OAK STREET HEALTH, INC. Item 8.01 Other Events. Supplemental Disclosures As previously disclosed, onFebruary 7, 2023 ,Oak Street Health, Inc. , aDelaware corporation ("Oak Street Health " or the "Company"), entered into an Agreement and Plan of Merger (the "Merger Agreement") withCVS Pharmacy, Inc. , aRhode Island corporation ("Parent"),Halo Merger Sub Corp. , aDelaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and for the limited purposes set forth therein, CVS Health Corporation, aDelaware corporation and ultimate parent company of Parent ("CVS Health "), pursuant to which Merger Sub will be merged with and into the Company, with the Company surviving as a wholly owned subsidiary of Parent (the "Merger"). OnMarch 30, 2023 , the Company filed a definitive proxy statement on Schedule DEFM14A (the "Definitive Proxy Statement"), as such may be supplemented from time to time, with theU.S. Securities and Exchange Commission (the "SEC") with respect to the special meeting of the Company's stockholders to vote to adopt the Merger Agreement scheduled to be held onApril 28, 2023 (the "Oak Street Health Special Meeting"). Explanatory Note In connection with the Merger, seven complaints have been filed as individual actions in United States District Courts. Five complaints have been filed in theUnited States District Court for the Southern District of New York and are captionedRyan O'Dell v.Oak Street Health, Inc. , et al., No. 23-cv-02029 (filedMarch 9, 2023 ),Elaine Wang v.Oak Street Health, Inc. , et al., No. 23-cv-02076 (filedMarch 10, 2023 ),Stephen Bushansky v.Oak Street Health, Inc. , et al., No. 23-cv-02709 (filedMarch 31, 2023 ),John Thompson v.Oak Street Health, Inc. , et al., No. 23-cv-02766 (filedApril 3, 2023 ), andJeffrey Rubin v.Oak Street Health, Inc. , et al., No. 23-cv-2838 (filedApril 4, 2023 ). One complaint has been filed in theCircuit Court of Cook County's Chancery Division inIllinois and is captionedMargie Elstein v.Regina Benjamin , MD, et al., No. 2023CH03133 (filedMarch 30, 2023 ) (the "Illinois Action"). One complaint has been filed in theUnited States District Court for the District of Delaware and is captionedMichael Kent v.Oak Street Health, Inc. , et al., No. 23-cv-00371 (filedMarch 31, 2023 ). The foregoing complaints are referred to as the "Merger Actions." The Merger Actions each nameOak Street Health and its directors as defendants, and in addition, the Illinois Action names CVS Health and Parent as defendants. The Merger Actions allege, among other things, that the defendants filed or caused to be filed a materially incomplete and misleading preliminary proxy statement or Definitive Proxy Statement with theSEC relating to the Merger in violation of Sections 14(a) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78n(a), 78t(a), SEC Rule 14a-9, 17 C.F.R. 240.14a-9 and 17 C.F.R. § 244.100 and, in the case of the Illinois Action,Illinois state law. The plaintiffs seek, among other things, injunctive relief preventing the defendants from consummating the Merger unless and until additional disclosures are made, and an award of costs and disbursements, including reasonable attorneys' and experts' fees and expenses.
Additionally,
Oak Street Health believes the claims asserted in the Merger Actions and the demand letters are without merit but cannot predict the outcome of any such claims. Additional lawsuits and demand letters arising out of the Merger may also be filed or received in the future. If additional similar lawsuits and demand letters are filed or received, absent new or significantly different allegations,Oak Street Health will not necessarily disclose such additional lawsuits or demand letters. WhileOak Street Health believes that the disclosures set forth in the Definitive Proxy Statement comply fully with all applicable laws and denies the allegations in the pending Merger Actions described above, in order to moot plaintiffs' disclosure claims, and avoid nuisance and possible expense and business delays,Oak Street Health has determined voluntarily to supplement certain disclosures in the Definitive Proxy Statement related to plaintiffs' claims with the supplemental disclosures set forth below (the "Supplemental Disclosures"). Nothing in the Supplemental Disclosures shall be deemed an admission of the legal merit, necessity or materiality under applicable laws of any of the disclosures set forth herein. To the contrary,Oak Street Health specifically denies all allegations in the Merger Actions and the demand letters described above that any additional disclosure was or is required or material. 2 -------------------------------------------------------------------------------- All page references used herein refer to pages in the Definitive Proxy Statement before any additions or deletions resulting from the Supplemental Disclosures, and capitalized terms used below, unless otherwise defined, have the meanings set forth in the Definitive Proxy Statement. Underlined and bolded text shows text being added to a referenced disclosure in the Definitive Proxy Statement and stricken-through text shows text being deleted from a referenced disclosure in the Definitive Proxy Statement. This Current Report on Form 8-K is incorporated into, and amends and/or supplements, the Definitive Proxy Statement as provided herein. Except as specifically noted herein, the information set forth in the Definitive Proxy Statement remains unchanged.
Supplemental Disclosures to Definitive Proxy Statement
The fourth paragraph on page 37 of the Definitive Proxy Statement is hereby supplemented by amending and restating such paragraph as follows:
OnFebruary 4, 2023 andFebruary 5, 2023 ,Mr. Pykosz and representatives of CVS Health engaged in high-level discussions regarding the retention ofOak Street Health's senior management following consummation of the transaction. During such discussions, no proposals with respect toOak Street Health's senior management's post-closing employment, compensation or incentive or equity arrangements were made by eitherMr. Pykosz or representatives of CVS Health. The table following the fourth paragraph under the sub-heading titled "Selected Public Company Analysis," on page 47 of the Definitive Proxy Statement is hereby supplemented by amending and restating the table on such page as follows: Enterprise Value EV / 2023E Selected Company ($bn) Revenue Agilon Health, Inc.$8.4 2.1x Apollo Medical Holdings, Inc.$2.1 0.9x Cano Health, Inc.$1.7 0.5x CareMax, Inc.$0.6 0.8x Privia Health Group, Inc.$3.0 1.1x Mean 1.1x Median 0.9x The table following the second paragraph under the sub-heading titled "Selected Transaction Analysis," on page 48 of the Definitive Proxy Statement is hereby supplemented by amending and restating the table on such pages as follows: Date Announced Acquiror Target Enterprise Value ($bn) EV/LTM Revenue Multiple November 2022 Walgreens Boots Alliance, Inc. Summit Health-CityMD$8.9 3.1x July 2022 Amazon.com, Inc. 1Life Healthcare, Inc.$3.7 4.1x February 2022 Kinderhook Industries, LLC Better Health Group (f.k.a.) Physicians Partners$2.6 3.1x October 2021 Walgreens Boots Alliance, Inc. Village Practice Management Company, LLC$12.9 9.9x July 2021 Cano Health, Inc. Doctors Medical Center$0.3 1.5x June 2021 Cano Health, Inc. University Health Care$0.6 1.7x June 2021 1Life Healthcare, Inc. Iora Health, Inc.$2.1 9.5x December 2017 Optum, Inc. DaVita Medical Group$4.3 0.8x May 2012 DaVita, Inc. Health Care Partners Medical Group, P.C.$4.4 1.3x Mean 3.9x Median 3.1x
The second and third paragraphs under the sub-heading titled "Discounted Cash Flow Analysis," on pages 49-50 of the Definitive Proxy Statement are hereby supplemented by amending and restating such paragraphs as follows:
In performing this analysis, Centerview calculated implied enterprise values forOak Street Health by discounting to present value as ofDecember 31, 2022 using discount rates ranging from 11.25% to 13.50% (reflecting Centerview's analysis of theOak Street Health's weighted average cost of capital based on considerations that Centerview deemed relevant in its professional judgment and experience), the forecasted unlevered free cash flows of the Company based on Forecasts during the period beginning the first quarter of 2023, and ending inDecember 2028 and extrapolation beginning the first quarter of 2029, and ending inDecember 2037 , and forecasted use of federal and state net operating loss ("NOL") 3
-------------------------------------------------------------------------------- carryforwards through 2032. The implied terminal value ofOak Street Health at the end of the forecast period was estimated by using perpetuity growth rates ranging from 2.5% to 3.5% (which were determined based on considerations that Centerview deemed relevant in its professional judgment and experience). For purposes of this analysis, stock-based compensation was treated as a cash expense. Centerview then subtracted from the range of implied enterprise valuesOak Street Health's estimated net debt of$569 million (calculated as debt less cash and investments) as ofDecember 31, 2022 as set forth in the Internal Data, to derive a range of implied equity values forOak Street Health . Centerview then divided this range of implied equity values by the number of fully-diluted outstanding shares ofOak Street Health common stock (which included approximately 243,022,452 shares of issued and outstanding Company Common Stock and the impact, determined using the treasury stock method, of approximately 19,753,087 total outstanding Company Options (including performance-based Company Options) and approximately 3,709,972 total outstanding Company RSUs (including performance-based Company RSUs)determined using the treasury stock method and taking into account outstanding in-the-money options and restricted stock units (including performance-based restricted stock units)) as set forth in the Internal Data (calculated as ofFebruary 3, 2023 ), to derive a range of implied values ofOak Street Health common stock of$29.50 to$48.30 (rounded to the nearest$0.10 ) per share, inclusive of the NOLs. Centerview then compared this range to the$39.00 per share in cash, without interest, proposed to be paid to the holders of the shares ofOak Street Health common stock (other than the Excluded Shares) pursuant to the Merger Agreement.
The sub-section titled "General" on pages 51-52 of the Definitive Proxy Statement is hereby supplemented by adding the following paragraph as the last paragraph of such sub-section:
In addition,David Dorman , who was the Chairman of the Board of Directors of CVS Health fromMay 2011 untilMay 2022 , is a partner in the ultimate general partner and the manager ofCenterview Capital Technology Fund (Delaware), L.P. , andCenterview Capital Technology Fund-A (Delaware), L.P. , together with a related employee fund (collectively, "Centerview Capital Technology"), which are growth equity investment funds focused on the technology sector. Certain partners ofCenterview Partners LLC are partners inCenterview Capital Technology, and, along withMr. Dorman , serve onCenterview Capital Technology's investment committee.Centerview Partners LLC provides certain back-office support to Centerview Capital Technology.Mr. Dorman has no ownership interest in, and is not an employee of,Centerview Partners LLC .
The section of the Definitive Proxy Statement titled "Certain Financial Projections" on pages 52 to 54 of the Definitive Proxy Statement is hereby supplemented by amending and restating such section as follows:
In our press releases announcing quarterly and annual results,Oak Street Health has historically prepared and provided certain public guidance as to its projected financial and operational results for its then-current fiscal quarter and fiscal year.Oak Street Health does not otherwise, as a matter of course, make long-term projections as to future performance available to the public (other than in certain limited circumstances), given, among other things, the inherent difficulty of predicting financial performance for future periods and the likelihood that the underlying assumptions and estimates may not be realized. However, in connection with the evaluation of potential strategic alternatives, as described further in the section of this proxy statement titled "The Merger - Background of the Merger",Oak Street Health's management team prepared certain unaudited prospective financial information forOak Street Health for the remainder of fiscal year 2022 and fiscal years 2023 through 2028 (the "Projections"). The Company's senior management also prepared extrapolations of the Projections for fiscal years 2029 through 2037 (the "Extrapolations") and certain analyses related to the expected utilization of federal and state NOL carryforwards through 2032 (the "NOL Forecasts", and together with the Projections and the Extrapolations, the "Financial Information"), which were provided to Centerview for purposes of its financial analyses summarized in the section above titled "- Opinion of Centerview". 4 -------------------------------------------------------------------------------- The Projections Financial Information were was not prepared with a view toward public disclosure, and accordingly, does not necessarily comply with published guidelines of theSEC or the guidelines established by theAmerican Institute of Certified Public Accountants for preparation and presentation of prospective financial information or generally accepted accounting principles ("GAAP"). The Company's independent registered public accounting firm has not compiled, examined, audited or performed any procedures with respect to the Projections Financial Information, and has not expressed any opinion or any other form of assurance regarding this information or its achievability. The Projections Financial Information summarized below are is included solely to provideOak Street Health stockholders access to financial projections that were made available to the Oak Street Health Board, the Transaction Committee, Centerview and, solely with respect to the Projections, CVS Health in connection with the proposed Merger, and are not included in this proxy statement to influence anOak Street Health stockholder's decision as to whether to vote to adopt the Merger Agreement or for any other purpose. None of the Company, the Oak Street Health Board, Centerview, CVS Health or any of their respective affiliates, advisors or other representatives makes any representation to any stockholder regarding the validity, reasonableness, accuracy or completeness of the Projections Financial Information or the ultimate performance of the Company relative to the Projections Financial Information. The inclusion of the summary of the Projections Financial Information in this proxy statement does not constitute an admission or representation of the Company, the Oak Street Health Board, Centerview, CVS Health or any of their respective affiliates, advisors or other representatives that the Projections Financial Information or the information contained therein are material. The inclusion of the summary of the Projections Financial Information in this proxy statement should not be regarded as an indication thatOak Street Health or anyone who receives the Projections Financial Information then considered, or now considers, the Projections Financial Information to be necessarily predictive of actual future events, and this information should not be relied upon as such. In the view ofOak Street Health's management, the Projections Financial Information were was prepared on a reasonable basis, reflected the best estimates and judgments available toOak Street Health's management at the time and presented, to the best ofOak Street Health's management's knowledge and belief, the expected course of action andOak Street Health's expected future financial performance as of the date such information was prepared. The Projections Financial Information summarized below, while presented with numerical specificity, were based on numerous variables and assumptions that necessarily involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions, all of which are difficult or impossible to predict and many of which are beyondOak Street Health's control. In addition, the Projections Financial Information reflects assumptions that are subject to change and are susceptible to multiple interpretations based on actual results, revised prospects forOak Street Health's business, changes in general business or economic conditions, or any other transaction or event that has occurred or that may occur and that was not anticipated when the Projections Financial Information were was prepared. Accordingly, actual results will differ, and may differ materially, from those contained in the Projections Financial Information, and therefore, the Projections Financial Information cannot be considered a guarantee of future operating results and should not be relied upon as such. The Projections Financial Information reflects the assumption that the Company will open 35 new primary care centers per year for fiscal years 2023 and 2024, and 40 new primary care centers per year for fiscal years 2022 and 2025 through 20282037. The Projections Financial Information also reflects other assumptions that are subject to change, including, but not limited to, assumptions regarding: primary care center membership mix; market share; market size and conditions; revenue; medical costs; operating expenses; capital expenditures; and net working capital. The Projections Financial Information covers multiple years, and thus, by their its nature, they becomes subject to greater uncertainty with each successive year. The Projections Financial Information assumes organic company growth without business expansions from mergers and acquisitions or alternative business models. In addition, the Projections Financial Information does not take into account any circumstances, transactions or events occurring after the date on which the Projections Financial Information were was prepared and do not give effect to any changes or expenses incurred after the date on which they were made, including as a result of the Merger or any effects of the Merger (including any failure of the Merger to be completed). 5 -------------------------------------------------------------------------------- Except as required by applicable securities laws,Oak Street Health does not intend to update or otherwise revise the Projections Financial Information to reflect circumstances existing after the date on which the Projections Financial Information were was prepared or to reflect the occurrence of future events, even in the event that any or all of the underlying assumptions are shown to be in error. There can be no assurance that the financial results in the Projections Financial Information will be realized, or that future actual financial results will not materially vary from those estimated in the Projections Financial Information. In light of the foregoing, and the uncertainties inherent in the Projections Financial Information, stockholders are cautioned not to place undue, if any, reliance on the Projections Financial Information. The Projections Financial Information should be evaluated, if at all, in conjunction with the historical financial statements and other information regardingOak Street Health in its public filings with theSEC . Important factors that may affect actual results and the achievability of the Projections Financial Information include, but are not limited to: regulatory actions at the federal, state and local level, decisions of health network providers, enterprise clients and existing and potential patients, changes in the health insurance industry, general economic conditions, including COVID-19, and disruptions in the financial, debt, capital, credit or securities markets; industry and market dynamics; competition; and those risks and uncertainties described inOak Street Health's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2022 and subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. See also the section entitled "Cautionary Note Regarding Forward-Looking Statements" in this proxy statement. Certain of the measures included in the Projections Financial Information are financial measures that are not calculated in accordance with GAAP. Such non-GAAP financial measures should not be viewed as a substitute for GAAP financial measures, and may be different from non-GAAP financial measures used by other companies. Furthermore, there are limitations inherent in non-GAAP financial measures, because they exclude charges and credits that are required to be included in a GAAP presentation. Accordingly, non-GAAP financial measures should be considered together with, and not as an alternative to, financial measures prepared in accordance with GAAP. Financial measures provided to a financial advisor are excluded from theSEC's rules concerning non-GAAP financial measures and, therefore, are not subject toSEC rules regarding disclosures of non-GAAP financial measures in disclosures relating to a proposed business combination such as the Merger if the disclosure is included in a document such as this proxy statement, which would otherwise require a reconciliation of a non-GAAP financial measure to a GAAP financial measure. Reconciliations of non-GAAP financial measures were not prepared or relied upon by the Oak Street Health Board in connection with its consideration of the Merger Agreement or by Centerview for purposes of its financial analyses. Accordingly, the Company has not provided a reconciliation of any financial measures included in the Projections Financial Information.
The following table is a summary of the Projections:
2022E 2023E 2024E 2025E 2026E 2027E 2028E
($ in millions)
Revenue $ 2,165 $ 3,289 $ 4,768 $ 6,377 $ 8,207 $ 10,164 $ 12,256
Platform Contribution(1) $ 82 $ 194 $ 379 $ 610 $ 890 $ 1,212 $ 1,541
Adj. EBITDA(2) ($ 285 ) ($ 233 ) ($ 123 ) $ 35 $ 249 $ 486 $ 729
Unlevered Free Cash Flow(3) ($ 378 ) ($ 247 ) ($ 173 ) ($ 35 ) $ 182 $ 409 $ 640 (1) Platform Contribution is a non-GAAP financial measure which represents total
revenues less the sum of medical claims expense and cost of care, excluding
depreciation and amortization and equity-based compensation.
(2) Adjusted EBITDA is a non-GAAP financial measure which represents net loss
excluding interest expense; net, other income/ expense; income taxes; fair
value adjustments related to assets and liabilities recorded in purchase
accounting, such as earn-out liabilities and equity-method investments'
activity, including any impairment of such investments; depreciation and
amortization; transaction/ offering related costs; one-time in nature
litigation costs and stock and equity-based compensation.
(3) Unlevered Free Cash Flow is a non-GAAP financial measure which represents
Adjusted EBITDA less capital expenditures, less changes in net working
capital, less certain transaction costs, less the contingent payments due in
connection with the acquisition of RubiconMD Holdings, Inc. in 2022.
6
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The following table is a summary of the Extrapolations:
2029E 2030E 2031E 2032E 2033E 2034E 2035E 2036E 2037E
($ in millions)
Revenue $ 14,500 $ 16,914 $ 19,394 $ 1,925 $ 2,340 $ 2,758
$ 1,006 $ 1,317 $ 1,642
The following table is a summary of the NOL Forecasts:
2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 2031E 2032E
($ in millions)
Starting Available NOLs(1) $ 1,604 $ 1,980 $ 2,210 $ 2,303 $ 2,261 $ 2,046 $ 1,641 $ 1,020 $ 157 -
NOLs Used(2) - - - ($ 42 ) ($ 215 ) ($ 404 ) ($ 621 ) ($ 864 ) ($ 157 ) -
Ending NOLs $ 1,980 $ 2,210 $ 2,303 $ 2,261 $ 2,046 $ 1,641 $ 1,020 $ 157 - -
NOLs Used(2) - - - ($ 42 ) ($ 215 ) ($ 404 ) ($ 621 ) ($ 864 ) ($ 157 ) -
Tax Rate(3) 25 % 25 % 25 % 25 % 25 % 25 % 25 % 25 % 25 % 25 %
Future Value of Tax Shield
from NOLs - - - $ 11 $ 54 $ 101 $ 155 $ 216 $ 39 -
(1) Estimated 2023 federal and post-apportionment state beginning NOL balances
based on 2022 estimate provided by
(2) NOLs used to off-set pre-tax income.
(3) Reflects combined state and federal tax.
The paragraph under the sub-heading "Other Interests" on page 65 of the Definitive Proxy Statement is hereby supplemented by amending and restating such paragraph as follows:
As of the date of this proxy statement, although it is expected thatMr. Pykosz will continue as the Chief Executive Officer ofOak Street Health following the Merger, none of our directors or executive officers, includingMr. Pykosz , has entered into any agreement, arrangement or understanding with CVS Health or any of its affiliates regarding employment or service with, or compensation following the Merger to be paid by, CVS Health or any of its affiliates, and no employment agreements, offer letters or term sheets have been proposed by our directors or executive officers, or by CVS Health or its affiliates, with respect to the foregoing. However, prior to the closing of the Merger, our directors or executive officers may discuss or enter into agreements, arrangements or understandings with CVS Health or any of its affiliates . . .
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