the provisions
of Treasury Regulation Section 1.704-1(b)(2)(ii)(d) and shall be
interpreted consistently therewith.
"BOARD OF DIRECTORS" shall mean the Board of Directors of
the General Partner.
"DISTRIBUTION PERIOD" means the applicable period from
and including a Payment Date (as defined below) to and excluding
the next Payment Date, or, as to particular Preferred Units, such
shorter period during which such Preferred Units are outstanding
(including the first day but excluding the last day of such shorter
period).
"LEGAL HOLIDAY" means any day on which banking
institutions are authorized or obligated by law or executive order
to close in New York, New York.
"NONRECOURSE DEDUCTIONS" means the nonrecourse deductions
as defined in Treasury Regulation Section 1.704-2(b)(1). The
amount of Nonrecourse Deductions for a Fiscal Year equals the net
increase, if any, in the amount of Partnership Minimum Gain during
such Fiscal Year reduced by any distributions during such Fiscal
Year of proceeds of a Nonrecourse Liability that are allocable to
an increase in Partnership Minimum Gain, determined according to
the provisions of Treasury Regulation Section 1.704-2(c)
and 1.704-2(h).
"NONRECOURSE LIABILITY" means a liability as defined in
Treasury Regulation Section 1.704-2(b)(3).
"PARTNER MINIMUM GAIN" means an amount, with respect to
each Partner Nonrecourse Debt, equal to the Partnership Minimum
Gain that would result if such Partner Nonrecourse Debt were
treated as a Nonrecourse Liability, determined in accordance with
Treasury Regulation Section 1.704-2(i)(3).
"PARTNER NONRECOURSE DEBT" means a liability as defined
in Treasury Regulation Section 1.704-2(b)(4).
"PARTNER NONRECOURSE DEDUCTIONS" means the partner
nonrecourse deductions as defined in Treasury Regulation Section
1.704-2(i)(2). The amount of Partner Nonrecourse Deductions with
2
<PAGE>
respect to a Partner Nonrecourse Debt for a Fiscal Year equals the
net increase, if any, in the amount of Partner Minimum Gain during
such Fiscal Year attributable to such Partner Nonrecourse Debt,
reduced by any distributions during that Fiscal Year to the Partner
that bears the economic risk of loss for such Partner Nonrecourse
Debt to the extent that such distributions are from the proceeds of
such Partner Nonrecourse Debt and are allocable to an increase in
Partner Minimum Gain attributable to such Partner Nonrecourse Debt,
determined according to the provisions of Treasury Regulation
Section 1.704-2(h) and 1.704-2(i).
"PARTNERSHIP MINIMUM GAIN" means the aggregate gain, if
any, that would be realized by the Partnership for purposes of
computing book income or loss with respect to each Partnership
asset if each Partnership asset subject to a Nonrecourse Liability
were disposed of for the amount outstanding on the Nonrecourse
Liability by the Partnership in a taxable transaction. Partnership
Minimum Gain with respect to each Partnership asset shall be
further determined in accordance with Treasury Regulation Section
1.704-2(d) and any subsequent rule or regulation governing the
determination of minimum gain. A Partner's share of Partnership
Minimum Gain at the end of any Fiscal Year shall equal the
aggregate Nonrecourse Deductions allocated to such Partner (or his
predecessors in interest) up to that time, less such Partner's (and
predecessors') aggregate share of decreases in Partnership Minimum
Gain determined in accordance with Treasury Regulation Section
1.704-2(g).
Additionally, all references to a "Majority Interest", as
defined in the Partnership Agreement, shall not include holders of
Preferred Units.
Section 3. DESIGNATION AND AMOUNT; LIQUIDATION PREFERENCE.
There shall be hereby created a series of Units (the "Preferred
Units") representing limited partner interests in the Partnership
designated as "5% Cumulative Pay-in-Kind Redeemable Preferred Units"
and the number of Units constituting such series shall be 15,000,000.
The Preferred Units will be represented by certificates issuable solely
in whole Preferred Units. No certificates representing fractional
Preferred Units will be issued, but record of the ownership of such
fractional Preferred Units will be kept on the books of the Partnership
and allocations, distributions, voting rights, rights with respect to
redemption or conversion and the like shall be determined in accordance
with fractional Unit ownership. Record Holders of the Preferred Units
shall be entitled to exercise the voting rights, to participate in
the distributions and to have the benefit of all other rights and
be subject to all limitations of Record Holders of Preferred Units
as set forth herein and in the Partnership Agreement. The
liquidation preference (the "Liquidation Preference") of each
Preferred Unit shall be $10.
3
<PAGE>
Section 4. DISTRIBUTIONS.
(a) Prior to redemption of Preferred Units or Liquidation
(as defined below) and dissolution of the Partnership, Record
Holders of Preferred Units shall be entitled to receive
distributions solely in additional Preferred Units. The
distribution rate per Preferred Unit shall be 5.0% per annum on the
Liquidation Preference plus all accumulated and unpaid
distributions. Distributions shall be payable annually on
______________ of each year (each, a "Payment Date"), commencing
______________, 1996 (except that, if any Payment Date is a
Saturday, Sunday or Legal Holiday, then such distribution shall be
payable on the next day that is not a Saturday, Sunday or Legal
Holiday), subject to declaration thereof by the Board of Directors,
to holders of record as they appear upon the books of the
Partnership at the close of business on the Record Date therefor.
Such Record Date shall be not more than sixty days nor less than
ten days prior to the applicable Payment Date, as fixed by the
Board of Directors from time to time.
(b) The aggregate distribution paid to a Record Holder of
Preferred Units shall be based on the aggregate number of Preferred
Units held by such Record Holder at the close of business on the
applicable Record Date and rounded to the nearest whole cent (with
one-half cent rounded upward). Unless otherwise provided herein,
distributions on each Preferred Unit will be cumulative from and
including the date the Preferred Units are first issued to and
excluding the earliest to occur of (i) the Redemption Date (as defined
below), and (ii) the date of final distribution of assets upon any
liquidation or winding up of the Partnership, whether voluntary or
involuntary (any such event referred to in this clause (ii), a
"Liquidation").
(c) Any reference to "distribution" contained in this
Section 4 shall not include any distribution made in connection
with any Liquidation.
Section 5. LIQUIDATION PREFERENCE.
(a) In the event of any Liquidation, each Record Holder
of Preferred Units shall be entitled to receive, and be paid out of
the assets of the Partnership available for distribution to its
Record Holders, the amount of the Record Holder's Capital Account
in respect of the Preferred Units, which amount is intended to
equal the Liquidation Preference, plus all accumulated and unpaid
distributions on such Preferred Units to the date of final
distribution to the Record Holders of Preferred Units, whether or
not declared, without interest, and no more, before any payment
shall be made or any assets distributed to Record Holders of
Depositary Units or any other class or series of the Partnership's
Units or other equity ranking junior to the Preferred Units upon
such Liquidation. If, upon any Liquidation, the amounts payable
with respect to liquidation preferences of the Preferred Units and
any other class or series of the Partnership's Units or other
4
<PAGE>
equity securities ranking on a parity with the Preferred Units upon
such Liquidation are not paid in full, the Record Holders of the
Preferred Units and of such other securities will share pro rata in
the amounts payable and other property distributable with respect
to such Liquidation so that the per unit amounts to which Record
Holders of Preferred Units and such other securities are entitled
will in all cases bear to each other the same ratio that the
liquidation preferences of the Preferred Units and such other
securities bear to each other. After payment in full of the
Liquidation Preference and any accumulated and unpaid distributions
in respect of the Preferred Units upon Liquidation, the Record
Holders of such Preferred Units in their capacity as such shall not
be entitled to any further right or claim to any remaining assets
of the Partnership.
(b) Neither the merger nor consolidation of the
Partnership into or with any other entity, nor the merger or
consolidation of any other entity into or with the Partnership, nor
a sale, transfer or lease of all or any part of the assets of the
Partnership, shall be deemed to be a Liquidation for purposes of
this Amendment.
(c) Written notice of any Liquidation, stating the
payment date or dates when and the place or places where the
amounts distributable in such circumstances shall be payable, shall
be given by first class mail, postage prepaid, not less than thirty
(30) days prior to any payment date stated therein, to the holders
of record of the Preferred Units at their respective addresses as
the same shall appear on the books of the Partnership or the
Transfer Agent for the Preferred Units.
Section 6. OPTIONAL REDEMPTION.
(a) On any Payment Date commencing with the Payment Date
on ____________, 2000, the Partnership, with the approval of the
Audit Committee, may redeem all, but not less than all, of the
Preferred Units, out of funds legally available therefor, at a
price per Preferred Unit equal to the Liquidation Preference plus
any accumulated and unpaid distributions thereon, whether or not
declared, up to but excluding the date fixed for redemption (such
sum being hereinafter referred to as the "Redemption Price"). The
aggregate Redemption Price paid to a Record Holder of Preferred
Units shall be the product of the aggregate number of Preferred
Units redeemed from such Record Holder and the per unit Redemption
Price, with such product being rounded to the nearest whole cent
(with one-half cent rounded upward) and shall be payable either in
cash or, as provided in Section 6(b) below, Depositary Units.
(b) If the Redemption price is paid in Depositary Units,
each Record Holder of Preferred Units shall be entitled to receive
an amount of Depositary Units equal to the Redemption Price;
provided that if the Redemption Price payable with respect to any
Record Holder's Preferred Units is not an integral multiple of the
value of one Depositary Unit, as determined in accordance with the
formula set forth below, the difference between the Redemption
Price of such Preferred Units and the highest integral multiple of
the value of one Depositary Unit which is less than the Redemption
Price of such Preferred Units shall be paid to such Record Holder
in cash (the "Cash Payment"). Depositary Units will be valued at
(i) if the Depositary Units are listed or admitted to trading on
one or more national securities exchange, the average price at
which the Depositary Units had been trading over the 20-day period
immediately preceding such Redemption on the principal national
securities exchange on which the Depositary Units are listed or
admitted to trading; (ii) if the Depositary Units are not listed or
admitted to trading on a national securities exchange but are
quoted by NASDAQ, the average bid price per Depositary Unit at
which the Depositary Units had been trading over the 20-day period
immediately preceding such Redemption, as furnished by the National
Quotation Bureau Incorporated ("Bureau") or such other nationally
recognized quotation service as may be selected by the General
Partner for such purpose, if such Bureau is not at the time
furnishing quotations; or (iii) if the Depositary Units are not
listed or admitted to trading on a national securities exchange or
quoted by NASDAQ, an amount equal to the book value as reflected in
the most recent audited financial statement of the Partnership as of
the date of Redemption.
(c) Not more than sixty nor less than thirty days prior
to the date fixed by the Partnership for redemption (the
"Redemption Date"), notice by first class mail, postage prepaid,
shall be given to the Record Holders of Preferred Units to be
redeemed addressed to such Record Holders at their last addresses
as shown upon the books of the Partnership. Each such notice of
redemption shall specify, as applicable, (i) the Redemption Date,
5
<PAGE>
(ii) the Redemption Price, (iii) whether the Redemption Price is
payable in cash or Depositary Units, (iv) if the redemption Price
is payable in Depositary Units, the number of Depositary Units to
be delivered and the amount of the Cash Payment, if any, (v) the
place or places of delivery and payment, (vi) the place or places
of payment, (vii) that delivery and payment will be made upon
presentation and surrender of the certificates representing
Preferred Units at the place designated in such notice and (viii)
that on and after the Redemption Date, distributions will cease to
accumulate on the Preferred Units (unless the Partnership defaults
in the payment of the Redemption Price).
(d) Any notice that is mailed as herein provided shall
be conclusively presumed to have been duly given, whether or not
the Record Holder of Preferred Units receives such notice; and
failure to give such notice by mail, or any defect in such notice
to the Record Holders of any Preferred Units designated for
redemption, shall not affect the validity of the proceedings for
the redemption of any other Preferred Units. On or after the
Redemption Date, as stated in such notice, each Record Holder of
Preferred Units shall surrender the certificate evidencing such
Units to the Partnership at the place designated in such notice and
shall thereupon receive payment in the amount and form specified in
such notice. Notice having been given as aforesaid, if, funds and
any Depositary Units necessary for the redemption shall be legally
available therefor and shall have been irrevocably deposited or set
aside on or before the Redemption Date, then on and after the close
of business on the Redemption Date, notwithstanding that the
certificates evidencing any Preferred Units so called for
redemption shall not have been surrendered, (i) distributions with
respect to the Preferred Units so called for redemption shall cease
to accumulate on the Redemption Date, (ii) such Preferred Units
shall no longer be deemed outstanding, (iii) the Record Holders
thereof shall cease to be Limited Partners of the Partnership to
the extent of their interest in such Preferred Units (provided that
such Record Holders shall be deemed admitted as limited Partners
with respect to any Depositary Units issued in payment of the
Redemption Price for their Preferred Units) and (iv) all rights
whatsoever with respect to the Preferred Units so called for
redemption (except the right of the Record Holders to receive the
Redemption Price for each such Preferred Unit, without interest or
any sum of money in lieu of interest thereon, upon surrender of
their certificates therefor at the place designated in such notice)
shall terminate.
(e) Except as provided in Section 7 hereof, holders of
Preferred Units shall have no right to require redemption of the
Preferred Units.
6
<PAGE>
7
<PAGE>
Section 7. MANDATORY REDEMPTION. On __________, 2010, the
Partnership must redeem all, but not less then all, of the Preferred
Units on the same terms as any optional redemption set forth in
Section 6 hereof.
Section 8. BUSINESS COMBINATIONS. In the event that the
Partnership shall effect any capital reorganization or
reclassification of its Units or shall consolidate or merge with or
into, or shall sell or transfer all or substantially all of its
assets to, any other entity, the holders of Preferred Units then
outstanding shall be entitled to receive the same kind and amount
of securities, cash, property, rights or interests as shall have
been receivable for each Depositary Unit by the holders thereof in
such reorganization, reclassification, consolidation, merger, sale
or transfer had such Preferred Units been redeemed for Depositary
Units in accordance with Section 6 immediately prior to such
reorganization, reclassification, consolidation, merger, sale or
transfer. The above provisions of this Section 8 shall similarly
apply to successive reorganizations, reclassifications,
consolidations, mergers, sales or transfers.
Section 9. STATUS OF ACQUIRED PREFERRED UNITS. Preferred
Units acquired by the Partnership upon a redemption pursuant to
Sections 6 or 7 or otherwise acquired by the Partnership will be
retired and restored to the status of authorized but unissued
Preferred Units and may not thereafter be reissued. Preferred
Units held by the Partnership shall not be deemed outstanding for
any purpose and shall have no voting rights or rights to
allocations or distributions.
8
<PAGE>
Section 10. VOTING RIGHTS.
(a) The Record Holders of Preferred Units will not have
any voting rights except as set forth below or as otherwise from
time to time required by applicable law. If a distribution is not
declared and made to the Record Holders of Preferred Units on any
two Payment Dates (which Payment Dates need not be consecutive),
the Record Holders of more than 50% of all outstanding Preferred
Units, including the General Partner and its affiliates, voting as
a class, shall be entitled to appoint two nominees for the Board of
Directors of the General Partner. Once elected, the nominees will
be appointed to the Board of Directors by action of the General
Partner. As directors, the nominees will, in addition to their
other duties as directors, be specifically charged with reviewing
all future distributions to the Record Holders of the Preferred
Units. Such additional directors shall serve until the full
distributions accumulated on all outstanding Preferred Units have
been declared and paid or set apart for payment. If and when all
accumulated distributions on the Preferred Units have been declared
and paid or set aside for payment in full, the holders of Preferred
Units shall be divested of the special voting rights provided by
this paragraph, subject to revesting in the event of each and every
subsequent default. Upon termination of such special voting rights
attributable to all holders of Preferred Units with respect to
payment of distributions, the term of office of each director
nominated by the holders of Preferred Units (the "Preferred Unit
Director") pursuant to such special voting rights shall forthwith
terminate and the number of directors constituting the entire Board
of Directors shall be reduced by the number of Preferred Unit
Directors. So long as a distribution default shall continue, any
vacancy in the office of a Preferred Unit Director may be filled by
written consent of the Preferred Unit Director remaining in office
or, if none remain in office, by vote of the holders of Preferred
Units who are then entitled to participate in the appointment of
such Preferred Unit Directors as provided above.
(b) The General Partner or Record Holders of Preferred
Units owning at least 10% of all outstanding Preferred Units,
including the General Partner and its affiliates, may call a
meeting of the Record Holders of Preferred Units to elect such
nominees. Any Record Holder of Preferred Units calling a meeting
shall specify the number of Preferred Units as to which such Record
Holder is exercising the right to call a meeting and only those
specified Preferred Units shall be counted for the purpose of
determining whether the required ten percent (10%) standard of the
preceding sentence has been met. Record Holders of Preferred Units
desiring to call a meeting shall deliver to the General Partner one
or more calls in writing stating that the Record Holders signing
such writing wish to call a meeting. Action at the meeting shall
be limited to appointing two nominees for the Board of Directors
and the Record Holders of Preferred Units will have no right to
call or participate at other meetings under Section 14.04 of the
Partnership Agreement or otherwise. Within sixty (60) days after
receipt of such a call from Record Holders of Preferred Units, or
9
<PAGE>
within such greater time as may be reasonably necessary for the
Partnership to comply with any statutes, rules, regulations,
listing agreements or similar requirements governing the holding of
a meeting or the solicitation of proxies for use at such a meeting,
the General Partner shall send a notice of the meeting to the
Record Holders of Preferred Units directly. A meeting shall be
held at a reasonable time and convenient place determined by the
General Partner or the Liquidating Trustee, as the case may be, on
a date not more than sixty (60) days after the mailing of notice of
the meeting. Record Holders of Preferred Units may vote either in
person or by proxy at any meeting. Each Record Holder shall have
one vote for each whole Preferred Unit held of record by such
Record Holder. No action shall be taken by the Record Holders of
Preferred Units without a meeting duly called and held or without
written consent in accordance with Section 12 hereof.
(c) Notice of a meeting called pursuant to this Section
10 shall be given either personally in writing or by mail or other
means of written communication addressed to each Record Holder of
Preferred Units at the address of the Record Holder appearing on
the books of the Partnership. An affidavit or certificate of
mailing of any notice or report in accordance with the provisions
of this Section 10 executed by the General Partner, Transfer Agent
or mailing organization shall constitute conclusive (but not
exclusive) evidence of the giving of notice. If any notice
addressed to a Record Holder of Preferred Units at the address of
such Record Holder appearing on the books of the Partnership is
returned to the Partnership by the United States Postal Service
marked to indicate that the United States Postal Service is unable
to deliver such notice, the notice and any subsequent notices or
reports shall be deemed to have been duly given without further
mailing if they are available for the Record Holder of Preferred
Units at the principal office of the Partnership for a period of
one year from the date of the giving of the notice to all other
Record Holders of Preferred Units.
(d) For purposes of determining the Record Holders
entitled to notice of or to vote at a meeting of the Record Holders
of Preferred Units, the General Partner or the Liquidating Trustee,
as the case may be, may set a record date, which shall not be less
than ten (10) days nor more than sixty (60) days prior to the date
of such meeting (unless such requirement conflicts with any rule,
regulation, guideline, or requirement of any securities exchange on
which the Preferred Units are listed for trading, in which case the
rule, regulation, guidelines, or requirement of such securities
exchange shall govern).
(e) Record Holders with respect to more than fifty
percent (50%) of the total number of all outstanding Preferred
Units then held by all Record Holders of Preferred Units, whether
represented in person or by proxy, shall constitute a quorum at a
meeting of Record Holders of Preferred Units. The Record Holders
present at a duly called or held meeting at which a quorum is
present may continue to transact business until adjournment of such
10
<PAGE>
meeting, notwithstanding the withdrawal of enough Record Holders of
Preferred Units to leave less than a quorum, if any action taken
(other than adjournment) is approved by the requisite number of
Record Holders specified in this Amendment. In the absence of a
quorum, any meeting of Record Holders of Preferred Units may be
adjourned from time to time by the affirmative vote of a majority
of the Preferred Units represented either in person or by proxy at
such meeting. When a meeting is adjourned to another time or place
notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the holders of Preferred Units
may transact any business which might have been transacted at the
original meeting.
(f) The General Partner or the Liquidating Trustee, as
the case may be, shall be solely responsible for convening,
conducting, and adjourning any meeting of Record Holders of
Preferred Units, including, without limitation, the determination
of Persons entitled to vote at such meeting, the existence of a
quorum for such meeting, the satisfaction of the requirements of
Section 10(b) with respect to such meeting, the conduct of voting
at such meeting, the validity and effect of any proxies represented
at such meeting, and the determination of any controversies, votes,
or challenges arising in connection with or during such meeting or
voting. The General Partner or the Liquidating Trustee, as the
case may be, shall designate a Person to serve as chairman of any
meeting and further shall designate a Person to take the minutes of
any meeting, which Person, in either case, may be, without
limitation, a Partner or any employee or agent of the General
Partner. The General Partner or the Liquidating Trustee, as the
case may be, may make all such other regulations, consistent with
applicable law and this Amendment, as it may deem advisable
concerning the conduct of any meeting of the Record Holders of
Preferred Units, including regulations in regard to the appointment
of proxies, the appointment and duties of inspectors of votes, and
the submission and examination of proxies and other evidence of the
right to vote.
(g) So long as any Preferred Units are outstanding, the
Partnership shall not amend, alter or repeal any provisions of the
Partnership Agreement or this Amendment so as to alter or change
the express powers, preferences or special rights of the Preferred
Units set forth herein so as to affect them adversely without the
consent of the holders of at least two-thirds of the total number
of outstanding Preferred Units, including those held by the General
Partner and its affiliates, given in person or by proxy, by vote at
a meeting called for that purpose or by written consent as
permitted by law. For purposes of this paragraph and in
furtherance of the foregoing, any such amendment or any resolution
or action of the Board of Directors which would create or issue any
series of Preferred Units out of the authorized Preferred Units, or
which would authorize, create or issue any securities (whether or
not already authorized) ranking junior to, on a parity with or
senior to the Preferred Units with respect to payment of
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distributions and distributions upon any Liquidation or having
special voting or other rights, shall not be considered to affect
adversely the powers, preferences or special rights of the
outstanding Preferred Units.
(h) The Record Holders of the Preferred Units will have
no other rights to participate in the management of the Partnership
and they will not be entitled to vote on any matters submitted to
a vote of the Record Holders of Depositary Units.
Section 11. PREEMPTIVE RIGHTS. No Record Holder of
Preferred Units shall have any preemptive right with respect to (a)
additional Capital Contributions, (b) issuance or sale of Units,
whether unissued, held in treasury or hereafter created, (c)
issuance of any obligations, evidences of indebtedness or other
securities of the Partnership convertible into or exchangeable for,
or carrying or accompanied by any rights to receive, purchase or
subscribe for, any such unissued Units or Units held in treasury,
(d) issuance of any right of, subscription to, or right to receive,
or any warrant or option for the purchase of, any of the foregoing
securities, or (e) issuance or sale of any other securities that
may be issued or sold by the Partnership.
Section 12. ACTION WITHOUT A MEETING. Any action that may
be taken at a meeting of the Record Holders of Preferred Units may
be taken without a meeting if a consent in writing setting forth
the action so taken is signed by Record Holders of Preferred Units
owning not less than the number of Preferred Units that would be
necessary to authorize or take such action at a meeting at which
all of the Record Holders of Preferred Units were present and
voted. Prompt notice of the taking of action without a meeting
shall be given to the Record Holders of Preferred Units who have
not consented thereto in writing. The General Partner may specify
that any written ballot submitted by the General Partner to Record
Holders of Preferred Units for the purpose of taking any action
without a meeting shall be returned to the Partnership within the
time, not less than twenty (20) days, specified by the General
Partner. If a ballot returned to the Partnership does not vote all
of the Preferred Units held by a Record Holder of Preferred Units,
the Partnership shall be deemed to have failed to receive a ballot
for the Preferred Units that were not voted. If consent to the
taking of any action by the Record Holders of Preferred Units is
solicited by any person other than by the General Partner, the
written consents shall have no force and effect unless and until
(i) they are deposited with the Partnership in care of the General
Partner, and (ii) consents sufficient to take the action proposed
are dated as of a date not more than ninety (90) days prior to the
date sufficient consents are deposited with the Partnership.
Section 13. ISSUANCE OF CERTIFICATES EVIDENCING PREFERRED
UNITS. On the closing date of the Rights Offering, the General
Partner shall cause the Partnership to issue certificates
evidencing the aggregate whole number of Preferred Units to which
the Record Holders of Preferred Units are entitled in the form of
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Exhibit A annexed hereto. Upon a transfer of a Preferred Unit in
accordance with Section 14 hereof, the General Partner shall cause
the Partnership to issue replacement certificates, according to
such procedures as the General Partner shall establish. The
certificates issued pursuant to this Section 13 shall, upon
issuance, be distributed to the Record Holders of such Preferred
Units. The Preferred Units will not be evidenced by Depositary
Receipts and, although the Partnership intends to seek to list the
Preferred Units on the New York Stock Exchange, there is no
obligation to list the Preferred Units on the New York Stock
Exchange or any other national securities exchange.
Section 14. TRANSFER OF PREFERRED UNITS. Until a Preferred
Unit has been transferred on the books of the Partnership, the
Partnership and the Registrar and Transfer Company or any successor
appointed by the General Partner, as transfer agent, registrar and
distribution-paying agent for the Preferred Units (the "Transfer
Agent") will treat the Record Holder thereof as the absolute owner
for all purposes, notwithstanding any notice to the contrary or any
notation or other writing on the certificate representing such
Preferred Unit, except as otherwise required by law. Any transfers
of a Preferred Unit will not be recorded by the Transfer Agent or
recognized by the Partnership unless certificates representing the
Preferred Units are surrendered and the transferee executes and
delivers a Transfer Application to the Transfer Agent. By
executing and delivering a Transfer Application, the transferee of
Preferred Units is an assignee until admitted to the Partnership as
a substituted limited partner, and shall have been deemed to have
automatically requested admission to the Partnership as a
substituted limited partner, agreed to be bound by the terms and
conditions of the Partnership Agreement, represented that such
transferee has the capacity and authority to enter into the
Partnership Agreement and granted the powers of attorney to the
General Partner as set forth in the Partnership Agreement. On a
monthly basis, the Transfer Agent will, on behalf of transferees
who have submitted Transfer Applications, request the General
Partner to admit such transferees as substituted limited partners
in the Partnership. If the General Partner consents to such
substitution, a transferee will be admitted to the Partnership as
a substituted limited partner upon the recordation of such
transferee's name in the books and records of the Partnership.
Upon such admission, which is in the sole discretion of the General
Partner, he or she will be entitled to all of the rights of a
limited partner under the Delaware Act and pursuant to this
Amendment and the Partnership Agreement. A transferee will, after
submitting a Transfer Application to the Partnership but before
being admitted to the Partnership as a substituted unitholder of
record, have the rights of an assignee under the Delaware Act and
this Amendment and the Partnership Agreement, including the right
to receive his or her distributions. Preferred Units are
securities and are transferable according and subject to the laws
governing transfers of securities.
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A transferee who does not execute and deliver a Transfer
Application to the Partnership will not be recognized as the Record
Holder of Preferred Units and will only have the right to transfer
or assign his Preferred Units to another transferee. Therefore,
such transferee will neither receive distributions from the
Partnership or have any other rights to which Record Holders of
Preferred Units are entitled under the Delaware Act or pursuant to
this Amendment or the Partnership Agreement. Distributions made in
respect of the Preferred Units held by such transferees will
continue to be paid to the transferor of such Preferred Units. The
Partnership and a transferor will have no duty to ensure the
execution of a Transfer Application by a transferee and will have
no liability or responsibility if such transferee neglects or
chooses not to execute and deliver the Transfer Application to the
Partnership.
Whenever Preferred Units are transferred, the Transfer
Application requires that a transferee answer a series of
questions. The required information is designed to provide the
Partnership with the information necessary to prepare its tax
information return. If the transferee does not furnish the
required information, the Partnership will make certain assumptions
concerning this information.
As used in this Amendment, the term Transfer Application
means an application and agreement for transfer of Preferred Units
in the form set forth on the back of the certificates evidencing
Preferred Units or in a form substantially to the same effect in a
separate instrument.
Section 15. REPLACEMENT OF LOST, STOLEN, DESTROYED OR
MUTILATED PREFERRED UNIT CERTIFICATES. The Partnership shall issue
or cause to be issued a new certificate representing a Preferred
Unit in place of any certificate representing a Preferred Unit
previously issued if the Record Holder of such certificate:
(a) makes proof, in form and substance satisfactory to
the General Partner, of the loss, theft or destruction, and of such
General Partner's ownership, of such previously issued certificate;
(b) surrenders any mutilated certificate;
(c) requests the issuance of a new certificate before the
Partnership has notice that such previously issued certificate has
been acquired by a purchaser for value in good faith and without
notice of an adverse claim;
(d) if requested by the General Partner, delivers to the
Partnership a bond, in form and substance satisfactory to the
General Partner, with such surety or sureties and with fixed or
open penalty, as the General Partner may direct, to indemnify the
Partnership against any claim that may be made on account of the
alleged loss, theft, destruction or mutilation of such previously
issued certificate; and
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(e) satisfies any other reasonable requirements imposed
by the General Partner.
When a previously issued certificate representing a Preferred
Unit has been lost, stolen, destroyed or mutilated, and the Record
Holder fails to notify the Partnership within a reasonable time
after he has notice of such event, and a transfer of Preferred
Units represented by the certificate is registered before such
Partnership receives such notification, the Record Holder of the
Preferred Unit shall be precluded from making any claim against the
Partnership or any Transfer Agent with respect to such transfer or
for a new certificate.
Section 16. ALLOCATIONS OF INCOME AND LOSS.
(a) Section 5.01 of the Partnership Agreement is amended by
adding the following provisions:
(e) All distributions accrued to a Record Holder of Preferred
Units under Section 4(a) of the Amendment during a Fiscal Year
shall be treated as guaranteed payments to such Record Holder
pursuant to Section 707(c) of the Code for such Fiscal Year.
Record Holders of Preferred Units shall not be allocated any other
items of income, gain, loss or deduction of the Partnership in
respect of the Preferred Units except (i) upon the redemption of
such Preferred Units for Depository Units or (ii) as required under
paragraph (c) of Section 5.01.
(f) Upon any redemption of Preferred Units for Depositary
Units, the General Partner is authorized to allocate items of
income, gain, loss and deduction between the Record Holders of
Depositary Units received upon the redemption and the General
Partner and other Record Holders of Depositary Units in such
amounts, if any, as are required to cause the Capital Accounts of
the Record Holders of each Depositary Unit to be in proportion to
the number of Depositary Units held by each Record Holder.
(b) Sections 5.01(b) and (c) of the Partnership Agreement are
amended to provide as follows:
"(b)
(1) To the extent that any Partner has or would have, as a
result of an allocation of an item of loss or deduction, an
Adjusted Capital Account deficit, such amount of loss or deduction
shall be allocated to the other Partners (excluding Record Holders
of Preferred Units) in proportion to their respective Percentage
Interests, but in a manner which will not produce an Adjusted
Capital Account deficit as to any such Partner. To the extent such
allocation would result in all Record Holders of Depositary Units
and the General Partner having Adjusted Capital Account deficits,
such loss or deduction shall be allocated to the Record Holders of
Preferred Units in proportion to the number of Preferred Units held
by each Record Holder until they would have an Adjusted Capital
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Account deficit. Any balance shall be allocated to the General
Partner.
(2) Notwithstanding any other provision of this Article V,
if there is a net decrease in Partnership Minimum Gain during any
Partnership Year, then, subject to the exceptions set forth in
Treasury Regulation Section 1.704-2(f)(2), (3), (4) and (5), each
Partner shall be specially allocated items of Partnership income
and gain for such year (and, if necessary, subsequent years) in an
amount equal to such Partner's share of the net decrease in
Partners Minimum Gain, as determined under Treasury Regulation
Section 1.704-2(g). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to
be allocated to each Partner pursuant thereto. The items to be so
allocated shall be determined in such section of the Regulations in
accordance with Treasury Regulation Section 1.704-2(f). This
paragraph is intended to comply with the minimum gain chargeback
requirements in Treasury Regulation Section 1.704-2(f) and shall be
interpreted consistently therewith.
(3) Notwithstanding any other provision of this Article V
except Section 5.01(b)(2), if there is a net decrease in Partner
Minimum Gain attributable to a Partner Nonrecourse Debt during any
Fiscal Year then, subject to the exceptions set forth in Treasury
Regulation Section 1.704-2(i)(4), each Partner who has a share of
the Partner Minimum Gain attributable to such Partner Nonrecourse
Debt, determined in accordance with Treasury Regulation
Section 1.704-2(i)(5), shall be specially allocated items of
Partnership income and gain for such year (and, if necessary,
subsequent years) in an amount equal to such Partner's share of the
net decrease in Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Treasury Regulation
Section 1.704-2(i)(4). The items to be so allocated shall be
determined in accordance with Treasury Regulation
Section 1.704-2(i)(4). This paragraph is intended to comply with
the minimum gain chargeback requirement in Treasury Regulation
Section 1.704-2(i) and shall be interpreted consistently therewith.
"(c)
(1) Notwithstanding any other provision of this Article V,
except Section 5.01(b), in the event any Partner receives any
adjustments, allocations or distributions described in Treasury
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6), that cause
or increase an Adjusted Capital Account deficit of such Partner,
items of Partnership income and gain shall be specially allocated
to such Partner in an amount and manner sufficient to eliminate, to
the extent required by the Treasury Regulation, the Adjusted
Capital Account deficit of such Partner as quickly as possible.
(2) Nonrecourse Deductions for any Fiscal Year shall be
allocated between the General Partner and the Record Holders of
Depositary Units in proportion to their respective Percentage
Interests.
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(3) Any Partner Nonrecourse Deductions for any Fiscal Year
shall be specially allocated to the Partner who bears the economic
risk of loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable in accordance
with Treasury Regulation Section 1.704-2(i)(1).
(4) The allocations set forth in Sections 5.01(b) and
5.01(c)(1) and (3) above (the "Regulatory Allocations") are
intended to comply with certain requirements of Treasury Regulation
Section 1.704-1(b). The Regulatory Allocations shall be taken into
account for the purpose of equitably adjusting subsequent alloca-
tions of income, gain, loss and deduction, and items of income,
gain, loss, and deduction among the Partners so that, to the extent
possible, the net amount of such allocations of income, gain, loss
and deduction and other items to each Partner shall be equal to the
net amount that would have been allocated to each such Partner if
the Regulatory Allocations had not occurred.
(5) Pursuant to Treasury Regulation Section 1.752-3(a), for
the purpose of determining the General Partner's and each Record
Holders of Depositary Units' share of excess Nonrecourse Liabili-
ties of the Partnership, each such Person shall be treated as
having a share of the Partnership's profit and income equal to
their respective Percentage Interests. For this purpose, the
Percentage Interest allocable to Record Holders of Preferred Units
shall be zero.
(6) To the extent permitted by Treasury Regulation
Sections 1.704-2(h)(3) and 1.704-2(i)(6), the General Partner shall
endeavor to treat distributions as having been made from the
proceeds of Nonrecourse Liabilities or Partner Nonrecourse Debt
only to the extent that such distributions would cause or increase
a deficit balance in any Partner's Adjusted Capital Account."
(c) Section 5.02 of the Partnership Agreement is amended by
deleting paragraphs (c) and (d), relabelling paragraphs (e) through
(h) as paragraphs (c) through (f), respectively, and amending
paragraph (a) to read as follows:
"(a) Except as otherwise provided in this Section 5.02, all
items of income, gain, loss and deduction of the Partnership for
federal income tax purposes shall be allocated for federal income
tax purposes among the General Partner and Limited Partners in
accordance with the allocation of the corresponding items of book
income, gain, loss and deduction under Section 5.01 hereof."
Section 17. LIABILITY OF GENERAL PARTNER TO RECORD HOLDERS
OF PREFERRED UNITS. The General Partner and its Affiliates and all
partners, shareholders, directors, officers, employees or agents of
the General Partner and its Affiliates shall not be liable (for
monetary damages or otherwise) to the Record Holders of Preferred
Units for errors in judgment or for breach of fiduciary duty as the
General Partner of the Partnership or as a partner, shareholder,
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director, officer, employee or agent of the General Partner of the
Partnership or any of its Affiliates, except for liability (i) for
any breach of such Person's duty of loyalty to the Partnership, as
such duty of loyalty may be set forth in or modified by this
Amendment or the Partnership Agreement, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or
knowing violation of law or (iii) for any transaction from which
such Person has derived an improper benefit.
Section 18. REIMBURSEMENT OF EXPENSES OF GENERAL PARTNER.
The Partnership shall reimburse the General Partner for all
expenses, disbursements and advances reasonably incurred by the
General Partner in connection with the registration of the Rights,
the Preferred Units and the Depositary Units under applicable
federal and state securities laws in connection with the Rights
Offering, the offering, sale and distribution of the Preferred
Units and the Depositary Units pursuant to the Rights Offering and,
as applicable, the listing of the Rights, the Preferred Units and
the Depositary Units on the New York Stock Exchange.
Section 19. REPORTS. The General Partner shall furnish
such reports and information to Record Holders of Preferred Units
at the same time and in the same manner as are required to be
furnished to Record Holders pursuant to Section 8.04 of the
Partnership Agreement.
Section 20. NOTICES. All notices, demands, requests or
other communications which may be or are required to be given,
served, or sent by a Record Holder of Preferred Units or the
Partnership pursuant to this Amendment shall be in writing and
shall be personally delivered, mailed by first-class, registered or
certified mail, return receipt requested, postage prepaid, or
transmitted by telegram or telex, addressed as follows:
(a) If to the General Partner:
American Property Investors, Inc.
90 South Bedford Road
Mt. Kisco, New York 10549
Attention: John P. Saldarelli
(b) If to a Record Holder of Preferred Units:
The Last Known Business, Residence or
Mailing Address of Such Record Holder
Reflected in the Records of the
Partnership
(c) If to the Partnership:
American Real Estate Partners, L.P.
90 South Bedford Road
Mt. Kisco, New York 10549
Attention: John P. Saldarelli
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The General Partner and each Record Holder of Preferred Units
and the Partnership may designate by notice in writing a new
address to which any notice, demand, request or communication may
thereafter be so given, served or sent. Each notice, demand,
request or communication which shall be delivered, mailed or
transmitted in the manner described above shall be deemed
sufficiently given, served, sent or received for all purposes at
such time as it is delivered to the addressee (with an affidavit of
personal delivery, the return receipt, the delivery receipt, or
(with respect to a telex) the answerback being deemed conclusive
(but not exclusive) evidence of such delivery) or at such time as
delivery is refused by the addressee upon presentation.
Section 21. SEVERABILITY. The invalidity of any one or
more provisions hereof or of any other agreement or instrument
given pursuant to or in connection with this Amendment shall not
affect the remaining portions of this Amendment or any such other
agreement or instrument or any part thereof, all of which are
inserted conditionally on their being held valid in law; and in the
event that one or more of the provisions contained herein or
therein should be invalid, or should operate to render this
Amendment or any such other agreement or instrument invalid, this
Amendment and such other agreements and instruments shall be
construed as if such invalid provisions had not been inserted.
Section 22. WAIVER. Neither the waiver by a Partner of a
breach or of a default under any of the provisions of this
Amendment, nor the failure of a Partner, on one or more occasions,
to enforce any of the provisions of this Amendment or to exercise
any right, remedy, or privilege hereunder shall be construed as a
waiver of any subsequent breach or default of a similar nature, or
a waiver of any such provisions, rights, remedies, or privileges
hereunder.
Section 23. LIMITATION ON BENEFITS OF THIS AGREEMENT. It
is the explicit intention of the Partners and the Partnership that
no person or entity other than the Partners and the Partnership is
or shall be entitled to bring any action to enforce any provision
of this Amendment against any Partners or the Partnership, and that
except as set forth in this Amendment, the covenants, undertakings,
and agreements set forth in this Amendment shall be solely for the
benefit of, and shall be enforceable only by, the Partners (or
their respective successors and assigns as permitted hereunder) and
the Partnership.
Section 24. CONSENT OF RECORD HOLDERS OF PREFERRED UNITS.
By acceptance of a Preferred Unit, each Record Holder thereof
shall be deemed to have applied for admission as a Limited Partner
of the Partnership with respect to the Depositary Units and Preferred
Units and to have agreed to be bound by all of the terms and conditions
of the Partnership Agreement. In addition, by acceptance of a
Preferred Unit, each Record Holder thereof expressly consents and agrees
that, whenever in this Amendment it is specified that an action may
be taken upon the affirmative vote of less than all of the Record
Holders of Preferred Units, such action may be so taken upon the
concurrence of less than all of the Record Holders of Preferred
Units and each such Record Holder of Preferred Units shall be bound
by the results of such action.
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Section 25. PRONOUNS. All pronouns and any variation
thereof shall be deemed to refer to the masculine, feminine,
neuter, singular or plural as the identity of the person or entity
may require.
Section 26. HEADINGS. Section and subsection headings
contained in this Amendment are inserted for convenience of
reference only, shall not be deemed to be a part of this Agreement
for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
Section 27. GOVERNING LAW. This Amendment, the rights and
obligations of the parties hereto, and any claims or disputes
relating thereto, shall be governed by and construed in accordance
with the Delaware Act and all other laws of Delaware (but not
including the choice of law rules thereof).
Section 28. AMENDMENTS. The Record Holders of Preferred
Units shall have no right to propose amendments to the terms of the
Preferred Units under Article 14 of the Partnership Agreement or
otherwise.
Section 29. EXECUTION IN COUNTERPARTS. To facilitate
execution, this Amendment may be executed in as many counterparts
as may be required; and it shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures
of all persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of or on
behalf of, each party, or that the signatures of the person
required to bind any party, appear on one or more of the
counterparts. All counterparts shall collectively constitute a
single agreement. It shall not be necessary in making proof of
this Amendment to produce or account for more than a number of
counterparts containing the respective signatures of, or on behalf
of, all of the parties hereto.
Section 30. INCONSISTENT TERMS; CONTINUATION OF PARTNERSHIP
AGREEMENT. In the event of any inconsistency between the terms of
the Partnership Agreement and the terms of this Amendment, the
Partnership Agreement is deemed amended to conform to the terms of
this Amendment. Except as amended by this Amendment, the
Partnership Agreement continues in full force and effect.
Section 31. POWERS OF GENERAL PARTNER. Record Holders of
Preferred Units acknowledge that the General Partner shall have the
right, power and authority, in the management and control of the
business and affairs of the Partnership, to do or cause to be done
any and all acts deemed by the General Partner to be necessary or
appropriate to carry out the purposes and business of the
Partnership, as set forth in the Partnership Agreement, and the
Record Holders of Preferred Units further acknowledge that their
rights are limited to those set forth in this Amendment and any
rights set forth in the Partnership Agreement consistent herewith.
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IN WITNESS WHEREOF, the undersigned have duly executed
this Amendment, or have caused this Amendment to be duly executed
on their behalf, as of the day and year first hereinabove set
forth.
General Partner:
AMERICAN PROPERTY INVESTORS, INC.
By: ____________________________
Title: ____________________________
Limited Partners:
By: American Property Investors,
Inc. (attorney-in-fact)
By: ____________________________
Title: ____________________________
21
SUBSCRIPTION GUARANTY
THIS SUBSCRIPTION GUARANTY AGREEMENT (the "Agreement"),
is made and entered into as of this ______ day of January, 1995,
by and between American Real Estate Partners, L.P., a Delaware
limited partnership ("AREP"), and X Limited Partners, a Delaware
limited partnership ("X LP").
RECITALS:
WHEREAS, AREP is distributing rights (the "Rights") at no
cost to holders of record as of the close of business on _________,
1995 (the "Record Date"), one transferable subscription right (each
a "Right") for each seven depositary units representing limited
partner interests in AREP (the "Depositary Units") held. Each
Right entitles the holder thereof ("Rights Holders") to purchase a
combination of Depositary Units and 5% cumulative pay-in-kind
redeemable convertible preferred units (the "Preferred Units").
WHEREAS, the Rights also entitle each holder thereof who
has exercised any portion of his Basic Subscription Rights an
additional right (the "Over-Subscription Privilege") to subscribe
for and purchase additional Depositary Units and Preferred Units
that are not purchased through the exercise of all Basic
Subscription Rights (the Depositary Units and the Preferred Units
issued upon exercise of the Basic Subscription Rights and/or the
Over-Subscription Privilege, if any, are referred to herein as the
"Securities"). The Securities available pursuant to the Over-
Subscription Privilege will be allocated pro rata (according to the
aggregate amount of Depositary Units and Preferred Units purchased
through the exercise of Basic Subscription Rights) among those
Rights Holders who exercise the Over-Subscription Privilege. Other
terms and conditions of the issuance of Rights and the subscription
for Securities (the "Offering") are more particularly set forth in
the definitive prospectus dated as of _______ (the "Prospectus"),
delivered to the holders of Depositary Units simultaneously with
the distribution of Rights. The Offering shall raise $110 million
dollars for AREP consisting of proceeds thereof.
WHEREAS, the Rights, once issued, are freely transferable
until the close of business on the last business day prior to the
expiration date of the Rights (the "Expiration Date"). AREP will
seek to list the Rights on the New York Stock Exchange or any
successor thereof (the "Exchange").
WHEREAS, X LP, the general partner of which is American
Property Investors, Inc. ("API"), a Delaware corporation wholly
owned by Carl C. Icahn ("Icahn") and which is the general partner
of AREP (the "General Partner") together with its affiliates, owns
1,365,768 Depositary Units (9.89%) as of _____________, the Record
Date of the Offering.
WHEREAS, ACF Industries, Incorporated, a New Jersey
corporation [and/or its wholly-owned subsidiaries] (collectively
"ACF"), [are] is a limited partner of X LP.
<PAGE>
WHEREAS, X LP desires and agrees herein to serve as a
stand by purchaser, guaranteeing to subscribe for all Depositary
Units and Preferred Units available through the Offering which have
not been subscribed for and purchased by Rights Holders through the
exercise of Basic Subscription Rights(the "Unsubscribed Units")
and, subject to proration as described in the Prospectus, to
purchase such Depositary Units and Preferred Units, thereby
assuring AREP of receiving gross proceeds from the Offering of an
amount equal to $110 million.
NOW THEREFORE, for and in consideration of the premises,
and other good and valuable consideration the receipt and
sufficiency is hereby acknowledged, the parties hereto agree as
follows:
1. REPRESENTATIONS AND WARRANTIES. (a) AREP represents
and warrants to, and agrees with, X LP as follows: (The definitions
of certain terms, used in this Section 1 are defined in paragraphs
(i) and (xix) of this Section 1(a).
(i) AREP meets the requirements for use of Form S-3
under the Securities Act of 1933 (the "1933 Act") and has filed
with the Securities and Exchange Commission (the "Commission"), a
registration statement (File number 33-54767) on such Form S-3,
including related amendments thereto (the "Registration
Statement"). As filed, the Registration Statement and amendments
thereto and the prospectus and any supplements thereto filed
therewith (the "Prospectus"), shall contain all information
required by, and comply in all material respects with the
requirements of, the 1933 Act with respect to the Rights, the
Securities, the Offering thereof and the purchase of the
Unsubscribed Units. The Prospectus and any related letters from
AREP to record or beneficial owners of Depositary Units or Rights,
related letters from AREP to securities dealers, commercial banks,
trust companies and other nominees and other offering materials, in
each case disseminated by AREP or by any of its agents with AREP's
prior consent, including, without limitation, the Form of
Subscription Certificates, the Form of Notice of Guaranteed
Delivery, Guarantee, and any other information in writing that AREP
may approve or authorize for use in connection with the Offering,
are collectively referred to hereinafter as the "Offering
Materials."
(ii) On the Effective Date (as hereinafter defined), the
Registration Statement did or will, and when the Prospectus is
first filed (if required) in accordance with Rule 424(b) and on the
Closing Date (as hereinafter defined), the Prospectus will, comply
in all material respects with the applicable requirements of the
1933 Act and the respective rules thereunder; on the Effective
Date, the Registration Statement did not or will not contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make
the statements therein not misleading; and on the Effective Date,
the Prospectus, if not required to be filed pursuant to Rule
424(b), and the Offering Materials did not or will not, and on the
date of any filing pursuant to Rule 424(b) and on the Closing Date,
the Prospectus and the Offering Materials will not, include any
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untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that AREP makes no representations
or warranties as to the information contained in or omitted from
the Registration Statement or the Prospectus in reliance upon and
in conformity with information furnished in writing to AREP by or
on behalf of X LP specifically for inclusion in the Registration
Statement or the Prospectus.
(iii) AREP and its subsidiary, American Real Estate
Holding Limited Partnership (the "Subsidiary"), are limited
partnerships duly formed, validly existing and in good standing
under the laws of the State of Delaware with full power, authority
and legal right to own, lease and operate their properties and
conduct their business as now conducted and currently proposed to
be conducted by it in the Registration Statement and the
Prospectus; and AREP and its Subsidiary are each duly qualified to
transact business as a foreign limited partnership and are in good
standing in each other jurisdiction in which they own or lease
property of a nature, or transact business of a type, that would
make such qualification necessary, except to the extent that the
failure to so qualify or be in good standing would not have a
material adverse effect on AREP and its Subsidiary, considered as
one enterprise.
(iv) AREP and its Subsidiary have all requisite power
and authority to execute, deliver and perform their obligations
under this Agreement; and this Agreement has been duly authorized,
executed and delivered by AREP and, assuming due execution and
delivery of this Agreement by X LP, constitutes a legal, valid and
binding obligation of AREP, enforceable against AREP in accordance
with its terms except (A) as enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization or other similar
laws affecting creditors' rights generally and except as
enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law), and (B) as rights to indemnity and contribution
hereunder may be limited by Federal or state securities laws and/or
public policy.
(v) The consolidated financial statements and the
related notes of AREP incorporated by reference in the Registration
Statement and the Prospectus present fairly in accordance with
generally accepted accounting principles ("GAAP") the consolidated
financial position of AREP as of the dates indicated and the
consolidated results of operations and cash flows of AREP for the
periods specified. Such financial statements have been prepared in
conformity with GAAP applied on a consistent basis throughout the
periods involved, except as otherwise noted therein and subject, in
the case of interim statements, to normal year-end audit
adjustments. The financial statements schedules incorporated by
reference in the Registration Statement and the Prospectus present
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fairly in accordance with GAAP the information required to be
stated therein.
(vi) All of the Unsubscribed Units will have been duly
authorized, validly issued and duly recorded in the books and on
the records of AREP at the time of issuance; no holder of the
Unsubscribed Units will be subject to personal liability by reason
of being such a holder; and none of the Unsubscribed Units will be
issued in violation of the preemptive rights of any Depositary Unit
or Preferred Unit holder.
(vii) The Preferred Units, issued and delivered upon a
distribution, if any, equal to 5% of the liquidation preference on
any of the Unsubscribed Units, will be duly authorized and validly
issued and duly recorded in the books and records of AREP; no
holder of any of the Unsubscribed Units as of the date of issuance
will be subject to personal liability by reason of being such a
holder; and none of such Unsubscribed Units outstanding as of the
date thereof, will be issued in violation of the preemptive rights
of any holder of Preferred Units.
(viii) The Depositary Units, when issued and delivered
upon conversion, if any, of any of the Unsubscribed Units, will be
duly authorized and validly issued and duly recorded in the books
and records of AREP; no holder of any of the Depositary Units
resulting from the conversion of any of the Unsubscribed Units as
of the date of issuance will be subject to personal liability by
reason of being such a holder; and none of such Depositary Units
outstanding as of the date thereof, will be issued in violation of
the preemptive rights of any holder of Depositary Units.
(ix) AREP has taken or will take all valid and
necessary actions to register and insure the qualification of the
Unsubscribed Units under state securities laws.
(x) AREP has taken all valid action to duly reserve for
listing on the Exchange such number of its authorized and unissued
Unsubscribed Units, if accepted for listing, as are deliverable by
AREP pursuant to this Agreement, against receipt of and payment
therefor in accordance with the provisions set forth herein.
(xi) All those securities registered by the Registration
pursuant to the Offering and all other Offering Materials conform
in all material respects to the descriptions thereof contained or
incorporated by reference in the Registration Statement and the
Prospectus.
(xii) Prior to or at the Effective Date, AREP and the
Registrar and Transfer Company, the subscription agent
("Subscription Agent") will have entered into a subscription agency
agreement (the "Subscription Agency Agreement"). When executed by
AREP, the Subscription Agency Agreement will have been duly
authorized, executed and delivered by AREP and, assuming due
authorization, execution and delivery by the Subscription Agent,
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will constitute a valid and binding obligation of AREP and
enforceable against AREP in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights
generally and except as enforcement thereof is subject to general
principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(xiii) Since the respective dates as of which
information is given in the Registration Statement and the
Prospectus, except as otherwise stated or described therein, there
has not been (a) any material adverse change in the condition
(financial or otherwise), results of operations, earnings, business
affairs of AREP, whether or not arising in the ordinary course of
business, or (b) any distribution of any kind declared, paid or
made by AREP on its Depositary Units, other than regular periodic
distributions, if any, and other than the Rights.
(xiv) Neither AREP nor its Subsidiary is in violation of
its certificate of limited partnership or in default under any
contract, indenture, mortgage, loan agreement or other agreement or
instrument to which it is a party or any of its properties may be
subject or by which it may be bound, except for such defaults that
in the aggregate would not have a material adverse effect on the
condition (financial or otherwise) of AREP or its Subsidiary. The
execution and delivery of, and performance under, this Agreement,
the exercise of and payment of the subscription price in connection
with such exercise of, the Rights and the participation in the
Offering do not and will not result in any violation of the
certificate of limited partnership of AREP or its Subsidiary or the
agreement of limited partnership of AREP and its Subsidiary, and do
not and will not conflict with, or result in a breach of any of the
terms or provisions of, or constitute a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon
any property or assets of AREP or its Subsidiary under (a) any
indenture, mortgage, loan agreement, note, lease or other agreement
or instrument to which AREP or its Subsidiary is a party or any of
its respective properties may be subject or by which it is or may
be bound, or (b) any existing applicable law, rule, regulation,
judgment, order or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction
over AREP or its Subsidiary or any of its respective properties
(except, in the case of (a) and (b) above, where such conflicts,
breaches or defaults or liens, charges or encumbrances in the
aggregate would not have a material adverse effect on the condition
(financial or otherwise) of AREP or its Subsidiary).
(xv) No authorization, approval, consent or license of
any government, governmental instrumentality or court, domestic or
foreign (other than under the 1933 Act, the Securities Exchange Act
of 1934, as amended (the "1934 Act") and the securities or blue sky
laws of the various states), is required for the offer and sale by
AREP of the Securities or the Unsubscribed Units or the
consummation of the Offering as set forth in the Registration
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<PAGE>
Statement and the Prospectus or the consummation by AREP of the
transactions contemplated in this Agreement.
(xvi) Except as disclosed in the Prospectus, there is no
action, suit or proceeding before or by any government,
governmental instrumentality or court, domestic or foreign, now
pending against or affecting AREP or its Subsidiary that is
required to be disclosed in the Registration Statement and the
Prospectus.
(xvii) AREP has not taken and will not take, directly
or indirectly, any action designed to, or that might be reasonably
expected to, cause or result in stabilization or manipulation of
the price of the Rights or the Depositary Units; PROVIDED, HOWEVER,
that AREP makes no representation as to any action taken by X LP or
its affiliates, except in such affiliates' capacities as officers
or agents of AREP, acting in those capacities.
(xviii) The proceeds of the Offering will be applied as
set forth in the Prospectus.
(xix) The terms which follow, when used in this
Agreement, shall have the meanings indicated. The term "the
Effective Date" shall mean each date that the Registration
Statement and any post-effective amendment or amendments thereto
became or become effective. "Execution Time" shall mean the date
and time that this Agreement is executed and delivered by the
parties hereto. "Registration Statement" shall mean the
registration statement referred to in paragraph (i) above,
including exhibits and financial statements, as amended at the
Execution Time (or, if not effective at the Execution Time, in the
form in which it shall become effective) and, in the event any
post-effective amendment thereto becomes effective prior to the
Closing Date, shall also mean such registration statement as so
amended. Such term shall include any Rule 430A Information deemed
to be included therein at the Effective Date as provided by Rule
430A. "Rule 424" and "Rule 430A" refer to such rules under the
1933 Act. "Rule 430A Information" means information with respect
to the Securities, the Unsubscribed Units and the Offering
permitted to be omitted from the Registration Statement when it
becomes effective pursuant to Rule 430A. Any reference herein to
the Registration Statement or the Prospectus shall be deemed to
refer to and include the documents incorporated by reference
therein pursuant to Item 12 of Form S-3 which were filed under the
1934 Act on or before the Effective Date of the Registration
Statement or the issue date of any such Prospectus, as the case may
be; and any reference herein to the terms "amend", "amendment" or
"supplement" with respect to the Registration Statement, any such
Prospectus shall be deemed to refer to and include the filing of
any document under the 1934 Act after the issue date of any such
Prospectus, as the case may be, deemed to be incorporated therein
by reference.
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(b) X LP represents and warrants to, and agrees with,
AREP as follows:
(i) X LP is a limited partnership duly formed, validly
existing and in good standing under the laws of the State of
Delaware with full power, authority and legal right to own, lease
and operate its properties and conduct its business as now
conducted; X LP is duly qualified to transact business as a foreign
limited partnership and is in good standing in each other
jurisdiction in which it owns or leases property of a nature, or
transact business of a type, that would make such qualification
necessary, except to the extent that the failure to so qualify or
be in good standing would not have a material adverse effect on X
LP.
(ii) X LP has all requisite power and authority to
execute, deliver and perform its obligations under this Agreement;
and this Agreement has been duly authorized, executed and delivered
by X LP, and, assuming due execution and delivery of this Agreement
by AREP, constitutes a legal, valid and binding obligation of X LP,
enforceable against X LP in accordance with its terms except (A) as
enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting
creditors' rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law), and
(B) as rights to indemnity and contribution hereunder may be
limited by Federal or state securities laws and/or public policy.
(iii) X LP is not in violation of its certificate of
limited partnership or in default under any contract, indenture,
mortgage, loan agreement or other agreement or instrument to which
it is a party or any of its properties may be subject or by which
it may be bound, except for such defaults that in the aggregate
would not have a material adverse effect on the condition
(financial or otherwise) of X LP. The execution and delivery of,
and performance under, this Agreement, the exercise of and payment
of the subscription price in connection with such exercise of, the
Rights and the participation in the Offering do not and will not
result in any violation of the certificate of limited partnership
of X LP or the agreement of limited partnership of X LP, and do not
and will not conflict with, or result in a breach of any of the
terms or provisions of, or constitute a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon
any property or assets of X LP under (a) any indenture, mortgage,
loan agreement, note, lease or other agreement or instrument to
which X LP is a party or any of its respective properties may be
subject or by which it is or may be bound, or (b) any existing
applicable law, rule, regulation, judgment, order or decree of any
government, government instrumentality or court, domestic or
foreign, having jurisdiction over X LP or any of its respective
properties (except, in the case of (a) and (b) above, where such
conflicts, breaches or defaults or liens, charges or encumbrances
7
<PAGE>
in the aggregate would not have a material adverse effect on the
condition (financial or otherwise) of X LP).
(iv) The partnership interests of X LP are owned
beneficially, of record, free and clear of any security interests,
liens, encumbrances, equities, claims or other defects by (a) the
General Partner which, in turn, is wholly owned by Icahn and (b)
ACF.
(v) Immediately prior to the Expiration Date, X LP will
a) own beneficially, of record, free and clear of any security
interests, liens, encumbrances, equities, claims or other defects,
all Depositary Units currently owned by API and ACF and its
affiliates; and b) receive a cash contribution from ACF of the
lesser of (a) $110 million and (b) such smaller dollar amount as is
necessary for X LP to comply with its obligations to AREP pursuant
this Agreement.
(vi) To the extent that the Registration Statement or
Prospectus contains any information regarding X LP, on the
Effective Date, those portions of the Registration Statement or the
Prospectus, furnished in writing to AREP by or on behalf of X LP
specifically for inclusion therein, did not or will not contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make
the statements therein not misleading.
(vii) The execution, delivery and consummation of
this Agreement, and the participation by X LP in the Offering as
described in the Registration Statement and the Prospectus do not
and will not result in any violation of X LP's agreement of limited
partnership and do not and will not conflict with, or result in a
breach of any of the terms or provisions of, or constitute a
default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of X LP or its
affiliates under (A) any indenture, mortgage, lien agreement, or
other agreement or instrument to which X LP or its affiliates is a
party or any of their respective properties may be subject, or by
which each of them or any of them may be bound or (B) any existing
applicable law, rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court, domestic or
foreign, having jurisdiction over X LP or its affiliates or any of
its respective properties (except, in the case of (A) and (B)
above, where such conflicts, breaches or defaults or liens, charges
or encumbrances in the aggregate would not have a material adverse
effect on the condition (financial or otherwise) of X LP).
(viii) No authorization, approval, consent or license
of any government, governmental instrumentality or court, domestic
or foreign (other than under the 1933 Act and the securities or
blue sky laws of the various states), is required for the receipt
or sale of Unsubscribed Units by X LP or its affiliates, in
connection with the execution, delivery and consummation of this
8
<PAGE>
Agreement, and the participation by X LP in the Offering as
described in the Registration Statement and the Prospectus.
(ix) There is no action, suit or proceeding before or by
any government, governmental instrumentality or court, domestic or
foreign, now pending against or affecting X LP.
(x) X LP has not taken and will not take, directly or
indirectly, any action designed to, or that might be reasonably
expected to, cause or result in stabilization or manipulation of
the price of the Rights or the Depositary Units; PROVIDED, HOWEVER,
that X LP makes no representation as to any action taken by AREP or
its Subsidiary.
2. AGREEMENT OF PARTIES CONCERNING PURCHASE, SALE,
DELIVERY AND COMPENSATION.
On the basis of, and in reliance upon, the
representations and warranties contained herein and subject to the
terms and conditions set forth herein, the parties agree as
follows:
(a) AREP agrees to issue and sell to X LP and X LP
agrees to (i) subscribe for and purchase 1,147,248 Depositary Units
and 191,208 Preferred Units through the exercise of its Basic
Subscription Rights and (ii) to subscribe for all other Depositary
Units and Preferred Units pursuant to the Over-Subscription
Privilege which are not otherwise acquired by Rights Holders
pursuant hereto and, subject to proration as described in the
Prospectus, to purchase such additional Depositary Units and
Preferred Units, thereby assuring AREP will receive gross
proceeds from the Offering of an amount equal to $110 million.
(b) Delivery of and payment for the Securities
purchased by X LP mentioned in Section 2(a)(i) above shall be made
in accordance with the terms set forth in the Registration
Statement. Delivery of and payment for the Unsubscribed Units
purchased by X LP mentioned in Section 2(a)(ii) above shall be on
the fifth (5th) business day after written notice is given by AREP
or the Subscription Agent to X LP of the number and aggregate
purchase price of the Unsubscribed Units X LP is obligated
hereunder to purchase (the "Closing Date"). Payment shall be made
to AREP by certified or official bank check or checks drawn on
_______ or similar next day funds payable to the order of [AREP],
against delivery to X LP of those certificates for those
Unsubscribed Units X LP is obligated hereunder to purchase. The
certificates for such Unsubscribed Units shall be in such
denominations as may be requested by X LP and registered in the
name of X LP, unless otherwise designated by X LP in writing two
days before the date of the Closing Date.
(c) AREP will enter into and perform under an agreement
between X LP and AREP whereby AREP shall register Securities and
the Unsubscribed Units held by X LP (the "Registration Rights
Agreement"), a copy of which is attached hereto as Exhibit [ ].
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(d) AREP will pay all expenses incident to the
performance of its obligations under this Agreement, including (i)
the printing and filing, and delivery to X LP of copies, of the
Registration Statement as originally filed and of each amendment
thereto, and of the Prospectus; (ii) the printing (or otherwise
reproducing) of this Agreement; (iii) the preparation, issuance and
delivery of the Subscription Certificates to the unit holders of
AREP; (iv) the preparation, issuance and delivery of the
certificates for the Securities and Unsubscribed Units to X LP; (v)
the reasonable fees and disbursements of AREP's counsel and
accountants; (vi) the qualification of the Rights, Securities and
the Unsubscribed Units under state securities laws in accordance
with the provisions of Section 1(a)(ix) hereof, including filing
fees and the fees and disbursements of counsel in connection
therewith and in connection with the preparation of a survey of the
state securities laws (the "Blue Sky Survey"); (vii) the printing
(or otherwise reproducing) and delivery to X LP of copies of the
Blue Sky Survey; and (viii) the fees and expenses incurred in
connection with the listing of the Rights, Securities and
Unsubscribed Units issued in connection with the Offering, on the
Exchange.
(e) If this Agreement is terminated by X LP in
accordance with the provisions of Section 4 or Section 6 hereof,
AREP shall reimburse X LP for all of reasonable out-of-pocket
expenses, including the reasonable fees and disbursements of X LP's
counsel up to a maximum of $_________________.
3. COVENANTS.
(a) AREP covenants that
(i) AREP will use its best efforts to cause the
Registration Statement, if not effective at the Execution Time, and
any amendment thereof, including any post-effective amendment, to
become effective as soon as practicable. Prior to the termination
of the Offering, AREP will not file any amendment of the
Registration Statement or supplement to the Prospectus without X
LP's prior consent, which consent shall not be unreasonably
withheld or delayed. Subject to the foregoing sentence, if the
Registration Statement has become or becomes effective pursuant to
Rule 430A, or filing of the Prospectus is otherwise required under
Rule 424(b), AREP will cause the Prospectus, properly completed, to
be filed with the Commission pursuant to the applicable paragraph
of Rule 424(b) within the time period prescribed and will provide
evidence satisfactory to X LP of such timely filing. AREP will
promptly advise X LP (A) when the Registration Statement, if not
effective at the Execution Time, and any amendment thereto, shall
have become effective, (B) when the Prospectus, shall have been
filed (if required) with the Commission pursuant to Rule 424(b),
(C) when, prior to termination of the Offering, any amendment to
the Registration Statement shall have been filed or become
effective, (D) of any request by the Commission for any amendment
of the Registration Statement or supplement to the Prospectus or
10
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for any additional information, (E) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any
proceeding for that purpose and (F) of the receipt by AREP of any
notification with respect to the suspension of the qualification of
the Securities or the Unsubscribed Units for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose. AREP will use its best efforts to prevent the
issuance of any such stop order or suspension and, if issued, to
obtain as soon as possible the withdrawal thereof.
(ii) If, at any time when the Prospectus relating to the
Securities and Unsubscribed Units is required to be delivered under
the 1933 Act, any event occurs as a result of which the Prospectus
as then supplemented would include any untrue statement of a
material fact or omit to state any material fact necessary to make
the statements therein in the light of the circumstances under
which they were made not misleading, or if it shall be necessary to
amend the Registration Statement or supplement the Prospectus to
comply with the 1933 Act or the rules thereunder (including to
comply with Item 512(c) of the Regulation S-K under the 1933 Act),
AREP promptly will prepare and file with the Commission, subject to
the second sentence of paragraph (a)(i) of this Section 3, an
amendment or supplement which will correct such statement or
omission or effect such compliance.
(iii) As soon as practicable, AREP will make generally
available to its unit holders, including X LP, an earning statement
or statements of AREP which will satisfy the provisions of Section
11(a) of the 1933 Act and Rule 158 promulgated thereunder.
(iv) AREP will furnish to X LP and counsel therefor,
without charge, signed copies of the Registration Statement
(including amendments and exhibits thereto). AREP will pay the
expenses of printing or other production of all documents relating
to the Offering and any meetings with prospective investors in the
Securities.
(v) AREP will promptly advise X LP if any of the
representations and warranties contained in Section 1(a) hereof
becomes inaccurate in any material respect subsequent to the date
hereof.
(vi) AREP will commence mailing, or cause the
Subscription Agent to mail, the Subscription Certificates to
holders of the Depositary Units as of the Record Date not later
than the day following the Record Date, which shall be not later
than ____________, and shall complete such mailing expeditiously,
and will offer the Securities for subscription in accordance with
the terms and under the conditions set forth in the Prospectus.
The Expiration Date shall be not later than 5:00 PM, New York City
time, on ___________________. AREP will advise X LP daily, during
the period when the Rights are exercisable, of the number and class
of Securities subscribed for, and prior to 12:00 Noon, New York
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<PAGE>
City time, on the business day following the Expiration Date, will
advise X LP of the number of Securities for which Rights Holders
subscribed.
(vii) AREP will enter into the Registration Rights
Agreement with X LP.
(b) X LP covenants that
(i) X LP will promptly advise AREP if any of the
representations and warranties contained in Section 1(b) hereof
becomes inaccurate in any material respect subsequent to the date
hereof.
(ii) X LP will deliver to AREP consolidated financial
statements and the related notes of ACF, which present fairly in
accordance with generally accepted accounting principles ("GAAP")
the consolidated financial position of ACF for the last two years.
4. CONDITIONS TO OBLIGATIONS OF X LP.
The obligation of X LP to comply with the provisions of
this Agreement shall be subject to the accuracy of the
representations and warranties on the part of AREP contained herein
as of the Execution Time and the Closing Date, to the accuracy of
the statements made by AREP in any certificates pursuant to the
provisions hereof, to the performance by AREP of its obligations
hereunder and the following additional conditions:
(a) If the Registration Statement has not become
effective prior to the Execution time, unless X LP agrees in
writing to a later time, the Registration Statement will become
effective not later than 12:00 Noon, New York City time on
_____________, or such later time as trading in the Depositary
Units begins on the Exchange; if filing of the Prospectus is
required pursuant to Rule 424(b), the Prospectus, will be filed in
the manner and within the time period required by Rule 424(b); and
no stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that
purpose shall have been instituted or threatened.
(b) AREP shall furnish Gordon Altman Butowsky Weitzen
Shalov & Wein, counsel to X LP, such documents as are required to
enable Gordon Altman Butowsky Weitzen Shalov & Wein to render a
legal opinion on matters including, without limitation, the
issuance and sale of the Rights and the Securities, the
Unsubscribed Units, the Registration Statement, Prospectus and
other related matters as X LP may reasonably request.
(c) AREP shall have furnished to X LP certificates of
AREP dated as of the Execution Time and the Closing Date and signed
by any two officers of the General Partner to the effect that:
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(i) the representations and warranties of AREP in
this Agreement are true and correct in all material respects
at and as of the Execution Time or on and as of the Closing
Date, as the case may be, with the same effect as if made at
the Execution Time or on the Closing Date, as the case may be,
and AREP shall have complied with all the covenants and
agreements and satisfied all conditions, as applicable;
(ii) there has been no issuance of a stop order
suspending the effectiveness of the Registration Statement and
no proceedings for that purpose have been instituted or, to
the best of AREP's knowledge, no such order is threatened;
(iii) since the date of the most recent financial
statements included in the Prospectus, there has been no
material adverse change in the condition (financial or other),
of AREP or its Subsidiary, whether or not arising from
transactions in the ordinary course of business, except as set
forth in or contemplated by AREP in the Prospectus.
5. INDEMNIFICATION AND CONTRIBUTION.
(a) AREP agrees to indemnify and hold harmless the
general partner, officers, other limited partners, employees and
agents of X LP and each person who controls X LP within the meaning
of either the 1933 Act or the 1934 Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or
any of them may become subject under the 1933 Act, the 1934 Act or
other Federal or state statutory law or regulation, at common law
or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement for the
registration of the Securities and the Unsubscribed Units as originally
filed or in any amendment thereof, or in any of the Offering
Materials, or in any amendment thereof or supplement thereto, or
arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; PROVIDED,
HOWEVER, that AREP will not be liable in any such case to the
extent that any such loss, claim, damage or liability (A) arises
out of or is based upon any such untrue statement or alleged untrue
statement or omission or alleged omission made therein in reliance
upon and in conformity with written information furnished to AREP
by or on behalf of X LP specifically for inclusion therein or (B)
is found in a final judgment by a court of competent jurisdiction
to have resulted from the bad faith or negligence of such
indemnified party or any party related to an indemnified party or
to have resulted from a violation of Rule 10b-6, 10b-7 or 10b-8
under the 1934 Act. This indemnity agreement will be in addition
to any liability which AREP may otherwise have.
(b) X LP agrees to indemnify and hold harmless AREP,
each of its directors, each of its officers who signs the
13
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Registration Statement, and each person who controls AREP within
the meaning of the 1933 Act or the 1934 Act, to the same extent as
the foregoing indemnity from AREP to X LP, but only with reference
to (i) written information relating to X LP furnished to AREP by or
on behalf of X LP specifically for inclusion in the documents
referred to in the foregoing indemnity, or (ii) violations of
Sections Rule 10b-6, 10b-7 or 10b-8 under the 1934 Act or other
securities law violations. This indemnity agreement will be in
addition to any liability which X LP may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section 5 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against the indemnifying party under this Section 5, notify the
indemnifying party in writing of the commencement thereof; but the
failure so to notify the indemnifying party (i) will not relieve it
from liability under paragraph (a) or (b) above, unless and to the
extent it did not otherwise learn of such action and such failure
results in the forfeiture by the indemnifying party of substantial
rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party
other than the indemnification obligation provided in paragraph (a)
or (b) above. The indemnifying party shall be entitled to appoint
counsel of the indemnifying party's choice at the indemnifying
party's expense to represent the indemnified party in any action
for which indemnification is sought (in which case the indemnifying
party shall not thereafter be responsible for the fees and expenses
of any separate counsel retained by the indemnified party or
parties except as set forth below); PROVIDED, HOWEVER, that such
counsel shall be reasonably satisfactory to the indemnified party.
Notwithstanding the indemnifying party's election to appoint coun-
sel to represent the indemnified party in an action, the
indemnified party shall have the right to employ separate counsel
(including local counsel), and the indemnifying party shall bear
the reasonable fees, costs and expenses of such separate counsel if
(i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a
conflict of interest, (ii) the actual or potential defendants in,
or targets of, any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to
it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party (it being
understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more
than one separate counsel (in addition to local counsel) in any one
action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circum-
stances, representing the indemnified parties who are parties to
such action), (iii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after
notice of the institution of such action or (iv) the indemnifying
14
<PAGE>
party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. An indemnifying
party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry
of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim
or action), unless such settlement, compromise or consent includes
an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in
paragraph (a) or (b) of this Section 5 is unavailable to or
insufficient to hold harmless an indemnified party for any reason,
AREP and X LP agree to contribute to the aggregate losses, claims,
damages and liabilities, including legal or other expenses
reasonably incurred in connection with investigating or defending
same (collectively "Losses") to which AREP, on the one hand, and X
LP, on the other hand, may be subject in such proportion as is
appropriate to reflect the relative benefits received by AREP, on
the one hand, and X LP, on the other hand, from the Offering;
PROVIDED, HOWEVER, that in no case shall X LP be responsible for
any amount in excess of the aggregate compensation paid hereunder.
If the allocation provided by the immediately preceding sentence is
unavailable for any reason, AREP, on the one hand, and X LP, on the
other hand, shall contribute in such proportion as is appropriate
to reflect not only such relative benefits but also the relative
fault of AREP, on the one hand, and of X LP, on the other hand, in
connection with the statements or omissions which resulted in such
Losses as well as any other relevant equitable considerations.
Benefits received by AREP shall be deemed to be equal to the total
net proceeds from the Offering (before deducting expenses), as set
forth on the cover page of the Prospectus (assuming that all such
Rights are exercised), and benefits received by X LP shall be
deemed to be equal to the total compensation paid to X LP
hereunder. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to
information provided by AREP or X LP. AREP and X LP agree that it
would not be just and equitable if contribution were determined by
pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 5, each person who controls X LP
within the meaning of either the 1933 Act or the 1934 Act and each
director, officer, partner, employee and agent of X LP shall have
the same rights to contribution as X LP, and each person who
controls AREP within the meaning of either the 1933 Act or the 1934
Act, each officer of AREP who shall have signed the Registration
Statement and each officer of AREP shall have the same rights to
contribution as AREP, subject in each case to the applicable terms
and conditions of this paragraph (d).
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6. TERMINATION. This Agreement shall be subject to
termination in the absolute discretion of X LP, by notice given to
AREP prior to delivery of and payment for the Securities and
Unsubscribed Units, if prior to such time (i) trading in AREP's
Depositary Units shall have been suspended by the Commission or the
Exchange or trading in securities generally on the Exchange shall
have been suspended or limited or minimum prices shall have been
established on the Exchange, (ii) AREP shall terminate the Offering
or the Offering shall not take place, (iii) a banking moratorium
shall have been declared either by Federal or New York State
authorities, (iv) there shall have occurred a decline in either the
Dow Jones Industrial Average or the Standard & Poor's Index of 400
Industrial Companies by an amount in excess of 20% measured from
the close of business on the last trading day preceding the date
hereof to the close of business on the Expiration Date, or (v)
there shall have occurred any outbreak or escalation of
hostilities, declaration by the United States of a national
emergency, or war or other calamity or crisis the effect of which
on the financial markets is such as to make it, in the sole
judgment of X LP, impracticable or inadvisable to proceed with the
Offering or delivery of the Securities and/or the Unsubscribed
Units or the fulfillment of X LP's obligations, as contemplated by
this Agreement.
7. REPRESENTATIONS AND INDEMNITIES TO SURVIVE. The
respective representations, warranties, agreements, covenants,
indemnities and other statements of AREP or its officers, and of X
LP or its affiliates as set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of any of the officers,
directors or controlling persons of X LP or AREP. The
representations, warranties, agreements, covenants, indemnities and
other statements will survive delivery of and payment for the
Securities and the Unsubscribed Units. The provisions of the
subsection (e) of Section 2 and Section 5 hereof shall survive the
termination or cancellation of this Agreement.
8. NOTICES. All communications hereunder will be in
writing and effective only on receipt, and, if sent to X LP will be
mailed, delivered or telegraphed and confirmed to it at [ ] South
Bedford, Mount Kisco, NY 10549; or, if sent to AREP, will be
mailed, delivered or telegraphed and confirmed to it at 90 South
Bedford, Mount Kisco, NY 10549, attn. John P. Saldarelli.
9. SUCCESSORS. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their
respective successors and the officers and directors and
controlling persons of AREP and X LP, and no other person will have
any right or obligation hereunder.
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10. APPLICABLE LAW. This Agreement will be governed by
and construed in accordance with the laws of the State of New York.
11. BUSINESS DAY. For purposes of this Agreement,
"business day" means any day on which the Exchange is open for
trading.
12. COUNTERPARTS. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon
the same instrument.
13. AGREEMENT SUPERSEDES. This Agreement shall
supersede all provisions of any prior agreements, whether written
or oral, of the parties to this Agreement that relate to the
transactions contemplated by this Agreement.
17
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IN WITNESS WHEREOF, and intending to be legally bound
thereby, each of AREP and X LP has signed or caused to be signed
its name by its proper officers thereunto duly authorized, all as
of the day and year first above written.
AMERICAN REAL ESTATE PARTNERS, L.P.
By: American Property Investors, Inc.
By:_______________________________
Name:
Title:
X LIMITED PARTNERS
By: American Property Investors, Inc.
By:_______________________________
Name:
Title:
18
Consent of Independent Auditors
-------------------------------
The Partners
American Real Estate Partners, L.P.
We consent to incorporation by reference in the registration statement
No. 33-54767 on Form S-3 of American Real Estate Partners, L.P. of our report
dated March 11, 1994, relating to the consolidated balance sheets of American
Real Estate Partners, L.P. and subsidiary as of December 31, 1993, and 1992,
and the related consolidated statements of earnings, partners' equity, and
cash flows for each of the years in the three-year period ended December
31, 1993, and the related schedule, which report appears in the December
31, 1993, annual report on Form 10-K of American Real Estate Partners, L.P.,
as amended on Form 10-K/A-1 on December 8, 1994 and to references to our
firm under the heading "Experts".
KPMG PEAT MARWICK LLP
New York, New York
January 20, 1995
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