American Realty Capital (ARCP) to Remain Independent Following Acquisitions

August 20, 2013 6:20 AM EDT
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American Realty Capital Properties, Inc (Nasdaq: ARCP) announced that its board of directors has determined that it is in the best interests of the Company and its stockholders to become self-managed following the pending closings of the previously announced acquisitions of CapLease, Inc. (NYSE: LSE) and American Realty Capital Trust IV, Inc.

The decision to become self-managed is the result of a process begun earlier this year by the Company’s board of directors, who considered the best time and method to maximize the efficiency and effectiveness of such a change. The decision to undertake this action is motivated by the board of director’s continuing focus on enhancing stockholder value.

AR Capital, LLC Eliminates “Floor” in Calculation of Subordinated Participation in Net Sales Proceeds To Help Facilitate the Company’s Merger with ARCT IV.

The Company also announced today that, in order to facilitate the Company’s potential merger with ARCT IV, its sponsor, AR Capital, LLC (“ARC”), as the sole owner of American Realty Capital Trust IV Special Limited Partner, LLC (the “ARCT IV Special Limited Partner”), sent a letter today to ARCT IV and its board of directors informing such parties that the ARCT IV Special Limited Partner intends on waiving any portion of the subordinated distribution in net sales proceeds to which it would be entitled as result of the price “floor” in the ARCT IV merger agreement that it would not otherwise be entitled to pursuant to the limited partnership agreement of ARCT IV’s operating partnership. This announcement does not impact the “floor” on the Company’s share price used in the determination of the merger consideration due to ARCT IV stockholders; ARCT IV stockholders will still receive the equivalent of not less than $30.62 per share.

Currently, the ARCT IV Special Limited Partner is entitled to payment of a subordinated participation in net sales proceeds (the “Incentive Fee”) from ARCT IV, pursuant to the limited partnership agreement of ARCT IV’s operating partnership and as agreed to in the side letter signed by the merger parties in connection with the announcement of the Company’s merger with ARCT IV. These agreements provide that the ARCT IV Special Limited Partner would be entitled to an Incentive Fee equal to 15% of the amount of proceeds remaining from the sale of ARCT IV, following the return of 100% of its stockholders’ capital contributions, plus a 6% hurdle. Under the current terms of the merger agreement, because the ARCT IV stockholders electing stock will enjoy a “floor” by which their consideration cannot fall below $30.62 per ARCT IV share, the Incentive Fee will be pegged to a mix of cash consideration and the $30.62 stock threshold. However, the ARCT IV Special Limited Partner has elected to forego the benefit of the “floor” and allow that the calculation will be pegged to the five-day volume weighted average price leading up to the merger close, regardless of the trading price. Therefore, the ARCT IV Special Limited Partner has foregone certainty in its Incentive Fee to ensure that ARC’s compensation (through its ownership of the ARCT IV Special Limited Partner) will be tied to the performance of the Company, rather than the “floor” negotiated with the Company pursuant to the merger agreement.

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