Pledge Agreement

Exhibit 10.18


PLEDGE AGREEMENT


THIS PLEDGE AGREEMENT (this "Agreement") is made on December 27, 2001 by the undersigned (herein, referred to as "Pledgor" with an address as it appears with the signature below to American Real Estate Holdings, L.P. (herein referred to as "Lender").


RECITALS


WHEREAS, Lender is extending credit to Pledgor;


WHEREAS, to induce Lender to extend credit to Pledgor, Pledgor wishes to grant security for Pledgor's performance of its obligations to Lender under a note in the principal amount of $250 million, dated the date hereof, made by Pledgor to the order of Lender (the "Note") and, to that effect, to pledge and assign to Lender all of his rights, title and interest in securities owned by Pledgor, listed on Schedule A hereto (as the same may be adjusted in amount in accordance with the provisions of Section 2 of this Agreement, the "Pledged Securities"); and


WHEREAS, High Coast Limited Partnership, Barberry Corp. and Leyton LLC, each directly or indirectly wholly-owned by Pledgor, is delivering to Lender a Pledge Agreement dated the date hereof in respect of certain securities (each an "Accommodation Pledge Agreement");


NOW THEREFORE, in consideration of the foregoing and other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, Pledgor agrees as follows:


1. Security Interest.


(a) As security for the Obligations (as defined below), Pledgor hereby delivers, pledges and assigns to Lender, and creates in Lender, a first perfected security interest in all of its right, title and interest in and to all of the Pledged Securities together with all rights and privileges of Pledgor with respect thereto, all proceeds, income and profits thereof and all property received with respect to the Pledged Securities in addition thereto, in exchange thereof or in substitution therefor (the "Collateral"), except to the extent provided herein.


(b) This Pledge Agreement secures the payment of all obligations of Pledgor to Lender under the Note, whether primary or secondary, direct or indirect, absolute or contingent, joint or several, secured or unsecured, due or not, liquidated or unliquidated, arising by operation of law or otherwise whether for principal, interest, fees, expenses or otherwise, together with all costs of collection or enforcement, including, without limitation, reasonable attorneys' fees incurred in any collection efforts or in any action or proceeding (all such obligations being the "Obligations").


2. Stock Dividends, Options, or Other Adjustments; Revaluation of Pledged Securities.


(a) Until the date on which this Pledge Agreement terminates as provided in Section 11 hereof, Lender shall receive as Collateral any and all additional shares of stock or any other property of any kind distributable on or by reason of the Collateral, whether in the form of or by way of stock dividends, warrants, liquidation, partial liquidation, conversion, prepayments or redemptions (in whole or in part) or otherwise. If any additional shares of capital stock, instruments, or other property against which a security interest can only be perfected by possession by Lender, which are distributable on or by reason of the Collateral shall come into the possession or control of Pledgor, Pledgor shall hold or control and forthwith transfer and deliver the same to Lender, subject to the provisions hereof.


(b) The number of securities constituting Pledged Securities shall be maintained in an amount such that, in respect of each June 30 ("Mid-Year Valuation Date") and December 31 ("Year End Valuation Date" and together with the Mid-Year Valuation Date, each a "Valuation Date") during the term of this Agreement, such Pledged Securities shall have a value of $250,000,000 or such lesser amount as shall equal the outstanding principal amount of the Note plus accrued but unpaid interest thereon (the "Threshold Amount") based upon the issuer's net worth as shown in the internal balance sheet for the Mid-Year Valuation Date (the "Mid-Year Adjusted Value") or audited balance sheet for the Year End Valuation Date (the "Year End Adjusted Value"), in each case, in accordance with generally accepted accounting principles, consistently applied, as of each such valuation date. The balance sheets in respect of a valuation date shall be available within 90 days after the Mid-Year Valuation Date and 120 days after the Year End Valuation Date. In the event the Year End Adjusted Value of the Pledged Securities exceeds the Threshold Amount on any Year End Valuation Date, Lender shall within ten business days after such determination take all such action necessary to return such portion of the Pledged Securities required to maintain the Market Value of the Pledged Securities at (but no greater than) the Threshold Amount (rounded up to the nearest whole unit). In the event the Mid-Year Adjusted Value or the Year End Adjusted Value of the Pledged Securities is less than the Threshold Amount on any Valuation Date, Pledgor shall within ten business days after such determination take all such action necessary to pledge additional units of the securities then representing the Pledged Securities required to maintain the Market Value of the Pledged Securities at the Threshold Amount (rounded up to the nearest whole unit).


3. Delivery of Share Certificates; Stock Powers; Registration of Pledge; Delivery of Irrevocable Proxy.


(a) All instruments and share certificates representing the Collateral are being delivered to Lender simultaneously herewith together with stock powers duly executed in blank by Pledgor. Pledgor shall deliver or cause the entity issuing the Collateral to deliver directly to Lender all instruments, share certificates or other documents representing Collateral acquired or received after the date of this Agreement with a stock power duly executed by Pledgor. If at any time Lender notifies Pledgor that additional stock powers endorsed in blank held by Lender with respect to the Collateral are required, Pledgor shall promptly execute in blank and deliver such stock powers as Pledgee may request. If advisable in the sole discretion of Lender, Pledgor shall cause the issuer of the Pledged Securities to register Lender as the record owner of the Pledged Securities on its books.


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(b) Pledgor is delivering to the Audit Committee of American Property Investors, Inc. ("API"), as general partner of American Real Estate Partners, L.P., the parent partnership of the Lender simultaneously herewith as additional security and to enable Lender to enhance the value of its realization on the Collateral in the event of an Event of Default, an irrevocable proxy (the "Proxy") in respect of such number of shares of common stock of the issuer of the Pledged Securities such that, when taken together with the number of Pledged Securities from time to time pledged hereunder, shall equal 51% of the issued and outstanding capital stock of such issuer. Pledgor and Lender agree that the Audit Committee of API may exercise its rights with respect to such irrevocable proxy only after the occurrence and during the continuance of an Event of Default.


4. Power of Attorney. Whether or not any Event of Default (as defined below) has occurred, Pledgor hereby constitutes and irrevocably appoints the Audit Committee of API, with full power of substitution and revocation by Lender, as Pledgor's true and lawful attorney-in-fact, to the full extent permitted by law, to transfer or cause the transfer of the Collateral, or any part thereof on the books of the entity issuing the same, to the name of Lender or Lender's nominee and thereafter exercise as to such Collateral all the rights, power and remedies of an owner and otherwise to take such actions and execute such instruments as the Audit Committee of API may deem necessary or advisable to accomplish the purposes of this Agreement. The power of attorney granted pursuant to this Agreement and all authority hereby conferred are granted and conferred solely to protect the interest of Lender in the Collateral and shall not impose any duty upon Lender to exercise any power. This power of attorney shall be irrevocable as one coupled with an interest prior to the payment in full or other satisfaction of all of the Obligations to Lender.


5. Inducing Representations of Pledgor. Pledgor represents and warrants to Lender that:


(a) Pledgor is the sole legal and beneficial owner of, and has good and marketable title to, the Collateral, free and clear of all pledges, liens, security interests and other encumbrances other than the security interest created by this Agreement, and Pledgor has the unqualified right and authority to execute this Agreement and to pledge the Collateral to Lender, as provided for herein;


(b) There are no outstanding options, warrants or other agreements with respect to the Collateral;


(c) The Pledged Securities have been validly issued and are fully paid and non-assessable; the holder thereof is not and will not be subject to any personal liability as such holder; and are not subject to any charter, bylaw, statutory, contractual or other restriction governing their issuance, pledge, transfer, ownership or control except that sale or transfer may be limited in the absence of an effective registration statement (i) under the Securities Act of 1933, as amended (the "Act"), (ii) under applicable state securities laws, and (iii) under applicable non-U.S. laws (provided however that if any such registration statement is unnecessary, Pledgor shall provide Lender an opinion of counsel satisfactory to Lender that the sale or transfer is exempt from registration under said Act and laws);


(d) Any consent, approval or authorization of or designation or filing with any authority on the part of Pledgor which is required in connection with the pledge and security interest granted under this Agreement has been obtained or effected and is in full force and effect;


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(e) The execution and delivery of this Agreement by Pledgor, and the performance by Pledgor of its obligations hereunder, will not result in a violation of any mortgage, indenture, contract, instrument, judgment, decree, order, statute, rule or regulation to which Pledgor is subject; and


(f) The net worth of the issuer of the Pledged Securities on the date hereof is at least equal to the net worth of such issuer as reflected in the December 31, 2000 balance sheet of the issuer delivered to the Lender in connection with the extension of the loan evidenced by the Note, a true and correct copy of which has been delivered to Lender by Pledgor.


(g) The Pledgor has d ...