AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 19, 2004
REGISTRATION NO. 333-______________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
I-TRAX, INC.
------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware
------------------------------------------
(State or other jurisdiction of incorporation or organization)
23-3057155
------------------------------------------
(I.R.S. Employer Identification
No.)
ONE LOGAN SQUARE, SUITE 2615
130 N. 18TH STREET
PHILADELPHIA, PENNSYLVANIA 19103
(215) 557-7488
-------------------------------------------------------------------------------
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
YURI ROZENFELD, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
I-TRAX, INC.
ONE LOGAN SQUARE, SUITE 2615, 130 N. 18TH ST.
PHILADELPHIA, PA 19103
(215) 557-7488 x116
-------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
JUSTIN P. KLEIN, ESQ.
GERALD J. GUARCINI, ESQ.
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
1735 MARKET STREET, 51ST FLOOR
PHILADELPHIA, PA 19103
(215) 665-8500
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plan, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
Calculation of Registration Fee
Proposed maximum
Title of each class of Amount to be offering price (2) Proposed maximum Amount of
securities to be registered registered (1) aggregate offering price registration fee
Common stock, value $.001
per share 27,326,350 shares $4.95 $135,265,433 $17,138.24
----------------------------- --------------------- ------------------- ------------------------- --------------------
(1) The amount to be registered includes 13,939,644 shares of outstanding common
stock, 11,998,886 shares of common stock issuable upon conversion of outstanding
shares of Series A Convertible Preferred Stock, and 588,000 shares of common
stock issuable upon conversion of outstanding warrants and stock options. The
amount to be registered also includes 800,000 shares of common stock that may be
issued as dividends on outstanding shares of Series A Convertible Preferred
Stock. The actual number of shares of common stock registered in this
registration statement also includes such additional number of shares of common
stock as may be issued or issuable by reason of any stock split, stock dividend
or similar transaction involving the common stock, in accordance with Rule 416
under the Securities Act of 1933, as amended.
(2) Estimated solely for purposes of calculating the amount of the registration
fee pursuant to Rule 457(c) of the Securities Act of 1933, as amended. The
registration fee is calculated on the basis of $4.95, the average of the high
and low prices for our common stock as traded on the American Stock Exchange on
April 16, 2004.
----------------------------------
The registrant hereby amends the registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
EXPLANATORY NOTE
The first prospectus in this registration statement relates to the
resale by certain holders of up to 10,676,094 shares of our common stock from
time to time in any number of possible transactions as set forth in the plan of
distribution in the first prospectus.
The second prospectus in this registration statement relates to the
resale by certain holders of up to 15,850,436 shares of our common stock through
one or more placement agents as set forth in the plan of distribution in the
second prospectus.
2
The information in this prospectus is not complete and may be changed
without notice. We may not issue these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these
securities and we are not soliciting offers to buy these securities in
any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 19, 2004
PROSPECTUS
I-TRAX, INC.
10,676,094
SHARES OF
COMMON STOCK
This prospectus relates to the offer and sale from time to time of the
following shares held by the selling shareholders:
o up to 88,094 shares of our common stock;
o up to 10,000,000 shares of our common stock issuable upon the
conversion of outstanding Series A Convertible Preferred Stock; and
o up to 588,000 shares of our common stock issuable upon the exercise of
outstanding options and warrants.
The prices at which selling shareholders may sell the shares will be
determined by the prevailing market price for the shares or in negotiated
transactions. We will not receive any of the proceeds from the sale of the
shares.
Our common stock is listed on the American Stock Exchange under the
symbol "DMX." On April 16, 2004, the closing price for our common stock was
$4.99.
Investing in our common stock involves risks, which are described in
the "Risk Factors" section beginning on page 8 of this prospectus.
--------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------------------
The date of this Prospectus is ________________, 2004
TABLE OF CONTENTS
Preliminary Notes............................................................................................ 2
Statement Regarding Forward-Looking Information.............................................................. 2
I-trax, Inc.................................................................................................. 3
Risk Factors................................................................................................. 8
Market for Our Common Stock.................................................................................. 17
Use of Proceeds.............................................................................................. 17
Selling Security Holders..................................................................................... 18
Plan of Distribution......................................................................................... 23
Available Information........................................................................................ 24
Incorporation of Certain Documents by Reference.............................................................. 24
Legal Matters................................................................................................ 25
Experts...................................................................................................... 25
PRELIMINARY NOTES
You should rely only on the information contained and incorporated by
reference in this prospectus. No one has been authorized to provide you with
different information. This prospectus is not an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information contained and incorporated by reference in this prospectus or in any
prospectus supplement is accurate as of any date other than the date on the
front of the document.
Unless otherwise indicated, references to "we," "our" and "I-trax" mean
I-trax, Inc. and its subsidiaries.
Effective January 3, 2003, we completed a 1-for-5 reverse stock split.
Our board of directors and stockholders authorized the reverse stock split in
connection with the then pending application to list our common stock on the
American Stock Exchange. Our common stock began trading on the American Stock
Exchange on January 15, 2003 under the symbol "DMX." The information in this
prospectus relating to the number of outstanding shares of our common stock and
historic information about our common stock and stock prices have been adjusted
to reflect the completed reverse stock split.
STATEMENT REGARDING FORWARD LOOKING INFORMATION
This prospectus and our filings with the Securities and Exchange
Commission, or SEC, incorporated by reference in this prospectus include
forward-looking statements. All statements, other than statements of historical
facts, included in this prospectus and our filings with the SEC incorporated by
reference in this prospectus regarding our strategy, future operations,
financial position, future revenues, projected costs, prospects, plans and
objectives of management are forward-looking statements. The words
"anticipates," "believes," "estimates," "expects," "intends," "may," "plans,"
"projects," "will," "would" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
these identifying words. We cannot guarantee that we actually will achieve the
plans, intentions or expectations disclosed in our forward-looking statements
and you should not place undue reliance on our forward-looking statements.
Actual results or events could differ materially from the plans, intentions and
expectations disclosed in the forward-looking statements we make. We have
included important factors in the cautionary statements included or incorporated
in this prospectus, particularly under the heading "Risk Factors" beginning on
page 8 below, that we believe could cause actual results or events to differ
materially from the forward-looking statements we make. Our forward-looking
statements do not reflect the potential impact of any future acquisitions,
mergers, dispositions, joint ventures or investments we may make.
-2-
I-TRAX, INC.
Introduction
I-trax is a combination of two companies that merged on March 19, 2004:
I-trax, Inc. and Meridian Occupational Healthcare Associates, Inc., a private
company, which does business as CHD Meridian Healthcare. The merger and its
terms are described in greater detail below.
Business Overview
We offer two categories of services, which can be integrated or blended
as necessary or appropriate based on each client's needs. The first category
includes on-site services such as occupation health, primary care, corporate
health and pharmacy, which were historically offered by CHD Meridian Healthcare.
The second category includes personalized health management programs, which were
historically offered by I-trax. Each of these services is described in greater
detail below.
As the result of the merger, we are the nation's largest provider of
corporate health management services. Our health management services are
designed to allow employers to contract directly for a wide range of employee
healthcare needs. We can deliver these services at or near the client's work
site by opening, staffing and managing a clinic or pharmacy dedicated to the
client and its employees, or remotely by using the Internet and our
state-of-the-art Care Communications Center staffed with trained nurses and
other healthcare professionals 24 hours per day, 7 days per week. Our array of
services provides each client with flexibility to meet its specific pharmacy,
primary care, occupational health, corporate health, wellness, lifestyle
management or disease management needs. Pursuant to multi-year agreements, our
clients can offer their employees, dependents and retirees any combination of
our various services which integrate seamlessly, through on-site or off-site
delivery platforms, or as a component of or complement to existing health plan
options.
Our primary target market is large and mid-sized self-insured employers
and business consortia. These entities are more likely to derive immediate and
meaningful financial benefit from our services because of their scale and focus
on controlling healthcare costs.
We currently operate approximately 160 locations in 32 states. We also
maintain contracts with approximately 150 clients, including many leading
employers. Our clients pay us directly for our services and include automotive
and automotive parts manufacturers, consumer products manufacturers, large
financial institutions, health plans, integrated delivery networks, and third
party administrators. Our client retention rate is high because we establish
strong client relationships, which are supported by the critical nature of our
services, the benefits achieved by employer and employee constituents, and the
utilization of multi-year service contracts.
CHD Meridian Healthcare's Historic Business -
Services Delivered At or Near the Work Site
Occupational Health Services. We provide professional staffing and
management of on-site health facilities that address the occupational health,
workers' compensation injuries, and minor illness needs of the employer's
workforce. These programs are designed to operate across the entire array of
occupational health regulatory environments and emphasize work-related injury
cost-reduction, treatment, medical surveillance or testing, disability
management, case management, return-to-work coordination, medical community
relations or oversight, on-site physical therapy and injury prevention, and
ergonomic assessment and intervention. Our health programs improve compliance
with treatment protocols and drug formularies, enhance employee productivity,
and allow for greater employer control of occupational health costs. We
currently operate 77 occupational health facilities.
Primary Care Services. We operate employer-sponsored health centers
designed to integrate with the employer's existing healthcare plans. In such
arrangements, employers contract with us directly for primary care health
services and in the process regain control of costs, quality and access. Our
health centers generally service a single employer and offer health management
programs addressing the primary care needs of the employee base, including
optometry services and limited prevention and disease management programs.
Clients may combine our health centers with a dedicated pharmacy. We also offer
customized solutions in network management and absence
-3-
management, including non-work related case management and disability
management. Our physicians, nurses, and other staff are dedicated to the
customer's employee population, allowing employees, retirees, and their
dependents to receive cost-effective, high quality, accessible and convenient
care. We currently operate 17 primary care centers.
Pharmacy Services. We operate employer-sponsored pharmacies that offer
prescription services exclusively to the client's covered population. Clients
may also combine our pharmacy with a dedicated primary care center. By
leveraging prescription volume across our client base and procuring
pharmaceuticals as a captive class of trade, we purchase products at
considerable savings for our clients, thus significantly and positively
affecting what we understand is one of our clients' fastest-growing healthcare
cost categories. Our pharmacy services also use sophisticated information
technologies. These technologies may be integrated with each client's existing
pharmacy management programs and plans, and improve employees' prescription
fulfillment convenience. We currently operate 24 pharmacies.
Corporate Health Services. We offer non-industrial clients that do not
experience significant physical injury rates, but that nonetheless maintain
large workforces that require general and specialized medical services, custom
designed workplace programs that combine preventative care, occupational health,
medical surveillance or testing, travel medicine and health education. Clients
for which we provide corporate health services include financial service,
advertising and consulting firms. We currently operate 47 corporate healthcare
facilities.
I-trax's Historic Business - The Health-e-LifeSM Program
We enable individuals to obtain better healthcare through our
personalized Health-e-LifeSM Program. The Program is designed to deliver
lifestyle and wellness management, and disease and risk reduction interventions
to a client's entire population, across multiple locations and irrespective of
population size, by using predictive science, sophisticated proprietary computer
software, clinical expertise, and personal care coordination. We currently have
approximately 37 clients, which include self-insured employers, health plans,
and integrated delivery networks, using various components of our
Health-e-LifeSM Program. Self-insured employers, health plans, hospital and
health systems, and governmental agencies continue to be prime consumers of
lifestyle and wellness management, and disease and risk reduction programs, and
we are actively marketing to these potential clients.
We believe the Health-e-LifeSM Program enables our clients to evolve
from fragmented care management practices into a cohesive and efficient system
of healthcare. The Health-e-LifeSM Program is fully integrated, uses a
single-data platform that allows all caregivers to share records, and enables
our clients to provide true coordination of care. We believe that by
facilitating real-time secure communication between our client, the patient, the
doctor, the care coordinator and the insurer within today's complex healthcare
system, the Health-e-LifeSM Program reduces costs and enables improved delivery
of care.
Predictive Science. Our Health-e-LifeSM Program incorporates predictive
science to analyze our clients' medical claims and pharmacy and clinical data to
predict future healthcare costs. We believe this is an essential step to
effective disease and lifestyle management. Experts agree that predictive
science provides a comprehensive advantage to health plans, employers and
providers, and leads to cost-effective medical management and greater
profitability for the ultimate payor. Using predictive science, we analyze our
clients' entire populations to predict our clients' future healthcare costs,
including avoidable costs, the health conditions that will drive those costs and
the people within our clients' populations who are at risk for those conditions.
Armed with this information, we target our resources to achieve for each client
the best value for the amount the client will invest in providing healthcare
and, consequently, savings.
Technology Solutions. All technology components of our Health-e-LifeSM
Program utilize a single data platform--Medicive(R) Medical Enterprise Data
System--a proprietary software architecture developed to collect, store, sort,
retrieve and analyze a broad range of information used in the healthcare
industry.
-4-
Furthermore, our web accessible software includes portals for key
stakeholders in the care delivery process--consumers, physicians and care
managers--and permit real-time sharing of information and support the adherence
to our health and disease intervention programs. The key technology we use for
effective care coordination include:
o Health-e-Coordinator(TM), a web-based care management application;
o MyFamilyMD(TM), a consumer health management portal;
o CarePrime(R), a clinical care application for physicians and
clinicians; and
o I-talk(TM), interactive smart voice technology.
Interventions and Clinical Expertise. The Health-e-LifeSM Program
includes personalized health and disease interventions for individuals who
suffer from, or are at high risk for, active or chronic disease and tailored
programs for individuals who are at low risk. Depending on the individual's
level of risk, our custom tailored interventions include self-help programs
available through the web or person-assisted programs administered through our
Care Communication Center. All interventions include lifestyle and risk
reduction programs that follow evidence-based clinical guidelines to optimize
health, fitness, productivity and quality of life.
The Health-e-Life ProgramSM currently includes interventions for a
number of specific chronic conditions, including congestive heart failure,
coronary artery disease, asthma, diabetes, cancer management, cystic fibrosis,
lower back pain, and chronic obstructive pulmonary disease.
Care Communication Center. A vital component of our program is our Care
Communications Center, which is staffed with trained nurses and other healthcare
professionals 24 hours per day, 7 days per week. Through the Care Communication
Center, we effect targeted interventions to improve the health management of the
populations we serve. The Care Communication Center helps each member or
employee of our client make informed decisions about his or her health and
provides ongoing support for those with chronic diseases. Our demand management
and nurse triage services incorporate nationally recognized, evidence-based
clinical guidelines to increase compliance by caregivers and consumers with best
practices.
I-trax and CHD Meridian Healthcare Joint Market Opportunity
To change the health status of a defined population and manage the
upward claim trend experienced by employers and employees, self-insured
employers are seeking programs that promote health, manage disease and
disability and complement existing health initiatives and benefits. Self-insured
employers invest in such health programs because they reduce later need for
critical care and related costs, maximize health, increase productivity, reduce
absenteeism, improve health status of both active employees and retirees, and
reduce overall costs.
We believe that I-trax and CHD Meridian Healthcare offer a complete
solution to meet this need. We service each segment of a self-insured employer's
population and achieve the desired clinical and financial outcomes. CHD Meridian
Healthcare is the leader in on-site healthcare for Fortune 1,000 companies. Its
programs reduce healthcare costs of the defined population it serves.
Complementing the CHD Meridian Healthcare services, I-trax's personalized health
management solutions for focused disease and lifestyle and wellness management
improve the health of the entire population, achieving the same result. The
services offered by the merged companies respond to a specific and frequent
request of large employers, including many historic CHD Meridian Healthcare
clients, for a comprehensive range of health management services.
We also believe that with a nominal increase in variable costs, the
merged companies can offer to CHD Meridian Healthcare's historic clients the
value added benefit of our Health-e-LifeSM Program and, with respect to certain
of these clients, can successfully negotiate participation in future medical
cost savings that may result from the merged companies services.
-5-
Put more specifically, we currently serve approximately 650,000 lives
through our on-site clinics, which represent only approximately 25% of our
clients' employees, dependents and retirees. We charge these clients for our
services on a "cost plus" basis to manage these lives. We believe that the
merged companies' suite of products will allow us several opportunities with
respect to those of our clients that elect to expand their relationship with us.
These include:
o Because our services now encompass on-site facilities, which offer
high quality, better access and lower costs, and Internet and
telephone care delivery capabilities, we have access to a larger
portion of our clients' populations, which affords us an opportunity
to expand substantially our services within our existing client base.
o We price our population-based service on a "per member per month"
basis. This model enables us to direct resources to those of our
clients' employees, dependents and retirees that represent the
greatest potential future costs. Because in certain instances we
participate in the savings our programs generate, when properly
deployed in new business opportunities, management believes the merged
companies' suite of products will afford us increased gross margin
opportunities for incremental, integrated business.
o We are one vendor for predictive modeling, primary care, pharmacy,
occupational health, lifestyle and wellness management, and disease
management, and as such our inherent efficiency leads to savings.
o Our combined services offer multiple entry points for employer
customers to meet their budget restrictions and specific needs. This
available menu of services could shorten our current sales cycle and
provide us with an opportunity to build a more comprehensive program
as the relationship grows with each client over time.
Corporate Information
General
Our principal executive offices are located at One Logan Square, 130 N.
18th Street, Suite 2615, Philadelphia, Pennsylvania 19103. Our telephone number
is (215) 557-7488 and our fax number is (215) 557-7820. We maintain a website
located at http://www.i-trax.com. Information contained on our website is not
part of this prospectus.
We make available our annual reports on Form 10-KSB, quarterly reports
on Form 10-QSB and current reports on Form 8-K, as well as any amendments to the
forgoing, free of charge on our website as soon as reasonably practicable after
they have been filed with the SEC. For a detailed description of our business,
you should read these reports and the other filings we make with the SEC which
are incorporated by reference in this prospectus.
Corporate History
I-trax was incorporated in Delaware on September 15, 2000 at the
direction of the Board of Directors of I-trax Health Management Solutions, Inc.,
I-trax's then parent company. On February 5, 2001, I-trax became the holding
company of I-trax Health Management at the closing of a reorganization pursuant
to Section 251(g) of Delaware General Corporation Law. At the effective time of
the reorganization, all of the stockholders of I-trax Health Management became
the stockholders of I-trax and I-trax Health Management became a wholly owned
subsidiary of I-trax. Further, all outstanding shares of I-trax Health
Management were converted into shares of I-trax in a non-taxable transaction.
The holding company structure has allowed us greater flexibility in our
operations and expansion and diversification plans, including in the acquisition
of Meridian Occupational Healthcare Associates, Inc. and WellComm Group, Inc.
-6-
I-trax acquired WellComm effective February 6, 2002 in a two-step
reorganization pursuant to a Merger Agreement dated January 28, 2002 by and
among I-trax, WC Acquisition, Inc., an Illinois corporation and a wholly-owned
subsidiary of I-trax, WellComm and WellComm's two principals. In step one, WC
Acquisition merged with and into WellComm, with WellComm continuing as the
surviving corporation. In step two, WellComm merged with and into I-trax, with
I-trax continuing as the surviving corporation.
At the closing of the merger, we delivered to the WellComm stockholders
approximately $2,200,000 in cash and 1,488,000 shares of our common stock, and
to each of two senior officers of WellComm options to acquire 56,000 shares of
our common stock at a nominal exercise price.
We funded the acquisition of WellComm by selling a 6% convertible
senior debenture in the aggregate principal amount of $2,000,000 to Palladin
Opportunity Fund LLC pursuant to a purchase agreement dated as of February 4,
2002. Pursuant to the purchase agreement, we also issued Palladin a warrant to
purchase up to 307,692 shares of our common stock. As of March 19, 2004,
Palladin has converted all amounts outstanding under the debenture into common
stock and has exercised the warrant in full at the conversion price and exercise
price of $1.75 per share.
On March 19, 2004, we acquired Meridian Occupational Healthcare
Associates, Inc., a Delaware corporation doing business as CHD Meridian
Healthcare, pursuant to a Merger Agreement dated as December 26, 2003, as
amended, by and among, I-trax, CHD Meridian Healthcare, DCG Acquisition, Inc., a
Delaware corporation and a wholly-owned subsidiary of I-trax, and CHD Meridian
Healthcare, LLC, a Delaware limited liability company and a wholly-owned
subsidiary of I-trax. The merger was a two-step transaction. In step one, DCG
Acquisition merged with and into CHD Meridian Healthcare. In step two, CHD
Meridian Healthcare merged with and into CHD Meridian Healthcare, LLC. We now
conduct the former operations of CHD Meridian Healthcare through CHD Meridian
Healthcare, LLC. In the merger, each outstanding share of common stock of CHD
Meridian Healthcare was converted into the right to receive 47.57 shares of our
common stock, 1.90 shares of our Series A Convertible Preferred Stock, and
$121.35 in cash. In total, in the merger, I-trax issued 10,000,000 shares of
common stock, 400,000 shares of Series A Convertible Preferred Stock and paid
$25,508,000 in cash. Immediately prior to the merger, CHD Meridian Healthcare
also redeemed certain of its then outstanding shares of common stock and options
to purchase common stock for which it paid approximately $9,492,000 in the
aggregate. Accordingly, the stockholders and option holders of CHD Meridian
Healthcare received an aggregate of $35 million of cash in, or immediately prior
to, the merger.
In addition, at the closing of the merger, I-trax issued and placed in
escrow 3,859,200 shares of common stock. In April 2005, if CHD Meridian
Healthcare, LLC, continuing its operations of CHD Meridian Healthcare following
the closing of the merger as a subsidiary of I-trax, achieves certain calendar
2004 milestones for earnings before interest, taxes, depreciation and
amortization, or EBITDA, then some or all of the shares placed in escrow will be
payable to the former CHD Meridian Healthcare stockholders who participated in
the merger. Prior to distribution to former CHD Meridian Healthcare
stockholders, the shares of I-trax common stock placed in escrow may be used to
satisfy CHD Meridian Healthcare's indemnity obligations under the Merger
Agreement. If EBITDA equals or exceeds $8.1 million, then 3,473,280 shares will
be payable; the number of such shares payable increases proportionately up to a
maximum of 3,859,200 shares if EBITDA equals or exceeds $9.0 million. Any such
additional shares of I-trax common stock that are payable will be distributed
pro rata to former CHD Meridian Healthcare stockholders in proportion to the
number of shares of CHD Meridian Healthcare common stock held at the merger's
effective time. Any shares that are not payable will be returned to I-trax for
cancellation.
Immediately following the closing of the merger, I-trax redeemed from
former CHD Meridian Healthcare stockholders that participated in the merger, pro
rata, an aggregate of 200,000 shares of Series A Convertible Preferred Stock at
their original issue price of $25.00 per share.
I-trax obtained the cash portion of the merger consideration by selling
1,000,000 shares of Series A Convertible Preferred Stock at a purchase price of
$25.00 per share for gross proceeds of $25 million and by borrowing $12 million
on a new $20 million senior secured debt facility from a national lender.
-7-
RISK FACTORS
In addition to other information contain and incorporated by reference
in this prospectus, you should carefully consider the following risks and the
other information in evaluating I-trax and its business. Our business, financial
condition and results of operations could be materially and adversely affected
by each of these risks. Such an adverse effect could cause the market price of
our common stock to decline, and you could lose all or part of your investment.
Risk Related to I-trax
The healthcare industry is subject to general cost pressures that
could adversely affect our business.
The healthcare industry is currently under pressure by governmental and
private-sector revenue sources to cut spiraling costs. These pressures will
continue and possibly intensify. Although we believe that our services and
software applications assist public health agencies, hospitals, health plans and
self-insured employers to control the high costs associated with treating
patients, the pressures to reduce costs immediately may hinder our ability (or
increase the length of time we require) to obtain new contracts. In addition,
the focus on cost reduction may pressure our customers to restructure contracts
and reduce our fees.
We are affected by changes in the laws governing health plan, hospital
and public health agency reimbursement under governmental programs such as
Medicare and Medicaid. There are periodic legislative and regulatory initiatives
to reduce the funding of the Medicare and Medicaid programs in an effort to
curtail or reduce overall federal healthcare spending. Federal legislation has
and may continue to significantly reduce Medicare and Medicaid reimbursements to
most hospitals. These reimbursement changes are negatively affecting hospital
revenues and operations. There can be no assurance that such legislative
initiatives or government regulations would not adversely affect our operations
or reduce demand for our services.
We may be unable to implement our business strategy of deploying our
integrated services effectively to existing and new clients.
Although we believe that there is significant demand for the our
services and products in the corporate healthcare market, there are many reasons
why we may be unable to execute our business strategy, including our possible
inability to:
o deploy our integrated services and solutions on a large scale;
o attract a sufficiently large number of self-insured employers to
subscribe for our services and solutions applications;
o increase awareness of our brand;
o strengthen user loyalty;
o develop and improve our services and solutions;
o continue to develop and upgrade our services and software solutions;
and
o attract, retain and motivate qualified personnel.
Increasing competition for contracts to establish and manage
employer-dedicated pharmacies and clinics increase the likelihood that
we may lose business to our competitors.
CHD Meridian Healthcare pioneered the field of employer-dedicated
pharmacies and primary care clinics. Although CHD Meridian Healthcare has always
faced competition from other methods by which business
-8-
enterprises can arrange and pay for healthcare services for their employees,
until recently we rarely experienced face-to-face bidding for a contract to
manage a particular employer's pharmacy or clinic. We have recently begun to see
direct competition for employer-dedicated pharmacy management contracts and
expect this competition will increase over time. We believe that we have certain
advantages in facing such competition, including our status as the market
leader, experience and know-how. However, some of our competitors and potential
competitors, including prescription benefit management companies, with revenues
in the multiple billions of dollars, are substantially bigger than we are. We
believe that the potential market for employer-dedicated pharmacies is large
enough for us to meet our growth plans despite increasing competition, but there
are no assurances that we will in fact be able to do so. Our ability to maintain
existing clients, expand services to existing clients, add new clients so as to
meet our growth objectives, and maintain attractive pricing for our services,
will depend on the interplay among overall growth in the use of
employer-dedicated facilities, entry of new competitors into our business, and
our success or failure in maintaining our market position as against these new
entrants.
In addition to this increasing head-to-head competition for contracts
to establish and manage employer-dedicated facilities, we expect to continue to
face competition for large employers' healthcare budget from other kinds of
enterprises, including pharmacy benefit managers, health insurers, managed
health care plans and retail pharmacy chains.
Loss of advantageous pharmaceutical pricing could adversely affect our
income and the value we provide to our clients.
We receive favorable pricing from pharmaceutical manufacturers as a
result of our class of trade designation, which in turn is based on selling
products only to our clients' employees, dependents and retirees. We also
receive rebates from pharmaceutical manufacturers for driving market share to
preferred products. The benefit of favorable pricing is generally passed on to
our clients under the terms of client contracts. In the last few years, retail
pharmacies have brought legal cases against pharmaceutical manufacturers
challenging class of trade designations as unlawful price discrimination under
the Robinson-Patman Act. Although these challenges have generally failed, there
remains a possibility that we could lose the benefit of this favorable pricing,
either due to a legal challenge or to a change in policies of the pharmaceutical
manufacturers. Such a loss would diminish the value that we can provide to our
clients and, therefore, would make our services less attractive to them. We also
receive volume performance incentives from our pharmaceutical wholesaler which
directly affect our revenue and the loss of which could adversely affect our
business.
Our business involves exposure to professional liability claims, and a
failure to manage effectively our professional liability risks could
have an adverse impact on our business.
Under the terms of our contracts to manage employer sponsored clinics
or pharmacies, we must procure professional liability insurance covering the
operations of that clinic or pharmacy. We also typically agree to indemnify our
clients against vicarious professional liability claims arising out of acts or
omissions of healthcare providers working at the clinics and pharmacies we
manage. Further, under the terms of our services agreements with affiliated
professional corporations, we are contractually obligated to procure malpractice
insurance on behalf of the professional corporations and their employed
physicians and typically absorb such claims as are subject to the policy self
insured retention limit or above the policy limit. Finally, there also exists
the possibility of vicarious professional liability claims being made directly
against us. As a result of these contractual arrangements, we routinely incur
significant expenses arising out of professional liability claims. If we fail to
manage the professional liability claims and associated risk effectively, our
business will be adversely affected.
Certain of our past professional liability insurance policy years were
insured by two insurance companies that are now either insolvent or under
regulatory supervision. As a result, we are effectively partially uninsured for
those periods. We have established reserves in connection with the six pending
claims from such policy years. Although we believe such reserves are reasonable
based on our historic loss experience, there is no assurance that these reserves
will be sufficient to pay any judgments or settlements. In addition, because our
current professional liability insurance self-insured retention is $500,000, we
are, effectively, partially uninsured against a variety of claims that may arise
from other years. We maintain a layer of excess insurance that begins with
losses in excess of $1,000,000 per claim, including for the years in which our
primary insurer is insolvent. We have reserved for
-9-
projected future professional liability expenses based on our operations to
date. These reserves, however, could prove inadequate, and the size of our
ultimate uninsured liability could exceed our established reserves.
Our professional liability insurance policies are written on a
claims-made basis, meaning that they cover only claims made during the policy
period, and not events that occur during the policy period but result in a claim
after the expiration of the policy. With this insurance strategy, we must renew
or replace coverage each year in order to have coverage for prior years'
operations. Availability and cost of such coverage are subject to market
conditions, which can fluctuate significantly.
We have established a captive insurance company, which subjects us to
additional regulatory requirements and once operating, will subject us
to the risks associated with the insurance business.
We have established and expect to begin operating a captive insurance
subsidiary in the second quarter of 2004 to insure our professional liability
exposure. We believe this approach will enhance our ability to manage
malpractice exposure and stabilize insurance costs. Operating a captive
insurance subsidiary, however, represents additional risk to our operations,
including a potential perception among our existing and potential clients that
we are not adequately insured. We have hired a manager and have engaged an
actuarial consulting firm for the captive insurer. When we commence its
operations, we will be subject to the risks associated with any insurance
business, which include investment risk relating to the performance of our
invested assets set aside as reserves for future claims, the uncertainly of
making actuarial estimates of projected future professional liability losses,
and loss adjustment expenses. Failure to make an adequate return on our
investments, to maintain the principal of invested funds, or to estimate future
losses and loss adjustment expenses accurately, could have an adverse effect on
us. Also, maintaining a captive insurer has exposed us to substantial additional
regulatory requirements, with attendant risks if we fail to comply with
applicable regulations.
We are subject to complex and extensive legal, statutory and regulatory
requirements, and failure to comply with those requirements will have
an adverse effect on our business.
The healthcare industry is subject to numerous Federal, state and local
laws, regulations and judicial doctrines. These legal requirements cover, among
other topics, licensure, corporate practice of medicine, privacy of patient
medical records, government healthcare program participation requirements and
restrictions, reimbursement for patient services, and Medicare and Medicaid
fraud and abuse.
Corporate Practice of Medicine. There are judicial and statutory
prohibitions on the corporate practice of medicine, which vary from state to
state. The corporate practice of medicine doctrine prohibits a corporation,
other than a professional corporation, from practicing medicine or employing
physicians. Some states also prohibit a non-physician from splitting or sharing
fees charged by a physician for medical services. The services we provide
include establishing and managing medical clinics. Most physician services at
clinics we manage are provided by physicians who are employees of professional
corporations with which we contract to provide non-professional services such as
purchasing equipment and supplies, patient scheduling, billing, collection,
accounting, and computer services. The professional corporations control hiring
and supervise physicians and all medical functions. We have option agreements
with the physician-owners of these affiliated professional corporations that
entitle us to require the physician-owners to sell the stock of the professional
corporations to any licensed physician we designated. This structure is intended
to permit consolidation of the professional corporations' financial statements
with ours, while maintaining sufficient separation to comply with the corporate
practice of medicine doctrine and with fee-splitting and fee-sharing
prohibitions. There remains, however, potential exposure to claims that this
structure violates the corporate practice of medicine doctrine or fee-splitting
or fee-sharing prohibitions, even though we do not believe that it does. If such
a claim is successfully asserted against us in any jurisdiction, we could be
subject to civil and criminal penalties, or could be required to restructure our
contractual arrangements with clients. Any restructuring of contractual
arrangements could result in lower revenues, increased expenses and reduced
influence over the business decisions of those operations. Alternatively, some
existing CHD Meridian contracts could be found to be illegal and unenforceable,
which could result in their termination and an associated loss of revenue, or
inability to enforce valuable provisions of those contracts.
Health Insurance Portability and Accountability Act of 1996. Our
personnel who staff our on-site pharmacies and clinics have custody of
confidential patient records. Also, the computer servers we use to store our
-10-
software applications and deliver our technology services also contain
confidential health risk assessments completed by employees, patients and
beneficiaries of our clients. In our capacity as a covered entity or as a
business associate of a covered entity, we and the records we hold are subject
to a rule entitled Privacy of Individually Identifiable Health Information, or
Privacy Rule, promulgated by the U.S. Department of Health and Human Services
under the Health Insurance Portability and Accountability Act of 1996, or HIPAA,
and also to any state laws that may have more stringent privacy requirements. We
attempt to protect the privacy and security of confidential patient information
in accordance with applicable law, but could face claims of violation of the
Privacy Rule, invasion of privacy or similar claims, if our patient records or
computer servers were compromised, or if our interpretation of the applicable
privacy requirements, many of which are complex, were incorrect or allegedly
incorrect, or if we failed to maintain a sufficiently effective compliance
program.
Furthermore, while we believe that the Privacy Rule protects our
ability to obtain patient identifiable medical information for disease
management purposes from certain of our clients, state legislation or
regulations will preempt Federal legislation if state legislation or regulations
are more restrictive. Accordingly, new Federal or state legislation or
regulations restricting the availability of this information for disease
management purposes would have a material negative effect on us.
Fraud and Abuse. In recent years, various government entities have
actively investigated potential violations of fraud and abuse statutes and
regulations by healthcare providers and by pharmaceutical manufacturers. The
fraud and abuse provisions of the Social Security Act provide civil and criminal
penalties and potential exclusion from the Medicare and Medicaid programs for
persons or businesses who offer, pay, solicit or receive remuneration in order
to induce referrals of patients covered by federal healthcare programs (which
include Medicare, Medicaid, TriCare and other federally funded health programs).
Although our services and those of our affiliated professional corporations are
generally paid for by employer clients, we do bill the Medicare and Medicaid
programs, and private insurance companies, as agent of our affiliated
professional corporations, to recover reimbursable amounts that offset the
healthcare costs borne by our clients. We are therefore subject to various
regulations under the Medicare and Medicaid programs, including fraud and abuse
prohibitions. We believe that we are compliant with these requirements, but
could face claims of non-compliance if our interpretations of the applicable
requirements, many of which are complex, were incorrect or allegedly incorrect,
or if we fail to maintain a sufficiently effective compliance program.
State and Federal Licensure. The doctors, nurses and other healthcare
professional that staff our affiliated professional corporations, the nurses
that staff our care communication centers, and our on site pharmacies and
clinics, are subject to individual licensing requirements. All of our healthcare
professionals and facilities that are subject to licensing requirements are
licensed in the state in which they are physically present. Multiple state
licensing requirements for healthcare professionals who provide services
telephonically over state lines may require us to license some of our healthcare
professionals in more than one state. We continually monitor the developments in
telemedicine. There is no assurance, however, that new judicial decisions or
Federal or state legislation or regulations would not increase the requirement
for multi-state licensing of all central operating unit call center health
professionals, which would significantly increase our administrative costs.
We cannot yet predict the impact of the recently adopted Medicare
prescription drug benefit on our business.
In December 2003, President Bush signed into law the Medicare
Prescription Drug, Improvement and Modernization Act of 2003. This law provides
Medicare beneficiaries with insurance coverage that offers access to
prescription medicines. The prescription drug benefit, which will be called
Medicare Part D, begins January 1, 2006. In the interim, a national prescription
drug discount card for Medicare-eligible seniors will be instituted in April
2004. Under the new law, drug benefits will be provided through risk-bearing
private plans contracting with the government (including plans offering only the
Medicare Part D coverage as well as integrated plans offering all Medicare
benefits). There will be an annual open period during which Medicare
beneficiaries will choose their drug plan from among those available in their
area of residence. In any areas where there are fewer than two private plan
choices, the government will make a drug plan available directly.
We do not know how this law will affect our business. Subsidies for
employers providing retiree drug benefits will decrease the costs to those
employers of providing such benefits, and therefore may increase the
-11-
number of employers willing to provide retiree drug benefits, which would
positively affect our business. On the other hand, employers that now offer
prescription drug benefits may decide no longer to do so, on the basis that
their retirees now will be able to obtain such benefits on their own through
Medicare. In that case, such employers would have less need for
employer-dedicated pharmacies of the kinds that we establish and manage and our
business would be negatively affected.
We may be unable to integrate successfully our operations and realize
the full cost savings we anticipate from the merger.
The merger of CHD Meridian Healthcare and I-trax involves the
integration of two companies that have previously operated independently and
focused on different delivery methods within the corporate health management
solutions market. The difficulties of combining the merged companies' operations
include:
o integrating complementary businesses under centralized management
efficiently;
o coordinating geographically separated organizations;
o integrating personnel with diverse business backgrounds; and
o combining different corporate cultures.
The process of integrating operations could cause an interruption of,
or loss of momentum in, the activities of I-trax or CHD Meridian Healthcare's
businesses or the loss of key personnel. The diversion of management's attention
and any delays or difficulties encountered in connection with the integration of
the merged companies' operations could have an adverse effect on the business,
results of operations or financial condition of the merged companies.
Among the factors considered by the CHD Meridian Healthcare and the
I-trax boards of directors in connection with their respective approvals of the
merger were the opportunities for reduction of operating costs and improvements
in operating efficiencies and other financial synergies that could result from
the merger. We cannot give any assurance that these savings will be realized, or
if realized, will be realized within the time periods contemplated by
management.
Our business will be adversely affected if we lose key employees or
fail to recruit and retain other skilled employees
Our business greatly depends on, among others, Frank A. Martin,
chairman, chief executive officer and director, Haywood D. Cochrane, Jr., vice
chairman and director, John R. Palumbo, president, Charles D. (Chip) Phillips,
executive vice president and chief operating officer, and Shannon W. Farrington,
senior vice president and chief financial officer. Our failure to retain any one
of these individuals could significantly reduce our ability to compete and
succeed in the future.
Our future success also depends on our ability to attract, retain and
motivate highly skilled employees. As we secure new contracts and implement our
services and products, we will need to hire additional personnel in all
operational areas. We may be unable to attract, assimilate or retain such highly
qualified personnel. We have in the past experienced, and expect to experience
in the future, difficulty in hiring and retaining highly skilled employees with
appropriate qualifications. Our business will be adversely affected if we cannot
attract new personnel or retain and motivate current personnel.
Our sales cycle is long and complex.
The corporate health management business is growing rapidly and has
many entrants. Further, although each entrant may define its service as
corporate health management, the details of the services among the entrants are
quite different. Because the services offered are complex, require clients to
incur significant upfront costs and there are significant variations in the
offered services by many vendors, potential clients take a long time to evaluate
and purchase such services, lengthening our sales cycle. Further, the sales and
implementation process for our
-12-
services and software applications is lengthy, involves a significant technical
evaluation and requires our clients to commit a great deal of time and money.
Finally, the sale and implementation of our services are subject to delays due
to our clients' internal budgets and procedures for approving large capital
expenditures and deploying new services and software applications within their
organizations. The sales cycle for our solutions, therefore, is unpredictable
and has generally ranged from 3 to 24 months from initial contact to contract
signing. The time it takes to implement our services is also difficult to
predict and has lasted as long as 18 months from contract execution to the
commencement of live operation. During the sales cycle and the implementation
period, we may expend substantial time, effort and money preparing contract
proposals, negotiating the contract and implementing the solution without
receiving any related revenue.
Deterioration of the financial health of our clients, many of which are
large U.S. manufacturing enterprises, could adversely affect our
business volume and collections.
An adverse trend in one or more U.S. manufacturing industries could
lead to plant closings or layoffs that could eliminate or reduce the need for
some of our employer-dedicated healthcare facilities. Also, if our client
becomes insolvent, we may not be able to recover outstanding accounts receivable
owed by that client, and may suffer premature contract termination. Our
professional liability insurance is written on a claims-made basis, and, to fund
continued coverage of an operation after termination of a contract, we typically
charge our clients for tail insurance coverage when the contract terminates. If
a client is insolvent when the contract terminates, we may not be able to recoup
the cost of tail insurance coverage, or other costs related to that facility's
shutdown. We already experienced this in the case of one major steel
manufacturer for which we managed several facilities when the client became the
debtor in a federal bankruptcy proceeding. This resulted in difficulty in
collecting some amounts due to us, and generated a claim against us for
repayment of an allegedly preferential transfer previously received from the
client. Because of the risks associated with client insolvency, and the
concentration of CHD Meridian Healthcare's client base, our business is to some
extent dependent on the continued health of U.S. manufacturing industries.
Our dependence on the Internet and Internet-related technologies
subjects us to frequent change and risks.
Our web-based software applications that form the backbone of our
disease management and comprehensive health management solutions depend on the
continuous, reliable and secure operation of Internet servers and related
hardware and software. Numerous viruses and outages on the Internet could cause
outages of our applications from time to time. To the extent that our services
are interrupted, our users will be inconvenienced and our reputation may be
diminished. If access to our system becomes unavailable at a critical time,
users could allege we are liable, which could depress our stock price, cause
significant negative publicity and possibly lead to litigation. Although our
computer and communications hardware is protected by physical and software
safeguards, it is still vulnerable to fire, storm, flood, power loss,
telecommunications failures, physical or software break-ins and similar events.
We do not have 100% redundancy for all of our computer and telecommunications
facilities. A catastrophic event could have a significant negative effect on our
business, results of operations, and financial condition.
We also depend on third parties to provide certain of our clients with
Internet and online services necessary for access to our servers. It is possible
that our clients will experience difficulties with Internet and other online
services due to system failures, including failures unrelated to our systems.
Any sustained disruption in Internet access provided by third parties could have
a material adverse effect on our business, results of operations and financial
condition.
Finally, we retain confidential healthcare information on our servers.
It is, therefore, important that our facilities and infrastructure remain secure
and are perceived by clients to be secure. Although we operate our software
applications from a secure facility managed by a reputable third party, our
infrastructure may be vulnerable to physical or virtual break-ins, computer
viruses, programming errors or similar disruptive problems. A material security
breach could damage our reputation or result in liability to us.
-13-
We may be sued by our users if we provide inaccurate health information
on our website or inadvertently disclose confidential health
information to unauthorized users.
Because users of our website will access health content and services
relating to a medical condition they may have or may distribute our content to
others, third parties may sue us for defamation, negligence, copyright or
trademark infringement, personal injury or other matters. We could also become
liable if confidential information is disclosed inappropriately. These types of
claims have been brought, sometimes successfully, against online services in the
past. Others could also sue us for the content and services that will be
accessible from our website through links to other websites or through content
and materials that may be posted by our users in chat rooms or bulletin boards.
Any such liability will have a material adverse effect on our reputation and our
business, results of operations or financial position.
We may be unable to compete successfully against companies offering
other disease management products.
Many healthcare companies are offering disease management services and
healthcare focused software solutions. Further, a vast number of Internet sites
offer healthcare content, products and services. In addition, traditional
healthcare providers compete for consumers' attention both through traditional
means as well as through new Internet initiatives. Although we believe our
technology-enabled service solutions are unique and better than our
competitors', we compete for customers with numerous other businesses.
Many of these potential competitors are likely to enjoy substantial
competitive advantages compared to us, including:
o greater name recognition and larger marketing budgets and resources;
o larger customer and user bases;
o larger production and technical staffs;
o substantially greater financial, technical and other resources; and
o a wider array of online products and services.
To be competitive, we must continue to enhance our products and
services, as well as our sales and marketing channels and our financial
condition.
If our intellectual property rights are undermined by third parties,
our business will suffer.
Our intellectual property is important to our business. We rely on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect our intellectual property. Our
efforts to protect our intellectual property may not be adequate. Our
competitors may independently develop similar technology or duplicate our
products or services. Unauthorized parties may infringe upon or misappropriate
our products, services or proprietary information. In addition, the laws of some
foreign countries do not protect proprietary rights as well as the laws of the
United States do, and the global nature of the Internet makes it difficult to
control the ultimate destination of our products and services. In the future,
litigation may be necessary to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of others. Any such
litigation would probably be time-consuming and costly. We could be subject to
intellectual property infringement claims as the number of our competitors grows
and the content and functionality of software applications and services overlap
with competitive offerings. Defending against these claims, even if not
meritorious, could be beyond our financial ability and could divert our
attention from operating our company. If we become liable to third parties for
infringing their intellectual property rights, we could be required to pay a
substantial damage award and forced to develop noninfringing technology, obtain
a license or cease selling the applications that contain the infringing
technology. We may be unable to develop noninfringing technology or obtain a
license on commercially reasonable terms, or at all. We also intend to rely on a
variety of technologies that we will license from third parties, including any
database and Internet server software, which will be used to operate our
applications. These third-
-14-
party licenses may not be available to us on commercially reasonable terms. The
loss of or inability to obtain and maintain any of these licenses could delay
the introduction of enhancements to our software applications, interactive tools
and other features until equivalent technology could be licensed or developed.
Any such delays could materially adversely affect our business, results of
operations and financial condition.
Provisions of our certificate of incorporation could impede a takeover
of our company, even though a takeover may benefit our stockholders.
Our board of directors has the authority, without further action by the
stockholders, to issue from time to time, shares of preferred stock in one or
more classes or series, and to fix the rights and preferences of such preferred
stock, subject, however, to the limitations contained in the certificate of
designations filed with respect to our Series A convertible preferred stock. We
are subject to provisions of Delaware corporate law which, subject to certain
exceptions, prohibit us from engaging in any "business combination" with a
person who, together with affiliates and associates, owns 15% or more of our
common stock (referred to as an interested stockholder) for a period of three
years following the date that such person became an interested stockholder,
unless the business combination is approved in a prescribed manner.
Additionally, bylaws establish an advance notice procedure for stockholder
proposals and for nominating candidates for election as directors. These
provisions of Delaware law and of our certificate of incorporation and bylaws
may have the effect of delaying, deterring or preventing a change in our
control, may discourage bids for our common stock at a premium over market price
and may adversely affect the market price, and the voting and other rights of
the holders of our common stock.
The loss of a major client will have a material adverse effect on our
business.
In 2003, we had one client that accounted for 10% of our pro forma
revenue. We anticipate that our results of operations in any given period will
continue to be influenced to a certain extent by a relatively small number of
clients. Accordingly, if we were to lose the business of such a client, our
results of operations could be materially and adversely affected.
Investment Risks
The price of our common stock is volatile.
Our stock price has been and we believe will continue to be volatile.
For example, from April 1, 2003 through April 15, 2004, the per share price of
our stock has fluctuated from a high of $5.70 to a low of $1.51. The stock's
volatility may be influenced by the market's perceptions of the healthcare
sector in general, or other companies believed to be similar to us or by the
market's perception of our operations and future prospects. Many of these
perceptions are beyond our control. In addition, our stock is not heavily traded
and therefore the ability to achieve relatively quick liquidity without a
negative impact on our stock price is limited.
Some of our outstanding shares are restricted from immediate resale but
may be sold into the market in the immediate future, which would cause
the market price of our common stock to drop significantly, even if our
business is doing well.
As of April 15, 2004, 28,374,852 shares of our common stock were issued
and outstanding. Of this number, approximately 14,000,000 shares were issued in
the CHD Meridian Healthcare merger as "restricted securities." Further, an
additional 12,000,000 shares of our common stock, which are not reflected as
issued and outstanding, are issuable upon conversion of our outstanding shares
of Series A Convertible Preferred Stock. Of this latter amount, 2,000,000 shares
are issuable upon conversion of Series A Convertible Preferred Stock issued in
the CHD Meridian Healthcare merger and 10,000,000 shares are issuable upon
conversion of Series A Convertible Preferred Stock sold to third party investors
to fund a portion of the cash I-trax needed to acquire CHD Meridian Healthcare.
This prospectus covers the resale of 10,000,000 of the 12,000,000 shares of our
common stock issuable upon conversion of our outstanding shares of Series A
Convertible Preferred Stock. A separate prospectus covers the resale of the
approximately 14,000,000 shares our common stock and approximately 2,000,000
shares of our common stock issuable upon conversion of Series A Convertible
Preferred Stock issued in the CHD Meridian Healthcare merger. The two
prospectuses cover an aggregate of approximately 26,000,000 shares of our common
-15-
stock. If the selling shareholders under these prospectuses sell these shares at
the same time, the market price of our common stock would drop, possibly
significantly.
Shares eligible for future sale upon the conversion of outstanding
shares of Series A Convertible Preferred Stock and upon the exercise of
issued options and warrants may cause dilution.
As of April 15, 2004, approximately 12,000,000 shares of our common
stock were reserved for issuance upon conversion of outstanding shares of Series
A Convertible Preferred Stock and 5,852,929 shares of our common stock were
reserved for issuance upon the exercise of our outstanding warrants and options.
Our stockholders, therefore, could experience dilution of their investment upon
conversion or exercise, as applicable, of these securities.
-16-
MARKET FOR OUR COMMON STOCK
Our common stock trades on the American Stock Exchange under the symbol
"DMX." Prior to January 15, 2003, our common stock was quoted on the
Over-the-Counter Bulletin Board under the symbol "IMTX" and "ITRX." The
following table sets forth the high and low closing prices for our common stock
for the periods indicated. All closing prices have been adjusted to reflect a
1-for-5 reverse stock split effected as of close of business on January 3, 2003.
High Low
---- ----
2004
Second Quarter (through April 16, 2004) $ 5.600 $ 4.900
First Quarter 5.700 3.910
2003
Fourth Quarter 4.490 2.600
Third Quarter 3.790 2.600
Second Quarter 3.000 1.510
First Quarter 5.000 1.370
2002
Fourth Quarter 4.300 2.500
Third Quarter 5.100 2.750
Second Quarter 6.625 4.150
First Quarter 7.650 5.100
As of April 15, 2004, there were approximately 503 registered holders
of our common stock and approximately 70 registered holders of our Series A
Convertible Preferred Stock. On April 16, 2004, the last reported sales price of
our common stock was $4.99.
Dividend Policy
We have never paid or declared any cash dividends on our common stock
and do not anticipate paying cash dividends on our common stock in the
foreseeable future.
Our Series A Convertible Preferred Stock accrues dividends on the
original issue price at the rate of 8% per annum. The dividends are payable upon
conversion of Series A Convertible Preferred Stock into common stock in
additional shares of common stock or, subject to the consent of our senior
secured lender, in cash.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of our
common stock offered under this prospectus. However, we may receive proceeds
from the exercise of the warrants and options by the selling shareholders, which
proceeds we will use for general corporate purposes.
-17-
SELLING SECURITY HOLDERS
We are registering for offer and sale by the applicable holders:
o up to 88,094 shares of our common stock;
o up to 10,000,000 shares of our common stock issuable upon the
conversion of outstanding Series A Convertible Preferred Stock; and
o up to 588,000 shares of our common stock issuable upon the exercise of
outstanding options and warrants.
Based on information provided to us by the selling shareholders, the
following table sets forth ownership information regarding the shares held by
the selling shareholders.
Number of
Shares of Number of Common Stock Owned After
Common Stock Shares of Offering
Owned Before Common Stock
Name of Selling Shareholder Offering (1) Offered Number of
Shares Percentage
------------------------------------------------- ---------------- ----------------- -------------- ----------------
ACT Capital Partners, LP 120,000 120,000 -- --
Atlas Capital Master Fund, Ltd. 1,195,200 1,195,200 -- --
Atlas Capital (Q.P.) L.P. 404,800 404,800 -- --
Bellfield Capital Partners 80,000 80,000 -- --
Franz J. Berlacher, MD Rev Trust dtd 6/8/94, --
Franz J. Berlacher Trustee 20,000 20,000 --
Emerging Growth Equities 401K Pft Shr Plan dtd
9/1/99 Berlacher Spangler TTEES FBO Gregory
J. Berlacher 17,000 17,000 -- --
Cabernet Partners, LP 200,000 200,000 -- --
Chardonnay Partners, LP 40,000 40,000 -- --
Amir L. Ecker 33,000 33,000 -- --
EDJ Limited 120,000 120,000 -- --
Eller Financial Corp 50,000 40,000 10,000 *
Europa International, Inc. 150,000 150,000 -- --
H&Q Healthcare Investors 1,600,000 1,600,000 -- --
Heart Specialist of NOW Profit Sharing
Plan/401k Trust FBO Franz J. Berlacher MD 40,000 40,000 -- --
Incline Capital, LP 80,000 80,000 -- --
Insignia Partners, LP 400,000 400,000 -- --
Clifford J. and Phyllis D. Kalista JTWROS 100,000 100,000 -- --
Emerging Growth Equities 401K Pft Shr Plan dtd
9/1/99 Berlacher Spangler TTEES FBO Clifford
Kalista 80,000 80,000 -- --
Emerging Growth Equities 401K Pft Shr Plan dtd
9/1/99 Berlacher Spangler TTEES FBO Phyllis
Kalista 20,000 20,000 -- --
Emerging Growth Equities 401K Pft Shr Plan dtd
9/1/99 Berlacher Spangler TTEES FBO Jill S.
Meyer 4,000 4,000 -- --
Northwood Capital Partners 200,000 200,000 -- --
The Pinnacle Fund, L.P. 1,840,000 1,840,000 -- --
Porter Partners, LP 520,000 520,000 -- --
Precept Capital Master Fund, G.P. 40,000 40,000 -- --
RTCL Partners 10,000 10,000 -- --
-18-
Sandor Capital Master Fund, L.P. 80,000 80,000 -- --
Dr. Richard N. Stein, Richard Stein MD Stanley
Stein MD Trustees, MDS KEOGH 11,000 6,000 5,000 *
Southwell Partners, L.P. 1,700,000 1,600,000 100,000 *
Peter G. Stanley and Susan H. Stanley JTWROS 20,000 20,000 -- --
UVE Partners LLC 200,000 200,000 -- --
Richard C. Walling Jr. 20,000 20,000 -- --
Michael H. Weiss 40,000 40,000 -- --
Westpark Capital, L.P. 320,000 320,000 -- --
BPC Group LLC 20,000 20,000 -- --
Palladin Opportunity Fund LLC 190,000 190,000 -- --
Frank M & Deborah F. Correll, JT TEN 20,000 20,000 -- --
Edmund M. Deeter, III 20,000 20,000 -- --
James J. Dotzman 20,000 20,000 -- --
Gordon Gregoretti 6,000 6,000 -- --
Michael R. Hamblett 45,000 45,000 -- --
Steven C. & Janet Z. Handleman 4,000 4,000 -- --
Kenneth M. & Astrid K. Jingozian, JTWROS 8,000 8,000 -- --
Michael Lauria 10,000 10,000 -- --
W. Tyson Perry III 8,000 8,000 -- --
J. Michael Pruitt 20,000 20,000 -- --
Anthony J. Spatacco, Jr. 26,500 24,500 2,000 *
Anthony J. Spatacco, Sr. 8,000 8,000 -- --
Richard Tomasetti 6,000 4,000 2,000 *
Warren S. & Patricia Wallace 10,000 10,000 -- --
Estate of Carol Rehtmeyer 94,094 94,094 -- --
Starboard Capital Markets, LLC 2,500 2,500 -- --
VFT Special Ventures, LTD. 482,000 482,000 -- --
ROI Group Associates, Inc. 40,000 40,000 -- --
(1) The actual number of shares of common stock offered in this prospectus
and included in the registration statement of which this prospectus is
a part includes such additional number of shares of common stock as may
be issued or issuable by reason of any stock split, stock dividend or
similar transaction involving the common stock, in accordance with Rule
416 under the Securities Act of 1933, as amended, or Securities Act.
* Less than 1%.
Material Relationships and Transactions
An aggregate of 10,000,000 shares of common stock offered for resale
under this prospectus are issuable upon conversion of Series A Convertible
Preferred Stock. I-trax sold 1,000,000 shares of Series A Convertible Preferred
Stock at a price of $25 per share to fund a portion of the cash I-trax needed to
acquire CHD Meridian Healthcare. We refer to this transaction as the Merger
Financing. Each share of Series A Convertible Preferred Stock is convertible
into 10 shares of common stock at the conversion price of $2.50 per share.
Series A Convertible Preferred Stock also accrues dividends on the original
issue price at the rate of 8% per annum. The dividends are payable upon
conversion of the Series A Convertible Preferred Stock into common stock in
additional shares of common stock or, subject to the consent of our senior
secured lender, in cash.
An aggregate of 482,000 shares of common stock offered for resale under
this prospectus by VFT Special Ventures, LTD are issuable upon exercise of
warrants. I-trax issued the warrants to VFT Special Ventures pursuant to the
terms of a placement agent agreement dated November 19, 2003 between Emerging
Growth Equities, Ltd., a registered broker-dealer and an affiliate of VFT
Special Ventures, and I-trax. Under the terms of the agreement, Emerging Growth
Equities served as one of two placement agents of the Series A Convertible
Preferred Stock sold in the Merger Financing. The warrants are exercisable at
$2.50 per share for a period of five years.
-19-
An aggregate of 10,000 shares of common stock offered for resale under
this prospectus by Starboard Capital Markets, LLC (2,500 shares), Michael R.
Hamblett (5,000 shares) and Anthony J. Spatacco, Jr. (2,500 shares) are issuable
upon exercise of warrants. I-trax issued the warrants to Starboard Capital
Markets, a registered broker-dealer, and Messrs. Hamblett and Spatacco, Jr., two
of its employees, pursuant to the terms of a placement agent agreement dated
December 1, 2003 between Starboard Capital Markets and I-trax. Under the terms
of the agreement, Starboard Capital Markets served as one of two placement
agents of the Series A Convertible Preferred Stock sold in the Merger Financing.
The warrants are exercisable at $2.50 per share for a period of five years.
Of the 190,000 shares of common stock offered for resale under this
prospectus by Palladin Opportunity Fund LLC, or Palladin, 50,000 shares were
issued to Palladin upon Palladin's exercise on December 31, 2003 of warrants at
an exercise price of $1.75 per share. I-trax issued the warrants to Palladin in
consideration for extending the maturity date under a 6% convertible senior
debenture from February 3, 2004 to February 3, 2005. The debenture had since
been converted into common stock in full. The remaining 140,000 shares of common
stock offered for resale under this prospectus by Palladin are issuable upon
conversion of Series A Convertible Preferred Stock.
The 94,094 shares of common stock offered for resale under this
prospectus by the Estate of Carol Rehtmeyer are comprised of 38,094 share of
common stock and 56,000 shares of common stock issuable upon the exercise of
stock options. Carol Rehtmeyer acquired the common stock in a private placement
closed by I-trax on June 30, 2003 and the stock options in connection the
acquisition by I-trax of WellComm Group, Inc. on February 6, 2002. The stock
options are exercisable at $.005 per share.
The 40,000 shares of common stock offered for resale under this
prospectus by ROI Group Associates, Inc. are issuable upon exercise of warrants.
I-trax issued the warrants to ROI Group on December 11, 2003 as consideration
for investor relations services rendered by ROI Group to I-trax under an
agreement effective as of November 16, 2002. The warrants are exercisable at
$1.76 per share for a period of five years.
Broker-Dealer and Other Affiliations
Each of Amir L. Eckerd and Act Capital Partners, LP is a selling
shareholder. Each of Mr. Eckerd and Carol G. Frankenfield is a general partner
of Act Capital and employed by a registered broker-dealer. Each of Mr. Eckerd
and Act Capital acquired the shares offered for resale under this prospectus in
the Merger Financing and for resale in his or its ordinary course of business.
Neither Mr. Eckerd nor Act Capital has agreements, arrangements or
understandings with any other persons, either directly or indirectly, to dispose
of I-trax securities.
Phyllis D. Kalista and Clifford J. Kalista are selling shareholders.
Mr. and Ms. Kalista also exercise voting and dispositive power with respect to
the shares of common stock offered for resale under this prospectus by Emerging
Growth Equities 401K Pft Shr Plan dtd 9/1/99 Berlacher Spangler TTEES FBO
Clifford Kalista and Emerging Growth Equities 401K Pft Shr Plan dtd 9/1/99
Berlacher Spangler TTEES FBO Phyllis Kalista, respectively. Each of Mr. and Ms.
Kalista is employed by Emerging Growth Equities, a registered broker-dealer, and
acquired the shares offered for resale under this prospectus individually and
through the identified entities in the Merger Financing for resale in his, her
or the applicable entity's ordinary course of business. Neither Mr. nor Ms.
Kalista has agreements, arrangements or understandings with any other persons,
either directly or indirectly, to dispose of I-trax securities.
Peter G. Stanley is a selling shareholder and is an employee of
Emerging Growth Equities, a registered broker-dealer. Mr. Stanley acquired the
shares offered for resale under this prospectus in the Merger Financing and for
resale in his ordinary course of business. Mr. Stanley does not have agreements,
arrangements or understandings with any other persons, either directly or
indirectly, to dispose of I-trax securities.
Each of Northwood Capital Partners, LP, Cabernet Partners, LP,
Chardonnay Partners, LP, and Insignia Partners, LP is a selling shareholder.
Robert A. Berlacher exercises voting and dispositive power with respect of the
shares of common stock offered by these entities for resale under this
prospectus. Mr. R. Berlacher is an affiliate of Emerging Growth Equities, a
registered broker-dealer. Each of these entities acquired the shares offered for
resale under this prospectus in the Merger Financing and for resale in its
ordinary course of business. Mr. R. Berlacher
-20-
does not have agreements, arrangements or understandings with any other persons,
either directly or indirectly, to dispose of I-trax securities.
Emerging Growth Equities 401K Pft Shr Plan dtd 9/1/99 Berlacher
Spangler TTEES FBO Gregory J. Berlacher is a selling shareholder. Gregory J.
Berlacher exercises voting and dispositive power with respect of the shares of
common stock offered by this entity for resale under this prospectus. Mr. G.
Berlacher is an affiliate of Emerging Growth Equities, a registered
broker-dealer. The entity acquired the shares offered for resale under this
prospectus in the Merger Financing and for resale in its ordinary course of
business. Mr. G. Berlacher does not have agreements, arrangements or
understandings with any other persons, either directly or indirectly, to dispose
of I-trax securities.
Emerging Growth Equities 401K Pft Shr Plan dtd 9/1/99 Berlacher
Spangler TTEES FBO Jill S. Meyer is a selling shareholder. Jill S. Meyer
exercises voting and dispositive power with respect of the shares of common
stock offered by this entity for resale under this prospectus. Ms. Meyer is an
employee of Emerging Growth Equities, a registered broker-dealer. The entity
acquired the shares offered for resale under this prospectus in the Merger
Financing and for resale in its ordinary course of business. Ms. Meyer does not
have agreements, arrangements or understandings with any other persons, either
directly or indirectly, to dispose of I-trax securities.
Sandor Capital Master Fund, L.P. is a selling shareholder. John S.
Lemak is a general partner of Sandor Capital and as such exercises voting and
dispositive power with respect of the shares of common stock offered by Sandor
Capital for resale under this prospectus. Mr. Lemak is also an affiliate of a
registered broker-dealer. Sandor Capital acquired the shares to be offered for
resale under this prospectus in the Merger Financing and for resale in its
ordinary course of business. Neither Mr. Lemak nor Sandor Capital has
agreements, arrangements or understandings with any other persons, either
directly or indirectly, to dispose of I-trax securities.
BPC Group, LLC is a selling shareholder and is an affiliate Bryant Park
Capital, Inc., a registered broker-dealer. Bryant Park Capital, Inc. also
provided to I-trax merger advisory services and a fairness opinion in connection
with I-trax's acquisition of CHD Meridian Healthcare. BPC Group acquired the
shares to be offered for resale under this prospectus in the Merger Financing
and for resale in its ordinary course of business. BPC Group does not have
agreements, arrangements or understandings with any other persons, either
directly or indirectly, to dispose of I-trax securities.
The managing member of Palladin, a selling shareholder, is an affiliate
of a registered broker-dealer. Palladin acquired the shares of common stock
offered for resale in this prospectus in its ordinary course of business.
Palladin has no agreements, arrangements or understandings with any other
persons, either directly or indirectly, to dispose of I-trax securities.
Each of James J. Dotzman, W. Tyson Perry III, Janet Z. Handleman,
Michael R. Hamblett, Edmund M. Deeter III, and Anthony J. Spatacco, Jr. is a
selling shareholder and is an affiliate or employee of Starboard Capital
Markets, a registered broker-dealer. Each of these individuals acquired the
shares offered for resale under this prospectus in the Merger Financing and for
resale in his or her ordinary course of business. None of these individuals have
agreements, arrangements or understandings with any other persons, either
directly or indirectly, to dispose of I-trax securities.
-21-
Voting and Dispositive Power
The following individuals have voting and dispositive power with
respect to the shares of common stock offered under this prospectus for resale
by entities:
Individual or Individuals Who Exercise Voting and
Name of Selling Shareholder Dispositive Power
---------------------------------------------------- --------------------------------------------------------
ACT Capital Partners, LP Amir L. Eckerd and Carol G. Frankenfield
Atlas Capital Master Fund, Ltd. Robert Alpert
Atlas Capital (Q.P.) L.P. Robert Alpert
Bellfield Capital Partners David Brigate
Franz J. Berlacher, MD Rev Trust dtd 6/8/94,
Franz J. Berlacher Trustee
Franz J. Berlacher Emerging Growth Equities 401K Pft Shr
Plan dtd
9/1/99 Berlacher Spangler TTEES FBO Gregory J.
Berlacher Gregory J. Berlacher
Cabernet Partners, LP Robert A. Berlacher
Chardonnay Partners, LP Robert A. Berlacher
EDJ Limited Jeffrey H. Porter
Eller Financial Corp Marc W. Eller
Europa International, Inc. Fred Knoll
H&Q Healthcare Investors Kim Carroll
Heart Specialist of NOW Profit Sharing Plan/401k
Trust FBO Franz J. Berlacher MD Franz J. Berlacher
Incline Capital, LP Mark Hood
Insignia Partners, LP Robert A. Berlacher and Bruce E. Terker
Emerging Growth Equities 401K Pft Shr Plan dtd
9/1/99 Berlacher Spangler TTEES FBO Clifford
Kalista Clifford J. Kalista
Emerging Growth Equities 401K Pft Shr Plan dtd
9/1/99 Berlacher Spangler TTEES FBO Phyllis
Kalista Phyllis D. Kalista
Emerging Growth Equities 401K Pft Shr Plan dtd
9/1/99 Berlacher Spangler TTEES FBO Jill S.
Meyer Jill S. Meyer
Northwood Capital Partners Robert A. Berlacher
The Pinnacle Fund, L.P. Barry M. Kitt
Porter Partners, LP Jeffrey H. Porter
Precept Capital Master Fund, G.P. D. Blair Baker
RTCL Partners Richard C. Walling
Sandor Capital Master Fund, L.P. John S. Lemak
Dr. Richard N. Stein, Richard Stein MD Stanley
Stein MD Trustees, MDS' KEOGH Richard N. Stein
Southwell Partners, L.P. Wilson S. Jaeggli
UVE Partners LLC Gary H. Simon and Kent H. Klineman
Westpark Capital, L.P. Patrick J. Brosnahan
BPC Group LLC Joel Magerman
Palladin Opportunity Fund LLC Jeffrey Devers
Estate of Carol Rehtmeyer Joshua Rehtmeyer and John Rehtmeyer
Starboard Capital Markets, LLC James J. Dotzman
VFT Special Ventures, LTD. Gregory J. Berlacher
ROI Group Associates, Inc. Robert J. Giordano
-22-
PLAN OF DISTRIBUTION
The shares being offered by the selling shareholders or their
respective pledgees, donees, transferees or other successors in interest, will
be sold from time to time in one or more transactions, which may involve block
transactions:
o on the American Stock Exchange or on such other market on which the
common stock may from time to time be trading;
o in privately-negotiated transactions;
o through broker-dealers, who may act as agents or principals;
o through one or more underwriters on a firm commitment or best efforts
basis;
o through the writing of options on the shares;
o to cover short sales and other hedging transactions made after the
date that the registration statement of which this prospectus is a
part was declared effective by the SEC; or
o any combination thereof.
The sale price to the public may be:
o the market price prevailing at the time of sale;
o a price related to such prevailing market price;
o at negotiated prices; or
o such other price as the selling shareholders determine from time to
time.
The shares may also be sold pursuant to Rule 144, adopted under the
Securities Act, as permitted by that rule. The selling shareholders shall have
the sole and absolute discretion not to accept any purchase offer or make any
sale of shares if they deem the purchase price to be unsatisfactory at any
particular time.
The selling shareholders or their respective pledgees, donees,
transferees or other successors in interest, may also sell the shares directly
to market makers acting as principals or broker-dealers acting as agents for
themselves or their customers. These broker-dealers may be compensated with
discounts, concessions or commissions from the selling shareholders or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal or both. The compensation as to a particular
broker-dealer might be greater than customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. The selling shareholders may sell shares of common stock in
block transactions to market makers or other purchasers at a price per share,
which may be below the then market price. The selling shareholders cannot assure
that all or any of the shares offered in this prospectus will be issued to, or
sold by, the selling shareholders. Because the selling shareholders and any
brokers, dealers or agents, upon effecting the sale of any of the shares offered
in this prospectus, may be deemed "underwriters" as that term is defined under
the Securities Act or the Securities Exchange Act of 1934, or Exchange Act, or
the rules and regulations under such acts, the selling shareholders will be
subject to the prospectus delivery requirements of the Securities Act. Any
commissions received by them and any profit on the resale of shares may be
deemed to be underwriting compensation.
The selling shareholders, alternatively, may sell all or any part of
the shares offered in this prospectus through an underwriter. No selling
stockholder has entered into any agreement with a prospective underwriter and
-23-
there is no assurance that any such agreement will be entered into. If a selling
shareholder enters into such an agreement or agreements, the relevant details
will be set forth in a supplement or revisions to this prospectus.
The shares will be sold through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states the shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
The selling shareholders and any other persons participating in the
sale or distribution of the shares will be subject to applicable provisions of
the Exchange Act and the rules and regulations under the Exchange Act,
including, without limitation, Regulation M. These provisions may restrict
certain activities of, and limit the timing of purchases and sales of any of the
shares by, the selling shareholders or any other such person. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions, subject to specified exceptions or
exemptions. All of these limitations may affect the marketability of the shares.
We will bear all costs, expenses and fees in connection with the registration of
the shares. The selling shareholders will bear all commissions and discounts, if
any, attributable to the sales of the shares. The selling shareholders may agree
to indemnify any broker-dealer or agent that participates in transactions
involving sales of the shares against certain liabilities, including liabilities
arising under the Securities Act.
AVAILABLE INFORMATION
We file reports, proxy statements and other information with the SEC
(File No. 0-30275). Copies of these reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
Copies of these materials can also be obtained by mail at prescribed
rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a website that contains reports, proxy statements and other
information regarding our company. The address of this website is
http://www.sec.gov.
We have filed a registration statement on Form S-3 under the Securities
Act with the SEC with respect to the shares of our common stock covered by this
prospectus. This document constitutes the prospectus of I-trax filed as part of
that registration statement. This document does not contain all of the
information set forth in the registration statement because some parts of the
registration statement are omitted as provided by the rules and regulations of
the SEC. You may inspect and copy the registration statement at any of the
addresses listed above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents we have filed with the SEC (File No. 0-30275)
pursuant to the Exchange Act are incorporated herein by reference:
o our Annual Report on Form 10-KSB for the year ended December 31, 2003,
filed on April 8, 2004;
o our Current Reports on Form 8-K filed on February 3, 2004, and March
30, 2004;
o the description of our common stock, $0.001 par value per share, and
associated rights, contained in our registration statement on Form
8-A, filed on January 14, 2003, including any amendment or report
filed for the purpose of updating this description; and
-24-
o all reports and other documents filed by us pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this prospectus and prior to the termination of the offering.
Any statement contained in a document incorporated by reference in this
prospectus will be deemed to be incorporated by reference in this prospectus and
to be part of this prospectus from the date of filing of the document. Any
statement modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this prospectus. We will provide upon
written or oral request without charge to each person to whom this prospectus is
delivered a copy of any or all of the documents which are incorporated in this
prospectus by reference (other than exhibits to those documents unless those
exhibits are specifically incorporated by reference into the documents that this
prospectus incorporates). Written requests for copies should be directed to
I-trax, Inc., Investor Relations, One Logan Square, Suite 2615, 130 N. 18th
Street, Philadelphia, Pennsylvania 19103. Our telephone number is (215)
557-7488.
LEGAL MATTERS
The validity of the shares of our common stock offered by this
prospectus will be passed upon for us by our Vice President, General Counsel and
Secretary.
EXPERTS
The financial statements incorporated in this prospectus by reference
to the Annual Report on Form 10-KSB of I-trax, Inc. for the year ended December
31, 2003 and for each of the two years in the period then ended have been so
incorporated in reliance on the reports of Goldstein Golub Kessler LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of CHD Meridian Healthcare incorporated in
this prospectus by reference to the Annual Report on Form 10-KSB of I-trax, Inc.
for the year ended December 31, 2003 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
-25-
The information in this prospectus is not complete and may be changed
without notice. We may not issue these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these
securities and we are not soliciting offers to buy these securities in
any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 19, 2004
PROSPECTUS
I-TRAX, INC.
15,850,436
SHARES OF
COMMON STOCK
This prospectus relates to the offer and sale from time to time of the
following shares held by the selling shareholders:
o up to 13,851,550 shares of our common stock; and
o up to 1,998,886 shares of our common stock issuable upon the
conversion of outstanding Series A Convertible Preferred Stock.
The prices at which selling shareholders may sell the shares will be
determined by the prevailing market price for the shares or in negotiated
transactions. We will not receive any of the proceeds from the sale of the
shares.
Our common stock is listed on the American Stock Exchange under the
symbol "DMX." On April 16, 2004, the closing price for our common stock was
$4.99.
Investing in our common stock involves risks, which are described in
the "Risk Factors" section beginning on page 8 of this prospectus.
--------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------------------
The date of this Prospectus is ________________, 2004
-26-
TABLE OF CONTENTS
Preliminary Notes......................................................... 2
Statement Regarding Forward-Looking Information........................... 2
I-trax, Inc............................................................... 3
Risk Factors.............................................................. 8
Market for Our Common Stock............................................... 17
Use of Proceeds........................................................... 17
Selling Security Holders.................................................. 18
Plan of Distribution...................................................... 21
Available Information..................................................... 21
Incorporation of Certain Documents by Reference........................... 22
Legal Matters............................................................. 22
Experts................................................................... 22
PRELIMINARY NOTES
You should rely only on the information contained and incorporated by
reference in this prospectus. No one has been authorized to provide you with
different information. This prospectus is not an offer of these securities in
any state where the offer is not permitted. You should not assume that the
information contained and incorporated by reference in this prospectus or in any
prospectus supplement is accurate as of any date other than the date on the
front of the document.
Unless otherwise indicated, references to "we," "our" and "I-trax" mean
I-trax, Inc. and its subsidiaries.
Effective January 3, 2003, we completed a 1-for-5 reverse stock split.
Our board of directors and stockholders authorized the reverse stock split in
connection with the then pending application to list our common stock on the
American Stock Exchange. Our common stock began trading on the American Stock
Exchange on January 15, 2003 under the symbol "DMX." The information in this
prospectus relating to the number of outstanding shares of our common stock and
historic information about our common stock and stock prices have been adjusted
to reflect the completed reverse stock split.
STATEMENT REGARDING FORWARD LOOKING INFORMATION
This prospectus and our filings with the Securities and Exchange
Commission, or SEC, incorporated by reference in this prospectus include
forward-looking statements. All statements, other than statements of historical
facts, included in this prospectus and our filings with the SEC incorporated by
reference in this prospectus regarding our strategy, future operations,
financial position, future revenues, projected costs, prospects, plans and
objectives of management are forward-looking statements. The words
"anticipates," "believes," "estimates," "expects," "intends," "may," "plans,"
"projects," "will," "would" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
these identifying words. We cannot guarantee that we actually will achieve the
plans, intentions or expectations disclosed in our forward-looking statements
and you should not place undue reliance on our forward-looking statements.
Actual results or events could differ materially from the plans, intentions and
expectations disclosed in the forward-looking statements we make. We have
included important factors in the cautionary statements included or incorporated
in this prospectus, particularly under the heading "Risk Factors" beginning on
page 8 below, that we believe could cause actual results or events to differ
materially from the forward-looking statements we make. Our forward-looking
statements do not reflect the potential impact of any future acquisitions,
mergers, dispositions, joint ventures or investments we may make.
-2-
I-TRAX, INC.
Introduction
I-trax is a combination of two companies that merged on March 19, 2004:
I-trax, Inc. and Meridian Occupational Healthcare Associates, Inc., a private
company, which does business as CHD Meridian Healthcare. The merger and its
terms are described in greater detail below.
Business Overview
We offer two categories of services, which can be integrated or blended
as necessary or appropriate based on each client's needs. The first category
includes on-site services such as occupation health, primary care, corporate
health and pharmacy, which were historically offered by CHD Meridian Healthcare.
The second category includes personalized health management programs, which were
historically offered by I-trax. Each of these services is described in greater
detail below.
As the result of the merger, we are the nation's largest provider of
corporate health management services. Our health management services are
designed to allow employers to contract directly for a wide range of employee
healthcare needs. We can deliver these services at or near the client's work
site by opening, staffing and managing a clinic or pharmacy dedicated to the
client and its employees, or remotely by using the Internet and our
state-of-the-art Care Communications Center staffed with trained nurses and
other healthcare professionals 24 hours per day, 7 days per week. Our array of
services provides each client with flexibility to meet its specific pharmacy,
primary care, occupational health, corporate health, wellness, lifestyle
management or disease management needs. Pursuant to multi-year agreements, our
clients can offer their employees, dependents and retirees any combination of
our various services which integrate seamlessly, through on-site or off-site
delivery platforms, or as a component of or complement to existing health plan
options.
Our primary target market is large and mid-sized self-insured employers
and business consortia. These entities are more likely to derive immediate and
meaningful financial benefit from our services because of their scale and focus
on controlling healthcare costs.
We currently operate approximately 160 locations in 32 states. We also
maintain contracts with approximately 150 clients, including many leading
employers. Our clients pay us directly for our services and include automotive
and automotive parts manufacturers, consumer products manufacturers, large
financial institutions, health plans, integrated delivery networks, and third
party administrators. Our client retention rate is high because we establish
strong client relationships, which are supported by the critical nature of our
services, the benefits achieved by employer and employee constituents, and the
utilization of multi-year service contracts.
CHD Meridian Healthcare's Historic Business - Services Delivered At or
Near the Work Site
Occupational Health Services. We provide professional staffing and
management of on-site health facilities that address the occupational health,
workers' compensation injuries, and minor illness needs of the employer's
workforce. These programs are designed to operate across the entire array of
occupational health regulatory environments and emphasize work-related injury
cost-reduction, treatment, medical surveillance or testing, disability
management, case management, return-to-work coordination, medical community
relations or oversight, on-site physical therapy and injury prevention, and
ergonomic assessment and intervention. Our health programs improve compliance
with treatment protocols and drug formularies, enhance employee productivity,
and allow for greater employer control of occupational health costs. We
currently operate 77 occupational health facilities.
Primary Care Services. We operate employer-sponsored health centers
designed to integrate with the employer's existing healthcare plans. In such
arrangements, employers contract with us directly for primary care health
services and in the process regain control of costs, quality and access. Our
health centers generally service a single employer and offer health management
programs addressing the primary care needs of the employee base, including
optometry services and limited prevention and disease management programs.
Clients may combine our health centers with a dedicated pharmacy. We also offer
customized solutions in network management and absence
-3-
management, including non-work related case management and disability
management. Our physicians, nurses, and other staff are dedicated to the
customer's employee population, allowing employees, retirees, and their
dependents to receive cost-effective, high quality, accessible and convenient
care. We currently operate 17 primary care centers.
Pharmacy Services. We operate employer-sponsored pharmacies that offer
prescription services exclusively to the client's covered population. Clients
may also combine our pharmacy with a dedicated primary care center. By
leveraging prescription volume across our client base and procuring
pharmaceuticals as a captive class of trade, we purchase products at
considerable savings for our clients, thus significantly and positively
affecting what we understand is one of our clients' fastest-growing healthcare
cost categories. Our pharmacy services also use sophisticated information
technologies. These technologies may be integrated with each client's existing
pharmacy management programs and plans, and improve employees' prescription
fulfillment convenience. We currently operate 24 pharmacies.
Corporate Health Services. We offer non-industrial clients that do not
experience significant physical injury rates, but that nonetheless maintain
large workforces that require general and specialized medical services, custom
designed workplace programs that combine preventative care, occupational health,
medical surveillance or testing, travel medicine and health education. Clients
for which we provide corporate health services include financial service,
advertising and consulting firms. We currently operate 47 corporate healthcare
facilities.
I-trax's Historic Business - The Health-e-LifeSM Program
We enable individuals to obtain better healthcare through our
personalized Health-e-LifeSM Program. The Program is designed to deliver
lifestyle and wellness management, and disease and risk reduction interventions
to a client's entire population, across multiple locations and irrespective of
population size, by using predictive science, sophisticated proprietary computer
software, clinical expertise, and personal care coordination. We currently have
approximately 37 clients, which include self-insured employers, health plans,
and integrated delivery networks, using various components of our
Health-e-LifeSM Program. Self-insured employers, health plans, hospital and
health systems, and governmental agencies continue to be prime consumers of
lifestyle and wellness management, and disease and risk reduction programs, and
we are actively marketing to these potential clients.
We believe the Health-e-LifeSM Program enables our clients to evolve
from fragmented care management practices into a cohesive and efficient system
of healthcare. The Health-e-LifeSM Program is fully integrated, uses a
single-data platform that allows all caregivers to share records, and enables
our clients to provide true coordination of care. We believe that by
facilitating real-time secure communication between our client, the patient, the
doctor, the care coordinator and the insurer within today's complex healthcare
system, the Health-e-LifeSM Program reduces costs and enables improved delivery
of care.
Predictive Science. Our Health-e-LifeSM Program incorporates predictive
science to analyze our clients' medical claims and pharmacy and clinical data to
predict future healthcare costs. We believe this is an essential step to
effective disease and lifestyle management. Experts agree that predictive
science provides a comprehensive advantage to health plans, employers and
providers, and leads to cost-effective medical management and greater
profitability for the ultimate payor. Using predictive science, we analyze our
clients' entire populations to predict our clients' future healthcare costs,
including avoidable costs, the health conditions that will drive those costs and
the people within our clients' populations who are at risk for those conditions.
Armed with this information, we target our resources to achieve for each client
the best value for the amount the client will invest in providing healthcare
and, consequently, savings.
Technology Solutions. All technology components of our Health-e-LifeSM
Program utilize a single data platform--Medicive(R) Medical Enterprise Data
System--a proprietary software architecture developed to collect, store, sort,
retrieve and analyze a broad range of information used in the healthcare
industry.
-4-
Furthermore, our web accessible software includes portals for key
stakeholders in the care delivery process--consumers, physicians and care
managers--and permit real-time sharing of information and support the adherence
to our health and disease intervention programs. The key technology we use for
effective care coordination include:
o Health-e-Coordinator(TM), a web-based care management application;
o MyFamilyMD(TM), a consumer health management portal;
o CarePrime(R), a clinical care application for physicians and
clinicians; and
o I-talk(TM), interactive smart voice technology.
Interventions and Clinical Expertise. The Health-e-LifeSM Program
includes personalized health and disease interventions for individuals who
suffer from, or are at high risk for, active or chronic disease and tailored
programs for individuals who are at low risk. Depending on the individual's
level of risk, our custom tailored interventions include self-help programs
available through the web or person-assisted programs administered through our
Care Communication Center. All interventions include lifestyle and risk
reduction programs that follow evidence-based clinical guidelines to optimize
health, fitness, productivity and quality of life.
The Health-e-Life ProgramSM currently includes interventions for a
number of specific chronic conditions, including congestive heart failure,
coronary artery disease, asthma, diabetes, cancer management, cystic fibrosis,
lower back pain, and chronic obstructive pulmonary disease.
Care Communication Center. A vital component of our program is our Care
Communications Center, which is staffed with trained nurses and other healthcare
professionals 24 hours per day, 7 days per week. Through the Care Communication
Center, we effect targeted interventions to improve the health management of the
populations we serve. The Care Communication Center helps each member or
employee of our client make informed decisions about his or her health and
provides ongoing support for those with chronic diseases. Our demand management
and nurse triage services incorporate nationally recognized, evidence-based
clinical guidelines to increase compliance by caregivers and consumers with best
practices.
I-trax and CHD Meridian Healthcare Joint Market Opportunity
To change the health status of a defined population and manage the
upward claim trend experienced by employers and employees, self-insured
employers are seeking programs that promote health, manage disease and
disability and complement existing health initiatives and benefits. Self-insured
employers invest in such health programs because they reduce later need for
critical care and related costs, maximize health, increase productivity, reduce
absenteeism, improve health status of both active employees and retirees, and
reduce overall costs.
We believe that I-trax and CHD Meridian Healthcare offer a complete
solution to meet this need. We service each segment of a self-insured employer's
population and achieve the desired clinical and financial outcomes. CHD Meridian
Healthcare is the leader in on-site healthcare for Fortune 1,000 companies. Its
programs reduce healthcare costs of the defined population it serves.
Complementing the CHD Meridian Healthcare services, I-trax's personalized health
management solutions for focused disease and lifestyle and wellness management
improve the health of the entire population, achieving the same result. The
services offered by the merged companies respond to a specific and frequent
request of large employers, including many historic CHD Meridian Healthcare
clients, for a comprehensive range of health management services.
We also believe that with a nominal increase in variable costs, the
merged companies can offer to CHD Meridian Healthcare's historic clients the
value added benefit of our Health-e-LifeSM Program and, with respect to certain
of these clients, can successfully negotiate participation in future medical
cost savings that may result from the merged companies services.
-5-
Put more specifically, we currently serve approximately 650,000 lives
through our on-site clinics, which represent only approximately 25% of our
clients' employees, dependents and retirees. We charge these clients for our
services on a "cost plus" basis to manage these lives. We believe that the
merged companies' suite of products will allow us several opportunities with
respect to those of our clients that elect to expand their relationship with us.
These include:
o Because our services now encompass on-site facilities, which offer
high quality, better access and lower costs, and Internet and
telephone care delivery capabilities, we have access to a larger
portion of our clients' populations, which affords us an opportunity
to expand substantially our services within our existing client base.
o We price our population-based service on a "per member per month"
basis. This model enables us to direct resources to those of our
clients' employees, dependents and retirees that represent the
greatest potential future costs. Because in certain instances we
participate in the savings our programs generate, when properly
deployed in new business opportunities, management believes the merged
companies' suite of products will afford us increased gross margin
opportunities for incremental, integrated business.
o We are one vendor for predictive modeling, primary care, pharmacy,
occupational health, lifestyle and wellness management, and disease
management, and as such our inherent efficiency leads to savings.
o Our combined services offer multiple entry points for employer
customers to meet their budget restrictions and specific needs. This
available menu of services could shorten our current sales cycle and
provide us with an opportunity to build a more comprehensive program
as the relationship grows with each client over time.
Corporate Information
General
Our principal executive offices are located at One Logan Square, 130 N.
18th Street, Suite 2615, Philadelphia, Pennsylvania 19103. Our telephone number
is (215) 557-7488 and our fax number is (215) 557-7820. We maintain a website
located at http://www.i-trax.com. Information contained on our website is not
part of this prospectus.
We make available our annual reports on Form 10-KSB, quarterly reports
on Form 10-QSB and current reports on Form 8-K, as well as any amendments to the
forgoing, free of charge on our website as soon as reasonably practicable after
they have been filed with the SEC. For a detailed description of our business,
you should read these reports and the other filings we make with the SEC which
are incorporated by reference in this prospectus.
Corporate History
I-trax was incorporated in Delaware on September 15, 2000 at the
direction of the Board of Directors of I-trax Health Management Solutions, Inc.,
I-trax's then parent company. On February 5, 2001, I-trax became the holding
company of I-trax Health Management at the closing of a reorganization pursuant
to Section 251(g) of Delaware General Corporation Law. At the effective time of
the reorganization, all of the stockholders of I-trax Health Management became
the stockholders of I-trax and I-trax Health Management became a wholly owned
subsidiary of I-trax. Further, all outstanding shares of I-trax Health
Management were converted into shares of I-trax in a non-taxable transaction.
The holding company structure has allowed us greater flexibility in our
operations and expansion and diversification plans, including in the acquisition
of Meridian Occupational Healthcare Associates, Inc. and WellComm Group, Inc.
-6-
I-trax acquired WellComm effective February 6, 2002 in a two-step
reorganization pursuant to a Merger Agreement dated January 28, 2002 by and
among I-trax, WC Acquisition, Inc., an Illinois corporation and a wholly-owned
subsidiary of I-trax, WellComm and WellComm's two principals. In step one, WC
Acquisition merged with and into WellComm, with WellComm continuing as the
surviving corporation. In step two, WellComm merged with and into I-trax, with
I-trax continuing as the surviving corporation.
At the closing of the merger, we delivered to the WellComm stockholders
approximately $2,200,000 in cash and 1,488,000 shares of our common stock, and
to each of two senior officers of WellComm options to acquire 56,000 shares of
our common stock at a nominal exercise price.
We funded the acquisition of WellComm by selling a 6% convertible
senior debenture in the aggregate principal amount of $2,000,000 to Palladin
Opportunity Fund LLC pursuant to a purchase agreement dated as of February 4,
2002. Pursuant to the purchase agreement, we also issued Palladin a warrant to
purchase up to 307,692 shares of our common stock. As of March 19, 2004,
Palladin has converted all amounts outstanding under the debenture into common
stock and has exercised the warrant in full at the conversion price and exercise
price of $1.75 per share.
On March 19, 2004, we acquired Meridian Occupational Healthcare
Associates, Inc., a Delaware corporation doing business as CHD Meridian
Healthcare, pursuant to a Merger Agreement dated as December 26, 2003, as
amended, by and among, I-trax, CHD Meridian Healthcare, DCG Acquisition, Inc., a
Delaware corporation and a wholly-owned subsidiary of I-trax, and CHD Meridian
Healthcare, LLC, a Delaware limited liability company and a wholly-owned
subsidiary of I-trax. The merger was a two-step transaction. In step one, DCG
Acquisition merged with and into CHD Meridian Healthcare. In step two, CHD
Meridian Healthcare merged with and into CHD Meridian Healthcare, LLC. We now
conduct the former operations of CHD Meridian Healthcare through CHD Meridian
Healthcare, LLC. In the merger, each outstanding share of common stock of CHD
Meridian Healthcare was converted into the right to receive 47.57 shares of our
common stock, 1.90 shares of our Series A Convertible Preferred Stock, and
$121.35 in cash. In total, in the merger, I-trax issued 10,000,000 shares of
common stock, 400,000 shares of Series A Convertible Preferred Stock and paid
$25,508,000 in cash. Immediately prior to the merger, CHD Meridian Healthcare
also redeemed certain of its then outstanding shares of common stock and options
to purchase common stock for which it paid approximately $9,492,000 in the
aggregate. Accordingly, the stockholders and option holders of CHD Meridian
Healthcare received an aggregate of $35 million of cash in, or immediately prior
to, the merger.
In addition, at the closing of the merger, I-trax issued and placed in
escrow 3,859,200 shares of common stock. In April 2005, if CHD Meridian
Healthcare, LLC, continuing its operations of CHD Meridian Healthcare following
the closing of the merger as a subsidiary of I-trax, achieves certain calendar
2004 milestones for earnings before interest, taxes, depreciation and
amortization, or EBITDA, then some or all of the shares placed in escrow will be
payable to the former CHD Meridian Healthcare stockholders who participated in
the merger. Prior to distribution to former CHD Meridian Healthcare
stockholders, the shares of I-trax common stock placed in escrow may be used to
satisfy CHD Meridian Healthcare's indemnity obligations under the Merger
Agreement. If EBITDA equals or exceeds $8.1 million, then 3,473,280 shares will
be payable; the number of such shares payable increases proportionately up to a
maximum of 3,859,200 shares if EBITDA equals or exceeds $9.0 million. Any such
additional shares of I-trax common stock that are payable will be distributed
pro rata to former CHD Meridian Healthcare stockholders in proportion to the
number of shares of CHD Meridian Healthcare common stock held at the merger's
effective time. Any shares that are not payable will be returned to I-trax for
cancellation.
Immediately following the closing of the merger, I-trax redeemed from
former CHD Meridian Healthcare stockholders that participated in the merger, pro
rata, an aggregate of 200,000 shares of Series A Convertible Preferred Stock at
their original issue price of $25.00 per share.
I-trax obtained the cash portion of the merger consideration by selling
1,000,000 shares of Series A Convertible Preferred Stock at a purchase price of
$25.00 per share for gross proceeds of $25 million and by borrowing $12 million
on a new $20 million senior secured debt facility from a national lender.
-7-
RISK FACTORS
In addition to other information contain and incorporated by reference
in this prospectus, you should carefully consider the following risks and the
other information in evaluating I-trax and its business. Our business, financial
condition and results of operations could be materially and adversely affected
by each of these risks. Such an adverse effect could cause the market price of
our common stock to decline, and you could lose all or part of your investment.
Risk Related to I-trax
The healthcare industry is subject to general cost pressures that could
adversely affect our business.
The healthcare industry is currently under pressure by governmental and
private-sector revenue sources to cut spiraling costs. These pressures will
continue and possibly intensify. Although we believe that our services and
software applications assist public health agencies, hospitals, health plans and
self-insured employers to control the high costs associated with treating
patients, the pressures to reduce costs immediately may hinder our ability (or
increase the length of time we require) to obtain new contracts. In addition,
the focus on cost reduction may pressure our customers to restructure contracts
and reduce our fees.
We are affected by changes in the laws governing health plan, hospital
and public health agency reimbursement under governmental programs such as
Medicare and Medicaid. There are periodic legislative and regulatory initiatives
to reduce the funding of the Medicare and Medicaid programs in an effort to
curtail or reduce overall federal healthcare spending. Federal legislation has
and may continue to significantly reduce Medicare and Medicaid reimbursements to
most hospitals. These reimbursement changes are negatively affecting hospital
revenues and operations. There can be no assurance that such legislative
initiatives or government regulations would not adversely affect our operations
or reduce demand for our services.
We may be unable to implement our business strategy of deploying our
integrated services effectively to existing and new clients.
Although we believe that there is significant demand for the our
services and products in the corporate healthcare market, there are many reasons
why we may be unable to execute our business strategy, including our possible
inability to:
o deploy our integrated services and solutions on a large scale;
o attract a sufficiently large number of self-insured employers to
subscribe for our services and solutions applications;
o increase awareness of our brand;
o strengthen user loyalty;
o develop and improve our services and solutions;
o continue to develop and upgrade our services and software solutions;
and
o attract, retain and motivate qualified personnel.
Increasing competition for contracts to establish and manage
employer-dedicated pharmacies and clinics increase the likelihood that
we may lose business to our competitors.
CHD Meridian Healthcare pioneered the field of employer-dedicated
pharmacies and primary care clinics. Although CHD Meridian Healthcare has always
faced competition from other methods by which business
-8-
enterprises can arrange and pay for healthcare services for their employees,
until recently we rarely experienced face-to-face bidding for a contract to
manage a particular employer's pharmacy or clinic. We have recently begun to see
direct competition for employer-dedicated pharmacy management contracts and
expect this competition will increase over time. We believe that we have certain
advantages in facing such competition, including our status as the market
leader, experience and know-how. However, some of our competitors and potential
competitors, including prescription benefit management companies, with revenues
in the multiple billions of dollars, are substantially bigger than we are. We
believe that the potential market for employer-dedicated pharmacies is large
enough for us to meet our growth plans despite increasing competition, but there
are no assurances that we will in fact be able to do so. Our ability to maintain
existing clients, expand services to existing clients, add new clients so as to
meet our growth objectives, and maintain attractive pricing for our services,
will depend on the interplay among overall growth in the use of
employer-dedicated facilities, entry of new competitors into our business, and
our success or failure in maintaining our market position as against these new
entrants.
In addition to this increasing head-to-head competition for contracts
to establish and manage employer-dedicated facilities, we expect to continue to
face competition for large employers' healthcare budget from other kinds of
enterprises, including pharmacy benefit managers, health insurers, managed
health care plans and retail pharmacy chains.
Loss of advantageous pharmaceutical pricing could adversely affect our
income and the value we provide to our clients.
We receive favorable pricing from pharmaceutical manufacturers as a
result of our class of trade designation, which in turn is based on selling
products only to our clients' employees, dependents and retirees. We also
receive rebates from pharmaceutical manufacturers for driving market share to
preferred products. The benefit of favorable pricing is generally passed on to
our clients under the terms of client contracts. In the last few years, retail
pharmacies have brought legal cases against pharmaceutical manufacturers
challenging class of trade designations as unlawful price discrimination under
the Robinson-Patman Act. Although these challenges have generally failed, there
remains a possibility that we could lose the benefit of this favorable pricing,
either due to a legal challenge or to a change in policies of the pharmaceutical
manufacturers. Such a loss would diminish the value that we can provide to our
clients and, therefore, would make our services less attractive to them. We also
receive volume performance incentives from our pharmaceutical wholesaler which
directly affect our revenue and the loss of which could adversely affect our
business.
Our business involves exposure to professional liability claims, and a
failure to manage effectively our professional liability risks could
have an adverse impact on our business.
Under the terms of our contracts to manage employer sponsored clinics
or pharmacies, we must procure professional liability insurance covering the
operations of that clinic or pharmacy. We also typically agree to indemnify our
clients against vicarious professional liability claims arising out of acts or
omissions of healthcare providers working at the clinics and pharmacies we
manage. Further, under the terms of our services agreements with affiliated
professional corporations, we are contractually obligated to procure malpractice
insurance on behalf of the professional corporations and their employed
physicians and typically absorb such claims as are subject to the policy self
insured retention limit or above the policy limit. Finally, there also exists
the possibility of vicarious professional liability claims being made directly
against us. As a result of these contractual arrangements, we routinely incur
significant expenses arising out of professional liability claims. If we fail to
manage the professional liability claims and associated risk effectively, our
business will be adversely affected.
Certain of our past professional liability insurance policy years were
insured by two insurance companies that are now either insolvent or under
regulatory supervision. As a result, we are effectively partially uninsured for
those periods. We have established reserves in connection with the six pending
claims from such policy years. Although we believe such reserves are reasonable
based on our historic loss experience, there is no assurance that these reserves
will be sufficient to pay any judgments or settlements. In addition, because our
current professional liability insurance self-insured retention is $500,000, we
are, effectively, partially uninsured against a variety of claims that may arise
from other years. We maintain a layer of excess insurance that begins with
losses in excess of $1,000,000 per claim, including for the years in which our
primary insurer is insolvent. We have reserved for
-9-
projected future professional liability expenses based on our operations to
date. These reserves, however, could prove inadequate, and the size of our
ultimate uninsured liability could exceed our established reserves.
Our professional liability insurance policies are written on a
claims-made basis, meaning that they cover only claims made during the policy
period, and not events that occur during the policy period but result in a claim
after the expiration of the policy. With this insurance strategy, we must renew
or replace coverage each year in order to have coverage for prior years'
operations. Availability and cost of such coverage are subject to market
conditions, which can fluctuate significantly.
We have established a captive insurance company, which subjects us to
additional regulatory requirements and once operating, will subject us
to the risks associated with the insurance business.
We have established and expect to begin operating a captive insurance
subsidiary in the second quarter of 2004 to insure our professional liability
exposure. We believe this approach will enhance our ability to manage
malpractice exposure and stabilize insurance costs. Operating a captive
insurance subsidiary, however, represents additional risk to our operations,
including a potential perception among our existing and potential clients that
we are not adequately insured. We have hired a manager and have engaged an
actuarial consulting firm for the captive insurer. When we commence its
operations, we will be subject to the risks associated with any insurance
business, which include investment risk relating to the performance of our
invested assets set aside as reserves for future claims, the uncertainly of
making actuarial estimates of projected future professional liability losses,
and loss adjustment expenses. Failure to make an adequate return on our
investments, to maintain the principal of invested funds, or to estimate future
losses and loss adjustment expenses accurately, could have an adverse effect on
us. Also, maintaining a captive insurer has exposed us to substantial additional
regulatory requirements, with attendant risks if we fail to comply with
applicable regulations.
We are subject to complex and extensive legal, statutory and regulatory
requirements, and failure to comply with those requirements will have
an adverse effect on our business.
The healthcare industry is subject to numerous Federal, state and local
laws, regulations and judicial doctrines. These legal requirements cover, among
other topics, licensure, corporate practice of medicine, privacy of patient
medical records, government healthcare program participation requirements and
restrictions, reimbursement for patient services, and Medicare and Medicaid
fraud and abuse.
Corporate Practice of Medicine. There are judicial and statutory
prohibitions on the corporate practice of medicine, which vary from state to
state. The corporate practice of medicine doctrine prohibits a corporation,
other than a professional corporation, from practicing medicine or employing
physicians. Some states also prohibit a non-physician from splitting or sharing
fees charged by a physician for medical services. The services we provide
include establishing and managing medical clinics. Most physician services at
clinics we manage are provided by physicians who are employees of professional
corporations with which we contract to provide non-professional services such as
purchasing equipment and supplies, patient scheduling, billing, collection,
accounting, and computer services. The professional corporations control hiring
and supervise physicians and all medical functions. We have option agreements
with the physician-owners of these affiliated professional corporations that
entitle us to require the physician-owners to sell the stock of the professional
corporations to any licensed physician we designated. This structure is intended
to permit consolidation of the professional corporations' financial statements
with ours, while maintaining sufficient separation to comply with the corporate
practice of medicine doctrine and with fee-splitting and fee-sharing
prohibitions. There remains, however, potential exposure to claims that this
structure violates the corporate practice of medicine doctrine or fee-splitting
or fee-sharing prohibitions, even though we do not believe that it does. If such
a claim is successfully asserted against us in any jurisdiction, we could be
subject to civil and criminal penalties, or could be required to restructure our
contractual arrangements with clients. Any restructuring of contractual
arrangements could result in lower revenues, increased expenses and reduced
influence over the business decisions of those operations. Alternatively, some
existing CHD Meridian contracts could be found to be illegal and unenforceable,
which could result in their termination and an associated loss of revenue, or
inability to enforce valuable provisions of those contracts.
Health Insurance Portability and Accountability Act of 1996. Our
personnel who staff our on-site pharmacies and clinics have custody of
confidential patient records. Also, the computer servers we use to store our
-10-
software applications and deliver our technology services also contain
confidential health risk assessments completed by employees, patients and
beneficiaries of our clients. In our capacity as a covered entity or as a
business associate of a covered entity, we and the records we hold are subject
to a rule entitled Privacy of Individually Identifiable Health Information, or
Privacy Rule, promulgated by the U.S. Department of Health and Human Services
under the Health Insurance Portability and Accountability Act of 1996, or HIPAA,
and also to any state laws that may have more stringent privacy requirements. We
attempt to protect the privacy and security of confidential patient information
in accordance with applicable law, but could face claims of violation of the
Privacy Rule, invasion of privacy or similar claims, if our patient records or
computer servers were compromised, or if our interpretation of the applicable
privacy requirements, many of which are complex, were incorrect or allegedly
incorrect, or if we failed to maintain a sufficiently effective compliance
program.
Furthermore, while we believe that the Privacy Rule protects our
ability to obtain patient identifiable medical information for disease
management purposes from certain of our clients, state legislation or
regulations will preempt Federal legislation if state legislation or regulations
are more restrictive. Accordingly, new Federal or state legislation or
regulations restricting the availability of this information for disease
management purposes would have a material negative effect on us.
Fraud and Abuse. In recent years, various government entities have
actively investigated potential violations of fraud and abuse statutes and
regulations by healthcare providers and by pharmaceutical manufacturers. The
fraud and abuse provisions of the Social Security Act provide civil and criminal
penalties and potential exclusion from the Medicare and Medicaid programs for
persons or businesses who offer, pay, solicit or receive remuneration in order
to induce referrals of patients covered by federal healthcare programs (which
include Medicare, Medicaid, TriCare and other federally funded health programs).
Although our services and those of our affiliated professional corporations are
generally paid for by employer clients, we do bill the Medicare and Medicaid
programs, and private insurance companies, as agent of our affiliated
professional corporations, to recover reimbursable amounts that offset the
healthcare costs borne by our clients. We are therefore subject to various
regulations under the Medicare and Medicaid programs, including fraud and abuse
prohibitions. We believe that we are compliant with these requirements, but
could face claims of non-compliance if our interpretations of the applicable
requirements, many of which are complex, were incorrect or allegedly incorrect,
or if we fail to maintain a sufficiently effective compliance program.
State and Federal Licensure. The doctors, nurses and other healthcare
professional that staff our affiliated professional corporations, the nurses
that staff our care communication centers, and our on site pharmacies and
clinics, are subject to individual licensing requirements. All of our healthcare
professionals and facilities that are subject to licensing requirements are
licensed in the state in which they are physically present. Multiple state
licensing requirements for healthcare professionals who provide services
telephonically over state lines may require us to license some of our healthcare
professionals in more than one state. We continually monitor the developments in
telemedicine. There is no assurance, however, that new judicial decisions or
Federal or state legislation or regulations would not increase the requirement
for multi-state licensing of all central operating unit call center health
professionals, which would significantly increase our administrative costs.
We cannot yet predict the impact of the recently adopted Medicare
prescription drug benefit on our business.
In December 2003, President Bush signed into law the Medicare
Prescription Drug, Improvement and Modernization Act of 2003. This law provides
Medicare beneficiaries with insurance coverage that offers access to
prescription medicines. The prescription drug benefit, which will be called
Medicare Part D, begins January 1, 2006. In the interim, a national prescription
drug discount card for Medicare-eligible seniors will be instituted in April
2004. Under the new law, drug benefits will be provided through risk-bearing
private plans contracting with the government (including plans offering only the
Medicare Part D coverage as well as integrated plans offering all Medicare
benefits). There will be an annual open period during which Medicare
beneficiaries will choose their drug plan from among those available in their
area of residence. In any areas where there are fewer than two private plan
choices, the government will make a drug plan available directly.
We do not know how this law will affect our business. Subsidies for
employers providing retiree drug benefits will decrease the costs to those
employers of providing such benefits, and therefore may increase the
-11-
number of employers willing to provide retiree drug benefits, which would
positively affect our business. On the other hand, employers that now offer
prescription drug benefits may decide no longer to do so, on the basis that
their retirees now will be able to obtain such benefits on their own through
Medicare. In that case, such employers would have less need for
employer-dedicated pharmacies of the kinds that we establish and manage and our
business would be negatively affected.
We may be unable to integrate successfully our operations and realize
the full cost savings we anticipate from the merger.
The merger of CHD Meridian Healthcare and I-trax involves the
integration of two companies that have previously operated independently and
focused on different delivery methods within the corporate health management
solutions market. The difficulties of combining the merged companies' operations
include:
o integrating complementary businesses under centralized management
efficiently;
o coordinating geographically separated organizations;
o integrating personnel with diverse business backgrounds; and
o combining different corporate cultures.
The process of integrating operations could cause an interruption of,
or loss of momentum in, the activities of I-trax or CHD Meridian Healthcare's
businesses or the loss of key personnel. The diversion of management's attention
and any delays or difficulties encountered in connection with the integration of
the merged companies' operations could have an adverse effect on the business,
results of operations or financial condition of the merged companies.
Among the factors considered by the CHD Meridian Healthcare and the
I-trax boards of directors in connection with their respective approvals of the
merger were the opportunities for reduction of operating costs and improvements
in operating efficiencies and other financial synergies that could result from
the merger. We cannot give any assurance that these savings will be realized, or
if realized, will be realized within the time periods contemplated by
management.
Our business will be adversely affected if we lose key employees or
fail to recruit and retain other skilled employees
Our business greatly depends on, among others, Frank A. Martin,
chairman, chief executive officer and director, Haywood D. Cochrane, Jr., vice
chairman and director, John R. Palumbo, president, Charles D. (Chip) Phillips,
executive vice president and chief operating officer, and Shannon W. Farrington,
senior vice president and chief financial officer. Our failure to retain any one
of these individuals could significantly reduce our ability to compete and
succeed in the future.
Our future success also depends on our ability to attract, retain and
motivate highly skilled employees. As we secure new contracts and implement our
services and products, we will need to hire additional personnel in all
operational areas. We may be unable to attract, assimilate or retain such highly
qualified personnel. We have in the past experienced, and expect to experience
in the future, difficulty in hiring and retaining highly skilled employees with
appropriate qualifications. Our business will be adversely affected if we cannot
attract new personnel or retain and motivate current personnel.
Our sales cycle is long and complex.
The corporate health management business is growing rapidly and has
many entrants. Further, although each entrant may define its service as
corporate health management, the details of the services among the entrants are
quite different. Because the services offered are complex, require clients to
incur significant upfront costs and there are significant variations in the
offered services by many vendors, potential clients take a long time to evaluate
and purchase such services, lengthening our sales cycle. Further, the sales and
implementation process for our
-12-
services and software applications is lengthy, involves a significant technical
evaluation and requires our clients to commit a great deal of time and money.
Finally, the sale and implementation of our services are subject to delays due
to our clients' internal budgets and procedures for approving large capital
expenditures and deploying new services and software applications within their
organizations. The sales cycle for our solutions, therefore, is unpredictable
and has generally ranged from 3 to 24 months from initial contact to contract
signing. The time it takes to implement our services is also difficult to
predict and has lasted as long as 18 months from contract execution to the
commencement of live operation. During the sales cycle and the implementation
period, we may expend substantial time, effort and money preparing contract
proposals, negotiating the contract and implementing the solution without
receiving any related revenue.
Deterioration of the financial health of our clients, many of which are
large U.S. manufacturing enterprises, could adversely affect our
business volume and collections.
An adverse trend in one or more U.S. manufacturing industries could
lead to plant closings or layoffs that could eliminate or reduce the need for
some of our employer-dedicated healthcare facilities. Also, if our client
becomes insolvent, we may not be able to recover outstanding accounts receivable
owed by that client, and may suffer premature contract termination. Our
professional liability insurance is written on a claims-made basis, and, to fund
continued coverage of an operation after termination of a contract, we typically
charge our clients for tail insurance coverage when the contract terminates. If
a client is insolvent when the contract terminates, we may not be able to recoup
the cost of tail insurance coverage, or other costs related to that facility's
shutdown. We already experienced this in the case of one major steel
manufacturer for which we managed several facilities when the client became the
debtor in a federal bankruptcy proceeding. This resulted in difficulty in
collecting some amounts due to us, and generated a claim against us for
repayment of an allegedly preferential transfer previously received from the
client. Because of the risks associated with client insolvency, and the
concentration of CHD Meridian Healthcare's client base, our business is to some
extent dependent on the continued health of U.S. manufacturing industries.
Our dependence on the Internet and Internet-related technologies
subjects us to frequent change and risks.
Our web-based software applications that form the backbone of our
disease management and comprehensive health management solutions depend on the
continuous, reliable and secure operation of Internet servers and related
hardware and software. Numerous viruses and outages on the Internet could cause
outages of our applications from time to time. To the extent that our services
are interrupted, our users will be inconvenienced and our reputation may be
diminished. If access to our system becomes unavailable at a critical time,
users could allege we are liable, which could depress our stock price, cause
significant negative publicity and possibly lead to litigation. Although our
computer and communications hardware is protected by physical and software
safeguards, it is still vulnerable to fire, storm, flood, power loss,
telecommunications failures, physical or software break-ins and similar events.
We do not have 100% redundancy for all of our computer and telecommunications
facilities. A catastrophic event could have a significant negative effect on our
business, results of operations, and financial condition.
We also depend on third parties to provide certain of our clients with
Internet and online services necessary for access to our servers. It is possible
that our clients will experience difficulties with Internet and other online
services due to system failures, including failures unrelated to our systems.
Any sustained disruption in Internet access provided by third parties could have
a material adverse effect on our business, results of operations and financial
condition.
Finally, we retain confidential healthcare information on our servers.
It is, therefore, important that our facilities and infrastructure remain secure
and are perceived by clients to be secure. Although we operate our software
applications from a secure facility managed by a reputable third party, our
infrastructure may be vulnerable to physical or virtual break-ins, computer
viruses, programming errors or similar disruptive problems. A material security
breach could damage our reputation or result in liability to us.
-13-
We may be sued by our users if we provide inaccurate health information
on our website or inadvertently disclose confidential health
information to unauthorized users.
Because users of our website will access health content and services
relating to a medical condition they may have or may distribute our content to
others, third parties may sue us for defamation, negligence, copyright or
trademark infringement, personal injury or other matters. We could also become
liable if confidential information is disclosed inappropriately. These types of
claims have been brought, sometimes successfully, against online services in the
past. Others could also sue us for the content and services that will be
accessible from our website through links to other websites or through content
and materials that may be posted by our users in chat rooms or bulletin boards.
Any such liability will have a material adverse effect on our reputation and our
business, results of operations or financial position.
We may be unable to compete successfully against companies offering
other disease management products.
Many healthcare companies are offering disease management services and
healthcare focused software solutions. Further, a vast number of Internet sites
offer healthcare content, products and services. In addition, traditional
healthcare providers compete for consumers' attention both through traditional
means as well as through new Internet initiatives. Although we believe our
technology-enabled service solutions are unique and better than our
competitors', we compete for customers with numerous other businesses.
Many of these potential competitors are likely to enjoy substantial
competitive advantages compared to us, including:
o greater name recognition and larger marketing budgets and resources;
o larger customer and user bases;
o larger production and technical staffs;
o substantially greater financial, technical and other resources; and
o a wider array of online products and services.
To be competitive, we must continue to enhance our products and
services, as well as our sales and marketing channels and our financial
condition.
If our intellectual property rights are undermined by third parties,
our business will suffer.
Our intellectual property is important to our business. We rely on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and contractual provisions to protect our intellectual property. Our
efforts to protect our intellectual property may not be adequate. Our
competitors may independently develop similar technology or duplicate our
products or services. Unauthorized parties may infringe upon or misappropriate
our products, services or proprietary information. In addition, the laws of some
foreign countries do not protect proprietary rights as well as the laws of the
United States do, and the global nature of the Internet makes it difficult to
control the ultimate destination of our products and services. In the future,
litigation may be necessary to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of others. Any such
litigation would probably be time-consuming and costly. We could be subject to
intellectual property infringement claims as the number of our competitors grows
and the content and functionality of software applications and services overlap
with competitive offerings. Defending against these claims, even if not
meritorious, could be beyond our financial ability and could divert our
attention from operating our company. If we become liable to third parties for
infringing their intellectual property rights, we could be required to pay a
substantial damage award and forced to develop noninfringing technology, obtain
a license or cease selling the applications that contain the infringing
technology. We may be unable to develop noninfringing technology or obtain a
license on commercially reasonable terms, or at all. We also intend to rely on a
variety of technologies that we will license from third parties, including any
database and Internet server software, which will be used to operate our
applications. These third-
-14-
party licenses may not be available to us on commercially reasonable terms. The
loss of or inability to obtain and maintain any of these licenses could delay
the introduction of enhancements to our software applications, interactive tools
and other features until equivalent technology could be licensed or developed.
Any such delays could materially adversely affect our business, results of
operations and financial condition.
Provisions of our certificate of incorporation could impede a takeover
of our company, even though a takeover may benefit our stockholders.
Our board of directors has the authority, without further action by the
stockholders, to issue from time to time, shares of preferred stock in one or
more classes or series, and to fix the rights and preferences of such preferred
stock, subject, however, to the limitations contained in the certificate of
designations filed with respect to our Series A convertible preferred stock. We
are subject to provisions of Delaware corporate law which, subject to certain
exceptions, prohibit us from engaging in any "business combination" with a
person who, together with affiliates and associates, owns 15% or more of our
common stock (referred to as an interested stockholder) for a period of three
years following the date that such person became an interested stockholder,
unless the business combination is approved in a prescribed manner.
Additionally, bylaws establish an advance notice procedure for stockholder
proposals and for nominating candidates for election as directors. These
provisions of Delaware law and of our certificate of incorporation and bylaws
may have the effect of delaying, deterring or preventing a change in our
control, may discourage bids for our common stock at a premium over market price
and may adversely affect the market price, and the voting and other rights of
the holders of our common stock.
The loss of a major client will have a material adverse effect on our
business.
In 2003, we had one client that accounted for 10% of our pro forma
revenue. We anticipate that our results of operations in any given period will
continue to be influenced to a certain extent by a relatively small number of
clients. Accordingly, if we were to lose the business of such a client, our
results of operations could be materially and adversely affected.
Investment Risks
The price of our common stock is volatile.
Our stock price has been and we believe will continue to be volatile.
For example, from April 1, 2003 through April 15, 2004, the per share price of
our stock has fluctuated from a high of $5.70 to a low of $1.51. The stock's
volatility may be influenced by the market's perceptions of the healthcare
sector in general, or other companies believed to be similar to us or by the
market's perception of our operations and future prospects. Many of these
perceptions are beyond our control. In addition, our stock is not heavily traded
and therefore the ability to achieve relatively quick liquidity without a
negative impact on our stock price is limited.
Some of our outstanding shares are restricted from immediate resale but
may be sold into the market in the immediate future, which would cause
the market price of our common stock to drop significantly, even if our
business is doing well.
As of April 15, 2004, 28,374,852 shares of our common stock were issued
and outstanding. Of this number, approximately 14,000,000 shares were issued in
the CHD Meridian Healthcare merger as "restricted securities." Further, an
additional 12,000,000 shares of our common stock, which are not reflected as
issued and outstanding, are issuable upon conversion of our outstanding shares
of Series A Convertible Preferred Stock. Of this latter amount, 2,000,000 shares
are issuable upon conversion of Series A Convertible Preferred Stock issued in
the CHD Meridian Healthcare merger and 10,000,000 shares are issuable upon
conversion of Series A Convertible Preferred Stock sold to third party investors
to fund a portion of the cash I-trax needed to acquire CHD Meridian Healthcare.
This prospectus covers the resale of approximately 14,000,000 shares of our
common stock and approximately 2,000,000 of the 12,000,000 shares of our common
stock issuable upon conversion of our outstanding shares of Series A Convertible
Preferred Stock. A separate prospectus covers the resale of the 10,000,000
shares our common stock issuable upon conversion of Series A Convertible
Preferred Stock issued in the CHD Meridian Healthcare merger. The two
prospectuses cover an aggregate of approximately 26,000,000 shares of our common
-15-
stock. If the selling shareholders under these prospectuses sell these shares at
the same time, the market price of our common stock would drop, possibly
significantly.
Shares eligible for future sale upon the conversion of outstanding
shares of Series A Convertible Preferred Stock and upon the exercise of
issued options and warrants may cause dilution.
As of April 15, 2004, approximately 12,000,000 shares of our common
stock were reserved for issuance upon conversion of outstanding shares of Series
A Convertible Preferred Stock and 5,852,929 shares of our common stock were
reserved for issuance upon the exercise of our outstanding warrants and options.
Our stockholders, therefore, could experience dilution of their investment upon
conversion or exercise, as applicable, of these securities.
-16-
MARKET FOR OUR COMMON STOCK
Our common stock trades on the American Stock Exchange under the symbol
"DMX." Prior to January 15, 2003, our common stock was quoted on the
Over-the-Counter Bulletin Board under the symbol "IMTX" and "ITRX." The
following table sets forth the high and low closing prices for our common stock
for the periods indicated. All closing prices have been adjusted to reflect a
1-for-5 reverse stock split effected as of close of business on January 3, 2003.
High Low
2004 ---- ----
Second Quarter (through April 16, 2004) $ 5.600 $ 4.900
First Quarter 5.700 3.910
2003
Fourth Quarter 4.490 2.600
Third Quarter 3.790 2.600
Second Quarter 3.000 1.510
First Quarter 5.000 1.370
2002
Fourth Quarter 4.300 2.500
Third Quarter 5.100 2.750
Second Quarter 6.625 4.150
First Quarter 7.650 5.100
As of April 15, 2004, there were approximately 503 registered holders
of our common stock and approximately 70 registered holders of our Series A
Convertible Preferred Stock. On April 16, 2004, the last reported sales price of
our common stock was $4.99.
Dividend Policy
We have never paid or declared any cash dividends on our common stock
and do not anticipate paying cash dividends on our common stock in the
foreseeable future.
Our Series A Convertible Preferred Stock accrues dividends on the
original issue price at the rate of 8% per annum. The dividends are payable upon
conversion of Series A Convertible Preferred Stock into common stock in
additional shares of common stock or, subject to the consent of our senior
secured lender, in cash.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of shares of our
common stock offered under this prospectus.
-17-
SELLING SECURITY HOLDERS
We are registering for offer and sale by the applicable holders:
o up to 13,851,550 shares of our common stock; and
o up to 1,998,886 shares of our common stock issuable upon the
conversion of outstanding Series A Convertible Preferred Stock.
Based on information provided to us by the selling shareholders, the
following table sets forth ownership regarding the shares held by the selling
shareholders.
Number of Shares of Common
Stock Owned Before Offering Number of Shares Common Common Stock Owned After
Name of Selling Shareholder (1) Stock Offered Offering
Common Stock Common Stock
underlying underlying
preferred Common preferred Number of
Common Stock stock Stock stock Shares Percentage
-------------------------------------------- --------------- --------------- ------------ --------------- -------------- -----------
Warburg, Pincus Ventures L.P. 4,148,461 623,595 4,148,461 623,595 -- --
Centre Reinsurance Limited 2,329,174 336,119 2,329,174 336,119 -- --
CHD Investors LLC 1,544,646 232,190 1,544,646 232,190 -- --
Michael J. Hardies 1,472,369 221,326 1,472,369 221,326 -- --
Susan M. Mathews 1,243,207 213,591 1,243,207 213,591 -- --
Colin R. Mathews 56,947 -- 56,947 -- -- --
Brendan R. Mathews and Margaret Mary Keller 56,947 -- 56,947 -- -- --
Devin R. Mathews 56,947 -- 56,947 -- -- --
Kiernan R. Mathews 56,947 -- 56,947 -- -- --
Finn Iverson Mathews, Colin Mathews
Custodian 2,277 -- 2,277 -- -- --
Beck Andrew Mathews, Colin Mathews
Custodian 2,277 -- 2,277 -- -- --
Nora Keller Mathews, Brendan Mathews
Custodian 2,277 -- 2,277 -- -- --
Quinn Annaley Mathews, Devin Mathews
Custodian 2,277 -- 2,277 -- -- --
Franklin Capital Associates III L.P. 925,567 139,131 925,567 139,131 -- --
Pacific Venture Group, L.P. 651,209 93,974 651,209 93,974 -- --
Bessemer Venture Partners MOHA 431,958 64,931 431,958 64,931 -- --
Charles D. Phillips 376,389 16,837 376,389 16,837 -- --
Coleman Swenson Hoffman Booth IV L.P. 219,324 32,968 219,324 32,968 -- --
Haywood D. Cochrane, Jr. 154,109 6,893 154,109 6,893 -- --
PVG Associates, L.P. 30,526 4,405 30,526 4,405 -- --
Stryker Warren Jr. 29,858 4,338 28,858 4,338 1,000 *
John H. Austin 16,351 2,359 16,351 2,359 -- --
CGJR Health Care Services Private
Equities, L.P. 16,265 2,445 16,265 2,445 -- --
Craig Macnab 12,857 1,855 12,857 1,855 -- --
Jim Baker 4,088 589 4,088 589 -- --
Perry W. Moskovitz 4,088 589 4,088 589 -- --
Stuart Smith 2,967 428 2,967 428 -- --
Donald I.N. McKenzie 2,241 323 2,241 323 -- --
-18-
(1) The actual number of shares of common stock offered in this prospectus
and included in the registration statement of which this prospectus is
a part includes such additional number of shares of common stock as may
be issued or issuable by reason of any stock split, stock dividend or
similar transaction involving the common stock, in accordance with Rule
416 under the Securities Act of 1933, as amended, or Securities Act.
* Less than 1%.
Material Relationships and Transactions
The 13,851,550 shares of common stock offered for resale under this
prospectus were issued as part of an aggregate of 13,859,200 shares issued in
connection with I-trax's acquisition of CHD Meridian Healthcare. Of this amount,
10,000,000 shares of common stock were issued to the selling shareholders and
3,859,200 were issued to an escrow agent for the benefit of the selling
shareholders.
An aggregate of 1,998,886 shares of common stock offered for resale
under this prospectus are issuable upon conversion of Series A Convertible
Preferred Stock. I-trax issued 200,000 shares of Series A Convertible Preferred
Stock to the former stockholders of CHD Meridian Healthcare in connection with
I-trax's acquisition of CHD Meridian Healthcare. Each share of Series A
Convertible Preferred Stock is convertible into 10 shares of common stock at the
conversion price of $2.50 per share. Series A Convertible Preferred Stock also
accrues dividends on the original issue price of $25 per share at the rate of 8%
per annum. The dividends are payable upon conversion of the Series A Convertible
Preferred Stock into common stock in additional shares of common stock or,
subject to the consent of our senior secured lender, in cash.
Haywood D. Cochrane, Jr. is a director and vice chairman of I-trax, and
prior to the acquisition of CHD Meridian Healthcare by I-trax served as chairman
and chief executive officer of CHD Meridian Healthcare.
Charles D. ("Chip") Phillips is executive vice president and chief
operating officer of I-trax, and prior to the acquisition of CHD Meridian
Healthcare by I-trax served as a director and chief operating officer of CHD
Meridian Healthcare.
Michael J. Hardies, M.D., is a senior vice president and chief medical
officer - emeritus of I-trax and prior to the acquisition of CHD Meridian
Healthcare by I-trax served as chairman and chief medical officer of CHD
Meridian Healthcare.
Eileen Sweeney, a former officer and director of certain entities
affiliated with Centre Reinsurance Group, served as a director of CHD Meridian
Healthcare prior to its acquisition by I-trax.
W. David Swenson, an affiliate of Franklin Capital Associates III L.P.
and Coleman Swenson Hoffman Booth IV L.P., served as a director of CHD Meridian
Healthcare prior to its acquisition by I-trax.
A representative of Warburg, Pincus Ventures L.P. served as a director
of CHD Meridian Healthcare prior to its acquisition by I-trax.
A representative of CHD Investors, LLC served as a director of CHD
Meridian Healthcare prior to its acquisition by I-trax.
-19-
Voting and Dispositive Power
The following individuals have voting and dispositive power with
respect to the shares of I-trax common stock offered under this prospectus for
resale by entities:
Individual or Individuals Who Exercise Voting and
Name of Selling Shareholder Dispositive Power
------------------------------------------------------ --------------------------------------------------------
Warburg, Pincus Ventures L.P. Warburg, Pincus and Co., the general partner, and
Warburg Pincus LLC, manager
Centre Reinsurance Limited Philip Thorne, Stephen Williams, Meagan Caters or Emma
Lopez
CHD Investors LLC The ultimate corporate general partner has such voting
and dispositive power.
Franklin Capital Associates III L.P. W. David Swenson
Pacific Venture Group, L.P. and PVG Associates, L.P. Layton R. Crouch, or any other active managing member
of PVG Equity Partners, LLC, general partner of
Pacific Venture Group, L.P. and PVG Associates, L.P.
Bessemer Venture Partners MOHA William T. Burgin, Robert H. Buescher, G. Felda
Hardymon, Christopher F.O. Gabrieli and David J.
Cowan. These individuals disclaim beneficial
ownership of the shares held by Bessemer Venture
Partners MOHA and covered by the registration
statement of which this prospectus is a part except to
the extent of their pecuniary interest in Bessemer
Venture Partners MOHA.
Coleman Swenson Hoffman Booth IV L.P. W. David Swenson
CGJR Health Care Services Private Equities, L.P. Christopher Grant, Jr., president of CGJR Capital
Management, Inc., the general partner of CGJR Health
Care Series Private Equities, L.P.
-20-
PLAN OF DISTRIBUTION
The selling shareholders will sell the shares being offered from time
to time through one or more placement agents. We and the selling shareholders
will enter into a placement agency agreement with any such placement agent in
which it will agree to act as a placement agent in connection with the offering.
We will provide the name of the placement agent in a supplement to this
prospectus. The placement agent will agree to use its best efforts to introduce
the selling security holders to selected institutional investors who will
purchase the shares. The placement agent will have no obligation to buy any of
the shares from the selling shareholders. The placement agent will solicit
indications of interest from investors for the full amount of the offering.
All investor funds from the sale of the shares will be deposited with
an escrow agent into an escrow account for the benefit of the investors. The
escrow agent will hold all funds it receives in a non-interest bearing account
in accordance with Rule 15c2-4 under the Exchange Act. The escrow agent will not
accept any investor funds until such time as the terms of an offering have been
agreed to by us, the selling shareholders and the placement agent. Before any
closing date, the escrow agent will notify the placement agent that all of the
funds to pay for the shares have been received. The selling security holders
will deposit the shares with the Depository Trust Company upon receiving notice
from the placement agent that all of the funds to pay for the shares have been
received. At such closing, the Depository Trust Company will credit the shares
to the respective accounts of the investors.
If investor funds are not received for all of the shares being offered,
then all investor funds deposited into escrow will be returned promptly to
investors and the offering will terminate. We and the selling security holders
will indemnify the placement agent and certain other persons against certain
liabilities under the Securities Act. The placement agent will agree that it
will not engage in overallotment, stabilizing transactions or syndicate covering
transactions in connection with the offering.
We will bear all costs, expenses and fees in connection with the
registration of the shares. The selling security holders will pay the placement
agent a fee based on a percentage of the proceeds of the offering and will
reimburse the placement agent for reasonable expenses that it incurs in
connection with the offering.
AVAILABLE INFORMATION
We file reports, proxy statements and other information with the SEC
(File No. 0-30275). Copies of these reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
Copies of these materials can also be obtained by mail at prescribed
rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC
maintains a website that contains reports, proxy statements and other
information regarding our company. The address of this website is
http://www.sec.gov.
We have filed a registration statement on Form S-3 under the Securities
Act with the SEC with respect to the shares of our common stock covered by this
prospectus. This document constitutes the prospectus of I-trax filed as part of
that registration statement. This document does not contain all of the
information set forth in the registration statement because some parts of the
registration statement are omitted as provided by the rules and regulations of
the SEC. You may inspect and copy the registration statement at any of the
addresses listed above.
-21-
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents we have filed with the SEC (File No. 0-30275)
pursuant to the Exchange Act are incorporated herein by reference:
o our Annual Report on Form 10-KSB for the year ended December 31, 2003,
filed on April 8, 2004;
o our Current Reports on Form 8-K filed on February 3, 2004, and March
30, 2004;
o the description of our common stock, $0.001 par value per share, and
associated rights, contained in our registration statement on Form
8-A, filed on January 14, 2003, including any amendment or report
filed for the purpose of updating this description; and
o all reports and other documents filed by us pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this prospectus and prior to the termination of the offering.
Any statement contained in a document incorporated by reference in this
prospectus will be deemed to be incorporated by reference in this prospectus and
to be part of this prospectus from the date of filing of the document. Any
statement modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this prospectus. We will provide upon
written or oral request without charge to each person to whom this prospectus is
delivered a copy of any or all of the documents which are incorporated in this
prospectus by reference (other than exhibits to those documents unless those
exhibits are specifically incorporated by reference into the documents that this
prospectus incorporates). Written requests for copies should be directed to
I-trax, Inc., Investor Relations, One Logan Square, Suite 2615, 130 N. 18th
Street, Philadelphia, Pennsylvania 19103. Our telephone number is (215)
557-7488.
LEGAL MATTERS
The validity of the shares of our common stock offered by this
prospectus will be passed upon for us by our Vice President, General Counsel and
Secretary.
EXPERTS
The financial statements incorporated in this prospectus by reference
to the Annual Report on Form 10-KSB of I-trax, Inc. for the year ended December
31, 2003 and for each of the two years in the period then ended have been so
incorporated in reliance on the reports of Goldstein Golub Kessler LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of CHD Meridian Healthcare incorporated in
this prospectus by reference to the Annual Report on Form 10-KSB of I-trax, Inc.
for the year ended December 31, 2003 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
-22-
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by I-trax
in connection with the sale of the securities being registered. All amounts are
estimates except the SEC registration fee:
SEC registration fee $ 17,141
Printing and engraving expenses 5,000
Accounting fees and expenses 10,000
Attorneys' fees and expenses 10,000
Transfer agent's fees and expenses 2,000
Miscellaneous 859
Total: $ 45,000
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145(a) of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
other than an action by or in the right of the corporation, by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or enterprise, against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no cause to believe his conduct was unlawful.
Section 145(b) of the Delaware General Corporation Law provides that a
Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that such person acted in any of the capacities set forth
above, against expenses actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
court in which such action or suit was brought shall determine that, despite
such adjudication of liability, such person is fairly and reasonably entitled to
be indemnified for such expenses which the court shall deem proper.
Section 145 of the Delaware General Corporation Law further provides
that to the extent a director or officer of a Delaware corporation has been
successful in the defense of any action, suit or proceeding referred to in
subsections (a) or (b) of Section 145 or in the defense of any claim, issue or
matter therein, he shall be indemnified against any expenses actually and
reasonably incurred by him in connection therewith; that the indemnification
provided for by Section 145 shall not be deemed exclusive of any rights to which
the indemnified party may be entitled and the corporation may purchase and
maintain insurance on behalf of a director or officer of the corporation against
any liability asserted against him or incurred by him in any such capacity or
arising out of his status as such whether or not the corporation would have the
power to indemnify him against such liabilities under Section 145.
Section 102(b)(7) of the Delaware General Corporation Law permits a
Delaware corporation to include a provision in its Certificate of Incorporation,
and I-trax's Certificate of Incorporation contains such a provision, to the
-II-1-
effect that, subject to certain exceptions, a director of a Delaware corporation
is not personally liable to the corporation or its stockholders for monetary
damages for a breach of his fiduciary duty as a director.
I-trax's By-laws also provide that I-trax shall indemnify its directors and
officers and, to the extent permitted by the Board of Directors, I-trax's
employees and agents, to the full extent permitted by and in the manner
permissible under the laws of the State of Delaware. In addition, I-trax's
By-laws permit the Board of Directors to authorize the Company to purchase and
maintain insurance against any liability asserted against any of the Company's
directors, officers, employees or agents arising out of their capacity as such.
ITEM 16. EXHIBITS
NUMBER EXHIBIT TITLE
----- -------------
4.1 Certificate of Designations, Preferences and Rights of the
Series A Convertible Preferred Stock of I-trax, Inc. filed on
March 19, 2004. (Incorporated by reference to Exhibit 4.2 to
I-trax, Inc.'s Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2003, filed on April 8, 2004.)
4.2 Form of warrant certificate of I-trax, Inc. issued as of March
19, 2004 to placement agents of Series A Convertible Preferred
Stock. (Incorporated by reference to Exhibit 4.7 to I-trax,
Inc.'s Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2003, filed on April 8, 2004.)
4.3 Form of Subscription Agreement and amendment between I-trax,
Inc. and each subscriber of Series A Convertible Preferred
Stock.
5 Opinion of Vice President, General Counsel and Secretary.
23.1 Consent of Vice President, General Counsel and Secretary.
(Included in Exhibit 5.)
23.2 Consent of Goldstein Golub Kessler LLP.
23.3 Consent of Ernst & Young LLP.
24 Power of Attorney. (Included in signature page.)
-----------------------------
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to include any
additional or changed material information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission
-II-2-
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
-II-3-
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing of this Registration Statement on Form S-3 and has
duly caused this registration statement to be singed on its behalf by the
undersigned, thereunto duly authorized in the City of Philadelphia, Commonwealth
of Pennsylvania on April 19, 2004.
I-TRAX, INC.
By: /s/ Frank A. Martin
----------------------------------------
Frank A. Martin, Chairman and
Chief Executive Officer
By: /s/ Anthony Tomaro
----------------------------------------
Anthony Tomaro, Vice President - Finance
(Principal Financial and Accounting Officer)
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 was signed by the following persons in the
capacities and on the dates stated.
Each person whose signature appears below in so signing also makes,
constitutes and appoints Frank A. Martin and Anthony Tomaro, and each of them,
his or her true and lawful attorney-in-fact, with full power of substitution,
for him or her in any and all capacities, to execute and cause to be filed with
the Securities and Exchange Commission any and all amendments and post-effective
amendments to this Registration Statement and any related registration statement
(and any and all amendments and post-effective amendments thereto) contemplated
by Rule 462 under the Securities Act of 1933, as amended, in each case with
exhibits thereto and other documents in connection therewith and hereby ratifies
and confirms all that said attorney-in-fact or his or her substitute or
substitutes may do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- -----
/s/ Frank A. Martin Chairman, Chief Executive Officer April 19, 2004
------------------------------------ and Director
Frank A. Martin
Director April ____, 2004
------------------------------------
David R. Bock
/s/ Haywood D. Cochrane, Jr. Vice-Chairman, Director April 19, 2004
------------------------------------
Haywood D. Cochrane, Jr.
/s/ Philip D. Green Director April 19, 2004
------------------------------------
Philip D. Green
/s/ Michael M.E. Johns Director April 19, 2004
------------------------------------
Dr. Michael M.E. Johns
/s/ Arthur N. Leibowitz Director April 19, 2004
------------------------------------
Dr. Arthur N. Leibowitz
Director April ____, 2004
------------------------------------
Dr. David Nash
/s/ John R. Palumbo Director April 19, 2004
------------------------------------
John R. Palumbo
-II-4-
/s/ R. Dixon Thayer Director April 19, 2004
------------------------------------
R. Dixon Thayer
/s/ William S. Wheeler Director April 19, 2004
------------------------------------
William S. Wheeler
-II-5-