DataTrak International, Inc. (DTRK)

[Ultimaratioregum]

Rawrrrrr


Arosa Investment Management Responds to Datatrak’s Deceptive and Misleading Letter to Shareholders

Oct 26, 2015
OTC Disclosure & News Service

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Arosa Investment Management LLC, the beneficial owner of approximately 9.9% of the shares of Datatrak International, Inc. (OTC: DTRK) that has initiated a proxy contest to elect three new directors at Datatrak’s annual meeting of shareholders scheduled to be held on November 11, 2015, is providing this response to the deceptive and misleading letter of Datatrak’s board and management to shareholders issued on October 19, 2015.

Arosa Investment Management encourages shareholders to review Datatrak’s management’s statements closely. Where Datatrak’s management accuses Arosa Investment Management of misrepresentations or makes accusations regarding Arosa Investment Management’s board nominees, we encourage shareholders to read Datatrak’s own filings with the OTC Markets and our proxy materials. We believe Datatrak’s management’s deceptive and misleading statements are apparent from readily obtainable information. Datatrak’s filings with the OTC Markets can easily be found at www.otcmarkets.com, by entering “DTRK” in the “Get Quote” field, and then selecting “Filings and Disclosure.” We reference Datatrak’s OTC filings below, with page numbers.

Arosa Investment Management responds specifically to the following deceptive and misleading statements by Datatrak’s management:

Datatrak’s management deceptively states that “[t]he base salaries of the CEO and CFO combined were $557,000, not $1,073,737 as Arosa/Mr. Tabatabai stated…”

Arosa Investment Management’s proxy statement states that “[w]ith revenues of only $11,010,792 in fiscal 2014, Datatrak paid its Chairman/CEO and CFO combined cash compensation of $1,073,737.”

This information is contained on page 15 of Datatrak’s annual report filed with the OTC Markets on March 13, 2015. Surprisingly, this information is not included in the abridged annual report that Datatrak mailed to shareholders. Why would Datatrak remove that information from the version of the annual report that it mailed to shareholders? Why does Datatrak now try to confuse shareholders by referring to “base salaries” instead of “total cash compensation”?

Between 2008 and 2014, the Chairman/CEO has received $2,939,849 in total cash compensation. Between 2012 and 2014, the CFO has received total cash compensation of $945,554. These figures can be found in Datatrak’s own annual reports filed with the OTC Markets. These cash compensation figures do not include the equity awards that have been granted to the Chairman/CEO and CFO on top of their regular cash compensation. Arosa Investment Management believes that this compensation is excessive and is one of many problems arising from the poor corporate governance at Datatrak.

Datatrak’s management falsely states that it “provides disclosures in excess of what is required to be in compliance with the OTCQX requirements for disclosure.”

Datatrak maintained a convicted felon on its board since 2009 and as chairman of its audit committee. This was not disclosed in any of Datatrak’s annual reports since 2009, despite this being a clear disclosure requirement under OTC rules. Why did Datatrak’s management not disclose this? Why would Datatrak’s management maintain a convicted felon on its board and as chairman of its audit committee? Did the felony conviction allow him to exercise complete independence of the Chairman/CEO, or did it require the opposite?

Datatrak’s board recently completed an internal investigation regarding the actions of its Chairman/CEO. Why has Datatrak not disclosed the matters addressed and conclusions reached in this investigation? Why did Datatrak’s management not respond to this in its letter to shareholders? We understand that the investigation was led by the convicted felon on the Datatrak board—why did the board think that was appropriate?

Datatrak’s management falsely states that the Chairman/CEO holds shares “with the same rights as all other shareholders.”

Datatrak’s board granted a special exception under its anti-shareholder poison pill to its Chairman/CEO. This special exception is shown as an attachment to Datatrak’s quarterly report filed with the OTC Markets on May 15, 2013. The trigger under the poison pill that applies to all shareholders except the Chairman/CEO is 15% ownership of Datatrak shares. The special exception granted only to the Chairman/CEO is 20%. This means the Chairman/CEO holds shares with special rights that other shareholders do not have.

In addition, Datatrak has reported that “on July 1, 2010, the Company privately placed 357,857 Common Shares with certain members of the Board of Directors and key employees.” This special offering for insiders was made at a 15% discount. This information is contained on pages 24, 26 and F-18 of Datatrak’s annual report for the fiscal year ended December 31, 2010 filed by Datatrak with the OTC Markets on March 25, 2011. We believe that the Chairman/CEO was a large beneficiary of this offering—an offering that was not made available to outside shareholders.

Datatrak’s management falsely states that its corporate governance guidelines “may” make one of Arosa Investment Management’s board candidates “an ineligible nominee.”

Datatrak’s corporate governance guidelines are simply that—guidelines. They are not contained in the company’s articles of incorporation or code of regulations and therefore cannot be applied to prevent shareholders from electing candidates of their choice to the board. We are confident that Datatrak’s management and its lawyers know this. We believe that Datatrak’s management is trying to mislead shareholders into believing that a vote for one of our nominees would be a wasted vote.

Our board candidate that Datatrak’s management falsely targeted with this attack, Jack H. Jacobs, is 70 years old, while Datatrak’s management’s new nominee for the board, William Coates, is also 70 years old as of October 9. Datatrak’s management’s press release states that Mr. Jacobs “is beyond the age of retirement per the Company’s corporate governance guidelines.” Also, contrary to Datatrak’s management’s false contention, it is apparent from a plain reading that Mr. Jacobs’ biography in our proxy statement does not indicate that he “already sits on five other Boards.” We believe it is apparent that Datatrak’s management is attempting to blatantly mislead shareholders on these points.

Datatrak’s management falsely states extensively that Arosa Investment Management’s board candidate James R. Ward is “unsuitable” and “not qualified” to be on the board.

If Mr. Ward is “unsuitable” and “not qualified” for service and his contribution to the company’s technology was not significant, then we believe Datatrak’s management should explain why they have recently been communicating with Mr. Ward in effort to hire him as a consultant or employee.

Arosa Investment Management also believes that Datatrak’s management should explain that during the time that Mr. Ward served as Datatrak’s VP of Research and Development, Datatrak’s current board nominee William Coates served as VP of Business Development and Strategy. Mr. Coates also worked at ClickFind before it was acquired by Datatrak. Datatrak’s management seems to cast all blame for Datatrak’s problems on Mr. Ward, whose company they acquired and whose technology forms the basis of Datatrak’s current software product.

Datatrak’s management falsely and repeatedly refers to having avoided dilution to shareholders.

Since 2009, Datatrak’s shareholders have been diluted by approximately 32.25% through stock awards to executives and directors—shareholder dilution that brought little to no additional capital to the company.

In addition, in 2010 Datatrak privately sold 357,857 common shares to selected members of its board and management at a 15% discount. As stated above, this information is contained on pages 24, 26 and F-18 of Datatrak’s annual report for the fiscal year ended December 31, 2010 filed by Datatrak with the OTC Markets on March 25, 2011.

Arosa Investment Management believes that this constitutes significant dilution to shareholders and that Datatrak’s management is being deceptive to say that outside shareholders have not been diluted

Datatrak’s management boasts regarding the “significant progress and accomplishments achieved under the current leadership.”

Datatrak has reported a profit in only one year in the past eight fiscal years. Datatrak reported a profit of $101,109 in fiscal 2010. Datatrak reported net losses of $1,292,834, $128,902, $1,539,348 and $1,006,887 on revenues of $11,010,792, $10,900,711, $9,716,225 and $7,926,342 in fiscal years 2014, 2013, 2012 and 2011. Datatrak reported even greater net losses in fiscal years 2007, 2008 and 2009.

Datatrak’s management boasts of “white papers,” “webinars,” being a “thought leader” and other things that have not generated returns for shareholders. Arosa Investment Management believes that shareholders are entitled to a return on their investment. Instead, Datatrak’s shareholders have suffered significant net losses year after year, while management benefits from what Arosa Investment Management believes is excessive cash compensation, special discounted equity offerings and highly dilutive equity awards to insiders.

Datatrak’s management deceptively states that its Chairman/CEO has “driven share appreciation of 224%.”

Based on the closing price of Datatrak’s common stock as of October 12, 2015 as reported by the OTC Markets, Datatrak’s stock has returned approximately -38% for shareholders over the past five years and approximately -94% for shareholders over the past ten years.

Since the Chairman/CEO was elected to the board on April 16, 2007, Datatrak’s stock has returned -91%, since he was named Chairman on May 15, 2008, the stock has returned -21%, since he was named Interim CEO on January 21, 2009, the stock has returned 224%, and since he was named CEO on November 1, 2009, the stock has returned 43%. Shareholders should take into account the significant stock market crash in late 2008 and early 2009 due to the U.S. financial crisis, and the rapid market recovery that took place beginning in March 2009. Any share appreciation since that time largely reflects the market’s return to normal trading levels.

Datatrak’s management can selectively pick dates to show positive returns for Datatrak’s stock. The reality is that Datatrak’s stock has languished for more than 10 years, including during the time that the current Chairman/CEO has added to his titles with Datatrak.

Datatrak’s management tries to scare shareholders with the boilerplate slogan that Arosa Investment Management seeks to “[t]ake control of the Company without paying shareholders a premium.”

Arosa Investment Management has not made an offer to acquire Datatrak and does not intend to. Arosa Investment Management only desires to elect new and truly independent candidates to Datatrak’s board of directors to effect positive change at the company for all shareholders. Shareholders should not be deceived by Datatrak’s boilerplate and outdated scare tactic.

Arosa Investment Management is a long term-oriented investor that feels compelled to take action because we believe that Datatrak is a “now or never” situation requiring the installation of a new board that will fulfill its duties to all shareholders. Based on the outreach to Arosa Investment Management to date, we believe that many valuable Datatrak employees support us and welcome our plans for the company. Arosa Investment Management is committed to the long term success, growth and profitability of Datatrak for the benefit of all shareholders and its employees.

Datatrak’s management deceptively defends its anti-shareholder poison pill.

Datatrak’s management states that it maintains its poison pill “for the exact purpose of protecting the Company’s shareholders from attempts...such as the…approach seemingly contemplated by Arosa/Mr. Tabatabai…to gain control of the Company…at a value that does not reflect the intrinsic value of the Company.”

Arosa Investment Management has not made an offer to acquire Datatrak and does not intend to. We believe that Datatrak’s management knows this. Datatrak’s management is not attempting to stop an acquisition of the company at an inadequate price. Instead, Datatrak’s management has sent letters to Arosa Investment Management seeking to use its poison pill as a weapon to prevent a lawful proxy solicitation by Arosa Investment Management in a manner that we believe is blatantly unlawful. We believe through this and many other ways Datatrak’s management is working furiously to avoid a lawful proxy solicitation not for the benefit of the company or shareholders but to further entrench themselves.

Datatrak’s management falsely states that “Arosa/Mr. Tabatabai has presented no new ideas and has no plan.”

Arosa Investment Management’s plan for the company is described on pages 2-5 of its proxy statement mailed to shareholders. Datatrak’s management acknowledges in its letter to shareholders that it has reviewed Arosa Investment Management’s proxy statement, so this would appear to be a blatant false statement. Shareholders are encouraged to review our proxy statement and our plan for the company. If you have not received a copy of our proxy statement, please contact Alliance Advisors, our proxy advisor, toll-free at 855-737-3183.

Shareholders should have received a proxy statement and proxy card from Arosa Investment Management. You may also obtain these materials from Arosa Investment Management’s proxy advisor as provided below. We urge you to cast your vote on Arosa Investment Management’s proxy card.

We urge you not to return Datatrak’s management’s proxy card. If you have already returned management’s proxy card, you may revoke it simply by now voting on Arosa Investment Management’s proxy card.

If you own shares of Datatrak, we would like to hear from you. We urge you to call us so that we can provide you with additional information and our proxy materials. Please contact Alliance Advisors, Arosa Investment Management’s proxy advisor, toll-free at 855-737-3183.

We would like to thank the many Datatrak shareholders and employees who have expressed support for our efforts. We encourage Datatrak employees not to be intimidated by management’s efforts to compel your vote for management’s nominees. If we are successful in our efforts, we expect that most all current Datatrak employees will have the opportunity to be part of our efforts to effect positive change at the company.



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