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SCHEDULE 14C
(Rule 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
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<S> <C>
Check the appropriate box:
[ ] Preliminary Information Statement [ ] Confidential, for Use of the Commission
[X] Definitive Information Statement Only (as permitted by Rule 14c-5(d)(2))
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AMERICAN REAL ESTATE PARTNERS, L.P.
(Name of Registrant as Specified In its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii) or 14c-5(g)
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11.
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any of the fee is offset as provided by Exchange Act Rule 0-11
(a)(2) and identify the filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.
(3) Filing Party:
(4) Date Filed:
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AMERICAN REAL ESTATE PARTNERS, L.P.
100 SOUTH BEDFORD ROAD
MT. KISCO, NY 10549
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INFORMATION STATEMENT
July 26, 1996
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We are writing to advise you of a proposed amendment to the Amended and
Restated Limited Partnership Agreement (as amended, the "Partnership Agreement")
of American Real Estate Partners, L.P., a Delaware limited partnership (the
"Partnership"). The amendment discussed below (the "Amendment"), which is
proposed by the General Partner (as hereinafter defined) pursuant to the terms
of the Partnership Agreement, would permit the Partnership to make non-real
estate related investments and engage in activities related thereto under
circumstances described herein while remaining in the real estate business.
This Information Statement has been mailed to all holders of record as
of the close of business on July 23, 1996 (each, a "Unitholder" and
collectively, the "Record Holders") of depositary units representing limited
partner interests in the Partnership (the "Depositary Units"). No meeting of
Record Holders will be held.
WE ARE NOT ASKING YOU FOR A PROXY OR WRITTEN CONSENT AND YOU ARE
REQUESTED NOT TO SEND A PROXY OR WRITTEN CONSENT.
The general partner of the Partnership is American Property Investors,
Inc. ("API" or the "General Partner"), a Delaware corporation wholly owned by
Carl C. Icahn ("Icahn"). The principal executive offices of both the General
Partner and the Partnership are located at 100 South Bedford Road, Mt. Kisco,
New York 10549. The Partnership's business is conducted through a subsidiary
limited partnership, American Real Estate Holdings Limited Partnership (the
"Subsidiary"), in which the Partnership owns a 99% limited partner interest. The
General Partner also acts as the general partner for the Subsidiary. The General
Partner has a 1% general partner interest in each of the Partnership and the
Subsidiary. References to the Partnership herein include the Subsidiary, unless
the context otherwise requires.
As of July 18, 1996, there were 25,666,640 Depositary Units
outstanding. At that time, Icahn, through High Coast Limited Partnership, a
Delaware limited partnership which he controls ("High Coast"), beneficially
owned approximately 50.6% of the Partnership's outstanding Depositary Units. For
a list of individuals or "groups" (as that term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended) owning 5% or more of the
Partnership's outstanding Depositary Units, see "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT."
Under the terms of the Partnership Agreement, the Partnership is
presently permitted to "directly or indirectly invest in, acquire, own, hold,
manage, operate, sell, exchange and
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otherwise dispose of interests in real estate" and engage in activities related
thereto. While the Partnership and the General Partner believe opportunistic
real estate investments continue to remain available, such investments have
become more competitive to source and the increased competition may have an
adverse impact on the spreads and its ability to find assets providing returns
sought by the Partnership. In addition, pending investment in real estate
assets, the Partnership's investment funds have been invested primarily in
short-term government obligations. As a result of the foregoing and for the
additional reasons described herein, the General Partner believes that it is in
the best interests of the Partnership and its Unitholders to approve the
Amendment which will permit the Partnership to invest a portion of the
Partnership's funds in non-real estate assets.
Pursuant to Article XIV of the Partnership Agreement, the written
consent to an amendment by Record Holders owning at least a majority of the
outstanding Depositary Units is sufficient for the adoption of an amendment to
the Partnership Agreement, with certain limited exceptions (none of which is
applicable to the subject amendment). Consequently, the written consent of High
Coast, as beneficial holder of more than 50% of the outstanding Depositary
Units, is sufficient to assure the approval of the Amendment by the requisite
percentage of Record Holders. High Coast has confirmed to the Partnership that
the Amendment will be approved by its written consent on or about August 15,
1996 (twenty (20) days from the date hereof).
Under applicable state law, no dissenter's rights (i.e., rights of
non-consenting security holders to exchange interests in the Partnership for
payment of their fair value) are available to any Unitholder of the Partnership,
regardless of whether such Unitholder has consented to the adoption of the
Amendment.
This Information Statement should be read carefully as it describes
certain consequences of and possible risks related to investments made in
accordance with the Amendment, including the following:
- The Partnership is seeking to amend the Partnership Agreement to
permit it to make investments under circumstances described herein in companies
that are not necessarily engaged as one of their primary activities in the
ownership, development or management of real estate. Other than real estate
related assets, the Partnership currently is only permitted to invest in items
such as deposit accounts and money market funds. While the Partnership will
continue to own, develop, manage and invest in real estate related assets, the
General Partner believes that it is in the best interests of the Partnership and
the Unitholders for the Partnership to be permitted to invest a portion of the
Partnership's funds in assets outside the real estate market that may provide
returns on its funds in excess of those available to the Partnership in the
current real estate market or those currently received on investments in
government securities. See "REASON FOR AMENDMENT."
- Mr. Carl Icahn serves as Chairman of the Board of Directors of the
General Partner, and, through High Coast, beneficially owns approximately 50.6%
of the outstanding Depositary Units. The Partnership anticipates that Mr. Icahn,
as Chairman, and personnel of the General Partner and the Partnership will be
responsible for selecting non-real estate related
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investments by the Partnership as they have with respect to real estate related
investments. Under the terms of the Partnership Agreement, the General Partner
has full, exclusive and complete discretion to manage and control the business
and affairs of the Partnership, including investment decisions, and consistent
with the terms of the Partnership Agreement, Unitholders will not be given an
opportunity to approve or disapprove of decisions, including potential
investments, made by and potential investment strategies used by the General
Partner. Icahn has confirmed to the Partnership that neither he, in his capacity
as Chairman, nor any of his or the General Partner's affiliates will receive any
fees from the Partnership in consideration for services rendered in assisting
with investments. However, High Coast, in its capacity as majority Unitholder,
will share in any benefits realized or losses incurred by the Partnership from
investments made pursuant to the Amendment on a pro rata basis with all
Unitholders and the General Partner will share in such benefits and losses to
the extent of its general partner interest. In addition, High Coast's approval
of the Amendment to the Partnership Agreement and the General Partner's
selection of non-real estate investments may be subject to conflicts of
interest, including those relating to whether the General Partner or its
affiliates have independent investments in such assets which may benefit from
investments by the Partnership. See "CONFLICTS OF INTEREST."
- The proportion of the Partnership's assets invested in any one type
of security or any single issuer will not be limited. While the investment
objectives of the Partnership with respect to such investments will be to
purchase what it believes are undervalued securities, the General Partner,
pursuant to the Partnership Agreement, will have full authority relating to the
bases and methods for selection of securities, and the Partnership will not be
subject to any policy limitations on the amounts and nature of any non-real
estate related securities purchased, sold or held, provided that the Partnership
will conduct its activities in such a manner so as not to be deemed an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and will structure its investments so as to continue to be taxed as
a partnership rather than as a corporation under the publicly-traded partnership
rules of the Internal Revenue Code. See "RISKS RELATED TO NON-REAL ESTATE
INVESTMENTS."
- The Partnership will conduct its investment activities in such a
manner so as not to be deemed an investment company under the 1940 Act.
Generally, this means that the Partnership does not intend to enter the business
of investing in securities and that no more than 40% of the Partnership's total
assets will be invested in securities. While the Partnership intends to operate
so as to not be treated as an investment company under the 1940 Act, if it did
not meet the exclusions under the 1940 Act, the Partnership would be required to
register as an investment company under the 1940 Act and would be subject to the
reporting requirements and regulatory constraints of the 1940 Act. See "EFFECT
OF AMENDMENT ON UNITHOLDERS AND PARTNERSHIP."
- Under applicable tax laws, the Partnership will structure its
investments so as to continue to be taxed as a partnership rather than as a
corporation under the publicly-traded partnership rules of Section 7704 of the
Internal Revenue Code. While the General Partner intends to structure
investments in non-real estate assets to satisfy these rules, it is possible
that using the Partnership's cash for investments not related to real estate
could result in income
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which would endanger the Partnership's classification as a partnership for tax
purposes. See "EFFECT OF AMENDMENT ON UNITHOLDERS AND PARTNERSHIP."
- Investment in securities issued by companies that are not engaged as
one of their primary activities in the ownership, development or management of
real estate will entail somewhat different risks from those associated with
investments in real estate assets. For example, equity securities fluctuate in
value, often based on factors unrelated to the value of the issuer of the
securities, and such fluctuations can be pronounced. In addition, even though
interest-bearing debt securities are investments which may promise a stable
stream of income, the prices of such securities generally are inversely affected
by changes in interest rates and, therefore, are subject to the risk of market
price fluctuations. Also, some securities which may provide the potential for
higher yields may also entail a commensurate greater risk of loss. See "RISKS
RELATED TO NON-REAL ESTATE INVESTMENTS."
THE ACTIONS CONTEMPLATED IN THIS INFORMATION STATEMENT 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 MERITS OF THE ACTIONS CONTEMPLATED
HEREIN OR THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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SUMMARY INFORMATION
The following summary information is qualified in its entirety by the
more detailed information appearing elsewhere in this Information Statement and
the Appendices hereto. Unitholders are urged to read the entire Information
Statement carefully, as it contains important information regarding certain
consequences of the Amendment.
ITEM UNDER CONSIDERATION....... Approval of an amendment to the Partnership
Agreement which would permit the Partnership
to invest in securities issued by companies
that are not necessarily engaged as one of
their primary activities in the ownership,
development or management of real estate while
remaining in the real estate business and
continuing to pursue suitable investments for
the Partnership in the real estate markets.
See "PROPOSED AMENDMENT TO PARTNERSHIP
AGREEMENT."
REASONS FOR THE AMENDMENT...... The Partnership intends to continue to invest
its assets available for investment in
undervalued assets in the real estate market,
including residential development projects,
land parcels for future residential and
commercial development, non-performing loans,
commercial properties and securities of
entities which own, develop or manage
significant real estate assets, including
limited partnership units and securities
issued by real estate investment trusts. While
the Partnership believes opportunistic real
estate investments continue to remain
available, such investments have become more
competitive to source and the increased
competition may have an adverse impact on the
spreads and the ability to find quality assets
that provide returns sought by the
Partnership. In addition, pending investment
in real estate assets, the Partnership's
investment funds have been invested primarily
in short-term government obligations.
Currently, the Partnership Agreement only
permits the Partnership to invest in assets
related to real estate unless such investments
are of a short-term nature pending investment
in real estate assets, such
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as deposit accounts and money market funds.
The General Partner believes that it is in the
best interests of the Partnership and the
Unitholders for the Partnership to be
permitted to invest a portion of the
Partnership's funds in assets outside the real
estate market that may provide returns on its
funds in excess of those available to the
Partnership in the current real estate market
or those currently received on investments in
government securities. See "BACKGROUND,"
"DESCRIPTION OF INVESTMENTS" and "REASONS FOR
AMENDMENT."
EFFECT OF AMENDMENT ON
UNITHOLDERS AND THE
PARTNERSHIP.............. The General Partner expects that investments
pursuant to the proposed Amendment may result
in increased Unitholder value and further
diversification of its portfolio, although
there can be no assurance thereof.
Nevertheless, there are certain risks which
may also attend an expansion of the
Partnership's business purposes. For a
discussion of such risks, see "RISKS RELATED
TO NON-REAL ESTATE INVESTMENTS" and "EFFECT OF
AMENDMENT ON UNITHOLDERS AND PARTNERSHIP."
CONSENT REQUIRED............ Pursuant to the terms of the Partnership
Agreement, the written consent to the proposed
Amendment by Record Holders owning at least a
majority of the outstanding Depositary Units
is sufficient for the adoption of the
Amendment. High Coast, which beneficially owns
more than 50% of the outstanding Depositary
Units, has confirmed to the Partnership that
the Amendment proposed by the General Partner
will be approved by its written consent, and
thereby adopted by the Partnership, twenty
(20) days from the date of this Information
Statement. See "PROPOSED AMENDMENT TO
PARTNERSHIP AGREEMENT" and "SECURITY
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OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
CONFLICTS OF INTEREST........ Icahn's approval of the Amendment to the
Partnership Agreement through High Coast and
the General Partner's selection of non-real
estate investments may be influenced by
factors other than the best interests of the
Partnership and maximization of Unitholder
value. Such factors may include whether the
General Partner and its affiliates, including
Icahn, have independent investments in such
assets which may benefit from investments by
the Partnership. In addition, the Partnership
may enter into other transactions with the
General Partner and its affiliates, including,
without limitation, buying and selling assets
from or to the General Partner or its
affiliates and participating in joint venture
investments in assets with the General Partner
or its affiliates, whether real estate or
non-real estate related, provided the terms of
such transactions are fair and reasonable to
the Partnership. Furthermore, it should be
noted that the Partnership Agreement provides
that the General Partner and its affiliates
are permitted to have other business interests
and may engage in other business ventures of
any nature whatsoever, and may compete
directly or indirectly with the business of
the Partnership. Icahn and his affiliates
currently invest in and perform investment
management services with respect to assets
that are similar to those the Partnership may
invest in and intend to continue to do so;
pursuant to the Partnership Agreement,
however, the Partnership shall not have any
right to participate therein or receive or
share in any income or profits derived
therefrom. In addition, Icahn, through High
Coast, will share in any benefits realized or
losses incurred by the Partnership from
investments made pursuant to the Amendment on
a pro rata basis with all Unitholders and the
General
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Partner will share in such benefits and losses
to the extent of its general partner interest
in the Partnership.
AUDIT COMMITTEE APPROVAL...... The adoption by the Partnership of the
Amendment was unanimously approved by the
members of the Audit Committee (the "Audit
Committee") of the Board of Directors (the
"Board") of the General Partner and the
members of the Board. See "AUDIT COMMITTEE
APPROVAL."
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BACKGROUND REGARDING PARTNERSHIP
The Partnership has been in the business of acquiring and managing real
estate and activities related thereto. Such acquisitions may be accomplished by
purchasing assets outright or by acquiring securities of entities which hold
significant real estate related assets. Historically, the properties owned by
the Partnership have been primarily office, retail, industrial, residential and
hotel properties. Most of the real estate assets currently owned by the
Partnership were acquired from thirteen limited partnerships pursuant to an
exchange offer consummated on July 1, 1987 and such assets generally are
net-leased to single, corporate tenants. As of July 18, 1996, the Partnership
owned 233 separate real estate assets primarily consisting of fee and leasehold
interests in 35 states.
The Partnership's primary investment strategy in recent periods has
been to seek to acquire residential development projects, land parcels for
future residential and commercial development, commercial properties,
non-performing loans and securities of entities which own, manage or develop
significant real estate assets, including limited partnership units and
securities issued by real estate investment trusts.
As discussed below, the Partnership is seeking to amend the Partnership
Agreement to permit investments which, while the Partnership continues to seek
undervalued investment opportunities in the real estate market, will permit it
to take advantage of investment opportunities it believes exist outside of the
real estate market in order to maximize Unitholder value and further diversify
its portfolio. Investments in non-real estate assets will consist of equity and
debt securities of domestic and foreign issuers that are not necessarily engaged
as one of their primary activities in the ownership, development or management
of real estate, and may include, for example, lower rated securities which may
provide the potential for higher yields and therefore may entail higher risk.
See "DESCRIPTION OF INVESTMENTS."
REASONS FOR AMENDMENT
Currently, the Partnership Agreement permits the Partnership to invest
only in assets related to real estate, except for short-term cash-type
investments such as deposit accounts and money market funds. In recent months,
however, the opportunities for profitable investments of the types sought by the
Partnership in real estate have diminished. While the Partnership believes
opportunistic real estate acquisitions continue to remain available, such
acquisition opportunities have become more competitive to source and the
increased competition may have an adverse impact on the spreads and the ability
to find quality assets that provide returns sought by the Partnership.
The General Partner continues to believe that the Partnership will
benefit from diversification of its real estate portfolio and is actively
pursuing opportunistic real estate investments. To that end, the Partnership
intends to continue to invest its assets available for investment in undervalued
assets in the real estate market, including land parcels for future residential
and commercial development, non-performing loans, real estate securities and
real estate operating and development companies, which acquisitions may include
those from affiliates of the General Partner, provided the terms thereof are
fair and reasonable to the
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Partnership and approved by the Audit Committee. However, there is significant
competition for acquiring such assets including a number of investment funds
that have raised additional capital for investment in opportunistic real estate
transactions which may have a negative impact on the Partnership's investment
returns. In addition, pending investment in real estate assets, the
Partnership's investment funds, including those generated by property sales,
refinancings and the exercise of tenant purchase options, have been invested
primarily in short-term government obligations. The General Partner believes
that it is in the best interests of the Partnership and Unitholders for the
Partnership to be permitted to invest a portion of the Partnership's funds in
assets outside of the real estate market that may provide returns on its funds
in excess of those available to the Partnership in the current real estate
market or those currently received on investments in government securities. The
Amendment proposed by the General Partner will allow the Partnership to take
advantage of such opportunities while remaining in the real estate business and
continuing to pursue suitable investments for the Partnership in the real estate
markets by permitting it to invest under circumstances described herein in debt
and equity securities of issuers that are not necessarily engaged as one of
their primary activities in the ownership, development or management of real
estate.
The General Partner has considered and is continuing to consider other
investment opportunities in the real estate markets, in addition to its
historical real estate investments and its proposed non-real estate related
investments under the Amendment. The Audit Committee requested and received
information from Coopers & Lybrand, L.L.P. regarding real estate related
investment opportunities available in certain real estate markets outside the
United States. Additionally, management of the Partnership has been analyzing
possible acquisitions of real estate operating companies and real estate related
investment opportunities that may exist relating to real estate limited
partnership units, securities of real estate investment trusts and
collateralized mortgage backed securities. While management is continuing to
investigate and pursue such opportunities and other real estate related
investments, the Board determined, after considering and comparing the
potential risks related to such investments, including, for example, with
respect to foreign real estate investments, political risks, currency risks,
regulatory risks and potential tax considerations, and the risks related to
investments in equity and debt securities of issuers that are not engaged
primarily in real estate activities, including fluctuation in market value, that
it is in the best interests of the Partnership and its Unitholders to permit the
Partnership to be able to invest a portion of its funds in non-real estate
related investments at this time beyond investments in government securities.
While the General Partner believes that investments pursuant to the
Amendment may result in increased Unitholder value and further diversification
of the Partnership's assets, there can be no assurances thereof and there are
significant risks which may also attend the Amendment. Under the terms of the
Partnership Agreement, the General Partner has full, exclusive and complete
discretion to manage and control the business and affairs of the Partnership, to
make all decisions affecting the business and affairs of the Partnership and to
take all such actions as it deems necessary or appropriate to accomplish the
purposes of the Partnership. Therefore, Unitholders will not be given an
opportunity to approve or disapprove of decisions, including potential
investments, made by the Partnership and the Partnership will be able to invest
in non-real estate related assets without further consent of Unitholders. The
Partnership anticipates that Mr. Icahn in his capacity as Chairman and personnel
of the General Partner and the Partnership will be responsible for determining
the investments made by the
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Partnership following the adoption of the Amendment as they have with respect to
real estate related investments. See "RISKS RELATED TO NON-REAL ESTATE
INVESTMENTS" and "CONFLICTS OF INTEREST."
It should be noted that Mr. Icahn is the Chairman of the General
Partner and, through High Coast, beneficially owns approximately 50.6% of the
Partnership's outstanding Depositary Units. Icahn, in his capacity as majority
Unitholder and as a result of his ownership of the General Partner, will receive
a pro rata interest in any benefits realized or losses incurred by the
Partnership as a result of the Amendment both as a limited partner and as the
general partner. However, regardless of his substantial ownership interests in
the Partnership, Icahn's approval of the Amendment through High Coast and the
General Partner's selection of non-real estate investments may be influenced by
factors other than the best interests of the Partnership and maximization of
Unitholder value. See "CONFLICTS OF INTEREST."
In determining to authorize the Amendment, the Board considered a
number of factors. Those factors included the long-term strategic plans of the
Partnership relating to the enhancement of Unitholder value, the current real
estate market and the investment opportunities available in real estate, the
changes in investment opportunities that have arisen over recent months, the
possibilities for comparable or higher returns on Partnership funds through
non-real estate investments in relation to returns from government securities,
the potential conflicts of interest and the possibility of self-dealing as a
result of Icahn in his capacity as Chairman and certain employees and affiliates
of the General Partner performing services for the Partnership or investing in
joint investment opportunities in respect of such assets, and the potential
risks involved. In analyzing the current real estate market, the Audit Committee
requested and received information from Coopers & Lybrand, L.L.P. and the
Partnership's management relating to, among other matters, difficulties facing
the Partnership in acquiring real estate assets on terms acceptable to
management in the current real estate market and the increase in the
availability of capital and competition in the real estate markets which the
Partnership believes has made it more difficult to earn higher yields sought by
the Partnership. See "AUDIT COMMITTEE APPROVAL."
DESCRIPTION OF INVESTMENTS
Following adoption of the Amendment by the Partnership by the written
consent of High Coast on or about August 15, 1996, the Partnership intends,
while remaining in the real estate business and continuing to pursue suitable
investments for the Partnership in the real estate markets, to invest a portion
of its funds available for investment in securities of issuers that are not
necessarily engaged as one of their primary activities in the ownership,
development or management of real estate. Such investments will include equity
and debt securities of domestic and foreign issuers. The investment objective of
the Partnership with respect to such investments will be to purchase undervalued
securities, so as to maximize total returns consisting of current income and/or
capital appreciation. Undervalued securities are those which the Partnership
believes may have greater inherent value than indicated by their then current
trading price. This may result from the fact that the securities, for example,
may be thinly traded or otherwise undervalued due to market inefficiencies, may
relate to opportunities wherein economic or market trends have not been
identified and reflected in market value, or may
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include those in complex or not readily followed securities. Less favorable
financial reports, lowered credit ratings, revised industry forecasts or sudden
legal complications may result in market inefficiencies and undervalued
situations.
The equity securities in which the Partnership may invest may include
common stocks, preferred stocks and securities convertible into common stocks,
as well as warrants to purchase such securities. The debt securities in which
the Partnership may invest may include bonds, debentures, notes,
mortgage-related securities and municipal obligations. Certain of such
securities may include lower rated securities which may provide the potential
for higher yields and therefore may entail higher risk. In addition, the
Partnership may engage in various investment techniques, such as options and
futures transactions, foreign currency transactions and leveraging for either
hedging or other purposes. As in any investment approach, the General Partner
intends to perform due diligence as it believes appropriate in the circumstances
prior to making an investment pursuant to the Amendment, including possibly a
review of public data, industry sources, research, and performance of
risk/return analyses, which may include credit analyses, review of growth and
market potentials and review of strategic positions of the underlying
investment.
Under the terms of the Partnership Agreement, the General Partner has
full, exclusive and complete discretion to manage and control the business and
affairs of the Partnership to make all decisions affecting the business and
affairs of the Partnership, and to take all actions as it deems necessary or
appropriate to accomplish the purposes of the Partnership. Thus, Unitholders
will not be given an opportunity to approve or disapprove of decisions,
including potential investments, made by the General Partner.
As the Partnership will concentrate on undervalued securities, which
may include, for example, high yield securities and neglected securities, the
Partnership's investments may be subject to significant amounts of business,
financial, market and other risks. There can be no assurance that the
Partnership will correctly evaluate such investments and their attendant risks
or that such investments will be profitable to the Partnership. In addition, the
securities in which the Partnership may invest may fluctuate in value, and such
fluctuations can be pronounced. See also "RISKS RELATED TO NON-REAL ESTATE
INVESTMENTS."
The Partnership will conduct its investment activities in such a manner
so as not to be deemed an investment company under the 1940 Act. Generally, this
means that the Partnership does not intend to enter the business of investing in
securities and that no more than 40% of the Partnership's total assets will be
invested in securities. The proportion of the Partnership's assets invested in
each type of security or any single issuer or industry will not be limited.
Investments may be made directly by the Partnership or indirectly through
entities in which it has an interest. Mr. Icahn, as Chairman of the General
Partner, and personnel of the General Partner and the Partnership, will be
responsible for making investment decisions on behalf of the Partnership as they
have with respect to real estate related investments. While neither Icahn nor
any other affiliates of the General Partner will receive any fees from the
Partnership in consideration for services rendered in connection with non-real
estate related investments, certain conflicts of interest may arise. See
"CONFLICTS OF INTEREST."
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RISKS RELATED TO NON-REAL ESTATE INVESTMENTS
General. Under the terms of the Partnership Agreement, the General
Partner has full, exclusive and complete discretion to manage and control the
business and affairs of the Partnership, to make all decisions affecting the
business and affairs of the Partnership and to take all such actions as it deems
necessary or appropriate to accomplish the purposes of the Partnership.
Therefore, Unitholders will not be given an opportunity to approve or disapprove
of decisions, including potential investments, made by the Partnership and the
Partnership will be able to invest in non-real estate related assets without
further consent of Unitholders.
In addition, the proportion of the Partnership's assets invested in any
one type of security or any single issuer will not be limited. While the
investment objectives of the Partnership with respect to such investments will
be to purchase what it believes are undervalued securities, the General Partner
will have full authority relating to the bases and methods for selection of
securities and the Partnership will not be subject to any policy limitations on
the amounts and nature of any non-real estate related securities purchased, sold
or held, provided that the Partnership will conduct its activities in such a
manner so as not to be deemed an investment company under the 1940 Act and will
structure its investments so as to continue to be taxed as a partnership rather
than as a corporation under the publicly-traded partnership rules of the
Internal Revenue Code. See "EFFECT OF AMENDMENT ON UNITHOLDERS AND PARTNERSHIP."
Equity Securities. Equity securities fluctuate in value, often based on
factors unrelated to the value of the issuer of the securities, and such
fluctuations can be pronounced.
Fixed-Income Securities. Even though interest-bearing securities are
investments which may promise a stable stream of income, the prices of such
securities generally are inversely affected by changes in interest rates and,
therefore, are subject to the risk of market price fluctuations. The values of
fixed-income securities also may be affected by changes in the credit rating or
financial condition of the issuer.
Lower Rated Securities. The Partnership may invest a portion of its
funds in higher yielding (and, therefore, higher risk) securities (commonly
known as junk bonds). Such investments generally may be subject to certain risks
with respect to the issuing entity and to greater market fluctuations than
certain lower yielding, higher rated convertible debt securities. The secondary
market for these securities may be less liquid than that of higher rated
securities; adverse conditions could make it difficult at times for the
Partnership to sell certain securities or could result in lower prices.
Foreign Securities. Foreign securities markets generally are not as
developed or efficient as those in the United States. Securities of some foreign
issuers are less liquid and more volatile than securities of comparable U.S.
issuers. Similarly, volume and liquidity in most foreign securities markets are
less than in the United States and, at times, volatility of price can be greater
than in the United States.
13
<PAGE> 15
Since foreign securities often are purchased with and payable in
currencies of foreign countries, the value of these assets measured in U.S.
dollars may be affected favorably or unfavorably by changes in currency rates
and exchange control regulations.
Use of Leverage. Use of borrowed funds to leverage acquisitions can
exaggerate the effect of any increase or decrease in market value. Such
borrowings would be subject to interest costs which may not be recovered by
appreciation in value of the securities purchased.
Use of Derivatives. The Partnership may use derivatives
("Derivatives"), which are financial instruments which derive their performance,
at least in part, from the performance of an underlying asset, index or interest
rate, such as options and mortgage-related securities. While Derivatives can be
used effectively in furtherance of the Partnership's investment objectives such
as by providing a hedging technique, under certain market conditions they can
increase the volatility or decrease the liquidity of the Partnership's assets.
MANAGEMENT OF THE PARTNERSHIP
Under the terms of the Partnership Agreement, the General Partner has
full, exclusive and complete discretion to manage and control the business and
affairs of the Partnership, to make all decisions affecting the business and
affairs of the Partnership and to take all such actions as it deems necessary or
appropriate to accomplish the purposes of the Partnership. Thus, Unitholders
will not be given an opportunity to approve or disapprove of decisions,
including potential investments, made by the General Partner.
The Partnership is in a unique position to utilize the expertise of
Icahn, the Chairman of its General Partner, and through High Coast, its
principal Unitholder, and certain of its other affiliates. The Partnership
anticipates that under Icahn's guidance it will pursue appropriate opportunities
in undervalued situations, for the purpose of maximizing returns, including for
example, opportunities arising from market inefficiencies and opportunities from
identifying economic and market trends before the investment community
generally. In addition, the General Partner will seek opportunities in which it
may utilize the experience of Icahn and other affiliates of the General Partner
in negotiations and restructurings in order to enhance performance, and may act
as an activist shareholder, where considered appropriate to maximize Unitholder
value. See "CONFLICTS OF INTEREST." It should be noted, however, that there can
be no assurances of success in such transactions.
Mr. Icahn has confirmed to the Partnership that neither he nor any
affiliates of the General Partner will receive any fees from the Partnership in
consideration for services rendered in connection with non-real estate related
investments by the Partnership. No arrangement or agreement exists pursuant to
which Mr. Icahn will provide guidance in selecting undervalued securities.
However, Mr. Icahn is Chairman of the General Partner and, through High Coast,
beneficially owns 50.6% of the Partnership's outstanding Depositary Units and
will share in any benefits realized and losses incurred by the Partnership as a
result of the Amendment on a pro rata basis with all of the Unitholders. In
addition, Icahn, through his ownership of the General Partner, will also receive
his general partner share of such benefits and losses. As such, Mr. Icahn and
employees of the General Partner and the Partnership will, pursuant to the
Partnership
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<PAGE> 16
Agreement, devote to the business of the Partnership such time as they deem
reasonably required for its operations, including its investment decisions. See
"CONFLICTS OF INTEREST."
PROPOSED AMENDMENT TO PARTNERSHIP AGREEMENT
Attached as Appendix A to this Information Statement is a copy of the
text of the proposed Amendment. The Amendment provides generally that the
business purposes of the Partnership shall be:
(a) to directly or indirectly invest in, acquire, own, hold,
manage, operate, sell, exchange and otherwise dispose of
interests in real estate (including without limitation, a
limited partner interest in the Operating Partnership) and
securities of any type and description now or hereafter in
existence, whether or not related to interests in real estate,
and (b) to enter into any lawful transaction and engage in any
lawful activities related or incidental thereto or in
furtherance of the foregoing purposes (including, without
limitation, any transaction or activity outside the normal
scope of the Partnership's business), provided that the
Partnership will conduct its activities so as not to be
considered an investment company under the Investment Company
Act of 1940, as amended. [emphasis reflects proposed additions
to Section 3.01 of the Partnership Agreement]
A corresponding similar amendment will be made to the Amended and Restated
Agreement of Limited Partnership of American Real Estate Holdings Limited
Partnership, the Partnership's operating subsidiary.
Article XIV of the Partnership Agreement provides that, subject to
certain specified exceptions (none of which is applicable) and provided that
certain conditions are satisfied,1 an amendment to the Partnership Agreement
requires the approval of a Majority Interest, defined in Article I as "Record
Holders who are Record Holders with respect to more than fifty percent (50%) of
the total number of all outstanding Units."2 Article XIV of the Partnership
Agreement
- - --------
1 These conditions generally require that certain opinions be supplied to
the effect that the exercise of voting rights in this case and the
action proposed to be taken (i) would not cause the limited partners to
be deemed to be taking part in the management of the Partnership and
thereby threaten their limited liability, (ii) would not jeopardize the
status of the Partnership as a partnership for tax purposes and (iii)
is otherwise permissible under the governing statutes of the
Partnership. Under the circumstances contemplated herein, such opinions
will be rendered.
2 Amendment No. 1 to the Agreement states that all references in the
Partnership Agreement to a Majority Interest are meant not to include
holders of the 5% cumulative
(continued...)
15
<PAGE> 17
further provides that the General Partner may obtain approval for an amendment
to the Partnership Agreement by written consent of Record Holders in lieu of a
meeting. Accordingly, High Coast can execute a written consent approving the
proposed Amendment. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT" for information relating to High Coast's security ownership. High
Coast has confirmed to the Partnership that on or about August 15, 1996, twenty
(20) days following the date of this Information Statement, High Coast will
execute a written consent and the proposed Amendment will be duly adopted by the
Partnership.
EFFECT OF AMENDMENT ON UNITHOLDERS AND PARTNERSHIP
At present, the General Partner does not have under consideration any
specific investments in securities of issuers that are not necessarily engaged
as one of their primary activities in the ownership, development or management
of real estate. However, it is contemplated that after the approval of the
Amendment, the General Partner will, while continuing to pursue investments in
real estate assets, pursue such investments described herein. As discussed
above, these investments may result in increased Unitholder value and increased
net income for the Partnership, although there can be no assurance thereof.
Nevertheless, there are certain consequences which may also attend the
Amendment.
The Partnership will conduct its activities in such a manner so as not
to be deemed an investment company under the 1940 Act. Generally, this means
that the Partnership does not intend to enter the business of investing in
securities and that no more than 40% of the Partnership's total assets will be
invested in securities. If it does not meet the exclusions from the 1940 Act,
the Partnership would be required to register as an investment company under the
1940 Act, and it would be subject to the reporting requirements and regulatory
constraints of the 1940 Act. As a consequence, the General Partner intends to
continue to limit the Partnership from engaging in transactions that would cause
it to meet the definitions in Section 3(a) of the 1940 Act so that the
Partnership will not be deemed to be an "investment company."
Under applicable tax laws, the Partnership will structure its
investments so as to continue to be taxed as a partnership rather than a
corporation under the publicly-traded partnership rules of Section 7704 of the
Internal Revenue Code. While the General Partner intends to structure
investments in non-real estate related assets to satisfy these rules, it is
possible that investments not related to real estate could result in income
which would endanger the Partnership's classification as a partnership for tax
purposes. If the Partnership were treated as an association taxable as a
corporation in any taxable year: (i) the Partnership's taxable income, gains,
losses, deductions and credits would be subject to corporate income tax and
would not be passed
- - --------------------------
(2)(...continued)
pay-in-kind redeemable preferred units representing limited partner
interests in the Partnership (the "Preferred Units") issued in the
rights offering conducted by the Partnership (the "Rights Offering").
Thus, the term "Record Holders," for purposes of approval of an
amendment to the purpose clause, does not include holders of Preferred
Units.
16
<PAGE> 18
through to its partners; (ii) any distributions made to Unitholders would be
treated as taxable dividend income to the extent of the Partnership's earnings
and profits and the balance a non-taxable return of capital to the extent of the
partner's basis in his or her Depositary Units; and (iii) the reclassification
as an association taxable as a corporation would be deemed an incorporation of
the entity upon which some gain could be recognized.
In order for a publicly-traded partnership such as the Partnership to
avoid these consequences, for tax years beginning after 1997 at least 90% of the
Partnership's gross income each year must be "qualifying income," i.e., inter
alia, interest, dividends, real property rents, gain from the sale or other
disposition of real property, income from oil, gas and mineral explorations,
development, mining, refining and transportation and gain from the sale or
disposition of assets held for the production of qualifying income. The 90%
qualifying income test would apply immediately if the Partnership entered into a
substantial new line of business before 1998 as described below.
Dividend and interest income from non-real estate corporations would
constitute "qualifying income"; however, interest received from a non-real
estate corporation the stock of which is controlled by Icahn and/or the
Partnership may not be treated as qualifying income. If instead of securities
the Partnership were to invest in the assets of a business, directly or through
a partnership or limited liability company, its share of gross income of the
business will be taken into account in testing for qualifying income.
Investments through or in a corporation can permit business interests to be
purchased. Thus, the Partnership will seek to ensure that under its investment
policy, the level of "qualifying income" received by the Partnership remains at
or above this 90% level in order for the Partnership to continue to be taxed as
a partnership after 1997.
Modification of the Partnership's business purposes might also endanger
the protection of a transition rule provided in the Revenue Act of 1987, which
states that a partnership which was publicly traded on December 17, 1987, as the
Partnership was, will continue to be classified as a partnership through
December 31, 1997, so long as it does not acquire or commence a "substantial new
line of business." The approval of the Amendment would not, in and of itself,
constitute the commencement of a "substantial new line of business." A new line
of business would be considered "substantial" in the first taxable year in which
either (i) the Partnership derives more than 15% of its gross income from, or
uses more than 15% of its gross assets in, a new line of business operated by
the Partnership or (ii) the Partnership conducts an activity through a
corporation controlled by the Partnership or Icahn which would be substantial if
conducted by the Partnership, unless the Partnership does not hold significant
debt of the corporation or receive other amounts from the corporation which were
deductible by it. Except as described in clause (ii) above, ownership of
corporate stock is not a new line of business for these purposes. Nevertheless,
even if the protection of this transition rule were lost, the Partnership could
avoid taxation as a corporation by meeting the 90% qualifying income test noted
above.
Assuming the Partnership continues to be taxed as a partnership, asset
dispositions or other gains made on investments of the Partnership, whether real
estate related or not, may result in additional income which will be allocated
to Unitholders and included in their income whether or not they receive cash
distributions. In December 1995, the Partnership announced
17
<PAGE> 19
that it plans to continue to apply available Partnership operating cash flow to
repayment of maturing indebtedness, tenant requirements and other capital
expenditures and creation of cash reserves for contingencies facing the
Partnership, including environmental matters and scheduled lease expirations. As
a result, the Partnership does not expect to make any distributions in 1996 and,
therefore, Unitholders may be required to recognize taxable income and gain even
though they will not receive a cash distribution. The Partnership plans to
reconsider the issue after the close of its 1996 fiscal year.
In addition, while the terms of the Prudential Loan do not directly
prohibit the Partnership from amending the Partnership Agreement as proposed
herein, investments in certain types of assets that may be considered non-income
producing are restricted thereunder. Therefore, the Partnership will continue to
structure investments, in the absence of a waiver or amendment to the Prudential
Loan, such that the Partnership will continue to be in compliance with the
restrictive covenants contained in the Prudential Loan. It should be noted that
the Prudential Loan, as executed, generally does not take into account the
possibility that the Partnership might invest in non-real estate related assets
other than short-term cash-type investments, and does not specifically deal with
the investments described herein. Following the scheduled payment in May 1996,
approximately $22,616,000 remains outstanding under the Prudential Loan. While
the Partnership may prepay in full the Prudential Loan, to date, the Partnership
has been unable to negotiate favorable terms for such prepayment.
In addition to the possible consequences discussed above, Unitholders
should consider the risks related to non-real estate investments set forth under
"RISKS RELATED TO NON-REAL ESTATE INVESTMENTS" above.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of July 18, 1996, High Coast owned 12,991,312 Depositary Units, or
approximately 50.6% of the outstanding Depositary Units and 1,828,772 Preferred
Units or approximately 88.2% of the outstanding Preferred Units. Icahn may also
be deemed to be the beneficial owner of the 142,079 Depositary Units owned of
record by API Nominee Corp. ("Nominee") (the Units owned by Nominee are
Depositary Units of holders who have not yet exchanged their limited partner
interests) which, in accordance with state law, are in the process of being
turned over to the relevant state authorities as unclaimed property; however,
Icahn disclaims such beneficial ownership.
As of July 18, 1996, there were 25,666,640 Depositary Units
outstanding. Each Unitholder is entitled to one vote per Depositary Unit held.
As of July 18, 1996, to the best knowledge of the Partnership, Wellington
Management Company, a Massachusetts corporation, which filed a Schedule 13-G on
January 26, 1996, owned 1,526,546 Depositary Units, or approximately 5.95% of
the outstanding Depositary Units.
The following table provides information, as of July 18, 1996, as to
the beneficial ownership of the Depositary Units and Preferred Units of the
Partnership for each director of the General Partner, and all directors and
executive officers of the General Partner as a group.
18
<PAGE> 20
<TABLE>
<CAPTION>
Beneficial Beneficial
Name of Ownership of Percent Ownership of Percent
Beneficial Owner Depositary Units of Class Preferred Units of Class
- - ---------------- ---------------- -------- --------------- --------
<S> <C> <C> <C> <C>
Carl C. Icahn(1) 12,991,312 50.6% 1,828,772 88.2%
All directors and
executive officers
as a group (5 persons) 12,991,312 50.6% 1,828,772 88.2%
</TABLE>
- - -----------------------
(1) Icahn, through High Coast, may also be deemed to be the beneficial owner of
the 142,079 Depositary Units owned of record by Nominee, which in
accordance with state law are in the process of being turned over to the
relevant state authorities as unclaimed property; however, Icahn disclaims
such beneficial ownership. The foregoing is exclusive of a 1.99% ownership
interest in the Partnership which the General Partner holds by virtue of
its 1% General Partner interest in each of the Partnership and the
Subsidiary, but inclusive of the Depositary Units High Coast acquired
through the Rights Offering.
The affirmative vote of Unitholders holding more than 75% of the total
number of all Units then outstanding, including Depositary Units held by the
General Partner and its affiliates, is required to remove the General Partner.
Thus, since Icahn, through High Coast, holds approximately 50.6% of the
Depositary Units outstanding, 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 High Coast, 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, as High Coast holds in excess of 50% of the
Depositary Units outstanding, Icahn, through High Coast, has effective control
over such approval rights.
Mark H. Rachesky, M.D., ended employment with Icahn and affiliates in
June 1996, and resigned as an officer and director of the General Partner. Dr.
Rachesky did not indicate to the Partnership any disagreement with the
Partnership on any matter relating to its operations, policies or practices. As
Dr. Rachesky's resignation was effective prior to the Board actions referred to
below taken at its June 17th meeting, he did not participate therein.
CONFLICTS OF INTEREST
Icahn, in his capacity as majority Unitholder, will not receive any
additional benefit with respect to distributions and allocations of profits and
losses not shared on a pro rata basis by all other Unitholders as a result of
the Amendment. In addition, Icahn has confirmed to the Partnership that neither
he nor any of his affiliates will receive any fees from the Partnership in
consideration for services rendered in connection with non-real estate related
investments by
19
<PAGE> 21
the Partnership. However, High Coast's approval of the Amendment and the General
Partner's selection of non-real estate investments may be influenced by factors
other than the best interests of the Partnership and maximization of Unitholder
value. Such factors may include, but are not limited to, whether Icahn or his
affiliates have independent investments in such assets which may benefit from
investments by the Partnership. In addition, the Partnership may enter into
other transactions with the General Partner and its affiliates, including,
without limitation, buying and selling assets from or to the General Partner or
its affiliates and participating in joint venture investments in assets with the
General Partner or its affiliates, whether real estate or non-real estate
related, provided the terms of such transactions are fair and reasonable to the
Partnership. Furthermore, it should be noted that the Partnership Agreement
provides that the General Partner and its affiliates are permitted to have other
business interests and may engage in other business ventures of any nature
whatsoever, and may compete directly or indirectly with the business of the
Partnership. Icahn and his affiliates currently invest in and perform investment
management services with respect to assets that are similar to those the
Partnership may invest in and intend to continue to do so; pursuant to the
Partnership Agreement, however, the Partnership shall not have any right to
participate therein or receive or share in any income or profits derived
therefrom.
The Audit Committee meets on an annual basis, or more often if
necessary, to review any conflicts of interest which may arise and will continue
to be charged with reviewing and approving any conflicts of interest that may
arise in connection with transactions entered into with Icahn and his
affiliates, including the Partnership's participation in joint investments with
Icahn and his affiliates.
EXPENSE OF PROPOSED AMENDMENT
The Partnership will bear the cost of preparing this Information
Statement and all other costs incurred in connection with the proposed
Amendment.
NO DISSENTERS' RIGHTS OF APPRAISAL
Under Delaware law, no dissenter's rights (i.e., rights of
non-consenting security holders to exchange interests in the Partnership for
payment of their fair value) are available to any Unitholder of the Partnership,
regardless of whether such Unitholder has consented to the adoption of the
Amendment. Further, the Partnership Agreement does not provide appraisal rights
for an amendment to the purpose clause of the Partnership Agreement, and
therefore the Unitholders dissenting from an amendment passed by at least a
Majority Interest would not be entitled to same.
AUDIT COMMITTEE APPROVAL
The Audit Committee, consisting of directors Messrs. Alfred D.
Kingsley, William A. Leidesdorf and Jack G. Wasserman, acting independently of
the Partnership's management, in March 1996 commissioned a report addressed to
them from Coopers & Lybrand L.L.P.
20
<PAGE> 22
regarding the views of the Partnership's management that the Partnership's
traditional business, net lease transactions, had become increasingly
competitive with declining returns and that, with respect to the real estate
markets, the Partnership should continue to explore other investment
opportunities including those being pursued by the Partnership as described
elsewhere herein. The report of Coopers & Lybrand L.L.P. to the Audit Committee
confirmed this view. The report also confirmed management's view that real
estate investment conditions are now different than they were 12 or 24 months
ago, and that the availability of capital and competition has increased
significantly, making it more difficult to earn higher yields sought by the
Partnership.
In this context, the Audit Committee members had informal preliminary
discussions among themselves regarding the possibility of the Partnership
investing its funds in non-real estate assets in order to protect and further
the best interests of the Partnership and its Unitholders and diversify its
assets. Thereafter, at a meeting of the Audit Committee on May 21, 1996, the
Audit Committee determined to discuss the matter with the other directors, and
to hire independent counsel to advise the Audit Committee in this regard. The
full Board met on May 30, 1996 and discussed the possibility of the Partnership
investing its funds in non-real estate related assets. Thereafter, the Audit
Committee requested and received additional information from Coopers & Lybrand
L.L.P. and the Partnership's management relating to the difficulties facing the
Partnership in acquiring real estate assets on terms acceptable to management in
the current real estate market and information from Mr. Icahn and affiliates
regarding their investment performance and potential conflicts of interest.
In preparing its report for the Audit Committee, Coopers & Lybrand
L.L.P. performed internal research which included interviews with real estate
industry professionals such as opportunistic fund investment officers,
multi-family development company executives, CMBS buyers, single-family
residential developers, and large-tract multi-use development executives, and
analyzed publicly-available market and financial information where available. In
addition, Coopers & Lybrand L.L.P. presented to the Audit Committee information
it had compiled from publicly-available information regarding comparisons
between United States real estate investment opportunities and investment
opportunities in certain countries outside the United States, which included
matters relating to country risks, economic opportunities, currency risks and
political and regulatory risks. In reviewing various real estate investment
opportunities that may be considered by the Partnership, Coopers & Lybrand
L.L.P.'s analysis included, among other matters, evaluations of the typical size
of an investment, the holding period required, the amount of control an investor
could expect to have over the investment vehicle and/or the real estate asset,
and other liquidity matters. The Audit Committee analyzed the information
provided by Coopers & Lybrand L.L.P. and by the management of the Partnership,
as well as that generally available in the market, in reaching its conclusions
regarding the prospects for suitable real estate investments for the
Partnership.
At the June 17, 1996 full Board meeting, the Audit Committee, upon
further discussions with the Partnership's management, the Partnership's
counsel, the Audit Committee's counsel and Coopers & Lybrand L.L.P., unanimously
approved the Amendment and determined that the amendment of the Partnership
Agreement to permit it, while remaining in the real estate business and
continuing to pursue suitable investments for the Partnership in the real estate
markets, to include non-real estate related investments by permitting the
Partnership to invest in securities issued by companies that are not necessarily
engaged as one of their primary activities in the
21
<PAGE> 23
ownership, development or management of real estate, was in the best interests
of the Partnership and its Unitholders.
Thereafter, the full Board unanimously approved the Amendment as well.
While Mr. Icahn did not participate in the separate meetings and discussions of
the Audit Committee, he did participate in the full Board meetings. The Board
was fully informed of Mr. Icahn's interest in the Partnership and the Amendment,
and Mr. Icahn answered questions from the other Board members with respect to
his interest and potential conflicts.
In determining to authorize the Amendment as described above, the Board
considered a number of factors. Those factors included the long-term strategic
plans of the Partnership relating to the enhancement of Unitholder value, the
current real estate market and the investment opportunities available in real
estate, the changes in investment opportunities that have arisen over the recent
months, the possibilities for comparable or higher returns on the Partnership's
funds through non-real estate investments, the potential conflicts of interest
and possibility of self-dealing as a result of Icahn or his affiliates
performing services for the Partnership or investing in joint investment
opportunities in respect of such assets, and the potential risks involved.
ADDITIONAL INFORMATION
Any questions regarding this Information Statement may be directed to
John P. Saldarelli, Secretary of the General Partner, at the following telephone
numbers: (914) 242-7700 or (800) 255-AREP.
/s/ JOHN P. SALDARELLI
By order of the Board of Directors,
John P. Saldarelli, Secretary
July 26, 1996
22
<PAGE> 24
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SUMMARY INFORMATION............................................................................................. 5
BACKGROUND REGARDING PARTNERSHIP................................................................................ 9
REASONS FOR AMENDMENT........................................................................................... 9
DESCRIPTION OF INVESTMENTS...................................................................................... 11
RISKS RELATED TO NON-REAL ESTATE INVESTMENTS.................................................................... 13
MANAGEMENT OF THE PARTNERSHIP................................................................................... 14
PROPOSED AMENDMENT TO PARTNERSHIP AGREEMENT..................................................................... 15
EFFECT OF AMENDMENT ON UNITHOLDERS AND PARTNERSHIP.............................................................. 16
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................. 18
CONFLICTS OF INTEREST........................................................................................... 19
EXPENSE OF PROPOSED AMENDMENT................................................................................... 20
NO DISSENTERS' RIGHTS OF APPRAISAL.............................................................................. 20
AUDIT COMMITTEE APPROVAL........................................................................................ 20
ADDITIONAL INFORMATION.......................................................................................... 22
APPENDIX A -- PROPOSED AMENDMENT............................................................................... A-1
APPENDIX B -- FORM OF CONSENT.................................................................................. B-1
</TABLE>
<PAGE> 25
APPENDIX A
AMENDMENT NO. 2
TO
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
OF
AMERICAN REAL ESTATE PARTNERS, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
AMENDMENT NO. 2 ("Amendment No. 2") to the Amended and Restated Limited
Partnership Agreement (the "Partnership Agreement") of American Real Estate
Partners, L.P. (the "Partnership"), dated as of August __, 1996, 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 the Partnership.
Except as otherwise indicated, all capitalized terms used herein have the
meaning ascribed to such terms in the Partnership Agreement.
WITNESSETH:
WHEREAS, the Partnership desires to amend its business purposes to
permit it to invest in securities not necessarily related to real estate; and
WHEREAS, the Partnership has obtained the written consent of High Coast
Limited Partnership, as beneficial holder of more than 50% of the outstanding
depositary units representing limited partner interests in the Partnership (the
"Depositary Units").
NOW, THEREFORE, the parties hereby agree as follows:
1. Section 3.01 of the Partnership Agreement is hereby amended and
restated in its entirety to read as follows:
"3.01. Purposes and Business.
The purposes of the Partnership shall be (a) to directly or
indirectly invest in, acquire, own, hold, manage, operate, sell,
exchange and otherwise dispose of interests in real estate (including
without limitation, a limited partner interest in the Operating
Partnership) and securities of any type and description now or
hereafter in existence, whether or not related to interests in real
estate, and (b) to enter into any lawful transaction and engage in any
A-1
<PAGE> 26
lawful activities related or incidental thereto or in furtherance of
the foregoing purposes (including, without limitation, any transaction
or activity outside the normal scope of the Partnership's business),
provided that the Partnership will conduct its activities so as not to
be considered an investment company under the Investment Company Act of
1940, as amended."
2. Except as expressly amended hereby, all other provisions of the
Partnership Agreement shall continue in full force and effect.
3. This Amendment No. 2 shall become effective as of the date hereof
upon its execution by all parties hereto.
A-2
<PAGE> 27
IN WITNESS WHEREOF, the undersigned have evidenced their adoption and
ratification of the foregoing Amendment No. 2 to the Partnership Agreement of
the Partnership and have duly executed this Amendment No. 2, or have caused this
Amendment No. 2 to be duly executed on their behalf, as of the day and year
first hereinabove set forth.
General Partner:
AMERICAN PROPERTY INVESTORS, INC.
By: _________________________________________
Name: John P. Saldarelli
Title: Vice President
Limited Partners:
By: American Property Investors, Inc.
(attorney-in-fact)
By: _________________________________________
Name: John P. Saldarelli
Title: Vice President
[Amendment No. 2 to Partnership Agreement of AREP]
A-3
<PAGE> 28
APPENDIX B
WRITTEN ACTION OF
THE MAJORITY UNITHOLDER OF
AMERICAN REAL ESTATE PARTNERS, L.P.
The undersigned, being the beneficial owner of 50.6% of the
outstanding Depositary Units of American Real Estate Partners, L.P., a Delaware
limited partnership (the "Partnership"), does hereby adopt, confirm and ratify
the following resolution by written consent pursuant to the provisions of
Section 14.13 of the Amended and Restated Limited Partnership Agreement (the
"Partnership Agreement") of the Partnership:
RESOLVED, that the amendment to the Partnership Agreement set
forth on Appendix A hereto and duly proposed by American Property
Investors, Inc., as the general partner of the Partnership, be, and it
hereby is, adopted, affirmed and approved in all respects; and
RESOLVED further, that the adoption of an amendment equivalent
in substance to the amendment attached hereto as Appendix A, making
conforming amendments to the "purposes" paragraph of the OLP
Partnership Agreement (as defined in the Partnership Agreement), be,
and it hereby is, approved.
This Written Action shall be effective when signed by the
undersigned and filed in the minute book, whereupon it shall constitute the act
of the majority Unitholder of the Partnership.
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<PAGE> 29
IN WITNESS WHEREOF, the undersigned has executed this Written
Action as of this ___ day of August, 1996.
HIGH COAST LIMITED PARTNERSHIP
By: American Property Investors, Inc.,
General Partner
By: _________________________________________
Name: John P. Saldarelli
Title: Vice President
[Written Action of majority Unitholder of AREP
authorizing purpose amendment to Partnership Agreement]
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