Washington, D.C. 20549
(8) | Includes 325,894 options to purchase common stock. |
| |
(9) | Consists of 2,878,415 shares and 201,397 options held by Jay Wolf, such options will not be exercisable unless and until the Company has sufficient authorized shares of Common Stock. Family members, David Wolf and Mary Wolf, hold 287,842 shares and 719,604 shares, respectively. Additionally, Jay Wolf holds 17,121,585 shares, David Wolf holds 1,712,158 shares and Mary Wolf holds 4,280,396 shares issuable upon conversion of a convertible promissory note. The notes become automatically convertible into the shares of Common Stock upon approval to increase authorized shares or a reverse stock split, both of which the Company is seeking approval for in this proxy statement. Jay Wolf was also granted 10,800,000 options and 20,400,000 restricted shares on December 9, 2010 in consideration of his service to the Company, such options and shares wil l not be exercisable unless and until the Company has sufficient authorized shares of Common Stock, of which it is seeking stockholder approval to effect an amendment to its Certificate of Incorporation in this proxy statement. |
| |
(10) | Consists of 7,220,879 shares, 25,000,000 shares issuable upon warrants to purchase common stock and 42,951,721 shares issuable upon conversion of a convertible promissory note. The convertible promissory note will automatically convert into Common Stock upon approval to increase authorized shares or a reverse stock split, both of which the Company is seeking approval for in this proxy statement. We estimate overall ownership to be approximately 4% upon conversion. |
| |
(11) | Consists of 30,784,152 shares, 23,460,000 shares issuable upon exercise of warrants to purchase common stock and 171,215,848 shares issuable upon conversion of a convertible promissory note. The convertible promissory note will automatically convert upon approval to increase authorized shares or a reverse stock split, both of which the Company is seeking approval for in this proxy statement. We estimate beneficial ownership to be approximately 21% upon conversion. The address for Mr. Smith is c/o Coast Asset Management, LLC, 2450 Colorado Avenue, Suite 100 E. Tower, Santa Monica, California 90404. |
| |
(12) | Includes 220,742 shares issuable upon exercise of options to purchase common stock. |
| |
(13) | Includes 550,898 shares issuable upon exercise of options to purchase common stock. |
| |
(14) | Consists of 9,355,209 shares and 55,647,291 shares issuable upon conversion of a convertible promissory note. The convertible promissory note will automatically convert upon approval to increase authorized shares or a reverse stock split, both of which the Company is seeking approval for in this proxy statement. We estimate overall ownership to be approximately 6% upon conversion. The address for Superload Ltd. is c/o C. M. Hui & Co, Unit C, 7/F, Nathan Commercial Building, 430-436 Nathan Road, Kowloon, Hong Kong. |
EXECUTIVE OFFICER AND DIRECTOR COMPENSATION
Summary Compensation Table
The following table sets forth the cash and non-cashtotal compensation for our named executive officerspaid during the 2009last two fiscal years ended December 31, 2021 and 2008 fiscal years.2020 to the following Executive Officers of the Company, who are referred to as the “Named Executive Officers”:
| | | | | | | | | | | | | | Non- | | | | | |
| | | | | | | | | | | | Non- | | Qualified | | All | | | |
| | | | | | | | | | | | Equity | | Deferred | | Other | | | |
| | | | | | | | | | Option | | Incentive | | Compen | | Compen- | | |
Name and | | | | | | Stock | | Awards | | Compen | | sation | | sation | | |
Principal Position | | Year | | Salary | | Bonus | | Awards | | (1) | | sation | | Earnings | | (2) | | | Total |
| | | | | | | | | | | | | | | | | | | |
Terren S. Peizer, | 2009 | | 450,000 | | - | | - | | 468,450 | | - | | - | | 11,969 | (3) | | 930,419 |
Chairman & Chief | 2008 | | 450,000 | | - | | - | | ,258,917 | | - | | - | | 52,271 | (3) | | 1,761,188 |
Executive Officer | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Richard A. Anderson, | 2009 | | 350,000 | | - | | - | | 436,112 | | - | | - | | 20,489 | | | 806,601 |
President and | 2008 | | 320,262 | | 25,000 | | - | | 522,064 | | - | | - | | 44,838 | | | 912,164 |
Chief Operating Officer | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Christopher S. Hassan, | 2009 | | 302,377 | | - | | - | | 214,911 | | - | | - | | 17,754 | | | 535,041 |
Chief Strategy Officer | 2008 | | 290,005 | | - | | - | | 408,960 | | - | | - | | 16,071 | | | 715,036 |
| | | | | | | | | | | | | | | | | | | |
Gary Ingenito | 2009 | | 275,000 | | 25,000 | | - | | 96,181 | | - | | - | | 14,584 | | | 410,765 |
Senior Vice President - | 2008 | | 275,000 | | 40,000 | | - | | 125,500 | | - | | - | | 13,111 | | | 453,611 |
Scientific Affairs | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Maurice S. Hebert, | 2009 | | 240,000 | | - | | - | | 128,499 | | - | | - | | 14,491 | | | 382,990 |
Chief Financial Officer | 2008 | | 195,577 | | - | | - | | 141,857 | | - | | - | | 15,461 | | | 352,895 |
• 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) | Amounts reflectMr. Peizer served as the compensation expense recognized inChairman of the Company's financial statements in 2009Board and 2008 forChief 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, granted to the executive officersvalued in accordance with FASB accounting rules. The grant-date fair valuesASC 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 options are calculated usingand option awards, please see Notes 2 and 11 of our Notes to our Annual Report on Form 10-K filed with the Black-Scholes option pricing model, which incorporates various assumptions including expected volatility, expected dividend yield, expected lifeSecurities and applicable interest rates. See notes to the consolidated financial statements in this report for further informationExchange Commission on the assumptions used to value stock options granted to executive officers.April 15, 2022. |
(2)(6) | Includes group medical and dental benefits, group life insurance premiums, accidental death, long-term disability insurance and medical benefitsparking, to the extent these amounts exceed $10,000 in the aggregate for each officer.Named Executive Officer. |
(3) | Includes $11,969 in 2009 and $51,864 in 2008 for automobile allowance, including tax gross-ups. |
Narrative Disclosures to Summary Compensation Table
Executive employment agreementsEmployment Agreements
Chief executive officerExecutive Chairman
We entered into a five-year employment agreement with our chairman and chief executive officer,Executive Chairman (formerly Chief Executive Officer through April 11, 2021), Terren S. Peizer, effective as of September 29, 2003, which automatically renewed for an additional five years upon completion of the initialrenews after each five-year term. Mr. Peizer currently receives anPeizer’s annual base salary ofwas $650,000 in 2021 and $450,000 within 2020. Effective January 1, 2021, Mr. Peizer’s annual bonusesbase 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.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 CEO’sexecutives 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 insu rance, and a car allowance of $2,500 per month,insurance, grossed up for taxes. He was also granted options in 2003 to purchase 1,000,000 shares of our Common Stock at ten percent above the fair market value on the date of grant, vesting 20% each year over five years. In 2008 and 2009, Mr. Peizer was not granted additional stock options to purchase 1,000,000any equity awards during 2021 and 959,000 shares of our Common Stock, respectively, at ten percent above the fair market value on the date of grant, vesting over three years.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 additi onaladditional “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.
President and chief operating officer, chief strategy officer
We entered into four-yeara three-year employment agreementsagreement with our president and chief operating officer, Richard A. Anderson and our chief strategy officer Christopher S. Hassan effectiveMr. Mayhew dated April 19, 2005 and July 27, 2006, respectively.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. Hassan resigned on April 16, 2010. Mr. Anderson currently receives anMayhew’s annual base salary of $350,000, andis $525,000. Mr. Hassan, while employed, receivedMayhew is also eligible for an annual base salarybonus target of $302,377, each with annual bonuses targeted at 50%100% of his base salary based onupon achieving certain milestones. Mr. Anderson’s compensation will be adjusted each year by an amountMayhew did not less thanreceive any annual bonus during the Consumer Price Index. They each receive, orfiscal period ended December 31, 2021. Mr. Mayhew received when employed, executive benefits, including group medical and dental insurance, term life insurance, accidental death and long-term disability insurance. Upon employment , Mr. AndersonMayhew was granted options to purchase 280,000 shares of our Common Stock, in addition to the 120,000 options previously granted to him as a non-employee member of our Board of Directors, and Mr. Hassan was granted options to purchase 400,000 shares of our Common Stock. Each of theequity awards during 2021. All unvested options was granted at the fair market value on the date of grant, vesting 20% each year over five years. Mssrs. Anderson and Hassan were granted additional options to purchase shares of our Common Stock in 2008 and 2009, as set forth in the table below, at the fair market value on the date of grant, vesting over three years. Mr. Hassan’s options were cancelled 90 days after his employment ended. The options will vest immediately in the event of a change in control, termination without cause or resignation with good reason.control. In the event of terminationthat Mr. Mayhew is terminated without good cause or resignation withresigns for good reason, priorthe option will continue to vest for a period of twelve months following the enddate of the term, upon execution of a mutual general release, Mssrs. Anderson and Hassan eachtermination, he will receive a lump sum payment equal to onetwelve months of his base salary plus a pro-rata share of any bonus earned for the year of salarytermination which is payable on the six-month anniversary of his termination and bonus, andhe will receive continued medicalCOBRA benefits for one year unless they become eligible for coverage under another employer's plan. If either is terminated without cause or resigns with good reason withina period of twelve months following a change in control, upon executionmonths. On June 24, 2022, Mr. Mayhew gave notice of a general release they will receive a lump sum equal to eighteen months salary, 150% of the targeted bonus, and will receive continued medical benefits for eighteen months unless he becomes eligible for coverage under another employer's plan.his resignation, effective August 12, 2022.
Chief financial officerMedical Officer
We entered into ana three-year employment agreement with Maurice Hebert on November 12, 2008, which providedDr. Accordino dated September 27, 2021, with an option to renew for Mr. Hebert to receive 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 of $240,000, withis $350,000. Dr. Accordino is also eligible for an annual bonuses targeted atbonus target of 40% of his base salary based on his performance andupon achieving certain milestones. Dr. Accordino received a $340,000 bonus during the operational and our financial performance. Mr. Hebertfiscal 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 and participationinsurance. Dr. Accordino was granted 100,000 equity awards during 2021. All unvested options vest immediately in our 401(k) plan and employee stock purchase plan. Onthe 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 Mr. Hebertwith 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 purchase 100,000 sharesvest for a period of our common stock at an exercise price of $0.59 per share, the fair market value ontwelve months following the date of grant, vesting monthly over three years from the datetermination, she will receive a lump sum payment equal to six months of grant. Mr. Hebert resigned as our chief financial officer in January 2010.
Confidentiality agreements
Each employee is required to enter intoher base salary plus a confidentiality agreement. These agreements provide that for so long as the employee works for us, and after the employee's termination for any reason, the employee may not disclose in any way any of our proprietary confidential information.
Limitation on liability and indemnification matters
Our Certificate of Incorporation and Bylaws limit the liability of directors and executive officers to the maximum extent permitted by Delaware law. The limitation on our directors' and executive officers' liability may not apply to liabilities arising under the federal securities laws. Our Certificate of Incorporation and Bylaws provide that we shall indemnify our directors and executive officers and may indemnify our other officers and employees and other agents to the fullest extent permitted by law. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors and executive officers pursuant to our Certificate of Incorporation and Bylaws, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
At present, there is no pending material litigation or proceeding involving any of our directors, officers, employees or agents where indemnification will be required or permitted. We are not awarepro-rata share of any threatened litigation or proceeding that might result inbonus 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 claimperiod of six months. On June 27, 2022, Ms. Osborne was promoted to Co-President and Chief Commercial Officer. New terms for such indemnification.
Ms. Osborne’s employment agreement are currently being negotiated.
OUTSTANDING EQUITY AWARDS AT LAST FISCAL YEAR-END
The following table sets forth all outstanding equity awards held by our named executive officers as of December 31, 2009.2021:
Option Awards | | | | | | | | | | Stock Awards | | |
| | | | | | | | | | | | | | | | | | Equity |
| | | | | | | | | | | | | | | | | | Incentive |
| | | | | | | | | | | | | | | | Equity | | Plan |
| | | | | | | | | | | | | | | | Incentive | | Awards: |
| | | | | | | | | | | | | | Market | | Plan | | Market |
| | | | | | Equity | | | | | | Number | | Value | | Awards: | | or Payout |
| | | | | | Incentive | | | | | of | | of | | Number | | Value of |
| | | | | | Plan | | | | | | Shares | | Shares | | of | | Unearned |
| | | | | | Awards: | | | | | | or | | or | | Unearned | | Shares, |
| | | | | | No. of | | | | | | Units | | Units | | Shares, | | Units, or |
| | Number of | | Number of | | Securities | | | | | of | | of | | Units, or | | Other |
| | Securities | | Securities | | Underlying | | | | | Stock | | Stock | | Other | | Rights |
| | Underlying | | Underlying | | Unexer- | | | | | | That | | That | | Rights | | That |
| | Unexercised | | Unexercised | | cised | | Option | | | | Have | | Have | | That | | Have |
| | Options (#) | | Options (#) | | Unearned | | Exercise | | Option | | Not | | Not | | Have Not | | Not |
| | Exercisable | | Unexer- | | Options | | Price | | Expiration | | Vested | | Vested | | Vested | | Vested |
Name | | (1) | | cisable | | (#) | | ($) | | Date | | (#) | | ($) | | (#) | | (#) |
Terren S. Peizer | 1,000,000 | | - | | - | | $ 0.31 | | 09/29/13 | | - | | - | | - | | - |
| | 389,992 | | 70,008 | | - | | 0.31 | | 02/07/18 | | - | | - | | - | | - |
| | 300,000 | | 240,000 | | - | | 0.31 | | 06/20/18 | | - | | - | | - | | - |
| | 106,556 | | 852,444 | | - | | 0.48 | | 10/27/19 | | - | | - | | - | | - |
| | 1,796,548 | | 1,162,452 | | | | | | | | - | | | | | | |
| | | | | | | | | | | | | | | | | | |
Richard A. Anderson | 120,000 | | - | | - | | 0.28 | | 09/29/13 | | - | | - | | - | | - |
| | 204,000 | | 51,000 | | - | | 0.28 | | 04/28/15 | | - | | - | | - | | - |
| | 15,000 | | 10,000 | | - | | 0.28 | | 07/27/16 | | - | | - | | - | | - |
| | 248,463 | | 44,537 | | - | | 0.28 | | 02/07/18 | | - | | - | | - | | - |
| | 191,380 | | 153,120 | | - | | 0.28 | | 06/20/18 | | - | | - | | - | | - |
| | 55,333 | | 442,667 | | - | | 0.44 | | 10/27/19 | | - | | - | | - | | - |
| | 834,176 | | 701,324 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Christopher S. Hassan | 240,000 | | 160,000 | | - | | 4.77 | | 07/27/16 | | - | | - | | - | | - |
| | 165,410 | | 29,590 | | - | | 2.65 | | 02/07/18 | | - | | - | | - | | - |
| | 127,780 | | 102,220 | | - | | 2.63 | | 06/20/18 | | - | | - | | - | | - |
| | 533,190 | | 291,810 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Maurice Hebert | 54,000 | | 36,000 | | - | | 0.28 | | 11/15/16 | | - | | - | | - | | - |
| | 52,216 | | 10,284 | | - | | 0.28 | | 02/07/18 | | - | | - | | - | | - |
| | 36,756 | | 36,744 | | - | | 0.28 | | 06/20/18 | | - | | - | | - | | - |
| | 36,114 | | 63,886 | | - | | 0.59 | | 11/10/18 | | - | | - | | - | | - |
| | 6,667 | | 113,333 | | - | | 0.44 | | 10/27/19 | | - | | - | | - | | - |
| | 185,753 | | 260,247 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
Gary Ingenito | | 150,000 | | 58,333 | | - | | 0.28 | | 02/04/18 | | - | | - | | - | | - |
| | 44,448 | | 61,108 | | - | | 0.62 | | 10/28/18 | | - | | - | | - | | - |
| | 22,000 | (2) | - | | - | | 0.31 | | 03/04/19 | | - | | - | | - | | - |
| | 14,444 | | 122,778 | | - | | 0.44 | | 10/27/19 | | - | | - | | - | | - |
| | 230,892 | | 242,219 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 unvestedCompensation 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 granted on February 7, 2008, June 20, 2008, November 10, 2008, and October 29, 2009shall vest monthly over a thirty-six month periodone-year from the date of grant. All other awardsgrant and the remaining stock options shall vest 20% each yearequally over five yearsthe next 24 months. |
(3) | One fourth of Dr. Accordino’s stock options shall vest one-year from the date of grant.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. |
(2) | Options granted on March 6, 2009 vested immediately. |
OPTIONS EXERCISED IN 2009POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL
There were noProvisions 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 exercisedto 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 anythe 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 no restricteddeath 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 held or vested, in 2009.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).
10 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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, 2009.2021. Except as set forth in the table, during 2009,2021, directors did not earn nor receive cash compensation or compensation in the form of stock awards, option awards or any other form.form:
| | | | | | | | Non- | | Non- | | | | |
| | Fees | | | | | | equity | | qualified | | | | |
| | earned | | | | | | incentive | | deferred | | All | | |
| | or paid | | | | Option | | plan | | compen- | | other | | |
| | in cash | | Stock | | Awards | | compen- | | sation | | compen- | | |
Name | | (1) | | awards | | (2)(3) | | sation | | earnings | | sation | | Total |
Marc Cummins | | $ | 22,000 | | $ | - | | $ | 164,583 | | $ | - | | $ | - | | $ | - | | $ | 186,583 |
Andrea Grubb Barthwell, MD | | | 25,000 | | | - | | | 128,567 | | | - | | | - | | | - | | | 153,567 |
Steven Kriegsman | | | 14,000 | | | - | | | - | | | - | | | - | | | - | | | 14,000 |
Jay Wolf | | | 25,500 | | | - | | | 58,525 | | | - | | | - | | | - | | | 84,025 |
Notes to director compensation table:
(1) | Except for $3,750 paid to Mr. Kriegsman in cash for fees earned in a prior period, these are fees earned in 2009 but not yet paid. | | | | | | | | | | |
| Option Awards |
Name | ($) (1) |
Richard A. Berman | | $ | 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 |
____________
(2) | | | | | |
(1) | Amounts reflect the compensation expense recognized in the Company'sCompany’s financial statements in 20092021 for non-employee director stock options, granted in 2009 and in previous years, in accordance with FASB accounting rules.ASC Topic 718. As such, these amounts do not correspond to the compensation actually realized by each director for the period. See notes to consolidated financial statements in this report for further information on the assumptions used to value stock options granted to non-employee directors. |
(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) | There were a total of 1,500,000 stock options grantedOn May 24, 2022, Ms. Diane Seloff notified us that she did not wish to non-employee directors outstanding at December 31, 2009 with an aggregate grant date fair value of $1,624,817, the last of which will vest in October 2012. The grant date fair value of stock option awards is calculated based on the Black-Scholes stock option valuation model utilizing the assumptions discussed in Note 11 - Share-Based Compensation stand for re-election to the December 31, 2009 consolidated financial statements. Outstanding equity awards, by non-employeeBoard 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 December 31, 2009 were as follows:our board of directors effective January 11, 2022. |
| | | | | Aggregate |
| | | | | grant date |
| | | | | fair market value |
| | Options | | | options |
| | outstanding | | | outstanding |
Marc Cummins | | | 500,000 | | | $ | 662,190 |
Andrea Grubb Barthwell, MD | | | 500,000 | | | | 648,453 |
Jay Wolf | | | 500,000 | | | | 314,174 |
Compensation. PriorOur directors are eligible to July 1, 2007, non-affiliatedparticipate 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 did not receive any cash compensationunder 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 meetingsthe board meeting unless such absence is excused by the Chairman of the BoardBoard. New director grants will be pro-rated based upon when they join the Board. We reimburse each of Directors or its committees. Commencing July 1, 2007, non-employeeour directors receive an annual fee of $15,000, plus $2,500 for meetings in excess of four meetings per year, and $1,500 per committee meeting attended. In addition, the audit committee chair receives an annual fee of $10,000 and the compensation committee chair and the nominations and governance committee chair each receive an annual fee of $2,500. Directors who are also employed by us do not receive any fee or compensation for their services as directors. All members of the Board of Directors receive reimbursement for actual travel-relatedreasonable out-of-pocket expenses incurredthat they incur in connection with their attendance at meetings of the Boardattending board or committees. committee meetings.
On December 9, 2010 the Board voted to terminate cash compensation payments for its members at this time.
Options. Directors are eligible to receive options under our 2003 and 2007 Stock Incentive Plans. However, no options were granted to any directors in 2009.
11Outstanding equity awards held by non-employee directors as of December 31, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Number of | | Number of | | | | |
| | | Securities | | Securities | | | |
| | | Underlying | | Underlying | | | Grand Date |
| | | Unexercised | | Unexercised | Option | | Fair Market |
| Grant | | Options | | Options | Exercise | | Value Options |
| Date | | Exercisable (#) | | Unexercisable (#) | Price | | Outstanding ($) |
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 |
Compensation committee interlocks and insider participation
No member of the compensation committee was at any time during the past fiscal year an officer or employee of the Company, was formerly an officer of the Company or any of our subsidiaries, or had any employment relationship with us.
During the last fiscal year, none of our executive officers served as:
___________
● | | | | | |
(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 the compensation committee (or other committee of theour board of directors performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on our compensation committee;effective February 11, 2022. |
● (4) | a director of another entity one of whose executive officers served on our compensation committee; or |
● | Ms. Quinn resigned as a member of the compensation committee (or other committee of theour board of directors performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served as a director of the Company.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, 2009.2021:
| (a) | (b) | (c) | | | | | | | | | | | | | | | | | | | | | | | |
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |
Plan Category | | 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) | 12,562,456 | $0.82 | 1,542,940 | Equity compensation plans approved by security holders (1) | | | 3,618,145 | | $ | 13.55 | | | | — |
Equity compensation plans not approved by security holders (2) | - | - | - |
| | — | | — | | — |
Total | 12,562,456 | $0.82 | 1,542,940 | 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 | % |
___________
(1) | These plans consist | | | | |
* | 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 2003common stock beneficially owned by each named person (and the directors and 2007 Stock Incentive Plans.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. |
25
Summary Description of the Company’s Non-Stockholder Approved Equity Compensation Plans
| | | | | |
(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. |
Not applicable.
CERTAIN RELATIONSHIPS AND RELATED PERSON 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, except that we formed a special committee of disinterested directors for purposes of the financings referred to below.transactions. The procedure for the review, approval or ratification forof 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 approval.pre-approval. These policies and procedures are evidenced in the audit committee charter and our code of ethics.
Transactions with Related Persons Certain Transactions
Lawrence Weinstein, M.D., senior vice president – medical affairs, isAs more fully described under Proposal 4, the sole shareholder ofShares Issuance Proposal and Proposal 5, the Center To Overcome Addiction (the Center), a California professional corporation. Under the terms of a management services agreement with the Center, we provide and perform all non-medical management and administrative services for the medical group. We also agreed to provide a working capital loan to the Center to allow for the medical group to pay for its obligations, including our management fees, equipment, leasehold build-out and start-up costs. As of November 30, 2010, the amount of loan outstanding was approximately $10.2 million, with interest at the prime rate plus 2%. Payment of our management fee is subordinate to payments of the obligations of the medical group, and repayment of the working capital loan is not guaranteed by the stockholder or other third party.
In October 2010,Warrant Issuance Proposal, on April 15, 2022, the Company entered into Securitiesa Master Note Purchase AgreementsAgreement with certain accredited investors, including SociusAcuitas Capital LLC (“Acuitas Capital”), an entity wholly owned by Acuitas Group Holdings, LLC, an affiliate ofa 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 CEO(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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | 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 | |
_________
(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. 3
THE 2017 PLAN AMENDMENT PROPOSAL
2017 Plan Amendment
The Board has approved, and has recommended that the stockholders approve an amendment to our 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 amend the “evergreen” or automatic replenishment provision of the 2017 Plan pursuant to which such investors purchasedthe number of shares authorized for issuance under the 2017 Plan is automatically increased on an aggregateannual basis to 3% of $500,000 of 12% senior secured convertible notes (the “Bridge Notes”)the issued and warrants to purchase an aggregate of 12,500,000outstanding shares of our Common Stockthe Company (the “Bridge Warrants”“2017 Plan Amendment Proposal”).
In November 2010,Background and Reasons for the 2017 Plan Amendment Proposal
On February 27, 2017, the Board of Directors authorized the Company completedto 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, 5,359,397 shares of common stock are authorized 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 private placementforecast that takes into account our anticipated rate of Commongrowth in hiring, an estimated range of our stock price over time, and our historical forfeiture rates.
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 12% senior secured convertible notes (the “Notes”) withStock-Based Awards, is intended to encourage ownership of shares by Employees and directors of and certain accredited investors, including Socius Capital Group, LLC,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 affiliateAffiliate and to provide additional incentive for them to promote the success of Terren S. Peizer, Chairmanthe Company or of an Affiliate. All Employees, directors and CEOConsultants of the Company and oneits Affiliates are eligible to participate in the 2017 Plan. As of our independent directors,July 15, 2022, we had approximately 200 individuals eligible for gross proceeds of $6.9 million (the “November Financing”). Of the gross proceeds, $503,000 represented the exchangeparticipation.
Material Features of the Bridge Notes and accrued interest and $215,000 represented2017 Plan
Eligibility
The Administrator will, in its sole discretion, name the cancellationParticipants in the 2017 Plan; provided, however, that each Participant must be an Employee, director or Consultant of the Company or of an accrued compensation liabilityAffiliate at the time a Stock Right is granted. Notwithstanding the foregoing, the Administrator may authorize the grant of a Stock Right to our Chairman and CEO. The Company issued 100,000,000 shares of Common Stock at a price of $0.01 per share and $5.9 million in aggregate principalperson not then an Employee, director or Consultant of the NotesCompany 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 investors on a pro rata basis. The Notes mature on the second anniversarytime of the closing. Interes t is payable in cash at maturity or upon prepayment. The Notes are secured by a first priority security interest in allexecution of the Company’s assets. PursuantAgreement 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 securities purchase agreement for the November Financing and the Notes, each as amended, the Notes and any accrued interest convert automatically into our Common Stock at a conversion price of $0.01 per share, subject to certain adjustments, including certain share issuances below $0.01 per share, if and when sufficient shares become authorized upon the completion of a reverse stock split or the authorization of additional shares of Common Stock, or both.
Each non-affiliated investor investing $2,000,000 or more in the November Financing also received warrants to purchase an aggregate of 21,960,000 shares of our Common Stock at an exercise price of $0.01 per share (the “November Warrants”). All the holders of the Bridge Notes exchanged such Bridge Notes plus interest for securities issued in the November Financing.2017 Plan
PursuantThe number of Shares which may be issued from time to time pursuant to the terms governing2017 Plan shall be the Notes and the securities purchase agreement for the November Financing, each as amended, the securities purchase agreement for the October Financing, and the Bridge Warrants and the November Warrants, the Company agreed to use its best efforts to file a proxy statement within 30 business days of the November Financing seeking stockholder approval to complete a reverse stock split or authorize additional shares of Common Stock, or both, to increase its number of authorized and unissued shares of Common Stock to allow for conversion of the Notes and any future exercise of the Bridge Warrants and the November Warrants. In connection with this proxy statement, we are seeking stockholder approval for a proposal to increase the number of the Company’s authorized shares of Common Stock, as de scribed in more detail in Proposal 2, and to effectuate a reverse stock split of the outstandingsum of: (i) 2,333,334 shares of Common Stock and the authorized shares of Common Stock, as described in more detail in Proposal 3.
PROPOSAL 1:
(Notice Item 1)
A PPROVAL OF 2010 STOCK INCENTIVE PLAN
General
On December 9, 2010, our Board of Directors unanimously approved the adoption of the 2010 Stock Incentive Plan (the “2010 Plan”). The 2010 Plan allows for the issuance of(ii) up to 216,000,000 additional shares of our Common Stock pursuant to awards granted under the 2010 Plan and will allow for the issuance of up to a maximum of 14,000,000243,853 shares of Common Stock that are represented by options outstandingawards granted under our 2003 and 2007the Company’s 2010 Stock Incentive PlansPlan that are forfeited, expire or are cancelled without delivery of shares of Common Stock on or after December 9, 2010. The aggregate numberwhich result in the forfeiture of shares of Common Stock available for issuance underback to the 2010 Plan isCompany on a pre-Reverse-Stock-Split basis, and ifor after February 24, 2017, or the Reverse Stock Split Amendment or Reverse Stock Split Amendments as defined in and contemplated by Proposal 3equivalent of this proxy statement areapproved and consummated, then the aggregatesuch number of shares after the Administrator, in its sole discretion, has interpreted the effect of Common Stock available for issuance underany stock split, stock dividend, combination, recapitalization or similar transaction in accordance with Paragraph 25 of the 20102017 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 be adjusted proportionately. If Proposal 2,also provide that, notwithstanding the amendment to increaseabove, on the authorized sharesfirst day of Common Stockeach fiscal year of the Company is not approvedending 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 the stockholders, we will not be ablean amount equal to make any further grants under our 2010 Plan and the options already granted under such 2010 Plan will not be exercisable as there will not be adequate authorized Common Stock and the exercise of such options is conditioned upon such authorization.
The 2010 Plan is being submitted to you for approval at the Special Meeting so that (i) certain option grants may receive favorable federal income tax treatment for grants as incentive stock options under Section 4223% of the Internal Revenue Code of 1986, as amended (the “Code”), and (ii) option grants made after the date of approval of the 2010 Plan by our stockholders will qualify the Company to receive a federal income tax deduction for certain compensation paid under the 2010 Plan under Section 162(m) of the Code. Section 162(m) of the Code generally denies a public corporation a deduction for compensation in excess of $1,000,000 paid to each of its Covered Employees (as defined in Section 162(m) of the Code, generally the executive officers named i n the Summary Compensation Table above). Although we have not approached the $1,000,000 compensation level for any of our Covered Employees, we believe that it is in the best interests of us and our stockholders to structure the 2010 Plan so that we are in a position to maximize corporate deductibility of executive compensation for the issuance of stock options. If our stockholders do not approve the 2010 Stock Plan we will still be authorized to make grants thereunder subject to the limitations described above.
As of December 9, 2010, options to purchase approximately 14,105,396 shares of our Common Stock were outstanding under our 2003 and 2007 Stock Incentive Plans and no more shares were available for issuance thereunder. On December 9, 2010, we issued 194,151,934 shares of Common Stock under our 2010 Plan and an additional 21,848,066 shares are available for future awards thereunder. In connection with the adoption of the 2010 Plan by our Board of Directors, we terminated our 2003 and 2007 Stock Incentive Plans and no additional awards are allowed to be made thereunder.
Generally, shares of Common Stock reserved for awards under the 2010 Plan that lapse or are canceled will be added back to the share reserve available for future awards at the same rate as they were deducted from the authorized shares. However, shares of Common Stock tendered in payment for an award or shares of Common Stock withheld for taxes will not be available again for grant.
Our Board of Directors, the Compensation Committee and management all believe that the effective use of stock-based long-term incentive compensation is vital to our ability to achieve strong performance in the future. The 2010 Plan maintains and enhance the key policies and practices adopted by our management, Compensation Committee and Board of Directors to align employee and stockholder interests. The 2010 Plan provides an essential component of the total compensation package, reflecting the importance that we place on aligning the interests of key individuals with those of our stockholders. In addition, our future success depends, in large part, upon our ability to maintain a competitive position in attracting, retaining and motivating key personnel. We believe that the 2010 Plan is essential to provide us with a sufficient number of shares to permit us to continue to provide long-term, equity-based incentives to present and future key employees, consultants and directors, and to give us the flexibility we need to make various types of awards. Accordingly, our Board of Directors believes the 2010 Plan is in our best interests and those of our stockholders and recommends a vote “FOR” the approval of the 2010 Plan.
The following is a brief summary of the 2010 Plan. This summary is qualified in its entirety by reference to the text of the 2010 Plan, a copy of which is attached as Appendix A to this proxy statement and is incorporated herein by reference.
Material Features of the 2010 Plan.
Eligibility. The 2010 Plan allows us, under the direction of our Compensation Committee, to make grants of stock options, restricted and unrestricted stock awards and other stock-based awards to employees, consultants and directors who, in the opinion of the Company, are in a position to make a significant contribution to our long-term success. The purpose of these awards is to attract and retain key individuals, further align employee and stockholder interests, and to closely link compensation with Company performance. All employees, directors and consultants of the Company and its affiliates are eligible to participate in the 2010 Plan. As of November 30, 2010, we had 40 individuals eligible to participate.
Limitations on Grants. The 2010 Plan allows for the issuance of up to 216,000,000 shares of our Common Stock plus a maximum of 14,000,000 shares of Common Stock that are represented by options outstanding under our 2003 and 2007 Stock Incentive Plan that expire or are cancelled without delivery of shares of Common Stock on or after December 9, 2010. In addition, generally sharessuch date.
Types of Common Stock reserved for awards under the 2010 Plan that lapse or are canceled will be added back to the share reserve available for future awards at the same rate as they were deducted from the authorized shares. However, shares of Common Stock tendered in payment for an award or shares of Common Stock withheld for taxes will not be available again for grant. The 2010 Plan provides that no pa rticipant may receive awards for more than 75,000,000 shares of Common Stock in any fiscal year.Awards
Stock Options. If you approve the plan, stockStock options granted under the 20102017 Plan may either be incentive stock options,ISOs, which are intended to satisfy the requirements of Section 422 of the Code, or non-qualified stock options,Non-Qualified Stock Options, which are not intended to meet those requirements. Without your approval, we will only be allowed to grant non-qualified stock options. Incentive stock options,ISOs, which have the tax advantages discussed below under Federal Income Tax Considerations,Consequences, may only be granted only to employeesEmployees who are deemed to be residents of the Company and its affiliates.United States for tax purposes. Non-qualified optionsStock Options may be granted to employees, directors and consultantsany Employee, director or Consultant of the Company and its affiliates.or 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 o fof grant. However, if an incentive stock optionISO 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 our Board of Directors or an authorized committeethe Administrator and may not exceed ten years from the date of grant. However, if an incentive stock optionISO 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.
Our Board of Directors or an authorized committee will establishThe Administrator establishes the vesting schedule of each option at the time of grant, although options granted to employees typically vest in equal installments over three years.grant. Options may be made exercisable in installments or based on performance, and the exercisability of options may be accelerated by our Board of Directors or an authorized committee.the Administrator. Award agreements for stock options include rules for exercise of the stock options after termination of service. Options may not be exercised unless they are vested, and no option may be exercised after the end of 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 cau se,cause, death or total and permanent disability, and for 12 months after termination of service on account of death or total and permanent disability.
Stock Grants. Restricted Stock. Restricted stock isStock Grants are shares of Common Stock that is subject to restrictions, including a prohibition against transfer and a substantial risk of forfeiture, until the end of a “restricted period” during which the grantee must satisfy certain vesting conditions.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 restricted period specified in the restrictedaward agreement, the stock subject to such agreement is forfeited.
During the restricted period, the holder of restricted stock has the rights and privileges of a regular stockholder, except that the restrictions set forth in the applicable award agreement apply. For example, the holder of restricted stock may vote and receive dividends on the restricted shares; but he or she may not sell the shares until the restrictions are lifted.
Other Stock-Based Awards.The 20102017 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. Our Board of Directors or an authorized committeeThe Administrator may award such stock-based awards subject to such conditions and restrictions as it may determine. These conditions
Plan Administration, Amendment and restrictions may include continued employment with us through a specified restricted period.Termination
Plan Administration. In accordance with the terms of the 2010 Plan, our Board of Directors hasThe Administrator is authorized our Compensation Committee to, administer the 2010 Plan. The Compensation Committee may delegate part of its authority and powers under the 2010 Plan to one or more of our directors and/or officers, but only the Compensation Committee can make awards to participants who are directors or executive officers of the Company. In accordance withamong other things, (a) interpret the provisions of the 20102017 Plan our Compensation Committee will 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)
determine the number of 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) specify 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 which is intended to comply with the requirements of awards, including:
● | which employees, directors and consultants will be granted awards; |
● | the number of shares subject to each award; |
● | the vesting provisions of each award; |
● | the termination or cancellation provisions applicable to awards; and |
● | all other terms and conditions upon which each award may be granted in accordance with the 2010 Plan. |
In addition, our Compensation Committee may, in its discretion, amendSection 162(m) of the Code so complies, and make any term or condition of anadjustments thereto; (f) make changes to any outstanding award,Stock Right, including, without limitation, to reduce or increase the exercise price or purchase price, accelerate the vesting schedule or extend the expiration date, provided (i)date; (g) buy out for a payment in cash or shares, a stock right previously granted and/or cancel any such termStock Right and grant in substitution therefor other Stock Rights; and (h) adopt any sub-plans applicable to residents of any specified jurisdiction as it deems necessary or condition asappropriate in order to comply with or take advantage of any tax or other laws.
The 2017 Plan may be amended is permittedby our stockholders. The 2017 Plan may also be amended by the 2010 Plan, and (ii)Administrator; provided that any such amendment approved by the Administrator which the Administrator determines is of a scope that requires stockholder approval shall be made only withsubject 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 under a Stock Right previously granted to him or her. With the consent of the participant to whom such award was made, ifParticipant affected, the amendment isAdministrator may amend outstanding Agreements in a manner which may be adverse to the participant.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.
In addition, our BoardThe Plan will terminate on the date which is ten years from the earlier of Directors or any committee to whichthe date of its adoption by the Board of Directors delegates authority may, withand the consentdate of its approval by the stockholders of the affected plan participants, reprice or otherwise amend outstanding awards consistent with the termsCompany. The Plan may be terminated at an earlier date by vote of the 2010stockholders 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 Plan.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.Splits. If our(i) the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if wethe 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 our Common Stock deliverable upon exercise of an option issued or upon issuance of an awardthereunder shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made, including in the exercise or the purchase price per share, to reflect such subdivision, combinationevents.
Corporate Transactions. If the Company is to be consolidated with or stock dividend.
Corporate Transactions. Uponacquired 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 reorganization event, our Board of Directors or an authorized committee, may,remuneration in its sole discretion, take any one or more ofconnection with the following actions pursuant to the 2010 Plan, as to some or all outstanding awards:
● | provide that all outstanding options shall be assumed or substituted by the successor corporation; |
● | upon written notice to a participant provide that the participant’s unexercised options will terminate immediately prior to the consummation of such transaction unless exercised by the participant (either (A) to the extent then exercisable or, (B) at the discretion of the Board of Directors or an authorized committee such options being made fully or partially exercisable); |
● | in the event of a merger pursuant to which holders of our Common Stock will receive a cash payment for each share surrendered in the merger, make or provide for a cash payment to the participants equal to the difference between the merger price times the number of shares of our Common Stock subject to such outstanding options (either (A) to the extent then exercisable or, (B) at the discretion of the Board of Directors or an authorized committee such options being made fully or partially exercisable), and the aggregate exercise price of all such outstanding options, in exchange for the termination of such options; |
● | provide that all outstanding awards shall be assumed or substituted by the successor corporation, become realizable or deliverable, or restrictions applicable to an award will lapse, in whole or in part, prior to or upon the merger or reorganization event; |
● | with respect to stock grants and in lieu of any of the foregoing, the Board of Directors or an authorized committee may provide that, upon consummation of the transaction, each outstanding stock grant shall be terminated in exchange for payment of an amount equal to the consideration payable upon consummation of such transaction to a holder of the number of shares of Common Stock comprising such award (to the extent such stock grant is no longer subject to any forfeiture or repurchase rights then in effect or, at the discretion of the Board of Directors or an authorized committee, all forfeiture and repurchase rights being waived upon such transaction). |
Amendments and Termination. The 2010 Plan may be amended by our stockholders. It may also be amended by our Board of Directors, provided that any amendment approved by our Board of Directors which isissuance of a scope that requires stockholder approval by applicable lawStock Right or regulation,Shares under the listing standards of the stock exchange or other market on which the Common Stock is at the time traded, in order to ensure favorable federal income tax treatment for any incentive stock options under Code Section 422,2017 Plan or for any other reason required by law, the Company may withhold from the Participant’s compensation, if any, or may require that the Participant advance 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 subject to obtaining such stockholder approval. However, no such action may adversely affect any rights under any outstanding award withoutauthorized by the holder’s consent.Administrator (and permitted by law).
New Plan Benefits
Duration of 2010 Stock Plan. The 2010 Plan will expire by its terms on December 9, 2020.
Other than as set forth below, theThe amounts of future grants under the 20102017 Plan are not determinable andas awards under the 2017 Plan will be granted at the sole discretion of our Board of Directors or authorized committee,the Administrator, and wethe Company cannot determine at this time either the persons who will receive awards under the 20102017 Plan or the amount or types of any such awards.
On December 9, 2010, the closing price per share of our Common Stock was $0.04, as reported on the OTC Bulletin Board.
As of December 9, 2010, the following persons received options exercisable at $0.04 per share pursuant to the 2010 Plan:
(a) Terren Peizer, Chief Executive Officer, Principal Executive Officer and Chairman of the Board received 59,400,000, Richard Anderson, Chief Operating Officer and director received 59,400,000 and Peter Donato, Chief Financial Officer, received 7,749,000. Maurice Herbert, former Chief Financial Officer and Principal Financial Officer and Chris Hassan, former Chief Strategy Officer did not receive any options. They are no longer with the Company.
(b) The current executive officers as a group received 126,549,000 options.
(c) All current directors who are not executive officers as a group received 32,400,000
(d) There are no current nominees for election as directors.
(e) There were no options granted to associates of any of the directors, executive officers or nominees.
(f) There were no other persons that received or is to receive 5 percent of such options, warrants or rights; and
(g) All employees, including all current officers who are not executive officers as a group, received 35,320,650 options.
Federal Income Tax ConsiderationsConsequences
The material federal income tax consequences of the issuance and exercise of stock options and other awards under the 20102017 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 20102017 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: | | Incentive stock optionsISOs are intended to qualify for treatment under Section 422 of the Code. An incentive stock optionISO 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 exercise 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 ge nerallygenerally 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 exercise 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 the 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 incentive stock options,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 incentive stock options.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 exercise price.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 20102017 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. |
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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 o fof 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. |
TheVote Required
If a quorum is present at the Annual Meeting, approval of this proposal requires the affirmative vote of athe majority of the votesshares 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 SpecialAnnual 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 A VOTE IN FAVOR
OF THE 2017 PLAN AMENDMENT PROPOSAL.
PROPOSAL 4: TO APPROVE 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 5635
Background
On April 15, 2022, the Company entered into a Master Note Purchase Agreement (the “Keep Well Agreement”) with Acuitas Capital LLC, 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 (the “Available Amount”). In this proposal and in Proposal 5, below, Acuitas Capital LLC, together with any of its transferees under the Keep Well Agreement, is requiredreferred to approveas “Acuitas.”
In connection with each borrowing under the adoptionKeep Well Agreement, the Company will issue a senior secured note (each, a “Keep Well Note”) 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 2010 Plan.
Our Board of Directors unanimously recommends that you vote “FOR” theKeep Well Agreement, subject to obtaining approval of the 2010 Stock Incentive Plan, and proxies solicitedCompany’s stockholders as required by the Board will be voted in favor of the approval of the 2010 Stock Incentive Plan unless a stockholder indicates otherwise on the proxy.
PROPOSAL 2
(Notice Item 2)
AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
We are asking stockholders to approve a proposal to amend our Certificate of Incorporation to increase the number of authorized shares of our Common Stock in our Certificate of Incorporation from two hundred million (200,000,000) shares to two billion (2,000,000,000) shares.
On December 9, 2010, our Board of Directors approved the increase of the number of authorized shares of our Common Stock from two hundred million (200,000,000) shares to two billion (2,000,000,000) shares. Our Board of Directors has directed that the increase of the number of authorized shares be submitted to our stockholders for consideration and action and recommends that they approve such increase.
As of December 9, 2010, 178,620,186 of our shares of Common Stock were issued and outstanding and approximately 17 million shares were reserved for issuance pursuant to outstanding convertible debt obligations, employee benefit plans, and other equity linked securities leaving no shares of our Common Stock currently unreserved and available for future use.
The primary reason for the increase of authorized shares is to allow for the conversion or exercise of certain of our outstanding options, warrants, convertible securities and similar instruments and to provide additional authorized capital for future financings, strategic alliances or acquisitions (none of which is currently contemplated).
Pursuant to the terms governing the Notes (as defined in Proposal 3) and the securities purchase agreement for the November Financing (as defined in Proposal 3), each as amended, the securities purchase agreement for the October Financing (as defined in Proposal 3), and the Bridge Warrants and the November Warrants (each as defined in Proposal 3)applicable Nasdaq listing rules (the “Commitment Shares Stockholder Approval”), the Company agreed to useissue up to 739,645 shares of its best effortscommon stock to file a proxy statement within 30 business daysAcuitas (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 by the Company’s board of directors, and (c) 25% of which will be issued on the later of the November Financing seeking stockholder approval to complete a reverse stock split or authorize additional shares of Common Stock, or both, to increase its number of authorizedInitial Keep Well Note Date (as defined below) and unissued shares of Common Stock to allow for conversion ofobtaining the Notes and any future exercise of the Bridge Warrants and the November Warrants. Commitment Shares Stockholder Approval.
In connection with this proxy statement, we are seeking stockhold ereach Keep Well Note issued by the Company, subject to obtaining approval for this proposal, which will increase the number of the Company’s authorized shares of Common Stock, and to effectuate a reverse stock split of the outstanding shares of Common Stock and the authorized shares of Common Stock,stockholders as described in more detail in Proposal 3.
A stockholder vote against the proposed increase in the number of authorized shares of our Common Stock would have the effect of restricting our use of Common Stock, preventing the automatic conversion of the Notes and the exercise of the Bridge Warrants and the November Warrants and preventing the exercise of options under the 2010 Plan as described in Proposal 1. It would also leave us unable to do future equity financings or to use or stock on transactions such as strategic alliances or acquisitions (none of which is currently contemplated).
Our stockholders do not have preemptive rights, which means they do not have the right to purchase shares in any future issuance of Common Stock in order to maintain their proportionate equity interests in the Company. If Proposal 2 is approved and if the Reverse Stock Split Amendment or Reverse Stock Split Amendments have not been effected at the time of the amendment and restatement, we will have two billion (2,000,000,000) shares of Common Stock authorized. Authorized but unissued shares will be available for issuance, and we may issue these shares in the future. Although the Board of Directors will authorize the further issuance of our Common Stock only when it considers such issuance to be in the best interests ofrequired by applicable Nasdaq listing rules, the Company stockholders should recognize that any such issuance of additional stock (including upon the exe rcise of options, the conversion of the Notes, the exercise of the Bridge Warrants and the November Warrants, and any other issuance of Common Stock that may be authorized pursuantwill issue to Proposal 3) may have the effect of diluting the earnings per share and book value per share of outstanding shares of our Common Stock and the equity and voting rights of holders of shares of our Common Stock.
You will not realize any dilution in your percentage ownership or your voting rightsAcuitas (or an entity affiliated with Acuitas, as designated by Acuitas) a result of increasing our authorized Common Stock. However, upon the conversion of the Notes, the Bridge Warrants and the November Warrants, you will be significantly diluted in terms of your percentage ownership and the voting power of the outstandingwarrant to purchase shares of the Company’s Common Stock. In addition, the issuance of additional shares of our Common Stock (or even the potential issue) may have a depressive effect on the market price of our Common Stock.
The increasecommon stock, in the authorizedform attached as an exhibit to the Keep Well Agreement (each, a “Keep Well Warrant”). The number of shares of Common Stockthe Company’s common stock underlying each Keep Well Warrant (collectively, the “Keep Well Warrant Shares”) will 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 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. Each Keep Well Warrant will be subject to customary adjustment provisions in the event of stock splits, combinations and similar transactions, and the subsequentholder of each Keep Well Warrant will be entitled to specified information, registration and indemnification rights. Assuming the full borrowing of the Available Amount under the Keep Well Agreement, the aggregate number of shares of the Company’s common stock underlying the Keep Well Warrants will be equal to 2,958,580.
The Company has the right terminate the Keep Well Agreement at any time prior to borrowing funds thereunder (such date on which such funds are borrowed, the “Initial Keep Well Note Date”). Any Commitment Shares that would have been earned prior to such termination, subject to obtaining the Commitment Shares Stockholder Approval, will be issued immediately upon obtaining the Commitment Shares Stockholder Approval.
As of July 14, 2022, no 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 Shares 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.
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 Shares and the Keep Well Warrant Shares, if any are issued, will be the same class of common stock that the Company has listed on The Nasdaq Global Market under the trading symbol “OTRK.”
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”) includes a summary of the terms of the Keep Well Agreement, Keep Well Note and 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. Please see the 2021 10-K and copies of the Keep Well Agreement, and the forms of the Keep Well Note and the Keep Well Warrant for additional information regarding the terms of such documents.
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.
The issuance of Commitment Shares 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 Executive Chairman, and the price provided by Acuitas for the Commitment Shares is not readily calculable.
Accordingly, the Company is seeking stockholder approval of the issuance of the Commitment Shares under the Keep Well Agreement in order to ensure compliance with Nasdaq Listing Rule 5635(c). Under Proposal 5, below, the Company is seeking stockholder approval of the issuance of the Keep Well Warrants and the Keep Well Warrant Shares, in the event it is determined that such stockholder approval is required under the Nasdaq listing rules in order for the issuance of the Keep Well Warrants and the Keep Well Warrant Shares. See Proposal 5, below.
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.
If stockholder approval of this proposal is not obtained, the Company will not issue any of the Commitment Shares, to the extent doing so would be in violation of the Nasdaq listing rules.
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 couldof 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 issuance of at least 554,734 of the 739,645 Commitment Shares, and the potential issuance of all 739,645 Commitment Shares. As of the record date for the Annual Meeting, there were 20,966,127 shares of the Company’s common stock outstanding. Therefore, the 554,734 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 Shares 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 the Company borrows the entire Available Amount and all Keep Well Warrants issued in connection with such borrowings are exercised, the Company would issue an aggregate of 3,698,225 shares of its common stock (including the 739,645 Commitment Shares), increasing the dilution of the Company’s stockholders, other than Acuitas.
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, 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 delayingthis proposal.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A 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 preventingconsultants. 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.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE WARRANT ISSUANCE PROPOSAL.
PROPOSAL NO. 6
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 without further actionCompany.
•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 stockholders. Shares of authorized and unissued Common Stock could (within the limits imposed by applicable law) be issued in one or more transactions that could make a change of controlChairman of the Company less likely. TheBoard. Annually thereafter,
non-employee directors received additional authorized shares could be usedstock 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 discourage personsresignation prior to first vesting date.
During 2022, the following non-employee directors have resigned from attemptingthe board or declined to gain controlstand 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 diluting the voting powerrules of shares then outstanding or increasing the voting powerNasdaq Stock Market to have an audit committee comprised of persons whothree independent directors. Were the Company to lose one of its non-employee directors and not be able to replace such person, the Company would supportfall 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 potential takeover scenario. However, this proposal iskey 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 made in response toreserve any effort of which we are aware to accumulate our stock or to obtain control of us, no r do we have a present intent to use the additional shares of authorized Common Stock to oppose a hostile takeover attemptcommon stock for issuance; all equity grants made under the Director Retention Plan have been or to delay or prevent changeswill 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 controlrealized value only when stockholders also gain through price appreciation following the date of management.
such repricing.
The proposed form•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 ourthe 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 B,A. On March 1, 2022, the Company’s stockholders authorized the board of directors, in its discretion, to approve and is incorporated herein by reference. However, the text of the form may be altered for any changes required by the Secretary of State of the State of Delaware and changes deemed necessary or advisable by the Board, including the insertion of the effective time and effective date.
If our stockholders approve Proposal 2, we will file a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware (the “Proposal 2 Certificate of Amendment”). The Proposal 2 Certificate of Amendment will become effective on the date such Certificate of Amendment is accepted for filing by the Secretary of State of the State of Delaware.
Please note that the approval of this proposal does not require the approval of the proposal to affect the Reverse Stock Split Amendments (Proposal 3) that is described in this proxy statement.
Potential Anti-takeover Effects of Amendment
Release No. 34-15230 of the staff of the SEC requires disclosure and discussion of the effects of any stockholder proposal that may be used asadopt an anti-takeover device. The increase in the number of authorized but unissued shares could, under certain circumstances, have an anti-takeover effect (for example, by permitting issuances which would dilute the stock ownership of a person seeking to effect a change in the composition of our Board of Directors or contemplating a tender offer or other transaction for the combination of our company with another entity). Although Proposal 2 could have anti-takeover effects, it is being effected for the primary purposes as set forth above and not to construct or enable any anti-takeover defense or mechanism on behalf of the Company. Proposal 2 is not being undertaken i n response to any effort of which our Board of Directors is aware to accumulate shares of our Common Stock or to obtain control of the Company. Other than in connection with this proposal and the other proposals described in this proxy statement, our Board of Directors does not currently contemplate the adoption of any other amendments to our Certificate of Incorporation that could be construed to affect the ability of third parties to take over or change the control of the Company.
Vote Required
The affirmative vote of majority of the outstanding shares of our Common Stock is required for approval of this proposal.
The Board unanimously recommends a vote FOR the approval of the amendment to ourthe Company’s Certificate of Incorporation to increaseremove the number of authorized shares of our Common Stocktransfer restrictions set out in our Certificate of Incorporation from two hundred million (200,000,000) shares to two billion (2,000,000,000) shares, and proxies solicited by the Board will be voted in favor of the amendment unless a stockholder indicates otherwise on the proxy.
PROPOSAL 3:
(Notice Item 3)
AMENDMENT TO CERTIFICATE OF INCORPORATION TO EFFECT REVERSE STOCK SPLIT
General
We are asking our stockholders to approve an amendment or amendments to our Certificate of Incorporation (each such proposed amendment, the “Reverse Stock Split Amendment” and collectively, the “Reverse Stock Split Amendments”) (i) to effect a reverse stock split of our outstanding Common Stock at a ratio of not less than 1-for-2 and not more than an aggregate of 1-for-100 at any time prior to the earlier of the date on which the 2011 annual meeting of stockholders is held or December 31, 2011, with the implementation, ratio and timing of such reverse stock split to be determined by the Board of Directors (such ratio, as determined by the Board of Directors, the “Reverse Stock Split Ratio”), and (ii) following each such reverse stock split, if implemented, to reduce the number of authorized shares of C ommon Stock in accordance with the Reverse Stock Split Ratio. If Proposal 3 is adopted, the Board of Directors will have the opportunity to approve one or more reverse stock splits without any additional need for stockholder approval at any time prior to the earlier of the date on which the 2011 annual meeting of stockholders is held or December 31, 2011, provided that the aggregate amount of all such reverse splits shall not exceed 1-for-100.
On December 9, 2010, our Board of Directors approved the Reverse Stock Split Amendments. Our Board of Directors has directed that the Reverse Stock Split Amendments be submitted to our stockholders for consideration and action.
The proposed form of the amendment to the Certificate of Incorporation to effect the Reverse Stock Split Amendments, as described in this proposal, is set forth in Appendix C attached to this proxy statement and is incorporated by reference into this proxy statement. However, the text of the form may be altered for any changes required by the Secretary of State of the State of Delaware and changes deemed necessary or advisable by the Board, including the insertion of the effective time and effective date.
If our stockholders approve the Reverse Stock Split Amendments, we will file one or more Certificate of Amendments to our Certificate of Incorporation with the Secretary of State of the State of Delaware (each, a “Proposal 3 Certificate of Amendment” and collectively, the “Proposal 3 Certificate of Amendments”). Each Proposal 3 Certificate of Amendment will become effective on the date such Certificate of Amendments are accepted for filing by the Secretary of State of the State of Delaware (the “Proposal 3 Effective Dates”).
We currently have two hundred million (200,000,000) authorized shares of Common Stock. As of December 9, 2010, the record date for the Special Meeting, 178,620,186 shares of Common Stock were outstanding. “Authorized” shares represent the number of shares of Common Stock that we are permitted to issue under our Certificate of Incorporation. Since we do not have any shares of our Common Stock that we have repurchased, which are referred to as "treasury shares," the number of shares of Common Stock "outstanding" represents the number of shares of Common Stock that we have actually issued from the pool of authorized shares of Common Stock. The Reverse Stock Split Amendments, if implemented, would have the principal effect of reducing both the outstanding number of shares of Common Stock and the author ized number of shares of Common Stock in accordance with the Reverse Stock Split Ratio, and, except for the effect of fractional shares, each stockholder's proportionate ownership interest in the company would be the same immediately before and after the Reverse Stock Split Amendments becomes effective.
Please see Proposal 2 for information regarding our proposal to increase the number of authorized shares of our Common Stock by 1,800,000,000. Please note that if the stockholders do not approve any other proposal for the amendmentArticle EIGHTH. Article EIGHTH of the Certificate of Incorporation that iscontains restrictions described in this Proxy Statement, it will have no affect on this proposal. Also, please note that the approval of this proposal does not require the approval of Proposal 2.
Reasons For Reverse Stock Split Amendments
The primary reason for the Reverse Stock Split Amendments is to decrease the number of our outstanding shares of Common Stock and the number of our authorized shares of Common Stock to a smaller number.
In October 2010 (the “October Financing”), the Company entered into securities purchase agreements with certain accredited investors pursuant to which such investors purchased an aggregate of $500,000 of 12% senior secured convertible notes (the “Bridge Notes”) and warrants to purchase an aggregate of 12,500,000 shares of our Common Stock (the “Bridge Warrants”).
In November 2010, the Company completed a private placement of Common Stock and 12% senior secured convertible notes (the “Notes”) with certain accredited investors for gross proceeds of $6.9 million (the “November Financing”). The Company issued 100,000,000 shares of Common Stock at a price of $0.01 per share and $5.9 million in aggregate principal of the Notes to the investors on a pro rata basis. The Notes mature on the second anniversary of the closing. Interest is payable in cash at maturity or upon prepayment. The Notes are secured by a first priority security interest in all of the Company’s assets. 160; Pursuant to the securities purchase agreement for the November Financing and the Notes, each as amended, the Notes and any accrued interest convert automatically into our Common Stock at a conversion price of $0.01 per share, subject to certain adjustments, including certain share issuances below $0.01 per share, if and when sufficient shares become authorized upon the completion of a reverse stock split or the authorization of additional shares of Common Stock, or both.
Each non-affiliated investor investing $2,000,000 or more in the November Financing also received warrants to purchase an aggregate of 21,960,000 shares of our Common Stock at an exercise price of $0.01 per share (the “November Warrants”). All the holders of the Bridge Notes exchanged such Bridge Notes plus interest for securities issued in the November Financing.
Pursuant to the terms governing the Notes and the securities purchase agreement for the November Financing, each as amended, the securities purchase agreement for the October Financing, and the Bridge Warrants and the November Warrants, the Company agreed to use its best efforts to file a proxy statement within 30 business days of the November Financing seeking stockholder approval to complete a reverse stock split or authorize additional shares of Common Stock, or both, to increase its number of authorized and unissued shares of Common Stock to allow for conversion of the Notes and any future exercise of the Bridge Warrants and the November Warrants. In connection with this proxy statement, we are seeking stockholder approval for a proposal to increase the number of the Company’s authorized shares of Common Stock, as de scribed in more detail in Proposal 2,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 effectuateapprove the Reverse Stock Split Amendments.
EffectsCharter Amendment, out of Reverse Stock Split Amendments onan abundance of caution, the Common Stock
IfCompany is putting the proposed Reverse Stock Split Amendments are approved at the Special Meeting, on the Proposal 3 Effective Dates, if and when the Board of Directors determines to implement a Reverse Stock SplitCharter Amendment each outstanding share of Common Stock will immediately and automatically be changed into a fraction of a share of Common Stock based on the Reverse Stock Split Ratio. Thus, for example, if a stockholder currently owns 1,000 shares of Common Stock, then following the Reverse Stock Split, the stockholder will own 10 shares of Common Stock (assuming a Reverse Stock Split Ratio of 1-for-100) or 500 shares of Common Stock assuming a Reverse Stock Split Ratio of 1-for-2). Assuming approximately 178,620,186 shares of Common Stock are outstanding as of December 15, 2010, the record date, the approximate number of shares of Common Stock that would be outstanding following the Reverse Stock Split is approximately 1,786,202 shares (assuming a Reverse Stock Split Ratio of 1-for-100) or 89,310,093 (assuming a Reverse Stock Split Ratio of 1-for-2). Concurrently with the Reverse Stock Split, we will decrease the number of our authorized shares of Common Stock by the same ratio.
No fractional shares of our Common Stock will be issued in connection with the proposed Reverse Stock Split Amendments. Holders of Common Stock who would otherwise receive a fractional share of Common Stock pursuant to the Reverse Stock Split Amendments will receive cash in lieustockholders for approval by way of the fractional share as explained more fully below.Charter Amendment Proposal.
Because the proposed Reverse Stock Split Amendments will apply to all issuedOriginal Background and outstanding shares of our Common Stock and outstanding rights to purchase Common Stock, the Reverse Stock Split Amendments will not materially alter the percentage ownership of existing stockholders or their relative rights and preferences (assuming that the Notes have been automatically converted prior to the effectivenessPurpose of the Reverse Stock Split Amendments).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 Reverse Stock Split Amendments will not affect the par valuebenefit of the Common Stock. After the Reverse Stock Split Amendments, the shares of our Common Stock will have the same voting rightsNOLs, NCLs and rights to dividends and distributions and willcertain other tax attributes can be identicalreduced or eliminated if we undergo an ownership change, or Ownership Change, as defined in all other respects to our Common Stock now authorized, and we will continue to be subject to the periodic reporting requirements of the Exchange Act. If the amendments to our Certificate of Incorporation pursuant to both Proposals 2 and 3
become effective, this will effectively increase the number of shares of our Common Stock available for future issuance by the Board of Directors.
If the Reverse Stock Split Amendments is approved at the Special Meeting and the Board of Directors determines to effect the Reverse Stock Split Amendments, some stockholders may consequently own less than one hundred (100) shares of our Common Stock. A purchase or sale of less than one hundred shares (100), known as an “odd lot” transaction, may result in incrementally higher trading costs through certain brokers, particularly “full service” brokers. Therefore, those stockholders who own less than one hundred shares (100) following the Reverse Stock Split Amendments may be required to pay higher transaction costs should they then determine to sell their shares of Common Stock.
Effectiveness of the Reverse Stock Split Amendments
If the Reverse Stock Split Amendments are approved by our stockholders, and the Board of Directors decides to proceed with the reverse stock split, we will file a Proposal 3 Certificate of Amendment containing the language reflecting the Reverse Stock Split Amendments as set forth in the form attached to this proxy statement as Appendix C. The amendment will become effective on the Proposal 3 Effective Date. The exact timing of the filing of the Proposal 3 Certificate of Amendment will be determined by the Board of Directors based upon its evaluation as to when such action will be most advantageous to our company and its stockholders.
Payment for Fractional Shares; Exchange of Stock Certificates
We will not issue fractional shares in connection with the Reverse Stock Split Amendments. Instead, we will pay each holder of a fractional share an amount in cash equal to the market value of such fractional share as of the Proposal 3 Effective Date.
We plan to appoint our transfer agent, American Stock Transfer & Trust Company, to act as exchange agent for our Common Stock in connection with effectuating a Reverse Stock Split Amendments. We will deposit with the exchange agent, as soon as practicable after the Proposal 3 Effective Date, cash in an amount equal to the value of the estimated aggregate number of fractional shares that will result from the Reverse Stock Split Amendments. The funds required to purchase such fractional share interests will be paid by the Company. The company’s stockholder list shows that some of the outstanding Common Stock is registered in the names of clearing agencies and broker nominees. Because we do not know the numbers of shares held by each beneficial owner for whom the clearing agencies and br oker nominees are record holders, we cannot predict with certainty the number of fractional shares that will result from the Reverse Stock Split Amendment or the total amount it will be required to pay for fractional share interests. However, we do not expect that amount will be material.
On or after each Proposal 3 Effective Date, the exchange agent will mail a letter of transmittal to each stockholder. Each stockholder will be able to obtain a certificate evidencing its post-Reverse-Stock-Split shares and, if applicable, cash in lieu of a fractional share, only by sending the exchange agent his or her old stock certificate(s), together with the properly executed and completed letter of transmittal and such evidence of ownership of the shares as we may require. Stockholders will not receive certificates for post-Reverse-Stock-Split Amendment shares unless and until their old certificates are surrendered. Stockholders should not forward their certificates to the exchange agent until they receive the letter of transmittal, and they shou ld only send in their certificates with the letter of transmittal. The exchange agent will send each stockholder's new stock certificate and payment in lieu of any fractional share after receipt of that stockholder's properly completed letter of transmittal and old stock certificate(s). Stockholders will not have to pay any service charges in connection with the exchange of their certificates or the payment of cash in lieu of fractional shares.
Non-registered stockholders who hold their Common Stock through a bank, broker or other nominee should note that such banks, brokers or other nominees may have different procedures for processing the Reverse Stock Split Amendment than those that we will put in place for registered stockholders. If you hold your shares with such a bank, broker or other nominee and if you have questions in this regard, you should contact your nominee.
Material U.S. Federal Income Tax Consequences Of The Reverse Stock Split Amendments
The following discussion is a summary of certain U.S. federal income tax consequences of the Reverse Stock Split Amendments to the Company and to stockholders that hold such stock as a capital asset for U.S. federal income tax purposes. This discussion is based on laws, regulations, rulings and decisions in effect on the date hereof, all of which are subject to change (possibly with retroactive effect) and to differing interpretations. This discussion applies only to holders that are U.S. persons and does not address all aspects of U.S. federal income taxation that may be relevant to holders in light of their particular circumstances or to holders who may be subject to special tax treatment under 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., including, without limitation, holders who are dealersand 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 s ecurities or foreign currency, foreign persons, insurance companies, tax-exempt organizations, banks, financial institutions, small business investment companies, regulated investment companies, real estate investment trusts, retirement plans, holdersthe 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 are partnerships or other pass-through entitiescould result in the imposition of limitations on our use, for U.S. federal income tax purposes, holders whose functional currency is notof the U.S. dollar, tradersNOLs, NCLs and certain other tax attributes that mark-to-market their securities, holders subjectare and will be available to the alternative minimum tax, holders who hold the Common Stock as partus.
Our NOLs and NCLs and a Description of a hedge, straddle, conversion or other risk reduction transaction, or who acquired the Common Stock pursuant to the exercise of compensatory stock options, the vesting of previously restricted shares of stock or otherwise as compensation.
Section 382 and Section 383
We have not sought,NOLs and will not seek,NCLs that are expected to reduce a ruling from the U.S. Internal Revenue Service (the “IRS”substantial portion of any future taxable income and gain. We also may recognize losses and deductions ("built-in losses") regarding the U.S. federal income tax consequences of the Reverse Stock Split Amendments. The following summary does not address the tax consequences of the Reverse Stock Split Amendments under foreign, state, or local tax laws. Accordingly, each holder of our Common Stock should consult his, her or its tax advisorin future years with respect to the particularassets whose value currently exceeds our tax consequencesbasis in such assets. Sections 382 and 383 of the Reverse Stock SplitCode impose significant limitations on the ability of a corporation to use its NOLs and NCLs to offset income in circumstances where such holder.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.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this proxy statement was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding tax-related penalties under the Code. The tax advice contained in this proxy statement was written to support the promotion or marketingCollateral Effects of the transactions382 Restrictions
To implement the 382 Restrictions, in 2019 we amended and matters addressed by the proxy statement. Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
The U.S. federal income tax consequences for a holder of our Common Stock and for the Company pursuant to the Reverse Stock Split Amendments will be as follows:
● | the holder should not recognize any gain or loss for U.S. federal income tax purposes (except with respect to cash, if any, received in lieu of a fractional share of our Common Stock); |
● | the holder’s aggregate tax basis in our Common Stock received pursuant to the Reverse Stock Split Amendments, including any fractional share of our Common Stock not actually received, should be equal to the aggregate tax basis of such holder’s Common Stock surrendered in exchange therefor; |
● | the holder’s holding period for our Common Stock received pursuant to the Reverse Stock Split Amendments, including any fractional share of our Common Stock not actually received, should include such holder’s holding period for our Common Stock surrendered in exchange therefor; |
● | cash payments received by the holder for a fractional share of Common Stock generally should be treated as if such fractional share had been issued pursuant to the Reverse Stock Split Amendments and then sold by such holder, and such holder generally should recognize capital gain or loss with respect to such payment, measured by the difference between the amount of cash received and such holder’s tax basis in such fractional share; |
● | any such capital gain or loss should be treated as a long-term or short-term capital gain or loss based on such holder’s holding period in such fractional share; and |
● | we should not recognize gain or loss solely as a result of the Reverse Stock Split Amendments. |
No Dissenters’ Appraisal Rights
Under the Delaware General Corporation Law, stockholders will not be entitled to dissenter’s rights with respect to the proposed amendment torestated our Certificate of Incorporation to effectadd Article EIGHTH containing the Reverse Stock Split Amendments,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 wevoid 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 intend to independently provide stockholders withexceed 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 right.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 ourthe outstanding Common Stock is required to approve the amendment to our Certificate of Incorporation to effect the proposed Reverse Stock Split Amendments.
Our Board of Directors unanimously recommends a vote “FOR” approval of the Reverse Stock Split Amendments.
PROPOSAL 4
(Notice Item 4)
AMENDMENT TO CERTIFICATE OF INCORPORATION TO CHANGE NAME TO CATASYS, INC.
Hythiam, Inc. provides through its Catasys subsidiary, specialized behavioral health management services to health plans, employers and unions through a network of licensed and company managed health care providers. The Catasys substance dependence program was designed to address substance dependence as a chronic disease. The program seeks to lower costs and improve member health through the delivery of integrated medical and psychosocial interventions in combination with long term care coaching, including their proprietary treatment program for alcoholism and stimulant dependence.
Consistent with the Company's primary focus of providing its Catasys solution to third-party payors such as health plans and large employers, our Board of Directors has determined that we should identify that business publicly as our principal focus. Our Board of Directors recommends we change our name from Hythiam, Inc. to Catasys, Inc. because it believes the suggested name is more reflective of our business activities.
For this reason, on December 9, 2010, our Board of Directors approved the amendment to our Certificate of Incorporation to change our name, subject to obtaining stockholder approval. Our Board of Directors has directed that a proposal to approve this amendment to our Certificate of Incorporation be submitted to our stockholders for consideration and action. The Certificate of Amendment that provides for the change of our name is set forth in Appendix D to this proxy statement and is incorporated by reference into this proxy statement.
Our ticker symbol will remain “HYTM”. Stockholders will not be required to submit their stock certificates for exchange solely as a result of this proposed name change. Following the effective date of the amendment changing our name, all new stock certificates issued by us will be printed with our new name.
The affirmative vote of the holders of a majority of our outstanding Common Stock is required to approve the proposed amendment to our Certificate of Incorporation to change the name of the Company from Hythiam, Inc. to Catasys, Inc. If the proposed amendment to our Certificate of Incorporation to change the name of the Company is approved by our stockholders, we will file a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware, including the language reflecting our name change. The amendment will become effective on the date the Certificate of Amendment is accepted for filing by the Secretary of State of the State of Delaware.
Our Board of Directors unanimously recommends a vote “FOR” approval of the amendment to our Certificate of Incorporation to change the name of the Company to Catasys, Inc., and proxies solicited by the Board will be voted in favor of the amendment unless a stockholder indicates otherwise on the proxy.
APPENDIX A
HYTHIAM, INC.
2010 STOCK INCENTIVE PLAN
Unless otherwise specified or unless the context otherwise requires, the following terms, as used in this Hythiam, Inc. 2010 Stock Incentive Plan, have the following meanings:
Administrator means the Board of Directors, unless it has delegated power to act on its behalf to the Committee, in which case the Administrator means the Committee.
Affiliate means a corporation which, for purposes of Section 424 of the Code, is a parent or subsidiary of the Company, direct or indirect.
Agreement means an agreement between the Company and a Participant delivered pursuant to the Plan and pertaining to a Stock Right, in such form as the Administrator shall approve.
Board of Directors means the Board of Directors of the Company.
Cause means, with respect to a Participant (a) dishonesty with respect to the Company or any Affiliate, (b) insubordination, substantial malfeasance or non-feasance of duty, (c) unauthorized disclosure of confidential information, (d) breach by a Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or similar agreement between the Participant and the Company or any Affiliate, and (e) conduct substantially prejudicial to the business of the Company or any Affiliate; provided, however, that any provision in an agreement between a Participant and the Company or an Affiliate , which contains a conflicting definition of Cause for termination and which is in effect at the time of such termination, shall supersede this definition with respect to that Participant. The determination of the Administrator as to the existence of Cause will be conclusive on the Participant and the Company.
Code means the United States Internal Revenue Code of 1986, as amended including any successor statute, regulation and guidance thereto.
Committee means the committee of the Board of Directors to which the Board of Directors has delegated power to act under or pursuant to the provisions of the Plan.
Common Stock means shares of the Company’s common stock, $0.0001 par value per share.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.
Company means Hythiam, Inc., a Delaware corporation.
PROPOSAL NO. 8
Consultant
means any natural person who is an advisor
THE ADJOURNMENT PROPOSAL
General
In this proposal, we are asking our stockholders to authorize us to adjourn the Annual Meeting to another time and place, if necessary or consultant that provides bona fide servicesadvisable, to solicit additional proxies in the Company or its Affiliates, provided that such servicesevent there are not sufficient votes to approve Proposal No. 7, the Charter Amendment Proposal at the Annual Meeting. If our stockholders approve this proposal, we could adjourn the Annual Meeting without a vote on Proposal No. 7 to solicit additional proxies and/or to seek to convince stockholders to change their votes in connection withfavor of such proposal.
If it is necessary or advisable to adjourn the offer or saleAnnual Meeting, no notice of securitiesany adjournment of less than 30 days is required to be given if the time and place of the adjourned meeting, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which adjournment is taken, unless after the adjournment a capital raising transaction, and do not directly or indirectly promote or maintain a marketnew record date is fixed for the Company’s or its Affiliates’ securities.adjourned meeting. At the adjourned meeting, we may transact any business which might have been transacted at the original meeting.
Vote Required
Disability
or Disabled means permanent and total disability as defined in Section 22(e)(3)
If a quorum is present at the Annual Meeting, approval of this proposal requires the affirmative vote of the Code.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. 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 OF THE ADJOURNMENT PROPOSAL.
27STOCKHOLDER PROPOSALS OR NOMINATIONS TO BE PRESENTED AT NEXT ANNUAL MEETING
Employee means any employee of the Company or of an Affiliate (including, without limitation, an employee who is also serving as an officer or director of the Company or of an Affiliate), designated by the Administrator to be eligible to be granted one or more Stock Rights under the Plan.
Stockholders may submit proposals on matters appropriate for stockholder action at the 2023 annual meeting of our stockholders (“2023 Annual Meeting of Stockholders”) Exchange Act meansconsistent with Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as amended.amended (the “Exchange Act”).
Fair Market Value To be considered for inclusion in proxy materials for our 2023 Annual Meeting of Stockholders, a Sharestockholder proposal must be submitted in writing no later than March 30, 2023 (120 days prior to the anniversary of Common Stock means:
(1)Ifthis year’s mailing date), to our Corporate Secretary, c/o Ontrak, Inc., 2200 Paseo Verde Parkway, Suite 280, Henderson, NV 89052. However, if the Common Stockdate of the 2023 Annual Meeting of Stockholders is listed onconvened 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 Meeting of Stockholders, a national securities exchange or tradedstockholder proposal must be submitted in the over-the-counter marketwriting 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 sales prices are regularly reportedsend our proxy materials for the Common Stock,2023 Annual Meeting of Stockholders. The persons authorized by the closing or, if not applicable,form of proxy to be sent in connection with the last pricesolicitation of proxies on behalf of the Common Stock on the composite tape or other comparable reporting systemCompany’s board of directors for the trading day on the applicable date and if such applicable date is not a trading day, the last market trading day priorour 2023 Annual Meeting of Stockholders will vote in their discretion as to such date;
(2)If the Common Stock is not traded on a national securities exchange but is traded on the over-the-counter market, if sales prices are not regularly reported for the Common Stock for the trading day referred to in clause (1), and if bid and asked prices for the Common Stock are regularly reported, the mean between the bid and the asked price for the Common Stock at the closeany matter of trading in the over-the-counter market for the trading day on which Common Stock was traded on the applicable date and if such applicable date is not a trading day, the last market trading day prior to such date; and
(3)If the Common Stock is neither listed on a national securities exchange nor traded in the over-the-counter market, such value as the Administrator, in good faith, shall determine.
ISO means an option intended to qualify as an incentive stock option under Section 422 of the Code.
Non-Qualified Option means an option which is not intended to qualify as an ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
Participant means an Employee, director or Consultant of the Company or an Affiliate to whom one or more Stock Rights are granted under the Plan. As used herein, “Participant” shall include “Participant’s Survivors” where the context requires.has not received notice by June 13, 2023.
HOUSEHOLDING OF PROXY MATERIALS
Plan
means this Hythiam, Inc. 2010 Stock Incentive Plan.
Securities Act means the Securities Act of 1933, as amended.
Shares means shares of the Common Stock as to which Stock Rights have been or may be granted under the Plan or any shares of capital stock into which the Shares are changed or for which they are exchanged within the provisions of Paragraph 3 of the Plan. The Shares issued under the Plan may be authorized and unissued shares or shares held by the Company in its treasury, or both.
Stock-Based Award means a grant by the Company under the Plan of an equity award or an equity based award which is not an Option or a Stock Grant.
Stock Grant means a grant by the Company of Shares under the Plan.
Stock Right means a right to Shares or the value of Shares of the Company granted pursuant to the Plan -- an ISO, a Non-Qualified Option, a Stock Grant or a Stock-Based Award.
Survivor means a deceased Participant’s legal representatives and/or any person or persons who acquired the Participant’s rights to a Stock Right by will or by the laws of descent and distribution.
The Plan is intendedSEC has adopted rules that permit companies and intermediaries (e.g., brokers) to encourage ownership of Shares by Employeessatisfy the delivery requirements for proxy statements 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. The Plan provides for the granting of ISOs, Non-Qualified Options, Stock Grants and Stock-Based Awards.
3. | SHARES SUBJECT TO THE PLAN. |
(a) The number of Shares which may be issued from time to time pursuant to this Plan shall be the sum of: (i) 216,000,000 shares of Common Stock and (ii) any shares of Common Stock that are represented by awards granted under the Company’s 2007 and 2003 Stock Incentive Plans 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 December 31, 2010, 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 24 of this Plan; provided, however, that no more than 14,000,000 Shares shall be added to the Plan pursuant to subsection (ii).
(b) If an Option ceases to be “outstanding”, in whole or in part (other than by exercise), or if the Company shall reacquire (at not more than its original issuance price) any Shares issued pursuant to a Stock Grant or Stock-Based Award, or if any Stock Right expires or is forfeited, cancelled, or otherwise terminated or results in any Shares not being issued, the unissued or reacquired Shares which were subject to such Stock Right shall again be available for issuance from time to time pursuant to this Plan. Notwithstanding the foregoing, if a Stock Right is exercised, in whole or in part, by tender of Shares or if the Company or an Affiliate’s tax withholding obligation is satis fied by withholding Shares, the number of Shares deemed to have been issued under the Plan for purposes of the limitation set forth in Paragraph 3(a) above shall be the number of Shares that were subject to the Stock Right or portion thereof, and not the net number of Shares actually issued. However, in the case of ISOs, the foregoing provisions shall be subject to any limitations under the Code.
4. | ADMINISTRATION OF THE PLAN. |
The Administrator of the Plan will be the Board of Directors, except to the extent the Board of Directors delegates its authority to the Committee, in which case the Committee shall be the Administrator. Subject to the provisions of the Plan, the Administrator is authorized to:
(a)Interpret the provisions of the Plan and all Stock Rights and to make all rules and determinations which it deems necessary or advisable for the administration of the Plan;
(b)Determine which Employees, directors and Consultants shall be granted Stock Rights;
(c)Determine the number of Shares for which a Stock Right or Stock Rights shall be granted , provided, however, that in no event shall Stock Rightsannual reports with respect to two or more than 75,000,000 Sharesstockholders 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, a number of brokers with account holders who are Ontrak stockholders will be granted“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 Participanttime, you no longer wish to participate in any fiscal year;“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: 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.
(d)SpecifyOntrak will promptly deliver, upon request, a separate copy of the termsannual report and conditions uponproxy statement to a stockholder at a shared address to which a Stock Rightsingle 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 Stock Rights may be granted;contact our transfer agent if you are a stockholder of record, using the contact information provided above.
OTHER MATTERS
(e)Make changes to any outstanding Stock Right, including, without limitation, to reduce or increase the exercise price or purchase price, accelerate the vesting schedule or extend the expiration date, provided that no such change shall impair the rights of a Participant under any grant previously made without such Participant’s consent;
(f)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, covering the same or a different number of Shares and having an exercise price or purchase price per share which may be lower or higher than the exercise price or purchase price of the cancelled Stock Right, based on such terms and conditions as the Administrator shall establish and the Participant shall accept; and
(g)Adopt any sub-plans applicable to residents of any specified jurisdiction as it deems necessary or appropriate in order to comply with or take advantage of any tax or other laws applicable to the Company, any Affiliate or to Participants or to otherwise facilitate the administration of the Plan, which sub-plans may include additional restrictions or conditions applicable to Stock Rights or Shares issuable pursuant to a Stock Right;
provided, however, that all such interpretations, rules, determinations, terms and conditions shall be made and prescribed in the context of not causing any adverse tax consequences under Section 409A of the Code and preserving the tax status under Section 422 of the Code of those Options which are designated as ISOs. Subject to the foregoing, the interpretation and construction by the Administrator of any provisions of the Plan or of any Stock Right granted under it shall be final, unless otherwise determined by the Board of Directors, if the Administrator is the Committee. In addition, if the Administrator is the Committee, the Board of Directors may take any action under the Plan that would other wise be the responsibility of the Committee.
To the extent permitted under applicable law, the Board of Directors or the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any portion of its responsibilities and powers to any other person selected by it. The Board of Directors orknows of no other matters that will be presented for consideration at the Committee may revokeAnnual Meeting. If any other matters are properly presented at the Annual Meeting, it is the intention of the persons named in the accompanying proxy to vote on such allocation or delegation at any time. Notwithstandingmatters in accordance with their best judgment, pursuant to the foregoing, onlydiscretionary authority granted by the proxy.
By order of the Board of Directors, or the Committee shall be authorized to grant a Stock Right to any director
/s/ James J. Park
James J. Park
Chief Financial Officer
Henderson, Nevada
July 15, 2022
A copy of the Company or to any “officer” ofCompany’s Annual Report on Form 10-K for the Company (as defined by Rule 16a-1 under the Exchange Act).
5. | ELIGIBILITY FOR PARTICIPATION. |
The Administrator will, in its sole discretion, name the Participants in the Plan; provided, however, 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 b e 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 an Affiliate. 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.
6. | TERMS AND CONDITIONS OF OPTIONS. |
Each Option shall be set forth in writing in an Option Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Administrator may provide that Options be granted subject to such terms and conditions, consistentyear ended December 31, 2021 as filed with the terms and conditions specifically required under this Plan, as the Administrator may deem appropriate including,SEC is available without limitation, subsequent approval by the shareholders of the Company of this Plan or any amendments thereto. The Option Agreements shall be subject to at least the following terms and conditions:
charge upon written request to: Corporate Secretary, c/o Ontrak, Inc., 2200 Paseo Verde Parkway, Suite 280, Henderson, NV 89052.
(a)Non-Qualified Options: Each Option intended to be a Non-Qualified Option shall be subject to the terms and conditions which the Administrator determines to be appropriate and in the best interest of the Company, subject to the following minimum standards for any such Non-Qualified Option:
(i) | Exercise Price
: Each Option Agreement shall state the exercise price (per share) of the Shares covered by each Option, which exercise price shall be determined by the Administrator and shall be at least equal to the Fair Market Value per share of Common Stock on the date of grant of the Option.
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(ii) | Number of Shares: Each Option Agreement shall state the number of Shares to which it pertains.
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(iii) | Option Periods: Each Option Agreement shall state the date or dates on which it first is exercisable and the date after which it may no longer be exercised, and may provide that the Option rights accrue or become exercisable in installments over a period of months or years, or upon the occurrence of certain conditions or the attainment of stated goals or events.
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(iv) | Option Conditions: Exercise of any Option may be conditioned upon the Participant’s execution of a Share purchase agreement in form satisfactory to the Administrator providing for certain protections for the Company and its other shareholders, including requirements that:
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A. | The Participant’s or the Participant’s Survivors’ right to sell or transfer the Shares may be restricted; and |
B. | The Participant or the Participant’s Survivors may be required to execute letters of investment intent and must also acknowledge that the Shares will bear legends noting any applicable restrictions. |
(v) | Term of Option: Each Option shall terminate not more than ten years from the date of the grant or at such earlier time as the Option Agreement may provide.
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(b)ISOs: Each Option intended to be an ISO shall be issued only to an Employee who is deemed to be a resident of the United States for tax purposes, and shall be subject to the following terms and conditions, with such additional restrictions or changes as the Administrator determines are appropriate but not in conflict with Section 422 of the Code and relevant regulations and rulings of the Internal Revenue Service:
(i) | Minimum standards: The ISO shall meet the minimum standards required of Non-Qualified Options, as described in Paragraph 6(a) above, except clause (i) and (v) thereunder.
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(ii) | Exercise Price: Immediately before the ISO is granted, if the Participant owns, directly or by reason of the applicable attribution rules in Section 424(d) of the Code:
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A. | 10% or less of the total combined voting power of all classes of stock of the Company or an Affiliate, the exercise price per share of the Shares covered by each ISO shall not be less than 100% of the Fair Market Value per share of the Common Stock on the date of grant of the Option; or
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B. | More than 10% of the total combined voting power of all classes of stock of the Company or an Affiliate, the exercise price per share of the Shares covered by |
| each ISO shall not be less than 110% of the Fair Market Value per share of the Common Stock on the date of grant of the Option. |
(iii) | Term of Option: For Participants who own:
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A. | 10% or less of the total combined voting power of all classes of stock of the Company or an Affiliate, each ISO shall terminate not more than ten years from the date of the grant or at such earlier time as the Option Agreement may provide; or
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B. | More than 10% of the total combined voting power of all classes of stock of the Company or an Affiliate, each ISO shall terminate not more than five years from the date of the grant or at such earlier time as the Option Agreement may provide. |
(iv) | Limitation on Yearly Exercise: The Option Agreements shall restrict the amount of ISOs which may become exercisable in any calendar year (under this or any other ISO plan of the Company or an Affiliate) so that the aggregate Fair Market Value (determined on the date each ISO is granted) of the stock with respect to which ISOs are exercisable for the first time by the Participant in any calendar year does not exceed $100,000.
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7. | TERMS AND CONDITIONS OF STOCK GRANTS. |
Each Stock Grant to a Participant shall state the principal terms in an Agreement duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Agreement shall be in a form approved by the Administrator and shall contain terms and conditions which the Administrator determines to be appropriate and in the best interest of the Company, subject to the following minimum standards:
(a)Each Agreement shall state the purchase price per share, if any, of the Shares covered by each Stock Grant, which purchase price shall be determined by the Administrator but shall not be less than the minimum consideration required by the Delaware General Corporation Law, if any, on the date of the grant of the Stock Grant;
(b)Each Agreement shall state the number of Shares to which the Stock Grant pertains; and
(c)Each Agreement shall include the terms of any right of the Company to restrict or reacquire the Shares subject to the Stock Grant, including the time and events upon which such rights shall accrue and the purchase price therefor, if any.
8. | TERMS AND CONDITIONS OF OTHER STOCK-BASED AWARDS. |
The Administrator shall have the right to grant other Stock-Based Awards based upon the Common Stock having such terms and conditions as the Administrator may determine, including, without limitation, the grant of Shares based upon certain conditions, the grant of securities convertible into Shares and the grant of stock appreciation rights, phantom stock awards or stock units. The principal terms of each Stock-Based Award shall be set forth in an Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Agreement shall be in a form approved by the Administrator and shall contain terms and conditions which the Administrator deter mines to be appropriate and in the best interest of the Company.
The Company intends that the Plan and any Stock-Based Awards granted hereunder be exempt from the application of Section 409A of the Code or meet the requirements of paragraphs (2), (3) and (4) of subsection (a) of Section 409A of the Code, to the extent applicable, and be operated in accordance with Section 409A so that any compensation deferred under any Stock-Based Award (and applicable investment earnings) shall not be included in income under Section 409A of the Code. Any ambiguities in the Plan shall be construed to effect the intent as described in this Paragraph 8.
9. | EXERCISE OF OPTIONS AND ISSUE OF SHARES. |
An Option (or any part or installment thereof) shall be exercised by giving written notice to the Company or its designee (in a form acceptable to the Administrator, which may include electronic notice), together with provision for payment of the aggregate exercise price in accordance with this Paragraph for the Shares as to which the Option is being exercised, and upon compliance with any other condition(s) set forth in the Option Agreement. Such notice shall be signed by the person exercising the Option (which signature may be provided electronically in a form acceptable to the Administrator), shall state the number of Shares with respect to which the Option is being exercised and shall contain any represen tation required by the Plan or the Option Agreement. Payment of the exercise price for the Shares as to which such Option is being exercised shall be made (a) in United States dollars in cash or by check, or (b) at the discretion of the Administrator, through delivery of shares of Common Stock held for at least six months (if required to avoid negative accounting treatment) having a Fair Market Value equal as of the date of the exercise to the aggregate cash exercise price for the number of Shares as to which the Option is being exercised, or (c) at the discretion of the Administrator, by having the Company retain from the Shares otherwise issuable upon exercise of the Option, a number of Shares having a Fair Market Value equal as of the date of exercise to the aggregate exercise price for the number of Shares as to which the Option is being exercised, or (d) at the discretion of the Administrator, in accordance with a cashless exercise program established with a securities bro kerage firm, and approved by the Administrator, or (e) at the discretion of the Administrator, by any combination of (a), (b), (c) and (d) above or (f) at the discretion of the Administrator, by payment of such other lawful consideration as the Administrator may determine. Notwithstanding the foregoing, the Administrator shall accept only such payment on exercise of an ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which such Option was exercised to the Participant (or to the Participant’s Survivors, as the case may be). In determining what constitutes “reasonably promptly,” it is expressly understood that the issuance and delivery of the Shares may be delayed by the Company in order to comply with any law or regulation (including, without limitation, state securities or “blue sky” laws) which requires the Company to take any action with respect to the Shares prior to their issuance. The Shares shall, upon delivery, be fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise of any installment of any Option; provided that the Administrator shall not accelerate the exercise date of any installment of any Option granted to an Employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to Paragraph 27) without the prior approval of the Employee if such acceleration would violate the annual vesting limitation contained in Section 422(d) of the Code, as described in Paragraph 6(b)(iv).
The Administrator may, in its discretion, amend any term or condition of an outstanding Option provided (i) such term or condition as amended is permitted by the Plan, (ii) any such amendment shall be made only with the consent of the Participant to whom the Option was granted, or in the event of the death of the Participant, the Participant’s Survivors, if the amendment is adverse to the Participant, and (iii) any such amendment of any Option shall be made only after the Administrator determines whether such amendment would constitute a “modification” of any Option which is an ISO (as that term is defined in Section 424(h) of the Code) or would cause any adverse tax consequences for the holder of any Option including, but not limited to, pursuant to Section 409A of the Code.
10. | ACCEPTANCE OF STOCK GRANTS AND STOCK-BASED AWARDS AND ISSUE OF SHARES. |
A Stock Grant or Stock-Based Award (or any part or installment thereof) shall be accepted by executing the applicable Agreement and delivering it to the Company or its designee, together with provision for payment of the purchase price, if any, in accordance with this Paragraph for the Shares as to which such Stock Grant or Stock-Based Award is being accepted, and upon compliance with any other conditions set forth in the applicable Agreement. Payment of the purchase price for the Shares as to which such Stock Grant or Stock-Based Award is being accepted shall be made (a) in United States dollars in cash or by check, or (b) at the discretion of the Administrator, through delivery of shares of Common Stock hel d for at least six months (if required to avoid negative accounting treatment) and having a Fair Market Value equal as of the date of acceptance of the Stock Grant or Stock Based-Award to the purchase price of the Stock Grant or Stock-Based Award, or (c) at the discretion of the Administrator, by any
combination of (a) and (b) above; or (d) at the discretion of the Administrator, by payment of such other lawful consideration as the Administrator may determine.
The Company shall then, if required by the applicable Agreement, reasonably promptly deliver the Shares as to which such Stock Grant or Stock-Based Award was accepted to the Participant (or to the Participant’s Survivors, as the case may be), subject to any escrow provision set forth in the applicable Agreement. In determining what constitutes “reasonably promptly,” it is expressly understood that the issuance and delivery of the Shares may be delayed by the Company in order to comply with any law or regulation (including, without limitation, state securities or “blue sky” laws) which requires the Company to take any action with respect to the Shares prior to their issuance.
The Administrator may, in its discretion, amend any term or condition of an outstanding Stock Grant, Stock-Based Award or applicable Agreement provided (i) such term or condition as amended is permitted by the Plan, (ii) any such amendment shall be made only with the consent of the Participant to whom the Stock Grant or Stock-Based Award was made, if the amendment is adverse to the Participant, and (iii) any such amendment shall be made only after the Administrator determines whether such amendment would cause any adverse tax consequences to the Participant, including, but not limited to, pursuant to Section 409A of the Code.
11. | RIGHTS AS A SHAREHOLDER. |
No Participant to whom a Stock Right has been granted shall have rights as a shareholder with respect to any Shares covered by such Stock Right, except after due exercise of the Option or acceptance of the Stock Grant or as set forth in any Agreement, and tender of the aggregate exercise or purchase price, if any, for the Shares being purchased pursuant to such exercise or acceptance and registration of the Shares in the Company’s share register in the name of the Participant.
12. | ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS. |
By its terms, 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. Notwithstanding the foregoing, an ISO transferred except in compliance with clause (i) above shall no longer qualify as an ISO. The designation of a beneficiary of a Stock Right by a Participant, with the prior approval of the Administrator and in such form as the Administrator shall prescribe, shall not be deemed a transfer prohibited by this Paragraph. 60;Except as provided above, a Stock Right shall only be exercisable or may only be accepted, during the Participant’s lifetime, by such Participant (or by his or her legal representative) and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of any Stock Right or of any rights granted thereunder contrary to the provisions of this Plan, or the levy of any attachment or similar process upon a Stock Right, shall be null and void.
13. | EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN FOR CAUSE OR DEATH OR DISABILITY. |
Except as otherwise provided in a Participant’s Option Agreement, in the event of a termination of service (whether as an Employee, director or Consultant) with the Company or an Affiliate before the Participant has exercised an Option, the following rules apply:
(a)A Participant who ceases to be an Employee, director or Consultant of the Company or of an Affiliate (for any reason other than termination for Cause, Disability, or death for which events there are special rules in Paragraphs 14, 15, and 16, respectively), may exercise any Option granted to him or her to the extent that the Option is exercisable on the date of such termination of service, but only within such term as the Administrator has designated in a Participant’s Option Agreement.
(b)Except as provided in Subparagraph (c) below, or Paragraph 15 or 16, in no event may an Option intended to be an ISO, be exercised later than three months after the Participant’s termination of employment.
(c)The provisions of this Paragraph, and not the provisions of Paragraph 15 or 16, shall apply to a Participant who subsequently becomes Disabled or dies after the termination of employment, director status or consultancy; provided, however, in the case of a Participant’s Disability or death within three months after the termination of employment, director status or consultancy, the Participant or the Participant’s Survivors may exercise the Option within one year after the date of the Participant’s termination of service, bu t in no event after the date of expiration of the term of the Option.
(d)Notwithstanding anything herein to the contrary, if subsequent to a Participant’s termination of employment, termination of director status or termination of consultancy, but prior to the exercise of an Option, the Administrator determines that, either prior or subsequent to the Participant’s termination, the Participant engaged in conduct which would constitute Cause, then such Participant shall forthwith cease to have any right to exercise any Option.
(e)A Participant to whom an Option has been granted under the Plan who is absent from the Company or an Affiliate because of temporary disability (any disability other than a Disability as defined in Paragraph 1 hereof), or who is on leave of absence for any purpose, shall not, during the period of any such absence, be deemed, by virtue of such absence alone, to have terminated such Participant’s employment, director status or consultancy with the Company or with an Affiliate, except as the Administrator may otherwise expressly provide; provided, however, that, for ISOs, any leave of absence granted by the Administrator of greater than ninety days, unless pursuant to a contract or statute that guarantees the right to reemployment, shall cause such ISO to become a Non-Qualified Option on the 181st day following such leave of absence.
(f)Except as required by law or as set forth in a Participant’s Option Agreement, Options granted under the Plan shall not be affected by any change of a Participant’s status within or among the Company and any Affiliates, so long as the Participant continues to be an Employee, director or Consultant of the Company or any Affiliate.
14. | EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR CAUSE. |
Except as otherwise provided in a Participant’s Option Agreement, the following rules apply if the Participant’s service (whether as an Employee, director or Consultant) with the Company or an Affiliate is terminated for Cause prior to the time that all his or her outstanding Options have been exercised:
(a)All outstanding and unexercised Options as of the time the Participant is notified his or her service is terminated for Cause will immediately be forfeited.
(b)Cause is not limited to events which have occurred prior to a Participant’s termination of service, nor is it necessary that the Administrator’s finding of Cause occur prior to termination. If the Administrator determines, subsequent to a Participant’s termination of service but prior to the exercise of an Option, that either prior or subsequent to the Participant’s termination the Participant engaged in conduct which would constitute Cause, then the right to exercise any Option is forfeited.
15. | EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY. |
Except as otherwise provided in a Participant’s Option Agreement:
(a)A Participant who ceases to be an Employee, director or Consultant of the Company or of an Affiliate by reason of Disability may exercise any Option granted to such Participant to the extent that the Option has become exercisable but has not been exercised on the date of the Participant’s termination of service due to Disability.
(b)A Disabled Participant may exercise the Option only within the period ending one year after the date of the Participant’s termination of service due to Disability, notwithstanding that the Participant might have been able to exercise the Option as to some or all of the Shares on a later date if the Participant had not become Disabled and had continued to be an Employee, director or Consultant or, if earlier, within the originally prescribed term of the Option.
(c)The Administrator shall make the determination both of whether Disability has occurred and the date of its occurrence (unless a procedure for such determination is set forth in another agreement between the Company and such Participant, in which case such procedure shall be used for such determination). If requested, the Participant shall be examined by a physician selected or approved by the Administrator, the cost of which examination shall be paid for by the Company.
16. | EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT. |
Except as otherwise provided in a Participant’s Option Agreement:
(a)In the event of the death of a Participant while the Participant is an Employee, director or Consultant of the Company or of an Affiliate, such Option may be exercised by the Participant’s Survivors to the extent that the Option has become exercisable but has not been exercised on the date of death.
(b)If the Participant’s Survivors wish to exercise the Option, they must take all necessary steps to exercise the Option within one year after the date of death of such Participant, notwithstanding that the decedent might have been able to exercise the Option as to some or all of the Shares on a later date if he or she had not died and had continued to be an Employee, director or Consultant or, if earlier, within the originally prescribed term of the Option.
17. | EFFECT OF TERMINATION OF SERVICE ON UNACCEPTED STOCK GRANTS. |
In the event of a termination of service (whether as an Employee, director or Consultant) with the Company or an Affiliate for any reason before the Participant has accepted a Stock Grant, such offer shall terminate.
For purposes of this Paragraph 17 and Paragraph 18 below, a Participant to whom a Stock Grant has been offered and accepted under the Plan who is absent from work with the Company or with an Affiliate because of temporary disability (any disability other than a Disability as defined in Paragraph 1 hereof), or who is on leave of absence for any purpose, shall not, during the period of any such absence, be deemed, by virtue of such absence alone, to have terminated such Participant’s employment, director status or consultancy with the Company or with an Affiliate, except as the Administrator may otherwise expressly provide.
In addition, for purposes of this Paragraph 17 and Paragraph 18 below, any change of employment or other service within or among the Company and any Affiliates shall not be treated as a termination of employment, director status or consultancy so long as the Participant continues to be an Employee, director or Consultant of the Company or any Affiliate.
18. | EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE OTHER THAN FOR CAUSE OR DEATH OR DISABILITY. |
Except as otherwise provided in a Participant’s Stock Grant Agreement, in the event of a termination of service (whether as an Employee, director or Consultant), other than termination for Cause, Disability, or death for which events there are special rules in Paragraphs 19, 20, and 21, respectively, before all forfeiture provisions or Company rights of repurchase shall have lapsed, then the Company shall have the right to cancel or repurchase that
number of Shares subject to a Stock Grant as to which the Company’s forfeiture or repurchase rights have not lapsed.
19. | EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR CAUSE. |
Except as otherwise provided in a Participant’s Stock Grant Agreement, the following rules apply if the Participant’s service (whether as an Employee, director or Consultant) with the Company or an Affiliate is terminated for Cause:
(a)All Shares subject to any Stock Grant that remain subject to forfeiture provisions or as to which the Company shall have a repurchase right shall be immediately forfeited to the Company as of the time the Participant is notified his or her service is terminated for Cause shall be immediately subject to repurchase by the Company at the lesser of Fair Market Value or the purchase price, thereof.
(b)Cause is not limited to events which have occurred prior to a Participant’s termination of service, nor is it necessary that the Administrator’s finding of Cause occur prior to termination. If the Administrator determines, subsequent to a Participant’s termination of service, that either prior or subsequent to the Participant’s termination the Participant engaged in conduct which would constitute Cause, then all Shares subject to any Stock Grant that remained subject to forfeiture provisions or as to which the Company had a repurchase right on the date of termination shall be immediately forfeited to the Company.
20. | EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR DISABILITY. |
Except as otherwise provided in a Participant’s Stock Grant Agreement, if a Participant ceases to be an Employee, director or Consultant of the Company or of an Affiliate by reason of Disability to the extent the forfeiture provisions or the Company’s rights of repurchase have not lapsed on the date of Disability, they shall be exercisable. The Administrator shall make the determination both as to whether Disability has occurred and the date of its occurrence (unless a procedure for such determination is set forth in another agreement between the Company and such Participant, in which case such procedure shall be used for such determination). If requested, the Participant shall be examined by a ph ysician selected or approved by the Administrator, the cost of which examination shall be paid for by the Company.
21. | EFFECT ON STOCK GRANTS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT. |
Except as otherwise provided in a Participant’s Stock Grant Agreement, in the event of the death of a Participant while the Participant is an Employee, director or Consultant of the Company or of an Affiliate to the extent the forfeiture provisions or the Company’s rights of repurchase have not lapsed on the date of death, they shall be exercisable. The proration shall be based upon the number of days accrued prior to the Participant’s date of death.
22. | PURCHASE FOR INVESTMENT. |
Unless the offering and sale of the Shares to be issued upon the particular exercise or acceptance of a Stock Right shall have been effectively registered under the Securities Act, the Company shall be under no obligation to issue the Shares covered by such exercise unless and until the following conditions have been fulfilled:
(a)The person who exercises or accepts such Stock Right shall warrant to the Company, prior to the receipt of such Shares, that such person is acquiring such Shares for his or her own account, for investment, and not with a view to, or for sale in connection with, the distribution of any such Shares, in which event the person
acquiring such Shares shall be bound by the provisions of the following legend (or a legend in substantially similar form) which shall be endorsed upon the certificate evidencing the Shares issued pursuant to such exercise or such grant:
“The shares represented by this certificate have been taken for investment and they may not be sold or otherwise transferred by any person, including a pledgee, unless (1) either (a) a Registration Statement with respect to such shares shall be effective under the Securities Act of 1933, as amended, or (b) the Company shall have received an opinion of counsel satisfactory to it that an exemption from registration under such Act is then available, and (2) there shall have been compliance with all applicable state securities laws.”
(b)At the discretion of the Administrator, the Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise or acceptance in compliance with the Securities Act without registration thereunder.
23. | DISSOLUTION OR LIQUIDATION OF THE COMPANY. |
Upon the dissolution or liquidation of the Company, all Options granted under this Plan which as of such date shall not have been exercised and all Stock Grants and Stock-Based Awards which have not been accepted will terminate and become null and void; provided, however, that if the rights of a Participant or a Participant’s Survivors have not otherwise terminated and expired, the Participant or the Participant’s Survivors will have the right immediately prior to such dissolution or liquidation to exercise or accept any Stock Right to the extent that the Stock Right is exercisable or subject to acceptance as of the date immediately prior to such dissolution or liquidation. Upon the dissolution or liquidation of the Company, any outstanding Stock-Based Awards shall immediately terminate unless otherwise determined by the Administrator or specifically provided in the applicable Agreement.
Upon the occurrence of any of the following events, a Participant’s rights with respect to any Stock Right granted to him or her hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in a Participant’s Agreement:
(a)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, the number o f shares of Common Stock deliverable upon the exercise of an Option or acceptance of a Stock Grant 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. The number of Shares subject to the limitations in Paragraph 3(a) and 4(c) shall also be proportionately adjusted upon the occurrence of such events.
(b)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 other than a transaction to merely change the state of incorporation (a “Corporate Transaction”), the Administrator or the board of directors of any entity assuming the obligations of the Company hereunder (the “Successor Board”), shal l, as to outstanding Options, either (i) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the Shares then subject to such Options 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; or (ii) upon written notice to the Participants, provide that such Options must be exercised (either (A) to the extent then exercisable or, (B) at the discretion of the Administrator, any such Options being made partially or fully exercisable for purposes of this Subparagraph), within a specified number of days of the date of such notice, at the end of which period such Options which have not been exercised shall terminate; 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 (either (A) to the extent then exercisable or, (B) at the discretion of the Administrator, any such Options being made partially or fully exercisable for purposes of this Subparagraph) less the aggregate exercise price thereof. For purposes of determining the payments to be made pursuant to Subclause (iii) above, in the case of a Corporate Transaction the consideration for which, in whole or in part, is other than cash, the consideration other than cash shall be valued at the fair value thereof as determined in good faith by the Board of Directors.
With respect to outstanding Stock Grants, the Administrator or the Successor Board, shall make appropriate provision 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. In lieu of the foregoing, in connection with any Corporate Transaction, the Administrator may provide that, upon consummation of the Corporate Transaction, each outstanding Stock Grant shall be terminated 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 comprising such Stock Grant (to the extent such Stock Grant is no longer subject to any forfeiture or repurchase rights then in effect or, at the discretion of the Administrator, all forfeiture and repurchase rights being waived upon such Corporate Transaction).
In taking any of the actions permitted under this Paragraph 24(b), the Administrator shall not be obligated by the Plan to treat all Stock Rights, all Stock Rights held by a Participant, or all Stock Rights of the same type, identically.
(c)Recapitalization or Reorganization. In the event of a recapitalization or reorganization of the Company other than a Corporate Transaction pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, 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 exe rcise 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.
(d)Adjustments to Stock-Based Awards. Upon the happening of any of the events described in Subparagraphs (a), (b) or (c) above, any outstanding Stock-Based Award shall be appropriately adjusted to reflect the events described in such Subparagraphs. The Administrator or the Successor Board shall determine the specific adjustments to be made under this Paragraph 24, including, but not limited to the effect of any, Corporate Transaction and , subject to Paragraph 4, its determination shall be conclusive.
(e)Modification of Options. Notwithstanding the foregoing, any adjustments made pursuant to Subparagraph (a), (b) or (c) above with respect to Options shall be made only after the Administrator determines whether such adjustments would constitute a “modification” of any ISOs (as that term is defined in Section 424(h) of the Code) or would cause any adverse tax consequences for the holders of Options, including, but not limited to, pursuant to Section 409A of the Code. If the Administrator determines that such adjustments made with respect to Options would constitute a modification or other adverse tax consequence, it may refrain from making such adjustments, unless the holder of an Option specifically agrees in writing that such adjustment be made and such writing indicates that the holder has full knowledge of the consequences of such “modification” on his or her income tax treatment with respect to the Option. This paragraph shall not apply to the acceleration of the vesting of any ISO that would cause any portion of the ISO to violate the annual vesting limitation contained in Section 422(d) of the Code, as described in Paragraph 6(b)(iv).
25. | ISSUANCES OF SECURITIES. |
Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Stock Rights. Except as expressly provided herein, no
adjustments shall be made for dividends paid in cash or in property (including without limitation, securities) of the Company prior to any issuance of Shares pursuant to a Stock Right.
No fractional shares shall be issued under the Plan and the person exercising a Stock Right shall receive from the Company cash in lieu of such fractional shares equal to the Fair Market Value thereof.
27. | CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS. |
The Administrator, at the written request of any Participant, may in its discretion take such actions as may be necessary to convert such Participant’s ISOs (or any portions thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the Participant is an Employee of the Company or an Affiliate at the time of such conversion. At the time of such conversion, the Administrator (with the consent of the Participant) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Administrator in its discretion may determine, provided that such conditions shall not be inconsistent w ith this Plan. Nothing in the Plan shall be deemed to give any Participant the right to have such Participant’s ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Administrator takes appropriate action. The Administrator, with the consent of the Participant, may also terminate any portion of any ISO that has not been exercised at the time of such conversion.
In the event that any federal, state, or local income taxes, employment taxes, Federal Insurance Contributions Act (“F.I.C.A.”) withholdings or other amounts are required by applicable law or governmental regulation to be withheld from the Participant’s salary, wages or other remuneration in connection with the exercise or acceptance of a Stock Right or in connection with a Disqualifying Disposition (as defined in Paragraph 29) or upon the lapsing of any forfeiture provision or right of repurchase or for any other reason required by law, the Company may withhold from the Participant’s compensation, if any, or may require that the Participant advance 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). For purposes hereof, the fair market value of the shares withheld for purposes of payroll withholding shall be determined in the manner set forth under the definition of Fair Market Value provided in Paragraph 1 above, as of the most recent practicable date prior to the date of exercise. If the Fair Market Value of the shares withheld is less than the amount of payroll withholdings required, the Participant may be required to advance the difference in cash to the Company or the Affiliate employer. The Administrator in its discretion may condition the exercise of an Option for less than the then Fair Market Value on the Participant’s payment of such additional withholding.
29. | NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. |
Each Employee who receives an ISO must agree to notify the Company in writing immediately after the Employee makes a Disqualifying Disposition of any Shares acquired pursuant to the exercise of an ISO. A Disqualifying Disposition is defined in Section 424(c) of the Code and includes any disposition (including any sale or gift) of such Shares before the later of (a) two years after the date the Employee was granted the ISO, or (b) one year after the date the Employee acquired Shares by exercising the ISO, except as otherwise provided in Section 424(c) of the Code. If the Employee has died before such Shares are sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter.
30. | TERMINATION OF THE PLAN. |
The Plan will terminate on December 9, 2020 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 shareholders of the Company. The Plan may be terminated at an earlier date by vote of the shareholders 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.
31. | AMENDMENT OF THE PLAN AND AGREEMENTS. |
The Plan may be amended by the shareholders of the Company. The Plan may also be amended by the Administrator, including, without limitation, to the extent necessary to qualify any or all outstanding Stock Rights granted under the Plan or Stock Rights to be granted under the Plan for favorable federal income tax treatment as may be afforded incentive stock options under Section 422 of the Code (including deferral of taxation upon exercise), and to the extent necessary to qualify the shares issuable upon exercise or acceptance of any outstanding Stock Rights granted, or Stock Rights to be granted, under the Plan for listing on any national securities exchange or quotation in any national automated quotation sy stem of securities dealers. Any amendment approved by the Administrator which the Administrator determines is of a scope that requires shareholder approval shall be subject to obtaining such shareholder approval. Any modification or amendment of the Plan shall not, without the consent of a Participant, adversely affect his or her rights under 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 may be adverse to the Participant but which is not inconsistent with the 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.
32. | EMPLOYMENT OR OTHER RELATIONSHIP. |
Nothing in this Plan or any Agreement shall be deemed to prevent the Company or an Affiliate from terminating the employment, consultancy or director status of a Participant, nor to prevent a Participant from terminating his or her own employment, consultancy or director status or to give any Participant a right to be retained in employment or other service by the Company or any Affiliate for any period of time.
This Plan shall be construed and enforced in accordance with the law of the State of Delaware.
41Proposed Amendment to Amended and Restated Certificate of Incorporation
APPENDIX B
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HYTHIAM,
ONTRAK, INC.
(Pursuant to Section 242 of the
General Corporation Law of the State of Delaware)
Hythiam,
Ontrak, Inc. (the “Corporation”“Corporation”), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware does(the “DGCL”), hereby certify:certifies as follows:
FIRST: That1. This Certificate of Amendment (this “Certificate of Amendment”) amends the Board of Directorsprovisions of the Corporation has duly adopted resolutions (i) authorizing the Corporation to executeCorporation’s Amended and fileRestated Certificate of Incorporation filed with the Secretary of State ofon October 28, 2019, as amended by the State of Delaware this Certificate of Amendment to changethereto filed with the nameSecretary of State on July 6, 2020, the Corporation and (ii) declaring this Certificate of Designations of Rights and Preferences filed with the Secretary of State on August 21, 2020 and Amendment No. 1 to be advisableCertificate of Designations of Rights and recommended for approvalPreferences filed with the Secretary of State on October 15, 2020 (as amended to date, the “Certificate of Incorporation”).
2. The Certificate of Incorporation is hereby amended by the stockholders of the Corporation.striking Article EIGHTH in its entirety.
SECOND: That this3. This Certificate of Amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation LawDGCL.
4. All other provisions of the State of Delaware by the Board of Directors and stockholders of the Corporation.
THIRD: That upon the effectiveness of this Certificate of Amendment (the “Effective Time”), the first paragraph of Article FOURTH of the Amended and Restated Certificate of Incorporation is hereby amendedshall remain in full force and restated as follows:
effect.
“FOURTH
: 1. The authorized capital stock of the Corporation shall consist of two billion, fifty million (2,050,000,000) shares, of which two billion (2,000,000,000) shares shall be designated as Common Stock, each with a par value of $0.0001 per share (the “Common Stock”), and fifty million (50,000,000) shares shall be designated as Preferred Stock, each with a par value $0.0001 per share (the “Preferred Stock”).”
FOURTH: That the Effective Time of this Certificate of Amendment shall be upon filing with the Secretary of State of the State of Delaware.
[signature page follows]
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment on this [___] day of [____], 20__.
| HYTHIAM, INC. |
| | |
| By: | |
| | Name: |
| | Title: |
APPENDIX C
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
HYTHIAM, INC.
Hythiam, Inc. (the “Corporation”), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify:
FIRST: That the Board of Directors of the Corporation has duly adopted resolutions (i) authorizing the Corporation to execute and file with the Secretary of State of the State of Delaware this Certificate of Amendment to (a) combine each not less than 1-for-2 and not more than 1-for-100, as may be determined by the Board of Directors in accordance with Proposal 3 shares of the Corporation’s Common Stock, $0.0001 par value per share (“Common Stock”), issued and outstanding or held in the treasury of the Corporation into one (1) share of Common Stock (the “Reverse Stock Split”) and (b) decrease the number of authorized shares of Common Stock in accordance with the Reverse Stock Split ratio, and (ii ) declaringcaused this Certificate of Amendment to be advisable and recommended for approvalexecuted by the stockholdersits duly authorized officer on this ___ day of the Corporation.___________, 202__.
SECOND: That this Certificate of Amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of Delaware by the Board of Directors and stockholders of the Corporation.
Ontrak, Inc.
THIRD: That upon the effectiveness of this Certificate of Amendment (the “Effective Time”), the first paragraph of Article FOURTH of the Certificate of Incorporation is hereby amended and restated as follows:
By:
Name:
Title:
“FOURTH: 1. The authorized capital stock of the Corporation shall consist of 200,050,000 shares, of which 200,000,000 shares shall be designated as Common Stock, each with a par value of $0.0001 per share (the “Common Stock”), and 50,000,000 shares shall be designated as Preferred Stock, each with a par value $0.0001 per share (the “Preferred Stock”).”
FOURTH: That at the Effective Time, Article FOURTH of the Certificate of Incorporation is hereby amended by appending the following Section 3, which shall read in its entirety substantially as follows:
“3. Reverse Stock Split. Upon effectiveness of a Certificate of Amendment to this Certificate of Incorporation (the “Effective Time”) filed with the Secretary of State of the State of Delaware, each two (2) to one hundred (100) shares of Common Stock issued and outstanding or held in the treasury of the Corporation at such time shall be combined into one (1) share of Common Stock (the “Reverse Stock Split”). No fractional share shall be issued upon the Reverse Stock Split. All shares of Common Stock (including fractions thereof) issuable upon the Reverse Stock Split to a given holder shall be aggregated for purposes of determining whether the Reverse Stock Split would result in the issuance of any fractional share. If, after the aforementioned aggrega tion, the Reverse Stock Split would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any such fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fraction multiplied by the fair market value per share of the Common Stock as determined in a reasonable manner by the Board of Directors. Each certificate representing shares of Common Stock outstanding immediately prior to the Effective Time shall automatically, and without the necessity of presenting the same for exchange, represent after the Effective Time, only the applicable number of shares of Common Stock or cash in lieu thereof, as provided in the Reverse Stock Split. Upon surrender by a holder of a certificate or certificates for Common Stock, duly endorsed, at the office of the Corporation, the Corporation shall, as soon as practicable thereafter, issue and deliver to such holder, or to the nominee or assignee of such holder, a new certificate or certifi cates for the number of shares of Common Stock that such holder shall be entitled to following the Reverse Stock Split.”
43
[signature page follows]
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment on this [___] day of [____], 2010.
| HYTHIAM, INC. |
| | |
| By: | |
| | Name: |
| | Title: |
APPENDIX D
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
HYTHIAM, INC.
Hythiam, Inc. (the “Corporation”), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify:
FIRST: That the Board of Directors of the Corporation has duly adopted resolutions (i) authorizing the Corporation to execute and file with the Secretary of State of the State of Delaware this Certificate of Amendment to change the name of the Corporation and (ii) declaring this Certificate of Amendment to be advisable and recommended for approval by the stockholders of the Corporation.
SECOND: That this Certificate of Amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware by the Board of Directors and stockholders of the Corporation.
THIRD: That upon the effectiveness of this Certificate of Amendment (the “Effective Time”), Article FIRST of the Amended and Restated Certificate of Incorporation is hereby amended and restated as follows:
“FIRST: The name of the Corporation is: CATASYS, INC. (hereinafter referred to as the “Corporation”).”
FOURTH: That the Effective Time of this Certificate of Amendment shall be upon filing with the Secretary of State of the State of Delaware.
[signature page follows]
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment on this [___] day of [____], 2010.
HYTHIAM, INC.
By:___________________________
Name:
HYTHIAM, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING
OF STOCKHOLDERS TO BE HELD ON JANUARY 28, 2010
The undersigned, hereby appoints Richard A. Anderson and Peter Donato, and each of them (with full power to act alone), proxies of the undersigned, with full power of substitution to each, to vote all shares of common stock of Hythiam, Inc., a Delaware corporation (the “Company”) registered in the name provided in this Proxy which the undersigned is entitled to vote at the Special Meeting of Stockholders, and at any adjournments of the meeting, with all the powers the undersigned would have if personally present at the meeting. Without limiting the general authorization given by this Proxy, the proxies are, and each of them is, instructed to vote or act as follows on the proposals set forth in the Proxy at the Special Meeting of Stockholders of the Company to be held at 11111 Santa Monica Blvd., Suite 21 0, on Friday, January 28, 2010, at 10:00 a.m., local time, and at any and all adjournments or postponements thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED AND, IF NO INSTRUCTIONS TO THE CONTRARY ARE INDICATED, WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENTS OF THE MEETING.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF STOCKHOLDERS AND THE PROXY STATEMENT FURNISHED HEREWITH.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED ENVELOPE. YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO THE TAKING OF A VOTE ON THE MATTERS HEREIN.
(Continued and to be signed on reverse side.)
[Missing Graphic Reference]
SPECIAL MEETING OF STOCKHOLDERS OF
HYTHIAM, INC.
11150 Santa Monica Blvd., Suite 1500
Los Angeles, California 90025
January 28, 2010
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach along perforated line and mail in the envelope provided.
| | |
| | THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSALS NO. 1, 2, 3 AND 4.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS’ RECOMMENDATIONS, JUST SIGN ON THE REVERSE SIDE. YOU NEED NOT MARK ANY BOXES
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x
|
PROXY VOTING INSTRUCTIONS
MAIL — Sign, date and mail your proxy card in the envelope provided as soon as possible.
OR
TELEPHONE — Call toll-free 800-690-6903 in the United States or Canada. To vote from all other foreign countries follow the “Internet” instructions below. Have your proxy card available when you call.
OR
INTERNET — Access www.proxyvote.com and follow the on-screen instructions. Have your proxy card available when you access the web page
OR
IN PERSON — You may vote your shares in person by attending the Special Meeting.
| | | | | | | | | | |
| | | | | | FOR | | AGAINST | | ABSTAIN |
| | 1. | | To approve the 2010 Stock Incentive Plan. | | ¨ | | ¨ | | ¨ |
| | | | | |
| | 2. | | To approve an amendment to our certificate of incorporation to increase the number of authorized shares of common stock, par value $0.0001 per share, from two hundred million (200,000,000) shares to two billion (2,000,000,000) shares. | | ¨ | | ¨ | | ¨ |
| | | | | |
| | 3. | | To approve a proposed amendment or amendments to our Certificate of Incorporation each such amendment (i) to effect a reverse stock split of our outstanding common stock at a ratio of not less than 1-for-2 and not more than an aggregate of 1-for-100 at any time prior to the earlier of the date on which the 2011 annual meeting of stockholders is held or December 31, 2011, with the implementation, ratio and timing of such reverse stock split to be determined by our Board of Directors (such ratio, as determined by the Board of Directors, the “Reverse Stock Split Ratio”), and (ii) following each such reverse stock split, if implemented, to reduce the number of authorized shares of common stock in accordance with the Reverse Stock Split Ratio. | | ¨ | | ¨ | | ¨ |
| | | | | |
| | 4. | | To approve a proposed amendment to our Certificate of Incorporation to change our name from Hythiam, Inc. to Catasys, Inc. | | ¨ | | ¨ | | ¨ |
| | | | | |
| | | | To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method. | | ¨ | | | | |
| | | |
Note: | | Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.
| |
| | | | | | |
| | Signature of Stockholder | | | | Date: |
| | | | | | |
| | Signature of Stockholder | | | | Date: |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
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PLEASE CAST YOUR VOTE AS SOON AS POSSIBLE
47