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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 11, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
AMERICAN REAL ESTATE INVESTMENT
CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 84-1246585
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
620 W. GERMANTOWN PIKE, SUITE 200
PLYMOUTH MEETING, PENNSYLVANIA 19462
(610) 834-7950
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
JEFFREY E. KELTER
PRESIDENT
AMERICAN REAL ESTATE INVESTMENT CORPORATION
620 W. GERMANTOWN PIKE, SUITE 200
PLYMOUTH MEETING, PENNSYLVANIA 19462
(610) 834-7950
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
ROBERT E. KING, JR., ESQ.
BONNIE A. BARSAMIAN, ESQ.
ROGERS & WELLS LLP
200 PARK AVENUE
NEW YORK, NEW YORK 10166
(212) 878-8000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time or at one time after the effective date of the Registration Statement as
determined by market conditions. If the only securities being registered on this
Form are being offered pursuant to dividend or interest reinvestment plans,
please check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED SHARE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value 1,672,000
$.001 per share........................... shares(1) $12.82(2) $21,435,040(2) $5,959
</TABLE>
(1) Includes the 1,216,000 shares of Common Stock into which 800,000 shares of
Series A Convertible Preferred Stock are convertible and the 456,000 shares
of Common Stock into which 300,000 Series B Convertible Preferred Units of
American Real Estate Investment, L.P. are convertible (in each case, based
on a conversion ratio of 1:1.52 as of the date hereof).
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) of the rules and regulations under the
Securities Act of 1933, as amended, and based on the average of the high and
low sale prices of the common stock reported on the American Stock Exchange
on March 9, 1999.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 11, 1999
PROSPECTUS
1,672,000 SHARES
AMERICAN REAL ESTATE
INVESTMENT CORPORATION
COMMON STOCK
---------------------
This Prospectus relates to the offer and sale by the entities described in
the section "Selling Security Holders" in this Prospectus of shares of our
common stock. The Selling Security Holders may offer and sell our shares of
common stock from time to time on the American Stock Exchange where our common
stock is listed for trading under the symbol "REA," in other markets where our
common stock may be traded or in negotiated transactions. The Selling Security
Holders may offer their shares of our common stock at whatever prices are
current when particular sales take place or at other prices to which they agree.
On March 9, 1999, the closing price of our shares of common stock reported on
the American Stock Exchange was $12.75. The Selling Security Holders will pay
any brokerage fees or commissions relating to sales by them. See the section
"Method of Sale" in this Prospectus. The Selling Security Holders received or
will receive the shares of our common stock to which this Prospectus relates
upon conversion of their (i) shares of our preferred stock or (ii) preferred
units of limited partnership interest in our operating partnership. We are
registering the offer and sale by the Selling Security Holders of shares of
common stock issued or issuable upon conversion of their preferred stock or
preferred units in order to permit secondary trading of such shares of common
stock that are held by the Selling Security Holders. The Selling Security
Holders may offer their shares for resale from time to time. The registration of
their shares does not necessarily mean that the Selling Security Holders will
sell their shares.
We will not receive any of the proceeds of sales by the Selling Security
Holders. We are paying the costs of preparing and filing the Registration
Statement of which this Prospectus is a part.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS YOU SHOULD CONSIDER BEFORE YOU INVEST IN OUR COMMON STOCK.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these Securities and they have not
determined if this Prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
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THE DATE OF THIS PROSPECTUS IS , 1999
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE HAVE FILED A REGISTRATION STATEMENT RELATING TO THESE SECURITIES WITH THE
SECURITIES AND EXCHANGE COMMISSION. THE SELLING SECURITY HOLDER MAY NOT SELL
THESE SECURITIES PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE SUCH OFFER OR
SALE IS NOT PERMITTED.
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS. NEITHER AMERICAN REAL ESTATE INVESTMENT
CORPORATION NOR THE SELLING SECURITY HOLDERS HAVE AUTHORIZED ANY OTHER PERSON TO
PROVIDE YOU WITH DIFFERENT INFORMATION.
THE SELLING SECURITY HOLDERS ARE NOT MAKING AN OFFER OF COMMON STOCK IN ANY
LOCATION WHERE THE OFFER IS NOT PERMITTED.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Where You Can Find More Information.................................................... 3
Incorporation of Documents by Reference................................................ 3
Cautionary Statements Concerning Forward-Looking Information........................... 4
Risk Factors........................................................................... 5
The Company............................................................................ 12
Use of Proceeds........................................................................ 12
Description of Capital Stock........................................................... 12
Selling Security Holders............................................................... 17
Method of Sale......................................................................... 18
Federal Income Tax Considerations...................................................... 20
Legal Matters.......................................................................... 29
Experts................................................................................ 29
</TABLE>
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, as a result, file reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). You may read and copy those reports, proxy
statements and other information which we file with the Commission at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of
the Commission located at 7 World Trade Center, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
You may also obtain copies of that information from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. Please call the Commission at 1-800-SEC-0330 for further
information on the public reference rooms. The Commission maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants, including American Real Estate Investment Corporation,
that file electronically with the Commission. You may access the Commission's
web site at http://www.sec.gov. Our common stock is listed on the American Stock
Exchange (the "AMEX"). You may also read our reports, proxy statements and other
information which we file at the offices of the AMEX, 86 Trinity Place, New
York, New York 10006.
We have filed with the Commission a Registration Statement on Form S-3
(together with any amendments or supplements, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"). This
Prospectus is a part of the Registration Statement. This Prospectus does not
contain all the information contained in the Registration Statement, because we
have omitted certain parts of the Registration Statement in accordance with the
rules and regulations of the Commission. For further information, we refer you
to the Registration Statement, which you may read and copy at, or obtain from,
the Commission or the AMEX in the manner described above.
INCORPORATION OF DOCUMENTS BY REFERENCE
We incorporate by reference into this Prospectus the following documents
which we previously filed with the Commission under the File Number 1-12514:
(a) our Annual Report on Form 10-KSB for the fiscal year ended December
31, 1997;
(b) our Quarterly Reports on Form 10-Q for the calendar quarters ended
March 31, 1998, June 30, 1998 and September 30, 1998;
(c) our Current Report on Form 8-K filed January 23, 1998, our Current
Report on Form 8-K/A filed February 24, 1998, our Current Reports on Form
8-K filed April 10, 1998 and May 15, 1998, our Current Report on Form 8-K/A
filed June 10, 1998, our Current Report on Form 8-K filed July 7, 1998, our
Current Report on Form 8-K/A filed July 14, 1998, our Current Report on Form
8-K filed August 13, 1998, our Current Report on Form 8-K filed September 3,
1998, our Current Report on Form 8-K filed November 13, 1998, our Current
Report on Form 8-K filed December 18, 1998, our Current Report on Form 8-K
filed January 8, 1999 and our Current Report on Form 8-K/A filed January 13,
1999;
(d) the description of our common stock contained in our Registration
Statement on Form 8-A filed on August 24, 1994 (including any amendments or
reports filed for the purpose of updating such description); and
(e) all other reports we have filed pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act since December 31, 1997.
When we file documents in accordance with Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act between the date of this Prospectus and the time we
file a post-effective amendment to the Registration Statement of which this
Prospectus is a part saying all the securities which are the subject of that
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<PAGE>
Registration Statement have been sold or deregistering any securities which have
not been sold, the documents we file will be incorporated into this Prospectus
and will be a part of it beginning on the date the documents are filed. If any
document which we file changes anything said in this Prospectus or in an earlier
document which is incorporated into this Prospectus, the later document will
modify or supersede what is said in this Prospectus or the earlier document.
We will provide, without charge, at the written or oral request of anyone,
including any beneficial owner, to whom this Prospectus is delivered, copies of
the documents incorporated by reference in this Prospectus, other than exhibits
to those documents which are not specifically incorporated by reference.
Requests should be directed to: American Real Estate Investment Corporation, 620
W. Germantown Pike, Suite 200, Plymouth Meeting, Pennsylvania 19462, Attention:
Investor Relations (Telephone: (610) 834-7950).
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING INFORMATION
Certain information both included and incorporated by reference in this
Prospectus may contain forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act, and as such may
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of our company to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. Forward-looking statements, which are based
on certain assumptions and describe our future plans, strategies and
expectations are generally identifiable by use of the words "may,""will,"
"should," "expect," "anticipate," "estimate," "believe," "intend" or "project"
or the negative thereof or other variations thereon or comparable terminology.
Factors which could have a material adverse effect on the operations and future
prospects of our company include, but are not limited to, changes in: economic
conditions generally and the real estate market specifically,
legislative/regulatory changes (including changes to laws governing the taxation
of real estate investment trusts (each, a "REIT")), availability of capital,
interest rates, competition, supply and demand for properties in our current and
proposed market areas and general accounting principles, policies and guidelines
applicable to REITs. These risks and uncertainties should be considered in
evaluating any forward-looking statements contained or incorporated by reference
herein.
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RISK FACTORS
BEFORE YOU INVEST IN SHARES OF OUR COMMON STOCK, YOU SHOULD BE AWARE THAT
THERE ARE VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CONSIDER
CAREFULLY THESE RISK FACTORS TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED
OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS BEFORE YOU DECIDE TO PURCHASE
SHARES OF OUR COMMON STOCK. THIS SECTION INCLUDES OR REFERS TO CERTAIN
FORWARD-LOOKING STATEMENTS; YOU SHOULD REFER TO THE EXPLANATION OF THE
QUALIFICATIONS AND LIMITATIONS ON SUCH FORWARD-LOOKING STATEMENTS DISCUSSED ON
PAGE 4 OF THIS PROSPECTUS.
THERE ARE RISKS ASSOCIATED WITH THE ACQUISITION OF NEW PROPERTIES, WHICH MAY
ADVERSELY AFFECT THE VALUE OF OUR COMMON STOCK AND OUR ABILITY TO PAY
DIVIDENDS TO OUR STOCKHOLDERS.
We have recently experienced, and may continue to experience, rapid growth
through the acquisition of additional office and industrial properties. Our
ability to manage our growth effectively requires us to integrate successfully
our new acquisitions into our existing management structure. Properties which we
acquire typically have no operating history under our management and such
properties may have characteristics or deficiencies unknown to us which affect
their valuation or revenue potential. The operating performance of these
properties may decline under our management. A decline in the operating
performance of these properties will adversely affect our operating results and
funds from operations, which could adversely impact the price of our common
stock and the amount of dividends we will be able to pay.
We currently plan to continue acquiring properties to the extent we consider
appropriate. Our success in this area depends on many factors, including the
ability to successfully (i) identify properties which meet our acquisition
criteria, (ii) negotiate acceptable price and terms with the seller and (iii)
close the transactions for such properties. Also, we plan to finance our future
acquisitions through debt offerings, equity offerings, other debt financing or
any combination thereof. By using existing credit facilities or other short-term
debt for such activities, we may not be able to secure financing in the future
or financing on equally favorable terms. By using other debt to finance such
activities, we will be subject to risks normally associated with debt financing.
See the risk factor captioned "Our Financial Performance and Value are Subject
to Risks Associated with the Real Estate Industry That Could Adversely Affect
Our Financial Condition--Debt financing may have an adverse effect on our cash
flow and our ability to pay dividends" below. By using equity to finance such
activities, we may dilute your current interest in our company. Accordingly, our
acquisition activities may have an adverse effect on our financial performance
and ability to pay dividends to our stockholders.
THERE ARE RISKS ASSOCIATED WITH OUR ENTRY INTO NEW MARKETS.
We currently intend to continue to seek expansion of our operations into
additional new markets other than Northern New Jersey, Eastern Pennsylvania,
Upstate New York, Indianapolis, Indiana and Greenville and Spartanburg, South
Carolina. In determining whether to enter a new market, we consider, among other
factors, demographics, job growth, employment, real estate fundamentals,
competition and other related matters. We cannot assure you that we will be
successful in our efforts to identify new markets, or that once we identify new
markets, that we will be able to successfully acquire properties in those
markets and achieve favorable operating results from properties acquired in
those markets.
WE DEPEND ON THE PERFORMANCE OF OUR PRIMARY MARKETS, AND CHANGES IN SUCH MARKETS
MAY ADVERSELY AFFECT OUR FINANCIAL CONDITION
Most of our properties are currently located in Northern New Jersey, Eastern
Pennsylvania, Upstate New York and Greenville and Spartanburg, South Carolina.
Like other real estate markets, these commercial real estate markets have
experienced economic downturns in the past, and future declines in any of these
economies or real estate markets could adversely affect our operations or cash
available for
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dividends. Our financial performance and our ability to pay dividends to our
stockholders will be particularly sensitive to the economic conditions in those
markets. Our revenues and the value of our properties may be adversely affected
by a number of factors, including the local economic climate (which may be
adversely impacted by business layoffs, industry slowdowns, changing
demographics and other factors) and local real estate conditions (such as
oversupply of or reduced demand for office and industrial properties). These
factors, when and if they occur in the area in which our properties are located,
would adversely affect our ability to pay dividends to our stockholders.
OUR STOCKHOLDERS' ABILITY TO EFFECT A CHANGE IN CONTROL OF OUR COMPANY IS
LIMITED, WHICH MAY NOT BE IN OUR STOCKHOLDERS' BEST INTERESTS
OUR OWNERSHIP LIMIT MAY NOT BE IN OUR STOCKHOLDERS' BEST INTERESTS. For us
to maintain our qualification as a REIT for federal income tax purposes, not
more than 50% of the value of our outstanding capital stock may be owned,
directly or indirectly, by five or fewer individuals (as defined for federal
income tax purposes to include certain entities) during the last half of each
taxable year after 1993. Our Amended and Restated Articles of Incorporation (the
"Charter") include certain restrictions regarding transfers of shares of our
capital stock and ownership limits that are intended to assist us in satisfying
such limitations. Such restrictions and limits may not be adequate in all cases,
however, to prevent the transfer of shares of our capital stock in violation of
the ownership limitations. The ownership limit discussed above may have the
effect of delaying, deferring or preventing someone from taking control of our
company, even though such a change of control could involve a premium price for
your shares of common stock or otherwise be in our stockholders' best interests.
See the section "Description of Capital Stock--Restrictions on Transfer" in this
Prospectus.
OUR STAGGERED BOARD MAY NOT BE IN OUR STOCKHOLDERS' BEST INTERESTS. Our
Board of Directors is divided into three classes, with the members of each class
serving a three-year term. The staggered terms for directors may reduce the
possibility of a tender offer or an attempt to effect a change in control of our
company, even if such a tender offer or change of control would be in our
stockholders' best interests.
ISSUANCES OF PREFERRED STOCK MAY PREVENT A CHANGE OF CONTROL THAT WOULD BE
IN OUR STOCKHOLDERS' BEST INTEREST. Our Board of Directors is authorized by our
Charter to establish and issue one or more series of preferred stock without
stockholder approval. In December 1998, our Board of Directors established a
series of convertible preferred stock and issued 800,000 shares of that stock.
The establishment of this series or a future series of preferred stock could
make more difficult a change of control of our company that would be in your
best interest.
THE CONCENTRATION OF OWNERSHIP OF OUR CAPITAL STOCK MAY NOT BE IN OUR
STOCKHOLDERS' BEST INTEREST.
Our officers and directors as a group currently beneficially own 26.6% of
our company (assuming the conversion to common stock of all outstanding shares
of our Series A Convertible Preferred Stock, and units of limited partnership
interest in our operating partnership and the conversion of outstanding warrants
to purchase units of limited partnership interest in our operating partnership
and Common Stock). In addition, certain other investors currently own a
significant amount of our shares of Common Stock. Although we feel this
ownership is beneficial in aligning the interest of officers and directors with
that of the other stockholders, this may enable the officers and directors to
exercise substantial influence over the management of our company and on the
outcome of any matters submitted to a vote of our stockholders. The
concentration of beneficial ownership of our company may have the effect of
delaying, deferring or preventing a change in control of our company, may
discourage bids for our capital stock at a premium over the market price of our
capital stock and may adversely affect the market price of our capital stock.
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CERTAIN DIRECTORS AND OFFICERS WHO OWN UNITS OF LIMITED PARTNERSHIP INTEREST IN
OUR OPERATING PARTNERSHIP MAY BE AFFECTED DIFFERENTLY THAN OUR STOCKHOLDERS AS
A RESULT OF THE SALE OF, OR REDUCTION OF MORTGAGE DEBT ON, CERTAIN OF THE
PROPERTIES.
Certain of our directors and officers own units of limited partnership in
our operating partnership and, as a result, may face different and more adverse
tax consequences than you will if we sell or reduce our mortgage indebtedness on
certain of our properties. Those individuals may, therefore, have different
objectives than you regarding the appropriate pricing and timing of any sale of
such properties or reduction of mortgage debt. Accordingly, there may be
instances in which we may not sell a property or pay down the debt on a property
even though doing so would be advantageous to you.
RISKS ASSOCIATED WITH FUTURE ISSUANCES OF OUR COMMON STOCK.
FUTURE ISSUANCES OF COMMON STOCK OR SECURITIES CONVERTIBLE INTO COMMON STOCK
MAY DILUTE YOUR INTEREST IN OUR COMPANY. Our Charter authorizes our Board of
Directors to issue additional shares of our common stock without stockholder
approval. Additionally, (i) each share of our Series A Convertible Preferred
Stock may be converted by the holder into approximately 1.52 shares of our
common stock (subject to certain anti-dilution provisions), (ii) each limited
partnership interest (an "OP Unit") in American Real Estate Investment, L.P.
(the "Operating Partnership") may be converted by the holder into one share of
our common stock (subject to certain anti-dilution provisions), or, at our
option, the cash value of one share of our common stock and (iii) each Series B
Convertible Preferred Unit of limited partnership interest in the Operating
Partnership (a "Preferred OP Unit") may be converted by the holder into
approximately 1.52 shares of our common stock (subject to certain anti-dilution
provisions). Such an issuance of, or redemption for, our shares of common stock
would have the effect of diluting your existing interest in our company.
FUTURE SALES OF OUR COMMON STOCK MAY ADVERSELY AFFECT THE PRICE OF OUR
COMMON STOCK. Future sales of a substantial number of shares of our common
stock may occur as a result of option holders exercising their rights to
purchase our shares or by resale availability from registration rights
(including with respect to shares of Series A Convertible Preferred Stock,
Preferred OP Units or OP Units converted into shares of our Common Stock) or
exemptions from registration. The Selling Security Holders are not the only
stockholders that have registration rights with respect to shares of our common
stock and we are not prevented from granting registration rights to stockholders
in the future. Future sales of a substantial number of shares of our common
stock could adversely affect the prevailing market price for shares of our
common stock.
WE HAVE AGREED NOT TO SELL CERTAIN OF OUR PROPERTIES.
We have agreed with the sellers of certain of our properties not to sell
certain properties for a period of time ranging from one to ten years in any
transaction that would trigger taxable income, subject to certain exceptions.
Some of these agreements are with current officers and directors of our company.
In addition, we may enter into similar agreements with future sellers of
properties. These agreements generally provide that we may dispose of these
properties in transactions that qualify as tax-free exchanges under Section 1031
of the Internal Revenue Code of 1986, as amended (the "Code"). Therefore, we may
be precluded from selling certain properties other than in transactions that
would qualify as tax-free exchanges for federal income tax purposes, even if it
would be in your best interest to do so.
OUR FINANCIAL PERFORMANCE AND VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH THE
REAL ESTATE INDUSTRY THAT COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
GENERAL. Real property investments are subject to varying degrees of risk.
The yields available from equity investments in real estate depend upon the
amount of income generated and expenses incurred. If properties do not generate
income sufficient to meet operating expenses, including debt service and capital
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expenditures, the owner's income and ability to pay dividends will be adversely
affected. An owner's income from properties may be adversely affected by a
variety of factors, including the general economic climate, local conditions,
such as oversupply of the particular category of real estate owned or controlled
by the owner, or reduction in demand for any such properties, competition from
properties owned by others, or the ability of the owner to provide adequate
facilities maintenance, services and amenities. With respect to office and
industrial properties, maintaining income at desired levels can be effected by a
number of factors, including the ability to locate desirable replacements for
key tenants at attractive rent levels following expiration of leases, and the
costs of reletting and providing tenant improvements required to attract and
maintain attractive tenants at desirable rentals.
Often, increased operating costs, including real estate taxes, insurance and
maintenance costs, do not decline when circumstances cause a reduction in income
from a property. If a property is mortgaged to secure payment of indebtedness,
and the owner is unable to meet its mortgage payments, a loss could be sustained
as a result of foreclosure on the property. In addition, income from properties
and real estate values are also affected by such factors as applicable laws,
including tax laws, interest rate levels and the availability of financing.
WE DEPEND ON OUR MAJOR TENANTS. Substantially all of our income is, and
will continue to be, derived from rental income on our properties and,
consequently, our distributable cash flow and ability to pay expected dividends
to stockholders would be adversely affected if a significant number of our
tenants failed to meet their lease obligations. At December 31, 1998, our ten
largest tenants represented approximately 32.3% of our industrial and office
properties' annualized rental income. At any time, a tenant at any of our
properties may seek the protection of the bankruptcy laws, which could result in
delays in rental payments or in the rejection and termination of such tenant's
lease and thereby cause a reduction in our cash flow and the amounts available
for dividends to our stockholders. We cannot assure you that tenants will not
file for bankruptcy protection in the future or, if any tenants file, that they
will affirm their leases and continue to make rental payments in a timely
manner. In addition, a tenant from time to time may experience a downturn in its
business which may weaken its financial condition and result in the failure to
make rental payments when due. If tenant leases are not affirmed following
bankruptcy or if a tenant's financial condition weakens, our cash flow and the
amounts available for dividends to you may be adversely effected.
WE COMPETE WITH OTHER OWNERS AND OPERATORS OF PROPERTIES. All of our
properties are located in well-developed market areas. There are numerous other
office and industrial properties and real estate companies (including other
REITs) within the market area of each of our properties which will compete with
us for tenants and for development and acquisition opportunities. The number of
competitive properties and real estate companies in such areas could have a
material effect on our operations, our ability to rent our properties and the
rents which we charge, and our development and acquisition opportunities. We
compete for tenants and acquisitions with others who may have greater resources
than us. We will continue to experience strong competition in pursuing
development and acquisition opportunities.
DEBT FINANCING MAY HAVE AN ADVERSE EFFECT ON OUR CASH FLOW AND OUR ABILITY
TO PAY DIVIDENDS. Our Charter, By-laws or investment policies do not contain
any limitation on the amount of aggregate indebtedness which we may incur and no
stockholder approval is required for us to incur additional indebtedness.
Accordingly, our management or Board of Directors will have discretion to incur
such amounts of aggregate indebtedness as they determine. We may seek additional
debt financing to fund future acquisitions. We are subject to risks normally
associated with debt financing, including the risk that our cash flow will be
insufficient to pay dividends at expected levels and meet required payments of
principal and interest, the risk that indebtedness on our properties (which will
not have been fully amortized at maturity in all cases) will not be able to be
refinanced or that the terms of such refinancing will not be as favorable as the
terms of existing indebtedness. Our properties are or may be mortgaged to secure
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payments on our indebtedness. Certain properties are secured by debt which is
cross-collateralized and cross-defaulted. As of the date of this Prospectus, our
mortgage debt totaled approximately $345.9 million (or 98.3% of our total
indebtedness), $123.8 million or approximately 35.8% of which constituted
borrowings under our $150 million secured credit facility (the "Credit
Facility"). Based on the market price for our common stock at the close of
business on March 9, 1999, our indebtedness was equal to approximately 62.1% of
our total market capitalization on that date (assuming the conversion to common
stock of all outstanding shares of Series A Convertible Preferred Stock,
Preferred OP Units and OP Units other than those shares or units which we own).
In the future, we may increase our borrowings under the Credit Facility for
new acquisitions, capital improvements, new development projects and for general
working capital purposes. Such variable rate debt creates higher debt service
requirements if market interest rates increase, which could adversely affect our
cash flow and the amounts of cash available for dividends to you.
If we fail to make required payments of principal and interest on any
mortgage debt, our lenders could foreclose on the properties securing such debt
which would result in a loss of income and asset value to us. If principal
payments due at maturity cannot be paid or refinanced, we expect that our cash
flow would not be sufficient in all years to pay dividends at expected levels
and to repay all maturing debt. Furthermore, any substantial increase in
interest expense relating to any such refinanced indebtedness also would
adversely affect our cash flow and the amounts available for dividends to you.
THERE ARE RISKS ASSOCIATED WITH OUR ACQUISITION, REDEVELOPMENT, DEVELOPMENT
AND CONSTRUCTION ACTIVITIES. We intend to acquire office and industrial
properties to the extent that they can be acquired on terms that meet our
investment criteria. Acquisitions of office and industrial properties entail
risks that investments will fail to perform in accordance with expectations.
Estimates of the costs of improvements to bring an acquired property up to
standards established for the market position intended for that property may
prove inaccurate. In addition, there are general investment risks associated
with any new real estate investment.
We intend to consider future investments in the redevelopment, development
and construction of office and industrial buildings in accordance with our
growth policies. Risks associated with our redevelopment, development and
construction activities may include: abandonment of redevelopment or development
opportunities; construction costs of a property exceeding original estimates,
possibly making the property unprofitable; occupancy rates and rents at a newly
renovated or completed property may not be sufficient to make the property
profitable; financing may not be available on favorable terms for redevelopment
or development of a property; and permanent financing may not be available on
favorable terms to replace a short-term construction loan and construction and
lease-up may not be completed on schedule, resulting in increased debt service
expense and construction costs. In addition, new redevelopment or development
activities, regardless of whether they are ultimately successful, typically
require a substantial portion of management's time and attention. Redevelopment
or development activities are also subject to risks relating to the inability to
obtain, or delays in obtaining, all necessary zoning, land-use, building,
occupancy and other required governmental permits and authorizations.
WE MAY NOT BE ABLE TO RENEW LEASES OR TO RELET SPACE. We are, and will
continue to be, subject to the risk that upon expiration of leases for space
located in our properties, such leases may not be renewed, the space may not be
relet or the terms of renewal or reletting (including the cost of required
renovations) may be less favorable than current lease terms. If we are unable to
relet promptly or renew the leases for all or a substantial portion of any
vacant space, if the rental rates upon such renewal or reletting were
significantly lower than expected or if our cash available proves inadequate,
then our cash flow and ability to pay expected dividends to you may be adversely
affected.
LIABILITY FOR ENVIRONMENTAL MATTERS COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION. Under various federal, state, and local environmental laws,
ordinances and regulations, a current or previous owner or operator of
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real property may be liable for the costs of removal or remediation of hazardous
or toxic substances on, under or in such property. Such laws often impose
liability whether or not the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. In addition, the presence of
hazardous or toxic substances, or the failure to remediate such property
properly, may adversely affect the owner's ability to borrow using such real
property as collateral and to lease the property. Persons who arrange for the
disposal or treatment of hazardous or toxic substances may also be liable for
the costs of removal or remediation of hazardous substances at the disposal or
treatment facility, whether or not such facility is or ever was owned or
operated by such person. Certain environmental laws and common law principles
could be used to impose liability for release of, and exposure to, hazardous
substances, including asbestos-containing materials ("ACMs") into the air, and
third parties may seek recovery from owners or operators of real properties for
personal injury or property damage associated with exposure to released
hazardous substances, including ACMs. As the owner of our properties, we may be
potentially liable for any such costs. Phase I environmental site assessments
("ESAs") have been obtained on all of our properties. The purpose of Phase I
ESAs is to identify potential sources of contamination for which we may be
responsible and to assess the status of environmental regulatory compliance. For
a number of the properties, the Phase I ESAs referenced prior Phase II ESAs
obtained on such properties. Phase II ESAs generally involve more invasive
procedures than Phase I ESAs, such as soil sampling and testing or the
installation and monitoring of groundwater wells. The ESAs have not revealed any
environmental condition, liability or compliance concern that we believe would
have a material adverse effect on our business, assets or results of operations,
nor are we aware of any such condition, liability or concern. It is possible
that the ESAs relating to any of the properties do not reveal all environmental
conditions, liabilities or compliance concerns or that there are material
environmental conditions, liabilities or compliance concerns that arose at a
property after the related ESA report was completed of which we are otherwise
unaware. In addition, we cannot assure you that properties which we acquire in
the future will not have any material environmental conditions.
FAILURE TO QUALIFY AS A REIT WOULD CAUSE OUR COMPANY TO BE TAXED AS A
CORPORATION
WE WILL BE TAXED AS A CORPORATION IF WE FAIL TO QUALIFY AS A REIT. We
believe that, commencing with our taxable year ended December 31, 1993, we have
been organized and operated in a manner that has enabled us to meet the
requirements for qualification as a REIT for federal income tax purposes and we
intend to continue to operate in such a manner. We have not requested, and we do
not plan to request, a ruling from the Internal Revenue Service ("IRS") that we
qualify as a REIT. However, we have received an opinion from the law firm of
Rogers & Wells LLP that, based on certain assumptions and representations, we
have been organized in a manner so as to qualify as a REIT under the Code and
that our proposed method of operation will enable us to continue to so qualify.
You should be aware that opinions of counsel are not binding on the IRS or
any court. Furthermore, the conclusions stated in the opinion are conditioned
on, and our continued qualification as a REIT will depend on, our meeting
various requirements imposed by the Code. Such requirements are discussed in
more detail in the section "Federal Income Tax Considerations--Taxation of the
Company" in this Prospectus.
If we fail to qualify as a REIT, we would not be allowed a deduction for
dividends paid to stockholders in computing our taxable income and would be
subject to federal income tax at regular corporate rates. We also could be
subject to the federal alternative minimum tax. Unless we are entitled to relief
under specific statutory provisions, we could not elect to be taxed as a REIT
for the four taxable years following the year during which we were disqualified.
Therefore, if we lost our REIT status, the funds available for dividends to you
would be substantially reduced for each of the years involved. In addition, we
would no longer be required to pay dividends to you.
FAILURE TO MEET MINIMUM DISTRIBUTION REQUIREMENTS MAY ADVERSELY AFFECT
US. To qualify as a REIT, we generally must distribute to our stockholders 95%
of our net taxable income. Such annual distribution
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<PAGE>
requirements limit the amount of cash we have available for other business
purposes, including amounts to fund our growth and make payments on our debt. If
we fail to meet these distribution requirements, we may be disqualified as a
REIT and subject to certain income and excise taxes. In addition, we will be
subject to a 4% nondeductible excise tax on the amount, if any, by which certain
distributions we make with respect to any calendar year are less than the sum of
(i) 85% of our REIT ordinary income for that year, (ii) 95% of our REIT capital
gain net income for that year and (iii) any undistributed taxable income from
prior years. We intend to make distributions to our stockholders to comply with
the 95% distribution requirement and to avoid the nondeductible excise tax.
Differences in timing between (i) the actual receipt of income and actual
payment of deductible expenses and (ii) the inclusion of such income and
deduction of such expenses in arriving at our taxable income could require us,
directly or indirectly through the Operating Partnership, to borrow funds on a
short-term or long-term basis to meet the 95% distribution requirement and to
avoid the nondeductible excise tax. See the section "Federal Income Tax
Considerations--Taxation of the Company--Annual Distribution Requirements" in
this Prospectus.
POTENTIAL LEGISLATIVE ACTION REGARDING REITS MAY ADVERSELY US. The Clinton
Administration recently released a summary of its proposed budget plan which
contained several proposals affecting REITs. One such proposal, if enacted in
its present form, would prohibit a REIT from holding securities representing
more than 10% of the value of all classes of stock of a corporation, other than
a qualified REIT subsidiary or another REIT. If enacted in its present form, the
proposal may limit the future activities and growth of American Real Estate
Management Inc. (the "Management Company"). No prediction can be made as to
whether such proposal or any other proposal affecting REITs will be enacted into
legislation and the impact of any such legislation on our operations. See the
section "Federal Income Tax Considerations-- Other Tax Considerations" in this
Prospectus.
WE MAY BE SUBJECT TO OTHER TAX LIABILITIES. Even if we qualify as a REIT,
we may be subject to certain federal, state and local taxes on our income and
property that could reduce operating cash flow. See the section "Federal Income
Tax Considerations--Other Tax Considerations" in this Prospectus.
WE DEPEND ON KEY PERSONNEL, THE LOSS OF WHOM MIGHT ADVERSELY AFFECT OUR
PERFORMANCE
We depend on the efforts of our key personnel, particularly Jeffrey E.
Kelter, our President, and David F. McBride, our Chairman, as well as certain
other senior management. While we believe that, if necessary, we could find
replacements for these key personnel, the loss of their services could have a
material adverse effect on our operations.
11
<PAGE>
THE COMPANY
We are a self-administered, self-managed REIT engaged in the ownership,
acquisition and development of industrial and office properties. At December 31,
1998, we owned a portfolio of 99 properties comprised of 64 industrial
properties and 33 office properties containing an aggregate of approximately 12
million square feet, a community shopping center and an investment in a direct
financing lease (the "Properties"). The Properties are located principally in
the mid-Atlantic and Northeastern United States and are 97.6% leased to 290
tenants.
We conduct substantially all of our activities through, and substantially
all of the Properties are held directly or indirectly by, the Operating
Partnership. We are the sole general partner of the Operating Partnership and,
at December 31, 1998, owned approximately 52.9% of the outstanding units of
limited partnership interest in the Operating Partnership. The remaining OP
Units and Preferred OP Units are owned by limited partners of the Operating
Partnership. Our officers and directors owned approximately 29.7% of the
outstanding units of limited partnership interest in the Operating Partnership
as of December 31, 1998. Each OP Unit may be converted by the holder into one
share of common stock (subject to certain anti-dilution provisions), or, at our
option, the cash value of one share of common stock and each Preferred OP Unit
may be converted by the holder into approximately 1.52 shares of our common
stock (subject to certain anti-dilution provisions), or, at our option, the cash
value of such number of shares of our common stock. With each such exchange, our
percentage interest in the Operating Partnership will increase.
Our common stock is listed on the AMEX under the symbol "REA."
Our principal executive offices are located at 620 W. Germantown Pike, Suite
200, Plymouth Meeting, Pennsylvania 19462, and our telephone number is (610)
834-7950. We also maintain offices in Franklin Lakes, New Jersey, New York and
Syracuse, New York, Allentown, Pennsylvania and Greenville, South Carolina.
Unless the context otherwise requires, all references to "we," "us" or "our
company" refers to American Real Estate Investment Corporation and its
subsidiaries, including the Operating Partnership.
USE OF PROCEEDS
We will not receive any of the proceeds of sales of common stock by the
Selling Security Holders.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Under our Charter, the total number of shares of all classes of stock that
we have authority to issue is 65,000,000. Currently, 64,200,000 shares are
classified as shares of common stock, $.001 par value (the "Common Stock") and
800,000 shares are classified as Series A Convertible Preferred Stock (the
"Series A Preferred Stock"). All of the authorized shares of Series A Preferred
Stock are issued and outstanding. Our Board of Directors may classify and
reclassify any unissued shares of capital stock by setting or changing in any
one or more respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of such shares of capital stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters voted on by stockholders, including elections of directors. Except for
the voting rights of the holders of shares of Series A Preferred Stock described
below, rights provided in any Articles Supplementary adopted by our Board of
Directors with respect to any future series of preferred stock or as otherwise
required by law, the holders of shares of Common Stock possess all voting power.
Our Board of Directors is divided into three classes. The three classes have
staggered terms of office so that the terms of office of directors of only one
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class expires at each annual meeting of stockholders. The directors of each
class are elected for three year terms and until his or her successor is elected
and duly qualified or until his or her earlier death. The Charter does not
provide for cumulative voting in the election of directors. Subject to any
preferential rights of any outstanding series of preferred stock, the holders of
shares of Common Stock are entitled to such dividends as may be declared from
time to time by our Board of Directors from funds available therefor and upon
liquidation are entitled to receive pro rata all assets of our company available
for distribution to such holders. All shares of Common Stock outstanding are
fully paid and non-assessable, and the holders thereof have no preemptive rights
under our Charter. However, under an agreement pursuant to which certain
institutional holders (for whom Morgan Stanley Asset Management Inc. acts as
agent) purchased shares of our Common Stock, if we propose to issue shares of
our Common Stock for cash, these institutional holders have the right to
purchase, on the same terms, up to an amount of the securities such that, upon
consummation of the proposed issuance, such holders would hold the same
percentage of the Common Stock as such holders held immediately prior to such
issuance. Holders of our Series A Preferred Stock have similar rights. See
"Preferred Stock" below.
PREFERRED STOCK
Under our Charter, our Board of Directors is authorized to provide for the
issuance of shares of preferred stock in one or more series, to establish the
number of shares in each series and to fix the terms thereof. Our Board of
Directors could authorize the issuance of additional shares of preferred stock
with terms and conditions that could have the effect of discouraging a takeover
or other transaction that holders of Common Stock might believe to be in their
best interests or in which holders of some, or a majority, of the shares of
Common Stock might receive a premium for their shares over the then market price
of such shares of Common Stock.
There are currently 800,000 shares of our Series A Preferred Stock
outstanding, which constitute all of the Company's outstanding preferred stock.
The terms of the Series A Preferred Stock provide for a preference as to the
payment of dividends over shares of our Common Stock and any other capital stock
ranking junior to the Series A Preferred Stock, and for cumulative quarterly
dividends at the rate of the greater of (i) $2.25 per share per year or (ii) an
amount per share equal to the aggregate annual amount of cash dividends paid or
payable, if any, with respect to the number of shares of Common Stock into which
each share of Series A Preferred Stock is then convertible in accordance with
the terms of the Articles Supplementary setting forth the terms of the Series A
Preferred Stock. Such dividends are cumulative from the date of issuance of the
Series A Preferred Stock and compound quarterly at a rate of 9% per annum.
If we propose to issue for cash shares of our Common Stock, or securities
convertible into shares of our Common Stock (with the exception of interests of
limited partnership in the Operating Partnership), we must give each holder of
shares of Series A Preferred Stock ten business days notice of this issuance and
each holder will have the right to purchase, on the same terms, up to an amount
of the Common Stock or other securities issued such that, upon consummation of
the proposed issuance, such holder would hold the same percentage of the Common
Stock as it held immediately prior to such issuance (assuming conversion to
shares of Common Stock of all shares of Series A Preferred Stock held by such
holder).
If there is (i) a voluntary or involuntary dissolution or winding up of the
Company, (ii) a consolidation or merger of the Company which results in a change
in control of the Company or (iii) a sale or transfer of all or substantially
all of the Company's assets other than to an affiliate, the holders of the
Series A Preferred Stock will be entitled to receive out of the Company's assets
available for distribution to stockholders, before any distribution of assets is
made to holders of Common Stock or any other shares of capital stock ranking as
to such distributions junior to the Series A Preferred Stock, liquidating
distributions in an amount equal to the greater of (i) (A) $25.00 per share (the
"Liquidation Preference"), plus all accrued and unpaid dividends plus (B) the
applicable liquidation premium set forth below or (ii) an amount per share of
Series A Preferred Stock equal to the amount which would have been payable had
each share of Series A Preferred Stock been converted into shares of Common
Stock immediately prior to
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<PAGE>
such liquidation, merger or sale. If, on or prior to December 15, 2003, there is
a consolidation or merger of the Company which results in a change of control of
the Company and the surviving entity is a Qualified Entity (as such term is
defined in the Articles Supplementary relating to the Series A Preferred Stock),
the holders of the Series A Preferred Stock shall receive a liquidation premium
of 5% of the Liquidation Preference. If, on or prior to December 15, 2003, there
is a voluntary or involuntary dissolution or winding up of the Company or a sale
or transfer of all or substantially all of the Company's assets, other than to
an affiliate, the holders of the Series A Preferred Stock shall receive a
liquidation premium of 10% of the Liquidation Preference. From December 15, 2003
through December 14, 2004, the liquidation premium shall be 4.5% of the
liquidation Preference. From December 15, 2004 through December 14, 2005, the
liquidation premium shall be 3.375% of the Liquidation Preference. From December
15, 2005 through December 14, 2006, the liquidation premium shall be 2.25% of
the Liquidation Preference. From December 15, 2006 through December 14, 2007,
the liquidation premium shall be 1.125% of the Liquidation Preference. After
December 15, 2007 the holders of shares of Series A Preferred Stock will not
receive a liquidation premium. The foregoing terms of the Series A Preferred
Stock could have the effect of discouraging a takeover or other transaction that
holders of Common Stock might believe to be in their best interests or in which
holders of some, or a majority, of the shares of Common Stock might receive a
premium for their shares over the then market price of such shares of Common
Stock.
We may not redeem shares of Series A Preferred Stock prior to December 15,
2003. On or after December 13, 2003, we may, at our option, redeem shares of
Series A Preferred Stock, in whole, but not in part, at the applicable cash
redemption price set forth below (the "Redemption Price") plus all accumulated,
accrued and unpaid dividends, if any, to the date fixed for redemption. From
December 15, 2003 through December 14, 2004, the Redemption Price will be equal
to 104.5% of the Liquidation Preference. During the period from December 15,
2004 through December 14, 2005, the Redemption Price will be equal to 103.375%
of the Liquidation Preference. During the period from December 15, 2005 through
December 14, 2006, the Redemption Price will be equal to 102.25% of the
Liquidation Preference. During the period from December 15, 2006 through
December 14, 2007, the Redemption Price will be equal to 101.125% of the
Liquidation Preference. On and after December 15, 2007, the Redemption Price
will be equal to the Liquidation Preference.
Each share of Series A Preferred Stock is convertible at any time into the
number of shares of Common Stock obtained by dividing the aggregate Liquidation
Preference of such shares of Series A Preferred Stock by $16.50 (the "Conversion
Price"). The Conversion Price will be adjusted upon the occurrence of the
following events: (i) the payment of a dividend or distribution on our capital
stock in shares of our Common Stock; (ii) a combination, subdivision or
reclassification of our outstanding Common Stock; (iii) the issuance to all
holders of Common Stock of rights, options or warrants entitling such holders to
subscribe for or purchase Common Stock at less than the then current market
price; and (iv) with certain exceptions, the distribution to all holders of
Common Stock of capital stock of the Company (other than Common Stock),
evidences of indebtedness of the Company, assets or rights or warrants to
subscribe for or purchase securities of the Company. No adjustment of the
Conversion Price will be required to be made in any case until cumulative
adjustments amount to one percent of such price, provided, however, that any
adjustment not required to be made because of such limitation shall be carried
forward and taken into account in any subsequent adjustment. No adjustment to
the Conversion Price will be made with respect to Common Stock issued pursuant
to any dividend reinvestment plan. In addition to the foregoing adjustments, we
are permitted to make such reductions to the Conversion Price as we determine to
be advisable in order that any stock dividend, subdivision of shares,
reclassification or combination of shares, distribution of rights, options or
warrants to purchase stock or securities, or a distribution of other assets
(other than cash dividends) hereafter made by the Company to its shareholders
will not be taxable to the recipients.
Except as expressly required by law and in certain other limited
circumstances, the holders of the Series A Preferred Stock are not entitled to
vote. The consent of holders of at least 66 2/3% of the
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outstanding shares of Series A Preferred Stock, voting as a single class, is
required to authorize another class of shares senior to such preferred stock. In
addition, the affirmative vote or consent of the holders of at least 66 2/3% of
the outstanding shares of Series A Preferred Stock is required to amend or
repeal any provision of, or add any provision to, the Charter, including the
Articles Supplementary relating to the Series A Preferred Stock, if such action
would materially and adversely affect the voting powers, rights or privileges of
the holders of the Series A Preferred Stock. However, the vote of the holders of
Series A Preferred Stock will not be required if, at or prior to the time such
amendment or repeal is to take effect or the issuance of any such prior shares
or convertible security is to be made, as the case may be, provisions are made
for the redemption of all outstanding shares of Series A Preferred Stock. The
amendment of or supplement to our Charter to authorize, create, increase or
decrease the authorized amount of or to issue shares ranking junior to or an a
parity with Series A Preferred Stock shall not be deemed to materially adversely
affect the voting powers, rights or preferences of the holders of Series A
Preferred Stock.
If and whenever dividends on any shares of Series A Preferred Stock are in
arrears for six or more quarterly periods (whether or not consecutive), the
number of directors then constituting our Board shall be increased by one and
the holders of shares of Series A Preferred Stock, voting as a single class,
will be entitled to nominate and vote for the election of the additional
director. Whenever dividends in arrears on outstanding shares of the Series A
Preferred Stock are paid and dividends for the current quarterly dividend period
have been paid or declared and set apart for payment, then the right of the
holders of the Series A Preferred Stock to elect an additional director shall
cease and the term of office of the director shall terminate and the number of
directors constituting our Board shall be reduced accordingly.
With respect to the exercise of the above-described voting rights, each
share of Series A Preferred Stock shall have one (1) vote per share.
The transfer agent and registrar for the Common Stock and the Series A
Preferred Stock is American Stock Transfer & Trust Company.
RESTRICTIONS ON TRANSFER
For us to qualify as a REIT under the Code, not more than 50% in value of
our outstanding shares of capital stock may be owned, directly or indirectly, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year, and the shares of capital stock must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months or during a proportionate part of a shorter taxable year; and
certain percentages of our gross income must be from particular activities.
Because our directors believe it is essential for us to continue to qualify as a
REIT, the Charter, subject to certain exceptions, provides that no holder (other
than the McBride Family (as defined in the Charter) or Hudson Bay Partners II,
L.P. and any other person who the directors approve, at their option and in
their discretion, provided that such approval will not result in the termination
of our status as a REIT) may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than the Ownership Limit. In connection
with certain issuances of our stock, our Board approved the exemption of certain
additional holders of our stock from the Ownership Limit. The "Ownership Limit"
means (i) with respect to shares of our Common Stock, 4.9% of the outstanding
shares of Common Stock (in value or number of shares, whichever is more
restrictive) and (ii) with respect to any class or series of preferred stock,
9.9% (in value or number of shares, whichever is more restrictive) of the
outstanding shares of such class or series of preferred stock. The foregoing
restrictions on transferability and ownership will not apply if the directors
determine that it is no longer in our best interests to attempt to qualify, or
to continue to qualify, as a REIT. If any purported transfer of shares would
cause our shares to be beneficially owned by less than 100 persons, then such
purported transfer shall be void AB INITIO and the intended transferee shall
acquire no rights in such shares. If any transfer of shares occurs which, if
effected, would (i) create a direct or indirect ownership of shares in excess of
the Ownership Limit, (ii) result in our company being "closely held" within the
meaning of Section 856(h) of the Code, or (iii) otherwise result in our failure
to qualify as a REIT, then the capital stock being transferred that would cause
one or more of the restrictions on
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<PAGE>
ownership or transfer to be violated will be automatically transferred to a
trust for the benefit of a designated charitable beneficiary. The purported
transferee of such shares shall have no right to receive dividends or other
distributions with respect to such shares and shall have no right to vote such
shares. Any dividends or other distributions paid to such purported transferee
prior to our discovery that the shares have been transferred to a trust shall be
paid upon demand to the trustee of the trust for the benefit of the charitable
beneficiary. The trustee of the trust will have all rights to dividends with
respect to the shares of capital stock held in trust, which rights will be
exercised for the exclusive benefit of the charitable beneficiary. The trustee
shall designate a transferee of such stock so long as such shares of stock would
not violate the Ownership Limit in the hands of such designated transferee. Upon
the sale of such shares, the purported transferee shall receive the lesser of
(i) (a) the price per share such purported transferee paid for the capital stock
in the purported transfer that resulted in the transfer of shares of capital
stock to the trust, or (b) if the transfer or other event that resulted in the
transfer of shares of capital stock gave full value for such shares, a price per
share equal to the market price on the date of the purported transfer or other
event that resulted in the transfer of the shares to the trust, and (ii) the
price per share received by the trustee from the sale or disposition of the
shares held in the trust.
All certificates representing capital stock will bear a legend referring to
the restrictions described above.
Every owner of more than 1% (or such other percentage as required by the
Code or regulations thereunder) of the issued and outstanding shares of Common
Stock will be required to file a written notice with us containing the
information specified in the Charter no later than January 30 of each year. In
addition, each stockholder shall upon demand be required to disclose to us in
writing such information as we may request in good faith in order to determine
our status as a REIT.
These ownership limitations may have the effect of precluding acquisition of
control of our company unless the directors determine that maintenance of REIT
status is no longer in our best interests.
LIMITATION OF LIABILITY OF DIRECTORS
The Charter provides that, to the fullest extent permitted by Maryland law,
a director or officer will not be personally liable for monetary damages to us
or you.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Charter provides that we shall indemnify (i) our directors and officers
to the fullest extent required or permitted by Maryland law, including the
advance of expenses under the procedures and to the full extent permitted by
law, and (ii) other employees and agents to such extent as shall be authorized
by our Board of Directors or our By-laws and be permitted by law. The Charter
provides that no amendment of the Charter or repeal of any of its provisions
shall limit or eliminate the right to indemnification provided thereunder with
respect to acts or omissions occurring prior to such amendment or repeal. We
have a director and officer liability insurance policy with a $5,000,000 limit
of liability and a company retention of $75,000 in the aggregate for each claim.
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SELLING SECURITY HOLDERS
Sales of the shares of Common Stock registered hereby must (i) be
accompanied by a copy of this Prospectus, together with the applicable
prospectus supplement or (ii) be effected through an exemption from
registration, such as pursuant to Rule 144 under the Securities Act.
The Selling Security Holders are persons who have received or will receive
shares of Common Stock upon conversion of their (i) shares of Series A Preferred
Stock or (ii) Preferred OP Units.
The following table lists (i) the Selling Security Holders who may offer
shares of our Common Stock from time to time pursuant to this Prospectus, (ii)
the number and percentage of shares of Common Stock beneficially owned by each
Selling Security Holder as of March 10, 1999, (iii) the number of shares of
Common Stock of each Selling Security Holder, the offer and sale of which is to
be registered on behalf of each Selling Security Holder pursuant to this
Prospectus (the "Registered Shares") and (iv) the amount of shares of Common
Stock that will be held by Selling Security Holders after completion of this
offering. We are registering the Registered Shares in order to permit secondary
trading of the Registered Shares, and the Selling Security Holders may offer
Registered Shares for resale from time to time. See the section "Method of Sale"
in this Prospectus.
<TABLE>
<CAPTION>
REGISTERED
NUMBER PERCENTAGE SHARES NUMBER PERCENTAGE
---------- --------- --------- ------------- ---------------
SHARES BENEFICIALLY SHARES BENEFICIALLY
NAME OWNED BEFORE OFFERING OWNED AFTER OFFERING (1)
- -------------------------------------- --------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
AEW Targeted Fund, L.P................ 1,216,000(2) 13.38%(2) 1,216,000 0 0
Hopewell Properties, Inc.............. 456,000(2) 5.02%(2) 456,000 0 0
</TABLE>
- ------------------------------
(1) The Registered Shares may be offered from time to time in one or more
offerings. This assumes that all of the shares of Common Stock held by the
Selling Security Holders and being offered under this Prospectus are sold,
and that the Selling Security Holders acquire no additional shares of Common
Stock before the completion of this offering.
(2) This assumes that all of the Series A Preferred Stock and Preferred OP Units
held by the Selling Security Holders are converted into shares of Common
Stock on a 1:1.52 basis as of March 10, 1999.
AEW Targeted Securities Fund, L.P. purchased its shares of Series A
Preferred Stock from the Company in December 1998. Each share of Series A
Preferred Stock is convertible into approximately 1.52 shares of our Common
Stock, subject to certain anti-dilution provisions set forth in the Articles
Supplementary relating to the Series A Preferred Stock. See the section
"Description of Capital Stock---Preferred Stock" in this Prospectus. Pursuant to
a Registration Rights Agreement, dated as of December 23, 1998, we agreed to
register the shares of Common Stock issuable upon conversion of the Series A
Preferred Stock within 60 days of the date of such agreement. In addition, the
terms of the Series A Preferred Stock provide that, if we propose to issue
shares of our Common Stock, or securities convertible into shares of our Common
Stock, for cash, each holder of shares of Series A Preferred Stock will have the
right to purchase, on the same terms, up to an amount of the securities such
that, upon consummation of the proposed issuance, such holder would hold the
same percentage of the Common Stock as it held immediately prior to such
issuance.
Hopewell Properties, Inc. received its Preferred OP Units as part of the
consideration paid by us to purchase 26 industrial properties in South Carolina
pursuant to an Asset Purchase Agreement, dated as of August 7, 1998. Each
Preferred OP Unit is convertible into approximately 1.52 shares of our Common
Stock, subject to anti-dilution provisions set forth in the Operating
Partnership's Partnership Agreement. Pursuant to a Preferred Unit Recipient
Agreement, dated as of December 23, 1998, we agreed to register the shares of
Common Stock issuable upon conversion of the Preferred OP Units within 90 days
of the date of such agreement.
We have agreed to indemnify the Selling Security Holders against certain
liabilities. See "Method of Sale" below.
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METHOD OF SALE
This Prospectus relates to the possible offer and sale from time to time by
the Selling Security Holders (or by pledgees, donees, transferees or other
successors in interest of such Selling Security Holders) of their Registered
Shares. We have registered the Registered Shares for resale to provide them with
freely tradeable securities. However, registration of the Registered Shares does
not necessarily mean that they will offer or sell any of their Registered
Shares. We will not receive any proceeds from the offering or sale of their
Registered Shares.
The Selling Security Holders (or pledgees, donees, transferees or other
successors in interest) in one or more transactions (which may involve block
crosses or transactions) may sell the Registered Shares to which this Prospectus
relates from time to time (i) on the AMEX, where our Common Stock is listed for
trading, (ii) in other markets where our Common Stock is traded, (iii) in
negotiated transactions, (iv) through short sales or put and call option
transactions through underwriters, brokers or dealers (who may act as agent or
principal), (v) through the distribution of the Registered Shares by any Selling
Security Holder to its partners, members or shareholders, (vi) directly to one
or more purchasers, (vii) through agents or (viii) in a combination of such
methods of sale. They may sell the Registered Shares at prices which are current
when the sales take place or at other prices to which they agree.
Any underwriters, brokers, dealers or agents may receive compensation in the
form of discounts, concessions or commissions from the Selling Security Holders
or such other persons who may be effecting sales hereunder (which discounts,
concessions or commissions as to particular underwriters, brokers, dealers or
agents may be in excess of those customary in the types of transactions
involved). Underwriters may sell Registered Shares to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. The Selling Security Holders or other persons
effecting sales hereunder, and any such underwriters, brokers, dealers and
agents may be deemed to be "underwriters" within the meaning of the Securities
Act, and any discounts or commissions they receive and any profit on the sale of
the Registered Shares they realize may be deemed to be underwriting discounts
and commissions under the Securities Act. Some sales may involve shares in which
the Selling Security Holders have granted security interests and which are being
sold because of foreclosure of those security interests. WE HAVE AGREED TO
INDEMNIFY EACH SELLING SECURITY HOLDER AGAINST CERTAIN LIABILITIES, INCLUDING
LIABILITIES ARISING UNDER THE SECURITIES ACT. THE SELLING SECURITY HOLDERS OR
OTHER PERSONS EFFECTING SALES HEREUNDER MAY AGREE TO INDEMNIFY ANY SUCH
UNDERWRITERS, DEALERS AND AGENTS AGAINST CERTAIN LIABILITIES, INCLUDING
LIABILITIES UNDER THE SECURITIES ACT.
The Selling Security Holders may enter into hedging transactions with
broker-dealers or other financial institutions. In connection with such
transactions, broker-dealers or other financial institutions may engage in short
sales of our shares of Common Stock in the course of hedging the positions they
assume with Selling Security Holders. The Selling Security Holders may also
enter into options or other transactions with broker-dealers or other financial
institutions which require the delivery to such broker-dealer or other financial
institution of shares of our Common Stock offered hereby, which shares of our
Common Stock such broker-dealer or other financial institution may resell
pursuant to this Prospectus (as supplemented or amended to reflect such
transaction).
Under the securities laws of certain states, the Registered Shares may be
sold in such states only through registered or licensed brokers or dealers. In
addition, in certain states the Registered Shares may not be sold unless the
Registered Shares have been registered or qualified for sale in such state or an
exemption from registration or qualification is available and is complied with.
The Selling Security Holders also may resell all or a portion of their
Registered Shares in open market transactions in reliance upon Rule 144 under
the Securities Act, provided they meet the criteria and conform to the
requirements of such rule.
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Upon notification by a Selling Security Holder that any material arrangement
has been entered into with a broker-dealer for the sale of Shares through a
block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, we will file a supplement to this
Prospectus, if required, pursuant to Rule 424(b) under the Securities Act,
disclosing (i) the name of each such Selling Security Holder and of the
participating broker-dealer(s), (ii) the number of Registered Shares involved,
(iii) the price at which such Registered Shares were sold, (iv) the commissions
paid or discounts or concessions allowed to such broker-dealer(s), where
applicable, (v) that such broker-dealer(s) did not conduct any investigation to
verify the information set out or incorporated by reference in this prospectus
and (vi) other facts material to the transaction.
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FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following discussion summarizes the material federal income tax
considerations that may be relevant to a U.S. person who holds Common Stock, is
based on current law, and is not intended and should not be construed as tax
advice. The following discussion, which is not exhaustive of all possible tax
considerations, does not include a detailed discussion of any state, local or
foreign tax considerations. In addition, this discussion is intended to address
only those federal income tax considerations that are generally applicable to
all prospective U.S. stockholders and does not discuss all of the aspects of
federal income taxation that may be relevant to a prospective U.S. stockholder
in light of his or her particular circumstances or to certain types of
stockholders (including insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) who are subject to special treatment
under the federal income tax laws.
The statements and opinions in this discussion are based on current
provisions of the Code, existing, temporary and currently proposed Treasury
Regulations under the Code, the legislative history of the Code, existing
administrative rulings and practices of the IRS and judicial decisions. No
assurance can be given that legislative, judicial or administrative changes will
not affect the accuracy of any statements in this Prospectus with respect to
transactions entered into or contemplated prior to the effective date of such
changes. In addition, we have not requested and do not plan to request any
rulings from the IRS concerning our tax treatment or the tax treatment of the
Operating Partnership. Accordingly, no assurance can be given that the
statements set forth herein (which do not bind the IRS or the courts) will not
be challenged by the IRS or sustained by the courts if so challenged.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING. WE
ADVISE EACH PROSPECTIVE PURCHASER OF COMMON STOCK TO CONSULT WITH HIS OR HER OWN
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF COMMON STOCK IN AN ENTITY ELECTING TO BE TAXED
AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION, AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
GENERAL. We have elected to be taxed as a REIT under Sections 856 through
860 of the Code, commencing with our taxable year ended December 31, 1993. We
believe that we have been organized and operated in a manner so as to qualify
for taxation as a REIT under the Code, and we intend to continue to operate in
such a manner. No assurance, however, can be given that we have operated in a
manner so as to qualify as a REIT or will continue to operate in a manner so as
to remain qualified as a REIT. Qualification and taxation as a REIT depends upon
our ability to meet, on a continuing basis, through periodic operating results,
distribution levels, diversity of stock ownership and other qualification tests
imposed under the Code on REITs, some of which are summarized below. While we
intend to operate so as to qualify as a REIT, given the highly complex nature of
the rules governing REITs, the ongoing importance of factual determinations and
the possibility of future changes in our circumstances, no assurance can be
given that we will so qualify for any particular year. See the section "Failure
to Qualify" in this Prospectus.
In the opinion of Rogers & Wells LLP, our counsel ("Counsel"), commencing
with our taxable year ended December 31, 1993, we have been organized in
conformity with the requirements for qualification as a REIT under the Code and
our proposed method of operation and that of the Operating Partnership will
enable us to meet the requirements for qualification as a REIT. Counsel's
opinion is based on various assumptions and is conditioned upon certain of our
representations and the representations of the Operating Partnership as to
factual matters. In addition, Counsel's opinion is based upon our factual
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representations concerning our business and properties, and the business and
properties of the Operating Partnership. Unlike a tax ruling, an opinion of
counsel is not binding upon the IRS and no assurance can be given that the IRS
will not challenge our status. Moreover, such qualification and taxation as a
REIT depends upon our ability to meet, through actual annual operating results,
distribution levels, diversity of stock ownership and various other
qualification tests imposed under the Code. Counsel will not review our
compliance with the various REIT qualification tests on a periodic or continuing
basis. Accordingly, no assurance can be given that the actual results of our
operation for any one taxable year will satisfy such requirements. See the
section "Failure to Qualify" in this Prospectus.
The following is a general summary of the Code provisions that govern the
federal income tax treatment of a REIT and its stockholders. These provisions of
the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof, all of which are subject to
change, possibly with retroactive effect.
So long as we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income tax on our net income that we distribute
currently to our stockholders. This treatment substantially eliminates the
"double taxation"(taxation at both the corporate and stockholder levels) that
generally results from an investment in a corporation. If we do not qualify as a
REIT, we would be taxed at rates applicable to corporations on all of our
income, whether or not distributed to our stockholders. Even if we qualify as a
REIT, we will be subject to federal income or excise tax as follows: (i) we will
be taxed at regular corporate rates on any undistributed REIT taxable income and
undistributed net capital gains other than retained capital gains as discussed
below; (ii) under certain circumstances, we may be subject to the "alternative
minimum tax" on our items of tax preference, if any; (iii) if we have (1) net
income from the sale or other disposition of "foreclosure property"(generally,
property acquired by reason of a foreclosure or otherwise on default of a loan
secured by the property) that is held primarily for sale to customers in the
ordinary course of business or (2) other nonqualifying net income from
foreclosure property, we will be subject to tax at the highest corporate rate on
such income; (iv) if we have net income from prohibited transactions (which are,
in general, certain sales or other dispositions of property (other than
dispositions of foreclosure property and dispositions of property that occur due
to involuntary conversion) held primarily for sale to customers in the ordinary
course of business), such income will be subject to a 100% tax; (v) if we should
fail to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), and nonetheless maintain our qualification as a REIT because
certain other requirements are met, we will be subject to a 100% tax on the net
income attributable to the greater of the amount by which we fail the 75% or 95%
test, multiplied by a fraction intended to reflect our profitability; (vi) if we
should fail to distribute with respect to each calendar year at least the sum of
(1) 85% of our REIT ordinary income for such year, (2) 95% of our REIT capital
gain net income for such year, and (3) any undistributed taxable income from
prior years, we would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed; (vii) if we acquire
any asset from a C corporation (I.E., generally a corporation subject to full
corporate-level tax) in a transaction in which the basis of the asset in our
hands is determined by reference to the basis of the asset (or any other
property) in the hands of the C corporation and we subsequently recognize gain
on the disposition of such asset in a taxable transaction during the 10-year
period (the "Recognition Period") beginning on the date on which we acquired the
asset (or we first qualified as a REIT), then pursuant to guidelines issued by
the IRS, the excess of (1) the fair market value of the asset as of the
beginning of the applicable Recognition Period, over (2) our adjusted basis in
such asset as of the beginning of such Recognition Period will be subject to tax
at the highest regular corporate rate.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) that would be taxable
as a domestic corporation but for Sections 856 through 859 of the Code; (iv)
that is neither a financial
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institution nor an insurance company subject to certain provisions of the Code;
(v) that has the calendar year as its taxable year; (vi) the beneficial
ownership of which is held by 100 or more persons; (vii) during the last half of
each taxable year not more than 50% in value of the outstanding stock of which
is owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities); and (viii) that meets certain other
tests, described below, regarding the nature of its income and assets. The Code
provides that conditions (i) through (v), inclusive, must be met during the
entire taxable year and that condition (vi) must be met during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable year
of less than 12 months. Conditions (vi) and (vii), however, will not apply until
after the first taxable year for which an election is made to be taxed as a
REIT.
We believe that we currently satisfy all of the conditions listed in the
preceding paragraph. In addition, our Charter includes restrictions regarding
the transfer of our Common Stock that are intended to assist us in continuing to
satisfy the share ownership requirements described in (vi) and (vii) above. See
"Description of Capital Stock Restrictions on Transfer." In rendering its
opinion that we are organized in conformity with the requirements for
qualification as a REIT, Counsel is relying on our representation that ownership
of our stock satisfies condition (vii) and Counsel expresses no opinion as to
whether the ownership restrictions contained in the Charter preclude us from
failing to satisfy condition (vii) above. In addition, we intend to continue to
comply with the Treasury Regulations requiring us to ascertain and maintain
records which disclose the actual ownership of our shares. Although a failure to
ascertain the actual ownership of our shares will not cause our disqualification
as a REIT beginning with our taxable year ending December 31, 1998, a monetary
fine may result.
We currently have several "qualified REIT subsidiaries." A corporation that
is a "qualified REIT subsidiary" is not treated as a separate corporation for
federal income tax purposes, and all assets, liabilities and items of income,
deduction and credit of a "qualified REIT subsidiary" are treated as assets,
liabilities and items of the REIT. In applying the requirements described
herein, our "qualified REIT subsidiaries" will be ignored, and all assets,
liabilities and items of income, deduction and credit of such subsidiaries will
be treated as our assets, liabilities and items of income, deduction and credit.
Any "qualified REIT subsidiary" of ours will therefore not be subject to federal
corporate income taxation, although such "qualified REIT subsidiary" may be
subject to state or local taxation.
In the case of a REIT that is a partner in a partnership, the REIT is deemed
to own its proportionate share of the assets of the partnership and is deemed to
receive the income of the partnership attributable to such share. In addition,
the character of the assets and gross income of the partnership shall retain the
same character in the hands of the REIT. Accordingly, our proportionate share of
the assets, liabilities and items of income of the Operating Partnership are
treated as assets, liabilities and items of income of ours for purposes of
applying the requirements described herein, provided that the Operating
Partnership is treated as a partnership for federal income tax purposes. See the
section "Other Tax Considerations-- Effect of Tax Status of the Operating
Partnership on REIT Qualification" in this Prospectus.
INCOME TESTS. In order to qualify as a REIT, a company must satisfy three
gross income requirements on an annual basis. First, at least 75% of its gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived directly or indirectly from investments relating to real
property or mortgages on real property (including "rents from real property"
and, in certain circumstances, interest) or from certain types of temporary
investments. Second, at least 95% of its gross income (excluding gross income
from prohibited transactions) for each taxable year must be derived from the
same items which qualify under the 75% gross income test, and from dividends,
interest and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing. Third, short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and gain
on the sale or other disposition of real property held for less than four years
(apart from involuntary conversions and sales of foreclosure property) must
represent less than 30% of its gross income (including gross income from
prohibited transactions) for each taxable year. The Taxpayer Relief Act of 1997
(the "Taxpayer Relief Act") repealed the 30% gross income test for taxable years
beginning after its enactment on August 5,
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1997. Accordingly, the 30% gross income test no longer applies beginning with
our taxable year ending December 31, 1998.
Rents received by a REIT will qualify as "rents from real property" in
satisfying the gross income requirements described above only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of gross
receipts or sales. Second, rents received from a tenant will not qualify as
"rents from real property" in satisfying the gross income tests if the REIT, or
a direct or indirect owner of 10% or more of the REIT, directly or
constructively, owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, in order for rents received with
respect to a property to qualify as "rents from real property," the REIT
generally must not operate or manage the property or furnish or render services
to tenants, except through an "independent contractor" who is adequately
compensated and from whom the REIT derives no income. The "independent
contractor" requirement, however, does not apply to the extent the services
provided by the REIT are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant." The Taxpayer Relief Act provides a DE MINIMIS rule
for non-customary services beginning with our taxable year ending December 31,
1998. Specifically, if the value of the non-customary service income with
respect to a property (valued at no less than 150% of the direct costs of
performing such services) is 1% or less of the total income derived from the
property, then all rental income except the non-customary service income will
qualify as "rents from real property."
We do not anticipate charging rent that is based in whole or in part on the
income or profits of any person (except by reason of being based on a fixed
percentage or percentages of gross receipts or sales consistent with the rules
described above). We do not anticipate receiving more than a DE MINIMIS amount
of rents from any Related Party Tenant or rents attributable to personal
property leased in connection with real property that will exceed 15% of the
total rents received with respect to such property.
We will provide certain services with respect to our Properties through the
Operating Partnership, which is not an "independent contractor." However, we
believe (and have represented to Counsel) that all of such services will be
considered "usually or customarily rendered" in connection with the rental of
space for occupancy only so that the provision of such services will not
jeopardize the qualification of rent from the Properties as "rents from real
property." In rendering its opinion on our ability to qualify as a REIT, Counsel
is relying on such representations. In the case of any services that are not
"usual and customary" under the foregoing rules, we will employ an "independent
contractor" to provide such services.
The Operating Partnership may receive certain types of income that will not
qualify under the 75% or 95% gross income tests. In particular, dividends
received from the Management Company will not qualify under the 75% test. We
believe, and have represented to Counsel, however, that the aggregate amount of
such items and other non-qualifying income in any taxable year will not cause us
to exceed the limits on non-qualifying income under the 75% and 95% gross income
tests.
If we fail to satisfy one or both of the 75% or the 95% gross income tests
for any taxable year, we may nevertheless qualify as a REIT for such year if we
are entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if our failure to meet any such tests was
due to reasonable cause and not due to willful neglect, we attach a schedule of
the sources and nature of our income to our federal income tax return and any
incorrect information on the schedule was not due to fraud with the intent to
evade tax. It is not possible, however, to state whether in all circumstances we
would be entitled to the benefit of these relief provisions. As discussed above,
even if these relief provisions were to apply, a tax would be imposed on certain
excess net income.
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ASSET TESTS. At the close of each quarter of its taxable year, a REIT must
also satisfy three tests relating to the nature of its assets: (i) at least 75%
of the value of its total assets must be represented by real estate assets
(including (1) its allocable share of real estate assets held by partnerships in
which it has an interest and (2) stock or debt instruments purchased with the
proceeds of a stock offering or long-term (at least five years) debt offering of
the REIT and held for not more than one year following the receipt of such
proceeds), cash, cash items and government securities; (ii) not more than 25% of
its total assets may be represented by securities other than those in the 75%
asset class; and (iii) of the investments included in the 25% asset class, the
value of any one issuer's securities (other than an interest in a partnership or
shares of a "qualified REIT subsidiary" or another REIT) owned by a REIT may not
exceed 5% of the value of its total assets, and it may not own more than 10% of
any one issuer's outstanding voting securities (other than an interest in a
partnership or securities of a "qualified REIT subsidiary" or another REIT).
After initially meeting the asset tests at the close of any quarter, we will
not lose our status as a REIT for failure to satisfy the asset tests at the end
of a later quarter solely by reason of changes in asset values. If a failure to
satisfy the asset tests results from an acquisition of securities or other
property during a quarter (including, for example, as a result of increasing our
interest in the Operating Partnership as a result of a merger, the exercise of
Redemption Rights or an additional capital contribution of proceeds of an
offering of shares of our stock), such failure may be cured by a disposition of
sufficient nonqualifying assets within 30 days following the close of that
quarter. We intend to maintain adequate records of the value of our assets to
ensure compliance with the asset tests and plan to take such other action within
30 days following the close of any quarter as may be required to cure any
noncompliance. However, there can be no assurance that such action will always
be successful.
ANNUAL DISTRIBUTION REQUIREMENTS. In order to qualify as a REIT, a company
is generally required to distribute to its stockholders at least 95% of its
taxable income each year. In addition, it will be subject to regular capital
gains and ordinary corporate tax rates on undistributed income, and also may be
subject to a 4% excise tax on undistributed income in certain events. We believe
that we have made, and intend to continue to make, timely distributions
sufficient to satisfy the annual distribution requirements. However, it is
possible that, from time to time, we may not have sufficient cash or other
liquid assets to meet the distribution requirements. In such circumstances, we
may cause the Operating Partnership to arrange for short-term, or possibly
long-term, borrowings to permit the payment of required dividends.
Under certain circumstances, we may be able to rectify a failure to meet the
distribution requirement for a taxable year by paying "deficiency dividends" to
stockholders in a later year that may be included in our deduction for dividends
paid for the earlier year. Thus, we may be able to avoid being taxed on amounts
distributed as deficiency dividends. However, we would be required to pay to the
IRS interest based upon the amount of any deduction taken for deficiency
dividends.
FAILURE TO QUALIFY. If we fail to qualify for taxation as a REIT in any
taxable year and special relief provisions do not apply, we will be subject to
tax (including any applicable alternative minimum tax) on our taxable income at
regular corporate rates. Distributions to stockholders in any year in which we
fail to qualify as a REIT will not be deductible, nor will they be required to
be made. In such event, to the extent of current and accumulated earnings and
profits, all distributions to our stockholders will be taxable as ordinary
income and, subject to certain limitations in the Code, corporate distributees
may be eligible for the "dividends received deduction." In addition, our failure
to qualify as a REIT would also substantially reduce the cash available for
distributions to stockholders. Unless entitled to relief under specific
statutory provisions, we also would be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances we would be entitled to
such statutory relief.
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TAXATION OF STOCKHOLDERS
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS. As long as we qualify as a REIT,
distributions made to our taxable domestic stockholders out of current or
accumulated earnings and profits (and not designated as capital gain dividends)
will constitute dividends taxable as ordinary income, and corporate stockholders
will not be eligible for the dividends received deduction as to such amounts.
Distributions that are designated as capital gain dividends will be taxed as
gains from the sale or exchange of a capital asset (to the extent they do not
exceed our actual net capital gain for the taxable year) without regard to the
period for which the stockholder has held its stock. If we designate any portion
of a dividend as a capital gain dividend, a stockholder's share of such capital
gain dividend would be an amount which bears the same ratio to the total amount
of dividends paid to such stockholder for the taxable year as the total amount
of capital gain dividends bears to the total amount of all dividends paid on all
classes of stock for the taxable year. However, corporate stockholders may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. We may elect to retain and pay income tax on any net long-term capital
gain, in which case our domestic stockholders would include in their income as
long-term capital gain their proportionate share of such undistributed net
long-term capital gain. A domestic stockholder would also receive a refundable
tax credit for such stockholder's proportionate share of the tax paid by us on
such retained capital gains and an increase in its basis in our stock in an
amount equal to the difference between the undistributed long-term capital gains
and the amount of tax paid by us. See "Capital Gains and Losses" below.
Distributions in excess of current and accumulated earnings and profits will
not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's Common Stock, but rather will reduce the
adjusted basis of such Common Stock. To the extent that such distributions
exceed the adjusted basis of a stockholder's Common Stock, they will be included
in income as short-term or long-term capital gain (depending on the length of
time the shares have been held), assuming the Common Stock is a capital asset in
the hands of the stockholder. In addition, any dividend declared by us in
October, November or December of any year and payable to a stockholder of record
on a specific date in any such month shall be treated as both paid by us and
received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by us during January of the following calendar year.
Stockholders may not include in their individual income tax returns any of our
net operating losses or capital losses.
In general, a domestic stockholder will realize capital gain or loss on the
disposition of Common Stock equal to the difference between (i) the amount of
cash and the fair market value of any property received on such disposition, and
(ii) the stockholder's adjusted basis of such Common Stock. Such gain or loss
generally will constitute short-term capital gain or loss if the stockholder has
not held such shares for more than one year and long-term capital gain or loss
if the stockholder has held such shares for more than one year. See "Capital
Gains and Losses" below. Loss upon a sale or exchange of Common Stock by a
stockholder who has held such Common Stock for six months or less (after
applying certain holding period rules) will be treated as a long-term capital
loss to the extent of distributions from us required to be treated by such
stockholder as long-term capital gain.
CAPITAL GAINS AND LOSSES. The maximum marginal individual federal income
tax rate is 39.6%. The maximum tax rate on net capital gains applicable to
individuals, trusts and estates from the sale or exchange of capital assets held
for more than one year is 20%, and the maximum rate is reduced to 18% for assets
acquired after December 31, 2000 and held for more than five years. For
individuals, trusts and estates who would be subject to a maximum tax rate of
15%, the rate on net capital gains is reduced to 10%, and, effective for taxable
years commencing after December 31, 2000, the rate is reduced to 8% for assets
held for more than five years. The maximum rate for net capital gains
attributable to the sale of depreciable real property held for more than one
year is 25% to the extent of the deductions for depreciation (other than certain
depreciation recapture taxable as ordinary income) with respect to such
property. Accordingly, the tax rate differential between capital gain and
ordinary income for noncorporate
25
<PAGE>
taxpayers may be significant. In addition, the characterization of income as
capital or ordinary may affect the deductibility of capital losses. Capital
losses not offset by capital gains may be deducted against a noncorporate
taxpayer's ordinary income only up to a maximum annual amount of $3,000. Unused
capital losses may be carried forward. All net capital gain of a corporate
taxpayer is subject to tax at ordinary corporate rates. A corporate taxpayer can
deduct capital losses only to the extent of capital gains, with unused losses
being carried back three years and forward five years.
IRS Notice 97-64 provides temporary guidance with respect to the taxation of
distributions by REITs that are designated as capital gain dividends. Pursuant
to Notice 97-64, forthcoming Treasury Regulations will provide that capital
gains allocated to a stockholder by us may be designated as a 20% rate gain
distribution, a 25% rate gain distribution, or a 28% rate gain distribution. In
determining the amounts which may be designated as each class of capital gains
dividends, a REIT must calculate its net capital gains as if it were an
individual subject to a marginal tax rate on ordinary income of 28%. Unless
specifically designated otherwise by us, a distribution designated as a capital
gain distribution is presumed to be a 28% rate gain distribution. If we elect to
retain any net long-term capital gain, as discussed above, the undistributed
long-term capital gains are considered to be designated as capital gain
dividends for purposes of Notice 97-64. Furthermore, Notice 97-64 provides that
designations of capital gain dividends made by us will only be effective to the
extent that the distributions with respect to our different classes of stock are
composed proportionately of ordinary and capital gain dividends. However, Notice
97-64 was issued prior to the IRS Restructuring and Reform Act of 1998 (the
"1998 Reform Act") which significantly changed the taxation of capital gains of
certain non-corporate taxpayers. We expect the IRS to issue clarifying guidance
regarding the impact of Notice 97-64 in light of the 1998 Reform Act.
BACKUP WITHHOLDING. We will report to our domestic stockholders and the IRS
the amount of dividends paid during each calendar year and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
stockholder may be subject to backup withholding at the rate of 31% with respect
to dividends paid unless such holder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption and otherwise complies with the applicable requirements of the backup
withholdings rules. Any amount paid as backup withholding will be creditable
against the stockholder's income tax liability. The United States Treasury has
issued final regulations on October 6, 1997 (the "Final Regulations") regarding
the withholding and information reporting rules discussed above. In general, the
Final Regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and forms and
clarify and modify reliance standards. The Final Regulations are generally
effective for payments made on or after January 1, 2000, subject to certain
transition rules. Prospective investors should consult their own tax advisors
concerning the adoption of the Final Regulations and the potential effect on
their ownership of Common Stock.
In addition, we may be required to withhold a portion of capital gain
dividends made to any stockholders which fail to certify their non-foreign
status to us. See "Taxation of Foreign Stockholders" below.
TAXATION OF TAX-EXEMPT STOCKHOLDERS. Distributions that we make to a
stockholder that is a tax-exempt entity will not constitute "unrelated business
taxable income" ("UBTI"), provided that the tax-exempt entity has not financed
the acquisition of Common Stock with "acquisition indebtedness" within the
meaning of the Code and the Common Stock is not otherwise used in an unrelated
trade or business of the tax-exempt entity. In addition, under certain
circumstances, qualified trusts that own more than 10% (by value) of our shares
may be required to treat a certain percentage of dividends as UBTI. This
requirement will only apply if we are a "pension-held REIT." The restrictions on
ownership in our Charter should prevent us from being classified as a
pension-held REIT.
TAXATION OF FOREIGN STOCKHOLDERS. The rules governing the United States
federal income taxation of the ownership and disposition of Common Stock by
persons that are, for purposes of such taxation,
26
<PAGE>
nonresident alien individuals, foreign corporations, foreign partnerships and
other foreign stockholders (collectively, "Non-U.S. Stockholders") are complex
and no attempt will be made herein to provide more than a very limited summary
of such rules. PROSPECTIVE NON-U.S. STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN
TAX ADVISORS TO DETERMINE THE IMPACT OF FEDERAL, STATE, AND LOCAL INCOME TAX
LAWS WITH REGARD TO AN INVESTMENT IN SHARES, INCLUDING ANY REPORTING
REQUIREMENTS, AS WELL AS THE TAX TREATMENT OF SUCH AN INVESTMENT UNDER THEIR
HOME COUNTRY LAWS.
Distributions that are not attributable to gain from sales or exchanges of
U.S. real property interests and not designated by us as capital gain dividends
will be treated as dividends and taxed as ordinary income to the extent that
they are made out of our current or accumulated earnings and profits. Such
distributions are, generally, subject to a withholding tax equal to 30% of the
gross amount of the distribution, unless an applicable tax treaty reduces that
tax. Distributions in excess of our current and accumulated earnings and profits
will not be taxable to a Non-U.S. Stockholder to the extent that they do not
exceed the adjusted basis of the Non-U.S. Stockholder's Common Stock, but rather
will reduce the adjusted basis of such Common Stock. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Stockholder's Common
Stock, they will give rise to tax liability if the Non-U.S. Stockholder
otherwise would be subject to tax on any gain from the sale or disposition of
his Common Stock as described below (in which case they also may be subject to a
30% branch profits tax if the stockholder is a foreign corporation).
For withholding tax purposes, we are currently required to treat all
distributions as if made out of our current or accumulated earnings and profits
and thus intend to withhold at the rate of 30% (or a reduced treaty rate if
applicable) on the amount of any distribution (other than distributions
designated as capital gain dividends) made to a Non-U.S. Stockholder. Under the
Final Regulations, generally effective for distributions on or after January 1,
2000, we would not be required to withhold at the 30% rate on distributions we
reasonably estimate to be in excess of our current and accumulated earnings and
profits. If it cannot be determined at the time a distribution is made whether
such distribution will be in excess of current and accumulated earnings and
profits, the distribution will be subject to withholding at the rate applicable
to ordinary dividends. However, a Non-U.S. Stockholder may seek a refund of such
amounts from the IRS if it is subsequently determined that such distribution
was, in fact, in excess of our current or accumulated earnings and profits, and
the amount withheld exceeded the Non-U.S. Stockholder's United States tax
liability, if any, with respect to the distribution.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges of U.S. real property interests
will be taxed to a Non-U.S. Stockholder under the provisions of the Foreign
Investment in Real Property Tax Act of 1980 ("FIRPTA") at the normal capital
gain rates applicable to U.S. stockholders (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals). Also, distributions subject to FIRPTA may be subject to a
30% branch profits tax in the hands of a corporate Non-U.S. Stockholder not
entitled to treaty relief or exemption. We are required by the Code to withhold
35% of any distribution that could be designated by us as a capital gain
dividend. This amount is creditable against the Non-U.S. Stockholder's FIRPTA
tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of Common Stock will
generally not be taxed under FIRPTA if we are a "domestically controlled REIT,"
defined generally as a REIT in which, at all times during a specified testing
period, less than 50% in value of the stock was held directly or indirectly by
foreign persons. We believe that we are a "domestically controlled REIT" and,
therefore, the sale of Common Stock will not be subject to taxation under
FIRPTA. However, because the Common Stock is publicly traded, no assurance can
be given that we will continue to qualify as a "domestically controlled REIT."
If the gain on the sale of Common Stock were to be subject to tax under FIRPTA,
the Non-U.S. Stockholder would be subject to the same treatment as U.S.
stockholders with respect to such gain (subject to applicable alternative
minimum tax, possible withholding tax and a special alternative minimum tax in
27
<PAGE>
the case of nonresident alien individuals), and the purchaser of the Common
Stock would be required to withhold and remit to the IRS 10% of the purchase
price. In addition, if we are not a "domestically controlled REIT,"
distributions in excess of our current and accumulated earnings and profits
would be subject to withholding at a rate of 10%.
OTHER TAX CONSIDERATIONS
EFFECT OF TAX STATUS OF THE OPERATING PARTNERSHIP ON REIT
QUALIFICATION. All of our investments are through the Operating Partnership. We
believe that the Operating Partnership is properly treated as a partnership for
tax purposes (and not as an association taxable as a corporation). If, however,
the Operating Partnership were to be treated as an association taxable as a
corporation, we would cease to qualify as a REIT. Furthermore, in such a
situation, the Operating Partnership would be subject to corporate income taxes
and we would not be able to deduct our share of any losses generated by the
Operating Partnership in computing our taxable income.
TAX ALLOCATIONS WITH RESPECT TO THE PROPERTIES. The Operating Partnership
was formed by way of contributions of appreciated property (including certain of
the Properties). When property is contributed to a partnership in exchange for
an interest in the partnership, the partnership generally takes a carryover
basis in that property for tax purposes equal to the adjusted basis of the
contributing partner in the property, rather than a basis equal to the fair
market value of the property at the time of contribution (this difference is
referred to as a "Book-Tax Difference"). The partnership agreement of the
Operating Partnership requires allocations of income, gain, loss and deduction
with respect to contributed Property to be made in a manner consistent with the
special rules in Section 704(c) of the Code, and the regulations thereunder,
which tend to eliminate the Book-Tax Differences with respect to the contributed
Properties over the depreciable lives of the contributed Properties. However,
because of certain technical limitations, the special allocation rules of
Section 704(c) may not always entirely eliminate the Book-Tax Difference on an
annual basis or with respect to a specific taxable transaction such as a sale.
Thus, the carryover basis of the contributed Properties in the hands of the
Operating Partnership could cause us to be allocated lower amounts of
depreciation and other deductions for tax purposes than would be allocated to us
if all Properties were to have a tax basis equal to their fair market value at
the time of acquisition. The foregoing principles also apply in determining our
earnings and profits for purposes of determining the portion of distributions
taxable as dividend income. The application of these rules over time may result
in a higher portion of distributions being taxed as dividends than would have
occurred had we purchased our interests in the Properties at their agreed value.
Treasury Regulations under Section 704(c) of the Code allow partnerships to
use any reasonable method of accounting for Book-Tax Differences so that the
contributing partner receives the tax benefits and burdens of any built-in gain
or loss associated with the property. The Operating Partnership has determined
to use the "traditional method"(which is specifically approved in the Treasury
Regulations) for accounting for Book-Tax Differences with respect to the
contributed Properties.
STATE AND LOCAL TAXES. We and our stockholders may be subject to state or
local taxation in various state or local jurisdictions, including those in which
we or they transact business or reside. The state and local tax treatment of us
and our stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective stockholders should consult with
their own tax advisors regarding the effect of state, local and other tax laws
of any investment in our Common Stock.
POTENTIAL LEGISLATIVE ACTION REGARDING REITS. On February 1, 1999, the
Clinton Administration released a summary of its proposed budget plan which
contained several proposals affecting REITs. One such proposal, if enacted in
its present form, would prohibit a REIT from holding securities representing
more than 10% of the value of all classes of stock of a corporation, other than
a qualified REIT subsidiary or another REIT. However, REITs would be allowed to
hold two types of "taxable REIT subsidiaries" which would be subject to full
corporate level taxation. Under the proposal, we would be allowed to
28
<PAGE>
combine or convert our existing stock interest in the Management Company into a
"taxable REIT subsidiary," subject to certain transition rules. If enacted in
its present form, the proposal may limit the future activities and growth of the
Management Company. No prediction can be made as to whether such proposal or any
other proposal affecting REITs will be enacted into legislation and the impact
of any such legislation on our operations.
LEGAL MATTERS
Rogers & Wells LLP, New York, New York will pass upon the validity of the
Common Stock offered by this Prospectus, as well as certain legal matters
described under "Federal Income Tax Considerations." Rogers & Wells LLP will
rely as to certain matters of Maryland law on the opinion of Piper & Marbury
L.L.P., Baltimore, Maryland.
EXPERTS
The consolidated financial statements and the related financial statement
schedules of American Real Estate Investment Corporation and subsidiaries
incorporated by reference in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, to the extent and for the periods
indicated in their reports and are incorporated by reference herein and have
been so incorporated in reliance upon the authority of said firm as experts in
giving said reports.
29
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,672,000 SHARES
AMERICAN REAL ESTATE
INVESTMENT CORPORATION
COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the securities being registered, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration fee--Securities and Exchange Commission............. 5,959.00
Accounting fees and expenses..................................... 5,000.00(a)
Legal fees and expenses.......................................... 25,000.00(a)
Printing and engraving expenses.................................. 5,000.00(a)
Miscellaneous.................................................... 15,000.00(a)
Total........................................................ 55,959.00
</TABLE>
- ------------------------
(a) Does not include expenses of preparing prospectus supplements and other
expenses relating to offerings of particular securities.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Maryland General Corporation Law (the "MGCL"), our
Charter provides that we shall indemnify (i) our directors and officers to the
fullest extent required or permitted by Maryland law, including the advance of
expenses under the procedures and to the full extent permitted by law and (ii)
other employees and agents to such extent as shall be authorized by our Board of
Directors or our By-laws and be permitted by law. The MGCL permits a corporation
to indemnify its present and former directors and officers, among others,
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made a party by reason of their service in those or other capacities, unless it
is established that (a) the act or omission of the director or officer was
material to the matter giving rise to the proceeding and (i) was committed in
bad faith, or (ii) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the director
or officer had reasonable cause to believe that the act or omission was
unlawful.
The MGCL permits the Articles of Incorporation of a Maryland corporation to
include a provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, except to the extent that
(1) it is provided that the person actually received an improper benefit or
profit in money, property or services or (2) a judgment or other final
adjudication is entered in a proceeding based on a finding that the person's
action, or failure to act, was the result of active and deliberate dishonesty
and was material to the cause of action adjudicated in the proceeding. Our
Charter contains a provision providing for elimination of the liability of our
directors or officers to us or our stockholders for money damages to the maximum
extent permitted by Maryland law from time to time.
We have a director and officer liability insurance policy with a $5,000,000
limit of liability and a company retention of $75,000 in the aggregate for each
claim.
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
4.1 Amended and Restated Articles of Incorporation of the Registrant.
4.2 Articles Supplementary of the Registrant relating to the Series A Preferred Stock.
4.3 By-Laws of the Registrant (incorporated by reference to Exhibit 3.3 of our Form
8-K, filed with the Commission on December 22, 1997).
4.4 Specimen of Common Stock Certificate (incorporated by reference to Exhibit 4(a) of
our Amendment No. 2 to Form S-11, filed with the Commission on October 8, 1993).
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C>
5.1 Opinion of Rogers & Wells LLP (Counsel).
5.2 Opinion of Piper & Marbury L.L.P. (Counsel).
8 Opinion of Rogers & Wells LLP regarding tax matters.
23.1 Consent of Rogers & Wells LLP (included in Exhibits 5.1 and 8).
23.2 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.2).
23.3 Consent of Arthur Andersen LLP.
24 Powers of Attorney (included on signature pages hereto).
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above shall not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or Section 15(d) of the Exchange
Act that are incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment will be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time will be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act that is incorporated by reference in this
Registration Statement will be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time will be deemed to be the initial bona fide offering thereof.
(5) That, (i) for purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the
II-2
<PAGE>
time it was declared effective and (ii) for the purpose of determining any
liability under the Securities Act, each post-effective amendment that contains
a form of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel for the
Registrant the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York on March 11, 1999.
AMERICAN REAL ESTATE INVESTMENT CORPORATION
BY: /S/ JEFFREY E. KELTER
------------------------------------
Jeffrey E. Kelter
PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Jeffrey E. Kelter, Timothy A. Peterson and
Timothy E. McKenna, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments, including any post-effective amendments, to this Registration
Statement on Form S-3 and any registration statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, and any and all applications and other documents in
connection therewith, with the Securities and Exchange Commission and any state
or other securities authority, granting unto said attorneys-in-fact and agents,
and each of them full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact or agents, or any of them, or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
------------------------
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
<S> <C> <C>
/s/ DAVID F. MCBRIDE Chairman and Director
- ------------------------------ (Principal Executive March 11, 1999
David F. McBride Officer)
/s/ JEFFREY E. KELTER President and Director
- ------------------------------ (Principal Executive March 11, 1999
Jeffrey E. Kelter Officer)
/s/ TIMOTHY A. PETERSON Chief Financial Officer and
- ------------------------------ Secretary (Principal March 11, 1999
Timothy A. Peterson Financial Officer)
/s/ TIMOTHY E. MCKENNA Treasurer
- ------------------------------ (Principal Accounting March 11, 1999
Timothy E. McKenna Officer)
/s/ TIMOTHY MCBRIDE Director
- ------------------------------ March 11, 1999
Timothy McBride
/s/ ROBERT BRANSON Director
- ------------------------------ March 11, 1999
Robert Branson
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ --------------------------- -------------------
<S> <C> <C>
/s/ JAMES MULVIHILL Director
- ------------------------------ March 11, 1999
James Mulvihill
/s/ EVAN ZUCKER Director
- ------------------------------ March 11, 1999
Evan Zucker
/s/ FRANCESCO GALESI Director
- ------------------------------ March 11, 1999
Francesco Galesi
/s/ MICHAEL FALCONE Director
- ------------------------------ March 11, 1999
Michael Falcone
/s/ DAVID LESSER Director
- ------------------------------ March 11, 1999
David Lesser
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- -----
<S> <C> <C>
4.1 Amended and Restated Articles of Incorporation of the Registrant.
4.2 Artices Supplementary of the Registrant relating to the Series A Preferred Stock.
4.3 By-Laws of the Registrant (incorporated by reference to Exhibit 3.3 of our Form 8-K, filed with
the Commission on December 22, 1997).
4.4 Specimen of Common Stock Certificate (incorporated by reference to Exhibit 4(a) to our Amendment
No. 2 to Form S-11, filed with the Commission on October 8, 1993).
5.1 Opinion of Rogers & Wells LLP (Counsel).
5.2 Opinion of Piper & Marbury L.L.P. (Counsel).
8 Opinion of Rogers & Wells LLP regarding tax matters.
23.1 Consent of Rogers & Wells LLP (included in Exhibits 5.1 and 8).
23.2 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.2).
23.3 Consent of Arthur Andersen LLP.
24 Powers of Attorney (included on signature pages hereto).
</TABLE>
<PAGE>
Exhibit 4.1
AMERICAN REAL ESTATE INVESTMENT CORPORATION
AMENDED AND RESTATED ARTICLES OF INCORPORATION
DATED AS OF DECEMBER 12, 1997
ARTICLE I
NAME
The name of the corporation is:
AMERICAN REAL ESTATE INVESTMENT CORPORATION
ARTICLE II
PURPOSES AND POWERS
Section 2.1. PURPOSES.
(a) The purpose of the Company is to engage in any lawful act or activity
(including, without limitation or obligation, engaging in business as a real
estate investment trust under the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute (the "Code")) for which corporations may
be organized under the general laws of the State of Maryland as now or hereafter
in force. For purposes of the Charter, "REIT" means a real estate investment
trust as defined in Sections 856 through 860 of the Code.
Section 2.2. POWERS. The Company shall have all of the powers granted to
corporations by the Maryland General Corporation Law ("MGCL") and all other
powers set forth in the Charter which are not inconsistent with law and are
appropriate to promote and attain the purposes set forth in the Charter.
ARTICLE III
PRINCIPAL OFFICE IN THE STATE AND RESIDENT AGENT
The post office address and principal office of the Company in the State of
Maryland is c/o The Prentice-Hall Company System, Maryland, 11 East Chase
Street, Baltimore, Maryland 21202. The name and address of the resident agent of
the Company in the State of Maryland is The Prentice-Hall Company System,
Maryland, 11 East Chase Street, Baltimore, Maryland 21202. The resident agent is
a Maryland corporation.
ARTICLE IV
BOARD OF DIRECTORS
1
<PAGE>
Section 4.1. CLASSIFICATION AND NUMBER.
(a) The number of directors of the Company (the "Directors") shall be
seven. The number may be increased or decreased pursuant to the Bylaws of the
Company (which action may not affect the tenure of office of any Director), but
shall never be more than fifteen nor less than the minimum number permitted by
the General Laws of the State of Maryland now or hereafter in force.
(b) The Directors (other than any Director elected solely by holders of one
or more classes or series of Preferred Stock) shall be divided into three
classes, as nearly equal in number as possible. The first Class of Directors
(Class I) shall hold office initially for a term expiring at the first annual
meeting of stockholders after December 12, 1997 (the "Closing Date"). The Second
Class of Directors (Class II) shall hold office initially for a term expiring at
the second annual meeting of stockholders after the Closing Date. The Third
Class of Directors (Class III) shall hold office initially for a term expiring
at the third annual meeting of stockholders after the Closing Date. Directors
elected to succeed those Directors whose terms have thereupon expired shall be
elected for a term of office of three years and until the election and
qualification of their successors. If the number of Directors is changed, any
increase or decrease shall be apportioned among the classes so as to maintain or
attain, if possible, the equality of the number of Directors in each class, but
in no case will a decrease in the number of Directors shorten the term of any
incumbent Director. If such equality is not possible, the increase or decrease
shall be apportioned among the classes in such a way that the difference in the
number of Directors in any two classes shall not exceed one. Stockholder votes
to elect Directors shall be conducted in the manner provided in the Bylaws.
(c) The name and class of the Directors who shall serve as the initial
Directors after the Closing Date and until their successors are duly elected and
qualified is:
<TABLE>
<CAPTION>
NAME CLASS
- ---- -----
<S> <C>
Jim Mulvihill Class III
Evan Zucker Class I
David Lesser Class III
Jeffrey Kelter Class II
David McBride Class III
Robert Branson Class II
Timothy McBride Class I
</TABLE>
Section 4.2. VACANCIES. Subject to the rights of the holders of any
class of stock separately entitled to elect one or more Directors, the
stockholders may elect a successor to fill a vacancy on the Board which results
from the removal of a Director. A Director elected by the stockholders to fill a
vacancy which results from the removal of a Director serves for the balance of
the term of the removed Director. Subject to the rights of the holders of any
class of stock separately entitled to elect one or more Directors, a majority of
the remaining Directors, whether or not sufficient to constitute a quorum, may
fill a vacancy on the Board which results from any cause except an increase in
the number of Directors, and a majority of the entire Board may fill a
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vacancy which results from an increase in the number of Directors. A Director
elected by the Board to fill a vacancy serves until the next annual meeting of
stockholders and until his or her successor is elected and qualifies.
Section 4.3. RESIGNATION, REMOVAL OR DEATH. Any Director may resign by
written notice to the Board, effective upon execution and delivery to the
Company of such written notice or upon any future date specified in the notice,
and, unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective. Subject to the rights of holders of
one or more classes or series of Preferred Stock to elect one or more Directors,
any Director or the entire Board may be removed at any time with cause, by the
affirmative vote of the holders of not less than a majority of the then
outstanding voting stock.
Section 4.4. BUSINESS ACTIVITIES BY DIRECTORS. Unless otherwise agreed
between the Company and a Director, each individual Director may engage in other
business activities of the type conducted by the Company and is not required to
present to the Company any investment opportunities presented to them even
though the investment opportunities may be within the scope of the Company's
investment policies.
Section 4.5. INDEPENDENT DIRECTORS. Notwithstanding anything herein to the
contrary, at all times (except during a period not to exceed sixty (60) days
following the death, resignation, incapacity or removal from office of a
Director prior to the expiration of the Director's term or office), two of the
Directors shall be "Independent Directors." Independent Directors shall mean
Directors who are not (i) officers of the Company, (ii) related to officers of
the Company or (iii) holders, or officers or directors of such holders, of more
than 5% of the issued and outstanding Shares of capital stock of the Company on
a fully diluted basis.
Section 4.6. GENERAL.
The Board shall, consistent with applicable law, have power in its sole
discretion to determine from time to time in accordance with sound accounting
practice or other reasonable valuation methods what constitutes annual or other
net profits, earnings, surplus or net assets in excess of capital; to fix and
vary from time to time the amount to be reserved as working capital, or
determine that retained earnings or surplus shall remain in the hands of the
Company; to set apart out of any funds of the Company such reserve or reserves
in such amount or amounts and for such proper purpose or purposes as it shall
determine and to abolish any such reserve or any part thereof; to redeem or
purchase its stock or to distribute and pay distributions or dividends in stock,
cash or other securities or property, out of surplus or any other funds or
amounts legally available therefor, at such times and to the stockholders of
record on such dates as it may, from time to time, determine; to determine the
amount, purpose, time of creation, increase or decrease, alteration or
cancellation of any reserves or charges and the propriety thereof (whether or
not any obligation or liability for which such reserves or charges shall have
been created shall have been paid or discharged); to determine the fair value
and any matters relating to the acquisition, holding and disposition of any
assets by the Company; and to determine whether and to what extent and at what
times and places and under what conditions and regulations the books, accounts
and documents of the Company, or any of them, shall be open to the inspection of
stockholders, except as otherwise provided by statute or by the Bylaws, and,
except as so provided, no stockholder shall have any right to inspect any book,
account or document of the Company unless authorized so to do by resolution of
the Board.
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ARTICLE V
CAPITAL STOCK
Section 5.1. The total number of shares of stock of all classes which the
Company has authority to issue is sixty five million (65,000,000) shares of
capital stock, par value $.001 per share (the "Shares"), amounting in aggregate
par value to $65,000. All of such shares are initially classified as "Common
Stock". The Board may classify and reclassify any unissued shares of capital
stock by setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of such shares of
capital stock.
Section 5.2. Subject to Article VI, the following is a description of the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption of the Common Stock of the Company:
(a) Each share of Common Stock shall have one vote, and, except as
otherwise provided in respect of any class of stock hereafter classified or
reclassified, the exclusive voting power for all purposes shall be vested
in the holders of the Common Stock. Shares of Common Stock shall not have
cumulative voting rights.
(b) Subject to the provisions of law and any preferences of any class
of stock hereafter classified or reclassified, dividends, including
dividends payable in shares of another class of the Company's stock, may be
paid ratably on the Common Stock at such time and in such amounts as the
Board may deem advisable.
(c) In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of the Common Stock
shall be entitled, together with the holders of any other class of stock
hereafter classified or reclassified not having a preference on
distributions in the liquidation, dissolution or winding up of the Company,
to share ratably in the net assets of the Company remaining, after payment
or provision for payment of the debts and other liabilities of the Company
and the amount to which the holders of any class of stock hereafter
classified or reclassified having a preference on distributions in the
liquidation, dissolution or winding up of the Company shall be entitled.
Section 5.3. Subject to Article VI and subject to the foregoing, the power
of the Board to classify and reclassify any of the shares of capital stock shall
include, without limitation, subject to the provisions of the Charter, authority
to classify or reclassify any unissued shares of such stock into a class or
classes of preferred stock, preference stock, special stock or other stock, and
to divide and classify any unissued shares of any class into one or more series
of such class, by determining, fixing, or altering one or more of the following:
(a) The distinctive designation of such class or series and the number
of shares to constitute such class or series; provided that, unless
otherwise prohibited by the terms of such or any other class or series, the
number of shares of any class or series may be decreased by the Board in
connection with any classification or reclassification of unissued shares
and the number of shares of such class or series may be increased by the
Board in connection with any such classification or reclassification, and
any shares of any
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class or series which have been redeemed, purchased, otherwise acquired or
converted into shares of Common Stock or any other class or series shall
become part of the authorized capital stock and be subject to
classification and reclassification as provided in this sub-paragraph.
(b) Whether or not and, if so, the rates, amounts and times at which,
and the conditions under which, dividends shall be payable on shares of
such class or series, whether any such dividends shall rank senior or
junior to or on a parity with the dividends payable on any other class or
series of stock, and the status of any such dividends as cumulative,
cumulative to a limited extent or non-cumulative and as participating or
non-participating.
(c) Whether or not shares of such class or series shall have voting
rights, in addition to any voting rights provided by law and, if so, the
terms of such voting rights.
(d) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and conditions
thereof, including provision for adjustment of the conversion or exchange
rate in such events or at such times as the Board shall determine.
(e) Whether or not shares of such class or series shall be subject to
redemption and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be redeemable
and the amount per share payable in case of redemption, which amount may
vary under different conditions and at different redemption dates; and
whether or not there shall be any sinking fund or purchase account in
respect thereof, and if so, the terms thereof.
(f) The rights of the holders of shares of such class or series upon
the liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Company, which rights may vary depending
upon whether such liquidation, dissolution or winding up is voluntary or
involuntary and, if voluntary, may vary at different dates, and whether
such rights shall rank senior or junior to or on a parity with such rights
of any other class or series of stock.
(g) Whether or not there shall be any limitations applicable, while
shares of such class or series are outstanding, upon the payment of
dividends or making of distributions on, or the acquisition of, or the use
of moneys for purchase or redemption of, any stock of the Company, or upon
any other action of the Company, including action under this sub-paragraph,
and, if so, the terms and conditions thereof.
(h) Any other preferences, rights, restrictions, including
restrictions on transferability, and qualifications of shares of such class
or series, not inconsistent with law and the Charter of the Company.
Section 5.4. Subject to Article VI and for the purposes hereof and of any
articles supplementary to the Charter providing for the classification or
reclassification of any shares of capital stock or of any other Charter document
of the Company (unless otherwise provided in any such articles or document), any
class or series of stock of the Company shall be deemed to rank:
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<PAGE>
(a) prior to another class or series either as to dividends or upon
liquidation, if the holders of such class or series shall be entitled to
the receipt of dividends or of amounts distributable on liquidation,
dissolution or winding up, as the case may be, in preference or priority to
holders of such other class or series;
(b) on a parity with another class or series either as to dividends or
upon liquidation, whether or not the dividend rates, dividend payment dates
or redemption or liquidation price per share thereof be different from
those of such others, if the holders of such class or series of stock shall
be entitled to receipt of dividends or amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in proportion
to their respective dividend rates or redemption or liquidation prices,
without preference or priority over the holders of such other class or
series; and
(c) junior to another class or series either as to dividends or upon
liquidation, if the rights of the holders of such class or series shall be
subject or subordinate to the rights of the holders of such other class or
series in respect of the receipt of dividends or the amounts distributable
upon liquidation, dissolution or winding up, as the case may be.
Section 5.5. AUTHORIZATION BY BOARD OF STOCK ISSUANCE. The Board is hereby
empowered to authorize the issuance from time to time of shares of its stock of
any class, whether now or hereafter authorized, or securities convertible into
shares of its stock of any class or classes, whether now or hereafter
authorized, for such consideration as may be deemed advisable by the Board and
without any action by the stockholders. Notwithstanding any other provision in
the Charter, no determination shall be made by the Board nor shall any
transaction be entered into by the Company which would cause any Shares or other
equity interest in the Company not to constitute "transferable shares" or
"transferable certificates of beneficial interest" under Section 856(a)(2) of
the Code or which would cause any distribution to constitute a preferential
dividend as described in Section 562(c) of the Code.
Section 5.6. FRACTIONAL SHARES OF STOCK. The Company may, without the
consent or approval of any stockholder, issue fractional Shares of stock,
eliminate a fraction of a share by rounding up or down to a full share of stock,
arrange for the disposition of a fraction of a share of stock by the person
entitled to it, or pay cash for the fair value of a fraction of a share of
stock.
Section 5.7. PREEMPTIVE RIGHTS. No holder of any stock or any other
securities of the Company, whether now or hereafter authorized, shall have any
preemptive right to subscribe for or purchase any stock or any other securities
of the Company other than such, if any, as the Board, in its sole discretion,
may determine and at such price or prices and upon such other terms as the
Board, in its sole discretion, may fix; and any stock or other securities which
the Board may determine to offer for subscription may, as the Board in its sole
discretion shall determine, be offered to the holders of any class, series or
type of stock or other securities at the time outstanding to the exclusion of
the holders of any or all other classes, series or types of stock or other
securities at the time outstanding.
Section 5.8. CONTROL SHARES. Pursuant to Section 3-702(b) of the MGCL, the
terms of Subtitle 7 of Title 3 of such law (the "Control Shares Statute") shall
be inapplicable to any acquisition of Control Shares (as that term is defined in
the Control Shares Statute) that is not prohibited by the terms of Article VI of
the Charter.
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ARTICLE VI
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
Section 6.1. DEFINITIONS. For the purpose of this Article VI, the following
terms shall have the following meanings:
(a) AMEX. The term "AMEX" shall mean the American Stock Exchange, Inc.
(b) Beneficial Ownership. The term "Beneficial Ownership" shall mean
ownership of Shares by a Person, whether the interest in Shares is held directly
or indirectly (including by a nominee), and shall include interests that would
be treated as owned through the application of Section 544 of the Code, as
modified by Section 856(h)(1)(B) of the Code. The terms "Beneficial Owner,"
"Beneficially Owns" and "Beneficially Owned" shall have the correlative
meanings.
(c) Business Day. The term "Business Day" shall mean any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a day on which banking
institutions in New York, New York authorized or required by law, regulation or
executive order to close.
(d) Charitable Beneficiary. The term "Charitable Beneficiary" shall mean
one or more beneficiaries of the Charitable Trust as determined pursuant to
Section 6.3.7, provided that each such organization must be described in
Sections 501(c)(3), 170(b)(1)(A) and 170(c)(2) of the Code.
(e) Charitable Trust. The term "Charitable Trust" shall mean any trust
provided for in Section 6.2.1(b)(i) and Section 6.3.1.
(f) Charitable Trustee. The term "Charitable Trustee" shall mean the Person
unaffiliated with the Company and a Prohibited Owner, that is appointed by the
Company to serve as trustee of the Charitable Trust.
(g) Constructive Ownership. The term "Constructive Ownership" shall mean
ownership of Shares by a Person, whether the interest in Shares is held directly
or indirectly (including by a nominee), and shall include interests that would
be treated as owned through the application of Section 318(a) of the Code, as
modified by Section 856(d)(5) of the Code. The terms "Constructive Owner,"
"Constructively Owns" and "Constructively Owned" shall have the correlative
meanings.
(h) Excepted Holder. The term "Excepted Holder" shall mean a stockholder of
the Company for whom an Excepted Holder Limit is created by the Board pursuant
to Section 6.2.7.
(i) Excepted Holder Limit. The term "Excepted Holder Limit" shall mean,
provided that the affected Excepted Holder agrees to comply with the
requirements established by the Board pursuant to Section 6.2.7 and subject to
adjustment pursuant to Section 6.2.7, the percentage limit established by the
Board for such Excepted Holder pursuant to Section 6.2.7.
(j) Hudson Bay Excepted Holder Limit. The term "Hudson Bay Excepted Holder
Limit" shall mean, subject to adjustment pursuant to Section 6.2.7, 40% of the
Common Stock outstanding or treated as outstanding under Section 544 of the
Code; provided that no Person that
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is a Beneficial Owner of Hudson Bay may Beneficially Own more than 4.9% of the
Common Stock outstanding or treated as outstanding under Section 544 of the
Code. Hudson Bay shall be subject to the Ownership Limit with respect to any
Preferred Stock acquired.
(k) Initial Date. The term "Initial Date" shall mean the date upon which
the Charter containing this Article VI is filed for record with the State
Department of Assessments and Taxation of Maryland.
(l) Market Price. The term "Market Price" on any date shall mean, with
respect to any class or series of outstanding Shares, the Closing Price for such
Shares on such date. The "Closing Price" on any date shall mean the last sale
price for such Shares, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, for such
Shares, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on the
AMEX or, if such Shares are not listed or admitted to trading on the AMEX, as
reported on the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which such
Shares are listed or admitted to trading or, if such Shares are not listed or
admitted to trading on any national securities exchange, the last quoted price,
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the NASDAQ Stock Market or, if such
system is no longer in use, the principal other automated quotation system that
may then be in use or, if such Shares are not quoted by any such organization,
the average of the closing bid and asked prices as furnished by a professional
market maker making a market in such Shares selected by the Board or, in the
event that no trading price is available for such Shares, the fair market value
of Shares, as determined in good faith by the Board.
(m) McBride Family. The term "McBride Family" shall mean David McBride,
Michael McBride and Timothy McBride, each of their parents, brothers, sisters,
spouses and children, any lineal descendants of any of the foregoing, any
estates of any of the foregoing and any trusts now or hereafter established for
the benefit of any of the foregoing. As referred to herein, a "branch" of the
McBride Family shall mean all Persons referred to in the preceding sentence
whose ownership of Common Stock is Beneficially Owned by one individual who is
part of the McBride Family (as the term "individual" is defined in Section
542(a)(2) of the Code, as modified by Section 856(h)(3) of the Code); provided
that a Person shall be treated as part of the "branch" that results in the
greatest Beneficial Ownership by an individual who is part of the McBride Family
and such Person shall not be treated as part of any other "branch."
(n) McBride Family Excepted Holder Limit. The term "McBride Family Excepted
Holder Limit" shall mean, subject to adjustment pursuant to Section 6.2.7 and
this Section 6.1(n), 39.9% of the Common Stock outstanding. The McBride Family
Excepted Holder Limit shall be reduced to 35% at such time as any branch of the
McBride Family Beneficially Owns less than 4.9% of the outstanding Common Stock,
provided that if three or more branches of the McBride Family each Beneficially
Own 4.9% or more of the outstanding Common Stock, the McBride Family Excepted
Holder Limit shall not be reduced pursuant to this sentence. The McBride Family
Excepted Holder Limit shall be further reduced to 30.1% at such time as any two
branches of the McBride Family each Beneficially Owns less than 4.9% of the
outstanding Common Stock, provided that if two or more branches of the McBride
Family each Beneficially
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Own 4.9% or more of the outstanding Common Stock, the McBride Family Excepted
Holder Limit shall not be reduced pursuant to this sentence. At such time as any
branch of the McBride Family Beneficially Owns 4.9% or less of the outstanding
Common Stock, the Person included in such branch will be subject to the
Ownership Limit and the Common Stock Beneficially Owned by such Person shall no
longer be considered in determining the McBride Family's Beneficial Ownership
for purposes of the McBride Family Excepted Holder Limit. The McBride Family
shall be subject to the Ownership Limit with respect to any Preferred Stock
acquired.
(o) Ownership Limit. The term "Ownership Limit" shall mean (i) with respect
to the Common Stock, 4.9% (in value or number of shares, whichever is more
restrictive) of the outstanding shares of Common Stock; and (ii) with respect to
any class or series of Preferred Stock, 9.9% (in value or number of shares,
whichever is more restrictive) of the outstanding shares of such class or series
of Preferred Stock.
(p) Person. The term "Person" shall mean an individual, corporation,
partnership, estate, trust (including a trust qualified under Sections 401(a) or
501(c)(17) of the Code), a portion of a trust permanently set aside for or to be
used exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity and also includes a group as that term
is used for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended.
(q) Prohibited Owner. The term "Prohibited Owner" shall mean, with respect
to any purported Transfer, any Person who, but for the provisions of Section
6.2.1, would Beneficially Own or Constructively Own Shares, and if appropriate
in the context, shall also mean any Person who would have been the record owner
of Shares that the Prohibited Owner would have so owned.
(r) Restriction Termination Date. The term "Restriction Termination Date"
shall mean the first day after the Initial Date on which the Board determines
that it is no longer in the best interests of the Company to attempt to, or
continue to, qualify as a REIT or that compliance with the restrictions and
limitations on Beneficial Ownership, Constructive Ownership and Transfers of
Shares set forth herein is no longer required in order for the Company to
qualify as a REIT.
(s) Transfer. The term "Transfer" shall mean any issuance, sale, transfer,
gift, assignment, devise or other disposition, as well as any other event that
causes any Person to acquire Beneficial Ownership or Constructive Ownership, or
any agreement to take any such actions or cause any such events, of Shares or
the right to vote or receive dividends on Shares, including (a) a change in the
capital structure of the Company, (b) a change in the relationship between two
or more Persons which causes a change in Beneficial Ownership or Constructive
Ownership of Shares, (c) the granting or exercise of any option or warrant (or
any disposition of any option or warrant), pledge, security interest, or similar
right to acquire Shares, (d) any disposition of any securities or rights
convertible into or exchangeable for Shares or any interest in Shares or any
exercise of any such conversion or exchange right and (e) Transfers of interests
in other entities that result in changes in Beneficial or Constructive Ownership
of Shares; in each case, whether voluntary or involuntary, whether owned of
record, Constructively Owned, or Beneficially Owned and whether by operation of
law or otherwise. (For purposes of this Article
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VI, the right of a limited partner in American Real Estate Investment, L.P., a
Delaware limited partnership, to require the Company to issue, at the Company's
option, cash or Common Stock in exchange for such limited partner's units of
partnership interest pursuant to Article XII of the Agreement of Limited
Partnership of American Real Estate Investment, L.P. shall not be considered to
be an option or similar right to acquire Shares of the Company, but any actual
issuance shall be a Transfer of Common Stock.) The terms "Transferring" and
"Transferred" shall have the correlative meanings.
Section 6.2. SHARES.
Section 6.2.1. OWNERSHIP LIMITATIONS. During the period commencing on
the Initial Date and prior to the Restriction Termination Date:
(a) Basic Restrictions.
(i) (1) No Person, other than an Excepted Holder, shall
Beneficially Own or Constructively Own Shares in excess of the Ownership Limit;
(2) no Excepted Holder shall Beneficially Own or Constructively Own Shares in
excess of the Excepted Holder Limit for such Excepted Holder; (3) the McBride
Family shall not Beneficially Own or Constructively Own Shares in excess of the
McBride Family Excepted Holder Limit; and (4) Hudson Bay shall not Beneficially
Own or Constructively Own Shares in excess of the Hudson Bay Excepted Holder
Limit.
(ii) No Person shall Beneficially or Constructively Own Shares to
the extent that (1) such Beneficial Ownership of Shares would result in the
Company being "closely held" within the meaning of Section 856(h) of the Code
(without regard to whether the ownership interest is held during the last half
of a taxable year), or (2) such Beneficial or Constructive Ownership of Shares
would result in the Company otherwise failing to qualify as a REIT (including,
but not limited to, Constructive Ownership that would result in the Company
owing (actually or Constructively) an interest in a tenant that is described in
Section 856(d)(2)(B) of the Code if the income derived by the Company from such
tenant would cause the Company to fail to satisfy any of the gross income
requirements of Section 856(c) of the Code).
(iii) No Person shall Transfer any Shares if, as a result of the
Transfer, the Shares would be beneficially owned by less than 100 Persons
(determined without reference to the rules of attribution under Section 544 of
the Code). Notwithstanding any other provisions contained herein, any Transfer
of Shares (whether or not such Transfer is the result of a transaction entered
into through the facilities of the AMEX or any other national securities
exchange or automated inter-dealer quotation system) that, if effective, would
result in Shares being beneficially owned by less than 100 Persons (determined
under the principles of Section 856(a)(5) of the Code) shall be void AB INITIO,
and the intended transferee shall acquire no rights in such Shares.
(b) Transfer in Trust. If any Transfer of Shares (whether or not such
Transfer is the result of a transaction entered into through the facilities of
the AMEX or any other national securities exchange or automated inter-dealer
quotation system) occurs which, if effective, would
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result in any Person Beneficially Owning or Constructively Owning Shares in
violation of Section 6.2.1(a)(i) or (ii),
(i) then that number of Shares the Beneficial or Constructive
Ownership of which otherwise would cause such Person to violate Section
6.2.1(a)(i) or (ii) (rounded to the higher whole share) shall be automatically
transferred to a Charitable Trust for the benefit of a Charitable Beneficiary,
as described in Section 6.3, effective as of the close of business on the
Business Day prior to the date of such Transfer, and such Person shall acquire
no rights in such Shares; or
(ii) if the transfer to the Charitable Trust described in clause
(i) of this sentence would not be effective for any reason to prevent the
violation of Section 6.2.1(a)(i) or (ii), then the Transfer of that number of
Shares that otherwise would cause any Person to violate Section 6.2.1(a)(i) or
(ii) shall be void AB INITIO, and the intended transferee shall acquire no
rights in such Shares.
Section 6.2.2. REMEDIES FOR BREACH. If the Board or any duly
authorized committee thereof shall at any time determine in good faith that a
Transfer or other event has taken place that results in a violation of Section
6.2.1 or that a Person intends to acquire or has attempted to acquire Beneficial
or Constructive Ownership of any Shares in violation of Section 6.2.1 (whether
or not such violation is intended), the Board or a committee thereof shall take
such action as it deems advisable to refuse to give effect to or to prevent such
Transfer or other event, including, without limitation, causing the Company to
redeem Shares, refusing to give effect to such Transfer on the books of the
Company or instituting proceedings to enjoin such transfer or other event;
provided, however, that any Transfer or attempted Transfer or other event in
violation of Section 6.2.1 shall automatically result in the transfer to the
Charitable Trust described above, and, where applicable, such Transfer (or other
event) shall be void AB INITIO as provided above irrespective of any action (or
non-action) by the Board or a committee thereof.
Section 6.2.3. NOTICE OF RESTRICTED TRANSFER. Any Person who acquires
or attempts or intends to acquire Beneficial Ownership or Constructive Ownership
of Shares that will or may violate Section 6.2.1(a), or any Person who would
have owned Shares that resulted in a transfer to the Charitable Trust pursuant
to the provisions of Section 6.2.1(b), shall immediately give written notice to
the Company of such event, or in the case of such a proposed or attempted
transaction, give at least 15 days prior written notice, and shall provide to
the Company such other information as the Company may request in order to
determine the effect, if any, of such acquisition or ownership on the Company's
status as a REIT.
Section 6.2.4. OWNERS REQUIRED TO PROVIDE INFORMATION FROM THE INITIAL
DATE AND PRIOR TO THE RESTRICTION TERMINATION DATE:
(a) every owner of more than 1% (or such other percentage as required
by the Code or the Treasury Regulations promulgated thereunder) of the
outstanding Shares, within 30 days after the end of each taxable year, shall
give written notice to the Company stating the name and address of such owner,
the number of Shares Beneficially and Constructively Owned and a description of
the manner in which such Shares are held; provided that a stockholder of record
who holds outstanding Shares as nominee for another Person, which other Person
is required to include in gross income the dividends received on such Shares (an
"Actual Owner"), shall give
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written notice to the Company stating the name and address of such Actual Owner
and the number of Shares of such Actual Owner with respect to which the
stockholder of record is nominee. Each owner shall provide to the Company such
additional information as the Company may request in order to determine the
effect, if any, of such Beneficial and Constructive Ownership on the Company's
status as a REIT and to ensure compliance with the Ownership Limit.
(b) each Person who is a Beneficial or Constructive Owner of Shares
and each Person (including the stockholder of record) who is holding Shares for
a Beneficial or Constructive Owner shall provide to the Company such information
as the Company may request, in good faith, in order to determine the Company's
status as a REIT and to comply with requirements of any taking authority or
governmental authority or to determine such compliance.
Section 6.2.5. REMEDIES NOT LIMITED. Subject to Section 4.1 of the
Charter, nothing contained in this Section 6.2 shall limit the authority of the
Board to take such other action as it deems necessary or advisable to protect
the Company and the interests of its stockholders in preserving the Company's
status as a REIT.
Section 6.2.6. AMBIGUITY. In the case of an ambiguity in the
application of any of the provisions of this Section 6.2, Section 6.3 or any
definition contained in Section 6.1, the Board shall have the power to determine
the application of the provisions of this Section 6.2 or Section 6.3 with
respect to any situation based on the facts known to it. If Section 6.2 or 6.3
requires an action by the Board and the Charter fails to provide specific
guidance with respect to such action, the Board shall have the power to
determine the action to be taken so long as such action is not contrary to the
provisions of Sections 6.1, 6.2 or 6.3.
Section 6.2.7. EXCEPTIONS.
(a) The Board, in its sole and absolute discretion, may grant to any
Person who makes a request therefor an exception to the Ownership Limit if: (i)
such Person submits to the Board information satisfactory to the Board, in its
reasonable discretion, demonstrating that such Person is not an individual for
purposes of Section 542(a)(2) of the Code (determined taking into account
Section 856(h)(3)(A) of the Code); (ii) such Person submits to the Board
information satisfactory to the Board, in its reasonable discretion,
demonstrating that no Person 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 Shares in excess of the
Ownership Limit by reason of the Excepted Holder's ownership of Shares in excess
of the Ownership Limit pursuant to the exception granted under this subparagraph
(a); (iii) such Person submits to the Board information satisfactory to the
Board, in its reasonable discretion, demonstrating that clause (2) of
subparagraph (a)(ii) of Section 6.2.1 will not be violated by reason of the
Excepted Holder's ownership of Shares in excess of the Ownership Limit pursuant
to the exception granted under this subparagraph (a); and (iv) such Person
provides to the Board such representations and undertakings, if any, as the
Board may, in its reasonable discretion, require to ensure that the conditions
in clauses (i), (ii) and (iii) hereof are satisfied and will continue to be
satisfied throughout the period during which such Person owns Share in excess of
the Ownership Limit pursuant to any exception thereto granted under this
subparagraph (a), and such Person agrees that any violation of such
representations and undertakings or any attempted
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violation thereof will result in the application of the remedies set forth in
Section 6.2 with respect to Shares held in excess of the Ownership Limit with
respect to such Person (determined without regard to the exception granted such
Person under this subparagraph (a)).
(b) Prior to granting any exception pursuant to subparagraph (a), the
Board may require a ruling from the Internal Revenue Service or an opinion of
counsel, in either case in form and substance satisfactory to the Board, in its
sole and absolute discretion necessary or advisable in order to determine or
ensure the Company's status as a REIT; provided, however, that the Board shall
not be obligated to require obtaining a favorable ruling or opinion in order to
grant an exception hereunder.
(c) Subject to Section 6.2.1(a)(ii), an underwriter that participates
in a public offering or a private placement of Shares (or securities convertible
into or exchangeable for Shares) may Beneficially or Constructively Own Shares
(or securities convertible into or exchangeable for Shares) in excess of the
Ownership Limit, but only to the extent necessary to facilitate such public
offering or private placement.
(d) The Board may only reduce the Excepted Holder Limit for an
Excepted Holder: (1) with the written consent of such Excepted Holder at any
time, or (2) pursuant to the terms and conditions of the agreements and
undertakings entered into with such Excepted Holder in connection with the
establishment of the Excepted Holder Limit for that Excepted Holder. No Excepted
Holder Limit shall be reduced to a percentage that is less than the Ownership
Limit.
(e) The Board may only reduce the McBride Family Excepted Holder Limit
below 39.9%: (i) with the written consent of the McBride Family, or (ii)
pursuant to the terms and conditions of Section 6.1(n).
(f) The Board may only reduce the Hudson Bay Excepted Holder Limit
below 40% with the written consent of Hudson Bay.
Section 6.2.8. INCREASE IN OWNERSHIP LIMIT. The Board may from time to
time increase the Ownership Limit, subject to the limitations provided in this
Section 6.2.8.
(a) The Ownership Limit may not be increased if, after giving effect
to such increase, five Persons who are considered individuals pursuant to
Section 542 of the Code, as modified by Section 856(h)(3) of the Code (taking
into account all of the Excepted Holders), could Beneficially Own, in the
aggregate, more than 49.5% of the value of the outstanding Shares.
(b) Prior to the modification of the Ownership Limit pursuant to this
Section 6.2.8, the Board may require such opinions of counsel, affidavits,
undertakings or agreements as it may deem necessary or advisable in order to
determine or ensure that Company's status as a REIT if the modification in the
Ownership Limit were to be made.
Section 6.2.9. LEGEND. Each certificate for Shares shall bear
substantially the following legend:
The shares represented by this certificate are subject to
restrictions on Beneficial and Constructive Ownership and
Transfer for the
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purpose of the Company's maintenance of its status as Real
Estate Investment Trust (a "REIT") under the Internal
Revenue Code of 1986, as amended (the "Code"). Subject to
certain further restrictions and except as expressly
provided in the Company's Charter, (i) no Person may
Beneficially or Constructively Own Common Stock of the
Company in excess of 4.9% (in value or number of shares,
whichever is more restrictive) of the outstanding shares of
Common Stock unless such Person is an Excepted Holder (in
which case the Excepted Holders Limit shall be applicable);
(ii) with respect to any class or series of Preferred Stock,
no Person may Beneficially or Constructively Own more than
9.9% (in value or number of shares, whichever is more
restrictive) of the outstanding shares of such class or
series of Preferred Stock of the Company, unless such Person
is an Excepted Holder (in which case the Excepted Holder
Limit shall be applicable); (iii) no Person may Beneficially
or Constructively Own Shares that would result in the
Company being "closely held" under Section 856(h) of the
Code or otherwise cause the Company to fail to quality as a
REIT; and (iv) no Person may Transfer Shares if such
Transfer would result in Shares of the Company being owned
by fewer than 100 Persons. Any Person who Beneficially or
Constructively Owns or attempts to Beneficially or
Constructively Own Shares which cause or will cause a Person
to Beneficially or Constructively Own Shares in excess or in
violation of the above limitations must immediately notify
the Company. If any of the restrictions on transfer or
ownership are violated, the Shares represented hereby will
be automatically transferred to a Charitable Trustee of a
Charitable Trust for the benefit of one or more Charitable
Beneficiaries. In addition, upon the occurrence of certain
events, attempted Transfers in violation of the restrictions
described above may be void AB INITIO. A Person who attempts
to Beneficially or Constructively Own Shares in violation of
the ownership limitations described above shall have no
claim, cause of action, or any recourse whatsoever against a
transferor of such Shares. All capitalized terms in this
legend have the meanings defined in the Company's Charter,
as the same may be amended from time to time, a copy of
which, including the restrictions on transfer and ownership,
will be furnished to each holders of Shares of the Company
on request and without charge.
Section 6.3. TRANSFER OF SHARES IN COMPANY.
Section 6.3.1. OWNERSHIP IN COMPANY. Upon any purported Transfer or
other event described in Section 6.2.1(b) that would result in a transfer of
Shares to a Charitable Trust, such Shares shall be deemed to have been
transferred to the Charitable Trustee as trustee of a Charitable Trust for the
exclusive benefit of one or more Charitable Beneficiaries. Such transfer
14
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to the Charitable Trustee shall be deemed to be effective as of the close of
business on the Business Day prior to the purported Transfer or other event that
results in the transfer to the Charitable Trust pursuant to Section 6.2.1(b).
The Charitable Trustee shall be appointed by the Company and shall be a Person
unaffiliated with the Company and any Prohibited Owner. Each Charitable
Beneficiary shall be designated by the Company as provided in Section 6.3.7.
Section 6.3.2. STATUS OF SHARES HELD BY THE CHARITABLE TRUSTEE. Shares
held by the Charitable Trustee shall be issued and outstanding Shares of the
Company. The Prohibited Owner shall have no rights in the Shares held by the
Charitable Trustee. The Prohibited Owner shall not benefit economically from
ownership of any Shares held in trust by the Charitable Trustee, shall have no
rights to dividends or other distributions and shall not possess any rights to
vote or other rights attributable to the Shares held in the Charitable Trust.
The Prohibited Owner shall have no claim, cause of action, or any other recourse
whatsoever against the purported transferor of such Shares.
Section 6.3.3. DIVIDEND AND VOTING RIGHTS. The Charitable Trustee
shall have all voting rights and rights to dividends or other distributions with
respect to Shares held in the Charitable Trust, which rights shall be exercised
for the exclusive benefit of the Charitable Beneficiary. Any dividend or other
distribution paid prior to the discovery by the Company that Shares have been
transferred to the Charitable Trustee shall be paid with respect to such Shares
to the Charitable Trustee upon demand and any dividend or other distribution
authorized but unpaid shall be paid when due to the Charitable Trustee. Any
dividends or distributions so paid over to the Charitable Trustee shall be held
in trust for the Charitable Beneficiary. The Prohibited Owner shall have no
voting rights with respect to Shares held in the Charitable Trust and, subject
to Maryland law, effective as of the date that Shares have been transferred to
the Charitable Trustee, the Charitable Trustee shall have the authority (at the
Charitable Trustee's sole discretion) (i) to rescind as void any vote cast by a
Prohibited Owner prior to the discovery by the Company that Shares have been
transferred to the Charitable Trustee and (ii) to recast such vote in accordance
with the desires of the Charitable Trustee acting for the benefit of the
Charitable Beneficiary; provided, however, that if the Company has already taken
irreversible action, then the Charitable Trustee shall not have the power to
rescind and recast such vote. Notwithstanding the provisions of this Article VI,
until the Company has received notification that Shares have been transferred
into a Charitable Trust, the Company shall be entitled to rely on its share
transfer and other stockholder records for purposes of preparing lists of
stockholders entitled to vote at meetings, determining the validity and
authority of proxies and otherwise conducting votes of stockholders.
Section 6.3.4. RIGHTS UPON LIQUIDATION. Upon any voluntary or
involuntary liquidation dissolution or winding up of or any distribution of the
assets of the Company, the Charitable Trustee shall be entitled to receive,
ratably with each other holder of Shares of the class or series of Shares that
is held in the Charitable Trust, that portion of the assets of the Company
available for distribution to the holders of such class or series (determined
based upon the ratio that the number of Shares or such class or series of Shares
held by the Charitable Trustee bears to the total number of Shares of such class
or series of Shares then outstanding). The Charitable Trustee shall distribute
any such assets received in respect of the Shares held in the Charitable Trust
in any liquidation, dissolution or winding up of, or distribution of the assets
of the Company, in accordance with Section 6.3.5.
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Section 6.3.5. SALE OF SHARES BY CHARITABLE TRUSTEE. Within 20 days of
receiving notice from the Company that Shares have been transferred to the
Charitable Trust, the Charitable Trustee of the Charitable Trust shall sell the
Shares held in the Charitable Trust to one or more Persons, designated by the
Charitable Trustee, whose ownership of the Shares will not violate the ownership
limitations set forth in Section 6.2.1(a). Upon such sale, the interest of the
Charitable Beneficiary in the Shares sold shall terminate and the Charitable
Trustee shall distribute the net proceeds of the sale to the Prohibited Owner
and to the Charitable Beneficiary as provided in this Section 6.3.5. The
Prohibited Owner shall receive the lesser of (1) the price paid by the
Prohibited Owner for the Shares or, if the Prohibited Owner did not give value
for the Shares in connection with the event causing the Shares to be held in the
Charitable Trust (e.g., in the case of a gift, devise or other such
transaction), the Market Price of the Shares on the day of the event causing the
Shares to be held in the Charitable Trust and (2) the price per share received
by the Charitable Trustee from the sale or other disposition of the Shares held
in the Charitable Trust. Any net sales proceeds in excess of the amount payable
to the Prohibited Owner shall be immediately paid to the Charitable Beneficiary.
If, prior to the discovery by the Company that Shares have been transferred to
the Charitable Trustee, such Shares are sold by a Prohibited Owner, then (i)
such Shares shall be deemed to have been sold on behalf of the Charitable Trust
and (ii) to the extent that the Prohibited Owner received an amount for such
Shares that exceeds that amount that such Prohibited Owner was entitled to
receive pursuant to this Section 6.3.5, such excess shall be paid to the
Charitable Trustee upon demand. The Charitable Trustee shall have the right and
power to offer any Shares held in trust for sale to the Company on such terms
and conditions as the Charitable Trustee shall deem appropriate.
Section 6.3.6. PURCHASE RIGHT IN SHARES TRANSFERRED TO THE CHARITABLE
TRUSTEE. Shares transferred to the Charitable Trustee shall be deemed to have
been offered for sale to the Company, or its designee, at a price per share
equal to the lesser of (i) the price per share in the transaction that resulted
in such transfer to the Charitable Trust (or, in the case of a devise or gift,
the Market Price at the time of such devise or gift) and (ii) the Market Price
on the date the Company, or its designee, accepts such offer. The Company shall
have the right to accept such offer until the Charitable Trustee has sold the
Shares held in the Charitable Trust pursuant to Section 6.3.5. Upon such a sale
to the Company, the interest of the Charitable Beneficiary in the Shares sold
shall terminate and the Charitable Trustee shall distributed the net proceeds of
the sale to the Prohibited Owner.
Section 6.3.7. DESIGNATION OF CHARITABLE BENEFICIARIES. By written
notice to the Charitable Trustee, the Company shall designate one or more
nonprofit organizations to be the Charitable Beneficiary of the interest in the
Charitable Trust such that (i) Shares held in the Charitable Trust would not
violate the restrictions set forth in Section 6.2.1(a) in the hands of such
Charitable Beneficiary and (ii) each such organization must be described in
Section 501(c)(3), 170(b)(1)(A) or 170(c)(2) of the Code.
Section 6.4. AMEX TRANSACTIONS. Nothing in this Article VI shall preclude
the settlement of any transaction entered into through the facilities of the
AMEX or any other national securities exchange or automated inter-dealer
quotation system. The fact that the settlement of any transaction is so
permitted shall not negate the effect of any other provisions of this Article VI
and any transferee in such a transaction shall be subject to all of the
provisions and limitations set forth in this Article VI.
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Section 6.5. ENFORCEMENT. The Company is authorized specifically to seek
equitable relief, including injunctive relief, to enforce the provisions of this
Article VI.
Section 6.6. NON-WAIVER. No delay or failure on the part of the Company or
the Board in exercising any right hereunder shall operate as a waiver of any
right of the Company or the Board, as the case may be, except to the extent
specially waived in writing.n
ARTICLE VII
STOCKHOLDERS
Section 7.1. ACTIONS BY STOCKHOLDERS. Notwithstanding any provision of law
requiring the authorization of any action by a greater proportion than a
majority of the total number of shares of all classes of capital stock or of the
total number of shares of any class of capital stock, such action shall be valid
and effective if authorized by the affirmative vote of the holders of a majority
of the total number of shares of all classes outstanding and entitled to vote
thereon, voting as a single class, except as otherwise provided in the Charter.
Section 7.2. STOCKHOLDERS PROPOSAL. For any stockholder proposal to be
presented in connection with an annual meeting of stockholders of the Company,
including any proposal relating to the nomination of a Director to be elected to
the Board, the stockholders must have given timely written notice thereof in
writing to the Secretary of the Company in the manner and containing the
information required by the Bylaws. Stockholder proposals to be presented in
connection with a special meeting of stockholders will be presented by the
Company only to the extent required by Section 2-502 of the MGCL and the Bylaws.
Section 7.3. ANNUAL MEETING OF STOCKHOLDERS. The first annual meeting of
the stockholders of the Company after the Closing Date shall be held in the
fourth calendar quarter of 1998.
Section 7.4. LIMITATION OF DIRECTOR AND OFFICER LIABILITY. To the fullest
extent permitted by Maryland statutory or decisional law, as amended or
interpreted, no Director or officer of the Company shall be personally liable to
the Company or its stockholders for money damages. No amendment of the Charter
of the Company or repeal of any of its provisions shall limit or eliminate the
limitation on liability provided to Directors and officers hereunder with
respect to any act or omission occurring prior to such amendment or repeal.
Section 7.5. INDEMNIFICATION. The Company shall indemnify (A) its Directors
and officers, whether serving the Company or at its request any other entity, to
the full extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of expenses under the
procedures and to the full extent permitted by law and (B) other employees and
agents to such extent as shall be authorized by the Board or the Company's
Bylaws and be permitted by law. The foregoing rights of indemnification shall
not be exclusive of any other rights to which those seeking indemnification may
be entitled. The Board may take such action as is necessary to carry out these
indemnification provisions and is expressly empowered to adopt, approve and
amend from time to time such by-laws, resolutions
17
<PAGE>
or contract implementing such provisions or such further indemnification
arrangements as may be permitted by law. No amendment of the Charter of the
Company or repeal of any of its provisions shall limit or eliminate the right to
indemnification provided hereunder with respect to acts or omissions occurring
prior to such amendment or repeal.
Section 7.6. TRANSACTIONS BETWEEN THE COMPANY AND ITS DIRECTORS, OFFICERS,
EMPLOYEES AND Agents. Subject to any express restrictions in the Charter or
adopted by the Directors in the Bylaws or by resolution, the Company may enter
into any contract or transaction of any kind with any person, including any
Director, officer, employee or agent of the Company or any person affiliated
with a Director, officer, employee or agent of the Company, whether or not any
of them has a financial interest in such transaction.
ARTICLE VIII
AMENDMENTS
The Company reserves the right from time to time to make any amendments of
the Charter which may now or hereafter be authorized by law, including any
amendments changing the terms or contract rights, as expressly set forth in the
Charter, of any of its outstanding stock by classification, reclassification or
otherwise, but no such amendment which changes such terms or contract rights of
any of its outstanding stock shall be valid unless such amendment shall have
been authorized by not less than a majority of the aggregate number of the votes
entitled to be cast thereon, by a vote at a meeting or in writing with or
without a meeting.
ARTICLE IX
DURATION AND DISSOLUTION OF COMPANY
The duration of the Company shall be perpetual.
ARTICLE X
SEVERABILITY
The provisions of the Charter are severable, and if the Board shall
determine, with the advice of counsel, that any one or more of such provisions
(the "Conflicting Provisions") are in conflict with the Code or other applicable
federal or state laws, the Conflicting Provisions, to the extent of the
conflict, shall be deemed never to have constituted a part of the Charter, even
without any amendment of the Charter pursuant to Article VIII and without
affecting or impairing any of the remaining provisions of the Charter or
rendering invalid or improper any action taken or omitted prior to such
determination. No Director shall be liable for making or failing to make such a
determination. In the event of any such determination by the Board, the Board
shall amend the Charter in the manner provided in Article VIII.
If any provision of the Charter shall be held invalid or unenforceable in
any jurisdiction, such holding shall apply only to the extent of any such
invalidity or unenforceability and shall
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not in any manner affect, impair or render invalid or unenforceable such
provision in any other jurisdiction or any other provision of the Charter in any
jurisdiction.
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Exhibit 4.2
AMERICAN REAL ESTATE INVESTMENT CORPORATION
ARTICLES SUPPLEMENTARY CLASSIFYING AND DESIGNATING A
SERIES OF PREFERRED STOCK AS
SERIES A CONVERTIBLE PREFERRED STOCK
AND FIXING DISTRIBUTION AND
OTHER PREFERENCES AND RIGHTS OF SUCH SERIES
American Real Estate Investment Corporation, a Maryland corporation, having
its principal office in the state of Maryland in the City of Baltimore (the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
Pursuant to authority expressly vested in the Board of Directors by Article
V of the Amended and Restated Articles of Incorporation (the "Articles of
Incorporation"), the Board of Directors adopted resolutions authorizing the
creation and issuance of Eight Hundred Thousand (800,000) shares, with a
liquidation preference of Twenty-Five Dollars ($25.00) per share, of Series A
Convertible Preferred Stock and adopted resolutions granting the Executive
Committee of the Board of Directors with full power and authority, subject to
the foregoing resolution, to determine the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption, number of shares and
dividend rate, as determined by such duly authorized committee are as follows:
SECTION 1. NUMBER OF SHARES AND DESIGNATION. This series of Preferred Stock
shall be designated as Series A Convertible Preferred Stock (the "Series A
Preferred Shares"), and the number of shares of Preferred Stock which shall
constitute such series shall be 800,000 shares which number may be decreased
(but not below the number thereof then outstanding) from time to time by the
Board of Directors.
SECTION 2. DEFINITIONS. For purposes of the Series A Preferred Shares, the
following terms shall have the meanings indicated:
"Act" shall mean the Securities Act of 1933, as amended.
"Board of Directors" shall mean the Board of Directors of the Corporation
or any committee authorized by such Board of Directors to perform any of its
responsibilities with respect to the Series A Preferred Shares.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which state or federally chartered banking institutions in New York, New York
are not required to be open.
"Change in Control" shall mean any merger or consolidation of the
Corporation in which one or more entities which are not affiliates of the
Corporation acquire more than 50% of the Corporation's outstanding voting equity
securities or as a result of which stockholders of
<PAGE>
the Corporation immediately before such merger or consolidation hold,
immediately after such merger or consolidation, less than 50% of the surviving
entity's outstanding common stock.
"Common Shares" shall mean the shares of common stock, par value $.001 per
share, of the Corporation.
"Constituent Person" shall have the meaning set forth in paragraph (e) of
Section 7 hereof.
"Continuation Right" shall have the meaning set forth in Section 4.
"Conversion Price" shall mean the conversion price per Common Share for
which each Series A Preferred Share is convertible, as such Conversion Price may
be adjusted pursuant to Section 7 hereof. The initial conversion price shall be
$16.50 (equivalent to a conversion rate of 1.51515 Common Shares for each Series
A Preferred Share).
"Current Market Price" shall mean, with respect to the Common Shares, on
any date specified herein, the average of the Market Price during the period of
the most recent ten consecutive trading days ending on such date.
"Dividend Payment Date" shall mean, with respect to each Dividend Period,
the last calendar day of January, April, July and October, in each year,
commencing on January 31, 1999; provided, however, that if any Dividend Payment
Date falls on any day other than a Business Day, the dividend payment due on
such Dividend Payment Date shall be paid on the first Business Day immediately
following such Dividend Payment Date.
"Dividend Periods" shall mean quarterly dividend periods commencing on
February 1, May 1, August 1 and November 1 of each year and ending on and
including the day preceding the first day of the next succeeding Dividend Period
(other than the initial Dividend Period, which shall commence on the Issue Date
and end on and include January 31, 1999).
"Issue Date" shall mean the first date on which any Series A Preferred
Shares are issued and sold.
"Junior Shares" shall mean the Common Shares and any other class or series
of shares of capital stock of the Corporation constituting junior stock within
the meaning set forth in paragraph (c) of Section 9 hereof.
"Liquidation" shall mean (A) a dissolution or winding up of the
Corporation, whether voluntary or involuntary, (B) a consolidation or merger of
the Corporation with and into one or more entities which are not affiliates of
the Corporation which results in a Change in Control, or (C) a sale or transfer
of all or substantially all of the Corporation's assets other than to an
affiliate of the Corporation.
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<PAGE>
"Liquidation Preference" shall have the meaning set forth in Section 4
hereof.
"Liquidation Premium" shall mean (X) on or prior to December 15, 2003, in
connection with (i) a Merger Liquidation in which the surviving entity is a
Qualified Entity, an amount equal to five percent (5%) of the Liquidation
Preference or (ii) any other Liquidation, an amount equal to ten percent (10%)
of the Liquidation Preference, or (Y) after December 15, 2003, in connection
with any Liquidation, an amount equal to the Redemption Premium set forth in
Section 5.
"Market Price" shall mean, with respect to the Common Shares on any date,
the last reported sales price, regular way on such day, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way on such day, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the American Stock Exchange ("AMEX") or, if the Common
Shares are not listed or admitted for trading on AMEX, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Common Shares
are listed or admitted for trading or, if the Common Shares are not listed or
admitted for trading on any national securities exchange, the last quoted price,
or if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by the NASD Automated Quotation System or,
if such system is no longer in use, the principal other automated quotation
system that may then be in use, or if the Common Shares are not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker regularly making a market in the Common Shares
selected for such purpose by the Board of Directors or, if there is no such
professional market maker, such amount as an independent investment banking firm
selected by the Board of Directors determines to be the value of a Common Share.
"Merger Liquidation" shall have the meaning set forth in Section 4.
"Non-Electing Share" shall have the meaning set forth in paragraph (e) of
Section 7 hereof.
"Parity Shares" shall have the meaning set forth in paragraph (b) of
Section 9 hereof.
"Person" shall mean any individual, firm, partnership, corporation, limited
liability company or other entity, and shall include any successor (by merger or
otherwise) of such entity.
"Preferred Stock" shall mean the preferred stock, par value $.001 per
share, of the Corporation.
"Qualified Entity" shall mean any Person that (I) either (i) is or may be
the issuer of senior unsecured debt securities which are rated no lower than
investment grade by either Standard & Poor's Rating Service, Inc., a division of
the McGraw Hill Companies, Inc. ("S&P"), or Moody's Investor Services, Inc.
("Moody's"), which rating may (A) relate to any
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outstanding issue of such debt securities or (B) relate to any unissued debt
securities registered on an effective shelf registration statement or (ii) is an
issuer of outstanding preferred equity securities which are rated no lower than
Ba1 by Moody's or BB+ by S&P, and (II) is the issuer of common equity securities
the average daily trading volume of which on the principal national securities
exchange on which such common equity securities are traded on the 30 most recent
Trading Days has been equal to or greater than $2,475,000 per day.
"Qualifying Offering" shall mean the sale of Common Shares in an
underwritten public offering (in which no person acquires more than 10% of the
Common Shares to be sold) at a price of at least $16.50 per share which results
in net proceeds to the REIT of at least $150 million.
"Redemption Date" shall have the meaning set forth in paragraph (a) of
Section 5 hereof.
"Redemption Notice" shall have the meaning set forth in paragraph (a) of
Section 5 hereof.
"Redemption Premium" shall have the meaning set forth in paragraph (a) of
Section 5 hereof.
"Securities" shall have the meaning set forth in paragraph (d)(iii) of
Section 7 hereof.
"Series A Preferred Shares" shall have the meaning set forth in Section 1
hereof.
"Set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of a dividend or other distribution by the Board of Directors, the
allocation of funds to be so paid on any series or class of shares of capital
stock of the Corporation; provided, however, that if any funds for any class or
series of Junior Shares or any class or series of Parity Shares are placed in a
separate account of the Corporation or delivered to a disbursing, paying or
other similar agent, then "set apart for payment" with respect to the Series A
Preferred Shares shall mean placing such funds in a separate account or
delivering such funds to a disbursing, paying or other similar agent.
"Trading Day" shall mean any day on which the securities in question are
traded on the New York Stock Exchange ("NYSE"), or if such securities are not
listed or admitted for trading on the NYSE, on the principal national securities
exchange on which such securities are listed or admitted, or if not listed or
admitted for trading on any national securities exchange, on the Nasdaq National
Market, or if such securities are not quoted on such Nasdaq National Market, in
the applicable securities market in which the securities are traded.
"Transaction" shall have the meaning set forth in paragraph (e) of Section
7 hereof.
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"Voting Preferred Shares" shall have the meaning set forth in Section 10
hereof.
SECTION 3. DIVIDENDS.
(a) The holders of Series A Preferred Shares shall be entitled to receive,
when, as and if authorized and declared by the Board of Directors out of funds
legally available for that purpose, dividends payable in cash at the rate per
annum equal to the greater of (i) $2.25 per Series A Preferred Share or (ii) an
amount per Series A Preferred Share equal to the aggregate annual amount of cash
dividends paid or payable, if any, with respect to that number of Common Shares,
or portion thereof, into which each Series A Preferred Share is then
convertible, in accordance with the terms of these Articles Supplementary (such
greater amount, the ("Annual Dividend Rate"). The amount referred in clause (ii)
of this subparagraph (a) with respect to each Dividend Period shall be
determined as of the applicable Dividend Payment Date by multiplying the number
of Common Shares, or portion thereof calculated to the fourth decimal point,
into which a Series A Preferred Share would be convertible at the opening of
business on such Dividend Payment Date (based on the Conversion Price then in
effect) by the quarterly cash dividend payable or paid for such Dividend Period
in respect of a Common Share outstanding as of the record date for the payment
of dividends on the Common Shares with respect to such Dividend Period or, if
different, with respect to the most recent quarterly period for which dividends
with respect to the Common Shares have been declared. Such dividends shall be
cumulative from the Issue Date, whether or not in any Dividend Period or Periods
there shall be funds of the Corporation legally available for the payment of
such dividends, shall compound quarterly at a rate per annum equal to nine
percent (9%) and shall be payable quarterly, when, as and if authorized and
declared by the Board of Directors, in arrears on Dividend Payment Dates,
commencing on the first Dividend Payment Date after the Issue Date. Each such
dividend shall be payable in arrears to the holders of record of the Series A
Preferred Shares, as they appear on the stock records of the Corporation at the
close of business on each record date which shall not be more than 30 days
preceding the applicable Dividend Payment Date (the "Dividend Payment Record
Date"), as shall be fixed by the Board of Directors. Accrued and unpaid
dividends for any past Dividend Periods may be authorized and declared and paid
at any time, without reference to any regular Dividend Payment Date, to holders
of record on such date, which shall not be more than 45 days preceding the
payment date thereof, as may be fixed by the Board of Directors. The amount of
accrued and unpaid dividends on any Series A Preferred Share at any date shall
be the amount of any dividends thereon calculated and compounded at the
applicable rate to and including such date, whether or not earned or declared,
which have not been paid in cash.
(b) The amount of dividends payable for each full Dividend Period for the
Series A Preferred Shares shall be computed by dividing the Annual Dividend Rate
by four. The amount of dividends payable for the initial Dividend Period, or any
other period shorter or longer than a full Dividend Period, on the Series A
Preferred Shares shall be computed on the basis of twelve 30-day months and a
360-day year. Holders of Series A Preferred Shares shall not be entitled to any
dividends, whether payable in cash, property or stock, in excess of cumulative
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dividends, as herein provided, on the Series A Preferred Shares, plus any other
amounts provided in these Articles Supplementary.
(c) So long as any Series A Preferred Shares are outstanding, no dividends,
except as described in the immediately following sentence, shall be authorized
and declared or paid or set apart for payment on any series or class or classes
of Parity Shares for any period unless full cumulative dividends have been or
contemporaneously are authorized and declared and paid or authorized and
declared and a sum sufficient for the payment thereof set apart for such payment
on the Series A Preferred Shares for all Dividend Periods terminating on or
prior to the dividend payment date for such class or series of Parity Shares.
When dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, all dividends authorized and declared upon Series A
Preferred Shares and all dividends authorized and declared upon any other series
or class or classes of Parity Shares shall be authorized and declared ratably in
proportion to the respective amounts of dividends accumulated and unpaid on the
Series A Preferred Shares and such Parity Shares.
(d) So long as any Series A Preferred Shares are outstanding, no dividends
(other than dividends or distributions paid solely in shares of, or options,
warrants or rights to subscribe for or purchase shares of, Junior Shares) shall
be authorized and declared or paid or set apart for payment or other
distribution authorized and declared or made upon Junior Shares, nor shall any
Junior Shares be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of Common Shares made for purposes of
and in compliance with requirements of an employee incentive or benefit plan of
the Corporation or any subsidiary), for any consideration (or any moneys to be
paid to or made available for a sinking fund for the redemption of any shares of
such stock) by the Corporation, directly or indirectly (except by conversion
into or exchange for Junior Shares), unless in each case (i) the full cumulative
dividends on all outstanding Series A Preferred Shares and any other Parity
Shares of the Corporation shall have been paid or set apart for payment for all
past Dividend Periods with respect to the Series A Preferred Shares and all past
dividend periods with respect to such Parity Shares and (ii) sufficient funds
shall have been paid or set apart for the payment of the dividend for the
current Dividend Period with respect to the Series A Preferred Shares and any
Parity Shares.
SECTION 4. LIQUIDATION PREFERENCE.
(a) In the event of any Liquidation, before any payment or distribution of
the assets of the Corporation (whether capital or surplus) shall be made to or
set apart for the holders of Junior Shares, the holders of Series A Preferred
Shares shall be entitled (subject to the Continuation Right of such holders
described below) to receive an amount equal to the greater of (i) (A)
Twenty-Five Dollars ($25.00) per Series A Preferred Share plus dividends
(whether or not earned or declared) accrued and unpaid thereon to the date of
final distribution to such holder (the "Liquidation Preference") plus (B) the
Liquidation Premium or (ii) an amount per Series A Preferred Share equal to the
amount which would have been payable had each Series A Preferred Share been
converted into Common Shares immediately prior to such Liquidation. The
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foregoing amounts shall be subject to equitable adjustment whenever there shall
occur a stock dividend, stock split, combination, reorganization,
recapitalization, reclassification or other similar event involving a change in
the capital structure of the Series A Preferred Shares. Until the holders of the
Series A Preferred Shares have been paid the Liquidation Preference in full, no
payment will be made to any holder of Junior Shares upon Liquidation. If, upon
any such Liquidation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of Series A Preferred Shares shall be
insufficient to pay in full the preferential amount aforesaid and liquidating
payments on any other shares of any class or series of Parity Stock, then such
assets, or the proceeds thereof, shall be distributed among the holders of such
Series A Preferred Shares and such other Parity Stock ratably in accordance with
the amounts that would be payable on such Series A Preferred Shares and such
other Parity Stock if all amounts payable thereon were paid in full.
In connection with a Merger Liquidation, the holders of Series A Preferred
Shares shall have the right (a "Continuation Right") to elect, by delivering
written notice to the Corporation not less than five Business Days prior to the
Merger Liquidation, to require the Corporation to make provision for the Series
A Preferred Shares to be assumed by the surviving entity as described in Section
7(e); provided, however, notwithstanding the election by the holders of the
Series A Preferred Shares of the Continuation Right, the Corporation shall have
the right, in connection with any Merger Liquidation, to elect, by delivering
written notice to the holders of Series A Preferred Shares at any time prior to
the Merger Liquidation, to redeem any or all of the outstanding Series A
Preferred Shares for an amount per Series A Preferred Share equal to the
Liquidation Preference plus a premium equal to ten percent (10%) of the
Liquidation Preference. A "Merger Liquidation" shall be a Liquidation which
constitutes a consolidation or merger of the Corporation with one or more
entities that are not affiliates of the Corporation and as a result of which the
Corporation is not the Surviving Entity.
(b) Subject to the rights of the holders of any Parity Shares, upon any
Liquidation of the Corporation, after payment shall have been made in full to
the holders of Series A Preferred Shares and any Parity Shares, as provided in
this Section 4, any other series or class or classes of Junior Shares shall,
subject to the respective terms thereof, be entitled to receive any and all
assets remaining to be paid or distributed, and the holders of the Series A
Preferred Shares and any Parity Shares shall not be entitled to share therein.
SECTION 5. REDEMPTION AT THE OPTION OF THE CORPORATION.
(a) The Series A Preferred Shares shall not be redeemable by the
Corporation prior to December 15, 2003. On and after December 15, 2003, the
Corporation, at its option, may redeem the Series A Preferred Shares, in whole
but not in part, as set forth herein, subject to the provisions described below.
At any time on or after December 15, 2003, upon the written election of the
Corporation given to each record holder of Series A Preferred Shares (the
"Redemption Notice"), the Corporation may redeem for cash on the date specified
in the Redemption Notice
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(which date shall not be less than 20 days nor more than 30 days after the date
of the Redemption Notice) (the "Redemption Date"), all, but not less than all,
of the outstanding Series A Preferred Shares at a price per Series A Preferred
Share equal to the Liquidation Preference plus a premium (the "Redemption
Premium") which shall equal the following percentages of the Liquidation
Preference during in the following periods:
From December 15, 2003 through and
including December 14, 2004 ......................... 4.5%
From December 15, 2004 through and
including December 14, 2005 ......................... 3.375%
From December 15, 2005 through and
including December 14, 2006 ......................... 2.25%
From December 15, 2006 through and
including December 14, 2007 ......................... 1.125%
December 15, 2007 and thereafter .................... 0%
(b) From and after the Redemption Date, (i) except as otherwise
provided herein, dividends on the Series A Preferred Shares so called for
redemption shall cease to accrue, (ii) said shares shall no longer be deemed to
be outstanding, and (iii) all rights of the holders thereof as holders of Series
A Preferred Shares of the Corporation shall cease (except the rights to receive
the cash payable upon such redemption, without interest thereon, upon surrender
and endorsement of their certificates if so required and to receive any
dividends payable thereon). The Corporation's obligation to provide cash in
accordance with the preceding sentence shall be deemed fulfilled if, on or
before the Redemption Date, the Corporation shall deposit with a bank or trust
company (which may be an affiliate of the Corporation) that has an office in the
Borough of Manhattan, City of New York, or in Philadelphia, Pennsylvania and
that has, or is an affiliate of a bank or trust company that has, a capital and
surplus of at least $50,000,000, any cash necessary for such redemption, in
trust, with irrevocable instructions that such cash be applied to the redemption
of the Series A Preferred Shares so called for redemption. No interest shall
accrue for the benefit of the holder of Series A Preferred Shares to be redeemed
on any cash so set aside by the Corporation.
SECTION 6. REACQUIRED SHARES TO BE RETIRED. All Series A Preferred
Shares which shall have been issued and reacquired in any manner by the
Corporation shall be restored to the status of authorized but unissued shares of
Preferred Stock, without designation as to series.
SECTION 7. CONVERSION. Holders of Series A Preferred Shares shall have
the right to convert all or a portion of such shares into Common Shares, as
follows:
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(a) Subject to and upon compliance with the provisions of this Section
7, a holder of Series A Preferred Shares shall have the right, at his or her
option, at any time and from time to time, to convert such shares into the
number of fully paid and non-assessable Common Shares obtained by dividing the
aggregate Liquidation Preference of such Series A Preferred Shares by the
Conversion Price (as in effect at the time and on the date provided for in the
last paragraph of paragraph (b) of this Section 7) by surrendering such Series A
Preferred Shares to be converted, such surrender to be made in the manner
provided in paragraph (b) of this Section 7; provided, however, that the right
to convert Series A Preferred Shares called for redemption pursuant to Section 5
hereof shall terminate at the close of business on the Redemption Date fixed for
such redemption, unless the Corporation shall default in making payment of any
cash payable upon such redemption under Section 5 hereof.
(b) In order to exercise the conversion right, the holder of each
Series A Preferred Share to be converted shall surrender the certificate
representing such Series A Preferred Share, duly endorsed or assigned to the
Corporation or in blank, to the Corporation, accompanied by written notice to
the Corporation that the holder thereof elects to convert such Series A
Preferred Shares. Unless the Common Shares issuable on conversion are to be
issued in the same name as the name in which such Series A Preferred Shares are
registered, each share surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the holder or such holder's duly authorized attorney and an amount sufficient
to pay any transfer or similar tax (or evidence reasonably satisfactory to the
Corporation demonstrating that such taxes have been paid).
Holders of Series A Preferred Shares at the close of business on any
Dividend Payment Record Date shall be entitled to receive the dividend payable
on such shares on the corresponding Dividend Payment Date notwithstanding the
conversion thereof (and of any accrued and unpaid dividends to the date or
conversion) following such Dividend Payment Record Date and prior to such
Dividend Payment Date. However, Series A Preferred Shares surrendered for
conversion during the period between the close of business on any Dividend
Payment Record Date and the opening of business on the corresponding Dividend
Payment Date (except shares converted after the issuance of a Redemption Notice
with respect to a Redemption Date during such period, such Series A Preferred
Shares being entitled to such dividend on the Dividend Payment Date) must be
accompanied by payment of an amount equal to the dividend payable on such shares
on such Dividend Payment Date. A holder of Series A Preferred Shares on a
Dividend Payment Record Date who (or whose transferee) tenders any such shares
for conversion into Common Shares on such Dividend Payment Date will receive the
dividend payable by the Corporation on such Series A Preferred Shares on such
date, and the converting holder need not include payment of the amount of such
dividend upon surrender of Series A Preferred Shares for conversion.
As promptly as practicable after the surrender of certificates for
Series A Preferred Shares as aforesaid, the Corporation shall issue and shall
deliver at such office to such holder, or send on his or her written order, a
certificate or certificates for the number of full Common Shares issuable upon
the conversion of such Series A Preferred Shares in accordance with the
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provisions of this Section 7, and any fractional interest in respect of a Common
Share arising upon such conversion shall be settled as provided in paragraph (c)
of this Section 7.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for Series
A Preferred Shares shall have been surrendered and such notice received by the
Corporation as aforesaid, and the person or persons in whose name or names any
certificate or certificates for Common Shares shall be issuable upon such
conversion shall be deemed to have become the holder or holders of record of the
Common Shares represented thereby at such time on such date, and such conversion
shall be at the Conversion Price in effect at such time and on such date unless
the stock transfer books of the Corporation shall be closed on that date, in
which event such person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding day on which
such stock transfer books are open, but such conversion shall be at the
Conversion Price in effect on the date on which such Series A Preferred Shares
shall have been surrendered and such notice received by the Corporation.
(c) No fractional shares or scrip representing fractions of Common
Shares shall be issued upon conversion of the Series A Preferred Shares. Instead
of any fractional interest in a Common Share that would otherwise be deliverable
upon the conversion of a Series A Preferred Share, the Corporation shall pay to
the holder of such Series A Preferred Share an amount in cash based upon the
Current Market Price of Common Shares on the Trading Day immediately preceding
the date of conversion. If more than one Series A Preferred Share shall be
surrendered for conversion at one time by the same holder, the number of full
Common Shares issuable upon conversion thereof shall be computed on the basis of
the aggregate number of Series A Preferred Shares so surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) If the Corporation shall after the Issue Date (A)
pay a dividend or make a distribution on its shares of capital stock in Common
Shares, (B) subdivide its outstanding Common Shares into a greater number of
shares, (C) combine its outstanding Common Shares into a smaller number of
shares or (D) issue any shares of capital stock by reclassification of its
Common Shares, the Conversion Price in effect at the opening of business on the
day following the date fixed for the determination of shareholders entitled to
receive such dividend or distribution or at the opening of business on the day
following the day on which such subdivision, combination or reclassification
becomes effective, as the case may be, shall be adjusted so that the holder of
any Series A Preferred Share thereafter surrendered for conversion shall be
entitled to receive the number of Common Shares that such holder would have
owned or have been entitled to receive after the happening of any of the events
described above, had such Series A Preferred Share been converted immediately
prior to the record date in the case of a dividend or distribution or the
effective date in the case of a subdivision, combination or reclassification. An
adjustment made pursuant to this subparagraph (i) shall become effective
immediately upon the opening of business on the day next following the record
date (subject to paragraph (h) below) in the case of a dividend or
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distribution and shall become effective immediately upon the opening of business
on the day next following the effective date in the case of a subdivision,
combination or reclassification.
(ii) If the Corporation shall issue after the Issue Date
rights, options or warrants to all holders of Common Shares entitling them (for
a period expiring within 45 days after the record date mentioned below in this
subparagraph (ii)) to subscribe for or purchase Common Shares at a price per
share less than the Current Market Price per Common Share on the record date for
the determination of stockholders entitled to receive such rights, options or
warrants, then the Conversion Price in effect at the opening of business on the
day next following such record date shall be adjusted to equal the price
determined by multiplying (A) the Conversion Price in effect immediately prior
to the opening of business on the day following the date fixed for such
determination by (B) a fraction, the numerator of which shall be the sum of (I)
the number of Common Shares outstanding on the close of business on the date
fixed for such determination and (II) the number of Common Shares that the
aggregate proceeds to the Corporation from the exercise of such rights, options
or warrants for Common Shares would purchase at such Current Market Price, and
the denominator of which shall be the sum of (I) the number of Common Shares
outstanding on the close of business on the date fixed for such determination
and (II) the number of additional Common Shares offered for subscription or
purchase pursuant to such rights, options or warrants. Such adjustment shall
become effective immediately upon the opening of business on the day next
following such record date (subject to paragraph (h) below). In determining
whether any rights, options or warrants entitle the holders of Common Shares to
subscribe for or purchase Common Shares at less than such Current Market Price,
there shall be taken into account any consideration received by the Corporation
upon issuance and upon exercise of such rights, options or warrants, the value
of such consideration, if other than cash, to be determined by the Chief
Executive Officer or the Board of Directors, whose determination shall be
conclusive.
(iii) If the Corporation shall distribute to all holders of
its Common Shares any shares of capital stock of the Corporation (other than
Common Shares) or evidence of its indebtedness or assets (excluding cash
dividends or distributions paid out of assets based upon a fair valuation of the
assets, in excess of the sum of the liabilities of the Corporation and the
amount of stated capital attributable to Common Shares, determined on the basis
of the most recent annual consolidated cost basis and current value basis and
quarterly consolidated balance sheets of the Corporation and its consolidated
subsidiaries available at the time of the declaration of the dividend or
distribution) or rights or warrants to subscribe for or purchase any of its
securities (excluding those rights and warrants issued to all holders of Common
Shares entitling them for a period expiring within 45 days after the record date
referred to in subparagraph (ii) above to subscribe for or purchase Common
Shares, which rights and warrants are referred to in and treated under
subparagraph (ii) above) (any of the foregoing being hereinafter in this
subparagraph (iii) called the "Securities"), then in each case the Conversion
Price shall be adjusted so that it shall equal the price determined by
multiplying (A) the Conversion Price in effect immediately prior to the close of
business on the date fixed for the determination of shareholders entitled to
receive such distribution by (B) a fraction, the numerator of which shall be the
Current Market Price per Common Share on the record date
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mentioned below less the then fair market value (as determined by the Board of
Directors, whose determination shall be conclusive) of the portion of the shares
of capital stock or assets or evidences of indebtedness so distributed or of
such rights or warrants applicable to one Common Share, and the denominator of
which shall be the Current Market Price per Common Share on the record date
mentioned below. Such adjustment shall become effective immediately upon the
opening of business on the day next following (subject to paragraph (h) below)
the record date for the determination of stockholders entitled to receive such
distribution. For the purposes of this subparagraph (iii), the distribution of a
Security, which is distributed not only to the holders of the Common Shares on
the date fixed for the determination of shareholders entitled to such
distribution of such Security, but also is required to be distributed with each
Common Share delivered to a Person converting a Series A Preferred Share after
such determination date, shall not require an adjustment of the Conversion Price
pursuant to this subparagraph (iii); provided that on the date, if any, on which
a person converting a Series A Preferred Share would no longer be entitled to
receive such Security with a Common Share (other than as a result of the
termination of all such Securities), a distribution of such Securities shall be
deemed to have occurred, and the Conversion Price shall be adjusted as provided
in this subparagraph (iii) (and such day shall be deemed to be "the date fixed
for the determination of the shareholders entitled to receive such distribution"
and "the record date" within the meaning of the two preceding sentences).
The occurrence of a distribution or the occurrence of any other event
as a result of which holders of Series A Preferred Shares shall not be entitled
to receive rights, including exchange rights (the "Rights"), pursuant to any
shareholders protective rights agreement (the "Agreement") that may be adopted
by the Corporation as if such holders had converted such shares into Common
Shares immediately prior to the occurrence of such distribution or event shall
not be deemed a distribution of Securities for the purposes of any Conversion
Price adjustment pursuant to this subparagraph (iii) or otherwise give rise to
any Conversion Price adjustment pursuant to this Section 7; provided, however,
that in lieu of any adjustment to the Conversion Price as a result of any such a
distribution or occurrence, the Corporation shall make provision so that Rights,
to the extent issuable at the time of conversion of any Series A Preferred
Shares into Common Shares, shall issue and attach to such Common Shares then
issued upon conversion in the amount and manner and to the extent and as
provided in the Agreement in respect of issuances at the time of Common Shares
other than upon conversion.
(iv) No adjustment in the Conversion Price shall be
required unless such adjustment would require a cumulative increase or decrease
of at least 1% in such price; provided, however, that any adjustments that by
reason of this subparagraph (iv) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment until made; and
provided, further, that any adjustment shall be required and made in accordance
with the provisions of this Section 7 (other than this subparagraph (iv)) not
later than such time as may be required in order to preserve the tax-free nature
of a distribution to the holders of Common Shares. Notwithstanding any other
provisions of this Section 7, the Corporation shall not be required to make any
adjustment of the Conversion Price for the issuance of any Common Shares
pursuant to any plan providing for the reinvestment of
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dividends or interest payable on securities of the Corporation and the
investment of additional optional amounts in Common Shares under such plan. All
calculations under this Section 7 shall be made to the nearest cent (with $.005
being rounded upward) or to the nearest one-tenth of a share (with .05 of a
share being rounded upward), as the case may be. Anything in this paragraph (d)
to the contrary notwithstanding, the Corporation shall be entitled, to the
extent permitted by law, to make such reductions in the Conversion Price, in
addition to those required by this paragraph (d), as it in its discretion shall
determine to be advisable in order that any stock dividends, subdivision of
shares, reclassification or combination of shares, distribution of rights,
options or warrants to purchase stock or securities, or a distribution of other
assets (other than cash dividends) hereafter made by the Corporation to its
shareholders shall not be taxable.
(e) If the Corporation shall be a party to any transaction (including
without limitation a merger, consolidation, statutory share exchange, self
tender offer for all or substantially all Common Shares outstanding, sale of all
or substantially all of the Corporation's assets or recapitalization of the
Common Shares but excluding any transaction as to which subparagraph (d)(i) of
this Section 7 applies) (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which Common Shares shall be
converted into the right to receive stock, securities or other property
(including cash or any combination thereof), each Series A Preferred Share that
is not redeemed or converted into the right to receive stock, securities or
other property in connection with such Transaction shall thereafter be
convertible into the kind and amount of shares of stock, securities and other
property (including cash or any combination thereof) receivable upon the
consummation of such Transaction by a holder of that number of Common Shares
into which one Series A Preferred Share was convertible immediately prior to
such Transaction, assuming such holder of Common Shares (i) is not a Person with
which the Corporation consolidated or into which the Corporation merged or which
merged into the Corporation or to which such sale or transfer was made, as the
case may be (a "Constituent Person"), or an affiliate of a Constituent Person
and (ii) failed to exercise his or her rights of the election, if any, as to the
kind or amount of stock, securities and other property (including cash)
receivable upon such Transaction (provided that if the kind or amount of stock,
securities and other property (including cash) receivable upon such Transaction
is not the same for each Common Share of the Corporation held immediately prior
to such Transaction by other than a Constituent Person or an affiliate thereof
and in respect of which such rights of election shall not have been exercised
("Non-Electing Share"), then for the purpose of this paragraph (e) the kind and
amount of stock, securities and other property (including cash) receivable upon
such Transaction by each Non-Electing Share shall be deemed to be the kind and
amount so receivable per share by a plurality of the Non-Electing Shares). The
Corporation shall not be a party to any Transaction unless the terms of such
Transaction are consistent with the provisions of this paragraph (e), and it
shall not consent or agree to the occurrence of any Transaction until the
Corporation has entered into an agreement with the successor or purchasing
entity, as the case may be, for the benefit of the holders of the Series A
Preferred Shares that will contain provisions enabling the holders of the Series
A Preferred Shares that remain outstanding after such Transaction to convert
their Series A Preferred Shares into the consideration received by holders of
Common
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Shares at the Conversion Price in effect immediately prior to such Transaction.
The provisions of this paragraph (e) shall similarly apply to successive
Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any other
distribution) on the Common Shares (other than in cash out of assets, based on a
fair valuation of assets, in excess of the sum of the liabilities of the
Corporation and the amount of stated capital attributable to Common Shares,
determined on the basis of the most recent annual consolidated cost basis and
current value basis and quarterly consolidated balance sheets of the Corporation
and its consolidated subsidiaries available at the time of the declaration of
the dividend or distribution); or
(ii) the Corporation shall authorize the granting to the
holders of the Common Shares of rights or warrants to subscribe for or purchase
any shares of any class or any other rights or warrants (other than Rights to
which the second paragraph of subparagraph (d)(iii) of this Section 7 applies);
or
(iii) there shall be any reclassification of the Common
Shares (other than an event to which subparagraph (d) (i) of this Section 7
applies) or any consolidation or merger to which the Corporation is a party and
for which approval of any shareholders of the Corporation is required, or a
statutory share exchange involving the conversion or exchange of Common Shares
into securities or other property, or a self tender offer by the Corporation for
all or substantially all of its outstanding Common Shares, or the sale or
transfer of all or substantially all of the assets of the Corporation as an
entirety and for which approval of any shareholders of the Corporation is
required; or
(iv) there shall occur the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation,
then the Corporation shall cause to be prepared and delivered to the holders of
the Series A Preferred Shares at their addresses as shown on the stock records
of the Corporation, as promptly as possible, but at least 15 days prior to the
applicable date hereinafter specified, a notice stating (A) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights
or warrants, or, if a record is not to be taken, the date as of which the
holders of Common Shares of record to be entitled to such dividend, distribution
or rights or warrants are to be determined or (B) the date on which such
reclassification, consolidation, merger, statutory share exchange, sale,
transfer, liquidation, dissolution or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Shares
of record shall be entitled to exchange their Common Shares for securities or
other property, if any, deliverable upon such reclassification, consolidation,
merger, statutory share exchange, sale, transfer, liquidation, dissolution or
winding up. Failure to give or receive such notice or any defect therein shall
not affect the legality or validity of the proceedings described in this Section
7.
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(g) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly prepare and deliver to the holders of the Series A
Preferred Shares a notice of such adjustment of the Conversion Price setting
forth the adjusted Conversion Price and the effective date of such adjustment
and an officer's certificate setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment. The Corporation shall mail such notice and such certificate to the
holders of each Series A Preferred Share at such holder's last address as shown
on the stock records of the Corporation.
(h) In any case in which paragraph (d) of this Section 7 provides that
an adjustment shall become effective on the day next following the record date
for an event, the Corporation may defer until the occurrence of such event (A)
issuing to the holder of any Series A Preferred Share converted after such
record date and before the occurrence of such event the additional Common Shares
issuable upon such conversion by reason of the adjustment required by such event
over and above the Common Shares issuable upon such conversion before giving
effect to such adjustment and (B) paying to such holder any amount of cash in
lieu of any fraction pursuant to paragraph (c) of this Section 7.
(i) There shall be no adjustment of the Conversion Price in case of
the issuance of any shares of capital stock of the Corporation in a
reorganization, acquisition or other similar transaction except as specifically
set forth in this Section 7. If any action or transaction would require
adjustment of the Conversion Price pursuant to more than one paragraph of this
Section 7, only one adjustment shall be made, and such adjustment shall be the
amount of adjustment that has the highest absolute value.
(j) If the Corporation shall take any action affecting the Common
Shares, other than action described in this Section 7, that in the opinion of
the Board of Directors would materially adversely affect the conversion rights
of the holders of the Series A Preferred Shares, the Conversion Price for the
Series A Preferred Shares may be adjusted, to the extent permitted by law, in
such manner, if any, and at such time, as the Board of Directors, in its sole
discretion, may determine to be equitable in the circumstances.
(k) The Corporation will at all times reserve and keep available, free
from preemptive rights, out of the aggregate of its authorized but unissued
Common Shares, for the purpose of effecting conversion of the Series A Preferred
Shares, the full number of Common Shares deliverable upon the conversion of all
outstanding Series A Preferred Shares not theretofore converted. For purposes of
this paragraph (k), the number of Common Shares that shall be deliverable upon
the conversion of all outstanding shares of Series A Preferred Shares shall be
computed as if at the time of computation all such outstanding shares were held
by a single holder.
The Corporation covenants that any Common Shares issued upon
conversion of the Series A Preferred Shares shall be validly issued, fully paid
and non-assessable. Before taking any action that would cause an adjustment
reducing the Conversion Price below the then-par
15
<PAGE>
value of the Common Shares deliverable upon conversion of the Series A Preferred
Shares, the Corporation shall take any corporate action that, in the opinion of
its counsel, may be necessary in order that the Corporation may validly and
legally issue fully paid and non-assessable Common Shares at such adjusted
Conversion Price.
The Corporation shall endeavor to list the Common Shares required to
be delivered upon conversion of the Series A Preferred Shares, prior to such
delivery, upon each national securities exchange, if any, upon which the
outstanding Common Shares are listed at the time of such delivery.
(l) The Corporation shall pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of Common
Shares or other securities or property on conversion of the Series A Preferred
Shares pursuant hereto; provided, however, that the Corporation shall not be
required to pay any tax that may be payable in respect of any transfer involved
in the issue or delivery of any Common Shares or other securities or property in
a name other than that of the holder of the Series A Preferred Shares to be
converted, and no such issue or delivery shall be made unless and until the
person requesting such issue or delivery has paid to the Corporation the amount
of any such tax or established, to the reasonable satisfaction of the
Corporation, that such tax has been paid.
(m) The Corporation shall provide each holder of Series A Preferred
Shares with written notice (an "Issuance Notice") of any proposed issuance for
cash of Common Shares or securities convertible into Common Shares (other than
limited partnership interests) no later than 10 business days prior to the
proposed issuance thereof. Such Issuance Notice shall specify the purchase
price, the proposed issuance date and all other material terms of such issuance.
Upon delivery to the Corporation by any such holder no more than 10 business
days after such Issuance Notice is given to such holder of a notice stating that
such holder intends to acquire a portion of the Common Shares or convertible
securities to be issued, such holder shall be entitled, on the terms offered by
the Corporation to other prospective purchasers of the Common Shares or
convertible securities to be issued, to purchase up to an amount of the
securities such that, upon consummation of the proposed issuance, the holder
would hold the same percentage of the Common Shares as such holder holds
immediately prior to such issuance (in each case on an as-converted basis). Any
such notice from any such holder shall indicate the amount of Common Shares or
convertible securities it intends to purchase and shall constitute a binding
contract to acquire such Common Shares or convertible securities on the terms
set forth in the Issuance Notice delivered to such holder by the Corporation.
Notwithstanding anything herein to the contrary, the Corporation shall be
entitled not to proceed with the proposed issuance or to alter the terms
thereof; provided that, in the event that any material terms of the proposed
issuance are altered, (i) any notice delivered by a holder to the Corporation
pursuant to this paragraph (m) of Section 7 shall be revoked automatically and
(ii) such holder shall be entitled to participate in such proposed issuance on
the revised terms in accordance with this paragraph (m) of Section 7. The
provisions of this paragraph (m) of Section 7 shall no longer apply and shall be
of no further effect after the Corporation consummates a Qualifying Offering.
16
<PAGE>
SECTION 8. PERMISSIBLE DISTRIBUTIONS. In determining whether a
distribution (other than upon liquidation, dissolution or winding up), whether
by dividend, or upon redemption or other acquisition of shares or otherwise, is
permitted under Maryland law, amounts that would be needed, if the Corporation
were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of holders of shares of any class or series
of capital stock whose preferential rights upon dissolution are superior or
prior to those receiving the distribution shall not be added to the
Corporation's total liabilities.
SECTION 9. RANKING. Any class or series of shares of capital stock of
the Corporation shall be deemed to rank:
(a) prior to the Series A Preferred Shares, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in preference or priority to the holders of
Series A Preferred Shares;
(b) on a parity with the Series A Preferred Shares, as to the payment
of dividends and as to the distribution of assets upon liquidation, dissolution
or winding up, whether or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share thereof be different from those of
the Series A Preferred Shares, if the holders of such class of stock or series
and the Series A Preferred Shares shall be entitled to the receipt of dividends
and of amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid dividends per share
or liquidation preferences, without preference or priority one over the other
("Parity Shares"); and
(c) junior to the Series A Preferred Shares, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution or
winding up, if such stock or series shall be Common Shares or if the holders of
Series A Preferred Shares shall be entitled to receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of shares of such stock or
series, and such stock or series shall not in either case rank prior to the
Series A Preferred Shares.
SECTION 10. VOTING. Except as otherwise set forth herein, the Series A
Preferred Shares shall not have any relative, participating, optional or other
special voting rights and powers, and the consent of the holders thereof shall
not be required for the taking of any corporate action.
(a) If and whenever six quarterly dividends (whether or not
consecutive) payable on the Series A Preferred Shares shall be in arrears (which
shall, with respect to any such quarterly dividend, mean that any such dividend
has not been paid in full), whether or not earned or declared, the number of
Directors then constituting the Board of Directors shall be increased by one and
the holders of Series A Preferred Shares, voting separately as a single class,
shall be entitled to nominate and elect the additional Director to serve on the
Board of Directors.
17
<PAGE>
Whenever all arrearage in dividends on the Series A Preferred Shares then
outstanding shall have been paid and full dividends thereon for the current
quarterly dividend period shall have been paid or declared and set apart for
payment, then the right of the holders of the Series A Preferred Shares to elect
such additional Director shall cease (but subject always to the same provision
for the vesting of such voting rights in the case of any similar future
arrearages in six quarterly dividends), and the term of office of the person
elected as a Director by the holders of the Series A Preferred Shares shall
forthwith terminate and the number Directors constituting the Board of Directors
shall be reduced accordingly. At any time after such voting power shall have
been so vested in the holders of shares of Series A Preferred Shares, the
Secretary of the Corporation may, and upon the written request of any holder of
Series A Preferred Shares (addressed to the Secretary at the principal office of
the Corporation) shall, call a special meeting of the holders of the Series A
Preferred Shares for the election of the additional Director to be elected by
them as herein provided, such call to be made by notice similar to that provided
in the Bylaws of the Corporation for a special meeting of the shareholders or as
required by law. If any such special meeting required to be called as above
provided shall not be called by the Secretary within 20 days after receipt of
such request, then any holder of Series A Preferred Shares may call such
meeting, upon the notice above provided, and for that purpose shall have access
to the stock books of the Corporation. The Director elected at any such special
meeting shall hold office until the next annual meeting of the shareholders or
special meeting held in lieu thereof if such office shall not have previously
terminated as above provided. If the Director elected by the holders of the
Series A Preferred Shares shall leave the Board of Directors, a successor shall
be elected by the Board of Directors, upon the nomination of the holders of the
Series A Preferred Shares, to serve until the next annual meeting of the
shareholders or special meeting held in place thereof if such office shall not
have previously terminated as provided above.
(b) So long as any Series A Preferred Shares are outstanding, in
addition to any other vote or consent of shareholders required by the Articles
of Incorporation of the Corporation, the affirmative vote of at least 66-2/3% of
the votes entitled to be cast by the holders of Series A Preferred Shares, at
the time outstanding, voting as a single class, given in person or by proxy,
either in writing without a meeting or by vote at any meeting called for the
purpose, shall be necessary for effecting or validating:
(i) Any amendment, alteration or repeal of any of the
provisions of the Articles of Incorporation or these Articles Supplementary that
materially and adversely affects the voting powers, rights or preferences of the
holders of the Series A Preferred Shares; provided, however, that (A) the
amendment of the provisions of the Articles of Incorporation so as to authorize
or create or to increase the authorized amount of, any Junior Shares or any
shares of any class or series ranking on a parity with the Series A Preferred
Shares shall not be deemed to materially adversely affect the voting powers,
rights or preferences of the holders of Series A Preferred Shares and (B) any
filing with the State Department of Assessments and Taxation of Maryland by the
Corporation in connection with a merger, consolidation or sale of all or
substantially all of the assets of the Corporation shall not be deemed to be an
18
<PAGE>
amendment, alteration or repeal of any of the provisions of the Articles this
Certificate of Designations; or
(ii) The authorization or creation of, or the increase in
the authorized amount of, any shares of any class or series or any security
convertible into shares of any class or series ranking prior to the Series A
Preferred Shares in the distribution of assets on any liquidation, dissolution
or winding up of the Corporation or in the payment of dividends;
provided, however, that, in the case of each of subparagraphs (a) and (b), no
such vote of the holders of Series A Preferred Shares shall be required if, at
or prior to the time when such amendment, alteration or repeal is to take
effect, or when the issuance of any such prior shares or convertible security is
to be made, as the case may be, provision is made for the redemption of all
Series A Preferred Shares, as the case may be, at the time outstanding in
accordance with Section 5 hereof.
For purposes of the foregoing provisions of this Section 10, each
Series A Preferred Share shall have one (1) vote per share.
SECTION 11. RECORD HOLDERS. The Corporation may deem and treat the
record holder of any Series A Preferred Shares as the true and lawful owner
thereof for all purposes, and the Corporation shall not be affected by any
notice to the contrary.
SECTION 12. RESTRICTIONS ON OWNERSHIP AND TRANSFER. The Series A
Preferred Shares constitute Preferred Stock, and Preferred Stock constitutes
Equity Stock of the Corporation. Therefore, the Series A Preferred Shares, being
Equity Stock, are governed by and issued subject to all the limitations, terms
and conditions of the Articles applicable to Equity Stock generally, including
but not limited to the terms and conditions (including exceptions and
exemptions) of Article VI of the Articles of Incorporation applicable to Equity
Stock. The foregoing sentence shall not be construed to limit the applicability
to the Series A Preferred Shares of any other term or provision of the Articles
of Incorporation.
19
<PAGE>
IN WITNESS WHEREOF, American Real Estate Investment Corporation has
caused these presents to be signed in its name and on its behalf by its Senior
Vice President and attested to by its Agent of this 23rd day of December, 1998.
Attest:
/s/ William Taylor IV, AMERICAN REAL ESTATE INVESTMENT
- --------------------------------------- CORPORATION
William Taylor IV,
as authorized agent on behalf of the
Corporation, appointed in accordance By: /s/ Tim Peterson
with Section 6.1 of the Bylaws of the ---------------------------------
Corporation Name: Tim Peterson
Title: Senior Vice President
Attest:
/s/ Tim Peterson
- ------------------------------------
Name: Tim Peterson
Title: Secretary
The UNDERSIGNED, Senior Vice President of American Real Estate
Investment Corporation, who executed on behalf of the Corporation these Articles
Supplementary of which this certificate is made a part, hereby acknowledges in
the name and on behalf of said Corporation the foregoing Articles Supplementary
to be the corporate act of said Corporation and hereby certifies that the
matters and facts set forth herein with respect to the authorization and
approval thereof are true in all material respects under the penalties of
perjury.
By: /s/ Tim Peterson
---------------------------------
Name: Tim Peterson
Title: Senior Vice President
20
<PAGE>
Exhibit 5.1
[LETTERHEAD OF ROGERS & WELLS LLP]
March 11, 1999
American Real Estate Investment Corporation
Plymouth Meeting Executive Campus
620 W. Germantown Pike, Suite 200
Plymouth Meeting, PA 19462
Ladies and Gentlemen:
We have acted as special counsel to American Real Estate Investment
Corporation, a Maryland corporation (the "Company"), in connection with the
preparation and filing of the Company's Registration Statement on Form S-3
(as the same may be amended or supplemented from time to time, the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), covering the offer and sale from time to time by the securityholders
listed in the Registration Statement of up to 1,672,000 shares of common
stock, par value $.001 per share (the "Shares"), of the Company issuable upon
conversion of either the shares of Series A Convertible Preferred Stock, par
value $.001 per share (the "Preferred Stock") of the Company or the Series B
Convertible Preferred Units of American Real Estate Investment, L.P., a
Delaware limited partnership (the "Operating Partnership"), held by such
securityholders.
In rendering the opinions expressed herein, we have examined the Registration
Statement, the Company's Amended and Restated Articles of Incorporation and
Amended and Restated Bylaws, the Amended and Restated Agreement of Limited
Partnership of the Operating Partnership and such corporate proceedings of
the Company and other documents as we have deemed necessary. As to questions
of fact material to this opinion, we have relied on certificates of officers
of the Company and have not independently verified the accuracy of the
matters contained therein.
In our examination of the documents, certificates and instruments referred to
above, we have assumed the genuineness of all signatures, the authenticity of
all documents, certificates and instruments submitted to us as originals, the
conformity with originals of all documents, certificates and instruments
submitted to us as copies and the absence of any amendments or modifications
to those items reviewed by us.
Based upon the foregoing and subject to the assumptions, qualifications,
limitations and exceptions set forth herein, we are of the opinion that the
Shares have been duly authorized and, when issued upon conversion of the
Preferred Stock or the Preferred Units, as the case may be, in accordance
with the terms thereof, will be validly issued, fully paid and nonassessable.
<PAGE>
American Real Estate Investment Corporation Page 2
March 11, 1999
The opinions stated herein are limited to the federal laws of the United States,
the laws of the State of New York and the laws of the State of Maryland. To the
extent that any opinions set forth herein are dependent on the laws of the State
of Maryland, we have relied on the opinion of Piper & Marbury L.L.P., dated the
date hereof. Our opinion, to the extent based upon such reliance, is limited by
the qualifications, assumptions and conditions set forth in such opinion in
addition to those set forth herein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the Registration Statement. In giving this consent, we do not
concede that we are within the category of persons whose consent is required
under the Securities Act or the rules and regulations of the Commission
promulgated thereunder.
Very truly yours,
/s/ ROGERS & WELLS LLP
<PAGE>
Exhibit 5.2
[LETTERHEAD OF PIPER & MARBURY L.L.P.]
March 11, 1999
AMERICAN REAL ESTATE INVESTMENT CORPORATION
620 West Germantown Pike, Suite 200
Plymouth Meeting, Pennsylvania 19462
Ladies and Gentlemen:
We have acted as Maryland counsel to American Real Estate Investment
Corporation, a Maryland corporation (the "Company"), in connection with the
registration under the Securities Act of 1933, as amended (the "Act"),
pursuant to a Registration Statement on Form S-3 of the Company (the
"Registration Statement") filed with the Securities and Exchange Commission
(the "Commission"), of up to 1,672,000 shares (the "Shares") of Common Stock,
par value $.001 per share, of the Company issued upon conversion of Series A
Convertible Preferred Stock, par value $.001 per share (the "Series A
Preferred"), of the Company or Series B Convertible Preferred Units of
American Real Estate Investment, L.P. (the "Operating Partnership"). The
Company is the sole general partner of the Operating Partnership. This
opinion is being provided at your request in connection with the filing of
the Registration Statement.
In our capacity as special Maryland counsel, we have reviewed originals
or copies, certified or otherwise identified to our satisfaction, of the
Registration Statement, the Charter and By-Laws of the Company as in effect
on the date hereof, minutes of the proceedings of the Company's Board of
Directors authorizing the issuance and delivery of the Shares (the "Board
Resolutions"), the Amended and Restated Agreement of Limited Partnership of
the Operating Partnership (the "Partnership Agreement"), an Officer's
Certificate of the Company dated the date hereof (the "Certificate"), and
such other documents as we have considered necessary. In such examination of
the aforesaid documents, we have assumed, without independent investigation,
the genuineness of all signatures, the legal capacity of all documents
submitted to us as originals, the conformity with originals of all documents
submitted to us as copies (and the authenticity of the originals of such
copies), and the accuracy and completeness of all public records
<PAGE>
[LETTERHEAD]
AMERICAN REAL ESTATE INVESTMENT CORPORATION
March 11, 1999
Page 2
reviewed by us. As to factual matters, we have relied on the Certificate and
have not independently verified the matters stated therein.
Based upon the foregoing, having regard for such legal considerations as
we deem relevant, and limited in all respects to applicable Maryland law, we
are of the opinion and so advise you that the Shares have been duly
authorized and, upon the issuance and delivery of the Shares in accordance
with the Board Resolutions, the Articles Supplementary relating to the Series
A Preferred and the Partnership Agreement, will be validly issued, fully
paid, and nonassessable.
This opinion is limited to the laws of the State of Maryland, exclusive
of the securities or "blue sky" laws of the State of Maryland. This opinion
is rendered as of the date hereof. We assume no obligation to update such
opinion to reflect any facts or circumstances which may hereafter come to our
attention or changes in the law which may hereafter occur. This opinion is
limited to the matters set forth herein, and no other opinion should be
inferred beyond the matters expressly stated. To the extent that any
documents referred to herein are governed by the law of a jurisdiction other
than Maryland, we have assumed that the laws of such jurisdiction are the
same as the laws of the State of Maryland.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.2 to the Registration Statement and to the reference to our firm
under the heading "Legal Matters" in the Registration Statement. In giving
our consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission thereunder. This opinion may be relied upon by
Rogers & Wells LLP. This opinion is limited to the matters set forth herein,
and no other opinion should be inferred beyond the matters expressly stated.
Very truly yours,
/s/ Piper & Marbury L.L.P.
<PAGE>
Exhibit 8
[LETTERHEAD OF ROGERS & WELLS LLP]
March 11, 1999
American Real Estate Investment Corporation
Plymouth Meeting Executive Campus
620 West Germantown Pike, Suite 200
Plymouth Meeting, PA 19462
Re: REIT Status of American Real Estate Investment Corporation
Ladies and Gentlemen:
We have acted as special counsel to American Real Estate Investment
Corporation, a Maryland corporation (the "Company") and the general partner
of American Real Estate Investment, L.P., a Delaware limited partnership (the
"Operating Partnership"), in connection with the preparation and filing of
the Company's Registration Statement on Form S-3 (as the same may be amended
or supplemented from time to time, the "Registration Statement") with the
Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Securities Act"), covering the possible offer
and sale from time to time of up to 1,672,000 shares of common stock, par
value $0.001 per share (the "Shares"), by the stockholders of the Company
listed in the Registration Statement. This opinion is being provided at your
request in connection with the filing of the Registration Statement.
In rendering the opinion expressed herein, we have examined and relied on the
following items:
1. The Registration Statement;
2. The Company's Charter;
3. The Amended and Restated Agreement of Limited Partnership of the
Operating Partnership dated December 12, 1997; and
4. Such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinion referred to in
this letter.
In our examination of the foregoing documents, we have assumed, with your
consent, that (i) all documents reviewed by us are original documents, or true
and accurate copies of original documents, and have not been subsequently
amended, (ii) the signatures of each original document are genuine, (iii) each
party who executed the document had proper authority and capacity, (iv) all
representations
<PAGE>
American Real Estate Investment Corporation Page 2
March 11, 1999
and statements set forth in such documents are true and correct, (v) all
obligations imposed by any such documents on the parties thereto have been or
will be performed or satisfied in accordance with their terms and (vi) the
Company and the Operating Partnership at all times have been and will continue
to be organized and operated in accordance with the terms of such documents. We
have further assumed the accuracy of the statements and descriptions of the
Company's and the Operating Partnership's intended activities as described in
the Registration Statement and that the Company and the Operating Partnership
have operated and will continue to operate in accordance with the method of
operation described in the Registration Statement.
For purposes of rendering the opinion stated below, we have also assumed, with
your consent, the accuracy of the representations contained in the Certificate
of Representations, dated March 11, 1999, provided to us by the Company and the
Operating Partnership. These representations generally relate to the
classification and operation of the Company as a REIT and the organization and
operation of the Operating Partnership.
Based upon and subject to the foregoing, we are of the opinion that:
(1) Commencing with its taxable year ended December 31, 1993, the Company
was and is organized in conformity with the requirements for
qualification as a REIT under the Code and that the present and
proposed method of operation of the Company and the Operating
Partnership, as described in the Registration Statement and as
represented by the Company and the Operating Partnership, will permit
the Company to continue to so qualify; and
(2) The information in the Registration Statement under the heading
"Federal Income Tax Considerations" has been reviewed by us and, to
the extent that it constitutes matters of law, summaries of legal
matters or documents, or legal conclusions, is correct in all material
respects.
The opinion stated above represents our conclusions as to the application of the
federal income tax laws existing as of the date of this letter to the
transactions contemplated in the Registration Statement and we can give no
assurance that legislative enactments, administrative changes or court decisions
may not be forthcoming that would modify or supersede our opinion. Moreover,
there can be no assurance that positions contrary to our opinion will not be
taken by the Internal Revenue Service, or that a court considering the issues
would not hold contrary to such opinion. Further, the opinion set forth above
represents our conclusions based upon the documents, facts and representations
referred to above. Any material amendments to such documents, changes in any
significant facts or inaccuracy of such representations could affect the opinion
referred to herein. Moreover, the Company's qualification and taxation as a REIT
depend upon the Company's ability to meet, through actual annual operating
results, requirements under the Code regarding income, assets, distributions and
diversity of stock ownership. Because the Company's satisfaction of these
requirements will depend on future events, no assurance can be given that the
actual results of the Company's operations for any particular taxable year will
satisfy the tests necessary to qualify as or be taxed as a REIT under the Code.
Although we have made such inquiries and performed such investigations as we
have deemed
<PAGE>
American Real Estate Investment Corporation Page 3
March 11, 1999
necessary to fulfill our professional responsibilities as counsel, we have not
undertaken an independent investigation of all of the facts referred to in this
letter and the Certificate of Representations.
The opinion set forth in this letter: (i) is limited to those matters expressly
covered; no opinion is to be implied in respect of any other matter; (ii) is as
of the date hereof; and (iii) is rendered by us solely for your benefit and may
not be provided to or relied upon by any person or entity other than you without
our express consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to this firm under the captions "Legal
Matters" and "Federal Income Tax Considerations" in the Registration Statement.
In giving this consent, we do not concede that we are within the category of
persons whose consent is required under the Securities Act or the rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Rogers & Wells LLP
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated March 10, 1998 included in American Real Estate
Investment Corporation's Form 10-KSB for the year ended December 31, 1997 (and
to all references to our Firm) included in this Registration Statement on Form
S-3 of American Real Estate Investment Corporation.
/s/ ARTHUR ANDERSEN LLP
Philadelphia, Pa.
March 10, 1999
