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ONTRAK, INC.
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2200 Paseo Verde Parkway, Suite 280
Henderson, NV 89052
(310) 444-4300 |
NOTICE OF INTENT TO CONVENE IN VIRTUAL MEETING FORMAT THE ANNUAL MEETING OF THE STOCKHOLDERS TO BE HELD ON AUGUST 29, 2022
Dear Stockholders of Ontrak, Inc.:
You are invited to participate in the 2022 Annual Meeting (the “Annual Meeting”)attend a special meeting of stockholders of Ontrak, Inc., a Delaware corporation (“Ontrak” or the “Company”), to be held on Monday, August 29, 2022February 20, 2023 at 12:00 p.m. Pacific Time. Due to our continuing concerns about protecting the healthThe special meeting will be convened and well-being of our stockholders and employees in the evolving public health environment relating to the coronavirus pandemic, the Board of Directors has determined to convene and conduct the Annual Meeting on Monday, August 29, 2022 at 12:00 p.m. Pacific Time, conducted in a virtual meeting format at https://web.lumiagm.com/250638678.format. Stockholders will NOTnot be able to attend the Annual Meetingspecial meeting in-person. The accompanying Proxy Statementproxy statement includes instruction on how to accessattend the virtual Annual Meetingspecial meeting and how to listen, vote and submit questions from home or any remote location with Internet connectivity. questions.
At the Annual Meeting, wespecial meeting, our stockholders will consider and vote upon the following items:
1.To elect four (4) Directors to hold office until the next annual meeting and until their respective successors are elected and qualified (the “Board Election Proposal”);
2.To ratify the appointment of EisnerAmper LLP as Ontrak’s independent registered public accounting firm for the 2022 fiscal year (the “Auditor Ratification Proposal”);
3.To approve ana proposal to give our board of directors the authority, at its discretion, to file a certificate of amendment to our amended and restated certificate of incorporation to effect a reverse split of our outstanding common stock at a ratio that is not less than 4:1 and not greater than 6:1, without reducing the terms of the Company’s 2017 Stock Incentive Plan (as amended to date, the “2017 Plan”) to (i) provide for an additional 4,000,000 shares to be issued in connection with awards granted thereunder, and (ii) to amendthe “evergreen” or automatic replenishment provision of the 2017 Plan pursuant to which theauthorized number of shares authorized for issuance underof our common stock, with the 2017 Plan is automatically increased on an annual basisfinal ratio to 3%be selected by our board of directors in its discretion following stockholder approval, and to be effected, if at all, in the sole discretion of our board of directors at any time within one year of the issued and outstanding sharesdate of the Company (the “2017 Plan Amendment Proposal”);special meeting without further approval or authorization of our stockholders;
4.2. To approve the issuance of shares of our common stock, convertible notes and the shares of our common stock issuable upon conversion thereof, and warrants to purchase shares of our common stock and the Company to Acuitas Capital LLCshares of our common stock issuable upon exercise thereof, in each case, pursuant to athe Master Note Purchase Agreement dated April 15, 2022, for the purposes of complying with NASDAQ Listing Rule 5635 (the “Shares Issuance Proposal”);
5.To approve the issuance of warrants and shares underlying such warrants to Acuitas Capital LLC pursuant to a Master Note Purchase Agreement Dated April 15, 2022,as amended, for purposes of complying with NASDAQNasdaq Listing Rule 5635, to the extent required (the “Warrant Issuance Proposal”);5635; and
6.To approve the non-employee director retention plan (the “Director Retention Plan Proposal”);
7.To approve an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), to remove certain restrictions on transfers of the Company’s securities as set out in Article EIGHTH of the Certificate of Incorporation (the “Charter Amendment Proposal”);
8.3. To approve the adjournment of the special meeting, if necessary or advisable, to solicit additional proxies in favor of Proposal 7the proposals described above if there are not sufficient votes to approve Proposal 7 (the “Adjournment Proposal”); andeither of such proposals.
9.To transact any other business that may properly come before the Annual Meeting or any adjournments or postponements of the Annual Meeting.
These items of business are more fully described in the Proxy Statement accompanying this Notice.
YOUROUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE NOMINEES AND IN FAVOR OF ALL THE OTHER PROPOSALS OUTLINED IN THE ACCOMPANYING PROXY STATEMENT.PROPOSALS.
TheOur board of directors of Ontrak has fixed the close of business on July 15, 2022[•], 2023 as the record date for the Annual Meeting.special meeting. Only stockholders of record on the record date are entitled to notice of and to vote at the Annual Meeting. Further information regarding voting rights and the matters to be voted upon is presented in the accompanying Proxy Statement.
special meeting.
You are cordially invited to participate in the Annual Meeting.special meeting. Whether or not you expect to participate inattend the Annual Meeting,special meeting, please complete, date, sign and return the enclosed proxy or submit your proxy through the internet or by telephone as promptly as possible in order to ensure your representation at the Annual Meeting. If you have requested physical materials to be mailed to you, a return envelope (which is postage prepaid if mailed in the United States) is enclosed for your convenience to use if you choose to submit your proxy by mail. Even if you have voted by proxy, you may still vote online if you attend the virtual Annual Meeting. Please note, however, that if your shares are held of record by a broker, bank or other agent and you wish to vote at the Annual Meeting, you must obtain a proxy issued in your name from that record holder. Only stockholders of record at the close of business on the record date may vote at the Annual Meeting or any adjournment or postponement thereof. This notice is being mailed to all stockholders of record entitled to vote at the Annual Meeting on or about July 28, 2022.
By order of the Board of Directors,
special meeting.
| | | | | |
/s/Terren S. PeizerHenderson, Nevada
| By order of the Board of Directors, |
| [•], 2023 | |
Terren S. Peizer
Chairman of the Board and Chief Executive ChairmanOfficer
Henderson, Nevada
July 15, 2022Important Notice Regarding the Availability of Proxy Materials for the special meeting
The notice of special meeting and the proxy statement and form of proxy card are available at https://ontrakhealth.com/investors/ financial-information/.
PROXY STATEMENT
FOR THE 2022 ANNUAL
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 20, 2023
Important Notice Regarding the Availability of Proxy Materials for the 2022 Annual Meeting
This proxy statement and our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”) are available for viewing, printing and downloading at https://ontrakhealth.com/investors/financial-information/ and on our website at www.ontrakhealth.com. Certain documents referenced in the proxy statement are available on our website. However, we are not including the information contained on our website, or any information that may be accessed by links on our website, as part of, or incorporating it by reference into, this Proxy Statement.
The Notice of Annual Meeting, Proxy Statement and proxy card and the 2021 Annual Report are first being mailed to our stockholders on or about July 28, 2022.QUESTIONS AND ANSWERS ABOUT THIS PROXY STATEMENT, THE VIRTUAL ANNUAL
SPECIAL MEETING AND VOTING
Why did I receive these proxy materials?
We are providing these proxy materials in connection with the solicitation by the Boardboard of Directorsdirectors of Ontrak, Inc., a Delaware corporation (sometimes referred to as “we,” “our,” “us,” the “Company,” the “Corporation” or “Ontrak”) in this proxy statement), of proxies to be voted at our 2022 Annual Meetinga special meeting of Stockholders (the “Annual Meeting”)stockholders scheduled to be held at 12:00 p.m. Pacific Time on February 20, 2023 and at any adjournment or postponement thereof.
The notice of the special meeting, this proxy statement and proxy card are first being sent or made available to stockholders on or about [•].
Who can vote at the special meeting?
Only our stockholders of record at the close of business on [•], 2023, the record date for the special meeting, or their legal proxy holders, are entitled to vote at the meeting. There were [•] shares of common stock outstanding and entitled to vote on the record date. Each share of common stock is entitled to one vote on each matter properly brought before the special meeting.
How may I participate in the special meeting?
The special meeting will be a completely virtual Annual Meeting?meeting conducted via live audio webcast. We believe this technology provides expanded access, improved communication and cost savings for our stockholders. Hosting a virtual meeting enables increased stockholder attendance and participation from any location around the world.
To participate in the virtual Annual Meeting,special meeting, go to https://web.lumiagm.com/250638678[•]. Online check-in for the special meeting will begin at 12:00 p.m. PDTPacific Time on August 29, 2022.February 20, 2023. We suggest logging-on at that time to allow ample time for the check-in procedures. Please be aware that you must bear any costs associated with your Internet access, such as usage charges from Internet access providers and telephone or similar companies.
Stockholders of record: Shares registered directly in your name
If you are a stockholder of record as of July 15, 2022, the record date (the “Record date”) for the Annual Meeting,special meeting, you should click on “I have a login,” enter the control number found on your proxy card you previously received, and enter the password “ontrak2022” (the“[•]” (the password is case sensitive).
Beneficial owners: Shares registered in the name of a broker, bank or other nominee
If, on the record date, your shares were not held in your name, but rather in an account at a broker, bank, or other nominee, then you are the beneficial owner of those shares and those shares are considered to be held in “street name.” The organization holding those shares is considered to be the stockholder of record for purposes of the special meeting. If your shares are held in “street name” through a broker, bank or other nominee,street name, in order to participate in the virtual annualspecial meeting you must first obtain a legal proxy from your broker, bank or other nominee reflectingnominee. Please see the number of shares of Ontrak’s common stock you beneficially held as ofdiscussion under the Record Date, your name and email address. You then must submit a request for registration to American Stock Transfer & Trust Company, LLC: (1) by email to proxy@astfinancial.com; (2) by facsimile to 718-765-8730 or (3) by mail to American Stock Transfer & Trust Company, LLC, Attn: Proxy Tabulation Department, 6201 15th Avenue, Brooklyn, NY 11219. Requests for registration must be labeled as “Legal Proxy” and be received by American Stock Transfer & Trust Company, LLC no later than 5:00 p.m. Eastern Time on August 22, 2022.
If I already submitted a proxy,heading, “How do I have to vote again?
No. If you already submittedvote?”, below, for information on obtaining a proxy, your vote will be counted and you do not need to submit a new proxy or vote online at the virtual Annual Meeting.legal proxy.
If I haveWhat proposals will be submitted to the stockholders for a vote?
There are three matters scheduled for a vote:
1. To approve a proposal to give our board of directors the authority, at its discretion, to file a certificate of amendment to our amended and restated certificate of incorporation to effect a reverse split of our outstanding common stock at a ratio that is not yet submitted a proxy, may I still do so?less than 4:1 and not greater than 6:1, without reducing the authorized number of shares of our common stock, with the final ratio to be selected by our board of directors in its discretion following stockholder approval, and to be effected, if at all, in the sole discretion of our board of directors at any time within one year of the date of the special meeting without further approval or authorization of our stockholders. We refer to this proposal as the "Reverse Stock Split Proposal."
2. To approve the issuance of shares of our common stock, convertible notes and the shares of our common stock issuable upon conversion thereof, and warrants to purchase shares of our common stock and the shares of our common stock issuable upon exercise thereof, in each case, pursuant to the Master Note Purchase Agreement dated April 15, 2022, as amended, for purposes of complying with Nasdaq Listing Rule 5635. We refer to this proposal as the “Keep Well Proposal.”
3. To approve the adjournment of the special meeting, if necessary or advisable, to solicit additional proxies in favor of the proposals described above if there are not sufficient votes to approve either of such proposals. We refer to this proposal as the “Adjournment Proposal.”
Yes. If you have not yet submitted a proxy, you may do so by (a) visiting www.voteproxy.com and following the on screen instructions (have your proxy card available when you access the webpage), or (b) calling toll-free 1-800-PROXIES (1-800-776-9437) in the U.S. or 1-718-921-8500 from foreign countries from any touch-tone phone and follow the instructions (have your proxy card available when you call), or (c) submitting your proxy card by mail by using the previously provided self-addressed, stamped envelope.
May I revoke a previously submitted proxy or otherwise change my vote at the virtual Annual Meeting?
Yes. You may change or revoke your vote by writing to us, by submitting another properly signed proxy card with a more recent date, or by voting again by the telephone or Internet voting options described below. If your shares are held in “street name” through a bank, broker or other nominee, any changes need to be made through them. Your last vote will be the vote that is counted.
Unless revoked, a proxy will be voted at the virtual meeting in accordance with the stockholder’s indicated instructions. In the absence of instructions, proxies will be voted FOR the election of the four (4) nominees identified in the Proxy Statement as directors, FOR the Auditor Ratification Proposal, FOR the 2017 Plan Amendment Proposal, FOR the Shares Issuance Proposal, FOR the Warrant Issuance Proposal, and FOR the Director Retention Plan Proposal.
How do I vote at the virtual Annual Meeting?vote?
Stockholders of record; Shares registered directly in your name.
If you are a stockholder of record, you may vote online atduring the virtual Annual Meeting on August 29, 2022 or votespecial meeting, by proxy using the enclosed proxy card, the Internet or telephone. Whether or not you plan to participate in the Annual Meeting,special meeting, we urge you to vote by proxy to ensure your vote is counted. Even if you have already votedvote by proxy, you may still attend the virtual Annual Meetingspecial meeting and vote online at the virtual Annual Meeting on August 29, 2022,during meeting, if you choose.
•To vote online atduring the virtual Annual Meeting on August 29, 2022,special meeting, follow the instructions above under “How do I participate in the Annual Meeting?special meeting?” click on “I have a login,” enter the control number found on your proxy card you previously received, and enter the password “ontrak2022”“[•]” (the password is case sensitive).
•To vote using the proxy card, please complete, sign and date the proxy card and return it in the prepaid envelope. If you returnwe receive your signed proxy card to us before the Annual Meeting,special meeting, we will vote your shares as you direct.instructed on the proxy card. If you do not have the prepaid envelope, please mail your completed proxy card to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717, U.S.A.
•To vote via the Internet, please go to www.voteproxy.com and follow the instructions. Please have your proxy card handy when you go to the website.
•To vote via the telephone, you can vote by calling the telephone number on your proxy card. Please have your proxy card handy when you call. Easy-to-follow voice prompts will allow you to vote your shares and confirm that your instructions have been properly recorded.
•To vote via the Internet, please go to www.voteproxy.com and follow the instructions. Please have your proxy card handy when you go to the website. As with telephone voting, you can confirm that your instructions have been properly recorded.
Telephone and Internet voting facilities for stockholders of record will be available 24 hours a day until 11:59 p.m. Eastern Time on August 28, 2022.[•], 2023. After that, telephone and Internet voting will be closed, and if you want to vote your shares, you will either need to ensure that your proxy card is received bybefore voting begins at the Company before the date of the Annual Meetingspecial meeting or attend the virtual Annual Meeting tospecial meeting and vote your shares online.online during the meeting.
Beneficial owner;owners: Shares held in account at brokerage, bank or other organization.
If your shares are registered in the name of youra broker, bank or other agent,nominee
If you are the “beneficial owner” of those shares and those shares are considered as held in “street name.” If you are a beneficial owner of shares registeredheld in thestreet name, of your broker, bank or other agent, you should have received a proxy card and voting instructions with these proxy materials from that organizationyour broker, bank or other nominee, rather than directly from us. Simply complete and mailAs a beneficial owner, you have the proxy card as instructedright to instruct the organization holding your shares how to vote your shares. You should have received a notice containing voting instructions from the organization that holds your shares. Follow the instructions provided by your broker, bank or other agentthat organization to ensure that your vote is counted. You may be eligible to vote your shares electronically over the Internet or by telephone depending on your broker, bank or other agent. A large number of banks and brokerage firms offer Internet and telephone voting. If your bank or brokerage firm does not offer Internet or telephone voting information, please complete and return your proxy card in the self-addressed, postage-paid envelope provided. To vote in person at the virtual Annual Meeting,special meeting, you must first obtain a valid legal proxy from the organization that holds your broker, bank or other agentshares and then you must register in advance to attend the Annual Meeting. Followspecial meeting. Please contact the instructions fromorganization that holds your broker or bank included with these proxy materials, or contact your broker or bankshares to request a legal proxy form.proxy.
After obtaining a valid legal proxy, from your broker, bank or other agent, to then register to attend the Annual Meeting,special meeting you must submit proof of your legal proxy reflecting the number of your shares along with your name and email address to our transfer agent, American Stock Transfer & Trust Company, LLC. Requests for registration should be directedLLC: (1) by email to proxy@astfinancial.com;proxy@astfinancial.com(2) by facsimile to [718-765-8730] or (3) by mail to facsimile number 718-765-8730. Written requests can be mailed to:
American Stock Transfer & Trust Company, LLC,
Attn: Proxy Tabulation Department,
6201 15th15th Avenue,
Brooklyn, NY 11219
11219. Requests for registration must be labeled as “Legal Proxy” and be received by American Stock Transfer & Trust Company, LLC no later than 5:[5:00 p.m.,] Eastern Time on August 22, 2022.
[•], 2023. You will receive a confirmation of your registration by email after we receive your registration materials.materials are received by our transfer agent. You may then attend the Annual Meetingspecial meeting and vote your shares at https://web.lumiagm.com/250638678[•] during the meeting. The password for the meeting is ontrak2022.[•]. Follow the instructions provided to vote. We encourage you to access the meeting prior to the start time leaving ample time for the check in.
Who can help answer any other questionsMay I might have?revoke a previously submitted proxy or otherwise change my vote?
If you have any questions concerning the virtual Annual Meeting (including accessing the meeting by virtual means)Yes. You may revoke your proxy or would like additional copies of the Proxy Statement or need help voting your shares of the Company’s common stock, please contact our transfer agent:
American Stock Transfer & Trust Company, LLC
The Notice of Annual Meeting, 2021 Annual Report, Proxy Statement and form of Proxy Card are available at:
https://ontrakhealth.com/investors/financial-information/
Who is entitled to vote at the Annual Meeting?
Only stockholders of record at the close of business on July 15, 2022 (the “Record Date”), are entitled to vote at the Annual Meeting. On the Record Date, there were 20,966,127 shares of Ontrak’s common stock outstanding and entitled to vote. Each share of common stock is entitled to one vote on each matter properly brought before the Annual Meeting.
What Is the difference between holding shares as a stockholder of record and as a beneficial owner?
If on July 15, 2022 your shares were registered directly in your name with Ontrak’s transfer agent, American Stock Transfer & Trust Company, LLC, then you are the “stockholder of record.” Whether or not you plan to participate in the Annual Meeting, we urge you to fill out and return the enclosed proxy card or vote via the Internet or by telephone to ensurechange your vote is counted.
If on July 15, 2022 your shares were held in a stock brokerage account or by a bank or other similar organization, then you are considered the “beneficial owner” of those shares. These proxy materials have been forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the Annual Meeting. As the beneficial owner, you have the right to direct your broker, bank or other agent how to vote the shares in your account. You are also invited to participate in the Annual Meeting. However, because you are not the stockholder of record, you may not vote your shares online at the virtual Annual Meeting unless you request and obtain a valid proxy from your broker, bank or other agent.
What am I voting on?
There are nine matters scheduled for a vote:
1.To elect four (4) Directors to hold office until the next annual meeting and until their respective successors are elected and qualified (the “Board Election Proposal”);
2.To ratify the appointment of EisnerAmper LLP as Ontrak’s independent registered public accounting firm for the 2022 fiscal year (the “Auditor Ratification Proposal”);
3.To approve an amendment to the terms of the Company’s 2017 Stock Incentive Plan (as amended to date, the “2017 Plan”) to (i) provide for an additional 4,000,000 shares to be issued in connection with awards granted thereunder, and (ii) to amendthe “evergreen” or automatic replenishment provision of the 2017 Plan pursuant to which the number of shares authorized for issuance under the 2017 Plan is automatically increased on an annual basis to 3% of the issued and outstanding shares of the Company (the “2017 Plan Amendment Proposal”);
4.To approve the issuance of shares of common stock of the Company to Acuitas Capital LLC pursuant to a Master Note Purchase Agreement dated April 15, 2022, for the purposes of complying with NASDAQ Listing Rule 5635 (the “Shares Issuance Proposal”);
5.To approve the issuance of warrants and shares underlying such warrants to Acuitas Capital LLC pursuant to a Master Note Purchase Agreement Dated April 15, 2022, for purposes of complying with NASDAQ Listing Rule 5635, to the extent required (the “Warrant Issuance Proposal”);
6.To approve the non-employee director retention plan (the “Director Retention Plan Proposal”);
7.To approve an amendment to the Company’s amended and restated certificate of incorporation (the “Certificate of Incorporation”), to remove certain restrictions on transfers of the Company’s securities as set out in Article EIGHTH of the Certificate of Incorporation (the “Charter Amendment Proposal”);
8.To approve the adjournment of the meeting, if necessary or advisable, to solicit additional proxies in favor of Proposal 7 if there are not sufficient votes to approve Proposal 7 (the “Adjournment Proposal”); and
9. To transact any other business that may properly come before the Annual Meeting or any adjournments or postponements of the Annual Meeting.
What if I return a proxy card but do not make specific choices?
If your card does not indicate your voting preferences, the persons named in the proxy card will vote the shares represented by your proxy card as recommended by the Board of Directors, unless your shares are held in street name and you fail to provide your broker, bank or other agent, as applicable, with voting instructions on proposals 1, 3, 4, 5, 6, 7 and 9 in which case your shares will be voted as “broker non-votes” on such proposal as described below. Ontrak does not expect that any matters other than the election of Directors and the other proposals described herein will be brought before the Annual Meeting. If any other matter is properly presented at the Annual Meeting, your proxy (one of the individuals named on your proxy card) will vote your shares using their best judgment.
What can I do if I change my mind after I vote?
If you are a stockholder of record, you can revoke your proxy at any time before the final vote at the Annual Meetingspecial meeting by:
•giving written notice that you are revoking your proxy to the Secretary, Ontrak, Inc., 2200 Paseo Verde Parkway, Suite 280, Henderson, NV 89052;
•delivering a properly completed proxy card with a later date, or vote by telephone or on the Internet at a later date (we will vote your shares as directed in the last instructions properly received from you prior to the Annual Meeting)special meeting); or
•attending and voting online at the virtual Annual Meetingspecial meeting (note, simply attending the Annual Meetingspecial meeting will not, by itself, revoke your proxy).
If you are a beneficial owner of shares, you may submit new voting instructions by contacting your broker, bank or other agent that is the holder of record and following its instructions.
Please note that to be effective, your new proxy card, internet or telephonic voting instructions or written notice of revocation must be received by the Secretary prior to the Annual Meetingspecial meeting and, in the case of internet or telephonic voting instructions, must be received before 11:59 p.m. Eastern Time on August 28, 2022.[•], 2023.
Unless revoked, a proxy will be voted at the virtual meeting in accordance with the stockholder’s indicated instructions.
What shares are included on theif I return a proxy card?card but do not make specific voting choices?
If you are a stockholder of record, you will receive only oneyour proxy card fordoes not indicate your voting preferences, your shares will be voted FOR all the shares you hold of recordproposals described in certificate and book-entry form. If you are a beneficial owner, you will receive voting instructions from your broker, bank or other agent thatthis proxy statement.
What is the holderquorum requirement for the special meeting?
A quorum of record.
Is therestockholders is necessary to hold the special meeting. A quorum will be present if a listmajority of stockholdersthe outstanding shares of our common stock entitled to vote on the record date are present in person or represented by proxy at the Annual Meeting?
The namesspecial meeting. On the record date, there were [•] shares of stockholders of recordour common stock outstanding and entitled to votevote. Thus, [•] shares must be present or represented by proxy at the Annual Meetingspecial meeting in order for there to be a quorum. Abstentions and broker non-votes will be available ten days priorcounted as present for purposes of determining a quorum.
If there is no quorum, a majority of the shares represented at the meeting may adjourn the meeting to another time or date.
Who will count the Annual Meeting for any purpose relevant to the Annual Meeting, by contacting the Secretary of Ontrak, Inc.
How are votes counted?votes?
Votes will be counted by the inspector of election appointed for the Annual Meeting, who will separately count “For” and “Against” votes, and broker non-votes.special meeting.
What is a broker non-vote?
If you are a beneficial owner whose shares are held of record by a broker, bank, or other nominee, you must instruct the brokersuch organization how to vote your shares. If you do not provide voting instructions, your shares will not be voted on any proposal on which the brokerorganization holding your shares does not have discretionary authority to vote. This is called a “broker non-vote.” In these cases, the broker can register your shares as being present at the Annual Meeting for purposes of determining the presence of a quorum butWe expect that brokers, banks and other nominees will not be able to vote on those matters for which specific authorization is required.
If you are a beneficial owner whose shares are held of record by a broker, your broker hashave discretionary voting authority to vote your shares on Proposal No. 2, the Auditor RatificationReverse Stock Split Proposal and Proposal No. 8,on the Adjournment Proposal, even if the brokerorganization does not receive voting instructions from you. However,the beneficial owner of the shares. Even if an organization has discretionary authority to vote uninstructed shares, certain organizations may elect not to vote shares without an instruction from the beneficial owner. So, if you are a beneficial owner, please instruct the organization that holds your broker doesshares as to how you wish to vote your shares. We expect that brokers, banks and other nominees will not have discretionary authority to vote on Proposal No. 1, the Board Election Proposal, Proposal No. 3, the 2017 Amendment Proposal, Proposal No. 4, the Shares Issuance Proposal, Proposal No. 5, the Warrant Issuance Proposal, Proposal No. 6, the Director Retention Plan Proposal, or Proposal No. 7, the Charter AmendmentKeep Well Proposal. Accordingly, it is important that beneficial owners instruct their brokers how they wish to vote their shares.
What is the quorum requirement for the Annual Meeting?
A quorum of stockholders is necessary to hold a valid Annual Meeting. A quorum will be present if the holders of majority of the outstanding shares are represented by proxy or by stockholders present and entitled to vote at the Annual Meeting. On the Record Date, there were 20,966,127 shares outstanding and entitled to vote. Thus, 10,483,064 shares must be represented by proxy or by stockholders present and entitled to vote at the Annual
Meeting. Abstentions and broker non-votes are counted as present and entitled to vote for purposes of determining a quorum.
If there is no quorum, a majority of the shares so represented may adjourn the Annual Meeting to another time or date.
How many votes are required to approve each proposal?
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Proposal | VoteVotes Required | Impact of “Abstain” Votes | Broker Discretionary Voting Allowed? Impact of Broker Non-Votes |
| Reverse Stock Split Proposal | The affirmative vote of a majority of our outstanding shares of common stock as of the record date for the special meeting. | Abstentions will have the same effect as a vote against this proposal | Yes No broker non-votes are expected on this proposal. If there are any, they will have the same effect as a vote against this proposal. |
Proposal No. 1 – Board ElectionKeep Well Proposal | PluralityThe affirmative vote of votes cast | No |
Proposal No. 2 – Auditor Ratification Proposal | Majoritythe majority of shares present in person or represented by proxy at the special meeting and entitled to vote on this proposal. | YesAbstentions will have the same effect as a vote against this proposal | No Broker non-votes will not have any effect on the outcome of this proposal. |
Proposal No. 3 – 2017 AmendmentAdjournment Proposal | MajorityThe affirmative vote of the majority of shares present in person or represented by proxy at the special meeting and entitled to vote on this proposal. | No |
Proposal No. 4 – Shares Issuance ProposalAbstentions will have the same effect as a vote against this proposal | MajorityYes No broker non-votes are expected on this proposal. If there are any, they will not have any effect on the outcome of shares present and entitled to vote | No |
Proposal No. 5 – Warrant Issuance Proposal | Majority of shares present and entitled to vote | No |
Proposal No. 6 – Director Retention Plan Proposal | Majority of shares present and entitled to vote | No |
Proposal No. 7 - Charter Amendment Proposal | Majority of outstanding shares | No |
Proposal No. 8 – Adjournment Proposal | Majority of shares present and entitled to vote | Yesthis proposal. |
If you abstain from voting, your abstention will have the same effect as a vote against the matter, and the broker non-votes will not affect the outcome of such vote, except for Proposal No. 7, Charter Amendment Proposal, where a broker-non vote has the same effect as a vote against the matter.
Proposal No. 1 - Board Election Proposal; plurality vote
Directors are elected by a plurality of votes cast. This means that Directors who receive the most “FOR” votes are elected. There is no “AGAINST” option and votes that are “WITHHELD” or not cast, including broker non-votes, are not counted as votes “FOR” or “AGAINST.” If a Director nominee receives a plurality of votes but does not, however, receive a majority of votes, that fact will be considered by the Compensation and Nominating Committee of the Board in any future decision on Director Nominations.
Proposal No. 2 - Auditor Ratification Proposal; majority vote
Holders of a majority of shares present in person or represented by proxy at the Annual Meeting must vote “FOR” the Auditor Ratification Proposal. Abstentions will have the same effect as votes “AGAINST” this Proposal No. 2.
Proposal No. 3 – 2017 Amendment Proposal; majority vote
Holders of a majority of shares present in person or represented by proxy at the Annual Meeting must vote “FOR” the approval of the 2017 Plan Amendment Proposal. Abstentions will have the same effect as votes “AGAINST” this Proposal No. 3.
Broker non-votes will not have an effect on this Proposal No. 3.
Proposal No. 4– Shares Issuance Proposal; majority vote
Holders of a majority of shares present in person or represented by proxy at the Annual Meeting must vote “FOR” the approval of the Shares Issuance Proposal. Abstentions will have the same effect as votes “AGAINST” this Proposal No. 4.
Broker non-votes will not have an effect on this Proposal No. 4.
Proposal No. 5– Warrant Issuance Proposal; majority vote
Holders of a majority of shares present in person or represented by proxy at the Annual Meeting must vote “FOR” the approval of the Warrant Issuance Proposal. Abstentions will have the same effect as votes “AGAINST” this Proposal No. 5.
Broker non-votes will not have an effect on this Proposal No. 5.
Proposal No. 6– Director Retention Plan Proposal; majority vote
Holders of a majority of shares present in person or represented by proxy at the Annual meeting must vote “FOR” the approval of the Director Retention Plan Proposal. Abstentions will have the same effect as votes “AGAINST” this Proposal No. 6.
Broker non-votes will not have an effect on this Proposal No. 6.
Proposal No. 7– Charter Amendment Proposal; majority vote
Holders of a majority of the outstanding shares of Common Stock must vote “FOR” the approval of the Charter Amendment Proposal. Abstentions and broker non-votes will have the same effect as votes “AGAINST” this Proposal No. 7.
Proposal No. 8– Adjournment Proposal; majority vote
Holders of a majority of shares present in person or represented by proxy at the Annual meeting must vote “FOR” the approval of the Adjournment Proposal. Abstentions will have the same effect as votes “AGAINST” this Proposal No. 8. Broker non-votes will not have an effect on this Proposal No. 8.
How will my shares be voted at the Annual Meeting?
At the Annual Meeting, the persons named in the proxy card will vote your shares as you instruct. If you sign your proxy card and return it without indicating how you would like to vote your shares, your proxy will be voted as the Board of Directors recommends, unless your votes constitute broker non-votes, which is:
•FOR the Board Election Proposal;
•FOR the Auditor Ratification Proposal;
•FOR the 2017 Plan Amendment Proposal;
•FOR the Shares Issuance Proposal;
•FOR the Warrant Issuance Proposal;
•FOR the Director Retention Plan Proposal;
•FOR the Charter Amendment Proposal; and
•FOR the Adjournment Proposal.
Do I have cumulative voting rights?
No, our Certificate of Incorporation doesstockholders do not provide forhave cumulative voting.
Am I entitled to dissenter rights or appraisal rights?
No, our stockholders are not entitled to dissenters’ rights or appraisal rights under the Delaware General Corporation Law foron any of the matters being submitted to stockholders at the Annual Meeting.special meeting.
Could other matters be decided at the Annual Meeting?At the date of this Proxy Statement, we did not know of any matters to be considered at the Annual Meeting other than the items described in this Proxy Statement. If any other business is properly presented at the Annual Meeting, your proxy card grants authority to the proxy holders to vote on such matters in their discretion.
Can I access the Notice of Annual Meeting and Proxy Statement and the 2021 Annual Report viathis proxy statement on the Internet?
Yes, this Notice of Annual Meeting, Proxy Statement and the 2021 Annual Report areproxy statement is available on our website at www.ontrakhealth.com.www.ontrakhealth.com. Instead of receiving future proxy statements and accompanying materials by mail, most stockholders can elect to receive an e-mail that will provide electronic links to them. Opting to receive your proxy materials online will save us the cost of producing documents and mailing them to your home or business,you, and also gives you an electronic link to the proxy voting site.
Stockholders of Record:You may enroll in the electronic proxy delivery service at any time by accessing your stockholder account at www.amstock.com and following the enrollment instructions.
Beneficial Owners:You also may be able to receive copies of these documents electronically. Please check the information provided in the proxy materials sent to you by your broker, bank or other holder of recordnominee regarding the availability of this service.
Who will pay for the cost of this proxy solicitation?
Ontrak will pay the cost of soliciting proxies. Proxies may be solicited on our behalf by Directors,our directors, officers or employees in person or by telephone, electronic transmission and facsimile transmission or by other means of communication. Directors,Our directors, officers or employees will not be paid any additional compensation for soliciting proxies. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to the beneficial owners.
How can I find out the results of the voting at the Annual Meeting?special meeting?
Preliminary voting results will be announced at the Annual Meeting.special meeting. Final voting results will be reported in a Current Report on Form 8-K filed with the Securities and Exchange Commission.
Who can help answer any other questions I might have?
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Nominees
We currentlyIf you have a Board consistingany questions concerning the virtual special meeting (including accessing the meeting by virtual means) or would like additional copies of six directors. There are four (4) nominees for director to be voted on at the 2022 Annual Meeting and upon their election, the size of our Board will be reduced to that number of directors. On May 24, 2022, Mr. Edward Zecchini and Ms. Diane Seloff notified us that they would not stand for re-election at the 2022 Annual Meeting. Mr. Zecchini’s and Ms. Seloff’s respective decisions not to stand for re-election at the 2022 Annual Meeting were not due to any disagreement with the Company on any matter relating to our operations, policies,this proxy statement or practices. The Director nominees have consented to serve as Directors. Each Director to be elected will hold office until the next annual meeting and until his or her respective successor is elected and qualified. If anyneed help voting your shares of the nominees declines to serve or becomes unavailable for any reason, or if a vacancy occurs before the election (although we know of no reason to anticipate that this will occur), the proxies may be voted for such substitute nominees as we may designate. Should a nominee become unable to serve or should a vacancy on the Board occur before the 2022 Annual Meeting, the Board may either reduce its size or designate a substitute nominee. If a substitute nominee is named, your shares will be voted for the election of the substitute nominee designated by the Board, unless your shares are treated as a broker non-vote. In the vote on the election of the Director nominees, stockholders may vote “FOR” nominees or “WITHHOLD” votes from nominees. The four (4) Director nominees receiving the highest number of “FOR” votes will be elected as Directors. Votes that are withheld, abstentions and broker non-votes will have no effect on the outcome of the election.
The persons appointed by the Board as proxies intend to vote for the election of each of the below director nominees, unless you indicate otherwise on the proxy or voting instruction card or if your vote is treated as a broker non-vote. Set forth below is biographical and other information about the Director nominees. Following each nominee’s biographical information, we have provided information concerning the particular experience, qualifications, attributes and/or skills that led the Nominations and Governance Committee and the Board to determine that each nominee should serve as a Director.
Our Board unanimously recommends that you vote “FOR” the nominees named below.
| | | | | | | | | | | | | | | | | | | | |
| Name | | Age | | Position | | Director Since |
| Terren S. Peizer | | 62 | | Chairman of the Board and Executive Chairman | | 2003 |
| Richard A. Berman | | 77 | | Director, Chairman of the Audit Committee, and Member of the Nomination and Governance Committee | | 2014 |
| Michael Sherman | | 62 | | Director, Chairman of the Compensation Committee, Chairman of the Nomination and Governance Committee and Audit Committee Member | | 2017 |
| Robert Rebak | | 55 | | Director, Nomination and Governance Committee Member and Compensation Committee Member | | 2019 |
Terren S. Peizer is the founder of ourAmerican Stock Transfer & Trust Company, and an entrepreneur, investor, and financier with a vested interest in healthcare, having founded and successfully commercialized several healthcare companies. He has served as Chairman of the Board of Directors since the Company’s inception in 2003 through April 11, 2021. Effective April 12, 2021, Mr. Peizer was appointed to serve as the Executive Chairman, and continues to serve as Chairman of the Board. He will resume his role as the Company’s Chief Executive Officer on August 12, 2022.Mr. Peizer is also the Chairman of BioVie, Inc., a biotech company focused on the end stage liver disease ascites. In addition, he serves as the Executive Chairman of Verde, Inc., a company producing 100% plant-based, compostable, and biodegradable plastic and mobility companies EVmo, Inc. and ZipMo, Inc. Mr. Peizer is also the Executive Chairman of the blockchain company, Casper Labs, Inc. Mr. Peizer is Chairman of Acuitas Group Holdings, LLC (“Acuitas”) his personal investment vehicle, and holding company that is the owner of all of his portfolio company
interests. Through Acuitas, Mr. Peizer owns Acuitas Capital, LLC, an industry leader in investing in micro and small capitalization equities, having invested over $1.5 billion directly into portfolio companies. Mr. Peizer has been the largest beneficial shareholder of, and has held various senior executive positions with, several other publicly traded growth companies, including having served as Chairman of Cray, Inc., a supercomputer company recently sold to Hewlett Packard, Inc. Mr. Peizer has a background in venture capital, investing, mergers and acquisitions, corporate finance, and previously held senior executive positions with the investment banking firms Goldman Sachs, First Boston, and Drexel Burnham Lambert. He holds his B.S.E. in Finance from The Wharton School of Finance and Commerce.
We believe Mr. Peizer’s qualifications to serve on our board of directors include his role as an investor and executive positions in several private and public companies, including numerous companies in the healthcare field. He has extensive knowledge and experience in the financial and healthcare industries and provides extensive insight and experience with capital markets and publicly traded companies at all stages of development.
Richard A. Bermanhas served as the Company’s director since 2014. Heis the Associate Vice President of Strategic initiatives for the University of South Florida Research and Innovation. He is a visiting professor of social entrepreneurship in the Muma College of Business, and a professor in the institute of innovation and advanced discovery at USF. As a recognized global leader, Mr. Berman has held positions in health care, education, politics and management. He has worked with several foreign governments, the United Nations, the U.S. Department of Health and Welfare, the FDA, and as a cabinet level official for the state of New York. He has also worked with McKinsey & Co, NYU Medical Center, Westchester Medical, Korn-Ferry International, Howe-Lewis International and numerous startup companies. In 1995, Mr. Berman was selected by Manhattanville College to serve as its tenth President. Mr. Berman is credited with the turnaround of the College, where he served until 2009. Mr. Berman serves on the board of several organizations including EmblemHealth and as an elected member of the National Academy of Medicine of the National Academy of Sciences (Formerly known as the Institute of Medicine). Mr. Berman received his BBA, MBA, and MPH from the University of Michigan and holds honorary doctorates from Manhattanville College and New York Medical College.
We believe Mr. Berman’s qualifications to serve on our board of directors include his extensive experience as an executive in several healthcare firms. In addition, as a board member of a health plan we believe he has an understanding of our customer base and current developments and strategies in the health insurance industry.
Michael Sherman has served as the Company’s director since July 2017. He has worked in finance for over 30 years, having last served as a Managing Director in Investment Banking, at Barclays Plc. Prior to Barclays, Mr. Sherman was at Lehman Brothers, Inc. and Salomon Brothers Inc. Mr. Sherman specialized in equity capital markets and covered Healthcare companies, in addition to companies in other sectors. Mr. Sherman also is currently a Board Member at BioVie, Inc., a specialty pharmaceutical company. Mr. Sherman began his career in finance as a lawyer at Cleary, Gottlieb, Steen & Hamilton in New York City and Hong Kong.
We believe that Mr. Sherman’s qualifications to serve on our board of directors include his experience in the banking and securities industry, and his experience in the healthcare industry.
Robert Rebak has served as the Company’s director since July 2019. Mr. Rebak currently serves as the Chief Executive Officer of Forefront Telecare, a behavioral telehealth company serving seniors in health systems, long-term care facilities, and home health settings across the US, where he has been responsible for company vision, strategy, growth, culture, and overall operating performance since January 2019. From June 2016 to June 2018, he served as the President and Chief Executive Officer of AbleTo (acquired in May 2020 by Optum), a behavioral telehealth company serving adult health plan members nationwide. From November 2014 to March 2016, he served as President, Consumer Solutions for Sharecare, a health and wellness patient engagement platform. He joined Sharecare through its acquisition of QualityHealth, a digital patient acquisition and engagement platform, where he was Chairman and Chief Executive Officer from February 2009 to November 2014. Mr. Rebak previously served as Managing Partner of Rosetta, from June 2005 to January 2007. He joined Rosetta through its acquisition of SimStar, where he served as President of the healthcare-specific digital marketing firm from February 1999 to June 2005. He has raised over $70 million in growth capital from both strategic and financial investors and has led two successful
company sale transactions. Mr. Rebak has previously served on both private equity backed company and not-for-profit Boards, and currently serves as a Board Director of The Quell Foundation. Mr. Rebak holds an MBA in Finance and Marketing from the University of Chicago Booth School of Business and a BA in History and Economics from Vanderbilt University.
We believe Mr. Rebak’s qualifications to serve on our board of directors include his experience in the digital health, telehealth, and behavioral health sectors of the healthcare industry.
Plurality Voting
Under Delaware law and Ontrak’s Amended and Restated Bylaws, a vote by a plurality of the shares voting is required for the election of Directors. Under plurality voting, nominees who receive the most “FOR” votes are elected; there is no “AGAINST’’ option and votes that are “WITHHELD” or not cast are disregarded in the count. If a nominee receives a plurality of votes but does not, however, receive a majority of votes, that fact will be considered by the Compensation and Nominating Committee in any future decision on nominations.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR”
THE ELECTION OF EACH OF THESE NOMINEES AS DIRECTORS.
ROLE AND COMPOSITION OF THE BOARD OF DIRECTORS
The Board of Directors, which is elected by the stockholders, is the ultimate decision-making body of the Company, except with respect to those matters reserved to the stockholders. It selects the Executive Chairman and Chief Executive Officer, or person or persons performing similar functions, and other members of the senior management team, and provides an oversight function for the Executive Chairman’s and Chief Executive Officer’s execution of overall business strategy and objectives. The Board acts as an advisor and counselor to senior management and validates business strategy and direction. The Board’s primary function is to monitor the performance of senior management and facilitate growth and success by providing mentoring and actionable business advice honed by substantial substantive knowledge of the Company’s business and history tempered with significant outside business experience.
Our Amended and Restated Bylaws state that the number of Directors shall be determined from time to time by the Board of Directors. Directors shall be elected at the annual meeting of stockholders. In all elections for Directors, every stockholder shall have the right to vote the number of shares owned by such stockholders for each director to be elected. A director or the entire Board, may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at the election of directors. Vacancies in the Board may be filled by a majority of the Directors or by an election either at an annual meeting or at a special meeting of the stockholders called for that purpose. Any directors elected by the stockholders to fill the vacancy shall hold office for the balance of the term for which he or she was elected. A director appointed by the Board to fill the vacancy shall serve until the next meeting of stockholders at which directors are elected.
Independence of the Board of Directors
Our common stock is traded on the NASDAQ Global Market. The Board has determined that five of the current members of the Board of Directors qualify as “independent,” as defined by the listing standards of the NASDAQ. Consistent with these considerations, after review of all relevant transactions and relationships between each director, or any of his family members, and the Company, its senior management and its independent auditors, the Board has determined further that Messrs. Berman, Sherman, Zecchini, Rebak and Ms. Seloff are independent under the listing standards of NASDAQ. On May 24, 2022, Mr. Edward Zecchini and Ms. Diane Seloff notified us that they would not stand for re-election at the 2022 Annual Meeting. Mr. Zecchini’s and Ms. Seloff’s respective decisions not to stand for re-election at the 2022 Annual Meeting were not due to any disagreement with the Company on any matter relating to our operations, policies, or practices. In making this determination, the Board considered that there were no new transactions or relationships between its current independent directors and the Company, its senior management and its independent auditors since last making this determination.
Each member of our Board serving on our Audit, Compensation and Nominations and Governance committees is “independent” within the meaning of the applicable Nasdaq listing standards.
2021 Meetings and Attendance
During 2021, the Board held 7 meetings. All Directors attended at least 75% or more of the aggregate number of meetings of the Board and Board Committees on which they served.
Committees of the Board of Directors
Audit Committee
Our audit committee currently consists of three directors, Messrs. Berman and Sherman and Ms. Seloff with Mr. Berman serving as the chairman of the audit committee. The audit committee held 5 meetings during the 2021 year. On May 24, 2022, Ms. Seloff notified us that she did not wish to stand for re-election to the Board at the Company’s 2022 Annual Meeting and as a result will cease to serve as a member of the Audit Committee, effective August 29, 2022, the date of this Annual Meeting and will be replaced on the audit committee by Mr. Rebak assuming he is re-elected. The Board of Directors has determined that each of the members of the audit committee are independent as defined by the NASDAQ rules, meet the applicable requirements for audit committee members, including Rule 10A-3(b) under the Exchange Act, and that Mr. Berman qualifies as an “audit committee financial expert” as defined by Item 401(h)(2) of Regulation S-K. The duties and responsibilities of the audit committee include (i) selecting, evaluating and, if appropriate, replacing our independent registered accounting firm, (ii) reviewing the plan and scope of audits, (iii) reviewing our significant accounting policies, any significant deficiencies in the design or operation of internal controls or material weakness therein and any significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation and (iv) overseeing related auditing matters.
A copy of the audit committee’s written charter is publicly available through the “Investors-Governance” section of our website at www.ontrakhealth.com.
Nominations and Governance Committee
Our nominations and governance committee currently consists of three members, Messrs. Sherman, Berman, and Rebak, who are all independent as defined by the NASDAQ rules. The nominations and governance committee held 4 meetings during 2021. Mr. Sherman serves as the chairman of the nominations and governance committee. The committee nominates new directors and periodically oversees corporate governance matters.
The charter of the nominations and governance committee provides that the committee will consider board candidates recommended for consideration by our stockholders, provided the stockholders provide information regarding candidates as required by the charter or reasonably requested by us within the timeframe proscribed in Rule 14a-8 of Regulation 14A under the Exchange Act, and other applicable rules and regulations. Recommendation materials are required to be sent to the nominations and governance committee c/o Ontrak, Inc., 2200 Paseo Verde Parkway, Suite 280, Henderson, NV 89052. There are no specific minimum qualifications required to be met by a director nominee recommended for a position on the board of directors, nor are there any specific qualities or skills that are necessary for one or more of our directors to possess, other than as are necessary to meet any requirements under the rules and regulations applicable to us. Although our board of directors does not maintain a specific policy with respect to board diversity, our nominations and governance committee believes that our Board members and the candidates that it nominates to serve on our Board constitute a diverse group and offer a broad range of perspectives, backgrounds and experiences to serve the interest of our shareholders.
The nominations and governance committee considers director candidates that are suggested by members of the board of directors, as well as management and stockholders. The committee may also retain a third-party executive search firm to identify candidates. The process for identifying and evaluating nominees for director, including nominees recommended by stockholders, involves reviewing potentially eligible candidates, conducting background
and reference checks, interviews with the candidate and others (as schedules permit), a meeting to consider and approve the candidate and, as appropriate, preparing and presenting to the full board of directors an analysis with respect to particular recommended candidates. The nominations and governance committee endeavors to identify director nominees who have the highest personal and professional integrity, have demonstrated exceptional ability and judgment, and, together with other director nominees and members, are expected to serve the long term interest of our stockholders and contribute to our overall corporate goals.
A copy of the nominations and governance committee’s written charter is publicly available through the “Investors-Governance” section of our website at www.ontrakhealth.com.
Compensation Committee
The compensation committee currently consists of three directors, Messrs. Sherman, Zecchini and Rebak, who are all independent as defined by the NASDAQ rules. On May 24, 2022, Mr. Zecchini notified us that he did not wish to stand for re-election to the Board at the Company’s 2022 Annual Meeting and as a result will cease to serve as a member of the Compensation Committee, effective August 29, 2022, the date of this Annual Meeting and will be replaced on the compensation committee by Mr. Berman assuming he is re-elected. Mr. Sherman serves as the chairman of the compensation committee. During 2021, the compensation committee held 8 meetings. The compensation committee reviews and recommends to the board of directors for approval the compensation of our executive officers.
A copy of our compensation committee’s written charter is publicly available through the “Investors-Governance” section of our website at www.ontrakhealth.com.
Board Diversity
Although the Company does not presently have a formal Board Diversity Policy, we believe in diversity and value the benefits that diversity can bring to our board of directors. Diversity promotes the inclusion of different perspectives and ideas, mitigates against group think and ensures that the Company has the opportunity to benefit from all available talent. The promotion of a diverse Board makes prudent business sense and makes for better corporate governance. Of our six board members, one is female.
The Company seeks to maintain a Board comprised of talented and dedicated directors with a diverse mix of expertise, experience, skills and backgrounds. The skills and backgrounds collectively represented on the Board should reflect the diverse nature of the business environment in which the Company operates. For purposes of Board composition, diversity includes, but is not limited to, business experience, geography, age, gender and ethnicity. In particular, the Board should include an appropriate number of female directors.
The Company is committed to a merit-based system for Board composition within a diverse and inclusive culture which solicits multiple perspectives and views and is free of conscious or unconscious bias and discrimination. When assessing Board composition or identifying suitable candidates for appointment or re-election to the Board, the Company will consider candidates on merit against objective criteria having due regard to the benefits of diversity and the needs of the Board. As we pursue future Board recruitment efforts, our nominations and governance committee will continue to see candidates who can contribute to the diversity of views and perspectives of the Board. This includes seeking out individuals of diverse ethnicities, a balance in terms of gender, and individuals with diverse perspectives informed by other personal and professional experiences.
Email address: [•]
Board Diversity Matrix
Pursuant to Rule 5606(f) of the Nasdaq Listing Rules, set forth below is certain information on each director’s voluntary self-identified characteristics as of July 15, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Directors | | 6 | | | | | | |
| | | | | | | | |
| | Female | | Male | | Non-Binary | | Did Not Disclose |
| Part I: Gender Identity | | | | | | | | |
| Directors | | 1 | | 4 | | 0 | | 1 |
| | | | | | | | |
| Part II: Demographic Background | | | | | | | | |
| African American or Black | | 0 | | 0 | | 0 | | 0 |
| Alaskan Native or American Indian | | 0 | | 0 | | 0 | | 0 |
| Asian | | 0 | | 0 | | 0 | | 0 |
| Hispanic or Latinx | | 0 | | 0 | | 0 | | 0 |
| Native Hawaiian or Pacific Islander | | 0 | | 0 | | 0 | | 0 |
| White | | 1 | | 4 | | 0 | | 0 |
| Two or More Races or Ethnicities | | 0 | | 0 | | 0 | | 0 |
| LGBTQ+ | | 0 | | 0 | | 0 | | 0 |
| Did Not Disclose Demographic Background | | 0 | | 0 | | 0 | | 1 |
Executive Officers
The following table lists our executive officers as of the date of this Proxy Statement and their respective ages and positions. For information regarding Terren S. Peizer, our Executive Chairman, see “Information Regarding Our Board of Directors” above.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Name | | Age | | Position |
Terren S. Peizer (1) | | 62 | | Chairman of the Board and Executive Chairman |
Jonathan Mayhew (2) | | 58 | | Chief Executive Officer |
Brandon H. LaVerne (3) | | 50 | | Co-President and Chief Operating Officer |
James J. Park (4) | | 45 | | Chief Financial Officer, Chief Accounting Officer and Principal Accounting Officer |
Mary Louise Osborne (5) | | 61 | | Co-President and Chief Commercial Officer |
Arik Hill (6) | | 52 | | Chief Information Officer |
Robert Accordino (7) | | 41 | | Chief Medical Officer |
__________
(1) Mr. Peizer served as the Chairman of the Board and Chief Executive Officer of the Company through April 11, 2021 and was appointed to serve as Executive Chairman of the Company as of April 12, 2021. Mr. Peizer continues to serve as Chairman of the Board and he will resume his role as the Company’s Chief Executive Officer on August 12, 2022.
(2) Mr. Mayhew was appointed to serve as the Chief Executive Officer of the Company as of April 12, 2021.On June 24, 2022, Mr. Mayhew gave notice of his resignation, effective August 12, 2022.
(3) Mr. LaVerne was appointed Co-President and Chief Operating Officer of the Company on June 27, 2022 and he previously served as the Chief Financial Officer of the Company.
(4) Mr. Park was appointed to serve as the Chief Financial Officer of the Company on June 27, 2022 and Principal Accounting Officer of the Company on August 10, 2021.
(5) Ms. Osborne was appointed as the Co-President and Chief Commercial Officer of the Company on June 27, 2022 and she previously served as the Chief Customer Officer of the Company since August 30, 2021.
(6) Mr. Hill was appointed as the Chief Information Officer of the Company on August 30, 2021.
(7) Dr. Accordino was appointed as the Chief Medical Officer of the Company on September 27, 2021. On July 7, 2022, the Company accepted Dr. Accordino’s resignation, effective July 29, 2022.
Jonathan Mayhew has served as our Chief Executive Officer since April 2021. Prior to joining the Company, Mr. Mayhew most recently served as Executive Vice President and Chief Transformation Officer of CVS Health, where he had enterprise-wide oversight of the entire portfolio of CVS business transformation initiatives and played a key role in shaping CVS Health’s integrated value story. Previously, he was President of U.S. Markets for the Aetna Health Care Business, where he was responsible for $52 billion in revenue and $4.3 billion in operating income for all commercial and Medicare lines of business. Prior to joining Aetna, Mr. Mayhew was a founding principal, CEO and President of Freedom Disability. Mr. Mayhew holds a degree from Providence College. On June 24, 2022, Mr. Mayhew gave notice of his resignation, effective August 12, 2022.
Brandon H. LaVerne has served as the Company’s Co-President and Chief Operating Officer since June 27, 2022 and he previously served as the Company’s Chief Financial Officer from March 2020 until his promotion on June 27, 2022. Prior to joining the Company, Mr. LaVerne worked at PCM, Inc. from October 1998 until its sale in August 2019 and most recently served as its Chief Financial Officer, Chief Accounting Officer, Treasurer and Assistant Secretary between July 2007 and August 2019. Prior to joining PCM, Inc., Mr. LaVerne worked as the Corporate Accounting Supervisor for Computer Sciences Corporation from September 1996 to October 1998, and started his career with Deloitte & Touche LLP in September 1993. Mr. LaVerne received his Bachelor of Science in Accounting from University of Southern California and is a Certified Public Accountant (Inactive).
James J. Park has served as the Company’s Chief Financial Officer since June 27, 2022, Principal Accounting Officer since August 10, 2021 and Chief Accounting Officer since September 2019. Prior to joining the Company, Mr. Park served as Controller of Cornerstone OnDemand, Inc., a cloud-based software company from 2012 to 2019. In addition, he has 10 years of public accounting experience with PricewaterhouseCoopers. Mr. Park is a Certified Public Accountant (Inactive) and holds a Bachelor of Arts degree in Economics with an Accounting emphasis from the University of California, Santa Barbara.
Mary Louise Osborne has served as the Company’s Co-President and Chief Commercial Officer since June 27, 2022 and Chief Customer Officer since August 2021. Prior to joining the Company, Ms. Osborne served as the Regional Vice President, Medicaid of CVS Health from 2013 to 2020. Prior to CVS Health, Ms. Osborne served as the President of Government Business for Coventry where she led the Mid Atlantic Government Businesses from 2002 to 2013. Ms. Osborne received her Bachelor of Arts degree from Duquesne University in 1983.
Arik Hill has served as the Company’s Chief Information Officer since August 2021. Prior to joining the Company, Mr. Hill served as the Chief Information Officer of The New York Foundling from 2017 to 2021. Prior to The New York Funding, Mr. Hill served as Vice President of Customer Success at HealthEdge Software, Inc. from 2013 to 2017. From 2006 to 2013, Mr. Hill was Chief Information Officer and Vice President of Information Technology Services at FirstCare Health Plans. Mr. Hill holds a Bachelor of Science degree in Health Care Administration from Oregon State University’s School of Public Health with a concentration in Operations Management and Business.
Dr. Robert Accordino has served as the Company’s Chief Medical Officer since September 2021. Prior to joining the Company, Dr. Accordino served as the Chief Mental Health Officer of Quartet Health from 2018 to 2021. Prior to Quartet, Dr. Accordino was Chief of Psychiatry and Behavioral Health at CareMore Health from 2017 to 2018. From 2016 to 2017, Dr. Accordino served as the White House Fellow to the Secretary of Defense and chaired the Secretary of the Army Symposium on Suicide Prevention and Social Media. Dr. Accordino holds a Bachelor of Arts degree in Psychology from Princeton University, a Master of Science degree in Experimental Psychology from Oxford University and a Doctor of Medicine degree from Mount Sinai Icahn School of Medicine. On July 7, 2022, the Company accepted Dr. Accordino’s resignation, effective July 29, 2022.
Code of Ethics
Our Board of Directors has adopted a code of ethics applicable to our chief executive officer, chief financial officer and persons performing similar functions. Our code of ethics is accessible on our website at
http://www.ontrakhealth.com. Disclosure regarding any amendments to, or waivers from, provisions of the code of ethics will be included in a Current Report on Form 8-K within four business days following the date of the amendment or waiver.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934, as amended (Exchange Act), requires our directors and executive officers, and persons who own more than 10% of our outstanding common stock, to file with the SEC, initial reports of ownership and reports of changes in ownership of our equity securities. Such persons are required by SEC regulations to furnish us with copies of all such reports they file.
To our knowledge, based solely on a review of the copies of such reports furnished to us regarding the filing of required reports, we believe that all Section 16(a) reports applicable to our directors, executive officers and greater-than-ten-percent beneficial owners with respect to fiscal 2021 were timely filed, except that an initial report of ownership was filed late by Dr. Accordino and a statement of changes in beneficial ownership was filed late for Mr. Sherman.
Anti-Hedging Policy
We have adopted an insider trading policy that includes a provision restricting trading of any interest or provision relating to the future price of our securities, such as a put, call or short sale.
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid during the last two fiscal years ended December 31, 2021 and 2020 to the following Executive Officers of the Company, who are referred to as the “Named Executive Officers”:
• Terren S. Peizer, our Chairman of the Board and Executive Chairman (1)
• Jonathan Mayhew, our Chief Executive Officer
• Robert Accordino, our Chief Medical Officer
• Mary Louise Osborne, our Co-President and Chief Commercial Officer
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Stock/Option | | All Other | | |
| Name and Principal | | | | | | | | Award | | Compensation | | |
| Position | | Year | | Salary ($) | | Bonus ($) | | ($)(5) | | ($)(6)
| | Total ($) |
| | | | | | | | | | | | |
| Terren S. Peizer | | 2021 | | $ | 646,923 | | $ | — | | $ | — | | $ | 18,148 | | $ | 665,071 |
| Chairman of the Board and Executive Chairman (1) | | 2020 | | 450,000 | | — | | — | | 17,786 | | 467,786 |
| | | | | | | | | | | | |
| Jonathan E. Mayhew | | 2021 | | 350,000 | | — | | 8,359,187 | | 12,550 | | 8,721,737 |
| Chief Executive Officer (2) | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Robert Accordino | | 2021 | | 87,500 | | 340,000 | | 706,861 | | — | | 1,134,361 |
| Chief Medical Officer (3) | | | | | | | | | | | | |
| | | | | | | | | | | | |
| Mary Louise Osborne | | 2021 | | 114,423 | | 87,500 | | 817,866 | | — | | 1,019,789 |
| Co-President and Chief Commercial Officer (4) | | | | | | | | | | | | |
__________
| | | | | |
(1) | Mr. Peizer served as the Chairman of the Board and Chief Executive Officer of the Company through April 11, 2021 and was appointed to serve as Executive Chairman of the Company as of April 12, 2021. Mr. Peizer continues to serve as Chairman of the Board and he will resume his role as the Company’s Chief Executive Officer on August 12, 2022. |
(2) | Mr. Mayhew was appointed to serve as the Chief Executive Officer of the Company on April 12, 2021. On June 24, 2022, Mr. Mayhew gave notice of his resignation, effective August 12, 2022
|
(3) | Dr. Accordino was appointed to serve as the Chief Medical Officer of the Company on September 27, 2021. On July 7, 2022, the Company accepted Dr. Accordino’s resignation, effective July 29, 2022 |
(4) | Ms. Osborne was appointed to serve as our Co-President and Chief Commercial Officer on June 27, 2022 and Chief Customer Officer since August 30, 2021. |
(5) | Represents the aggregate grant date fair value of stock and option awards, valued in accordance with ASC 718, awarded to each of the named executive officers for each respective year. For a detailed discussion of the assumptions made in the valuation of stock and option awards, please see Notes 2 and 11 of our Notes to our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 15, 2022. |
(6) | Includes group medical and dental benefits, group life insurance premiums, accidental death, long-term disability insurance and parking, to the extent these amounts exceed $10,000 in the aggregate for each Named Executive Officer. |
Narrative Disclosures to Summary Compensation Table
Executive Employment Agreements
Executive Chairman
We entered into a five-year employment agreement with our Executive Chairman (formerly Chief Executive Officer through April 11, 2021), Terren S. Peizer, effective as of September 29, 2003, which automatically renews after each five-year term. Mr. Peizer’s annual base salary was $650,000 in 2021 and $450,000 in 2020. Effective January 1, 2021, Mr. Peizer’s annual base salary was increased to $650,000. Mr. Peizer is also eligible for an annual bonus targeted at 100% of his base salary based on goals and milestones established and reevaluated on an annual basis by mutual agreement between Mr. Peizer and the Board of Directors. Mr. Peizer did not receive any annual bonus during the fiscal years ended December 31, 2021 and 2020. His base salary and bonus target will be adjusted each year to not be less than the median compensation of similarly positioned executives of similarly situated companies. Mr. Peizer receives executive benefits including group medical and dental insurance, term life insurance equal to 150% of his salary, accidental death and long-term disability insurance, grossed up for taxes. Mr. Peizer was not granted any equity awards during 2021 and 2020. All unvested options vest immediately in the event of a change in control, termination without good cause or resignation with good reason. In the event that Mr. Peizer is terminated without good cause or resigns with good reason prior to the end of the term, he will receive a lump sum payment equal to the remainder of his base salary and targeted bonus for the year of termination, plus three years of additional salary, bonuses and benefits. If any of the provisions above result in an excise tax, we will make an additional “gross up” payment to eliminate the impact of the tax on Mr. Peizer. Mr. Peizer will resume his role as the Company’s Chief Executive Officer on August 12, 2022. New terms for Mr. Peizer’s employment agreement are currently being negotiated.
Chief Executive Officer
We entered into a three-year employment agreement with Mr. Mayhew dated April 12, 2021, with an option to renew for an additional three-year term unless terminated by either party within 90 days of the end of the original term. Mr. Mayhew’s annual base salary is $525,000. Mr. Mayhew is also eligible for an annual bonus target of 100% of his base salary based upon achieving certain milestones. Mr. Mayhew did not receive any annual bonus during the fiscal period ended December 31, 2021. Mr. Mayhew received executive benefits, including group medical and dental insurance, term life insurance, accidental death and long-term disability insurance. Mr. Mayhew was granted 400,000 equity awards during 2021. All unvested options vest immediately in the event of a change in control. In the event that Mr. Mayhew is terminated without good cause or resigns for good reason, the option will continue to vest for a period of twelve months following the date of termination, he will receive a lump sum payment equal to twelve months of his base salary plus a pro-rata share of any bonus earned for the year of termination which is payable on the six-month anniversary of his termination and he will receive COBRA benefits for a period of twelve months. On June 24, 2022, Mr. Mayhew gave notice of his resignation, effective August 12, 2022.
Chief Medical Officer
We entered into a three-year employment agreement with Dr. Accordino dated September 27, 2021, with an option to renew for an additional three-year term unless terminated by either party within 90 days of the end of the original term. Dr. Accordino’s annual base salary is $350,000. Dr. Accordino is also eligible for an annual bonus target of 40% of his base salary based upon achieving certain milestones. Dr. Accordino received a $340,000 bonus during the fiscal period ended December 31, 2021. Dr. Accordino received executive benefits, including group medical and dental insurance, term life insurance, accidental death and long-term disability insurance. Dr. Accordino was granted 100,000 equity awards during 2021. All unvested options vest immediately in the event of a change in control. In the event that Dr. Accordino is terminated without good cause or resigns for good reason, the option will continue to vest for a period of twelve months following the date of termination, he will receive a lump sum payment equal to six months of his base salary plus a pro-rata share of any bonus earned for the year of termination which is payable on the six-month anniversary of his termination and he will receive COBRA benefits for a period of six months. On July 7, 2022, the Company accepted Dr. Accordino’s resignation, effective July 29, 2022.
Co-President and Chief Commercial Officer
We entered into a three-year employment agreement with Ms. Osborne dated August 30, 2021, with an option to renew for an additional three-year term unless terminated by either party within 90 days of the end of the original term. Ms. Osborne’s annual base salary is $350,000. Ms. Osborne is also eligible for an annual bonus target of 75% of her base salary based upon achieving certain milestones and allows for overachievement to a maximum of 200% of her base salary. Ms. Osborne received a $87,500 bonus during the fiscal period ended December 31, 2021. Ms. Osborne received executive benefits, including group medical and dental insurance, term life insurance, accidental death and long-term disability insurance. Ms. Osborne was granted 100,000 equity awards during 2021. All unvested options shall vest immediately in the event of a change of control. In the event that Ms. Osborne is terminated without good cause or resigns for good reason, the option will continue to vest for a period of twelve months following the date of termination, she will receive a lump sum payment equal to six months of her base salary plus a pro-rata share of any bonus earned for the year of termination which is payable on the six-month anniversary of her termination and she will receive COBRA benefits for a period of six months. On June 27, 2022, Ms. Osborne was promoted to Co-President and Chief Commercial Officer. New terms for Ms. Osborne’s employment agreement are currently being negotiated.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth all outstanding equity awards held by our named executive officers as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Number of | | Number of | | | | |
| | Securities | | Securities | | | | |
| | Underlying | | Underlying | | Option | | |
| | Unexercised | | Unexercised | | Exercise | | Option |
| | Options (#) | | Options (#) | | Price | | Expiration |
| Name | | Exercisable | | Unexercisable | | ($) | | Date |
| Terren S. Peizer | | | — | | | 642,307 | (1) | $7.50 | | 12/19/27 |
| | | — | | | 397,693 | (1) | 7.50 | | 08/02/28 |
| | | | | | 1,040,000 | | | | |
| | | | | | | | | | |
| Jonathan E. Mayhew | | | — | | | 400,000 | (2) | 31.22 | | 04/12/31 |
| | | | | | | | | | |
| Robert Accordino | | | — | | | 100,000 | (3) | 10.40 | | 09/27/31 |
| | | | | | | | | | |
| Mary Louise Osborne | | | — | | | 100,000 | (4) | 12.07 | | 08/30/31 |
___________
| | | | | |
(1) | The Compensation Committee determined that the performance condition for these options – the Volume Weighted Average Price of our common stock is $15.00 for at least twenty trading days within a period of thirty consecutive trading days ending on the trading day prior to January 1, 2023 – was satisfied on or before May 31, 2019. These options shall vest on January 1, 2023, subject to continuing service. |
(2) | One third of Mr. Mayhew’s stock options shall vest one-year from the date of grant and the remaining stock options shall vest equally over the next 24 months. |
(3) | One fourth of Dr. Accordino’s stock options shall vest one-year from the date of grant and the remaining stock options shall vest equally on the next 36 months. |
(4) | One fourth of Ms. Osborne’s stock options shall vest one-year from the date of grant and the remaining stock options shall vest equally over the next 36 months. |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL
Provisions of our employment and change of control arrangements with the named executive officers and our equity incentive plan or individual award agreements thereunder provide for certain payments to our named executive officers at or following or in connection with a termination of their employment or a change of control of the Company.
The agreements pursuant to which we granted stock options to our executive officers provide for full vesting of their unvested awards in the event of a change of control of our Company.
Under our stock incentive plans, a change of control is deemed to occur upon:
• any persons becoming the beneficial owner, directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding voting securities;
• a merger or consolidation of the Company whether or not approved by the Board of Directors, which would result in more than 50% of the total voting power represented by the voting securities; or
• the sale or disposition by the Company of all or substantially all of the Company’s assets in a transaction requiring stockholder approval.
The table below sets forth the estimated payments that would be made to each of our named executive officers upon voluntary termination, involuntary termination, a change of control, and death or permanent disability. The actual amounts to be paid out can only be determined at the time of such named executive officer’s separation from the Company. The information set forth in the table assumes, as necessary:
• the termination and/or the qualified change in control event occurred on December 31, 2021 (the last business day of our last completed fiscal year); and
• the price per share of our common stock on the date of termination is $6.29 (the closing market price of our common stock on the Nasdaq Global Market on December 31, 2021).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Death or | | | | | | |
| | Voluntary | | Permanent | | Change of | | | Involuntary | |
| Name | | Termination | | Disability | | Control | | | Termination | |
| Terren S. Peizer | | | | | | | | | | | | |
| Salary, Bonus and Benefits | | | $ | 551,352 | | (1) | | $ | 591,265 | | (2) | $ | 551,352 | | (1) | | $ | 5,466,265 | | (3) |
| Acceleration of Equity Awards | | | — | | | — | (4) | — | (4) | | — | (4) |
| Total | | | $ | 551,352 | | | | $ | 591,265 | | | $ | 551,352 | | | | $ | 5,466,265 | | |
| | | | | | | | | | | | |
| Jonathan E. Mayhew | | | | | | | | | | | | |
| Salary, Bonus and Benefits | | | $ | — | | | | $ | — | | | $ | — | | | | $ | 551,810 | | (5) |
| Acceleration of Equity Awards | | | — | | | — | (4) | — | (4) | | — | (4) |
| Total | | | $ | — | | | | $ | — | | | $ | — | | | | $ | 551,810 | | |
| | | | | | | | | | | | |
| Robert Accordino | | | | | | | | | | | | |
| Salary, Bonus and Benefits | | | $ | — | | | | $ | — | | | $ | — | | | | $ | 180,322 | | (6) |
| Acceleration of Equity Awards | | | — | | | — | (4) | — | (4) | | — | (4) |
| Total | | | $ | — | | | | $ | — | | | $ | — | | | | $ | 180,322 | | |
| | | | | | | | | | | | |
| Mary Louise Osborne | | | | | | | | | | | | |
| Salary, Bonus and Benefits | | | $ | — | | | | $ | — | | | $ | — | | | | $ | 189,306 | | (7) |
| Acceleration of Equity Awards | | | — | | | — | (4) | — | (4) | | — | (4) |
| Total | | | $ | — | | | | $ | — | | | $ | — | | | | $ | 189,306 | | |
__________
| | | | | |
(1) | Pursuant to the terms of his employment agreement, Mr. Peizer would have received a lump sum amount of approximately $441,000 in accrued vacation grossed up for taxes upon a voluntary termination or a change in control. |
(2) | Pursuant to the terms of his employment agreement, Mr. Peizer would have received a lump sum amount of approximately $441,000 in accrued vacation and $11,000 in COBRA benefits for the twelve months following termination grossed up for taxes upon the event of death or permanent disability. |
(3) | Pursuant to the terms of his employment agreement, Mr. Peizer would have received three additional years of salary, three years bonus calculated at 100% of his salary, accrued vacation of approximately $441,000, COBRA benefits of approximately $32,000 grossed up for taxes upon an involuntary termination. |
(4) | Represents the value of stock options as of December 31, 2021 that would vest upon death or permanent disability, change of control or involuntary termination. Assumes that the vested options are immediately exercised, and the shares received upon exercise are immediately resold at the assumed per share price on the date of termination. As of December 31, 2021, all of the options are out-of-the money. |
(5) | Pursuant to the terms of his employment agreement, Mr. Mayhew would receive twelve months base salary upon termination without good cause or for good reason on the six-month anniversary of his termination and COBRA benefits for the twelve months following his date of termination. |
(6) | Pursuant to the terms of his employment agreement, Dr. Accordino would receive six months base salary upon termination without good cause or for good reason on the six-month anniversary of his termination and COBRA benefits for the six months following his date of termination. |
(7) | Pursuant to the terms of her employment agreement, Ms. Osborne would receive six months base salary upon termination without good cause or for good reason on the six-month anniversary of her termination and COBRA benefits for the six months following his date of termination. |
DIRECTOR COMPENSATION
The following table provides information regarding compensation that was earned or paid to the individuals who served as non-employee directors during the year ended December 31, 2021. Except as set forth in the table, during 2021, directors did not earn nor receive cash compensation or compensation in the form of stock awards, option awards or any other form:
| | | | | | | | | | | |
| Option Awards |
Name | ($) (1) |
Richard A. Berman-5- | | $ | 213,318 |
Michael Sherman | | 218,911 |
Edward J. Zecchini (2) | | 86,224 |
Diane Seloff (3) | | 86,224 |
Robert Rebak | | 372,574 |
Gustavo A. Giraldo (4) | | 190,859 |
Katherine B. Quinn (5) | | 190,895 |
____________
| | | | | |
(1) | Amounts reflect the compensation expense recognized in the Company’s financial statements in 2021 for non-employee director stock options, in accordance with FASB ASC Topic 718. As such, these amounts do not correspond to the compensation actually realized by each director for the period. |
(2) | On May 24, 2022, Mr. Edward Zecchini notified us that he did not wish to stand for re-election to the Board at the Company’s 2022 Annual Meeting. |
(3) | On May 24, 2022, Ms. Diane Seloff notified us that she did not wish to stand for re-election to the Board at the Company’s 2022 Annual Meeting. |
(4) | Mr. Giraldo resigned as a member of our board of directors effective February 11, 2022. |
(5) | Ms. Quinn resigned as a member of our board of directors effective January 11, 2022. |
Our directors are eligible to participate in our equity incentive plans, which are administered by our Compensation Committee under authority delegated by our board of directors. The terms and conditions of option grants to our non-employee directors under our equity incentive plans are and will be determined in the discretion of our Compensation Committee, consistent with the terms of the applicable plan. In 2021, new board members and existing board members whose vesting had completed in 2020 were granted stock options valued at $170,000, plus $20,000 for the Chairman of the Audit Committee and $12,500 for the Chairman of the Compensation Committee and $12,500 for the Chairman of the Nominations and Governance Committee, based on the Black-Scholes model. Such stock options had an exercise price equal to the fair market value of a share of common stock on the date of grant and vest at the end of each quarter with quarterly vesting subject to attendance at the board meeting unless such absence is excused by the Chairman of the Board. New director grants will be pro-rated based upon when they join the Board. We reimburse each of our directors for reasonable out-of-pocket expenses that they incur in connection with attending board or committee meetings.
Outstanding equity awards held by non-employee directors as of December 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of | | Number of | | | | |
| | | Securities | | Securities | | | |
| | | Underlying | | Underlying | | | Grand Date |
| | | Unexercised | | Unexercised | Option | | Fair Market |
| Grant | | Options | | Options | Exercise | | Value Options |
| Date | | Exercisable (#) | | Unexercisable (#) | Price | | Outstanding ($) |
| Richard A. Berman | 02/17/2015 | | | 41,667 | | — | | $ | 13.20 | | | $ | 502,500 |
| 12/19/2017 | | | 66,927 | | — | | 7.5 | | | 112,123 |
| 08/02/2018 | | | 41,438 | | — | | 7.5 | | | 162,890 |
| 02/12/2020 | | | 16,094 | | — | | 16.01 | | | 126,840 |
| 02/11/2021 | | | 4,882 | | — | | 86.57 | | | 213,318 |
| Michael Sherman | 12/19/2017 | | | 61,040 | | — | | 7.5 | | | 102,260 |
| 08/02/2018 | | | 37,794 | | — | | 7.5 | | | 148,566 |
| 02/12/2020 | | | 16,630 | | — | | 16.01 | | | 131,064 |
| 02/11/2021 | | | 5,010 | | — | | 86.57 | | | 218,911 |
| Edward J. Zecchini (1) | 12/19/2018 | | | 35,647 | | — | | 10.11 | | | 219,773 |
| 01/04/2019 | | | 49,904 | | — | | 9.51 | | | 316,154 |
| Diane Seloff (2) | 12/24/2018 | | | 35,647 | | — | | 9.08 | | | 197,295 |
| 01/04/2019 | | | 49,904 | | — | | 9.51 | | | 316,154 |
| Robert Rebak | 07/16/2019 | | | 71,293 | | 14,258 | | 20.27 | | | 1,117,722 |
| Gustavo A. Giraldo (3) | 12/02/2019 | | | 8,360 | | — | | 15.55 | | | 79,576 |
| 02/12/2020 | | | 5,839 | | — | | 16.01 | | | 46,018 |
| 02/11/2021 | | | 4,368 | | — | | 86.57 | | | 190,859 |
| Katherine B. Quinn (4) | 08/10/2020 | | | 2,225 | | — | | 59.36 | | | 62,599 |
| 02/11/2021 | | | 4,368 | | — | | 86.57 | | | 190,859 |
___________
| | | | | |
(1) | On May 24, 2022, Mr. Edward Zecchini notified us that he did not wish to stand for re-election to the Board at the Company’s 2022 Annual Meeting. |
(2) | On May 24, 2022, Ms. Diane Seloff notified us that she did not wish to stand for re-election to the Board at the Company’s 2022 Annual Meeting. |
(3) | Mr. Giraldo resigned as a member of our board of directors effective February 11, 2022. |
(4) | Ms. Quinn resigned as a member of our board of directors effective January 11, 2022. |
There were a total of 573,295 stock options outstanding to directors as of December 31, 2021, with an aggregate grant date fair value of $4.5 million, the last of which vest in June 2022. There were 18,628 options granted to non-employee directors during 2021 and 40,788 options granted to non-employee directors during 2020.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain aggregate information with respect to all of the Company’s equity compensation plans in effect as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Plan Category | | (a) Number of securities to be issued upon exercise of outstanding options, warrants and right | |
(b) Weighted-average exercise price of outstanding options, warrants and rights | | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| Equity compensation plans approved by security holders (1) | | | 3,618,145 | | $ | 13.55 | | | | — |
| Equity compensation plans not approved by security holders |
| | — | | | — | | | — |
| Total | | | 3,618,145 | | | 13.55 | | | — |
___________
(1) We adopted the 2017 Plan in 2017. In August 2018, stockholders approved an amendment to the 2017 Plan to provide for an additional 1,400,000 shares to be issued in connection with awards granted thereunder. Under the 2017 Plan, we can grant incentive stock options, non-qualified stock option, restricted and unrestricted stock awards and other stock-based awards. As of December 31, 2021, there were no equity awards remaining reserved for future issuance under the 2017 Plan.
Compensation Committee Interlocks and Insider Participation
Currently, our Compensation Committee consists of Messrs. Michael Sherman, Edward Zecchini, and Robert Rebak. Mr. Zecchini notified us that he did not wish to stand for re-election to the Board at the Company’s 2022 Annual Meeting and as a result will cease to serve as a member of the Compensation Committee, effective August 29, 2022, the date of this Annual Meeting and will be replaced on the compensation committee by Mr. Berman assuming he is re-elected. No member of the Compensation Committee, nor any of our Named Executive Officers, has a relationship that would constitute an interlocking relationship with executive officers or directors of another entity.
No member of our Compensation Committee is or has been an officer or employee of the Company. None of our executive officers currently serves, or in the past year has served, as a member of the Board or Compensation Committee (or other Board committee performing equivalent functions) of any entity that has one or more of its executive officers serving on our Board or Compensation Committee.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of July 15, 2022 for (a) each stockholder known by us to own beneficially more than 5% of our common stock (b) our named executive officers listed in the 2021 Summary Compensation Table, (c) each of our directors, and (d) all of our current directors and executive officers as a group. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. We deem shares of common stock that may be acquired by an individual or group within 60 days of July 15, 2022 pursuant to the exercise of options or warrants to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other
person shown in the table. Except as indicated in the footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them based on information provided to us by these stockholders. Percentage of ownership is based on 20,966,127 shares of common stock outstanding on July 15, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name of beneficial owner (1) | | Common stock owned (2) | | | Shares beneficially owned (3) | | | Total common stock beneficially owned | | | Percent of class (3) | |
| Directors and Named Executive Officers: | | | | | | | | | | | | |
| Terren S. Peizer (4) | | 9,114,155 | | | — | | | 9,114,155 | | | 43.5 | % |
| Richard A. Berman (5) | | — | | | 198,436 | | | 198,436 | | | * | |
| Jonathan E. Mayhew (6) | | — | | | 188,189 | | | 188,189 | | | * | |
| Michael Sherman (7) | | 15,550 | | | 148,624 | | | 164,174 | | | * | |
| Edward Zecchini (8) | | — | | | 110,092 | | | 110,092 | | | * | |
| Diane Seloff (9) | | — | | | 110,092 | | | 110,092 | | | * | |
| Robert Rebak (10) | | 8,200 | | | 85,551 | | | 93,751 | | | * | |
| Robert Accordino (11) | | — | | | — | | | — | | | * | |
| Mary Louise Osborne (12) | | — | | | 25,000 | | | 25,000 | | | * | |
| | | | | | | | | | | | |
| All current directors and executive officers as a group (12 persons) | | 9,201,853 | | | 1,085,435 | | | 10,287,288 | | | 46.7 | % |
___________
| | | | | |
* | Less than 1% |
(1) | Except as set forth below, the mailing address of all individuals listed is c/o Ontrak, Inc., 2200 Paseo Verde Parkway, Suite 280, Henderson, NV 89052. |
(2) | The number of shares beneficially owned includes shares of common stock in which a person has sole or shared voting power and/or sole or shared investment power. Except as noted below, each person named reportedly has sole voting and investment powers with respect to the common stock beneficially owned by that person, subject to applicable community property and similar laws. |
(3) | On July 15, 2022, there were 20,966,127 shares of common stock outstanding. Common stock not outstanding but which underlies options and rights (including warrants) vested as of or vesting within 60 days after July 15, 2022, is deemed to be outstanding for the purpose of computing the percentage of the common stock beneficially owned by each named person (and the directors and executive officers as a group), but is not deemed to be outstanding for any other purpose. |
(4) | Consists of 9,114,155 shares of common stock. 9,114,155 shares of common stock are held of record by Acuitas Group Holdings, LLC, a limited liability company 100% owned by Terren S. Peizer, and as such, Mr. Peizer may be deemed to beneficially own or control. Mr. Peizer disclaims beneficial ownership of any such securities. |
(5) | Includes options to purchase 198,436 shares of common stock, which are exercisable within the next 60 days. |
(6) | Includes options to purchase 188,189 shares of our common stock, which are exercisable within the next 60 days. |
(7) | Consists of 15,550 shares of common stock and options to purchase 148,624 shares of common stock, which are exercisable within the next 60 days. |
(8) | Includes options to purchase 110,092 shares of common stock, which are exercisable within the next 60 days. On May 24, 2022, Mr. Zecchini notified the Company that he did not wish to stand for re-election to the Board at the Company’s 2022 Annual Meeting. |
(9) | Includes options to purchase 110,092 shares of common stock, which are exercisable within the next 60 days.On May 24, 2022, Ms. Seloff notified the Company that she did not wish to stand for re-election to the Board at the Company’s 2022 Annual Meeting.
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(10) | Consists of 8,200 shares of common stock and options to purchase 85,551 shares of common stock, which are exercisable within the next 60 days. |
(11) | Dr. Accordino was appointed to serve as our Chief Medical Officer on September 27, 2021. On July 7, 2022, the Company accepted Dr. Accordino’s resignation, effective July 29, 2022. |
(12) | Includes options to purchase 25,000 shares of common stock, which are exercisable within the next 60 days.Ms. Osborne was appointed to serve as our Co-President and Chief Commercial Officer on June 27, 2022 and has served as our Chief Customer Officer since August 30, 2021.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Review and Approval of Transactions with Related Persons
Either the audit committee or the Board of Directors approves all related party transactions. The procedure for the review, approval or ratification of related party transactions involves discussing the proposed transaction with management, discussing the proposed transaction with the external auditors, reviewing financial statements and related disclosures, and reviewing the details of major deals and transactions to ensure that they do not involve related party transactions. Members of management have been informed and understand that they are to bring related party transactions to the audit committee or the Board of Directors for pre-approval. These policies and procedures are evidenced in the audit committee charter and our code of ethics.
Transactions with Related Persons
As more fully described under Proposal 4, the Shares Issuance Proposal and Proposal 5, the Warrant Issuance Proposal, on April 15, 2022, the Company entered into a Master Note Purchase Agreement with Acuitas Capital LLC (“Acuitas Capital”), an entity wholly owned by Acuitas Group Holdings, LLC, a California limited liability company (“Acuitas”) controlled by Terren S. Peizer, the Company's Executive Chairman, pursuant to which, subject to specified conditions, the Company may borrow up to $25.0 million from time to time through the earlier of (a) the date on which the Company files a report with the SEC that states that there is substantial doubt regarding the Company’s ability to continue as a going concern during the twelve month period following such filing and (b) September 1, 2023.
Director Independence
As noted above, our common stock is traded on the NASDAQ Global Market and the Board of Directors has determined that five of the current members of the Board of Directors qualify as “independent,” as defined by the listing standards of the NASDAQ. Each member of our Board of Directors serving on our Audit, Compensation and Nominations and Governance committees is “independent” within the meaning of the applicable Nasdaq listing standards.
REPORT OF THE AUDIT COMMITTEE
As more fully described in its Charter, the Audit Committee assists the Board of Directors in its oversight of Ontrak’s corporate accounting and financial reporting process and interacts directly with and evaluates the performance of Ontrak’s independent registered public accounting firm.
In the performance of its oversight function, the Audit Committee has reviewed Ontrak’s audited consolidated financial statements for the year ended December 31, 2021 and has met with both management and Ontrak’s independent registered public accounting firm, EisnerAmper LLP (“EisnerAmper”), to discuss those consolidated financial statements. The Audit Committee has discussed with EisnerAmper those matters related to the conduct of the audit that are required to be communicated by the independent registered public accounting firm to the Audit Committee under Auditing Standard 1301, Communications with Audit Committees, issued by the Public Company Accounting Oversight Board (“PCAOB”), including EisnerAmper’s judgments as to the quality, not just the acceptability, of Ontrak’s accounting principles. In addition, the Audit Committee has reviewed and discussed with management the assessment of the effectiveness of Ontrak’s internal control over financial reporting.
The Audit Committee discussed with Ontrak’s independent registered public accounting firm the overall scope and plans for its audit. The Audit Committee met separately with the independent registered public accounting firm, without management present, to discuss the results of its audit, Ontrak’s internal controls and the overall quality of Ontrak’s financial reporting.
The Audit Committee has received from EisnerAmper the required written disclosures and letter regarding its independence from Ontrak, as required by the PCAOB Rule 3526, and has discussed with EisnerAmper its independence. The Audit Committee has also reviewed and considered whether the provision of other non-audit services by EisnerAmper is compatible with maintaining the auditor’s independence.
Based on these reviews and discussions, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, that the audited financial statements of Ontrak for the year ended December 31, 2021 be included in Ontrak’s Annual Report on Form 10-K, as amended, which was filed with the Securities and Exchange Commission on April 15, 2022.
It is not the duty of the Audit Committee to conduct audits, to independently verify management’s representations or to determine that Ontrak’s financial statements are complete and accurate, prepared in accordance with United States generally accepted accounting principles or fairly present the financial condition, results of operations and cash flows of Ontrak. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal control over financial reporting. The independent registered public accounting firm retained by the Audit Committee is responsible for performing an independent audit of the consolidated financial statements, and for reporting the results of their audit to the Audit Committee. The Audit Committee reviews and monitors these processes. In giving its recommendation to the Board of Directors, the Audit Committee has expressly relied on (i) management’s representation that such financial statements have been prepared in conformity with United States generally accepted accounting principles and (ii) the report of the Company’s independent registered public accounting firm, with respect to such financial statements.
The Audit Committee
Richard A. Berman, Chairman
Michael Sherman
Diane Seloff (Ms. Seloff notified the Company that she did not wish to stand for re-election to the Board at the Company’s 2022 Annual Meeting.)
The foregoing Report is not soliciting material, is not deemed filed with the SEC and is not to be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The following table presents fees for professional audit services rendered by EisnerAmper LLP (“EisnerAmper”) for the audit of the Company’s annual financial statements for the year ended December 31, 2021 and 2020 and fees billed for other services rendered during those periods:
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| | 2021 | | 2020 | |
| Audit fees (1) | | $ | 262,000 | | $ | 323,150 | |
| Audit-related fees (2) | | | — | | | 20,000 | |
| Tax fees | | | — | | | — | |
| All other fees | | | — | | | — | |
| Total | | $ | 262,000 | | $ | 343,150 | |
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(1) Audit fees consisted of audit work performed in the preparation of financial statements, as well as work generally only the independent registered public accounting firm can reasonably be expected to provide, such as statutory audits.
(2) Fees relating to due diligence services related to acquisition.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-audit Services of Independent Public Accountant
Consistent with SEC policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation and overseeing the work of our independent registered public accounting firm. In recognition of this responsibility, the Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm.
Prior to engagement of an independent registered public accounting firm for the next year’s audit, management will submit an aggregate of services expected to be rendered during that year for each of four categories of services to the Audit Committee for approval.
1. Audit services include audit work performed in the preparation of financial statements, as well as work that generally only an independent registered public accounting firm can reasonably be expected to provide, including comfort letters, statutory audits, and attest services and consultation regarding financial accounting and/or reporting standards.
2. Audit-Related services are for assurance and related services that are traditionally performed by an independent registered public accounting firm, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.
3. Tax services include all services performed by an independent registered public accounting firm’s tax personnel except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice.
4. Other Fees are those associated with services not captured in the other categories. The Company generally does not request such services from our independent registered public accounting firm.
Prior to engagement, the Audit Committee pre-approves these services by category of service. The fees are budgeted and the Audit Committee requires our independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by category of service. During the year, circumstances may arise when it may become necessary to engage our independent registered public accounting
firm for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires specific pre-approval before engaging our independent registered public accounting firm.
The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR”
THE RATIFICATION OF EISNERAMPER LLP AS OUR INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM FOR 2022.
PROPOSAL NO. 31
THE 2017 PLAN AMENDMENTREVERSE STOCK SPLIT PROPOSAL
2017 Plan AmendmentGeneral
The Board has approved, and has recommended that theWe are asking our stockholders to approve an amendment to our 2017 Stock Incentive Plan (as amended and restated certificate of incorporation to date,effect a reverse stock split of our outstanding shares of common stock at a ratio that is not less than 4:1 and not greater than 6:1, without reducing the “2017 Plan”) to (i) provide for an additional 4,000,000 shares to be issued in connection with awards granted thereunder, and (ii) to amend the “evergreen” or automatic replenishment provision of the 2017 Plan pursuant to which theauthorized number of shares authorized for issuance underof our common stock, with the 2017 Planfinal ratio to be selected by our board of directors in its discretion following stockholder approval, and to be effected, if at all, in the sole discretion of our board of directors at any time within one year of the date of the special meeting without further approval or authorization of our stockholders. If our stockholders approve this proposal, our board of directors will have authority to give effect to the reverse stock split. However, notwithstanding stockholder approval of this proposal, our board of directors may elect not to proceed with the reverse stock split if, at any time our board of directors, in its sole discretion, determines that it is automatically increased on an annual basisno longer in our best interest and the best interests of our stockholders to 3%proceed with the reverse stock split. By voting in favor of this proposal, you are expressly also authorizing our board of directors to determine not to proceed with the reverse stock split.
If the reverse stock split is effected, at the effective time of the reverse split, the issued and outstanding shares of the Company (the “2017 Plan Amendment Proposal”).
Backgroundour common stock immediately prior thereto time will be combined and Reasonsreclassified into a smaller number of shares such that each of our stockholders will own one new share of our common stock for the 2017 Plan Amendment Proposal
On February 27, 2017, the Board of Directors authorized the Companyevery four to implement the 2017 Plan. The Company’s stockholders approved the 2017 Plan on February 27, 2017. The 2017 Plan became effective on March 10, 2017. Currently, 5,359,397six shares of common stock are authorizedowned by such stockholder immediately prior to be issued pursuant to Awards granted under the 2017 Plan and as of December 31, 2021 and the date hereof, there are no more shares available for future issuances under the 2017 Plan. The Board believes that the availability of additional shares of common stock for Awards granted under the 2017 Plan is needed to enable the Company to meet its anticipated equity compensation needs to attract, motivate and retain qualified employees, officers and directors. The proposed share increase is expected to last approximately two years. This estimate is based on a forecast that takes into account our anticipated rate of growth in hiring, an estimated range of our stock price overeffective time and our historical forfeiture rates.
The following summary of the 2017 Plan is qualified in its entirety by reference toreverse split, depending on the complete textfinal ratio.
Reasons for the Reverse Stock Split; Potential Consequences of the Reverse Stock Split
Our primary reason for recommending the reverse stock split is to increase the bid price of our common stock to regain compliance with the SEC oncontinued listing requirements of Nasdaq.
On September 14, 2022, we received a letter from The Nasdaq Stock Market LLC (“Nasdaq”) indicating that we no longer met the minimum bid price requirement set forth in Nasdaq Listing Rule 5450(a)(1) (the “Minimum Bid Price Requirement”) because the closing bid price for our common stock was less than $1.00 for the previous 30 consecutive business days. Under Nasdaq Listing Rule 5810(c)(3)(A), we have a 180-calendar day grace period, or until March 13, 2023, to regain compliance with the Minimum Bid Price Requirement. The Minimum Bid Price Requirement will be met if our common stock has a minimum closing bid price of at least $1.00 per share for a minimum of 10 2017. Capitalized terms used andconsecutive business days during the 180-calendar day grace period, unless Nasdaq exercises its discretion to extend such 10-day period. If we do not otherwise defined in this section discussingregain compliance by March 13, 2023, we may be eligible for an additional 180-calendar day compliance period, subject to satisfying the adoption of the 2017 Plan shall have the meanings given to themconditions in the 2017 Plan.
Purpose of the 2017 Plan
Under the direction of the Board of Directors or, should the Board delegate power to act on its behalf, a committee thereof (the Board and such committee cumulatively referred to as the “Administrator”), the 2017 Plan, which provides for the granting of Incentive Stock Options, Non-Qualified Options, Stock Grants, and Stock-Based Awards, is intended to encourage ownership of shares by Employees and directors of and certain Consultants to the Company and its Affiliates in order to attract and retain such people, to induce them to work for the benefit of the Company or of an Affiliate and to provide additional incentive for them to promote the success of the Company or of an Affiliate. All Employees, directors and Consultants of the Company and its Affiliates are eligible to participate in the 2017 Plan. As of July 15, 2022, we had approximately 200 individuals eligible for participation.
Material Features of the 2017 Plan
Eligibility
The Administrator will, in its sole discretion, name the Participants in the 2017 Plan; provided, however,applicable Nasdaq Listing Rules. We expect that each Participant must be an Employee, director or Consultant of the Company or of an Affiliate at the time a Stock Right is granted. Notwithstanding the foregoing, the Administrator may authorize the grant of a Stock Right to a person not then an Employee, director or Consultant of the Company or of an Affiliate; provided, however, that the actual grant of such Stock Right shall be conditioned upon such person becoming eligible to become a Participant at or prior to the time of the execution of the Agreement evidencing such Stock Right. ISOs may be granted only to Employees who are deemed to be residents of the United States for tax purposes. Non-Qualified Options, Stock Grants and Stock-Based Awards may be granted to any Employee, director or Consultant of the Company or a majority owned subsidiary of the Company. The granting of any Stock Right to any individual shall neither entitle that individual to, nor disqualify him or her from, participation in any other grant of Stock Rights or any grant under any other benefit plan established by the Company or any Affiliate for Employees, directors or Consultants.
Shares Subject to the 2017 Plan
The number of Shares which may be issued from time to time pursuant to the 2017 Plan shall be the sum of: (i) 2,333,334 shares of Common Stock and (ii) up to 243,853 shares of Common Stock that are represented by awards granted under the Company’s 2010 Stock Incentive Plan that are forfeited, expire or are cancelled without delivery of shares of Common Stock or which result in the forfeiture of shares of Common Stock back to the Company on or after February 24, 2017, or the equivalent of such number of shares after the Administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with Paragraph 25 of the 2017 Plan; provided, however, that no more than 1,521,326 Shares shall be added to the 2017 Plan pursuant to subsection (ii).
As amended pursuant to the 2017 Plan Amendment Proposal, the 2017 Plan will also provide that, notwithstanding the above, on the first day of each fiscal year of the Company ending on the second day of fiscal year 2027, the number of Shares that may be issued from time to time pursuant to the 2017 Plan shall be increased by an amount equal to 3% ofreducing the number of outstanding shares of Common Stock onour common stock will increase the per share market price of our common stock. However, there can be no assurance that, even if the reverse stock split is effected, the bid price of our common stock will increase, or that such date.increase, if any, is sustained for a period of time for us to regain compliance with the Minimum Bid Price Requirement.
TypesIn addition, the reverse stock split may make our common stock more attractive and cost effective investment to a broader range of Awards
Stock Options. Stock options granted underinvestors, which in turn would enhance the 2017 Plan may either be ISOs, which are intended to satisfy the requirements of Section 422liquidity of the Code, or Non-Qualified Stock Options, which are not intended to meet those requirements. ISOs, which haveholders of common stock. For example, the tax advantages discussed below under Federal Income Tax Consequences,current market price of our common stock may be granted only to Employees who are deemed to be residentsprevent certain institutional investors, professional investors and other members of the United States for tax purposes. Non-qualified Stock Optionsinvesting public from purchasing our common stock. Many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. Furthermore, some of those policies and practices may be grantedfunction to any Employee, director or Consultantmake the processing of the Company ortrades in low-priced stocks economically unattractive to brokers. Moreover, because brokers’ commissions on low-priced stocks generally represent a majority owned subsidiary of the Company. The exercise price of a stock option may not be less than 100% of the fair market value of our Common Stock on the date of grant. However, if an ISO is granted to an individual who owns more than 10% of the combined voting power of all classes of our capital stock, the exercise price may not be less than 110% of the fair market value of our Common Stock on the date of grant. The term of each option will be fixed by the Administrator and may not exceed ten years from the date of grant. However, if an ISO is granted to an individual who owns more than 10% of the combined voting power of all classes of our capital stock, then the term of the option may not be longer than five years.
The Administrator establishes the vesting schedule of each option at the time of grant. Options may be made exercisable in installments or based on performance, and the exercisability of options may be accelerated by the Administrator. Award agreements for stock options include rules for exercisehigher percentage of the stock options after terminationprice than commissions on higher-priced stocks, the current average price per share of service. Options may notour common stock can result in investors paying transaction costs representing a higher percentage of their total share value than would be exercised unless they are vested, and no option may be exercised after the end ofcase if the term set forth in the award agreement. Generally, stock options will be exercisable for three months after termination of service for any reason other than termination for cause, death or total and permanent disability, and for 12 months after termination of service on account of death or total and permanent disability.share price were higher.
Stock Grants. Stock Grants are shares of Common Stock which the Committee may, in its sole discretion, structure to qualify in whole or in part as “performance-based compensation” under Section 162(m) of the Code. If the grantee does not satisfy the vesting conditions by the end of the period specified in the award agreement, the stock subject to such agreement is forfeited.
Other Stock-Based Awards. The 2017 Plan also authorizes the grant of other types of stock-based compensation including, but not limited to, stock appreciation rights, phantom stock awards, and stock units. The Administrator may award such stock-based awards subject to such conditions and restrictions as it may determine.
Plan Administration, Amendment and Termination
The Administrator is authorized to, among other things, (a) interpret the provisions of the 2017 Plan and all Stock Rights and to make all rules and determinations which it deems necessary or advisable for the administration of the 2017 Plan; (b) determine which Employees, directors and Consultants shall be granted Stock Rights; (c)
determineReducing the number of outstanding shares for which a Stock Right or Stock Rights shall be granted, provided, however, that in no event shall Stock Rights with respect to more than 777,777 Shares be granted to any Participant in any fiscal year; (d) specifyof our common stock through the terms and conditions upon which a Stock Right or Stock Rights may be granted; (e) determine Performance Goals no later than such time as required to ensure that a Performance-Based Award whichreverse stock split is intended, absent other factors, to comply with the requirements of Section 162(m) of the Code so complies, and make any adjustments thereto; (f) make changes to any outstanding Stock Right, including, without limitation, to reduce or increase the exerciseper share price or purchase price, accelerateof our common stock. However, other factors, such as our financial results, market conditions and the vesting schedule or extend the expiration date; (g) buy out for a payment in cash or shares, a stock right previously granted and/or cancel any such Stock Right and grant in substitution therefor other Stock Rights; and (h) adopt any sub-plans applicable to residentsmarket perception of any specified jurisdiction as it deems necessary or appropriate in order to comply with or take advantage of any tax or other laws.
The 2017 Planour business may be amended by our stockholders. The 2017 Plan may also be amended by the Administrator; provided that any amendment approved by the Administrator which the Administrator determines is of a scope that requires stockholder approval shall be subject to obtaining such approval. Any modification or amendment of the 2017 Plan shall not, without the consent of a Participant, adversely affect his or her rights underthe market price of our common stock. As a Stock Right previously granted to him or her. With the consent of the Participant affected, the Administrator may amend outstanding Agreements in a manner which mayresult, there can be adverse to the Participant but which is not inconsistent with the 2017 Plan. In the discretion of the Administrator, outstanding Agreements may be amended by the Administrator in a manner which is not adverse to the Participant.
The Plan will terminate on the date which is ten years from the earlier of the date of its adoption by the Board of Directors and the date of its approval by the stockholders of the Company. The Plan may be terminated at an earlier date by vote of the stockholders or the Board of Directors of the Company; provided, however, that any such earlier termination shall not affect any Agreements executed prior to the effective date of such termination. Termination of the Plan shall not affect any Stock Rights theretofore granted.
Assignability and Transferability of Stock Rights
A Stock Right granted to a Participant shall not be transferable by the Participant other than (i) by will or by the laws of descent and distribution, or (ii) as approved by the Administrator in its discretion and set forth in the applicable Agreement, provided that no Stock Right may be transferred by a Participant for value.
Adjustments
Stock Dividends and Stock Splits. If (i) the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, or (ii) additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Common Stock, each Stock Right and the number of shares of Common Stock thereunder shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made, including in the exercise or purchase price per share, to reflect such events.
Corporate Transactions. If the Company is to be consolidated with or acquired by another entity in a merger, consolidation, or sale of all or substantially all of the Company’s assets, the administrator or the board of any entity assuming the obligations of the Company hereunder shall, as to outstanding Options, either (i) make appropriate provision for the continuation of such Options; (ii) upon written notice to the Participants, provide that such Options must be exercised within a specified number of days of the date of such notice; or (iii) terminate such Options in exchange for payment of an amount equal to the consideration payable upon consummation of such Corporate Transaction to a holder of the number of shares of Common Stock into which such Option would have been exercisable less the aggregate exercise price thereof. With respect to outstanding Stock Grants, provisions shall be made for the continuation of such Stock Grants on the same terms and conditions by substituting on an equitable basis for the shares then subject to such Stock Grants either the consideration payable with respect to the outstanding Shares of Common Stock in connection with the Corporate Transaction or securities of any successor or acquiring entity.
Recapitalization or Reorganization. A Participant, upon exercising an Option or accepting a Stock Grant after the recapitalization or reorganization, shall be entitled to receive for the price paid upon such exercise or acceptance, if any, the number of replacement securities which would have been received if such Option had been exercised or Stock Grant accepted prior to such recapitalization or reorganization.
Withholding
In the event that any amounts are to be withheld from the Participant’s salary, wages or other remuneration in connection with the issuance of a Stock Right or Shares under the 2017 Plan or for any other reason required by law, the Company may withhold from the Participant’s compensation, if any, or may requireassurance that the Participant advancereverse stock split, if completed, will result in cash to the Company, or to any Affiliate of the Company which employs or employed the Participant, the statutory minimum amount of such withholdings unless a different withholding arrangement, including the use of shares of the Company’s Common Stock or a promissory note, is authorized by the Administrator (and permitted by law).
New Plan Benefits
The amounts of future grants under the 2017 Plan are not determinable as awards under the 2017 Plan will be granted at the sole discretion of the Administrator, and the Company cannot determine at this time either the persons who will receive awards under the 2017 Plan or the amount or types of any such awards.
Federal Income Tax Consequences
The material federal income tax consequences of the issuance and exercise of stock options and other awards under the 2017 Plan, based on the current provisions of the Code and regulations, are as follows. Changes to these laws could alter the tax consequences described below. This summary assumes that all awards granted under the 2017 Plan are exempt from or comply with, the rules under Section 409A of the Code related to nonqualified deferred compensation. This information is intended to be merely a summary, and Participants in the 2017 Plan should review the current tax treatment with their individual tax advisors at the time of grant, exercise or any other transaction relating to an award or the underlying shares.
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Incentive Stock Options: | ISOs are intended to qualify for treatment under Section 422 of the Code. ISO does not result in taxable income to the optionee or deduction to us at the time it is granted or exercised, provided that no disposition is made by the optionee of the shares acquired pursuant to the option within two years after the date of grant of the option nor within one year after the date of issuance of shares to the optionee (referred to as the “ISO holding period”). However, the difference between the fair market value of the shares on the date of exercise and the option price will be an item of tax preference includible in “alternative minimum taxable income” of the optionee. Upon disposition of the shares after the expiration of the ISO holding period, the optionee will generally recognize long term capital gain or loss based on the difference between the disposition proceeds and the option price paid for the shares. If the shares are disposed of prior to the expiration of the ISO holding period, the optionee generally will recognize taxable compensation, and we will have a corresponding deduction, in the year of the disposition, equal to the excess of the fair market value of the shares on the date of exercise of the option over the option price. Any additional gain realized on the disposition will normally constitute capital gain. If the amount realized upon such a disqualifying disposition is less than fair market value of the shares on the date of exercise, the amount of compensation income will be limited to the excess of the amount realized over the optionee’s adjusted basis in the shares. | |
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Non-Qualified Options: | Options otherwise qualifying as ISOs, to the extent the aggregate fair market value of shares with respect to which such options are first exercisable by an individual in any calendar year exceeds $100,000, and options designated as non-qualified options will be treated as options that are not ISOs. |
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| A non-qualified option ordinarily will not result in income to the optionee or deduction to us at the time of grant. The optionee will recognize compensation income at the time of exercise of such non-qualified option in an amount equal to the excess of the then value of the shares over the option price per share. Such compensation income of optionees may be subject to withholding taxes, and a deduction may then be allowable to us in an amount equal to the optionee’s compensation income. |
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| An optionee’s initial basis in shares so acquired will be the amount paid on exercise of the non-qualified option plus the amount of any corresponding compensation income. Any gain or loss as a result of a subsequent disposition of the shares so acquired will be capital gain or loss. |
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Stock Grants: | With respect to stock grants under the 2017 Plan that result in the issuance of shares that are either not restricted as to transferability or not subject to a substantial risk of forfeiture, the grantee must generally recognize ordinary income equal to the fair market value of shares received. Thus, deferral of the time of issuance will generally result in the deferral of the time the grantee will be liable for income taxes with respect to such issuance. We generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee. |
intended benefits described above, that the market price of our common stock will increase following the reverse stock split, that as a result of the reverse stock split we will be able to satisfy the Minimum Bid Price Requirement or that the market price of our common stock will not decrease in the future. Additionally, we cannot assure you that the market price per share of our common stock after the reverse stock split will increase in proportion to the reduction in the number of shares of our common stock outstanding before the reverse stock split. Accordingly, the total market capitalization of our common stock after the reverse stock split may be lower than the total market capitalization before the reverse stock split.
Effects of the Reverse Stock Split
Generally
Based on [•] shares of common stock issued and outstanding as of the record date for the special meeting, immediately following the reverse stock split, if effected, we would have approximately [•] shares of common stock issued and outstanding (without giving effect to rounding for fractional shares).
The reverse stock split will affect all holders of our common stock uniformly and will not affect any stockholder’s percentage ownership interest or any stockholder’s proportionate voting power, except that as described below under “Fractional Shares,” record holders of common stock otherwise entitled to a fractional share as a result of the reverse stock split because they hold a number of shares not evenly divisible by the reverse stock split ratio will automatically be entitled to receive an additional fraction of a share of common stock to round up to the next whole share.
The reverse stock split may result in some stockholders owning “odd lots” of less than 100 shares of common stock. Odd lot shares may be more difficult to sell, and brokerage commissions and other costs of transactions in odd lots are generally somewhat higher than the costs of transactions in “round lots” of even multiples of 100 shares.
If the reverse stock split is effected, our common stock will have a new Committee on Uniform Securities Identification Procedures (“CUSIP”) number, which is a number used to identify our common stock, and stock certificates with the older CUSIP numbers will need to be exchanged for stock certificates with the new CUSIP number by following the procedures described below.
Our common stock is currently registered under the Securities Exchange Act of 1934 (the “Exchange Act”), and we are subject to the periodic reporting and other requirements of the Exchange Act. The reverse stock split will not affect the registration of our common stock under the Exchange Act. In addition, notwithstanding the decrease in the number of outstanding shares that will result if the reverse stock split is effected, our board of directors does not intend for this transaction to be the first step in a “going private transaction” within the meaning of Rule 13e-3 of the Exchange Act.
If the reverse stock split is effected, the post-split market price of our common stock may be less than the pre-split price multiplied by the reverse stock split ratio. In addition, a reduction in number of shares outstanding may impair the liquidity for our common stock, which may reduce the value of our common stock.
Effect on Authorized Shares of Common Stock
The reverse stock split will not change the number of authorized shares of our common stock. Because the number of outstanding shares of common stock will decrease if the reverse stock split is effected, the number of shares of common stock remaining available for issuance will increase. Currently, our authorized shares of common stock is 500,000,000. Subject to limitations imposed by Nasdaq, the additional shares available for issuance may be issued without stockholder approval at any time, in the sole discretion of our board of directors. The authorized and unissued shares may be issued for cash, for acquisitions or for any other purpose that our board of directors determines to be in our best interests.
By increasing the number of authorized but unissued shares of common stock, the reverse stock split could, under certain circumstances, have an anti-takeover effect, although this is not the intent of our board of directors. For example, it may be possible for our board of directors to delay or impede a takeover or transfer of control of our company by causing such additional authorized but unissued shares to be issued to holders who might side with our board of directors in opposing a takeover bid that our board of directors determines is not in the best interests of our company or our stockholders. The reverse stock split therefore may have the effect of discouraging unsolicited takeover attempts. By potentially discouraging initiation of any such unsolicited takeover attempts, the reverse stock split may limit the opportunity for our stockholders to dispose of their shares at the higher price generally available in takeover attempts or that may be available under a merger proposal. The reverse stock split may have the effect of
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| With respect to stock grants involving the issuance of shares that are restricted as to transferability and subject to a substantial risk of forfeiture, the grantee must generally recognize ordinary income equal to the fair market value of the shares received at the first time the shares become transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier. A grantee may elect to be taxed at the time of receipt of shares rather than upon lapse of restrictions on transferability or substantial risk of forfeiture, but if the grantee subsequently forfeits such shares, the grantee would not be entitled to any tax deduction, including as a capital loss, for the value of the shares on which he previously paid tax. The grantee must file such election with the Internal Revenue Service within 30 days of the receipt of the shares. We generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee. | |
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Stock Units: | The grantee recognizes no income until the issuance of the shares. At that time, the grantee must generally recognize ordinary income equal to the fair market value of the shares received. We generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the grantee. | |
permitting our current management, including our current directors, to retain their position, and place it in a better position to resist changes that stockholders may wish to make if they are dissatisfied with our operations. However, our board of directors is not aware of any attempt to take control of our company and our board of directors has not approved the reverse stock split with the intent that it be utilized as a type of anti-takeover device.
Effect on Par Value of our Common Stock
The reverse stock split will not affect the par value of our common stock, which will remain at $0.0001.
Effect on Warrants, and Convertible or Exchangeable Securities
If the reverse stock split is effected, proportionate adjustments are generally required to be made to the per share exercise price and the number of shares issuable upon the exercise or conversion of outstanding warrants, and convertible or exchangeable securities entitling the holders to purchase, exchange for, or convert into, shares of our common stock. This will result in approximately the same aggregate price being required to be paid under such securities upon exercise, exchange or conversion, and approximately the same value of shares of common stock being delivered upon such exercise, exchange or conversion, immediately following the reverse stock split as was the case immediately preceding the reverse stock split. The number of shares reserved for issuance pursuant to these securities will be proportionately adjusted based on the reverse stock ratio, subject to our treatment of fractional shares.
Effect on Series A Preferred Stock
The reverse stock split will not affect the authorized number or par value of our preferred stock, which will remain at 50,000,000 and $0.0001, respectively. We currently have one series of preferred stock outstanding, which is designated as the “9.50% Series A Cumulative Perpetual Preferred Stock” (“Series A preferred stock”).
If the reverse stock split is effected, the cap on the rate at which shares of our Series A preferred stock may be converted into shares of our common stock in the event of a Change of Control or Delisting Event (as such terms are described below) will be subject to pro rata adjustments as described in more detail below.
Upon the occurrence of a Change of Control or Delisting Event, each holder of shares of our Series A preferred stock will have the right to exchange some or all of their shares of Series A preferred stock for a number of shares of our common stock per share of Series A preferred stock equal to the lesser of: (i) the quotient obtained by dividing (i) the sum of the $25.00 liquidation preference per share of Series A preferred stock plus the amount of any accumulated and unpaid dividends (whether or not declared) by (ii) the Common Stock Price (as defined below); and (ii) 0.7653 shares of common stock (the “Share Cap”).
The Share Cap is subject to pro rata adjustments for any stock splits, subdivisions or combinations with respect to our common stock, including the reverse stock split contemplated by this proposal. The Share Cap will be adjusted to be the number of shares of common stock that is equivalent to the product obtained by multiplying (i) the Share Cap in effect immediately prior to the applicable stock split, subdivision or combination by (ii) a fraction, the numerator of which is the number of shares of common stock outstanding after giving effect to such stock split, subdivision or combination and the denominator of which is the number of shares of common stock outstanding immediately prior to such stock split, subdivision or combination. Accordingly, if the reverse stock split is effected, these proportionate adjustments will be effected. For illustrative purposes only, assuming that a 5-for-1 reverse stock split is effected and that there were 27,034,375 shares of our common stock outstanding immediately prior to the effective time of the reverse stock split, the Share Cap would be adjusted from 0.7653 shares of common stock to 0.15306.
A “Change of Control” is generally deemed to occur when the following have occurred and are continuing: (i) a person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act, acquires beneficial ownership, directly or indirectly, of our stock entitling that person to exercise more than 50% of the total voting power of all our stock entitled to vote generally in the election of our directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and (ii) following the closing of any transaction referred to clause (i), neither Ontrak nor the acquiring or surviving
entity has a class of common securities listed on the New York Stock Exchange (“NYSE”), the NYSE American LLC (the “NYSE American”) or Nasdaq Stock Market (“Nasdaq”).
A “Delisting Event” is generally deemed to occur when the following have occurred and are continuing: (i) our Series A preferred stock is no longer listed on the NYSE, the NYSE American or Nasdaq; and (ii) Ontrak is no longer subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, but shares of our Series A preferred stock are still outstanding.
“Common Stock Price” is generally defined as (i) if the consideration to be received in a Change of Control by the holders of shares of our common stock is solely cash, the amount of cash consideration per share of common stock or (ii) if the consideration to be received in the Change of Control by holders of shares of our common stock is other than solely cash or in the event of a Delisting Event (x) the average of the closing sale prices per share of our common stock (or, if no closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) for the 10 consecutive trading days immediately preceding, but not including, the effective date of the Change of Control as reported on the principal U.S. securities exchange on which our common stock is then traded, or (y) the average of the last quoted bid prices for our common stock in the over-the-counter market as reported by OTC Market Group Inc. or similar organization for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control, if the our common stock is not then listed for trading on a U.S. securities exchange.
The foregoing summary of the exchange right of the holders of our Series A preferred stock is qualified in its entirety by the terms of the certificate of designations of rights and preferences for our Series A preferred stock dated August 21, 2020, which is filed as Exhibit 3.5 to our Annual Report on Form 10-K for the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on April 15, 2022.
Effect on our Equity Incentive Plan and Outstanding Awards
We previously granted stock options and other awards under our 2017 Stock Incentive Plan (the “2017 Plan”). As of January 5, 2023, there were approximately 7,167,314 shares of common stock subject to outstanding awards granted under the 2017 Plan, and approximately 788,465 shares remained available under the 2017 Plan for future awards. The 2017 Plan provides that in the event of a stock split, the number of shares subject to (i) the 2017 Plan, (ii) each right to shares granted pursuant to the 2017 Plan and the underlying common shares and (iii) outstanding awards, will each be appropriately and proportionately adjusted. Accordingly, if the reverse stock split is effected, these proportionate adjustments will be effected. For illustrative purposes only, assuming that a 5-for-1 reverse stock split is effected, the shares of common stock subject to outstanding awards granted under the 2017 Plan and the shares that are available under the 2017 Plan for future awards, in each case, as of January 5, 2023, will be adjusted to approximately 1,433,463 shares of subject to outstanding awards and approximately 157,693 shares will be available under the 2017 Plan for future awards, and the exercise price per share for each outstanding stock option would be decreased proportionally, such that upon an exercise, the aggregate exercise price payable by the option holder to us would remain the same. For illustrative purposes only, assuming that a 5-for-1 reverse stock split is effected, an outstanding stock option to purchase 5,000 shares of common stock, exercisable at $0.50 per share, will be adjusted as a result of the reverse stock split into a stock option to purchase 1,000 shares of common stock at an exercise price of $2.50 per share.
Fractional Shares
We will not issue fractional shares in connection with the reverse stock split. Instead, record holders of our common stock who otherwise would be entitled to receive a fractional share because they hold a number of shares not evenly divisible by the reverse stock split ratio will automatically be entitled to receive an additional fraction of a share of common stock to round up to the next whole share. In any event, cash will not be paid for fractional shares.
Procedure for Implementing the Reverse Stock Split
If our stockholders approve this proposal, and if our board of directors determines that it is in our best interest and the best interests of our stockholders to proceed with the reverse stock split, we will file the amendment to our amended and restated certificate of incorporation with the Secretary of State of the State of Delaware to effect the reverse stock split. As of the effective time of the reverse stock split, each stock certificate representing pre-split shares will be deemed for all corporate purposes to evidence ownership of post-split shares.
Holders of Certificated Shares of Common Stock
If the reverse stock split is effected, stockholders holding shares of our common stock in certificated form will be sent a transmittal letter by our transfer agent after the effective time of the reverse stock split. The letter of transmittal will contain instructions on how a stockholder should surrender their certificate(s) representing pre-split shares of our common stock to our transfer agent in exchange for certificates representing the appropriate number of shares of post-reverse stock split common stock. No certificates representing post-split shares of our common stock will be issued to a stockholder until such stockholder has surrendered to our transfer agent all their certificates representing their pre-split shares, together with a properly completed and executed letter of transmittal. No stockholder will be required to pay a transfer or other fee to exchange their certificates representing pre-split shares of our common stock. Until surrendered, we will deem certificates representing pre-split shares of our common stock to be cancelled and only to represent the number of whole shares of post-split shares of our common stock to which these stockholders are entitled, subject to the treatment of fractional shares. If an certificate representing pre-split shares of our common stock bears a restrictive legend, the certificate issued in exchange therefor will bear the same restrictive legend. Any pre-split shares submitted for transfer, whether pursuant to a sale or other disposition, or otherwise, will automatically be exchanged for post-split shares. Stockholders should not destroy any stock certificate(s) and should not submit any certificate(s) unless and until requested to do so.
Beneficial Owners
If the reverse stock split is effected, we intend to treat shares held by stockholders through a bank, broker, or other nominee in the same manner as shares held by stockholders of record. Banks, brokers, and other nominees will be instructed to effect the reverse stock split for beneficial owners holding our common stock in street name. However, these banks, brokers, and other nominees may have different procedures for processing the reverse stock split than for stockholders of record. Stockholders who hold shares of our common stock in street name and who have questions in this regard are encouraged to contact their banks, brokers, or other nominees.
Registered “Book-Entry” Holders of Common Stock
If the reverse stock split is effected, stockholders who hold their shares of our common stock electronically in book-entry form with our transfer agent will not need to take action (i.e., the exchange will be automatic) to receive their shares of post-reverse stock split common stock.
Accounting Matters
The reverse stock split will not affect the per share par value of our common stock. As a result, as of the effective time of the reverse stock split, the stated capital attributable to common stock and the additional paid-in capital account on our balance sheet, in the aggregate, will not change due to the reverse stock split. Reported per share net income or loss will be higher because there will be fewer shares of common stock outstanding.
Certain U.S. Federal Income Tax Consequences of the Reverse Stock Split
The following summary describes, as of the date of this proxy statement, certain U.S. federal income tax consequences of the reverse stock split to holders of our common stock. This summary addresses the tax consequences only to a U.S. holder of our common stock, which is a beneficial owner of our common stock that is either:
•an individual citizen or resident of the United States;
•a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any state thereof or the District of Columbia;
•an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
•a trust, if: (i) a court within the United States is able to exercise primary jurisdiction over its administration and one or more U.S. persons has the authority to control all of its substantial decisions or (ii) it has a valid election in effect to be treated as a U.S. person for U.S. federal income tax purposes.
This summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), U.S. Treasury regulations, administrative rulings and judicial authority, all as in effect as of the date of this proxy statement. Subsequent developments in U.S. federal income tax law, including changes in law or differing
interpretations, which may be applied retroactively, could have a material effect on the U.S. federal income tax consequences of the reverse stock split.
This summary does not address all of the tax consequences that may be relevant to any particular investor, including tax considerations that arise from rules of general application to all taxpayers or to certain classes of taxpayers or that are generally assumed to be known by investors. For example, this summary does not address the tax consequences to (i) persons that may be subject to special treatment under U.S. federal income tax law, such as banks, insurance companies, thrift institutions, regulated investment companies, real estate investment trusts, tax-exempt organizations, U.S. expatriates or former citizens or residents, persons subject to the alternative or corporate minimum tax, persons whose functional currency is not the U.S. dollar, partnerships or other pass-through entities, traders in securities that elect to mark to market and dealers in securities or currencies, (ii) persons who acquired their shares or equity awards in connection with employment or other performance of services, (iii) persons who hold our common stock as part of a position in a “straddle” or as part of a “hedging transaction,” “conversion transaction” or other integrated investment transaction for federal income tax purposes, or (iv) persons who do not hold our common stock as “capital assets” (generally, property held for investment). This summary does not address backup withholding and information reporting. This summary does not address U.S. holders who beneficially own common stock through a “foreign financial institution” (as defined in Code Section 1471(d)(4)) or certain other non-U.S. entities specified in Code Section 1472. This summary does not address the Medicare tax on net investment income, tax considerations in respect of our preferred stock, or tax considerations arising under any state, local or foreign laws, or under federal estate or gift tax laws.
If a partnership (or other entity classified as a partnership for U.S. federal income tax purposes) is the beneficial owner of our common stock, the U.S. federal income tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. Partnerships that hold our common stock, and partners in such partnerships, should consult their own tax advisors regarding the U.S. federal income tax consequences of the reverse stock split.
We have not sought, and will not seek, an opinion of counsel or a ruling from the Internal Revenue Service regarding the U.S. federal income tax consequences of the reverse stock split, and there can be no assurance that the Internal Revenue Service will not challenge the statements and conclusions set forth below or that a court would not sustain any such challenge.
Each holder should consult his, her or its own tax advisors concerning the particular U.S. federal tax consequences of the reverse stock split, as well as the consequences arising under the laws of any other taxing jurisdiction, including any foreign, state, or local income tax consequences.
General Tax Treatment of the Reverse Stock Split
The reverse stock split is intended to qualify as a “reorganization” under Section 368 of the Code that should constitute a “recapitalization” for U.S. federal income tax purposes. Certain filings with the Internal Revenue Service must be made by us and certain ‘significant holders” of our common shares in order for the reverse stock split to qualify as a reorganization. Assuming the reverse stock split qualifies as a reorganization, other than with respect to any U.S. holder that receives a full share in lieu of a fractional share, a U.S. holder generally will not recognize gain or loss upon the exchange of shares of our common stock for a lesser number of shares of our common stock, based upon the reverse stock split ratio.
A U.S. holder’s aggregate tax basis in the lesser number of shares of our common stock received in the reverse stock split will be the same such U.S. holder’s aggregate tax basis in the shares of our common stock that such U.S. holder owned immediately prior to the reverse stock split. The holding period for the common stock received as a result of the reverse stock split will include the period during which a U.S. holder held the shares of our common stock that were surrendered in the reverse stock split. The United States Treasury regulations provide detailed rules for allocating the tax basis and holding period of the shares of our common stock surrendered for the shares of our common stock received pursuant to the reverse stock split. U.S. holders of shares of our common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.
As noted above, we will not issue fractional shares in connection with the reverse stock split. Instead, stockholders who would be entitled to receive fractional shares because they hold a number of shares not evenly divisible by the
reverse stock split ratio will automatically be entitled to receive an additional fraction of a share of common stock to round up to the next whole share of common stock. The U.S. federal income tax consequences of the receipt of such an additional fraction of a share are not clear. A U.S. holder that receives a full share in lieu of a fractional share may be treated as though it received a distribution from us to the extent that the value of the full share exceeds the value of the fractional share the holder otherwise would have received. Such distribution would generally be a dividend to the extent of our current or accumulated earnings and profits. Any amount in excess of earnings and profits would generally reduce the holder’s basis their shares by the amount of such excess. The portion of the full share in excess of the fractional share would generally have a tax basis equal to the amount recognized as a dividend and the holding period for such share would begin on the date of the deemed distribution. Holders are urged to consult their own tax advisors as to the possible tax consequences of receiving an additional fraction of a share in the reverse stock split.
THE FOREGOING IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT, AND DOES NOT CONSTITUTE A TAX OPINION. EACH STOCKHOLDER SHOULD CONSULT ITS OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT TO THEM AND FOR REFERENCE TO APPLICABLE PROVISIONS OF THE CODE.
Interests of Directors and Executive Officers
None of the Company’s directors or executive officers have any substantial interest, directly or indirectly, in this proposal except to the extent of their ownership of shares of the Company’s common stock.
Vote Required
If a quorum is present at the Annual Meeting,special meeting, approval of this proposal requires the affirmative vote of the majority of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the subject matter (meaning thatof our common stock outstanding as of the shares represented at the Annual Meeting and entitled to vote, a majority of them must be voted “FOR” this proposal for it to be approved).record date. Stockholders may vote “FOR,” “AGAINST” or “ABSTAIN” from voting on this proposal. Abstentions will have the same effect as a vote “AGAINST” this proposal. This proposal is a routine matter and brokers and other nominees may generally vote in their discretion on routine matters, and therefore broker non-votes will have no effectare not expected on the outcome of this proposal.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR
OF THE 2017 PLAN AMENDMENT PROPOSAL.“FOR” THIS PROPOSAL
PROPOSAL 4: TO APPROVE NO. 2
THE ISSUANCE OF COMMON STOCK TO ACUITAS CAPITAL LLC PURSUANT TO A MASTER NOTE PURCHASE AGREEMENT DATED APRIL 15, 2022, FOR PURPOSES OF COMPLYING WITH NASDAQ LISTING RULE 5635KEEP WELL PROPOSAL
Background
On April 15, 2022, the Company entered into a Master Note Purchase Agreement (the “Keep“Original Keep Well Agreement”) with Acuitas Capital LLC (“Acuitas Capital”), an entity indirectly wholly owned and controlled by Terren S. Peizer, the Company’s Chief Executive Officer and Chairman and largest stockholder, pursuant to which, subject to specified conditions,stockholder. On August 12, 2022, the Company may borrow up to $25.0 million (the “Available Amount”). In this proposal and in Proposal 5, below, Acuitas Capital LLC,entered into an amendment to the Original Keep Well Agreement in connection with the appointment of a collateral agent under the Original Keep Well Agreement (the “First Amendment”). On November 19, 2022, the Company and Acuitas Capital entered into a further amendment to the Original Keep Well Agreement, as amended by the First Amendment (the “Second Amendment”), and on December 30, 2022, the Company and Acuitas Capital entered into a further amendment to the Original Keep Well Agreement, as amended by the First Amendment and the Second Amendment (the “Third Amendment”). The Company refers to the Original Keep Well Agreement, as amended by the First Amendment, the Second Amendment and the Third Amendment, as the “Keep Well Agreement” and to Acuitas Capital, together with any of its transferees or affiliates under the Keep Well Agreement, is referred to as “Acuitas.”
In connection with
As further discussed below, in this proposal the Company’s stockholders are being asked to approve the issuance of (1) common stock, (2) convertible notes and the common stock issuable upon conversion thereof, and (3) warrants to purchase shares of common stock and the common stock issuable upon exercise thereof, in each borrowing undercase, pursuant to the Keep Well Agreement for purposes of complying with Nasdaq Listing Rule 5635.
The Original Keep Well Agreement
Under the terms of the Original Keep Well Agreement, subject to the satisfaction of certain conditions precedent (some of which are described below), the Company willcould borrow from Acuitas up to $25.0 million, and in connection with each such borrowing, the Company agreed to issue to Acuitas a senior secured note (each, a “Keep Well Note”) with a principal amount equal to Acuitas or an entity affiliated with it in return for the specified face amount of each such Keep Well Note.
In connection with entering into the Keep Well Agreement, subjectborrowed. Subject to obtaining approval of the Company’s stockholders as required by applicable Nasdaq listing rules, (the “Commitment Shares Stockholder Approval”), the Company agreed to issue up to 739,645 shares of its common stock to Acuitas (or an entity affiliated with Acuitas, as designated by Acuitas) (the “Commitment Shares”), (a) 50% of which will be issued upon obtaining Commitment Shares Stockholder Approval, (b) 25% of which will be issued upon the later of June 1, 2022 and obtaining Commitment Shares Stockholder Approval, unless on or before June 1, 2022, the Company has secured sufficient capital to replace the Available Amount pursuant to an alternative financing approved byapproval was obtained at the Company’s boardannual meeting of directors, and (c) 25%stockholders held on August 29, 2022 (the “2022 Annual Meeting of which will be issued on the later of the Initial Keep Well Note Date (as defined below) and obtaining the Commitment Shares Stockholder Approval.
InStockholders”), in connection with each Keep Well Note issued by the Company, subject to obtaining approval of the Company’s stockholders as required by applicable Nasdaq listing rules, the Company willagreed to issue to Acuitas (or an entity affiliated with Acuitas, as designated by Acuitas) a warrant to purchase shares of the Company’s common stock in the form attached as an exhibit to the Keep Well Agreement (each, a “Keep Well Warrant”). The number of shares of the Company’s common stock underlying each Keep Well Warrant (collectively, the “Keep Well Warrant Shares”) willwould be equal to (y) the product of the principal amount of the applicable Keep Well Note and 20% divided by (z) the exercise price of the applicable Keep Well Warrant. Each Keep Well Warrant, will have a term of five years and an exercise price equal to $1.69, which was $1.69 per share, the consolidated closing bid priceNasdaq Official Closing Price (as reflected on Nasdaq.com) of the Company’s common stock as reported by Nasdaq immediately preceding the time the parties entered into the Original Keep Well Agreement. EachThe maturity date of the Keep Well WarrantNotes was September 1, 2023.
The conditions precedent to the Company’s ability to borrow, and Acuitas’ obligation to lend, under the Original Keep Well Agreement included that (x) the Company have used best efforts to obtain sufficient financing from a third party for the Company to pay and discharge, when due and payable, its obligations, (y) the Company be unable despite its best efforts to obtain such financing from a third party on reasonably acceptable terms, and (z) (1) absent obtaining the funds requested by the Company to borrow under the Original Keep Well Agreement, the Company would not have sufficient unrestricted cash to pay and discharge all of its obligations then due or scheduled to become due within the 30 days following the date of the borrowing request, and (2) there be no conditions or events that, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern through August 15, 2023 (the “Funding Condition”).
In connection with entering into the Original Keep Well Agreement, subject to obtaining approval of the Company’s stockholders as required by applicable Nasdaq listing rules, which approval was obtained at the 2022 Annual Meeting of Stockholders, the Company agreed to issue 739,645 shares of its common stock to Acuitas (or an entity affiliated with Acuitas, as designated by Acuitas) (the “Original Commitment Shares”). The Original Commitment Shares were issued to Acuitas in September 2022.
The Second Amendment and the Third Amendment
Below is a summary of certain amendments to the terms of the Original Keep Well Agreement effected by the Second Amendment and the Third Amendment.
Keep Well Notes
The Company and Acuitas agreed to the following changes to the terms and conditions of the Keep Well Notes set forth in the Original Keep Well Agreement:
•the maturity date of the Keep Well Notes was extended from September 1, 2023 to June 30, 2024;
•the remaining amount available to be borrowed was increased from $10.7 million to $14.0 million and the provision that previously reduced the amount available to be borrowed by the net proceeds the Company received from equity financings was eliminated;
•the funding structure was changed from borrowings as needed from time to time at the election of the Company, to the Company agreeing to borrow, and Acuitas agreeing to lend, subject to the conditions in the Keep Well Agreement (which conditions were also amended as described below), the entire remaining amount of $14.0 million, to be funded as follows: $4.0 million in each of January (which was borrowed on January 5, 2023), March and June 2023, and $2.0 million in September 2023;
•many of the conditions precedent to the Company’s ability to borrow, and Acuitas’ obligation to lend, were eliminated, including the Funding Condition;
•the Company’s obligation to pay accrued interest on a monthly basis was eliminated, and instead accrued interest will be added to the principal amount of the applicable Keep Well Note; and
•the financial covenant that the Company’s consolidated recurring revenue be at least $15.0 million was reduced to $11.0 million, however, the satisfaction of such covenant as a condition to funding was eliminated, and certain other affirmative and negative covenants of the Company, the satisfaction of which were conditions to funding, were also eliminated as conditions to funding.
Conversion of Keep Well Notes
The Company and Acuitas agreed that, subject to customary adjustment provisionsthe approval of the Company’s stockholders, Acuitas, at its option, will have the right to convert the entire principal amount of the Keep Well Notes outstanding, plus all accrued and unpaid interest thereon, in whole or in part, into shares of the Company’s common stock at a conversion price equal to the lesser of (i) $0.40 per share and (ii) the greater of (a) the closing price of the Company’s common stock on the trading day immediately prior to the applicable conversion date and (b) $0.15 (the “Conversion Right”). The $0.40 and $0.15 referenced in the event ofpreceding sentence are subject to adjustment for stock splits combinations and similar transactions, and the holder oflike, including the reverse stock split contemplated by the Reverse Stock Split Proposal.
If this proposal is approved by the Company’s stockholders, each Keep Well WarrantNote outstanding as of the date of such approval will be entitleddeemed to specified information, registrationbe amended to contain the Conversion Right. The Company refers to the such Keep Well Notes, as so amended, and indemnification rights. Assumingto the full borrowing of the Available AmountKeep Well Notes issued in connection with future borrowings under the Keep Well Agreement, as the aggregate“New Keep Well Notes.”
In addition, subject to the approval of the Company’s stockholders, in connection with the conversion of the principal amount of any New Keep Well Note and/or accrued interest thereon into shares of the Company’s common stock (as described above), the Company will issue to Acuitas a five-year warrant to purchase shares of the Company’s common stock, and the number of shares of the Company’s common stock underlying the Keep Well Warrantssubject to each such warrant will be equal to 2,958,580.
The Company has(x) 100% of the right terminateamount converted divided by (y) the Keep Well Agreement at any time prior to borrowing funds thereunder (such date on which such funds are borrowed,conversion price of the “InitialNew Keep Well Note Date”). Any Commitment Shares that would have been earned prior tothen in effect, and the exercise price of each such termination, subject to obtaining the Commitment Shares Stockholder Approval,warrant will be issued immediately upon obtainingequal to the Commitment Shares Stockholder Approval.
Asconversion price of July 14, 2022, nothe New Keep Well Note has been issued by the Company, and therefore, no Keep Well Warrants have been issued. If and when a Keep Well Note is issued, the number of Keep Well Warrant Sharesthen in effect, subject to the Keep Well Warrant issued in connection with such Keep Well Note will depend on the principal amount of such Keep Well Note. Similarly, the aggregate number of Keep Well Warrant Shares that will be subject to all Keep Well Warrants issued will depend on the aggregate principal amount of all Keep Well Notes issued by the Company.adjustment as described below.
None of the securities issuable under the Keep Well Agreement have been or will be registered under the Securities Act of 1933, as amended (the “Securities Act”); all such securities have been and will be offered and sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act.
The Commitment SharesIncrease in Warrant Coverage
Subject to the approval of the Company’s stockholders, the Company and Acuitas agreed to reduce the exercise price of Keep Well Warrants issued under the Keep Well Warrant Shares, if any areAgreement (both Keep Well Warrants outstanding as of the date of the Second Amendment and those issued thereafter) and to increase the warrant coverage on all previous and future borrowings under the Keep Well Agreement as follows:
•the exercise price of currently outstanding Keep Well Warrants will be reduced to $0.45 per share, which was the same classNasdaq Official Closing Price (as reflected on Nasdaq.com) of the Company’s common stock immediately preceding the time the parties entered into the Second Amendment, and which will be subject to future adjustment as described below;
•the number of shares of the Company’s common stock subject to currently outstanding Keep Well Warrants (i.e., 1,775,148 shares) will be increased to the number of shares that would have been subject to such Keep Well Warrants if the warrant coverage was equal to 100% of the amount borrowed under the Keep Well Agreement in respect of which the applicable Keep Well Warrant was issued (instead of 20%) divided by $0.45 (i.e., 33,333,333 shares, or an additional 31,558,185 shares);
•the warrant coverage on borrowings under the Keep Well Agreement after the date of the Second Amendment will be increased to a number of shares of the Company’s common stock equal to (x) 100% of the amount borrowed (instead of 20% of such amount) divided by (y) $0.45 (the “Warrant Coverage Denominator”), subject to future adjustment as described below, and each Keep Well Warrant issued after the date of the Second Amendment will have an exercise price equal to $0.45 per share, subject to future adjustment as described below;
•if the reverse stock split discussed in the Reverse Stock Split Proposal is effected, then:
◦the exercise price of each warrant issued pursuant to the Keep Well Agreement that is outstanding as of the effective time of the reverse stock split will be reduced to the lesser of (i) the volume-weighted average price of the Company’s common stock over the five trading days beginning on the trading day that commences immediately after the effective time of the reverse stock split (the “Reverse Stock Split Price”) and (ii) the exercise price after giving effect to the adjustment thereto as a result of the reverse stock split (the lesser of (i) and (ii), the “Post-Stock Split Price”), subject to further reduction as described in the bullet immediately below; and
◦the Warrant Coverage Denominator will be reduced to the greater of $0.15 (adjusted for the reverse stock split) and the Post-Stock Split Price, subject to further reduction as described in the bullet immediately below; and
•upon the occurrence of the final funding under the Keep Well Agreement (the date on when such final funding occurs, the “Final Funding Date”):
◦the exercise price of each warrant issued pursuant to the Keep Well Agreement that is outstanding as of the Final Funding Date will be reduced to (i) if the Final Funding Date occurs at any time prior to the time the Reverse Stock Split Price is determined, the closing price of the Company’s common stock on the trading day immediately preceding the Final Funding Date (the “Final Funding Date Price”), or (ii) if the Final Funding Date occurs at any time from and after the time the Reverse Stock Split Price is determined, the lesser of (x) the Post-Stock Split Price and (y) the Final Funding Date Price; and
◦the Warrant Coverage Denominator will be reduced to the lesser of (i) if the Final Funding Date occurs at any time prior to the time the Reverse Stock Split Price is determined, the greater of (a) $0.15 (subject to adjustment for stock splits and the like, including the reverse stock split) and (b) the Final Funding Date Price, or (ii) if the Final Funding Date occurs at any time from and after the time the Reverse Stock Split Price is determined, the greater of (a) $0.15 (subject to adjustment for stock splits and the like, including the reverse stock split) and (b) the lesser of (x) the Post-Stock Split Price and (y) the Final Funding Date Price.
If this proposal is approved by the Company’s stockholders, the Company agreed to issue to the holder of each Keep Well Warrant outstanding as of the date of such approval, in exchange for such Keep Well Warrant, a new warrant to purchase shares of the Company’s common stock that reflect the amendments to the Keep Well Warrants described above, including the increase in the warrant coverage and the decrease in the exercise price. The Company refers to the new warrants issued in exchange for outstanding Keep Well Warrants and to any warrants issued in
connection with future borrowings under the Keep Well Agreement or in connection with the conversion of the principal amount of any New Keep Well Note and/or accrued interest thereon into shares of the Company’s common stock (as described above) as the “New Keep Well Warrants.”
Additional Commitment Shares
Subject to the approval of the Company’s stockholders, the Company has listed on agreed to issue to Acuitas 2,038,133 additional shares of the Company’s common stock (the “Additional Commitment Shares”).
Issuance Cap
The Nasdaq Global MarketCompany and Acuitas agreed that (i) under no circumstances will the Company issue any shares upon exercise of any warrant issued under the trading symbol “OTRK.”Keep Well Agreement or upon conversion of any Keep Well Note to the extent that, after giving effect to the issuance of any such shares, Acuitas (together with its affiliates) would beneficially own shares of the Company’s common stock representing more than 90% of the total number of shares of the Company’s common stock outstanding as of the time of such issuance (the “Issuance Cap”); and (ii) in the event of a Fundamental Transaction (as defined in the Second Amendment), regardless of the actual number of securities of the Company beneficially owned by Acuitas and its affiliates at the effective time thereof, Acuitas shall not be entitled to receive any consideration pursuant to such Fundamental Transaction in respect of any shares underlying any of the warrants issued under the Keep Well Agreement or any shares issuable upon conversion of any Keep Well Note that would represent shares in excess of the Issuance Cap if beneficially owned by Acuitas and/or its affiliates immediately prior to such effective time, and all warrants and Keep Well Notes owned or beneficially owned by Acuitas and/or its affiliates at the effective time of such Fundamental Transaction, solely to the extent that, if exercised or converted, such warrants and Keep Well Notes would result in the issuance of such excess shares, will be cancelled and forfeited without consideration therefor, effective as of such effective time; provided, however, that the foregoing shall not affect the Company’s obligation to pay all amounts owed under such Keep Well Notes in connection with such Fundamental Transaction.
Other Information
As of January 9, 2023, Keep Well Notes in the aggregate principal amount of $15.0 million and Keep Well Warrants to purchase 1,775,148 shares of the Company’s common stock were outstanding.
The Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on April 15, 2022 (the “2021 10-K”), the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2022 filed with the SEC on November 21, 2022 (the “3Q 10Q”), and the Company’s Current Report on Form 8-K filed with the SEC on January 4, 2023 (the “Third Amendment 8-K”), includes a summary of the terms of the Original Keep Well Agreement, the Second Amendment and the Third Amendment, respectively, and the terms of New Keep Well Note and New Keep Well Warrant, which is qualified in its entirety by reference to copies of the foregoing documents that were filed as exhibits to the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2022 filed with the SEC on May 11, 2022.2022, the 3Q 10Q and the Third Amendment 8-K. Please see the 2021 10-K, the 3Q 10Q, the Third Amendment 8-K and copies of the Original Keep Well Agreement, and the forms ofSecond Amendment, the Third Amendment, the New Keep Well Note and the New Keep Well Warrant for additional information regarding the terms of such documents.
None of the securities issuable under the Keep Well Agreement have been, or if and when issued to Acuitas in the future will be, registered under the Securities Act of 1933, as amended (the “Securities Act”); all such securities have been and will be offered and sold in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act.
All shares of the Company’s common stock issued under the Keep Well Agreement will be the same class of common stock that the Company has listed on The Nasdaq Global Market under the trading symbol “OTRK.”
Reasons for Seeking Stockholder Approval
Nasdaq Listing Rules
The Company’s common stock is listed on the Nasdaq Global Market and the Company is subject to the Nasdaq Listing Rules.
Nasdaq Listing Rule 5635(b) requires stockholder approval prior to the issuance of securities when the issuance or potential issuance will result in a “change of control” of the company. This rule does not define when a change in control of a company may be deemed to occur; however, Nasdaq suggests in its guidance that a change of control would occur, subject to certain limited exceptions, if after a transaction a person or entity will hold 20% or more of the outstanding shares of common stock or voting power of an issuer and such ownership or voting power of an issuer would represent the largest ownership position in the issuer. We are seeking stockholder approval of this proposal in order to satisfy the requirements of Nasdaq Listing Rule 5635(b) with respect to the issuance of the (a) the Additional Commitment Shares, (b) the New Keep Well Warrants, (c) the New Keep Well Notes, (d) the shares of the Company’s common stock issuable upon exercise of the New Keep Well Warrants (the “New Keep Well Warrant Shares”) and (e) the shares of the Company’s common stock issuable upon conversion of the New Keep Well Notes (the “Conversion Shares” and, together with the Additional Commitment Shares and the New Keep Well Warrant Shares, the “New Keep Well Shares”), in the event the issuance thereof could be considered a “change of control” under that rule. A “change of control” for purposes of Nasdaq Listing Rule 5635(b) applies only with respect to the application of such rule and does not constitute a “change of control” for purposes of Delaware law, our organizational documents, U.S. income tax laws or any other purpose.
Nasdaq Listing Rule 5635(c), among other things, requires stockholder approval prior to the issuance of securities when an equity compensation arrangement is made pursuant to which stock may be acquired by officers, directors, employees, or consultants. Nasdaq guidance provides that the issuance of common stock (or equivalents) or securities convertible into or exercisable for common stock to officers, directors, employees, or consultants at a price less than the market value of the stock is considered a form of “equity compensation” and requires stockholder approval unless the issuance is part of a public offering.
The issuance of Commitmentthe New Keep Well Shares, the New Keep Well Warrants and the New Keep Well Notes (collectively, the “New Keep Well Securities”) may be considered “equity compensation” under Nasdaq Listing Rule 5635(c) because Acuitas is an entity indirectly wholly owned and controlled by Mr. Peizer, who serves as the Company’s Chief Executive Chairman,Officer and Chairman.
Nasdaq Listing Rule 5635(c) also requires stockholder approval prior to a 20% Issuance (as defined in such rule) at a price that is less than the Minimum Price (as defined in such rule). For purposes of this rule, (1) "20% Issuance" means a transaction, other than a public offering, involving the sale, issuance or potential issuance by the company of common stock (or securities convertible into or exercisable for common stock), which alone or together with sales by officers, directors or substantial shareholders of the company, equals 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance, and (2) “Minimum Price” means a price provided by Acuitasthat is the lower of: (i) the Nasdaq Official Closing Price (as reflected on Nasdaq.com) immediately preceding the signing of the binding agreement; or (ii) the average Nasdaq Official Closing Price of the common stock (as reflected on Nasdaq.com) for the Commitment Sharesfive trading days immediately preceding the signing of the binding agreement. The issuance of the New Keep Well Securities may result in a 20% Issuance at a price that is not readily calculable.less than the Minimum Price.
Accordingly, in order to ensure compliance with Nasdaq Listing Rules 5635(b), (c) and (d), the Company is seeking stockholder approval of the issuance of the Commitment SharesNew Keep Well Securities.
Event of Default
Under the terms of the Second Amendment, the Company agreed to seek stockholder approval of the terms of the Second Amendment and the Third Amendment that are subject to approval by the Company’s stockholders as described above (collectively, the “Amended Keep Well Terms Subject to Stockholder Approval”) by February 20, 2023, and the failure to obtain such approval by such date is an event of default under the Keep Well Agreement. In other words, if this proposal is not approved by the Company’s stockholders, the Company would be in default under the Keep Well Agreement, in order to ensure compliance with Nasdaq Listing Rule 5635(c). Under Proposal 5, below,and Acuitas and the Company is seeking stockholder approval of the issuance ofcollateral agent under the Keep Well Warrants andAgreement would have the rights that a secured creditor with a first priority lien on a company’s assets would have, including, the right to collect, enforce or satisfy any secured obligations then owing, including by foreclosing on the collateral securing the Company’s obligations under the Keep Well Warrant Shares, inAgreement (which generally comprise all of the event it is determined that such stockholder approval is requiredCompany’s assets), restrictions on the operation of the Company’s business would spring into effect, and Acuitas would have no obligation to fund any future borrowings under the Nasdaq listing rules in order for the issuance of the Keep Well WarrantsAgreement. A default under the Keep Well
Agreement would have serious consequences to the Company’s financial condition, operating results, and business, and could cause the Company to become insolvent or enter bankruptcy proceedings, and the Keep Well Warrant Shares. See Proposal 5, below.Company’s stockholders may lose all or a portion of their investment because of the priority of the claims of Acuitas, in its capacity as a secured creditor, on the Company’s assets.
Effectiveness of the Second Amendment and Third Amendment
The Company is not seeking stockholder approval of its entry into either the Second Amendment or the Third Amendment or, other than the Amended Keep Well AgreementTerms Subject to Stockholder Approval, the terms thereof or of the transactions contemplated thereby. The Company already entered into the Keep Well Agreement. The failure of the Company’s stockholders to approve this proposal will not negate the existing terms of the Keep Well Agreement or any other documents relating to the transactions contemplated thereby.
If stockholder approval of this proposal is not obtained, the Company will not issue anynone of the Commitment Shares,Amended Keep Well Terms Subject to Stockholder Approval will become effective, but it would constitute an event of default under the extent doing so would be in violation of the Nasdaq listing rules.Keep Well Agreement as discussed above.
As of the record date for the Annual Meeting, Acuitas and its affiliates beneficially owned 9,114,155 shares of the Company’s common stock, or 43.5% shares of the Company’s common stock outstanding as of the record date. Acuitas and its affiliates may vote all such shares of the Company’s common stock on this proposal.
Effect of Issuance of Securities on Current Stockholders
If this proposal is approved, it will result in the immediate issuance of at least 554,734 of the 739,645 Commitment Shares, and the potential issuance of all 739,6452,038,133 Additional Commitment Shares. As of the record date for the AnnualSpecial Meeting, there were 20,966,127[●] shares of the Company’s common stock outstanding. Therefore, the 554,734 shares2,038,133 Additional Commitment Shares represents 2.6%[●]% of such outstanding common stock, and the 739,645 shares represents 3.5% of such outstanding common stock. Accordingly, the issuance of the Commitment Sharesthereof would dilute the percentage interest of the Company’s stockholders, other than Acuitas, in the voting power, liquidation value and aggregate book value of the Company.
In addition, if this proposal is approved:
•the Company borrowsKeep Well Warrants to purchase 1,775,148 shares of the entire Available AmountCompany’s common stock currently outstanding will be immediately exchanged for New Keep Well Warrants to purchase 33,333,333 shares of the Company’s common stock;
•the $15.0 million in principal amount of Keep Well Notes currently outstanding will be exchanged for New Keep Well Notes which will be immediately convertible into 37,500,000 shares of the Company’s common stock (assuming a conversion price of $0.40); and
•if such Keep Well Notes are so converted (and assuming all interest is paid in cash), New Keep Well Warrants to purchase 37,500,000 shares of the Company’s common stock would be issued.
The table below illustrates the additional shares of the Company’s common stock that would be issuable upon (a) the conversion of the New Keep Well Notes to be issued in 2023 (assuming a conversion price of $0.40 and all interest is paid in cash), (b) the exercise of the New Keep Well Warrants to be issued in connection with the issuance of such borrowingsNew Keep Well Notes (assuming a Warrant Coverage Denominator of $0.45), and (c) the exercise of the New Keep Well Warrants to be issued in connection with the conversion of such New Keep Well Notes: | | | | | | | | | | | |
| Shares of Common Stock Issuable Upon |
| Amount Borrowed under the Keep Well Agreement | Conversion of the Note (a) | Exercise of the Warrant Issued in Connection with the Borrowing (b) | Exercise of the Warrant Issued in Connection with the Conversion of the Note (c) |
| $4.0 million in March 2023 | 10,000,000 | 8,888,889 | 10,000,000 |
| $4.0 million in June 2023 | 10,000,000 | 8,888,889 | 10,000,000 |
| $2.0 million in September 2023 | 5,000,000 | 4,444,444 | 5,000,000 |
| Total | 25,000,000 | 22,222,222 | 25,000,000 |
Accordingly, if this proposal is approved, based on the assumptions described above regarding the dollar amount of the conversion price and the Warrant Coverage Denominator and assuming all interest on the New Keep Well Notes is paid in cash, if all the New Keep Well Notes are converted and all New Keep Well Warrants are exercised, the Company would, subject to the Issuance Cap in the Keep Well Agreement, issue an aggregate of 3,698,225approximately 180.8 million shares of its common stock (including the 739,645Additional Commitment Shares), increasing the dilution of the Company’s stockholders, other than Acuitas.
As discussed above, the conversion price of the New Keep Well Notes and the Warrant Coverage Denominator for New Keep Well Warrants is subject to adjustment based on the price of our common stock, subject to maximum downward adjustment to $0.15 (subject to adjustment for stock splits and the like, including the reverse stock split contemplated by the Reverse Stock Split Proposal, if effected). The table below illustrates the additional shares of the Company’s common stock that would be issuable upon (a) the conversion of the New Keep Well Notes to be issued in 2023 (assuming a conversion price of $0.15 and all interest is paid in cash), (b) the exercise of the New Keep Well Warrants to be issued in connection with the issuance of such New Keep Well Notes (assuming a Warrant Coverage Denominator of $0.15), and (c) the exercise of the New Keep Well Warrants to be issued in connection with the conversion of such New Keep Well Notes: | | | | | | | | | | | |
| Shares of Common Stock Issuable Upon |
| Amount Borrowed under the Keep Well Agreement | Conversion of the Note (a) | Exercise of the Warrant Issued in Connection with the Borrowing (b | Exercise of the Warrant Issued in Connection with the Conversion of the Note (c) |
| $4.0 million in March 2023 | 26,666,667 | 26,666,667 | 26,666,667 |
| $4.0 million in June 2023 | 26,666,667 | 26,666,667 | 26,666,667 |
| $2.0 million in September 2023 | 13,333,333 | 13,333,333 | 13,333,333 |
| Total | 66,666,667 | 66,666,667 | 66,666,667 |
Accordingly, if this proposal is approved, based on the assumptions described above regarding the dollar amount of the conversion price and the Warrant Coverage Denominator and assuming all interest on the New Keep Well Notes is paid in cash, if all the New Keep Well Notes are converted and all New Keep Well Warrants are exercised, the Company would issue an aggregate of approximately 433.6 million shares of its common stock (including the Additional Commitment Shares), increasing the dilution of the Company’s stockholders, other than Acuitas. However, the issuance of shares upon the conversion of the New Keep Well Notes and/or the exercise of the New Keep Well Warrants are subject to the Issuance Cap in the Keep Well Agreement, as described above.
Interests of Directors and Executive Officers
Other than Mr. Peizer, none of the Company’s directors or executive officers have any substantial interest, directly or indirectly, in the matters set forth in this proposal except to the extent of their ownership of shares of the Company’s common stock. None of the Company’s officers or directors have a beneficial interest in any of the Commitment Shares,Keep Well Securities, other than Mr. Peizer through his ownership and control of Acuitas.
As of the record date for the Special Meeting, Acuitas and its affiliates beneficially owned [●] shares of the Company’s common stock, or [●]% shares of the Company’s common stock outstanding as of the record date. Acuitas and its affiliates may vote all such shares of the Company’s common stock on this proposal.
No Appraisal Rights
Stockholders are not entitled to rights of appraisal with respect to this proposal.
Vote Required
If a quorum is present at the Annual Meeting,special meeting, approval of this proposal requires the affirmative vote of the majority of shares present in person or represented by proxy at the Annual Meetingspecial meeting and entitled to vote on the subject matter (meaning that of the shares represented at the Annual Meetingspecial meeting and entitled to vote, a majority of them must be voted “FOR” this proposal for it to be approved). Stockholders may vote “FOR,” “AGAINST” or “ABSTAIN” from voting on this proposal. Abstentions will have the same effect as a vote “AGAINST” this proposal, and broker non-votes will have no effect on the outcome of this proposal.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS ATHAT STOCKHOLDERS VOTE IN FAVOR OF THE SHARES ISSUANCE PROPOSAL.
PROPOSAL 5: TO APPROVE THE ISSUANCE OF WARRANTS AND SHARES UNDERLYING SUCH WARRANTS TO ACUITAS CAPITAL LLC PURSUANT TO A MASTER NOTE PURCHASE AGREEMENT DATED APRIL 15, 2022, FOR PURPOSES OF COMPLYING WITH NASDAQ LISTING RULE 5635, TO THE EXTENT REQUIRED
Background
For a discussion of the background of this proposal, please see the discussion under the section titled “Background” in Proposal 4, above, which is incorporated herein by reference.
Reasons for Seeking Stockholder Approval
The Company’s common stock is listed on the Nasdaq Global Market and the Company is subject to the Nasdaq Listing Rules.
Nasdaq Listing Rule 5635(c), among other things, requires stockholder approval prior to the issuance of securities when an equity compensation arrangement is made pursuant to which stock may be acquired by officers, directors, employees, or consultants. Nasdaq guidance provides that the issuance of common stock (or equivalents) or securities convertible into or exercisable for common stock to officers, directors, employees, or consultants at a price less than the market value of the stock is considered a form of “equity compensation” and requires stockholder approval unless the issuance is part of a public offering.
Based on informal guidance from Nasdaq, because the exercise price of the Keep Well Warrants will be $1.69, which was the consolidated closing bid price of the Company’s common stock as reported by Nasdaq immediately preceding the time the parties entered into the Keep Well Agreement, the Company does not believe that the issuance of the Keep Well Warrants or the Keep Well Warrant Shares will be considered “equity compensation” under Nasdaq Listing Rule 5635(c). However, the Company is seeking stockholder approval of the issuance of the Keep Well Warrants and the Keep Well Warrant Shares in order to ensure compliance with Nasdaq Listing Rule 5635(c) to the extent that the issuance of the Keep Well Warrants and/or the Keep Well Warrant Shares are considered “equity compensation” under Nasdaq Listing Rule 5635(c). Accordingly, if stockholder approval of this proposal is not obtained, the Company will nevertheless issue the Keep Well Warrants and the Keep Well Warrant Shares unless doing so would be a violation of the Nasdaq listing rules.
As stated in Proposal 4, above, the Company is not seeking stockholder approval of its entry into the Keep Well Agreement or of the transactions contemplated thereby. The Company already entered into the Keep Well Agreement. The failure of the Company’s stockholders to approve this proposal will not negate the existing terms of the Keep Well Agreement or any other documents relating to the transactions contemplated thereby.
As of the record date for the Annual Meeting, Acuitas and its affiliates beneficially owned 9,114,155 shares of the Company’s common stock, or 43.5% shares of the Company’s common stock outstanding as of the record date. Acuitas and its affiliates may vote all such shares of the Company’s common stock on this proposal.
Effect of Issuance of Securities on Current Stockholders
If the Company borrows the entire Available Amount and all Keep Well Warrants issued in connection with such borrowings are exercised, the Company will issue 2,958,580 shares of the Company’s common stock. Such number of shares is in addition to the number of shares of the Company’s common stock issuable in respect of the Commitment Shares that are the subject of Proposal 4, above.
If Proposal 4 is approved by the Company’s stockholders and if the Company borrows the entire Available Amount and all Keep Well Warrants issued in connection with such borrowings are exercised, the Company will issue an aggregate of 3,698,225 shares of its common stock. This would significantly dilute the percentage interest of the Company’s stockholders, other than Acuitas, in the voting power, liquidation value and aggregate book value of the Company.
Interests of Directors and Executive Officers
Other than Mr. Peizer, none of the Company’s directors or executive officers have any substantial interest, directly or indirectly, in the matters set forth in this proposal except to the extent of their ownership of shares of the Company’s common stock. None of the Company’s officers or directors are entitled to receive any of the Keep Well Warrants and/or the Keep Well Warrant Shares, other than Mr. Peizer through his ownership and control of Acuitas.
No Appraisal Rights
Stockholders are not entitled to rights of appraisal with respect to this proposal.
Vote Required
If a quorum is present at the Annual Meeting, approval of this proposal requires the affirmative vote of the majority of shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the subject matter (meaning that of the shares represented at the Annual Meeting and entitled to vote, a majority of them must be voted “FOR” this proposal for it to be approved). Stockholders may vote “FOR,” “AGAINST” or “ABSTAIN” from voting on this proposal. Abstentions will have the same effect as a vote “AGAINST” this proposal, and broker non-votes will have no effect on the outcome of this proposal.THIS PROPOSAL
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE WARRANT ISSUANCE PROPOSAL.
PROPOSAL NO. 63
TO APPROVE THE NON-EMPLOYEE DIRECTOR RETENTION PLAN
Background and Summary of Director Retention Plan
The Compensation Committee has authority to make recommendations to, or approve, awards of shares and share options under the Company’s equity-based plans. The Compensation Committee also serves as the “Committee” under the Company’s 2017 Stock Incentive Plan (the “2017 Plan”), under which plan stock options have previously been granted to the Company’s non-employee directors. On May 24, 2022, the Compensation Committee, following consultation with the Nominations and Corporate Governance Committee, approved, subject to approval of the Company’s stockholders, a director retention plan (the “Director Retention Plan”).
The Director Retention Plan provides for the following compensation to the non-employee directors who are standing for re-election at the Annual Meeting (that is, Mr. Berman, Mr. Rebak and Mr. Sherman):
•Each non-employee director re-elected at the Annual Meeting will receive an award of Stock Units under the 2017 Plan with the following terms:
◦The number of Stock Units awarded will be $300,000 divided by the fair market value of the Company’s common stock on the date this Proposal No. 6 is approved at the Annual Meeting (the “Stockholder Approval Date”).
◦The Stock Units will vest as to one-half of the total number of Stock Units on the first anniversary of the Annual Meeting and one-quarter of the total number of Stock Units on each of the second and third anniversaries of the Annual Meeting, subject to continuing service.
◦The Stock Units will settle on the earlier of (i) the third anniversary of the Annual Meeting or (ii) a change of control of the Company.
•Each non-employee director standing for re-election at the Annual Meeting will be offered the opportunity to have all of his outstanding stock options modified as follows:
◦All such stock options that are vested will become entirely unvested and will vest on the earlier of the 2023 Annual Meeting of Stockholders or one year from the date of the 2022 Annual Meeting, subject to continuing service.
◦The exercise price of each stock option held will be repriced to the fair market value of the Company’s common stock on the date of the Annual Meeting.
◦The outside expiration date for stock options granted to each such non-employee director with an initial outside five-year expiration date will be extended from the current outside expiration date to December 19, 2027.
Except for the modifications discussed above for the stock options held by eligible non-employee directors, all outstanding stock options held by all non-employee directors will continue to remain outstanding in accordance with all of the current terms and conditions set forth above under “Director Compensation.”
The Compensation Committee consulted with Cannae HR Solutions in connection with the Director Retention Plan.
Reasons for the Director Retention Plan
As discussed above under “Director Compensation,” our non-employee directors receive no cash compensation. All compensation to non-employee directors has been in the form of stock options. Each non-employee director has historically received a stock option grant upon joining the board, with an exercise price equal to the fair market value on the grant date and with a term of five years, subject to continuing service and attendance at the quarterly board meetings unless such absence is excused by the Chairman of the Board. Annually thereafter,
non-employee directors received additional stock option awards as determined by the compensation committee.See “Director Compensation” above, including disclosure of stock option awards in 2021.
On January 3, 2022, the non-employee directors serving at that time received the following stock options, each with an exercise price of $8.72 per share (the fair market value on the date of award), an expiration date of January 3, 2027, and vesting in equal quarterly installments for the 2022 year.
| | | | | | | | | | | | | | |
| | | Option | |
| Name | | awards (# of shares) | |
| Richard A. Berman | | | 54,856 | |
| Michael Sherman | | | 56,299 | |
| Edward J. Zecchini | | | 49,081 | |
| Robert Rebak | | | 24,817 | |
| Diane Seloff | | | 49,081 | |
| Gustavo Giraldo | | | 49,081 | (1) |
| Katherine Quinn | | | 49,081 | (1) |
___________
(1) Options never vested due to resignation prior to first vesting date.
During 2022, the following non-employee directors have resigned from the board or declined to stand for re-election: Kathleen Quinn, Giraldo Gustavo, Ed Zecchini and Diane Seloff.
As noted above, all compensation to the Company’s non-employee directors has been in the form of stock options; the Company’s current non-employee directors have received no cash compensation or full-valued stock awards. Since the grant of options on January 3, 2022, the trading price of the Company’s common stock has declined from $6.46 per share to $1.01 per share on the record date. All of the options held by the Company’s non-employee directors have exercise prices significantly above the recent trading price of the Company’s common stock. The stock price decline has coincided with lost revenue and effects on company liquidity that have resulted from the loss of the Company’s two largest customers during 2021. As a result of these and other challenges, the workload for non-employee directors, including the number of board and committee meetings, has increased materially during 2022 compared to prior years. At the same time, the number of non-employee directors has decreased and will decrease further following the Annual Meeting. The Board believes that the combination of the increase in workload, absence of cash compensation and the significantly decreased value of equity awards held by non-employee directors makes retention of the non-employee directors standing for re-election a vital priority for the Company. For example, the Company is required by the rules of the Nasdaq Stock Market to have an audit committee comprised of three independent directors. Were the Company to lose one of its non-employee directors and not be able to replace such person, the Company would fall out of compliance with Nasdaq Stock Market listing requirements and eventually face delisting proceedings if it were unable to recruit a qualified replacement. Moreover, the Board believes that the skills and experience of the Company’s current non-employee directors are important for navigation of the Company’s business environment and to address the Company’s current financial position, including its dependence on the Keep Well Agreement with Acuitas described above under “Certain Relationships and Related Transactions, and Director Independence.” The Compensation Committee and the Board believe that these matters require an actively engaged and qualified Board comprised primarily of non-employee, independent directors. Moreover, the Compensation Committee and the Board believe that recruitment of new non-employee directors will be challenging for the Company at this time.
The Director Retention Plan will address this situation by reversing the condition of the lost incentive value of stock options, restoring the retentive benefit of the stock options and providing a portion of compensation to non-
employee directors for continued service in the form of Stock Units whose compensatory value is less dependent on stock price appreciation than stock options.
In approving the Director Retention Plan and recommending for approval by the Company’s stockholders, the Compensation Committee and the Board considered the following matters:
•Repricing previously granted options (or canceling and reissuing options) is often viewed as contrary to a key purpose of option grants: options only result in realized value when stockholders also gain through price appreciation.
•One-year vesting for the repriced options supports retention only for the one year following stockholder approval purpose of the Director Retention Plan (whereas the three-year vesting for the Stock Units included in the plan supports longer-term retention).
•Retention programs for non-employee directors expressly described as such are relatively uncommon.
In considering the above matters, the Compensation Committee and the Board considered the following mitigating circumstances:
•The Director Retention Plan does not reserve any additional shares of common stock for issuance; all equity grants made under the Director Retention Plan have been or will be made under the 2017 Plan.
•The repriced stock options will have exercise prices no less than the fair market value on the date of grant and therefore will result in realized value only when stockholders also gain through price appreciation following the date of such repricing.
•Repricing of stock options is expressly permitted by the terms of the stockholder-approved 2017 Plan.
•The Company could have issued additional options or other types of equity awards to address the lost incentive value of outstanding stock options held by non-employee directors, leaving those options with exercise prices significantly above the recent trading price of the Company’s common stock. This would result in increasing the Company’s overhang of outstanding equity awards.
•The year following the Annual Meeting is a particularly important year for the Company to retain its non-employee directors, and such period generally corresponds with term of the financial arrangement contemplated by the Keep Well Agreement.
•While non-employee director compensation expressly described as a retention program is relatively uncommon, non-employee director compensation typically includes a retentive component appropriate for the company in question.
Further, the Compensation Committee and the Board viewed it as significant that the Director Retention Plan will only take effect if approved by the Company’s stockholders.
Accounting Treatment of the Repricing
The Company has adopted the provisions of Financial Accounting Standards Codification Topic 718 (formerly referred to as Statement of Financial Accounting Standard No. 123R) regarding accounting for share-based payments. Under Financial Accounting Standards Codification Topic 718, the Company will recognize any incremental compensation cost of the modified options subject to the Director Retention Plan. The incremental compensation cost will be measured as the excess, if any, of the fair value of the repriced options immediately following the effective date over the fair value of the repriced options immediately prior to the effective date.
Interests of Directors and Executive Officers
The following table sets forth the benefits to be received under the Director Retention Plan by each eligible non-employee director:
| | | | | | | | | | | | | | |
| Name and Position | Number of Shares Subject to Options | Weighted Average Exercise Price Before Repricing | Number of shares vested before modification (1) | Outside expiration dates to be modified (2) |
| Richard A. Berman | 225,864 | $11.16 | 198,436 | Options for 108,365 shares expire December 19, 2022 and would be extended |
| Robert Rebak | 110,368 | $17.67 | 85,551 | Options for 85,551 shares expire July 16, 2024 and would be extended |
| Michael Sherman | 176,773 | $10.93 | 148,624 | Options for 98,834 shares expire December 19, 2022 and would be extended |
| All non-employee directors as a group | 513,005 | $12.48 | 397,693 | |
_________
(1) As of July 15, 2022. Upon approval of the Director Retention Plan, all such vested shares (and all currently unvested) will become unvested, and will vest on the earlier of the 2023 Annual Meeting of Stockholders or one year from the date of the 2022 Annual Meeting, subject to continuing service.
(2) The Director Retention Plan provides for modification of the outside expiration date for the stock options granted to each eligible non-employee director with an initial five-year expiration date from the current outside expiration date to December 19, 2027.
Each of these non-employee directors may be regarded as having conflicts of interest with respect to this proposal. The recommendation of the Board of Directors concerning this proposal was unanimous, including all of directors whose compensation will not be affected by the Director Retention Plan.
Vote Required
If a quorum is present at the Annual Meeting, approval of this proposal requires the affirmative vote of the majority of shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the subject matter (meaning that of the shares represented at the Annual Meeting and entitled to vote, a majority of them must be voted “FOR” this proposal for it to be approved). Stockholders may vote “FOR,” “AGAINST” or “ABSTAIN” from voting on this proposal. Abstentions will have the same effect as a vote “AGAINST” this proposal, and broker non-votes will have no effect on the outcome of this proposal.
If the Director Retention Plan is not approved by our stockholders, the Compensation Committee will consult with the Nominations and Corporate Governance Committee to determine what steps to take, if any, to address the concerns that informed the Director Retention Plan. The Compensation Committee believes that a failure of stockholder approval for this proposal will have an adverse effect on the Company’s ability to retain and attract qualified non-employee directors.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE DIRECTOR RETENTION PLAN PROPOSAL.
PROPOSAL NO. 7
THE CHARTER AMENDMENT PROPOSAL
The Charter Amendment Proposal
On July 15, 2022, the board of directors approved an amendment to the Company’s Certificate of Incorporation to remove the restrictions on transfers of the Company’s securities as set out in Article EIGHTH of the Certificate of Incorporation (the “Charter Amendment”) and declared its advisability. The full text of the Charter Amendment is attached to this Proxy Statement as Appendix A. On March 1, 2022, the Company’s stockholders authorized the board of directors, in its discretion, to approve and adopt an amendment to the Company’s Certificate of Incorporation to remove the transfer restrictions set out in Article EIGHTH. Article EIGHTH of the Certificate of Incorporation contains restrictions described in more detail below there were designed to protect certain tax loss carryovers and attributes of the Company (“Article EIGHTH” or the “382 Restrictions”).
While the Company’s stockholders previously authorized the board of directors to approve the Charter Amendment, out of an abundance of caution, the Company is putting the Charter Amendment to the stockholders for approval by way of the Charter Amendment Proposal.
Original Background and Purpose of the 382 Restrictions
We have available net operating loss carryovers (“NOLs”) and net capital loss carryovers (“NCLs”) and certain other tax attributes to reduce our future taxable income. NOLs and NCLs benefit us by reducing current or future taxable income, if any (subject to certain limitations) and thereby reducing or eliminating the U.S. federal corporate income tax on such income. The benefit of the NOLs, NCLs and certain other tax attributes can be reduced or eliminated if we undergo an ownership change, or Ownership Change, as defined in the Internal Revenue Code of 1986, as amended (the “Code”). Generally, there is an “Ownership Change” if, at any time, one or more 5% shareholders (as defined in the Code) have aggregate increases in their ownership in the corporation of more than 50 percent looking back over the relevant testing period, which can occur as a result of acquisitions and certain dispositions of common stock by 5% shareholders. At the time of entering into the Note Purchase Agreement dated September 24, 2019, by and among us, certain of our subsidiaries as guarantors, Goldman Sachs Specialty Lending Holdings, Inc., and Goldman Sachs Specialty Lending Group, L.P., as collateral agent (as the same has been amended from time to time, the “Goldman debt agreement”), the board of directors believed that it was in the best interests of the Company and its stockholders to adopt Article EIGHTH of the Certificate of Incorporation, which was designed, subject to certain exceptions, to restrict direct and indirect acquisitions of the Company’s common stock and similar securities that could result in the imposition of limitations on our use, for U.S. federal income tax purposes, of the NOLs, NCLs and certain other tax attributes that are and will be available to us.
Our NOLs and NCLs and a Description of Section 382 and Section 383
We have NOLs and NCLs that are expected to reduce a substantial portion of any future taxable income and gain. We also may recognize losses and deductions ("built-in losses") in future years with respect to assets whose value currently exceeds our tax basis in such assets. Sections 382 and 383 of the Code impose significant limitations on the ability of a corporation to use its NOLs and NCLs to offset income in circumstances where such corporation has experienced an Ownership Change. Those sections may also limit our ability to use any built-in losses recognized within five years of any such Ownership Change. Generally and as indicated above, there is an Ownership Change if, at any time, one or more 5% shareholders (as defined in the Code) have aggregate increases in their ownership in the corporation of more than 50 percentage points looking back over the relevant testing period. The relevant testing period is generally the prior three-year period, but the testing period generally does not begin before the first year in which a NOL or NCL was generated, unless the corporation has a net unrealized built-in loss at the time of an Ownership Change. We currently have a net unrealized built-in loss. The principal reason for adopting the 382 Restrictions was to prevent investors from aggregating or reducing ownership in the Company and triggering an Ownership Change and thus jeopardizing tax attributes that could reduce future U.S. federal corporate taxable income.
Collateral Effects of the 382 Restrictions
To implement the 382 Restrictions, in 2019 we amended and restated our Certificate of Incorporation to add Article EIGHTH containing the provisions regarding the 382 Restrictions, which generally prohibit any direct or indirect sale, transfer, assignment, exchange, issuance, grant, redemption, repurchase, conveyance, pledge or other disposition of shares of the Company’s common stock or rights or options to purchase the Company’s common stock or any other interests that would be treated as stock of the Company under the income tax regulations promulgated under the Code, if as a result of such sale, transfer, assignment, exchange, issuance, grant, redemption, repurchase, conveyance, pledge or other disposition, any person or group becomes a Substantial Stockholder, which generally includes a person or group that beneficially owns 4.9% or more of the market value of the total outstanding shares of the Company’s common stock, or the percentage of the Company’s common stock owned by a Substantial Stockholder would be increased or decreased. As a result of these restrictions, certain transfers of stock by or to existing Substantial Stockholders are prohibited. Any attempted transfer in violation of the foregoing restrictions are null and void unless the transferor or transferee obtained the written approval of the board of directors.
If the board of directors determines that a transfer would be prohibited, then, upon the Company’s written demand, the purported transferee would be required to transfer the securities that were the subject of the prohibited transfer, or cause such securities to be transferred, to an agent designated by the board of directors. The agent would then sell the securities to a buyer or buyers, which may include the Company, in one or more arm's-length transactions that comply with the 382 Restrictions. If the purported transferee had resold the securities before receiving our demand to surrender them to our agent, the purported transferee would be deemed to have sold the securities for the agent and would be required to transfer to the agent any distributions received with respect to such securities and any proceeds of the sale of such securities (except for any proceeds which the Company granted the purported transferee written permission to retain and which do not exceed the amount that the purported transferee would have received from the agent if the agent had resold such securities). The proceeds of the sale of any such securities would be applied first to the agent to cover its costs and expenses, second to the purported transferee, up to the lesser of the amount paid by the purported transferee for the securities or the fair market value of the securities at the time of the attempted transfer, and third to one or more charitable organizations selected by the board of directors.
The 382 Restrictions, subject to certain exceptions, require any person who acquires or attempts to acquire shares of the Company’s common stock or rights or options to purchase the Company’s common stock or any other interests that would be treated as our stock under the income tax regulations in violation of the Section 382 Ownership Limit described above to provide to us such information as we may request in order to determine the effect, if any, of such purported transfer on the preservation and usage of the benefit of our NOLs, NCLs and certain other tax attributes.
The 382 Restrictions were intended to reduce the likelihood of an Ownership Change, and they therefor significantly reduce our flexibility to issue equity securities, as any such issuance needs to be evaluated in light of the possibility of an Ownership Change implicating the 382 Restrictions. The Goldman debt agreement required implementation of the 382 Restrictions. The Company plans to retire the Goldman debt agreement in the near term, and once retired, the Company will no longer be required to maintain the 382 Restrictions. The Keep Well Agreement described elsewhere in this Proxy Statement contains no requirement to maintain the 382 Restrictions, but does require as a condition to each draw, a representation that the Company has used best efforts to obtain sufficient financing from a third party for the Company to pay and discharge, when due and payable, all Company obligations and the Company is unable despite its best efforts to obtain such financing from a third party on reasonably acceptable terms. In light of the funding conditions in the Keep Well Agreement, the Company’s current financial situation and forecasts of the Company’s ability to utilize its NOLs and NCLs, the board of directors believes that the potential benefits of the 382 Restrictions may be greatly outweighed by the severe restrictions they impose on the Company’s ability to obtain equity financings. The removal of the 382 Restrictions could result in an Ownership Change which could have the effect of limiting otherwise available NOLs, NCLs and certain other tax
attributes to reduce our future taxable income. The board of directors currently believes that the benefits of removal of the 382 Restrictions substantially outweigh the loss of such tax attributes.
Board Discretion to Implement the Certificate of Incorporation
At any time prior to the effectiveness of the filing of the Charter Amendment with the Secretary of State of Delaware, the board of directors reserves the right to abandon the Charter Amendment and to not file the Charter Amendment with the Secretary of State of Delaware, even if approved by the Company’s stockholders, if the board of directors, in its discretion, determines that the Charter Amendment is no longer in the best interests of the Company or its stockholders.
Vote Required
If a quorum is present at the Annual Meeting, approval of this proposal requires the affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock. Stockholders may vote “FOR,” “AGAINST” or “ABSTAIN” from voting on this proposal. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” this proposal.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE CHARTER AMENDMENT PROPOSAL.
PROPOSAL NO. 8
THE ADJOURNMENT PROPOSAL
General
In this proposal, we are asking our stockholders to authorize us to adjourn the Annual Meetingspecial meeting to another time and place, if necessary or advisable, to solicit additional proxies in the event there are not sufficient votes to approve either or both of the Reverse Stock Split Proposal No. 7,and the Charter AmendmentKeep Well Proposal at the Annual Meeting.special meeting. If our stockholders approve this proposal, we could adjourn the Annual Meetingspecial meeting without a vote on either the Reverse Stock Split Proposal No. 7or the Keep Well Proposal to solicit additional proxies and/or to seek to convince stockholders to change their votes in favor of such proposal.
proposals.
If itthe special meeting is necessary or advisable to adjournadjourned, notice need not be given of the Annual Meeting, no notice of any adjournment of less than 30 days is required to be givenadjourned meeting if the time, and place, of the adjourned meeting,if any, thereof, and the means of remote communication,communications, if any, by which stockholders and proxyholdersproxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the special meeting at whichor displayed, during the time scheduled for the special meeting, on the same electronic network used to enable stockholders and proxy holders to participate in the meeting by means of remote communication. However, if the adjournment is taken, unlessfor more than 30 days, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting. In addition, if after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, notice of the adjourned meeting will be given to each stockholder of record entitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting. At the adjourned meeting, we may transact any business which might have been transacted at the original meeting.
Interests of Directors and Executive Officers
None of the Company’s directors or executive officers have any substantial interest, directly or indirectly, in this proposal except to the extent of their ownership of shares of the Company’s common stock.
Vote Required
If a quorum is present at the Annual Meeting,special meeting, approval of this proposal requires the affirmative vote of the majority of the shares of our common stock present in person or represented by proxy at the special meeting and entitled to vote on this proposal (meaning that of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote on the subject matter (meaning that of the shares represented at the Annual Meetingspecial meeting and entitled to vote, a majority of them must be voted “FOR” this proposal for it to be approved). Stockholders may vote “FOR,” “AGAINST” or “ABSTAIN” from voting on this proposal. Abstentions will have the same effect as a vote “AGAINST” this proposal. This proposal is a routine matter and brokers and other nominees may generally vote in their discretion on routine matters, and therefore broker non-votes are not expected on this proposal.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR“FOR” THIS PROPOSAL.
SECURITY OWNERSHIP OF THE ADJOURNMENT PROPOSAL.
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of January 5, 2023 for (a) each stockholder known by us to own beneficially more than 5% of our common stock (b) our named executive officers, (c) each of our directors, and (d) all of our current directors and executive officers as a group.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name of beneficial owner (1) | | Common Stock Owned | | | Shares Beneficially Owned (2) | | | | Total Common Stock Beneficially Owned | | | Percent of Class (3) | |
| Directors and Named Executive Officers: | | | | | | | | | | | | | |
| Terren S. Peizer (4) | | 9,853,800 | | | 2,815,148 | | | | 12,668,948 | | | 42.1 | % |
| Richard A. Berman | | — | | | — | | | | — | | | * | |
| Michael Sherman | | 15,550 | | | — | | | | 15,550 | | | * | |
| James Messina (5) | | — | | | 16,360 | | | | 16,360 | | | * | |
Jonathan E. Mayhew (6)
| | — | | | — | | | | — | | | * | |
| Brandon H. LaVerne (7) | | 44,140 | | | 145,834 | | | | 189,974 | | | * | |
| Mary Louise Osborne (8) | | 32,335 | | | 37,500 | | | | 69,835 | | | * | |
| All current directors and executive officers as a group (9 persons) | | 10,018,706 | | | 3,317,959 | | | | 13,156,665 | | | 43.3 | % |
___________
| | | | | |
| * | Less than 1% |
| (1) | Except as set forth below, the mailing address of all individuals listed is c/o Ontrak, Inc., 2200 Paseo Verde Parkway, Suite 280, Henderson, NV 89052. |
| (2) | The number of shares beneficially owned includes shares of common stock in which a person has sole or shared voting power and/or sole or shared investment power and shares of common stock acquirable within 60 days of January 5, 2023 upon exercise of options or warrants. Except as noted in other footnotes to this table, each person named has sole voting and investment powers with respect to the common stock beneficially owned by that person, subject to applicable community property and similar laws. |
| (3) | Shares of common stock that may be acquired by an individual or group within 60 days of January 5, 2023 are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Percentage of ownership is based on 27,280,862 shares of common stock outstanding on January 5, 2023. |
| (4) | Total common stock beneficially owned consists of 9,853,800 shares of common stock, warrants to purchase 1,775,148 shares of common stock and options to purchase 1,040,000 shares of common stock. The 9,853,800 shares of common stock are held of record by Acuitas Group Holdings, LLC, a limited liability company 100% owned by Terren S. Peizer, and as such, Mr. Peizer may be deemed to beneficially own or control. |
| (5) | Total common stock beneficially owned consists of options to purchase 16,360 shares of common stock. |
| (6) | On June 24, 2022, Mr. Mayhew gave notice of his resignation, effective August 12, 2022. |
| (7) | Total common stock beneficially owned consists of 20,000 shares of common stock, 24,140 shares of common stock held under the Company’s 401(k) plan, and options to purchase 145,834 shares of common stock. |
| (8) | Total common stock beneficially owned consists of 20,000 shares of common stock, 12,335 shares of common stock held under the Company’s 401(k) plan, and options to purchase 37,500 shares of common stock. |
STOCKHOLDER PROPOSALS OR NOMINATIONS TO BE PRESENTED
AT NEXT ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for stockholder action at theour 2023 annual meeting of our stockholders (“2023 Annual Meeting of Stockholders”) consistent with Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).To be considered for inclusion in proxy materials for our 2023 Annual Meetingannual meeting of Stockholders,stockholders, a stockholder proposal must be submitted in writing no later than March 30, 2023 (120(which is 120 days prior tobefore the anniversary of this year’s mailing date)the date we released our proxy statement to stockholders in connection with our 2022 annual meeting of stockholders), to our Corporate Secretary, c/o Ontrak, Inc., 2200 Paseo Verde Parkway, Suite 280, Henderson, NV 89052. However, if the date of theour 2023 Annual Meetingannual meeting of Stockholdersstockholders is convened more than 30 days before, or delayed by more than 30 days after, August 29, 2023, to be considered for inclusion in proxy materials for our 2023 Annual Meetingannual meeting of Stockholders,stockholders, a stockholder proposal must be submitted in writing to our Corporate Secretary, c/o Ontrak, Inc., 2200 Paseo Verde Parkway, Suite 280, Henderson, NV 89052 in a reasonable time before we begin to print and send our proxy materials for the 2023 Annual Meeting of Stockholders. The persons authorized by the form of proxy to be sent in connection with the solicitation of proxies on behalf of the Company’s board of directors for our 2023 Annual Meetingannual meeting of Stockholdersstockholders will vote in their discretion as to any matter of which the Company has not received notice by June 13, 2023.
The deadline for providing notice to the company under Rule 14a-19, the SEC’s universal proxy rule, of a stockholder’s intent to solicit proxies in support of director nominees for our 2023 annual meeting of stockholders is June 30, 2023.
HOUSEHOLDING OF PROXY MATERIALS
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.
This year, aA number of brokers with account holders who are Ontrak stockholders will be “householding” our proxy materials. A single annual report and proxy statement will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that they will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report, or, if you share an address with another Company stockholder and are receiving multiple copies of annual reports and proxy statements but only wish to receive a single copy of such materials, you may:
•if you are a stockholder of record, direct your written request to our transfer agent, American Stock Transfer and Trust Company, LLC, (in writing: Attn: Proxy Dept., 6201 15th Avenue, Third Floor, Brooklyn, NY 11219, U.S.A.; or by telephone:call: in the United States, 1-800-PROXIES (1-800-776-9437) and outside the United States, 1-718-921-8500); or
•if you are not a stockholder of record, notify your broker.
Ontrak will promptly deliver, upon written or oral request, a separate copy of the annual report and proxy statementmaterials to a stockholder at a shared address to which a single copy of the documents was delivered. If you currently receive multiple copies of the proxy statement at your address and would like to request “householding” of these communications, please contact your broker if you are not a stockholder of record; or contact our transfer agent if you are a stockholder of record,delivered by using the contact information provided above.
WHERE YOU CAN FIND MORE INFORMATION
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, and proxy statements and other information we file or furnish pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge on our website at www.ontrakhealth.com under the Investors tab as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC.
The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including our company.
OTHER MATTERS
The BoardOur board of Directorsdirectors knows of no other matters that will be presented for consideration at the Annual Meeting.special meeting. If any other matters are properly presented at the Annual Meeting,special meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment, pursuant to the discretionary authority granted by the proxy.
By order of the Board of Directors,
/s/ James J. Park
James J. Park
Chief Financial Officer
Henderson, Nevada
July 15, 2022
A copy of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC is available without charge upon written request to: Corporate Secretary, c/o Ontrak, Inc., 2200 Paseo Verde Parkway, Suite 280, Henderson, NV 89052.
Appendix A
Proposed Amendment to Amended and Restated Certificate of Incorporation
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ONTRAK, INC.
(Pursuant to Section 242 of the
General Corporation Law of the State of Delaware)
Ontrak, Inc. (the “Corporation”), a corporation existing under the General Corporation Law of the State of Delaware (the “DGCL”), hereby certifies as follows:
1.FIRST: This Certificate of Amendment (this “Certificate of Amendment”) amends the provisions of the Corporation’s Amended and Restated Certificate of Incorporation filed with the Secretary of State on October 28,4, 2019, as amended by the Certificate of Amendment thereto filed with the Secretary of State on July 6, 2020, the Certificate of Designations of Rights and Preferences filed with the Secretary of State on August 21, 2020 and Amendment No. 1 to Certificate of Designations of Rights and Preferences filed with the Secretary of State on October 15, 2020 (as amended to date, the “Certificate of Incorporation”).
2.SECOND: The Certificate of Incorporation is hereby amended by strikingrevising Article EIGHTH in its entirety.FOURTH to include a new paragraph 3 as follows:
3. Effective at 6:00 p.m. Eastern Time (the “Effective Time”) on the effective date of the certificate of amendment adding this paragraph to Article FOURTH of the certificate of incorporation of the Corporation (the “Effective Date”), every [•] ([•]) shares of Common Stock issued and outstanding or held by the Corporation in treasury stock immediately prior to the Effective Time shall automatically be combined and reclassified into one (1) validly issued, fully paid and non-assessable share of Common Stock without any further action by the Corporation or the holder thereof (the “Reverse Split”); provided, however, that if the Reverse Split would result in the record account of any holder of Common Stock having a number of shares of Common Stock that is, in the aggregate, less than one (1) share (a “Fractional Share”), such holder shall be entitled to receive a whole share of Common Stock in lieu of a Fractional Share.
THIRD: This Certificate of Amendment was duly adopted in accordance with the provisions of Section 242 of the DGCL.
4. All other provisions of the Certificate of Incorporation shall remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be duly adopted and executed in its corporate name and on its behalf by its duly authorized officer on thisas of the ___ day of ___________, 202__.
Ontrak, Inc.
By:
Name:
Title:
Name:
Title:
