Exhibit 10.1

 

SECOND AMENDMENT TO NOTE PURCHASE AGREEMENT

 

 

THIS SECOND AMENDMENT TO NOTE PURCHASE AGREEMENT (this “Second Amendment”) is
entered into as of August 19, 2020 by and among ONTRAK, Inc., a Delaware
corporation formally known as CATASYS, Inc. (the “Company”), the Purchaser
signatory hereto and GOLDMAN SACHS SPECIALTY LENDING GROUP, L.P., as collateral
agent for the Purchasers (in such capacity, the “Collateral Agent”).

 

RECITALS

 

A.      The Company, certain subsidiaries of the Company, the Purchaser and the
Collateral Agent are parties to a certain Note Purchase Agreement, dated as of
September 24, 2019 (as amended, restated, supplemented or otherwise modified
from time to time, the “Note Purchase Agreement”; capitalized terms used herein
and not otherwise defined shall have the meanings assigned to such terms in the
Note Purchase Agreement), pursuant to which the Purchaser has agreed to purchase
the Notes issued by Company;

 

B.     The Company has requested an amendment to the Note Purchase Agreement in
relation to the Company’s issuance of its [9.50]% Series A Cumulative Perpetual
Preferred Stock (the “Series A Preferred Stock”) and, subject to the terms and
conditions hereof, the Purchaser (being the sole Purchaser under the Note
Purchase Agreement) executing this Amendment is willing to do so;

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, and intending to be legally bound, the parties hereto
agree as follows:

 

A. AMENDMENTS

 

1.     Section 1.1 of the Note Purchase Agreement is hereby amended by:

 

 

a.

replacing the defined term “Consolidated Interest Expense” in its entirety with
the following:

 

“‘Consolidated Interest Expense’ means, for any period, total interest expense
(including that portion attributable to Capital Leases in accordance with GAAP
and capitalized interest) of Company and its Subsidiaries determined on a
consolidated basis with respect to all outstanding Indebtedness, including all
commissions, discounts and other fees and charges owed with respect to letters
of credit and net costs under Interest Rate Agreements but excluding, however,
any amounts referred to in Section 2.10 payable on or before the Closing Date
and excluding any dividend payments on the Series A Preferred Stock to the
extent paid solely with amounts on deposit in the Initial Dividends Account.
Notwithstanding anything to the contrary contained herein, for purposes of
determining Consolidated Interest Expense for any period that would otherwise
start before the Closing Date, such period shall instead start on the Closing
Date and Consolidated Interest Expense shall be an amount equal to Consolidated
Interest Expense from the Closing Date through the last day of such period
multiplied by a fraction the numerator of which is 360 and the denominator of
which is the number of days from the Closing Date through the last day of such
period.”

 

 

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b.

replacing the defined term “Consolidated Total Debt” in its entirety with the
following:

 

“‘Consolidated Total Debt’ means, as at any date of determination, the aggregate
amount of all Indebtedness of Company (excluding (a) obligations in respect of
performance, appeal or other surety bonds or any obligations in respect of a
lease properly classified as an operating lease in accordance with GAAP; (b) any
customer deposits or advance payments received in the ordinary course of
business and (c) the Series A Preferred Stock) and its Subsidiaries determined
on a consolidated basis in accordance with GAAP (or, if higher, the par value or
stated face amount of all such Indebtedness).”

 

 

c.

adding the defined term “Initial Dividends Account”:

 

“‘Initial Dividends Account’ shall have the meaning set forth in Section 6.15.”

 

2.     Section 6.1 of the Note Purchase Agreement is hereby amended by adding
clause (o) containing the following:

 

“(o)     the incurrence of the Series A Preferred Stock in an amount not to
exceed $[50,000,000].”

 

3.     Section 6.2 of the Note Purchase Agreement is hereby amended by replacing
clause (h) thereof in its entirety with the following:

 

“(h) with respect to Controlled Accounts, Liens (i) of a collecting bank arising
under Section 4-208 of the Uniform Commercial Code on items in the course of
collection, (ii) attaching to commodity trading accounts or other brokerage
accounts incurred in the ordinary course of business, (iii) in favor of a
banking institution arising as a matter of law encumbering deposits (including
the right of set-off) and which are within the general parameters customary in
the banking industry, (iv) in favor of the holders of the Series A Preferred
Stock solely to the extent of the Company’s undertaking that amounts on deposit
in the Initial Dividends Account may be used solely for the payment of the first
eight (8) dividends with respect to the Series A Preferred Stock following its
issuance;”

 

4.     Section 6.5 of the Note Purchase Agreement is hereby replaced in its
entirety with the following:

 

“Restricted Junior Payments. No Note Party shall, nor shall it permit any of its
Subsidiaries through any manner or means or through any other Person to,
directly or indirectly, declare, order, pay, make or set apart, or agree to
declare, order, pay, make or set apart, any sum for any Restricted Junior
Payment except that (a) any Subsidiary of Company may declare and pay dividends
or make other distributions to Company or any Note Party that is a Wholly-Owned
Guarantor Subsidiary, (b) Company and any Subsidiary of Company may make
dividends or bonus payments to employees and directors payable solely in shares
of Capital Stock, (c) Company may declare and pay the first eight (8) dividends
with respect to the Series A Preferred Stock following its issuance solely from
amounts on deposit in the Initial Dividends Account, and (d) commencing with the
ninth dividend after issuance with respect to the Series A Preferred Stock,
Company may declare and pay dividends as long as (i) no Event of Default shall
have occurred and be continuing and (ii) Company has delivered evidence,
reasonably satisfactory to Collateral Agent, showing compliance with the
financial covenants set forth in Section 6.8 after giving effect to each such
dividend payment.

 

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Notwithstanding anything in this Section 6.5 to the contrary, no amount shall be
permitted to be distributed by any Note Party to pay, or otherwise in connection
with, any Tax resulting from the cancellation or discharge of Indebtedness.”

 

5.     Section 6.8 of the Note Purchase Agreement is hereby amended by replacing
clause (d) thereof in its entirety with the following:

 

“(d)     Consolidated Adjusted EBITDA. Company shall not permit Consolidated
Adjusted EBITDA as at the end of any Fiscal Quarter, beginning with the Fiscal
Quarter ending September 30, 2019, for the four Fiscal Quarter period then ended
to be less than the correlative amount indicated below:

 

Fiscal Quarter

Consolidated
Adjusted EBITDA

September 30, 2019

-$17,250,000

December 31, 2019

-$24,000,000

March 31, 2020

-$28,500,000

June 30, 2020

-$23,750,000

September 30, 2020

N/A

December 31, 2020

N/A

March 31, 2021

N/A

June 30, 2021

N/A

September 30, 2021

$15,000,000

December 31, 2021 until the Maturity Date

$20,000,000

 

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For the purposes of determining compliance with the covenant set forth in this
Section 6.8(d) following consummation of a Permitted Acquisition each of the
minimum Consolidated Adjusted EBITDA amounts set forth in this Section 6.8(d),
following the consummation date, shall be increased by 100% of Consolidated
Adjusted EBITDA of the entity or assets being acquired for the four Fiscal
Quarter period most recently ended prior to the consummation of such Permitted
Acquisition.”

 

6.     Section 6.8 of the Note Purchase Agreement is hereby amended by replacing
clause (h) thereof in its entirety with the following:

 

“(h)     Minimum Consolidated Liquidity. Company shall not permit Consolidated
Liquidity at any time (i) on or prior to June 30, 2020 to be less than
$7,500,000, (ii) after June 30, 2020 but prior to September 30, 2021 to be less
than the greater of (x) $20,000,000 and (y) an amount equal to the product of
2.00 multiplied by the absolute value of any negative Consolidated Adjusted
EBITDA for the three month period then ending, and (iii) on or after September
30, 2021 to be less than the greater of (x) $5,000,000 and (y) an amount equal
to the product of 3.00 multiplied by the absolute value of any negative
Consolidated Adjusted EBITDA for the three month period then ending.”

 

7.     Section 6.8 of the Note Purchase Agreement is hereby by replacing clause
(i) thereof in its entirety with the following:

 

“(i)     Minimum Revenue. Company shall not permit Consolidated Recurring
Revenue as of the end of any Fiscal Quarter, beginning with the Fiscal Quarter
ending September 30, 2019, for the two Fiscal Quarter period then ended, on an
annualized basis, to be less than the correlative amount indicated below:

 

Fiscal Quarter End Date

Consolidated
Adjusted Revenue

September 30, 2019

$26,750,000

December 31, 2019

$31,750,000

March 31, 2020

$40,500,000

June 30, 2020

$55,500,000

September 30, 2020

$75,000,000

December 31, 2020

$90,000,000

March 31, 2021

$100,000,000

June 30, 2021 until the Maturity Date

$110,000,000

 

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8.     Section 6.15 of the Note Purchase Agreement is hereby replaced in its
entirety with the following:

 

“Deposit Accounts and Securities Accounts. No Note Party will establish or
maintain a Deposit Account or a Securities Account that is not a Controlled
Account, deposit proceeds in a Deposit Account that is not a Controlled Account
or deposit, acquire, or otherwise carry any security entitlement or commodity
contract in a Securities Account that is not a Controlled Account; provided,
that, the foregoing shall not apply to Excluded Accounts and provided further
the Note Parties shall be permitted to establish and maintain a segregated
account (the “Initial Dividends Account”) funded upon the issuance of the Series
A Preferred Stock with the proceeds from the issuance of such Series A Preferred
Stock in an amount equal to the first eight dividend payments on the Series A
Preferred Stock so long as (i) the Initial Dividends Account becomes a
Controlled Account within 30 days after the execution of this Second Amendment
and (ii) amounts on deposit in the Initial Dividends Account shall be used
solely for payment of dividends on the Series A Preferred Stock and not for
other corporate purposes. Within 90 days after the Closing Date, the Company
shall establish a primary banking relationship with a financial institution
other than Heritage Bank of Commerce (the “New Bank”), and shall promptly notify
all accounts debtors to make all payments to a Controlled Account at the New
Bank. The Company shall diligently work in good faith to transition its primary
banking relationship to the New Bank and within 150 days after the Closing Date,
shall close all deposit accounts at Heritage Bank of Commerce, which date may be
extended with the consent of the Collateral Agent in its sole discretion.”

 

9.     Section 6.17 of the Note Purchase Agreement is hereby replaced in its
entirety with the following:

 

“Prepayments of Certain Indebtedness. No Note Party shall, nor shall it permit
any of its Affiliates to, directly or indirectly, purchase, redeem, defease or
prepay any principal of, premium, if any, interest or other amount payable in
respect of any Indebtedness of any Note Party or any of its Subsidiaries prior
to its scheduled maturity, other than (i) the Obligations, (ii) Indebtedness
secured by a Permitted Lien if the asset securing such Indebtedness has been
sold or otherwise disposed of in accordance with Section 6.9, and (iii) the
prepayment of Indebtedness owed by a Managed Company to any Note Party pursuant
to the terms of the Managed Company Documents. Without limiting the generality
of the foregoing, no redemption of the Series A Preferred Stock shall be
permitted until all the Obligations are Paid in Full in cash, provided that, the
foregoing prohibition shall not prevent the holders of the Series A Preferred
Stock from converting shares of Series A Preferred Stock into common stock of
Company in accordance with the terms of the Series A Preferred Stock.”

 

B. PURCHASE OF ADDITIONAL NOTES

 

Upon the effectiveness of this Second Amendment, the Purchaser shall purchase
Additional Notes in an aggregate original principal amount equal to the balance
of the Purchaser’s Additional Notes Purchase Commitment (such balance being
equal to $10,000,000 (Ten Million Dollars) and, in connection therewith, the
Purchaser waives the conditions precedent set forth in Sections 3.2(a)(vi),
3.2(a)(vii)(x) and 3.2(a)(viii).

 

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C. CONDITIONS TO EFFECTIVENESS

 

Notwithstanding any other provision of this Amendment and without affecting in
any manner the rights of the Purchaser hereunder, it is understood and agreed
that this Amendment shall not become effective, and the Note Parties shall have
no rights under this Amendment, until:

 

1.     the Purchaser shall have received: (i) reimbursement or payment of its
costs and expenses incurred in connection with this Amendment or the Note
Purchase Agreement (including reasonable fees, charges and disbursements of
counsel to the Purchaser); (ii) executed counterparts to this Amendment from the
Company and the Purchaser; (iii) a fully executed Funding Notice with respect to
the Additional Notes to be purchased by the Purchaser;1 and (iv) the Additional
Notes issued in the name of the Purchaser in accordance with Section 2.2 of the
Note Purchase Agreement; and

 

2.     the Company shall have received net proceeds of not less than $23,500,000
Twenty-Three Million Five Hundred Thousand Dollars2 from the issuance of the
Series A Preferred Stock, the terms and conditions and documentation for which
shall be satisfactory to the Collateral Agent.

 

D. REPRESENTATIONS

 

To induce the Purchaser and the Collateral Agent to enter into this Amendment,
each Note Party hereby represents and warrants to the Purchaser and the
Collateral Agent that:

 

1.     Each of the Note Parties and its Subsidiaries (a) is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization, (b) has all requisite power and authority to own and operate its
properties, to carry on its business as now conducted and as proposed to be
conducted, to enter into the Note Documents to which it is a party and to carry
out the transactions contemplated thereby, and (c) is qualified to do business
and in good standing in every jurisdiction where its assets are located and
wherever necessary to carry out its business and operations, except in
jurisdictions where the failure to be so qualified or in good standing has not
had, and could not be reasonably expected to have, a Material Adverse Effect;
and

 

2.     The execution, delivery and performance of this Amendment has been duly
authorized by all necessary action on the part of each Note Party that is a
party hereto.

 

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1            NTD:  Under Section 2.1(c) of the NPA, the Company shall deliver to
Purchasers a fully executed Funding Notice no later than 10:00 a.m. (New York
City time) at least three Business Days in advance of the proposed Credit Date
in the case of a LIBO Rate Portion, and at least one Business Day in advance of
the proposed Credit Date in the case of an Additional Note that is a Base Rate
Portion.  The timeline here contemplates closing of the Series A Preferred Stock
on T+2, and the Purchaser is willing to waive the three Business Day requirement
upon request from the Company with the draw notice.

2           NTD:  Proceeds net of underwriting discount, structuring fee and
offering expenses.

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E. OTHER AGREEMENTS

 

1.     Continuing Effectiveness of Note Documents. As amended hereby, all terms
of the Note Purchase Agreement and the other Note Documents shall be and remain
in full force and effect and shall constitute the legal, valid, binding and
enforceable obligations of the Note Parties party thereto. To the extent any
terms and conditions in any of the other Note Documents shall contradict or be
in conflict with any terms or conditions of the Note Purchase Agreement, after
giving effect to this Amendment, such terms and conditions are hereby deemed
modified and amended accordingly to reflect the terms and conditions of the Note
Purchase Agreement as modified and amended hereby. Upon the effectiveness of
this Amendment such terms and conditions are hereby deemed modified and amended
accordingly to reflect the terms and conditions of the Note Purchase Agreement
as modified and amended hereby.

 

2.     [Reserved].

 

3.     Acknowledgment of Perfection of Security Interest. Each Note Party hereby
acknowledges that, as of the date hereof, the security interests and liens
granted to Collateral Agent and the Purchasers under the Note Purchase Agreement
and the other Note Documents are in full force and effect, are properly
perfected and are enforceable in accordance with the terms of the Note Purchase
Agreement and the other Note Documents.

 

4.     Effect of Agreement. Except as set forth expressly herein, all terms of
the Note Purchase Agreement, as amended hereby, and the other Note Documents
shall be and remain in full force and effect and shall constitute the legal,
valid, binding and enforceable obligations of the Note Parties to the Purchasers
and Collateral Agent. The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of the Purchasers under the Note Purchase Agreement,
nor constitute a waiver of any provision of the Note Purchase Agreement. This
Amendment shall constitute a Note Document for all purposes of the Note Purchase
Agreement.

 

5.     Governing Law. This Amendment shall be governed by, and construed in
accordance with, the internal laws of the State of New York and all applicable
federal laws of the United States of America.

 

6.     No Novation. This Amendment is not intended by the parties to be, and
shall not be construed to be, a novation of the Note Purchase Agreement and the
other Note Documents or an accord and satisfaction in regard thereto.

 

7.     Costs and Expenses. The Note Parties agrees to pay on demand all costs
and expenses of Purchaser and Collateral Agent in connection with the
preparation, execution and delivery of this Amendment, including, without
limitation, the reasonable fees and out-of-pocket expenses of outside counsel
for Purchaser and Collateral Agent with respect thereto.

 

8.     Counterparts. This Amendment may be executed by one or more of the
parties hereto in any number of separate counterparts, each of which shall be
deemed an original and all of which, taken together, shall be deemed to
constitute one and the same instrument. Delivery of an executed counterpart of
this Amendment by facsimile transmission, electronic transmission (including
delivery of an executed counterpart in .pdf format) shall be as effective as
delivery of a manually executed counterpart hereof.

 

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9.     Binding Nature. This Amendment shall be binding upon and inure to the
benefit of the parties hereto, their respective successors,
successors-in-titles, and assigns. No third party beneficiaries are intended in
connection with this Amendment.

 

10.     Entire Understanding. This Amendment sets forth the entire understanding
of the parties with respect to the matters set forth herein, and shall supersede
any prior negotiations or agreements, whether written or oral, with respect
thereto.

 

11.     Release. (a) Each Note Party hereby releases, acquits, and forever
discharges Collateral Agent and each of the Purchasers, and each and every past
and present subsidiary, affiliate, stockholder, officer, director, agent,
servant, employee, representative, and attorney of Collateral Agent and the
Purchasers (each a “Releasee”), from any and all claims, causes of action,
suits, debts, liens, obligations, liabilities, demands, losses, costs and
expenses (including attorneys' fees) of any kind, character, or nature
whatsoever, known or unknown, fixed or contingent, which such Note Party may
have or claim to have now or which may hereafter arise out of or connected with
any act of commission or omission of Releasee existing or occurring on or prior
to the date of this Amendment or any instrument executed on or prior to the date
of this Amendment including, without limitation, any claims, liabilities or
obligations arising with respect to the Note Purchase Agreement or the other of
the Note Documents. The provisions of this paragraph shall be binding upon each
Note Party and shall inure to the benefit of Releasees, and their respective
heirs, executors, administrators, successors and assigns, and the other released
parties set forth herein. No Note Party is aware of any claim or offset against,
or defense or counterclaim to, any Note Party’s obligations or liabilities under
the Note Purchase Agreement or any other Note Document. The provisions of this
Section shall survive payment in full of the Obligations, full performance of
the terms of this Amendment and the Note Documents, and/or Collateral Agent’s or
each Purchaser’s actions to exercise any remedy available under the Note
Documents or otherwise. Each Note Party warrants and represents that such Note
Party is the sole and lawful owner of all right, title and interest in and to
all of the claims released hereby and each Note Party has not heretofore
voluntarily, by operation of law or otherwise, assigned or transferred or
purported to assign or transfer to any person any such claim or any portion
thereof.

 

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IN WITNESS WHEREOF, this Amendment has been duly executed as of the date first
written above.

 

 

ONTRAK, INC., as the Company and as a Note Party

 

 

 

 

 

 

 

 

 

 

By:

/s/ Brandon LaVerne

 

 

Name: Brandon LaVerne

Title: Chief Financial Officer

 

 

 

[Signature Page to Second Amendment to Note Purchase Agreement]

 

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GOLDMAN SACHS SPECIALTY LENDING GROUP,

L.P. as Purchaser

 

 

 

 

 

 

By:

/s/ Greg Watts

 

 

Name: Greg Watts

Title: Senior Vice President

 

 

 

 

 

                 

GOLDMAN SACHS SPECIALTY LENDING GROUP,

L.P. as Collateral Agent

                    By: /s/ Greg Watts    

Name: Greg Watts

Title: Senior Vice President

 

 

[Signature Page to Second Amendment to Note Purchase Agreement]