UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Amendment No. 3)
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the
Registrant
x
Filed by a Party other than the
Registrant
o
Check the appropriate box:
o
Preliminary
Proxy Statement
o
Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
x
Definitive
Proxy Statement
o
Definitive
Additional Materials
o
Soliciting
Material Pursuant to
§ 240.14a-12
Care Investment
Trust Inc.
(Name of Registrant as Specified In
Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
o
No
fee required.
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o
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1)
and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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x
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Fee paid previously with preliminary materials.
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o
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Check box if any part of the fee is offset as provided by
Exchange Act
Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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July 15,
2010
Dear Stockholder:
On behalf of the board of directors, I cordially invite you to
attend a special meeting of the stockholders of Care Investment
Trust Inc. to be held on Friday, August 13, 2010, at
9:00 a.m., local time, at the CIT Global Headquarters,
505 Fifth Avenue, 7th Floor, Room C/D, New York,
New York 10017.
At the special meeting, we will ask you to approve the issuance
of shares of our common stock, par value $0.001 per share, to be
issued in connection with the purchase and sale agreement, dated
March 16, 2010, in which Tiptree Financial Partners, L.P.
(Tiptree), a Delaware limited partnership, agreed to
purchase shares of our common stock
(proposal 1). The transaction is to be
completed through the issuance of a minimum of
4,445,000 shares of our common stock to Tiptree at a price
of $9.00 per share and is occurring in conjunction with a cash
tender offer by the company of $9.00 per share for up to all
publicly held registered shares of our company. Tiptree has the
option to purchase additional newly issued company shares if
less than 16,500,000 shares are tendered in the tender
offer in order to obtain ownership of up to 53.4% of the
company, and if more than 18,000,000 shares are tendered
(and not withdrawn) in the tender offer, then Tiptree must
purchase additional newly issued company shares equal to the
difference between 18,000,000 and the number of shares that are
tendered (and not withdrawn) in the tender offer.
The rules of the New York Stock Exchange require stockholder
approval prior to any issuance of common stock by a listed
company if the number of shares being issued is equal to or in
excess of 20% of the total number of shares of common stock
issued and outstanding before such issuance of common stock. The
rules of the New York Stock Exchange also require stockholder
approval prior to any issuance of common stock by any listed
company that will result in a change in control of such company.
In connection with proposal 1, we will ask you to approve
the abandonment of the plan of liquidation
(proposal 2), which was approved by our
stockholders on January 28, 2010, in favor of the Tiptree
Transaction. Proposal 2 is conditioned on proposal 1
being approved. If our stockholders do not approve
proposal 1, or if the purchase and sale agreement is
terminated prior to the date of the special meeting, then we
would consider proposal 2 moot, and votes for
proposal 2 would not be counted. If our stockholders do not
approve proposal 1, we may pursue the previously approved
plan of liquidation or continue to pursue other strategic
alternatives.
You will also be asked to approve an amendment to our charter to
remove a provision designed to protect our status as a real
estate investment trust or REIT under the Internal
Revenue Code of 1986, as amended, which provision currently
prohibits an issuance of common stock by us that would cause the
company to be beneficially owned by less than 100 stockholders,
in order to facilitate the Tiptree Transaction
(proposal 3) and to approve an amendment to our
charter to be effective on the 20th calendar day following
the consummation of the Tiptree Transaction reinstating the REIT
protective provision removed by proposal 3
(proposal 4). Finally, you will be asked to
approve a proposal to adjourn the special meeting, if necessary,
to permit further solicitation of proxies if there are not
sufficient votes at the time of the special meeting to approve
proposals 1, 2, 3 or 4 (proposal 5).
Proposal 3 is conditioned on proposals 1 and 2 being
approved and proposal 4 is conditioned on proposals 1, 2 and 3
being approved. If our stockholders do not approve
proposal 1 or proposal 2, or if the purchase and sale
agreement is terminated prior to the date of the special
meeting, then we would consider proposal 3 and
proposal 4 to be moot, and votes for proposal 3 and
proposal 4 would not be counted.
Once a quorum is present or represented by proxy at the special
meeting, the affirmative vote of at least a majority of the
outstanding shares of our common stock is required to approve
the Tiptree issuance, provided that the total vote cast for the
issuance represents over 50% in interest of all securities
entitled to vote on the proposal. The affirmative vote of at
least a majority of the outstanding shares of our common stock
present in person or by proxy at the special meeting and
entitled to vote thereon is required to approve
proposals 2, 3, 4 and 5, provided that a quorum is present.
CIT Group Inc., the parent of our external manager, CIT
Healthcare LLC, controls approximately 37% of our issued and
outstanding common stock and has indicated to us that it intends
to vote all of the 7,589,040 shares it owns in favor of the
Tiptree issuance, as well as proposals 2, 3, 4 and 5.
Our board of directors has unanimously approved the issuance
of shares of our common stock in connection with the transaction
with Tiptree and recommends that you vote FOR
proposal 1. Our board of directors also believes that it is
advisable and in the best interests of the company to abandon
the plan of liquidation in favor of proposal 1 and has
unanimously recommended the approval of proposal 2. Our
board also unanimously recommends that you vote FOR
proposal 3 to amend the charter to remove the REIT
protective provision to facilitate the Tiptree Transaction,
FOR proposal 4 to amend the charter to
reinstate the REIT protective provision 20 calendar days
after the consummation of the Tiptree Transaction and
FOR proposal 5 to adjourn the special meeting,
if necessary, to permit further solicitation of proxies if there
are not sufficient votes at the time of the special meeting to
approve proposals 1, 2, 3 or 4.
Your vote is important. Whether or not you plan to attend the
special meeting, we urge you to submit your proxy as soon as
possible. You may do this by completing, signing and dating the
enclosed proxy card and returning it to us in the accompanying
postage paid return envelope. You may also authorize a proxy to
vote your shares via the internet at www.proxyvote.com or by
telephone by dialing toll-free
1-800-690-6903.
Please follow the directions provided in this proxy statement.
This will not prevent you from voting in person at the special
meeting, but will assure that your vote will be counted if you
are unable to attend the special meeting.
THANK YOU FOR YOUR ATTENTION TO THIS MATTER AND FOR YOUR
CONTINUED SUPPORT OF AND INTEREST IN OUR COMPANY.
Sincerely,
Flint D. Besecker
Chairman of the Board of Directors
New York, New York
July 15, 2010
CARE
INVESTMENT TRUST INC.
505 Fifth
Avenue
Sixth Floor
New York, NY 10017
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
to be held on August 13, 2010
NOTICE IS HEREBY GIVEN that a special meeting of the
stockholders of Care Investment Trust Inc. will be held on
August 13, 2010, at 9:00 a.m., local time, at the CIT
Global Headquarters, 505 Fifth Avenue, Seventh Floor
Room C/D, New York, NY 10017. The proxy solicitation
materials were mailed to stockholders on or about July 15, 2010.
At the special meeting, stockholders will vote upon the
following proposals:
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1.
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To consider and vote upon a proposal to approve the issuance of
shares of our common stock, par value $0.001 per share, to be
issued in connection with the purchase and sale agreement, dated
March 16, 2010, in which Tiptree Financial Partners, L.P.
(Tiptree), a Delaware limited partnership, agreed to
purchase shares of our common stock. The transaction is to be
completed through the issuance of a minimum of
4,445,000 shares of our common stock to Tiptree at a price
of $9.00 per share and is occurring in conjunction with a cash
tender offer by us of $9.00 per share for up to all publicly
held registered shares of our company. Tiptree has the option to
purchase additional newly issued company shares if less than
16,500,000 shares are tendered in the tender offer in order
to obtain ownership of up to 53.4% of the company, and if more
than 18,000,000 shares are tendered (and not withdrawn) in
the tender offer, then Tiptree must purchase additional newly
issued company shares equal to the difference between 18,000,000
and the number of shares that are tendered (and not withdrawn)
in the tender offer. The rules of the New York Stock Exchange
require stockholder approval of the issuance of our common stock
in the proposed transaction with Tiptree as the number of shares
to be issued is 20% or more of the number of shares outstanding
prior to the issuance, and if Tiptree purchases shares
representing more than 50% of our outstanding common stock, the
issuance will result in a change in control of the company.
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2.
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To consider and vote on a proposal to abandon the plan of
liquidation that was approved by our stockholders on
January 28, 2010 in favor of proposal 1.
Proposal 2 is conditioned on proposal 1 being
approved. If our stockholders do not approve proposal 1, or
if the Tiptree purchase and sale agreement is terminated prior
to the date of the meeting, then we would consider
proposal 2 moot, and votes for proposal 2 would not be
counted. If our stockholders do not approve proposal 1, we
may pursue the plan of liquidation as approved by our
stockholders or continue to pursue other strategic alternatives.
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3.
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To approve an amendment to the companys amended and
restated articles of incorporation (the charter) to
remove section 7.2.1(a)(iii), which prohibits a Transfer
(as defined in the charter) that would cause the company to be
beneficially owned by less than 100 stockholders, in order to
facilitate the Tiptree Transaction. Proposal 3 is
conditioned on proposals 1 and 2 being approved. If our
stockholders do not approve proposal 1 or proposal 2,
or if the purchase and sale agreement is terminated prior to the
date of the special meeting, then we would consider
proposal 3 to be moot, and votes for proposal 3 would
not be counted.
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4.
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To approve an amendment to the Companys charter to be
effective 20 calendar days after the consummation of the
Tiptree Transaction reinstating section 7.2.1(a)(iii), which was
removed by proposal 3 to facilitate the Tiptree
Transaction. Proposal 4 is conditioned on proposals 1, 2 and 3
being approved. If our stockholders do not approve proposal 1,
proposal 2 or proposal 3, or if the Tiptree purchase and sale
agreement is terminated prior to the date of the special
meeting, then we would consider proposal 4 to be moot, and votes
for proposal 4 would not be counted.
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5.
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To consider and vote on a proposal to permit the board of
directors to adjourn the special meeting, if necessary, to
permit further solicitation of proxies if there are not
sufficient votes at the time of the special meeting to approve
proposals 1, 2, 3 or 4 above.
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Provided that a quorum consisting of a majority of the shares of
common stock entitled to vote is present, approval of
proposal 1 requires the affirmative vote of at least a
majority of the outstanding shares of our common stock in person
or by proxy at the special meeting, provided that the total vote
cast for the issuance represents over 50% in interest of all
securities entitled to vote on proposal 1. Approval of
proposals 2, 3, 4 and 5 requires the affirmative vote of a
majority of the shares of our common stock present in person or
by proxy at the special meeting and entitled to vote thereon,
provided that a quorum is present.
Any action may be taken on the foregoing matters at the special
meeting on the date specified above, or on any date or dates to
which, by original or later adjournment, the special meeting may
be adjourned, or to which the special meeting may be postponed.
Our board of directors has fixed the close of business on
July 8, 2010, as the record date for determining the
stockholders entitled to notice of, and to vote at, the special
meeting, and at any adjournments or postponements thereof. Only
stockholders of record of our common stock at the close of
business on that date will be entitled to notice of, and to vote
at, the special meeting and at any adjournments or postponements
thereof. A list of stockholders entitled to vote at the special
meeting will be available at the special meeting and for ten
(10) calendar days prior to the special meeting, between
the hours of 9:00 a.m. and 4:00 p.m., local time, at
our corporate offices located at 505 Fifth Avenue,
6th Floor, New York, New York 10017. You may arrange to
review this list by contacting our Secretary and Chief
Compliance Officer, Paul F. Hughes.
Neither the U.S. Securities and Exchange Commission (the
Commission or the SEC) nor any state
securities commission has approved or disapproved of this
transaction or passed upon the merits or fairness of such
transaction or passed upon the adequacy or accuracy of the
information contained in this document. Any representation to
the contrary is a criminal offense.
Whether or not you plan to attend the special meeting, please
complete, sign, date and promptly return the enclosed proxy
card, which is being solicited by our board of directors, in the
postage-prepaid envelope provided. You may also authorize a
proxy to vote your shares electronically via the internet at
www.proxyvote.com or by telephone by dialing toll-free
1-800-690-6903.
For specific instructions on voting, please refer to the
instructions on the proxy card or the information forwarded by
your broker, bank or other holder of record. Any proxy may be
revoked by delivery of a later dated proxy. If you attend the
special meeting, you may vote in person if you wish, even if you
have previously signed and returned your proxy card. Please
note, however, that if your shares are held of record by a
broker, bank or other nominee and you wish to vote in person at
the meeting, you must obtain a proxy issued in your name from
such broker, bank or other nominee.
By Order of our Board of Directors,
Paul F. Hughes
Secretary and Chief Compliance Officer
New York, New York
July 15, 2010
Table of
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A-1
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B-1
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ii
SUMMARY
TERM SHEET
The following questions and answers address briefly some
questions you may have regarding the special meeting, the
issuance of shares to Tiptree, the abandonment of the plan of
liquidation and the amendments to our charter. These questions
and answers may not address all questions that may be important
to you as a shareholder of Care Investment Trust Inc.
Please refer to the more detailed information contained
elsewhere in this proxy statement, the exhibits to this proxy
statement and the documents referred to or incorporated by
reference in this proxy statement. In this proxy statement, the
terms Care, company, we,
our, ours, and us refer to
Care Investment Trust Inc. and its subsidiaries.
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Q:
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What am I being asked to vote upon?
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A:
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At the special meeting, we will ask you to approve the issuance
of shares of our common stock, par value $0.001 per share, to be
issued in connection with the purchase and sale agreement, dated
March 16, 2010, in which Tiptree Financial Partners, L.P.
(Tiptree), a Delaware limited partnership, agreed to
purchase shares of our common stock. The transaction is to be
completed through the issuance of a minimum of
4,445,000 shares of our common stock to Tiptree at a price
of $9.00 per share and is occurring in conjunction with a cash
tender offer by the company of $9.00 per share for up to all
publicly held registered shares of our company (the tender
offer). We refer to the issuance of stock to Tiptree
pursuant to the purchase and sale agreement and the associated
cash tender offer as the Tiptree Transaction.
Tiptree has the option to purchase additional newly issued
company shares if less than 16,500,000 shares are tendered
in the tender offer in order to obtain ownership of up to 53.4%
of the company, and if more than 18,000,000 shares are
tendered (and not withdrawn) in the tender offer, then Tiptree
must purchase additional newly issued company shares equal to
the difference between 18,000,000 and the number of shares that
are tendered (and not withdrawn) in the tender offer. The rules
of the New York Stock Exchange (NYSE) require
stockholder approval of the issuance of our common stock in the
proposed transaction with Tiptree as the number of shares to be
issued is 20% or more of the number of shares outstanding prior
to the issuance, and if Tiptree purchases shares representing
more than 50% of our common stock the issuance will result in a
change in control of the company. In connection with the Tiptree
Transaction, you will also be asked to approve the abandonment
of the plan of liquidation that our stockholders approved on
January 28, 2010. You will also be asked to approve a
proposal to amend the amended and restated articles of
incorporation (charter) of our company to remove
section 7.2.1(a)(iii), which prohibits a Transfer (as
defined in the charter) that would cause the company to be
beneficially owned by less than 100 stockholders, in order to
facilitate the Tiptree Transaction as well as a proposal to
reinstate section 7.2.1(a)(iii) to our charter to be effective
20 calendar days after the consummation of the Tiptree
Transaction. Lastly, you are being asked to approve a proposal
allowing our board of directors to adjourn the special meeting,
if necessary, to permit further solicitations of proxies if
there are not sufficient votes at the time of the special
meeting to approve the issuance of shares to Tiptree, the
abandonment of the plan of liquidation or the amendments to our
charter. The proposals to approve the abandonment of the plan of
liquidation and to approve the amendments to the charter are
conditioned upon the approval of the issuance of shares of our
common stock to Tiptree pursuant to the purchase and sale
agreement. If our stockholders do not approve the issuance of
our shares of common stock to Tiptree, or if the Tiptree
purchase and sale agreement is terminated prior to the special
meeting, then we will consider proposals 2, 3 and 4 to be
moot, and the votes cast for those proposals will not be counted.
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Q:
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What is our boards recommendation?
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A:
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Our board of directors, acting upon the recommendation of a
special committee of directors comprised of Flint D. Besecker,
Gerald E. Bisbee, Jr., PhD. and Karen P. Robards, unanimously
recommends that the stockholders approve the proposal to issue
shares to Tiptree pursuant to the purchase and sale agreement,
approve the abandonment of the plan of liquidation, approve the
first and second amendments to our charter and authorize our
board of directors and executive officers to take all actions
necessary and advisable to effect the share issuance to Tiptree
including the abandonment
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of the plan of liquidation and the charter amendments. In
addition, our board of directors unanimously recommends that
stockholders approve the proposal to adjourn the special
meeting, if necessary, to permit further solicitation of proxies.
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Q:
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Who is on Cares special committee and why was the
special committee formed?
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A:
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On July 14, 2008, our board formed a special committee of
Gerald E. Bisbee, Jr., PhD., Kirk E. Gorman and Karen P.
Robards, each of whom qualified as an independent
director under the rules of the NYSE and the
companys own independence definition. The special
committee was authorized and empowered to, among other things,
pursue, review, evaluate, consider and negotiate with any
potentially interested parties the terms of any strategic
transaction with the company and make a recommendation to the
board with respect to such strategic transactions. Flint D.
Besecker, our current chairman, was later appointed to the
special committee in October 2008, and Mr. Gorman resigned
from the special committee and our board of directors in October
2009, due to time constraints resulting from his other business
commitments. Until May 2008, Mr. Besecker was the President
of CIT Healthcare, our external manager. Upon his appointment to
the special committee, the board determined that
Mr. Besecker had no affiliation or economic interest in
either CIT Healthcare or any of the potential bidders for our
company.
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Q:
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Has Care, its special committee or its board of directors
made any determination with respect to the Tiptree
Transaction?
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A:
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Our special committee and our board of directors have each
unanimously determined that the Tiptree Transaction is
substantively and procedurally fair to our stockholders,
including our unaffiliated stockholders, and the price to be
paid by Tiptree in the stock issuance and the price to be paid
to our stockholders in the tender offer are both fair from a
financial point of view, to our stockholders, including our
unaffiliated stockholders.
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Q:
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What factors were considered by the special committee and the
board of directors in considering the fairness of the Tiptree
Transaction?
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A:
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In reaching their determination that the Tiptree Transaction is
fair from a financial point of view to our unaffiliated
stockholders, our board of directors and our special committee
consulted with our management and our financial and legal
advisors and considered the following factors:
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the extensive sale process for the company undertaken over a
period of more than one year, led by our financial advisor,
Credit Suisse Securities (USA) LLC (Credit Suisse),
an affiliate of Credit Suisse AG, wherein the company received,
evaluated and negotiated numerous strategic alternatives,
including many offers to acquire all of the issued and
outstanding common stock of the company through a merger, tender
offer or similar business combination, none of which was
successful;
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our stockholders approval, at a special meeting held on
January 28, 2010, of our plan of liquidation, which
involved a complete liquidation of Cares assets at an
estimated total liquidation value range of $8.05-$8.90 per
share, compared to the price that Tiptree will pay ($9.00 per
share) and the price offered to the companys stockholders
($9.00 per share) in the tender offer, which is superior;
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none of the individual asset bids received by Care exceeded the
components of value ranges developed by Care in
connection with the plan of liquidation;
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the tender offer is for up to 100% of our outstanding common
stock and thus presents an opportunity for all of our
stockholders to receive, on a current basis, $9.00 in cash for
each share of common stock that they own, rather than having to
wait for assets to be disposed of and cash proceeds distributed
pursuant to the plan of liquidation;
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the price offered to our stockholders in the tender offer of
$9.00 per share is the same price that Tiptree, an unaffiliated
third party, agreed to pay for our common stock pursuant to the
purchase and sale agreement;
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the purchase price of $9.00 per share payable to the company by
Tiptree and payable to the companys stockholders in the
tender offer represents a 7.7% premium over the closing price of
the companys common stock on the NYSE on Monday,
March 15, 2010 ($8.36), the last trading day prior to the
public announcement of the execution of the purchase and sale
agreement, and a 6.4% premium over the highest closing price
($8.46) of the companys common stock during the 52-week
period preceding such date;
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Tiptree has agreed to assume certain closing-related risks
pertaining to our pending litigation with Cambridge Holdings,
which other interested parties were not willing to do;
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stockholders seeking to monetize their investment may do so by
tendering shares, and stockholders who wish to remain
stockholders may do so by not tendering shares; and
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the execution risks associated with the proposed plan of
liquidation are likely greater than the execution risks
associated with the Tiptree Transaction.
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Our special committee and board of directors believed that each
of the above factors generally supported its determination and
recommendation. Our special committee and board of directors
also considered and reviewed with management a number of
potentially negative factors, including those listed below:
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there is no assurance that we will be successful in our tender
offer and have the minimum number of shares tendered for the
transaction to close;
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the fact that Cambridge Holdings has asserted a right to approve
any sale or disposition of our direct or indirect interests in
the Cambridge portfolio, including a change in control of the
company;
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the actual or potential conflicts of interest which certain of
our executive officers and our directors have in connection with
the tender offer;
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the costs to be incurred by our company in connection with
execution of the transaction and the tender offer, including
significant accounting, financial advisory and legal
fees; and
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the possibility that stockholders may, depending on their tax
basis in their stock, recognize taxable gains (ordinary
and/or
capital gains) in connection with the completion of the Tiptree
Transaction.
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Q:
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Why are we asking you to approve the issuance of shares of
common stock?
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A:
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On March 16, 2010, we entered into a purchase and sale
agreement with Tiptree, under which we have agreed to sell a
minimum of 4,445,000 newly issued shares of our common stock to
Tiptree at a price of $9.00 per share. In conjunction with the
issuance, we will commence a tender offer for up to all publicly
held registered shares of our company for cash consideration of
$9.00 per share. Pursuant to the purchase and sale agreement,
Tiptree has the option to purchase additional newly issued
company shares if less than 16,500,000 shares are tendered
in the tender offer to obtain ownership of up to 53.4% of the
company, and if more than 18,000,000 shares are tendered
(and not withdrawn) in the tender offer, then Tiptree must
purchase additional newly issued company shares equal to the
difference between 18,000,000 and the number of shares that are
tendered (and not withdrawn) in the tender offer.
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The NYSE rules require stockholder approval of the issuance of
our common stock in the proposed transaction with Tiptree as the
number of shares to be issued is 20% or more of the number of
shares outstanding prior to the issuance, and if Tiptree
purchases shares representing over 50% of our outstanding common
stock the issuance will result in a change in control of the
company.
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You are not being asked to approve the Tiptree Transaction
itself, although if Care stockholders do not approve the
issuance of shares, the abandonment of the plan of liquidation
or the first amendment to the charter, the Tiptree Transaction
cannot occur.
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In connection with the purchase and sale agreement, upon the
closing of the issuance, the registration rights agreement with
Tiptree will become effective, as further described in The
Registration Rights Agreement.
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Q:
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Why are we asking you to abandon the plan of liquidation?
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A:
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Our board of directors, upon the recommendation of the special
committee, is committed to maximizing the return of value to our
stockholders and believes that the Tiptree Transaction will
provide greater value to our stockholders (and more quickly)
than pursuing the plan of liquidation.
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Q:
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What percentage of the company will Tiptree own upon
completion of the proposed issuance?
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A:
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We anticipate that there will be 20,265,924 shares of
common stock eligible to be tendered in the tender offer,
including up to 30,000 shares issuable to our chairman and
certain of our executive officers upon the settlement of company
performance share awards immediately prior to the closing of the
tender offer. Pursuant to the purchase and sale agreement,
Tiptree agreed to purchase a minimum of 4,445,000 shares of
our common stock. However, if more than 18,000,000 shares
are tendered (and not withdrawn) in the tender offer being
conducted in conjunction with the issuance, Tiptree must
purchase additional newly issued company shares equal to the
difference between 18,000,000 and the actual number of shares
tendered (and not withdrawn) in the tender offer in addition to
the 4,445,000 shares. If, instead, less than
16,500,000 shares of our common stock are tendered, Tiptree
has the option to purchase additional newly issued shares to
obtain ownership of up to 53.4% of the company. For example, if
14,000,000 shares are tendered, Tiptree is required to
purchase 4,445,000 newly issued shares and has the option to
purchase up to an additional 2,735,500 newly issued shares
for a total of 7,180,500 shares of our common stock,
resulting in Tiptree owning 53.4% of the company after the
consummation of the tender offer. If, however,
19,000,000 shares of our common stock are tendered (and not
withdrawn), Tiptree must purchase a total of
5,445,000 newly issued shares, resulting in Tiptree owning
81.1% of the company after consummation of the tender offer. See
Proposal One: Issuance of Care Common Stock to
Tiptree Description of Transaction.
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Q:
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Who are Tiptree and TREIT Management?
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A:
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Formed in 2007, Tiptree is a diversified financial services
holding company that primarily focuses on the acquisition of
majority control equity interests in financial businesses.
Tiptrees objective is to acquire financial services firms
with strong business models and predictable economics that have
capital needs or whose shareholders would benefit from a
strategic partner and liquidity. Tiptrees business plan is
to be a well-capitalized, stable, majority owner and strategic
partner for a diversified, independently managed group of
financial services firms for which Tiptrees access to
capital and financial expertise can facilitate creating a
stronger business. Tiptrees primary focus is on five
sectors of financial services: insurance, tax exempt finance,
real estate, corporate loans and banking and specialty finance.
Tiptrees holdings include a structured corporate loan
portfolio and Muni Funding Company of America, LLC, a municipal
finance company. In June 2010, Tiptree acquired PFG Holdings,
Inc., which develops and administers private placement insurance
and annuities for ultra-high net worth and institutional
clients. Tiptree is owned by a small group of investors,
consisting primarily of major financial institutions. Tiptree is
externally managed by Tiptree Capital Management, LLC
(Tiptree Capital) and we will be advised at least in
part by TREIT Management, LLC (TREIT Management), an
affiliate of Tiptree Capital, following the consummation of the
Tiptree Share Purchase and after a
60-day
transition period. We also intend to internalize certain
functions by hiring employees to provide accounting, financial,
investment or other services.
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TREIT Management and Tiptree Capital are wholly-owned
subsidiaries of Tricadia Holdings, L.P., an asset management
firm founded in 2003 by Michael Barnes and Arif Inayatullah.
Tricadia Holdings, L.P. is based in New York, New York and has
approximately $5 billion in assets under management and
employs approximately 50 professionals.
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Q:
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Will Tiptree have adequate resources to complete the proposed
share issuance?
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A:
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Tiptree has sufficient unencumbered cash, net of short-term
accruals and liabilities, to complete the share issuance, which
requires it to deposit $60,430,932 in escrow. As of May 31,
2010, Tiptree had $100.8 million of unencumbered cash and
$4.9 million of short-term accruals and liabilities
recorded on its balance sheet (see Source and Amount of
Funds or Other Consideration on page 56 which
contains an unaudited balance sheet summarizing Tiptrees
financial position).
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Q:
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Why is the Company seeking a stockholder vote in connection
with the issuance?
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A:
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The NYSE rules require stockholder approval of the issuance of
stock if the number of shares to be issued is 20% or more of the
number of shares outstanding prior to the issuance. In addition,
the NYSE rules require stockholder approval if an issuance will
result in a change of control of the company.
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Q:
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Why is the Company seeking a stockholder vote in connection
with abandoning the plan of liquidation?
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A:
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Maryland law requires that any corporation that receives
stockholder approval to dissolve or liquidate must obtain
additional stockholder approval to abandon any plan of
dissolution or liquidation.
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Q:
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Why is the Company seeking approval of the amendments to our
charter?
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A:
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Section 7.2.1(a)(iii) of our charter provides that any
Transfer (as defined in the charter, but which includes an
issuance of common stock by us) is void if such Transfer results
in our common stock being beneficially owned by less than 100
stockholders which provision is intended to protect our status
as a REIT. Depending upon the success of our tender offer, which
will result in a reduction in the number of our stockholders,
and which will be completed immediately prior to our issuance of
common stock to Tiptree, section 7.2.1(a)(iii) may have the
effect of invalidating the issuance of common stock to Tiptree
under our charter if the tender offer leaves us with fewer than
100 stockholders. Therefore, we propose to amend the charter to
facilitate the Tiptree Transaction. We propose a second
amendment to the charter, to be effective 20 calendar days
following the consummation of the Tiptree transaction, which
will reinstate the REIT protective provision in order to ensure
that the companys REIT status is protected going forward.
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Q:
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Am I entitled to dissenters rights?
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A:
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No. You will have no right under Maryland law to
dissenters rights with respect to your shares of common
stock in connection with the issuance or the other transactions
contemplated herein.
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Q:
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Where and when is the special meeting?
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A:
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The special meeting will take place at the CIT Global
Headquarters, 505 Fifth Avenue, 7th Floor, Room C/D,
New York, New York 10017, on August 13, 2010, at
9:00 a.m. local time.
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Q:
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What vote is required to approve the proposals?
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A:
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To approve the issuance to Tiptree, a majority of the votes cast
in person or by proxy at the special meeting must be voted
FOR the approval of the issuance, provided that the
total vote cast for the issuance represents over 50% in interest
of all securities entitled to vote on the proposal, or
10,150,000 shares of our outstanding common stock. Our
abandonment of the plan of liquidation proposal, amendments to
our charter proposals and adjournment proposal require a
majority of the votes cast in person or by proxy at the special
meeting to be voted FOR the respective proposal
provided that a quorum is present.
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Q:
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How does the Companys board of directors and special
committee recommend that I vote?
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A:
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Our board and special committee both unanimously recommend that
our stockholders vote FOR the approval of the
issuance to Tiptree, FOR the abandonment of the plan
of liquidation and FOR the amendments to our
charter. You should read Proposal One: Issuance of
Care Common Stock to Tiptree Reasons for the
Transaction for a discussion of the factors that our board
considered in deciding to recommend abandoning the plan of
liquidation in favor of the Tiptree Transaction.
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Q.
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What will happen if our stockholders do not approve the
issuance to Tiptree or the abandonment of the plan of
liquidation?
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A:
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If our stockholders do not approve the issuance to Tiptree or
the proposal to abandon the plan of liquidation, the company
will not be able to move forward with the transaction with
Tiptree, and we may pursue the plan of liquidation previously
approved by our stockholders or, following termination of the
Tiptree purchase and sale agreement, entertain other proposals
from third parties to enter into an alternative transaction that
returns value to our stockholders, and, if required by
applicable law, we will seek stockholder approval for any such
alternative transaction.
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Q:
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Are there any interests in abandoning the plan of liquidation
in favor of the Tiptree Transaction that differ from my own?
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A:
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Yes. Our directors and executive officers have interests in the
transaction that are different from your interests as a
stockholder, including the following:
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Flint D. Besecker, the chairman of the board, holds a
performance share award that entitles him to receive 10,000
additional shares, which will represent $90,000 in value if the
tender offer is completed.
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Salvatore (Torey) V. Riso, Jr., our chief executive officer,
holds a performance share award that entitles him to receive
10,000 additional shares, which will represent $90,000 in value
if the tender offer is completed.
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Paul F. Hughes, our chief financial officer, holds a performance
share award that entitles him to receive 6,000 additional
shares, which will represent $54,000 in value if the tender
offer is completed.
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In addition, our manager and largest stockholder, CIT Healthcare
LLC, has interests in the transaction that are different from
your interests as a stockholder. Our manager acquired a warrant,
dated September 30, 2008, to purchase 435,000 shares
of our common stock at an exercise price of $17.00 per
share. On March 16, 2010, our manager entered into a
warrant purchase agreement with Tiptree, pursuant to which our
manager will sell its warrant to purchase the
435,000 shares of our companys common stock in
exchange for $100,000 effective upon the closing of the Tiptree
Transaction.
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Consequently, these individuals and our manager may be more
likely to support the Tiptree Transaction than might otherwise
be the case if they did not expect to receive those payments.
Our board of directors and the special committee each was aware
of these interests and considered them in making their
recommendations. For further information regarding these and
other interests that differ from your interests please see the
section titled Proposal One: Issuance of Care Common
Stock to Tiptree Interests of Certain Persons in the
Tiptree Transaction.
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Q:
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Is the Tiptree Transaction a going private
transaction?
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A:
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Due to its low number of record stockholders, Care is currently
eligible to terminate the registration of its common stock under
the Exchange Act and cease filing periodic reports with the SEC.
Under the stockholder distribution requirements contained in the
continued listing standards of the
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NYSE, Care is required to have a minimum of 400 stockholders.
Under the purchase and sale agreement, Tiptree has represented
to us that it intends to maintain the companys NYSE
listing, and has covenanted to use commercially reasonable
efforts to maintain the companys NYSE listing for a period
of one year following completion of the Tiptree Transaction.
However, notwithstanding Tiptrees representation and
covenant in the Purchase Agreement, depending upon the success
of the tender offer, the companys stockholder numbers may
fall below the numbers required under the continued listing
standards of the NYSE or the company may fail to continue to
meet any of the other requirements for continued listing. As a
result, we cannot ensure that, as a result of the tender offer,
the NYSE will not involuntarily delist the company for falling
below the minimum stockholder requirements under its continued
listing standards. As a result, pursuant to the requirements of
the federal securities laws, we are characterizing the Tiptree
Transaction herein as a potential going private
transaction even though Tiptrees stated intention is to
use its commercially reasonable efforts to keep Care
public for twelve months following the completion of
the Tiptree Transaction.
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Q.
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When do you expect the Tiptree Transaction to be
completed?
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A.
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The Tiptree Transaction includes a tender offer, which will
commence at or near the time this solicitation commences, and is
scheduled to expire (unless extended) on or about the date of
the special meeting. Stockholder approval of the issuance of
common stock to Tiptree, the abandonment of our plan of
liquidation and the first amendment to our charter are also
conditions to the closing of the Tiptree Transaction. There are
also additional conditions to the closing of both the tender
offer and the Tiptree issuance that must be met or, if
applicable, waived, in order for the Tiptree Transaction to be
completed. The tender offer is currently anticipated to expire
on August 13, 2010, subject to our rights to extend the
offer. Assuming the tender offer is completed and the other
conditions to the closing of the issuance are met or, if
applicable, waived, we anticipate closing the issuance promptly
after completion of the tender offer. For a more complete
discussion of the timing of the offer, please see the section
captioned Proposal One: Issuance of Care Common Stock
to Tiptree Timing of the Transaction.
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Q:
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What other matters will be voted on at the special
meeting?
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A:
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In addition to asking you to vote on the abandonment of the plan
of liquidation proposal and the issuance to Tiptree proposal, we
are asking you to consider and vote on a proposal to permit our
board of directors to amend our charter to remove
section 7.2.1(a)(iii) in order to facilitate the Tiptree
Transaction (the first amendment proposal). We are
also asking you to vote on an amendment to our charter to be
effective 20 calendar days following the consummation of the
Tiptree Transaction to reinstate section 7.2.1(a)(iii) (the
second amendment proposal). Additionally, we are
asking you to vote to adjourn the special meeting, if necessary,
to permit further solicitation of proxies in the event that
there are not sufficient votes present at the time of that
meeting to approve the issuance of shares to Tiptree, the
abandonment of the plan of liquidation in favor of the Tiptree
Transaction and the first and second charter amendments (the
adjournment proposal).
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Other than the issuance to Tiptree proposal, the plan of
liquidation proposal, first amendment proposal, second amendment
proposal and the adjournment proposal, we do not expect to ask
you to vote on any other matters at the special meeting.
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Q:
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Who is entitled to vote at the meeting?
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A:
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If our records show that you were a holder of our common stock
at the close of business on July 8, 2010 which is referred
to in this proxy statement as the record date, you
are entitled to receive notice of the meeting and to vote the
shares of common stock that you held on the record date.
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ix
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Q:
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How many shares can vote?
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A:
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As of the close of business on the record date,
20,235,924 shares of common stock of the company were
issued and outstanding and entitled to vote. There is no other
class of voting securities outstanding. You are entitled to one
(1) vote for each share of common stock you held as of the
close of business on the record date.
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Q:
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What constitutes a quorum?
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A:
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A quorum refers to the number of shares that must be in
attendance at a meeting to lawfully conduct business. The
presence in person or by proxy of stockholders entitled to cast
a majority of all of the votes entitled to be cast will
constitute a quorum for the transaction of business at the
meeting.
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Q:
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What effect will abstentions have on the vote approval for
the various proposals?
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A:
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Approval of the abandonment of the plan of liquidation proposal,
the first and second amendment proposals and the adjournment
proposal will each require the affirmative vote of a majority of
the shares of our common stock present in person or by proxy at
the special meeting and entitled to vote thereon, provided that
a quorum is present. As a result, an abstention will have the
same effect as a vote against such proposal. To approve the
issuance to Tiptree, a majority of the votes cast in person or
by proxy at the special meeting must be voted FOR
the approval of the issuance, provided that the total votes cast
for the issuance represents over 50% in interest of all
securities entitled to vote on the proposal. For purposes of the
vote on issuance to Tiptree proposal, abstentions will have the
same effect as votes against the proposal, unless holders of
more than 50% in interest of all securities entitled to vote on
the proposal cast votes, in which event abstentions and broker
non-votes will not have any effect on the result of the vote.
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Q:
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What effect will broker non-votes have on the vote approval
for the various proposals?
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A:
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A broker non-vote occurs when stockholders who hold their shares
of common stock in street name through brokers fail
to provide such brokers with specific instructions on how to
vote the shares, and the brokers do not have discretion to vote
the shares under applicable stock exchange rules. We believe
that brokers will not have discretion to vote uninstructed
shares on the issuance to Tiptree proposal, the abandonment of
the liquidation proposal and the first and second amendment
proposals under applicable stock exchange rules, so it is
possible that there may be broker non-votes in
respect to these proposals. For purposes of the abandonment of
the plan of liquidation proposal, the amendment proposals and
the adjournment proposal, a broker non-vote will have the same
effect as a vote against the proposals. For purposes of the vote
on the issuance to Tiptree proposal, broker non-votes will have
the same effect as votes against the proposal, unless holders of
more than 50% in interest of all securities entitled to vote on
the proposal cast votes, in which event broker non-votes will
not have any effect on the result of the vote.
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Q:
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What happens if I do not vote?
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A:
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If you do not vote, it will have the same effect as a vote
against the abandonment of the plan of liquidation proposal, the
issuance to Tiptree proposal and the first and second amendment
proposals but will have no effect on the adjournment proposal.
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Q:
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If my shares are held in street name by my
broker, will my broker vote my shares for me?
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A:
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No. Not unless you provide your broker with instructions on
how to vote. You should follow the procedures provided by your
broker regarding how to instruct them to vote your shares.
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Q:
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How do I vote?
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A:
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Whether or not you plan to attend the special meeting, please
complete, sign, date and promptly return the enclosed proxy
card, which is being solicited by our board of directors, in the
postage-prepaid envelope provided. You may also authorize a
proxy to vote your shares electronically via
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the internet at www.proxyvote.com or by telephone by dialing
toll-free
1-800-690-6903.
For specific instructions on voting, please refer to the
instructions on the proxy card or the information forwarded by
your broker, bank or other holder of record. Any proxy may be
revoked by delivery of a later dated proxy. If you attend the
special meeting, you may vote in person if you wish, even if you
have previously signed and returned your proxy card. Please
note, however, that if your shares are held of record by a
broker, bank or other nominee and you wish to vote in person at
the meeting, you must obtain a proxy issued in your name from
such broker, bank or other nominee.
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Q:
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What should I do now?
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A:
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You should complete, date and sign your proxy card and return it
promptly in the enclosed postage-paid envelope, or authorize a
proxy to vote your shares by internet at www.proxyvote.com or
telephone at
1-800-690-6903,
as soon as possible so that your shares may be represented at
the special meeting, even if you plan to attend the special
meeting in person.
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Q:
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Can I change my vote after I return my proxy card or after I
authorize a proxy to vote my shares by telephone or over the
internet?
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A:
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If you are a record holder, even after you have
submitted your proxy, you may change your vote at any time
before the proxy is exercised at the special meeting by
delivering to our secretary a written notice of revocation or a
properly signed proxy bearing a later date, or by attending the
special meeting and voting in person (although attendance at the
meeting will not cause your previously granted proxy to be
revoked unless you specifically so request). To revoke a proxy
previously submitted by telephone or over the internet, you may
simply authorize a proxy again at a later date, using the same
procedures, in which case your shares will be voted in
accordance with the later submitted proxy and not the earlier
proxy.
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If you hold shares of our common stock in street
name, you will need to contact the institution that holds
your shares and follow its instructions for revoking a proxy.
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Q:
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Do I have appraisal rights?
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A:
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No. Section 5.4 of our charter provides that our
stockholders shall not be entitled to exercise any rights of
appraisal or similar rights of an objecting stockholder unless
provided for by our board of directors. Our board of directors
has not provided such rights in connection with the issuance to
Tiptree.
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Q:
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Who will bear the costs of soliciting votes for the
meeting?
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A:
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We will bear the entire cost of the solicitation of proxies from
our stockholders. In addition to the mailing of these proxy
materials, the solicitation of proxies or votes may be made in
person, by telephone or by electronic communication by our
directors and officers and employees of our manager who will not
receive any additional compensation for such solicitation
activities. We will also reimburse brokerage houses and other
custodians, nominees and fiduciaries for their reasonable
out-of-pocket
expenses for forwarding proxy solicitation materials to our
stockholders.
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Q:
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Who can help answer my questions?
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A:
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If you have additional questions about the transaction with
Tiptree, or would like additional copies of this proxy
statement, you should contact Salvatore (Torey) V. Riso, Jr. at
212-771-0505
or in writing to Care Investment Trust Inc., 505 Fifth
Avenue, 6th Floor, New York, New York 10017, Attention:
Salvatore (Torey) V. Riso, Jr., Chief Executive Officer and
President.
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xi
SPECIAL
FACTORS
Background
of the Transaction
We were formed in June 2007 to make mortgage investments in
healthcare-related properties, and to make opportunistic
investments in healthcare-related properties, through the
origination platform of our manager, CIT Healthcare LLC. We
acquired from our manager our initial portfolio of 15 mortgage
loans secured by healthcare facilities in exchange for a portion
of the cash proceeds from our initial public offering and common
stock. Our operating strategy originally involved acquiring
additional mortgage assets on a leveraged basis through the use
of short-term borrowing facilities such as warehouse lines of
credit and longer-term funding through securitization structures
such as collateralized debt obligations or commercial
mortgage-backed securities.
In late 2007, due to severe dislocations in the credit markets,
including the effective closure of the securitized financing
markets, we shifted our operating strategy to place greater
emphasis on acquiring high quality healthcare-related real
estate investments and away from mortgage assets. Around this
time period, our board instructed our management to begin a
dialogue with CIT Healthcare regarding the fee structure under
the management agreement with a view to possibly amending such
fee structure in such a way that was more appropriate for an
equity REIT, as opposed to a mortgage REIT.
At the February 12, 2008 meeting of our board of directors,
our management discussed the possibility of exploring certain
strategic alternatives, including a sale of the company for
cash, pursuing a merger of equals with another public healthcare
REIT or a reverse merger with a private healthcare REIT.
Following a discussion of the strategic alternatives, our board
asked our management to prepare additional information with
respect to each alternative and report back to the board at a
future meeting.
In March 2008, Mr. Besecker, our then vice chairman of the
board, announced that he would be resigning his position as
president of our manager, CIT Healthcare, effective May 1,
2008.
At a board meeting held on April 4, 2008, Mr. Besecker
reported that two of the companys then largest
stockholders had contacted management to voice their opinion
that the board should consider seeking a sale of the company.
The board again discussed the strategic direction of the
company, including continuing to pursue the then current
operating strategy of seeking high quality healthcare-related
real estate equity investments, seeking additional equity
financing from the capital markets to grow the company, or
pursuing a possible sale, merger or joint venture. In connection
with a possible sale, merger or joint venture, the board
discussed possible strategic partners and financial
considerations. The board also discussed with management the
qualifications and experience of various investment banking
firms with whom management had engaged in exploratory
discussions.
At a board meeting held on April 15, 2008,
Mr. Besecker reported on discussions that he had engaged in
with various potential financial advisors and potential
financing sources regarding our prospects and opportunities for
future growth, our current operating strategy, the possibility
of seeking additional equity financing from the capital markets
to grow our portfolio, pursuing a possible sale, merger or joint
venture, or some combination of the foregoing. At the invitation
of our board, representatives from Credit Suisse discussed their
credentials to act as the companys financial advisor in
connection with the companys consideration of strategic
alternatives. Following an executive session during which the
board discussed Credit Suisses qualifications and
experience, the board determined that it should remain open to
all available options and strategic alternatives, including
continuing to pursue the then current operating strategy, and
authorized management to negotiate an engagement letter with
Credit Suisse to act as the companys exclusive financial
advisor in connection with the boards exploration and
review of the companys strategic alternatives. At this
meeting, the board also received a presentation from the
companys external legal counsel, McDermott
Will & Emery LLP (McDermott), on the
duties of directors in connection with the exploration of
strategic alternatives. McDermott reviewed the board
members general fiduciary duties of care and loyalty, the
specific
1
application of such duties in the context of exploring
strategic alternatives, including a possible sale of the
company, and the unique issues presented by our externally
managed structure.
At the same meeting, the board appointed Mr. Walter J.
Owens, then president of CIT Corporate Finance, to the board of
directors.
At a board meeting held on May 12, 2008, our board, with
the assistance of Credit Suisse, reviewed our current operating
strategy and acquisition and liquidity prospects, as well as the
possibility of a follow-on equity offering at the end of 2008.
As a result of such discussion, our board believed that the
success of such an offering would depend in part on our ability
to execute on our strategy of acquiring equity interests in
attractive healthcare-related properties. Our board, with the
assistance of Credit Suisse, also reviewed various strategic
alternatives that might be available to the company, including
the possible sale of our company, and discussed a number of
potential partners that might be interested in a strategic
transaction with us, if the company chose to pursue such an
alternative and the process and timeline involved in a formal
sale process.
At that same meeting, Mr. Kellman, our then chief executive
officer, reported that discussions were ongoing with
representatives from CIT Healthcare regarding a possible change
in the management fee structure in light of our transition away
from a mortgage REIT to an equity REIT.
On May 19, 2008, GoldenTree Asset Management L.P.
(GoldenTree), one of our then largest stockholders,
sent a letter to our board of directors to express its concern
regarding our strategic direction and the costs associated with
our annual management fee payable to CIT Healthcare. GoldenTree
encouraged us to promptly engage an investment banking firm to
seek a sale of our company. GoldenTree filed a Schedule 13D
with the Securities and Exchange Commission and attached its
letter to our board to the Schedule 13D filing.
On May 21, 2008, our board met to discuss the letter
received from GoldenTree and to receive an update on the status
of CIT Healthcares consideration of our request to modify
the economic terms of the management agreement.
On May 27, 2008, we executed an engagement letter with
Credit Suisse to act as our exclusive financial advisor in
connection with our exploration of strategic alternatives.
Prior to a meeting of the board of directors held in New York
City on June 3, 2008, our board of directors, management
and representatives of Credit Suisse met with representatives of
Cambridge Holdings, our partner and operator of the portfolio of
medical office buildings in Texas and Louisiana in which we
acquired an 85% interest in December 2007, about a possible
business combination between Cambridge Holdings and our company.
The parties discussed the ways in which such a transaction might
be structured and the potential advantages of such a
transaction, but no specific terms were discussed.
At the June 3, 2008 board meeting, representatives from
Credit Suisse provided the board with an update on discussions
with parties who had contacted the company regarding a potential
strategic transaction and were referred to Credit Suisse for
follow-up.
The board also received an update from management on efforts to
secure additional sources of liquidity through amendments to the
companys warehouse facility, prepayments of one or more
mortgage loans and sales of mortgage loans, as well as potential
equity investment opportunities that management was pursuing.
While the board authorized management to continue to pursue
attractive equity investment opportunities, the board emphasized
that it was in the process of evaluating all available options
to enhance stockholder value and that any such investment
opportunities needed to be evaluated in the context of the
larger analysis of the companys strategic direction.
On June 16, 2008, we received a business combination
proposal from Party A, a private healthcare investment and
development company. The proposal contemplated a reverse
acquisition wherein we would acquire Party A in a
stock-for-stock exchange which would result in our stockholders
holding approximately 44% of the equity in the combined company,
which would remain as a public vehicle.
2
The proposal further contemplated raising additional funds via
the debt and public equity markets with proceeds to be used to
acquire pipeline assets of Party A and the company.
On June 27, 2008, we received a preliminary proposal from
Cambridge Holdings for a business combination between Cambridge
Holdings and the company resulting in an internally managed,
predominantly equity-focused healthcare REIT in which the
company would be the surviving entity. Pursuant to the terms of
the proposal, Cambridge Holdings would contribute its
(i) healthcare real estate platform that includes its
management and operations, (ii) its 15% stake in the
real-estate portfolio between Cambridge and the company that
owns nine medical office buildings, (iii) the six medical
office building option properties and (iv) its development
pipeline. In exchange for Cambridge Holdings contributed
assets, Cambridge Holdings would receive a combination of common
shares and operating partnership units that would give it an
approximately 45% equity ownership stake in the pro forma
combined company. The proposal indicated that in order to
proceed, Cambridge Holdings would require exclusivity and a
breakup fee. Both the exclusivity period and the breakup fee
were unspecified.
At a board meeting held on July 8, 2008, the board
discussed the terms of the proposed business combination with
Cambridge Holdings and instructed Credit Suisse and management
to engage in discussions with Cambridge and its advisors to
clarify certain aspects of the proposal and report back to the
board at its August board meeting.
On July 14, 2008, the board formed a special Committee of
Mr. Bisbee, Mr. Gorman and Ms. Robards, each of
whom was and is considered an independent director under the
rules of the NYSE and the companys own independence
definition. The special committee was authorized and empowered
to (i) pursue, review, evaluate, consider and negotiate
with representatives of the manager the terms of any amendments
to the management agreement, (ii) pursue, review, evaluate,
consider and negotiate with Cambridge Holdings the terms of its
business combination proposal and make recommendations to the
board with respect to such proposal and (iii) pursue,
review, evaluate, consider and negotiate with any other
potentially interested parties the terms of any alternative
strategic transaction with the company and make a recommendation
to the board with respect to such alternative strategic
transactions.
On July 15, 2008, at the direction of the special
committee, representatives of Credit Suisse and members of
management met with representatives of Cambridge Holdings and
its financial advisors at Cambridge Holdings offices to
discuss selected Cambridge Holdings financial information as
well as a tour of certain of Cambridge Holdings properties
which are contained within the companys real-estate
portfolio with Cambridge Holdings.
At a board meeting held on August 11, 2008, the board
discussed the terms of Party As proposal and determined
that the terms of the proposal were not sufficiently attractive
to warrant considering it outside of a formal sale process. Also
at the meeting our board, with the assistance of Credit Suisse,
reviewed and discussed the nature and terms of the proposal
previously received from Cambridge Holdings. The board reviewed
a presentation developed by Credit Suisse which discussed
Cambridge Holdings portfolio and pipeline of investments,
a preliminary financial summary of Cambridge Holdings
operations, a preliminary relative valuation of the two
businesses on a self-funding basis, a preliminary hypothetical
future stock price analysis based upon various assumptions, a
preliminary discounted cash flow analysis based on various
assumptions and a preliminary relative contribution analysis.
Based on Credit Suisses due diligence, it was determined
that Cambridge Holdings had improperly valued its management
company and that Care would be relinquishing majority control
for partial ownership in assets which did not have sufficient
value. The board also discussed the fact that the consideration
which Cares stockholders would be receiving was non-cash
and would provide no liquidity to the stockholders, as well as
the substantial execution risks involved in such a transaction.
The special committee and the board questioned whether a
business combination with Cambridge Holdings on the terms
proposed was in the best interests of the companys
stockholders given the relative valuation, dilution and
governance issues presented by the proposal. The special
committee
3
and the board authorized management and Credit Suisse to
continue discussions with Cambridge Holdings with a view to
addressing the special committees and the boards
concerns.
At its August 11, 2008 board meeting, the board also
discussed negotiations with CIT Healthcare regarding a proposed
reduction in its annual base management fee and removal of the
incentive fee provisions from the management agreement.
Subsequent to the August 11, 2008 board meeting,
representatives of Credit Suisse met on several occasions with
Cambridge Holdings financial advisors to discuss the
Cambridge Holdings proposal.
On August 12, 2008, the special committee recommended and
our board of directors approved an amendment to our management
agreement with CIT Healthcare wherein CIT Healthcare agreed to
reduce the monthly base management fee payable by us from an
amount equal to
1
/
12
of 1.75% of our stockholders equity to an amount equal to
1
/
12
of 0.875% of our stockholders equity and to eliminate the
incentive fee, in exchange for our agreement to pay CIT
Healthcare a minimum termination fee of $15.4 million in
the event we elect not to renew the management agreement or
terminate the management agreement other than for cause. In
connection with, and as additional consideration for, the
amendment to the management agreement, we granted CIT Healthcare
warrants to purchase 435,000 shares of our common stock at
$17.00 per share, which warrants were immediately exercisable
and expire on September 30, 2018.
In addition, in order to provide additional liquidity options
for the company, on August 12, 2008, the special committee
recommended and our board of directors approved a mortgage
purchase agreement with CIT Healthcare which provided us with
the right, but not the obligation, to cause CIT Healthcare to
purchase one or more of our senior mortgage loan assets at their
fair market value, as determined by a third party appraiser, as
long as such fair market value did not exceed 105% of the
outstanding principal balance of the loan proposed to be sold
and subject to a maximum aggregate sales price of
$125 million.
On September 24, 2008, members of management, with the
assistance of representatives of Credit Suisse, met with a
representative of Party B, a publicly traded healthcare REIT,
regarding a potential business combination between our company
and Party B. The parties discussed the ways in which such a
transaction might be structured and the potential advantages of
such a transaction, but no specific terms were discussed.
On October 3, 2008, Mr. Owens resigned from our board
of directors, coincident with his resignation as president of
CIT Corporate Finance.
In early October 2008, Mr. Kellman, our then chief
executive officer, and Mr. Warden, the president and
co-head of CIT Healthcare LLC, met with representatives of Party
C, a private healthcare REIT, regarding the possibility of a
business combination between our company and Party C. The
parties discussed the ways in which such a transaction might be
structured and the potential advantages of such a transaction,
but no specific terms were discussed.
On October 7, 2008, the special committee met to discuss
the preliminary proposals from Cambridge Holdings as well as to
receive an update on discussions with Party B and Party C. After
the discussion, the special committee authorized management and
Credit Suisse to continue discussions with Cambridge Holdings,
Party B and Party C regarding their respective proposals.
At a meeting held on October 15, 2008, representatives from
Credit Suisse updated the special committee on the status of
discussions with Cambridge Holdings and Party B. The special
committee authorized management and Credit Suisse to continue
discussions with Cambridge Holdings, Party B and Party C
regarding their respective proposals. The special committee also
authorized a stock repurchase program to permit the company to
repurchase, from time to time, up to two million shares of our
common stock in the open market, through a broker or through
privately negotiated transactions, subject to market conditions
and applicable legal requirements. At that same meeting, the
special committee instructed Credit Suisse to prepare a formal
sale process to actively solicit proposals
4
from third parties regarding a potential strategic transaction
with the company and report back to the special committee on the
outlines of such a process.
On October 20, 2008, the board appointed Mr. Warden to
our board of directors to fill the vacancy created by the
resignation of Mr. Owens.
On October 22, 2008, the board appointed Mr. Besecker
to the special committee. In appointing Mr. Besecker to the
special committee, the board acknowledged
Mr. Beseckers qualifications and his lack of
disqualifying relationships or interests with or in CIT Group,
Cambridge Holdings, or any other party potentially interested in
a strategic transaction with the company.
At a meeting held on November 5, 2008, representatives from
Credit Suisse informed the special committee that discussions
with Cambridge Holdings had reached an impasse due to
Cambridges insistence on valuation terms and governance
provisions unacceptable to the company. The members of the
special committee, with the assistance of Credit Suisse, then
discussed the formal sale process. The special committee, with
the assistance of Credit Suisse, discussed how a sale process
would be conducted and a possible timetable for the process that
included the preparation and distribution of a confidential
information memorandum to parties identified by the special
committee and management in consultation with Credit Suisse as
the most likely parties to be interested in a strategic
transaction. They also discussed providing access to a data room
and other due diligence information to interested parties who
entered into an appropriate confidentiality agreement and the
solicitation of specific proposals from any such interested
parties within timeframes to be established by the special
committee in consultation with Credit Suisse.
In November 2008, Mr. Kellman, our then chief executive
officer, and representatives of Credit Suisse met with
representatives of Party D, a publicly traded commercial lender,
to discuss the possibility of a strategic combination between
the company and Party Ds healthcare net lease business
segment. General terms of a transaction were discussed, but no
specific proposals were made at that meeting. Party D was
informed that the company was considering launching a formal
sale process to solicit proposals regarding a strategic
transaction and that our company would prefer for Party D to
participate in that process. Party D indicated that it was not
interested in participating in a process at that time.
On November 17, 2008, we received a preliminary proposal
from Party B regarding a possible business combination between
the company and Party B. Pursuant to the terms of the proposal,
the companys stockholders would receive 0.35 shares
of Party Bs common stock as consideration for every share
of the companys common stock that they owned. Party B
would be the surviving entity. Party B required 20 days of
exclusivity, completion of business, financial, legal and
accounting diligence, execution of customary definitive
agreements, receipt of
Hart-Scott-Rodino
clearance and customary and necessary approvals from the
parties respective board of directors and stockholders.
During the second half of November 2008, the stock prices of
many REITs dropped due to a revaluation of REIT equities
resulting from difficult market conditions.
On November 18, 2008, pursuant to the mortgage purchase
agreement, we sold one mortgage loan to CIT Healthcare for
proceeds of approximately $22.4 million.
On November 20, 2008, Party B withdrew its proposal citing
that it would like to reevaluate its alternatives given the
performance of its stock and the performance of healthcare REIT
stocks in general.
On November 25, 2008, we repurchased one million shares of
common stock from GoldenTree at $8.33 per share.
On December 4, 2008, representatives of management and
Credit Suisse met with representatives of Cambridge Holdings and
its legal and financial advisors at Cambridge Holdings
offices to further discuss the Cambridge Holdings proposal.
5
During December 2008, the special committee, in consultation
with management and Credit Suisse, reviewed, discussed and
revised a list of potential parties to contact regarding a
potential strategic transaction. On December 18, 2008, at
the direction of the special committee, Credit Suisse started
contacting potentially interested parties, approved by the
special committee and the board, and informed each potentially
interested party of the need to execute a confidentiality
agreement in order to receive a copy of the companys
confidential information memorandum. Potentially interested
parties were informed that, pursuant to the process approved by
the special committee and the board, the company expected to
receive non-binding indications of interest by January 29,
2009.
In early January 2009, Mr. Kellman, our then chief
executive officer, informed Mr. Gorman, our then chairman
of the board, that he would like to explore the possibility of
participating in a bid for the company and having a role in the
management of the company in the event the potential
bidders bid was successful and a transaction was
consummated. Mr. Gorman, responded that he would consult
with the special committee and the companys advisors and
respond.
Consistent with the rules established by the board, Cambridge
Holdings was informed that in order to be part of the strategic
process, it needed to execute a confidentiality agreement to
gain access to certain non-public information about the company.
Cambridge Holdings refused to execute the form of agreement
executed by the other bidders. On January 9, 2009,
Cambridge Holdings submitted an unsolicited non-binding proposal
to the companys board. The proposal indicated a stated
value of approximately $9.50 per Care share and consisted of the
following components: (a) approximately $5.00 per share in
cash from the sale of the companys existing mortgage
investments through the exercise of its existing put right with
CIT Healthcare; (b) approximately $3.50 per share in cash
from the sale of the companys non-medical office building
equity investments and any mortgage investments not sold
pursuant to the put with CIT Healthcare; and
(c) approximately $1.00 per share, of which 80% would be
paid in cash and 20% would be reflective of the value Cambridge
Holdings attributed to the stake that our then existing
stockholders would hold in the combined entity. Care would be
the surviving entity, however, the proposal indicated that
Cambridge Holdings and its affiliates would own approximately
80% of the surviving entity. The proposal indicated that it was
not subject to financing and required the termination of CIT
Healthcare as the external manager with a Cambridge Holdings
affiliate appointed as the new external manager. Any costs
associated with termination of the management agreement would be
the responsibility of the company. Additionally, Cambridge
Holdings required 30 to 45 days of exclusivity.
On January 14, 2009, the special committee met to discuss
the status of the sale process. At this meeting, the special
committee discussed the possibility that Mr. Kellman, our
then chief executive officer, might participate in a potential
bid for the company. The special committee agreed that
Mr. Kellman should be permitted to participate in a third
party bid subject to certain procedures being put in place to
avoid any conflicts of interest and safeguard the special
committees process of exploring strategic alternatives
that would result in the highest and best return for our
stockholders. The company and CIT Healthcare prepared a letter
for Mr. Kellman, dated as of January 20, 2009,
acknowledging these procedures and his duty to maintain the
confidentiality of any and all information regarding the company
and the special committees exploration of strategic
alternatives, which Mr. Kellman executed and returned to
the special committee.
On February 2, 2009, the special committee and its advisors
met to review the results of the strategic process. Credit
Suisse informed the special committee that pursuant to the
special committees instructions it had contacted ten
potentially interested parties, received signed confidentiality
agreements from five of such parties and provided to those five
parties a confidential information memorandum regarding the
company. In addition, Credit Suisse was contacted by Tiptree.
After discussing and receiving approval from the special
committee to proceed with discussions with Tiptree, a
confidentiality agreement was signed and access to the
confidential information memorandum was granted to Tiptree.
Credit Suisse informed the special committee that only two of
the five parties who had signed confidentiality agreements had
submitted non-binding indications of interest. The special
6
committee, with the assistance of Credit Suisse and the
companys legal advisors, reviewed the terms of the two
non-binding indications of interest received.
The first proposal, received on January 30, 2009, was a
non-binding indication of interest from Party E, a privately
held diversified real estate investment trust. Its proposal
contemplated a stock acquisition of Care at $10.00 per share in
cash that was not subject to a financing condition. Party
Es non-binding indication of interest assumed that, prior
to completion of the transaction, Care would have sold all of
its mortgage loans to CIT Healthcare through the mortgage
purchase agreement
and/or
through portfolio sales to third parties. Party Es
proposal also assumed that the management agreement with CIT
Healthcare would be terminated prior to closing, but did not
specify what impact the payment of the termination fee to CIT
Healthcare would have on the price per share it was offering.
The second proposal was a non-binding indication of interest
from Party D received on January 29, 2009. Party Ds
proposal outlined the terms of a multi-step transaction wherein
we would (i) sell a portion of our mortgage loan assets to
Party D for a purchase price not to exceed approximately
$81 million, (ii) sell the remainder of our mortgage
loan assets to CIT Healthcare pursuant to the mortgage purchase
agreement, capped at approximately $90 million and
(iii) acquire Party Ds healthcare net lease business
in a reverse acquisition transaction for
consideration consisting of (a) the issuance of
approximately 30 million shares of our common stock valued
at approximately $245 million based on our stock price at
that time, (b) the assumption by us of existing debt of
approximately $355 million, (c) the issuance of a
promissory note in an amount of $110 million that would
mature upon receipt of HUD financing with respect to certain of
Party Ds properties and (d) $170 million in
cash. The proposal contemplated that our management agreement
with CIT Healthcare would be terminated prior to the closing of
the reverse acquisition transaction, but did not indicate the
impact the termination fee would have on the terms of its
proposal. The proposal was not subject to a financing condition,
but was conditioned on Party Ds completion of due
diligence. After the review of the two proposals, the special
committee instructed management and Credit Suisse to continue
discussions with both Party D and Party E with a view to
soliciting improvements to their respective proposals.
On February 3, 2009, pursuant to the mortgage purchase
agreement, we sold one mortgage loan to CIT Healthcare for
proceeds of approximately $22.5 million.
On March 2, 2009, we received an unsolicited non-binding
preliminary proposal from Tiptree regarding a tender offer for
51% of our outstanding common stock at an unspecified price per
share. The proposal contemplated that the management agreement
with CIT Healthcare would be terminated and Tiptree would enter
into an external management or advisory agreement with the
company. The proposal did not specify what impact the payment of
the termination fee to CIT Healthcare would have on the price
per share Tiptree was offering. Tiptree had previously
communicated its interest in only acquiring shares from CIT
Healthcare and one or two other stockholders in order to acquire
control of the company and was informed that the board was not
willing to consider that type of transaction. As such, Tiptree
had declined to provide a solicited preliminary indication of
interest by the January 29 deadline.
On March 6, 2009, the special committee met to discuss the
status of the sale process. At this meeting, the special
committee also reviewed an analysis prepared by management of
the estimated values of the companys assets, and the
special committee began considering an orderly liquidation of
the companys assets as a possible strategic alternative in
the event that the company was not able to successfully conclude
a sale of the company.
On March 9, 2009, Party E informed us that it was no longer
interested in pursuing a strategic transaction with us due to,
among other reasons, the complexities of our real-estate
portfolio structures, and dropped out of the process.
7
On March 13, 2009, we received a new unsolicited
non-binding preliminary proposal (the Potential Cambridge
Tender Offer) from Cambridge Holdings regarding a
potential tender offer by Cambridge Holdings for 51% of our
outstanding common stock at $6.00 per share. Cambridge Holdings
communicated that its tender offer would not be subject to
financing. While the tender offer would be conditioned on our
terminating our management agreement with CIT Healthcare, the
proposal did not address the impact of the termination fee on
the proposed tender offer price, and did not provide any
evidence of Cambridge Holdings ability to finance such a
tender offer. Cambridge Holdings had not executed a
confidentiality agreement with us and thus did not have access
to our online data room prior to submitting its proposal.
On March 13, 2009, the special committee and its advisors
met to discuss the potential transaction with Party D and the
Potential Cambridge Tender Offer. The special committee
instructed Credit Suisse to continue to seek improvements to
Party Ds proposal, to assist the company in reviewing
financial and other information with respect to Party Ds
proposal and to request that Party D submit a definitive bid by
March 27, 2009. With respect to the Potential Cambridge
Tender Offer, the special committee noted that the proposal did
not indicate what impact the payment of the CIT termination fee
would have on the proposed tender offer price, and the special
committee instructed management and Credit Suisse to
follow-up
with Cambridge Holdings to clarify the terms of its proposal as
well as to obtain additional information from Cambridge Holdings
regarding its ability to finance such a tender offer.
On March 20, 2009, we received an unsolicited non-binding
preliminary proposal from Party F, a private equity firm, for a
stock acquisition of Care at between $5.43 and $6.52 per share.
The proposal did not address the CIT Healthcare management
agreement. Party F had not executed a confidentiality agreement
with us and thus did not have access to our online data room
prior to submitting its proposal.
On March 27, 2009, we received a revised non-binding
expression of interest from Party D that (i) decreased the
number of mortgage loan assets that Party D was willing to
purchase from us to certain specified loans with an aggregate
purchase price of no more than approximately $76 million,
(ii) decreased the number of mortgage loan assets that
Party D would require us to sell to CIT Healthcare pursuant to
our mortgage purchase agreement to certain specified loans with
an aggregate purchase price capped at approximately
$62 million, (iii) decreased the amount of cash
consideration payable to Party D in the proposed reverse
acquisition transaction to approximately $39 million,
(iv) increased the amount of debt assumed by us in the
reverse acquisition transaction to approximately
$413 million, (v) increased the amount of the
promissory note that we would issue in the reverse
acquisition transaction to approximately $125 million
and (vi) increased the amount of common stock that we would
issue to Party D in the reverse acquisition
transaction to an amount that would result in Party D owning
approximately 88% of our common stock post-closing. The revised
proposal also contemplated our existing stockholders would
receive a cash dividend of $5.00 per share in connection with
the transaction. Party Ds revised proposal also required
that our management agreement with CIT Healthcare be terminated
prior to closing. The revised proposal was not subject to a
financing condition, but was conditioned on Party Ds
completion of due diligence.
On April 1, 2009, the special committee and its advisors
met to review the results of the sale process and to consider
the status of the proposals received by the company. The special
committee was advised that from the date Credit Suisse had
started contacting potentially interested parties, the company
had received seven unsolicited inquiries. They further
summarized that, of the combined seventeen solicited and
unsolicited inquiries, six parties had signed a confidentiality
agreement and received access to the online data room. They
further noted that two of the solicited parties, Party D and
Party E, provided preliminary non-binding proposals, but that
Party D was the only solicited bidder that had submitted a
second round proposal. Finally, they noted that three
unsolicited non-binding indicative proposals had been received,
although two of the unsolicited proposals contemplated tender
offers for less than all of the companys outstanding stock
and not an acquisition of the entire company.
8
The special committee discussed Party Ds proposal at
length, including the terms of the proposal, the transaction
mechanics, the sources and uses of capital and the pro forma
capitalization and ownership of the company post-closing.
Management reported to the special committee on the preliminary
results of their due diligence of Party D and its healthcare net
lease portfolio, including portfolio mix, concentration, gross
asset value, lease and debt maturities, coverages and yields,
occupancy statistics and other operating characteristics. The
special committee, with the assistance of Credit Suisse, also
discussed certain pro forma financial consequences of the
proposed Party D transactions. At that time, the consensus of
the special committee members was that Party Ds proposal
was not sufficiently attractive to the companys
stockholders, and the special committee instructed management
and Credit Suisse to communicate to Party D that it should
attempt to improve its bid and respond by no later than
April 27, 2009.
The special committee then considered other available options
for the company, including further exploring the Cambridge
Tender Offer, the tender offer proposal from Tiptree and the
stock acquisition proposal from Party F. The special committee
also considered other alternatives such as the sale of all of
our mortgage loan assets followed by cash dividends to our
stockholders or a full liquidation of our company. The special
committee instructed McDermott to prepare a memorandum that
compared the legal considerations applicable to the proposed
transaction with Party D to an orderly liquidation of our
company.
On April 16, 2009, our special committee met to discuss the
status of various strategic alternatives being explored,
including the status of negotiations with Party D, and the
attractiveness of the terms of the most recent proposal from
Party D relative to other strategic options available to the
company such as (i) terminating the management agreement
with CIT Healthcare, internalizing management and operating the
company on a standalone basis while continuing the transition to
an equity REIT by selling off its mortgage loan assets and
redeploying the proceeds therefrom in attractive
healthcare-related equity investments, or (ii) liquidating
the company. Mr. McDugall, the companys then chief
investment officer, provided an overview for the special
committee of the possible approaches that could be taken to
liquidating the companys mortgage loan portfolio to
maximize the proceeds therefrom, including soliciting early
pre-payments from borrowers, portfolio sales to third parties or
selling the mortgage loans to CIT Healthcare pursuant to the
mortgage purchase agreement.
On April 17, 2009, we received a new non-binding
preliminary proposal from Tiptree regarding a potential cash
merger of a subsidiary of Tiptree with and into us, with our
stockholders receiving an indicated value of approximately $7.36
per share and continuing to hold, on a pro-forma basis,
approximately
15-20%
of
the post-closing combined company. Tiptree indicated that it
placed a value of $0.64 on each post-closing share of common
stock (the Tiptree Merger Proposal). Tiptree had
previously proposed a tender offer for 51% of our outstanding
common stock. The preliminary Tiptree Merger Proposal was
subject to our terminating our management agreement with CIT
Healthcare at closing, CIT Healthcare waiving its termination
fee and the new company entering into a new advisory agreement
with Tiptrees affiliate, Tricadia Capital. In addition,
the Tiptree Merger Proposal was subject to Tiptree obtaining
$40 $70 million in financing. The Tiptree
Merger Proposal also contemplated that Mr. Kellman, our
then chief executive officer, would remain on the management
team of the combined company. In order to move forward, Tiptree
requested a
75-day
exclusivity period with liquidated damages for breach of such
exclusivity arrangement in the amount of $500,000.
On April 20, 2009, the special committee and its advisors
met to discuss the Tiptree Merger Proposal. The special
committee, with the assistance of our management (excluding our
then chief executive officer Mr. Kellman, who the special
committee understood was participating with Tiptree in its bid)
and representatives from Credit Suisse discussed the terms of
the proposal and considered, among other things, the potential
adverse impact of the transaction on our pro forma leverage and
public float, the lack of clarity with respect to the treatment
of the termination fee to CIT Healthcare, the lack of clarity
regarding Tiptrees valuation of the stub equity resulting
from the transaction, the need for new financing and the need to
conduct due diligence on Tiptree. The special committee
9
instructed management and Credit Suisse to follow up with
Tiptree to obtain additional information about Tiptree and the
Tiptree Merger Proposal.
On April 27, 2009, we received an unsolicited non-binding
preliminary proposal from Party G, a family owned holding
company with investments in the real estate and financial
services sectors, to acquire our outstanding common stock for a
price in cash stated to be in excess of $8 per
share. The proposal was conditioned on the completion of
due diligence by Party G, Party G entering into employment
agreements with certain key managers of our company, including
our then chief executive officer, Mr. Kellman, and an
unspecified exclusivity period.
On April 30, 2009, we received an updated non-binding
preliminary proposal from Tiptree which increased the per share
cash consideration to our stockholders to approximately $8.00
per share, but was further conditioned on Tiptree obtaining
financing and CIT Healthcare agreeing to accept its termination
fee in the form of a promissory note. The revised proposal was
also subject to Tiptree completing due diligence on the company
and its assets. The updated preliminary proposal from Tiptree
continued to insist on a
75-day
exclusivity period, with liquidated damages for breach of such
exclusivity arrangement in the amount of $500,000, in order to
move forward.
On April 30, 2009, we also received a revised non-binding
expression of interest from Party D that (i) increased the
number of mortgage loans that Party D was willing to purchase
from us to certain specified mortgage loans with an aggregate
purchase of no more than $98 million, (ii) decreased
the number of mortgage loans that Party D would require us to
sell to CIT Healthcare pursuant to the mortgage purchase
agreement to certain specified mortgage loans with an aggregate
purchase price not to exceed approximately $13 million,
(iii) decreased the amount of cash consideration payable to
Party D in the reverse acquisition transaction to
$10 million and (iv) decreased the amount of common
stock that we would issue to Party D in the reverse
acquisition transaction to an amount equal to
approximately 85% of the company post-closing, which had the
effect of increasing the amount of stub equity our stockholders
would hold in the company post-closing. Party Ds revised
proposal continued to contemplate that we would declare a cash
dividend to our stockholders in connection with the transaction
in an aggregate amount equal to our outstanding cash balance
immediately prior to closing of the transaction after taking
into account the $10.0 million cash payment due to Party D
upon closing of the transaction and the prior payment and
satisfaction of all of our transaction expenses, including the
termination fee due to CIT Healthcare. The revised proposal from
Party D remained conditioned on Party D completing its due
diligence on the company and its assets.
During April 2009, at the special committees instruction,
Credit Suisse contacted Party F communicating that Party
Fs proposal would need to be improved upon. Party F did
not indicate a willingness to continue in the process.
On May 1, 2009, the special committee and its advisors met
to discuss the revised proposal received from Party D, the Party
E Merger Proposal and the proposal from Party G.
Mr. Kellman, our then chief executive officer was not
present at this meeting. The special committee, with the
assistance of Credit Suisse, reviewed the Tiptree Merger
Proposal and the Party G proposal and, following discussion of
the proposals, determined that the proposed terms of the Tiptree
Merger Proposal and the Party G proposal were not sufficiently
certain or potentially attractive, both generally and in
relation to the Party D proposal, to warrant entering into an
exclusivity arrangement with either party. Ultimately, the
Tiptree Merger Proposal, in which Mr. Kellman indicated an
interest in participating with Tiptree, was rejected by the
special committee. Mr. Kellman and Tiptree never reached
any agreement to participate together in a transaction involving
the company. However, the Special Committee instructed
management and Credit Suisse to attempt to continue discussions
with both Tiptree and Party G on a non-exclusive basis if such
parties were willing to do so.
With respect to the revised Party D proposal, the special
committee discussed at length the revised terms, the relative
value of the proposal
vis-a-vis
other proposals received during the sale process and the risks
of non-consummation associated with the proposed Party D
transaction, both generally and in relation to the other
proposals received. After discussion, the special committee
instructed management
10
to work with Party D to prepare a mutually acceptable
non-binding term sheet outlining the material terms of their
proposal prior to reaching any conclusion on Party Ds
request for a
30-day
exclusivity period.
On May 7, 2009, the special committee recommended and the
board approved the entry into a non-binding term sheet with
Party D that reflected the terms of Party Ds
April 27, 2009 revised proposal (the Party D Term
Sheet). At the same meeting, the special committee
recommended and the board approved the execution of an
exclusivity agreement with Party D that required us to negotiate
exclusively with Party D until June 7, 2009. During this
period, both parties continued due diligence of each
others assets.
Pursuant to the terms of our agreement with Cambridge Holdings,
we provided notice to Cambridge Holdings on May 7, 2009
that we had entered into a term sheet with Party D for a
transaction that would result in a change in control of Care.
Pursuant to the terms of a put agreement entered into in
connection with our investment in the Cambridge portfolio, such
notice provided Cambridge Holdings a contractual right to
put its interests in the portfolio to us at a price
equal to the then fair market value of such interests, as
mutually agreed by the parties, or, lacking such mutual
agreement, at a price determined through qualified third party
appraisals.
On May 12, 2009, Cambridge Holdings filed suit in a state
court in Texas requesting a declaratory judgment that the
agreements relating to our investment in the Cambridge portfolio
required us to obtain the consent of Cambridge Holdings prior to
entering into a transaction with Party D, or prior to entering
into any transaction that would involve any direct or indirect
change in the ownership of our investment in the Cambridge
portfolio. Cambridge Holdings withdrew its lawsuit without
prejudice on May 19, 2009 after receiving a letter from our
counsel explaining that the Cambridge portfolio agreements do
not provide Cambridge Holdings with a right to approve any sale
of control of Care. Despite withdrawal of its lawsuit, Cambridge
Holdings has continued to insist that the Cambridge portfolio
agreements provide it with a right to approve any attempted sale
by us of Care or of our subsidiary that holds our Cambridge
portfolio interest.
Cambridge Holdings did not exercise its right to put its 15%
interest to us in connection with our entry into the Party D
Term Sheet. Instead, it took the position in a letter to us
dated May 26, 2009 that our put notice with respect to the
Party D Term Sheet was null, void and of no force and effect
because the transaction with Party D could not be consummated
without the approval of Cambridge Holdings.
On June 9, 2009, the special committee and its advisors met
to discuss the status of negotiations with Party D and the
objections to the Party D transaction raised by Cambridge
Holdings. Management and representatives from Credit Suisse
updated the special committee on the status of negotiations and
diligence being performed with Party D. In light of the progress
made to date, the special committee authorized management to
extend the exclusivity period with Party D through June 30,
2009.
At the June 9, 2009 meeting, Mr. Gorman, our then
chairman of the board, and Mr. Kellman, our then chief
executive officer, reported that they had preliminary
conversations with a representative of Cambridge Holdings, the
chairman of the board and chief executive officer of Cambridge
Holdings, regarding the possibility of us either purchasing
Cambridges 15% interest in the Cambridge portfolio or
selling to Cambridge Holdings our 85% interest in the Cambridge
portfolio, prior to or in connection with the Party D
transaction. They reported that the representative of Cambridge
Holdings responded that he was not willing to sell his interest,
but he might be willing to purchase our 85% interest in the
portfolio. On a preliminary basis, the representative of
Cambridge Holdings indicated a willingness to purchase our 85%
interest in the Cambridge portfolio for $20.0 million,
consisting of $5.0 million in cash and a $15 million
personal promissory note, the terms of which were not specified.
After discussion of the preliminary terms proposed by Cambridge
Holdings, the special committee instructed management to
continue discussions with Cambridge Holdings with a view to
improving the
11
terms of a proposed sale of our 85% interest in the Cambridge
portfolio in connection with the closing of a strategic
transaction with Party D.
On June 30, 2009, the special committee authorized
management to extend the exclusivity period with Party D through
July 14, 2009 to allow for further negotiations with a view
to improving the proposed terms of the transaction.
On July 15, 2009, the special committee, with the
assistance of our management and its advisors, met to discuss
and review the proposed transaction with Party D and the
progress of negotiations with Cambridge Holdings to sell to
Cambridge Holdings our 85% interest in the Cambridge portfolio
in connection with the closing of a strategic transaction with
Party D. The special committee, management and its advisors also
reviewed and discussed the process, risks, timing and estimated
costs of a strategic transaction with Party D compared to the
process, costs, risks, timing and estimated costs associated
with an orderly liquidation of the company. At the meeting, the
special committee authorized management to extend the
exclusivity agreement with Party D through August 15, 2009
to allow for further negotiations with a view to improving the
proposed terms of the transaction. Also at this meeting, the
special committee authorized management to pursue the sale of
the companys mortgage loan assets, through the exercise of
the mortgage purchase agreement with CIT Healthcare, the
marketing of the loans to unaffiliated third party buyers
and/or
through the sale of loans to Party D pursuant to the Party D
Term Sheet. The special committee acknowledged that such a
monetization strategy was appropriate given market conditions at
that time and the possible use of the proceeds from such sales
to increase the amount of any cash dividend payable to the
companys stockholders in connection with either a
strategic transaction or a decision to liquidate.
Due to press reports that suggested that CIT Group Inc. might be
forced to file for bankruptcy protection, on July 17, 2009,
the special committee met to review and discuss the potential
impact on Care of a potential bankruptcy filing by CIT Group
Inc. Among other things, the special committee discussed the
potential impact on the management agreement and the mortgage
purchase agreement.
On July 24, 2009, the special committee met to discuss the
status of negotiations with Party D as well as to discuss other
potential strategic alternatives. Management provided to the
special committee an analysis of the companys business
plan assuming it terminated its management agreement with CIT
Healthcare and continued to operate its business and complete
its transition to an equity REIT on a standalone basis (the
Standalone Business Plan). Management also provided
a preliminary projection of the values that could be realized if
the company pursued a plan of liquidation. Included in this
report was an analysis of the cost savings from delisting the
companys stock, deregistering as a public company and
ceasing public company reporting and compliance. The special
committee instructed management to continue to explore all
strategic alternatives, including negotiations with Party D, but
to also continue to actively market for sale the companys
mortgage loan assets.
On August 5, 2009, the special committee met to discuss the
status of negotiations with Party D and to review a revised
Standalone Business Plan and a revised liquidation analysis. The
special committee and its advisors evaluated the various
strategic options available to the company, and, after
considering the process, timing, costs and risks associated with
each of the various options, considered which of the options was
likely to result in the highest overall return of value to the
stockholders.
On August 10, 2009, we received a non-binding indication of
interest from Cambridge Holdings to acquire all of our
outstanding common stock at $9.00 per share, less a deduction
for the value of the operating partnership units then held by
Cambridge Holdings (the Cambridge Merger Proposal).
The Cambridge Merger Proposal was subject to the condition that
our management agreement with CIT Healthcare be terminated
without the payment of any termination fee and to the
satisfactory completion of due diligence. The proposal also
requested a
30-day
exclusivity period. At the time, the company was bound to
negotiate exclusively with Party D pursuant to an exclusivity
agreement.
On August 13, 2009, the special committee met to discuss
the status of negotiations with Party D and to review a further
revised Standalone Business Plan and a further revised
liquidation analysis.
12
The special committee and its advisors evaluated the various
strategic options available to the company, and, after
considering the process, timing, costs and risks associated with
each of the various options, further considered which of the
options was likely to result in the highest overall return of
value to the stockholders.
On August 19, 2009, pursuant to the mortgage purchase
agreement, we agreed to sell two mortgage loans to CIT
Healthcare for proceeds of approximately $2.3 million.
On August 21, 2009, the Cambridge Merger Proposal expired.
Negotiations with Party D continued throughout July, August and
September. In addition, negotiations to sell back to Cambridge
Holdings the companys 85% interest in the Cambridge
portfolio continued in earnest, as it became apparent that the
reverse acquisition transaction with Party D could only be
concluded if and when the dispute with Cambridge Holdings could
be resolved.
In July 2009, Party D informed us that it would be willing to
complete its acquisition of certain of our mortgage loan assets
in advance of, and independent of, reaching agreement on the
terms of a reverse acquisition transaction. During July and
August 2009, we negotiated the terms of a loan purchase
agreement with Party D relating to certain of our mortgage loans
and simultaneously continued to market our mortgage loan assets
to third parties with a view to optimizing the proceeds from any
sales.
On September 15, 2009, we sold to Party D four of our
mortgage loan assets for proceeds of approximately
$24.8 million. The loan purchase agreement governing the
sale also provided for the later sale of an additional mortgage
loan asset, subject to satisfaction of certain conditions to
closing, and granted us the option to sell to Party D two
additional mortgage loan assets, assuming we were able to meet
certain closing conditions by no later than September 30,
2009. We did not sell the additional mortgage loan or the two
option mortgage loans to Party D, but later (on October 6,
2009 and November 12, 2009, respectively) sold the two
option loans to unaffiliated third parties, as discussed further
below. We were not able to meet the conditions to closing on the
sale of the additional mortgage loan to Party D by
September 30, 2009.
We continued to negotiate the terms of the Party D reverse
acquisition proposal during September and most of October and
continued to extend our exclusivity agreement with Party D to
allow such negotiations to continue with a view to improving the
terms of the proposed transaction. We also continued to pursue
the sale of our remaining mortgage loan assets, either to CIT
Healthcare pursuant to our mortgage purchase agreement or to
third parties. We also continued to negotiate a sale of our 85%
interest in the Cambridge portfolio back to Cambridge Holdings.
On September 16, 2009, pursuant to the mortgage purchase
agreement, we agreed to sell to CIT Healthcare our participation
interest in a mortgage loan for proceeds of approximately
$17.4 million.
On September 18, 2009, Party D sent a letter to the board
requesting that we commit to executing a definitive agreement
within the next 10 business days.
At a meeting held on September 25, 2009, the special
committee and its advisors reviewed and discussed the status of
negotiations with Party D, the status of managements
efforts to monetize our mortgage loan portfolio and a further
revised liquidation analysis prepared by management. The special
committee also reviewed and discussed a further revised
Standalone Business Plan. The special committee and its advisors
evaluated the various strategic options available to the
company, and, after considering and comparing the process,
timing, costs and risks associated with each of the various
options, further considered which of the options was likely to
result in the highest overall return of value to the
stockholders. The special committee and its advisors also
discussed the issues surrounding CIT Groups distressed
financial situation and possible bankruptcy filing and any
impact that such circumstances might have on the various
alternatives.
Prior to the expiration of our mortgage purchase agreement with
CIT Healthcare on September 30, 2009, we provided notice of
our intent to sell three additional loans to CIT Healthcare with
an
13
aggregate principal balance of approximately $35 million,
subject to our ability to meet the terms and conditions of the
mortgage purchase agreement.
At a meeting held on October 5, 2009, the special committee
and its advisors discussed the status of negotiations with Party
D regarding the reverse acquisition transaction and the status
of negotiations with Cambridge Holdings regarding its proposed
acquisition of our 85% interest in the Cambridge portfolio. The
special committee continued its discussion and evaluation of the
companys various options, including continued operation or
liquidation. The special committee and its advisors also
discussed the issues surrounding CIT Groups distressed
financial situation and possible bankruptcy filing and any
impact that such circumstances might have on the various
alternatives.
On October 6, 2009, we sold our interest in a mortgage loan
to an unaffiliated third party for approximately
$8.5 million.
Over a period of several weeks in October, representatives from
the company, management and the companys advisors met in
person and telephonically with Party D and its advisors to
continue negotiations of contract documents relating to the
Party D reverse acquisition proposal. The parties had identified
several key issues with respect to which they were in
disagreement, including the terms of the promissory note
proposed to be issued by us in connection with the transaction
and certain other terms such as the nature and extent of certain
deal protection and post-closing recourse provisions. In
addition, the parties continued to discuss the complexities
caused by Cambridge Holdings threats to object to the
reverse acquisition transaction and its refusal to negotiate an
acceptable price for Cares 85% interest in the Cambridge
portfolio.
During the same time period, Mr. Gorman, our then chairman,
engaged in a number of conversations with Cambridge Holdings in
an attempt to improve the terms of the proposed acquisition by
Cambridge Holdings of our 85% interest in the Cambridge
portfolio. During the course of such discussions, the
representative of Cambridge Holdings indicated on one or more
occasions, on an unsolicited basis, that Cambridge Holdings was
prepared to purchase all of our outstanding common stock for
$60 million, less the value of the operating partnership
units then held by Cambridge Holdings. The Cambridge Holdings
proposal assumed that we would monetize the remainder of our
mortgage loan assets and distribute all of our cash to our
stockholders prior to consummation of the transaction.
On October 19, 2009, Mr. Gorman resigned as our
chairman of the board due to time constraints resulting from his
other business commitments, and the remaining board members
appointed Mr. Besecker, our then vice chairman of the
board, to the position of chairman of our board of directors.
Our exclusivity agreement with Party D expired on
October 23, 2009.
On October 24, 2009, our new chairman of the board of
directors, Mr. Besecker, spoke with a representative of
Cambridge Holdings to discuss the terms of Cambridge
Holdings unsolicited oral offer to purchase all of our
outstanding common stock for $60 million, less a deduction
of $10 million for the value of the operating partnership
units then held by Cambridge Holdings.
During the week of October 25, 2009, Party D elected not to
further pursue a reverse acquisition transaction with us, based
in substantial part on the complications and delays caused by
the threatened objections made by Cambridge Holdings and our
inability to resolve those objections by selling our 85%
interest back to Cambridge Holdings.
On November 1, 2009, CIT Group announced that it filed a
prepackaged plan of reorganization for CIT Group, Inc. and CIT
Group Funding Company of Delaware LLC under the
U.S. Bankruptcy Code. None of CIT Groups operating
subsidiaries, including CIT Healthcare, were included in the
filings made November 1, 2009.
On November 5, 2009, our special committee met to discuss
Cambridge Holdings oral offer to purchase the common stock
of the company. The special committee also discussed a possible
liquidation of the company and considered a timeline for
approval of a plan of liquidation and an outline of
14
the process for delisting and deregistering the companys
common stock to decrease compliance costs during a liquidation.
On November 9, 2009, we publicly announced that we were
nearing completion of our review of strategic alternatives for
the company and that such alternatives included a sale or merger
of the entire company and an orderly liquidation of our assets,
accompanied by one or more special cash distributions to our
stockholders.
On November 11, 2009, we received a revised proposal from
Cambridge Holdings that valued 80% 85% of our
outstanding common stock at $60 million, less a deduction
of $10 million for the operating partnership units then
held by Cambridge, and contemplated the termination of the
management agreement with CIT Healthcare. The Cambridge Holdings
proposal assumed that we would monetize all but two of our
remaining mortgage loan assets and distribute all of our cash to
our stockholders prior to consummation of the transaction. The
proposal provided for the company to retain its status as a
publicly traded REIT and for the companys existing
stockholders to retain a 15% 20% ongoing ownership
interest in the company.
On November 12, 2009, we sold our interests in two mortgage
loans to an unaffiliated third party for approximately
$22.4 million.
On November 17, 2009, Party D announced that it had reached
an agreement to sell its healthcare net lease business to a
publicly traded healthcare REIT.
On November 23, 2009, our special committee met to review a
preliminary plan of liquidation and compared the values
reflected in such plan of liquidation against managements
revised Standalone Business Plan.
On November 25, 2009, we filed a lawsuit against Cambridge
Holdings and its affiliates, including its chairman and chief
executive officer, seeking declaratory judgments that
(i) we have the right, without the approval of Cambridge
Holdings, to engage in a business combination transaction
involving our company or a sale of our wholly owned subsidiary
that serves as the general partner of the partnership that holds
the direct investment in the portfolio, (ii) Cambridge
Holdings contractual right to put its own interests in the
Cambridge medical office building portfolio has expired and
(iii) the operating partnership units held by Cambridge
Holdings do not entitle Cambridge Holdings to receive any
special cash distributions made to our stockholders, including
any liquidating distributions declared pursuant to our plan of
liquidation. We also brought affirmative claims for tortious
interference by Cambridge Holdings with our prospective contract
with Party D and for breach by Cambridge Holdings of the implied
covenant of good faith and fair dealing.
On December 4, 2009, the special committee and its advisors
and the board of directors reviewed and considered a draft plan
of liquidation prepared by management. In connection therewith,
the special committee reviewed and considered managements
estimates of the values of our assets, the confirmatory
valuations provided on our three remaining mortgage loan assets
and our Bickford and SMC interests received from separate
outside valuation experts, our current and contingent
liabilities and obligations, the costs associated with
liquidation and the estimated general and administrative costs
required to operate the company. The special committee and the
board of directors also reviewed a draft proxy statement to the
companys stockholders soliciting approval of the plan of
liquidation. The special committee and the board also received
an update from management and Credit Suisse on parties who had
recently expressed an interest in a transaction with the
company. Since the company had announced on November 9,
2009, that it was completing its review of strategic
alternatives, eleven new potentially interested parties had
contacted management or Credit Suisse to express an interest in
a range of different transactions involving all or only some of
the companys assets. Seven of these parties entered into
confidentiality agreements and were granted access to the
companys online data room. No definitive terms of a
transaction had been discussed at that time. The special
committee and the board also discussed the terms of a potential
performance share award to Mr. Besecker and several members
of the companys senior management which would incentivize
these individuals to maximize
15
the proceeds of a liquidation or sale of the company and
expedite the return of capital to the companys
stockholders.
Also on December 4, 2009, our then chief executive officer,
Mr. Kellman, resigned from our company, effective
immediately. Our board appointed Salvatore (Torey) V.
Riso, Jr., then our chief compliance officer and secretary,
as our new chief executive officer.
On December 10, 2009, our special committee and our board
of directors reviewed a final plan of liquidation of the company
and a revised draft of the proxy statement soliciting our
stockholders approval of the plan of liquidation. The special
committee determined that the plan of liquidation was advisable
and in the best interests of the company and our stockholders
and resolved to recommend to the full board of directors that
such plan of liquidation be adopted and presented to the
stockholders for approval. On the same date, our board of
directors determined, based on the recommendation of the special
committee, that the plan of liquidation was advisable and in the
best interests of the company and our stockholders and
recommended that our stockholders approve the plan of
liquidation. On the same date, our board of directors approved
the grant of a performance share award for 5,000 shares of
the companys common stock to each of Mr. Besecker and
Mr. Riso, the grant of a performance share award for
3,000 shares of the companys common stock to
Mr. Hughes, the companys chief financial officer,
treasurer, chief compliance officer and secretary and the grant
of a performance share award for 1,000 shares of common
stock to Mr. McDugall, the companys then chief
investment officer. See Proposal One: Issuance of
Care Common Stock to Tiptree Interests of Certain
Persons in the Tiptree Transaction on page 50 for
additional details on the these performance share awards.
Recent
Events
On January 15, 2010, we entered into an amended and
restated management agreement with our manager, CIT Healthcare,
which reduced the monthly base management fee and the fee
payable to CIT Healthcare upon termination of the management
agreement.
On January 21, 2010, Credit Suisse received a letter from
Mr. Geoffrey Kauffman, President and Chief Operating
Officer of Tiptree, proposing a tender offer for up to 100% of
the shares of our company for a price of $8.50 per share and
that the current management agreement with CIT Healthcare be
replaced with a combination of internal management and an
advisory agreement with Tiptrees management company.
Tiptrees proposal provided that the source for the cash
tender offer would be (i) the companys cash on hand
net of short term payables and announced dividends and
(ii) Tiptrees cash on hand. Tiptrees proposal
did not contemplate the participation of Mr. Kellman, and
Mr. Kellman did not participate in any way in the
negotiations between management and the special committee, on
the one hand, and Tiptree, on the other hand, with respect to
the proposed tender offer or any other transaction involving the
company and Tiptree.
On that same day, Mr. Besecker directed Credit Suisse to
let Tiptree know that we would contact them shortly after the
special meeting of shareholders and board meeting that was to
take place on January 28, 2010.
On January 27, 2010, Mr. Besecker met with Party H who
proposed to buy assets of Care for $2 $4 per share to be
refined after additional due diligence.
On January 28, 2010, at a special meeting of the
stockholders of the company, the plan of liquidation was
approved.
On or about February 1 and 2, 2010, we sent out letters to
interested parties requesting bids for one or more assets of the
company with a bid deadline of February 16, 2010.
On February 2, 2010, Mr. Riso, along with employees of
our manager, Mr. Kauffman, and Luke Scheuer of Tiptree had
a telephonic meeting to discuss Tiptrees proposal and
obtain an overview of Tiptree.
16
On February 4, 2010, Tiptree executed a new confidentiality
agreement.
On February 8, 2010, Mr. Riso, along with employees of
our manager, met with Mr. Kauffman and Mr. Scheuer at
CITs offices in New York City to discuss a revised
proposal by Tiptree to acquire a controlling interest in the
company. Tiptree proposed to make an equity investment in our
common stock at a price of $8.78 per share and a minimum of
approximately 5,125,000 shares of our common stock,
conditioned upon our company conducting a self tender for up to
100% of our common stock from our stockholders at the same $8.78
per share price. Tiptree proposed that if more than
17,200,000 shares of our companys common stock were
tendered in the tender offer, Tiptree would increase its
purchase of shares by the amount of the excess over 17,200,000
to preserve working capital. If less than 15,200,000 shares
were tendered, Tiptree would have the option to increase its
equity investment by the amount of the shortfall in order to
preserve at least a 50.1% ownership stake in our company. If
between 15,200,000 and 17,200,000 shares were tendered in
the tender offer, Tiptree would purchase 5,125,000 shares
of common stock. The proposal was conditioned upon (i) a
minimum of 10,250,000 shares tendered in the tender offer,
(ii) no material adverse changes to our company,
(iii) Tricadia Capital being named to replace CIT
Healthcare as the external manager of our company, and
(iv) CIT Healthcare agreeing to enter into a transition
services agreement with our company to transition management
services to Tricadia Capital after the closing.
On February 9, 2010, Mr. Riso received a proposal from
Party H to purchase all of the companys common stock for
$3.00 per share net of the companys cash on hand and not
including the purchase of our then existing loan portfolio. The
proposal provided for 28-day due diligence period following
board approval.
On February 10, 2010, Mr. Riso and representatives
from McDermott met telephonically with representatives of
Tiptree and Schulte Roth & Zabel LLP (Schulte
Roth), counsel to Tiptree, to discuss legal issues
relating to the transaction structure proposed by Tiptree.
On February 12, 2010, Mr. Kauffman, Mr. James
McKee of Tricadia Capital and Mr. Scheuer, met
telephonically with members of Schulte Roth and members of
McDermott to discuss Cambridge litigation due diligence.
On February 19, 2010, a loan from the companys
mortgage portfolio matured and we received proceeds of
approximately $10 million.
On February 23, 2010, our board of directors approved an
amendment and restatement of the performance share award
agreements granted to Flint D. Besecker, Salvatore (Torey) V.
Riso, Jr., Paul F. Hughes and Michael P. McDugall on
December 10, 2009. The performance share awards were
amended and restated such that the awards are now triggered upon
the consummation, during 2010, of one or more of the following
transactions that results in a return of value to our
stockholders within the parameters expressed in the agreement:
(i) a merger or other business combination resulting in the
disposition of all of the issued and outstanding equity
securities of our company, (ii) a tender offer made
directly to our stockholders either by us or a third party for
at least a majority of our issued and outstanding common stock,
or (iii) the declaration of aggregate distributions by our
board equal to or exceeding $8.00 per share.
At the special committee meeting held on February 23, 2010,
our management reported on the status of the Cambridge Holdings
litigation, the status of the bid process for the assets of the
company, the general terms of the asset bids that the company
had received thus far, the status of the Tiptree discussions,
the offer from Party H and the decision by management not to
pursue it due to the execution risk of the offer and the fact
that Party H did not appear to be willing to assume full
litigation risk associated with the Cambridge Holdings dispute.
The special committee authorized management to pursue a sale of
one of our mortgage loans and to continue to pursue the Tiptree
Transaction.
On February 24, 2010, Mr. Kauffman, Mr. Scheuer,
Mr. McKee and members of Schulte Roth met telephonically
with Mr. Riso and representatives of Credit Suisse and
McDermott to discuss the
17
structure of the potential transaction with Tiptree as well
other material open terms, such as conditions to closing and
deal protection provisions.
On February 26, 2010, we received a revised proposal from
Tiptree providing for a price of $8.82 per share as well as
revised share purchase numbers. On that same day,
Mr. Kauffman, Mr. Scheuer, Mr. McKee, Mr. Michael
Littenberg of Schulte Roth and Mr. Riso had a telephonic
meeting with representatives of Credit Suisse and McDermott to
discuss the structure and revised share price.
On March 1, 2010, the special committee met to receive an
update on the discussions with Tiptree and to consider
Tiptrees request for exclusivity. Our special committee
authorized management to enter into exclusive negotiations with
Tiptree for a two-week period provided that Tiptree would agree
to a price of $9.00 per share.
On that same day, Mr. Riso had a telephonic meeting with
Mr. Kauffman during which Tiptree agreed to a price of
$9.00 per share. As a result, we entered into an exclusivity
agreement with Tiptree that would expire at 5:00 p.m. on
March 12, 2010.
On March 2, 2010, we received a letter from Cambridge
Holdings reiterating its proposal to acquire the companys
interest in Cambridge Holdings, Bickford and SMC for
$60 million.
On the same day, we sold our interest in a mortgage loan to an
unaffiliated third party for net proceeds of approximately
$5.9 million.
On March 8, 2010, Mr. Riso met telephonically with
Mr. Littenberg, Mr. Kauffman, Mr. McKee and
representatives of McDermott to discuss class action litigation
due diligence.
On March 11, 2010, our special committee and board of
directors met to receive an update on the status of the Tiptree
discussions, a summary of the draft purchase agreement and an
update on the asset disposition discussions. Mr. Besecker
reported that Tiptree had agreed to raise their bid to $9.00 per
share and had agreed to conditions which would minimize
execution risk for closing a potential transaction which no
other buyers were willing to agree to. Mr. Riso then
discussed the structure and specific terms of the transaction
with Tiptree, including the deal protection provisions and other
mechanisms the company had successfully negotiated to minimize
execution risk, the status of the purchase and sale agreement
and related documents, and the handful of open issues that
remained between the two parties. The special committee also
discussed the letter from Cambridge Holdings and
managements proposed response; the March 2 letter
concerned Cambridge Holdings proposal to acquire the
companys interest in Cambridge Holdings, Bickford and SMC
for $60 million. In addition, representatives from
McDermott gave a presentation on the standards for approval of
the Tiptree Transaction and related fiduciary duties of the
special committee and the board.
On March 12, 2010, we extended the exclusivity agreement
with Tiptree that was to expire on March 12 to 5:00 p.m. on
March 16, 2010.
On March 15, 2010, our special committee and our board
approved the proposed issuance of our common stock to Tiptree,
determined that the tender offer was substantively and
procedurally fair to Cares stockholders, including
Cares unaffiliated stockholders, and that the price to be
paid to Cares stockholders was fair to Cares
stockholders, including Cares unaffiliated stockholders,
from a financial point of view, approved the tender offer and
recommended that the stockholders approve the issuance of shares
to Tiptree in accordance with the purchase and sale agreement
and the abandonment of the plan of liquidation in favor of the
Tiptree share purchase. Our special committee and our board
relied upon Tiptrees reputation and financial strength and
the absence of a financing contingency in approving the issuance
of shares to Tiptree and made such inquiries as they deemed
appropriate to satisfy themselves that financing for the tender
offer is assured. Prior to executing the purchase and sale
agreement, our special committee and our board required Tiptree
to provide evidence of Tiptrees financial ability to fund
the issuance of shares, including a copy of its balance sheet
for the year ended December 31, 2009, which evidenced
sufficient cash on hand to fund the issuance of the shares in
full.
18
On March 16, 2010, Care and Tiptree entered into the
purchase and sale agreement which provides that the company will
issue, and Tiptree will purchase, for a purchase price of $9.00
per share, a minimum of 4,445,000 shares of the
companys common stock, and that Tiptree may purchase
additional newly issued shares depending on the number of shares
tendered (and not withdrawn) in the tender offer. We agreed to
use the proceeds from the issuance of common stock to Tiptree,
combined with cash on hand, to effect the tender offer for up to
all of our outstanding common stock at a fixed price of $9.00
per share. On March 15, 2010, the last trading day prior to
the public announcement of the execution of the purchase
agreement with Tiptree, the closing price of the companys
common stock as reported by NYSE was $8.36 per share.
On March 18, 2010, we provided notice to Cambridge Holdings
that we had entered into the purchase and sale agreement with
Tiptree for a transaction that may result in the change of
control of the company. We provided this notice in accordance
with the terms of a put agreement entered into in connection
with our investment in the Cambridge portfolio. By its terms,
the notice provided Cambridge Holdings with the option to
put its interests in the portfolio to us at a price
equal to the then-fair market value of such interests - as
mutually agreed by the parties - or, lacking such mutual
agreement, at a price determined through qualified third party
appraisal. In our notice, we also reserved and reiterated our
position, taken in the litigation, that the put
option expired when Cambridge Holdings declined to exercise it
in response to a prior notice from us regarding a contemplated
(but unconsummated) change of control transaction in April 2009.
On March 22, 2010, a representative of Cambridge Holdings
sent a letter to Mr. Riso stating that Cambridge Holdings
declined to exercise its put right, if any, under the put
agreement, and that they believed that the Tiptree Transaction
was in violation of the limited partnership agreements of the
Cambridge Holdings assets.
On June 10, 2010, our special committee and our board of
directors met to clarify that they believed that the stock
issuance to Tiptree was substantively and procedurally fair to
Cares stockholders, including Cares unaffiliated
stockholders, and the price to be paid by Tiptree for the
companys common stock was fair from a financial point of
view to Cares stockholders, including Cares
unaffiliated stockholders.
On June 30, 2010, our special committee and our board of
directors unanimously approved an amendment to the purchase and
sale agreement extending the outside date by which Care would
have to extend the offer period to September 30, 2010. On
July 6, 2010, Care and Tiptree executed a First Amendment
to the purchase and sale agreement to so extend the outside date.
19
The
Tiptree Transaction
Purpose of the Tiptree Transaction.
The
purpose of the Tiptree Transaction is to provide our
stockholders with a liquidity event and to facilitate the equity
investment by Tiptree. Our rationale was that the tender offer
would represent a mechanism to provide all stockholders with the
opportunity to tender all or a portion of their shares for cash
at a premium to the trading price of Cares common stock on
the last trading day prior to the public announcement of the
execution of the purchase and sale agreement and at a premium to
the price per share estimated to be received under the plan of
liquidation, which will be abandoned, subject to the
satisfaction of certain offer conditions described in this proxy
statement. The tender offer would also afford stockholders the
option not to participate in the tender offer if they are able
to achieve a higher price in the market or otherwise desire to
retain ownership of their shares of the company following the
investment by Tiptree.
Certain Effects of the Tiptree
Transaction.
The Tiptree Transaction provides
participating stockholders with the benefit of being able to
obtain liquidity for their shares on potentially more favorable
terms than would otherwise be available in the open market. The
amount per share each participating stockholder may receive is
equal to an amount that exceeds the current and recent
historical market prices of our shares. The Tiptree Transaction
provides certainty of a premium price determined to be a fair
price by our board of directors and a special committee thereof
without the risk of not being able to sell in the open market
and without the brokerage fees and commissions typically
associated with sales of securities. Stockholders who tender all
their shares, however, will not participate in any future value
or profits generated by the company. As a result of the
transaction, all of our stockholders, including the unaffiliated
stockholders, may recognize a gain or loss in the event they
tender their shares in the tender offer. Stockholders who do not
tender, both our affiliated and the unaffiliated stockholders,
will not have any tax implications as a result of the Tiptree
Transaction.
Stockholders who choose not to tender their shares in the tender
offer and stockholders who otherwise retain an equity interest
in the company as a result of a partial tender of shares will
continue to be stockholders of the company and thus share in the
companys future results of operations, and will bear the
attendant risks and rewards associated with owning equity
securities of the company, including risks resulting from the
companys purchase of shares in the tender offer and the
sale of shares to Tiptree. Stockholders who choose not to tender
their shares in the tender offer may realize an increase or a
decrease in their relative equity interest in the company
following the consummation of the tender offer, depending on the
number of shares tendered in the tender offer and the number of
shares purchased by Tiptree pursuant to the purchase and sale
agreement.
Additionally, stockholders who choose not to tender their shares
may experience significantly reduced trading volume and
liquidity in Care common stock. Following completion of the
tender offer, the company may have substantially reduced
public float (the number of shares owned by
non-affiliate stockholders and available for trading in the
securities markets) and will likely have fewer stockholders.
Additionally, as a result of the issuance to Tiptree, Tiptree
will likely acquire a controlling interest in the company. At
the launch of the tender offer, Care had approximately 93 record
holders and approximately 1,372 beneficial holders. Due to
its low number of record stockholders, Care is currently
eligible to terminate the registration of its common stock under
the Exchange Act and cease filing periodic reports with the SEC.
Under the stockholder distribution requirements contained in the
continued listing standards of the NYSE, Care is required to
have a minimum of 400 stockholders. Under the purchase and sale
agreement, Tiptree has represented to us that it intends to
maintain the companys Exchange Act registration and NYSE
listing, and has covenanted to use commercially reasonable
efforts to maintain the companys NYSE listing for a period
of one year following completion of the Tiptree Transaction.
However, notwithstanding Tiptrees representation and
covenant in the purchase and sale agreement, depending upon the
success of the tender offer, the companys stockholder
numbers may fall below the numbers required under the continued
listing standards of the NYSE or the company may fail to
continue to meet any of the other requirements for continued
listing. As a result, we cannot ensure that, as a result of the
tender offer, the NYSE will not involuntarily delist the company
for falling below the minimum shareholder requirements under its
20
continued listing standards. If an involuntary delisting were
to occur, Care may choose to list on another exchange or on the
OTC Bulletin Board which would likely result in lower
trading volume and less liquidity. These factors may reduce the
volume of trading in our shares and make it more difficult to
buy or sell significant amounts of our shares without materially
affecting the market price.
The Tiptree Transaction could also have the result of
disqualifying Care as a REIT if Care is not able to meet the
organizational requirements under the Internal Revenue Code that
require that (i) Cares common stock be held by at
least 100 actual stockholders for at least 335 days in any
tax year and (ii) not more than 50% in value of a
REITs outstanding stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the
Internal Revenue Code to include certain entities) at any time
during the last half of each taxable year. In conjunction with
the Tiptree Transaction, and if approved by our stockholders, we
will remove from our charter the REIT protective provision that
prohibits any transfer of capital stock that would cause the
company to be beneficially owned by less than 100 stockholders.
If approved by stockholders, it is further expected that the
REIT protective provision would be reinstated 20 calendar days
after the consummation of the Tiptree Transaction in order to
protect our REIT status going forward. As a result of an
amendment to our charter to remove the REIT protective
provision, we could cease to qualify as a REIT. If we cease to
qualify as a REIT in any taxable year, we would be subject to
federal income tax on our taxable income at regular corporate
tax rates and this would have significant adverse consequences
to us and the value of our common stock.
Pursuant to the terms of the purchase and sale agreement, after
the closing of the tender offer, expected to occur on
August 13, 2010, Care will issue, and Tiptree will
purchase, a minimum of 4,445,000 newly issued shares of the
companys common stock, subject to upward adjustment
(a) if more than 18,000,000 shares are tendered (and
not withdrawn) in the tender offer, by a number of shares equal
to the difference between the actual number of shares tendered
in the tender offer (and not withdrawn) and 18,000,000 in order
to fund the purchase of shares by the company in the tender
offer, or (b) at the election of Tiptree, if fewer than
16,500,000 shares are tendered in the tender offer, in
order to give Tiptree ownership of up to 53.4% of the shares of
the companys common stock on a fully-diluted basis after
taking into account the shares tendered by the stockholders to
the company in the tender offer. For example, if
14,000,000 shares are tendered, Tiptree is required to
purchase 4,445,000 newly issued shares and has the option to
purchase up to an additional 2,735,500 newly issued shares, for
a total of 7,180,500 shares of our common stock, resulting
in Tiptree owning 53.4% of the company. If, however,
19,000,000 shares of our common stock are tendered (and not
withdrawn), Tiptree must purchase a total of 5,445,000 newly
issued shares, resulting in Tiptree owning 81.1% of the company
after consummation of the tender offer.
The following table illustrates the relationship of
Tiptrees expected ownership in the company pursuant to the
terms of the purchase and sale agreement and that of existing
stockholders following the closing of the tender offer under
various tender offer outcomes. The table is for illustration
purposes only and should not be relied upon for any prediction
of the outcome of the tender offer.
Tiptree and
Existing Stockholder Pro-forma Ownership under Assumed Tender
Offer Scenarios
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Shares Tendered by Existing Stockholders*, **
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10,300,000
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14,000,000
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15,000,000
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16,500,000
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17,000,000
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18,000,000
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19,000,000
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Shares Purchased by Tiptree
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11,420,000
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7,180,500
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6,034,000
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4,445,000
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4,445,000
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4,445,000
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5,445,000
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Existing Stockholder Pro-forma Ownership
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46.6
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%
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46.6
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%
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46.6
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%
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45.9
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%
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42.4
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%
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33.8
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%
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18.9
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%
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Tiptree Pro-forma Ownership
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53.4
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%
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53.4
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%
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53.4
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%
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54.1
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%
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57.6
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%
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66.2
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%
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81.1
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%
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*
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If less than
16,500,000 shares are tendered, Tiptree is required to
purchase 4,445,000 shares and has the option to increase
its share purchase in order to acquire an aggregate of up to
53.4% ownership interest in the company on a fully diluted
basis.
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**
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If more than
18,000,000 shares are tendered (and not withdrawn) in the
tender offer, Tiptree is required to purchase
4,445,000 shares and must purchase the number of shares
equal to the difference between the actual number of shares
tendered
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(and not withdrawn) in the
tender offer and 18,000,000 in order to fund the purchase of
shares by the company in the tender offer.
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Stockholders may be able to sell non-tendered shares in the
future on the NYSE or otherwise at a net price significantly
higher or lower than the purchase price in the tender offer. We
can give no assurance as to the price at which a stockholder may
be able to sell his or her shares in the future, which may be
higher or lower than the purchase price paid by us in the tender
offer.
Our shares are registered under the Exchange Act, which
requires, among other things, that we furnish certain
information to our stockholders and the SEC and comply with the
SECs proxy rules in connection with meetings of our
stockholders. Currently, our shares are eligible for termination
of registration under the Exchange Act since we have less than
300 holders of record. Although the tender offer will result in
fewer holders of record, the company intends to continue to be
registered under the Exchange Act and intends to continue to
list its shares on the NYSE to the extent it remains eligible to
do so.
We currently intend to cancel and retire shares purchased
pursuant to the tender offer. Such shares will return to the
status of authorized and unissued shares and will be available
for us to issue without further stockholder action for all
purposes except as required by applicable law or the rules of
the NYSE. In accordance with the purchase and sale agreement, we
will issue new shares of our common stock to Tiptree at the
closing of the tender offer (as described below).
We may, in the future, decide to purchase additional shares of
our common stock. Any such purchases may be on the same terms
as, or on terms which are more or less favorable to stockholders
than, the terms of the tender offer.
Rule 13e-4
promulgated under the Exchange Act, however, prohibits us and
our affiliates from purchasing any shares, other than pursuant
to the tender offer, until at least ten (10) business days
after the Expiration Time.
Our shares are currently margin securities under the
rules of the Federal Reserve Board. This has the effect, among
other things, of allowing brokers to extend credit to their
customers using such shares as collateral. We believe that,
following the repurchase of shares pursuant to the tender offer,
our shares will continue to be margin securities for
purposes of the Federal Reserve Boards margin rules and
regulations.
If the maximum of 20,265,924 shares, or all of the issued
and outstanding common stock and performance share awards of the
company eligible to be tendered, are purchased in the tender
offer at a price of $9.00 per share, the aggregate purchase
price for the shares will be approximately $182,393,316. We
expect to fund the purchase of shares pursuant to the tender
offer and the related fees and expenses from available cash on
hand and from the proceeds of the issuance of stock to Tiptree.
We do not have any plans to utilize alternative sources of
financing to pay for the shares purchased pursuant to the tender
offer, as well as related fees and expenses.
Other Plans or Alternatives.
Except as
otherwise disclosed or incorporated by reference in this proxy
statement, we currently have no plans, proposals or negotiations
underway that relate to or would result in:
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any extraordinary transaction, such as a merger, reorganization
or liquidation, involving us or any of our subsidiaries;
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any purchase, sale or transfer of a material amount of our or
any of our subsidiaries assets;
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any change in our present board or management, including but not
limited to any plans or proposals to change the number or the
term of directors or to fill any vacancies on the board (except
that we may fill vacancies arising on the board in the future)
or to change any material term of the employment contract of any
executive officer;
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any material change in our present dividend rate or policy, our
indebtedness or capitalization, our corporate structure or our
business;
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any class of our equity securities ceasing to be authorized to
be listed on NYSE;
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any class of our equity securities becoming eligible for
termination of registration under Section 12(b) of the
Exchange Act;
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the suspension of our obligation to file reports under
Section 15(d) of the Exchange Act;
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the acquisition or disposition by any person of additional
securities of the company, or the disposition of our securities,
other than purchases pursuant to outstanding options to purchase
shares and outstanding restricted stock awards granted to
certain employees (including directors and officers); or
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any changes in our charter, bylaws or other governing
instruments or other actions that could impede the acquisition
of control of us.
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Fairness of the Tiptree Transaction.
The
special committee has determined that the Tiptree Transaction is
substantively and procedurally fair to our stockholders,
including our unaffiliated stockholders, and the price to be
paid by Tiptree in the stock issuance and the price to be paid
to our stockholders in the tender offer are both fair from a
financial point of view to our stockholders, including our
unaffiliated stockholders, and the Tiptree Transaction was
unanimously approved by the special committee and the board. All
Care stockholders will have the opportunity to receive the same
price for their shares as an unaffiliated third-party purchaser
will pay for shares that it has agreed to purchase from Care.
Additionally, stockholders will have the right to retain all or
a portion of their shares and retain the opportunity to benefit
from the growth of the company subject to the risks.
In reaching these determinations, our board of directors and our
special committee consulted with our management and our
financial and legal advisors and considered the following
factors:
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the extensive sale process for the company undertaken over a
period of more than one year, led by our financial advisor,
Credit Suisse, wherein the company received, evaluated and
negotiated numerous strategic alternatives, including many
offers to acquire all of the issued and outstanding common stock
of the company through a merger, tender offer or similar
business combination, none of which was successful;
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our stockholders approval, at a special meeting held on
January 28, 2010, of our plan of liquidation, which
involved a complete liquidation of Cares assets at an
estimated total liquidation value range of $8.05-$8.90 per
share, compared to the price that Tiptree will pay ($9.00 per
share) and the price offered to the companys stockholders
($9.00 per share) in the tender offer, which is superior;
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none of the individual asset bids received by Care exceeded the
components of value ranges developed by Care in
connection with the plan of liquidation;
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the tender offer is for up to 100% of our outstanding common
stock and thus presents an opportunity for all of our
stockholders to receive, on a current basis, $9.00 in cash for
each share of common stock that they own, rather than having to
wait for assets to be disposed of and cash proceeds distributed
pursuant to the plan of liquidation;
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the price offered to our stockholders in the tender offer of
$9.00 per share is the same price that Tiptree, an unaffiliated
third party, agreed to pay for our common stock pursuant to the
purchase and sale agreement;
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the purchase price of $9.00 per share payable to the company by
Tiptree and payable to the companys stockholders in the
tender offer represents a 7.7% premium over the closing price of
the companys common stock on the NYSE on Monday,
March 15, 2010 ($8.36), the last trading day prior to the
public announcement of the execution of the purchase and sale
agreement, and
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a 6.4% premium over the highest closing price ($8.46) of the
companys common stock during the 52-week period preceding
such date;
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Tiptree has agreed to assume certain closing-related risks
pertaining to our pending litigation with Cambridge Holdings,
which other interested parties were not willing to do;
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stockholders seeking to monetize their investment may do so by
tendering shares, and stockholders who wish to remain
stockholders may do so by not tendering shares; and
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the execution risks associated with the proposed plan of
liquidation are likely greater than the execution risks
associated with the Tiptree Transaction.
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Our special committee and board of directors believed that each
of the above factors generally supported its determination and
recommendation. Our special committee and board of directors
also considered and reviewed with management a number of
potentially negative factors, including those listed below:
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there is no assurance that we will be successful in our tender
offer and have the minimum number of shares tendered for the
transaction to close;
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the fact that Cambridge Holdings has asserted a right to approve
any sale or disposition of our direct or indirect interests in
the Cambridge portfolio, including a change in control of the
company;
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the actual or potential conflicts of interest which certain of
our executive officers and our directors have in connection with
the Tiptree Transaction;
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the costs to be incurred by our company in connection with
execution of the transaction and the tender offer, including
significant accounting, financial advisory and legal
fees; and
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the possibility that stockholders may, depending on their tax
basis in their stock, recognize taxable gains (ordinary
and/or
capital gains) in connection with the completion of the Tiptree
Transaction.
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The above discussion concerning the information and factors
considered by our special committee and board of directors is
not intended to be exhaustive, but includes the material factors
considered by our special committee and board of directors in
making their determinations. Our special committee and our board
of directors considered a number of additional valuation factors
but ultimately concluded that those valuation factors were not
relevant to the nature of the Tiptree Transaction or our
business. For example, our special committee and board of
directors did not believe that net book value was relevant to
their conclusion that the Tiptree Transaction was fair to our
stockholders. Liquidation value, based on asset fair market
values, and historical market prices were deemed to be relevant
measures of actual value, whereas book value which is based on
historic costs of assets was not deemed to reflect the actual
value of Care assets.
In addition, the special committee and board of directors did
not believe that the going concern value of Care was relevant to
a determination of the fairness of the Tiptree Transaction.
After an extensive sale process for the company undertaken over
a period of more than a year, after receiving, evaluating and
negotiating numerous strategic alternatives, our special
committee and our board of directors determined that the
proposed plan of liquidation was in the best interests of
stockholders. Subsequent to the approval of the plan of
liquidation, Care negotiated a transaction which increased the
value to stockholders and also allowed stockholders to retain
their investment in Care. Consequently, the special committee
and board of directors did not believe that the going concern
value of Care provided a useful means of valuing Care in
connection with the Tiptree Transaction.
The special committee and our board of directors also considered
various factors in determining the procedural fairness of the
Tiptree Transaction. The special committee and the board of
directors
24
believe that appropriate procedural safeguards were taken in
connection with the deliberation and approval of the Tiptree
Transaction because:
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our board of directors formed a special committee in July 2008,
consisting of three directors (Messrs. Bisbee and Gorman
and Ms. Robards), each of whom qualified as an
independent director under the rules of the NYSE and
Cares own independence definition, to consider the
strategic alternatives and the terms and prices in connection
therewith (Mr. Gorman resigned in October of 2009);
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Mr. Besecker, our current chairman and a former president
of CIT Healthcare LLC, Cares external manager, joined the
special committee in October 2008, and although not independent
under the rules of the NYSE and Cares definition of
independent director, he was determined to have no affiliation
or economic interest in either CIT Healthcare or any of the
potential bidders for the company;
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each stockholder can determine individually whether or not to
tender shares in the tender offer. Accordingly, those
stockholders who do not believe that the tender offer is fair or
those who wish to continue their investment in Care are not
required to tender their shares;
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although the structure of the transaction does not provide
stockholders with an opportunity to vote on the tender offer, we
are seeking approval for (i) the issuance of shares to
Tiptree pursuant to the Purchase Agreement, (ii) the
abandonment of the plan of liquidation approved by the
stockholders on January 28, 2010 in favor of the issuance
to Tiptree (contingent upon the closing of the Tiptree
Transaction), (iii) an amendment to the companys
Charter to remove the REIT protective provision that prohibits
any transfer of capital stock that would cause the company to be
beneficially owned by less than 100 stockholders in order to
permit the Tiptree Transaction, (iv) an amendment to the
companys charter to reinstate the REIT protective
provision 20 calendar days after the consummation of the Tiptree
Transaction and (v) adjournment of the special meeting if
there are not sufficient votes at the time of the special
meeting to approve the foregoing four proposals.
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after the initiation of the Tiptree Transaction, our board of
directors may still consider superior proposals under the terms
of the purchase and sale agreement; and
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no stockholders will be treated differently from any other
stockholders. Shares will be purchased from all stockholders at
$9.00 per share.
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Due to the timing and nature of the Tiptree Transaction, neither
the special committee nor the board of directors appointed an
independent representative to act exclusively as the agent of
the unaffiliated stockholders for the purpose of negotiating the
Tiptree Transaction or preparing a written report concerning the
fairness of the Tiptree Transaction. In addition, the special
committee and our board of directors recognize that the Tiptree
Transaction is not being submitted to a vote of the unaffiliated
stockholders; however, the special committee and the board
believe that a decision to tender or not to tender is tantamount
to such unaffiliated stockholders vote. Given
the above listed procedural safeguards, the special committee
and the board of directors believe that the Tiptree Transaction
is procedurally fair to the unaffiliated stockholders despite
the fact that the Tiptree Transaction is not being submitted to
a vote of such stockholders and there is no separate independent
unaffiliated representative for such stockholders.
In determining that the Tiptree Transaction is fair to our
stockholders, including our unaffiliated stockholders, each of
the special committee and our board of directors considered the
above substantive and procedural factors as a whole and
concluded that the positive factors relating to the Tiptree
Transaction outweighed the negative factors. Because of the
variety of factors considered, however, neither the special
committee nor the board of directors found it practicable to
quantify or otherwise assign relative weights to, and did not
make specific assessments of, the specific factors considered in
reaching its determination. However, individual members of the
special committee and the board of directors may have assigned
25
different weights to various factors. The determination of the
special committee and the board of directors was made after
consideration of all the factors together.
The above discussion concerning the information and factors
considered by our special committee and board of directors is
not intended to be exhaustive, but includes the material factors
considered by our special committee and board of directors in
making their determinations. In view of the variety of factors
considered in connection with their evaluation of the Tiptree
Transaction, our special committee and board of directors did
not quantify or otherwise attempt to assign relative weights to
the specific factors they considered. In addition, individual
members of our special committee and board of directors may have
given different weight to different factors and, therefore, may
have viewed certain factors more positively or negatively than
others.
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SUMMARY
This summary highlights selected information from this proxy
statement and may not contain all of the information that is
important to you. For additional information concerning the
issuance to Tiptree, the abandonment of the plan of liquidation
and the amendments to our charter, you should read this entire
proxy statement, including the exhibit, and the other documents
referenced in this proxy statement. A copy of the forms of the
charter amendments we intend to file with the Maryland
Department of Assessments and Taxation are included as
Exhibit A and B to this proxy statement. The following
summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information appearing
elsewhere in this proxy statement.
Our
Business
We are an externally managed real estate investment trust
(REIT) that was formed to invest in
healthcare-related real estate and mortgage debt. We were
incorporated in Maryland in March 2007, and we completed our
initial public offering on June 27, 2007. As a REIT, we are
generally not subject to income taxes. To maintain our REIT
status, we are required to distribute annually as dividends at
least 90% of our REIT taxable income, as defined by the Internal
Revenue Code of 1986, as amended (the Code), to our
stockholders, among other requirements. If we fail to qualify as
a REIT in any taxable year, we would be subject to
U.S. federal income tax on our taxable income at regular
corporate tax rates.
We were originally positioned to make mortgage investments in
healthcare-related properties, and to invest in
healthcare-related real estate, through utilizing the
origination platform of our external manager, CIT Healthcare LLC
(CIT Healthcare). We acquired our initial portfolio
of mortgage loan assets from our manager in exchange for cash
proceeds from our initial public offering and common stock. In
response to dislocations in the overall credit market, and in
particular the securitized financing markets, in late 2007, we
redirected our focus to place greater emphasis on
healthcare-related real estate investments. For more information
on our business see the section entitled Description of
Business on page 42 below.
The
Special Meeting
The special meeting will be held on Friday, August 13,
2010, at 9:00 a.m. local time, at the CIT Global
Headquarters, 505 Fifth Avenue, Seventh Floor
Room C/D, New York, NY 10017. For more information on the
special meeting, see the section entitled The Special
Meeting on page 39 below.
Vote
Required
To obtain approval of the abandonment of the plan of liquidation
and the first and second amendments to our charter, the
affirmative vote of the holders of not less than a majority of
the shares of common stock present in person or by proxy at the
special meeting and entitled to vote must be cast in favor of
the abandonment of the plan of liquidation proposal and the
first and second amendments to our charter proposals, provided
that a quorum is present. A stockholders failure to return
a proxy or give instructions to his or her broker or abstention
from voting will have the same effect as an affirmative vote
against these proposals and, consequently, the abandonment of
the plan of liquidation and the first and second amendments to
our charter. To obtain approval of the issuance to Tiptree, the
affirmative vote of the holders of not less than a majority of
the shares of common stock issued and outstanding and entitled
to vote must be cast in favor of the issuance proposal, provided
that the total vote cast for the issuance represents over 50% in
interest of all securities entitled to vote on the proposal. For
purposes of the vote on the issuance to Tiptree proposal, broker
non-votes will have the same effect as votes against the
proposal, unless holders of more than 50% in interest of all
securities entitled to vote on the proposal cast votes, in which
event broker non-votes will not have any effect on the result of
the vote. CIT Group Inc., the parent of our external manager,
CIT Healthcare, controls approximately 37% of our issued and
outstanding common stock and has indicated to us that
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it intends to vote all of the 7,589,040 shares it owns in
favor of the issuance to Tiptree, abandonment of the plan of
liquidation and the first and second amendment proposals.
Record
Date for Voting
The close of business on July 8, 2010 is the record date
for determining eligibility to vote at the special meeting. Each
holder of our common stock on the record date will be entitled
to one vote per share on all matters coming before the special
meeting. On the record date, there were 20,235,924 shares
of our common stock outstanding and entitled to vote at the
special meeting.
The
Tiptree Transaction
Background
of the Transaction
Our operating strategy originally involved acquiring additional
mortgage assets on a leveraged basis through the use of
short-term borrowing facilities such as warehouse lines of
credit and longer-term funding through securitization structures
such as collateralized debt obligations or commercial
mortgage-backed securities. In late 2007, due to severe
dislocations in the credit markets, including the effective
closure of the securitized financing markets, we shifted our
operating strategy to place greater emphasis on acquiring high
quality healthcare-related real estate investments and away from
mortgage assets. As it became more difficult to raise additional
capital through the equity and debt markets to fund our
transactions, our board formed a special committee of Gerald E.
Bisbee, Jr., PhD., Kirk E. Gorman and Karen P. Robards,
each of whom was and is deemed an independent director under the
rules of the New York Stock Exchange and our own independence
definition. Flint D. Besecker was later appointed to the special
committee in October 2008, and Mr. Gorman resigned from the
special committee and our board of directors in October 2009,
due to time constraints resulting from his other business
commitments. The special committee was authorized and empowered
to, among other things, explore with any potentially interested
party the terms of any strategic transaction with the company
and make a recommendation to the board with respect to such
strategic transactions. We also engaged Credit Suisse Securities
(USA) LLC (Credit Suisse) an affiliate of Credit
Suisse AG, as our exclusive financial advisor to assist us in
evaluating potential strategic alternatives available to the
company. In October 2008, we began a formal sale process that
ultimately did not prove successful.
On December 10, 2009, our special committee recommended and
our board of directors approved the adoption of a plan of
liquidation which estimated the total liquidation value range
for our assets at between $8.05 and $8.90 per share. Our
stockholders approved the plan of liquidation on
January 28, 2010.
On January 21, 2010, we received a proposal from Tiptree
Financial Partners, L.P., a Delaware limited partnership, which
had approached us twice before in 2009 with written proposals to
acquire the company or a controlling stake in the company. After
extensive negotiations, on March 15, 2010, the special
committee and our board approved a purchase and sale agreement
with Tiptree which provides that Care will sell to Tiptree for a
purchase price of $9.00 per share, a minimum of
4,445,000 shares of the companys newly issued common
stock, and potentially additional shares depending on the number
of shares tendered in an issuer tender that we are contractually
obligated to make for up to all of our outstanding common stock
at the same $9.00 per share price. The purchase and sale
agreement also contains a condition to closing that at least
three of our five directors shall resign effective as of the
closing of the transaction, and the remaining Care directors
shall fill the resulting vacancies on our board with candidates
provided by Tiptree. In connection with the Tiptree Transaction,
we expect to terminate our management agreement with CIT
Healthcare LLC. We expect that, after the closing of the
transaction, subject to a
60-day
transition period, Care will be advised by TREIT Management, an
affiliate of Tiptree Capital Management, LLC, which is the
manager of Tiptree. Prior to June 1, 2010, Tiptree was
externally managed by Tricadia Capital Management LLC.
28
In approving the Tiptree Transaction, our board of directors and
our special committee consulted with our management and our
financial and legal advisors and considered the following
factors:
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the extensive sale process for the company undertaken over a
period of more than one year, led by our financial advisor,
Credit Suisse, wherein the company received, evaluated and
negotiated numerous strategic alternatives, including many
offers to acquire all of the issued and outstanding common stock
of the company through a merger, tender offer or similar
business combination, none of which was successful;
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our stockholders approval, at a special meeting held on
January 28, 2010, of our plan of liquidation, which
involved a complete liquidation of Cares assets over time
at an estimated total liquidation value range of $8.05-$8.90 per
share, compared to the price that Tiptree will pay ($9.00 per
share) and the price offered to the companys stockholders
($9.00 per share) in the tender offer;
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none of the individual asset bids received by Care exceeded the
components of value ranges developed by Care in
connection with the plan of liquidation;
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the tender offer is for up to 100% of our outstanding common
stock and thus presents an opportunity for all of our
stockholders to receive, on a current basis, $9.00 in cash for
each share of common stock that they own, rather than having to
wait for assets to be disposed of and cash proceeds distributed
pursuant to the plan of liquidation;
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the price offered to our stockholders in the tender offer of
$9.00 per share is the same price that Tiptree, an unaffiliated
third party, agreed to pay for our common stock pursuant to the
purchase and sale agreement;
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the purchase price of $9.00 per share payable to the company by
Tiptree and payable to the companys stockholders in the
tender offer represents a 7.7% premium over the closing price of
the companys common stock on the NYSE on Monday,
March 15, 2010 ($8.36), the last trading day prior to the
public announcement of the execution of the purchase and sale
agreement, and a 6.4% premium over the highest closing price
($8.46) of the companys common stock during the
52-week
period preceding such date;
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Tiptree has agreed to assume certain closing-related risks
pertaining to our pending litigation with Cambridge Holdings,
which other interested parties were not willing to do;
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stockholders seeking to monetize their investment may do so by
tendering shares, and stockholders who wish to remain
stockholders may do so by not tendering shares; and
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the execution risks associated with the proposed plan of
liquidation are likely greater than the execution risks of the
Tiptree Transaction.
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Our special committee and board of directors believed that each
of the above factors generally supported its determination and
recommendation. Our special committee and board of directors
also considered and reviewed with management a number of
potentially negative factors concerning the Tiptree Transaction,
including those listed below:
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there is no assurance that we will be successful in our tender
offer and have the minimum number of shares tendered for the
transaction to close;
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the fact that Cambridge Holdings has asserted a right to approve
any sale or disposition of our direct or indirect interests in
the Cambridge portfolio, including a change in control of the
company;
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the actual or potential conflicts of interest which certain of
our executive officers and our directors have in connection with
the transaction with Tiptree, including those specified under
the heading Risk Factors and Interests of
Certain Persons in the Tiptree Transaction;
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the costs to be incurred by our company in connection with
execution of the transaction and the tender offer, including
significant accounting, financial advisory and legal
fees; and
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the possibility that stockholders may, depending on their tax
basis in their stock, recognize taxable gains (ordinary
and/or
capital gains) in connection with the completion of the Tiptree
Transaction.
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For more information on the background of the Tiptree
Transaction and the reasons for the Tiptree Transaction see the
section entitled Proposal One: Issuance of Care
Common Stock to Tiptree on page 50 below.
Recommendation
of Our Board of Directors and the Special Committee
Our special committee and our board of directors recommend that
you vote FOR the issuance to Tiptree, the
abandonment of the plan of liquidation, the first and second
amendments to our charter and the proposal to adjourn the
special meeting if necessary.
Interests
in the Tiptree Transaction That Differ from Your
Interests
The Tiptree Transaction involves an issuer tender offer. Our
directors and executive officers have interests in the tender
offer that are different from your interests as a stockholder,
including the following:
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Flint D. Besecker, the chairman of the board, holds a
performance share award that entitles him to receive 10,000
additional shares, which will represent $90,000 in value if the
tender offer is completed.
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Salvatore (Torey) V. Riso, Jr., our chief executive
officer, holds a performance share award that entitles him to
receive 10,000 additional shares, which will represent $90,000
in value if the tender offer is completed.
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Paul F. Hughes, our chief financial officer, holds a performance
share award that entitles him to receive 6,000 additional
shares, which will represent $54,000 in value if the tender
offer is completed.
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In addition, our manager, CIT Healthcare LLC, has interests in
the Tiptree Transaction that are different from your interests
as a stockholder. Our manager acquired a warrant, dated
September 30, 2008, to purchase 435,000 shares of our
common stock at an exercise price of $17.00 per share. On
March 16, 2010, our manager entered into a warrant purchase
agreement with Tiptree, pursuant to which our manager will sell
its warrant to purchase the 435,000 shares of our
companys common stock in exchange for $100,000 effective
upon the closing of the Tiptree Transaction.
Consequently, these individuals and our manager may be more
likely to support the Tiptree Transaction than might otherwise
be the case if they did not expect to receive those payments.
Our board of directors and the special committee each was aware
of these interests and considered them in making their
recommendations. For further information regarding these and
other interests that differ from your interests please see the
section titled Proposal One: Issuance of Care Common
Stock to Tiptree Interests of Certain Persons in the
Tiptree Transaction on page 51.
Risk
Factors
For more information on the risks associated with the Tiptree
Transaction, see the section entitled Risk Factors
on page 31 below.
30
RISK
FACTORS
There are many risks associated with our business, the plan
of liquidation, the transaction with Tiptree, the conflicts of
interests that arise out of our relationship with our external
manager, CIT Healthcare LLC, the healthcare industry in general,
our healthcare-related investments in particular and our tax
status as a REIT. These risks are described in the Risk
Factors section of our annual report on
Form 10-K
for the year ended December 31, 2009, which accompanies
this proxy statement and is incorporated herein by reference. In
addition to these risks, you should consider the following
additional risks associated with the proposed Tiptree
Transaction when deciding how to vote on that proposal, the
abandonment of the plan of liquidation proposal and the
proposals to amend our charter.
Risks
Related to the Tiptree Transaction
The
Tiptree Transaction is subject to conditions, and there can be
no assurance that these conditions will be
satisfied.
Pursuant to the purchase and sale agreement, Tiptrees
obligation to purchase common stock is subject to the
satisfaction of the following conditions, among others:
(i) the representations and warranties of the company in
the purchase and sale agreement being true and correct;
(ii) the company performing all covenants and obligations
required to be performed under the purchase and sale agreement,
(iii) the registration rights agreement remaining in full
force and effect, (iv) the receipt of certain consents and
approvals, (v) the absence of a Company Material Adverse
Effect (as defined in the purchase and sale agreement),
(vi) the resignation of at least three of our current
directors and the appointment by Cares board of directors
of candidates acceptable to Tiptree to fill the resulting
vacancies, (vii) the receipt of an opinion of counsel
regarding the validity of the shares issued to Tiptree,
(viii) the absence of any restraining orders or injunctions
relating to the contemplated transactions, (ix) the receipt
by Tiptree of a certificate from the company certifying as to
the foregoing conditions, and (x) certain conditions to the
companys obligations with respect to the tender offer. If
any one or more of these conditions is not satisfied, or waived,
then the Tiptree issuance will not be completed and the tender
offer will not be consummated. See The Purchase and Sale
Agreement section below for further information.
The
tender offer is subject to conditions, and there can be no
assurance that these conditions will be satisfied.
Pursuant to the purchase and sale agreement, our obligation to
accept for payment shares validly tendered and not withdrawn on
the expiration date of the tender offer is subject to the
satisfaction of the following conditions: (i) there being
validly tendered and not withdrawn prior to the expiration date
a minimum of 10,300,000 shares of our common stock,
(ii) Tiptree having deposited in escrow the maximum amount
of funds required to be deposited pursuant to the purchase and
sale agreement (which Tiptree is only required to do if the
conditions to closing of the issuance, including stockholder
approval, have been satisfied), (iii) approval by our
stockholders of proposal 1, proposal 2 and
proposal 3, (iv) any waiting period applicable to the
contemplated transactions having expired or been terminated
under the
Hart-Scott-Rodino
Antitrusts Improvements Act of 1976, as amended, (v) the
representations and warranties of Tiptree in the purchase and
sale agreement being true and accurate, (vi) the
performance by Tiptree of the covenants and obligations required
under the purchase and sale agreement, (vii) the escrow
agreement being in full force and effect, (viii) the
receipt of certain consents, (ix) the absence of any
temporary restraining order, injunction or court order
preventing the consummation of the contemplated transactions, or
any statute, rule, regulation, or order preventing or
prohibiting the consummation of the contemplated transactions
and (x) the absence of any Purchaser Material Adverse
Effect (as defined herein). If any one or more of these
conditions is not satisfied or, subject to the requirements of
the purchase and sale agreement waived, then we will have the
right, under certain circumstances, to terminate the tender
offer. If we do so, the Tiptree issuance will not be
consummated. See The Purchase and Sale Agreement
section below for further information.
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Even
if the conditions to completion of the Tiptree Transaction are
satisfied, there can be no assurance that this transaction will
be completed in a timely manner, under the same terms, or at
all.
There can be no assurance that the Tiptree Transaction will be
completed in a timely manner, under the same terms, or at all.
If the Tiptree Transaction is terminated for any reason, then
the tender offer will also be terminated, and you will not
receive the $9.00 purchase price for your common stock in the
tender offer.
Our
stock may be delisted from the New York Stock
Exchange.
Under the rules of the New York Stock Exchange, the exchange may
commence delisting proceedings against us if (i) the
average closing price of our common stock falls below $1.00 per
share over a
30-day
consecutive trading period, (ii) our average market
capitalization falls below $15 million over a
30-day
consecutive trading period, (iii) we fall below
400 stockholders or (iv) we lose our REIT
qualification. Notwithstanding the fact that Tiptree has
covenanted to us in the purchase and sale agreement to use
commercially reasonable efforts to maintain our NYSE listing for
one year following the closing of the transaction, if the
Tiptree Transaction reduces the number of our total stockholders
below 400 holders or we fail to continue to meet any of the
other requirements for continued listing, the exchange may
commence delisting proceedings against us if we are not able to
cure the deficiency in a timely manner. If our common stock is
delisted, our stockholders may have difficulty trading our
common stock on the secondary market, which could adversely
affect both its price and liquidity.
Our
stock may have substantially less trading volume and liquidity
following the Tiptree Transaction.
Stockholders who choose not to tender their shares in the
Tiptree Transaction may experience significantly reduced trading
volume and liquidity in our common stock. Following completion
of the tender offer, the company may have substantially reduced
public float (the number of shares owned by
non-affiliate stockholders and available for trading in the
securities markets) and will likely have fewer stockholders.
Additionally, as a result of the Tiptree Transaction, Tiptree
will likely acquire a controlling interest in the company. These
factors may reduce the volume of trading in our shares and make
it more difficult to buy or sell significant amounts of our
shares without materially affecting the market price.
We may
fail to qualify as a REIT if we have less than 100 beneficial
owners of our common stock.
The Code requires that all REITs have a minimum of 100
beneficial owners of common stock for at least 335 days out
of any tax year. If the Tiptree Transaction results in us having
fewer than 100 beneficial owners, and we are not able to cure
this deficiency in a timely manner, we may fail to qualify as a
REIT for our tax year ending December 31, 2010, including
the portion of such year preceding the closing of the tender
offer, or a subsequent year. In this respect, proposal 3
would remove from our charter the REIT protective provision that
prohibits any transfer of capital stock that would cause the
company to be beneficially owned by less than 100 stockholders.
Proposal 4 would reinstate the REIT protective charter provision
20 calendar days after the consummation of the Tiptree
Transaction in order to protect our REIT status going forward.
Loss
of our status as a REIT would have significant adverse
consequences to us and the value of our common
stock.
If we lose our status as a REIT, we will face serious tax
consequences that may substantially reduce the funds available
for satisfying our obligations and for distribution to our
stockholders for each of the years involved because:
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We would be subject to federal income tax as a regular
corporation and could face substantial tax liability;
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We would not be allowed a deduction for dividends paid to
stockholders in computing our taxable income and would be
subject to federal income tax at regular corporate rates;
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We also could be subject to the federal alternative minimum tax
and possibly increased state and local taxes;
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Corporate subsidiaries could be treated as separate taxable
corporations for U.S. federal income tax purposes;
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Any resulting corporate tax liability could be substantial and
could reduce the amount of cash available for distribution to
our stockholders, which in turn could have an adverse impact on
the value of, and trading prices for, our common stock; and
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Unless we are entitled to relief under statutory provisions, we
will not be able to elect REIT status for four taxable years
following the year during which we were disqualified.
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In addition, if we fail to qualify as a REIT, all distributions
to stockholders would continue to be treated as dividends to the
extent of our current and accumulated earning and profits,
although corporate stockholders may be eligible for the
dividends received deduction and individual stockholders may be
eligible for taxation at the rates generally applicable to
long-term capital gains through 2010 (currently at a maximum
rate of 15%) with respect to dividend distributions. We would no
longer be required to pay dividends to maintain REIT status.
We may
be limited in our ability to use our losses and credits against
future income and gain as a result of the issuance of our shares
to Tiptree and the redemption of our shares pursuant to the
tender offer.
The Code limits the amount of losses and credits generated
before a 50% change in ownership of a corporation that can be
used to offset post-change income and gain. In general, the
annual limitation is equal to the value of the corporation
immediately prior to the ownership change multiplied by the
long-term tax-exempt rate, as published in the Federal Register
(currently 4.03%). We anticipate that the issuance of our shares
to Tiptree, combined with the reduction in our outstanding
shares as a result of the tender offer, will result in such an
ownership change. Accordingly, the amount of post-change income
and gain that may be offset by our pre-change tax assets may be
lower than if no change in ownership had occurred.
We
intend to terminate our relationship with CIT Healthcare LLC
(CIT Healthcare), our existing manager, in
connection with the Tiptree Transaction, and it is intended that
we will thereafter be managed by an affiliate of Tiptree. There
is no guarantee that the new manager will be successful in
operating the Company or will operate our business consistent
with past practice.
If the Tiptree Transaction is consummated, the company intends
to terminate its existing management agreement with CIT
Healthcare, hire certain employees and enter into a management
agreement with TREIT Management, LLC (TREIT
Management), an affiliate of Tiptree Capital Management,
LLC (Tiptree Capital), which is the manager of
Tiptree. We expect to provide CIT Healthcare with a notice of
termination of the management agreement, and TREIT Management
will transition into the role of manager over an approximately
60-day
transition period. Notwithstanding the asset management,
credit-related and other relevant experience of Tiptrees
affiliates and their personnel, TREIT Management has not
previously managed our existing assets and therefore has limited
familiarity and experience with those assets. Accordingly, TREIT
Management may not be as successful in managing our assets or
business generally as a manager or persons with more familiarity
and experience with those assets or our business. Furthermore,
TREIT Management and its affiliates may not be successful in
hiring or retaining qualified employees to manage our business.
If TREIT Management is unable to successfully manage our
business, it could materially adversely affect our business,
financial condition and results of operations, which could
adversely affect the price of our common stock.
33
Our
new management agreement with TREIT Management will be with an
affiliate and will therefore not have the benefit of arms length
negotiations.
The new management agreement with TREIT Management will be
negotiated between related parties, given the ownership of our
company by Tiptree following the consummation of the Tiptree
Transaction, although it is expected that our independent
directors will be required to approve the agreement. As a
result, the company will not have the benefit of arms-length
negotiations of the type normally conducted with an unaffiliated
third party and the terms, including fees payable, may not be as
favorable as if we did engage in negotiations with an
unaffiliated third party. In addition, we may choose not to
enforce, or to enforce less vigorously, our rights under a
management agreement with TREIT Management because of our desire
to maintain our ongoing relationship with our manager.
We may
encounter conflicts of interest in connection with our being
managed by TREIT Management.
We anticipate that the management services to be provided by
TREIT Management under its management agreement with us will not
be exclusive to the company. TREIT Management
and/or
its
affiliates engage in a broad spectrum of activities, including
investment advisory activities, and have extensive investment
and other business activities that are independent from, and may
from time to time conflict with, our business activities and
strategies. Certain affiliates of TREIT Management may advise,
sponsor, act as manager to or own other investment vehicles and
other persons or entities that have investment
and/or
business objectives that overlap with our business plan and that
may, therefore, compete with us for asset acquisition,
disposition and other business opportunities. Other vehicles
currently managed by affiliates of TREIT Management have
investment objectives which may overlap, in part, with our
business plan, and future vehicles
and/or
businesses owned or managed by affiliates of TREIT Management
may present similar overlap. We could therefore face a number of
conflicts of interest with TREIT Management, Tiptree
and/or
their
other affiliates with respect to the allocation of business
opportunities. We could make co-purchases or co-sales alongside
funds managed by TREIT Management or its affiliates or otherwise
participate in asset acquisitions or dispositions in which such
funds have an interest, which could also result in conflicts of
interest.
Furthermore, following consummation of the Tiptree Transaction,
one or more of our directors
and/or
our
officers also are expected to serve as officers or directors of
Tiptree, TREIT Management
and/or
one
or more of their existing or future affiliates. These
individuals could therefore have obligations to the investors in
such entities which may, in particular circumstances, conflict
with our interests or those of stockholders. While our board is
expected to have at least two independent directors who are
unaffiliated with Tiptree, TREIT Management
and/or
their
affiliates to address potential conflicts of interest, we may be
adversely impacted as a result of such conflicts of interest.
Our
officers and directors and our manager may have conflicts of
interest that may influence their support of the Tiptree
Transaction.
Our directors and executive officers have interests in the
Tiptree Transaction that are different from your interests as a
stockholder, including the following:
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Flint D. Besecker, the chairman of the board, holds a
performance share award that entitles him to receive 10,000
additional shares, which will represent $90,000 in value if the
tender offer is completed.
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Salvatore (Torey) V. Riso, Jr., our chief executive
officer, holds a performance share award that entitles him to
receive 10,000 additional shares, which will represent $90,000
in value if the tender offer is completed.
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Paul F. Hughes, our chief financial officer, holds a performance
share award that entitles him to receive 6,000 additional
shares, which will represent $54,000 in value if the tender
offer is completed.
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34
In addition, our manager, CIT Healthcare LLC, has interests in
the Tiptree Transaction that are different from your interests
as a stockholder. Our manager acquired a warrant, dated
September 30, 2008, to purchase 435,000 shares of our
common stock at an exercise price of $17.00 per share. On
March 16, 2010, our manager entered into a warrant purchase
agreement with Tiptree, pursuant to which our manager will sell
its warrant to purchase the 435,000 shares of our
companys common stock in exchange for $100,000 effective
upon the closing of the Tiptree Transaction.
Consequently, these individuals and our manager may be more
likely to support the Tiptree Transaction than might otherwise
be the case if they did not expect to receive those payments.
Our board of directors and the special committee each was aware
of these interests and considered them in making their
recommendations. For further information regarding these and
other interests that differ from your interests please see the
section titled Proposal One: Issuance of Care Common
Stock to Tiptree Interests of Certain Persons in the
Tiptree Transaction on page 50.
Cambridge
Holdings may seek to delay or prevent the Tiptree
Transaction.
Cambridge Holdings, our partner in the Cambridge medical office
building portfolio, has asserted that it possesses the
contractual right to approve any transfer, either directly or
indirectly, of our interests in the portfolio, including a
transfer of control of our company to Tiptree through the
issuance of a controlling equity stake in our company and a
related issuer tender offer. We disagree with Cambridge
Holdings assertion and strongly believe that the
transactions contemplated hereby do not require the approval of
Cambridge Holdings. We contend that Cambridge Holdings does not
have the
indirect
right to control the activities of our
company or any of our subsidiaries other than the entity through
which we made our direct investment in the portfolio, and
therefore Cambridge Holdings does not have the right to approve
(or disapprove) of the transactions contemplated hereby. On
November 25, 2009, we filed a complaint in federal district
court in Texas against Cambridge Holdings and its affiliates
seeking, among other things, a declaratory judgment to that
effect. On January 27, 2010, Cambridge Holdings answered
our complaint, and simultaneously filed counterclaims and a
third-party complaint that, among other things, asserts that
Cambridge Holdings does have the right to control a business
combination and other activities of the parent entities of the
entity through which we made our direct investment in the
portfolio. On March 22, 2010, a representative of Cambridge
Holdings sent a letter to the company asserting that the
proposed issuance to Tiptree was in violation of the limited
partnership agreements of the Cambridge Holdings assets.
Cambridge Holdings may therefore seek to delay or prevent the
transaction with Tiptree, and if Cambridge Holdings is
successful, the related tender offer may similarly be delayed or
prevented. See Legal Proceedings on page 45 for
more information on the litigation.
35
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains or incorporates by reference
forward-looking statements. Forward-looking statements are those
that predict or describe future events or trends and that do not
relate solely to historical matters. You can generally identify
forward-looking statements as statements containing the words
believe, expect, might,
anticipate, intend,
estimate, project, assume or
other similar expressions.
Among many other examples, the following statements are examples
of the forward-looking statements in this document:
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all predictions of the timing of the Tiptree Transaction or the
timing of the tender offer;
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all statements regarding our ability to continue to qualify as a
REIT; and
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all statements regarding future cash flows, future business
activities or prospects, future revenues, future working
capital, the amount of expenses expected to be incurred, the
amount or existence of future contingent liabilities, future
actions that may be taken in connection with any litigation, the
amount of cash reserves to be established in the future, future
liquidity, future capital needs, future interest costs, future
income or the effects of the transaction with Tiptree and the
related transactions.
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You should not place undue reliance on our forward-looking
statements because the matters they describe are subject to
known (and unknown) risks, uncertainties and other unpredictable
factors, many of which are beyond our control.
Many relevant
risks are described under the caption Risk Factors
on page 31 as well as throughout this proxy statement and
in the Risk Factors sections included in the
documents incorporated by reference (see Where You Can
Find More Available Information on page 86), and you
should consider these important cautionary factors as you read
this document.
Our actual results, performance or achievements may differ
materially from the anticipated results, performance or
achievements that are expressed or implied by our
forward-looking statements. Among the factors that could cause
such a difference are:
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uncertainties in closing the Tiptree Transaction;
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uncertainties regarding completing the tender offer;
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uncertainties regarding our ability to continue to qualify as a
REIT;
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availability of qualified personnel;
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increased rates of default
and/or
decreased recovery rates on our investments;
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uncertainties relating to our asset portfolio;
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uncertainties relating to our operations;
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uncertainties relating to litigation;
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uncertainties relating to our stock trading volume;
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uncertainties relating to our contemplated new manager;
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36
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uncertainties relating to domestic and international economic
and political conditions;
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uncertainties regarding the impact of regulations, changes in
government policy and industry competition; and
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other risks detailed from time to time in our reports filed with
the SEC.
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The cautionary statements contained or incorporated by reference
into in this proxy statement should be considered in connection
with any subsequent written or oral forward-looking statements
that may be issued by us or persons acting on our behalf. Except
for our ongoing obligations to disclose certain information as
required by the federal securities laws, we undertake no
obligation to release publicly any revisions to any
forward-looking statements to reflect events or circumstances
after the date of this proxy statement or to reflect the
occurrence of unanticipated events.
37
CAUTIONARY
STATEMENT CONCERNING REPRESENTATIONS AND WARRANTIES
CONTAINED IN THE PURCHASE AND SALE AGREEMENT OR IN
THE ANCILLARY AGREEMENTS
You should not rely upon the representations and warranties in
the purchase and sale agreement or in any of the ancillary
agreements or the descriptions of such representations and
warranties in this proxy statement as statements of factual
information about us or Tiptree. These representations and
warranties were made only for purposes of the purchase and sale
agreement and the ancillary agreements, and were made solely to
us or to the other parties to the purchase and sale agreement or
the ancillary agreements as of the dates indicated therein. The
representations and warranties are reproduced and summarized in
this proxy statement solely to provide information regarding the
terms of such agreements and not to provide you with any other
information regarding us or Tiptree. Information about us can be
found elsewhere in this proxy statement and in other public
filings we make with the SEC. Information about Tiptree can also
be found elsewhere in this proxy statement.
38
THE
SPECIAL MEETING
The enclosed proxy is solicited by our board of directors for
use in voting at the special meeting of stockholders to be held
on Friday, August 13, 2010, at 9:00 a.m. local time,
at the CIT Global Headquarters, 505 Fifth Avenue, Seventh
Floor Room C/D, New York, NY 10017, and at any adjournment
or postponement thereof, for the purposes set forth in the
attached notice.
If sufficient proxies are not returned in response to this
solicitation, supplementary solicitations may be made by mail or
by telephone or personal interview by certain of our directors,
officers and the employees of our manager, none of whom will
receive additional compensation for these services. We will bear
the cost of solicitation of proxies. If the adjournment proposal
has been approved and the special meeting is adjourned or
postponed, we may solicit additional proxies during the
adjournment period.
Voting
and Revocability of Proxies
When proxies are properly dated, executed and returned, the
shares they represent will be voted at the special meeting in
accordance with the instructions of the stockholder. If no
specific instructions are given, the shares will be voted
FOR
approval of the issuance to Tiptree
proposal,
FOR
approval of the abandonment of
the plan of liquidation proposal,
FOR
approval of the first amendment to our charter proposal,
FOR
approval of the second amendment to our
charter proposal and
FOR
approval of the
adjournment proposal. In addition, if other matters come before
the special meeting, the persons named in the accompanying proxy
will vote in accordance with their discretion with respect to
such matters. A stockholder giving a proxy has the power to
revoke it at any time prior to its exercise by voting in person
at the special meeting, by giving written notice to the
secretary of the company prior to the special meeting or by
delivering a later dated, properly executed proxy (including an
electronically or telephonically authorized proxy).
Each share of common stock outstanding at the close of business
on July 8, 2010, the record date, is entitled to one vote on all
matters coming before the special meeting. If a share is
represented for any purpose at the special meeting it is deemed
to be present for quorum purposes and for all other matters as
well. A stockholder may abstain with respect to each item,
including the issuance to Tiptree proposal, the abandonment of
the plan of liquidation proposal, the first amendment to the
charter proposal, the second amendment to the charter proposal
and the adjournment proposal, submitted for stockholder
approval. Abstentions will be counted for purposes of
determining the existence of a quorum. Abstentions will not be
counted as voting in favor of an item. The effect of abstentions
on the result of the vote with respect to a proposal depends
upon whether the vote required for that proposal is based upon a
proportion of the votes cast (no effect) or a proportion of the
votes entitled to be cast (effect of a vote against). To obtain
approval of the abandonment of the plan of liquidation proposal,
the first amendment to our charter proposal, the second
amendment to our charter proposal and the adjournment proposal,
the affirmative vote of the holders of not less than a majority
of the shares of common stock present in person or by proxy at
the special meeting and entitled to vote must be cast in favor
of the proposals. An abstention from the vote on the abandonment
of the plan of liquidation proposal, the first amendment to our
charter proposal, the second amendment to the charter proposal
and the adjournment proposal would have the same effect as a
vote against such proposal. To obtain approval of the issuance
to Tiptree, the affirmative vote of at least a majority of the
outstanding shares of our common stock is required to approve
the issuance, provided that the total vote cast for the issuance
represents over 50% in interest of all securities entitled to
vote on the proposal. An abstention from the vote on the
issuance to Tiptree proposal would have the same effect as a
vote against the proposal, unless holders of more than 50% in
interest of all securities entitled to vote on the proposal cast
votes, in which event abstentions will not have any effect on
the result of the vote.
Except for certain items for which brokers are prohibited from
exercising their discretion, a broker who holds shares in
street name has the authority to vote on routine
items when it has not received instructions from the beneficial
owner. Where brokers do not have or do not exercise such
discretion, the inability or failure to vote is referred to as a
broker non-vote. If the broker returns a properly
39
executed proxy, the shares are counted as present for quorum
purposes. If the broker crosses out, does not vote with respect
to, or is prohibited from exercising its discretion, resulting
in a broker non-vote, the effect of the broker non-vote on the
result of the vote depends upon whether the vote required for
that proposal is based upon a proportion of the votes cast (no
effect) or a proportion of the votes entitled to be cast (effect
of a vote against). If the broker returns a properly executed
proxy, but does not vote or abstain with respect to a proposal
and does not cross out the proposal, the proxy will be voted
FOR
all of the proposals and in the proxy
holders discretion with respect to any other matter that
may come before the meeting or any adjournments or postponements
thereof. Approval of the issuance to Tiptree, the abandonment of
the plan of liquidation and the first and second amendments to
our charter are all matters for which brokers are prohibited
from exercising their discretion. Therefore, stockholders will
need to provide brokers with specific instructions on whether to
vote in the affirmative for or against the issuance to Tiptree
proposal, the abandonment of the plan of liquidation proposal,
the first amendment to our charter proposal and the second
amendment to our charter proposal. For purposes of the
abandonment of the plan of liquidation proposal, the first and
second amendments to our charter proposals and the adjournment
proposal, a broker non-vote will have the same effect as a vote
against the proposals. For purposes of the vote on the issuance
to Tiptree proposal, broker non-votes will have the same effect
as votes against the proposal, unless holders of more than 50%
in interest of all securities entitled to vote on the proposal
cast votes, in which event broker non-votes will not have any
effect on the result of the vote.
To obtain approval of the abandonment of the plan of liquidation
and the first and second amendments to our charter proposals,
the affirmative vote of the holders of not less than a majority
of the shares of common stock present in person or by proxy at
the special meeting and entitled to vote must be cast in favor
of such proposal, provided that a quorum is present. A
stockholders failure to return the enclosed proxy card or
give instructions to his or her broker or an abstention from
voting will have the same effect as an affirmative vote against
such proposal and, consequently, the abandonment of the plan of
liquidation proposal and the first and second amendments to our
charter proposals. To obtain approval of the issuance to
Tiptree, the affirmative vote of at least a majority of the
outstanding shares of our common stock is required to approve
the issuance, provided that the total vote cast for the issuance
represents over 50% in interest of all securities entitled to
vote on the proposal. A stockholders failure to return the
enclosed proxy card or give instructions to his or her broker or
an abstention from voting will have the same effect as votes
against the proposal, unless holders of more than 50% in
interest of all securities entitled to vote on the proposal cast
votes, in which event abstentions and broker non-votes will not
have any effect on the result of the vote.
Approval of the abandonment of the plan of liquidation proposal
is conditioned on the issuance to Tiptree proposal being
approved by our stockholders. If our stockholders do not approve
the issuance to Tiptree, or if the purchase and sale agreement
is terminated prior to the date of the meeting, then we would
consider the abandonment of the plan of liquidation proposal
moot, and votes for that proposal would not be counted. Approval
of each of the first and second amendments to our charter
proposals is conditioned on the issuance to Tiptree proposal and
the abandonment of the plan of liquidation proposals being
approved. If our stockholders do not approve the issuance and
the abandonment of the plan of liquidation proposals, or if the
purchase and sale agreement is terminated prior to the date of
the meeting, then we would consider the amendment to our charter
proposal to be moot, and votes for that would not be counted. If
our stockholders do not approve the issuance to Tiptree, we may
pursue the previously approved plan of liquidation or, upon
termination of the purchase and sale agreement continue to
pursue other strategic alternatives.
If a quorum is present, a majority of the votes of common
stockholders cast at the special meeting is required to approve
the adjournment proposal. A vote for any of the issuance to
Tiptree, abandonment of the plan of liquidation, first amendment
to our charter or second amendment to charter proposals does not
count as a vote for the adjournment proposal, nor vice versa.
Approval of the adjournment proposal is not a condition to the
issuance to Tiptree proposal, abandonment of the plan of
liquidation proposal nor the first and second amendments to our
charter proposals. Approval of the adjournment
40
proposal will permit the adjournment of the special meeting to
solicit additional proxies in the event that there are not
sufficient votes at the time of the special meeting to approve
the other four proposals.
Assuming a quorum is present, a majority of the votes of common
stockholders cast at the special meeting is sufficient to take
or authorize action upon any other matter that may properly come
before the special meeting, unless our charter, our bylaws or
Maryland law requires a greater number for matters of that type.
Your vote is important. Please return your marked proxy card
promptly so your shares can be represented, even if you plan to
attend the special meeting in person.
Voting by Mail
stockholders may authorize a
proxy by completing the attached proxy card and mailing it to us
in the enclosed self-addressed postage-paid return envelope.
Voting by Telephone
stockholders may
authorize a proxy by telephone by dialing toll-free
1-800-690-6903
until 11:59 p.m. Eastern Standard Time on August 12,
2010. The touch-tone telephone proxy authorization procedures
are designed to authenticate the stockholders identity and
to allow stockholders to authorize a proxy and confirm that
their instructions have been properly recorded. Stockholders
should have their proxy card available when authorizing a proxy
by telephone.
Voting by Internet
stockholders may authorize
a proxy electronically using the internet at www.proxyvote.com
until 11:59 p.m. Eastern Standard Time on August 12,
2010. The internet proxy authorization procedures are designed
to authenticate the stockholders identity and to allow
stockholders to authorize a proxy and confirm that their
instructions have been properly recorded. Stockholders should
have their proxy card available when authorizing a proxy by the
internet.
Record
Date and Number of Shares Outstanding
Only stockholders of record at the close of business on July 8,
2010 will be entitled to vote at the special meeting. As of the
record date, we had 20,235,924 shares of common stock
issued and outstanding and entitled to vote.
41
DESCRIPTION
OF BUSINESS
Our
Company
We are an externally managed REIT that was formed to invest in
healthcare-related real estate and mortgage debt. We were
incorporated in Maryland in March 2007, and we completed our
initial public offering of 15,000,000 shares on
June 27, 2007 at a price of $15.00 per share resulting in
net proceeds, after deducting underwriting discounts,
commissions and expenses related to the offering, of about
$210 million.
As a REIT, we are generally not subject to income taxes. To
maintain our REIT status, we are required to distribute annually
as dividends at least 90% of our REIT taxable income, as defined
by the Code, to our stockholders, among other requirements. If
we fail to qualify as a REIT in any taxable year, we would be
subject to federal income tax on our taxable income at regular
corporate tax rates. See Risk Factors Risks
Related to the Tiptree Transaction.
The company was originally positioned to make mortgage
investments in healthcare-related properties, and to invest in
healthcare-related real estate through utilizing the origination
platform of its external manager, CIT Healthcare. The company
acquired its initial portfolio of mortgage loan assets from its
manager in exchange for cash proceeds from our initial public
offering and common stock. In response to dislocations in the
overall credit market, and in particular the securitized
financing markets, in late 2007, the company redirected its
focus to place greater emphasis on healthcare-related real
estate investments.
We have made investments in three owned healthcare real-estate
portfolios since our initial public offering. We have an 85%
ownership interest in a real-estate portfolio managed by
Cambridge Holdings, which is comprised of nine Class A
medical buildings located in the Texas and Louisiana regions.
The company also has a 10% ownership interest and a 100%
preferred interest in a joint venture with Senior Management
Concepts, LLC (SMC), which is comprised of four
independent living and assisted living facilities in Utah. We
also wholly own 14 facilities through sale lease-back
transactions with Bickford Senior Living Group, LLC
(Bickford), that includes assisted living,
independent living and Alzheimer facilities in several
mid-western states.
Our healthcare-related mortgage portfolio, with an outstanding
principal balance of $13.8 million as of March 31,
2010, is comprised of a participation interest in a loan secured
primarily by healthcare-related real estate.
Our principal executive offices are located at 505 Fifth
Avenue, 6th Floor, New York, New York 10017 and our
telephone number is
212-771-0505.
Our
Manager
Our manager is a wholly-owned subsidiary of CIT Group.
Management services are provided to the company pursuant to an
amended and restated management agreement (management
agreement) which expires on December 31, 2011, unless
earlier terminated. The management agreement can be terminated
by the company with or without cause. In connection with the
transactions contemplated hereby, we intend to terminate our
relationship with our existing manager, and an affiliate of
Tiptree will become our manager.
Our
Mortgage Investments
The company has a participation interest in a healthcare-related
first mortgage loan held at the lower of cost or market with an
outstanding principal balance of $13.8 million as of
March 31, 2010. The loan is variable rate and at
March 31, 2010, had a weighted average spread of 4.30% over
one month LIBOR, and a maturity of approximately 0.8 year.
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The table below provides information with respect to our
mortgage investment as of March 31, 2010.
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Location
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Principal
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Interest
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Maturity
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Property
Type
(a)
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City
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State
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Outstanding (000s).
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Rate
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Date
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SNF/Sr. Appts/ALF
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Various
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Texas / Louisiana
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13,809
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L+4.30
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%
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2/1/2011
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(a)
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SNF refers to skilled nursing
facilities, ALF refers to assisted living facilities and Sr.
Appts refers to senior living apartments.
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Our
Equity Investments in Real Estate
Cambridge
Medical Office Building Portfolio
We own an 85% equity interest in eight limited liability
entities that own nine Class A medical office buildings
developed and managed by Cambridge Holdings totaling
approximately 767,000 square feet located in Texas
(8) and Louisiana (1). These facilities are situated on
medical center campuses or adjacent to acute care hospitals or
ambulatory surgery centers, and are affiliated with or tenanted
by hospital systems and doctor groups. Cambridge Holdings owns
the remaining 15% interest in the facilities and operates them
under long-term management contracts. Under the terms of the
management agreements, Cambridge Holdings acts as the manager
and leasing agent of each medical office building, subject to
certain removal rights held by us. The medical office building
properties were 92% leased at December 31, 2009.
The table below provides information with respect to the
Cambridge portfolio as of December 31, 2009:
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Weighted average rent per square foot
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$
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24.97
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Average square foot per tenant
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5,607
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Weighted average remaining lease term
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6.40
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years
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Largest tenant as percentage of total rental square feet
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9.59
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%
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Lease Maturity Cycle
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Number of
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% of Rental
|
Year
|
|
Tenants
|
|
Square Ft
|
|
Annual Rent
|
|
Sq Ft
|
|
2010
|
|
|
20
|
|
|
|
40,911
|
|
|
$
|
945,438
|
|
|
|
5.79
|
%
|
2011
|
|
|
23
|
|
|
|
68,152
|
|
|
|
1,373,879
|
|
|
|
9.65
|
%
|
2012
|
|
|
17
|
|
|
|
63,119
|
|
|
|
1,413,491
|
|
|
|
8.94
|
%
|
2013
|
|
|
22
|
|
|
|
93,652
|
|
|
|
2,015,079
|
|
|
|
13.26
|
%
|
2014
|
|
|
11
|
|
|
|
55,340
|
|
|
|
1,119,007
|
|
|
|
7.83
|
%
|
2015
|
|
|
12
|
|
|
|
95,672
|
|
|
|
1,942,418
|
|
|
|
13.54
|
%
|
2016
|
|
|
11
|
|
|
|
58,659
|
|
|
|
1,266,502
|
|
|
|
8.30
|
%
|
2017
|
|
|
3
|
|
|
|
28,814
|
|
|
|
1,122,080
|
|
|
|
4.08
|
%
|
2018
|
|
|
3
|
|
|
|
55,444
|
|
|
|
1,498,062
|
|
|
|
7.85
|
%
|
2019
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
4
|
|
|
|
146,660
|
|
|
|
4,945,036
|
|
|
|
20.76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We invested $72.4 million in cash and equity for our
interests in the Cambridge portfolio, which consisted of
$61.9 million of cash as well as commitments to issue
700,000 operating partnership units to Cambridge Holdings,
subject to the underlying properties achieving certain
performance hurdles, with a stated value of $10.5 million
($15.00 per unit), which were deemed to have a fair value of
$2.9 million at December 31, 2007. The operating
partnership units are held in escrow and, subject to our right
to cancel units under certain circumstances, will be released to
Cambridge Holdings upon termination of the escrow agreement on
December 31, 2014 or upon the achievement of certain
performance measures. Under the terms of our investment, we
receive an initial preferred minimum
43
return of 8.0% on capital invested with 2.0% per annum
escalations until the earlier of December 31, 2014 or when
the entities have generated sufficient cash to provide the
preferred return without reliance on the credit support for four
of six consecutive quarters, with total cash generated from the
portfolio for the six quarters sufficient to cover the preferred
return over that period. Thereafter, our preferred return
converts to a pari-passu return with cash flow distributed 85%
to us and 15% to Cambridge Holdings.
Under the terms of our investment, Cambridge Holdings was
provided the contractual right to put its 15% interest in the
properties to us at an agreed upon market or appraised value in
the event we were to enter into a change in control transaction
or we were to attempt to sell our interest in the real-estate
portfolio to a third party. As provided under the terms of the
documents relating to the investment in the Cambridge portfolio,
we provided notice to Cambridge Holdings in May 2009 in
connection with a change in control transaction being negotiated
at that time with a third party. Cambridge Holdings did not
exercise its right to put its 15% interest to us at that time,
and, as a result, we believe that Cambridge Holdings
contractual put right has now expired.
On November 25, 2009, we filed a lawsuit in the
U.S. District Court for the Northern District of Texas
against Saada Parties, seeking declaratory judgments that
(i) we have the right to engage in a business combination
transaction involving our company or a sale of our wholly owned
subsidiary that serves as the general partner of the partnership
that holds the direct investment in the portfolio without the
approval of the Saada Parties, (ii) the contractual right
of the Saada Parties to put their interests in the Cambridge
medical office building portfolio has expired and (iii) the
operating partnership units held by the Saada Parties do not
entitle them to receive any special cash distributions made to
our stockholders. We also brought affirmative claims for
tortious interference by the Saada Parties with a prospective
contract and for their breach of the implied covenant of good
faith and fair dealing.
On January 27, 2010, the Saada Parties answered our
complaint, and simultaneously filed Counterclaims that named our
subsidiaries ERC Sub LLC and ERC Sub, L.P., external manager CIT
Healthcare LLC, and board chairman Flint D. Besecker, as
additional third-party defendants. The Counterclaims seek four
declaratory judgments construing certain contracts among the
parties that are largely the mirror image of our declaratory
judgment claims. In addition, the Counterclaims also seek
monetary damages for purported breaches of fiduciary duty and
the duty of good faith and fair dealing, as well as fraudulent
inducement, against us and the third-party defendants jointly
and severally.
See Risk Factors Risks Related to the Tiptree
Transaction, and Risk Factors Legal
Proceedings for more detail.
Senior
Management Concepts Senior Living Portfolio
We own interests in four independent and assisted living
facilities located in Utah and operated by SMC, a privately held
operator of senior housing facilities. The four facilities
contain approximately 243 independent living units and 165
assisted living units, and each facility is 100% private pay.
Affiliates of SMC have entered into
15-year
leases on the facilities that expire in 2022. These facilities
are 89% occupied as of December 31, 2009.
We paid $6.8 million in exchange for 100% of the preferred
equity interests and 10% of the common equity interests in the
joint venture. We receive a preferred return of 15.0% on our
invested capital and an additional common equity return payable
for up to ten years equal to 10.0% of projected free cash flow
after payment of debt service and the preferred return. Subject
to certain conditions being met, our preferred equity interest
is subject to redemption at par beginning on January 1,
2010, and we retain an option to put our preferred equity
interest to our partner at par any time beginning on
January 1, 2016. If our preferred equity interest is
redeemed, we have the right to put our common equity interests
to our partner within thirty days after notice at fair market
value as determined by a third-party appraiser.
44
Bickford
Senior Living Portfolio
We acquired 14 assisted living, independent living and Alzheimer
facilities from Eby Realty Group, LLC, an affiliate of Bickford
(Eby), a privately owned operator of senior housing
facilities, in two sale-leaseback transactions in June 2008 and
September 2008. We have leased back the twelve facilities we
acquired in June 2008 and the two facilities we acquired in
September 2008 to Eby through a master lease agreement for
15 years and 14.75 years, respectively, with four
10-year
extension options. The portfolio, developed and managed by
Bickford, contains 643 units and is located in Illinois
(5), Indiana (1), Iowa (6) and Nebraska (2). The portfolio,
which is 100% private pay, was 89% occupied as of
December 31, 2009.
Under the terms of the master lease, the current minimum rent
due on the 14 Bickford properties is $9.4 million, or a
base lease rate of 8.46%. Base rent during the initial
15 year lease term increases at the rate of three percent
per year. We also receive additional base rent of 0.26% per
year, increasing at the rate of three percent per year during
the initial term of the master lease. The additional base rent
accrues during the first three years of the lease term and shall
be paid out in years four and five of the initial lease term.
The master lease is a triple net lease, and, as
such, the master lessee is responsible for all taxes, insurance,
utilities, maintenance and capital costs relating to the
facilities. The obligations of the master lessee under the
master lease are also secured by all assets of the master lessee
and the subtenant facility operators, and, pending achievement
of certain lease coverage ratios, by a second mortgage on
another Eby project and a pledge of minority interests in six
unrelated Eby projects.
The purchase price for these acquisitions was
$111.0 million, and Eby has the opportunity under an earn
out agreement to receive an additional $7.2 million based
on the performance of the properties and under certain other
conditions, which have not been met as of May 31, 2010.
Legal
Proceedings
On September 18, 2007, a class action complaint for
violations of federal securities laws was filed in the United
States District Court, Southern District of New York alleging
that the Registration Statement relating to the initial public
offering of shares of our common stock, filed on June 21,
2007, failed to disclose that certain of the assets in the
contributed portfolio were materially impaired and overvalued
and that we were experiencing increasing difficulty in securing
our warehouse financing lines. On January 18, 2008, the
court entered an order appointing co-lead plaintiffs and co-lead
counsel. On February 19, 2008, the co-lead plaintiffs filed
an amended complaint citing additional evidentiary support for
the allegations in the complaint. We believe the complaint and
allegations are without merit and intend to defend against the
complaint and allegations vigorously. We filed a motion to
dismiss the complaint on April 22, 2008. The plaintiffs
filed an opposition to our motion to dismiss on July 9,
2008, to which we filed our reply on September 10, 2008. On
March 4, 2009, the court denied our motion to dismiss. Care
filed its answer on April 15, 2009. At a conference held on
May 15, 2009, the Court ordered the parties to make a joint
submission (the Joint Statement) setting forth:
(i) the specific statements that Plaintiffs claim are false
and misleading; (ii) the facts on which Plaintiffs rely as
showing each alleged misstatement was false and misleading; and
(iii) the facts on which Defendants rely as showing those
statements were true. The parties filed the Joint Statement on
June 3, 2009. On July 31, 2009, the parties entered
into a stipulation that narrowed the scope of the proceeding to
the single issue of the warehouse financing disclosure in the
Registration Statement. Fact discovery closed on April 23,
2010. The Court ordered the parties to file an abbreviated joint
pre-trial statement on June 9, 2010, and scheduled a
pre-trial conference for June 11, 2010. At the conclusion
of the pre-trial conference, the Court asked the parties to
agree on a summary judgment briefing schedule. The parties have
since agreed, and the Court has ordered, that the Defendants
file their motion for summary judgment on July 9, 2010
Plaintiffs file their opposition on August 6, 2010 and
Defendants file their reply on August 27, 2010.
On November 25, 2009, we filed a lawsuit in the
U.S. District Court for the Northern District of Texas
against Saada Parties, seeking declaratory judgments that
(i) we have the right to engage in a business combination
transaction involving our company or a sale of our wholly owned
subsidiary that
45
serves as the general partner of the partnership that holds the
direct investment in the portfolio without the approval of the
Saada Parties, (ii) the contractual right of the Saada
Parties to put their interests in the Cambridge medical office
building portfolio has expired and (iii) the operating
partnership units held by the Saada Parties do not entitle them
to receive any special cash distributions made to our
stockholders. We also brought affirmative claims for tortious
interference by the Saada Parties with a prospective contract
and for their breach of the implied covenant of good faith and
fair dealing.
On January 27, 2010, the Saada Parties answered our
complaint, and simultaneously filed Counterclaims that named our
subsidiaries ERC Sub LLC and ERC Sub, L.P., external manager CIT
Healthcare LLC, and board chairman Flint D. Besecker, as
additional third-party defendants. The Counterclaims seek four
declaratory judgments construing certain contracts among the
parties that are largely the mirror image of our declaratory
judgment claims. In addition, the Counterclaims also seek
monetary damages for purported breaches of fiduciary duty and
the duty of good faith and fair dealing, as well as fraudulent
inducement, against us and the third-party defendants jointly
and severally.
The Counterclaims further request indemnification by ERC Sub,
L.P., pursuant to a contract between the parties, and the
imposition of a constructive trust on our current
assets to be disposed as part of any future liquidation of Care,
including all proceeds from those assets. Although the
Counterclaims do not itemize their asserted damages, they assign
these damages a value of $100 million or more.
In addition, the Saada Parties filed a motion to dismiss our
tortious interference and breach of the implied covenant of good
faith and fair dealing claims on January 27, 2010. In
response to the Counterclaims, we filed on March 5, 2010,
an omnibus motion to dismiss all of the Counterclaims.
On March 22, 2010, we received a letter from Cambridge
Holdings, which asserted that the transactions with Tiptree were
in violation of our agreements with the Saada Parties.
The Saada Parties filed their opposition to our omnibus motion
to dismiss on March 26, 2010, and we filed our response on
April 9, 2010.
On April 14, 2010, the Saada Parties motion to
dismiss was denied and our motion to dismiss was also denied.
On April 27, 2010, we filed an answer to the Saada
Parties third-party complaint. We continue to believe that
the arguments advanced by Cambridge Holdings lack merit. See
Risk Factors Risks Related to the Tiptree
Transaction.
On May 28, 2010, Cambridge Holdings filed a motion for
leave to amend its previously-asserted counterclaims and
third-party complaint to include a new claim for breach of
contract against Care. This proposed new claim asserts that
Cambridge Holdings and Care agreed, in October 2009, upon a sale
of ERC Sub, L.P.s 85% limited partnership interest in the
Cambridge properties back to Cambridge Holdings for
$20 million in cash plus certain other arrangements
involving the cancellation of partnership units and existing
escrow accounts. The proposed new claim further asserts that
Care reneged on this purported agreement after having previously
agreed to all of its material terms, thus breaching
the agreement. Further, the proposed new claim seeks specific
performance of the purported contract. Care denies that any
agreement of the sort alleged by Cambridge Holdings was ever
reached, and Care also believes that the proposed new claim
suffers from several deficiencies. Care filed its opposition on
June 18, 2010 and Cambridge Holdings replied on
July 1, 2010. In the meantime, on June 21, 2010, ERC
Sub sought leave to amend its counterclaims to assert a breach
of contract action against Cambridge Holdings. Cambridge
Holdings did not oppose ERC Subs motion.
We are not presently involved in any other material litigation
nor, to our knowledge, is any material litigation threatened
against us or our investments, other than routine litigation
arising in the ordinary course of business. Unless judgments are
rendered against the company in connection with the litigation
described above, management believes the costs, if any, incurred
by us related to litigation will not materially affect our
financial position, operating results or liquidity.
46
Selected
Financial Data
The following table sets forth selected financial data for the
company:
|
|
|
|
|
As of and for the period from June 22, 2007 (commencement
of operations) to December 31, 2007
|
|
|
|
|
|
As of and for the years ended December 31, 2009 and 2008.
|
We derived the selected financial data for the period from
June 22, 2007 (commencement of operations) to
December 31, 2007 and for the years ended December 31,
2009 and 2008 from our audited financial statements that are
included in our Annual Report of
Form 10-K
for the year ended December 31, 2009, which is incorporated
into this proxy statement by reference. Our historical results
are not necessarily indicative of the results that may be
expected in the future. You should read this data together with
our financial statements and related notes included in our
Annual Report on
Form 10-K
for the year ended December 31, 2009, as well as the
sections of the report entitled Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
Selected
Financial Data
Care Investment Trust Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Selected Financial
Data
(1)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
BALANCE SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
315,432,000
|
|
|
$
|
370,906,000
|
|
|
$
|
328,398,000
|
|
Mortgage loans outstanding (including loans held for sale)
|
|
|
25,325,000
|
|
|
|
159,916,000
|
|
|
|
236,833,000
|
|
Credit facility and other debt
|
|
|
81,873,000
|
|
|
|
119,998,000
|
|
|
|
25,000,000
|
|
Stockholders equity
|
|
|
226,793,000
|
|
|
|
241,132,000
|
|
|
|
293,335,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
|
|
June 22,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(Commencement
|
|
|
|
Years Ended
|
|
|
of Operations) to
|
|
|
|
December 31
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
OPERATING DATA (BY PERIOD):
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
20,009,000
|
|
|
$
|
22,259,000
|
|
|
$
|
12,163,000
|
|
(Reduction to)/increase in valuation allowance on loans held at
LOCOM
|
|
|
(4,046,000
|
)
|
|
|
29,327,000
|
|
|
|
|
|
Management fees to related party
|
|
|
2,235,000
|
|
|
|
4,105,000
|
|
|
|
2,625,000
|
|
Marketing, general and administrative expense
|
|
|
11,653,000
|
|
|
|
6,623,000
|
|
|
|
11,714,000
|
|
Interest expense including amortization and write-off of
deferred financing costs
|
|
|
6,510,000
|
|
|
|
4,521,000
|
|
|
|
134,000
|
|
Net income (loss)
|
|
|
(2,826,000
|
)
|
|
|
(30,806,000
|
)
|
|
|
(1,557,000
|
)
|
Net income (loss) per common share basic and
diluted
(2)
|
|
|
(0.14
|
)
|
|
|
(1.47
|
)
|
|
|
(0.07
|
)
|
Distributions declared
|
|
|
13,780,138
|
|
|
|
14,278,617
|
|
|
|
3,572,990
|
|
Distributions per common
share
(2)
|
|
$
|
0.68
|
|
|
$
|
0.68
|
|
|
$
|
0.17
|
|
Weighted average number of shares
outstanding
(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
20,061,763
|
|
|
|
20,952,972
|
|
|
|
20,866,526
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
|
|
|
|
|
|
June 22,
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
(Commencement
|
|
|
|
Years Ended
|
|
|
of Operations) to
|
|
|
|
December 31
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
OTHER DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
$
|
6,654,000
|
|
|
$
|
13,029,000
|
|
|
$
|
11,871,000
|
|
Net cash flows provided by (used in) investing activities
|
|
|
135,966,000
|
|
|
|
(67,925,000
|
)
|
|
|
(227,316,000
|
)
|
Net cash flows (used) in provided by financing activities
|
|
|
(51,908,000
|
)
|
|
|
71,377,000
|
|
|
|
230,764,000
|
|
Funds from
operations
(3)
|
|
$
|
10,188,000
|
|
|
$
|
(19,832,000
|
)
|
|
$
|
(1,557,000
|
)
|
|
|
|
(1)
|
|
The above selected financial data
should be read in conjunction with the historical consolidated
financial statements and related notes appearing in our Annual
Reports on
Form 10-K
for the years ended December 31, 2009 and 2008 as of
December 31, 2009, 2008 and 2007, and for the periods ended
December 31, 2009 and 2008 and for the period from
June 22, 2007 (commencement of operations) to
December 31, 2007.
|
|
|
|
(2)
|
|
Net income (loss) and distributions
per share are based upon the weighted average number of shares
of common stock outstanding. Distributions by us of the current
and accumulated earnings and profits for federal income tax
purposes are taxable to our stockholders as ordinary income.
Distributions in excess of these earnings and profits generally
are treated as a non-taxable reduction of our stockholders
basis in the shares of common stock to the extent thereof (a
return of capital for tax purposes), and thereafter as taxable
gain. These distributions in excess of earnings and profits will
have the effect of deferring taxation of the distributions until
the sale of the stockholders shares. In order to maintain
our qualification as a REIT, we must make annual distributions
to our stockholders of at least 90% of our REIT taxable income.
REIT taxable income does not include net capital gains. Under
certain circumstances, we may be required to make distributions
in excess of cash available for distribution in order to meet
the REIT distribution requirements. Distributions are determined
by our board of directors and are dependent on a number of
factors, including the amount of funds available for
distribution, our financial condition, any decision by our board
of directors to reinvest funds rather than to distribute funds,
our capital expenditures, the annual distribution required to
maintain REIT status under the Code and other factors our board
of directors may deem relevant.
|
|
|
|
(3)
|
|
One of our objectives is to provide
cash distributions to our stockholders from cash generated from
operations. We believe that Funds From Operations, or FFO, is a
useful supplemental measure of our operating performance. We
compute FFO in accordance with standards established by the
National Association of Real Estate Investment Trusts, or
NAREIT, which may not be comparable to FFO reported by other
REITs that do not compute FFO in accordance with the NAREIT
definition, or that interpret the NAREIT definition differently
than we do. The revised White Paper on FFO, approved by the
Board of Governors of NAREIT in April 2002 defines FFO as net
income (loss) computed in accordance with generally accepted
accounting principles, or GAAP, excluding gains (or losses) from
debt restructuring and sales of properties, plus real estate
related depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures.
|
Because FFO excludes depreciation and amortization, gains and
losses from property dispositions and extraordinary items, it
provides a performance measure that, when compared year over
year, reflects the impact to operations from trends in occupancy
rates, rental rates, operating costs, development activities,
general and administrative expenses and interest costs,
providing a perspective not immediately apparent from net
income. In addition, we believe FFO provides useful information
to the investment community about our financial performance when
compared with other REITs since FFO is generally recognized as
the industry standard for reporting the operations of REITs.
However, FFO should not be viewed as an alternative measure of
our operating performance since it does not reflect either
depreciation and amortization costs or the level of capital
expenditures and leasing costs necessary to maintain the
operating performance of our properties, which are significant
economic costs and could materially impact our results of
operations.
Non-cash adjustments to arrive at FFO consisted of adjustments
for, depreciation and amortization. For additional information,
see Funds from Operations, in our Annual Reports on
Form 10-K
for the year ended December 31, 2009 which includes a
reconciliation of our GAAP net income available to our
stockholders to FFO for the years ended December 31, 2009
and 2008 and for the period from June 22, 2007
(commencement of operations) to December 31, 2007.
48
Ratio of Earnings to Fixed Charges.
The ratio
of earnings to fixed charges is computed by dividing earnings by
fixed charges. For purposes of computing this ratio, earnings
represent pre-tax income (loss) from continuing operations plus
fixed charges. Fixed charges represent interest expensed plus
amortization and write off of deferred financing costs over the
respective periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Three Months Ended
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|
|
|
December 31,
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|
|
March 31,
|
|
|
|
2009
|
|
|
2008
(1)
|
|
|
2010
(2)
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|
|
2009
|
|
|
Ratio of earnings to fixed charges
|
|
|
2.30
|
|
|
|
(4.09
|
)
|
|
|
(3.36
|
)
|
|
|
2.77
|
|
|
|
|
(1)
|
|
Due to loss of $30.8 million
for the year ended December 31, 2008, the ratio coverage
was less than 1:1. The loss is primarily the result of a
$29.3 million charge to mark mortgage loans to lower of
cost or market. The dollar amount of deficiency in earnings for
the year ended December 31, 2008 is $23.0 million.
|
|
|
|
(2)
|
|
Due to the loss of
$8.4 million for the three months ended March 31,
2010, the ratio coverage was less than 1:1. The loss is
primarily the result of a $7.5 million charge to record the
buyout fee payment obligation to CIT Healthcare, the
companys Manager, in accordance with the Second Amended
and Restated Management Agreement. The dollar amount of
deficiency in earnings for the three months ended March 31,
2010 is $6.3 million.
|
49
PROPOSAL ONE:
ISSUANCE OF CARE COMMON STOCK TO TIPTREE
The issuance of shares to Tiptree is contemplated under the
purchase and sale agreement, dated March 16, 2010, by and
between the company and Tiptree. This summary does not purport
to be complete and is qualified in its entirety by reference to
(i) the purchase and sale agreement and (ii) the
registration rights agreement, dated March 16, 2010, by and
between Care and Tiptree, which were filed as Exhibits 10.1
and 10.2, respectively, to our
Form 8-K
filed on March 16, 2010, and the first amendment to the
purchase and sale agreement, dated July 6, 2010, by and
between Care and Tiptree, which was filed as Exhibit 10.1 to our
Form
8-K
filed on July 7, 2010.
Description
of Transaction
At the special meeting, our stockholders will be asked to
consider and vote upon a proposal to approve the issuance of
shares to Tiptree in connection with the Tiptree Transaction. On
March 16, 2010, we entered into a purchase and sale
agreement with Tiptree providing for a combination of an equity
investment by Tiptree in newly issued common stock at $9.00 per
share and a cash tender offer by us for up to all of our issued
and outstanding shares of common stock at the same price, as
long as at least 10,300,000 shares are validly tendered
(and not withdrawn) prior to the expiration date of the tender
offer and the other conditions to the issuance and tender offer
are satisfied or waived. The Tiptree equity investment and the
associated tender offer are together referred to as the
Tiptree Transaction. In connection with the
transaction, we intend to terminate our existing management
agreement with CIT Healthcare LLC, and it is anticipated that
the resulting company will be advised by an affiliate of Tiptree
after a
60-day
transition period.
Under the purchase and sale agreement, we agreed to sell shares
to Tiptree upon completion of the tender offer. The number of
shares to be sold to Tiptree will be a minimum of
4,445,000 shares of our common stock at a price of $9.00
per share and is occurring in conjunction with a cash tender
offer by us of $9.00 per share for up to all publicly held
shares of our company. Tiptree has the option to purchase
additional newly issued company shares if less than
16,500,000 shares are tendered in the tender offer to
obtain ownership of up to 53.4% of the company, and if more than
18,000,000 shares are tendered (and not withdrawn) in the
tender offer, then Tiptree must purchase additional newly issued
company shares equal to the difference between 18,000,000 and
the number of shares that are tendered (and not withdrawn) in
the tender offer.
The following table illustrates the relationship of
Tiptrees expected ownership in the company pursuant to the
terms of the purchase and sale agreement and that of existing
stockholders following the consummation of the Tiptree
Transaction under various tender offer outcomes. The table is
for illustration purposes only and should not be relied upon for
any prediction of the outcome of the tender offer.
Tiptree and
Existing Stockholder Pro-forma Ownership under Assumed Tender
Offer Scenarios
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|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Tendered by Existing Stockholders*, **
|
|
|
10,300,000
|
|
|
|
14,000,000
|
|
|
|
15,000,000
|
|
|
|
16,500,000
|
|
|
|
17,000,000
|
|
|
|
18,000,000
|
|
|
|
19,000,000
|
|
Shares Purchased by Tiptree
|
|
|
11,420,000
|
|
|
|
7,180,500
|
|
|
|
6,034,000
|
|
|
|
4,445,000
|
|
|
|
4,445,000
|
|
|
|
4,445,000
|
|
|
|
5,445,000
|
|
Existing Stockholder Pro-forma Ownership
|
|
|
46.6
|
%
|
|
|
46.6
|
%
|
|
|
46.6
|
%
|
|
|
45.9
|
%
|
|
|
42.4
|
%
|
|
|
33.8
|
%
|
|
|
18.9
|
%
|
Tiptree Pro-forma Ownership
|
|
|
53.4
|
%
|
|
|
53.4
|
%
|
|
|
53.4
|
%
|
|
|
54.1
|
%
|
|
|
57.6
|
%
|
|
|
66.2
|
%
|
|
|
81.1
|
%
|
|
|
|
*
|
|
If less than
16,500,000 shares are tendered, Tiptree is required to
purchase 4,445,000 shares and has the option to increase
its share purchase in order to acquire an aggregate of up to
53.4% ownership interest in the company on a fully diluted
basis.
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|
**
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|
If more than
18,000,000 shares are tendered (and not withdrawn) in the
tender offer, Tiptree is required to purchase
4,445,000 shares and must purchase the number of shares
equal to the difference between the actual number of shares
tendered (and not withdrawn) in the tender offer and 18,000,000
in order to fund the purchase of shares by the company in the
tender offer.
|
50
In addition, we entered into a registration rights agreement
with Tiptree on March 16, 2010, which provides Tiptree with
certain rights to cause us to register the shares of common
stock to be issued to Tiptree in connection with the
transaction, subject to the closing of the transaction.
About
Tiptree
Formed in 2007, Tiptree is a diversified financial services
holding company that primarily focuses on the acquisition of
majority control equity interests in financial businesses.
Tiptrees objective is to acquire financial services firms
with strong business models and predictable economics that have
capital needs or whose shareholders would benefit from a
strategic partner and liquidity. Tiptrees business plan is
to be a well-capitalized, stable, majority owner and strategic
partner for a diversified, independently managed group of
financial services firms for which Tiptrees access to
capital and financial expertise can facilitate creating a
stronger business. Tiptrees primary focus is on five
sectors of financial services: insurance, tax exempt finance,
real estate, corporate loans and banking and specialty finance.
Tiptrees holdings include a structured corporate loan
portfolio and Muni Funding Company of America, LLC, a municipal
finance company. In June 2010, Tiptree acquired PFG Holdings,
Inc., which develops and administers private placement insurance
and annuities for ultra-high net worth and institutional
clients. Tiptree is owned by a small group of investors,
consisting primarily of major financial institutions. Tiptree is
externally managed by Tiptree Capital, and we will be advised at
least in part by TREIT Management, an affiliate of Tiptree
Capital, following the consummation of the Tiptree Transaction,
and after a
60-day
transition period. We also intend to internalize certain
functions by hiring employees to provide accounting, financial,
investment or other services.
TREIT Management and Tiptree Capital are wholly-owned
subsidiaries of Tricadia Holdings, L.P., an asset management
firm founded in 2003 by Michael Barnes and Arif Inayatullah.
Tricadia Holdings, L.P. is based in New York, New York and has
approximately $5 billion in assets under management and
employs approximately 50 professionals.
Interests
of Certain Persons in the Tiptree Transaction
In considering the recommendation of our board of directors to
approve the issuance of shares to Tiptree in connection with the
Tiptree Transaction, our stockholders should consider that, as
described below, the approval of the issuance by our
stockholders and the closing of the transaction may have certain
effects upon our officers and directors that differ from, or are
in addition to (and therefore may conflict with), the interests
of our stockholders. Our board of directors is aware of these
interests and considered them in approving the transaction and
recommending the issuance. A majority of the members of our
board of directors qualify as independent under the rules of the
New York Stock Exchange. In addition, two of the three members
of our special committee, which recommended that our board of
directors approve the transaction, qualify as independent under
the rules of the New York Stock Exchange.
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|
|
|
|
Flint D. Besecker, the chairman of the board, holds a
performance share award that entitles him to receive 10,000
additional shares, which will represent $90,000 in value if the
tender offer is completed.
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|
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|
Salvatore (Torey) V. Riso, Jr., our chief executive
officer, holds a performance share award that entitles him to
receive 10,000 additional shares, which will represent $90,000
in value if the tender offer is completed.
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|
|
|
Paul F. Hughes, our chief financial officer, holds a performance
share award that entitles him to receive 6,000 additional
shares, which will represent $54,000 in value if the tender
offer is completed.
|
In addition, our manager, CIT Healthcare LLC, has interests in
the Tiptree Transaction that are different from your interests
as a stockholder. Our manager acquired a warrant, dated
September 30, 2008, to purchase 435,000 shares of our
common stock with an exercise price of $17.00 per share. On
51
March 16, 2010, our manager entered into a warrant
purchase agreement with Tiptree, pursuant to which our manager
will sell its warrant to purchase the 435,000 shares of our
companys common stock in exchange for $100,000 effective
upon the closing of the Tiptree Transaction.
Consequently, these individuals and our manager may be more
likely to support the Tiptree Transaction than might otherwise
be the case if they did not expect to receive those payments.
Our board of directors and the special committee each was aware
of these interests and considered them in making their
recommendations.
Recent Securities Transactions.
Based upon our
records and upon information provided to us by (1) each
person known to us to be the beneficial owner of more than 5% of
our outstanding common stock, (2) each of our directors and
(3) each of our named executive officers as of July 2,
2010, including our former chief executive officer and our
former chief investment officer who resigned on December 4,
2009 and March 18, 2010 respectively, and whose beneficial
ownership figures are available as of March 25, 2010,
neither we nor any of our beneficial owners of more than 5% of
our outstanding common stock, nor any director or named
executive officer have effected any transactions involving
shares of our common stock during the 120 days prior to
July 2, 2010, except as described below or incorporated by
reference into this Offer to Purchase:
On March 18, 2010 and April 8, 2010, respectively, J.
Rainer Twiford, a member of our board of directors, sold
18,334 shares of common stock at $8.92 per share and
1,401 shares of common stock at $8.92 per share, in open
market transactions.
On March 18, 2010 and April 8, 2010, respectively,
Flint D. Besecker, our chairman, sold 20,000 shares of
common stock at $8.91 per share and 1,401 shares of company
common stock at $8.92 per share, in open market transactions.
On March 18, 2010, Salvatore (Torey) V. Riso, Jr., our
chief executive officer, sold 17,700 shares of common stock
at $8.91 per share in an open market transaction.
On March 18, 2010, Paul F. Hughes, our chief
financial officer, sold 8,524 shares of common stock at
$8.91 per share in an open market transaction.
On March 22, 2010, Steven N. Warden, a member of our
board of directors, sold 9,648 shares of common stock at
$8.92 per share in an open market transaction.
On April 8, 2010, Gerald E. Bisbee, Jr., PhD., a
member of our board of directors, sold 1,401 shares of
common stock at $8.92 per share in an open market transaction.
On April 8, 2010, Karen P. Robards, a member of our board
of directors, sold 1,401 shares of common stock at $8.92
per share in an open market transaction.
Equity
Incentive Plans / Other Arrangements Regarding
Securities.
Restricted Stock Grants.
At the time of our
initial public offering in June 2007, we issued
133,333 shares of common stock to our managers
employees, some of whom are officers or directors of Care and we
also awarded 15,000 shares of common stock to Cares
independent board members. The shares granted to our
managers employees had an initial vesting date of
June 22, 2010, three years from the date of grant. The
shares granted to our independent board members vest ratably on
the first, second and third anniversaries of the grant. During
the year ended December 31, 2008, 42,000 shares of
restricted stock granted to our managers employees were
forfeited and 10,000 shares vested due to a termination of
an officer of the manager without cause. In addition,
20,000 shares of restricted stock were granted to a board
member who formerly served as an employee of our manager. These
shares had a fair value of $183,000 at issuance and had an
initial vesting date of June 27, 2010. On January 28,
2010, our shareholders approved the plan of liquidation. Under
the terms of each of these awards, the approval of the plan of
liquidation by our stockholders accelerated the vesting of all
outstanding awards on that day.
52
Restricted Stock Units.
On April 8, 2008,
the compensation committee of the board of directors of Care
awarded the companys chief executive officer,
35,000 shares of restricted stock units (RSUs)
under the Care Investment Trust Inc. Equity Incentive Plan
(Equity Plan). The RSUs had a fair value of $385,000
on the grant date. The initial vesting of the award was 50% on
the third anniversary of the award and the remaining 50% on the
fourth anniversary of the award. Under the terms of these
awards, stockholder approval of the plan of liquidation
accelerated the vesting of the awards on that day.
On November 5, 2009, the board awarded the chairman of the
board of directors 10,000 restricted stock units, which were
initially subject to vesting in four equal installments,
commencing on November 5, 2010. Under the terms of this
award, shareholder approval of the plan of liquidation
accelerated the vesting of this award on that day.
Long-Term Equity Incentive Programs.
On
May 12, 2008, the compensation committee approved two new
long-term equity incentive programs under the Equity Plan. The
first program is an annual performance-based RSU award program
(the RSU Award Program). All RSUs granted under the
RSU Award Program included a vesting period of four years. The
second program is a three-year performance share plan (the
Performance Share Plan).
In connection with the initial adoption of the RSU Award
Program, certain employees of our manager and its affiliates
were granted 68,308 RSUs on the adoption date with a grant date
fair value of $0.7 million. 9,242 of these shares were
forfeited in 2009. 14,763 of these shares vested in May 2009.
Achievement of awards under the 2008 RSU Award Program was based
upon the companys ability to meet both financial (AFFO per
share) and strategic (shifting from a mortgage to an equity
REIT) performance goals during 2008, as well as on the
individual employees ability to meet performance goals. In
accordance with the 2008 RSU Award Program, 49,961 RSUs and
30,333 RSUs were granted on March 12, 2009 and May 7,
2009, respectively. RSUs granted in connection with the 2008 RSU
Award Program were initially subject to the following vesting
schedule:
|
|
|
|
|
2010
|
|
|
34,840
|
|
2011
|
|
|
52,340
|
|
2012
|
|
|
52,343
|
|
2013
|
|
|
20,074
|
|
Under the terms of each of these awards, stockholder approval of
the plan of liquidation accelerated the vesting of the awards on
that day.
Under the Performance Share Plan, a participant is granted a
number of performance shares or units, the settlement of which
will depend on the companys achievement of certain
pre-determined financial goals at the end of the three-year
performance period. Any shares received in settlement of the
performance award will be issued to the participant in early
2011, without any further vesting requirements. With respect to
the
2008-2010
performance periods, the performance goals relate to the
companys ability to meet both financial (compound growth
in AFFO per share) and share return goals (total shareholder
return versus the companys healthcare equity and mortgage
REIT peers). The compensation committee has established
threshold, target and maximum levels of performance. If the
company meets the threshold level of performance, a participant
will earn 50% of the performance share grant if it meets the
target level of performance, a participant will earn 100% of the
performance share grant and if it achieves the maximum level of
performance, a participant will earn 200% of the performance
share grant. As of December 31, 2009, no shares have been
earned under this plan.
On December 10, 2009, the company granted performance share
awards to plan participants for an aggregate amount of
15,000 shares at target levels and an aggregate maximum of
30,000 shares. On February 23, 2009, the terms of the
awards were modified such that the awards are now triggered upon
the execution, during 2010, of one or more of the following
transactions that results in a return of liquidity to the
companys stockholders within the parameters expressed in
the agreement: (i) a merger or other business combination
resulting in the disposition of all of the issued and
outstanding equity
53
securities of the company, (ii) a tender offer made
directly to the companys stockholders either by the
company or a third party for at least a majority of the
companys issued and outstanding common stock, or
(iii) the declaration of aggregate distributions by the
companys board equal to or exceeding $8.00 per share.
As of December 31, 2009, 210,677 shares of our common
stock and 197,615 RSUs had been granted pursuant to the Equity
Plan and 267,516 shares remain available for future
issuances. The Equity Plan will automatically expire on the
10th anniversary of the date it was adopted. Cares
board of directors may terminate, amend, modify or suspend the
Equity Plan at any time, subject to stockholder approval in the
case of amendments or modifications. We recorded
$2.3 million of expense related to compensation and
$1.2 million of expense related to remeasurement of grants
to fair value for the years ended December 31, 2009 and
2008, respectively, Approximately $0.8 million of the
expense recorded in 2009 related to accelerated vesting in the
aggregate. All of the shares issued under our Equity Plan are
considered non-employee awards. Accordingly, the expense for
each period is determined based on the fair value of each share
or unit awarded over the required performance period.
Shares Issued to Directors for Board Fees.
On
January 5, 2009, April 3, 2009, July 1, 2009,
October 1, 2009, January 4, 2010, April 8, 2010
and July 2, 2010, respectively, 9,624, 13,734, 14,418,
9,774, 8,030, 5,604 and 5,772 shares of common stock with
an aggregate fair value of approximately $462,500 were granted
to our independent directors as part of their annual retainer.
Each independent director receives an annual base retainer of
$100,000, payable quarterly in arrears, of which 50% is paid in
cash and 50% in common stock of Care. Shares granted as part of
the annual retainer vest immediately.
Manager Equity Incentive Plan.
Upon completion
of our initial public offering in June 2007, approximately
1.3 million shares were made available and we granted
607,690 fully vested shares of our common stock to our manager
under the Manager Equity Plan adopted by the company on
June 21, 2007 (the Manager Equity Plan). These
shares are subject to our managers right to register the
resale of such shares pursuant to a registration rights
agreement we entered into with our manager in connection with
our initial public offering. At December 31, 2009,
282,945 shares are available for future issuances under the
Manager Equity Plan. The Manager Equity Plan will automatically
expire on the 10th anniversary of the date it was adopted.
Cares board of directors may terminate, amend, modify or
suspend the Manager Equity Plan at any time, subject to
stockholder approval in the case of amendments or modifications.
Manager Warrants.
In consideration of an
amendment to the CIT Healthcare management agreement and for the
managers continued and future services to the company, the
company granted CIT Healthcare, in its capacity as manager,
warrants to purchase 435,000 shares of the companys
common stock at $17.00 per share under the Manager Equity Plan.
The Warrant, which is immediately exercisable, expires on
September 30, 2018. On March 16, 2010, our manager
entered into a warrant purchase agreement with Tiptree, pursuant
to which our manager will sell its warrants to purchase the
435,000 shares of our companys common stock in
exchange for $100,000 effective upon the closing of the Tiptree
Transaction.
Purchase and Sale Agreement.
The tender offer
is being made in connection with the purchase and sale
agreement, dated March 16, 2010, by and between Care and
Tiptree which provides that Care will issue, and Tiptree will
purchase, a minimum of 4,445,000 newly issued shares of the
companys common stock, and may purchase additional shares
depending on the number of shares tendered in the tender offer,
for a purchase price of $9.00 per share. In that purchase and
sale agreement, we agreed to use the proceeds from the issuance
of common stock to Tiptree to fund the tender offer for up to
all of our outstanding common stock at a fixed price of $9.00
per share. If the tender offer is fully subscribed, Tiptree is
expected to own 100% of the issued and outstanding shares of the
companys common stock. See Certain Effects of the
Tender Offer under Special Factors.
Other Agreements, Arrangements or
Understandings.
Except for the purchase and sale
agreement, outstanding warrants, company Performance Share
Awards and company RSUs, and except as
54
otherwise described in this proxy statement or incorporated by
reference into this proxy statement, neither we nor, to the best
of our knowledge, any beneficial owner of 5% or more of our
common stock or any of our directors or named executive officers
is a party to any agreement, arrangement, understanding or
relationship with any other person relating, directly or
indirectly, to the tender offer or with respect to any of our
securities, including, but not limited to, any agreement,
arrangement, understanding or relationship concerning the
transfer or the voting of the securities, joint ventures, loan
or option arrangements, puts or calls, guarantees or loans,
guarantees against loss or the giving or withholding of proxies,
consents or authorizations.
Other
Transactions with Affiliates
On September 30, 2008, we entered into an amendment to the
management agreement with CIT Healthcare, our manager. Pursuant
to the terms of the amendment, the base management fee payable
to the manager under the management agreement was reduced from a
monthly amount equal to
1
/
12
of 1.75% of Cares equity to a monthly amount equal to
1
/
12
of 0.875% of Cares equity. In addition, pursuant to the
terms of the amendment, the incentive fee payable to the manager
pursuant to the management agreement was eliminated and the
termination fee payable to the manager upon the termination or
non-renewal of the management agreement was amended to equal the
average annual base management fee as earned by the manager
during the two years immediately preceding the most recently
completed fiscal quarter prior to the date of termination times
three, but in no event less than $15.4 million. No
termination fee would be payable if we terminate the management
agreement for cause.
In consideration of the amendment and for the managers
continued and future services to Care, we granted the manager
warrants to purchase 435,000 shares of our common stock at
$17.00 per share under the manager equity plan adopted by Care
on June 21, 2007. See Equity Incentive Plans / Other
Arrangements Regarding Securities in this section for more
information on the manager warrants.
In November 2008, we repurchased 1,000,000 shares of our
common stock from GoldenTree Asset Management LP at $8.33 per
share pursuant to our share repurchase program.
On January 15, 2010, we entered into an amended and
restated management agreement with CIT Healthcare, our manager.
Pursuant to the terms of the amended and restated management
agreement, which became effective upon approval of the plan of
liquidation by our stockholders on January 28, 2010, the
base management fee was reduced to a monthly amount equal to
(i) $125,000 from February 1, 2010 until the earlier
of (x) June 30, 2010 and (y) the date on which
four of our six then-existing investments have been sold; then
from such date (ii) $100,000 until the earlier of
(x) December 31, 2010 and (y) the date on which
five of our six then-existing investments have been sold; then
from such date (iii) $75,000 until the effective date of
expiration or earlier termination of the agreement by either
Care or the manager; provided, however, that notwithstanding the
foregoing, the base management fee shall remain at $125,000 per
month until the later of (a) ninety (90) days after
the filing by us of a Form 15 with the SEC; and
(b) the date that Care is no longer subject to the
reporting requirements of the Exchange Act. In addition, the
termination fee payable to the manager upon the termination or
non-renewal of the management agreement was replaced by a buyout
payment of $7.5 million, payable in installments of
(i) $2.5 million upon approval of the plan of
liquidation by our stockholders; (ii) $2.5 million
upon the earlier of (a) April 1, 2010 and (b) the
effective date of the termination of the amended and restated
management agreement by either Care or the manager; and
(iii) $2.5 million upon the earlier of
(a) June 30, 2011 and (b) the effective date of
the termination of the amended and restated management agreement
by either Care or the manager. The amended and restated
management agreement also provided the manager with an incentive
fee of $1.5 million if (i) at any time prior to
December 31, 2011, the aggregate cash dividends paid by
Care to stockholders since the effective date of the amended and
restated management agreement equal or exceed $9.25 per share or
(ii) as of December 31, 2011, the sum of (x) the
aggregate cash dividends paid to Cares stockholders since
the effective date of the amended and restated management
agreement and (y) the aggregate distributable cash equals
or exceeds $9.25 per share. In the event that the aggregate
55
distributable cash equals or exceed $9.25 per share but for the
impact of payment of a $1.5 million incentive fee, Care
shall pay the manager an incentive fee in an amount that allows
the aggregate distributable cash to equal $9.25 per share. Under
the amended and restated management agreement, the mortgage
purchase agreement by and between us and our manager was
terminated and all outstanding notices of our intent to sell
additional loans to our manager were rescinded. The amended and
restated management agreement shall continue in effect, unless
earlier terminated in accordance with the terms thereof, until
December 31, 2011.
Source
and Amounts of Funds or Other Consideration
In conjunction with the Tiptree Transaction, if the maximum of
20,265,924 shares, or all of the issued and outstanding
common stock and performance share awards of the company
eligible to be tendered, are purchased in the tender offer at a
price of $9.00 per share, the aggregate purchase price for the
tendered shares will be approximately $182,393,316. We expect to
fund the purchase of shares pursuant to the tender offer and the
related fees and expenses from available cash on hand and from
the proceeds of the issuance of shares to Tiptree. Upon the
satisfaction of certain conditions set forth in the purchase and
sale agreement, Tiptree is required to deposit $60,430,932 into
escrow to be used to purchase shares.
Tiptree has represented to us that it has, and will have
immediately prior to the closing of the issuance to Tiptree,
sufficient cash or other sources of immediately available funds
to enable it to deposit the $60,430,932 with the escrow agent.
Tiptree has sufficient unencumbered cash, net of short-term
accruals and liabilities, to complete the share issuance, which
requires it to deposit $60,430,932 in escrow. On May 31,
2010, Tiptree had $100.8 million of unencumbered cash and
$4.9 million of short-term accruals and liabilities on its
balance sheet.
The following presents Tiptrees unaudited Balance Sheet as
of May 31, 2010:
56
TIPTREE
FINANCIAL PARTNERS, LP and SUBSIDIARIES
Consolidated
Balance Sheet
|
|
|
|
|
|
|
May 31, 2010
|
|
|
|
UNAUDITED
|
|
|
Assets
|
|
|
|
|
Cash and cash equivalents unrestricted
|
|
$
|
100,827,213
|
|
Due from brokers, dealers and trustees
|
|
|
3,799,643
|
|
Investments in trading securities, at fair value
|
|
|
93,268,294
|
|
Derivative financial instruments, at fair value
|
|
|
6,176,561
|
|
Accrued interest receivable
|
|
|
3,361,916
|
|
Other Assets
|
|
|
62,342
|
|
|
|
|
|
|
Total Assets
|
|
$
|
207,495,969
|
|
|
|
|
|
|
Liabilities and Partnership Capital
|
|
|
|
|
Liabilities
|
|
|
|
|
Derivative financial instruments, at fair value
|
|
$
|
720,057
|
|
Due to Manager (related party)
|
|
|
3,484,632
|
|
Accrued interest payable
|
|
|
305,676
|
|
Other liabilities and accrued expenses
|
|
|
431,934
|
|
|
|
|
|
|
Total Liabilities
|
|
|
4,942,299
|
|
|
|
|
|
|
Partnership Capital
|
|
|
|
|
Limited Partnership Units
|
|
|
136,020,191
|
|
Accumulated other comprehensive income
|
|
|
5,548,944
|
|
Accumulated income
|
|
|
32,182,607
|
|
|
|
|
|
|
Total Partnership Capital
|
|
|
173,751,742
|
|
|
|
|
|
|
Non-controlling Interest
|
|
|
28,801,927
|
|
Total Capital
|
|
|
202,553,670
|
|
|
|
|
|
|
Total Liabilities and Partnership Capital
|
|
$
|
207,495,969
|
|
|
|
|
|
|
Based on Tiptrees anticipated business activities and
expenses through to the closing date of the share purchase,
Tiptree will continue to have from May 31, 2010 through the
date immediately prior to closing date of the share purchase,
access to sufficient cash and funds to enable it to fund its
escrow deposit in full.
We do not have any plans to utilize alternative sources of
financing to pay for the shares purchased pursuant to the tender
offer, as well as related fees and expenses.
Timing of
the Tiptree Transaction
In addition to the special meeting of stockholders to be held on
August 13, 2010, the Tiptree Transaction includes a tender
offer, which will commence at or near the time this solicitation
commences, and is scheduled to expire (unless extended) on or
about the date of the special meeting. Stockholder approval of
the issuance of common stock to Tiptree, the abandonment of our
plan of liquidation and the first amendment to our charter are
also conditions to the closing of the Tiptree Transaction. There
are also additional conditions to the closing of both the tender
offer and the Tiptree issuance that must be satisfied or, if
applicable, waived, in order for the transaction to be completed
(see the section entitled The Purchase and Sale
Agreement for further information on the conditions to the
closing). The tender offer is currently anticipated to expire on
August 13, 2010 subject to our rights to extend the offer.
Assuming the tender offer is completed and the other conditions
to the
57
closing of the issuance are satisfied or, if applicable, waived,
we anticipate closing the issuance promptly after completion of
the tender offer.
Effect of
the Issuance Not Being Completed
Stockholder approval of the issuance of shares to Tiptree is a
condition to closing the Tiptree Transaction. Therefore, if our
stockholders do not approve the proposal to issue shares to
Tiptree, we will be unable to complete the Tiptree Transaction
and will either continue to pursue the plan of liquidation upon
termination of the purchase and sale agreement or consider other
strategic alternatives. If the proposal to issue shares to
Tiptree is not approved, we will not abandon the plan of
liquidation as approved by our stockholders on January 28,
2010.
Board of
Directors Upon Closing
Pursuant to the purchase and sale agreement, at least three
(3) members of our board of directors must resign as of the
closing and the resulting vacancies filled by with candidates
acceptable to Tiptree.
Termination
of Management Agreement
In conjunction with the Tiptree Transaction, we intend to
terminate our existing management agreement with CIT Healthcare,
hire certain employees and enter into a management agreement
with TREIT Management, an affiliate of Tiptree Capital
Management, LLC, which is the manager of Tiptree. We expect to
provide notice of termination of the management agreement to CIT
Healthcare and TREIT Management will transition into the role of
manager over an approximately
60-day
transition period.
Absence
of Appraisal or Dissenters Rights
Section 5.4 of our charter provides that our stockholders
shall not be entitled to exercise any preemptive rights, rights
of appraisal or similar rights of an objecting stockholder
unless provided for by our board of directors. Our board of
directors has not provided such rights in connection with the
Tiptree Transaction.
58
Outstanding
Shares, Price Range of Shares; Dividends; Prior Stock
Purchases
As of the close of business on July 2, 2010, there were
20,235,924 shares of our common stock issued and
outstanding on a fully diluted basis. As of that date,
(i) 435,000 shares of common stock were reserved for
issuance upon the exercise of company warrants, (ii) no
shares of company common stock were reserved for issuance upon
vesting and settlement of company RSUs and
(iii) 30,000 shares of common stock were reserved for
issuance upon the settlement of company performance awards,
which will vest concurrently with the Tiptree Transaction. Our
shares trade on NYSE under the symbol CRE. The
following table sets forth, for each of the fiscal quarters
indicated, the high and low closing sale prices per share as
reported on NYSE:
|
|
|
|
|
|
|
|
|
|
|
Care
|
|
|
Common Stock
|
|
|
Market Price
|
|
|
High
|
|
Low
|
|
Calendar Year 2008
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
12.23
|
|
|
$
|
10.08
|
|
Second Quarter
|
|
|
11.50
|
|
|
|
9.43
|
|
Third Quarter
|
|
|
12.00
|
|
|
|
8.80
|
|
Fourth Quarter
|
|
|
11.61
|
|
|
|
6.85
|
|
Calendar Year 2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
9.30
|
|
|
$
|
4.02
|
|
Second Quarter
|
|
|
6.33
|
|
|
|
4.90
|
|
Third Quarter
|
|
|
8.11
|
|
|
|
5.02
|
|
Fourth Quarter
|
|
|
8.55
|
|
|
|
7.05
|
|
Calendar Year 2010
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
9.02
|
|
|
$
|
7.65
|
|
Second Quarter
|
|
$
|
8.96
|
|
|
$
|
8.54
|
|
To maintain our qualification as a REIT, we must pay annual
dividends to our stockholders of at least 90% of our REIT
taxable income, determined before taking into consideration the
dividends paid deduction and net capital gains. The following
table sets forth, for each of the fiscal quarters indicated, the
dividends paid by the company on the common stock. We intend to
continue to pay regular quarterly dividends to our stockholders.
Before we pay any dividend, whether for federal income tax
purposes or otherwise, which would only be paid out of available
cash to the extent permitted under our secured credit facility,
we must first meet both our operating requirements and any
scheduled debt service on our outstanding borrowings.
|
|
|
|
|
|
|
Care
|
|
|
|
Common Stock
|
|
|
|
Dividends Paid
|
|
|
Calendar Year 2008
|
|
|
|
|
First Quarter
|
|
$
|
0.17
|
|
Second Quarter
|
|
$
|
0.17
|
|
Third Quarter
|
|
$
|
0.17
|
|
Fourth Quarter
|
|
$
|
0.17
|
|
|
|
|
|
|
2008 Dividend Total
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
Dividends Paid
|
|
Calendar Year 2009
|
|
|
|
|
First Quarter
|
|
|
|
|
Second Quarter
|
|
$
|
0.17
|
|
Third Quarter
|
|
$
|
0.34
|
|
Fourth Quarter
|
|
$
|
0.17
|
|
|
|
|
|
|
2009 Dividend Total
|
|
$
|
0.68
|
|
59
On November 25, 2008, the company purchased 1,000,000
shares of its common stock from Golden Tree Asset Management,
L.P. at a price of $8.33 per share.
On March 16, 2010, the company and Tiptree entered into the
purchase and sale agreement, which included, among other things,
an agreement that the company would commence and consummate a
cash tender offer for up to all outstanding shares of its common
stock at a fixed price of $9.00 per share.
60
Unaudited
Pro Forma Financial Information
The following presents our unaudited pro forma financial
information for the year ended December 31, 2009 and as of
and for three months ended March 31, 2010. The pro forma
statement of operations for the year ended December 31,
2009 and the three months ended March 31, 2010 give effect
to the following series of transactions: (i) our tender
offer for all of the outstanding shares of our common stock for
$9.00 per share and (ii) the issuance to Tiptree of shares
of our common stock at a price of $9.00 per share as if each of
the transactions had occurred at January 1, 2009. We cannot
be certain as to the number of shares which will be tendered in
the transaction and have therefore assumed, for the purposes of
preparing these pro forma financial statements, that
16,500,000 shares, or approximately 81.5% of our issued and
outstanding common stock as of July 2, 2010, will be
tendered. The unaudited pro forma balance sheet as of
March 31, 2010 has been prepared as if the outstanding
shares were tendered, new shares were issued and a change of
control occurred at January 1, 2010. The pro forma
adjustments are based upon available information and certain
assumptions that we believe are reasonable.
The unaudited pro forma financial information is for
informational purposes only and does not purport to present what
our results would actually have been had these transactions
actually occurred on the dates presented or to project our
results of operations or financial position for any future
period. You should read the information set forth below together
with the Care Investment Trust Inc. consolidated financial
statements as of December 31, 2009 and 2008 and for each of
the years ended December 31, 2009 and 2008 and for the
period from June 22, 2007 (Commencement of Operations) to
December 31, 2007, including the notes thereto, included in
the Care Investment Trust Inc. Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009, as amended,
and the Care Investment Trust Inc. condensed consolidated
financial statements as of March 31, 2010 and for each of
the three-month periods ended March 31, 2010 and 2009,
including the Notes thereto, included in the Care Investment
Trust Inc.
Form 10-Q.
Care
Investment Trust Inc.
Unaudited Pro Forma Balance Sheet
as of March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Pro Forma
|
|
|
|
|
|
|
2010
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(dollars in thousands)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
5,020
|
|
|
|
|
|
|
$
|
5,020
|
|
Buildings and improvements
|
|
|
101,000
|
|
|
|
|
|
|
|
101,000
|
|
Less: accumulated depreciation
|
|
|
(5,239
|
)
|
|
|
|
|
|
|
(5,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate, net
|
|
$
|
101,781
|
|
|
$
|
|
|
|
$
|
100,781
|
|
Cash and cash equivalents
|
|
|
136,586
|
|
|
|
(148,500
|
)
(a)
|
|
|
34,517
|
|
|
|
|
|
|
|
|
40,005
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
6,426
|
(c)
|
|
|
|
|
Investments in loans held at (lower of cost or market)
|
|
|
9,791
|
|
|
|
|
|
|
|
9,791
|
|
Investments in partially-owned entities
|
|
|
54,505
|
|
|
|
|
|
|
|
54,505
|
|
Accrued interest receivable
|
|
|
59
|
|
|
|
|
|
|
|
59
|
|
Deferred financing costs, net of accumulated amortization of
$1,155
|
|
|
680
|
|
|
|
|
|
|
|
680
|
|
Identified intangible assets leases in place, net
|
|
|
4,388
|
|
|
|
|
|
|
|
4,388
|
|
Other assets
|
|
|
4,577
|
|
|
|
|
|
|
|
4,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
311,267
|
|
|
$
|
(102,069
|
)
|
|
$
|
209,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Pro Forma
|
|
|
|
|
|
|
2010
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(dollars in thousands)
|
|
Liabilities and Stockholders Equity Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under warehouse line of credit
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable
|
|
|
81,659
|
|
|
|
|
|
|
$
|
81,659
|
|
Accounts payable and accrued expenses
|
|
|
2,110
|
|
|
|
|
|
|
|
2,110
|
|
Accrued expenses payable to related party
|
|
|
5,572
|
|
|
|
(5,000
|
)
(c)
|
|
|
572
|
|
Obligation to issue operating partnership units
|
|
|
3,468
|
|
|
|
|
|
|
|
3,468
|
|
Other liabilities
|
|
|
525
|
|
|
|
|
|
|
|
525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
93,334
|
|
|
$
|
(5,000
|
)
|
|
$
|
88,334
|
|
Commitments and Contingencies (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock: $0.001 par value, 250,000,000 shares
authorized, 21,284,544 shares issued and
20,224,548 shares outstanding
|
|
|
21
|
|
|
|
4
|
(b)
|
|
|
25
|
|
Treasury stock
|
|
|
(8,824
|
)
|
|
|
|
|
|
|
(8,824
|
)
|
Additional
paid-in-capital
|
|
|
301,989
|
|
|
|
(148,500
|
)
(a)
|
|
|
193,490
|
|
|
|
|
|
|
|
|
40,001
|
(b)
|
|
|
|
|
Accumulated deficit
|
|
|
(72,253
|
)
|
|
|
11,426
|
(c)
|
|
|
(63,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
217,933
|
|
|
$
|
(97,069
|
)
|
|
$
|
120,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
311,267
|
|
|
$
|
(102,069
|
)
|
|
$
|
(209,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Unaudited Pro Forma
Balance Sheet as of March 31, 2010
|
|
|
(a)
|
|
The adjustment reflects the payment
for 16.5 million shares tendered at $9 per share.
|
|
|
|
(b)
|
|
The adjustment reflects the
issuance and sale of 4,445,000 shares to Tiptree at $9 per
share. Shares issued and outstanding on an actual and pro forma
basis are 25,604,647 and 8,103,894, respectively.
|
|
|
|
(c)
|
|
The adjustment reflects the impact
on cash and equity of the pro forma entries included in the pro
forma statements of operations
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
11,426
|
|
|
|
|
|
Accumulated deficit
|
|
|
|
|
|
$
|
11,426
|
|
62
Care
Investment Trust Inc.
Unaudited
Pro Forma Statement of Operations for the Year Ended
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
Pro Forma
|
|
|
|
|
|
|
2009
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(Audited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(dollars in thousands, except share and per share data)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue
|
|
$
|
12,710
|
|
|
|
|
|
|
$
|
12,710
|
|
Income from investments in loans
|
|
|
7,135
|
|
|
|
|
|
|
|
7,135
|
|
Other income
|
|
|
164
|
|
|
|
|
|
|
|
164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
20,009
|
|
|
$
|
|
|
|
$
|
20,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees to related party
|
|
|
2,235
|
|
|
|
30
|
(b)
|
|
|
2,265
|
|
Marketing, general and administrative (including stock-based
compensation expense of $2,270)
|
|
|
11,653
|
|
|
|
(3,491
|
)
(a)
|
|
|
8,162
|
|
Depreciation and amortization
|
|
|
3,375
|
|
|
|
|
|
|
|
3,375
|
|
Realized (gain) on loans sold
|
|
|
(1,064
|
)
|
|
|
|
|
|
|
|
|
Adjustment to valuation allowance on loans held at (lower of
cost or market)
|
|
|
(4,046
|
)
|
|
|
|
|
|
|
(4,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
$
|
12,153
|
|
|
$
|
(3,460
|
)
|
|
$
|
9,757
|
|
Other (Income)/Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from investments in partially-owned entities
|
|
|
4,397
|
|
|
|
|
|
|
|
4,397
|
|
Unrealized (income)/loss on derivative instruments
|
|
|
(153
|
)
|
|
|
|
|
|
|
(153
|
)
|
Interest income
|
|
|
(73
|
)
|
|
|
(17
|
)
(c)
|
|
|
(90
|
)
|
Interest expense including amortization of deferred financing
costs
|
|
|
6,510
|
|
|
|
|
|
|
|
6,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income
|
|
$
|
(2,825
|
)
|
|
$
|
3,478
|
|
|
$
|
653
|
|
Net (loss)/income per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income per share of common stock
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
20,061,763
|
|
|
|
(12,055,000
|
)
(d)
|
|
|
8,006,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Unaudited Pro Forma
Statement of Operations for the Year Ended December 31, 2009
|
|
|
(a)
|
|
The adjustment reflects the
elimination of estimated third party costs incurred to pursue
strategic initiatives
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,491
|
|
|
|
|
|
Marketing, general and administrative expense
|
|
|
|
|
|
$
|
3,491
|
|
|
|
|
(b)
|
|
The adjustment reflects the
increase to the management fee for the change in equity
associated with the loans sold
|
|
|
|
|
|
|
|
|
|
Management fees to related party
|
|
$
|
30
|
|
|
|
|
|
Cash
|
|
|
|
|
|
$
|
30
|
|
|
|
|
(c)
|
|
The adjustment reflects the income
from reinvestment into money market funds of eliminated costs to
pursue strategic initiatives
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
17
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
$
|
17
|
|
|
|
|
(d)
|
|
The adjustment reflects the net
impact of 16,500,000 fewer shares outstanding for 365 days
in 2009 as a result of the tender offer and an additional
4,445,000 shares outstanding for 365 days in 2009 as a
result of the Tiptree issuance.
|
63
Care
Investment Trust Inc.
Unaudited
Pro Forma Statement of Operations for the Three Months Ended
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
Pro Forma
|
|
|
|
|
|
|
2010
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
(dollars in thousands, except share and per share data)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue
|
|
$
|
3,215
|
|
|
|
|
|
|
$
|
3,215
|
|
Income from investments in loans
|
|
|
744
|
|
|
|
|
|
|
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
3,959
|
|
|
$
|
|
|
|
$
|
3,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fee and buyout payment to related party
|
|
|
7,929
|
|
|
|
(7,500
|
)
(a)
|
|
|
429
|
|
Marketing, general and administrative (including stock-based
compensation expense of $63)
|
|
|
1,816
|
|
|
|
(435
|
)
(b)
|
|
|
1,816
|
|
Depreciation and amortization
|
|
|
841
|
|
|
|
|
|
|
|
841
|
|
Realized (gain) on loans sold and repayment of loans
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
Adjustment to valuation allowance on loans held at (lower of
cost or market)
|
|
|
(745
|
)
|
|
|
|
|
|
|
(745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
$
|
9,837
|
|
|
$
|
(7,935
|
)
|
|
$
|
1,902
|
|
Other (income)/expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from investments in partially-owned entities
|
|
|
583
|
|
|
|
|
|
|
|
583
|
|
Unrealized (income)/loss on derivative instruments
|
|
|
578
|
|
|
|
|
|
|
|
578
|
|
Interest income
|
|
|
(47
|
)
|
|
|
(13
|
)
(a)
|
|
|
(60
|
)
|
Interest expense including amortization of deferred financing
costs
|
|
|
1,438
|
|
|
|
|
|
|
|
1,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income
|
|
$
|
(8,430
|
)
|
|
$
|
7,948
|
|
|
$
|
(482
|
)
|
Net (loss)/income per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income per share of common stock
|
|
$
|
(0.42
|
)
|
|
|
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
20,205,996
|
|
|
|
(12,055,000
|
)
(b)
|
|
|
8,150,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to Unaudited Pro Forma
Statement of Operations for the Three Months Ended
March 31, 2010
|
|
|
(a)
|
|
The adjustment reflects the income
from reinvestment into money market funds of eliminated costs to
pursue strategic alternatives
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,500
|
|
|
|
|
|
Accrued Expenses payable to related party
|
|
$
|
5,000
|
|
|
|
|
|
Management fee and buyout payments to related party
|
|
|
|
|
|
$
|
7,500
|
|
|
|
|
(b)
|
|
The adjustment reflects the
elimination of estimated third party costs incurred to pursue
strategic initiatives
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
435
|
|
|
|
|
|
Marketing, general and administrative expense
|
|
|
|
|
|
|
435
|
|
|
|
|
(c)
|
|
The adjustment reflects the income
from reinvestment into money market funds of eliminated costs to
pursue strategic initiatives
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
13
|
|
|
|
|
|
Interest Income
|
|
|
|
|
|
|
13
|
|
|
|
|
(d)
|
|
The adjustment reflects the impact
of 16,500,000 fewer shares outstanding for 90 days in 2010
and 4,445,000 shares outstanding for 2010
|
64
The book value per share of our common stock will increase from
$10.79 as of March 31, 2010 to approximately,
$14.83 per share of common stock on a pro forma basis,
consisting of the payment of approximately $148.5 million
for the purchase of shares tendered, the approximately
$11.4 million representing pro-forma impacts to cash and
equity associated with the issuance of shares to Tiptree and the
tender offer, and the receipt of approximately
$40.0 million in payment for the shares issued to Tiptree.
Fees and
Expenses.
In conjunction with the Tiptree Transaction, we have incurred or
expect to incur the following expenses.
|
|
|
|
|
Termination of CIT Healthcare LLC Management Agreement
|
|
$
|
2,500,000
|
|
Financial Advisory Fees
|
|
$
|
4,000,000
|
|
Legal Fees
|
|
$
|
823,000
|
|
Information Agent Fees
|
|
$
|
7,000
|
|
Depositary Fees
|
|
$
|
25,000
|
|
Filing Fees
|
|
$
|
13,005
|
|
Printing and Mailing
|
|
$
|
155,000
|
|
Accounting Fees
|
|
$
|
40,000
|
|
Total
|
|
$
|
7,563,005
|
|
65
THE
PURCHASE AND SALE AGREEMENT
This section of the proxy statement describes the material
provisions of the purchase and sale agreement but does not
purport to describe all of the terms of the purchase and sale
agreement. The following summary is qualified in its entirety by
reference to the complete text of the purchase and sale
agreement, which was filed as exhibit 10.1 to our
Form 8-K
filed on March 16, 2010 and the first amendment to the
purchase and sale agreement, which was filed as exhibit 10.1 to
our Form
8-K
filed on July 7, 2010. We urge you to read the full text of
the purchase and sale agreement because it is the legal document
that governs the transaction. It is not intended to provide you
with any other factual information about us. Such information
can be found elsewhere in this proxy statement and in the public
filings we make with the SEC, as described in the section
entitled Where You Can Find More Information
below.
The
Transaction
On March 16, 2010, we entered into a purchase and sale
agreement with Tiptree for the sale of control of our company
through a combination of an equity investment by Tiptree in
newly issued common stock at $9.00 per share and a cash tender
offer by us for up to all of our issued and outstanding shares
of common stock at the same price, as long as at least
10,300,000 shares are validly tendered and not withdrawn
prior to the expiration date of the tender offer and the other
conditions to the issuance and tender offer are satisfied or
waived.
Under the purchase and sale agreement, we agreed to sell shares
to Tiptree upon completion of the tender offer. The number of
shares to be sold to Tiptree will be a minimum of
4,445,000 shares of our common stock at a price of $9.00
per share in conjunction with a cash tender offer by us of $9.00
per share for up to all publicly held shares of our company.
Tiptree has the option to purchase additional newly issued
company shares if less than 16,500,000 shares are tendered
in the tender offer in order to obtain ownership of up to 53.4%
of the company, and if more than 18,000,000 shares are
tendered (and not withdrawn) in the tender offer, then Tiptree
must purchase additional newly issued company shares equal to
the difference between 18,000,000 and the number of shares that
are tendered (and not withdrawn) in the tender offer.
Tiptree has sufficient unencumbered cash, net of short-term
accruals and liabilities, to complete the share issuance, which
requires it to deposit $60,430,932 in escrow. As of May 31,
2010, Tiptree had $100.8 million of unencumbered cash and
$4.9 million of short-term accruals and liabilities
recorded on its balance sheet.
Based on Tiptrees anticipated business activities and
expenses through to the closing date of the share purchase,
Tiptree will continue to have from May 31, 2010 through the
date immediately prior to closing date of the share purchase,
access to sufficient cash and funds to enable it to fund its
escrow deposit in full.
Closing
The issuance to Tiptree will close upon the acceptance for
payment of the shares validly tendered and not withdrawn as of
the expiration of the tender offer, which shall occur upon
satisfaction or waiver of the conditions set forth in
Conditions to Closing below.
Conditions
to Closing
Based on our cash on hand as of March 31, 2010, if more
than 15,100,000 shares are tendered in the tender offer, we
will need to use some or all of the proceeds from the Tiptree
share issuance transaction to purchase such additional shares.
As a result, one of the conditions to our obligation to accept
and pay for the shares in the tender offer is the deposit by
Tiptree of the maximum purchase price for the shares to be
issued to it into escrow. Tiptree is contractually obligated,
pursuant to the terms of the purchase and sale agreement, to
deposit the funds into escrow, subject only to certain customary
conditions, including conditions that provide Tiptree with
comfort that the tender offer will close and permit it to
66
obtain the minimum ownership interest in the company that it
seeks. Tiptree has represented to Care under the purchase and
sale agreement, and demonstrated through financial statements,
that it has sufficient cash to deposit the required funds into
escrow. See Source and Amount of Funds and Other
Considerations.
Cares obligation to accept for payment and pay for the
shares validly tendered and not withdrawn in the tender offer is
subject to the satisfaction or waiver of the following
conditions set forth in the purchase and sale agreement, each of
which must be satisfied or, subject to the requirements of the
purchase and sale agreement, waived by Care prior to the
expiration date of the tender offer:
|
|
|
|
|
a minimum of 10,300,000 shares of our company common stock
shall have been validly tendered (and not withdrawn) in the
tender offer; (Condition 1)
|
|
|
|
Tiptree must have delivered $60,430,932 and a joint written
declaration to BNY Mellon Shareowner Services, the escrow agent;
(Condition 2)
|
|
|
|
our stockholders must have approved the issuance to Tiptree
proposal, the abandonment of the liquidation proposal and the
first amendment proposal set forth in this proxy statement;
(Condition 3)
|
|
|
|
there must be no temporary restraining order, preliminary or
permanent injunction, or other order issued by any court of
competent jurisdiction that prevents the consummation of the
transaction; (Condition 4)
|
|
|
|
there must be no statute, rule, regulation or order enacted or
enforced which prevents or prohibits the consummation of the
transaction and that remains in effect; (Condition 5)
|
|
|
|
any applicable waiting period under the HSR Act shall have
expired or been terminated, and any approvals and consents
required to be obtained under the antitrust laws before the
transaction can be consummated shall have been obtained;
(Condition 6)
|
|
|
|
Tiptrees representations and warranties contained in the
purchase and sale agreement must be true and correct, except
where the failure of such representations and warranties to be
true and correct, taken as a whole, would not reasonably be
expected to cause a material adverse effect on the ability of
Tiptree to timely consummate the transaction or otherwise
comply, in all material respects, with the terms and conditions
of the purchase and sale agreement; (Condition 7)
|
|
|
|
each of the covenants and obligations that Tiptree is required
to perform or to comply with pursuant to the purchase and sale
agreement at or prior to the date that the company accepts for
payment all of the shares of company common stock validly
tendered pursuant to the tender offer shall have been duly
performed or complied with in all respects, except to the extent
the non-performance thereof would not be material to the
transaction; (Condition 8)
|
|
|
|
each of Tiptree and the company must have obtained certain
required consents; (Condition 9)
|
|
|
|
the escrow agreement, entered into by and among the company,
Tiptree, and BNY Mellon Shareowner Services, in its capacity as
escrow agent, must be in full force and effect, which it is as
of the date of this proxy statement; and (Condition 10)
|
|
|
|
since March 16, 2010, there must not have occurred an event
or development that has had or would reasonably be expected to
have a material adverse effect on the ability of Tiptree to
timely consummate the transaction or otherwise comply, in all
material respects, with the terms and conditions of the purchase
and sale agreement. (Condition 11)
|
Upon acceptance by the company for payment of the shares validly
tendered and not withdrawn in the offer, the company must issue
to Tiptree the shares required to be sold to it under the
purchase and sale agreement.
67
The obligation of Tiptree to deposit $60,430,932 with the escrow
agent is subject to the satisfaction (or waiver by Tiptree) at
or prior to the time such deposit is required of each of the
following conditions:
|
|
|
|
|
our representations and warranties contained in the purchase and
sale agreement are true and correct, except where the failure of
such representations and warranties to be true and correct,
taken as a whole, would not reasonably be expected to have any
effect that is material and adverse to the assets, business,
results of operations or financial condition of the company and
its subsidiaries taken as a whole or that prevents or materially
delays or materially impairs the ability of the company to
consummate the transaction subject to certain exceptions set
forth in the purchase and sale agreement (a Company
Material Adverse Effect);
|
|
|
|
we must have performed or complied with each of our covenants
and obligations that we are required to perform or comply with
pursuant to the purchase and sale agreement at or prior to the
time that such deposit is required except to the extent that
non-performance would not be material to the transaction or
result in a Company Material Adverse Effect;
|
|
|
|
the registration rights agreement entered into by and between
the company and Tiptree and the escrow agreement among the
company, Tiptree and BNY Shareowner Services must be in full
force and effect;
|
|
|
|
between March 16, 2010 and the time that such deposit is
required, there must not have occurred any change, event or
development that has had or would reasonably be expected to have
individually or in the aggregate a Company Material Adverse
Effect;
|
|
|
|
at least three (3) members of our board of directors must
have resigned and the resulting vacancies shall have been filled
with candidates acceptable to Tiptree effective as of the
consummation of the share issuance;
|
|
|
|
Tiptree shall have received a legal opinion stating that the
shares, when issued, will be duly authorized, fully paid,
validly issued and non-assessable and that the shares, when
issued, will not have been issued in violation of preemptive
rights;
|
|
|
|
there must be no restraining order, preliminary or permanent
injunction, or other order issued, enacted, or entered by any
governmental entity of competent jurisdiction that prevents the
consummation of the transaction and that remains in effect at
the time such deposit is required;
|
|
|
|
we must provide Tiptree with a certificate of a duly authorized
officer of the company certifying to certain of the foregoing
conditions having been satisfied;
|
|
|
|
a minimum of 10,300,000 shares of our company common stock
shall have been tendered (and not withdrawn) in the tender offer
as of 9:00 a.m. on any date on which the offer is scheduled
to expire; and
|
|
|
|
the conditions denoted as Conditions
3-11
above
with respect to the tender offer must have been satisfied or
waived by Care, subject to the requirements of the purchase and
sale agreement.
|
Once the deposit by Tiptree of $60,430,932 is made into escrow,
the only condition to Tiptrees obligation to purchase the
shares to be issued to it is that the company has accepted for
payment all shares tendered (and not withdrawn) without waiver
or modification of the minimum condition.
As of the date of this proxy statement, the required consents
and government approvals have either been obtained or are
otherwise not applicable.
68
Representations
and Warranties of the Company
The purchase and sale agreement contains representations and
warranties made by us to Tiptree and representations and
warranties made by Tiptree to us. The assertions embodied in
those representations and warranties were made solely for
purposes of the purchase and sale agreement and may be subject
to important qualifications and limitations agreed by the
parties in connection with negotiating its terms. Moreover, some
of those representations and warranties may not be accurate or
complete as of any particular date because they are subject to a
contractual standard of materiality or material adverse effect
that is different from the standard generally applicable to
public disclosures to stockholders, or because they are used for
the purpose of allocating risk between the parties to the
purchase and sale agreement rather than establishing matters of
fact. For the foregoing reasons, you should not rely on the
representations and warranties contained in the purchase and
sale agreement as statements of factual information or for any
other purpose.
In the purchase and sale agreement, we make representations and
warranties relating to, among other things:
|
|
|
|
|
our and our subsidiaries proper corporate organization,
good standing and existence;
|
|
|
|
our and our subsidiaries corporate power and authority to
own our properties and assets and to carry on our business as it
is being conducted;
|
|
|
|
our capitalization, including in particular the number of shares
of our outstanding common stock and stock options outstanding
and the amount and certain terms of our outstanding indebtedness;
|
|
|
|
our corporate power and authority to enter into the purchase and
sale agreement, escrow agreement and registration rights
agreement and to consummate the transaction;
|
|
|
|
the absence of any violation of, conflict with or defaults under
our organizational documents, applicable law or certain
agreements as a result of entering into the purchase and sale
agreement, escrow agreement and registration rights agreement
and consummating the transaction;
|
|
|
|
required regulatory filings and consents and approvals of
governmental entities;
|
|
|
|
our SEC filings since June 27, 2007 and the financial
statements contained therein;
|
|
|
|
our implementation of certain internal controls over financial
reporting and a system of disclosure controls as required by the
Securities Exchange Act or 1934, as amended (the Exchange
Act), and compliance with the Sarbanes-Oxley Act;
|
|
|
|
the absence of certain changes or events since January 1,
2009;
|
|
|
|
the absence of certain liabilities and obligations, other than
(i) as set forth on our September 30, 2009 balance
sheet, (ii) ordinary course liabilities consistent with
past practice since September 30, 2009, (iii) those
incurred pursuant to the purchase and sale agreement and
(iv) those that do not, individually or in the aggregate,
exceed $1 million;
|
|
|
|
disclosure regarding litigation matters and the absence of
investigations and proceedings by governmental entities;
|
|
|
|
disclosure of, including the status of, certain tax matters;
|
|
|
|
the absence of employees, the status of company benefit plans
and other employee matters;
|
|
|
|
compliance with applicable laws and other regulatory matters;
|
|
|
|
the existence and status of material contracts of the company
and its subsidiaries;
|
|
|
|
the status of the material assets owned and leased by us and
title to assets;
|
69
|
|
|
|
|
the status of insurance policies;
|
|
|
|
the absence of undisclosed brokers and finders fees;
|
|
|
|
the accuracy of information regarding the company in certain
documents;
|
|
|
|
the status of the company under the Investment Company Act of
1940, as amended;
|
|
|
|
the absence of agreements with affiliated parties; and
|
|
|
|
the inapplicability of anti-takeover statutes or regulations to
the purchase and sale agreement and transaction.
|
Representations
and Warranties of Tiptree
In the purchase and sale agreement, Tiptree makes
representations and warranties relating to, among other things:
|
|
|
|
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its proper organization, good standing and corporate or other
power to operate its business;
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its corporate power and authority to enter into the purchase and
sale agreement, escrow agreement and registration rights
agreement and to consummate the transaction;
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the absence of any violation of or conflict with or defaults
under any of its organizational documents, applicable law or
certain agreements as a result of entering into the purchase and
sale agreement escrow agreement and registration rights
agreement and consummating the transaction;
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the absence of approval of any governmental entity or third
party necessary for the consummation by Tiptree of the
transactions contemplated by the purchase and sale agreement;
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the absence of any legal proceedings;
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the absence of brokers and finders fees;
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the accuracy of information regarding Tiptree in certain
documents;
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the intention of Tiptree to cause the shares of our company
common stock to continue to be listed on the NYSE;
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the fact that it has not relied upon any representations or
warranties of our company other than those expressly provided
for in the purchase and sale agreement and has conducted its own
due diligence efforts and has made its decision to enter into
the transaction based upon its own judgment and any advice from
its advisors;
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the sufficiency of its available funds to enable Tiptree to make
a deposit of $60,430,932 with the escrow agent; and
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its status as a sophisticated investor.
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Many of our representations and warranties are qualified by a
Company Material Adverse Effect standard. For
purposes of the purchase and sale agreement, Company
Material Adverse Effect means any effect that is material
and adverse to the assets, business, results of operations or
financial condition of the company and our subsidiaries taken as
a whole or that prevents or materially delays or materially
impairs the ability of the company to consummate the
transaction; provided, however, that no effect resulting from or
relating to the following shall constitute, or be taken into
account in determining whether there is or has been, a Company
Material Adverse Effect: (i) changes in conditions
generally affecting the industry in which we operate or the
United States or global economy; (ii) general political,
economic or business conditions or changes therein (including
the commencement, continuation or escalation of a war, material
armed hostilities or other material international or national
calamity or acts of terrorism or earthquakes, hurricanes, other
natural disasters or acts of God); (iii) general financial
or capital market conditions, including interest rates, or
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changes therein; (iv) any changes in applicable law, rules,
regulations, or generally accepted accounting principles or
other accounting standards, or authoritative interpretations
thereof, after the date of the purchase and sale agreement;
(v) the negotiation, execution, announcement or performance
of the purchase agreement or the performance or consummation of
the transaction, any litigation resulting therefrom, or the
impact thereof on relationships, contractual or otherwise, with
customers, suppliers, lenders, investors or employees;
(vi) any failure by us or any of our affiliates to meet any
analysts expectations or estimates of revenues or
earnings, including any failure arising out of changes in the
business of the company or any of our affiliates or any changes
in their respective credit ratings; (vii) any action or
omission required pursuant to the terms of the purchase and sale
agreement, or pursuant to the express written request of
Tiptree, or any action otherwise taken by Tiptree; (viii) a
decrease in the market price of the shares of our common stock;
provided, that the exception in this clause (viii) shall
not prevent or otherwise affect a determination that any change
or effect underlying such a decrease in market price has
resulted in, or contributed to, a Company Material Adverse
Effect; or (ix) the existence of the litigation with
Cambridge or any settlement thereof or any other actions taken
or omitted to be taken by us or any of our subsidiaries or any
of the Cambridge parties relating to the ownership interest of
ERC Sub, L.P. in any Cambridge entity or the ownership of any
partnership interests in ERC Sub, L.P. by any of the Cambridge
parties; provided, further, however, that changes, events,
occurrences or effects set forth in clause (i), (ii),
(iii) or (iv) above may be taken into account in
determining whether there has been or is a Company Material
Adverse Effect to the extent such changes, events, occurrences
or effects have a materially disproportionate adverse effect on
us and our subsidiaries, taken as a whole, as compared to other
participants in the industries in which we and our subsidiaries
operate, but only to the extent of such materially
disproportionate adverse effect as compared to such other
participants; provided, further, however, that the exceptions in
clauses (vi) and (viii) shall not prevent or otherwise
affect a determination that the underlying cause of any decline,
change or failure referred to therein (if not otherwise falling
within any of the exceptions provided by clause (i) through
(ix) above) is a Company Material Adverse Effect.
Conduct
of Business Pending the Tiptree Transaction
We have agreed that, subject to certain exceptions, until the
earlier of the closing date or the termination of the purchase
and sale agreement (except as may be required by law or with the
prior consent of Tiptree), we will, and will cause each of our
subsidiaries to, conduct our business in the ordinary course
consistent with past practice.
We have also agreed that during the same time period, and
subject to certain exceptions, we will not, and will not permit
any of our subsidiaries to:
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cause or permit any amendment, modification, alteration or
rescission of our certificate of incorporation, bylaws or other
charter or organizational documents;
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declare or pay any dividend or other distribution in respect of
our capital stock other than dividends or other distributions by
our subsidiary to us or another wholly owned subsidiary and
quarterly cash dividends of up to $0.17 per share of our common
stock, with record and payment dates consistent with past
practice;
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split, combine or reclassify any of our capital stock, or
repurchase or otherwise acquire, directly or indirectly, any
shares of our capital stock except from former employees,
directors or consultants in accordance with agreements in effect
on March 16, 2010, and the exercise of any warrants;
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issue, deliver or sell or authorize or propose the issuance,
delivery or sale of any shares of our capital stock or
securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any
character obligating us to issue any such shares or other
convertible securities, other than (i) pursuant to the
exercise of any warrants outstanding or the vesting and
settlement of our restricted stock units or performance share
awards, (ii) pursuant to our benefit plans,
(iii) pursuant to the exercise of any warrants
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outstanding to effectuate a grantee direction upon exercise or
for withholding of Taxes, or (iv) pursuant to any other
agreements existing as of March 16, 2010 to the extent set
forth on a schedule to the purchase and sale agreement;
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sell, lease, license or otherwise dispose of or encumber any
assets having a value in excess of $250,000 in the aggregate;
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incur any indebtedness for borrowed money or assume, guarantee,
endorse or otherwise as an accommodation become responsible for
the obligations of any third party, in excess of $250,000 in the
aggregate;
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make any capital expenditures, capital additions or capital
improvements except in the ordinary course of business
consistent with past practice that do not exceed individually or
in the aggregate $250,000;
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(i) terminate, amend or waive any material right in, or
fail to perform any material obligations under, any material
contract in a manner that could reasonably be expected to have a
Company Material Adverse Effect, or (ii) enter into any
material contract;
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except as required by existing written agreements or company
benefit plans, increase the compensation or other benefits
payable or provided to our directors or officers or any other
person that provides services to us or our subsidiaries;
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(i) enter into any employment, change of control, severance
or retention agreement with any of our or our subsidiaries
employees or directors or any other person that provides
services to us or our subsidiaries, (ii) establish, adopt,
enter into or amend any collective bargaining agreement, plan,
trust, fund, policy or arrangement for the benefit of any of our
or our subsidiaries current or former directors, officers
or employees or any of their beneficiaries, or (iii) grant
any equity or equity based awards;
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acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any
other manner, any business or any person or otherwise acquire or
agree to acquire any assets;
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make any change to our financial accounting methods or
practices, except as may be required by GAAP,
Regulation S-X
or any other rule or regulation promulgated by the Securities
and Exchange Commission;
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make or change any material tax elections, apply for or pursue
any tax ruling, change any tax identification number, execute
any powers of attorney in respect of any tax matter, extend or
waive the application of any statute of limitations regarding
the assessment or collection of any material tax of the company
or our subsidiaries, or take any action which could cause us to
fail to qualify as a REIT (other than in connection with or as a
result of the transaction with Tiptree), or adopt or change in
any material respect any accounting method in respect of taxes;
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settle or offer to settle the litigation with Cambridge Holdings
(other than any settlement that (i) does not require us to
pay any material amounts, (ii) would not reasonably be
expected to have a Company Material Adverse Effect from and
after the settlement date, or (iii) would not require us to
waive any material right or to undertake any material
obligation);
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enter into any new line of business or enter into any agreement
that restrains, limits or impedes our or any of our
subsidiaries ability to compete with or conduct any
business or line of business;
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expand the size of our board of directors; or
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take or agree in writing to take any of the foregoing actions.
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Efforts
to Complete the Tiptree Transaction
Subject to the terms and conditions of the purchase and sale
agreement, we have agreed to take all action necessary under all
applicable laws to call, give notice of and hold a meeting
special meeting of the stockholders to vote on the issuance to
Tiptree proposal, the abandonment of the liquidation proposal
and the first amendment proposal, and to use commercially
reasonable efforts to ensure that all proxies solicited in
connection with the special meeting of stockholders are
solicited in compliance with all applicable laws. In connection
with the special meeting, we have prepared this proxy statement
and have agreed to recommend the issuance to our stockholders.
In addition, both parties have agreed to, and to cause their
respective subsidiaries to, use commercially reasonable efforts
to, (i) take, or cause to be taken, all actions necessary,
proper or advisable to comply promptly with all legal
requirements which may be imposed on such party or its
subsidiaries with respect to the Tiptree Transaction, including
obtaining any third party consent which may be required to be
obtained in connection with the Tiptree Transaction, to
challenge the imposition of any preliminary or permanent
injunction or other order of a court of competent jurisdiction
preventing the consummation of the transaction (which challenge
shall be at the companys cost and expense), and, subject
to the conditions to such partys obligations set forth in
the purchase and sale agreement, to consummate the transaction
and (ii) obtain (and cooperate with the other party to
obtain) any consent, authorization, order or approval of, or any
exemption by, any governmental entity which is required to be
obtained by either party or any of their respective subsidiaries
in connection with the transaction; provided that, in no event
shall the company or any of its subsidiaries or Tiptree be
required to (a) seek to remove any temporary restraining
order, preliminary or permanent injunction or other order issued
by a court of competent jurisdiction preventing the consummation
of the transaction or (b) pay any amounts to any third
parties in settlement of pending litigation relating to or
arising out of the transaction.
The parties have also agreed to cooperate with each other and
promptly prepare and file all necessary documentation, and
effect all applications, notices, petitions and filings
(including any notification required by the HSR Act), to obtain
as promptly as practicable all permits, consents, approvals,
authorizations of all third parties and governmental entities,
and the expiry or termination of all applicable waiting periods,
which are required to consummate the transaction. In addition,
the parties have agreed that they will consult with each other
with respect to the obtaining of all permits, consents,
approvals and authorizations of all third parties and
governmental entities necessary or advisable to consummate the
transactions and each party will keep the other apprised of the
status of matters relating to completion of the transaction.
Both parties have agreed to give prompt notice to the other of
(i) the occurrence, or failure to occur, of any event,
which occurrence or failure to occur is reasonably likely to
cause any representation or warranty of such party contained in
the purchase and sale agreement to be untrue or inaccurate in a
manner that would cause the conditions to Tiptrees
obligations to deposit the $60,430,932 or the conditions to our
obligation to accept for payment the shares validly tendered and
not withdrawn not to be satisfied as of the relevant date
specified in the purchase and sale agreement, or (ii) any
failure of Tiptree or the company, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under purchase and sale
agreement in a manner that would cause the conditions to
Tiptrees obligations to deposit the $60,430,932 or the
conditions to our obligation to accept for payment the shares
validly tendered and not withdrawn not to be satisfied as of the
relevant date specified in the purchase and sale agreement.
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No
Solicitation of Alternative Transaction; Superior
Proposal
We have agreed, among other things, that we shall not, nor shall
we authorize any of our subsidiaries or any of our or our
subsidiaries executive officers and directors, employees,
accountants, counsel, financial advisors, agents or other
representatives to:
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directly or indirectly, solicit, initiate, or encourage any
inquiries regarding or the submission of, any takeover proposal;
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participate in any discussions or negotiations regarding, or
furnish to any person any confidential information or data with
respect to, or take any other action to knowingly facilitate the
making of, a takeover proposal or any inquiry that may
reasonably be expected to lead to a takeover proposal; or
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enter into any agreement with respect to any takeover proposal
or approve or resolve to approve any takeover proposal.
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Notwithstanding anything to the contrary above, prior to the
date that the company accepts for payment all shares of company
common stock validly tendered pursuant to the tender offer (and
not withdrawn), if the company receives from any third party a
written inquiry or takeover proposal that was not solicited in
violation of the purchase and sale agreement:
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the company may contact such third party or its advisors for the
purpose of clarifying such inquiry or takeover proposal and the
material terms and conditions thereof, so as to determine
whether such inquiry or takeover proposal is reasonably likely
to lead to a superior proposal and
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the company may furnish information concerning its business or
assets to such third party pursuant to a customary
confidentiality agreement with provisions not materially less
favorable in the aggregate to the company than the
confidentiality agreement it executed with Tiptree, and may
negotiate and participate in discussions and negotiations with
such third party concerning a takeover proposal, if such third
party has submitted a superior proposal, or a takeover proposal
that the companys board of directors determines in good
faith (after consultation with its advisors) is reasonably
likely to constitute or lead to a superior proposal.
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Pursuant to the purchase and sale agreement, the company agreed
to promptly (and, in any event, within 72 hours) notify
Tiptree if any proposals or offers with respect to a takeover
proposal are received by, any non-public information is
requested from, or any discussions or negotiations are sought to
be initiated or continued with, the company or any of its
representatives including, in connection with such notice, a
written summary of the material terms and conditions of any
proposals or offers that are not made in writing and copies of
any requests, proposals or offers, including proposed
agreements, of proposals or offers that are made in writing. The
company agreed to keep Tiptree reasonably informed, on a prompt
basis, of the status and terms of any proposals or offers
(including any amendments thereto) and the status of any
discussions, negotiations or developments, as well as to
promptly provide Tiptree with any non-public information
concerning the company provided to any other third party which
was not previously provided to Tiptree.
For purposes of the purchase and sale agreement, takeover
proposal means any proposal or offer, whether in writing
or otherwise, from a third party to acquire beneficial ownership
(as defined under
Rule 13d-3
of the Exchange Act) of assets that constitute 15% or more of
our assets or 15% or more of our common stock or outstanding
voting power, whether pursuant to a merger, consolidation or
other business combination, sale of shares of capital stock,
sale of assets, tender offer, exchange offer or similar
transaction.
For purposes of the purchase and sale agreement, superior
proposal means a bona fide written proposal by a third
party to acquire, directly or indirectly, more than 50% of the
shares of our common stock then outstanding or of the assets,
which (i) our board determines in good faith (after
consultation with its advisors) to be more favorable to our
stockholders than the transaction with Tiptree and
(ii) which, in the good faith judgment of our board, is
reasonably likely to be consummated, taking
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into consideration (with respect to both subsections (i)
and (ii) above) all financial, regulatory, legal, timing
and other aspects of such proposal.
Except as described above, and subject to any additional
conditions as described in the purchase and sale agreement,
neither our board nor any committee thereof may (i) adopt,
approve or recommend, or propose to adopt, approve or recommend,
(publicly or otherwise) a takeover proposal, (ii) make any
recommendation or public statement in connection with a tender
offer or exchange offer by a third party other than a
recommendation against such offer or a stop, look and
listen communication by our board pursuant to
Rule 14d-9(f)
of the Exchange Act, or (iii) cause or permit the company
to enter into any acquisition agreement, merger agreement or
similar definitive agreement (other than a confidentiality
agreement as described above) relating to any takeover proposal.
Notwithstanding anything in the purchase and sale agreement to
the contrary, prior to the date that the company accepts for
payment all shares of our common stock validly tendered pursuant
to the tender offer (and not withdrawn), our board may take any
of the actions in the preceding paragraph if (i) our board
has determined in good faith, after consultation with outside
counsel, that failure to take such action would be inconsistent
with our directors fiduciary duties to our stockholders
and (ii) in the case of the actions referred to in
clauses (ii) or (iii) of the preceding paragraph,
(a) we shall have received a superior proposal which is
pending at the time we determine to take such action,
(b) we shall have provided Tiptree with written notice
advising Tiptree that our board has received such a superior
proposal which it intends to approve, recommend or accept,
specifying the identity of the party making the superior
proposal and the material terms and conditions thereof, and
(c) at least two (2) business days shall have passed
following Tiptrees receipt of such notice (each subsequent
material amendment or material revision to such superior
proposal will require us to deliver to Tiptree a new notice of
superior proposal and result in an additional two
(2) business day period from the date of receipt of any
such material amendment or material revision) and Tiptree must
not have made a binding written offer that our board has
concluded in its good faith judgment, after consultation with
its financial advisors, is at least as favorable to the our
stockholders as such superior proposal.
Governance
As a condition to Tiptrees obligations under the purchase
and sale agreement, at least three of our directors must resign
from the board, effective as of closing, and the vacancies shall
be filled with candidates acceptable to Tiptree.
Exchange
Listing
Tiptree has agreed to use commercially reasonable efforts to
cause the shares of our common stock to continue to be listed
for trading on the NYSE for a period of one year after the
closing date.
Termination
of the Purchase and Sale Agreement
The purchase and sale agreement may be terminated before closing
by:
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mutual consent of the company and Tiptree at any time prior to
the date on which the company accepts the shares tendered in the
tender offer (and not withdrawn);
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either Tiptree or the company, by written notice, at any time
prior to 5:00 p.m. on September 30, 2010 if we have
not accepted for payment shares tendered (and not withdrawn) in
the tender offer; provided, that the failure to complete the
tender offer is not due to the fault of the party requesting
termination;
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Tiptree at any time prior to the date on which Tiptree is
required to deposit $60,430,932 in connection with the
transaction by written notice to the company, if (i) the
company breaches any of its representations, warranties or
obligations under the purchase and sale agreement to an extent
that would cause certain conditions not to be satisfied and such
breach has not been cured within ten (10) business days of
receipt by the company of written notice of such breach if such
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breach is capable of cure; provided, that Tiptrees right
to terminate the purchase and sale agreement will not be
available to Tiptree if it is at that time in material breach of
purchase and sale agreement, (ii) the companys board
shall have withdrawn or modified, or proposed publicly to
withdraw or modify, the boards approval of the transaction
in a manner adverse to Tiptree or (iii) the companys
board shall have approved or recommended, or proposed publicly
to approve or recommend, a takeover proposal, or within five
(5) days of a written request by Tiptree for the
companys board to reaffirm its approval of the transaction
following the date on which any takeover proposal, or any
material modification thereto, is first publicly announced,
published or sent to the stockholders of the company, the
company fails to issue a press release that reaffirms its
boards approval of the transaction (which request may only
be made once with respect to such takeover proposal absent
further material changes or amendments in such takeover
proposal);
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the company at any time prior to the closing date if Tiptree
breaches any of its representations, warranties or obligations
under the purchase and sale agreement to an extent that would
cause the conditions set forth in subsections (e) or
(f) of Annex I to the purchase and sale agreement not
to be satisfied and Tiptree has not cured such breach within ten
(10) business days of receiving written notice of such
breach and such breach is capable of cure; provided, that the
company cannot terminate the purchase and sale agreement if the
company is at that time in material breach of the purchase and
sale agreement;
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the company at any time prior to accepting for payment shares
tendered (and not withdrawn) in the tender offer in order to
enter into a definitive agreement with respect to a superior
proposal in accordance with the purchase and sale agreement;
provided, the company has complied with its obligations
regarding takeover proposals in the purchase and sale
agreement; and
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either the company or Tiptree at any time prior to the company
accepting all shares of its common stock validly tendered
pursuant to the tender offer if any governmental entity issues
an order, decree or ruling or takes any other action permanently
enjoining, restraining or otherwise prohibiting the transaction
as violative of any antitrust law or for any reason other than
antitrust law, and such order, decree or ruling has become final
and non-appealable.
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Termination
Fees
In the event of a termination of the purchase and sale
agreement, we have agreed to the following:
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if the termination is due to us entering into a definitive
agreement with respect to a superior proposal, our breach of our
non-solicitation obligation, our failure to conduct the tender
offer, our failure to file a preliminary proxy statement seeking
stockholder approval in accordance with the purchase and sale
agreement, or our failure to take all action necessary to hold a
special meeting of the stockholders to approve the issuance to
Tiptree proposal, the abandonment of the liquidation proposal
and the first amendment proposal, we will pay Tiptree a
$1.6 million termination fee;
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if the termination follows a publicly announced takeover
proposal and is pursuant to: (i) a withdrawal of our
boards approval of the transactions contemplated in the
purchase and sale agreement, (ii) our boards approval
of an alternate takeover proposal, or (iii) less than
10,300,000 shares being tendered in the tender offer by
August 31, 2010, and within twelve months of terminating
the agreement we consummate the transaction contemplated by the
takeover proposal, we will pay Tiptree a $1.6 million
termination fee;
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if the termination is due to Tiptree breaching any of its
representations, warranties or obligations that would cause the
conditions set forth in subsections (e) and (f) Annex I to the
purchase and sale agreement not to be satisfied and Tiptree has
not cured such breach within
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ten (10) business days after receiving written notice of
such breach if such breach is capable of cure, Tiptree will pay
us a $1.6 million termination fee; and
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if the termination is due to the transaction not closing by
September 30, 2010 and Tiptree has not obtained its
required consents or there has occurred a Purchaser Material
Adverse Effect, Tiptree will pay us a $1.6 million
termination fee.
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Purchaser Material Adverse Effect means any material adverse
effect on the ability of Tiptree to timely consummate the
Tiptree Transaction or otherwise comply, in all material
respects, with the terms and conditions of the purchase and sale
agreement.
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THE
REGISTRATION RIGHTS AGREEMENT
This section of the proxy statement describes the material
provisions of the registration rights agreement but does not
purport to describe all of the terms of the registration rights
agreement. The following summary is qualified in its entirety by
reference to the complete text of the registration rights
agreement, which was filed as exhibit 10.2 to our
Form 8-K
filed on March 16, 2010. We urge you to read the full text
of the registration rights agreement. It is not intended to
provide you with any other factual information about us. Such
information can be found elsewhere in this proxy statement and
in the public filings we make with the SEC, as described in the
section entitled Where You Can Find More Information
below.
Pursuant to the purchase and sale agreement, we have entered
into the registration rights agreement with Tiptree concurrently
with the execution of the purchase and sale agreement. The
registration rights agreement provides Tiptree with certain
rights to cause us to register shares of common stock to be
issued to Tiptree in connection with the consummation of the
Tiptree Transaction.
Demand
Registrations
At any time and from time to time, holders representing a
majority-in-interest
of the to be registrable securities (as defined herein), may
request registration under the Securities Act of 1933, as
amended (the Securities Act), on
Form S-11
or any similar other applicable long-form registration statement
for the offering of all or any portion of such securities.
Within ten days after receiving such written request, we must
use commercially reasonable efforts to include in such
registration all of the registrable securities with respect to
which we have received notice, within 10 days of our
notice, and use our commercially reasonable efforts to effect,
at the earliest possible date, the registration under the
Securities Act. We are obligated to effect this type of
registration no more than three times. The term
registrable securities includes: (i) any of the
shares purchased by Tiptree pursuant to the purchase and sale
agreement; (ii) any additional shares of our company common
stock acquired by Tiptree or any of its affiliates; and
(iii) any class of shares of our capital stock or shares of
capital stock of a successor to our entire business which may be
issued in exchange for any shares or as payment of any dividend
on any such shares.
In addition, commencing on the date that we are eligible for
short form registration pursuant to Rule 415 of the
Securities Act, each holder will be entitled to request
registrations under the Securities Act of all or part of its
registrable securities; provided, that the anticipated aggregate
offering amount exceeds $1,000,000 (net of underwriting
discounts and commissions).
The holders representing a
majority-in-interest
of the registrable securities have the right to request that a
demand registration be effected as an underwritten offering at
any time. In addition, we may not include in any demand
registration securities of any other person, including
ourselves, unless holders representing a majority in interest of
registrable securities approve of such inclusion.
Piggyback
Registrations
If we propose to file a registration statement under the
Securities Act with respect to an offering of equity securities
for our own account or for our other stockholders, then we are
required to give the holders of registrable securities a minimum
of ten days notice prior to the anticipated filing date offering
such holders the opportunity to register the sale of such number
of registrable securities as the holders may request within five
days following receipt of such notice. If we decide for any
reason not to register or to delay registration of such
securities, we must notify the holders of registrable securities
and, in the case of our determination not to register, we shall
be relieved from our obligation to register the registrable
securities, or in the case of our determination to delay the
registration, can delay the registration of the registrable
securities for the same amount of time.
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Expenses
All registration, filing fees, fees and expenses of compliance
with securities or blue sky laws, expenses in preparing, mailing
and delivering the registration statement and any other related
agreements, and certain other associated expenses incident to
our compliance with the registration rights agreement will be
paid by us. Each holder will bear its pro rata cost of all
underwriting discounts and commissions associated with any sale
of registrable shares by such holder.
Indemnification
We have agreed to indemnify each holder of registrable
securities, pursuant to a customary indemnification provision,
for any Losses (as defined in the registration rights agreement)
arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in, or omission or
alleged omission to state a material fact in, any registration
statement and other related documents and any amendment thereof
or supplement thereto; provided, that we shall not be required
to indemnify a holder if the untrue statement is made in
conformity with information provided by such holder.
Each holder has agreed to indemnify us, pursuant to a customary
indemnification provision, for any Losses arising out of or
based upon any untrue statement or alleged untrue statement of a
material fact contained in, or omission or alleged omission to
state a material fact in, any registration statement and other
related documents and any amendment thereof or supplement
thereto if, in each case, such event occurred in conformity with
information provided by such holder. The obligations of the
holders with respect to indemnification are several and not
joint and are limited to the amount of proceeds received by such
holder pursuant to the sale of registrable securities by such
holder.
Termination
The registration rights agreement will terminate if the
transactions contemplated by the purchase and sale agreement
have not been consummated and the purchase and sale agreement
has been terminated pursuant to its terms.
Recommendations
of Our Board of Directors and the Special Committee
OUR SPECIAL COMMITTEE AND OUR BOARD OF DIRECTORS RECOMMEND
THAT YOU VOTE FOR THE ISSUANCE TO TIPTREE.
79
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of our
common stock, as of July 2, 2010, for (1) each person
known to us to be the beneficial owner of more than 5% of our
outstanding common stock, (2) each of our directors,
(3) each of our named executive officers (including
Mr. Kellman and Mr. McDugall who resigned on
December 4, 2009 and March 18, 2010, respectively, and
whose beneficial ownership figures are as of March 25,
2010) and (4) our directors and named executive officers as
a group. Except as otherwise described in the notes below, the
following beneficial owners have sole voting power and sole
investment power with respect to all shares of common stock set
forth opposite their respective names.
In accordance with SEC rules, each listed persons
beneficial ownership includes:
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all shares the investor actually owns beneficially or of record;
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all shares over which the investor has or shares voting or
dispositive control (such as in the capacity as a general
partner of an investment fund); and
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all shares the investor has the right to acquire within
60 days (such as upon exercise of options that are
currently vested or which are scheduled to vest within
60 days).
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Unless otherwise indicated, all shares are owned directly and
the indicated person has sole voting and investment power.
Unless otherwise indicated, the business address for each
beneficial owner listed below shall be
c/o Care
Investment Trust Inc., 505 Fifth Avenue,
6th Floor, New York, New York 10017.
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Amount and Nature
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of Beneficial
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Ownership of
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Percent of
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Name
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Common Stock
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Total
(1)
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CIT Group
Inc.
(2)
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505 5th Avenue,
6
th
Floor
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New York, New York 10017
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8,024,040
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38.82
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%
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GoldenTree Asset Management
LP
(3)
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300 Park Avenue, 21st Floor
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New York, New York 10022
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2,741,676
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13.55
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%
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Tyndall Capital Partners,
L.P.
(4)
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599 Lexington Avenue, Suite 4100
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New York, New York 10022
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1,049,000
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5.18
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%
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F. Scott
Kellman
(5)
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142,950
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*
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Flint D.
Besecker
(6)
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13,118
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*
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Michael P.
McDugall
(7)
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0
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*
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Salvatore (Torey) V. Riso
Jr.
(8)
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40
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*
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Paul F.
Hughes
(9)
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0
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*
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Gerald E. Bisbee, Jr.
Ph.D.
(10)
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22,277
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*
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Karen P.
Robards
(10)
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22,777
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*
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J. Rainer
Twiford
(10)
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1,443
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*
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Steven N.
Warden
(11)
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5,352
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*
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All Directors and Executive Officers as a Group (9 Persons)
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207,957
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*
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*
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The percentage of shares
beneficially owned does not exceed one percent of the total
shares of our common stock outstanding.
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(1)
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As of July 2, 2010,
20,235,924 shares of common stock were issued and
outstanding and entitled to vote. The percent of total for all
of the persons listed in the table above is based on such
20,235,924 shares of common stock, except for CIT Group
Inc., whose percent of total is based on 20,670,924 shares
of common stock, which includes a warrant to purchase
435,000 shares of our common stock. CIT Group Inc. is
entitled to vote 7,589,040 shares.
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(2)
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In an amendment to
Schedule 13D filed on October 2, 2008, CIT Real Estate
Holding Corporation and CIT Healthcare LLC, each located at
505 Fifth Avenue, 6th Floor, New York, New York 10017, were
deemed, pursuant to
Rule 13d-3
of the Securities Exchange Act of 1934, as amended, to hold
shared voting and dispositive power over 6,981,350 and
1,042,690 shares of our common stock, respectively. This
amendment to Schedule 13D amended and supplemented the
Schedule 13D originally filed on July 9, 2007 and was
filed to report the grant to CIT Healthcare LLC of warrants to
purchase 435,000 shares of our common stock pursuant to a
warrant agreement by and between CIT Group Inc. and the company,
dated September 30, 2008. By virtue of its 100% ownership
of CIT Real Estate Holding Corporation and CIT Healthcare LLC,
CIT Group Inc. was deemed to have shared voting and dispositive
power over 8,024,040 shares of our common stock. On
March 16, 2010, CIT Group Inc. entered into a warrant
purchase agreement with Tiptree, pursuant to which, CIT Group
Inc. will sell its warrant to purchase 435,000 shares of
our common stock to Tiptree upon the closing of the Tiptree
Transaction.
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(3)
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In an amendment to
Schedule 13G filed on April 9, 2010, GoldenTree Asset
Management LP was deemed, pursuant to
Rule 13d-3
of the Securities Exchange Act of 1934, as amended, to hold
shared voting and dispositive power over 2,741,676 shares
of our common stock. By virtue of serving as the general partner
of GoldenTree Asset Management LP, GoldenTree Asset Management
LLC was deemed to have shared voting and dispositive power over
the shares held by GoldenTree Asset Management LP. Likewise,
Mr. Steven A. Tananbaum, by virtue of serving as managing
member of GoldenTree Asset Management LLC, was deemed to have
shared voting and dispositive power over the shares held by
GoldenTree Asset Management LP. In a Schedule 13G filed on
March 4, 2009, GoldenTree Asset Management LP, GoldenTree
Asset Management LLC and Mr. Steven A. Tananbaum, together
with GT Asset Management LP and GT Asset Management LLC,
reported that they have ceased to be beneficial
owners of our common stock for purposes of
Section 16(a) of the Securities Exchange Act of 1934, as
amended.
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(4)
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In a Schedule 13G filed on
February 5, 2010, Tyndall Capital Partners, L.P., located
at 599 Lexington Avenue, Suite 4100, New York, New York
10022, was deemed, pursuant to
Rule 13d-3
of the Securities Exchange Act of 1934, as amended, to hold
shared voting and dispositive power over 1,049,000 shares
of our common stock, due to its position as general partner of
Tyndall Partners, L.P. and Tyndall Institutional Partners, L.P.
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(5)
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Mr. Kellman resigned as chief
executive officer and president of our company on
December 4, 2009. All of Mr. Kellmans unvested
restricted stock and restricted stock units vested upon the
approval of the plan of liquidation by our stockholders on
January 28, 2010. The amount of shares beneficially owned
by Mr. Kellman in the table above is as of March 25,
2010.
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(6)
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All of Mr. Beseckers
unvested restricted stock and restricted stock units vested upon
the approval of the plan of liquidation by our stockholders on
January 28, 2010. Mr. Beseckers beneficial
ownership figure does not reflect the 10,000 shares
issuable to him upon settlement of the performance share award
granted to him on December 10, 2009.
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(7)
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Mr. McDugall resigned as chief
investment officer of our company on March 18, 2010. All of
Mr. McDugalls unvested restricted stock and restricted
stock units vested upon approval of the plan of liquidation by
stockholders on January 28, 2010. Mr. McDugalls
beneficial ownership figure does not reflect the performance
share award granted to him on December 10, 2009. The amount
of shares beneficially owned by Mr. McDugall in the table
above is as of March 25, 2010.
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(8)
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All of Mr. Risos
unvested restricted stock units vested upon the approval of the
plan of liquidation by our stockholders on January 28,
2010. Mr. Risos beneficial ownership figure does not
reflect the 10,000 shares issuable to him upon settlement
of the performance share award granted to him on
December 10, 2009.
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(9)
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All of Mr. Hughes
unvested restricted stock units vested upon the approval of the
plan of liquidation by our stockholders on January 28,
2010. Mr. Hughes beneficial ownership figure does not
reflect the 6,000 shares issuable to him upon settlement of
the performance share award granted to him on December 10,
2009.
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(10)
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All of our directors unvested
restricted stock vested upon the approval of the plan of
liquidation by our stockholders on January 28, 2010.
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(11)
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All of Mr. Wardens
unvested restricted stock units vested upon the approval of the
plan of liquidation by our stockholders on January 28, 2010.
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81
PROPOSAL TWO:
ABANDONMENT OF THE PLAN OF LIQUIDATION
On January 28, 2010, our stockholders approved a plan of
liquidation. Our board of directors is recommending that our
stockholders abandon the plan of liquidation in favor of the
issuance to Tiptree proposal because our board believes that the
transaction will return greater value to our stockholders (and
more quickly) than the plan of liquidation.
Proposal 2 is conditioned on proposal 1 being
approved. If our stockholders do not approve proposal 1, or
if the purchase and sale agreement is terminated prior to the
special meeting, then we would consider proposal 2 moot,
and votes for proposal 2 would not be counted. If our
stockholders do not approve proposal 1, we may pursue the
plan of liquidation as approved by our stockholders or, upon the
termination of the purchase and sale agreement, continue to
pursue other strategic alternatives.
OUR BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
ABANDONMENT OF THE PLAN OF LIQUIDATION PROPOSAL.
82
PROPOSAL THREE:
FIRST AMENDMENT TO OUR CHARTER
On March 16, 2010, our board of directors unanimously
approved, subject to stockholder approval, an amendment to our
charter to remove section 7.2.1(a)(iii), which may
otherwise prohibit the issuance of stock to Tiptree in the
transaction.
Section 7.2.1(a)(iii) of our charter states:
Notwithstanding any other provisions contained herein, any
Transfer of shares of Capital Stock (whether or not such
Transfer is the result of a transaction entered into through the
facilities of the NYSE or any other national securities exchange
or automated inter-dealer quotation system) that, if effective,
would result in the Capital Stock being Beneficially Owned by
less than 100 Persons (determined under the principles of
Section 856(a)(5) of the Code) shall be void ab initio, and
the intended transferee shall acquire no rights in such shares
of Capital Stock.
Section 7.1 of our charter defines Transfer as
follows:
Transfer.
The term
Transfer shall mean any issuance, sale, transfer,
gift, assignment, devise or other disposition, as well as any
other event that causes any Person to acquire Beneficial
Ownership or Constructive Ownership, or any agreement to take
any such actions or cause any such events, of Capital Stock or
the right to vote or receive dividends on Capital Stock,
including (a) the granting or exercise of any option (or
any disposition of any option), (b) any disposition of any
securities or rights convertible into or exchangeable for
Capital Stock or any interest in Capital Stock or any exercise
of any such conversion or exchange right and (c) Transfers
of interests in other entities that result in changes in
Beneficial or Constructive Ownership of Capital Stock; in each
case, whether voluntary or involuntary, whether owned of record,
Constructively Owned or Beneficially Owned and whether by
operation of law or otherwise. The terms
Transferring and Transferred shall have
the correlative meanings.
We are conducting a tender offer in conjunction with the
issuance to Tiptree, which tender offer will reduce our total
number of stockholders. It is possible that the Tiptree
Transaction may result in us having fewer than 100 stockholders.
As a result, we are seeking shareholder approval to amend our
charter to remove section 7.2.1(a)(iii), because such
provision may be deemed to void our issuance of common stock to
Tiptree if the tender offer results in our having less than 100
stockholders. See
Exhibit A
to this Proxy Statement
for the form of the charter amendment we intend to file with the
Maryland Department of Assessments and Taxation if this proposal
is approved. See Risk Factors Risks Related to
the Tiptree Transaction.
Proposal 3 is conditioned on proposals 1 and 2 being
approved. If our stockholders do not approve proposal 1 or
proposal 2, or if the purchase and sale agreement is
terminated prior to the date of the special meeting, then we
would consider proposal 3 to be moot, and votes for
proposal 3 would not be counted.
OUR BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
FIRST
AMENDMENT PROPOSAL.
83
PROPOSAL FOUR:
SECOND AMENDMENT TO OUR CHARTER
On April 13, 2010, our board of directors unanimously
approved, subject to stockholder approval, an amendment, such
amendment to be effective 20 calendar days after the
consummation of the Tiptree Transaction, to our charter to
reinstate section 7.2.1(a)(iii), which is intended to
reinstate the REIT status protective provision removed in
conjunction in the Tiptree Transaction.
Section 7.2.1(a)(iii) of our charter is a provision
intended to protect our REIT status by ensuring that no
transfer results in less than 100 company
stockholders. Proposal 3 would remove
section 7.2.1(a)(iii) from our charter in order to
facilitate the Tiptree Transaction since
section 7.2.1(a)(iii) may be deemed to void our issuance of
common stock to Tiptree if the tender offer results in our
having less than 100 stockholders. The board of directors has
determined that it is in the best interests of the company and
the stockholders to reinsert section 7.2.1(a)(iii)
20 calendar days after the consummation of the Tiptree
Transaction. As a result, we are seeking stockholder approval to
amend our charter, on the date that is 20 calendar days
after the consummation of the Tiptree Transaction, to insert a
new section 7.2.1(a)(iii), which shall read as follows:
Notwithstanding any other provisions contained herein, any
Transfer of shares of Capital Stock (whether or not such
Transfer is the result of a transaction entered into through the
facilities of the NYSE or any other national securities exchange
or automated inter-dealer quotation system) that, if effective,
would result in the Capital Stock being Beneficially Owned by
less than 100 Persons (determined under the principles of
Section 856(a)(5) of the Code) shall be void ab initio, and
the intended transferee shall acquire no rights in such shares
of Capital Stock.
See
Exhibit B
to this Proxy Statement for the form
of the charter amendment we intend to file with the Maryland
Department of Assessments and Taxation if this proposal is
approved. See Risk Factors Risks Related to
the Tiptree Transaction.
Proposal 4 is conditioned on proposals 1, 2 and 3
being approved. If our stockholders do not approve
proposal 1, 2 or 3, or if the purchase and sale agreement
is terminated prior to the date of the special meeting, then we
would consider proposal 4 to be moot, and votes for
proposal 4 would not be counted.
OUR BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
SECOND AMENDMENT PROPOSAL.
84
WHERE YOU
CAN FIND MORE AVAILABLE INFORMATION
We are subject to the information filing requirements of the
Exchange Act and, in accordance with that Act, are obligated to
file with the SEC periodic reports, proxy statements and other
information relating to our business, financial condition and
other matters. These reports, proxy statements and other
information may be inspected at the SECs office at the
Public Reference Room of the SEC at 100 F Street, NE,
Washington, D.C. 20549. Copies of these materials can be
obtained, upon payment of the SECs customary charges, by
calling the SEC at
1-800-SEC-0330
or by writing to the SECs Freedom of
Information & Privacy Act Office at
100 F Street, NE, Washington, D.C. 20549. The SEC
also maintains a website at
http://www.sec.gov
that contains reports, proxy statements and other information
regarding issuers that file electronically with the SEC.
A copy of our 2009 annual report on
Form 10-K
for the fiscal year ended December 31, 2009 (filed with the
SEC on March 16, 2010), as amended on
Form 10-K/A
(filed with the SEC on April 30, 2010) and as further
amended on Form 10-K/A (filed with the SEC on July 15,
2010) accompanies this proxy statement and a copy of our
quarterly report on
Form 10-Q
for the quarter ended March 31, 2010 (filed with the SEC on
May 10, 2010) accompanies this proxy statement. We hereby
incorporate by reference into this proxy statement from:
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our annual report, as amended, for the fiscal year ended
December 31, 2009, the information contained under the
heading Risk Factors on pages 20 through 41,
the information contained under the heading Selected
Financial Data on pages 45 through 46, the information
contained under the heading Managements Discussion
and Analysis of Financial Condition and Results of
Operations on pages 46 through 60, the information
contained under the heading Quantitative and Qualitative
Disclosures about Market Risk on pages 61 through 62, the
consolidated financial statements and related notes on pages 4
through 35 of our Form 10-K/A filed on July 15, 2010,
and the information contained under the heading Changes in
and Disagreements with Accountants on Accounting and Financial
Disclosure and
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our quarterly Report on
Form 10-Q
for the quarter ended March 31, 2010 filed on May 10,
2010, the condensed financial statements and related notes on
pages 3 through 18, the information contained under the heading
Managements Discussion and Analysis of Financial
Condition and Results of Operations on pages 19 through
22, and the information contained under the heading
Quantitative and Qualitative Disclosures about Market
Risk on pages 22 through 23.
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EXPENSES
OF SOLICITATION
We will pay the cost of solicitation of proxies. In addition to
the solicitation of proxies by mail, our directors and officers,
and the employees of our manager may also solicit proxies
personally or by telephone without additional compensation for
such activities. We will also request persons, firms and
corporations holding shares in their names or in the names of
their nominees, which are beneficially owned by others, to send
proxy materials to and obtain proxies from such beneficial
owners. We will reimburse such holders for their reasonable
expenses.
STOCKHOLDER
PROPOSALS
1.
Proposals for Inclusion in the Proxy
Statement
.
Under the rules of the SEC, if a
stockholder wanted to include a proposal for consideration in
our proxy statement and proxy card at our 2010 Annual Meeting,
the proposal should have been received at our executive offices
located at Care Investment Trust Inc., 505 Fifth
Avenue, 6th Floor, New York, New York 10017, Attn: Paul F.
Hughes, Secretary and Chief Compliance Officer no later than
5:00 p.m., Eastern Time, on December 31, 2009. We have
received no proposals for inclusion in our proxy statement for
our 2010 Annual Meeting.
86
2.
Proposals to be Offered at an Annual
Meeting
.
Under our amended and restated
bylaws, and as permitted by the rules of the SEC, certain
procedures are provided which a stockholder must follow to
nominate persons for election as directors or to introduce an
item of business at an annual meeting if such matter is not
intended to be considered for inclusion in the proxy statement.
These procedures provide that nominations for director nominees
and/or
an
item of business to be introduced at an annual meeting of
stockholders must be submitted in writing by certified mail to
the Secretary of the company at our executive offices located at
Care Investment Trust Inc., 505 Fifth Avenue,
9th Floor, New York, New York 10017, Attn: Paul F. Hughes,
Secretary and Chief Compliance Officer. We must have received
the notice of your intention to introduce a nomination or
proposed item of business at our 2010 Annual Meeting no earlier
than 150 days prior to the first anniversary of the date of
mailing of the Notice for the 2009 Annual Stockholders Meeting
and no later than 120 days in advance of such date. In
addition, nominations for a non-incumbent director must be
accompanied by information concerning the proposed nominee,
including such information as is required by the companys
amended and restated bylaws and the proxy rules under the SEC.
For our 2010 Annual Meeting, we have not received any such
proposals by the deadline described above.
OTHER
BUSINESS
Our board of directors is not aware of any other matters that
are to be presented at the special meeting, and it has not been
advised that any other person will present any other matters for
consideration at the meeting. Nevertheless, if other matters
should properly come before the special meeting, the
stockholders present, or the persons, if any, authorized by a
valid proxy to vote on their behalf, shall vote on such matters
in accordance with their judgment.
87
EXHIBIT B
CARE
INVESTMENT TRUST INC.
FORM OF
SECOND CHARTER AMENDMENT
THIS IS TO CERTIFY THAT:
FIRST
:
The charter of Care Investment
Trust Inc., a Maryland corporation (the
Corporation), is hereby amended by inserting the
following provision which shall be a new
section 7.2.1(a)(iii):
Notwithstanding any other provisions contained herein, any
Transfer of shares of Capital Stock (whether or not such
Transfer is the result of a transaction entered into through the
facilities of the NYSE or any other national securities exchange
or automated inter-dealer quotation system) that, if effective,
would result in the Capital Stock being Beneficially Owned by
less than 100 Persons (determined under the principles of
Section 856(a)(5) of the Code) shall be void ab initio, and
the intended transferee shall acquire no rights in such shares
of Capital Stock.
SECOND
:
The amendment to the charter of
the Corporation as set forth above has been duly advised by the
board of directors and approved by the stockholders of the
Corporation as required by law.
THIRD
:
The undersigned President
acknowledges these Articles of Amendment to be the corporate act
of the Corporation and as to all matters or facts required to be
verified under oath, the undersigned President acknowledges that
to the best of the Presidents knowledge, information and
belief, these matters and facts are true in all material
respects and that this statement is made under the penalties for
perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles to
be signed in its name and on its behalf by its President and
attested to by its Secretary on
this
day
of ,
2010.
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ATTEST:
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CARE INVESTMENT TRUST INC.
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By:
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(SEAL)
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Paul F. Hughes, Secretary
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Salvatore (Torey) V. Riso Jr., President
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B-1
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CARE INVESTMENT TRUST INC.
505 FIFTH AVENUE
6TH FLOOR
NEW YORK, NY 10017
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VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
Electronic Delivery of Future PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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KEEP THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION
ONLY
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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The Board of Directors recommends you
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vote FOR the following proposal (s):
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For
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Against
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Abstain
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1
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Approval of the issuance of a minimum of 4,445,000 shares (subject to upward adjustment) of our common stock to Tiptree at a price of $9.00 per share.
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o
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2
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Approval of the proposal to abandon the plan of liquidation in favor of Proposal 1.
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o
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o
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3
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Approval of the proposal to amend our amended and restated articles of incorporation to remove
section 7.2.1(a)(iii), which may otherwise prohibit the issuance of stock to Tiptree.
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o
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o
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o
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4
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Approval of the proposal to amend our amended and restated articles
of incorporation to reinstate section 7.2.1(a)(iii), which was removed pursuant
to Proposal 3, such amendment to be effective 20 calendar days after the
consummation of the Tiptree transaction.
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o
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o
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5
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Approval of the proposal to permit the board to adjourn the special
meeting, if necessary, to permit further solicitation of proxies if
there are not sufficient votes at the time of the special meeting to
approve Proposals 1, 2, 3 and 4.
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o
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NOTE:
This proxy, when properly executed, will be voted in the
manner directed herein by the undersigned shareholder(s). If no
direction is made, this proxy will be voted FOR Proposals 1, 2, 3, 4
and 5. If any other matters properly come before the meeting, the persons named in this proxy will vote in their discretion.
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PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE PAID
ENVELOPE.
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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Date
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CARE INVESTMENT TRUST INC.
SPECIAL MEETING OF STOCKHOLDERS
AUGUST
13, 2010
Important Notice Regarding the Availability of Proxy Materials for the Special Meeting:
The
Special Meeting Proxy Statement is/are available at
www.proxyvote.com.
This proxy card is solicited on behalf of
The Board of Directors for the Special Meeting of
Stockholders
August 13, 2010
The undersigned hereby appoints Paul F. Hughes and Salvatore (Torey) V. Riso Jr., and each of
them, as proxies, with full power of substitution, to vote all of the undersigneds shares of Care
Investment Trust Inc. Common Stock at the Special Meeting of
Stockholders to be held on the 13
th
of August,
2010 at 9:00 a.m. (EDT) at CIT Global Headquarters, 505 Fifth Avenue, Seventh Floor, Room C/D,
New York, New York 10017, and any adjournments or postponements thereof, upon all subjects that may
properly come before the meeting, including the matters described in the proxy statement furnished
herewith, subject to any direction indicated on the reverse side of this card. The shares of Common
Stock you beneficially own will be voted as you specify.
If
no directions are given, the proxies will vote FOR Proposals 1, 2, 3,
4 and 5. The proxies, in
their discretion, are further authorized to vote on any other matter that may properly come before
the meeting.
Your vote for the issuance to Tiptree, abandonment of the plan of liquidation, amendments to our
charter and adjournment proposals should be indicated on the reverse.
Continued and to be signed on reverse side
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
Annual
Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2009
o
Transition
Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period
from
to
Commission File Number:
001-33549
Care Investment Trust
Inc.
(Exact name of Registrant as
specified in its charter)
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Maryland
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38-3754322
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(State or other jurisdiction of
incorporation or organization)
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(IRS Employer
Identification Number)
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505 Fifth Avenue,
6
th
Floor, New York, New York 10017
(Address of Registrants
principal executive offices)
(212) 771-0505
(Registrants telephone
number, including area code)
Securities Registered Pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which
registered
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Common Stock
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New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
o
No
x
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
x
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
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
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definition of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act (check one):
Large accelerated
filer
o
Accelerated
filer
x
Non-accelerated
filer
o
Smaller
reporting
company
o
.
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes
o
No
x
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to
the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of the
last day of the registrants most recently completed second
fiscal quarter: $65,704,642.
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
As of March 11, 2010, there were 20,224,548 shares,
par value $0.001, of the registrants common stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Part III incorporates information from certain portions of
the Registrants definitive proxy statement to be filed
with the Securities and Exchange Commission within 120 days
after the fiscal year end of December 31, 2009.
Part I
Disclosure
Regarding Forward-Looking Statements
Care Investment Trust Inc. (all references to
Care, the Company, we,
us, and our mean Care Investment
Trust Inc. and its subsidiaries) makes
forward-looking statements in this
Form 10-K
that are subject to risks and uncertainties. Forward-looking
statements include all statements that do not relate solely to
historical or current facts and can be identified by the use of
words such as may, will,
expect, believe, intend,
plan, estimate, continue,
should and other comparable terms. These
forward-looking statements include information about possible or
assumed future results of our business and our financial
condition, liquidity, results of operations, plans and
objectives. They also include, among other things, statements
concerning anticipated revenue, income or loss, capital
expenditures, dividends, capital structure, or other financial
terms as well as statements regarding subjects that are
forward-looking by their nature, such as:
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our ability to complete the Tiptree transaction;
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if we do not complete the Tiptree transaction, our ability to
sell one or more of our assets;
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if we do not complete the Tiptree transaction, our ability to
conduct an orderly liquidation;
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if we do not complete the Tiptree transaction, our ability to
make one or more special cash distributions;
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our business and financing strategy;
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our ability to acquire investments on attractive terms;
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our projected operating results;
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market trends;
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estimates relating to our future dividends;
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completion of any pending transactions;
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projected capital expenditures; and
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the impact of technology on our operations and business.
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The forward looking statements are based on our beliefs,
assumptions, and expectations of our future performance, taking
into account the information currently available to us. These
beliefs, assumptions, and expectations can change as a result of
many possible events or factors, not all of which are known to
us. If a change occurs, our business, financial condition,
liquidity, and results of operations may vary materially from
those expressed in our forward looking statements. You should
carefully consider this risk when you make a decision concerning
an investment in our securities, along with the following
factors, among others, that could cause actual results to vary
from our forward looking statements:
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the factors referenced in this
Form 10-K,
including those set forth under the section captioned Risk
Factors;
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general volatility of the securities markets in which we invest
and the market price of our common stock;
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uncertainty in obtaining stockholder approval, to the extent it
is required, for a strategic alternative;
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changes in our business or investment strategy;
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changes in healthcare laws and regulations;
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availability, terms and deployment of capital;
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availability of qualified personnel;
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changes in our industry, interest rates, the debt securities
markets, the general economy or the commercial finance and real
estate markets specifically;
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3
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the degree and nature of our competition;
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the performance and financial condition of borrowers, operators
and corporate customers;
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increased rates of default
and/or
decreased recovery rates on our investments;
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increased prepayments of the mortgages and other loans
underlying our mortgage-backed or other asset-backed securities;
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changes in governmental regulations, tax rates and similar
matters;
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legislative and regulatory changes (including changes to laws
governing the taxation of REITs or the exemptions from
registration as an investment company);
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the adequacy of our cash reserves and working capital; and
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the timing of cash flows, if any, from our investments.
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We are not obligated to publicly update or revise any forward
looking statements, whether as a result of new information,
future events, or otherwise.
Overview
Care Investment Trust Inc. (all references to
Care, the Company, we,
us, and our means Care Investment
Trust Inc. and its subsidiaries) is an externally managed
real estate investment trust (REIT) formed to invest
in healthcare-related real estate and mortgage debt. We were
incorporated in Maryland in March 2007, and we completed our
initial public offering on June 22, 2007. As a REIT, we are
generally not subject to income taxes. To maintain our REIT
status, we are required to distribute annually as dividends at
least 90% of our REIT taxable income, as defined by the Internal
Revenue Code of 1986, as amended (the Code), to our
stockholders, among other requirements. If we fail to qualify as
a REIT in any taxable year, we would be subject to
U.S. federal income tax on our taxable income at regular
corporate tax rates.
We were originally positioned to make mortgage investments in
healthcare-related properties, and to invest in
healthcare-related real estate, through utilizing the
origination platform of our external manager, CIT Healthcare LLC
(CIT Healthcare or our Manager). We
acquired our initial portfolio of mortgage loan assets from our
Manager in exchange for cash proceeds from our initial public
offering and common stock. In response to dislocations in the
overall credit market, and in particular the securitized
financing markets, in late 2007, we redirected our focus to
place greater emphasis on healthcare-related real estate
investments. In 2008, we decided to hold our investment mortgage
loans for sale, fully shifting our strategy from investing in
mortgage loans to divesting of those loans and becoming an
equity REIT.
Our Manager is a healthcare finance company that offers a
full-spectrum of financing solutions and related strategic
advisory services to companies across the healthcare industry
throughout the United States. Our Manager was formed in 2004 and
is a wholly-owned subsidiary of CIT Group Inc.
(CIT), a leading middle market global commercial
finance company that provides financial and advisory services.
As of December 31, 2009, we maintained a diversified
investment portfolio consisting of $56.1 million in
unconsolidated joint ventures that own real estate,
$101.5 million invested in wholly owned real estate and
$25.3 million in 3 investments in mortgage loans that are
held at lower of cost or market (LOCOM). Our current
investments in healthcare real estate include medical office
buildings and assisted and independent living facilities and
Alzheimer facilities. Our loan portfolio is primarily composed
of first mortgages on skilled nursing facilities and mixed-use
facilities. In 2010, one borrower repaid one of the
Companys mortgage loans and we sold one mortgage loan to a
third party.
On March 16, 2010, we announced the entry into a definitive
purchase and sale agreement with Tiptree Financial Partners,
L.P. under which we have agreed to sell a significant amount of
newly issued common stock to Tiptree at $9.00 per share. The
sale of common stock to Tiptree is expected to result in a
change in control of our company. Pursuant to the purchase and
sale agreement, we have agreed to launch a cash tender offer to
all of our
4
stockholders to purchase their common stock at $9.00 per share.
The discussion of the terms of the purchase and sale agreement
below is qualified in its entirety by the terms of the agreement
itself, which has been filed as Exhibit 10.1 to the
Companys
Form 8-K
filed on March 16, 2010.
Real
Estate Equity Investments
Unconsolidated
Joint Ventures
Cambridge
Medical Office Building Portfolio
We own an 85% equity interest in eight limited liability
entities that own nine Class A medical office buildings
developed and managed by Cambridge Holdings, Inc.
(Cambridge) totaling approximately
767,000 square feet located in Texas (8) and Louisiana
(1). These facilities are situated on medical center campuses or
adjacent to acute care hospitals or ambulatory surgery centers,
and are affiliated with or tenanted by hospital systems and
doctor groups. Cambridge owns the remaining 15% interest in the
facilities and operates them under long-term management
contracts. Under the terms of the management agreement,
Cambridge acts as the manager and leasing agent of each medical
office building, subject to certain removal rights held by us.
The medical office building properties were 92% leased at
December 31, 2009.
The table below provides information with respect to the
Cambridge portfolio:
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Weighted average rent per square foot
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$24.97
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Average square foot per tenant
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5,607
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Weighted average remaining lease term
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6.40 years
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Largest tenant as percentage of total rental square feet
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9.59%
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Lease
Maturity Schedule:
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% of
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Number of
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Rental
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Year
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tenants
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Square Ft
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Annual Rent
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Sq Ft
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2010
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20
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40,911
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$
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945,438
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5.79
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%
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2011
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23
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68,152
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1,373,879
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9.65
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%
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2012
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17
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63,119
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1,413,491
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8.94
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%
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2013
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22
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93,652
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2,015,079
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13.26
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%
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2014
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11
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55,340
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1,119,007
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7.83
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%
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2015
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12
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95,672
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1,942,418
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13.54
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%
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2016
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11
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58,659
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1,266,502
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8.30
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%
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2017
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3
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28,814
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1,122,080
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4.08
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%
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2018
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3
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55,444
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1,498,062
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7.85
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%
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2019
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0
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Thereafter
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4
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146,660
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4,945,036
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20.76
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%
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100.0
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%
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We invested $72.4 million in cash and equity for our
interests in the Cambridge portfolio, which consisted of
$61.9 million of cash as well as commitments to issue
700,000 operating partnership units to Cambridge, subject to the
underlying properties achieving certain performance hurdles. The
operating partnership units are held in escrow and will be
released to Cambridge upon the achievement of certain
performance measures. Under the terms of our investment, we
receive an initial preferred minimum return of 8.0% on capital
invested with 2.0% per annum escalations until the earlier of
December 31, 2014 or when the entities have generated
sufficient cash to provide the preferred return without reliance
on the credit support for four of six consecutive quarters, with
total cash generated from the portfolio for the six quarters
sufficient to cover the preferred return over that period.
Thereafter, the Companys preferred return converts to a
pari passu return with cash flow distributed 85% to us and 15%
to Cambridge.
5
The preferred return is guaranteed by three forms of credit
support, which are in place until the earlier of
(i) December 31, 2014 and (ii) cash flow from the
properties generates the required return for four of six
quarters. The forms of guarantee are (i) a claim on cash
flow attributable to Cambridges 15% stake, (ii) a
claim on the dividends payable on the operating partnership
units issued to Cambridge and (iii) our ability to cancel
operating partnership units issued at close (currently held in
escrow). If, our share of the cash flows in the properties are
not able to meet the required preferred return for the Company,
the Company will rely first on a claim on cash flow attributable
to Cambridges 15% stake. If that is not sufficient, then
the Company will rely on a claim on the dividends payable on the
operating partnership units issued to Cambridge. Finally, if
that is still not sufficient, the Company will rely on its
ability to cancel operating partnership units issued at the
closing of our investment (currently held in escrow).
Our 8% preferred return is based on our capital invested at the
closing of our investment in Cambridge on December 31,
2007. The obligation to issue (or, more specifically, to release
from escrow) the operating partnership units is accounted for as
a derivative obligation with a value tied both to our stock
price (as each operating partnership unit is convertible into
one share of our common stock) and to the performance of the
Cambridge portfolio in that we are able to cancel operating
partnership units during any quarter in which the operating cash
flow from our share of the portfolio does not generate our
preferred return, and our other credit support mechanisms (a
claim on the operating cash flow from Cambridges 15% stake
in the entities or a claim on the dividends payable on the
operating partnership units) do not enable us to meet our
preferred return. We are required to mark this obligation to
fair value each period. However, regardless of the fair value of
our obligation to issue these operating partnership units as of
any reporting period, our 8% preferred return remains fixed to
the initial capital that we invested to acquire our Cambridge
interests and escalates at a rate of 2.0% per annum.
Under the terms of our investment, Cambridge has the contractual
right to put its 15% interest in the properties to us in the
event we enter into a change in control transaction. Pursuant to
the terms of our joint venture with Cambridge, we provided
notice to Cambridge on May 7, 2009 that we had entered into
a term sheet with a third party for a transaction that would
result in a change in control of Care, which notice triggered
Cambridges contractual right to put its
interests in the joint venture to us at a price equal to the
then fair market value of such interests, as mutually agreed by
the parties, or, lacking such mutual agreement, at a price
determined through qualified third party appraisals. Cambridge
did not exercise its right to put its 15% joint venture interest
to us in connection with our entry into the term sheet with the
third party. As a result, we believe that Cambridges
contractual put right expired.
Senior
Management Concepts Senior Living Portfolio
We own interests in four independent and assisted living
facilities located in Utah and operated by Senior Management
Concepts, LLC (SMC), a privately held operator of
senior housing facilities. The four facilities contain 243
independent living units and 165 assisted living units, and each
facility is 100% private pay. Affiliates of SMC have entered
into
15-year
leases on the facilities that expire in 2022. These facilities
are 89% occupied as of December 31, 2009.
We paid $6.8 million in exchange for 100% of the preferred
equity interests and 10% of the common equity interests in the
joint venture. We will receive a preferred return of 15.0% on
invested capital and an additional common equity return payable
for up to ten years equal to 10.0% of projected free cash flow
after payment of debt service and the preferred return. Subject
to certain conditions being met, our preferred equity interest
is subject to redemption at par beginning on January 1,
2010. We retain an option to put our preferred equity interest
to our partner at par any time beginning on January 1,
2016. If our preferred equity interest is redeemed, we have the
right to put our common equity interests to our partner within
thirty days after notice at fair market value as determined by a
third-party appraiser.
Owned
Real Estate
Bickford
Senior Living Portfolio
We acquired 14 assisted living, independent living and Alzheimer
facilities from Eby Realty Group, LLC, an affiliate of Bickford
Senior Living Group LLC, (Eby) a privately owned
operator of senior housing facilities, in
6
two sale-leaseback transactions in June 2008 and September 2008.
We have leased back the twelve facilities we acquired in June
2008 and the two facilities we acquired in September 2008 to Eby
Realty Group through a master lease agreement for 15 years
and 14.75 years, respectively, with four
10-year
extension options. The portfolio, developed and managed by
Bickford, contains 643 units and is located in Illinois
(5), Indiana (1), Iowa (6) and Nebraska (2). The portfolio,
which is 100% private pay, was 89% occupied as of
December 31, 2009.
Under the terms of the master lease, the current minimum rent
due on the 14 Bickford properties is $9.4 million, or a
base lease rate of 8.46%. Base rent during the initial
15 year lease term increases at the rate of three percent
per year. We also receive additional base rent of 0.26% per
year, increasing at the rate of three percent per year during
the initial term of the master lease. The additional base rent
accrues during the first three years of the lease term and shall
be paid out in years four and five of the initial lease term.
The master lease is a triple net lease, and, as
such, the master lessee is responsible for all taxes, insurance,
utilities, maintenance and capital costs relating to the
facilities. The obligations of the master lessee under the
master lease are also secured by all assets of the master lessee
and the subtenant facility operators, and, pending achievement
of certain lease coverage ratios, by a second mortgage on
another Eby project and a pledge of minority interests in six
unrelated Eby projects.
The purchase price for these acquisitions was
$111.0 million, and Eby has the opportunity under an earn
out agreement to receive an additional $7.2 million based
on the performance of the properties and under certain other
conditions.
Loans
Held at the Lower of Cost or Market
(LOCOM)
Upon consummation of our initial public offering, our Manager,
through an affiliate, contributed a portfolio of
healthcare-related mortgage assets in exchange for
$204.3 million in cash and $78.8 million in shares of
Care common stock (the Contribution Portfolio).
Investments in loans amounted to $25.3 million at
December 31, 2009. We account for our investment in loans
in accordance with Accounting Standards Codification 948, which
codified the FASBs
Accounting for Certain Mortgage
Banking Activities
(ASC 948). Under ASC 948,
loans expected to be held for the foreseeable future or to
maturity should be held at amortized cost, and all other loans
should be held at the lower of cost or market (LOCOM), measured
on an individual basis.
At December 31, 2008, in connection with our decision to
reposition ourselves from a mortgage REIT to a traditional
direct property ownership REIT (referred to as an equity REIT,
see Notes 2, 4, and 5 to the financial statements) and as a
result of existing market conditions, we transferred our
portfolio of mortgage loans to LOCOM because we are no longer
certain that we will hold the portfolio of loans either until
maturity or for the foreseeable future.
Until December 31, 2008, we held our loans until maturity,
and therefore the loans had been carried at amortized cost, net
of unamortized loan fees, acquisition and origination costs,
unless the loans were impaired. In connection with the transfer,
we recorded an initial valuation allowance of approximately
$29.3 million representing the difference between our
carrying amount of the loans and their estimated fair value at
December 31, 2008. At December 31, 2009, the valuation
allowance was reduced to $8.4 million representing the
difference between the carrying amounts and estimated fair value
of our three remaining loans.
Our investments include senior whole loans and participations
secured primarily by real estate in the form of pledges of
ownership interests, direct liens or other security interests.
The investments are in various geographic markets in the United
States. These investments are all variable rate at
December 31, 2009 and had a weighted average spread of
6.76% over one month LIBOR and have an average maturity of
approximately 1.0 year. The effective yield on the
portfolio was 6.99% for the year ended December 31, 2009.
One month LIBOR was 0.23% at
7
December 31, 2009. As of December 31, 2009, (except as
described in footnotes (b) and (c)) we held the following
loan investments (in thousands):
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December 31, 2009
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Location
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Cost
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Interest
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Maturity
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Property Type(a)
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City
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State
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Basis (000s)
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Rate
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Date
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SNF/ALF(d)(c)
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Nacogdoches
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Texas
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9,338
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L+3.15%
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10/02/11
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SNF/Sr.Appts/ALF
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Various
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Texas/Louisiana
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14,226
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L+4.30%
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02/01/11
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SNF(d)(b)
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Various
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Michigan
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10,178
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L+7.00%
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02/19/10
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Investment in loans, gross
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$
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33,742
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Valuation allowance
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(8,417
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)
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Loans held at LOCOM
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$
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25,325
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(a)
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SNF refers to skilled nursing
facilities; ALF refers to assisted living facilities; and Sr.
Appts refers to senior living apartments.
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(b)
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Loan repaid at maturity in February
2010 for approximately $10.0 million (See Item
7 Managements Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources).
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(c)
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Loan sold to a third party in March
2010 for approximately $5.9 million of net realized proceeds
(See Item 7 Managements Discussion and
Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources).
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(d)
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The mortgages are subject to
various interest rate floors ranging from 6.00% to 11.5%.
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Our mortgage portfolio (gross) at December 31, 2009 is
diversified by property type and U.S. geographic region as
follows (in millions of dollars):
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December 31,
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2009
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Cost
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% of
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By Property Type
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Basis
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Portfolio
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Skilled Nursing
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$
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10.2
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30.2
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%
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Mixed-use
(1)
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23.5
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69.8
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%
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Total
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$
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33.7
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100.0
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%
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December 31,
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2009
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Cost
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% of
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By U.S. Geographic Region
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Basis
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Portfolio
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Midwest
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$
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10.2
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30.2
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%
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South
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23.5
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69.8
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%
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$
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33.7
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100.0
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%
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(1)
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Mixed-use facilities refer to
properties that provide care to different segments of the
elderly population based on their needs, such as Assisted Living
with Skilled Nursing capabilities.
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As of December 31, 2009, our portfolio of three mortgages
was extended to five borrowers. Two of those three mortgage
loans were sold or repaid in 2010 as indicated in (b) and
(c), above. As of December 31, 2008, our portfolio of
eighteen mortgages was extended to fourteen borrowers with the
largest exposure to any single borrower at 20.9% of the carrying
value of the portfolio. The carrying value of three loans, each
to different borrowers with exposures of more than 10% of the
carrying value of the total portfolio, amounted to 54.9% of the
portfolio.
Our
Manager
CIT
Healthcare
Our Manager, CIT Healthcare, is a healthcare finance company
that offers a full spectrum of financing solutions and related
strategic advisory services to companies across the healthcare
industry throughout the United States. We believe that our
Manager effectively leverages its extensive knowledge and
understanding of the healthcare industry through its
client-centric and industry-focused model. Our Manager meets the
diverse commercial financing needs of U.S. healthcare
providers, including hospitals and health systems, outpatient
centers, skilled nursing facilities, assisted living facilities,
physician practices, home care and hospice companies, ambulatory
surgery centers, pharmaceutical and medical technology
companies, long-term care facilities, and vendors serving
healthcare providers. Our Managers leadership team has
extensive experience in addressing the capital requirements and
advisory service needs of the healthcare marketplace, allowing
it to offer a full suite of customized, flexible healthcare
financing solutions and services.
8
As of December 31, 2009, our Manager employed approximately
59 professionals with substantial experience and expertise in
origination, underwriting, structuring, portfolio management,
servicing, securitization, syndication and secondary market
transactions. Of these professionals, our Manager had
13 employees originating and sourcing investment
opportunities for our consideration. We believe our Manager is
one of the leading healthcare financiers in the country. As of
December 31, 2009, our Manager owned assets of
approximately $1.7 billion.
CIT
CIT (NYSE: CIT) is a bank holding company that provides
financial products and advisory services to more than one
million customers in over 50 countries across 30 industries. A
leader in middle market financing, CIT has more than
$60 billion in managed assets at December 31, 2009,
and provides financial solutions for more than half of the
Fortune 1000. A member of the Fortune 500, it maintains leading
positions in asset-based, cash flow and Small Business
Administration lending, equipment leasing, vendor financing and
factoring.
CIT announced on November 1, 2009 that it had commenced a
prepackaged plan of reorganization for CIT Group, Inc. and CIT
Group Funding Company of Delaware LLC under the
U.S. Bankruptcy Code. None of CITs operating
subsidiaries, including our Manager, were included in the CIT
bankruptcy filings. On December 8, 2009, CIT announced that
its reorganization plan had been confirmed and on
December 10, 2009 CIT emerged from bankruptcy.
At December 31, 2009, CIT, through our Manager and CIT Real
Estate Holdings Corporation (CIT Holding), owned
37.6% of our outstanding common stock.
The
Healthcare Industry
Healthcare is the single largest industry in the U.S. based
on Gross Domestic Product (GDP). According to the
National Health Expenditures report dated January 2010 by the
Centers for Medicare and Medicaid Services (CMS),
national health expenditures are projected to grow 5.7% to $2.5
trillion in 2009, and the healthcare industry is projected to
represent 17.3% of U.S. GDP in 2009. Over the projection
period of 2009 through 2019, the average compound annual growth
rate for national health expenditures is anticipated to be 6.1%,
with national health spending expected to reach $4.5 trillion
and comprise 19.3% of U.S. GDP by 2019.
Senior citizens are the largest consumers of healthcare
services. According to CMS, on a per capita basis, the
75-year
and
older segment of the population spends 76% more on healthcare
than the 65 to
74-year-old
segment and over 200% more than the population average.
According to the U.S. Census Bureau, the 65 and older
segment of the population is projected to increase by 76.6%
through 2030. The U.S. population 65 years and older
is growing in large part due to the coming of age of the
baby boomer generation, as well as advances in
medicine and technology that have increased the average life
expectancy of the population.
Delivery of healthcare services in the U.S. requires a
variety of physical plants, including hospitals, surgical
centers, skilled nursing facilities, independent and assisted
living facilities, medical office buildings, laboratories,
research facilities, among others, and healthcare providers
require real estate investors and financiers to grow their
businesses. Given the demographic trends for healthcare spending
and an aging population with an increased life expectancy, we
believe that the healthcare-related real estate market provides
attractive investment opportunities.
Origination
Opportunities from Portfolio Clients
Our investments are primarily sourced and originated by our
Managers origination team, which consisted of 13 members
as of December 31, 2009, and we participate in investments
in which our Manager and affiliates also participate. The
Company has adopted certain policies that are designed to
eliminate or minimize certain potential conflicts of interest
with our Manager, and our board of directors has established
investment guidelines. The conflict of interest policy with our
Manager includes the first right to invest, pari passu
co-investments, participations, pro-rata fee sharing and legal
services by CIT, among other provisions.
In soliciting and evaluating these opportunities, our Manager
has developed considerable institutional relationships within
the healthcare industry. In addition, our Manager services the
loans that it directly originates and monitors our portfolio to
generate new origination opportunities from existing assets.
9
Our
Facilities
The market for healthcare real estate is extensive and includes
real estate owned by a variety of healthcare operators. The
following describes the nature of the operations of our tenants
and borrowers:
Senior
Housing Facilities
Senior housing properties include independent living facilities,
assisted living facilities and continuing care retirement
communities, which cater to different segments of the elderly
population based upon their needs. Services provided by our
tenants in these facilities are primarily paid for by the
residents directly or through private insurance and are less
reliant on government reimbursement programs such as Medicaid
and Medicare.
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Independent Living Facilities, or ILFs. ILFs are designed to
meet the needs of seniors who choose to live in an environment
surrounded by their peers with services such as housekeeping,
meals and activities. These residents generally do not need
assistance with activities of daily living, including bathing,
eating and dressing. However, residents have the option to
contract for these services.
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Assisted Living Facilities, or ALFs.ALFs are licensed care
facilities that provide personal care services, support and
housing for those who need help with activities of daily living
yet require limited medical care. The programs and services may
include transportation, social activities, exercise and fitness
programs, beauty or barber shop access, hobby and craft
activities, community excursions, meals in a dining room setting
and other activities sought by residents. These facilities are
often in apartment-like buildings with private residences
ranging from single rooms to large apartments. Certain ALFs may
offer higher levels of personal assistance for residents with
Alzheimers disease or other forms of dementia. Levels of
personal assistance are based in part on local regulations.
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Continuing Care Retirement Communities, or CCRCs. CCRCs provide
housing and health-related services under long-term contracts.
This alternative is appealing to residents as it eliminates the
need for relocating when health and medical needs change, thus
allowing residents to age in place. Some CCRCs
require a substantial entry fee or buy-in fee, and most also
charge monthly maintenance fees in exchange for a living unit,
meals and some health services. CCRCs typically require the
individual to be in relatively good health and independent upon
entry.
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Medical
Office Buildings
MOBs typically contain physicians offices and examination
rooms, and may also include pharmacies, hospital ancillary
service space and outpatient services such as diagnostic
centers, rehabilitation clinics and day-surgery operating rooms.
While these facilities are similar to commercial office
buildings, they require more plumbing, electrical and mechanical
systems to accommodate multiple exam rooms that may require
sinks in every room, brighter lights and special equipment such
as for dispensing medical gases.
Hospitals
Services provided in these facilities are paid for by private
sources, third-party payors (e.g., insurance and health
management organizations, or HMOs), or through the Medicare and
Medicaid programs.
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Acute Care Hospitals. Acute care hospitals offer a wide range of
services such as fully-equipped operating and recovery rooms,
obstetrics, radiology, intensive care, open heart surgery and
coronary care, neurosurgery, neonatal intensive care, magnetic
resonance imaging, nursing units, oncology, clinical
laboratories, respiratory therapy, physical therapy, nuclear
medicine, rehabilitation services and outpatient services.
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Long-Term Acute Care Hospitals. Long-term acute care hospitals
provide care for patients with complex medical conditions that
require longer stays and more intensive care, monitoring, or
emergency
back-up
than
that available in most skilled nursing-based programs.
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10
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Specialty Hospitals. Specialty hospitals are licensed as acute
care hospitals, but focus on providing care in specific areas
such as cardiac, orthopedic and womens conditions, or
specific procedures such as surgery, and are less likely to
provide emergency services.
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Rehabilitation Hospitals. Rehabilitation hospitals provide
inpatient and outpatient care for patients who have sustained
traumatic injuries or illnesses, such as spinal cord injuries,
strokes, head injuries, orthopedic problems, work-related
disabilities and neurological diseases.
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Skilled
Nursing Facilities
Skilled Nursing Facilities, or SNFs, offer restorative,
rehabilitative and custodial nursing care for people not
requiring the more extensive and sophisticated treatment
available at hospitals. Ancillary revenues and revenue from
sub-acute
care services are derived from providing services to residents
beyond room and board and include occupational, physical,
speech, respiratory and intravenous therapy, wound care,
oncology treatment, brain injury care and orthopedic therapy, as
well as sales of pharmaceutical products and other services.
Certain skilled nursing facilities provide some of the foregoing
services on an out-patient basis. Skilled nursing services
provided by our tenants in these facilities are primarily paid
for either by private sources, or through the Medicare and
Medicaid programs.
Outpatient
Centers
Outpatient centers deliver healthcare services in dedicated
settings utilizing specialized staff to provide a more efficient
and comfortable experience to the patient than is available in a
traditional acute care hospital. Ambulatory surgery centers,
dialysis clinics, and oncology diagnostic and treatment centers
are examples of the type of outpatient facilities we intend to
target for investment.
Other
Healthcare Facilities
Other healthcare facilities may include physician group practice
clinic facilities, health and wellness centers, and facilities
used for other healthcare purposes, behavioral health, and
manufacturing facilities for medical devices.
Availability
of Documents and Other Information
Our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
and current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the Exchange Act) are available
free of charge on Cares internet website,
www.carereit.com, as soon as reasonably practicable after such
information is electronically filed with, or furnished to, the
Securities and Exchange Commission (SEC). We also
make available on our web site our Code of Ethical Conduct that
applies to our directors and executive officers, as well as to
employees of our Manager when acting for, or on behalf of Care.
In the event that we make changes in, or provide waivers of, the
provisions of this Code of Ethical Conduct that the SEC requires
us to disclose, we intend to disclose these events on our
website. In addition, the SEC maintains an internet website that
contains reports, proxy and information statements and other
information related to registrants who file electronically with
the SEC at www.sec.gov. Access to this site is free of charge.
Healthcare
Regulation
Overview
The tenants and operators of our properties are typically
subject to extensive federal, state and local laws and
regulations including, but not limited to, laws and regulations
related to licensure, conduct of operations, ownership of
facilities, addition of facilities, services, prices for
services, billing for services, and the confidentiality and
security of health-related information. A significant expansion
of applicable federal, state or local laws and regulations,
proposed healthcare reform, new interpretations of existing laws
and regulations or changes in enforcement priorities could have
a material adverse effect on certain of our operators
liquidity, financial condition and results of operations, which,
in turn, could adversely impact their ability to satisfy their
contractual obligations.
11
These regulations are wide-ranging and complex, and may vary or
overlap from jurisdiction to jurisdiction. Compliance with such
regulatory requirements, as interpreted and amended from time to
time, can increase operating costs and thereby adversely affect
the financial viability of our tenants and operators
business. These laws authorize periodic inspections and
investigations, and identification of deficiencies that, if not
corrected, could result in sanctions that include suspension or
loss of licensure to operate and loss of rights to participate
in the Medicare and Medicaid programs. Regulatory agencies have
substantial powers to affect the actions of tenants and
operators of our properties if the agencies believe that there
is an imminent threat to patient welfare, and in some states
these powers can include assumption of interim control over
facilities through receiverships.
Medicare is a federal program that provides certain hospital,
nursing home and medical insurance benefits to persons over the
age of 65, certain persons with disabilities and persons with
end-stage renal disease. Medicare, however, only pays for
100 days of nursing home care per illness upon release from
a hospital. Medicaid is a medical assistance program jointly
funded by federal and state governments and administered by each
state pursuant to which benefits are available to certain
indigent patients. The majority of governmental funding for
nursing home care comes from the Medicaid program to the extent
that a patient has spent their assets down to a predetermined
level. Medicaid reimbursement rates, however, typically are less
than the amounts charged by the tenants of our properties. The
states have been afforded latitude in setting payment rates for
nursing home providers. Furthermore, federal legislation
restricts a skilled nursing facility operators ability to
withdraw from the Medicaid program by restricting the eviction
or transfer of Medicaid residents. For the last several years,
many states have announced actual or potential budget
shortfalls, a situation which will likely continue due to the
current economic crisis. As a result of such actual or
anticipated budget shortfalls, many states have implemented, are
implementing or considering implementing freezes or
cuts in Medicaid reimbursement rates paid to providers,
including skilled nursing providers. Changes to Medicaid
eligibility criteria are also possible thereby reducing the
number of beneficiaries eligible to have their medical care
reimbursed by government sources. Any decrease in reimbursement
rates could have a significant effect on a tenants
financial condition, and as a result, could adversely impact us.
The Medicare and Medicaid statutory framework is subject to
administrative rulings, interpretations and discretion that
affect the amount and timing of reimbursement made under
Medicare and Medicaid. The amounts of program payments received
by our operators and tenants can be changed from time to time,
and at any time, by legislative or regulatory actions and by
determinations by agents for the programs due to an economic
downturn or otherwise. Such changes may be applied retroactively
under certain circumstances. In addition, private payors,
including managed care payors, continually demand discounted fee
structures and the assumption by healthcare providers of all or
a portion of the financial risk. Efforts to impose greater
discounts and more stringent cost controls upon operators by
private payors are expected to intensify and continue. However,
private payors and managed care payors that provide insurance
coverage for nursing home care, assisted living or independent
living is extremely limited. The primary private source of
coverage for nursing home care and assisted living facilities is
long-term care insurance, which is costly and not widely held by
patients. We cannot assure you that adequate third-party
reimbursement levels will continue to be available for services
to be provided by the tenants and operators of our properties
which currently are being reimbursed by Medicare, Medicaid and
private payors. Significant limits on the scope of services
reimbursed and on reimbursement rates and fees could have a
material adverse effect on these tenants and
operators liquidity, financial condition and results of
operations, which could adversely affect their ability to make
rental payments under, and otherwise comply with the terms of,
their leases with us.
Changes in government regulations and reimbursement (due to the
economic downturn or otherwise), increased regulatory
enforcement activity and regulatory non-compliance by our
tenants and operators can all have a significant effect on their
operations and financial condition, and as a result, can
adversely impact us. Please see ITEM 1A.
Risk
Factors
for more information.
While different properties within our portfolio may be more or
less likely subject to certain types of regulation which in some
cases is specific to the type of facility (
e.g.
, the
regulation of continuing care retirement communities by state
Departments of Insurance), all healthcare facilities are
potentially subject to the full range of regulation and
enforcement described more fully below. We expect that the
healthcare industry will continue to face increased regulation
and pressure in the areas of fraud, waste and abuse, cost
control, healthcare management and provision of services, as
well as continuing cost control initiatives and reform efforts
generally. Each of these factors can lead to reduced or slower
growth in reimbursement for certain services provided by our
tenants and operators, as well as
12
reduced demand for certain of the services that they provide. In
addition, we believe healthcare services are increasingly being
provided on an outpatient basis or in the home, and hospitals
and other healthcare providers are increasingly facing the need
to provide greater services to uninsured patients, all of which
can also adversely affect the profitability of some of our
tenants and operators.
Fraud and
Abuse
There are extensive federal and state laws and regulations
prohibiting fraud and abuse in the healthcare industry, the
violation of which could result in significant criminal and
civil penalties that can materially affect the tenants and
operators of our properties. The federal laws include:
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The anti-kickback provisions of the federal Medicare and
Medicaid programs, which prohibit, among other things, knowingly
and willfully soliciting, receiving, offering or paying any
remuneration (including any kickback, bribe or rebate) directly
or indirectly in return for or to induce the referral of an
individual to a person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made
in whole or in part under Medicare or Medicaid.
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The Stark laws, which prohibit, with limited
exceptions, referrals by physicians of Medicare or Medicaid
patients to providers of a broad range of designated healthcare
services with which physicians (or their immediate family
members) have ownership interests or certain other financial
(compensation) arrangements.
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The False Claims Act, which prohibits any person from knowingly
presenting false or fraudulent claims for payment to the federal
government (including the Medicare and Medicaid programs).
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The Civil Monetary Penalties Law, which authorizes the
Department of Health and Human Services to impose civil
penalties administratively for fraudulent acts.
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The Health Insurance Portability and Accountability Act of 1996
(commonly referred to as HIPAA), which among other
things, protects the privacy and security of individually
identifiable health information by limiting its use and
disclosure.
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Sanctions for violating these federal laws include criminal and
civil penalties that range from punitive sanctions, damage
assessments, monetary penalties, imprisonment, denial of
Medicare and Medicaid payments,
and/or
exclusion from the Medicare and Medicaid programs. These laws
also impose an affirmative duty on operators to ensure that they
do not employ or contract with persons excluded from the
Medicare and other government programs.
Many states have adopted or are considering legislative
proposals similar to the federal fraud and abuse and physician
self-referral laws, some of which extend beyond the Medicare and
Medicaid programs to prohibit the payment or receipt of
remuneration for the referral of patients and physician
self-referrals relating to a broader list of services
and/or
regardless of whether the service was reimbursed by Medicare or
Medicaid. Many states have also adopted or are considering
legislative proposals to increase patient protections, such as
criminal background checks and limiting the use and disclosure
of patient specific health information. These state laws also
impose criminal and civil penalties similar to the federal laws.
In addition, various states have established minimum staffing
requirements, or may establish minimum staffing requirements in
the future, for hospitals, nursing homes and other healthcare
facilities. The implementation of these staffing requirements in
some states is not contingent upon any additional appropriation
of state funds in any budget act or other statute. Our
tenants and operators ability to satisfy such
staffing requirements will depend upon their ability to attract
and retain qualified healthcare professionals. Failure to comply
with such minimum staffing requirements may result in the
imposition of fines or other sanctions. If states do not
appropriate sufficient additional funds (through Medicaid
program appropriations or otherwise) to pay for any additional
operating costs resulting from such minimum staffing
requirements, our tenants and operators
profitability may be materially adversely affected.
Finally, the majority of states have enacted laws implementing
specific requirements in the event that the personal information
of a patient or resident is compromised. Although these
requirements vary from state to state,
13
notification of security breaches to the state Attorney General
and affected patients or residents is often required.
Notification may be costly and time consuming and a failure to
comply with these requirements may result in civil or criminal
penalties. To the extent to which our tenants own or maintain
personal information, they may be required to comply with the
state security breach laws which could increase operating costs
and decrease a tenants profitability.
In the ordinary course of their business, the tenants and
operators of our properties have been and are subject regularly
to inquiries, inspections, investigations and audits by federal
and state agencies that oversee these laws and regulations.
Skilled nursing facilities are licensed on an annual or
bi-annual basis and certified annually for participation in the
Medicare and Medicaid programs through various regulatory
agencies which determine compliance with federal, state and
local laws. Increased funding through recent federal and state
legislation has led to a dramatic increase in the number of
investigations and enforcement actions over the past several
years. Private enforcement of healthcare fraud also has
increased due in large part to amendments to the civil False
Claims Act in 1986 that were designed to encourage private
individuals to sue on behalf of the government. These
whistleblower suits by private individuals, known as
qui tam
suits, may be filed by almost anyone, including present and
former patients or nurses and other employees. HIPAA also
created a series of new healthcare-related crimes.
As federal and state budget pressures continue, federal and
state administrative agencies may also continue to escalate
investigation and enforcement efforts to eliminate waste and to
control fraud and abuse in governmental healthcare programs. A
violation of any of these federal and state fraud and abuse laws
and regulations could have a material adverse effect on our
tenants and operators liquidity, financial condition
and results of operations, which could affect adversely their
ability to make rental payments under, or otherwise comply with
the terms of, their leases with us.
Healthcare
Reform
Healthcare is the largest industry in the U.S. based on GDP
and continues to attract a great deal of legislative interest
and public attention. There are currently pending various
comprehensive reform initiatives that could transform the
healthcare system in the United States. The U.S. House of
Representatives and the U.S. Senate have each passed
differing reform bills that address a number of issues,
including healthcare cost-saving measures. Many of the proposals
could or would affect both public and private healthcare
programs and could adversely affect Medicare and other third
party payments to healthcare facilities, which, in turn, could
have a material adverse effect on us. Future healthcare reform
or legislation or changes in the administration or
implementation of governmental and non-governmental healthcare
reimbursement programs also could have a material adverse effect
on our operators liquidity, financial condition or results
of operations, which could adversely affect their ability to
satisfy their obligations to us and which, in turn, could have a
material adverse effect on us.
The Presidents Budget, released on February 2, 2010,
assumed that health care reform legislation pending before
Congress would be passed and, therefore, did not directly
propose certain adjustments to Medicaid, Medicare and Medicare
Advantage Plans, which may or may not affect the operating
income of the operators of our healthcare properties. The impact
of these adjustments or lack thereof, if any, has not been
determined.
In an effort to reduce federal spending on healthcare, in 1997
the federal government enacted the Balanced Budget Act
(BBA), which contained extensive changes to the
Medicare and Medicaid programs, including substantial Medicare
reimbursement reductions for healthcare operations. For certain
healthcare providers, including hospitals and skilled nursing
facilities, implementation of the BBA resulted in more drastic
reimbursement reductions than had been anticipated. In addition
to its impact on Medicare, the BBA also afforded states more
flexibility in administering their Medicaid plans, including the
ability to shift most Medicaid enrollees into managed care plans
without first obtaining a federal waiver.
The following key legislative and regulatory changes have been
made to the BBA to provide some relief from the drastic
reductions in Medicare and Medicaid reimbursement resulting from
implementation of the BBA:
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The Balanced Budget Refinement Act of 1999 (BBRA);
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The Medicare, Medicaid, and State Child Health Insurance Program
Benefits Improvement and Protection Act of 2000
(BIPA);
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The one-time administrative fix to increase skilled
nursing facility payment rates by 3.26%, instituted by the
Centers for Medicare & Medicaid Services
(CMS) beginning on October 1, 2003;
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The Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 (Medicare Modernization Act, sometimes
referred to as the Drug Bill);
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The Deficit Reduction Act of 2005 (Pub. L No
109-171)
(DRA);
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The Tax Relief and Health Care Act of 2006 (Pub L.
No. 109-432); and
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The Medicare, Medicaid, and SCHIP Extension Act of 2007 (Pub L.
No. 110-173).
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In response to widespread healthcare industry concern about the
reductions in payments under the BBA, the federal government
enacted the Balanced Budget Refinement Act of 1999
(BBRA). The BBRA increased the per diem
reimbursement rates for certain high acuity patients by 20% from
April 1, 2000 until case mix refinements were implemented
by CMS, as explained below. The BBRA also imposed a two-year
moratorium on the annual cap mandated by the BBA on physical,
occupational and speech therapy services provided to a patient
by outpatient rehabilitation therapy providers, including
Part B covered therapy services in nursing facilities.
Relief from the BBA therapy caps was subsequently extended
multiple times by Congress, but these extensions expired on
December 31, 2009 and have not yet been renewed by
Congress. Therefore, effective January 1, 2010, Medicare
coverage of therapy services at nursing facilities paid for
under Medicare part B are capped at $1,860 per beneficiary
per year for occupational therapy services and $1,860 per
beneficiary for
speech-language
pathology and physical therapy services combined.
Pursuant to its final rule updating SNF Prospective Payment
System (PPS) for the 2006 federal fiscal year, CMS
refined the resource utilization groups (RUGs) used
to determine the daily payment for beneficiaries in skilled
nursing facilities by adding nine new payment categories. The
result of this refinement, which became effective on
January 1, 2006, was to eliminate the temporary add-on
payments that Congress enacted as part of the BBRA.
Under its final rule updating LTC-DRGs for the 2007 federal
fiscal year, CMS reduced reimbursement of uncollectible Medicare
coinsurance amounts for all beneficiaries (other than
beneficiaries of both Medicare and Medicaid) from 100% to 70%
for skilled nursing facility cost reporting periods beginning on
or after October 1, 2005. CMS estimated that this change in
treatment of bad debt would result in a decrease in payments to
skilled nursing facilities of $490 million over the
five-year period from federal fiscal year 2006 to 2010. The rule
also included various options for classifying and weighting
patients transferred to a skilled nursing facility after a
hospital stay less than the mean length of stay associated with
that particular diagnosis-related group.
On July 31, 2009, CMS issued its final rule updating SNF
PPS for the 2010 fiscal year (October 1, 2009 through
September 30, 2010). Under the final rule, the update to
the SNF PPS standard federal payment rate for skilled nursing
facilities includes a 2.2% increase in the market basket index
for the 2010 fiscal year. The final rule also provides a
recalibration in the case-mix indexes for the resource
utilization groups used to determine the daily payment for
beneficiaries in skilled nursing facilities that is expected to
reduce payments to skilled nursing facilities by 3.3% in fiscal
year 2010. CMS estimates that net payments to skilled nursing
facilities as a result of the market basket increase and the
recalibration in the case-mix indexes for RUGs under the final
rule would decrease by approximately $360 million, or 1.1%,
in fiscal year 2010.
The July 31, 2009 final rule includes other changes that
may additionally affect net payments to skilled nursing
facilities, including, by way of example, implementation of the
RUG-IV classification model for fiscal year 2011 and possible
new requirements for the quarterly reporting of nursing home
staffing data.
We cannot assure that future updates to the skilled nursing
facilities prospective payment system, therapy services or
Medicare reimbursement for skilled nursing facilities will not
materially adversely impact our tenants or operators, which in
turn could have a materially adverse affect on us. The Medicare
and Medicaid programs, including payment levels and methods, are
continually evolving and have been less predictable following
the enactment of BBA and the subsequent reform activities.
Moreover, the healthcare delivery system is under constant
scrutiny and has been identified by the new administration as a
key area of interest and likely reform. We cannot assure you
that future healthcare legislation, changes in the
administration or implementation of governmental
15
healthcare reimbursement programs will not have a material
adverse effect on our tenants and operators
liquidity, financial condition or results of operations, which
could adversely affect their ability to make payments to us and
which, in turn, could have a material adverse effect on us.
Certificates
of Need and State Licensing
Certificate of need, or CON, regulations control the development
and expansion of healthcare services and facilities in certain
states. Some states also require regulatory approval prior to
changes in ownership of certain healthcare facilities. In the
last several years, in response to mounting Medicaid budget
deficits, many states have begun to tighten CON controls,
including the imposition of moratoriums on new facilities, and
the imposition of stricter controls over licensing and change of
ownership rules. States that do not have CON programs may have
other laws or regulations that limit or restrict the development
or expansion of healthcare facilities. To the extent that CONs
or other similar approvals are required for expansion or the
operations of our facilities, either through facility
acquisitions, expansion or provision of new services or other
changes, such expansion could be affected adversely by the
failure or inability of our tenants and operators to obtain the
necessary approvals, changes in the standards applicable to such
approvals or possible delays and expenses associated with
obtaining such approvals.
Americans
with Disabilities Act (the ADA)
Our properties must comply with the ADA to the extent that such
properties are public accommodations as defined in
that statute. The ADA may require removal of structural barriers
to access by persons with disabilities in certain public areas
of our properties where such removal is readily achievable. To
date, no notices of substantial noncompliance with the ADA have
been received by us. Accordingly, we have not incurred
substantial capital expenditures to address ADA concerns. In
some instances, our tenants and operators may be responsible for
any additional amounts that may be required to make facilities
ADA-compliant. Noncompliance with the ADA could result in
imposition of fines or an award of damages to private litigants.
The obligation to make readily achievable accommodations is an
ongoing one, and we continue to assess our properties and make
alterations as appropriate in this respect.
Environmental
Matters
A wide variety of federal, state and local environmental and
occupational health and safety laws and regulations affect
healthcare facility operations. These complex federal and state
statutes, and their enforcement, involve myriad regulations,
many of which involve strict liability on the part of the
potential offender. Some of these federal and state statutes may
directly impact us. Under various federal, state and local
environmental laws, ordinances and regulations, an owner or
operator of real property or a secured lender, such as us, may
be liable for the costs of removal or remediation of hazardous
or toxic substances at, under or disposed of in connection with
such property, as well as other potential costs relating to
hazardous or toxic substances (including government fines and
damages for injuries to persons, adjacent property,
and/or
natural resources). This may be true even if we did not cause or
contribute to the presence of such substances. The cost of any
required remediation, removal, fines or personal or property
damages and the owners or secured lenders liability
therefore could exceed or impair the value of the property,
and/or
the
assets of the owner or secured lender. In addition, the presence
of such substances, or the failure to properly dispose of or
remediate such substances, may adversely affect the owners
ability to sell or rent such property or to borrow using such
property as collateral which, in turn, could reduce our
revenues. For a description of the risks associated with
environmental matters, see ITEM 1A.
Risk
Factors.
Competition
We compete for real estate property investments with healthcare
providers, other healthcare-related REITs, healthcare lenders,
real estate partnerships, banks, insurance companies and other
investors. Some of our competitors are significantly larger and
have greater financial resources and lower cost of capital than
we do.
The operators and managers of the properties in which we invest
compete on a local and regional basis with other landlords and
healthcare providers who own and operate healthcare-related real
estate. The occupancy and rental income at our properties depend
upon several factors, including the number of physicians using
the healthcare
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facilities or referring patients to the facilities, the number
of patients or residents of the healthcare-related facilities,
competing properties and healthcare providers, and the size and
demographics of the population in the surrounding area. Private,
federal and state payment programs and the effect of laws and
regulations may also have a significant influence on the
profitability of the properties and their tenants.
Employees
We do not have any employees. Our officers are employees of our
manager and its affiliates. We do not have any separate
facilities and are completely reliant on our manager to conduct
our
day-to-day
operations. Our Manager is reimbursed for the cost of these
employees and the services delivered through a management fee
under the requirements of the Management Agreement by and
between Care and CIT Healthcare. See Item 7A. Quantitative
and Qualitative Disclosures About Market Risk Related
Party Transactions and Agreements Management
Agreement below.
Certain
U.S. Federal Income Tax Considerations
The following discussion of Certain U.S. Federal
Income Tax Considerations is not inclusive of all possible
tax considerations and is not tax advice. This summary does not
deal with all tax aspects that might be relevant to a particular
stockholder in light of such stockholders circumstances,
nor does it deal with particular types of stockholders that are
subject to special treatment under the Internal Revenue Code
(the Code). Provisions of the Code governing the
federal income tax treatment of REITs and their stockholders are
highly technical and complex, and this summary is qualified in
its entirety by the applicable Code provisions, rules and
Treasury Regulations promulgated thereunder, and administrative
and judicial interpretations thereof. The following discussion
is based on current law, which could be changed at any time, and
possibly applied retroactively.
We elected on our 2007 U.S. income tax return to be taxed
as a REIT under Sections 856 through 860 of the Code for
our taxable year ended December 31, 2007. To qualify as a
REIT, we must meet certain organizational and operational
requirements, including a requirement to distribute at least 90%
of our REIT taxable income to stockholders. As a REIT, we
generally will not be subject to federal income tax on taxable
income that we distribute to our stockholders. If we fail to
qualify as a REIT in any taxable year, we will then be subject
to federal income tax on our taxable income at regular corporate
rates and we will not be permitted to qualify for treatment as a
REIT for federal income tax purposes for four years following
the year during which qualification is lost unless the Internal
Revenue Service grants us relief under certain statutory
provisions. Such an event could materially adversely affect our
net income and net cash available for distributions to
stockholders. However, we believe that we will operate in such a
manner as to qualify for treatment as a REIT and we intend to
operate in the foreseeable future in such a manner so that we
will qualify as a REIT for federal income tax purposes. We may,
however, be subject to certain state and local taxes.
The Code defines a REIT as a corporation, trust or association
(i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by
transferable shares, or by transferable certificates of
beneficial interest; (iii) which would be taxable, but for
Sections 856 through 860 of the Code, as a domestic
corporation; (iv) which is neither a financial institution
nor an insurance company subject to certain provisions of the
Code; (v) the beneficial ownership of which is held by 100
or more persons; (vi) during the last half of each taxable
year not more than 50% in value of the outstanding stock of
which is owned, actually or constructively, by five or fewer
individuals; and (vii) which meets certain other tests,
described below, regarding the amount of its distributions and
the nature of its income and assets. The Code provides that
conditions (i) to (iv), inclusive, must be met during the
entire taxable year and that condition (v) must be met
during at least 335 days of a taxable year of
12 months, or during a proportionate part of a taxable year
of less than 12 months.
There are presently two gross income requirements for Care to
qualify as a REIT. First, for each taxable year, at least 75% of
Cares gross income (excluding gross income from
prohibited transactions as defined below, and
certain hedging transactions entered into after July 30,
2008) must be derived directly or indirectly from
investments relating to real property or mortgages on real
property or from certain types of temporary investment income.
Second, at least 95% of Cares gross income (excluding
gross income from prohibited transactions and qualifying hedges)
for each taxable year must be derived from income that qualifies
under the 75% test and other dividends,
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interest and gain from the sale or other disposition of stock or
securities. A prohibited transaction is a sale or
other disposition of property (other than foreclosure property)
held primarily for sale to customers in the ordinary course of
our trade or business.
At the close of each quarter of Cares taxable year, it
must also satisfy tests relating to the nature of its assets.
First, at least 75% of the value of Cares total assets
must be represented by real estate assets (including shares of
stock of other REITs) cash, cash items, or government
securities. For purposes of this test, the term real
estate assets generally means real property (including
interests in real property and mortgages, and certain mezzanine
loans) and shares in other REITs, as well as any stock or debt
instrument attributable to the investment of the proceeds of a
stock offering or a public debt offering with a term of at least
five years, but only for the one-year period beginning on the
date the proceeds are received. Second, not more than 25% of
Cares total assets may be represented by securities other
than those in the 75% asset class. Third, of the investments
included in the 25% asset class and except for certain
investments in other REITs, qualified REIT
subsidiaries and TRSs, the value of any one issuers
securities owned by Care may not exceed 5% of the value of
Cares total assets, and Care may not own more than 10% of
the vote or value of the securities of any one issuer. Solely
for purposes of the 10% value test, however, certain securities
including, but not limited to, securities having specified
characteristics (straight debt), loans to an
individual or an estate, obligations to pay rents from real
property and securities issued by a REIT, are disregarded as
securities. Fourth, not more than 20% (25% for taxable years
beginning on or after January 1, 2009) of the value of
Cares total assets may be represented by securities of one
or more TRSs.
Care, directly and indirectly, owns interests in various
partnerships and limited liability companies that are either
disregarded or treated as partnership for federal income tax
purposes. In the case of a REIT that is a partner in a
partnership or a member of a limited liability company that is
treated as a partnership under the Code, for purposes of the
REIT asset and income tests, the REIT will be deemed to own its
proportionate share of the assets of the partnership or limited
liability company and will be deemed to be entitled to its
proportionate share of gross income of the partnership or
limited liability company, in each case, determined in
accordance with the REITs capital interest in the entity
(subject to special rules related to the 10% asset test).
The ownership of an interest in a partnership or limited
liability company by a REIT may involve special tax risks,
including the challenge by the Internal Revenue Service of the
allocations of income and expense items of the partnership or
limited liability company, which would affect the computation of
taxable income of the REIT, and the status of the partnership or
limited liability company as a partnership (as opposed to an
association taxable as a corporation) for federal income tax
purposes.
Care also owns interests in a number of subsidiaries which are
intended to be treated as qualified REIT subsidiaries (each a
QRS). The Code provides that such subsidiaries will
be ignored for federal income tax purposes and all assets,
liabilities and items of income, deduction and credit of such
subsidiaries will be treated as the assets, liabilities and such
items of Care. If any partnership, limited liability company or
subsidiary in which Care owns an interest were treated as a
regular corporation (and not as a partnership, subsidiary REIT,
QRS or taxable REIT subsidiary, as the case may be) for federal
income tax purposes, Care would likely fail to satisfy the REIT
asset tests described above and would therefore fail to qualify
as a REIT, unless certain relief provisions apply. Care believes
that each of the partnerships, limited liability companies and
subsidiaries (other than taxable REIT subsidiaries), in which it
owns an interest will be treated for tax purposes as a
partnership, disregarded entity (in the case of a 100% owned
limited liability company), REIT or QRS, as applicable, although
no assurance can be given that the Internal Revenue Service will
not successfully challenge the status of any such organization.
A REIT may own any percentage of the voting stock and value of
the securities of a corporation which jointly elects with the
REIT to be a TRS, provided certain requirements are met. A TRS
generally may engage in any business, including the provision of
customary or noncustomary services to tenants of its parent REIT
and of others, except a TRS may not manage or operate a hotel or
healthcare facility. A TRS is treated as a regular corporation
and is subject to federal income tax and applicable state income
and franchise taxes at regular corporate rates. In addition, a
100% tax may be imposed on a REIT if its rental, service or
other agreements with its TRS, or the TRSs agreements with
the REITs tenants, are not on arms-length terms. As
of December 31, 2009, Care did not own any interests in
subsidiaries which have elected to be taxable REIT subsidiaries
(each a TRS).
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In order to qualify as a REIT, Care is required to distribute
dividends (other than capital gain dividends) to its
stockholders in an amount at least equal to (A) the sum of
(i) 90% of its real estate investment trust taxable
income (computed without regard to the dividends paid
deduction and its net capital gain) and (ii) 90% of the net
income, if any (after tax), from foreclosure property, minus
(B) the sum of certain items of non-cash income. Such
distributions must be paid, or treated as paid, in the taxable
year to which they relate. At Cares election, a
distribution will be treated as paid in a taxable year if it is
declared before Care timely files its tax return for such year,
and is paid on or before the first regular dividend payment
after such declaration, provided such payment is made during the
twelve month period following the close of such year. To the
extent that Care does not distribute all of its net long-term
capital gain or distributes at least 90%, but less than 100%, of
its real estate investment trust taxable income, as
adjusted, Care will be required to pay tax on the undistributed
amount at regular federal and state corporate tax rates.
Furthermore, if Care fails to distribute during each calendar
year at least the sum of (i) 85% of its ordinary income for
such year, (ii) 95% of its capital gain net income for such
year and (iii) any undistributed taxable income from prior
periods, Care would be required to pay, in addition to regular
federal and state corporate tax, a non-deductible 4% excise tax
on the excess of such required distributions over the amounts
actually distributed. While historically Care has satisfied the
distribution requirements discussed above by making cash
distributions to its shareholders, a REIT is permitted to
satisfy these requirements by making distributions of cash or
other property, including, in limited circumstances, its own
stock. For distributions with respect to taxable years ending on
or before December 31, 2009, recent Internal Revenue
Service guidance allows us to satisfy up to 90% of the
distribution requirements discussed above through the
distribution of shares of Care common stock, if certain
conditions are met.
Corporate
Governance Guidelines
The Company has adopted Corporate Governance Guidelines relating
to the conduct and operations of the board of directors. The
Corporate Governance Guidelines are posted on the Companys
website (
www.carereit.com
).
Committee
Charters
The Board of Directors has an Audit Committee and a
Compensation, Nominating and Governance Committee, which was
formed on January 28, 2010, when the board combined the
functions of the then Compensation Committee and the Nominating,
Corporate Governance and Investment Oversight Committee. The
board of directors has adopted a written charter for the Audit
Committee which is available on the Companys website
(
www.carereit.com
) and is in the process of adopting a
charter for the Compensation, Nominating and Governance
Committee.
Codes of
Conduct
The Company has adopted for the officers and board of directors
of Care a Code of Ethical Conduct to govern its business
practices. In addition, the Company has adopted a Code of
Business Conduct, not only as guidance for officers and
directors of Care, but for the employees of our Manager, CIT
Healthcare LLC, and its affiliates, who provide services and
support to Care. Copies of each code are available on the
Companys website (
www.carereit.com
).
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Risks
Related to the Tiptree Transaction
On March 16, 2010, we announced the entry into a definitive
purchase and sale agreement with Tiptree Financial Partners,
L.P. (Tiptree) under which we have agreed to sell a
significant amount of newly issued common stock to Tiptree at
$9.00 per share. The sale of common stock to Tiptree is expected
to result in a change in control of our company. Pursuant to the
purchase and sale agreement, we have agreed to launch a cash
tender offer to all of our stockholders to purchase their common
stock at $9.00 per share. The following are risks associated
with these contemplated transactions. The discussion of the
terms of the purchase and sale agreement below is qualified in
its entirety by the terms of the agreement itself, which has
been filed as Exhibit 10.1 to the Companys
Form 8-K
filed on March 16, 2010.
The
Tiptree transaction is subject to conditions, and there can be
no assurance that these conditions will be met.
Pursuant to the purchase and sale agreement, Tiptrees
obligation to purchase common stock is subject to certain
conditions being met, including: (i) the representations
and warranties of the Company in the purchase and sale agreement
being true and correct; (ii) the Company performing all
covenants and obligations required to be performed under the
purchase and sale agreement, (iii) a registration rights
agreement and escrow agreement being executed and in full force
and effect, (iv) the receipt of all required third party
consents, (v) the absence of a Company Material Adverse
Effect (as defined in the purchase and sale agreement),
(vi) the resignation of three of our current directors and
the appointment of four designees from Tiptree to our board of
directors, (vii) the receipt of an opinion of counsel
regarding the validity of the shares issued to Tiptree, and
(viii) the absence of any restraining orders or injunctions
relating to the contemplated transactions. If any one or more of
these conditions is not met, or waived, then the Tiptree
transaction will not be completed.
The
tender offer contemplated in the Tiptree transaction is subject
to conditions, and there can be no assurance that these
conditions will be met.
Pursuant to the purchase and sale agreement, our obligation to
accept for payment shares validly tendered and not withdrawn on
the expiration date of the tender offer is subject to the
following conditions being met: (i) there being validly
tendered and not withdrawn prior to the expiration date a
minimum of 10,300,000 shares of our common stock,
(ii) Tiptree having deposited in escrow the maximum amount
of funds required to be deposited pursuant to the purchase and
sale agreement, (iii) approval by our stockholders of the
sale of common stock to Tiptree and the abandonment of our
previously approved plan of liquidation, (iv) any waiting
period applicable to the contemplated transactions having
expired or been terminated under the Hart-Scott-Rodino
Antitrusts Improvements Act of 1976, as amended, (v) the
accuracy of the representations and warranties of Tiptree,
(vi) the performance by Tiptree of the covenants and
obligations required under the purchase and sale agreement,
(vii) the escrow agreement being in full force and effect,
(viii) the receipt of any consents required by Tiptree,
(ix) the absence of any temporary restraining order,
injunction or court order preventing the consummation of the
contemplated transactions, or any statute, rule, regulation, or
order preventing or prohibiting the consummation of the
contemplated transactions and (x) the absence of any
Tiptree material adverse effect. If any one or more of these
conditions is not met or waived, then we will have the right,
under certain circumstances, to terminate the tender offer.
Even
if the conditions to completion of the Tiptree transaction and
the associated tender offer are met, there can be no assurance
that these transactions will be completed in a timely manner,
under the same terms or at all.
There can be no assurance that the Tiptree transaction and the
associated tender offer will be completed in a timely manner,
under the same terms, or at all. If the Tiptree transaction is
terminated for any reason, then the tender offer will also be
terminated, and you will not receive the purchase price for your
common stock.
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If the
contemplated transactions are not completed, we may pursue the
plan of liquidation previously approved by our stockholders or
continue to pursue other strategic alternatives.
If the contemplated transactions are not completed for any
reason (including if the stockholders fail to approve the
issuance of the stock to Tiptree or the abandonment of the plan
of liquidation), we may pursue the plan of liquidation
previously approved by our stockholders. In the event that a
liquidation of the Company is pursued, material adjustments to
these going concern financial statements may need to be recorded
to present liquidation basis financial statements. Material
adjustments which may be required for liquidation basis
accounting primarily relate to reflecting assets and liabilities
at their net realizable value and costs to be incurred to carry
out the plan of liquidation. After such adjustments, the likely
range of equity value which would be presented in liquidation
basis financial statements would be between $8.05 and 8.90 per
share. If the contemplated transactions are not completed for
any reason (including if the stockholders fail to approve the
issuance of stock to Tiptree or the abandonment of the plan of
liquidation), we continue to reserve the right to entertain
other proposals from third parties to enter into an alternative
transaction that returns value to our stockholders, and, if
required by applicable law, we will seek stockholder approval
for any such alternative transaction.
Risks
Related to Our Business
Adverse
economic and geopolitical conditions and disruptions in the
credit markets could have a material adverse effect on our
results of operations, financial condition and ability to pay
distributions to our stockholders.
Our business has been and may continue to be affected by market
and economic challenges experienced by the global economy or
real estate industry as a whole or by the local economic
conditions in the markets where our properties may be located,
including the current dislocations in the credit markets and
general global economic recession. These current conditions, or
similar conditions existing in the future, may adversely affect
our results of operations, financial condition and ability to
pay distributions as a result of the following, among other
potential consequences:
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the financial condition of our borrowers, tenants and operators
may be adversely affected, which may result in defaults under
loans or leases due to bankruptcy, lack of liquidity,
operational failures or for other reasons;
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foreclosures and losses on our healthcare-related real estate
investments and mortgage loans could be higher than those
generally experienced in the mortgage lending industry because a
portion of the investments we make may be subordinate to other
creditors;
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our
loan-to-value
ratio of loans that we have previously extended would increase
and our collateral coverage would weaken and increase the
possibility of a loss in the event of a borrower default if
there is a material decline in real estate values;
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our ability to borrow on terms and conditions that we find
acceptable, or at all, may be limited, which could reduce our
ability to refinance existing debt, reduce our returns from our
acquisition activities and increase our future interest
expense; and
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reduced values of our properties may limit our ability to
dispose of assets at attractive prices or to obtain debt
financing secured by our properties and may reduce the
availability of unsecured loans.
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We are
dependent upon our Manager for our success and may not find a
suitable replacement if the management agreement is terminated
or such key personnel are no longer available to
us.
We do not have any employees. Our officers are employees of our
Manager and its affiliates. We do not have any separate
facilities and are completely reliant on our Manager to conduct
our
day-to-day
operations. We depend on the diligence, skill and network of
business contacts of our Manager. Our executive officers and our
Manager monitor our investments. The management agreement does
not require our Manager to dedicate specific personnel to
fulfilling its obligations to us under the management agreement,
or require personnel to dedicate a specific amount of time. The
departure of a significant number of the professionals of our
Manager could have a material adverse effect on our performance.
On January 15, 2010, we entered into an amended and
restated management
21
agreement with our Manager, which, among other things, extends
the term of the management agreement through December 31,
2011. We are subject to the risk that our Manager may terminate
the management agreement and that no suitable replacement will
be found to manage us. Our Manager has a right to terminate the
management agreement without cause under certain circumstances.
We can offer no assurance that our Manager will remain our
external manager, that we will be able to find an adequate
replacement for our Manager should our Manager terminate the
management agreement, or that we will continue to have access to
our Managers principals and professionals.
We may
be unable to generate sufficient revenue from operations to pay
our operating expenses and to make distributions to our
stockholders.
As a REIT, we generally are required to distribute at least 90%
of our REIT taxable income each year to our stockholders and we
intend to pay quarterly dividends to our stockholders such that
we distribute all or substantially all of our taxable income
each year, subject to certain adjustments and sufficient
available cash. However, our ability to pay dividends may be
adversely affected by the risk factors described in this
document. In the event of a downturn in our operating results
and financial performance or unanticipated declines in the value
of our asset portfolio, we may be unable to pay quarterly
dividends to our stockholders. The timing and amount of our
dividends are in the sole discretion of our board of directors,
and will depend upon, among other factors, our earnings,
financial condition, maintenance of our REIT qualification and
other tax considerations and capital expenditure requirements,
in each case as our board of directors may deem relevant from
time to time.
Among the factors that could adversely affect our results of
operations and impair our ability to pay dividends to our
stockholders are:
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the profitability of our investments;
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defaults in our asset portfolio or decreases in the value of our
portfolio; and
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the fact that anticipated operating expense levels may not prove
accurate, as actual results may vary from estimates.
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A change in any one of these factors could affect our ability to
pay dividends. We cannot assure our stockholders that we will be
able to pay dividends in the future or that the level of any
dividends we pay will increase over time.
In addition, dividends paid to stockholders are generally
taxable to our stockholders as ordinary income, but a portion of
our dividends may be designated by us as long-term capital gains
to the extent they are attributable to capital gain income
recognized by us, or may constitute a return of capital to the
extent they exceed our earnings and profits as determined for
tax purposes. Distributions in excess of our earnings and
profits generally may be tax-free to the extent of each
stockholders basis in our common stock and generally may
be treated as capital gain if they are in excess of basis.
Risk
Related to a Liquidation
On December 10, 2009, our Board of Directors approved a
plan of liquidation and recommended that our shareholders
approve the plan of liquidation. On January 28, 2010, our
stockholders approved the plan of liquidation. We have entered
into a definitive agreement for the sale of control of the
Company and have not pursued the plan of liquidation. The
following risk factors would apply in the event that we fail to
close the Tiptree transaction and pursue the plan of liquidation.
Pursuing
the plan of liquidation may cause us to fail to qualify as a
REIT, which would lower the amount of our distributions to our
stockholders.
We value our status as a REIT under the tax code because while
we qualify as a REIT and distribute all of our taxable income,
we generally are not subject to federal income tax. Although our
board of directors does not presently intend to terminate our
REIT status prior to the final distribution of our assets and
our dissolution, our board of directors may take actions
pursuant to the plan of liquidation which would result in such a
loss of REIT status. Upon the final distribution of our assets
and our dissolution, our existence and our REIT status will
terminate.
22
However, there is a risk that our actions in pursuit of the plan
of liquidation may cause us to fail to meet one or more of the
requirements that must be met in order to qualify as a REIT
prior to completion of the plan of liquidation. For example, to
qualify as a REIT, at least 75% of our gross income must come
from real estate sources and 95% of our gross income must come
from real estate sources and certain other sources that are
itemized in the REIT tax laws, mainly interest and dividends. We
may encounter difficulties satisfying these requirements as part
of the liquidation process. In addition, in selling our assets,
we may recognize ordinary income in excess of the cash received.
The REIT rules require us to pay out a large portion of our
ordinary income in the form of a dividend to stockholders.
However, to the extent that we recognize ordinary income without
any cash available for distribution, and if we are unable to
borrow to fund the required dividend or find another way to meet
the REIT distribution requirements, we may cease to qualify as a
REIT. While we expect to comply with the requirements necessary
to qualify as a REIT in any taxable year, if we are unable to do
so, we will, among other things (unless entitled to relief under
certain statutory provisions):
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not be allowed a deduction for dividends paid to stockholders in
computing our taxable income;
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be subject to federal income tax, including any applicable
alternative minimum tax, on our taxable income at regular
corporate rates;
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be subject to increased state and local taxes; and
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be disqualified from treatment as a REIT for the taxable year in
which we lose our qualification and for the four following
taxable years.
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As a result of these consequences, our failure to qualify as a
REIT could substantially reduce the funds available for
distribution to our stockholders.
We do
not know the exact amount or timing of potential liquidation
distributions.
We cannot assure our stockholders of the precise nature and
amount of any distributions to our stockholders pursuant to the
plan of liquidation. Furthermore, the timing of our
distributions will be affected, in large part, by our ability to
sell our remaining assets in a timely and orderly manner.
Our assets currently consist of one mortgage loan and
investments in three healthcare real estate
portfolios the Cambridge medical office building
portfolio, the Bickford assisted living, independent living and
Alzheimer facility portfolio and the SMC independent and
assisted living facility portfolio.
Managements estimates of the values of our mortgage loan
assets are based on comparable sales figures in prior mortgage
loan sales, discussions with bidders and brokers and a
confirmatory valuation provided by an outside valuation expert.
Managements estimates of the values of our healthcare real
estate investments are based on managements projections
and models, the values ascribed to such investments by bidders
for the company, comparable sales figures, discussions with
brokers, and, with respect to our investments in Bickford and
SMC, a confirmatory valuation provided to us by an outside
valuation expert. Managements estimate of the value of our
85% interest in the Cambridge medical office building portfolio
is based on a net present value of the future cash flows that we
expect to receive from our Cambridge investment, minus our
estimated costs for operating our company during our projected
holding period for our Cambridge investment. There can be no
assurance that we will be able to find buyers for any or all of
our assets, and if we are able to sell such assets, there can be
no guaranty that the value received upon such sale will be
consistent with managements estimates.
Potential purchasers of our assets may try to take advantage of
our liquidation process and offer
less-than-optimal
prices for our assets. We intend to seek and obtain the highest
sales prices reasonably available for our assets, and believe
that we can out-wait bargain-hunters; however, we cannot predict
how changes in local real estate markets or in the national
economy may affect the prices that we can obtain in the
liquidation process. Therefore, there can be no assurance that
we will receive the proceeds we expect for the sale of our
assets.
The actual amount available for distribution could be more or
less than the range of net liquidating distributions that we
estimated in our proxy statement filed on December 28, 2009
(the Liquidation Proxy Statement), as updated in the
Form 8-K
that we filed on January 15, 2010 to announce the amendment
to our
23
management agreement (the Total Liquidation Value
Range), depending on a number of other factors including
(i) unknown liabilities or claims, (ii) unexpected or
greater or lesser than expected expenses, and (iii) greater
or lesser than anticipated net proceeds of asset sales.
Distributions will depend on the amount of proceeds we receive
from the sale of our assets, when we receive them, and the
extent to which we must establish reserves for current or future
liabilities.
We are currently unable to predict the precise timing of any
distributions pursuant to the plan of liquidation. The timing of
any distribution will depend upon and could be delayed by, among
other things, the timing of the sale of our companys
assets.
Additionally, a creditor could seek an injunction against our
making distributions to our stockholders on the ground that the
amounts to be distributed were needed for the payment of the
liabilities and expenses. Any action of this type could delay or
substantially diminish the amount, if any, available for
distribution to our stockholders.
If we
are unable to find buyers for our assets at our expected sales
prices, our liquidating distributions may be delayed or
reduced.
As of the date of this annual report on
Form 10-K,
none of our mortgage loans or healthcare real estate assets are
subject to a binding sale agreement providing for their sale. In
calculating our Total Liquidation Value Range for our assets, we
assumed that we will be able to find buyers for all of our
assets at amounts based on our estimated range of values for
each investment. However, we may have overestimated the sales
prices that we will ultimately be able to obtain for these
assets. For example, in order to find buyers in a timely manner,
we may be required to lower our asking price below the low end
of our current estimate of the assets market value. If we
are not able to find buyers for these assets in a timely manner
or if we have overestimated the sales prices we will receive,
our liquidating payments to our stockholders would be delayed or
reduced. Furthermore, real estate values are constantly changing
and fluctuate with changes in interest rates, supply and demand
dynamics, occupancy percentages, lease rates, the availability
of suitable buyers, the perceived quality and dependability of
income flows from tenancies and a number of other factors, both
local and national. Our liquidation proceeds may also be
affected by the terms of prepayment or assumption costs
associated with debt encumbering our healthcare real estate
assets. In addition, minority ownership matters, transactional
fees and expenses, environmental contamination at our healthcare
real estate assets or unknown liabilities, if any, may adversely
impact the net liquidation proceeds from those assets.
Decreases
in property values may reduce the amount we receive upon a sale
of our assets.
The underlying value of our healthcare real estate assets may be
reduced by a number of factors that are beyond our control,
including, without limitation, the following:
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adverse changes in economic conditions;
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the financial performance of our tenants, and the ability of our
tenants to satisfy their obligations under their leases;
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potential major repairs which are not presently contemplated or
other contingent liabilities associated with the assets;
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terminations and renewals of leases by our tenants;
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changes in interest rates and the availability of financing;
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competition; and
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changes in real estate tax rates and other operating expenses
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Any reduction in the value of our healthcare real estate assets
would make it more difficult for us to sell such assets for the
amounts that we have estimated. Reductions in the amounts that
we receive when we sell our assets could decrease or delay the
payment of distributions to stockholders.
24
If our
liquidation costs or unpaid liabilities are greater than we
expect, our potential liquidating distributions may be delayed
or reduced.
Before making the final liquidating distribution, we will need
to pay or arrange for the payment of all of our transaction
costs in the liquidation, all other costs and all valid claims
of our creditors. Our board of directors may also decide to
acquire one or more insurance policies covering unknown or
contingent claims against us, for which we would pay a premium
which has not yet been determined. Our board of directors may
also decide to establish a reserve fund to pay these contingent
claims. The amounts of transaction costs that we will incur in
the liquidation are not yet final, so we have used estimates of
these costs in calculating our Total Liquidation Value Range. To
the extent that we have underestimated these costs in
calculating our projections, our actual liquidation value may be
lower than our estimated Total Liquidation Value Range. In
addition, if the claims of our creditors are greater than we
have anticipated or we decide to acquire one or more insurance
policies covering unknown or contingent claims against us, our
liquidating distributions may be delayed or reduced. Further, if
a reserve fund is established, payment of liquidating
distributions to our stockholders may be delayed or reduced.
The
sale of our assets may cause us to be subject to a 100% excise
tax on prohibited transactions, which would reduce
the amount of potential liquidating distributions.
REITs are subject to a 100% excise tax on any gain from
prohibited transactions, which include sales or
other dispositions of assets held for sale to customers in the
ordinary course of the REITs trade or business. The
determination of whether property is held for sale to customers
in the ordinary course of our trade or business is inherently
factual in nature and, thus, cannot be predicted with certainty.
The tax code does provide a safe harbor which, if
all its conditions are met, would protect a REITs property
sales from being considered prohibited transactions, but we may
not be able to satisfy these conditions. While we do not believe
that any of our property should be considered to be held for
sale to customers in the ordinary course of our trade or
business, because of the substantial number of properties that
would have to be sold and the active marketing that would be
necessary, there is a risk that the Internal Revenue Service
would seek to treat some or all of the property sales as
prohibited transactions, resulting in the payment of taxes by us
as described above, in which case the amount available for
distribution to our stockholders could be significantly reduced.
If we
are unable to satisfy all of our obligations to creditors, or if
we have underestimated our future expenses, the amount of
potential liquidation proceeds will be reduced.
If we pursue the liquidation, we will file articles of
dissolution with the State Department of Assessments and
Taxation of Maryland promptly after the sale of all of our
remaining assets or at such time as our directors have
transferred our companys remaining assets, subject to its
liabilities, into a liquidating trust. Pursuant to Maryland law,
our company will continue to exist for the purpose of
discharging any debts or obligations, collecting and
distributing its assets, and doing all other acts required to
liquidate and wind up its business and affairs. We intend to pay
for all liabilities and distribute all of our remaining assets,
which may be accomplished by the formation of a liquidating
trust, before we file our articles of dissolution.
Under Maryland law, certain obligations or liabilities imposed
by law on our stockholders, directors, or officers cannot be
avoided by the dissolution. For example, if we make
distributions to our stockholders without making adequate
provisions for payment of creditors claims, our
stockholders could be liable to the creditors to the extent of
the distributions in excess of the amount of any payments due to
creditors. The liability of any stockholder is, however, limited
to the amounts previously received by such stockholder from us
(and from any liquidating trust). Accordingly, in such event, a
stockholder could be required to return all liquidating
distributions previously made to such stockholder and a
stockholder could receive nothing from us under the plan of
liquidation. Moreover, in the event a stockholder has paid taxes
on amounts previously received as a liquidation distribution, a
repayment of all or a portion of such amount could result in a
stockholder incurring a net tax cost if the stockholders
repayment of an amount previously distributed does not cause a
commensurate reduction in taxes payable. Therefore, to the
extent that we have underestimated the size of our contingency
reserve and distributions to our stockholders have already been
made, our stockholders may be required to return some or all of
such distributions.
25
Stockholders
could be liable to creditors to the extent of liquidating
distributions received if contingent reserves are insufficient
to satisfy our liabilities.
If a court holds at any time that we have failed to make
adequate provision for our expenses and liabilities or if the
amount ultimately required to be paid in respect of such
liabilities exceeds the amount available from the contingency
reserve and the assets of the liquidating trust, our creditors
could seek an injunction to prevent us from making distributions
under the plan of liquidation on the grounds that the amounts to
be distributed are needed to provide for the payment of our
expenses and liabilities. Any such action could delay or
substantially diminish the cash distributions to be made to
stockholders
and/or
holders of beneficial interests of the liquidation trust under
the plan of liquidation.
Distributions
by us may include a return of capital.
Distributions payable to stockholders may include a return of
capital as well as a return in excess of capital. Distributions
exceeding taxable income will constitute a return of capital for
federal income tax purposes to the extent of a
stockholders basis. Distributions in excess of tax basis
will generally constitute capital gain.
We
face potential risks with asset sales.
Risks associated with the sale of properties which, if they
materialize, may have a material adverse effect on amounts our
stockholders may receive, include:
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lack of demand by prospective buyers;
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inability to find qualified buyers;
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inability of buyers to obtain satisfactory financing;
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lower than anticipated sale prices; and
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the inability to close on sales of properties under contract.
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The
market price of our common stock may decline as we make
potential liquidating distributions to our
stockholders.
Our
stock may be delisted from the New York Stock
Exchange.
Under the rules of the New York Stock Exchange, the exchange has
discretionary authority to delist our common stock if we proceed
with a plan of liquidation. In addition, the exchange will
commence delisting proceedings against us if (i) the
average closing price of our common stock falls below $1.00 per
share over a
30-day
consecutive trading period, (ii) our average market
capitalization falls below $15 million over a
30-day
consecutive trading period, or (iii) we lose our REIT
qualification. Even if the New York Stock Exchange does not move
to delist our common stock, we may voluntarily delist our common
stock from the exchange in an effort to reduce our operating
expenses and maximize our liquidating distributions. If our
common stock is delisted, our stockholders may have difficulty
trading our common stock on the secondary market.
Our
stockholders will not be able to buy, sell or transfer our
shares of common stock after we file our Articles of
Dissolution.
We may close our transfer books as of the close of business on
the date on which we file Articles of Dissolution with the State
Department of Assessments and Taxation of Maryland (the
Final Record Date) if we proceed with a plan of
liquidation. If we follow this course, we anticipate that the
Final Record Date will be after the sale of all of our assets or
such earlier time as our board of directors transfers all of our
remaining assets into a liquidating trust. After the Final
Record Date, we will not record any further transfers of our
shares of common stock except pursuant to the provisions of a
deceased stockholders will, intestate succession or
operation of law and we will not issue any new stock
certificates other than replacement certificates. In addition,
after the Final Record Date, we will not issue any shares of
common stock upon exercise of outstanding options. Our
stockholders interests in a liquidating trust
26
are likely to be non-transferable except by will, intestate
succession or operation of law. It is anticipated that no
further transfers of our shares of common stock will be
recognized after the final record date.
Our
board of directors will have the authority to sell our assets
under terms less favorable than those assumed for the purpose of
estimating our net liquidation value range in the Liquidation
Proxy Statement.
Pursuant to the plan of liquidation, our board of directors has
the authority to sell any and all of our assets on such terms
and to such parties as our board of directors determines in its
sole discretion. Our stockholders have no opportunity to vote on
such matters and will, therefore, have no right to approve or
disapprove the terms of such sales.
Our
shareholders approved a plan of liquidation on January 28,
2010; however, our board of directors may amend the plan of
liquidation at any time.
Even though our stockholders approved the plan of liquidation,
our board of directors may amend the plan of liquidation without
further stockholder approval, to the extent permitted by
Maryland law.
If we
continue with the plan of liquidation, distributing interests in
a liquidating trust may cause our stockholders to recognize gain
prior to the receipt of cash.
The REIT provisions of the tax code generally require that each
year we distribute as a dividend to our stockholders 90% of our
REIT taxable income (determined without regard to the dividends
paid deduction and excluding net capital gain). Liquidating
distributions we make pursuant to a plan of liquidation will
qualify for the dividends paid deduction, provided that they are
made within 24 months of the adoption of such plan.
Conditions may arise which cause us not to be able to liquidate
within such
24-month
period. For instance, it may not be possible to sell our assets
at acceptable prices during such period. In such event, rather
than retain our assets and risk losing our status as a REIT, we
may elect to contribute our remaining assets and liabilities to
a liquidating trust in order to meet the
24-month
requirement. We may also elect to contribute our remaining
assets and liabilities to a liquidating trust within such
24-month
period to avoid the costs of operating as a public company. Such
a contribution would be treated as a distribution of our
remaining assets to our stockholders, followed by a contribution
of the assets to the liquidating trust. As a result, a
stockholder would recognize gain to the extent his share of the
cash and the fair market value of any assets received by the
liquidating trust was greater than the stockholders basis
in his stock, notwithstanding that the stockholder would not
contemporaneously receive a distribution of cash or any other
assets with which to satisfy the resulting tax liability. In
addition, it is possible that the fair market value of the
assets received by the liquidating trust, as estimated for
purposes of determining the extent of the stockholders
gain at the time interests in the liquidating trust are
distributed to the stockholders, will exceed the cash or fair
market value of property received by the liquidating trust on a
sale of the assets. In this case, the stockholder would
recognize a loss in a taxable year subsequent to the taxable
year in which the gain was recognized, which loss may be limited
under the Code.
If we
pursue the plan of liquidation our accounting basis may change,
which could require us to write down our assets.
If we pursue liquidation, we must change our basis of accounting
from the going-concern basis to the liquidation basis of
accounting.
In order for our financial statements to be in accordance with
generally accepted accounting principles under the liquidation
basis of accounting, all of our assets must be stated at their
estimated net realizable value, and all of our liabilities must
be recorded at the estimated amounts at which the liabilities
are expected to be settled. Based on the most recent available
information, if the plan of liquidation is adopted, we may make
liquidating distributions that exceed the carrying amount of our
net assets. However, we cannot assure our stockholders what the
ultimate amounts of such liquidating distributions will be.
Therefore, there is a risk that the liquidation basis of
accounting may entail write-downs of certain of our assets to
values substantially less than their respective current carrying
amounts, and may require that certain of our liabilities be
increased or certain other liabilities be recorded to reflect
the anticipated effects of an orderly liquidation.
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Until we determine to pursue the liquidation, we will continue
to account for our assets and liabilities under the
going-concern basis of accounting. Under the going-concern
basis, assets and liabilities are expected to be realized in the
normal course of business. However, long-lived assets to be sold
or disposed of should be reported at the lower of carrying
amount or estimated fair value less cost to sell. For long-lived
assets to be held and used, when a change in circumstances
occurs, our management must assess whether we can recover the
carrying amounts of our long-lived assets. If our management
determines that, based on all of the available information, we
cannot recover those carrying amounts, an impairment of value of
our long-lived assets has occurred and the assets should be
written down to their estimated fair value.
In addition, write-downs in our assets could reduce the price
that a third party would be willing to pay to acquire our
stockholders shares or our assets.
Our
dispute with Cambridge regarding our ability to transfer our
interests in the Cambridge medical office building portfolio may
impair the value of such interests, and if we are not successful
in our declaratory judgment action against Cambridge, our
ability to transfer our interests in the portfolio may be
restricted.
Further,
if we are not successful in defending against Cambridges
counterclaim, our ability to carry out transactions may be
restricted and we may incur losses.
Cambridge, our joint venture partner in the Cambridge medical
office building portfolio, has asserted that it possesses the
contractual right to approve any transfer, either directly or
indirectly, of our interests in the portfolio. We have in the
past disagreed and continue to disagree with Cambridges
assertion and strongly believe that we have the right to
transfer, without the approval of Cambridge, our Cambridge
interests either through a business combination transaction
involving our company or the sale of our wholly owned subsidiary
that serves as the general partner of the partnership that holds
the direct investment in the portfolio. We contend that
Cambridge does not have the
indirect
right to control the
business combination and other activities of the parent entities
of the entity through which we made our direct investment in the
portfolio. On November 25, 2009, we filed a complaint in
federal district court in Texas against Cambridge and its
affiliates seeking, among other things, a declaratory judgment
to that effect. On January 27, 2010, the Saada Parties
answered our complaint, and simultaneously filed counterclaims
and a third-party complaint (the Counterclaims) that
named our subsidiaries ERC Sub LLC and ERC Sub, L.P., external
manager CIT Healthcare LLC, and Board Chairman Flint D.
Besecker, as additional third-party defendants. The
Counterclaims seek four declaratory judgments construing certain
contracts among the parties that are basically the mirror image
of our declaratory judgment claims. In addition, the
Counterclaims also seek monetary damages for purported breaches
of fiduciary duty and the duty of good faith and fair dealing,
as well as fraudulent inducement, against us and the third-party
defendants jointly and severally. The Counterclaims further
request indemnification by ERC Sub, L.P., pursuant to a contract
between the parties, and the imposition of a constructive
trust on the proceeds of any future liquidation of Care,
to ensure a reservoir of funds from which any liability to the
Saada Parties could be paid. Although the Counterclaims do not
itemize their asserted damages, they assign these damages a
value of $100 million or more. In response to
the Counterclaims, Care and the third-party defendants filed on
March 5, 2010, an omnibus motion to dismiss all of the
Counterclaims. Unsuccessful resolution of our dispute with
Cambridge may impair the value of our Cambridge interests, which
may reduce the amount of liquidating distributions our
stockholders receive. In addition, if we are not successful in
our declaratory judgment action, our ability to transfer our
Cambridge interests may be restricted. Resolution of our dispute
with Cambridge may take a considerable amount of time. We also
cannot predict when our dispute with Cambridge will be resolved,
if at all. Further, if we are not successful in defending
against Cambridges counterclaim, our ability to carry out
transactions may be restricted and we may incur losses.
If we
are not successful in our declaratory judgment action seeking
confirmation that the partnership interests held by Cambridge in
the entity through which we made our investment in the Cambridge
medical office building portfolio are not entitled to receive
liquidating distributions from us, then the amount of potential
liquidating distributions available to our stockholders may be
reduced.
In connection with our investment in the Cambridge medical
office building portfolio, we agreed to cause the entity through
which our investment was made to issue operating partnership
units to Cambridge. The partnership agreement states that these
partnership units are entitled to receive an amount per unit
linked to the regular
quarterly
28
dividends declared and paid on Care common stock. Cambridge has
asserted that these partnership units are also entitled to
receive amounts linked to other liquidating distributions that
our board may declare and pay to our stockholders. We have
disagreed and continue to disagree with this assertion. On
November 25, 2009, we filed a complaint in federal district
court in Texas against Cambridge and its affiliates seeking,
among other things, a declaratory judgment that the partnership
units held by Cambridge are not entitled to receive any amounts
linked to any other special cash distributions declared and paid
by our board to our stockholders apart from cash distributions
linked to the regular
quarterly
dividends paid to our
stockholders. On January 27, 2010, the Saada Parties
answered our complaint, and simultaneously filed counterclaims
and a third-party complaint alleging, among other things, that
they are entitled to receive the special cash distributions. If
we are not successful in our declaratory judgment action, the
amount that our stockholders may receive in liquidating
distributions may be decreased.
Other
Risks
Our
rights and the rights of our stockholders to take action against
our directors and officers are limited, which could limit our
stockholders recourse in the event of actions not in our
stockholders best interests.
Our charter limits the liability of our directors and officers
to us and our stockholders for money damages, except for
liability resulting from:
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actual receipt of an improper benefit or profit in money,
property or services; or
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a final judgment based upon a finding of active and deliberate
dishonesty by the director or officer that was material to the
cause of action adjudicated.
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In addition, our charter permits us to agree to indemnify our
present and former directors and officers for actions taken by
them in those capacities to the maximum extent permitted by
Maryland law. Our bylaws require us to indemnify each present or
former director or officer, to the maximum extent permitted by
Maryland law, in the defense of any proceeding to which he or
she is made, or threatened to be made, a party by reason of his
or her service to us. In addition, we may be obligated to fund
the defense costs incurred by our directors and officers.
Compliance
with our Investment Company Act exemption imposes limits on our
operations.
We conduct our operations so as not to become regulated as an
investment company under the Investment Company Act of 1940, as
amended (the Investment Company Act). We rely on an
exemption from registration under Section 3(c)(5)(C) of the
Investment Company Act, which generally means that at least 55%
of our portfolio must be comprised of qualifying real estate
assets and at least another 25% of our portfolio must be
comprised of additional qualifying real estate assets and real
estate-related assets.
Rapid
changes in the market value or income from our real
estate-related investments or non-qualifying assets may make it
more difficult for us to maintain our status as a REIT or
exemption from the Investment Company Act.
If the market value or income potential of real estate-related
investments declines as a result of a change in interest rates,
prepayment rates or other factors, we may need to increase our
real estate investments and income
and/or
liquidate our non-qualifying assets in order to maintain our
REIT status or exemption from the Investment Company Act. If the
decline in real estate asset values
and/or
the
decline in qualifying REIT income occur quickly, it may be
especially difficult to maintain REIT status. These risks may be
exacerbated by the illiquid nature of both real estate and
non-real estate assets that we may own. We may have to make
investment decisions that we would not make absent the REIT and
Investment Company Act considerations.
Liability
relating to environmental matters may decrease the value of the
underlying properties.
Under various federal, state and local laws, an owner or
operator of real property may become liable for the costs of
cleanup of certain hazardous substances released on or under its
property. Such laws often impose liability without regard to
whether the owner or operator knew of, or was responsible for,
the release of such hazardous substances. The presence of
hazardous substances may adversely affect an owners
ability to sell real estate or borrow using real estate as
collateral. To the extent that an owner of an underlying
property becomes liable for
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cleanup costs, the ability of the owner to make debt payments
may be reduced, which in turn may adversely affect the value of
the relevant mortgage asset held by us.
We are
highly dependent on information systems and systems failures
could significantly disrupt our business, which may, in turn,
negatively affect the market price of our common stock and our
ability to pay dividends.
We are highly dependent on information systems and systems
failures could significantly disrupt our business, which may, in
turn, negatively affect the market price of our common stock and
our ability to pay dividends.
Our business is highly dependent on the communications and
information systems of our Manager. Any failure or interruption
of our Managers systems could cause delays or other
problems in our securities trading activities, which could have
a material adverse effect on our operating results and
negatively affect the market price of our common stock and our
ability to pay dividends.
Terrorist
attacks and other acts of violence or war may affect the real
estate industry, our profitability and the market for our common
stock.
The terrorist attacks on September 11, 2001 disrupted the
U.S. financial markets, including the real estate capital
markets, and negatively impacted the U.S. economy in
general. Any future terrorist attacks, the anticipation of any
such attacks, the consequences of any military or other response
by the U.S. and its allies, and other armed conflicts could
cause consumer confidence and spending to decrease or result in
increased volatility in the United States and worldwide
financial markets and economy. The economic impact of any such
future events could also adversely affect the credit quality of
some of our loans and investments and the property underlying
our securities.
We may suffer losses as a result of the adverse impact of any
future attacks and these losses may adversely impact our
performance and revenues and may result in volatility of the
value of our securities. A prolonged economic slowdown, a
recession or declining real estate values could impair the
performance of our investments and harm our financial condition,
increase our funding costs, limit our access to the capital
markets or result in a decision by lenders not to extend credit
to us. We cannot predict the severity of the effect that
potential future terrorist attacks would have on our business.
Losses resulting from these types of events may not be fully
insurable.
In addition, the events of September 11 created significant
uncertainty regarding the ability of real estate owners of high
profile assets to obtain insurance coverage protecting against
terrorist attacks at commercially reasonable rates, if at all.
With the enactment of the Terrorism Risk Insurance Act of 2002,
or TRIA, and the subsequent enactment of the Terrorism Risk
Insurance Extension Act of 2005, which extended TRIA through the
end of 2007, insurers must make terrorism insurance available
under their property and casualty insurance policies, but this
legislation does not regulate the pricing of such insurance. The
absence of affordable insurance coverage may adversely affect
the general real estate lending market, lending volume and the
markets overall liquidity and may reduce the number of
suitable investment opportunities available to us and the pace
at which we are able to make investments. If the properties in
which we invest are unable to obtain affordable insurance
coverage, the value of those investments could decline, and in
the event of an uninsured loss, we could lose all or a portion
of our investment.
Risks
Related to Conflicts of Interest and Our Relationship with Our
Manager
The
management agreement was not negotiated on an arms-length basis.
As a result, the terms, including fees payable, may not be as
favorable to us as if it was negotiated with an unaffiliated
third party.
The management agreement between Care and its Manager, CIT
Healthcare, was negotiated between related parties. As a result,
we did not have the benefit of arms-length negotiations of the
type normally conducted with an unaffiliated third party and the
terms, including fees payable, may not be as favorable to us as
if we did engage in negotiations with an unaffiliated third
party. We may choose not to enforce, or to enforce less
vigorously, our rights under the management agreement because of
our desire to maintain our ongoing relationship with our Manager.
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Risks
Relating to the Healthcare Industry
Our
investments are expected to be concentrated in healthcare
facilities and healthcare-related assets, making us more
vulnerable economically than if our investments were more
diversified.
We own interests in healthcare facilities as well as provide
financing for healthcare businesses. A downturn in the
healthcare industry or the economy generally could negatively
affect our borrowers or tenants ability to make
payments to us and, consequently, our ability to meet debt
service obligations or make distributions to our stockholders.
These adverse effects could be more pronounced than if we
diversified our investments outside of healthcare facilities.
Furthermore, some of our tenants and borrowers in the healthcare
industry are heavily dependant on reimbursements from the
Medicare and Medicaid programs for the bulk of their revenues.
Our tenants and borrowers dependence on
reimbursement revenues could cause us to suffer losses in
several instances.
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If our tenants or borrowers fail to comply with operational
covenants and other regulations imposed by these programs, they
may lose their eligibility to continue to receive reimbursements
under the programs or incur monetary penalties, either of which
could result in the tenants or borrowers inability
to make scheduled payments to us.
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If reimbursement rates do not keep pace with increasing costs of
services to eligible recipients, or funding levels decrease as a
result of state budget crises or increasing pressures from
Medicare and Medicaid to control healthcare costs, our tenants
and borrowers may not be able to generate adequate revenues to
satisfy their obligations to us.
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If a healthcare tenant or borrower were to default on its loan,
we would be unable to invoke our rights to the pledged
receivables directly as the law prohibits payment of amounts
owed to healthcare providers under the Medicare and Medicaid
programs to be directed to any entity other than the actual
providers. Consequently, we would need a court order to force
collection directly against these governmental payors. There is
no assurance that we would be successful in obtaining this type
of court order.
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The healthcare industry continues to face various challenges,
including increased government and private payor pressure on
healthcare providers to control or reduce costs, and increasing
competition for patients among healthcare providers in areas
with significant unused capacity. We believe that certain of our
tenants or borrowers will continue to experience a shift in
payor mix away from
fee-for-service
payors (if any), resulting in an increase in the percentage of
revenues attributable to managed care payors, government payors
and general industry trends that include pressures to control
healthcare costs. Pressures to control healthcare costs and a
shift away from traditional health insurance reimbursement have
resulted in an increase in the number of patients whose
healthcare coverage is provided under managed care plans, such
as health maintenance organizations and preferred provider
organizations. In addition, due to the aging of the population
and the expansion of governmental payor programs, we anticipate
that there will be a marked increase in the number of patients
reliant on healthcare coverage provided by governmental payors,
which in the case of skilled nursing facilities is already
significant. These changes could have a material adverse effect
on the financial condition of some or all of our tenants or
borrowers, which could have a material adverse effect on our
financial condition and results of operations and could
negatively affect our ability to make distributions to our
stockholders.
The
healthcare industry is heavily regulated and existing and new
laws or regulations, changes to existing laws or regulations,
loss of licensure or certification or failure to obtain
licensure or certification could result in the inability of our
borrowers or tenants to make payments to us.
The healthcare industry is highly regulated by federal, state
and local laws, and is directly affected by federal conditions
of participation, state licensing requirements, facility
inspections, state and federal reimbursement policies,
regulations concerning capital and other expenditures,
certification requirements and other such laws, regulations and
rules. In addition, establishment of healthcare facilities and
transfers of operations of healthcare facilities are subject to
regulatory approvals not required for establishment of or
transfers of other types of commercial operations and real
estate. Sanctions for failure to comply with these regulations
and laws include, but are not limited to, loss of or inability
to obtain licensure, fines and loss of or inability to obtain
certification to
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participate in the Medicare and Medicaid programs, as well as
potential criminal penalties. The failure of a tenant or
borrower to comply with such laws, requirements and regulations
could affect its ability to establish or continue its operation
of the facility or facilities and could adversely affect the
tenants or borrowers ability to make payments to us
which could have a material adverse effect on our financial
condition and results of operations and could negatively affect
our ability to make distributions to our stockholders. In
addition, restrictions and delays in transferring the operations
of healthcare facilities, in obtaining new third-party payor
contracts including Medicare and Medicaid provider agreements,
and in receiving licensure and certification approval from
appropriate state and federal agencies by new tenants may affect
the ability of our tenants or borrowers to make payments to us.
Furthermore, these matters may affect new tenants or
borrowers ability to obtain reimbursement for services
rendered, which could adversely affect the ability of our
tenants or borrowers to pay rent to us and to pay
principal and interest on their loans from us.
Our
tenants and borrowers are subject to fraud and abuse laws, the
violation of which by a tenant or borrower may jeopardize the
tenants or borrowers ability to make payments to
us.
The federal government and numerous state governments have
passed laws and regulations that attempt to eliminate healthcare
fraud and abuse by prohibiting business arrangements that induce
patient referrals or the ordering of specific ancillary
services. In addition, the Balanced Budget Act of 1997
strengthened the federal fraud and abuse laws to provide for
stiffer penalties for violations. Violations of these laws may
result in the imposition of criminal and civil penalties,
including possible exclusion from federal and state healthcare
programs. Imposition of any of these penalties upon any of our
tenants or borrowers could jeopardize any tenants or
borrowers ability to operate a facility or to make
payments, thereby potentially adversely affecting us.
In the past several years, federal and state governments have
significantly increased investigation and enforcement activity
to detect and eliminate fraud and abuse in the Medicare and
Medicaid programs. In addition, legislation and regulations have
been adopted at both state and federal levels, which severely
restricts the ability of physicians to refer patients to
entities in which they have a financial interest. It is
anticipated that the trend toward increased investigation and
enforcement activity in the area of fraud and abuse, as well as
self-referrals, will continue in future years and could
adversely affect our prospective tenants or borrowers and their
operations, and in turn their ability to make payments to us.
Operators
are faced with increased litigation and rising insurance costs
that may affect their ability to make their lease or mortgage
payments.
In some states, advocacy groups have been created to monitor the
quality of care at healthcare facilities, and these groups have
brought litigation against operators. Also, in several
instances, private litigation by patients has succeeded in
winning very large damage awards for alleged abuses. The effect
of this litigation and potential litigation has been to
materially increase the costs of monitoring and reporting
quality of care compliance incurred by operators. In addition,
the cost of liability and medical malpractice insurance has
increased and may continue to increase so long as the present
litigation environment affecting the operations of healthcare
facilities continues. Continued cost increases could cause our
operators to be unable to make their lease or mortgage payments,
potentially decreasing our revenue and increasing our collection
and litigation costs. Moreover, to the extent we are required to
take back the affected facilities, our revenue from those
facilities could be reduced or eliminated for an extended period
of time.
Transfers
of healthcare facilities generally require regulatory approvals,
and alternative uses of healthcare facilities are
limited.
Because transfers of healthcare facilities may be subject to
regulatory approvals not required for transfers of other types
of commercial operations and other types of real estate, there
may be delays in transferring operations of our facilities to
successor operators or we may be prohibited from transferring
operations to a successor operator. In addition, substantially
all of the properties that we may acquire or that will secure
our loans will be healthcare facilities that may not be easily
adapted to non-healthcare related uses. If we are unable to
transfer properties at times opportune to us, our revenue and
operations may suffer.
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Economic
crisis generally and its affect on state budgets could result in
a decrease in Medicare and Medicaid reimbursement
levels
The current economic crisis is having a widespread impact both
nationally and at the state level. Healthcare facilities are no
different that other businesses and are accordingly not immune
from the economic crisis impact. Specifically, revenues at
all healthcare or related facilities may be impacted as a result
of individuals forgoing or decreasing utilization of healthcare
services or delaying moves to independent living facilities,
assisted living facilities or nursing homes. Furthermore, the
federal government in the case of Medicare or the federal
matching portion of Medicaid may seek cost reductions in such
programs in order to shift federal moneys to pay for the
stimulus package or programs assisting the financial sector or
other businesses. Finally, many states are facing severe budget
short-falls and in some cases facing bankruptcy which could
result in a decrease in funding made available for the Medicaid
program and a decrease in reimbursement rates for nursing home
facilities and other healthcare facilities. To the extent that
there is a decrease in utilization of tenants healthcare
facilities or a reduction in funds available for the Medicare or
Medicaid programs, tenants may not have sufficient revenues to
pay rent to us or may be forced to discontinue operations. In
either case, our revenues and operations could be adversely
affected.
Risks
Related to Our Investments
Since
real estate investments are illiquid, we may not be able to sell
properties when we desire to do so.
Real estate investments generally cannot be sold quickly. We may
not be able to vary our owned real estate portfolio promptly in
response to changes in the real estate market. This inability to
respond to changes in the performance of our owned real estate
investments could adversely affect our ability to service our
debt. The real estate market is affected by many factors that
are beyond our control, including:
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adverse changes in national and local economic and market
conditions;
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changes in interest rates and in the availability, costs and
terms of financing;
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changes in governmental laws and regulations, fiscal policies
and zoning and other ordinances and costs of compliance with
laws and regulations;
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the ongoing need for capital improvements, particularly in older
structures;
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changes in operating expenses; and
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civil unrest, acts of war and natural disasters, including
earthquakes and floods, which may result in uninsured and
underinsured losses.
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Because
of the unique and specific improvements required for healthcare
facilities, we may be required to incur substantial renovation
costs to make certain of our properties suitable for other
operators and tenants, which could materially adversely affect
our business, results of operations and financial
condition.
Healthcare facilities are typically highly customized and may
not be easily adapted to non-healthcare-related uses. The
improvements generally required to conform a property to
healthcare use, such as upgrading electrical, gas and plumbing
infrastructure, are costly and often times tenant-specific. A
new or replacement operator or tenant may require different
features in a property, depending on that operators or
tenants particular operations. If a current operator or
tenant is unable to pay rent and vacates a property, we may
incur substantial expenditures to modify a property for a new
tenant, or for multiple tenants with varying infrastructure
requirements, before we are able to re-lease the space to
another tenant. Consequently, our properties may not be suitable
for lease to traditional office or other healthcare tenants
without significant expenditures or renovations, which costs may
materially adversely affect our business, results of operations
and financial condition.
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Our
use of joint ventures may limit our flexibility with jointly
owned investments and could adversely affect our business,
results of operations and financial condition, REIT status and
our ability to sell these joint venture interests.
We have invested in joint ventures with other persons or
entities when circumstances warrant the use of these structures.
We currently have two joint ventures that are not consolidated
with our financial statements. Our aggregate investments in
these joint ventures represented approximately 17.8% of our
total assets at December 31, 2009. Our participation in
joint ventures is subject to the risks that:
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we could experience an impasse on certain decisions because we
do not have sole decision-making authority, which could require
us to expend additional resources on resolving such impasses or
potential disputes;
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our joint venture partners could have investment goals that are
not consistent with our investment objectives, including the
timing, terms and strategies for any investments;
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our joint venture partners might become bankrupt, fail to fund
their share of required capital contributions or fail to fulfill
their obligations as a joint venture partner, which may require
us to infuse our own capital into the venture on behalf of the
partner despite other competing uses for such capital;
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our joint venture partners may have competing interests in our
markets that could create conflict of interest issues;
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income and assets owned through joint-venture entities may
affect our ability to satisfy requirements related to
maintaining our REIT status;
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any sale or other disposition of our interest in either joint
venture may require lender consent, and we may not be able to
obtain such consent or approval;
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such transaction may also trigger other contractual rights held
by a joint venture partner, lender or other third party
depending on how the proposed sale is structured; and
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there may be disagreements as to whether a consent
and/or
approval is required in connection with the consummation of a
transaction with a joint venture partner, lender or other third
party, or whether such a transaction triggers other contractual
rights held by a joint venture partner, lender or other third
party, and in either case, those disagreements may result in
litigation.
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Preferred
equity investments involve a greater risk of loss than
conventional debt financing.
We have invested in preferred equity investments and may invest
in additional preferred equity investments. Our preferred equity
investments involve a higher degree of risk than conventional
debt financing due to a variety of factors, including that such
investments are subordinate to all of the issuers loans
and are not secured by property underlying the investment.
Furthermore, should the issuer default on our investment, we
would only be able to proceed against the entity in which we
have an interest, and not the property underlying our
investment. As a result, we may not recover some or all of our
investment.
Our
investments in debt securities are subject to specific risks
relating to the particular issuer of the securities and to the
general risks of investing in subordinated real estate
securities.
We hold debt securities of healthcare-related
issuers.
Our investments in debt securities
involve specific risks. Our investments in debt securities are
subject to risks that include:
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delinquency and foreclosure, and losses in the event thereof;
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the dependence upon the successful operation of and net income
from real property;
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risks generally incident to interests in real property; and
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risks that may be presented by the type and use of a particular
commercial property.
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Debt securities are generally unsecured and may also be
subordinated to other obligations of the issuer. We may also
invest in debt securities that are rated below investment grade.
As a result, investments in debt securities are also subject to
risks of:
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limited liquidity in the secondary trading market;
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substantial market price volatility resulting from changes in
prevailing interest rates;
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subordination to the prior claims of banks and other senior
lenders to the issuer;
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the operation of mandatory sinking fund or call/redemption
provisions during periods of declining interest rates that could
cause the issuer to reinvest premature redemption proceeds in
lower yielding assets;
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the possibility that earnings of the debt security issuer may be
insufficient to meet its debt service; and
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the declining creditworthiness and potential for insolvency of
the issuer of such debt securities during periods of rising
interest rates and economic downturn.
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These risks may adversely affect the value of outstanding debt
securities and the ability of the issuers thereof to repay
principal and interest.
Our
investments will be subject to risks particular to real
property.
Our loans are directly or indirectly secured by a lien on real
property (or the equity interests in an entity that owns real
property) that, upon the occurrence of a default on the loan,
could result in our acquiring ownership of the property.
Investments in real property or real property-related assets are
subject to varying degrees of risk. The value of each property
is affected significantly by its ability to generate cash flow
and net income, which in turn depends on the amount of rental or
other income that can be generated net of expenses required to
be incurred with respect to the property. The rental or other
income from these properties may be adversely affected by a
number of risks, including:
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acts of God, including hurricanes, earthquakes, floods and other
natural disasters, which may result in uninsured losses;
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acts of war or terrorism, including the consequences of
terrorist attacks, such as those that occurred on
September 11, 2001;
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adverse changes in national and local economic and real estate
conditions (including business layoffs or downsizing, industry
slowdowns, changing demographics);
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an oversupply of (or a reduction in demand for) space in
properties in geographic areas where our investments are
concentrated and the attractiveness of particular properties to
prospective tenants;
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changes in governmental laws and regulations, fiscal policies
and zoning ordinances and the related costs of compliance
therewith and the potential for liability under applicable
laws; and
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costs of remediation and liabilities associated with
environmental conditions such as indoor mold; and the potential
for uninsured or underinsured property losses.
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Many expenditures associated with properties (such as operating
expenses and capital expenditures) cannot be reduced when there
is a reduction in income from the properties. Adverse changes in
these factors may have a material adverse effect on the ability
of our borrowers to pay their loans, as well as on the value
that we can realize from properties we own or acquire, and may
reduce or eliminate our ability to make distributions to
stockholders.
The
bankruptcy, insolvency or financial deterioration of our
facility operators could significantly delay our ability to
collect unpaid rents or require us to find new
operators.
Our financial position and our ability to make distributions to
our stockholders may be adversely affected by financial
difficulties experienced by any of our major operators,
including bankruptcy, insolvency or a general downturn in the
business, or in the event any of our major operators do not
renew or extend their relationship with us as their lease terms
expire.
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The healthcare industry is highly competitive and we expect that
it may become more competitive in the future. Our operators are
subject to competition from other healthcare providers that
provide similar services. The profitability of healthcare
facilities depends upon several factors, including the number of
physicians using the healthcare facilities or referring patients
there, competitive systems of healthcare delivery and the size
and composition of the population in the surrounding area.
Private, federal and state payment programs and the effect of
other laws and regulations may also have a significant influence
on the revenues and income of the properties. If our operators
are not competitive with other healthcare providers and are
unable to generate income, they may be unable to make rent and
loan payments to us, which could adversely affect our cash flow
and financial performance and condition.
We are exposed to the risk that our operators may not be able to
meet their obligations, which may result in their bankruptcy or
insolvency. The bankruptcy laws afford certain rights to a party
that has filed for bankruptcy or reorganization and the right to
terminate an investment, evict an operator, demand immediate
repayment and other remedies under our leases and loans may not
protect us. An operator in bankruptcy may be able to restrict
our ability to collect unpaid rents or interest during the
bankruptcy proceeding.
Volatility
of values of commercial properties may adversely affect our
loans and investments.
Commercial property values and net operating income derived from
such properties are subject to volatility and may be affected
adversely by a number of factors, including, but not limited to,
national, regional and local economic conditions (which may be
affected adversely by industry slowdowns and other factors);
changes or continued weakness in specific industry segments;
construction quality, age and design; demographics; retroactive
changes to building or similar codes; and increases in operating
expenses (such as energy costs). In the event a propertys
net operating income decreases, a borrower may have difficulty
repaying our loan, which could result in losses to us. In
addition, decreases in property values reduce the value of the
collateral and the potential proceeds available to a borrower to
repay our loans, which could also cause us to suffer losses.
Insurance
on the real estate underlying our investments may not cover all
losses.
There are certain types of losses, generally of a catastrophic
nature, such as earthquakes, floods, hurricanes, terrorism or
acts of war that may be uninsurable or not economically
insurable. Inflation, changes in building codes and ordinances,
environmental considerations and other factors, including
terrorism or acts of war, also might make the insurance proceeds
insufficient to repair or replace a property if it is damaged or
destroyed. Under such circumstances, the insurance proceeds
received might not be adequate to restore our economic position
with respect to the affected real property. Any uninsured loss
could result in both loss of cash flow from and the asset value
of the affected property.
Our
due diligence may not reveal all of a borrowers
liabilities and may not reveal other weaknesses in its
business.
Before investing in a company or making a loan to a borrower, we
assess the strength and skills of such entitys management
and other factors that we believe are material to the
performance of the investment. In making the assessment and
otherwise conducting customary due diligence, we rely on the
resources available to us and, in some cases, an investigation
by third parties. This process is particularly important and
subjective with respect to newly organized entities because
there may be little or no information publicly available about
the entities. There can be no assurance that our due diligence
processes have uncovered all relevant facts or that any
investment will be successful.
Interest
rate fluctuations may adversely affect the value of our assets,
net income and common stock.
Interest rates are highly sensitive to many factors beyond our
control, including governmental monetary and tax policies,
domestic and international economic and political considerations
and other factors beyond our control. Interest rate fluctuations
present a variety of risks, including the risk of a mismatch
between asset yields and borrowing rates, variances in the yield
curve and fluctuating prepayment rates and may adversely affect
our income and value of our common stock.
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Our portfolio of mortgage loans is comprised of variable rate
instruments, each of which bears interest at a stated spread
over one-month LIBOR and is funded principally by equity. In
periods of declining interest rates, our interest income on
loans will be adversely affected. The REIT provisions of the
Internal Revenue Code exclude income on asset hedges from
qualifying as income derived from real estate activities.
Accordingly, our ability to hedge interest rate risk on a
portfolio of assets funded principally by equity is limited.
Prepayment
rates can increase, adversely affecting yields.
The value of our assets may be affected by prepayment rates on
mortgage loans. Prepayment rates on loans are influenced by
changes in current interest rates on adjustable-rate and
fixed-rate mortgage loans and a variety of economic, geographic
and other factors beyond our control. Consequently, such
prepayment rates cannot be predicted with certainty and no
strategy can completely insulate us from prepayment or other
such risks. In periods of declining interest rates, prepayments
on loans generally increase. If general interest rates decline
as well, the proceeds of such prepayments received during such
periods are likely to be reinvested by us in assets yielding
less than the yields on the assets that were prepaid. In
addition, the market value of the assets may, because of the
risk of prepayment, benefit less than other fixed income
securities from declining interest rates. Under certain interest
rate and prepayment scenarios we may fail to recoup fully our
cost of acquisition of certain investments. A portion of our
investments require payments of prepayment fees upon prepayment
or maturity of the investment. We may not be able to structure
future investments that contain similar prepayment penalties.
Some of our assets may not have prepayment protection.
The
lack of liquidity in our investments may harm our
business.
We may, subject to maintaining our REIT qualification and our
exemption from regulation under the Investment Company Act, make
investments in securities that are not publicly traded. These
securities may be subject to legal and other restrictions on
resale or will otherwise be less liquid than publicly traded
securities. The illiquidity of our investments may make it
difficult for us to sell such investments if the need arises.
Federal
Income Tax Risks
Loss
of our status as a REIT would have significant adverse
consequences to us and the value of our common
stock.
If we lose our status as a REIT, we will face serious tax
consequences that may substantially reduce the funds available
for satisfying our obligations and for distribution to our
stockholders for each of the years involved because:
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We would be subject to federal income tax as a regular
corporation and could face substantial tax liability;
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We would not be allowed a deduction for dividends paid to
stockholders in computing our taxable income and would be
subject to federal income tax at regular corporate rates;
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We also could be subject to the federal alternative minimum tax
and possibly increased state and local taxes;
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Corporate subsidiaries could be treated as separate taxable
corporations for U.S. federal income tax purposes;
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Any resulting corporate tax liability could be substantial and
could reduce the amount of cash available for distribution to
our stockholders, which in turn could have an adverse impact on
the value of, and trading prices for, our common stock; and
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Unless we are entitled to relief under statutory provisions, we
will not be able to elect REIT status for four taxable years
following the year during which we were disqualified.
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In addition, if we fail to qualify as a REIT, all distributions
to stockholders would continue to be treated as dividends to the
extent of our current and accumulated earning and profits,
although corporate stockholders may be eligible for the
dividends received deduction and individual stockholders may be
eligible for taxation at the rates
37
generally applicable to long-term capital gains (currently at a
maximum rate of 15%) with respect to dividend distributions. We
would no longer be required to pay dividends to maintain REIT
status.
Our ability to satisfy certain REIT qualification tests depends
upon our analysis of the characterization and fair market values
of our assets, some of which are not susceptible to a precise
determination, and for which we will not obtain independent
appraisals. Our compliance with the REIT income and quarterly
asset requirements also depends upon our ability to successfully
manage the composition of our income and assets on an ongoing
basis. Moreover, the proper classification of an instrument as
debt or equity for federal income tax purposes and the tax
treatment of participation interests that we hold in mortgage
loans and may be uncertain in some circumstances, which could
affect the application of the REIT qualification requirements as
described below. Accordingly, there can be no assurance that the
IRS will not contend that our interests in subsidiaries or other
issuers will not cause a violation of the REIT requirements.
Furthermore, as a result of these factors, our failure to
qualify as a REIT also could impair our ability to implement our
business strategy. Although we believe that we qualify as a
REIT, we cannot assure our stockholders that we will continue to
qualify or remain qualified as a REIT for tax purposes.
The
90% distribution requirement under the REIT tax rules will
decrease our liquidity and may force us to engage in
transactions that may not be consistent with our business
plan.
To comply with the 90% REIT taxable income distribution
requirement applicable to REITs and to avoid a nondeductible 4%
excise tax if the actual amount that we pay out to our
stockholders in a calendar year is less than a minimum amount
specified under federal tax laws, we must make distributions to
our stockholders. For distributions with respect to taxable
years ending on or before December 31, 2009, recent
Internal Revenue Service guidance allows us to satisfy up to 90%
of these requirements through the distribution of shares of Care
common stock, if certain conditions are met. Although we
anticipate that we generally will have sufficient cash or liquid
assets to enable us to satisfy the REIT distribution
requirement, it is possible that, from time to time, we may not
have sufficient cash or other liquid assets to meet the 90%
distribution requirement or we may decide to retain cash or
distribute such greater amount as may be necessary to avoid
income and excise taxation. This may be due to the timing
differences between the actual receipt of income and actual
payment of deductible expenses, on the one hand, and the
inclusion of that income and deduction of those expenses in
arriving at our taxable income, on the other hand. In addition,
non-deductible expenses such as principal amortization or
repayments or capital expenditures in excess of non-cash
deductions also may cause us to fail to have sufficient cash or
liquid assets to enable us to satisfy the 90% distribution
requirement.
In the event that timing differences occur or we deem it
appropriate to retain cash, we may borrow funds, issue
additional equity securities (although we cannot assure our
stockholders that we will be able to do so), pay taxable stock
dividends, if possible, distribute other property or securities
or engage in a transaction intended to enable us to meet the
REIT distribution requirements. This may require us to raise
additional capital to meet our obligations. Taking such action
may not be consistent with our business plan, may increase our
costs and may limit our ability to grow.
Qualifying
as a REIT involves highly technical and complex provisions of
the Internal Revenue Code.
Qualification as a REIT involves the application of highly
technical and complex Code provisions for which there are only
limited judicial and administrative interpretations. The
determination of various factual matters and circumstances not
entirely within our control may affect our ability to remain
qualified as a REIT. Our continued qualification as a REIT will
depend on our satisfaction of certain asset, income,
organizational, distribution, stockholder ownership and other
requirements on a continuing basis. In addition, our ability to
satisfy the requirements to qualify as a REIT depends in part on
the actions of third parties over which we have no control or
only limited influence, including in cases where we own an
equity interest in an entity that is classified as a partnership
for U.S. federal income tax purposes.
38
New
legislation or administrative or judicial action, in each
instance potentially with retroactive effect, could make it more
difficult or impossible for us to qualify as a
REIT.
The present federal income tax treatment of REITs may be
modified, possibly with retroactive effect, by legislative,
judicial or administrative action at any time, which could
affect the federal income tax treatment of an investment in us.
The federal income tax rules that affect REITs constantly are
under review by persons involved in the legislative process, the
IRS and the U.S. Treasury Department, which results in
statutory changes as well as frequent revisions to regulations
and interpretations.
On July 30, 2008, the Housing and Economic Recovery Tax Act
of 2008 (the 2008 Act) was enacted into law. The
2008 Acts sections that affect the REIT provisions of the
Code are generally effective for taxable years beginning after
its date of enactment, and for us will generally mean that the
new provisions apply from and after January 1, 2009, except
as otherwise indicated below.
The 2008 Act made the following changes to, or clarifications
of, the REIT provisions of the Code that could be relevant for
us:
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Taxable REIT Subsidiaries.
The limit on the
value of taxable REIT subsidiaries securities held by a
REIT has been increased from 20% to 25% of the total value of
such REITs assets.
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Rental Income from a TRS.
A REIT is generally
limited in its ability to earn qualifying rental income from a
TRS. The 2008 Act permits a REIT to earn qualifying rental
income from the lease of a qualified healthcare property to a
TRS if an eligible independent contractor operates the property.
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Expanded Prohibited Transactions Safe
Harbor.
The safe harbor from the prohibited
transactions tax for certain sales of real estate assets is
expanded by reducing the required minimum holding period from
four years to two years, among other changes.
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Hedging Income.
Income from a hedging
transaction entered into after July 30, 2008, that complies
with identification procedures set out in U.S. Treasury
Regulations and hedges indebtedness incurred or to be incurred
by us to acquire or carry real estate assets will not constitute
gross income for purposes of both the 75% and 95% gross income
tests.
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Reclassification Authority.
The Secretary of
the Treasury is given broad authority to determine whether
particular items of gain or income recognized after
July 30, 2008, qualify or not under the 75% and 95% gross
income tests, or are to be excluded from the measure of gross
income for such purposes.
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Revisions in federal tax laws and interpretations thereof could
cause us to change our investments and commitments and affect
the tax consequences of an investment in us.
Dividends
payable by REITs do not qualify for the reduced tax rates
available for some dividends.
The maximum tax rate applicable to income from qualified
dividends payable to domestic stockholders that are
individuals, trusts and estates has been reduced by legislation
to 15% through the end of 2010. Dividends payable by REITs,
however, generally are not eligible for the reduced rates.
Although this legislation does not adversely affect the taxation
of REITs or dividends payable by REITs, the more favorable rates
applicable to regular corporate qualified dividends could cause
investors who are individuals, trusts and estates to perceive
investments in REITs to be relatively less attractive than
investments in the stocks of non-REIT corporations that pay
dividends, which could adversely affect the value of the stock
of REITs, including our common stock.
The
stock ownership limit imposed by the Internal Revenue Code for
REITs and our charter may restrict our business combination
opportunities.
To qualify as a REIT under the Code, not more than 50% in value
of our outstanding stock may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Internal Revenue
Code to include certain entities) at any time during the last
half of each taxable year after our first year in which we
qualify as a REIT. Our charter, with certain exceptions,
authorizes our board of directors to take the actions that are
necessary and desirable to preserve our qualification as a REIT.
Unless an exemption is granted by our board of directors, no
person (as
39
defined to include entities) may own more than 9.8% in value or
in number of shares, whichever is more restrictive, of our
common or capital stock. In addition, our charter generally
prohibits beneficial or constructive ownership of shares of our
capital stock by any person that owns, actually or
constructively, an interest in any of our tenants that would
cause us to own, actually or constructively, more than a 9.9%
interest in any of our tenants. Our board of directors may grant
an exemption in its sole discretion, subject to such conditions,
representations and undertakings as it may determine. Our board
of directors has granted a limited exemption from the ownership
limitation to CIT Holding, our Manager, CIT, GoldenTree Asset
Management LP and SAB Capital Management, L.P. but only to
the extent that their ownership of our stock could not
reasonably be expected to cause us to violate the REIT
requirements (in which case they either would be required to
sell some of our stock or would become subject to the excess
share provisions of our charter, in each case to the extent
necessary to enable us to satisfy the REIT requirements). In
connection with the Tiptree transaction, our Board of Directors
has also granted an exemption to Tiptree from the ownership
limitations in our charter.
These ownership limitations in our charter are common in REIT
charters and are intended to assist us in complying with the tax
law requirements and to minimize administrative burdens.
However, these ownership limits might also delay or prevent a
transaction or a change in our control that might involve a
premium price for our common stock or otherwise be in the best
interest of our stockholders.
Even
if we remain qualified as a REIT, we may face other tax
liabilities that reduce our cash flow.
Even if we remain qualified for taxation as a REIT, we may be
subject to certain federal, state and local taxes on our income
and assets, including taxes on any undistributed income, tax on
income from some activities conducted as a result of a
foreclosure, and state or local income, property and transfer
taxes, including mortgage recording taxes. In addition, in order
to meet the REIT qualification requirements, or to avert the
imposition of a 100% tax that applies to certain gains derived
by a REIT from dealer property or inventory, we may hold some of
our non-healthcare assets through taxable REIT subsidiaries, or
TRSs, or other subsidiary corporations that will be subject to
corporate-level income tax at regular rates. We will be subject
to a 100% penalty tax on certain amounts if the economic
arrangements among our tenants, our TRS and us are not
comparable to similar arrangements among unrelated parties. Any
of these taxes would decrease cash available for distribution to
our stockholders. We currently do not have any TRSs.
Complying
with REIT requirements may cause us to forgo otherwise
attractive opportunities.
To qualify as a REIT for federal income tax purposes, we
continually must satisfy tests concerning, among other things,
the sources of our income, the nature and diversification of our
assets, the amounts we distribute to our stockholders and the
ownership of our stock. We may be unable to pursue investments
that would be otherwise advantageous to us in order to satisfy
the
source-of-income,
asset-diversification or distribution requirements for
maintaining our status as a REIT. Thus, compliance with the REIT
requirements may hinder our ability to make certain attractive
investments.
Complying
with REIT requirements may force us to liquidate otherwise
attractive investments.
To qualify as a REIT for federal income tax purposes, we must
ensure that at the end of each calendar quarter, at least 75% of
the value of our assets consists of cash, cash items, government
securities and qualified REIT real estate assets, including
certain mortgage loans and mortgage backed securities. The
remainder of our investment in securities (other than government
securities and qualified real estate assets) generally cannot
include more than 10% of the outstanding voting securities of
any one issuer or more than 10% of the total value of the
outstanding securities of any one issuer. In addition, in
general, no more than 5% of the value of our assets (other than
government securities and qualified real estate assets) can
consist of the securities of any one issuer, and no more than
20% of the value of our total securities can be represented by
securities of one or more TRSs (25% beginning in 2009). If we
fail to comply with these requirements at the end of any
calendar quarter, we must correct the failure within
30 days after the end of the calendar quarter or qualify
for certain statutory relief provisions to avoid losing our REIT
status, otherwise, we will suffer adverse tax consequences. As a
result, we may be required to liquidate from our portfolio
otherwise attractive investments. These actions could have the
effect of reducing our income and amounts available for
distribution to our stockholders.
40
Pursuing
the plan of liquidation may cause us to be subject to federal
income tax, which would reduce the amount of our liquidating
distributions.
We generally are not subject to federal income tax to the extent
that we distribute to our stockholders during each taxable year
(or, under certain circumstances, during the subsequent taxable
year) dividends equal to our taxable income for the year.
However, we are subject to federal income tax to the extent that
our taxable income exceeds the amount of dividends paid to our
stockholders for the taxable year. In addition, we are subject
to a 4% nondeductible excise tax on the amount, if any, by which
certain distributions paid by us with respect to any calendar
year are less than the sum of 85% of our ordinary income for
that year, plus 95% of our capital gain net income for that
year, plus 100% of our undistributed taxable income from prior
years. While we intend to make distributions to our stockholders
sufficient to avoid the imposition of any federal income tax on
our taxable income and the imposition of the excise tax,
differences in timing between the actual receipt of income and
actual payment of deductible expenses, and the inclusion of such
income and deduction of such expenses in arriving at our taxable
income, could cause us to have to either borrow funds on a
short-term basis to meet the REIT distribution requirements,
find another alternative for meeting the REIT distribution
requirements, or pay federal income and excise taxes. The cost
of borrowing or the payment of federal income and excise taxes
would reduce the funds available for distribution to our
stockholders.
Complying
with REIT requirements may limit our ability to hedge
effectively.
The REIT provisions of the Internal Revenue Code substantially
limit our ability to hedge our liabilities. Any income from a
hedging transaction we enter into to manage risk of interest
rate changes or currency fluctuations with respect to borrowings
made or to be made to acquire or carry real estate assets does
not constitute gross income for purposes of the 95%
or, with respect to transactions entered into after
July 30, 2008, the 75% gross income test, provided that
certain requirements are met. To the extent that we enter into
other types of hedging transactions, the income from those
transactions is likely to be treated as non-qualifying income
for purposes of both of the gross income tests. As a result, we
might have to limit our use of advantageous hedging techniques
or implement those hedges through one of our domestic TRSs. This
could increase the cost of our hedging activities because our
domestic TRSs would be subject to tax on gains or expose us to
greater risks associated with changes in interest rates than we
would otherwise want to bear.
The
tax on prohibited transactions will limit our ability to engage
in transactions that would be treated as sales for federal
income tax purposes.
A REITs net income from prohibited transactions is subject
to a 100% tax. In general, prohibited transactions are sales or
other dispositions of property, other than foreclosure property,
but including mortgage loans, that are held primarily for sale
to customers in the ordinary course of our business. We might be
subject to this tax if we were to syndicate or dispose of loans
in a manner that was treated as a sale of the loans for federal
income tax purposes. Therefore, to avoid the prohibited
transactions tax, we may choose not to engage in certain sales
of loans at the REIT level, even though the sales otherwise
might be beneficial to us.
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ITEM 1B.
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Unresolved
Staff Comments
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None.
We do not own or lease any corporate property and occupy office
space owned or leased by our Manager and CIT. Our corporate
offices are located in midtown Manhattan at 505 Fifth
Avenue, New York, NY 10017. Correspondence should be addressed
to the attention of our Manager, CIT Healthcare LLC. We can be
contacted at
(212) 771-0505.
In addition, our Manager has operations in Livingston, NJ; and
Wayne, PA, which provide us certain services.
41
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ITEM 3.
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Legal
Proceedings
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On September 18, 2007, a class action complaint for
violations of federal securities laws was filed in the United
States District Court, Southern District of New York alleging
that the Registration Statement relating to the initial public
offering of shares of our common stock, filed on June 21,
2007, failed to disclose that certain of the assets in the
contributed portfolio were materially impaired and overvalued
and that we were experiencing increasing difficulty in securing
our warehouse financing lines. On January 18, 2008, the
court entered an order appointing co-lead plaintiffs and co-lead
counsel. On February 19, 2008, the co-lead plaintiffs filed
an amended complaint citing additional evidentiary support for
the allegations in the complaint. We believe the complaint and
allegations are without merit and intend to defend against the
complaint and allegations vigorously. We filed a motion to
dismiss the complaint on April 22, 2008. The plaintiffs
filed an opposition to our motion to dismiss on July 9,
2008, to which we filed our reply on September 10, 2008. On
March 4, 2009, the court denied our motion to dismiss. We
filed our answer on April 15, 2009. At a conference held on
May 15, 2009, the Court ordered the parties to make a joint
submission (the Joint Statement) setting forth:
(i) the specific statements that the plaintiffs claim
are false and misleading; (ii) the facts on which the
plaintiffs rely as showing each alleged misstatement was false
and misleading; and (iii) the facts on which the defendants
rely as showing those statements were true. The parties filed
the Joint Statement on June 3, 2009. On July 31, 2009,
the parties entered into a stipulation that narrowed the scope
of the proceeding to the single issue of the warehouse financing
disclosure in the Registration Statement.
On December 7, 2009, the Court ordered the parties to file
an abbreviated joint pre-trial statement on April 7, 2010.
The Court scheduled a pre-trial conference for April 9,
2010, at which the Court will determine based on the joint
pre-trial statement whether to permit us and the other
defendants to file a summary judgment motion. The outcome of
this matter cannot currently be predicted. To date, Care has
incurred approximately $1.0 million to defend against this
complaint and any incremental costs to defend will be paid by
Cares insurer. No provision for loss related to this
matter has been accrued at December 31, 2009.
On November 25, 2009, we filed a lawsuit in the
U.S. District Court for the Northern District of Texas
against Mr. Jean-Claude Saada and 13 of his companies (the
Saada Parties), seeking declaratory judgments
construing certain contracts among the parties and also seeking
tort damages against the Saada Parties for tortious interference
with prospective contractual relations and breach of the duty of
good faith and fair dealing. On January 27, 2010, the Saada
Parties answered our complaint, and simultaneously filed
counterclaims and a third-party complaint (the
Counterclaims) that named our subsidiaries ERC Sub
LLC and ERC Sub, L.P., external manager CIT Healthcare LLC, and
Board Chairman Flint D. Besecker, as additional third-party
defendants. The Counterclaims seek four declaratory judgments
construing certain contracts among the parties that are
basically the mirror image of our declaratory judgment claims.
In addition, the Counterclaims also seek monetary damages for
purported breaches of fiduciary duty and the duty of good faith
and fair dealing, as well as fraudulent inducement, against us
and the third-party defendants jointly and severally. The
Counterclaims further request indemnification by ERC Sub, L.P.,
pursuant to a contract between the parties, and the imposition
of a constructive trust on the proceeds of any
future liquidation of Care, to ensure a reservoir of funds from
which any liability to the Saada Parties could be paid. Although
the Counterclaims do not itemize their asserted damages, they
assign these damages a value of $100 million or
more. In response to the Counterclaims, Care and the
third-party defendants filed on March 5, 2010, an omnibus
motion to dismiss all of the Counterclaims. The outcome of this
matter cannot currently be predicted. To date, Care has incurred
approximately $0.2 million to defend against this
complaint. No provision for loss related to this matter has been
accrued at December 31, 2009.
Care is not presently involved in any other material litigation
nor, to our knowledge, is any material litigation threatened
against us or our investments, other than routine litigation
arising in the ordinary course of business. Management believes
the costs, if any, incurred by us related to litigation will not
materially affect our financial position, operating results or
liquidity.
42
Part II
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ITEM 5.
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Market
for Registrants Common Equity, Related Shareholder Matters
and Issuer Purchases of Equity Securities
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Shares of our common stock began trading on The New York Stock
Exchange on June 22, 2007 under the symbol CRE.
As of March 9, 2010, there were 16 shareholders of
record and approximately 1,300 beneficial owners.
The following table sets forth the high and low closing sales
prices per share of our common stock and the distributions
declared and paid per share on our common stock for the periods
indicated:
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Dividends
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Dividends
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2007
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High
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Low
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Declared
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Paid
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June 22 (commencement of operations) to June 30
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$
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13.76
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$
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13.50
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Third Quarter
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$
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14.93
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$
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10.31
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$
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$
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Fourth Quarter
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$
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11.99
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$
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9.73
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$
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0.17
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$
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0.17
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2008
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First Quarter
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$
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12.23
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$
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10.08
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$
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0.17
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$
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0.17
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Second Quarter
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$
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11.50
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$
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9.43
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$
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0.17
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$
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0.17
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Third Quarter
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$
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12.00
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$
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8.80
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|
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$
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0.17
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$
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0.17
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Fourth Quarter
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$
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11.61
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$
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6.85
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$
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0.17
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$
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0.17
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|
|
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2009
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First Quarter
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$
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9.30
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|
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$
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4.02
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|
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$
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0.17
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|
|
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Second Quarter
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$
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6.33
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$
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4.90
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|
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$
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0.17
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$
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0.17
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Third Quarter
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$
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8.11
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$
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5.02
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|
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$
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0.17
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$
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0.34
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Fourth Quarter
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$
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8.55
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$
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7.05
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$
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0.17
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$
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0.17
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On March 12, 2010, the closing sales price of our common
stock was $8.38 per share. Future distributions will be declared
and paid at the discretion of the board of directors. See
ITEM 7.
Managements Discussion and Analysis
of Financial Condition and Results of Operations
Dividends
for additional information regarding our
dividends.
On October 22, 2008, we announced that the board of
directors authorized the purchase, from time to time, of up to
2,000,000 shares of our common stock. On November 25,
2008, we repurchased 1,000,000 shares of our common stock
from GoldenTree Asset Management LP at $8.33 per share and also
paid GoldenTree the dividend of $0.17 per share declared for the
third quarter of 2008.
43
The graph below compares the cumulative total return of Care and
the S&P 500 and the Dow Jones REIT Index and Equity REIT
Index from June 22, 2007 (commencement of operations) to
December 31, 2009. Total return assumes quarterly
reinvestment of dividends before consideration of income taxes.
INDEXED
RETURNS
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
|
Quarter Ending
|
|
Company/Index
|
|
6/22/07
|
|
|
6/30/07
|
|
|
9/30/07
|
|
|
12/31/07
|
|
|
3/31/08
|
|
|
6/30/08
|
|
|
9/30/08
|
|
|
12/31/08
|
|
|
3/31/09
|
|
|
6/30/09
|
|
|
9/30/09
|
|
|
12/31/09
|
|
|
|
|
Care Investment Trust Inc.
|
|
|
100
|
|
|
|
101.85
|
|
|
|
88.74
|
|
|
|
80.91
|
|
|
|
80.75
|
|
|
|
73.24
|
|
|
|
90.55
|
|
|
|
62.65
|
|
|
|
40.44
|
|
|
|
38.52
|
|
|
|
56.81
|
|
|
|
57.78
|
|
S&P Index
|
|
|
100
|
|
|
|
100.05
|
|
|
|
102.08
|
|
|
|
98.68
|
|
|
|
89.36
|
|
|
|
86.93
|
|
|
|
79.65
|
|
|
|
62.17
|
|
|
|
53.10
|
|
|
|
61.18
|
|
|
|
70.35
|
|
|
|
74.97
|
|
Dow Jones Equity REIT Index
|
|
|
100
|
|
|
|
99.18
|
|
|
|
101.74
|
|
|
|
88.85
|
|
|
|
90.09
|
|
|
|
77.85
|
|
|
|
90.41
|
|
|
|
55.33
|
|
|
|
33.99
|
|
|
|
42.57
|
|
|
|
55.40
|
|
|
|
60.24
|
|
Dow Jones REIT Index
|
|
|
100
|
|
|
|
94.69
|
|
|
|
68.04
|
|
|
|
68.21
|
|
|
|
53.65
|
|
|
|
81.69
|
|
|
|
47.07
|
|
|
|
46.86
|
|
|
|
34.28
|
|
|
|
43.47
|
|
|
|
57.23
|
|
|
|
63.04
|
|
44
|
|
ITEM 6.
|
Selected
Financial Data
|
Set forth below is our selected financial data for the years
ended December 31, 2009, December 31, 2008 and for the
period June 22, 2007 (commencement of operations) to
December 31, 2007. This information should be read in
conjunction with ITEM 7
Managements Discussion and Analysis of Financial
Condition and Results of Operations
.
Operating
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
June 22, 2007
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
(Commencement
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
of Operations) to
|
|
|
|
|
(In thousands, except share and per share data)
|
|
2009
|
|
|
2008
|
|
|
December 31, 2007
|
|
|
|
|
|
Total revenues
|
|
$
|
20,009
|
|
|
$
|
22,259
|
|
|
$
|
12,163
|
|
|
|
|
|
Operating
expenses
(1)(2)
|
|
|
12,153
|
|
|
|
44,271
|
|
|
|
14,339
|
|
|
|
|
|
Other income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
6,510
|
|
|
|
4,521
|
|
|
|
134
|
|
|
|
|
|
Loss from partially-owned entities
|
|
|
4,397
|
|
|
|
4,431
|
|
|
|
|
|
|
|
|
|
Net
loss
(2)
|
|
$
|
(2,826
|
)
|
|
$
|
(30,806
|
)
|
|
$
|
(1,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share basic and diluted
|
|
$
|
(0.14
|
)
|
|
$
|
(1.47
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid per share
|
|
$
|
0.68
|
|
|
$
|
0.68
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
(In thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Loans held for investment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
236,833
|
|
Investments in loans held at LOCOM
|
|
|
25,325
|
|
|
|
159,916
|
|
|
|
|
|
Investment in real estate, net
|
|
|
101,539
|
|
|
|
105,130
|
|
|
|
|
|
Investments in partially-owned entities
|
|
|
56,078
|
|
|
|
64,890
|
|
|
|
72,353
|
|
Total assets
|
|
|
315,432
|
|
|
|
370,906
|
|
|
|
328,398
|
|
Borrowings under warehouse line of credit
|
|
|
|
|
|
|
37,781
|
|
|
|
25,000
|
|
Mortgage notes payable
|
|
|
81,873
|
|
|
|
82,217
|
|
|
|
|
|
Total liabilities
|
|
|
88,639
|
|
|
|
129,774
|
|
|
|
35,063
|
|
Stockholders equity
|
|
|
226,793
|
|
|
|
241,132
|
|
|
|
293,335
|
|
45
Other
Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
For the
|
|
|
For the
|
|
|
June 22, 2007
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
(Commencement
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
of Operations) to
|
|
(In thousands, except per share data)
|
|
2009
|
|
|
2008
|
|
|
December 31, 2007
|
|
|
Funds from
Operations
(3)
|
|
$
|
10,188
|
|
|
$
|
(19,832
|
)
|
|
$
|
(1,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from Operations per share
|
|
$
|
0.51
|
|
|
$
|
(0.95
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Funds from
Operations
(3)
|
|
$
|
6,183
|
|
|
$
|
4,560
|
|
|
$
|
7,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Funds from Operations per share basic and
diluted
|
|
$
|
0.31
|
|
|
$
|
0.22
|
|
|
$
|
0.38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
For 2007, includes $9,115 in
stock-based compensation related to 607,690 shares granted
to Cares Manager, CIT Healthcare LLC, upon completion of
Cares initial public offering of its common stock which
vested immediately.
|
|
(2)
|
|
For 2008, includes a $29,327 charge
related to the valuation allowance on our loans held at LOCOM
|
|
(3)
|
|
Funds from Operations (FFO) and
Available Funds from Operations (AFFO) are non-GAAP financial
measures of REIT performance. See ITEM 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations
Non-GAAP Financial Measures for additional
information.
|
See discussion of a material uncertainty regarding Cambridge
litigation in Item 3 Legal Proceedings.
|
|
ITEM 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following should be read in conjunction with the
consolidated financial statements and notes included herein.
This Managements Discussion and Analysis of
Financial Condition and Results of Operations contains
certain non-GAAP financial measures. See
Non-GAAP Financial Measures and supporting
schedules for reconciliation of our non-GAAP financial measures
to the comparable GAAP financial measures.
Overview
Care Investment Trust Inc. (all references to
Care, the Company, we,
us, and our means Care Investment
Trust Inc. and its subsidiaries) is an externally managed
real estate investment trust (REIT) formed to invest
in healthcare-related real estate and mortgage debt. Care was
incorporated in Maryland in March 2007, and we completed our
initial public offering on June 22, 2007. We were
originally positioned to make mortgage investments in
healthcare-related properties, and to opportunistically invest
in real estate through utilizing the origination platform of our
external manager, CIT Healthcare LLC (CIT Healthcare
or our Manager). We acquired our initial portfolio
of mortgage loan assets from the Manager in exchange for cash
proceeds from our initial public offering and common stock. In
response to dislocations in the overall credit market, and in
particular the securitized financing markets, in late 2007, we
redirected our focus to place greater emphasis on high quality
healthcare-related real estate equity investments.
Our Manager is a healthcare finance company that offers a
full-spectrum of financing solutions and related strategic
advisory services to companies across the healthcare industry
throughout the United States. Our Manager was formed in 2004 and
is a wholly-owned subsidiary of CIT Group Inc.
(CIT), a leading middle market global commercial
finance company that provides financial and advisory services.
As of December 31, 2009, we maintained a diversified
investment portfolio consisting of $56.1 million in
unconsolidated joint ventures that own real estate,
$101.5 million invested in wholly owned real estate and
$25.3 million in 3 investments in mortgage loans that are
held at lower of cost or market. Our current investments in
healthcare real estate include medical office buildings and
assisted and independent living facilities and Alzheimer
facilities. Our mortgage loan portfolio is primarily composed of
first mortgages on skilled nursing facilities and mixed-use
facilities. In 2010, one borrower repaid one of the
Companys mortgage loans and we sold one mortgage loan to a
third party.
46
As a REIT, we generally will not be subject to federal taxes on
our REIT taxable income to the extent that we distribute our
taxable income to stockholders and maintain our qualification as
a REIT.
We have used short-term financing, in the form of a warehouse
facility, to partially finance our investments. The Company
executed a warehouse facility with Column Financial Inc, an
affiliate of Credit Suisse Securities, LLC on October 1,
2007. On March 9, 2009, we repaid these borrowings in full
and terminated the warehouse line. (See Note 9).
Critical
Accounting Policies
Our financial statements are prepared in conformity with
accounting principles generally accepted in the United States of
America, which requires us 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 revenues
and expenses during the reporting periods. Actual results could
differ from those estimates. Set forth below is a summary of our
accounting policies that we believe are critical to the
preparation of our consolidated financial statements. This
summary should be read in conjunction with a more complete
discussion of our accounting policies included in Note 2 to
the consolidated financial statements in this Annual Report on
Form 10-K.
Consolidation
The consolidated financial statements include the Companys
accounts and those of our subsidiaries, which are wholly-owned
or controlled by us. All significant intercompany balances and
transactions have been eliminated.
Investments in partially-owned entities where the Company
exercises significant influence over operating and financial
policies of the subsidiary, but does not control the subsidiary,
are reported under the equity method of accounting. Generally
under the equity method of accounting, the Companys share
of the investees earnings or loss is included in the
Companys operating results.
Accounting Standards Codification 810
Consolidation
(
ASC 810
), requires a company to identify
investments in other entities for which control is achieved
through means other than voting rights (variable interest
entities or VIEs) and to determine which
business enterprise is the primary beneficiary of the VIE. A
variable interest entity is broadly defined as an entity where
either the equity investors as a group, if any, do not have a
controlling financial interest or the equity investment at risk
is insufficient to finance that entitys activities without
additional subordinated financial support. The Company
consolidates investments in VIEs when it is determined that the
Company is the primary beneficiary of the VIE at either the
creation or the variable interest entity or upon the occurrence
of a reconsideration event. The Company has concluded that
neither of its partially-owned entities are VIEs.
Investments in Loans Held at LOCOM
Investments in loans amounted to $25.3 million at
December 31, 2009. We account for our investment in loans
in accordance with Accounting Standards Codification 948
Financial Services Mortgage Banking (ASC
948), which codified the FASBs
Accounting for
Certain Mortgage Banking
. Under ASC 948, loans expected to
be held for the foreseeable future or to maturity should be held
at amortized cost, and all other loans should be held at the
lower of cost or market (LOCOM), measured on an individual
basis. In accordance with ASC 820
Fair Value Measurements and
Disclosures
(ASC 820), the Company includes
nonperformance risk in calculating fair value adjustments. As
specified in ASC 820, the framework for measuring fair value is
based on independent observable inputs of market data and
follows the following hierarchy:
Level 1 Quoted prices in active markets for
identical assets and liabilities.
Level 2 Significant observable inputs based on
quoted prices for similar instruments in active markets, quoted
prices for identical or similar instruments in markets that are
not active and model-based valuations for which all significant
assumptions are observable.
47
Level 3 Significant unobservable inputs that
are supported by little or no market activity that are
significant to the fair value of the assets or liabilities.
At December 31, 2008, in connection with our decision to
reposition ourselves from a mortgage REIT to a traditional
direct property ownership REIT (referred to as an equity REIT,
see Notes 2, 4, and 5 to the consolidated financial
statements) and as a result of existing market conditions, we
transferred our portfolio of mortgage loans to LOCOM because we
are no longer certain that we will hold the portfolio of loans
either until maturity or for the foreseeable future. Until
December 31, 2008, we held our loans until maturity, and
therefore the loans had been carried at amortized cost, net of
unamortized loan fees, acquisition and origination costs, unless
the loans were impaired. In connection with the transfer, we
recorded an initial valuation allowance of approximately
$29.3 million representing the difference between our
carrying amount of the loans and their estimated fair value at
December 31, 2008. At December 31, 2009, the valuation
allowance was reduced to $8.4 million representing the
difference between the carrying amounts and estimated fair value
of the Companys three remaining loans.
Coupon interest on the loans is recognized as revenue when
earned. Receivables are evaluated for collectability if a loan
becomes more than 90 days past due. If fair value is lower
than amortized cost, changes in fair value (gains and losses)
are reported through our consolidated statement of operations
through a valuation allowance on loans held at LOCOM. Loans
previously written down may be written up based upon subsequent
recoveries in value, but not above their cost basis.
Expense for credit losses in connection with loan investments is
a charge to earnings to increase the allowance for credit losses
to the level that management estimates to be adequate to cover
probable losses considering delinquencies, loss experience and
collateral quality. Impairment losses are taken for impaired
loans based on the fair value of collateral on an individual
loan basis. The fair value of the collateral may be determined
by an evaluation of operating cash flow from the property during
the projected holding period,
and/or
estimated sales value computed by applying an expected
capitalization rate to the stabilized net operating income of
the specific property, less selling costs. Whichever method is
used, other factors considered relate to geographic trends and
project diversification, the size of the portfolio and current
economic conditions. Based upon these factors, we will establish
an allowance for credit losses when appropriate. When it is
probable that we will be unable to collect all amounts
contractually due, the loan is considered impaired.
Where impairment is indicated, an impairment charge is recorded
based upon the excess of the recorded investment amount over the
net fair value of the collateral. As of December 31, 2009,
we had no impaired loans and no allowance for credit losses.
We rely on significant subjective judgments and assumptions of
our Manager (i.e., discount rates, expected prepayments, market
comparables, etc.) regarding the above items. There may be a
material impact to these financial statements if our
Managers judgment or assumptions are subsequently
determined to be incorrect.
Real
Estate and Identified Intangible Assets
Real estate and identified intangible assets are carried at
cost, net of accumulated depreciation and amortization.
Betterments, major renewals and certain costs directly related
to the acquisition, improvement and leasing of real estate are
capitalized. Maintenance and repairs are charged to operations
as incurred. Depreciation is provided on a straight-line basis
over the assets estimated useful lives which range from 7
to 40 years.
Upon the acquisition of real estate, we assess the fair value of
acquired assets (including land, buildings and improvements, and
identified intangible assets such as above and below market
leases and acquired in-place leases and customer relationships)
and acquired liabilities in accordance Accounting Standards
Codification 805
Business Combinations
(ASC
805), and Accounting Standards Codification
350-30
Intangibles Goodwill and other
(ASC
350-30),
and we allocate purchase price based on these assessments. We
assess fair value based on estimated cash flow projections that
utilize appropriate discount and capitalization rates and
available market information. Estimates of future cash flows are
based on a number of factors including the historical operating
results, known trends, and market/economic conditions that may
affect the property.
48
Our properties, including any related intangible assets, are
reviewed for impairment under ACS
360-10-35-15,
Impairment or Disposal of Long-Lived Assets
, (ASC
360-10-35-15)
if events or circumstances change indicating that the carrying
amount of the assets may not be recoverable. Impairment exists
when the carrying amount of an asset exceeds its fair value. An
impairment loss is measured based on the excess of the carrying
amount over the fair value. We have determined fair value by
using a discounted cash flow model and an appropriate discount
rate. The evaluation of anticipated cash flows is subjective and
is based, in part, on assumptions regarding future occupancy,
rental rates and capital requirements that could differ
materially from actual results. If our anticipated holding
periods change or estimated cash flows decline based on market
conditions or otherwise, an impairment loss may be recognized.
As of December 31, 2009, we have not recognized an
impairment loss.
Revenue Recognition
Interest income on investments in loans is recognized over the
life of the investment on the accrual basis. Fees received in
connection with loans are recognized over the term of the loan
as an adjustment to yield. Anticipated exit fees whose
collection is expected will also be recognized over the term of
the loan as an adjustment to yield. Unamortized fees are
recognized when the associated loan investment is repaid before
maturity on the date of such repayment. Premium and discount on
purchased loans are amortized or accreted on the effective yield
method over the remaining terms of the loans.
Income recognition will generally be suspended for loan
investments at the earlier of the date at which payments become
90 days past due or when, in our opinion, a full recovery
of income and principal becomes doubtful. Income recognition is
resumed when the loan becomes contractually current and
performance is demonstrated to be resumed. For the years ended
December 31, 2009 and 2008, we have no loans for which
income recognition has been suspended.
The Company recognizes rental revenue in accordance with
Accounting Standards Codification 840
Leases
(ASC
840). ASC 840 requires that revenue be recognized on a
straight-line basis over the non-cancelable term of the lease
unless another systematic and rational basis is more
representative of the time pattern in which the use benefit is
derived from the leased property. Renewal options in leases with
rental terms that are lower than those in the primary term are
excluded from the calculation of straight line rent if the
renewals are not reasonably assured. We commence rental revenue
recognition when the tenant takes control of the leased space.
The Company recognizes lease termination payments as a component
of rental revenue in the period received, provided that there
are no further obligations under the lease.
Stock-based Compensation Plans
We have two stock-based compensation plans, described more fully
in Note 14. We account for the plans using the fair value
recognition provisions of ASC
505-50
Equity-Based Payments to Non-Employees
(ASC
505-50)
and ASC 718
Compensation Stock
Compensation
(ASC 718). ASC
505-50
and
ASC 718 require that compensation cost for stock-based
compensation be recognized ratably over the service period of
the award for non employees and board members, respectively.
Because all of our stock-based compensation is issued to
non-employees, the amount of compensation is adjusted in each
subsequent reporting period based on the fair value of the award
at the end of the reporting period until such time as the award
has vested or the service being provided is substantially
completed or, under certain circumstances, likely to be
completed, whichever occurs first.
Derivative Instruments
We account for derivative instruments in accordance with
Accounting Standards Codification 815
Derivatives and Hedging
(ASC 815). In the normal course of business, we
may use a variety of derivative instruments to manage, or hedge,
interest rate risk. We will require that hedging derivative
instruments be effective in reducing the interest rate risk
exposure they are designated to hedge. This effectiveness is
essential for qualifying for hedge accounting. Some derivative
instruments may be associated with an anticipated transaction.
In those cases, hedge effectiveness criteria also require that
it be probable that the underlying transaction will occur.
Instruments that meet these hedging criteria will be formally
designated as hedges at the inception of the derivative contract.
49
To determine the fair value of derivative instruments, we may
use a variety of methods and assumptions that are based on
market conditions and risks existing at each balance sheet date.
For the majority of financial instruments including most
derivatives, long-term investments and long-term debt, standard
market conventions and techniques such as discounted cash flow
analysis, option-pricing models, replacement cost, and
termination cost are likely to be used to determine fair value.
All methods of assessing fair value result in a general
approximation of fair value, and such value may never actually
be realized.
We may use a variety of commonly used derivative products that
are considered plain vanilla derivatives. These
derivatives typically include interest rate swaps, caps, collars
and floors. We expressly prohibit the use of unconventional
derivative instruments and using derivative instruments for
trading or speculative purposes. Further, we have a policy of
only entering into contracts with major financial institutions
based upon their credit ratings and other factors, so we do not
anticipate nonperformance by any of our counterparties.
We may employ swaps, forwards or purchased options to hedge
qualifying forecasted transactions. Gains and losses related to
these transactions are deferred and recognized in net income as
interest expense in the same period or periods that the
underlying transaction occurs, expires or is otherwise
terminated.
Hedges that are reported at fair value and presented on the
balance sheet could be characterized as either cash flow hedges
or fair value hedges. For derivative instruments not designated
as hedging instruments, the gain or loss resulting from the
change in the estimated fair value of the derivative instruments
will be recognized in current earnings during the period of
change.
Income
Taxes
We have elected to be taxed as a REIT under Sections 856
through 860 of the Code. To qualify as a REIT, we must meet
certain organizational and operational requirements, including a
requirement to distribute at least 90% of our REIT taxable
income to our stockholders. As a REIT, we generally will not be
subject to federal income tax on taxable income that we
distribute to our stockholders. If we fail to qualify as a REIT
in any taxable year, we will then be subject to federal income
tax on our taxable income at regular corporate rates and we will
not be permitted to qualify for treatment as a REIT for federal
income tax purposes for four years following the year during
which qualification is lost unless the Internal Revenue Service
grants us relief under certain statutory provisions. Such an
event could materially adversely affect our net income and net
cash available for distributions to stockholders. However, we
believe that we will operate in such a manner as to qualify for
treatment as a REIT and we intend to operate in the foreseeable
future in such a manner so that we will qualify as a REIT for
federal income tax purposes. We may, however, be subject to
certain state and local taxes.
In July 2006, the FASB issued Interpretation No. 48
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109
(FIN 48). ASC 740 prescribes a recognition
threshold and measurement attribute for how a company should
recognize, measure, present, and disclose in its financial
statements uncertain tax positions that the company has taken or
expects to take on a tax return. ASC 740 requires that the
financial statements reflect expected future tax consequences of
such positions presuming the taxing authorities full
knowledge of the position and all relevant facts, but without
considering time values. ASC 740 was adopted by the Company and
became effective beginning January 1, 2007. The
implementation of ASC740 has not had a material impact on the
Companys consolidated financial statements.
Earnings per Share
We present basic earnings per share or EPS in accordance with
ASC 260,
Earnings per Share
. We also present diluted EPS,
when diluted EPS is lower than basic EPS. Basic EPS excludes
dilution and is computed by dividing net income by the weighted
average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were
exercised or converted into common stock, where such exercise or
conversion would result in a lower EPS amount. At
December 31, 2009, diluted EPS was the same as basic EPS
because all outstanding restricted stock awards were
anti-dilutive. The operating partnership units issued in
connection with an investment (See Note 6) are in
escrow and do not impact EPS.
50
Use
of Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ from those
estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject us to
concentrations of credit risk consist primarily of cash
investments, real estate, loan investments and interest
receivable. We may place our cash investments in excess of
insured amounts with high quality financial institutions. We
perform ongoing analysis of credit risk concentrations in our
real estate and loan investment portfolio by evaluating exposure
to various markets, underlying property types, investment
structure, term, sponsors, tenant mix and other credit metrics.
The collateral securing our loan investments are real estate
properties located in the United States.
Recently Issued Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 160
Noncontrolling Interests in Consolidated Financial
Statements,
which was codified in FASB ASC 810
Consolidation
(ASC 810). ASC 810 requires
that a noncontrolling interest in a subsidiary be reported as
equity and the amount of consolidated net income specifically
attributable to the noncontrolling interest be identified in the
consolidated financial statements. It also calls for consistency
in the manner of reporting changes in the parents
ownership interest and requires fair value measurement of any
noncontrolling equity investment retained in a deconsolidation.
ASC 810 is effective for the Company on January 1, 2009.
The Company records its investments using the equity method and
does not consolidate these joint ventures. As such, there is no
impact upon adoption of ASC 810 on its consolidated financial
statements.
On March 20, 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities,
which is codified in FASB ASC 815
Derivatives
and Hedging Summary
(ASC 815). The derivatives
disclosure pronouncement provides for enhanced disclosures about
how and why an entity uses derivatives and how and where those
derivatives and related hedged items are reported in the
entitys financial statements. ASC 815 also requires
certain tabular formats for disclosing such information. ASC 815
applies to all entities and all derivative instruments and
related hedged items accounted for under this new pronouncement.
Among other things, ASC 815 requires disclosures of an
entitys objectives and strategies for using derivatives by
primary underlying risk and certain disclosures about the
potential future collateral or cash requirements (that is, the
effect on the entitys liquidity) as a result of contingent
credit-related features. ASC 815 is effective for the Company on
January 1, 2009. The Company adopted ASC 815 in the first
quarter of 2009 and included disclosures in its consolidated
financial statements addressing how and why the Company uses
derivative instruments, how derivative instruments are accounted
for and how derivative instruments affect the Companys
financial position, financial performance, and cash flows. (See
Note 9)
On January 21, 2010, the FASB issued ASU
2010-06,
which amends ASC 820 to add new requirements for disclosures
about transfers into and out of Levels 1 and 2 and separate
disclosures about purchases, sales, issuances, and settlements
relating to Level 3 measurements. The ASU also clarifies
existing fair value disclosures about the level of
disaggregation and about inputs and valuation techniques used to
measure fair value. The ASU is effective for the first reporting
period (including interim periods) beginning after
December 15, 2009, except for the requirement to provide
the Level 3 activity of purchases, sales, issuances, and
settlements on a gross basis, which will be effective for fiscal
years beginning after December 15, 2010, and for interim
periods within those fiscal years, with early adoption permitted.
Results
of Operations
The following compares our results of operations for the year
ended December 31, 2009, against our results of operations
for the year ended December 31, 2008.
51
Revenue
Rental
Revenues
During the year ended December 31, 2009, we recognized
$12.7 million of rental revenue on the twelve properties
acquired in the Bickford transaction in June 2008 and the
acquisition of two additional properties from Bickford in
September 2008, as compared with $6.2 million during the
year ended December 31, 2008, an increase of approximately
$6.5 million. The increase in revenue was the result of
recognizing a full period of rental income during the year ended
December 31, 2009 from the twelve properties acquired in
June 2008 and the two properties acquired in September 2008 as
compared with recognition of revenue for the respective portion
of the full year period for these properties during the year
ended December 31, 2008.
Income
from Investments in Loans
We earned income on our portfolio of mortgage loan investments
of approximately $7.1 million in the year ended
December 31, 2009 as compared with approximately
$15.8 million in 2008, a decrease of approximately
$8.7 million. Our portfolio of mortgage investments are
floating rate based upon LIBOR. The decrease in income related
to this portfolio is primarily attributable to (i) a lower
average outstanding principal from mortgage loans during the
year ended December 31, 2009 as compared with the
comparable period 2008 period and (ii) the decrease in
average LIBOR during the year ended December 31, 2009 as
compared with the year ended December 31, 2008. The lower
average outstanding principal from mortgage loans was the result
of loan prepayments and loan sales that occurred throughout 2009
(See Note 5 to the consolidated financial statements). The
average one month LIBOR during the year ended December 31,
2009 was 0.34% as compared with 2.68% for the year ended
December 31, 2008. Mitigating some of the decrease in LIBOR
were interest rate floors which placed limits on how low the
respective loans could reset. Our portfolio of mortgage
investments are all variable rate instruments, and at
December 31, 2009, had a weighted average spread of 6.76%
over one month LIBOR, with an effective yield of 6.99% and an
average maturity of 1.0 year at December 31, 2009.
Other
Income
Other income in 2009 amounted to $0.2 million and consisted
of ancillary fees which approximated the fees earned in 2008.
Expenses
Expenses for the year ended December 31, 2009 amounted to
approximately $14.2 million, as compared to approximately
$44.3 million for 2008, for a decrease of
$31.1 million. This decrease primarily relates to a year
over year change of $33.2 million from a $4.0 million
2009 benefit from valuation adjustments as compared with a
$29.3 million 2008 charge for a valuation allowance on our
loans held at LOCOM. The year over year decrease in expenses
related to this adjustment is $33.3 million and is
discussed below. The net increase in expenses, excluding the
change in the valuation allowance for investments held at LOCOM,
is $2.2 million. This increase consists of an increase in
marketing, general and administrative expenses largely related
to costs associated with pursuing strategic alternatives of
$3.9 million (before considering stock-based compensation
expense), an increase in depreciation and amortization related
to the acquisition of the Bickford properties
(Note 3) of $1.8 million, offset by a decrease in
management fees of $1.9 million discussed below, and
recognizing a $2.7 million loss on the sale of a mortgage
loan to our Manager in 2008.
Management
Fees
For the year ended December 31, 2009 we recorded management
fee expense payable to our Manager under our management
agreement of $2.2 million as compared with
$4.1 million during the 2008 year, a decrease of
$1.9 million. The decrease in management fee expense is
primarily attributable to the reduction in the base management
fee in accordance with the first amendment to the Companys
management agreement, which was in effect for the entire fiscal
year ended December 31, 2009 as compared with five months
of impact during the year ended December 31, 2008.
52
Marketing,
General and Administrative
Marketing, general and administrative expenses amounted to
$11.6 million for the year ended December 31, 2009 and
consist of fees for professional services, insurance, general
overhead costs for the Company and real estate taxes on our
facilities, as compared with $6.6 million for the year
ended December 31, 2008, an increase of approximately
$5.0 million. The increase is primarily attributable to
legal and advisory fees incurred during 2009 in connection with
the ongoing review of the Companys strategic direction.
Pursuant to ASC
505-50,
we
recognized an expense of $2.3 million for the year ended
December 31, 2009 related to remeasurement of stock grants
as compared with an expense of $1.2 million for the year
ended December 31, 2008, an increase of approximately
$1.1 million. The increase was principally the result of
the impact of additional share issuances and accelerated vesting
of stock-based compensation resulting from the January 28,
2010 shareholder vote approving the plan of liquidation
(see Notes 14 and 19 to the consolidated financial
statements). Upon approval of the plan of liquidation, most of
the Companys remaining stock grants vested immediately. In
addition, for each of the years ended December 31, 2009 and
December 31, 2008, we paid $0.3 million in stock-based
compensation related to shares of our common stock earned by our
independent directors as part of their compensation. Each
independent director is paid a base retainer of $100,000
annually, which is payable 50% in cash and 50% in stock.
Payments are made quarterly in arrears. Shares of our common
stock issued to our independent directors as part of their
annual compensation vest immediately and are expensed by us
accordingly.
Valuation
Allowance on Loans Held at LOCOM and Realized (Gain)/ Loss on
Loans Sold
The year over year valuation allowance changed favorable by
$33.3 million. At December 31, 2008, reflecting a
change in Cares strategies in connection with our decision
to reposition ourselves from a mortgage REIT to a traditional
direct property ownership REIT (referred to as an equity REIT,
see Notes 2 and 4 to the financial statements) and as a
result of existing market conditions, we reclassified our
portfolio of mortgage loans to LOCOM and recorded a charge of
$29.3 million. During the year ended December 31, 2009
the Company recognized a favorable adjustment of
$4.0 million on its loans carried at the lower of cost or
market, which gives rise to the $33.3 million improvement
as compared with the 2008 charge to earnings of
$29.3 million. Interim assessments were made of carrying
values of the loan based on available data, including sale and
repayments on a quarterly basis during 2009. Gains or losses on
sales are determined by comparing proceeds to carrying values
based on interim assessments resulting in a gain of
$1.1 million for the year ended December 31, 2009 as
compared with a loss of $2.7 million for the year ended
December 31, 2008. Available data included appraisals,
repayments and mortgage loan sales to our manager and to third
parties (see Note 5 to the financial statements).
Depreciation
and Amortization
Depreciation and amortization expenses increased to
$3.4 million in the fiscal year ended 2009 from
$1.6 million for the comparable period in 2008, primarily
as a result of recognizing a full annual period of depreciation
and amortization during the year ended December 31, 2009
from the twelve Bickford properties acquired in June 2008 and
the two Bickford properties acquired in September 2008 as
compared with recognition of depreciation and amortization for
the respective portion of the full year period for these
properties during the year ended December 31, 2008.
Interest
Expense
We incurred interest expense of $6.5 million for the year
ended December 31, 2009, as compared with interest expense
of $4.5 million for the year ended December 31, 2008,
an increase of $2.0 million. The increase in interest
expense is primarily attributable to the 2009 recognition of a
full period of interest expense on the debt incurred to finance
the acquisition of the twelve properties acquired in the
Bickford transaction in June 2008 and the acquisition of the two
properties in the Bickford transaction in September 2008 as
compared with the recognition in 2008 of interest expense for
the portion of the full year period after the respective dates
of acquisition. This was partially offset by the incurrence of a
full period of interest expense under our warehouse line of
credit during the fiscal ended December 31, 2008 as
compared with a partial quarter of interest expense under our
warehouse line of credit during the year ended December 31,
2009.
Loss on
Partially Owned Entities
For the year ended December 31, 2009, net loss from
partially-owned entities amounted to $4.4 million as
compared with a net loss of $4.4 million for the year ended
December 31, 2008. Our equity in the non-cash operating
loss of the Cambridge properties for the year ended 2009 was
$5.6 million, which included $9.6 million
53
attributable to our share of the depreciation and amortization
expenses associated with the Cambridge properties, which was
partially offset by our share of equity income in the SMC
properties of $1.2 million.
Unrealized
Gain on Derivative Instruments
We recognized an unrealized gain on derivative investments of
approximately $0.1 million in 2009, primarily representing
a decrease in the liability associated with the obligation to
issue operating partnership units in connection with the
Cambridge transaction.
Cash
Flows
Cash and cash equivalents were $122.5 million at
December 31, 2009 as compared with $31.8 million at
December 31, 2008, an increase of approximately
$90.7 million. Cash during the year ended 2009 was
generated from $136.0 million in proceeds from our
investing activities and $6.7 million from operations,
offset by $51.9 million used for financing activities
during the period.
Net cash provided by operating activities for the fiscal year
ended December 31, 2009 amounted to $6.7 million as
compared with $13.0 million for the comparable period in
2008, a decrease of approximately $6.3 million. Net loss
before adjustments was $2.8 million. Equity in the
operating results of, and distributions from, investments in
partially-owned entities added $11.3 million. Non-cash
charges for straight-line effects of lease revenue, gains on
sales of loans, adjustment to our valuation allowance on loans
at LOCOM, amortization of loan premium, amortization and
write-off of deferred financing costs, amortization of deferred
loan fees, stock based compensation, net unrealized gain on
derivatives, and depreciation and amortization used less than
$0.1 million. The net change in operating assets and
liabilities used $1.8 million and consisted of an increase
in accrued interest receivable and other assets of
$1.1 million and an increase in accounts payable and
accrued expenses of $0.6 million, offset by a
$3.5 million decrease in other liabilities including
amounts payable to a related party.
Net cash provided by investing activities for the twelve months
ended December 31, 2009 was $136.0 million as compared
with a use of $67.9 million for the year ended
December 31, 2008, an increase of approximately
$203.9 million. The increase is primarily attributable to
the cash generated from the divestiture and repayment of the
Companys mortgage loans during 2009, consisting of sales
of loans to our Manager of $42.2 million, sales of loans to
third parties of $55.8 million and loan repayments received
of $40.4 million, offset by new investments of
$2.5 million during the year ended 2009, as compared with
loan repayments received of $54.2 million and new
investments of $122.2 million during the year ended
December 31, 2008. New investments in 2008 consisted of
investments in real estate of $111.0 million, investments
in partially-owned entities of $0.3 million and loan
investments of $10.9 million.
Net cash used in financing activities for the year ended
December 31, 2009 was $51.9 million as compared with
net cash provided by financing activities of $71.4 million
for the year ended December 31, 2008, a decrease of
$123.3 million. The decrease is primarily attributable to
the repayment of $37.8 million and subsequent termination
of our warehouse line of credit, dividend treasury stock
purchases of $8.3 million and $1.0 million related to
payment of financing costs associated with borrowings for the
Bickford transaction. There were no material new borrowings
during 2009 as compared with borrowings under the warehouse line
of credit of $13.6 million during 2008 and borrowings of
$82.2 million to finance the acquisition of 14 properties
in the Bickford transaction.
Liquidity
and Capital Resources
Liquidity is a measurement of our ability to meet potential cash
requirements, including ongoing commitments to repay borrowings,
fund and maintain loans and other investments, pay dividends and
other general business needs. Our primary sources of liquidity
are rental income from our real estate properties, distributions
from our joint ventures, net interest income earned on our
portfolio of mortgage loans and interest income earned from our
available cash balances. We also obtain liquidity from
repayments of principal by our borrowers in connection with our
loans.
54
As of December 31, 2009, the Company had
$122.5 million in cash and cash equivalents. Due to the
repayment of a mortgage loan in February which generated net
proceeds of $9.7 million and a sale of a mortgage loan in
March which generated net proceeds of $5.9 million, we had
$136.3 million in cash and cash equivalents as of
March 11, 2010.
Historically, we relied on borrowings under a warehouse line of
credit along with a Mortgage Purchase Agreement
(MPA) with our Manager to fund our investments. In
October 2007, we obtained a warehouse line of credit from Column
Financial, an affiliate of Credit Suisse, under which we
borrowed funds collateralized by the mortgage loans in our
portfolio. In March 2009, we repaid these borrowings in full
with cash on hand. In September 2008, we entered into a Mortgage
Purchase Agreement (MPA) with our Manager in order
to secure a potential additional source of liquidity. Pursuant
to the MPA, we had the right, subject to the conditions of the
MPA, to cause the Manager to purchase our mortgage loans at
their then-current fair market value, as determined by a third
party appraiser. On January 28, 2010, upon the effective
date of the second amendment to the Management Agreement with
our Manager, the MPA was terminated and all outstanding notices
of our intent to sell additional loans to our Manager were
rescinded.
To maintain our status as a REIT under the Code, we must
distribute annually at least 90% of our REIT taxable income.
These distribution requirements limit our ability to retain
earnings and thereby replenish or increase capital for
operations.
Sale of
Control of the Company
On March 16, 2010, we executed a definitive agreement with
Tiptree Financial Partners, L.P. (Tiptree of the
Buyer) for the sale of control of the Company in a
series of contemplated transactions. Under the agreement, the
parties have agreed to a sale of a quantity of shares to the
Buyer to occur immediately following the completion of a cash
tender offer by us for Cares outstanding common shares.
The quantity of shares to be sold to the Buyer will be that
quantity which would represent at least 53.4% of the shares of
the Companys common stock on a fully diluted basis after
completion of the Companys cash tender offer. The
agreement is subject to customary closing conditions and our
ability to proceed with the cash tender offer.
In connection with the sale transaction contemplated by the
agreement, we intend to make a cash tender offer for up to 100%
of the outstanding common shares of Care stock at an offer price
of $9.00 per share, subject to a minimum subscription of
10,300,000 shares of Care stock. Also, in connection with the
transaction, the Company intends to terminate its existing
management agreement with our Manager and it is anticipated that
the resulting company will be advised by an affiliate of Tiptree.
We intend to seek shareholder approval to abandon the plan of
liquidation and pursue the contemplated transactions described
above. If the contemplated transactions are not completed, we
may pursue the plan of liquidation as approved by the
stockholders on January 28 or we may consider other strategic
alternatives to liquidation. In the event that a liquidation of
the Company is pursued, material adjustments to these going
concern financial statements may need to be recorded to present
liquidation basis financial statements. Material adjustments
which may be required for liquidation basis accounting primarily
relate to reflecting assets and liabilities at their net
realizable value and costs to be incurred to carry out the plan
of liquidation. After such adjustments, the likely range of
equity value which would be presented in liquidation basis
financial statement would be between $8.05 and 8.90 per share.
Contractual
Obligations
The table below summarizes our contractual obligations as of
December 31, 2009.
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Amounts in millions
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2010
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2011
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2012
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2013
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2014
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Thereafter
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Commitment to fund tenant improvements
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$
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1.9
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$
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$
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$
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$
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$
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Commitment to fund earn out
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7.2
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Mortgage notes payable
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6.5
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6.5
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6.5
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6.5
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6.5
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80.4
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Management fee
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1.5
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1.5
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Buyout fee to Manager
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5.0
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2.5
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55
We have commitments at December 31, 2009 to finance tenant
improvements of $1.9 million and earn out of
$7.2 million. The commitment amount for the earn out is
contingent upon meeting certain conditions. If those conditions
are not met, our obligation to fund those commitments would be
zero. $1.7 million of tenant improvement represents hold
back from the initial purchase of Cambridge. No provision for
the earn out contingency has been accrued at December 31,
2009. The estimated amounts and timing of the commitments to
fund tenant improvements are based on projections by the
managers who are affiliates of Cambridge and Bickford.
At December 31, 2009, we were obligated to pay our Manager
a base management fee on a monthly basis along with a buyout fee
of $7.5 million. See Related Party Transactions and
Agreements Management Agreement below.
Pursuant to the terms of the second amendment to the Management
Agreement, the Manager is also eligible for an incentive fee of
$1.5 million if the cash ultimately distributed to our
stockholder. Pursuant to the plan of liquidation or otherwise
equals or exceeds $9.25 per share.
On June 26, 2008 with the acquisition of the twelve
properties from Bickford Senior Living Group LLC, the Company
entered into a mortgage loan with Red Mortgage Capital, Inc. for
$74.6 million. The terms of the mortgage require
interest-only payments at a fixed interest rate of 6.845% for
the first twelve months. Commencing on the first anniversary and
every month thereafter, the mortgage loan requires a fixed
monthly payment of $0.5 million for both principal and
interest until the maturity in July 2015 when the then
outstanding balance of $69.6 million is due and payable.
Care paid approximately $0.3 million in principal
amortization during the year ended December 31, 2009. The
mortgage loan is collateralized by the properties.
On September 30, 2008 with the acquisition of the two
additional properties from Bickford, the Company entered into an
additional mortgage loan with Red Mortgage Capital, Inc. for
$7.6 million. The terms of the mortgage require interest
and principal payments of approximately $52,000 based on a fixed
interest rate of 7.17% until the maturity in July 2015 when the
then outstanding balance of $7.1 million is due and
payable. Care paid approximately $0.1 in principal amortization
during the year ended December 31, 2009. The mortgage loan
is collateralized by the properties.
Off-Balance
Sheet Arrangements
As discussed above in Business Unconsolidated
Joint Ventures, we own interests in certain unconsolidated
joint ventures. Our risk of loss associated with these
investments is limited to our investment in the joint venture.
However, under the terms of our investment in the joint venture
with Cambridge, Cambridge has the contractual right to put its
15% interest in the properties to us in the event we enter into
a change in control transaction. Pursuant to the terms of our
joint venture with Cambridge, we provided notice to Cambridge on
May 7, 2009 that we had entered into a term sheet with a
third party for a transaction that would result in a change in
control of Care which notice triggered Cambridges
contractual right to put its interests in the joint
venture to us at a price equal to the then fair market value of
such interests, as mutually agreed by the parties, or, lacking
such mutual agreement, at a price determined through qualified
third party appraisals. Cambridge did not exercise its right to
put its 15% joint venture interest to us in connection with our
entry into the term sheet with the third party. As a result, we
believe that Cambridges contractual put right expired.
Dividends
To maintain our qualification as a REIT, we must pay annual
dividends to our stockholders of at least 90% of our REIT
taxable income, determined before taking into consideration the
dividends paid deduction and net capital gains. Before we pay
any dividend, whether for federal income tax purposes or
otherwise, we must first meet both our operating requirements
and any scheduled debt service on our outstanding borrowings.
Related
Party Transactions and Agreements
Management Agreement
In connection with our initial public offering, we entered into
a Management Agreement with our Manager, which describes the
services to be provided by our Manager and its compensation for
those services. Under the Management Agreement, our Manager,
subject to the oversight of our board of directors, is required
to conduct our
56
business affairs in conformity with the policies approved by our
board of directors. The Management Agreement had an initial term
scheduled to expire on June 30, 2010, which would
automatically be renewed for one-year terms thereafter unless
terminated by us or our Manager.
On September 30, 2008, we entered into an amendment (the
Amendment) to the Management Agreement between
ourselves and the Manager. Pursuant to the terms of the
Amendment, the Base Management Fee (as defined in the Management
Agreement) payable to the Manager under the Management Agreement
was reduced from a monthly amount equal to
1
/
12
of 1.75% of the Companys equity (as defined in the
Management Agreement) to a monthly amount equal to
1
/
12
of 0.875% of the Companys equity. In addition, pursuant to
the terms of the Amendment, the Incentive Fee (as defined in the
Management Agreement) payable to the Manager pursuant to the
Management Agreement was eliminated and the Termination Fee (as
defined in the Management Agreement) payable to the Manager upon
the termination or non-renewal of the Management Agreement was
amended to equal the average annual Base Management Fee as
earned by the Manager during the two years immediately preceding
the most recently completed fiscal quarter prior to the date of
termination times three, but in no event be less than
$15.4 million. No termination fee would be payable if we
terminate the Management Agreement for cause.
In consideration of the Amendment and for the Managers
continued and future services to the Company, the Company
granted the Manager warrants to purchase 435,000 shares of
the Companys common stock at $17.00 per share (the
Warrant) under the Manager Equity Plan adopted by
the Company on June 21, 2007 (the Manager Equity
Plan). The Warrant, which is immediately exercisable,
expires on September 30, 2018.
On January 15, 2010, we entered into an Amended and
Restated Management Agreement with our Manager. Pursuant to the
terms of the Amended and Restated Management Agreement, which
became effective upon approval of the Companys plan of
liquidation by our stockholders on January 28, 2010, the
Base Management Fee was reduced to a monthly amount equal to
(i) $125,000 from February 1, 2010 until the earlier
of (x) June 30, 2010 and (y) the date on which
four of the Companys six then-existing investments have
been sold; then from such date (ii) $100,000 until the
earlier of (x) December 31, 2010 and (y) the date
on which five of the Companys six then-existing
investments have been sold; then from such date
(iii) $75,000 until the effective date of expiration or
earlier termination of the Agreement by either of the Company or
the Manager; provided, however, that notwithstanding the
foregoing, the base management fee shall remain at $125,000 per
month until the later of (a) ninety (90) days after
the filing by the Company of a Form 15 with the SEC; and
(b) the date that the Company is no longer subject to the
reporting requirements of the Exchange Act. In addition, the
termination fee payable to the Manager upon the termination or
non-renewal of the Management Agreement was replaced by a buyout
payment of $7.5 million, payable in installments of
(i) $2.5 million upon approval of the Companys
plan of liquidation by our stockholders;
(ii) $2.5 million upon the earlier of
(a) April 1, 2010 and (b) the effective date of
the termination of the Amended and Restated Management Agreement
by either of the Company or the Manager; and
(iii) $2.5 million upon the earlier of
(a) June 30, 2011 and (b) the effective date of
the termination of the Amended and Restated Management Agreement
by either the Company or the Manager. The Amended and Restated
Management Agreement also provided the Manager with an incentive
fee of $1.5 million if (i) at any time prior to
December 31, 2011, the aggregate cash dividends paid to the
Companys stockholders since the effective date of the
Amended and Restated Management Agreement equal or exceed $9.25
per share or (ii) as of December 31, 2011, the sum of
(x) the aggregate cash dividends paid to the Companys
stockholders since the effective date of the Amended and
Restated Management Agreement and (y) the aggregate
distributable cash equals or exceeds $9.25 per share. In the
event that the aggregate distributable cash equals or exceed
$9.25 per share but for the impact of payment of a
$1.5 million incentive fee, the Company shall pay the
Manager an incentive fee in an amount that allows the aggregate
distributable cash to equal $9.25 per share. Under the Amended
and Restated Management Agreement, the Mortgage Purchase
Agreement by and between us and our Manager was terminated and
all outstanding notices of our intent to sell additional loans
to our Manager were rescinded. The Amended and Restated
Management Agreement shall continue in effect, unless earlier
terminated in accordance with the terms thereof, until
December 31, 2011.
For the periods ended December 31, 2009 and
December 31, 2008, we recognized $2.2 million and
$4.1 million in management fee expense related to the base
management fee, respectively. Since our initial
57
public offering, transactions with our Manager relating to our
initial public offering and the Management Agreement included:
|
|
|
|
|
The acquisition of our initial assets from our Manager upon the
completion of our initial public offering. The fair value of the
acquisitions was approximately $283.1 million inclusive of
approximately $4.6 million in premium. In exchange for
these assets, we issued 5,256,250 restricted shares of common
stock to our Manager at a fair value of approximately
$78.8 million and paid approximately $204.3 million in
cash from the proceeds of our initial public offering.
|
|
|
|
Our issuance of 607,690 shares of common stock issued to
our Manager concurrently with our initial public offering at a
fair value of $9.1 million at date of grant. These shares
vested immediately and therefore their fair value was expensed
at issuance;
|
|
|
|
Our issuance of 133,333 restricted shares of common stock to our
Managers employees, some of who are also our officers or
directors, and 15,000 shares to our independent directors,
with a total fair value of approximately $2.2 million at
the date of grant. The shares granted to our Managers
employees and the shares granted to our independent directors
vested immediately upon approval of the Companys plan of
liquidation by its shareholders. Pursuant to SFAS 123R, we
recognized approximately $0.3 million in expense for the
period from June 22, 2007 (commencement of operations) to
December 31, 2007, related to these grants.
|
|
|
|
Our $0.5 million liability to our Manager as of
December 31, 2009 consisting primarily of accrued base
management fees and $3.8 million liability to our Manager
as of December 31, 2008 for professional fees paid and
other third party costs incurred by our Manager on behalf of
Care related to the initial public offering of our common stock
($1.5 million) and business operations
$2.3 million; and
|
|
|
|
Expenses of $2.2 million for the base management fee as
required pursuant to our agreement with our Manager for the year
ended December 31, 2009 and expenses of $4.1 million
for the base management fee for the comparable period in 2008.
|
Mortgage
Purchase Agreement
On September 30, 2008, we entered into a Mortgage Purchase
Agreement (MPA) with our Manager in order to secure
a potential additional source of liquidity. Pursuant to the MPA,
the Company had the right, but not the obligation, to cause the
Manager to purchase its current senior mortgage assets (the
Mortgage Assets) at their then-current fair market
value, as determined by a third party appraiser. However, the
MPA provided that in no event shall the Manager be obligated to
purchase any Mortgage Asset if (a) the Manager had already
purchased Mortgage Assets with an aggregate sale price of
$125.0 million pursuant to the MPA or (b) the third
party appraiser determined that the fair market value of such
Mortgage Asset is greater than 105% of the then outstanding
principal balance of such Mortgage Asset. On January 28,
2010, upon the effective date of the Companys Amended and
Restated Management Agreement with the Manager, the MPA was
terminated and all outstanding notices of our intent to sell
additional loans to our Manager were rescinded.
Pursuant to the MPA, we sold mortgage investments made to four
borrowers to our Manager for total proceeds of
$64.6 million. The sale of the first mortgage to our
Manager closed in November 2008 for proceeds of
$22.4 million and the sale of the second mortgage closed in
February 2009 for proceeds of $22.5 million. Additional
mortgages from two borrowers were sold to our Manager during
August and September 2009 and generated cash proceeds of
$2.3 million and $17.4 million, respectively.
Warrant
In consideration of the Amendment and for the Managers
continued and future services to the Company, the Company
granted the Manager warrants to purchase 435,000 shares of
the Companys common stock at $17.00 per share (the
Warrant) under the Manager Equity Plan adopted by
the Company on June 21, 2007 (the Manager Equity
Plan). The Warrant, which is immediately exercisable,
expires on September 30, 2018.
58
Non-GAAP Financial
Measures
Funds
from Operations
Funds From Operations, or FFO, which is a non-GAAP financial
measure, is a widely recognized measure of REIT performance. We
compute FFO in accordance with standards established by the
National Association of Real Estate Investment Trusts, or
NAREIT, which may not be comparable to FFO reported by other
REITs that do not compute FFO in accordance with the NAREIT
definition, or that interpret the NAREIT definition differently
than we do.
The revised White Paper on FFO, approved by the Board of
Governors of NAREIT in April 2002 defines FFO as net income
(loss) (computed in accordance with GAAP), excluding gains (or
losses) from debt restructuring and sales of properties, plus
real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures.
Adjusted
Funds from Operations
Adjusted Funds From Operations, or AFFO, is a non-GAAP financial
measure. We calculate AFFO as net income (loss) (computed in
accordance with GAAP), excluding gains (losses) from debt
restructuring and gains (losses) from sales of property, plus
the expenses associated with depreciation and amortization on
real estate assets, non-cash equity compensation expenses, the
effects of straight lining lease revenue, excess cash
distributions from the Companys equity method investments
and one-time events pursuant to changes in GAAP and other
non-cash charges. Proportionate adjustments for unconsolidated
partnerships and joint ventures will also be taken when
calculating the Companys AFFO.
We believe that FFO and AFFO provide additional measures of our
core operating performance by eliminating the impact of certain
non-cash expenses and facilitating a comparison of our financial
results to those of other comparable REITs with fewer or no
non-cash charges and comparison of our own operating results
from period to period. The Company uses FFO and AFFO in this
way, and also uses AFFO as one performance metric in the
Companys executive compensation program. The Company also
believes that its investors also use FFO and AFFO to evaluate
and compare the performance of the Company and its peers, and as
such, the Company believes that the disclosure of FFO and AFFO
is useful to (and expected of) its investors.
However, the Company cautions that neither FFO nor AFFO
represent cash generated from operating activities in accordance
with GAAP and they should not be considered as an alternative to
net income (determined in accordance with GAAP), or an
indication of our cash flow from operating activities
(determined in accordance with GAAP), a measure of our
liquidity, or an indication of funds available to fund our cash
needs, including our ability to make cash distributions. In
addition, our methodology for calculating FFO and / or
AFFO may differ from the methodologies employed by other REITs
to calculate the same or similar supplemental performance
measures, and accordingly, our reported FFO and / or
AFFO may not be comparable to the FFO and AFFO reported by other
REITs.
59
FFO and AFFO for the year ended December 31, 2009, were as
follows (dollars in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
For the year ended
|
|
|
|
December 31, 2009
|
|
(In thousands, except share and per share data)
|
|
FFO
|
|
|
AFFO
|
|
|
Net loss
|
|
$
|
(2,826
|
)
|
|
$
|
(2,826
|
)
|
Depreciation and amortization from partially-owned entities
|
|
|
9,599
|
|
|
|
9,599
|
|
Depreciation and amortization on owned properties
|
|
|
3,415
|
|
|
|
3,415
|
|
Valuation allowance for loans carried at LOCOM
|
|
|
|
|
|
|
(4,046
|
)
|
Straight-line effects of lease revenue
|
|
|
|
|
|
|
(2,411
|
)
|
Excess cash distributions from the Companys equity method
investments
|
|
|
|
|
|
|
710
|
|
Write-off of deferred financing cost
|
|
|
|
|
|
|
689
|
|
Gain on Loans Sold
|
|
|
|
|
|
|
(1,064
|
)
|
Obligation to issue OP Units
|
|
|
|
|
|
|
(153
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
2,270
|
|
|
|
|
|
|
|
|
|
|
Funds From Operations and Adjusted Funds From Operations
|
|
$
|
10,188
|
|
|
$
|
6,183
|
|
|
|
|
|
|
|
|
|
|
FFO and Adjusted FFO per share basic
|
|
$
|
0.51
|
|
|
$
|
0.31
|
|
FFO and Adjusted FFO per share diluted
|
|
$
|
0.50
|
|
|
$
|
0.31
|
|
Weighted average shares outstanding basic
|
|
|
20,061,763
|
|
|
|
20,061,763
|
|
Weighted average shares outstanding diluted
|
|
|
20,224,613
|
|
|
|
20,224,613
|
|
60
|
|
ITEM 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Quantitative
and Qualitative Disclosures about Market Risk
Market risk includes risks that arise from changes in interest
rates, commodity prices, equity prices and other market changes
that affect market sensitive instruments. In pursuing our
business plan, we expect that the primary market risks to which
we will be exposed are real estate and interest rate risks.
Real
Estate Risk
The value of owned real estate, commercial mortgage assets and
net operating income derived from such properties are subject to
volatility and may be affected adversely by a number of factors,
including, but not limited to, national, regional and local
economic conditions which may be adversely affected by industry
slowdowns and other factors, local real estate conditions (such
as an oversupply of retail, industrial, office or other
commercial space), changes or continued weakness in specific
industry segments, construction quality, age and design,
demographic factors, retroactive changes to building or similar
codes, and increases in operating expenses (such as energy
costs). In the event net operating income decreases, or the
value of property held for sale decreases, a borrower may have
difficulty paying our rent or repaying our loans, which could
result in losses to us. Even when a propertys net
operating income is sufficient to cover the propertys debt
service, at the time an investment is made, there can be no
assurance that this will continue in the future.
The current turmoil in the residential mortgage market may
continue to have an effect on the commercial mortgage market and
real estate industry in general.
Interest
Rate Risk
Interest rate risk is highly sensitive to many factors,
including the availability of liquidity, governmental monetary
and tax policies, domestic and international economic and
political considerations and other factors beyond our control.
Our operating results will depend in large part on differences
between the income from assets in our real estate and mortgage
loan portfolio and our borrowing costs. At present, our
portfolio of variable rate mortgage loans is funded by our
equity as restrictive conditions in the securitized debt markets
have not enabled us to leverage the portfolio as we originally
intended. Accordingly, the income we earn on these loans is
subject to variability in interest rates. At current investment
levels, changes in one month LIBOR at the magnitudes listed
would have the following estimated effect on our annual income
from investments in loans (one month LIBOR was 0.23% at
December 31, 2009):
|
|
|
|
|
|
|
Increase/(decrease) in income
|
|
|
|
from investments in loans
|
|
Increase/(Decrease) in interest rate*
|
|
(dollars in thousands)
|
|
|
(20) basis points
|
|
$
|
(28
|
)
|
Base interest rate
|
|
|
|
|
+100 basis points
|
|
|
142
|
|
+200 basis points
|
|
|
284
|
|
+300 basis points
|
|
|
462
|
|
|
|
|
*
|
|
Assumed one month LIBOR would not
go below zero
|
61
In the event of a significant rising interest rate environment
and/or
economic downturn, delinquencies and defaults could increase and
result in credit losses to us, which could adversely affect our
liquidity and operating results. Further, such delinquencies or
defaults could have an adverse effect on the spreads between
interest-earning assets and interest-bearing liabilities.
Our funding strategy involves utilizing asset-specific debt to
finance our real estate investments. Currently, the availability
of liquidity is constrained due to investor concerns over
dislocations in the debt markets, hedge fund losses, the large
volume of unsuccessful leveraged loan syndications and related
impact on the overall credit markets. These concerns have
materially impacted liquidity in the debt markets, making
financing terms for borrowers less attractive. We cannot foresee
when credit markets may stabilize and liquidity becomes more
readily available.
62
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
Financial
Statements and Supplementary Data
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Care Investment
Trust Inc. and subsidiaries
New York, NY
We have audited the accompanying consolidated balance sheets of
Care Investment Trust Inc. and subsidiaries (the
Company) as of December 31, 2009 and 2008, and
the related consolidated statements of operations,
stockholders equity, and cash flows for the years ended
December 31, 2009 and 2008, and for the period from
June 22, 2007 (commencement of operations) to
December 31, 2007. Our audits also included the financial
statement schedules listed in the Index at Item 15. We also
have audited the Companys internal control over financial
reporting as of December 31, 2009 based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Companys management is
responsible for these financial statements and financial
statement schedules, for maintaining effective internal control
over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on these financial statements and
financial statement schedules and an opinion on the
Companys internal control over financial reporting based
on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles and that receipts and expenditures of the company are
being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Care Investment Trust and subsidiaries as of
December 31, 2009 and 2008, and the results of their
operations and their cash flows for the years ended
December 31, 2009 and 2008, and for the period from
June 22, 2007 (commencement of operations) to
December 31, 2007 in conformity with accounting principles
63
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the
information set forth therein. Also, in our opinion, the Company
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2009, based on
the criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
/s/
DELOITTE &
TOUCHE LLP
Parsippany, NJ
March 16, 2010
64
Care
Investment Trust Inc. and Subsidiaries
Consolidated
Balance Sheets
(dollars in
thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
5,020
|
|
|
$
|
5,020
|
|
Buildings and improvements
|
|
|
101,000
|
|
|
|
101,524
|
|
Less: accumulated depreciation
|
|
|
(4,481
|
)
|
|
|
(1,414
|
)
|
|
|
|
|
|
|
|
|
|
Total real estate, net
|
|
|
101,539
|
|
|
|
105,130
|
|
Cash and cash equivalents
|
|
|
122,512
|
|
|
|
31,800
|
|
Investments in loans held at LOCOM
|
|
|
25,325
|
|
|
|
159,916
|
|
Investments in partially-owned entities
|
|
|
56,078
|
|
|
|
64,890
|
|
Accrued interest receivable
|
|
|
177
|
|
|
|
1,045
|
|
Deferred financing costs, net of accumulated amortization of
$1,122 and $432, respectively
|
|
|
713
|
|
|
|
1,402
|
|
Identified intangible assets leases in place, net
|
|
|
4,471
|
|
|
|
4,295
|
|
Other assets
|
|
|
4,617
|
|
|
|
2,428
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
315,432
|
|
|
$
|
370,906
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Borrowings under warehouse line of credit
|
|
$
|
|
|
|
$
|
37,781
|
|
Mortgage notes payable
|
|
|
81,873
|
|
|
|
82,217
|
|
Accounts payable and accrued expenses
|
|
|
2,245
|
|
|
|
1,625
|
|
Accrued expenses payable to related party
|
|
|
544
|
|
|
|
3,793
|
|
Obligation to issue operating partnership units
|
|
|
2,890
|
|
|
|
3,045
|
|
Other liabilities
|
|
|
1,087
|
|
|
|
1,313
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
88,639
|
|
|
|
129,774
|
|
Commitments and Contingencies (Note 16)
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Common stock: $0.001 par value, 250,000,000 shares
authorized, 21,159,647 and 21,021,359 shares issued,
respectively and 20,158,894 and 20,021,359 shares
outstanding, respectively
|
|
|
21
|
|
|
|
21
|
|
Treasury stock
|
|
|
(8,334
|
)
|
|
|
(8,330
|
)
|
Additional
paid-in-capital
|
|
|
301,926
|
|
|
|
299,656
|
|
Accumulated deficit
|
|
|
(66,820
|
)
|
|
|
(50,215
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
226,793
|
|
|
|
241,132
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
315,432
|
|
|
$
|
370,906
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
65
Care
Investment Trust Inc. and Subsidiaries
Consolidated
Statements of Operations
(dollars in
thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
June 22, 2007
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
(Commencement
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
of Operations) to
|
|
|
|
2009
|
|
|
2008
|
|
|
December 31, 2007
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue
|
|
$
|
12,710
|
|
|
$
|
6,228
|
|
|
$
|
|
|
Income from investments in loans
|
|
|
7,135
|
|
|
|
15,794
|
|
|
|
11,209
|
|
Other income
|
|
|
164
|
|
|
|
237
|
|
|
|
954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
20,009
|
|
|
|
22,259
|
|
|
|
12,163
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees to related party
|
|
|
2,235
|
|
|
|
4,105
|
|
|
|
2,625
|
|
Marketing, general and administrative (including stock-based
compensation expense of $2,270, $1,212 and $9,459, respectively)
|
|
|
11,653
|
|
|
|
6,623
|
|
|
|
11,714
|
|
Depreciation and amortization
|
|
|
3,375
|
|
|
|
1,554
|
|
|
|
|
|
Realized (gain)/loss on loans sold
|
|
|
(1,064
|
)
|
|
|
2,662
|
|
|
|
|
|
Adjustment to valuation allowance on loans held at LOCOM
|
|
|
(4,046
|
)
|
|
|
29,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
12,153
|
|
|
|
44,271
|
|
|
|
14,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Income) Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from investments in partially-owned entities
|
|
|
4,397
|
|
|
|
4,431
|
|
|
|
|
|
Unrealized (income)/loss on derivative instruments
|
|
|
(153
|
)
|
|
|
237
|
|
|
|
|
|
Interest income
|
|
|
(73
|
)
|
|
|
(395
|
)
|
|
|
(753
|
)
|
Interest expense, including amortization of deferred financing
costs
|
|
|
6,510
|
|
|
|
4,521
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(2,826
|
)
|
|
$
|
(30,806
|
)
|
|
$
|
(1,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, basic and diluted
|
|
$
|
(0.14
|
)
|
|
$
|
(1.47
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
20,061,763
|
|
|
|
20,952,972
|
|
|
|
20,866,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
66
Care
Investment Trust Inc. and Subsidiaries
Consolidated
Statement of Stockholders Equity
(dollars in
thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Treasury
|
|
|
Additional
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
$
|
|
|
Stock
|
|
|
Paid in Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
Balance at June 22, 2007
(Commencement of Operations)
|
|
|
100
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Proceeds from public offering of common stock
|
|
|
15,000,000
|
|
|
|
15
|
|
|
|
|
|
|
|
224,985
|
|
|
|
|
|
|
|
225,000
|
|
Underwriting and offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,837
|
)
|
|
|
|
|
|
|
(14,837
|
)
|
Issuance of common stock for the acquisition of initial assets
from Manager
|
|
|
5,256,250
|
|
|
|
5
|
|
|
|
|
|
|
|
78,838
|
|
|
|
|
|
|
|
78,843
|
|
Stock-based compensation to Manager in common stock pursuant to
the Care Investment Trust, Inc. Manager equity plan
|
|
|
607,690
|
|
|
|
1
|
|
|
|
|
|
|
|
9,114
|
|
|
|
|
|
|
|
9,115
|
|
Stock-based compensation to non-employees in common stock
pursuant to the Care Investment Trust, Inc. Equity Plan
|
|
|
148,333
|
|
|
|
|
|
|
|
|
|
|
|
2,225
|
|
|
|
|
|
|
|
2,225
|
|
Unamortized portion of unvested common stock issued pursuant to
the Care Investment Trust Inc. Equity Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,943
|
)
|
|
|
|
|
|
|
(1,943
|
)
|
Stock-based compensation to directors for services rendered
|
|
|
5,215
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
62
|
|
Net loss for the period from June 22, 2007 (Commencement of
Operations) to December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,557
|
)
|
|
|
(1,557
|
)
|
Dividends declared and paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,573
|
)
|
|
|
(3,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
21,017,588
|
|
|
|
21
|
|
|
|
|
|
|
|
298,444
|
|
|
|
(5,130
|
)
|
|
|
293,335
|
|
Treasury stock purchased
|
|
|
(1,000,000
|
)
|
|
|
|
|
|
|
(8,330
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,330
|
)
|
Stock-based compensation, fair value net of forfeitures
|
|
|
(22,000
|
)
|
|
|
|
|
|
|
|
|
|
|
410
|
|
|
|
|
|
|
|
410
|
|
Stock-based compensation to directors for services rendered
|
|
|
25,771
|
|
|
|
|
|
|
|
|
|
|
|
270
|
|
|
|
|
|
|
|
270
|
|
Warrants granted to manager
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
532
|
|
|
|
|
|
|
|
532
|
|
Dividends declared and paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,279
|
)
|
|
|
(14,279
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,806
|
)
|
|
|
(30,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
20,021,359
|
|
|
$
|
21
|
|
|
$
|
(8,330
|
)
|
|
$
|
299,656
|
|
|
$
|
(50,215
|
)
|
|
$
|
241,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchased
|
|
|
(753
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Stock-based compensation fair value
|
|
|
90,738
|
|
|
|
|
|
|
|
|
|
|
|
1,970
|
|
|
|
|
|
|
|
1,970
|
|
Stock-based compensation to directors for services rendered
|
|
|
47,550
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
300
|
|
Dividends declared and paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,779
|
)
|
|
|
(13,779
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,826
|
)
|
|
|
(2,826
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
20,158,894
|
|
|
$
|
21
|
|
|
$
|
(8,334
|
)
|
|
$
|
301,926
|
|
|
$
|
(66,820
|
)
|
|
$
|
226,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
67
Care
Investment Trust Inc. and Subsidiaries
Consolidated
Statement of Cash Flows
(dollars in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
For the Year
|
|
|
For the Year
|
|
|
June 22, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
(Commencement
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
of Operations) to
|
|
|
|
2009
|
|
|
2008
|
|
|
December 31, 2007
|
|
|
Cash Flow From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,826
|
)
|
|
$
|
(30,806
|
)
|
|
$
|
(1,557
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in deferred rent receivable
|
|
|
(2,411
|
)
|
|
|
(1,218
|
)
|
|
|
|
|
Realized (gain)/loss on sale of loans
|
|
|
(1,064
|
)
|
|
|
2,662
|
|
|
|
(833
|
)
|
Loss from investments in partially-owned entities
|
|
|
4,397
|
|
|
|
4,431
|
|
|
|
|
|
Distribution of income from partially-owned entities
|
|
|
6,867
|
|
|
|
3,358
|
|
|
|
|
|
Amortization of loan premium paid on investment in loans
|
|
|
1,530
|
|
|
|
1,927
|
|
|
|
507
|
|
Amortization and write off of deferred financing cost
|
|
|
689
|
|
|
|
367
|
|
|
|
69
|
|
Amortization of deferred loan fees
|
|
|
(247
|
)
|
|
|
(380
|
)
|
|
|
149
|
|
Stock-based compensation to manager
|
|
|
|
|
|
|
|
|
|
|
9,115
|
|
Stock-based non-employee compensation
|
|
|
2,270
|
|
|
|
1,212
|
|
|
|
344
|
|
Depreciation and amortization on real estate, including
intangible assets
|
|
|
3,415
|
|
|
|
1,554
|
|
|
|
|
|
Unrealized (gain)/loss on derivative instruments
|
|
|
(153
|
)
|
|
|
237
|
|
|
|
|
|
Adjustment to valuation allowance on loans at LOCOM
|
|
|
(4,046
|
)
|
|
|
29,327
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
868
|
|
|
|
854
|
|
|
|
(1,899
|
)
|
Other assets
|
|
|
220
|
|
|
|
(14
|
)
|
|
|
(1,237
|
)
|
Accounts payable and accrued expenses
|
|
|
620
|
|
|
|
116
|
|
|
|
4,628
|
|
Other liabilities including payable to related party
|
|
|
(3,475
|
)
|
|
|
(598
|
)
|
|
|
2,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
6,654
|
|
|
|
13,029
|
|
|
|
11,871
|
|
Cash Flow From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of initial assets from Manager
|
|
|
|
|
|
|
|
|
|
|
(204,272
|
)
|
Sale of loans to Manager
|
|
|
42,249
|
|
|
|
|
|
|
|
|
|
Sale of loans to third parties
|
|
|
55,790
|
|
|
|
|
|
|
|
|
|
Loan repayments
|
|
|
40,379
|
|
|
|
54,245
|
|
|
|
64,264
|
|
Loan investments
|
|
|
|
|
|
|
(10,864
|
)
|
|
|
(17,805
|
)
|
Investments in partially-owned entities
|
|
|
(2,452
|
)
|
|
|
(326
|
)
|
|
|
(69,503
|
)
|
Investments in real estate
|
|
|
|
|
|
|
(110,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
135,966
|
|
|
|
(67,925
|
)
|
|
|
(227,316
|
)
|
Cash Flow From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
Underwriting and offering costs
|
|
|
|
|
|
|
|
|
|
|
(14,837
|
)
|
Borrowing under mortgage notes payable
|
|
|
|
|
|
|
82,227
|
|
|
|
|
|
Principal payments under mortgage notes payable
|
|
|
(344
|
)
|
|
|
|
|
|
|
|
|
Borrowings under warehouse line of credit
|
|
|
|
|
|
|
13,601
|
|
|
|
25,000
|
|
Principal payments under warehouse line of credit
|
|
|
(37,781
|
)
|
|
|
(830
|
)
|
|
|
|
|
Treasury stock purchases
|
|
|
(4
|
)
|
|
|
(8,330
|
)
|
|
|
|
|
Payment of deferred financing costs
|
|
|
|
|
|
|
(1,012
|
)
|
|
|
(826
|
)
|
Dividends paid
|
|
|
(
13,779
|
)
|
|
|
(
14,279
|
)
|
|
|
(
3,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(51,908
|
)
|
|
|
71,377
|
|
|
|
230,764
|
|
Net increase in cash and cash equivalents
|
|
|
90,712
|
|
|
|
16,481
|
|
|
|
15,319
|
|
Cash and cash equivalents, beginning of period
|
|
|
31,800
|
|
|
|
15,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
122,512
|
|
|
$
|
31,800
|
|
|
$
|
15,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
5,834
|
|
|
$
|
4,181
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock to Manager to purchase initial assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
78,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation to issue operating partnership units in connection
with the Cambridge Investment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
68
Care
Investment Trust Inc. and Subsidiaries Notes to
Consolidated Financial Statements
December 31,
2009, December 31, 2008 and for the Period from
June 22, 2007
(Commencement of Operations) to December 31, 2007
Care Investment Trust Inc. (together with its subsidiaries,
the Company or Care unless otherwise
indicated or except where the context otherwise requires,
we, us or our) is a real
estate investment trust (REIT) with a geographically
diverse portfolio of senior housing and healthcare-related
assets in the United States. Care is externally managed and
advised by CIT Healthcare LLC (Manager). As of
December 31, 2009, this portfolio of assets consisted of
real estate and mortgage related assets for senior housing
facilities, skilled nursing facilities, medical office
properties and first mortgage liens on healthcare related
assets. Our owned senior housing facilities are leased, under
triple-net
leases, which require the tenants to pay all property-related
expenses.
Care elected to be taxed as a REIT under the Internal Revenue
Code commencing with our taxable year ended December 31,
2007. To maintain our tax status as a REIT, we are required to
distribute at least 90% of our REIT taxable income to our
stockholders. At present, Care does not have any taxable REIT
subsidiaries (TRS), but in the normal course of
business expects to form such subsidiaries as necessary.
|
|
Note 2
|
Basis of
Presentation and Significant Accounting Policies
|
Basis of
Presentation
On December 10, 2009, our Board of Directors approved a
plan of liquidation and recommended that our shareholders
approve the plan of liquidation. On January 28, 2010, our
shareholders approved the plan of liquidation. Under the plan of
liquidation, the Board of Directors reserves the right to
continue to solicit and entertain proposals from third parties
to acquire all or substantially all of the companys
outstanding common stock, prior to and after approval of the
plan of liquidation by our shareholders. We have entered into a
material definitive agreement for a sale of control of the
Company and have not pursued the plan of liquidation. Since it
is not probable that the Company would liquidate, the Company
has presented its financial statements on a going concern basis.
See Note 19.
Accounting
Standards Codification (ASC)
In June 2009, the Financial Accounting Standards Board
(FASB) issued a pronouncement establishing the FASB
Accounting Standards Codification as the source of authoritative
accounting principles recognized by the FASB to be applied in
the preparation of financial statements in conformity with GAAP.
The standard explicitly recognizes rules and interpretive
releases of the SEC under federal securities laws as
authoritative GAAP for SEC registrants. This standard is
effective for financial statements issued for fiscal years and
interim periods ending after September 15, 2009. The
Company adopted this standard in the third quarter of 2009.
Consolidation
The consolidated financial statements include our accounts and
those of our subsidiaries, which are wholly-owned or controlled
by us. All significant intercompany balances and transactions
have been eliminated.
Investments in partially-owned entities where the Company
exercises significant influence over operating and financial
policies of the subsidiary, but does not control the subsidiary,
are reported under the equity method of accounting. Generally
under the equity method of accounting, the Companys share
of the investees earnings or loss is included in the
Companys operating results.
Accounting Standards Codification 810
Consolidation
(ASC 810)
, requires a company to identify
investments in other entities for which control is achieved
through means other than voting rights (variable interest
entities or VIEs) and to determine which
business enterprise is the primary beneficiary of the VIE. A
variable interest entity is broadly defined as an entity where
either the equity investors as a group, if any, do not have a
controlling financial interest or the equity investment at risk
is insufficient to finance that entitys activities without
additional subordinated financial support. The Company
consolidates investments in VIEs when it is determined that the
Company is the primary beneficiary of the VIE at either the
creation or the variable interest
69
entity or upon the occurrence of a reconsideration event. The
Company has concluded that neither of its partially-owned
entities are VIEs.
Segment
Reporting
Accounting Standards Codification 280
Segment Reporting
(ASC 280)
establishes standards for the way that
public entities report information about operating segments in
the financial statements. We are a REIT focused on originating
and acquiring healthcare-related real estate and commercial
mortgage debt and currently operate in only one reportable
segment.
Cash and
Cash Equivalents
We consider all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Included in cash and cash equivalents at December 31, 2009
and 2008, are approximately $1.1 million and
$1.3 million, respectively in customer deposits maintained
in an unrestricted account.
Real
Estate and Identified Intangible Assets
Real estate and identified intangible assets are carried at
cost, net of accumulated depreciation and amortization.
Betterments, major renewals and certain costs directly related
to the acquisition, improvement and leasing of real estate are
capitalized. Maintenance and repairs are charged to operations
as incurred. Depreciation is provided on a straight-line basis
over the assets estimated useful lives which range from 7
to 40 years.
Upon the acquisition of real estate, we assess the fair value of
acquired assets (including land, buildings and improvements, and
identified intangible assets such as above and below market
leases and acquired in-place leases and customer relationships)
and acquired liabilities in accordance Accounting Standards
Codification 805
Business Combinations (ASC
805)
, and Accounting Standards Codification
350-30
Intangibles Goodwill and other (ASC
350-30)
,
and we allocate purchase price based on these assessments. We
assess fair value based on estimated cash flow projections that
utilize appropriate discount and capitalization rates and
available market information. Estimates of future cash flows are
based on a number of factors including the historical operating
results, known trends, and market/economic conditions that may
affect the property.
Our properties, including any related intangible assets, are
reviewed for impairment under ACS
360-10-35-15,
Impairment or Disposal of Long-Lived Assets
, (ASC
360-10-35-15)
if events or circumstances change indicating that the carrying
amount of the assets may not be recoverable. Impairment exists
when the carrying amount of an asset exceeds its fair value. An
impairment loss is measured based on the excess of the carrying
amount over the fair value. We have determined fair value by
using a discounted cash flow model and an appropriate discount
rate. The evaluation of anticipated cash flows is subjective and
is based, in part, on assumptions regarding future occupancy,
rental rates and capital requirements that could differ
materially from actual results. If our anticipated holding
periods change or estimated cash flows decline based on market
conditions or otherwise, an impairment loss may be recognized.
As of December 31, 2009, we have not recognized an
impairment loss.
Loans
Held at LOCOM
Valuation
Allowance on Loans Held at LOCOM
Investments in loans amounted to $25.3 million at
December 31, 2009. We account for our investment in loans
in accordance with Accounting Standards Codification 948
Financial Services Mortgage Banking (ASC
948), which codified the FASBs
Accounting for
Certain Mortgage Banking Activities
. Under ASC 948, loans
expected to be held for the foreseeable future or to maturity
should be held at amortized cost, and all other loans should be
held at the lower of cost or market (LOCOM), measured on an
individual basis. In accordance with ASC 820
Fair Value
Measurements and Disclosures
(ASC 820), the
Company includes nonperformance risk in calculating fair value
adjustments. As specified in ASC 820, the framework for
measuring fair value is based on independent observable inputs
of market data and follows the following hierarchy:
Level 1
Quoted prices in active markets
for identical assets and liabilities.
70
Level 2
Significant observable inputs
based on quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in
markets that are not active and model-based valuations for which
all significant assumptions are observable.
Level 3
Significant unobservable inputs
that are supported by little or no market activity that are
significant to the fair value of the assets or liabilities.
At December 31, 2008, in connection with our decision to
reposition ourselves from a mortgage REIT to a traditional
direct property ownership REIT (referred to as an equity REIT,
see Notes 2, 4, and 5) and as a result of existing
market conditions, we transferred our portfolio of mortgage
loans to LOCOM because we are no longer certain that we will
hold the portfolio of loans either until maturity or for the
foreseeable future. Until December 31, 2008, we held our
loans until maturity, and therefore the loans had been carried
at amortized cost, net of unamortized loan fees, acquisition and
origination costs, unless the loans were impaired. In connection
with the transfer, we recorded an initial valuation allowance of
approximately $29.3 million representing the difference
between our carrying amount of the loans and their estimated
fair value at December 31, 2008. Interim assessments were
made of carrying values of the loan based on available data,
including sale and repayments on a quarterly basis during 2009.
Gains or losses on sales are determined by comparing proceeds to
carrying values based on interim assessments. At
December 31, 2009, the valuation allowance was reduced to
$8.4 million representing the difference between the
carrying amounts and estimated fair value of the Companys
three remaining loans.
Coupon interest on the loans is recognized as revenue when
earned. Receivables are evaluated for collectibility if a loan
becomes more than 90 days past due. If fair value is lower
than amortized cost, changes in fair value (gains and losses)
are reported through our consolidated statement of operations
through a valuation allowance on loans held at LOCOM. Loans
previously written down may be written up based upon subsequent
recoveries in value, but not above their cost basis.
Expense for credit losses in connection with loan investments is
a charge to earnings to increase the allowance for credit losses
to the level that management estimates to be adequate to cover
probable losses considering delinquencies, loss experience and
collateral quality. Impairment losses are taken for impaired
loans based on the fair value of collateral on an individual
loan basis. The fair value of the collateral may be determined
by an evaluation of operating cash flow from the property during
the projected holding period,
and/or
estimated sales value computed by applying an expected
capitalization rate to the stabilized net operating income of
the specific property, less selling costs. Whichever method is
used, other factors considered relate to geographic trends and
project diversification, the size of the portfolio and current
economic conditions. Based upon these factors, we will establish
an allowance for credit losses when appropriate. When it is
probable that we will be unable to collect all amounts
contractually due, the loan is considered impaired.
Investment
in Partially-Owned Entities
We invest in preferred equity interests that allow us to
participate in a percentage of the underlying propertys
cash flows from operations and proceeds from a sale or
refinancing. At the inception of the investment, we must
determine whether such investment should be accounted for as a
loan, joint venture or as real estate. Care invested in two
equity investments as of December 31, 2009 and accounts for
such investments as a joint venture.
The Company assesses whether there are indicators that the value
of its partially owned entities may be impaired. An
investments value is impaired if the Company determines
that a decline in the value of the investment below its carrying
value is other than temporary. To the extent impairment has
occurred, the loss shall be measured as the excess of the
carrying amount of the investment over the estimated value of
the investment. As of December 31, 2009, the Company has
not recognized any impairment on our partially owned entities.
Comprehensive
Income
The Company has no items of other comprehensive income, and
accordingly net loss is equal to comprehensive loss for all
periods presented.
71
Revenue
Recognition
Interest income on investments in loans is recognized over the
life of the investment on the accrual basis. Fees received in
connection with loans are recognized over the term of the loan
as an adjustment to yield. Anticipated exit fees whose
collection is expected will also be recognized over the term of
the loan as an adjustment to yield. Unamortized fees are
recognized when the associated loan investment is repaid before
maturity on the date of such repayment. Premium and discount on
purchased loans are amortized or accreted on the effective yield
method over the remaining terms of the loans.
Income recognition will generally be suspended for loan
investments at the earlier of the date at which payments become
90 days past due or when, in our opinion, a full recovery
of income and principal becomes doubtful. Income recognition is
resumed when the loan becomes contractually current and
performance is demonstrated to be resumed. For the years ended
December 31, 2009 and 2008, we have no loans for which
income recognition has been suspended.
The Company recognizes rental revenue in accordance with
Accounting Standards Codification 840 Leases (ASC
840). ASC 840 requires that revenue be recognized on a
straight-line basis over the non-cancelable term of the lease
unless another systematic and rational basis is more
representative of the time pattern in which the use benefit is
derived from the leased property. Renewal options in leases with
rental terms that are lower than those in the primary term are
excluded from the calculation of straight line rent if the
renewals are not reasonably assured. We commence rental revenue
recognition when the tenant takes control of the leased space.
The Company recognizes lease termination payments as a component
of rental revenue in the period received, provided that there
are no further obligations under the lease.
Deferred
Financing Costs
Deferred financing costs represent commitment fees, legal and
other third party costs associated with obtaining commitments
for financing which result in a closing of such financing. These
costs are amortized over the terms of the respective agreements
on the effective interest method and the amortization is
reflected in interest expense. Unamortized deferred financing
costs are expensed when the associated debt is refinanced or
repaid before maturity. Costs incurred in seeking financing
transactions which do not close are expensed in the period in
which it is determined that the financing will not close.
Stock-based
Compensation Plans
We have two stock-based compensation plans, described more fully
in Note 14. We account for the plans using the fair value
recognition provisions of
505-50
Equity-Based Payments to Non-Employees
(ASC
505-50)
and ASC 718
Compensation Stock
Compensation
(ASC 718). ASC
505-50
and
ASC 718 requires that compensation cost for stock-based
compensation be recognized ratably over the service period of
the award. Because all of our stock-based compensation is issued
to non-employees and board members, the amount of compensation
is to be adjusted in each subsequent reporting period based on
the fair value of the award at the end of the reporting period
until such time as the award has vested or the service being
provided is substantially completed or, under certain
circumstances, likely to be completed, whichever occurs first.
Derivative
Instruments
We account for derivative instruments in accordance with
Accounting Standards Codification 815
Derivatives and Hedging
(ASC 815). In the normal course of business, we
may use a variety of derivative instruments to manage, or hedge,
interest rate risk. We will require that hedging derivative
instruments be effective in reducing the interest rate risk
exposure they are designated to hedge. This effectiveness is
essential for qualifying for hedge accounting. Some derivative
instruments may be associated with an anticipated transaction.
In those cases, hedge effectiveness criteria also require that
it be probable that the underlying transaction will occur.
Instruments that meet these hedging criteria will be formally
designated as hedges at the inception of the derivative contract.
To determine the fair value of derivative instruments, we may
use a variety of methods and assumptions that are based on
market conditions and risks existing at each balance sheet date.
For the majority of financial instruments
72
including most derivatives, long-term investments and long-term
debt, standard market conventions and techniques such as
discounted cash flow analysis, option-pricing models,
replacement cost, and termination cost are likely to be used to
determine fair value. All methods of assessing fair value result
in a general approximation of fair value, and such value may
never actually be realized.
We may use a variety of commonly used derivative products that
are considered plain vanilla derivatives. These
derivatives typically include interest rate swaps, caps, collars
and floors. We expressly prohibit the use of unconventional
derivative instruments and using derivative instruments for
trading or speculative purposes. Further, we have a policy of
only entering into contracts with major financial institutions
based upon their credit ratings and other factors, so we do not
anticipate nonperformance by any of our counterparties.
We may employ swaps, forwards or purchased options to hedge
qualifying forecasted transactions. Gains and losses related to
these transactions are deferred and recognized in net income as
interest expense in the same period or periods that the
underlying transaction occurs, expires or is otherwise
terminated.
Hedges that are reported at fair value and presented on the
balance sheet could be characterized as either cash flow hedges
or fair value hedges. For derivative instruments not designated
as hedging instruments, the gain or loss resulting from the
change in the estimated fair value of the derivative instruments
will be recognized in current earnings during the period of
change.
Income
Taxes
We have elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code. To qualify as a REIT,
we must meet certain organizational and operational
requirements, including a requirement to distribute at least 90%
of our REIT taxable income to stockholders. As a REIT, we
generally will not be subject to federal income tax on taxable
income that we distribute to our stockholders. If we fail to
qualify as a REIT in any taxable year, we will then be subject
to federal income tax on our taxable income at regular corporate
rates and we will not be permitted to qualify for treatment as a
REIT for federal income tax purposes for four years following
the year during which qualification is lost unless the Internal
Revenue Service grants us relief under certain statutory
provisions. Such an event could materially adversely affect our
net income and net cash available for distributions to
stockholders. However, we believe that we will operate in such a
manner as to qualify for treatment as a REIT and we intend to
operate in the foreseeable future in such a manner so that we
will qualify as a REIT for federal income tax purposes. We may,
however, be subject to certain state and local taxes.
In July 2006, the FASB issued Interpretation No. 48
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109
(FIN 48). ASC 740 prescribes a recognition
threshold and measurement attribute for how a company should
recognize, measure, present, and disclose in its financial
statements uncertain tax positions that the company has taken or
expects to take on a tax return. ASC 740 requires that the
financial statements reflect expected future tax consequences of
such positions presuming the taxing authorities full
knowledge of the position and all relevant facts, but without
considering time values. ASC 740 was adopted by the Company
and became effective beginning January 1, 2007. The
implementation of ASC 740 has not had a material impact on the
Companys consolidated financial statements.
Underwriting
Commissions and Costs
Underwriting commissions and costs incurred in connection with
our initial public offering are reflected as a reduction of
additional
paid-in-capital.
Organization
Costs
Costs incurred to organize Care have been expensed as incurred.
Earnings
per Share
We present basic earnings per share or EPS in accordance with
ASC 260,
Earnings per Share
. We also present diluted EPS,
when diluted EPS is lower than basic EPS. Basic EPS excludes
dilution and is computed by dividing net income by the weighted
average number of common shares outstanding during the period.
Diluted EPS reflects
73
the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock, where such exercise or conversion would result in
a lower EPS amount. At December 31, 2009 and 2008, diluted
EPS was the same as basic EPS because all outstanding restricted
stock awards were anti-dilutive. The operating partnership units
issued in connection with an investment (See
Note 6) are in escrow and do not impact EPS.
Use of
Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the
accompanying notes. Significant estimates are made for the
valuation allowance on loans held at LOCOM, valuation of
derivatives and impairment assessments. Actual results could
differ from those estimates.
Concentrations
of Credit Risk
Financial instruments that potentially subject us to
concentrations of credit risk consist primarily of cash
investments, real estate, loan investments and interest
receivable. We may place our cash investments in excess of
insured amounts with high quality financial institutions. We
perform ongoing analysis of credit risk concentrations in our
real estate and loan investment portfolios by evaluating
exposure to various markets, underlying property types,
investment structure, term, sponsors, tenant mix and other
credit metrics. The collateral securing our loan investments are
real estate properties located in the United States.
Recent
Accounting Pronouncements
Noncontrolling
Interests in Consolidated Financial Statements
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements
which was codified in FASB ASC 810
Consolidation
(ASC 810). ASC 810 requires that a
noncontrolling interest in a subsidiary be reported as equity
and the amount of consolidated net income specifically
attributable to the noncontrolling interest be identified in the
consolidated financial statements. It also calls for consistency
in the manner of reporting changes in the parents
ownership interest and requires fair value measurement of any
noncontrolling equity investment retained in a deconsolidation.
ASC 810 is effective for the Company on January 1, 2009.
The Company records its investments using the equity method and
does not consolidate these joint ventures. As such, there is no
impact upon adoption of ASC 810 on its consolidated financial
statements.
Disclosures
about Derivative Instruments and Hedging
Activities
On March 20, 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities,
which is codified in FASB ASC 815
Derivatives
and Hedging Summary
(ASC 815). The derivatives
disclosure pronouncement provides for enhanced disclosures about
how and why an entity uses derivatives and how and where those
derivatives and related hedged items are reported in the
entitys financial statements. ASC 815 also requires
certain tabular formats for disclosing such information. ASC 815
applies to all entities and all derivative instruments and
related hedged items accounted for under this new pronouncement.
Among other things, ASC 815 requires disclosures of an
entitys objectives and strategies for using derivatives by
primary underlying risk and certain disclosures about the
potential future collateral or cash requirements (that is, the
effect on the entitys liquidity) as a result of contingent
credit-related features. ASC 815 is effective for the Company on
January 1, 2009. The Company adopted ASC 815 in the first
quarter of 2009 and included disclosures in its consolidated
financial statements addressing how and why the Company uses
derivative instruments, how derivative instruments are accounted
for and how derivative instruments affect the Companys
financial position, financial performance, and cash flows. (See
Note 9)
Disclosures
about Fair Value of Financial Instruments
In April 2009, the FASB issued
FSP 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial Instruments
codified in FASB ASC 820
Fair Value Measurements and
Disclosures
(ASC 820). ASC 820 amends
74
SFAS No. 107,
Disclosures about Fair Value of
Financial Instruments
and APB 28
Interim Financial
Reporting
by requiring an entity to provide qualitative and
quantitative information on a quarterly basis about fair value
estimates for any financial instruments not measured on the
balance sheet at fair value. The Company adopted the disclosure
requirements of ASC 820 in the quarter ended June 30, 2009.
In June 2009, issued ASU
2009-17
to
codify FASB issued Statement No. 167,
Amendments
to FASB Interpretation No. 46(R)
as ASC 810
(ASC 810), with the objective of improving financial
reporting by entities involved with variable interest entities
(VIE). It retains the scope of FIN 46(R) with the addition
of entities previously considered qualifying special-purpose
entities, as the concept of those entities was eliminated by
FASB Statement No. 166,
Accounting for Transfers
of Financial Assets
(ASU
2009-16;
FASB ASC 860). ASC 810 will require an analysis to determine
whether the entitys variable interest or interests give it
a controlling financial interest in a VIE.
On September 30, 2009, the FASB issued ASU
2009-12
to
provide guidance on measuring the fair value of certain
alternative investments. The ASU amends ASC 820 to offer
investors a practical expedient for measuring the fair value of
investments in certain entities that calculate net asset value
per share. The ASU is effective for the first reporting period
(including interim periods) ending after December 15, 2009
with early adoption permitted.
On January 21, 2010, the FASB issued ASU
2010-06,
which amends ASC 820 to add new requirements for disclosures
about transfers into and out of Levels 1 and 2 and separate
disclosures about purchases, sales, issuances, and settlements
relating to Level 3 measurements. The ASU also clarifies
existing fair value disclosures about the level of
disaggregation and about inputs and valuation techniques used to
measure fair value. The ASU is effective for the first reporting
period (including interim periods) beginning after
December 15, 2009, except for the requirement to provide
the Level 3 activity of purchases, sales, issuances, and
settlements on a gross basis, which will be effective for fiscal
years beginning after December 15, 2010, and for interim
periods within those fiscal years, with early adoption permitted.
Subsequent
Events
In May 2009, the FASB issued SFAS 165
Subsequent
Events
, which is codified in FASB ASC 855,
Subsequent
E
vents (ASC 855). ASC 855 introduces the concept
of financial statements being available to be issued. It
requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date, that
is, whether that date represents the date the financial
statements were issued or were available to be issued. The
pronouncement is effective for interim periods ending after
June 15, 2009. The Company adopted ASC 855 in the 2009
second quarter. The Company evaluates subsequent events as of
the date of issuance of its financial statements and considers
the impact of all events that have taken place to that date in
its disclosures and financials statements when reporting on the
Companys financial position and results of operations. The
Company has evaluated subsequent events through the date of
filing and has determined that no other events need to be
disclosed.
|
|
Note 3
|
Real
Estate Properties
|
On June 26, 2008, we purchased twelve senior living
properties for approximately $100.8 million from Bickford
Senior Living Group LLC, an unaffiliated party. Concurrent with
the purchase, we leased these properties to Bickford
Master I, LLC (the Master Lessee or
Bickford), for initial annual base rent of
$8.3 million and additional base rent of $0.3 million,
with fixed escalations of 3% for 15 years. The leases
contain an option of four renewals of ten years each. The
additional base rent is deferred and accrues for the first three
years and then is paid starting with the first month of the
fourth year. We funded this acquisition using cash on hand and
mortgage borrowings of $74.6 million.
On September 30, 2008, we purchased two additional senior
living properties for approximately $10.3 million from
Bickford Senior Living Group LLC. Concurrent with the purchase,
we leased these properties back to Bickford for initial annual
base rent of $0.8 million and additional base rent of
$0.03 million with fixed escalations of 3% for
14.75 years. The leases contain an option of four renewals
of ten years each. The additional base rent is deferred and
accrues for the first three years and then is paid starting with
the first month of the fourth year. We funded this acquisition
using cash on hand and mortgage borrowings of $7.6 million.
75
At each acquisition, we completed a preliminary assessment of
the allocation of the fair value of the acquired assets
(including land, buildings, equipment and in-place leases) in
accordance with ASC 805
Business Combinations
, and
ASC 350
Intangibles Goodwill and Other
.
Based upon that assessment, the final allocation of the purchase
price to the fair values of the assets acquired is as follows
(in millions):
|
|
|
|
|
Buildings, improvements and equipment
|
|
$
|
95.1
|
|
Furniture, fixtures and equipment
|
|
|
5.9
|
|
Land
|
|
|
5.0
|
|
Identified intangibles leases in-place (Note 7)
|
|
|
5.0
|
|
|
|
|
|
|
|
|
$
|
111.0
|
|
|
|
|
|
|
Additionally, as part of the June 26, 2008 transaction we
sold back a property acquired from Bickford Senior Living Group,
LLC that was acquired on March 31, 2008 at its net carrying
amount, which did not result in a gain or a loss to the Company.
As of December 31, 2009, the properties owned by Care, and
leased to Bickford were 100% managed or operated by Bickford
Senior Living Group, LLC. As an enticement for the Company to
enter into the leasing arrangement for the properties, Care
received additional collateral and guarantees of the lease
obligation from parties affiliated with Bickford who act as
subtenants under the master lease. The additional collateral
pledged in support of Bickfords obligation to the lease
commitment included properties and ownership interests in
affiliated companies of the subtenants.
Future minimum annual rental revenue under the non-cancelable
terms of the Companys operating leases at
December 31, 2009 are as follows (in thousands):
|
|
|
|
|
2010
|
|
$
|
9,527
|
|
2011
|
|
|
10,176
|
|
2012
|
|
|
10,874
|
|
2013
|
|
|
10,974
|
|
2014
|
|
|
11,062
|
|
Thereafter
|
|
|
108,434
|
|
|
|
|
|
|
|
|
$
|
161,047
|
|
|
|
|
|
|
|
|
Note 4
|
Investment
in Loans Held at LOCOM
|
As of December 31, 2009 and December 31, 2008, our net
investments in loans amounted to $25.3 million and
$159.9 million, respectively. During the years ended
December 31, 2009 and 2008, we received $138.4 million
and $54.2 million in principal repayments and proceeds from
the loan sales and recognized $1.5 million and
$1.9 million, respectively in amortization of the premium
we paid for the purchase of our initial assets as a reduction of
interest income. Our investments include senior whole loans and
participations secured primarily by real estate in the form of
pledges of ownership interests, direct liens or other security
interests. The investments are in various geographic markets in
the United States. These investments are all variable rate at
December 31, 2009 and had a weighted average spread of
6.76% and 5.76% over one month LIBOR and have an average
maturity of approximately 1.0 and 2.1 years at
December 31, 2009 and 2008, respectively. Some loans are
subject to interest rate floors. The effective yield on the
portfolio was 6.99%, 6.20% and 8.22%, respectively for the years
ended December 31, 2009 and December 31, 2008 and for
the period from June 22, 2007 (commencement of operations)
to December 31, 2007. One month LIBOR was 0.23% and 0.45%
at December 31, 2009 and December 31, 2008,
respectively.
76
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Cost
|
|
|
Interest
|
|
Maturity
|
Property Type(a)
|
|
City
|
|
State
|
|
Basis (000s)
|
|
|
Rate
|
|
Date
|
|
SNF/ALF(e)(k)
|
|
Nacogdoches
|
|
Texas
|
|
|
9,338
|
|
|
L+3.15%
|
|
10/02/11
|
SNF/Sr.Appts/ALF
|
|
Various
|
|
Texas/Louisiana
|
|
|
14,226
|
|
|
L+4.30%
|
|
02/01/11
|
SNF(e)(g)
|
|
Various
|
|
Michigan
|
|
|
10,178
|
|
|
L+7.00%
|
|
02/19/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in loans, gross
|
|
|
|
|
|
$
|
33,742
|
|
|
|
|
|
Valuation allowance
|
|
|
|
|
|
|
(8,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held at LOCOM
|
|
|
|
|
|
$
|
25,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the conclusion of 2008, upon considering changes in our
strategies and changes in the marketplace discussed in
Note 2, we transferred our portfolio of mortgage loans to
the lower of cost or market in the December 31, 2008
financial statements because we were not certain that we would
hold the portfolio of loans either until maturity or for the
foreseeable future. The transfer resulted in a charge to
earnings of $29.3 million.
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Cost
|
|
|
Interest
|
|
Maturity
|
Property Type(a)
|
|
City
|
|
State
|
|
Basis (000s)
|
|
|
Rate
|
|
Date
|
|
SNF(h)
|
|
Middle River
|
|
Maryland
|
|
$
|
9,185
|
|
|
L+3.75%
|
|
03/31/11
|
SNF/ALF/IL(j)
|
|
Various
|
|
Washington/Oregon
|
|
|
26,012
|
|
|
L+2.75%
|
|
10/04/11
|
SNF(b)(d)/(e)
|
|
Various
|
|
Michigan
|
|
|
23,767
|
|
|
L+2.25%
|
|
03/26/12
|
SNF(d)/(e)(h)
|
|
Various
|
|
Texas
|
|
|
6,540
|
|
|
L+3.00%
|
|
06/30/11
|
SNF(d)/(e)(h)
|
|
Austin
|
|
Texas
|
|
|
4,604
|
|
|
L+3.00%
|
|
05/30/11
|
SNF(b)(d)(e)
|
|
Various
|
|
Virginia
|
|
|
27,401
|
|
|
L+2.50%
|
|
03/01/12
|
SNF/ICF(d)/(e)(f)
|
|
Various
|
|
Illinois
|
|
|
29,045
|
|
|
L+3.00%
|
|
10/31/11
|
SNF(d)/(e)/(f)
|
|
San Antonio
|
|
Texas
|
|
|
8,412
|
|
|
L+3.50%
|
|
02/09/11
|
SNF/ALF(d)/(e)
|
|
Nacogdoches
|
|
Texas
|
|
|
9,696
|
|
|
L+3.15%
|
|
10/02/11
|
SNF/Sr.Appts/ALF
|
|
Various
|
|
Texas/Louisiana
|
|
|
15,682
|
|
|
L+4.30%
|
|
02/01/11
|
ALF(b)(e)
|
|
Daytona Beach
|
|
Florida
|
|
|
3,688
|
|
|
L+3.43%
|
|
08/11/11
|
SNF/IL(c)/(d)/(e)(h)
|
|
Georgetown
|
|
Texas
|
|
|
5,980
|
|
|
L+3.00%
|
|
07/31/09
|
SNF(i)
|
|
Aurora
|
|
Colorado
|
|
|
9,151
|
|
|
L+5.74%
|
|
08/04/10
|
SNF(e)
|
|
Various
|
|
Michigan
|
|
|
10,080
|
|
|
L+7.00%
|
|
02/19/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in loans, gross
|
|
|
|
|
|
$
|
189,243
|
|
|
|
|
|
Valuation allowance
|
|
|
|
|
|
|
(29,327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held at LOCOM
|
|
|
|
|
|
$
|
159,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
SNF refers to skilled nursing
facilities; ALF refers to assisted living facilities; ICF refers
to intermediate care facility; and Sr. Appts refers to senior
living apartments.
|
|
(b)
|
|
Loans sold to Manager in 2009 at
amounts equal to appraised fair value for an aggregate amount of
$42.2 million. (See Note 5)
|
|
(c)
|
|
Borrower extended the maturity date
to July 31, 2012 during the second quarter of 2009.
|
|
(d)
|
|
Pledged as collateral for
borrowings under our warehouse line of credit as of
December 31, 2008. On March 9, 2009, Care repaid the
outstanding borrowings on its warehouse line in full.
|
|
(e)
|
|
The mortgages are subject to
various interest rate floors ranging from 6.00% to 11.5%.
|
|
(f)
|
|
Loan prepaid in 2009 at amounts
equal to remaining principal for each respective loan.
|
|
(g)
|
|
Loan repaid at maturity in February
2010 for approximately $10.0 million, see Note 19
|
|
(h)
|
|
Loans sold to a third party in
September 2009 for an aggregate amount of $24.8 million
|
|
(i)
|
|
Loan sold to a third party in
October 2009 for approximately $8.5 million.
|
|
(j)
|
|
Loans sold to a third party in
November 2009 for aggregate proceeds of approximately
$22.4 million.
|
|
(k)
|
|
Loan sold to a third party in March
2010 for approximately $6.1 million of cash proceeds before
selling costs
|
77
Our mortgage portfolio (gross) at December 31, 2009 is
diversified by property type and U.S. geographic region as
follows (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
Cost
|
|
|
% of
|
|
By Property Type
|
|
Basis
|
|
|
Portfolio
|
|
|
Skilled Nursing
|
|
$
|
10.2
|
|
|
|
30.2
|
%
|
Mixed-use
(1)
|
|
|
23.5
|
|
|
|
69.8
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33.7
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
Cost
|
|
|
% of
|
|
By U.S. Geographic Region
|
|
Basis
|
|
|
Portfolio
|
|
|
Midwest
|
|
$
|
10.2
|
|
|
|
30.2
|
%
|
South
|
|
|
23.5
|
|
|
|
69.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33.7
|
|
|
|
100.0
|
%
|
|
|
|
(1)
|
|
Mixed-use facilities refer to
properties that provide care to different segments of the
elderly population based on their needs, such as Assisted Living
with Skilled Nursing capabilities.
|
During the year ended December 31, 2009, the Company
received proceeds of $37.5 million related to the
prepayment of balances related to two mortgage loans and
received proceeds of $42.2 million related to sales to its
Manager. In addition, during the year ended December 31,
2009, the Company received $55.8 million related to sales
of mortgage loans to third parties. See Note 13 for a roll
forward of the investment held at fair value from
December 31, 2008 to December 31, 2009. As of
December 31, 2009, our portfolio of three mortgages was
extended to five borrowers. Two of those three mortgage loans
were sold or repaid in 2010 as indicated in (g) and (k),
above. As of December 31, 2008, our portfolio of eighteen
mortgages was extended to fourteen borrowers with the largest
exposure to any single borrower at 20.9% of the carrying value
of the portfolio. The carrying value of three loans, each to
different borrowers with exposures of more than 10% of the
carrying value of the total portfolio, amounted to 54.9% of the
portfolio.
|
|
Note 5
|
Sales of
Investments in Loans Held at LOCOM
|
On September 30, 2008 we finalized a Mortgage Purchase
Agreement (the Agreement) with our Manager that
provided us an option to sell loans from our investment
portfolio to our Manager at the loans fair value on the
sale date. See Managements Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources for a discussion of the
terms and conditions of the Agreement. Pursuant to the
agreement, we sold loans in 2008 and 2009 as discussed below.
Pursuant to the agreement, we sold a loan with a carrying amount
of approximately $24.8 million in November 2009. We incurred a
loss on the sale of $2.4 million.
On February 3, 2009, we sold one loan with a net carrying
amount of approximately $22.5 million as of
December 31, 2008. Proceeds from the sale approximated the
net carrying value of $22.5 million. We incurred a loss of
$4.9 million on the sale of this loan. The loss on this
loan was included in the valuation allowance on the loans held
at LOCOM at December 31, 2008. On August 19, 2009, we
sold two mortgage loans with a net carrying value of
approximately $2.9 million as of December 31, 2008.
Proceeds from the sale of those two mortgage loans approximated
the net carrying value as of June 30, 2009 of
$2.3 million. On September 16, 2009, we sold interests
in a participation loan in Michigan with a net carrying value of
approximately $19.7 million as of December 31, 2008
and reduced to $18.7 million at the time of sale as a
result of principal paydown. Proceeds from the sale of the
interests in the participation loan were approximately
$17.4 million or approximately $1.3 million less than
the net carrying value. All of these loans were sold under the
Mortgage Purchase Agreement (the Agreement) with our
Manager, which was finalized in 2008 and provided us an option
to sell loans from our investment portfolio to our Manager at
the loans fair value on the sale date. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources for a discussion of the terms and
conditions of the Agreement.
On September 15, 2009, we sold four mortgage loans to a
third party with a net carrying value of approximately
$22.8 million as of December 31, 2008 and
$22.4 million as of June 30, 2009. Proceeds from the
sale of these four mortgage loans were approximately
$24.8 million or approximately $2.4 million above the
net carrying value. On October 6, 2009, we sold one
mortgage loan with a net carrying value of $8.2 million as
of December 31, 2008 and an adjusted value of
$8.4 million as of June 30, 2009. Proceeds from the
sale of this mortgage loan were approximately $8.5 million
or approximately $0.1 million above the net carrying value.
On November 12, 2009, we sold one mortgage
78
loan to a third party with a net carrying value of approximately
$19.3 million as of December 31, 2008 and an adjusted
value of $19.9 million as of June 30, 2009. Proceeds
from the sale of this mortgage loan were approximately
$22.4 million or approximately $2.5 million above the
net carrying value.
|
|
Note 6
|
Investment
in Partially-Owned Entities
|
On December 31, 2007, Care, through its subsidiary ERC Sub,
L.P., purchased an 85% equity interest in eight limited
liability entities owning nine medical office buildings with a
value of $263.0 million for $61.9 million in cash
including the funding of certain reserve requirements. The
Seller was Cambridge Holdings Incorporated
(Cambridge) and the interests were acquired through
a DownREIT partnership subsidiary, i.e., ERC Sub,
L.P. The transaction also provided for the issuance of 700,000
operating partnership units to Cambridge subject to future
performance of the underlying properties. These units were
issued by us into escrow and will be released to Cambridge
subject to the acquired properties meeting certain performance
benchmarks. Based on the expected timing of the release of the
operating partnership units from escrow, the fair value of the
operating partnership units was $2.9 million and
$3.0 million on December 31, 2009 and 2008,
respectively. At December 31, 2014, each operating
partnership unit held in escrow at that time is redeemable into
one share of the Companys common stock, subject to certain
conditions. The Company has the option to pay cash or issue
shares of company stock upon redemption.
In accordance with ASC 820, the obligation to issue operating
partnership units is accounted for as a derivative instrument.
Accordingly, the value of the obligation to issue the operating
partnership units is reflected as a liability on the
Companys balance sheet and accordingly will be remeasured
every period until the operating partnership units are released
from escrow.
Care will receive an initial preferred minimum return of 8.0% on
capital invested at close with 2.0% per annum escalations until
certain portfolio performance metrics are achieved. As of
December 31, 2009, the entities now owned with Cambridge
carry $178.6 million in asset-specific mortgage debt which
mature no earlier than the fourth quarter of 2016 and bear a
weighted average fixed interest rate of 5.86%.
The Cambridge portfolio contains approximately
767,000 square feet and is located in major metropolitan
markets in Texas (8) and Louisiana (1). The properties are
situated on leading medical center campuses or adjacent to
prominent acute care hospitals or ambulatory surgery centers.
Affiliates of Cambridge will act as managing general partners of
the entities that own the properties, as well as manage and
lease these facilities.
Summarized financial information as of December 31, 2009
and 2008, for the Companys unconsolidated joint venture in
Cambridge is as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Amount
|
|
|
Amount
|
|
|
Assets
|
|
$
|
226.4
|
|
|
$
|
238.0
|
|
Liabilities
|
|
|
190.5
|
|
|
|
192.3
|
|
Equity
|
|
|
35.9
|
|
|
|
45.7
|
|
Revenue
|
|
|
24.8
|
|
|
|
24.1
|
|
Expenses
|
|
|
31.4
|
|
|
|
30.6
|
|
Net loss
|
|
|
(6.6
|
)
|
|
|
(6.5
|
)
|
On December 31, 2007, the Company also formed a joint
venture, SMC-CIT Holding Company, LLC, with an affiliate of
Senior Management Concepts, LLC to acquire four independent and
assisted living facilities located in Utah. Total capitalization
of the joint venture is $61.0 million. Care invested
$6.8 million in exchange for 100% of the preferred equity
interests and 10% of the common equity interests of the joint
venture. The Company will receive a preferred return of 15% on
its invested capital and an additional common equity return
equal to 10% of the projected free cash flow after payment of
debt service and the preferred return. Subject to certain
conditions being met, our preferred equity interest is subject
to redemption at par beginning on January 1, 2010. We
retain an option to put our preferred equity interest to our
partner at par any time beginning on January 1, 2016. If
our preferred equity interest is redeemed, we have the right to
put our common equity interests to our partner within thirty
days after notice at fair market value as determined by a
third-party appraiser. Affiliates of Senior Management Concepts,
LLC have leased the facilities from the joint venture for
15 years, expiring in 2022. Care accounts for its
investment in SMC-CIT Holding Company, LLC under the equity
method.
79
The four facilities contain 243 independent living units and 165
assisted living units. The properties were constructed in the
last 25 years, and two were built in the last
10 years. Since both transactions closed on
December 31, 2007, the Company recorded no income or loss
on these investments for the period from June 22, 2007
(commencement of operations) to December 31, 2007.
For the years ended December 31, 2009 and December 31,
2008, our equity in the loss of our Cambridge portfolio amounted
to $5.6 million and $5.6 million, respectively, which
included $9.6 million and $9.4 million, respectively,
attributable to our share of the depreciation and amortization
expenses associated with the Cambridge properties. The
Companys investment in the Cambridge entities was
$49.3 million and $58.1 million at December 31,
2009 and 2008, respectively. During the years ended
December 31, 2009 and December 31, 2008, we received
$5.8 million and $2.2 million in distributions from
our investment in Cambridge.
For the years ended December 31, 2009 and December 31,
2008, we recognized $1.2 million and $1.1 million,
respectively, in equity income from our interest in SMC and
received $1.2 million and $1.1 million in
distributions, respectively.
|
|
Note 7
|
Identified
Intangible Assets leases in-place, net
|
The following table summarizes the Companys identified
intangible assets as of December 31, 2009:
|
|
|
|
|
Identified intangibles leases in-place
(amounts in thousands
)
|
|
|
|
|
Gross amount
|
|
$
|
4,960
|
|
Accumulated amortization
|
|
|
(489
|
)
|
|
|
|
|
|
|
|
$
|
4,471
|
|
|
|
|
|
|
The estimated annual amortization of acquired in-place leases
for each of the succeeding years as of December 31, 2008 is
as follows: (amounts in thousands
)
|
|
|
|
|
2010
|
|
|
331
|
|
2011
|
|
|
331
|
|
2012
|
|
|
331
|
|
2013
|
|
|
331
|
|
2013
|
|
|
331
|
|
Thereafter
|
|
|
2,816
|
|
The Company amortizes this intangible asset over the life of the
leases on a straight-line basis.
Other assets at December 31, 2009 and 2008 consisted of the
following (amounts in thousands
)
:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Straight-line effect of lease revenue
|
|
$
|
3,628
|
|
|
$
|
1,218
|
|
Prepaid expenses
|
|
|
722
|
|
|
|
390
|
|
Receivables
|
|
|
166
|
|
|
|
|
|
Deferred exit fees and other
|
|
|
100
|
|
|
|
820
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
4,617
|
|
|
$
|
2,428
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9
|
Borrowings
under Warehouse Line of Credit
|
On October 1, 2007, Care entered into a master repurchase
agreement (Agreement) with Column Financial, Inc.
(Column), an affiliate of Credit Suisse, one of the
underwriters of Cares initial public offering in June
2007. This type of lending arrangement is often referred to as a
warehouse facility. The Agreement provided an initial line of
credit of up to $300 million, which could be increased
temporarily to an aggregate amount of $400 million under
the terms of the Agreement.
80
On March 9, 2009, Care repaid this loan in full and closed
the warehouse line of credit.
|
|
Note 10
|
Mortgage
Notes Payable
|
On June 26, 2008 with the acquisition of the twelve
properties from Bickford Senior Living Group LLC, the Company
entered into a mortgage loan with Red Mortgage Capital, Inc. for
$74.6 million. The terms of the mortgage require
interest-only payments at a fixed interest rate of 6.845% for
the first twelve months. Commencing on the first anniversary and
every month thereafter, the mortgage loan requires a fixed
monthly payment of $0.5 million for both principal and
interest until the maturity in July 2015 when the then
outstanding balance of $69.6 million is due and payable.
Care paid approximately $0.3 million in principal
amortization during the year ended December 31, 2009. The
mortgage loan is collateralized by the properties.
On September 30, 2008 with the acquisition of the two
additional properties from Bickford, the Company entered into an
additional mortgage loan with Red Mortgage Capital, Inc. for
$7.6 million. The terms of the mortgage require interest
and principal payments of approximately $52,000 based on a fixed
interest rate of 7.17% until the maturity in July 2015 when the
then outstanding balance of $7.1 million is due and
payable. Care paid approximately $0.1 in principal amortization
during the year ended December 31, 2009. The mortgage loan
is collateralized by the properties.
As of December 31, 2009, principal repayments due under all
borrowings for the next 5 years and thereafter are as
follows (in millions):
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
0.9
|
|
|
|
|
|
2011
|
|
|
0.9
|
|
|
|
|
|
2012
|
|
|
0.9
|
|
|
|
|
|
2013
|
|
|
1.0
|
|
|
|
|
|
2014
|
|
|
1.0
|
|
|
|
|
|
Thereafter
|
|
|
77.3
|
|
|
|
|
|
|
|
Note 11
|
Other
Liabilities
|
Other liabilities as of December 31, 2009 and 2008 consist
principally of deposits and real estate escrows from borrowers
amounting to $1.1 million and $1.3 million,
respectively.
|
|
Note 12
|
Related
Party Transactions
|
Management
Agreement
In connection with our initial public offering in 2007, we
entered into a Management Agreement with our Manager, which
describes the services to be provided by our Manager and its
compensation for those services. Under the Management Agreement,
our Manager, subject to the oversight of the Board of Directors
of Care, is required to manage the
day-to-day
activities of the Company, for which the Manager receives a base
management fee and is eligible for an incentive fee. The Manager
is also entitled to charge the Company for certain expenses
incurred on behalf of Care.
On September 30, 2008, we amended our Management Agreement
(Amendment 1). Pursuant to the terms of the
amendment, the Base Management Fee (as defined in the Management
Agreement) payable to the Manager under the Management Agreement
is reduced to a monthly amount equal to
1
/
12
of 0.875% of the Companys equity (as defined in the
Management Agreement). In addition, pursuant to the terms of the
Amendment, the Incentive Fee (as defined in the Management
Agreement) to the Manager pursuant to the Management Agreement
has been eliminated and the Termination Fee (as defined in the
Management Agreement) to the Manager upon the termination or
non-renewal of the Management Agreement shall be equal to the
average annual Base Management Fee as earned by the Manager
during the immediately preceding two years multiplied by three,
but in no event shall the Termination Fee be less than
$15.4 million.
In consideration of the Amendment and for the Managers
continued and future services to the Company, the Company
granted the Manager warrants to purchase 435,000 shares of
the Companys common stock at $17.00 per
81
share (the Warrant) under the Manager Equity Plan
adopted by the Company on June 21, 2007 (the Manager
Equity Plan). The Warrant, which is immediately
exercisable, expires on September 30, 2018.
In accordance with ASC
505-50,
the
Company used the Black-Scholes option pricing model to measure
the fair value of the Warrant granted with the Amendment. The
Black-Scholes model valued the Warrant using the following
assumptions:
|
|
|
|
|
Volatility
|
|
|
47.8%
|
|
Expected Dividend Yield
|
|
|
5.92%
|
|
Risk-free Rate of Return
|
|
|
3.8%
|
|
Current Market Price
|
|
|
$7.79
|
|
Strike Price
|
|
|
$17.00
|
|
Term of Warrant
|
|
|
10 years
|
|
The fair value of the Warrant is approximately
$0.5 million, which is recorded as part of additional
paid-in-capital
with a corresponding entry to expense. The Warrant will be
remeasured to fair value at each reporting date, and amortized
into expense over 18 months, which represents the remaining
initial term of the Management Agreement.
On January 15, 2010, the Company entered into an Amended
and Restated Management Agreement, dated as of January 15,
2010 (Amendment 2) which amends and restates the
Management Agreement, dated June 27, 2007, as amended by
Amendment No. 1 to the Management Agreement. Amendment 2
became effective upon approval by the Companys
stockholders of the plan of liquidation on January 28,
2010. Amendment 2 shall continue in effect, unless earlier
terminated in accordance with the terms thereof, until
December 31, 2011.
Amendment 2 reduces the base management fee to a monthly
amount equal to (i) $125,000 from February 1, 2010
until June 30, 2010 and (ii) $100,000 until the
earlier of December 31, 2010 and the sale of certain assets
and (iii) $75,000 until the effective date of expiration or
earlier termination of the agreement, subject to additional
provisions.
Pursuant to the terms of the Amendment 2, the Company shall
pay the Manager a buyout payment of $7.5 million, payable
in three installments of $2.5 million on January 28,
2010 and, effectively, April 1, 2010 and either
June 30, 2011 or the effective date of the termination of
the agreement if earlier. Amendment 2 provides the Company
and the Manager with a right to terminate the agreement without
cause, under certain conditions, and the Company with a right to
terminate the agreement with cause, as defined in
Amendment 1.
Pursuant to the terms of Amendment 2, the Manager is
eligible for an incentive fee of $1.5 million under certain
conditions where cash distributed or distributable to
stockholders equals or exceeds $9.25 per share. See Note 16.
We are also responsible for reimbursing the Manager for its pro
rata portion of certain expenses detailed in the initial
agreement and subsequent amendments, such as rent, utilities,
office furniture, equipment, and overhead, among others,
required for our operations. Transactions with our Manager
during the year ended December 31, 2009 included:
|
|
|
|
|
Our $0.5 million liability to our Manager for professional
fees paid and other third party costs incurred by our Manager on
behalf of Care and management fees.
|
|
|
|
Our expense recognition of $0.5 million and
$2.2 million for the three months and year ended
December 31, 2009, respectively, for the base management
fee.
|
|
|
|
On February 3, 2009, we sold a loan with a book value of
$27.0 on the date of sale to our Manager for proceeds of $22.5
resulting in an approximate loss of $4.9 million.
|
|
|
|
On August 19, 2009, we sold two mortgage loans with a book
value of approximately $3.7 million to our Manager for
proceeds of $2.3 resulting in an approximate loss of
$1.4 million.
|
|
|
|
On September 16, 2009, we sold interests in a participation
loan in Michigan with book value of approximately
$22.2 million on the date of sale to our Manager for
proceeds of $17.4 million resulting in an approximate loss
of $4.8 million.
|
82
|
|
Note 13
|
Fair
Value of Financial Instruments
|
The Company has established processes for determining fair
values and fair value is based on quoted market prices, where
available. If listed prices or quotes are not available, then
fair value is based upon internally developed models that
primarily use inputs that are market-based or
independently-sourced market parameters.
A financial instruments categorization within the
valuation hierarchy is based upon the lowest level of input that
is significant to the fair value measurement. The three levels
of valuation hierarchy are defined as follows:
Level 1
inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets
or liabilities in active markets.
Level 2
inputs to the valuation
methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial instrument.
Level 3
inputs to the valuation
methodology are unobservable and significant to the fair value
measurement.
The following describes the valuation methodologies used for the
Companys financial instruments measured at fair value, as
well as the general classification of such instruments pursuant
to the valuation hierarchy.
Investment in loans
the fair value of the
portfolio is based primarily on appraisals from third parties.
Investing in healthcare-related commercial mortgage debt is
transacted through an
over-the-counter
market with minimal pricing transparency. Loans are infrequently
traded and market quotes are not widely available and
disseminated. The Company also gives consideration to its
knowledge of the current marketplace and the credit worthiness
of the borrowers in determining the fair value of the portfolio.
At December 31, 2009, we valued our loans primarily based
upon appraisals obtained from The Debt Exchange, Inc. or DebtX.
When loans are under contract for sale or sold or repaid
subsequent to the filing of our
Form 10-K,
they are valued at their fair value and are valued using
level 2 inputs.
Obligation to issue operating partnership units
the fair value of our obligation to issue operating
partnership units is based on an internally developed valuation
model, as quoted market prices are not available nor are quoted
prices for similar liabilities. Our model involves the use of
management estimates as well as some Level 2 inputs. The
variables in the model include the estimated release dates of
the shares out of escrow, based on the expected performance of
the underlying properties, a discount factor of approximately
15%, and the market price and expected quarterly dividend of
Cares common shares at each measurement date.
The following table presents the Companys financial
instruments carried at fair value on the consolidated balance
sheet as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2009
|
|
($ in millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in loans
|
|
$
|
|
|
|
$
|
16.1
|
|
|
$
|
9.2
|
|
|
$
|
25.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation to issue operating partnership
units
(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2.9
|
|
|
$
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Investment in loans
|
|
$
|
22.5
|
|
|
$
|
|
|
|
$
|
137.4
|
|
|
$
|
159.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation to issue operating partnership
units
(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3.0
|
|
|
$
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
At December 31, 2008, the fair
value of our obligation to issue partnership units was
$3.0 million and we recorded unrealized gain of
$0.1 million on revaluation at December 31, 2009 and
an unrealized loss of $0.2 million on revaluation at
December 31, 2008.
|
83
The tables below present reconciliations for all assets and
liabilities measured at fair value on a recurring basis using
significant Level 2 and Level 3 inputs during 2009.
Level 3 instruments presented in the tables include a
liability to issue partnership units, which are carried at fair
value. The Level 2 and Level 3 instruments were valued
based upon appraisals, actual cash repayments and sales
contracts or using models that, in managements judgment,
reflect the assumptions a marketplace participant would use at
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
Level 3 Instruments Fair
|
|
|
|
Value Measurements
|
|
|
|
Obligation to
|
|
|
Investment
|
|
|
|
issue
|
|
|
in loans held
|
|
|
|
Partnership
|
|
|
at lower of cost
|
|
($ in millions)
|
|
Units
|
|
|
or market
|
|
|
Balance, December 31, 2008
|
|
$
|
(3.0
|
)
|
|
$
|
159.9
|
|
Sales of loans to Manager
|
|
|
|
|
|
|
(42.3
|
)
|
Sales of loans to third parties
|
|
|
|
|
|
|
(55.8
|
)
|
Loan prepayments and principal repayments
|
|
|
|
|
|
|
(40.5
|
)
|
Total unrealized gains included in income statement
|
|
|
0.1
|
|
|
|
4.0
|
|
Transfers to Level 2
|
|
|
|
|
|
|
(16.1
|
)
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
(2.9
|
)
|
|
$
|
9.2
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized losses from obligations
owed/investments still held at December 31, 2009
|
|
$
|
0.1
|
|
|
$
|
4.0
|
|
|
|
|
|
|
|
|
|
|
In addition we are required to disclose fair value information
about financial instruments, whether or not recognized in the
financial statements, for which it is practical to estimate that
value. In cases where quoted market prices are not available,
fair value is based upon the application of discount rates to
estimated future cash flows based on market yields or other
appropriate valuation methodologies. Considerable judgment is
necessary to interpret market data and develop estimated fair
value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts we could realize on
disposition of the financial instruments. The use of different
market assumptions
and/or
estimation methodologies may have a material effect on the
estimated fair value amounts.
In addition to the amounts reflected in the financial statements
at fair value as noted above, cash equivalents, accrued interest
receivables, and accounts payable and accrued expenses
reasonably approximate their fair values due to the short
maturities of these items. Management believes that the mortgage
notes payable of $74.6 million and $7.6 million that
were incurred from the acquisitions of the Bickford properties
on June 26, 2008 and September 30, 2008, respectively,
have a fair value of approximately $85.1 million as of
December 31, 2009. The fair value of the debt has been
determined by evaluating the present value of the agreed upon
cash flows at a discount rate reflective of financing terms
currently available to us for collateral with the same credit
and quality characteristics.
The Company is exposed to certain risks relating to its ongoing
business. The primary risk managed by using derivative
instruments is interest rate risk. Interest rate caps are
entered into to manage interest rate risk associated with the
Companys borrowings. The company has no interest rate caps
as of December 31, 2009.
We are required to recognize all derivative instruments as
either assets or liabilities at fair value in the statement of
financial position. The Company has not designated any of its
derivatives as hedging instruments. The
84
Companys financial statements included the following fair
value amounts and gains and losses on derivative instruments
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Balance
|
|
Balance
|
|
|
Balance
|
|
|
|
Derivatives not designated as
|
|
Sheet
|
|
Fair
|
|
|
Sheet
|
|
Fair
|
|
hedging instruments
|
|
Location
|
|
Value
|
|
|
Location
|
|
Value
|
|
|
Operating Partnership Units
|
|
Obligation to issue operating partnership units
|
|
$
|
(2,890
|
)
|
|
Obligation to issue operating partnership units
|
|
$
|
(3,045
|
)
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives
|
|
|
|
$
|
(2,890
|
)
|
|
|
|
$
|
(3,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Gain)/Loss
|
|
|
|
|
|
Recognized in Income on
|
|
|
|
|
|
Derivative
|
|
|
|
Location of (Gain)/Loss
|
|
Year Ended
|
|
Derivatives not designated as
|
|
Recognized in Income on
|
|
December 31,
|
|
|
December 31,
|
|
hedging instruments
|
|
Derivative
|
|
2009
|
|
|
2008
|
|
|
Operating Partnership Units
|
|
Unrealized(gain)/loss on derivative instruments
|
|
$
|
(155
|
)
|
|
$
|
195
|
|
Interest Rate Caps
|
|
Unrealized(gain)/loss on derivative instruments
|
|
|
2
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(153
|
)
|
|
$
|
237
|
|
|
|
Note 14
|
Stockholders
Equity
|
Our authorized capital stock consists of 100,000,000 shares
of preferred stock, $0.001 par value and
250,000,000 shares of common stock, $0.001 par value.
As of December 31, 2009 and 2008, no shares of preferred
stock were issued and outstanding and 21,159,647 and
21,021,359 shares of our common stock were issued
respectively and 20,158,894 and 20,021,359 shares of common
stock were outstanding, respectively.
Equity
Plan
Restricted
Stock Grants:
At the time of our initial public offering in June 2007, we
issued 133,333 shares of common stock to our Managers
employees, some of whom are officers or directors of Care and we
also awarded 15,000 shares of common stock to Cares
independent board members. The shares granted to our
Managers employees had an initial vesting date of
June 22, 2010, three years from the date of grant. The
shares granted to our independent board members vest ratably on
the first, second and third anniversaries of the grant. During
the year ended December 31, 2008, 42,000 shares of
restricted stock granted to our Managers employees were
forfeited and 10,000 shares vested due to a termination of
an officer of the Manager without cause. In addition,
20,000 shares of restricted stock were granted to a board
member who formerly served as an employee of our Manager. These
shares had a fair value of $183,000 at issuance and had an
initial vesting date of June 27, 2010.
On January 28, 2010, our shareholders approved the
Companys plan of liquidation. Under the terms of each of
these awards, the approval of the plan of liquidation by our
shareholders accelerated the vesting of the awards on that day.
85
Schedule
of Non Vested Shares Equity Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants to
|
|
Grants to
|
|
|
|
|
Independent
|
|
Managers
|
|
Total
|
|
|
Directors
|
|
Employees
|
|
Grants
|
|
Balance at January 1, 2008
|
|
|
15,000
|
|
|
|
133,333
|
|
|
|
148,333
|
|
Granted
|
|
|
20,000
|
|
|
|
|
|
|
|
20,000
|
|
Vested
|
|
|
5,000
|
|
|
|
10,000
|
|
|
|
15,000
|
|
Forfeited
|
|
|
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
30,000
|
|
|
|
81,333
|
|
|
|
111,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
30,000
|
|
|
|
81,333
|
|
|
|
111,333
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units:
On April 8, 2008, the Compensation Committee (the
Committee) of the Board of Directors of Care awarded
the Companys CEO, 35,000 shares of restricted stock
units (RSUs) under the Care Investment
Trust Inc. Equity Incentive Plan (Equity Plan).
The RSUs had a fair value of $385,000 on the grant date. The
initial vesting of the award was 50% on the third anniversary of
the award and the remaining 50% on the fourth anniversary of the
award. Under the terms of these awards, shareholder approval of
the plan of liquidation accelerated the vesting of the awards on
that day.
On November 5, 2009, the Board of Directors of Care
Investment Trust Inc. (the Company) awarded our
Chairman of the Board of Directors 10,000 restricted stock
units, which were initially subject to vesting in four equal
installments, commencing on November 5, 2010. Under the
terms of this award, shareholder approval of the plan of
liquidation accelerated the vesting of this award on that day.
Long-Term
Equity Incentive Programs:
On May 12, 2008, the Committee approved two new long-term
equity incentive programs under the Equity Plan. The first
program is an annual performance-based RSU award program (the
RSU Award Program). All RSUs granted under the RSU
Award Program included a vesting period of four years. The
second program is a three-year performance share plan (the
Performance Share Plan).
In connection with the initial adoption of the RSU Award
Program, certain employees of the Manager and its affiliates
were granted 68,308 RSUs on the adoption date with a grant date
fair value of $0.7 million. 9,242 of these shares were
forfeited in 2009. 14,763 of these shares vested in May 2009.
Achievement of awards under the 2008 RSU Award Program was based
upon the Companys ability to meet both financial (AFFO per
share) and strategic (shifting from a mortgage to an equity
REIT) performance goals during 2008, as well as on the
individual employees ability to meet performance goals. In
accordance with the 2008 RSU Award Program 49,961 RSUs and
30,333 RSUs were granted on March 12, 2009 and May 7,
2009, respectively. RSUs granted in connection with the 2008 RSU
Award Program were initially subject to the following vesting
schedule:
|
|
|
|
|
2010
|
|
|
34,840
|
|
2011
|
|
|
52,340
|
|
2012
|
|
|
52,343
|
|
2013
|
|
|
20,074
|
|
Under the terms of each of these awards, shareholder approval of
the plan of liquidation accelerated the vesting of the awards on
that day.
Under the Performance Share Plan, a participant is granted a
number of performance shares or units, the settlement of which
will depend on the Companys achievement of certain
pre-determined financial goals at the end
86
of the three-year performance period. Any shares received in
settlement of the performance award will be issued to the
participant in early 2011, without any further vesting
requirements. With respect to the
2008-2010
performance periods, the performance goals relate to the
Companys ability to meet both financial (compound growth
in AFFO per share) and share return goals (total shareholder
return versus the Companys healthcare equity and mortgage
REIT peers). The Committee has established threshold, target and
maximum levels of performance. If the Company meets the
threshold level of performance, a participant will earn 50% of
the performance share grant if it meets the target level of
performance, a participant will earn 100% of the performance
share grant and if it achieves the maximum level of performance,
a participant will earn 200% of the performance share grant. As
of December 31, 2009, no shares have been earned under this
plan.
On December 10, 2009, the Company granted performance share
awards to plan participants for an aggregate amount of
15,000 shares at target levels and an aggregate maximum of
30,000 shares. On February 23, 2009, the terms of the
awards were modified such that the awards are now triggered upon
the execution, during 2010, of one or more of the following
transactions that results in a return of liquidity to the
Companys stockholders within the parameters expressed in
the agreement: (i) a merger or other business combination
resulting in the disposition of all of the issued and
outstanding equity securities of the Company, (ii) a tender
offer made directly to the Companys stockholders either by
the Company or a third party for at least a majority of the
Companys issued and outstanding common stock, or
(iii) the declaration of aggregate distributions by the
Companys Board equal to or exceeding $8.00 per share.
As of December 31, 2009, 210,677 shares of our common
stock and 197,615 RSUs had been granted pursuant to the Equity
Plan and 267,516 shares remain available for future
issuances. The Equity Plan will automatically expire on the
10th anniversary of the date it was adopted. Cares
Board of Directors may terminate, amend, modify or suspend the
Equity Plan at any time, subject to stockholder approval in the
case of amendments or modifications. We recorded
$2.3 million of expense related to compensation and
$1.2 million of expense related to remeasurement of grants
to fair value for the years ended December 31, 2009 and
2008, respectively, Approximately $0.8 million of the
expense recorded in 2009 related to accelerated vesting in the
aggregate. All of the shares issued under our Equity Plan are
considered non-employee awards. Accordingly, the expense for
each period is determined based on the fair value of each share
or unit awarded over the required performance period.
Shares Issued
to Directors for Board Fees:
On January 5, 2009, April 3, 2009, July 1, 2009,
October 1, 2009, and January 4, 2010, respectively,
9,624, 13,734, 14,418, 9,774 and 8,030 shares of common
stock with an aggregate fair value of approximately $300,000
were granted to our independent directors as part of their
annual retainer. Each independent director receives an annual
base retainer of $100,000, payable quarterly in arrears, of
which 50% is paid in cash and 50% in common stock of Care.
Shares granted as part of the annual retainer vest immediately
and are included in general and administrative expense.
Manager
Equity Plan
Upon completion of our initial public offering in June 2007,
approximately $1.3 million shares were made available and
we granted 607,690 fully vested shares of our common stock to
our Manager under the Manager Equity Plan. These shares are
subject to our Managers right to register the resale of
such shares pursuant to a registration rights agreement we
entered into with our Manager in connection with our initial
public offering. At December 31, 2009, 282,945 shares
are available for future issuances under the Manager Equity
Plan. The Manager Equity Plan will automatically expire on the
10th anniversary of the date it was adopted. Cares
Board of Directors may terminate, amend, modify or suspend the
Manager Equity Plan at any time, subject to stockholder approval
in the case of amendments or modifications.
The 282,945 shares available for future issuance under the
Manager Equity Plan are net of 435,000 shares that may be
issued upon conversion of a warrant issued to our Manager
described in Note 12.
87
|
|
Note 15
|
Loss per
share ($ in thousands, except share and per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period from
|
|
|
|
|
|
|
|
|
|
June 22, 2007
|
|
|
|
For the Year
|
|
|
For the Year
|
|
|
(Commencement of
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Operations) to
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
Loss per share
basic and diluted
|
|
$
|
(0.14
|
)
|
|
$
|
(1.47
|
)
|
|
$
|
(0.07
|
)
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,826
|
)
|
|
$
|
(30,806
|
)
|
|
$
|
(1,557
|
)
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding
|
|
|
20,061,763
|
|
|
|
20,952,972
|
|
|
|
20,866,526
|
|
Diluted loss per share was the same as basic loss per share for
each period because all outstanding restricted stock awards were
anti-dilutive.
|
|
Note 16
|
Commitments
and Contingencies
|
At December 31, 2009, Care was obligated to provide
approximately $1.9 million in tenant improvements related
to our purchase of the Cambridge properties in 2010. Care is
also obligated to fund additional payments for expansion of four
of the facilities acquired in the Bickford transaction on
June 26, 2008. The maximum amount that the Company is
obligated to fund is $7.2 million. Since these payments
would increase our investment in the properties, the minimum
base rent and additional base rent would increase based on the
amounts funded. After funding the expansion payments and meeting
certain conditions as outlined in the documents associated with
the transaction, the sellers are entitled to the balance of the
commitment of $7.2 million less the total of all expansion
payments made in conjunction with the properties. As of
December 31, 2009, no expansion payments have been
requested and Bickford has yet to meet any of a series of
conditions which would need to be satisfied by July 26,
2010 in accordance with the terms of the agreement.
Under our Management Agreement, our Manager, subject to the
oversight of the Companys board of directors, is required
to manage the
day-to-day
activities of Care, for which the Manager receives a base
management fee. The Management Agreement was amended on
January 15, 2010, effective on January 28, 2010 (see
Note 12).
Under the amended terms, the agreement expires on
December 31, 2011. The base management fee is payable
monthly in arrears in an amount equal to 1/12 of 0.875% of the
Companys stockholders GAAP equity for January 2010
and $125,000 per month thereafter, subject to reduction to
$100,000 per month under certain conditions.
In addition, under the amended terms the Company is obligated to
make buyout payments, which replaced a termination fee
contingency. The buyout payments were paid or payable as
follows: (i) $2.5 million paid on January 29,
2010, (ii) $2.5 million upon the earlier of
(a) April 1, 2010 and (b) the effective date of
the termination of the Agreement by either of the Company or the
Manager; and (iii) $2.5 million upon the earlier of
(a) June 30, 2011 and (b) the effective date of
the termination of the Agreement by either the Company or the
Manager.
The table below summarizes our contractual obligations as of
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in millions
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
Commitment to fund tenant improvements
|
|
$
|
1.9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Commitment to fund earn out
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
80.4
|
|
Management fee
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buyout fee to Manager
|
|
|
5.0
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Care has commitments at December 31, 2009 to finance tenant
improvements of $1.9 million and earn out of
$7.2 million under certain conditions. The commitment
amount for the earn out is contingent upon meeting certain
conditions. If those conditions are not met, our obligation to
fund those commitments would be zero. $1.7 million of
88
tenant improvement represents hold back from the initial
purchase of Cambridge. No provision for the earn out contingency
has been accrued at December 31, 2009. The estimated
amounts and timing of the commitments to fund tenant
improvements are based on projections by the managers who are
affiliates of Cambridge and Bickford.
Pursuant to terms of Amendment 2 to the Management
Agreement, the Manager is eligible for an incentive fee of
$1.5 million under certain conditions where distributable
cash to stockholders equals or exceeds $9.25 per share. No
provision has been made for the incentive fee.
On September 18, 2007, a class action complaint for
violations of federal securities laws was filed in the United
States District Court, Southern District of New York alleging
that the Registration Statement relating to the initial public
offering of shares of our common stock, filed on June 21,
2007, failed to disclose that certain of the assets in the
contributed portfolio were materially impaired and overvalued
and that we were experiencing increasing difficulty in securing
our warehouse financing lines. On January 18, 2008, the
court entered an order appointing co-lead plaintiffs and co-lead
counsel. On February 19, 2008, the co-lead plaintiffs filed
an amended complaint citing additional evidentiary support for
the allegations in the complaint. We believe the complaint and
allegations are without merit and intend to defend against the
complaint and allegations vigorously. We filed a motion to
dismiss the complaint on April 22, 2008. The plaintiffs
filed an opposition to our motion to dismiss on July 9,
2008, to which we filed our reply on September 10, 2008. On
March 4, 2009, the court denied our motion to dismiss. We
filed our answer on April 15, 2009. At a conference held on
May 15, 2009, the Court ordered the parties to make a joint
submission (the Joint Statement) setting forth:
(i) the specific statements that the plaintiffs claim
are false and misleading; (ii) the facts on which the
plaintiffs rely as showing each alleged misstatement was false
and misleading; and (iii) the facts on which the defendants
rely as showing those statements were true. The parties filed
the Joint Statement on June 3, 2009. On July 31, 2009,
the parties entered into a stipulation that narrowed the scope
of the proceeding to the single issue of the warehouse financing
disclosure in the Registration Statement.
On December 7, 2009, the Court ordered the parties to file
an abbreviated joint pre-trial statement on April 7, 2010.
The Court scheduled a pre-trial conference for April 9,
2010, at which the Court will determine based on the joint
pre-trial statement whether to permit us and the other
defendants to file a summary judgment motion. The outcome of
this matter cannot currently be predicted. To date, Care has
incurred approximately $1.0 million to defend against this
complaint and any incremental costs to defend will be paid by
Cares insurer. No provision for loss related to this
matter has been accrued at December 31, 2009.
On November 25, 2009, we filed a lawsuit in the
U.S. District Court for the Northern District of Texas
against Mr. Jean-Claude Saada and 13 of his companies (the
Saada Parties), seeking declaratory judgments
construing certain contracts among the parties and also seeking
tort damages against the Saada Parties for tortious interference
with prospective contractual relations and breach of the duty of
good faith and fair dealing. On January 27, 2010, the Saada
Parties answered our complaint, and simultaneously filed
counterclaims and a third-party complaint (the
Counterclaims) that named our subsidiaries ERC Sub
LLC and ERC Sub, L.P., external manager CIT Healthcare LLC, and
Board Chairman Flint D. Besecker, as additional third-party
defendants. The Counterclaims seek four declaratory judgments
construing certain contracts among the parties that are
basically the mirror image of our declaratory judgment claims.
In addition, the Counterclaims also seek monetary damages for
purported breaches of fiduciary duty and the duty of good faith
and fair dealing, as well as fraudulent inducement, against us
and the third-party defendants jointly and severally. The
Counterclaims further request indemnification by ERC Sub, L.P.,
pursuant to a contract between the parties, and the imposition
of a constructive trust on the proceeds of any
future liquidation of Care, to ensure a reservoir of funds from
which any liability to the Saada Parties could be paid. Although
the Counterclaims do not itemize their asserted damages, they
assign these damages a value of $100 million or
more. In response to the Counterclaims, Care and the
third-party defendants filed on March 5, 2010, an omnibus
motion to dismiss all of the Counterclaims. The outcome of this
matter cannot currently be predicted. To date, Care has incurred
approximately $0.2 million to defend against this
complaint. No provision for loss related to this matter has been
accrued at December 31, 2009.
Care is not presently involved in any other material litigation
nor, to our knowledge, is any material litigation threatened
against us or our investments, other than routine litigation
arising in the ordinary course of business. Management believes
the costs, if any, incurred by us related to litigation will not
materially affect our financial position, operating results or
liquidity.
89
Care is negotiating for the sale of the Company with a third
party and has presented going concern financial statements based
on its expectation that a sale of the company is likely to
occur. See Notes 2 and 19.
On January 28, 2010, shareholders approved the
Companys plan of liquidation. See the Companys
definitive proxy statement filed with the Securities and
Exchange Commission on December 28, 2010 containing the
plan of liquidation. See Note 19.
|
|
Note 17
|
Financial
Instruments: Derivatives and Hedging
|
The fair value of our obligation to issue operating partnership
units was $2.9 million and $3.0 million at
December 31, 2009, December 31 and 2008, respectively.
On February 1, 2008, we entered into three interest rate
caps on three loans pledged as collateral under our warehouse
line of credit in order to increase the advance rates available
on the pledged loans. These caps were terminated on
April 20, 2009 for an amount equal to the remaining book
value.
|
|
Note 18
|
Quarterly
Financial Information (Unaudited)
|
Summarized unaudited consolidated quarterly information for each
of the years ended December 31, 2009 and 2008 is provided
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions except per share amounts)
|
|
Quarter Ended
|
2009:
|
|
March
31
(1)
|
|
June
30
(1)
|
|
Sept.
30
(1)
|
|
Dec.
31
(1)
|
|
Revenues
|
|
$
|
6.1
|
|
|
$
|
5.1
|
|
|
$
|
5.0
|
|
|
$
|
3.9
|
|
Income (loss) available to common shareholders
|
|
|
2.5
|
|
|
|
(0.5
|
)
|
|
|
(0.4
|
)
|
|
|
(4.4
|
)
|
Earnings per share basic and diluted
|
|
$
|
0.12
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.21
|
)
|
Earnings per share diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in millions except per share amounts)
|
|
Quarter Ended
|
2008:
|
|
March 31
|
|
June 30
|
|
Sept.
30
(1)
|
|
Dec.
31
(1)
|
|
Revenues
|
|
$
|
4.7
|
|
|
$
|
3.6
|
|
|
$
|
6.6
|
|
|
$
|
7.4
|
|
Income (loss) available to common shareholders
|
|
|
0.5
|
|
|
|
0.7
|
|
|
|
(3.5
|
)
|
|
|
(28.5
|
)
|
Earnings per share basic and diluted
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
$
|
(0.17
|
)
|
|
$
|
(1.35
|
)
|
Earnings per share diluted
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Basic and diluted are
the same as inclusion of diluted shares would be
anti-dilutive
|
|
|
Note 19
|
Subsequent
Events
|
Repayment
and Sale of Loans held at LOCOM
On February 19, 2010, one borrower repaid one of the
Companys mortgage loans with a net carrying value of
approximately $10.0 million as of December 31, 2008
and a September 30, 2009 interim carrying value of
approximately $10.0 million as of December 31, 2009.
Proceeds from the repayment of this mortgage loan were
approximately $10.0 million.
On March 2, 2010, we sold one mortgage loan to a third
party with a net carrying value of approximately
$7.8 million as of December 31, 2008 and a
September 30, 2009 interim carrying value of approximately
$6.1 million before selling costs as of December 31,
2009. Net realized proceeds from the sale of this mortgage loan
after selling costs of approximately $0.2 million were
approximately $5.9 million.
Amendment
to Management Agreement with Manager
See Note 12 for a discussion of a January 15 amendment to
the Companys Management Agreement with its Manager.
90
Approval
of Plan of Liquidation
On December 10, 2009, our Board of Directors approved a
plan of liquidation and recommended that our shareholders
approve the plan of liquidation. On January 28, 2010, our
shareholders approved the plan of liquidation. We have entered
into a material definitive agreement for a sale of control of
the Company as described below and have not pursued the plan of
liquidation.
Sale
of Control of the Company
On March 16, 2010, we executed a definitive agreement with
Tiptree Financial Partners, L.P. (Tiptree or the
Buyer) for the sale of control of the Company in a
series of contemplated transactions. Under the agreement, the
parties have agreed to a sale of a quantity of shares to the
Buyer to occur immediately following the completion of a cash
tender offer by us for Cares outstanding common shares.
The quantity of shares to be sold to the Buyer will be that
quantity which would represent at least 53.4% of the shares of
the Companys common stock on a fully diluted basis after
completion of the Companys cash tender offer. The
agreement is subject to customary closing conditions and our
ability to proceed with the cash tender offer.
In connection with the sale transaction contemplated by the
agreement, we intend to make a cash tender offer for up to 100%
of the outstanding common shares of Care stock at an offer price
of $9.00 per share, subject to a minimum subscription of
10,300,000 shares of Care stock. Also, in connection with
the transaction, the Company intends to terminate its existing
management agreement with our Manager and it is anticipated that
the resulting company will be advised by an affiliate of Tiptree.
We intend to seek shareholder approval to abandon the plan of
liquidation and pursue the contemplated transactions described
above. If the contemplated transactions are not completed, we
may pursue the plan of liquidation as approved by the
stockholders on January 28 or we may consider other strategic
alternatives to liquidation. In the event that a liquidation of
the Company is pursued, material adjustments to these going
concern financial statements may need to be recorded to present
liquidation basis financial statements. Material adjustments
which may be required for liquidation basis accounting primarily
relate to reflecting assets and liabilities at their net
realizable value and costs to be incurred to carry out the plan
of liquidation. After such adjustments, the likely range of
equity value which would be presented in liquidation basis
financial statements would be between $8.05 and 8.90 per share.
91
|
|
ITEM 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
ITEM 9A.
|
Controls
and Procedures
|
We maintain disclosure controls and procedures that are designed
to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and
communicated to our management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosures. Notwithstanding
the foregoing, no matter how well a control system is designed
and operated, it can provide only reasonable, not absolute,
assurance that it will detect or uncover failures within our
company to disclose material information otherwise required to
be set forth in our periodic reports.
As of the end of the period covered by this report, we conducted
an evaluation, under the supervision and with the participation
of our management, including our Chief Executive Officer and our
Chief Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures. Based upon
that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
were effective as of the end of the period covered by this
report.
Changes
in Internal Controls over Financial Reporting
There has been no change in our internal control over financial
reporting during the three months ended December 31, 2009,
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Managements
Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting for the
Company. The Companys internal control over financial
reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in
accordance with generally accepted accounting principles. The
Companys internal control over financial reporting
includes those policies and procedures that:
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company,
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of consolidated
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of
management and directors of the Company, and
(iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition
of the Companys assets that could have a material effect
on the consolidated financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of the effectiveness to
future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies and procedures included in such
controls may deteriorate.
The Company conducted an evaluation of the effectiveness of our
internal control over financial reporting based upon the
framework in
Internal Control Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based upon such
evaluation, our management concluded that our internal control
over financial reporting was effective as of December 31,
2009.
The Companys effectiveness of our internal control over
financial reporting, as of December 31, 2009, has been
audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their
attestation report which is included immediately below.
92
|
|
ITEM 9B.
|
Other
Information
|
A Special Meeting of Stockholders (the Special
Meeting) was announced on December 29, 2009 and held
on January 28, 2010.
Proxies for the Annual Meeting were solicited pursuant to
Regulation 14A under the Exchange Act. At the Special
Meeting, stockholders voted on a proposal for approval of the
Companys plan of liquidation and a proposal to approve any
adjournment of the special meeting, including, if necessary, to
solicit additional proxies in favor of the plan of liquidation
proposal if sufficient votes to approve such plan of liquidation
proposal were not available. The number of votes cast for and
against these proposals and the number of abstentions and broker
non-votes are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
|
|
For
|
|
|
Against
|
|
|
Abstain
|
|
|
Proposal 1: Plan of Liquidation
|
|
|
11,858,977
|
|
|
|
18,634
|
|
|
|
760
|
|
Proposal 2: Adjournment of Special Meeting
|
|
|
11,574,640
|
|
|
|
301,884
|
|
|
|
1,847
|
|
Part III
|
|
ITEM 10.
|
Directors,
Executive Officers and Corporate Governance of the
Registrant
|
The information called for by ITEM 10 is incorporated by
reference to the information under the caption Election of
Directors in the Registrants definitive proxy
statement relating to its Annual Meeting of Stockholders.
|
|
ITEM 11.
|
Executive
Compensation
|
The information required by ITEM 11 is incorporated by
reference to the information under the caption Executive
Compensation in the Registrants definitive proxy
statement relating to its Annual Meeting of Stockholders.
|
|
ITEM 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by ITEM 12 is incorporated by
reference to the information under the caption Security
Ownership of Certain Beneficial Owners and Management in
the Registrants definitive proxy statement relating to its
Annual Meeting of Stockholders.
|
|
ITEM 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by ITEM 13 is incorporated by
reference to the information under the captions Certain
Relationships and Related Transactions and Director
Independence in the Registrants definitive proxy
statement relating to its Annual Meeting of Stockholders.
|
|
ITEM 14.
|
Principal
Accountant Fees and Services
|
The information required by ITEM 14 is incorporated by
reference to the information under the caption
Ratification of Selection of Independent Registered Public
Accounting Firm in the Registrants definitive proxy
statement relating to its Annual Meeting of Stockholders.
93
Part IV
|
|
ITEM 15.
|
Exhibits,
Financial Statement Schedules
|
(a) and (c) Financial Statements and
Schedules See Index to Financial Statements and
Schedules included in ITEM 8.
(b) Exhibits
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
3
|
.1
|
|
Amended and Restated Articles of Incorporation of the Registrant
(previously filed as Exhibit 3.1 to the Companys
Form 10-Q
(File
No. 001-33549),
filed on August 14, 2007 and herein incorporated by
reference.
|
|
3
|
.2
|
|
Amended and Restated Bylaws of the Registrant (previously filed
as Exhibit 3.2 to the Companys
Form 10-Q
(File
No. 001-33549),
filed on August 14, 2007 and herein incorporated by
reference).
|
|
4
|
.1
|
|
Form of Certificate for Common Stock (previously filed as
Exhibit 4.1 to the Companys
Form S-11,
as amended (File
No. 333-141634),
and herein incorporated by reference).
|
|
10
|
.1
|
|
Assignment Agreement, dated as of January 31, 2009
(previously filed as Exhibit 10.1 to the Companys
Form 8-K
(File
No. 001-33549),
filed on February 5, 2009 and herein incorporated by
reference).
|
|
10
|
.2
|
|
Amendment No. 4 to Master Repurchase Agreement, dated as of
November 13, 2008 (previously filed as Exhibit 10.5 to
the Companys
Form 10-Q
(File
No. 001-33549),
filed on November 14, 2008 and herein incorporated by
reference).
|
|
10
|
.3
|
|
Amendment to Management Agreement, dated as of
September 30, 2008 (previously filed as Exhibit 10.1
to the Companys
Form 8-K
(File
No. 001-33549),
filed on October 2, 2008 and herein incorporated by
reference).
|
|
10
|
.4
|
|
Warrant to Purchase Common Stock, dated as of September 30,
2008 (previously filed as Exhibit 10.2 to the
Companys
Form 8-K
(File
No. 001-33549),
filed on October 2, 2008 and herein incorporated by
reference).
|
|
10
|
.5
|
|
Mortgage Purchase Agreement, dated as of September 30, 2008
(previously filed as Exhibit 10.3 to the Companys
Form 8-K
(File
No. 001-33549),
filed on October 2, 2008 and herein incorporated by
reference).
|
|
10
|
.6
|
|
Earn Out Agreement, dated as of June 26, 2008 (previously
filed as Exhibit 10.1 to the Companys
Form 8-K
(File
No. 001-33549),
filed on July 2, 2008 and herein incorporated by reference).
|
|
10
|
.7
|
|
Multifamily Note, dated as of June 26, 2008 (previously
filed as Exhibit 10.2 to the Companys
Form 8-K
(File
No. 001-33549),
filed on July 2, 2008 and herein incorporated by reference).
|
|
10
|
.8
|
|
Exceptions to Non-Recourse Guaranty, dated as of June 26,
2008 (previously filed as Exhibit 10.3 to the
Companys
Form 8-K
(File
No. 001-33549),
filed on July 2, 2008 and herein incorporated by reference).
|
|
10
|
.9
|
|
Master Lease Agreement, dated as of June 26, 2008
(previously filed as Exhibit 10.4 to the Companys
Form 8-K
(File
No. 001-33549),
filed on July 2, 2008 and herein incorporated by reference).
|
|
10
|
.10
|
|
Amendment No. 3 to Master Repurchase Agreement, dated as of
June 26, 2008 (previously filed as Exhibit 10.5 to the
Companys
Form 8-K
(File
No. 001-33549),
filed on July 2, 2008 and herein incorporated by reference).
|
|
10
|
.11
|
|
Purchase and Sale Contract, dated as of May 14, 2008
(previously filed as Exhibit 10.1 to the Companys
Form 8-K
(File
No. 001-33549),
filed on May 20, 2008 and herein incorporated by reference).
|
|
10
|
.12
|
|
Performance Share Award Agreement, dated as of May 12, 2008
(previously filed as Exhibit 10.4 to the Companys
Form 10-Q
(File
No. 001-33549),
filed on November 14, 2008 and herein incorporated by
reference).
|
|
10
|
.13
|
|
Restricted Stock Unit Agreement Under the 2007 Care Investment
Trust Inc. Equity Plan, dated as of April 8, 2008
(previously filed as Exhibit 10.1 to the Companys
Form 8-K
(File
No. 001-33549),
filed on April 14, 2008 and herein incorporated by
reference).
|
94
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.14
|
|
Form of Restricted Stock Unit Agreement Under the 2007 Care
Investment Trust Inc. Equity Plan (previously filed as
Exhibit 10.2 to the Companys
Form 8-K
(File
No. 001-33549),
filed on April 14, 2008 and herein incorporated by
reference).
|
|
10
|
.15
|
|
Contribution and Purchase Agreement, dated as of
December 31, 2007 (previously filed as Exhibit 10.1 to
the Companys
Form 8-K
(File
No. 001-33549),
filed on January 4, 2008 and herein incorporated by
reference).
|
|
10
|
.16
|
|
Master Repurchase Agreement entered into by Care Investment
Trust Inc. and two of its subsidiaries, Care QRS 2007 RE
Holdings Corp. and Care Mezz QRS 2007 RE Holdings Corp., with
Column Financial, Inc. (previously filed as Exhibit 10.1 to
the Companys
Form 10-Q
(File
No. 001-33549),
filed on November 14, 2007 and herein incorporated by
reference).
|
|
10
|
.17
|
|
Registration Rights Agreement (previously filed as
Exhibit 10.1 to the Companys
Form 10-Q
(File
No. 001-33549),
filed on August 14, 2007 and herein incorporated by
reference).
|
|
10
|
.18
|
|
Management Agreement (previously filed as Exhibit 10.2 to
the Companys
Form 10-Q
(File
No. 001-33549),
filed on August 14, 2007 and herein incorporated by
reference).
|
|
10
|
.19
|
|
Care Investment Trust Inc. Equity Plan (previously filed as
Exhibit 10.4 to the Companys
Form 10-Q
(File
No. 001-33549),
filed on August 14, 2007 and herein incorporated by
reference).
|
|
10
|
.20
|
|
Manager Equity Plan (previously filed as Exhibit 10.5 to
the Companys
Form 10-Q
(File
No. 001-33549),
filed on August 14, 2007 and herein incorporated by
reference).
|
|
10
|
.21
|
|
Form of Restricted Stock Agreement under Care Investment
Trust Inc. Equity Plan (previously filed as
Exhibit 10.5 to the Companys
Form S-11,
as amended (File
No. 333-141634),
and herein incorporated by reference).
|
|
10
|
.22
|
|
Form of Restricted Stock Agreement under Care Investment
Trust Inc. Equity Plan (previously filed as
Exhibit 10.6 to the Companys
Form S-11,
as amended (File
No. 333-141634),
and herein incorporated by reference).
|
|
10
|
.23
|
|
Form of Restricted Stock Agreement under Care Investment
Trust Inc. Manager Equity Plan (previously filed as
Exhibit 10.8 to the Companys
Form S-11,
as amended (File
No. 333-141634),
and herein incorporated by reference).
|
|
10
|
.24
|
|
Form of Indemnification Agreement entered into by the
Registrants directors and officers (previously filed as
Exhibit 10.9 to the Companys
Form S-11,
as amended (File
No. 333-141634),
and herein incorporated by reference).
|
|
10
|
.25
|
|
Assignment Agreement dated as of January 31, 2009, by and
between Care Investment Trust Inc. and CIT Healthcare LLC
(previously filed as Exhibit 10.1 to the Companys
Form 8-K
(File
No. 001-33549),
filed on February 5, 2009 and herein incorporated by
reference).
|
|
10
|
.26
|
|
Loan Purchase Agreement with CapitalSource Bank dated
September 15, 2009 (previously filed as Exhibit 10.1
to the Companys
Form 10-Q
(File
No. 001-33549),
filed on November 9, 2009 and herein incorporated by
reference).
|
|
10
|
.27
|
|
Loan Purchase and Sale Agreement dated as of October 6,
2009, by and between Care Investment Trust Inc. and General
Electric Capital Corporation (previously filed as
Exhibit 10.1 to the Companys
Form 8-K
(File
No. 001-33549),
filed on November 18, 2009 and herein incorporated by
reference).
|
|
10
|
.28
|
|
Care Investment Trust Inc. Plan of Liquidation (previously
filed as Exhibit A to the Companys Schedule 14A
(File
No. 001-33549),
filed on December 28, 2009 and herein incorporated by
reference).
|
95
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.29
|
|
Amended and Restated Management Agreement by and between Care
Investment Trust Inc. and CIT Healthcare LLC, dated as of
January 15, 2010 (previously filed as Exhibit 10.1 to
the Companys
Form 8-K
(File
No. 001-33549),
filed on January 15, 2010 and herein incorporated by
reference).
|
|
10
|
.30
|
|
Form of Performance Share Award Granted to the Companys
Chairman of the Board and Executive Officers dated
December 10, 2009 and amended and restated on
February 23, 2010.
|
|
10
|
.31
|
|
Purchase and Sale Agreement by and between Care Investment Trust
Inc. and Tiptree Financial Partners, L.P., dated as of
March 16, 2010 (previously filed as Exhibit 10.1 to
the Companys
Form 8-K
(File No. 001-33549), filed on March 16, 2010 and
herein incorporated by reference).
|
|
10
|
.32
|
|
Registration Rights Agreement by and between Care Investment
Trust Inc. and Tiptree Financial Partners, L.P., dated as of
March 16, 2010 (previously filed as Exhibit 10.2 to
the Companys
Form 8-K
(File No. 001-33549), filed on March 16, 2010 and
herein incorporated by reference).
|
|
21
|
.1
|
|
Subsidiaries of the Company.
|
|
23
|
.1
|
|
Consent of Deloitte & Touche, dated as of
March 16, 2010.
|
|
31
|
.1
|
|
Certification of CEO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of CFO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of CEO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of CFO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
96
Care
Investment Trust Inc. and Subsidiaries
Schedule III Real Estate and Accumulated
Depreciation
December 31, 2009
(Dollars in thousands)
|
|
|
|
|
Real Estate:
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
106,544
|
|
Additions/adjustment during the year:
|
|
|
|
|
Land
|
|
|
|
|
Buildings and improvements
|
|
|
(524
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
106,020
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation:
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
1,414
|
|
Additions during the year:
|
|
|
|
|
Additions charged to operating expense
|
|
|
3,067
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
4,481
|
|
|
|
|
|
|
97
Care
Investment Trust Inc. and Subsidiaries
Schedule IV Mortgage Loans on Real Estate
December 31, 2009
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Carrying
|
|
|
Interest
|
|
|
Maturity
|
Property Type(a)
|
|
City
|
|
State
|
|
Amount
|
|
|
Rate
|
|
|
Date
|
|
SNF/ALF(b)/(d)
|
|
Nacogdoches
|
|
Texas
|
|
|
9,338
|
|
|
|
L+3.15
|
%
|
|
10/02/11
|
SNF/Sr.Appts/ALF
|
|
Various
|
|
Texas/Louisiana
|
|
|
14,226
|
|
|
|
L+4.30
|
%
|
|
02/01/11
|
SNF(c)/(d)
|
|
Various
|
|
Michigan
|
|
|
10,178
|
|
|
|
L+7.00
|
%
|
|
02/19/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in loans, gross
|
|
|
|
|
|
|
33,742
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
|
|
|
|
(8,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at lower of cost or market
|
|
|
|
|
|
$
|
25,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
SNF refers to skilled nursing
facilities; ALF refers to assisted living facilities; ICF refers
to intermediate care facility; and Sr. Appts refers to senior
living apartments.
|
|
(b)
|
|
Loan sold to third party in March
2010 totaling $6,069,793. (See Note )
|
|
(c)
|
|
Loan repaid by borrower at maturity
in February 2010 totaling $9,974,695. (See
Note )
|
|
(d)
|
|
The mortgages are subject to
various interest rate floors ranging from 6.00% to 11.5%.
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
159,916
|
|
Additions:
|
|
|
|
|
New loans and advances on existing loans
|
|
|
|
|
Amortization of loan fees
|
|
|
247
|
|
Deductions:
|
|
|
|
|
Repayments
|
|
|
(40,379
|
)
|
Sale of loan to Manager
|
|
|
(42,249
|
)
|
Sale of loan to third parties
|
|
|
(55,790
|
)
|
Amortization of premium
|
|
|
(1,530
|
)
|
Adjustments to lower of cost or market reserve
|
|
|
4,046
|
|
Gain on sale of loans
|
|
|
1,064
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
25,325
|
|
|
|
|
|
|
98
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Care Investment Trust Inc.
Paul F. Hughes
Chief Financial Officer and Treasurer and
Chief Compliance Officer and Secretary
March 16, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been duly signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Salvatore
(Torey) V. Riso, Jr.
Salvatore
(Torey) V. Riso, Jr.
|
|
President and Chief Executive Officer (Principal Executive
Officer)
|
|
March 16, 2010
|
|
|
|
|
|
/s/ Paul
F. Hughes
Paul
F. Hughes
|
|
Chief Financial Officer and Treasurer and Chief Compliance
Officer and Secretary (Principal Financial and Accounting
Officer)
|
|
March 16, 2010
|
|
|
|
|
|
/s/ Flint
D. Besecker
Flint
D. Besecker
|
|
Chairman of the Board of Directors
|
|
March 16, 2010
|
|
|
|
|
|
/s/ Gerald
E. Bisbee, Jr.
Gerald
E. Bisbee, Jr.
|
|
Director
|
|
March 16, 2010
|
|
|
|
|
|
/s/ Karen
P. Robards
Karen
P. Robards
|
|
Director
|
|
March 16, 2010
|
|
|
|
|
|
/s/ J.
Rainer Twiford
J.
Rainer Twiford
|
|
Director
|
|
March 16, 2010
|
|
|
|
|
|
/s/ Steve
Warden
Steve
Warden
|
|
Director
|
|
March 16, 2010
|
99
EXHIBIT INDEX
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
3
|
.1
|
|
Amended and Restated Articles of Incorporation of the Registrant
(previously filed as Exhibit 3.1 to the Companys
Form 10-Q
(File
No. 001-33549),
filed on August 14, 2007 and herein incorporated by
reference.
|
|
3
|
.2
|
|
Amended and Restated Bylaws of the Registrant (previously filed
as Exhibit 3.2 to the Companys
Form 10-Q
(File
No. 001-33549),
filed on August 14, 2007 and herein incorporated by
reference).
|
|
4
|
.1
|
|
Form of Certificate for Common Stock (previously filed as
Exhibit 4.1 to the Companys
Form S-11,
as amended (File
No. 333-141634),
and herein incorporated by reference).
|
|
10
|
.1
|
|
Assignment Agreement, dated as of January 31, 2009
(previously filed as Exhibit 10.1 to the Companys
Form 8-K
(File
No. 001-33549),
filed on February 5, 2009 and herein incorporated by
reference).
|
|
10
|
.2
|
|
Amendment No. 4 to Master Repurchase Agreement, dated as of
November 13, 2008 (previously filed as Exhibit 10.5 to
the Companys
Form 10-Q
(File
No. 001-33549),
filed on November 14, 2008 and herein incorporated by
reference).
|
|
10
|
.3
|
|
Amendment to Management Agreement, dated as of
September 30, 2008 (previously filed as Exhibit 10.1
to the Companys
Form 8-K
(File
No. 001-33549),
filed on October 2, 2008 and herein incorporated by
reference).
|
|
10
|
.4
|
|
Warrant to Purchase Common Stock, dated as of September 30,
2008 (previously filed as Exhibit 10.2 to the
Companys
Form 8-K
(File
No. 001-33549),
filed on October 2, 2008 and herein incorporated by
reference).
|
|
10
|
.5
|
|
Mortgage Purchase Agreement, dated as of September 30, 2008
(previously filed as Exhibit 10.3 to the Companys
Form 8-K
(File
No. 001-33549),
filed on October 2, 2008 and herein incorporated by
reference).
|
|
10
|
.6
|
|
Earn Out Agreement, dated as of June 26, 2008 (previously
filed as Exhibit 10.1 to the Companys
Form 8-K
(File
No. 001-33549),
filed on July 2, 2008 and herein incorporated by reference).
|
|
10
|
.7
|
|
Multifamily Note, dated as of June 26, 2008 (previously
filed as Exhibit 10.2 to the Companys
Form 8-K
(File
No. 001-33549),
filed on July 2, 2008 and herein incorporated by reference).
|
|
10
|
.8
|
|
Exceptions to Non-Recourse Guaranty, dated as of June 26,
2008 (previously filed as Exhibit 10.3 to the
Companys
Form 8-K
(File
No. 001-33549),
filed on July 2, 2008 and herein incorporated by reference).
|
|
10
|
.9
|
|
Master Lease Agreement, dated as of June 26, 2008
(previously filed as Exhibit 10.4 to the Companys
Form 8-K
(File
No. 001-33549),
filed on July 2, 2008 and herein incorporated by reference).
|
|
10
|
.10
|
|
Amendment No. 3 to Master Repurchase Agreement, dated as of
June 26, 2008 (previously filed as Exhibit 10.5 to the
Companys
Form 8-K
(File
No. 001-33549),
filed on July 2, 2008 and herein incorporated by reference).
|
|
10
|
.11
|
|
Purchase and Sale Contract, dated as of May 14, 2008
(previously filed as Exhibit 10.1 to the Companys
Form 8-K
(File
No. 001-33549),
filed on May 20, 2008 and herein incorporated by reference).
|
|
10
|
.12
|
|
Performance Share Award Agreement, dated as of May 12, 2008
(previously filed as Exhibit 10.4 to the Companys
Form 10-Q
(File
No. 001-33549),
filed on November 14, 2008 and herein incorporated by
reference).
|
|
10
|
.13
|
|
Restricted Stock Unit Agreement Under the 2007 Care Investment
Trust Inc. Equity Plan, dated as of April 8, 2008
(previously filed as Exhibit 10.1 to the Companys
Form 8-K
(File
No. 001-33549),
filed on April 14, 2008 and herein incorporated by
reference).
|
|
10
|
.14
|
|
Form of Restricted Stock Unit Agreement Under the 2007 Care
Investment Trust Inc. Equity Plan (previously filed as
Exhibit 10.2 to the Companys
Form 8-K
(File
No. 001-33549),
filed on April 14, 2008 and herein incorporated by
reference).
|
|
10
|
.15
|
|
Contribution and Purchase Agreement, dated as of
December 31, 2007 (previously filed as Exhibit 10.1 to
the Companys
Form 8-K
(File
No. 001-33549),
filed on January 4, 2008 and herein incorporated by
reference).
|
100
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
10
|
.16
|
|
Master Repurchase Agreement entered into by Care Investment
Trust Inc. and two of its subsidiaries, Care QRS 2007 RE
Holdings Corp. and Care Mezz QRS 2007 RE Holdings Corp., with
Column Financial, Inc. (previously filed as Exhibit 10.1 to
the Companys
Form 10-Q
(File
No. 001-33549),
filed on November 14, 2007 and herein incorporated by
reference).
|
|
10
|
.17
|
|
Registration Rights Agreement (previously filed as
Exhibit 10.1 to the Companys
Form 10-Q
(File
No. 001-33549),
filed on August 14, 2007 and herein incorporated by
reference).
|
|
10
|
.18
|
|
Management Agreement (previously filed as Exhibit 10.2 to
the Companys
Form 10-Q
(File
No. 001-33549),
filed on August 14, 2007 and herein incorporated by
reference).
|
|
10
|
.19
|
|
Care Investment Trust Inc. Equity Plan (previously filed as
Exhibit 10.4 to the Companys
Form 10-Q
(File
No. 001-33549),
filed on August 14, 2007 and herein incorporated by
reference).
|
|
10
|
.20
|
|
Manager Equity Plan (previously filed as Exhibit 10.5 to
the Companys
Form 10-Q
(File
No. 001-33549),
filed on August 14, 2007 and herein incorporated by
reference).
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|
10
|
.21
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|
Form of Restricted Stock Agreement under Care Investment
Trust Inc. Equity Plan (previously filed as
Exhibit 10.5 to the Companys
Form S-11,
as amended (File
No. 333-141634),
and herein incorporated by reference).
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|
10
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.22
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|
Form of Restricted Stock Agreement under Care Investment
Trust Inc. Equity Plan (previously filed as
Exhibit 10.6 to the Companys
Form S-11,
as amended (File
No. 333-141634),
and herein incorporated by reference).
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|
10
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.23
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Form of Restricted Stock Agreement under Care Investment
Trust Inc. Manager Equity Plan (previously filed as
Exhibit 10.8 to the Companys
Form S-11,
as amended (File
No. 333-141634),
and herein incorporated by reference).
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|
10
|
.24
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|
Form of Indemnification Agreement entered into by the
Registrants directors and officers (previously filed as
Exhibit 10.9 to the Companys
Form S-11,
as amended (File
No. 333-141634),
and herein incorporated by reference).
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10
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.25
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|
Assignment Agreement dated as of January 31, 2009, by and
between Care Investment Trust Inc. and CIT Healthcare LLC
(previously filed as Exhibit 10.1 to the Companys
Form 8-K
(File
No. 001-33549),
filed on February 5, 2009 and herein incorporated by
reference).
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|
10
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.26
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|
Loan Purchase Agreement with CapitalSource Bank dated
September 15, 2009 (previously filed as Exhibit 10.1
to the Companys
Form 10-Q
(File
No. 001-33549),
filed on November 9, 2009 and herein incorporated by
reference).
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|
10
|
.27
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|
Loan Purchase and Sale Agreement dated as of October 6,
2009, by and between Care Investment Trust Inc. and General
Electric Capital Corporation (previously filed as
Exhibit 10.1 to the Companys
Form 8-K
(File
No. 001-33549),
filed on November 18, 2009 and herein incorporated by
reference).
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10
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.28
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|
Care Investment Trust Inc. Plan of Liquidation (previously
filed as Exhibit A to the Companys Schedule 14A
(File
No. 001-33549),
filed on December 28, 2009 and herein incorporated by
reference).
|
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10
|
.29
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|
Amended and Restated Management Agreement by and between Care
Investment Trust Inc. and CIT Healthcare LLC, dated as of
January 15, 2010 (previously filed as Exhibit 10.1 to
the Companys
Form 8-K
(File
No. 001-33549),
filed on January 15, 2010 and herein incorporated by
reference).
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10
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.30
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|
Form of Performance Share Award Granted to the Companys
Chairman of the Board and Executive Officers dated December 10,
2009 and amended and restated on February 23, 2010.
|
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10
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.31
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|
Purchase and Sale Agreement by and between Care Investment Trust
Inc. and Tiptree Financial Partners, L.P., dated as of
March 16, 2010 (previously filed as Exhibit 10.1 to
the Companys
Form 8-K
(File No. 001-33549), filed on March 16, 2010 and
herein incorporated by reference).
|
|
10
|
.32
|
|
Registration Rights Agreement by and between Care Investment
Trust Inc. and Tiptree Financial Partners, L.P., dated as of
March 16, 2010 (previously filed as Exhibit 10.2 to
the Companys
Form 8-K
(File No. 001-33549), filed on March 16, 2010 and
herein incorporated by reference).
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21
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.1
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Subsidiaries of the Company.
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23
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.1
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Consent of Deloitte & Touche, dated as of
March 16, 2010.
|
101
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Exhibit No.
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Description
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31
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.1
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Certification of CEO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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31
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.2
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Certification of CFO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
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32
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.1
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|
Certification of CEO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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32
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.2
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Certification of CFO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
102
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K/A
(Amendment No. 1)
(Mark One)
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þ
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the fiscal year ended December 31, 2009
or
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o
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from
to
Commission File Number: 001-33549
Care Investment Trust Inc.
(Exact name of Registrant as specified in its charter)
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Maryland
(State or other jurisdiction of
incorporation or organization)
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38-3754322
(IRS Employer
Identification Number)
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505 Fifth Avenue, 6
th
Floor, New York, New York 10017
(Address of Registrants principal executive offices)
(212) 771-0505
(Registrants
telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock
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New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
o
No
þ
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
o
No
þ
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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
þ
No
o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to
the best of the registrants knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K
o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of
large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act (check one):
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes
o
No
þ
State the aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of the last day of the registrants most
recently completed second fiscal quarter: $65,704,642.
Indicate the number of shares outstanding of each of the issuers classes of common
stock, as of the latest practicable date.
As of April 20, 2010, there were 20,230,152 shares, par value $0.001, of the registrants
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
EXPLANATORY NOTE
Care Investment Trust Inc. (the Company) is filing this Amendment No. 1 to Form 10-K on
Form 10-K/A for the fiscal year ended December 31, 2009, in order to amend and restate Part III,
Items 10 through 14 of the report on Form 10-K that we originally filed with the Securities and
Exchange Commission (the SEC) on March 16, 2010.
This Form 10-K/A has been prepared and filed in reliance on General Instruction G to Form
10-K, which provides that registrants may provide the information required by Part III in a
definitive proxy statement or an amendment to the Form 10-K filed with the SEC within 120 days
after the end of the fiscal year covered by the report. The Company had initially planned to file
the Part III information in a definitive proxy statement. The Company has determined to instead
file this Form 10-K/A to provide the Part III information within the required time period.
In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the
Exchange Act), each item of the original Form 10-K that is amended by this Form 10-K/A is
restated in its entirety, and this Form 10-K/A is accompanied by currently dated certifications on
Exhibits 31.1 and 32.1 by the Companys Chief Executive Officer and Exhibits 31.2 and 32.2 by the Companys
Chief Financial Officer.
The original Form 10-K is therefore amended to (i) delete the reference on the cover of the
original Form 10-K to the incorporation by reference of a definitive proxy statement into Part III
of such Form 10-K and (ii) revise Part III, Items 10 through 14 of the Companys original Form 10-K
to include information previously omitted from the original Form 10-K.
Except as described above, no other changes have been made to the original Form 10-K. The
original Form 10-K continues to speak as of March 16, 2010, the date the Company filed the original
Form 10-K with the SEC, and other than as expressly indicated in this Form 10-K/A, the Company has
not updated the disclosures contained therein to reflect any events that have occurred at a date
subsequent to March 16, 2010. Accordingly, this Form 10-K/A should be read in conjunction with the
original Form 10-K and the Companys other reports filed thereafter.
FORWARD LOOKING STATEMENTS
Care Investment Trust Inc. (all references to Care, the Company, we, us, and our
mean Care Investment Trust Inc. and its subsidiaries) makes forward-looking statements in this
Form 10-K/A that are subject to risks and uncertainties. Forward-looking statements include all
statements that do not relate solely to historical or current facts and can be identified by the
use of words such as may, will, expect, believe, intend, plan, estimate, continue,
should and other comparable terms. These forward-looking statements include information about
possible or assumed future results of our business and our financial condition, liquidity, results
of operations, plans and objectives. They also include, among other things, statements concerning
anticipated revenue, income or loss, capital expenditures, dividends, capital structure, or other
financial terms as well as statements regarding subjects that are forward-looking by their nature.
The forward looking statements are based on our beliefs, assumptions, and expectations of our
future performance, taking into account the information currently available to us. These beliefs,
assumptions, and expectations can change as a result of many possible events or factors, not all of
which are known to us. If a change occurs, our business, financial condition, liquidity, and
results of operations may vary materially from those expressed in our forward looking statements.
You should carefully consider these risks that could cause actual results to vary from our forward looking statements
when you make a decision concerning an investment in our
securities. We are not
obligated to publicly update or
revise any forward looking statements, whether as a result of new information, future events,
or otherwise.
- 1 -
Part III
ITEM 10. Directors, Executive Officers and Corporate Governance.
Directors
Set forth below is the name, age, title and tenure of each director of the Company followed by
a summary of each directors background and principal occupations.
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Name
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Age
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Director Since
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Flint D. Besecker (Chairman of the Board)
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44
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2007
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Gerald E. Bisbee, Jr., Ph.D. (Chairman of the Audit Committee)
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67
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2007
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Karen P. Robards
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60
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2007
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J. Rainer Twiford (Chair of the CNG Committee)
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57
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2007
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Steven N. Warden
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54
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2008
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Flint
D. Besecker
has been a member of our Board of Directors since
Care was formed in 2007 and serves
as our chairman. Mr. Besecker is a veteran of both the commercial finance and healthcare
industries and currently runs Firestone Asset Management, a healthcare middle market private equity
business he founded in 2008. Firestone owns a variety of private equity investments focused on
early stage life science drug development as well as specialty pharmaceutical companies. In
addition, Mr. Besecker was formerly a director and chairman of the compensation committee of
Allion Healthcare, a specialty pharmaceutical company serving patients throughout the U.S. Prior to
founding Firestone Asset Management, Mr. Besecker served as the president and founder of CIT
Healthcare LLC (our Manager), and also served as president of CIT Commercial Real Estate. Prior
to joining CIT in 2004, Mr. Besecker held a variety of executive positions including managing
director of GE Healthcare Financial Services, executive vice president and chief risk officer of
Heller Healthcare Finance and president and co-founder of Healthcare Analysis Corporation. He also
served as an officer of Healthcare Financial Partners prior to its acquisition by Heller. Mr.
Besecker is treasurer and board member for the Center of Hospice and Palliative Care of Western NY.
He received a BS in Accounting from Canisius College in 1988 and is a Certified Public Accountant.
Mr. Besecker was selected to serve as a member and chairman of our Board of Directors because of
his significant achievements with, and intimate knowledge of, the Company and his extensive
experience in healthcare and real estate.
Gerald E. Bisbee, Jr., Ph.D.
has been a member of our Board of Directors since the
consummation of our initial public offering in 2007. Since 1998, Mr. Bisbee has been chairman,
president and chief executive officer of ReGen Biologics, Inc., an orthopedic medical device
developer, manufacturer and distributor. Prior to joining ReGen, Mr. Bisbee was chairman and chief
executive officer of APACHE Medical Systems, Inc., which he joined in 1989. Mr. Bisbee is currently
a director of Cerner Corporation (NASDAQ: CERN) and ReGen Biologics,
Inc. (US: RGBOE). Mr. Bisbee received a BA in business from North
Central College, an MBA from the Wharton School of the University of Pennsylvania and a Ph.D. and
M. Phil. from Yale University. Mr. Bisbee was selected to serve as a member of our Board of
Directors because of his significant high level experience in the health care industry and
experience of serving on the boards of other public companies.
- 2 -
Karen P. Robards
has been a member of our Board of Directors since the consummation of our
initial public offering in 2007. Since 1987, Ms. Robards has been a partner of Robards & Company,
LLC, a financial advisory and private investment firm. From 1976 to 1987, Ms. Robards was an
investment banker at Morgan Stanley & Co., where she headed its healthcare investment banking
activities. Ms. Robards serves as the vice chair of the board and chair of the audit committee of
the closed-end mutual funds managed by Blackrock, Inc., and she is a director of AtriCure Inc.
(NASDAQ: ATRC) where she serves on the audit committee and is chair of the compensation committee.
From 1996 to 2005, Ms. Robards served on the board of directors and was chair of the audit committee
of Enable Medical Corporation, which was acquired by AtriCure Inc. in 2005. Ms. Robards is a
co-founder and director of the Cooke Center for Learning and Development. Ms. Robards received an
AB in economics from Smith College and an MBA from Harvard Business School. Ms. Robards was
selected to serve on our Board of Directors because of her more than fifteen years of corporate governance
experience and long and extensive healthcare and finance experience.
J. Rainer Twiford
has been a member of our Board of Directors since the consummation of our
initial public offering in 2007. Since 1999, Mr. Twiford has been president of Brookline Partners,
Inc., an investment advisory company. Prior to joining Brookline Partners, Mr. Twiford was partner
of Trammell Crow Company from 1987 until 1991. Mr. Twiford is currently a director of IPI, Inc.,
Smith of Georgia and Tracon Pharmaceuticals, and previously served on the board of a children
behavioral health company. Mr. Twiford received a BA and a Ph.D. from the University of
Mississippi, an MA from the University of Akron and a JD from the University of Virginia. Mr.
Twiford was selected to be a member of our Board of Directors because of his extensive high level
experience in the financial industry.
Steven
N. Warden
has been a member of our Board of Directors since
2008. Mr. Warden joined CIT Group (NYSE: CIT) in 2005 as co-founder of our Manager. Mr. Warden was named
President of our Manager in April 2008. Mr. Warden is also a member of our Managers Investment
Committee. Prior to joining CIT, Mr. Warden was managing director of the Strategic Relationship
Group at GE Healthcare Financial Services from 2002 to 2005. From 1992 to 2002, Mr. Warden was with
Deutsche Bank Securities in New York, most recently as a managing director in the Leveraged Finance
Group. Prior to joining Deutsche Bank Securities, Mr. Warden worked at Wells Fargo Bank and
Manufacturers Hanover Trust Company. Mr. Warden received a BA from St. Lawrence University. Mr.
Warden was selected to be a member of our Board of Directors because of his intimate knowledge of
our Manager and significant experience in the financial industry.
Board of Directors Upon Closing of Transaction with Tiptree Financial Partners, L.P.
On March 16, 2010, we entered into a purchase and sale agreement with Tiptree Financial
Partners, L.P. (Tiptree). One of the conditions to closing the transaction is the resignation
of at least three (3) of our current directors and the appointment by Cares board of directors of
candidates acceptable to Tiptree to fill the resulting vacancies.
Director Independence
Our Corporate Governance Guidelines require that a substantial majority of the Board be
composed of directors who meet the independence criteria established by the NYSE. For a director to
be considered independent, the Board must affirmatively determine that the director has no material
relationship with Care (either directly or as a partner, stockholder, or officer of an organization
that has a relationship with Care). In assessing the materiality of a directors relationship with
Care, the Board broadly considers all relevant facts and circumstances, not only from the
standpoint of the director, but also that of persons or organizations with which the director has
an affiliation. The Board considers the following criteria, among others, in determining whether a
director qualifies as independent:
- 3 -
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The director cannot have been an employee, or have an immediate family
member who was an executive officer, of Care during the preceding
three (3) years;
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The director cannot receive, or have an immediate family member who
has received at any time during the previous three (3) years, more
than $100,000 during any twelve-month period in direct compensation
from Care, other than director and committee fees and pension or other
forms of deferred compensation for prior service (provided such
compensation is not contingent on continued service);
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The director cannot be affiliated with or employed by, or have an
immediate family member who was affiliated with or employed in a
professional capacity by, a present or former internal or external
auditor of Care or any of its consolidated subsidiaries during the
preceding three (3) years;
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The director cannot be employed, or have an immediate family member
who was employed, as an executive officer of another company where any
of Cares present executives has served on such companys compensation
committee during the preceding three (3) years; and
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The director cannot be an executive officer or an employee, or have an
immediate family member who was an executive officer, of a company
that made payments to or received payments from Care for property or
services in an amount per year in excess of the greater of $1 million
or 2% of such companys consolidated gross revenues during the
preceding three (3) years.
|
Our Definition of Independent Director is included as Appendix A to this Form 10-K/A. Our
Board of Directors has affirmatively determined, based upon its review of all relevant facts and
circumstances, that each of the following directors has no direct or indirect material
relationship with us and is independent under NYSE standards and our Definition of an Independent
Director: Messrs. Gerald E. Bisbee, Jr., Ph.D. and J. Rainer Twiford and Ms. Karen P. Robards.
Audit Committee
Our Board of Directors has established an audit committee that meets the definition provided
by Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The Audit Committee is
comprised of our three (3) independent directors: Messrs. Bisbee and Twiford and Ms. Robards. In
addition to satisfying the NYSEs definition of independence and the Companys own definition of
independence, our Audit Committee members satisfy the definition of independence imposed by
Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Mr. Bisbee chairs the committee
and has been determined by our Board of Directors to be an audit committee financial expert as
that term is defined in the Securities Exchange Act of 1934, as amended.
The Audit Committee assists the Board of Directors in overseeing:
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our accounting and financial reporting processes;
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the integrity and audits of our consolidated financial statements;
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our compliance with legal and regulatory requirements;
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the qualifications and independence of our independent auditors; and
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the performance of our independent auditors and any internal auditors.
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- 4 -
The Audit Committee is also responsible for engaging the independent auditors, reviewing with
the independent auditors the plans and results of the audit engagement, approving professional
services provided by the independent auditors and considering the range of audit and non-audit
fees.
- 5 -
AUDIT COMMITTEE REPORT
The Audit Committee oversees our financial reporting process on behalf of our Board of
Directors, in accordance with our Audit Committee Charter, which was approved in 2007. Management
has the primary responsibility for the preparation and presentation and integrity of our financial
statements and has represented to the Audit Committee that such financial statements were prepared
in accordance with generally accepted accounting principles. In fulfilling its oversight
responsibilities, our Audit Committee reviewed the audited financial statements in the Annual
Report on Form 10-K for the year ended December 31, 2009 with management, including a discussion of
the quality, not just the acceptability, of the accounting principles, the reasonableness of
significant judgments and the clarity of disclosures in the financial statements.
Our Audit Committee reviewed with our independent auditors, who are responsible for auditing
our financial statements and for expressing an opinion on the conformity of those audited financial
statements with accounting principles generally accepted in the United States, their judgment as to
the quality, not just the acceptability, of our accounting principles and such other matters as are
required to be discussed with the Audit Committee under Statement on Auditing Standards No. 61
(Communication with Audit Committees), as currently in effect. Our independent auditors also
provided to the Audit Committee the written disclosures required by the applicable requirements of
the Public Company Accounting Oversight Board relating to the independent accountants
communications with the Audit Committee concerning independence. In addition, the Audit Committee
has discussed with our independent auditors the auditors independence from both management and our
Company.
Our Audit Committee discussed with our independent auditors the overall scope and plans for
their audit. Our Audit Committee met with our independent auditors, with and without management
present, to discuss the results of their examinations, and the overall quality of our financial
reporting.
In reliance on the reviews and discussions referred to above, our Audit Committee recommended
to our Board of Directors that the audited financial statements be included in the Annual Report on
Form 10-K for the year ended December 31, 2009 for filing with the SEC.
Submitted by our Audit Committee
Gerald E. Bisbee, Jr. Ph.D. (Chairman)
Karen P. Robards
J. Rainer Twiford
- 6 -
Executive Officers
Set forth below is the name, age and title of each executive officer of the Company followed
by a summary of each executives background.
Salvatore (Torey) V. Riso Jr.
, age 48, has served as our president and chief executive officer
since December 2009. Mr. Riso formerly served as our secretary and chief compliance officer since
February 2008 and has been employed by CIT Group since September 2005, serving as senior vice
president and chief counsel of CIT Corporate Finance since March 2007. Prior to his current
position at CIT Group, Mr. Riso served as chief counsel for our Manager, CIT Healthcare, and other
business units of CIT Group. Between 1997 and 2005, Mr. Riso was in private practice in the New
York office of Orrick Herrington & Sutcliffe LLP, where he worked in Orricks global finance
practice group. Mr. Riso received a BA in economics and history cum laude from UCLA, as well as a
JD from the Loyola Law School of Los Angeles.
Paul F. Hughes
, age 55, has been our chief financial officer and treasurer since March 2009
and has served as our secretary and chief compliance officer since December 2009. Mr. Hughes is
senior vice president and chief financial officer of the CIT Corporate Finance Unit. Mr. Hughes has
over 30 years of finance and accounting experience, including 25 years with CIT. Mr. Hughes joined
CIT in 1983 as a manager in the Internal Audit Department. He has held a number of executive
positions including a leadership position in CIT Equipment Finance from 1986 to 2002 where he was
responsible for the financial operations and other management roles with the business unit. Most
recently, Mr. Hughes served as Senior Vice President of Corporate Development from 2003 to 2009
where he handled all aspects of pricing, contract negotiations and internal/external coordination
for acquisitions and dispositions of CIT businesses. Prior to joining CIT, Mr. Hughes was an audit
manager at Coopers and Lybrand. Mr. Hughes is a graduate of Northeastern University in Boston, MA,
with a B.S. in Business Administration. Mr. Hughes has also attended the Executive Management
Program at the Tuck School of Business at Dartmouth. Mr. Hughes is a CPA, licensed in the State of
New York.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive
officers and directors, and persons who own more than 10% of a registered class of our equity
securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors
and persons who own more than 10% of a registered class of our equity securities are required to
furnish us with copies of all Section 16(a) forms that they file. To our knowledge, based solely on
review of the copies of such reports furnished to us, all Section 16(a) filing requirements
applicable to our executive officers, directors and persons who own more than 10% of a registered
class of our equity securities were filed on a timely basis, except for that Mr. Besecker filed one
(1) late report with respect to one (1) transaction (shares purchased through the reinvestment of
dividends declared on our common stock).
Code of Business Conduct, Code of Ethical Conduct and Board Committee Charters
Our Board of Directors has adopted a Code of Business Conduct and a Code of Ethical Conduct as
required by the listing standards of the NYSE that applies to our directors, executive officers and
employees of our Manager and its affiliates. The Code of Business Conduct and Code of Ethical Conduct were designed to
assist our directors, executive officers and employees of our Manager
and its affiliates in complying with the law,
resolving moral and ethical issues that may arise and in complying with our policies and
procedures. Among the areas addressed by the Code of Business Conduct and Code of Ethical Conduct
are compliance with applicable laws, conflicts of interest, use and protection of our Companys
assets,
- 7 -
confidentiality, communications with the public, accounting matters, records retention and
discrimination and harassment.
Corporate Governance Documents Available at Our Website
We are committed to operating our business under strong and accountable corporate governance
practices. You are encouraged to visit the corporate governance section of our corporate website at
http://www.carereit.com
to view or to obtain copies of the respective charters of our Audit
Committee and Compensation, Nominating and Governance Committee, our Code of Business Conduct, Code
of Ethical Conduct, Corporate Governance Guidelines and our Definition of an Independent Director.
Communications with our Board of Directors
We have a process by which stockholders and/or other parties may communicate with our Board of
Directors, our independent directors as a group or our individual directors. Any such
communications may be sent to our Board by U.S. mail or overnight delivery and should be directed
to the Board of Directors, a Committee, the independent directors as a group, or an individual
director, c/o Paul F. Hughes, Secretary and Chief Compliance Officer, at Care Investment
Trust Inc., 505 Fifth Avenue, 9th Floor, New York, New York 10017, who will forward such
communications on to the intended recipient. Any such communications may be made anonymously. In
addition, stockholder communications can be directed to the Board by calling the Care hotline
listed on our website.
Executive Sessions of Independent Directors
In accordance with our Corporate Governance Guidelines, the independent directors serving on
our Board of Directors generally meet in executive session at the end of each regularly scheduled
Board meeting without the presence of any non-independent directors or other persons who are part of our
management. The executive sessions regularly are chaired by Ms. Robards. Interested parties
may communicate directly with the presiding director or non-management directors as a group through
the process set forth above under Communications with our Board of Directors.
- 8 -
ITEM 11. Executive Compensation.
Compensation Discussion and Analysis
Overview
We have no employees. We are managed by CIT Healthcare LLC, our Manager, pursuant to a
management agreement between our Manager and us. All of our named executive officers (Messrs. Riso and
Hughes) are, or in the case of Messrs. Kellman and Plenskofski, were, employees of our
Manager or one of its affiliates. We have not paid, and we do not intend to pay, any cash
compensation to our executive officers and we do not currently intend to adopt any policies with
respect thereto. We do not have agreements with any of our executive officers or any employees of
our Manager or its affiliates with respect to their cash compensation. Our Manager determines the levels of base
salary and cash incentive compensation that may be earned by our executive officers, as our Manager
determines is appropriate. Our Manager also determines whether and to what extent our executive
officers are provided with pension, deferred compensation and other employee benefits plans and
programs.
Cash compensation paid to our executive officers is paid by our Manager or its affiliates in
part from the fees paid by us to our Manager under the management agreement. We do not control how
such fees are allocated by our Manager to its employees. In addition, we understand that, because
the services performed by our Managers and its affiliates employees, including our executive officers, are not
performed exclusively for us, our Manager is not able to segregate that portion of the cash
compensation paid to our executive officers by our Manager or its affiliates that relates to their
services to us.
Equity Compensation
Our Compensation, Nominating and Governance
Committee (CNG Committee), may, from time to
time, grant equity awards designed to align the interests of our executive officers with those of
our stockholders, by allowing our executive officers to share in the creation of value for our
stockholders through stock appreciation and dividends. The equity awards granted to our executive
officers are generally subject to time-based vesting requirements designed to promote the retention
of management and to achieve strong performance for our Company. These awards further provide
flexibility to us in our ability to enable our Manager to attract, motivate and retain talented
individuals at our Manager. We have adopted the Care Investment Trust Inc. 2007 Equity Plan, which
provides for the issuance of equity-based awards, including stock options, stock appreciation
rights, restricted stock, restricted stock units, unrestricted stock awards and other awards based
on our common stock that may be made by us to our directors and officers and to our advisors and
consultants who are providing services to the Company (which may include employees of our Manager
and its affiliates) as of the date of the grant of the award. Shares of common stock issued to our
independent directors with respect to their annual retainer fees are also issued under this plan.
Our Board of Directors has delegated its administrative responsibilities under the 2007 Equity
Plan to our CNG Committee. In its capacity as plan administrator, the CNG Committee has the
authority to make awards to eligible directors, officers, advisors and consultants, and to
determine what form the awards will take and the terms and conditions of the awards. Grants of
equity-based or other compensation to our chief executive officer must also be approved by the
independent members of our Board.
- 9 -
Special Equity Grant to Mr. Kellman
On March 13, 2009, our Board of Directors approved a special grant of 21,440 restricted stock
units to Mr. Kellman. The award was structured to vest in four equal installments beginning on the first
anniversary of the grant date (March 13, 2010). Our Board of Directors granted the award to Mr.
Kellman, which had a grant date fair value of $124,995 based on our closing stock price on March
13, 2009 of $5.83 per share, to recognize his service as Chief Executive Officer and President of
the Company. Mr. Kellman resigned from the Company on December 4, 2009. Pursuant to the terms of his award, the 21,440 restricted stock units vested upon his resignation.
Special Equity Grant to Mr. Riso
On March 12, 2009, our Board of Directors approved a special grant of 10,486 restricted stock
units to Mr. Riso. The award was structured to vest in four equal installments beginning on the first anniversary
of the grant date (March 12, 2010). Our Board of Directors granted the award to Mr. Riso, which
had a grant date fair value of $62,497 based on our closing stock price on March 12, 2009 of $5.96
per share, to recognize Mr. Risos continued service to the Company. These shares vested on
January 28, 2010, upon the approval of the plan of liquidation by our stockholders.
Special Equity Grant to Mr. Hughes
On May 7, 2009, our Board of Directors approved a special grant of 13,333 restricted stock
units to Mr. Hughes. The award was structured to vest in four equal installments beginning on the first anniversary
of the grant date (May 7, 2010). Our Board of Directors granted the award to Mr. Hughes, which had
a grant date fair market value of $66,265 based on our closing stock price on May 7, 2009 of $4.97
per share, to recognize Mr. Hughess service to our company as the new chief financial officer and
treasurer. These shares vested on January 28, 2010, upon the
approval of the plan of liquidation by our stockholders.
Performance Share Awards to Mr. Riso and Mr. Hughes
On December 10, 2009, our Board of Directors awarded Mr. Riso and Mr. Hughes performance share
awards with target levels of 5,000 and 3,000, respectively. These awards were amended and
restated on February 23, 2010, such that the awards are triggered upon the execution, during 2010,
of one or more of the following transactions that results in a return of liquidity to our
stockholders within the parameters expressed in the agreement: (i) a merger or other business
combination resulting in the disposition of all of the issued and outstanding equity securities of
the Company, (ii) a tender offer made directly to our stockholders either by us or a third party
for at least a majority of our issued and outstanding common stock, or (iii) the declaration of
aggregate distributions by the our Board equal to or exceeding $8.00 per share. If the net
proceeds are less than $7.50 per share, each individual will receive 50% of their respective target
awards. If the net proceeds are greater than or equal to $7.50 per share and less than or equal to
$7.99 per share, each individual will receive his respective target award. If the net proceeds are
equal to or exceed $8.00 per share, each individual will receive 200% of his respective target
award. Each performance share award will accrue any distributions declared during the award period
without duplication. If any of these individuals is terminated or removed during the award period
for cause, they will automatically forfeit their performance share award. If any of these
individuals is terminated or removed during the award period for any other reason, then they will
receive a prorated award at the end of the award period based on the number of days during the
award period that they were with the Company. Upon a change in control of the Company, other than a
liquidity event, during the award period, the award period will automatically be deemed completed
and payouts will be made to each individual at their respective target levels.
Mr. Riso will be entitled to receive 10,000 performance shares in connection with the Tiptree
transaction, which will represent $90,000 in value if the tender offer to be conducted as part
of the Tiptree transaction is completed.
Mr. Hughes will be entitled to receive 6,000
performance shares in connection with the Tiptree transaction, which will represent $54,000 in value if
the tender offer to be conducted as part of the Tiptree transaction is completed.
- 10 -
COMPENSATION, NOMINATING AND GOVERNANCE COMMITTEE REPORT
Our CNG Committee has reviewed and discussed the Compensation Discussion and Analysis required
by Item 402(b) of Regulation S-K with management and, based on such review and discussions, our
Compensation Committee recommended to our Board of Directors that the Compensation Discussion and
Analysis be included in this annual report on Form 10-K.
Submitted by our CNG Committee
J. Rainer Twiford (Chairman)
Gerald E. Bisbee, Jr., Ph.D.
Karen P. Robards
- 11 -
Summary Compensation Table
The following table sets forth information regarding the compensation paid to our named
executive officers by us in 2009, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
(1)
|
|
|
Total
|
|
Name And Principal Position
|
|
Year
|
|
|
($)
|
|
|
($)
|
|
Salvatore (Torey) V. Riso Jr.
(2)
|
|
|
2008
|
|
|
$
|
18,058
|
|
|
$
|
18,058
|
|
Chief Executive Officer, President
|
|
|
2009
|
|
|
$
|
149,933
|
|
|
$
|
149,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul F.
Hughes
(3)
|
|
|
2009
|
|
|
$
|
110,131
|
|
|
$
|
110,131
|
|
Chief Financial Officer, Treasurer, Secretary & Chief
Compliance Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F. Scott Kellman
(4)
|
|
|
2007
|
|
|
$
|
75,719
|
|
|
$
|
75,719
|
|
Chief Executive Officer, President
|
|
|
2008
|
|
|
$
|
256,881
|
|
|
$
|
256,881
|
|
|
|
|
2009
|
|
|
$
|
966,734
|
|
|
$
|
966,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank E. Plenskofski
(5)
|
|
|
2008
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Chief Financial Officer, Treasurer
|
|
|
2009
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
(1)
|
|
Amounts recognized by the Company for financial statement
reporting purposes in the fiscal years ended December 31, 2007,
December 31, 2008 and December 31, 2009 in accordance with Accounting Standards Codification 718
Compensation Stock Compensation
. See Footnote 10 to our Consolidated Financial Statements in
our Annual Report on Form 10-K for the year ended December 31,
2007 and Footnote 14 to our Consolidated Financial Statements in
our Annual Report on Form 10-K for each of the years ended
December 31, 2009 and 2008. In accordance with SEC rules,
estimates of forfeitures related to service-based conditions have
been disregarded.
|
|
(2)
|
|
Mr. Riso was not an executive officer in 2007. On
December 10, 2009, Mr. Riso was awarded a performance share award with a threshold, target and
maximum award of 2,500, 5,000 and 10,000 shares, respectively. The grant date fair value of the
award assuming the achievement of the highest level of performance is $79,800. On February 23,
2010, our Board amended the performance share awards. See Compensation Discussion and Analysis
Performance Share Awards to Mr. Riso and Mr. Hughes for more information on the amendment. The
grant date fair value of the award on February 23, 2010 for the highest level of performance is
$83,200.
|
|
(3)
|
|
Mr. Hughes was not an executive officer in 2007 and 2008.
On December 10, 2009, Mr. Hughes was awarded a performance share award with a threshold, target and
maximum award of 1,500, 3,000 and 6,000 shares, respectively. The grant date fair value of the award
assuming the highest level of performance is $47,880. On February 23, 2010, our Board amended the
performance share awards. See Compensation Discussion and Analysis Performance Share Awards to
Mr. Riso and Mr. Hughes for more information on the amendment. The grant date fair value of the
award on February 23, 2010 for the highest level of performance is $49,920.
|
|
(4)
|
|
On December 4, 2009, Mr. Kellman resigned as Chief Executive
Officer and President of the Company. Pursuant to the terms of Mr. Kellmans
restricted stock and RSU awards, the restricted stock and RSU awards vested upon
his resignation. In addition, upon Mr. Kellmans resignation, we agreed that,
notwithstanding the terms of his performance share award, when the determination
of the payout percentage is made by our compensation committee at the end of the
award period, the performance goals under the award shall be deemed to have been
attained at target level performance, or 23,255 shares of common stock. Under
the terms of the performance share award and our equity plan, stockholder approval
of the plan of liquidation on January 28, 2010, resulted in the acceleration of the
award period and the 23,255 shares vested.
|
|
(5)
|
|
Mr. Plenskofski resigned as Chief Financial Officer and Treasurer
of the Company on March 16, 2009. In connection with his resignation,
Mr. Plenskofski forfeited his RSU award.
|
Grants of Plan-Based Awards
The following table sets forth information about awards granted to our named executive
officers by us during the fiscal year ended December 31, 2009.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
|
Fair
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Market
|
|
|
Value of
|
|
|
|
|
|
|
|
Estimated Future Payouts Under
|
|
|
Shares of
|
|
|
Price on
|
|
|
Stock and
|
|
|
|
|
|
|
|
Equity Incentive Plan Awards
|
|
|
Stock or
|
|
|
Grant
|
|
|
Option
|
|
|
|
Grant
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Units
|
|
|
Date
|
|
|
Awards
|
|
Name
|
|
Date
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
(#)
|
|
|
($/Sh)
|
|
|
($)
|
|
Salvatore (Torey) V. Riso, Jr.
|
|
|
3/12/2009
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,486
|
|
|
$
|
5.96
|
|
|
$
|
62,497
|
|
|
|
|
12/10/2009
|
(1)
|
|
|
2,500
|
|
|
|
5,000
|
|
|
|
10,000
|
|
|
|
|
|
|
$
|
7.98
|
|
|
$
|
79,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul F. Hughes
|
|
|
5/7/2009
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,333
|
|
|
$
|
4.97
|
|
|
$
|
66,265
|
|
|
|
|
12/10/2009
|
(1)
|
|
|
1,500
|
|
|
|
3,000
|
|
|
|
6,000
|
|
|
|
|
|
|
$
|
7.98
|
|
|
$
|
47,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott F. Kellman
|
|
|
3/13/2009
|
(3)
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
21,440
|
|
|
$
|
5.83
|
|
|
$
|
124,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank E. Plenskofski
|
|
|
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
(4)
|
|
|
|
(4)
|
- 12 -
|
|
|
(1)
|
|
Award under the Amended and Restated Performance Share Award Agreement granted on December 10, 2009 and amended and restated on
February 23, 2010. The stock award in the table above represents the maximum opportunity for Mr. Riso
and Mr. Hughes, respectively, expressed as a number of RSUs. The fair value of the grants made to Mr. Riso and
Mr. Hughes as of the amendment date of February 23, 2010 for highest level of performance is $83,200 and $49,920, respectively.
|
|
(2)
|
|
RSU awards that were structured to vest ratably over the four
period from the grant date, beginning on March 12, 2010 and May 7, 2010 for Mr. Riso and Mr. Hughes,
respectively.
|
|
(3)
|
|
Mr. Kellman resigned from the company on
December 4, 2009. Pursuant to the terms of his award, these
RSUs vested upon his resignation.
|
|
(4)
|
|
Mr. Plenskofski did not receive any equity awards in 2009.
|
Outstanding Equity Awards at Fiscal Year End
The following table sets forth certain information with respect to all outstanding Care equity
awards held by each named executive officer at the end of the fiscal year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Equity
|
|
|
|
Number
|
|
|
Value of
|
|
|
Incentive
|
|
|
|
of Shares
|
|
|
Shares or
|
|
|
Plan Awards:
|
|
|
|
or Units
|
|
|
Units of
|
|
|
Number of
|
|
|
|
of Stock
|
|
|
Stock
|
|
|
Unearned Shares,
|
|
|
|
That Have
|
|
|
That Have
|
|
|
Units or Other
|
|
|
|
Not
|
|
|
Not
|
|
|
Rights That
|
|
Name
|
|
Vested (#)
|
|
|
Vested ($)
(1)
|
|
|
Have Not Vested
|
|
Salvatore (Torey) V. Riso, Jr.
|
|
|
12,210
|
(2)
|
|
$
|
94,994
|
(6)
|
|
|
|
|
|
|
|
10,486
|
(2)
|
|
$
|
81,581
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul F. Hughes
|
|
|
13,333
|
(3)
|
|
$
|
103,731
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott Kellman
|
|
|
0
|
(4)
|
|
$
|
0
|
(4)
|
|
|
23,255
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank E. Plenskofski
|
|
|
0
|
(5)
|
|
$
|
0
|
(5)
|
|
|
|
|
|
|
|
(1)
|
|
Based on the closing price of our common stock on the last
business day of the fiscal year ended December 31, 2009 of $7.78.
|
|
(2)
|
|
RSU awards granted on May 12, 2008 and March 12, 2009, that were structured to
vest in four equal installments on the anniversaries of the
grant date. Number represents portion of RSUs not yet vested as of December 31, 2009.
|
|
(3)
|
|
RSU award granted on May 7, 2009, that were structured to vest in four equal installments on the anniversaries of the grant date.
|
|
(4)
|
|
Mr. Kellman resigned from the Company on December 4, 2009.
In connection with his resignation, Mr. Kellmans 40,000 restricted shares and 73,882 RSUs vested, including the 21,440 RSUs
granted to Mr. Kellman on March 13, 2009.
In connection with the approval of the plan of liquidation by our stockholders on January 28, 2010,
Mr. Kellmans 23,255 performance shares vested.
|
|
(5)
|
|
Mr. Plenskofski resigned from the Company on March 16, 2009. He forfeited his grants in connection with his resignation.
|
|
(6)
|
|
All RSU awards granted vested on January 28, 2010.
|
|
(7)
|
|
On December 10, 2009, Mr. Riso was awarded a performance
share award with a target level of 5,000 shares. On February 23,
2010, our Board amended the performance share award. See
Compensation Discussion and Analysis Performance Share
Awards to Mr. Riso and Mr. Hughes for more information on the
award.
|
|
(8)
|
|
On December 10, 2009, Mr. Hughes was awarded a performance
share award with a target level of 3,000 shares. On February 23, 2010,
our Board amended the performance share award. See Compensation
Discussion and Analysis Performance Share Awards to Mr. Riso
and Mr. Hughes for more information on the award.
|
|
(9)
|
|
In May 2008, Mr. Kellman was granted a performance share award to cover the performance period from
January 1, 2008 through December 31, 2010. Upon Mr. Kellmans resignation on December 4, 2009, we agreed that,
notwithstanding the terms of his performance share award, when the determination of the payout percentage is
made by our compensation committee at the end of the award period, the performance goals under the award shall
be deemed to have been attained at target level performance, or 23,255 shares of common stock. Under the terms
of the performance share award and our equity plan, stockholder approval of the plan of liquidation on January 28, 2010,
resulted in the acceleration of the award period and the 23,255 shares vested.
|
Option Exercises and Stock Vested
We
have not granted any stock options. The 40,000 shares of restricted stock granted to Mr.
Kellman at the time of our initial public offering vested due to his termination from our Manager
(after he
had resigned from Care) without cause. Apart from Mr. Kellman, no other named executives restricted shares vested
during the fiscal year ended December 31, 2009.
- 13 -
Pension Benefits
Our named executive officers received no benefits in fiscal year 2009 from us under defined
pension or defined contribution plans.
Nonqualified Deferred Compensation
Our Company does not have a nonqualified deferred compensation plan that provides for deferral
of compensation on a basis that is not tax-qualified for our named executive officers.
Potential Payments Upon Termination or Change in Control
Our
named executive officers are employees of our Manager or its
affiliates and therefore we generally have no
obligation to pay them any form of cash compensation upon their termination of employment, except
with respect to the restricted stock award agreements, RSU agreements and performance share award
agreements.
On January 28, 2010, our stockholders approved a plan of liquidation, which was filed as
Exhibit A to our definitive proxy statement filed on December 28, 2009. Pursuant to the terms of
the restricted stock and RSU grant instruments and our Equity Plan, stockholder approval of the
plan of liquidation resulted in the accelerated vesting of restricted stock and RSUs. Therefore,
our directors and executive officers outstanding restricted stock and RSUs vested on January 28,
2010.
On May 12, 2008, Mr. Kellman, our former chief executive officer, was granted a performance
share award to cover the performance period from January 1, 2008 through December 31, 2010. In
connection with Mr. Kellmans resignation as our chief executive officer, we agreed that,
notwithstanding the terms of his performance share award, when the determination of the payout
percentage is made by our compensation committee at the end of the award period, the performance
goals under the award shall be deemed to have been attained at target level performance, or
23,255 shares of common stock. Under the terms of the performance share award and our Equity Plan,
stockholder approval of the plan of liquidation on January 28, 2010, resulted in the acceleration
of the award period and the 23,255 shares vested.
As
discussed above in Item 11: Performance Share Awards to Mr. Riso and Mr. Hughes, Messrs. Riso and
Hughes were awarded performance share awards on December 10,
2009, as amended on February 23, 2010. If Messrs. Riso or Hughes are terminated for cause, as defined in their
Amended and Restated Performance Share Award Agreements, prior to December 31, 2010, all
performance shares awarded to them under the performance share award agreements would be
automatically forfeited. If Messrs. Riso or Hughes are terminated for any reason other than for
cause prior to December 31, 2010, the individual will receive a pro-rata percentage of the
performance shares that would otherwise be payable if he had not been terminated.
If
we experienced a change in control as of December 31, 2009, other than a liquidity event,
the performance period would have been deemed to have completed as of such date, and the Company
would have been deemed to have achieved target level performance, resulting in an award of 5,000
shares of common stock to Mr. Riso and 3,000 shares of common stock to Mr. Hughes, which would have
had a fair market value as of December 31, 2009 of $38,900 and $23,340, respectively, based on our
closing stock price on December 31, 2009 of $7.78 per share.
Director Compensation
- 14 -
The following table sets forth information regarding the compensation paid to, and the
compensation expense we recognized, with respect to our Board of Directors during the fiscal year
ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or Paid in Cash
|
|
Stock Awards
|
|
Total
|
Name
|
|
($)
|
|
($)
(1)
|
|
($)
|
Flint D. Besecker
(2)
|
|
$
|
51,974
|
|
|
$
|
49,983
|
|
|
$
|
101,956
|
|
Gerald E. Bisbee, Jr., Ph.D.
|
|
$
|
57,517
|
|
|
$
|
49,983
|
|
|
$
|
107,500
|
|
Kirk E. Gorman
(3)
|
|
$
|
45,012
|
|
|
$
|
37,488
|
|
|
$
|
82,500
|
|
Alexandra Lebenthal
(4)
|
|
$
|
50,017
|
|
|
$
|
49,983
|
|
|
$
|
100,000
|
|
Karen P. Robards
|
|
$
|
57,017
|
|
|
$
|
49,983
|
|
|
$
|
107,000
|
|
J. Rainer Twiford
|
|
$
|
55,017
|
|
|
$
|
49,983
|
|
|
$
|
105,000
|
|
Steven N. Warden
(5)
|
|
$
|
0
|
|
|
$
|
123,900
|
|
|
$
|
123,900
|
|
|
|
|
(1)
|
|
Amounts recognized by the Company for financial statement reporting
purposes in the fiscal year ended December 31, 2009 in accordance with
Accounting Standards Codification 718
Compensation Stock Compensation
. See Footnote 14 to our Consolidated Financial Statements in
our Annual Report on Form 10-K. In accordance with SEC rules,
estimates of forfeitures related to service-based conditions have been
disregarded. As discussed below, each director, except for Mr. Warden,
receives an annual retainer payable half in cash and half in
unrestricted shares of our common stock. These unrestricted shares are
granted in approximately equal amounts per quarter in arrears and are
based on the closing price of our common stock on the last business
day of each quarter. The grant date fair market value of our common
stock as of the ends of each of the fiscal quarters in 2009 were
$7.78, $7.67, $5.20 and $5.46, respectively.
|
|
(2)
|
|
Mr. Besecker was granted 10,000 RSUs on November 5,
2009 that were structured to vest in four equal installments beginning on the first anniversary of the grant
date. In addition, on December 10, 2009, Mr. Besecker was
awarded a performance share award with a threshold, target and maximum award of 2,500, 5,000, and
10,000 shares, respectively. The grant date fair value of the award assuming the achievement of the highest level of performance
is $79,800. On February 23, 2010, our Board amended the performance share awards. See Performance Share Award to Mr. Besecker below for more information
on the amendment. The grant date fair value of the award on February 23, 2010 for
the highest level of performance is $83,200.
|
|
(3)
|
|
Mr. Gorman resigned from the Board of Directors on October 19, 2009.
|
|
(4)
|
|
Ms. Lebenthal resigned from the Board of Directors on January 28, 2010.
|
|
(5)
|
|
Mr. Warden was granted 15,000 RSUs on May 7, 2009
that were structured to vest in
four equal installments beginning on the first anniversary of the
grant date.
|
Each independent director receives an annual retainer of $100,000. The annual retainer
payable to our independent directors is payable quarterly in arrears, half in cash and half in
unrestricted stock. Any portion of the annual retainer that an independent director receives in
stock is granted pursuant to our 2007 Equity Plan.
The Chairman of our Board of Directors is entitled to receive an additional annual retainer of
$10,000. The Chairs of our Audit Committee and our former NCGIO Committee are each entitled to
receive an additional annual retainer of $7,500. The Chairman of our former Compensation Committee
is entitled to receive an additional annual retainer of $5,000. Effective January 28, 2010, the
Compensation Committee and NCGIO Committee were combined into the CNG Committee. The Chair of our
CNG Committee is entitled to receive an additional annual retainer of $7,000. These additional
retainer amounts paid to our Board and committee chairs are payable in cash. In addition, we
reimburse all directors for reasonable out-of-pocket expenses incurred in connection with their
services on our Board of Directors.
Performance Share Award to Mr. Besecker
On December 10, 2009, our Board of Directors awarded Mr. Besecker a performance share award
with a target share award of 5,000 shares of our common stock. This award was amended and restated
on
- 15 -
February 23, 2010, such that the award is triggered upon the execution, during 2010, of one or more
of the following transactions that results in a return of liquidity to our stockholders within the
parameters expressed in the agreement: (i) a merger or other business combination resulting in the
disposition of all of the issued and outstanding equity securities of the Company, (ii) a tender
offer made directly to our stockholders either by us or a third party for at least a majority of
our issued and outstanding common stock, or (iii) the declaration of aggregate distributions by the
our Board equal to or exceeding $8.00 per share.
Mr. Besecker will be entitled to receive 10,000 performance
shares in connection with the Tiptree transaction, which will represent $90,000 in value if the tender offer to be
conducted as part of the Tiptree transaction is completed.
Compensation Committee Interlocks and Insider Participation
There are no Compensation Committee interlocks and none of our executive officers participate
on our Compensation Committee.
- 16 -
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The following table sets forth the beneficial ownership of our common stock, as of March 25,
2010, for (1) each person known to us to be the beneficial owner of more than 5% of our outstanding
common stock, (2) each of our directors, (3) each of our named executive officers as of March 25,
2010 (including Mr. Kellman who resigned on December 4, 2009) and (4) our directors and named
executive officers as a group. Except as otherwise described in the notes below, the following
beneficial owners have sole voting power and sole investment power with respect to all shares of
common stock set forth opposite their respective names.
In accordance with SEC rules, each listed persons beneficial ownership includes:
|
|
|
all shares the investor actually owns beneficially or of record;
|
|
|
|
|
all shares over which the investor has or shares voting or dispositive
control (such as in the capacity as a general partner of an investment
fund); and
|
|
|
|
|
all shares the investor has the right to acquire within 60 days (such
as upon exercise of options that are currently vested or which are
scheduled to vest within 60 days).
|
Unless otherwise indicated, all shares are owned directly and the indicated person has sole
voting and investment power. Unless otherwise indicated, the business address for each beneficial
owner listed below shall be c/o Care Investment Trust Inc., 505 Fifth Avenue, 6th Floor, New York,
New York 10017.
|
|
|
|
|
|
|
|
|
|
|
Amount and Nature
|
|
|
|
|
|
|
of Beneficial
|
|
|
|
|
|
|
Ownership of
|
|
|
Percent of
|
|
Name
|
|
Common Stock
|
|
|
Total
(1)
|
|
CIT Group Inc.
(2)
505 5th Avenue, 6
th
Floor
New York, New York 10017
|
|
|
8,024,040
|
|
|
|
38.84
|
%
|
|
|
|
|
|
|
|
|
|
GoldenTree Asset Management LP
(3)
300 Park Avenue, 21st Floor
New York, New York 10022
|
|
|
4,360,454
|
|
|
|
21.56
|
%
|
|
|
|
|
|
|
|
|
|
Tyndall Capital Partners, L.P.
(4)
599 Lexington Avenue, Suite 4100
New York, New York 10022
|
|
|
1,049,000
|
|
|
|
5.19
|
%
|
|
|
|
|
|
|
|
|
|
F. Scott Kellman
(5)
|
|
|
142,950
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Flint D. Besecker
(6)
|
|
|
11,675
|
|
|
|
*
|
|
Salvatore (Torey) V. Riso Jr.
(7)
|
|
|
40
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Paul F. Hughes
(8)
|
|
|
0
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Gerald E. Bisbee, Jr. Ph.D.
(9)
|
|
|
20,834
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Karen P. Robards
(9)
|
|
|
21,334
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
J. Rainer Twiford
(9)
|
|
|
0
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Steven N. Warden
(10)
|
|
|
5,352
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
All Directors and Executive Officers as a Group (8 Persons)
|
|
|
202,185
|
|
|
|
*
|
|
|
|
|
*
|
|
The percentage of shares beneficially owned does not exceed one percent of the total shares of our common stock outstanding.
|
|
(1)
|
|
As of March 25, 2010, 20,224,548 shares of common stock were issued and outstanding and entitled to vote. The percent of
total for all of the persons listed in the table above is based on such 20,224,548 shares of common stock, except for CIT
Group Inc., whose percent of total is based on 20,659,548 shares of common stock, which includes a warrant to purchase
435,000 shares of our common stock.
|
- 17 -
|
|
|
|
(2)
|
|
In an amendment to Schedule 13D filed on October 2, 2008, CIT
Real Estate Holding Corporation and CIT Healthcare LLC, each
located at 505 Fifth Avenue, 6th Floor, New York, New York 10017,
were deemed, pursuant to Rule 13d-3 of the Securities Exchange
Act of 1934, as amended, to hold shared voting and dispositive
power over 6,981,350 and 1,042,690 shares of our common stock,
respectively. This amendment to Schedule 13D amended and
supplemented the Schedule 13D originally filed on July 9, 2007
and was filed to report the grant to CIT Healthcare LLC of
warrants to purchase 435,000 shares of our common stock pursuant
to a warrant agreement by and between CIT Group Inc. and the
company, dated September 30, 2008. By virtue of its 100%
ownership of CIT Real Estate Holding Corporation and CIT
Healthcare LLC, CIT Group Inc. was deemed to have shared voting
and dispositive power over 8,024,040 shares of our common stock.
On March 16, 2010, CIT Group Inc. entered into a warrant purchase
agreement with Tiptree, pursuant to which, CIT Group Inc. will
sell its warrant to purchase 435,000 shares of our common stock
to Tiptree upon the closing of a contemplated transaction between
Care and Tiptree.
|
|
(3)
|
|
In an amendment to Schedule 13G filed on January 25, 2010,
GoldenTree Asset Management LP was deemed, pursuant to Rule 13d-3
of the Securities Exchange Act of 1934, as amended, to hold
shared voting and dispositive power over 4,041,040 shares of our
common stock. By virtue of serving as the general partner of
GoldenTree Asset Management LP, GoldenTree Asset Management LLC
was deemed to have shared voting and dispositive power over the
shares held by GoldenTree Asset Management LP. Likewise,
Mr. Steven A. Tananbaum, by virtue of serving as managing member
to GoldenTree Asset Management LLC, was deemed to have shared
voting and dispositive power over the shares held by GoldenTree
Asset Management LP. In a Schedule 13G filed on March 4, 2009,
GoldenTree Asset Management LP, GoldenTree Asset Management LLC
and Mr. Steven A. Tananbaum, together with the Investment Manager
and IMGP, reported that they have ceased to be beneficial
owners of our common stock for purposes of Section 16(a) of the
Securities Exchange Act of 1934, as amended.
|
|
(4)
|
|
In a Schedule 13G filed on February 5, 2010, Tyndall Capital
Partners, L.P., located at 599 Lexington Avenue, Suite 4100, New
York, New York 10022, was deemed, pursuant to Rule 13d-3 of the
Securities Exchange Act of 1934, as amended, to hold shared
voting and dispositive power over 1,049,000 shares of our common
stock, due to its position as general partner of Tyndall
Partners, L.P. and Tyndall Institutional Partners, L.P.
|
|
(5)
|
|
Mr. Kellman resigned as chief executive officer and president of our company on December 4, 2009.
In connection with his resignation, Mr. Kellmans 40,000 restricted shares and 73,882 RSUs vested.
In connection with the approval of the plan of liquidation by our stockholders on January 28, 2010,
Mr. Kellmans 23,255 performance shares vested.
|
|
(6)
|
|
All of Mr. Beseckers unvested restricted stock and restricted
stock units vested upon the approval of the plan of liquidation
by our stockholders on January 28, 2010. Mr. Beseckers
beneficial ownership figure does not reflect the 10,000 shares
issuable to him upon settlement of the performance share award
granted to him on December 10, 2009.
|
|
(7)
|
|
All of Mr. Risos unvested restricted stock units vested upon the
approval of the plan of liquidation by our stockholders on
January 28, 2010. Mr. Risos beneficial ownership figure does not
reflect the 10,000 shares issuable to him upon settlement of the
performance share award granted to him on December 10, 2009.
|
|
(8)
|
|
All of Mr. Hughes unvested restricted stock units vested upon
the approval of the plan of liquidation by our stockholders on
January 28, 2010. Mr. Hughes beneficial ownership figure does
not reflect the 6,000 shares issuable to him upon settlement of
the performance share award granted to him on December 10, 2009.
|
|
(9)
|
|
All of our directors unvested restricted stock vested upon the
approval of the plan of liquidation by our stockholders on
January 28, 2010.
|
|
(10)
|
|
All of Mr. Wardens unvested restricted stock units vested upon
the approval of the plan of liquidation by our stockholders on
January 28, 2010.
|
Equity Compensation Plan Information
The following table summarizes information, as of December 31, 2009, relating to our equity
compensation plans pursuant to which shares of our common stock or other equity securities may be
granted from time to time.
- 18 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
|
(a)
|
|
|
|
|
|
|
Number of
|
|
|
|
Number of
|
|
|
(b)
|
|
|
securities
|
|
|
|
securities to be
|
|
|
Weighted
|
|
|
remaining
|
|
|
|
issued upon
|
|
|
average
|
|
|
available for
|
|
|
|
exercise of
|
|
|
exercise price of
|
|
|
future issuance
|
|
|
|
outstanding
|
|
|
outstanding
|
|
|
under equity
|
|
|
|
options, warrants
|
|
|
options, warrants
|
|
|
compensation
|
|
Plan category
|
|
and rights
|
|
|
and rights
|
|
|
Plans
(3)
|
|
Equity compensation plans approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Equity Plan
(1), (4)
|
|
|
149,210
|
|
|
NA
|
|
|
|
257,516
|
|
2007 Manager Equity Plan
|
|
|
435,000
|
|
|
$
|
17.00
|
|
|
|
282,945
|
|
Equity compensation plans not approved by security holders
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Total
|
|
|
584,210
|
|
|
NA
|
|
|
|
540,461
|
|
|
|
|
(1)
|
|
Our 2007 Equity Plan was adopted by our sole stockholder prior to
our initial public offering on June 22, 2007. The number of shares
in Column (a) includes 95,955 restricted stock units, as well
as (i) 23,255 performance shares awarded to Mr. Kellman that
were deemed to be vested on January 28, 2010 and (ii) 30,000
performance share awards granted to our executive officers. On
March 12, 2009, May 7, 2009 and November 4, 2009, our Compensation
Committee granted an additional 49,961 RSUs, 30,333 RSUs, and
10,000 RSUs, respectively, to our executive officers and employees
of our Manager and its affiliates pursuant to the 2008 Performance-Based RSU Award
Program. In addition, on December 10, 2009, our Compensation
Committee granted 30,000 performance shares to our executive
officers and employees of our Manager.
|
|
(2)
|
|
Our 2007 Manager Equity Plan was adopted by our sole stockholder
prior to our initial public offering on June 22, 2007. The number
of shares in Column (a) represents shares issuable upon exercise
of a warrant that we granted to our Manager on September 30, 2008.
See Certain Relationships and Related Transactions below. On
March 16, 2010, our Manager entered into a warrant purchase
agreement with Tiptree, pursuant to which, our Manager will sell
its warrant to purchase 435,000 shares of our common stock to
Tiptree upon the closing of a contemplated transaction between
Care and Tiptree.
|
|
(3)
|
|
Under the purchase and sale agreement with Tiptree, Care is
prohibited from making grants until the earlier of the termination
of the purchase and sale agreement or the Closing Date (as defined
in the purchase and sale agreement that was filed as Exhibit 10.1
to Cares Form 8-K on March 16, 2010).
|
|
(4)
|
|
All RSU awards which were granted and the performance share
granted to Mr. Kellman vested on January 28, 2010. As of
January 29, 2010, only the 30,000 performance shares granted on
December 10, 2009 are outstanding.
|
- 19 -
ITEM 13. Certain Relationships and Related Transactions, and Director Independence.
Policies and Procedures With Respect to Related Party Transactions
It is the policy of our Board of Directors that all related party transactions (generally,
transactions involving amounts exceeding $120,000 in which a related party (directors and executive
officers or their immediate family members, or stockholders owning 5% of more of our outstanding
stock) had or will have a direct or indirect material interest) shall be subject to approval or
ratification by the Audit Committee in accordance with the following procedures.
Each party to a potential related party transaction is responsible for notifying our Managers
legal department of the potential related person transaction in which such person or any immediate
family member of such person may be directly or indirectly involved as soon as he or she becomes
aware of such transaction. Our Managers legal department will determine whether the transaction
should be submitted to the Audit Committee for consideration. The Audit Committee will then review
the material facts of the transaction and either approve or disapprove of the entry into such
transaction.
Management Agreement
In connection with our initial public offering, we entered into a Management Agreement with
our Manager, which describes the services to be provided by our Manager and its compensation for
those services. On September 30, 2008, we amended (the Amendment) the Management Agreement
between ourselves and the Manager, and on January 15, 2010 we further amended and restated (the
Amendment and Restatement) the Management Agreement. In consideration of the Amendment and for the
Managers continued and future services to the us, we granted the Manager warrants to purchase
435,000 shares of our common stock at $17.00 per share (the Warrant) under the 2007 Manager
Equity Plan. The Warrant, which is immediately exercisable, expires on September 30, 2018.
Under the Amendment and Restatement, our Manager, subject to the oversight of our board of
directors, is required to conduct our business affairs in conformity with the policies and the
investment guidelines that are approved by our Board of Directors. The Amendment and Restatement
continues in effect, unless earlier terminated, until December 31, 2011.
The Amendment and Restatement reduces the base management fee to a monthly amount equal to (i)
$125,000 from February 1, 2010 until the earlier of (x) June 30, 2010 and (y) the date on which
four of our six Existing Investments have been sold; then from such date (ii) $100,000 until the
earlier of (x) December 31, 2010 and (y) the date on which five of our six Existing Investments
have been sold; then from such date (iii) $75,000 until the effective date of expiration or earlier
termination of the Amendment and Restatement by either of us or the Manager; provided, however,
that notwithstanding the foregoing, the Base Management Fee will remain at $125,000 per month until
the later of: (a) ninety (90) days after the filing by us of a Form 15 with the SEC; and (b) the
date that the we are no longer subject to the reporting requirements of the Exchange Act.
In addition, pursuant to the Amendment and Restatement, we will pay the Manager a Buyout
Payment of $7.5 million, payable as follows: (i) $2.5 million on the Effective Date; (ii)
$2.5 million upon the earlier of (a) April 1, 2010 and (b) the effective date of the termination of
the Amendment and Restatement by either of us or the Manager; and (iii) $2.5 million upon the
earlier of (a) June 30, 2011 and (b) the effective date of the termination of the Amendment and
Restatement by either us or the
- 20 -
Manager.
The Termination Fee that is operative under the original Management
Agreement was replaced by the Buyout Payments under the Amendment and
Restatement. On January 29, 2010 and April 1, 2010, we paid our
Manager $2.5 million and $2.5 million, respectively, pursuant to the
Buyout Payments under the Amendment and Restatement.
The Manager is also eligible for an Incentive Fee of $1.5 million if (i) at any time prior to
December 31, 2011, the aggregate cash dividends paid to our stockholders since the Effective Date
equal or exceed $9.25 per share or (ii) as of December 31, 2011, the sum of (x) the aggregate cash
dividends paid to our stockholders since the Effective Date and (y) the Aggregate Distributable
Cash equals or exceeds $9.25 per share. In the event that the Aggregate Distributable Cash equals
or exceed $9.25 per share but for the impact of payment of a $1.5 million Incentive Fee, we will
pay the Manager an Incentive Fee an amount that allows the Aggregate Distributable Cash to equal
$9.25 per share.
Both parties can terminate the Amendment and Restatement without cause under certain
circumstances, and we can terminate the Amendment and Restatement with cause.
For the year ended December 31, 2009, we recognized $2.2 million in management fee expense
related to the base management fee, and our Manager was not eligible for an incentive fee.
Mortgage Purchase Agreement
On September 30, 2008, we entered into a Mortgage Purchase Agreement (the MPA) with our
Manager in order to secure a potential additional source of liquidity. The MPA expired on September
30, 2009. Pursuant to the MPA, we had the right, but not the obligation, to cause the Manager to
purchase our current senior mortgage assets (the Mortgage Assets) at their then-current fair
market value, as determined by a third party appraiser. However, the MPA provided that in no event
shall the Manager be obligated to purchase any Mortgage Asset if (a) the Manager has already
purchased Mortgage Assets with an aggregate sale price of $125.0 million pursuant to the MPA or
(b) the third-party appraiser determines that the fair market value of such Mortgage Asset is
greater than 105% of the then outstanding principal balance of such Mortgage Asset. We had the
right exercise our rights under the MPA with respect to any or all of the Mortgage Assets
identified in the MPA at any time or from time to time until the MPA expired on September 30, 2009.
Pursuant to the MPA, we sold loans made to four borrowers with carrying amounts of
$24.8 million, $22.5 million, $2.9 million and $18.7 million for total proceeds of $65.2 million.
The sale of the first loan closed in November of 2008 and the company recorded a loss on the sale
of $2.4 million in the consolidated statement of operations for the year ended December 31, 2008.
The second loan closed in February of 2009 at a loss of $4.5 million and the third loan closed in
September 2009 at a loss of $1.3 million. In consideration
of the Amendment and Restatement, we agreed to terminate the MPA and
rescind all outstanding put notices under the MPA.
Warrant
In consideration of the Amendment and for the Managers continued and future services to the
Company, the Company granted the Manager warrants to purchase 435,000 shares of the Companys
common stock at $17.00 per share (the Warrant) under the 2007 Manager Equity Plan. The Warrant,
which is immediately exercisable, expires on September 30, 2018. On March 16, 2010, our Manager
entered into a warrant purchase agreement with Tiptree, pursuant to which, our Manager will sell
the Warrant to Tiptree upon the closing of a contemplated transaction between Care and Tiptree.
- 21 -
ITEM 14. Principal Accounting Fees and Services.
Audit Fees
Fees for audit services totaled approximately $865,500 in 2008, which represent audit fees
associated with our annual audit, reviews of our quarterly reports on Form 10-Q, review of
documents filed with the SEC, and a consent. In addition, fees for audit-related services totaled
$152,500 for compliance with internal controls and purchase price allocation.
Fees for audit services totaled approximately $821,000 in 2009, which represent audit fees
associated with our annual audit, review of our quarterly reports on Form 10-Q, review of documents
filed with the SEC, and a consent. There were no fees for audit-related services in 2009.
There were no tax fees or other fees paid to Deloitte & Touche LLP in 2008 and 2009.
Pre-Approval Policies and Procedures of our Audit Committee
Our Audit Committee has sole authority (with the input of management) to approve in advance
all engagements of our independent auditors for audit or non-audit services. All audit services
provided by Deloitte & Touche LLP in 2009 were pre-approved by our Audit Committee.
- 22 -
Part IV
ITEM 15. Exhibits, Financial Statement Schedules
(b) Exhibits.
|
|
|
Exhibit No.
|
|
Description
|
31.1
|
|
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2
|
|
Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
|
|
|
|
|
|
Care Investment Trust Inc.
|
|
|
By:
|
/s/ Paul F. Hughes
|
|
|
|
Paul F. Hughes
|
|
|
|
Chief Financial Officer and Treasurer and
Chief Compliance Officer and Secretary
|
|
|
April 30, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been duly
signed below by the following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Salvatore (Torey) V. Riso, Jr.
|
|
President and Chief Executive
|
|
April 30, 2010
|
|
|
|
|
|
Salvatore (Torey) V. Riso, Jr.
|
|
Officer (Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Paul F. Hughes
|
|
Chief Financial Officer and Treasurer and
|
|
April 30, 2010
|
|
|
|
|
|
Paul F. Hughes
|
|
Chief Compliance
Officer and Secretary
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Flint D. Besecker
|
|
Chairman of the Board of Directors
|
|
April 30, 2010
|
|
|
|
|
|
Flint D. Besecker
|
|
|
|
|
|
|
|
|
|
/s/ Gerald E. Bisbee, Jr.
|
|
Director
|
|
April 30, 2010
|
|
|
|
|
|
Gerald E. Bisbee, Jr.
|
|
|
|
|
|
|
|
|
|
/s/ Karen P. Robards
|
|
Director
|
|
April 30, 2010
|
|
|
|
|
|
Karen P. Robards
|
|
|
|
|
|
|
|
|
|
/s/ J. Rainer Twiford
|
|
Director
|
|
April 30, 2010
|
|
|
|
|
|
J. Rainer Twiford
|
|
|
|
|
|
|
|
|
|
/s/ Steve Warden
|
|
Director
|
|
April 30, 2010
|
|
|
|
|
|
Steve Warden
|
|
|
|
|
Appendix A
DEFINITION OF INDEPENDENT DIRECTOR
For purposes of this definition, immediate family member shall include a persons spouse,
parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and
sisters-in-law, and anyone (other than domestic employees) who shares such persons home.
A director shall be an independent director if such director:
1. is affirmatively determined by the Board, after consideration of all relevant facts and
circumstances, as having no material relationship with Care
1
(either directly or as a
partner, shareholder or officer of an organization that has a relationship with Care);
2. is not currently, and has not at any time during the prior three years been, an employee of
Care or any of its affiliates;
3. does not have an immediate family member who is, or has been in the prior three years, an
executive officer of Care or any of its affiliates;
4. does not receive compensation, directly or indirectly, from Care for services rendered as a
consultant or in any capacity other than a director, except for an amount that does not exceed the
dollar amount (currently $120,000) for which disclosure would be required under Item 404(a) of
Regulation S-K, and does not possess an interest in any other transaction for which disclosure
would be required pursuant to Item 404(a) of Regulation S-K;
5. does not receive, and no immediate family member of such director receives, and has not at
any time during the prior three years received, more than $100,000 during any twelve-month period
in direct compensation from Care or any of its affiliates, other than director and committee fees
and pension or other forms of deferred compensation for prior service (provided such compensation
is not contingent in any way on continued service);
6. is not affiliated with or employed by, and no member of such directors immediate family is
affiliated with or employed by, and has not within the prior three years been affiliated with or
employed in a professional capacity by, a present or former internal or external auditor of Care or
any of its consolidated subsidiaries;
7. is not employed, and no immediate family member of such director is employed, and has not
within the prior three years been employed as an executive officer of another company where any of
Cares present executives serves on that companys compensation committee;
8. is not an executive officer or an employee, and no immediate family member of such director
is an executive officer, of another company (A) that has made payments to Care in an amount which,
in any of the last three fiscal years, accounts for at least 2% or $1 million, whichever is
greater, of Cares consolidated gross revenues, or (B) that has received payments from Care in an
amount which, in any of the last three fiscal years, accounts for at least 2% or $1 million,
whichever is greater, of such other companys consolidated gross revenues;
9. is not a former employee of Care who receives compensation for prior services (other than
benefits under a tax-qualified retirement plan) during the taxable year;
10. has never been an officer of Care; and
11. does not receive remuneration from Care, either directly or indirectly, in any capacity
other than as a director, as such is more fully described in 26 CFR §1.162-27.
|
|
|
1
|
|
For purposes of determining independence, all references to Care shall mean
Care Investment Trust Inc. and each of its consolidated subsidiaries, if any.
|
- A - 1 -
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
|
|
þ
|
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
For the Quarterly period ended March 31, 2010
|
|
|
o
|
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
For the transition period from
to
Commission File Number: 001-33549
Care Investment Trust Inc.
(Exact name of Registrant as specified in its charter)
|
|
|
Maryland
|
|
38-3754322
|
(State or other jurisdiction of
incorporation or organization)
|
|
(IRS Employer
Identification Number)
|
505 Fifth Avenue, 6th Floor, New York, New York 10017
(Address of Registrants principal executive offices)
(212) 771-0505
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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
o
No
þ
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated filer
o
|
|
Accelerated filer
þ
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
o
|
|
|
|
|
(Do not check if a smaller reporting company)
|
|
|
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2
under the Securities Exchange Act of 1934.
Yes
o
No
þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practical date.
As of May 3, 2010, there were 20,230,152 shares, par value $0.001, of the registrants common
stock outstanding.
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
3
|
|
|
|
|
4
|
|
|
|
|
5
|
|
|
|
|
6
|
|
|
|
|
7
|
|
|
|
|
19
|
|
|
|
|
22
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
27
|
|
|
|
|
27
|
|
|
|
|
28
|
|
2
Part I Financial Information
|
|
|
ITEM 1.
|
|
Financial Statements
|
Care Investment Trust Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
December 31,
|
|
|
|
(Unaudited)
|
|
|
2009
|
|
Assets:
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
5,020
|
|
|
$
|
5,020
|
|
Buildings and improvements
|
|
|
101,000
|
|
|
|
101,000
|
|
Less: accumulated depreciation and amortization
|
|
|
(5,239
|
)
|
|
|
(4,481
|
)
|
|
|
|
|
|
|
|
Total real estate, net
|
|
|
100,781
|
|
|
|
101,539
|
|
Cash and cash equivalents
|
|
|
136,586
|
|
|
|
122,512
|
|
Investments in loans held at LOCOM
|
|
|
9,791
|
|
|
|
25,325
|
|
Investments in partially-owned entities
|
|
|
54,405
|
|
|
|
56,078
|
|
Accrued interest receivable
|
|
|
59
|
|
|
|
177
|
|
Deferred financing costs, net of accumulated amortization of
$1,155 and $1,122, respectively
|
|
|
680
|
|
|
|
713
|
|
Identified intangible assets leases in place, net
|
|
|
4,388
|
|
|
|
4,471
|
|
Other assets
|
|
|
4,577
|
|
|
|
4,617
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
311,267
|
|
|
$
|
315,432
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Mortgage notes payable
|
|
$
|
81,659
|
|
|
$
|
81,873
|
|
Accounts payable and accrued expenses
|
|
|
2,110
|
|
|
|
2,245
|
|
Accrued expenses payable to related party
|
|
|
5,572
|
|
|
|
544
|
|
Obligation to issue operating partnership units
|
|
|
3,468
|
|
|
|
2,890
|
|
Other liabilities
|
|
|
525
|
|
|
|
1,087
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
93,334
|
|
|
|
88,639
|
|
Commitments and Contingencies (Note 12)
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Common stock: $0.001 par value, 250,000,000 shares
authorized, 21,284,544 and 21,159,647 shares issued,
respectively and 20,224,548 and 20,158,894 shares
outstanding, respectively
|
|
|
21
|
|
|
|
21
|
|
Treasury stock (1,060,006 and 1,000,753 shares, respectively)
|
|
|
(8,824
|
)
|
|
|
(8,334
|
)
|
Additional
paid-in capital
|
|
|
301,989
|
|
|
|
301,926
|
|
Accumulated deficit
|
|
|
(75,253
|
)
|
|
|
(66,820
|
)
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
217,933
|
|
|
|
226,793
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
311,267
|
|
|
$
|
315,432
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
3
Care Investment Trust Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
(dollars in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
Revenue
|
|
|
|
|
|
|
|
|
Rental revenue
|
|
$
|
3,215
|
|
|
$
|
3,172
|
|
Income from investments in loans
|
|
|
744
|
|
|
|
2,874
|
|
Other income
|
|
|
|
|
|
|
93
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
3,959
|
|
|
|
6,139
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
Management fee and buyout payments to related party
|
|
|
7,929
|
|
|
|
645
|
|
Marketing, general and administrative (including stock-based compensation of
$63 and $5, respectively)
|
|
|
1,816
|
|
|
|
2,315
|
|
Depreciation and amortization
|
|
|
841
|
|
|
|
837
|
|
Realized gain on sales and repayment of loans
|
|
|
(4
|
)
|
|
|
(22
|
)
|
Adjustment to valuation allowance on loans held at LOCOM
|
|
|
(745
|
)
|
|
|
(1,919
|
)
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
9,837
|
|
|
|
1,856
|
|
|
|
|
|
|
|
|
Loss from investments in partially-owned entities
|
|
|
583
|
|
|
|
941
|
|
Net unrealized loss/(gain) on derivative instruments
|
|
|
578
|
|
|
|
(1,269
|
)
|
Interest income
|
|
|
(47
|
)
|
|
|
(3
|
)
|
Interest expense including amortization and write-off of deferred financing costs
|
|
|
1,438
|
|
|
|
2,111
|
|
|
|
|
|
|
|
|
Net (loss)/income
|
|
$
|
(8,430
|
)
|
|
$
|
2,503
|
|
|
|
|
|
|
|
|
Net (loss)/income per share of common stock
|
|
|
|
|
|
|
|
|
Net (loss)/income, basic and diluted
|
|
$
|
(0.42
|
)
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares outstanding
|
|
|
20,205,996
|
|
|
|
20,030,662
|
|
|
|
|
|
|
|
|
See Notes to Condensed Consolidated Financial Statements.
4
Care Investment Trust Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders Equity (Unaudited)
(dollars in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Treasury
|
|
|
Additional
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
$
|
|
|
Stock
|
|
|
Paid-in Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance at December 31, 2009
|
|
|
20,158,894
|
|
|
$
|
21
|
|
|
$
|
(8,334
|
)
|
|
$
|
301,926
|
|
|
$
|
(66,820
|
)
|
|
$
|
226,793
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,430
|
)
|
|
|
(8,430
|
)
|
Stock-based compensation fair value
(1)
|
|
|
116,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation to directors for services
rendered
|
|
|
8,030
|
|
|
|
*
|
|
|
|
*
|
|
|
|
63
|
|
|
|
|
|
|
|
63
|
|
Treasury purchases
(2)
|
|
|
(59,253
|
)
|
|
|
|
|
|
|
(490
|
)
|
|
|
|
|
|
|
|
|
|
|
(490
|
)
|
Dividends accrued on performance shares
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
|
20,224,548
|
|
|
$
|
21
|
|
|
$
|
(8,824
|
)
|
|
$
|
301,989
|
|
|
$
|
(75,253
|
)
|
|
$
|
217,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Less than $500
|
|
(1)
|
|
Shares vested January 28, 2010 for which compensation was recognized in prior years (see Note
10).
|
|
(2)
|
|
Shares purchased from employees of the Manager and its affiliates pursuant to the tax
withholding net settlement feature of Company equity incentive awards (see Note 10).
|
|
(3)
|
|
Amounts accrued based on performance share award targets.
|
See Notes to Condensed Consolidated Financial Statements.
5
Care Investment Trust Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Three
|
|
|
|
Months
|
|
|
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2010
|
|
|
2009
|
|
Cash Flow From Operating Activities
|
|
|
|
|
|
|
|
|
Net (loss)/income
|
|
$
|
(8,430
|
)
|
|
$
|
2,503
|
|
Adjustments to reconcile net (loss)/income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Increase in deferred rent receivable
|
|
|
(570
|
)
|
|
|
(636
|
)
|
Realized gain on sales and repayment of loans
|
|
|
(4
|
)
|
|
|
(22
|
)
|
Loss from investments in partially-owned entities
|
|
|
583
|
|
|
|
941
|
|
Distribution of income from partially-owned entities
|
|
|
1,575
|
|
|
|
295
|
|
Amortization of loan premium paid on investments in loans
|
|
|
|
|
|
|
144
|
|
Amortization and write-off of deferred financing cost
|
|
|
32
|
|
|
|
592
|
|
Amortization of deferred loan fees
|
|
|
(15
|
)
|
|
|
(112
|
)
|
Stock-based non-employee compensation
|
|
|
63
|
|
|
|
5
|
|
Depreciation and amortization on real estate, including intangible assets
|
|
|
841
|
|
|
|
877
|
|
Unrealized loss/(gain) on derivative instruments
|
|
|
578
|
|
|
|
(1,269
|
)
|
Adjustment to valuation allowance on loans held at LOCOM
|
|
|
(745
|
)
|
|
|
(1,919
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
119
|
|
|
|
160
|
|
Other assets
|
|
|
612
|
|
|
|
149
|
|
Accounts payable and accrued expenses
|
|
|
(135
|
)
|
|
|
4,319
|
|
Other liabilities including payable to related party
|
|
|
4,466
|
|
|
|
(2,816
|
)
|
|
|
|
|
|
|
|
Net cash (used in)/provided by operating activities
|
|
|
(1,030
|
)
|
|
|
3,211
|
|
Cash Flow From Investing Activities
|
|
|
|
|
|
|
|
|
Sale of loans to Manager
|
|
|
|
|
|
|
22,549
|
|
Sale of loans to third party
|
|
|
5,880
|
|
|
|
|
|
Loan repayments
|
|
|
10,417
|
|
|
|
1,025
|
|
Investments in partially-owned entities
|
|
|
(486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
15,811
|
|
|
|
23,574
|
|
Cash Flow From Financing Activities
|
|
|
|
|
|
|
|
|
Principal payments under warehouse line of credit
|
|
|
|
|
|
|
(37,781
|
)
|
Principal payments under mortgage notes payable
|
|
|
(214
|
)
|
|
|
(19
|
)
|
Treasury stock purchases
|
|
|
(490
|
)
|
|
|
|
|
Dividends paid
|
|
|
(3
|
)
|
|
|
(3,430
|
)
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(707
|
)
|
|
|
(41,230
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
14,074
|
|
|
|
(14,445
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
122,512
|
|
|
|
31,800
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
136,586
|
|
|
$
|
17,355
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
Cash interest paid during the three months ended March 31, 2010 and 2009 is approximately $1.4
million and $1.5 million, respectively.
See Notes to Condensed Consolidated Financial Statements.
6
Care Investment Trust Inc. and Subsidiaries
Notes to
Condensed Consolidated Financial Statements (Unaudited)
March 31, 2010
Note 1
Organization
Care Investment Trust Inc. (together with its subsidiaries, the Company or Care unless
otherwise indicated or except where the context otherwise requires, we, us or our) is a real
estate investment trust (REIT) with a geographically diverse portfolio of senior housing and
healthcare-related assets in the United States. Care is externally managed and advised by CIT
Healthcare LLC (Manager). As of March 31, 2010, Cares portfolio of assets consisted of real
estate and mortgage related assets for senior housing facilities, skilled nursing facilities,
medical office properties and first mortgage liens on healthcare related assets. Our owned senior
housing facilities are leased, under triple-net leases, which require the tenants to pay all
property-related expenses.
Care elected to be taxed as a REIT under the Internal Revenue Code commencing with our taxable
year ended December 31, 2007. To maintain our tax status as a REIT, we are required to distribute
at least 90% of our REIT taxable income to our stockholders. At present, Care does not have any
taxable REIT subsidiaries (TRS), but in the normal course of business expects to form such
subsidiaries as necessary.
Note 2
Basis of Presentation and Significant Accounting Policies
Basis of Presentation
On December 10, 2009, our Board of Directors approved a plan of liquidation and recommended
that our shareholders approve the plan of liquidation. On January 28, 2010, our shareholders
approved the plan of liquidation. Under the plan of liquidation, the Board of Directors reserves
the right to continue to solicit and entertain proposals from third parties to acquire all or
substantially all of the Companys outstanding common stock prior to and after approval of the plan
of liquidation by our shareholders. Subsequent to our shareholders approval of the plan of
liquidation, on March 16, 2010, the Company entered into a
purchase and sale agreement with Tiptree Financial Partners, L.P. (Tiptree) providing for a combination of an
equity investment by Tiptree in newly issued common stock at $9.00 per share and a cash tender offer by the Company for up to
all of Cares issued and outstanding shares of common stock at the same price, as long as at least
10,300,000 shares are validly tendered (and not withdrawn) prior to the expiration date of the
tender offer and the other conditions to the issuance and tender offer are satisfied or waived.
See Note 14 Tiptree Transaction. Since it is not probable that the Company will liquidate, the
Company has presented its financial statements on a going concern basis.
The accompanying condensed consolidated financial statements are unaudited. In our opinion,
all adjustments (which include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows have been made. The condensed consolidated
balance sheet as of December 31, 2009 has been derived from the audited consolidated balance sheet
as of that date. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted in the United
States of America (GAAP) have been omitted in accordance with Article 10 of Regulation S-X and
the instructions to Form 10-Q. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 2009, as filed with the Securities and Exchange
Commission (SEC). The results of operations for the three months ended March 31, 2010 are not
necessarily indicative of the operating results for the full year.
The Company has no items of other comprehensive income, and accordingly, net income or loss is
equal to comprehensive income or loss for all periods presented.
Loans held at LOCOM
Investments in loans amounted to $9.8 million at March 31, 2010 as compared with $25.3 million
at December 31, 2009. We account for our investment in loans in accordance with Accounting
Standards Codification 948, which codified the Financial Accounting Standards Boards (FASBs)
Accounting for Certain Mortgage Banking Activities
(ASC 948). Under ASC 948, loans expected to be
held for the foreseeable future or to maturity should be held at amortized cost, and all other
loans should be held at the lower of cost or market (LOCOM), measured on an individual basis. At
December 31, 2008, in connection with our decision to reposition ourselves from a mortgage REIT to
a traditional direct property ownership REIT (referred to as an equity REIT, see Notes 2, 3, and 4
to the financial statements) and as a result of existing market conditions, we transferred our
portfolio of mortgage loans to LOCOM because we are no longer certain that we will hold the
portfolio of loans either until maturity or for the foreseeable future.
7
Recently Issued Accounting Pronouncements
Accounting Standards Codification (ASC)
In June 2009, the FASB issued a pronouncement establishing the FASB Accounting Standards
Codification as the source of authoritative accounting principles recognized by the FASB to be
applied in the preparation of financial statements in conformity with GAAP. The standard explicitly
recognizes rules and interpretive releases of the SEC under federal securities laws as
authoritative GAAP for SEC registrants. This standard is effective for financial statements issued
for fiscal years and interim periods ending after September 15, 2009. The Company adopted this
standard in the third quarter of 2009.
Disclosures about Fair Value of Financial Instruments
In June 2009, issued ASU 2009-17 to codify FASB issued Statement No. 167, Amendments to FASB
Interpretation No. 46(R) as ASC 810 (ASC 810), with the objective of improving financial
reporting by entities involved with variable interest entities (VIE). It retains the scope of FIN
46(R) with the addition of entities previously considered qualifying special-purpose entities, as
the concept of those entities was eliminated by FASB Statement No. 166, Accounting for Transfers
of Financial Assets (ASU 2009-16; FASB ASC 860). ASC 810 will require an analysis to determine
whether the entitys variable interest or interests give it a controlling financial interest in a
VIE.
On September 30, 2009, the FASB issued ASU 2009-12 to provide guidance on measuring the fair
value of certain alternative investments. The ASU amends ASC 820 to offer investors a practical
expedient for measuring the fair value of investments in certain entities that calculate net asset
value per share. The ASU is effective for the first reporting period (including interim periods)
ending after December 15, 2009 with early adoption permitted. On January 21, 2010, the FASB issued
ASU 2010-06, which amends ASC 820 to add new requirements for disclosures about transfers into and
out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements
relating to Level 3 measurements. The ASU also clarifies existing fair value disclosures about the
level of disaggregation and about inputs and valuation techniques used to measure fair value. The
ASU is effective for the first reporting period (including interim periods) beginning after
December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales,
issuances, and settlements on a gross basis, which will be effective for fiscal years beginning
after December 15, 2010, and for interim periods within those fiscal years, with early adoption
permitted. The Company adopted these revised disclosure requirements of ASC 820 in the quarter
ended March 31, 2010.
Subsequent Events
In
May 2009, the FASB issued Statement No. 165 Subsequent Events, which is codified in FASB ASC 855,
Subsequent Events (ASC 855). ASC 855 introduces the concept of financial statements being
available to be issued. It requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that date, that is, whether that date represents the
date the financial statements were issued or were available to be issued. The pronouncement is
effective for interim periods ended after June 15, 2009. The Company adopted ASC 855 in the 2009
second quarter. The Company evaluates subsequent events as of the date of issuance of its financial
statements and considers the impact of all events that have taken place to that date in its
disclosures and financials statements when reporting on the Companys financial position and
results of operations. The Company has evaluated subsequent events through the date of filing and
has determined that no other events need to be disclosed.
Note 3
Investments in Loans held at LOCOM
As of March 31, 2010 and December 31, 2009, our net investments in loans amounted to $9.8
million and $25.3 million, respectively. During the three months ended March 31, 2010, we received
$10.4 million in principal repayments, as compared with $1.0 million received during the three
months ended March 31, 2009. The 2010 first quarter repayments included proceeds of approximately
$10.0 million for the full repayment of a loan with one borrower. Our investment at March 31, 2010
is a participation secured primarily by real estate in the form of pledges of ownership interests,
direct liens or other security interests. This investment is variable rate at March 31, 2010, had a
weighted average spread of 4.16% over one month LIBOR, and a maturity of approximately 0.8 year.
At December 31, 2009 the investments in loans had a weighted average spread of 6.76% over one month
LIBOR and an average maturity of 1.0 year. The effective yield on the portfolio for the quarter
ended March 31, 2010 and the year ended December 31, 2009, was 4.41% and 6.99%, respectively. One
month LIBOR was 0.25% at March 31, 2010 and 0.23% at December 31, 2009.
8
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
|
Cost
|
|
|
Interest
|
|
|
Maturity
|
|
Property Type (a)
|
|
City
|
|
|
State
|
|
|
Basis
|
|
|
Rate
|
|
|
Date
|
|
SNF / Sr. Appts / ALF
|
|
Various
|
|
Texas / Louisiana
|
|
$
|
13,809
|
|
|
|
L+4.30
|
%
|
|
|
2/1/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in loans,
gross
|
|
|
|
|
|
|
|
|
|
$
|
13,809
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
|
|
|
|
|
|
|
|
(4,018
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Held at LOCOM
|
|
|
|
|
|
|
|
|
|
$
|
9,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
|
Cost
|
|
|
Interest
|
|
|
Maturity
|
|
Property Type (a)
|
|
City
|
|
|
State
|
|
|
Basis
|
|
|
Rate
|
|
|
Date
|
|
SNF/ALF (b)/(c)
|
|
Nacogdoches
|
|
Texas
|
|
$
|
9,338
|
|
|
|
L+3.15
|
%
|
|
|
10/02/11
|
|
SNF/Sr. Appts/ALF
|
|
Various
|
|
Texas/Louisiana
|
|
|
14,226
|
|
|
|
L+4.30
|
%
|
|
|
02/01/11
|
|
SNF (b)/(d)
|
|
Various
|
|
Michigan
|
|
|
10,178
|
|
|
|
L+7.00
|
%
|
|
|
02/19/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in loans,
gross
|
|
|
|
|
|
|
|
|
|
$
|
33,742
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
|
|
|
|
|
|
|
|
(8,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held at LOCOM
|
|
|
|
|
|
|
|
|
|
$
|
25,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
SNF refers to skilled nursing facilities; ALF refers to assisted living facilities; ICF
refers to intermediate care facility; and Sr. Appts refers to senior living apartments.
|
|
(b)
|
|
The mortgages are subject to various interest rate floors ranging from 6.00% to 11.5%.
|
|
(c)
|
|
Loan sold to a third party in March 2010 for approximately $6.1 million of cash proceeds
before selling costs, see Note 4.
|
|
(d)
|
|
Loan repaid at maturity in February 2010 for approximately $10.0 million, see Note 4.
|
Our mortgage portfolio (gross) at March 31, 2010 consists of one loan for mixed use property
located in the southern part of the United States. Mixed-use facilities refer to properties that
provide care to different segments of the elderly population based on their needs, such as assisted
living with skilled nursing capabilities.
For the three months ended March 31, 2010, the Company received proceeds of $10.4 million
related to the repayment of balances related to mortgage loans and
received proceeds of $5.9
million, net of $0.2 million of selling costs, related to a sale to a third party of one mortgage loan. See Note 9 for a roll forward of
the investment in loans held at fair value from December 31, 2009 to March 31, 2010.
Note 4
Sales and repayment of Investments in Loans Held at LOCOM
On September 30, 2008 we finalized a Mortgage Purchase Agreement with our Manager that
provided us an option to sell loans from our investment portfolio to our Manager at the loans fair
value on the sale date. See Managements Discussion and Analysis of Financial Condition and
Results of Operations Liquidity and Capital Resources for a discussion of the terms and
conditions of the Agreement. Pursuant to the Agreement, on February 3, 2009, we sold one loan with
a net carrying amount of approximately $22.5 million as of December 31, 2008. Proceeds from the
sale approximated the net carrying value of $22.5 million. We incurred a loss of $4.9 million on
the sale of this loan. The loss on this loan was included in the valuation allowance on the loans
held at LOCOM at December 31, 2008.
On February 19, 2010, one borrower repaid one of the Companys mortgage loans with a net
carrying value of approximately $10.0 million on the repayment date. No gain or loss is recorded
on the sale.
On March 2, 2010, we sold one mortgage loan to a third party with a net carrying value of
approximately $5.9 million after selling costs on the repayment date. No gain or loss is recorded
on the sale.
Note 5
Investments in Partially-Owned Entities
For the three months ended March 31, 2010, the net loss in our equity interest related to the
Cambridge Holdings, Inc. (Cambridge) portfolio amounted to approximately $885,000. This included
$2.3 million attributable to our share of the depreciation and amortization expense associated
with the Cambridge properties. During the first three months of 2010, the Company invested
approximately $486,000 in tenant improvements related to the Cambridge properties. The Companys
investment in the Cambridge entities was $47.6 million at March 31, 2010 and $49.3 million at
December 31, 2009. We have received approximately $1.3 million of distributions during the first
quarter of 2010 related to our share of 2009 fourth quarter distributions.
For the three months ended March 31, 2010, we recognized approximately $300,000 in equity
income from our interest in Senior Management Concepts, LLC (SMC) and received approximately
$300,000 in distributions.
10
Note 6 Warehouse Line of Credit
On October 1, 2007, Care entered into a master repurchase agreement with Column Financial,
Inc. (Column), an affiliate of Credit Suisse, one of the underwriters of Cares initial public
offering in June 2007. This type of lending arrangement is often referred to as a warehouse
facility. The master repurchase agreement provided an initial line of credit of up to $300 million.
On March 6, 2009, the Board authorized the repayment in full of the $37.8 million outstanding
balance on the Column warehouse line of credit, and the line was paid off on March 9, 2009. In
connection with the payoff, the Company wrote off approximately $0.5 million of deferred charges.
Note 7 Borrowings under Mortgage Notes Payable
On June 26, 2008, in connection with the acquisition of the twelve properties from Bickford
Senior Living Group LLC (Bickford), the Company entered into a mortgage loan with Red Mortgage
Capital, Inc. for $74.6 million. The terms of the mortgage require interest-only payments at a
fixed interest rate of 6.845% for the first twelve months. Commencing on the first anniversary and
every month thereafter, the mortgage loan requires a fixed monthly payment of $0.5 million for both
principal and interest, which we began paying in July 2009, until the maturity in July 2015 when
the then outstanding balance of $69.6 million is due and payable. The mortgage loan is
collateralized by the properties.
11
On September 30, 2008 with the acquisition of the two additional properties from Bickford, the
Company entered into an additional mortgage loan with Red Mortgage Capital, Inc. for $7.6 million.
The terms of the mortgage require payments based on a fixed interest rate of 7.17%. Commencing on
the first of November 2008 and every month thereafter, the mortgage loan requires a fixed monthly
payment of approximately $52,000 for both principal and interest until the maturity in July 2015
when the then outstanding balance of $7.1 million is due and payable. The mortgage loan is
collateralized by the properties.
Note 8 Related Party Transactions
Management Agreement
In connection with our initial public offering in 2007, we entered into a Management Agreement
with our Manager (the Management Agreement), which describes the services to be provided by our
Manager and its compensation for those services. Under the Management Agreement, our Manager,
subject to the oversight of the Board of Directors of Care, is required to manage the day-to-day
activities of the Company, for which the Manager receives a base management fee and is eligible for
an incentive fee. The Manager is also entitled to charge the Company for certain expenses incurred
on behalf of Care.
On September 30, 2008, we amended our Management Agreement (Amendment 1). Pursuant to the
terms of the amendment, the Base Management Fee (as defined in the Management Agreement) payable to
the Manager under the Management Agreement was reduced to a monthly amount equal to 1/12 of 0.875%
of the Companys equity (as defined in the Management Agreement). In addition, pursuant to the
terms of the Amendment, the Incentive Fee (as defined in the Management Agreement) to the Manager
pursuant to the Management Agreement was eliminated and the Termination Fee (as defined in the
Management Agreement) to the Manager upon the termination or non-renewal of the Management
Agreement shall be equal to the average annual Base Management Fee as earned by the Manager during
the immediately preceding two years multiplied by three, but in no event shall the Termination Fee
be less than $15.4 million.
On January 15, 2010, the Company entered into an Amended and Restated Management Agreement,
dated as of January 15, 2010 (Amendment 2) which amended and restated the Management Agreement,
dated June 27, 2007, as amended by Amendment No. 1 to the Management Agreement. Amendment 2 became
effective upon approval by the Companys stockholders of the plan of liquidation on January 28,
2010. Amendment 2 shall continue in effect, unless earlier terminated in accordance with the terms
thereof, until December 31, 2011.
Amendment 2 reduced the base management fee to a monthly amount equal to (i) $125,000 from
February 1, 2010 until June 30, 2010 and (ii) $100,000 until the earlier of December 31, 2010 and
the sale of certain assets and (iii) $75,000 until the effective date of expiration or earlier
termination of the agreement, subject to additional provisions.
Pursuant to the terms of Amendment 2, the Company shall pay the Manager a buyout payment of
$7.5 million, which replaces the $15.4 million Termination Fee
and is payable in three installments of $2.5 million. The first two installments were each
paid when due on January 28, 2010 and April 1, 2010. The third and final payment is payable on
either June 30, 2011 or the effective date of the termination of the agreement if earlier. As of
March 31, 2010, we have accrued $5.0 million for the $2.5 million payment made on April 1, 2010 and
the final $2.5 million payment. Pursuant to the terms of the agreement with Tiptree, the
Management Agreement will be terminated upon closing of the transaction with Tiptree. Pursuant to the terms of Amendment 2, the Manager is
eligible for an incentive fee of $1.5 million under certain conditions where cash distributed or
distributable to stockholders equals or exceeds $9.25 per share. See Note 12.
We are also responsible for reimbursing the Manager for its pro rata portion of certain
expenses detailed in the initial agreement and subsequent amendments, such as rent, utilities,
office furniture, equipment, and overhead, among others, required for our operations. Transactions
with our Manager during the three months ended March 31, 2010 and March 31, 2009 included:
|
|
|
Our $5,572,000 liability as of March 31, 2010 to our
Manager for the remaining buyout payment obligation of
$5.0 million, professional fees accrued
and other third party costs incurred by our Manager on behalf of Care and management fees.
|
|
|
|
|
Our expense recognition of $7.5 million for the three months ended March 31, 2010 for the
buyout payment obligation.
|
|
|
|
|
Our expense recognition of $429,000 and $645,000 for the three months ended March 31, 2010
and March 31, 2009 for the base management fee.
|
12
|
|
|
On February 3, 2009, the Company closed on the sale of a loan to our Manager for proceeds
of $22.5 million. See Note 4
|
Care does not have any employees. Our officers are employees of our Manager and its
affiliates. Care does not have any separate facilities and is completely reliant on our Manager,
which has significant discretion as to the implementation of our operating policies and strategies.
We depend on the diligence, skill and network of business contacts of our Manager. Our executive
officers and the other employees of our Manager and its affiliates evaluate, service and monitor
our investments.
Note 9 Fair Value of Financial Instruments
The Company has established processes for determining fair values and fair value is based on
quoted market prices, where available. If listed prices or quotes are not available, then fair
value is based upon internally developed models that primarily use inputs that are market-based or
independently-sourced market parameters.
A financial instruments categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. The three levels of
valuation hierarchy are defined as follows:
Level 1
inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
Level 2
inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
Level 3
inputs to the valuation methodology are unobservable and significant to the fair value
measurement.
The following describes the valuation methodologies used for the Companys financial
instruments measured at fair value, as well as the general classification of such instruments
pursuant to the valuation hierarchy.
Investment in loans held at LOCOM
the fair value of the portfolio is based primarily on
appraisals from third parties. Investing in healthcare-related commercial mortgage debt is
transacted through an over-the-counter market with minimal pricing transparency. Loans are
infrequently traded and market quotes are not widely available and disseminated. The Company also
gives consideration to its knowledge of the current marketplace and the credit worthiness of the
borrowers in determining the fair value of the portfolio. At March 31, 2010, we valued our one loan
using an internal valuation model and considering available market data.
Obligation to issue operating partnership units
the fair value of our obligation to issue
operating partnership units is based on an internally developed valuation model, as quoted market
prices are not available nor are quoted prices for similar liabilities. Our model involves the use
of management estimates as well as some Level 2 inputs. The variables in the model include the
estimated release dates of the shares out of escrow, based on the expected performance of the
underlying properties, a discount factor of approximately 15%, and the market price and expected
quarterly dividend of Cares common shares at each measurement date.
The following table presents the Companys financial instruments carried at fair value on the
condensed consolidated balance sheets as of March 31, 2010 and December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at March 31, 2010
|
|
(dollars in millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in loans held at LOCOM
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9.8
|
|
|
$
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation to issue operating partnership units(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3.5
|
|
|
$
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2009
|
|
(dollars in millions)
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in loans held at LOCOM
|
|
$
|
|
|
|
$
|
16.1
|
|
|
$
|
9.2
|
|
|
$
|
25.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation to issue operating partnership units(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2.9
|
|
|
$
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
At December 31, 2009, the fair value of our obligation to issue partnership units was
approximately $2.9 million and we recognized an unrealized loss of $0.6 million on revaluation
for the three month period ended March 31, 2010.
|
13
The tables below present reconciliations for all assets and liabilities measured at fair value
on a recurring basis using significant Level 3 inputs during the three months ended March 31, 2010.
Level 3 instruments presented in the tables include a liability to issue operating partnership
units, which are carried at fair value. The Level 3 instruments were valued using internally
developed valuation models that, in managements judgment, reflect the assumptions a marketplace
participant would use at March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Level 3
|
|
|
|
Instruments
|
|
|
|
Fair Value Measurements
|
|
|
|
Obligation to
|
|
|
Investment
|
|
|
|
issue
|
|
|
in Loans Held
|
|
|
|
Partnership
|
|
|
At Lower of Cost
|
|
(dollars in millions)
|
|
Units
|
|
|
or Market
|
|
Balance, December 31, 2009
|
|
$
|
(2.9
|
)
|
|
$
|
25.3
|
|
Repayments of loans
|
|
|
|
|
|
|
(10.4
|
)
|
Sales of loan to a third party
|
|
|
|
|
|
|
(5.9
|
)
|
Total unrealized (loss)/gain included in income statement
|
|
|
(0.6
|
)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010
|
|
$
|
(3.5
|
)
|
|
$
|
9.8
|
|
|
|
|
|
|
|
|
Net change in unrealized loss/(gain) from obligations owed/investments held at March 31, 2010
|
|
$
|
(0.6
|
)
|
|
$
|
0.8
|
|
|
|
|
|
|
|
|
In addition we are required to disclose fair value information about financial instruments,
whether or not recognized in the financial statements, for which it is practical to estimate that
value. In cases where quoted market prices are not available, fair value is based upon the
application of discount rates to estimated future cash flows based on market yields or other
appropriate valuation methodologies. Considerable judgment is necessary to interpret market data
and develop estimated fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts we could realize on disposition of the financial instruments. The use of
different market assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts.
In addition to the amounts reflected in the financial statements at fair value as noted above,
cash equivalents, accrued interest receivable, and accounts payable and accrued expenses reasonably
approximate their fair values due to the short maturities of these items. Management believes that
the remaining balance of mortgage notes payable of $74.1 million and $7.5 million that were
incurred from the acquisitions of the Bickford properties on June 26, 2008 and September 30, 2008,
respectively, have a fair value of approximately $84.8 million as of March 31, 2010.
The Company is exposed to certain risks relating to its ongoing business. The primary risk
managed by using derivative instruments is interest rate risk. Interest rate caps are entered into
to manage interest rate risk associated with the Companys borrowings. The company has no interest
rate caps as of March 31, 2010.
We are required to recognize all derivative instruments as either assets or liabilities at
fair value in the statement of financial position. The Company has not designated any of its
derivatives as hedging instruments. The Companys financial statements included the following fair
value amounts and gains and losses on derivative instruments (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Balance
|
|
Balance
|
|
|
Balance
|
|
|
|
Derivatives not designated as
|
|
Sheet
|
|
Fair
|
|
|
Sheet
|
|
Fair
|
|
hedging instruments
|
|
Location
|
|
Value
|
|
|
Location
|
|
Value
|
|
Operating Partnership Units
|
|
Obligation to issue operating partnership units
|
|
$
|
(3,468
|
)
|
|
Obligation to issue operating partnership units
|
|
$
|
(2,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Gain)/Loss
|
|
|
|
|
|
Recognized in Income on
|
|
|
|
|
|
Derivative
|
|
|
|
Location of (Gain)/Loss
|
|
Three Months Ended
|
|
Derivatives not designated as
|
|
Recognized in Income on
|
|
March 31,
|
|
|
March 31,
|
|
hedging instruments
|
|
Derivative
|
|
2010
|
|
|
2009
|
|
Operating Partnership Units
|
|
Unrealized loss/(gain) on derivative instruments
|
|
$
|
578
|
|
|
$
|
(1,271
|
)
|
Interest Rate Caps
|
|
Unrealized loss/(gain) on derivative instruments
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
578
|
|
|
$
|
(1,269
|
)
|
|
|
|
|
|
|
|
|
|
14
Note 10
Stockholders Equity
Our authorized capital stock consists of 100,000,000 shares of preferred stock, $0.001 par
value and 250,000,000 shares of common stock, $0.001 par value. As of March 31, 2010, no shares of
preferred stock were issued and outstanding and 21,284,554 shares and 20,224,548 shares of common
stock were issued and outstanding, respectively.
On May 12, 2008, the Committee approved two new long-term equity incentive programs under the
Equity Plan. The first program is an annual performance-based RSU award program (the RSU Award
Program). All RSUs granted under the RSU Award Program vest over four years. The second program is
a performance share plan (the Performance Share Plan) which consisted of a three-year award
program and a special transaction award program.
Certain employees of the Manager and its affiliates were granted Restricted Stock Units
(RSUs) and performance share awards pursuant to the Equity Plan from inception of the Company
through November 5, 2009. Under the terms of each of these awards, shareholder approval of the
plan of liquidation accelerated the vesting of the awards on that day; a total of 116,877 shares
vested on January 28, 2010 upon shareholder approval of the plan of liquidation. The employees of
the Manager and its affiliates were required to pay withholding and other taxes upon vesting of
their awards and elected to sell their eligible unrestricted shares to the Company
for up to the amount of the aggregate tax they were required to pay. Treasury purchases of 59,253
shares were made by the Company from employees of the Manager and its affiliates on January 28,
2010. Compensation expense related to these shares was recognized in 2009 and prior periods.
Approximately $0.8 million of the expense recorded in 2009 related to accelerated vesting in the
aggregate. All of the shares issued under our Equity Plan are considered non-employee awards.
Accordingly, the expense for each period is determined based on the fair value of each share or
unit awarded over the required performance period.
On December 10, 2009, the Company granted special transaction performance share awards to plan
participants for an aggregate amount of 15,000 shares at target levels and an aggregate maximum of
30,000 shares. On February 23, 2009, the terms of the awards were modified such that the awards are
now triggered upon the execution, during 2010, of one or more of the following transactions that
results in a return of liquidity to the Companys stockholders within the parameters expressed in
the special transaction performance share awards agreement: (i) a merger or other business
combination resulting in the disposition of all of the issued and outstanding equity securities of
the Company, (ii) a tender offer made directly to the Companys stockholders either by the Company
or a third party for at least a majority of the Companys issued and outstanding common stock, or
(iii) the declaration of aggregate distributions by the Companys Board equal to or exceeding $8.00
per share.
As of March 31, 2010, 249,486 shares remain available for future issuances under the Equity
Plan. Under the purchase and sale agreement with Tiptree, Care is prohibited from making grants
until the earlier of the termination of the purchase and sale agreement or the Closing Date (as
defined in the purchase and sale agreement that was filed as Exhibit 10.1 to Cares Form 8-K on
March 16, 2010).
Shares Issued to Directors for Board Fees:
On January 4, 2010 and April 8, 2010, 8,030 and 5,604 shares of common stock with an aggregate
fair value of approximately $112,500 were granted to our independent directors as part of their
annual retainer. Each independent director receives an annual base retainer of $100,000, payable
quarterly in arrears, of which 50% is paid in cash and 50% in common stock of Care. Shares granted
as part of the annual retainer vest immediately and are included in general and administrative
expense.
Note
11
(Loss)/Income per Share (in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
(Loss)/income per share, basic and diluted Numerator
|
|
$
|
(0.42
|
)
|
|
$
|
0.12
|
|
Net (loss)/income
|
|
$
|
(8,430
|
)
|
|
$
|
2,503
|
|
Denominator
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding basic and diluted
|
|
|
20,205,996
|
|
|
|
20,030,662
|
|
15
Note 12
Commitments and Contingencies
After having funded approximately $0.5 million in the first quarter
of 2010, as of March 31, 2010 Care was obligated to provide approximately $1.4 million in tenant
improvements in 2010 related to our purchase of the Cambridge properties. Care is also obligated to
fund additional payments for expansion of four of the facilities acquired in the Bickford
transaction on June 26, 2008. The maximum amount that the
Company is obligated to fund related to expansion of the Bickford
facilities is $7.2
million. Since these payments would increase our investment in the properties, the minimum base
rent and additional base rent would increase based on the amounts funded. After funding the
expansion payments and meeting certain conditions as outlined in the documents associated with the
transaction, the sellers are entitled to the balance of the commitment of $7.2 million less the
total of all expansion payments made in conjunction with the properties. As of March 31, 2010, no
expansion payments have been requested and Bickford has yet to meet any of a series of conditions
which would need to be satisfied by July 26, 2010 in accordance with the terms of the agreement.
Under our Management Agreement, our Manager, subject to the oversight of the Companys board
of directors, is required to manage the day-to-day activities of Care, for which the Manager
receives a base management fee. The Management Agreement was amended on January 15, 2010, effective
on January 28, 2010 (see Note 8).
Under the amended terms, the agreement expires on December 31, 2011. The base management fee
is payable monthly in arrears in an amount equal to 1/12 of 0.875% of the Companys stockholders
GAAP equity for January 2010 and $125,000 per month thereafter, subject to reduction to $100,000
per month under certain conditions. In addition, under the amended terms, the Company shall pay
the Manager a buyout payment of $7.5 million, payable in three installments of $2.5 million. The
first two installments were each paid when due on January 28, 2010 and April 1, 2010. The third
and final payment is payable on either June 30, 2011 or the effective date of the termination of
the Management Agreement if earlier. As of March 31, 2010, we have accrued $5.0 million for the
$2.5 million payment made on April 1, 2010 and the final $2.5 million payment. Pursuant to the
terms of the agreement with Tiptree, the Management Agreement will be terminated upon closing of
the transaction with Tiptree.
In connection with the Companys evaluation of strategic alternatives, the Company engaged the services of a financial advisor.
In connection with the completion of certain events by the Company, including a liquidation or change in control transaction, the Company will be obligated to pay its financial advisor a transaction fee of $4.0 million.
As of March 31, 2010, the Company has accrued $0.5 million of its contingent payment obligation to its financial advisor.
On September 18, 2007, a class action complaint for violations of federal securities laws was
filed in the United States District Court, Southern District of New York alleging that the
Registration Statement relating to the initial public offering of shares of our common stock, filed
on June 21, 2007, failed to disclose that certain of the assets in the contributed portfolio were
materially impaired and overvalued and that we were experiencing increasing difficulty in securing
our warehouse financing lines. On January 18, 2008, the court entered an order appointing co-lead
plaintiffs and co-lead counsel. On February 19, 2008, the co-lead plaintiffs filed an amended
complaint citing additional evidentiary support for the allegations in the complaint. We believe
the complaint and allegations are without merit and intend to defend against the complaint and
allegations vigorously. We filed a motion to dismiss the complaint on April 22, 2008. The
plaintiffs filed an opposition to our motion to dismiss on July 9, 2008, to which we filed our
reply on September 10, 2008. On March 4, 2009, the court denied our motion to dismiss. Care filed
its answer on April 15, 2009. At a conference held on May 15, 2009, the Court ordered the parties
to make a joint submission (the Joint Statement) setting forth: (i) the specific statements that
Plaintiffs claim are false and misleading; (ii) the facts on which Plaintiffs rely as showing each
alleged misstatement was false and misleading; and (iii) the facts on which Defendants rely as
showing those statements were true. The parties filed the Joint Statement on June 3, 2009. On July
31, 2009, the parties entered into a stipulation that narrowed the scope of the proceeding to the
single issue of the warehouse financing disclosure in the Registration Statement. Fact discovery
closed on April 23, 2010. The Court has ordered the parties to file an abbreviated joint pre-trial
statement on June 9, 2010, and scheduled a pre-trial conference for June 11, 2010, at which the
Court will determine based on the joint pre-trial statement whether to permit us and the other
defendants to file a summary judgment motion. The outcome of this matter cannot currently be
predicted. To date, Care has incurred approximately $1.0 million to defend against this complaint
and any incremental costs to defend will be paid by Cares insurer. No provision for loss related
to this matter has been accrued at March 31, 2010.
On November 25, 2009, we filed a lawsuit in the U.S. District Court for the Northern District
of Texas against Mr. Jean-Claude Saada and 13 of his companies (the Saada Parties), seeking
declaratory judgments that (i) we have the right to engage in a business combination transaction
involving our company or a sale of our wholly owned subsidiary that serves as the general partner
of the partnership that holds the direct investment in the portfolio without the approval of the
Saada Parties, (ii) the contractual right of the Saada Parties to put their interests in the
Cambridge medical office building portfolio has expired and (iii) the operating partnership
16
units held by the Saada Parties do not entitle them to receive any special cash distributions
made to our stockholders. We also brought affirmative claims for tortious interference by the Saada
Parties with a prospective contract and for their breach of the implied covenant of good faith and
fair dealing.
On January 27, 2010, the Saada Parties answered our complaint, and simultaneously filed
counterclaims and a third-party complaint (the Counterclaims) that named our subsidiaries ERC Sub
LLC and ERC Sub, L.P., external manager CIT Healthcare LLC, and board chairman Flint D. Besecker,
as additional third-party defendants. The Counterclaims seek four declaratory judgments construing
certain contracts among the parties that are largely the mirror image of our declaratory judgment
claims. In addition, the Counterclaims also seek monetary damages for purported breaches of
fiduciary duty and the duty of good faith and fair dealing, as well as fraudulent inducement,
against us and the third-party defendants jointly and severally. The Counterclaims further request
indemnification by ERC Sub, L.P., pursuant to a contract between the parties, and the imposition of
a constructive trust on our current assets to be disposed as part of any future liquidation of
Care, including all proceeds from those assets. Although the Counterclaims do not itemize their
asserted damages, they assign these damages a value of $100 million or more. In addition, the
Saada Parties filed a motion to dismiss our tortious interference and breach of the implied
covenant of good faith and fair dealing claims on January 27, 2010. In response to the
Counterclaims, we filed on March 5, 2010, an omnibus motion to dismiss all of the Counterclaims.
On March 22, 2010, we received a letter from Cambridge Holdings, which asserted that the
transactions with Tiptree were in violation of our agreements with the Saada Parties.
The Saada Parties filed their opposition to our omnibus motion to dismiss on March 26, 2010,
and we filed our response on April 9, 2010.
On April 14, 2010, the Saada Parties motion to dismiss was denied and our motion to dismiss
was also denied.
On April 27, 2010, we filed an answer to the Saada Parties third-party complaint.
We continue to believe that the arguments advanced by Cambridge Holdings lack merit, however,
the outcome of this matter cannot currently be predicted. To date, Care has incurred approximately
$0.2 million to defend against this complaint. No provision for loss related to this matter has
been accrued at March 31, 2010.
Care is not presently involved in any other material litigation nor, to our knowledge, is any
material litigation threatened against us or our investments, other than routine litigation arising
in the ordinary course of business. Management believes the costs, if any, incurred by us related
to litigation will not materially affect our financial position, operating results or liquidity.
17
Note
13 Summarized Financial InformationPartially-Owned Entities
On December 31, 2007, Care, through its subsidiary ERC Sub, L.P., purchased an 85% equity
interest in eight limited liability entities owning nine medical office buildings with a value of
$263.0 million for $61.9 million in cash including the funding of certain reserve requirements. The
Seller was Cambridge Holdings Incorporated (Cambridge) and the interests were acquired through a
DownREIT partnership subsidiary, i.e., ERC Sub, L.P.
The Cambridge portfolio contains approximately 767,000 square feet and is located in major
metropolitan markets in Texas (8) and Louisiana (1). The properties are situated on leading medical
center campuses or adjacent to prominent acute care hospitals or ambulatory surgery centers.
Affiliates of Cambridge will act as managing general partners of the entities that own the
properties, as well as manage and lease these facilities.
Summarized financial information as of
and for the three months ended March 31, 2010 and March 31, 2009, for the Companys
unconsolidated joint venture in Cambridge is as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
Amount
|
|
Amount
|
Assets
|
|
$
|
224.5
|
|
|
$
|
233.9
|
|
Liabilities
|
|
|
190.8
|
|
|
|
191.0
|
|
Equity
|
|
|
33.7
|
|
|
|
42.9
|
|
Revenue
|
|
|
6.4
|
|
|
|
6.2
|
|
Expenses
|
|
|
7.4
|
|
|
|
7.6
|
|
Net loss
|
|
|
1.0
|
|
|
|
(1.4
|
)
|
On December 31, 2007, the Company also formed a joint venture, SMC-CIT Holding Company,
LLC, (SMC) with an affiliate of Senior Management Concepts, LLC to acquire four independent and
assisted living facilities located in Utah.
The four facilities contain 243 independent living units and 165 assisted living units. The
properties were constructed in the last 25 years, and two were built in the last 10 years. Since
both transactions closed on December 31, 2007, the Company recorded no income or loss on these
investments for the period from June 22, 2007 (commencement of operations) to December 31, 2007.
Summarized financial information as of and for the three months ended
March 31, 2010 and March 31, 2009, for the Companys
unconsolidated joint venture in SMC is as follows (amounts in millions):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
Amount
|
|
Amount
|
Assets
|
|
$
|
56.5
|
|
|
$
|
60.6
|
|
Liabilities
|
|
|
54.0
|
|
|
|
54.2
|
|
Equity
|
|
|
2.5
|
|
|
|
6.4
|
|
Revenue
|
|
|
1.3
|
|
|
|
0.8
|
|
Expenses
|
|
|
1.4
|
|
|
|
0.9
|
|
Net loss
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
Note 14
Tiptree Transaction
On March 16, 2010, we executed a definitive agreement with Tiptree for the sale of a
significant equity stake in the Company through a series of related transactions. Under the
agreement, the parties have agreed to sell a quantity of shares to the Buyer immediately following the completion of a cash tender offer by us for Cares outstanding common
shares. The quantity of shares to be sold to the Buyer will depend upon the quantity of shares
tendered, but is expected to represent at least 53.4% of the shares of the Companys common stock
on a fully diluted basis after completion of the Companys cash tender offer. The agreement is
subject to customary closing conditions and our ability to proceed with the cash tender offer.
In connection with the sale transaction contemplated by the agreement, we intend to make a
cash tender offer for up to 100% of the outstanding common shares of Care stock at an offer price
of $9.00 per share, subject to a minimum subscription of 10,300,000 shares of Care stock. Also, in
connection with the transaction, it is anticipated that the resulting company will be advised by an affiliate
of Tiptree.
We are in the process of seeking shareholder approval to abandon the plan of liquidation and
pursue the contemplated transactions described above. If the contemplated transactions are not
completed, we may pursue the plan of liquidation as approved by the stockholders on January 28 or
we may consider other strategic alternatives to liquidation. In the event that a liquidation of the
Company is pursued, material adjustments to these going concern financial statements may need to be
recorded to present liquidation basis financial statements. Material adjustments which may be
required for liquidation basis accounting primarily relate to reflecting assets and liabilities at
their net realizable value and costs to be incurred to carry out the plan of liquidation. After
such adjustments, we have estimated that the likely range of equity value which would be presented
in liquidation basis financial statements would be between $8.05 and 8.90 per share.
18
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following should be read in conjunction with the consolidated financial statements and
notes included herein. This Managements Discussion and Analysis of Financial Condition and
Results of Operations contains certain non-GAAP financial measures. See Non-GAAP Financial
Measures and supporting schedules for reconciliation of our non-GAAP financial measures to the
comparable GAAP financial measures.
Overview
Care Investment Trust Inc. (all references to Care, the Company, we, us, and our
means Care Investment Trust Inc. and its subsidiaries) is an externally-managed real estate
investment trust (REIT) formed principally to invest in healthcare-related real estate and
mortgage debt. Care was incorporated in Maryland in March 2007, and we completed our initial
public offering on June 22, 2007. We were originally positioned to make mortgage investments in
healthcare-related properties, and to opportunistically invest in real estate through utilizing the
origination platform of our external manager, CIT Healthcare LLC (CIT Healthcare or our
Manager). We acquired our initial portfolio of mortgage loan assets from the Manager in exchange
for cash proceeds from our initial public offering and common stock. In response to dislocations
in the overall credit market, and in particular the securitized financing markets, in late 2007, we
redirected our focus to place greater emphasis on high quality healthcare-related real estate
equity investments.
Our Manager is a healthcare finance company that offers a full-spectrum of financing solutions
and related strategic advisory services to companies across the healthcare industry throughout the
United States. Our Manager was formed in 2004 and is a wholly-owned subsidiary of CIT Group Inc.
(CIT), a leading middle market global commercial finance company that provides financial and
advisory services.
As of March 31, 2010, we maintained a diversified investment portfolio of $165.0 million which
was comprised of $54.4 million in real estate owned through unconsolidated joint ventures (33%),
$100.8 million in wholly-owned real estate (61%) and $9.8 million in investments in loans held at
the lower of cost or market (6%). Our current investments in healthcare real estate include
medical office buildings and assisted and independent living and Alzheimer facilities. Our loan
portfolio is composed of first mortgages on skilled nursing facilities, assisted living facilities
and senior apartments.
As a REIT, we generally will not be subject to federal taxes on our REIT taxable income to the
extent that we distribute our taxable income to stockholders and maintain our status as a qualified
REIT.
On March 16, 2010, we announced the entry into a definitive purchase and sale agreement with
Tiptree Financial Partners, L.P. under which we have agreed to sell newly issued common stock to
Tiptree at $9.00 per share (the Transaction). The
quantity of shares to be sold to Tiptree will depend upon the
quantity of shares tendered, but is expected to represent at least
53.4% of the shares of the Company. Additionally, pursuant to the purchase and sale agreement and in
conjunction with the sale of newly issued common stock to Tiptree, we have agreed to launch a cash
tender offer to all of our stockholders to purchase up to all of our common stock at $9.00 per
share. The discussion of the terms of the purchase and sale agreement below is qualified in its
entirety by the terms of the agreement itself, which has been filed as Exhibit 10.1 to the
Companys Form 8-K filed on March 16, 2010.
There can be no assurance that the Tiptree transaction or the associated tender offer will be
consummated in a timely fashion, under the same terms or at all.
Critical Accounting Policies
A summary of our critical accounting policies is included in our Annual Report on Form 10-K
for the year ended December 31, 2009 in Managements Discussion and Analysis of Financial
Condition and Results of Operations. There have been no significant changes to those policies
during the three month period ended March 31, 2010.
19
Results of Operations
Results for the three months ended March 31, 2010
Revenue
During the three month period ended March 31, 2010, we recognized $3.2 million of rental
revenue on the twelve properties acquired in the Bickford transaction in June 2008 and the
acquisition of two additional properties from Bickford in September 2008, as compared with $3.2
million during the comparable three month period ended March 31, 2009.
We earned investment income on our investments in mortgage loans of $0.7 million for the three
month period ended March 31, 2010 as compared with $2.9 million for the comparable three month
period ended March 31, 2009, a decrease of approximately $2.2 million. Our investment in one
mortgage loan as of March 31, 2010 is a floating rate loan based upon LIBOR. The decrease in
income related to the mortgage loan portfolio is primarily attributable to a lower average
outstanding principal loan balance during the three month period ended March 31, 2010 as compared
with the comparable period during 2009, which was the result of loan prepayments and loan
sales that occurred throughout 2009 and the first quarter of 2010 in connection with the companys
decision to shift our operating strategy to place greater emphasis on acquiring high quality
healthcare-related real estate investments and away from mortgage investments. The decrease in
income related to our mortgage portfolio is also the result of the decrease in average LIBOR during
the quarter ended March 31, 2010 versus the quarter ended March 31, 2009. The average one month
LIBOR during the three month period ended March 31, 2010 was 0.23% as compared with 0.46% for the
three-month period ended March 31, 2009. Mitigating some of the decrease in LIBOR were interest
rate floors on certain of our mortgage investments which placed limits on how low the respective
loans could reset. Our mortgage portfolio consists of one variable rate investment with a spread
of 4.16% over one month LIBOR, with an effective yield of 4.41% and a maturity of 0.8 year. The
effective yield on the portfolio at the period ended March 31, 2009 was 6.29%.
Expenses
For the three months ended March 31, 2010, we recorded management fee expense payable to our
Manager under our Management Agreement of $0.4 million as compared with $0.6 million for the three
month period ended March 31, 2009, a decrease of approximately $0.2 million. The decrease in
management fee expense is primarily attributable to the reduction in the monthly base management
fee in connection with the January 2010 amendment to the Management Agreement with our manager,
which also reduced the fee payable to our Manager upon termination of the Management Agreement from
$15.4 million to a buyout payment of $7.5 million, payable in three equal amounts of $2.5 million
as specified in the Amended and Restated Management Agreement. We recorded a buyout payment
expense of $7.5 million for the three month period ended March 31, 2010 in connection with the
obligation which includes the $2.5 million paid in the 2010 first quarter, the $2.5 million payment made April 1, 2010 and the final $2.5 million payment
to be made on the earlier of June 30, 2011 or upon termination of the agreement.
Marketing, general and administrative expenses were $1.8 million for the quarter ended March
31, 2010 and consist of fees for professional services, insurance, general overhead costs for the
Company and real estate taxes on our facilities, as compared with $2.3 million for the three-month
period ended March 31, 2009, a decrease of approximately $0.5 million. The decrease is primarily
the result of a reduction in strategic legal and advisory services, partially offset by an increase
in stock based compensation expense as a result of the change in the Companys stock price, which
is a factor in the remeasurement of the stock-based awards. We recognized expense of $63,000 for
the three month period ended March 31, 2010 related to stock-based compensation as compared with
expense of $5,000 for the three month period ended March 31, 2009, an increase of approximately
$58,000. The stock-based compensation amounts recorded include expense of $63,000 and $75,000
related to shares of our common stock earned by our independent directors as part of their
compensation for the three month periods ended March 31, 2010 and 2009, respectively. The decrease
in stock-based compensation to our directors was the result of fewer directors on our Board of
Directors. Each independent director is paid a base retainer of $100,000 annually, which is
payable 50% in cash and 50% in stock. Payments are made quarterly in arrears. Shares of our
common stock issued to our independent directors as part of their annual compensation vest
immediately and are expensed by us accordingly.
The management fees, expense reimbursements, and the relationship between our Manager and us
are discussed further in Note 8.
Loss from investments in partially-owned entities
For the three month period ended March 31, 2010, net loss from partially-owned entities
amounted to $0.6 million as compared with a loss of $0.9 million for the three month period ended
March 31, 2009, a decrease of approximately $0.3 million. Our equity in the non-cash operating
loss of the Cambridge properties for the quarter ended March 31, 2010 was $0.9 million, offset by
our share of equity income in the SMC properties of $0.3 million. Our share of the non-cash
operating loss of the Cambridge properties included $2.3 million attributable to our share of the
depreciation and amortization expenses associated with the Cambridge properties.
20
Unrealized loss on derivatives
We recorded a $0.6 million unrealized loss on the fair value of our obligation to issue
partnership units related to the Cambridge transaction for the three-month period ended March 31,
2010 as compared with an unrealized gain of $1.3 million for the three-month period ended March 31,
2009, an decrease of approximately $1.9 million.
Interest Expense
We incurred interest expense of $1.4 million for the three-month period ended March 31, 2010
as compared with interest expense of $2.1 million for the three-month period ended March 31, 2009,
a decrease of approximately $0.7 million. Interest expense for the quarter was related to the
interest payable on the mortgage debt which was incurred for the acquisition of 14 facilities from
Bickford. The decrease in interest expense is attributable to a $0.6 million write off of deferred
financing charges during the three-month period ended March 31, 2009 and $0.1 million related to
the borrowings under our terminated warehouse line of credit during the three month period ended
March 31, 2009.
Cash Flows
Cash and cash equivalents were $136.6 million at March 31, 2010 as compared with $122.5
million at December 31, 2009, an increase of approximately $14.1 million. Cash during the first
three months of 2010 was generated from $15.8 million in proceeds from our investing activities,
offset by $1.0 million used in operating activities and $0.7 million used for financing activities
during the period.
Net cash used in operating activities for the three months ended March 31, 2010 amounted to
$1.0 million as compared with $3.2 million provided by operating activities for the three months
ended March 31, 2009, a decrease of approximately $4.2 million. Net loss before adjustments was
$8.4 million. Equity in the operating results of, and distributions from, investments in
partially-owned entities accounted for $2.2 million of the loss. Non-cash charges for
straight-line effects of lease revenue, gains on sales of loans, adjustment to our valuation
allowance on loans at LOCOM, amortization of deferred loan fees, amortization and write-off of
deferred financing costs, stock based compensation, unrealized loss on derivative instruments, and
depreciation and amortization provided $0.2 million. The net change in operating assets and
liabilities provided a net increase of $5.0 million and
consisted of an decrease in accrued
interest receivable and other assets of $0.7 million, offset by
a increase of $5.7 million in
accounts payable and accrued expenses and other liabilities including amounts due to a related
party.
Net cash provided by investing activities for the three months ended March 31, 2010 was $15.8
million as compared with $23.6 million for the three months ended March 31, 2009, a decrease of
approximately $7.8 million. The decrease is primarily attributable to the sale of a loan to a
third party for $5.9 million and loan repayments received of $10.4 million, along with new
investments of $0.5 during the first three months of 2010, as compared with the sale of a loan to
our Manager for $22.5 million and receipt of $1.0 million for loan repayments during the comparable
period in 2009.
Net cash used in financing activities for the three months ended March 31, 2010 was $0.7
million as compared with net cash used in financing activities of $41.2 million for the three
months ended March 31, 2009, a decrease of $40.5 million. The decrease is primarily attributable
to cash used of $0.5 million for the purchase of treasury shares and $0.2 million for debt
repayment in the current three-month period as compared with the repayment of $37.8 million and
subsequent termination of our warehouse line of credit and payment of dividends totaling $3.4
million during the three-month period ended March 31, 2009.
Liquidity and Capital Resources
Liquidity is a measurement of our ability to meet potential cash requirements, including
ongoing commitments to repay borrowings, fund and maintain loans and other investments, pay
dividends and other general business needs. Our primary sources of liquidity are rental income
from our real estate properties, distributions from our joint ventures, net interest income earned
on our portfolio of mortgage loans and interest income earned from our available cash balances. We
also obtain liquidity from repayments of principal by our borrowers in connection with our loans.
As of April 30, 2010, the Company had $134.5 million in cash and cash equivalents.
Historically, we relied on borrowings under a warehouse line of credit along with a Mortgage
Purchase Agreement with our Manager to fund our investments. In October 2007, we obtained a
warehouse line of credit from Column Financial, an affiliate of Credit Suisse, under which we
borrowed funds collateralized by the mortgage loans in our portfolio. In March 2009, we repaid
these borrowings in full with cash on hand. In September 2008, we entered into an MPA with our
Manager in order to secure a potential additional source of liquidity. Pursuant to the MPA, we had
the right, subject to the conditions of the MPA, to cause the Manager to
21
purchase our mortgage loans at their then-current fair market value, as determined by a third
party appraiser. In January 2010, upon the effective date of the Amended and Restated Management
Agreement with our Manager on January 28, 2010, the MPA was terminated.
To maintain our status as a REIT under the Code, we must distribute annually at least 90% of
our REIT taxable income. These distribution requirements limit our ability to retain earnings and
thereby replenish or increase capital for operations.
Capitalization
As of March 31, 2010, we had 20,224,548 shares of common stock outstanding, plus 1,060,006
shares held in treasury.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk includes risks that arise from changes in interest rates, commodity prices, equity
prices and other market changes that affect market sensitive instruments. In pursuing our business
plan, we expect that the primary market risks to which we will be exposed are real estate and
interest rate risks.
Real Estate Risk
The value of owned real estate, commercial mortgage assets and net operating income derived
from such properties are subject to volatility and may be affected adversely by a number of
factors, including, but not limited to, national, regional and local economic conditions which may
be adversely affected by industry slowdowns and other factors, local real estate conditions (such
as an oversupply of retail, industrial, office or other commercial space), changes or continued
weakness in specific industry segments, construction quality, age and design, demographic factors,
retroactive changes to building or similar codes, and increases in operating expenses (such as
energy costs). In the event net operating income decreases, or the value of property held for sale
decreases, a borrower may have difficulty paying our rent or repaying our loans, which could result
in losses to us. Even when a propertys net operating income is sufficient to cover the propertys
debt service, at the time an investment is made, there can be no assurance that this will continue
in the future.
The current turmoil in the residential mortgage market may continue to have an effect on the
commercial mortgage market and real estate industry in general.
Interest Rate Risk
Interest rate risk is highly sensitive to many factors, including the availability of
liquidity, governmental monetary and tax policies, domestic and international economic and
political considerations and other factors beyond our control.
Our operating results will depend in large part on differences between the income from assets
in our real estate and mortgage loan portfolio and our borrowing costs. At present, our variable
rate mortgage loan is funded by our equity as restrictive conditions in the securitized debt
markets have not enabled us to leverage the portfolio as we originally intended. Accordingly, the
income we earn on this loan is subject to variability in interest rates. At current investment
levels, changes in one month LIBOR at the magnitudes listed would have the following estimated
effect on our annual income from investments in loans held at LOCOM (one month LIBOR was 0.25% at
March 31, 2010):
|
|
|
|
|
Increase / (decrease) in
|
|
|
income
|
|
|
from investments in loans
|
Increase / (decrease) in one-month LIBOR
|
|
(dollars in thousands)
|
(20) basis points
|
|
$(28)
|
(10) basis points
|
|
(14)
|
Base interest rate
|
|
0
|
+100 basis points
|
|
138
|
+200 basis points
|
|
276
|
In the event of a significant rising interest rate environment and/or economic downturn,
delinquencies and defaults could increase and result in credit losses to us, which could adversely
affect our liquidity and operating results. Further, such delinquencies or defaults could have an
adverse effect on the spreads between interest-earning assets and interest-bearing liabilities.
22
Our funding strategy involves utilizing asset-specific debt to finance our real estate
investments. Currently, the availability of liquidity is constrained due to investor concerns over
dislocations in the debt markets, hedge fund losses, the large volume of unsuccessful leveraged
loan syndications and related impact on the overall credit markets. These concerns have materially
impacted liquidity in the debt markets, making financing terms for borrowers less attractive. We
cannot foresee when credit markets may stabilize and liquidity becomes more readily available.
Non-GAAP Financial Measures
Funds from Operations
Funds From Operations, or FFO, which is a non-GAAP financial measure, is a widely recognized
measure of REIT performance. We compute FFO in accordance with standards established by the
National Association of Real Estate Investment Trusts, or NAREIT, which may not be comparable to
FFO reported by other REITs that do not compute FFO in accordance with the NAREIT definition, or
that interpret the NAREIT definition differently than we do.
The revised White Paper on FFO, approved by the Board of Governors of NAREIT in April 2002
defines FFO as net income (loss) (computed in accordance with GAAP), excluding gains (or losses)
from debt restructuring and sales of properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint ventures.
Adjusted Funds from Operations
Adjusted Funds From Operations, or AFFO, is a non-GAAP financial measure. We calculate AFFO
as net income (loss) (computed in accordance with GAAP), excluding gains (losses) from debt
restructuring and gains (losses) from sales of property, plus the expenses associated with
depreciation and amortization on real estate assets, non-cash equity compensation expenses, the
effects of straight lining lease revenue, excess cash distributions from the Companys equity
method investments and one-time events pursuant to changes in GAAP and other non-cash charges.
Proportionate adjustments for unconsolidated partnerships and joint ventures will also be taken
when calculating the Companys AFFO.
We believe that FFO and AFFO provide additional measures of our core operating performance by
eliminating the impact of certain non-cash expenses and facilitating a comparison of our financial
results to those of other comparable REITs with fewer or no non-cash charges and comparison of our
own operating results from period to period. The Company uses FFO and AFFO in this way, and also
has used AFFO as a performance metric in the Companys executive compensation program. The Company
also believes that its investors also use FFO and AFFO to evaluate and compare the performance of
the Company and its peers, and as such, the Company believes that the disclosure of FFO and AFFO is
useful to (and expected of) its investors.
However, the Company cautions that neither FFO nor AFFO represent cash generated from
operating activities in accordance with GAAP and they should not be considered as an alternative to
net income (determined in accordance with GAAP), or an indication of our cash flow from operating
activities (determined in accordance with GAAP), a measure of our liquidity, or an indication of
funds available to fund our cash needs, including our ability to make cash distributions. In
addition, our methodology for calculating FFO and / or AFFO may differ from the methodologies
employed by other REITs to calculate the same or similar supplemental performance measures, and
accordingly, our reported FFO and / or AFFO may not be comparable to the FFO and AFFO reported by
other REITs.
FFO and AFFO for the three months ended March 31, 2010 were as follows
(in thousands, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
|
March 31, 2010
|
|
|
|
FFO
|
|
|
AFFO
|
|
Net Income
|
|
$
|
(8,430
|
)
|
|
$
|
(8,430
|
)
|
Add:
|
|
|
|
|
|
|
|
|
Depreciation and amortization from partially-owned entities
|
|
|
2,296
|
|
|
|
2,296
|
|
Depreciation and amortization on owned properties
|
|
|
841
|
|
|
|
841
|
|
Adjustment to valuation allowance for loans carried at LOCOM
|
|
|
|
|
|
|
(745
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
63
|
|
Straight-line effect of lease revenue
|
|
|
|
|
|
|
(570
|
)
|
Excess cash distributions from the Companys equity method investments
|
|
|
|
|
|
|
181
|
|
Gain on loans sold
|
|
|
|
|
|
|
(4
|
)
|
Obligation to issue OP Units
|
|
|
|
|
|
|
578
|
|
|
|
|
|
|
|
|
Funds From Operations and Adjusted Funds From Operations
|
|
$
|
(5,293
|
)
|
|
$
|
(5,790
|
)
|
FFO and Adjusted FFO per share basic and diluted
|
|
$
|
(0.26
|
)
|
|
$
|
(0.29
|
)
|
Weighted average shares outstanding basic and diluted
|
|
|
20,205,996
|
|
|
|
20,205,996
|
|
23
FORWARD-LOOKING INFORMATION
We make forward looking statements in this Form 10-Q that are subject to risks and
uncertainties. These forward looking statements include information about possible or assumed
future results of our business and our financial condition, liquidity, results of operations, plans
and objectives. They also include, among other things, statements concerning anticipated revenues,
income or loss, capital expenditures, dividends, capital structure, or other financial terms, as
well as statements regarding subjects that are forward looking by their nature, such as:
|
|
|
our ability to complete the Tiptree transaction;
|
|
|
|
|
if we do not complete the Tiptree transaction, our ability to sell one or more of our
assets;
|
|
|
|
|
if we do not complete the Tiptree transaction, our ability to conduct an orderly
liquidation;
|
|
|
|
|
if we do not complete the Tiptree transaction, our ability to make one or more special
cash distributions;
|
|
|
|
|
our business and financing strategy;
|
|
|
|
|
our ability to acquire investments on attractive terms;
|
|
|
|
|
our understanding of our competition;
|
|
|
|
|
our projected operating results;
|
|
|
|
|
market trends;
|
|
|
|
|
estimates relating to our future dividends;
|
|
|
|
|
completion of any pending transactions;
|
|
|
|
|
projected capital expenditures; and
|
|
|
|
|
the impact of technology on our operations and business.
|
The forward looking statements are based on our beliefs, assumptions, and expectations of our
future performance, taking into account the information currently available to us. These beliefs,
assumptions, and expectations can change as a result of many possible events or factors, not all of
which are known to us. If a change occurs, our business, financial condition, liquidity, and
results of operations may vary materially from those expressed in our forward looking statements.
You should carefully consider this risk when you make a decision concerning an investment in our
securities, along with the following factors, among others, that could cause actual results to vary
from our forward looking statements:
|
|
|
the factors referenced in this Form 10-Q;
|
|
|
|
|
general volatility of the securities markets in which we invest and the market price of
our common stock;
|
|
|
|
|
uncertainty in obtaining stockholder approval, to the extent it is required, for a
strategic alternative;
|
|
|
|
|
changes in our business or investment strategy;
|
|
|
|
|
changes in healthcare laws and regulations;
|
|
|
|
|
availability, terms and deployment of capital;
|
|
|
|
|
availability of qualified personnel;
|
24
|
|
|
changes in our industry, interest rates, the debt securities markets, the general economy
or the commercial finance and real estate markets specifically;
|
|
|
|
|
the degree and nature of our competition;
|
|
|
|
|
the performance and financial condition of borrowers, operators and corporate customers;
|
|
|
|
|
increased rates of default and/or decreased recovery rates on our investments;
|
|
|
|
|
changes in governmental regulations, tax rates and similar matters;
|
|
|
|
|
legislative and regulatory changes (including changes to laws governing the taxation of
REITs or the exemptions from registration as an investment company);
|
|
|
|
|
the adequacy of our cash reserves and working capital; and
|
|
|
|
|
the timing of cash flows, if any, from our investments.
|
When we use words such as will likely result, may, shall, believe, expect,
anticipate, project, intend, estimate, goal, objective, or similar expressions, we
intend to identify forward looking statements. You should not place undue reliance on these forward
looking statements. We are not obligated to publicly update or revise any forward looking
statements, whether as a result of new information, future events, or otherwise.
ITEM 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms, and that such information
is accumulated and communicated to our management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Notwithstanding the foregoing, no matter how well a control system is designed and operated, it can
provide only reasonable, not absolute, assurance that it will detect or uncover failures within our
company to disclose material information otherwise required to be set forth in our periodic
reports.
As of the end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of our management, including our Chief Executive Officer and
our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures. Based upon that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were effective as of the
end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the three
months ended March 31, 2010 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
25
Part II. Other Information
ITEM 1. Legal Proceedings
On September 18, 2007, a class action complaint for violations of federal securities laws was
filed in the United States District Court, Southern District of New York alleging that the
Registration Statement relating to the initial public offering of shares of our common stock, filed
on June 21, 2007, failed to disclose that certain of the assets in the contributed portfolio were
materially impaired and overvalued and that we were experiencing increasing difficulty in securing
our warehouse financing lines. On January 18, 2008, the court entered an order appointing co-lead
plaintiffs and co-lead counsel. On February 19, 2008, the co-lead plaintiffs filed an amended
complaint citing additional evidentiary support for the allegations in the complaint. We believe
the complaint and allegations are without merit and intend to defend against the complaint and
allegations vigorously. We filed a motion to dismiss the complaint on April 22, 2008. The
plaintiffs filed an opposition to our motion to dismiss on July 9, 2008, to which we filed our
reply on September 10, 2008. On March 4, 2009, the court denied our motion to dismiss. Care filed
its answer on April 15, 2009. At a conference held on May 15, 2009, the Court ordered the parties
to make a joint submission (the Joint Statement) setting forth: (i) the specific statements that
Plaintiffs claim are false and misleading; (ii) the facts on which Plaintiffs rely as showing each
alleged misstatement was false and misleading; and (iii) the facts on which Defendants rely as
showing those statements were true. The parties filed the Joint Statement on June 3, 2009. On July
31, 2009, the parties entered into a stipulation that narrowed the scope of the proceeding to the
single issue of the warehouse financing disclosure in the Registration Statement. Fact discovery
closed on April 23, 2010. The Court has ordered the parties to file an abbreviated joint pre-trial
statement on June 9, 2010, and scheduled a pre-trial conference for June 11, 2010, at which the
Court will determine based on the joint pre-trial statement whether to permit us and the other
defendants to file a summary judgment motion. To date, Care has incurred approximately $1.0
million to defend against this complaint and any incremental costs to defend will be paid by Cares
insurer. No provision for loss related to this matter has been accrued at March 31, 2010.
On November 25, 2009, we filed a lawsuit in the U.S. District Court for the Northern District
of Texas against Mr. Jean-Claude Saada and 13 of his companies (the Saada Parties), seeking
declaratory judgments that (i) we have the right to engage in a business combination transaction
involving our company or a sale of our wholly owned subsidiary that serves as the general partner
of the partnership that holds the direct investment in the portfolio without the approval of the
Saada Parties, (ii) the contractual right of the Saada Parties to put their interests in the
Cambridge medical office building portfolio has expired and (iii) the operating partnership units
held by the Saada Parties do not entitle them to receive any special cash distributions made to our
stockholders. We also brought affirmative claims for tortious interference by the Saada Parties
with a prospective contract and for their breach of the implied covenant of good faith and fair
dealing.
On January 27, 2010, the Saada Parties answered our complaint, and simultaneously filed
counterclaims and a third-party complaint (the Counterclaims) that named our subsidiaries ERC Sub
LLC and ERC Sub, L.P., external manager CIT Healthcare LLC, and board chairman Flint D. Besecker,
as additional third-party defendants. The Counterclaims seek four declaratory judgments construing
certain contracts among the parties that are largely the mirror image of our declaratory judgment
claims. In addition, the Counterclaims also seek monetary damages for purported breaches of
fiduciary duty and the duty of good faith and fair dealing, as well as fraudulent inducement,
against us and the third-party defendants jointly and severally. The Counterclaims further request
indemnification by ERC Sub, L.P., pursuant to a contract between the parties, and the imposition of
a constructive trust on our current assets to be disposed as part of any future liquidation of
Care, including all proceeds from those assets. Although the Counterclaims do not itemize their
asserted damages, they assign these damages a value of $100 million or more. In addition, the
Saada Parties filed a motion to dismiss our tortious interference and breach of the implied
covenant of good faith and fair dealing claims on January 27, 2010. In response to the
Counterclaims, we filed on March 5, 2010, an omnibus motion to dismiss all of the Counterclaims.
On March 22, 2010, we received a letter from Cambridge Holdings, which asserted that the
transactions with Tiptree were in violation of our agreements with the Saada Parties.
The Saada Parties filed their opposition to our omnibus motion to dismiss on March 26, 2010,
and we filed our response on April 9, 2010.
On April 14, 2010, the Saada Parties motion to dismiss was denied and our motion to dismiss
was also denied.
On April 27, 2010, we filed an answer to the Saada Parties third-party complaint.
To date, Care has incurred approximately $0.2 million to defend against this complaint. No
provision for loss related to this matter has been accrued at March 31, 2010.
Care is not presently involved in any other material litigation nor, to our knowledge, is any
material litigation threatened against us or our investments, other than routine litigation arising
in the ordinary course of business. Management believes the costs, if any, incurred by us related
to litigation will not materially affect our financial position, operating results or liquidity.
26
ITEM 5. Other Information
A Special Meeting of Stockholders (the Special Meeting) was announced on December 29, 2009 and
held on January 28, 2010.
Proxies for the Annual Meeting were solicited pursuant to Regulation 14A under the Exchange Act.
At the Special Meeting, stockholders voted on a proposal for approval of the Companys Plan of
Liquidation and a proposal to approve any adjournment of the special meeting, including, if
necessary, to solicit additional proxies in favor of the plan of liquidation proposal if sufficient
votes to approve such plan of liquidation proposal were not available. The number of votes cast
for and against these proposals and the number of abstentions and broker non-votes are set forth
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
|
|
For
|
|
Against
|
|
Abstain
|
Proposal 1: Plan of Liquidation
|
|
|
11,858,977
|
|
|
|
18,634
|
|
|
|
760
|
|
Proposal 2: Adjournment of
Special Meeting
|
|
|
11,574,640
|
|
|
|
301,884
|
|
|
|
1,847
|
|
Except as indicated by an asterisk (*), the following exhibits are filed herewith as part of
this Form 10-Q.
(a) Exhibits
31.1
|
|
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
31.2
|
|
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
|
32.1
|
|
Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
|
32.2
|
|
Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
Care Investment Trust Inc.
|
|
|
|
By:
|
/s/ Paul F. Hughes
|
|
|
|
Paul F. Hughes
|
|
May 10, 2010
|
|
Chief Financial Officer and Treasurer
|
|
|
EXHIBIT INDEX
Except as indicated by an asterisk (*), the following exhibits are filed herewith as part of
this Form 10-Q.
|
|
|
Exhibit No.
|
|
Description
|
31.1
|
|
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31.2
|
|
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.1
|
|
Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.2
|
|
Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
28
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K/A
(Amendment
No. 2)
|
|
|
(Mark One)
|
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the fiscal year ended
December 31,
2009
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period
from to
|
Commission File Number:
001-33549
Care Investment Trust
Inc.
(Exact name of Registrant as
specified in its charter)
|
|
|
Maryland
|
|
38-3754322
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(IRS Employer
Identification Number)
|
505 Fifth
Avenue,
6
th
Floor, New York, New York 10017
(Address
of Registrants principal executive offices)
(212) 771-0505
(Registrants telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the
Act:
|
|
|
Title of Each Class
|
|
Name of Each Exchange on Which Registered
|
|
Common Stock
|
|
New York Stock Exchange
|
Securities
Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
o
No
þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
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
þ
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2
of the
Exchange Act. (Check one):
|
|
|
|
Large
accelerated
filer
o
|
Accelerated
filer
þ
|
Non-accelerated
filer
o
|
Smaller
reporting
company
o
|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes
o
No
þ
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to
the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of the
last day of the registrants most recently completed second
fiscal quarter: $65,704,642.
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
As of July 1, 2010, there were 20,235,924 shares, par
value $0.001, of the registrants common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
EXPLANATORY
NOTE
The registrant is filing this Amendment No. 2 (the
Amendment) to its Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009 (Original
Report), to (i) enhance the disclosure previously
included in Note 6 (Investments in Partially Owned
Entities) to the registrants Consolidated Financial
Statements included under Item 8 (Financial
Statements and Supplementary Data) by providing summarized
financial data for four of the eight legal entities included in
the registrants investment in the Cambridge medical office
building portfolio that contributed more than 20% to the
registrants 2009 consolidated pre-tax loss, (ii) update
the disclosure previously included in Note 16 (Commitments
and Contingencies) to the registrants Consolidated
Financial Statements included under Item 8 (Financial
Statements and Supplementary Data) by providing an update
to the status of litigation through July 14, 2010 and
(iii) separate audited financial statements for SMC-CIT
Holding Company, LLC as of and for the years ended
December 31, 2009 (audited) and December 31, 2008
(unaudited).
This Amendment includes information contained in the Original
Report, and we have made no attempt in the Amendment to modify
or update the disclosure presented in the Original Report,
except as expressly identified above. The disclosures in this
Amendment speak as of the date of the Original Report, and do
not reflect events occurring after the filing of the Original
Report. Accordingly, this Amendment should be read in
conjunction with the Original Report, and in conjunction with
our other filings made with the Securities and Exchange
Commission subsequent to the filing of the Original Report,
including any amendments to those filings.
|
|
ITEM 8.
|
Financial
Statements and Supplementary Data
|
Financial
Statements and Supplementary Data
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Care Investment
Trust Inc. and subsidiaries
New York, NY
We have audited the accompanying consolidated balance sheets of
Care Investment Trust Inc. and subsidiaries (the
Company) as of December 31, 2009 and 2008, and
the related consolidated statements of operations,
stockholders equity, and cash flows for the years ended
December 31, 2009 and 2008, and for the period from
June 22, 2007 (commencement of operations) to
December 31, 2007. Our audits also included the financial
statement schedules listed in the Index at Item 15. We also
have audited the Companys internal control over financial
reporting as of December 31, 2009 based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Companys management is
responsible for these financial statements and financial
statement schedules, for maintaining effective internal control
over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on these financial statements and
financial statement schedules and an opinion on the
Companys internal control over financial reporting based
on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles and that receipts and expenditures of the company are
being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Care Investment Trust and subsidiaries as of
December 31, 2009 and 2008, and the
2
results of their operations and their cash flows for the years
ended December 31, 2009 and 2008, and for the period from
June 22, 2007 (commencement of operations) to
December 31, 2007 in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the
information set forth therein. Also, in our opinion, the Company
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2009, based on
the criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
/s/
DELOITTE &
TOUCHE LLP
Parsippany, NJ
March 16, 2010 (July 14, 2010 as to Notes 6 and
16)
3
Care
Investment Trust Inc. and Subsidiaries
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands except
|
|
|
|
share and per share data)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
5,020
|
|
|
$
|
5,020
|
|
Buildings and improvements
|
|
|
101,000
|
|
|
|
101,524
|
|
Less: accumulated depreciation
|
|
|
(4,481
|
)
|
|
|
(1,414
|
)
|
|
|
|
|
|
|
|
|
|
Total real estate, net
|
|
|
101,539
|
|
|
|
105,130
|
|
Cash and cash equivalents
|
|
|
122,512
|
|
|
|
31,800
|
|
Investments in loans held at LOCOM
|
|
|
25,325
|
|
|
|
159,916
|
|
Investments in partially-owned entities
|
|
|
56,078
|
|
|
|
64,890
|
|
Accrued interest receivable
|
|
|
177
|
|
|
|
1,045
|
|
Deferred financing costs, net of accumulated amortization of
$1,122 and $432, respectively
|
|
|
713
|
|
|
|
1,402
|
|
Identified intangible assets leases in place, net
|
|
|
4,471
|
|
|
|
4,295
|
|
Other assets
|
|
|
4,617
|
|
|
|
2,428
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
315,432
|
|
|
$
|
370,906
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Borrowings under warehouse line of credit
|
|
$
|
|
|
|
$
|
37,781
|
|
Mortgage notes payable
|
|
|
81,873
|
|
|
|
82,217
|
|
Accounts payable and accrued expenses
|
|
|
2,245
|
|
|
|
1,625
|
|
Accrued expenses payable to related party
|
|
|
544
|
|
|
|
3,793
|
|
Obligation to issue operating partnership units
|
|
|
2,890
|
|
|
|
3,045
|
|
Other liabilities
|
|
|
1,087
|
|
|
|
1,313
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
88,639
|
|
|
|
129,774
|
|
Commitments and Contingencies (Note 16)
|
|
|
|
|
|
|
|
|
Stockholders Equity:
|
|
|
|
|
|
|
|
|
Common stock: $0.001 par value, 250,000,000 shares
authorized, 21,159,647 and 21,021,359 shares issued,
respectively and 20,158,894 and 20,021,359 shares
outstanding, respectively
|
|
|
21
|
|
|
|
21
|
|
Treasury stock
|
|
|
(8,334
|
)
|
|
|
(8,330
|
)
|
Additional
paid-in-capital
|
|
|
301,926
|
|
|
|
299,656
|
|
Accumulated deficit
|
|
|
(66,820
|
)
|
|
|
(50,215
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders Equity
|
|
|
226,793
|
|
|
|
241,132
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
315,432
|
|
|
$
|
370,906
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
4
Care
Investment Trust Inc. and Subsidiaries
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
June 22, 2007
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
(Commencement
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
of Operations) to
|
|
|
|
2009
|
|
|
2008
|
|
|
December 31, 2007
|
|
|
|
(Dollars in thousands except share and per share
data)
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenue
|
|
$
|
12,710
|
|
|
$
|
6,228
|
|
|
$
|
|
|
Income from investments in loans
|
|
|
7,135
|
|
|
|
15,794
|
|
|
|
11,209
|
|
Other income
|
|
|
164
|
|
|
|
237
|
|
|
|
954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
20,009
|
|
|
|
22,259
|
|
|
|
12,163
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Management fees to related party
|
|
|
2,235
|
|
|
|
4,105
|
|
|
|
2,625
|
|
Marketing, general and administrative (including stock-based
compensation expense of $2,270, $1,212 and $9,459, respectively)
|
|
|
11,653
|
|
|
|
6,623
|
|
|
|
11,714
|
|
Depreciation and amortization
|
|
|
3,375
|
|
|
|
1,554
|
|
|
|
|
|
Realized (gain)/loss on loans sold
|
|
|
(1,064
|
)
|
|
|
2,662
|
|
|
|
|
|
Adjustment to valuation allowance on loans held at LOCOM
|
|
|
(4,046
|
)
|
|
|
29,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
12,153
|
|
|
|
44,271
|
|
|
|
14,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (Income) Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from investments in partially-owned entities
|
|
|
4,397
|
|
|
|
4,431
|
|
|
|
|
|
Unrealized (income)/loss on derivative instruments
|
|
|
(153
|
)
|
|
|
237
|
|
|
|
|
|
Interest income
|
|
|
(73
|
)
|
|
|
(395
|
)
|
|
|
(753
|
)
|
Interest expense, including amortization of deferred financing
costs
|
|
|
6,510
|
|
|
|
4,521
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(2,826
|
)
|
|
$
|
(30,806
|
)
|
|
$
|
(1,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, basic and diluted
|
|
$
|
(0.14
|
)
|
|
$
|
(1.47
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic and diluted
|
|
|
20,061,763
|
|
|
|
20,952,972
|
|
|
|
20,866,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
5
Care
Investment Trust Inc. and Subsidiaries
Consolidated
Statement of Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Treasury
|
|
|
Additional
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
$
|
|
|
Stock
|
|
|
Paid in Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
(Dollars in thousands, except share data)
|
|
|
Balance at June 22, 2007
(Commencement of Operations)
|
|
|
100
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Proceeds from public offering of common stock
|
|
|
15,000,000
|
|
|
|
15
|
|
|
|
|
|
|
|
224,985
|
|
|
|
|
|
|
|
225,000
|
|
Underwriting and offering costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,837
|
)
|
|
|
|
|
|
|
(14,837
|
)
|
Issuance of common stock for the acquisition of initial assets
from Manager
|
|
|
5,256,250
|
|
|
|
5
|
|
|
|
|
|
|
|
78,838
|
|
|
|
|
|
|
|
78,843
|
|
Stock-based compensation to Manager in common stock pursuant to
the Care Investment Trust, Inc. Manager equity plan
|
|
|
607,690
|
|
|
|
1
|
|
|
|
|
|
|
|
9,114
|
|
|
|
|
|
|
|
9,115
|
|
Stock-based compensation to non-employees in common stock
pursuant to the Care Investment Trust, Inc. Equity Plan
|
|
|
148,333
|
|
|
|
|
|
|
|
|
|
|
|
2,225
|
|
|
|
|
|
|
|
2,225
|
|
Unamortized portion of unvested common stock issued pursuant to
the Care Investment Trust Inc. Equity Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,943
|
)
|
|
|
|
|
|
|
(1,943
|
)
|
Stock-based compensation to directors for services rendered
|
|
|
5,215
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
|
|
|
|
62
|
|
Net loss for the period from June 22, 2007 (Commencement of
Operations) to December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,557
|
)
|
|
|
(1,557
|
)
|
Dividends declared and paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,573
|
)
|
|
|
(3,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
21,017,588
|
|
|
|
21
|
|
|
|
|
|
|
|
298,444
|
|
|
|
(5,130
|
)
|
|
|
293,335
|
|
Treasury stock purchased
|
|
|
(1,000,000
|
)
|
|
|
|
|
|
|
(8,330
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,330
|
)
|
Stock-based compensation, fair value net of forfeitures
|
|
|
(22,000
|
)
|
|
|
|
|
|
|
|
|
|
|
410
|
|
|
|
|
|
|
|
410
|
|
Stock-based compensation to directors for services rendered
|
|
|
25,771
|
|
|
|
|
|
|
|
|
|
|
|
270
|
|
|
|
|
|
|
|
270
|
|
Warrants granted to manager
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
532
|
|
|
|
|
|
|
|
532
|
|
Dividends declared and paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,279
|
)
|
|
|
(14,279
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30,806
|
)
|
|
|
(30,806
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
20,021,359
|
|
|
$
|
21
|
|
|
$
|
(8,330
|
)
|
|
$
|
299,656
|
|
|
$
|
(50,215
|
)
|
|
$
|
241,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock purchased
|
|
|
(753
|
)
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
Stock-based compensation fair value
|
|
|
90,738
|
|
|
|
|
|
|
|
|
|
|
|
1,970
|
|
|
|
|
|
|
|
1,970
|
|
Stock-based compensation to directors for services rendered
|
|
|
47,550
|
|
|
|
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
300
|
|
Dividends declared and paid on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,779
|
)
|
|
|
(13,779
|
)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,826
|
)
|
|
|
(2,826
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
20,158,894
|
|
|
$
|
21
|
|
|
$
|
(8,334
|
)
|
|
$
|
301,926
|
|
|
$
|
(66,820
|
)
|
|
$
|
226,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
6
Care
Investment Trust Inc. and Subsidiaries
Consolidated
Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period
|
|
|
|
For the Year
|
|
|
For the Year
|
|
|
June 22, 2007
|
|
|
|
Ended
|
|
|
Ended
|
|
|
(Commencement
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
of Operations) to
|
|
|
|
2009
|
|
|
2008
|
|
|
December 31, 2007
|
|
|
|
(Dollars in thousands)
|
|
|
Cash Flow From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,826
|
)
|
|
$
|
(30,806
|
)
|
|
$
|
(1,557
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in deferred rent receivable
|
|
|
(2,411
|
)
|
|
|
(1,218
|
)
|
|
|
|
|
Realized (gain)/loss on sale of loans
|
|
|
(1,064
|
)
|
|
|
2,662
|
|
|
|
(833
|
)
|
Loss from investments in partially-owned entities
|
|
|
4,397
|
|
|
|
4,431
|
|
|
|
|
|
Distribution of income from partially-owned entities
|
|
|
6,867
|
|
|
|
3,358
|
|
|
|
|
|
Amortization of loan premium paid on investment in loans
|
|
|
1,530
|
|
|
|
1,927
|
|
|
|
507
|
|
Amortization and write off of deferred financing cost
|
|
|
689
|
|
|
|
367
|
|
|
|
69
|
|
Amortization of deferred loan fees
|
|
|
(247
|
)
|
|
|
(380
|
)
|
|
|
149
|
|
Stock-based compensation to manager
|
|
|
|
|
|
|
|
|
|
|
9,115
|
|
Stock-based non-employee compensation
|
|
|
2,270
|
|
|
|
1,212
|
|
|
|
344
|
|
Depreciation and amortization on real estate, including
intangible assets
|
|
|
3,415
|
|
|
|
1,554
|
|
|
|
|
|
Unrealized (gain)/loss on derivative instruments
|
|
|
(153
|
)
|
|
|
237
|
|
|
|
|
|
Adjustment to valuation allowance on loans at LOCOM
|
|
|
(4,046
|
)
|
|
|
29,327
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
868
|
|
|
|
854
|
|
|
|
(1,899
|
)
|
Other assets
|
|
|
220
|
|
|
|
(14
|
)
|
|
|
(1,237
|
)
|
Accounts payable and accrued expenses
|
|
|
620
|
|
|
|
116
|
|
|
|
4,628
|
|
Other liabilities including payable to related party
|
|
|
(3,475
|
)
|
|
|
(598
|
)
|
|
|
2,585
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
6,654
|
|
|
|
13,029
|
|
|
|
11,871
|
|
Cash Flow From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of initial assets from Manager
|
|
|
|
|
|
|
|
|
|
|
(204,272
|
)
|
Sale of loans to Manager
|
|
|
42,249
|
|
|
|
|
|
|
|
|
|
Sale of loans to third parties
|
|
|
55,790
|
|
|
|
|
|
|
|
|
|
Loan repayments
|
|
|
40,379
|
|
|
|
54,245
|
|
|
|
64,264
|
|
Loan investments
|
|
|
|
|
|
|
(10,864
|
)
|
|
|
(17,805
|
)
|
Investments in partially-owned entities
|
|
|
(2,452
|
)
|
|
|
(326
|
)
|
|
|
(69,503
|
)
|
Investments in real estate
|
|
|
|
|
|
|
(110,980
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
135,966
|
|
|
|
(67,925
|
)
|
|
|
(227,316
|
)
|
Cash Flow From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
Underwriting and offering costs
|
|
|
|
|
|
|
|
|
|
|
(14,837
|
)
|
Borrowing under mortgage notes payable
|
|
|
|
|
|
|
82,227
|
|
|
|
|
|
Principal payments under mortgage notes payable
|
|
|
(344
|
)
|
|
|
|
|
|
|
|
|
Borrowings under warehouse line of credit
|
|
|
|
|
|
|
13,601
|
|
|
|
25,000
|
|
Principal payments under warehouse line of credit
|
|
|
(37,781
|
)
|
|
|
(830
|
)
|
|
|
|
|
Treasury stock purchases
|
|
|
(4
|
)
|
|
|
(8,330
|
)
|
|
|
|
|
Payment of deferred financing costs
|
|
|
|
|
|
|
(1,012
|
)
|
|
|
(826
|
)
|
Dividends paid
|
|
|
(
13,779
|
)
|
|
|
(
14,279
|
)
|
|
|
(
3,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(51,908
|
)
|
|
|
71,377
|
|
|
|
230,764
|
|
Net increase in cash and cash equivalents
|
|
|
90,712
|
|
|
|
16,481
|
|
|
|
15,319
|
|
Cash and cash equivalents, beginning of period
|
|
|
31,800
|
|
|
|
15,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
122,512
|
|
|
$
|
31,800
|
|
|
$
|
15,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
5,834
|
|
|
$
|
4,181
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock to Manager to purchase initial assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
78,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation to issue operating partnership units in connection
with the Cambridge Investment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
7
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
December 31,
2009, December 31, 2008 and for the Period from
June 22, 2007
(Commencement of Operations) to December 31, 2007
Care Investment Trust Inc. (together with its subsidiaries,
the Company or Care unless otherwise
indicated or except where the context otherwise requires,
we, us or our) is a real
estate investment trust (REIT) with a geographically
diverse portfolio of senior housing and healthcare-related
assets in the United States. Care is externally managed and
advised by CIT Healthcare LLC (Manager). As of
December 31, 2009, this portfolio of assets consisted of
real estate and mortgage related assets for senior housing
facilities, skilled nursing facilities, medical office
properties and first mortgage liens on healthcare related
assets. Our owned senior housing facilities are leased, under
triple-net
leases, which require the tenants to pay all property-related
expenses.
Care elected to be taxed as a REIT under the Internal Revenue
Code commencing with our taxable year ended December 31,
2007. To maintain our tax status as a REIT, we are required to
distribute at least 90% of our REIT taxable income to our
stockholders. At present, Care does not have any taxable REIT
subsidiaries (TRS), but in the normal course of
business expects to form such subsidiaries as necessary.
|
|
Note 2
|
Basis of
Presentation and Significant Accounting Policies
|
Basis
of Presentation
On December 10, 2009, our Board of Directors approved a
plan of liquidation and recommended that our shareholders
approve the plan of liquidation. On January 28, 2010, our
shareholders approved the plan of liquidation. Under the plan of
liquidation, the Board of Directors reserves the right to
continue to solicit and entertain proposals from third parties
to acquire all or substantially all of the companys
outstanding common stock, prior to and after approval of the
plan of liquidation by our shareholders. We have entered into a
material definitive agreement for a sale of control of the
Company and have not pursued the plan of liquidation. Since it
is not probable that the Company would liquidate, the Company
has presented its financial statements on a going concern basis.
See Note 19.
Accounting
Standards Codification (ASC)
In June 2009, the Financial Accounting Standards Board
(FASB) issued a pronouncement establishing the FASB
Accounting Standards Codification as the source of authoritative
accounting principles recognized by the FASB to be applied in
the preparation of financial statements in conformity with GAAP.
The standard explicitly recognizes rules and interpretive
releases of the SEC under federal securities laws as
authoritative GAAP for SEC registrants. This standard is
effective for financial statements issued for fiscal years and
interim periods ending after September 15, 2009. The
Company adopted this standard in the third quarter of 2009.
Consolidation
The consolidated financial statements include our accounts and
those of our subsidiaries, which are wholly-owned or controlled
by us. All significant intercompany balances and transactions
have been eliminated.
Investments in partially-owned entities where the Company
exercises significant influence over operating and financial
policies of the subsidiary, but does not control the subsidiary,
are reported under the equity method of accounting. Generally
under the equity method of accounting, the Companys share
of the investees earnings or loss is included in the
Companys operating results.
Accounting Standards Codification 810
Consolidation
(ASC 810)
, requires a company to identify
investments in other entities for which control is achieved
through means other than voting rights (variable interest
entities or VIEs) and to determine which
business enterprise is the primary beneficiary of the VIE. A
variable interest entity is broadly defined as an entity where
either the equity investors as a group, if any, do not have a
controlling financial interest or the equity investment at risk
is insufficient to finance that entitys activities without
8
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
additional subordinated financial support. The Company
consolidates investments in VIEs when it is determined that the
Company is the primary beneficiary of the VIE at either the
creation or the variable interest entity or upon the occurrence
of a reconsideration event. The Company has concluded that
neither of its partially-owned entities are VIEs.
Segment
Reporting
Accounting Standards Codification 280
Segment Reporting
(ASC 280)
establishes standards for the way that
public entities report information about operating segments in
the financial statements. We are a REIT focused on originating
and acquiring healthcare-related real estate and commercial
mortgage debt and currently operate in only one reportable
segment.
Cash
and Cash Equivalents
We consider all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Included in cash and cash equivalents at December 31, 2009
and 2008, are approximately $1.1 million and
$1.3 million, respectively in customer deposits maintained
in an unrestricted account.
Real
Estate and Identified Intangible Assets
Real estate and identified intangible assets are carried at
cost, net of accumulated depreciation and amortization.
Betterments, major renewals and certain costs directly related
to the acquisition, improvement and leasing of real estate are
capitalized. Maintenance and repairs are charged to operations
as incurred. Depreciation is provided on a straight-line basis
over the assets estimated useful lives which range from 7
to 40 years.
Upon the acquisition of real estate, we assess the fair value of
acquired assets (including land, buildings and improvements, and
identified intangible assets such as above and below market
leases and acquired in-place leases and customer relationships)
and acquired liabilities in accordance Accounting Standards
Codification 805
Business Combinations (ASC
805)
, and Accounting Standards Codification
350-30
Intangibles Goodwill and other (ASC
350-30)
,
and we allocate purchase price based on these assessments. We
assess fair value based on estimated cash flow projections that
utilize appropriate discount and capitalization rates and
available market information. Estimates of future cash flows are
based on a number of factors including the historical operating
results, known trends, and market/economic conditions that may
affect the property.
Our properties, including any related intangible assets, are
reviewed for impairment under ACS
360-10-35-15,
Impairment or Disposal of Long-Lived Assets
, (ASC
360-10-35-15)
if events or circumstances change indicating that the carrying
amount of the assets may not be recoverable. Impairment exists
when the carrying amount of an asset exceeds its fair value. An
impairment loss is measured based on the excess of the carrying
amount over the fair value. We have determined fair value by
using a discounted cash flow model and an appropriate discount
rate. The evaluation of anticipated cash flows is subjective and
is based, in part, on assumptions regarding future occupancy,
rental rates and capital requirements that could differ
materially from actual results. If our anticipated holding
periods change or estimated cash flows decline based on market
conditions or otherwise, an impairment loss may be recognized.
As of December 31, 2009, we have not recognized an
impairment loss.
Loans
Held at LOCOM
Valuation
Allowance on Loans Held at LOCOM
Investments in loans amounted to $25.3 million at
December 31, 2009. We account for our investment in loans
in accordance with Accounting Standards Codification 948
Financial Services Mortgage Banking (ASC
948), which codified the FASBs
Accounting for
Certain Mortgage Banking Activities
. Under ASC 948, loans
expected to be held for the foreseeable future or to maturity
should be held at amortized cost, and all other loans should be
held at the lower of cost or market (LOCOM), measured on an
individual basis. In accordance with ASC 820
Fair Value
9
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Measurements and Disclosures
(ASC 820), the
Company includes nonperformance risk in calculating fair value
adjustments. As specified in ASC 820, the framework for
measuring fair value is based on independent observable inputs
of market data and follows the following hierarchy:
Level 1
Quoted prices in active markets
for identical assets and liabilities.
Level 2
Significant observable inputs
based on quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in
markets that are not active and model-based valuations for which
all significant assumptions are observable.
Level 3
Significant unobservable inputs
that are supported by little or no market activity that are
significant to the fair value of the assets or liabilities.
At December 31, 2008, in connection with our decision to
reposition ourselves from a mortgage REIT to a traditional
direct property ownership REIT (referred to as an equity REIT,
see Notes 2, 4, and 5) and as a result of existing
market conditions, we transferred our portfolio of mortgage
loans to LOCOM because we are no longer certain that we will
hold the portfolio of loans either until maturity or for the
foreseeable future. Until December 31, 2008, we held our
loans until maturity, and therefore the loans had been carried
at amortized cost, net of unamortized loan fees, acquisition and
origination costs, unless the loans were impaired. In connection
with the transfer, we recorded an initial valuation allowance of
approximately $29.3 million representing the difference
between our carrying amount of the loans and their estimated
fair value at December 31, 2008. Interim assessments were
made of carrying values of the loan based on available data,
including sale and repayments on a quarterly basis during 2009.
Gains or losses on sales are determined by comparing proceeds to
carrying values based on interim assessments. At
December 31, 2009, the valuation allowance was reduced to
$8.4 million representing the difference between the
carrying amounts and estimated fair value of the Companys
three remaining loans.
Coupon interest on the loans is recognized as revenue when
earned. Receivables are evaluated for collectibility if a loan
becomes more than 90 days past due. If fair value is lower
than amortized cost, changes in fair value (gains and losses)
are reported through our consolidated statement of operations
through a valuation allowance on loans held at LOCOM. Loans
previously written down may be written up based upon subsequent
recoveries in value, but not above their cost basis.
Expense for credit losses in connection with loan investments is
a charge to earnings to increase the allowance for credit losses
to the level that management estimates to be adequate to cover
probable losses considering delinquencies, loss experience and
collateral quality. Impairment losses are taken for impaired
loans based on the fair value of collateral on an individual
loan basis. The fair value of the collateral may be determined
by an evaluation of operating cash flow from the property during
the projected holding period,
and/or
estimated sales value computed by applying an expected
capitalization rate to the stabilized net operating income of
the specific property, less selling costs. Whichever method is
used, other factors considered relate to geographic trends and
project diversification, the size of the portfolio and current
economic conditions. Based upon these factors, we will establish
an allowance for credit losses when appropriate. When it is
probable that we will be unable to collect all amounts
contractually due, the loan is considered impaired.
Investment
in Partially-Owned Entities
We invest in preferred equity interests that allow us to
participate in a percentage of the underlying propertys
cash flows from operations and proceeds from a sale or
refinancing. At the inception of the investment, we must
determine whether such investment should be accounted for as a
loan, joint venture or as real estate. Care invested in two
equity investments as of December 31, 2009 and accounts for
such investments as a joint venture.
The Company assesses whether there are indicators that the value
of its partially owned entities may be impaired. An
investments value is impaired if the Company determines
that a decline in the value of the investment below its carrying
value is other than temporary. To the extent impairment has
occurred, the loss shall be measured
10
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
as the excess of the carrying amount of the investment over the
estimated value of the investment. As of December 31, 2009,
the Company has not recognized any impairment on our partially
owned entities.
Comprehensive
Income
The Company has no items of other comprehensive income, and
accordingly net loss is equal to comprehensive loss for all
periods presented.
Revenue
Recognition
Interest income on investments in loans is recognized over the
life of the investment on the accrual basis. Fees received in
connection with loans are recognized over the term of the loan
as an adjustment to yield. Anticipated exit fees whose
collection is expected will also be recognized over the term of
the loan as an adjustment to yield. Unamortized fees are
recognized when the associated loan investment is repaid before
maturity on the date of such repayment. Premium and discount on
purchased loans are amortized or accreted on the effective yield
method over the remaining terms of the loans.
Income recognition will generally be suspended for loan
investments at the earlier of the date at which payments become
90 days past due or when, in our opinion, a full recovery
of income and principal becomes doubtful. Income recognition is
resumed when the loan becomes contractually current and
performance is demonstrated to be resumed. For the years ended
December 31, 2009 and 2008, we have no loans for which
income recognition has been suspended.
The Company recognizes rental revenue in accordance with
Accounting Standards Codification 840 Leases (ASC
840). ASC 840 requires that revenue be recognized on a
straight-line basis over the non-cancelable term of the lease
unless another systematic and rational basis is more
representative of the time pattern in which the use benefit is
derived from the leased property. Renewal options in leases with
rental terms that are lower than those in the primary term are
excluded from the calculation of straight line rent if the
renewals are not reasonably assured. We commence rental revenue
recognition when the tenant takes control of the leased space.
The Company recognizes lease termination payments as a component
of rental revenue in the period received, provided that there
are no further obligations under the lease.
Deferred
Financing Costs
Deferred financing costs represent commitment fees, legal and
other third party costs associated with obtaining commitments
for financing which result in a closing of such financing. These
costs are amortized over the terms of the respective agreements
on the effective interest method and the amortization is
reflected in interest expense. Unamortized deferred financing
costs are expensed when the associated debt is refinanced or
repaid before maturity. Costs incurred in seeking financing
transactions which do not close are expensed in the period in
which it is determined that the financing will not close.
Stock-based
Compensation Plans
We have two stock-based compensation plans, described more fully
in Note 14. We account for the plans using the fair value
recognition provisions of
505-50
Equity-Based Payments to Non-Employees
(ASC
505-50)
and ASC 718
Compensation Stock
Compensation
(ASC 718). ASC
505-50
and
ASC 718 requires that compensation cost for stock-based
compensation be recognized ratably over the service period of
the award. Because all of our stock-based compensation is issued
to non-employees and board members, the amount of compensation
is to be adjusted in each subsequent reporting period based on
the fair value of the award at the end of the reporting period
until such time as the award has vested or the service being
provided is substantially completed or, under certain
circumstances, likely to be completed, whichever occurs first.
11
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Derivative
Instruments
We account for derivative instruments in accordance with
Accounting Standards Codification 815
Derivatives and Hedging
(ASC 815). In the normal course of business, we
may use a variety of derivative instruments to manage, or hedge,
interest rate risk. We will require that hedging derivative
instruments be effective in reducing the interest rate risk
exposure they are designated to hedge. This effectiveness is
essential for qualifying for hedge accounting. Some derivative
instruments may be associated with an anticipated transaction.
In those cases, hedge effectiveness criteria also require that
it be probable that the underlying transaction will occur.
Instruments that meet these hedging criteria will be formally
designated as hedges at the inception of the derivative contract.
To determine the fair value of derivative instruments, we may
use a variety of methods and assumptions that are based on
market conditions and risks existing at each balance sheet date.
For the majority of financial instruments including most
derivatives, long-term investments and long-term debt, standard
market conventions and techniques such as discounted cash flow
analysis, option-pricing models, replacement cost, and
termination cost are likely to be used to determine fair value.
All methods of assessing fair value result in a general
approximation of fair value, and such value may never actually
be realized.
We may use a variety of commonly used derivative products that
are considered plain vanilla derivatives. These
derivatives typically include interest rate swaps, caps, collars
and floors. We expressly prohibit the use of unconventional
derivative instruments and using derivative instruments for
trading or speculative purposes. Further, we have a policy of
only entering into contracts with major financial institutions
based upon their credit ratings and other factors, so we do not
anticipate nonperformance by any of our counterparties.
We may employ swaps, forwards or purchased options to hedge
qualifying forecasted transactions. Gains and losses related to
these transactions are deferred and recognized in net income as
interest expense in the same period or periods that the
underlying transaction occurs, expires or is otherwise
terminated.
Hedges that are reported at fair value and presented on the
balance sheet could be characterized as either cash flow hedges
or fair value hedges. For derivative instruments not designated
as hedging instruments, the gain or loss resulting from the
change in the estimated fair value of the derivative instruments
will be recognized in current earnings during the period of
change.
Income
Taxes
We have elected to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code. To qualify as a REIT,
we must meet certain organizational and operational
requirements, including a requirement to distribute at least 90%
of our REIT taxable income to stockholders. As a REIT, we
generally will not be subject to federal income tax on taxable
income that we distribute to our stockholders. If we fail to
qualify as a REIT in any taxable year, we will then be subject
to federal income tax on our taxable income at regular corporate
rates and we will not be permitted to qualify for treatment as a
REIT for federal income tax purposes for four years following
the year during which qualification is lost unless the Internal
Revenue Service grants us relief under certain statutory
provisions. Such an event could materially adversely affect our
net income and net cash available for distributions to
stockholders. However, we believe that we will operate in such a
manner as to qualify for treatment as a REIT and we intend to
operate in the foreseeable future in such a manner so that we
will qualify as a REIT for federal income tax purposes. We may,
however, be subject to certain state and local taxes.
In July 2006, the FASB issued Interpretation No. 48
Accounting for Uncertainty in Income Taxes An
Interpretation of FASB Statement No. 109
(FIN 48). ASC 740 prescribes a recognition
threshold and measurement attribute for how a company should
recognize, measure, present, and disclose in its financial
statements uncertain tax positions that the company has taken or
expects to take on a tax return. ASC 740 requires that the
financial statements reflect expected future tax consequences of
such positions presuming the taxing authorities full
knowledge of the position and all relevant facts, but without
considering time values. ASC 740 was adopted by
12
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
the Company and became effective beginning January 1, 2007.
The implementation of ASC 740 has not had a material impact on
the Companys consolidated financial statements.
Underwriting
Commissions and Costs
Underwriting commissions and costs incurred in connection with
our initial public offering are reflected as a reduction of
additional
paid-in-capital.
Organization
Costs
Costs incurred to organize Care have been expensed as incurred.
Earnings
per Share
We present basic earnings per share or EPS in accordance with
ASC 260,
Earnings per Share
. We also present diluted EPS,
when diluted EPS is lower than basic EPS. Basic EPS excludes
dilution and is computed by dividing net income by the weighted
average number of common shares outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were
exercised or converted into common stock, where such exercise or
conversion would result in a lower EPS amount. At
December 31, 2009 and 2008, diluted EPS was the same as
basic EPS because all outstanding restricted stock awards were
anti-dilutive. The operating partnership units issued in
connection with an investment (See Note 6) are in
escrow and do not impact EPS.
Use of
Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the
accompanying notes. Significant estimates are made for the
valuation allowance on loans held at LOCOM, valuation of
derivatives and impairment assessments. Actual results could
differ from those estimates.
Concentrations
of Credit Risk
Financial instruments that potentially subject us to
concentrations of credit risk consist primarily of cash
investments, real estate, loan investments and interest
receivable. We may place our cash investments in excess of
insured amounts with high quality financial institutions. We
perform ongoing analysis of credit risk concentrations in our
real estate and loan investment portfolios by evaluating
exposure to various markets, underlying property types,
investment structure, term, sponsors, tenant mix and other
credit metrics. The collateral securing our loan investments are
real estate properties located in the United States.
Recent
Accounting Pronouncements
Noncontrolling
Interests in Consolidated Financial Statements
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial Statements
which was codified in FASB ASC 810
Consolidation
(ASC 810). ASC 810 requires that a
noncontrolling interest in a subsidiary be reported as equity
and the amount of consolidated net income specifically
attributable to the noncontrolling interest be identified in the
consolidated financial statements. It also calls for consistency
in the manner of reporting changes in the parents
ownership interest and requires fair value measurement of any
noncontrolling equity investment retained in a deconsolidation.
ASC 810 is effective for the Company on January 1, 2009.
The Company records its investments using the equity method and
does not consolidate these joint ventures. As such, there is no
impact upon adoption of ASC 810 on its consolidated financial
statements.
13
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Disclosures
about Derivative Instruments and Hedging Activities
On March 20, 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities,
which is codified in FASB ASC 815
Derivatives
and Hedging Summary
(ASC 815). The derivatives
disclosure pronouncement provides for enhanced disclosures about
how and why an entity uses derivatives and how and where those
derivatives and related hedged items are reported in the
entitys financial statements. ASC 815 also requires
certain tabular formats for disclosing such information. ASC 815
applies to all entities and all derivative instruments and
related hedged items accounted for under this new pronouncement.
Among other things, ASC 815 requires disclosures of an
entitys objectives and strategies for using derivatives by
primary underlying risk and certain disclosures about the
potential future collateral or cash requirements (that is, the
effect on the entitys liquidity) as a result of contingent
credit-related features. ASC 815 is effective for the Company on
January 1, 2009. The Company adopted ASC 815 in the first
quarter of 2009 and included disclosures in its consolidated
financial statements addressing how and why the Company uses
derivative instruments, how derivative instruments are accounted
for and how derivative instruments affect the Companys
financial position, financial performance, and cash flows. (See
Note 9)
Disclosures
about Fair Value of Financial Instruments
In April 2009, the FASB issued
FSP 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial Instruments
codified in FASB ASC 820
Fair Value Measurements and
Disclosures
(ASC 820). ASC 820 amends
SFAS No. 107,
Disclosures about Fair Value of
Financial Instruments
and APB 28
Interim Financial
Reporting
by requiring an entity to provide qualitative and
quantitative information on a quarterly basis about fair value
estimates for any financial instruments not measured on the
balance sheet at fair value. The Company adopted the disclosure
requirements of ASC 820 in the quarter ended June 30, 2009.
In June 2009, issued ASU
2009-17
to
codify FASB issued Statement No. 167,
Amendments
to FASB Interpretation No. 46(R)
as ASC 810
(ASC 810), with the objective of improving financial
reporting by entities involved with variable interest entities
(VIE). It retains the scope of FIN 46(R) with the addition
of entities previously considered qualifying special-purpose
entities, as the concept of those entities was eliminated by
FASB Statement No. 166,
Accounting for Transfers
of Financial Assets
(ASU
2009-16;
FASB ASC 860). ASC 810 will require an analysis to determine
whether the entitys variable interest or interests give it
a controlling financial interest in a VIE.
On September 30, 2009, the FASB issued ASU
2009-12
to
provide guidance on measuring the fair value of certain
alternative investments. The ASU amends ASC 820 to offer
investors a practical expedient for measuring the fair value of
investments in certain entities that calculate net asset value
per share. The ASU is effective for the first reporting period
(including interim periods) ending after December 15, 2009
with early adoption permitted.
On January 21, 2010, the FASB issued ASU
2010-06,
which amends ASC 820 to add new requirements for disclosures
about transfers into and out of Levels 1 and 2 and separate
disclosures about purchases, sales, issuances, and settlements
relating to Level 3 measurements. The ASU also clarifies
existing fair value disclosures about the level of
disaggregation and about inputs and valuation techniques used to
measure fair value. The ASU is effective for the first reporting
period (including interim periods) beginning after
December 15, 2009, except for the requirement to provide
the Level 3 activity of purchases, sales, issuances, and
settlements on a gross basis, which will be effective for fiscal
years beginning after December 15, 2010, and for interim
periods within those fiscal years, with early adoption permitted.
Subsequent
Events
In May 2009, the FASB issued SFAS 165
Subsequent
Events
, which is codified in FASB ASC 855,
Subsequent
E
vents (ASC 855). ASC 855 introduces the concept
of financial statements being available to be issued. It
requires the disclosure of the date through which an entity has
evaluated subsequent events and the basis for that
14
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
date, that is, whether that date represents the date the
financial statements were issued or were available to be issued.
The pronouncement is effective for interim periods ending after
June 15, 2009. The Company adopted ASC 855 in the 2009
second quarter. The Company evaluates subsequent events as of
the date of issuance of its financial statements and considers
the impact of all events that have taken place to that date in
its disclosures and financials statements when reporting on the
Companys financial position and results of operations. The
Company has evaluated subsequent events through the date of
filing and has determined that no other events need to be
disclosed.
|
|
Note 3
|
Real
Estate Properties
|
On June 26, 2008, we purchased twelve senior living
properties for approximately $100.8 million from Bickford
Senior Living Group LLC, an unaffiliated party. Concurrent with
the purchase, we leased these properties to Bickford
Master I, LLC (the Master Lessee or
Bickford), for initial annual base rent of
$8.3 million and additional base rent of $0.3 million,
with fixed escalations of 3% for 15 years. The leases
contain an option of four renewals of ten years each. The
additional base rent is deferred and accrues for the first three
years and then is paid starting with the first month of the
fourth year. We funded this acquisition using cash on hand and
mortgage borrowings of $74.6 million.
On September 30, 2008, we purchased two additional senior
living properties for approximately $10.3 million from
Bickford Senior Living Group LLC. Concurrent with the purchase,
we leased these properties back to Bickford for initial annual
base rent of $0.8 million and additional base rent of
$0.03 million with fixed escalations of 3% for
14.75 years. The leases contain an option of four renewals
of ten years each. The additional base rent is deferred and
accrues for the first three years and then is paid starting with
the first month of the fourth year. We funded this acquisition
using cash on hand and mortgage borrowings of $7.6 million.
At each acquisition, we completed a preliminary assessment of
the allocation of the fair value of the acquired assets
(including land, buildings, equipment and in-place leases) in
accordance with ASC 805
Business Combinations
, and
ASC 350
Intangibles Goodwill and Other
.
Based upon that assessment, the final allocation of the purchase
price to the fair values of the assets acquired is as follows
(in millions):
|
|
|
|
|
Buildings, improvements and equipment
|
|
$
|
95.1
|
|
Furniture, fixtures and equipment
|
|
|
5.9
|
|
Land
|
|
|
5.0
|
|
Identified intangibles leases in-place (Note 7)
|
|
|
5.0
|
|
|
|
|
|
|
|
|
$
|
111.0
|
|
|
|
|
|
|
Additionally, as part of the June 26, 2008 transaction we
sold back a property acquired from Bickford Senior Living Group,
LLC that was acquired on March 31, 2008 at its net carrying
amount, which did not result in a gain or a loss to the Company.
As of December 31, 2009, the properties owned by Care, and
leased to Bickford were 100% managed or operated by Bickford
Senior Living Group, LLC. As an enticement for the Company to
enter into the leasing arrangement for the properties, Care
received additional collateral and guarantees of the lease
obligation from parties affiliated with Bickford who act as
subtenants under the master lease. The additional collateral
pledged in support of Bickfords obligation to the lease
commitment included properties and ownership interests in
affiliated companies of the subtenants.
15
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Future minimum annual rental revenue under the non-cancelable
terms of the Companys operating leases at
December 31, 2009 are as follows (in thousands):
|
|
|
|
|
2010
|
|
$
|
9,527
|
|
2011
|
|
|
10,176
|
|
2012
|
|
|
10,874
|
|
2013
|
|
|
10,974
|
|
2014
|
|
|
11,062
|
|
Thereafter
|
|
|
108,434
|
|
|
|
|
|
|
|
|
$
|
161,047
|
|
|
|
|
|
|
|
|
Note 4
|
Investment
in Loans Held at LOCOM
|
As of December 31, 2009 and December 31, 2008, our net
investments in loans amounted to $25.3 million and
$159.9 million, respectively. During the years ended
December 31, 2009 and 2008, we received $138.4 million
and $54.2 million in principal repayments and proceeds from
the loan sales and recognized $1.5 million and
$1.9 million, respectively in amortization of the premium
we paid for the purchase of our initial assets as a reduction of
interest income. Our investments include senior whole loans and
participations secured primarily by real estate in the form of
pledges of ownership interests, direct liens or other security
interests. The investments are in various geographic markets in
the United States. These investments are all variable rate at
December 31, 2009 and had a weighted average spread of
6.76% and 5.76% over one month LIBOR and have an average
maturity of approximately 1.0 and 2.1 years at
December 31, 2009 and 2008, respectively. Some loans are
subject to interest rate floors. The effective yield on the
portfolio was 6.99%, 6.20% and 8.22%, respectively for the years
ended December 31, 2009 and December 31, 2008 and for
the period from June 22, 2007 (commencement of operations)
to December 31, 2007. One month LIBOR was 0.23% and 0.45%
at December 31, 2009 and December 31, 2008,
respectively.
December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Cost
|
|
|
Interest
|
|
Maturity
|
Property Type(a)
|
|
City
|
|
State
|
|
Basis (000s)
|
|
|
Rate
|
|
Date
|
|
SNF/ALF(e)(k)
|
|
Nacogdoches
|
|
Texas
|
|
|
9,338
|
|
|
L+3.15%
|
|
10/02/11
|
SNF/Sr.Appts/ALF
|
|
Various
|
|
Texas/Louisiana
|
|
|
14,226
|
|
|
L+4.30%
|
|
02/01/11
|
SNF(e)(g)
|
|
Various
|
|
Michigan
|
|
|
10,178
|
|
|
L+7.00%
|
|
02/19/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in loans, gross
|
|
|
|
|
|
$
|
33,742
|
|
|
|
|
|
Valuation allowance
|
|
|
|
|
|
|
(8,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held at LOCOM
|
|
|
|
|
|
$
|
25,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At the conclusion of 2008, upon considering changes in our
strategies and changes in the marketplace discussed in
Note 2, we transferred our portfolio of mortgage loans to
the lower of cost or market in the December 31, 2008
financial statements because we were not certain that we would
hold the portfolio of loans either until maturity or for the
foreseeable future. The transfer resulted in a charge to
earnings of $29.3 million.
16
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
December 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location
|
|
Cost
|
|
|
Interest
|
|
Maturity
|
Property Type(a)
|
|
City
|
|
State
|
|
Basis (000s)
|
|
|
Rate
|
|
Date
|
|
SNF(h)
|
|
Middle River
|
|
Maryland
|
|
$
|
9,185
|
|
|
L+3.75%
|
|
03/31/11
|
SNF/ALF/IL(j)
|
|
Various
|
|
Washington/Oregon
|
|
|
26,012
|
|
|
L+2.75%
|
|
10/04/11
|
SNF(b)(d)/(e)
|
|
Various
|
|
Michigan
|
|
|
23,767
|
|
|
L+2.25%
|
|
03/26/12
|
SNF(d)/(e)(h)
|
|
Various
|
|
Texas
|
|
|
6,540
|
|
|
L+3.00%
|
|
06/30/11
|
SNF(d)/(e)(h)
|
|
Austin
|
|
Texas
|
|
|
4,604
|
|
|
L+3.00%
|
|
05/30/11
|
SNF(b)(d)(e)
|
|
Various
|
|
Virginia
|
|
|
27,401
|
|
|
L+2.50%
|
|
03/01/12
|
SNF/ICF(d)/(e)(f)
|
|
Various
|
|
Illinois
|
|
|
29,045
|
|
|
L+3.00%
|
|
10/31/11
|
SNF(d)/(e)/(f)
|
|
San Antonio
|
|
Texas
|
|
|
8,412
|
|
|
L+3.50%
|
|
02/09/11
|
SNF/ALF(d)/(e)
|
|
Nacogdoches
|
|
Texas
|
|
|
9,696
|
|
|
L+3.15%
|
|
10/02/11
|
SNF/Sr.Appts/ALF
|
|
Various
|
|
Texas/Louisiana
|
|
|
15,682
|
|
|
L+4.30%
|
|
02/01/11
|
ALF(b)(e)
|
|
Daytona Beach
|
|
Florida
|
|
|
3,688
|
|
|
L+3.43%
|
|
08/11/11
|
SNF/IL(c)/(d)/(e)(h)
|
|
Georgetown
|
|
Texas
|
|
|
5,980
|
|
|
L+3.00%
|
|
07/31/09
|
SNF(i)
|
|
Aurora
|
|
Colorado
|
|
|
9,151
|
|
|
L+5.74%
|
|
08/04/10
|
SNF(e)
|
|
Various
|
|
Michigan
|
|
|
10,080
|
|
|
L+7.00%
|
|
02/19/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in loans, gross
|
|
|
|
|
|
$
|
189,243
|
|
|
|
|
|
Valuation allowance
|
|
|
|
|
|
|
(29,327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held at LOCOM
|
|
|
|
|
|
$
|
159,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
SNF refers to skilled nursing facilities; ALF refers to assisted
living facilities; ICF refers to intermediate care facility; and
Sr. Appts refers to senior living apartments.
|
|
(b)
|
|
Loans sold to Manager in 2009 at amounts equal to appraised fair
value for an aggregate amount of $42.2 million. (See
Note 5)
|
|
(c)
|
|
Borrower extended the maturity date to July 31, 2012 during
the second quarter of 2009.
|
|
(d)
|
|
Pledged as collateral for borrowings under our warehouse line of
credit as of December 31, 2008. On March 9, 2009, Care
repaid the outstanding borrowings on its warehouse line in full.
|
|
(e)
|
|
The mortgages are subject to various interest rate floors
ranging from 6.00% to 11.5%.
|
|
(f)
|
|
Loan prepaid in 2009 at amounts equal to remaining principal for
each respective loan.
|
|
(g)
|
|
Loan repaid at maturity in February 2010 for approximately
$10.0 million, see Note 19
|
|
(h)
|
|
Loans sold to a third party in September 2009 for an aggregate
amount of $24.8 million
|
|
(i)
|
|
Loan sold to a third party in October 2009 for approximately
$8.5 million.
|
|
(j)
|
|
Loans sold to a third party in November 2009 for aggregate
proceeds of approximately $22.4 million.
|
|
(k)
|
|
Loan sold to a third party in March 2010 for approximately
$6.1 million of cash proceeds before selling costs
|
17
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Our mortgage portfolio (gross) at December 31, 2009 is
diversified by property type and U.S. geographic region as
follows (in millions of dollars):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
Cost
|
|
|
% of
|
|
By Property Type
|
|
Basis
|
|
|
Portfolio
|
|
|
Skilled Nursing
|
|
$
|
10.2
|
|
|
|
30.2
|
%
|
Mixed-use(1)
|
|
|
23.5
|
|
|
|
69.8
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33.7
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
|
Cost
|
|
|
% of
|
|
By U.S. Geographic Region
|
|
Basis
|
|
|
Portfolio
|
|
|
Midwest
|
|
$
|
10.2
|
|
|
|
30.2
|
%
|
South
|
|
|
23.5
|
|
|
|
69.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33.7
|
|
|
|
100.0
|
%
|
|
|
|
(1)
|
|
Mixed-use facilities refer to properties that provide care to
different segments of the elderly population based on their
needs, such as Assisted Living with Skilled Nursing capabilities.
|
During the year ended December 31, 2009, the Company
received proceeds of $37.5 million related to the
prepayment of balances related to two mortgage loans and
received proceeds of $42.2 million related to sales to its
Manager. In addition, during the year ended December 31,
2009, the Company received $55.8 million related to sales
of mortgage loans to third parties. See Note 13 for a roll
forward of the investment held at fair value from
December 31, 2008 to December 31, 2009. As of
December 31, 2009, our portfolio of three mortgages was
extended to five borrowers. Two of those three mortgage loans
were sold or repaid in 2010 as indicated in (g) and (k),
above. As of December 31, 2008, our portfolio of eighteen
mortgages was extended to fourteen borrowers with the largest
exposure to any single borrower at 20.9% of the carrying value
of the portfolio. The carrying value of three loans, each to
different borrowers with exposures of more than 10% of the
carrying value of the total portfolio, amounted to 54.9% of the
portfolio.
|
|
Note 5
|
Sales of
Investments in Loans Held at LOCOM
|
On September 30, 2008 we finalized a Mortgage Purchase
Agreement (the Agreement) with our Manager that
provided us an option to sell loans from our investment
portfolio to our Manager at the loans fair value on the
sale date. See Managements Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources for a discussion of the
terms and conditions of the Agreement. Pursuant to the
agreement, we sold loans in 2008 and 2009 as discussed below.
Pursuant to the agreement, we sold a loan with a carrying amount
of approximately $24.8 million in November 2009. We incurred a
loss on the sale of $2.4 million.
On February 3, 2009, we sold one loan with a net carrying
amount of approximately $22.5 million as of
December 31, 2008. Proceeds from the sale approximated the
net carrying value of $22.5 million. We incurred a loss of
$4.9 million on the sale of this loan. The loss on this
loan was included in the valuation allowance on the loans held
at LOCOM at December 31, 2008. On August 19, 2009, we
sold two mortgage loans with a net carrying value of
approximately $2.9 million as of December 31, 2008.
Proceeds from the sale of those two mortgage loans approximated
the net carrying value as of June 30, 2009 of
$2.3 million. On September 16, 2009, we sold interests
in a participation loan in Michigan with a net carrying value of
approximately $19.7 million as of December 31, 2008
and reduced to $18.7 million at the time of sale as a
result of principal paydown. Proceeds from the sale of the
interests in the participation loan were approximately
$17.4 million or approximately $1.3 million less than
the net carrying value. All of these loans were sold under the
Mortgage Purchase Agreement (the Agreement) with our
Manager, which was finalized in 2008 and provided us an option
to sell loans from our investment portfolio to our Manager at
the loans fair value on the sale date. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources for a discussion of the terms and
conditions of the Agreement.
On September 15, 2009, we sold four mortgage loans to a
third party with a net carrying value of approximately
$22.8 million as of December 31, 2008 and
$22.4 million as of June 30, 2009. Proceeds from the
sale of these four mortgage loans were approximately
$24.8 million or approximately $2.4 million above the
net carrying value. On
18
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
October 6, 2009, we sold one mortgage loan with a net
carrying value of $8.2 million as of December 31, 2008
and an adjusted value of $8.4 million as of June 30,
2009. Proceeds from the sale of this mortgage loan were
approximately $8.5 million or approximately
$0.1 million above the net carrying value. On
November 12, 2009, we sold one mortgage loan to a third
party with a net carrying value of approximately
$19.3 million as of December 31, 2008 and an adjusted
value of $19.9 million as of June 30, 2009. Proceeds
from the sale of this mortgage loan were approximately
$22.4 million or approximately $2.5 million above the
net carrying value.
|
|
Note 6
|
Investments
in Partially-Owned Entities
|
On December 31, 2007, Care, through its subsidiary ERC Sub,
L.P., purchased an 85% equity interest in eight limited
liability entities owning nine medical office buildings with a
value of $263.0 million for $61.9 million in cash
including the funding of certain reserve requirements. The
Seller was Cambridge Holdings Incorporated
(Cambridge) and the interests were acquired through
a DownREIT partnership subsidiary, i.e., ERC Sub,
L.P. The transaction also provided for the issuance of 700,000
operating partnership units to Cambridge subject to future
performance of the underlying properties. These units were
issued by us into escrow and will be released to Cambridge
subject to the acquired properties meeting certain performance
benchmarks. Based on the expected timing of the release of the
operating partnership units from escrow, the fair value of the
operating partnership units was $2.9 million and
$3.0 million on December 31, 2009 and 2008,
respectively. At December 31, 2014, each operating
partnership unit held in escrow at that time is redeemable into
one share of the Companys common stock, subject to certain
conditions. The Company has the option to pay cash or issue
shares of company stock upon redemption.
In accordance with ASC 820, the obligation to issue
operating partnership units is accounted for as a derivative
instrument. Accordingly, the value of the obligation to issue
the operating partnership units is reflected as a liability on
the Companys balance sheet and accordingly will be
remeasured every period until the operating partnership units
are released from escrow.
Care will receive an initial preferred minimum return of 8.0% on
capital invested at close with 2.0% per annum escalations until
certain portfolio performance metrics are achieved. As of
December 31, 2009, the entities now owned with Cambridge
carry $178.6 million in asset-specific mortgage debt which
mature no earlier than the fourth quarter of 2016 and bear a
weighted average fixed interest rate of 5.86%.
The Cambridge portfolio contains approximately
767,000 square feet and is located in major metropolitan
markets in Texas (8) and Louisiana (1). The properties are
situated on leading medical center campuses or adjacent to
prominent acute care hospitals or ambulatory surgery centers.
Affiliates of Cambridge will act as managing general partners of
the entities that own the properties, as well as manage and
lease these facilities.
Four of the eight Cambridge legal entities had a 2009 pre-tax
loss which was greater than 20% of the Companys 2009 loss.
Supplemental summarized financial data detail for those four
entities individually and aggregated for the remaining Cambridge
entities with greater than 10% and less than 10% of the
Companys 2009
19
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
loss as of and for the years ended December 31, 2009, along
with 2008 amounts which are presented for comparative purposed,
are as follows:
December 31,
2009 Balance Sheet Detail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities with <20% Significance
|
|
|
|
|
|
|
|
|
|
Nassau
|
|
|
Walnut Hill
|
|
|
|
|
|
>10% of Cares
|
|
|
<10% of Cares
|
|
|
|
|
|
|
Plano
|
|
|
Bay
|
|
|
(Dallas)
|
|
|
Allen
|
|
|
2009 Loss(A)
|
|
|
2009 Loss(B)
|
|
|
Combined
|
|
|
|
Dollars in millions
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
58.1
|
|
|
$
|
20.8
|
|
|
$
|
36.3
|
|
|
$
|
13.5
|
|
|
$
|
53.2
|
|
|
$
|
21.1
|
|
|
$
|
203.0
|
|
Other Assets
|
|
|
4.6
|
|
|
|
2.4
|
|
|
|
3.1
|
|
|
|
1.6
|
|
|
|
10.1
|
|
|
|
1.7
|
|
|
|
23.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
62.7
|
|
|
$
|
23.2
|
|
|
$
|
39.4
|
|
|
$
|
15.1
|
|
|
$
|
63.3
|
|
|
$
|
22.8
|
|
|
$
|
226.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Debt
|
|
$
|
55.0
|
|
|
$
|
14.0
|
|
|
$
|
28.5
|
|
|
$
|
12.1
|
|
|
$
|
50.4
|
|
|
$
|
18.6
|
|
|
$
|
178.6
|
|
Other Liabilities
|
|
|
3.0
|
|
|
|
1.1
|
|
|
|
1.4
|
|
|
|
1.2
|
|
|
|
5.0
|
|
|
|
0.2
|
|
|
|
11.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
58.0
|
|
|
$
|
15.1
|
|
|
$
|
29.9
|
|
|
$
|
13.3
|
|
|
$
|
55.4
|
|
|
$
|
18.8
|
|
|
$
|
190.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
4.7
|
|
|
$
|
8.1
|
|
|
$
|
9.5
|
|
|
$
|
1.8
|
|
|
$
|
7.9
|
|
|
$
|
4.0
|
|
|
$
|
36.0
|
|
Income
Statement Detail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities with <20% Significance
|
|
|
|
|
|
|
|
|
|
Nassau
|
|
|
Walnut Hill
|
|
|
|
|
|
>10% of Cares
|
|
|
<10% of Cares
|
|
|
|
|
|
|
Plano
|
|
|
Bay
|
|
|
(Dallas)
|
|
|
Allen
|
|
|
2009 Loss(A)
|
|
|
2009 Loss(B)
|
|
|
Combined
|
|
|
|
Dollars in millions
|
|
|
Rental Revenue
|
|
$
|
4.8
|
|
|
$
|
2.2
|
|
|
$
|
2.1
|
|
|
$
|
1.1
|
|
|
$
|
5.8
|
|
|
$
|
1.7
|
|
|
$
|
17.7
|
|
Operating Expense Reimbursements
|
|
|
1.8
|
|
|
|
0.3
|
|
|
|
0.9
|
|
|
|
0.6
|
|
|
|
1.2
|
|
|
|
0.4
|
|
|
|
5.2
|
|
Other Income
|
|
|
0.2
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
0.3
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
6.8
|
|
|
$
|
2.5
|
|
|
$
|
4.2
|
|
|
$
|
1.7
|
|
|
$
|
7.2
|
|
|
$
|
2.4
|
|
|
$
|
24.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
$
|
2.1
|
|
|
$
|
1.2
|
|
|
$
|
1.2
|
|
|
$
|
0.8
|
|
|
$
|
2.6
|
|
|
$
|
0.4
|
|
|
$
|
8.3
|
|
Depreciation and Amortization
|
|
|
3.0
|
|
|
|
1.4
|
|
|
|
1.9
|
|
|
|
0.9
|
|
|
|
3.1
|
|
|
|
1.1
|
|
|
|
11.3
|
|
Total Expenses
|
|
|
8.9
|
|
|
|
3.4
|
|
|
|
5.0
|
|
|
|
2.5
|
|
|
|
8.8
|
|
|
|
2.6
|
|
|
|
31.2
|
|
Net Loss
|
|
$
|
(2.1
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
(1.6
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(6.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
December 31,
2008
Balance Sheet Detail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities with <20% Significance
|
|
|
|
|
|
|
|
|
|
Nassau
|
|
|
Walnut Hill
|
|
|
|
|
|
>10% of Cares
|
|
|
<10% of Cares
|
|
|
|
|
|
|
Plano
|
|
|
Bay
|
|
|
(Dallas)
|
|
|
Allen
|
|
|
2009 Loss(A)
|
|
|
2009 Loss(B)
|
|
|
Combined
|
|
|
|
Dollars in millions
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
$
|
61.0
|
|
|
$
|
19.8
|
|
|
$
|
37.8
|
|
|
$
|
14.3
|
|
|
$
|
56.0
|
|
|
$
|
22.2
|
|
|
$
|
211.1
|
|
Other Assets
|
|
|
5.4
|
|
|
|
3.2
|
|
|
|
3.8
|
|
|
|
1.6
|
|
|
|
10.2
|
|
|
|
2.6
|
|
|
|
26.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
66.4
|
|
|
$
|
23.0
|
|
|
$
|
41.6
|
|
|
$
|
15.9
|
|
|
$
|
66.2
|
|
|
$
|
24.8
|
|
|
$
|
237.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Debt
|
|
$
|
55.0
|
|
|
$
|
14.0
|
|
|
$
|
28.5
|
|
|
$
|
12.1
|
|
|
$
|
50.6
|
|
|
$
|
18.6
|
|
|
$
|
178.8
|
|
Other Liabilities
|
|
|
3.4
|
|
|
|
1.3
|
|
|
|
1.8
|
|
|
|
1.0
|
|
|
|
5.1
|
|
|
|
0.8
|
|
|
|
13.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
58.4
|
|
|
$
|
15.3
|
|
|
$
|
30.3
|
|
|
$
|
13.1
|
|
|
$
|
55.7
|
|
|
$
|
19.4
|
|
|
$
|
192.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
$
|
8.0
|
|
|
$
|
7.7
|
|
|
$
|
11.3
|
|
|
$
|
2.8
|
|
|
$
|
10.5
|
|
|
$
|
5.4
|
|
|
$
|
45.7
|
|
Income
Statement Detail
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Entities with <20% Significance
|
|
|
|
|
|
|
|
|
|
Nassau
|
|
|
Walnut Hill
|
|
|
|
|
|
>10% of Cares
|
|
|
<10% of Cares
|
|
|
|
|
|
|
Plano
|
|
|
Bay
|
|
|
(Dallas)
|
|
|
Allen
|
|
|
2009 Loss(A)
|
|
|
2009 Loss(B)
|
|
|
Combined
|
|
|
|
Dollars in millions
|
|
|
Rental Revenue
|
|
$
|
4.6
|
|
|
$
|
2.1
|
|
|
$
|
2.0
|
|
|
$
|
1.1
|
|
|
$
|
5.6
|
|
|
$
|
1.4
|
|
|
$
|
16.8
|
|
Operating Expense Reimbursements
|
|
|
1.9
|
|
|
|
0.2
|
|
|
|
0.9
|
|
|
|
0.6
|
|
|
|
1.3
|
|
|
|
0.3
|
|
|
|
5.2
|
|
Other Income
|
|
|
0.4
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
6.9
|
|
|
$
|
2.3
|
|
|
$
|
4.1
|
|
|
$
|
1.7
|
|
|
$
|
7.3
|
|
|
$
|
2.0
|
|
|
$
|
24.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
$
|
2.1
|
|
|
$
|
1.0
|
|
|
$
|
1.1
|
|
|
$
|
0.8
|
|
|
$
|
2.7
|
|
|
$
|
0.4
|
|
|
$
|
8.1
|
|
Depreciation and Amortization
|
|
|
3.0
|
|
|
|
1.3
|
|
|
|
2.0
|
|
|
|
0.8
|
|
|
|
3.0
|
|
|
|
1.0
|
|
|
|
11.1
|
|
Total Expenses
|
|
|
9.0
|
|
|
|
3.1
|
|
|
|
5.0
|
|
|
|
2.5
|
|
|
|
8.8
|
|
|
|
2.5
|
|
|
|
30.9
|
|
Net Loss
|
|
$
|
(2.1
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
(1.5
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(6.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
|
Aggregated amounts for the following three entities
whose 2009 significance is between 10% and 20% to Care: Howell,
Gorbutt and Westgate.
|
|
(B)
|
|
Amounts for one entity, Southlake, whose 2009
significance is less than 10% to Care.
|
On December 31, 2007, the Company also formed a joint
venture, SMC-CIT Holding Company, LLC, with an affiliate of
Senior Management Concepts, LLC to acquire four independent and
assisted living facilities located in Utah. Total capitalization
of the joint venture is $61.0 million. Care invested
$6.8 million in exchange for 100% of the preferred equity
interests and 10% of the common equity interests of the joint
venture. The Company will receive a preferred return of 15% on
its invested capital and an additional common equity return
equal to 10% of the projected free cash flow after payment of
debt service and the preferred return. Subject to certain
conditions being met, our preferred equity interest is subject
to redemption at par beginning on January 1, 2010. We
retain an option to put our preferred equity interest to our
partner at par any time beginning on January 1, 2016. If
our preferred equity interest is redeemed, we have the right to
put our common equity interests to our partner within thirty
days after notice at fair market value as determined by a
third-party appraiser. Affiliates of Senior Management
21
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Concepts, LLC have leased the facilities from the joint venture
for 15 years, expiring in 2022. Care accounts for its
investment in SMC-CIT Holding Company, LLC under the equity
method.
The four facilities contain 243 independent living units and 165
assisted living units. The properties were constructed in the
last 25 years, and two were built in the last
10 years. Since both transactions closed on
December 31, 2007, the Company recorded no income or loss
on these investments for the period from June 22, 2007
(commencement of operations) to December 31, 2007.
For the years ended December 31, 2009 and December 31,
2008, our equity in the loss of our Cambridge portfolio amounted
to $5.6 million and $5.6 million, respectively, which
included $9.6 million and $9.4 million, respectively,
attributable to our share of the depreciation and amortization
expenses associated with the Cambridge properties. The
Companys investment in the Cambridge entities was
$49.3 million and $58.1 million at December 31,
2009 and 2008, respectively. During the years ended
December 31, 2009 and December 31, 2008, we received
$5.8 million and $2.2 million in distributions from
our investment in Cambridge.
For the years ended December 31, 2009 and December 31,
2008, we recognized $1.2 million and $1.1 million,
respectively, in equity income from our interest in SMC and
received $1.2 million and $1.1 million in
distributions, respectively.
|
|
Note 7
|
Identified
Intangible Assets leases in-place, net
|
The following table summarizes the Companys identified
intangible assets as of December 31, 2009:
|
|
|
|
|
Identified
intangibles leases in-place
(amounts in
thousands
)
|
|
|
|
|
Gross amount
|
|
$
|
4,960
|
|
Accumulated amortization
|
|
|
(489
|
)
|
|
|
|
|
|
|
|
$
|
4,471
|
|
|
|
|
|
|
The estimated annual amortization of acquired in-place leases
for each of the succeeding years as of December 31, 2008 is
as follows: (amounts in thousands
)
|
|
|
|
|
2010
|
|
|
331
|
|
2011
|
|
|
331
|
|
2012
|
|
|
331
|
|
2013
|
|
|
331
|
|
2013
|
|
|
331
|
|
Thereafter
|
|
|
2,816
|
|
The Company amortizes this intangible asset over the life of the
leases on a straight-line basis.
Other assets at December 31, 2009 and 2008 consisted of the
following (amounts in thousands
)
:
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Straight-line effect of lease revenue
|
|
$
|
3,628
|
|
|
$
|
1,218
|
|
Prepaid expenses
|
|
|
722
|
|
|
|
390
|
|
Receivables
|
|
|
166
|
|
|
|
|
|
Deferred exit fees and other
|
|
|
100
|
|
|
|
820
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
4,617
|
|
|
$
|
2,428
|
|
|
|
|
|
|
|
|
|
|
22
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
|
|
Note 9
|
Borrowings
under Warehouse Line of Credit
|
On October 1, 2007, Care entered into a master repurchase
agreement (Agreement) with Column Financial, Inc.
(Column), an affiliate of Credit Suisse, one of the
underwriters of Cares initial public offering in June
2007. This type of lending arrangement is often referred to as a
warehouse facility. The Agreement provided an initial line of
credit of up to $300 million, which could be increased
temporarily to an aggregate amount of $400 million under
the terms of the Agreement.
On March 9, 2009, Care repaid this loan in full and closed
the warehouse line of credit.
|
|
Note 10
|
Mortgage
Notes Payable
|
On June 26, 2008 with the acquisition of the twelve
properties from Bickford Senior Living Group LLC, the Company
entered into a mortgage loan with Red Mortgage Capital, Inc. for
$74.6 million. The terms of the mortgage require
interest-only payments at a fixed interest rate of 6.845% for
the first twelve months. Commencing on the first anniversary and
every month thereafter, the mortgage loan requires a fixed
monthly payment of $0.5 million for both principal and
interest until the maturity in July 2015 when the then
outstanding balance of $69.6 million is due and payable.
Care paid approximately $0.3 million in principal
amortization during the year ended December 31, 2009. The
mortgage loan is collateralized by the properties.
On September 30, 2008 with the acquisition of the two
additional properties from Bickford, the Company entered into an
additional mortgage loan with Red Mortgage Capital, Inc. for
$7.6 million. The terms of the mortgage require interest
and principal payments of approximately $52,000 based on a fixed
interest rate of 7.17% until the maturity in July 2015 when the
then outstanding balance of $7.1 million is due and
payable. Care paid approximately $0.1 in principal amortization
during the year ended December 31, 2009. The mortgage loan
is collateralized by the properties.
As of December 31, 2009, principal repayments due under all
borrowings for the next 5 years and thereafter are as
follows (in millions):
|
|
|
|
|
|
|
|
|
2010
|
|
$
|
0.9
|
|
|
|
|
|
2011
|
|
|
0.9
|
|
|
|
|
|
2012
|
|
|
0.9
|
|
|
|
|
|
2013
|
|
|
1.0
|
|
|
|
|
|
2014
|
|
|
1.0
|
|
|
|
|
|
Thereafter
|
|
|
77.3
|
|
|
|
|
|
|
|
Note 11
|
Other
Liabilities
|
Other liabilities as of December 31, 2009 and 2008 consist
principally of deposits and real estate escrows from borrowers
amounting to $1.1 million and $1.3 million,
respectively.
|
|
Note 12
|
Related
Party Transactions
|
Management
Agreement
In connection with our initial public offering in 2007, we
entered into a Management Agreement with our Manager, which
describes the services to be provided by our Manager and its
compensation for those services. Under the Management Agreement,
our Manager, subject to the oversight of the Board of Directors
of Care, is required to manage the
day-to-day
activities of the Company, for which the Manager receives a base
management fee and is eligible for an incentive fee. The Manager
is also entitled to charge the Company for certain expenses
incurred on behalf of Care.
23
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
On September 30, 2008, we amended our Management Agreement
(Amendment 1). Pursuant to the terms of the
amendment, the Base Management Fee (as defined in the Management
Agreement) payable to the Manager under the Management Agreement
is reduced to a monthly amount equal to
1
/
12
of 0.875% of the Companys equity (as defined in the
Management Agreement). In addition, pursuant to the terms of the
Amendment, the Incentive Fee (as defined in the Management
Agreement) to the Manager pursuant to the Management Agreement
has been eliminated and the Termination Fee (as defined in the
Management Agreement) to the Manager upon the termination or
non-renewal of the Management Agreement shall be equal to the
average annual Base Management Fee as earned by the Manager
during the immediately preceding two years multiplied by three,
but in no event shall the Termination Fee be less than
$15.4 million.
In consideration of the Amendment and for the Managers
continued and future services to the Company, the Company
granted the Manager warrants to purchase 435,000 shares of
the Companys common stock at $17.00 per share (the
Warrant) under the Manager Equity Plan adopted by
the Company on June 21, 2007 (the Manager Equity
Plan). The Warrant, which is immediately exercisable,
expires on September 30, 2018.
In accordance with ASC
505-50,
the
Company used the Black-Scholes option pricing model to measure
the fair value of the Warrant granted with the Amendment. The
Black-Scholes model valued the Warrant using the following
assumptions:
|
|
|
|
|
Volatility
|
|
|
47.8
|
%
|
Expected Dividend Yield
|
|
|
5.92
|
%
|
Risk-free Rate of Return
|
|
|
3.8
|
%
|
Current Market Price
|
|
$
|
7.79
|
|
Strike Price
|
|
$
|
17.00
|
|
Term of Warrant
|
|
|
10 years
|
|
The fair value of the Warrant is approximately
$0.5 million, which is recorded as part of additional
paid-in-capital
with a corresponding entry to expense. The Warrant will be
remeasured to fair value at each reporting date, and amortized
into expense over 18 months, which represents the remaining
initial term of the Management Agreement.
On January 15, 2010, the Company entered into an Amended
and Restated Management Agreement, dated as of January 15,
2010 (Amendment 2) which amends and restates the
Management Agreement, dated June 27, 2007, as amended by
Amendment No. 1 to the Management Agreement. Amendment 2
became effective upon approval by the Companys
stockholders of the plan of liquidation on January 28,
2010. Amendment 2 shall continue in effect, unless earlier
terminated in accordance with the terms thereof, until
December 31, 2011.
Amendment 2 reduces the base management fee to a monthly
amount equal to (i) $125,000 from February 1, 2010
until June 30, 2010 and (ii) $100,000 until the
earlier of December 31, 2010 and the sale of certain assets
and (iii) $75,000 until the effective date of expiration or
earlier termination of the agreement, subject to additional
provisions.
Pursuant to the terms of the Amendment 2, the Company shall
pay the Manager a buyout payment of $7.5 million, payable
in three installments of $2.5 million on January 28,
2010 and, effectively, April 1, 2010 and either
June 30, 2011 or the effective date of the termination of
the agreement if earlier. Amendment 2 provides the Company
and the Manager with a right to terminate the agreement without
cause, under certain conditions, and the Company with a right to
terminate the agreement with cause, as defined in
Amendment 1.
Pursuant to the terms of Amendment 2, the Manager is
eligible for an incentive fee of $1.5 million under certain
conditions where cash distributed or distributable to
stockholders equals or exceeds $9.25 per share. See Note 16.
We are also responsible for reimbursing the Manager for its pro
rata portion of certain expenses detailed in the initial
agreement and subsequent amendments, such as rent, utilities,
office furniture, equipment, and overhead,
24
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
among others, required for our operations. Transactions with our
Manager during the year ended December 31, 2009 included:
|
|
|
|
|
Our $0.5 million liability to our Manager for professional
fees paid and other third party costs incurred by our Manager on
behalf of Care and management fees.
|
|
|
|
Our expense recognition of $0.5 million and
$2.2 million for the three months and year ended
December 31, 2009, respectively, for the base management
fee.
|
|
|
|
On February 3, 2009, we sold a loan with a book value of
$27.0 on the date of sale to our Manager for proceeds of $22.5
resulting in an approximate loss of $4.9 million.
|
|
|
|
On August 19, 2009, we sold two mortgage loans with a book
value of approximately $3.7 million to our Manager for
proceeds of $2.3 resulting in an approximate loss of
$1.4 million.
|
|
|
|
On September 16, 2009, we sold interests in a participation
loan in Michigan with book value of approximately
$22.2 million on the date of sale to our Manager for
proceeds of $17.4 million resulting in an approximate loss
of $4.8 million.
|
|
|
Note 13
|
Fair
Value of Financial Instruments
|
The Company has established processes for determining fair
values and fair value is based on quoted market prices, where
available. If listed prices or quotes are not available, then
fair value is based upon internally developed models that
primarily use inputs that are market-based or
independently-sourced market parameters.
A financial instruments categorization within the
valuation hierarchy is based upon the lowest level of input that
is significant to the fair value measurement. The three levels
of valuation hierarchy are defined as follows:
Level 1
inputs to the valuation
methodology are quoted prices (unadjusted) for identical assets
or liabilities in active markets.
Level 2
inputs to the valuation
methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable
for the asset or liability, either directly or indirectly, for
substantially the full term of the financial instrument.
Level 3
inputs to the valuation
methodology are unobservable and significant to the fair value
measurement.
The following describes the valuation methodologies used for the
Companys financial instruments measured at fair value, as
well as the general classification of such instruments pursuant
to the valuation hierarchy.
Investment in loans
the fair value of the
portfolio is based primarily on appraisals from third parties.
Investing in healthcare-related commercial mortgage debt is
transacted through an
over-the-counter
market with minimal pricing transparency. Loans are infrequently
traded and market quotes are not widely available and
disseminated. The Company also gives consideration to its
knowledge of the current marketplace and the credit worthiness
of the borrowers in determining the fair value of the portfolio.
At December 31, 2009, we valued our loans primarily based
upon appraisals obtained from The Debt Exchange, Inc. or DebtX.
When loans are under contract for sale or sold or repaid
subsequent to the filing of our
Form 10-K,
they are valued at their fair value and are valued using
level 2 inputs.
Obligation to issue operating partnership units
the fair value of our obligation to issue operating
partnership units is based on an internally developed valuation
model, as quoted market prices are not available nor are quoted
prices for similar liabilities. Our model involves the use of
management estimates as well as some Level 2 inputs. The
variables in the model include the estimated release dates of
the shares out of escrow, based on the expected performance of
the underlying properties, a discount factor of approximately
15%, and the market price and expected quarterly dividend of
Cares common shares at each measurement date.
25
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
The following table presents the Companys financial
instruments carried at fair value on the consolidated balance
sheet as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
($ in millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in loans
|
|
$
|
|
|
|
$
|
16.1
|
|
|
$
|
9.2
|
|
|
$
|
25.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation to issue operating partnership units(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2.9
|
|
|
$
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at December 31, 2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in loans
|
|
$
|
22.5
|
|
|
$
|
|
|
|
$
|
137.4
|
|
|
$
|
159.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligation to issue operating partnership units(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3.0
|
|
|
$
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
At December 31, 2008, the fair value of our obligation to
issue partnership units was $3.0 million and we recorded
unrealized gain of $0.1 million on revaluation at
December 31, 2009 and an unrealized loss of
$0.2 million on revaluation at December 31, 2008.
|
The tables below present reconciliations for all assets and
liabilities measured at fair value on a recurring basis using
significant Level 2 and Level 3 inputs during 2009.
Level 3 instruments presented in the tables include a
liability to issue partnership units, which are carried at fair
value. The Level 2 and Level 3 instruments were valued
based upon appraisals, actual cash repayments and sales
contracts or using models that, in managements judgment,
reflect the assumptions a marketplace participant would use at
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
Level 3 Instruments Fair
|
|
|
|
Value Measurements
|
|
|
|
Obligation to
|
|
|
Investment
|
|
|
|
issue
|
|
|
in Loans Held
|
|
|
|
Partnership
|
|
|
at Lower of Cost
|
|
|
|
Units
|
|
|
or Market
|
|
|
|
($ in millions)
|
|
|
Balance, December 31, 2008
|
|
$
|
(3.0
|
)
|
|
$
|
159.9
|
|
Sales of loans to Manager
|
|
|
|
|
|
|
(42.3
|
)
|
Sales of loans to third parties
|
|
|
|
|
|
|
(55.8
|
)
|
Loan prepayments and principal repayments
|
|
|
|
|
|
|
(40.5
|
)
|
Total unrealized gains included in income statement
|
|
|
0.1
|
|
|
|
4.0
|
|
Transfers to Level 2
|
|
|
|
|
|
|
(16.1
|
)
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
(2.9
|
)
|
|
$
|
9.2
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized losses from obligations
owed/investments still held at December 31, 2009
|
|
$
|
0.1
|
|
|
$
|
4.0
|
|
|
|
|
|
|
|
|
|
|
In addition we are required to disclose fair value information
about financial instruments, whether or not recognized in the
financial statements, for which it is practical to estimate that
value. In cases where quoted market prices are not available,
fair value is based upon the application of discount rates to
estimated future cash flows based on market yields or other
appropriate valuation methodologies. Considerable judgment is
necessary to interpret market data and develop estimated fair
value. Accordingly, the estimates presented herein are not
26
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
necessarily indicative of the amounts we could realize on
disposition of the financial instruments. The use of different
market assumptions
and/or
estimation methodologies may have a material effect on the
estimated fair value amounts.
In addition to the amounts reflected in the financial statements
at fair value as noted above, cash equivalents, accrued interest
receivables, and accounts payable and accrued expenses
reasonably approximate their fair values due to the short
maturities of these items. Management believes that the mortgage
notes payable of $74.6 million and $7.6 million that
were incurred from the acquisitions of the Bickford properties
on June 26, 2008 and September 30, 2008, respectively,
have a fair value of approximately $85.1 million as of
December 31, 2009. The fair value of the debt has been
determined by evaluating the present value of the agreed upon
cash flows at a discount rate reflective of financing terms
currently available to us for collateral with the same credit
and quality characteristics.
The Company is exposed to certain risks relating to its ongoing
business. The primary risk managed by using derivative
instruments is interest rate risk. Interest rate caps are
entered into to manage interest rate risk associated with the
Companys borrowings. The company has no interest rate caps
as of December 31, 2009.
We are required to recognize all derivative instruments as
either assets or liabilities at fair value in the statement of
financial position. The Company has not designated any of its
derivatives as hedging instruments. The Companys financial
statements included the following fair value amounts and gains
and losses on derivative instruments (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Balance
|
|
Balance
|
|
|
Balance
|
|
|
|
Derivatives not Designated as
|
|
Sheet
|
|
Fair
|
|
|
Sheet
|
|
Fair
|
|
Hedging Instruments
|
|
Location
|
|
Value
|
|
|
Location
|
|
Value
|
|
|
Operating Partnership Units
|
|
Obligation to issue operating partnership units
|
|
$
|
(2,890
|
)
|
|
Obligation to issue operating partnership units
|
|
$
|
(3,045
|
)
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Derivatives
|
|
|
|
$
|
(2,890
|
)
|
|
|
|
$
|
(3,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of (Gain)/Loss
|
|
|
|
|
|
Recognized in Income on
|
|
|
|
|
|
Derivative
|
|
|
|
Location of (Gain)/Loss
|
|
Year Ended
|
|
Derivatives not Designated as
|
|
Recognized in Income on
|
|
December 31,
|
|
|
December 31,
|
|
Hedging Instruments
|
|
Derivative
|
|
2009
|
|
|
2008
|
|
|
Operating Partnership Units
|
|
Unrealized(gain)/loss on derivative instruments
|
|
$
|
(155
|
)
|
|
$
|
195
|
|
Interest Rate Caps
|
|
Unrealized(gain)/loss on derivative instruments
|
|
|
2
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(153
|
)
|
|
$
|
237
|
|
|
|
Note 14
|
Stockholders
Equity
|
Our authorized capital stock consists of 100,000,000 shares
of preferred stock, $0.001 par value and
250,000,000 shares of common stock, $0.001 par value.
As of December 31, 2009 and 2008, no shares of preferred
stock were issued and outstanding and 21,159,647 and
21,021,359 shares of our common stock were issued
respectively and 20,158,894 and 20,021,359 shares of common
stock were outstanding, respectively.
27
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Equity
Plan
Restricted
Stock Grants:
At the time of our initial public offering in June 2007, we
issued 133,333 shares of common stock to our Managers
employees, some of whom are officers or directors of Care and we
also awarded 15,000 shares of common stock to Cares
independent board members. The shares granted to our
Managers employees had an initial vesting date of
June 22, 2010, three years from the date of grant. The
shares granted to our independent board members vest ratably on
the first, second and third anniversaries of the grant. During
the year ended December 31, 2008, 42,000 shares of
restricted stock granted to our Managers employees were
forfeited and 10,000 shares vested due to a termination of
an officer of the Manager without cause. In addition,
20,000 shares of restricted stock were granted to a board
member who formerly served as an employee of our Manager. These
shares had a fair value of $183,000 at issuance and had an
initial vesting date of June 27, 2010.
On January 28, 2010, our shareholders approved the
Companys plan of liquidation. Under the terms of each of
these awards, the approval of the plan of liquidation by our
shareholders accelerated the vesting of the awards on that day.
Schedule
of Non Vested Shares Equity Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grants to
|
|
Grants to
|
|
|
|
|
Independent
|
|
Managers
|
|
Total
|
|
|
Directors
|
|
Employees
|
|
Grants
|
|
Balance at January 1, 2008
|
|
|
15,000
|
|
|
|
133,333
|
|
|
|
148,333
|
|
Granted
|
|
|
20,000
|
|
|
|
|
|
|
|
20,000
|
|
Vested
|
|
|
5,000
|
|
|
|
10,000
|
|
|
|
15,000
|
|
Forfeited
|
|
|
|
|
|
|
42,000
|
|
|
|
42,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
30,000
|
|
|
|
81,333
|
|
|
|
111,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
30,000
|
|
|
|
81,333
|
|
|
|
111,333
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units:
On April 8, 2008, the Compensation Committee (the
Committee) of the Board of Directors of Care awarded
the Companys CEO, 35,000 shares of restricted stock
units (RSUs) under the Care Investment
Trust Inc. Equity Incentive Plan (Equity Plan).
The RSUs had a fair value of $385,000 on the grant date. The
initial vesting of the award was 50% on the third anniversary of
the award and the remaining 50% on the fourth anniversary of the
award. Under the terms of these awards, shareholder approval of
the plan of liquidation accelerated the vesting of the awards on
that day.
On November 5, 2009, the Board of Directors of Care
Investment Trust Inc. (the Company) awarded our
Chairman of the Board of Directors 10,000 restricted stock
units, which were initially subject to vesting in four equal
installments, commencing on November 5, 2010. Under the
terms of this award, shareholder approval of the plan of
liquidation accelerated the vesting of this award on that day.
Long-Term
Equity Incentive Programs:
On May 12, 2008, the Committee approved two new long-term
equity incentive programs under the Equity Plan. The first
program is an annual performance-based RSU award program (the
RSU Award Program). All
28
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
RSUs granted under the RSU Award Program included a vesting
period of four years. The second program is a three-year
performance share plan (the Performance Share Plan).
In connection with the initial adoption of the RSU Award
Program, certain employees of the Manager and its affiliates
were granted 68,308 RSUs on the adoption date with a grant date
fair value of $0.7 million. 9,242 of these shares were
forfeited in 2009. 14,763 of these shares vested in May 2009.
Achievement of awards under the 2008 RSU Award Program was based
upon the Companys ability to meet both financial (AFFO per
share) and strategic (shifting from a mortgage to an equity
REIT) performance goals during 2008, as well as on the
individual employees ability to meet performance goals. In
accordance with the 2008 RSU Award Program 49,961 RSUs and
30,333 RSUs were granted on March 12, 2009 and May 7,
2009, respectively. RSUs granted in connection with the 2008 RSU
Award Program were initially subject to the following vesting
schedule:
|
|
|
|
|
2010
|
|
|
34,840
|
|
2011
|
|
|
52,340
|
|
2012
|
|
|
52,343
|
|
2013
|
|
|
20,074
|
|
Under the terms of each of these awards, shareholder approval of
the plan of liquidation accelerated the vesting of the awards on
that day.
Under the Performance Share Plan, a participant is granted a
number of performance shares or units, the settlement of which
will depend on the Companys achievement of certain
pre-determined financial goals at the end of the three-year
performance period. Any shares received in settlement of the
performance award will be issued to the participant in early
2011, without any further vesting requirements. With respect to
the
2008-2010
performance periods, the performance goals relate to the
Companys ability to meet both financial (compound growth
in AFFO per share) and share return goals (total shareholder
return versus the Companys healthcare equity and mortgage
REIT peers). The Committee has established threshold, target and
maximum levels of performance. If the Company meets the
threshold level of performance, a participant will earn 50% of
the performance share grant if it meets the target level of
performance, a participant will earn 100% of the performance
share grant and if it achieves the maximum level of performance,
a participant will earn 200% of the performance share grant. As
of December 31, 2009, no shares have been earned under this
plan.
On December 10, 2009, the Company granted performance share
awards to plan participants for an aggregate amount of
15,000 shares at target levels and an aggregate maximum of
30,000 shares. On February 23, 2009, the terms of the
awards were modified such that the awards are now triggered upon
the execution, during 2010, of one or more of the following
transactions that results in a return of liquidity to the
Companys stockholders within the parameters expressed in
the agreement: (i) a merger or other business combination
resulting in the disposition of all of the issued and
outstanding equity securities of the Company, (ii) a tender
offer made directly to the Companys stockholders either by
the Company or a third party for at least a majority of the
Companys issued and outstanding common stock, or
(iii) the declaration of aggregate distributions by the
Companys Board equal to or exceeding $8.00 per share.
As of December 31, 2009, 210,677 shares of our common
stock and 197,615 RSUs had been granted pursuant to the Equity
Plan and 267,516 shares remain available for future
issuances. The Equity Plan will automatically expire on the
10th anniversary of the date it was adopted. Cares
Board of Directors may terminate, amend, modify or suspend the
Equity Plan at any time, subject to stockholder approval in the
case of amendments or modifications. We recorded
$2.3 million of expense related to compensation and
$1.2 million of expense related to remeasurement of grants
to fair value for the years ended December 31, 2009 and
2008, respectively, Approximately $0.8 million of the
expense recorded in 2009 related to accelerated vesting in the
aggregate. All of the shares issued under our Equity Plan are
considered non-employee awards. Accordingly, the expense for
each period is determined based on the fair value of each share
or unit awarded over the required performance period.
29
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Shares Issued
to Directors for Board Fees:
On January 5, 2009, April 3, 2009, July 1, 2009,
October 1, 2009, and January 4, 2010, respectively,
9,624, 13,734, 14,418, 9,774 and 8,030 shares of common
stock with an aggregate fair value of approximately $300,000
were granted to our independent directors as part of their
annual retainer. Each independent director receives an annual
base retainer of $100,000, payable quarterly in arrears, of
which 50% is paid in cash and 50% in common stock of Care.
Shares granted as part of the annual retainer vest immediately
and are included in general and administrative expense.
Manager
Equity Plan
Upon completion of our initial public offering in June 2007,
approximately $1.3 million shares were made available and
we granted 607,690 fully vested shares of our common stock to
our Manager under the Manager Equity Plan. These shares are
subject to our Managers right to register the resale of
such shares pursuant to a registration rights agreement we
entered into with our Manager in connection with our initial
public offering. At December 31, 2009, 282,945 shares
are available for future issuances under the Manager Equity
Plan. The Manager Equity Plan will automatically expire on the
10th anniversary of the date it was adopted. Cares
Board of Directors may terminate, amend, modify or suspend the
Manager Equity Plan at any time, subject to stockholder approval
in the case of amendments or modifications.
The 282,945 shares available for future issuance under the
Manager Equity Plan are net of 435,000 shares that may be
issued upon conversion of a warrant issued to our Manager
described in Note 12.
|
|
Note 15
|
Loss per
share ($ in thousands, except share and per share
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Period from
|
|
|
|
|
|
|
June 22, 2007
|
|
|
For the Year
|
|
For the Year
|
|
(Commencement of
|
|
|
Ended
|
|
Ended
|
|
Operations) to
|
|
|
December 31, 2009
|
|
December 31, 2008
|
|
December 31, 2007
|
|
Loss per share
basic and diluted
|
|
$
|
(0.14
|
)
|
|
$
|
(1.47
|
)
|
|
$
|
(0.07
|
)
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,826
|
)
|
|
$
|
(30,806
|
)
|
|
$
|
(1,557
|
)
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding
|
|
|
20,061,763
|
|
|
|
20,952,972
|
|
|
|
20,866,526
|
|
Diluted loss per share was the same as basic loss per share for
each period because all outstanding restricted stock awards were
anti-dilutive.
|
|
Note 16
|
Commitments
and Contingencies
|
At December 31, 2009, Care was obligated to provide
approximately $1.9 million in tenant improvements related
to our purchase of the Cambridge properties in 2010. Care is
also obligated to fund additional payments for expansion of four
of the facilities acquired in the Bickford transaction on
June 26, 2008. The maximum amount that the Company is
obligated to fund is $7.2 million. Since these payments
would increase our investment in the properties, the minimum
base rent and additional base rent would increase based on the
amounts funded. After funding the expansion payments and meeting
certain conditions as outlined in the documents associated with
the transaction, the sellers are entitled to the balance of the
commitment of $7.2 million less the total of all expansion
payments made in conjunction with the properties. As of
December 31, 2009, no expansion payments have been
requested and Bickford has yet to meet any of a series of
conditions which would need to be satisfied by July 26,
2010 in accordance with the terms of the agreement.
30
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
Under our Management Agreement, our Manager, subject to the
oversight of the Companys board of directors, is required
to manage the
day-to-day
activities of Care, for which the Manager receives a base
management fee. The Management Agreement was amended on
January 15, 2010, effective on January 28, 2010 (see
Note 12).
Under the amended terms, the agreement expires on
December 31, 2011. The base management fee is payable
monthly in arrears in an amount equal to 1/12 of 0.875% of the
Companys stockholders GAAP equity for January 2010
and $125,000 per month thereafter, subject to reduction to
$100,000 per month under certain conditions.
In addition, under the amended terms the Company is obligated to
make buyout payments, which replaced a termination fee
contingency. The buyout payments were paid or payable as
follows: (i) $2.5 million paid on January 29,
2010, (ii) $2.5 million upon the earlier of
(a) April 1, 2010 and (b) the effective date of
the termination of the Agreement by either of the Company or the
Manager; and (iii) $2.5 million upon the earlier of
(a) June 30, 2011 and (b) the effective date of
the termination of the Agreement by either the Company or the
Manager.
The table below summarizes our contractual obligations as of
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
|
Amounts in millions
|
|
Commitment to fund tenant improvements
|
|
$
|
1.9
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Commitment to fund earn out
|
|
|
7.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes payable
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
6.5
|
|
|
|
80.4
|
|
Management fee
|
|
|
1.5
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buyout fee to Manager
|
|
|
5.0
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Care has commitments at December 31, 2009 to finance tenant
improvements of $1.9 million and earn out of
$7.2 million under certain conditions. The commitment
amount for the earn out is contingent upon meeting certain
conditions. If those conditions are not met, our obligation to
fund those commitments would be zero. $1.7 million of
tenant improvement represents hold back from the initial
purchase of Cambridge. No provision for the earn out contingency
has been accrued at December 31, 2009. The estimated
amounts and timing of the commitments to fund tenant
improvements are based on projections by the managers who are
affiliates of Cambridge and Bickford.
Pursuant to terms of Amendment 2 to the Management
Agreement, the Manager is eligible for an incentive fee of
$1.5 million under certain conditions where distributable
cash to stockholders equals or exceeds $9.25 per share. No
provision has been made for the incentive fee.
On September 18, 2007, a class action complaint for
violations of federal securities laws was filed in the United
States District Court, Southern District of New York alleging
that the Registration Statement relating to the initial public
offering of shares of our common stock, filed on June 21,
2007, failed to disclose that certain of the assets in the
contributed portfolio were materially impaired and overvalued
and that we were experiencing increasing difficulty in securing
our warehouse financing lines. On January 18, 2008, the
court entered an order appointing co-lead plaintiffs and co-lead
counsel. On February 19, 2008, the co-lead plaintiffs filed
an amended complaint citing additional evidentiary support for
the allegations in the complaint. We believe the complaint and
allegations are without merit and intend to defend against the
complaint and allegations vigorously. We filed a motion to
dismiss the complaint on April 22, 2008. The plaintiffs
filed an opposition to our motion to dismiss on July 9,
2008, to which we filed our reply on September 10, 2008. On
March 4, 2009, the court denied our motion to dismiss. Care
filed its answer on April 15, 2009. At a conference held on
May 15, 2009, the Court ordered the parties to make a joint
submission (the Joint Statement) setting forth:
(i) the specific statements that Plaintiffs claim are false
and misleading; (ii) the facts on which Plaintiffs rely as
showing each alleged misstatement was false and misleading; and
(iii) the facts on which Defendants rely as showing those
statements were true. The parties filed the Joint Statement on
June 3, 2009. On July 31, 2009, the parties entered
into a stipulation that narrowed the scope of the
31
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
proceeding to the single issue of the warehouse financing
disclosure in the Registration Statement. Fact discovery closed
on April 23, 2010.
The Court ordered the parties to file an abbreviated joint
pre-trial statement on June 9, 2010, and scheduled a
pre-trial conference for June 11, 2010. At the conclusion
of the pre-trial conference, the Court asked the parties to
agree on a summary judgment briefing schedule. The parties have
since agreed, and the Court has ordered, that the Defendants
file their motion for summary judgment on July 9, 2010
Plaintiffs file their opposition on August 6, 2010 and
Defendants file their reply on August 27, 2010. The outcome
of this matter cannot currently be predicted. To date, Care has
incurred approximately $1.0 million to defend against this
complaint and any incremental costs to defend will be paid by
Cares insurer. No provision for loss related to this
matter has been accrued at December 31, 2009.
On November 25, 2009, we filed a lawsuit in the
U.S. District Court for the Northern District of Texas
against Saada Parties, seeking declaratory judgments that
(i) we have the right to engage in a business combination
transaction involving our company or a sale of our wholly owned
subsidiary that serves as the general partner of the partnership
that holds the direct investment in the portfolio without the
approval of the Saada Parties, (ii) the contractual right
of the Saada Parties to put their interests in the Cambridge
medical office building portfolio has expired and (iii) the
operating partnership units held by the Saada Parties do not
entitle them to receive any special cash distributions made to
our stockholders. We also brought affirmative claims for
tortious interference by the Saada Parties with a prospective
contract and for their breach of the implied covenant of good
faith and fair dealing.
On January 27, 2010, the Saada Parties answered our
complaint, and simultaneously filed Counterclaims that named our
subsidiaries ERC Sub LLC and ERC Sub, L.P., external manager CIT
Healthcare LLC, and board chairman Flint D. Besecker, as
additional third-party defendants. The Counterclaims seek four
declaratory judgments construing certain contracts among the
parties that are largely the mirror image of our declaratory
judgment claims. In addition, the Counterclaims also seek
monetary damages for purported breaches of fiduciary duty and
the duty of good faith and fair dealing, as well as fraudulent
inducement, against us and the third-party defendants jointly
and severally.
The Counterclaims further request indemnification by ERC Sub,
L.P., pursuant to a contract between the parties, and the
imposition of a constructive trust on our current
assets to be disposed as part of any future liquidation of Care,
including all proceeds from those assets. Although the
Counterclaims do not itemize their asserted damages, they assign
these damages a value of $100 million or more.
In addition, the Saada Parties filed a motion to dismiss our
tortious interference and breach of the implied covenant of good
faith and fair dealing claims on January 27, 2010. In
response to the Counterclaims, we filed on March 5, 2010,
an omnibus motion to dismiss all of the Counterclaims.
On March 22, 2010, we received a letter from Cambridge
Holdings, which asserted that the transactions with Tiptree were
in violation of our agreements with the Saada Parties.
The Saada Parties filed their opposition to our omnibus motion
to dismiss on March 26, 2010, and we filed our response on
April 9, 2010.
On April 14, 2010, the Saada Parties motion to
dismiss was denied and our motion to dismiss was also denied.
On April 27, 2010, we filed an answer to the Saada
Parties third-party complaint. We continue to believe that
the arguments advanced by Cambridge Holdings lack merit. See
Risk Factors Risks Related to the Tiptree
Transaction.
On May 28, 2010, Cambridge Holdings filed a motion for
leave to amend its previously-asserted counterclaims and
third-party complaint to include a new claim for breach of
contract against Care. This proposed new claim asserts that
Cambridge Holdings and Care agreed, in October 2009, upon a sale
of ERC Sub, L.P.s 85% limited partnership interest in the
Cambridge properties back to Cambridge Holdings for
$20 million in cash plus certain other arrangements
involving the cancellation of partnership units and existing
escrow accounts. The proposed new
32
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
claim further asserts that Care reneged on this purported
agreement after having previously agreed to all of its material
terms, thus breaching the agreement. Further, the
proposed new claim seeks specific performance of the purported
contract. Care denies that any agreement of the sort alleged by
Cambridge Holdings was ever reached, and Care also believes that
the proposed new claim suffers from several deficiencies. Care
filed its opposition on June 18, 2010 and Cambridge
Holdings replied on July 1, 2010. In the meantime, on
June 21, 2010, ERC Sub sought leave to amend its
counterclaims to assert a breach of contract action against
Cambridge Holdings. Cambridge Holdings did not oppose ERC
Subs motion. The outcome of this matter cannot currently
be predicted. To date, Care has incurred approximately
$0.6 million to defend against this complaint. No provision
for loss related to this matter has been accrued at
December 31, 2009.
Care is not presently involved in any other material litigation
nor, to our knowledge, is any material litigation threatened
against us or our investments, other than routine litigation
arising in the ordinary course of business. Management believes
the costs, if any, incurred by us related to litigation will not
materially affect our financial position, operating results or
liquidity.
Care is negotiating for the sale of the Company with a third
party and has presented going concern financial statements based
on its expectation that a sale of the company is likely to
occur. See Notes 2 and 19.
On January 28, 2010, shareholders approved the
Companys plan of liquidation. See the Companys
definitive proxy statement filed with the Securities and
Exchange Commission on December 28, 2010 containing the
plan of liquidation. See Note 19.
|
|
Note 17
|
Financial
Instruments: Derivatives and Hedging
|
The fair value of our obligation to issue operating partnership
units was $2.9 million and $3.0 million at
December 31, 2009, December 31 and 2008, respectively.
On February 1, 2008, we entered into three interest rate
caps on three loans pledged as collateral under our warehouse
line of credit in order to increase the advance rates available
on the pledged loans. These caps were terminated on
April 20, 2009 for an amount equal to the remaining book
value.
|
|
Note 18
|
Quarterly
Financial Information (Unaudited)
|
Summarized unaudited consolidated quarterly information for each
of the years ended December 31, 2009 and 2008 is provided
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
March 31(1)
|
|
June 30(1)
|
|
Sept. 30(1)
|
|
Dec. 31(1)
|
|
|
(Amounts in millions except per share amounts)
|
|
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
6.1
|
|
|
$
|
5.1
|
|
|
$
|
5.0
|
|
|
$
|
3.9
|
|
Income (loss) available to common shareholders
|
|
|
2.5
|
|
|
|
(0.5
|
)
|
|
|
(0.4
|
)
|
|
|
(4.4
|
)
|
Earnings per share basic and diluted
|
|
$
|
0.12
|
|
|
$
|
(0.03
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.21
|
)
|
Earnings per share diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
March 31
|
|
June 30
|
|
Sept. 30(1)
|
|
Dec. 31(1)
|
|
|
(Amounts in millions except per share amounts)
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
4.7
|
|
|
$
|
3.6
|
|
|
$
|
6.6
|
|
|
$
|
7.4
|
|
Income (loss) available to common shareholders
|
|
|
0.5
|
|
|
|
0.7
|
|
|
|
(3.5
|
)
|
|
|
(28.5
|
)
|
Earnings per share basic and diluted
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
$
|
(0.17
|
)
|
|
$
|
(1.35
|
)
|
Earnings per share diluted
|
|
$
|
0.02
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Basic and diluted are the same as inclusion of
diluted shares would be anti-dilutive
|
|
|
Note 19
|
Subsequent
Events
|
Repayment
and Sale of Loans held at LOCOM
On February 19, 2010, one borrower repaid one of the
Companys mortgage loans with a net carrying value of
approximately $10.0 million as of December 31, 2008
and a September 30, 2009 interim carrying value of
approximately $10.0 million as of December 31, 2009.
Proceeds from the repayment of this mortgage loan were
approximately $10.0 million.
On March 2, 2010, we sold one mortgage loan to a third
party with a net carrying value of approximately
$7.8 million as of December 31, 2008 and a
September 30, 2009 interim carrying value of approximately
$6.1 million before selling costs as of December 31,
2009. Net realized proceeds from the sale of this mortgage loan
after selling costs of approximately $0.2 million were
approximately $5.9 million.
Amendment
to Management Agreement with Manager
See Note 12 for a discussion of a January 15 amendment to
the Companys Management Agreement with its Manager.
Approval
of Plan of Liquidation
On December 10, 2009, our Board of Directors approved a
plan of liquidation and recommended that our shareholders
approve the plan of liquidation. On January 28, 2010, our
shareholders approved the plan of liquidation. We have entered
into a material definitive agreement for a sale of control of
the Company as described below and have not pursued the plan of
liquidation.
Sale
of Control of the Company
On March 16, 2010, we executed a definitive agreement with
Tiptree Financial Partners, L.P. (Tiptree or the
Buyer) for the sale of control of the Company in a
series of contemplated transactions. Under the agreement, the
parties have agreed to a sale of a quantity of shares to the
Buyer to occur immediately following the completion of a cash
tender offer by us for Cares outstanding common shares.
The quantity of shares to be sold to the Buyer will be that
quantity which would represent at least 53.4% of the shares of
the Companys common stock on a fully diluted basis after
completion of the Companys cash tender offer. The
agreement is subject to customary closing conditions and our
ability to proceed with the cash tender offer.
In connection with the sale transaction contemplated by the
agreement, we intend to make a cash tender offer for up to 100%
of the outstanding common shares of Care stock at an offer price
of $9.00 per share, subject to a minimum subscription of
10,300,000 shares of Care stock. Also, in connection with
the transaction, the Company intends to terminate its existing
management agreement with our Manager and it is anticipated that
the resulting company will be advised by an affiliate of Tiptree.
34
Care
Investment Trust Inc. and Subsidiaries
Notes to
Consolidated Financial Statements
(Continued)
We intend to seek shareholder approval to abandon the plan of
liquidation and pursue the contemplated transactions described
above. If the contemplated transactions are not completed, we
may pursue the plan of liquidation as approved by the
stockholders on January 28 or we may consider other strategic
alternatives to liquidation. In the event that a liquidation of
the Company is pursued, material adjustments to these going
concern financial statements may need to be recorded to present
liquidation basis financial statements. Material adjustments
which may be required for liquidation basis accounting primarily
relate to reflecting assets and liabilities at their net
realizable value and costs to be incurred to carry out the plan
of liquidation. After such adjustments, the likely range of
equity value which would be presented in liquidation basis
financial statements would be between $8.05 and 8.90 per share.
35
Part IV
|
|
ITEM 15.
|
Exhibits,
Financial Statement Schedules
|
(a) Documents Filed as Part of this Report
36
SMC-CIT
Holding Company, LLC
Consolidated
Financial Statements as of and for the
Years Ended December 31, 2009 and 2008 (unaudited), and
Independent Auditors Report
F-1
SMC-CIT
HOLDING COMPANY, LLC
Table of
Contents
|
|
|
|
|
Page
|
|
|
|
F-3
|
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2009 AND 2008 (Unaudited):
|
|
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
|
|
F-7
|
|
|
F-8 - F-13
|
F-2
Independent
Auditors Report
To the Members of
SMC-CIT Holding Company, LLC
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheet of
SMC-CIT Holding Company, LLC (the Company) as of
December 31, 2009, and the related consolidated statement
of operations, members equity, and cash flows for the year
then ended. These financial statements are the responsibility of
the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes consideration
of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 2009, and the results of their
operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the
United States of America.
/s/ Deloitte & Touche LLP
July 14, 2010
F-3
SMC-CIT
HOLDING COMPANY, LLC
AS OF
DECEMBER 31, 2009 AND 2008
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(Unaudited)
|
|
|
ASSETS
|
INVESTMENT IN REAL ESTATE PROPERTIES Net of
accumulated depreciation of $3,700,307 and $1,738,862,
respectively
|
|
$
|
54,789,955
|
|
|
$
|
53,211,305
|
|
CASH AND CASH EQUIVALENTS
|
|
|
4,492
|
|
|
|
|
|
RESTRICTED CASH
|
|
|
|
|
|
|
611,584
|
|
DEFERRED RENT RECEIVABLE
|
|
|
1,991,790
|
|
|
|
1,216,288
|
|
DEFERRED FINANCING COSTS Net of accumulated
amortization of $328,676 and $164,338, respectively
|
|
|
1,314,701
|
|
|
|
1,479,039
|
|
CONSTRUCTION RESERVE
|
|
|
|
|
|
|
3,010,233
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
58,100,938
|
|
|
$
|
59,528,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS EQUITY
|
MORTGAGE NOTES PAYABLE
|
|
$
|
54,176,500
|
|
|
$
|
54,176,500
|
|
ACCRUED INTEREST PAYABLE
|
|
|
310,016
|
|
|
|
310,016
|
|
OTHER LIABILITIES
|
|
|
|
|
|
|
12,230
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
54,486,516
|
|
|
|
54,498,746
|
|
MEMBERS EQUITY
|
|
|
3,614,422
|
|
|
|
5,029,703
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND MEMBERS EQUITY
|
|
$
|
58,100,938
|
|
|
$
|
59,528,449
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-4
SMC-CIT
HOLDING COMPANY, LLC
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(Unaudited)
|
|
|
OPERATING REVENUE:
|
|
|
|
|
|
|
|
|
Rental revenue
|
|
$
|
5,602,178
|
|
|
$
|
5,602,178
|
|
Operating expense reimbursements
|
|
|
490,817
|
|
|
|
439,146
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
6,092,995
|
|
|
|
6,041,324
|
|
|
|
|
|
|
|
|
|
|
Real estate taxes
|
|
|
236,717
|
|
|
|
190,709
|
|
Other expenses
|
|
|
254,100
|
|
|
|
248,437
|
|
|
|
|
|
|
|
|
|
|
NET OPERATING INCOME
|
|
|
5,602,178
|
|
|
|
5,602,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
|
|
75,598
|
|
Amortization of deferred financing costs
|
|
|
(164,338
|
)
|
|
|
(164,338
|
)
|
Professional Fees
|
|
|
(65,000
|
)
|
|
|
|
|
Depreciation
|
|
|
(1,961,445
|
)
|
|
|
(1,738,862
|
)
|
Interest on mortgage notes payable
|
|
|
(3,650,191
|
)
|
|
|
(3,660,193
|
)
|
|
|
|
|
|
|
|
|
|
Total other income (expenses)
|
|
|
(5,840,974
|
)
|
|
|
(5,487,795
|
)
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME
|
|
$
|
(238,796
|
)
|
|
$
|
114,383
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
SMC-CIT
HOLDING COMPANY, LLC
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Care Member
|
|
|
SMC Member
|
|
|
Total
|
|
|
MEMBERS EQUITY (DEFICIT) January 1, 2008
(unaudited)
|
|
$
|
6,858,410
|
|
|
$
|
(234,448
|
)
|
|
$
|
6,623,962
|
|
Net income (loss) (unaudited)
|
|
|
842,759
|
|
|
|
(728,376
|
)
|
|
|
114,383
|
|
Distributions (unaudited)
|
|
|
(1,035,714
|
)
|
|
|
(672,928
|
)
|
|
$
|
(1,708,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEMBERS EQUITY (DEFICIT) January 1, 2009
|
|
|
6,665,455
|
|
|
|
(1,635,752
|
)
|
|
|
5,029,703
|
|
Net income (loss)
|
|
|
884,557
|
|
|
|
(1,123,353
|
)
|
|
|
(238,796
|
)
|
Distributions
|
|
|
(1,176,485
|
)
|
|
|
|
|
|
|
(1,176,485
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEMBERS EQUITY (DEFICIT) December 31, 2009
|
|
$
|
6,373,527
|
|
|
$
|
(2,759,105
|
)
|
|
$
|
3,614,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-6
SMC-CIT
HOLDING COMPANY, LLC
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(Unaudited)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net (loss) / income
|
|
$
|
(238,796
|
)
|
|
$
|
114,383
|
|
Adjustments to reconcile net (loss)/income to net cash provided
by operating activities:
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs
|
|
|
164,338
|
|
|
|
164,338
|
|
Depreciation
|
|
|
1,961,445
|
|
|
|
1,738,862
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Deferred rent receivable
|
|
|
(775,502
|
)
|
|
|
(1,216,288
|
)
|
Accounts payable and accrued expenses
|
|
|
|
|
|
|
310,016
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
1,111,485
|
|
|
|
1,111,311
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Investments in real estate
|
|
|
(3,540,095
|
)
|
|
|
(1,440,166
|
)
|
Change in construction reserve
|
|
|
3,010,233
|
|
|
|
2,025,267
|
|
Change in restricted cash
|
|
|
611,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
81,722
|
|
|
|
585,101
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Distributions to members
|
|
|
(1,176,485
|
)
|
|
|
(1,708,642
|
)
|
Checks issued in excess of deposit
|
|
|
(12,230
|
)
|
|
|
12,230
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(1,188,715
|
)
|
|
|
(1,696,412
|
)
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
4,492
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS Beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS End of year
|
|
$
|
4,492
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash activities
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
3,650,191
|
|
|
|
3,660,193
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-7
SMC-CIT
HOLDING COMPANY, LLC
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
(Unaudited)
SMC-CIT Holding Company, LLC (the Company) was
organized on December 12, 2007, as a Delaware limited
company with the purpose to own, hold, maintain, encumber,
lease, sell, transfer or otherwise dispose of senior living
healthcare facilities solely in the state of Utah. Operations of
the Company commenced with the initial funding on
December 12, 2007 (Initial Funding).
The members of the Company are Care Investment Trust Inc.
(Care or Investment Member) and Senior
Management Concepts, Inc. (SMC or Managing
Member), (collectively the Members). Each
Members interest is denominated in Units. There is one
class of Units, referred to as Common Units, a total of ten
thousand (10,000) units were issued. Common Units are based on
capital contributions and are allocated 9,000 and 1,000 to SMC
and Care, respectively. Care made additional cash contributions
in the amount of $6,858,141 at the Initial Funding which is
treated as Preferred Capital. The preferred capital is entitled
to a 15% annual return payable to Care, which is senior to the
return paid to the Unit holders.
The Company will terminate seven years after the final closing
date, as defined, unless extended or shortened as provided for
in the Limited Liability Company Agreement (the
Agreement).
|
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis
of Presentation
On July 1, 2009, the Financial Accounting Standards Board
(FASB) issued the FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles (GAAP), also known as Accounting
Standards Codification (ASC) which establishes the
ASC as the single source of authoritative GAAP recognized by the
FASB to be applied by nongovernmental entities. The Codification
supersedes all existing non-SEC accounting and reporting
standards. The FASB will not issue new standards in the form of
Statements, FASB Staff Positions or Emerging Issues Task Force
Abstracts. The Company adopted the guidance effective with the
issuance of its December 31, 2009 consolidated financial
statements. As the guidance is limited to disclosure in the
financial statements and the manner in which the Company refers
to GAAP authoritative literature, there was no material impact
on the Companys consolidated financial statements.
The accompanying consolidated financial statements have been
prepared using the accrual basis of accounting in accordance
with GAAP. The preparation of consolidated financial statements
in conformity with such principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements
and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
In connection with the acquisition and financing of its
properties, the Company placed the assets and liabilities of the
properties into wholly owned single asset limited liability
companies. The financial statements of these subsidiaries are
consolidated with those of the Company. All transactions and
intercompany accounts between the Company and the subsidiaries
have been eliminated.
Fair
Value Option for Financial Assets and Financial
Liabilities
GAAP permits entities to choose to measure eligible financial
instruments at fair value. The decision to elect the fair value
option (FVO) is determined by an
instrument-by-instrument
basis, and is irrevocable.
The election was effective for the Company on January 1,
2008. The Company did not elect the FVO for any existing
eligible financial instruments.
F-8
SMC-CIT
HOLDING COMPANY, LLC
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investment
in Real Estate Property
Investment in real estate property is carried at historical cost
less accumulated depreciation.
Expenditures necessary to maintain an existing property in
ordinary operating condition are expensed as incurred in
accordance with each of the propertys master lease
agreements. Expenditures associated with replacements,
improvements, or major repairs to real estate property are
capitalized.
The Company evaluates the carrying value of its long-lived
assets in relation to historical results, current business
conditions and trends to identify potential situations in which
the carrying value of assets may not be recoverable. If such
reviews were to indicate that the carrying value of such assets
may not be recoverable, the Company would estimate the
undiscounted sum of the expected cash flows of the assets to
determine whether the sum is less than the carrying value of the
assets, which would indicate the existence of an impairment. If
an impairment existed, the Company would write the asset down to
its fair value. As of December 31, 2009 and 2008
(unaudited), the Companys investment in real estate
property had no impairments.
Depreciation
Depreciation of buildings, building improvements and furniture
and equipment are computed using the straight line method of
depreciation over the estimated useful lives of the related
property. The useful lives of building, improvements and
furnishings are estimated to be from 6 to 40 years.
Cash
and Cash Equivalents
For financial reporting purposes, overnight investments and
short-term investments purchased with an original maturity of
three months or less are considered to be cash equivalents.
Restricted
Cash
Restricted cash includes escrowed funds and other restricted
deposits in conjunction with the Companys loan agreements.
Deferred
Financing Costs
Deferred financing costs represent loan fees, legal and other
third party costs associated with obtaining external financing.
Such costs are amortized using the straight-line method, which
approximates the effective interest rate method, over the terms
of the related mortgage notes payable.
Other
Assets
Other assets includes monies set aside at the date of purchase
of the properties as a construction reserve. The reserve has
been utilized during 2009 for capital improvements.
Revenue
Recognition
The Company recognized rental revenue in accordance with ASC
840,
Leases
(ASC 840). ASC 840 requires that
revenue be recognized on a straight-line basis over the
non-cancelable term of the lease unless another systematic and
rational basis is more representative of the time pattern in
which the use benefit is derived from the leased property.
Renewal options in leases with rental terms that are lower than
those in the primary term are excluded from the calculation of
straight- line rent if the renewals are not reasonably assured.
Rental income is recognized when payment is due pursuant to the
terms of the lease agreements.
F-9
SMC-CIT
HOLDING COMPANY, LLC
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income
Taxes
Effective January 1, 2009, the Company adopted the
authoritative guidance for uncertainty in income taxes included
in ASC Topic 740,
Income Taxes
, as amended by Accounting
Standards Update (ASU)
2009-06,
Implementation Guidance on Accounting for Uncertainty in
Income Taxes and Disclosures Amendments for Nonpublic
Entities
. This guidance requires the Company to determine
whether a tax position of the Company is more likely than not to
be sustained upon examination by the applicable taxing
authority, including the resolution of any related appeals or
litigation processes, based on the technical merits of the
position. The tax benefit to be recognized is measured as the
largest amount of benefit that is greater than fifty percent
likely of being realized upon ultimate settlement, which could
result in the Company recording a tax liability that would
reduce net assets. The Company reviews and evaluates tax
positions in its major jurisdictions and determines whether or
not there are uncertain tax positions that require financial
statement recognition.
No federal income taxes are payable by the Company, however, the
Company may be subject to certain state and local income taxes.
Each Member is responsible for reporting income or loss, to the
extent required by the federal, state, and local income tax laws
and regulations, based upon its respective share of the
Companys income and expenses as reported for income tax
purposes.
Upon adoption and as of December 31, 2009, the Company does
not have any uncertain tax positions or unrecognized tax
benefits for which it believes that it is reasonably possible
that they will significantly increase or decrease. For the year
ended December 31, 2009, the Partnership did not recognize
any interest or penalties related to income taxes in its
financial statements. The Companys tax filings for
calendar years 2007 through 2009 remain subject to examination
by taxing authorities.
Allocations
to Members
Income, losses and cash flows from the Company is allocated to
the Members in accordance with the Membership Agreement.
Concentration
of Credit Risk
Financial instruments which potentially subject the Company to a
concentration of credit risk consist of cash and cash
equivalents, restricted cash, accounts receivable, and mortgage
notes payable.
The Company believes it mitigates credit risk by placing its
cash and cash equivalents and restricted cash with high credit
quality, federally insured institutions.
The Company is also exposed to counterparty risk with respect to
mortgage notes payable in the even the counterparty is unable to
fulfill its obligations. The Company minimized its credit risk
exposure via formal credit policies and monitoring procedures.
Conditional
Asset Retirement Obligations
Conditional asset retirement obligations are legal obligations
to perform an asset retirement activity in which the timing
and/or
method of settlement are conditional on a future event that may
or may not be within the control of the entity. However, the
obligation to perform the asset retirement activity is
unconditional even though uncertainty exists about the timing
and/or
method of settlement. The uncertainty about the timing
and/or
method of settlement of the conditional asset retirement
obligation is factored into the measurement of the liability.
There were no conditional asset retirement obligations recorded
by the Company as of December 31, 2009 and 2008 (unaudited).
F-10
SMC-CIT
HOLDING COMPANY, LLC
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
New
Accounting Pronouncements
In May 2009, the FASB issued SFAS 165,
Subsequent
Events
, which is codified in FASB ASC 855,
Subsequent
Events
(ASC 855). ASC 855 introduces the concept
of financial statements being available to be issued. It
requires the disclosure of the date through with an entity has
evaluated subsequent events and the basis for that date, that
is, whether that date represents the date the financial
statements were issued or were available to be issued. The
pronouncement is effective for interim periods ending after
June 15, 2009. The Company adopted ASC 855 as of
December 31, 2009. The Company evaluates subsequent events
as of the date of issuance of its consolidated financial
statements when reporting on the Companys financial
position and results of operations.
|
|
3.
|
INVESTMENT
IN REAL ESTATE PROPERTIES
|
The Company owned the following real estate properties at
December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008 (unaudited)
|
|
|
|
Acquisition
|
|
|
Number of
|
|
|
Purchase
|
|
|
Historical
|
|
|
Historical
|
|
Property
|
|
Date
|
|
|
Units
|
|
|
Price(2)
|
|
|
Cost(1)
|
|
|
Cost(1)
|
|
|
SMC Wellington, LLC
|
|
|
12/31/2007
|
|
|
|
120
|
|
|
$
|
23,941,778
|
|
|
$
|
24,264,539
|
|
|
$
|
24,264,539
|
|
SMC Meadows, LLC
|
|
|
12/31/2007
|
|
|
|
119
|
|
|
|
11,400,000
|
|
|
|
11,400,000
|
|
|
|
11,400,000
|
|
SMC Cottonwood Creek, LLC
|
|
|
12/31/2007
|
|
|
|
106
|
|
|
|
10,904,946
|
|
|
|
14,058,942
|
|
|
|
11,479,472
|
|
SMC Charleston, LLC
|
|
|
12/31/2007
|
|
|
|
64
|
|
|
|
7,263,276
|
|
|
|
8,766,781
|
|
|
|
7,806,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
409
|
|
|
$
|
53,510,000
|
|
|
$
|
58,490,262
|
|
|
$
|
54,950,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Historical cost equals the original purchase price plus capital
improvements made from the purchase date through
December 31, 2009 and December 31, 2008, respectively.
|
|
(2)
|
|
Upon acquisition of the properties, an amount of $5,035,000 was
placed in a construction reserve to fund capital improvements.
These amounts were funded during 2008 and 2009.
|
Investment in real estate properties at December 31, 2009
and 2008, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
2009
|
|
|
(unaudited)
|
|
|
Land
|
|
$
|
5,640,000
|
|
|
$
|
5,640,000
|
|
Land Improvement
|
|
|
5,636,455
|
|
|
|
5,609,499
|
|
Building and improvements
|
|
|
43,007,599
|
|
|
|
40,105,040
|
|
Furniture and equipment
|
|
|
4,206,208
|
|
|
|
2,520,000
|
|
Construction in Progress
|
|
|
|
|
|
|
1,075,628
|
|
|
|
|
|
|
|
|
|
|
Real estate properties at cost
|
|
|
58,490,262
|
|
|
|
54,950,167
|
|
Less accumulated depreciation
|
|
|
(3,700,307
|
)
|
|
|
(1,738,862
|
)
|
|
|
|
|
|
|
|
|
|
Real estate properties at cost net
|
|
$
|
54,789,955
|
|
|
$
|
53,211,305
|
|
|
|
|
|
|
|
|
|
|
F-11
SMC-CIT
HOLDING COMPANY, LLC
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
MORTGAGE
NOTES PAYABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
(unaudited)
|
|
|
|
Original
|
|
|
Acquisition
|
|
|
Principal
|
|
|
Principal
|
|
Property
|
|
Principal
|
|
|
Date
|
|
|
Outstanding
|
|
|
Outstanding
|
|
|
SMC Charleston, LLC(1)
|
|
$
|
6,374,000
|
|
|
|
12/31/2007
|
|
|
$
|
6,374,000
|
|
|
$
|
6,374,000
|
|
SMC Cottonwood Creek, LLC(2)
|
|
|
12,480,500
|
|
|
|
12/31/2007
|
|
|
|
12,480,500
|
|
|
|
12,480,500
|
|
SMC Meadows, LLC(2)
|
|
|
13,270,000
|
|
|
|
12/31/2007
|
|
|
|
13,270,000
|
|
|
|
13,270,000
|
|
SMC Wellington, LLC(2)
|
|
|
22,052,000
|
|
|
|
12/31/2007
|
|
|
|
22,052,000
|
|
|
|
22,052,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
54,176,500
|
|
|
|
|
|
|
$
|
54,176,500
|
|
|
$
|
54,176,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The note bears a fixed interest rate of 6.91% per annum and
requires monthly installments of interest-only payments until
January 31, 2010 and principal and interest payments from
February 1, 2010 until the maturity date of
December 31, 2017. The mortgage note is subject to a
prepayment premium if retired prior to scheduled maturity. The
loan is secured by the property.
|
|
(2)
|
|
The note bears a fixed interest rate of 6.61% per annum and
requires monthly installments of interest-only payments until
January 31, 2010 and principal and interest payments from
February 1, 2010 until the maturity date of
December 31, 2017. The mortgage note is subject to a
prepayment premium if retired prior to scheduled maturity. The
loan is secured by the property.
|
The Company is subject to certain customary financial covenants
under the agreements. The Company was in compliance with such
covenants for the years ended December 31, 2009 and 2008
(unaudited).
Principal payments for each of the next five years and
thereafter on the Companys mortgage notes payable at
December 31, 2009 are as follows:
|
|
|
|
|
Year
|
|
Amount
|
|
|
2010
|
|
$
|
632,869
|
|
2011
|
|
|
735,746
|
|
2012
|
|
|
786,215
|
|
2013
|
|
|
840,148
|
|
2014
|
|
|
897,781
|
|
Thereafter
|
|
|
50,283,741
|
|
|
|
|
|
|
|
|
$
|
54,176,500
|
|
|
|
|
|
|
|
|
5.
|
FAIR
VALUE OF FINANCIAL INSTRUMENTS
|
The Companys financial instruments at December 31,
2009 and 2008 consist of cash and equivalents, restricted cash,
accounts receivable, and other assets, mortgage notes payable.
At December 31, 2009 and 2008 (unaudited), the carrying
amount of cash and cash equivalents, restricted cash, accounts
receivable, and other assets, approximates fair value.
Based upon the borrowing rates currently available to the
Company, the fair value for the mortgage notes payable secured
by properties, determined by discounting the future payments
required under the terms of the mortgage notes at rates
available to the Company for debt with similar maturities,
terms, and underlying collateral is estimated to be $53,739,534
as of December 31, 2009 and $52,951,324 as of
December 31, 2008 (unaudited).
F-12
SMC-CIT
HOLDING COMPANY, LLC
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
RISKS AND
UNCERTAINTIES
|
The Company and the properties in which it has an interest are
operating in a challenging and uncertain economic environment.
Financial and real estate companies continue to be affected by
the lack of liquidity in financial markets, declines in real
estate values and the reduction in the willingness of financial
institutions to make new loans and refinance or extend existing
loans on the same terms and conditions. Should market conditions
continue to deteriorate there is no assurance that such
conditions will not result in further decreased cash flows or
the ability to repay, refinance or extend the Companys
debt.
|
|
7.
|
MANAGEMENT
SERVICES AND RELATED PARTY TRANSACTIONS
|
For each of the properties owned, the Company has entered into a
master lease agreement and property management agreement (the
Master Lease and Operator agreements,
respectively) with an affiliate of the Managing Member. Each
Master Lease requires the tenant to pay all of the operating
expenses of the property, including reimbursing the Company for
real estate taxes and insurance costs.
In connection with the Master Lease agreement, the tenant paid
expenses on the Companys behalf for operating expenses
totaling $490,817 and $439,146 in 2009 and 2008 (unaudited)
respectively.
Non-cancelable base rentals under the Master Lease arrangements
for the next 5 years and thereafter are as follows:
|
|
|
|
|
2010
|
|
$
|
5,380,594
|
|
2011
|
|
|
5,449,614
|
|
2012
|
|
|
5,478,805
|
|
2013
|
|
|
5,510,853
|
|
2014
|
|
|
5,566,038
|
|
Thereafter
|
|
|
46,694,707
|
|
Events or transactions occurring after the year end through the
date that the consolidated financial statements were ready to be
issued, July 14, 2010, have been disclosed in the notes to
the accompanying consolidated financial statements.
F-13
(b) Exhibits
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
3
|
.1
|
|
Amended and Restated Articles of Incorporation of the Registrant
(previously filed as Exhibit 3.1 to the Companys Form 10-Q
(File No. 001-33549), filed on August 14, 2007 and herein
incorporated by reference.
|
|
3
|
.2
|
|
Amended and Restated Bylaws of the Registrant (previously filed
as Exhibit 3.2 to the Companys Form 10-Q (File No.
001-33549), filed on August 14, 2007 and herein incorporated by
reference).
|
|
4
|
.1
|
|
Form of Certificate for Common Stock (previously filed as
Exhibit 4.1 to the Companys Form S-11, as amended (File
No. 333-141634), and herein incorporated by reference).
|
|
10
|
.1
|
|
Assignment Agreement, dated as of January 31, 2009 (previously
filed as Exhibit 10.1 to the Companys Form 8-K (File No.
001-33549), filed on February 5, 2009 and herein incorporated by
reference).
|
|
10
|
.2
|
|
Amendment No. 4 to Master Repurchase Agreement, dated as of
November 13, 2008 (previously filed as Exhibit 10.5 to the
Companys Form 10-Q (File No. 001-33549), filed on November
14, 2008 and herein incorporated by reference).
|
|
10
|
.3
|
|
Amendment to Management Agreement, dated as of September 30,
2008 (previously filed as Exhibit 10.1 to the Companys
Form 8-K (File No. 001-33549), filed on October 2, 2008 and
herein incorporated by reference).
|
|
10
|
.4
|
|
Warrant to Purchase Common Stock, dated as of September 30, 2008
(previously filed as Exhibit 10.2 to the Companys Form 8-K
(File No. 001-33549), filed on October 2, 2008 and herein
incorporated by reference).
|
|
10
|
.5
|
|
Mortgage Purchase Agreement, dated as of September 30, 2008
(previously filed as Exhibit 10.3 to the Companys Form 8-K
(File No. 001-33549), filed on October 2, 2008 and herein
incorporated by reference).
|
|
10
|
.6
|
|
Earn Out Agreement, dated as of June 26, 2008 (previously filed
as Exhibit 10.1 to the Companys
Form 8-K
(File No. 001-33549), filed on July 2, 2008 and herein
incorporated by reference).
|
|
10
|
.7
|
|
Multifamily Note, dated as of June 26, 2008 (previously filed as
Exhibit 10.2 to the Companys Form 8-K (File No.
001-33549), filed on July 2, 2008 and herein incorporated by
reference).
|
|
10
|
.8
|
|
Exceptions to Non-Recourse Guaranty, dated as of June 26, 2008
(previously filed as Exhibit 10.3 to the Companys Form 8-K
(File No. 001-33549), filed on July 2, 2008 and herein
incorporated by reference).
|
|
10
|
.9
|
|
Master Lease Agreement, dated as of June 26, 2008 (previously
filed as Exhibit 10.4 to the Companys Form 8-K (File No.
001-33549), filed on July 2, 2008 and herein incorporated by
reference).
|
|
10
|
.10
|
|
Amendment No. 3 to Master Repurchase Agreement, dated as of June
26, 2008 (previously filed as Exhibit 10.5 to the
Companys Form 8-K (File No. 001-33549), filed on July 2,
2008 and herein incorporated by reference).
|
|
10
|
.11
|
|
Purchase and Sale Contract, dated as of May 14, 2008 (previously
filed as Exhibit 10.1 to the Companys Form 8-K (File No.
001-33549), filed on May 20, 2008 and herein incorporated by
reference).
|
|
10
|
.12
|
|
Performance Share Award Agreement, dated as of May 12, 2008
(previously filed as Exhibit 10.4 to the Companys Form
10-Q (File No. 001-33549), filed on November 14, 2008 and herein
incorporated by reference).
|
|
10
|
.13
|
|
Restricted Stock Unit Agreement Under the 2007 Care Investment
Trust Inc. Equity Plan, dated as of April 8, 2008
(previously filed as Exhibit 10.1 to the Companys Form 8-K
(File No. 001-33549), filed on April 14, 2008 and herein
incorporated by reference).
|
|
10
|
.14
|
|
Form of Restricted Stock Unit Agreement Under the 2007 Care
Investment Trust Inc. Equity Plan (previously filed as Exhibit
10.2 to the Companys Form 8-K (File No. 001-33549), filed
on April 14, 2008 and herein incorporated by reference).
|
|
10
|
.15
|
|
Contribution and Purchase Agreement, dated as of December 31,
2007 (previously filed as Exhibit 10.1 to the Companys
Form 8-K (File No. 001-33549), filed on January 4, 2008 and
herein incorporated by reference).
|
|
10
|
.16
|
|
Master Repurchase Agreement entered into by Care Investment
Trust Inc. and two of its subsidiaries, Care QRS 2007 RE
Holdings Corp. and Care Mezz QRS 2007 RE Holdings Corp., with
Column Financial, Inc. (previously filed as Exhibit 10.1 to the
Companys Form 10-Q (File No. 001-33549), filed on November
14, 2007 and herein incorporated by reference).
|
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.17
|
|
Registration Rights Agreement (previously filed as Exhibit 10.1
to the Companys Form 10-Q (File No. 001-33549), filed
on August 14, 2007 and herein incorporated by reference).
|
|
10
|
.18
|
|
Management Agreement (previously filed as Exhibit 10.2 to the
Companys Form 10-Q (File
No. 001-33549),
filed on August 14, 2007 and herein incorporated by reference).
|
|
10
|
.19
|
|
Care Investment Trust Inc. Equity Plan (previously filed as
Exhibit 10.4 to the Companys Form 10-Q (File No.
001-33549), filed on August 14, 2007 and herein incorporated by
reference).
|
|
10
|
.20
|
|
Manager Equity Plan (previously filed as Exhibit 10.5 to the
Companys Form 10-Q (File No. 001-33549), filed on August
14, 2007 and herein incorporated by reference).
|
|
10
|
.21
|
|
Form of Restricted Stock Agreement under Care Investment Trust
Inc. Equity Plan (previously filed as Exhibit 10.5 to the
Companys Form S-11, as amended (File No. 333-141634), and
herein incorporated by reference).
|
|
10
|
.22
|
|
Form of Restricted Stock Agreement under Care Investment Trust
Inc. Equity Plan (previously filed as Exhibit 10.6 to the
Companys Form S-11, as amended (File No. 333-141634), and
herein incorporated by reference).
|
|
10
|
.23
|
|
Form of Restricted Stock Agreement under Care Investment Trust
Inc. Manager Equity Plan (previously filed as Exhibit 10.8 to
the Companys Form S-11, as amended (File No. 333-141634),
and herein incorporated by reference).
|
|
10
|
.24
|
|
Form of Indemnification Agreement entered into by the
Registrants directors and officers (previously filed as
Exhibit 10.9 to the Companys Form S-11, as amended (File
No. 333-141634), and herein incorporated by reference).
|
|
10
|
.25
|
|
Assignment Agreement dated as of January 31, 2009, by and
between Care Investment Trust Inc. and CIT Healthcare LLC
(previously filed as Exhibit 10.1 to the Companys Form 8-K
(File No. 001-33549), filed on February 5, 2009 and herein
incorporated by reference).
|
|
10
|
.26
|
|
Loan Purchase Agreement with CapitalSource Bank dated September
15, 2009 (previously filed as Exhibit 10.1 to the Companys
Form 10-Q (File No. 001-33549), filed on November 9, 2009 and
herein incorporated by reference).
|
|
10
|
.27
|
|
Loan Purchase and Sale Agreement dated as of October 6, 2009, by
and between Care Investment Trust Inc. and General Electric
Capital Corporation (previously filed as Exhibit 10.1 to the
Companys Form 8-K (File No. 001-33549), filed on November
18, 2009 and herein incorporated by reference).
|
|
10
|
.28
|
|
Care Investment Trust Inc. Plan of Liquidation (previously filed
as Exhibit A to the Companys Schedule 14A (File No.
001-33549), filed on December 28, 2009 and herein incorporated
by reference).
|
|
10
|
.29
|
|
Amended and Restated Management Agreement by and between Care
Investment Trust Inc. and CIT Healthcare LLC, dated as of
January 15, 2010 (previously filed as Exhibit 10.1 to the
Companys Form 8-K (File No. 001-33549), filed on January
15, 2010 and herein incorporated by reference).
|
|
21
|
.1
|
|
Subsidiaries of the Company.
|
|
23
|
.1
|
|
Consent of Deloitte & Touche, dated as of July 14,
2010.
|
|
23
|
.2
|
|
Consent of Deloitte & Touche, dated as of July 14,
2010.
|
|
31
|
.1
|
|
Certification of CEO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of CFO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of CEO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of CFO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Care Investment Trust Inc.
Paul F. Hughes
Chief Financial Officer and Treasurer and
Chief Compliance Officer and Secretary
July 15, 2010
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been duly signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Salvatore
(Torey) V. Riso, Jr.
Salvatore
(Torey) V. Riso, Jr.
|
|
President and Chief Executive Officer
(Principal Executive Officer)
|
|
July 15, 2010
|
|
|
|
|
|
/s/ Paul
F. Hughes
Paul
F. Hughes
|
|
Chief Financial Officer and Treasurer and Chief Compliance
Officer and Secretary
(Principal Financial and Accounting Officer)
|
|
July 15, 2010
|
|
|
|
|
|
/s/ Flint
D. Besecker
Flint
D. Besecker
|
|
Chairman of the Board of Directors
|
|
July 15, 2010
|
|
|
|
|
|
/s/ Gerald
E. Bisbee, Jr.
Gerald
E. Bisbee, Jr.
|
|
Director
|
|
July 15, 2010
|
|
|
|
|
|
/s/ Karen
P. Robards
Karen
P. Robards
|
|
Director
|
|
July 15, 2010
|
|
|
|
|
|
/s/ J.
Rainer Twiford
J.
Rainer Twiford
|
|
Director
|
|
July 15, 2010
|
|
|
|
|
|
/s/ Steve
N. Warden
Steve
N. Warden
|
|
Director
|
|
July 15, 2010
|
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.13
|
|
Restricted Stock Unit Agreement Under the 2007 Care Investment
Trust Inc. Equity Plan, dated as of April 8, 2008
(previously filed as Exhibit 10.1 to the Companys Form 8-K
(File No. 001-33549), filed on April 14, 2008 and herein
incorporated by reference).
|
|
10
|
.14
|
|
Form of Restricted Stock Unit Agreement Under the 2007 Care
Investment Trust Inc. Equity Plan (previously filed as Exhibit
10.2 to the Companys Form 8-K (File No. 001-33549), filed
on April 14, 2008 and herein incorporated by reference).
|
|
10
|
.15
|
|
Contribution and Purchase Agreement, dated as of December 31,
2007 (previously filed as Exhibit 10.1 to the Companys
Form 8-K (File No. 001-33549), filed on January 4, 2008 and
herein incorporated by reference).
|
|
10
|
.16
|
|
Master Repurchase Agreement entered into by Care Investment
Trust Inc. and two of its subsidiaries, Care QRS 2007 RE
Holdings Corp. and Care Mezz QRS 2007 RE Holdings Corp., with
Column Financial, Inc. (previously filed as Exhibit 10.1 to the
Companys Form 10-Q (File No. 001-33549), filed on
November 14, 2007 and herein incorporated by reference).
|
|
10
|
.17
|
|
Registration Rights Agreement (previously filed as Exhibit 10.1
to the Companys Form 10-Q (File No. 001-33549), filed
on August 14, 2007 and herein incorporated by reference).
|
|
10
|
.18
|
|
Management Agreement (previously filed as Exhibit 10.2 to the
Companys Form 10-Q (File
No. 001-33549),
filed on August 14, 2007 and herein incorporated by reference).
|
|
10
|
.19
|
|
Care Investment Trust Inc. Equity Plan (previously filed as
Exhibit 10.4 to the Companys Form 10-Q (File No.
001-33549), filed on August 14, 2007 and herein incorporated by
reference).
|
|
10
|
.20
|
|
Manager Equity Plan (previously filed as Exhibit 10.5 to the
Companys Form 10-Q (File No. 001-33549), filed on August
14, 2007 and herein incorporated by reference).
|
|
10
|
.21
|
|
Form of Restricted Stock Agreement under Care Investment Trust
Inc. Equity Plan (previously filed as Exhibit 10.5 to the
Companys Form S-11, as amended (File No. 333-141634), and
herein incorporated by reference).
|
|
10
|
.22
|
|
Form of Restricted Stock Agreement under Care Investment Trust
Inc. Equity Plan (previously filed as Exhibit 10.6 to the
Companys Form S-11, as amended (File No. 333-141634), and
herein incorporated by reference).
|
|
10
|
.23
|
|
Form of Restricted Stock Agreement under Care Investment Trust
Inc. Manager Equity Plan (previously filed as Exhibit 10.8 to
the Companys Form S-11, as amended (File No. 333-141634),
and herein incorporated by reference).
|
|
10
|
.24
|
|
Form of Indemnification Agreement entered into by the
Registrants directors and officers (previously filed as
Exhibit 10.9 to the Companys Form S-11, as amended (File
No. 333-141634), and herein incorporated by reference).
|
|
10
|
.25
|
|
Assignment Agreement dated as of January 31, 2009, by and
between Care Investment Trust Inc. and CIT Healthcare LLC
(previously filed as Exhibit 10.1 to the Companys Form 8-K
(File No. 001-33549), filed on February 5, 2009 and herein
incorporated by reference).
|
|
10
|
.26
|
|
Loan Purchase Agreement with CapitalSource Bank dated September
15, 2009 (previously filed as Exhibit 10.1 to the Companys
Form 10-Q (File No. 001-33549), filed on November 9, 2009 and
herein incorporated by reference).
|
|
10
|
.27
|
|
Loan Purchase and Sale Agreement dated as of October 6, 2009, by
and between Care Investment Trust Inc. and General Electric
Capital Corporation (previously filed as Exhibit 10.1 to the
Companys Form 8-K (File No. 001-33549), filed on November
18, 2009 and herein incorporated by reference).
|
|
10
|
.28
|
|
Care Investment Trust Inc. Plan of Liquidation (previously filed
as Exhibit A to the Companys Schedule 14A (File No.
001-33549), filed on December 28, 2009 and herein incorporated
by reference).
|
|
10
|
.29
|
|
Amended and Restated Management Agreement by and between Care
Investment Trust Inc. and CIT Healthcare LLC, dated as of
January 15, 2010 (previously filed as Exhibit 10.1 to the
Companys Form 8-K (File No. 001-33549), filed on January
15, 2010 and herein incorporated by reference).
|
|
21
|
.1
|
|
Subsidiaries of the Company.
|
|
23
|
.1
|
|
Consent of Deloitte & Touche, dated as of March 16, 2009.
|
|
31
|
.1
|
|
Certification of CEO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of CFO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of CEO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of CFO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|