DEF 14A: Ontrak, Inc. Seeks Stockholder Approval for Reverse Stock Split, Incentive Plan, and Director Retention Plan

Ontrak, Inc. is holding its annual meeting of stockholders on September 10, 2024, to vote on key proposals including the election of directors, ratification of auditors, approval of an amended stock incentive plan, a director retention plan, a reverse stock split, and other corporate governance matters.

Summary

• Ontrak, Inc. is convening its 2024 annual meeting of stockholders on September 10, 2024, to vote on several key proposals.
• The proposals include the election of three directors, ratification of EisnerAmper LLP as the independent registered public accounting firm for the fiscal year ending December 31, 2024, and approval of an amended and restated 2017 Stock Incentive Plan.
• Stockholders will also vote on approving a non-employee director retention plan, an advisory vote on executive compensation, and the preferred frequency of advisory votes on executive compensation.
• A significant proposal involves granting the board of directors the authority to implement a reverse stock split at a ratio between 1-for-2 and 1-for-15, to be determined and executed at the board's discretion before September 10, 2025.
• Additionally, stockholders will vote on a proposal to allow the adjournment of the meeting, if necessary, to solicit additional proxies in favor of the reverse stock split proposal.
• The board of directors has set July 18, 2024, as the record date for determining stockholders eligible to vote at the annual meeting, with 47,967,725 shares of common stock outstanding and entitled to vote as of that date.

Sentiment

Score: 5

Explanation: The document presents a mix of positive and negative aspects. The company is taking steps to maintain its Nasdaq listing and incentivize employees, but it faces financial challenges and market risks.

Positives

• The proposed Amended and Restated 2017 Stock Incentive Plan aims to align the interests of management, employees, and non-employee directors with those of stockholders.
• The reverse stock split is intended to increase the stock price to maintain Nasdaq listing compliance, potentially broadening investor appeal and improving marketability.
• The virtual annual meeting format is expected to increase stockholder attendance and participation while reducing costs.
• The board is committed to corporate governance best practices, including independent directors and a code of ethics.

Negatives

• The company's common stock is currently trading below the minimum bid price required for continued listing on The Nasdaq Capital Market.
• The reverse stock split, if implemented, could potentially decrease the liquidity of the company's stock.
• The company has a significant amount of debt outstanding under the Keep Well Agreement with Acuitas Capital LLC.
• The company has experienced significant board turnover in 2022 and 2023.

Risks

• Failure to regain compliance with Nasdaq's minimum bid price requirement could result in delisting of the company's common stock.
• The reverse stock split may not result in a sustained increase in the stock price.
• The company's dependence on the Keep Well Agreement with Acuitas Capital LLC poses a financial risk.
• The company's business environment and litigation matters may continue to be challenging.

Future Outlook

The company is focused on regaining compliance with Nasdaq listing requirements and improving its financial performance.

Management Comments

• The board of directors believes that having an equity incentive plan with an adequate number of shares available for future equity awards is necessary to promote the long-term success of the company and the enhancement of stockholder value.
• Our board of directors has determined that its current structure, with separate chairman and chief executive officer roles, is in the best interests of Ontrak and its stockholders at this time.

Industry Context

The company operates in the healthcare technology sector, where equity compensation is commonly used to attract and retain talent.

Comparison to Industry Standards

• Cannae HR Solutions advised that comparable companies typically pay 50% of non-employee director compensation in cash.
• The company's all-equity compensation structure for non-employee directors is atypical compared to industry standards.

Related Party Transactions

• The company has entered into a Keep Well Agreement with Acuitas Capital LLC, an entity indirectly wholly owned and controlled by Terren S. Peizer, the company's former Chief Executive Officer and Chairman.
• Concurrent with the closing of the company's public offering in November 2023, in a private placement, the company issued to Humanitario Capital LLC, an affiliate of Acuitas Capital, a pre-funded warrant to purchase up to 18,333,333 shares of the company's common stock, at an exercise price of $0.0001 per share, and a warrant to purchase up to 36,666,666 shares of the company's common stock, at an exercise price of $0.85 per share, subject to adjustment, for total consideration of $11.0 million.

Stakeholder Impact

• The reverse stock split could affect the value and liquidity of stockholders' investments.
• The Amended and Restated 2017 Stock Incentive Plan is intended to benefit employees, directors, and consultants by aligning their interests with those of stockholders.
• The company's ability to maintain its Nasdaq listing is important for investor confidence and access to capital.

Next Steps

• Stockholder vote on the proposals at the annual meeting on September 10, 2024.
• Board of directors to determine whether to implement the reverse stock split and at what ratio.
• Company to file a certificate of amendment to the certificate of incorporation if the reverse stock split is implemented.
• Company to continue working to regain compliance with Nasdaq listing requirements.

Key Dates

Keywords

reverse stock split, proxy statement, annual meeting, stock incentive plan, director retention, corporate governance, executive compensation, EisnerAmper, Nasdaq, Ontrak