COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2024

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Vendor Agreements

The Company, through its subsidiaries Comfort Pharmacy, LLC, Comfort Pharmacy 2, LLC, and Belen Pharmacy Group, LLC, entered into a multi-year Prime Vendor Agreement ("PVA") with a pharmaceutical wholesaler, effective November 1, 2020, that continued through October 31, 2023. The pharmaceutical wholesaler serves as the Company’s primary wholesale supplier for branded and generic pharmaceuticals. The agreement contains a provision that requires average monthly net purchases of $0.8 million, and if the minimum is not met, the vendor may adjust the pricing of goods. A Joinder Agreement was entered into on December 1, 2020, which amended the PVA to include IFB Pharmacy, LLC, a fully consolidated subsidiary, under the agreement as of this date.

On November 1, 2023, the Company through its subsidiaries University Health Care Pharmacy LLC, Comfort Pharmacy 2, LLC, IFB Pharmacy LLC, and Cano Pharmacy LLC, entered into a new multi-year agreement with the same pharmaceutical wholesaler effective November 1, 2023 that continues through November 25, 2025. This agreement extends on a month-to-month basis thereafter until either party gives 90 days' written notice to terminate. The pharmaceutical wholesaler will continue to serve as the Company’s primary wholesale supplier for branded and generic pharmaceuticals. The agreement contains a provision that requires average monthly net purchases of $2.0 million, and if the minimum is not met, the vendor may adjust the pricing of goods.

As a result of our acquisition of University Health Care and its affiliates (“University”) in June 2021, the Company assumed the vendor agreement in 2021 that University, through its subsidiary University Health Care Pharmacy, Inc., had with a second pharmaceutical vendor. The agreement, effective through December 2023, contains a provision that requires average monthly net purchases of $0.6 million, and if the minimum is not met, the vendor may adjust the pricing of goods. This agreement was terminated on October 31, 2023.

Management believes it has satisfied the minimum requirements of these agreements for the three months ended March 31, 2024 and 2023.

Legal Matters

Please see “The Chapter 11 Cases, the Restructuring Support Agreement and the DIP Credit Agreement,” as described in Note 1, “Nature of Business and Operations.”

On March 18, 2022, a purported stockholder of the Company filed a putative class action lawsuit in the U.S. District Court for the Southern District of Florida against the Company and certain of its former officers, captioned Alberto Gonzalez v. Cano Health, Inc. f/k/a Jaws Acquisition Corp., et al. (No. 1:22-cv-20827). An amended complaint was filed on February 21, 2023. On October 25, 2023, Plaintiff filed a motion for leave to amend the complaint, which the Court granted on January 3, 2024. Plaintiff filed his second amended complaint on January 5, 2024. The second amended complaint alleges violations of Section 10(b) and 20(a) of the Exchange Act and Rule 10b-5 against all defendants in connection with allegedly false and misleading statements made by the Company regarding compliance with GAAP, the timing of its revenue recognition from Medicare Advantage contracts in 2021, and its processes for recognizing Medicare risk-adjusted revenue. The lawsuit seeks, among other things, certification of a class action and unspecified compensatory damages for purchasers of the Company’s Class A Common Stock between May 7, 2021 and August 10, 2023, as well as attorneys’ fees and costs. Plaintiff voluntarily dismissed the Company from this lawsuit, without prejudice, on February 16, 2024, following the Company’s filing of the Chapter 11 Cases.

On January 18, 2024, the Company filed a complaint seeking injunctive relief and damages against defendants Dr. Marlow Hernandez (the Company’s former chief executive officer), Mr. Jason Conger (the Company’s former chief growth officer), and Dr. Richard Aguilar (the Company’s chief medical officer) and the defendants’ new company, Soran Health, LLC. The case was filed in the Complex Business Division of the Circuit Court for the Eleventh Circuit in Miami-Dade County and is captioned as Cano Health, Inc. v. Marlow B. Hernandez, et al., Case No. 2024-001079-CA-01. In the lawsuit, the Company asserts that Hernandez, Conger, and Aguilar breached their noncompetition, confidentiality, and nonsolicitation obligations in

their contracts with the Company, and that Soran Health tortiously interfered with those contracts and with the Company’s business relationships with patients and other business partners. The Company filed a motion for expedited discovery and expedited proceedings on January 22, 2024. On January 31, 2024, the Company filed an emergency motion for a temporary injunction asking the Court to enjoin defendants Hernandez, Conger, and Aguilar from (i) disclosing or using any confidential or proprietary information acquired during their employment with the Company, (ii) soliciting, interfering, inducing, or attempting to cause any employee of the Company to leave their employment; (iii) soliciting, interfering, inducing or attempting to cause any client, customer, and/or patient of Cano Health to terminate or reduce its business relationship with the Company; and (iv) operating Soran Health as a business in competition with the Company. The motion also requested that the Court require defendants to (i) return all Company confidential information and property, and (ii) submit their computers, devices, and email accounts for a forensic inspection. On February 13, 2024, the defendants filed their opposition to the emergency motion, and also filed their answer and asserted 3 counterclaims alleging that the Company breached its separation agreements with the former executives by failing to pay their full severance. The Court held a 2-day evidentiary hearing on the Company’s emergency motion for temporary injunction on February 28 and 29, 2024. On February 29, 2024, the Court granted the Company’s motion and the Company expects that a detailed written injunction order is forthcoming. After such motion was granted, following a 2-day evidentiary hearing, the defendants removed the case to the Florida federal bankruptcy court and are seeking to have the case transferred to the Bankruptcy Court in which the Chapter 11 Cases are pending. Plaintiffs are seeking to have the case remanded back to the Florida state court, i.e., the Complex Business Division of the Circuit Court for the Eleventh Circuit in Miami-Dade County. The Company intends to continue pursuing its claims for permanent injunctive relief and damages against the defendants.

The Company is exposed to various other asserted and unasserted potential claims encountered in the normal course of business, such as the action described under CD Support, LLC v. Cano Health, LLC in Note 15, “Related Party Transactions.” Management believes that the resolution of these matters will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

In December 2023, the Company received a subpoena from the SEC Division of Enforcement requesting information regarding certain of the matters related to its former CEO that were the subject of the litigation commenced in April 2023 by its former directors, Messrs. Cooperstone, Gold and Sternlicht, in the Delaware Chancery Court. The Company prevailed after a hearing at the Delaware Court or Chancery in opposing an effort by the 3 dissident directors to prevent the Company from holding its 2023 annual stockholders' meeting in June 2023 and to enjoin enforcement of the Company’s advance notice by-law provisions. The Company is cooperating with the SEC in its inquiry and cannot predict its outcome or duration.

In late 2023, the Company received a Civil Investigative Demand ("CID") from the U.S. Department of Justice ("DOJ") regarding a possible violation of the federal anti-kickback statute by possibly paying third-parties based on the volume or value of referrals. The Company is cooperating with the DOJ in its inquiry and cannot predict its outcome or duration and if it will ultimately result in an asserted claim.

In addition, the Company is involved in various routine legal proceedings incidental to the ordinary course of its business. The Company believes that the outcome of all pending legal proceedings in the aggregate is not reasonably likely to have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows. However, in light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could be material to the Company’s operating results for a particular period depending on, among other things, the size of the loss or the nature of the liability imposed and the level of the Company’s income for that particular period.

As previously mentioned, on February 4, 2024, the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. As a result of such bankruptcy filings, substantially all proceedings pending against the Debtors have been stayed.