Item 1.01 Entry into a Material Definitive Agreement.
The information set forth below under Item 2.03 with respect to the Keep Well
Note (a defined below) and the letter agreement described therein is hereby
incorporated by reference into this Item 1.01.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance Sheet Arrangement of a Registrant.
As previously reported, on April 15, 2022, Ontrak, Inc. (the "Company") entered
into a Master Note Purchase Agreement (the "Keep Well Agreement") with Acuitas
Capital LLC ("Acuitas"), an entity indirectly wholly owned and controlled by
Terren S. Peizer, the Company's Executive Chairman and largest stockholder,
pursuant to which, subject to specified conditions, the Company may borrow up to
$25.0 million from time to time.
On September 7, 2022, the Company borrowed $6.0 million under the Keep Well
Agreement and plans to use the proceeds therefrom to fund its working capital
needs. In connection with this borrowing, the Company issued to Acuitas a senior
secured note in the principal amount of $6.0 million (the "Keep Well Note"), a
form of which was filed as Exhibit 4.1 to the Company's Quarterly Report on Form
10-Q filed with the Securities and Exchange Commission on May 11, 2022. The Keep
Well Note will accrue interest based on the Term SOFR Reference Rate for a 30
day tenor plus a corresponding applicable margin for each interest period (the
interest rate for the initial interest period is 18.36%). All outstanding
borrowings under the Keep Well Agreement are due on September 1, 2023, subject
to acceleration for certain customary events of default, including for failure
to make payments when due, breaches by the Company of certain covenants and
representations in the Keep Well Agreement, defaults by the Company under other
agreements related to indebtedness, the Company's bankruptcy or dissolution, and
a change of control of the Company. The Company's obligations under the Keep
Well Agreement are secured by a first priority lien on substantially all of the
present and future property and assets of the Company and certain of its
subsidiaries, subject to customary exceptions and exclusions.
The Company's stockholders approved the proposal to approve the issuance of
shares of common stock of the Company to Acuitas and the issuance of warrants
and shares underlying such warrants to Acuitas pursuant to the Keep Well
Agreement at the annual stockholders meeting held on August 29, 2022, as
previously reported. In accordance with the terms of the Keep Well Agreement, as
a result of the $6.0 million borrowing under the Keep Well Agreement, the
Company will issue to Acuitas a warrant to purchase 710,059 shares of the
Company's common stock. The warrant issuable to Acuitas will have a term of five
years and an exercise price equal to $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, and will be
in the form attached as Appendix B to the Keep Well Agreement, which was filed
as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on May 11, 2022.
In connection with the Company's borrowing under the Keep Well Agreement, the
Company and Acuitas entered into a letter agreement pursuant to which, among
other things, Acuitas waived, subject to the terms and conditions therein (a)
the condition in the Keep Well Agreement that the Company shall have
unrestricted cash and cash equivalents of greater than $5.0 million as of the
date of issuance of any senior secured note pursuant to the Keep Well Agreement
on or before September 6, 2022 and after giving pro forma effect to the purchase
of such note by Acuitas, and (b) any violation, through and including September
6, 2022, of the covenant in the Keep Well Agreement that the Company shall have
unrestricted cash and cash equivalents of greater than $5.0 million at all
times. The foregoing description of the letter agreement does not purport to be
complete and is subject to and qualified in its entirety by reference to the
complete text of the letter agreement, a copy of which is filed as an exhibit to
this report, which is incorporated by reference herein.
1
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Item 9.01. Financial Statements and Exhibits
(d) Exhibits.
Exhibit No. Description
10.1 Letter Agreement dated August 26, 2022, between Ontrak, Inc. and Acuitas
Capital LLC
104 Cover Page Interactive Data File (formatted as Inline XBRL)
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