<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Filed Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 19, 1998
AMERICAN REAL ESTATE INVESTMENT CORPORATION
(Exact Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
Maryland 1-12514 84-1246585
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
- --------------------------------------------------------------------------------
620 W. Germantown Pike, Suite 200
Plymouth Meeting, Pennsylvania 19462
(Address of Principal Executive Offices)(Zip Code)
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code:
(610) 834-7950
- --------------------------------------------------------------------------------
1
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
------------------------------------
On August 24, 1998, American Real Estate Investment Corporation (the
"Company"), through American Real Estate Investment, L.P. (the "Operating
Partnership"), a limited partnership of which the Company is the sole general
partner and in which the Company owns an interest of approximately 52%, after
the consummation of the transactions discussed herein, announced in a press
release attached hereto as Exhibit 99.1 and incorporated herein by reference,
the consummation on August 19, 1998 of the acquisition of twelve of the fifteen
properties in the Pioneer Portfolio. The aggregate purchase price of the Pioneer
Portfolio, including closing costs and the purchase price of the three
properties to be acquired at a later date totals approximately $131,400,000,
including closing costs, and will be funded through the Company's Credit
Facility, $16,325,000 of assumed indebtedness and the issuance of 1,580,383
units of limited partnership interest ("OP Units") in the Operating Partnership
at $16.50 per OP Unit. In addition, as part of the transaction, the Company
issued 720,743 shares of its Common Stock for an aggregate purchase price of
approximately $11,400,000 to the New York State Common Retirement Fund as
partial repayment of certain indebtedness encumbering certain properties in the
Pioneer Portfolio.
ITEM 5. OTHER EVENTS
------------
As discussed in Item 2 above, the Company issued in a private
placement 720,743 shares of its Common Stock to the New York State Common
Retirement Fund as partial repayment for certain indebtedness encumbering
certain properties in the Pioneer Portfolio. These shares will not be
registered under the Securities Act of 1933, as amended, and may not be sold
in the United States absent registration or an applicable exemption from
registration. The Company has agreed to grant the New York State Common
Retirement Fund certain registration rights set forth in the registration
rights agreement attached hereto as exhibit 10.2.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
-------------------------------------------------------------------
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
On August 13, 1998, the Company filed a Report on Form 8-K
dated July 30, 1998, which included audited statements of
revenue and certain expenses of the Pioneer Portfolio for the
year ended December 31, 1997 and the three month period ended
March 31, 1998 (unaudited).
(b) PRO FORMA FINANCIAL INFORMATION.
Unaudited pro forma condensed financial information which
reflects the Company's acquisition of the Pioneer Portfolio
and the effect of the New York State Common Retirement Fund
private placement as of and for the year ended December 31,
1997 and the six month period ended June 30, 1998 are included
on pages F-1 to F-18.
(c) EXHIBITS
10.1 Subscription Agreement between American Real Estate
Investment Corporation and the New York State Common
Retirement Fund
10.2 Registration Rights Agreement between American Real
Estate Investment Corporation and the New York State
Common Retirement Fund.
99.1 Press release dated August 24, 1998
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN REAL ESTATE INVESTMENT
CORPORATION
Date: September 3, 1998 By /s/ Jeffrey E. Kelter
---------------------
Jeffrey E. Kelter
President
Date: September 3, 1998 By: /s/ Timothy A. Peterson
-----------------------
Timothy A. Peterson
Chief Financial Officer
Date: September 3, 1998 By: /s/ Timothy E. McKenna
----------------------
Timothy E. McKenna
Treasurer
(Principal Accounting Officer)
3
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
INDEX
I. UNAUDITED PRO FORMA CONDENSED CONSOLIDATING
FINANCIAL INFORMATION
<TABLE>
<S> <C>
Pro Forma Condensed Consolidating Balance Sheet as of June 30, 1998............................F-3
Pro Forma Condensed Consolidating Statement of Operations for the
six month period ended June 30, 1998...........................................................F-4
Pro Forma Condensed Consolidating Statement of Operations for the
year ended December 31, 1997...................................................................F-5
Notes to Management's Assumptions to Unaudited Pro Forma
Condensed Consolidating Financial Information..................................................F-6
</TABLE>
4
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following sets forth the unaudited pro forma condensed consolidating balance
sheet at June 30, 1998 and the unaudited pro forma condensed consolidating
statements of operations for American Real Estate Investment Corporation (the
"Company") for the six months ended June 30, 1998 and the year ended December
31, 1997.
The pro forma condensed consolidating financial information should be read in
conjunction with the historical financial statements of the Company and those
acquisitions deemed significant pursuant to the rules and regulations of the
Securities and Exchange Commission.
The unaudited pro forma consolidating financial information is presented as if
the following events occurred on June 30, 1998 for balance sheet purposes, on
January 1, 1997 for purposes of the statement of operations:
- - The Company acquired the properties described in Note 1 to these pro forma
financial statements
- - The Quadrangles Village Apartments, Americana Lakewood Apartments and Other
Property Dispositions. On June 24, 1998, the Company sold Quadrangles
Village Apartments, a 510-unit apartment building located in Tempe, Arizona
for approximately $26,500,000. On January 9, 1998, the Company consummated
the sale of a 300-unit multi-family residential property known as Americana
Lakewood Apartments located in the metropolitan Denver area for a gross
sales price of $15,066,000. During 1997, the Company also sold three other
directly owned and one indirectly owned multi-family residential properties
(Timberleaf, Sedona, International and Emerald Point).
- - The Company's private placement on July 9, 1998 of 1,092,051 shares of
Common Stock with certain institutional investors for approximately
$18,000,000 and the use of net proceeds of $17,440,000 to repay
indebtedness under the Company's credit facility.
- - The Pioneer Portfolio Acquisition and Private Placement. On August 19, 1998
the Company's Operating Partnership consummated the acquisition of twelve
of the fifteen buildings in the Pioneer Portfolio, which totaled 801,720
square feet, for a purchase price of approximately $87,000,000, including
closing costs. As part of this transaction, the Operating Partnership
agreed to acquire three additional office properties (One Park Place,
Waterfront I and Waterfront II) which aggregate an additional 530,636
square feet for a purchase price of approximately $44,000,000 . The closing
of the acquisitions of One Park Place and Waterfront I are expected to
occur in September 1998. Waterfront II is to be acquired upon the
completion of its construction which is expected in January 1998. The
Operating Partnership also has the option to acquire two additional
properties located in Rochester, New York. As part of the transaction, the
Company issued 720,743 shares of its Common Stock for an aggregate purchase
price of approximately $11,400,000 to the New York State Common Retirement
Fund as partial repayment of certain indebtedness encumbering certain
properties in the Pioneer Portfolio.
All of the above acquisition transactions were accounted for in the proforma
financial statements using the purchase method of accounting.
F-1
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
This unaudited pro forma condensed consolidating financial information should be
read in conjunction with the historical financial statements of the Company for
the year ended December 31, 1997 and the Company's Quarterly Report on Form 10-Q
for the six months ended June 30, 1998 which are incorporated by reference.
The pro forma condensed consolidating financial information is unaudited and is
not necessarily indicative of what the actual financial position or results of
operations of the Company would have been had the transactions discussed above
been consummated as of the dates indicated, nor does it purport to represent the
future financial position and the results of operations of the Company. In
management's opinion, all adjustments consisting of normal recurring adjustments
necessary to reflect the effects of the transactions have been made.
F-2
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
-------------------------------------------
PRO FORMA CONDENSED CONSOLIDATING BALANCE SHEET--AS OF JUNE 30, 1998
--------------------------------------------------------------------
(Unaudited--in thousands, except share and per share data)
<TABLE>
<CAPTION>
The July 9, 1998 August 19, 1998
Company Property Private Private Pro Forma The Company
Historical Acquisitions (A) Placement (B) Placement (C) Adjustments Pro Forma
---------- ---------------- ------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments in real
estate, net $ 263,427 $ 179,787 $ $ $ $ 443,214
Investment in direct
financing lease 1,814 1,814
Investment in management
company 4,838 4,838
Cash and cash equivalents 13,854 (13,652) 202
Restricted cash 909 909
Accounts and other
receivables 1,405 1,405
Other assets, net 4,792 4,792
---------- ----------- -------- -------- -------- ---------
Total assets $ 291,039 $ 166,135 $ $ $ $ 457,174
---------- ----------- -------- -------- -------- ---------
---------- ----------- -------- -------- -------- ---------
Liabilities and
Shareholders' Equity
Liabilities:
Mortgage notes
payable and other
debt $ 162,115 $ 140,059 $(17,440) $(11,019) $ $ 273,715
Accrued expenses and
other liabilities 3,774 3,774
Minority interest 61,515 26,076 (857)(D) 86,734
Shareholders' equity:
Common stock 6 2 1 9
Warrants 685 685
Additional paid-in
capital 57,330 17,438 11,018 857(D) 86,643
Cumulative net income 11,630 11,630
Cumulative dividends (6,016) (6,016)
---------- ----------- --------- --------- --------- ---------
Total shareholders'
equity 63,635 17,440 11,019 857 92,951
---------- ----------- -------- --------- --------- ---------
Total liabilities and
shareholders' equity $ 291,039 $ 166,135 $ $ $ $ 457,174
---------- ----------- -------- --------- -------- ---------
---------- ----------- -------- --------- -------- ---------
</TABLE>
F-3
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
-------------------------------------------
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
---------------------------------------------------------
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
--------------------------------------------
(Unaudited--in thousands, except Share and Per Share Data)
<TABLE>
<CAPTION>
The July 9, 1998 August 19, 1998
Company 1998 The Company, 1998 Private Private
Historical Dispositions(a) As Adjusted Acquisitions(b) Placement(c) Placement (d)
---------- --------------- ----------- --------------- ----------- -------------
REVENUE:
<S> <C> <C> <C> <C> <C> <C>
Minimum rent $ 12,290 $ (1,680) $ 10,610 $ 16,002 $ $
Tenant reimbursements and other
income 1,445 (152) 1,293 1,770
-------- --------- -------- -------- ---------- ----------
Total revenue 13,735 (1,832) 11,903 17,772
OPERATING EXPENSES:
Property operating expenses 2,365 (656) 1,709 4,915
General and administrative 231 (33) 198
Interest 4,833 (554) 4,279 7,091 (632) (496)
Depreciation 2,265 2,265 2,807
-------- -------- -------- -------- ---------- ----------
Total operating expenses 9,694 (1,243) 8,451 14,813 (632) (496)
EQUITY IN EARNINGS (LOSSES) FROM
INVESTMENT IN MANAGEMENT
COMPANY (461) (461)
MINORITY INTEREST (7,020) (7,020)
GAINS ON SALE OF ASSETS 11,952 (11,952)
-------- --------- --------- -------- ---------- ---------
NET INCOME (LOSS) $ 8,512 $(12,541) $ (4,029) $ 2,959 $ 632 $ 496
-------- --------- --------- -------- ---------- ---------
-------- --------- --------- -------- ---------- ---------
BASIC EARNINGS PER SHARE $ 1.56
--------
--------
DILUTED EARNINGS PER SHARE $ 1.51
--------
--------
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 5,459,153
---------
---------
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 10,294,244
----------
----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma The Company
Adjustments Pro Forma
----------- ---------
REVENUE:
<S> <C> <C>
Minimum rent $ $ 26,612
Tenant reimbursements and other
income 3,063
---------- -----------
Total revenue 29,675
OPERATING EXPENSES:
Property operating expenses 6,624
General and administrative 400 (e) 598
Interest 10,242
Depreciation 5,072
---------- -----------
Total operating expenses 400 22,536
EQUITY IN EARNINGS (LOSSES) FROM
INVESTMENT IN MANAGEMENT
COMPANY (461)
MINORITY INTEREST 3,797 (f) (3,223)
GAINS ON SALE OF PROPERTY
---------- -----------
NET INCOME (LOSS) $ 3,397 $ 3,455
---------- -----------
---------- -----------
BASIC EARNINGS PER SHARE $ .48
------------
------------
DILUTED EARNINGS PER SHARE $ .46
------------
------------
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 7,259,072
-----------
-----------
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 14,558,352
-----------
-----------
</TABLE>
The accompanying notes and management's assumptions are an integral part of this
statement.
F-4
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
-------------------------------------------
PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
---------------------------------------------------------
FOR YEAR ENDED DECEMBER 31, 1997
--------------------------------
(Unaudited--in thousands, except Share and Per Share Data)
<TABLE>
<CAPTION>
The
Company 1997 1997 1998 1998
Historical Dispositions(a) Acquisitions(b) Subtotal Dispositions(c) Acquisition(d)
---------- --------------- --------------- -------- --------------- --------------
REVENUE:
<S> <C> <C> <C> <C> <C> <C>
Minimum rent $ 7,732 $ (1,457) $ 12,499 $ 18,774 $ (5,738) $ 39,239
Tenant reimbursements
and other income 465 1,498 1,963 (96) 4,541
--------- ----------- --------- --------- ---------- ---------
Total revenue 8,197 (1,457) 13,997 20,737 (5,834) 43,780
OPERATING EXPENSES:
Property operating
expenses 3,112 (895) 2,380 4,597 (2,072) 10,526
General and
administrative 732 732
Buyout of employment
agreements, warrants
and options expense 3,203 3,203 --
Interest 3,134 (845) 4,582 6,871 (2,011) 17,517
Depreciation and
amortization 909 (158) 2,619 3,370 (819) 7,209
--------- ---------- --------- --------- ---------- ---------
Total Operating
expenses 11,090 (1,898) 9,581 18,773 (4,902) 35,252
EQUITY IN EARNINGS FROM
INVESTMENT IN PARTNERSHIP
AND MANAGEMENT COMPANY 404 (436) (392) (424)
MINORITY INTEREST (876) (876)
GAINS ON SALES OF ASSETS 4,608 (4,608)
--------- ---------- --------- --------- ---------- ---------
NET INCOME (LOSS) $ 1,243 $ (4,603) $ 4,024 $ 664 $ (932) $ 8,528
--------- ---------- --------- --------- ---------- ---------
--------- ---------- --------- --------- ---------- ---------
BASIC EARNINGS PER SHARE $ 0.92
---------
---------
DILUTED EARNINGS PER SHARE $ 0.88
---------
---------
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 1,347,297
-----------
-----------
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 2,404,004
-----------
-----------
</TABLE>
<TABLE>
<CAPTION>
July 9, 1998 August 19, 1998 Other
Private Private Pro Forma The Company
Placement(e) Placement(f) Adjustments Pro Forma
------------ ------------ ----------- ----------
REVENUE:
<S> <C> <C> <C> <C>
Minimum rent $ $ $ $52,275
Tenant reimbursements
and other income 6,408
--------- --------- ------- --------
Total revenue 58,683
OPERATING EXPENSES:
Property operating
expenses 13,051
General and
administrative 850 (g) 1,582
Buyout of employment
agreements, warrants
and options expense (3,203)(h)
Interest (1,264) (991) 20,122
Depreciation and
amortization 9,760
--------- --------- ------- --------
Total Operating
expenses (1,264) (991) (2,353) 44,515
EQUITY IN EARNINGS FROM
INVESTMENT IN PARTNERSHIP
AND MANAGEMENT COMPANY (424)
MINORITY INTEREST (5,758)(i) (6,634)
GAINS ON SALES OF PROPERTY --------- --------- -------- --------
NET INCOME (LOSS) $ 1,264 $ 991 $(3,405) $ 7,110
--------- -------- -------- --------
--------- -------- -------- --------
BASIC EARNINGS PER SHARE $ .99
---------
---------
DILUTED EARNINGS PER SHARE $ .97
---------
---------
WEIGHTED AVERAGE SHARES
OUTSTANDING - BASIC 7,176,075
----------
----------
WEIGHTED AVERAGE SHARES
OUTSTANDING - DILUTED 14,177,668
----------
----------
</TABLE>
F-5
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
-------------------------------------------
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
---------------------------------------------------------
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
---------------------------------------------
1. BASIS OF PRESENTATION
---------------------
American Real Estate Investment Corporation (the "Company") is a
self-administered and self-managed equity real estate investment trust
which was organized in the state of Maryland. As of August 31, 1998,
the Company owned 67 properties. All but five of the properties are
owned directly or indirectly by American Real Estate Investment, L.P.
(the "Operating Partnership"). The Company is the sole general partner
of the Operating Partnership and as of June 30, 1998 and August 31,
1998, owned approximately 51% and 53% of the Operating Partnership,
respectively.
These pro forma financial statements should be read in conjunction with
the historical financial statements and notes thereto of the Company,
the McBride Portfolio, Penn Square Properties, Inc., the Moran
Acquisition Properties, the Northfield Acquisition Properties, the Loew
Acquisition Properties, 101 Commerce Drive, the GATX Properties, the
Double M Development Properties, the Galesi Properties, the Fed One
Industrial Portfolio, the ASW Property, the Szeles Portfolio, and the
Pioneer Portfolio. In management's opinion, all adjustments necessary
to reflect the acquisitions of the McBride Portfolio, Penn Square
Properties, Inc., the Moran Acquisition Properties, the Northfield
Acquisition Properties, the Loew Acquisition Properties, 101 Commerce
Drive, the GATX Properties, the Double M Development Properties, the
Galesi Properties, the Fed One Industrial Portfolio, the ASW Property,
the Szeles Portfolio, the Pioneer Portfolio and the private placements
consummated in 1998 by the Company have been made. The operating
results reflected herein include the historical results and related
pro forma adjustments to reflect the period January 1, 1997, through
the earlier of the respective acquisition date or June 30, 1998 or
December 31, 1997. Operating results from those dates forward are
included in the historical results of the Company.
2. ADJUSTMENTS TO PRO FORMA CONSOLIDATING BALANCE SHEET
----------------------------------------------------
(A) Reflects the Company's recent property acquisitions as follows:
<TABLE>
<CAPTION>
Cost Consideration
------------------ ---------------------------------------------
Credit
Facility
Borrowings
and Operating
Total Purchase Mortgage Partnership
Acquisition Price Debt Units Cash
- ----------- ----- ---- ----- ----
<S> <C> <C> <C> <C>
Szeles Portfolio $ 40,528 $ 31,000 $ --- $ 9,528
ASW Property 7,858 7,500 --- 358
Pioneer Portfolio 131,401 101,559 26,076 3,766
------------- ------------ ------------ -----------
$ 179,787 $ 140,059 $ 26,076 $ 13,652
------------- ------------ ------------ -----------
------------- ------------ ------------ -----------
</TABLE>
F-6
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
-------------------------------------------
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
---------------------------------------------------------
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
---------------------------------------------
(B) Reflects the Company's Private Placement on July 9, 1998 for
$18,018,841 and the use of net proceeds of $17,440,000 to repay
indebtedness under the Credit Facility. The Company issued 1,092,051
shares at a price of $16.50. This price may be subject to future
adjustment under the terms of the Subscription Agreements based upon
the price of the Company's Common Stock on the earlier of the first
business day after the first anniversary of the Closing or the first
business day after a Liquidating Event, as defined in the Subscription
Agreements.
(C) Reflects the Company's Private Placement of 720,743 shares on August
19, 1998 for $11,482,157 and the use of net proceeds of $11,019,426 to
repay indebtedness reflected to certain properties acquired as a result
of the acquisition of the Pioneer Portfolio.
(D) Adjustment to reflect the Company's 51.73% ownership of the Operating
Partnership after consummation of the Pioneer Portfolio acquisition.
3. ADJUSTMENTS TO PROFORMA CONDENSED CONSOLIDATING STATEMENTS OF
OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1998
-------------------------------------------------------
(a) 1998 DISPOSITIONS
Since January 1, 1998, the Company has sold two multi-family
properties. This adjustment affects the elimination of the impact on
the June 30, 1998 statement of operations for these property
dispositions.
SALE OF AMERICANA LAKEWOOD
On January 9, 1998, the Company sold a 300-unit multi-family
residential property known as Americana Lakewood Apartments, located in
the metropolitan Denver area, for a gross sales price of $15,066,000
which resulted in a gain of $6,880,000.
F-7
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
-------------------------------------------
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
---------------------------------------------------------
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
---------------------------------------------
SALE OF THE QUADRANGLES VILLAGE APARTMENTS
On June 24, 1998, the Company sold the Quadrangles Village Apartments
for approximately $26,500,000 which resulted in a gain of approximately
$5,072,000.
<TABLE>
<CAPTION>
Americana Quadrangles
Lakewood Village
Apartments Apartments Total
---------- ---------- -----
<S> <C> <C> <C>
REVENUE:
Minimum rent $ 44 $ 1,636 $ 1,680
Tenant reimbursements and other income 45 107 152
------------ ----------- -----------
Total revenue 89 1,743 1,832
OPERATING EXPENSES:
Property operating expenses 50 606 656
General and administrative 3 30 33
Interest 23 531 554
------------ ----------- -----------
Total operating expenses 76 1,167 1,243
Gains on sales of assets 6,880 5,072 11,952
------------ ----------- -----------
NET INCOME $ 6,893 $ 5,648 $ 12,541
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
F-8
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
-------------------------------------------
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
---------------------------------------------------------
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
---------------------------------------------
(b) 1998 ACQUISITIONS
This adjustment reflects the pro forma effects of the
following acquisitions consummated since January 1, 1998:
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
REVENUE
-----------------------------------------------
Tenant
Reimbursements
and
Acquisition Minimum Rent Other Income Total
- ----------- ------------ ------------ -----
<S> <C> <C> <C>
101 Commerce Drive $ 61 $ $ 61
One Phillips Drive 26 3 29
GATX Properties 423 423
Double M Development Properties 350 78 428
The Galesi Properties 1,880 565 2,445
Fed One Properties 852 8 860
Szeles Portfolio 3,216 38 3,254
ASW Facility 396 4 400
Pioneer Properties 8,798 1,074 9,872
Proforma adjustments
----------- ----------- -----------
TOTAL $ 16,002 $ 1,770 $ 17,772
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
OPERATING EXPENSES
--------------------------------------------------------------------------
Property Total
Operating And Interest Depreciation and Operating
Acquisition Other Expenses Expense(1) Amortization(2) Expenses Subtotal
- ----------- -------------- ---------- --------------- -------- ---------
<S> <C> <C> <C> <C> <C>
101 Commerce Drive $ $ $ $ $ 61
One Phillips Drive 3 3 26
GATX Properties 423
Double M Development Properties 109 109 319
The Galesi Properties 651 651 1,794
Fed One Properties 42 42 818
Szeles Portfolio 906 906 2,348
ASW Facility 36 36 364
Pioneer Properties 3,168 3,168 6,704
Proforma adjustments 7,091 2,807 9,898 (9,898)
---------- ----------- ---------- ---------- -----------
TOTAL $ 4,915 $ 7,091 $ 2,807 $ 14,813 $ 2,959
---------- ----------- ---------- ---------- ----------
---------- ----------- ---------- ---------- ----------
</TABLE>
Footnote explanations appear on the following page.
F-9
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
-------------------------------------------
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
---------------------------------------------------------
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
---------------------------------------------
Footnotes to 1998 Acquisitions:
(1) To record interest expense on mortgage indebtedness as follows:
<TABLE>
<CAPTION>
Mortgage Amount Interest Rate (%)
<S> <C> <C>
101 Commerce Drive $ 17,000 7.03%
One Philips Drive 7,500 7.03%
GATX Properties 8,433 7.71%
Double M Development Properties 9,357 7.25%
Galesi Properties 18,036 8.33% to 8.68%
Galesi Properties 18,511 7.25%
Fed One Industrial Properties 11,738 7.25%
Szeles Portfolio 31,000 7.25%
ASW Property 7,500 7.25%
Pioneer Portfolio 11,019 9.00%
Pioneer Portfolio 70,232 7.25%
Pioneer Portfolio 3,405 9.68%
Pioneer Portfolio 2,120 10.12%
Pioneer Portfolio 10,800 8.75%
Pioneer Portfolio 3,983 7.50%
</TABLE>
(2) To record depreciation on assets acquired and transaction costs
capitalized over a useful life of 35 years.
F-10
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
-------------------------------------------
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
---------------------------------------------------------
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
---------------------------------------------
(c) Represents interest expense savings from repayment of the Credit
Facility upon the application of the net proceeds from the private
placement on July 9, 1998.
(d) Represents interest expense savings from repayment of certain
indebtedness upon the application of the net proceeds from the private
placement on August 19, 1998.
(e) To reflect additional general and administrative expense associated
with the Company's on-going management of the acquired properties.
(f) To adjust the minority interest's share of income in the Operating
Partnership. The Company owns approximately 51.73% of the Operating
Partnership after the consummation of the Pioneer Portfolio
transaction. The adjustment to record the income effect of the minority
interest share for the six months ended June 30, 1998 in the pro forma
statement of operations was computed as follows:
<TABLE>
<S> <C>
Pro forma Revenue $ 29,675
Pro forma Operating Expenses 22,536
Pro forma Equity in Loss from equity investment (461)
----------------
Pro forma Income before Minority Interest $ 6,678
---------------
---------------
Minority Interest (48.27%) 3,223
Minority Interest at June 30, 1998 7,020
---------------
Adjustment Required $ 3,797
---------------
---------------
</TABLE>
F-11
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
-------------------------------------------
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED PRO FORMA
---------------------------------------------------------
CONDENSED CONSOLIDATING FINANCIAL INFORMATION
---------------------------------------------
4. ADJUSTMENTS TO PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
On February 28, 1997, the Company sold the 450-unit apartment complex known
as the Timberleaf Apartments, which was constructed in 1972 and is located
in Aurora, Colorado. The gross selling price for this property was
approximately $9.1 million. On August 29, 1997, the Company sold the Sedona
Apartments, a 276-unit apartment complex constructed in 1971 and located in
Denver, Colorado. The property had been acquired by the Company upon its
organization as a REIT in 1993. The selling price for the property was $9.2
million.
On September 26, 1997, the Company sold its 50% general partner interest in
Emerald Vista Associates, L.P., which owns the 456-unit apartment complex
known as the Emerald Pointe Apartments located in San Diego County,
California. The selling price for the general partnership interest was $2
million.
The pro forma effects of these property sales are shown below for the year
ended December 31, 1997.
(a) To reflect the elimination of the statement of operations impact for
the year ended December 31, 1997 for the multi-family residential
properties which were sold during 1997. The combined results for these
properties are shown as follows:
FOR THE YEAR ENDED DECEMBER 31, 1997:
<TABLE>
<CAPTION>
Emerald
Timberleaf Sedona Pointe Total
---------- ------ ------ -----
<S> <C> <C> <C> <C>
Revenue $ 364 $ 1,093 $ $ 1,457
Operating Expenses:
Property operating expenses 274 621 895
General and administrative
Interest 91 307 447 845
Depreciation 45 162 (49) 158
----------- ---------- ---------- ---------
Total operating expenses 410 1,090 398 1,898
Equity in earnings from 436 436
investment in partnership
Gains on sales of assets 403 3,453 752 4,608
----------- ---------- --------- ---------
Net income $ 357 $ 3,456 $ 790 $ 4,603
----------- ---------- --------- ---------
----------- ---------- --------- ---------
</TABLE>
F-12
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
-------------------------------------------
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
-----------------------------------------------
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
-------------------------------------------------------
(b) 1997 ACQUISITIONS
To reflect the acquisitions of the following properties which occurred
during 1997:
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
McBride Penn Square
Portfolio Properties Dana Loew
--------- ---------- ---- ----
<S> <C> <C> <C> <C>
Revenue
Minimum rents $ 9,310 $ $ 365 $ 1,704
Tenant reimbursements and other
Income 1,098 7 245
----------- ----------- --------- ----------
Total Revenue 10,408 372 1,949
Operating Expenses:
Property operating and administrative 2,935 7 278
expenses
Depreciation and amortization
Mortgage and bank loan interest
----------- ----------- --------- ----------
Total operating expenses 2,935 7 278
Equity in earnings from investment in
management company (392)
----------- ------------ --------- ----------
Net income (loss) $ 7,473 $ (392) $ 365 $ 1,671
----------- ------------ --------- ----------
----------- ------------ --------- ----------
</TABLE>
<TABLE>
<CAPTION>
1997
Pro Forma Acquisitions
Northfield Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Revenue
Minimum rents $ 1,120 $ $ 12,499
Tenant reimbursements and other
Income 148 1,498
----------- ---------- ----------
Total Revenue 1,268 13,997
Operating Expenses:
Property operating and administrative 359 (1,199)(1) 2,380
expenses
Depreciation and amortization 2,619 (2) 2,619
Mortgage and bank loan interest 4,582 (3) 4,582
----------- -------------- ----------
Total operating expenses 359 6,002 9,581
Equity in earnings from investment in
management company (392)
----------- ---------- -----------
Net income (loss) $ 909 $ (6,002) $ 4,024
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
Footnote explanations appear on the following page.
F-13
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
-------------------------------------------
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
-----------------------------------------------
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
-------------------------------------------------------
Footnotes to 1997 Events:
(1) To eliminate non-recurring McBride general and administrative costs
which will not be incurred as a result of the future operations of the
McBride Portfolio by the Company
<TABLE>
<S> <C>
- Property management fees $ 136
- General and administrative expenses 1,063
--------------
$ 1,199
--------------
--------------
</TABLE>
(2) To record depreciation on assets acquired and transaction costs
capitalized over a useful life of 35 years.
(3) To record the following adjustments to interest expense:
<TABLE>
<S> <C>
To record interest expense on the $45,000,000 of assumed
McBride Portfolio debt at 7.71% $ 3,300
To record amortization of $500,000 of deferred financing
costs $ 48
</TABLE>
To record interest expense on other indebtedness:
<TABLE>
<CAPTION>
Principal Interest Rate
--------- -------------
<S> <C> <C>
Dana Building $ 1,155 7.38%
Loew Properties 2,875 8.25%
Loew Properties 4,385 8.50%
Loew Properties 3,358 8.50%
Northfield Properties 3,500 7.25%
</TABLE>
F-14
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
-------------------------------------------
NOTES AND MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
-----------------------------------------------
PRO FORMA CONDENSED CONSOLIDATING FINANCIAL INFORMATION
-------------------------------------------------------
(c) 1998 DISPOSITIONS
To reflect the sale in 1998 of the following multi-family assets:
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Americana Quadrangles
Lakewood Village
Apartments Apartments Total
---------- ---------- -----
<S> <C> <C> <C>
Revenues $ 2,200 $ 3,538 $ 5,738
Tenant reimbursements and other income 96 96
------------- ------------- ---------
2,200 3,634 5,834
Operating expenses:
Property operating expenses 889 1,183 2,072
Interest 891 1,120 2,011
Depreciation and amortization 233 586 819
------------- ------------- ---------
Total operating expenses 2,013 2,889 4,902
------------- ------------- ---------
Net Income $ 187 $ 745 $ 932
------------- ------------- ---------
------------- ------------- ---------
</TABLE>
F-15
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
-------------------------------------------
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
----------------------------------------------
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
--------------------------------------------------
1998 ACQUISITIONS
To reflect the following acquisitions which have occurred since January
1, 1998:
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
REVENUE
-----------------------------------------------
Tenant
Reimbursements
and
Acquisition/Offering Minimum Rent Other Income Total
- -------------------- ------------ ------------ -----
<S> <C> <C> <C>
101 Commerce Drive $ 2,788 $ 4 $ 2,792
One Phillips Drive 1,188 145 1,333
GATX Properties 1,770 1,770
Double M Development Properties 1,605 330 1,935
The Galesi Properties 5,193 1,558 6,751
Fed One Properties 1,633 22 1,655
Szeles Portfolio 6,298 76 6,374
ASW Facility 698 13 711
Pioneer Properties 18,066 2,393 20,459
Proforma Adjustments
---------- ----------- ----------
$ 39,239 $ 4,541 $ 43,780
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
OPERATING EXPENSES
--------------------------------------------------------------------------
Property
Operating And Interest Depreciation and
Acquisition/Offering Other Expenses Expense (1) Amortization(2) Total Subtotal
- -------------------- -------------- ----------- ---------------- ----- --------
<S> <C> <C> <C> <C> <C>
101 Commerce Drive $ $ $ $ -- $ 2,792
One Phillips Drive 145 145 1,188
GATX Properties -- 1,770
Double M Development Properties 359 359 1,576
The Galesi Properties 1,707 1,707 5,044
Fed One Properties 82 82 1,573
Szeles Portfolio 1,983 1,983 4,391
ASW Facility 76 76 635
Pioneer Properties 6,174 6,174 14,285
Proforma Adjustments 17,517 7,209 24,726 (24,726)
--------- ---------- ---------- ---------- -----------
$ 10,526 $ 17,517 $ 7,209 $ 35,252 $ 8,528
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
</TABLE>
Footnote explanations appear on the following page.
F-16
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
-------------------------------------------
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
----------------------------------------------
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
--------------------------------------------------
Footnotes to 1998 Acquisitions:
(1) To record interest expense on mortgage indebtedness as follows:
<TABLE>
<CAPTION>
Mortgage
Amount Interest Rate
-------- --------------
<S> <C> <C>
101 Commerce Drive $ 17,000 7.03%
One Philips Drive 7,500 7.03%
GATX Properties 8,433 7.71%
Double M Development Properties 9,357 7.25%
Galesi Properties 18,036 8.33 % to 8.68%
Galesi Properties 18,511 7.25%
Fed One Industrial Portfolio 11,738 7.25%
Szeles Portfolio 31,000 7.25%
ASW Facility 7,500 7.25%
Pioneer Portfolio 11,019 9.00%
Pioneer Portfolio 70,232 7.25%
Pioneer Portfolio 3,405 9.68%
Pioneer Portfolio 2,120 10.12%
Pioneer Portfolio 10,800 8.75%
Pioneer Portfolio 3,983 7.50%
</TABLE>
(2) To record depreciation on assets acquired and transaction costs
capitalized over a useful life of 35 years.
- --------------------------------------------------------------------------------
(e) Represents interest expense savings from repayment of the Credit
Facility upon the application of net proceeds from private placement.
(f) Represents interest expense savings from repayment of certain
indebtedness upon the application of the net proceeds from the Private
Placement on August 19, 1998.
(g) To reflect additional general and administrative expense associated
with the Company's on-going management of the acquired properties.
(h) To eliminate the pro forma effect of the non-recurring costs associated
with the buyout of certain executives employment agreements and
outstanding options and warrants in conjunction with the transactions
which occurred on December 12, 1997, related to the Company's
reorganization into an office and industrial real estate investment
trust.
F-17
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
-------------------------------------------
NOTES TO MANAGEMENT'S ASSUMPTIONS TO UNAUDITED
----------------------------------------------
PRO FORMA CONDENSED CONSOLIDATING INCOME STATEMENT
--------------------------------------------------
(i) To adjust the minority interest's share of income in the Operating
Partnership. The Company owns approximately 51.73% of the Operating
Partnership after the consummation of the Pioneer Portfolio
transaction. The adjustment to record the income effect of the minority
interest share for the year ended December 31, 1997 in the pro forma
statement of operations was computed as follows:
<TABLE>
<S> <C>
Proforma Revenue $ 58,683
Proforma Operating Expenses 44,515
Proforma Equity in Loss from Equity Investment (424)
----------------------
Proforma Income before Minority Interest $ 13,744
----------------------
----------------------
Minority Interest (48.27%) $ 6,634
Minority Interest at December 31, 1997 876
----------------------
Adjustment Required $ 5,758
----------------------
----------------------
</TABLE>
F-18
<PAGE>
Exhibit 10.1
Execution Copy
American Real Estate Investment Corporation
Plymouth Meeting Executive Campus
620 W. Germantown Pike, Suite 200
Plymouth Meeting, Pennsylvania 19462
Attention: Stephen J. Butte, Vice President
Ladies and Gentlemen:
This Agreement (the "Agreement") is executed by the undersigned in
connection with the offer by American Real Estate Investment Corporation, a
Maryland corporation (the "Company"), to sell, and the purchase by the
undersigned of, shares of common stock, par value $.001 per share, of the
Company (the "Common Stock").
Section 1.
1.1 Subscription. The undersigned hereby agrees to purchase 720,743
shares of Common Stock (the "Shares") which number of shares is 9.8% of the
issued and outstanding Common Stock on the date hereof at $15.806 per share of
Common Stock (the "Purchase Price"). In respect of this subscription, the
undersigned herewith delivers to the Company a fully completed Investor
Information Sheet and Accredited Investor Questionnaire attached as Exhibits A
and B, respectively.
1.2 Closing. The purchase and sale of the Shares shall take place at
the offices of Rogers & Wells LLP, 200 Park Avenue, New York, New York, at 10:00
a.m., subject to satisfaction of the conditions set forth in Section 4 and
Section 5, on the date hereof, or at such other time and place as the Company
and the undersigned mutually agree (the "Closing"). At the Closing the Company
shall deliver to the undersigned a certificate representing the Shares that the
undersigned is purchasing, registered in such name or names as the undersigned
shall designate at least two (2) business days prior to the date of the Closing,
against payment of the Purchase Price thereof in the manner contemplated by
Section 1.3.
1.3 Purchase Price. At the Closing, the payment of the Purchase Price
shall be satisfied by the retirement of indebtedness encumbering those
properties known as One Apollo Drive, Glens Falls, New York, 5015 Campuswood
Drive, Syracuse, New York, and 400 West Division Street, Syracuse, New York, in
an amount equal to $11,392,063.86.
1.4 Termination. If the Closing does not occur on or before September
30, 1998, either party may terminate this Agreement upon notice to the other
party, and thereafter there will be no liability or obligation on the part of
the undersigned or the Company (or any of their respective officers, directors,
employees, agents or other representatives or affiliates), except
1
<PAGE>
that,
2
<PAGE>
notwithstanding any other provision in this Agreement to the contrary, upon
termination of this Agreement pursuant to this Section 1.4, the undersigned will
remain liable to the Company for any breach of this Agreement by the undersigned
existing at the time of such termination, and the Company will remain liable to
the undersigned for any breach of the Agreement by the Company existing at the
time of such termination, and the Company or the undersigned may seek such
remedies, including damages and fees of attorneys, against the other with
respect to such breach as are provided in this Agreement or as are otherwise
available at law or in equity.
Section 2.
2. Investor Representations and Warranties. The undersigned hereby
acknowledges, represents and warrants to, and agrees with, the Company as
follows:
2.1 Authorization. This Agreement and the Registration Rights Agreement
constitute valid and legally binding obligations of the undersigned, enforceable
in accordance with their terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, and (iii) to the extent the indemnification provisions
contained in the Registration Rights Agreement may be limited by applicable
federal or state securities laws. The undersigned represents that it has full
power and authority to enter into this Agreement.
2.2 No Advertisement or Solicitation. The undersigned acknowledges that
the offer and sale of the Shares to it has not been accomplished by any form of
general solicitation or general advertising, including, but not limited to, (i)
any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media, or broadcast over television or radio or
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
2.3 Restrictions on Transfer.
(a) The undersigned understands and acknowledges that the
Shares have not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), or applicable state securities laws, by reason of a
specific exemption from the registration provisions thereof which exemption
depends upon, among other things, the bona fide nature of the investment intent
of the undersigned as expressed herein and the accuracy and completeness of the
other representations of the undersigned set forth herein.
(b) The undersigned understands and acknowledges that, except
as provided for by the Registration Rights Agreement attached hereto as Exhibit
C (the "Registration Rights Agreement"), none of the Shares have been registered
under the Securities Act or registered or qualified under the securities laws of
any state and none may be sold, transferred, assigned,
3
<PAGE>
pledged or hypothecated (i) absent effective registration thereof under the
Securities Act and applicable state securities laws, or (ii) absent an opinion
of counsel, which opinion is satisfactory in form and substance to the Company
and its counsel, in their respective reasonable discretion, to the effect that
such registration is not required under the Securities Act or such state
securities laws or that such transaction complies with the rules promulgated by
the Securities and Exchange Commission (the "Commission") under the Securities
Act or such state securities laws or (iii) except in a transaction in compliance
with Rule 144 under the Securities Act. The undersigned understands and
acknowledges that he, she or it must bear the economic risks of this investment
resulting from such limitations.
(c) The undersigned is aware of the provisions of Rule 144
promulgated under the Securities Act as currently in effect, pursuant to which
the undersigned may be able to sell the Shares, subject to certain exceptions,
one year after they receive such Shares so long as certain current public
information is available about the Company, the sale is through a broker in an
unsolicited "broker's transaction" and the undersigned does not sell, in any
three-month period, more than the greater of 1% of the outstanding Common Stock
or the average weekly trading volume of the Shares for the four-week period
preceding the sale. The undersigned generally will be able to sell the Shares
without regard to any volume or other limitations discussed above beginning two
years after they receive the Shares, unless they are affiliates of the Company
(i.e., a person controlling, controlled by or under common control with the
Company). Affiliates of the Company will continue to be subject to the volume
limitations on unregistered sales following the expiration of the two-year
period. The preceding description is a general summary of the restrictions of
Rule 144 as currently in effect, and each of the undersigned should consult with
his, her or its own legal advisor to ensure compliance with all of the
requirements of applicable federal and state securities laws and regulations. In
this connection, the undersigned understands Rule 144 may or may not be
available for the resale of the Shares and the undersigned should consult an
attorney with regard to the availability of Rule 144. The Company is subject to
the reporting requirements under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Upon notice of issuance, the Shares will be listed for
trading on the American Stock Exchange (the "AMEX"). If not all of the
requirements of Rule 144 are met, registration under the Securities Act or some
other registration exemption will be required for any disposition of the Shares.
2.4 Disclosure of Information. The undersigned:
(i) has been furnished with and has carefully read and
reviewed the Company's Annual Report on Form 10-KSB for its fiscal year ended
December 31, 1997, the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998, the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, the Company's Current Report on Form 8-K filed
January 23, 1998, the Company's Current Report on Form 8-K/A filed February 24,
1998, the Company's Current Report on Form 8-K filed April 10, 1998, the
Company's Current Report on Form 8-K filed May 15, 1998, the Company's Current
Report on Form 8-K/A filed June 10, 1998, the Company's Current Report on Form
8-K filed July 7, 1998, the Company's Current Report on Form 8-K/A filed July
14, 1998 and the Company's
4
<PAGE>
Current Report on Form 8-K filed August 13, 1998 (all such reports are referred
to collectively herein as the "SEC Filings"), and has been afforded access to
all information necessary to evaluate the merits and risks of the acquisition of
the Shares, and has relied solely (except as indicated in subsections (ii) and
(iii) below) on such materials or documents.
(ii) has been provided an opportunity to obtain any
additional information requested concerning the Shares and the Company;
(iii) has been given the opportunity to ask questions of,
and receive answers from, the Company, or a person or persons acting on the
behalf of the Company, concerning the terms and conditions of this Agreement and
the Registration Rights Agreement and other matters pertaining to this
investment, and has been given the opportunity to obtain such additional
information necessary to verify the accuracy of the materials or documents that
were provided in order for it to evaluate the merits and risks of an investment
in the Company to the extent the Company possesses such information or can
acquire it without unreasonable effort or expense, and has not been furnished
any other offering literature or prospectus on which they are entitled to rely
except as mentioned herein; and
(iv) has determined that the Shares are a suitable
investment for it and that at this time it could bear the economic risk of the
investment.
2.5 Investment Experience. The undersigned represents that it has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of an investment in the Shares and protecting
its own interests in connection with the investment and has obtained, in its
judgment, sufficient information from the Company to evaluate the merits and
risks of an investment in the Shares. The undersigned is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act. The
undersigned has not utilized any person as its purchaser representative or
professional advisor in connection with evaluating such risks and merits. The
undersigned acknowledges that it has the financial ability to bear the economic
risk of its investment in the Company (including its possible loss). The
undersigned also represents it has not been organized solely for the purpose of
acquiring the Shares.
2.6 Purchase Entirely for Own Account. This Agreement is made with the
undersigned in reliance upon its representation to the Company, which by the
undersigned's execution of this Agreement it hereby confirms, that the Shares to
be received by the undersigned and any certificate which may be issuable in
respect thereof (the "Certificate") will be acquired for investment for the
undersigned's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof in violation of the Securities Act,
and that it has no present intention of selling, granting any participation in,
or otherwise distributing the same, except as provided in the Registration
Rights Agreement, or under an exemption from registration available under the
Securities Act and applicable state securities laws.
5
<PAGE>
2.7 Legends. In addition to the legend required by Section 6.2.9 of the
Company's Amended and Restated Articles of Incorporation, dated as of December
12, 1997 (the "Charter") and the statements required by Section 7.1 of the
Company's By-Laws, as amended on December 12, 1997, to the extent applicable,
any Certificate or other document issued in respect of any Shares shall be
endorsed with the legends set forth below, and the undersigned covenants that,
except to the extent such restrictions are waived by the Company, the
undersigned shall not transfer any Shares without complying with the
restrictions on transfer described in such legends:
(i) "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED (1)
ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT, (2) ABSENT AN OPINION
OF COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO
THE COMPANY AND ITS COUNSEL, TO THE EFFECT THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR SUCH STATES OR THAT SUCH TRANSACTION COMPLIES WITH
THE RULES PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER SAID ACT
OR SUCH STATES OR, (3) EXCEPT IN A TRANSACTION IN COMPLIANCE WITH RULE 144 UNDER
THE SECURITIES ACT."
(ii) THESE SECURITIES ARE SUBJECT TO THE TERMS AND
CONDITIONS OF THAT CERTAIN REGISTRATION RIGHTS AGREEMENT DATED AS OF AUGUST 19,
1998, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY."
(iii) Any legend required by any applicable state
securities law.
2.8 Excepted Holder Limit. (i) The undersigned is not an individual for
purposes of Section 542(a)(2) of the Internal Revenue Code of 1986, as amended
(the "Code") (determined taking into account Section 856(h)(3)(A) of the Code);
(ii) no Person (as defined in the Charter) who is an individual for purposes of
Section 542(a)(2) of the Code (determined taking into account Section
856(h)(3)(A) of the Code) would be considered to Beneficially Own (as defined in
the Charter) shares of Common Stock in excess of the Ownership Limit (as defined
in the Charter) by reason of the undersigned's ownership of the Shares; and
(iii) Section 6.2.1(a)(ii)(2) of the Charter will not be violated by reason of
the undersigned's ownership of the Shares.
Section 3.
3. Company Representations and Warranties. The Company hereby
acknowledges, represents and warrants to, and agrees with, the undersigned as
follows:
6
<PAGE>
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland and has all requisite corporate power and authority to
carry on its business as now conducted. The Company is duly qualified to
transact business and is in good standing in each jurisdiction where the failure
to so qualify would have a material adverse effect on its business, operations,
condition (financial or otherwise), assets or properties (a "Material Adverse
Effect"). The Company has all requisite power and authority to own or lease and
to operate its properties and assets in order to carry on its business as now
conducted.
3.2 Authorization. (a) All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the adoption,
authorization, execution, filing (where applicable) and delivery of this
Agreement and the Registration Rights Agreement, the performance of all
obligations of the Company hereunder and thereunder, and the authorization,
issuance (or reservation for issuance), sale and delivery of the Common Stock
being sold hereunder has been taken or will be taken prior to the Closing. This
Agreement and the Registration Rights Agreement constitute valid and legally
binding obligations of the Company, enforceable in accordance with their terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws of general application affecting enforcement of
creditors' rights generally, (ii) as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies, and (iii) to the extent the indemnification provisions contained in
the Registration Rights Agreement may be limited by applicable federal or state
securities laws.
(b) Neither the execution nor delivery by the Company of this
Agreement and the Registration Rights Agreement nor the consummation of the
transactions contemplated hereby or thereby nor compliance with or fulfillment
of the terms and provisions hereof or thereof by the Company or any subsidiary,
will (i) violate or conflict with any organizational document of the Company or
any of its subsidiaries, (ii) conflict with, result in a breach of the terms,
conditions or provisions of, or constitute a default, an event of default or an
event which, with notice or lapse of time or both, would constitute a default
under, or create rights of acceleration, termination or cancellation or a loss
of rights, or result in the creation or imposition of any encumbrance upon any
of the assets or properties of the Company or any of its subsidiaries, or result
in the triggering of any payment or other obligations under, any instrument,
agreement, mortgage, indenture, deed of trust, permit, concession, grant,
franchise, license, judgment, order, award, decree or other restriction to which
the Company or any of its subsidiaries is a party or by which the Company or any
of its subsidiaries or any of their assets or properties may be bound, or any
Laws (as defined below), which would have a Material Adverse Effect, (iii)
except for filings with the AMEX or the Commission, require the approval,
consent or authorization of, or the making of any declaration, filing or
registration with, any third party or any Governmental Entity (as defined
below), by or on behalf of the Company or any of its subsidiaries, or (iv) cause
the Company to fail to qualify to be taxed as a "real estate investment trust,"
as defined in Section 856 of the Code ("REIT"), for the taxable year ending
December 31, 1998.
7
<PAGE>
3.3 Valid Issuance of Common Stock; Capitalization. (a) The Common
Stock that is being purchased by the undersigned hereunder, when issued, sold
and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and, based in part upon the representations of the undersigned in
this Agreement, will be issued in compliance with all applicable federal and
state securities laws. The issuance and sale of the Common Stock will not
violate any preemptive rights. The undersigned will acquire good and valid title
to the Shares, free and clear of any preemptive rights, restrictions or
encumbrances, other than the ownership limitations contained in the Charter, the
resale restrictions contained in the Registration Rights Agreement and
restrictions under state and federal securities laws.
(b) On the date hereof, the capital stock of the Company
consists solely of (i) 65,000,000 shares of capital stock, all of which are
initially classified as Common Stock, of which on the date hereof 6,633,780
shares are validly issued and outstanding and fully paid and nonassessable; and
(ii) 870,500 shares of Common Stock are reserved for issuance upon exercise of
outstanding options and warrants. Other than as set forth in the SEC Filings,
there are no securities convertible into or exchangeable for, or options, rights
or warrants to purchase, any shares of capital stock of the Company or
agreements or commitments pursuant to which the Company is obligated to issue,
sell, purchase or redeem, shares of capital stock of the Company. The Common
Stock is currently listed for trading on the AMEX. The Shares constitute 9.8% of
the outstanding shares of Common Stock after giving effect to the issuance of
the Shares.
3.4 Disclosure. The Company has provided the undersigned with all the
information that the undersigned has requested for deciding whether to purchase
the Shares. The written information and certificates provided to the undersigned
pursuant to this Agreement or the Registration Rights Agreement are true and
accurate in all material respects.
3.5 REIT Status. The Company, beginning with its taxable year ended
December 31, 1993 and through December 31, 1997 (i) has been subject to taxation
as a REIT, and has complied with all requirements contained in the Code to
qualify as a REIT for such years, and (ii) has operated, and currently intends
to continue to operate, in such a manner as to qualify as a REIT for the tax
year ending December 31, 1998 and thereafter.
3.6 Compliance with Laws; Litigation. (a) Neither the Company nor any
of its subsidiaries is in violation of any federal, state or local law, statute,
ordinance, rule, regulation, order, judgment, ruling or decree ("Laws") of any
federal, state or local judicial, legislative, executive, administrative or
regulatory body or authority or any court, arbitration, board or tribunal
("Governmental Entity") applicable to the Company or any of its subsidiaries, or
any of their properties or assets, except for violations which would not, either
individually or in the aggregate, have a Material Adverse Effect. Each of the
Company and its subsidiaries holds and is in compliance with all permits,
certificates, licenses, approvals, registrations and authorizations required
under all Laws (including without limitation those relating to environmental
protection, occupational safety and health, equal employment practices and fair
trade practices) in connection with its business ("Permits"), all of which
Permits are in full force
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<PAGE>
and effect, except where the failure to hold such Permits or be in compliance
would not, either individually or in the aggregate, have a Material Adverse
Effect.
(b) There are no claims, actions, suits, proceedings,
arbitrations, investigations or audits (collectively, "Litigation") by a third
party other than a Governmental Entity pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries, at law or in
equity, other than those in the ordinary course of business which would not,
either individually or in the aggregate, have a Material Adverse Effect. There
is no Litigation by a Governmental Entity pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries. No
Governmental Entity has indicated in writing or, to the knowledge of the
Company, verbally, an intention to conduct any audit, investigation or other
review with respect to the Company or any of its subsidiaries which
investigation or review, if adversely determined, would, either individually or
in the aggregate, have a Material Adverse Effect.
3.7 SEC Filings; Subsequent Events. (a) The SEC Filings represent each
report filed by the Company under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), since January 1, 1998. As of their respective
dates, the SEC Filings (i) complied as to form in all material respects with the
applicable requirements of the Exchange Act, and the rules and regulations
thereunder and (ii) did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading. The Company has no liabilities or obligations,
contingent or otherwise, except (i) liabilities and obligations in the
respective amounts reflected or reserved against in the Company's balance sheet
as of March 31, 198 included in the SEC Filings or (ii) liabilities and
obligations incurred in the ordinary course of business since April 1, 1998
which, either individually or in the aggregate, would not have a Material
Adverse Effect.
(b) Since the respective dates as of which information is
given in the Company's quarterly report for the period ending March 31, 1998,
and other than changes in general economic conditions or industry conditions,
there has not been any change in the condition (financial or otherwise) or in
the earnings, business affairs or business prospects of the Company, whether or
not arising in the ordinary course of business, which either individually or in
the aggregate would have a Material Adverse Effect.
3.8 No Other Representations. The Company shall not be deemed to have
made to the undersigned any representation or warranty other than as expressly
made by the Company in Section 3 hereof. Without limiting the generality of the
foregoing, and notwithstanding any otherwise express representations and
warranties made by the Company, in this Section 3, the Company makes no
representation or warranty to the undersigned with respect to any projections,
estimates or budgets heretofore delivered to or made available to the
undersigned of future revenues, expenses or expenditures or future results of
operations.
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Section 4.
4. Conditions of Investors' Obligations at Closing. The obligations of
the undersigned under Section 1.2 of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
4.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 3 (other than those made as of a specified
date earlier than the date of Closing) shall be true and correct in all material
respects on and as of the date of the Closing with the same effect as though
such representation or warranty was made on and as of the date of such Closing,
and any representation or warranty made as of a specified date earlier than the
date of such Closing shall have been true and correct in all material respects
as of such earlier date.
4.2 Performance. The Company shall have performed and complied with, in
all material respects, all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing.
4.3 Compliance Certificate. The President or a Vice President of the
Company shall deliver to the undersigned at the Closing a certificate certifying
that the conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 Qualifications. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Shares pursuant to this Agreement shall be duly obtained and effective as of the
Closing.
4.5 Registration Rights Agreement. The Company shall have executed the
Registration Rights Agreement in the form attached hereto as Exhibit C.
4.6 Stock Exchange Listing. The Shares shall have been approved for
listing on the AMEX.
4.7 Certificates. Certificates representing the Shares in such name as
the undersigned has designated pursuant to Section 1.2 hereof shall have been
delivered to the undersigned.
4.8 Excepted Holder Limit. The Company shall have created an Excepted
Holder Limit (as defined in the Charter) of 9.8% for the undersigned.
Section 5.
5. Conditions of the Company's Obligations at Closing. The obligations
of the Company to the undersigned under this Agreement are subject to the
fulfillment on or before the
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Closing of each of the following conditions by the undersigned:
5.1 Representations and Warranties. The representations and warranties
of the undersigned contained in Section 2 (other than those made as of a
specified date earlier than the date of Closing) shall be true and correct in
all material respects on and as of the date of the Closing with the same effect
as though such representation or warranty was made on and as of the date of such
Closing, and any representation or warranty made as of a specified date earlier
than the date of such Closing shall have been true and correct in all material
respects as of such earlier date.
5.2 Payment of Purchase Price. The undersigned shall have delivered
pay-off letters to the Company relating to the Purchase Price in form and
substance satisfactory to the Company.
5.3 Qualifications. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Shares pursuant to this Agreement shall be duly obtained and effective as of the
Closing.
5.4 Pioneer Portfolio. The Closing (as defined in that certain
Contribution Agreement made and entered into as of the 30th day of April, 1998,
between American Real Estate Investment, L.P., the Company and the other parties
on the signature pages thereto, as amended to date) shall have occurred.
Section 6.
6.1 Modification. Neither this Agreement nor any provisions hereof
shall be waived, modified, discharged or terminated except by an instrument in
writing signed by the party against whom any waiver, change, discharge or
termination is sought.
6.2 Notices. All notices, payments, demands or other communications
given hereunder shall be deemed to have been duly given and received (i) upon
personal delivery, (ii) in the case of notices sent within, and for delivery
within, the United States, as of the date shown on the return receipt after
mailing by registered or certified mail, return receipt requested, postage
prepaid, or (iii) the second succeeding business day after deposit with Federal
Express or other equivalent air courier delivery service, unless the notice is
held or retained by the customs service, in which case the date shall be the
fifth succeeding business day after such deposit.
6.3 Binding Effect. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and permitted
assigns.
6.4 Entire Agreement. This Agreement and all exhibits hereto including,
without
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<PAGE>
limitation, the Investor Information Sheet, Accredited Investor Questionnaire
and Registration Rights Agreement, contain the entire agreement of the parties
with respect to this subscription, and there are no representations, covenants
or other agreements except as stated or referred to herein or therein.
6.5 Assignability. This Agreement is not transferable or assignable by
the undersigned.
6.6 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be performed entirely within such State without giving effect to the
conflict of law provisions thereof. The parties agree that all disputes between
any of them arising out of, connected with, related to, or incidental to the
relationship established between them in connection with this Agreement or the
Registration Rights Agreement, and whether arising in law or in equity or
otherwise, shall be resolved by the federal or state courts located in New York,
New York. Nothing herein shall affect the right of any party to serve process in
any manner permitted by law or to commence legal proceedings or otherwise
proceed against the other in any other jurisdiction. In addition, each of the
parties hereto consents to submit to the personal jurisdiction of any federal or
state court located in the state of New York in the event that any dispute
arises out of this Agreement or the Registration Rights Agreement or any of the
transactions contemplated hereby or thereby. The parties, for themselves and
their respective affiliates, hereby irrevocably waive all right to a trial by
jury in any action, proceeding or counterclaim (whether based on contract, tort
or otherwise) arising out of or relating to the actions of the parties or their
respective affiliates pursuant to this Agreement in the negotiation,
administration, performance or enforcement thereof.
6.7 Gender. All pronouns contained herein and any variations thereof
shall be deemed to refer to the masculine, feminine or neuter, singular or
plural, as the identity of the parties hereto may require.
6.8 Counterparts. This Agreement may be executed through the use of
separate signature pages or in counterparts, and each of such counterparts
shall, for all purposes, constitute one agreement binding on the parties hereto,
notwithstanding that the parties hereto are not signatories to the same
counterpart.
6.9 Further Assurances. The undersigned will, from time to time,
execute and deliver to the Company all such other and further instruments and
documents and take or cause to be taken all such other and further action as the
Company may reasonably request in order to effect the transactions contemplated
by this Agreement.
6.10 Expenses. Each party shall pay all costs and expenses which it
incurs in connection with the negotiation, execution, delivery and performance
of this Agreement.
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<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
SUBSCRIPTION AGREEMENT
COUNTERPART SIGNATURE PAGE
The undersigned, desiring to enter into this Subscription Agreement for
the subscription of the number of Shares indicated below, hereby agrees to all
of the terms and provisions of this Subscription Agreement and agrees to be
bound by all such terms and provisions.
The undersigned has executed this Subscription Agreement as of the 9th
day of September, 1998.
COMPTROLLER OF THE STATE OF NEW YORK AS TRUSTEES
OF THE NEW YORK STATE COMMON RETIREMENT FUND
By:/s/ John E. Hull
(Signature)
Name:John E. Hull
(Print or Type)
Title: Deputy Comptroller, Investments and Cash Management
(Print or Type)
Agreed and Accepted this
9th day of September, 1998.
AMERICAN REAL ESTATE INVESTMENT CORPORATION,
a Maryland corporation
By: /s/ Jeffrey E. Kelter
---------------------
(Signature)
Name: Jeffrey E. Kelter
---------------------
(Print or Type)
Title: President
---------------------
(Print or Type)
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<PAGE>
EXHIBIT 10.2
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made
and entered into as of August 19, 1998 by and between American Real Estate
Investment Corporation, a Maryland corporation (the "Company"), and the holders
of shares of common stock listed on Schedule A attached hereto including their
respective successors, assigns and transferees (herein referred to individually
as a "Holder" and collectively as the "Holders").
WHEREAS, on the date hereof, each Holder is receiving such
number of shares of common stock, par value $.001 per share (the "Common
Stock"), of the Company set forth opposite such Holder's name on Schedule A
attached hereto (the "Registrable Securities");
WHEREAS, in connection therewith, the Company has agreed to
grant to Holders the Registration Rights (as defined in Section 1 hereof);
NOW, THEREFORE, the parties hereto, in consideration of the
foregoing, the mutual covenants and agreements hereinafter set forth, and other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, hereby agree as follows:
Section 1. Registration Rights
1.1 Registration Rights1.1 Registration Rights. Each Holder
shall be entitled to offer for sale from time to time pursuant to a shelf
registration statement the Registrable Securities, subject to the terms and
conditions set forth herein (the "Registration Rights").
(a) Registration Procedure. The Company will cause to
be filed with the Securities and Exchange Commission (the "SEC") within
ninety (90) days of the date of this Agreement a shelf registration
statement and related prospectus, including any preliminary prospectus
and documents incorporated by reference (the "Shelf Registration
Statement") that, upon effectiveness, registers the sale by each of the
Holders of such Holder's Registrable Securities and permits the
disposition of the Registrable Securities in accordance with the
Holders' intended method or methods of distribution, and agrees
(subject to Section 1.2 hereof) to use its commercially reasonable best
efforts to cause such Shelf Registration Statement to be declared
effective by the SEC as soon as practicable thereafter. Each Holder
agrees to provide in a timely manner information regarding the proposed
distribution by such Holder of the Registrable Securities and such
other information reasonably requested in writing by the Company in
connection with the preparation of and for inclusion in the Shelf
Registration Statement. The Company agrees (subject to Section 1.2
hereof) to use its commercially reasonable best efforts to keep the
Registration Statement continuously effective, free of material
misstatements or omissions and otherwise in compliance with the rules,
regulations and instructions applicable to such registration form
(including the reasonably prompt preparation and filing of any
amendments and supplements necessary for that purpose) until the
earlier of (i) the first date on which all Holders have consummated the
sale of all of such Holders' Registrable Securities registered under
the Shelf Registration Statement or (ii) the date on which all of the
Registrable Securities are eligible for sale
<PAGE>
pursuant to Rule 144(k) (or any successor provision) or in a single
transaction pursuant to Rule 144(e) (or any successor provision) under
the Securities Act of 1933, as amended (the "Securities Act"). The
Company agrees to provide to each Holder a reasonable number of copies
of the Shelf Registration Statement, any pre-effective or
post-effective amendments thereto, and the related prospectus
(including any preliminary prospectus) and any amendments or
supplements thereto, and such related documents as any such Holder may
reasonably request in order to facilitate the disposition of the
Registrable Securities offered by such Holder. The Company further
agrees that it will use commercially reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of the Shelf
Registration Statement at the earliest possible moment.
(b) Offers and Sales. All offers and sales by each
Holder under the Shelf Registration Statement referred to in this
Section 1.1, if any, shall be completed within the period during which
the Registration Statement is required to remain effective pursuant to
Section 1.1(a), and, upon expiration of such period, no Holder will
offer or sell any Registrable Securities under the Registration
Statement. If directed in writing by the Company, each Holder will
return all undistributed copies of the Prospectus in its possession
upon the expiration of such period. Each Holder shall promptly, but in
any event no later than ten (10) business days after a sale by such
Holder of Registrable Securities, notify the Company of any sale or
other transfer by such Holder of Registrable Securities and include in
such notice the number of Registrable securities sold or transferred by
Holder.
(c) Limitations. The Company hereby represents that
it has obtained and an agreement (a "Lock-up Agreement") from each of
Jeffrey E. Kelter ("Kelter"), President and Director of the Company,
CRA Real Estate Securities, Hudson Bay Partners II, L.P. and Michael J.
Falcone, Director of the Company (collectively the "Insiders"),
substantially to the effect that each will not offer, sell, offer or
contract to sell, transfer, assign, grant any option for the sale of,
or otherwise convey any shares of Common Stock "beneficially owned" (as
defined in the Exchange Act) by them for a period of at least six
months from the date hereof. Each Holder agrees not to offer, sell,
offer or contract to sell, transfer, assign, grant any option for the
sale of, or otherwise convey any shares of Common Stock "beneficially
owned" by it (other than to affiliates) for a period of six months from
the date hereof. In the event the Company agrees to waive the
provisions of its Lock-up Agreement with any of the Insiders it will
provide written notice of such waiver to each Holder at substantially
the same time as it notifies the Insider of the waiver and the
provisions of this Section 1.1(c) with respect to the obligations of
each Holder will terminate upon the grant by the Company of such
waiver.
1.2 Suspension of Offering
(a) If the Board of Directors of the Company
determines in its good faith judgment that the filing of the Shelf
Registration Statement under Section 1.1 hereof or the use of any
prospectus would materially impede, delay or interfere with any pending
material financing, acquisition or corporate reorganization or other
material corporate development involving the Company or any of its
subsidiaries, or require the disclosure of important, confidential
information, the pre-mature disclosure of which would materially impede
the Company's ability to consummate a significant transaction, upon
written notice by the Company of such determination, the rights of each
Holder to offer, sell or distribute any Registrable Securities pursuant
to the Shelf Registration Statement or to require the Company to take
action with respect to the registration or sale of any Registrable
Securities pursuant to the Shelf Registration Statement (including any
action contemplated by Section 1.1 hereof) will be suspended until the
<PAGE>
date upon which the Company notifies the Holders in writing that
suspension of such rights for the grounds set forth in this Section
1.2(a) is no longer necessary, but, in any event, no such period shall
extend for longer than 45 days; provided the Company may deliver only
two such notices in any twelve month period.
(b) In the case of the registration of any
underwritten public offering proposed by the Company (other than any
registration by the Company on Form S-8, or a successor or
substantially similar form, of (A) an employee stock option, stock
purchase or compensation plan or of securities issued or issuable
pursuant to any such plan or (B) a dividend reinvestment plan), each
Holder agrees, if requested in writing by the managing underwriter or
underwriters administering such offering, not to effect any
underwritten offering for the resale of Registrable Securities (or any
option or right to acquire Registrable Securities) during the period
commencing on the 7th day prior to the expected effective date of the
registration statement covering such underwritten public offering or
the date on which the proposed offering is expected to commence (which
date shall be stated in such notice) and ending on the date specified
by such managing underwriter in such written request to such Holder,
which date shall not be later than 45 days after such expected date of
effectiveness or the commencement of the offering, as the case may be.
1.3 Expenses. The Company shall pay all expenses
incident to the performance by it of its registration obligations under this
Section 1, including (i) all stock exchange, SEC and state securities
registration, listing and filing fees, (ii) all expenses incurred in connection
with the preparation, printing and distributing of the Shelf Registration
Statement and prospectus (including all expenses incurred in connection with the
delivery to any Holder of such number of copies of any prospectus as such Holder
may reasonably request), and (iii) fees and disbursements of counsel for the
Company and of the independent public accountants of the Company. Each Holder
shall be responsible for the payment of any brokerage and sales commissions,
fees and disbursements of such Holder's counsel, and any transfer taxes relating
to the sale or disposition of the Registrable Securities by such Holder.
1.4 Qualification1.4 Qualification. The Company agrees to use
its commercially reasonable efforts to register or qualify the Registrable
Securities by the time the Shelf Registration Statement is declared effective by
the SEC under all applicable state securities or "blue sky" laws of such
jurisdictions as any Holder shall reasonably request in writing, to keep each
such registration or qualification effective during the period the Shelf
Registration Statement is required to be kept effective, and to do any and all
other acts and things which may be reasonably necessary or advisable to enable
each Holder to consummate the disposition in each such jurisdiction of the
Registrable Securities owned by such Holder; provided, however, that the Company
shall not be required to (x) qualify generally to do business in any
jurisdiction or to register as a broker or dealer in such jurisdiction where it
would not otherwise be required to qualify but for this Section 1.4, (y) subject
itself to taxation in any such jurisdiction, or (z) submit to the general
service of process in any such jurisdiction.
1.5 Notices to Holders. During the period that the Company is
required to keep the Shelf Registration Statement effective, the Company will
advise the Holders within a reasonable time (i) when the prospectus or any
prospectus supplement or post-effective amendment thereto has been filed, and
when the same has become effective, (ii) of any request by the SEC for any
amendments to, or issuance by the SEC of any stop order with respect to the
Shelf Registration Statement or any prospectus or amendment thereto, or (iii)
that an amendment or supplement to the most recent Prospectus or prospectus
supplement, as the case may be, is necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
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<PAGE>
1.6 Other Registration Procedures. Whenever required under
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as promptly as practicable:
(a) Prior to filing a registration statement or
prospectus or any amendments or supplements thereto, the Company shall
furnish to one firm of counsel for the Holders, copies of all such
documents in the form substantially as proposed to be filed with the
SEC and shall in good faith consider incorporating in each such
document such changes as such counsel to the Holders reasonably and in
a timely manner may suggest.
(b) Make available for inspection by any Holder, any
underwriter participating in such offering and the representatives of
such Holder and any such underwriter (but not more than one firm of
counsel to each Holders), all financial and other information as shall
be reasonably requested by them at the Company's offices, during
business hours and upon reasonable advance notice, and provide any
Holder, any underwriter participating in such offering and the
representatives of such Holder and underwriter the reasonable
opportunity to discuss the business affairs of the Company with its
principal executives and independent public accountants who have
certified the audited financial statements included in such
registration statement, in each case all as necessary to enable them to
exercise their due diligence responsibility under the Securities Act;
provided, however, that information that the Company determines to be
confidential and which the Company advises such person in writing, is
confidential shall not be disclosed unless such person signs a
confidentiality agreement reasonably satisfactory to the Company or the
related Holder of Registrable Securities agrees to be responsible for
such Person's breach of confidentiality on terms reasonably
satisfactory to the Company; provided, further, that the Company shall
not be required to incur any material out-of-pocket expense pursuant to
this Section 1.6(b).
(c) If Registrable Securities are included in an
underwritten public offering by the Company, the Company will use
reasonable efforts to have any such Holders included as a recipient in
any so-called "comfort letter" from the independent public accountants
of the Company, and legal opinions of counsel to the Company addressed
to the Company. Delivery of such opinion or comfort letter shall be
subject to the recipient furnishing such written representations or
acknowledgements as are reasonably requested by such independent public
accountants or legal counsel to the Company; provided, however, that
the Company shall not be required to incur any material out-of-pocket
expense pursuant to this Section 1.6(c).
(d) Use reasonable efforts to cause the Registrable
Securities to be listed or quoted on such securities exchange or
national quotation system on which similar securities of the Company
are then listed or quoted.
Section 2. Indemnification
2.1 Indemnification by the Company2.1 Indemnification by the
Company. The Company agrees to indemnify and hold harmless each Holder, each of
its directors and officers and each person, if any, who controls any Holder
within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as follows:
(a) against any and all loss, liability, claim,
damage and expense whatsoever,
3
<PAGE>
as incurred, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any
registration statement (or any amendment thereto) pursuant to which the
Registrable Securities were registered under the Securities Act,
including all documents incorporated therein by reference, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any prospectus
(or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading;
(b) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or investigation
or proceeding by any person, entity, governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of
the Company, which consent shall not be unreasonably withheld; and
(c) against any and all expense whatsoever, as
incurred (including reasonable fees and disbursements of counsel),
reasonably incurred in investigating, preparing or defending against
any litigation, or investigation or proceeding by any person, entity,
governmental agency or body, commenced or threatened, in each case
whether or not a party, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under
subparagraph (a) or (b) above;
provided, however, that the indemnity provided pursuant to this Section 2.1 does
not apply to any Holder with respect to any loss, liability, claim, damage or
expense to the extent arising out of (i) any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such Holder
expressly for use in the Shelf Registration Statement (or any amendment thereto)
or the related prospectus (or any amendment or supplement thereto), or (ii) such
Holder's failure to deliver an amended or supplemental Prospectus (provided such
Holder was notified in writing pursuant to Section 1.5, or otherwise, of the
need for an amended or supplemental Prospectus) if such loss, liability, claim,
damage or expense would not have arisen had such delivery occurred.
2.2 Indemnification by Holder. Each Holder (on a several
and not joint basis) agrees to indemnify and hold harmless the Company, and
each of its directors and officers (including each director and officer of
the Company who signed a Registration Statement), and each person, if any,
who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, as follows:
(a) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising out of or based
upon any untrue statement or alleged untrue statement of a material
fact contained in any registration statement (or any amendment thereto)
pursuant to which the Registrable Securities were registered under the
Securities Act, including all documents
4
<PAGE>
incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading or arising out of or
based upon any untrue statement or alleged untrue statement of a
material fact contained in any prospectus (or any amendment or
supplement thereto), including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(b) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or investigation
or proceeding by any person, entity, governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of
Holder, which consent shall not be unreasonably withheld; and
(c) against any and all expense whatsoever, as
incurred (including reasonable fees and disbursements of counsel),
reasonably incurred in investigating, preparing or defending against
any litigation, or investigation or proceeding by any person, entity,
governmental agency or body, commenced or threatened, in each case
whether or not a party, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under
subparagraph (a) or (b) above;
provided, however, that the indemnity provided pursuant to this Section 2.2
shall only apply with respect to any loss, liability, claim, damage or expense
to the extent arising out of (i) any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such Holder
expressly for use in the Registration Statement (or any amendment thereto) or
the related prospectus (or any amendment or supplement thereto), or (ii) such
Holder's failure to deliver an amended or supplemental prospectus (provided such
Holder was notified in writing pursuant to Section 1.5, or otherwise, of the
need for an amended or supplemental Prospectus) if such loss, liability, claim,
damage or expense would not have arisen had such delivery occurred.
Notwithstanding the provisions of this Section 2.2, no Holder shall be required
to indemnify the Company, its officers, directors or control persons with
respect to any amount in excess of the amount of the total proceeds (net of any
underwriting discounts and commissions paid by such Holder) to such Holder from
sales of the Registrable Securities of such Holder under the Shelf Registration
Statement (after deducting the amounts already paid to the Company by such
Holder or any person, if any, who controls such Holder pursuant to this Section
2.2), and no Holder shall be liable under this Section 2.2 for any statements or
omissions of any other Holder.
2.3 Conduct of Indemnification Proceedings. The indemnified
party shall give reasonably prompt notice to the indemnifying party of any
action or proceeding commenced against it in respect of which indemnity may
be sought hereunder, but failure to so notify the indemnifying party (i)
shall not relieve it from any liability which it may have under the indemnity
agreement provided in Section 2.1 or 2.2 above, unless and to the extent it
did not otherwise learn of such action and the lack of notice by the
indemnified party results in the forfeiture by the indemnifying party of
substantial rights or defenses, and (ii) shall not, in any event, relieve the
indemnifying party from any obligations to the indemnified party other than
the indemnification obligation provided under Section 2.1 or 2.2 above. If
the indemnifying party so elects within a reasonable time after receipt of
such notice, the indemnifying party may assume the defense of such action or
proceeding at such indemnifying party's own expense with counsel chosen by
the indemnifying party and approved by the indemnified party, which approval
shall not be unreasonably withheld; provided, however, that the indemnifying
party will not settle any such action or proceeding without the written
consent of the indemnified party unless, as a condition to such settlement,
the indemnifying party secures the unconditional release of the indemnified
party; and provided further, that if the indemnified party reasonably
determines that a conflict of interest exists where
5
<PAGE>
it is advisable for the indemnified party to be represented by separate counsel
or that, upon advice of counsel, there may be legal defenses available to it
which are different from or in addition to those available to the indemnifying
party, then the indemnifying party shall not be entitled to assume such defense
and the indemnified party shall be entitled to separate counsel at the
indemnifying party's expense. If the indemnifying party is not entitled to
assume the defense of such action or proceeding as a result of the proviso to
the preceding sentence, the indemnifying party's counsel shall be entitled to
conduct the indemnifying party's defense and counsel for the indemnified party
shall be entitled to conduct the defense of the indemnified party, it being
understood that both such counsel will cooperate with each other to conduct the
defense of such action or proceeding as efficiently as possible. If the
indemnifying party (i) is not so entitled to assume the defense of such action,
(ii) does not assume such defense, after having received the notice referred to
in the first sentence of this paragraph, or (iii) fails to employ counsel that
is reasonably satisfactory to the indemnified party, after having received the
notice referred to in the first sentence of this paragraph, the indemnifying
party will pay the reasonable fees and expenses of counsel for the indemnified
party. In such event, however, the indemnifying party will not be liable for any
settlement effected without the written consent of the indemnifying party, which
consent shall not be unreasonably withheld. If an indemnifying party is entitled
to assume, and assumes, the defense of such action or proceeding in accordance
with this paragraph, the indemnifying party shall not be liable for any fees and
expenses of counsel for the indemnified party incurred thereafter in connection
with such action or proceeding.
2.4 Contribution. In order to provide for just and
equitable contribution in circumstances in which the indemnity agreement
provided for in this Section 2 is for any reason held to be unenforceable by
the indemnified party although applicable in accordance with its terms, the
Company and the applicable Holder shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity agreement incurred by the Company and such Holder, (i) in such
proportion as is appropriate to reflect the relative fault of the Company on
the one hand and such Holder on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative fault of but also the relative
benefits to the Company on the one hand and such Holder on the other hand,
from the purchase and sale of the Registrable Securities, in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits to the indemnifying party and
indemnified party shall be determined by reference to, among other things,
the total proceeds received by the indemnifying party and indemnified party
in connection with the offering to which such losses, claims, damages,
liabilities or expenses relate. The relative fault of the indemnifying party
and indemnified party shall be determined by reference to, among other
things, whether the action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission to state
a material fact, has been made by, or relates to information supplied by, the
indemnifying party or the indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action. The obligations of each Holder under this Section 2.4
are several and not joint.
The parties hereto agree that it would not be just or
equitable if contribution pursuant to this Section 2.4 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 2.4, no Holder shall
be required to contribute any amount in excess of the amount of the total
proceeds (net of any underwriting discounts and commissions paid by such Holder)
to that Holder from sales of the Registrable Securities of such Holder under the
Shelf Registration Statement.
6
<PAGE>
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 2.4, each person, if
any, who controls any Holder within the meaning of Section 15 of the Securities
Act shall have the same rights to contribution as such Holder, and each director
of the Company, each officer of the Company who signed a registration statement
and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act shall have the same rights to contribution as the
Company.
Section 3. Rule 144 and Rule 144A Compliance
The Company covenants that it will file the reports required
to be filed by the Company under the Securities Act and the Exchange Act so as
to enable each Holder to sell Registrable Securities, pursuant to Rule 144 under
the Securities Act. The Company agrees to provide to the Holders of the
Registrable Securities and upon a Holder's request to any prospective purchasers
designated by a holder the financial and other information specified in Rule 144
or 144A under the Securities Act and to take any other action or to executive
any certificates necessary to permit a transfer by or any holder of Registrable
Securities to qualify for the exemption set forth in Rule 144 or 144A. In
connection with any sale, transfer or other disposition by any Holder of any
Registrable Securities pursuant to Rule 144 or Rule 144A under the Securities
Act, the Company shall cooperate with such Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold and not bearing any Securities Act legend, and enable certificates for
such Registrable Securities to be for such number of shares and registered in
such names as such Holder may reasonably request at least three (3) business
days prior to any sale of Registrable Securities hereunder.
Section 4. Miscellaneous
4.1 Integration; Amendment. This Agreement constitutes the
entire agreement among the parties hereto with respect to the matters set
forth herein and supersedes and renders of no force and effect all prior oral
or written agreements, commitments and understandings among the parties with
respect to the matters set forth herein. Except as otherwise expressly
provided in this Agreement, no amendment, modification or discharge of this
Agreement shall be valid or binding unless set forth in writing and duly
executed by the Company and the applicable Holder.
4.2 Waivers. No waiver by a party hereto shall be effective
unless made in a written instrument duly executed by the party against whom
such waiver is sought to be enforced, and only to the extent set forth in
such instrument. Neither the waiver by any of the parties hereto of a breach
or a default under any of the provisions of this Agreement, nor the failure
of any of the parties, on one or more occasions, to enforce any of the
provisions of this Agreement or to exercise any right or privilege hereunder
shall thereafter be construed as a waiver of any subsequent breach or default
of a similar nature, or as a waiver of any such provisions, rights or
privileges hereunder.
4.3 Assignment. This Agreement shall inure to the benefit
of and be binding on the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders. If any successor, assignee or transferee of
any Holder shall acquire Registrable Securities, in any manner, whether by
operation of law or otherwise, such Registrable Securities shall be held
subject to all of the terms of this Agreement, and by taking and holding
Registrable Securities such Person shall be conclusively deemed to have
agreed to be bound by all of the terms and provisions hereof.
7
<PAGE>
4.4 Notices. All notices, payments, demands or other
communications given hereunder shall be deemed to have been duly given and
received (i) upon personal delivery, (ii) in the case of notices sent within,
and for delivery within, the United States, as of the date shown on the
return receipt after mailing by registered or certified mail, return receipt
requested, postage prepaid, or (iii) the second succeeding business day after
deposit with Federal Express or other equivalent air courier delivery
service, unless the notice is held or retained by the customs service, in
which case the date shall be the fifth succeeding business day after such
deposit.
4.5 Specific Performance. The parties hereto acknowledge
that the obligations undertaken by them hereunder are unique and that there
would be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to
any other remedy to which it may be entitled at law or in equity, shall be
entitled to (i) compel specific performance of the obligations, covenants and
agreements of any other party under this Agreement in accordance with the
terms and conditions of this Agreement and (ii) obtain preliminary injunctive
relief to secure specific performance and to prevent a breach or contemplated
breach of this Agreement in any court of the United States or any State
thereof having jurisdiction.
4.6 Governing Law. This Agreement, the rights and
obligations of the parties hereto, and any claims or disputes relating
thereto, shall be governed by and construed in accordance with the laws of
the State of New York, without giving effect to the choice of law rules
thereof. The parties agree that all disputes between any of them arising out
of, connected with, related to, or incidental to the relationship established
between them in connection with this Agreement, and whether arising in law or
in equity or otherwise, shall be resolved by the federal or state courts
located in New York, New York. Nothing herein shall affect the right of any
party to serve process in any other manner permitted by law or to commence
legal proceedings or otherwise proceed against the other in any other
jurisdiction. In addition, each of the parties hereto consents to submit to
the personal jurisdiction of any federal or state court located in the state
of New York in the event that any dispute arises out of this Agreement. The
parties, for themselves and their respective affiliates, hereby irrevocably
waive all right to a trial by jury in any action, proceeding or counterclaim
(whether based on contract, tort or otherwise) arising out of or relating to
the actions of the parties or their respective affiliates pursuant to this
Agreement in the negotiation, administration, performance or enforcement
thereof.
4.7 Headings. Section and subsection headings contained in
this Agreement are inserted for convenience of reference only, shall not be
deemed to be a part of this Agreement for any purpose, and shall not in any
way define or affect the meaning, construction or scope of any of the
provisions hereof.
4.8 Pronouns. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular or plural, as
the identity of the person or entity may require.
4.9 Execution in Counterparts. To facilitate execution,
this Agreement may be executed in as many counterparts as may be required. It
shall not be necessary that the signature of or on behalf of each party
appears on each counterpart, but it shall be sufficient that the signature of
or on behalf of each party appears on one or more of the counterparts. All
counterparts shall collectively constitute a single agreement. It shall not
be necessary in any proof of this Agreement to produce or account for more
than a number of counterparts containing the respective signatures of or on
behalf of all of the parties hereto.
8
<PAGE>
4.10 Severability. If fulfillment of any provision of this
Agreement, at the time such fulfillment shall be due, shall transcend the
limit of validity prescribed by law, then the obligation to be fulfilled
shall be reduced to the limit of such validity; and if any clause or
provision contained in this Agreement operates or would operate to invalidate
this Agreement, in whole or in part, then such clause or provision only shall
be held ineffective, as though not herein contained, and the remainder of
this Agreement shall remain operative and in full force and effect.
9
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first hereinabove set
forth.
COMPANY:
Address: AMERICAN REAL ESTATE INVESTMENT
Plymouth Meeting Executive Campus CORPORATION
620 W. Germantown Pike, Suite 200
Plymouth Meeting, PA 19462
By: /s/ Jeffrey E. Kelter
-----------------------
Name: Jeffrey E. Kelter
Title: President
HOLDERS:
Address: COMPTROLLER OF THE STATE OF NEW
Assistant Deputy Comptroller of YORK AS TRUSTEES OF THE
Real Estate Investments COMMON RETIREMENT FUND
633 Third Avenue, 31st Floor
New York, NY 10017
with copies to: By: /s/ John E. Hull
-----------------------
Name: John E. Hull
Assistant Counsel of Title: Deputy Comptroller
Real Estate Investments Investments and Cash
633 Third Avenue, 31st Floor Management
New York, NY 10017
and
Mayer, Brown & Platt
1675 Broadway
New York, NY 10019
Attn: Ellyn J. Miller
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Shares
Name and Address of Common Stock
- ---------------- ----------------
<S> <C>
New York State Common Retirement Fund 720,743
633 Third Avenue, 31st Floor
New York, NY 10017
</TABLE>
<PAGE>
Exhibit 99.1
AMERICAN REAL ESTATE INVESTMENT CORPORATION
PLYMOUTH MEETING EXECUTIVE CAMPUS
620 WEST GERMANTOWN PIKE, SUITE 200
PLYMOUTH MEETING, PA 19462
TEL. (610) 834-7950 FAX (610) 834-9560
http://www.areic.com
FOR IMMEDIATE RELEASE
American Real Estate Investment Corporation Acquires 12 Office Buildings in
Upstate New York for Approximately $86.1 Million
PLYMOUTH MEETING, PA, August 24, 1998. American Real Estate Investment
Corporation (AMEX: REA - news) (the "Company") today announced that it has
substantially consummated the previously announced acquisition of a 1.3 million
square foot office portfolio located in New York State from affiliates of
Pioneer Development Company, LLC ("Pioneer"). To date, the Company has acquired
twelve of the fifteen buildings previously announced, totaling 801,720 square
feet, for a purchase price of approximately $86.1 million. The Company expects
to complete the acquisition of two additional announced properties, totaling
430,636 square feet, at the end of the third quarter of 1998. A third announced
property, a 100,000 square foot building currently under extensive renovation,
is to be closed upon substantial completion of its renovation, scheduled for
January 1999. The total purchase price of these three properties is
approximately $43.8 million. Further, the Company retained its option to acquire
two additional properties, located in upstate New York, which contain
approximately 350,000 square feet for approximately $30 million.
The properties were contributed to the REIT's operating partnership by Pioneer,
a prominent Syracuse-based real estate owner and developer, in exchange for the
issuance of approximately 1.2 million Operating Partnership Units at $16.50 per
Unit. The balance of the purchase price was in the form of cash and the
assumption of related indebtedness. The Company has an agreement in place with
the principals of Pioneer in which the Company has certain rights to pursue
acquisition and development opportunities presented to or initiated by Pioneer.
The Company believes these agreements represent full alignment between the
interests of American Real Estate and one of the premier property companies in
upstate New York, and bring the full capabilities of an extremely highly
regarded development organization to bear for the future growth of the Company
in this region. Michael J. Falcone, the chairman of Pioneer and a leader in the
upstate New York business and political communities, will join the Board of
Directors as part of the transaction. Early in his career, Mr. Falcone was a
co-founder and original partner in the Pyramid Companies, and is currently the
Chairman of the Board of Directors of the First National Bank of Rochester and
is on the Board of Trustees of Syracuse University.
The acquisitions include four buildings located in Pioneer Business Park, the
premier office park in suburban Syracuse, as well as three buildings located
within the Franklin Square District of Syracuse. This district represents an 800
acre redevelopment project, anchored by the 1.4 million square foot regional
shopping center, Carousel Center. Two of the buildings are in the Syracuse CBD,
including 250 South Clinton, the premier office project in the marketplace. Also
included in the acquisition is one office building in Greece, NY, a suburb of
Rochester, and one property located in Glens Falls, NY, a northern suburb of
Albany. Major tenants in the portfolio include AT&T, IBM, American General, The
Hartford Insurance Company, Carlisle Rubber, Dean Witter, Niagara Mohawk Power,
Time Warner, Fleet National Bank and Philip Morris.
<PAGE>
August 24, 1998
Page 2 of 2
The Company will operate the properties from its new regional office in
Syracuse, which has been staffed by seven former Pioneer employees, all of whom
now work directly for the Company. The Syracuse office will be headed by Jeffrey
Anderson, formerly head of Pioneer's management operations. Mr. Anderson has
over seventeen years of commercial real estate experience serving such
institutions as Teachers Insurance and Annuity Association, Equitable, Citicorp,
Bank of Montreal and Travelers, and over his career has worked with United
Properties, Trammel Crow and Spaulding & Slye.
Additionally, the New York State Common Retirement Fund, a debt holder on a
portion of the Pioneer portfolio, has agreed to exchange a portion of the
Pioneer debt obligation for approximately 720,000 shares of the Company's Common
Stock, netting the Company approximately $11.4 million in new equity.
"We are very excited to add these extremely high quality, high yielding office
buildings to our portfolio. These assets will provide a going in yield of in
excess of 10.5% from a terrific tenant base, approximately 50% of which are
Fortune 500 Companies. The properties are in supply-constrained markets with
consistently below-market rents in place and represent an excellent internal
growth complement to the long-term stable cash flow inherent in the Company's
distribution properties. The participation of the New York State Common
Retirement Fund, together with our existing institutional investors, is further
validation of the institutional market's belief in the value being created by
our ramp-up strategy," stated Jeff Kelter, President of American Real Estate.
American Real Estate Investment Corporation, with headquarters in Plymouth
Meeting, Pennsylvania, and regional offices in Franklin Lakes, New Jersey,
Albany and Syracuse, New York, and Allentown, Pennsylvania, is a
fully-integrated, self-administered and self-managed real estate investment
trust (REIT) focusing on office and industrial properties located in the
Mid-Atlantic and Northeast states. The Company currently owns 67 office and
industrial properties containing an aggregate of 7.3 million square feet. For
more information, contact Timothy A. Peterson at 610-834-3469, send email to
[email protected] or visit the Company's web site at www.areic.com.
This press release may contain statements which constitute forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, including statements regarding the intent, belief or current expectations
of the Company, its directors, or its officers with respect to the future
operating performance of the Company and the result and the effect of legal
proceedings. Investors are cautioned that any such forward looking statements
are not guarantees of future performance and involve risks and uncertainties,
and that actual results may differ materially from those in the forward looking
statements as a result of various factors. Important factors that could cause
such differences are described in the Company's periodic filings with the
Securities and Exchange Commission, including the Company's Form 10-KSB and
quarterly reports on Form 10-QSB and 10-Q.
SOURCE American Real Estate Investment Corporation
Web Site: http://www.areic.com
CONTACT: Timothy A. Peterson of American Real Estate Investment Corporation,
610-834-3469
# # #
