<PAGE>
Filed pursuant to Rule 424(b) (1)
PROSPECTUS
1,419,465 SHARES
AMERICAN REAL ESTATE INVESTMENT CORPORATION
COMMON STOCK
The Prospectus relates to an aggregate of 1,419,465 shares (the "Shares")
of common stock, par value $.001 per share ("Common Stock"), of American Real
Estate Investment Corporation, a Maryland corporation (the "Company"), a self-
administered real estate investment trust ("REIT"). The Shares may be offered
(the "Offering") for sale by certain persons who are (i) limited partners of
American Real Estate Investment, L.P. (the "Operating Partnership") through
which the Company currently operates as a REIT, (ii) the holder of common stock
purchase warrants (the "Warrants"), exercisable at $10.00 per share, to purchase
175,000 shares of the Company's Common Stock, and (iii) Directors and officers
of the Company and other persons holding shares of Common Stock or options (the
"Options"), exercisable at $10.00 per share, to purchase shares of Common Stock
or by pledgees of the foregoing (the "Selling Shareholders"). The Shares are
being registered under the Securities Act of 1933, as amended (the "Securities
Act"), on behalf of the Selling Shareholders in order to permit the public sale
or other distribution of the Shares.
The Shares may be sold or distributed from time to time by or for the
account of the Selling Shareholders through underwriters or dealers, through
brokers or other agents, or directly to one or more purchasers, including
pledgees, at market prices prevailing at the time of sale or at prices otherwise
negotiated. This Prospectus may also be used, with the Company's consent, by
donees of the Selling Shareholders, or by other persons acquiring shares and who
wish to offer and sell such Shares requiring or making desirable its use. The
Company will receive no portion of the proceeds from the sale of the Shares
offered hereby and will bear certain expenses incident to their registration.
See "Selling Shareholders" and "Plan of Distribution."
The Common Stock is traded on The American Stock Exchange (the "Amex")
under the symbol "REA." On April 14, 1997, the closing sale price of the Common
Stock as reported by the Amex was $8 7/8 per share.
INVESTORS SHOULD CAREFULLY CONSIDER CERTAIN RISKS AND OTHER CONSIDERATIONS
RELATING TO THE COMMON STOCK AND THE COMPANY. SEE "RISK FACTORS" STARTING ON
PAGE 3 OF THIS PROSPECTUS.
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.
APRIL 30, 1997
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
SHAREHOLDERS. NEITHER THE DELIVERY OF THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, and, in accordance therewith, files reports,
proxy and information statements and other information with the Securities and
Exchange Commission (the "Commission"). These reports, proxy and information
statements and other information concerning the Company can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, Northwest, Washington, DC 20549; and at the Commission's
regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at Seven World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can also be obtained from the Commission at
prescribed rates through its Public Reference Section at 450 Fifth Street,
Northwest, Washington, DC 20549. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission and the address
of that Web site is http://www.sec.gov. The Common Stock is traded on the Amex.
Information filed by the Company with the Amex may be inspected at the offices
of the Amex at 85 Trinity Place, New York, New York 10006.
-i-
<PAGE>
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act of 1933, as amended ("Securities Act") with
respect to the Shares offered hereby (including all amendments and supplements
thereto, the "Registration Statement"). This Prospectus, which forms a part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. Statements
contained herein concerning the provisions of certain documents are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference. The Registration Statement and the exhibits thereto can be
inspected and copied at the public reference facilities and regional offices of
the Commission and at the offices of the Amex referred to above.
TABLE OF CONTENTS
Page
----
Available Information................................ i
Table of Contents.................................... ii
The Company.......................................... 1
Risk Factors......................................... 3
Use of Proceeds...................................... 10
Selling Shareholders................................. 11
Conversion Right..................................... 13
Plan of Distribution................................. 14
Description of Capital Stock......................... 16
Legal Matters........................................ 19
Incorporation of Certain Documents by Reference...... 20
-ii-
<PAGE>
THE COMPANY
American Real Estate Investment Corporation (the "Company") was
organized on August 24, 1993 to own and operate, as a self-administered real
estate investment trust ("REIT"), multifamily residential properties. Through a
currently 58.61% general partnership interest in American Real Estate
Investment, L.P. (the "Operating Partnership"), the Company currently owns
either a full or partial interests in and operates, directly or through
partnership interests, multifamily properties (the "Properties") containing an
aggregate of 1,542 apartments located in the Denver, Colorado, San Diego,
California and Phoenix, Arizona metropolitan areas. Unless the content should
otherwise require, references herein to the Company include the Operating
Partnership and the Company's subsidiaries.
A REIT is a legal entity that holds real estate interests and, through
its payment of dividends, is able to reduce or avoid incurring Federal income
tax at the corporate level, allowing stockholders to participate in real estate
investments without the double taxation of income that a traditional form of
corporate organization would entail.
The Company is currently engaged in a review of both its properties
and future real estate investment opportunities. Management of the Company
believes that favorable opportunities exist to liquidate certain of its
properties, thereby recognizing the enhanced values of these properties, and re-
deploy the proceeds in other real estate investment assets where management
believes higher returns can be achieved. On December 20, 1996, the Company sold
its 150-unit International apartments located in Aurora, Colorado for a purchase
price of $3,050,000 and on February 28, 1997 sold its 450-unit Timberleaf
apartments for a gross selling price of $9,115,000.
Management of the Company is exploring a number of real estate
investment opportunities where it believes the proceeds realized from the sale
of these assets, and possibly the sale of other properties currently owned by
the Company, can be re-deployed. No agreements or agreements in principal have
been entered into with respect to any transactions. Such assets may be re-
deployed in the acquisition of fee interests in real estate, including
commercial, residential, or other real estate investments or mortgages or deeds
of trust secured by such real estate. In addition, no specific geographic
limits have been established where these activities may be undertaken.
Management has no present plans for the Company to be operated other than as a
REIT.
The Company, on November 10, 1993, completed its initial public offering
(the "Public Offering") of 1,075,000 shares of Common Stock, $.001 par value,
and realized proceeds, after payment of the underwriting discount, of $9,890,000
and net proceeds of $8,885,000 after offering expenses. Concurrently with the
closing of the Public
<PAGE>
Offering, the Company acquired its general partnership interest in the Operating
Partnership. On August 31, 1994, the Company was reincorporated as a Maryland
corporation by merger of the Company into a newly formed wholly owned subsidiary
incorporated in Maryland. The Company's executive offices are located at 1670
Broadway, Suite 3350, Denver, Colorado 80202, and its telephone number is (303)
869-4700.
The Properties. The Company, through its interest in the Operating
--------------
Partnership, currently owns either a full or partial interest in and operates
multifamily apartment complexes located in the Denver, Colorado, San Diego,
California and Phoenix, Arizona metropolitan areas. All of the Properties have
at least 250 apartment units with the largest having 510 apartment units. Of
the Properties owned by the Company as of March 31, 1997, three complexes were
built during the 1980s and one was built during the 1970s. The Properties owned
at March 31, 1997 include the following:
<TABLE>
<CAPTION>
PROPERTY # OF UNITS LOCATION DATE ACQUIRED
________________________________________________________________
<S> <C> <C> <C>
Americana Lakewood 300 Lakewood, CO November 10, 1993
Sedona * 276 Denver, CO November 10, 1993
Emerald Pointe 456 Vista, CA June 16, 1994
Quadrangles 510 Tempe, AZ December 2, 1994
- -----------------
</TABLE>
* Subject to an agreement of sale dated March 20, 1997.
The Company's interest in the Vista, California complex is owned through a
50% general partnership interest in the limited partnership owning the property.
The units comprising the Properties owned at March 31, 1997 are comprised
of an aggregate of 44 efficiency apartments, 628 one-bedroom apartments and 870
two-bedroom apartments. The Properties typically consist of two and three story
buildings in a landscaped setting. The apartments' average unit size is 784
square feet. All of the Properties provide residents with attractive amenities,
including swimming pools and clubhouses, and some include exercise rooms and a
Jacuzzi. Many apartments offer additional features such as vaulted ceilings,
fireplaces, and cable television accessibility. Except for the Sedona
apartments, where the Company is planning certain proposed capital improvements,
the Company has no current plans to undertake major renovations on any of the
Properties.
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<PAGE>
RISK FACTORS
An investment in the Company's shares of Common Stock involves a high
degree of risk. In addition to general investment risks and those factors set
forth elsewhere in this Prospectus, prospective investors should consider, among
other things, the following factors:
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers and
Directors, including, Mr. Evan Zucker, President, Mr. Rick Burger, Treasurer and
Mr. James Mulvihill, Chairman of the Board. The loss of their services could
have an adverse effect on the operations of the Company.
ASSETS OF THE COMPANY LIMITED TO FOUR PROPERTIES
The Company's total assets currently consist of the four Properties which
have a total of 1,542 apartment units. As a consequence, the Company's revenues
are limited to the income derived from these Properties. In the event any of
these Properties should have a material reduction in rental income or other
unforeseen change in operating results, the Company's operations would be
adversely affected which could lead to a foreclosure by the holder of a mortgage
on one of the Company's Properties. The Properties are concentrated in the
Denver, Colorado, San Diego, California and Phoenix, Arizona metropolitan
regions and consist entirely of multifamily properties. The Company's
performance is linked to economic conditions in those regions and to the market
for apartments therein. Adverse economic or other events relating to those
regions could also adversely affect the Company's revenues and its ability to
make distributions to its stockholders. The Company's income and funds
available for distribution would be adversely affected if a significant number
of rental units could not be leased, if lessees were unable to meet their lease
obligations or if for any other reason rental payments could not be collected.
-3-
<PAGE>
REVIEW OF FUTURE REAL ESTATE INVESTMENT OPPORTUNITIES
The Company is currently engaged in a review of both its Properties and
future real estate investment opportunities. Management of the Company believes
that favorable opportunities exist to liquidate certain of its Properties,
thereby recognizing the enhanced values of these Properties, and re-deploy the
proceeds in other real estate investment assets where management believes higher
returns can be achieved. On December 20, 1996, the Company sold its 150-unit
International apartments located in Aurora, Colorado for a purchase price of
$3,050,000 and on February 28, 1997 sold its 450-unit Timberleaf apartments for
a purchase price of $9,115,000. It has entered into a contract of sale dated
March 20, 1997, which is subject to the fulfillment of various closing
conditions, to sell the 276 unit Sedona apartments for an aggregate of
$9,250,000, of which $3,550,000 is payable in cash and the balance by the
payment of an existing loan on the property.
Management of the Company is exploring a number of real estate investment
opportunities where it believes the proceeds realized from the sale of these
assets, and possibly the sale of other properties currently owned by the
Company, can be re-deployed. No agreements or agreements in principal have been
entered into with respect to any transactions. Such assets may be re-deployed
in the acquisition of fee interests in real estate, including commercial,
residential, or other real estate investments or mortgages or deeds of trust
secured by such real estate. In addition, no specific geographic limits have
been established where these activities may be undertaken. Management has no
present plans for the Company to be operated other than as a REIT. There can be
no assurance that any real estate investments made by the Company will be
favorable or yield sufficient earnings to enable the Company to maintain its
current or any specific level of dividends. In the event the Company's assets
are not reinvested successfully, an investment in the Company's Common Stock
could be materially adversely affected.
GENERAL RISKS OF REAL ESTATE INVESTMENTS
Real property investments are subject to numerous risks. The yields
available from equity investments in real estate depend on the amount of income
generated and expenses incurred. If the Company's properties do not generate
income sufficient to meet operating expenses, including debt service, and
capital expenditures, the Company would be unable to make distributions to its
stockholders. Income from properties may also be adversely affected by the
general economic climate, local conditions such as oversupply of apartments or a
reduction in demand for apartments
-4-
<PAGE>
in the area, the attractiveness of the properties to tenants, competition from
other available apartments, and increased operating costs (including real estate
taxes). Certain significant expenditures associated with each equity investment
(such as mortgage payments, if any, real estate taxes and maintenance and
insurance costs) are generally not reduced when circumstances cause a reduction
in income from the investment. If a property is mortgaged to secure payment of
indebtedness, and if the Company is unable to meet its mortgage payments, a loss
could be sustained as a result of foreclosure on the property by the lender.
Accordingly, the variability of cash flow may lead to foreclosure of the
Company's assets. In addition, income from properties and real estate values are
also affected by such factors as applicable laws, including tax laws, interest
rate levels and the availability of financing. These factors may adversely
affect the Company's ability to make distributions to its stockholders.
ILLIQUIDITY OF REAL ESTATE
Real estate investments are relatively illiquid which will tend to limit
the ability of the Company to vary its portfolio promptly in response to changes
in economic or other conditions. In addition, the Internal Revenue Code (the
"Code") places limits on the Company's ability to sell properties held for fewer
than four years, which may affect the Company's ability to sell properties
without adversely affecting returns to stockholders.
CHANGES IN INVESTMENT AND FINANCING POLICIES WITHOUT STOCKHOLDER APPROVAL
The investment and financing policies of the Company, and its policies with
respect to certain other activities, including its growth, debt, capitalization,
distributions, REIT status and operating policies, are determined by its
Directors. These policies may be amended or revised from time to time at the
discretion of the Directors without a vote of the stockholders of the Company.
Any such amendment or revision may adversely affect the interests of the
Company's stockholders.
ADVERSE CONSEQUENCES OF SECURED DEBT DEFAULT
After reflecting the sale of the Timberleaf apartments in February 1997 and
the repayment of indebtedness with the proceeds from the transaction, but before
reflecting the sale of the Sedona apartments which are the subject of a contract
of sale entered into on March 20, 1997, an aggregate of approximately
$32,300,000 of indebtedness of the Company is outstanding secured by its
Properties. If the Company defaults under
-5-
<PAGE>
the secured indebtedness, the lender could foreclose on the Property which could
lead to a loss of that Property and materially adversely affect the ability of
the Company to make distributions to its stockholders. There can be no assurance
that the Company's debt can be refinanced or, if it can, that such refinancing
may not be at a significantly higher interest rate.
EFFECT OF INCREASE IN MARKET INTEREST RATES UPON PRICE OF COMMON STOCK
One of the factors that may influence the price of the Company's Common
Stock in public markets is the annual distribution rate on the shares. Thus, an
increase in market interest rates may lead holders of shares of Common Stock to
seek a higher yield from their investments, which could adversely affect the
market price of the Common Stock.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
The Company intends to continue to operate so as to qualify as a REIT under
the Code. Although management of the Company believes that the Company is
organized and will operate in such a manner, no assurance can be given that the
Company will be organized or will be able to operate in a manner so as to
qualify or remain so qualified. Qualification as a REIT involves the
application of highly technical and complex Code provisions for which there are
only limited judicial or administrative interpretations and the determination of
various factual matters and circumstances not entirely within the Company's
control. For example, in order to qualify as a REIT, at least 95% of the
Company's gross income in any year must be derived from qualifying sources and
the Company must make distributions to stockholders aggregating annually at
least 95% of its REIT taxable income (excluding net capital gains). In
addition, no assurance can be given that legislation, new regulations,
administrative interpretations or court decisions will not change the tax laws
with respect to qualification as a REIT or the Federal income tax consequences
of such qualification. The Company, however, is not aware of any pending tax
legislation that would adversely affect the Company's ability to operate as a
REIT.
If the Company fails to qualify as a REIT, the Company will be subject to
Federal income tax (including any applicable alternative minimum tax) on its
taxable income at corporate rates. In addition, unless entitled to relief under
certain statutory provisions, the Company will also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification is lost. This treatment would reduce the net earnings of the
Company available for investment or distribution to stockholders
-6-
<PAGE>
because of the additional tax liability to the Company for the year or years
involved. In addition, distributions would no longer be required to be made. To
the extent that distributions to stockholders would have been made in
anticipation of the Company's qualifying as a REIT, the Company might be
required to borrow funds or to liquidate certain of its investments to pay the
applicable tax.
DISTRIBUTIONS TO STOCKHOLDERS; POTENTIAL REQUIREMENT TO BORROW
To obtain the favorable tax treatment associated with REITs qualifying
under the Code, the Company generally is required each year to distribute to its
stockholders at least 95% of its net taxable income. In addition, the Company
is subject to tax on its undistributed net taxable income and net capital gain,
and a 4% nondeductible excise tax on the amount, if any, by which certain
distributions paid by it with respect to any calendar year are less than the sum
of 85% of its ordinary income plus 95% of its capital gain net income for the
calendar year.
The Company intends to make distributions to its stockholders to comply
with the distribution provisions of the Code and to avoid income taxes and the
nondeductible excise tax. Substantially all of the Company's income consists of
the Company's share of the income to the Operating Partnership, and
substantially all of the Company's cash flow consists of its share of
distributions from the Operating Partnership. Differences in timing between the
recognition of income and the receipt of cash (of the Company or the Operating
Partnership) and the effect of required debt amortization payments could require
the Company, through the Operating Partnership or directly, to borrow funds on a
short-term basis to meet the distribution requirements that are necessary to
achieve the tax benefits associated with qualifying as a REIT. In such
instances, the Company might need to borrow funds in order to avoid adverse tax
consequences even if management believed that then prevailing market conditions
were not generally favorable for such borrowing or that such borrowing would not
be advisable in the absence of such tax considerations. If the Company is
unable to obtain such borrowing, the Company could be disqualified from REIT
treatment. For federal income tax purposes, distributions paid to stockholders
may consist of ordinary income, capital gains, nontaxable return of capital or a
combination thereof. The Company provides its stockholders with an annual
statement indicating the tax character of the distributions.
Distributions by the Company are dependent upon distributions to it by the
Operating Partnership. Distributions by the Operating Partnership are
determined by the Company's Board of Directors and are allocated as follows:
first, the dollar amount representing 80% of the number of shares of the
Company's Common Stock outstanding at the end of each calendar year (equivalent
to approximately $897,000
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<PAGE>
and $877,000, respectively for 1996 and 1995) is allocated to the Company. Any
remaining net income for each such year is then allocated to the limited
partners of the Operating Partnership until the cumulative net income allocated
to the limited partners for the current and all prior years is equal to 42.42%
of total cumulative net income since inception. Thereafter, all net income is
allocated to the Company and the limited partners in accordance with their
percentage interests. Net losses of the Operating Partnership are allocated to
all the partners in proportion to their capital account balances or percentage
interests in accordance with the terms of the partnership agreement.
Distributions are dependent on a number of factors, including the amount of
funds from operations available for distribution, the Operating Partnership's
financial condition, any decision by the Board of Directors to reinvest funds
rather than to distribute such funds, the Operating Partnership's capital
expenditures, the annual distribution requirements under the real estate
investment trust provisions of the Code, and such other factors as the Board of
Directors deems relevant. There is no assurance that the Company will be able to
maintain its current distribution rate.
OWNERSHIP LIMIT
In order to maintain its qualification as a REIT, not more than 50% in
value of the outstanding shares of the Company may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities). To ensure that the Company will not fail to qualify as a
REIT under this test, the Certificate of Incorporation of the Company authorizes
the Directors to take such action as may be required to preserve its
qualification as a REIT and to limit any person, subject to certain exceptions
and other than any person approved by the Directors, to direct or indirect
ownership of 4.75% of the lesser of the number or value of the outstanding
shares of the Company (and in some cases assuming exercise of certain options to
acquire shares of Common Stock); provided, however, the Directors may not grant
an exemption from the foregoing ownership limitation to any Director, employee
or other person whose ownership, direct or indirect, of in excess of 4.75% of
the lesser of the number or value of the outstanding Common Stock would result
in the termination of the Company's status as a REIT. The ownership limits, as
well as the ability of the Company to issue other classes of common and
preferred shares of stock, may discourage a change of control of the Company and
may also (i) deter tender offers for the Common Stock, which offers may be
attractive to the stockholders or (ii) limit the opportunity for stockholders to
receive a premium for their Common Stock that might otherwise exist if an
investor were attempting to assemble a large block of Common Stock or otherwise
effect a change of control of the Company. See "Description of Capital Stock -
Restrictions on Transfer."
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<PAGE>
COMPETITION
There are numerous real estate companies, including those which operate in
the geographic areas where the Company's properties are located, which compete
with the Company in seeking multifamily properties for acquisition and tenants
to occupy such properties. Certain of these competitors have greater financial
resources than the Company. The existence of this competition may adversely
affect the Company and its ability to both attract tenants and acquire
additional properties. Mr. Evan Zucker, President and a shareholder and
Director of the Company, has an interest in certain multifamily properties
acquired prior to December 1993 that are in competition with the Company's
Properties located in the Denver, Colorado area.
CERTAIN ANTITAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of discouraging a third party from making an acquisition
proposal for the Company and may thereby inhibit a change in control of the
Company under circumstances that could give the holders of Common Stock the
opportunity to realize a premium over the then-prevailing market prices. In
addition, the ownership limit may have the effect of precluding an acquisition
of control of the Company without the approval of the Board of Directors. See
"Description of Capital Stock-Restrictions on Transfer."
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<PAGE>
USE OF PROCEEDS
This Prospectus relates solely to the Shares being offered and sold for the
account of the Selling Shareholders. The Company will not receive any of the
proceeds from the sale of Shares being offered by the Selling Shareholders but
will pay all expenses related to the registration of the Shares. See "Selling
Shareholders." If all of the Warrants are exercised the Company will receive
gross proceeds of $1,750,000 and if all the Options are exercised the Company
will receive gross proceeds of $3,977,000. Proceeds, if any, received from the
exercise of the Warrants and Options will be added to the Company's corporate
funds and used for general corporate purposes.
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<PAGE>
SELLING SHAREHOLDERS
The following table sets forth the aggregate number of shares of Common
Stock beneficially owned by each Selling Shareholder as of March 31, 1997 and
the aggregate number of shares of Common Stock registered hereby that each
Selling Shareholder may offer and sell pursuant to this Prospectus. Because the
Selling Shareholders may sell all or a portion of the Shares at any time and
from time to time after the date hereof, no estimate can be made of the number
of shares of Common Stock that each Selling Shareholder may retain upon the
completion of the Offering. The material relationships of the Selling
Shareholders are described in the footnotes to the following table and more
fully described in this Prospectus (including the information incorporated by
reference in this Prospectus).
<TABLE>
<CAPTION>
TOTAL NUMBER OF
SHARES BENEFICIALLY SHARES TO BE OFFERED
NAME OF SELLING SHAREHOLDER OWNED PRIOR TO FOR SELLING
THIS OFFERING SHAREHOLDERS' ACCOUNT
- ------------------------------------------------------------------------------------------
<S> <C> <C>
John Blumberg 20,224 20,224
Blue Mesa Capital, L.L.C. 19,247 (1) 19,247 (1)
Rosalind Davidowitz 387,129 (2) 387,129 (2)
Mariano Decola 18,625 18,625
JEDCO Property Partnership, L.P. 39,599 39,599
Jim Fleming 1,731 1,731
Floyd Hall 13,838 13,838
Hord Hardin, III 26,712 (3)(9) 26,712 (3)(9)
Joseph Pagano 53,624 53,624
David Jones 28,627 28,627
Lervo Investments, LLC 3,424 3,424
James Marshall 28,627 28,627
Houston McCollough 6,917 6,917
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TOTAL NUMBER OF
SHARES BENEFICIALLY SHARES TO BE OFFERED
NAME OF SELLING SHAREHOLDER OWNED PRIOR TO FOR SELLING
THIS OFFERING SHAREHOLDERS' ACCOUNT
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Anthony Miele 8,407 8,407
Matt Moran 685 685
Andrew Mulvihill 2,056 2,056
Christopher Mulvihill 3,363 3,363
Gail Mulvihill 178,456 178,456
Gene Mulvihill, Jr. 138 138
Heather Mulvihill 76,389 76,389
James Mulvihill 179,270 (4)(9) 179,270 (4)(9)
New Jersey Real Estate Liquidation Corp. 19,624 19,624
Property Asset Equities 9,206 9,206
Michael Rotchford 28,625 (5)(9) 28,625 (5)(9)
Barbara Zucker-Zarett 308 308
Brian Zucker 308 308
Evan Zucker 198,611 (6)(9) 198,611 (6)(9)
Marshall Zucker 411 411
Webb Waring Institute for 1,178 1,178
Biomedical Research
J. Christopher O'Keeffe (2) 21,606 (7)(9) 21,606 (7)(9)
Rick A. Burger 42,500 (8) 42,500 (8)
------------------------------------------------
TOTAL 1,419,465 1,419,465
================================================
</TABLE>
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<PAGE>
___________________________
(1) Includes 6,176 shares Blue Mesa Capital, L.L.C., received as compensation
for assistance rendered in obtaining a loan to the Company.
(2) Includes the shares issuable on exercise of the Warrant.
(3) Includes 20,500 shares issuable on exercise of options at $10 per share.
(4) Includes 147,100 shares issuable on exercise of options at $10 per share.
(5) Includes 20,500 shares issuable on exercise of options at $10 per share.
(6) Includes 147,100 shares issuable on exercise of options at $10 per share.
(7) Includes 20,500 shares issuable on exercise of options at $10 per share.
(8) Includes 42,000 shares issuable on exercise of options at $10 per share.
(9) Messrs. Zucker and Mulvihill are officers and Directors, and Messrs.
Rotchford, Hardin and O'Keeffe are Directors of the Company and received
such shares as compensation for services rendered in those capacities.
CONVERSION RIGHT
Each of the limited partners of the Operating Partnership have the right
commencing November 10, 1994 to convert their limited partnership interests in
the Operating Partnership into shares of Common Stock of the Company (the
"Conversion Right"), provided the shares then issuable on exercise of the
Conversion Right are the subject of an effective registration statement under
the Securities Act of 1933, as amended. The Conversion Right enabled the
limited partners of the Operating Partnership to convert their partnership
interests into a maximum aggregate of 42.42% of the shares of Common Stock of
the Company outstanding as of November 10, 1993, the date of the initial public
offering and 41.39% of the shares of Common Stock of the Company outstanding as
of December 31, 1996. Such number of shares of Common Stock issuable upon
conversion of the partnership interests is subject to reduction to reflect cash
distributions to the limited partners in excess of net income of the Operating
Partnership allocated to the limited partners.
The purchase price ("Purchase Price") payable upon exercise of the
Conversion Right is the fair market value of the partnership interests with
respect to which the Conversion Right was exercised (the "Offered Interests")
computed as of the date on which such Conversion Right is exercised. The amount
of Common Stock received upon exercise of the Conversion Right is based upon the
trading price of the Company's Common Stock at the time of exercise. The
Purchase Price for the Offered
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Interests is payable by the Company's issuance of the number of shares of Common
Stock having a market value at the time of exercise equal to the Purchase Price.
Limited partners may exercise their Conversion Right only once during each
calendar quarter period. Exercise of the Conversion Right is also conditioned
upon compliance with applicable state securities laws.
To the extent distributions of net operating cash flow to the limited
partners exceed their allocable portion of net income of the Operating
Partnership, the capital accounts of the limited partners will be reduced. See
Note 2 of Notes to the Consolidated Financial Statements of the Company. An
amount equal to this reduction will be deducted from the Purchase Price payable
upon exercise of the Conversion Right, until such time, if ever, that the
limited partner's capital account is restored out of allocations of net income
of the Operating Partnership. Accordingly, the result of the foregoing may be to
reduce the number of shares received by a limited partner of the Operating
Partnership upon exercise of the Conversion Right.
The allocations of net income and the distribution of net operating cash
flow by the Operating Partnership to the Company will be adjusted, pro rata, to
reflect any exercises of a Conversion Right. As and to the extent the
Conversion Right is exercised and shares of Common Stock of the Company are
issued pursuant thereto, allocations and distributions to the Company will be
increased and allocations and distributions to the limited partners of the
Operating Partnership will be reduced.
The Conversion Right will expire on November 10, 1998 if not exercised or
extended prior to that date.
PLAN OF DISTRIBUTION
The Selling Shareholders may sell or distribute some or all of the Shares
from time to time through underwriters or dealers or brokers or other agents or
directly to one or more purchasers, including pledgees, in transactions (which
may involve crosses and block transactions) on the Amex or in privately
negotiated transactions (including sales pursuant to pledges), or in a
combination of such transactions. Such transactions may be effected by the
Selling Shareholders at market prices prevailing at the time of sale, at prices
related to such prevailing market prices, at negotiated prices, or at fixed
prices, which may be changed. Brokers, dealers, agents or underwriters
participating in such transactions as agent may receive compensation in the form
of discounts,
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concessions or commissions from the Selling Shareholder (and, if they act as
agent for the purchaser of such shares, from such purchaser). Such discounts,
concessions or commissions as to a particular broker, dealer, agent or
underwriter might be in excess of those customary in the type of transaction
involved.
The Selling Shareholders and any such underwriters, broker, dealers or
agents that participate in such distribution may be deemed to be "underwriters"
within the meaning of the Securities Act, and any discounts, commissions or
concessions received by any such underwriters, brokers, dealers or agents might
be deemed to be underwriting discounts and commissions under the Securities Act.
Neither the Company nor the Selling Shareholders can presently estimate the
amount of such compensation. The Company knows of no existing arrangements
between any Selling Shareholder and any other Selling Shareholder, underwriter,
broker, dealer or other agent relating to the sale or distribution of the
Shares.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of any of the Shares may not simultaneously engage in
market activities with respect to the Common Stock for a period of nine business
days prior to the commencement of such distribution. In addition, and without
limiting the foregoing, the Selling Shareholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation Regulation M thereunder, which provisions may limit
the timing of purchases and sales of any of the Shares by the Selling
Shareholders. All of the foregoing may affect the marketability of the Common
Stock.
The Company will pay substantially all of the expenses incident to this
Offering of the Shares by the Selling Shareholders to the public other than
commissions and discounts of underwriters, brokers, dealers or agents. Each
Selling Shareholder may indemnify any broker, dealer, agent or underwriter that
participates in transactions involving sales of the Shares against certain
liabilities, including liabilities arising under the Securities Act.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Under its Certificate of Incorporation, the total number of shares of all
classes of stock that the Company has authority to issue is 35,000,000,
consisting of 5,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), of the Company, and 30,000,000 shares of Common Stock, $.001
par value (excluding Excess Shares described below). No shares of Preferred
Stock are outstanding or will be outstanding immediately after consummation of
the Offering.
The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of Directors, and, except
as otherwise required by law or provided in any resolution adopted by the Board
of Directors with respect to any series of Preferred Stock establishing the
powers, designations, preferences and relative, participating, option or other
special rights of such series ("Preferred Stock Designation"), the holders of
such shares exclusively possess all voting power. The Certificate of
Incorporation does not provide for cumulative voting in the election of
directors. Subject to any preferential rights of any outstanding series of
Preferred Stock, the holders of Common Stock are entitled to such distributions
as may be declared from time to time by the Board of Directors from funds
available therefor, and upon liquidation are entitled to receive pro rata all
assets of the Company available for distribution to such holders. All shares of
Common Stock outstanding are fully paid and non-assessable and the holders
thereof have no preemptive rights. See "Certain Antitakeover Provisions."
The Board of Directors is authorized to provide for the issuance of shares
of Preferred Stock in one or more series, to establish the number of shares in
each series and to fix the designation, powers, preferences and rights of each
such series and the qualifications, limitation or restrictions thereof. The
Company has no present intention to issue shares of Preferred Stock.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, not more than 50% of
its outstanding shares of Common Stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year, and the shares must be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of 12
months or during a proportionate part of
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a shorter taxable year; and certain percentages of the Company's gross income
must be from particular activities. Because the Directors believe it is
essential for the Company to continue to qualify as a REIT, the Company's
Certificate of Incorporation, subject to certain exceptions, provides that no
holder (other than Evan Zucker, Barbara Zucker, Brian Zucker, Marshall Zucker,
James Mulvihill, Gail Mulvihill, Heather Mulvihill, Andrew Mulvihill, Gene
Mulvihill, Jr., Chris Mulvihill, and Rosalind Davidowitz, provided such persons
do not acquire any shares in addition to those owned as of November 3, 1993
(other than pursuant to options granted pursuant to plans or shares issued upon
exercise of the Conversion Right), and any other person approved by the
Directors, at their option and in their discretion, provided that such approval
will not result in the termination of the status of the Company as a REIT) may
own, or be deemed to own by virtue of the attribution provisions of the Code,
more than 4.75% (the "Ownership Limit") of the lesser of the number or value (in
either case as determined in good faith by the Directors) of the total
outstanding shares of Common Stock (and outstanding preferred shares, if any).
The foregoing restrictions on transferability and ownership will not apply if
the Directors determine that it is no longer in the best interests of the
Company to attempt to qualify, or to continue to qualify, as a REIT. Any
transfer of shares that would (i) create a direct or indirect ownership of
shares in excess of the Ownership Limit, (ii) result in the shares being owned
by fewer than 100 persons, or (iii) result in the Company being "closely held"
within the meaning of Section 856(h) of the Code, shall be null and void, and
the intended transferee will acquire no rights to the shares. The Company's
Certificate of Incorporation provides that a transfer that results in a person
owning in excess of the Ownership Limit will be null and void as to the original
transferee-stockholder, and the original transferee-stockholder would acquire no
rights or economic interest in those shares. Shares owned, or deemed to be
owned, or transferred to a stockholder in excess of the Ownership Limit will
automatically be exchanged for shares of a separate class of stock ("Excess
Shares") that will be transferred, by operation of law, to the Company as
trustee of a trust for the exclusive benefit of the transferee or transferees to
whom the shares are ultimately transferred (without violating the Ownership
Limit). While the Excess Shares are held in trust, they will not be entitled to
vote, they will not be considered for purposes of any stockholder vote or the
determination of a quorum for such vote, and they will not be entitled to
participate in any distributions made by the REIT. The original transferee/
stockholder may, at any time the Excess Shares are held by the Company in trust,
transfer the Excess Shares to any individual whose ownership of such Excess
Shares would be permitted under the Ownership Limit Provision at a price not to
exceed the price paid by the original transferee-stockholder at which time the
Excess Shares would automatically be exchanged for Common Stock. In addition,
the Company would have the right, for a period of 90 days during the time the
Excess Shares are held by the Company in trust, to purchase all or any portion
of the Excess Shares from the original transferee-
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stockholder at the lesser of the price paid for the Common Stock by the original
transferee-stockholder and the closing market price for the Common Stock on the
date the Company exercises its option to purchase.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% in number or value of the outstanding shares of Common
Stock of the Company must give a written notice to the Company containing the
information specified in the Company's Certificate of Incorporation by January
30 of each year. In addition, each stockholder shall upon demand be required to
disclose to the Company in writing information with respect to the direct,
indirect and constructive ownership of Common Stock as the Company deems
necessary to comply with the provisions of the Code applicable to a REIT, to
comply with the requirements of any taxing authority or governmental agency or
to determine any such compliance.
This ownership limitation may have the effect of precluding acquisition of
control of the Company unless the Directors determine that maintenance of REIT
status is no longer in the best interests of the Company.
LIMITATION OF LIABILITY OF DIRECTORS
The Company's Certificate of Incorporation provides that a Director or
officer will not be personally liable for monetary damages to the Company or its
stockholders. The foregoing does not include any restriction or limitation on
the liability of the Company's Directors or officers to the Company or its
stockholders: (i) to the extent that it is proved that the person actually
received an improper benefit or profit in money, property, or services for the
amount of benefit or profit in money, property, or services actually received,
(ii) to the extent that a judgment or other final adjudication adverse to the
person is entered in a proceeding based on a finding in the proceeding that the
person's action, or failure to act, was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the
proceeding, or (iii) with respect to any action described in subsection (b) of
Section 5-349 of Title 5 of the Courts and Judicial Proceedings Article of the
laws of the State of Maryland.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with each of the
Company's officers and Directors. The indemnification agreements require, among
other things, that the Company indemnify its officers and Directors to the
fullest extent
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permitted by law, and advance to the officers and Directors all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The Company must also indemnify and advance
all expenses incurred by officers and Directors seeking to enforce their rights
under the indemnification agreements. Although the form of indemnification
agreement offers substantially the same scope of coverage afforded by provisions
in the Certificate of Incorporation and the Bylaws, it provides greater
assurance to Directors and officers that indemnification will be available,
because, as a contract, it cannot be modified unilaterally in the future by the
Board of Directors or by the stockholders to eliminate the rights it provides.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for the
Company by William S. Clarke, P.A., 457 North Harrison Street, Suite 103,
Princeton, New Jersey 08540.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act, are incorporated by reference and made
a part of this Prospectus: (i) the Company's Annual Report for the fiscal year
ended December 31, 1996 on Form 10-KSB, (ii) Definitive Proxy Statement dated
March 14, 1997, filed in connection with the Company's 1997 annual meeting of
shareholders; (iii) the Company's Current Report on Form 8-K for February 28,
1997, and (iv) the description of the Company's Common Stock contained in its
registration statement on Form 8-A, dated October 29, 1993, including any report
filed for the purpose of updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
in this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document or information incorporated or
deemed to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document that also is, or is
deemed to be, incorporated herein by reference, 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 COMPANY UNDERTAKES TO PROVIDE, WITHOUT CHARGE, TO EACH PERSON,
INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS PROSPECTUS IS DELIVERED,
UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY AND ALL OF THE
DOCUMENTS OR INFORMATION REFERRED TO ABOVE THAT HAS BEEN OR MAY BE INCORPORATED
BY REFERENCE IN THIS PROSPECTUS (EXCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS
SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE). REQUESTS SHOULD BE
DIRECTED TO MR. RICK BURGER, TREASURER, AMERICAN REAL ESTATE INVESTMENT
CORPORATION, 1670 BROADWAY - SUITE 3350, DENVER, COLORADO 80202, TELEPHONE
(303) 869-4700.
REGISTRATIAONSTATEMENTS\1997\Prospectus.April
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