(Address of principal executive offices, including zip code)
(i310) i444-4300
(Registrant’s
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol
Name of Each Exchange on Which Registered
iCommon Stock, par value
$0.0001 per share
iOTRK
iThe NASDAQ Global Market
i9.50%
Series A Cumulative Perpetual Preferred Stock, $0.0001 par value
iOTRKP
iThe NASDAQ Global Market
Securities registered pursuant to Section 12(g) of the Act:
Not
Applicable
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
iNo☑
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐
iNo☑
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
iYes☑
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer,”“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer ☐
Accelerated filer ☐
iNon-accelerated filer☑
Smaller reporting company i☑
Emerging
growth company i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes i☐
No
☑
As of June 30, 2020, the last business day of the registrant’s second fiscal quarter, the aggregate market value of the common stock held by non-affiliates of the registrant (without admitting that any person whose shares are not included in such calculation is an affiliate) was $i194,131,885
based on the $24.74 closing sales price of the common stock on The NASDAQ Capital Market on that date.
As of April 23, 2021, there were i17,736,618 shares of the registrant’s common stock outstanding.
This Amendment No. 1 (this “Amendment”) on Form 10-K/A amends the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (the “SEC”) on March
9, 2021 (the “Original 10-K”), to include the information required by Items 10 through 14 of Part III of the Original 10-K. This information was previously omitted from the Original 10-K in reliance on General Instruction G(3) to Form 10-K, which permits the information in the above referenced items to be incorporated in the Form 10-K by reference to our definitive proxy statement if such statement is filed no later than 120 days after our fiscal year-end.
Items 10 through 14 of Item III in Form 10-K is more limited than what is required to be included in the definitive proxy statement to be filed in connection with our 2021 Annual Meeting of Stockholders. Accordingly, the definitive proxy statement to be filed at a later date will include additional information related to the topics herein and additional information not required by Part III, Items 10 through 14 of Form 10-K.
Pursuant
to the SEC rules, Part IV, Item 15 has also been amended to contain the currently dated certificates from the Company’s principal executive officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. The certificates of the Company’s principal executive officer and principal financial officer are attached to this Amendment as Exhibits 31.3 and 31.4. Because no financial statements have been included in this Amendment and this Amendment does not contain or amend any disclosure with respect to Items 307 and 308 of Regulation S-K, paragraphs 3, 4 and 5 of the certifications have been omitted. Additionally, we are not including the certificate under Section 906 of the Sarbanes-Oxley Act of 2002 as no financial statements are being filed with this Amendment.
Except for the information described above, the Company has not modified or updated disclosures provided in the Original 10-K in this Amendment. Accordingly, this Amendment does not reflect events occurring after the filing of the Original 10-K or modify or update those disclosures affected by subsequent events, including any developments relating to the coronavirus (COVID-19) pandemic. Information not affected by this Amendment is unchanged and reflects the disclosures made at the time the Original 10-K
was filed.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information Regarding our Board of Directors
The following table lists our directors serving as of April 23, 2021. Each current director is serving a term that will expire at the Company's next annual meeting. There are no family relationships among any of our directors or executive officers.
Name
Age
Position
Director
Since
Terren
S. Peizer
61
Chairman of the Board and Executive Chairman
2003
Richard A. Berman
76
Director, Chairman of the Audit Committee, and Member of the Nomination and Governance Committee
2014
Michael Sherman
61
Director,
Chairman of the Compensation Committee and Chairman of the Nomination and Governance Committee
2017
Edward Zecchini
60
Director, Compensation Committee Member
2018
Diane Seloff
57
Director and Audit Committee Member
2018
Robert
Rebak
53
Director, Nomination and Governance Committee Member
2019
Gustavo Giraldo
49
Director, Member of the Audit Committee and Member of the Compensation Committee
2019
Katherine Quinn (1)
56
Director,
Member of the Nomination and Governance Committee
2020
__________
(1) Ms. Quinn was appointed to serve as a member of the board of directors on August 10, 2020.
Terren S. Peizer is the founder of our Company and an entrepreneur, investor, and financier with a particular interest in healthcare, having founded and successfully commercialized several healthcare companies. He has served as Chairman of the Board of Directors since the Company’s inception
in 2003 through April 11, 2021. Effective April 12, 2021, Mr. Peizer was appointed to serve as the Executive Chairman, and continues to serve as Chairman of the Board. Mr. Peizer is also the founder, Chairman and CEO of NeurMedix, Inc., a biotechnology company with a focus on inflammatory, neurological and neuro-degenerative diseases. In addition to his roles with Ontrak, Inc. and NeurMedix, Inc. he is also Chairman and CEO of the biotech company, BioVie, Inc., a company focused on the end stage liver disease ascites. Mr. Peizer is also Executive Chairman of Verde, Inc., a company producing 100% plant-based, compostable, and biodegradable plastic. He is also Executive Chairman of the mobility company EVmo, Inc. and the mobility delivery company ZipMo, Inc. He also is Executive Chairman of the blockchain company, Casper Labs, Inc. Mr. Peizer is Chairman of Acuitas Group
Holdings, LLC, (“Acuitas”) his personal investment vehicle, and holding company that is the owner of all of his portfolio company interests. Through Acuitas, Mr. Peizer owns
Acuitas Capital, LLC, an industry leader in investing in micro and small capitalization equities, having invested over $1.5 billion directly into portfolio companies. Mr. Peizer has been the largest beneficial shareholder of, and has held various senior executive positions with, several other publicly traded growth companies, including having served as Chairman of Cray, Inc., a supercomputer company recently sold to Hewlett Packard,
Inc. Mr. Peizer has a background in venture capital, investing, mergers and acquisitions, corporate finance, and previously held senior executive positions with the investment banking firms Goldman Sachs, First Boston, and Drexel Burnham Lambert. He received his B.S.E. in Finance from The Wharton School of Finance and Commerce.
We believe Mr. Peizer’s qualifications to serve on our board of directors include his role as an investor and executive positions in several private and public companies, including numerous companies in the healthcare field. He has extensive knowledge and experience in the financial and healthcare industries and provides extensive insight and experience with capital markets and publicly traded companies at all stages of development.
Richard A. Bermanhas
served as the Company’s director since 2014. Heis the Associate Vice President of Strategic initiatives for the University of South Florida Research and Innovation, visiting professor of social entrepreneurship in the Muma College of Business, and a professor in the institute of innovation and advanced discovery. As a recognized global leader, Mr. Berman has held positions in health care, education, politics and management. He has worked with several foreign governments, the United Nations, the U.S. Department of Health and Welfare, the FDA, and as a cabinet level official for the state of New York. He has also worked with McKinsey & Co, NYU Medical Center, Westchester Medical, Korn-Ferry International, Howe-Lewis International and numerous startup companies. In 1995, Mr. Berman was selected by Manhattanville College to serve as its
tenth President. Mr. Berman is credited with the turnaround of the College, where he served until 2009. Mr. Berman serves on the board of several organizations and is an elected member of the National Academy of Medicine of the National Academy of Sciences (Formerly known as the Institute of Medicine). Mr. Berman received his BBA, MBA, and MPH from the University of Michigan and holds honorary doctorates from Manhattanville College and New York Medical College.
We believe Mr. Berman’s qualifications to serve on our board of directors include his extensive experience as an executive in several healthcare firms. In addition, as a board member of a health plan we believe he has an understanding of our customer base and current developments and strategies in the health insurance industry.
Michael Sherman
has served as the Company’s director since July 2017. He has worked in finance for over 30 years, having last served as a Managing Director in Investment Banking, at Barclays Plc. Prior to Barclays, Mr. Sherman was at Lehman Brothers, Inc. and Salomon Brothers Inc. Mr. Sherman specialized in equity capital markets and covered Healthcare companies, in addition to companies in other sectors. Mr. Sherman also is currently a Board Member at BioVie, Inc., a specialty pharmaceutical company. Mr. Sherman began his career in finance as a lawyer at Cleary, Gottlieb, Steen & Hamilton in New York City and Hong Kong.
We believe that Mr. Sherman’s qualifications to serve on our board of directors include his experience in the banking and securities industry, and his experience in the healthcare industry.
Edward
Zecchini has served as the Company’s director since October 2018. Mr. Zecchini currently serves as Managing Member of IT Analytics LLC. Prior to that, Mr. Zecchini served as Chief Information Officer at Remedy Partners, Inc. from April 2014 to October 2019, Executive Vice President and Chief Technology Officer at Sandata Technologies, LLC, from May 2010 to March 2014. Earlier in his career he held senior level positions at HealthMarkets, Inc., Thomson Healthcare and SportsTicker, Inc. Mr. Zecchini has over thirty years of experience in the healthcare and information technology industries. Mr. Zecchini holds a Bachelor of Arts degree from the State University of New York at Oswego. Mr. Zecchini’s business expertise, including his background and extensive experience in information technology and management makes him well-qualified to serve as a member of the
board of directors. He is also a Director of Cryoport Inc. Mr. Zecchini became a member of the Cryoport, Inc. (NASDAQ: symbol “CYRX.”) board of directors in September 2013 and serves as Chairman of the Compensation Committee and member of the Audit Committee and Scientific and Technology Committee
We believe Mr. Zecchini’s qualifications to serve on our board of directors include his experience in the healthcare industry, and his current and past experience in numerous private and publicly traded companies.
Diane Seloff has served as the Company’s director since October 2018. She is currently an Operating Partner with Russell Street Ventures. Most recently she was the Interim Chief Operating Officer at CareBridge
and was part of the founding leadership team from October 2019 through December 2020. She served as Chief Operating Officer at Aspire Health from October 2013 through August 2019 including engaged in the sale to Anthem in June of 2018 and led the integration with Anthem and CareMore. As Aspire Health’s Chief Operating Officer, Ms. Seloff built all the corporate functions for the company in its first two
years and was responsible for running and transforming Aspire Health’s operations. She previously held senior executive roles
in operations and development at other healthcare services and technology companies, including Vanderbilt University Medical Center from October 2007 to July 2013. Ms. Seloff began her career as a management consultant—first at Arthur Andersen & Company and later at KPMG Peat Marwick. Ms. Seloff possesses over 25 years of experience in the broader healthcare industry and has diverse experience in operations, human capital, finance, technology, strategic planning and business development in healthcare, financial services, and logistics. Ms. Seloff received her MBA from Columbia University in 1990 and received her BS in Engineering from University of Michigan in 1984.
We believe Ms. Seloff’s qualifications to serve on our board of directors include her extensive experience as an executive in several healthcare firms. In addition, as a board member we believe
she has an understanding of our customer base and current developments and strategies in the health insurance industry.
Robert Rebak has served as the Company’s director since July 2019. Mr. Rebak currently serves as the Chief Executive Officer of Forefront Telecare, a behavioral telehealth company serving seniors in health systems, long-term care facilities, and home health settings across the US, where he has been responsible for company vision, strategy, growth, culture, and overall operating performance since January 2019. From June 2016 to June 2018, he served as the President and Chief Executive Officer of AbleTo (acquired in May 2020 by Optum), a behavioral telehealth company serving adult health plan members nationwide. From November 2014 to March 2016, he served as President, Consumer
Solutions for Sharecare, a health and wellness patient engagement platform. He joined Sharecare through its acquisition of QualityHealth, a digital patient acquisition and engagement platform, where he was Chairman and Chief Executive Officer from February 2009 to November 2014. Mr. Rebak previously served as Managing Partner of Rosetta, from June 2005 to January 2007. He joined Rosetta through its acquisition of SimStar, where he served as President of the healthcare-specific digital marketing firm from February 1999 to June 2005. He has raised over $60 million in growth capital from both strategic and financial investors and has led two successful company sale transactions. Mr. Rebak has previously served on both private equity backed company and not-for-profit Boards, and currently serves as a Board Director of The Quell Foundation. Mr. Rebak holds an MBA in Finance and Marketing from the University of Chicago Booth School of Business and a BA in History and Economics
from Vanderbilt University.
We believe Mr. Rebak’s qualifications to serve on our board of directors include his experience in the digital health, telehealth, and behavioral health sectors of the healthcare industry.
Gustavo Giraldo has served as the Company’s director since November 2019. Mr. Giraldo currently serves as the Regional Vice President and the Head of Latin America for Centene Corporation. From April 2016 to December 2019, Mr. Giraldo served as the president of behavioral and specialty health at Magellan Healthcare, where he has been responsible for the strategic development and profitable growth of Magellan Healthcare’s health plan, employer, provider segments, state carve-out behavioral health and federal
markets. From April 2015 to April 2016, Mr. Giraldo served as the Chief Operating Officer for Chubb’s Latin American life, accident and health business where he was responsible for the lead sales and distribution for a division of the company. He served as the Chief Operating Officer of Cigna’s Chinese life insurance joint venture from September 2001 to March 2015, and the Founder and Regional Managing Director for Cigna’s Asian health insurance businesses. Mr. Giraldo has more than 20 years of leadership in the insurance industry, including a track record of initiating, leading and growing domestic and global healthcare businesses. Mr. Giraldo earned his bachelor’s degree in mathematics from The Florida State University in 1996 and his master’s degree in business administration from the University of Pennsylvania’s Wharton School of Business in 2006.
We
believe Mr. Giraldo’s qualifications to serve on our board of directors include his experience in the healthcare industry and his current and past experience in numerous private and publicly traded companies.
Katherine Quinn has served as the Company’s director since August 2020. Ms. Quinn currently serves as Vice Chairman and Chief Administrative Officer of US Bancorp, a 70,000 employee and $547 billion enterprise, where she is responsible for corporate strategy, customer experience and digital technology since April 2017 and was the Executive Vice President, Chief Strategy and Reputation Officer of US Bancorp from September 2013 to April 2017. Prior to joining US Bancorp, Ms. Quinn served as Senior Vice President and Chief Marketing Officer of Wellpoint, Inc. (now
Anthem, Inc.), Chief Marketing and Strategy Officer of the Hartford, Senior Vice President of Strategy at Cigna, Senior Vice President of Product Development at Cigna, and Corporate Director of Product Management and Development at PacifiCare Health Systems. Ms. Quinn earned her Master of Business Administration degree from the University of Phoenix and her bachelor’s degree from Hunter College in New York City.
We believe Ms. Quinn’s qualifications to serve on our board of directors include her experience as an executive at one of the leading banking institutions in the United States as well as her past experience as an executive in the healthcare industry.
During 2020, the Board held 6 meetings. All Directors attended at least 75% or more of the aggregate number of meetings of the Board and Board Committees on which they served.
Committees of the Board of Directors
Audit Committee
Our audit committee currently consists of three directors, Messrs. Berman and Giraldo and Ms. Seloff with Mr. Berman serving as the chairman of the audit committee. The audit committee held 5 meetings during the 2020 year. The Board of Directors has determined that each of the members of the audit committee are independent as
defined by the NASDAQ rules, meet the applicable requirements for audit committee members, including Rule 10A-3(b) under the Exchange Act, and that Mr. Berman qualifies as an “audit committee financial expert” as defined by Item 401(h)(2) of Regulation S-K. The duties and responsibilities of the audit committee include (i) selecting, evaluating and, if appropriate, replacing our independent registered accounting firm, (ii) reviewing the plan and scope of audits, (iii) reviewing our significant accounting policies, any significant deficiencies in the design or operation of internal controls or material weakness therein and any significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation and (iv) overseeing related auditing matters.
A copy of the audit committee’s written charter is publicly available
through the “Investors-Governance” section of our website at www.ontrak-inc.com.
Nominations and Governance Committee
Our nominations and governance committee currently consists of four members, Messrs. Sherman, Berman, Rebak and Ms. Quinn, who are all independent as defined by the NASDAQ rules. The nominations and governance committee held 5 meetings during 2020. Mr. Sherman serves as the chairman of the nominations and governance committee. The committee nominates new directors and periodically oversees corporate governance matters.
The
charter of the nominations and governance committee provides that the committee will consider board candidates recommended for consideration by our stockholders, provided the stockholders provide information regarding candidates as required by the charter or reasonably requested by us within the timeframe proscribed in Rule 14a-8 of Regulation 14A under the Exchange Act, and other applicable rules and regulations. Recommendation materials are required to be sent to the nominations and governance committee c/o Ontrak, Inc., 2120 Colorado Ave., Suite 230, Santa Monica, CA90404. There are no specific minimum qualifications required to be met by a director nominee recommended for a position on
the board of directors, nor are there any specific qualities or skills that are necessary for one or more of our directors to possess, other than as are necessary to meet any requirements under the rules and regulations applicable to us. Although our board of directors does not maintain a specific policy with respect to board diversity, our nominations and governance committee believes that our Board members and the candidates that it nominates to serve on our Board constitute a diverse group and offer a broad range of perspectives, backgrounds and experiences to serve the interest of our shareholders.
The nominations and governance committee considers director candidates that are suggested by members of the board of directors, as well as management and stockholders. The committee may also retain a third-party executive search firm to identify candidates. The process for identifying and evaluating
nominees for director, including nominees recommended by stockholders, involves reviewing potentially eligible candidates, conducting background and reference checks, interviews with the candidate and others (as schedules permit), a meeting to consider and approve the candidate and, as appropriate, preparing and presenting to the full board of directors an analysis with respect to particular recommended candidates. The nominations and governance committee endeavors to identify director nominees who have the highest personal and professional integrity, have demonstrated exceptional ability and judgment, and, together with other director nominees and members, are expected to serve the long term interest of our stockholders and contribute to our overall corporate goals.
A copy of the nominations and governance committee’s written charter is publicly available through the “Investors-Governance”
section of our website at www.ontrak-inc.com.
The compensation committee currently consists of three directors Messrs. Sherman, Zecchini, and Giraldo, who are all independent as defined
by the NASDAQ rules. During 2020, the compensation committee held 6 meetings. Mr. Sherman serves as the chairman of the compensation committee. The compensation committee reviews and recommends to the board of directors for approval and compensation of our executive officers.
A copy of our compensation committee written charter is publicly available through the “Investors-Governance” section of our website at www.ontrak-inc.com.
Executive Officers
The following table lists our executive officers as of
April 23, 2021 and their respective ages and positions. For information regarding Terren S. Peizer, our Executive Chairman, see “Information Regarding Our Board of Directors” above.
(1) Mr. Peizer served as the Chairman of the Board and Chief 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.
(2) Mr. Mayhew was appointed to serve as the Chief Executive Officer of the Company as of April 12, 2021.
(4) Mr. LaVerne was appointed to serve as the Chief Financial Officer of the Company on March
16, 2020.
(5) Mr. Newton was appointed to serve as the General Counsel and Secretary of the Company on October 19, 2020.
Jonathan Mayhewhas served as our Chief Executive Officer since April 2021. Prior to joining the Company, Mr. Mayhew most recently served as Executive Vice President and Chief Transformation Officer of CVS Health, where he had enterprise-wide oversight of the entire portfolio of CVS business transformation initiatives and played a key role in shaping CVS Health’s integrated value story. Previously, he was President
of U.S. Markets for the Aetna Health Care Business, where he was responsible for $52 billion in revenue and $4.3 billion in operating income for all commercial and Medicare lines of business. Prior to joining Aetna, Mr. Mayhew was a founding principal, CEO and President of Freedom Disability. Mr. Mayhew holds a degree from Providence College.
Curtis Medeiros has served as our President and Chief Operating Officer since December 2019. On April 7, 2021, Mr. Medeiros announced his resignation effective June 4, 2021. Prior to joining the Company, Mr. Medeiros was the President at OPTUM Analytics overseeing a group that served the analytical needs of external
payers, providers and life sciences companies from July 2019 to November 2019. Mr. Medeiros was the President of OPTUM Life Sciences at UnitedHealth Group from April 2016 to July 2019, where he focused on creating novel collaboration opportunities that addressed health system challenges. From June 2014 to April 2016, Mr. Medeiros was the Chief Operating Officer and Senior Vice President at OPTUM Life Sciences where he led the OPTUM Life Sciences business, which drives client value by providing best in class real-world data, analytics, consulting and collaborations aimed at improving the health care system for all stakeholders. Prior to joining OPTUM in June 2010, Mr. Medeiros served as a Senior Director at Merck Research Laboratories from January 2009 to May 2010. Mr. Medeiros holds a bachelor’s degree in Chemical Engineering from MIT and an MBA from Harvard Business School.
Brandon
H. LaVerne has served as the Company’s Chief Financial Officer since March 2020. Prior to joining the Company, Mr. LaVerne worked at PCM, Inc. from October 1998 until its sale in August 2019 and most recently served as its Chief Financial Officer, Chief Accounting Officer, Treasurer and Assistant Secretary between July 2007 and August 2019. Prior to joining PCM, Inc. Mr. LaVerne worked as the Corporate Accounting Supervisor for Computer Sciences Corporation from September 1996 to October 1998, and started his career with Deloitte & Touche LLP in September 1993. Mr. LaVerne received his Bachelor of Science in Accounting from University of Southern California and is a Certified Public Accountant. Mr. LaVerne replaced Christopher Shirley, who served
as the Company's Chief Financial Officer from May 2017 to March 2020.
Robert Newton has served as the Company’s General Counsel and Secretary since October 2020. Prior to joining the Company Mr. Newton served as the Executive Vice President, Chief Legal Officer and Secretary of PCM, Inc. from
June 2004 until its sale in August 2019. From August 1990 to June 2004, Mr. Newton held Partner, Of Counsel and associate positions with several large international law firms practicing in the general business, M&A and corporate securities practice areas, including as a partner of a leading international healthcare firm, McDermott, Will & Emery, where Mr. Newton’s client representation included a disease management company and multiple publicly traded provider practice management companies. Mr. Newton received his J.D. in 1990 from the University of Texas at Austin School of Law, with honors, and his B.B.A in Finance in 1987 From the University of Texas at Austin, with highest honors.
Code of Ethics
Our Board of Directors has adopted a code of ethics applicable to our chief executive officer, chief financial
officer and persons performing similar functions. Our code of ethics is accessible on our website at http://www.ontrak-inc.com. Disclosure regarding any amendments to, or waivers from, provisions of the code of ethics will be included in a Current Report on Form 8-K within four business days following the date of the amendment or waiver.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act of 1934, as amended (Exchange Act), requires our directors and executive officers, and persons who own more than 10% of our outstanding common stock, to file with the SEC, initial reports of
ownership and reports of changes in ownership of our equity securities. Such persons are required by SEC regulations to furnish us with copies of all such reports they file.
To our knowledge, based solely on a review of the copies of such reports furnished to us regarding the filing of required reports, we believe that all Section 16(a) reports applicable to our directors, executive officers and greater-than-ten-percent beneficial owners with respect to fiscal 2020 were timely filed, except that an initial report of ownership was filed late by Mr. Newton and statement of changes in beneficial ownership were filed late for Messrs. LaVerne, Medeiros, Berman, Sherman, Rebak and Giraldo.
Anti-Hedging Policy
We have adopted an insider trading policy that includes a provision restricting
trading of any interest or provision relating to the future price of our securities, such as a put, call or short sale.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the total compensation paid during the last two fiscal years ended December 31, 2020 and 2019 to the following
Executive Officers of the Company, who are referred to as the “Named Executive Officers”:
•Terren S. Peizer, our Chairman of the Board and Chief Executive Officer (1)
Chairman
of the Board and Chief Executive Officer (1)
2019
450,000
—
—
13,233
463,233
Brandon
H. LaVerne
2020
276,232
—
1,420,586
—
1,696,818
Chief Financial Officer (2)
Robert
Newton
2020
48,275
—
3,928,264
—
3,976,539
General Counsel and Secretary (3)
__________
(1)
Mr.
Peizer served as the Chairman of the Board and Chief 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.
(2)
Mr. Brandon LaVerne was appointed to serve as the Chief Financial Officer of the Company on March 16, 2020.
(3)
Mr.
Robert Newton was appointed to serve as the General Counsel and Secretary of the Company on October 19, 2020.
(4)
Represents the aggregate grant date fair value of stock and option awards, valued in accordance with ASC 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 and option awards, please see Notes 2 and 9 of our Notes to the Consolidated Financial Statements included in our original filing of this Annual Report on Form 10-K for the year ended December 31, 2020.
(5)
Includes
group medical and dental benefits, group life insurance premiums, accidental death, long-term disability insurance and parking, to the extent these amounts exceed $10,000 in the aggregate for each Named Executive Officer.
Narrative Disclosures to Summary Compensation Table
Executive Employment Agreements
Chief Executive Officer
We entered into a five-year employment agreement with our Executive Chairman (formerly Chief Executive Officer through April 11, 2021), Terren S. Peizer, effective as of September 29, 2003, which automatically renews after each five-year term.
Mr. Peizer’s annual base salary was $450,000 in each of 2020 and 2019. Effective January 1, 2021, Mr. Peizer’s annual base 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 of Directors. Mr. Peizer did not receive any annual bonus during the fiscal years ended December 31, 2020 and 2019. His base salary and bonus target will be adjusted each year to not be less than the median compensation of similarly positioned CEO’s 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 insurance,
grossed up for taxes. Mr. Peizer was not granted any equity awards during 2020 and 2019. 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 additional “gross up” payment to eliminate the impact of the tax on Mr. Peizer.
Chief Financial Officer
We entered into a three-year employment agreement with Mr. LaVerne dated March
16, 2020, 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. LaVerne’s annual base salary was $350,000 since his hire. Mr. LaVerne was eligible for an annual bonus target at 50% of his base salary based on achieving certain milestones. Mr. LaVerne did not receive any annual bonus during the fiscal period ended December 31, 2020. Mr. LaVerne received executive benefits, including group medical and dental insurance, term life insurance, accidental death and long-term disability insurance. Mr. LaVerne was granted 150,000 equity awards during 2020. All unvested options vest immediately in the event of a change in control. In the event that Mr. LaVerne 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 payable on the six-month anniversary of his termination and will receive COBRA benefits for a period of six months.
General Counsel and Secretary
We entered into a three-year employment agreement with Mr. Newton dated October 19, 2020, 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. Newton’s annual base salary was $250,000 since his hire. Mr. Newton was eligible for an annual
bonus target at 40% of his base salary based on achieving certain milestones. Mr. Newton did not receive any annual bonus during the fiscal period ended December 31, 2020. Mr. Newton received executive benefits, including group medical and dental insurance, term life insurance, accidental death and long-term disability insurance. Mr. Newton was granted 100,000 equity awards during 2020, which vest over a three-year period. All unvested options vest immediately in the event of a change in control. In the event that Mr. Newton is terminated without good cause or resigns for good reason, the option will continue to vest for a period of twelve months following the date of termination, he will receive a lump sum payment equal to six months of his base salary plus a pro-rata share of any bonus earned for the year of termination payable on the six-month anniversary of his termination and will receive COBRA benefits for a period
of six months.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth all outstanding equity awards held by our named executive officers as of December 31, 2020:
Number
of
Number of
Securities
Securities
Underlying
Underlying
Option
Unexercised
Unexercised
Exercise
Option
Options
(#)
Options (#)
Price
Expiration
Name
Exercisable
Unexercisable
($)
Date
Terren S. Peizer
—
642,307
(1)
$7.50
12/19/27
—
397,693
(1)
7.50
08/02/28
1,040,000
Brandon
H. LaVerne
—
150,000
(2)
14.38
03/25/30
Robert Newton
—
100,000
(3)
60.16
10/19/30
___________
(1)
Mr.
Peizer’s options shall vest on January 1, 2023, if 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.
(2)
One third of Mr. LaVerne’s stock options vest one-year from grant date and the remaining stock options vest equally over the next 24 months.
(3)
One third of Mr. Newton’s stock options vest one-year from grant date and the remaining stock options vest equally over the next 24 months.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL
Provisions 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 to 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 the 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 death 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, 2020 (the last business day of our last completed fiscal year); and
•the price per share of our common stock on the date of termination is $61.79 (the closing market price of our common stock on the Nasdaq Global Market on December 31, 2020.
Pursuant to the terms of his employment agreement, Mr. Peizer would have received a lump sum amount of approximately $268,000 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 $268,000 in accrued vacation and $15,000 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 $268,000, COBRA benefits of approximately $44,000 grossed up for taxes upon an involuntary termination.
(4)
Represents the value of stock options as of December 31, 2020 that would vest upon death or permanent disability, change of control or involuntary termination. Assumes that the vested options are immediately exercised, and the shares received upon exercise are immediately resold at the assumed per share price on the date of termination.
(5)
Pursuant to the terms of his
employment agreement, Mr. LaVerne would receive six months base salary upon termination without good cause or for good reason on the six-month anniversary of his termination and COBRA benefits for the six months following his date of termination.
(6)
Pursuant to the terms of his employment agreement, Mr. Newton would receive six months base salary upon termination without good cause or for good reason on the six-month anniversary of his termination and COBRA benefits for the six months following his date of termination.
DIRECTOR COMPENSATION
The following table provides information regarding compensation that was
earned or paid to the individuals who served as non-employee directors during the year ended December 31, 2020. Except as set forth in the table, during 2020, directors did not earn nor receive cash compensation or compensation in the form of stock awards, option awards or any other form:
Option Awards
Name
($) (1)
Richard
A. Berman
$
126,840
Michael Sherman
131,064
Edward Zecchini
114,965
Diane Seloff
114,965
Robert Rebak
372,574
Gustavo
Giraldo
125,594
Katherine Quinn (2)
62,599
____________
(1)
Amounts reflect the compensation expense recognized in the Company’s financial statements in 2020 for non-employee director stock options, in accordance with FASB ASC Topic
718. As such, these amounts do not correspond to the compensation actually realized by each director for the period.
(2)
Ms. Quinn was appointed to serve as a member of our board of directors on August 10, 2020.
Our directors are eligible to participate 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 under our equity incentive plans are and will be determined in the discretion of our Compensation Committee, consistent with the terms of the applicable plan. 2020 compensation to new board members and existing board members
whose vesting had completed in 2019 were granted $130,000 worth of the Company’s stock options, plus $20,000 for the Chairman of the Audit Committee and $12,500 for the Chairman of the Compensation Committee and $12,500 for the Chairman of the Nominations and Governance Committee, using the Black-Scholes model with the price struck on the date of grant and vest at the end of each quarter with quarterly vesting subject to attendance at the board meeting unless such absence is excused by the Chairman of the Board. New director grants will be pro-rated based upon when they join the Board. We reimburse each of our directors for reasonable out-of-pocket expenses that they incur in connection with attending board or committee meetings.
Outstanding equity awards held by non-employee directors as of December 31, 2020 were as follows:
Number
of
Number of
Securities
Securities
Underlying
Underlying
Grand Date
Unexercised
Unexercised
Option
Fair
Market
Grant
Options
Options
Exercise
Value Options
Date
Exercisable (#)
Unexercisable (#)
Price
Outstanding ($)
Richard
A. Berman
02/17/2015
41,667
—
$
13.20
$
502,500
12/19/2017
66,927
—
7.50
112,123
08/02/2018
41,438
—
7.50
162,890
02/12/2020
12,071
4,023
16.01
126,840
Michael
Sherman
12/19/2017
61,040
—
7.50
102,260
08/02/2018
37,794
—
7.50
148,566
02/12/2020
16,630
—
7.50
131,064
Edward
Zecchini
12/19/2018
35,647
—
10.11
219,773
01/04/2019
28,517
21,387
9.51
316,154
Diane
Seloff
12/24/2018
35,647
—
9.08
197,295
01/04/2019
28,517
21,387
9.51
316,154
Robert
Rebak
07/16/2019
42,776
42,775
20.27
1,117,722
Gustavo Giraldo
12/02/2019
8,360
—
15.55
79,576
02/12/2020
5,839
—
16.01
46,018
Katherine
Quinn (1)
08/10/2020
2,225
—
59.36
62,599
___________
(1)
Ms. Quinn was appointed to serve as a member of our board of directors on August
10, 2020.
There were a total of 554,667 stock options outstanding to directors as of December 31, 2020, with an aggregate grant date fair value of $3.6 million, the last of which vest in June 2022. There were 40,788 options granted to non-employee directors during 2020 and 243,623 options granted to non-employee directors during 2019.
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,
2020:
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)
3,616,314
$
14.66
198,636
Equity compensation plans not approved by security holders
—
—
—
Total
3,616,314
14.66
198,636
___________
(1)
We adopted our 2017 Stock Incentive Plan (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 (the “2017 Amended Plan”).
Under the 2017 Amended 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, 2020, 198,636 equity awards remained 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 Gustavo Giraldo. 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.
ITEM 12. 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 April 23, 2021 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 2020 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 April 23, 2021 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 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 17,736,618 shares of common stock outstanding on April 23, 2021.
Total
Shares
common
Common
beneficially
stock
Percent
stock
owned
beneficially
of
Name
of beneficial owner (1)
owned (2)
(3)
owned
class (3)
5% or Greater Stockholders:
ArrowMark
Colorado Holdings, LLC (4)
1,023,808
—
1,023,808
5.8
%
Credit Suisse AG (5)
905,426
—
905,426
5.1
Directors
and Named Executive Officers:
Terren S. Peizer (6)
9,114,155
1,249,189
10,363,344
54.6
%
Richard
A. Berman (7)
—
163,324
163,324
*
Michael Sherman (8)
15,550
116,717
132,267
*
Edward
Zecchini (9)
—
71,293
71,293
*
Diane Seloff (10)
—
71,293
71,293
*
Robert
Rebak (11)
8,200
49,905
58,105
*
Brandon H. LaVerne (12)
—
58,334
58,334
*
Gustavo
Giraldo (13)
—
15,291
15,291
*
Katherine Quinn (14)
—
3,317
3,317
*
Robert
Newton (15)
—
—
—
*
All
current directors, director nominee and executive officers as a group (11 persons)
Except as set forth below, the mailing address of all individuals listed is c/o Ontrak, Inc., 2120 Colorado Ave., Suite 230, Santa Monica, CA90404.
(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 April 23, 2021, there were 17,736,618 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 April 23, 2021, is deemed to be outstanding for the purpose of computing the percentage of the common stock beneficially owned by each named person (and the
directors and executive officers as a group), but is not deemed to be outstanding for any other purpose.
(4)
Based on information contained in Schedule 13G filed on February 16, 2021 by ArrowMark Colorado Holdings, LLC (“ArrowMark”), ArrowMark has sole voting and sole dispositive power with respect to 1,023,808 shares of our common stock. The address for ArrowMark is 100 Fillmore Street, Suite 325, Denver, Colorado, 80206.
(5)
Based on information contained in Schedule 13G filed on February 12, 2021 by Credit Suisse AG (the "Bank"), a Swiss bank, on behalf of its subsidiaries
to the extent that they conduct business as the Swiss Universal Bank, Asia Pacific, International Wealth Management, Global Markets, Investment Banking & Capital Markets and the Strategic Resolution Unit operating divisions (collectively, the “Divisions” and together with the Bank and its subsidiaries, the "Credit Suisse"), Credit Suisse has shared voting and shared dispositive power with respect to 905,426 shares of our common stock. The address for Credit Suisse is Uetlibergstrasse 231, P.O. Box 900, CH 8070, Zurich, Switzerland.
(6)
Consists of 9,114,155 shares of common stock and warrants to purchase 1,249,189 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.
(7)
Includes options to purchase 163,324 shares of common stock, which are exercisable within the next 60 days.
(8)
Consists of 15,550 shares of common stock and options to purchase 116,717 shares of common stock, which are exercisable within the next 60 days.
(9)
Includes options to purchase 71,293 shares of common stock, which are exercisable within the next 60 days.
(10)
Includes
options to purchase 71,293 shares of common stock, which are exercisable within the next 60 days.
(11)
Consists of 8,200 shares of common stock and options to purchase 49,905 shares of common stock, which are exercisable within the next 60 days.
(12)
Includes options to purchase 58,334 shares of common stock, which are exercisable within the next 60 days.
(13)
Includes options to purchase 15,291 shares of common stock, which are exercisable within the next 60 days.
(14)
Ms. Quinn was appointed
to serve as a member of the Board on August 10, 2020. Includes options to purchase 3,317 shares of common stock, which are exercisable within the next 60 days
(15)
Mr. Newton was appointed to serve as General Counsel and Secretary on October 19, 2020.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Indemnification Agreements
We
have entered into indemnification agreements with each of our current directors and executive officers that provide the maximum indemnity available to directors and officers under Delaware General Corporation Law and our amended and restated certificate of incorporation, as well as certain procedural protections. We have also entered into transactions with certain of our directors and officers, as described under the section “Executive Compensation.”
Director Independence
Our common stock is traded on the NASDAQ Global Market. The Board of Directors has determined that seven of the members of the Board of Directors qualify as “independent,” as defined by the listing standards of the NASDAQ. Consistent
with these considerations, after review of all relevant transactions and relationships between each director, or any of his family members, and the Company, its senior management and its independent auditors, the Board has determined further that Messrs. Berman, Sherman, Zecchini, Rebak, Giraldo and Ms. Seloff and Quinn are independent under the listing standards of NASDAQ. In making this determination, the Board of Directors considered that there were no new transactions or relationships between its
current independent directors
and the Company, its senior management and its independent auditors since last making this determination.
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.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
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, 2020 and 2019 and fees billed for other services rendered during those periods:
2020
2019
Audit
fees (1)
$
323,150
$
348,250
Audit-related fees (2)
20,000
—
Tax fees
—
—
All
other fees
—
—
Total
$
343,150
$
348,250
__________
(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. Auditservices 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.
PART IV
ITEM 15. EXHIBIT AND
FINANCIAL STATEMENT SCHEDULES
(a)(3) Exhibits
The following exhibits are filed as part of this report:
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
