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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
Check the appropriate box:
/X/ Preliminary Information Statement
/ / Definitive Information Statement
/ / Confidential, for Use of the Commission
Only (as permitted by Rule 14c-5(d)(2))
American Real Estate Partners, L.P.
(Name of Registrant as Specified In its Charter)
Payment of Filing Fee (Check the appropriate box):
/X/ $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:
/ / 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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TABLE OF CONTENTS
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SUMMARY INFORMATION...................................................................... 4
BACKGROUND REGARDING PARTNERSHIP......................................................... 7
REASONS FOR AMENDMENT.................................................................... 7
DESCRIPTION OF INVESTMENTS............................................................... 8
RISKS RELATED TO NON-REAL ESTATE INVESTMENTS............................................. 9
MANAGEMENT OF THE PARTNERSHIP............................................................ 10
PROPOSED AMENDMENT TO PARTNERSHIP AGREEMENT.............................................. 10
EFFECT OF AMENDMENT ON UNITHOLDERS AND PARTNERSHIP....................................... 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT......................................................................... 13
CONFLICTS OF INTEREST.................................................................... 15
EXPENSE OF PROPOSED AMENDMENT............................................................ 15
NO DISSENTERS' RIGHTS OF APPRAISAL....................................................... 16
AUDIT COMMITTEE APPROVAL................................................................. 16
ADDITIONAL INFORMATION................................................................... 17
APPENDIX A -- PROPOSED AMENDMENT........................................... A-1
APPENDIX B -- FORM OF CONSENT.............................................. B-1
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AMERICAN REAL ESTATE PARTNERS, L.P.
100 SOUTH BEDFORD ROAD
MT. KISCO, NY 10549
INFORMATION STATEMENT
July 23, 1996
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 under circumstances described herein, and activities
related thereto, 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 23, 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".
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
Icahn, 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
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Holders. It is contemplated that the Amendment will be approved by written
consent on or about August 12, 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 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. 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. 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."
- The Partnership will conduct its investment 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"). 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 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
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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.
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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
as deposit accounts and money market funds.
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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 expanded business
purposes of the Partnership 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. Thus, it is contemplated
that the Amendment proposed by the General
Partner will be adopted by the Partnership
twenty (20) days from the date of this
Information Statement upon the written
consent of Icahn, as beneficial holder of more
than 50% of the outstanding Depositary Units.
See "PROPOSED AMENDMENT TO PARTNERSHIP AGREEMENT"
and "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT."
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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 23, 1996, the Partnership
owned [235] 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.
DESCRIPTION OF INVESTMENTS
Following adoption of the Amendment by the Partnership by the written
consent of Icahn on August 12, 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, consistent with reasonable investment risk. 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.
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. See also "RISKS RELATED TO NON- REAL ESTATE
INVESTMENTS."
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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.
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.
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.
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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 its principal Unitholder, and
Icahn's 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. In
addition, the General Partner will seek opportunities in which it may utilize
the experience of Icahn and his affiliates 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.
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.
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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 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, Icahn, as beneficial holder of more than 50% of
the outstanding Depositary Units through his interest in High Coast, can execute
a written consent approving the proposed Amendment. See "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" for information relating to Icahn's
security ownership. It is anticipated that on or about August 12, 1996, twenty
(20) days following the date of this Information Statement, Icahn 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 an expansion
of the business purposes of the Partnership.
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
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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 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.
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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 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.
Expansion 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
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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 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 23, 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 147,390 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
13
<PAGE> 16
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 23, 1996, there were 25,666,640 Depositary Units outstanding.
Each Unitholder is entitled to one vote per Depositary Unit held. As of July 23,
1996, to the best knowledge of the Partnership, Wellington Management Company, a
Massachusetts corporation, which filed a Schedule 13-G on January 26, 1996, owns
[1,526,546] Depositary Units, or approximately [5.95]% of the outstanding
Depositary Units.
The following table provides information, as of July 23, 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.
<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 147,390 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.
14
<PAGE> 17
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 the Partnership. However, Icahn's approval of the amendment to
the Partnership Agreement and 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.
15
<PAGE> 18
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. 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. 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 ownership, development or management of real estate,
was in the best interests of the Partnership and its Unitholders.
16
<PAGE> 19
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 23, 1996
17
<PAGE> 20
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 July 23, 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 expand 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 lawful activities related or
incidental thereto or in furtherance of the foregoing purposes (including,
without
A-1
<PAGE> 21
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> 22
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> 23
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.
B-1
<PAGE> 24
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]
B-2
