Form 4: Ontrak Insider Filing: Peizer and Acuitas Report Transactions in Convertible Notes and Warrants Following Stockholder Approval

Sentiment:

SEC Form 4 5 June 2024 8:12 PM

Terren S. Peizer and Acuitas Group Holdings, LLC report transactions involving senior secured convertible promissory notes and warrants of Ontrak, Inc. following stockholder approval of the Sixth Amendment to the Master Note Purchase Agreement.

Capital raiseAcuitas Capital has the option to purchase up to an additional $13.5 million in Demand Notes.The Demand Notes are convertible into shares of Ontrak's common stock.Ontrak issued warrants to Acuitas Capital to purchase shares of Ontrak's common stock.

Summary

Terren S. Peizer, Chairman and sole member of Acuitas Group Holdings, LLC, and Acuitas report transactions in Ontrak, Inc. securities.
These transactions involve the purchase of senior secured convertible promissory notes and the issuance/exchange of warrants following stockholder approval of the Sixth Amendment to the Master Note Purchase Agreement.
Acuitas Capital LLC, wholly owned by Acuitas, purchased $3 million in aggregate principal amount of Demand Notes on May 8, 2024, and June 5, 2024.
The Demand Notes are convertible into Ontrak's common stock at a price equal to the lesser of $0.36 and the greater of (i) the consolidated closing bid price immediately prior to conversion and (ii) $0.12, subject to adjustment.
For each purchased Demand Note, Ontrak will issue Acuitas Capital a five-year warrant to purchase shares of Ontrak's common stock resulting in 200% warrant coverage.
New Warrants were issued in exchange for warrants dated August 29, 2022, September 7, 2022, January 5, 2023, March 6, 2023 and November 14, 2023, with the exercise price reduced to $0.3442.
The conversion price of the Surviving Note was modified to equal the lesser of (a) $0.36 and (b) the greater of the consolidated closing bid price immediately prior to the applicable conversion date and (ii) $0.12, subject to further adjustment, effective upon stockholder approval.

Sentiment

Score: 5

Explanation: The sentiment is neutral. The filing reports transactions related to a previously announced financing agreement. While the financing provides capital, it also carries the risk of dilution.

Positives

The Sixth Amendment to the Master Note Purchase Agreement has been approved by stockholders, allowing for the conversion of notes and issuance of warrants.
The reduced exercise price of the New Warrants to $0.3442 may be seen as a positive for warrant holders.
The modification of the conversion price of the Surviving Note to a minimum of $0.12 could be seen as a positive for Acuitas Capital.

Negatives

The potential dilution of existing shareholders due to the conversion of Demand Notes and exercise of warrants is a potential negative.
The transactions indicate a continued reliance on financing from Acuitas Capital, which may suggest challenges in securing funding from other sources.

Risks

The conversion of Demand Notes and exercise of warrants could significantly dilute existing shareholders' equity.
Ontrak's ability to meet its obligations under the Keep Well Agreement and Demand Notes is dependent on its financial performance.
The adjusted conversion prices and warrant exercise prices are subject to further adjustments, which could impact the value of the securities.

Future Outlook

The document does not contain specific forward-looking statements regarding Ontrak's future performance, but it outlines the terms of ongoing financing arrangements with Acuitas Capital.

Industry Context

This announcement reflects a continued trend of smaller companies relying on structured financing arrangements, such as convertible notes and warrants, to raise capital. These arrangements can be beneficial in the short term but may create long-term risks related to dilution and debt obligations.

Comparison to Industry Standards

Convertible notes and warrants are common financing tools, especially for companies with limited access to traditional capital markets.
The specific terms, such as the conversion price and warrant coverage, are negotiated based on the company's financial condition and market conditions.
Similar financing structures can be seen with companies like Digital Ally, Inc. and Genius Brands International, Inc., where convertible notes and warrants have been used to raise capital.
The potential dilution from these instruments is a key consideration for investors, and the impact on the share price can be significant.

Related Party Transactions

The transactions involve Acuitas Capital, an entity wholly owned by Acuitas Group Holdings, LLC, of which Terren S. Peizer is the Chairman and sole member.

Stakeholder Impact

Shareholders may experience dilution if the Demand Notes are converted and warrants are exercised.
The financing provides Ontrak with capital, which could benefit the company's operations and employees.
The terms of the financing agreement could impact the company's financial flexibility and ability to pursue other strategic initiatives.

Next Steps

Acuitas Capital may purchase additional Demand Notes up to the aggregate principal amount of $13.5 million.
Acuitas Capital may convert the Demand Notes into shares of Ontrak's common stock.
Acuitas Capital may exercise the warrants to purchase shares of Ontrak's common stock.

Key Dates

Date	Description
08/29/2022	Date of warrants that were exchanged for New Warrants.
09/07/2022	Date of warrants that were exchanged for New Warrants.
01/05/2023	Date of warrants that were exchanged for New Warrants.
03/06/2023	Date of warrants that were exchanged for New Warrants.
07/27/2023	Effective date of Ontrak's 1-to-6 reverse stock split.
09/01/2023	Exercise price of warrants issued on August 29, 2022, September 7, 2022, January 5, 2023 and March 6, 2023 was determined to have been automatically reduced to $0.9228.
12/20/2023	Date of Senior Secured Convertible Note.
11/14/2023	Date of warrants that were exchanged for New Warrants.
03/28/2024	Date of the Master Note Purchase Agreement.
04/05/2024	Date Ontrak issued and sold to Acuitas Capital a senior secured promissory note with a principal amount of $1.5 million.
05/08/2024	Acuitas Capital purchased additional Demand Notes.
05/13/2024	Date of Information Statement filed by Ontrak with the SEC.
06/02/2024	Approximate date stockholder approval became effective.
06/02/2024	Date of transactions involving Senior Secured Convertible Promissory Notes.
06/05/2024	Date of transactions involving Demand Notes and Warrants.
08/29/2027	Expiration date of some Common Stock Purchase Warrants.
09/07/2027	Expiration date of some Common Stock Purchase Warrants.
01/05/2028	Expiration date of some Common Stock Purchase Warrants.
03/06/2028	Expiration date of some Common Stock Purchase Warrants.
11/14/2028	Expiration date of some Common Stock Purchase Warrants.
04/05/2029	Expiration date of some Common Stock Purchase Warrants.
05/08/2029	Expiration date of some Common Stock Purchase Warrants.
06/05/2029	Expiration date of some Common Stock Purchase Warrants.

Keywords

Ontrak, Acuitas, Peizer, Warrants, Convertible Notes, Demand Notes, Sixth Amendment, Stockholder Approval, Form 4, Insider Trading

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