<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1999
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________________ to __________________
Commission file number 1-12514
KEYSTONE PROPERTY TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 84-1246585
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
200 FOUR FALLS CORPORATE CENTER, SUITE 208, WEST CONSHOHOCKEN,PENNSYLVANIA 19428
(Address of principal executive offices)
(484) 530-1800
(Registrant's telephone number)
Keystone Property Trust
200 Four Falls Corporate Center, Suite 208,
West Conshohocken, Pennsylvania 19428
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
A total of 8,292,718 Common Shares of the Registrant's common equity were
outstanding as of November 12, 1999.
-1-
<PAGE>
KEYSTONE PROPERTY TRUST
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Operations (unaudited)
for the three months and nine months ended
September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
PART II. OTHER INFORMATION
Items 1 through 6 24
SIGNATURES 26
</TABLE>
-2-
<PAGE>
KEYSTONE PROPERTY TRUST
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND UNIT DATA)
<TABLE>
<CAPTION>
ASSETS September 30, 1999 December 31, 1998
------ ------------------- ------------------
(unaudited)
<S> <C> <C>
INVESTMENT IN REAL ESTATE:
Land and land improvements $ 139,625 $ 92,243
Buildings and improvements 660,306 440,680
Assets held for sale --- 8,239
Construction-in-progress 3,078 ---
Investment in direct financing lease 1,521 1,707
--------------- ---------------
804,530 542,869
Less- accumulated depreciation (16,966) (6,867)
---------------- ----------------
Total investment in real estate, net 787,564 536,002
CASH AND CASH EQUIVALENTS 572 3,247
RESTRICTED CASH AND CASH ESCROWS 2,925 2,100
ACCOUNTS RECEIVABLE, including straight-line rent receivables of $2,256
and $1,282 1999 and 1998, respectively 4,515 2,007
DEFERRED FINANCING COSTS, net of accumulated amortization of $1,687 and
$616 in 1999 and 1998, respectively 6,706 6,154
DEFERRED LEASING COSTS, net of accumulated amortization of $561 and $149
in 1999 and 1998, respectively 3,422 1,614
INVESTMENT IN AMERICAN REAL ESTATE MANAGEMENT INC., at equity 4,780 5,207
OTHER ASSETS 4,421 3,035
-------------- ---------------
Total assets $ 814,905 $ 559,366
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgage notes payable and revolving credit facility, including
unamortized premium on assumed indebtedness of $3,861 and $3,542
in 1999 and 1998, respectively. $ 488,455 $ 346,105
Accounts payable 2,650 968
Dividends and distributions payable 571 3,713
Accrued interest payable 1,388 662
Accrued leasing commissions 690 895
Accrued expenses and other liabilities 4,324 1,782
Deferred rent revenue 2,678 1,534
Security deposits 788 566
--------------- ---------------
Total liabilities 501,544 356,225
--------------- ---------------
MINORITY INTEREST, 7,033,039 and 6,988,542 units outstanding in 1999 and
1998, respectively 89,604 88,205
--------------- ---------------
CONVERTIBLE PREFFERRED UNITS, Series A; $.001 par value; 450,700 units
issued and outstanding, liquidation preference of $25 per unit.
Series B; $.001 par value; 300,000 units issued and outstanding;
liquidation preference of $25 per unit. Series C; $.001 par value;
1,434,136 units issued and outstanding; liquidation preference of
$25 per unit. 54,621 7,500
--------------- ---------------
SHAREHOLDERS' EQUITY:
Convertible preferred stock, Series A, $.001 par value; 800,000
shares authorized, issued, and outstanding liquidation
preference of $25 per share. Series B; $.001 par value;
1,600,000 shares authorized, issued and outstanding; liquidation
preference of $25 per share. Series C; $.001 par value; 800,000
shares authorized, issued and outstanding; liquidation
preference of $25 per share. 3 1
Common shares, $.001 par value; 65,000,000 authorized; 7,605,125 and
7,391,765 shares issued and outstanding, respectively 8 7
Warrants 685 685
Additional paid-in capital 167,028 104,864
Loans to executive officers to purchase common shares (1,659) ---
Deferred compensation (353) (540)
Cumulative net income 19,469 14,292
Cumulative dividends (16,045) (11,873)
---------------- ----------------
Total shareholders' equity 169,136 107,436
--------------- ---------------
Total liabilities and shareholders' equity $ 814,905 $ 559,366
============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-3-
<PAGE>
KEYSTONE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Nine Months ended
September 30 September 30
------------------------------ ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
Rent $ 18,305 $ 10,146 $ 51,281 $ 22,436
Reimbursement revenue and other income 2,149 1,723 5,655 3,168
----------- ------------ ----------- -----------
Total revenue 20,454 11,869 56,936 25,604
----------- ------------ ----------- -----------
OPERATING EXPENSES:
Property operating expenses 4,373 2,617 11,954 5,048
General and administrative 1,095 275 2,706 440
Depreciation and amortization 3,835 1,892 10,714 4,157
Interest expense 7,396 4,164 20,544 8,997
----------- ------------ ----------- -----------
Total operating expenses 16,699 8,948 45,918 18,642
----------- ------------ ----------- -----------
Income before equity in losses from equity method investments,
gains on sales of assets, distributions to preferred
unitholders and income allocated to preferred
shareholders, and minority interest of unitholders in
Operating Partnership 3,755 2,921 11,018 6,962
Equity in income (losses) from equity method investments 143 (562) (347) (1,023)
Gain on sales of assets -- -- 1,284 11,952
----------- ------------ ----------- -----------
Income before distributions to preferred unitholders and income
allocated to preferred shareholders, and minority interest
of unitholders in Operating Partnership 3,898 2,359 11,955 17,891
Distributions to preferred unitholders (406) --- (743) ---
----------- ------------ ----------- -----------
Income before minority interest of unitholders in Operating
Partnership and income allocated to preferred shareholders 3,492 2,359 11,212 17,891
Minority interest of unitholders in Operating Partnership (1,420) (1,086) (4,620) (8,106)
----------- ------------ ----------- -----------
NET INCOME 2,072 1,273 6,592 9,785
INCOME ALLOCATED TO PREFERRED SHAREHOLDERS (515) --- (1,415) ---
----------- ------------ ----------- -----------
INCOME ALLOCATED TO COMMON SHAREHOLDERS $ 1,557 $ 1,273 $ 5,177 $ 9,785
=========== ============ =========== ===========
BASIC EARNINGS PER COMMON SHARE $ 0.21 $ 0.19 $ 0.69 $ 1.65
=========== ============ =========== ===========
WEIGHTED AVERAGE COMMON SHARES - BASIC 7,505,764 6,854,150 7,457,079 5,936,238
=========== ============ =========== ===========
DILUTED EARNINGS PER COMMON SHARE $ 0.20 $ 0.18 $ 0.67 $ 1.61
=========== ============ =========== ===========
WEIGHTED AVERAGE COMMON SHARES - DILUTED 14,741,868 12,924,680 14,632,122 11,095,378
=========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-4-
<PAGE>
KEYSTONE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended
September 30
-----------------------------------------
1999 1998
----------------- -------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income allocated to common shareholders $ 5,177 $ 9,785
Adjustments to reconcile net income allocated to common
shareholders to net cash provided by operating activities-
Depreciation and amortization 11,785 4,567
Amortization of debt premiums (530) ---
Gains on sales of assets (1,284) (11,952)
Equity in losses from equity
method investments 347 1,023
Minority interest allocation 4,620 8,106
Preferred shareholders and unitholders allocations 2,158 ---
Decrease in investment in direct financing lease 186 160
Increase in straight-line rent receivable (1,093) (664)
Cash provided by (used in) operating activities --
Restricted cash (825) 650
Accounts receivable (1,534) (1,478)
Other assets (1,386) (3,969)
Accounts payable, accrued expenses, and
other liabilities 192 1,333
Deferred rent revenue 1,144 858
Accrued leasing commissions (205) (101)
Security deposits 222 (55)
----------------- ---------------
Net cash provided by operating activities 18,974 8,263
----------------- ---------------
INVESTING ACTIVITIES:
Payments for properties and real estate investments acquired (143,563) (210,942)
Payments from (advances to) Keystone Realty Services, Inc. 80 (1,858)
Capital expenditures (2,288) (675)
Payment of leasing commissions (1,707) (433)
Decrease in cash escrows from deferred exchanges -- 3,764
Proceeds from sales of assets, net 9,538 24,956
----------------- --------------
Net cash used in investing activities (137,940) (185,188)
----------------- ---------------
</TABLE>
(Continued)
The accompanying notes are an integral part of these consolidated
financial statements.
-5-
<PAGE>
KEYSTONE PROPERTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
(CONTINUED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-------------------------------------
1999 1998
----------------- ------------------
<S> <C> <C>
FINANCING ACTIVITIES:
Issuance of common shares for stock options exercised 22 385
Net proceeds for issuance of Common Shares 1,500 17,440
Net proceeds from issuance of Series C
Convertible Preferred Stock 19,175 ---
Dividends paid on Common Shares (6,131) (4,359)
Dividends and distributions paid on Convertible Preferred
Stock and Convertible Preferred OP Units (1,642) ---
Distributions paid on OP Units (5,674) (3,449)
Proceeds from mortgage notes payable 98,823 65,849
Payment of deferred financing costs (1,623) (2,585)
Net proceeds from Credit Facility 16,349 128,230
Repayment of mortgage notes (2,264) (41,255)
-------------- ---------------
Net cash provided by financing activities 118,535 160,256
-------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (431) (16,669)
CASH AND CASH EQUIVALENTS, beginning of period 1,003 17,672
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 572 $ 1,003
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 19,277 $ 8,338
============== ==============
</TABLE>
See Note 3 for disclosure of non-cash investing and financing activities in
1999 and 1998.
The accompanying notes are an integral part of these consolidated
financial statements.
-6-
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. ORGANIZATION AND OPERATIONS:
Keystone Property Trust is a self-administered and self-managed real
estate investment trust ("REIT") which was originally organized as a Maryland
corporation in 1994 named American Real Estate Investment Corporation (the
"Company"). On October 13, 1999, the Company re-organized as a Maryland REIT
through the merger of the Company with and into Keystone Property Trust.
Simultaneously, the name of it's operating partnership, American Real Estate
Investment, L.P. (the "Operating Partnership"), was changed to Keystone
Operating Partnership, L.P. and the name of its management company, American
Real Estate Management, Inc. (the " Management Company") was changed to Keystone
Realty Services, Inc. The Company also changed its ticker symbol on the American
Stock Exchange from "REA" to "KTR" effective October 13, 1999.
The Company was previously engaged in the ownership and operation of multifamily
residential properties located in certain markets within the Southwestern United
States. In connection with the transactions that were consummated on December
12, 1997 (the "Reorganization"), the Company modified its strategy to focus on
the acquisition of industrial and office properties located in the Eastern
United States. In June 1998, the Company sold its last remaining multifamily
residential property, American Quadrangles Village Apartments (Note 3).
As of November 11, 1999, the Company owns 96 industrial and 34 office
properties aggregating 15.7 million square feet and 2.3 million square feet,
respectively, and an investment in a direct financing lease (the "Properties").
The Properties are located in Central Pennsylvania, New York State, Northern New
Jersey, Ohio, Indianapolis, Indiana and Greenville and Spartanburg, South
Carolina and have an overall occupancy of 98.8%. The Company conducts all of its
service operations, including leasing, property management and other services
through the Management Company. As part of the Reorganization, the Operating
Partnership acquired 100% of the preferred stock of the Management Company,
which entitles the Operating Partnership to receive 95% of the amounts paid as
dividends by the Management Company.
2. GENERAL:
BASIS OF PRESENTATION
The financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. Accordingly, these financial statements should be read in
conjunction with the Company's consolidated financial statements and footnotes
thereto included in the Annual Report on Form 10-K for the year ended December
31, 1998. In the opinion of management, all adjustments, consisting solely of
normal recurring adjustments, necessary to fairly present the financial position
of the Company as of September 30, 1999 and the results of its operations for
the three months and nine months ended September 30, 1999 and 1998 and its cash
flows for the nine months ended September 30, 1999 and 1998 have been included.
The results of operations for such interim periods are not necessarily
indicative of the results for a full year.
-7-
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
PRINCIPLES OF CONSOLIDATION
The Company is the sole general partner of the Operating Partnership
with an ownership interest of approximately 53% at September 30, 1999. The
Company is also the sole stockholder of several other subsidiary entities. The
accompanying consolidated financial statements include the account balances of
the Company, the Operating Partnership and the Company's wholly owned
subsidiaries and their operations for the nine month periods ended September 30,
1999 and 1998 on a consolidated basis. All significant intercompany accounts and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
periods. Actual results could differ from those estimates.
EQUITY METHOD INVESTMENTS
The equity method of accounting is used to account for the Company's
non-controlling interest in 100% of the non-voting preferred stock of the
Management Company and the Company's 50% non-controlling interest in a joint
venture to develop 457 acres of land in Indianapolis, Indiana and a joint
venture to develop a 495,740 square foot office and industrial building located
in Indianapolis, Indiana (the "Indianapolis Joint Ventures"). At September 30,
1999, the Company has an aggregate investment of approximately $627,000 in the
Indianapolis Joint Ventures which is included in other assets in the
accompanying financial statements.
IMPACT OF ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Statement of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133") is effective for
fiscal years beginning after June 15, 2000. SFAS No. 133 expands the definition
of derivatives and requires every derivative to be recorded on the balance sheet
as either an asset or liability measured at its fair value. It requires that
companies must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. SFAS No. 133 requires that changes
in the derivatives fair value be recognized in the applicable financial
reporting period in earnings unless specific hedge criteria are met. At
September 30, 1999, the Company does not have any investments in derivative, as
a result, the impact of adopting SFAS No. 133, is not determinable. The Company
is planning to adopt SFAS No. 133 beginning January 1, 2001.
EARNINGS PER SHARE
The Company reports Earnings Per Share ("EPS") Statement of Financial
Accounting Standard No. 128, "Earnings per Share" ("SFAS No. 128"), which
established simplified standards for computing and presenting EPS and supercedes
the standards in APB Opinion No.15, making them more comparable to international
EPS standards. It requires the dual presentation of basic and diluted EPS on the
income statement and requires a reconciliation of the numerator and denominator
of basic EPS to diluted EPS.
-8-
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for the three and nine month periods ended
September 30 (dollars in thousands except for share and per share information):
<TABLE>
<CAPTION>
1999 1998
------------------------------- ---------------------------------
BASIC DILUTED BASIC DILUTED
<S> <C> <C> <C> <C>
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30,
Net income $ 1,557 $ 1,557 $ 1,273 $ 1,273
Add: Minority interest allocation --- 1,420 --- 1,086
------------- ------------- ------------ -------------
$ 1,557 $ 2,977 $ 1,273 $ 2,359
============= ============= ============ =============
Weighted average number of shares outstanding 7,505,764 7,505,764 6,854,150 6,854,150
Stock equivalents (1) (2):
Options and warrants --- 203,055 --- 204,614
Convertible OP Units --- 7,033,049 --- 5,865,916
------------- ------------- ------------ -------------
7,505,764 14,741,868 6,854,150 12,924,680
============= ============= ============ =============
Earnings Per Share $ .21 $ .20 $ 0.19 $ 0.18
============= ============= ============ =============
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999 1998
------------------------------- ---------------------------------
Net income $ 5,177 $ 5,177 $ 9,785 $ 9,785
Add: Minority interest allocation --- 4,620 --- 8,106
------------- ------------- ------------ -------------
$ 5,177 $ 9,797 $ 9,785 $ 17,891
============= ============= ============ =============
Weighted average number of shares outstanding 7,457,079 7,457,079 5,936,238 5,936,238
Stock equivalents (1)(2):
Options and Warrants --- 164,981 --- 252,765
Convertible OP Units --- 7,010,062 --- 4,906,375
------------- ------------- ------------ -------------
7,457,079 14,632,122 5,936,238 11,095,378
============= ============= ============ =============
Earnings per Share $ .69 $ .67 $ 1.65 $ 1.61
============= ============= ============ =============
</TABLE>
(1) Excludes Convertible Preferred Stock and Convertible Preferred OP Units
as these instruments were anti-dilutive at September 30, 1999.
(2) Computed in accordance with the treasury stock method.
RECLASSIFICATIONS
Certain amounts in the September 30, 1998 financial statements have been
reclassified in order to conform with the September 30, 1999 presentation.
-9-
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
3. ACQUISITIONS AND DISPOSITIONS OF INVESTMENTS IN REAL ESTATE
1999 TRANSACTIONS
During the nine month period ended September 30, 1999 the Company
consummated the following transactions:
- - In February 1999, the Company acquired 7.4 acres of land in Allentown,
Pennsylvania for $1.6 million. This land is being utilized to construct an
80,000 square foot office building of which 66,000 square feet is leased
to Aetna US Healthcare.
- - On March 26, 1999 the Company consummated the sale of Urban Farms Shopping
Center located in Franklin Lakes, New Jersey for approximately $10.0
million. This sale resulted in a gain of approximately $1.3 million. The
net proceeds of this transaction were reinvested in the acquisition
described below.
- - On March 26, 1999, the Company acquired a 303,000 square foot industrial
building in Duncan, South Carolina for approximately $9.5 million. This
building was constructed in 1998 and 100% leased to BMG Music, a
subsidiary of Bertelsmann AG, through August 2003. This purchase was
funded through the Company's Credit Facility and the net proceeds from the
sale of Urban Farms Shopping Center.
- - In April 1999, the Company acquired a portfolio of five warehouse and
distribution facilities (Poly-Foam Stage I Properties) in Freemont, Ohio
which aggregated approximately 515,000 square feet for approximately $12.7
million. This acquisition was funded by the Credit Facility.
- - In May 1999, the Company acquired a 39,252 square foot warehouse/office
facility in Indianapolis, Indiana for $3.6 million. The purchase was funded
by the proceeds of a $2.3 million mortgage note, $779,000 in OP Units at
$17.50 per unit and cash of approximately $500,000. The Company had agreed
to acquire this building in connection with the Company's agreement to
acquire certain properties from entities affiliated with Michael G.
Browning. The first closing occurred in December 1998.
- - In July 1999, the Company acquired a 290,278 square foot office building
located in Syracuse, New York for approximately $23 million. The
purchase price was funded by the issuance of 450,700 Series A Preferred
Units at a liquidation value of $25.00 per unit and a conversion price
of $16.50 per unit, the assumption of approximately $10.3 million of
debt and the remaining consideration paid in cash. The Company had
agreed to acquire this building in connection with the Company's
agreement to acquire certain properties from individuals and entities
affiliated with Michael J. Falcone. The first closing occurred in
August, 1998 and this acquisition was the final stage of this agreement.
- - On September 27, 1999, the Company consummated its acquisition of Reckson
Morris Operating Partnership, L.P. ("RMOP") from Reckson Morris Industrial
Trust, Reckson Operating Partnership, L.P., Robert Morris, Joseph D.
Morris and certain of their related entities (collectively, the
"Contributors") pursuant to a Contribution and Exchange Agreement (the
"Contribution Agreement"), dated August 6, 1999. Pursuant to the
Contribution Agreement, entities owning 28 "big box" industrial facilities
will be contributed in three stages to the Company in exchange for
approximately $300,000,000 in a combination of preferred shares and
-10-
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
common shares of the Company, preferred units of limited partnership
interest in the Operating Partnership, the assumption of mortgage
indebtedness and cash.
In the first stage, the Company acquired RMOP, which owns 22 warehouses
comprising approximately 3.9 million square feet and 105 acres of
developable land, which will accommodate an additional 1.5 million
square feet of development. The total consideration for this stage was
approximately $205 million, including closing costs, consisting of the
issuance to the Contributors of 103,878 common shares of the Company at
a price of $14.44 per share, 1.6 million shares of Series B Convertible
Preferred Stock of the Company, 1,434,136 Series C Convertible Preferred
Units of limited partnership interest in the Operating Partnership, the
assumption of approximately $16.4 million in assumed mortgage
indebtedness and approximately $105.5 million in cash. The Series B
Convertible Preferred Stock and Series C Convertible Preferred Units
both have conversion prices of $16.00, a liquidation value of $25 per
share or unit and a distribution rate of 9.75% and must be redeemed by
the Company. The Company financed the cash portion of the consideration
through approximately $98 million of mortgage financing with a six year
term and an interest rate of 7.45% and from part of the proceeds of a
$20,000,000 private placement of 800,000 shares of Series C Convertible
Preferred Stock of the Company to AEW Targeted Securities Fund, L.P.,
Allstate Insurance Company and Teachers Insurance and Annuity
Association of America (the "Investors"). The Series C Convertible
Preferred Stock has a conversion price of $15.75, a distribution rate of
9.75% per annum and is convertible at any time, at the Investors'
option. The liquidation preference of each share of Series C Convertible
Preferred Stock is $25.00. The Company may redeem the Series C
Convertible Preferred Stock at any time on or after the fifth
anniversary of the issuance of the Series C Convertible Preferred Stock.
The Company granted the Contributors certain registration rights with
respect to common shares of the Company issued in the transaction and
common shares of the Company issued upon conversion of the Series B
Convertible Preferred Stock of the Company and the Series C Convertible
Preferred Units of limited partnership interest in the Operating
Partnership; and the Company also granted the Investors certain
registration rights with respect to common shares of the Company issued
upon conversion of the Series C Convertible Preferred Stock.
In the second and third stages, the Company will acquire entities each
owning three buildings containing 1.1 million square feet for a total of
six building aggregating 2.2. million square feet. The second and third
stages are expected to close in 2000 for a total consideration of
approximately $50 million and $48 million, respectively.
As part of this transaction, the Company entered into an exclusive
development agreement with Robert and Joseph Morris and certain of their
related entities pursuant to which the Company and the Morrises will
jointly develop all of the Morris's New Jersey industrial investment
opportunities for three years and jointly develop the land to be acquired
by the Company in this transaction.
- - On September 29, 1999, the Company acquired two warehouse and distribution
facilities (Poly-Foam Stage II Properties) in Freemont, Ohio which
aggregated approximately 325,238 square feet for approximately $8.3
million. This acquisition was funded by the Credit Facility.
-11-
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
- - 1998 TRANSACTIONS
- During 1998, the Company acquired 78 properties (24 office
properties and 54 industrial properties) which contained an
aggregate of approximately 9.9 million square feet (1.5 million
square feet of office and 8.4 million square feet of industrial)
for an aggregate purchase price of approximately $418 million.
Consideration for these acquisitions consisted of cash of $300
million, $49 million of debt assumed (including debt premiums of
$3.8 million), approximately $51 million in units of limited
partnership interest ("OP Units") in the Operating Partnership,
issued at prices ranging from $16.50 to $17.50 per unit, $7.5
million in Series B Convertible Preferred Units and the issuance
of $11.0 million of common shares of the Company. The 300,000
Series B Convertible Preferred Units issued are convertible into
common shares of the Company at $16.50 and require a quarterly
guaranteed payment at the annual rate of 9%. The Series B
Convertible Preferred Units are redeemable by the Company at par
at any time.
- The Company sold the two remaining multi-family properties
(Americana Lakewood Apartments and Quadrangles Village Apartments)
in January and June, 1998, respectively, which generated net
proceeds of approximately $41.0 million and gains of $11.9
million. The net proceeds from these asset sales were reinvested
in industrial and office acquisitions in 1998.
PRO FORMA OPERATING RESULTS
Assuming the completion of acquisitions and dispositions which occurred in
1999, including the acquisition of the Lemoyne Property (Note 7), and in
fiscal year 1998, and the completion of the private placement offerings in
1999 and 1998, as of January 1, 1998, pro forma operating results are
presented as follows:
<TABLE>
<CAPTION>
(In 000's)
--------------------------------------------------------
For Nine Months Ended For Nine Months Ended
September 30, 1999 September 30, 1998
------------------------- --------------------------
<S> <C> <C>
Total revenue $78,229 $67,798
Operating income (1) 73,234 62,312
Minority interest 2,303 2,529
------------------------- --------------------------
Net income allocated to common shareholders $ 2,692 $ 2,957
========================= ==========================
Earnings per share
Basic $.36 $.39
===== =====
Diluted $.34 $.37
===== =====
</TABLE>
(1) Net of $15,378 and $13,041 in depreciation expense for the
nine-month period ended September 30, 1999 and 1998, respectively.
-12-
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
The pro forma operating results combine the Company's historical operating
results with the incremental rental income and operating expenses of the
properties acquired in 1999 and 1998, including adjustments for depreciation,
(based upon the acquisition price associated with the property acquisitions),
and interest costs assuming the borrowings to finance the property acquisitions
had occurred at the beginning of the period.
These pro forma amounts are not necessarily indicative of what the actual
results of the Company would have been assuming the above property acquisitions
and dispositions and other transactions had been consummated on January 1, 1998,
nor do they purport to represent the future results of the Company.
4. INDEBTEDNESS
REVOLVING CREDIT FACILITY
On April 30, 1998 the Company obtained a three year $150 million
senior secured revolving credit facility ("Credit Facility"). Borrowings
under the Credit Facility enable the Company to fund acquisitions and
development of real estate, as well as provide working capital and funds for
capital improvements at a variable rate which was equal to a Eurodollar rate
plus 2.0% (7.44%) at September 30, 1999 or the prime rate, at the Company's
option. In addition, a fee of .25% per annum on the unused amount of the
Credit Facility is payable quarterly. On June 30, 1999, the terms of the
Credit Facility were amended and restated. As a result, the maturity of the
Credit Facility was extended to April 29, 2002 and several financial
covenants were modified. The Eurodollar interest rate was modified to a
sliding scale based on the Company's leverage. The scale ranges from LIBOR
+1.625% to LIBOR +2.25%. Based on the Company's leverage, the rate in effect
on October 1, 1999 is LIBOR +2.25%. The Company is also able to elect to
increase the amount available under the Credit Facility to $250 million,
subject to the syndication of the additional $100 million.
At September 30, 1999, the Company had $140.2 million outstanding
related to the Credit Facility. The Credit Facility is recourse to the Company
and the Operating Partnership and is secured by cross-collateralized and
cross-defaulted first mortgage loans on 63 properties. The weighted average
balance outstanding and weighted average interest rate for the nine months ended
September 30, 1999 and 1998 for borrowings under the Credit Facility were $134.3
million and $65.3 million and 6.86% and 7.38%, respectively. The Credit Facility
requires the Company to meet certain financial covenants on a quarterly, annual
and ongoing basis. The Company is in compliance with these debt covenants at
September 30, 1999.
MORTGAGE NOTES
Mortgages notes of approximately $348.3 million, including debt premiums,
encumbered 51 of the properties as of September 30 1999. At September 30, 1999,
interest rates on the mortgage loans ranged from fixed rates of 7.03% to 9.75%.
Mortgage notes had weighted average interest rates of 7.67% and 7.38% at
September 30, 1999 and 1998, respectively. The maturities for these notes range
from September 2000 through October 2022. The weighted average maturity was 7.4
years at September 30, 1999.
-13-
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
5. SEGMENTS
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information," in 1998.
The Company considers its reportable segments to be office, industrial,
multifamily and other. At September 30, 1999, the other properties segment
consists of an investment in a direct financing lease and Urban Farms Shopping
Center which was sold in March 1999. Summarized financial information concerning
the Company's reportable segments is shown in the following table as of the
three and nine months ended September 30, 1999 and 1998, unless otherwise noted.
-14-
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
(IN 000'S)
---------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------------------------------------------------------
BUSINESS SEGMENTS 1999 1998 1999 1998
- ----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Industrial properties $ 10,617 $ 5,358 $ 30,015 $ 11,840
Office properties 9,747 5,887 26,236 10,437
Multifamily properties --- --- --- 1,783
Other properties 68 547 556 1,389
Other (1) 22 77 129 155
--------------- ---------------- --------------- ---------------
$ 20,454 $ 11,869 $ 56,936 $ 25,604
=============== ================ =============== ===============
PROPERTY OPERATING INCOME
Industrial properties $ 7,167 $ 3,575 $ 20,059 $ 8,005
Office properties 5,013 3,569 13,694 6,433
Multifamily properties --- --- --- 1,141
Other properties 44 139 386 665
--------------- ---------------- --------------- ---------------
$ 12,224 $ 7,283 $ 34,139 $ 16,244
=============== ================ =============== ===============
CAPITAL EXPENDITURES
Industrial properties $ 246 $ 1 $ 562 $ 2
Office properties 866 358 1,726 628
Multifamily properties --- --- --- 45
Other properties --- --- --- ---
--------------- ---------------- --------------- ---------------
$ 1,112 $ 359 $ 2,288 $ 675
============== =============== =============== ===============
DEPRECIATION AND AMORTIZATION EXPENSE
Industrial properties $ 2,181 $ 943 $ 6,209 $ 2,290
Office properties 1,654 902 4,505 1,728
Multifamily properties --- --- --- ---
Other properties --- 47 --- 139
--------------- ---------------- --------------- ---------------
$ 3,835 $ 1,892 $ 10,714 $ 4,157
=============== ================ =============== ===============
INVESTMENT IN REAL ESTATE, AT COST (2)
Industrial properties $ 552,939 $ 311,273
Office properties 250,070 221,650
Other properties 1,521 9,946
--------------- ---------------
$ 804,530 $ 542,869
=============== ===============
</TABLE>
-15-
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
The following is a reconciliation of segment property operating income
as shown above to the accompanying consolidated statement of operations for each
of the three and nine month periods ended September 30:
<TABLE>
<CAPTION>
(IN 000'S)
-------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------ ------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Segment property operating income as shown above $ 12,224 $ 7,283 $ 34,139 $ 16,244
General and administrative expense (1,095) (275) (2,706) (440)
Interest expense (7,396) (4,164) (20,544) (8,997)
Other income (1) 22 77 129 155
-------------- ---------------- ------------- -------------
Income before equity in losses from equity method
investments, gains on sales of assets,
distributions to preferred unitholders and income
allocated to preferred shareholders, and minority
interest of unitholders in Operating Partnership $ 3,755 $ 2,921 $ 11,018 $ 6,962
============== ============== ============= =============
</TABLE>
(1) Amount consists of interest income not allocated to a specific business
segment.
(2) Amounts for 1998 are as of December 31, 1998.
6. DIVIDENDS
On January 29, 1999, the Company paid a dividend of $.265 per share for
the fourth quarter of 1998 which was declared in December 1998 and payable to
shareholders of record on December 31, 1998.
On March 5, 1999, the Company declared a dividend of $.265 per share
for the first quarter of 1999 which was paid on April 21, 1999 to shareholders
of record on March 31, 1999.
On June 4, 1999, the Company declared a dividend of $.295 per share for
the second quarter of 1999 which was paid on July 21, 1999 to shareholders of
record on September 30, 1999.
On October 1, 1999, the Company declared a dividend of $.295 per share
for the third quarter of 1999 which was paid on October 29, 1999 to shareholders
of record on October 14, 1999.
The Company and the Operating Partnership paid distributions to
holders of Convertible Preferred Stock and Convertible Preferred OP Units
which are entitled to preferred returns ranging from 9.0% to 9.75%.
Distributions accrued to holders of Convertible Preferred Stock and
Convertible Preferred OP Units were approximately $515 and $406, and $1,415
and $743, respectively, during the three and nine months ended September 30,
1999. In November 1999, the Company paid distributions to the holders of the
Series A, B and C Convertible Preferred Stock and the Series A and C
Convertible Preferred Units which aggregated $1.6 million.
-16-
<PAGE>
KEYSTONE PROPERTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
7. SUBSEQUENT EVENTS
On October 15, 1999, the Company acquired an 885,802 square foot bulk
distribution warehouse located in Lemoyne, Pennsylvania for approximately
$29.4 million. The facility was constructed in 1997 and is 100% leased.
This acquisition was funded with a $19.5 million mortgage note with a
five-year term at a rate of 7.66%, and proceeds from the Company's Credit
Facility.
In October 1999, the Company issued an aggregate of 687,593 Common Shares
at a price of $14.50 per share on various dates to the following investors:
Francesco Galesi (68,966 shares), a director of the Company, Jeffrey Kelter
(586,207 shares), the President and Chief Executive Officer of the Company,
and affiliates of Morgan Stanley Asset Management (32,420 shares). These
Common Shares were issued under the Company's existing shelf registration
statement which was filed in July, 1998.
-17-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The words "believe", "expect", "anticipate", "intend", "estimate" and
other expressions which are predictions of or indicate future events and trends
and which do not relate to historical matters identify forward-looking
statements. The Company's actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference include but are not limited to the following: real estate investment
considerations, such as the effect of economic and other conditions in the
market areas in which the Company conducts business on cash flows and values;
the need to renew leases or relet space upon the expiration of current leases,
and the ability of the Properties to generate revenues sufficient to meet debt
service payments and other operating expenses; and risks associated with
borrowings, such as the possibility that the Company will not have sufficient
funds available to make principal payments on outstanding debt, outstanding debt
may be refinanced at higher interest rates or otherwise on terms less favorable
to the Company and interest rates under the Credit Facility may increase.
The following discussion compares the operations and activities of the Company
for the three and nine month periods ended September 30, 1999 and 1998 and
should be read in conjunction with the accompanying financial statements and
notes thereto.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,1999 AND 1998
Net income for the three and nine month periods ended September 30,1999 was
$1.6 million and $5.1 million as compared with net income of $1.3 million and
$9.8 million for the same periods ended September 30, 1998. The decrease in
net income for the nine month period ended September 30, 1999 as compared to
the same period in 1998 was the result of the $11.9 million in gains from the
sales of assets during this period in 1998, as compared to the same period in
1999 where the gains from asset sales were only $1.3 million. These gains
from asset sales in 1998 were also offset by increases in net operating
income in 1999 as a result of property acquisitions. At September 30, 1998,
the Company owned 65 properties aggregating 7.5 million square feet. At
September 30, 1999, the Company owned 131 properties aggregating 18.1 million
square feet. Net income for the nine months ended September 30, 1999 and
1998, excluding the impact of the asset sales in both 1998 and 1999, would
have been $4.5 million in 1999 as compared to $3.2 million for the same nine
month period in 1998.
Revenues for the three and nine month periods ended September 30, 1999 increased
to $20.4 million and $56.9 million as compared with $11.9 million and $25.6
million for the same periods in 1998, representing increases of 72% and 122%
respectively, as a result of property acquisitions.
-18-
<PAGE>
Operating expenses increased by approximately $7.8 million and $27.2 million or
86% and 146% respectively, the three and nine month periods ended September 30,
1999 over the same periods in 1998. These increases are a result of property
acquisitions and are primarily the result of increases in depreciation, property
operating costs and interest expense associated with the increase in the
Company's investment in real estate and related mortgage debt from $401.3
million and $239.3 million at September 30, 1998, respectively, to $804.5
million and $488.5 million respectively, at September 30, 1999. General and
administrative expenses increased for the three and nine month periods ended
September 30, 1999 in comparison to the same periods last year primarily as a
result of the Company paying for expenses which were paid by the Management
Company in 1998 and costs related to the amortization of restricted stock awards
granted in December 1998.
Equity in losses from equity method investments decreased by $705,000 and
$676,000 in the three and nine month periods ended September 30, 1999 as
compared to the same periods in 1998 as a result of a reduction in operating
losses incurred by the Management Company. Certain payroll and other costs
which were paid by the Management Company in 1998 were reimbursed by the
Company in 1999. As a result, the operating loss of the Management Company
was reduced and the administrative expenses of the Company increased.
Property level operating income for the three and nine month periods ended
September 30, 1999 and 1998 for the Properties owned since January 1, 1998
(the "Same Store Properties") increased to approximately $3.5 million and
$10.4 million, respectively, from $3.3 million and $9.9 million in the same
periods of 1998. These increases are primarily due to increases in rental
rates and increases in occupancy in the Same Store Properties. Operating
expenses for these properties in the three month period ended September 30,
1999 increased as a result of increases in HVAC repair and maintenance
expenses as a result of the higher than average temperatures this past
summer. Operating expenses increased less than 1% for the nine month period
ended September 30, 1999, as the increase in repairs and maintenance expenses
in the third quarter of 1999 was offset by lower overall operating expenses
in the first six months of 1999 as a result of effective cost management. The
Same Store Properties consist of 20 properties which aggregate approximately
1.9 million square feet. Same Store Properties represent approximately 19% of
property net operating income for the nine month period ended as of September
30, 1999.
Set forth below is a schedule comparing the property level operating income for
the Same Store Properties for the three and nine month periods ended September
30, 1999 and 1998.
<TABLE>
<CAPTION>
(IN 000'S)
-----------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------------- -----------------------------------------
1999 1998 % CHANGE 1999 1998 % CHANGE
---- ---- -------- ---- ---- --------
Revenue
<S> <C> <C> <C> <C> <C> <C>
Rental revenue $ 3,216 $ 3,047 5.5% $ 9,457 $ 8,966 5.5%
Tenant reimbursement and other 272 248 9.7% 960 985 (2.5)%
----------- ------------ ------------ ----------- ----------- -----------
Total revenue $ 3,488 $ 3,295 5.9% $ 10,418 $ 9,952 4.7%
=========== ============ ============ =========== =========== ===========
Operating Expenses
Property operating expenses $ 326 $ 292 11.6% $ 1,057 $ 1,088 (2.8)%
Real estate taxes 207 207 --- 612 596 2.6%
----------- ------------ ------------ ----------- ----------- -----------
Total operating expenses 533 499 6.8% 1,669 1,684 .9%
----------- ------------ ------------ ----------- ----------- -----------
Net Operating Income $ 2,955 $ 2,796 5.7% $ 8,749 $ 8,268 5.8%
=========== ============ ============ =========== =========== ===========
Occupancy at September 30 99.74% 96.46%
=========== ============
</TABLE>
-19-
<PAGE>
BUSINESS SEGMENTS
Revenue and property net operating income in both the industrial and office
properties segments increased significantly in the three and nine month periods
ended September 30, 1999 as compared to the prior year as a result of the
property acquisitions consummated in 1998 and 1999. Revenue and property net
operating income in the multifamily and other property segment decreased as a
result of the sales of the multifamily assets in 1998 and Urban Farms Shopping
Center in March 1999.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FOR NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
During the nine months ended September 30, 1999, the Company generated $18.9
million in cash flow from operating activities as compared to cash flow
generated of $8.3 million during the same period in 1998. This increase in
operating cash flow was a result of the cash flow generated from the various
acquisitions consummated by the Company during 1998 and 1999.
Cash used in investing activities in the nine months ended September 30, 1999
was $137.9 million as compared to $185.2 million of cash used during the same
periods in 1998. The decrease in cash used was primarily a result of the
decreased level of acquisition activity in 1999 as compared to the same
period in 1998. Cash provided by financing activities was $118.5 million in
1999 as compared to $160.3 million of cash generated from financing
activities in the same period in 1998. The primary sources of the cash
generated from financing activities in 1998 were related to mortgage notes
utilized to fund property acquisitions during 1998 and funding from the
Company's Credit Facility.
CAPITALIZATION
As of September 30, 1999, the Company had $488.5 million of mortgage debt
outstanding. This mortgage debt matures between 2000 and 2022. The Company's
Credit Facility provides for borrowings up to $150 million and bears interest
at a variable rate equal to 30, 60 or 90-day Eurodollar or LIBOR rate plus a
spread on a sliding scale based on the Company's leverage. The scale ranges
from LIBOR +1.625% to LIBOR +2.25%. Based on the Company's leverage, the
current rate was LIBOR +2.25% effective October 1, 1999. As of September 30,
1999, the Company had $140.2 million outstanding under the Credit Facility.
The Company's weighted average interest rate was approximately 7.67% at
September 30, 1999. The Company's market capitalization and debt-to-market
capitalization ratio were $874.4 million and 58.1% respectively, as of
November 12, 1999 based upon the closing price of the Company's common stock
of $15.125 per share as of that date.
SHORT AND LONG TERM LIQUIDITY
The Company expects to meet its short-term (one year or less) liquidity needs
based on its cash flow from operations and, if necessary, borrowings from its
Credit Facility. The Company believes that its principal short-term liquidity
needs are to fund normal recurring operating expenses, recurring capital
improvements, debt service and distributions to its shareholders and holders of
OP Units.
-20-
<PAGE>
The Company expects to meet long-term liquidity requirements including property
acquisitions, debt maturities, major renovations, expansions and other
non-recurring capital improvements through its Credit Facility, the assumption
of additional indebtedness, additional term debt and the issuance of additional
equity securities. In July 1998, the Company filed with the Securities and
Exchange Commission a shelf registration statement under which the Company from
time to time may issue Common Stock, Preferred Stock and depository shares
representing Preferred Stock with an aggregate value of up to $500 million.
FUNDS FROM OPERATIONS AND FUNDS AVAILABLE FOR DISTRIBUTION
Funds From Operations ("FFO"), which is a commonly used measurement of
the performance of an equity REIT, as defined by the National Association of
Real Estate Investment Trusts, Inc. ("NAREIT"), is net income (computed in
accordance with generally accepted accounting principles), excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect FFO on the same basis. Management believes the
presentation of FFO is a useful disclosure as a general measurement of its
performance in the real estate industry, although the Company's FFO may not
necessarily be comparable to similarly titled measures of other REITs which do
not follow the NAREIT definition. The Company's FFO presentation is in
accordance with NAREIT's FFO definition. FFO does not represent cash generated
from operating activities in accordance with generally accepted accounting
principles and is not necessarily indicative of cash available to fund cash
needs and should not be considered as an alternative to net income as an
indicator of the Company's operating performance or as an alternative to cash
flow as a measure of liquidity. Funds available for distribution ("FAD") is
defined as FFO reduced by straight-line rent adjustments; and non-revenue
enhancing capital expenditures and tenant improvements and leasing commissions;
and increased by amortization of deferred of financing costs and amortization of
restricted stock awards.
-21-
<PAGE>
FFO, FAD and cash flows for the three and nine month periods ended
September 30, 1999 and 1998 are summarized in the following table (in thousands,
except per share data):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income before distributions to preferred unitholders
and income allocated to preferred shareholders and minority
interest of unitholders in Operating Partnership $ 3,898 $ 2,359 $ 11,955 $ 17,891
(Less) Plus:
Gains on sales of assets --- --- (1,284) (11,952)
Depreciation and amortization related to real
estate 3,835 1,892 10,714 4,157
Equity in (income) loss from equity method investments (143) 562 347 1,023
FFO contribution from equity investments 186 (519) (220) (895)
Other adjustments 61 53 185 159
----------- ------------ ------------ ------------
Funds from Operations $ 7,837 $ 4,347 $ 21,697 $ 10,383
=========== ============ ============ ============
(Less) Plus:
Rental income from straight-line rents (423) (242) (1,093) (664)
Amortization of deferred financing costs 396 236 1,071 335
Amortization of restricted stock awards 69 --- 205 ---
Building improvements (232) --- (547) (316)
Tenant improvements - second generation (850) (272) (1,510) (349)
Leasing commissions - second generation (941) (135) (1,632) (446)
----------- ------------ ------------ ------------
Funds Available for Distribution $ 5,856 $ 3,934 $ 18,191 $ 8,943
=========== ============ ============ ============
Cash flow from operating activities 18,974 8,263
Cash flow from investing activities (137,940) (185,188)
Cash flow from financing activities 118,535 160,256
------------ ------------
Net decrease in cash $ (431) $ (16,669)
============ ============
Weighted average number of common and preferred shares and
units - diluted (1) 17,196,873 12,963,432 16,564,455 11,095,378
=========== ============ ============ ============
</TABLE>
(1) Includes the shares of Convertible Preferred Stock and Convertible
Preferred OP Units issuable assuming conversion at $16.50 per share and
unit.
INFLATION
The Company's leases for commercial office and industrial properties
generally require tenants to pay either their share of operating expenses,
including common area maintenance, real estate taxes and insurance or pay 100%
of these costs directly (for triple net leases). As a result, the Company's
exposure to increases in costs and operating expenses is reduced. The Company
does not anticipate that inflation will have a significant impact on its
operating results in the near future.
-22-
<PAGE>
THE YEAR 2000 ISSUE
The Company is in the process of completing its Year 2000 compliance
program which consists of the following steps:
1. Compilation of an inventory of information and property systems which
are impacted by the Year 2000.
2. Prioritization of the critical systems identified in Step 1 and
inquiries of third parties with whom the Company does significant
business including but not limited to vendors, service providers and
tenants as to their Year 2000 compliance.
3. Analysis of critical systems and evaluation of the costs to repair or
replace those systems. Repair or replacement of these systems and
testing of the systems.
STATUS
The Company has compiled a complete inventory of systems which are
impacted by Year 2000 concerns. The Company's accounting and property management
systems are either already Year 2000 compliant or were upgraded by the third
party vendor who developed the software at no cost to the Company. All of the
Company's desktop and network systems are believed to be Year 2000 compliant.
The Company has prepared an inventory of its buildings operating systems to
determine whether they are compliant. The implementation of required corrective
measures is continuing and will be completed by December 1, 1999. Based upon the
current status of this assessment, the Company estimates the total cost of these
corrective measures will be less than $50,000.
The Company is exposed to the risk that its vendors or service
providers could experience Year 2000 problems that, in turn, impact their
ability to deliver products or services to the Company. This is not considered
to be a significant risk for suppliers of goods, due to the availability of
alternative suppliers, however, the disruption of certain services, such as
utilities could have a material impact on the Company's operations. The Company
is not currently aware of any vendor or service provider Year 2000 issue which
management believes would have a material adverse impact on the Company's
ability to operate its properties. The inability of vendors or service providers
to be Year 2000 compliant could have an adverse impact on the Company, the
effect of which is not determinable at this time.
The Company is also exposed to the risk that its tenants could
experience Year 2000 problems that impact the tenants' ability to pay rent. The
Company does not believe that this risk is likely to effect enough tenants to
pose a material problem to the Company. The impact of non-compliance by tenants
is not determinable at this time.
Based on the current status of the Company's inventory of systems regarding Year
2000 compliance, the Company has concluded it is not necessary to develop a
formal contingency plan. The Company will continue to evaluate the need for such
a formal plan.
Readers are cautioned that forward-looking statements contained in the Year 2000
discussion should be read in conjunction with the Company's disclosures
regarding forward-looking statements on page 17.
-23-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor the Properties are presently subject to any litigation
which the Company believes will result in any liability that will be material to
the Company, other than routine litigation arising in the ordinary course of
business, substantially all of which is expected to be covered by liability
insurance.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10-1 Registration Rights Agreement, dated September 27, 1999, by
and between Reckson Morris Industrial Trust and Keystone
Property Trust.
10-2 Registration Rights Agreement dated as of September 27, 1999,
by and between Robert Morris, Joseph D. Morris, Ronald Scram,
Mark M. Bava, The Drew Morris Trust, The Justin Morris Trust,
The Keith Morris Trust, Joseph D. Morris Family Limited
Partnership, Robert Morris Family Limited partnership and
Keystone Property Trust
10-3 Articles Supplementary Reclassifying Series B Convertible
Preferred Stock and Fixing Distribution and Other Preferences
and Rights of Such Series
10-4 Partnership Unit Designation of Series C Convertible Preferred
Units
10-5 Partnership Unit Designation of Series E Convertible Preferred
Units
10-6 Subscriptions Agreement between Keystone Property Trust and
AEW Targeted Securities Fund, LP
10-7 Subscription Agreement between Keystone Property Trust and
Allstate Insurance Company
10-8 Subscription Agreement between Keystone Property Trust and
Teachers Insurance and Annuity Association of America
10-9 Registration Rights Agreement between Keystone Property Trust
and AEW Targeted Securities Fund, LP
10-10 Registration Rights Agreement between Keystone Property Trust
and Allstate Insurance Company
10-11 Registration Rights Agreement between Keystone Property Trust
and Teachers Insurance and Annuity Association of America
-24-
<PAGE>
10-12 Articles Supplementary Reclassifying Series C Convertible
Preferred Stock and Fixing Distribution and Other Preferences
and Rights of Such Series
10-13 Partnership Unit Designation of Series F Convertible Preferred
Units
We incorporate by reference into this Form 10-Q all exhibits to our Registration
Statement on Form S-3 filed October 15, 1999 (File 001-12514) and Post Effective
Amendment No. 1 to our Registration Statement on Form S-3 filed November 4, 1999
(File 001-12514).
27. Financial Data Schedule
(b) Reports on Form 8-K:
During the three month period ended September 30, 1999, and through
November 15, 1999, the Company filed the following:
(i) a Current Report on Form 8-K dated August 6, 1999 was filed on
August 20, 1999 (reporting under Items 2 and 7) regarding an
agreement to acquire certain entities owning real property
from Reckson Morris Industrial Trust, Reckson Operating
Partnership, L.P., Reckson Morris Industrial Interim GP, LLC,
Robert Morris, Joseph Morris and certain other related
entities pursuant to a Contribution and Exchange Agreement.
(ii) a Current Report on Form 8-K dated September 27, 1999 was
filed on October 12, 1999 (reporting under Item 2, 5 and 7)
regarding the Company's consummation of its acquisition of
Reckson Morris Operating Partnership, L.P. from Reckson Morris
Industrial Trust, Reckson Operating Partnership, L.P., Reckson
Morris Industrial Interim GP, LLC, Robert Morris, Joseph D.
Morris, and certain of their related entities. Such 8-K also
included proforma information the issuance of regarding the
Company's acquisition of the BMG Property, and the PolyFoam
Properties.
(iii) a Current Report on Form 8-K dated October 13, 1999 was filed
on October 13, 1999 (reporting under Item 5 and 7) regarding
the Company's reorganization from a Maryland corporation to a
Maryland real estate investment trust named "Keystone Property
Trust".
(iv) a Current Report on Form 8-K dated October 12, 1999 was filed
on October 18, 1999 (reporting under Item 5) regarding the
completed issuance of 68,966 common shares of the Company's,
par value $.001 per share, under its existing shelf
registration statement.
(v) a Current Report on Form 8-K dated October 15, 1999 was filed
on October 20, 1999 (reporting under Item 2 and 7) regarding
the Company's acquisition of an industrial distribution
facility totaling 885,802 square feet for approximately $29.8
million.
(vi) a Current Report on Form 8-K dated October 28, 1999 was filed
on November 4, 1999 (reporting under Items 5 and 7) regarding
the completed issuance of an aggregate of 618,627 common
shares of the Company's, par value $.001 per share, under our
existing shelf registration statement.
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<PAGE>
SIGNATURES OF REGISTRANT
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN REAL ESTATE
INVESTMENT CORPORATION
Date: November 15, 1999 By:/s/ Jeffrey E. Kelter
---------------------
Jeffrey E. Kelter
President and Chief Executive Officer
Date: November 15, 1999 By:/s/ Timothy A. Peterson
-----------------------
Timothy A. Peterson
Executive Vice President, Chief
Financial Officer and Secretary
Date: November 15, 1999 By:/s/ Timothy E. McKenna
----------------------
Timothy E. McKenna
Treasurer, Senior Vice President Finance &
Corporate Controller
(Principal Accounting Officer)
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<PAGE>
EXHIBIT 10-1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made
and entered into as of September 27TH 1999 by and between American Real Estate
Investment Corporation, a Maryland corporation (the "COMPANY"), and the holders
of securities listed on SCHEDULE A attached hereto (including their respective
successors, assigns and transferees herein referred to individually as a
"HOLDER" and collectively as the "HOLDERS").
WHEREAS, pursuant to the Contribution and Exchange Agreement
(the "CONTRIBUTION AGREEMENT") made as of August 6, 1999 by and among each of
those Persons set forth in Exhibit A attached thereto, American Real Estate
Investment, L.P. (the "PARTNERSHIP") and the Company, each Holder is receiving
on the date hereof at the Stage I Closing (as defined in the Contribution
Agreement), and will receive from time to time at a Stage II Closing (as defined
in the Contribution Agreement) and/or the Stage III Closing (as defined in the
Contribution Agreement) (each Stage I Closing, Stage II Closing and Stage III
Closing is individually referred to herein as a "CLOSING" and are collectively
referred to herein as the "CLOSINGS") pursuant to the Contribution Agreement,
such number of (i) shares of common stock, par value $.001 per share (the
"COMMON STOCK"), of the Company (ii) shares of Series B Convertible Preferred
Stock, par value $.001 per share (the "SERIES B PREFERRED STOCK"), of the
Company, which are convertible into shares of Common Stock and (iii) Series C
Convertible Preferred Units of limited partnership interest (the "SERIES C
PREFERRED UNITS") of the Partnership, which may be convertible into shares of
Common Stock or shares of Preferred Stock, each as set forth opposite such
Holder's name on SCHEDULE A attached hereto as amended from time to time to
reflect the additional issuance of Common Stock, Series B Preferred Stock or
Series C Preferred Units at a Closing (the Common Stock, Series B Preferred
Stock and Series C Preferred Units issued at a Closing are collectively referred
to as the "ISSUED SECURITIES;" and the Common Stock issued at a Closing and the
shares of Common Stock issued upon conversion of the Series B Preferred Stock
and Series C Preferred Units are collectively referred to as the "REGISTRABLE
SECURITIES;" PROVIDED, HOWEVER, that any such securities shall cease to be
Registrable Securities when (i) a Registration Statement (as defined below)
covering such securities has been declared effective and such Registrable
Securities have been disposed of by the Holder thereof pursuant to such
effective Registration Statement or any other effective Registration Statement,
(ii) such securities are transferred by the Holder thereof to any person other
than a Holder pursuant to Rule 144 (or any successor rule or similar provision
then in effect, but not Rule 144A) under the Securities Act (as defined below),
including a sale pursuant to the provisions of Rule 144(k), (iii) such
securities shall have ceased to be outstanding or (iv) such securities are
eligible for sale pursuant to Rule 144 under the Securities Act and could be
sold in one transaction in accordance with the volume limitations contained in
Rule 144(e)(1)(i) under the Securities Act).
WHEREAS, in connection therewith, the Company has agreed to
grant to Holders the Registration Rights (as defined in Section 1 hereof);
NOW, THEREFORE, the parties hereto, in consideration of the
foregoing, the mutual covenants and agreements hereinafter set forth, and other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, hereby agree as follows:
<PAGE>
SECTION 1. REGISTRATION RIGHTS
Each Holder shall be entitled to offer for sale from time to
time pursuant to a shelf, demand or piggyback Registration Statement the
Registrable Securities, subject to the terms and conditions set forth herein
(the "REGISTRATION RIGHTS").
1.1 DEMAND REGISTRATION.
(a) REGISTRATION REQUESTS. At any time after the second
anniversary of the Stage I Closing Date (such second anniversary being referred
to herein as the "REGISTRATION RIGHTS DATE"), upon the written request of the
Holders of at least $1 million of Registrable Securities (adjusted
proportionately to reflect any stock dividend, subdivision, split or reverse
stock split or the like effected with respect to the Common Stock) (the
"REQUESTING HOLDERS"), the Company must effect the registration under the
Securities Act of 1933, as amended and the rules and regulations promulgated
thereunder (the "SECURITIES ACT") of all or part of such Holders' Registrable
Securities and specifying the number of Registrable Securities to be registered
and the intended method of disposition thereof, the Company will promptly, and
in no event more than ten (10) Business Days after receipt of such request, give
written notice (a "NOTICE OF DEMAND REGISTRATION") of such request to all other
holders of Registrable Securities, and thereupon will use its best efforts to
effect the registration under the Securities Act (a "DEMAND REGISTRATION") of:
(i) the Registrable Securities which the Company has
been so requested to register by such Requesting Holder or
Holders, and
(ii) all other Registrable Securities the holders of
which have made written requests to the Company for
registration thereof within twenty (20) days after the giving
of the Notice of Demand Registration (which requests shall
specify the intended method of disposition thereof),
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof) of the Registrable Securities so to be registered. The
Company may include in such registration other securities for sale for its own
account or for the account of any other Person; PROVIDED that, if such Demand
Registration is in connection with an underwritten offering, the Company or such
securityholders, as applicable, agree in writing to sell their securities on the
same terms and conditions as apply to the Registrable Securities being sold. If
any securityholders of the Company (other than the holders of Registrable
Securities in such capacity) register securities of the Company in a Demand
Registration in accordance with this Section, such holders shall pay the fees
and expenses of their counsel and their PRO RATA share, on the basis of the
respective amounts of the securities included in such registration on behalf of
each such holder, of the Registration Expenses if the Registration Expenses for
such registration are not paid by the Company for any reason.
(b) LIMITATIONS ON DEMAND REGISTRATIONS. Notwithstanding
anything herein to the contrary, the Company shall not be required to honor a
request for a Demand Registration if:
(i) the Company has previously effected three (3)
Demand Registrations pursuant to SECTION 1.1(a);
(ii) such request is received from any Requesting
Holder with respect to Registrable Securities that may
immediately be sold under Rule 144 during any ninety (90) day
period;
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(iii) such request is received by the Company less
than thirty (30) days following the effective date of any
previous Registration Statement (other than a Registration
Statement on Form S-4 or S-8 or any successor or similar form
that may be adopted by the Securities and Exchange Commission
(the "COMMISSION") or Form S-3 with respect to a dividend
reinvestment plan), regardless of whether any holder of
Registrable Securities exercised its rights under this
Agreement with respect to such registration.
(iv) there is a Shelf Registration Statement in
effect with the Commission with respect to such Registrable
Securities, or the Company is pursuing in good faith a
declaration of effectiveness of a Shelf Registration Statement
on file with the Commission.
(c) REGISTRATION STATEMENT FORM. Demand Registrations shall be
on such appropriate registration form promulgated by the Commission as shall be
selected by the Company, and shall permit the disposition of such Registrable
Securities in accordance with the intended method or methods specified in the
Notice of Demand Registration for such registration (any registration statement
of the Company that covers Registrable Securities pursuant to this Agreement and
all amendments and supplements to such registration statement, including any
post-effective amendments, is hereinafter referred to as a "REGISTRATION
STATEMENT").
(d) PRIORITY IN CUTBACKS. If the managing underwriter advises
the Company and the Holders in writing that, in its opinion, the number of
securities requested to be included in such registration (including securities
of the Company which are not Registrable Securities) exceed the number which can
be sold in such offering, the Company will include in any such registration to
the extent of the number which the managing underwriter advises the Company can
be sold in such offering (i) first, Registrable Securities requested to be
included in such registration by the Requesting Holders, pro rata on the basis
of the number of Registrable Securities requested to be included by such
holders, if all of such Registrable Securities cannot be included, (ii) second,
other Registrable Securities requested to be included in such registration by
the other Holders, pro rata on the basis of the number of Registrable Securities
requested to be included by such holders, if all of such Registrable Securities
cannot be included, and (iii) third, other securities of the Company proposed to
be included in such registration, allocated among the holders thereof in
accordance with the priorities then existing among the Company and the holders
of such other securities; and any securities so excluded shall be withdrawn from
and shall not be included in such Demand Registration.
(e) PREEMPTION OF DEMAND REGISTRATION. Notwithstanding
anything to the contrary contained herein, at any time within thirty (30) days
after receiving a written request for a Demand Registration, the Company may
elect to effect an underwritten primary registration in lieu of the Demand
Registration if the Company's Board of Directors believes that such primary
registration would be in the best interests of the Company or if the managing
underwriter for the Demand Registration advises the Company in writing that in
its opinion, in order to sell the Registrable Securities to be sold, the Company
should include its own securities. If the Company so elects to effect a primary
registration, the Company shall give prompt written notice to all holders of
Registrable Securities of its intention to effect such a registration and shall
afford the holders of the Registrable Securities rights contained in Section 1.3
with respect to Piggyback Registrations. In the event that the Company so elects
to effect a primary registration after receiving a request for a Demand
Registration, the requests for a Demand Registration shall be deemed to have
been withdrawn and such primary registration shall not be deemed to be a Demand
Registration.
1.2 SHELF REGISTRATIONS. The Company will cause to be filed
with the Commission on or before the Registration Rights Date a shelf
Registration Statement and related prospectus, including any preliminary
prospectus and documents incorporated by reference (the "SHELF REGISTRATION
STATEMENT")
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<PAGE>
that complies as to form in all material respects with applicable Commission
rules providing for the sale by each of the Holders of such Holder's Registrable
Securities whether or not issued or issuable on such date, and agrees (subject
to Section 1.7 hereof) to use its commercially reasonable best efforts to cause
such Shelf Registration Statement to be declared effective by the Commission as
soon as practicable thereafter.
1.3 PIGGYBACK REGISTRATIONS.
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. Notwithstanding
any limitation contained in SECTION 1.1, if the Company at any time after the
Registration Rights Date proposes to file a Registration Statement under the
Securities Act (other than a registration in respect of a dividend reinvestment
or similar plan for stockholders of the Company or on Form S-4 or Form S-8
promulgated by the Commission, or any successor or similar forms thereto)
registering shares of its Common Stock, whether for sale for the account of the
Company or for the account of any holder of securities of the Company (other
than Registrable Securities) (a "PIGGYBACK REGISTRATION"), it will each such
time give written notice (a "NOTICE OF PIGGYBACK REGISTRATION") at least fifteen
(15) days prior to the anticipated filing date, to all Holders of Registrable
Securities, of its intention to do so and of such Holders' rights under this
SECTION 1.3, which Notice of Piggyback Registration shall include a description
of the intended method of disposition of such securities. Upon the written
request of any such Holder made within ten (10) days after receipt of a Notice
of Piggyback Registration (which request shall specify the Registrable
Securities intended to be disposed of by such Holder and the intended method of
disposition thereof), the Company will use its commercially reasonable best
efforts to include in the Registration Statement relating to such Piggyback
Registration all Registrable Securities which the Company has been so requested
to register. Notwithstanding the foregoing, if, at any time after giving a
Notice of Piggyback Registration and prior to the effective date of the
Registration Statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each Holder of Registrable Securities and, thereupon, (i) in
the case of a determination not to register, shall be relieved of its obligation
to register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection
therewith) without prejudice, however, to the rights of any Requesting Holder
entitled to do so to request that such registration be effected as a Demand
Registration under SECTION 1.1(a), and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering any Registrable
Securities for the same period as the delay in registering such other
securities. No registration effected under this SECTION 1.3 shall relieve the
Company of its obligations to effect a Demand Registration under SECTION 1.1.
(b) PRIORITY IN CUTBACKS. If the managing underwriter advises
the Company and the Holders in writing that, in its opinion, the number of
securities requested to be included in such registration (including securities
of the Company which are not Registrable Securities) exceed the number which can
be sold in such offering, the Company will include in such registration to the
extent of the amount of the securities which the managing underwriter advises
the Company can be sold in such offering:
(i) if such registration as initially proposed by the
Company was solely a primary registration of its securities,
(x) FIRST, the securities proposed by the Company to be sold
for its own account, (y) SECOND, any Registrable Securities
requested to be included in such registration by Requesting
Holders, PRO RATA on the basis of the number of Registrable
Securities requested to be included by such Holders, and (z)
THIRD, any other securities of the Company proposed to be
included in such registration, allocated among the holders
thereof in accordance with the priorities then existing among
the Company and such holders; and
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(ii) if such registration as initially proposed by
the Company was in whole or in part requested by holders of
securities of the Company, other than holders of Registrable
Securities in their capacities as such, pursuant to demand
registration rights, (x) FIRST, such securities held by the
holders initiating such registration and, if applicable, any
securities proposed by the Company to be sold for its own
account, allocated in accordance with the priorities then
existing among the Company and such holders, (y) SECOND, any
Registrable Securities requested to be included in such
registration by Requesting Holders, pro rata on the basis of
the number of Registrable Securities requested to be included
by such holders, and (z) THIRD, any other securities of the
Company proposed to be included in such registration,
allocated among the holders thereof in accordance with the
priorities then existing among the Company and the holders of
such other securities;
and any securities so excluded shall be withdrawn from and shall not be included
in such Piggyback Registration.
1.4 REGISTRATION PROCEDURE.
(a) Each Holder agrees to provide in a timely manner
information regarding the proposed distribution by such Holder of the
Registrable Securities and such other information reasonably requested by the
Company in connection with the preparation of and for inclusion in the
Registration Statement.
(b) If and whenever the Company is required to use its
commercially reasonable best efforts to effect the registration of any
Registrable Securities under the Securities Act pursuant to SECTION 1.1, 1.2 OR
1.3, the Company will use its commercially reasonable best efforts to effect the
registration and sale of such Registrable Securities in accordance with the
intended methods of disposition thereof specified by the Requesting Holders.
Without limiting the foregoing, the Company in each such case will, as
expeditiously as possible use its commercially reasonable best efforts to keep
the Registration Statement effective (subject to Section 1.7 hereof) and free of
material misstatements or omissions (including the preparation and filing of any
amendments and supplements necessary for that purpose) until the earlier of:
(i) the first date on which all Holders have
consummated the sale of all of such Holders' Registrable
Securities registered under the Registration Statement;
(ii) the date on which all of the Registrable
Securities registered under the Registration Statement are
eligible for sale pursuant to Rule 144(k) (or any successor
provision) or in a single transaction pursuant to Rule 144(e)
(or any successor provision) under the Securities Act of 1933,
as amended (the "SECURITIES ACT"); or
(iii) (A) with respect to a Shelf Registration
Statement, the later of (x) two (2) years after such Shelf
Registration Statement becomes effective and (y) if Issued
Securities are issued at the Stage III Closing, three (3)
years after the Stage III Closing; and (B) with respect to a
Demand Registration or Piggyback Registration, one hundred and
eighty (180) days after such Registration Statement becomes
effective.
(c) The Company agrees to provide to each Holder a reasonable
number of copies of the final Registration Statement and the related prospectus
(including any preliminary prospectus) and any amendments or supplements
thereto. The Company further agrees that it will use commercially reasonable
best efforts to obtain the withdrawal of any order suspending the effectiveness
of any Registration Statement at the earliest possible moment.
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<PAGE>
1.5 OFFERS AND SALES. All offers and sales by each Holder
under any Registration Statement referred to in SECTION 1.1, 1.2 OR 1.3, if any,
shall be completed within the period during which such Registration Statement is
required to remain effective pursuant to SECTION 1.4(b), and, upon expiration of
such period, no Holder will offer or sell any Registrable Securities under such
Registration Statement. If directed by the Company, each Holder will return all
undistributed copies of any prospectus in its possession upon the expiration of
such period. Each Holder shall promptly, but in any event no later than two (2)
business days after a sale by such Holder of Registrable Securities, notify the
Company of any sale or other transfer by such Holder of Registrable Securities
and include in such notice the number of Registrable securities sold or
transferred by Holder.
1.6 SUSPENSION OF OFFERING.
(a) If the Company determines in its good faith judgment that
the filing of the Registration Statement under SECTION 1.1, 1.2 OR 1.3 hereof or
the use of any prospectus would materially impede, delay or interfere with any
pending material financing, acquisition or corporate reorganization or other
material corporate development involving the Company or any of its subsidiaries,
or require the disclosure of important information which the Company has a
material business purpose for preserving as confidential or the disclosure of
which would materially impede the Company's ability to consummate a significant
transaction, upon written notice of such determination by the Company, the
rights of each Holder to offer, sell or distribute any Registrable Securities
pursuant to a Registration Statement or to require the Company to take action
with respect to the registration or sale of any Registrable Securities pursuant
to a Registration Statement (including any action contemplated by SECTION 1.4
hereof) will be suspended until the date upon which the Company notifies the
Holders in writing that suspension of such rights for the grounds set forth in
this SECTION 1.7(a) is no longer necessary, but, in any event, no such period
shall extend for longer than 60 days; PROVIDED the Company may deliver only two
such notices in any twelve month period.
(b) In the case of the registration of any underwritten public
offering proposed by the Company (other than any registration by the Company on
Form S-8, or a successor or substantially similar form, of (A) an employee stock
option, stock purchase or compensation plan or of securities issued or issuable
pursuant to any such plan or (B) a dividend reinvestment plan), each Holder
agrees, if requested in writing by the managing underwriter or underwriters
administering such offering, not to effect any underwritten offering for the
resale of Registrable Securities (or any option or right to acquire Registrable
Securities), other than pursuant to a Piggyback Registration, during the period
commencing on the 7th day prior to the expected effective date of the
Registration Statement covering such underwritten public offering or the date on
which the proposed offering is expected to commence (which date shall be stated
in such notice) and ending on the date specified by such managing underwriter in
such written request to such Holder, which date shall not be later than 45 days
after such expected date of effectiveness or the commencement of the offering,
as the case may be.
1.7 EXPENSES. Except as otherwise set forth in this SECTION
1.7, the Company shall pay all expenses incident to the performance by it of its
registration obligations under this Section 1, including (i) all stock exchange,
Commission and state securities registration, listing and filing fees, (ii) all
expenses incurred in connection with the preparation, printing and distributing
of the Registration Statement and prospectus (including all expenses incurred in
connection with the delivery to any Holder of such number of copies of any
prospectus as such Holder may reasonably request), and (iii) fees and
disbursements of counsel for the Company and of the independent public
accountants of the Company (collectively the "REGISTRATION EXPENSES"). Each
Holder shall be responsible for the payment of any underwriting fees, brokerage
and sales commissions, fees and disbursements of such Holder's counsel, and any
transfer taxes relating to the sale or disposition of the Registrable Securities
by such Holder (collectively, the "HOLDER EXPENSES"); PROVIDED, HOWEVER, that
the Company shall be responsible, one-
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time only, for the reasonable fees and disbursements, up to a maximum of $5,000,
of a single legal counsel to the Holders in connection with the filing by the
Company of a Registration Statement contemplated hereunder. Notwithstanding
anything to the contrary contained herein, if the Company has previously
effected two (2) Demand Registrations pursuant to Section 1.1(a), the Company
shall not pay any Registration Expenses or Holder Expenses in connection with
any additional Demand Registration other than with respect to securities
included in such Registration Statement for sale for its own account, and the
Holders and other securityholders of the Company who include securities in the
Registration Statement shall be responsible for their respective Holder Expenses
and their PRO RATA share, on the basis of the respective amounts of the
securities included in such Registration Statement on behalf of each such
holder, of the Registration Expenses.
1.8 QUALIFICATION. The Company agrees to use its commercially
reasonable best efforts to register or qualify the Registrable Securities by the
time the Registration Statement is declared effective by the Commission under
all applicable state securities or "BLUE SKY" laws of such jurisdictions as any
Holder shall reasonably request in writing, to keep each such registration or
qualification effective during the period the Registration Statement is required
to be kept effective, and to do any and all other acts and things which may be
reasonably necessary or advisable to enable each Holder to consummate the
disposition in each such jurisdiction of the Registrable Securities owned by
such Holder; PROVIDED, HOWEVER, that the Company shall not be required to (x)
qualify generally to do business in any jurisdiction or to register as a broker
or dealer in such jurisdiction where it would not otherwise be required to
qualify but for this Section 1.9, (y) subject itself to taxation in any such
jurisdiction, or (z) submit to the general service of process in any such
jurisdiction.
1.9 NOTICES TO HOLDERS. Subject to Section 1.4(a) hereof,
during the period that the Company is required to keep the Registration
Statement effective, the Company will advise the Holders within a reasonable
time (i) when the prospectus or any prospectus supplement or post-effective
amendment thereto has been filed, and when the same has become effective, (ii)
of any request by the Commission for any amendments to, or issuance by the
Commission of any stop order with respect to the Registration Statement or any
prospectus or amendment thereto, or (iii) that an amendment or supplement to the
most recent Prospectus or prospectus supplement, as the case may be, is
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
1.10 LISTING. The Company agrees to use its reasonable efforts
to cause all Registrable Securities to be listed on the principal securities
exchange on which the Common Stock is listed.
1.11 COOPERATION OF COMPANY IN REGISTRATION OF SECURITIES.
Whenever required under SECTION 1 to effect the registration of any Registrable
Securities, the Company shall, as promptly as practicable:
(a) Prior to filing a registration statement or prospectus or
any amendments or supplements thereto, the Company shall furnish to one firm of
counsel for the Holders, copies of all such documents in the form substantially
as proposed to be filed with the SEC and shall in good faith consider
incorporating in each such document such changes as such counsel to the Holders
reasonably and in a timely manner may suggest.
(b) Make available for inspection by any Holder, any
underwriter participating in such offering and the representatives of such
Holder and any such underwriter (but not ore than one firm of counsel to the
Holders), all financial and other information as shall be reasonably requested
by them at the Company's offices, during business hours and upon reasonable
advance notice, and provide any Holder, any underwriter participating in such
offering and the representatives of such Holder and
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underwriter the reasonable opportunity to discuss the business affairs of the
Company with is principal executives and independent public accountants who have
certified the audited financial statements included in such Registration
Statement, in each case all as necessary to enable them to exercise their due
diligence responsibility under the Securities Act; PROVIDED, HOWEVER, that
information that the Company determines to be confidential and which the Company
advises such person in writing, is confidential shall not be disclosed unless
such person signs a confidentiality agreement reasonably satisfactory to the
Company or the related Holder of Registrable Securities agrees to be responsible
for such Person's breach of confidentiality on terms reasonably satisfactory to
the Company; PROVIDED, FURTHER, that the Company shall not be required to incur
any material out-of-pocket expense pursuant to this SECTION 1.11(b).
(c) If Registrable Securities are included in an underwritten
public offering and the underwriter is reasonably acceptable to the Company, the
Company shall (i) enter into an underwriting or similar agreement with the
underwriter or underwriters and the Holder in such form as is customary for an
underwritten public offering and (ii) furnish the Holder and such underwriter or
underwriters with a "comfort letter" from the independent public accountants of
the Company and legal opinions of counsel to the Company, each in such form as
is customary for underwritten public offerings and covering matters of the type
customarily covered by opinions or comfort letters, as the case may be. Delivery
of such opinion or comfort letter shall be subject to the recipient furnishing
such written representations or acknowledgements as are reasonably requested by
such independent public accountants or legal counsel to the Company.
SECTION 2. INDEMNIFICATION
2.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Holder and each person, if any, who controls
any Holder within the meaning of Section 15 of the Securities Act or Section 20
of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as
follows:
(a) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which the
Registrable Securities were registered under the Securities Act, including all
documents incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading or arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
prospectus (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of the
Company, which consent shall not be unreasonably withheld; and
(c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or investigation
or proceeding by any governmental agency or body, commenced or threatened, in
each case whether or not a party, or any claim whatsoever based upon any such
untrue statement or
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omission, or any such alleged untrue statement or omission, to the extent that
any such expense is not paid under subparagraph (a) or (b) above;
PROVIDED, HOWEVER, that the indemnity provided pursuant to this Section
2.1 does not apply to any Holder with respect to any loss, liability,
claim, damage or expense to the extent arising out of (i) any untrue
statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to
the Company by or on behalf of such Holder expressly for use in the
Registration Statement (or any amendment thereto) or the related
prospectus (or any amendment or supplement thereto), or (ii) such
Holder's failure to deliver an amended or supplemental Prospectus
(provided such Holder was notified in writing pursuant to Section 1.9,
or otherwise, of the need for an amended or supplemental Prospectus) if
such loss, liability, claim, damage or expense would not have arisen had
such delivery occurred.
2.2 INDEMNIFICATION BY HOLDER. Each Holder (on a several and
not joint basis) agrees to indemnify and hold harmless the Company, and each of
its directors and officers (including each director and officer of the Company
who signed a Registration Statement), and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, as follows:
(a) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment thereto) pursuant to which the
Registrable Securities were registered under the Securities Act, including all
documents incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading or arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
prospectus (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(b) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of Holder,
which consent shall not be unreasonably withheld; and
(c) against any and all expense whatsoever, as incurred
(including reasonable fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or investigation
or proceeding by any governmental agency or body, commenced or threatened, in
each case whether or not a party, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under subparagraph (a) or (b)
above;
PROVIDED, HOWEVER, that the indemnity provided pursuant to this Section
2.2 shall only apply with respect to any loss, liability, claim, damage
or expense to the extent arising out of (i) any untrue statement or
omission or alleged untrue statement or omission made in reliance upon
and in conformity with written information furnished to the Company by
or on behalf of such Holder expressly for use in the Registration
Statement (or any amendment thereto) or the related prospectus (or any
amendment or supplement thereto), or (ii) such Holder's failure to
deliver an amended or supplemental prospectus (provided such Holder was
notified in writing pursuant to
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Section 1.9, or otherwise, of the need for an amended or supplemental
Prospectus) if such loss, liability, claim, damage or expense would not
have arisen had such delivery occurred. Notwithstanding the provisions
of this Section 2.2, no Holder shall be required to indemnify the
Company, its officers, directors or control persons with respect to any
amount in excess of the amount of the total proceeds to such Holder
from sales of the Registrable Securities of such Holder under the
Registration Statement (after deducting the amounts already paid to the
Company by such Holder or any person, if any, who controls such Holder
pursuant to this Section 2.2), and no Holder shall be liable under this
Section 2.2 for any statements or omissions of any other Holder or the
failure by such other Holder to deliver an amended or supplemental
prospectus.
2.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. The indemnified
party shall give reasonably prompt notice to the indemnifying party of any
action or proceeding commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify the indemnifying party (i) shall not
relieve it from any liability which it may have under the indemnity agreement
provided in Section 2.1 or 2.2 above, unless and to the extent it did not
otherwise learn of such action and the lack of notice by the indemnified party
results in the forfeiture by the indemnifying party of substantial rights or
defenses, and (ii) shall not, in any event, relieve the indemnifying party from
any obligations to the indemnified party other than the indemnification
obligation provided under Section 2.1 or 2.2 above. If the indemnifying party so
elects within a reasonable time after receipt of such notice, the indemnifying
party may assume the defense of such action or proceeding at such indemnifying
party's own expense with counsel chosen by the indemnifying party and approved
by the indemnified party, which approval shall not be unreasonably withheld;
PROVIDED, HOWEVER, that the indemnifying party will not settle any such action
or proceeding without the written consent of the indemnified party unless, as a
condition to such settlement, the indemnifying party secures the unconditional
release of the indemnified party; and PROVIDED FURTHER, that if the indemnified
party reasonably determines that a conflict of interest exists where it is
advisable for the indemnified party to be represented by separate counsel or
that, upon advice of counsel, there may be legal defenses available to it which
are different from or in addition to those available to the indemnifying party,
then the indemnifying party shall not be entitled to assume such defense and the
indemnified party shall be entitled to separate counsel at the indemnifying
party's expense. If the indemnifying party is not entitled to assume the defense
of such action or proceeding as a result of the proviso to the preceding
sentence, the indemnifying party's counsel shall be entitled to conduct the
indemnifying party's defense and counsel for the indemnified party shall be
entitled to conduct the defense of the indemnified party, it being understood
that both such counsel will cooperate with each other to conduct the defense of
such action or proceeding as efficiently as possible. If the indemnifying party
(i) is not so entitled to assume the defense of such action, (ii) does not
assume such defense, after having received the notice referred to in the first
sentence of this paragraph, or (iii) fails to employ counsel that is reasonably
satisfactory to the indemnified party, after having received the notice referred
to in the first sentence of this paragraph, the indemnifying party will pay the
reasonable fees and expenses of counsel for the indemnified party. In such
event, however, the indemnifying party will not be liable for any settlement
effected without the written consent of the indemnifying party, which consent
shall not be unreasonably withheld. If an indemnifying party is entitled to
assume, and assumes, the defense of such action or proceeding in accordance with
this paragraph, the indemnifying party shall not be liable for any fees and
expenses of counsel for the indemnified party incurred thereafter in connection
with such action or proceeding.
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2.4 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section 2 is for any reason held to be unenforceable by the indemnified
party although applicable in accordance with its terms, the Company and the
applicable Holder shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by the Company and such Holder, (i) in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and
such Holder on the other hand, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative fault
of but also the relative benefits to the Company on the one hand and such Holder
on the other hand, from the purchase and sale of the Registrable Securities, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits to the indemnifying party and
indemnified party shall be determined by reference to, among other things, the
total proceeds received by the indemnifying party and indemnified party in
connection with the offering to which such losses, claims, damages, liabilities
or expenses relate. The relative fault of the indemnifying party and indemnified
party shall be determined by reference to, among other things, whether the
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
made by, or relates to information supplied by, the indemnifying party or the
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The obligations
of each Holder under this Section 2.4 are several and not joint.
The parties hereto agree that it would not be just or
equitable if contribution pursuant to this Section 2.4 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 2.4, no Holder shall
be required to contribute any amount in excess of the amount of the total
proceeds to that Holder from sales of the Registrable Securities of such Holder
under the Registration Statement.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 2.4, each person, if
any, who controls any Holder within the meaning of Section 15 of the Securities
Act shall have the same rights to contribution as such Holder, and each director
of the Company, each officer of the Company who signed a Registration Statement
and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act shall have the same rights to contribution as the
Company.
SECTION 3. RULE 144 COMPLIANCE
The Company covenants that it will file the reports required
to be filed by the Company under the Securities Act and the Exchange Act so as
to enable each Holder to sell Registrable Securities, pursuant to Rule 144 under
the Securities Act. In connection with any sale, transfer or other disposition
by any Holder of any Registrable Securities pursuant to Rule 144 under the
Securities Act, the Company shall cooperate with such Holder to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any Securities Act legend, and enable
certificates for such Registrable Securities to be for such number of shares and
registered in such names as such Holder may reasonably request at least five (5)
business days prior to any sale of Registrable Securities hereunder.
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SECTION 4. MISCELLANEOUS
4.1 INTEGRATION; AMENDMENT. This Agreement constitutes the
entire agreement among the parties hereto with respect to the matters set forth
herein and supersedes and renders of no force and effect all prior oral or
written agreements, commitments and understandings among the parties with
respect to the matters set forth herein. Except as otherwise expressly provided
in this Agreement, no amendment, modification or discharge of this Agreement
shall be valid or binding unless set forth in writing and duly executed by the
Company and the applicable Holder.
4.2 WAIVERS. No waiver by a party hereto shall be effective
unless made in a written instrument duly executed by the party against whom such
waiver is sought to be enforced, and only to the extent set forth in such
instrument. Neither the waiver by any of the parties hereto of a breach or a
default under any of the provisions of this Agreement, nor the failure of any of
the parties, on one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right or privilege hereunder shall thereafter be
construed as a waiver of any subsequent breach or default of a similar nature,
or as a waiver of any such provisions, rights or privileges hereunder.
4.3 ASSIGNMENT. This Agreement shall inure to the benefit of
and be binding on the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders. If any successor, assignee or transferee of any
Holder shall acquire Registrable Securities, in any manner, whether by operation
of law or otherwise, such successor, assignee or transferee shall be deemed a
Holder and be entitled to the rights of a Holder hereunder, and such Registrable
Securities shall be held subject to all of the terms of this Agreement, and by
taking and holding Registrable Securities such Person shall be conclusively
deemed to have agreed to be bound by all of the terms and provisions hereof.
4.4 NOTICES. All notices, payments, demands or other
communications given hereunder (a) shall be deemed to have been duly given and
received (i) upon personal delivery, (ii) if by telecopy, upon receipt, (iii) in
the case of notices sent within, and for delivery within, the United States, as
of the date shown on the return receipt after mailing by registered or certified
mail, return receipt requested, postage prepaid, or (iv) the second succeeding
business day after deposit with Federal Express or other equivalent air courier
delivery service, unless the notice is held or retained by the customs service,
in which case the date shall be the fifth succeeding business day after such
deposit and (b) must be in writing and delivered personally, by a recognized
courier service, by a recognized overnight delivery service, by telecopy or by
registered or certified mail, postage prepaid, at the following addresses (or to
the attention of such other person or such other address as any party may
provide to the other parties by notice in accordance with this Section 4.4):
If to the Company:
American Real Estate Investment Corporation
Plymouth Meeting Executive Campus
620 West Germantown Pike, Suite 200
Plymouth Meeting, Pennsylvania 19462
Telephone: (610) 834-7950
Facsimile: (610) 834-9560
Attention: President
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With a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Telephone: (212) 878-8209
Facsimile: (212) 878-8375
Attention: Robert E. King, Jr., Esq. and
Bonnie Barsamian, Esq.
If to the Holders:
c/o Reckson Associates
225 Broadhollow Road
Melville, NY 11747-0983
Attention: General Counsel
Telecopy: (516) 694-6788
With copies to:
Brown & Wood LLP
One World Trade Center
New York, NY 10048-0557
Attention: J. Gerard Cummins, Esq.
Telecopy: (212) 839-5599
4.5 SPECIFIC PERFORMANCE. The parties hereto acknowledge that
the obligations undertaken by them hereunder are unique and that there would be
no adequate remedy at law if any party fails to perform any of its obligations
hereunder, and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, shall be entitled to (i)
compel specific performance of the obligations, covenants and agreements of any
other party under this Agreement in accordance with the terms and conditions of
this Agreement and (ii) obtain preliminary injunctive relief to secure specific
performance and to prevent a breach or contemplated breach of this Agreement in
any court of the United States or any State thereof having jurisdiction.
4.6 GOVERNING LAW. This Agreement, the rights and obligations
of the parties hereto, and any claims or disputes relating thereto, shall be
governed by and construed in accordance with the laws of the State of New York,
without giving effect to the choice of law rules thereof. The parties agree that
all disputes between any of them arising out of, connected with, related to, or
incidental to the relationship established between them in connection with this
Agreement, and whether arising in law or in equity or otherwise, shall be
resolved by the federal or state courts located in New York, New York. Nothing
herein shall affect the right of any party to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed against
the other in any other jurisdiction. In addition, each of the parties hereto
consents to submit to the personal jurisdiction of any federal or state court
located in the state of New York in the event that any dispute arises out of
this Agreement. The parties, for themselves and their respective affiliates,
hereby irrevocably waive all right to a trial by jury in any action, proceeding
or counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to the actions of the parties or their respective affiliates pursuant
to this Agreement in the negotiation, administration, performance or enforcement
thereof.
4.7 HEADINGS. Section and subsection headings contained in
this Agreement are inserted for convenience of reference only, shall not be
deemed to be a part of this Agreement for any
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purpose, and shall not in any way define or affect the meaning, construction or
scope of any of the provisions hereof.
4.8 PRONOUNS. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the person or entity may require.
4.9 EXECUTION IN COUNTERPARTS. To facilitate execution, this
Agreement may be executed in as many counterparts as may be required. It shall
not be necessary that the signature of or on behalf of each party appears on
each counterpart, but it shall be sufficient that the signature of or on behalf
of each party appears on one or more of the counterparts. All counterparts shall
collectively constitute a single agreement. It shall not be necessary in any
proof of this Agreement to produce or account for more than a number of
counterparts containing the respective signatures of or on behalf of all of the
parties hereto.
4.10 SEVERABILITY. If fulfillment of any provision of this
Agreement, at the time such fulfillment shall be due, shall transcend the limit
of validity prescribed by law, then the obligation to be fulfilled shall be
reduced to the limit of such validity; and if any clause or provision contained
in this Agreement operates or would operate to invalidate this Agreement, in
whole or in part, then such clause or provision only shall be held ineffective,
as though not herein contained, and the remainder of this Agreement shall remain
operative and in full force and effect.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first hereinabove set
forth.
COMPANY:
Address: AMERICAN REAL ESTATE INVESTMENT
Plymouth Meeting Executive Campus CORPORATION
620 W. Germantown Pike, Suite 200
Plymouth Meeting, PA 19462
By: /S/ STEPHEN J. BUTTE
--------------------------------
Name: Stephen J. Butte
Title: Vice President
HOLDER:
By: /S/ RICHARD CONNIFF
--------------------------------
Name: Richard Conniff
Title: Executive VP
<PAGE>
EXHIBIT 10-2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and
entered into as of September 27TH by and between American Real Estate Investment
Corporation, a Maryland corporation (the "COMPANY"), and the holders of
securities listed on SCHEDULE A attached hereto (including their respective
successors, assigns and transferees herein referred to individually as a
"HOLDER" and collectively as the "HOLDERS").
WHEREAS, pursuant to the Contribution and Exchange Agreement (the
"CONTRIBUTION AGREEMENT") made as of August 6, 1999 by and among each of those
Persons set forth in Exhibit A attached thereto, American Real Estate
Investment, L.P. (the "PARTNERSHIP") and the Company, each Holder is receiving
on the date hereof at the Stage I Closing (as defined in the Contribution
Agreement), and will receive from time to time at a Stage II Closing (as defined
in the Contribution Agreement) and/or the Stage III Closing (as defined in the
Contribution Agreement) (each Stage I Closing, Stage II Closing and Stage III
Closing is individually referred to herein as a "CLOSING" and are collectively
referred to herein as the "CLOSINGS") pursuant to the Contribution Agreement,
such number of (i) shares of common stock, par value $.001 per share (the
"COMMON STOCK"), of the Company (ii) shares of Series B Convertible Preferred
Stock, par value $.001 per share (the "SERIES B PREFERRED STOCK"), of the
Company, which are convertible into shares of Common Stock and (iii) Series C
Convertible Preferred Units of limited partnership interest (the "SERIES C
PREFERRED UNITS") of the Partnership, which may be convertible into shares of
Common Stock or shares of Preferred Stock, each as set forth opposite such
Holder's name on SCHEDULE A attached hereto as amended from time to time to
reflect the additional issuance of Common Stock, Series B Preferred Stock or
Series C Preferred Units at a Closing (the Common Stock, Series B Preferred
Stock and Series C Preferred Units issued at a Closing are collectively referred
to as the "ISSUED SECURITIES;" and the Common Stock issued at a Closing and the
shares of Common Stock issued upon conversion of the Series B Preferred Stock
and Series C Preferred Units are collectively referred to as the "REGISTRABLE
SECURITIES;" PROVIDED, HOWEVER, that any such securities shall cease to be
Registrable Securities when (i) a Registration Statement (as defined below)
covering such securities has been declared effective and such Registrable
Securities have been disposed of by the Holder thereof pursuant to such
effective Registration Statement or any other effective Registration Statement,
(ii) such securities are transferred by the Holder thereof to any person other
than a Holder pursuant to Rule 144 (or any successor rule or similar provision
then in effect, but not Rule 144A) under the Securities Act (as defined below),
including a sale pursuant to the provisions of Rule 144(k), (iii) such
securities shall have ceased to be outstanding or (iv) such securities are
eligible for sale pursuant to Rule 144 under the Securities Act and could be
sold in one transaction in accordance with the volume limitations contained in
Rule 144(e)(1)(i) under the Securities Act).
WHEREAS, in connection therewith, the Company has agreed to grant
to Holders the Registration Rights (as defined in Section 1 hereof);
NOW, THEREFORE, the parties hereto, in consideration of the
foregoing, the mutual covenants and agreements hereinafter set forth, and other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, hereby agree as follows:
SECTION 1. REGISTRATION RIGHTS
Each Holder shall be entitled to offer for sale from time to time
pursuant to a shelf, demand or piggyback Registration Statement the Registrable
Securities, subject to the terms and conditions set forth herein (the
"REGISTRATION RIGHTS").
<PAGE>
1.1 DEMAND REGISTRATION.
(a) REGISTRATION REQUESTS. At any time after the second anniversary
of the Stage I Closing Date (such second anniversary being referred to herein as
the "REGISTRATION RIGHTS DATE"), upon the written request of the Holders of at
least $1 million of Registrable Securities (adjusted proportionately to reflect
any stock dividend, subdivision, split or reverse stock split or the like
effected with respect to the Common Stock) (the "REQUESTING HOLDERS"), the
Company must effect the registration under the Securities Act of 1933, as
amended and the rules and regulations promulgated thereunder (the "SECURITIES
ACT") of all or part of such Holders' Registrable Securities and specifying the
number of Registrable Securities to be registered and the intended method of
disposition thereof, the Company will promptly, and in no event more than ten
(10) Business Days after receipt of such request, give written notice (a "NOTICE
OF DEMAND REGISTRATION") of such request to all other holders of Registrable
Securities, and thereupon will use its best efforts to effect the registration
under the Securities Act (a "DEMAND REGISTRATION") of:
(i) the Registrable Securities which the Company has been so
requested to register by such Requesting Holder or Holders, and
(ii) all other Registrable Securities the holders of which have
made written requests to the Company for registration thereof within
twenty (20) days after the giving of the Notice of Demand Registration
(which requests shall specify the intended method of disposition
thereof),
all to the extent requisite to permit the disposition (in
accordance with the intended methods thereof) of the Registrable
Securities so to be registered. The Company may include in such
registration other securities for sale for its own account or for the
account of any other Person; PROVIDED that, if such Demand
Registration is in connection with an underwritten offering, the
Company or such securityholders, as applicable, agree in writing to
sell their securities on the same terms and conditions as apply to the
Registrable Securities being sold. If any securityholders of the
Company (other than the holders of Registrable Securities in such
capacity) register securities of the Company in a Demand Registration
in accordance with this Section, such holders shall pay the fees and
expenses of their counsel and their PRO RATA share, on the basis of
the respective amounts of the securities included in such registration
on behalf of each such holder, of the Registration Expenses if the
Registration Expenses for such registration are not paid by the
Company for any reason.
(b) LIMITATIONS ON DEMAND REGISTRATIONS. Notwithstanding anything
herein to the contrary, the Company shall not be required to honor a request for
a Demand Registration if:
(i) the Company has previously effected three (3) Demand
Registrations pursuant to SECTION 1.1(a);
(ii) such request is received from any Requesting Holder with
respect to Registrable Securities that may immediately be sold under
Rule 144 during any ninety (90) day period;
(iii) such request is received by the Company less than thirty
(30) days following the effective date of any previous Registration
Statement (other than a Registration Statement on Form S-4 or S-8 or
any successor or similar form that may be adopted by the Securities
and Exchange Commission (the "COMMISSION") or Form S-3 with respect to
a dividend reinvestment plan), regardless of whether any holder of
Registrable Securities exercised its rights under this Agreement with
respect to such registration.
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(iv) there is a Shelf Registration Statement in effect with the
Commission with respect to such Registrable Securities, or the Company
is pursuing in good faith a declaration of effectiveness of a Shelf
Registration Statement on file with the Commission.
(c) REGISTRATION STATEMENT FORM. Demand Registrations shall be on
such appropriate registration form promulgated by the Commission as shall be
selected by the Company, and shall permit the disposition of such Registrable
Securities in accordance with the intended method or methods specified in the
Notice of Demand Registration for such registration (any registration statement
of the Company that covers Registrable Securities pursuant to this Agreement and
all amendments and supplements to such registration statement, including any
post-effective amendments, is hereinafter referred to as a "REGISTRATION
STATEMENT").
(d) PRIORITY IN CUTBACKS. If the managing underwriter advises the
Company and the Holders in writing that, in its opinion, the number of
securities requested to be included in such registration (including securities
of the Company which are not Registrable Securities) exceed the number which can
be sold in such offering, the Company will include in any such registration to
the extent of the number which the managing underwriter advises the Company can
be sold in such offering (i) first, Registrable Securities requested to be
included in such registration by the Requesting Holders, pro rata on the basis
of the number of Registrable Securities requested to be included by such
holders, if all of such Registrable Securities cannot be included, (ii) second,
other Registrable Securities requested to be included in such registration by
the other Holders, pro rata on the basis of the number of Registrable Securities
requested to be included by such holders, if all of such Registrable Securities
cannot be included, and (iii) third, other securities of the Company proposed to
be included in such registration, allocated among the holders thereof in
accordance with the priorities then existing among the Company and the holders
of such other securities; and any securities so excluded shall be withdrawn from
and shall not be included in such Demand Registration.
(e) PREEMPTION OF DEMAND REGISTRATION. Notwithstanding anything to
the contrary contained herein, at any time within thirty (30) days after
receiving a written request for a Demand Registration, the Company may elect to
effect an underwritten primary registration in lieu of the Demand Registration
if the Company's Board of Directors believes that such primary registration
would be in the best interests of the Company or if the managing underwriter for
the Demand Registration advises the Company in writing that in its opinion, in
order to sell the Registrable Securities to be sold, the Company should include
its own securities. If the Company so elects to effect a primary registration,
the Company shall give prompt written notice to all holders of Registrable
Securities of its intention to effect such a registration and shall afford the
holders of the Registrable Securities rights contained in Section 1.3 with
respect to Piggyback Registrations. In the event that the Company so elects to
effect a primary registration after receiving a request for a Demand
Registration, the requests for a Demand Registration shall be deemed to have
been withdrawn and such primary registration shall not be deemed to be a Demand
Registration.
1.2 SHELF REGISTRATIONS. The Company will cause to be filed with
the Commission on or before the Registration Rights Date a shelf Registration
Statement and related prospectus, including any preliminary prospectus and
documents incorporated by reference (the "SHELF REGISTRATION STATEMENT") that
complies as to form in all material respects with applicable Commission rules
providing for the sale by each of the Holders of such Holder's Registrable
Securities whether or not issued or issuable on such date, and agrees (subject
to Section 1.7 hereof) to use its commercially reasonable best efforts to cause
such Shelf Registration Statement to be declared effective by the Commission as
soon as practicable thereafter.
1.3 PIGGYBACK REGISTRATIONS.
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(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. Notwithstanding any
limitation contained in SECTION 1.1, if the Company at any time after the
Registration Rights Date proposes to file a Registration Statement under the
Securities Act (other than a registration in respect of a dividend reinvestment
or similar plan for stockholders of the Company or on Form S-4 or Form S-8
promulgated by the Commission, or any successor or similar forms thereto)
registering shares of its Common Stock, whether for sale for the account of the
Company or for the account of any holder of securities of the Company (other
than Registrable Securities) (a "PIGGYBACK REGISTRATION"), it will each such
time give written notice (a "NOTICE OF PIGGYBACK REGISTRATION") at least fifteen
(15) days prior to the anticipated filing date, to all Holders of Registrable
Securities, of its intention to do so and of such Holders' rights under this
SECTION 1.3, which Notice of Piggyback Registration shall include a description
of the intended method of disposition of such securities. Upon the written
request of any such Holder made within ten (10) days after receipt of a Notice
of Piggyback Registration (which request shall specify the Registrable
Securities intended to be disposed of by such Holder and the intended method of
disposition thereof), the Company will use its commercially reasonable best
efforts to include in the Registration Statement relating to such Piggyback
Registration all Registrable Securities which the Company has been so requested
to register. Notwithstanding the foregoing, if, at any time after giving a
Notice of Piggyback Registration and prior to the effective date of the
Registration Statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each Holder of Registrable Securities and, thereupon, (i) in
the case of a determination not to register, shall be relieved of its obligation
to register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection
therewith) without prejudice, however, to the rights of any Requesting Holder
entitled to do so to request that such registration be effected as a Demand
Registration under SECTION 1.1(a), and (ii) in the case of a determination to
delay registering, shall be permitted to delay registering any Registrable
Securities for the same period as the delay in registering such other
securities. No registration effected under this SECTION 1.3 shall relieve the
Company of its obligations to effect a Demand Registration under SECTION 1.1.
(b) PRIORITY IN CUTBACKS. If the managing underwriter advises the
Company and the Holders in writing that, in its opinion, the number of
securities requested to be included in such registration (including securities
of the Company which are not Registrable Securities) exceed the number which can
be sold in such offering, the Company will include in such registration to the
extent of the amount of the securities which the managing underwriter advises
the Company can be sold in such offering:
(i) if such registration as initially proposed by the Company was
solely a primary registration of its securities, (x) FIRST, the
securities proposed by the Company to be sold for its own account, (y)
SECOND, any Registrable Securities requested to be included in such
registration by Requesting Holders, PRO RATA on the basis of the
number of Registrable Securities requested to be included by such
Holders, and (z) THIRD, any other securities of the Company proposed
to be included in such registration, allocated among the holders
thereof in accordance with the priorities then existing among the
Company and such holders; and
(ii) if such registration as initially proposed by the Company
was in whole or in part requested by holders of securities of the
Company, other than holders of Registrable Securities in their
capacities as such, pursuant to demand registration rights, (x) FIRST,
such securities held by the holders initiating such registration and,
if applicable, any securities proposed by the Company to be sold for
its own account, allocated in accordance with the priorities then
existing among the Company and such holders, (y) SECOND, any
Registrable Securities requested to be included in such registration
by Requesting Holders, pro rata on the basis of the number of
Registrable Securities requested to be included by such holders, and
(z) THIRD, any other securities
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of the Company proposed to be included in such registration, allocated
among the holders thereof in accordance with the priorities then
existing among the Company and the holders of such other securities;
and any securities so excluded shall be withdrawn from and shall not be included
in such Piggyback Registration.
1.4 REGISTRATION PROCEDURE.
(a) Each Holder agrees to provide in a timely manner information
regarding the proposed distribution by such Holder of the Registrable Securities
and such other information reasonably requested by the Company in connection
with the preparation of and for inclusion in the Registration Statement.
(b) If and whenever the Company is required to use its commercially
reasonable best efforts to effect the registration of any Registrable Securities
under the Securities Act pursuant to SECTION 1.1, 1.2 OR 1.3, the Company will
use its commercially reasonable best efforts to effect the registration and sale
of such Registrable Securities in accordance with the intended methods of
disposition thereof specified by the Requesting Holders. Without limiting the
foregoing, the Company in each such case will, as expeditiously as possible use
its commercially reasonable best efforts to keep the Registration Statement
effective (subject to Section 1.7 hereof) and free of material misstatements or
omissions (including the preparation and filing of any amendments and
supplements necessary for that purpose) until the earlier of:
(i) the first date on which all Holders have consummated the sale
of all of such Holders' Registrable Securities registered under the
Registration Statement;
(ii) the date on which all of the Registrable Securities
registered under the Registration Statement are eligible for sale
pursuant to Rule 144(k) (or any successor provision) or in a single
transaction pursuant to Rule 144(e) (or any successor provision) under
the Securities Act of 1933, as amended (the "SECURITIES ACT"); or
(iii) (A) with respect to a Shelf Registration Statement, the
later of (x) two (2) years after such Shelf Registration Statement
becomes effective and (y) if Issued Securities are issued at the Stage
III Closing, three (3) years after the Stage III Closing; and (B) with
respect to a Demand Registration or Piggyback Registration, one
hundred and eighty (180) days after such Registration Statement
becomes effective.
(c) The Company agrees to provide to each Holder a reasonable
number of copies of the final Registration Statement and the related prospectus
(including any preliminary prospectus) and any amendments or supplements
thereto. The Company further agrees that it will use commercially reasonable
best efforts to obtain the withdrawal of any order suspending the effectiveness
of any Registration Statement at the earliest possible moment.
1.5 OFFERS AND SALES. All offers and sales by each Holder under
any Registration Statement referred to in SECTION 1.1, 1.2 OR 1.3, if any,
shall be completed within the period during which such Registration Statement
is required to remain effective pursuant to SECTION 1.4(b), and, upon
expiration of such period, no Holder will offer or sell any Registrable
Securities under such Registration Statement. If directed by the Company,
each Holder will return all undistributed copies of any prospectus in its
possession upon the expiration of such period. Each Holder shall promptly,
but in any event no later than two (2) business days after a sale by such
Holder of Registrable Securities, notify the Company of
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any sale or other transfer by such Holder of Registrable Securities and include
in such notice the number of Registrable securities sold or transferred by
Holder.
1.6 SUSPENSION OF OFFERING.
(a) If the Company determines in its good faith judgment that the
filing of the Registration Statement under SECTION 1.1, 1.2 OR 1.3 hereof or the
use of any prospectus would materially impede, delay or interfere with any
pending material financing, acquisition or corporate reorganization or other
material corporate development involving the Company or any of its subsidiaries,
or require the disclosure of important information which the Company has a
material business purpose for preserving as confidential or the disclosure of
which would materially impede the Company's ability to consummate a significant
transaction, upon written notice of such determination by the Company, the
rights of each Holder to offer, sell or distribute any Registrable Securities
pursuant to a Registration Statement or to require the Company to take action
with respect to the registration or sale of any Registrable Securities pursuant
to a Registration Statement (including any action contemplated by SECTION 1.4
hereof) will be suspended until the date upon which the Company notifies the
Holders in writing that suspension of such rights for the grounds set forth in
this SECTION 1.7(a) is no longer necessary, but, in any event, no such period
shall extend for longer than 60 days; PROVIDED the Company may deliver only two
such notices in any twelve month period.
(b) In the case of the registration of any underwritten public
offering proposed by the Company (other than any registration by the Company on
Form S-8, or a successor or substantially similar form, of (A) an employee stock
option, stock purchase or compensation plan or of securities issued or issuable
pursuant to any such plan or (B) a dividend reinvestment plan), each Holder
agrees, if requested in writing by the managing underwriter or underwriters
administering such offering, not to effect any underwritten offering for the
resale of Registrable Securities (or any option or right to acquire Registrable
Securities), other than pursuant to a Piggyback Registration, during the period
commencing on the 7th day prior to the expected effective date of the
Registration Statement covering such underwritten public offering or the date on
which the proposed offering is expected to commence (which date shall be stated
in such notice) and ending on the date specified by such managing underwriter in
such written request to such Holder, which date shall not be later than 45 days
after such expected date of effectiveness or the commencement of the offering,
as the case may be.
1.7 Expenses. Except as otherwise set forth in this SECTION 1.7,
the Company shall pay all expenses incident to the performance by it of its
registration obligations under this Section 1, including (i) all stock exchange,
Commission and state securities registration, listing and filing fees, (ii) all
expenses incurred in connection with the preparation, printing and distributing
of the Registration Statement and prospectus (including all expenses incurred in
connection with the delivery to any Holder of such number of copies of any
prospectus as such Holder may reasonably request), and (iii) fees and
disbursements of counsel for the Company and of the independent public
accountants of the Company (collectively the "REGISTRATION EXPENSES"). Each
Holder shall be responsible for the payment of any underwriting fees, brokerage
and sales commissions, fees and disbursements of such Holder's counsel, and any
transfer taxes relating to the sale or disposition of the Registrable Securities
by such Holder (collectively, the "HOLDER EXPENSES"); PROVIDED, HOWEVER, that
the Company shall be responsible, one-time only, for the reasonable fees and
disbursements, up to a maximum of $5,000, of a single legal counsel to the
Holders in connection with the filing by the Company of a Registration Statement
contemplated hereunder. Notwithstanding anything to the contrary contained
herein, if the Company has previously effected two (2) Demand Registrations
pursuant to Section 1.1(a), the Company shall not pay any Registration Expenses
or Holder Expenses in connection with any additional Demand Registration other
than with respect to securities included in such Registration Statement for sale
for its own account, and the Holders and other securityholders of the Company
who include securities in the Registration
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Statement shall be responsible for their respective Holder Expenses and their
PRO RATA share, on the basis of the respective amounts of the securities
included in such Registration Statement on behalf of each such holder, of the
Registration Expenses.
1.8 QUALIFICATION. The Company agrees to use its commercially
reasonable best efforts to register or qualify the Registrable Securities by the
time the Registration Statement is declared effective by the Commission under
all applicable state securities or "BLUE SKY" laws of such jurisdictions as any
Holder shall reasonably request in writing, to keep each such registration or
qualification effective during the period the Registration Statement is required
to be kept effective, and to do any and all other acts and things which may be
reasonably necessary or advisable to enable each Holder to consummate the
disposition in each such jurisdiction of the Registrable Securities owned by
such Holder; PROVIDED, HOWEVER, that the Company shall not be required to (x)
qualify generally to do business in any jurisdiction or to register as a broker
or dealer in such jurisdiction where it would not otherwise be required to
qualify but for this Section 1.9, (y) subject itself to taxation in any such
jurisdiction, or (z) submit to the general service of process in any such
jurisdiction.
1.9 NOTICES TO HOLDERS. Subject to Section 1.4(a) hereof, during
the period that the Company is required to keep the Registration Statement
effective, the Company will advise the Holders within a reasonable time (i)
when the prospectus or any prospectus supplement or post-effective amendment
thereto has been filed, and when the same has become effective, (ii) of any
request by the Commission for any amendments to, or issuance by the
Commission of any stop order with respect to the Registration Statement or
any prospectus or amendment thereto, or (iii) that an amendment or supplement
to the most recent Prospectus or prospectus supplement, as the case may be,
is necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
1.10 LISTING. The Company agrees to use its reasonable efforts to
cause all Registrable Securities to be listed on the principal securities
exchange on which the Common Stock is listed.
1.11 COOPERATION OF COMPANY IN REGISTRATION OF SECURITIES. Whenever
required under SECTION 1 to effect the registration of any Registrable
Securities, the Company shall, as promptly as practicable:
(a) Prior to filing a registration statement or prospectus or any
amendments or supplements thereto, the Company shall furnish to one firm of
counsel for the Holders, copies of all such documents in the form substantially
as proposed to be filed with the SEC and shall in good faith consider
incorporating in each such document such changes as such counsel to the Holders
reasonably and in a timely manner may suggest.
(b) Make available for inspection by any Holder, any underwriter
participating in such offering and the representatives of such Holder and any
such underwriter (but not ore than one firm of counsel to the Holders), all
financial and other information as shall be reasonably requested by them at the
Company's offices, during business hours and upon reasonable advance notice, and
provide any Holder, any underwriter participating in such offering and the
representatives of such Holder and underwriter the reasonable opportunity to
discuss the business affairs of the Company with is principal executives and
independent public accountants who have certified the audited financial
statements included in such Registration Statement, in each case all as
necessary to enable them to exercise their due diligence responsibility under
the Securities Act; PROVIDED, HOWEVER, that information that the Company
determines to be confidential and which the Company advises such person in
writing, is confidential shall not be disclosed unless such person signs a
confidentiality agreement reasonably satisfactory to the Company or the related
Holder of Registrable Securities agrees to be responsible for such Person's
breach
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of confidentiality on terms reasonably satisfactory to the Company; PROVIDED,
FURTHER, that the Company shall not be required to incur any material
out-of-pocket expense pursuant to this SECTION 1.11(b).
(c) If Registrable Securities are included in an underwritten
public offering and the underwriter is reasonably acceptable to the Company, the
Company shall (i) enter into an underwriting or similar agreement with the
underwriter or underwriters and the Holder in such form as is customary for an
underwritten public offering and (ii) furnish the Holder and such underwriter or
underwriters with a "comfort letter" from the independent public accountants of
the Company and legal opinions of counsel to the Company, each in such form as
is customary for underwritten public offerings and covering matters of the type
customarily covered by opinions or comfort letters, as the case may be. Delivery
of such opinion or comfort letter shall be subject to the recipient furnishing
such written representations or acknowledgements as are reasonably requested by
such independent public accountants or legal counsel to the Company.
SECTION 2. INDEMNIFICATION
2.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Holder and each person, if any, who controls
any Holder within the meaning of Section 15 of the Securities Act or Section
20 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"),
as follows:
(a) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) pursuant to which the Registrable
Securities were registered under the Securities Act, including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading or arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
prospectus (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(b) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of the
Company, which consent shall not be unreasonably withheld; and
(c) against any and all expense whatsoever, as incurred (including
reasonable fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or investigation
or proceeding by any governmental agency or body, commenced or threatened, in
each case whether or not a party, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under subparagraph (a) or (b)
above;
PROVIDED, HOWEVER, that the indemnity provided pursuant to this
Section 2.1 does not apply to any Holder with respect to any loss,
liability, claim, damage or expense to the extent arising out of (i)
any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Holder
expressly for use in the Registration Statement (or any amendment
thereto) or the related
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prospectus (or any amendment or supplement thereto), or (ii) such
Holder's failure to deliver an amended or supplemental Prospectus
(provided such Holder was notified in writing pursuant to Section 1.9,
or otherwise, of the need for an amended or supplemental Prospectus)
if such loss, liability, claim, damage or expense would not have
arisen had such delivery occurred.
2.2 INDEMNIFICATION BY HOLDER. Each Holder (on a several and not
joint basis) agrees to indemnify and hold harmless the Company, and each of
its directors and officers (including each director and officer of the
Company who signed a Registration Statement), and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, as follows:
(a) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) pursuant to which the Registrable
Securities were registered under the Securities Act, including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading or arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
prospectus (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(b) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any governmental
agency or body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of Holder,
which consent shall not be unreasonably withheld; and
(c) against any and all expense whatsoever, as incurred (including
reasonable fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or investigation
or proceeding by any governmental agency or body, commenced or threatened, in
each case whether or not a party, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under subparagraph (a) or (b)
above;
PROVIDED, HOWEVER, that the indemnity provided pursuant to this Section 2.2
shall only apply with respect to any loss, liability, claim, damage or
expense to the extent arising out of (i) any untrue statement or omission
or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of such Holder expressly for use in the Registration Statement (or
any amendment thereto) or the related prospectus (or any amendment or
supplement thereto), or (ii) such Holder's failure to deliver an amended or
supplemental prospectus (provided such Holder was notified in writing
pursuant to Section 1.9, or otherwise, of the need for an amended or
supplemental Prospectus) if such loss, liability, claim, damage or expense
would not have arisen had such delivery occurred. Notwithstanding the
provisions of this Section 2.2, no Holder shall be required to indemnify
the Company, its officers, directors or control persons with respect to any
amount in excess of the amount of the total proceeds to such Holder from
sales of the Registrable Securities of such Holder under the Registration
Statement (after deducting the amounts already paid to the Company by such
Holder or any person, if any, who controls such Holder pursuant to this
Section 2.2), and no
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Holder shall be liable under this Section 2.2 for any statements or
omissions of any other Holder or the failure by such other Holder to
deliver an amended or supplemental prospectus.
2.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. The indemnified
party shall give reasonably prompt notice to the indemnifying party of any
action or proceeding commenced against it in respect of which indemnity may
be sought hereunder, but failure to so notify the indemnifying party (i)
shall not relieve it from any liability which it may have under the indemnity
agreement provided in Section 2.1 or 2.2 above, unless and to the extent it
did not otherwise learn of such action and the lack of notice by the
indemnified party results in the forfeiture by the indemnifying party of
substantial rights or defenses, and (ii) shall not, in any event, relieve the
indemnifying party from any obligations to the indemnified party other than
the indemnification obligation provided under Section 2.1 or 2.2 above. If
the indemnifying party so elects within a reasonable time after receipt of
such notice, the indemnifying party may assume the defense of such action or
proceeding at such indemnifying party's own expense with counsel chosen by
the indemnifying party and approved by the indemnified party, which approval
shall not be unreasonably withheld; PROVIDED, HOWEVER, that the indemnifying
party will not settle any such action or proceeding without the written
consent of the indemnified party unless, as a condition to such settlement,
the indemnifying party secures the unconditional release of the indemnified
party; and PROVIDED FURTHER, that if the indemnified party reasonably
determines that a conflict of interest exists where it is advisable for the
indemnified party to be represented by separate counsel or that, upon advice
of counsel, there may be legal defenses available to it which are different
from or in addition to those available to the indemnifying party, then the
indemnifying party shall not be entitled to assume such defense and the
indemnified party shall be entitled to separate counsel at the indemnifying
party's expense. If the indemnifying party is not entitled to assume the
defense of such action or proceeding as a result of the proviso to the
preceding sentence, the indemnifying party's counsel shall be entitled to
conduct the indemnifying party's defense and counsel for the indemnified
party shall be entitled to conduct the defense of the indemnified party, it
being understood that both such counsel will cooperate with each other to
conduct the defense of such action or proceeding as efficiently as possible.
If the indemnifying party (i) is not so entitled to assume the defense of
such action, (ii) does not assume such defense, after having received the
notice referred to in the first sentence of this paragraph, or (iii) fails to
employ counsel that is reasonably satisfactory to the indemnified party,
after having received the notice referred to in the first sentence of this
paragraph, the indemnifying party will pay the reasonable fees and expenses
of counsel for the indemnified party. In such event, however, the
indemnifying party will not be liable for any settlement effected without the
written consent of the indemnifying party, which consent shall not be
unreasonably withheld. If an indemnifying party is entitled to assume, and
assumes, the defense of such action or proceeding in accordance with this
paragraph, the indemnifying party shall not be liable for any fees and
expenses of counsel for the indemnified party incurred thereafter in
connection with such action or proceeding.
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2.4 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for in
this Section 2 is for any reason held to be unenforceable by the indemnified
party although applicable in accordance with its terms, the Company and the
applicable Holder shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by the Company and such Holder, (i) in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and
such Holder on the other hand, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative fault
of but also the relative benefits to the Company on the one hand and such Holder
on the other hand, from the purchase and sale of the Registrable Securities, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits to the indemnifying party and
indemnified party shall be determined by reference to, among other things, the
total proceeds received by the indemnifying party and indemnified party in
connection with the offering to which such losses, claims, damages, liabilities
or expenses relate. The relative fault of the indemnifying party and indemnified
party shall be determined by reference to, among other things, whether the
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
made by, or relates to information supplied by, the indemnifying party or the
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The obligations
of each Holder under this Section 2.4 are several and not joint.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 2.4 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 2.4, no Holder shall be required
to contribute any amount in excess of the amount of the total proceeds to that
Holder from sales of the Registrable Securities of such Holder under the
Registration Statement.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 2.4, each person, if
any, who controls any Holder within the meaning of Section 15 of the Securities
Act shall have the same rights to contribution as such Holder, and each director
of the Company, each officer of the Company who signed a Registration Statement
and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act shall have the same rights to contribution as the
Company.
SECTION 3. RULE 144 COMPLIANCE
The Company covenants that it will file the reports required to be
filed by the Company under the Securities Act and the Exchange Act so as to
enable each Holder to sell Registrable Securities, pursuant to Rule 144 under
the Securities Act. In connection with any sale, transfer or other disposition
by any Holder of any Registrable Securities pursuant to Rule 144 under the
Securities Act, the Company shall cooperate with such Holder to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any Securities Act legend, and enable
certificates for such Registrable Securities to be for such number of shares and
registered in such names as such Holder may reasonably request at least five (5)
business days prior to any sale of Registrable Securities hereunder.
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SECTION 4. MISCELLANEOUS
4.1 INTEGRATION; AMENDMENT. This Agreement constitutes the
entire agreement among the parties hereto with respect to the matters set
forth herein and supersedes and renders of no force and effect all prior oral
or written agreements, commitments and understandings among the parties with
respect to the matters set forth herein. Except as otherwise expressly
provided in this Agreement, no amendment, modification or discharge of this
Agreement shall be valid or binding unless set forth in writing and duly
executed by the Company and the applicable Holder.
4.2 WAIVERS. No waiver by a party hereto shall be effective unless
made in a written instrument duly executed by the party against whom such waiver
is sought to be enforced, and only to the extent set forth in such instrument.
Neither the waiver by any of the parties hereto of a breach or a default under
any of the provisions of this Agreement, nor the failure of any of the parties,
on one or more occasions, to enforce any of the provisions of this Agreement or
to exercise any right or privilege hereunder shall thereafter be construed as a
waiver of any subsequent breach or default of a similar nature, or as a waiver
of any such provisions, rights or privileges hereunder.
4.3 ASSIGNMENT. This Agreement shall inure to the benefit of and be
binding on the successors, assigns and transferees of each of the parties,
including, without limitation and without the need for an express assignment,
subsequent Holders. If any successor, assignee or transferee of any Holder shall
acquire Registrable Securities, in any manner, whether by operation of law or
otherwise, such successor, assignee or transferee shall be deemed a Holder and
be entitled to the rights of a Holder hereunder, and such Registrable Securities
shall be held subject to all of the terms of this Agreement, and by taking and
holding Registrable Securities such Person shall be conclusively deemed to have
agreed to be bound by all of the terms and provisions hereof.
4.4 NOTICES. All notices, payments, demands or other
communications given hereunder (a) shall be deemed to have been duly given and
received (i) upon personal delivery, (ii) if by telecopy, upon receipt, (iii) in
the case of notices sent within, and for delivery within, the United States, as
of the date shown on the return receipt after mailing by registered or certified
mail, return receipt requested, postage prepaid, or (iv) the second succeeding
business day after deposit with Federal Express or other equivalent air courier
delivery service, unless the notice is held or retained by the customs service,
in which case the date shall be the fifth succeeding business day after such
deposit and (b) must be in writing and delivered personally, by a recognized
courier service, by a recognized overnight delivery service, by telecopy or by
registered or certified mail, postage prepaid, at the following addresses (or to
the attention of such other person or such other address as any party may
provide to the other parties by notice in accordance with this Section 4.4):
If to the Company:
American Real Estate Investment Corporation
Plymouth Meeting Executive Campus
620 West Germantown Pike, Suite 200
Plymouth Meeting, Pennsylvania 19462
Telephone: (610) 834-7950
Facsimile: (610) 834-9560
Attention: President
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With a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166
Telephone: (212) 878-8209
Facsimile: (212) 878-8375
Attention: Robert E. King, Jr., Esq. and Bonnie
Barsamian Esq.
If to the Holders:
c/o Reckson Morris Operating Partnership
535 Secaucus Road
Secaucus, New Jersey
Attention: Mr. Mark M. Bava, Chief Financial Officer
Telecopy: (201) 863-2247
With copies to:
Ballard Spahr Andrews & Ingersoll
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103
Attention: Bart I. Mellits, Esq.
Telecopy: (215) 864-8999
4.5 SPECIFIC PERFORMANCE. The parties hereto acknowledge that
the obligations undertaken by them hereunder are unique and that there would
be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to
any other remedy to which it may be entitled at law or in equity, shall be
entitled to (i) compel specific performance of the obligations, covenants and
agreements of any other party under this Agreement in accordance with the
terms and conditions of this Agreement and (ii) obtain preliminary injunctive
relief to secure specific performance and to prevent a breach or contemplated
breach of this Agreement in any court of the United States or any State
thereof having jurisdiction.
4.6 GOVERNING LAW. This Agreement, the rights and obligations of
the parties hereto, and any claims or disputes relating thereto, shall be
governed by and construed in accordance with the laws of the State of New
York, without giving effect to the choice of law rules thereof. The parties
agree that all disputes between any of them arising out of, connected with,
related to, or incidental to the relationship established between them in
connection with this Agreement, and whether arising in law or in equity or
otherwise, shall be resolved by the federal or state courts located in New
York, New York. Nothing herein shall affect the right of any party to serve
process in any other manner permitted by law or to commence legal proceedings
or otherwise proceed against the other in any other jurisdiction. In
addition, each of the parties hereto consents to submit to the personal
jurisdiction of any federal or state court located in the state of New York
in the event that any dispute arises out of this Agreement. The parties, for
themselves and their respective affiliates, hereby irrevocably waive all
right to a trial by jury in any action, proceeding or counterclaim (whether
based on contract, tort or otherwise) arising out of or relating to the
actions of the parties or their respective affiliates pursuant to this
Agreement in the negotiation, administration, performance or enforcement
thereof.
4.7 HEADINGS . Section and subsection headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any
13
<PAGE>
purpose, and shall not in any way define or affect the meaning, construction or
scope of any of the provisions hereof.
4.8 PRONOUNS. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the person or entity may require.
4.9 EXECUTION IN COUNTERPARTS. To facilitate execution, this
Agreement may be executed in as many counterparts as may be required. It
shall not be necessary that the signature of or on behalf of each party
appears on each counterpart, but it shall be sufficient that the signature of
or on behalf of each party appears on one or more of the counterparts. All
counterparts shall collectively constitute a single agreement. It shall not
be necessary in any proof of this Agreement to produce or account for more
than a number of counterparts containing the respective signatures of or on
behalf of all of the parties hereto.
4.10 SEVERABILITY. If fulfillment of any provision of this
Agreement, at the time such fulfillment shall be due, shall transcend the
limit of validity prescribed by law, then the obligation to be fulfilled
shall be reduced to the limit of such validity; and if any clause or
provision contained in this Agreement operates or would operate to invalidate
this Agreement, in whole or in part, then such clause or provision only shall
be held ineffective, as though not herein contained, and the remainder of
this Agreement shall remain operative and in full force and effect.
14
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first hereinabove set
forth.
COMPANY:
Address: AMERICAN REAL ESTATE INVESTMENT
Plymouth Meeting Executive Campus CORPORATION
620 W. Germantown Pike, Suite 200
Plymouth Meeting, PA 19462
By: /s/ Stephen J. Butte
---------------------
Name: Stephen J. Butte
Title: Vice President
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed on its behalf as of the date first hereinabove set forth.
/s/ Robert Morris
-----------------------------
ROBERT MORRIS
/s/ Joseph D. Morris
-----------------------------
JOSEPH D. MORRIS
/s/ Ronald Schram
-----------------------------
RONALD SCHRAM
/s/ Mark M. Bava
-----------------------------
MARK M. BAVA
THE DREW MORRIS TRUST
By: /s/ Robert Morris
-----------------------------
Name: Robert Morris
Title: Trustee
THE JUSTIN MORRIS TRUST
By: /s/ Robert Morris
-----------------------------
Name: Robert Morris
Title: Trustee
THE KEITH MORRIS TRUST
By: /s/ Robert Morris
-----------------------------
Name: Robert Morris
Title: Trustee
JOSEPH D. MORRIS FAMILY LIMITED PARTNERSHIP
By: /s/ Joseph D. Morris
-----------------------------
Name: Joseph D. Morris
Title: General partner
ROBERT MORRIS FAMILY LIMITED PARTNERSHIP
By: /s/ Robert Morris
-----------------------------
Name: Robert Morris
Title: General partner
<PAGE>
EXHIBIT 10-3
AMERICAN REAL ESTATE INVESTMENT CORPORATION
ARTICLES SUPPLEMENTARY RECLASSIFYING
SERIES B 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 (the "DEPARTMENT") that:
FIRST:
Pursuant to authority expressly vested in the Board of Directors by
Article V of the Charter (the "CHARTER"), the Board of Directors adopted
resolutions reclassifying 4,200,000 shares of Common Stock, par value $.001 per
share, into a series of Preferred Stock to be known as Series B Convertible
Preferred Stock, par value $.001 per share, and adopted resolutions granting the
Executive Committee of the Board of Directors the 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 (not in
excess of the aforesaid maximum number) and dividend rate of the Series B
Convertible Preferred Stock.
SECOND:
Pursuant to such authority, Articles Supplementary were filed with the
Department on September 23, 1999. These Articles Supplementary are being filed
before the issuance of any shares of Series B Convertible Preferred Stock so as
to modify the preferences and other rights of such series through a
reclassification of the series.
THIRD:
Immediately before the reclassification, there are 4,200,000 shares
classified as Series B Convertible Preferred Stock and immediately after the
reclassification there are 4,200,000 shares classified as Series B Convertible
Preferred Stock (with the preferences and rights of such series modified as set
forth herein).
<PAGE>
FOURTH:
The preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, terms and conditions
of redemption, number of shares and dividend rate of the Series B Convertible
Preferred Stock, as so modified and 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 B Convertible Preferred Stock, par value
$.001 per share (the "SERIES B PREFERRED SHARES"), and the number of shares of
Preferred Stock which shall constitute such series shall be 4,200,000 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 B Preferred
Shares, the following terms shall have the meanings indicated:
"ACT" shall mean the Securities Act of 1933, as amended.
"ANNUAL DIVIDEND RATE" shall have the meaning set forth in
Section 3(a).
"AVAILABLE INCOME I" means the amount of consolidated net income (or
loss) of the Corporation and its subsidiaries for such period determined on a
consolidated basis in accordance with generally accepted accounting principles
(i) plus amounts which have been deducted for (a) interest on indebtedness of
the Corporation and its subsidiaries, (b) provision for taxes of the Corporation
and its subsidiaries based on income, (c) amortization of debt discount, (d)
depreciation and amortization, (e) the effect of any noncash charge resulting
from a change in accounting principles in determining consolidated net income
for such period, (f) amortization of deferred charges and (g) provisions for or
realized losses on properties, (ii) less amounts which have been included for
gains on properties and (iii) adjusted to eliminate the effect of the "straight
lining" of rents.
"AVAILABLE INCOME II" means the amount of consolidated net income (or
loss) of the Corporation and its subsidiaries for such period determined on a
consolidated basis in accordance with generally accepted accounting principles
(i) plus amounts which have been incurred for (a) interest on indebtedness of
the Corporation and its subsidiaries, (b) provision for taxes of the Corporation
and its subsidiaries based on income, (c) amortization of debt discount, (d)
depreciation and amortization, (e) the effect of any noncash charge resulting
from a change in accounting principles in determining consolidated net income
for such period, (f) amortization of deferred charges and (g) provisions for or
realized losses on properties, (ii) less amounts which have been included for
gains on properties and (iii) adjusted to eliminate the effect of the "straight
lining" of rents.
2
<PAGE>
"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 B 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 (i) 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 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;
(ii) any sale, exchange or other transfer (in one transaction or a series of
transactions contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of the Corporation; (iii) any Person together
with all "affiliates" and "associates" (as such terms are defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
such Person, becoming the "beneficial owner" (as such term is defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 50% or more of either (A) the combined voting power of
the Corporation's then outstanding securities having the right to vote in an
election of the Board of Directors or (B) the then outstanding shares of all
classes of stock of the Corporation (in each such case other than as a result of
the acquisition of securities directly from the Corporation), PROVIDED, HOWEVER,
that a Change in Control shall not be deemed to have occurred if such Person is
a Qualified Entity; and (iv) individuals who, as of the initial Issue Date
constitute the members of the Board of Directors (the "Incumbent Directors")
cease for any reason, including, without limitation, as a result of a tender
offer, proxy contest, merger or similar transaction, to constitute at least a
majority of the members of the Board of Directors, provided that any person
becoming a director of the Corporation whose election or nomination for election
was approved by a vote of at least a majority of the Incumbent Directors shall,
for purposes hereof be considered an Incumbent Director.
"CHANGE IN CONTROL PUT NOTICE" shall have the meaning set forth in
Section 5(b).
"CHANGE IN CONTROL REDEMPTION DATE" shall have the meaning set forth in
Section 5(b).
"COMMON BASE AMOUNT" shall have the meaning set forth in Section 3(a)
hereof.
"COMMON SHARES" shall mean the shares of Common Stock, par value $.001
per share, of the Corporation.
"CONVERSION PRICE" shall mean the conversion price per Common Share for
which each Series B Preferred Share is convertible. The initial conversion price
shall be $16.00 (equivalent to a conversion rate of 1.5625 Common Shares for
each Series B Preferred Share).
3
<PAGE>
"CONVERSION PRICE ADJUSTMENT" shall have the meaning set forth in
Section 3(a) hereof.
"CONVERSION RATIO" shall mean the quotient of (A) $25.00 divided by (B)
the Conversion Price then in effect.
"COVERAGE RATIO I" means the ratio, for the year comprising the four
most recently completed calendar quarters for which financial statements are
available, of the Corporation's Available Income I in such period to the Fixed
Charges I in such period.
"COVERAGE RATIO II" means the ratio, for the year comprising the four
most recently completed calendar quarters for which financial statements are
available, of the Corporation's Available Income II in such period to the Fixed
Charges II in such period.
"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 30 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 October 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 October 31, 1999).
"FIXED CHARGES I" means the amount which is expensed in the applicable
period for interest on indebtedness and required distributions payable on
Preferred Units.
"FIXED CHARGES II" means the amount which is incurred in the applicable
period for interest on indebtedness and required distributions payable on
Preferred Units.
"IRR" shall mean the annual discount rate which when applied to each
distribution on a Series B Preferred Share and the Redemption Price would result
in the net present value as of the respective Issue Date of all such payments
being equal to the Purchase Price.
"ISSUE DATE" shall mean the date on which any Series B 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 Section 9(a)(iii) hereof.
4
<PAGE>
"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.
"LIQUIDATION PREFERENCE" shall have the meaning set forth in Section
4(a) 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 10 percent (10%) of
the Liquidation Preference, or (Y) after December 15, 2003, in connection with
any Liquidation, an amount equal to the difference between the Redemption Price
set forth in Section 5 and the Liquidation Preference.
"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 the Board of Directors determines to
be the value of a Common Share.
"MERGER LIQUIDATION" shall mean 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.
"OP UNITS" shall mean units of limited partnership interest in the
Partnership that are not Preferred Units.
"PARITY SHARES" shall have the meaning set forth in Section 9(a)(ii)
hereof.
"PARTNERSHIP" shall mean American Real Estate Investment, L.P., a
Delaware limited partnership.
5
<PAGE>
"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.
"PREFERRED UNITS" shall mean any units issued by the Partnership that
may be issued in one or more series or classes, having such rights, powers,
duties and preferences as may be determined by the Corporation as general
partner in its sole and absolute discretion.
"PURCHASE PRICE" shall mean Twenty-Five Dollars ($25.00) per Series B
Preferred Share issued hereunder.
"QUALIFIED ENTITY" shall mean any Person that 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 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.
"RATCHETED AMOUNT" shall have the meaning set forth in Section 3
hereof.
"REDEMPTION DATE" shall have the meaning set forth in Section 5(a)
hereof.
"REDEMPTION NOTICE" shall have the meaning set forth in Section 5(a)
hereof.
"REDEMPTION PRICE" shall have the meaning set forth in Section 5(a)
hereof.
"SERIES B 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 B
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 American Stock Exchange ("AMEX"), or if such securities are
not listed or admitted for trading
6
<PAGE>
on the AMEX, 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.
SECTION 3. DIVIDENDS.
(a) The holders of Series B 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 (i) $2.4375 per Series B Preferred Share ("ANNUAL DIVIDEND RATE") PLUS
(ii) an amount (the "RATCHETED AMOUNT") equal to the product of (x) the amount
by which cash dividends with respect to each Common Share exceeds $1.56 (the
"COMMON BASE AMOUNT") and (y) the Conversion Ratio in effect immediately after
any adjustment to the Conversion Price pursuant to (i) a payment of a dividend
or a distribution on its shares of capital stock in Common Shares, (ii) a
subdivision of its outstanding Common Shares into a greater number of shares,
(iii) a combination of its outstanding Common Shares into a smaller number of
shares or (iv) an issuance of any shares of capital stock by reclassification of
its outstanding Common Shares (a "CONVERSION PRICE ADJUSTMENT"); PROVIDED, THAT,
at the time of a Conversion Price Adjustment, the Common Base Amount shall be
adjusted to an amount equal to the product of (I) the Common Base Amount in
effect immediately prior to the Conversion Price Adjustment and (II) a fraction,
the numerator of which shall be the Conversion Ratio in effect immediately prior
to the applicable Conversion Price Adjustment and the denominator of which shall
be the Conversion Ratio in effect immediately after the applicable Conversion
Price Adjustment. 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, and shall
compound at a rate per annum equal to 9.75% 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 B 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
less than ten nor 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 (including any
Ratcheted Amount if applicable) on any Series B 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 B 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
7
<PAGE>
than a full Dividend Period, on the Series B Preferred Shares shall be computed
on the basis of twelve 30-day months and a 360-day year.
(c) So long as any Series B 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 B 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 B 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 B Preferred Shares and such Parity Shares.
(d) So long as any Series B 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) all accumulated and
unpaid dividends on all outstanding Series B 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 B 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 B Preferred Shares and any
Parity Shares.
(e) If the Corporation shall after the Issue Date make any
issuance or distribution to holders of its Common Shares other than the regular
quarterly dividend thereon (or any special distribution in lieu thereof in an
amount not exceeding the regular quarterly dividend), the holders of the Series
B Preferred Shares shall be entitled to receive such issuance or distribution in
an amount per Series B Preferred Share equal to the amount the holder of such
share would have received if such Series B Preferred Share had been converted
into Common Shares immediately prior to such issuance or distribution.
8
<PAGE>
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
B Preferred Shares shall be entitled to receive the greater of (i) an amount
equal to (A) Twenty-Five Dollars ($25.00) per Series B 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 B Preferred Share equal
to the amount which would have been payable had each Series B Preferred Share
been converted into Common Shares immediately prior to such Liquidation. The
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 Corporation. Until the holders of the Series B
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 B Preferred Shares shall be insufficient to pay in
full the preferential amount aforesaid and liquidating payments then payable 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 B
Preferred Shares and such other Parity Stock ratably in accordance with the
amounts that would be payable on such Series B Preferred Shares in accordance
with the first sentence of this Section 4(a) and on all other Parity Stock if
all amounts then payable thereon were paid in full.
In connection with a Merger Liquidation, the holders of Series
B 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 B 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 B 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 B Preferred Shares
at any time prior to the Merger Liquidation, to redeem any or all of the
outstanding Series B Preferred Shares for an amount per Series B Preferred Share
equal to the Liquidation Preference plus a premium equal to 10% of the
Liquidation Preference.
(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 B 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 B Preferred Shares and any Parity Shares shall not be entitled to share
therein.
SECTION 5. REDEMPTION.
9
<PAGE>
(a) At any time on or after the Issue Date, upon the written
election of the Corporation given to each record holder of Series B Preferred
Shares (the "REDEMPTION NOTICE"), the Corporation may redeem for cash on the
date specified in the Redemption Notice (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 or part of the outstanding Series B Preferred Shares at
a price per Series B Preferred Share equal to the following amounts or
percentages of the Liquidation Preference during the following periods (the
"REDEMPTION PRICE"):
<TABLE>
<S> <C>
From the Issue Date through and including the
fifth anniversary of the Issue Date ......................................... the amount necessary
to produce a 17% IRR
From the fifth anniversary of the Issue Date
through and including the sixth anniversary of the Issue Date.................. 104.825%
From the sixth anniversary of the Issue Date
through and including the seventh anniversary of the Issue Date................ 103.62%
From the seventh anniversary of the Issue Date
through and including the eighth anniversary of the Issue Date................. 102.41%
From the eighth anniversary of the Issue Date
through and including the ninth anniversary of the Issue Date.................. 101.21%
The ninth anniversary of the Issue Date and thereafter......................... 100%
</TABLE>
PROVIDED, HOWEVER, that if Redemption Date would occur subsequent to the Change
in Control Redemption Date (as defined below), and a holder of Series B
Preferred Shares, whose shares are subject to a Redemption Notice, delivers a
Change in Control Put Notice (as defined below), the Redemption Notice shall be
deemed void and have no effect and the Corporation shall redeem the holder's
Series B Preferred Shares in accordance with Section 5(b).
If less than all the Series B Preferred Shares are called for redemption by the
Corporation, the number of Series B Preferred Shares to be redeemed by the
holders of the Series B Preferred Shares shall be redeemed PRO RATA among such
holders on the basis of the number of Series B Preferred Shares owned by such
holders.
(b) Notwithstanding the provisions of Section 4(a), in
connection with a Change in Control where the surviving entity is not a
Qualified Entity, the Company shall provide notice of a proposed Change in
Control to the holders of Series B Preferred Shares at least 20 days prior to
such Change in Control becoming effective and each holder of Series B Preferred
Shares shall have the right to elect by delivering written notice (the "CHANGE
IN CONTROL PUT NOTICE") to the Corporation not less than five Business Days
prior to the Change in Control to require the Corporation to redeem all, but not
less than all, of the outstanding Series B Preferred Shares owned by such holder
for an amount per Series B Preferred Share equal to the Liquidation Preference
plus a premium equal to ten percent (10%) of the Liquidation Preference. Upon
receipt of such notice, the Corporation shall redeem such shares on the date on
which the
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Change of Control becomes effective (the "CHANGE OF CONTROL REDEMPTION
DATE"), if such shares were not redeemed previously in accordance with Section
5(a).
(c) From and after the Redemption Date or the Change of
Control Redemption Date, as the case may be, (i) except as otherwise provided
herein, dividends on the Series B 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 B
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 or the Change of Control Redemption Date, as the case
may be, the Corporation shall deposit with a bank or trust company 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 B Preferred Shares so called for redemption,
PROVIDED, HOWEVER, if the Corporation elects to make such a deposit it will
notify the holders of Series B Preferred Shares subject to redemption in advance
of such deposit of (i) the date of such deposit, (ii) the office of such bank or
trust company as the place of payment for the redemption and (iii) instructing
such holders to surrender their certificates for payment at such office on or
about the Redemption Date or the Change in Control Redemption Date. No interest
shall accrue for the benefit of the holder of Series B Preferred Shares to be
redeemed on any cash so set aside by the Corporation.
(d) Notwithstanding the provisions of Section 5(c), if (i) at
any time during the one year period following the initial Issue Date, the
Corporation redeems Series B Preferred Shares pursuant to Section 5(a) and (ii)
within 90 days of the Redemption Date with respect thereto a Change in Control
occurs wherein the surviving entity is not a Qualified Entity, the Corporation
shall promptly pay to each holder of Series B Preferred Shares that were
redeemed on such Redemption Date an additional amount with respect to each
Series B Preferred Share of such holder that was so redeemed equal to the
difference between (x) the amount that would have been payable to such holder
with respect to such Series B Preferred Share had such holder continued to hold
such share beyond such Redemption Date and exercised the rights of such holder
under Section 5(b) upon such Change in Control and (y) the amount the holder
received on the Redemption Date for such Series B Preferred Share pursuant to
Section 5(a).
SECTION 6. REACQUIRED SHARES. All Series B Preferred Shares
which shall have been issued and converted, redeemed or reacquired in any manner
by the Corporation shall be restored to the status of authorized but unissued
shares of Series B Convertible Preferred Stock.
SECTION 7. CONVERSION. Holders of Series B 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 B 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 nonassessable Common Shares obtained by dividing the
aggregate Liquidation Preference of such Series B 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 B
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 B 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 B Preferred Share to be converted shall surrender the certificate
representing such Series B 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 B
Preferred Shares. Unless the Common Shares issuable on conversion are to be
issued in the same name as the name in which such Series B 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 B 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 (and of any accrued
and unpaid dividends to the date of conversion), notwithstanding the conversion
thereof, following such Dividend Payment Record Date and prior to such Dividend
Payment Date; PROVIDED, HOWEVER, that no holder Series B Preferred Shares
surrendered for conversion shall be entitled to receive a dividend for such
Dividend Period with respect to such Series B Preferred Shares if such holder is
entitled to receive a distribution for the identical quarterly period with
respect to Common Shares for which such Series B Preferred Shares have been
exchanged.
As promptly as practicable after the surrender of certificates for
Series B 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 B Preferred Shares in accordance with the
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 B
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
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<PAGE>
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 B 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 B Preferred Shares.
Instead of any fractional interest in a Common Share that would otherwise be
deliverable upon the conversion of a Series B Preferred Share, the Corporation
shall pay to the holder of such Series B 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 B 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 B 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)
subdivide its outstanding Common Shares into a greater number of shares or (B)
combine its outstanding Common Shares into a smaller number of 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 or combination becomes effective, as the case may
be, shall be adjusted so that the holder of any Series B 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 B
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 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) 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 (ii) 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 (ii)) not
later than such time as may
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<PAGE>
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 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 B 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 B 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 B Preferred Shares that will contain
provisions
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<PAGE>
enabling the holders of the Series B Preferred Shares that remain outstanding
after such Transaction to convert their Series B Preferred Shares into the
consideration received by holders of Common 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; 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 B
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 B 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 B 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 B 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 B Preferred Shares, the
Conversion Price for the Series B 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 B Preferred Shares, the full number of Common Shares deliverable upon the
conversion of all outstanding Series B Preferred Shares not theretofore
converted. For purposes of this paragraph (i), the number of Common Shares that
shall be deliverable upon the conversion of all outstanding shares of Series B
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 B Preferred Shares shall be validly issued, fully paid and
nonassessable. Before taking any action that would cause an adjustment reducing
the Conversion Price below the then-par
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value of the Common Shares deliverable upon conversion of the Series B 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 nonassessable Common Shares at such adjusted
Conversion Price.
(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 B
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 B 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) Except as permitted in Section 33 of the Contribution and
Exchange Agreement, dated as of August 6, 1999, by and among Reckson Morris
Industrial Trust, Reckson Morris Interim GP, LLC, Reckson Operating Partnership,
L.P., Robert Morris, Joseph D. Morris, Ronald Schram, Mark M. Bava, The Drew
Morris Trust, The Justin Morris Trust, The Keith Morris Trust, Joseph D. Morris
Family Limited Partnership, Robert Morris Family Limited Partnership (the
"CONTRIBUTION AGREEMENT"), holders of Series B Preferred Shares will not have
the conversion rights set forth in Section 7 hereof and the Series B Preferred
Shares may not be converted into Common Stock, until and unless Shareholders'
Approval (as such term is defined in the Contribution Agreement) are obtained.
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.
(a) Any class or series of shares of capital stock of the
Corporation shall be deemed to rank:
(i) prior to the Series B 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 B Preferred Shares;
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(ii) on a parity with the Series B 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 B Preferred Shares, if the holders of such class of stock
and the Series B 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
(iii) junior to the Series B 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 B 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 B Preferred Shares.
(b) The Series B Preferred Shares shall be deemed to rank on a
parity with the Series A Preferred Shares of the Corporation, par value $.001
per share.
SECTION 10. VOTING. Except as otherwise set forth herein, the
Series B 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 B 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 B 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. Whenever all arrearage in dividends on the Series B
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
B 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 B
Preferred Shares shall forthwith terminate and the number of Directors
constituting the Board of Directors shall be reduced accordingly.
(b) The Corporation covenants to the holders of the Series B
Preferred Shares that while any Series B Preferred Shares are outstanding:
(i) the Corporation will not (x) incur any indebtedness
for borrowed money or (y) issue additional Parity Shares if, after giving effect
to such incurrence or issuance, the
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Corporation's Coverage Ratio I would be less than 1.5:1 or the Corporation's
Coverage Ratio II would be less than 1.2:1.
(ii) the Corporation will not declare or pay any dividends
which result in the aggregate dividends declared or paid from the Issue Date
paid on Preferred Stock or Common Shares to exceed the sum of (x) the cumulative
Funds from Operations (FFO) (as defined by NAREIT and reported by the
Corporation) from the Issue Date (with the amount for the quarter in which the
Series B Preferred Shares are issued being based upon the number of days such
shares are outstanding during such quarter divided by 90 and multiplied by the
FFO for such quarter) plus (y) any capital gains not included in (x) (net of any
capital gains tax paid by the Corporation) from the Issue Date; and
(iii) the Corporation will extend to the holders of the
Series B Preferred Shares the benefit of any covenant granted to holder of a
future series of Preferred Stock that restricts the total amount of the
Corporation's combined indebtedness and Preferred Stock to a specified
percentage of the value of either assets or real estate held by the Corporation.
If and whenever the Corporation breaches any of the covenants set forth in this
Section 10(b), the number of Directors then constituting the Board of Directors
shall be increased by one and the holders of Series B 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. Whenever the Corporation
cures any breach of any of such covenants or is no longer in violation thereof,
then the rights of the holders of the Series B Preferred Shares to elect such
additional Director shall cease, and the term of office of the person elected as
a Director by the holders of the Series B Preferred Shares shall forthwith
terminate and the number of Directors constituting the Board of Directors shall
be reduced accordingly.
(c) At any time after voting power shall have been vested in
the holders of shares of Series B Preferred Shares pursuant to (a) or (b) above,
the Secretary of the Corporation may, and upon the written request of any holder
of Series B Preferred Shares (addressed to the Secretary at the principal office
of the Corporation) shall, call a special meeting of the holders of the Series B
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 B 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 provided in (a) or (b) above. If the Director elected by the
holders of the Series B 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 B 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
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above.
(d) So long as any Series B Preferred Shares are outstanding,
in addition to any other vote or consent of shareholders required by the
Charter, the affirmative vote of at least two-thirds (2/3) of the votes cast by
the holders of Series B 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 Charter or these Articles Supplementary that materially and
adversely affects the voting powers, rights or preferences of the holders of the
Series B Preferred Shares; PROVIDED, HOWEVER, that (A) the amendment of the
provisions of the Charter so as to authorize or create or to increase the
authorized amount of, any Junior Shares or Parity Shares shall not be deemed to
materially adversely affect the voting powers, rights or preferences of the
holders of Series B Preferred Shares and (B) any filing with the Department by
the Corporation in connection with a merger, consolidation or sale of all or
substantially all of the assets of the Corporation which does not include an
amendment to the Charter or these Articles Supplementary shall not be deemed to
be an amendment, alteration or repeal of any of the provisions of the Charter or
these Articles Supplementary provided that (i) the Corporation is the surviving
entity and the Series B Preferred shares remain outstanding with the terms
thereof unchanged or (ii) the resulting, surviving or transferee entity is a
corporation, business trust or other like entity organized under the laws of any
state and substitutes for the Series B Preferred Shares, other preferred stock
having substantially the same terms and the same rights as the Series B
Preferred Shares including, with respect to distributions, voting rights,
conversion rights and rights upon liquidation, distribution or winding up; 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 B
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 no such vote of the holders of Series B Preferred Shares
under this Section 10(d) 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 is to occur, as the case may be, provision is made for the
redemption of all Series B Preferred Shares, as the case may be, at the time
outstanding in accordance with Section 5 hereof.
(e) Each Series B Preferred Share shall have one (1) vote per
share.
(f) The Corporation agrees that the holders of the Series B
Preferred Shares shall be granted, in addition to the voting rights hereunder,
voting rights equivalent to those granted by the Corporation in connection with
the issuance of any future series of Preferred Stock, including but not limited
to the Series C Convertible Preferred Stock. In the event such voting rights are
20
<PAGE>
granted by the Corporation, these Articles Supplementary shall be deemed to be
amended to grant such voting rights to the holders of the Series B Preferred
Shares.
SECTION 11. RECORD HOLDERS. The Corporation may deem and treat
the record holder of any Series B 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 B
Preferred Shares constitute Preferred Stock, and Preferred Stock constitutes
Shares of the Corporation. Therefore, the Series B Preferred Shares, being
Shares, are governed by and issued subject to all the limitations, terms and
conditions of the Charter applicable to Shares generally, including but not
limited to the terms and conditions (including exceptions and exemptions) of
Article VI of the Charter applicable to Shares. The foregoing sentence shall not
be construed to limit the applicability to the Series B Preferred Shares of any
other term or provision of the Charter.
SECTION 13. NOTICES. All notices, requests and demands to be made
hereunder shall be in writing and shall be given by registered or certified,
first-class United States mail, postage prepaid, return receipt requested.
Notices to the Corporation shall be sent to its corporate offices and notices to
holders shall be sent to the registered holders at the address shown of the
records of the Corporation.
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<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 Vice
President and witnessed to by its Secretary of this 27TH day of September, 1999.
AMERICAN REAL ESTATE INVESTMENT
CORPORATION
By:/s/ Stephen J. Butte
--------------------
Name: Stephen J. Butte
Title: Vice President
Witness:
By: /s/ Timothy A. Peterson
------------------------
Name: Tim Peterson
Title: Secretary
The UNDERSIGNED, Secretary 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/ Timothy A. Peterson
-----------------------
Name: Timothy A. Peterson
Title: Vice President
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<PAGE>
EXHIBIT 10-4
PARTNERSHIP UNIT DESIGNATION OF
SERIES C CONVERTIBLE PREFERRED UNITS
The following is a statement of the designations, qualifications, special
or relative rights and privileges of the Series C Convertible Preferred Units of
American Real Estate Investment, L.P. (the "PARTNERSHIP"). Capitalized terms
used but not otherwise defined in this Partnership Unit Designation shall have
the same meanings ascribed to them in the Partnership's Amended and Restated
Agreement of Limited partnership, dated as of December 12, 1997, and any
amendments thereto (collectively, the "PARTNERSHIP AGREEMENT").
SECTION 1. NUMBER OF PREFERRED UNITS AND DESIGNATION. This designation for
the class of Preferred Units authorized by this Partnership Unit Designation
shall be designated as Series C Convertible Preferred Units (the "SERIES C
PREFERRED UNITS"). The number of Series C Preferred Units shall be two million
five hundred eight thousand five hundred twenty three (2,508,523), which number
may be decreased (but not below the number thereof then outstanding) from time
to time by the General Partner.
SECTION 2. DEFINITIONS. For purposes of this Partnership Unit Designation
of the Series C Preferred Units, the following terms shall have the meanings
indicated:
"ACT" shall mean the Securities Act of 1933, as amended.
"ANNUAL DISTRIBUTION RATE" shall have the meaning set forth in Section
3(a).
"BOARD OF DIRECTORS" shall mean the Board of Directors of the General
Partner or any committee authorized by such Board of Directors to perform any of
its responsibilities with respect to the Series C Preferred Units.
"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 (i) any merger or consolidation of the
General Partner in which (x) one or more entities which are not affiliates of
the General Partner or the Partnership acquire more than 50% of the General
Partner's outstanding voting equity securities or as a result of which
stockholders of the General Partner immediately before such merger or
consolidation hold, immediately after such merger or consolidation, less than
50% of the surviving entity's outstanding common stock or (y) the General
Partner is no longer the general partner of the Partnership; (ii) any sale,
exchange or other transfer (in one transaction or a series of transactions
contemplated or arranged by any party as a single plan) of all or substantially
all of the assets of the General Partner; (iii) any Person together with all
"affiliates" and "associates" (as such terms are defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) of such
Person, becoming the "beneficial owner" (as such term is defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the General
Partner
<PAGE>
representing 50% or more of either (A) the combined voting power of the General
Partner's then outstanding securities having the right to vote in an election of
the Board of Directors or (B) the then outstanding shares of all classes of
stock of the General Partner (in each such case other than as a result of the
acquisition of securities directly from the General Partner), PROVIDED, HOWEVER,
that a Change in Control shall not be deemed to have occurred if such Person is
a Qualified Entity; and (iv) individuals who, as of the Issue Date constitute
the members of the Board of Directors of the General Partner (the "INCUMBENT
DIRECTORS") cease for any reason, including, without limitation, as a result of
a tender offer, proxy contest, merger or similar transaction, to constitute at
least a majority of the members of the Board of Directors, provided that any
person becoming a director of the General Partner whose election or nomination
for election was approved by a vote of at least a majority of the Incumbent
Directors shall, for purposes hereof, be considered an Incumbent Director.
"CHANGE IN CONTROL PUT NOTICE" shall have the meaning set forth in Section
5(b).
"CHANGE IN CONTROL REDEMPTION DATE" shall have the meaning set forth in
Section 5(b).
"COMMON BASE AMOUNT" shall have the meaning set forth in Section 3(a)
hereof.
"COMMON SHARES" shall mean the shares of common stock, par value $.001 per
share, of the General Partner.
"CONVERSION PRICE" shall mean the conversion price per Common Share for
which each Series C Preferred Unit is convertible. The initial conversion price
shall be $16.00 (equivalent to a conversion rate of 1.5625 Common Shares for
each Series C Preferred Unit).
"CONVERSION PRICE ADJUSTMENT" shall have the meaning set forth in Section
3(a) hereof.
"CONVERSION RATIO" shall mean the quotient of (A) $25.00 divided by (B) the
Conversion Price then in effect.
"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 30 consecutive trading days ending on such date.
"DISTRIBUTION PAYMENT DATE" shall mean, with respect to each Distribution
Period, the last calendar day of January, April, July and October, in each year,
commencing on October 31, 1999; PROVIDED, HOWEVER, that if any Distribution
Payment Date falls on any day other than a Business Day, the distribution
payment due on such Distribution Payment Date shall be paid on the first
Business Day immediately following such Distribution Payment Date.
"DISTRIBUTION PERIODS" shall mean quarterly distribution 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 Distribution
Period (other than the initial Distribution Period, which shall commence on the
Issue Date and end on and include October 31, 1999).
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<PAGE>
"GENERAL PARTNER" shall mean American Real Estate Investment Corporation, a
Maryland corporation and the general partner of the Partnership.
"IRR" shall mean the annual discount rate which when applied to each
distribution on a Series C Preferred Unit and the Redemption Price would result
in the net present value as of the Issue Date of all such payments being equal
to the Purchase Price.
"ISSUE DATE" shall mean the first date on which any Series C Preferred
Units are issued.
"JUNIOR UNITS" shall have the meaning set forth in Section 7 hereof.
"LIQUIDATION" shall mean (A) a dissolution or winding up of the General
Partner or the Partnership, whether voluntary or involuntary, (B) a
consolidation or merger of the General Partner or the Partnership with and into
one or more entities which are not affiliates of the General Partner which
results in a Change in Control, or (C) a sale or transfer of all or
substantially all of the General Partner's or the Partnership's assets other
than to an affiliate of the General Partner or the Partnership.
"LIQUIDATION PREFERENCE" shall have the meaning set forth in Section 4(a)
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 10 percent (10%) of
the Liquidation Preference, or (Y) after December 15, 2003, in connection with
any Liquidation, an amount equal to the difference between the Redemption Price
set forth in Section 5 and the Liquidation Preference.
"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 the Board of Directors determines to
be the value of a Common Share.
"MERGER LIQUIDATION" shall mean a Liquidation which constitutes a
consolidation or
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<PAGE>
merger of the General Partner or the Partnership with one or more entities that
are not affiliates of the General Partner and as a result of which the General
Partner or the Partnership, as applicable, is not the surviving entity.
"OP UNITS" shall mean units of limited partnership interest in the
Partnership that are not Preferred Units.
"PREFERRED STOCK" shall mean the preferred stock, par value $.001 per
share, of the General Partner.
"PREFERRED UNITS" shall mean any units issued by the Partnership that may
be issued in one or more series or classes, having such rights, possible duties
and preferences as may be determined by the General Partner in its sole and
absolute discretion.
"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.
"PURCHASE PRICE" shall mean Twenty-Five Dollars ($25.00) per Series C
Preferred Unit issued hereunder.
"QUALIFIED ENTITY" shall mean any Person that 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 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.
"RATCHETED AMOUNT" shall have the meaning set forth in Section 3 hereof.
"REDEMPTION DATE" shall have the meaning set forth in Section 5(a) hereof.
"REDEMPTION NOTICE" shall have the meaning set forth in Section 5(a)
hereof.
"REDEMPTION PRICE" shall have the meaning set forth in Section 5(a) hereof.
"SERIES B PREFERRED SHARES" shall mean the shares of Series B Convertible
Preferred Stock, par value $.001 per share, of the General Partner.
"SET APART FOR PAYMENT" shall be deemed to include, without any action
other than the following, the recording by the Partnership in its accounting
ledgers of any accounting or bookkeeping entry which indicates, pursuant to a
declaration of a distribution by the Partnership, the allocation of funds to be
so paid on any series or class of units of the Partnership; PROVIDED, HOWEVER,
that if any funds for any class or series of Junior Units or Parity Units are
placed in a separate account of the Partnership or delivered to a disbursing,
paying or other similar agent, then "set apart for payment" with respect to the
Series C Preferred Units shall mean placing such
4
<PAGE>
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 AMEX, or if such securities are not listed or admitted for trading
on the AMEX, 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.
SECTION 3. DISTRIBUTIONS.
(a) The holders of Series C Preferred Units shall be entitled to
receive, when, as and if authorized and declared by the General Partner out of
funds legally available for that purpose, distributions payable in cash at the
rate per annum equal to (i) $2.4375 per Series C Preferred Unit ("ANNUAL
DISTRIBUTION RATE") PLUS (ii) an amount (the "RATCHETED AMOUNT") equal to the
product of (x) the amount by which cash distributions with respect to each
Common Share exceeds $1.56 (the "COMMON BASE AMOUNT") and (y) the Conversion
Ratio in effect immediately after any adjustment to the Conversion Price if any
time the General Partner after the Issue Date shall (i) pay a dividend or make a
distribution on its shares of capital stock in Common Shares, (ii) subdivide its
outstanding Common Shares into a greater number of shares, (iii) combine its
outstanding Common Shares into a smaller number of shares or (iv) issue any
shares of capital stock by reclassification of its outstanding Common Shares (a
"CONVERSION PRICE ADJUSTMENT"); PROVIDED, THAT, at the time of a Conversion
Price Adjustment, the Common Base Amount shall be adjusted to an amount equal to
the product of (I) the Common Base Amount in effect immediately prior to the
Conversion Price Adjustment and (II) a fraction, the numerator of which shall be
the Conversion Ratio in effect immediately prior to the applicable Conversion
Price Adjustment and the denominator of which shall be the Conversion Ratio in
effect immediately after the applicable Conversion Price Adjustment. Such
distributions shall be cumulative from the Issue Date, whether or not in any
Distribution Period or Periods there shall be funds of the Partnership legally
available for the payment of such distributions, and shall compound at a rate
per annum equal to 9.75% and shall be payable quarterly, when, as and if
authorized and declared by or on behalf of the Partnership, in arrears on
Distribution Payment Dates, commencing on the first Distribution Payment Date
after the Issue Date. Each such distribution shall be payable in arrears to the
holders of record of the Series C Preferred Units, as they appear on the
partnership records of the Partnership at the close of business on each record
date which shall not be less than ten nor more than 30 days preceding the
applicable Distribution Payment Date (the "DISTRIBUTION PAYMENT RECORD DATE"),
as shall be fixed by or on behalf of the Partnership. Accrued and unpaid
distributions for any past Distribution Periods may be authorized and declared
and paid at any time, without reference to any regular Distribution 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 General Partner. The
amount of accrued and unpaid distributions (including any Ratcheted Amount if
applicable) on any Series C Preferred Unit at any date shall be the amount of
any distributions 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.
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<PAGE>
(b) The amount of distributions payable for each full Distribution
Period for the Series C Preferred Units shall be computed by dividing the Annual
Distribution Rate by four. The amount of distributions payable for the initial
Distribution Period, or any other period shorter or longer than a full
Distribution Period, on the Series C Preferred Units shall be computed on the
basis of twelve 30-day months and a 360-day year.
(c) So long as any Series C Preferred Units are outstanding, no
distributions, 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 Units (as hereinafter defined) for any period unless
full cumulative distributions 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 C Preferred Units for
all Distribution Periods terminating on or prior to the Distribution Payment
Date for such class or series of Parity Units. When distributions are not paid
in full or a sum sufficient for such payment is not set apart, as aforesaid, all
distributions authorized and declared upon Series C Preferred Units and all
distributions authorized and declared upon any other series or class or classes
of Parity Units shall be authorized and declared ratably in proportion to the
respective amounts of distributions accumulated and unpaid on the Series C
Preferred Units and such Parity Units.
(d) So long as any Series C Preferred Units are outstanding, no
distributions (other than distributions paid solely in shares of, or options,
warrants or rights to subscribe for or purchase, Junior Units) shall be
authorized and declared or paid or set apart for payment or other distribution
authorized and declared or made upon Junior Units (as hereinafter defined), nor
shall any Junior Units be redeemed, purchased or otherwise acquired (other than
a redemption, purchase or other acquisition of OP Units made for purposes of and
in compliance with requirements of an employee incentive or benefit plan of the
General Partner, the Partnership 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 units) by the Partnership, directly or indirectly (except by conversion
into or exchange for Junior Units), unless in each case (i) all accumulated and
unpaid distributions on all outstanding Series C Preferred Units and any other
Parity Units shall have been paid or set apart for payment for all past
Distribution Periods with respect to the Series C Preferred Units and all past
distribution periods with respect to such Parity Units and (ii) sufficient funds
shall have been paid or set apart for the payment of the distribution for the
current Distribution Period with respect to the Series C Preferred Units and any
Parity Units .
(e) If the General Partner shall after the Issue Date make any
issuance or distribution to holders of its Common Shares in cash, Common Shares,
other securities or other property other than the regular quarterly distribution
thereon (or any special distribution in lieu thereof in an amount not exceeding
the regular quarterly distribution), the holders of the Series C Preferred Units
shall be entitled to receive such issuance or distribution in an amount per
Series C Preferred Unit equal to the amount the holder of such unit would have
received if such Series C Preferred Unit had been converted into Common Shares
immediately prior to such issuance or distribution; PROVIDED, HOWEVER, in the
event any distribution described in this Section 3(e) is made in Common Shares,
the holders of the Series C Preferred Units shall be entitled to receive
6
<PAGE>
OP Units in an amount equal to the number of Common Shares such holder would
have received if such holder had converted its Series C Preferred Units into
Common Shares immediately prior to such distribution divided by the Conversion
Factor, as defined in the Partnership Agreement.
SECTION 4. LIQUIDATION PREFERENCE.
(a) In the event of any Liquidation, before any payment or
distribution of the assets of the Partnership (whether capital or surplus) shall
be made to or set apart for the holders of Junior Units, the holders of Series C
Preferred Units shall be entitled to receive the greater of (i) an amount equal
to (A) Twenty-Five Dollars ($25.00) per Series C Preferred Unit plus
distributions (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 C Preferred Unit
equal to the amount which would have been payable had each Series C Preferred
Unit been converted into Common Shares immediately prior to such Liquidation.
The foregoing amounts shall be subject to equitable adjustment whenever there
shall occur a stock distribution, stock split, combination, reorganization,
recapitalization, reclassification or other similar event involving a change in
the capital structure of the Partnership. Until the holders of the Series C
Preferred Units have been paid the Liquidation Preference in full, no payment
will be made to any holder of Junior Units upon Liquidation. If, upon any such
Liquidation, the assets of the Partnership, or proceeds thereof, distributable
among the holders of Series C Preferred Units 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 Units, then such assets, or the proceeds
thereof, shall be distributed among the holders of such Series C Preferred Units
and such other Parity Units ratably in accordance with the amounts that would be
payable on such Series C Preferred Units in accordance with the first sentence
of this Section 4(a) and on all other Parity Units if all amounts payable
thereon were paid in full.
In connection with a Merger Liquidation, the holders of Series
C Preferred Units shall have the right (a "CONTINUATION RIGHT") to elect, by
delivering written notice to the General Partner not less than five Business
Days prior to the Merger Liquidation, to require the General Partner to make
provision for the Series C Preferred Units to be assumed by the surviving entity
as described in Section 6(e); PROVIDED, HOWEVER, notwithstanding the election by
the holders of the Series C Preferred Units of the Continuation Right, the
General Partner shall have the right, in connection with any Merger Liquidation,
to elect, by delivering written notice to the holders of Series C Preferred
Units at any time prior to the Merger Liquidation, to redeem any or all of the
outstanding Series C Preferred Units for an amount per Series C Preferred Unit
equal to the Liquidation Preference plus a premium equal to 10% of the
Liquidation Preference.
(b) Subject to the rights of the holders of any Parity Units,
upon any Liquidation, after payment shall have been made in full to the holders
of Series C Preferred Units and any Parity Units, as provided in this Section 4,
any other series or class or classes of Junior Units 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 C Preferred Units and any
Parity Units shall not be entitled to share therein.
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<PAGE>
SECTION 5. REDEMPTION.
(a) At any time on or after the fifth anniversary of the Issue
Date, upon the written election of the Partnership given to each record holder
of Series C Preferred Units (the "REDEMPTION NOTICE"), the Partnership may
redeem for cash or OP Units at such holder's option on the date specified in the
Redemption Notice (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 or
part of the outstanding Series C Preferred Units.
In the event such holder elects to receive cash, the price per
Series C Preferred Unit shall be equal to the following amounts or percentages
of the Liquidation Preference during the following periods (the "REDEMPTION
PRICE"):
<TABLE>
<CAPTION>
<S> <C>
From the fifth anniversary of the Issue Date
through and including the sixth anniversary of the Issue Date.................. 104.825%
From the sixth anniversary of the Issue Date
through and including the seventh anniversary of the Issue Date................ 103.62%
From the seventh anniversary of the Issue Date
through and including the eighth anniversary of the Issue Date................. 102.41%
From the eighth anniversary of the Issue Date
through and including the ninth anniversary of the Issue Date.................. 101.21%
The ninth anniversary of the Issue Date and thereafter......................... 100%
</TABLE>
PROVIDED, HOWEVER, that if Redemption Date would occur subsequent to the Change
in Control Redemption Date (as defined below), and a holder of Series C
Preferred Units, whose Series C Preferred Units are subject to a Redemption
Notice, delivers a Change in Control Put Notice (as defined below), the
Redemption Notice shall be deemed void and have no effect and the Partnership
shall redeem the holder's Series C Preferred Units in accordance with Section
5(b).
In the event such holder elects to receive OP Units, such holder shall be
entitled to receive the amount of OP Units equal to the Liquidation Preference
divided by the Current Market Price.
If less than all the Series C Preferred Units are called for redemption by the
Partnership, the number of Series C Preferred Units to be redeemed by the
holders of the Series C Preferred Units shall be redeemed PRO RATA among such
holders on the basis of the number of Series C Preferred Units owned by such
holders.
(b) Notwithstanding the provisions of Section 4(a), in connection
with a Change in Control where the surviving entity is not a Qualified Entity,
the General Partner shall provide notice of a proposed Change in Control to the
holders of Series C Preferred Units at least 20 days prior to such Change in
Control becoming effective and each holder of Series C Preferred Units shall
have the right to elect by delivering written notice (the "CHANGE IN CONTROL PUT
NOTICE") to the Partnership not less than five Business Days prior to the Change
in Control to require the Partnership to redeem all, but not less than all, of
the outstanding Series C Preferred Units owned by such holder for cash in an
amount per Series C Preferred Unit equal to the
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<PAGE>
Liquidation Preference plus a premium equal to ten percent (10%) of the
Liquidation Preference. Upon receipt of such notice, the Partnership shall
redeem such shares on the date on which the Change of Control becomes effective
(the "CHANGE OF CONTROL REDEMPTION DATE).
(c) From and after the Redemption Date or the Change of Control
Redemption Date, as the case may be, and provided that the deposit shall have
been irrevocably made as contemplated by the immediately following sentence (i)
except as otherwise provided herein, distributions on the Series C Preferred
Units so called for redemption shall cease to accrue, (ii) said units shall no
longer be deemed to be outstanding, and (iii) all rights of the holders thereof
as holders of Series C Preferred Units of the Partnership 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 distributions payable thereon). The Partnership's obligation to
provide cash in accordance with the preceding sentence shall be deemed fulfilled
if, on or before the Redemption Date or the Change of Control Redemption Date,
as the case may be, the Partnership shall deposit with a bank or trust company
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 C Preferred Units so called for
redemption, PROVIDED, HOWEVER, if the Partnership elects to make such a deposit
it will notify the holders of Series C Preferred Units subject to redemption in
advance of such deposit of (i) the date of such deposit, (ii) the office of such
bank or trust company as the place of payment for the redemption and (iii)
instructing such holders to surrender their Series C Preferred Units for payment
at such office on or about the Redemption Date or the Change in Control
Redemption Date, as the case may be. No interest shall accrue for the benefit of
the holder of Series C Preferred Units to be redeemed on any cash so set aside
by the Partnership.
SECTION 6. CONVERSION. Holders of Series C Preferred Units shall have the
right to convert all or a portion of such Series C Preferred Units into Common
Shares or Series B Preferred Shares, as follows:
(a) Subject to and upon compliance with the provisions of this
Section 6, a holder of Series C Preferred Units shall have the right, at his or
her option, at any time and from time to time, to convert such units into (i)
that amount of cash obtained by multiplying the Current Market Price by a
fraction, the numerator of which is the aggregate Liquidation Preference of such
Series C Preferred Units and the denominator of which is the Conversion Price
(in effect on the date provided for in Section 6(b)), payable in accordance with
the provisions of the Partnership Agreement (the "CASH PAYMENT"), or, if the
Partnership does not elect to make the Cash Payment, (ii) at the election of
such holder, (x) the number of fully paid and nonassessable Common Shares
obtained by dividing the aggregate Liquidation Preference of such Series C
Preferred Units (computed on the date of conversion) by the Conversion Price (as
in effect at the time and on the date provided for in Section 6(b)), or (y) a
number of fully paid and nonassessable Series B Preferred Shares identical to
the number of Series C Preferred Units being converted by surrendering such
Series C Preferred Units to be converted, such surrender to
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be made in the manner provided in paragraph (b) of this Section 6; PROVIDED,
HOWEVER, that the right to convert Series C Preferred Units 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 General Partner
shall default in making payment of any cash payable upon such redemption under
Section 5 hereof.
(b) If the Partnership elects to not make the Cash Payment, in
order to exercise the conversion right, the holder of each Series C Preferred
Unit shall deliver to the Partnership written notice (specifying the number of
Series C Preferred Units to be converted) (the "WRITTEN NOTICE") that the holder
thereof elects to convert such Series C Preferred Units (the "OFFERED UNITS")
and whether the holder thereof desires to receive Common Shares or Series B
Preferred Shares. Each Offered Unit surrendered for conversion shall be
accompanied by instruments of transfer, in the form attached hereto as Exhibit
A, duly executed by the holder or such holder's duly authorized attorney and
unless the Common Shares or Series B Preferred Shares issuable on conversion are
to be issued in the same name as the name in which such Series C Preferred Units
are registered, an amount sufficient to pay any transfer or similar tax (or
evidence reasonably satisfactory to the Partnership demonstrating that such
taxes have been paid).
Holders of Offered Units at the close of business on any Distribution
Payment Record Date shall be entitled to receive the distribution payable on
such Offered Units on the corresponding Distribution Payment Date (and of any
accrued and unpaid distributions to the date of conversion), notwithstanding the
conversion thereof, following such Distribution Payment Record Date and prior to
such Distribution Payment Date; PROVIDED, HOWEVER, that no holder of Offered
Units shall be entitled to receive a distribution for such Distribution Period
with respect to an Offered Unit if such holder is entitled to receive a
distribution for the identical quarterly period with respect to a Common Share
or Series B Preferred Share for which such Offered Unit has been exchanged and
such distribution shall be made instead to the General Partner.
As promptly as practicable after the receipt of the Written Notice as
aforesaid (but in no event later than 10 days after the receipt of such Written
Notice), if the General Partner does not elect to make the Cash Payment for such
Offered Units within such time, the General Partner shall issue and deliver to
such holder, or send on his or her written order, a certificate or certificates
for the number of full Common Shares or Series B Preferred Shares, as the case
may be, issuable upon the conversion of such Offered Units in accordance with
the provisions of this Section 6, and any fractional interest in respect of a
Common Share or Series B Preferred Shares, as the case may be, arising upon
conversion shall be settled as provided in this Section 6.
If the General Partner does not elect to make the Cash Payment for such
Offered Units, each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the Written Notice shall
have been received by the Partnership as aforesaid, and the person or persons in
whose name or names any certificate or certificates for Common Shares or Series
B Preferred Shares, as the case may be, shall be issuable upon such conversion
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shall be deemed to have become the holder or holders of record of the Common
Shares or Series B Preferred Shares, as the case may be, 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
General Partner shall be closed on the 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 C Preferred Units shall have been surrendered and such
notice received by the Partnership.
Anything in this Section 6 to the contrary notwithstanding, if the issuance
of Common Shares or Series B Preferred Shares to any holder of Series C
Preferred Units upon conversion of such holder's Series C Preferred Units would
cause the holder of such Series C Preferred Units to be in violation of the
restrictions on transfer and ownership of Common Shares or Series B Preferred
Shares set forth in the Charter of the General Partner, then the Series C
Preferred Units of such holder which are to be converted will be converted into,
and such holder will be entitled to receive, cash and not Common Shares or
Series B Preferred Shares.
(c) No fractional shares or scrip representing fractions of Common
Shares or Series B Preferred Shares, as the case may be, shall be issued upon
conversion of the Series C Preferred Units. Instead of any fractional interest
in a Common Share or Series B Preferred Share that would otherwise be
deliverable upon the conversion of a Series C Preferred Unit, the General
Partner shall pay to the holder of such Series C Preferred Unit 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 C
Preferred Unit shall be surrendered for conversion at one time by the same
holder, the number of full Common Shares or Series B Preferred Shares issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of Series C Preferred Units so surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) If the General Partner shall after the Issue Date (A)
subdivide its outstanding Common Shares into a greater number of shares or (B)
combine its outstanding Common Shares into a smaller number of shares, the
Conversion Price in effect at the opening of business on the day following the
day on which such subdivision or combination becomes effective, as the case may
be, shall be adjusted so that the holder of any Series C Preferred Unit
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 C
Preferred Unit been converted immediately prior to 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 effective date in the case of
a subdivision or combination.
(ii) 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;
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PROVIDED, HOWEVER, that any adjustments that by reason of this subparagraph (ii)
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 6
(other than this subparagraph (ii)) 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 6, the
Partnership 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 distributions or interest payable on securities of the General
Partner and the investment of additional optional amounts in Common Shares under
such plan. All calculations under this Section 6 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 Partnership 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
distributions, 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 distributions) hereafter made by
the General Partner to its shareholders shall not be taxable.
(e) If the General Partner or the Partnership 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 or OP Units and Preferred Units outstanding, sale of all or substantially
all of the General Partner's or Partnership's assets or recapitalization of the
Common Shares or OP Units and Preferred Units 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 or OP Units and Preferred Units shall be converted into the right
to receive stock, securities or other property (including cash or any
combination thereof), each Series C Preferred Unit 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 C Preferred Unit
was convertible immediately prior to such Transaction, assuming such holder of
Series C Preferred Units (i) is not a Person with which the General Partner or
the Partnership consolidated or into which the General Partner or the
Partnership merged or which merged into the General Partner or the Partnership
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 General Partner or Series C Preferred Unit
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 UNIT"), then for the purpose of this
paragraph (e) the kind and amount of stock, securities and other property
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(including cash) receivable upon such Transaction by each Non-Electing Unit
shall be deemed to be the kind and amount so receivable per Series C
Preferred Unit by a plurality of the Non-Electing Units). Neither the General
Partner nor the Partnership shall be party to any Transaction unless the
terms of such Transaction are consistent with the provisions of this
paragraph (e), and they shall not consent or agree to the occurrence of any
Transaction until the General Partner or the Partnership, as the case may be,
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 C Preferred Units
that will contain provisions enabling the holders of the Series C Preferred
Units that remain outstanding after such Transaction to convert their Series
C Preferred Units into the consideration received by holders of Common 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 General Partner 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 General
Partner 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 General
Partner and its consolidated subsidiaries available at the time of the
declaration of the dividend or distribution); or
(ii) the General Partner 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; or
(iii) there shall be any reclassification of the Common Shares
(other than an event to which subparagraph (d)(i) of this Section 6 applies) or
any consolidation or merger to which the General Partner is a party and for
which approval of any shareholders of the General Partner 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 General Partner
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 General Partner as an
entirety and for which approval of any shareholders of the General Partner is
required; or
(iv) there shall occur the voluntary or involuntary liquidation,
dissolution or winding up of the General Partner, then the General Partner shall
cause to be prepared and delivered to the holders of the Series C Preferred
Units at their addresses as shown in the records of the Partnership, 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
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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
6.
(g) Whenever the Conversion Price is adjusted as herein
provided, the Partnership shall promptly prepare and deliver to the holders of
the Series C Preferred Units 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 Partnership shall mail such notice and such certificate to the
holders of each Series C Preferred Unit at such holder's last address as shown
on the records of the Partnership.
(h) In any case in which paragraph (d) of this Section 6
provides that an adjustment shall become effective on the day next following the
record date for an event, the Partnership may defer until the occurrence of such
event (A) issuing to the holder of any Series C Preferred Unit converted after
such record date and before the occurrence of such event the additional Common
Shares or Preferred Shares issuable upon such conversion by reason of the
adjustment required by such event over and above the Common Shares or Preferred
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 6.
(i) There shall be no adjustment of the Conversion Price in case
of the issuance of any shares of capital stock of the General Partner in a
reorganization, acquisition or other similar transaction except as specifically
set forth in this Section 6. If any action or transaction would require
adjustment of the Conversion Price pursuant to more than one paragraph of this
Section 6, only one adjustment shall be made, and such adjustment shall be the
amount of adjustment that has the highest absolute value.
(j) If the General Partner shall take any action affecting the
Common Shares, other than action described in this Section 6, that in the
opinion of the Board of Directors would materially adversely affect the
conversion rights of the holders of the Series C Preferred Units, the Conversion
Price for the Series C Preferred Units may be adjusted, to the extent permitted
by law, in such manner, if any, and at such time, as the General Partner, in its
sole discretion, may determine to be equitable in the circumstances.
(k) The General Partner 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 C Preferred Units, the full number of Common Shares or Series B Preferred
Shares, as the case may be, deliverable upon the conversion of all outstanding
Series C Preferred Units not theretofore converted. For purposes of this
paragraph
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(i), the number of Common Shares or Series B Preferred Shares, as the case may
be, that shall be deliverable upon the conversion of all outstanding Series C
Preferred Units shall be computed as if at the time of computation all such
outstanding shares were held by a single holder.
The General Partner covenants that any Common Shares or Series B Preferred
Shares, as the case may be, issued upon conversion of the Series C Preferred
Units shall be validly issued, fully paid and nonassessable. Before taking any
action that would cause an adjustment reducing the Conversion Price below the
then-par value of the Common Shares or Series B Preferred Shares, as the case
may be, deliverable upon conversion of the Series C Preferred Units, the General
Partner shall take any corporate action that, in the opinion of its counsel, may
be necessary in order that the General Partner may validly and legally issue
fully paid and nonassessable Common Shares at such adjusted Conversion Price.
(l) The Partnership 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 Series B Preferred Shares or other securities or property on
conversion of the Series C Preferred Units pursuant hereto; PROVIDED, HOWEVER,
that the Partnership 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 Series B Preferred Shares or other securities or property in a name other
than that of the holder of the Series C Preferred Units 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 Partnership the amount of any such tax or
established, to the reasonable satisfaction of the Partnership, that such tax
has been paid.
(m) Except as permitted in Section 33 of the Contribution and
Exchange Agreement, dated as of August 6, 1999, by and among Reckson Morris
Industrial Trust, Reckson Morris Interim GP, LLC, Reckson Operating Partnership,
L.P., Robert Morris, Joseph D. Morris, Ronald Schram, Mark M. Bava, The Drew
Morris Trust, The Justin Morris Trust, The Keith Morris Trust, Joseph D. Morris
Family Limited Partnership, Robert Morris Family Limited Partnership (the
"CONTRIBUTION AGREEMENT"), holders of Series C Preferred Units will not have the
conversion rights set forth in Section 6 hereof and the Series C Preferred Units
may not be converted into Common Shares, until and unless Requisite Approvals
(as such term is defined in the Contribution Agreement) are obtained.
Anything in this Partnership Unit Designation to the contrary
notwithstanding, for so long as Sections 33.02, 33.03 and 33.04 of the
Contribution Agreement remain in effect, the Conversion Price for any Series C
Preferred Unit for which the holder thereof is entitled to receive cash, shall
be not less than the Liquidation Preference, plus any accumulated and unpaid
distributions and distributions, of the Series C Preferred Units being
converted, each holder of Series C Preferred Units shall be entitled to receive
cash upon conversion thereof as provided in Sections 33.02, 33.03 and 33.04, and
the distribution rate with respect to Series C Preferred Units shall be subject
to increase as provided in Section 33.04.
(n) Subject to the provisions of Section 6(a), the provisions
of Article XII of
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the Partnership Agreement shall not be applicable to the conversion rights of
the holders of Series C Preferred Units.
SECTION 7. RANKING.
(a) Any class or series of units of the Partnership shall be deemed
to rank:
(i) prior to the Series C Preferred Units, as to the payment of
distributions 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 distributions or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or priority to the
holders of Series C Preferred Units;
(ii) on a parity with the Series C Preferred Units, as to the
payment of distributions and as to the distribution of assets upon liquidation,
dissolution or winding up, whether or not the distribution rates, Distribution
Payment Dates or redemption or liquidation prices per share thereof be different
from those of the Series C Preferred Units, if the holders of Partnership Units
of such class or classes and the Series C Preferred Units shall be entitled to
the receipt of distributions and of amounts distributable upon liquidation,
dissolution or winding up in proportion to their respective amounts of accrued
and unpaid distributions per share or liquidation preferences, without
preference or priority one over the other ("PARITY UNITS"); and
(iii) junior to the Series C Preferred Units, as to the payment
of distributions and as to the distribution of assets upon liquidation,
dissolution or winding up, if such class shall be OP Units or other Common
Partnership Unit ("JUNIOR UNITS") or if the holders of Series C Preferred Units
shall be entitled to receipt of distributions or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of Partnership Units of such class or classes.
(b) The Series C Preferred Units shall be deemed to rank on a
parity with the Series A Convertible Preferred Units and Series B Convertible
Preferred Units of the Partnership.
SECTION 8. VOTING. The holders of Series C Preferred Units shall have no
voting rights whatsoever, except for the (i) any voting rights to which they may
be entitled under the laws of the State of Delaware, and (ii) as follows:
(a) So long as any Series C Preferred Units are outstanding, the
affirmative vote of at least two-thirds (2/3) of the votes entitled to be cast
by the holders of Series C Preferred Units, 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 Partnership Agreement (including this Partnership Unit Designation or any
provision hereof) whether by merger, consolidation or otherwise that materially
and adversely affects the voting
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powers, rights or preferences of the holders of the Series C Preferred Units;
PROVIDED, HOWEVER, that (A) the amendment of the provisions of the Partnership
Agreement (including this Partnership Unit Designation or any provision hereof)
so as to authorize or create or to increase the authorized amount of, any Junior
Units or any Parity Units or OP Units, shall not be deemed to materially and
adversely affect such powers, preferences or special rights shall not be deemed
to materially adversely affect the voting powers, rights or preferences of the
holders of Series C Preferred Units and (B) any filing with the Secretary of
State of the State of Delaware by the Partnership in connection with a merger,
consolidation or sale of all or substantially all of the assets of the
Partnership which does not include an amendment to the Partnership Agreement
(including this Partnership Unit Designation or any provision hereof) shall not
be deemed to be an amendment, alteration or repeal of any of the provisions of
the Partnership Agreement (including this Partnership Unit Designation or any
provision hereof) provided that (i) the Partnership is the surviving entity and
the Series C Preferred Units remain outstanding with the terms thereof unchanged
or (ii) the resulting, surviving or transferee entity is a partnership, limited
liability company or other like entity organized under the laws of any state and
substitutes for the Series C Preferred Units, other preferred units having
substantially the same terms and the same rights as the Series C Preferred Units
including, with respect to distributions, voting rights, conversion rights and
rights upon liquidation, distribution or winding up; or
(ii) The authorization or creation of, or the increase in the
authorized amount of, any class or series of Preferred Units of the Partnership
or any security convertible into any class or series of Preferred Units of the
Partnership ranking prior to the Series C Preferred Units in the distribution of
assets on any liquidation, dissolution or winding up of the Partnership or in
the payment of distributions;
PROVIDED, HOWEVER, that no such vote of the holders of Series C Preferred Units
under this Section 8(a) 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 Preferred Units is to occur, as the case may be, provision is made
for the redemption of all Series C Preferred Units, as the case may be, at the
time outstanding in accordance with Section 5 hereof.
(b) Each Series C Preferred Unit shall have one (1) vote per unit.
(c) The Partnership agrees that the holders of the Series C Preferred Units
shall be granted, in addition to the voting rights hereunder, voting rights
equivalent to those granted by the Partnership in connection with the issuance
of any future series of Preferred Units. In the event such voting rights are
granted by the Partnership, this Partnership Unit Designation shall be amended
to grant such voting rights to the holders of the Series C Preferred Units.
SECTION 9. RECORD HOLDERS. The Partnership may deem and treat the record
holder of any Series C Preferred Units as the true and lawful owner thereof for
all purposes, and the Partnership shall not be affected by any notice to the
contrary.
SECTION 10. NOTICES. All notices, requests and demands to be made hereunder
shall be in writing and shall be given by registered or certified, first-class
United States mail, postage
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prepaid, return receipt requested. Notices to the Partnership shall be sent to
its corporate offices and notices to holders shall be sent to the registered
holders at the address shown of the records of the Partnership.
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IN WITNESS WHEREOF, this Partnership Unit Designation has been duly
executed by the General Partner on behalf of the Partnership as of the day and
year set forth below.
DATED: September 27, 1999 GENERAL PARTNER
AMERICAN REAL ESTATE INVESTMENT
CORPORATION
By: /s/ STEPHEN J. BUTTE
--------------------
Name: Stephen J. Butte
Title: Vice President
<PAGE>
EXHIBIT 10-5
PARTNERSHIP UNIT DESIGNATION OF
SERIES E CONVERTIBLE PREFERRED UNITS
The following is a statement of the designations, qualifications,
special or relative rights and privileges of the Series E Convertible
Preferred Units of American Real Estate Investment, L.P. (the "PARTNERSHIP").
Capitalized terms used but not otherwise defined in this Partnership Unit
Designation shall have the same meanings ascribed to them in the
Partnership's Amended and Restated Agreement of Limited partnership, dated as
of December 12, 1997, and any amendments thereto (collectively, the
"PARTNERSHIP AGREEMENT").
SECTION 1. NUMBER OF PREFERRED UNITS AND DESIGNATION. This
designation for the class of Preferred Units authorized by this Partnership
Unit Designation shall be designated as Series E Convertible Preferred Units
(the "SERIES E PREFERRED UNITS"). The number of Series E Preferred Units
shall be four million two hundred thousand (4,200,000), which number may be
decreased (but not below the number thereof then outstanding) from time to
time by the General Partner.
SECTION 2. DEFINITIONS. For purposes of this Partnership Unit
Designation of the Series E Preferred Units, 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
General Partner or any committee authorized by such Board of Directors to
perform any of its responsibilities with respect to the Series E Preferred
Units.
"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 (i) any merger or consolidation of
the General Partner in which (x) one or more entities which are not
affiliates of the General Partner or the Partnership acquire more than 50% of
the General Partner's outstanding voting equity securities or as a result of
which stockholders of the General Partner immediately before such merger or
consolidation hold, immediately after such merger or consolidation, less than
50% of the surviving entity's outstanding common stock or (y) the General
Partner is no longer the general partner of the Partnership; (ii) any sale,
exchange or other transfer (in one transaction or a series of transactions
contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of the General Partner; (iii) any Person
together with all "affiliates" and "associates" (as such terms are defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")) of such Person, becoming the "beneficial owner" (as such
term is defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the General Partner representing 50% or more of
either (A) the combined voting power of the General Partner's then
outstanding securities having the right to vote in an election of the Board
of Directors or (B) the
<PAGE>
then outstanding shares of all classes of stock of the General Partner (in
each such case other than as a result of the acquisition of securities
directly from the General Partner), PROVIDED, HOWEVER, that a Change in
Control shall not be deemed to have occurred if such Person is a Qualified
Entity; and (iv) individuals who, as of the Issue Date constitute the members
of the Board of Directors of the General Partner (the "INCUMBENT DIRECTORS")
cease for any reason, including, without limitation, as a result of a tender
offer, proxy contest, merger or similar transaction, to constitute at least a
majority of the members of the Board of Directors, provided that any person
becoming a director of the General Partner whose election or nomination for
election was approved by a vote of at least a majority of the Incumbent
Directors shall, for purposes hereof, be considered an Incumbent Director.
"COMMON SHARES" shall mean the shares of common stock, par value
$.001 per share, of the General Partner.
"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 30 consecutive trading days ending on such date.
"DISTRIBUTION PAYMENT DATE" shall have the meaning set forth in
Section 3(b).
"DISTRIBUTION PERIODS" shall mean quarterly distribution 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 Distribution Period (other than the initial Distribution Period,
which shall commence on the Issue Date and end on and include October 31,
1999).
"GENERAL PARTNER" shall mean American Real Estate Investment
Corporation, a Maryland corporation and the general partner of the
Partnership.
"ISSUE DATE" shall mean the first date on which any Series E
Preferred Units are issued.
"JUNIOR UNITS" shall have the meaning set forth in Section 7 hereof.
"LIQUIDATION" shall mean (A) a dissolution or winding up of the
General Partner or the Partnership, whether voluntary or involuntary, (B) a
consolidation or merger of the General Partner or the Partnership with and
into one or more entities which are not affiliates of the General Partner
which results in a Change in Control, or (C) a sale or transfer of all or
substantially all of the General Partner's or the Partnership's assets other
than to an affiliate of the General Partner or the Partnership.
"LIQUIDATION PREFERENCE" shall have the meaning set forth in Section
4(a) 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 10
percent (10%) of the Liquidation Preference, or (Y) after December 15, 2003,
in connection with any Liquidation, an amount equal to the difference between
the Redemption Price set forth in Section 5 and the Liquidation Preference.
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"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 the Board of Directors determines to be the value of a Common
Share.
"OP UNITS" shall mean units of limited partnership interest in the
Partnership that are not Preferred Units.
"PREFERRED STOCK" shall mean the preferred stock, par value $.001
per share, of the General Partner.
"PREFERRED UNITS" shall mean any units issued by the Partnership
that may be issued in one or more series or classes, having such rights,
possible duties and preferences as may be determined by the General Partner
in its sole and absolute discretion.
"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.
"PURCHASE PRICE" shall mean Twenty-Five Dollars ($25.00) per Series
E Preferred Unit issued hereunder.
"QUALIFIED ENTITY" shall mean any Person that 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 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.
"SERIES B PREFERRED SHARES" shall mean the shares of Series B
Convertible Preferred Stock, par value $.001 per share, of the General
Partner.
"SET APART FOR PAYMENT" shall be deemed to include, without any
action other than the following, the recording by the Partnership in its
accounting ledgers of any accounting or bookkeeping entry which indicates,
pursuant to a declaration of a distribution by the Partnership,
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the allocation of funds to be so paid on any series or class of units of the
Partnership; PROVIDED, HOWEVER, that if any funds for any class or series of
Junior Units or Parity Units are placed in a separate account of the
Partnership or delivered to a disbursing, paying or other similar agent, then
"set apart for payment" with respect to the Series E Preferred Units 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 AMEX, or if such securities are not listed or admitted for
trading on the AMEX, 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.
SECTION 3. DISTRIBUTIONS.
(a) The holders of Series E Preferred Units shall be
entitled to receive distributions payable in cash in an amount per Series E
Preferred Unit equal to the per share dividend payable on the Series B
Preferred Shares. Each such distribution shall be payable to the holders of
record of the Series E Preferred Units, as they appear on the records of the
Partnership at the close of business on the record date for the dividend
payable with respect to the Series B Preferred Shares, on any date on which
cash dividends are paid on the Series B Preferred Shares (each, a
"DISTRIBUTION PAYMENT DATE"). Holders of Series E Preferred Units shall not
be entitled to any distributions on the Series E Preferred Units, whether
payable in cash, property or stock, except as provided herein.
(b) So long as any Series E Preferred Units are
outstanding, no distributions, 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 Units (as hereinafter
defined) for any period unless full cumulative distributions 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 E Preferred Units for all Distribution Periods
terminating on or prior to the Distribution Payment Date for such class or
series of Parity Units. When distributions are not paid in full or a sum
sufficient for such payment is not set apart, as aforesaid, all distributions
authorized and declared upon Series E Preferred Units and all distributions
authorized and declared upon any other series or class or classes of Parity
Units shall be authorized and declared ratably in proportion to the
respective amounts of distributions accumulated and unpaid on the Series E
Preferred Units and such Parity Units.
(c) So long as any Series E Preferred Units are
outstanding, no distributions (other than distributions paid solely in shares
of, or options, warrants or rights to subscribe for or purchase, Junior
Units) shall be authorized and declared or paid or set apart for payment or
other distribution authorized and declared or made upon Junior Units (as
hereinafter defined), nor shall any Junior Units be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition of
OP Units made for purposes of and in compliance with requirements of an
employee incentive or benefit plan of the General Partner, the Partnership or
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any subsidiary), for any consideration (or any moneys to be paid to or made
available for a sinking fund for the redemption of any units) by the
Partnership, directly or indirectly (except by conversion into or exchange
for Junior Units), unless in each case (i) all accumulated and unpaid
distributions on all outstanding Series E Preferred Units and any other
Parity Units shall have been paid or set apart for payment for all past
Distribution Periods with respect to the Series E Preferred Units and all
past distribution periods with respect to such Parity Units and (ii)
sufficient funds shall have been paid or set apart for the payment of the
distribution for the current Distribution Period with respect to the Series E
Preferred Units and any Parity Units .
SECTION 4. LIQUIDATION PREFERENCE.
(a) In the event of any Liquidation, before any
payment or distribution of the assets of the Partnership (whether capital or
surplus) shall be made to or set apart for the holders of Junior Units, the
holders of Series E Preferred Units shall be entitled to receive the greater
of (i) an amount equal to (A) Twenty-Five Dollars ($25.00) per Series E
Preferred Unit plus distributions (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 E Preferred Unit equal to the amount which would have been payable
had each Series E Preferred Unit been converted into OP Units immediately
prior to such Liquidation. The foregoing amounts shall be subject to
equitable adjustment whenever there shall occur a stock distribution, stock
split, combination, reorganization, recapitalization, reclassification or
other similar event involving a change in the capital structure of the
Partnership. Until the holders of the Series E Preferred Units have been paid
the Liquidation Preference in full, no payment will be made to any holder of
Junior Units upon Liquidation. If, upon any such Liquidation, the assets of
the Partnership, or proceeds thereof, distributable among the holders of
Series E Preferred Units 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 Units, then such assets, or the proceeds
thereof, shall be distributed among the holders of such Series E Preferred
Units and such other Parity Units ratably in accordance with the amounts that
would be payable on such Series E Preferred Units in accordance with this
Section 4(a) and on all other Parity Units if all amounts payable thereon
were paid in full; PROVIDED, HOWEVER, that if under the terms of this Section
4(a), the holders of Series E Preferred Units would be entitled to an amount
in excess of the Liquidation Preference, the holders of such Series E
Preferred Units shall receive instead an amount equal to the Liquidation
Preference.
(b) Subject to the rights of the holders of any Parity
Units, upon any Liquidation, after payment shall have been made in full to
the holders of Series E Preferred Units and any Parity Units, as provided in
this Section 4, any other series or class or classes of Junior Units 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 E
Preferred Units and any Parity Units shall not be entitled to share therein.
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SECTION 5. REDEMPTION. In the event the General Partner exercises its
redemption right with respect to the Series B Preferred Shares and pays the
redemption price in cash, the Partnership shall concurrently redeem a
corresponding amount of Series E Preferred Units at the same redemption price
paid to the General Partner for the Series B Preferred Shares.
SECTION 6. CONVERSION.
(a) Upon any conversion of Series B Preferred Shares
into Common Shares, the General Partner shall cause a number of Series E
Preferred Units equal to the number of such converted Series B Preferred
Shares to be converted by the holders thereof into OP Units. The conversion
ratio in effect from time to time for the conversion of Series E Preferred
Units into OP Units pursuant to this Section 6 shall at all times be equal
to, and shall be automatically adjusted as necessary to reflect, the
conversion ratio in effect from time to time for the conversion of Series B
Preferred Shares into Common Shares.
(b) No fractional OP Units shall be issued upon
conversion of Series E Preferred Units. Instead of any fractional OP Units
that would otherwise be deliverable upon the conversion of Series E Preferred
Units, the Partnership shall pay to the holder of such converted units an
amount in cash equal to the cash payable to a holder of an equivalent number
of converted Series B Preferred Shares in lieu of fractional shares of Common
Shares.
SECTION 7. RANKING.
(a) Any class or series of units of the Partnership
shall be deemed to rank:
(i) prior to the Series E Preferred Units, as
to the payment of distributions 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 distributions or of amounts
distributable upon liquidation, dissolution or winding up, as the case may
be, in preference or priority to the holders of Series E Preferred Units;
(ii) on a parity with the Series E Preferred
Units, as to the payment of distributions and as to the distribution of
assets upon liquidation, dissolution or winding up, whether or not the
distribution rates, Distribution Payment Dates or redemption or liquidation
prices per share thereof be different from those of the Series E Preferred
Units, if the holders of Partnership Units of such class or classes and the
Series E Preferred Units shall be entitled to the receipt of distributions
and of amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid distributions
per share or liquidation preferences, without preference or priority one over
the other ("PARITY UNITS"); and
(iii) junior to the Series E Preferred Units, as
to the payment of distributions and as to the distribution of assets upon
liquidation, dissolution or winding up, if such class shall be OP Units or
other Common Partnership Unit ("JUNIOR UNITS") or if the holders of Series E
Preferred Units shall be entitled to receipt of distributions or of amounts
distributable upon liquidation, dissolution or winding up, as the case may
be, in preference or priority to the
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holders of Partnership Units of such class or classes.
(b) The Series E Preferred Units shall be deemed to
rank on a parity with the Series A Convertible Preferred Units, Series B
Convertible Preferred Units, Series C Convertible Preferred Units and Series
D Convertible Preferred Units of the Partnership.
SECTION 8. VOTING. The holders of Series E Preferred Units shall
have no voting rights whatsoever, except for the (i) any voting rights to
which they may be entitled under the laws of the State of Delaware, and (ii)
as follows:
(a) So long as any Series E Preferred Units are
outstanding, the affirmative vote of at least two-thirds (2/3) of the votes
entitled to be cast by the holders of Series E Preferred Units, 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 Partnership Agreement (including this
Partnership Unit Designation or any provision hereof) whether by merger,
consolidation or otherwise that materially and adversely affects the voting
powers, rights or preferences of the holders of the Series E Preferred Units;
PROVIDED, HOWEVER, that (A) the amendment of the provisions of the
Partnership Agreement (including this Partnership Unit Designation or any
provision hereof) so as to authorize or create or to increase the authorized
amount of, any Junior Units or any Parity Units or OP Units, shall not be
deemed to materially and adversely affect such powers, preferences or special
rights shall not be deemed to materially adversely affect the voting powers,
rights or preferences of the holders of Series E Preferred Units and (B) any
filing with the Secretary of State of the State of Delaware by the
Partnership in connection with a merger, consolidation or sale of all or
substantially all of the assets of the Partnership which does not include an
amendment to the Partnership Agreement (including this Partnership Unit
Designation or any provision hereof) shall not be deemed to be an amendment,
alteration or repeal of any of the provisions of the Partnership Agreement
(including this Partnership Unit Designation or any provision hereof)
provided that (i) the Partnership is the surviving entity and the Series E
Preferred Units remain outstanding with the terms thereof unchanged or (ii)
the resulting, surviving or transferee entity is a partnership, limited
liability company or other like entity organized under the laws of any state
and substitutes for the Series E Preferred Units, other preferred units
having substantially the same terms and the same rights as the Series E
Preferred Units including, with respect to distributions, voting rights,
conversion rights and rights upon liquidation, distribution or winding up; or
(ii) The authorization or creation of, or the
increase in the authorized amount of, any class or series of Preferred Units
of the Partnership or any security convertible into any class or series of
Preferred Units of the Partnership ranking prior to the Series E Preferred
Units in the distribution of assets on any liquidation, dissolution or
winding up of the Partnership or in the payment of distributions;
PROVIDED, HOWEVER, that no such vote of the holders of Series E Preferred
Units under this Section 8(a) shall be required if, at or prior to the time
when such amendment, alteration or repeal is to
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take effect, or when the issuance of any such prior Preferred Units is to
occur, as the case may be, provision is made for the redemption of all Series
E Preferred Units, as the case may be, at the time outstanding in accordance
with Section 5 hereof.
(b) Each Series E Preferred Unit shall have one (1) vote
per unit.
SECTION 9. RESTRICTIONS ON OWNERSHIP. The Series E Preferred Units
shall be owned and held solely by the General Partner.
SECTION 10. ALLOCATIONS. Allocations of the Partnership's items of
income, gain, loss and deduction shall be allocated among the holders of
Series E Preferred Units in accordance with Article VI of the Partnership
Agreement.
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IN WITNESS WHEREOF, this Partnership Unit Designation has been duly
executed by the General Partner on behalf of the Partnership as of the day
and year set forth below.
DATED: September 27,1999 GENERAL PARTNER
AMERICAN REAL ESTATE INVESTMENT
CORPORATION
By: /s/ STEPHEN J. BUTTE
--------------------
Name: Stephen J. Butte
Title: Vice President
<PAGE>
EXHIBIT 10-6
American Real Estate Investment Corporation
Plymouth Meeting Executive Campus
620 W. Germantown Pike, Suite 200
Plymouth Meeting, Pennsylvania 19462
Attention: Timothy A. Peterson, Executive Vice President
Ladies and Gentlemen:
This Agreement (the "Agreement") is executed by the undersigned in
connection with the offer by American Real Estate Investment Corporation, a
Maryland corporation (the "Company"), to sell, and the purchase by the
undersigned of, shares of the Company's Series C Convertible Preferred Stock,
par value $.001 per share, of the Company (the "Preferred Stock"), having the
rights, restrictions, privileges and preferences set forth in the form of
Articles Supplementary attached hereto as Exhibit C.
Section 1.
1.01. SUBSCRIPTION. The undersigned hereby agrees to purchase the number of
shares of Preferred Stock indicated on SCHEDULE A attached hereto (the "Shares")
at $25 per share of Preferred Stock (the "Purchase Price"). In respect of this
subscription, the undersigned herewith delivers to the Company a fully completed
Investor Information Sheet and Accredited Investor Questionnaire attached as
Exhibits A and B, respectively.
1.02. CLOSING. The purchase and sale of the Shares shall take place at the
offices of Rogers & Wells LLP, 200 Park Avenue, New York, New York, at 10:00
a.m., subject to satisfaction of the conditions set forth in SECTION 4 and
SECTION 5, on (i) the earlier to occur of (a) September 9, 1999 or (b) such
earlier date as the Company may elect, provided the Company gives the
undersigned at least four (4) days prior notice; or (ii) such other time and
place as the Company and the undersigned mutually agree (the "Closing"). At the
Closing the Company shall deliver to the undersigned a certificate representing
the Shares that the undersigned is purchasing, registered in such name or names
as the undersigned shall designate at least two (2) business days prior to the
date of the Closing, against payment of the Purchase Price thereof by wire
transfer in immediately available funds to an account designated by the Company
at least two (2) business days prior to the date of the Closing.
1.03. TERMINATION. If the Closing does not occur on or before October 15,
1999, either party may terminate this Agreement upon notice to the other party,
and thereafter there will be no liability or obligation on the part of the
undersigned or the Company (or any of their respective officers, directors,
employees, agents or other representatives or affiliates), except that,
notwithstanding any other provision in this Agreement to the contrary, upon
termination of this Agreement pursuant to this SECTION 1.03, the undersigned
will remain liable to the Company for any breach of this Agreement by the
undersigned existing at the time of such termination, and the Company will
remain liable to the undersigned for any breach of the Agreement by the Company
existing at the time of such termination, and the Company or the undersigned may
seek such remedies, including damages and fees of attorneys, against the other
with respect to such breach as are provided in this Agreement or as are
otherwise available at law or in equity.
Section 2. INVESTOR REPRESENTATIONS AND WARRANTIES. The undersigned hereby
acknowledges, represents and warrants to, and agrees with, the Company as
follows, which acknowledgments will be true and correct as of the Closing and as
of the date the undersigned receives any Common Stock (as defined below) upon
conversion of the Shares:
<PAGE>
2.01. AUTHORIZATION. This Agreement and the Registration Rights Agreement
(as defined below) constitute valid and legally binding obligations of the
undersigned, enforceable in accordance with their terms, except (i) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws
of general application affecting enforcement of creditors' rights generally,
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification provisions contained in the Registration Rights Agreement may be
limited by applicable federal or state securities laws, rules, regulation or
public policy. The undersigned represents that it has full power and authority
to enter into this Agreement.
2.02. NO ADVERTISEMENT OR SOLICITATION. The undersigned acknowledges that
the offer and sale of the Shares to it has not been accomplished by any form of
general solicitation or general advertising, including, but not limited to, (i)
any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media, or broadcast over television or radio or
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
2.03. RESTRICTIONS ON TRANSFER.
(a) The undersigned understands and acknowledges that the Shares
have not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), or applicable state securities laws, by reason of a specific
exemption from the registration provisions thereof which exemption depends upon,
among other things, the bona fide nature of the investment intent of the
undersigned as expressed herein and the accuracy and completeness of the other
representations of the undersigned set forth herein.
(b) The undersigned understands and acknowledges that, except as
provided for by the Registration Rights Agreement attached hereto as Exhibit D
(the "Registration Rights Agreement"), none of the Shares or any shares of
common stock, par value $.001 per share, of the Company (the "Common Stock")
issuable on conversion of the Shares have been registered under the Securities
Act or registered or qualified under the securities laws of any state and none
may be sold, transferred, assigned, pledged or hypothecated (i) absent effective
registration thereof under the Securities Act and applicable state securities
laws, or (ii) absent an opinion of counsel (including in-house counsel or
regular counsel), which opinion is reasonably satisfactory in form and substance
to the Company and its counsel, in their respective reasonable discretion, to
the effect that such registration is not required under the Securities Act or
such state securities laws or that such transaction complies with the rules
promulgated by the Securities and Exchange Commission (the "Commission") under
the Securities Act or such state securities laws or (iii) except in a
transaction in compliance with Rule 144 under the Securities Act. The
undersigned understands and acknowledges that he, she or it must bear the
economic risks of this investment resulting from such limitations.
(c) The undersigned is aware of the provisions of Rule 144
promulgated under the Securities Act as currently in effect, pursuant to which
the undersigned may be able to sell the Shares (or the Common Stock issuable on
conversion of the Shares), subject to certain exceptions, one year after they
receive such Shares so long as certain current public information is available
about the Company, the sale is through a broker in an unsolicited "broker's
transaction" and the undersigned does not sell, in any three-month period, more
than the greater of 1% of the outstanding Shares or Common Stock, as applicable,
or the average weekly trading volume of the Shares or Common Stock, as
applicable, for the four-week period preceding the sale. The undersigned
generally will be able to sell the Shares without regard to any volume or other
limitations discussed above beginning two years after they receive the Shares,
unless they are affiliates of the Company (i.e., a person controlling,
controlled by or under common control with the Company). Affiliates of the
Company will continue to be subject to the volume limitations on unregistered
sales following the expiration of the two-year period. The preceding
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description is a general summary of the restrictions of Rule 144 as currently in
effect, and each of the undersigned should consult with his, her or its own
legal advisor to ensure compliance with all of the requirements of applicable
federal and state securities laws and regulations. In this connection, the
undersigned understands Rule 144 may or may not be available for the resale of
the Shares (or the Common Stock issuable on conversion of the Shares) and the
undersigned should consult an attorney with regard to the availability of Rule
144. The Company is subject to the reporting requirements under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Upon notice of issuance,
the shares of Common Stock issuable on conversion of the Shares will be listed
for trading on the American Stock Exchange (the "AMEX") or such other national
stock exchange or automatic quotation system as the Company's Common Stock is
then listed or quoted. If not all of the requirements of Rule 144 are met,
registration under the Securities Act or some other registration exemption will
be required for any disposition of the Shares (or the Common Stock issuable on
conversion of the Shares).
The undersigned understands that although Rule 144 is not exclusive, the
Commission has expressed its opinion that persons proposing to sell restricted
securities received in an offering other than a registered offering or pursuant
to Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales and that such
persons and the brokers who participate in the transactions do so at their own
risk.
2.04. DISCLOSURE OF INFORMATION. The undersigned:
(i) has carefully read and reviewed the Company's Annual Report on
Form 10-K for its fiscal year ended December 31, 1998, the Company's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1999 and June 30, 1999,
the Company's Current Report on Form 8-K filed January 8, 1999, the Company's
Current Report on Form 8-K/A filed January 13, 1999 and the Company's Current
Report of Form 8-K filed August 20, 1999 (all such reports are referred to
collectively herein as the "SEC Filings"), and has been afforded access to all
information necessary to evaluate the merits and risks of the acquisition of the
Shares, and has relied solely (except as indicated in subsections (ii) and (iii)
below) on such materials or documents.
(ii) has been provided an opportunity to obtain any additional
information requested concerning the Shares, the Common Stock issuable on
conversion of the Shares, and the Company;
(iii) has been given the opportunity to ask questions of, and
receive answers from, the Company, or a person or persons acting on the behalf
of the Company, concerning the terms and conditions of this Agreement, the
Articles Supplementary and the Registration Rights Agreement and other matters
pertaining to this investment, and has been given the opportunity to obtain such
additional information necessary to verify the accuracy of the materials or
documents that were provided in order for it to evaluate the merits and risks of
an investment in the Company to the extent the Company possesses such
information or can acquire it without unreasonable effort or expense, and has
not been furnished any other offering literature or prospectus on which they are
entitled to rely except as mentioned herein;
(iv) understands that the materials or documents provided to the
undersigned have not been prepared by, and the accuracy of such material or
documents have not been verified by, Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") which is acting as placement agent in connection with the
purchase and sale of the Shares, and that DLJ makes no representations or
warranties with respect to the materials or documents provided to the
undersigned;
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(v) understands that the Company makes no representation or
warranties with respect to the materials or documents provided to the
undersigned except as specifically provided for in this Agreement; and
(vi) has determined that the Shares and the Common Stock issuable on
conversion of the Shares are a suitable investment for it and that at this time
it could bear the economic risk of the investment.
2.05. INVESTMENT EXPERIENCE. The undersigned represents that it has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of an investment in the Shares and protecting
its own interests in connection with the investment and has obtained, in its
judgment, sufficient information from the Company to evaluate the merits and
risks of an investment in the Shares. The undersigned is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act. The
undersigned has not utilized any person as its purchaser representative or
professional advisor in connection with evaluating such risks and merits. The
undersigned acknowledges that it has the financial ability to bear the economic
risk of its investment in the Company (including its possible loss). The
undersigned also represents it has not been organized solely for the purpose of
acquiring the Shares.
2.06. PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the
undersigned in reliance upon its representation to the Company, which by the
undersigned's execution of this Agreement it hereby confirms, that the Shares
and the Common Stock issuable on conversion of the Shares, to be received by the
undersigned and any certificate which may be issuable in respect thereof (the
"Certificate") will be acquired for investment for the undersigned's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof in violation of the Securities Act, and that it
has no present intention of selling, granting any participation in, or otherwise
distributing the same, except as provided in the Registration Rights Agreement,
or under an exemption from registration available under the Securities Act and
applicable state securities laws.
2.07. LEGENDS. In addition to the legend required by Section 6.2.9 of the
Company's Amended and Restated Articles of Incorporation, dated as of December
12, 1997, as amended (the "Charter"), and the statements required by Section 7.1
of the Company's By-Laws, as amended on August 3, 1999, to the extent
applicable, any certificate or other document issued in respect of any Shares
(or shares of Common Stock issuable upon conversion of the Shares) shall be
endorsed with the legends set forth below, and the undersigned covenants that,
except to the extent such restrictions are waived by the Company, the
undersigned shall not transfer any Shares (or shares of Common Stock issuable
upon conversion of the Shares) without complying with the restrictions on
transfer described in such legends:
(i) "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED (1) ABSENT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT, (2) ABSENT AN OPINION OF COUNSEL,
WHICH OPINION IS REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY
AND ITS COUNSEL, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR SUCH STATES OR THAT SUCH TRANSACTION COMPLIES WITH THE RULES PROMULGATED
BY THE SECURITIES AND EXCHANGE COMMISSION UNDER SAID ACT OR SUCH STATES OR (3)
EXCEPT IN A TRANSACTION IN COMPLIANCE WITH RULE 144 UNDER THE SECURITIES ACT."
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(ii) "THESE SECURITIES ARE SUBJECT TO THE TERMS AND CONDITIONS OF
THAT CERTAIN REGISTRATION RIGHTS AGREEMENT DATED AS OF ______________, 1999, A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY."
(iii) Any legend required by any applicable state securities law.
Section 3. COMPANY REPRESENTATIONS AND WARRANTIES. Except as set forth in a
letter delivered by the Company to the undersigned prior to the execution of
this Agreement (the "Disclosure Letter," which Disclosure Letter shall be deemed
to be part of this Agreement), the Company hereby acknowledges, represents and
warrants to, and agrees with, the undersigned as follows:
3.01. ORGANIZATION, GOOD STANDING AND QUALIFICATION; AUTHORITY. Each of the
Company and its direct or indirect subsidiaries, whether wholly or majority
owned (each, a "Subsidiary" and collectively, the "Subsidiaries"), is a
corporation duly incorporated, or a partnership, limited partnership or a
limited liability company duly formed, and is validly existing and in good
standing under the laws of its jurisdiction of its incorporation or formation
and has all requisite power and authority to carry on its business as now
conducted. Each of the Company and the Subsidiaries is duly qualified to
transact business and is in good standing in each jurisdiction where the failure
to so qualify would have a material adverse effect on its business, operations,
condition (financial or otherwise), assets or properties (a "Material Adverse
Effect") of the Company and the Subsidiaries on a consolidated basis. Each of
the Company and the Subsidiaries has all requisite power and authority to own or
lease and to operate its properties and assets in order to carry on its business
as now conducted.
3.02. AUTHORIZATION.
(a) All action on the part of the Company, its officers, directors
and stockholders necessary for the adoption, authorization, execution, filing
(where applicable) and delivery of this Agreement, the Articles Supplementary,
the Registration Rights Agreement, and the other documents contemplated thereby
or delivered in connection therewith, the performance of all obligations of the
Company hereunder and thereunder, and the authorization, issuance (or
reservation for issuance), sale and delivery of the Preferred Stock being sold
hereunder and the Common Stock issuable upon conversion of the Shares has been
taken or will be taken prior to the Closing. This Agreement and the Registration
Rights Agreement constitute valid and legally binding obligations of the
Company, enforceable in accordance with their terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, (ii)
as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification and contribution provisions contained in the Registration Rights
Agreement may be limited by applicable federal or state securities laws, rules
or regulations. The Company does not have any shareholder rights plan or other
"poison pill." The Company has opted out of Subtitle 7 of Title 3 of the
Maryland General Corporation Law.
(b) Neither the execution nor delivery by the Company of this
Agreement or the Registration Rights Agreement nor the consummation of the
transactions contemplated hereby or thereby nor compliance with or fulfillment
of the terms and provisions hereof or thereof by the Company or any subsidiary,
will (i) violate or conflict with any organizational document of the Company or
any of its subsidiaries, (ii) conflict with, result in a breach of the terms,
conditions or provisions of, or constitute a default, an event of default or an
event which, with notice or lapse of time or both, would constitute a default
under, or create rights of acceleration, termination or cancellation or a loss
of rights, or result in the creation or imposition of any encumbrance upon any
of the assets or properties of the Company or any of its subsidiaries, or result
in the triggering of any payment or other obligations under, any instrument,
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agreement, mortgage, indenture, deed of trust, permit, concession, grant,
franchise, license, judgment, order, award, decree or other restriction to which
the Company or any of its subsidiaries is a party or by which the Company or any
of its subsidiaries or any of their assets or properties may be bound, or any
Laws (as defined below), which would have a Material Adverse Effect, (iii)
except for filings with the AMEX or the Commission, require the approval,
consent or authorization of, or the making of any declaration, filing or
registration with, any third party or any Governmental Entity (as defined
below), by or on behalf of the Company or any of its subsidiaries, or (iv) cause
the Company to fail to qualify to be taxed as a "real estate investment trust,"
as defined in Section 856 of the Code ("REIT"), for the taxable year ending
December 31, 1999.
3.03. VALID ISSUANCE OF PREFERRED STOCK; CAPITALIZATION.
(a) The Preferred Stock that is being purchased by the undersigned
hereunder, when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid, and nonassessable, and, based in part upon the
representations of the undersigned in this Agreement, will be issued in
compliance with all applicable federal and state securities laws. The issuance
and sale of the Preferred Stock will not violate any preemptive rights. The
undersigned will acquire good and valid title to the Shares, free and clear of
any preemptive rights, restrictions or encumbrances, other than the ownership
limitations contained in the Charter, the resale restrictions contained in the
Registration Rights Agreement and restrictions under state and federal
securities laws, rules and regulations.
(b) The Common Stock issuable upon conversion of the Shares, when
issued, will be duly and validly issued, fully paid, and nonassessable, and,
based in part upon the representations of the undersigned in this Agreement,
will be issued in compliance with all applicable federal and state securities
laws. The issuance of such Common Stock to the undersigned will not violate any
preemptive rights. The undersigned will acquire good and valid title to such
Common Stock, free and clear of any preemptive rights, restrictions or
encumbrances, other than the ownership limitations contained in the Charter, the
resale restrictions contained in the Registration Rights Agreement and
restrictions under state and federal securities laws, rules and regulations.
(c) On August 12, 1999, the capital stock of the Company consists
solely of 65,000,000 shares of capital stock, of which 59,200,000 shares are
designated as Common Stock, 800,000 shares are designated as Series A
Convertible Preferred Stock, 4,200,000 are designated as Series B Convertible
Preferred Stock and 800,000 shares are designated as Series C Convertible
Preferred Stock, of which on the date hereof (i) 7,501,558 shares of Common
Stock, 800,000 shares of Series A Convertible Preferred Stock, no shares of
Series B Convertible Preferred Stock, and no shares of Series C Convertible
Preferred Stock, are validly issued and outstanding and fully paid and
nonassessable; (ii) 1,297,050 shares of Common Stock are reserved for issuance
upon exercise of outstanding options and warrants; and (iii) 8,170,463 shares of
Common Stock are reserved for issuance upon the conversion of units of limited
partnership interest in American Real Estate Investment, L.P. Other than as set
forth in the SEC Filings or that certain Contribution and Exchange Agreement
(the "Contribution Agreement") dated as of August 6, 1999 by and among each of
those persons set forth on Exhibit A annexed thereto, American Real Estate
Investment, L.P. and the Company, there are no securities convertible into or
exchangeable for, or options, rights or warrants to purchase, any shares of
capital stock of the Company or agreements or commitments pursuant to which the
Company is obligated to issue, sell, purchase or redeem, shares of capital stock
of the Company. The Common Stock is currently listed for trading on the AMEX.
3.04. DISCLOSURE. The Company has provided the undersigned with all the
information that the undersigned has requested for deciding whether to purchase
the Shares. The written information and
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certificates provided to the undersigned pursuant to this Agreement or the
Registration Rights Agreement are true and accurate in all material respects.
3.05. COMPLIANCE WITH LAWS; LITIGATION.
(a) Neither the Company nor any of its subsidiaries is in violation
of any federal, state or local law, statute, ordinance, rule, regulation, order,
judgment, ruling or decree ("Laws") of any federal, state or local judicial,
legislative, executive, administrative or regulatory body or authority or any
court, arbitration, board or tribunal ("Governmental Entity") applicable to the
Company or any of its subsidiaries, or any of their properties or assets, except
for violations which would not, either individually or in the aggregate, have a
Material Adverse Effect. Each of the Company and its subsidiaries holds and is
in compliance with all permits, certificates, licenses, approvals, registrations
and authorizations required under all Laws (including without limitation those
relating to environmental protection, occupational safety and health, equal
employment practices and fair trade practices) in connection with its business
("Permits"), all of which Permits are in full force and effect, except where the
failure to hold such Permits or be in compliance would not, either individually
or in the aggregate, have a Material Adverse Effect.
(b) There are no claims, actions, suits, proceedings, arbitrations,
investigations or audits (collectively, "Litigation") by a third party other
than a Governmental Entity pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries, at law or in equity,
other than those in the ordinary course of business which would not, either
individually or in the aggregate, have a Material Adverse Effect. There is no
Litigation by a Governmental Entity pending or, to the knowledge of the Company,
threatened against the Company or any of its subsidiaries. No Governmental
Entity has indicated in writing or, to the knowledge of the Company, verbally,
an intention to conduct any audit, investigation or other review with respect to
the Company or any of its subsidiaries which investigation or review, if
adversely determined, would, either individually or in the aggregate, have a
Material Adverse Effect.
3.06. SEC FILINGS; SUBSEQUENT EVENTS.
(a) The SEC Filings represent each report filed by the Company under
Sections 13 and 15 of the Exchange Act since January 1, 1999. As of their
respective dates, the SEC Filings (i) complied as to form in all material
respects with the applicable requirements of the Exchange Act, and the rules and
regulations thereunder and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. The Company has no liabilities or
obligations, contingent or otherwise, except (i) liabilities and obligations in
the respective amounts reflected or reserved against in the Company's financial
statements (including the footnotes thereto) as of December 31, 1998 and June
30, 1999 included in the SEC Filings, (ii) liabilities and obligations incurred
in the ordinary course of business since July 1, 1999 which, either individually
or in the aggregate, would not have a Material Adverse Effect, or (iii)
liabilities and obligations with respect to the Contribution Agreement.
(b) Since the respective dates as of which information is given in
the Company's quarterly report for the period ending June 30, 1999, and other
than changes in general economic conditions or industry conditions, there has
not been any change in the condition (financial or otherwise) or in the
earnings, business affairs or business prospects of the Company, whether or not
arising in the ordinary course of business, which either individually or in the
aggregate would have a Material Adverse Effect except for the Contribution
Agreement.
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3.07. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY; U.S. ENTITY.
The Company (i) is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act"), (ii) is not an
"investment company" for purposes of Section 12(d)(1) of the 1940 Act, (iii) is
not and will not become a "holding company" or a "subsidiary company" within the
meaning of the Public Utility Holding Company Act of 1935, as amended, (iv) is
not and will not be headquartered or organized in any jurisdiction outside the
United States of America or (v) does not directly or indirectly conduct
activities or own assets in any foreign jurisdiction.
3.08. TAX MATTERS.
(a) The Company has been, for each year ending on or after December
31, 1993, organized and operated in conformity with the requirements for
qualification and taxation as a "real estate investment trust" under the Code
and the Treasury Regulations promulgated hereunder.
(b) To the best knowledge of the Company, the Company is not
currently a "pension-held REIT" within the meaning of Code Section 856(h)(3)(D)
and the Treasury Regulations promulgated thereunder.
(c) American Real Estate Investment, L.P., a Delaware limited
partnership (the "Operating Partnership"), and each of the Subsidiaries that is
eligible to be classified as a partnership for federal income tax purposes is so
classified and taxed.
(d) The Company will use reasonable efforts not to take any action
or not to permit any action to be taken (to the extent the action is within the
control of the Company) that would cause any of the representations set forth in
this Section 3.09 to be incorrect or incomplete if made as of any date following
the Closing. In the event of the taking or proposed taking of any action that
would cause the representation set forth in Section 3.09(b) to be incorrect if
made as of any date following the Closing, the Company shall use reasonable
efforts to notify the undersigned prior to the taking of such action.
3.09. NO OTHER REPRESENTATIONS. The Company shall not be deemed to have
made to the undersigned any representation or warranty other than as expressly
made by the Company in this SECTION 3. Without limiting the generality of the
foregoing, and notwithstanding any otherwise express representations and
warranties made by the Company, in this SECTION 3, the Company makes no
representation or warranty to the undersigned with respect to any projections,
estimates or budgets heretofore delivered to or made available to the
undersigned of future revenues, expenses or expenditures or future results of
operations.
Section 4. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING. The obligations of
the undersigned under SECTION 1.02 of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
4.01. REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company contained in SECTION 3 (other than those made as of a specified date
earlier than the date of Closing) shall be true and correct in all material
respects on and as of the date of the Closing with the same effect as though
such representation or warranty was made on and as of the date of such Closing,
and any representation or warranty made as of a specified date earlier than the
date of such Closing shall have been true and correct in all material respects
as of such earlier date; except, in each case, to the extent any inaccuracy of
any representation or warranty of the Company contained herein results solely as
a result of the merger of the Company after the date hereof, with and into
Keystone Property Trust, a wholly-owned subsidiary of the Company, with Keystone
Property Trust being the surviving entity.
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4.02. PERFORMANCE. The Company shall have performed and complied with, in
all material respects, all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the Closing.
4.03. COMPLIANCE CERTIFICATE. The President or a Vice President of the
Company shall deliver to the undersigned at the Closing a certificate certifying
that the conditions specified in SECTIONS 4.01 AND 4.02 have been fulfilled.
4.04. QUALIFICATIONS. All authorizations, approvals, or permits, if any, of
any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Shares pursuant to this Agreement shall be duly obtained and effective as of the
Closing.
4.05. OPINION OF ROGERS & WELLS LLP. The undersigned shall have received
from Rogers & Wells LLP, counsel for the Company, an opinion dated as of the
Closing, to the effect that the issuance of the Shares contemplated by this
Agreement is exempt from registration under the Securities Act.
4.06. OPINION OF PIPER & MARBURY L.L.P. The undersigned shall have received
from Piper & Marbury L.L.P., special Maryland counsel for the Company, an
opinion dated as of the Closing, to the effect that the Shares, when issued,
sold and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, have been duly authorized and validly issued,
are fully paid, and are nonassessable and that the execution, delivery and
performance by the Company of this Subscription Agreement and the Registration
Rights Agreement are within the Company's corporate powers and have been duly
authorized by all necessary corporate action.
4.07. REGISTRATION RIGHTS AGREEMENT. The Company shall have executed the
Registration Rights Agreement in the form attached hereto as EXHIBIT D.
4.08. CERTIFICATES. Certificates representing the number of Shares set
forth on Schedule A, in such name as the undersigned has designated pursuant to
SECTION 1.02 hereof shall have been delivered to the undersigned.
4.09. STAGE I CLOSING. The Stage I Closing (as defined in the Contribution
Agreement) shall have occurred.
Section 5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to the undersigned under this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions by the undersigned:
5.01. REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the undersigned contained in SECTION 2 (other than those made as of a specified
date earlier than the date of Closing) shall be true and correct in all material
respects on and as of the date of the Closing with the same effect as though
such representation or warranty was made on and as of the date of such Closing,
and any representation or warranty made as of a specified date earlier than the
date of such Closing shall have been true and correct in all material respects
as of such earlier date.
5.02. COMPLIANCE CERTIFICATE. The undersigned shall deliver to the Company
at the Closing a certificate certifying that the condition specified in SECTION
5.01 has been fulfilled and that the information provided in the Investor
Information Sheet and Accredited Investor Questionnaire delivered by the
undersigned upon execution of this Agreement remain true and correct on and as
of the date of the
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Closing with the same effect as though such information was provided on and as
of the date of such Closing.
5.03. PAYMENT OF PURCHASE PRICE. The undersigned shall have delivered the
Purchase Price.
5.04. QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale
of the Shares pursuant to this Agreement shall be duly obtained and effective
as of the Closing.
5.05. STAGE I CLOSING. The Stage I Closing shall have occurred.
Section 6. MISCELLANEOUS.
6.01. MODIFICATION. Neither this Agreement nor any provisions hereof shall
be waived, modified, discharged or terminated except by an instrument in writing
signed by the party against whom any waiver, change, discharge or termination is
sought.
6.02. NOTICES. All notices, payments, demands or other communications given
hereunder shall be deemed to have been duly given and received (i) upon personal
delivery, (ii) in the case of notices sent within, and for delivery within, the
United States, as of the date shown on the return receipt after mailing by
registered or certified mail, return receipt requested, postage prepaid, or
(iii) the second succeeding business day after deposit with Federal Express or
other equivalent air courier delivery service, unless the notice is held or
retained by the customs service, in which case the date shall be the fifth
succeeding business day after such deposit.
6.03. BINDING EFFECT. Except as otherwise provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties and their heirs,
executors, administrators, successors, legal representatives and permitted
assigns. The Company may transfer its rights and obligations by operation of law
to Keystone Property Trust, a wholly-owned subsidiary of the Company, in
connection with the merger of the Company with and into Keystone Property Trust,
with Keystone Property Trust as the surviving entity having a Declaration of
Trust substantially in the form set forth as Appendix A to the Proxy Statement
of the Company filed with the SEC on April 30, 1999, it being understood that,
upon the consummation of such merger, all references herein and in the documents
contemplated hereby to the Company shall mean Keystone Property Trust, as
successor to the Company, with appropriate revision hereto to reflect the
reorganization of the Company from a Maryland corporation to a Maryland real
estate investment trust.
6.04. ENTIRE AGREEMENT. This Agreement and all exhibits hereto including,
without limitation, the Investor Information Sheet, Accredited Investor
Questionnaire, Articles Supplementary and Registration Rights Agreement, contain
the entire agreement of the parties with respect to this subscription, and there
are no representations, covenants or other agreements except as stated or
referred to herein or therein.
6.05. CONFIDENTIALITY. The undersigned shall not disclose the information
furnished to the undersigned by the Company or any of its affiliates or their
representatives in connection with the undersigned's consideration of the
transactions contemplated by this Agreement (the "Evaluation Materials"), unless
requested in any judicial or administrative proceeding or by any governmental or
regulatory authority to disclose any Evaluation material, and if the undersigned
is so requested, it shall give the Company prompt notice of such request so that
the Company may seek an appropriate protective order; PROVIDED, HOWEVER, that
Evaluation Material does not include information which was or becomes
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available to the undersigned on a non-confidential basis from a source other
than the Company or its representatives, provided that the undersigned is not
aware that such source is under an obligation (whether contractual, legal or
fiduciary) to the Company to keep such information confidential.
6.06. ASSIGNABILITY. This Agreement is not transferable or assignable by
the undersigned.
6.07. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such State without giving effect to the
conflict of law provisions thereof. The parties agree that all disputes between
any of them arising out of, connected with, related to, or incidental to the
relationship established between them in connection with this Agreement or the
Registration Rights Agreement, and whether arising in law or in equity or
otherwise, shall be resolved by the federal or state courts located in New York,
New York. Nothing herein shall affect the right of any party to serve process in
any manner permitted by law or to commence legal proceedings or otherwise
proceed against the other in any other jurisdiction. In addition, each of the
parties hereto consents to submit to the personal jurisdiction of any federal or
state court located in the State of New York in the event that any dispute
arises out of this Agreement or the Registration Rights Agreement or any of the
transactions contemplated hereby or thereby. The parties, for themselves and
their respective affiliates, hereby irrevocably waive all right to a trial by
jury in any action, proceeding or counterclaim (whether based on contract, tort
or otherwise) arising out of or relating to the actions of the parties or their
respective affiliates pursuant to this Agreement in the negotiation,
administration, performance or enforcement thereof.
6.08. GENDER. All pronouns contained herein and any variations thereof
shall be deemed to refer to the masculine, feminine or neuter, singular or
plural, as the identity of the parties hereto may require.
6.09. COUNTERPARTS. This Agreement may be executed through the use of
separate signature pages or in counterparts, and each of such counterparts
shall, for all purposes, constitute one agreement binding on the parties hereto,
notwithstanding that the parties hereto are not signatories to the same
counterpart.
6.10. FURTHER ASSURANCES. The undersigned will, from time to time, execute
and deliver to the Company all such other and further instruments and documents
and take or cause to be taken all such other and further action as the Company
may reasonably request in order to effect the transactions contemplated by this
Agreement.
6.11. EXPENSES. Each party shall pay all costs and expenses which it incurs
in connection with the negotiation, execution, delivery and performance of this
Agreement.
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AMERICAN REAL ESTATE INVESTMENT CORPORATION
SUBSCRIPTION AGREEMENT
COUNTERPART SIGNATURE PAGE
The undersigned, desiring to enter into this Subscription Agreement for the
subscription of the number of Shares indicated below, hereby agrees to all of
the terms and provisions of this Subscription Agreement and agrees to be bound
by all such terms and provisions.
The undersigned has executed this Subscription Agreement as of the 27th day
of September, 1999.
- ----------------------------------
By: /s/ Robert Gifford
-------------------------------
(Signature)
Name: Robert Gifford
(Print or Type)
Title: President, AEW TSF Inc.
(Print or Type)
Agreed and Accepted this
27TH day of September, 1999.
AMERICAN REAL ESTATE INVESTMENT CORPORATION,
a Maryland corporation
By: /s/ Stephen J. Butte
----------------
Name: Stephen J. Butte
Title: Vice President
<PAGE>
EXHIBIT 10-7
American Real Estate Investment Corporation
Plymouth Meeting Executive Campus
620 W. Germantown Pike, Suite 200
Plymouth Meeting, Pennsylvania 19462
Attention: Timothy A. Peterson, Executive Vice President
Ladies and Gentlemen:
This Agreement (the "Agreement") is executed by the undersigned in
connection with the offer by American Real Estate Investment Corporation, a
Maryland corporation (the "Company"), to sell, and the purchase by the
undersigned of, shares of the Company's Series C Convertible Preferred Stock,
par value $.001 per share, of the Company (the "Preferred Stock"), having the
rights, restrictions, privileges and preferences set forth in the form of
Articles Supplementary attached hereto as Exhibit C.
Section 1.
1.01. SUBSCRIPTION. The undersigned hereby agrees to purchase the
number of shares of Preferred Stock indicated on SCHEDULE A attached hereto
(the "Shares") at $25 per share of Preferred Stock (the "Purchase Price"). In
respect of this subscription, the undersigned herewith delivers to the
Company a fully completed Investor Information Sheet and Accredited Investor
Questionnaire attached as Exhibits A and B, respectively.
1.02. CLOSING. The purchase and sale of the Shares shall take
place at the offices of Rogers & Wells LLP, 200 Park Avenue, New York, New
York, at 10:00 a.m., subject to satisfaction of the conditions set forth in
SECTION 4 and SECTION 5, on (i) the earlier to occur of (a) September 9, 1999
or (b) such earlier date as the Company may elect, provided the Company gives
the undersigned at least four (4) days prior notice; or (ii) such other time
and place as the Company and the undersigned mutually agree (the "Closing").
At the Closing the Company shall deliver to the undersigned a certificate
representing the Shares that the undersigned is purchasing, registered in
such name or names as the undersigned shall designate at least two (2)
business days prior to the date of the Closing, against payment of the
Purchase Price thereof by wire transfer in immediately available funds to an
account designated by the Company at least two (2) business days prior to the
date of the Closing.
1.03. TERMINATION. If the Closing does not occur on or before
October 15, 1999, either party may terminate this Agreement upon notice to
the other party, and thereafter there will be no liability or obligation on
the part of the undersigned or the Company (or any of their respective
officers, directors, employees, agents or other representatives or
affiliates), except that, notwithstanding any other provision in this
Agreement to the contrary, upon termination of this Agreement pursuant to
this SECTION 1.03, the undersigned will remain liable to the Company for any
breach of this Agreement by the undersigned existing at the time of such
termination, and the Company will remain liable to the undersigned for any
breach of the Agreement by the Company existing at the time of such
termination, and the Company or the undersigned may seek such remedies,
including damages and fees of attorneys, against the other with respect to
such breach as are provided in this Agreement or as are otherwise available
at law or in equity.
Section 2. INVESTOR REPRESENTATIONS AND WARRANTIES. The undersigned
hereby acknowledges, represents and warrants to, and agrees with, the Company
as follows, which acknowledgments will be true and correct as of the Closing
and as of the date the undersigned receives any Common Stock (as defined
below) upon conversion of the Shares:
<PAGE>
2.01. AUTHORIZATION. This Agreement and the Registration Rights
Agreement (as defined below) constitute valid and legally binding obligations
of the undersigned, enforceable in accordance with their terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (iii) to the
extent the indemnification provisions contained in the Registration Rights
Agreement may be limited by applicable federal or state securities laws,
rules, regulation or public policy. The undersigned represents that it has
full power and authority to enter into this Agreement.
2.02. NO ADVERTISEMENT OR SOLICITATION. The undersigned
acknowledges that the offer and sale of the Shares to it has not been
accomplished by any form of general solicitation or general advertising,
including, but not limited to, (i) any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media, or
broadcast over television or radio or (ii) any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising.
2.03. RESTRICTIONS ON TRANSFER.
(a) The undersigned understands and acknowledges that
the Shares have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or applicable state securities laws, by
reason of a specific exemption from the registration provisions thereof which
exemption depends upon, among other things, the bona fide nature of the
investment intent of the undersigned as expressed herein and the accuracy and
completeness of the other representations of the undersigned set forth herein.
(b) The undersigned understands and acknowledges that,
except as provided for by the Registration Rights Agreement attached hereto
as Exhibit D (the "Registration Rights Agreement"), none of the Shares or any
shares of common stock, par value $.001 per share, of the Company (the
"Common Stock") issuable on conversion of the Shares have been registered
under the Securities Act or registered or qualified under the securities laws
of any state and none may be sold, transferred, assigned, pledged or
hypothecated (i) absent effective registration thereof under the Securities
Act and applicable state securities laws, or (ii) absent an opinion of
counsel (including in-house counsel or regular counsel), which opinion is
reasonably satisfactory in form and substance to the Company and its counsel,
in their respective reasonable discretion, to the effect that such
registration is not required under the Securities Act or such state
securities laws or that such transaction complies with the rules promulgated
by the Securities and Exchange Commission (the "Commission") under the
Securities Act or such state securities laws or (iii) except in a transaction
in compliance with Rule 144 under the Securities Act. The undersigned
understands and acknowledges that he, she or it must bear the economic risks
of this investment resulting from such limitations.
(c) The undersigned is aware of the provisions of Rule
144 promulgated under the Securities Act as currently in effect, pursuant to
which the undersigned may be able to sell the Shares (or the Common Stock
issuable on conversion of the Shares), subject to certain exceptions, one
year after they receive such Shares so long as certain current public
information is available about the Company, the sale is through a broker in
an unsolicited "broker's transaction" and the undersigned does not sell, in
any three-month period, more than the greater of 1% of the outstanding Shares
or Common Stock, as applicable, or the average weekly trading volume of the
Shares or Common Stock, as applicable, for the four-week period preceding the
sale. The undersigned generally will be able to sell the Shares without
regard to any volume or other limitations discussed above beginning two years
after they receive the Shares, unless they are affiliates of the Company
(i.e., a person controlling, controlled by or under common control with the
Company). Affiliates of the Company will continue to be subject to the volume
limitations on unregistered sales following the expiration of the two-year
period. The preceding
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description is a general summary of the restrictions of Rule 144 as currently
in effect, and each of the undersigned should consult with his, her or its
own legal advisor to ensure compliance with all of the requirements of
applicable federal and state securities laws and regulations. In this
connection, the undersigned understands Rule 144 may or may not be available
for the resale of the Shares (or the Common Stock issuable on conversion of
the Shares) and the undersigned should consult an attorney with regard to the
availability of Rule 144. The Company is subject to the reporting
requirements under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Upon notice of issuance, the shares of Common Stock issuable
on conversion of the Shares will be listed for trading on the American Stock
Exchange (the "AMEX") or such other national stock exchange or automatic
quotation system as the Company's Common Stock is then listed or quoted. If
not all of the requirements of Rule 144 are met, registration under the
Securities Act or some other registration exemption will be required for any
disposition of the Shares (or the Common Stock issuable on conversion of the
Shares).
The undersigned understands that although Rule 144 is not exclusive,
the Commission has expressed its opinion that persons proposing to sell
restricted securities received in an offering other than a registered
offering or pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers
or sales and that such persons and the brokers who participate in the
transactions do so at their own risk.
2.04. DISCLOSURE OF INFORMATION. The undersigned:
(i) has carefully read and reviewed the Company's
Annual Report on Form 10-K for its fiscal year ended December 31, 1998, the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999 and June 30, 1999, the Company's Current Report on Form 8-K filed
January 8, 1999, the Company's Current Report on Form 8-K/A filed January 13,
1999 and the Company's Current Report of Form 8-K filed August 20, 1999 (all
such reports are referred to collectively herein as the "SEC Filings"), and
has been afforded access to all information necessary to evaluate the merits
and risks of the acquisition of the Shares, and has relied solely (except as
indicated in subsections (ii) and (iii) below) on such materials or documents.
(ii) has been provided an opportunity to obtain any
additional information requested concerning the Shares, the Common Stock
issuable on conversion of the Shares, and the Company;
(iii) has been given the opportunity to ask questions
of, and receive answers from, the Company, or a person or persons acting on
the behalf of the Company, concerning the terms and conditions of this
Agreement, the Articles Supplementary and the Registration Rights Agreement
and other matters pertaining to this investment, and has been given the
opportunity to obtain such additional information necessary to verify the
accuracy of the materials or documents that were provided in order for it to
evaluate the merits and risks of an investment in the Company to the extent
the Company possesses such information or can acquire it without unreasonable
effort or expense, and has not been furnished any other offering literature
or prospectus on which they are entitled to rely except as mentioned herein;
(iv) understands that the materials or documents
provided to the undersigned have not been prepared by, and the accuracy of
such material or documents have not been verified by, Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") which is acting as placement agent in
connection with the purchase and sale of the Shares, and that DLJ makes no
representations or warranties with respect to the materials or documents
provided to the undersigned;
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(v) understands that the Company makes no
representation or warranties with respect to the materials or documents
provided to the undersigned except as specifically provided for in this
Agreement; and
(vi) has determined that the Shares and the Common
Stock issuable on conversion of the Shares are a suitable investment for it
and that at this time it could bear the economic risk of the investment.
2.05. INVESTMENT EXPERIENCE. The undersigned represents that it
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of an investment in the Shares and
protecting its own interests in connection with the investment and has
obtained, in its judgment, sufficient information from the Company to
evaluate the merits and risks of an investment in the Shares. The undersigned
is an "accredited investor" as defined in Regulation D promulgated under the
Securities Act. The undersigned has not utilized any person as its purchaser
representative or professional advisor in connection with evaluating such
risks and merits. The undersigned acknowledges that it has the financial
ability to bear the economic risk of its investment in the Company (including
its possible loss). The undersigned also represents it has not been organized
solely for the purpose of acquiring the Shares.
2.06. PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with the undersigned in reliance upon its representation to the Company,
which by the undersigned's execution of this Agreement it hereby confirms,
that the Shares and the Common Stock issuable on conversion of the Shares, to
be received by the undersigned and any certificate which may be issuable in
respect thereof (the "Certificate") will be acquired for investment for the
undersigned's own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof in violation of the Securities
Act, and that it has no present intention of selling, granting any
participation in, or otherwise distributing the same, except as provided in
the Registration Rights Agreement, or under an exemption from registration
available under the Securities Act and applicable state securities laws.
2.07. LEGENDS. In addition to the legend required by Section
6.2.9 of the Company's Amended and Restated Articles of Incorporation, dated
as of December 12, 1997, as amended (the "Charter"), and the statements
required by Section 7.1 of the Company's By-Laws, as amended on August 3,
1999, to the extent applicable, any certificate or other document issued in
respect of any Shares (or shares of Common Stock issuable upon conversion of
the Shares) shall be endorsed with the legends set forth below, and the
undersigned covenants that, except to the extent such restrictions are waived
by the Company, the undersigned shall not transfer any Shares (or shares of
Common Stock issuable upon conversion of the Shares) without complying with
the restrictions on transfer described in such legends:
(i) "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED (1) ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT, (2)
ABSENT AN OPINION OF COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY IN
FORM AND SUBSTANCE TO THE COMPANY AND ITS COUNSEL, TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR SUCH STATES OR THAT SUCH
TRANSACTION COMPLIES WITH THE RULES PROMULGATED BY THE SECURITIES AND
EXCHANGE COMMISSION UNDER SAID ACT OR SUCH STATES OR (3) EXCEPT IN A
TRANSACTION IN COMPLIANCE WITH RULE 144 UNDER THE SECURITIES ACT."
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(ii) "THESE SECURITIES ARE SUBJECT TO THE TERMS AND
CONDITIONS OF THAT CERTAIN REGISTRATION RIGHTS AGREEMENT DATED AS OF
______________, 1999, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF
THE COMPANY."
(iii) Any legend required by any applicable state
securities law.
Section 3. COMPANY REPRESENTATIONS AND WARRANTIES. Except as set forth
in a letter delivered by the Company to the undersigned prior to the
execution of this Agreement (the "Disclosure Letter," which Disclosure Letter
shall be deemed to be part of this Agreement), the Company hereby
acknowledges, represents and warrants to, and agrees with, the undersigned as
follows:
3.01. ORGANIZATION, GOOD STANDING AND QUALIFICATION; AUTHORITY.
Each of the Company and its direct or indirect subsidiaries, whether wholly
or majority owned (each, a "Subsidiary" and collectively, the
"Subsidiaries"), is a corporation duly incorporated, or a partnership,
limited partnership or a limited liability company duly formed, and is
validly existing and in good standing under the laws of its jurisdiction of
its incorporation or formation and has all requisite power and authority to
carry on its business as now conducted. Each of the Company and the
Subsidiaries is duly qualified to transact business and is in good standing
in each jurisdiction where the failure to so qualify would have a material
adverse effect on its business, operations, condition (financial or
otherwise), assets or properties (a "Material Adverse Effect") of the Company
and the Subsidiaries on a consolidated basis. Each of the Company and the
Subsidiaries has all requisite power and authority to own or lease and to
operate its properties and assets in order to carry on its business as now
conducted.
3.02. AUTHORIZATION.
(a) All action on the part of the Company, its
officers, directors and stockholders necessary for the adoption,
authorization, execution, filing (where applicable) and delivery of this
Agreement, the Articles Supplementary, the Registration Rights Agreement, and
the other documents contemplated thereby or delivered in connection
therewith, the performance of all obligations of the Company hereunder and
thereunder, and the authorization, issuance (or reservation for issuance),
sale and delivery of the Preferred Stock being sold hereunder and the Common
Stock issuable upon conversion of the Shares has been taken or will be taken
prior to the Closing. This Agreement and the Registration Rights Agreement
constitute valid and legally binding obligations of the Company, enforceable
in accordance with their terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification and contribution provisions contained in the Registration
Rights Agreement may be limited by applicable federal or state securities
laws, rules or regulations. The Company does not have any shareholder rights
plan or other "poison pill." The Company has opted out of Subtitle 7 of Title
3 of the Maryland General Corporation Law.
(b) Neither the execution nor delivery by the Company
of this Agreement or the Registration Rights Agreement nor the consummation
of the transactions contemplated hereby or thereby nor compliance with or
fulfillment of the terms and provisions hereof or thereof by the Company or
any subsidiary, will (i) violate or conflict with any organizational document
of the Company or any of its subsidiaries, (ii) conflict with, result in a
breach of the terms, conditions or provisions of, or constitute a default, an
event of default or an event which, with notice or lapse of time or both,
would constitute a default under, or create rights of acceleration,
termination or cancellation or a loss of rights, or result in the creation or
imposition of any encumbrance upon any of the assets or properties of the
Company or any of its subsidiaries, or result in the triggering of any
payment or other obligations under, any instrument,
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agreement, mortgage, indenture, deed of trust, permit, concession, grant,
franchise, license, judgment, order, award, decree or other restriction to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or any of their assets or properties may
be bound, or any Laws (as defined below), which would have a Material Adverse
Effect, (iii) except for filings with the AMEX or the Commission, require the
approval, consent or authorization of, or the making of any declaration,
filing or registration with, any third party or any Governmental Entity (as
defined below), by or on behalf of the Company or any of its subsidiaries, or
(iv) cause the Company to fail to qualify to be taxed as a "real estate
investment trust," as defined in Section 856 of the Code ("REIT"), for the
taxable year ending December 31, 1999.
3.03. VALID ISSUANCE OF PREFERRED STOCK; CAPITALIZATION.
(a) The Preferred Stock that is being purchased by the
undersigned hereunder, when issued, sold and delivered in accordance with the
terms of this Agreement for the consideration expressed herein, will be duly
and validly issued, fully paid, and nonassessable, and, based in part upon
the representations of the undersigned in this Agreement, will be issued in
compliance with all applicable federal and state securities laws. The
issuance and sale of the Preferred Stock will not violate any preemptive
rights. The undersigned will acquire good and valid title to the Shares, free
and clear of any preemptive rights, restrictions or encumbrances, other than
the ownership limitations contained in the Charter, the resale restrictions
contained in the Registration Rights Agreement and restrictions under state
and federal securities laws, rules and regulations.
(b) The Common Stock issuable upon conversion of the
Shares, when issued, will be duly and validly issued, fully paid, and
nonassessable, and, based in part upon the representations of the undersigned
in this Agreement, will be issued in compliance with all applicable federal
and state securities laws. The issuance of such Common Stock to the
undersigned will not violate any preemptive rights. The undersigned will
acquire good and valid title to such Common Stock, free and clear of any
preemptive rights, restrictions or encumbrances, other than the ownership
limitations contained in the Charter, the resale restrictions contained in
the Registration Rights Agreement and restrictions under state and federal
securities laws, rules and regulations.
(c) On August 12, 1999, the capital stock of the
Company consists solely of 65,000,000 shares of capital stock, of which
59,200,000 shares are designated as Common Stock, 800,000 shares are
designated as Series A Convertible Preferred Stock, 4,200,000 are designated
as Series B Convertible Preferred Stock and 800,000 shares are designated as
Series C Convertible Preferred Stock, of which on the date hereof (i)
7,501,558 shares of Common Stock, 800,000 shares of Series A Convertible
Preferred Stock, no shares of Series B Convertible Preferred Stock, and no
shares of Series C Convertible Preferred Stock, are validly issued and
outstanding and fully paid and nonassessable; (ii) 1,297,050 shares of Common
Stock are reserved for issuance upon exercise of outstanding options and
warrants; and (iii) 8,170,463 shares of Common Stock are reserved for
issuance upon the conversion of units of limited partnership interest in
American Real Estate Investment, L.P. Other than as set forth in the SEC
Filings or that certain Contribution and Exchange Agreement (the
"Contribution Agreement") dated as of August 6, 1999 by and among each of
those persons set forth on Exhibit A annexed thereto, American Real Estate
Investment, L.P. and the Company, there are no securities convertible into or
exchangeable for, or options, rights or warrants to purchase, any shares of
capital stock of the Company or agreements or commitments pursuant to which
the Company is obligated to issue, sell, purchase or redeem, shares of
capital stock of the Company. The Common Stock is currently listed for
trading on the AMEX.
3.04. DISCLOSURE. The Company has provided the undersigned with
all the information that the undersigned has requested for deciding whether
to purchase the Shares. The written information and
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certificates provided to the undersigned pursuant to this Agreement or the
Registration Rights Agreement are true and accurate in all material respects.
3.05. COMPLIANCE WITH LAWS; LITIGATION.
(a) Neither the Company nor any of its subsidiaries is
in violation of any federal, state or local law, statute, ordinance, rule,
regulation, order, judgment, ruling or decree ("Laws") of any federal, state
or local judicial, legislative, executive, administrative or regulatory body
or authority or any court, arbitration, board or tribunal ("Governmental
Entity") applicable to the Company or any of its subsidiaries, or any of
their properties or assets, except for violations which would not, either
individually or in the aggregate, have a Material Adverse Effect. Each of the
Company and its subsidiaries holds and is in compliance with all permits,
certificates, licenses, approvals, registrations and authorizations required
under all Laws (including without limitation those relating to environmental
protection, occupational safety and health, equal employment practices and
fair trade practices) in connection with its business ("Permits"), all of
which Permits are in full force and effect, except where the failure to hold
such Permits or be in compliance would not, either individually or in the
aggregate, have a Material Adverse Effect.
(b) There are no claims, actions, suits, proceedings,
arbitrations, investigations or audits (collectively, "Litigation") by a
third party other than a Governmental Entity pending or, to the knowledge of
the Company, threatened against the Company or any of its subsidiaries, at
law or in equity, other than those in the ordinary course of business which
would not, either individually or in the aggregate, have a Material Adverse
Effect. There is no Litigation by a Governmental Entity pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries. No Governmental Entity has indicated in writing or, to the
knowledge of the Company, verbally, an intention to conduct any audit,
investigation or other review with respect to the Company or any of its
subsidiaries which investigation or review, if adversely determined, would,
either individually or in the aggregate, have a Material Adverse Effect.
3.06. SEC FILINGS; SUBSEQUENT EVENTS.
(a) The SEC Filings represent each report filed by the
Company under Sections 13 and 15 of the Exchange Act since January 1, 1999.
As of their respective dates, the SEC Filings (i) complied as to form in all
material respects with the applicable requirements of the Exchange Act, and
the rules and regulations thereunder and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. The Company
has no liabilities or obligations, contingent or otherwise, except (i)
liabilities and obligations in the respective amounts reflected or reserved
against in the Company's financial statements (including the footnotes
thereto) as of December 31, 1998 and June 30, 1999 included in the SEC
Filings, (ii) liabilities and obligations incurred in the ordinary course of
business since July 1, 1999 which, either individually or in the aggregate,
would not have a Material Adverse Effect, or (iii) liabilities and
obligations with respect to the Contribution Agreement.
(b) Since the respective dates as of which information
is given in the Company's quarterly report for the period ending June 30,
1999, and other than changes in general economic conditions or industry
conditions, there has not been any change in the condition (financial or
otherwise) or in the earnings, business affairs or business prospects of the
Company, whether or not arising in the ordinary course of business, which
either individually or in the aggregate would have a Material Adverse Effect
except for the Contribution Agreement.
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3.07. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY;
U.S. ENTITY. The Company (i) is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended (the "1940 Act"),
(ii) is not an "investment company" for purposes of Section 12(d)(1) of the
1940 Act, (iii) is not and will not become a "holding company" or a
"subsidiary company" within the meaning of the Public Utility Holding Company
Act of 1935, as amended, (iv) is not and will not be headquartered or
organized in any jurisdiction outside the United States of America or (v)
does not directly or indirectly conduct activities or own assets in any
foreign jurisdiction.
3.08. TAX MATTERS.
(a) The Company has been, for each year ending on or
after December 31, 1993, organized and operated in conformity with the
requirements for qualification and taxation as a "real estate investment
trust" under the Code and the Treasury Regulations promulgated hereunder.
(b) To the best knowledge of the Company, the Company
is not currently a "pension-held REIT" within the meaning of Code Section
856(h)(3)(D) and the Treasury Regulations promulgated thereunder.
(c) American Real Estate Investment, L.P., a Delaware
limited partnership (the "Operating Partnership"), and each of the
Subsidiaries that is eligible to be classified as a partnership for federal
income tax purposes is so classified and taxed.
(d) The Company will use reasonable efforts not to
take any action or not to permit any action to be taken (to the extent the
action is within the control of the Company) that would cause any of the
representations set forth in this Section 3.09 to be incorrect or incomplete
if made as of any date following the Closing. In the event of the taking or
proposed taking of any action that would cause the representation set forth
in Section 3.09(b) to be incorrect if made as of any date following the
Closing, the Company shall use reasonable efforts to notify the undersigned
prior to the taking of such action.
3.09. NO OTHER REPRESENTATIONS. The Company shall not be deemed
to have made to the undersigned any representation or warranty other than as
expressly made by the Company in this SECTION 3. Without limiting the
generality of the foregoing, and notwithstanding any otherwise express
representations and warranties made by the Company, in this SECTION 3, the
Company makes no representation or warranty to the undersigned with respect
to any projections, estimates or budgets heretofore delivered to or made
available to the undersigned of future revenues, expenses or expenditures or
future results of operations.
Section 4. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING. The
obligations of the undersigned under SECTION 1.02 of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions:
4.01. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in SECTION 3 (other than those made as of
a specified date earlier than the date of Closing) shall be true and correct
in all material respects on and as of the date of the Closing with the same
effect as though such representation or warranty was made on and as of the
date of such Closing, and any representation or warranty made as of a
specified date earlier than the date of such Closing shall have been true and
correct in all material respects as of such earlier date; except, in each
case, to the extent any inaccuracy of any representation or warranty of the
Company contained herein results solely as a result of the merger of the
Company after the date hereof, with and into Keystone Property Trust, a
wholly-owned subsidiary of the Company, with Keystone Property Trust being
the surviving entity.
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4.02. PERFORMANCE. The Company shall have performed and complied
with, in all material respects, all agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied
with by it on or before the Closing.
4.03. COMPLIANCE CERTIFICATE. The President or a Vice President
of the Company shall deliver to the undersigned at the Closing a certificate
certifying that the conditions specified in SECTIONS 4.01 AND 4.02 have been
fulfilled.
4.04. QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States
or of any state that are required in connection with the lawful issuance and
sale of the Shares pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
4.05. OPINION OF ROGERS & WELLS LLP. The undersigned shall have
received from Rogers & Wells LLP, counsel for the Company, an opinion dated
as of the Closing, to the effect that the issuance of the Shares contemplated
by this Agreement is exempt from registration under the Securities Act.
4.06. OPINION OF PIPER & MARBURY L.L.P. The undersigned shall
have received from Piper & Marbury L.L.P., special Maryland counsel for the
Company, an opinion dated as of the Closing, to the effect that the Shares,
when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, have been duly authorized
and validly issued, are fully paid, and are nonassessable and that the
execution, delivery and performance by the Company of this Subscription
Agreement and the Registration Rights Agreement are within the Company's
corporate powers and have been duly authorized by all necessary corporate
action.
4.07. REGISTRATION RIGHTS AGREEMENT. The Company shall have
executed the Registration Rights Agreement in the form attached hereto as
EXHIBIT D.
4.08. CERTIFICATES. Certificates representing the number of
Shares set forth on Schedule A, in such name as the undersigned has
designated pursuant to SECTION 1.02 hereof shall have been delivered to the
undersigned.
4.09. STAGE I CLOSING. The Stage I Closing (as defined in the
Contribution Agreement) shall have occurred.
Section 5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to the undersigned under this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions by the undersigned:
5.01. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the undersigned contained in SECTION 2 (other than those made
as of a specified date earlier than the date of Closing) shall be true and
correct in all material respects on and as of the date of the Closing with
the same effect as though such representation or warranty was made on and as
of the date of such Closing, and any representation or warranty made as of a
specified date earlier than the date of such Closing shall have been true and
correct in all material respects as of such earlier date.
5.02. COMPLIANCE CERTIFICATE. The undersigned shall deliver to
the Company at the Closing a certificate certifying that the condition
specified in SECTION 5.01 has been fulfilled and that the information
provided in the Investor Information Sheet and Accredited Investor
Questionnaire delivered by the undersigned upon execution of this Agreement
remain true and correct on and as of the date of the
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Closing with the same effect as though such information was provided on and
as of the date of such Closing.
5.03. PAYMENT OF PURCHASE PRICE. The undersigned shall have
delivered the Purchase Price.
5.04. QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States
or of any state that are required in connection with the lawful issuance and
sale of the Shares pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
5.05. STAGE I CLOSING. The Stage I Closing shall have occurred.
Section 6. MISCELLANEOUS.
6.01. MODIFICATION. Neither this Agreement nor any provisions
hereof shall be waived, modified, discharged or terminated except by an
instrument in writing signed by the party against whom any waiver, change,
discharge or termination is sought.
6.02. NOTICES. All notices, payments, demands or other
communications given hereunder shall be deemed to have been duly given and
received (i) upon personal delivery, (ii) in the case of notices sent within,
and for delivery within, the United States, as of the date shown on the
return receipt after mailing by registered or certified mail, return receipt
requested, postage prepaid, or (iii) the second succeeding business day after
deposit with Federal Express or other equivalent air courier delivery
service, unless the notice is held or retained by the customs service, in
which case the date shall be the fifth succeeding business day after such
deposit.
6.03. BINDING EFFECT. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their heirs, executors, administrators, successors, legal representatives and
permitted assigns. The Company may transfer its rights and obligations by
operation of law to Keystone Property Trust, a wholly-owned subsidiary of the
Company, in connection with the merger of the Company with and into Keystone
Property Trust, with Keystone Property Trust as the surviving entity having a
Declaration of Trust substantially in the form set forth as Appendix A to the
Proxy Statement of the Company filed with the SEC on April 30, 1999, it being
understood that, upon the consummation of such merger, all references herein
and in the documents contemplated hereby to the Company shall mean Keystone
Property Trust, as successor to the Company, with appropriate revision hereto
to reflect the reorganization of the Company from a Maryland corporation to a
Maryland real estate investment trust.
6.04. ENTIRE AGREEMENT. This Agreement and all exhibits hereto
including, without limitation, the Investor Information Sheet, Accredited
Investor Questionnaire, Articles Supplementary and Registration Rights
Agreement, contain the entire agreement of the parties with respect to this
subscription, and there are no representations, covenants or other agreements
except as stated or referred to herein or therein.
6.05. CONFIDENTIALITY. The undersigned shall not disclose the
information furnished to the undersigned by the Company or any of its
affiliates or their representatives in connection with the undersigned's
consideration of the transactions contemplated by this Agreement (the
"Evaluation Materials"), unless requested in any judicial or administrative
proceeding or by any governmental or regulatory authority to disclose any
Evaluation material, and if the undersigned is so requested, it shall give
the Company prompt notice of such request so that the Company may seek an
appropriate protective order; PROVIDED, HOWEVER, that Evaluation Material
does not include information which was or becomes
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available to the undersigned on a non-confidential basis from a source other
than the Company or its representatives, provided that the undersigned is not
aware that such source is under an obligation (whether contractual, legal or
fiduciary) to the Company to keep such information confidential.
6.06. ASSIGNABILITY. This Agreement is not transferable or
assignable by the undersigned.
6.07. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within such State without giving
effect to the conflict of law provisions thereof. The parties agree that all
disputes between any of them arising out of, connected with, related to, or
incidental to the relationship established between them in connection with
this Agreement or the Registration Rights Agreement, and whether arising in
law or in equity or otherwise, shall be resolved by the federal or state
courts located in New York, New York. Nothing herein shall affect the right
of any party to serve process in any manner permitted by law or to commence
legal proceedings or otherwise proceed against the other in any other
jurisdiction. In addition, each of the parties hereto consents to submit to
the personal jurisdiction of any federal or state court located in the State
of New York in the event that any dispute arises out of this Agreement or the
Registration Rights Agreement or any of the transactions contemplated hereby
or thereby. The parties, for themselves and their respective affiliates,
hereby irrevocably waive all right to a trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to the actions of the parties or their respective
affiliates pursuant to this Agreement in the negotiation, administration,
performance or enforcement thereof.
6.08. GENDER. All pronouns contained herein and any variations
thereof shall be deemed to refer to the masculine, feminine or neuter,
singular or plural, as the identity of the parties hereto may require.
6.09. COUNTERPARTS. This Agreement may be executed through the
use of separate signature pages or in counterparts, and each of such
counterparts shall, for all purposes, constitute one agreement binding on the
parties hereto, notwithstanding that the parties hereto are not signatories
to the same counterpart.
6.10. FURTHER ASSURANCES. The undersigned will, from time to
time, execute and deliver to the Company all such other and further
instruments and documents and take or cause to be taken all such other and
further action as the Company may reasonably request in order to effect the
transactions contemplated by this Agreement.
6.11. EXPENSES. Each party shall pay all costs and expenses which
it incurs in connection with the negotiation, execution, delivery and
performance of this Agreement.
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AMERICAN REAL ESTATE INVESTMENT CORPORATION
SUBSCRIPTION AGREEMENT
COUNTERPART SIGNATURE PAGE
The undersigned, desiring to enter into this Subscription Agreement
for the subscription of the number of Shares indicated below, hereby agrees
to all of the terms and provisions of this Subscription Agreement and agrees
to be bound by all such terms and provisions.
The undersigned has executed this Subscription Agreement as of the
27TH day of September, 1999.
ALLSTATE INSURANCE COMPANY
By: /s/ PAMELA AMOS
---------------
Name: Pamela Amos
Title: Authorized Signatories
By: /s/ Barbara S. Brown
--------------------
Name: Barbara S. Brown
Title: Authorized Signatories
Agreed and Accepted this
27TH day of September, 1999.
AMERICAN REAL ESTATE INVESTMENT CORPORATION,
a Maryland corporation
By: /s/ STEPHEN J. BUTTE
--------------------
Name: Stephen J. Butte
Title: Vice President
<PAGE>
EXHIBIT 10-8
American Real Estate Investment Corporation
Plymouth Meeting Executive Campus
620 W. Germantown Pike, Suite 200
Plymouth Meeting, Pennsylvania 19462
Attention: Timothy A. Peterson, Executive Vice President
Ladies and Gentlemen:
This Agreement (the "Agreement") is executed by the undersigned in
connection with the offer by American Real Estate Investment Corporation, a
Maryland corporation (the "Company"), to sell, and the purchase by the
undersigned of, shares of the Company's Series C Convertible Preferred Stock,
par value $.001 per share, of the Company (the "Preferred Stock"), having the
rights, restrictions, privileges and preferences set forth in the form of
Articles Supplementary attached hereto as Exhibit C.
Section 1.
1.01. SUBSCRIPTION. The undersigned hereby agrees to purchase the
number of shares of Preferred Stock indicated on SCHEDULE A attached hereto
(the "Shares") at $25 per share of Preferred Stock (the "Purchase Price"). In
respect of this subscription, the undersigned herewith delivers to the
Company a fully completed Investor Information Sheet and Accredited Investor
Questionnaire attached as Exhibits A and B, respectively.
1.02. CLOSING. The purchase and sale of the Shares shall take
place at the offices of Rogers & Wells LLP, 200 Park Avenue, New York, New
York, at 10:00 a.m., subject to satisfaction of the conditions set forth in
SECTION 4 and SECTION 5, on (i) the earlier to occur of (a) September 9, 1999
or (b) such earlier date as the Company may elect, provided the Company gives
the undersigned at least four (4) days prior notice; or (ii) such other time
and place as the Company and the undersigned mutually agree (the "Closing").
At the Closing the Company shall deliver to the undersigned a certificate
representing the Shares that the undersigned is purchasing, registered in
such name or names as the undersigned shall designate at least two (2)
business days prior to the date of the Closing, against payment of the
Purchase Price thereof by wire transfer in immediately available funds to an
account designated by the Company at least two (2) business days prior to the
date of the Closing.
1.03. TERMINATION. If the Closing does not occur on or before
October 15, 1999, either party may terminate this Agreement upon notice to
the other party, and thereafter there will be no liability or obligation on
the part of the undersigned or the Company (or any of their respective
officers, directors, employees, agents or other representatives or
affiliates), except that, notwithstanding any other provision in this
Agreement to the contrary, upon termination of this Agreement pursuant to
this SECTION 1.03, the undersigned will remain liable to the Company for any
breach of this Agreement by the undersigned existing at the time of such
termination, and the Company will remain liable to the undersigned for any
breach of the Agreement by the Company existing at the time of such
termination, and the Company or the undersigned may seek such remedies,
including damages and fees of attorneys, against the other with respect to
such breach as are provided in this Agreement or as are otherwise available
at law or in equity.
Section 2. INVESTOR REPRESENTATIONS AND WARRANTIES. The undersigned
hereby acknowledges, represents and warrants to, and agrees with, the Company
as follows, which acknowledgments will be true and correct as of the Closing
and as of the date the undersigned receives any Common Stock (as defined
below) upon conversion of the Shares:
<PAGE>
2.01. AUTHORIZATION. This Agreement and the Registration Rights
Agreement (as defined below) constitute valid and legally binding obligations
of the undersigned, enforceable in accordance with their terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies, and (iii) to the
extent the indemnification provisions contained in the Registration Rights
Agreement may be limited by applicable federal or state securities laws,
rules, regulation or public policy. The undersigned represents that it has
full power and authority to enter into this Agreement.
2.02. NO ADVERTISEMENT OR SOLICITATION. The undersigned
acknowledges that the offer and sale of the Shares to it has not been
accomplished by any form of general solicitation or general advertising,
including, but not limited to, (i) any advertisement, article, notice or
other communication published in any newspaper, magazine or similar media, or
broadcast over television or radio or (ii) any seminar or meeting whose
attendees have been invited by any general solicitation or general
advertising.
2.03. RESTRICTIONS ON TRANSFER.
(a) The undersigned understands and acknowledges that
the Shares have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or applicable state securities laws, by
reason of a specific exemption from the registration provisions thereof which
exemption depends upon, among other things, the bona fide nature of the
investment intent of the undersigned as expressed herein and the accuracy and
completeness of the other representations of the undersigned set forth herein.
(b) The undersigned understands and acknowledges that,
except as provided for by the Registration Rights Agreement attached hereto
as Exhibit D (the "Registration Rights Agreement"), none of the Shares or any
shares of common stock, par value $.001 per share, of the Company (the
"Common Stock") issuable on conversion of the Shares have been registered
under the Securities Act or registered or qualified under the securities laws
of any state and none may be sold, transferred, assigned, pledged or
hypothecated (i) absent effective registration thereof under the Securities
Act and applicable state securities laws, or (ii) absent an opinion of
counsel (including in-house counsel or regular counsel), which opinion is
reasonably satisfactory in form and substance to the Company and its counsel,
in their respective reasonable discretion, to the effect that such
registration is not required under the Securities Act or such state
securities laws or that such transaction complies with the rules promulgated
by the Securities and Exchange Commission (the "Commission") under the
Securities Act or such state securities laws or (iii) except in a transaction
in compliance with Rule 144 under the Securities Act. The undersigned
understands and acknowledges that he, she or it must bear the economic risks
of this investment resulting from such limitations.
(c) The undersigned is aware of the provisions of Rule
144 promulgated under the Securities Act as currently in effect, pursuant to
which the undersigned may be able to sell the Shares (or the Common Stock
issuable on conversion of the Shares), subject to certain exceptions, one
year after they receive such Shares so long as certain current public
information is available about the Company, the sale is through a broker in
an unsolicited "broker's transaction" and the undersigned does not sell, in
any three-month period, more than the greater of 1% of the outstanding Shares
or Common Stock, as applicable, or the average weekly trading volume of the
Shares or Common Stock, as applicable, for the four-week period preceding the
sale. The undersigned generally will be able to sell the Shares without
regard to any volume or other limitations discussed above beginning two years
after they receive the Shares, unless they are affiliates of the Company
(i.e., a person controlling, controlled by or under common control with the
Company). Affiliates of the Company will continue to be subject to the volume
limitations on unregistered sales following the expiration of the two-year
period. The preceding
2
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description is a general summary of the restrictions of Rule 144 as currently
in effect, and each of the undersigned should consult with his, her or its
own legal advisor to ensure compliance with all of the requirements of
applicable federal and state securities laws and regulations. In this
connection, the undersigned understands Rule 144 may or may not be available
for the resale of the Shares (or the Common Stock issuable on conversion of
the Shares) and the undersigned should consult an attorney with regard to the
availability of Rule 144. The Company is subject to the reporting
requirements under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Upon notice of issuance, the shares of Common Stock issuable
on conversion of the Shares will be listed for trading on the American Stock
Exchange (the "AMEX") or such other national stock exchange or automatic
quotation system as the Company's Common Stock is then listed or quoted. If
not all of the requirements of Rule 144 are met, registration under the
Securities Act or some other registration exemption will be required for any
disposition of the Shares (or the Common Stock issuable on conversion of the
Shares).
The undersigned understands that although Rule 144 is not exclusive,
the Commission has expressed its opinion that persons proposing to sell
restricted securities received in an offering other than a registered
offering or pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers
or sales and that such persons and the brokers who participate in the
transactions do so at their own risk.
2.04. DISCLOSURE OF INFORMATION. The undersigned:
(i) has carefully read and reviewed the Company's
Annual Report on Form 10-K for its fiscal year ended December 31, 1998, the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999 and June 30, 1999, the Company's Current Report on Form 8-K filed
January 8, 1999, the Company's Current Report on Form 8-K/A filed January 13,
1999 and the Company's Current Report of Form 8-K filed August 20, 1999 (all
such reports are referred to collectively herein as the "SEC Filings"), and
has been afforded access to all information necessary to evaluate the merits
and risks of the acquisition of the Shares, and has relied solely (except as
indicated in subsections (ii) and (iii) below) on such materials or documents.
(ii) has been provided an opportunity to obtain any
additional information requested concerning the Shares, the Common Stock
issuable on conversion of the Shares, and the Company;
(iii) has been given the opportunity to ask questions
of, and receive answers from, the Company, or a person or persons acting on
the behalf of the Company, concerning the terms and conditions of this
Agreement, the Articles Supplementary and the Registration Rights Agreement
and other matters pertaining to this investment, and has been given the
opportunity to obtain such additional information necessary to verify the
accuracy of the materials or documents that were provided in order for it to
evaluate the merits and risks of an investment in the Company to the extent
the Company possesses such information or can acquire it without unreasonable
effort or expense, and has not been furnished any other offering literature
or prospectus on which they are entitled to rely except as mentioned herein;
(iv) understands that the materials or documents
provided to the undersigned have not been prepared by, and the accuracy of
such material or documents have not been verified by, Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") which is acting as placement agent in
connection with the purchase and sale of the Shares, and that DLJ makes no
representations or warranties with respect to the materials or documents
provided to the undersigned;
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(v) understands that the Company makes no
representation or warranties with respect to the materials or documents
provided to the undersigned except as specifically provided for in this
Agreement; and
(vi) has determined that the Shares and the Common
Stock issuable on conversion of the Shares are a suitable investment for it
and that at this time it could bear the economic risk of the investment.
2.05. INVESTMENT EXPERIENCE. The undersigned represents that it
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of an investment in the Shares and
protecting its own interests in connection with the investment and has
obtained, in its judgment, sufficient information from the Company to
evaluate the merits and risks of an investment in the Shares. The undersigned
is an "accredited investor" as defined in Regulation D promulgated under the
Securities Act. The undersigned has not utilized any person as its purchaser
representative or professional advisor in connection with evaluating such
risks and merits. The undersigned acknowledges that it has the financial
ability to bear the economic risk of its investment in the Company (including
its possible loss). The undersigned also represents it has not been organized
solely for the purpose of acquiring the Shares.
2.06. PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with the undersigned in reliance upon its representation to the Company,
which by the undersigned's execution of this Agreement it hereby confirms,
that the Shares and the Common Stock issuable on conversion of the Shares, to
be received by the undersigned and any certificate which may be issuable in
respect thereof (the "Certificate") will be acquired for investment for the
undersigned's own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof in violation of the Securities
Act, and that it has no present intention of selling, granting any
participation in, or otherwise distributing the same, except as provided in
the Registration Rights Agreement, or under an exemption from registration
available under the Securities Act and applicable state securities laws.
2.07. LEGENDS. In addition to the legend required by Section
6.2.9 of the Company's Amended and Restated Articles of Incorporation, dated
as of December 12, 1997, as amended (the "Charter"), and the statements
required by Section 7.1 of the Company's By-Laws, as amended on August 3,
1999, to the extent applicable, any certificate or other document issued in
respect of any Shares (or shares of Common Stock issuable upon conversion of
the Shares) shall be endorsed with the legends set forth below, and the
undersigned covenants that, except to the extent such restrictions are waived
by the Company, the undersigned shall not transfer any Shares (or shares of
Common Stock issuable upon conversion of the Shares) without complying with
the restrictions on transfer described in such legends:
(i) "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED (1) ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT, (2)
ABSENT AN OPINION OF COUNSEL, WHICH OPINION IS REASONABLY SATISFACTORY IN
FORM AND SUBSTANCE TO THE COMPANY AND ITS COUNSEL, TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR SUCH STATES OR THAT SUCH
TRANSACTION COMPLIES WITH THE RULES PROMULGATED BY THE SECURITIES AND
EXCHANGE COMMISSION UNDER SAID ACT OR SUCH STATES OR (3) EXCEPT IN A
TRANSACTION IN COMPLIANCE WITH RULE 144 UNDER THE SECURITIES ACT."
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(ii) "THESE SECURITIES ARE SUBJECT TO THE TERMS AND
CONDITIONS OF THAT CERTAIN REGISTRATION RIGHTS AGREEMENT DATED AS OF
______________, 1999, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICES OF
THE COMPANY."
(iii) Any legend required by any applicable state
securities law.
Section 3. COMPANY REPRESENTATIONS AND WARRANTIES. Except as set forth
in a letter delivered by the Company to the undersigned prior to the
execution of this Agreement (the "Disclosure Letter," which Disclosure Letter
shall be deemed to be part of this Agreement), the Company hereby
acknowledges, represents and warrants to, and agrees with, the undersigned as
follows:
3.01. ORGANIZATION, GOOD STANDING AND QUALIFICATION; AUTHORITY.
Each of the Company and its direct or indirect subsidiaries, whether wholly
or majority owned (each, a "Subsidiary" and collectively, the
"Subsidiaries"), is a corporation duly incorporated, or a partnership,
limited partnership or a limited liability company duly formed, and is
validly existing and in good standing under the laws of its jurisdiction of
its incorporation or formation and has all requisite power and authority to
carry on its business as now conducted. Each of the Company and the
Subsidiaries is duly qualified to transact business and is in good standing
in each jurisdiction where the failure to so qualify would have a material
adverse effect on its business, operations, condition (financial or
otherwise), assets or properties (a "Material Adverse Effect") of the Company
and the Subsidiaries on a consolidated basis. Each of the Company and the
Subsidiaries has all requisite power and authority to own or lease and to
operate its properties and assets in order to carry on its business as now
conducted.
3.02. AUTHORIZATION.
(a) All action on the part of the Company, its
officers, directors and stockholders necessary for the adoption,
authorization, execution, filing (where applicable) and delivery of this
Agreement, the Articles Supplementary, the Registration Rights Agreement, and
the other documents contemplated thereby or delivered in connection
therewith, the performance of all obligations of the Company hereunder and
thereunder, and the authorization, issuance (or reservation for issuance),
sale and delivery of the Preferred Stock being sold hereunder and the Common
Stock issuable upon conversion of the Shares has been taken or will be taken
prior to the Closing. This Agreement and the Registration Rights Agreement
constitute valid and legally binding obligations of the Company, enforceable
in accordance with their terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, (ii) as
limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies, and (iii) to the extent the
indemnification and contribution provisions contained in the Registration
Rights Agreement may be limited by applicable federal or state securities
laws, rules or regulations. The Company does not have any shareholder rights
plan or other "poison pill." The Company has opted out of Subtitle 7 of Title
3 of the Maryland General Corporation Law.
(b) Neither the execution nor delivery by the Company
of this Agreement or the Registration Rights Agreement nor the consummation
of the transactions contemplated hereby or thereby nor compliance with or
fulfillment of the terms and provisions hereof or thereof by the Company or
any subsidiary, will (i) violate or conflict with any organizational document
of the Company or any of its subsidiaries, (ii) conflict with, result in a
breach of the terms, conditions or provisions of, or constitute a default, an
event of default or an event which, with notice or lapse of time or both,
would constitute a default under, or create rights of acceleration,
termination or cancellation or a loss of rights, or result in the creation or
imposition of any encumbrance upon any of the assets or properties of the
Company or any of its subsidiaries, or result in the triggering of any
payment or other obligations under, any instrument,
5
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agreement, mortgage, indenture, deed of trust, permit, concession, grant,
franchise, license, judgment, order, award, decree or other restriction to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or any of their assets or properties may
be bound, or any Laws (as defined below), which would have a Material Adverse
Effect, (iii) except for filings with the AMEX or the Commission, require the
approval, consent or authorization of, or the making of any declaration,
filing or registration with, any third party or any Governmental Entity (as
defined below), by or on behalf of the Company or any of its subsidiaries, or
(iv) cause the Company to fail to qualify to be taxed as a "real estate
investment trust," as defined in Section 856 of the Code ("REIT"), for the
taxable year ending December 31, 1999.
3.03. VALID ISSUANCE OF PREFERRED STOCK; CAPITALIZATION.
(a) The Preferred Stock that is being purchased by the
undersigned hereunder, when issued, sold and delivered in accordance with the
terms of this Agreement for the consideration expressed herein, will be duly
and validly issued, fully paid, and nonassessable, and, based in part upon
the representations of the undersigned in this Agreement, will be issued in
compliance with all applicable federal and state securities laws. The
issuance and sale of the Preferred Stock will not violate any preemptive
rights. The undersigned will acquire good and valid title to the Shares, free
and clear of any preemptive rights, restrictions or encumbrances, other than
the ownership limitations contained in the Charter, the resale restrictions
contained in the Registration Rights Agreement and restrictions under state
and federal securities laws, rules and regulations.
(b) The Common Stock issuable upon conversion of the
Shares, when issued, will be duly and validly issued, fully paid, and
nonassessable, and, based in part upon the representations of the undersigned
in this Agreement, will be issued in compliance with all applicable federal
and state securities laws. The issuance of such Common Stock to the
undersigned will not violate any preemptive rights. The undersigned will
acquire good and valid title to such Common Stock, free and clear of any
preemptive rights, restrictions or encumbrances, other than the ownership
limitations contained in the Charter, the resale restrictions contained in
the Registration Rights Agreement and restrictions under state and federal
securities laws, rules and regulations.
(c) On August 12, 1999, the capital stock of the
Company consists solely of 65,000,000 shares of capital stock, of which
59,200,000 shares are designated as Common Stock, 800,000 shares are
designated as Series A Convertible Preferred Stock, 4,200,000 are designated
as Series B Convertible Preferred Stock and 800,000 shares are designated as
Series C Convertible Preferred Stock, of which on the date hereof (i)
7,501,558 shares of Common Stock, 800,000 shares of Series A Convertible
Preferred Stock, no shares of Series B Convertible Preferred Stock, and no
shares of Series C Convertible Preferred Stock, are validly issued and
outstanding and fully paid and nonassessable; (ii) 1,297,050 shares of Common
Stock are reserved for issuance upon exercise of outstanding options and
warrants; and (iii) 8,170,463 shares of Common Stock are reserved for
issuance upon the conversion of units of limited partnership interest in
American Real Estate Investment, L.P. Other than as set forth in the SEC
Filings or that certain Contribution and Exchange Agreement (the
"Contribution Agreement") dated as of August 6, 1999 by and among each of
those persons set forth on Exhibit A annexed thereto, American Real Estate
Investment, L.P. and the Company, there are no securities convertible into or
exchangeable for, or options, rights or warrants to purchase, any shares of
capital stock of the Company or agreements or commitments pursuant to which
the Company is obligated to issue, sell, purchase or redeem, shares of
capital stock of the Company. The Common Stock is currently listed for
trading on the AMEX.
3.04. DISCLOSURE. The Company has provided the undersigned with
all the information that the undersigned has requested for deciding whether
to purchase the Shares. The written information and
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certificates provided to the undersigned pursuant to this Agreement or the
Registration Rights Agreement are true and accurate in all material respects.
3.05. COMPLIANCE WITH LAWS; LITIGATION.
(a) Neither the Company nor any of its subsidiaries is
in violation of any federal, state or local law, statute, ordinance, rule,
regulation, order, judgment, ruling or decree ("Laws") of any federal, state
or local judicial, legislative, executive, administrative or regulatory body
or authority or any court, arbitration, board or tribunal ("Governmental
Entity") applicable to the Company or any of its subsidiaries, or any of
their properties or assets, except for violations which would not, either
individually or in the aggregate, have a Material Adverse Effect. Each of the
Company and its subsidiaries holds and is in compliance with all permits,
certificates, licenses, approvals, registrations and authorizations required
under all Laws (including without limitation those relating to environmental
protection, occupational safety and health, equal employment practices and
fair trade practices) in connection with its business ("Permits"), all of
which Permits are in full force and effect, except where the failure to hold
such Permits or be in compliance would not, either individually or in the
aggregate, have a Material Adverse Effect.
(b) There are no claims, actions, suits, proceedings,
arbitrations, investigations or audits (collectively, "Litigation") by a
third party other than a Governmental Entity pending or, to the knowledge of
the Company, threatened against the Company or any of its subsidiaries, at
law or in equity, other than those in the ordinary course of business which
would not, either individually or in the aggregate, have a Material Adverse
Effect. There is no Litigation by a Governmental Entity pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries. No Governmental Entity has indicated in writing or, to the
knowledge of the Company, verbally, an intention to conduct any audit,
investigation or other review with respect to the Company or any of its
subsidiaries which investigation or review, if adversely determined, would,
either individually or in the aggregate, have a Material Adverse Effect.
3.06. SEC FILINGS; SUBSEQUENT EVENTS.
(a) The SEC Filings represent each report filed by the
Company under Sections 13 and 15 of the Exchange Act since January 1, 1999.
As of their respective dates, the SEC Filings (i) complied as to form in all
material respects with the applicable requirements of the Exchange Act, and
the rules and regulations thereunder and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. The Company
has no liabilities or obligations, contingent or otherwise, except (i)
liabilities and obligations in the respective amounts reflected or reserved
against in the Company's financial statements (including the footnotes
thereto) as of December 31, 1998 and June 30, 1999 included in the SEC
Filings, (ii) liabilities and obligations incurred in the ordinary course of
business since July 1, 1999 which, either individually or in the aggregate,
would not have a Material Adverse Effect, or (iii) liabilities and
obligations with respect to the Contribution Agreement.
(b) Since the respective dates as of which information
is given in the Company's quarterly report for the period ending June 30,
1999, and other than changes in general economic conditions or industry
conditions, there has not been any change in the condition (financial or
otherwise) or in the earnings, business affairs or business prospects of the
Company, whether or not arising in the ordinary course of business, which
either individually or in the aggregate would have a Material Adverse Effect
except for the Contribution Agreement.
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3.07. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY;
U.S. ENTITY. The Company (i) is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended (the "1940 Act"),
(ii) is not an "investment company" for purposes of Section 12(d)(1) of the
1940 Act, (iii) is not and will not become a "holding company" or a
"subsidiary company" within the meaning of the Public Utility Holding Company
Act of 1935, as amended, (iv) is not and will not be headquartered or
organized in any jurisdiction outside the United States of America or (v)
does not directly or indirectly conduct activities or own assets in any
foreign jurisdiction.
3.08. TAX MATTERS.
(a) The Company has been, for each year ending on or
after December 31, 1993, organized and operated in conformity with the
requirements for qualification and taxation as a "real estate investment
trust" under the Code and the Treasury Regulations promulgated hereunder.
(b) To the best knowledge of the Company, the Company
is not currently a "pension-held REIT" within the meaning of Code Section
856(h)(3)(D) and the Treasury Regulations promulgated thereunder.
(c) American Real Estate Investment, L.P., a Delaware
limited partnership (the "Operating Partnership"), and each of the
Subsidiaries that is eligible to be classified as a partnership for federal
income tax purposes is so classified and taxed.
(d) The Company will use reasonable efforts not to
take any action or not to permit any action to be taken (to the extent the
action is within the control of the Company) that would cause any of the
representations set forth in this Section 3.09 to be incorrect or incomplete
if made as of any date following the Closing. In the event of the taking or
proposed taking of any action that would cause the representation set forth
in Section 3.09(b) to be incorrect if made as of any date following the
Closing, the Company shall use reasonable efforts to notify the undersigned
prior to the taking of such action.
3.09. NO OTHER REPRESENTATIONS. The Company shall not be deemed
to have made to the undersigned any representation or warranty other than as
expressly made by the Company in this SECTION 3. Without limiting the
generality of the foregoing, and notwithstanding any otherwise express
representations and warranties made by the Company, in this SECTION 3, the
Company makes no representation or warranty to the undersigned with respect
to any projections, estimates or budgets heretofore delivered to or made
available to the undersigned of future revenues, expenses or expenditures or
future results of operations.
Section 4. CONDITIONS OF INVESTORS' OBLIGATIONS AT CLOSING. The
obligations of the undersigned under SECTION 1.02 of this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions:
4.01. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in SECTION 3 (other than those made as of
a specified date earlier than the date of Closing) shall be true and correct
in all material respects on and as of the date of the Closing with the same
effect as though such representation or warranty was made on and as of the
date of such Closing, and any representation or warranty made as of a
specified date earlier than the date of such Closing shall have been true and
correct in all material respects as of such earlier date; except, in each
case, to the extent any inaccuracy of any representation or warranty of the
Company contained herein results solely as a result of the merger of the
Company after the date hereof, with and into Keystone Property Trust, a
wholly-owned subsidiary of the Company, with Keystone Property Trust being
the surviving entity.
8
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4.02. PERFORMANCE. The Company shall have performed and complied
with, in all material respects, all agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied
with by it on or before the Closing.
4.03. COMPLIANCE CERTIFICATE. The President or a Vice President
of the Company shall deliver to the undersigned at the Closing a certificate
certifying that the conditions specified in SECTIONS 4.01 AND 4.02 have been
fulfilled.
4.04. QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States
or of any state that are required in connection with the lawful issuance and
sale of the Shares pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
4.05. OPINION OF ROGERS & WELLS LLP. The undersigned shall have
received from Rogers & Wells LLP, counsel for the Company, an opinion dated
as of the Closing, to the effect that the issuance of the Shares contemplated
by this Agreement is exempt from registration under the Securities Act.
4.06. OPINION OF PIPER & MARBURY L.L.P. The undersigned shall
have received from Piper & Marbury L.L.P., special Maryland counsel for the
Company, an opinion dated as of the Closing, to the effect that the Shares,
when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, have been duly authorized
and validly issued, are fully paid, and are nonassessable and that the
execution, delivery and performance by the Company of this Subscription
Agreement and the Registration Rights Agreement are within the Company's
corporate powers and have been duly authorized by all necessary corporate
action.
4.07. REGISTRATION RIGHTS AGREEMENT. The Company shall have
executed the Registration Rights Agreement in the form attached hereto as
EXHIBIT D.
4.08. CERTIFICATES. Certificates representing the number of
Shares set forth on Schedule A, in such name as the undersigned has
designated pursuant to SECTION 1.02 hereof shall have been delivered to the
undersigned.
4.09. STAGE I CLOSING. The Stage I Closing (as defined in the
Contribution Agreement) shall have occurred.
Section 5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to the undersigned under this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions by the undersigned:
5.01. REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the undersigned contained in SECTION 2 (other than those made
as of a specified date earlier than the date of Closing) shall be true and
correct in all material respects on and as of the date of the Closing with
the same effect as though such representation or warranty was made on and as
of the date of such Closing, and any representation or warranty made as of a
specified date earlier than the date of such Closing shall have been true and
correct in all material respects as of such earlier date.
5.02. COMPLIANCE CERTIFICATE. The undersigned shall deliver to
the Company at the Closing a certificate certifying that the condition
specified in SECTION 5.01 has been fulfilled and that the information
provided in the Investor Information Sheet and Accredited Investor
Questionnaire delivered by the undersigned upon execution of this Agreement
remain true and correct on and as of the date of the
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Closing with the same effect as though such information was provided on and
as of the date of such Closing.
5.03. PAYMENT OF PURCHASE PRICE. The undersigned shall have
delivered the Purchase Price.
5.04. QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States
or of any state that are required in connection with the lawful issuance and
sale of the Shares pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
5.05. STAGE I CLOSING. The Stage I Closing shall have occurred.
Section 6. MISCELLANEOUS.
6.01. MODIFICATION. Neither this Agreement nor any provisions
hereof shall be waived, modified, discharged or terminated except by an
instrument in writing signed by the party against whom any waiver, change,
discharge or termination is sought.
6.02. NOTICES. All notices, payments, demands or other
communications given hereunder shall be deemed to have been duly given and
received (i) upon personal delivery, (ii) in the case of notices sent within,
and for delivery within, the United States, as of the date shown on the
return receipt after mailing by registered or certified mail, return receipt
requested, postage prepaid, or (iii) the second succeeding business day after
deposit with Federal Express or other equivalent air courier delivery
service, unless the notice is held or retained by the customs service, in
which case the date shall be the fifth succeeding business day after such
deposit.
6.03. BINDING EFFECT. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties and
their heirs, executors, administrators, successors, legal representatives and
permitted assigns. The Company may transfer its rights and obligations by
operation of law to Keystone Property Trust, a wholly-owned subsidiary of the
Company, in connection with the merger of the Company with and into Keystone
Property Trust, with Keystone Property Trust as the surviving entity having a
Declaration of Trust substantially in the form set forth as Appendix A to the
Proxy Statement of the Company filed with the SEC on April 30, 1999, it being
understood that, upon the consummation of such merger, all references herein
and in the documents contemplated hereby to the Company shall mean Keystone
Property Trust, as successor to the Company, with appropriate revision hereto
to reflect the reorganization of the Company from a Maryland corporation to a
Maryland real estate investment trust.
6.04. ENTIRE AGREEMENT. This Agreement and all exhibits hereto
including, without limitation, the Investor Information Sheet, Accredited
Investor Questionnaire, Articles Supplementary and Registration Rights
Agreement, contain the entire agreement of the parties with respect to this
subscription, and there are no representations, covenants or other agreements
except as stated or referred to herein or therein.
6.05. CONFIDENTIALITY. The undersigned shall not disclose the
information furnished to the undersigned by the Company or any of its
affiliates or their representatives in connection with the undersigned's
consideration of the transactions contemplated by this Agreement (the
"Evaluation Materials"), unless requested in any judicial or administrative
proceeding or by any governmental or regulatory authority to disclose any
Evaluation material, and if the undersigned is so requested, it shall give
the Company prompt notice of such request so that the Company may seek an
appropriate protective order; PROVIDED, HOWEVER, that Evaluation Material
does not include information which was or becomes
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<PAGE>
available to the undersigned on a non-confidential basis from a source other
than the Company or its representatives, provided that the undersigned is not
aware that such source is under an obligation (whether contractual, legal or
fiduciary) to the Company to keep such information confidential.
6.06. ASSIGNABILITY. This Agreement is not transferable or
assignable by the undersigned.
6.07. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed entirely within such State without giving
effect to the conflict of law provisions thereof. The parties agree that all
disputes between any of them arising out of, connected with, related to, or
incidental to the relationship established between them in connection with
this Agreement or the Registration Rights Agreement, and whether arising in
law or in equity or otherwise, shall be resolved by the federal or state
courts located in New York, New York. Nothing herein shall affect the right
of any party to serve process in any manner permitted by law or to commence
legal proceedings or otherwise proceed against the other in any other
jurisdiction. In addition, each of the parties hereto consents to submit to
the personal jurisdiction of any federal or state court located in the State
of New York in the event that any dispute arises out of this Agreement or the
Registration Rights Agreement or any of the transactions contemplated hereby
or thereby. The parties, for themselves and their respective affiliates,
hereby irrevocably waive all right to a trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to the actions of the parties or their respective
affiliates pursuant to this Agreement in the negotiation, administration,
performance or enforcement thereof.
6.08. GENDER. All pronouns contained herein and any variations
thereof shall be deemed to refer to the masculine, feminine or neuter,
singular or plural, as the identity of the parties hereto may require.
6.09. COUNTERPARTS. This Agreement may be executed through the
use of separate signature pages or in counterparts, and each of such
counterparts shall, for all purposes, constitute one agreement binding on the
parties hereto, notwithstanding that the parties hereto are not signatories
to the same counterpart.
6.10. FURTHER ASSURANCES. The undersigned will, from time to
time, execute and deliver to the Company all such other and further
instruments and documents and take or cause to be taken all such other and
further action as the Company may reasonably request in order to effect the
transactions contemplated by this Agreement.
6.11. EXPENSES. Each party shall pay all costs and expenses which
it incurs in connection with the negotiation, execution, delivery and
performance of this Agreement.
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AMERICAN REAL ESTATE INVESTMENT CORPORATION
SUBSCRIPTION AGREEMENT
COUNTERPART SIGNATURE PAGE
The undersigned, desiring to enter into this Subscription Agreement for
the subscription of the number of Shares indicated below, hereby agrees to all
of the terms and provisions of this Subscription Agreement and agrees to be
bound by all such terms and provisions.
The undersigned has executed this Subscription Agreement as of the 27TH
day of September, 1999.
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICAN
- -------------------------------------------------------
By: /s/ KEVIN J. RIORDAN
--------------------
Name: Kevin J. Riordan
Title: Managing Director
Agreed and Accepted this
27TH day of September, 1999.
AMERICAN REAL ESTATE INVESTMENT CORPORATION,
a Maryland corporation
By: /s/ STEPHEN J. BUTTE
--------------------
Name: Stephen J. Butte
Title: Vice President
<PAGE>
EXHIBIT 10-9
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made
and entered into as of September 27TH, 1999 by and between American Real Estate
Investment Corporation, a Maryland corporation (the "COMPANY"), and the holders
of securities listed on SCHEDULE A attached hereto (including their respective
successors, assigns and transferees herein referred to individually as a
"HOLDER" and collectively as the "HOLDERS").
WHEREAS, on the date hereof, pursuant to the Subscription
Agreement (the "SUBSCRIPTION AGREEMENT") made as of September 27, 1999 by and
among each of those Persons set forth in Exhibit A attached thereto, and the
Company, each Holder is receiving such number of shares of Series C Convertible
Preferred Stock, par value $.001 per share (the "PREFERRED STOCK"), of the
Company, which are convertible into shares of common stock, par value $.001 per
share (the "COMMON STOCK"), as set forth opposite such Holder's name on SCHEDULE
A attached hereto (the shares of Common Stock issued upon conversion of the
Preferred Stock are collectively referred to as the "REGISTRABLE SECURITIES;"
PROVIDED, HOWEVER, that any such securities shall cease to be Registrable
Securities when (i) a Shelf Registration Statement (as defined below) covering
such securities has been declared effective and such Registrable Securities have
been disposed of by the Holder thereof pursuant to such effective Shelf
Registration Statement or any other effective registration statement, (ii) such
securities are transferred by the Holder thereof to any person other than a
Holder pursuant to Rule 144 (or any successor rule or similar provision then in
effect, but not Rule 144A) under the Securities Act (as defined below),
including a sale pursuant to the provisions of Rule 144(k), (iii) such
securities shall have ceased to be outstanding or (iv) such securities are
eligible for sale pursuant to Rule 144 under the Securities Act and could be
sold in one transaction in accordance with the volume limitations contained in
Rule 144(e)(1)(i) under the Securities Act).
WHEREAS, in connection therewith, the Company has agreed to
grant to Holders the Registration Rights (as defined in Section 1 hereof);
NOW, THEREFORE, the parties hereto, in consideration of the
foregoing, the mutual covenants and agreements hereinafter set forth, and other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, hereby agree as follows:
SECTION 1. REGISTRATION RIGHTS
Each Holder shall be entitled to offer for sale from time to
time pursuant to a Shelf Registration Statement (as defined below) the
Registrable Securities, subject to the terms and conditions set forth herein
(the "Registration Rights").
1.1 REGISTRATION RIGHTS.
(a) REGISTRATION PROCEDURE. The Company will cause to
be filed with the Securities and Exchange Commission (the "SEC") within three
(3) months of the date of this Agreement a shelf registration statement and
related prospectus, including any preliminary prospectus and documents
incorporated by reference (the "Shelf Registration Statement") that complies as
to form in all material respects with applicable SEC rules providing for the
sale by each of the Holders of such Holder's Registrable Securities, and agrees
(subject to Section 1.2 hereof) to use its commercially reasonable best efforts
to cause such Shelf Registration Statement to be declared effective by the SEC
as soon as
<PAGE>
practicable thereafter; PROVIDED, HOWEVER, that, prior to filing a
Shelf Registration Statement or any amendments or supplements thereto, the
Company shall furnish to the Holders of the Registrable Securities covered by
such Shelf Registration Statement, Holders' counsel and the managing
underwriters, if any, draft copies of all such documents proposed to be filed,
and shall, prior to filing such documents, review any comments which are
submitted by any Holder or its counsel within five days after delivery of such
documents to such Holder by the Company; PROVIDED, FURTHER, that, except to the
extent such comments relate to specific disclosure regarding such Holder or its
proposed method of disposition of the Registrable Securities, the Company shall
not be required to incorporate any such comments into documents.
(b) AMENDMENTS AND SUPPLEMENTS. The Company shall (i)
prepare and file with the SEC such amendments to such Shelf Registration
statement as may be necessary to keep such Shelf Registration Statement
effective during the Target Effective Period; (ii) cause the Prospectus to be
amended or supplemented as required and to be filed as required by Rule 424 or
any similar rule that may be adopted under the Securities Act of 1933, as
amended (the "Securities Act"), (iii) respond as promptly as practicable to any
comments received from the SEC with respect to the Shelf Registration Statement
or any amendment thereto; and (iv) comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the Holder covered thereby. Each
Holder agrees to provide in a timely manner information regarding the proposed
distribution by such Holder of the Registrable Securities and such other
information reasonably requested by the Company in connection with the
preparation of and for inclusion in the Shelf Registration Statement. The
Company agrees (subject to Section 1.2 hereof) to use its commercially
reasonable best efforts to keep the Shelf Registration Statement effective and
free of material misstatements or omissions (including the preparation and
filing of any amendments and supplements necessary for that purpose) until the
earlier of (i) the first date on which all Holders have consummated the sale of
all of such Holders' Registrable Securities registered under the Shelf
Registration Statement or (ii) the date on which all of the Registrable
Securities are eligible for sale pursuant to Rule 144(k) (or any successor
provision) or in a single transaction pursuant to Rule 144(e) (or any successor
provision) under the Securities Act (the "Target Effective Period"). The Company
agrees to provide, without charge, to each Holder a reasonable number of copies
of the final Shelf Registration Statement and the related prospectus (including
any preliminary prospectus) and any amendments or supplements thereto. The
Company further agrees that it will use commercially reasonable efforts to
obtain the withdrawal of any order suspending the effectiveness of the Shelf
Registration Statement at the earliest possible moment.
(c) OFFERS AND SALES. All offers and sales by each
Holder under the Shelf Registration Statement referred to in this Section 1.1,
if any, shall be completed within the period during which the Shelf Registration
Statement is required to remain effective pursuant to Section 1.1(a), and, upon
expiration of such period, no Holder will offer or sell any Registrable
Securities under the Shelf Registration Statement. If directed by the Company,
each Holder will return all undistributed copies of the Prospectus in its
possession upon the expiration of such period. Each Holder shall promptly, but
in any event no later than two (2) business days after a sale by such Holder of
Registrable Securities, notify the Company of any sale or other transfer by such
Holder of Registrable Securities and include in such notice the number of
Registrable Securities sold or transferred by such Holder.
(d) LIMITATIONS ON UNDERWRITERS. Each Holder agrees
not to make any offers or sales through any underwriter until the earlier to
occur of (i) the consummation by the Company of a Qualifying Offering (as
defined below) or (ii) the second anniversary of the date hereof. For the
purposes of this Agreement, a "QUALIFYING OFFERING" shall mean the sale of
shares of Common Stock in an underwritten public offering (in which no person
acquires more than 10% of the shares of Common Stock
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to be sold) at a price of at least $16.50 per share which results in net
proceeds to the Company of at least $150 million.
1.2 SUSPENSION OF OFFERING.
(a) If the Company determines in its good faith
judgment that the filing of the Shelf Registration Statement under SECTION 1.1
hereof or the use of any prospectus would materially impede, delay or interfere
with any pending material financing, acquisition or corporate reorganization or
other material corporate development involving the Company or any of its
subsidiaries, or require the disclosure of important information which the
Company has a material business purpose for preserving as confidential or the
disclosure of which would materially impede the Company's ability to consummate
a significant transaction, upon written notice of such determination by the
Company, the rights of each Holder to offer, sell or distribute any Registrable
Securities pursuant to the Shelf Registration Statement or to require the
Company to take action with respect to the registration or sale of any
Registrable Securities pursuant to the Shelf Registration Statement (including
any action contemplated by SECTION 1.1 hereof) will be suspended until the date
upon which the Company notifies the Holders in writing that suspension of such
rights for the grounds set forth in this SECTION 1.2(A) is no longer necessary,
but, in any event, no such period shall extend for longer than 45 days; PROVIDED
the Company may deliver only two such notices in any twelve month period.
(b) In the case of the registration of any
underwritten public offering proposed by the Company (other than any
registration by the Company on Form S-3 or S-8, as the case may be, or a
successor or substantially similar form, of (A) an employee stock option, stock
purchase or compensation plan or of securities issued or issuable pursuant to
any such plan or (B) a dividend reinvestment plan), each Holder agrees, if
requested in writing by the managing underwriter or underwriters administering
such offering, not to effect any underwritten offering for the resale of
Registrable Securities (or any option or right to acquire Registrable
Securities) during the period commencing on the 7th day prior to the expected
effective date of the Shelf Registration Statement covering such underwritten
public offering or the date on which the proposed offering is expected to
commence (which date shall be stated in such notice) and ending on the date
specified by such managing underwriter in such written request to such Holder,
which date shall not be later than 90 days after such expected date of
effectiveness or the commencement of the offering, as the case may be.
1.3 EXPENSES. The Company shall pay all expenses incident
to the performance by it of its registration obligations under this Section 1,
including (i) all stock exchange, SEC and state securities registration, listing
and filing fees, (ii) all expenses incurred in connection with the preparation,
printing and distributing of the Shelf Registration Statement and prospectus
(including all expenses incurred in connection with the delivery to any Holder
of such number of copies of any prospectus as such Holder may reasonably
request), and (iii) fees and disbursements of counsel for the Company and of the
independent public accountants of the Company. Each Holder shall be responsible
for the payment of any underwriting fees (to the extent permitted by Section
1.1(c), brokerage and sales commissions, fees and disbursements of such Holder's
counsel, and any transfer taxes relating to the sale or disposition of the
Registrable Securities by such Holder.
1.4 QUALIFICATION. The Company agrees, if necessary, to
use its commercially reasonable best efforts to register or qualify for offer
and sale the Registrable Securities by the time the Shelf Registration Statement
is declared effective by the SEC under all applicable state securities or "blue
sky" laws of the 50 states of the United States or obtain appropriate exemptions
therefrom, to keep each such registration or qualification effective during the
period the Shelf Registration Statement is required to be kept effective, and to
do any and all other acts and things which may be reasonably necessary or
advisable to enable each Holder to consummate the disposition in each such
jurisdiction of the
3
<PAGE>
Registrable Securities owned by such Holder; PROVIDED, HOWEVER, that the Company
shall not be required to (x) qualify generally to do business in any
jurisdiction or to register as a broker or dealer in such jurisdiction where it
would not otherwise be required to qualify but for this Section 1.4, (y) subject
itself to taxation in any such jurisdiction, or (z) submit to the general
service of process in any such jurisdiction.
1.5 NOTICES TO HOLDERS. Subject to Section 1.1(a) hereof,
during the period that the Company is required to keep the Shelf Registration
Statement effective, the Company will advise the Holders within a reasonable
time (i) when the prospectus or any prospectus supplement or post-effective
amendment thereto has been filed, and when the same has become effective, (ii)
of any request by the SEC for any amendments to, or issuance by the SEC of any
stop order with respect to the Shelf Registration Statement or any prospectus or
amendment thereto, (iii) of the issuance by any state securities commission or
other regulatory authority of any order suspending the registration or
qualification or exemption from registration or qualification of any proceedings
for that purpose or (iv) that an amendment or supplement to the most recent
Prospectus or prospectus supplement, as the case may be, is necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
1.6 LISTING. The Company agrees to use its reasonable
efforts to cause all Registrable Securities to be listed on any securities
exchange on which similar securities issued by the Company are listed.
1.7 INCLUSION OF INFORMATION. The Company shall, if
reasonably requested by Holders' counsel or any Holder, incorporate as promptly
as practicable in a prospectus supplement or post-effective amendment such
information as such Holder or Holders' counsel requests to be included therein,
including, without limitation, with respect to the Registrable Securities being
sold by such Holder to any underwriter or underwriters, the purchase price being
paid therefor by such underwriter or underwriters and any other terms of any
underwritten offering of the Registrable Securities to be sold in such offering,
and the Company shall promptly make all required filings of such prospectus
supplement or post-effective amendment.
1.8 TIMELY PREPARATION AND DELIVERY OF CERTIFICATES. The
Company shall cooperate with the Holders to facilitate the timely preparation
and delivery of certificates (which shall not bear any restrictive legends
unless required under applicable law) representing Registrable Securities sold
under a Shelf Registration Statement to the purchasers thereof, and enable such
Registrable Securities to be in such denominations and registered in such names
as the managing underwriter or underwriters, if any, or such Holders may request
and keep available and make available to the Company's transfer agent prior to
the effectiveness of such Shelf Registration Statement a supply of such
certificates.
1.9 CUSTOMARY AGREEMENTS. The Company shall enter into
such customary agreements (including, if applicable, an underwriting agreement
in customary form) and take such other actions as the Holders or the
underwriters retained by the Holders participating in an underwritten public
offering, if any, may reasonably request in order to expedite or facilitate the
disposition of Registrable Securities; provided, however, that such underwriters
are reasonably acceptable to the Company. (The Holders may, at their option,
require that any or all of the representations, warranties and covenants of the
Company to or for the benefit of any underwriters also be made to and for the
benefit of the Holders.)
1.10 OPINION LETTERS; COMFORT LETTERS. The Company shall
furnish to each Holder of Registrable Securities included in such offering and
to each underwriter, if any, if requested by such Holder or underwriter, a
signed counterpart, addressed to such Holder or underwriter, of (i) an opinion
or opinions of counsel to the Company and (ii) a comfort letter or comfort
letters from the Company's
4
<PAGE>
independent public accountants, each in customary form and covering matters of
the type customarily covered by opinions or comfort letters, as the case may be.
1.11 TIMELY FILINGS. The Company shall, during the period
when the prospectus is required to be delivered under the Securities Act, file
in a timely fashion all documents required to be filed with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act.
SECTION 2. INDEMNIFICATION
2.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Holder, its partners, officers, directors,
trustees, stockholders, employees, agents and investment advisers, and each
person, if any, who controls any Holder within the meaning of Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), together with the partners, officers, directors, trustees,
stockholders, employees, agents and investment advisors of such controlling
person as follows:
(a) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Shelf Registration Statement (or any amendment thereto) pursuant to which the
Registrable Securities were registered under the Securities Act, including all
documents incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading or arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
prospectus (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(b) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such alleged
untrue statement or omission, if such settlement is effected with the written
consent of the Company, which consent shall not be unreasonably withheld; and
(c) against any and all expense whatsoever, as
incurred (including reasonable fees and disbursements of counsel), reasonably
incurred in investigating, preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or body, commenced or
threatened, in each case whether or not a party, or any claim whatsoever based
upon any such untrue statement or omission, or any such alleged untrue statement
or omission, to the extent that any such expense is not paid under subparagraph
(a) or (b) above;
PROVIDED, HOWEVER, that the indemnity provided pursuant to this Section
2.1 does not apply to any Holder with respect to any loss, liability,
claim, damage or expense to the extent arising out of (i) any untrue
statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to
the Company by or on behalf of such Holder expressly for use in the
Shelf Registration Statement (or any amendment thereto) or the related
prospectus (or any amendment or supplement thereto), or (ii) such
Holder's failure to deliver an amended or supplemental Prospectus
(provided such Holder was notified in writing pursuant to Section 1.5,
or otherwise, of the need for an amended or supplemental Prospectus) if
such loss, liability, claim, damage or expense would not have arisen
had such delivery occurred.
5
<PAGE>
In connection with an underwritten offering, the Company will indemnify the
underwriters thereof, their officers and directors and each Person who controls
such underwriters (within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Holders except with respect to (i)
information provided by the underwriter specifically for inclusion therein or
(ii) such underwriter's failure to deliver an amended or supplemental Prospectus
(provided such underwriter was notified in writing pursuant to Section 1.5, or
otherwise, of the need for an amended or supplemental Prospectus) if such loss,
liability, claim, damage or expense would not have arisen had such delivery
occurred.
2.2 INDEMNIFICATION BY HOLDER. Each Holder (on a several
and not joint basis) agrees to indemnify and hold harmless the Company, and each
of its directors and officers (including each director and officer of the
Company who signed a Shelf Registration Statement), and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, as follows:
(a) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Shelf Registration Statement (or any amendment thereto) pursuant to which the
Registrable Securities were registered under the Securities Act, including all
documents incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading or arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
prospectus (or any amendment or supplement thereto), including all documents
incorporated therein by reference, or the omission or alleged omission therefrom
of a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(b) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such alleged
untrue statement or omission, if such settlement is effected with the written
consent of Holder, which consent shall not be unreasonably withheld; and
(c) against any and all expense whatsoever, as
incurred (including reasonable fees and disbursements of counsel), reasonably
incurred in investigating, preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or body, commenced or
threatened, in each case whether or not a party, or any claim whatsoever based
upon any such untrue statement or omission, or any such alleged untrue statement
or omission, to the extent that any such expense is not paid under subparagraph
(a) or (b) above;
PROVIDED, HOWEVER, that the indemnity provided pursuant to this Section
2.2 shall only apply with respect to any loss, liability, claim, damage
or expense to the extent arising out of (i) any untrue statement or
omission or alleged untrue statement or omission made in reliance upon
and in conformity with written information furnished to the Company by
or on behalf of such Holder expressly for use in the Shelf Registration
Statement (or any amendment thereto) or the related prospectus (or any
amendment or supplement thereto), or (ii) such Holder's failure to
deliver an amended or supplemental prospectus (provided such Holder was
notified in writing pursuant to Section 1.5, or otherwise, of the need
for an amended or supplemental Prospectus) if such loss, liability,
claim, damage or expense would not have arisen had such delivery
occurred. Notwithstanding the provisions of this Section 2.2, no Holder
shall be required to indemnify the Company, its officers, directors or
control persons with respect to any amount in excess of the
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amount of the total proceeds to such Holder from sales of the
Registrable Securities of such Holder under the Shelf Registration
Statement (after deducting the amounts already paid to the Company by
such Holder or any person, if any, who controls such Holder pursuant to
this Section 2.2), and no Holder shall be liable under this Section 2.2
for any statements or omissions of any other Holder.
2.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. The
indemnified party shall give reasonably prompt notice to the indemnifying party
of any action or proceeding commenced against it in respect of which indemnity
may be sought hereunder, but failure to so notify the indemnifying party (i)
shall not relieve it from any liability which it may have under the indemnity
agreement provided in Section 2.1 or 2.2 above, unless and to the extent it did
not otherwise learn of such action and the lack of notice by the indemnified
party results in the forfeiture by the indemnifying party of substantial rights
or defenses, and (ii) shall not, in any event, relieve the indemnifying party
from any obligations to the indemnified party other than the indemnification
obligation provided under Section 2.1 or 2.2 above. If the indemnifying party so
elects within a reasonable time after receipt of such notice, the indemnifying
party may assume the defense of such action or proceeding at such indemnifying
party's own expense with counsel chosen by the indemnifying party and approved
by the indemnified party, which approval shall not be unreasonably withheld;
PROVIDED, HOWEVER, that the indemnifying party will not settle any such action
or proceeding without the written consent of the indemnified party unless, as a
condition to such settlement, the indemnifying party secures the unconditional
release of the indemnified party; and PROVIDED FURTHER, that if the indemnified
party reasonably determines that a conflict of interest exists where it is
advisable for the indemnified party to be represented by separate counsel or
that, upon advice of counsel, there may be legal defenses available to it which
are different from or in addition to those available to the indemnifying party,
then the indemnifying party shall not be entitled to assume such defense and the
indemnified party shall be entitled to separate counsel at the indemnifying
party's expense. If the indemnifying party is not entitled to assume the defense
of such action or proceeding as a result of the proviso to the preceding
sentence, the indemnifying party's counsel shall be entitled to conduct the
indemnifying party's defense and counsel for the indemnified party shall be
entitled to conduct the defense of the indemnified party, it being understood
that both such counsel will cooperate with each other to conduct the defense of
such action or proceeding as efficiently as possible. If the indemnifying party
(i) is not so entitled to assume the defense of such action, (ii) does not
assume such defense, after having received the notice referred to in the first
sentence of this paragraph, or (iii) fails to employ counsel that is reasonably
satisfactory to the indemnified party, after having received the notice referred
to in the first sentence of this paragraph, the indemnifying party will pay the
reasonable fees and expenses of counsel for the indemnified party. In such
event, however, the indemnifying party will not be liable for any settlement
effected without the written consent of the indemnifying party, which consent
shall not be unreasonably withheld. If an indemnifying party is entitled to
assume, and assumes, the defense of such action or proceeding in accordance with
this paragraph, the indemnifying party shall not be liable for any fees and
expenses of counsel for the indemnified party incurred thereafter in connection
with such action or proceeding.
2.4 CONTRIBUTION. In order to provide for just and
equitable contribution in circumstances in which the indemnity agreement
provided for in this Section 2 is for any reason held to be unenforceable by the
indemnified party although applicable in accordance with its terms, the Company
and the applicable Holder shall contribute to the aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such indemnity
agreement incurred by the Company and such Holder, (i) in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and
such Holder on the other hand, in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative fault
of but also the relative benefits to the Company on the one hand and such Holder
on the other hand, from the
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purchase and sale of the Registrable Securities, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits to the indemnifying party and indemnified party shall be
determined by reference to, among other things, the total proceeds received by
the indemnifying party and indemnified party in connection with the offering to
which such losses, claims, damages, liabilities or expenses relate. The relative
fault of the indemnifying party and indemnified party shall be determined by
reference to, among other things, whether the action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, the indemnifying party or the indemnified party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The obligations of each Holder under this Section 2.4 are
several and not joint.
The parties hereto agree that it would not be just or
equitable if contribution pursuant to this Section 2.4 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 2.4, no Holder shall
be required to contribute any amount in excess of the amount of the total
proceeds to that Holder from sales of the Registrable Securities of such Holder
under the Shelf Registration Statement.
Notwithstanding the foregoing, no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 2.4, each person, if
any, who controls any Holder within the meaning of Section 15 of the Securities
Act shall have the same rights to contribution as such Holder, and each director
of the Company, each officer of the Company who signed a Shelf Registration
Statement and each person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act shall have the same rights to contribution
as the Company.
SECTION 3. RULE 144 COMPLIANCE
The Company covenants that it will file any reports required
to be filed by it under the Securities Act and the Exchange Act, and the rules
and regulations adopted by the Commission thereunder (or, if the Company is not
required to file such reports, it will, upon the request of any Holder, make
publicly available other information so long as necessary to permit sales of the
Registrable Securities under Rule 144 under the Securities Act), and it will
take such further action as any Holder may request, all to the extent required
from time to time to enable such Holder to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (b) any successor rule or similar provision or regulation
hereafter adopted by the Commission. Upon the request of any Holder, the Company
will deliver to such Holder a written statement as to whether it has complied
with such requirements.
SECTION 4. RULE 144A COMPLIANCE
The Company covenants that it will file all reports required
to be filed by it under the Securities Act and the Exchange Act, and the rules
and regulations adopted by the Commission thereunder (or if the Company is not
required to file such reports, it will, upon the request of any Holder, make
available other information so long as necessary to permit sales of the
Registrable Securities pursuant to Rule 144A under the Securities Act), and it
will take such further action as any Holder may request, all to the extent
required from time to time to enable such Holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule
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144A, as such rule may be amended from time to time, or (b) any successor rule
or similar provision or regulation hereafter adopted by the Commission.
SECTION 5. MISCELLANEOUS
5.1 INTEGRATION; AMENDMENT. This Agreement constitutes
the entire agreement among the parties hereto with respect to the matters set
forth herein and supersedes and renders of no force and effect all prior oral or
written agreements, commitments and understandings among the parties with
respect to the matters set forth herein. Except as otherwise expressly provided
in this Agreement, no amendment, modification or discharge of this Agreement
shall be valid or binding unless set forth in writing and duly executed by the
Company and the applicable Holder.
5.2 WAIVERS. No waiver by a party hereto shall be
effective unless made in a written instrument duly executed by the party against
whom such waiver is sought to be enforced, and only to the extent set forth in
such instrument. Neither the waiver by any of the parties hereto of a breach or
a default under any of the provisions of this Agreement, nor the failure of any
of the parties, on one or more occasions, to enforce any of the provisions of
this Agreement or to exercise any right or privilege hereunder shall thereafter
be construed as a waiver of any subsequent breach or default of a similar
nature, or as a waiver of any such provisions, rights or privileges hereunder.
5.3 ASSIGNMENT. This Agreement shall inure to the benefit
of and be binding on the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders. If any successor, assignee or transferee of any
Holder shall acquire Registrable Securities, in any manner, whether by operation
of law or otherwise, such Registrable Securities shall be held subject to all of
the terms of this Agreement, and by taking and holding Registrable Securities
such Person shall be conclusively deemed to have agreed to be bound by all of
the terms and provisions hereof.
5.4 NOTICES. All notices, payments, demands or other
communications given hereunder shall be deemed to have been duly given and
received (i) upon personal delivery, (ii) in the case of notices sent within,
and for delivery within, the United States, as of the date shown on the return
receipt after mailing by registered or certified mail, return receipt requested,
postage prepaid, or (iii) the second succeeding business day after deposit with
Federal Express or other equivalent air courier delivery service, unless the
notice is held or retained by the customs service, in which case the date shall
be the fifth succeeding business day after such deposit.
5.5 SPECIFIC PERFORMANCE. The parties hereto acknowledge
that the obligations undertaken by them hereunder are unique and that there
would be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to any
other remedy to which it may be entitled at law or in equity, shall be entitled
to (i) compel specific performance of the obligations, covenants and agreements
of any other party under this Agreement in accordance with the terms and
conditions of this Agreement and (ii) obtain preliminary injunctive relief to
secure specific performance and to prevent a breach or contemplated breach of
this Agreement in any court of the United States or any State thereof having
jurisdiction.
5.6 GOVERNING LAW. This Agreement, the rights and
obligations of the parties hereto, and any claims or disputes relating thereto,
shall be governed by and construed in accordance with the laws of the State of
New York, without giving effect to the choice of law rules thereof. The parties
agree that all disputes between any of them arising out of, connected with,
related to, or incidental to the relationship established between them in
connection with this Agreement, and whether arising in law or in equity or
otherwise, shall be resolved by the federal or state courts located in New York,
New York.
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Nothing herein shall affect the right of any party to serve process in
any other manner permitted by law or to commence legal proceedings or otherwise
proceed against the other in any other jurisdiction. In addition, each of the
parties hereto consents to submit to the personal jurisdiction of any federal or
state court located in the state of New York in the event that any dispute
arises out of this Agreement. The parties, for themselves and their respective
affiliates, hereby irrevocably waive all right to a trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to the actions of the parties or their respective
affiliates pursuant to this Agreement in the negotiation, administration,
performance or enforcement thereof.
5.7 HEADINGS. Section and subsection headings contained
in this Agreement are inserted for convenience of reference only, shall not be
deemed to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
5.8 PRONOUNS. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, neuter, singular or plural,
as the identity of the person or entity may require.
5.9 EXECUTION IN COUNTERPARTS. To facilitate execution,
this Agreement may be executed in as many counterparts as may be required. It
shall not be necessary that the signature of or on behalf of each party appears
on each counterpart, but it shall be sufficient that the signature of or on
behalf of each party appears on one or more of the counterparts. All
counterparts shall collectively constitute a single agreement. It shall not be
necessary in any proof of this Agreement to produce or account for more than a
number of counterparts containing the respective signatures of or on behalf of
all of the parties hereto.
5.10 SEVERABILITY. If fulfillment of any provision of this
Agreement, at the time such fulfillment shall be due, shall transcend the limit
of validity prescribed by law, then the obligation to be fulfilled shall be
reduced to the limit of such validity; and if any clause or provision contained
in this Agreement operates or would operate to invalidate this Agreement, in
whole or in part, then such clause or provision only shall be held ineffective,
as though not herein contained, and the remainder of this Agreement shall remain
operative and in full force and effect.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first hereinabove set
forth.
COMPANY:
Address: AMERICAN REAL ESTATE INVESTMENT
Plymouth Meeting Executive Campus CORPORATION
620 W. Germantown Pike, Suite 200
Plymouth Meeting, PA 19462
By: /s/ Stephen J. Butte
-------------------------------
Name: Stephen J. Butte
Title: Vice President
HOLDER
By: /s/ Robert Gifford
-------------------------------
Name: Robert Gifford
Title: President, AEW TSF Inc.
<PAGE>
EXECUTION COPY
EXHIBIT 10-10
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is
made and entered into as of September 27TH, 1999 by and between American Real
Estate Investment Corporation, a Maryland corporation (the "COMPANY"), and
the holders of securities listed on SCHEDULE A attached hereto (including
their respective successors, assigns and transferees herein referred to
individually as a "HOLDER" and collectively as the "HOLDERS").
WHEREAS, on the date hereof, pursuant to the Subscription
Agreement (the "SUBSCRIPTION Agreement") made as of September 27, 1999 by and
among each of those Persons set forth in Exhibit A attached thereto, and the
Company, each Holder is receiving such number of shares of Series C
Convertible Preferred Stock, par value $.001 per share (the "PREFERRED
STOCK"), of the Company, which are convertible into shares of common stock,
par value $.001 per share (the "COMMON STOCK"), as set forth opposite such
Holder's name on SCHEDULE A attached hereto (the shares of Common Stock
issued upon conversion of the Preferred Stock are collectively referred to as
the "REGISTRABLE SECURITIES;" PROVIDED, HOWEVER, that any such securities
shall cease to be Registrable Securities when (i) a Shelf Registration
Statement (as defined below) covering such securities has been declared
effective and such Registrable Securities have been disposed of by the Holder
thereof pursuant to such effective Shelf Registration Statement or any other
effective registration statement, (ii) such securities are transferred by the
Holder thereof to any person other than a Holder pursuant to Rule 144 (or any
successor rule or similar provision then in effect, but not Rule 144A) under
the Securities Act (as defined below), including a sale pursuant to the
provisions of Rule 144(k), (iii) such securities shall have ceased to be
outstanding or (iv) such securities are eligible for sale pursuant to Rule
144 under the Securities Act and could be sold in one transaction in
accordance with the volume limitations contained in Rule 144(e)(1)(i) under
the Securities Act).
WHEREAS, in connection therewith, the Company has agreed to
grant to Holders the Registration Rights (as defined in Section 1 hereof);
NOW, THEREFORE, the parties hereto, in consideration of the
foregoing, the mutual covenants and agreements hereinafter set forth, and
other good and valuable consideration, the receipt and sufficiency of which
hereby are acknowledged, hereby agree as follows:
SECTION 1. REGISTRATION RIGHTS
Each Holder shall be entitled to offer for sale from time
to time pursuant to a Shelf Registration Statement (as defined below) the
Registrable Securities, subject to the terms and conditions set forth herein
(the "Registration Rights").
1.1 REGISTRATION RIGHTS.
(a) REGISTRATION PROCEDURE. The Company will cause to
be filed with the Securities and Exchange Commission (the "SEC") within three
(3) months of the date of this Agreement a shelf registration statement and
related prospectus, including any preliminary prospectus and documents
incorporated by reference (the "Shelf Registration Statement") that complies
as to form in all material respects with applicable SEC rules providing for
the sale by each of the Holders of such Holder's Registrable Securities, and
agrees (subject to Section 1.2 hereof) to use its commercially reasonable
best efforts to cause such Shelf Registration Statement to be declared
effective by the SEC as soon as
<PAGE>
practicable thereafter; PROVIDED, HOWEVER, that, prior to filing a Shelf
Registration Statement or any amendments or supplements thereto, the Company
shall furnish to the Holders of the Registrable Securities covered by such
Shelf Registration Statement, Holders' counsel and the managing underwriters,
if any, draft copies of all such documents proposed to be filed, and shall,
prior to filing such documents, review any comments which are submitted by
any Holder or its counsel within five days after delivery of such documents
to such Holder by the Company; PROVIDED, FURTHER, that, except to the extent
such comments relate to specific disclosure regarding such Holder or its
proposed method of disposition of the Registrable Securities, the Company
shall not be required to incorporate any such comments into documents.
(b) AMENDMENTS AND SUPPLEMENTS. The Company shall (i)
prepare and file with the SEC such amendments to such Shelf Registration
statement as may be necessary to keep such Shelf Registration Statement
effective during the Target Effective Period; (ii) cause the Prospectus to be
amended or supplemented as required and to be filed as required by Rule 424
or any similar rule that may be adopted under the Securities Act of 1933, as
amended (the "Securities Act"), (iii) respond as promptly as practicable to
any comments received from the SEC with respect to the Shelf Registration
Statement or any amendment thereto; and (iv) comply with the provisions of
the Securities Act with respect to the disposition of all securities covered
by such Registration Statement during the applicable period in accordance
with the intended method or methods of distribution by the Holder covered
thereby. Each Holder agrees to provide in a timely manner information
regarding the proposed distribution by such Holder of the Registrable
Securities and such other information reasonably requested by the Company in
connection with the preparation of and for inclusion in the Shelf
Registration Statement. The Company agrees (subject to Section 1.2 hereof) to
use its commercially reasonable best efforts to keep the Shelf Registration
Statement effective and free of material misstatements or omissions
(including the preparation and filing of any amendments and supplements
necessary for that purpose) until the earlier of (i) the first date on which
all Holders have consummated the sale of all of such Holders' Registrable
Securities registered under the Shelf Registration Statement or (ii) the date
on which all of the Registrable Securities are eligible for sale pursuant to
Rule 144(k) (or any successor provision) or in a single transaction pursuant
to Rule 144(e) (or any successor provision) under the Securities Act (the
"Target Effective Period"). The Company agrees to provide, without charge, to
each Holder a reasonable number of copies of the final Shelf Registration
Statement and the related prospectus (including any preliminary prospectus)
and any amendments or supplements thereto. The Company further agrees that it
will use commercially reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of the Shelf Registration Statement at the
earliest possible moment.
(c) OFFERS AND SALES. All offers and sales by each
Holder under the Shelf Registration Statement referred to in this Section
1.1, if any, shall be completed within the period during which the Shelf
Registration Statement is required to remain effective pursuant to Section
1.1(a), and, upon expiration of such period, no Holder will offer or sell any
Registrable Securities under the Shelf Registration Statement. If directed by
the Company, each Holder will return all undistributed copies of the
Prospectus in its possession upon the expiration of such period. Each Holder
shall promptly, but in any event no later than two (2) business days after a
sale by such Holder of Registrable Securities, notify the Company of any sale
or other transfer by such Holder of Registrable Securities and include in
such notice the number of Registrable Securities sold or transferred by such
Holder.
(d) LIMITATIONS ON UNDERWRITERS. Each Holder agrees
not to make any offers or sales through any underwriter until the earlier to
occur of (i) the consummation by the Company of a Qualifying Offering (as
defined below) or (ii) the second anniversary of the date hereof. For the
purposes of this Agreement, a "QUALIFYING OFFERING" shall mean the sale of
shares of Common Stock in an underwritten public offering (in which no person
acquires more than 10% of the shares of Common Stock
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to be sold) at a price of at least $16.50 per
share which results in net proceeds to the Company of at least $150 million.
1.2 SUSPENSION OF OFFERING.
(a) If the Company determines in its good faith
judgment that the filing of the Shelf Registration Statement under SECTION
1.1 hereof or the use of any prospectus would materially impede, delay or
interfere with any pending material financing, acquisition or corporate
reorganization or other material corporate development involving the Company
or any of its subsidiaries, or require the disclosure of important
information which the Company has a material business purpose for preserving
as confidential or the disclosure of which would materially impede the
Company's ability to consummate a significant transaction, upon written
notice of such determination by the Company, the rights of each Holder to
offer, sell or distribute any Registrable Securities pursuant to the Shelf
Registration Statement or to require the Company to take action with respect
to the registration or sale of any Registrable Securities pursuant to the
Shelf Registration Statement (including any action contemplated by SECTION
1.1 hereof) will be suspended until the date upon which the Company notifies
the Holders in writing that suspension of such rights for the grounds set
forth in this SECTION 1.2(a) is no longer necessary, but, in any event, no
such period shall extend for longer than 45 days; PROVIDED the Company may
deliver only two such notices in any twelve month period.
(b) In the case of the registration of any
underwritten public offering proposed by the Company (other than any
registration by the Company on Form S-3 or S-8, as the case may be, or a
successor or substantially similar form, of (A) an employee stock option,
stock purchase or compensation plan or of securities issued or issuable
pursuant to any such plan or (B) a dividend reinvestment plan), each Holder
agrees, if requested in writing by the managing underwriter or underwriters
administering such offering, not to effect any underwritten offering for the
resale of Registrable Securities (or any option or right to acquire
Registrable Securities) during the period commencing on the 7th day prior to
the expected effective date of the Shelf Registration Statement covering such
underwritten public offering or the date on which the proposed offering is
expected to commence (which date shall be stated in such notice) and ending
on the date specified by such managing underwriter in such written request to
such Holder, which date shall not be later than 90 days after such expected
date of effectiveness or the commencement of the offering, as the case may be.
1.3 EXPENSES. The Company shall pay all expenses incident to
the performance by it of its registration obligations under this Section 1,
including (i) all stock exchange, SEC and state securities registration,
listing and filing fees, (ii) all expenses incurred in connection with the
preparation, printing and distributing of the Shelf Registration Statement
and prospectus (including all expenses incurred in connection with the
delivery to any Holder of such number of copies of any prospectus as such
Holder may reasonably request), and (iii) fees and disbursements of counsel
for the Company and of the independent public accountants of the Company.
Each Holder shall be responsible for the payment of any underwriting fees (to
the extent permitted by Section 1.1(c), brokerage and sales commissions, fees
and disbursements of such Holder's counsel, and any transfer taxes relating
to the sale or disposition of the Registrable Securities by such Holder.
1.4 QUALIFICATION. The Company agrees, if necessary, to use its
commercially reasonable best efforts to register or qualify for offer and
sale the Registrable Securities by the time the Shelf Registration Statement
is declared effective by the SEC under all applicable state securities or
"blue sky" laws of the 50 states of the United States or obtain appropriate
exemptions therefrom, to keep each such registration or qualification
effective during the period the Shelf Registration Statement is required to
be kept effective, and to do any and all other acts and things which may be
reasonably necessary or advisable to enable each Holder to consummate the
disposition in each such jurisdiction of the
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Registrable Securities owned by such Holder; PROVIDED, HOWEVER, that the
Company shall not be required to (x) qualify generally to do business in any
jurisdiction or to register as a broker or dealer in such jurisdiction where
it would not otherwise be required to qualify but for this Section 1.4, (y)
subject itself to taxation in any such jurisdiction, or (z) submit to the
general service of process in any such jurisdiction.
1.5 NOTICES TO HOLDERS. Subject to Section 1.1(a) hereof,
during the period that the Company is required to keep the Shelf Registration
Statement effective, the Company will advise the Holders within a reasonable
time (i) when the prospectus or any prospectus supplement or post-effective
amendment thereto has been filed, and when the same has become effective,
(ii) of any request by the SEC for any amendments to, or issuance by the SEC
of any stop order with respect to the Shelf Registration Statement or any
prospectus or amendment thereto, (iii) of the issuance by any state
securities commission or other regulatory authority of any order suspending
the registration or qualification or exemption from registration or
qualification of any proceedings for that purpose or (iv) that an amendment
or supplement to the most recent Prospectus or prospectus supplement, as the
case may be, is necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
1.6 LISTING. The Company agrees to use its reasonable efforts
to cause all Registrable Securities to be listed on any securities exchange
on which similar securities issued by the Company are listed.
1.7 INCLUSION OF INFORMATION. The Company shall, if reasonably
requested by Holders' counsel or any Holder, incorporate as promptly as
practicable in a prospectus supplement or post-effective amendment such
information as such Holder or Holders' counsel requests to be included
therein, including, without limitation, with respect to the Registrable
Securities being sold by such Holder to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters and
any other terms of any underwritten offering of the Registrable Securities to
be sold in such offering, and the Company shall promptly make all required
filings of such prospectus supplement or post-effective amendment.
1.8 TIMELY PREPARATION AND DELIVERY OF CERTIFICATES. The
Company shall cooperate with the Holders to facilitate the timely preparation
and delivery of certificates (which shall not bear any restrictive legends
unless required under applicable law) representing Registrable Securities
sold under a Shelf Registration Statement to the purchasers thereof, and
enable such Registrable Securities to be in such denominations and registered
in such names as the managing underwriter or underwriters, if any, or such
Holders may request and keep available and make available to the Company's
transfer agent prior to the effectiveness of such Shelf Registration
Statement a supply of such certificates.
1.9 CUSTOMARY AGREEMENTS. The Company shall enter into such
customary agreements (including, if applicable, an underwriting agreement in
customary form) and take such other actions as the Holders or the
underwriters retained by the Holders participating in an underwritten public
offering, if any, may reasonably request in order to expedite or facilitate
the disposition of Registrable Securities; provided, however, that such
underwriters are reasonably acceptable to the Company. (The Holders may, at
their option, require that any or all of the representations, warranties and
covenants of the Company to or for the benefit of any underwriters also be
made to and for the benefit of the Holders.)
1.10 OPINION LETTERS; COMFORT LETTERS. The Company shall furnish
to each Holder of Registrable Securities included in such offering and to
each underwriter, if any, if requested by such Holder or underwriter, a
signed counterpart, addressed to such Holder or underwriter, of (i) an
opinion or opinions of counsel to the Company and (ii) a comfort letter or
comfort letters from the Company's
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independent public accountants, each in customary form and covering matters
of the type customarily covered by opinions or comfort letters, as the case
may be.
1.11 TIMELY FILINGS. The Company shall, during the period
when the prospectus is required to be delivered under the Securities Act,
file in a timely fashion all documents required to be filed with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act.
SECTION 2. INDEMNIFICATION
2.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Holder, its partners, officers, directors,
trustees, stockholders, employees, agents and investment advisers, and each
person, if any, who controls any Holder within the meaning of Section 15 of
the Securities Act or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), together with the partners, officers,
directors, trustees, stockholders, employees, agents and investment advisors
of such controlling person as follows:
(a) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Shelf Registration Statement (or any amendment thereto) pursuant to which the
Registrable Securities were registered under the Securities Act, including
all documents incorporated therein by reference, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact contained in any prospectus (or any amendment or supplement thereto),
including all documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(b) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with the
written consent of the Company, which consent shall not be unreasonably
withheld; and
(c) against any and all expense whatsoever, as
incurred (including reasonable fees and disbursements of counsel), reasonably
incurred in investigating, preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or body, commenced or
threatened, in each case whether or not a party, or any claim whatsoever
based upon any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid under
subparagraph (a) or (b) above;
PROVIDED, HOWEVER, that the indemnity provided pursuant to this Section
2.1 does not apply to any Holder with respect to any loss, liability,
claim, damage or expense to the extent arising out of (i) any untrue
statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to
the Company by or on behalf of such Holder expressly for use in the
Shelf Registration Statement (or any amendment thereto) or the related
prospectus (or any amendment or supplement thereto), or (ii) such
Holder's failure to deliver an amended or supplemental Prospectus
(provided such Holder was notified in writing pursuant to Section 1.5,
or otherwise, of the need for an amended or supplemental Prospectus) if
such loss, liability, claim, damage or expense would not have arisen had
such delivery occurred.
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In connection with an underwritten offering, the Company will indemnify the
underwriters thereof, their officers and directors and each Person who
controls such underwriters (within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act) to the same extent as
provided above with respect to the indemnification of the Holders except with
respect to (i) information provided by the underwriter specifically for
inclusion therein or (ii) such underwriter's failure to deliver an amended or
supplemental Prospectus (provided such underwriter was notified in writing
pursuant to Section 1.5, or otherwise, of the need for an amended or
supplemental Prospectus) if such loss, liability, claim, damage or expense
would not have arisen had such delivery occurred.
2.2 INDEMNIFICATION BY HOLDER. Each Holder (on a several and
not joint basis) agrees to indemnify and hold harmless the Company, and each
of its directors and officers (including each director and officer of the
Company who signed a Shelf Registration Statement), and each person, if any,
who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, as follows:
(a) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Shelf Registration Statement (or any amendment thereto) pursuant to which the
Registrable Securities were registered under the Securities Act, including
all documents incorporated therein by reference, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact contained in any prospectus (or any amendment or supplement thereto),
including all documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(b) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with the
written consent of Holder, which consent shall not be unreasonably withheld;
and
(c) against any and all expense whatsoever, as
incurred (including reasonable fees and disbursements of counsel), reasonably
incurred in investigating, preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or body, commenced or
threatened, in each case whether or not a party, or any claim whatsoever
based upon any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid under
subparagraph (a) or (b) above;
PROVIDED, HOWEVER, that the indemnity provided pursuant to this Section
2.2 shall only apply with respect to any loss, liability, claim, damage
or expense to the extent arising out of (i) any untrue statement or
omission or alleged untrue statement or omission made in reliance upon
and in conformity with written information furnished to the Company by
or on behalf of such Holder expressly for use in the Shelf Registration
Statement (or any amendment thereto) or the related prospectus (or any
amendment or supplement thereto), or (ii) such Holder's failure to
deliver an amended or supplemental prospectus (provided such Holder was
notified in writing pursuant to Section 1.5, or otherwise, of the need
for an amended or supplemental Prospectus) if such loss, liability,
claim, damage or expense would not have arisen had such delivery
occurred. Notwithstanding the provisions of this Section 2.2, no Holder
shall be required to indemnify the Company, its officers, directors or
control persons with respect to any amount in excess of the
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amount of the total proceeds to such Holder from sales of the
Registrable Securities of such Holder under the Shelf Registration
Statement (after deducting the amounts already paid to the Company by
such Holder or any person, if any, who controls such Holder pursuant to
this Section 2.2), and no Holder shall be liable under this Section 2.2
for any statements or omissions of any other Holder.
2.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. The indemnified
party shall give reasonably prompt notice to the indemnifying party of any
action or proceeding commenced against it in respect of which indemnity may
be sought hereunder, but failure to so notify the indemnifying party (i)
shall not relieve it from any liability which it may have under the indemnity
agreement provided in Section 2.1 or 2.2 above, unless and to the extent it
did not otherwise learn of such action and the lack of notice by the
indemnified party results in the forfeiture by the indemnifying party of
substantial rights or defenses, and (ii) shall not, in any event, relieve the
indemnifying party from any obligations to the indemnified party other than
the indemnification obligation provided under Section 2.1 or 2.2 above. If
the indemnifying party so elects within a reasonable time after receipt of
such notice, the indemnifying party may assume the defense of such action or
proceeding at such indemnifying party's own expense with counsel chosen by
the indemnifying party and approved by the indemnified party, which approval
shall not be unreasonably withheld; PROVIDED, HOWEVER, that the indemnifying
party will not settle any such action or proceeding without the written
consent of the indemnified party unless, as a condition to such settlement,
the indemnifying party secures the unconditional release of the indemnified
party; and PROVIDED FURTHER, that if the indemnified party reasonably
determines that a conflict of interest exists where it is advisable for the
indemnified party to be represented by separate counsel or that, upon advice
of counsel, there may be legal defenses available to it which are different
from or in addition to those available to the indemnifying party, then the
indemnifying party shall not be entitled to assume such defense and the
indemnified party shall be entitled to separate counsel at the indemnifying
party's expense. If the indemnifying party is not entitled to assume the
defense of such action or proceeding as a result of the proviso to the
preceding sentence, the indemnifying party's counsel shall be entitled to
conduct the indemnifying party's defense and counsel for the indemnified
party shall be entitled to conduct the defense of the indemnified party, it
being understood that both such counsel will cooperate with each other to
conduct the defense of such action or proceeding as efficiently as possible.
If the indemnifying party (i) is not so entitled to assume the defense of
such action, (ii) does not assume such defense, after having received the
notice referred to in the first sentence of this paragraph, or (iii) fails to
employ counsel that is reasonably satisfactory to the indemnified party,
after having received the notice referred to in the first sentence of this
paragraph, the indemnifying party will pay the reasonable fees and expenses
of counsel for the indemnified party. In such event, however, the
indemnifying party will not be liable for any settlement effected without the
written consent of the indemnifying party, which consent shall not be
unreasonably withheld. If an indemnifying party is entitled to assume, and
assumes, the defense of such action or proceeding in accordance with this
paragraph, the indemnifying party shall not be liable for any fees and
expenses of counsel for the indemnified party incurred thereafter in
connection with such action or proceeding.
2.4 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for
in this Section 2 is for any reason held to be unenforceable by the
indemnified party although applicable in accordance with its terms, the
Company and the applicable Holder shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity agreement incurred by the Company and such Holder, (i) in such
proportion as is appropriate to reflect the relative fault of the Company on
the one hand and such Holder on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative fault of but also the relative
benefits to the Company on the one hand and such Holder on the other hand,
from the
7
<PAGE>
purchase and sale of the Registrable Securities, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits to the indemnifying party and
indemnified party shall be determined by reference to, among other things,
the total proceeds received by the indemnifying party and indemnified party
in connection with the offering to which such losses, claims, damages,
liabilities or expenses relate. The relative fault of the indemnifying party
and indemnified party shall be determined by reference to, among other
things, whether the action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission to state
a material fact, has been made by, or relates to information supplied by, the
indemnifying party or the indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action. The obligations of each Holder under this Section 2.4
are several and not joint.
The parties hereto agree that it would not be just or
equitable if contribution pursuant to this Section 2.4 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 2.4, no
Holder shall be required to contribute any amount in excess of the amount of
the total proceeds to that Holder from sales of the Registrable Securities of
such Holder under the Shelf Registration Statement.
Notwithstanding the foregoing, no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section
2.4, each person, if any, who controls any Holder within the meaning of
Section 15 of the Securities Act shall have the same rights to contribution
as such Holder, and each director of the Company, each officer of the Company
who signed a Shelf Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act
shall have the same rights to contribution as the Company.
SECTION 3. RULE 144 COMPLIANCE
The Company covenants that it will file any reports
required to be filed by it under the Securities Act and the Exchange Act, and
the rules and regulations adopted by the Commission thereunder (or, if the
Company is not required to file such reports, it will, upon the request of
any Holder, make publicly available other information so long as necessary to
permit sales of the Registrable Securities under Rule 144 under the
Securities Act), and it will take such further action as any Holder may
request, all to the extent required from time to time to enable such Holder
to sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
successor rule or similar provision or regulation hereafter adopted by the
Commission. Upon the request of any Holder, the Company will deliver to such
Holder a written statement as to whether it has complied with such
requirements.
SECTION 4. RULE 144A COMPLIANCE
The Company covenants that it will file all reports
required to be filed by it under the Securities Act and the Exchange Act, and
the rules and regulations adopted by the Commission thereunder (or if the
Company is not required to file such reports, it will, upon the request of
any Holder, make available other information so long as necessary to permit
sales of the Registrable Securities pursuant to Rule 144A under the
Securities Act), and it will take such further action as any Holder may
request, all to the extent required from time to time to enable such Holder
to sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule
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144A, as such rule may be amended from time to time, or (b) any successor
rule or similar provision or regulation hereafter adopted by the Commission.
SECTION 5. MISCELLANEOUS
5.1 INTEGRATION; AMENDMENT. This Agreement constitutes the
entire agreement among the parties hereto with respect to the matters set
forth herein and supersedes and renders of no force and effect all prior oral
or written agreements, commitments and understandings among the parties with
respect to the matters set forth herein. Except as otherwise expressly
provided in this Agreement, no amendment, modification or discharge of this
Agreement shall be valid or binding unless set forth in writing and duly
executed by the Company and the applicable Holder.
5.2 WAIVERS. No waiver by a party hereto shall be effective
unless made in a written instrument duly executed by the party against whom
such waiver is sought to be enforced, and only to the extent set forth in
such instrument. Neither the waiver by any of the parties hereto of a breach
or a default under any of the provisions of this Agreement, nor the failure
of any of the parties, on one or more occasions, to enforce any of the
provisions of this Agreement or to exercise any right or privilege hereunder
shall thereafter be construed as a waiver of any subsequent breach or default
of a similar nature, or as a waiver of any such provisions, rights or
privileges hereunder.
5.3 ASSIGNMENT. This Agreement shall inure to the benefit of
and be binding on the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders. If any successor, assignee or transferee of
any Holder shall acquire Registrable Securities, in any manner, whether by
operation of law or otherwise, such Registrable Securities shall be held
subject to all of the terms of this Agreement, and by taking and holding
Registrable Securities such Person shall be conclusively deemed to have
agreed to be bound by all of the terms and provisions hereof.
5.4 NOTICES. All notices, payments, demands or other
communications given hereunder shall be deemed to have been duly given and
received (i) upon personal delivery, (ii) in the case of notices sent within,
and for delivery within, the United States, as of the date shown on the
return receipt after mailing by registered or certified mail, return receipt
requested, postage prepaid, or (iii) the second succeeding business day after
deposit with Federal Express or other equivalent air courier delivery
service, unless the notice is held or retained by the customs service, in
which case the date shall be the fifth succeeding business day after such
deposit.
5.5 SPECIFIC PERFORMANCE. The parties hereto acknowledge that
the obligations undertaken by them hereunder are unique and that there would
be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to
any other remedy to which it may be entitled at law or in equity, shall be
entitled to (i) compel specific performance of the obligations, covenants and
agreements of any other party under this Agreement in accordance with the
terms and conditions of this Agreement and (ii) obtain preliminary injunctive
relief to secure specific performance and to prevent a breach or contemplated
breach of this Agreement in any court of the United States or any State
thereof having jurisdiction.
5.6 GOVERNING LAW. This Agreement, the rights and obligations
of the parties hereto, and any claims or disputes relating thereto, shall be
governed by and construed in accordance with the laws of the State of New
York, without giving effect to the choice of law rules thereof. The parties
agree that all disputes between any of them arising out of, connected with,
related to, or incidental to the relationship established between them in
connection with this Agreement, and whether arising in law or in equity or
otherwise, shall be resolved by the federal or state courts located in New
York, New York.
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Nothing herein shall affect the right of any party to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against the other in any other jurisdiction. In addition, each of the
parties hereto consents to submit to the personal jurisdiction of any federal
or state court located in the state of New York in the event that any dispute
arises out of this Agreement. The parties, for themselves and their
respective affiliates, hereby irrevocably waive all right to a trial by jury
in any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to the actions of the parties or their
respective affiliates pursuant to this Agreement in the negotiation,
administration, performance or enforcement thereof.
5.7 HEADINGS. Section and subsection headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed
to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
5.8 PRONOUNS. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as
the identity of the person or entity may require.
5.9 EXECUTION IN COUNTERPARTS. To facilitate execution, this
Agreement may be executed in as many counterparts as may be required. It
shall not be necessary that the signature of or on behalf of each party
appears on each counterpart, but it shall be sufficient that the signature of
or on behalf of each party appears on one or more of the counterparts. All
counterparts shall collectively constitute a single agreement. It shall not
be necessary in any proof of this Agreement to produce or account for more
than a number of counterparts containing the respective signatures of or on
behalf of all of the parties hereto.
5.10 SEVERABILITY. If fulfillment of any provision of this
Agreement, at the time such fulfillment shall be due, shall transcend the
limit of validity prescribed by law, then the obligation to be fulfilled
shall be reduced to the limit of such validity; and if any clause or
provision contained in this Agreement operates or would operate to invalidate
this Agreement, in whole or in part, then such clause or provision only shall
be held ineffective, as though not herein contained, and the remainder of
this Agreement shall remain operative and in full force and effect.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be duly executed on its behalf as of the date first
hereinabove set forth.
COMPANY:
Address: AMERICAN REAL ESTATE INVESTMENT
Plymouth Meeting Executive Campus -------------------------------
620 W. Germantown Pike, Suite 200 CORPORATION
Plymouth Meeting, PA 19462 -----------
By:/s/ STEPHEN J. BUTTE
-------------------
Name: Stephen J. Butte
Title: Vice President
HOLDER
ALLSTATE INSURANCE CO.
----------------------
By: /s/ PAMELA AMOS
---------------
Name: Pamela Amos
Title: Authorized Signatories
By: /s/ BARBARA S. BROWN
--------------------
Name: Barbara S. Brown
Title: Authorized Signatories
By: /s/ Pamela Amos
<PAGE>
EXHIBIT 10-11
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is
made and entered into as of September 27TH, 1999 by and between American Real
Estate Investment Corporation, a Maryland corporation (the "COMPANY"), and
the holders of securities listed on SCHEDULE A attached hereto (including
their respective successors, assigns and transferees herein referred to
individually as a "HOLDER" and collectively as the "HOLDERS").
WHEREAS, on the date hereof, pursuant to the Subscription
Agreement (the "SUBSCRIPTION AGREEMENT") made as of September 27, 1999 by and
among each of those Persons set forth in Exhibit A attached thereto, and the
Company, each Holder is receiving such number of shares of Series C
Convertible Preferred Stock, par value $.001 per share (the "PREFERRED
STOCK"), of the Company, which are convertible into shares of common stock,
par value $.001 per share (the "COMMON STOCK"), as set forth opposite such
Holder's name on SCHEDULE A attached hereto (the shares of Common Stock
issued upon conversion of the Preferred Stock are collectively referred to as
the "REGISTRABLE SECURITIES;" PROVIDED, HOWEVER, that any such securities
shall cease to be Registrable Securities when (i) a Shelf Registration
Statement (as defined below) covering such securities has been declared
effective and such Registrable Securities have been disposed of by the Holder
thereof pursuant to such effective Shelf Registration Statement or any other
effective registration statement, (ii) such securities are transferred by the
Holder thereof to any person other than a Holder pursuant to Rule 144 (or any
successor rule or similar provision then in effect, but not Rule 144A) under
the Securities Act (as defined below), including a sale pursuant to the
provisions of Rule 144(k), (iii) such securities shall have ceased to be
outstanding or (iv) such securities are eligible for sale pursuant to Rule
144 under the Securities Act and could be sold in one transaction in
accordance with the volume limitations contained in Rule 144(e)(1)(i) under
the Securities Act).
WHEREAS, in connection therewith, the Company has agreed to
grant to Holders the Registration Rights (as defined in Section 1 hereof);
NOW, THEREFORE, the parties hereto, in consideration of the
foregoing, the mutual covenants and agreements hereinafter set forth, and
other good and valuable consideration, the receipt and sufficiency of which
hereby are acknowledged, hereby agree as follows:
SECTION 1. REGISTRATION RIGHTS
Each Holder shall be entitled to offer for sale from time
to time pursuant to a Shelf Registration Statement (as defined below) the
Registrable Securities, subject to the terms and conditions set forth herein
(the "Registration Rights").
1.1 REGISTRATION RIGHTS.
(a) REGISTRATION PROCEDURE. The Company will cause to
be filed with the Securities and Exchange Commission (the "SEC") within three
(3) months of the date of this Agreement a shelf registration statement and
related prospectus, including any preliminary prospectus and documents
incorporated by reference (the "Shelf Registration Statement") that complies
as to form in all material respects with applicable SEC rules providing for
the sale by each of the Holders of such Holder's Registrable Securities, and
agrees (subject to Section 1.2 hereof) to use its commercially reasonable
best efforts to cause such Shelf Registration Statement to be declared
effective by the SEC as soon as
<PAGE>
practicable thereafter; PROVIDED, HOWEVER, that, prior to filing a Shelf
Registration Statement or any amendments or supplements thereto, the Company
shall furnish to the Holders of the Registrable Securities covered by such
Shelf Registration Statement, Holders' counsel and the managing underwriters,
if any, draft copies of all such documents proposed to be filed, and shall,
prior to filing such documents, review any comments which are submitted by
any Holder or its counsel within five days after delivery of such documents
to such Holder by the Company; PROVIDED, FURTHER, that, except to the extent
such comments relate to specific disclosure regarding such Holder or its
proposed method of disposition of the Registrable Securities, the Company
shall not be required to incorporate any such comments into documents.
(b) AMENDMENTS AND SUPPLEMENTS. The Company shall (i)
prepare and file with the SEC such amendments to such Shelf Registration
statement as may be necessary to keep such Shelf Registration Statement
effective during the Target Effective Period; (ii) cause the Prospectus to be
amended or supplemented as required and to be filed as required by Rule 424
or any similar rule that may be adopted under the Securities Act of 1933, as
amended (the "Securities Act"), (iii) respond as promptly as practicable to
any comments received from the SEC with respect to the Shelf Registration
Statement or any amendment thereto; and (iv) comply with the provisions of
the Securities Act with respect to the disposition of all securities covered
by such Registration Statement during the applicable period in accordance
with the intended method or methods of distribution by the Holder covered
thereby. Each Holder agrees to provide in a timely manner information
regarding the proposed distribution by such Holder of the Registrable
Securities and such other information reasonably requested by the Company in
connection with the preparation of and for inclusion in the Shelf
Registration Statement. The Company agrees (subject to Section 1.2 hereof) to
use its commercially reasonable best efforts to keep the Shelf Registration
Statement effective and free of material misstatements or omissions
(including the preparation and filing of any amendments and supplements
necessary for that purpose) until the earlier of (i) the first date on which
all Holders have consummated the sale of all of such Holders' Registrable
Securities registered under the Shelf Registration Statement or (ii) the date
on which all of the Registrable Securities are eligible for sale pursuant to
Rule 144(k) (or any successor provision) or in a single transaction pursuant
to Rule 144(e) (or any successor provision) under the Securities Act (the
"Target Effective Period"). The Company agrees to provide, without charge, to
each Holder a reasonable number of copies of the final Shelf Registration
Statement and the related prospectus (including any preliminary prospectus)
and any amendments or supplements thereto. The Company further agrees that it
will use commercially reasonable efforts to obtain the withdrawal of any
order suspending the effectiveness of the Shelf Registration Statement at the
earliest possible moment.
(c) OFFERS AND SALES. All offers and sales by each
Holder under the Shelf Registration Statement referred to in this Section
1.1, if any, shall be completed within the period during which the Shelf
Registration Statement is required to remain effective pursuant to Section
1.1(a), and, upon expiration of such period, no Holder will offer or sell any
Registrable Securities under the Shelf Registration Statement. If directed by
the Company, each Holder will return all undistributed copies of the
Prospectus in its possession upon the expiration of such period. Each Holder
shall promptly, but in any event no later than two (2) business days after a
sale by such Holder of Registrable Securities, notify the Company of any sale
or other transfer by such Holder of Registrable Securities and include in
such notice the number of Registrable Securities sold or transferred by such
Holder.
(d) LIMITATIONS ON UNDERWRITERS. Each Holder agrees
not to make any offers or sales through any underwriter until the earlier to
occur of (i) the consummation by the Company of a Qualifying Offering (as
defined below) or (ii) the second anniversary of the date hereof. For the
purposes of this Agreement, a "QUALIFYING OFFERING" shall mean the sale of
shares of Common Stock in an underwritten public offering (in which no person
acquires more than 10% of the shares of Common Stock
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to be sold) at a price of at least $16.50 per share which results in net
proceeds to the Company of at least $150 million.
1.2 SUSPENSION OF OFFERING.
(a) If the Company determines in its good faith
judgment that the filing of the Shelf Registration Statement under SECTION
1.1 hereof or the use of any prospectus would materially impede, delay or
interfere with any pending material financing, acquisition or corporate
reorganization or other material corporate development involving the Company
or any of its subsidiaries, or require the disclosure of important
information which the Company has a material business purpose for preserving
as confidential or the disclosure of which would materially impede the
Company's ability to consummate a significant transaction, upon written
notice of such determination by the Company, the rights of each Holder to
offer, sell or distribute any Registrable Securities pursuant to the Shelf
Registration Statement or to require the Company to take action with respect
to the registration or sale of any Registrable Securities pursuant to the
Shelf Registration Statement (including any action contemplated by SECTION
1.1 hereof) will be suspended until the date upon which the Company notifies
the Holders in writing that suspension of such rights for the grounds set
forth in this SECTION 1.2(a) is no longer necessary, but, in any event, no
such period shall extend for longer than 45 days; PROVIDED the Company may
deliver only two such notices in any twelve month period.
(b) In the case of the registration of any
underwritten public offering proposed by the Company (other than any
registration by the Company on Form S-3 or S-8, as the case may be, or a
successor or substantially similar form, of (A) an employee stock option,
stock purchase or compensation plan or of securities issued or issuable
pursuant to any such plan or (B) a dividend reinvestment plan), each Holder
agrees, if requested in writing by the managing underwriter or underwriters
administering such offering, not to effect any underwritten offering for the
resale of Registrable Securities (or any option or right to acquire
Registrable Securities) during the period commencing on the 7th day prior to
the expected effective date of the Shelf Registration Statement covering such
underwritten public offering or the date on which the proposed offering is
expected to commence (which date shall be stated in such notice) and ending
on the date specified by such managing underwriter in such written request to
such Holder, which date shall not be later than 90 days after such expected
date of effectiveness or the commencement of the offering, as the case may be.
1.3 EXPENSES. The Company shall pay all expenses incident to
the performance by it of its registration obligations under this Section 1,
including (i) all stock exchange, SEC and state securities registration,
listing and filing fees, (ii) all expenses incurred in connection with the
preparation, printing and distributing of the Shelf Registration Statement
and prospectus (including all expenses incurred in connection with the
delivery to any Holder of such number of copies of any prospectus as such
Holder may reasonably request), and (iii) fees and disbursements of counsel
for the Company and of the independent public accountants of the Company.
Each Holder shall be responsible for the payment of any underwriting fees (to
the extent permitted by Section 1.1(c), brokerage and sales commissions, fees
and disbursements of such Holder's counsel, and any transfer taxes relating
to the sale or disposition of the Registrable Securities by such Holder.
1.4 QUALIFICATION. The Company agrees, if necessary, to use its
commercially reasonable best efforts to register or qualify for offer and
sale the Registrable Securities by the time the Shelf Registration Statement
is declared effective by the SEC under all applicable state securities or
"blue sky" laws of the 50 states of the United States or obtain appropriate
exemptions therefrom, to keep each such registration or qualification
effective during the period the Shelf Registration Statement is required to
be kept effective, and to do any and all other acts and things which may be
reasonably necessary or advisable to enable each Holder to consummate the
disposition in each such jurisdiction of the
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Registrable Securities owned by such Holder; PROVIDED, HOWEVER, that the
Company shall not be required to (x) qualify generally to do business in any
jurisdiction or to register as a broker or dealer in such jurisdiction where
it would not otherwise be required to qualify but for this Section 1.4, (y)
subject itself to taxation in any such jurisdiction, or (z) submit to the
general service of process in any such jurisdiction.
1.5 NOTICES TO HOLDERS. Subject to Section 1.1(a) hereof,
during the period that the Company is required to keep the Shelf Registration
Statement effective, the Company will advise the Holders within a reasonable
time (i) when the prospectus or any prospectus supplement or post-effective
amendment thereto has been filed, and when the same has become effective,
(ii) of any request by the SEC for any amendments to, or issuance by the SEC
of any stop order with respect to the Shelf Registration Statement or any
prospectus or amendment thereto, (iii) of the issuance by any state
securities commission or other regulatory authority of any order suspending
the registration or qualification or exemption from registration or
qualification of any proceedings for that purpose or (iv) that an amendment
or supplement to the most recent Prospectus or prospectus supplement, as the
case may be, is necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
1.6 LISTING. The Company agrees to use its reasonable efforts
to cause all Registrable Securities to be listed on any securities exchange
on which similar securities issued by the Company are listed.
1.7 INCLUSION OF INFORMATION. The Company shall, if reasonably
requested by Holders' counsel or any Holder, incorporate as promptly as
practicable in a prospectus supplement or post-effective amendment such
information as such Holder or Holders' counsel requests to be included
therein, including, without limitation, with respect to the Registrable
Securities being sold by such Holder to any underwriter or underwriters, the
purchase price being paid therefor by such underwriter or underwriters and
any other terms of any underwritten offering of the Registrable Securities to
be sold in such offering, and the Company shall promptly make all required
filings of such prospectus supplement or post-effective amendment.
1.8 TIMELY PREPARATION AND DELIVERY OF CERTIFICATES. The
Company shall cooperate with the Holders to facilitate the timely preparation
and delivery of certificates (which shall not bear any restrictive legends
unless required under applicable law) representing Registrable Securities
sold under a Shelf Registration Statement to the purchasers thereof, and
enable such Registrable Securities to be in such denominations and registered
in such names as the managing underwriter or underwriters, if any, or such
Holders may request and keep available and make available to the Company's
transfer agent prior to the effectiveness of such Shelf Registration
Statement a supply of such certificates.
1.9 CUSTOMARY AGREEMENTS. The Company shall enter into such
customary agreements (including, if applicable, an underwriting agreement in
customary form) and take such other actions as the Holders or the
underwriters retained by the Holders participating in an underwritten public
offering, if any, may reasonably request in order to expedite or facilitate
the disposition of Registrable Securities; provided, however, that such
underwriters are reasonably acceptable to the Company. (The Holders may, at
their option, require that any or all of the representations, warranties and
covenants of the Company to or for the benefit of any underwriters also be
made to and for the benefit of the Holders.)
1.10 OPINION LETTERS; COMFORT LETTERS. The Company shall furnish
to each Holder of Registrable Securities included in such offering and to
each underwriter, if any, if requested by such Holder or underwriter, a
signed counterpart, addressed to such Holder or underwriter, of (i) an
opinion or opinions of counsel to the Company and (ii) a comfort letter or
comfort letters from the Company's
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independent public accountants, each in customary form and covering matters
of the type customarily covered by opinions or comfort letters, as the case
may be.
1.11 TIMELY FILINGS. The Company shall, during the period
when the prospectus is required to be delivered under the Securities Act,
file in a timely fashion all documents required to be filed with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act.
SECTION 2. INDEMNIFICATION
2.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Holder, its partners, officers, directors,
trustees, stockholders, employees, agents and investment advisers, and each
person, if any, who controls any Holder within the meaning of Section 15 of
the Securities Act or Section 20 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), together with the partners, officers,
directors, trustees, stockholders, employees, agents and investment advisors
of such controlling person as follows:
(a) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Shelf Registration Statement (or any amendment thereto) pursuant to which the
Registrable Securities were registered under the Securities Act, including
all documents incorporated therein by reference, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact contained in any prospectus (or any amendment or supplement thereto),
including all documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(b) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with the
written consent of the Company, which consent shall not be unreasonably
withheld; and
(c) against any and all expense whatsoever, as
incurred (including reasonable fees and disbursements of counsel), reasonably
incurred in investigating, preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or body, commenced or
threatened, in each case whether or not a party, or any claim whatsoever
based upon any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid under
subparagraph (a) or (b) above;
PROVIDED, HOWEVER, that the indemnity provided pursuant to this Section
2.1 does not apply to any Holder with respect to any loss, liability,
claim, damage or expense to the extent arising out of (i) any untrue
statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to
the Company by or on behalf of such Holder expressly for use in the
Shelf Registration Statement (or any amendment thereto) or the related
prospectus (or any amendment or supplement thereto), or (ii) such
Holder's failure to deliver an amended or supplemental Prospectus
(provided such Holder was notified in writing pursuant to Section 1.5,
or otherwise, of the need for an amended or supplemental Prospectus) if
such loss, liability, claim, damage or expense would not have arisen had
such delivery occurred.
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In connection with an underwritten offering, the Company will indemnify the
underwriters thereof, their officers and directors and each Person who
controls such underwriters (within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act) to the same extent as
provided above with respect to the indemnification of the Holders except with
respect to (i) information provided by the underwriter specifically for
inclusion therein or (ii) such underwriter's failure to deliver an amended or
supplemental Prospectus (provided such underwriter was notified in writing
pursuant to Section 1.5, or otherwise, of the need for an amended or
supplemental Prospectus) if such loss, liability, claim, damage or expense
would not have arisen had such delivery occurred.
2.2 INDEMNIFICATION BY HOLDER. Each Holder (on a several and
not joint basis) agrees to indemnify and hold harmless the Company, and each
of its directors and officers (including each director and officer of the
Company who signed a Shelf Registration Statement), and each person, if any,
who controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, as follows:
(a) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Shelf Registration Statement (or any amendment thereto) pursuant to which the
Registrable Securities were registered under the Securities Act, including
all documents incorporated therein by reference, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of or
based upon any untrue statement or alleged untrue statement of a material
fact contained in any prospectus (or any amendment or supplement thereto),
including all documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(b) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with the
written consent of Holder, which consent shall not be unreasonably withheld;
and
(c) against any and all expense whatsoever, as
incurred (including reasonable fees and disbursements of counsel), reasonably
incurred in investigating, preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or body, commenced or
threatened, in each case whether or not a party, or any claim whatsoever
based upon any such untrue statement or omission, or any such alleged untrue
statement or omission, to the extent that any such expense is not paid under
subparagraph (a) or (b) above;
PROVIDED, HOWEVER, that the indemnity provided pursuant to this Section
2.2 shall only apply with respect to any loss, liability, claim, damage
or expense to the extent arising out of (i) any untrue statement or
omission or alleged untrue statement or omission made in reliance upon
and in conformity with written information furnished to the Company by
or on behalf of such Holder expressly for use in the Shelf Registration
Statement (or any amendment thereto) or the related prospectus (or any
amendment or supplement thereto), or (ii) such Holder's failure to
deliver an amended or supplemental prospectus (provided such Holder was
notified in writing pursuant to Section 1.5, or otherwise, of the need
for an amended or supplemental Prospectus) if such loss, liability,
claim, damage or expense would not have arisen had such delivery
occurred. Notwithstanding the provisions of this Section 2.2, no Holder
shall be required to indemnify the Company, its officers, directors or
control persons with respect to any amount in excess of the
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amount of the total proceeds to such Holder from sales of the
Registrable Securities of such Holder under the Shelf Registration
Statement (after deducting the amounts already paid to the Company by
such Holder or any person, if any, who controls such Holder pursuant
to this Section 2.2), and no Holder shall be liable under this
Section 2.2 for any statements or omissions of any other Holder.
2.3 CONDUCT OF INDEMNIFICATION PROCEEDINGS. The indemnified
party shall give reasonably prompt notice to the indemnifying party of any
action or proceeding commenced against it in respect of which indemnity may
be sought hereunder, but failure to so notify the indemnifying party (i)
shall not relieve it from any liability which it may have under the indemnity
agreement provided in Section 2.1 or 2.2 above, unless and to the extent it
did not otherwise learn of such action and the lack of notice by the
indemnified party results in the forfeiture by the indemnifying party of
substantial rights or defenses, and (ii) shall not, in any event, relieve the
indemnifying party from any obligations to the indemnified party other than
the indemnification obligation provided under Section 2.1 or 2.2 above. If
the indemnifying party so elects within a reasonable time after receipt of
such notice, the indemnifying party may assume the defense of such action or
proceeding at such indemnifying party's own expense with counsel chosen by
the indemnifying party and approved by the indemnified party, which approval
shall not be unreasonably withheld; PROVIDED, HOWEVER, that the indemnifying
party will not settle any such action or proceeding without the written
consent of the indemnified party unless, as a condition to such settlement,
the indemnifying party secures the unconditional release of the indemnified
party; and PROVIDED FURTHER, that if the indemnified party reasonably
determines that a conflict of interest exists where it is advisable for the
indemnified party to be represented by separate counsel or that, upon advice
of counsel, there may be legal defenses available to it which are different
from or in addition to those available to the indemnifying party, then the
indemnifying party shall not be entitled to assume such defense and the
indemnified party shall be entitled to separate counsel at the indemnifying
party's expense. If the indemnifying party is not entitled to assume the
defense of such action or proceeding as a result of the proviso to the
preceding sentence, the indemnifying party's counsel shall be entitled to
conduct the indemnifying party's defense and counsel for the indemnified
party shall be entitled to conduct the defense of the indemnified party, it
being understood that both such counsel will cooperate with each other to
conduct the defense of such action or proceeding as efficiently as possible.
If the indemnifying party (i) is not so entitled to assume the defense of
such action, (ii) does not assume such defense, after having received the
notice referred to in the first sentence of this paragraph, or (iii) fails to
employ counsel that is reasonably satisfactory to the indemnified party,
after having received the notice referred to in the first sentence of this
paragraph, the indemnifying party will pay the reasonable fees and expenses
of counsel for the indemnified party. In such event, however, the
indemnifying party will not be liable for any settlement effected without the
written consent of the indemnifying party, which consent shall not be
unreasonably withheld. If an indemnifying party is entitled to assume, and
assumes, the defense of such action or proceeding in accordance with this
paragraph, the indemnifying party shall not be liable for any fees and
expenses of counsel for the indemnified party incurred thereafter in
connection with such action or proceeding.
2.4 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement provided for
in this Section 2 is for any reason held to be unenforceable by the
indemnified party although applicable in accordance with its terms, the
Company and the applicable Holder shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity agreement incurred by the Company and such Holder, (i) in such
proportion as is appropriate to reflect the relative fault of the Company on
the one hand and such Holder on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative fault of but also the relative
benefits to the Company on the one hand and such Holder on the other hand,
from the
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purchase and sale of the Registrable Securities, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits to the indemnifying party and
indemnified party shall be determined by reference to, among other things,
the total proceeds received by the indemnifying party and indemnified party
in connection with the offering to which such losses, claims, damages,
liabilities or expenses relate. The relative fault of the indemnifying party
and indemnified party shall be determined by reference to, among other
things, whether the action in question, including any untrue or alleged
untrue statement of a material fact or omission or alleged omission to state
a material fact, has been made by, or relates to information supplied by, the
indemnifying party or the indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action. The obligations of each Holder under this Section 2.4
are several and not joint.
The parties hereto agree that it would not be just or
equitable if contribution pursuant to this Section 2.4 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 2.4, no
Holder shall be required to contribute any amount in excess of the amount of
the total proceeds to that Holder from sales of the Registrable Securities of
such Holder under the Shelf Registration Statement.
Notwithstanding the foregoing, no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section
2.4, each person, if any, who controls any Holder within the meaning of
Section 15 of the Securities Act shall have the same rights to contribution
as such Holder, and each director of the Company, each officer of the Company
who signed a Shelf Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act
shall have the same rights to contribution as the Company.
SECTION 3. RULE 144 COMPLIANCE
The Company covenants that it will file any reports
required to be filed by it under the Securities Act and the Exchange Act, and
the rules and regulations adopted by the Commission thereunder (or, if the
Company is not required to file such reports, it will, upon the request of
any Holder, make publicly available other information so long as necessary to
permit sales of the Registrable Securities under Rule 144 under the
Securities Act), and it will take such further action as any Holder may
request, all to the extent required from time to time to enable such Holder
to sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
successor rule or similar provision or regulation hereafter adopted by the
Commission. Upon the request of any Holder, the Company will deliver to such
Holder a written statement as to whether it has complied with such
requirements.
SECTION 4. RULE 144A COMPLIANCE
The Company covenants that it will file all reports
required to be filed by it under the Securities Act and the Exchange Act, and
the rules and regulations adopted by the Commission thereunder (or if the
Company is not required to file such reports, it will, upon the request of
any Holder, make available other information so long as necessary to permit
sales of the Registrable Securities pursuant to Rule 144A under the
Securities Act), and it will take such further action as any Holder may
request, all to the extent required from time to time to enable such Holder
to sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule
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144A, as such rule may be amended from time to time, or (b) any successor
rule or similar provision or regulation hereafter adopted by the Commission.
SECTION 5. MISCELLANEOUS
5.1 INTEGRATION; AMENDMENT. This Agreement constitutes the
entire agreement among the parties hereto with respect to the matters set
forth herein and supersedes and renders of no force and effect all prior oral
or written agreements, commitments and understandings among the parties with
respect to the matters set forth herein. Except as otherwise expressly
provided in this Agreement, no amendment, modification or discharge of this
Agreement shall be valid or binding unless set forth in writing and duly
executed by the Company and the applicable Holder.
5.2 WAIVERS. No waiver by a party hereto shall be effective
unless made in a written instrument duly executed by the party against whom
such waiver is sought to be enforced, and only to the extent set forth in
such instrument. Neither the waiver by any of the parties hereto of a breach
or a default under any of the provisions of this Agreement, nor the failure
of any of the parties, on one or more occasions, to enforce any of the
provisions of this Agreement or to exercise any right or privilege hereunder
shall thereafter be construed as a waiver of any subsequent breach or default
of a similar nature, or as a waiver of any such provisions, rights or
privileges hereunder.
5.3 ASSIGNMENT. This Agreement shall inure to the benefit of
and be binding on the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders. If any successor, assignee or transferee of
any Holder shall acquire Registrable Securities, in any manner, whether by
operation of law or otherwise, such Registrable Securities shall be held
subject to all of the terms of this Agreement, and by taking and holding
Registrable Securities such Person shall be conclusively deemed to have
agreed to be bound by all of the terms and provisions hereof.
5.4 NOTICES. All notices, payments, demands or other
communications given hereunder shall be deemed to have been duly given and
received (i) upon personal delivery, (ii) in the case of notices sent within,
and for delivery within, the United States, as of the date shown on the
return receipt after mailing by registered or certified mail, return receipt
requested, postage prepaid, or (iii) the second succeeding business day after
deposit with Federal Express or other equivalent air courier delivery
service, unless the notice is held or retained by the customs service, in
which case the date shall be the fifth succeeding business day after such
deposit.
5.5 SPECIFIC PERFORMANCE. The parties hereto acknowledge that
the obligations undertaken by them hereunder are unique and that there would
be no adequate remedy at law if any party fails to perform any of its
obligations hereunder, and accordingly agree that each party, in addition to
any other remedy to which it may be entitled at law or in equity, shall be
entitled to (i) compel specific performance of the obligations, covenants and
agreements of any other party under this Agreement in accordance with the
terms and conditions of this Agreement and (ii) obtain preliminary injunctive
relief to secure specific performance and to prevent a breach or contemplated
breach of this Agreement in any court of the United States or any State
thereof having jurisdiction.
5.6 GOVERNING LAW. This Agreement, the rights and obligations
of the parties hereto, and any claims or disputes relating thereto, shall be
governed by and construed in accordance with the laws of the State of New
York, without giving effect to the choice of law rules thereof. The parties
agree that all disputes between any of them arising out of, connected with,
related to, or incidental to the relationship established between them in
connection with this Agreement, and whether arising in law or in equity or
otherwise, shall be resolved by the federal or state courts located in New
York, New York.
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Nothing herein shall affect the right of any party to serve process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against the other in any other jurisdiction. In addition, each of the
parties hereto consents to submit to the personal jurisdiction of any federal
or state court located in the state of New York in the event that any dispute
arises out of this Agreement. The parties, for themselves and their
respective affiliates, hereby irrevocably waive all right to a trial by jury
in any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to the actions of the parties or their
respective affiliates pursuant to this Agreement in the negotiation,
administration, performance or enforcement thereof.
5.7 HEADINGS. Section and subsection headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed
to be a part of this Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
5.8 PRONOUNS. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as
the identity of the person or entity may require.
5.9 EXECUTION IN COUNTERPARTS. To facilitate execution, this
Agreement may be executed in as many counterparts as may be required. It
shall not be necessary that the signature of or on behalf of each party
appears on each counterpart, but it shall be sufficient that the signature of
or on behalf of each party appears on one or more of the counterparts. All
counterparts shall collectively constitute a single agreement. It shall not
be necessary in any proof of this Agreement to produce or account for more
than a number of counterparts containing the respective signatures of or on
behalf of all of the parties hereto.
5.10 SEVERABILITY. If fulfillment of any provision of this
Agreement, at the time such fulfillment shall be due, shall transcend the
limit of validity prescribed by law, then the obligation to be fulfilled
shall be reduced to the limit of such validity; and if any clause or
provision contained in this Agreement operates or would operate to invalidate
this Agreement, in whole or in part, then such clause or provision only shall
be held ineffective, as though not herein contained, and the remainder of
this Agreement shall remain operative and in full force and effect.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date first hereinabove set
forth.
COMPANY:
Address: AMERICAN REAL ESTATE INVESTMENT
Plymouth Meeting Executive Campus -------------------------------
620 W. Germantown Pike, Suite 200 CORPORATION
Plymouth Meeting, PA 19462 -----------
By: /s/ STEPHEN J. BUTTE
--------------------
Name: Stephen J. Butte
Title: Vice President
HOLDER
TEACHERS INSURANCE AND ANNUITY
------------------------------
ASSOCIATION OF AMERICA
----------------------
By: /s/ KEVIN J. RIORDAN
--------------------
Name: Kevin J. Riordan
Title: Managing Director
<PAGE>
EXHIBIT 10-12
AMERICAN REAL ESTATE INVESTMENT CORPORATION
ARTICLES SUPPLEMENTARY RECLASSIFYING
SERIES C 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 (the "DEPARTMENT") that:
FIRST:
Pursuant to authority expressly vested in the Board of Directors by Article
V of the Charter (the "CHARTER"), the Board of Directors adopted resolutions
reclassifying 800,000 shares of Common Stock, par value $.001 per share, into a
series of Preferred Stock to be known as Series C Convertible Preferred Stock,
par value $.001 per share, and adopted resolutions granting the Executive
Committee of the Board of Directors the 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 (not in excess of the
aforesaid maximum number) and dividend rate of the Series C Convertible
Preferred Stock.
SECOND:
Pursuant to such authority, Articles Supplementary were filed with the
Department on September 23, 1999. These Articles Supplementary are being filed
before the issuance of any shares of Series C Convertible Preferred Stock so as
to modify the preferences and other rights of such series through a
reclassification of the series.
THIRD:
Immediately before the reclassification, there are 800,000 shares
classified as Series C Convertible Preferred Stock and immediately after the
reclassification there are 800,000 shares classified as Series C Convertible
Preferred Stock (with the preferences and rights of such series modified as set
forth herein).
FOURTH:
The preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, terms and conditions of redemption,
number of shares and dividend rate of the Series C Convertible Preferred Stock,
as so modified and 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 C Convertible Preferred Stock, par value $.001 per
share (the "SERIES C PREFERRED SHARES"), and the number of shares of Preferred
Stock which shall constitute such series shall be
<PAGE>
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 C Preferred Shares, the
following terms shall have the meanings indicated:
"ACT" shall mean the Securities Act of 1933, as amended.
"ANNUAL DIVIDEND RATE" shall have the meaning set forth in Section 3(a)
hereof.
"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 C 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 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 BASE AMOUNT" shall have the meaning set forth in Section 3(a)
hereof.
"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 Section 7(e)
hereof.
"CONVERSION PRICE" shall mean the conversion price per Common Share for
which each Series C Preferred Share is convertible, as such Conversion Price may
be adjusted pursuant to Section 7 hereof. The initial conversion price shall be
$15.75 (equivalent to a conversion rate of 1.587302 Common Shares for each
Series C Preferred Share).
"CONVERSION PRICE ADJUSTMENT" shall have the meaning set forth in Section
3(a) hereof.
"CONVERSION RATIO" shall mean the quotient of (A) $25.00 divided by (B) the
Conversion Price then in effect.
"CORPORATION" shall have the meaning set forth in the introductory
paragraph hereof.
"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.
"DEPARTMENT" shall have the meaning set forth in the introductory paragraph
hereof.
"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 October 31, 1999; PROVIDED, HOWEVER, that if any Dividend Payment
Date falls on any day other than a Business Day, the dividend payment due
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<PAGE>
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 October 31, 1999).
"EBITDA" shall mean earnings before interest, taxes, depreciation and
amortization, determined in accordance with Generally Accepted Accounting
Principles ("GAAP").
"FIXED CHARGE COVERAGE RATIO" shall mean the ratio of EBITDA to the Fixed
Charges of the Corporation for a given period. In the event that the Corporation
incurs, issues, assumes or retires any indebtedness or preferred stock prior to
the date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made, then the Fixed Charge Coverage Ratio shall be calculated
giving PRO FORMA effect to such transaction, as if the such transaction had
occurred at the beginning of the given period for which the Fixed Charge
Coverage Ratio is calculated.
"FIXED CHARGES" shall mean the sum of (i) the consolidated interest expense
of the Corporation and the Subsidiaries for a given period, determined in
accordance with GAAP, and (ii) all accrued dividend payments on any series of
preferred equity of the Corporation and the Subsidiaries. Fixed Charges shall
not include intercompany interest or dividends.
"ISSUE DATE" shall mean the date on which any Series C Preferred Shares are
issued and sold.
"JUNIOR SHARES" shall have the meaning set forth in Section 9(a)(iii)
hereof.
"LIQUIDATION" shall mean (i) a dissolution or winding up of the
Corporation, whether voluntary or involuntary, (ii) 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 (iii) a sale or transfer
of all or substantially all of the Corporation's assets other than to an
affiliate of the Corporation.
"LIQUIDATION PREFERENCE" shall have the meaning set forth in Section 4(a)
hereof.
"LIQUIDATION PREMIUM" shall mean (X) on or prior to the fifth anniversary
of the date of these Articles Supplementary, 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 the fifth anniversary of the date of these Articles Supplementary,
in connection with any Liquidation, an amount equal to the difference between
the Redemption Price set forth in Section 5 and the Liquidation Preference.
"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
Iconsolidated 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
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<PAGE>
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 the Board of Directors determines to
be the value of a Common Share.
"MERGER LIQUIDATION" shall mean 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.
"NON-ELECTING SHARE" shall have the meaning set forth in Section 7(e)
hereof.
"PARITY SHARES" shall have the meaning set forth in Section 9(a)(ii)
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.
"PURCHASE PRICE" shall mean Twenty-Five Dollars ($25.00) per Series C
Preferred Share issued hereunder.
"QUALIFIED ENTITY" shall mean any Person that 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 Investors Services, Inc.
("MOODY'S"), which rating may (A) relate to any 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.
"RATCHETED AMOUNT" shall have the meaning set forth in Section 3 hereof.
"REDEMPTION DATE" shall have the meaning set forth in Section 5(a) hereof.
"REDEMPTION NOTICE" shall have the meaning set forth in Section 5(a)
hereof.
"REDEMPTION PRICE" shall have the meaning set forth in Section 5(a) hereof.
"SECURITIES" shall have the meaning set forth in Section 7(d)(iii) hereof.
"SERIES C 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 C
Preferred Shares shall mean
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<PAGE>
placing such funds in a separate account or delivering such funds to a
disbursing, paying or other similar agent.
"SUBSIDIARIES" means subsidiary corporations, partnerships, limited
partnerships, joint ventures and limited liability companies which are directly
or indirectly and wholly or majority owned by the Corporation, including, unless
the context requires otherwise, American Real Estate Investment, L.P.
"TRADING DAY" shall mean any day on which the securities in question are
traded on the AMEX, or if such securities are not listed or admitted for trading
on the AMEX, 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 Section 7(e) hereof.
SECTION 3. DIVIDENDS.
(a) The holders of Series C 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 (i) $2.4375 per Series C Preferred Share ("ANNUAL DIVIDEND RATE")
PLUS (ii) an amount (the "RATCHETED AMOUNT") equal to the product of (x) the
amount by which cash dividends with respect to each Common Share exceeds $1.54
(the "COMMON BASE AMOUNT") and (y) the Conversion Ratio in effect immediately
after any adjustment to the Conversion Price pursuant to Section 7(d) below (a
"CONVERSION PRICE ADJUSTMENT"); PROVIDED, THAT, at the time of a Conversion
Price Adjustment, the Common Base Amount shall be adjusted to an amount equal to
the product of (I) the Common Base Amount in effect immediately prior to the
Conversion Price Adjustment and (II) a fraction, the numerator of which shall be
the Conversion Ratio in effect prior to the applicable Conversion Price
Adjustment and the denominator of which shall be the Conversion Ratio in effect
immediately after the applicable Conversion Price Adjustment. 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, and shall compound at a rate per annum equal to 9.75%
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 C 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 less than ten nor 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 (including any Ratcheted Amount if applicable) on
any Series C 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 C 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 C
Preferred Shares shall be computed on the basis of twelve 30-day months and a
360-day year. Holders of Series C Preferred Shares shall not be entitled to any
dividends,
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<PAGE>
whether payable in cash, property or stock, in excess of cumulative dividends,
as herein provided, on the Series C Preferred Shares, plus any other amounts
provided in these Articles Supplementary.
(c) So long as any Series C 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 C 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 C
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 C Preferred Shares and such Parity Shares.
(d) So long as any Series C 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) all accumulated and
unpaid dividends on all outstanding Series C 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 C 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 C 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
C 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 C 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 C Preferred Share equal to the
amount which would have been payable had each Series C Preferred Share been
converted into Common Shares immediately prior to such Liquidation. The
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 Corporation. Until the holders of the Series C
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 C 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 Shares, then such assets, or the
proceeds thereof, shall be distributed among the holders of such Series C
Preferred Shares and such other Parity Shares ratably in accordance with the
amounts that would be payable on such Series C Preferred Shares and such other
Parity Shares if all amounts payable thereon were paid in full.
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<PAGE>
In connection with a Merger Liquidation, the holders of Series C
Preferred Units shall have the right (a "CONTINUATION RIGHT") to elect, by
delivering written notice to the Partnership not less than five Business Days
prior to the Merger Liquidation, to require the Partnership to make provision
for the Series C Preferred Units to be assumed by the surviving entity as
described in Section 7(e); PROVIDED, HOWEVER, notwithstanding the election by
the holders of the Series C 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 C Preferred Shares
at any time prior to the Merger Liquidation, to redeem any or all of the
outstanding Series C Preferred Shares for an amount per Series C Preferred Share
equal to the Liquidation Preference plus a premium equal to 10% of the
Liquidation Preference.
(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 C 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 C
Preferred Shares and any Parity Shares shall not be entitled to share therein.
SECTION 5. REDEMPTION.
(a) At any time on or after the fifth anniversary of the Issue Date,
upon the written election of the Corporation given to each record holder of
Series C Preferred Shares (the "REDEMPTION NOTICE"), the Corporation may redeem
for cash on the date specified in the Redemption Notice (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 or part of the outstanding Series C Preferred Shares
at a price per Series C Preferred Share equal to the following amounts or
percentages of the Liquidation Preference during the following periods (the
"REDEMPTION PRICE"):
<TABLE>
<CAPTION>
<S> <C>
Following the fifth anniversary of the Issue Date through and
including the sixth anniversary of the Issue Date.............................. 104.75%
Following the sixth anniversary of the Issue Date through and
including the seventh anniversary of the Issue Date............................ 103.5625%
Following the seventh anniversary of the Issue Date through and
including the eighth anniversary of the Issue Date............................. 102.375%
Following the eighth anniversary of the Issue Date through and
including the ninth anniversary of the Issue Date.............................. 101.1875%
Following the ninth anniversary of the Issue Date and thereafter............... 100%
</TABLE>
(b) If less than all of the outstanding Series C Preferred Shares
are called for redemption by the Corporation, the number of Series C Preferred
Shares to be redeemed from the holders of the Series C Preferred Shares shall be
redeemed PRO RATA among such holders on the basis of the respective number of
Series C Preferred Shares owned by such holders.
(c) From and after the Redemption Date or the date on which the
Change in Control becomes effective, as the case may be, (i) except as otherwise
provided herein, dividends on the Series C 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
C Preferred Shares of the
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<PAGE>
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 or the
date on which the Change in Control becomes effective, as the case may be, 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 C
Preferred Shares so called for redemption. No interest shall accrue for the
benefit of the holder of Series C Preferred Shares to be redeemed on any cash so
set aside by the Corporation.
SECTION 6. REACQUIRED SHARES. All Series C 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 Series C
Convertible Preferred Stock.
SECTION 7. CONVERSION. Holders of Series C Preferred Shares shall have the
right to convert all or a portion of such shares into Common Shares, as follows:
(a) Subject to and upon compliance with the provisions of this
Section 7, a holder of Series C 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 nonassessable Common Shares obtained by dividing the
aggregate Liquidation Preference of such Series C 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 C
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 C 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 C Preferred Share to be converted shall surrender the certificate
representing such Series C 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 C
Preferred Shares. Unless the Common Shares issuable on conversion are to be
issued in the same name as the name in which such Series C 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 C 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 (and of any accrued
and unpaid dividends to the date of conversion), notwithstanding the conversion
thereof, following such Dividend Payment Record Date and prior to such Dividend
Payment Date; PROVIDED, HOWEVER, that no holder of Series C Preferred Shares
surrendered for conversion shall be entitled to receive a dividend for such
Dividend Period with respect to such Series C Preferred Shares if such holder is
entitled to receive a distribution for the identical quarterly period with
respect to Common Shares for which such Series C Preferred Shares have been
exchanged.
As promptly as practicable after the surrender of certificates for Series C
Preferred Shares as aforesaid, the Corporation shall issue and shall deliver at
such office to such holder, or send on his or her
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<PAGE>
written order, a certificate or certificates for the number of full Common
Shares issuable upon the conversion of such Series C Preferred Shares in
accordance with the 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. Such certificates shall be
legended, to the extent deemed necessary by the Company's counsel, to reflect
any restrictions on resale required by applicable law.
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 C
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 C 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 C Preferred Shares. Instead
of any fractional interest in a Common Share that would otherwise be deliverable
upon the conversion of a Series C Preferred Share, the Corporation shall pay to
the holder of such Series C 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 C 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 C 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 C 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 C 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 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
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<PAGE>
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 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 C Preferred Share after such determination date, shall not
require an adjustment of the Conversion Price pursuant to this subparagraph
(iii); PROVIDED, HOWEVER, that on the date, if any, on which a person converting
a Series C 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).
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<PAGE>
(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; 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 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 C 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 C 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 C Preferred Shares that will contain
provisions enabling the holders of the Series C Preferred Shares that remain
outstanding after such Transaction to convert their Series C Preferred Shares
into the consideration received by holders of Common Shares at the Conversion
Price in effect immediately prior to such Transaction. The provisions of this
paragraph (e) shall similarly apply to successive Transactions.
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(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; 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 C 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.
(g) Whenever the Conversion Price is adjusted as herein provided,
the Corporation shall promptly prepare and deliver to the holders of the Series
C 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 C 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 C 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.
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(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 C Preferred Shares, the Conversion Price for the
Series C 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 C Preferred
Shares, the full number of Common Shares deliverable upon the conversion of all
outstanding Series C 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 C 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 C Preferred Shares shall be validly issued, fully paid and
nonassessable. Before taking any action that would cause an adjustment reducing
the Conversion Price below the then-par value of the Common Shares deliverable
upon conversion of the Series C 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 nonassessable
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 C 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 C
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 C 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.
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. (a) Any class or series of shares of capital stock of
the Corporation shall be deemed to rank:
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(i) prior to the Series C 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 C Preferred Shares;
(ii) on a parity with the Series C 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 C Preferred Shares, if the holders of such class of stock or
Series C and the Series C 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
(iii) junior to the Series C 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 C 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 C Preferred Shares ("JUNIOR SHARES").
(b) The Series C Preferred Shares shall be deemed to rank on a parity with
the Series A Convertible Preferred Stock, par value $.001 per share, and the
Series B Convertible Preferred Stock, par value $.001 per share, of the
Corporation.
SECTION 10. VOTING. Except as otherwise set forth herein, the Series C
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) So long as any Series C Preferred Shares are outstanding, in
addition to any other vote or consent of shareholders required by the Charter of
the Corporation, the affirmative vote of at least two-thirds (2/3) of the votes
cast by the holders of Series C 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 Charter or these Articles Supplementary that materially and adversely
affects the voting powers, rights or preferences of the holders of the Series C
Preferred Shares; PROVIDED, HOWEVER, that (A) the amendment of the provisions of
the Charter 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 C Preferred Shares shall not be deemed to materially adversely
affect the voting powers, rights or preferences of the holders of Series C
Preferred Shares and (B) any filing with the Department 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 amendment, alteration
or repeal of any of the provisions of the Charter or these Articles
Supplementary; or
(ii) The authorization or creation of, or the increase in the
authorized amount of, any Parity Shares or shares of any class or series or any
security convertible into shares of any class or series ranking prior to the
Series C Preferred Shares in the distribution of assets on any liquidation,
dissolution or winding up of the Corporation or in the payment of dividends;
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PROVIDED, HOWEVER, that no such vote of the holders of Series C 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 is to
occur, provision is made for the redemption of all outstanding Series C
Preferred Shares in accordance with Section 5 hereof.
(b) None of the Corporation or any Subsidiary shall enter into any
capital-raising transaction or financing, including any merger or acquisition,
without the consent of holders of a majority in interest of the Series C
Preferred Shares; PROVIDED, HOWEVER, that such consent shall not be required if,
in each case, (i) such capital raising transaction or financing represents a
replacement, renewal, refinancing or extension of outstanding indebtedness or
any portion thereof of the Corporation or of any Subsidiary; PROVIDED that any
such replacement, renewal, refinancing or extension shall not exceed the sum of
the principal amount of such indebtedness being replaced, renewed, refinanced or
extended plus the amount of accrued interest thereon and the amount of any
reasonably determined prepayment premium necessary to accomplish such
replacement, renewal refinancing or extension and such reasonable fees and
expenses incurred in connection therewith; or (ii) the Fixed Charge Coverage
Ratio for the Corporation's most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the date
on which such capital-raising transaction or financing is entered into would
have been more than 1.5 to 1, determined on a PRO FORMA basis (including a PRO
FORMA application of the net proceeds therefrom), as if such capital-raising
transaction or financing had been entered into at the beginning of such
four-quarter period.
If and whenever the Corporation breaches any of the covenants set
forth in this Section 10(b), the number of Directors then constituting the Board
of Directors shall be increased by one and the holders of Series C 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. Whenever the
Corporation cures any breach of any of such covenants or is no longer in
violation thereof, then the rights of the holders of the Series C Preferred
Shares to elect such additional Director shall cease, and the term of office of
the person elected as a Director by the holders of the Series C Preferred Shares
shall forthwith terminate and the number of Directors constituting the Board of
Directors shall be reduced accordingly.
(c) Each Series C 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 C 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 C Preferred
Shares constitute Preferred Stock, and Preferred Stock constitutes Shares of the
Corporation. Therefore, the Series C Preferred Shares, being Shares, are
governed by and issued subject to all the limitations, terms and conditions of
the Charter applicable to Shares generally, including but not limited to the
terms and conditions (including exceptions and exemptions) of Article VI of the
Charter applicable to Shares. The foregoing sentence shall not be construed to
limit the applicability to the Series C Preferred Shares of any other term or
provision of the Charter.
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IN WITNESS WHEREOF, American Real Estate Investment Corporation has caused
these presents to be signed in its name and on its behalf by its Vice President
and witnessed to by its Secretary of this 27TH day of September, 1999.
AMERICAN REAL ESTATE INVESTMENT
CORPORATION
By: /s/ STEPHEN J. BUTTE
--------------------
Name: Stephen J. Butte
Title: Vice President
Witness:
/s/ Timothy A. Peterson
Name: Tim Peterson
Title: Secretary
The UNDERSIGNED, Secretary 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/ TIMOTHY A. PETERSON
-----------------------
Name: Timothy A. Peterson
Title: Vice President
<PAGE>
EXHIBIT 10-13
PARTNERSHIP UNIT DESIGNATION OF
SERIES F CONVERTIBLE PREFERRED UNITS
The following is a statement of the designations, qualifications,
special or relative rights and privileges of the Series F Convertible
Preferred Units of American Real Estate Investment, L.P. (the "PARTNERSHIP").
Capitalized terms used but not otherwise defined in this Partnership Unit
Designation shall have the same meanings ascribed to them in the
Partnership's Amended and Restated Agreement of Limited partnership, dated as
of December 12, 1997, and any amendments thereto (collectively, the
"PARTNERSHIP AGREEMENT").
SECTION 1. NUMBER OF PREFERRED UNITS AND DESIGNATION. This
designation for the class of Preferred Units authorized by this Partnership
Unit Designation shall be designated as Series F Convertible Preferred Units
(the "SERIES F PREFERRED UNITS"). The number of Series F Preferred Units
shall be eight hundred thousand (800,000), which number may be decreased (but
not below the number thereof then outstanding) from time to time by the
General Partner.
SECTION 2. DEFINITIONS. For purposes of this Partnership Unit
Designation of the Series F Preferred Units, 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
General Partner or any committee authorized by such Board of Directors to
perform any of its responsibilities with respect to the Series F Preferred
Units.
"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
General Partner in which (x) one or more entities which are not affiliates of
the General Partner or the Partnership acquire more than 50% of the General
Partner's outstanding voting equity securities or as a result of which
stockholders of the General Partner 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 General Partner.
"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.
<PAGE>
"DISTRIBUTION PAYMENT DATE" shall have the meaning set forth in
Section 3(b).
"DISTRIBUTION PERIODS" shall mean quarterly distribution 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 Distribution Period (other than the initial Distribution Period,
which shall commence on the Issue Date and end on and include October 31,
1999).
"GENERAL PARTNER" shall mean American Real Estate Investment
Corporation, a Maryland corporation and the general partner of the
Partnership.
"ISSUE DATE" shall mean the first date on which any Series F
Preferred Units are issued.
"JUNIOR UNITS" shall have the meaning set forth in Section 7 hereof.
"LIQUIDATION" shall mean (i) a dissolution or winding up of the
General Partner or the Partnership, whether voluntary or involuntary, (ii) a
consolidation or merger of the General Partner or the Partnership with and
into one or more entities which are not affiliates of the General Partner
which results in a Change in Control, or (iii) a sale or transfer of all or
substantially all of the General Partner's or the Partnership's assets other
than to an affiliate of the General Partner or the Partnership.
"LIQUIDATION PREFERENCE" shall have the meaning set forth in Section
4(a) hereof.
"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 the Board of Directors determines to be the value of a Common
Share.
"OP UNITS" shall mean units of limited partnership interest in the
Partnership that are not Preferred Units.
"PREFERRED STOCK" shall mean the preferred stock, par value $.001
per share, of the General Partner.
"PREFERRED UNITS" shall mean any units issued by the Partnership
that may be issued in
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one or more series or classes, having such rights, possible duties and
preferences as may be determined by the General Partner in its sole and
absolute discretion.
"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.
"PURCHASE PRICE" shall mean Twenty-Five Dollars ($25.00) per Series
E Preferred Unit issued hereunder.
"QUALIFIED ENTITY" shall mean any Person that 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 Investors
Service, Inc. ("MOODY'S"), which rating may (A) relate to any 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.
"SERIES C PREFERRED SHARES" shall mean the shares of Series C
Convertible Preferred Stock, par value $.001 per share, of the General
Partner.
"SET APART FOR PAYMENT" shall be deemed to include, without any
action other than the following, the recording by the Partnership in its
accounting ledgers of any accounting or bookkeeping entry which indicates,
pursuant to a declaration of a distribution by the Partnership, the
allocation of funds to be so paid on any series or class of units of the
Partnership; PROVIDED, HOWEVER, that if any funds for any class or series of
Junior Units or Parity Units are placed in a separate account of the
Partnership or delivered to a disbursing, paying or other similar agent, then
"set apart for payment" with respect to the Series F Preferred Units 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 AMEX, or if such securities are not listed or admitted for
trading on the AMEX, 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.
SECTION 3. DISTRIBUTIONS.
(a) The holders of Series F Preferred Units shall be
entitled to receive distributions payable in cash in an amount per Series E
Preferred Unit equal to the per share dividend payable on the Series C
Preferred Shares. Each such distribution shall be payable to the holders of
record of the Series F Preferred Units, as they appear on the records of the
Partnership at the close of business on the record date for the dividend
payable with respect to the Series C Preferred Shares, on any date on which
cash dividends are paid on the Series C Preferred Shares (each, a
"DISTRIBUTION PAYMENT DATE"). Holders of Series F Preferred Units shall not
be entitled
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to any distributions on the Series F Preferred Units, whether payable in
cash, property or stock, except as provided herein.
(b) So long as any Series F Preferred Units are
outstanding, no distributions, 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 Units (as hereinafter
defined) for any period unless full cumulative distributions 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 F Preferred Units for all Distribution Periods
terminating on or prior to the Distribution Payment Date for such class or
series of Parity Units. When distributions are not paid in full or a sum
sufficient for such payment is not set apart, as aforesaid, all distributions
authorized and declared upon Series F Preferred Units and all distributions
authorized and declared upon any other series or class or classes of Parity
Units shall be authorized and declared ratably in proportion to the
respective amounts of distributions accumulated and unpaid on the Series F
Preferred Units and such Parity Units.
(c) So long as any Series F Preferred Units are
outstanding, no distributions (other than distributions paid solely in shares
of, or options, warrants or rights to subscribe for or purchase, Junior
Units) shall be authorized and declared or paid or set apart for payment or
other distribution authorized and declared or made upon Junior Units (as
hereinafter defined), nor shall any Junior Units be redeemed, purchased or
otherwise acquired (other than a redemption, purchase or other acquisition of
OP Units made for purposes of and in compliance with requirements of an
employee incentive or benefit plan of the General Partner, the Partnership 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 units) by the
Partnership, directly or indirectly (except by conversion into or exchange
for Junior Units), unless in each case (i) the full cumulative distributions
on all outstanding Series F Preferred Units and any other Parity Units shall
have been paid or set apart for payment for all past Distribution Periods
with respect to the Series F Preferred Units and all past distribution
periods with respect to such Parity Units and (ii) sufficient funds shall
have been paid or set apart for the payment of the distribution for the
current Distribution Period with respect to the Series F Preferred Units and
any Parity Units .
SECTION 4. LIQUIDATION PREFERENCE.
(a) In the event of any Liquidation, before any payment or
distribution of the assets of the Partnership (whether capital or surplus)
shall be made to or set apart for the holders of Junior Units, the holders of
Series F Preferred Units shall be entitled to receive the greater of (i) an
amount equal to (A) Twenty-Five Dollars ($25.00) per Series E Preferred Unit
plus distributions (whether or not earned or declared) accrued and unpaid
thereon to the date of final distribution to such holder (the "LIQUIDATION
PREFERENCE"). The foregoing amount shall be subject to equitable adjustment
whenever there shall occur a stock distribution, stock split, combination,
reorganization, recapitalization, reclassification or other similar event
involving a change in the capital structure of the Partnership. Until the
holders of the Series F Preferred Units have been paid the Liquidation
Preference in full, no payment will be made to any holder of Junior Units
upon Liquidation. If, upon any such Liquidation, the assets of the
Partnership, or proceeds thereof, distributable among the holders of Series F
Preferred Units shall be insufficient
4
<PAGE>
to pay in full the Liquidation Preference and liquidating payments on any
other shares of any class or series of Parity Units, then such assets, or the
proceeds thereof, shall be distributed among the holders of such Series F
Preferred Units and such other Parity Units ratably in accordance with the
amounts that would be payable on such Series F Preferred Units and such other
Parity Units if all amounts payable thereon were paid in full.
(b) Subject to the rights of the holders of any Parity
Units, upon any Liquidation, after payment shall have been made in full to
the holders of Series F Preferred Units and any Parity Units, as provided in
this Section 4, any other series or class or classes of Junior Units 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 F
Preferred Units and any Parity Units shall not be entitled to share therein.
SECTION 5. REDEMPTION. In the event the General Partner exercises
its redemption right with respect to the Series C Preferred Shares and pays
the redemption price in cash, the Partnership shall concurrently redeem a
corresponding amount of Series F Preferred Units at the same redemption price
paid to the General Partner for the Series C Preferred Shares.
SECTION 6. CONVERSION.
(a) Upon any conversion of Series C Preferred Shares into
Common Shares, the General Partner shall cause a number of Series F Preferred
Units equal to the number of such converted Series C Preferred Shares to be
converted by the holders thereof into OP Units. The conversion ratio in
effect from time to time for the conversion of Series F Preferred Units into
OP Units pursuant to this Section 6 shall at all times be equal to, and shall
be automatically adjusted as necessary to reflect, the conversion ratio in
effect from time to time for the conversion of Series C Preferred Shares into
Common Shares.
(b) No fractional OP Units shall be issued
upon conversion of Series F Preferred Units. Instead of any fractional OP
Units that would otherwise be deliverable upon the conversion of Series F
Preferred Units, the Partnership shall pay to the holder of such converted
units an amount in cash equal to the cash payable to a holder of an
equivalent number of converted Series C Preferred Shares in lieu of
fractional shares of Common Shares.
SECTION 7. RANKING.
(a) Any class or series of units of the Partnership
shall be deemed to rank:
(i) prior to the Series F Preferred Units, as
to the payment of distributions 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 distributions or of amounts
distributable upon liquidation, dissolution or winding up, as the case may
be, in preference or priority to the holders of Series F Preferred Units;
(ii) on a parity with the Series F Preferred
Units, as to the payment of
5
<PAGE>
distributions and as to the distribution of assets upon liquidation,
dissolution or winding up, whether or not the distribution rates,
Distribution Payment Dates or redemption or liquidation prices per share
thereof be different from those of the Series F Preferred Units, if the
holders of Partnership Units of such class or classes and the Series F
Preferred Units shall be entitled to the receipt of distributions and of
amounts distributable upon liquidation, dissolution or winding up in
proportion to their respective amounts of accrued and unpaid distributions
per share or liquidation preferences, without preference or priority one over
the other ("PARITY UNITS"); and
(iii) junior to the Series F Preferred Units, as
to the payment of distributions and as to the distribution of assets upon
liquidation, dissolution or winding up, if such class shall be OP Units or
other Common Partnership Unit ("JUNIOR UNITS") or if the holders of Series F
Preferred Units shall be entitled to receipt of distributions or of amounts
distributable upon liquidation, dissolution or winding up, as the case may
be, in preference or priority to the holders of Partnership Units of such
class or classes.
(b) The Series F Preferred Units shall be deemed to
rank on a parity with the Series A Convertible Preferred Units, Series B
Convertible Preferred Units, Series C Convertible Preferred Units, Series D
Convertible Preferred Units of the Partnership and Series E Convertible
Preferred Units of the Partnership.
SECTION 8. VOTING. The holders of Series F Preferred Units shall
have no voting rights whatsoever, except for the (i) any voting rights to
which they may be entitled under the laws of the State of Delaware, and (ii)
as follows:
(a) So long as any Series F Preferred Units are
outstanding, the affirmative vote of at least two-thirds (2/3) of the votes
entitled to be cast by the holders of Series F Preferred Units, 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 Partnership Agreement (including this
Partnership Unit Designation or any provision hereof) whether by merger,
consolidation or otherwise that materially and adversely affects the voting
powers, rights or preferences of the holders of the Series F Preferred Units;
PROVIDED, HOWEVER, that (A) the amendment of the provisions of the
Partnership Agreement (including this Partnership Unit Designation or any
provision hereof) so as to authorize or create or to increase the authorized
amount of, any Junior Units or any Parity Units or OP Units, shall not be
deemed to materially and adversely affect such powers, preferences or special
rights shall not be deemed to materially adversely affect the voting powers,
rights or preferences of the holders of Series F Preferred Units and (B) any
filing with the Secretary of State of the State of Delaware by the
Partnership in connection with a merger, consolidation or sale of all or
substantially all of the assets of the Partnership which does not include an
amendment to the Partnership Agreement (including this Partnership Unit
Designation or any provision hereof) shall not be deemed to be an amendment,
alteration or repeal of any of the provisions of the Partnership Agreement
(including this Partnership Unit Designation or any provision hereof)
provided that (i) the Partnership is the surviving entity and the Series F
Preferred Units remain outstanding with the
6
<PAGE>
terms thereof unchanged or (ii) the resulting, surviving or transferee entity
is a partnership, limited liability company or other like entity organized
under the laws of any state and substitutes for the Series F Preferred Units,
other preferred units having substantially the same terms and the same rights
as the Series F Preferred Units including, with respect to distributions,
voting rights, conversion rights and rights upon liquidation, distribution or
winding up; or
(ii) The authorization or creation of, or the
increase in the authorized amount of, any class or series of Preferred Units
of the Partnership or any security convertible into any class or series of
Preferred Units of the Partnership ranking prior to the Series F Preferred
Units in the distribution of assets on any liquidation, dissolution or
winding up of the Partnership or in the payment of distributions;
PROVIDED, HOWEVER, that no such vote of the holders of Series F Preferred
Units under this Section 8(a) 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 Preferred Units is to occur, as the case may be,
provision is made for the redemption of all Series F Preferred Units, as the
case may be, at the time outstanding in accordance with Section 5 hereof.
(b) Each Series E Preferred Unit shall have one (1)
vote per unit.
SECTION 9. RESTRICTIONS ON OWNERSHIP. The Series F Preferred Units
shall be owned and held solely by the General Partner.
SECTION 10. ALLOCATIONS. Allocations of the Partnership's items of
income, gain, loss and deduction shall be allocated among the holders of
Series F Preferred Units in accordance with Article VI of the Partnership
Agreement.
[REMAINDER OF THE PAGE LEFT INTENTIONALLY BLANK]
7
<PAGE>
IN WITNESS WHEREOF, this Partnership Unit Designation has been duly
executed by the General Partner on behalf of the Partnership as of the day
and year set forth below.
DATED: September 27, 1999 GENERAL PARTNER
AMERICAN REAL ESTATE INVESTMENT
CORPORATION
By: /s/ STEPHEN J. BUTTE
---------------------
Name: Stephen J. Butte
Title: Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 572
<SECURITIES> 0
<RECEIVABLES> 19,329
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,440
<PP&E> 804,530
<DEPRECIATION> (16,966)
<TOTAL-ASSETS> 814,905
<CURRENT-LIABILITIES> 13,089
<BONDS> 488,455
144,225<F1>
0
<COMMON> 0
<OTHER-SE> 169,136
<TOTAL-LIABILITY-AND-EQUITY> 814,905
<SALES> 56,936
<TOTAL-REVENUES> 56,936
<CGS> 25,374
<TOTAL-COSTS> 25,374
<OTHER-EXPENSES> 4,967<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,702<F3>
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,284<F4>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,177
<EPS-BASIC> 0.69
<EPS-DILUTED> 0.67
<FN>
<F1>REPRESENTS MINORITY INTEREST AND CONVERTIBLE PREFERRED UNITS
<F2>REPRESENTS LOSS FROM EQUITY METHOD INVESTMENTS AND MINORITY INTEREST
<F3>REPRESENTS INTEREST EXPENSE AND PREFERRED DIVIDENDS
<F4>REPRESENTS GAINS ON PROPERTY SALES
</FN>
</TABLE>
