SCHEDULE: Ontrak Secures New Funding and Adjusts Warrants Amidst Shareholder Legal Challenges

Ontrak, Inc. has entered into a Seventh Amendment to its Master Note Purchase Agreement, securing up to $8.45 million in new committed funding from Acuitas Capital LLC, while also adjusting warrant exercise prices and disclosing a significant legal proceeding involving its largest beneficial owner, Terren S. Peizer.

Summary

• Ontrak, Inc. (the "Company") has filed Amendment No. 34 to its Schedule 13D, detailing significant financial and ownership updates.
• Acuitas Capital LLC has committed to purchase up to an additional $8.45 million in principal amount of Demand Notes, with the option to purchase further uncommitted notes up to $1.5 million.
• The previous May 2025 Agreement, under which Acuitas Capital had purchased $1.55 million of $5.0 million in Demand Notes, has been terminated.
• Acuitas Capital has agreed to defer its right to demand payment on any Demand Notes or Seventh Amendment Demand Notes until the earlier of September 1, 2026, or 30 days after purchasing the full $8.45 million in committed notes.
• The conversion price for the new Seventh Amendment Demand Notes will be the lesser of $0.9726 per share and the greater of the closing price prior to conversion or $0.3242 per share.
• Upon stockholder approval, the conversion prices of certain existing Demand Notes (issued March 28, May 9, and May 27, 2025) will be amended to be the lesser of (i) $1.48, $1.64, and $1.59 respectively, and (ii) the greater of the closing price prior to conversion or one-third of the respective dollar amount in clause (i).
• In connection with the new Demand Notes, the Company will issue Demand Warrants providing 200% warrant coverage, with a five-year term and an initial exercise price based on the closing price on the funding date.
• The Company closed its June 2025 Offering at a combined public offering price of $0.60 per Share and four warrants, resulting in the exercise prices of Keep Well Warrants and Private Placement Warrants being reduced to $0.60.
• The aggregate number of shares issuable upon exercise of Keep Well Warrants and Private Placement Warrants increased proportionately from 49,720,776 to 128,349,600 shares due to these adjustments.
• Terren S. Peizer, a key beneficial owner, was sentenced to 42 months imprisonment and 3 years of supervised release on June 23, 2025, and filed a notice of appeal on June 25, 2025.
• The Company is required to seek stockholder approval for the terms of the Seventh Amendment, including the issuance of notes and warrants, in accordance with Nasdaq listing rules.

Sentiment

Score: 3

Explanation: While the Company secured additional funding, the terms are highly dilutive, and the significant legal issues surrounding a key beneficial owner and the ongoing liquidity concerns (as evidenced by funding conditions) present substantial negative sentiment. The funding provides a temporary lifeline but does not resolve underlying financial fragility.

Positives

• Secured a commitment for up to $8.45 million in new Demand Notes from Acuitas Capital, providing additional liquidity.
• Acuitas Capital waived its right to require net equity proceeds to pay Demand Notes before they are due, offering financial flexibility.
• The deferral of payment demands on existing and new Demand Notes until September 1, 2026, or later, provides the Company with extended financial runway.

Negatives

• Terren S. Peizer, a significant beneficial owner and chairman of Acuitas Group Holdings, LLC and Acuitas Capital LLC, was sentenced to 42 months imprisonment and 3 years of supervised release, which could raise corporate governance concerns and potentially impact investor confidence.
• The significant increase in shares issuable upon exercise of warrants (from 49,720,776 to 128,349,600) and the reduction of warrant exercise prices to $0.60 indicate substantial potential dilution for existing shareholders.
• The Company's obligation to purchase additional Demand Notes is contingent on a certification that it would not have sufficient unrestricted cash for 30 days without the funds, indicating ongoing liquidity challenges.

Risks

• The Company's ability to continue operations may depend on securing the committed funds, as indicated by the funding condition requiring certification of insufficient cash.
• Failure to obtain Seventh Amendment Stockholder Approval could impact the Company's ability to issue shares upon conversion of notes and exercise of warrants, potentially affecting future financing options and compliance with Nasdaq listing rules.
• The legal proceedings and sentencing of Terren S. Peizer could negatively impact the Company's reputation, investor sentiment, and potentially its access to capital or business relationships.
• Significant potential dilution from the conversion of notes and exercise of warrants could depress the stock price and reduce the ownership percentage of current shareholders.

Future Outlook

The Company is expected to continue seeking stockholder approval for the terms of the Seventh Amendment, which is crucial for the issuance of shares related to the new funding and warrant adjustments. The deferral of payment demands on notes until September 2026 provides a near-term financial buffer.

Management Comments

• The Company's Chief Executive Officer or Chief Financial Officer must provide a certification stating that, without obtaining requested funds, the Company will not have sufficient unrestricted cash to pay its monetary obligations for the 30-day period following a funding notice.

Industry Context

This filing indicates a company in need of ongoing capital infusions, relying heavily on its primary beneficial owner and affiliated entities for financing. The significant dilution and warrant adjustments are common mechanisms for distressed companies to raise capital, often at terms unfavorable to existing shareholders, reflecting a challenging financial position within the healthcare or technology sector it operates in.

Comparison to Industry Standards

• The reliance on a single major investor (Terren S. Peizer and his affiliated entities) for repeated capital infusions, as evidenced by 34 amendments to the Schedule 13D, is atypical for a healthy publicly traded company and suggests limited access to broader capital markets.
• The terms of the financing, including significant warrant coverage (200%) and substantial adjustments to exercise prices, are indicative of highly dilutive financing often seen in companies facing severe liquidity constraints, contrasting with more favorable terms available to financially stable peers.
• The requirement for the Company to certify insufficient cash for 30 days to draw on committed funds is a strong indicator of precarious short-term liquidity, a condition not typically seen in well-capitalized industry comparables.
• The legal issues faced by a key beneficial owner and chairman, Terren S. Peizer, introduce a unique governance and reputational risk that is not a standard industry practice and could deter institutional investors.

Corporate Governance

Legal Proceedings

• Terren S. Peizer was sentenced on June 23, 2025, to 42 months imprisonment and 3 years of supervised release on unspecified counts. He filed a notice of appeal on June 25, 2025.

Related Party Transactions

• The Seventh Amendment to the Master Note Purchase Agreement is with Acuitas Capital LLC, a wholly owned subsidiary of Acuitas Group Holdings, LLC, both of which are controlled by Terren S. Peizer, the largest beneficial owner.
• The June 2025 Agreement regarding warrant exercise price adjustments was entered into with Acuitas Capital LLC and Humanitario Capital LLC, both affiliated with Terren S. Peizer.

Stakeholder Impact

• **Shareholders**: Face significant potential dilution due to the large number of shares issuable upon warrant exercise and note conversion, and the reduction of exercise prices. The legal issues of a major beneficial owner could also impact share price and confidence.
• **Creditors (Acuitas Capital LLC)**: Benefit from the new committed funding and the deferral of payment demands on existing notes, providing a structured repayment timeline.
• **Company Operations**: The new funding provides a critical lifeline for ongoing operations, as indicated by the condition requiring certification of insufficient cash without the funds.

Next Steps

• The Company must seek stockholder approval for the Seventh Amendment, including the issuance of Seventh Amendment Demand Notes, Demand Warrants, and the amendment to Amended Demand Notes, in accordance with Nasdaq listing rules.
• The Company is required to file a preliminary information statement and subsequently mail a definitive information statement to stockholders regarding the Seventh Amendment Stockholder Approval.
• If written consent is not feasible, the Company must hold an annual or special meeting of stockholders to obtain the required approvals, with subsequent meetings semi-annually if approval is not obtained.

Key Dates

Keywords

SEC filing, Schedule 13D, Ontrak Inc., Acuitas Capital, Demand Notes, Warrants, Stockholder Approval, Dilution, Capital Raise, Corporate Governance, Legal Proceedings, Beneficial Ownership, Nasdaq Listing Rules