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As filed with the Securities and Exchange Commission on July 18, 1997
REGISTRATION NO. 333-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
AMERICAN REAL ESTATE PARTNERS, L.P.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3398766
(State of Organization) (IRS Employer Identification Number)
100 SOUTH BEDFORD ROAD
MT. KISCO, NY 10549
(914) 242-7700
(Address and Telephone Number of Registrant's Principal Executive Office)
JOHN P. SALDARELLI
AMERICAN REAL ESTATE PARTNERS, L.P.
100 SOUTH BEDFORD ROAD
MT. KISCO, NY 10549
(914) 242-7700
(Name, Address and Telephone Number of Agent for Service)
Copies to:
CRAIG S. MEDWICK, ESQ.
G. DAVID BRINTON, ESQ.
ROGERS & WELLS
200 PARK AVENUE
NEW YORK, NEW YORK 10166
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: With respect to
the Depositary Units (as defined herein) and the Preferred Units (as defined
herein) to be issued upon exercise of the Rights (as defined herein), as soon as
practicable after this Registration Statement has been declared effective and
with respect to the Depositary Units issuable upon conversion of the Preferred
Units and the Preferred Units which may be issued from time to time as
distributions on the Preferred Units, from time to time after this Registration
Statement has been declared effective.
If the only securities being registered on this form are to be offered pursuant
to dividend or interest reinvestment plans, please check the following box./ /
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box./X/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering./ /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering./ /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box./ /
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Proposed Maximum Amount of
Title of Securities Aggregate Offering Registration
to be Registered Price Fee
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Depositary Units representing Limited Partner Interests.............. $240,000,000(1) $72,728
- ---------------------------------------------------------------------------------------------------------------------
Cumulative Pay-in-Kind Redeemable Preferred Units
representing Limited Partner Interests............................... $60,000,000(2) $18,182
- ---------------------------------------------------------------------------------------------------------------------
Depositary Units representing Limited Partner Interests issuable
upon redemption of the Preferred Units............................... (3) (3)
- ---------------------------------------------------------------------------------------------------------------------
Cumulative Pay-in-Kind Redeemable Preferred Units
representing Limited Partner Interests, which may be issued from
time to time as distributions on the Preferred Units................. (4) (4)
</TABLE>
================================================================================
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as
amended (the "Act").
(2) Estimated solely for purposes of calculating the registration fee.
(3) Issuable upon conversion of the Preferred Units without payment of any
additional consideration. Accordingly, pursuant to Rule 457(i) of the
Act, no registration fee is payable.
(4) No additional consideration is payable in connection with the issuance
of these securities.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
PROSPECTUS (Subject to Completion)
Dated July 18, 1997
AMERICAN REAL ESTATE PARTNERS, L.P.
SUBSCRIPTION RIGHTS, EXPIRING _________, 1997, TO PURCHASE DEPOSITARY
UNITS REPRESENTING LIMITED PARTNER INTERESTS AND 5% CUMULATIVE PAY-IN-KIND
REDEEMABLE PREFERRED UNITS REPRESENTING LIMITED PARTNER INTERESTS
American Real Estate Partners, L.P., a Delaware limited partnership
("AREP" or the "Partnership"), is distributing at no cost to holders of record
as of the close of business on __________, 1997 (the "Record Date") of
depositary units representing limited partner interests in the Partnership (the
"Depositary Units") one transferable subscription right (each, a "Right") for
each five Depositary Units held. Each Right entitles the holder thereof ("Rights
Holders") to purchase, at any time prior to 5:00 p.m., New York City time, on
________, 1997 (as such date may be extended by the Partnership as herein
provided, the "Expiration Date"), at a subscription price of $__ (the
"Subscription Price"), the following securities (the "Basic Subscription
Right"): (i) four Depositary Units and (ii) one 5% cumulative pay-in- kind
redeemable preferred unit (the "Preferred Unit"), each representing a limited
partner interest in the Partnership. The Subscription Price is allocable $__ to
the Depositary Units and $__ to the Preferred Unit. The portion of the
Subscription Price allocable to the Depositary Units represents a discount to
the last reported sales price for the Depositary Units on the New York Stock
Exchange, Inc. (the "NYSE") which was $____ on __________, 1997. The portion of
the Subscription Price allocable to the Preferred Unit represents the
liquidation preference of the Preferred Unit of $10, plus accrued interest
thereon of _____; the last reported sales price on the NYSE for the Preferred
Units was $___ on __________, 1997. Each Rights Holder who exercises any portion
of his Basic Subscription Rights (an "Exercising Rights Holder") will be
entitled to exercise an over-subscription privilege (the "Over-Subscription
Privilege") for all or any portion of the Depositary Units and Preferred Units
that are not purchased through the exercise of Basic Subscription Rights. If all
Basic Subscription Rights are exercised, there will be no Over-Subscription
Privilege. There is no limit on the number of Depositary Units and Preferred
Units that Exercising Rights Holders may seek to subscribe for pursuant to the
Over-Subscription Privilege. The available Preferred Units and Depositary Units
will be allocated pro rata (according to the aggregate number of Basic
Subscription Rights exercised) among those Rights Holders who exercise the
Over-Subscription Privilege. The Depositary Units and Preferred Units purchased
through the exercise of Basic Subscription Rights and the Over-Subscription
Privilege must be purchased as a unit consisting of four Depositary Units and
one Preferred Unit and may not be subscribed for separately. See "The Offering."
EXERCISING RIGHTS HOLDERS WILL HAVE NO RIGHT TO MODIFY OR RESCIND A
PURCHASE AFTER THE SUBSCRIPTION AGENT HAS RECEIVED A COMPLETED SUBSCRIPTION
CERTIFICATE. EXCEPT FOR THE GUARANTOR (DEFINED BELOW), ALL EXERCISING RIGHTS
HOLDERS MUST REMIT PAYMENT IN FULL WITH THEIR COMPLETED SUBSCRIPTION CERTIFICATE
FOR ALL DEPOSITARY UNITS AND PREFERRED UNITS SUBSCRIBED FOR THROUGH THE EXERCISE
OF BASIC SUBSCRIPTION RIGHTS AND THE OVER-SUBSCRIPTION PRIVILEGE. SEE "THE
OFFERING -- PAYMENT FOR SECURITIES."
High Coast Limited Partnership, a Delaware limited partnership (the
"Guarantor") whose general partner is American Property Investors, Inc. (the
"General Partner"), the general partner of the Partnership, has agreed, subject
to certain conditions contained in the Subscription Guaranty Agreement (as
defined herein), (i) to subscribe for and purchase ________ Depositary Units and
_____ Preferred Units through the exercise of its Basic Subscription Rights and
(ii) to subscribe for all other Depositary Units and Preferred Units pursuant to
the Over-Subscription Privilege, and, subject to proration as described above,
to purchase such additional Depositary Units and Preferred Units (the
"Subscription Guaranty"). Therefore, assuming the conditions in the Subscription
Guaranty Agreement are satisfied, the Partnership is assured of receiving an
amount equal to the amount it would have raised had all Basic Subscription
Rights been exercised in full, approximately $___________ assuming the issuance
of _________ Rights (the "Guaranteed Amount"). No fee is being paid to the
Guarantor for the Subscription Guaranty, although any Units (as defined herein)
held by the Guarantor will be subject to a registration rights agreement. The
Guarantor may purchase Rights during the Offering. See "The Rights Offering --
Subscription Guaranty."
Each Preferred Unit has a liquidation preference of $10.00 and entitles
the holder thereof to receive distributions thereon, payable solely in
additional Preferred Units, at the rate of 5% per annum of the liquidation
preference (which is equal to $.50 per annum per Preferred Unit) payable
annually on March 31 of each year (each, a "Payment Date"). The Preferred Units
are subject to (i) redemption at the option of the Partnership on any Payment
Date commencing with the Payment Date on March 31, 2000 and (ii) mandatory
redemption by the Partnership on March 31, 2010. The redemption price is payable
at the option of the Partnership either in all cash or by issuance of additional
Depositary Units in an amount equal to the redemption price. See "Description of
Securities -- The Preferred Units -- Redemption." Holders of Preferred Units and
Depositary Units may incur taxable income each year even though no cash is
distributed. See "Description of Securities" and "Income Tax Considerations."
The Rights are freely transferable and the Partnership will seek to
list the Rights on the NYSE. There can be no assurance, however, that the Rights
will be accepted for listing on such exchange or that a market for the Rights
will develop. The Depositary Units currently outstanding are, and those issued
on exercise of the Rights will be, listed on the NYSE under the symbol "ACP."
The Preferred Units currently outstanding are, and those issued on exercise of
the Rights will be, listed on the NYSE under the symbol "ACP.Pr."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 13 HEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Subscription Proceeds to
Price Partnership(1)(2)
Per Unit................................... $_____ $_____
Total(3)................................... $___________ $__________
(Footnotes on following page)
_____________, 1997
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(Footnotes from prior page)
(1) Before deducting offering expenses of the Partnership estimated to be
$________.
(2) No underwriting discounts or commissions will be paid in connection with the
offering.
(3) Assumes issuance and exercise of ___________ Rights. The number of Rights
actually issued may vary due to rounding. See "The Offering -- Terms of the
Offer."
AVAILABLE INFORMATION
The Partnership is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information filed by the
Partnership may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Office of the
Commission: Jacob K. Javits Federal Building, 26 Federal Plaza, New
York, New York 10278. Copies of such material may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a
site on the world-wide-web at http://www.sec.gov that contains reports
and other information regarding the Partnership. The Depositary Units
and Preferred Units of the Partnership are listed on the NYSE. Reports
and other information concerning the Partnership may be inspected at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Partnership has filed with the Commission a Registration
Statement (the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities
offered hereby. This Prospectus omits certain information included in
such Registration Statement. For further information about the
Partnership and the securities offered hereby, reference is hereby made
to such Registration Statement and to the exhibits filed as part
thereof. The Registration Statement may be examined without charge, and
copies thereof may be obtained upon payment of a prescribed fee, at the
principal office of the Commission in Washington, D.C.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Partnership with the
Commission are incorporated in and made a part of this Prospectus by
reference:
(1) the Partnership's annual report on Form 10-K for the
year ended December 31, 1996;
(2) the Partnership's quarterly report on Form 10-Q for
the quarterly period ended March 31, 1997; and
(3) the Partnership's Current Report on Form 8-K dated
March 26, 1997.
All documents filed by the Partnership pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the termination of the offering made hereby (the "Offering")
shall be deemed to be incorporated by reference herein and to be a part
hereof from the date of filing such documents.
Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for
purposes of this Prospectus to the extent that a statement contained in
this Prospectus, or contained in any other document incorporated by
reference herein, modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Partnership will furnish without charge to each person to
whom a copy of this Prospectus is delivered, on the written or oral
request of any such person, a copy of any or all of the documents
incorporated herein by reference (other than exhibits to such documents
unless such exhibits are specifically incorporated by reference into
such documents). Written or telephone requests for such copies should
be directed to the Partnership, 100 South Bedford Road, Mt. Kisco, New
York 10549, (914) 242-7700 or (800) 255-2737.
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PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements that involve risks
and uncertainties. The Partnership's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus. The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus.
As used in this Prospectus, unless the context otherwise indicates,
"AREP" or the "Partnership" means American Real Estate Partners, L.P. and its
direct and indirect subsidiaries. All references in this Prospectus to
"Unitholders" shall refer to holders of Depositary Units and holders of
Preferred Units, unless the context otherwise indicates. All references in this
Prospectus to "Units" shall refer to the Depositary Units and the Preferred
Units, unless the context otherwise indicates. All references in this Prospectus
to the aggregate number of Rights, Depositary Units and Preferred Units issued
and to numbers derived therefrom are based on the assumption that ___________
Rights are issued. The number of Rights actually issued is subject to change
based on the number of Depositary Units held by each record holder or beneficial
owner due to rounding (described below).
THE PARTNERSHIP AND PURPOSE OF THE OFFERING
AREP was formed under the laws of the State of Delaware on February 17,
1987 and its general partner is American Property Investors, Inc. (the "General
Partner"), a Delaware corporation which is wholly owned by Carl C. Icahn
("Icahn"). AREP's business is conducted through a subsidiary limited
partnership, American Real Estate Holdings Limited Partnership (the
"Subsidiary"), in which AREP owns a 99% limited partnership interest. The
General Partner also acts as the general partner for the Subsidiary. The General
Partner has a 1% general partnership interest in each of AREP and the
Subsidiary, and, upon completion of the offering made hereby, the General
Partner will contribute additional capital to the Partnership in the amount
necessary to maintain its 1% general partner interest in AREP.
AREP is primarily engaged in the business of acquiring and managing
real estate and activities related thereto. Historically, the properties owned
by AREP have been primarily office, retail, industrial, residential and hotel
properties. As of June 30, 1997, AREP owned 218 separate real estate assets
primarily consisting of fee and leasehold interests in 35 states. On August 16,
1996, an amendment (the "Amendment") to AREP's Amended and Restated Limited
Partnership Agreement (the "Partnership Agreement") became effective which
permits AREP to make non-real estate related investments.
The Partnership is seeking to raise funds in the offering to increase
its available liquidity so that it will be in a better position to take
advantage of investment opportunities and to further diversify its portfolio.
Additionally, the Partnership may determine to reduce the debt of certain
properties where the interest rate is considered to be in excess of current
market rates. In light of AREP's view of current market conditions and the rise
in the trading price of AREP's Depositary Units, AREP believes that this is an
opportune time to raise additional capital. The Partnership believes that the
strengthening of the real estate market and the stock market over recent years
has permitted AREP and others to sell properties at increasingly favorable
prices. However, AREP believes the markets may be due for a downward correction
which could result in purchasing opportunities from sellers who may seek to
liquidate assets when their expected returns decrease; also, the trading prices
of securities issued by such companies could decline, providing additional
investment opportunities. In the real estate markets, which historically have
been cyclical, this may be especially true due to the unprecedented high volume
of securities issued by real estate operating companies. This may present
opportunities for companies with strong cash positions to acquire large
portfolios of assets at possible discounts to their implicit values and for the
acquisition or recapitalization of operating companies, including those with
significant real estate assets.
The types of investments AREP will pursue include residential/
commercial development, acquiring debt or equity securities of companies
which may be undergoing restructuring and subperforming properties that may
require active asset management and significant capital improvements. These
investments may not be readily
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financeable and may not generate immediate positive cash flow for the
Partnership. As such, they require AREP to maintain a strong capital base in
order to react quickly to these market opportunities as well as to allow AREP
the financial strength to develop or reposition these assets.
AREP believes that the Partnership will benefit from diversification of
its real estate portfolio. By the end of the year 2000, net leases representing
approximately 23% of AREP's net annual rentals from its portfolio will be due
for renewal, and by the end of the year 2002, net leases representing
approximately 41% of AREP's net annual rentals will be due for renewal. Since
most of the Partnership's properties are net-leased to single corporate tenants,
it may be difficult and time consuming to re-lease or sell those properties that
existing tenants decline to re-let or purchase and that AREP may be required to
incur expenditures to renovate such properties for new tenants. In addition,
AREP may become responsible for the payment of certain operating expenses,
including maintenance, utilities, taxes, insurance and environmental compliance
costs associated with such properties which are presently the responsibility of
the tenant. As a result, AREP could experience an adverse impact on net cash
flow from such properties in the future.
In selecting future real estate investments, AREP intends to focus on
assets that it believes are undervalued in the real estate market, which
investments may require substantial liquidity to maintain a competitive
advantage. Despite the substantial capital pursuing real estate opportunities,
AREP believes that there are still opportunities available to acquire
investments that are undervalued. This may include commercial properties,
residential and commercial development projects, land, non-performing loans and
the securities of entities which own, manage or develop significant real estate
assets, including limited partnership units and securities issued by real estate
investment trusts ("REITS"). To further these investment objectives, AREP may
consider the acquisition or seek effective control of land development companies
and other real estate operating companies which may have a significant inventory
of quality assets under development, as well as experienced personnel. This may
enhance AREP's ability to further diversify its portfolio of properties and gain
access to additional operating and development capabilities. Such acquisitions
may include those from affiliates of the General Partner, provided the terms
thereof are fair and reasonable and are approved by the Audit Committee of the
Board of Directors of the General Partner (the "Audit Committee"). See "Risk
Factors -- Substantial Fees to General Partner and its Affiliates" and "Use of
Proceeds -- Fees to the General Partner and its Affiliates."
Pursuant to the Amendment, AREP, while continuing to pursue suitable
investments in the real estate markets as mentioned above, may invest a portion
of its funds 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 may include equity and debt securities of domestic and
foreign issuers. The investment objective of AREP with respect to such
investments will be to purchase undervalued securities, so as to maximize total
return consisting of current income and/or capital appreciation. Undervalued
securities are those which AREP believes may have greater inherent value than
indicated by their then current trading price and/or may lend themselves to
"activist" shareholder involvement. The equity securities in which AREP 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 AREP 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. AREP 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 (the "1940 Act").
Recently, AREP invested approximately $42.8 million to purchase certain
mortgage notes issued by Stratosphere Corporation ("Stratosphere") having a face
value of $55 million. In addition, an affiliate of Icahn currently owns
approximately $39 million face value of such Stratosphere mortgage notes.
Stratosphere owns and operates the Stratosphere Tower, Casino & Hotel in Las
Vegas, Nevada and has filed a voluntary proceeding for reorganization pursuant
to Chapter 11 of the United States Bankruptcy Code. Such affiliate of Icahn and
AREP together submitted a proposal for the restructuring of Stratosphere, which
if accepted and pursued would involve additional investments in Stratosphere by
AREP and such affiliate of Icahn. In addition, AREP is investigating
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possible tender offers for real estate operating companies which, together with
the possible additional investment in Stratosphere, could involve investments of
over $200 million by AREP in the foreseeable future. However, no assurances can
be made that such transactions will be pursued or that such investments will be
made. See "Recent Events -- Investment in Stratosphere Corporation."
In keeping with its overall investment strategy, the Partnership may
acquire assets that are not generating positive cash flow. While this may impact
cash flow in the near term and there can be no assurance that any asset acquired
by the Partnership will increase in value or generate positive cash flow, AREP
intends to focus on assets that it believes may provide opportunities for
long-term growth and diversification of its portfolio.
The determination of which assets are to be acquired will be within the
sole discretion of the General Partner. No assets have as yet been identified
for acquisition nor has the Partnership entered into negotiations or agreements
relating to the acquisition of any assets with the proceeds of the Offering.
Icahn, in his capacity as majority Unitholder through High Coast
Limited Partnership, a Delaware limited partnership (the "Guarantor"), 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. In
addition, Icahn has confirmed to AREP that neither he nor any of his affiliates
will receive any fees from AREP in consideration for services rendered in
connection with non-real estate related investments by AREP. The General Partner
and its affiliates may, however, realize substantial fees and other income from
transactions involving the Partnership's investments in real estate as described
herein. AREP may determine to make investments in certain assets in which Icahn
or his affiliates have independent investments; in addition, AREP may enter into
other transactions with the General Partner, Icahn or their affiliates,
including, without limitation, buying and selling assets from or to the General
Partner, Icahn or their affiliates, and participating in joint venture
investments in assets with the General Partner, Icahn or their affiliates,
whether real estate or non-real estate related, provided the terms of all such
transactions are fair and reasonable to AREP. See "Use of Proceeds -- Fees to
the General Partner and its Affiliates" and "Risk Factors -- Substantial Fees to
General Partner and its Affiliates."
In addition to the factors described above, the Offering seeks, in
part, to give Unitholders the right to purchase additional Depositary Units and
Preferred Units at a total price below market without incurring any commission
charge and, in part, to provide the Partnership, through the issuance of
additional Preferred Units, with a relatively inexpensive source of financing.
The Preferred Units also have the further quality, at least initially, of not
being dilutive to those Unitholders who choose not to exercise their Rights
(although the Preferred Units could, if the Audit Committee of the Board of
Directors of the General Partner determined it was in the best interests of the
Partnership at the time, be redeemed at a later time for Depositary Units). In
structuring the Offering, the General Partner considered that the Preferred
Units have been trading at a discount to their liquidation preference, may not
be as attractive to investors as the Depositary Units and might reduce
Unitholder participation in the Offering, but determined that the benefit to the
Partnership and ultimately Unitholders of raising approximately an additional
$___________ for investment through the issuance of the additional Preferred
Units together with the offering of the additional Depositary Units outweighed
any potential negative impact that might arise as a consequence of including the
Preferred Units as part of the Offering. Moreover, in an attempt to at least
partially compensate those Unitholders who decline to participate in the
Offering, the General Partner has structured the Rights as transferable to
afford non-participating Unitholders the potential of receiving a cash payment
upon sale of such Rights. See "Purpose of the Offering -- Benefits to the
Partnership and Unitholders."
THE OFFERING
Terms of the Offer
The Partnership is issuing to holders of record (the "Record Date
Holders") as of the close of business on __________, 1997 (the "Record Date") of
depositary units representing its limited partner interests ("Depositary
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Units") one transferable subscription right (each, a "Right") for each five
Depositary Units held. Each Right entitles the holder thereof (the "Rights
Holder") to purchase, at any time prior to 5:00 p.m., New York City time, on
________, 1997 (as such date may be extended by the Partnership as herein
provided, the "Expiration Date"), at a subscription price of $__ (the
"Subscription Price") the following securities: (i) four Depositary Units and
(ii) one 5% cumulative pay-in-kind redeemable preferred unit (the "Preferred
Unit"), each representing a limited partner interest in the Partnership. The
number of Rights to be issued to a Record Date Holder of a number of Depositary
Units not divisible by five is determined by multiplying the number of
Depositary Units held by such Record Date Holder on the Record Date by .2 and
then rounding up to the nearest whole number if the fractional amount is greater
than or equal to .5 and rounding down to the nearest whole number if the
fractional amount is less than .5. In the case of Depositary Units held of
record by any firm that is a member of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., or a commercial bank
or a trust company or other person that holds Depositary Units as nominee for
more than one beneficial owner (each, a "Nominee Holder"), the number of Rights
issued to such Nominee Holder will be adjusted to permit rounding up of the
Rights to be received by the beneficial owners for whom it is the holder of
record only if such Nominee Holder provides to the Partnership on or before the
close of business on ___________, 1997 written representation of the number of
Rights required for such rounding.
The subscription period shall commence on _______, 1997 and will end on
the Expiration Date. The Rights are evidenced by subscription certificates (the
"Subscription Certificates") which will be mailed to Record Date Holders on
_________, 1997, except as discussed below under "Sale of API Nominee Corp.
Rights" and "Foreign Restrictions."
The right of a Rights Holder to acquire during the subscription period
at the Subscription Price four Depositary Units and one Preferred Unit is
hereinafter referred to as a "Basic Subscription Right." The Depositary Units
and Preferred Units purchased through the exercise of Basic Subscription Rights
must be purchased as a unit consisting of four Depositary Units and one
Preferred Unit and may not be subscribed for separately. All Rights may be
exercised immediately upon receipt and until 5:00 p.m., New York City time, on
the Expiration Date. Rights Holders exercising any of their Basic Subscription
Rights are hereinafter referred to as "Exercising Rights Holders."
Securities Offered
Each Right entitles the Rights Holder to purchase four Depositary Units
and one Preferred Unit at a Subscription Price equal to $__. The Subscription
Price is allocable $__ to the Depositary Units and $__ to the Preferred Unit.
The portion of the Subscription Price allocable to the Depositary Units
represents a discount to the last reported sales price of $_.__ for the
Depositary Units on the NYSE on ________, 1997. The portion of the Subscription
Price allocable to the Preferred Unit represents the liquidation preference of
the Preferred Unit of $10, plus accrued interest thereon of _____; the last
reported sales price on the NYSE for the Preferred Units was $___ on _________,
1997. The Depositary Units have been priced at a discount to the market price to
attempt to make the Depositary Units attractive to investors. The discount may
result in a reduction in the market price of the Depositary Units, however, the
Partnership cannot predict what impact, if any, such discount will have on the
market price of the Depositary Units.
The Depositary Units currently trade on the NYSE under the symbol
"ACP." The Preferred Units currently trade on the NYSE under the symbol
"ACP.Pr."
Each Preferred Unit will have a liquidation preference of $10.00 and
will entitle the holder thereof to receive distributions thereon, payable solely
in additional Preferred Units, at the rate of 5% per annum of the liquidation
preference (which is equal to $.50 per annum per Preferred Unit), payable
annually on March 31 of each year (each, a "Payment Date"). On any Payment Date
commencing with the Payment Date on March 31, 2000, the Partnership, with the
approval of the Audit Committee of the Board of Directors of the General Partner
(the "Audit Committee"), may opt to redeem all, but not less than all, of the
Preferred Units for a price, payable either
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<PAGE> 8
in all cash or by issuance of additional Depositary Units equal to the
liquidation preference of the Preferred Units, plus any accrued but unpaid
distributions thereon. Upon any redemption of the Preferred Units, the
redemption price may be paid either all in cash or all in Depositary Units but
not in a combination thereof. See "Description of Securities -- The Preferred
Units -- Redemption." On March 31, 2010, the Partnership must redeem all, but
not less than all, of the Preferred Units on the same terms as any optional
redemption. Holders of Preferred Units will be allocated taxable income each
year equal to the accrual of distributions, even though no cash has been
distributed during the year. See "Income Tax Considerations."
As of June 30, 1997, there were 25,666,640 Depositary Units and
2,178,143 Preferred Units outstanding. After giving effect to the Offering,
there will be approximately _________ Depositary Units and ________ Preferred
Units outstanding.
Over-Subscription Privilege
If less than all of the Basic Subscription Rights are exercised, each
Exercising Rights Holder will be entitled to subscribe for all or any portion of
the Depositary Units and Preferred Units which were not otherwise subscribed for
by other Rights Holders (the "Over-Subscription Privilege"). The Depositary
Units and Preferred Units purchased pursuant to the Over-Subscription Privilege
must be purchased as a unit consisting of four Depositary Units and one
Preferred Unit and may not be subscribed for separately. The available
Depositary Units and Preferred Units will be allocated pro rata (according to
the aggregate number of Basic Subscription Rights exercised) among those
Exercising Rights Holders who exercise the Over-Subscription Privilege. In the
event a Rights Holder exercising the Over-Subscription Privilege is allocated
less than the number of Depositary Units and Preferred Units such Holder
subscribed for, excess subscription payments will be promptly refunded. See "The
Offering -- Payment for Securities." If all Basic Subscription Rights are
exercised in full, the Over-Subscription Privilege will not be available.
Subscription Guaranty
The Guarantor, which, as of the date of this Prospectus, together with
its affiliates, holds 13,895,712 Depositary Units (54.1%) and 1,920,945
Preferred Units (88.2%), has agreed, subject to certain conditions contained in
the Subscription Guaranty Agreement (as defined herein), (i) to subscribe for
and purchase _________ Depositary Units and ______ Preferred Units through the
exercise of its Basic Subscription Rights and (ii) to subscribe for all other
Depositary Units and Preferred Units pursuant to the Over-Subscription
Privilege, and, subject to proration as described above, to purchase such
additional Depositary Units and Preferred Units (the "Subscription Guaranty").
As a result, assuming the conditions in the Subscription Guaranty Agreement are
satisfied, the Partnership is assured of receiving gross proceeds from the
Offering in an amount equal to the amount it would have raised had all Basic
Subscription Rights been exercised in full, approximately $__________ assuming
the issuance of __________ Rights (the "Guaranteed Amount"). The Guarantor will
receive certain registration rights with respect to its Units for providing the
Subscription Guaranty but will not otherwise be compensated. See "The Offering
- -- Subscription Guaranty -- Registration Rights Agreement." The terms of such
Subscription Guaranty and the registration rights were reviewed and approved by
the Audit Committee.
The Guarantor may purchase Rights in the Offering, in accordance with
applicable securities laws, solely with the intention of exercising such Rights.
Any Depositary Units and Preferred Units purchased pursuant to the exercise of
any such Rights will be acquired for investment purposes only. See "The Offering
- -- Subscription Guaranty -- Purchase of Rights by Guarantor."
If no Rights are exercised by Rights Holders other than the Guarantor,
upon completion of the Offering, the Guarantor would beneficially own __________
Depositary Units or approximately ____% of the then outstanding Depositary Units
and __________ Preferred Units or approximately ____% of the then outstanding
Preferred Units.
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Exercising Rights
Rights will be evidenced by Subscription Certificates (see Appendix A)
and may be exercised by completing a Subscription Certificate and delivering it,
together with full payment, either by means of a notice of guaranteed delivery
(see Appendix B) or a check to Registrar and Transfer Company (the "Subscription
Agent") at the address set forth under "The Offering -- Subscription Agent." An
example demonstrating the exercise of Rights, including the Over-Subscription
Privilege, is set forth under "The Offering -- Example of Exercise of Rights and
the Over-Subscription Privilege."
EXCEPT FOR THE GUARANTOR, ALL EXERCISING RIGHTS HOLDERS MUST REMIT
PAYMENT IN FULL WITH THEIR COMPLETED SUBSCRIPTION CERTIFICATE FOR ALL DEPOSITARY
UNITS AND PREFERRED UNITS SUBSCRIBED FOR THROUGH THE EXERCISE OF BASIC
SUBSCRIPTION RIGHTS AND THE OVER-SUBSCRIPTION PRIVILEGE. SEE "THE OFFERING --
PAYMENT FOR SECURITIES." EXERCISING RIGHTS HOLDERS WILL HAVE NO RIGHT TO MODIFY
OR RESCIND A PURCHASE AFTER THE SUBSCRIPTION AGENT HAS RECEIVED A COMPLETED
SUBSCRIPTION CERTIFICATE.
Sales of Rights
The Rights are freely transferable until the close of business on the
last Business Day (as defined herein) prior to the Expiration Date. The
Partnership will seek to list the Rights on the NYSE. There can be no assurance
that the Rights will be accepted for listing on such exchange or that a market
for the Rights will develop. The Rights may be sold by a Rights Holder on or
before the last Business Day prior to the Expiration Date. The Partnership is
not responsible if Rights cannot be sold and has not guaranteed any minimum
sales price for the Rights. For purposes of this Prospectus, a "Business Day"
means any day on which trading is conducted on the NYSE.
Sale of API Nominee Corp. Rights
Pursuant to an exchange offer which was consummated on July 1, 1987
(the "Exchange"), AREP acquired the real estate and other assets of 13 limited
partnerships (the "Predecessor Partnerships"). In connection with the Exchange,
the Depositary Units of certain non-consenting investors in the Predecessor
Partnerships issued in connection with the Exchange were registered in the name
of API Nominee Corp. (the "Nominee Corp."). As of June 30, 1997, Nominee Corp.
held 46,120 Depositary Units. Unless such non-consenting investors execute and
return their transfer applications and the certificates evidencing their
interests in the Predecessor Partnerships issued in connection with the
Exchange, thereby becoming holders of record of the Depositary Units held by
Nominee Corp., prior to the Record Date, Nominee Corp. shall use its reasonable
efforts to sell the Rights issued to Nominee Corp. and the proceeds from such
sale, if any, will be held in escrow by Nominee Corp. Neither the General
Partner nor the Guarantor intends to purchase Rights from Nominee Corp.
Foreign Restrictions
Subscription Certificates will not be mailed to Record Date Holders
with record addresses outside the United States (for these purposes, the United
States includes its territories and possessions and the District of Columbia)
("Foreign Record Date Unitholders"). The Rights to which such Subscription
Certificates relate will be held by the Subscription Agent for such Foreign
Record Date Unitholders' accounts until instructions are received to exercise,
sell or transfer the Rights. If no instructions have been received by 12:00
noon, New York City time, three Business Days prior to the Expiration Date, the
Subscription Agent will use its reasonable efforts to sell the Rights of those
Foreign Record Date Unitholders. The net proceeds, if any, from the sale of
those Rights will be remitted to the Foreign Record Date Unitholders.
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IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
Event Date
<S> <C>
Record Date ________, 1997
Subscription Period ________, 1997 to ________, 1997
Expiration Date ________, 1997 (unless extended)
Last Date by which Nominee Holders
must notify Partnership for Rounding
Purposes ________, 1997
Last Guaranteed Transfer Date ________, 1997 (unless extended)
Payment for Depositary Units and Preferred Units
and Notice of Guaranteed Delivery Due ________, 1997 (unless extended)
Subscription Certificates due pursuant
to Notice of Guaranteed Delivery ________, 1997 (unless extended)
</TABLE>
Additional information regarding the pertinent dates related to the
Offering can be found on pages 23 through 31 herein, and additional information
regarding the Offering may be obtained from the Partnership at (800) 255-2737 or
the Subscription Agent at (800) 368-5948.
RISK FACTORS
Each Rights Holder who subscribes for the purchase of Depositary Units
and Preferred Units pursuant to the Offering described in this Prospectus shall
be deemed to have applied for admission as a limited partner of the Partnership
with respect to the Units acquired and to have agreed to be bound by all of the
terms and conditions of the Partnership Agreement, as from time to time in
effect. See "Description of Partnership Agreement." Prospective purchasers of
Units should carefully consider the matters discussed under "Risk Factors" prior
to any investment in the Partnership. Such matters include, among others:
POTENTIAL SUBSTANTIAL DILUTION. Upon completion of the Offering,
holders of Depositary Units who do not exercise their Basic Subscription Rights
in full will own a smaller proportional interest in the Partnership. The only
way for a Unitholder to avoid potential substantial dilution is to exercise all
of its Basic Subscription Rights.
INCREASED CONTROL OF THE PARTNERSHIP BY ICAHN. As of the date of this
Prospectus, the Guarantor beneficially owns approximately 54.1% of the
outstanding Depositary Units and approximately 88.2% of the outstanding
Preferred Units. If no Rights are exercised by Rights Holders other than the
Guarantor, the Guarantor would beneficially own approximately ____% of the then
outstanding Depositary Units and approximately ____% of the then outstanding
Preferred Units thereby increasing the Guarantor's control over substantially
all matters to be determined by the Unitholders. The affirmative vote of
Unitholders holding more than 75% of the total number of Depositary Units then
outstanding, including Depositary Units held by the General Partner and its
affiliates, is required to remove the General Partner. Thus, the General Partner
cannot be removed without the consent of Icahn. Moreover, the affirmative vote
of the General Partner and Unitholders owning more than 50% of the total number
of all outstanding Depositary Units then held by Unitholders, including the
Guarantor, is required to approve certain extraordinary actions taken by the
Partnership. Accordingly, Icahn, through the Guarantor, has effective control
over the taking of these actions by the Partnership.
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RISKS ASSOCIATED WITH PURCHASE OF THE PREFERRED UNITS. The Preferred
Units call for distributions to be paid in kind. Holders of Preferred Units will
not receive any payment from the Partnership in respect thereof unless such
securities are redeemed for cash in accordance with the terms thereof and will
have no voting rights or be entitled to participate in any decisions regarding
the management of the Partnership except in certain limited circumstances. The
Preferred Units have no preemptive rights or anti-dilution protection and they
may be redeemed at the option of the Partnership on any Payment Date commencing
with the Payment Date on March 31, 2000 for a price payable either in cash or
Depositary Units. The Preferred Units have traded and, as of the date of this
Prospectus are trading, at a discount to their $10 liquidation value. While no
prediction can be made as to the effect, if any, that market sales of Depositary
Units issued in redemption of Preferred Units, or the availability of such
Depositary Units for sale, will have on the market price of the Depositary
Units, sales of substantial amounts of the Depositary Units received upon
redemption of the Preferred Units in the public market could adversely affect
prevailing market prices.
BROAD GENERAL PARTNER DISCRETION IN USE OF PROCEEDS; UNSPECIFIED
INVESTMENTS. No properties or other investments have as yet been identified for
acquisition by the Partnership with the proceeds of the Offering and the
determination of which properties or investments are to be acquired will be
within the sole control of the General Partner.
SUBSTANTIAL FEES TO THE GENERAL PARTNER AND ITS AFFILIATES. In
connection with the real estate investments of the Partnership, affiliates of
the General Partner may realize substantial fees, commissions and other income
from transactions involving the purchase, operation, management, development,
financing and sale of the Partnership's properties, subject to certain
limitations on properties acquired from the Predecessor Partnerships. The
Partnership may also enter into real estate management or other arrangements
with the General Partner or its affiliates. In addition, subject to the terms of
the Partnership Agreement, the General Partner has absolute discretion to act on
behalf of the Partnership with respect to all transactions with affiliates, and
such transactions may not be the result of arm's-length negotiations. See "--
Use of Proceeds" below for a further description of the fees payable to the
General Partner and its affiliates.
CERTAIN TAX CONSIDERATIONS. Favorable tax treatment of the Partnership
and the Subsidiary depends, in large part, on the classification of the
Partnership and the Subsidiary as partnerships for federal income tax purposes.
Based on certain representations by the General Partner, counsel to the
Partnership is of the opinion that, under current law, the Partnership and the
Subsidiary will continue to be classified as partnerships for federal income tax
purposes. However, this opinion of counsel is not binding on the Internal
Revenue Service (the "IRS") or any court and the IRS may challenge the
classification of the Partnership or the Subsidiary as a partnership. The law is
not entirely clear as to the proper method of allocation of income and loss in
the case of the issuance by a partnership of units having the characteristics of
the Depositary Units and Preferred Units. The Partnership Agreement provides
that income will be accrued to the Preferred Units as a "guaranteed payment"
under Section 707(c) of the Internal Revenue Code of 1986, as amended (the
"Code"), based on the accrual of the liquidation preference. There is no
assurance that the IRS will continue to respect this treatment for tax purposes.
In addition, certain aspects of the allocation of taxable income and loss
between existing holders of Depositary Units and holders of Depositary Units
issued upon exercise of Rights are not entirely clear and may be subject to
challenge by the IRS. Each Depositary Unitholder will be taxed on the
Unitholder's allocable share of the Partnership's taxable income and gains and,
with respect to the Preferred Unitholders, accrued guaranteed payments, whether
or not any cash is distributed to the Unitholder. See "Risk Factors -- Certain
Tax Considerations -- Tax Liabilities in Excess of Cash Distributions" and
"Income Tax Considerations -- Certain Federal Income Tax Considerations Relating
to the Partnership and Unitholders -- Allocation of Income and Loss."
RISKS ASSOCIATED WITH REAL ESTATE RELATED INVESTMENTS. The
Partnership's investment in properties will be subject to risks which may be
beyond its control, such as fluctuations in occupancy rates and operating
expenses, as well as defaults by tenants, including tenants filing for
bankruptcy protection. These in turn may be adversely affected by general and
local economic conditions, adverse use of adjacent or neighboring real estate,
zoning laws,
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over-supply of available properties, reduced employment in areas of Partnership
investments, reduced costs of operating competing properties, increasing real
property tax rates and environmental compliance requirements.
RISKS ASSOCIATED WITH NON-REAL ESTATE RELATED INVESTMENTS. The
investment objective of AREP with respect to non-real estate related investments
is to purchase undervalued securities, which may include, for example, high
yield and neglected securities. As a result, AREP's investments may be subject
to significant amounts of business, financial, market and other risks. See
"Purpose of the Offering -- Investment Strategies."
ADDITIONAL CONSIDERATIONS. The Partnership may utilize leverage in
connection with its investments which may have the effect of increasing the
risks of such investments. In recent years the Partnership has made no
distributions on its Depositary Units and has applied available cash flow toward
its operations, repayment of maturing indebtedness, tenant requirements, other
capital expenditures and the creation of cash reserves for contingencies facing
AREP, including environmental matters and scheduled lease expirations. For a
further discussion of these and certain other considerations, investors should
carefully review "Risk Factors" below.
USE OF PROCEEDS
GENERAL. The General Partner has determined that it is in the best
interests of AREP and its Unitholders to increase the Partnership's available
liquidity so that AREP will be in a better position to take advantage of
investment opportunities and to further diversify its portfolio. Additionally,
the Partnership may elect to reduce the debt of certain properties where the
interest rate is considered to be in excess of current market rates. With the
proceeds from the Offering (estimated to be approximately $___________ after
payment of offering expenses which are estimated to be approximately $_______),
AREP intends to pursue investments involving raw-land development, debt or
equity securities of companies that may be undergoing restructuring and
properties that may require active asset management and significant capital
improvements, along with other investments described in this Prospectus. These
investments may not be readily financeable and may not generate immediate
positive cash flow for the Partnership. As such, they require AREP to maintain a
strong capital base to react quickly to these market opportunities as well as to
allow AREP the financial strength to develop or reposition these assets. See
"Purpose of the Offering" and "Use of Proceeds."
SUBSTANTIAL FEES TO THE GENERAL PARTNER AND ITS AFFILIATES. The General
Partner and its affiliates may realize substantial fees in connection with the
acquisition, sale, financing, development and management of new properties
acquired by AREP. As development and other new properties are acquired,
developed, constructed, operated, leased and financed, the General Partner or
its affiliates may perform acquisition functions, including the review,
verification and analysis of data and documentation with respect to potential
acquisitions, and perform development and construction oversight and other land
development services, property management and leasing services, either on a
day-to-day basis or on an asset management basis, and may perform other services
and be entitled to fees and reimbursement of expenses relating thereto, provided
that, in accordance with the Partnership Agreement, the terms of such
transactions are fair and reasonable to AREP and are customary to the industry.
It is not possible to state precisely what role, if any, the General Partner or
any of its affiliates may have in the acquisition, development or management of
any new investments. Consequently, it is not possible to state the amount of the
income, fees or commissions the General Partner or its affiliates might be paid
in connection with the investment of the Offering proceeds since the amount
thereof is dependent upon the specific circumstances of each investment,
including the nature of the services provided, the location of the investment
and the amount customarily paid in such locality for such services. However,
Unitholders may expect that, subject to the specific circumstances surrounding
each transaction and the overall fairness and reasonableness thereof to AREP,
the fees charged by the General Partner and its affiliates for the services
described below generally will be within the ranges set forth below:
- Property Management and Asset Management Services. To the extent that
AREP acquires any properties requiring active management (e.g., operating
properties that are not net-leased) or asset management services, including on
site services, it may enter into management or other arrangements with the
General Partner or its
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<PAGE> 13
affiliates. Generally, it is contemplated that under property management
arrangements, the entity managing the property would receive a property
management fee (generally 3% to 6% of gross rentals for direct management,
depending upon the location) and under asset management arrangements, the entity
managing the asset would receive an asset management fee (generally .5% to 1% of
the appraised value of the asset for asset management services, depending upon
the location) in payment for its services and reimbursement for costs incurred.
- Brokerage and Leasing Commissions. AREP also may pay affiliates of
the General Partner real estate brokerage and leasing commissions (which
generally may range from 2% to 6% of the purchase price or rentals depending on
location; this range may be somewhat higher for problem properties or
lesser-valued properties).
- Lending Arrangements. The General Partner or its affiliates may lend
money to, or arrange loans for, AREP. Fees payable to the General Partner or its
affiliates in connection with such activities include mortgage brokerage fees
(generally .5% to 3% of the loan amount), mortgage origination fees (generally
.5% to 1.5% of the loan amount) and loan servicing fees (generally .10% to .12%
of the loan amount), as well as interest on any amounts loaned by the General
Partner or its affiliates to AREP.
- Development and Construction Services. The General Partner or its
affiliates may also receive fees for development services, generally 1% to 4% of
development costs, and general contracting services or construction management
services, generally 4% to 6% of construction costs.
As discussed herein, Icahn has confirmed to AREP that neither he nor
any of his affiliates will receive any fees from AREP in consideration for
services rendered in connection with non-real estate related investments by
AREP. Further, the General Partner and its affiliates may not receive
duplicative fees. AREP may determine to make investments in certain assets in
which Icahn or his affiliates have independent investments; in addition, AREP
may enter into other transactions with the General Partner, Icahn or their
affiliates, including, without limitation, buying and selling assets from or to
the General Partner, Icahn or their affiliates, and participating in joint
venture investments in assets with the General Partner, Icahn or their
affiliates, whether real estate or non-real estate related, provided the terms
of all such transactions are fair and reasonable to AREP. See "Risk Factors" and
"Use of Proceeds" for further information regarding the fees available to the
General Partner and its affiliates from properties acquired with the proceeds of
the Offering.
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RISK FACTORS
In addition to the other information in this Prospectus, the following
risk factors should be considered carefully in evaluating the Partnership and
its business before exercising any Rights. This Prospectus contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"). All forward-looking statements
included in this Prospectus are based on information available to the
Partnership on the date hereof and assumptions which the Partnership believes
are reasonable and the Partnership assumes no obligation to update any such
forward-looking statements. These forward-looking statements involve risks and
uncertainties. The Partnership's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus. In evaluating the Partnership's business, prospective
investors should consider carefully the following factors in addition to the
other information set forth in this Prospectus.
POTENTIAL SUBSTANTIAL DILUTION
Upon completion of the Offering contemplated hereby, holders of
Depositary Units who do not exercise their Basic Subscription Rights in full
will own a smaller proportional interest in the Partnership than would be the
case if the Offering had not been made, thereby reducing such holders' influence
on matters on which holders of Depositary Units are entitled to vote. Therefore,
the only way to avoid potential substantial dilution is for a Unitholder to
exercise all of its Basic Subscription Rights. See "-- Risks Associated with
Purchase of the Preferred Units." In addition, the Depositary Units have been
priced at a discount to the market price to attempt to make the Depositary Units
attractive to investors. The discount may result in a reduction in the market
price of the Depositary Units, however, the Partnership cannot predict what
impact, if any, the discount will have on the market price of the Depositary
Units.
CONTROL OF THE PARTNERSHIP BY ICAHN
High Coast Limited Partnership (the "Guarantor") is a Delaware limited
partnership. The general partner of the Guarantor is American Property
Investors, Inc. ("API"), a Delaware corporation wholly owned by Icahn and the
general partner of the Partnership. The limited partners of the Guarantor are
ACF Industries, Incorporated ("ACF"), a New Jersey corporation, and Tortoise
Corp. ("Tortoise"), a New York corporation. Both ACF and Tortoise are controlled
by Icahn.
The Guarantor may purchase Rights in the Offering, in accordance with
applicable securities laws, solely with the intention of exercising such Rights
to purchase Depositary Units and Preferred Units for investment purposes. The
purchase and exercise of additional Rights will increase the Guarantor's pro
rata allocation of Depositary Units and Preferred Units in the Over-Subscription
Privilege if the number of Depositary Units and Preferred Units subscribed for
by Rights Holders (including the Guarantor) exercising the Over-Subscription
Privilege exceeds the number available.
As of the date hereof, Icahn beneficially owns 54.1% of the outstanding
Depositary Units and 88.2% of the outstanding Preferred Units. Upon completion
of the offering contemplated hereby, Icahn (through the Guarantor) will,
assuming no other Rights Holder exercises his Basic Subscription Rights, acquire
up to _______ additional Depositary Units (for a total of ____% of the
Depositary Units outstanding after giving effect to the Offering) and up to
__________ additional Preferred Units (for a total of ____% of the Preferred
Units outstanding after giving effect to the Offering).
Under the Partnership Agreement, all decisions concerning the
management of the Partnership, including selection of the Partnership's
investments and the payment of distributions on the Depositary Units and the
Preferred Units, are made by the General Partner, which is wholly owned by
Icahn. Unitholders have no right or power to take part in the management of the
Partnership. The affirmative vote of Unitholders holding more than 75% of the
total number of all Depositary Units then outstanding, including Depositary
Units held by the General Partner and its affiliates, is required to remove the
General Partner. Thus, since Icahn, through the Guarantor, holds
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<PAGE> 15
approximately 54.1% of the Depositary Units outstanding, the General Partner
will not be able to be removed pursuant the terms of the Partnership Agreement
without Icahn's consent. Moreover, under the Partnership Agreement, the
affirmative vote of the General Partner and Unitholders owning more than 50% of
the total number of all outstanding Depositary Units then held by Unitholders,
including the Guarantor, is required to approve, among other things, selling or
otherwise disposing of all or substantially all of the Partnership's assets in a
single sale or in a related series of multiple sales, dissolving the Partnership
or electing to continue the Partnership in certain instances, electing a
successor general partner, making certain amendments to the Partnership
Agreement or causing the Partnership, in its capacity as sole limited partner of
the Subsidiary, to consent to certain proposals submitted for the approval of
the limited partners of the Subsidiary. Accordingly, as the Guarantor holds,
and, upon completion of the Offering will continue to hold, in excess of 50% of
the Depositary Units outstanding, Icahn, through the Guarantor, has effective
control over such approval rights.
TRADING PRICE OF DEPOSITARY UNITS AND PREFERRED UNITS
The trading price of the Depositary Units has increased substantially
in recent periods. On July 16, 1997, 1997, the last sales price of the
Depositary Units, as reported by the New York Stock Exchange Composite Tape (as
reported by The Wall Street Journal) was $12.875 while the highest sales price
of the Depositary units for the year ended December 31, 1996 was $9.375.
Therefore, while the Partnership intends to price the Depositary Units at a
discount to the current market price, there can be no assurance that the market
price of the Depositary Units will not decrease to historical levels thereby
reducing or eliminating any such discount.
The portion of the Subscription Price allocable to the Preferred Unit
represents the liquidation preference of the Preferred Unit of $10, plus accrued
interest thereon of _____; the last reported sales price on the NYSE for the
Preferred Units was $7.50 on July 16, 1997. Therefore, the Preferred Units
issued upon exercise of the Rights will be subject to an immediate and
substantial decrease in value from the allocable portion of the Subscription
Price. There can be no assurance that the trading price of the Preferred Units
will increase or will not further decrease in future periods.
REGISTRATION RIGHTS GRANTED TO THE GUARANTOR MAY ADVERSELY IMPACT MARKET PRICE
In consideration of the Subscription Guaranty, the Guarantor has been
granted two demand and unlimited piggyback registration rights with respect to
all Units owned by it, including those Units to be acquired in the Offering.
These registration rights are set forth in a Registration Rights Agreement dated
the date hereof (the "Registration Rights Agreement"). Under the Registration
Rights Agreement, the Partnership has agreed to pay any expenses incurred in
connection with a registration requested under the Registration Rights
Agreement. No prediction can be made as to the effect, if any, that market sales
of Units or the availability of Units for sale will have on the market price of
the Units prevailing from time to time. Nevertheless, sales of substantial
amounts of Units in the public market could adversely affect prevailing market
prices.
RISKS ASSOCIATED WITH PURCHASE OF THE PREFERRED UNITS
The Preferred Units offered hereby involve certain risks to investors,
including those mentioned above and the following:
PAYMENT-IN-KIND. The Preferred Units, by their terms, call for
distributions to be paid in kind as permitted under the partnership laws of the
State of Delaware. Consequently, holders of the Preferred Units will not receive
any payment from the Partnership in respect thereof unless such securities are
redeemed in accordance with the terms thereof.
NO ANTI-DILUTION PROTECTION. The Preferred Units have no preemptive
rights or anti-dilution protection. The Board of Directors of the General
Partner has the power, without any further action by the Unitholders, to issue
additional Units with such designations, preferences and relative, participating
or other special rights, powers and duties, including rights, powers and duties
senior to existing classes of Depositary Units or Preferred Units.
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<PAGE> 16
LIMITED VOTING RIGHTS. Under the Partnership Agreement, the holders of
Preferred Units will have no voting rights and will not be entitled to
participate in any decisions regarding the management of the Partnership except
that in the event that a distribution, which is to be paid in kind, is not made
to the holders of Preferred Units on any two Payment Dates (which Payment Dates
need not be consecutive), the holders of more than 50% of all outstanding
Preferred Units, voting as a class, shall be entitled to appoint two nominees
for the Board of Directors of the General Partner. Once elected, the nominees
will be appointed to the Board of Directors of the General Partner by Icahn. As
directors, the nominees will, in addition to their other duties, be specifically
charged with reviewing all future distributions to holders of Preferred Units.
Such directors shall serve until the full distributions accumulated on all
outstanding Preferred Units have been declared and paid or set aside for
payment. Since the Guarantor currently owns 88.2% of all outstanding Preferred
Units, Icahn, through the Guarantor, has effective control over any such
appointment. In addition, Icahn, as sole shareholder of the General Partner,
effectively controls any decisions with regard to whether distributions are made
to the holders of Preferred Units.
REDEMPTION. The Preferred Units are subject to (i) redemption at the
option of the Partnership on any Payment Date commencing with the Payment Date
on March 31, 2000 and (ii) mandatory redemption by the Partnership on March 31,
2010. The redemption price is payable at the option of the Partnership either in
all cash or by issuance of additional Depositary Units in an amount equal to the
redemption price. While no prediction can be made as to the effect, if any, that
market sales of Depositary Units issued in redemption of the Preferred Units, or
the availability of such Depositary Units for sale, will have on the market
price of the Depositary Units, sales of substantial amounts of the Depositary
Units received upon redemption of the Preferred Units in the public market could
adversely affect prevailing market prices. See "Description of Securities -- The
Preferred Units -- Redemption." In addition, potential investors should refer to
"Certain Tax Considerations -- Tax Liabilities in Excess of Cash Distributions"
for further information regarding the tax consequences of holding Preferred
Units.
BROAD GENERAL PARTNER DISCRETION IN USE OF PROCEEDS; UNSPECIFIED INVESTMENTS
The Partnership currently has not identified any specific investments
for acquisition with the proceeds of the Offering and has no specific use
planned for a substantial portion of the net proceeds from the Offering. As a
consequence, the General Partner will have sole discretion to allocate the
proceeds to the purchase of assets which the other Unitholders will have no
opportunity to evaluate and may not deem desirable, and there can be no
assurance that the proceeds can or will yield a return.
In evaluating potential acquisitions, the cash flow generated by an
asset will be a consideration but the Partnership may acquire properties or
securities that are not generating positive cash flow. This may impact cash flow
in the near term (see "-- Reduction in Cash Flow" below) and there can be no
assurance that any property or security acquired by the Partnership will
increase in value or generate positive cash flow.
SUBSTANTIAL FEES TO GENERAL PARTNER AND ITS AFFILIATES
In connection with the real estate investments of the Partnership, the
General Partner and its affiliates may realize substantial fees, commissions and
other income from transactions involving the purchase, operation, management,
financing and sale of the Partnership's properties, subject to certain
limitations relating to properties acquired from the Predecessor Partnerships in
the Exchange. Some of such amounts may be paid regardless of the overall
profitability of the Partnership and whether any distributions have been made to
Unitholders. As new properties are acquired, developed, constructed, operated,
leased, financed and sold, the General Partner or its affiliates may perform
acquisition functions, development and construction oversight and other land
development services, property management and leasing services, either on a
day-to-day basis or on an asset management basis, and other services and be
entitled to fees and reimbursement of expenses relating thereto, including
property management fees, real estate brokerage and leasing commissions, fees
for financing either provided or arranged by the General Partner and its
affiliates, development fees, general contracting fees and construction
management fees. The terms of any transactions between AREP and the General
Partner or its affiliates must be fair and reasonable to AREP and customary to
the industry. However, the amount of any such income, fees or commissions that
the General Partner or its affiliates can expect to receive as a result of the
investment of proceeds of this Offering is not generally determinable since the
receipt and amount of such income, fees and commissions will depend on the
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circumstances of each investment. Prospective investors should refer to the more
detailed discussion of the fees available to the General Partner and its
affiliates contained in "Use of Proceeds", including the probable ranges of such
fees and a further discussion of the reasons such fees are not currently
determinable.
Subject to the terms of the Partnership Agreement, the General Partner
has absolute discretion to act on behalf of the Partnership with respect to all
transactions with affiliates, and such transactions may not be the result of
arm's-length negotiations. The Audit Committee, which consists of members of the
Board of Directors of the General Partner not affiliated with the General
Partner except by virtue of such directorship, meets on an annual basis, or more
often if necessary, to review and approve any conflicts of interest which may
arise. The General Partner and its affiliates may not receive duplicative fees.
See "Use of Proceeds -- Fees to the General Partner and its Affiliates."
MANAGEMENT BY PERSONS NOT SOLELY DEVOTED TO AREP
Certain of the individuals who conduct the affairs of the General
Partner, and indirectly those of the Partnership, are and will in the future be
committed to the management of other entities that own real estate and make
investments and may be engaged in other business activities. Accordingly, such
individuals will not be devoting all of their professional time to the
management of the Partnership, and conflicts may arise between the interests of
the Partnership and the other entities or business activities in which such
individuals are involved. Affiliates of the General Partner are also engaged in
real estate and other business activities that may compete directly with the
Partnership. Conflicts of interest may arise in the future as such affiliates
and the Partnership may compete for the same assets, purchasers and sellers of
assets, lessees or financings.
OPTION PLAN FOR OFFICERS AND EMPLOYEES
AREP has adopted a Nonqualified Unit Option Plan (the "Plan") under
which options to purchase an aggregate of 1,416,910 Units may be granted to
officers and key employees of the General Partner and AREP who provide services
to AREP. To date, no options have been granted under the Plan.
LEVERAGED INVESTMENTS
The Partnership generally intends to use leverage in connection with
the acquisition of certain assets. While the use of leverage increases the
amount of funds available for investment and the aggregate amount of
depreciation available to the Partnership, it also increases the risk of loss.
As a result of the use of leverage, a relatively slight decrease in revenues of
a property may materially and adversely affect the economic operation of the
property. The Partnership is not limited in the amount of leverage it may use
with respect to a particular property and may, under appropriate circumstances,
finance 100% of the purchase price of a property.
In connection with the acquisition of a property, the Partnership will
evaluate the financing of a property, the funds likely to be required to service
its debt and any eventual refinancing, the existing revenue levels generated by
such property and the revenue levels expected to be generated in the future.
There can be no assurance, however, that the property will meet its debt service
requirements, or that the Partnership will be able to refinance such debt when
and if necessary. Should the Partnership's revenues and reserves, if any, be
insufficient to service any of its debt, the Partnership will be required to
seek additional funds or suffer foreclosure. There can be no assurance that
additional funds will be available to the Partnership, nor that, if a property
is sold, the proceeds of the sale will be sufficient to pay the balance due on
the mortgage loan or other outstanding indebtedness to which a property is
subject. Foreclosure on any property could result in tax liability to the
Unitholders, without distribution of any cash proceeds to pay such liability.
Use of borrowed funds to leverage acquisitions of securities 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.
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ELIMINATION OF DISTRIBUTIONS TO HOLDERS OF DEPOSITARY UNITS
Over the recent years, the General Partner has decreased and, finally,
suspended the Partnership's distributions to holders of Depositary Units. On
March 26, 1997, AREP announced that no distributions on the Depositary Units are
expected to be made in 1997. The Partnership intends to continue to apply
available cash flow toward its operations, repayment of maturing indebtedness,
tenant requirements and other capital expenditures and creation of cash reserves
for contingencies facing AREP, including environmental matters and scheduled
lease expirations.
CERTAIN TAX CONSIDERATIONS
There are tax considerations associated with the ownership and exercise
of the Rights. These principally relate to uncertainties as to whether the
Internal Revenue Service ("IRS") will agree with (i) the Partnership's treatment
of Preferred Units as equity, (ii) the amount and character of income to holders
of Preferred Units to reflect the accrual of liquidation preference and (iii)
the revaluation of the Partnership's properties upon issuance of new Depositary
Units and Preferred Units. See "Income Tax Considerations -- Certain Federal
Income Tax Considerations Relating to the Rights" and "Income Tax Considerations
- -- Certain Federal Income Tax Considerations Relating to the Partnership and
Unitholders." Counsel to the Partnership has issued its opinion as to the tax
classification of the Partnership and the Subsidiary and the classification of
the Preferred Units as partnership interests for federal income tax purposes.
Counsel is unable to opine as to certain issues relating to the Partnership's
tax allocations, deduction of certain expenses and the Unitholders' treatment of
interest expense on any debt incurred to purchase Preferred Units. See "Income
Tax Considerations -- Legal Opinion."
In addition, there are tax considerations and certain risks associated
with an investment in the Partnership. These include:
PARTNERSHIP CLASSIFICATION. Favorable tax treatment of the Partnership
and the Subsidiary depends, in large part, on the classification of the
Partnership and the Subsidiary as partnerships for federal income tax purposes.
Counsel to the Partnership is of the opinion that, under current law, the
Partnership and the Subsidiary will continue to be classified as partnerships
for federal income tax purposes. However, the opinion of counsel is not binding
upon the IRS or any court and the IRS may challenge the classification of the
Partnership or the Subsidiary as a partnership. Counsel's opinion is based, in
part, upon representations of the General Partner as to the sources of gross
income of the Partnership.
The Partnership will cease to be taxed as a partnership for federal
income tax purposes for taxable years beginning after December 31, 1997 unless,
for each year, at least 90% of the gross income of the Partnership and the
Subsidiary consists of certain qualifying income. The General Partner expects
that the Partnership will satisfy the 90% gross income requirement so as to
continue to be classified as a partnership. In addition, for taxable years
beginning before 1998, the Partnership will cease to be classified as a
partnership if it enters into a substantial new line of business and it fails to
satisfy the 90% gross income test. The General Partner has represented to
counsel that the Partnership has satisfied the 90% gross income test since its
formation in 1987. See "Income Tax Considerations -- Certain Federal Income Tax
Considerations Relating to the Partnership and Unitholders -- Partnership
Classification."
If either of the Partnership or the Subsidiary were to be reclassified
as an association taxable as a corporation for any year, such partnership would
be taxable on its profits at the applicable corporate income tax rates; income,
losses and credits would not be passed through to the Unitholders; and any
distributions to the Unitholders would be taxable as dividends (to the extent of
the current or accumulated earnings and profits of the Partnership or the
Subsidiary, as applicable) or treated as a return of capital to the extent of
the holder's basis in his Units. The cost of paying federal and possibly state
income taxes would be a significant liability to the Partnership or the
Subsidiary and would reduce any cash available for distribution to the
Unitholders.
ALLOCATION OF PARTNERSHIP INCOME AND LOSS. The law is not entirely
clear as to the proper method of allocation of income and loss in the case of
the issuance by a partnership of units having the characteristics of the
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Preferred Units. The Partnership Agreement provides that income will be accrued
to the Preferred Units as a "guaranteed payment" under Section 707(c) of the
Internal Revenue Code of 1986, as amended (the "Code") based on the accrual of
the liquidation preference. See "Income Tax Considerations -- Certain Federal
Income Tax Considerations Relating to the Partnership and Unitholders --
Allocation of Income and Loss." There is no assurance that the IRS will respect
this treatment for tax purposes or will agree with the Partnership's
determination of the amount of the guaranteed payment. In addition, certain
aspects of the allocation of taxable income and loss between existing Depositary
Unitholders and holders of Depositary Units issued upon exercise of Rights are
not entirely clear and may be subject to challenge by the IRS. See "Income Tax
Considerations -- Certain Federal Income Tax Considerations Relating to the
Partnership and Unitholders -- Allocation of Income and Loss." If the IRS were
to dispute the Partnership's allocation of income or losses, the result would be
an increase in the income or reduction of losses to some Unitholders and a
decrease in income or increase in losses of other Unitholders for the taxable
years involved. Affected Unitholders may be required to amend their personal tax
returns in the event of such adjustments. Any costs of such amendment or the
payment of additional taxes and interest or penalties would be the sole
responsibility of the affected Unitholder.
TAX LIABILITIES IN EXCESS OF CASH DISTRIBUTIONS. Each Unitholder will
be taxed on the Unitholder's allocable share of the Partnership's taxable income
and gains and accrued guaranteed payments, whether or not any cash is
distributed to the Unitholder. For example, sales of properties and other
investments may result in taxable income to the Partnership without resulting
cash distributions being made to Unitholders, and therefore, Unitholders may
have taxable income without the current receipt of cash if the Partnership
continues to not make cash distributions while generating taxable income from
operations or from the sale of properties. Consequently, a Unitholder's tax
liability with respect to his share of Partnership taxable income may exceed
cash actually distributed to him in a given taxable year. The Partnership has
had net taxable income but has not made cash distributions in recent years.
Consequently, a Depositary Unitholder has had net taxable income attributable to
the Partnership for those tax years but has not received cash distributions.
This situation may continue in the future. In addition, holders of Preferred
Units generally will not receive cash distributions unless the Preferred Units
are redeemed for cash. Such holders will have taxable income and a tax liability
associated with Preferred Units without receiving corresponding distributions of
cash from the Partnership with which to pay the tax. See "Income Tax
Considerations -- Legal Opinion."
LIABILITY OF LIMITED PARTNERS
The limitations on the liability of holders of limited partner
interests for the obligations of a limited partnership have not been clearly
established in some states. For example, if it were determined that the
Partnership had been conducting business in any state without compliance with
the applicable limited partnership statute, or that the right or the exercise of
the right by holders of limited partner interests as a group to remove or
replace the General Partner, or to make certain amendments to the Partnership
Agreement, constituted participation in "control" of the Partnership's business,
then the holders of limited partner interests could be held liable for the
Partnership's obligations to the same extent as a general partner. See
"Description of Partnership Agreement -- Liability of General Partner and
Unitholders" for a discussion of the limitations on liability and the
implications thereof to a Unitholder.
COMPETITION
Competition in leasing and selling properties remains strong as current
economic and real estate conditions have made it more difficult for AREP to
re-let upon favorable terms properties vacated by tenants. Many of AREP's
tenants have rights to renew at prior rental rates. AREP's experience is that
tenants will renew below market leases and permit leases that are less
marketable or at above market rents to expire, making it difficult for AREP to
re-let or sell on favorable terms properties vacated by tenants. The real estate
market continues to be weak in certain areas of the country, particularly in the
retail category. The ongoing corporate consolidations have contributed to
increasing vacancy rates and oversupply for retail tenants. Net leases
representing approximately 29% of AREP's net annual rentals from its portfolio
are with tenants in the retail sector, some of which are experiencing cash flow
difficulties and restructurings.
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Competition for investments of the type AREP intends to pursue has been
increasing in recent years, including that from a number of investment funds and
REITS that have raised additional capital for such investments, resulting in,
among other things, higher prices for such investments. Such investments have
become more competitive to source and the increased competition may have an
adverse impact on the spreads and AREP's ability to find quality assets at
appropriate yields.
RISKS ASSOCIATED WITH REAL ESTATE INVESTMENTS
GENERAL. The Partnership's investment in properties will be subject to
risks which may be beyond its control, such as fluctuations in occupancy rates
and operating expenses, as well as defaults by tenants, including tenants filing
for bankruptcy protection. These in turn may be adversely affected by general
and local economic conditions, adverse use of adjacent or neighboring real
estate, zoning laws, over-supply of available properties, reduced employment in
areas of Partnership investments, reduced costs of operating competing
properties, increasing real property tax rates and environmental compliance
requirements. Since certain costs of real estate ownership (principally debt
service, real estate taxes and insurance) do not generally decrease with
decreases in occupancy rates, the cost of operating a property may exceed its
income.
Most of the Partnership's real estate assets continue to be net-leased
to single corporate tenants, and as these leases expire and the properties are
re-let, there can be no assurance that the terms of the leases will be as
favorable. By the end of the year 2000, net leases representing approximately
23% of AREP's net annual rentals from its portfolio will be due for renewal, and
by the end of the year 2002, 41% of such rentals will be due for renewal. To the
extent that such leases are not renewed, the Partnership may be required to
expend a significant amount of management time and capital expense in attempting
to re-let and sell the unleased properties. In addition, AREP may become
responsible for the payment of certain operating expenses, including
maintenance, utilities, taxes, insurance and environmental compliance costs
associated with such properties which are presently the responsibility of the
tenant. See "Purpose of the Offering" and "Use of Proceeds" for further details.
DEVELOPMENT PROPERTIES. The Partnership expects to invest in
undeveloped land and certain development properties. Undeveloped land and
development properties involve more risk than properties on which development
has been completed. Undeveloped land and development properties do not generate
any operating revenue while costs are incurred to develop the properties. In
addition, undeveloped land and development properties incur expenditures prior
to completion, including property taxes and development costs. Also,
construction may not be completed within budget or as scheduled or projected
rental levels or sales prices may not be achieved and other unpredictable
contingencies beyond the control of the Partnership could occur. The Partnership
will not be able to recoup any of such costs until such time as these
properties, or parcels thereof, are either disposed of or developed into
income-producing assets. Accordingly, the greater the length of time it takes to
develop or dispose of these properties, or such parcels, the greater will be the
costs incurred by the Partnership without the benefit of income from these
properties, which may adversely affect the ability of the Partnership to
successfully develop such properties. Furthermore, the ultimate disposition
price of these properties may be less than the costs incurred by the Partnership
with respect thereto.
FINANCING RESTRICTIONS. Many financial institutions have continued to
limit their real estate lending activities and continue to be more conservative
with respect to the loans they are willing to make. For example, banks and other
financial institutions continue to limit the types of properties they are
willing to finance, have been performing greater levels of due diligence which
increases the time and expense of obtaining financing and are requiring larger
equity positions.
ENVIRONMENTAL MATTERS. Under various federal, state and local laws,
ordinances and regulations, an owner or operator of real property may become
liable for the costs of removal or remediation of certain hazardous substances
released on or in its property. Such laws often impose such liability without
regard to whether the owner or operator knew of, or was responsible for, the
release of such hazardous substances. If any such substances were found in or on
any property invested in by AREP, AREP could be exposed to liability and be
required to incur substantial remediation costs. The presence of such substances
or the failure to undertake proper remediation may adversely affect the ability
to finance, refinance or dispose of such property. AREP will generally require
that
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properties in which AREP invests have been subject to a Phase I environmental
audit, which involves record review, visual site assessment and personnel
interviews, but does not involve invasive procedures such as air and soil
sampling or groundwater analysis. There can be no assurance, however, that these
audits will reveal all potential liabilities or that future property uses or
conditions or changes in applicable environmental laws and regulations or
activities at nearby properties will not result in the creation of environmental
liabilities with respect to a property.
RISKS ASSOCIATED WITH NON-REAL ESTATE RELATED INVESTMENTS
The investment objective of AREP with respect to non-real estate
related investments is to purchase undervalued securities, so as to maximize
total returns consisting of current income and/or capital appreciation.
Undervalued securities are those which AREP believes may have greater inherent
value than indicated by their then current trading price and/or may lend
themselves to "activist" shareholder involvement. These securities may be
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 include those in complex or not readily followed securities.
Since AREP will concentrate on undervalued securities, which may
include, for example, high yield securities and neglected securities, AREP's
investments may be subject to significant amounts of business, financial, market
and other risks. There can be no assurance that AREP will correctly evaluate
such investments and their attendant risks or that such investments will be
profitable to AREP. The proportion of the Partnership's assets invested in each
type of security or any single issuer or industry will not be limited. In
addition, the securities in which AREP may invest are subject to the following
inherent risks:
EQUITY SECURITIES. Equity securities fluctuate in value, often based on
factors unrelated to 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 value of
fixed-income securities also may be affected by changes in the credit rating or
financial condition of the issuer.
LOWER RATED SECURITIES. AREP 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 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 AREP 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. While to date AREP has not done so, AREP 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 AREP's investment
objectives such as by providing a hedging technique, under certain market
conditions they can increase the volatility or decrease the liquidity of AREP's
assets.
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THE PARTNERSHIP
AREP is primarily engaged 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 AREP have been primarily office, retail, industrial,
residential and hotel properties. Most of the real estate assets currently owned
by AREP were acquired from the Predecessor Partnerships and such assets
generally are net-leased to single, corporate tenants. As of June 30, 1997, AREP
owned 218 separate real estate assets primarily consisting of fee and leasehold
interests in 35 states.
AREP's primary real estate investment strategy in recent periods has
been to seek to acquire undervalued assets including 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. In
addition to holding real property, AREP may consider the acquisition or seek
effective control of land development companies and other real estate operating
companies which may have significant assets under development and may enhance
its ability to develop and manage AREP's properties. AREP may originate or
purchase mortgage loans including non-performing mortgage loans. AREP will
normally acquire non-performing mortgage loans with a view to acquiring title to
or control over the underlying properties. AREP also may retain purchase money
mortgages in connection with its sale of portfolio properties, with such terms
as the General Partner deems appropriate at the time of sale. Certain of AREP's
investments may be owned by special purpose subsidiaries formed by AREP or by
joint ventures (including joint ventures with affiliates of the General
Partner).
In August 1996, AREP amended the Partnership Agreement to permit
non-real estate investments which, while AREP 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 seek to maximize Unitholder value and further
diversify its assets. 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. AREP will conduct these activities in such a manner so
as not to be deemed an investment company under the 1940 Act. Generally, this
means that no more than 40% of AREP's total assets will be invested in
securities. In addition, AREP will structure its investments so as to continue
to be taxed as a partnership rather than as a corporation under the applicable
publicly-traded partnership rules of the Internal Revenue Code.
All decisions with respect to the improvement, expansion, acquisition,
disposition, development, management, financing or refinancing of properties or
other investments are at the sole discretion of the General Partner. Where
opportunities exist, AREP may make such investments with the proceeds of the
Offering or with sale or refinancing proceeds which AREP retains for
reinvestment rather than distributing to Unitholders. See "Description of
Partnership Agreement -- Distributions of Cash Flow to Depositary Unitholders --
Distributions from Sales and Refinancings."
AREP was organized in the State of Delaware on February 17, 1987. Its
principal business address is 100 South Bedford Road, Mt. Kisco, New York 10549
and its telephone number is (914) 242-7700. AREP's general partner is American
Property Investors, Inc. (the "General Partner"), a Delaware corporation which
is wholly owned by Carl C. Icahn ("Icahn"). AREP conducts its business through a
subsidiary limited partnership, American Real Estate Holdings Limited
Partnership (the "Subsidiary"). AREP owns a 99% limited partnership interest in
the Subsidiary. The General Partner acts as the general partner of the
Subsidiary and has a 1% general partnership interest in both AREP and the
Subsidiary.
RECENT EVENTS
ENVIRONMENTAL LITIGATION. Lockheed Missile and Space Company
("Lockheed"), a tenant of AREP's leasehold property in Palo Alto, California,
has entered into a consent decree with the California Department of
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Toxic Substances ("CDTS") to undertake certain environmental remediation at this
property. Lockheed has estimated that the environmental remediation costs may be
up to approximately $14,000,000. In a non-binding determination by CDTS,
Lockheed was found responsible for approximately 75% of such costs and the
balance was allocated to other parties. AREP was allocated no responsibility for
any such costs.
Lockheed has served a notice that it intends to exercise its statutory
right to have its liability reassessed in a binding arbitration proceeding. AREP
understands that Lockheed may attempt to have allocated to AREP and to AREP's
ground-lessor (which may claim a right of indemnity against AREP) approximately
9% and 17%, respectively, of the total remediation costs. AREP believes that it
has no liability for any of such costs and, in any proceeding in which such
liability is asserted against AREP, AREP intends to contest such liability
vigorously. In the event any of such liability is allocated to AREP, AREP
intends to seek indemnification for any such liability from Lockheed in
accordance with its lease. In April 1995 Lockheed began ground water remediation
at the leasehold property.
INVESTMENT IN STRATOSPHERE CORPORATION. In June 1997, AREP invested
approximately $42.8 million to purchase approximately $55 million face value of
14 1/4% First Mortgage Notes, due May 15, 2002, issued by the Stratosphere
Corporation ("Stratosphere"), which has approximately $203 million of such notes
outstanding. In addition, an affiliate of Icahn currently owns approximately $39
million face value of the Stratosphere First Mortgage Notes.
Stratosphere owns and operates the Stratosphere Tower, Casino & Hotel,
a destination resort complex located in Las Vegas, Nevada containing a 97,000
square foot casino and 1,444 hotel rooms and suites and other attractions.
Stratosphere and its wholly-owned subsidiary, Stratosphere Gaming Corp., filed
voluntary petitions on January 27, 1997, for Chapter 11 Reorganization pursuant
to the United States Bankruptcy Code. Stratosphere and its subsidiary are acting
as debtors in possession on behalf of their respective bankrupt estates and are
authorized as such to operate their business subject to bankruptcy court
supervision. Stratosphere did not make the required November 15, 1996 interest
payment due on the First Mortgage Notes and does not intend to accrue any
interest on this debt subsequent to the bankruptcy filing until a plan of
reorganization is confirmed by the bankruptcy court.
An affiliate of Icahn and AREP together submitted a proposal for the
restructuring of Stratosphere, which if accepted and pursued would involve
additional investments in Stratosphere by AREP and such affiliate of Icahn.
Under the proposal, each holder of the Stratosphere First Mortgage Notes (the
""Original Notes'') will have the right to participate in a rights offering by
Stratosphere to purchase units consisting of new mortgage notes and common
stock of Stratosphere. The aggregate amount sought to be raised in the
proposed offering is $200 million. AREP and the affiliate have proposed to
purchase their pro rata portion of the Stratosphere units and any units not
otherwise purchased by other noteholders in the offering. The proceeds of the
offering would be used, among other things, to pay certain claims of
Stratosphere's creditors upon consummation of a plan of reorganization.
Holders of the Original Notes would be entitled to receive their pro rata
portion of $100 million of offering proceeds in satisfaction of their claims.
The proposal also contemplates that, if the proposal were accepted, but the
offering never consummated (except for the failure of AREP and the affiliate
to perform their obligations), AREP and the affiliate would be entitled to
receive a $2 million termination fee. There can be no assurance, however, that
the terms of the proposal will be accepted.
ICAHN NAMED CHAIRMAN OF MARVEL ENTERTAINMENT. On June 20, 1997, Carl C.
Icahn was named Chairman of the Board of Directors of Marvel Entertainment Group
Inc. ("Marvel"), a leading creator, publisher and distributor of youth
entertainment products for domestic and international markets. Marvel is listed
on the NYSE under the symbol "MRV."
THE OFFERING
TERMS OF THE OFFER
For the purposes of this Prospectus, the Partnership has assumed
__________ Rights will be issued and the aggregate number of Depositary Units
and Preferred Units have been computed accordingly. However, there can be no
assurance that ________ Rights will be issued, due to mathematical rounding
computations. Each Record Date Holder is being issued one Right for each five
Depositary Units owned on the Record Date. The number of Rights issued to a
Record Date Holder of a number of Depositary Units not divisible by five is
determined by multiplying the number of Depositary Units held by such Record
Date Holder on the Record Date by .2 and then rounding up to the nearest whole
number if the fractional amount is greater than or equal to .5 and rounding down
to the nearest whole number if the fractional amount is less than .5. In the
case of Depositary Units held of record by any firm that is a member of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., or a commercial bank or a trust company or other
person that holds Depositary Units as nominee for more than one beneficial owner
(each, a "Nominee Holder"), the number of Rights issued to such Nominee Holder
will be adjusted to permit rounding up of the Rights to be received by the
beneficial owners for whom it is the
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holder of record only if such Nominee Holder provides to the Partnership on or
before the close of business on ________, 1997 written representation of the
number of Rights required for such rounding. No fractional Rights will be issued
in this Offering. The Rights entitle the holders thereof to acquire at the
Subscription Price four Depositary Units and one Preferred Unit for each Right
held. The Rights are evidenced by Subscription Certificates, which will be
mailed to Record Date Holders other than Foreign Record Date Unitholders.
Completed Subscription Certificates may be delivered to the
Subscription Agent (described below) at any time during the Subscription Period,
which commences ________, 1997 and ends at 5:00 p.m., New York City time, on
________, 1997, unless extended by the Partnership. All Rights may be exercised
immediately upon receipt and until 5:00 p.m., New York City time, on the
Expiration Date (as defined herein).
Rights may be exercised by completing a Subscription Certificate and
delivering it, together with payment in full, either by means of a notice of
guaranteed delivery or a check, to the Subscription Agent. If the Rights Holder
chooses to send a Subscription Certificate, such certificate must be accompanied
by payment in full. The method by which Rights may be exercised and Depositary
Units and Preferred Units paid for is set forth under " -- Exercise of Rights"
and "-- Payment for Securities" below. An example demonstrating the exercise of
Rights, including the Over-Subscription Privilege, is set forth under "The
Offering -- Example of Exercise of Rights and the Over-Subscription Privilege."
The Rights are freely transferable and the Partnership will seek to
list the Rights on the NYSE. There can be no assurance, however, that the Rights
will be accepted for listing on such exchange or that a market for the Rights
will develop. See "-- Sale of Rights."
The Partnership does not have the right to withdraw this Offering after
the Rights have been distributed.
SUBSCRIPTION PRICE
The Subscription Price for Depositary Units and Preferred Units
subscribed for through the exercise of Basic Subscription Rights and the
Over-Subscription Privilege will be $__, of which $__ is allocable to the
Depositary Units and $__ is allocable to the Preferred Unit.
NO MODIFICATION OR REVOCATION
ONCE A HOLDER OF RIGHTS HAS PROPERLY EXERCISED ITS BASIC SUBSCRIPTION
RIGHTS AND THE OVER-SUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE MODIFIED
OR REVOKED.
EXPIRATION OF OFFERING
This Offering will expire at 5:00 p.m., New York City time, on ______,
1997, unless extended by the Partnership (the "Expiration Date"). Rights will
expire on the Expiration Date and thereafter may not be exercised.
SUBSCRIPTION AGENT
The Subscription Agent is Registrar and Transfer Company, a New York
corporation. The Subscription Agent is not affiliated with either the
Partnership or Icahn. The Subscription Agent will receive for its
administration, processing, invoicing and other services as subscription agent,
a fee estimated to be approximately $_______, including reimbursement for all
out-of-pocket expenses related to this Offering. Questions regarding the
Subscription Certificates should be directed to the Subscription Agent at (800)
368-5948; Rights Holders may also consult their brokers or nominees. Signed
Subscription Certificates (see Appendix A) should be sent by mail, hand, express
mail or overnight courier, together with payment of the Subscription Price in
full to Registrar and Transfer Company, 10 Commerce Drive, Cranford, New Jersey
07016, Attention: Reorg. Department. See "-- Payment for Securities."
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Any questions or requests for assistance may be directed to the
Subscription Agent at (800) 368-5948 or the Partnership at (800) 255-2737.
OVER-SUBSCRIPTION PRIVILEGE
If less than all of the Basic Subscription Rights are exercised,
Depositary Units and Preferred Units not subscribed for by Exercising Rights
Holders will be offered, by means of the Over-Subscription Privilege, to
Exercising Rights Holders who wish to acquire additional Depositary Units and
Preferred Units. The Over- Subscription Privilege may be exercised by any Rights
Holder who exercised any of his Basic Subscription Rights. Depositary Units and
Preferred Units purchased pursuant to the Over-Subscription Privilege must be
purchased as a unit consisting of four Depositary Units and one Preferred Unit
and may not be subscribed for separately. Rights Holders should indicate, on the
Subscription Certificate which they submit with respect to the exercise of their
Basic Subscription Rights, how many additional Units they are willing to acquire
pursuant to the Over-Subscription Privilege. If all Basic Subscription Rights
are exercised, the Over-Subscription Privilege will not be available.
The available Depositary Units and Preferred Units will be allocated
pro rata among those who oversubscribed according to the aggregate number of
Basic Subscription Rights exercised. The percentage of remaining Depositary
Units and Preferred Units each Rights Holder may acquire may be rounded up or
down to result in delivery of whole Depositary Units and Preferred Units. The
allocation process may involve a series of allocations in order to assure that
the total number of Depositary Units and Preferred Units available pursuant to
the Over-Subscription Privilege is distributed on a pro rata basis. In the
event a Rights Holder exercising the Over- Subscription Privilege is allocated
less than the number of Depositary Units and Preferred Units than such Holder
subscribed for, excess subscription payments will be promptly refunded. See "--
Payment for Securities" below. An example demonstrating the exercise of Rights,
including the Over-Subscription Privilege, is set forth under "The Offering --
Example of Exercise of Rights and the Over-Subscription Privilege."
SUBSCRIPTION GUARANTY
THE GUARANTOR. The Guarantor is a Delaware limited partnership. The
general partner of the Guarantor is API. The limited partners of the Guarantor
are ACF, a company primarily engaged in the full service leasing, selling and
manufacture of special purpose covered hopper and tank railcars, and Tortoise, a
wholly-owned subsidiary of ACF through which ACF from time to time conducts
certain of its investment activities, including the acquisition of debt and
equity securities of companies engaged in businesses related or unrelated to
ACF's. Both ACF and Tortoise are controlled by Icahn. ACF, or an affiliate
thereof, has agreed to make a cash contribution to the Guarantor in an amount
sufficient to permit the Guarantor to exercise all Rights issued to it and to
fulfill its obligations under the Subscription Guaranty.
The Guarantor which holds 13,895,712 Depositary Units, representing
approximately 54.1% of the outstanding Depositary Units, and 1,920,945 Preferred
Units, representing approximately 88.2% of the outstanding Preferred Units, has
agreed, subject to certain conditions contained in the Subscription Guaranty
Agreement, (i) to subscribe for and purchase _______ Depositary Units and
________ Preferred Units through the exercise of its Basic Subscription Rights
and (ii) to subscribe for all other Depositary Units and Preferred Units
pursuant to the Over-Subscription Privilege, and, subject to proration as
described above, to purchase such additional Depositary Units and Preferred
Units. If no Rights are exercised by Rights Holders other than the Guarantor,
the Guarantor would beneficially own ________ Depositary Units (or approximately
____% of the then outstanding Depositary Units) and ________ Preferred Units (or
approximately ____% of the then outstanding Preferred Units). The Guarantor will
receive certain registration rights with respect to its Units for providing the
Subscription Guaranty but will not otherwise be compensated. See "--
Registration Rights Agreement." The terms of such Subscription Guaranty and the
registration rights were reviewed and approved by the Audit Committee. In
approving the terms of the Subscription Guaranty, the Audit Committee
considered, among other things, the nature and terms of the securities being
offered pursuant to the Offering and the possibility that the Guarantor may
increase its ownership in the Partnership at a discount to the market price. The
Audit Committee concluded that given the business opportunities available to the
Partnership and its related requirement for cash to take full advantage of such
opportunities, as well as the uncertainty of market conditions which might
impact the success of the Offering were the Subscription
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<PAGE> 26
Guaranty not in place and the fact that the Subscription Guaranty does not
permit the Guarantor to acquire Units in the Offering except on the same terms
upon which other Unitholders may acquire Units, the overall benefits to be
received by the Partnership as a result of the Subscription Guaranty warranted
approval of such arrangement. The members of the Audit Committee are Alfred D.
Kingsley, William A. Leidesdorf and Jack G. Wasserman. Messrs. Kingsley,
Leidesdorf and Wasserman are not otherwise affiliated with the General Partner
or any of its affiliates, including the Guarantor and Icahn.
As a result of the Subscription Guaranty, assuming the conditions in
the Subscription Guaranty Agreement are satisfied, the Partnership is assured of
receiving an amount equal to the amount that would have been raised had all
Basic Subscription Rights been exercised in full, approximately $__________
assuming the issuance of __________ Rights (the "Guaranteed Amount").
The Partnership has been advised by the Guarantor that the Guarantor
intends to acquire Units in connection with the Offering solely for investment
purposes.
SUBSCRIPTION GUARANTY AGREEMENT. Upon the terms and subject to the
conditions contained in a Subscription Guaranty Agreement, dated the date hereof
(the "Subscription Guaranty Agreement"), the Guarantor has agreed (i) to
subscribe for and purchase ________ Depositary Units and _________ Preferred
Units through the exercise of its Basic Subscription Rights and (ii) to
subscribe for all other Depositary Units and Preferred Units pursuant to the
Over-Subscription Privilege (the "Unsubscribed Units"), and, subject to
proration as described above, to purchase such additional Depositary Units and
Preferred Units.
The Subscription Guaranty Agreement provides that the obligation of the
Guarantor to pay for and accept delivery of the Unsubscribed Units is subject to
certain conditions, including, without limitation, the conditions that (i) no
stop order suspending the effectiveness of the Registration Statement is in
effect, (ii) no proceedings for such purpose have been instituted by the
Commission, (iii) the Partnership has not been advised by the Commission that it
intends to instigate an action or proceeding against the Partnership, either
administrative or judicial for the purpose of issuing a stop order suspending
the effectiveness of the Registration Statement, (iv) the Partnership shall not
have terminated the Offering, (v) no war or other crisis or adverse change in
the financial markets (as described in the Subscription Guaranty Agreement)
shall have occurred, which, in the sole judgment of the Guarantor, make it
impracticable or inadvisable to proceed with the Offering or the fulfillment of
the Guarantor's obligations under the Subscription Guaranty Agreement and (vi)
certain legal matters are approved by counsel to the Guarantor. The Guarantor is
obligated to take and pay for all of the Unsubscribed Units if any are purchased
pursuant to the Subscription Guaranty Agreement.
Delivery and payment for the Unsubscribed Units purchased by the
Guarantor shall be on the third Business Day after written notice is given by
the Partnership or the Subscription Agent to the Guarantor of the number and
aggregate purchase price of the Unsubscribed Units the Guarantor is obligated to
purchase pursuant to the exercise of the Over-Subscription Privilege.
No fee is being paid to the Guarantor for the Subscription Guaranty,
although any Units held by the Guarantor will be subject to certain registration
rights. See "-- Registration Rights Agreement." In addition, the Partnership has
agreed to reimburse the Guarantor for certain of its accountable expenses in
connection with the Offering in the event the Subscription Guaranty Agreement is
terminated in accordance with its terms.
The Partnership and the Guarantor have agreed to indemnify each other
against certain liabilities, including liabilities under the federal securities
laws.
PURCHASE OF RIGHTS BY GUARANTOR. The Guarantor may purchase Rights in
the Offering, in accordance with applicable securities laws, solely with the
intention of exercising such Rights to purchase Depositary Units and Preferred
Units for investment purposes. The purchase and exercise of additional Rights
will increase the Guarantor's pro rata allocation of Depositary Units and
Preferred Units in the Over-Subscription Privilege if the number of Depositary
Units and Preferred Units subscribed for by Rights Holders (including the
Guarantor) exercising the Over-Subscription Privilege exceeds the number
available.
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REGISTRATION RIGHTS AGREEMENT. Pursuant to the Registration Rights
Agreement, the Guarantor has been granted two demand and unlimited piggyback
registration rights with respect to all Units owned by it, including those Units
to be acquired in the Offering. The Partnership has agreed to pay any expenses
incurred in connection with a registration requested under the Registration
Rights Agreement. No prediction can be made as to the effect, if any, that
market sales of Units or the availability of Units for sale will have on the
market price of the Units prevailing from time to time. Nevertheless, sales of
substantial amounts of Units in the public market could adversely affect
prevailing market prices.
SALE OF RIGHTS
The Rights are transferable until the close of business on the last
Business Day prior to the Expiration Date. The Partnership will seek to list the
Rights on the NYSE. There can be no assurance that the Rights will be accepted
for listing or that a market for the Rights will develop. The Rights may be sold
by a Rights Holder on or before the last Business Day prior to the Expiration
Date. The Partnership is not responsible if Rights cannot be sold and has not
guaranteed any minimum sales price for the Rights.
In addition, the Rights evidenced by a single Subscription Certificate
may be transferred in whole or in part by delivering to the Subscription Agent a
Subscription Certificate properly endorsed for transfer, with instructions to
register such portion of the Rights evidenced thereby in the name of the
transferee and to issue a new Subscription Certificate to the transferee
evidencing such transferred Rights. If less than all the Rights evidenced by a
Subscription Certificate are transferred, a new Subscription Certificate
evidencing the balance of the Rights will be issued to the transferring Rights
Holder or, if the transferring Rights Holder so instructs, to an additional
transferee. Transfers will require a signature guarantee by a participant in a
medallion guarantee program acceptable to the Subscription Agent.
Rights Holders wishing to transfer all or a portion of their Rights as
provided in the immediately preceding paragraph, should allow up to three
Business Days prior to the Expiration Date (the "Guaranteed Transfer Date") for
(i) the transfer instructions to be received and processed by the Subscription
Agent; (ii) a new Subscription Certificate to be issued and transmitted to the
transferee or transferees with respect to transferred Rights, and to the
transferor with respect to any retained Rights; and (iii) the Rights evidenced
by such new Subscription Certificate to be exercised or sold by the recipients
thereof. Neither the Partnership nor the Subscription Agent shall have any
liability to a transferee or transferor of Rights if Subscription Certificates
are not received on or prior to the Guaranteed Transfer Date.
Except for the fees charged by the Subscription Agent (which will be
paid by the Partnership as described above), all commissions, fees and other
expenses (including brokerage commissions and transfer taxes) incurred in
connection with the purchase, sale or exercise of Rights will be for the account
of the transferor of the Rights, and none of such commissions, fees or expenses
will be paid by the Partnership or the Subscription Agent.
The Rights will be eligible for transfer through, and the exercise of
the Basic Subscription Rights (but not the Over-Subscription Privilege) may be
effected through, the facilities of The Depository Trust Company ("DTC"); Rights
exercised through DTC are referred to as "DTC Exercised Rights." The holder of a
DTC Exercised Right may participate in the Over-Subscription Privilege in
respect of such DTC Exercised Right by properly executing and delivering to the
Subscription Agent, at or prior to 5:00 p.m., New York City time, on the
Expiration Date, a Nominee Holder Over-Subscription Form (see Appendix C),
together with payment of the Subscription Price for the number of Depositary
Units and Preferred Units for which the Over-Subscription Privilege is to be
exercised. Copies of the Nominee Holder Over-Subscription Form may be obtained
from the Subscription Agent.
EXERCISE OF RIGHTS
Rights may be exercised by filling in and signing the reverse side of
the Subscription Certificate which accompanies this Prospectus and mailing it in
the envelope provided, or otherwise delivering the completed and signed
Subscription Certificate to the Subscription Agent, together with full payment
of the Subscription Price for the Depositary Units and the Preferred Units as
described below under "-- Payment for Securities." Completed
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Subscription Certificates must be received by the Subscription Agent at the
address set forth above. An example demonstrating the exercise of Rights,
including the Over-Subscription Privilege, is set forth under "The Offering --
Example of Exercise of Rights and the Over-Subscription Privilege." Rights may
also be exercised through an Exercising Rights Holder's broker or dealer, who
may charge such Exercising Rights Holder a servicing fee.
Nominees who hold Depositary Units for the account of others, such as
brokers, trustees or depositories for securities, should notify the respective
beneficial owners of such Depositary Units as soon as possible to ascertain such
beneficial owners' intentions and to obtain instructions with respect to the
Rights. If the beneficial owner so instructs, the nominee should complete the
Subscription Certificate and submit it to the Subscription Agent with the proper
payment. In addition, beneficial owners of Depositary Units or Rights held
through such a nominee should contact the nominee and request the nominee to
effect transactions in accordance with the beneficial owner's instructions.
EXERCISE OF OVER-SUBSCRIPTION PRIVILEGE
Any Exercising Rights Holder may participate in the Over-Subscription
Privilege, if it is granted, by indicating on their Subscription Certificate the
number of Depositary Units and Preferred Units he is willing to acquire pursuant
thereto. There is no limit on the number of Depositary Units and Preferred Units
that Exercising Rights Holders may seek to subscribe for pursuant to the
Over-Subscription Privilege. However, the Depositary Units and Preferred Units
purchased pursuant to the exercise of the Over-Subscription Privilege must be
purchased as a unit consisting of four Depositary Units and one Preferred Unit
and may not be subscribed for separately. The number of Depositary Units and
Preferred Units issued to each Rights Holder participating in the
Over-Subscription Privilege will be allocated as described above under "--
Over-Subscription Privilege." An example demonstrating the exercise of Rights,
including the Over-Subscription Privilege, is set forth under "The Offering --
Example of Exercise of Rights and the Over-Subscription Privilege."
Banks, brokers and other nominee holders of Rights will be required to
certify to the Partnership, before the Over-Subscription Privilege may be
exercised as to any particular beneficial owner, as to the aggregate number of
Basic Subscription Rights exercised and the aggregate amount of Depositary Units
and Preferred Units subscribed for pursuant to the Over-Subscription Privilege
by such beneficial owner and that such beneficial owner exercised its Basic
Subscription Rights.
EXAMPLE OF EXERCISE OF RIGHTS AND THE OVER-SUBSCRIPTION PRIVILEGE
If you owned 500 Depositary Units you would receive 100 Rights
entitling you to subscribe for up to 400 Depositary Units and 100 Preferred
Units. If you exercised any or all of your 100 Rights, you would be entitled to
participate in the Over-Subscription Privilege.
Assume, for example, that you decided to exercise all of the Rights
granted to you and also purchase an additional 1,200 Depositary Units and 300
Preferred Units pursuant to exercise of your Over-Subscription Privilege. You
would indicate on your subscription certificate, a form of which is attached
hereto as Appendix A, in Section I, Item A "Basic Subscription Rights" that you
were exercising 100 Rights to acquire 100 Units and in Item B "Over-
Subscription Privilege," that you were requesting an additional 300 Units. It is
important to note when completing your subscription certificate to keep the
following points in mind:
- You must subscribe for Depositary Units and Preferred Units as
a Unit. DEPOSITARY UNITS AND PREFERRED UNITS MAY NOT BE
SEPARATELY SUBSCRIBED FOR.
- Each Unit consists of four (4) Depositary Units and one (1)
Preferred Unit. NO FRACTIONAL DEPOSITARY UNITS OR PREFERRED
UNITS WILL BE ISSUED IN CONNECTION WITH THE OFFERING.
Therefore, in determining how many Units you wish to subscribe
for, please keep in mind that the number of Depositary Units
you desire to buy (whether pursuant to exercise of your Basic
Subscription Rights or the Over-Subscription Privilege) must
be divisible by four (4).
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In calculating the amount of the payment to be tendered along with the
executed subscription certificate, as per Item C, include the total Subscription
Price payable for both the number of Units subscribed for through the exercise
of Basic Subscription Rights and the number of Units subscribed for through the
exercise of the Over-Subscription Privilege. In the above example this would
equal 100 Units times the Subscription Price for the Basic Subscription Rights
exercised plus 300 Units times the Subscription Price for the exercise of the
Over-Subscription Privilege for a total payment of $______. You will receive a
pro rata allocation of such amount determined by the number of Basic
Subscription Rights you exercised. Any excess funds paid by you will be returned
to you promptly. Certificates representing the Depositary Units and Preferred
Units purchased by you will be mailed promptly following the closing of the
Offering. See "-- Payment for Securities" below.
The foregoing example is for illustrative purposes only, Exercising
Rights Holders participating in the Over-Subscription Privilege are entitled to
purchase as many additional Units as they desire (subject to proration), which
may be more or less than the number of Units such Exercising Rights Holder
acquired pursuant to exercise of its Basic Subscription Rights.
PAYMENT FOR SECURITIES
Delivery and payment for the Unsubscribed Units purchased by the
Guarantor shall be made on the fifth Business Day after written notice is given
by the Partnership or the Subscription Agent to the Guarantor of the number and
aggregate purchase price of the Unsubscribed Units the Guarantor is obligated to
purchase pursuant to the exercise of the Over-Subscription Privilege. Payment
for Depositary Units and Preferred Units subscribed for pursuant to the exercise
of Basic Subscription Rights and the Over-Subscription Privilege by other
Exercising Rights Holders must be tendered to the Subscription Agent along with
a properly executed Subscription Certificate on or prior to the Expiration Date.
Exercising Rights Holders must choose one of the following methods of payment:
1. An Exercising Rights Holder can send the Subscription
Certificate together with payment in full for the Depositary Units and
Preferred Units subscribed for through exercise of their Basic
Subscription Rights and the maximum number of Depositary Units and
Preferred Units the Exercising Rights Holder wishes to subscribe for
pursuant to the Over-Subscription Privilege to the Subscription Agent
based upon the Subscription Price of $__. Subscriptions will be
accepted when payment, together with the executed Subscription
Certificate, is received by the Subscription Agent at 10 Commerce
Drive, Cranford, New Jersey 07016, Attention: Reorg. Department; such
payment and Subscription Certificates must be received by the
Subscription Agent no later than 5:00 p.m., New York City time, on the
Expiration Date. The Subscription Agent will deposit all checks
received by it for the purchase of Depositary Units and Preferred Units
into a segregated interest-bearing account of the Partnership (the
interest from which will belong to the Partnership) pending proration
and distribution of the Depositary Units and Preferred Units. A PAYMENT
PURSUANT TO THIS METHOD MUST BE IN U.S. DOLLARS BY MONEY ORDER OR CHECK
DRAWN ON A BANK LOCATED IN THE UNITED STATES, MUST BE PAYABLE TO
REGISTRAR AND TRANSFER COMPANY, AS SUBSCRIPTION AGENT FOR AMERICAN REAL
ESTATE PARTNERS, L.P., AND MUST ACCOMPANY AN EXECUTED SUBSCRIPTION
CERTIFICATE FOR SUCH SUBSCRIPTION CERTIFICATE TO BE ACCEPTED AND BE
RECEIVED BY 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
2. Alternatively, a subscription will be accepted by the
Subscription Agent if, prior to 5:00 p.m., New York City time, on the
Expiration Date, the Subscription Agent has received a Notice of
Guaranteed Delivery (see Appendix B) by facsimile (telecopy) or
otherwise from a bank, a trust company or a NYSE member guaranteeing
delivery of (i) payment of the full Subscription Price for the
Depositary Units and the Preferred Units subscribed for through
exercise of the Basic Subscription Right and any additional Depositary
Units and the Preferred Units subscribed for pursuant to the
Over-Subscription Privilege, and (ii) a properly completed and executed
Subscription Certificate. The Subscription Agent will not honor a
Notice of Guaranteed Delivery unless a properly completed and executed
Subscription Certificate and full payment for the Depositary Units and
the Preferred Units is received by the Subscription Agent by the close
of business on the fifth Business Day after the Expiration Date (the
"Protect Period").
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Within seven Business Days following the Protect Period, the
Subscription Agent will send to each Exercising Rights Holder (or, if the
Depositary Units are held by a Nominee Holder, to such Nominee Holder)
certificates representing the Depositary Units and the Preferred Units purchased
pursuant to exercise of the Basic Subscription Rights and, if applicable, the
Over-Subscription Privilege along with a letter explaining the allocation of
Depositary Units and the Preferred Units pursuant to the Over-Subscription
Privilege. Any excess payment to be refunded by the Partnership to a Rights
Holder who is not allocated the full amount of Depositary Units and Preferred
Units subscribed for pursuant to the Over-Subscription Privilege will be mailed
by the Subscription Agent within seven Business Days after the Protect Period.
All payments by a Rights Holder must be in United States dollars by money order
or check drawn on a bank located in the United States and payable to Registrar
and Transfer Company, as Subscription Agent for American Real Estate Partners,
L.P.
Whichever of the two methods described above is used, issuance and
delivery of certificates for the Depositary Units and the Preferred Units
purchased are subject to collection of checks and actual payment.
If an Exercising Rights Holder who acquires Depositary Units and
Preferred Units through the exercise of its Basic Subscription Rights or
pursuant to the Over-Subscription Privilege does not make payment of any amounts
due, the Partnership and the Subscription Agent reserve the right to take any or
all of the following actions: (i) find other holders of Depositary Units or
Rights for such subscribed and unpaid for Depositary Units and Preferred Units;
(ii) apply any payment actually received by it toward the purchase of the
greatest whole number of Depositary Units and Preferred Units which could be
acquired by such holder upon exercise of its Basic Subscription Rights and/or
pursuant to the Over-Subscription Privilege; and/or (iii) exercise any and all
other rights or remedies to which it may be entitled, including, without
limitation, the right to set-off against payments actually received by it with
respect to such subscribed Depositary Units and Preferred Units.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE PARTNERSHIP WILL BE AT THE ELECTION AND RISK OF THE
RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND
PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK
CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE
AT LEAST FIVE BUSINESS DAYS TO CLEAR, RIGHTS HOLDERS ARE STRONGLY URGED TO PAY,
OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR MONEY ORDER.
All questions concerning the timeliness, validity, form and eligibility
of any exercise of Rights will be determined by the Partnership whose
determinations will be final and binding. The Partnership in its sole discretion
may waive any defect or irregularity or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported exercise
of any Right. Subscriptions will not be deemed to have been received or accepted
until all irregularities have been waived or cured within such time as the
Partnership determines in its sole discretion. The Partnership will not be under
any duty to give notification of any defect or irregularity in connection with
the submission of Subscription Certificates or incur any liability for failure
to give such notification.
SALE OF API NOMINEE CORP. RIGHTS
Pursuant to the Exchange, the Partnership acquired the real estate and
other assets of the Predecessor Partnerships. In connection with the Exchange,
the Depositary Units of certain non-consenting investors in the Predecessor
Partnerships issued in connection with the Exchange were registered in the name
of Nominee Corp. As of June 30, 1997, Nominee Corp. held 46,120 Depositary
Units. Unless such non-consenting investors execute and return their transfer
applications and the certificates evidencing their interests in the Predecessor
Partnerships issued in connection with the Exchange, thereby becoming holders of
record of the Depositary Units held by Nominee Corp., prior to the Record Date,
Nominee Corp shall use its reasonable efforts to sell the Rights issued to
Nominee Corp. and the proceeds from such sale, if any, will be held in escrow by
Nominee Corp. Neither the General Partner nor the Guarantor intends to purchase
Rights from Nominee Corp.
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<PAGE> 31
FOREIGN RECORD DATE UNITHOLDERS
Subscription Certificates will not be mailed to Foreign Record Date
Unitholders. The Rights to which such Subscription Certificates relate will be
held by the Subscription Agent for such Foreign Record Date Unitholders'
accounts until instructions are received to exercise, sell or transfer the
Rights. If no instructions have been received by 12:00 noon, New York City time,
three Business Days prior to the Expiration Date, the Subscription Agent will
use its best efforts to sell the Rights of those Foreign Record Date
Unitholders. The net proceeds, if any, from the sale of those Rights by the
Subscription Agent will be remitted to the Foreign Record Date Unitholder.
PURPOSE OF THE OFFERING
GENERAL. The Partnership is seeking to raise funds in the offering to
increase its available liquidity so that it will be in a better position to take
advantage of investment opportunities and to further diversify its portfolio.
Additionally, the Partnership may determine to reduce the debt of certain
properties where the interest rate is considered to be in excess of current
market rates. In light of AREP's view of current market conditions and the rise
in the trading price of AREP's Depositary Units, AREP believes that this is an
opportune time to raise additional capital.
The General Partner believes that the strengthening of the real estate
market and the stock market over recent years has permitted AREP and others to
sell properties at increasingly favorable prices. However, AREP believes the
markets may be due for a downward correction which could result in purchasing
opportunities from sellers who may seek to liquidate assets when their expected
returns decrease; also, the trading prices of the securities issued by such
companies could decline, providing additional investment opportunities. In the
real estate markets, which historically have been cyclical, this may be
especially true due to the unprecedented high volume of securities issued by
real estate operating companies. This may present opportunities for companies
with strong cash positions to acquire large portfolios of assets at possible
discounts to their implicit values and for the acquisition or recapitalization
of operating companies, including those with significant real estate assets.
AREP believes that the Partnership will benefit from diversification of
its real estate portfolio. By the end of the year 2000, net leases representing
approximately 23% of AREP's net annual rentals from its portfolio will be due
for renewal, and by the end of the year 2002, net leases representing
approximately 41% of AREP's net annual rentals will be due for renewal. Since
most of AREP's properties are net-leased to single corporate tenants, it may be
difficult and time consuming to re-lease or sell those properties that existing
tenants decline to re-let or purchase and that AREP may be required to incur
expenditures to renovate such properties for new tenants. In addition, AREP may
become responsible for the payment of certain operating expenses, including
maintenance, utilities, taxes, insurance and environmental compliance costs
associated with such properties which are presently the responsibility of the
tenant. As a result, AREP could experience an adverse impact on net cash flow
from such properties in the future.
The types of investments AREP will pursue include residential/
commercial development, acquiring debt or equity securities of companies which
may be undergoing restructuring and subperforming properties that may require
active asset management and significant capital improvements. These investments
may not be readily financeable and may not generate immediate positive cash flow
for the Partnership. As such, they require AREP to maintain a strong capital
base in order to react quickly to these market opportunities as well as to allow
AREP the financial strength to develop or reposition these assets.
INVESTMENT STRATEGIES. In selecting future real estate investments,
AREP intends to focus on assets that it believes are undervalued in the real
estate market, which investments may require substantial liquidity to maintain a
competitive advantage. Despite the substantial capital pursuing real estate
opportunities, management believes that there are still opportunities available
to acquire investments that are undervalued. This may include commercial
properties, residential and commercial development projects, land,
non-performing loans and the securities of entities which own, manage or develop
significant real estate assets, including limited partnership units and
securities issued by real estate investment trusts ("REITS"). Management
believes that, in the current market, investments requiring
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<PAGE> 32
some degree of active management or development activity have the greatest
potential for growth, both in terms of capital appreciation and the generation
of cash flow. In order to further these investment objectives, AREP may consider
the acquisition or seek effective control of land development companies and
other real estate operating companies which may have a significant inventory of
quality assets under development, as well as experienced personnel. This may
enhance AREP's ability to further diversify its portfolio of properties and gain
access to additional operating and development capabilities. Such acquisitions
may include those from affiliates of the General Partner, provided the terms
thereof are fair and reasonable and are approved by the Audit Committee. See
"Risk Factors -- Substantial Fees to General Partner and its Affiliates" and
"Use of Proceeds -- Fees to the General Partner and its Affiliates."
Other real estate investment opportunities AREP may pursue include
entering into joint venture arrangements or providing financing to developers
for the purpose of developing single-family homes, luxury garden apartments or
commercial properties. The loans may provide for a contractual rate of interest
to be paid as well as providing for a participation in the profits of the
development and/or an equity participation. Additionally, AREP will seek to
acquire underperforming properties through outright purchase or the purchase of
the debt or securities of such entities. For example, AREP may elect to
establish an ownership position by first acquiring debt secured by targeted
assets and then negotiate for the ownership or effective control of some or all
of the underlying equity in such assets. AREP may also seek to establish a
favorable economic and negotiating position through the acquisition of other
rights or interests that provide it with leverage in negotiating the acquisition
of targeted assets. AREP will also seek to acquire assets that are not in
financial distress but due to the particular circumstances of their ownership,
use or location, present substantial opportunities for development or long-term
growth. AREP may also consider acquiring additional net-leased properties at
appropriate yields or to effectuate tax-free exchanges.
AREP may continue to purchase real estate limited partnership interests
by pursuing negotiated agreements or commencing tender offers. The illiquidity
of many of these securities and their "informal" trading market enable entities
such as AREP to purchase them at what may be significant discounts to the value
of their underlying real estate in many instances.
While AREP believes opportunities in real estate acquisitions continue
to remain available, such acquisition opportunities for value-added investors
are becoming more competitive to source and the increased competition may have
some impact on the spreads and the ability to find quality assets at appropriate
yields. Pursuant to the Amendment, AREP, while continuing to pursue suitable
investments in the real estate markets as mentioned above, may invest a portion
of its funds 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 may include equity and debt securities of domestic and
foreign issuers. The investment objective of AREP with respect to such
investments will be to purchase undervalued securities, so as to maximize total
return consisting of current income and/or capital appreciation. Undervalued
securities are those which AREP believes may have greater inherent value than
indicated by their then current trading price and/or may lend themselves to
"activist" shareholder involvement. These securities may be undervalued for
various reasons including market inefficiencies, economic or market trends which
have not been identified and reflected in market value, 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. As is the case with real estate
related investments, with respect to non-real estate related investments AREP
may determine to establish an ownership position through the purchase of debt or
equity securities of such entities and then negotiate for the ownership or
effective control of some or all of the underlying equity in such assets. AREP
will conduct its investment activities in such a manner so as not to be deemed
an investment company under the 1940 Act.
The equity securities in which AREP 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 AREP 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.
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<PAGE> 33
Recently, AREP invested approximately $42.8 million to purchase certain
mortgage notes issued by Stratosphere having a face value of $55 million. In
addition, an affiliate of Icahn currently owns approximately $39 million face
value of such Stratosphere mortgage notes. Stratosphere owns and operates the
Stratosphere Tower, Casino & Hotel in Las Vegas, Nevada and has filed a
voluntary proceeding for reorganization pursuant to Chapter 11 of the United
States Bankruptcy Code. Such affiliate of Icahn and AREP together submitted a
proposal for the restructuring of Stratosphere, which if accepted and pursued
would involve additional investments in Stratosphere by AREP and such affiliate
of Icahn. In addition, AREP is investigating possible tender offers for real
estate operating companies which, together with the possible additional
investment in Stratosphere, could involve investments of over $200 million by
AREP in the foreseeable future. However, no assurances can be made that such
transactions will be pursued or that such investments will be made. See "Recent
Events -- Investment in Stratosphere Corporation."
In keeping with its overall investment strategy, the Partnership may
acquire assets that are not generating positive cash flow. While this may impact
cash flow in the near term and there can be no assurance that any asset acquired
by the Partnership will increase in value or generate positive cash flow,
management intends to focus on assets that it believes may provide opportunities
for long-term growth and diversification of its portfolio.
The determination of which assets are to be acquired will be within the
sole discretion of the General Partner. No assets have as yet been identified
for acquisition nor has the Partnership entered into negotiations or agreements
relating to the acquisition of any assets with the proceeds of the Offering.
Icahn, in his capacity as majority Unitholder through the Guarantor,
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. In addition, Icahn has confirmed to AREP neither he nor any of his
affiliates will receive any fees from AREP in consideration for services
rendered in connection with non-real estate related investments by AREP. The
General Partner and its affiliates may, however, realize substantial fees and
other income from transactions involving the Partnership's investments in real
estate as described herein. AREP may determine to make investments in certain
assets in which Icahn or his affiliates have independent investments; in
addition, AREP may enter into other transactions with the General Partner, Icahn
or their affiliates, including, without limitation, buying and selling assets
from or to the General Partner, Icahn or their affiliates, and participating in
joint venture investments in assets with the General Partner, Icahn or their
affiliates, whether real estate or non-real estate related, provided the terms
of all such transactions are fair and reasonable to AREP. See "Use of Proceeds
- -- Fees to the General Partner and its Affiliates" and "Risk Factors --
Substantial Fees to General Partner and its Affiliates."
BENEFITS TO THE PARTNERSHIP AND UNITHOLDERS. The Rights are exercisable
for both Depositary Units and Preferred Units. The two securities must be
purchased as a unit and may not be subscribed for separately. The General
Partner determined to offer the two securities as a unit, in part to give
Unitholders the right to purchase additional Depositary Units and Preferred
Units at a total price below market without incurring any commission charge and,
in part, to provide the Partnership through the issuance of the additional
Preferred Units with a relatively inexpensive source of financing for additional
acquisitions. The Preferred Units also have the further quality, at least
initially, of not being dilutive to those Unitholders who choose not to exercise
their Rights (although the Preferred Units could, if the Audit Committee
determined it was in the best interest of the Partnership at the time, be
redeemed at a later time for Depositary Units). In structuring the Offering, the
General Partner considered that the Preferred Units have been trading at a
discount to their liquidation preference, may not be as attractive to investors
as the Depositary Units and might reduce Unitholder participation in the
Offering, but determined that the benefit to the Partnership and ultimately
Unitholders of raising approximately an additional $_____________ for investment
through the issuance of the additional Preferred Units outweighed any potential
negative impact that might arise as a consequence of including the Preferred
Units as part of the Offering. Moreover, assuming the conditions of the
Subscription Guaranty Agreement are met, the Partnership is assured by virtue of
the Subscription Guaranty of all Depositary Units and Preferred Units offered
being subscribed. See "The Offering - Subscription Guaranty" for discussion of
the Subscription Guaranty, including the factors that were considered by the
Board of Directors in approving the Subscription Guaranty. In addition, the
Board of Directors considered that the Depositary Units recently have been
trading at higher market prices than in comparable periods over the most recent
years.
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<PAGE> 34
In an attempt to at least partially compensate those Unitholders who
decline to participate in the Offering, the General Partner has structured the
Rights as transferrable. Accordingly, to the extent a market for the Rights
develop, non-participating Unitholders will be able to sell their Rights. See
"The Offering - Sale of Rights" for further discussion regarding the transfer of
Rights.
USE OF PROCEEDS
GENERAL. The General Partner has determined that it is in the best
interests of the Partnership and its Unitholders to increase the Partnership's
available liquidity so that it will be in a better position to take advantage of
investment opportunities and to further diversify its portfolio. Additionally,
the General Partner may elect to reduce the debt of certain properties where the
interest rate is considered to be in excess of current market rates. With the
proceeds from the Offering (estimated to be approximately $___________ after
payment of offering expenses which are estimated to be approximately $_______),
AREP intends to pursue investments involving raw-land development, debt or
equity securities of companies that may be undergoing restructuring and
properties that may require active asset management and significant capital
improvements, along with other investments described in this Prospectus. These
investments may not be readily financeable and may not generate immediate
positive cash flow for the Partnership. As such, they require AREP to maintain a
strong capital base to react quickly to these market opportunities as well as to
allow AREP the financial strength to develop or reposition these assets. See
"Purpose of the Offering."
FEES TO THE GENERAL PARTNER AND ITS AFFILIATES. The General Partner and
its affiliates may receive fees in connection with the acquisition, sale,
financing, development and management of new properties acquired by AREP. As
development and other new properties are acquired, developed, constructed,
operated, leased and financed, the General Partner or its affiliates may perform
acquisition functions, including the review, verification and analysis of data
and documentation with respect to potential acquisitions, and perform
development and construction oversight and other land development services,
property management and leasing services, either on a day-to-day basis or on an
asset management basis, and may perform other services and be entitled to fees
and reimbursement of expenses relating thereto, provided that, in accordance
with the Partnership Agreement, the terms of such transactions are fair and
reasonable to AREP and are customary to the industry. It is not possible to
state precisely what role, if any, the General Partner or any of its affiliates
may have in the acquisition, development or management of any new investments.
Consequently, it is not possible to state the amount of the income, fees or
commissions the General Partner or its affiliates might be paid in connection
with the investment of the Offering proceeds since the amount thereof is
dependent upon the specific circumstances of each investment, including the
nature of the services provided, the location of the investment and the amount
customarily paid in such locality for such services. However, Unitholders may
expect that, subject to the specific circumstances surrounding each transaction
and the overall fairness and reasonableness thereof to AREP, the fees charged by
the General Partner and its affiliates for the services described below
generally will be within the ranges set forth below:
- Property Management and Asset Management Services. To the extent that
AREP acquires any properties requiring active management (e.g., operating
properties that are not net-leased) or asset management services, including on
site services, it may enter into management or other arrangements with the
General Partner or its affiliates. Generally, it is contemplated that under
property management arrangements, the entity managing the property would receive
a property management fee (generally 3% to 6% of gross rentals for direct
management, depending upon the location) and under asset management
arrangements, the entity managing the asset would receive an asset management
fee (generally .5% to 1% of the appraised value of the asset for asset
management services, depending upon the location) in payment for its services
and reimbursement for costs incurred.
- Brokerage and Leasing Commissions. AREP also may pay affiliates of
the General Partner real estate brokerage and leasing commissions (which
generally may range from 2% to 6% of the purchase price or rentals depending on
location; this range may be somewhat higher for problem properties or
lesser-valued properties).
- Lending Arrangements. The General Partner or its affiliates may lend
money to, or arrange loans for, AREP. Fees payable to the General Partner or its
affiliates in connection with such activities include mortgage
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<PAGE> 35
brokerage fees (generally .5% to 3% of the loan amount), mortgage origination
fees (generally .5% to 1.5% of the loan amount) and loan servicing fees
(generally .10% to .12% of the loan amount), as well as interest on any amounts
loaned by the General Partner or its affiliates to AREP.
- Development and Construction Services. The General Partner or its
affiliates may also receive fees for development services, generally 1% to 4% of
development costs, and general contracting services or construction management
services, generally 4% to 6% of construction costs.
AREP may also enter into other transactions with the General Partner
and its affiliates, including, without limitation, buying and selling properties
and borrowing and lending funds from or to the General Partner or its
affiliates, joint venture developments and issuing securities to the General
Partner or its affiliates in exchange for, among other things, assets that they
now own or may acquire in the future, provided the terms of such transactions
are fair and reasonable to AREP. The General Partner is also entitled to
reimbursement by AREP for all allocable direct and indirect overhead expenses
(including, but not limited to, salaries and rent) incurred in connection with
the conduct of AREP's business.
In addition, employees of AREP may, from time to time, provide services
to affiliates of the General Partner, with AREP being reimbursed therefor.
Reimbursement to AREP by such affiliates in respect of such services is subject
to review and approval by the Audit Committee of the Board of Directors of the
General Partner.
The Audit Committee of the Board of Directors of the General Partner
meets on an annual basis, or more often if necessary, to review and approve any
conflicts of interest which may arise, including the payment by AREP of any fees
to the General Partner or any of its affiliates. The General Partner and its
affiliates may not receive duplicative fees.
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<PAGE> 36
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED UNIT DISTRIBUTIONS
The following table sets forth the computation of the ratio of earnings
to fixed charges for the quarters ended March 31, 1997 and 1996 and each of the
years in the five-year period ended December 31, 1996. The financial information
for purposes of computing the ratio of earnings to fixed charges has been
derived from the unaudited and audited Consolidated Financial Statements of
American Real Estate Partners, L.P. and the Subsidiary (the "Company")
incorporated herein by reference.
The following table also sets forth the pro forma computation of the
ratio of earnings to fixed charges and Preferred Unit distributions for the
quarters ended March 31, 1997 and 1996 and the year ended December 31, 1996. The
pro forma ratio of earnings to fixed charges and Preferred Unit Distributions
has been prepared by adjusting the historical Consolidated Financial Statements
of the Company to give effect to the exercise of the Rights being offered
hereby. The pro forma ratio of earnings to fixed charges and Preferred Unit
Distributions for the quarters ended March 31, 1997 and 1996 and the year ended
December 31, 1996 has been prepared as if the exercise of the Rights occurred on
January 1, 1996. The pro forma ratio of earnings to fixed charges and Preferred
Unit Distributions does not purport to be indicative of the ratio of earnings to
fixed charges and Preferred Unit Distributions which might have occurred had the
Rights been exercised on January 1, 1996, or which may be expected to occur in
the future.
<TABLE>
<CAPTION>
PERIOD ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------- --------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings:
<S> <C> <C> <C> <C> <C> <C> <C>
Net earnings................... $ 40,789,128 $ 11,001,281 $ 57,822,052 $ 35,155,620 $ 23,168,564 $ 22,676,754 $ 11,291,877
Add back fixed charges
charged to earnings............ 3,451,522 4,580,495 17,004,837 20,058,182 23,057,243 25,386,816 26,068,454
------------ ------------ ------------ ------------ ------------ ------------ ------------
Earnings before
fixed charges.............. $ 44,240,650 $ 15,581,776 $ 74,826,889 $ 55,213,802 $ 46,225,807 $ 48,063,570 $ 37,360,331
============ ============ ============ ============ ============ ============ ============
Fixed Charges:
Interest expense as
reported..................... $ 3,317,478 $ 4,479,786 $ 16,350,791 $ 19,613,860 $ 22,735,908 $ 25,127,931 $ 25,859,176
Amortization of debt
placement costs.............. 134,044 100,709 654,046 444,322 321,335 258,885 209,278
------------ ------------ ------------ ------------ ------------ ------------ ------------
3,451,522 4,580,495 17,004,837 20,058,182 23,057,243 25,386,816 26,068,454
Capitalized interest........... 0 0 0 0 0 210,000 58,540
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total Fixed charges.......... $ 3,451,522 $ 4,580,495 $ 17,004,837 $ 20,058,182 $ 23,057,243 $ 25,596,816 $ 26,126,994
============ ============ ============ ============ ============ ============ ============
Ratio:
Earnings/Fixed charges:...... 12.82 3.40 4.40 2.75 2.00 1.88 1.43
------------ ------------ ------------ ------------ ------------ ------------ ------------
Pro forma Ratio of Earnings
to Fixed Charges and Preferred
Unit Distributions
Fixed charges, per above .... $ 3,451,522 $ 4,580,495 $ 17,004,837
Preferred Unit
distributions:
Current Preferred............ 259,303 246,955 1,024,863
------------ ------------ ------------
New Preferred(1)............. 787,500 750,000 3,000,000
------------ ------------ ------------
Total fixed charges.......... $ 4,498,325 $ 5,577,450 $ 21,029,700
============ ============ ============
Pro forma:
Earnings/Fixed charges:...... 9.83 2.79 3.56
------------ ------------ ------------
</TABLE>
- ---------------
(1) Assumes $60,000,000 worth of Preferred Units are issued.
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<PAGE> 37
DESCRIPTION OF SECURITIES
The following is a brief description of (i) the Depositary Units and
certain provisions of the Depositary Agreement (as amended, the "Depositary
Agreement") related thereto, entered into among the Partnership, Registrar and
Transfer Company, as depositary (the "Depositary"), and the Unitholders and (ii)
the Preferred Units.
THE DEPOSITARY UNITS
General. The Depositary Units represent limited partner interests in
AREP. The percentage interest in AREP represented by a Depositary Unit is equal
to the ratio it bears at the time of such determination to the total number of
Depositary Units in AREP (including any undeposited Depositary Units)
outstanding, multiplied by 99%, which is the aggregate percentage interest in
AREP of all holders of Depositary Units. Subject to the rights and preferences
of the Preferred Units, each Depositary Unit evidences entitlement to a portion
of AREP's net cash flow and net proceeds from capital transactions when
distributed by the General Partner and an allocation of AREP's net income and
net loss, as determined in accordance with the Partnership Agreement.
The Depositary Units are registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the Partnership is subject to the
reporting requirements of the Exchange Act. The Partnership is required to file
periodic reports containing financial and other information with the Commission.
The Depositary Units outstanding prior to this Offering are, and the
Depositary Units to be issued upon exercise of the Rights will be, listed on the
NYSE under the symbol "ACP." Depositary Units acquired pursuant to exercise of
the Rights will be freely transferable after consummation of this Offering.
Resale of Depositary Units held by the General Partner and its affiliates will
be restricted under federal securities laws. Depositary Units are evidenced by
depositary receipts issued by the Depositary.
The Partnership is authorized to issue additional Depositary Units or
other securities of the Partnership from time to time to Unitholders or
additional investors without the consent or approval of Unitholders. There is no
limit to the number of Depositary Units or additional classes thereof that may
be issued. The Board of Directors of the General Partner has the power, without
any further action by the Unitholders, to issue units with such designations,
preferences and relative, participating or other special rights, powers and
duties, including rights, powers and duties senior to existing classes of
Depositary Units or Preferred Units. The Depositary Units have no preemptive
rights.
Transfer of Depositary Units. Until a Depositary Unit has been
transferred on the books of the Depositary, the Depositary and the Partnership
will treat the record holder thereof as the absolute owner for all purposes. A
transfer of Depositary Units will not be recognized by the Depositary or the
Partnership unless and until the transferee of such Depositary Units
(individually, a "Subsequent Transferee," and collectively, the "Subsequent
Transferees") executes and delivers a Transfer Application to the Depositary.
Transfer Applications appear on the back of each Depositary Receipt and also
will be furnished at no charge by the Depositary upon receipt of a request
therefor. By executing and delivering a Transfer Application to the Depositary,
a Subsequent Transferee automatically requests admission as a substituted
Unitholder in the Partnership, agrees to be bound by the terms and conditions of
the Partnership Agreement and grants a power of attorney to the General Partner.
On a monthly basis, the Depositary will, on behalf of Subsequent Transferees who
have submitted Transfer Applications, request the General Partner to admit such
Subsequent Transferees as substituted limited partners in the Partnership. If
the General Partner consents to such substitution, a Subsequent Transferee will
be admitted to the Partnership as a substituted limited partner upon the
recordation of such Subsequent Transferee's name in the books and records of the
Partnership. Upon such admission, which is in the sole discretion of the General
Partner, he will be entitled to all of the rights of a limited partner under the
Delaware Revised Uniform Limited Partnership Act (the "Delaware Act") and
pursuant to the Partnership Agreement. A Subsequent Transferee will, after
submitting a Transfer Application to the Depositary but before being admitted to
the Partnership as a substituted Unitholder of record, have the rights of an
assignee under the Delaware Act and the Partnership Agreement, including the
right to receive his pro rata share of distributions.
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<PAGE> 38
A Subsequent Transferee who does not execute and deliver a Transfer
Application to the Depositary will not be recognized as the record holder of
Depositary Units and will only have the right to transfer or assign his
Depositary Units to a purchaser or other transferee. Therefore, such Subsequent
Transferee will neither receive distributions from the Partnership nor be
entitled to vote on Partnership matters or any other rights to which record
holders of Depositary Units are entitled under the Delaware Act or pursuant to
the Partnership Agreement. Distributions made in respect of the Depositary Units
held by such Subsequent Transferees will continue to be paid to the transferor
of such Depositary Units. A Subsequent Transferee will be deemed to be a party
to the Depositary Agreement and to be bound by its terms and conditions whether
or not such Subsequent Transferee executes and delivers a Transfer Application
to the Depositary. A transferor will have no duty to ensure the execution of a
Transfer Application by a Subsequent Transferee and will have no liability or
responsibility if such Subsequent Transferee neglects or chooses not to execute
and deliver the Transfer Application to the Depositary.
Whenever Depositary Units are transferred, the Transfer Application
requires that a Subsequent Transferee answer a series of questions. The required
information is designed to provide the Partnership with the information
necessary to prepare its tax information return. If the Subsequent Transferee
does not furnish the required information, the Partnership will make certain
assumptions concerning this information, which may result in the transferee
receiving a lower dollar amount of depreciation.
Withdrawal of Depositary Units from Deposit. A Unitholder may withdraw
from the Depositary the Depositary Units represented by his Depositary Receipts
upon written request and surrender of the Depositary Receipts evidencing such
Depositary Units in exchange for a certificate issued by the Partnership
evidencing the same number of Depositary Units. A Subsequent Transferee is
required to become a Unitholder of record before being entitled to withdraw
Depositary Units from the Depositary. Depositary Units which have been withdrawn
from the Depositary, and are therefore not evidenced by Depositary Receipts, are
not transferable except upon death, by operation of law, by transfer to the
Partnership or redeposit with the Depositary. A holder of Depositary Units
withdrawn from deposit will continue to receive his respective share of
distributions and allocations of net income and losses pursuant to the
Partnership Agreement. In order to transfer Depositary Units withdrawn from the
Depositary (other than upon death, by operation of law or to the Partnership), a
Unitholder must redeposit the certificate evidencing such withdrawn Depositary
Units with the Depositary and request issuance of Depositary Receipts
representing such Depositary Units, which Depositary Receipts then may be
transferred. Any redeposit of such withdrawn Depositary Units with the
Depositary requires 60 days' advance written notice and payment to the
Depositary of a redeposit fee (initially $5.00 per 100 Depositary Units or
portion thereof), and will be subject to the satisfaction of certain other
procedural requirements under the Depositary Agreement.
Replacement of Lost Depositary Receipts and Certificates. A Unitholder
or Subsequent Transferee who loses or has his or her certificate for Depositary
Units or Depositary Receipts stolen or destroyed may obtain a replacement
certificate or Depositary Receipt by furnishing an indemnity bond and by
satisfying certain other procedural requirements under the Depositary Agreement.
Amendment of Depositary Agreement. Subject to the restrictions
described below, any provision of the Depositary Agreement, including the form
of Depositary Receipt, may at any time and from time to time be amended by the
mutual agreement of the Partnership and the Depositary in any respect deemed
necessary or appropriate by them, without the approval of the holders of
Depositary Units. No amendment to the Depositary Agreement, however, may impair
the right of a holder of Depositary Units to surrender a Depositary Receipt and
to withdraw any or all of the deposited Depositary Units evidenced thereby or to
redeposit Depositary Units pursuant to the Depositary Agreement and receive a
Depositary Receipt evidencing such redeposited Depositary Units. The Depositary
will furnish notice to each record holder of a Depositary Unit, and to each
securities exchange on which Depositary Units are listed for trading, of any
material amendment made to the Depositary Agreement. Each record holder of a
Depositary Unit at the time any amendment of the Depositary Agreement becomes
effective will be deemed, by continuing to hold such Depositary Unit, to consent
and agree to the amendment and to be bound by the Depositary Agreement as so
amended.
The Depositary will give notice of the imposition of any fee or charge
(other than fees and charges provided for in the Depositary Agreement), or
change thereto, upon record holders of Depositary Units to any securities
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exchange on which the Depositary Units are listed for trading and to all record
holders of Depositary Units. The imposition of any such fee or charge, or change
thereto, will not be effective until the expiration of 30 days after the date of
such notice, unless it becomes effective in the form of an amendment to the
Depositary Agreement effected by the Partnership and the Depositary.
Termination of Depositary Agreement. The Partnership may not terminate
the Depositary Agreement unless such termination (i) is in connection with the
Partnership entering into a similar agreement with a new depositary selected by
the General Partner, (ii) is as a result of the Partnership's receipt of an
opinion of counsel to the effect that such termination is necessary for the
Partnership to avoid being treated as an "association" taxable as a corporation
for federal income tax purposes or to avoid being in violation of any applicable
federal or state securities laws or (iii) is in connection with the dissolution
of the Partnership. The Depositary will terminate the Depositary Agreement, when
directed to do so by the Partnership, by mailing notice of such termination to
the record holders of Depositary Units then outstanding at least 60 days before
the date fixed for the termination in such notice. Termination will be effective
on the date fixed in such notice, which date must be at least 60 days after it
is mailed. Upon termination of the Depositary Agreement, the Depositary will
discontinue the transfer of Depositary Units, suspend the distribution of
reports, notices and disbursements and cease to perform any other acts under the
Depositary Agreement, except in the event the Depositary Agreement is not being
terminated in connection with the Partnership entering into a similar agreement
with a new depositary, the Depositary will assist in the facilitation of the
withdrawal of Depositary Units by holders who desire to surrender their
Depositary Receipts.
Resignation or Removal of Depositary. The Depositary may resign as
Depositary and may be removed by the Partnership at any time upon 60 days'
written notice. The resignation or removal of the Depositary becomes effective
upon the appointment of a successor Depositary by the Partnership and written
acceptance by the successor Depositary of such appointment. In the event a
successor Depositary is not appointed within 75 days of notification of such
resignation or removal, the General Partner will act as Depositary until a
successor Depositary is appointed. Any corporation into or with which the
Depositary may be merged or consolidated will be the successor Depositary
without the execution or filing of any document or any further act.
THE PREFERRED UNITS
General. The Preferred Units represent limited partner interests in
AREP and have such rights and designations as described below. The Preferred
Units are evidenced by certificates issued by the Partnership. The Preferred
Units are registered under the Exchange Act.
The Preferred Units outstanding prior to this Offering are, and the
Preferred Units to be issued upon exercise of the Rights will be, listed on the
NYSE under the symbol "ACP PR." Preferred Units acquired pursuant to exercise of
the Rights will be freely transferable after consummation of this Offering.
Resale of Preferred Units held by the General Partner and its affiliates,
including the Guarantor, will be restricted under federal securities laws. The
Preferred Units are not be evidenced by Depositary Receipts.
Each Rights Holder who subscribes for the purchase of Depositary Units
and Preferred Units pursuant to the Offering described in this Prospectus shall
be deemed to have applied for admission as a limited partner of the Partnership
with respect to the Units acquired and to have agreed to be bound by all of the
terms and conditions of the Partnership Agreement, as from time to time in
effect. See "Description of Partnership Agreement."
The Partnership is authorized to issue additional Preferred Units or
other securities of the Partnership from time to time to Unitholders or
additional investors without the consent or approval of Unitholders. There is no
limit to the number of Preferred Units or additional classes thereof that may be
issued. The Board of Directors of the General Partner has the power, without any
further action by the Unitholders to issue units with such designations,
preferences and relative, participating or other special rights, powers and
duties, including rights, powers and duties senior to existing classes of
Depositary Units or Preferred Units. The Preferred Units have no preemptive
rights.
Liquidation. Holders of the Preferred Units are entitled, subject to
the rights of creditors, in the event of any voluntary or involuntary
liquidation of the Partnership, to an amount in cash equal to $10.00 per
Preferred Unit
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plus any accrued and unpaid distributions. The rights of the holders of the
Preferred Units upon liquidation of the Company rank prior to those of holders
of Depositary Units issued by the Partnership.
Distributions. Each Preferred Unit has a liquidation preference of
$10.00 and entitles the holder thereof to receive distributions thereon, payable
solely in additional Preferred Units, at the rate of 5% per annum of the
liquidation preference (which is equal to $.50 per annum per Preferred Unit),
payable annually on March 31 of each year (each, a "Payment Date"). For purposes
of determining the number of new Preferred Units to be issued in respect of
distributions on existing Preferred Units, new Preferred Units will be valued at
the liquidation preference thereof.
The Preferred Units, including those issued as a result of
distributions by the Partnership, are represented by certificates issuable
solely in whole Preferred Units. No certificates representing fractional
Preferred Units are issued, but record of the ownership of such fractional
Preferred Units is kept on the books of the Partnership and allocations,
distributions, voting rights, rights with respect to redemption and the like are
determined in accordance with fractional Preferred Unit ownership.
Redemption. On any Payment Date commencing with the Payment Date on
March 31, 2000, the Partnership, with the approval of the Audit Committee, may
opt to redeem all, but not less than all, of the Preferred Units for a price,
payable either in all cash or by issuance of additional Depositary Units, equal
to the liquidation preference of the Preferred Units, plus any accrued but
unpaid distributions thereon. Upon any redemption of the Preferred Units, the
redemption price may be paid either all in cash or all in Depositary Units but
not in a combination thereof. For purposes of redemption, the Preferred Units
will be valued at the liquidation value thereof and the Depositary Units will be
valued at (i) if the Depositary Units are listed or admitted to trading on one
or more national securities exchanges, the average price at which the Depositary
Units had been trading over the 20-day period immediately preceding such
redemption on the principal national securities exchange on which the Depositary
Units are listed or admitted to trading; (ii) if the Depositary Units are not
listed or admitted to trading on a national securities exchange but are quoted
by NASDAQ, the average bid price per Depositary Unit at which the Depositary
Units had been trading over the 20-day period immediately preceding such
redemption, as furnished by the National Quotation Bureau Incorporated or such
other nationally recognized quotation service as may be selected by the General
Partner for such purpose, if such Bureau is not at the time furnishing
quotations; or (iii) if the Depositary Units are not listed or admitted to
trading on a national securities exchange or quoted by NASDAQ, an amount equal
to the book value as reflected in the most recent audited financial statement of
the partnership as of the date of redemption. On March 31, 2010, the Partnership
must redeem the Preferred Units on the same terms as any optional redemption.
Business Combinations. In the event that the Partnership shall effect
any capital reorganization or reclassification of its Units or shall consolidate
or merge with or into, or shall sell or transfer all or substantially all of its
assets to, any other entity, the holders of Preferred Units then outstanding
shall be entitled to receive the same kind and amount of securities, cash,
property, rights or interests as shall have been receivable for each Depositary
Unit by the holders thereof in such reorganization, reclassification,
consolidation, merger, sale or transfer had such Preferred Units been redeemed
for Depositary Units immediately prior to such reorganization, reclassification,
consolidation, merger, sale or transfer.
Voting Rights. So long as any Preferred Units are outstanding, the
Partnership shall not amend, alter or repeal any provisions of the Partnership
Agreement, as amended so as to alter or change the express powers, preferences
or special rights of the Preferred Units so as to affect them adversely without
the consent of the holders of at least two-thirds of the total number of
outstanding Preferred Units (including those held by the General Partner and its
affiliates), given in person or by proxy, by vote at a meeting called for that
purpose or by written consent as permitted by the Partnership Agreement. Except
as described in "-- Nomination of Additional Independent Directors," the holders
of the Preferred Units have no other rights to vote or to participate in the
management of the Partnership.
Nomination of Additional Independent Directors. If distributions (which
are payable in kind) are not made to the holders of Preferred Units on any two
Payment Dates (which need not be consecutive), the holders of more
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than 50% of all outstanding Preferred Units, including the General Partner and
its affiliates, voting as a class, shall be entitled to appoint two nominees for
the Board of Directors of the General Partner. Holders of Preferred Units owning
at least 10% of all outstanding Preferred Units, including the General Partner
and its affiliates to the extent that they are holders of Preferred units, may
call a meeting of the holders of Preferred Units to elect such nominees. See
"Description of Partnership Agreement -- Meetings; Voting Rights of
Unitholders." Once elected, the nominees will be appointed to the Board of
Directors of the General Partner by Icahn. As directors, the nominees will, in
addition to their other duties as directors, be specifically charged with
reviewing all future distributions to the holders of the Preferred Units. Such
additional directors shall serve until the full distributions accumulated on all
outstanding Preferred Units have been declared and paid or set apart for
payment. If and when all accumulated distributions on the Preferred Units have
been declared and paid or set aside for payment in full, the holders of
Preferred Units shall be divested of the special voting rights provided by the
failure to pay such distributions, subject to revesting in the event of each and
every subsequent default. Upon termination of such special voting rights
attributable to all holders of Preferred Units with respect to payment of
distributions, the term of office of each director nominated by the holders of
Preferred Units (the "Preferred Unit Directors") pursuant to such special voting
rights shall terminate and the number of directors constituting the entire Board
of Directors shall be reduced by the number of Preferred Unit Directors. The
holders of the Preferred Units will have no other rights to participate in the
management of the Partnership and will not be entitled to vote on any matters
submitted to a vote of the holders of Depositary Units.
Transfer Agent, Registrar and Distribution Paying Agent. Registrar and
Transfer Company acts as the transfer agent, registrar and distribution-paying
agent (the "Transfer Agent") for the Preferred Units and the Depositary Units
and receives a fee from the Partnership for serving in such capacities. All fees
charged by the Transfer Agent for transfers and withdrawals of Preferred Units
are borne by the Partnership and not by the Unitholders, except that fees
similar to those customarily paid by stockholders for surety bond premiums to
replace lost or stolen certificates, taxes or other governmental charges,
special charges for services requested by a Unitholder and other similar fees or
charges are borne by the affected Unitholder. There is no charge to Unitholders
for disbursements of the Partnership's cash distributions. The Partnership
indemnifies the Transfer Agent and its agents from certain liabilities.
The Transfer Agent may at any time resign, by notice to the
Partnership, or be removed by the Partnership, such resignation or removal to
become effective upon the appointment by the General Partner of a successor
transfer agent, registrar and distribution-paying agent and its acceptance of
such appointment. If no successor has been appointed and has accepted such
appointment within 30 days after notice of such resignation or removal, the
General Partner is authorized to act as transfer agent, registrar and
distribution-paying agent until a successor is appointed.
Transfer of Preferred Units. Until a Preferred Unit has been
transferred on the books of the Partnership, the Partnership and the Transfer
Agent treat the record holder thereof as the absolute owner for all purposes,
notwithstanding any notice to the contrary or any notation or other writing on
the certificate representing such Preferred Unit, except as otherwise required
by law. Any transfers of a Preferred Unit will not be recorded by the Transfer
Agent or recognized by the Partnership unless certificates representing the
Preferred Units are surrendered and the transferee executes and delivers a
Transfer Application to the Partnership. By executing and delivering a Transfer
Application, the transferee of Preferred Units is an assignee until admitted to
the Partnership as a substituted limited partner, automatically requests
admission to the Partnership as a substituted limited partner, agrees to be
bound by the terms and conditions of the Partnership Agreement, represents that
such transferee has the capacity and authority to enter into the Partnership
Agreement and grants powers of attorney to the General Partner. On a monthly
basis, the Transfer Agent will, on behalf of transferees who have submitted
Transfer Applications, request the General Partner to admit such transferees as
substituted limited partners in the Partnership. If the General Partner consents
to such substitution, a transferee will be admitted to the Partnership as a
substituted limited partner upon the recordation of such transferee's name in
the books and records of the Partnership. Upon such admission, which is in the
sole discretion of the General Partner, he will be entitled to all of the rights
of a limited partner under the Delaware Act and pursuant to the Partnership
Agreement. A transferee will, after submitting a Transfer Application to the
Partnership but before being admitted to the Partnership as a substituted
Unitholder of record, have the rights of an assignee under the Delaware Act and
the Partnership Agreement,
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including the right to receive his distributions. Preferred Units are securities
and are transferable according to the laws governing transfers of securities.
A transferee who does not execute and deliver a Transfer Application to
the Partnership will not be recognized as the record holder of Preferred Units
and will only have the right to transfer or assign his Preferred Units to a
purchaser or other transferee. Therefore, such transferee will neither receive
distributions from the Partnership or any other rights to which record holders
of Preferred Units are entitled under the Delaware Act or pursuant to the
Partnership Agreement. Distributions made in respect of the Preferred Units held
by such transferees will continue to be paid to the transferor of such Preferred
Units. A transferor will have no duty to ensure the execution of a Transfer
Application by a transferee and will have no liability or responsibility if such
transferee neglects or chooses not to execute and deliver the Transfer
Application to the Partnership.
Whenever Preferred Units are transferred, the Transfer Application
requires that a transferee answer a series of questions. The required
information is designed to provide the Partnership with the information
necessary to prepare its tax information return. If the transferee does not
furnish the required information, the Partnership will make certain assumptions
concerning this information, which may result in the transferee receiving a
lower dollar amount of depreciation.
Replacement of Lost Preferred Unit Certificates. A Unitholder or
transferee who loses or has his or her certificate for Preferred Units stolen or
destroyed may obtain a replacement certificate by furnishing an indemnity bond
and by satisfying certain other procedural requirements under the Partnership
Agreement.
DESCRIPTION OF PARTNERSHIP AGREEMENT
The rights of a limited partner of the Partnership are set forth in the
Partnership Agreement. The following is a summary of certain provisions of the
Partnership Agreement and the Agreement of Limited Partnership of the Subsidiary
(the "Subsidiary Partnership Agreement"), which is similar to the Partnership
Agreement in all material respects (except for the Preferred Units). The
following summary discusses certain provisions which relate to both, and is
qualified in its entirety by reference to both the Partnership Agreement and the
Subsidiary Partnership Agreement. A reference to the "Partnership Agreement" in
this Prospectus refers to each of the Partnership Agreement and the Subsidiary
Partnership Agreement, unless otherwise indicated.
ORGANIZATION
The Partnership and the Subsidiary were organized as limited
partnerships under the Delaware Act. The General Partner is the general partner
of both the Partnership and the Subsidiary. The Partnership owns a 99% limited
partnership interest in the Subsidiary. The General Partner owns a 1% general
partnership interest in both the Partnership and the Subsidiary. Exercising
Rights Holders, who are not limited partners as of the date of exercise of their
Rights, will, following such exercise, be admitted as limited partners of the
Partnership. The limited partnership interests of Record Date Holders who
exercise their rights will be adjusted on the books and records of the
Partnership accordingly.
PURPOSES, BUSINESS AND MANAGEMENT
The purposes and business of the Partnership are (a) to directly or
indirectly invest in, acquire, own, hold, manage, operate, sell, exchange and
otherwise dispose of interests in real estate (including, without limitation, a
limited partner interest in the Subsidiary) 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 such
purposes.
The General Partner is authorized, in general, to perform all acts
necessary or appropriate to carry out the purposes and to conduct the business
of the Partnership, including the issuance of additional Depositary Units or
other securities of the Partnership (to which the Unitholders are not required
to consent). No Unitholder, in such
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capacity, may take part in the operation, management or control of the business
of the Partnership. The General Partner, its affiliates and their employees may
have other business interests and engage in other activities and are not
required to manage the Partnership as their sole and exclusive function. The
Partnership Agreement generally provides that, subject to the satisfaction of
certain conditions, the General Partner and its affiliates will be exculpated
from liability for losses sustained or liabilities incurred by the Partnership
and, to the maximum extent permitted by law, will be indemnified for all
liabilities and related expenses arising out of proceedings or claims related to
the business of the Partnership.
The authority of the General Partner is limited in certain respects.
The General Partner is prohibited, without the written consent or affirmative
vote of Unitholders owning more than 50% of the total number of all outstanding
Depositary Units then held by Unitholders, including the General Partner and its
affiliates to the extent that they are Unitholders (a "Majority Interest"),
from, among other things, selling or otherwise disposing of all or substantially
all of the Partnership's assets in a single sale or in a related series of
multiple sales, dissolving the Partnership or electing to continue the
Partnership in certain instances, electing a successor general partner, making
certain amendments to the Partnership Agreement (see "-- Amendment of the
Partnership Agreement") or causing the Partnership, in its capacity as sole
limited partner of the Subsidiary, to consent to certain proposals submitted for
the approval of the limited partners of the Subsidiary. Since the Guarantor
currently holds more than 50% of the outstanding Depositary Units, Icahn,
through the Guarantor, has effective control over the taking of these actions by
the Partnership. See "-- Meetings; Voting Rights of Unitholders" below for a
discussion of certain limitations on the voting rights of Unitholders.
REMOVAL OF THE GENERAL PARTNER
Subject to the limitation on the exercise by Unitholders of voting
rights as described under "-- Meetings; Voting Rights of Unitholders", the
General Partner may be removed by the written consent or affirmative vote of
holders of Depositary Units owning more than 75% of the total number of all
outstanding Depositary Units voting as a class then held by Unitholders,
including the General Partner and its affiliates to the extent that they are
holders of Depositary Units. Therefore, since the Guarantor currently holds
13,895,712 Depositary Units, representing approximately 54.1% of the outstanding
Depositary Units, the General Partner cannot be removed as provided above
without Icahn's consent.
Upon the removal of the General Partner as general partner of the
Partnership by holders of Depositary Units, the holders of Depositary Units will
be obligated to elect a successor general partner of the Partnership and to
continue the business of the Partnership. At the election of the General
Partner, a successor general partner will be required, at the effective date of
its admission to the Partnership as a general partner, to purchase the General
Partner's 1% general partner interest directly from the General Partner for a
price equal to its "fair market value" as described below. If the General
Partner does not elect to sell its interest, the successor general partner will
be required to contribute to the capital of the Partnership cash in an amount
equal to 1/99th of the product of the number of Depositary Units outstanding
immediately prior to the effective date of such successor general partner's
admission (but after giving effect to the conversion described below) and the
average price at which the Depositary Units had been trading over the 20-day
period immediately preceding such successor general partner's admission.
Thereafter, such successor general partner will be entitled to one percent (1%)
of all partnership allocations and distributions.
If the General Partner chooses not to sell its 1% General Partner
interest directly to a successor general partner, the General Partner's general
partner interest in the Partnership will be converted into Depositary Units,
with the number of Depositary Units to be received to be based upon the "fair
market value" of its General Partner interest at the time of such removal and
the average price at which the Depositary Units had been trading over the 20-day
period preceding the effective date of the General Partner's departure. In this
regard, the "fair market value" of the departing General Partner's general
partner interest is the amount that would be distributable to the General
Partner on account of such interest if the Partnership were to dispose of all of
its assets in an orderly liquidation commencing on the effective date of such
removal at a price equal to the fair market value of those assets (discounted at
the rate then payable on one-year U.S. Treasury obligations to the effective
date of such removal to reflect the time reasonably anticipated to be necessary
to consummate such sales), as agreed upon between the
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departing General Partner and its successor, or in the absence of such of an
agreement, as determined by an independent appraiser.
Upon removal of the General Partner from the Partnership, the General
Partner will also be removed as general partner of the Subsidiary and its
general partner interest therein will either be purchased by the successor
general partner or converted into Depositary Units (in which case such successor
shall also contribute to the capital of the Subsidiary) in the same manner as
provided above with respect to the Partnership.
The Partnership Agreement provides that, upon the departure of the
General Partner and the conversion of its general partner interest in the
Partnership to Depositary Units, the Partnership will, at the request of the
departing General Partner, file with the Commission up to three registration
statements under the Securities Act registering the offering and sale of all or
a portion of the Depositary Units owned by such departing General Partner,
including those Depositary Units received upon conversion of its general partner
interest in the Partnership and the Subsidiary. The cost of the first of any
such registrations will be borne by the Partnership and the cost of any other
such registration will be borne by the departing General Partner.
WITHDRAWAL OF THE GENERAL PARTNER
The General Partner may withdraw from the Partnership, but only if: (i)
such withdrawal is with the consent of a Majority Interest; (ii) the General
Partner, with the consent of a Majority Interest, transfers all of its interest
as general partner in the Partnership; (iii) the transferee consents to be bound
by the Partnership Agreement and the transferee has the necessary legal
authority to act as successor general partner of the Partnership; and (iv) the
Partnership receives an opinion of counsel to the effect that such vote by the
Unitholders and the admission of a new general partner is in conformity with
local law, will not cause the loss of limited liability to the Unitholders and
will not cause the Partnership to be treated as an "association" taxable as a
corporation for federal income tax purposes. Since the Guarantor currently holds
13,895,712 Depositary Units, representing approximately 54.1% of the outstanding
Depositary Units, Icahn, acting through the Guarantor, could provide the consent
of a Majority Interest.
Notwithstanding the foregoing, the General Partner may, without the
consent of the Unitholders (to the extent permitted by law), transfer its
interest as general partner in the Partnership to any person or entity that has,
by merger, consolidation or otherwise, acquired all or substantially all of the
assets or stock of the General Partner and continued its business, provided that
such person or entity has a net worth no less than that of the General Partner
and has accepted and agreed to be bound by the terms and conditions of the
Partnership Agreement. The General Partner also may mortgage, pledge,
hypothecate or grant a security interest in its interest as general partner in
the Partnership without the consent of Unitholders.
DISTRIBUTIONS OF CASH FLOW TO DEPOSITARY UNITHOLDERS
Distributions from Operations. The Partnership Agreement provides that,
subject to the rights of the holders of Preferred Units to receive their in-kind
distributions, net cash flow of the Partnership for each fiscal year or portion
thereof shall be distributed quarterly, or at any other time to the extent
deemed appropriate by the General Partner in its sole and absolute discretion,
to the holders of Depositary Units and the General Partner in accordance with
their respective ownership interests in the Partnership. The holders of the
Preferred Units are not entitled to distributions of net cash flow of the
Partnership. The General Partner has the power and authority to retain or use
Partnership assets or revenues as, in the sole and absolute discretion of the
General Partner, may be required to satisfy the anticipated present and future
cash needs of the Partnership, whether for operations, expansion, improvements,
acquisitions or otherwise.
The Partnership's ability to pay the distributions of net cash flow is
also based on the business plan of the Partnership, which includes retaining
capital transaction proceeds for reinvestment, and an assessment of the
Partnership's ability to distribute net cash flow in the future, its expenses,
obligations, investments and reserves. The availability of net cash flow in the
future depends as well upon events and circumstances outside the
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Partnership's control and no assurance can be given that the Partnership will be
able to make distributions of net cash flow or as to the timing of the
distribution.
Over the recent years, the General Partner has decreased and, finally,
suspended the Partnership's distributions to holders of Depositary Units. The
Partnership intends to continue to apply available cash flow toward its
operations, repayment of maturing indebtedness, tenant requirements and other
capital expenditures and creation of cash reserves for contingencies facing
AREP, including environmental matters and scheduled lease expirations. While
payment of maturing debt obligations requires the use of operating cash flow and
the establishment of reserves in the near-term, it should enhance AREP's equity
in its investments and its cash flow in later years. AREP does not believe it
would be prudent or in the long-term best interest of AREP to encumber or sell
assets for the purpose of paying distributions.
Distributions from Sales and Refinancings. Capital transaction proceeds
may be distributed or retained by the Partnership for reinvestment or other
Partnership purposes in the discretion of the General Partner. Generally, the
Partnership intends that capital transaction proceeds will be reinvested,
subject to the establishment of any reserves. The amount and timing of
distributions of capital transaction proceeds, if any, will be in the sole
discretion of the General Partner.
If, in the opinion of the General Partner, a combination of capital
transactions during a tax year would result in a material tax liability to
holders of Depositary Units, the General Partner may distribute a portion of
capital transaction proceeds sufficient to pay all or a portion of such tax
liability, assuming the maximum federal capital gains tax rate for individuals.
However, there can be no assurance that holders of Depositary Units may not be
required to recognize taxable income in excess of cash distributions made in
respect of such period. See "Income Tax Considerations."
To the extent that capital transaction proceeds are distributed, such
capital transaction proceeds will be distributed by the Partnership to the
holders of Depositary Units and to the General Partner in accordance with their
respective ownership interests in the Partnership.
Generally, distributions resulting from a liquidation of the
Partnership will be made in the same manner as distributions of capital
transaction proceeds, subject to the overall requirement that distributions be
made to partners in accordance with their positive capital account balances and
the rights of the holders of Preferred Units to their liquidation preference.
Distribution Reinvestment Plan. A Distribution Reinvestment Plan (the
"Reinvestment Plan") is available to holders of Depositary Units and is designed
to enable such holders to have their distributions from the Partnership invested
in Depositary Units.
Pursuant to the Reinvestment Plan, the Registrar and Transfer Company
(the "Agent"), as agent for the Reinvestment Plan participants will use any
distributions paid on the Depositary Units of participants to purchase
additional Depositary Units in the open market. There is no assurance such
Depositary Units will be available from other investors. If a participant's
distribution is not large enough to purchase a full Depositary Unit, he or she
will be credited with fractional Depositary Units, computed to three decimal
places. To the extent Depositary Units are not available in the open market, the
Agent will distribute cash to the participants.
At the time of reinvestment, each participant will pay a service charge
of 5% of the amount invested, but not less than $.75 or more than $2.50 for each
investment transaction, to the Agent, plus a proportionate share of the cost of
acquiring the Depositary Units purchased for all participants.
Holders of Depositary Units may become participants at any time by
completing and delivering to the Agent the appropriate authorization form which
will be available from the Agent and the Partnership. Participation in the
Reinvestment Plan will start the next distribution payable after receipt of a
participant's authorization form. A participant will be able to terminate his or
her participation in the Reinvestment Plan at any time without penalty by
delivering written notice to the Agent. A service charge of $2.50 will be
charged by the Agent for a termination.
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Holders of Depositary Units that participate in the Reinvestment Plan
will be taxed on their share of Partnership income in the same manner as if they
received their Partnership distributions in cash; thus participants may incur a
tax liability even though they do not receive a distribution of cash.
ALLOCATIONS OF INCOME AND LOSS
The Partnership Agreement provides, in general, that all items of
income, gain, loss and deduction are allocated to the General Partner and to the
holders of Depositary Units in accordance with their respective percentage
ownership in the Partnership. Items allocated to the holders of Depositary Units
generally are further allocated among them pro rata in accordance with the
respective number of Depositary Units owned by each of them. However, certain
tax items reflecting differences between the fair market value and tax basis of
the Partnership's assets at the time additional Depositary Units are or were
issued will be allocated in accordance with the rules of Section 704(c) of the
Code. The Partnership's taxable income and losses will be computed on an annual
basis and apportioned monthly among record holders of Depositary Units in
proportion to the number of Depositary Units owned by them as of the close of
business on the second to last day of the month in which such taxable income or
losses are apportioned, notwithstanding that cash may be distributed quarterly
to record holders of Depositary Units 45 days after the end of each quarter. See
"Certain Federal Income Tax Considerations Relating to the Partnership and
Unitholders." The Partnership's gains and losses from capital transactions
generally will be allocated among record holders of Depositary Units in
proportion to the number of Depositary Units owned by them as of the close of
business on the last day of the month in which such gains and losses are
realized.
Holders of Preferred Units will be treated as having received ordinary
income each year equal to the value of the liquidation preference paid or
accrued for the year. The amounts included in income by the Preferred Unit
holder will be deducted by the Partnership or capitalized, depending upon the
use of the contributed capital. See "Income Tax Considerations -- Certain
Federal Income Tax Considerations Relating to the Partnership and Unitholders --
Allocation of Income and Loss."
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed by the General
Partner or by holders of Depositary Units owning at least 10% of the total
number of Depositary Units outstanding then owned by all Unitholders. Any
proposed amendment (other than those described below) must be approved by the
General Partner in writing and, subject to the limitations on the exercise by
Unitholders of voting rights as described under "-- Meetings; Voting Rights of
Unitholders", by at least a Majority Interest in order to be adopted. Since the
Guarantor currently holds 13,895,712 Depositary Units, representing
approximately 54.1% of the outstanding Depositary Units, Icahn, acting through
the Guarantor, could provide the approval of a Majority Interest. Unless
approved by the General Partner in writing and, subject to the limitations on
the exercise by Unitholders of voting rights as described under "-- Meetings;
Voting Rights of Unitholders", by all of the holders of Depositary Units, no
amendment may be made to the Partnership Agreement if such amendment, in the
opinion of counsel would result in the loss of the limited liability of
Unitholders or the Partnership as the sole limited partner of the Subsidiary or
would cause the Partnership or the Subsidiary to be treated as an association
taxable as a corporation for federal income tax purposes. In addition, no
amendment to the Partnership Agreement may be made which would: (i) enlarge the
obligations of the General Partner or any Unitholder or convert the interest of
any Unitholder into the interest of a general partner; (ii) modify the expense
reimbursement payable to the General Partner and its affiliates pursuant to the
Partnership Agreement or the fees and compensation payable to the General
Partner and its affiliates pursuant to the Subsidiary Partnership Agreement;
(iii) modify the order and method for allocations of net income and net loss or
distributions of net cash flow from operations without the consent of the
General Partner or the Unitholders adversely affected; or (iv) amend Sections
14.01, 14.02 and 14.03 of the Partnership Agreement concerning amendments
thereof without the consent of Unitholders owning more than 95% of the total
number of Depositary Units outstanding then held by all Unitholders.
Notwithstanding the foregoing, the General Partner may make amendments
to the Partnership Agreement without the consent of the Unitholders, if such
amendments are necessary or appropriate: (i) to reflect a change in the name or
location of the principal office of the Partnership; (ii) to reflect the
admission, substitution,
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termination, or withdrawal of Unitholders in accordance with the Partnership
Agreement; (iii) to qualify the Partnership as a limited partnership or to
ensure that the Partnership will not be treated as an association taxable as a
corporation for federal income tax purposes; (iv) in connection with or as a
result of the General Partner's determination that the Partnership does not or
no longer will qualify as a partnership for federal income tax purposes,
including, without limitation, an amendment reflecting the reorganization of the
Partnership into a qualified "real estate investment trust;" (v) to reflect a
change that is of an inconsequential nature and does not adversely affect the
Unitholders in any material respect, or to cure any ambiguity, correct or
supplement any provision in the Partnership Agreement not inconsistent with law
or with other provisions, or make other changes with respect to matters arising
under the Partnership Agreement that will not be inconsistent with law or with
the provisions of the Partnership Agreement; (vi) to satisfy any requirements,
conditions, or guidelines contained in any order, directive, opinion, ruling or
regulation of a federal or state agency or contained in federal or state law;
(vii) to facilitate the trading of the Depositary Units or comply with any
requirement or guideline of any securities exchange on which the Depositary
Units are or will be listed for trading; (viii) to make any change required or
contemplated by the Partnership Agreement; (ix) to amend any provisions
requiring any action by the General Partner if applicable provisions of the
Delaware Act related to the Partnership are amended or changed so that such
action is no longer necessary; or (x) to authorize the Partnership to issue
Units (or other securities) in one or more additional classes, or one or more
series of classes, with any designations, preferences and relative,
participating, optional or other special rights as shall be fixed by the General
Partner.
ISSUANCE OF ADDITIONAL SECURITIES
The Partnership is authorized to issue additional Depositary Units or
other securities of the Partnership from time to time to Unitholders or
additional investors without the consent or approval of Unitholders. There is no
limit to the number of Depositary Units or additional classes thereof that may
be issued. The Board of Directors of the General Partner has the power, without
any further action by the Unitholders to issue securities with such
designations, preferences and relative, participating or other special rights,
powers and duties, including rights, powers and duties senior to existing
classes of Depositary Units or Preferred Units.
MEETINGS; VOTING RIGHTS OF UNITHOLDERS
Any action that is required or permitted to be taken by Unitholders may
be taken either at a meeting of the holders of Depositary Units or Preferred
Units or without a meeting if consents in writing setting forth the action so
taken are signed by holders of Depositary Units owning not less than the minimum
number of Depositary Units or Preferred Units that would be necessary to
authorize or take such action at a meeting. Meetings of the holders of
Depositary Units may be called by the General Partner or by Unitholders owning
at least 10% of the total Depositary Units outstanding then owned by all such
Unitholders. If a distribution is not made to holders of Preferred Units for a
period of two years, holders of Preferred Units owning at least 10% of the total
Preferred Units outstanding then owned by all such holders, including the
General Partner and its affiliates, may call a meeting of the holders of
Preferred Units to elect two nominees for the Board of Directors of the General
Partner. Each nominee must be approved by holders of Preferred Units owning more
than 50% of all Preferred Units outstanding then owned by all such holders,
including the Guarantor and its affiliates. Holders of Depositary Units or
Preferred Units may vote either in person or by proxy at meetings. Unitholders
of record who constitute a Majority Interest or more than 50% of all outstanding
Preferred Units, and who are represented in person or proxy will constitute a
quorum at a meeting of holders of Depositary Units or Preferred Units. Since the
Guarantor currently holds 13,895,712 Depositary Units, representing
approximately 54.1% of the outstanding Depositary Units, Icahn, acting through
the Guarantor, represents a Majority Interest. Except as described above, the
holders of Preferred Units have no rights to call meetings and will not be
entitled to vote on any of the matters submitted to a vote of the holders of
Depositary Units. See "Description of Securities -- The Preferred Units --
Nomination of Additional Independent Directors."
Matters submitted to the Unitholders for their consent will be
determined by the affirmative vote, in person or by proxy, of a Majority
Interest, except that a higher vote will be required for certain amendments
referred to above under "-- Amendment of the Partnership Agreement," the removal
of the General Partner, as described above under "-- Removal of the General
Partner," and the continuation of the Partnership after certain events that
would
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otherwise cause dissolution, as described below under "-- Termination,
Dissolution and Liquidation," and as otherwise required by law. Since the
Guarantor currently holds 13,895,712 Depositary Units, representing
approximately 54.1% of the outstanding Depositary Units, Icahn, acting through
the Guarantor, controls the vote of a Majority Interest. Each Unitholder will
have one vote for each Depositary Unit as to which such Unitholder has been
admitted as a Unitholder. A Subsequent Transferee of Depositary Units who has
not been admitted as a Unitholder of record with respect to such Depositary
Units will have no voting rights with respect to such Depositary Units, even if
such Subsequent Transferee holds other Depositary Units as to which it has been
admitted as a Unitholder. The voting rights of a Unitholder who transfers a
Depositary Unit will terminate with respect to such Depositary Unit upon such
transfer, whether or not the Subsequent Transferee thereof is admitted as a
Unitholder of record with respect thereto.
The Partnership Agreement does not provide for annual meetings of the
Unitholders, and the General Partner does not anticipate calling such meetings.
LIABILITY OF GENERAL PARTNER AND UNITHOLDERS
The General Partner will be liable for all general obligations of the
Partnership to the extent not paid by the Partnership. The General Partner will
not, however, be liable for the nonrecourse obligations of the Partnership.
Assuming that a Unitholder does not take part in the control of the
business of the Partnership and otherwise acts in conformity with the provisions
of the Partnership Agreement, the liability of the Unitholder will, under the
Delaware Act, be limited, subject to certain possible exceptions, generally to
the amount contributed by the Unitholder or the Unitholder's predecessor in
interest to the capital of the Partnership, plus such Unitholder's share of any
undistributed Partnership income, profits or property. However, under the
Delaware Act, a Unitholder who receives a distribution from the Partnership that
is made in violation of the Delaware Act and who knew at the time of the
distribution that the distribution was improper, is liable to the Partnership
for the amount of the distribution. Such liability or liability under other
applicable Delaware law (such as the law of fraudulent conveyances) ceases after
expiration of three years from the date of the applicable distribution. Under
the Delaware Act, a partnership is prohibited from making a distribution to a
partner to the extent that at the time of the distribution, after giving effect
to the distribution, all liabilities of the partnership, other than liabilities
to partners on account of their partnership interests and liabilities for which
the recourse of creditors is limited to specified property of the partnership,
exceed the fair value of the assets of the partnership (except that fair value
of property that is subject to a liability for which the recourse of creditors
is limited is included in the assets of the partnership only to the extent that
the fair value of the property exceeds that liability). An assignee of a limited
partner who becomes a substituted limited partner does not, under the Delaware
Act, become liable for any obligation of the assignor to restore prior
distributions.
The Partnership conducts business through the Subsidiary in several
states. Maintenance of limited liability will require compliance with legal
requirements of those states. The Partnership is the sole limited partner of the
Subsidiary. Limitations on the liability of a limited partner for the
obligations of a limited partnership have not clearly been established in many
states; accordingly, if it were determined that the possession or exercise of
the right by the Partnership, as limited partner of the Subsidiary, to remove
the General Partner as general partner thereof, to approve certain amendments to
the Subsidiary Partnership Agreement or to take other action pursuant to the
Subsidiary Partnership Agreement constituted "control" of the Subsidiary's
business for the purposes of the statutes of any relevant state, the Partnership
and/or Unitholders might be held personally liable for the Subsidiary's
obligations. Further, under the laws of certain states, the Partnership might be
liable for other amounts, such as the amount of any undistributed profits to
which it is entitled, with interest, or for the amount of distributions made to
the Partnership by the Subsidiary. The Partnership and the Subsidiary will
operate in a manner the General Partner deems reasonable, necessary and
appropriate to preserve the limited liability of the Unitholders and the
Partnership.
Upon dissolution of the Partnership for any reason (including the
withdrawal or removal of the General Partner if no successor general partner is
selected), the assets of the Partnership may, in certain instances, be
distributed in kind to the Unitholders of record. If a distribution in kind is
made, the Unitholder receiving the
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distribution in kind will no longer have limited liability with respect to, and
will be required to make arrangements for further operation of the assets
distributed to him and will receive the assets subject to certain operating
agreements and liabilities of the Partnership. Disposing of distributed assets
or arranging for the operation thereof could be difficult, particularly in view
of the large number of persons who could receive undivided interests in certain
events. See "-- Termination, Dissolution and Liquidation."
EXCULPATION AND INDEMNIFICATION OF THE GENERAL PARTNER
The Partnership Agreement provides that the General Partner and its
affiliates and all of their officers, directors, employees and agents will not
be liable to the Partnership or to any Unitholder for any error of judgment or
breach of fiduciary duty that does not constitute (i) a breach of that person's
duty of loyalty to the Partnership as described in the Partnership Agreement,
(ii) an act or omission in bad faith which involves intentional misconduct or a
knowing violation of law or (iii) a transaction from which an improper personal
benefit is derived. The Partnership Agreement also provides that the Partnership
will indemnify the General Partner and its affiliates, officers, directors,
employees and agents to the fullest extent permitted by law against any
liability and related expenses (including attorneys' fees) incurred in
conjunction with any proceeding in which any of them may be involved, or
threatened to be involved, as a party or otherwise, arising out of or incidental
to the business of the Partnership, if (i) such party seeking indemnification
acted in good faith and in a manner it believed to be in, or not opposed to, the
best interests of the Partnership, and, with respect to any criminal proceeding,
had no reasonable cause to believe its conduct was unlawful and (ii) such
party's conduct did not constitute willful misconduct. Unitholders may have more
limited recourse against the General Partner than would apply absent these
provisions. The Partnership may purchase and maintain liability insurance
covering the General Partner, or any other persons as the General Partner shall
determine, against any liability that may be asserted against the General
Partner or any such person in connection with the activities of the Partnership,
regardless of whether indemnification against such liability would be permitted
under the provisions of the Partnership. TO THE EXTENT THAT SUCH INDEMNIFICATION
PROVISIONS PURPORT TO INCLUDE INDEMNIFICATION FOR LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, IN THE OPINION OF THE SECURITIES AND
EXCHANGE COMMISSION, SUCH INDEMNIFICATION IS CONTRARY TO PUBLIC POLICY AND
THEREFORE UNENFORCEABLE.
NO WITHDRAWAL OF CAPITAL
A Unitholder will not have the right to request withdrawal of his
capital from the Partnership nor will a Unitholder be entitled to demand or
receive any return of his capital.
BOOKS AND REPORTS
The General Partner is required to keep complete and accurate books
with respect to the Partnership's business at the principal office of the
Partnership. The books are maintained for financial accounting purposes on the
accrual basis, in accordance with generally accepted accounting principles. The
fiscal year of the Partnership is the calendar year. Record holders will be
entitled to have access to the Partnership books and certain other records at
reasonable times upon reasonable notice to the General Partner, subject to
certain limitations including those intended to protect confidential business
information.
The General Partner will furnish to each record holder, within 120 days
after the close of each fiscal year, reports containing certain financial
statements of the Partnership for such fiscal year, including a balance sheet
and statements of income, Unitholders' equity and changes in financial position,
which will be audited by a nationally recognized firm of independent certified
public accountants. In addition, after the close of each fiscal quarter (except
the fourth quarter), the General Partner will furnish to each record holder a
quarterly report for the fiscal quarter containing certain financial and other
information relating to the Partnership, subject to the Partnership's timely
receipt of information from third parties.
Within 90 days after the close of each taxable year, the Partnership
will use its best efforts to furnish to each Unitholder as of the last day of
any month during such taxable year such information as may be required by
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the Unitholders for the preparation of their individual federal, state and local
tax returns. Such information will be furnished in summary form so that certain
complex calculations normally required can be avoided. The Partnership's ability
to furnish such summary information may depend on the cooperation of Unitholders
in supplying certain information to the Partnership.
POWER OF ATTORNEY
Pursuant to the terms of the Partnership Agreement, each investor who
receives Units pursuant to the exercise of Rights and each Subsequent Transferee
who is admitted as a Unitholder of record in the Partnership following the
consummation of the Rights Offering appoints the General Partner and each of the
General Partner's authorized officers as such Unitholder's or substituted
Unitholder's attorney-in-fact (i) to enter into the Depositary Agreement and
deposit the Depositary Units of such Unitholder or substituted Unitholder in the
deposit account established by the Depositary, and admit the holders of
Depositary Units and Preferred Units acquired upon exercise of the Rights (to
the extent such holders are not already admitted) as limited partners in the
Partnership and (ii) to make, execute, file and/or record (a) instruments with
respect to any amendment of the Partnership Agreement; (b) conveyances and other
instruments and documents with respect to the dissolution, termination and
liquidation of the Partnership pursuant to the terms of the Partnership
Agreement; (c) financing statements or other documents necessary to grant or
perfect a security interest, mortgage, pledge or lien on all or any of the
assets of the Partnership; (d) instruments or papers required to continue the
business of the Partnership pursuant to the Partnership Agreement; (e)
instruments relating to the admission of substituted limited partners in the
Partnership; and (f) all other instruments deemed necessary or appropriate to
carry out the provisions of the Partnership Agreement. Such power of attorney is
irrevocable, will survive the subsequent death, incompetency, dissolution,
disability, incapacity, bankruptcy or termination of the granting Unitholder,
and will extend to such Unitholder's heirs, successors and assigns.
DEATH, BANKRUPTCY OR INCOMPETENCY OF A UNITHOLDER
The death, bankruptcy or adjudication of incompetency of a Unitholder
will not dissolve the Partnership. In such event, the legal representatives of
such Unitholders will have all the rights of a Unitholder for the purpose of
settling or managing the estate and such power as the deceased, bankruptcy or
incompetent Unitholder possessed to assess, sell or transfer any part of his
interest. The transfer of Depositary Units and Preferred Units by such legal
representative to any person or entity is subject to all of the restrictions to
which such transfer would have been subject if it had been made by the deceased,
bankrupt or incompetent Unitholder.
TERMINATION, DISSOLUTION AND LIQUIDATION
The Partnership will continue until December 31, 2085, unless sooner
dissolved or terminated and its assets liquidated upon the occurrence of the
earliest of: (i) the withdrawal, removal or bankruptcy of the General Partner
(subject to the right of the Unitholders to reconstitute and continue the
business of the Partnership by written agreement of a Majority Interest and
designation by them of a successor general partner within 90 days); (ii) the
written consent or affirmative vote of a Majority Interest, with the approval of
the General Partner, to dissolve and terminate the Partnership; (iii) the sale
or other disposition of all or substantially all of the assets of the
Partnership; (iv) the Partnership's insolvency or bankruptcy; or (v) any other
event causing or requiring a dissolution under the Delaware Act. Since the
Guarantor currently holds 13,895,712 Depositary Units, representing
approximately 54.1% of the outstanding Depositary Units, Icahn, acting through
the Guarantor, controls the vote of a Majority Interest. The Unitholder's right
to continue the Partnership described in (i) above is subject to the receipt by
the Partnership of an opinion of counsel to the effect that such continuation
and the selection of a successor general partner will not result in the loss of
limited liability of the Unitholders and will not cause the Partnership to be
treated as an association taxable as a corporation for federal income tax
purposes.
Upon dissolution, the General Partner or other entity or person
authorized to wind up the affairs of the Partnership will proceed to liquidate
the assets of the Partnership and apply the proceeds of liquidation in the order
of priority set forth in the Partnership Agreement.
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INCOME TAX CONSIDERATIONS
The following is a summary of the federal income tax aspects which are
material to a typical Unitholder who is a U.S. citizen or resident regarding the
ownership, exercise or sale of Rights and the ownership and sale of Depositary
Units and Preferred Units and is based upon the Code, judicial decisions, final,
temporary and proposed Treasury regulations ("Regulations") and administrative
rulings and pronouncements of the Internal Revenue Service ("IRS"). No attempt
has been made to comment on all federal income tax matters affecting the
Partnership, the Subsidiary or the Unitholders. The tax aspects of an investment
to certain categories of Unitholders (such as C corporations, tax-exempt
organizations, dealers in securities, banks, insurance companies, real estate
investment trusts or foreign persons) may differ significantly from those
described below. Prospective investors should consult their own tax advisors
about the federal, state, local and foreign income tax consequences to them
prior to exercising Rights.
This summary is based on current legal authority and there is no
assurance that legislative or administrative changes or court decisions may not
occur which would significantly modify the statements and opinions expressed
herein. The General Partner must make certain federal income tax determinations
that will impact Unitholders which may be based on factual determinations or
upon which no legal precedent or authority is available (e.g., the allocation of
the exercise price of Rights between Depositary Units and Preferred Units, the
determination of the valuation of the Partnerships' assets for purposes of
making tax allocations and the proper allocations of income and loss as between
the holders of Depositary Units and Preferred Units). There is no assurance that
the IRS will agree with the General Partner's determinations and it is possible
that the allocation or treatment of tax items by the General Partner may be
modified upon audit.
LEGAL OPINION
Rogers & Wells, counsel to the Partnership ("Counsel"), has expressed
its opinion as to the following matters: (i) the Partnership and the Subsidiary
each will continue to be classified as a partnership for federal income tax
purposes following the issuance and exercise of the Rights and not as an
association taxable as a corporation; and (ii) it is more likely than not that
the Preferred Units will be classified as partnership interests for federal
income tax purposes rather than as debt obligations of the Partnership and, if
so, an assignee of record of a Depositary Unit or a Preferred Unit generally
will be treated as a partner of the Partnership for federal income tax purposes
from the date such person becomes the record owner of such Unit. Counsel has
based its opinion on applicable legal authority, the facts set forth in this
Prospectus and certain factual representations made by the General Partner and
its opinion is conditioned on the accuracy of such facts. Counsel's opinion
represents only its best legal judgment, and does not bind the IRS or the
courts. Thus, no assurance can be provided that the opinions and statements set
forth herein will not be challenged by the IRS or would be sustained by a court
if litigated. Due to the factual nature of the issue, or uncertainty of the law,
Counsel is not able to opine with respect to certain issues that involve: (i)
the allocation of the Subscription Price between the Preferred Units and
Depositary Units upon exercise of Rights due to the factual nature of the issue;
(ii) whether certain expenses of the Partnership deducted as business expenses
may have to be capitalized for tax purposes due to the factual nature of the
issue; (iii) whether the allocations of income and loss of the Partnership,
including amounts reported as income to holders of Preferred Units, will be
respected for federal income tax purposes due to the absence of authority
regarding the methods used by the Partnership as described below in "-- Certain
Federal Income Tax Considerations Relating to the Partnership and Unitholders --
Allocation of Income and Loss"; and (iv) whether any interest expense on debt
incurred to purchase Preferred Units will be treated as investment interest or
interest subject to the passive activity loss limitations due to the absence of
authority on this issue.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE RIGHTS
Effect of Rights Distribution. The distribution by a partnership to its
partners of rights to purchase partnership interests does not generally give
rise to taxable income to the partnership or the partners. Accordingly, neither
the Partnership nor the holders of Depositary Units will recognize gain or loss
upon the distribution of Rights.
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Unitholder's Basis in Rights. Although not completely certain, the tax
basis of Rights received by a Unitholder from the Partnership likely will be
zero and the distribution of Rights will not change the tax basis of the
existing Depositary Units or Preferred Units. If Rights received by a Unitholder
are not exercised but are allowed to expire, no loss will be allowed to the
Unitholder, unless the Right had been acquired by purchase, in which case there
will be a capital loss equal to the cost basis of the Right.
Effect of Exercise of Rights. No gain or loss will be recognized by a
Unitholder or the Partnership on the purchase of Depositary Units and Preferred
Units through the exercise of Rights. The tax basis of the Depositary Units and
Preferred Units purchased thereby will be equal to the sum of the price paid for
the Depositary Units and Preferred Units plus the share of the Partnership's
nonrecourse liabilities allocated to the Depositary Units and Preferred Units,
and the amount, if any, paid for the Rights. See "Certain Federal Income Tax
Considerations Relating to the Partnership and Unitholders -- Unitholders' Basis
in his Units."
Sale of the Rights. Any gain or loss on the sale of a Right will be
treated as a short-term capital gain or loss if the Right is a capital asset in
the hands of the seller.
Sale of the Depositary Units or the Preferred Units. Gain or loss will
be recognized by a Unitholder upon the sale of the Depositary Units or the
Preferred Units acquired upon exercise of the Rights in an amount equal to the
difference between the amount realized on the sale and the tax basis of the
Unitholder allocable to the Depositary Units or the Preferred Units, as the case
may be. Except to the extent attributable to unrealized receivables or certain
inventory items (as determined under Section 751 of the Code), which are not
expected to be material, such gain or loss will be a capital gain or loss if the
Depositary Units or the Preferred Units are capital assets in the hands of the
holder thereof and will be a long-term capital gain or loss if the holder's
holding period in the Depositary Units or the Preferred Units is more than one
year. The holding period of the Depositary Units and the Preferred Units
purchased through exercise of Rights likely will begin on the date of exercise.
It is the position of the IRS that a partner has a single aggregate
basis in all of the partner's partnership interests and that, to determine gain
or loss upon a sale of a part of such partnership interests, the portion of the
partner's basis allocated to the interests being sold equals the partner's share
of partnership liabilities transferred in the sale plus the partner's aggregate
tax basis (excluding basis attributable to partnership liabilities) multiplied
by the ratio of the fair market value of the interests sold to the fair market
value of all of the partner's partnership interests. This portion may produce
unexpected results if applied to a Unitholder who owns both Depositary Units and
Preferred Units and who sells some Units while retaining other Units because the
sale may result in significantly different gains or losses than in the case of a
partner who held only the Units being sold. It is not clear whether the IRS's
ruling position applies to interests in publicly traded partnerships represented
by separate certificates.
A Unitholder who is a natural person, trust, estate, a personal service
company or a closely held "C" corporation, generally is subject to limitations
on deducting passive activity losses. Most or all of any loss realized upon a
sale or retirement of Depositary Units or Preferred Units will be subject to
these limitations. See "Certain Federal Income Tax Considerations Relating to
the Partnership and Unitholders -- Limitations on Deductibility of Losses."
In the case of a corporate Unitholder, under Section 291(a)(1) of the
Code, a sale or other disposition of its Units might result in recapture (to the
extent of gain) as ordinary income of a portion of its allocable share of the
depreciation claimed with respect to the Partnership's properties.
The amount realized on the sale or disposition of a Depositary Unit
includes, among other things, an allocable share of the outstanding amount of
the Partnership's nonrecourse indebtedness (including unpaid interest accrued
thereon) to the extent such amount was includable in the basis of such Unit.
Therefore, it is possible that the gain realized on the sale or disposition of a
Depositary Unit may exceed the cash proceeds of such sale or disposition and, in
some cases, the income taxes payable with respect to such disposition may exceed
such cash proceeds.
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Retirement of Preferred Units. A holder of Preferred Units who does not
own any other Units may recognize a taxable gain or loss upon the retirement of
the Preferred Units in exchange for cash. Such gain or loss would equal the
difference, if any, between the amount of cash paid to the holder and his tax
basis in the Preferred Units. Such gain or loss generally will be treated as a
long-term capital gain or loss provided the holder has held the Preferred Units
for a period of one year or more.
If the holder also owns Depositary Units or Preferred Units which are
not retired, the holder generally will not recognize gain or loss upon receipt
of a redemption distribution except that gain would be recognized to the extent
the amount of cash paid exceeds the holder's basis in all of his or her Units.
However, the holder may recognize ordinary income or loss to the extent
redemption proceeds are treated as an exchange for all or part of the holder's
share of the Partnership's unrealized receivables or certain inventory items
under Section 751 of the Code.
In general, no gain or loss will be recognized by a holder of Preferred
Units if the Preferred Units are redeemed by the Partnership for Depositary
Units. The holder would take a tax basis in the Depositary Units equal to his
prior basis in the Preferred Units, adjusted for any increase or decrease in the
holder's share of the Partnership's nonrecourse liabilities. In order to cause
the Depositary Units received upon redemption to have the same book capital
accounts as other Depositary Units, the General Partner is authorized to
allocate gross income or loss to the holder to adjust his capital account in his
or her Depositary Units to equal that of the other Depositary Units of the
Partnership. Such an allocation may increase or decrease the amount of taxable
income otherwise allocable to the holder in the year of the exchange of the
Preferred Units for Depositary Units.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE PARTNERSHIP AND
UNITHOLDERS
Taxation of the Partnership and the Unitholders. A partnership itself
is not subject to any federal income tax. The Partnership, as a partner in the
Subsidiary, is required to report on its information tax return its distributive
share of income, gain, loss, deduction and items of tax preference, if any, of
the Subsidiary. Similarly, each Unitholder is required to report on his personal
income tax return his distributive share of Partnership income, gain, loss,
deduction and items of tax preference (substantially all of which will be
derived from the Subsidiary) and will be subject to tax on his distributive
share of the Partnership's taxable income, regardless of whether any portion of
that income is, in fact, distributed to such Unitholder. Thus, holders of
Depositary Units may be required to accrue income, without the current receipt
of cash if the Partnership continues not to make cash distributions while
generating taxable income from operations or from the sale or foreclosure of
properties. Holders of Preferred Units will accrue income, without the current
receipt of cash, as discussed in "-- Allocation of Income and Loss," below.
Consequently, a Unitholder's tax liability with respect to his share of
Partnership taxable income may exceed the cash actually distributed to him in a
given taxable year.
The Partnership must file a federal information tax return on Form
1065. The Partnership will provide information as to each Unitholder's
distributive share of the Partnership's income, gain, loss, deduction and items
of tax preference on a Schedule K-1 supplied to such Unitholder after the close
of the Partnership's fiscal year. In preparing such information, the General
Partner will utilize various accounting and reporting conventions, some of which
are discussed herein, to determine each Unitholder's allocable share of income,
gain, loss and deduction. There is no assurance that the use of such conventions
will produce a result that conforms to the requirements of the Code, Regulations
or IRS administrative pronouncements and there is no assurance that the IRS will
not successfully contend that such conventions are impermissible. Any such
contentions could result in substantial expenses to the Partnership and the
Unitholders as a result of contesting such contentions, as well as an increase
in tax liability to Unitholders as a result of adjustments to their allocable
share of the Partnership's income, gain, loss and deduction. See "-- Tax
Returns, Audits, Interest and Penalties."
Partnership Classification. Most of the tax benefits of the Partnership
are due to the classification of the Partnership and the Subsidiary as
partnerships for tax purposes. The General Partner and the Partnership believe
that the Partnership and the Subsidiary have been properly classified as
partnerships for federal income tax purposes since the initial issuance of
Depositary Units. Counsel has advised the Partnership of its opinion that the
Partnership and the Subsidiary will continue to be treated as partnerships for
federal income tax purposes following the issuance
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and exercise of the Rights and the holders of Depositary Units will be treated
as partners of the Partnership for federal income tax purposes. Counsel also has
expressed its opinion that holders of Preferred Units likely will be treated as
partners for federal income tax purposes provided Preferred Units are classified
as equity. See "-- Tax Treatment of Preferred Units."
In 1987, Congress added Section 7704 to the Code to tax most publicly
traded partnerships as corporations. The Partnership is a publicly traded
partnership. Section 7704 of the Code provides two relevant exceptions to the
corporate taxation of publicly traded partnerships. Section 7704(c)(2) provides
that a publicly traded partnership which is not an investment company will not
be taxed as a corporation for a taxable year if at least 90% of its gross income
for the year consists of "qualifying income". Qualifying income includes
interest, dividends, real property rents, gain from the sale or other
disposition of real property, gain from the sale or disposition of assets held
for the production of qualifying income and certain income from currency,
forwards and commodity options. 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. Although under the Amendment, the Partnership may make
non-real estate related investments, the General Partner expects that
substantially all of the income of the Partnership and the Subsidiary will
consist of qualifying income. In addition, a transition rule provided in the
Revenue Act of 1987, which added Section 7704 to the Code, provides that a
partnership which was publicly traded on December 17, 1987 will continue to be
classified as a partnership through December 31, 1997, provided that it does not
acquire or commence a substantial new line of business. It cannot be determined
at this time whether the expanded investment activities of the Partnership may
cause it to enter into a substantial new line of business. Counsel's opinion as
to partnership classification relies on representations of the General Partner
that the Partnership and the Subsidiary will satisfy the gross income
requirement of Section 7704(c)(2) of the Code.
Failure of the Partnership or the Subsidiary to satisfy the transition
rule and the 90% gross income test would result in a deemed incorporation of the
Partnership or Subsidiary, respectively. If either the Partnership or the
Subsidiary were treated as an association taxable as a corporation in any
taxable year, its taxable income, gains, losses, deductions and credits would be
subject to corporate income tax and would not be passed through to its partners.
In addition, distributions made to Unitholders would be treated as either
taxable dividend income (to the extent of the Partnership's or Subsidiary's
current and accumulated earnings and profits) and the balance a non-taxable
return of capital to the extent of the partner's basis in his or her Units.
Also, the reclassification of the Partnership or the Subsidiary as an
association taxable as a corporation would be treated as a deemed incorporation
of such entity upon which gain could be recognized, and which could result in
additional corporate tax. Treatment of either the Partnership or the Subsidiary
as an association taxable as a corporation would substantially reduce the
Partnership's economic income and cash resources and would result in reduction
of the after-tax return to Unitholders.
Tax Treatment of Preferred Units. The Partnership intends to treat
Preferred Units as equity of the Partnership for federal income tax purposes.
The Preferred Units have some characteristics in common with debt, such as a
fixed redemption date, a fixed rate of return and a right to payment senior to
distributions to holders of Depositary Units. The IRS therefore may seek to
recharacterize Preferred Units as debt of the Partnership, rather than equity.
Such a recharacterization could affect the amount of gain or loss recognized by
a Unitholder upon the sale of his Depositary Units or Preferred Units, the
deductibility of interest paid by the Unitholder on debt incurred to acquire
Preferred Units and could, under some circumstances, affect the tax treatment of
income attributable to, or payments by the Partnership to, a holder of Preferred
Units. Treatment of Preferred Units as debt also may result in some recognition
of gain or loss upon the payment of Preferred Units with Depositary Units.
However, the Preferred Units have many of the significant characteristics of
equity and are intended by the Partnership to be equity of the Partnership.
These equity characteristics include: (i) the status of the Preferred Units as
limited partnership interests under Delaware law; (ii) the fact that payment
upon maturity is subject to the requirements of Delaware partnership law,
including limitation of payment in the event such payment would cause the
Partnership to become insolvent; (iii) the ability of the Partnership, at its
option, to redeem Preferred Units for Depositary Units rather than make payments
of cash; (iv) the subordination of the holders of Preferred Units to other
creditors of the
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Partnership, including unsecured creditors; (v) the fact that holders of
Preferred Units will have more limited and different rights against the
Partnership than those available to creditors; (vi) the fact that holders of
Preferred Units will have certain rights of limited partners, including limited
voting rights; (vii) the fact that the right to payments on Preferred Units are
unsecured and will be limited to the net assets of the Partnership; and (viii)
the fact that the Partnership intends to treat Preferred Units as equity for
both financial accounting and tax reporting purposes.
Although there is limited authority which deals directly with the issue
of when a formal partnership interest will be characterized as debt for federal
income tax purposes, Counsel has advised the Partnership that in its opinion the
proposed tax treatment of Preferred Units as equity for tax purposes more likely
than not is correct and would be sustained if the issue were fully litigated in
court. The following discussion assumes that the Preferred Units will be treated
as partnership interests for federal income tax purposes.
Allocation of Income and Loss. Holders of Preferred Units will accrue
income in an amount equal to the accrued liquidation preference amounts plus the
difference, if any, between the portion of the Subscription Price allocated to
the Preferred Units and their par value. Such amounts will be treated by the
Partnership as "guaranteed payments" under Section 707(c) of the Code. Holders
of Preferred Units will be required to include these amounts in ordinary income
for their taxable year within or with which the Partnership's taxable year ends,
regardless of whether they receive any distributions during such year. The
Partnership intends to deduct these amounts to the extent not required to be
capitalized. Although the Partnership intends to allocate $10 of the
Subscription Price to the Preferred Units, plus accrued interest thereon of
_____, there is no assurance the IRS will agree that such allocation is proper.
Recent trading prices of the Partnership's outstanding Preferred Units have
reflected a lower price. If the IRS were to allocate a lesser portion of the
Subscription Price to the Preferred Units, it may require an increased
allocation of income to the holders of the Preferred Units in a corresponding
amount for the period from issuance through redemption.
In general, the balance of the Partnership's income, gain, loss and
deduction will be allocated 1% to the General Partner and 99% to the holders of
Depositary Units. Items allocated to the holders of Depositary Units will be
shared among them according to the respective number of Depositary Units owned
by each holder.
The Partnership Agreement's allocation provisions will be recognized
for federal income tax purposes only if they are considered to have "substantial
economic effect" and are not retroactive allocations. If any allocation of an
item fails to satisfy the "substantial economic effect" requirement, the item
will be allocated among the Unitholders based on their respective "interests in
the Partnership," determined on the basis of all of the relevant facts and
circumstances. Such a determination could result in the income, gains, losses,
deductions, or credits allocated under the Partnership Agreement being
reallocated among the Unitholders or the General Partner. Such a reallocation,
however, would not alter the distribution of cash flow under the Partnership
Agreement.
Regulations provide detailed rules for the maintenance of capital
accounts. The Regulations permit partners' capital accounts to be increased or
decreased to reflect the revaluations of partnership property (at fair market
value) on a partnership's books in connection with a contribution or
distribution of money or other property. Capital accounts will be restated to
reflect the issuance of additional Depositary Units and Preferred Units upon the
exercise of Rights.
Adjusting a partner's book capital account to reflect a property's fair
market value will create a disparity between the partner's "book" capital
account and his "tax" capital account (a "Book-Tax Disparity"), because the tax
capital account reflects only recognized tax consequences (i.e., it reflects
only the basis rather than the value of contributed property). A Book-Tax
Disparity exists because the partner has been given credit for specific economic
consequences, through the amount recorded in his book capital account, but has
not recognized the corresponding tax consequences. Section 704(c) of the Code
provides rules for the allocation of gain, loss and certain deductions to
eliminate Book-Tax Disparities by requiring allocations that cause the partner
whose book capital account reflects built-in gain or loss to bear the tax burden
or receive the tax benefit corresponding thereto.
Allocations under Section 704(c) of the Code may require the allocation
of depreciation deductions from property contributed to a partnership, or
property whose book value is adjusted by a partnership upon issuing
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additional partnership interests, away from the contributing or previously
admitted partners where there is unrealized gain inherent in such property. If
the actual depreciation deductions available with respect to the property are
insufficient to fully eliminate the Book-Tax Disparity, the so-called "ceiling
rule" limits the depreciation to that actually realized by the partnership. This
rule can prevent the full elimination of Book-Tax Disparities and could result
in less depreciation being allocated to a person who exercises Rights than his
share of book depreciation. The result would be that holders of Depositary Units
received upon exercise of Rights may be allocated somewhat greater taxable
income than their share of the Partnership's book income.
The Partnership will attempt to correct ceiling rule problems by making
allocations of gross income to the contributing partner or the previously
admitted partner pursuant to Section 704(c) of the Code, which should completely
eliminate Book-Tax Disparities and will give the non-contributing or newly
admitted partners the equivalent of depreciation deductions equal to book
depreciation. Regulations under Section 704(c) of the Code were recently issued.
The allocations of gross income by the Partnership may not technically comply
with Section 704(c) and the Regulations thereunder and might be challenged by
the IRS. In that event, the allocations of income (including any allocations of
gross income described above to correct a ceiling rule problem) or loss to the
Depositary Unitholders may be affected.
Specific regulations have been promulgated relating to partnership
allocations of losses and deductions attributable to nonrecourse indebtedness
(the "Nonrecourse Regulations"). In general, the Nonrecourse Regulations require
that deductions and credits associated with nonrecourse debt must be allocated
in accordance with the partners' interests in the partnership. The amount of
nonrecourse deductions for a partnership's taxable year equals the net increase,
if any, in the amount of that partnership's "minimum gain" during that taxable
year ("Nonrecourse Deductions"). Partnership minimum gain is determined by
computing, with respect to each nonrecourse liability of the Partnership or the
Subsidiary (other than a nonrecourse liability payable to or guaranteed by a
partner), the amount of book gain, if any, that would be realized for tax
purposes by disposing of the property (subject to such liability) in a taxable
transaction in full satisfaction of such liability. The Partnership Agreement
will allocate Nonrecourse Deductions between the General Partner and holder of
Depositary Units in proportion to their shares of other income and loss.
As noted above, in general, the Partnership's income, gains, losses and
deductions are allocated 99% to the Unitholders and 1% to the General Partner.
The Partnership Agreement provides, for both book and federal income tax
purposes, certain special allocations of income and gain if a Unitholder has a
negative book capital account in excess of certain cumulative allocations of
Nonrecourse Deductions or upon a sale of a property which had minimum gain.
These allocations are required by the Regulations.
The Partnership Agreement also requires that gain from the sale of
Partnership properties, characterized as ordinary income attributable to prior
depreciation deductions ("Recapture Income"), will be allocated (to the extent
such allocation does not alter the allocation of gain otherwise provided for in
the Partnership Agreement) among the partners (or their successors) in the same
manner in which such partners were allocated the deductions giving rise to such
Recapture Income. The Nonrecourse Regulations and Sections 1.1245-1(e) and
1.1250(f) of the Regulations tend to support a special allocation of Recapture
Income. However, such Regulations do not specifically address a special
allocation based on the allocation of the deductions giving rise to such
Recapture Income as stated in the Partnership Agreement. Therefore, it is not
clear that the allocation of Recapture Income will be given effect for federal
income tax purposes. If it is not, such Recapture Income will be allocated among
Depositary Unitholders and the General Partner.
Based on the analysis set forth above, the Partnership has followed the
allocations under the Partnership Agreement on the belief that they generally
should be respected under the standards of Section 704(b) of the Code. Counsel
is unable to opine to that effect, however, because the Partnership Agreement
has not been amended to reflect certain technical changes to the Regulations
adopted since formation of the Partnership, certain methods used by the
Partnership to account for Book-Tax Disparities do not follow all technical
requirements of the Regulations and because certain allocations to preserve
uniformity as among Depositary Units and eliminate Book-Tax Disparities are not
in technical compliance with the Regulations, although such allocations are
consistent with the underlying purpose of Section 704(c) in fully eliminating
Book-Tax Disparities.
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Unitholder's Basis in his Units. A Unitholder's adjusted basis in his
Units is relevant in determining the gain or loss on the sale or other
disposition of his Units and the tax consequences of a distribution from the
Partnership. See "-- Treatment of Cash Distributions to Depositary Unitholders
from the Partnership." In addition, a limited partner is entitled to deduct on
his personal income tax return, subject to the limitations discussed below, his
distributive share of a partnership's net loss, if any, to the extent of such
partner's adjusted basis in his partnership interest.
A Unitholder's initial basis in newly issued Units will be the portion
of the Subscription Price allocated to the Units, increased by (i) his share of
nonrecourse indebtedness of the Partnership and (ii) his share of items of
Partnership income and gain, and reduced, but not below zero, by (a) his share
of items of Partnership loss and deduction, and (b) any cash distributions
received by such Unitholder from the Partnership. Cash distributions are
considered to include, for this purpose, any reductions in the amount of the
Partnership's nonrecourse indebtedness (including a reduction due to
amortization thereof). Regulations under Section 752 of the Code employ an
economic risk of loss analysis to determine (i) whether a partnership liability
is recourse or nonrecourse, and (ii) the partners' shares of any recourse
liability of the partnership. Under the regulations, a partnership liability is
a recourse liability to the extent that any partner bears the economic risk of
loss for the liability. If no partner bears the economic risk of loss for a
partnership liability, the liability is a nonrecourse liability of the
partnership. A partnership's nonrecourse liabilities are allocated among the
partners first to reflect the partners' shares of (i) any partnership minimum
gain and (ii) any tax gain that would be allocated to the partners under Section
704(c) of the Code if the partnership disposed of all partnership property
subject to one or more nonrecourse liabilities of the partnership in full
satisfaction of the liabilities and for no other consideration. The balance of
the nonrecourse liabilities are shared by the partners according to their
interests in the partnership profits. Because Preferred Units do not share in
profits of the Partnership, other than through their cumulative liquidation
preference, the Partnership Agreement has been amended to allocate nonrecourse
liabilities solely to the General Partner and holders of Depositary Units.
Treatment of Cash Distributions to Depositary Unitholders from the
Partnership. Cash distributions made to holders of Depositary Units will
generally be treated as a non-taxable return of capital and will not generally
increase or decrease such holders' share of taxable income or loss from the
Partnership. A return of capital generally does not result in any recognition of
gain or loss for federal income tax purposes but reduces a Unitholder's adjusted
basis in his Depositary Units. Distributions of cash (including reductions in
nonrecourse liabilities) in excess of a Unitholder's adjusted basis in his
Depositary Units immediately prior thereto will result in the recognition of
gain to the extent of such excess. See "-- Unitholder's Basis in his Units."
Limitations on Deductibility of Losses. It is not anticipated that the
Partnership will generate any tax losses. A corporate Unitholder generally will
be entitled to deduct its distributive share of any losses of the Partnership to
the extent of the tax basis of its Units at the end of the year in which such
losses occur. However, Unitholders who are individuals, trusts, estates,
personal service companies and certain closely held C corporations are subject
to limitations on deducting losses of the Partnership. In general, losses from
the Partnership's "passive activities," such as ownership of rental real estate
or operating real estate such as hotels, may offset only subsequent Partnership
income of the Unitholder from the Partnership, but not including income accrued
in respect of Preferred Units, or gain upon the sale of Units. Disallowed losses
from passive activities may be carried forward and treated as a deduction in the
next taxable year, subject to these limitations. Closely held corporations (a
corporation more than 50% of the stock of which is owned directly or indirectly
by not more than five individuals) may not offset portfolio income (such as
interest and dividends) with passive losses but may use passive losses to offset
active business income. Any disallowed losses from a passive activity are
allowed in full when the taxpayer disposes of his entire interest in the
Partnership in a taxable transaction. Interest incurred in passive activities
and interest incurred to purchase an interest in a passive activity (such as
Depositary Units and, possibly, Preferred Units) are not generally subject to
these limitations (and not the previously applicable investment interest
limitations). See "-- Limitation on Interest Deductions."
At Risk Limitations. A Unitholder subject to the "at risk" rules under
Section 465 of the Code may not deduct from taxable income his share of the
Partnership's losses to the extent that such losses exceed the lesser of (i) the
adjusted tax basis of his Units at the end of the Partnership's taxable year in
which the loss occurs or (ii) the
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amount the Unitholder is considered "at risk" under Section 465 of the Code at
the end of that year. It is not contemplated that the Partnership's operations
will result in deductions or losses that would cause the application of the "at
risk" limitation.
Limitation on Interest Deductions. The deductibility of a non-corporate
taxpayer's "investment interest" expense is generally limited to the amount of
such taxpayer's "net investment income." Investment interest expense includes
(i) interest on indebtedness incurred or continued to purchase or carry property
held for investment and that is not part of a passive activity (such as rental
real estate), (ii) a partnership's interest expense attributed to portfolio
income under the passive loss rules and (iii) the portion of interest expense
incurred or continued to purchase or carry an interest in a passive activity
(such as a Depositary Unitholder's interest in the Partnership) to the extent
attributed to portfolio income under the passive loss rules. Net investment
income includes gross income from property held for investment, gain
attributable to the disposition of property held for investment, and amounts
treated as gross portfolio income pursuant to the passive loss rules less
deductible expenses (other than interest) directly connected with the production
of investment income.
Specifically, a Depositary Unitholder would treat as investment
interest his allocable portion of the Partnership's total interest expense, or
of any margin account or other interest expense incurred to purchase or carry a
Unit, that is attributable to the Partnership's gross portfolio income less
deductible expenses directly connected with such portfolio income. The portion
of a Depositary Unitholder's allocable share of interest expense of the
Partnership, or of any margin account or other interest expense incurred to
purchase or carry a Unit, that is attributable to the Partnership's passive
income is subject to the passive loss limitations described above.
The income of holders of Preferred Units from the Partnership likely
will be treated as investment income. The law is not clear as to whether margin
and other interest expense of a holder of Preferred Units incurred to acquire or
hold Preferred Units will be treated as investment interest or as interest
attributable to a passive activity. If interest is treated as passive activity
interest, the interest would be subject to the passive loss limitation discussed
in "-- Limitations on Deductibility of Losses" above. However, a literal
interpretation of existing Regulations and IRS rulings is that such interest is
subject to the passive loss limitations and is not investment interest.
Investment interest deductions which are disallowed may be carried forward and
deducted in subsequent years to the extent of net investment income in such
years. Rights Holders who intend to borrow funds to exercise their Rights should
consult their tax advisors.
Deductibility of Interest Connected with Tax-Exempt Income. Section
265(a)(2) of the Code disallows any deduction for interest paid by a taxpayer on
indebtedness incurred or continued for the purpose of purchasing or carrying a
tax-exempt obligation. The IRS announced in Revenue Procedure 72-18, 1972-1 C.B.
940, that a purpose to carry tax-exempt obligations will be inferred whenever a
taxpayer owns tax-exempt obligations and has outstanding indebtedness which is
neither directly connected with personal expenditures nor incurred in connection
with the active conduct of a trade or business. Therefore, in the case of a
Unitholder (or a related person) owning tax-exempt obligations (or stock in a
regulated investment company which distributes exempt interest as "dividends")
the IRS might take the position that his allocable portion of any interest paid
by the Partnerships on their borrowings and any interest paid by the Unitholder
on indebtedness incurred to purchase an interest in the Partnership should be
viewed in whole or in part as incurred to enable such Unitholder to continue
carrying such tax-exempt obligations and, therefore, that the deduction of any
such interest by such Unitholder should be disallowed in whole or in part.
Partnership Expenses. The Partnership has incurred or will incur
various expenses in connection with its ongoing administration and with the
operation of its properties. Payments for services generally are deductible if
the payments are ordinary and necessary expenses, are reasonable in amount and
are for services performed during the taxable year in which paid or accrued.
Payments for services related to the acquisition of an asset having a useful
life in excess of one year, such as brokerage fees, generally must be
capitalized into the cost basis of the acquired property. The IRS may not agree
with the Partnership's determinations as to the deductibility of fees and
expenses and might require that certain expenses be capitalized and amortized or
depreciated over a period of years. These issues are essentially questions of
fact with respect to which Counsel cannot opine. If all or a portion of such
deductions were to be disallowed, on the basis that some of the foregoing
expenses are non-deductible syndication fees or otherwise, the Partnership's
taxable income would be increased or its losses would be reduced.
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An individual's miscellaneous itemized deductions, including his
investment expenses, are deductible only to the extent they exceed 2% of his
adjusted gross income. The Tax Reform Act of 1988 also authorized the Treasury
Department to issue Regulations prohibiting an individual's indirect deduction,
through the use of pass-through entities, such as partnerships, of expenses that
could not be deducted by such individual directly.
Offering Expenses. Expenses of issuing and marketing Units in the
Partnership ("syndication expenses") are not allowable deductions to the
Partnership or any Unitholder. Syndication expenses are defined as expenditures
connected with the issuing and marketing of interests in partnerships. Fees
payable to dealer managers and soliciting dealers, registration fees, printing
costs, selling and promotional material costs and legal fees for securities and
tax advice pertaining to registration of the Units with the Commission are
syndication expenses and, therefore, do not qualify for amortization.
Depreciation and Cost Recovery Deductions. Real property purchased or
developed by the Subsidiary generally is subject to a 31 1/2-year or 39-year
recovery period (27 1/2-years in the case of residential rental property), and
is recovered using the straight-line method. Any personal property acquired by
the Subsidiary generally will be depreciated over a seven-year recovery period
using the double declining balance method (switching to straight-line at a time
to maximize the depreciation deductions). In addition, if any tax-exempt
entities hold Units and the Partnership's allocations are not considered to be
"qualified allocations," then a portion of the Partnership's depreciation
deductions, corresponding to the tax-exempt entities' percentage interest in the
Partnership, may be required to be depreciated over somewhat longer recovery
periods than those otherwise applicable.
The Partnerships have made elections under Section 754 of the Code and
are required to adjust the basis of partnership property on the transfer of
partnership interests by the difference between the transferee's basis for his
partnership interest and the transferee's allocable share of the basis of all
partnership property. The increase or decrease affects the basis of partnership
property only with respect to the transferee partner. The procedure for
allocating the basis adjustment is complex and there is no assurance that the
IRS would not challenge the allocations of the step-up among the Subsidiary's
assets.
Pursuant to Proposed Regulation Section 1.168-2(n)(1), the Section
743(b) "step-up" allocable to depreciable, tangible assets must be recovered
over a new recovery period (7-years or 39-years, as the case may be) and will be
recovered as discussed above. Thus, under the Proposed Regulations, the recovery
period associated with the Section 743(b) adjustment will differ from the
remaining recovery period used by the Partnership to compute its depreciation
deductions in such assets. The differing useful lives will likely result in
different tax consequences for Units acquired upon exercise of the Rights and
Units already outstanding. Based on the advice of its accountants, the General
Partner has determined that there is a reasonable and meritorious reporting
position to depreciate a Section 743(b) adjustment (or a portion thereof) using
the remaining recovery period attributable to a depreciable asset. The General
Partner adopted such depreciation method, despite its inconsistency with
Proposed Regulation Section 1.168-2(n)(1). In addition, the IRS may seek to
challenge the allocation of the step-up to depreciable assets. If the IRS were
successful, the effect would be to reduce the Partnership's cost recovery
deductions.
Depreciation Recapture. There is generally no depreciation recapture
for real property that is depreciated pursuant to the straight-line method.
However, legislation pending in Congress would tax the recapture of real estate
depreciation at a somewhat higher maximum rate to individual Unitholders than
the proposed 20% maximum rate on long-term capital gain. If real property is
sold or otherwise disposed of within 12 months after it was acquired, all
depreciation claimed will be recaptured as ordinary income on such disposition.
All depreciation deductions attributable to personal property are subject, to
the extent of any gain recognized, to being fully recaptured as ordinary income
on a sale or other disposition of the personal property.
Under Section 291(a)(1) of the Code, which applies only to corporate
Unitholders, 20% of a corporate Unitholder's share of the depreciation
deductions claimed by the Partnership will be subject to recapture as ordinary
income on such disposition to the extent of the Unitholder's share of any gain
recognized, even though the Partnership and the Unitholder might not otherwise
be subject to general depreciation recapture on such depreciation.
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Tax Considerations for Tax-Exempt Entities. Unitholders who are exempt
from federal income tax (including IRAs and tax-exempt organizations such as
trusts that hold assets of employee benefit retirement plans) may be subject to
federal income tax on their allocable share of Partnership income to the extent
that such income is "unrelated business taxable income." Tax-exempt entities
(including IRAs and trusts that hold assets of employee benefit or retirement
plans) are subject to tax on certain income derived from a trade or business
regularly carried on by the organization that is unrelated to its exempt
activities (i.e., unrelated business taxable income). Unrelated business taxable
income generally does not include rental income from real property, gain from
the sale of property other than inventory, interest, dividends, and certain
other types of passive investment income, unless such income is derived from
"debt-financed property" (as defined in Section 514 of the Code). A Unitholder
that is otherwise exempt from tax may have unrelated business taxable income
with respect to such Unitholder's distributive share of Partnership taxable
income in the proportion that the Partnership's acquisition indebtedness bears
to the Partnership's total adjusted bases for its properties. Acquisition
indebtedness could arise from indebtedness incurred directly by a Unitholder in
connection with its Units or from indebtedness incurred by the Partnership.
Section 514(c)(9)(A) of the Code provides, as a general rule, that a
"qualified organization" (i.e., qualified corporate or government pension plans
and certain educational organizations) will not be treated as having incurred
"acquisition indebtedness" with respect to real property owned by a partnership.
Section 514(c)(9)(A) is not applicable, however, if the Partnership's tax
allocations are not "qualified allocations." Because allocations to the
Preferred Units may prevent the Partnership from having "qualified allocations"
and the Partnership may not otherwise satisfy all requirements for qualified
allocations, the General Partner does not anticipate that the exemption of
Section 514(c)(9) will be available.
Any borrowing incurred by a qualified plan to acquire a Unit will
constitute acquisition indebtedness resulting in the qualified plan realizing
unrelated business taxable income on its income from the Partnership in
accordance with the ratio of the indebtedness to the purchase price of his Unit.
For social clubs, voluntary employee beneficiary associations,
supplemental unemployment benefit trusts, and qualified group legal services
plans exempt from federal income taxation under Section 501(c)(7), (c)(9),
(c)(17) and (c)(20) of the Code, respectively, income from an investment in the
Partnership will constitute unrelated business taxable income unless the
organization is able to properly deduct amounts set aside or placed in reserve
for certain purposes so as to offset the unrelated business taxable income
generated by its investment in the Partnership. Such prospective Unitholders
should consult their professional tax advisors concerning these "set aside" and
reserve requirements.
The receipt of unrelated business taxable income by a tax-exempt entity
generally has no effect on its status or on the exemption from tax of its other
income. However, for certain types of tax-exempt entities, the receipt of any
unrelated business taxable income may have extremely adverse consequences. For
example, the receipt of any taxable income from an unrelated business by a
charitable remainder trust (defined under Section 664 of the Code) during a
taxable year will result in the taxation of all of the trust's income from all
sources during such year.
An entity that is subject to tax on unrelated business taxable income
would be subject to tax only to the extent that the sum of its unrelated
business taxable income, if any, from Units and from other sources exceeds
$1,000 in any particular year and would be required to file federal income tax
returns for any taxable year in which it has gross income, included in computing
unrelated business taxable income, in excess of $1,000 (whether or not any tax
was due).
Backup Withholding. Distributions to Unitholders whose Units are held
on their behalf by a "broker" may constitute "reportable payments" under the
federal income tax rules regarding "backup withholding." Backup withholding,
however, would apply only if the Unitholder (i) failed to furnish his Social
Security number or other taxpayer identification number of the person subject to
the backup withholding requirement (e.g., the "broker") or (ii) furnished an
incorrect Social Security number or taxpayer identification number. If "backup
withholding" were applicable to a Unitholder, the Partnership would be required
to withhold 31% of each distribution to such Unitholder and to pay such amount
to the IRS on behalf of such Unitholder.
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Tax Considerations for Foreign Investors. A resident alien generally is
taxed in the United States as if he were a United States citizen (with the
result that this entire discussion of federal income tax considerations
generally will apply to him). In contrast, a non-resident alien is taxed by the
United States only on income arising out of (i.e., "effectively connected with")
a United States trade or business (and, under some income tax treaties to which
the United States is a party, only if such income is effectively connected with
a permanent establishment in the United States) and on certain other types of
income.
A non-resident alien, as well as a foreign corporation, trust or estate
(a "foreign person") who is a partner in a partnership engaged in a trade or
business in the United States, such as the Partnership, will be considered to be
engaged in such trade or business, even though the foreign person is only a
limited partner. The activities of the Partnership constitute a United States
trade or business for this purpose, and such activities will be deemed to be
conducted through a permanent establishment within the meaning of the Code and
applicable tax treaties. Therefore, a foreign person who becomes a Unitholder in
the Partnership will be required to file a United States tax return on which he
must report his distributive share of the Partnership's items of income, gain,
loss, deduction, and credit, and to pay United States taxes at regular United
States rates on his share of any Partnership net income, whether ordinary income
or capital gains. Thus, the entire discussion of federal income tax
considerations also is generally applicable to foreign persons who are
Unitholders.
The Partnership may have interest income or certain other
investment-type income from United States sources that is not effectively
connected with the Partnership's business. Such income, if any, would be subject
to U.S. withholding tax at a 30% rate except to the extent that an applicable
tax treaty provides for a reduced rate or an exemption for portfolio debt
applies. Such income would be excluded in determining such Unitholder's
distributive share of the Partnership's taxable income subject to regular tax.
The Partnership generally is required to withhold, at the highest
applicable tax rates, all amounts attributable to effectively connected income
that are distributed to foreign Unitholders. Amounts withheld in excess of a
Unitholder's actual tax liability will be eligible for refund. This withholding
requirement does not apply to distributions from United States source income
that are investment income subject to the 30% withholding or that would be
subject to withholding but for an income tax treaty as described above. The
withholding requirements will be coordinated with the withholding requirements
on the disposition of United States real property interests in order to avoid
duplication.
The Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"), as
amended, generally subjects foreign persons to United States taxation at regular
United States rates, and imposes withholding requirements, on the sales by
foreign persons of United States real property interests ("USRPIs"), which
include (i) interests in United States real estate and (ii) interests in certain
entities (including publicly traded partnerships) holding United States real
estate. FIRPTA generally requires foreign persons to pay tax on the net gain
from dispositions of USRPIs during the taxable year at rates generally identical
to rates imposed on U.S. persons (but, with respect to non-resident aliens, at a
minimum rate of 26%). Further, FIRPTA provides that, unless an exception applies
or under Regulations to be promulgated, the proceeds of a sale of a partnership
interest by a foreign person are treated as received from the sale of USRPIs to
the extent of the seller's interest in the partnership's USRPIs. It is
anticipated that substantially all of the proceeds of a sale of a Unit will be
attributable to USRPIs. There is, however, an exception to these provisions
which applies to investors in publicly traded partnerships, such as the
Partnership. In general, any foreign person owning publicly traded Depositary
Units comprising not more than a 5% interest in the Partnership will not be
subject to U.S. taxation on the disposition of such Depositary Units, and any
foreign persons owning publicly traded Depositary Units (regardless of the
percentage interest owned) will not be subject to the withholding provisions of
a disposition of such Depositary Units. This exception may not apply upon the
sale of Preferred Units or the exchange of Preferred Units for Depositary Units.
FIRPTA also subjects foreign persons to U.S. taxation at regular U.S. rates on,
and imposes certain withholding obligations with respect to, dispositions of
USRPIs by a partnership if the Partnership does not satisfy the withholding
requirement for effectively connected income, discussed above.
In addition, the Code imposes a branch-level tax on profits of foreign
corporations engaged in a trade or business in the United States. The amount of
the tax is 30% (or lower treaty rate for branch profits or dividends)
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of the earnings and profits of a U.S. branch of a foreign corporation for the
taxable year which are attributable to its income that is effectively connected
with a U.S. trade or business. Since foreign corporate Unitholders will be
considered to be engaged in a trade or business in the United States, such
Unitholders will be subject to the branch profits tax.
A foreign person may be subject to tax on his distributive share of the
Partnership's income and gain in his country of nationality, residence or
elsewhere. The methods of taxation, if any, in such jurisdictions may differ
considerably from the United States tax system described previously, and may be
affected by the United States characterization of the Partnership and its
income. Prospective Unitholders who are foreign persons should consult with
their professional tax advisors with respect to the potential tax effects of
these and other items relating to an investment in the Partnership.
Issuance of Additional Units. The Partnership has adopted a
Nonqualified Unit Option Plan under which options to purchase an aggregate of
1,416,910 Units may be granted to officers and key employees of the General
Partner and the Partnership who provide services to the Partnership. On any
issuance of additional Units, the capital accounts of the existing partners will
be adjusted to reflect a revaluation of the Partnership's properties (based on
their then fair market value, net of liabilities, to which they are then
subject). Any resulting unrealized gain or loss will be allocated among the
existing partners and subsequent allocations of taxable income, gain, loss and
deduction will be allocated in such a manner as to eliminate any Book-Tax
Disparities with respect to the revalued assets. See "-- Allocation of Income
and Loss."
The issuance of additional Units could also result in a decrease in a
Unitholder's percentage interest in the Partnership and thereby decrease the
Unitholder's share of nonrecourse debt. Any such reduction would be treated as a
distribution of cash. See "-- Treatment of Cash Distributions to Depositary
Unitholders from the Partnership." In addition, a Unitholder may recognize
ordinary income to the extent that the cash distribution is treated as an
exchange of "substantially appreciated inventory" and "unrealized receivables."
In part, to avoid any constructive exchange occurring upon the Partnership's
issuance of additional Units, the Partnership Agreement provides for special
allocations of certain items of income, gain, loss or deduction. Thus, for
example, certain items of recapture income will be allocated, to the extent
possible, to the partner allocated the related depreciation deduction.
Tax Returns, Audits, Interest and Penalties. The Partnership will
supply Schedules K-1 to Form 1065 to each Unitholder of record as of the last
day of each month after the end of each calendar year. See "Description of
Partnership Agreement -- Books and Reports." The Partnership is not obligated to
provide tax information to persons who are not such Unitholders of record.
Any Unitholder who sells or exchanges a Unit will be required to notify
the Partnership of such transaction in writing within 30 days of the transaction
(or, if earlier, by January 25 of the calendar year after the year in which the
transaction occurs). The notification is required to include (i) the names and
addresses of the transferor and the transferee; (ii) the taxpayer identification
number of the transferor and, if known, of the transferee; and (iii) the date of
the sale or exchange. A Unitholder will not be required to notify the
Partnership of a sale or exchange of a Unit if an information return is required
to be filed by a broker with respect to such sale or exchange. Any transferor
who fails to notify the Partnership of a sale or exchange may be subject to a
$50 penalty for each such failure. The Partnership will treat any transferor
Unitholder who provides all of the information requested of the transferor on
the depositary receipt as having satisfied this notification requirement.
In addition, the Partnership must file a return notifying the IRS of
any sale or exchange of a Unit of which the Partnership has notice and report
the name and address of the transferee and the transferor who were parties to
such transaction, along with all other information required by applicable
Regulations, including the fair market value of the selling Unitholder's
allocable share of unrealized receivables (including depreciation recapture, if
any). If the Partnership does not know the identity of the beneficial owner of
the Unit, the record holder of such Unit may be treated as the transferor or
transferee, as the case may be. If the Partnership fails to file such a return,
it may be subject to a penalty of $50 for each such failure up to an annual
maximum of $250,000 (with no limit in the case of intentional disregard of the
filing requirement). The Partnership is also required to provide this
information to the transferor and the transferee. If the Partnership fails to
furnish any such information, it may be subject to a
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penalty of $50 per failure up to an annual maximum of $250,000. However, the
Partnership would not be required to file a return upon the sale or exchange of
a Unit with respect to which an information return is required to be filed by a
broker.
The tax treatment of items of the Partnership's income, gain, loss or
deductions or credit will be determined at the partnership level in a unified
partnership proceeding, rather than in separate proceedings with Unitholders.
With respect to proposed tax deficiency adjustments at the administrative level,
in general each partner (other than a partner owning less than a 1% profits
interest in a partnership having more than 100 partners) whose name and address
is furnished to the IRS (a "notice partner") will receive notice of the
commencement of a partnership level audit as well as notice of the final
partnership administrative adjustment. All partners have the right to
participate in the partnership audit proceeding. In general, each partner is
free to negotiate his own settlement of partnership items with the IRS. If the
IRS enters into a settlement agreement with any partner, it must offer the same
settlement terms to the other parties who request settlement. A "tax matters
partner" must be designated by the partnership who may enter into a settlement
on behalf of, and binding on, partners owning less than a 1% profits interest in
partnerships having more than 100 partners. The Partnership Agreement designates
the General Partner as the tax matters partner. Under the Code, the tax matters
partner may not settle on behalf of partners with less than a 1% profits
interest if (i) an aggregate of 5% or more of such partners designate with the
IRS a notice-partner to receive notice from the IRS on behalf of the group or
(ii) such partners notify the IRS that the tax matters partner may not settle on
their behalf. Except for the above-described settlement power granted the tax
matters partner, any settlement entered into by any partner (including the tax
matters partner) is not binding on any partner who does not wish to be bound
thereby. However, the tax matters partner may extend the statute of limitations
for assessment of a deficiency with respect to all partners.
Tax legislation is pending in the Congress which would simplify audit
procedures for large partnerships and permit a partnership election to simplify
to some degree the tax reporting to partners. The General Partner has not yet
determined whether such an election would be beneficial to the Partners if the
pending tax legislation is enacted. The proposed audit rules would require all
Partners to report tax items as they are reported to the Partners by the
Partnership, would provide that all audit adjustments are done at the
Partnership level and without the participation of Partners other than the
General Partner, and would generally require the Partnership to take an audit
adjustment into account in the taxable year in which the adjustment takes
effect. Enactment of this legislation may increase the risk that the Partnership
will be audited in the future.
STATE, LOCAL AND FOREIGN INCOME TAXES
In addition to the federal income tax consequences described above,
Rights Holders should consider potential state, local and foreign tax
consequences of an investment in the Partnership and are urged to consult their
individual tax advisors in this regard. The rules of some states and localities
for computing and/or reporting taxable income may differ from the federal rules.
The Partnership owns property in thirty-five states and Canada. Certain of these
states will impose an income tax on that portion of an individual Unitholder's
distributive share of Partnership net income, as adjusted, attributable to that
state in excess of certain allowable prorated deductions and/or personal
exemptions (or credits). A number of states and Canada also impose withholding
requirements on either income or distributions to holders who are nonresidents
of such state or Canada.
Both the substantive features and the filing requirements of state
income taxation of Unitholders will vary according to several factors which
include the following: (i) the status of the Unitholder as an individual (and,
if so, his state or other jurisdiction of residence), taxable "C" corporation,
taxable "S" corporation, taxable trust, tax-exempt trust (including IRAs and
other employee benefit plans) or tax-exempt corporation; (ii) whether the state
imposes personal or corporate income taxation or instead imposes a form of
franchise, unincorporated business or occupational taxation; (iii) whether the
state will allow credits or exemptions for income taxes to which a Unitholder is
subject in his state or other jurisdiction of residence; (iv) the level of
personal exemptions or credits allowed by the state and whether those exemptions
or credits are required to be prorated in the ratio of income sourced in the
taxing state to total income; and (v) whether the applicable tax rate structure
is applied on the basis of income sourced in the taxing jurisdiction or on the
basis of total income of a nonresident taxpayer. The Partnership may be required
and, although there is no present intention to do so, the General Partner is
allowed where not so
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required in its sole and absolute discretion, to withhold state taxes from
distributions to Unitholders in some instances.
Unitholders of record on December 31 of each year will be required to
file a Canadian tax return for such year and will be subject to Canadian taxes
on their share of the Partnership's Canadian income from Partnership operations
for the entire year. Unitholders who dispose of their Units during the year will
not be subject to Canadian taxes and will not be required to file a Canadian tax
return. The amount of any Canadian tax paid by a Unitholder will, in general, be
deductible for U.S. income tax purposes. Alternatively, at the election of the
Unitholder, subject to various conditions and limitations, the amount paid in
Canada may be credited against the Unitholder's U.S. income tax.
The state of residence of a Unitholder may also impose state, local and
foreign taxes for which such Unitholder may be liable as a result of his
investment in the Partnership. Unitholders should consult with their individual
tax advisors concerning the applicability of state, local and foreign taxes to
an investment in the Partnership.
The summary tax consequences set forth above is for general information
only and does not address the circumstance of any particular Unitholder.
Unitholders should consult their own tax advisors as to the specific tax
consequences of the receipt, exercise or lapse of Rights and the ownership of
Units including the application of state, local and foreign tax laws.
LEGAL MATTERS
The validity of the issuance of the Depositary Units and the Preferred
Units offered hereby has been passed upon for the Partnership by Rogers & Wells
and by its special Delaware counsel, Morris, Nichols, Arsht & Tunnell.
EXPERTS
The financial statements and schedule of American Real Estate Partners,
L.P. and Subsidiary as of December 31, 1996 and 1995, and for each of the years
in the three-year period ended December 31, 1996, have been incorporated by
reference herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing.
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APPENDIX A
[FORM OF SUBSCRIPTION CERTIFICATE]
SUBSCRIPTION CERTIFICATE NUMBER: ______________________
NUMBER OF RIGHTS: ______________________
CUSIP NO: 029169117
AMERICAN REAL ESTATE PARTNERS, L.P.
SUBSCRIPTION RIGHT FOR DEPOSITARY UNITS AND PREFERRED UNITS
This Subscription Certificate represents the number of Rights set
forth in the upper right hand corner of this Form. The registered holder hereof
is entitled to acquire the following securities: (i) four depositary units
representing limited partner interests (the "Depositary Units") in American Real
Estate Partners, L.P. (the "Partnership") and (ii) one 5% cumulative pay-in-kind
redeemable preferred unit representing a limited partner interest in the
Partnership (the "Preferred Units") for each Right held. Depositary Units and
Preferred Units purchased through the exercise of Basic Subscription Rights and
the Over-Subscription Privilege must be purchased as a unit consisting of four
Depositary Units and one Preferred Unit and may not be subscribed for
separately.
To subscribe for Depositary Units and Preferred Units, the Holder
must present to Registrar and Transfer Company (the "Subscription Agent"), prior
to 5:00 p.m., New York City time, on ___________ unless extended by the
Partnership (the "Expiration Date"), either:
(1) a properly completed and executed Subscription Certificate and a
money order or check drawn on a bank located in the United States and payable to
Registrar and Transfer Company, as Subscription Agent for American Real Estate
Partners, L.P. for the Subscription Price of the number of Depositary Units and
Preferred Units subscribed for under its Basic Subscription Rights and, if
applicable, payment of the Subscription Price for the number of Depositary Units
and Preferred Units for which the Over-Subscription Privilege is to be
exercised; or
(2) a Notice of Guaranteed Delivery from a bank, a trust company or a
NYSE member guaranteeing delivery of (i) a properly completed and executed
Subscription Certificate and (ii) a money order or check drawn on a bank located
in the United States and payable to Registrar and Transfer Company, as
Subscription Agent for American Real Estate Partners, L.P. for the Subscription
Price of the number of Depositary Units and Preferred Units subscribed for under
its Basic Subscription Rights and, payment of the Subscription Price for the
number of Depositary Units and Preferred Units for which the Over-Subscription
Privilege is to be exercised (which certificate and full payment must then be
delivered by the close of business on the fifth Business Day after the
Expiration Date).
If the Holder of this certificate subscribes for additional
Depositary Units and Preferred Units pursuant to the Over-Subscription
Privilege, Part B of Section I of the Subscription Certificate must be completed
to indicate the maximum number of Depositary Units and Preferred Units for which
the Over-Subscription Privilege is being exercised.
No later than 12 Business Days following the Expiration Date, the
Subscription Agent will send to each Exercising Rights Holder (or, if the
Partnership's Depositary Units are held by Cede & Co. or any other depositary or
nominee, to Cede & Co. or such other depositary or nominee), the certificates
representing the Depositary Units and Preferred Units purchased pursuant to its
Basic Subscription Rights and, if applicable, in the Over-Subscription
Privilege, along with a letter explaining the allocation of Depositary Units and
Preferred Units pursuant to the Over-Subscription Privilege. Any excess payment
to be refunded by the Partnership to a Rights Holder who is not allocated the
full amount of Depositary Units and Preferred Units subscribed for pursuant to
the Over-Subscription Privilege will be mailed by the Subscription Agent. An
Exercising Rights Holder will have no right to modify or rescind a subscription
after the Subscription Agent has received payment, either by means of a notice
of guaranteed delivery or a check. Any excess payment to be refunded by the
Partnership to a Rights Holder will be mailed by the Subscription Agent to him
as promptly as practicable.
If the Holder does not make payment of any amounts due in respect of
Depositary Units and Preferred Units subscribed for, the Partnership and the
Subscription Agent reserve the right to (i) find other Holders or Rights Holders
for the subscribed and unpaid for Depositary Units and Preferred Units; (ii)
apply any payment actually received by it toward the purchase of the greatest
whole number of Depositary Units and Preferred Units which could be acquired by
such Holder upon exercise of his Basic Subscription Rights and/or pursuant to
the Over-Subscription Privilege, and/or (iii) exercise any and all other rights
and/or remedies to which it may be entitled, including, without limitation, the
right to set-off against payments actually received by it with respect to such
subscribed Depositary Units and Preferred Units.
The Subscription Certificate may be transferred, in the same manner
and with the same effect as in the case of a negotiable instrument payable to
specific persons, by duly completing and signing the assignment on the reverse
side hereof. Capitalized terms used but not defined in this Subscription
Certificate shall have the meanings assigned to them in the Prospectus, dated
____________, 1997 relating to the Rights.
AMERICAN REAL ESTATE PARTNERS, L.P.
By:________________________________
THIS SUBSCRIPTION RIGHT IS TRANSFERABLE AND MAY BE COMBINED OR DIVIDED (BUT ONLY
INTO SUBSCRIPTION CERTIFICATES EVIDENCING A WHOLE NUMBER OF RIGHTS) AT THE
OFFICE OF THE SUBSCRIPTION AGENT.
Any questions regarding this Subscription Certificate and the Offer may be
directed to the Subscription Agent toll-free at (800) 368-5948 or to the
Partnership toll-free at (800) 255-2737 or collect at (914) 242-7700.
A-1
<PAGE> 66
EXPIRATION DATE: ___________, 1997
PLEASE COMPLETE ALL APPLICABLE INFORMATION
BY MAIL OR OVERNIGHT COURIER: BY HAND ONLY:
Registrar and Transfer Company c/o The Depository Trust Company
10 Commerce Drive Transfer Agent Drop Window
Cranford, New Jersey 07016 55 Water Street, 1st Floor
New York City
SECTION I: TO SUBSCRIBE: I hereby irrevocably subscribe for the dollar amount of
Depositary Units and Preferred Units indicated in A and B below upon the terms
and conditions specified in the Prospectus related hereto, receipt of which is
acknowledged. I will send the Partnership a check or money order for the
Subscription Price for the number of Depositary Units and Preferred Units
indicated in A together with the Subscription Price for the number of Depositary
Units and Preferred Units indicated in B. I hereby apply for admission as a
limited partner of the Partnership with respect to all Depositary Units and
Preferred Units acquired by me and agree to be bound by all of the terms of the
Partnership Agreement, as from time to time in effect.
Please check (x/) below:
<TABLE>
<S> <C> <C> <C> <C> <C>
/ / A. Basic = .00 $__ = $
_________________ _________________ ________________
Subscription (Rights Exercised) (Units Requested)* (Subscription Price) (Amount Required)
Rights
/ / B. Over-Subscription Privilege .000 X $__ = $
_________________ _________________
(Amount Required)
(Additional Units (Subscription Price)
Requested)*
*For purposes of this Certificate, a Unit equals four
Depositary Units and one Preferred Unit.
/ / C. Amount of Check or Money Order Enclosed (Total of A and B). Make check payable to = $____________
"Registrar and Transfer Company, as Subscription Agent for American Real Estate Partners, L.P."
___________________________________________ Please provide your Day ( )____________
Signature of Subscriber(s)/Seller(s) telephone number Evening ( )____________
SECTION II: TO TRANSFER RIGHTS:
For value received in the amount of $_________,__________ of the Rights represented by this Subscription Certificate
are assigned to
- -
____________________________________________________ __________________________________________________
Social Security Number or Tax ID of Assignee (Print Full Name of Assignee)
____________________________________________________ __________________________________________________
____________________________________________________ __________________________________________________
Signature(s) of Assignee(s) (Print Full Address including postal Zip Code)
</TABLE>
The signature(s) must correspond with the name(s) as written upon the face of
this Subscription Certificate, in every particular, without alteration.
IMPORTANT: For transfer, a Signature Guarantee must be provided by an eligible
financial institution as defined in Rule 17Ad-15 of the Securities Exchange Act
of 1934, as amended, subject to the standards and procedures adopted by the
issuer, and by a participant in a medallion guarantee program acceptable to the
Subscription Agent.
SIGNATURE GUARANTEED BY:
______________________________
PROCEEDS FROM THE SALE OF RIGHTS MAY BE SUBJECT TO WITHHOLDING OF U.S. TAXES
UNLESS THE SELLER'S CERTIFIED U.S. TAXPAYER IDENTIFICATION NUMBER (OR
CERTIFICATION REGARDING FOREIGN STATUS) IS ON FILE WITH THE SUBSCRIPTION AGENT
AND THE SELLER IS NOT OTHERWISE SUBJECT TO U.S. BACKUP WITHHOLDING.
/ / CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE DATE HEREOF AND
COMPLETE THE FOLLOWING:
NAME(S) OF REGISTERED OWNER(S):
WINDOW TICKET NUMBER (IF ANY):
DATE OF EXECUTION OF NOTICE OF GUARANTEED DELIVERY:
NAME OF INSTITUTION WHICH GUARANTEED DELIVERY:
A-2
<PAGE> 67
APPENDIX B
[FORM OF NOTICE OF GUARANTEED DELIVERY]
NOTICE OF GUARANTEED DELIVERY FOR DEPOSITARY UNITS AND PREFERRED UNITS OF
AMERICAN REAL ESTATE PARTNERS, L.P.
SUBSCRIBED FOR PURSUANT TO BASIC SUBSCRIPTION RIGHTS AND
THE OVER-SUBSCRIPTION PRIVILEGE
As set forth in the Prospectus under "The Offering - Payment for
Securities," this form or one substantially equivalent hereto may be used as a
means of effecting subscription and payment for all Depositary Units and
Preferred Units of American Real Estate Partners, L.P. subscribed for pursuant
to Basic Subscription Rights and the Over-Subscription Privilege. Such form may
be delivered by hand or sent by facsimile transmission, overnight courier or
mail to the Subscription Agent.
The Subscription Agent is:
Registrar and Transfer Company
<TABLE>
<CAPTION>
By Mail or Overnight Courier: By Hand Only: By Facsimile:
<S> <C> <C>
Registrar and Transfer Company c/o The Depository Trust Company (908) 497-2312
10 Commerce Drive Transfer Agent Drop Window
Cranford, New Jersey 07016 55 Water Street, 1st Floor
Attention: Reorg. Department New York City
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION
OF INSTRUCTIONS VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN
AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY
The New York Stock Exchange member firm or bank or trust company
which completes this form must communicate the guarantee and the number of
Depositary Units and Preferred Units subscribed for (under Basic Subscription
Rights and the Over-Subscription Privilege) to the Subscription Agent and must
deliver this Notice of Guaranteed Delivery of Payment guaranteeing delivery of
(i) payment in full for all subscribed Depositary Units and Preferred Units and
(ii) a properly completed and executed Subscription Certificate (which
certificate and full payment must then be delivered by the close of business on
the fifth business day after the Expiration Date, as defined in the Prospectus)
to the Subscription Agent prior to 5:00 p.m., New York City time, on the
Expiration Date (__________, 1997 unless extended). Failure to do so will result
in a forfeiture of the Rights.
B-1
<PAGE> 68
GUARANTEE
The undersigned, a member firm of the New York Stock Exchange or a
bank or trust company guarantees delivery to the Subscription Agent by the close
of business (5:00 p.m., New York City time) on the fifth Business Day after the
Expiration Date (_________, 1997 unless extended) of (A) a properly completed
and executed Subscription Certificate and (B) payment of the full Subscription
Price for Depositary Units and Preferred Units subscribed for pursuant to Basic
Subscription Rights together with payment of the Subscription Price for the
number of Depositary Units and Preferred Units for which the Over-Subscription
Privilege is to be exercised, as subscription for such Depositary Units and
Preferred Units is indicated herein or in the Subscription Certificate.
<TABLE>
<S> <C>
___________________________________________________________ ________________________________________________________
Number of Depositary Units and Preferred Units Pursuant to Number of Depositary Units and Preferred Units on Over-
Basic Subscription Rights for which you are guaranteeing Subscription Privilege for which you are guaranteeing
delivery of Rights and payment delivery of Rights and payment
Number of Rights to be delivered: ________________________________________________________
Method of Delivery [circle one] A. Through DTC
B. Direct to Company
</TABLE>
Please note that if you are guaranteeing for Depositary Units and Preferred
Units subscribed for pursuant to the Over-Subscription Privilege and are a DTC
participant, you must also execute and forward to Registrar and Transfer
Company, 10 Commerce Drive, Cranford, New Jersey 07016, a Nominee Holder
Over-Subscription Exercise Form.
<TABLE>
<S> <C>
_____________________________________________ ___________________________________________
Name of Firm Authorized Signature
_____________________________________________ ___________________________________________
Address Title
_____________________________________________ ___________________________________________
Zip Code Name (Please Type or Print)
_____________________________________________ ___________________________________________
Name of Registered Holder (If Applicable) Date
_____________________________________________
Telephone Number
</TABLE>
* Signature must be guaranteed by a participant in a medallion guarantee program
acceptable to the Subscription Agent.
** IF THE RIGHTS ARE TO BE DELIVERED THROUGH DTC, A REPRESENTATIVE OF THE
COMPANY WILL PHONE YOU WITH A PROTECT IDENTIFICATION NUMBER, WHICH NEEDS
TO BE COMMUNICATED BY YOU TO DTC.
B-2
<PAGE> 69
APPENDIX C
[FORM OF NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM]
AMERICAN REAL ESTATE PARTNERS, L.P.
RIGHTS OFFERING
NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM
PLEASE COMPLETE ALL APPLICABLE INFORMATION*
BY MAIL OR OVERNIGHT COURIER: BY HAND:
To: Registrar and Transfer Company c/o Midwest Clearing Corp.
10 Commerce Drive 40 Broad Street
Cranford, New Jersey 07016 New York, New York 10004
THIS FORM IS TO BE USED ONLY BY NOMINEE HOLDERS TO EXERCISE THE OVER-
SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO WHICH ITS BASIC
SUBSCRIPTION RIGHTS WERE EXERCISED AND DELIVERED THROUGH THE FACILITIES OF A
COMMON DEPOSITARY. ALL OTHER EXERCISES OF OVER-SUBSCRIPTION PRIVILEGES BY RIGHTS
HOLDERS MUST BE EFFECTED BY THE DELIVERY OF SUBSCRIPTION CERTIFICATES.
DEPOSITARY UNITS AND PREFERRED UNITS SUBSCRIBED FOR THROUGH THE EXERCISE OF THE
OVER-SUBSCRIPTION PRIVILEGE MUST BE PURCHASED AS A UNIT CONSISTING OF FOUR
DEPOSITARY UNITS AND ONE PREFERRED UNIT AND MAY NOT BE SUBSCRIBED FOR
SEPARATELY.
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE
PARTNERSHIP'S PROSPECTUS DATED _____________, 1997 (THE "PROSPECTUS") AND ARE
INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON
REQUEST FROM THE PARTNERSHIP.
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00 PM,
NEW YORK CITY TIME, ON __________, 1997, UNLESS EXTENDED BY THE PARTNERSHIP (THE
"EXPIRATION DATE").
1. The undersigned hereby certifies to the Subscription Agent that it is a
participant in [Name of Depositary] (the "Depositary") and that it has either
(i) exercised Basic Subscription Rights in respect of Rights and delivered such
exercised Rights to the Subscription Agent by means of transfer to the
Depositary Account of the Partnership or (ii) delivered to the Subscription
Agent a Notice of Guaranteed Delivery in respect of the exercise of Basic
Subscription Rights and will deliver the Rights called in for by such Notice of
Guaranteed Delivery to the Subscription Agent by means of transfer to such
Depositary Account of the Partnership.
2. The undersigned hereby exercises the Over-Subscription Privilege to purchase,
to the extent available, ______ Depositary Units and ______ Preferred Units and
certifies to the Subscription Agent that such Over-Subscription Privilege is
being exercised for the account or accounts of persons (which may include the
undersigned) who are Rights Holders and on whose behalf Basic Subscription
Rights have been exercised. The undersigned hereby applies for admission as a
limited partner of the Partnership with respect to all Depositary Units and
Preferred Units subscribed for pursuant to this Over-Subscription Privilege and
agrees to be bound by all of the terms and conditions of the Partnership
Agreement, as from time to time in effect.
3. The undersigned understands that payment of the Subscription Price of $__ per
each four Depositary Units and one Preferred Unit subscribed for pursuant to the
Over- Subscription Privilege must be received by the Subscription Agent at or
before 5:00 p.m. New York City time on the Expiration Date and represents that
such payment, in the aggregate amount of $______ either (check appropriate box):
/ / has been or is being delivered to the Subscription Agent pursuant to
the Notice of Guaranteed Delivery referred to above or
/ / is being delivered to the Subscription Agent herewith
or
/ / has been delivered separately to the Subscription Agent; and, in the
case of funds not delivered pursuant to a Notice of Guaranteed
Delivery, is or was delivered in the manner set forth below (check
appropriate box and complete information relating thereto):
/ / uncertified check
/ / certified check
/ / bank draft
<TABLE>
<S> <C>
_________________________________________________ _____________________________________________
Basic Subscription Right Confirmation Number Name of Nominee Holder
_________________________________________________ _____________________________________________
Depositary Participant Number Address
Contact Name:____________________________________ _____________________________________________
State Zip Code
Phone Number:____________________________________
By:__________________________________________
Name:________________________________________
Dated: , 1997
Title:_______________________________________
</TABLE>
* PLEASE ATTACH A BENEFICIAL OWNER LISTING CONTAINING THE RECORD DATE POSITION
OF BASIC SUBSCRIPTION RIGHTS OWNED, THE NUMBER OF BASIC SUBSCRIPTION RIGHTS
SUBSCRIBED AND THE NUMBER OF DEPOSITARY UNITS AND PREFERRED UNITS SUBSCRIBED
FOR PURSUANT TO THE OVER-SUBSCRIPTION PRIVILEGE REQUESTED BY EACH OWNER.
C-1
<PAGE> 70
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MAY NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY AMERICAN REAL ESTATE PARTNERS, L.P.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION OF AN OFFER TO BUY
ANY OF THE SECURITIES OFFERED HEREBY BY ANY PERSON IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
-----
TABLE OF CONTENTS
PAGE
----
Available Information............................. 2
Information Incorporated By Reference............. 2
Prospectus Summary................................ 3
Risk Factors...................................... 13
The Partnership................................... 21
The Offering...................................... 22
Purpose of the Offering........................... 30
Use of Proceeds................................... 33
Ratio of Earnings to Fixed Charges and
Preferred Unit Distributions.................... 35
Description of Securities......................... 36
Description of Partnership Agreement.............. 41
Income Tax Considerations......................... 50
Legal Matters..................................... 63
Experts........................................... 63
SUBSCRIPTION RIGHTS
EXPIRING _________, 1997
TO PURCHASE DEPOSITARY UNITS
REPRESENTING LIMITED PARTNER INTERESTS
AND 5% CUMULATIVE PAY-IN-KIND
REDEEMABLE PREFERRED UNITS
REPRESENTING LIMITED PARTNER INTERESTS
AMERICAN REAL ESTATE
PARTNERS, L.P.
-----------------------------
PROSPECTUS
-----------------------------
______________, 1997
================================================================================
<PAGE> 71
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
Set forth below is an estimate (except for the registration fee) of the fees and
expenses payable by the registrant in connection with the issuance and
distribution of the Depositary Units and Preferred Units:
<TABLE>
<S> <C>
SEC Registration Fee......................................... $ 90,910
Printing and engraving expenses.............................. *
------
Accountant's fees and expenses............................... *
------
Legal fees and expenses...................................... *
------
NYSE Listing Fee............................................. *
------
Blue Sky fees and expenses (including counsel's fees)........ *
------
Subscription Agent Fees...................................... *
------
Miscellaneous................................................ *
----------
Total..................................................... $ *
----------
</TABLE>
- ------------------
* To be provided by Amendment.
ITEM 15. Indemnification of Directors and Officers.
Indemnification of American Property Investors, Inc., in its capacity as
the general partner of American Real Estate Partners, L.P. (the "Registrant"),
and its affiliates is provided for in Section 6.15 of the Agreement of Limited
Partnership of the Registrant. Section 6.15 of the Agreement of Limited
Partnership of the Registrant provides as follows:
"6.15 (a) The Partnership shall, to the fullest extent permitted by
law, indemnify and hold harmless the General Partner, its Affiliates, and
all officers, directors, employees and agents of the General Partner and
its Affiliates (individually, an "Indemnitee") from and against any and all
losses, claims, demands, costs, damages, liabilities, joint and several,
expenses of any nature (including attorneys' fees and disbursements),
judgments, fines, settlements, and other amounts arising from any and all
claims, demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which the Indemnitee may be involved,
or threatened to be involved, as a party or otherwise by reason of its
status as (x) the General Partner or an Affiliate thereof or (y) a partner,
shareholder, director, officer, employee or agent of the General Partner or
an Affiliate thereof or (z) a person serving at the request of the
Partnership in another entity in a similar capacity, which relate to, arise
out of or are incidental to the Partnership, its property, business,
affairs or the Exchange, including, without limitation, liabilities under
the federal and state securities laws, regardless of whether the Indemnitee
continues to be a General Partner, an Affiliate, or an officer, director,
employee or agent of the General Partner or of an Affiliate thereof at the
time any such liability or expense is paid or incurred, if (i) the
Indemnitee acted in good faith and in a manner it believed to be in, or not
opposed to, the best interests of the Partnership, and, with respect to any
criminal proceeding, had no reasonable cause to believe its conduct was
unlawful and (ii) the Indemnitee's conduct did not constitute willful
misconduct. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, in and of itself, create a presumption or otherwise
constitute evidence that the Indemnitee acted in a manner contrary to that
specified in (i) or (ii) above.
(b) Expenses incurred by an Indemnitee in defending any claim,
demand, action, suit or proceeding subject to this Section 6.15 shall, from
time to time, be advanced by the Partnership prior to the final
II-1
<PAGE> 72
disposition of such claim, demand, action, suit or proceeding upon receipt
by the Partnership of an undertaking by or on behalf of the Indemnitee to
repay such amount unless it shall be determined that such Person is
entitled to be indemnified as authorized in this Section 6.15.
(c) The indemnification provided by this Section 6.15 shall be in
addition to any other rights to which those indemnified may be entitled
under any agreement, vote of Record Holders, as a matter of law or equity,
or otherwise, both as to an action in the Indemnitee's capacity as a
General Partner, an Affiliate or as an officer, director, employee or agent
of a General Partner or an Affiliate, and as to an action in another
capacity, and shall continue as to an Indemnitee who has ceased to serve in
such capacity and shall inure to the benefit of the heirs, successors,
assigns and administrators of the Indemnitee.
(d) The Partnership may purchase and maintain insurance on behalf of
the General Partner and such other Persons as the General Partner shall
determine against any liability that may be asserted against or expense
that may be incurred by such Person in connection with the Exchange and the
activities of the Partnership, regardless of whether the Partnership would
have the power to indemnify such Person against such liability under the
provisions of this Agreement.
(e) Except as set forth in the next sentence below, any
indemnification hereunder shall be satisfied solely out of the assets of
the Partnership. The Record Holders shall not be subject to a personal
liability by reason of these indemnification provisions.
(f) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.15 by reason of the fact that the Indemnitee had
an interest in the transaction with respect to which the indemnification
applies if the transaction was otherwise permitted by the terms of this
Agreement.
(g) The provisions of this Section 6.15 are for the benefit of the
Indemnitees and shall not be deemed to create any rights for the benefit of
any other persons."
Indemnification of American Property Investors, Inc., in its capacity
as the general partner of American Real Estate Holdings Limited Partnership, in
which the Registrant owns a 99% limited partner interest, and its affiliates are
provided for in Section 6.13 of the Agreement of Limited Partnership of American
Real Estate Holdings Limited Partnership. Section 6.13 of the Agreement of
Limited Partnership of American Real Estate Holdings Limited Partnership
provides as follows:
"6.13 (a) The Partnership shall, to the fullest extent permitted by
law, indemnify and hold harmless the General Partner, its Affiliates, and
all officers, directors, employees and agents of the General Partner and
its Affiliates (individually, an "Indemnitee") from and against any and all
losses, claims, demands, costs, damages, liabilities, joint and several,
expenses of any nature (including attorneys' fees and disbursements),
judgments, fines, settlements, and other amounts arising from any and all
claims, demands, actions, suits or proceedings, whether civil, criminal,
administrative or investigative, in which the Indemnitee may be involved,
or threatened to be involved, as a party or otherwise by reason of its
status as (x) the General Partner or an Affiliate thereof or (y) a partner,
shareholder, director, officer, employee or agent of the General Partner or
an Affiliate thereof or (z) a Person serving at the request of the
Partnership in another entity in a similar capacity, which relate to, arise
out of or are incidental to the Partnership, its property, business,
affairs of the Exchange, including, without limitation, liabilities under
the federal or state securities laws, regardless of whether the Indemnitee
continues to be a General Partner, an Affiliate, or an officer, director,
employee or agent of the General Partner or of an Affiliate thereof at the
time any such liability or expense is paid or incurred, if (i) the
Indemnitee acted in good faith and in a manner it believed to be in, or not
opposed to, the best interests of the Partnership, and, with respect to any
criminal proceeding, had no reasonable cause to believe its conduct was
unlawful and (ii) the Indemnitee's conduct did not constitute willful
misconduct. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, in and of itself, create a presumption or otherwise
constitute evidence that the Indemnitee acted in a manner contrary to that
specified in (i) or (ii) above.
II-2
<PAGE> 73
(b) Expenses incurred by an Indemnitee in defending any claim,
demand, action, suit or proceeding subject to this Section 6.13 shall, from
time to time, be advanced by the Partnership prior to the final disposition
of such claim, demand, action, suit or proceeding upon receipt by the
Partnership of an undertaking by or on behalf of the Indemnitee to repay
such amount unless it shall be determined that such Person is entitled to
be indemnified as authorized in this Section 6.13.
(c) The indemnification provided by this Section 6.13 shall be in
addition to any other rights to which those indemnified may be entitled
under any agreement, vote of Limited Partners, as a matter of law or
equity, or otherwise, both as to an action in the Indemnitee's capacity as
a General Partner, an Affiliate or as an officer, director, employee or
agent in another capacity, and shall continue as to an Indemnitee who has
ceased to serve in such capacity and shall inure to the benefit of the
heirs, successors, assigns and administrators of the Indemnitee.
(d) The Partnership may purchase and maintain insurance on behalf of
the General Partner and such other Persons as the General Partner shall
determine against any liability that may be asserted against or expense
that may be incurred by such Person in connection with the Exchange and the
activities of the Partnership, regardless of whether the Partnership would
have the power to indemnify such Person against such liability under the
provisions of this Agreement.
(e) Except as set forth in the next sentence below, any
indemnification hereunder shall be satisfied solely out of the assets of
the Partnership. The Limited Partners shall not be subject to a personal
liability by reason of these indemnification provisions.
(f) An Indemnitee shall not be denied indemnification in whole or in
part under this Section 6.13 by reason of the fact that the Indemnitee had
an interest in the transaction with respect to which the indemnification
applies if the transaction was otherwise permitted by the terms of this
Agreement.
(g) The provisions of this Section 6.13 are for the benefit of the
Indemnitees and shall not be deemed to create any rights for the benefit of
any other persons."
Indemnification of the officers and directors of American Property
Investors, Inc. is provided for in Section 10 of its Certificate of
Incorporation and ARTICLE X of its By-Laws. Section 10 of the Certificate of
Incorporation of American Property Investors, Inc., as amended, provides as
follows:
No director will have any personal liability to the corporation or
its stockholders for monetary damages for any breach of fiduciary duty as a
director, except (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith of
which involve intentional misconduct or a knowing violation of law, (iii) under
section 174 of the Delaware General Corporation Law, as amended, or (iv) for any
transaction from which the director obtained an improper personal benefit.
ARTICLE X of the By-Laws of American Property Investors, Inc.,
provides as follows:
(a) any person made a party to any action, suit or proceeding, by
reason of the fact that he, his testator or intestate representative is or
was a director, officer or employee of the Corporation, or of any
Corporation in which he served as such at the request of the Corporation,
shall be indemnified by the Corporation against the reasonable expenses,
including attorney's fees, actually and necessarily incurred by him in
connection with the defense of such action, suit or proceeding, or in
connection with any appeal therein, except in relation to matters as to
which it shall be adjusted in such action, suit or proceeding, or in
connection with any appeal therein that such officer, director or employee
is liable for negligence or misconduct in the performance of his duties.
(b) The foregoing right of indemnification shall not be deemed
exclusive of any other rights to which any officer or director or employee
may be entitled apart from the provisions of this section.
II-3
<PAGE> 74
(c) The amount of indemnity to which any officer or any director may
be entitled shall be fixed by the Board of Directors, except that in any
case where there is no disinterested majority of the Board available, the
amount shall be fixed by arbitration pursuant to the then existing rules of
the American Arbitration Association."
ITEM 16. Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------- ------------------------
<S> <C>
4.1 -- Amended and Restated Agreement of Limited Partnership of
Registrant, dated as of May 12, 1987 (the "Partnership
Agreement") (filed as Exhibit No. 3.2 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1987 and
incorporated herein by reference).
4.2 -- Amendment No. 1 to the Partnership Agreement, dated as of February 22, 1995
(filed as Exhibit No. 4.2 to Registrant's Registration Statement on Form S-3
(Registration No. 33-54767) and incorporated herein by reference).
4.3 -- Amendment No. 2 to the Partnership Agreement, dated as of August 16, 1996 (filed
as Exhibit No. 10.1 to Registrant's Current Report on Form 8-K, dated August 16,
1996 and incorporated herein by reference).
4.4 -- Amended and Restated Agreement of Limited Partnership of
American Real Estate Holdings, Limited Partnership ("AREH"),
dated as of July 1, 1987 (filed as Exhibit No. 3.4 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987 and incorporated herein by reference).
4.5 -- Depositary Agreement dated as of May 21, 1987 among
Registrant, the General Partner and the Subscription Agent
(the "Depositary Agreement") (filed as Exhibit No. 4.1 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987 and incorporated herein by reference).
4.6 -- Amendment No. 1 to the Depositary Agreement (filed as Exhibit No. 4.5 to
Registrant's Registration Statement on Form S-3 (Registration No. 33-54767) and
incorporated herein by reference).
4.7 -- Form of Subscription Certificate (included on pages A-1
and A-2 of the Prospectus forming part of this Registration
Statement).
4.8 -- Form of Notice of Guaranteed Delivery (included on pages
B-1 and B-2 of the Prospectus forming part of this
Registration Statement).
4.9 -- Form of Nominee Holder Over-Subscription Exercise Form
(included on page C-1 of the Prospectus forming a part of
this Registration Statement).
4.10 -- Form of Subscription Guaranty Agreement between Registrant and High Coast
Limited Partnership (the "Guarantor").*
4.11 -- Form of Registration Rights Agreement between Registrant and the Guarantor.*
5 -- Opinion of Rogers & Wells.*
8 -- Opinion of Rogers & Wells as to certain federal income tax matters.*
</TABLE>
II-4
<PAGE> 75
<TABLE>
<S> <C>
10.1 -- Note Purchase Agreements, dated as of May 27, 1988, among
Registrant, AREH and The Prudential Insurance Company of
America (the "Note Agreements") (filed as Exhibit Nos. 2a
and 2b to Registrant's Current Report on Form 8-K dated May
27, 1988 and incorporated herein by reference).
10.2 -- Amendment No. 1 to the Note Agreements dated November 17, 1988 (filed as
Exhibit No. 10.2 to Registrant's Registration Statement on Form S-3 (Registration
No. 33-54767) and incorporated herein by reference).
10.3 -- Amendment No. 2 to the Note Agreements dated November 17, 1988 (filed as
Exhibit No. 10.3 to Registrant's Registration Statement on Form S-3 (Registration
No. 33-54767) and incorporated herein by reference).
10.4 -- Amendment No. 3 to the Note Agreements dated as of June 21, 1994 (filed as
Exhibit No. 10.4 to Registrant's Registration Statement on Form S-3 (Registration
No. 33-54767) and incorporated herein by reference).
10.5 -- Amendment No. 4 to the Note Agreements dated as of August 12, 1994 (filed as
Exhibit No. 10.5 to Registrant's Registration Statement on Form S-3 (Registration
No. 33-54767) and incorporated herein by reference).
12 -- Computation of Ratio of Earnings to Fixed Charges (included on pages 36 and 37
of the Prospectus forming a part of this Registration Statement).
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consents of Rogers & Wells (included in Exhibits 5 and 8).*
99.1 -- Form of Subscription Agent Agreement between Registrant and the Subscription
Agent.
99.2 -- Form of Amended and Restated Agency Agreement between Registrant and the
Subscription Agent.*
</TABLE>
- --------
* To be filed by Amendment.
ITEM 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of the
securities registered hereby, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in this registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement;
provided, however, that the undertakings set forth in paragraphs (i) and
(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by the registrant pursuant to section 13 or section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in
this registration statement.
II-5
<PAGE> 76
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to section 13(a) or Section 15(d)
of the Securities Exchange Act of 1934 that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(5) The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results
of the subscription Offer. If any public offering is to be made on terms
differing from those set forth on the cover page of the prospectus, a
post-effective amendment will be filed to set forth the terms of such
offering.
(6) The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933,
shall be deemed to be part of this registration statement as of the
time it was declared effective.
(ii) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide
offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Mount Kisco, State of New York, on July 17, 1997.
AMERICAN REAL ESTATE PARTNERS, L.P.
By:AMERICAN PROPERTY INVESTORS, INC.
General Partner
By: /s/ Carl C. Icahn
-------------------------------------
Carl C. Icahn
Chairman of the Board
POWER OF ATTORNEY
KNOW BY ALL MEN BY THESE PRESENT, that each person whose signature appears below
constitutes and appoints John P. Saldarelli his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
Amendments (including pre-effective and post-effective amendments) to this
Registration Statement and any and all registration statements for the same
offering as is registered by this Registration Statement and that will be
effective on filing pursuant to Rule 462(b) of the Act, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Carl C. Icahn Chairman of the Board July 17, 1997
- --------------------------------------------------- (Principal Executive Officer)
Carl C. Icahn
/s/ Alfred Kingsley Director July 17, 1997
- ---------------------------------------------------
Alfred Kingsley
/s/ William A. Leidesdorf Director July 17, 1997
- ---------------------------------------------------
William A. Leidesdorf
/s/ Jack G. Wasserman Director July 17, 1997
- ---------------------------------------------------
Jack G. Wasserman
/s/ John P. Saldarelli Treasurer July 17, 1997
- --------------------------------------------------- (Principal Financial Officer and
John P. Saldarelli Principal Accounting Officer)
</TABLE>
II-7
<PAGE> 78
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENTS
------- ------------------------
<S> <C>
4.1 -- Amended and Restated Agreement of Limited Partnership of
Registrant, dated as of May 12, 1987 (the "Partnership
Agreement") (filed as Exhibit No. 3.2 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1987 and
incorporated herein by reference).
4.2 -- Amendment No. 1 to the Partnership Agreement, dated as of February 22, 1995
(filed as Exhibit No. 4.2 to Registrant's Registration Statement on Form S-3
(Registration No. 33-54767) and incorporated herein by reference).
4.3 -- Amendment No. 2 to the Partnership Agreement, dated as of August 16, 1996 (filed
as Exhibit No. 10.1 to Registrant's Current Report on Form 8-K, dated August 16,
1996 and incorporated herein by reference).
4.4 -- Amended and Restated Agreement of Limited Partnership of
American Real Estate Holdings, Limited Partnership ("AREH"),
dated as of July 1, 1987 (filed as Exhibit No. 3.4 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987 and incorporated herein by reference).
4.5 -- Depositary Agreement dated as of May 21, 1987 among
Registrant, the General Partner and the Subscription Agent
(the "Depositary Agreement") (filed as Exhibit No. 4.1 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1987 and incorporated herein by reference).
4.6 -- Amendment No. 1 to the Depositary Agreement (filed as Exhibit No. 4.5 to
Registrant's Registration Statement on Form S-3 (Registration No. 33-54767) and
incorporated herein by reference).
4.7 -- Form of Subscription Certificate (included on pages A-1
and A-2 of the Prospectus forming part of this Registration
Statement).
4.8 -- Form of Notice of Guaranteed Delivery (included on pages
B-1 and B-2 of the Prospectus forming part of this
Registration Statement).
4.9 -- Form of Nominee Holder Over-Subscription Exercise Form
(included on page C-1 of the Prospectus forming a part of
this Registration Statement).
4.10 -- Form of Subscription Guaranty Agreement between Registrant and High Coast
Limited Partnership (the "Guarantor").*
4.11 -- Form of Registration Rights Agreement between Registrant and the Guarantor.*
5 -- Opinion of Rogers & Wells.*
8 -- Opinion of Rogers & Wells as to certain federal income tax matters.*
10.1 -- Note Purchase Agreements, dated as of May 27, 1988, among
Registrant, AREH and The Prudential Insurance Company of
America (the "Note Agreements") (filed as Exhibit Nos. 2a
and 2b to Registrant's Current Report on Form 8-K dated May
27, 1988 and incorporated herein by reference).
10.2 -- Amendment No. 1 to the Note Agreements dated November 17, 1988 (filed as
Exhibit No. 10.2 to Registrant's Registration Statement on Form S-3 (Registration
No. 33-54767) and incorporated herein by reference).
10.3 -- Amendment No. 2 to the Note Agreements dated November 17, 1988 (filed as
Exhibit No. 10.3 to Registrant's Registration Statement on Form S-3 (Registration
No. 33-54767) and incorporated herein by reference).
10.4 -- Amendment No. 3 to the Note Agreements dated as of June 21, 1994 (filed as
Exhibit No. 10.4 to Registrant's Registration Statement on Form S-3 (Registration
No. 33-54767) and incorporated herein by reference).
10.5 -- Amendment No. 4 to the Note Agreements dated as of August 12, 1994 (filed as
Exhibit No. 10.5 to Registrant's Registration Statement on Form S-3 (Registration
No. 33-54767) and incorporated herein by reference).
12 -- Computation of Ratio of Earnings to Fixed Charges (included on pages 36 and 37
of the Prospectus forming a part of this Registration Statement).
23.1 -- Consent of KPMG Peat Marwick LLP.
23.2 -- Consents of Rogers & Wells (included in Exhibits 5 and 8).*
99.1 -- Form of Subscription Agent Agreement between Registrant and the Subscription
Agent.
99.2 -- Form of Amended and Restated Agency Agreement between Registrant and the
Subscription Agent.*
</TABLE>
- --------
* To be filed by Amendment.
<PAGE> 1
Exhibit 23.1
The Board of Directors
American Real Estate Partners, L.P.:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
----------------------------------
KPMG Peat Marwick LLP
New York, New York
July 16, 1997
<PAGE> 1
SUBSCRIPTION AGENT AGREEMENT
This Subscription Agent Agreement (the "Agreement") is made as
of August __, 1997 between American Real Estate Partners, L.P., a Delaware
limited partnership (the "Partnership"), and Registrar and Transfer Company, a
New York corporation (the "Agent"). All terms not defined herein shall have the
meaning given in the prospectus (the "Prospectus") included in the Registration
Statement on Form S-3 (Registration No. 333-______) filed by the Partnership
with the Securities and Exchange Commission on July __, 1997, as amended by any
amendment filed with respect thereto (the "Registration Statement").
WHEREAS, the Partnership proposes to make a subscription offer
by issuing certificates or other evidences of subscription rights, in the form
designated by the Partnership (the "Subscription Certificates") to unitholders
of record (the "Record Date Unitholders") of its depositary units representing
limited partner interests ("Depositary Units"), as of a record date specified by
the Partnership (the "Record Date"), pursuant to which each Unitholder will have
certain rights (the "Rights") to subscribe for Depositary Units and 5%
cumulative pay-in-kind redeemable preferred units representing limited partner
interests in the Partnership (the "Preferred Units"), as described in and upon
such terms as are set forth in the Prospectus, a final copy of which has been
or, upon availability will promptly be, delivered to the Agent; and
WHEREAS, the Partnership wishes the Agent to perform certain
acts on behalf of the Partnership, and the Agent is willing to so act, in
connection with the distribution of the Subscription Certificates and the
issuance and exercise of the Rights to subscribe therein set forth, all upon the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual agreements set forth herein, the parties agree as follows:
1. APPOINTMENT. The Partnership hereby appoints the Agent to act as subscription
agent in connection with the distribution of Subscription Certificates and the
issuance and exercise of the Rights in accordance with the terms set forth in
this Agreement and Exhibit A hereto, and the Agent hereby accepts such
appointment.
2. FORM AND EXECUTION OF SUBSCRIPTION CERTIFICATES.
(a) Each Subscription Certificate shall be irrevocable and fully
transferable. The Agent shall, in its capacity as Transfer Agent of the
Partnership, maintain a register of Subscription Certificates and the holders of
record thereof (each of whom shall be deemed a "Unitholder" hereunder for
purposes of determining the
<PAGE> 2
rights of holders of Subscription Certificates). Each Subscription Certificate
shall, subject to the provisions thereof, entitle the Unitholder in whose name
it is recorded to the following:
(1) The right to acquire during the Subscription Period, as
defined in the Prospectus, at the Subscription Price, four Depositary
Units and one Preferred Unit for each Right (the "Basic Subscription
Right"); and
(2) If all Basic Subscription Rights are not exercised, the
right to subscribe for additional Depositary Units and Preferred Units,
at the Subscription Price and as a unit consisting of four Depositary
Units and one Preferred Unit, subject to the availability of such
Depositary Units and Preferred Units and to the allotment of such units
as may be available among Unitholders who exercise their Over-
Subscription Privilege on the basis specified in the Prospectus (the
"Over-Subscription Privilege").
3. RIGHTS AND ISSUANCE OF SUBSCRIPTION CERTIFICATES.
(a) Each Subscription Certificate shall evidence the Rights of the
Unitholder therein named to purchase Depositary Units and Preferred Units upon
the terms and conditions therein set forth.
(b) Upon the written advice of the Partnership, signed by any of its
duly authorized officers, as to the Record Date, the Agent shall, from a list of
the Unitholders as of the Record Date to be prepared by the Agent in its
capacity as Transfer Agent of the Partnership, prepare and record Subscription
Certificates in the names of the Unitholders, setting forth the number of Rights
to subscribe for the Partnership's Depositary Units and Preferred Units
calculated on the basis of one Right for each five Depositary Units recorded on
the books in the name of each such Unitholder as of the Record Date. The number
of Rights that are issued to Record Date Holders of a number of Depositary Units
not evenly divisible by five will be determined by multiplying the number of
Depositary Units held by such Record Date Holder by .2 and then rounding up to
the nearest whole number if the fractional amount is greater than or equal to .5
and rounding down to the nearest whole number if the fractional amount is less
than .5. In the case of Depositary Units held of record by a Nominee Holder, the
number of Rights issued to such Nominee Holder will be adjusted, by the Agent,
to permit rounding up (to the nearest whole number of Rights evenly divisible by
five) of the Rights to be received by beneficial holders for whom the Nominee
Holder is the holder of record only if the Nominee Holder provides to the Agent
on or before the close of business on the fifth business day prior to
___________, 1997 (the "Expiration Date"), written representation of the number
of Rights required for such rounding. Each Subscription Certificate shall be
dated as of the Record Date and shall be executed by a duly authorized officer
of the Partnership. Upon the written advice, signed as aforesaid, as to the
effective date of the Registration Statement, the Agent shall deliver the
Subscription Certificates, together with a copy
2
<PAGE> 3
of the Prospectus, instruction letter and any other document as the Partnership
deems necessary or appropriate, to all Unitholders with record addresses in the
United States (including its territories and possessions and the District of
Columbia). Delivery shall be by first class mail (without registration or
insurance), except for those Unitholders having a registered address outside the
United States (who will only receive copies of the Prospectus, instruction
letter and other documents as the Partnership deems necessary or appropriate, if
any), delivery shall be by air mail (without registration or insurance) and by
first class mail (without registration or insurance) to those Unitholders having
Army Post Office or Foreign Post Office addresses. No Subscription Certificate
shall be valid for any purpose unless so executed. Should any officer of the
Partnership whose signature has been placed upon any Subscription Certificate
cease to hold such office at any time thereafter, such event shall have no
effect on the validity of such Subscription Certificate.
(c) The Agent will mail a copy of the Prospectus, instruction letter, a
special notice and other documents as the Partnership deems necessary or
appropriate, if any, but not Subscription Certificates to Record Date Holders
whose record addresses are outside the United States (including its territories
and possessions and the District of Columbia) ("Foreign Record Date
Unitholders"). The Rights to which such Subscription Certificates relate will be
held by the Agent for such Foreign Record Date Unitholders' accounts until
instructions are received to exercise, sell or transfer the Rights. If no
instructions have been received by 12:00 Noon, New York City time, three
Business Days prior to the Expiration Date, the Agent will use its best efforts
to sell the Rights of those registered Foreign Record Date Unitholders. The
proceeds net of commissions, if any, to the Agent from the sale of those Rights
by the Agent will be remitted to those Foreign Record Date Unitholders on a pro
rata basis.
4. EXERCISE.
(a) Exercising Rights Holders may acquire Depositary Units and
Preferred Units pursuant to Basic Subscription Rights and the Over-Subscription
Privilege by delivery to the Agent as specified in the Prospectus of (i) the
Subscription Certificate with respect thereto, duly executed by such Unitholder
in accordance with and as provided by the terms and conditions of the
Subscription Certificate, together with (ii) the purchase price of $ __________
for each four Depositary Units and one Preferred Unit subscribed for by exercise
of Basic Subscription Rights and the Over-Subscription Privilege, in U.S.
dollars by money order or check drawn on a bank in the United States, in each
case payable to the order of the Agent for the account of the Partnership.
(b) Rights may be exercised at any time after the date of issuance of
the Subscription Certificates with respect thereto but no later than 5:00 P.M.
New York time on the Expiration Date. For the purpose of determining the time of
the exercise of any Rights,
3
<PAGE> 4
delivery of any material to the Agent shall be deemed to occur when such
materials are received at the address of the Agent as specified in the
Prospectus.
(c) Notwithstanding the provisions of Section 4(a) and 4(b) regarding
delivery of an executed Subscription Certificate to the Agent prior to 5:00 p.m.
New York time on the Expiration Date, if prior to such time the Agent receives a
Notice of Guaranteed Delivery from a bank, a trust company or a New York Stock
Exchange member guaranteeing delivery of (i) payment of the full Subscription
Price for the Depositary Units and Preferred Units subscribed for pursuant to
the exercise of Basic Subscription Rights and any additional Preferred Units and
Depositary Units subscribed for pursuant to the Over-Subscription Privilege and
(ii) a properly completed and executed Subscription Certificate, then such
exercise of Basic Subscription Rights and the Over-Subscription Privilege shall
be regarded as timely, subject, however, to receipt of the duly executed
Subscription Certificate and full payment for the Depositary Units and Preferred
Units by the Agent within five business days after the Expiration Date (the
"Protect Period").
(d) Within seven business days following the end of the Protect Period,
the Agent shall send to each Exercising Rights Holder (or, if Depositary Units
on the Record Date are held by Cede & Co. or any other depository or nominee, to
Cede & Co. or such other depository or nominee) the certificates representing
the Depositary Units and Preferred Units acquired pursuant to the Basic
Subscription Rights, and, if applicable, the Over-Subscription Privilege. Any
excess payment to be refunded by the Partnership to an Exercising Rights Holder
who is not allocated the full amount of Depositary Units and Preferred Units
subscribed for pursuant to the Over-Subscription Privilege, shall be mailed by
the Agent to him or her within seven business days following the Protect Period.
5. TRANSFER OF RIGHTS.
(a) Rights Holders who do not wish to exercise any or all of their
Rights may sell any unexercised Rights. The Agent will use its best efforts to
sell all Rights which remain unclaimed as a result of Subscription Certificates
being returned by the postal authorities to the Agent as undeliverable as of the
fourth business day prior to the Expiration Date and Rights of non-U.S.
shareholders who do not respond to the Agent at least four days prior to the
Expiration Date. Such sales will be made, net of commissions, on behalf of the
nonclaiming Unitholders. The Agent will hold the proceeds from those sales for
the benefit of such nonclaiming Unitholders until such proceeds are either
claimed or escheat.
(b) Rights Holders may transfer a portion of the Rights evidenced by a
single Subscription Certificate by delivering to the Agent at least one business
day prior to the Expiration Date a Subscription Certificate properly endorsed
for transfer, with
4
<PAGE> 5
instructions to register such portion of the Rights evidenced thereby in the
name of the transferee and to issue a new Subscription Certificate to the
transferee evidencing such transferred Rights. In such event, the Agent shall
issue a new Subscription Certificate evidencing the balance of the Rights to the
transferring Rights Holder or, if the transferring Rights Holder so instructs,
to an additional transferee.
6. VALIDITY OF SUBSCRIPTIONS. Irregular subscriptions not otherwise covered by
specific instructions herein shall be submitted to an appropriate officer of the
Partnership and handled in accordance with his or her instructions. Such
instructions will be documented by the Agent indicating the instructing officer
and the date thereof.
7. OVER-SUBSCRIPTION. If all Basic Subscription Rights are not exercised, the
remaining Depositary Units and Preferred Units (the "Remaining Units") shall be
allocated to persons exercising the Over-Subscription Privilege in the amounts
of such over-subscriptions. If the number of Depositary Units and Preferred
Units for which the Over-Subscription Privilege has been exercised is greater
than the Remaining Units, the Agent shall allocate the Remaining Units to the
persons exercising the Over-Subscription Privilege pro rata according to the
aggregate number of Basic Subscription Rights exercised so that the aggregate
amount of Depositary Units and Preferred Units issued to Unitholders who
subscribe pursuant to the Over-Subscription Privilege will generally be in
proportion to the aggregate amount of Depositary Units and Preferred Units
purchased through the exercise of Basic Subscription Rights. The Agent shall
advise the Partnership immediately upon the completion of the allocation set
forth above as to the total number of Depositary Units and Preferred Units
subscribed and distributable.
8. DELIVERY OF CERTIFICATES. Within seven business days following the end of the
Protect Period, the Agent will deliver (i) certificates representing those
Depositary Units and Preferred Units purchased pursuant to exercise of Basic
Subscription Rights and (ii) certificates representing those Depositary Units
and Preferred Units purchased pursuant to the exercise of the Over- Subscription
Privilege.
9. HOLDING PROCEEDS OF RIGHTS OFFERING IN ESCROW.
(a) All proceeds received by the Agent from Unitholders in respect of
the exercise of Rights shall be held by the Agent, on behalf of the Partnership,
in a segregated, interest-bearing escrow account (the "Escrow Account"). Pending
disbursement in the manner described in Section 4(d) above, funds held in the
Escrow Account shall be invested by the Agent at the direction of the
Partnership.
(b) The Agent shall deliver all proceeds received in respect of the
exercise of Rights (including interest earned thereon) to the Partnership as
promptly as practicable, but in no event later
5
<PAGE> 6
than seven business days after the end of the Protect Period. Proceeds held in
respect of excess payments (including interest earned thereon) shall be refunded
to Unitholders entitled to such a refund within seven business days after the
end of the Protect Period.
10. REPORTS. Daily, during the period commencing on the Record Date, until
termination of the Subscription Period, the Agent will report by telephone or
telecopier (by 12:00 Noon, New York time), confirmed by letter, to a designated
officer of the Partnership, daily data regarding Rights exercised, the selling
price of Rights, the total number of Depositary Units and Preferred Units
subscribed for, payments received therefor, the number of Rights sold and the
net proceeds thereof, bringing forward the figures from the previous day's
report in each case so as to also show the cumulative totals and any such other
information as may be mutually determined by the Partnership and the Agent.
11. LOSS OR MUTILATION. If any Subscription Certificate is lost, stolen,
mutilated or destroyed, the Agent may, on such terms which will indemnify and
protect the Partnership and the Agent as the Agent may in its discretion impose
(which shall, in the case of a mutilated Subscription Certificate include the
surrender and cancellation thereof), issue a new Subscription Certificate of
like denomination in substitution for the Subscription Certificate so lost,
stolen, mutilated or destroyed.
12. COMPENSATION FOR SERVICES. The Partnership agrees to pay to the Agent
compensation for its services as such in accordance with its Fee Schedule set
forth hereto as Exhibit A. The Agent agrees that such compensation shall include
all services as Transfer Agent and Registrar provided in connection with the
offering of the Rights. The Partnership further agrees that it will reimburse
the Agent for its reasonable out-of-pocket expenses incurred in the performance
of its duties as such.
13. INSTRUCTIONS AND INDEMNIFICATION. The Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions:
(a) The Agent shall be entitled to rely upon any instructions or
directions furnished to it by an appropriate officer of the Partnership, whether
in conformity with the provisions of this Agreement or constituting a
modification hereof or a supplement hereto. Without limiting the generality of
the foregoing or any other provision of this Agreement, the Agent, in connection
with its duties hereunder, shall not be under any duty or obligation to inquire
into the validity or invalidity or authority or lack thereof of any instruction
or direction from an officer of the Partnership which conforms to the applicable
requirements of this Agreement and which the Agent reasonably believes to be
genuine and shall not be liable for any delays, errors or loss of data occurring
by reason of circumstances beyond the Agent's control, including, without
limitation, acts of civil or military authority,
6
<PAGE> 7
national emergencies, labor difficulties, fire, flood, catastrophe, acts of God,
insurrection, war, riots or failure of the mails, transportation, communication
or power supply.
(b) The Partnership will indemnify the Agent and its nominees against,
and hold it harmless from, all liability and expense which may arise out of or
in connection with the services described in this Agreement or the instructions
or directions furnished to the Agent relating to this Agreement by an
appropriate officer of the Partnership, except for any liability or expense
which shall arise out of the negligence, bad faith or willful misconduct of the
Agent or such nominees.
14. CHANGES IN SUBSCRIPTION CERTIFICATE. The Agent may, without the consent or
concurrence of the Unitholders in whose names Subscription Certificates are
registered, by supplemental agreement or otherwise, concur with the Partnership
in making any changes or corrections in a Subscription Certificate that it shall
have been advised by counsel (who may be counsel for the Partnership) is
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or clerical omission or mistake or manifest error therein or herein
contained, and which shall not be inconsistent with the provision of the
Subscription Certificate except insofar as any such change may confer additional
rights upon the Unitholders.
15. ASSIGNMENT; DELEGATION.
(a) Neither this Agreement nor any rights or obligations hereunder may
be assigned or delegated by either party without the written consent of the
other party.
(b) This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns. Nothing in
this Agreement is intended or shall be construed to confer upon any other person
any right, remedy or claim or to impose upon any other person any duty,
liability or obligation.
16. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the laws of the State of New York.
17. SEVERABILITY. The parties hereto agree that if any of the provisions
contained in this Agreement shall be determined invalid, unlawful or
unenforceable to any extent, such provisions shall be deemed modified to the
extent necessary to render such provisions enforceable. The parties hereto
further agree that this Agreement shall be deemed severable, and the invalidity,
unlawfulness or unenforceability of any term or provision thereof shall not
affect the validity, legality or enforceability of this Agreement or of any term
or provision hereof.
7
<PAGE> 8
18. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which together shall be
considered one and the same agreement.
19. CAPTIONS. The captions and descriptive headings herein are for the
convenience of the parties only. They do not in any way modify, amplify, alter
or give full notice of the provisions hereof.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and execute
such further documents as are necessary to effect the purposes of this
Agreement.
21. ADDITIONAL PROVISIONS. Except as specifically modified by this Agreement,
the Agent's rights and responsibilities set forth in the Agreement for Stock
Transfer Services between the Partnership and the Agent are hereby ratified and
confirmed and continue in effect.
AMERICAN REAL ESTATE PARTNERS, L.P.
By: American Property Investors, Inc.,
General Partner
By:
REGISTRAR AND TRANSFER COMPANY
By:
Name:
Title:
8
<PAGE> 9
EXHIBIT A
Transfer Service Agreement between American Real Estate Partners, L.P. (the
"Company") and Registrar and Transfer Company ("Agent").
FEES AND SERVICES
Agent will receive will receive $____ for each Subscription Certificate
that is exercised in the Rights Offering, provided however, the minimum fee
payable to Agent for its role in the Rights Offering will be $_______ and the
maximum fee for such role will be $_______. The fee for the Rights Offering
includes the following services:
* Acceptance and initial review of
certificates;
* Programming expenses for the
proration of rights or over
subscription requests;
* Responding to routine investor
correspondence;
* Calculation, imprinting and
enclosing Subscription Certificates
and related materials, up to four
enclosures;
* Curing defective Subscription
Certificates;
* Proration calculation and issuance of
Depositary Units, Preferred Units and
refund checks;
* Maintenance of an interest bearing
escrow account;
* Nominee fulfillment.
Out-of-pocket expenses including stationery, telephone, postage delivery
and other expenses are not included and will be itemized and billed as incurred.
9
