UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
NDCHEALTH CORPORATION
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the
form or schedule and the date of its filing.
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(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO: 333-128612
(PER-SE TECHNOLOGIES LOGO)(NDCHEALTH LOGO)
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The board of directors of Per-Se Technologies, Inc. ("Per-Se") and the board
of directors of NDCHealth Corporation ("NDCHealth") have agreed to a merger of
NDCHealth with a wholly owned subsidiary of Per-Se pursuant to the terms of a
merger agreement. Upon completion of the merger, Per-Se will acquire NDCHealth
and NDCHealth will become a wholly owned subsidiary of Per-Se. The boards of
directors of Per-Se and NDCHealth have approved the combination because they
believe it will provide substantial benefits to the stockholders of both
companies.
Upon completion of the merger, each outstanding share of NDCHealth common
stock will be converted into the right to receive a combination of (i) $13.00 in
cash and (ii) a number of shares of Per-Se common stock equal to $6.50 divided
by the price per share of Per-Se common stock as determined in accordance with
the procedures set forth in the merger agreement; provided that, Per-Se may, at
its option, increase the cash portion of the per share merger consideration and
correspondingly decrease the stock portion. Per-Se stockholders will continue to
own their existing shares of Per-Se common stock.
At the special meeting of Per-Se stockholders, which is referred to as the
Per-Se special meeting, Per-Se stockholders will be asked to vote on the
issuance of Per-Se common stock to NDCHealth stockholders pursuant to the merger
agreement and the other Per-Se special meeting matters described in this joint
proxy statement/prospectus. At the special meeting of NDCHealth stockholders,
which is referred to as the NDCHealth special meeting, NDCHealth stockholders
will be asked to vote on the adoption of the merger agreement and approval of
the merger and the other NDCHealth special meeting matters described in this
joint proxy statement/prospectus.
AFTER CAREFUL CONSIDERATION, THE BOARDS OF DIRECTORS OF EACH OF PER-SE AND
NDCHEALTH HAVE APPROVED THE MERGER AGREEMENT AND HAVE DETERMINED THAT THE MERGER
AGREEMENT IS IN THE BEST INTEREST OF AND ADVISABLE TO THE STOCKHOLDERS OF EACH
OF PER-SE AND NDCHEALTH.
THE PER-SE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE PER-SE
STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO ISSUE SHARES OF PER-SE COMMON STOCK
PURSUANT TO THE MERGER AGREEMENT AT THE PER-SE SPECIAL MEETING. THE PER-SE BOARD
OF DIRECTORS ALSO RECOMMENDS THAT THE PER-SE STOCKHOLDERS VOTE "FOR" THE OTHER
PER-SE SPECIAL MEETING MATTERS.
THE NDCHEALTH BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE NDCHEALTH
STOCKHOLDERS VOTE "FOR" THE PROPOSAL TO ADOPT THE MERGER AGREEMENT AND APPROVE
THE MERGER AT THE NDCHEALTH SPECIAL MEETING. THE NDCHEALTH BOARD OF DIRECTORS
ALSO RECOMMENDS THAT THE NDCHEALTH STOCKHOLDERS VOTE "FOR" THE OTHER NDCHEALTH
SPECIAL MEETING MATTERS.
Per-Se's common stock is traded on the Nasdaq National Market under the
symbol "PSTI." On December 1, 2005, the last sale price of Per-Se's common stock
as reported on the Nasdaq National Market was $25.06 per share. NDCHealth's
common stock is traded on the New York Stock Exchange under the symbol "NDC." On
December 1, 2005, the last sale price of NDCHealth's common stock as reported on
the New York Stock Exchange was $18.80 per share.
The obligations of each of Per-Se and NDCHealth to complete the merger are
subject to the satisfaction or waiver of several conditions set forth in the
merger agreement, including the sale of NDCHealth's information management
business to Wolters Kluwer Health, Inc. ("Wolters Kluwer"). More information
about Per-Se, NDCHealth, the merger and the sale of the information management
business to Wolters Kluwer is contained in this joint proxy
statement/prospectus. PER-SE AND NDCHEALTH ENCOURAGE YOU TO READ THIS ENTIRE
JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY, INCLUDING THE SECTION ENTITLED "RISK
FACTORS" BEGINNING ON PAGE 14.
We thank you for your support and appreciate your consideration of this
matter.
<Table>
Sincerely, Sincerely,
/s/ Philip M. Pead /s/ Walter Hoff
- ----------------------------------------------- -----------------------------------------------
Per-Se Technologies, Inc. NDCHealth Corporation
</Table>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS
JOINT PROXY STATEMENT/PROSPECTUS OR DETERMINED THAT THIS JOINT PROXY
STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED DECEMBER 2, 2005, AND IS
FIRST BEING MAILED TO THE STOCKHOLDERS OF PER-SE AND NDCHEALTH ON OR ABOUT
DECEMBER 5, 2005.
(PER-SE TECHNOLOGIES LOGO)
1145 SANCTUARY PARKWAY, SUITE 200
ALPHARETTA, GEORGIA 30004
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 5, 2006
Dear Stockholders of Per-Se Technologies, Inc.:
We are pleased to invite you to attend a special meeting of the
stockholders of Per-Se Technologies, Inc., a Delaware corporation, which will be
held on January 5, 2006, beginning at 4:00 p.m., local time at the offices of
King & Spalding LLP, 191 Peachtree Street, Atlanta, Georgia 30303, for the
following purposes:
1. To approve the issuance of Per-Se common stock, par value $0.01 per
share, which is referred to as Per-Se common stock, pursuant to the
Agreement and Plan of Merger, dated as of August 26, 2005, by and among
Per-Se Technologies, Inc., Royal Merger Co., a wholly owned subsidiary of
Per-Se Technologies, Inc., and NDCHealth Corporation, pursuant to which
NDCHealth will become a wholly owned subsidiary of Per-Se, a copy of which
is attached as Annex A to the joint proxy statement/prospectus accompanying
this notice;
2. To vote upon an adjournment or postponement of the Per-Se special
meeting, if necessary, to solicit additional proxies if there are not
sufficient votes for the foregoing proposal; and
3. To transact any other business that may properly be brought before
the Per-Se special meeting or any adjournments or postponements of the
Per-Se special meeting.
Please refer to the attached joint proxy statement/prospectus for further
information with respect to the business to be transacted at the Per-Se special
meeting.
The close of business on November 30, 2005, has been fixed as the record
date for the determination of stockholders entitled to notice of, and to vote
at, the Per-Se special meeting or any adjournments or postponements of the
Per-Se special meeting. Only holders of record of Per-Se common stock at the
close of business on the record date are entitled to notice of, and to vote at,
the Per-Se special meeting. A complete list of stockholders entitled to vote at
the Per-Se special meeting will be available for examination by any of our
stockholders at our headquarters, 1145 Sanctuary Parkway, Suite 200, Alpharetta,
Georgia, for purposes pertaining to the Per-Se special meeting, during normal
business hours for a period of 10 days prior to the Per-Se special meeting, and
at the time and place of the Per-Se special meeting.
YOUR VOTE IS VERY IMPORTANT. Your proxy is being solicited by the Per-Se
board of directors. The issuance of Per-Se common stock to NDCHealth
stockholders pursuant to the merger agreement must be approved by Per-Se
stockholders in order for the merger to be consummated. WHETHER OR NOT YOU PLAN
TO ATTEND THE PER-SE SPECIAL MEETING IN PERSON, WE URGE YOU TO SUBMIT A VALID
PROXY PROMPTLY BY COMPLETING AND MAILING THE PROXY CARD, IN THE ENCLOSED
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES OR,
ALTERNATIVELY, BY VOTING VIA TELEPHONE OR THE INTERNET IN ACCORDANCE WITH THE
INSTRUCTIONS ON THE ENCLOSED PROXY CARD. YOU MAY REVOKE YOUR PROXY AT ANY TIME
BEFORE THE SPECIAL MEETING. IF YOU ATTEND THE SPECIAL MEETING AND VOTE IN
PERSON, YOUR PROXY VOTE WILL NOT BE USED.
The Per-Se board of directors unanimously recommends that you vote to
approve the issuance of Per-Se common stock pursuant to the merger agreement and
also recommends that you vote "FOR" the other Per-Se special meeting proposals,
all of which are described in detail in the accompanying joint proxy statement/
prospectus.
By order of the Board of Directors,
/s/ Paul J. Quiner
Paul J. Quiner
Senior Vice President,
General Counsel and Secretary
December 2, 2005
(NDCHEALTH LOGO)
NDC PLAZA
ATLANTA, GEORGIA 30329-2010
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 5, 2006
Dear Stockholders of NDCHealth Corporation:
Notice is hereby given that a special meeting of stockholders of NDCHealth
Corporation, a Delaware corporation, is scheduled to be held on January 5, 2006,
at 4:00 p.m., local time, at the offices of NDCHealth Corporation, NDC Plaza,
Atlanta, Georgia 30329.
The NDCHealth special meeting will be held for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and
Plan of Merger, dated as of August 26, 2005, by and among Per-Se
Technologies, Inc., Royal Merger Co. and NDCHealth, and approve the merger
pursuant to which NDCHealth will merge with Royal Merger Co., with
NDCHealth continuing as the surviving entity and a wholly owned subsidiary
of Per-Se, and each share of NDCHealth common stock will be converted into
the right to receive $13.00 in cash, plus a number of shares of Per-Se
common stock equal to $6.50 divided by the price per share of Per-Se common
stock as determined in accordance with the terms of the merger agreement,
subject to Per-Se's option to increase the cash portion of the per share
merger consideration and correspondingly decrease the stock portion.
2. In the event that there are not sufficient votes for approval of
Proposal 1 at the special meeting, to consider and vote upon any proposal
to postpone or adjourn the special meeting to a later date to solicit
additional proxies.
3. To transact such other business as may be properly presented at the
special meeting and any adjournments or postponements of the special
meeting.
The accompanying joint proxy statement/prospectus describes the merger
agreement and the merger in detail and includes, as Annex A, the complete text
of the merger agreement. NDCHealth urges you to read these materials carefully
for a complete description of the merger agreement and the merger. The
accompanying joint proxy statement/prospectus forms a part of this notice.
The NDCHealth board of directors unanimously recommends that NDCHealth
stockholders vote "FOR" adoption of the merger agreement and approval of the
merger and "FOR" any proposal to postpone or adjourn the special meeting to a
later date to solicit additional proxies with respect to the adoption of the
merger agreement and approval of the merger in the event that there are
insufficient votes to adopt the merger agreement and approve the merger at the
special meeting.
The NDCHealth board of directors has fixed the close of business on
November 30, 2005, as the record date for determining the stockholders entitled
to notice of, and to vote at, the special meeting and any adjournments or
postponements of the special meeting. Only stockholders of record as of the
record date will be entitled to notice of and to vote at the special meeting.
During the ten-day period before the special meeting, NDCHealth will keep a list
of stockholders entitled to vote at the special meeting available for inspection
during normal business hours at its offices, NDC Plaza, Atlanta, Georgia, for
any purpose pertaining to the NDCHealth special meeting. The list of
stockholders will also be provided and kept at the location of the special
meeting for the duration of the special meeting and may be inspected by
any stockholder who is present. All persons wishing to be admitted to the
special meeting must present photo identification.
YOUR VOTE IS VERY IMPORTANT. Your proxy is being solicited by the
NDCHealth board of directors. The merger agreement must be adopted and the
merger approved by NDCHealth stockholders in order for the merger to be
consummated. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, WE
URGE YOU TO SUBMIT A VALID PROXY PROMPTLY BY COMPLETING AND MAILING THE PROXY
CARD, IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES OR, ALTERNATIVELY, BY VOTING VIA TELEPHONE OR THE INTERNET IN
ACCORDANCE WITH THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD. YOU MAY REVOKE YOUR
PROXY AT ANY TIME BEFORE THE SPECIAL MEETING. IF YOU ATTEND THE SPECIAL MEETING
AND VOTE IN PERSON, YOUR PROXY VOTE WILL NOT BE USED.
Under Delaware law, if the merger is completed, NDCHealth stockholders of
record who do not vote to adopt the merger agreement and approve the merger will
be entitled to exercise appraisal rights and obtain payment for the judicially
determined fair value of their shares of NDCHealth common stock, in lieu of the
consideration to be received pursuant to the merger agreement, by following the
procedures set forth in detail in the accompanying joint proxy
statement/prospectus.
By Order of the Board of Directors,
/s/ RANDOLPH L.M. HUTTO
Randolph L.M. Hutto
Executive Vice President, General
Counsel and Secretary
Atlanta, Georgia
December 2, 2005
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES
ADDITIONAL INFORMATION
PER-SE
This joint proxy statement/prospectus incorporates by reference important
business and financial information about Per-Se from other documents filed with
the Securities and Exchange Commission, which is referred to as the SEC, that
are not included in or delivered with this joint proxy statement/prospectus. For
a listing of the documents incorporated by reference in this joint proxy
statement/prospectus, see the section entitled "Where You Can Find More
Information" beginning on page 159.
Per-Se will provide you with copies of this information, without charge,
upon written or oral request to:
Per-Se Technologies, Inc.
1145 Sanctuary Parkway
Suite 200
Alpharetta, Georgia 30004
Attention: Investor Relations
Telephone: (770) 237-4300
E-mail Address: investors@per-se.com
NDCHEALTH
NDCHealth is an SEC reporting company and it files annual, quarterly and
current reports and other information with the SEC that have not been
incorporated by reference in, included in or delivered with this joint proxy
statement/prospectus. NDCHealth will provide you with copies of these documents,
without charge, upon written or oral request to:
NDCHealth Corporation
NDC Plaza
Atlanta, Georgia 30329-2010
Attention: Investor Relations
Telephone: (404) 728-2000
E-mail Address: investorinfo@ndchealth.com
You may also obtain copies of documents filed by each of the companies with
the SEC at http://www.sec.gov. In addition, you may obtain copies of Per-Se's
SEC filings at http://www.per-se.com and copies of NDCHealth's SEC filings at
http://www.ndchealth.com. Web site materials are not part of this joint proxy
statement/prospectus.
IN ORDER FOR YOU TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS BEFORE THE
PER-SE SPECIAL MEETING OR THE NDCHEALTH SPECIAL MEETING, PER-SE OR NDCHEALTH
SHOULD RECEIVE YOUR REQUEST NO LATER THAN DECEMBER 20, 2005.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
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QUESTIONS AND ANSWERS....................................... v
SUMMARY..................................................... 1
The Companies............................................. 1
Per-Se................................................. 1
NDCHealth.............................................. 1
The Per-Se Special Meeting and the NDCHealth Special
Meeting................................................ 1
The Per-Se Special Meeting............................. 1
The NDCHealth Special Meeting.......................... 2
Record Date; Quorum.................................... 2
Required Vote.......................................... 2
Voting by Directors and Executive Officers............. 3
Voting and Revocation of Proxies....................... 3
The Merger Agreement and the Merger....................... 4
The Merger Agreement................................... 4
The Merger............................................. 6
Information Management Sale Agreements.................... 8
Comparative Stock Prices and Dividends.................... 9
Selected Historical Financial Data Of Per-Se.............. 10
Selected Historical Financial Data Of NDCHealth........... 11
Summary Unaudited Pro Forma Financial Data................ 12
Comparative Per Share Information......................... 13
RISK FACTORS................................................ 14
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 24
THE PER-SE SPECIAL MEETING.................................. 26
General................................................... 26
Date, Time and Place of the Per-Se Special Meeting........ 26
Purpose of the Per-Se Special Meeting..................... 26
Stockholder Record Date for the Per-Se Special Meeting.... 26
Vote Required at the Per-Se Special Meeting............... 26
Proxies at the Per-Se Special Meeting..................... 27
Voting your Proxy...................................... 27
How to Vote by Proxy................................... 27
Revoking Your Proxy.................................... 27
Voting in Person at the Per-Se Special Meeting............ 27
Other Business; Adjournments.............................. 27
Recommendation of the Per-Se Board of Directors........... 28
Proxy Solicitation........................................ 28
THE NDCHEALTH SPECIAL MEETING............................... 29
General................................................... 29
Date, Time and Place of the NDCHealth Special Meeting..... 29
Purpose of the NDCHealth Special Meeting.................. 29
Stockholder Record Date for the NDCHealth Special
Meeting................................................ 29
</Table>
<Table>
<Caption>
PAGE
----
Vote Required at the NDCHealth Special Meeting............ 29
Proxies at the NDCHealth Special Meeting.................. 30
Voting your Proxy...................................... 30
How to Vote by Proxy................................... 30
Revoking Your Proxy.................................... 30
Voting in Person at the NDCHealth Special Meeting......... 30
Other Business; Adjournments.............................. 30
Recommendation of the NDCHealth Board of Directors........ 31
Proxy Solicitation........................................ 31
THE MERGER.................................................. 32
Background of the Merger.................................. 32
Per-Se Reasons for the Merger............................. 38
Recommendation of the Per-Se Board of Directors........... 40
Opinion of Financial Advisor to the Per-Se Board of
Directors.............................................. 40
NDCHealth Reasons for the Merger.......................... 46
Recommendation of the NDCHealth Board of Directors........ 48
Opinions of Financial Advisors to the NDCHealth Board of
Directors.............................................. 48
Opinion of The Blackstone Group L.P. .................. 48
Opinion of Goldman, Sachs & Co. ....................... 57
Interests of Certain Persons in the Merger; Conflicts of
Interest............................................... 65
Financing Arrangements.................................... 68
Anticipated Accounting Treatment.......................... 69
Regulatory Approvals Required for the Merger.............. 69
Restrictions on Sales of Shares of Per-Se Common Stock
Received in the Merger................................. 69
Appraisal Rights of Dissenting NDCHealth Stockholders..... 70
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS............. 73
General U.S. Federal Income Tax Considerations of the
Merger to NDCHealth Stockholders....................... 74
Information Reporting and Backup Withholding.............. 74
THE MERGER AGREEMENT........................................ 75
Structure of the Merger................................... 75
Merger Consideration...................................... 75
Treatment of Options and Equity Awards.................... 75
Procedures for Exchange of Certificates................... 76
Representations and Warranties............................ 76
Conduct of Business by Per-Se and NDCHealth Prior to
Completion of the Merger............................... 78
Senior Subordinated Notes................................. 79
Registration Statement; Joint Proxy
Statement/Prospectus................................... 79
Recommendations to Stockholders........................... 80
No Solicitation; Other Offers............................. 80
Antitrust Notification.................................... 81
Employee Benefit Matters.................................. 82
Indemnification and Insurance............................. 82
Conditions to Completion of the Merger.................... 82
Termination of the Merger Agreement....................... 84
</Table>
ii
<Table>
<Caption>
PAGE
----
Expenses and Termination Fees............................. 85
Amendment and Waiver...................................... 87
Governing Law............................................. 87
INFORMATION MANAGEMENT SALE AGREEMENTS...................... 88
Stock Purchase Agreement.................................. 88
Contribution Agreement.................................... 88
Data Supply and Services Agreement........................ 89
Retail Informatics and Services Agreement................. 89
Transition Services Agreement............................. 90
INFORMATION ABOUT PER-SE.................................... 91
INFORMATION ABOUT NDCHEALTH................................. 92
Business.................................................. 92
General................................................... 92
Acquisitions, Investments and Strategic Alliances......... 94
Products, Services and Distribution Channels.............. 95
Pharmacy Services and Systems............................. 95
Hospital Solutions........................................ 98
Physician Solutions....................................... 99
Information Management.................................... 100
Operations and Systems Infrastructure..................... 101
Intellectual Property..................................... 102
Research and Development.................................. 103
Employees................................................. 103
Properties................................................ 103
Legal Proceedings......................................... 104
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 105
General................................................ 105
Healthcare Market...................................... 105
NDCHealth Market Position.............................. 106
Business Position and Strategy......................... 106
Business Segments...................................... 106
Government Regulation.................................. 110
Acquisitions and Alliances............................. 111
Results of Operations for Fiscal 2005, 2004 and 2003... 112
Cost of Service........................................ 115
Sales, General and Administrative Expense.............. 117
Depreciation and Amortization.......................... 117
Restructuring, Special Governance and Other Charges.... 118
Operating Income....................................... 119
Other Income (Expense)................................. 120
Provision for Income Taxes............................. 120
Results of Operations for the First Quarter of Fiscal
2006 vs. the First Quarter of Fiscal 2005............. 121
Revenue................................................ 121
Cost of Service........................................ 122
</Table>
iii
<Table>
<Caption>
PAGE
----
Sales, General and Administrative Expense.............. 124
Depreciation and Amortization.......................... 125
Restructuring, Special Governance and Other Charges.... 125
Operating Income....................................... 126
Other Income (Expense)................................. 126
Provision for Income Taxes............................. 127
Discontinued Operations................................ 127
Liquidity and Capital Resources........................ 127
As of May 27, 2005................................ 127
As of September 2, 2005........................... 130
Off-Balance Sheet Arrangements......................... 131
Application of Critical Accounting Policies............ 131
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 136
Quantitative and Qualitative Disclosures About Market
Risk...................................................... 136
Certain Relationships and Related Transactions.............. 137
Security Ownership of Certain Beneficial Owners and
Management................................................ 137
COMPARATIVE STOCK PRICES AND DIVIDENDS...................... 139
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS................................................ 142
COMPARISON OF RIGHTS OF PER-SE AND NDCHEALTH STOCKHOLDERS... 155
Authorized Capital Stock............................... 155
Voting................................................. 155
Number of Directors.................................... 155
Removal of Directors................................... 156
Filling Vacancies on the Board of Directors............ 156
Calling a Special Meeting of the Stockholders.......... 156
Action by Written Consent in Lieu of a Stockholders'
Meeting............................................... 156
Amendment to the Certificate of Incorporation.......... 157
Amendment to the Bylaws................................ 157
Indemnification/Limitation of Liability................ 157
State Anti-takeover Statutes........................... 158
LEGAL MATTERS............................................... 158
EXPERTS..................................................... 158
WHERE YOU CAN FIND MORE INFORMATION......................... 159
STOCKHOLDER PROPOSALS....................................... 160
INDEX TO FINANCIAL STATEMENTS OF NDCHEALTH AND
SUBSIDIARIES.............................................. F-1
ANNEX A -- MERGER AGREEMENT
ANNEX B -- OPINION OF BANC OF AMERICA SECURITIES LLC
ANNEX C -- OPINION OF THE BLACKSTONE GROUP L.P.
ANNEX D -- OPINION OF GOLDMAN, SACHS & CO.
ANNEX E -- DELAWARE GENERAL CORPORATION LAW SECTION 262
</Table>
iv
QUESTIONS AND ANSWERS
The following are some questions that you, as a stockholder of Per-Se or
NDCHealth, may have regarding the merger and the other matters being considered
at the stockholders' meetings and answers to those questions. Per-Se and
NDCHealth urge you to read carefully the remainder of this joint proxy
statement/prospectus because the information in this section does not provide
all the information that might be important to you with respect to the merger
and the other matters being considered at the special meetings. Additional
important information is also contained in the annexes to and the documents
incorporated by reference in this joint proxy statement/prospectus.
Q: WHY ARE PER-SE AND NDCHEALTH PROPOSING THIS MERGER?
A: The boards of directors of Per-Se and NDCHealth believe that the merger will
provide substantial strategic and financial benefits to the stockholders of
both companies. The boards of directors of both companies believe that the
merger represents the combination of two highly complementary organizations
that share the same strategic focus: to improve reimbursement for healthcare
providers. The portfolio of the combined entity will offer a wide range of
services and software to healthcare providers, including business process
outsourcing services for physicians, physician practice management software,
and revenue cycle and resource management solutions for hospitals and claims
processing and point of sale solutions for retail pharmacies. The boards of
directors of both companies believe that the combination will create a
company with a diversified customer portfolio with a suite of solutions and
services. The combination should provide a platform for profitable growth and
enable the company to improve reimbursement for healthcare providers and as a
result reduce the costs associated with the delivery of care.
The board of directors of NDCHealth conducted an extensive sale process for
the sale of NDCHealth and believes this transaction is in the best interests
of its stockholders in light of the other alternatives the board has
considered.
Q: HOW DO I VOTE?
A: If you are a stockholder of record of Per-Se as of the record date for the
Per-Se special meeting or a stockholder of record of NDCHealth as of the
record date for the NDCHealth special meeting, you may vote in person by
attending your stockholders' meeting, or you may vote by:
- accessing the Internet website specified on your proxy card;
- calling the toll-free number specified on your proxy card; or
- signing, dating and mailing the enclosed proxy card so that your shares may
be represented and voted at your special meeting. A pre-addressed, postage
prepaid envelope is enclosed for your convenience.
Q: IF MY SHARES ARE HELD IN STREET NAME BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: If you hold your shares in a stock brokerage account or if your shares are
held by a bank or nominee (that is, in street name), you must provide the
record holder of your shares with instructions on how to vote your shares.
Please refer to the voting instruction card used by your broker nominee to
see if you may submit voting instructions by Internet or telephone. You
cannot vote shares held in street name by returning a proxy card directly to
Per-Se or to NDCHealth or by voting in person at your special meeting.
Q: WHAT WILL HAPPEN IF I ABSTAIN FROM VOTING?
A: Per-Se Stockholders. If you abstain from voting either in person at the
meeting or by so indicating on your proxy, your shares will be counted toward
the presence of a quorum, and it will have the same effect as a vote against
the proposals (i) to approve the issuance of shares of Per-Se common stock
pursuant to the merger agreement; and (ii) to adjourn or postpone the Per-Se
special meeting, if necessary, to solicit additional proxies.
Brokers who hold shares of Per-Se common stock in street name for customers
who are the beneficial owners of those shares may not give a proxy to vote
those shares without specific instructions from
v
their customers. These non-voted shares are referred to as broker non-votes.
Broker non-votes will be treated as present for determining the presence or
absence of a quorum but will have no effect on the proposal to approve the
issuance of shares of Per-Se common stock pursuant to the merger agreement or
any other matters considered at the Per-Se special meeting.
If proxies are returned without indication as to how to vote, the Per-Se
common stock represented by each such proxy will be considered to be voted in
favor of all matters for consideration at the Per-Se special meeting.
If you do not vote (either in person or by proxy), your shares will not be
counted towards the presence or absence of a quorum and will have no effect
on any matters considered at the Per-Se special meeting.
NDCHealth Stockholders. If you abstain from voting either in person at the
meeting or by so indicating on your proxy, your shares will be counted toward
the presence of a quorum, and it will have the same effect as a vote against
the proposals (i) to adopt the merger agreement and approve the merger and
(ii) to adjourn or postpone the NDCHealth special meeting, if necessary, to
solicit additional proxies.
Brokers who hold shares of NDCHealth common stock in street name for
customers who are the beneficial owners of those shares may not give a proxy
to vote those shares without specific instructions from their customers.
Broker non-votes will be treated as present for purposes of determining the
presence or absence of a quorum and will have the same effect as votes
against the proposal to adopt the merger agreement and approve the merger but
will have no effect on any other matters considered at the NDCHealth special
meeting.
If proxies are returned without indication as to how to vote, the NDCHealth
common stock represented by each such proxy will be considered to be voted in
favor of all matters for consideration at the NDCHealth special meeting.
If you do not vote (either in person or by proxy), it will have the same
effect as a vote against the proposal to adopt the merger agreement and
approve the merger, but, because the shares will not be counted toward the
presence of a quorum, will have no effect on the proposal to adjourn or
postpone the NDCHealth special meeting, if necessary, to solicit additional
proxies.
Q: CAN I CHANGE MY VOTE EVEN AFTER RETURNING A PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at your
stockholders' meeting. If you are a stockholder of record, you can do this in
one of three ways:
- you can send a signed notice of revocation;
- you can grant a new, valid proxy bearing a later date; or
- you can attend your special meeting and vote in person which will
automatically cancel any proxy previously given, or you may revoke your
proxy in person, but your attendance alone will not revoke any proxy that
you have previously given.
If you choose either of the first two methods, you must submit your notice of
revocation or your new proxy to the Corporate Secretary of Per-Se or
NDCHealth, as appropriate, no later than the beginning of your special
meeting.
If your shares are held in street name by your broker and you wish to change
your vote, you should follow the instructions provided by your broker.
Q: WHAT DO I NEED TO DO NOW?
A: Carefully read and consider the information contained in and incorporated by
reference in this joint proxy statement/prospectus, including its annexes.
You are then urged to submit your proxy so that your shares may be
represented at your special meeting.
vi
In order for your shares to be represented at your special meeting:
- you can attend your special meeting in person;
- you can vote through the Internet or by telephone by following the
instructions included on your proxy card; or
- you can indicate on the enclosed proxy card how you would like to vote and
return the proxy card in the accompanying pre-addressed postage paid
envelope.
If your shares are held in street name by your broker, you should follow the
instructions provided by your broker.
Q: SHOULD I SEND IN MY NDCHEALTH STOCK CERTIFICATES NOW?
A: No. NDCHealth stockholders should not send in any stock certificates now. If
the merger is completed, Per-Se's exchange agent will send former NDCHealth
stockholders a letter of transmittal explaining what they must do to exchange
their NDCHealth stock certificates for the merger consideration payable to
them. If you are a Per-Se stockholder, you will not be required to send in
your Per-Se stock certificates.
Q: WHO CAN ANSWER MY QUESTIONS?
A: Per-Se Stockholders. Per-Se stockholders who have questions about the merger
or the other matters to be voted on at the Per-Se special meeting or desire
additional copies of this joint proxy statement/prospectus or additional
proxy cards should contact:
Per-Se Technologies, Inc.
1145 Sanctuary Parkway
Suite 200
Alpharetta, Georgia 30004
Attention: Investor Relations
Telephone: (770) 237-4300
E-mail Address: investors@per-se.com
or Per-Se's and NDCHealth's proxy solicitor:
MacKenzie Partners, Inc.
105 Madison Avenue
New York, New York 10016
Telephone: (800) 322-2885
E-mail Address: proxy@mackenziepartners.com
NDCHealth Stockholders. NDCHealth stockholders who have questions about the
merger or the other matters to be voted on at the NDCHealth special meeting
or desire additional copies of this joint proxy statement/prospectus or
additional proxy cards should contact:
NDCHealth Corporation
NDC Plaza
Atlanta, Georgia 30329-2010
Attention: Investor Relations
Telephone: (404) 728-2000
E-mail Address: investorinfo@ndchealth.com
or Per-Se's and NDCHealth's proxy solicitor:
MacKenzie Partners, Inc.
105 Madison Avenue
New York, New York 10016
Telephone: (800) 322-2885
E-mail Address: proxy@mackenziepartners.com
vii
SUMMARY
This summary highlights information contained elsewhere in this joint proxy
statement/prospectus and may not contain all the information that is important
to you. Per-Se and NDCHealth urge you to read carefully the remainder of this
joint proxy statement/prospectus including the attached annexes, and the other
documents to which we have referred you because information in this section does
not provide all the information that might be important to you with respect to
the merger and the other matters being considered at your special meeting. See
also the section entitled "Where You Can Find More Information" beginning on
page 159. We have included page references to direct you to a more complete
description of the topics presented in this summary.
THE COMPANIES
PER-SE (SEE PAGE 91)
Per-Se Technologies, Inc.
1145 Sanctuary Parkway
Suite 200
Alpharetta, Georgia 30004
Telephone: (770) 237-4300
Per-Se was organized in 1985 under the laws of the State of Delaware and
provides integrated business management outsourcing services, Internet-enabled
connectivity and administrative software for the healthcare industry. Per-Se
delivers its services and products through its two operating divisions:
Physician Services and Hospital Services. Per-Se markets its products and
services to constituents of the healthcare industry, primarily to
hospital-affiliated physician practices, physician groups in academic settings,
hospitals and integrated delivery networks. Per-Se services more than 19,000
physicians and 2,000 hospitals.
NDCHEALTH (SEE PAGE 92)
NDCHealth Corporation
NDC Plaza
Atlanta, Georgia 30329-2010
Telephone: (404) 728-2000
NDCHealth is a Delaware corporation incorporated in 1967 and is a leading
healthcare information solutions company that provides products and services to
the major segments of the healthcare industry -- pharmacies, hospitals,
physicians, payers and pharmaceutical manufacturers. NDCHealth is a leading
provider of value-added electronic health information processing services, in
terms of the number of electronic transactions processed. NDCHealth is connected
to over 90% of the retail pharmacy stores in the United States, more than 20% of
the nation's hospitals and over 1,000 healthcare payers. NDCHealth also provides
information services and solutions to more than 100 pharmaceutical manufacturers
and has approximately 100,000 medical professionals using NDCHealth's practice
management solutions.
THE PER-SE SPECIAL MEETING AND THE NDCHEALTH SPECIAL MEETING
THE PER-SE SPECIAL MEETING (SEE PAGE 26)
The special meeting of Per-Se stockholders, which is referred to as the
Per-Se special meeting, will be held at the offices of King & Spalding LLP, 191
Peachtree Street, Atlanta, Georgia 30303, at 4:00 p.m., local time, on January
5, 2006. At the Per-Se special meeting, Per-Se stockholders will be asked to:
- approve the issuance of Per-Se common stock pursuant to the merger
agreement;
- vote upon an adjournment or postponement of the Per-Se special meeting,
if necessary, to solicit additional proxies if there are not sufficient
votes for the foregoing proposal; and
1
- transact any other business that may properly be brought before the
Per-Se special meeting or any adjournments or postponements of the Per-Se
special meeting.
THE NDCHEALTH SPECIAL MEETING (SEE PAGE 29)
The special meeting of NDCHealth stockholders, which is referred to as the
NDCHealth special meeting, will be held at the offices of NDCHealth Corporation,
NDC Plaza, Atlanta, Georgia 30329, at 4:00 p.m., local time, on January 5, 2006.
At the NDCHealth special meeting, NDCHealth stockholders will be asked to:
- adopt the merger agreement and approve the merger;
- vote upon an adjournment or postponement of the NDCHealth special
meeting, if necessary, to solicit additional proxies if there are not
sufficient votes for the foregoing proposal; and
- transact any other business that may properly be brought before the
NDCHealth special meeting or any adjournments or postponements of the
NDCHealth special meeting.
RECORD DATE; QUORUM
PER-SE (SEE PAGE 26)
Only Per-Se stockholders of record at the close of business on November 30,
2005, which is referred to as the Per-Se record date, will be entitled to notice
of, and to vote at, the Per-Se special meeting.
On the Per-Se record date, there were 30,266,190 shares of Per-Se common
stock entitled to vote at the Per-Se special meeting. The presence of the
holders of a majority of Per-Se common stock outstanding on the record date,
whether present in person or by properly executed and delivered proxy, will
constitute a quorum for the transaction of business at the Per-Se special
meeting.
NDCHEALTH (SEE PAGE 29)
Only NDCHealth stockholders of record at the close of business on November
30, 2005, which is referred to as the NDCHealth record date, will be entitled to
notice of, and to vote at, the NDCHealth special meeting.
On the NDCHealth record date, there were a total of 36,299,858 shares of
NDCHealth common stock entitled to vote at the NDCHealth special meeting. The
presence of the holders of a majority of NDCHealth common stock outstanding on
the record date, whether present in person or by properly executed and delivered
proxy, will constitute a quorum for the transaction of business at the NDCHealth
special meeting.
REQUIRED VOTE
PER-SE (SEE PAGE 26)
Per-Se stockholders will have one vote for each share of Per-Se common
stock that they owned on the Per-Se record date. The affirmative vote of the
holders of a majority of all the shares of Per-Se common stock present in person
or represented by proxy and entitled to vote on the proposal at the Per-Se
special meeting is required to approve the issuance of Per-Se common stock
pursuant to the merger agreement. In addition, adoption of any proposal to
postpone or adjourn the Per-Se special meeting to a later date for the purpose
of soliciting additional proxies with respect to the merger requires the
approval of holders of a majority of the shares of Per-Se common stock present,
in person or by proxy, at the Per-Se special meeting and entitled to vote on the
proposal.
NDCHEALTH (SEE PAGE 29)
NDCHealth stockholders will have one vote for each share of NDCHealth
common stock that they owned on the NDCHealth record date. The merger cannot be
completed unless holders of a majority of
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the outstanding shares of NDCHealth common stock vote to adopt the merger
agreement and approve the merger. In addition, adoption of any proposal to
postpone or adjourn the NDCHealth special meeting to a later date for the
purpose of soliciting additional proxies with respect to the merger requires the
approval of holders of a majority of the shares of NDCHealth common stock
entitled to vote and present, in person or by proxy, at the NDCHealth special
meeting.
VOTING BY DIRECTORS AND EXECUTIVE OFFICERS
PER-SE
On the Per-Se record date, directors and executive officers of Per-Se and
their affiliates owned and were entitled to vote 6,039,435 shares of Per-Se
common stock, or approximately 19.95% of the shares of Per-Se common stock
outstanding on that date.
NDCHEALTH
On the NDCHealth record date, directors and executive officers of NDCHealth
and their affiliates owned and were entitled to vote 359,383 shares of NDCHealth
common stock, or approximately 0.1% of the shares of NDCHealth common stock
outstanding on that date.
VOTING AND REVOCATION OF PROXIES
PER-SE (SEE PAGE 27)
You are requested to complete and sign the accompanying proxy and return it
promptly to Per-Se in the enclosed postage-paid envelope. When the accompanying
proxy is returned properly executed, the shares of Per-Se common stock
represented by it will be voted at the Per-Se special meeting in accordance with
the instructions contained in the proxy.
If you abstain from voting either in person at the meeting or by so
indicating on your proxy, your shares will be counted toward the presence of a
quorum, and it will have the same effect as a vote against the proposals (i) to
approve the issuance of shares of Per-Se common stock pursuant to the merger
agreement; and (ii) to adjourn or postpone the Per-Se special meeting, if
necessary, to solicit additional proxies.
If your shares are not represented at the Per-Se special meeting because
you did not return your proxy card or otherwise, your shares will not be counted
towards the presence or absence of a quorum and will have no effect on any
matters considered at the Per-Se special meeting.
Brokers who hold shares of Per-Se common stock in street name for customers
who are the beneficial owners of those shares may not give a proxy to vote those
shares without specific instructions from their customers. Broker non-votes will
be treated as present for determining the presence or absence of a quorum but
will have no effect on the proposal to approve the issuance of Per-Se common
stock pursuant to the merger agreement or on any other proposal considered at
the Per-Se special meeting.
If proxies are returned without indication as to how to vote, the Per-Se
common stock represented by each such proxy will be considered to be voted in
favor of all matters for consideration at the Per-Se special meeting.
You have the power to revoke your proxy at any time before your proxy is
voted at the Per-Se special meeting. If you are a holder of record, you can
revoke your proxy in one of three ways:
- you can send a signed notice of revocation;
- you can grant a new, valid proxy bearing a later date; or
- you can attend the Per-Se special meeting and vote in person which will
automatically cancel any proxy previously given, or you may revoke your
proxy in person, but your attendance alone will not revoke any proxy that
you have previously given.
3
If you choose either of the first two methods, you must submit your notice
of revocation or your new proxy to the Corporate Secretary of Per-Se no later
than the beginning of the Per-Se special meeting.
If your shares are held in street name by your broker and you wish to
change your vote, you should follow the instructions provided by your broker.
NDCHEALTH (SEE PAGE 30)
You are requested to complete and sign the accompanying proxy and return it
promptly to NDCHealth in the enclosed postage-paid envelope. When the
accompanying proxy is returned properly executed, the shares of NDCHealth common
stock represented by it will be voted at the NDCHealth special meeting in
accordance with the instructions contained in the proxy.
If you abstain from voting either in person at the meeting or by so
indicating on your proxy, your shares will be counted toward the presence of a
quorum, and it will have the same effect as a vote against the proposal to adopt
the merger agreement and approve the merger and against the proposal to adjourn
or postpone the NDCHealth special meeting, if necessary, to solicit additional
proxies. If you do not vote (either in person or by proxy), it will have the
same effect as a vote against the proposal to adopt the merger agreement and
approve the merger but, because the shares will not be counted toward the
presence of a quorum, will have no effect on the proposal to adjourn or postpone
the NDCHealth special meeting, if necessary, to solicit additional proxies.
Brokers who hold shares of NDCHealth common stock in street name for
customers who are the beneficial owners of those shares may not give a proxy to
vote those shares without specific instructions from their customers. These
broker non-votes will be treated as present for purposes of determining the
presence or absence of a quorum and will have the same effect as a vote against
the proposal to adopt the merger agreement and approve the merger but will have
no effect on any other matters considered at the NDCHealth special meeting.
If proxies are returned without indication as to how to vote, the NDCHealth
common stock represented by each such proxy will be considered to be voted in
favor of all matters for consideration at the NDCHealth special meeting.
You have the power to revoke your proxy at any time before your proxy is
voted at the NDCHealth special meeting. If you are a holder of record, your
proxy can be revoked in one of three ways:
- you can send a signed notice of revocation;
- you can grant a new, valid proxy bearing a later date; or
- you can attend the NDCHealth special meeting and vote in person which
will automatically cancel any proxy previously given, or you may revoke
your proxy in person, but your attendance alone will not revoke any proxy
that you have previously given.
If you choose either of the first two methods, you must submit your notice
of revocation or your new proxy to the Corporate Secretary of NDCHealth no later
than the beginning of the NDCHealth meeting.
If your shares are held in street name by your broker and you wish to
change your vote, you should follow the instructions provided by your broker.
THE MERGER AGREEMENT AND THE MERGER
THE MERGER AGREEMENT (SEE PAGE 75)
A copy of the merger agreement is attached as Annex A to this joint proxy
statement/prospectus. Per-Se and NDCHealth encourage you to read the entire
merger agreement carefully.
4
Structure of Merger (See page 75)
If all conditions to the merger are satisfied or waived, Royal Merger Co.
will be merged with and into NDCHealth. After the merger, NDCHealth will be the
surviving corporation and will be a wholly owned subsidiary of Per-Se.
Consideration to be Received by NDCHealth Stockholders (See page 75)
Upon completion of the merger, each share of NDCHealth common stock (other
than dissenting shares or shares held by Per-Se or Royal Merger Co.) issued and
outstanding immediately prior to the effective time of the merger will be
cancelled and automatically converted into the right to receive:
- $13.00 in cash; and
- a number of shares of Per-Se common stock equal to $6.50 divided by the
price per share of Per-Se common stock as determined in accordance with
the procedures set forth in the merger agreement and described below.
Per-Se has the right to increase (but not decrease) the amount of cash that
each share of NDCHealth common stock will receive. If Per-Se makes this
adjustment, the dollar amount of Per-Se common stock that each share of
NDCHealth common stock will receive will be correspondingly reduced. If Per-Se
elects to adjust the merger consideration, it must issue a press release
announcing the adjusted merger consideration at least five business days prior
to the NDCHealth special meeting.
The number of shares of Per-Se common stock to be issued pursuant to the
merger agreement will be determined by dividing (i) the applicable dollar value
(e.g., $6.50), by (ii) the average of the volume weighted sales prices per share
of Per-Se common stock on the Nasdaq National Market as reported by Bloomberg
Financial Markets for the 20 consecutive trading days in which shares of Per-Se
common stock are traded on the Nasdaq National Market ending on the third
trading day prior to, but not including, the closing date. However, if Per-Se
issues any Per-Se common stock (or any security convertible or exchangeable into
or exercisable for Per-Se common stock) within 33 business days prior to the
closing date (subject to certain exceptions for stock-based compensation and
existing rights), then the number of shares of Per-Se common stock to be issued
pursuant to the merger agreement will be based on the lesser of the twenty day
volume weighted average sales price of Per-Se common stock described above and
the lowest price per share received by Per-Se pursuant to any such issuance.
Conditions to Completion of the Merger (See page 82)
Each of Per-Se and NDCHealth is required to complete the merger only if
specific conditions are satisfied or waived, including, without limitation:
- the required approvals by the Per-Se stockholders and the NDCHealth
stockholders;
- the absence of any law, order, or injunction issued by a court or other
governmental authority prohibiting the consummation of the merger; and
- the closing of the sale of NDCHealth's information management business to
Wolters Kluwer in accordance with the terms of the information management
sale agreements.
Other than the conditions pertaining to stockholder approvals and the
legality of the merger, either Per-Se or NDCHealth may elect to waive conditions
to its own performance and complete the merger. Neither Per-Se nor NDCHealth has
any intention to waive any condition as of the date of this joint proxy
statement/prospectus.
Termination of the Merger Agreement (See page 84)
Per-Se and NDCHealth can jointly agree to terminate the merger agreement at
any given time. Either company may also terminate the merger agreement if the
merger is not completed by February 26, 2006 (subject to extension under certain
circumstances and subject to certain exceptions) and under other circumstances
described in this joint proxy statement/prospectus.
5
Expenses and Termination Fees (See page 85)
Generally, all fees and expenses incurred in connection with the merger
agreement and the transactions contemplated by the merger agreement will be paid
by the party incurring those expenses, subject to the specific exceptions
discussed in this joint proxy statement/prospectus. Specifically, the merger
agreement provides that, under specified circumstances, Per-Se or NDCHealth may
be required to pay the other party's expenses related to the merger up to $10
million and NDCHealth may be required to pay Per-Se a termination fee of up to
$26,763,750.
THE MERGER (SEE PAGE 32)
Recommendations of the Boards of Directors
Per-Se (See page 40)
After careful consideration, the Per-Se board of directors, on August 26,
2005, unanimously approved the merger agreement. In reaching its decision, the
Per-Se board of directors consulted with its management team and advisors and
independently considered the proposed merger agreement and the transactions
contemplated by the merger agreement. For the factors considered by the Per-Se
board of directors in reaching its decision to approve and adopt the merger
agreement, see the section entitled "The Merger -- Per-Se Reasons for the
Merger" beginning on page 38. The board of directors of Per-Se unanimously
recommends that Per-Se stockholders vote "FOR" the proposals (i) to approve the
issuance of Per-Se common stock pursuant to the merger agreement and (ii) to
adjourn or postpone the Per-Se special meeting, if necessary, for the purpose of
soliciting additional proxies.
NDCHealth (See page 48)
After careful consideration, the NDCHealth board of directors, including a
majority of disinterested directors, on August 26, 2005, approved the merger
agreement. In reaching its decision, the NDCHealth board of directors consulted
with its management team and advisors and independently considered the proposed
merger agreement and the transactions contemplated by the merger agreement. For
the factors considered by the NDCHealth board of directors in reaching its
decision to approve the merger agreement, see the section entitled "The
Merger -- NDCHealth Reasons for the Merger" beginning on page 46. The board of
directors of NDCHealth unanimously recommends that the NDCHealth stockholders
vote "FOR" the proposals (i) to adopt the merger agreement and approve the
merger at the NDCHealth special meeting and (ii) to adjourn or postpone the
NDCHealth special meeting, if necessary, for the purpose of soliciting
additional proxies.
Opinions of Financial Advisors
Per-Se (See page 40)
In connection with the merger, Banc of America Securities LLC, which is
referred to in this joint proxy statement/prospectus as Banc of America
Securities, delivered to the Per-Se board of directors a written opinion, dated
August 26, 2005, as to the fairness, from a financial point of view and as of
the date of the opinion, to Per-Se of the merger consideration to be paid by
Per-Se pursuant to the merger agreement. The full text of the written opinion,
dated August 26, 2005, of Banc of America Securities, which describes, among
other things, the assumptions made, procedures followed, factors considered and
limitations on the review undertaken, is attached as Annex B to this joint proxy
statement/prospectus and is incorporated by reference in its entirety into this
joint proxy statement/prospectus. Holders of Per-Se common stock are encouraged
to read the opinion carefully in its entirety. Banc of America Securities
provided its opinion to the Per-Se board of directors to assist the board in its
evaluation of the merger consideration to be paid by Per-Se pursuant to the
merger agreement. The opinion does not address any other aspect of the merger
and does not constitute a recommendation to any stockholder as to how to vote at
the special meetings. Banc of America Securities' opinion speaks only as of the
date of the opinion, and Banc of America Securities is under no obligation to
confirm its opinion as of a later date.
6
NDCHealth (See page 48)
In connection with the merger, the NDCHealth board of directors received
separate written opinions, each dated August 26, 2005 and based on and subject
to the assumptions, limitations and qualifications set forth therein, from The
Blackstone Group L.P., which is referred to in this joint proxy
statement/prospectus as Blackstone, and Goldman, Sachs & Co., which is referred
to in this joint proxy statement/prospectus as Goldman Sachs, as to the
fairness, from a financial point of view, of the merger consideration to holders
of NDCHealth common stock as of such date. These written opinions are attached
to this joint proxy statement/prospectus as Annex C and Annex D, respectively.
Per-Se and NDCHealth encourage you to read these opinions carefully and in their
entirety. Blackstone's and Goldman Sachs' opinions are addressed to the
NDCHealth board of directors and do not constitute recommendations to any
stockholder as to how such stockholder should vote or act with respect to any
matters relating to the proposed merger. The opinions speak only as of their
respective dates, and Blackstone and Goldman Sachs are under no obligation to
confirm their opinions as of a later date.
Interests of NDCHealth Directors and Officers in the Merger (See page 65)
In considering the recommendation of the NDCHealth board of directors,
NDCHealth stockholders should be aware of the benefits available to certain of
the executive officers and directors of NDCHealth in connection with the merger.
Certain of these individuals have interests in the merger that may be different
from, or in addition to, the interests of the NDCHealth stockholders generally.
The board of directors of NDCHealth was aware of these interests and considered
them, among other matters, in making its recommendation.
Regulatory Approvals (See page 69)
The merger is subject to the Hart-Scott-Rodino Antitrust Improvements Act,
referred to as the HSR Act. Per-Se and NDCHealth each filed the required
notification and report forms under the HSR Act with the Antitrust Division of
the U.S. Department of Justice, referred to as the DOJ and the U.S. Federal
Trade Commission, referred to as the FTC, on September 8, 2005. On September 29,
2005, Per-Se and NDCHealth announced that they had received notification of
early termination of the waiting period under the HSR Act with respect to the
merger.
NDCHealth's sale of its information management business to Wolters Kluwer,
the consummation of which is a condition to closing of the merger, is also
subject to the HSR Act. NDCHealth and Wolters Kluwer each filed the required
notification and report forms under the HSR Act with the DOJ and the FTC on
September 9, 2005. On September 29, 2005, NDCHealth announced that it had
received notification of early termination of the waiting period under the HSR
Act with respect to the sale of the information management business.
Financing Arrangements (See page 68)
In connection with the merger agreement, Per-Se has obtained a commitment
letter from Bank of America, N.A. to provide an aggregate of $460 million in
loans to finance the cash portion of the merger consideration, to repurchase
certain existing subordinated debt of NDCHealth, to refinance certain existing
indebtedness of Per-Se, and to pay transaction expenses on the terms and
conditions set forth in the commitment letter.
The commitment letter contemplates a $460 million senior secured facility
consisting of (i) a $50 million revolving credit facility and (ii) a $410
million term loan facility. The commitment letter also permits Per-Se to issue
subordinated debt, in an aggregate amount up to $250 million, to replace a
portion of the term loan facility. Any such subordinated debt issued by Per-Se
will result in a corresponding reduction in Bank of America's commitment under
the term loan facility.
7
Anticipated Accounting Treatment (See page 69)
The merger will be accounted for using the purchase method of accounting
with Per-Se being considered the acquirer of NDCHealth for accounting purposes.
This means that Per-Se will allocate the purchase price to the fair value of
assets acquired and liabilities assumed from NDCHealth at the closing date, with
the excess purchase price being recorded as goodwill. Under the purchase method
of accounting, goodwill is not amortized but is tested for impairment at least
annually.
Material U.S. Federal Income Tax Considerations (See page 73)
The merger will be a taxable transaction for U.S. federal income tax
purposes. In general, an NDCHealth stockholder will recognize gain or loss equal
to the difference between (i) the sum of (a) the amount of cash and (b) the fair
market value of the shares of Per-Se common stock received pursuant to the
merger, and (ii) the adjusted tax basis of such stockholder's NDCHealth common
stock.
Tax matters are complicated and vary depending on individual circumstances.
NDCHealth stockholders should consult their own tax advisors for a full
understanding of the tax consequences of the merger to them.
Appraisal Rights (See page 70)
Pursuant to Section 262 of the Delaware General Corporation Law, referred
to as the DGCL, NDCHealth stockholders have the right to dissent from the merger
and receive a cash payment for the judicially determined fair value of their
shares of NDCHealth common stock. The judicially determined fair value of shares
of NDCHealth common stock under Section 262 could be greater than, equal to or
less than the value of the consideration that NDCHealth stockholders are
entitled to receive pursuant to the merger agreement. NDCHealth stockholders
wishing to exercise these appraisal rights must not vote in favor of the
adoption of the merger agreement and approval of the merger and must strictly
comply with all of the procedures required by the DGCL.
Per-Se stockholders will not have any appraisal rights in connection with
the merger.
INFORMATION MANAGEMENT SALE AGREEMENTS (SEE PAGE 88)
Simultaneously with the execution of the merger agreement, NDCHealth
entered into a stock purchase agreement with Wolters Kluwer pursuant to which,
upon satisfaction or waiver of the conditions set forth in the stock purchase
agreement, NDCHealth will transfer all of the shares of its information
management subsidiary to Wolters Kluwer in exchange for approximately $382.1
million in cash. At the time of the closing of the sale of the information
management business, the parties will enter into a contribution agreement, a
data supply and services agreement, a retail informatics and services agreement
and a transition services agreement. These agreements, including the stock
purchase agreement, are referred to in this joint proxy statement/prospectus as
the information management sale agreements.
Neither Per-Se nor NDCHealth stockholders are being asked to approve the
information management sale agreements. However, it is a condition to Per-Se's
and NDCHealth's obligation to complete the merger that the sale of NDCHealth's
information management business to Wolters Kluwer be consummated in accordance
with the terms of the information management sale agreements.
8
COMPARATIVE STOCK PRICES AND DIVIDENDS (SEE PAGE 139)
The table below presents the last quoted sale price for Per-Se common
stock, as quoted on the Nasdaq National Market under the symbol "PSTI," the
closing market price of NDCHealth common stock, as reported on the NYSE
Composite Transaction Tape under the symbol "NDC" and the market value of a
share of NDCHealth common stock on an equivalent per share basis. These prices
are presented on four dates:
- February 23, 2005, the last trading day before the public announcement
that the NDCHealth board of directors engaged The Blackstone Group L.P.
to assist the board in its evaluation of strategic alternatives with the
objective of maximizing stockholder value;
- March 29, 2005, the last trading day before the public announcement of
the NDCHealth board of directors' decision to pursue a sale of NDCHealth;
- August 26, 2005, the last trading day before the public announcement of
the signing of the merger agreement; and
- December 1, 2005, the latest practicable date before the date of this
joint proxy statement/ prospectus.
<Table>
<Caption>
PER-SE NDCHEALTH EQUIVALENT PER
COMMON STOCK COMMON STOCK SHARE DATA(1)
------------ ------------ --------------
February 23, 2005........................... $14.79 $15.03 $19.50
March 29, 2005.............................. 14.87 15.04 19.50
August 26, 2005............................. 20.04 17.77 19.50
December 1, 2005............................ 25.06 18.80 19.50
</Table>
- ---------------
(1) The equivalent per share data for NDCHealth common stock has been set at
$19.50 in the merger agreement.
Per-Se has never paid a cash dividend on its common stock. Future dividends
declared and paid by Per-Se, if any, will be determined by Per-Se's board of
directors in light of circumstances existing from time to time, including growth
prospects, profitability, financial condition, results of operations, continued
existence of the restrictions contained in Per-Se's applicable credit agreements
and other factors which Per-Se's board of directors deems relevant.
The following table sets forth the quarterly cash dividends per share
declared by NDCHealth with respect to its common stock.
<Table>
<Caption>
DIVIDENDS PER SHARE
-------------------
FISCAL 2006
First Quarter............................................... --
Second Quarter (through December 1, 2005)................... --
FISCAL 2005
First Quarter............................................... $0.04
Second Quarter.............................................. --
Third Quarter............................................... --
Fourth Quarter.............................................. --
FISCAL 2004
First Quarter............................................... $0.04
Second Quarter.............................................. 0.04
Third Quarter............................................... 0.04
Fourth Quarter.............................................. 0.04
</Table>
9
SELECTED HISTORICAL FINANCIAL DATA OF PER-SE
The following table sets forth selected financial information for Per-Se
for the nine months ended September 30, 2005 and 2004, as of September 30, 2005,
and for and as of each of the five fiscal years in the period ended December 31,
2004. You should read the following information together with Per-Se's
consolidated financial statements, the notes related thereto and the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in Per-Se's Annual Report on Form 10-K for the
fiscal year ended December 31, 2004, and Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2005, each of which is incorporated by
reference in this joint proxy statement/prospectus.
<Table>
<Caption>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- -------------------------------------------------------------
2005 2004 2004 2003 2002 2001 2000
-------- -------- ----------- ----------- ----------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue............................... $279,336 $263,383 $352,791 $335,169 $325,564 $305,822 $291,561
Operating income (loss)............... 30,708 20,388 28,934 36,508 29,888 10,957 (6,887)
Interest expense...................... 4,360 5,483 6,825 14,646 18,069 18,009 18,238
Interest income....................... (1,075) (332) (525) (297) (471) (1,121) (3,728)
Loss on extinguishment of debt........ -- 5,896 5,896 6,255 -- -- --
Income tax (benefit) expense.......... 623 314 (28,101) 27 800 343 (733)
Income (loss) from continuing
operations.......................... 26,800 9,027 44,839 15,877 11,490 (6,274) (20,664)
Net income (loss)..................... 26,800 12,131 48,158 11,989 8,989 (6,109) (48,202)
Shares used in computing net income
(loss) per common share -- basic.... 30,019 31,046 30,843 30,594 30,061 29,915 29,852
Shares used in computing net income
(loss) per common
share -- diluted.................... 32,917 33,273 33,082 32,661 31,966 29,915 29,852
Per share data
Income (loss) from continuing
operations -- basic................. $ 0.89 $ 0.29 $ 1.45 $ 0.52 $ 0.38 $ (0.21) $ (0.69)
Net income (loss) per common
share -- basic...................... $ 0.89 $ 0.39 $ 1.56 $ 0.39 $ 0.30 $ (0.20) $ (1.62)
Income (loss) from continuing
operations -- diluted............... $ 0.81 $ 0.27 $ 1.36 $ 0.49 $ 0.36 $ (0.21) $ (0.69)
Net income (loss) per common
share -- diluted.................... $ 0.81 $ 0.36 $ 1.46 $ 0.37 $ 0.28 $ (0.20) $ (1.62)
</Table>
<Table>
<Caption>
AS OF DECEMBER 31,
AS OF SEPTEMBER 30, ----------------------------------------------------
2005 2004 2003 2002 2001 2000
------------------- -------- -------- -------- -------- --------
(IN THOUSANDS)
Working capital............. $ 71,282 $ 53,703 $ 20,313 $ 20,602 $ 22,519 $ 22,885
Intangible assets........... 51,751 53,333 52,336 55,494 61,929 57,168
Total assets................ 226,315 202,691 172,084 210,586 203,220 214,128
Total debt.................. 125,668 125,625 121,875 175,020 175,091 175,000
Stockholders' equity
(deficit)................. 30,463 12,975 (17,612) (37,972) (49,001) (44,136)
</Table>
10
SELECTED HISTORICAL FINANCIAL DATA OF NDCHEALTH
The table below sets forth selected historical financial information for
NDCHealth for the three months ended September 2, 2005 and August 27, 2004, as
of September 2, 2005 and for each of the last five fiscal years. You should read
the table below in conjunction with other financial information included in this
joint proxy statement/prospectus, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and NDCHealth's
Consolidated Financial Statements and related notes.
In the first quarter of fiscal 2002, NDCHealth adopted a revised fiscal
calendar. Previously, each fiscal year began June 1 and ended May 31 with
interim quarters ending the last calendar day of every third month. Under its
new fiscal calendar, the fiscal year begins on the Saturday closest to June 1,
except for fiscal 2002 which began Friday, June 1, and ends on the Friday
closest to May 31. Because the revised fiscal calendar differs only slightly
from the previous calendar, the change created no significant differences in
operating results or financial position between periods in this table.
<Table>
<Caption>
THREE MONTHS ENDED
------------------------- FISCAL YEAR
SEPTEMBER 2, AUGUST 27, ----------------------------------------------------
2005 2004 2005 2004 2003 2002 2001
------------ ---------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA
Revenue:
Pharmacy Services and Systems..... $ 33,510 $ 31,154 $128,664 $130,372 $130,179 $ 82,331 $ 62,657
Hospital Solutions................ 17,596 16,144 64,265 67,091 69,096 62,834 55,231
Physician Solutions............... 7,599 6,477 32,510 39,640 44,237 27,542 37,243
Information Management............ 41,275 37,233 162,119 158,712 157,221 148,731 139,546
-------- -------- -------- -------- -------- -------- --------
Subtotal........................ 99,980 91,008 387,558 395,815 400,733 321,438 294,677
Divested Businesses(1)............ -- -- -- -- -- 3,629 22,946
-------- -------- -------- -------- -------- -------- --------
Total........................... 99,980 91,008 387,558 395,815 400,733 325,067 317,623
Operating Income.................... 11,652 7,584 33,410 67,930 87,790 76,351 55,651
Income from Continuing Operations... 2,639 762 5,930 21,503 31,379 14,010 24,268
(Loss) Income from Discontinued
Operations(2)..................... -- (7,727) (12,569) (14,652) (2,194) (1,779) 8,272
Net Income (Loss)................... 2,639 (6,965) (6,639) 6,851 29,185 12,231 32,540
Diluted Earnings Per Share from
Continuing Operations............. $ 0.07 $ 0.02 $ 0.16 $ 0.60 $ 0.90 $ 0.39 $ 0.71
Diluted Earnings (Loss) Per Share... $ 0.07 $ (0.19) $ (0.18) $ 0.19 $ 0.84 $ 0.34 $ 0.95
BALANCE SHEET DATA
</Table>
<Table>
<Caption>
AS OF
---------------------------------------------------------------------
SEPTEMBER 2, MAY 27, MAY 28, MAY 30, MAY 31, MAY 31,
2005 2005 2004 2003 2002 2001
------------ ---------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Total Assets.............................. $697,764 $749,667 $835,515 $792,740 $664,858 $488,726
Working Capital........................... (29,794) (13,675) 14,987 78,770 (40,015) 84,245
Long Term Debt............................ 228,764 241,684 302,858 329,291 155,840 155,320
Total Stockholders' Equity................ 315,071 322,500 327,835 295,875 258,526 230,981
Cash Dividends Declared Per Common
Share................................... -- 0.04 0.16 0.16 0.16 0.23
</Table>
- ---------------
(1) Divested businesses include Pharmacy Systems, which was divested in fiscal
2001, and Physician Services, which was divested in fiscal 2002.
(2) Discontinued Operations represents the divestiture of NDCHealth's European
business operations in fiscal 2005 and fiscal 2006, certain Canadian
business operations in fiscal 2005, NDCHealth's ownership interest in
HealthTrans, LLC (previously NDCHealth's Pharmacy Benefit Services segment)
in fiscal 2005, a Management Services business in fiscal 2001, and the
spin-off of Global Payments Inc., in fiscal 2001. See Note 4 of the Notes to
NDCHealth's Consolidated Financial Statements included in this joint proxy
statement/prospectus, where discontinued operations are described in more
detail.
11
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The following table sets forth selected unaudited pro forma condensed
combined financial data based on the historical consolidated balance sheets and
related historical consolidated statements of operations of Per-Se and NDCHealth
using the purchase method of accounting for business combinations. The unaudited
pro forma condensed combined balance sheet has been prepared assuming the
acquisition occurred on September 30, 2005. The unaudited pro forma condensed
combined statements of operations have been prepared assuming the acquisition
occurred on January 1, 2004. This information has been derived from and should
be read in conjunction with the unaudited pro forma condensed combined financial
statements and notes thereto included in this joint proxy statement/prospectus
beginning on page 142.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS DATA:
<Table>
<Caption>
PRO FORMA PRO FORMA
CONDENSED COMBINED CONDENSED COMBINED
FISCAL YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 2004 SEPTEMBER 30, 2005
------------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue.................................................. $574,630 $445,384
Operating income......................................... 39,902 30,564
Interest expense......................................... 38,091 27,217
Interest income.......................................... (864) (1,559)
Loss on extinguishment of debt........................... 10,514 --
Income tax (benefit) expense............................. (27,883) 187
Income from continuing operations........................ 20,044 4,719
Shares used in computing income from continuing
operations per common share -- basic................... 43,005 42,181
Shares used in computing income from continuing
operations per common share -- diluted................. 45,244 45,079
Per share data
Income from continuing operations -- basic............... $ 0.47 $ 0.11
Income from continuing operations -- diluted............. $ 0.44 $ 0.10
</Table>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA:
<Table>
<Caption>
PRO FORMA
CONDENSED COMBINED
AS OF SEPTEMBER 30, 2005
------------------------
(IN THOUSANDS)
Working capital............................................. $ 66,717
Intangible assets........................................... 662,401
Total assets................................................ 943,442
Total debt.................................................. 535,871
Stockholders' equity........................................ 259,663
</Table>
12
COMPARATIVE PER SHARE INFORMATION
The following tables set forth certain historical per share data of Per-Se
and NDCHealth and combined per share data on an unaudited pro forma and pro
forma equivalent basis after giving effect to the merger using the purchase
method of accounting. The comparative historical and pro forma per share data
should be read in conjunction with the unaudited pro forma condensed combined
financial statements and related notes thereto and the separate historical
consolidated financial statements of Per-Se and NDCHealth incorporated by
reference or included in this joint proxy statement/prospectus. The unaudited
pro forma condensed combined per share data are not necessarily indicative of
future operating results or the actual results that would have occurred had the
merger been completed at the beginning of the periods presented.
<Table>
<Caption>
PRO FORMA PRO FORMA
CONDENSED COMBINED CONDENSED COMBINED
FISCAL YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 2004 SEPTEMBER 30, 2005
------------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PER-SE -- HISTORICAL
Income from continuing operations per common
share-basic............................................ $ 1.45 $ 0.89
Income from continuing operations per common
share-diluted.......................................... $ 1.36 $ 0.81
Book value per common share at December 31, 2004 and
September 30, 2005, respectively....................... $ 0.42 $ 1.01
Shares used in computing income from continuing
operations per common share -- basic................... 30,843 30,019
Shares used in computing income from continuing
operations per common share -- diluted................. 33,082 32,917
Common shares issued and outstanding at December 31, 2004
and September 30, 2005, respectively................... 32,324 33,067
NDCHEALTH -- HISTORICAL
Income from continuing operations per common
share-basic............................................ $ 0.22 $ 0.20
Income from continuing operations per common
share-diluted.......................................... $ 0.22 $ 0.20
Book value per common share at November 26, 2004 and
September 2, 2005, respectively........................ $ 8.88 $ 8.79
Shares used in computing income from continuing
operations per common share -- basic................... 35,535 35,827
Shares used in computing income from continuing
operations per common share -- diluted................. 35,946 36,042
Common shares issued and outstanding at November 26, 2004
and September 2, 2005, respectively.................... 36,025 36,206
PRO-FORMA -- COMBINED
Income from continuing operations -- basic............... $ 0.47 $ 0.11
Income from continuing operations -- diluted............. $ 0.44 $ 0.10
Book value per common share at September 30, 2005........ N/A $ 6.16
Shares used in computing income from continuing
operations per common share -- basic................... 43,005 42,181
Shares used in computing income from continuing
operations per common share -- diluted................. 45,244 45,079
</Table>
13
RISK FACTORS
In addition to the other information included and incorporated by reference
in this joint proxy statement/prospectus, including the matters addressed in the
section entitled "Cautionary Statement Regarding Forward-Looking Statements"
beginning on page 24, you should carefully consider the following risks before
deciding whether to vote for adoption of the merger agreement and approval of
the merger, in the case of NDCHealth stockholders, or for the issuance of shares
of Per-Se common stock pursuant to the merger agreement, in the case of Per-Se
stockholders. You should also read and consider the other information in this
joint proxy statement/prospectus and the other documents incorporated by
reference in this joint proxy statement/prospectus. See the section entitled
"Where You Can Find More Information" beginning on page 159.
NDCHEALTH AND PER-SE STOCKHOLDERS MAY NOT KNOW THE EXACT NUMBER OF SHARES OF
PER-SE COMMON STOCK TO BE ISSUED IN THE MERGER AND THE VALUE OF PER-SE COMMON
STOCK RECEIVED FOR EACH SHARE OF NDCHEALTH COMMON STOCK COULD BE MORE OR LESS
THAN EXPECTED.
Each outstanding share of NDCHealth common stock will be converted into the
right to receive a combination of (i) $13.00 in cash and (ii) a number of shares
of Per-Se common stock equal to $6.50 divided by the price per share of Per-Se
common stock as determined in accordance with the terms of the merger agreement
described below; provided that, Per-Se may, at its option, increase the cash
portion of the per share merger consideration and correspondingly decrease the
stock portion). Except in the event that Per-Se issues any of its capital stock
(other than pursuant to stock-based compensation) during the 33 business day
period prior to the closing, the price per share of Per-Se common stock used to
determine the number of shares of Per-Se common stock to be issued to NDCHealth
stockholders will be the average of the volume weighted sales prices per share
of Per-Se common stock on the Nasdaq National Market as reported by Bloomberg
Financial Markets for the 20 consecutive trading days in which shares of Per-Se
common stock are traded on the Nasdaq National Market ending on the third
trading day prior to, but not including, the completion of the merger.
Because the closing date of the merger may not be within three days of the
NDCHealth special meeting or the Per-Se special meeting, at the time of either
company's special meeting, NDCHealth and Per-Se stockholders may not know the
applicable price per share of Per-Se common stock which will be used to
calculate the exchange ratio and, therefore, may not know the exact number of
shares of Per-Se common stock to be issued in the merger. In addition, the price
of Per-Se common stock at the completion of the merger could be higher or lower
than the volume weighted average trading price used to determine the exchange
ratio. Therefore, holders of NDCHealth common stock could receive Per-Se common
stock with an initial value of more or less than $6.50 per share (or such lesser
amount established by Per-Se in the event it increases the cash portion of the
per share merger consideration) of NDCHealth common stock.
The prices of Per-Se common stock and NDCHealth common stock at the closing
of the merger may vary from their respective prices on the date of this joint
proxy statement/prospectus and on the date of the respective special meetings.
These prices may vary as a result of changes in the business, operations or
prospects of Per-Se or NDCHealth, market assessments of the likelihood that the
merger will be completed, the timing of the completion of the merger, the
prospects of post-merger operations, regulatory considerations, general market
and economic conditions and other factors.
THE PRICE OF PER-SE'S COMMON STOCK MAY DECLINE AS A RESULT OF THE DISPOSITION
OF A SUBSTANTIAL NUMBER OF SHARES OF STOCK AFTER COMPLETION OF THE MERGER.
Per-Se is expected to issue a significant number of shares of Per-Se common
stock in the merger, which number will be based upon the exchange ratio
described above and the number of outstanding shares and options of NDCHealth
common stock. Because the receipt of Per-Se common stock will generally be a
taxable event to NDCHealth stockholders and optionholders and/or because
NDCHealth stockholders or optionholders may not want to be stockholders of
Per-Se, there may be substantial sales of
14
Per-Se common stock following the completion of the merger. Additionally, Per-Se
will not have lock-up or similar arrangements with any NDCHealth stockholders or
optionholders in place following completion of the merger. If significant
numbers of NDCHealth stockholders or optionholders determine to sell a
substantial portion of their Per-Se common stock following completion of the
merger, or there is a perception that such sales may occur or are occurring, the
price of Per-Se common stock may decline.
THE PRICE OF PER-SE COMMON STOCK MAY BE AFFECTED BY FACTORS DIFFERENT FROM
THOSE AFFECTING THE PRICE OF NDCHEALTH COMMON STOCK.
Upon completion of the merger, holders of NDCHealth common stock will
become holders of Per-Se common stock. Per-Se's business is different from that
of NDCHealth, and Per-Se's results of operations, as well as the price of Per-Se
common stock, may be affected by factors different than those affecting
NDCHealth's results of operations and price of NDCHealth common stock.
CERTAIN NDCHEALTH DIRECTORS AND EXECUTIVE OFFICERS HAVE INTERESTS THAT ARE
DIFFERENT FROM, OR IN ADDITION TO, INTERESTS OF NDCHEALTH STOCKHOLDERS
GENERALLY.
When considering the recommendation of the NDCHealth board of directors for
the merger, NDCHealth stockholders should be aware that certain members of the
board of directors and the executive officers of NDCHealth have interests in the
transactions contemplated by the merger agreement that are different than, or in
addition to, interests of NDCHealth stockholders generally. These interests
include, among other things:
- severance payments and other benefits under employment agreements and
arrangements which may be triggered in connection with the merger; and
- the accelerated vesting and exercisability of NDCHealth stock options and
restricted shares issued under stock compensation plans.
As a result, these directors and executive officers may be more likely to
recommend that NDCHealth stockholders vote to adopt the merger agreement and
approve the merger than if they did not have these other interests.
PER-SE MAY BE UNABLE TO INTEGRATE SUCCESSFULLY THE BUSINESSES OF PER-SE AND
NDCHEALTH AND REALIZE THE ANTICIPATED BENEFITS OF THE MERGER.
The merger involves the combination of two companies which currently
operate as independent public companies. Per-Se will be required to devote
significant management attention and resources to integrating its business
practices and operations with those of NDCHealth. Potential difficulties Per-Se
may encounter in the integration process include the following:
- the inability to achieve the cost savings and operating synergies
anticipated in the merger, including a reduction in costs associated with
the merger;
- complexities associated with managing the geographic separation of the
combined businesses, coupled with those of consolidating multiple
physical locations where management may determine consolidation is
desirable;
- integrating personnel from diverse corporate cultures while maintaining
focus on providing consistent, high quality customer service; and
- potential unknown liabilities and increased costs associated with the
merger.
The process of integrating operations could cause a disruption of, or loss
of momentum in, the activities of the combined business and/or the loss of key
personnel. In addition, customer contracts of NDCHealth contain provisions which
may permit the customer to terminate the contract upon consummation of the
merger. The diversion of management's attention and any delays or difficulties
encountered in connection with the merger and the integration of the two
companies' operations could have an adverse effect on the business and financial
results of Per-Se after the merger.
The actual integration may result in additional and unforeseen expenses,
and the anticipated benefits of such integration plans may not be realized.
15
IF THE COMBINED COMPANY IS UNABLE TO MANAGE ITS GROWTH PROFITABLY, ITS
BUSINESS AND FINANCIAL RESULTS COULD SUFFER.
Over the past several years, each of Per-Se and NDCHealth has engaged in
the identification of, and competition for, growth and expansion opportunities.
The combined company's future financial results will depend in part on its
ability to manage its growth profitably. Management will need to maintain
existing customers and attract new customers, recruit, train, retain and
effectively manage employees as well as expand operations, customer support and
financial control systems. If the combined company is unable to manage its
growth profitably, its business and financial results could suffer.
OBTAINING REGULATORY APPROVALS MAY DELAY OR PREVENT COMPLETION OF THE MERGER
OR REDUCE THE BENEFITS OF THE MERGER TO STOCKHOLDERS. ANY SIGNIFICANT DELAY IN
COMPLETING THE MERGER COULD ADVERSELY AFFECT THE COMBINED COMPANY.
Per-Se and NDCHealth cannot assure their stockholders that the merger will
be completed, that there will not be a delay in the completion of the merger,
that the merger will be completed on the terms contemplated by the merger
agreement and as described in this joint proxy statement/prospectus or that the
benefits of the merger will be the same as those described in this joint proxy
statement/prospectus. Any delay could also, among other things, result in
additional transaction costs, loss of revenue or other negative effects
associated with uncertainty about completion of the merger.
WHETHER OR NOT THE MERGER IS COMPLETED, THE ANNOUNCEMENT AND PENDENCY OF THE
MERGER COULD CAUSE DISRUPTIONS IN THE BUSINESSES OF PER-SE AND NDCHEALTH,
WHICH COULD HAVE AN ADVERSE EFFECT ON THEIR BUSINESS AND FINANCIAL RESULTS.
Whether or not the merger is completed, the announcement and pendency of
the merger could cause disruptions in the businesses of Per-Se and NDCHealth.
Specifically:
- current and prospective Per-Se and NDCHealth employees may experience
uncertainty about their future roles with the combined company, which
might adversely affect Per-Se's and NDCHealth's ability to recruit and
retain key managers and other employees;
- the attention of management of each of Per-Se and NDCHealth may be
directed toward the completion of the merger; and
- current or potential NDCHealth customers may delay or modify decisions
regarding new programs or changes in services, products or providers.
These disruptions could be exacerbated by a delay in the completion of the
merger or termination of the merger agreement and could have an adverse effect
on the businesses and financial results of Per-Se and NDCHealth if the merger is
not completed or of the combined company if the merger is completed.
THE MERGER AGREEMENT LIMITS NDCHEALTH'S ABILITY TO PURSUE ALTERNATIVES TO THE
MERGER.
The merger agreement contains "no shop" provisions that, subject to limited
exceptions, limit NDCHealth's ability to solicit or otherwise facilitate any
third-party inquiries or the making of any proposal or offer by a third party to
acquire all or a significant part of NDCHealth. If Per-Se terminates the merger
agreement because the NDCHealth board of directors has made a change in its
recommendation to the NDCHealth stockholders adverse to Per-Se, recommended a
competing transaction or publicly announced its intent to recommend a competing
transaction, NDCHealth must pay Per-Se a termination fee in the amount of
$26,763,750 (subject to a downward adjustment of $10,000,000 to be paid to
Wolters Kluwer if the information management sale agreements are simultaneously
terminated). These provisions might discourage a potential competing acquirer
that might have an interest in acquiring all or a significant part of NDCHealth
from considering or proposing that acquisition even if it were prepared to pay
consideration with a higher per share market price than that proposed in the
merger, or might result in a potential competing acquirer proposing to pay a
lower per share price to acquire NDCHealth than it might otherwise have proposed
to pay.
16
PER-SE WILL SIGNIFICANTLY INCREASE ITS LONG-TERM DEBT AS A RESULT OF THE
MERGER, WHICH COULD LIMIT FUNDS AVAILABLE TO PER-SE TO FINANCE OTHER
ACTIVITIES.
As of September 30, 2005, Per-Se had approximately $125 million of
long-term debt and $0.7 million in capital lease obligations. As a result of the
merger, Per-Se intends to raise approximately $410 million of new debt related
to the merger to refinance NDCHealth's outstanding debt and fund cash to be paid
to NDCHealth stockholders upon completion of the merger. If unable to make the
required debt payments, Per-Se could be required to reduce or delay capital
expenditures, sell certain assets, restructure or refinance its indebtedness, or
seek additional equity capital. The ability of Per-Se to make payments on its
debt obligations will depend on future operating performance of Per-Se and
NDCHealth, which may be affected by conditions beyond Per-Se's control.
THE AGREEMENTS GOVERNING PER-SE'S DEBT WILL LIMIT THE COMBINED COMPANY'S
FINANCIAL AND OPERATING FLEXIBILITY AFTER THE MERGER.
Following the completion of the merger, Per-Se's debt agreements will
contain restrictive covenants that will limit its financial and operating
flexibility. Per-Se expects that its credit facility will contain restrictions
regarding, among other things:
- incurring additional indebtedness or guarantee obligations;
- declaring or paying dividends and other distributions;
- prepaying or modifying the terms of indebtedness;
- creating liens;
- making capital expenditures;
- making investments or acquisitions;
- entering into mergers or consolidations;
- making sales of assets; and
- engaging in transactions with affiliates.
In addition, Per-Se will be required to comply with specified financial
covenants, including a maximum leverage ratio, a minimum fixed charge coverage
ratio and a minimum interest expense ratio.
The covenants summarized above could place Per-Se at a disadvantage
compared to some of its competitors which may have fewer restrictive covenants
and may not be required to operate under these restrictions.
PER-SE'S ABILITY TO OBTAIN FINANCING MAY DELAY OR PREVENT COMPLETION OF THE
MERGER.
Per-Se has obtained a commitment letter from Bank of America, N.A. to
provide certain financing in connection with the closing of the merger, but such
financing is subject to the completion of definitive documentation. Although
obtaining financing is not a condition to the completion of the merger, if
Per-Se is unable to obtain financing, it may not be able to consummate the
merger. If the merger agreement is terminated because Per-Se is unable to obtain
sufficient funds to consummate the merger, Per-Se must reimburse NDCHealth for
its reasonable, out-of-pocket expenses, not to exceed $10,000,000.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT THE STOCK PRICES AND
THE FUTURE BUSINESS AND FINANCIAL RESULTS OF PER-SE AND NDCHEALTH.
If the merger is not completed, the ongoing businesses of Per-Se or
NDCHealth may be adversely affected and Per-Se and NDCHealth will be subject to
several risks, including the following:
- having to pay certain costs relating to the merger, such as legal,
accounting, financial advisor and printing fees or, in certain
circumstances, termination fees; and
17
- the focus of management of each of the companies on the merger instead of
on pursuing other opportunities that could be beneficial to the
companies, in each case, without realizing any of the benefits of having
the transaction completed.
If the merger is not completed, these risks could materially and adversely
affect the business, financial results and stock prices of Per-Se or NDCHealth.
AS PART OF THE MERGER, PER-SE AND NDCHEALTH WILL ENTER INTO, AND BE BOUND BY
THE TERMS OF, LONG-TERM DATA SHARING AGREEMENTS WITH WOLTERS KLUWER WHICH
PLACE CERTAIN RESTRICTIONS ON PER-SE'S AND NDCHEALTH'S ABILITY TO SELL CERTAIN
PRODUCTS TO THIRD PARTIES AND COMPETE IN CERTAIN MARKETS.
Upon the completion of the merger and the related sale of NDCHealth's
information management business to Wolters Kluwer, Per-Se and NDCHealth will
each be a party to long-term data sharing agreements with Wolters Kluwer,
pursuant to which Per-Se and NDCHealth will share with, and receive from Wolters
Kluwer, certain specified information used in their respective businesses for
the consideration specified in these agreements. These agreements provide, among
other things, that Per-Se and NDCHealth will sell certain information
exclusively to Wolters Kluwer, and that neither Per-Se nor NDCHealth will
compete with Wolters Kluwer with respect to certain uses of the purchased data
in specified markets for various time periods set forth in these agreements. In
addition, the stock purchase agreement with Wolters Kluwer prohibits NDCHealth
from competing with Wolters Kluwer in the provision of certain products and
services to specified markets traditionally served by NDCHealth's information
management business for five years from the closing of that transaction.
Additionally, because the healthcare marketplace is rapidly changing, it is
difficult to predict whether the data sharing agreements will be favorable to
Per-Se and NDCHealth over the full 20-year term of the agreements. In the event
these agreements prove to be unfavorable to Per-Se and/or NDCHealth, they could
have a long-term negative impact on Per-Se's results of operations.
LOSS OF KEY MANAGEMENT COULD ADVERSELY AFFECT THE COMBINED COMPANY'S BUSINESS.
The success of Per-Se will be materially dependent upon its key managers
and, in particular, upon the continued services of Philip M. Pead, who will
continue to serve as Per-Se's Chairman, President and Chief Executive Officer.
In addition, Per-Se does not carry key employee insurance on Mr. Pead or other
members of management. The combined company's future business and financial
results could be adversely affected if the services of Mr. Pead or other key
managers cease to be available.
PER-SE AND NDCHEALTH ARE REGULARLY INVOLVED IN LITIGATION, WHICH MAY EXPOSE
PER-SE AND NDCHEALTH TO SIGNIFICANT LIABILITIES.
Per-Se and NDCHealth are involved in litigation arising in the ordinary
course of its business, which may expose it to loss contingencies. These matters
include, but are not limited to, claims brought by former customers with respect
to the operation of the businesses of Per-Se and NDCHealth. Per-Se and NDCHealth
have also received written demands from customers and former customers that have
not yet resulted in legal action.
NDCHealth is a named defendant in certain other lawsuits, including a
putative securities class-action lawsuit, captioned Garfield v. NDCHealth
Corporation, et. al. The complaint in that action generally alleged, among other
things, that members of a purported class of stockholders who purchased
NDCHealth common stock between August 21, 2002, and August 9, 2004, were damaged
as a result of (i) improper revenue recognition practices in NDCHealth's
physician business unit; (ii) the failure to timely write-down NDCHealth's
investment in MedUnite; and (iii) the improper capitalization and amortization
of costs associated with software development. The second amended complaint
alleges that, as a result of such conduct, NDCHealth's previously issued
financial statements were materially false and misleading, thereby causing the
prices of NDCHealth's common stock to be inflated artificially. The second
amended complaint asserts violations of certain provisions of the Securities
Exchange Act of 1934,
18
as amended, and Rule 10b-5 thereunder, and seeks unspecified monetary damages
and other relief. A U.S. federal district court judge granted NDCHealth's motion
to dismiss these claims on July 27, 2005. The plaintiffs have appealed this
decision to the 11th Circuit Court of Appeals, and that appeal is pending.
NDCHealth is also a defendant in a private securities lawsuit filed by MMI
Investments, a previously significant stockholder of NDCHealth. This lawsuit is
generally based on the same allegations contained in the securities class-action
lawsuit. NDCHealth filed motions to transfer the action to the same federal
district court hearing the securities class-action lawsuit and to dismiss the
action. Following oral argument, the motions were denied on September 28, and
October 18, 2005, respectively.
Per-Se and NDCHealth may not be able to successfully resolve such legal
matters, or other legal matters that may arise in the future. In the event of an
adverse outcome with respect to such legal matters or other legal matters in
which Per-Se or NDCHealth may become involved, Per-Se's or NDCHealth's insurance
coverage may not fully cover any damages assessed against Per-Se or NDCHealth.
Although Per-Se and NDCHealth maintain all insurance coverage in amounts that
they believe is sufficient for their businesses, such coverage may prove to be
inadequate or may become unavailable on acceptable terms, if at all. A
successful claim brought against Per-Se or NDCHealth, which is uninsured or
under-insured, could materially harm the businesses, results of operations or
financial condition of Per-Se and NDCHealth.
PER-SE'S AND NDCHEALTH'S BUSINESSES ARE HIGHLY COMPETITIVE, AND AN INABILITY
TO SUCCESSFULLY COMPETE FOR BUSINESS COULD ADVERSELY AFFECT THE COMBINED
COMPANY.
The physician receivables management outsourcing business is highly
competitive. Per-Se competes with regional and local physician reimbursement
organizations as well as physician groups that provide their own business
management services in-house. Successful competition within this industry is
dependent on numerous industry and market conditions. Potential industry and
market changes that could adversely affect Per-Se's ability to compete for
receivables management outsourcing services include an increase in the number of
local, regional or national competitors providing comparable services and new
alliances between healthcare providers and third-party payers in which
healthcare providers are employed by such third-party payers.
The business of providing services and solutions to hospitals for both
revenue cycle and resource management is also highly competitive. Per-Se and
NDCHealth compete with traditional electronic data interface companies,
outsourcing companies and specialized software vendors with national, regional
and local bases. Some competitors have longer operating histories and greater
financial, technical and marketing resources than Per-Se and NDCHealth. Per-Se's
and NDCHealth's successful competition within this industry is dependent on
numerous industry and market conditions.
The business of providing value-added claims processing and pre and post
editing services to retail pharmacies is highly competitive. NDCHealth competes
not only with independent providers of similar systems and services, but also
with customers' and potential customers' internal resources that provide similar
services. Successful competition within this industry is dependent on numerous
industry and market conditions. Some of these conditions include functionality
of products and services, price, quality and innovation. In addition, some of
NDCHealth's competitors have greater access to capital and marketing and
technological resources, and NDCHealth cannot guarantee that it will be able to
compete successfully with them.
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THE MARKETS FOR PER-SE'S AND NDCHEALTH'S SERVICES AND SOLUTIONS ARE
CHARACTERIZED BY RAPIDLY CHANGING TECHNOLOGY, EVOLVING INDUSTRY STANDARDS AND
FREQUENT NEW PRODUCT INTRODUCTIONS AND THE INABILITY OF PER-SE AND NDCHEALTH
TO KEEP PACE COULD ADVERSELY AFFECT THE COMBINED COMPANY.
The markets for Per-Se's and NDCHealth's services and solutions are
characterized by rapidly changing technology, evolving industry standards and
frequent new product introductions. The companies' ability to keep pace with
changes in the healthcare industry may be dependent on a variety of factors,
including the ability of Per-Se and NDCHealth to:
- enhance existing products and services;
- introduce new products and services quickly and cost effectively;
- achieve market acceptance for new products and services; and
- respond to emerging industry standards and other technological changes.
Competitors may develop competitive products that could adversely affect
the operating results of Per-Se and NDCHealth. It is possible that Per-Se and
NDCHealth will be unsuccessful in refining, enhancing and developing technology
of Per-Se and NDCHealth going forward. The costs associated with refining,
enhancing and developing these systems may increase significantly in the future.
Existing software and technology may become obsolete as a result of ongoing
technological developments in the marketplace.
THE HEALTHCARE MARKETPLACE IS CHARACTERIZED BY CONSOLIDATION, WHICH MAY RESULT
IN FEWER POTENTIAL CUSTOMERS FOR PER-SE'S AND NDCHEALTH'S SERVICES.
In general, consolidation initiatives in the healthcare marketplace may
result in fewer potential customers for Per-Se's and NDCHealth's services. Some
of these types of initiatives include employer initiatives such as creating
group purchasing cooperatives (GPOs); provider initiatives, such as risk-sharing
among healthcare providers and managed care companies through capitated
contracts; and integration among hospitals and physicians into comprehensive
delivery systems. Consolidation of management and billing services through
integrated delivery systems may result in a decrease in demand for Per-Se's
business management outsourcing services for particular physician practices. In
addition, consolidation among Per-Se's customers may result in such customers
having greater leverage, which could adversely affect the price Per-Se is able
to charge for its products.
THE HEALTHCARE INDUSTRY IS HIGHLY REGULATED, WHICH MAY INCREASE PER-SE'S AND
NDCHEALTH'S COSTS OF OPERATION OR HAVE A MATERIAL ADVERSE EFFECT ON THEIR
RESPECTIVE BUSINESSES.
The healthcare industry is highly regulated and is subject to changing
political, economic and regulatory influences. Federal and state legislatures
have periodically considered programs to reform or amend the U.S. healthcare
system at both the federal and state level and to change healthcare financing
and reimbursement systems, such as the Balanced Budget Act of 1997 and the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003. These
programs may contain proposals to increase governmental involvement in
healthcare, lower reimbursement rates or otherwise change the environment in
which healthcare industry participants operate. Current or future government
regulations or healthcare reform measures may affect Per-Se's and NDCHealth's
businesses. Healthcare industry participants may respond by reducing their
investments or postponing investment decisions, including investments in
Per-Se's and NDCHealth's products and services.
Medical billing and collection activities are governed by numerous federal
and state civil and criminal laws. Federal and state regulators use these laws
to investigate healthcare providers and companies that
20
provide billing and collection services, or that provide consulting services in
connection with billing and collection activities. Such laws also could
potentially be used to bring enforcement actions against companies like Per-Se
and NDCHealth that provide software and other services used by healthcare
providers to support their billing and collection activities. In connection with
these laws, Per-Se and NDCHealth may be subjected to federal or state government
investigations and possible penalties may be imposed upon the companies, false
claims actions may have to be defended, private payers may file claims against
the companies, and the companies may be excluded from Medicare, Medicaid or
other government-funded healthcare programs.
In the past, Per-Se has been the subject of federal investigations, and
Per-Se or NDCHealth may become the subject of false claims litigation or
additional investigations relating to their billing and collection activities.
Any such proceeding or investigation could have a material adverse effect on
Per-Se's and NDCHealth's businesses. Numerous federal and state civil and
criminal laws govern the collection, use, storage and disclosure of health
information for the purpose of safeguarding the privacy and security of such
information. Federal or state governments may impose penalties for
noncompliance, both criminal and civil. Persons who believe their health
information has been misused or disclosed improperly may bring claims seeking
monetary damages.
The federal anti-kickback law prohibits any person or entity from offering,
paying, soliciting or receiving anything of value, directly or indirectly, for
the referral of patients covered by Medicare, Medicaid and other federal
healthcare programs or the leasing, purchasing, ordering or arranging for, or
recommending the lease, purchase, order or arrangement for, any item, good,
facility or service covered by these programs. The anti-kickback law is broad
and may apply to some of Per-Se's and NDCHealth's activities and the companies'
relationships with customers or business partners. Penalties for violating the
anti-kickback law include imprisonment, fines and exclusion from participating,
directly or indirectly, in Medicare, Medicaid and other federal healthcare
programs. Many states have similar anti-kickback laws that are not necessarily
limited to items or services for which payment is made by a federal healthcare
program. Per-Se and NDCHealth each carefully review their respective practices
in an effort to ensure that the companies' comply with all applicable laws.
However, the laws in this area are both broad and vague and it is often
difficult or impossible to determine precisely how the laws will be applied. Any
determination by a state or federal regulatory agency that any of these
practices violate any of these laws could subject the companies to civil or
criminal penalties and require Per-Se and/or NDCHealth to change or terminate
some portions of their businesses.
Under the Health Insurance Portability and Accountability Act of 1996
("HIPAA"), final rules have been published regarding standards for electronic
transactions as well as standards for privacy and security of individually
identifiable health information. The HIPAA rules set new or higher standards for
the healthcare industry in handling healthcare transactions and information,
with penalties for noncompliance. Per-Se and NDCHealth have incurred and will
continue to incur costs to comply with these rules. Although management of both
companies believe that future compliance costs will not have a material impact
on Per-Se's or NDCHealth's results of operations, compliance with these rules
may prove to be more costly than anticipated. Failure to comply with such rules
may have a material adverse effect on Per-Se's and NDCHealth's businesses and
may subject them to civil and criminal penalties as well as loss of customers.
NDCHealth and Per-Se rely upon third parties to provide data elements to
process electronic medical claims in a HIPAA-compliant format. While Per-Se and
NDCHealth believe they will be fully and properly prepared to process electronic
medical claims in a HIPAA-compliant format, there can be no assurance that third
parties, including healthcare providers and payers, will likewise be prepared to
supply all the data elements required to process electronic medical claims and
make electronic remittance under HIPAA's standards. If payers reject electronic
medical claims and such claims are processed manually rather than
electronically, there could be a material adverse affect on Per-Se's and
NDCHealth's businesses. Per-Se and NDCHealth have made and expect to continue to
make investments in product
21
enhancements to support customer operations that are regulated by HIPAA.
Responding to HIPAA's impact may require Per-Se and NDCHealth to make
investments in new products or charge higher prices.
Passage of HIPAA is part of a wider healthcare reform initiative. Per-Se
expects that the debate on healthcare reform will continue. Per-Se also expects
that the federal government as well as state governments will pass laws and
issue regulations addressing healthcare issues and reimbursement of healthcare
providers. Neither Per-Se nor NDCHealth can predict whether the government will
enact new legislation and regulations, and, if enacted, whether such new
developments will affect Per-Se's or NDCHealth's businesses.
PER-SE AND NDCHEALTH ARE EACH THE SUBJECT OF SEPARATE SEC INVESTIGATIONS, THE
RESOLUTION OF WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON PER-SE AND/OR
NDCHEALTH, RESPECTIVELY.
On April 4, 2005, Per-Se announced that it had been notified by the SEC
staff of the issuance of an order of investigation, which Per-Se believes
relates to allegations of wrongdoing made by a former employee in 2003. These
allegations were the subject of a prior investigation by the audit committee of
the Per-Se board of directors and an outside accounting firm that resulted in
the performance of extensive additional procedures. Per-Se has produced
documents and provided testimony relating to these allegations to the SEC.
On December 14, 2004, the SEC staff obtained a Formal Order of
Investigation relating to certain NDCHealth accounting matters. NDCHealth has
restated its financial statements for the fiscal years ended May 28, 2004, May
30, 2003, and May 31, 2002, to correct errors relating to these accounting
matters. NDCHealth has produced documents relating to the restatement to the
SEC, and the SEC has taken the testimony of a number of current and former
employees in relation to its investigation.
Responding to these investigations requires significant defense costs,
attention and resources of management. Either or both companies could face civil
or criminal penalties that could have a material adverse effect on Per-Se and/or
NDCHealth.
NDCHEALTH HAS IDENTIFIED MATERIAL WEAKNESSES IN ITS INTERNAL CONTROL OVER
FINANCIAL REPORTING. IF NDCHEALTH FAILS TO MAINTAIN AN EFFECTIVE SYSTEM OF
INTERNAL CONTROLS, THE COMBINED COMPANY MAY NOT BE ABLE TO ACCURATELY REPORT
ITS FINANCIAL RESULTS AND MANAGEMENT OF PER-SE MAY NOT BE ABLE TO PROVIDE AN
UNQUALIFIED REPORT ON THE EFFECTIVENESS OF THE COMBINED COMPANY'S INTERNAL
CONTROL OVER FINANCIAL REPORTING.
During the past year, in preparing NDCHealth's financial statements
included in this filing, NDCHealth's management and its independent registered
public accounting firm identified three "material weaknesses" in its internal
controls over financial reporting. As of May 27, 2005, NDCHealth's management
concluded that NDCHealth's documentation and procedures relating to (1) the
revenue recognition and billing processes, (2) the financial statement close
process and (3) NDCHealth's accounting for income taxes result in more than a
remote likelihood that material misstatement of the financial statements will
not be prevented or detected.
These control deficiencies could result in a material misstatement to the
financial statements of NDCHealth and, if the merger is completed, could
adversely impact the accuracy and future timeliness of the combined company's
financial reports filed pursuant to the Exchange Act. As a result, current and
potential stockholders could lose confidence in the combined company's financial
reporting which could harm the trading price of its common stock.
22
THE TRADING PRICE OF PER-SE COMMON STOCK MAY BE VOLATILE AND MAY NEGATIVELY
AFFECT YOUR INVESTMENT.
The trading price of Per-Se common stock may be volatile following the
merger. The market for Per-Se common stock may experience significant price and
volume fluctuations in response to a number of factors including actual or
anticipated quarterly variations in operating results, changes in expectations
of future financial performance or changes in estimates of securities analysts,
government regulatory action, healthcare reform measures, client relationship
developments and other factors, many of which are beyond Per-Se's control.
Furthermore, the stock market in general and the market for software, healthcare
business services and high technology companies in particular, has experienced
volatility that often has been unrelated to the operating performance of
particular companies. These broad market and industry fluctuations may adversely
affect the trading price of Per-Se common stock, regardless of actual operating
performance.
23
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus and the documents incorporated by
reference in this joint proxy statement/prospectus contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 with respect to the financial condition, results of operations, business
strategies, operating efficiencies or synergies, competitive positions, growth
opportunities, plans and objectives of the management of each of Per-Se,
NDCHealth and the combined company, the merger and the markets for Per-Se and
NDCHealth common stock and other matters. Statements in this joint proxy
statement/prospectus and the documents incorporated by reference herein that are
not historical facts are hereby identified as "forward-looking statements" for
the purpose of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934, as amended, which is referred to as the Exchange Act, and
Section 27A of the Securities Act of 1933, as amended, which is referred to as
the Securities Act. These forward-looking statements, including, without
limitation, those relating to the future business prospects, revenues and income
of Per-Se and NDCHealth, wherever they occur in this joint proxy
statement/prospectus or the documents incorporated by reference herein, are
necessarily estimates reflecting the best judgment of the respective managements
of Per-Se and NDCHealth and involve a number of risks and uncertainties that
could cause actual results to differ materially from those suggested by the
forward-looking statements. These forward-looking statements should, therefore,
be considered in light of various important factors, including those set forth
in and incorporated by reference in this joint proxy statement/prospectus. For
each of Per-Se and NDCHealth, in addition to the risks discussed under the
section entitled "Risk Factors" beginning on page 14, these risks and
uncertainties include, but are not limited to:
- the cyclical nature of the high technology industry and the markets
addressed by each company's and their customers' products and services;
- demand for and market acceptance of new and existing products and
services;
- successful development of new products and services;
- the timing of new product introductions;
- pricing pressures and other competitive factors;
- product obsolescence;
- the ability to develop and implement new technologies and to obtain
protection for the related intellectual property;
- the prospect of changes in laws and regulations governing Per-Se's and
NDCHealth's respective businesses;
- the uncertainties of litigation;
- costs related to the proposed merger;
- fluctuations in the trading price and volume of Per-Se's common stock;
- the risk that the closing of the transaction is substantially delayed or
that the merger does not close; and
- the risk that Per-Se's and NDCHealth's businesses will not be integrated
successfully and the anticipated synergies and cost savings will not be
achieved.
24
Words such as "estimate," "project," "plan," "intend," "expect,"
"anticipate," "believe," "would," "should," "could" and similar expressions are
intended to identify forward-looking statements. These forward-looking
statements are found at various places throughout this joint proxy
statement/prospectus, including in the section entitled "Risk Factors" beginning
on page 14, and in the documents incorporated by reference herein. You are
cautioned not to place undue reliance on any forward-looking statements, which
speak only as of the date of this joint proxy statement/prospectus, or in the
case of documents incorporated by reference, as of the date of those documents.
Neither Per-Se nor NDCHealth undertakes any obligation to update or release any
revisions to these forward-looking statements to reflect events or circumstances
after the date of this joint proxy statement/prospectus or to reflect the
occurrence of unanticipated events, except as required by law.
25
THE PER-SE SPECIAL MEETING
GENERAL
This joint proxy statement/prospectus is being furnished in connection with
the solicitation of proxies by each of the boards of directors of Per-Se and
NDCHealth in connection with the merger.
DATE, TIME AND PLACE OF THE PER-SE SPECIAL MEETING
The Per-Se special meeting is scheduled to be held on January 5, 2006 at
4:00 p.m., local time, at the offices of King & Spalding LLP, 191 Peachtree
Street, Atlanta, Georgia 30303.
PURPOSE OF THE PER-SE SPECIAL MEETING
The Per-Se special meeting is being held for Per-Se stockholders to
consider and vote upon the issuance of shares of Per-Se common stock pursuant to
the merger agreement. At the Per-Se special meeting, Per-Se stockholders also
may consider and transact any other business properly presented at the Per-Se
special meeting, including, if submitted to a vote of Per-Se stockholders, a
motion to adjourn the special meeting to another time or place for the purpose
of soliciting additional proxies.
STOCKHOLDER RECORD DATE FOR THE PER-SE SPECIAL MEETING
The Per-Se board of directors has fixed the close of business on November
30, 2005, as the record date for determination of Per-Se stockholders entitled
to notice of, and to vote at, the Per-Se special meeting. On the record date,
there were 30,266,190 shares outstanding of Per-Se common stock, held by
approximately 3,252 holders of record.
VOTE REQUIRED AT THE PER-SE SPECIAL MEETING
The holders of a majority of the outstanding Per-Se common stock must be
represented either in person or by proxy to constitute a quorum for the
transaction of business at the Per-Se special meeting. Holders of Per-Se common
stock are entitled to cast one vote for each share of common stock held on the
record date on each matter submitted to the stockholders at the special meeting.
The affirmative vote of the holders of a majority of the outstanding shares of
Per-Se common stock present at the Per-Se special meeting or represented by
proxy and entitled to vote on the proposal is required to approve the issuance
of shares of Per-Se common stock pursuant to the merger agreement.
Because approval of each proposal at the Per-Se special meeting requires
the affirmative vote of holders of a specified percentage of outstanding shares
of Per-Se common stock present, in person or by proxy, and entitled to vote on
the proposal at the Per-Se special meeting, abstaining, either in person at the
meeting or by so indicating on your proxy, will have the same effect as voting
against the proposal to approve the issuance of shares of Per-Se common stock
pursuant to the merger agreement and on any other proposal considered at the
Per-Se special meeting.
Broker non-votes are votes that brokerage firms and banks holding shares of
record for their customers are not permitted to cast under stock exchange rules
because the brokerage firms and banks have not received specific instructions
from their customers as to certain proposals and as to which the brokerage firms
and banks have advised Per-Se that they lack voting authority. Broker non-votes
will be included for determining whether there is a quorum at the Per-Se special
meeting but will have no effect on the proposal to approve the issuance of
shares of Per-Se common stock pursuant to the merger agreement or on any other
proposal considered at the Per-Se special meeting.
If your shares are not represented at the Per-Se special meeting because
you did not return your proxy card as otherwise, your shares will not be counted
towards the presence or absence of a quorum and will have no effect on any
matters considered at the Per-Se special meeting.
26
PROXIES AT THE PER-SE SPECIAL MEETING
VOTING YOUR PROXY
You may vote in person at the Per-Se special meeting or by proxy. Per-Se
recommends that you vote by proxy even if you plan to attend in person. You can
always change your vote at the special meeting by revoking your proxy as
described below.
Voting instructions are included on your proxy card. If you properly give
your proxy and submit it in time to vote, one of the individuals named as your
proxy will vote your shares as you have directed. You may vote for or against
the proposals or abstain from voting.
HOW TO VOTE BY PROXY
Simply mark your proxy card, date and sign it, and return it in the
postage-paid envelope provided. If no envelope has been provided, please send
your proxy card to Per-Se Technologies, Inc., 1145 Sanctuary Parkway, Suite 200,
Alpharetta, Georgia 30004, Attention: Investor Relations. Alternatively, you may
vote by telephone or the Internet by following the instructions on the enclosed
proxy card.
If you hold shares through a broker, bank or other nominee, please check
the voting form used by that firm to determine if it offers voting by telephone
or through the Internet.
REVOKING YOUR PROXY
If you are a record holder, you may revoke your proxy at any time before it
is voted by:
- timely delivering a valid, later-dated proxy;
- providing written notice that you have revoked your proxy, delivered to
Per-Se's investor relations department at the address set forth above in
"-- How to Vote by Proxy" before the meeting; or
- voting by ballot at the Per-Se special meeting.
Attendance at the Per-Se special meeting alone is not sufficient to revoke
your proxy.
If you have instructed your broker, bank or other nominee to vote your
shares, you must follow the directions you receive from your broker, bank or
other nominee to change those instructions.
VOTING IN PERSON AT THE PER-SE SPECIAL MEETING
If you plan to attend the Per-Se special meeting and you wish to vote in
person, you will be given a ballot at the special meeting. However, if your
shares are held in the name of your broker, bank or other nominee, you must
obtain a proxy, executed in your favor, from the holder of record to be able to
vote at the special meeting.
OTHER BUSINESS; ADJOURNMENTS
Per-Se is not currently aware of any other business to be acted upon at the
Per-Se special meeting. If, however, other matters are properly brought before
the Per-Se special meeting, or any adjournment of the special meeting, the
person named as your proxy will have discretion to vote or act on those matters
according to his or her best judgment.
Adjournments of the Per-Se special meeting may be made, among other
reasons, to solicit additional proxies. The Per-Se special meeting may be
adjourned, from time to time, by the affirmative vote of holders of a majority
of the shares of Per-Se common stock entitled to vote and present, in person or
by proxy, at the Per-Se special meeting. If a quorum is not present, in person
or represented by proxy, at the Per-Se special meeting, the Per-Se stockholders
may adjourn the special meeting from time to time, without notice other than
announcement at the special meeting, until a quorum is present at the special
meeting in person or represented by proxy.
27
RECOMMENDATION OF THE PER-SE BOARD OF DIRECTORS
THE PER-SE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT PER-SE
STOCKHOLDERS VOTE TO APPROVE THE ISSUANCE OF SHARES OF PER-SE COMMON STOCK
PURSUANT TO THE MERGER AGREEMENT. On August 26, 2005, the Per-Se board of
directors:
- determined that the terms of the merger and the other transactions
contemplated by the merger agreement are advisable and in the best
interests of Per-Se and its stockholders;
- approved the merger agreement; and
- resolved to recommend that Per-Se stockholders vote in favor of the
proposal to approve the issuance of shares of Per-Se common stock
pursuant to the merger agreement.
PROXY SOLICITATION
Per-Se and NDCHealth will equally share the expenses incurred in connection
with the printing and mailing of this joint proxy statement/prospectus. In
addition to the mailing of this joint proxy statement/prospectus, proxies may be
solicited by directors, officers or employees of Per-Se and/or NDCHealth in
person or by telephone or electronic transmission. Per-Se has hired MacKenzie
Partners, Inc. to assist it in the distribution and solicitation of proxies and
will pay MacKenzie Partners, Inc. approximately $7,000 plus reimbursement of
expenses for its services.
The extent to which these proxy soliciting efforts will be necessary
depends upon how promptly proxies are submitted. In order to reduce Per-Se's
costs associated with the solicitation, you should submit your proxy, without
delay, by mail. Per-Se will also reimburse brokers, banks and other nominees for
their expenses in sending these materials to you and getting your voting
instructions from you.
28
THE NDCHEALTH SPECIAL MEETING
GENERAL
This joint proxy statement-prospectus is being furnished in connection with
the solicitation of proxies by each of the boards of directors of Per-Se and
NDCHealth in connection with the merger.
DATE, TIME AND PLACE OF THE NDCHEALTH SPECIAL MEETING
The NDCHealth special meeting is scheduled to be held on January 5, 2006 at
4:00 p.m., local time, at the offices of NDCHealth Corporation, NDC Plaza,
Atlanta, Georgia 30329.
PURPOSE OF THE NDCHEALTH SPECIAL MEETING
The NDCHealth special meeting is being held for NDCHealth stockholders to
consider and vote upon the adoption of the merger agreement, pursuant to which
NDCHealth will merge with Royal Merger Co., with NDCHealth continuing as the
surviving entity, and each share of NDCHealth common stock will be converted
into the right to receive $13.00 in cash, plus a number of shares of Per-Se
common stock equal to $6.50 divided by the price per share of Per-Se common
stock as determined in accordance with the terms of the merger agreement
described elsewhere in this joint proxy statement/prospectus, subject to
Per-Se's option, to be exercised by notification to NDCHealth and a press
release notifying the NDCHealth stockholders not later than five business days
before the NDCHealth special meeting, to increase the cash portion of the per
share merger consideration (with a corresponding decrease to the stock portion),
as further described herein. At the NDCHealth special meeting, NDCHealth
stockholders also may consider and transact any other business properly
presented at the NDCHealth special meeting, including, if submitted to a vote of
NDCHealth stockholders, a motion to adjourn the special meeting to another time
or place for the purpose of soliciting additional proxies.
STOCKHOLDER RECORD DATE FOR THE NDCHEALTH SPECIAL MEETING
The NDCHealth board of directors has fixed the close of business on
November 30, 2005, as the record date for determination of NDCHealth
stockholders entitled to notice of, and to vote at, the NDCHealth special
meeting. On the record date, there were 36,299,858 shares outstanding of
NDCHealth common stock, held by approximately 2,910 holders of record.
VOTE REQUIRED AT THE NDCHEALTH SPECIAL MEETING
The holders of a majority of the outstanding NDCHealth common stock must be
represented either in person or by proxy to constitute a quorum for the
transaction of business at the NDCHealth special meeting. Holders of NDCHealth
common stock are entitled to cast one vote for each share of common stock held
on the record date on each matter submitted to the stockholders at the NDCHealth
special meeting. The affirmative vote of the holders of a majority of the
outstanding shares of NDCHealth common stock is required to adopt the merger
agreement and approve the merger.
Because adoption of the merger agreement and approval of the merger by
NDCHealth stockholders requires the affirmative vote of holders of a specified
percentage of outstanding shares of NDCHealth common stock, abstaining (either
in person at the meeting or by so indicating on your proxy), not returning a
proxy card or failing to instruct your broker on how to vote shares of NDCHealth
common stock held by the broker for you will have the same effect as voting
against adoption of the merger agreement and approval of the merger.
Approval of an adjournment proposal at the NDCHealth special meeting
requires the affirmative vote of holders of a majority of the outstanding shares
of NDCHealth common stock represented in person or by proxy at the NDCHealth
special meeting and entitled to vote thereon.
Broker non-votes are votes that brokerage firms and banks holding shares of
record for their customers are not permitted to cast under stock exchange rules
because the brokerage firms and banks
29
have not received specific instructions from their customers as to certain
proposals and as to which the brokerage firms and banks have advised NDCHealth
that they lack voting authority. Broker non-votes will be included for
determining whether there is a quorum at the NDCHealth special meeting and will
have the same effect as a vote against the proposal to adopt the merger
agreement and approve the merger but will have no effect on any other matters
considered at the NDCHealth special meeting.
If you do not vote (either in person or by proxy), it will have the same
effect as a vote against the proposal to adopt the merger agreement and approve
the merger, but, because the shares will not be counted toward the presence of a
quorum, will have no effect on the proposal to adjourn or postpone the NDCHealth
special meeting, if necessary, to solicit additional proxies.
PROXIES AT THE NDCHEALTH SPECIAL MEETING
VOTING YOUR PROXY
You may vote in person at the NDCHealth special meeting or by proxy.
NDCHealth recommends that you vote by proxy even if you plan to attend in
person. You can always change your vote at the NDCHealth special meeting by
revoking your proxy as described below.
Voting instructions are included on your proxy card. If you properly give
your proxy and submit it in time to vote, one of the individuals named as your
proxy will vote your shares as you have directed. You may vote for or against
the proposals or abstain from voting.
HOW TO VOTE BY PROXY
Simply mark your proxy card, date and sign it, and return it in the
postage-paid envelope provided. If the envelope is missing, please address your
completed proxy card to NDCHealth Corporation, c/o Randolph L.M. Hutto, NDC
Plaza, Atlanta, Georgia 30329-2010. Alternatively, you may vote by telephone or
the Internet by following the instructions on the enclosed proxy card.
If you hold shares through a broker, bank or other nominee, please check
the voting form used by that firm to determine if it offers voting by telephone
or through the Internet.
REVOKING YOUR PROXY
If you are a record holder, you may revoke your proxy at any time before it
is voted by:
- timely delivering a valid, later-dated proxy;
- providing written notice that you have revoked your proxy, delivered to
NDCHealth's corporate secretary at the address set forth above in "-- How
to Vote by Proxy" before the meeting; or
- voting by ballot at the NDCHealth special meeting.
Attendance at the NDCHealth special meeting alone is not sufficient to
revoke your proxy.
If you have instructed your broker, bank or other nominee to vote your
shares, you must follow the directions you receive from your broker, bank or
other nominee to change those instructions.
VOTING IN PERSON AT THE NDCHEALTH SPECIAL MEETING
If you plan to attend the NDCHealth special meeting and you wish to vote in
person, you will be given a ballot at the special meeting. However, if your
shares are held in the name of your broker, bank or other nominee, you must
obtain a proxy, executed in your favor, from the holder of record to be able to
vote at the special meeting.
OTHER BUSINESS; ADJOURNMENTS
NDCHealth is not currently aware of any other business to be acted upon at
the NDCHealth special meeting. If, however, other matters are properly brought
before the NDCHealth special meeting, or any
30
adjournment of the NDCHealth special meeting, the person named as your proxy
will have discretion to vote or act on those matters according to his or her
best judgment.
Adjournments of the NDCHealth special meeting may be made, among other
reasons, to solicit additional proxies. The NDCHealth special meeting may be
adjourned, from time to time, by the affirmative vote of holders of shares of
NDCHealth common stock entitled to vote and representing a majority of the votes
present, in person or by proxy, at the special meeting, whether or not a quorum
exists. If a quorum is not present, in person or represented by proxy, at the
NDCHealth special meeting, the NDCHealth stockholders may adjourn the special
meeting from time to time, without notice other than announcement at the special
meeting, until a quorum is present at the special meeting in person or
represented by proxy.
RECOMMENDATION OF THE NDCHEALTH BOARD OF DIRECTORS
THE NDCHEALTH BOARD OF DIRECTORS RECOMMENDS UNANIMOUSLY THAT NDCHEALTH
STOCKHOLDERS VOTE TO ADOPT THE MERGER AGREEMENT AND APPROVE THE MERGER. On
August 26, 2005, the NDCHealth board of directors, including a majority of
disinterested directors:
- determined that the terms of the NDCHealth merger and the other
transactions contemplated by the merger agreement are advisable and in
the best interests of NDCHealth and its stockholders;
- approved the merger agreement, including the merger; and
- resolved to recommend that NDCHealth stockholders vote in favor of the
proposal to adopt the merger agreement and approve the merger.
Please see the section entitled "The Merger -- Recommendation of the
NDCHealth Board of Directors" beginning on page 48.
PROXY SOLICITATION
Per-Se and NDCHealth will equally share the expenses incurred in connection
with the printing and mailing of this joint proxy statement/prospectus. In
addition to the mailing of this joint proxy statement/prospectus, proxies may be
solicited by directors, officers or employees of Per-Se and/or NDCHealth in
person or by telephone or electronic transmission. NDCHealth has hired MacKenzie
Partners, Inc. to assist it in the distribution and solicitation of proxies and
will pay MacKenzie Partners, Inc. approximately $7,000 plus reimbursement of
expenses for its services.
The extent to which these proxy soliciting efforts will be necessary
depends upon how promptly proxies are submitted. In order to reduce NDCHealth's
costs associated with this solicitation, you should submit your proxy, without
delay, by mail. NDCHealth will also reimburse brokers, banks and other nominees
for their expenses in sending these materials to you and getting your voting
instructions from you.
31
THE MERGER
BACKGROUND OF THE MERGER
During January and February 2005, following approval by NDCHealth
stockholders of a stockholder proposal requesting that the NDCHealth board of
directors explore strategic alternatives available to the company, a committee
of independent directors of the NDCHealth board of directors considered
potential candidates to serve as a financial advisor for the purpose of
conducting an in-depth strategic review of NDCHealth and then advising the
NDCHealth board of directors on available strategic alternatives. On February
25, 2005, the NDCHealth board of directors retained Blackstone to assist it in
its evaluation of strategic alternatives with the objective of maximizing
NDCHealth stockholder value. In selecting Blackstone, the NDCHealth board of
directors considered Blackstone's experience, reputation and familiarity with
NDCHealth's business.
From February 25 through March 28, 2005, Blackstone conducted an inquiry
into the business and affairs of NDCHealth, including conducting in-depth
meetings with members of NDCHealth's management, conducting customer interviews,
observing product demonstrations, and reviewing extensive data relating to
NDCHealth's historical financial performance and management's estimates of
future performance. On March 29, 2005, Blackstone presented its findings to the
NDCHealth board of directors. These findings stated Blackstone's assessment of
the strengths and weaknesses of NDCHealth, as well as strategic and operational
challenges for NDCHealth. Blackstone then reviewed with the NDCHealth board of
directors various strategic alternatives for achieving value for NDCHealth
stockholders, including sales of certain assets, a recapitalization and the sale
of NDCHealth either to a strategic or financial buyer.
After considering Blackstone's assessment of NDCHealth and the range of
strategic alternatives available to NDCHealth, on March 30, 2005, the NDCHealth
board of directors voted to pursue a potential sale of NDCHealth and to retain
Blackstone and Goldman Sachs as financial advisors. In reaching that decision,
the NDCHealth board of directors believed that a sale of the company offered the
best opportunity to maximize stockholder value. The NDCHealth board of directors
believed that having a second financial advisor of national standing would
assist the overall process for the benefit of its stockholders. Goldman Sachs
was selected by the NDCHealth board of directors as a result of its prior
relationship and familiarity with NDCHealth and its business segments, as well
as its reputation in the investment banking industry.
Over the next approximately 35 days, Blackstone, which had been appointed
to lead the sale process, and Goldman Sachs contacted approximately 30 potential
strategic buyers and approximately 50 potential financial buyers to discuss and
evaluate the opportunity to acquire all or a portion of NDCHealth.
After initial discussions, 22 potential financial buyers signed
confidentiality agreements and received an executive summary, which provided a
more in-depth business description of NDCHealth. Three strategic buyers
partnered with two of the potentially interested financial buyers and also
signed confidentiality agreements and received an executive summary on
NDCHealth. All of the potential buyers were requested to provide written
indications of interest, including their value for 100% of the outstanding
common stock of NDCHealth on or before May 6, 2005.
Prior to the close of business on May 6, 2005, Blackstone received initial
value indications from nine of the potential financial buyers for 100% of the
outstanding common stock of NDCHealth and one indication of interest from a
potential financial buyer for the information management business only. The
value indications for the entire company ranged from $15.00 - $23.00 per share
and the interest for the information management business was in a range of $275
- -$325 million, all of which were subject to various conditions, including
substantial due diligence, obtaining necessary financing, negotiations of
specific elements of a merger and other customary conditions to a possible
purchase.
After continued discussions between representatives of NDCHealth and these
potential buyers, and based principally on management's review, with input from
the company's representatives of the seriousness of the initial indications of
value, six of the potential financial buyers, one of which had
32
partnered with two potential strategic buyers, were invited to attend management
presentations at NDCHealth in Atlanta, Georgia. During this same time frame,
after further review and analysis by representatives of NDCHealth, and based
principally on the level of interest initially indicated, seven potential
strategic buyers signed confidentiality agreements and were invited to attend
management presentations. Management presentations for the six potential
financial buyers and nine potential strategic buyers were held from May 12, 2005
through May 27, 2005.
Following each management presentation, the potential buyers were given
access to additional due diligence materials to enable them to make formal
offers. NDCHealth requested that formal offers be submitted no later than June
17, 2005, which date was later extended to June 24, 2005. On June 27, 2005, the
NDCHealth board of directors met to review and consider formal offers received.
Blackstone informed the NDCHealth board of directors that it had not received
any formal bids to buy the entire company, although there was verbal expression
of continuing interest from one financial buyer in a potential transaction
valued at a range of $16.00 - $17.00 per share. This potential buyer indicated
that, if a strategic partner could be brought into the transaction in order to
enhance the achievability of various operational synergies, the range of value
at which the buyer would continue to be interested could possibly be increased
to $18.00 - $19.00 per share, but specifically indicated it would not have an
interest in a transaction that involved a sale of the information management
business. Blackstone also informed the NDCHealth board of directors that two
strategic buyers had expressed an interest in buying only the information
management business of NDCHealth, but had not submitted formal offers. Following
discussions with members of management, representatives of Blackstone and
NDCHealth's legal advisors, the NDCHealth board of directors decided that
although no firm offers for the purchase of NDCHealth had been received, it
should continue to pursue a sale of NDCHealth. While authorizing Blackstone and
Goldman Sachs to continue to pursue a sale, the NDCHealth board of directors was
mindful that the uncertainty associated with a protracted process could have an
adverse affect and concluded that, if a sale of NDCHealth could not be
negotiated in a reasonable period of time, it would consider the option of the
company remaining independent.
Following the June 27, 2005 NDCHealth board of directors meeting,
Blackstone continued to contact potentially interested parties. Per-Se, which
had previously expressed interest in segments of NDCHealth (but specifically not
the information management business), was contacted again to assess its interest
in acquiring NDCHealth if a separate sale of the information management business
could be accomplished. On June 29, 2005, Per-Se, which had not previously
participated in the sale process, executed a confidentiality agreement, and
attended a meeting with NDCHealth's management on July 5, 2005, to gain
additional information concerning NDCHealth.
On July 1, 2005, Per-Se retained King & Spalding LLP as its legal advisor
for the potential transaction. In early July 2005, Per-Se also retained Rogers &
Hardin LLP as its legal advisor to review the securities class action and
related litigation pending against NDCHealth. Per-Se also retained Banc of
America Securities LLC as its financial advisor to evaluate, and render an
opinion to the Per-Se board of directors with respect to, the consideration
payable in the potential transaction and also engaged other outside advisors to
assist with financial and tax due diligence. During July 2005, representatives
of Per-Se conducted due diligence on NDCHealth while Blackstone continued
discussions with other potential strategic and financial buyers.
On July 5, 2005, the Per-Se board of directors met and received a report
from management regarding the possibility of acquiring NDCHealth (assuming that
the information management business could be sold separately). The Per-Se board
of directors authorized Per-Se management to continue to evaluate the
acquisition and to perform due diligence on NDCHealth. Following that meeting,
Per-Se affirmed to Blackstone that it was interested in pursuing the acquisition
of NDCHealth, assuming that the information management business could be sold
separately.
After June 27, 2005, five additional, potential strategic buyers executed
confidentiality agreements and were given access to due diligence materials on
NDCHealth or the information management business, as applicable. One of those
potential strategic buyers, which elected to pursue its interest in NDCHealth,
was
33
invited to NDCHealth for a management presentation in Atlanta, Georgia, and
subsequently returned to NDCHealth for a follow-up management presentation.
Of the potential buyers who had previously expressed an interest in the
information management business, Blackstone requested that they submit final
offers for the purchase of such business on or before July 19, 2005.
On July 15, 2005, Alston & Bird LLP, on behalf of NDCHealth, delivered an
initial draft of a merger agreement to Per-Se and King & Spalding.
On July 18, 2005, the Per-Se board of directors met to receive an update on
Per-Se's evaluation of a potential transaction with NDCHealth. At this meeting,
representatives of King & Spalding made a presentation to the Per-Se board of
directors regarding its fiduciary duties with respect to the potential
transaction. Senior management also reviewed with the Per-Se board of directors
information on strategic and operational matters, financing matters, and legal
matters relating to NDCHealth, including descriptions of NDCHealth business
segments and their recent performance, certain challenges and opportunities
identified to date, possible transaction terms and certain pending legal
matters. A thorough discussion took place among the members of the Per-Se board
of directors concerning the possible acquisition, including discussion of
strategic benefits, risks, financial aspects, litigation and regulatory issues
and possible synergies to be derived from the acquisition. At the conclusion of
the meeting, the Per-Se board of directors authorized management to continue
with further evaluation and analysis of the possible acquisition.
On July 19, 2005, NDCHealth received an indication of interest for the
purchase of the information management business from Wolters Kluwer in the range
of $375 - $385 million on a debt-free and cash-free basis, assuming a normal
level of working capital and assuming no tax net operating loss carryforwards
would be transferred with the business. Wolters Kluwer indicated that its due
diligence was substantially complete. A second party which had previously
expressed interest in the information management business reaffirmed its
interest, but indicated that it required significant additional due diligence
and that its purchase would remain subject to certain conditions.
On July 20, 2005, after further discussions, Wolters Kluwer agreed to
increase its offer to approximately $390 million, assuming a normalized level of
working capital and certain net operating loss tax benefit assumptions.
On July 28, 2005, the Per-Se board of directors held its regular quarterly
meeting and received updates from senior management of Per-Se and Per-Se's
advisors concerning the possible acquisition of NDCHealth, and the status of
negotiations. Per-Se management also made a presentation to the Per-Se board of
directors regarding the potential structure of the financing for the
transaction. Representatives of Rogers & Hardin reviewed the scope of the due
diligence it performed in connection with the securities class action lawsuit
and related legal proceedings pending against NDCHealth. Following this meeting,
NDCHealth announced that a federal district court had dismissed the securities
class-action (with 30 days leave to file an amended complaint).
On July 28, 2005, Alston & Bird, on behalf of NDCHealth, provided Per-Se
and King & Spalding with working drafts of the sale and ongoing support and data
supply agreements contemplated in connection with the sale of the information
management business to Wolters Kluwer. These documents included agreements
pursuant to which certain assets held in the name of NDCHealth, but used in the
information management business, would be transferred prior to the closing to
the information management subsidiary to be acquired by Wolters Kluwer, and,
pursuant to which, following the closing, (i) NDCHealth would provide certain
data to Wolters Kluwer, (ii) Wolters Kluwer would provide certain data to
NDCHealth and (iii) each of the parties would provide certain transition
services to the other.
On July 29, 2005, management of NDCHealth, Blackstone and NDCHealth's legal
advisors met separately with representatives of each of Per-Se and Wolters
Kluwer at NDCHealth's offices in Atlanta, Georgia. At these meetings, the
parties explored and discussed in detail potential transaction terms and
structure, particularly as related to the sale of the information management
business to Wolters Kluwer
34
simultaneously with the acquisition of NDCHealth by Per-Se. Per-Se, Wolters
Kluwer and their respective advisors continued to perform legal, financial and
technical due diligence of NDCHealth and the information management business.
On several occasions during the sale process, representatives of Per-Se
requested that NDCHealth agree to negotiate exclusively with Per-Se with respect
to a potential transaction (subject to NDCHealth's ongoing discussions with
Wolters Kluwer). On each occasion, NDCHealth declined to enter into any sort of
exclusivity arrangement with Per-Se prior to the execution by the parties of a
definitive merger agreement.
On August 1, 2005, Per-Se and NDCHealth executed a separate confidentiality
agreement which covered business information provided by Per-Se to NDCHealth and
its representatives. Following execution of this confidentiality agreement,
representatives of NDCHealth, including its legal and financial advisors,
conducted due diligence on Per-Se and its businesses.
During August 2005, Blackstone and Goldman Sachs continued discussions with
certain other potentially interested strategic and financial buyers. During such
time, one new potentially interested financial buyer executed a confidentiality
agreement and received due diligence materials on NDCHealth. None of these
potentially interested parties submitted formal indications of interest to
acquire all or any part of NDCHealth.
Since the information management business and the network systems and
services business (the latter being the principal remaining business of
NDCHealth to be acquired by Per-Se) are substantially interrelated, the
separation of these two lines of business under separate owners required the
negotiation of highly technical agreements which would become effective upon the
consummation of the two transactions and govern the ongoing relationship between
the separate owners for some period of time thereafter. These facts and
circumstances necessitated that Per-Se and Wolters Kluwer be directly involved
with representatives of NDCHealth in the negotiation and structuring of these
agreements. On August 2, 2005, Per-Se and Wolters Kluwer executed a
confidentiality agreement with respect to information exchanged between them in
these discussions.
On August 3, 2005, Per-Se indicated its willingness to purchase NDCHealth
for $19.00 per share, conditioned upon a sale of the information management
business, resolution of certain outstanding due diligence items and execution by
the parties of a definitive merger agreement. From August 3 to August 11, 2005,
representatives of NDCHealth and Per-Se exchanged drafts of a merger agreement
and negotiated various terms of the proposed transaction at multiple meetings.
Simultaneously, representatives of NDCHealth and Wolters Kluwer exchanged drafts
of the stock purchase agreement and negotiated various provisions and deal terms
relating to the sale of the information management business. King & Spalding
also provided to NDCHealth, on behalf of Per-Se, comments to the information
management sale agreements.
On August 8, 2005, the NDCHealth board of directors met to review progress
in pursuing a sale of NDCHealth. Representatives of Blackstone informed the
NDCHealth board of directors that Per-Se had indicated its willingness to
purchase NDCHealth for $19.00 per share (which could increase to $19.50 per
share based on certain factors), conditioned upon a sale of the information
management business and resolution of certain outstanding diligence items. In
addition, Blackstone informed the NDCHealth board of directors of Wolters
Kluwer's continued interest in the information management business for the same
range of consideration previously discussed. After lengthy discussion, the
NDCHealth board of directors authorized representatives of NDCHealth and
management to continue discussions with each of Per-Se and Wolters Kluwer in an
effort to reach definitive agreements as soon as reasonably possible that would
accomplish the sale of the entire company. In reaching its decision, the
NDCHealth board of directors considered, among other things, that the sale of
the information management business alone would be a highly complex transaction
and would result in a substantially smaller company that would retain the full
costs associated with remaining a public company. The NDCHealth board of
directors concluded that the sale of the entire company, although in two
separate but contingent transactions, was the preferred course of achieving the
highest value for NDCHealth stockholders in light of the results of the sale
process.
35
Following the August 8, 2005 NDCHealth board of directors meeting,
representatives of NDCHealth continued separate, in-depth negotiations with each
of Per-Se and Wolters Kluwer. Following these negotiations, it was Per-Se's
understanding that negotiations between NDCHealth and Wolters Kluwer over the
principal business terms for the sale of the information management business had
to be substantially complete on or before August 19, 2005.
Prior to August 12, 2005, Mr. Philip Pead, Chairman, President and Chief
Executive Officer of Per-Se, and Mr. Jeffrey McCaulley, President of Wolters
Kluwer Health, held various conversations related to the structure of a
transaction involving both Per-Se and Wolters Kluwer. In these conversations,
Mr. McCaulley would not commit Wolters Kluwer to any deadline for completion of
due diligence or negotiation of the principal business terms for the sale of the
information management business.
On August 12, 2005, the Per-Se board of directors met to receive an update
on the status of the transaction. Management of Per-Se updated the board on the
status of the due diligence and the principal open issues under the merger
agreement. Per-Se management also reported that the sale of the information
management business to Wolters Kluwer raised a number of complex issues,
particularly under the ongoing support and supply agreements to be in effect
following the closing. Per-Se management expressed concern that the time needed
to negotiate and resolve these issues could lead the NDCHealth board of
directors to abandon the sale process and elect to remain independent or could
increase the risk of a competing offer for the entire company. Based on this,
the Per-Se board of directors authorized management to pursue an evaluation of
an acquisition of all of NDCHealth (including the information management
business).
Following the August 12, 2005 Per-Se board of directors meeting, Per-Se
notified Blackstone that, because of these concerns, it was interested in
pursuing the purchase of NDCHealth for the same range of consideration
previously discussed and not conditioned on a sale of the information management
business. Per-Se's interest was conditioned on performing additional operational
and business due diligence on the information management business, which it
commenced immediately. Following these discussions, Blackstone notified
representatives of Wolters Kluwer of Per-Se's interest in pursuing the purchase
of all of NDCHealth (including the information management business), and
negotiations between NDCHealth and Wolters Kluwer regarding the sale of the
information management business temporarily halted.
On August 15, 2005, Wolters Kluwer delivered a letter to the lead director
of the NDCHealth board of directors which set forth Wolters Kluwer's view that
the joint transaction previously discussed was a more favorable transaction for
NDCHealth stockholders. The letter also stated that Wolters Kluwer did not
believe any material open issues remained in the information management sale
agreements and that Wolters Kluwer was prepared to come to Atlanta immediately
to resolve all remaining issues.
Following receipt of the August 15, 2005 letter from Wolters Kluwer,
NDCHealth contacted Per-Se to ask whether Per-Se would be willing to reconsider
a transaction involving Wolters Kluwer acquiring the information management
business. Representatives of Per-Se indicated that it would be willing to
recommence the negotiations involving Wolters Kluwer but maintained that Per-Se
would pursue the acquisition of all of NDCHealth (including the information
management business) if such negotiations could not be completed in a timely
basis acceptable to Per-Se and NDCHealth.
On August 16, 2005, the second party that had indicated an interest in the
information management business on July 19 reaffirmed such interest. However,
such interest did not offer NDCHealth an advantage over the existing Wolters
Kluwer proposal and remained subject to significant due diligence and other
potentially difficult closing conditions.
The Per-Se board of directors met on August 18, 2005 for a brief update.
Management advised that negotiations involving Per-Se and Wolters Kluwer had
recommenced.
From August 17 to August 26, 2005, representatives of NDCHealth, Per-Se and
Wolters Kluwer participated in various meetings and discussions regarding the
transaction agreements and exchanged multiple drafts of such documents. The
material open issues under the merger agreement principally involved the
circumstances under which NDCHealth could terminate the merger agreement to
accept a
36
competing offer and the circumstances under which either party would be
obligated to pay a termination fee or the expenses of the other party. The
principal open issues in the information management sale agreements centered
around the non-competition and exclusivity provisions contained in those
agreements.
On August 26, 2005, upon further due diligence and continued negotiations,
Wolters Kluwer's offer was reduced to $382.1 million. Based on Per-Se
management's assessment of the after-tax proceeds that Wolters Kluwer's revised
offer would generate and based on Per-Se's satisfactory completion of its due
diligence, Per-Se's offer was formally increased to $19.50 per share.
On August 26, 2005, the Per-Se board of directors met to consider the
proposed transaction. Per-Se management reviewed with the Per-Se board of
directors the key financial terms of the merger. In addition, representatives of
King & Spalding outlined the key terms of the merger agreement (the latest copy
of which had been provided to the directors in advance of the meeting together
with a written presentation on the material terms of the merger agreement and
the information management sale agreements) and the proposed information
management sale agreements. King & Spalding outlined, in particular, the
provisions under the merger agreement which required either party to pay a
termination fee or the expenses of the other party and the non-competition and
exclusivity provisions of the information management sale agreements. Next,
representatives of Per-Se and Bank of America, N.A. reviewed with the Per-Se
board of directors the key terms of the debt financing commitment letter. Also
at this meeting, Banc of America Securities reviewed with the Per-Se board of
directors its financial analysis of the merger consideration and delivered to
the Per-Se board of directors an oral opinion, which was confirmed by delivery
of a written opinion dated August 26, 2005, to the effect that, as of that date
and based on and subject to various assumptions and limitations described in its
opinion, the merger consideration to be paid by Per-Se pursuant to the merger
agreement was fair, from a financial point of view, to Per-Se. After discussions
and deliberations, the Per-Se board of directors approved the proposed merger
agreement and the transactions contemplated thereby and resolved to recommend
that the Per-Se stockholders approve the issuance of Per-Se common stock
pursuant to the merger agreement.
The NDCHealth board of directors also met on August 26, 2005 to consider
the proposed transactions. Due to scheduling difficulties, two directors were
absent from the meeting. At the meeting, the sale process in which NDCHealth had
been engaged since March 2005 was reviewed by the NDCHealth board of directors,
and representatives of Blackstone and Goldman Sachs each made a presentation to
the NDCHealth board of directors regarding the financial terms of the proposed
transactions. Each of these presentations included a detailed discussion of the
principal valuation methodologies used respectively in evaluating the
consideration to be received by NDCHealth stockholders in the proposed merger
transaction. In addition, representatives of Alston & Bird reviewed with the
NDCHealth board of directors the directors' fiduciary duties with regard to the
sale of the company, and the material terms of the proposed merger agreement
with Per-Se (the latest draft of which, together with a memorandum summarizing
certain provisions, had been provided to the NDCHealth directors), including,
particularly, provisions relating to the ability of the NDCHealth board of
directors to consider competing offers and the fees or expenses payable upon
termination of the merger agreement under certain circumstances. The proposed
stock purchase agreement for the sale of the information management business to
Wolters Kluwer was also reviewed (the latest draft of which, together with a
memorandum summarizing certain provisions, including the closing condition
requiring the satisfaction or waiver of all conditions to closing for the
transaction with Per Se, had been provided to the NDCHealth directors).
Following the discussion, each of Blackstone and Goldman Sachs delivered its
oral opinion, each of which was subsequently confirmed in writing, to the effect
that, as of that date and based on and subject to the procedures followed,
assumptions made, matters considered and limitations on review described in
their respective opinions, the merger consideration to be received by the
NDCHealth stockholders in the proposed merger transaction was fair, from a
financial point of view, to the NDCHealth stockholders. After a thorough
discussion of Blackstone's and Goldman Sachs' presentations and the terms of the
proposed merger agreement and stock purchase agreement, including the financial
terms of the proposed transactions, the restriction on soliciting acquisition
proposals, the termination fee and the closing conditions, the NDCHealth board
of directors adopted the proposed merger agreement and approved the
37
merger, as well as the stock purchase agreement with Wolters Kluwer, which
according to its terms required the satisfaction or waiver of all conditions to
closing for the merger agreement with Per-Se, and resolved to recommend that the
NDCHealth stockholders adopt the proposed merger agreement and approve the
merger. The two directors who were absent from the meeting, but each of whom had
participated in previous board meetings and discussions concerning the
transactions, subsequently joined, by consent action, in resolving to recommend
that the NDCHealth stockholders adopt the proposed merger agreement and approve
the merger.
Immediately following the NDCHealth board of directors meeting on August
26, 2005, representatives of NDCHealth, Per-Se and Wolters Kluwer finalized the
terms of the merger agreement and the stock purchase agreement. After the terms
of the agreements had been finalized, the parties executed and delivered the
agreements. The proposed transactions were publicly announced prior to the
commencement of trading on the morning of Monday, August 29, 2005.
PER-SE REASONS FOR THE MERGER
The Per-Se board of directors believes that the terms of the merger are
advisable to, and in the best interests of, Per-Se and has unanimously approved
the merger agreement and unanimously recommends that the Per-Se stockholders
vote "FOR" the proposal to approve the issuance of Per-Se common stock to
NDCHealth stockholders pursuant to the merger agreement.
In reaching its conclusion, the Per-Se board of directors consulted with
Per-Se's management, as well as its legal and other advisors, and considered a
variety of factors weighing favorably towards the merger including, without
limitation, the following:
- The shared strategic focus of the two companies, principally that the
main focus of each business is to improve reimbursement for healthcare
providers;
- The complementary operations of the two companies, which have transaction
processing as a common denominator, and limited overlap in service and
product offerings;
- The limited overlap in the service and product offerings of the two
companies:
- NDCHealth is a leading provider of forward-deployed (i.e., installed
directly on the client system) physician practice management software
among small office-based physician practices (1-2 doctors) with
approximately 100,000 physicians using NDCHealth's software. Per-Se's
physician practice management software is marketed as an Application
Service Provider, or "ASP-based solution" targeted at office-based group
practices with 5 or more doctors. Approximately 4,000 physicians use
Per-Se's ASP offering. Per-Se is a leading provider of business process
outsourcing services for hospital-based physicians, typically practicing
in groups of 10 or more.
- NDCHealth is a leader in providing ASP-based revenue cycle management
solutions to hospitals with approximately 1,800 healthcare organizations
using NDCHealth's solutions. Per-Se's hospital business consists of both
revenue cycle and resource management solutions. Per-Se's revenue cycle
management solutions are marketed on a forward-deployed model with
approximately 400 healthcare organizations using Per-Se's solution.
- The addition of retail pharmacy network services and software as an
entirely new market segment to Per-Se's offerings;
- The added breadth and depth of a larger company with an expanded and
diversified customer base provides opportunities to not only cross sell
current services and solutions but also to introduce new services and
solutions and enter new market segments. These opportunities are future
drivers of revenue growth. Examples include:
- The opportunity for cross selling of Per-Se's complementary products
into the NDCHealth physician and hospital customer base for electronic
transaction processing and patient
38
communication services (e.g., paper payer claims and patient
statements), where penetration is relatively low for both product in
NDCHealth's physician customers, and low for patient communication
services in hospital customers; and
- The opportunity to enter the business process outsourcing services for
hospitals market. Per-Se's expertise in providing such services for
physicians practice in a hospital setting can be leveraged to introduce
a new offering to the 1,800 hospital and healthcare organizations that
currently use NDCHealth's revenue cycle management solutions.
- The combination of the two companies is expected to generate operational
and other synergies of between $15 million and $20 million to be
recognized in the first year following completion of the merger. These
expected year one synergies do not include any revenue synergies that the
combined entity may achieve;
- Per-Se expects that the merger, excluding transaction-related costs and
costs related to achieving the above synergies, will be accretive to
earnings per share and significantly accretive to cash flow per share in
the first year following the completion of the merger;
- Upon completion of the merger, Per-Se expects to accelerate the use of
its net operating loss carryforward, which further enhances cash flow
accretion related to the transaction;
- As a result of the expanded customer base, the amount of data available
to providers will significantly increase. Increased data volume is
expected to allow customers to realize more revenue cycle efficiencies,
which should ultimately make reimbursement more predictable for
hospitals, physicians and pharmacies;
- The merger is conditioned on the sale to Wolters Kluwer of NDCHealth's
information management business, which effectively allows Per-Se to
acquire only those businesses of NDCHealth which are the most
complementary to Per-Se's existing businesses and strategy. The
information management sale agreements also require Wolters Kluwer to
compensate NDCHealth for the provision of certain data and related
support services which are currently provided by NDCHealth to the
information management business through intercompany agreements. See the
section entitled "Information Management Sale Agreements" beginning on
page 88;
- The financial performance and condition, business operations and
prospects of each of Per-Se, NDCHealth and the combined company;
- The structure of the transaction and terms of the merger agreement. See
the section entitled "The Merger Agreement" beginning on page 75; and
- The opinion of Banc of America Securities, dated August 26, 2005, to the
Per-Se board of directors as to the fairness, from a financial point of
view and as of the date of the opinion, of the merger consideration to
Per-Se. See the section entitled "The Merger -- Opinion of Financial
Advisor to the Per-Se Board of Directors" beginning on page 40.
The Per-Se board of directors weighed these advantages and opportunities
against a number of other factors identified in its deliberations weighing
negatively against the merger, including:
- The challenges inherent in the combination of two businesses of the size
and scope of Per-Se and NDCHealth and the possible diversion of
management attention for an extended period of time;
- The risk of not capturing all the anticipated synergies between Per-Se
and NDCHealth and the risk that other anticipated benefits might not be
realized;
- Uncertainty as to the outcome of various legal proceedings and government
investigations involving NDCHealth that could adversely impact the
business and prospects of the combined company;
- The information management sale agreements obligate NDCHealth to provide
data to Wolters Kluwer on a long-term basis and also contain
non-competition and exclusivity provisions which will
39
restrict Per-Se's and NDCHealth's activities. See the section entitled
"Information Management Sale Agreements" beginning on page 88;
- The debt service requirements and financial and operational covenants
arising from the acquisition financing. See the section entitled "The
Merger -- Financing Arrangements" beginning on page 68;
- NDCHealth's right, under certain circumstances, to terminate the merger
to accept a superior offer. See the section entitled "The Merger
Agreement -- No Solicitation; Other Offers" beginning on page 80; and
- The conditions to the merger agreement requiring the payment of
NDCHealth's expenses under circumstances. See the section entitled "The
Merger Agreement -- Expenses and Termination Fees" beginning on page 85.
After consideration of these factors, the Per-Se board of directors
determined that these risks were outweighed by the potential benefits of the
merger.
This discussion of the information and factors considered by the Per-Se
board of directors includes all of the material positive and negative factors
considered by the Per-Se board of directors, but it is not intended to be
exhaustive and may not include all the factors considered by the Per-Se board of
directors. In reaching its determination to approve and recommend the merger
agreement, the Per-Se board of directors did not quantify or assign any relative
or specific weights to the various factors that it considered in reaching its
determination that the merger agreement is advisable and in the best interests
of Per-Se and its stockholders. Rather, the Per-Se board of directors viewed its
position and recommendation as being based on the totality of the information
presented to and factors considered by it. In addition, individual members of
the Per-Se board of directors may have given differing weights to different
factors.
RECOMMENDATION OF THE PER-SE BOARD OF DIRECTORS
After careful consideration, the Per-Se board of directors, on August 26,
2005, unanimously approved the merger agreement. The Per-Se board of directors
unanimously recommends that the Per-Se stockholders vote "FOR" the proposal to
approve the issuance of Per-Se common stock pursuant to the merger agreement.
Further, the Per-Se board of directors recommends that the Per-Se stockholders
vote "FOR" the proposal to adjourn or postpone the Per-Se special meeting, if
necessary, for the purpose of soliciting additional proxies.
OPINION OF FINANCIAL ADVISOR TO THE PER-SE BOARD OF DIRECTORS
Per-Se retained Banc of America Securities as its financial advisor to
evaluate, and render an opinion to the Per-Se board of directors with respect
to, the merger consideration. Banc of America Securities is an internationally
recognized investment banking firm which is regularly engaged in the valuation
of businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
Per-Se selected Banc of America Securities on the basis of Banc of America
Securities' experience in transactions similar to the merger, its reputation in
the healthcare industry and investment community and its familiarity with Per-Se
and its business.
On August 26, 2005, at a meeting of the Per-Se board of directors held to
evaluate the merger, Banc of America Securities delivered to the Per-Se board of
directors an oral opinion, which was confirmed by delivery of a written opinion
dated August 26, 2005, to the effect that, as of the date of the opinion and
based on and subject to various assumptions and limitations described in its
opinion, the merger consideration to be paid by Per-Se pursuant to the merger
agreement was fair, from a financial point of view, to Per-Se.
THE FULL TEXT OF BANC OF AMERICA SECURITIES' WRITTEN OPINION TO THE PER-SE
BOARD OF DIRECTORS, WHICH DESCRIBES, AMONG OTHER THINGS, THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, FACTORS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS ANNEX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS
40
AND IS INCORPORATED BY REFERENCE IN ITS ENTIRETY INTO THIS JOINT PROXY
STATEMENT/PROSPECTUS. HOLDERS OF PER-SE COMMON STOCK ARE ENCOURAGED TO READ THE
OPINION CAREFULLY IN ITS ENTIRETY. THE FOLLOWING SUMMARY OF BANC OF AMERICA
SECURITIES' OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE OPINION. BANC OF AMERICA SECURITIES DELIVERED ITS OPINION TO THE PER-SE
BOARD OF DIRECTORS FOR THE BENEFIT AND USE OF THE PER-SE BOARD OF DIRECTORS IN
CONNECTION WITH AND FOR PURPOSES OF ITS EVALUATION OF THE MERGER CONSIDERATION
TO BE PAID BY PER-SE PURSUANT TO THE MERGER AGREEMENT. BANC OF AMERICA
SECURITIES' OPINION DOES NOT ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW TO VOTE AT THE SPECIAL
MEETINGS.
For purposes of its opinion, Banc of America Securities:
- reviewed publicly available financial statements and other business and
financial information of Per-Se and NDCHealth, respectively;
- reviewed internal financial statements and other financial and operating
data concerning Per-Se and NDCHealth (excluding NDCHealth's information
management business), respectively;
- reviewed financial forecasts and estimates relating to Per-Se and
NDCHealth (excluding the information management business) prepared by the
managements of Per-Se and NDCHealth, respectively, including Per-Se's
management's estimate as to the after-tax cash proceeds to be received by
NDCHealth from the sale of the information management business;
- reviewed and discussed with Per-Se's senior executives information
relating to cost savings and strategic, financial and operational
benefits anticipated by Per-Se's management to result from the merger;
- discussed the past and current operations, financial condition and
prospects of Per-Se and NDCHealth (excluding the information management
business) with Per-Se's senior executives, and discussed the past and
current operations, financial condition and prospects of NDCHealth
(excluding the information management business) with NDCHealth's senior
executives;
- reviewed the potential pro forma financial impact of the merger on
Per-Se's estimated earning per share and credit statistics of Per-Se;
- reviewed the reported prices and trading activity for Per-Se common stock
and NDCHealth common stock;
- compared the financial performance of Per-Se and NDCHealth with that of
certain other publicly traded companies which Banc of America Securities
deemed relevant;
- compared financial terms of the merger to financial terms, to the extent
publicly available, of certain other business combination transactions
which Banc of America Securities deemed relevant;
- reviewed the merger agreement;
- discussed with the managements of Per-Se and NDCHealth and their
respective counsel certain matters pertaining to outstanding litigation
involving NDCHealth, including the status and possible consequences of
such litigation on NDCHealth; and
- performed other analyses and considered other factors as Banc of America
Securities deemed appropriate.
Banc of America Securities assumed and relied on, without independent
verification, the accuracy and completeness of the financial and other
information reviewed by it for the purposes of its opinion. Banc of America
Securities also assumed, at Per-Se's direction, that the financial forecasts
relating to Per-Se prepared by Per-Se's management, including information
relating to cost savings and strategic, financial and operational benefits
anticipated by Per-Se's management to result from the merger, were reasonably
prepared on bases reflecting the best currently available estimates and good
faith judgments of Per-Se's management as to Per-Se's future financial
performance and the other matters covered by such forecasts. Banc of America
Securities further assumed, upon NDCHealth's advice and at Per-Se's direction,
that the
41
financial forecasts relating to NDCHealth prepared by NDCHealth's management
were reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of NDCHealth's management as to NDCHealth's
future financial performance (after giving effect to the sale of the information
management business). Banc of America Securities did not make any independent
valuation or appraisal of the assets or liabilities, contingent or otherwise, of
Per-Se and NDCHealth and Banc of America Securities was not furnished with any
such valuations or appraisals. Banc of America Securities assumed, with Per-Se's
consent, that the merger and related transactions, including the sale of the
information management business, would be consummated as provided in the merger
agreement, with full satisfaction of all covenants and conditions contained in
the merger agreement and without any waivers. Banc of America Securities also
assumed, at Per-Se's direction, that the sale of the information management
business (including the transfer of the assets and liabilities of the
information management business in connection with such sale) and related
transactions, arrangements and agreements would be effected without any adverse
consequence to or impact on Per-Se, NDCHealth or the merger and that the
after-tax cash proceeds received by NDCHealth in such sale would not vary from
the estimate provided to Banc of America Securities in any respect material to
its analyses.
Banc of America Securities was not requested to, and did not, participate
in the negotiations of the terms of the merger agreement or the transactions
contemplated by the merger agreement (including the sale of the information
management business and related transactions) and was not requested to, and did
not, provide any advice or services in respect of the merger or the related
transactions other than the delivery of its opinion. Banc of America Securities
expressed no view or opinion as to any terms or aspects of the merger or any
related transaction other than the merger consideration to the extent expressly
specified in its opinion, including the form of the merger consideration, the
form or structure of the merger or any related transaction or any aspect or
implication of the sale of the information management business or any related
transaction. In addition, Banc of America Securities expressed no opinion as to
the relative merits of the merger in comparison to other transactions available
to Per-Se or in which Per-Se might engage or as to whether any transaction might
be more favorable to Per-Se as an alternative to the merger, nor did Banc of
America Securities express any opinion as to the underlying business decision of
the Per-Se board of directors to proceed with or effect the merger. Banc of
America Securities expressed no opinion as to what the value of Per-Se common
stock would be when issued in the merger or the prices at which Per-Se common
stock or NDCHealth common stock would trade at any time. Except as described
above, Per-Se imposed no other limitations on the investigations made or
procedures followed by Banc of America Securities in rendering its opinion.
Banc of America Securities' opinion was necessarily based on economic,
market and other conditions as in effect on, and the information made available
to Banc of America Securities as of, the date of its opinion. Accordingly,
although subsequent developments may affect its opinion, Banc of America
Securities did not assume any obligation to update, revise or reaffirm its
opinion.
The following represents a brief summary of the material financial analyses
presented by Banc of America Securities to the Per-Se board of directors in
connection with its opinion. THE FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE
INFORMATION PRESENTED IN TABULAR FORMAT. IN ORDER TO FULLY UNDERSTAND THE
FINANCIAL ANALYSES PERFORMED BY BANC OF AMERICA SECURITIES, THE TABLES MUST BE
READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE
A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES PERFORMED BY BANC OF AMERICA
SECURITIES. CONSIDERING THE DATA IN THE TABLES BELOW WITHOUT CONSIDERING THE
FULL NARRATIVE DESCRIPTION OF THE FINANCIAL ANALYSES, INCLUDING THE
METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES, COULD CREATE A MISLEADING
OR INCOMPLETE VIEW OF THE FINANCIAL ANALYSES PERFORMED BY BANC OF AMERICA
SECURITIES. Estimated financial data for NDCHealth utilized by Banc of America
Securities in the analyses described below excluded the information management
business. In deriving implied per share equity reference ranges for NDCHealth in
such analyses, Banc of America Securities utilized Per-Se management's estimate
as to the after-tax cash proceeds to be received by NDCHealth from the sale of
the information management business.
42
SELECTED COMPANIES ANALYSIS
Banc of America Securities reviewed financial and stock market information
of NDCHealth and the following eight selected publicly held companies in the
healthcare information technology sector:
- Cerner Corporation
- Computer Programs and Systems, Inc.
- Eclipsys Corporation
- IDX Systems Corporation
- iSoft Group plc
- Per-Se
- ProxyMed, Inc.
- WebMD Corporation
Banc of America Securities reviewed, among other things, enterprise values,
calculated as fully-diluted market value, plus net debt and minority interests,
less cash and cash equivalents, as a multiple of calendar years 2005 and 2006
estimated earnings before interest, taxes, depreciation and amortization,
commonly referred to as EBITDA. Banc of America Securities then applied a range
of selected multiples of calendar years 2005 and 2006 estimated EBITDA,
excluding outliers, derived from the selected companies to corresponding
financial data of NDCHealth. Multiples were based on closing stock prices on
August 25, 2005. Estimated financial data for the selected companies were based
on publicly available research analysts' estimates. Estimated financial data for
NDCHealth were based on internal estimates of NDCHealth's management as
calendarized at the direction of Per-Se's management. This analysis indicated
the following approximate implied per share equity reference range for
NDCHealth, as compared to the per share merger consideration:
<Table>
<Caption>
IMPLIED PER SHARE
EQUITY REFERENCE RANGE PER SHARE MERGER
FOR NDCHEALTH CONSIDERATION
- ---------------------- ----------------
$19.05 - $22.65 $19.50
</Table>
No company or business used in this analysis is identical to NDCHealth.
Accordingly, an evaluation of the results of this analysis is not entirely
mathematical. Rather, this analysis involves complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors that could affect the acquisition or other values of the companies
or business segments to which NDCHealth was compared.
PRECEDENT TRANSACTIONS ANALYSIS
Banc of America Securities reviewed financial information relating to the
following seven selected transactions in the healthcare information technology
sector announced since May 2002:
<Table>
<Caption>
DATE ANNOUNCED ACQUIROR TARGET
- -------------- -------- ------
- - July 2005 - VNU N.V. - IMS Health Incorporated
- - January 2005 - Elekta AB - IMPAC Medical Systems, Inc.
- - January 2005 - Merge Technologies - Cedara Software Corp.
Incorporated
- - November 2004 - Agfa-Gevaert N.V. - GWI AG
- - July 2004 - WebMD Corporation - ViPS, Inc.
- - July 2003 - Eastman Kodak Company - PracticeWorks, Inc.
- - May 2002 - McKesson Corporation - A.L.I. Technologies Inc.
</Table>
Banc of America Securities reviewed, among other things, enterprise values
in the selected transactions, calculated as the equity value implied for the
target company based on the consideration
43
payable in the selected transaction, plus net debt and minority interests, less
cash and cash equivalents, as multiples of latest 12 months EBITDA and earnings
before interest and taxes, commonly referred to as EBIT. Banc of America
Securities then applied a range of selected latest 12 months EBITDA and EBIT
multiples derived from the selected transactions to corresponding financial data
of NDCHealth. Multiples for the selected transactions were based on publicly
available financial information at the time of announcement of the relevant
transaction. Financial data for NDCHealth were based on internal estimates of
NDCHealth's management. This analysis indicated the following approximate
implied per share equity reference range for NDCHealth, as compared to the per
share merger consideration:
<Table>
<Caption>
IMPLIED PER SHARE
EQUITY REFERENCE RANGE PER SHARE MERGER
FOR NDCHEALTH CONSIDERATION
- ---------------------- ----------------
$18.00 - $23.75 $19.50
</Table>
No company, transaction or business used in this analysis is identical to
NDCHealth or the merger. Accordingly, an evaluation of the results of this
analysis is not entirely mathematical. Rather, this analysis involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that could affect the acquisition or other
values of the companies, business segments or transactions to which NDCHealth
and the merger were compared.
DISCOUNTED CASH FLOW ANALYSIS
Banc of America Securities performed a discounted cash flow analysis of
NDCHealth to calculate the estimated present value of the standalone unlevered,
after-tax free cash flows that NDCHealth could generate during fiscal years 2006
through 2009. In this analysis, Banc of America Securities calculated a range of
estimated terminal values by applying a range of EBITDA terminal value multiples
of 10.0x to 12.5x to NDCHealth's fiscal year 2009 estimated EBITDA. The present
value of the cash flows and terminal values were then calculated using discount
rates ranging from 10.0% to 12.0%. Estimated financial data for NDCHealth were
based on internal estimates of NDCHealth's management. This analysis indicated
the following approximate implied per share equity reference range for
NDCHealth, as compared to the per share merger consideration:
<Table>
<Caption>
IMPLIED PER SHARE
EQUITY REFERENCE RANGE PER SHARE MERGER
FOR NDCHEALTH CONSIDERATION
- ---------------------- ----------------
$28.10 - $34.73 $19.50
</Table>
Banc of America Securities also reviewed the potential impact that the
annual cost savings and other synergies estimated by Per-Se's management to be
realized from the merger could have on the implied per share equity reference
range derived for NDCHealth from the discounted cash flow analysis described
above. Banc of America Securities noted that the estimated per share present
value attributable to such annual cost savings and other synergies, together
with the implied per share equity reference range referenced above, yielded an
implied per share equity reference range for NDCHealth of approximately $35.03
to $41.67.
PRO FORMA ACCRETION/DILUTION ANALYSIS
Banc of America Securities analyzed the potential pro forma financial
effect of the merger on Per-Se's estimated EPS for calendar years 2006 and 2007
both before and after giving effect to potential cost savings and other
synergies anticipated by Per-Se's management to result from the merger.
Estimated data for Per-Se were based on internal estimates of Per-Se's
management. Estimated data for NDCHealth were based on internal estimates of
NDCHealth's management as calendarized at the direction of Per-Se's management.
For purposes of this analysis, Banc of America Securities assumed that $13.00 of
the total per share merger consideration would be payable in cash and an
aggregate of approximately 11.9 million
44
shares of Per-Se common stock would be issuable in the merger. This analysis
indicated that the merger could be:
- dilutive to Per-Se's calendar year 2006 estimated EPS before giving
effect to potential cost savings and other synergies anticipated by
Per-Se's management to result from the merger, and accretive to Per-Se's
calendar year 2006 estimated EPS after giving effect to such potential
cost savings and other synergies; and
- accretive to Per-Se's calendar year 2007 estimated EPS both before and
after giving effect to potential cost savings and other synergies
anticipated by Per-Se's management to result from the merger.
The actual results achieved by the combined company may vary from projected
results and the variations may be material.
OTHER FACTORS
In rendering its opinion, Banc of America Securities also reviewed and
considered other factors, including:
- historical trading prices and trading volumes of NDCHealth common stock
during the one-year period ended August 25, 2005;
- the relationship between movements in Per-Se common stock and NDCHealth
common stock during the one-year period ended August 25, 2005, including
the daily ratio of the closing price of Per-Se common stock to the
closing price of NDCHealth common stock during such period, and the
average of this ratio calculated over various periods ended August 25,
2005;
- selected trading multiples of NDCHealth, both before and after giving
effect to the sale of the information management business, based on
NDCHealth's closing stock price on August 25, 2005, as compared to
corresponding multiples of Per-Se;
- implied transaction multiples of NDCHealth, as compared to selected
trading multiples of NDCHealth based on its closing stock price on August
25, 2005, and the implied premium paid in the merger based on the per
share merger consideration relative to NDCHealth's closing stock price on
August 25, 2005; and
- selected trading multiples based on closing stock prices on August 25,
2005 of the publicly held companies in the healthcare information
technology sector referred to above under "NDCHealth Analyses -- Selected
Companies Analysis" (other than Per-Se), as compared to corresponding
multiples of Per-Se.
MISCELLANEOUS
As noted above, the discussion set forth above is merely a summary of the
material financial analyses presented by Banc of America Securities to the
Per-Se board of directors in connection with its opinion and is not a
comprehensive description of all analyses undertaken by Banc of America
Securities in connection with its opinion. The preparation of a financial
opinion is a complex analytical process involving various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore, a
financial opinion is not readily susceptible to partial analysis or summary
description. Banc of America Securities believes that its analyses and the
summary above must be considered as a whole. Banc of America Securities further
believes that selecting portions of its analyses and the factors considered or
focusing on information presented in tabular format, without considering all
analyses and factors or the narrative description of the analyses, could create
a misleading or incomplete view of the processes underlying Banc of America
Securities' analyses and opinion. Banc of America Securities did not assign any
specific weight to any of the analyses described above. The fact that any
specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given greater weight than any other analysis.
45
In performing its analyses, Banc of America Securities considered industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of Per-Se and NDCHealth. The estimates of the
future performance of Per-Se and NDCHealth provided by the managements of Per-Se
and NDCHealth in or underlying Banc of America Securities' analyses are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than those estimates or those suggested by
Banc of America Securities' analyses. These analyses were prepared solely as
part of Banc of America Securities' analysis of the financial fairness of the
merger consideration to be paid by Per-Se pursuant to the merger agreement and
were provided to the Per-Se board of directors in connection with the delivery
of Banc of America Securities' opinion. The analyses do not purport to be
appraisals or to reflect the prices at which a company might actually be sold or
the prices at which any securities have traded or may trade at any time in the
future. Accordingly, the estimates used in, and the ranges of valuations
resulting from, any particular analysis described above are inherently subject
to substantial uncertainty and should not be taken to be Banc of America
Securities' view of the actual value of Per-Se or NDCHealth.
The type and amount of consideration payable in the merger were determined
through negotiations between Per-Se and NDCHealth, rather than by any financial
advisor, and were approved by the Per-Se board of directors. The decision of
Per-Se to enter into the merger agreement was solely that of the Per-Se board of
directors. As described above, Banc of America Securities' opinion and analyses
were only one of many factors considered by the Per-Se board of directors in
making its determination to approve the merger agreement and should not be
viewed as determinative of the views of the Per-Se board of directors or
management with respect to the merger or the merger consideration.
Per-Se agreed to pay Banc of America Securities a fee of $1.0 million in
connection with the delivery of Banc of America Securities' opinion, regardless
of the conclusion reached in the opinion. Per-Se also has agreed to reimburse
Banc of America Securities for all reasonable expenses, including reasonable
fees and disbursements of Banc of America Securities' counsel, incurred in
connection with Banc of America Securities' engagement, and to indemnify Banc of
America Securities, any controlling person of Banc of America Securities and
each of their respective directors, officers, employees, agents, affiliates and
representatives against specified liabilities, including liabilities under the
federal securities laws.
Banc of America Securities will be acting as sole lead arranger for a bank
financing for Per-Se, the proceeds of which will be used to finance the merger,
and Banc of America Securities' affiliate, Bank of America, N.A., will act as a
lender in, and serve as administrative agent for, such bank financing, for which
services Banc of America Securities and its affiliate expect to receive
compensation. Banc of America Securities also may act as sole initial purchaser
for a high-yield debt securities offering of Per-Se, the proceeds of which also
will be used to finance the merger, for which services Banc of America
Securities would expect to receive compensation. Banc of America Securities or
its affiliates in the past have provided and in the future may provide,
financial advisory and financing services to Per-Se and have received and would
expect to receive compensation for the rendering of those services, including
having acted in the past as joint book-running manager and co-lead arranger for
existing credit facilities of Per-Se, as sole manager of a convertible debt
offering of Per-Se and as lead dealer manager in connection with a debt tender
offer by Per-Se. Bank of America, N.A. is a lender under, and serves as
administrative agent for, existing credit facilities of Per-Se and also
currently is a lender under, and serves as documentation agent for, existing
credit facilities of NDCHealth. Banc of America Securities is also currently a
market maker in Per-Se common stock. In the ordinary course of business, Banc of
America Securities and its affiliates may actively trade or hold the securities
or loans of Per-Se and NDCHealth for their own accounts or for the accounts of
customers and, accordingly, Banc of America Securities or its affiliates may at
any time hold long or short positions in these securities or loans.
NDCHEALTH REASONS FOR THE MERGER
In the course of reaching its decision to recommend that NDCHealth
stockholders adopt the merger agreement and approve the merger, the NDCHealth
board of directors consulted with members of
46
NDCHealth's management, as well as NDCHealth's legal counsel and financial
advisors, and considered the following factors, among others:
- the risks and uncertainties of NDCHealth achieving its forecasts if it
were to remain an independent public company;
- the sale of the entire company would offer the best opportunity to
achieve the highest value for NDCHealth stockholders in a reasonable
period of time;
- the sale process, conducted over a five-month period, yielded no bona
fide offers for the purchase of NDCHealth as a whole;
- the separate transactions with Per-Se and Wolters Kluwer, consummated
simultaneously, would result in a sale of the entire company;
- prolonging the sale process, in the face of no other bona fide offers for
the entire company, would potentially expose NDCHealth to loss of value
through the loss of employees and customers;
- the value of the consideration to be received by NDCHealth stockholders
in the proposed merger transaction, including the price per share offered
by Per-Se and the certainty of value provided by cash being a substantial
part of the merger consideration;
- the fact that the $19.50 per share price to be received by NDCHealth
stockholders in the proposed merger transaction represented an
approximately 29.7% premium over the price at which NDCHealth common
stock was trading on the date immediately prior to the date of the
announcement that NDCHealth would seek a buyer, and a 9.7% premium over
the price at which NDCHealth common stock was trading on the date the
respective agreements with Per-Se and Wolters Kluwer were approved by the
NDCHealth board of directors;
- the estimated percentage of Per-Se that NDCHealth stockholders would hold
following consummation of the proposed transactions;
- the ability of NDCHealth stockholders to continue to invest in the
healthcare services industry through ownership of the Per-Se common stock
they receive pursuant to the merger agreement;
- the financial analyses and presentations prepared by each of Blackstone
and Goldman Sachs and their respective opinions to the NDCHealth board of
directors to the effect that, as of the date of their respective
opinions, which are described in the section entitled "Opinions of
Financial Advisors to the NDCHealth Board of Directors" beginning on page
48, based upon the assumptions made, matters considered and the
limitations and qualifications on reviews undertaken, as set forth
therein, the merger consideration to be received by NDCHealth
stockholders was fair from a financial point of view to NDCHealth
stockholders;
- the terms and conditions of the merger agreement, including that the
transaction would be contingent on the sale of the information management
business to Wolters Kluwer; and
- the size of, nature of and events that would trigger the payment of the
termination fee under the merger agreement, and the impact that the
termination fee provision and the provisions limiting NDCHealth from
soliciting or encouraging alternative proposals could have on the
likelihood that a third party would make a competing offer to acquire
NDCHealth.
The NDCHealth board of directors also considered the potential adverse
consequences of other factors on the proposed transactions, including:
- the consents and approvals required to consummate the proposed
transactions, including regulatory clearance under the HSR Act (which had
not yet been obtained), and the possibility of not receiving these
consents and approvals;
47
- the diversion of management's attention and NDCHealth's resources for an
extended period of time away from other strategic opportunities and
operational matters while working to implement the proposed transactions;
- the effect of the public announcement of the proposed transactions on
NDCHealth's customer relations, operating results and ability to retain
employees, especially if the proposed transactions are not completed;
- the interdependence of the proposed transactions with Per-Se and Wolters
Kluwer and the risk that a failure to satisfy certain conditions of
either transaction could result in termination of the other transaction;
and
- other risks described in the section entitled "Risk Factors" beginning on
page 14.
The above discussion is not exhaustive, but it addresses the material
factors considered by the NDCHealth board of directors in connection with the
proposed transactions. In view of the variety of factors and the amount of
information considered, as well as the complexity of that information, the
NDCHealth board of directors did not find it practicable to, and did not,
quantify, rank or otherwise assign relative weights to the specific factors it
considered in reaching its decision. The NDCHealth board discussed the factors
described above, asked questions of NDCHealth's management and NDCHealth's legal
and financial advisors, and decided that the proposed transactions were
advisable to, and in the best interests of, NDCHealth and its stockholders. This
determination was made after the NDCHealth board of directors considered all of
the factors as a whole. In addition, individual members of the NDCHealth board
of directors may have given different weight to different factors. It should be
noted that this explanation of the reasoning of NDCHealth board of directors,
and all other information presented in this section, is forward-looking in
nature and, therefore, should be read in light of the factors discussed under
the section entitled "Cautionary Statement Regarding Forward-Looking Statements"
beginning on page 24.
RECOMMENDATION OF THE NDCHEALTH BOARD OF DIRECTORS
THE NDCHEALTH BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT NDCHEALTH
STOCKHOLDERS VOTE TO ADOPT THE MERGER AGREEMENT AND APPROVE THE MERGER. At a
special meeting of the NDCHealth board of directors held on August 26, 2005, the
NDCHealth board of directors, including a majority of disinterested directors:
- determined that the terms of the merger and the other transactions
contemplated by the merger agreement are advisable, fair to and in the
best interests of NDCHealth and its stockholders;
- approved the merger agreement, including the merger; and
- resolved to recommend that NDCHealth stockholders vote in favor of the
proposal to adopt the merger agreement and approve the merger.
OPINIONS OF FINANCIAL ADVISORS TO THE NDCHEALTH BOARD OF DIRECTORS
OPINION OF THE BLACKSTONE GROUP L.P.
Blackstone has acted as NDCHealth's financial advisor in connection with
the merger. NDCHealth selected Blackstone based on Blackstone's experience,
reputation and familiarity with NDCHealth's business. Blackstone is an
internationally recognized investment banking firm and is continually engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts and valuations for corporate and other purposes.
In connection with Blackstone's engagement, NDCHealth requested that
Blackstone evaluate the fairness, from a financial point of view, of the
consideration to be received pursuant to the merger agreement by the holders of
NDCHealth common stock. On August 26, 2005, at a meeting of the board of
directors of NDCHealth, Blackstone delivered an oral opinion, which was
subsequently confirmed in a
48
written opinion dated August 26, 2005, to the effect that, as of that date and
based on and subject to the assumptions, limitations and qualifications
described in its written opinion, the consideration to be received by the
stockholders of NDCHealth is fair to such stockholders from a financial point of
view.
THE FULL TEXT OF BLACKSTONE'S WRITTEN OPINION, DATED AUGUST 26, 2005, TO
THE BOARD OF DIRECTORS OF NDCHEALTH, WHICH SETS FORTH THE ASSUMPTIONS MADE AND
LIMITATIONS AND QUALIFICATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY BLACKSTONE,
IS ATTACHED AS ANNEX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS. HOLDERS OF
NDCHEALTH COMMON STOCK ARE URGED TO READ THIS OPINION IN ITS ENTIRETY.
BLACKSTONE'S OPINION IS ADDRESSED TO THE BOARD OF DIRECTORS OF NDCHEALTH AND
RELATES ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO THE HOLDERS OF
NDCHEALTH COMMON STOCK OF THE CONSIDERATION. BLACKSTONE'S OPINION DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF NDCHEALTH AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE OR ACT ON ANY MATTER RELATING TO THE MERGER. THE SUMMARY
OF BLACKSTONE'S OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF BLACKSTONE'S OPINION.
In arriving at its opinion, Blackstone, among other things:
- reviewed certain publicly available information concerning the business,
financial condition, and operations of NDCHealth that Blackstone believes
to be relevant to its inquiry;
- reviewed certain internal information concerning the business, financial
condition, and operations of NDCHealth that Blackstone believes to be
relevant to its inquiry;
- reviewed certain internal financial analyses relating to NDCHealth,
prepared and furnished to Blackstone by the management of NDCHealth;
- reviewed certain estimates and forecasts relating to NDCHealth, prepared
and furnished to Blackstone by the management of NDCHealth;
- reviewed the draft Agreement and Plan of Merger by and among Per-Se,
Royal Merger Co. and NDCHealth, dated August 26, 2005 and Stock Purchase
Agreement by and among between Wolters Kluwer Health, Inc., NDCHealth
Information Services (Arizona) Inc., and NDCHealth dated August 26, 2005;
- held discussions with members of management of NDCHealth, including those
at the operations and segment level, concerning NDCHealth's business,
operating and regulatory environment, financial condition, prospects, and
strategic objectives;
- compared certain financial information for NDCHealth with similar
information for certain other companies in industries similar to those in
which NDCHealth participates, the securities of which are publicly traded
where applicable;
- reviewed the financial terms of certain recent business combinations in
industries similar to those in which NDCHealth participates;
- performed discounted cash flow ("DCF") analyses utilizing NDCHealth's
financial projections;
- reviewed certain publicly available information concerning the business,
financial condition, and operations of Per-Se that Blackstone believed to
be relevant to its inquiry;
- held discussions with members of management of Per-Se concerning Per-Se's
business, operating and regulatory environment, financial condition,
prospects, and strategic objectives;
- performed DCF analysis utilizing financial projections for Per-Se based
on NDCHealth's managements' guidance;
- performed DCF analysis utilizing pro forma financial projections based on
Per-Se's and NDCHealth's management's guidance; and
- performed such other studies and analyses, and took into account such
other matters, as Blackstone deemed appropriate.
49
In preparing its opinion, Blackstone relied, without independent
verification, upon the accuracy and completeness of all financial and other
information that is available from public sources and all projections and other
information provided to it by NDCHealth or otherwise reviewed by Blackstone.
Blackstone assumed that the financial and other projections prepared by
NDCHealth, and the assumptions underlying those projections, including the
amounts and the timing of all financial and other performance data, are
reasonably prepared and represent management's best estimates as of the date of
their preparation. Blackstone further relied upon the assurances of the
management of NDCHealth that they are not aware of any facts that would make the
information and projections provided by them inaccurate, incomplete or
misleading.
While Blackstone reviewed NDCHealth's and Per-Se's historical and projected
financial results, Blackstone did not make an independent evaluation or
appraisal of either company's assets or liabilities. Blackstone also did not
perform due diligence on either company's physical properties or facilities,
sales, marketing, distribution or service organizations, or product markets.
Blackstone did not consider in reaching the conclusions set forth in its opinion
the relative merits of the merger as compared to any other business plan or
opportunity that might be available to NDCHealth.
Blackstone assumed that the merger will be consummated on substantially the
terms set forth in the merger agreement. Blackstone's opinion is necessarily
based upon market, economic, financial and other conditions as they exist and
can be evaluated as of the date of the opinion. It should be understood that
Blackstone does not have any obligation to update, revise or reaffirm its
opinion.
In preparing its opinion to the board of directors of NDCHealth, Blackstone
performed a variety of financial and comparative analyses, including those
described below. The preparation of a fairness opinion is complex and is not
readily susceptible to partial analysis or summary description. Accordingly,
Blackstone believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, or the narrative description of
the analyses, could create a misleading or incomplete view of the processes
underlying its analyses and opinion. Blackstone did not assign relative weights
to any of its analyses in preparing its opinion.
No company, transaction or business used in Blackstone's analyses as a
comparison is directly comparable to NDCHealth, Per-Se or the proposed merger,
and an evaluation of the results of those analyses is not entirely mathematical.
Rather, the analyses involve complex considerations and judgments concerning
differences in financial and operating characteristics of the comparable
companies, business segments or transactions and other factors that could affect
the merger or the other values of the companies, business segments or
transactions being analyzed.
The estimates contained in Blackstone's analyses and the ranges of
valuations resulting from any particular analysis are not necessarily indicative
of actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by the analyses. The
analyses do not purport to be appraisals and do not necessarily reflect the
prices at which businesses actually may be sold, and such estimates are
inherently subject to uncertainty.
Blackstone's opinion and financial analyses were among many factors
considered by the board of directors of NDCHealth in its evaluation of the
proposed merger and should not be viewed as determinative of the views of the
board of directors of NDCHealth or the managements of NDCHealth or Per-Se with
respect to the merger or the consideration to be received by the holders of
NDCHealth common stock pursuant to the merger.
The $19.50 implied per share merger consideration was determined through
arms-length negotiations between NDCHealth and Per-Se and was approved by
NDCHealth's board of directors. Blackstone provided advice to NDCHealth during
these negotiations. Blackstone did not, however, recommend any specific amount
of consideration to NDCHealth or its board of directors or that any specific
amount of consideration constituted the only appropriate consideration for the
merger.
50
Summary of Financial Analyses
The following is a summary of the material financial analyses underlying
Blackstone's opinion dated August 26, 2005, delivered to the board of directors
of NDCHealth in connection with the merger. The financial analyses summarized
below include information presented in tabular format. In order to fully
understand Blackstone's financial analyses, the tables must be read together
with the text of each summary. Considering the data set forth in the tables
below without considering the full narrative description of the financial
analyses, including the methodologies and assumptions underlying the analyses,
could create a misleading or incomplete view of Blackstone's financial analyses.
Predictions of results of operations, cash flows, EBITDA and per share values
for 2005 and subsequent years set forth in the following analyses are not
guaranteed, involve risks and uncertainties and may not accurately predict
future results of the combined company. These predictions may be affected by the
various factors described above in the sections entitled "Risk Factors"
beginning on page 14 and "Cautionary Statement Regarding Forward-Looking
Statements beginning on page 24.
Historical Trading Studies. Blackstone reviewed certain historical stock
price information for NDCHealth. This review indicated that, for the 52-week
period ended August 23, 2005, NDCHealth's common shares had traded in a range
between $13.29 and $19.29 per share with an average per share closing price for
the period of $16.53. Blackstone compared these price ranges to the per share
merger consideration of $19.50.
Blackstone calculated for the NDCHealth board of directors various premiums
from the merger based on the per share merger consideration of $19.50. The
following table presents the results of Blackstone's calculations:
<Table>
<Caption>
MERGER
STOCK PRICE PREMIUM
----------- -------
As of 8/23/05............................................... $18.10 7.7%
Since Sale of Company Announcement (3/29/05)................ $15.04 29.7%
Since Strategic Alternatives Announcement (2/23/05)......... $15.03 29.7%
6 Month Average............................................. $16.74 16.5%
Latest Twelve Month ("LTM") Average......................... $16.53 18.0%
</Table>
Note: Dates represent last closing price before announcement.
Comparable publicly traded company analysis. Blackstone analyzed the
market values and trading multiples of NDCHealth and of selected publicly traded
network services, information management, healthcare information technology and
business process outsourcing companies that Blackstone believed were reasonably
comparable to NDCHealth. There are no publicly traded comparable companies which
are identical to NDCHealth due to NDCHealth's diverse operations. In selecting
comparable companies for this analysis, Blackstone considered, among other
factors, business mix, industry, size and performance of publicly traded
comparable companies. These comparable companies consisted of:
- WebMD
- Global Payments
- Jack Henry
- TNS Inc.
- Certegy
- Fiserv
- Convergys
- ChoicePoint
- IMS Health
- Dun & Bradstreet
51
- Equifax
- Ventiv Health
- Dendrite International
- Trizetto Group
- Cerner
- IDX Systems
- Affiliated Computer Services
- Electronic Data Systems
- Computer Science Corp.
In examining these comparable companies, Blackstone calculated the
enterprise value of each company as a multiple of its respective (a) LTM,
estimated calendar year 2005 and estimated calendar year 2006 earnings before
interest expense, taxes, depreciation and amortization, or EBITDA; (b) LTM,
estimated calendar year 2005 and estimated calendar year 2006 earnings before
interest expense, taxes, or EBIT; and (c) LTM EBITDA minus capital expenditures.
Blackstone also calculated the stock price as of August 23, 2005, divided by
estimated calendar year 2005 and 2006 earnings per share, or EPS. The enterprise
value of a company is equal to the value of its fully-diluted common equity plus
debt and the liquidation value of outstanding convertible preferred stock, if
any, minus cash and the value of certain other assets, including minority
interests in other entities. Except as otherwise noted herein, all historical
data was derived from publicly available sources and all projected data was
obtained from Wall Street research reports. Blackstone's analysis of the
comparable companies yielded the following multiple ranges:
<Table>
<Caption>
MULTIPLE DESCRIPTIONS NDCHEALTH RANGE(1) MEDIAN(1)
- --------------------- --------- ------------ ---------
Enterprise Value /
LTM EBITDA........................................ 10.0x 4.6x - 24.6x 10.8x
CY2005E EBITDA.................................... 9.1x 4.5x - 20.7x 10.0x
CY 2006E EBITDA................................... 7.8x 4.0x - 16.9x 9.1x
LTM EBIT.......................................... 17.8x 9.8x - 43.6x 14.5x
CY2005E EBIT...................................... 16.1x 9.8x - 36.9x 13.0x
CY 2006E EBIT..................................... 14.3x 7.9x - 29.1x 11.6x
LTM EBITDA -- Capital Expenditures................ 15.2x 9.2x - 43.3x 12.9x
</Table>
- ---------------
(1) Range and median exclude NDCHealth.
Based on the foregoing, Blackstone applied ranges of selected multiples of
those financial and operating data derived from the selected comparable
companies to corresponding financial data of NDCHealth in order to derive an
implied enterprise value range for NDCHealth. Thereafter, Blackstone calculated
a range of per share equity values by making certain adjustments, including
adjustments to reflect (a) NDCHealth's pro forma net debt of $252.9 million as
of May 27, 2005, which was adjusted for NDCHealth's $10.5 million bond interest
payment on June 1, 2005, and $10.6 million in net proceeds from the sale of
NDCHealth's German operations ("Pro Forma Net Debt"); (b) the after-tax present
value of special legal expenses of $5.8 million ("Special Legal Expense"); (c)
settlement of certain commercial litigation of $4.75 million ("Commercial
Litigation"); and (d) the present value of the Arclight December 2006 payment,
net of the present value of future tax benefits related to the amortization of
the payment, of $6.2 million ("Arclight Payment"), in order to derive an implied
equity reference range for NDCHealth and then dividing those amounts by the
number of fully diluted shares of NDCHealth. Blackstone then compared this
implied per share equity value range against the per share
52
merger consideration. This analysis indicated the following implied per share
equity reference range for NDCHealth, as compared to the per share merger
consideration of $19.50:
<Table>
<Caption>
IMPLIED PER SHARE
EQUITY REFERENCE RANGE PER SHARE MERGER
FOR NDCHEALTH CONSIDERATION
- ---------------------- ----------------
$12.96 - $20.13 $19.50
</Table>
Comparable transaction analysis. Using publicly available information,
Blackstone reviewed information relating to the following selected acquisitions
and announced offers to acquire, which Blackstone deemed relevant to arriving at
its opinion:
<Table>
<Caption>
ACQUIRER TARGET
- -------- ------
Bank of America National Processing
Metavante (subsidiary of Marshall & Ilsley) NYCE
First Data Concord EFS
U.S. Bancorp Nova Corp.
First Data Paymentech
WebMD ViPS Inc.
WebMD Medifax-EDI
Eastman Kodak PracticeWorks Inc.
Philips Electronics MedQuist
Siemens AG Shared Medical Systems
WebMD Medical Manager
Healtheon-WebMD Envoy Corporation
Quintiles Transnational Corp. Envoy Corporation
Eclipsys Corp. Transition Systems, Inc.
McKesson HBO & Co.
Affiliated Computer Services Superior Consultant Holdings
ProxyMed PlanVista
New Mountain Capital LLC National Medical Health Card Systems
Caremark Rx Advance PCS
WebMD Advanced Business Fulfillment
UnitedHealth Group Americhoice
Affiliated Computer Services AFSA Data Corp.
Welsh, Carson, Anderson & Stowe SHPS Holdings
VNU IMS Health
Thomson Corp. Information Holdings, Inc.
Thomson Corp. Elite Information Group
Thomson Corp. Primark Corp.
Cognizant (IMS Health) Walsh International
</Table>
Multiples for the selected transactions were based on publicly available
financial information at the time of announcement of the relevant transaction.
Blackstone compared enterprise values in the selected
53
transactions as multiples of LTM EBITDA and EBIT. The analyses indicated the
following multiples (based on median of comparable transactions):
<Table>
<Caption>
COMPARABLE
TRANSACTION
MULTIPLE DESCRIPTION MULTIPLE RANGE
- -------------------- --------------
Enterprise Value as Multiple of:
LTM EBITDA................................................ 9.0x - 14.0x
LTM EBIT.................................................. 12.0x - 20.0x
</Table>
Blackstone believed that a purely quantitative comparable transaction
analysis would not be particularly meaningful in the context of the proposed
merger because the reasons for and the circumstances surrounding each of the
transactions analyzed were so diverse and because of the inherent differences in
the businesses, operations, financial condition and prospects of NDCHealth and
the businesses, operations and financial condition of the companies included in
the comparable transaction analysis. Blackstone believed that the appropriate
use of a comparable transaction analysis in this instance involves qualitative
judgments concerning the differences between the characteristics of these
transactions and the proposed merger.
Based on the foregoing, Blackstone applied the above ranges of selected
multiples of those financial and operating data derived from the selected
transactions to corresponding financial data of NDCHealth in order to derive an
implied enterprise value range for NDCHealth. Thereafter, Blackstone calculated
a range of per share equity values by making certain adjustments, including
adjustments to reflect NDCHealth's Pro Forma Net Debt, the Special Legal
Expense, the Commercial Litigation and the Arclight Payment, in order to derive
an implied equity reference range for NDCHealth and then dividing those amounts
by the number of fully diluted shares of NDCHealth as set forth below:
<Table>
<Caption>
CONSOLIDATED EQUITY VALUE PER SHARE LOW HIGH AVERAGE
- ----------------------------------- ------ ------ -------
Enterprise Value as Multiple of:
LTM EBITDA............................................... $15.20 $27.01 $21.24
LTM EBIT................................................. $ 9.60 $20.69 $15.23
Average.................................................. $12.40 $23.85 $18.24
</Table>
This analysis indicated the following average implied per share equity
reference range for NDCHealth, as compared to the per share merger consideration
of $19.50:
<Table>
<Caption>
IMPLIED PER SHARE
EQUITY REFERENCE RANGE PER SHARE MERGER
FOR NDCHEALTH CONSIDERATION
- ---------------------- ----------------
$12.40 - $23.85 $19.50
</Table>
DCF analysis. Blackstone performed a DCF analysis of the projected
unlevered free cash flows of NDCHealth for the fiscal years ending May 2006
through May 2010, using a valuation of NDCHealth as of the end of the fiscal
year ending May 2005 and projections and assumptions provided by the management
of NDCHealth. Blackstone valued EnterpriseRx and ePrescribe separately in order
to reflect a higher risk premium to these development stage businesses versus
the rest of NDCHealth. The DCF for NDCHealth excluding EnterpriseRx and
ePrescribe was estimated using discount rates ranging from 13.0% to 17.0%, based
on then current estimates related to the weighted average costs of capital of
NDCHealth and risk assessment of projections, and terminal multiples of
estimated EBITDA for NDCHealth's fiscal year ending May 2010 ranging from 9.0x
to 11.0x. The DCFs for EnterpriseRx and ePrescribe were estimated using discount
rates ranging from 35.0% to 45.0%, based on the higher risk premium reflected in
these development stage businesses, and terminal multiples of estimated EBITDA
for NDCHealth's fiscal year ending May 2010 ranging from 9.0x to 11.0x. Based on
this analysis, Blackstone estimated an implied adjusted equity value of
NDCHealth ranging from $672.0 million to $827.1 million, which was adjusted to
reflect NDCHealth's Pro Forma Net Debt, the Commercial Litigation and the
Arclight Payment, and then divided those amounts by the number of fully diluted
shares of NDCHealth. Blackstone then
54
compared this implied per share adjusted equity value range against the per
share merger consideration. This analysis indicated the following implied per
share adjusted equity reference range for NDCHealth, as compared to the per
share merger consideration of $19.50.
<Table>
<Caption>
IMPLIED PER SHARE ADJUSTED
EQUITY REFERENCE RANGE PER SHARE MERGER
FOR NDCHEALTH CONSIDERATION
- -------------------------- ----------------
$18.38 - $22.41 $19.50
</Table>
Leveraged buyout analysis. Blackstone derived an estimated per share
implied equity valuation range for NDCHealth utilizing a leveraged buyout
analysis to show what a financial buyer might be able to pay for NDCHealth. In
performing this analysis, Blackstone analyzed the cash flows related to
NDCHealth's operations for the fiscal years ended May 2006 through May 2010,
assumed the financial buyer transaction would close at the end of the fiscal
year ending May 2005 and used operating assumptions based on NDCHealth
management estimates. Blackstone also assumed (i) the financial buyer would
refinance NDCHealth's Pro Forma Net Debt at closing, (ii) NDCHealth's total pro
forma debt at closing would be $450 million, consisting of $225 million of bank
debt at a weighted average interest rate of 7% and $225 million of senior
subordinated notes at an interest rate of 12%, (iii) 5% of the equity of
NDCHealth would be granted to members of NDCHealth's management as options and
(iv) the use of cash at closing for the Commercial Litigation and the Arclight
Payment.
This analysis assumed (i) a five year holding period; (ii) a target
internal rate of return ("IRR") of 25% - 30% due to the inherent risk in the
management projections consistent with feedback Blackstone received during the
discussions with certain interested financial buyers; and (iii) a range of exit
multiples of projected fiscal year 2010 EBITDA of 9.0x - 12.0x. This analysis
indicated the following implied per share equity reference range for NDCHealth,
as compared to the per share merger consideration of $19.50.
<Table>
<Caption>
IMPLIED PER SHARE
EQUITY REFERENCE RANGE PER SHARE MERGER
FOR NDCHEALTH CONSIDERATION
- ---------------------- ----------------
$15.00 - $18.00 $19.50
</Table>
DCF on Per-Se standalone. In addition, Blackstone performed a DCF analysis
of the projected unlevered free cash flows of Per-Se for the fiscal years ending
December 31, 2006 through December 31, 2010, using a valuation of Per-Se as of
December 31, 2005 and assumptions based on estimates provided by NDCHealth
management with general guidance from Per-Se management, including, without
limitation, (i) continued acceleration of physician revenue growth and operating
margin expansion and (ii) stable growth and margins at the hospital segment.
Blackstone also assumed (i) Per-Se's net debt would be approximately $55.9
million estimated as of December 31, 2005, (ii) the outstanding shares of Per-Se
are fully diluted for the effect of stock options and convertible debt and (iii)
a tax rate of 7.5% as earnings are partially shielded by net operating losses.
The DCF for Per-Se was estimated using discount rates ranging from 13.0% to
17.0%, based on then current estimates related to the weighted average costs of
capital of Per-Se and risk assessment of projections, and terminal multiples of
estimated EBITDA for Per-Se's fiscal year ending December 31, 2010 ranging from
9.0x to 11.0x. Based on this analysis, Blackstone estimated an implied equity
value of Per-Se ranging from $580.5 million to $683.3 million. This analysis
indicated an implied per share equity reference range for Per-Se of $17.87 to
$20.27 per share.
Pro forma financial impact. Using projections provided by the management
of NDCHealth, Blackstone compared the projected earnings per share, or EPS, of
NDCHealth for calendar year 2005 and 2006 on a stand-alone basis to the
projected pro forma EPS for 2005 and 2006 of the combined company after the
merger. This analysis is based on the following transaction assumptions:
a. Stock purchase of NDCHealth (for income tax purposes);
b. Per-Se to pay NDCHealth stockholders $13.00 per share in cash and
$6.50 per share of uncollared, fixed value stock, with shares to be issued
to NDCHealth stockholders based on a Per-Se stock price of $20.18;
55
c. Synergy assumptions based on guidance from Per-Se management;
d. $30 million prepayment penalty on bonds;
e. $30 million in transaction expenses;
f. NDCHealth's Pro Forma Net Debt refinanced;
g. Use of cash to fund Commercial Litigation;
h. Per-Se funding sources of: (1) $225.4 million new bank debt at a
weighted average interest rate of 7%; (2) new subordinated debt of $150.0
million at a 9% interest rate; (3) $238.1 million Per-Se stock issued to
NDCHealth stockholders at $20.18 per share; (4) existing Per-Se cash of
$49.7 million; and (5) $360 million of net after-tax proceeds from the sale
of the information management business; and
i. Deal conditioned upon successful sale of the information management
business and acceptable negotiation of intercompany agreements.
Based on the foregoing assumptions, the merger would have the following
effects:
<Table>
<Caption>
ACCRETION/
(DILUTION)(1)
--------------
2005E....................................................... 4.2%
2006E....................................................... 1.4%
</Table>
- ---------------
(1) Assumes no impact from purchase accounting based on Per-Se management's
guidance and a tax rate of 7.5% for stand-alone and pro forma EPS figures.
Pro forma combined DCF analysis. Blackstone also performed a DCF analysis
of the projected pro forma combined unlevered free cash flows of the combined
company, pro forma to reflect the sale of the information management business,
for the fiscal years ending December 31, 2006 through December 31, 2010, using
projections and assumptions provided by the management of NDCHealth based on the
guidance of NDCHealth and Per-Se management, including cost savings, tax
benefits and other potential synergies as estimated by Per-Se management. In
performing this analysis, Blackstone made the same assumptions described above.
For purposes of the pro forma DCF, Blackstone calendarized NDCHealth's
management's fiscal year projections. The DCFs for the combined company,
excluding NDCHealth's EnterpriseRx and ePrescribe, were estimated using discount
rates ranging from 13.0% to 17.0%, based on then current estimates related to
the weighted average costs of capital of the combined company and risk
assessment of the projections, and terminal multiples of estimated EBITDA for
the combined company's fiscal year ending December 31, 2010, ranging from 9.0x
to 11.0x. The DCFs for EnterpriseRx and ePrescribe were estimated using discount
rates ranging from 35.0% to 45.0%, based on the higher risk premium reflected in
these development stage businesses, and terminal multiples of estimated EBITDA
for the combined company's fiscal year ending December 31, 2010 ranging from
9.0x to 11.0x. Based on this analysis, Blackstone estimated an implied equity
value per share of common stock of the combined company ranging from $19.78 to
$23.86 compared to the implied equity value per share of Per-Se common stock
from the Per-Se standalone DCF analysis ranging from $17.87 to $20.27.
Fee Arrangements
Blackstone has acted as financial advisor to NDCHealth with respect to the
merger and will receive a fee of approximately $8.5 million based on the
transaction value of the sale of NDCHealth and the transaction value of the sale
of the information management business from NDCHealth for its services, which is
contingent upon the consummation of the transactions. Blackstone received a
retainer of $100,000 upon execution of its engagement letter with NDCHealth on
March 30, 2005, and earned a $1 million fee upon delivery of its opinion on
August 26, 2005, both of which will be credited against the fee. The opinion fee
was not contingent on the conclusions reached in the opinion. In addition,
NDCHealth has agreed to reimburse Blackstone for its out-of-pocket expenses and
to indemnify Blackstone for certain
56
liabilities arising out of the performance of such services (including, the
rendering of Blackstone's opinion). Prior to the sale assignment engagement,
Blackstone received $500,000 in conjunction with its strategic review engagement
with NDCHealth per the engagement letter with NDCHealth dated February 25, 2005.
Blackstone has, in connection with the strategic review process, provided
financial advisory services to NDCHealth and/or its affiliates and may continue
to do so, and has received, and may continue to receive, fees for the rendering
of such services.
OPINION OF GOLDMAN, SACHS & CO.
Goldman Sachs delivered an oral opinion to NDCHealth's board of directors,
subsequently confirmed in writing, to the effect that, as of August 26, 2005,
and based upon and subject to the factors and assumptions set forth in the
opinion, the per share merger consideration to be received by holders of
NDCHealth common stock pursuant to the merger agreement was fair from a
financial point of view to such holders.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED AUGUST 26,
2005, WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE
OPINION, IS ATTACHED AS ANNEX D. GOLDMAN SACHS PROVIDED ITS OPINION FOR THE
INFORMATION AND ASSISTANCE OF NDCHEALTH'S BOARD OF DIRECTORS IN CONNECTION WITH
ITS CONSIDERATION OF THE MERGER AND RELATED INFORMATION RESTRUCTURING. GOLDMAN
SACHS' OPINION IS NOT A RECOMMENDATION AS TO HOW ANY HOLDER OF NDCHEALTH COMMON
STOCK SHOULD VOTE WITH RESPECT TO THE MERGER.
In connection with rendering the opinion described above and performing its
related financial analyses, Goldman Sachs reviewed, among other things:
- the merger agreement;
- the stock purchase agreement and related information management sale
agreements;
- annual reports to stockholders and Annual Reports on Form 10-K of
NDCHealth and Per-Se for the five fiscal years ended May 27, 2005, and
December 31, 2004, respectively;
- certain interim reports to stockholders and Quarterly Reports on Form
10-Q of NDCHealth and Per-Se;
- certain other communications from NDCHealth and Per-Se to their
respective stockholders;
- certain internal financial analyses and forecasts for Per-Se prepared by
the management of Per-Se; and
- certain internal financial analyses and forecasts for NDCHealth,
Information Services and Per-Se prepared by the management of NDCHealth,
including certain cost savings and operating synergies projected by the
management of NDCHealth to result from the merger and related information
restructuring.
Goldman Sachs held discussions with members of the senior management of
NDCHealth and Per-Se regarding their assessment of the strategic rationale for,
and the potential benefits of, the merger and related information restructuring
and the past and current business operations, financial condition and future
prospects of NDCHealth and Per-Se, respectively.
In addition, Goldman Sachs:
- reviewed the reported price and trading activity for the shares of
NDCHealth common stock and the shares of Per-Se common stock;
- compared certain financial and stock market information for NDCHealth and
Per-Se with similar information for certain other companies the
securities of which are publicly traded;
57
- reviewed the financial terms of certain recent business combinations in
the healthcare information technology industry specifically and in other
industries generally; and
- performed such other studies and analyses, and considered such other
factors, as Goldman Sachs considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial, accounting, legal, tax and other information discussed with or
reviewed by it and has assumed such accuracy and completeness for purposes of
rendering its opinion. As instructed by the board of directors of NDCHealth, for
purposes of its opinion, Goldman Sachs evaluated certain sensitivities to
NDCHealth's forecasts to reflect the views of the board of directors of
NDCHealth of the risks and uncertainties of NDCHealth achieving its forecasts.
In addition, Goldman Sachs did not make an independent evaluation or appraisal
of the assets and liabilities (including any contingent, derivative or
off-balance-sheet assets and liabilities) of NDCHealth or Per-Se or any of their
respective subsidiaries and Goldman Sachs was not furnished with any such
evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory
or other consents and approvals necessary for the consummation of the merger and
related information sale will be obtained without, and all outstanding actions,
proceedings and investigations will not have, any adverse effect on NDCHealth or
Per-Se or the expected benefits of the merger and related information sale in
any way meaningful to Goldman Sachs' analysis. Goldman Sachs also assumed that
the information sale would be consummated in accordance with the terms of the
stock purchase agreement.
The following is a summary of the material financial analyses presented by
Goldman Sachs on August 26, 2005, to NDCHealth's board of directors in
connection with rendering its opinion. The following summary, however, does not
purport to be a complete description of the financial analyses performed by
Goldman Sachs. The order of analyses described does not represent the relative
importance or weight given to those analyses by Goldman Sachs. Some of the
summaries of the financial analyses include information presented in tabular
format. The tables must be read together with the full text of each summary and
are alone not a complete description of Goldman Sachs' financial analyses.
Except as otherwise noted, the following quantitative information, to the extent
that it is based on market data, is based on market data as it existed on or
before August 26, 2005, and is not necessarily indicative of current market
conditions.
Transaction Premium Analysis
Goldman Sachs calculated the premium implied by the per share merger
consideration over the market price at various dates for each share of NDCHealth
common stock. In these calculations, Goldman Sachs utilized a transaction price
of $19.50 per share, which is the amount in cash, or a combination of cash and
Per-Se common stock having, in the aggregate, an implied value of $19.50, to be
received by holders of NDCHealth common stock for each share of NDCHealth common
stock. Goldman Sachs compared the $19.50 implied per share merger consideration
with the following trading prices for NDCHealth common stock:
- the closing price of $18.22 on August 25, 2005;
- the closing price of $15.68 six months prior to August 25, 2005; and
- the closing price of $13.77 one year prior to August 25, 2005.
The results of Goldman Sachs' calculations are reflected below:
<Table>
<Caption>
IMPLIED PREMIUM BASED ON
$19.50 IMPLIED PER
NDCHEALTH STOCK PRICE ON: SHARE MERGER CONSIDERATION
- ------------------------- --------------------------
August 25, 2005............................................. 7.0%
Six months prior............................................ 24.4%
Twelve months prior......................................... 41.6%
</Table>
58
Implied Transaction Multiples
In performing an implied transaction multiples analysis, Goldman Sachs
first derived the implied equity value of NDCHealth based on the implied per
share merger consideration of $19.50 and a number of fully diluted shares of
NDCHealth common stock provided by NDCHealth's management and equal to
approximately 36.2 million shares outstanding and options covering approximately
4.1 million underlying shares with a weighted average strike price of $20.03.
The enterprise value of NDCHealth was derived by adding to the implied equity
value NDCHealth's net debt of $245.5 million, as estimated by NDCHealth
management. Net debt means total debt less cash and cash equivalents.
Goldman Sachs also calculated the NDCHealth enterprise value based on the
implied per share merger consideration of $19.50 as a multiple of the following
historical and estimated financial results for NDCHealth:
- fiscal years 2004 and 2005 net sales based on publicly available
information;
- NDCHealth management's estimates of net sales for fiscal years 2006 and
2007, excluding restructuring and other charges;
- fiscal years 2004 and 2005 earnings before interest, taxes, depreciation
and amortization, or EBITDA, based on publicly available information;
- NDCHealth management's estimates of EBITDA for fiscal years 2006 and
2007, excluding restructuring and other charges;
- fiscal years 2004 and 2005 earnings before interest and taxation, or
EBIT, based on publicly available information;
- NDCHealth management's estimates of EBIT for fiscal years 2006 and 2007,
excluding restructuring and other charges;
- fiscal years 2004 and 2005 ratio of price to earnings, or P/E, based on
publicly available information; and
- NDCHealth management's estimates of P/E for fiscal years 2006 and 2007,
excluding restructuring and other charges.
The results of these analyses are as follows:
<Table>
<Caption>
IMPLIED MERGER
CONSIDERATION
ENTERPRISE VALUE AS A MULTIPLE OF: PER SHARE:
- ---------------------------------- --------------
FY2004 net sales............................................ 2.4x
FY2005 net sales............................................ 2.5x
FY2006 estimated net sales.................................. 2.3x
FY2007 estimated net sales.................................. 2.2x
FY2004 EBITDA............................................... 8.7x
FY2005 EBITDA............................................... 10.8x
FY2006 estimated EBITDA..................................... 8.9x
FY2007 estimated EBITDA..................................... 7.6x
FY2004 EBIT................................................. 12.9x
FY2005 EBIT................................................. 19.7x
FY2006 estimated EBIT....................................... 16.7x
FY2007 estimated EBIT....................................... 13.3x
FY2004 P/E.................................................. 25.2x
FY2005 P/E.................................................. 47.1x
FY2006 estimated P/E........................................ 40.2x
FY2007 estimated P/E........................................ 25.0x
</Table>
59
Selected Transactions Analysis
Goldman Sachs analyzed certain publicly available information relating to
selected business combination transactions involving companies in the healthcare
information technology industry announced between May 2000 and July 2005. These
transactions (listed by acquirer/target and month and year of announcement)
included:
- VNU N.V./IMS Health Incorporated (July 2005);
- Affiliated Computer Services, Inc./Superior Consultant Holdings
Corporation (December 2004);
- Agfa-Gevaert Group/GWI AG (November 2004);
- Cerner Corporation/VitalWorks (a division of AMICAS, Inc.) (November
2004);
- Agfa-Gevaert Group/Symphonie On Line (October 2004);
- WebMD Corporation/ViPS, Inc. (July 2004);
- The Thomson Corporation/Information Holdings Inc. (June 2004);
- ProxyMed, Inc./PlanVista Corporation (December 2003);
- WebMD Corporation/Medifax-EDI, Inc. (October 2003);
- iSOFT Group plc/Torex Group plc (July 2003);
- WebMD Corporation/Advanced Business Fulfillment, Inc. (June 2003);
- Dendrite International, Inc./Synavant Inc. (April 2003);
- Koninklijke Philips Electronics N.V./Medquist Incorporated (May 2000);
and
- Siemens AG/Shared Medical Systems Corp. (May 2000).
For each of the selected transactions, Goldman Sachs derived the levered
consideration of the target company, based upon publicly available information.
Levered consideration is defined as the implied equity value of the target
company plus the target's net debt plus the book value of the target's preferred
stock. Goldman Sachs then calculated each target's levered consideration as a
multiple of sales, EBITDA and EBIT, in each case for the last twelve months, or
LTM, period ended immediately prior to the announcement of the transaction (to
the extent that information was publicly available), and compared the mean and
median sales, EBITDA and EBIT multiples calculated for the relevant selected
transactions with similar sales, EBITDA and EBIT multiples calculated for the
proposed merger. For purposes of this analysis, Goldman Sachs derived the
implied levered consideration for NDCHealth based on:
- the implied per share merger consideration of $19.50;
- a number of fully diluted shares of NDCHealth common stock provided by
NDCHealth's management and equal to approximately 36.2 million shares
outstanding and options covering approximately 4.1 million underlying
shares with a weighted average strike price of $20.03; and
- net debt of NDCHealth equal to approximately $245.5 million as estimated
by NDCHealth management.
The following table shows the results of this comparison:
<Table>
<Caption>
SELECTED
TRANSACTIONS
-------------- PROPOSED
LEVERED CONSIDERATION AS A MULTIPLE OF: MEAN MEDIAN MERGER
- --------------------------------------- ----- ------ --------
LTM Sales................................................... 2.8x 2.5x 2.5x
LTM EBITDA.................................................. 13.4x 13.5x 10.8x
LTM EBIT.................................................... 20.4x 16.9x 19.7x
</Table>
60
Selected Companies Analysis
Goldman Sachs reviewed selected publicly available financial information,
ratios and multiples for NDCHealth and compared that data to corresponding data
for the following selected companies in the healthcare information technology
industry:
- AMICAS, Inc.;
- Cerner Corporation;
- Dendrite International, Inc.;
- Eclipsys Corporation;
- First Consulting Group, Inc.;
- IDX Systems Corporation;
- IMS Health Incorporated;
- iSOFT Group plc;
- McKesson Corporation;
- Misys plc;
- Per-Se;
- ProxyMed, Inc.;
- TriZetto Group, Inc.; and
- WebMD Corporation.
Although none of the selected companies are directly comparable to
NDCHealth, the companies included were chosen because they are publicly traded
companies with operations that, for purposes of analysis, may be considered
similar to certain operations of NDCHealth.
The equity market capitalizations for NDCHealth and the selected companies
utilized by Goldman Sachs were calculated by multiplying each company's closing
stock price as of August 25, 2005 by the number of that company's fully diluted
shares outstanding. Each company's levered market capitalization was calculated
by adding to its equity market capitalization as of August 25, 2005 the amount
of its net debt as of the end of its most recently completed fiscal quarter.
Historical financial results utilized by Goldman Sachs for purposes of this
analysis were based upon information contained in the applicable company's
latest publicly available financial statements as of August 25, 2005. Estimates
of future results used by Goldman Sachs in this analysis were based on consensus
estimates provided by Institutional Brokers Estimate System, or referred to as
IBES (a data service that compiles estimates issued by securities research
analysts) and calendarized for those companies whose fiscal years do not end in
December. Goldman Sachs' analysis of the selected companies compared the
following to the results for NDCHealth:
- the August 25, 2005 closing stock price as a percentage of the 52-week
high stock price;
- the levered market capitalization as a multiple of LTM EBITDA;
- estimated P/E for calendar year 2006; and
- estimated P/E for calendar year 2006 as a multiple of the estimated
growth rate.
61
The following table compares the relevant multiples and percentages
referred to above calculated for the selected companies and NDCHealth:
<Table>
<Caption>
SELECTED COMPANIES
(INCLUDING NDCHEALTH)
---------------------- NDCHEALTH
HIGH LOW MEDIAN (AUGUST 25, 2005)
----- ----- ------ --------------------
August 25, 2005 Stock Price as % of 52-Week
Closing High................................ 100% 51% 93.3% 95%
Levered Market Capitalization to LTM EBITDA... 50.8x 7.6x 13.3x 10.3x
2006 P/E...................................... 37.6x 13.3x 19.1x 28.3x
2006 P/E to Growth............................ 2.6x 0.8x 1.3x 2.6x
</Table>
Analysis of Present Value of Hypothetical Future Stock Prices
NDCHEALTH COMMON STOCK
Goldman Sachs calculated illustrative implied present values of a share of
common stock of NDCHealth based on hypothetical future share prices for
NDCHealth common stock derived using NDCHealth management's estimates of
NDCHealth's EPS for calendar years 2006, 2007 and 2008. For purposes of this
analysis, Goldman Sachs calculated the hypothetical future share prices for
NDCHealth common stock by multiplying the estimates of calendar years 2006, 2007
and 2008 EPS for NDCHealth by hypothetical P/E ratios ranging from 15.0x to
25.0x. Using discount rates for 2007 and 2008 ranging from 12.5% to 17.5%,
Goldman Sachs derived illustrative implied present values for a share of
NDCHealth common stock ranging from $9.74 to $16.23 based on calendar year 2006
estimated EPS, $13.85 to $24.11 based on calendar year 2007 estimated EPS and
$16.51 to $30.02 based on calendar year 2008 estimated EPS.
COMBINED COMPANY COMMON STOCK
Goldman Sachs also calculated illustrative implied present values of a
share of common stock of the combined company based on hypothetical future share
prices for the common stock of the combined company, derived using NDCHealth
management's estimates of NDCHealth's and Per-Se's respective EPS for calendar
years 2006, 2007 and 2008, and assuming scenarios that include and exclude
synergies. For purposes of this analysis, Goldman Sachs calculated the
hypothetical future share prices for the common stock of the combined company in
each scenario by multiplying the estimates of calendar years 2006, 2007 and 2008
EPS for the combined company by hypothetical forward P/E ratios ranging from
15.0x to 25.0x. Using discount rates for 2007 and 2008 ranging from 12.5% to
17.5%, Goldman Sachs derived illustrative implied present values for a share of
the common stock of the combined company excluding synergies, ranging from
$13.44 to $22.41 based on calendar year 2006 estimated EPS, $18.33 to $31.91
based on calendar year 2007 estimated EPS and $21.82 to $39.67 based on calendar
year 2008 estimated EPS. For the combined company including synergies, using
discount rates for 2007 and 2008 ranging from 12.5% to 17.5%, Goldman Sachs
derived illustrative implied present values for a share of the common stock of
the combined company ranging from $17.19 to $28.65 based on calendar year 2006
estimated EPS, $24.71 to $43.01 based on calendar year 2007 estimated EPS and
$27.41 to $49.84 based on calendar year 2008 estimated EPS.
Stand-Alone Discounted Cash Flow Analyses
Goldman Sachs performed illustrative discounted cash flow analyses to
determine ranges of illustrative implied equity values per share of NDCHealth
common stock utilizing NDCHealth management's forecasts and publicly available
information. Goldman Sachs valued the EnterpriseRx and ePrescribing businesses
of NDCHealth separately in order to reflect a higher risk premium to these
development-stage businesses versus the rest of NDCHealth. Goldman Sachs also
conducted, as instructed by the board of directors of NDCHealth, a sensitivity
analysis to reflect the views of the board as to the risks and uncertainties of
NDCHealth achieving the projected cash flows.
62
In performing the illustrative discounted cash flow analysis based on
NDCHealth management's forecasts, Goldman Sachs applied discount rates ranging
from 12.0% to 14.0% to the projected cash flows from fiscal year ended May 2006
through fiscal year ended May 2010 of NDCHealth other than the EnterpriseRx and
ePrescribing businesses, or the NDCHealth Core Business, and discount rates
ranging from 35.0% to 45.0% to the projected cash flows from fiscal year ended
May 2006 through fiscal year ended May 2010 of NDCHealth's EnterpriseRx and
ePrescribing businesses. Goldman Sachs also applied terminal EBITDA multiples
ranging from 7.0x to 11.0x for the NDCHealth Core Business and 10.0x to 14.0x
for NDCHealth's EnterpriseRx and ePrescribing businesses. For purposes of this
analysis, Goldman Sachs utilized outstanding share and option information for
NDCHealth as provided by NDCHealth management. Based on the foregoing, Goldman
Sachs derived illustrative implied equity value indications ranging from $16.50
to $29.35 per share with respect to NDCHealth common stock.
Goldman Sachs also performed an illustrative discounted cash flow
sensitivity analysis with respect to NDCHealth using a discount rate of 13% and
a terminal EBITDA multiple of 9x, except that the projected cash flows of the
NDCHealth Core Business were multiplied by percentages ranging from 100% to 60%
and NDCHealth's EnterpriseRx and ePrescribing businesses were multiplied by
percentages ranging from 100% to 20%. Based on the foregoing, Goldman Sachs
derived illustrative implied equity value indications ranging from $10.23 to
$27.08 per share with respect to NDCHealth common stock.
Combined Company Discounted Cash Flow Analysis
Goldman Sachs performed an illustrative discounted cash flow analysis to
determine ranges of illustrative implied equity values per share of the combined
company's common stock utilizing NDCHealth management's forecasts for NDCHealth
and Per-Se. In performing the illustrative discounted cash flow analysis with
respect to the combined company (excluding the information management business)
based on NDCHealth management's forecasts, Goldman Sachs applied discount rates
ranging from 12.0% to 14.0% to the projected cash flows from calendar year 2006
through calendar year 2010 of the combined company other than NDCHealth's
EnterpriseRx and ePrescribing businesses and discount rates ranging from 35.0%
to 45.0% to the projected cash flows from calendar year 2006 through calendar
year 2010 of NDCHealth's EnterpriseRx and ePrescribing businesses. Goldman Sachs
also applied terminal EBITDA multiples ranging from 7.0x to 11.0x for the
combined company other than NDCHealth's EnterpriseRx and ePrescribing businesses
and 10.0x to 14.0x for NDCHealth's EnterpriseRx and ePrescribing businesses. For
purposes of this analysis, Goldman Sachs utilized outstanding share and option
information for NDCHealth and Per-Se, as provided by each company's respective
management, and synergies projected to result from the merger, as provided by
NDCHealth's management. Based on the foregoing, Goldman Sachs derived
illustrative implied equity value indications ranging from $19.18 to $33.64 per
share of the common stock of the combined company.
Leveraged Buyout Analysis
Goldman Sachs performed an illustrative analysis of the implied internal
rates of return that could theoretically be realized by an acquirer of
NDCHealth, if NDCHealth were acquired in a leveraged buyout at hypothetical
prices per share of NDCHealth common stock ranging from $17.00 to $20.00 and
resold by the acquirer five years later based on multiples of NDCHealth
management's estimated EBITDA for the fiscal year ending in May 2010 ranging
from 7.0x to 11.0x. For purposes of this analysis, Goldman Sachs utilized
outstanding share and option information for NDCHealth as provided by
NDCHealth's management. In performing this analysis, Goldman Sachs also assumed
that equity investors in a leveraged buyout of NDCHealth would incur financing
fees of $10.5 million in connection with an acquisition of NDCHealth and that
aggregate borrowings equal to 5.5x of NDCHealth's fiscal year 2005 EBITDA would
be outstanding. Based on the foregoing assumptions, Goldman Sachs derived
illustrative implied internal rates of return ranging from 20.8% to 34.0% at a
$17.00 per share purchase price, 18.8% to 31.9% at an $18.00 per share purchase
price, 17.1% to 29.9% at a $19.00 per share purchase price, 16.3% to 29.0% at a
$19.50 per share purchase price and 15.5% to 28.1% at a $20.00 per share
purchase price.
63
Pro Forma EPS Analysis
Goldman Sachs performed an illustrative pro forma EPS analysis of the
financial impact of the merger on Per-Se, using estimates for NDCHealth,
estimates for Per-Se and synergies projected to result from the merger, prepared
by the management of NDCHealth. In preparing these analyses, Goldman Sachs
assumed that the implied per share merger consideration to be paid by Per-Se to
holders of NDCHealth common stock will consist of $13.00 in cash and Per-Se
common stock having a value of $6.50 per share based on prices per share of
Per-Se common stock ranging from $16.00 to $24.00.
Based on the foregoing and without giving effect to projected synergies,
the merger would be dilutive to Per-Se's EPS in 2006, less dilutive to Per-Se's
EPS in 2007 (and accretive to Per-Se's EPS in a scenario of a price per share of
Per-Se common stock of $24.00) and accretive to Per-Se's EPS in 2008. Based on
the foregoing and giving effect to the synergies projected by NDCHealth's
management to result from the merger, the merger would be dilutive to Per-Se's
EPS in 2006, significantly accretive to Per-Se's EPS in 2007 and more accretive
in 2008.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all the analyses and did not attribute
any particular weight to any factor or analysis considered by it. Rather,
Goldman Sachs made its determination as to fairness on the basis of its
experience and professional judgment after considering the results of all of its
analyses. No company or transaction used in the above analyses as a comparison
is directly comparable to Per-Se or NDCHealth or the merger.
Goldman Sachs prepared these analyses for purposes of Goldman Sachs'
providing its opinion to NDCHealth's board of directors as to the fairness from
a financial point of view to NDCHealth of the $19.50 implied per share merger
consideration to be received by holders of NDCHealth common stock pursuant to
the merger agreement. These analyses do not purport to be appraisals nor do they
necessarily reflect the prices at which businesses or securities actually may be
sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by these analyses. Because these analyses are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors, none of
NDCHealth, Per-Se, Goldman Sachs or any other person assumes responsibility if
future results are materially different from those forecast.
The $19.50 implied per share merger consideration was determined through
arms-length negotiations between NDCHealth and Per-Se and was approved by
NDCHealth's board of directors. Goldman Sachs provided advice to NDCHealth
during these negotiations. Goldman Sachs did not, however, recommend any
specific amount of consideration to NDCHealth or its board of directors or that
any specific amount of consideration constituted the only appropriate
consideration for the merger.
As described above, Goldman Sachs' opinion to NDCHealth's board of
directors was one of many factors taken into consideration by NDCHealth's board
of directors in making its decision to approve the merger agreement. The
foregoing summary does not purport to be a complete description of the analyses
performed by Goldman Sachs in connection with its fairness opinion and is
qualified in its entirety by reference to the written opinion of Goldman Sachs
attached as Annex D.
Goldman Sachs and its affiliates, as part of their investment banking
business, are continually engaged in performing financial analyses with respect
to businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and other transactions as
well as for estate, corporate and other purposes. Goldman Sachs acted as
financial advisor to NDCHealth in connection with, and participated in certain
of the negotiations leading to, the transactions contemplated by the merger
agreement. In addition,
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Goldman Sachs has provided investment banking services to NDCHealth from time to
time, including providing ongoing advisory services to NDCHealth as well as
having acted as:
- its financial advisor with respect to its acquisition of Arclight Systems
LLC in May 2002;
- co-placement agent with respect to the offering of the $200 million
aggregate principal amount of senior subordinated notes of NDCHealth in
November 2002;
- its financial advisor with respect to the sale of its UK operations in
October 2004; and
- its financial advisor in connection with the sale of its German
operations in June 2005.
Goldman Sachs also has provided investment banking services to Wolters
Kluwer from time to time, including having acted as its financial advisor with
respect to its divestiture of Kluwer Academic Publishers in January 2003.
Goldman Sachs also may provide investment banking and other services to
NDCHealth, Per-Se and Wolters Kluwer in the future. In connection with the
above-described investment banking services Goldman Sachs has received, and may
receive, compensation.
Goldman Sachs is a full service securities firm engaged, either directly or
through its affiliates, in securities trading, investment management, financial
planning and benefits counseling, risk management, hedging, financing and
brokerage activities for both companies and individuals. In the ordinary course
of these activities, Goldman Sachs and its affiliates may provide such services
to NDCHealth, Per-Se, Wolters Kluwer and their respective affiliates, may
actively trade the debt and equity securities (or related derivative securities)
of NDCHealth, Per-Se and Wolters Kluwer for their own account and for the
accounts of their customers and may at any time hold long and short positions of
such securities.
NDCHealth's board of directors selected Goldman Sachs as its financial
advisor because it is an internationally recognized investment banking firm that
has substantial experience in transactions similar to the merger. Pursuant to a
letter agreement, dated April 12, 2005, NDCHealth engaged Goldman Sachs to act
as its financial advisor in connection with a possible significant strategic
transaction. Pursuant to the terms of this letter agreement, Goldman Sachs will
receive a transaction fee of $4.808 million, all of which is contingent upon
consummation of the merger and related information sale. NDCHealth has also
agreed to reimburse Goldman Sachs for its reasonable expenses, including
attorneys' fees and disbursements, and to indemnify Goldman Sachs against
various liabilities, including various liabilities under the federal securities
laws.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
In considering the recommendation of the NDCHealth board of directors,
NDCHealth stockholders should be aware of the benefits available to certain of
the executive officers and directors of NDCHealth in connection with the
proposed transaction. Certain of these individuals have interests in the
proposed transaction that may be different from, or in addition to, the
interests of the stockholders generally.
EMPLOYMENT AGREEMENT WITH WALTER M. HOFF
NDCHealth has entered into an employment agreement with Walter M. Hoff, the
Chairman and Chief Executive Officer of NDCHealth, effective as of December 1,
1999. The employment agreement provides certain benefits to Mr. Hoff upon a
termination of employment in connection with a "change in control" of NDCHealth
that occurs within thirty-six months of the effective date of the change in
control. The consummation of the proposed transaction will constitute a "change
in control" for purposes of Mr. Hoff's employment agreement. Upon Mr. Hoff's
termination of employment without "cause" or by him for "good reason" (as such
terms are defined in the employment agreement) within thirty-six months
following the effective time of the proposed transaction, Mr. Hoff would be
entitled to the following benefits:
- earned but unpaid base salary and any accrued vacation pay;
- continued monthly payments of base salary for two years following the
change in control;
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- benefits equal to those provided under NDCHealth welfare benefit plans
for two years following the change in control;
- an amount equal to 100% of the highest annual bonus that he would be
eligible to receive during the year in which the change in control
occurs;
- full vesting of all grants of restricted stock;
- full vesting and immediate exercisability of any outstanding stock
options under NDCHealth's equity compensation plans (to remain
exercisable through the earlier of the original expiration date or
twenty-seven months after the change in control);
- any other amounts or benefits required to be paid or provided or to which
Mr. Hoff is entitled to receive under any plan, program, policy or
practice or contract or agreement of NDCHealth; and
- Mr. Hoff's employment agreement also provides that he will be entitled to
a tax gross-up payment from the Company to cover certain excise tax
liability he may incur as a result of the above payments and benefits
that are contingent on a change in control. Such gross-up payment,
however, will be made only if the after-tax benefit to Mr. Hoff of such
tax gross-up is at least $50,000. If not, the payments and/or benefits
would be reduced to an amount that would not trigger the excise tax.
Following the change in control, if Mr. Hoff's employment agreement is
terminated (i) due to his death, disability, or retirement, (ii) by NDCHealth
for "cause" or (iii) by Mr. Hoff for reasons other than "good reason," Mr. Hoff
would be entitled to the following benefits:
- earned but unpaid base salary and any accrued vacation pay; and
- any other amounts or benefits required to be paid or provided or which
Mr. Hoff is entitled to receive under any plan, program, policy or
practice or contract or agreement of NDCHealth.
OTHER EXECUTIVE EMPLOYMENT AGREEMENTS AND CHANGE IN CONTROL AGREEMENTS
NDCHealth has also entered into employment agreements with Randolph L.M.
Hutto, Executive Vice President, Business Development, General Counsel and
Secretary, effective as of November 20, 2000; Lee Adrean, Executive Vice
President, Finance and Planning, and Chief Financial Officer, effective as of
May 11, 2004; Mr. Robert Kruger, Executive Vice President and Chief Technology
Officer, effective as of January 24, 2005; and Charlene Crusoe-Ingram, Executive
Vice President, Human Resources, effective as of October 5, 2004. In addition,
NDCHealth has entered into a change in control agreement with James W.
FitzGibbons, Vice President, Finance and Chief Accounting Officer, effective as
of May 6, 2005.
Mr. Hutto's employment agreement provides for the same benefits as Mr.
Hoff's employment agreement upon a change in control of NDCHealth.
Mr. Adrean, Mr. Kruger and Ms. Crusoe-Ingram's employment agreements
provide for the same benefits as Mr. Hoff's employment agreement upon a change
in control, except that a lump sum payment equal to twenty-four times the
monthly base salary will be paid within thirty days of the date of termination
following a change in control, instead of continued monthly payments of their
base salary for twenty-four months, and NDCHealth will pay for COBRA
continuation coverage, if he or she timely elects such coverage, for eighteen
months following the date of termination instead of providing benefits equal to
those provided under the NDCHealth welfare benefit plans for two years.
Mr. FitzGibbons' change of control agreement provides for the same benefits
that Mr. Adrean and Ms. Crusoe-Ingram will receive upon a change in control of
NDCHealth, except that Mr. FitzGibbons is not eligible to receive an annual
bonus and is only entitled to continued monthly payments of his base salary and
payments for COBRA coverage continuation for the shorter of eighteen months
following the termination date or until he accepts employment with a subsequent
employer, but in no event less than twelve months. In addition, under Mr.
FitzGibbons agreement, NDCHealth must provide these benefits only if his
termination of employment occurs within one year following a change in control.
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STOCK OPTIONS
NDCHealth's executive officers and directors have received periodic grants
of options to acquire shares of NDCHealth common stock under certain of
NDCHealth's existing incentive plans. These stock options generally become
vested over time, subject to the continued employment of the executive, and have
terms of not more than ten years. Pursuant to the merger agreement, each
outstanding NDCHealth stock option, whether or not vested at the effective time
of the proposed transaction, will be cancelled in exchange for the right to
receive the per share merger consideration as if each share subject to such
stock option was a share of NDCHealth common stock, after taking into account a
deduction for the exercise price of the stock option. Accordingly, directors and
executive officers with unvested "in the money" options may receive a benefit,
in addition to that available to NDCHealth stockholders generally, by virtue of
the acceleration of the unvested portion of such options.
RESTRICTED STOCK AWARDS AND STOCK UNITS
Certain of NDCHealth's executive officers and directors have received
periodic grants of restricted stock awards and grants of rights to receive
shares of NDCHealth common stock in the future. Pursuant to the merger
agreement, all such equity awards shall become immediately vested at the
effective time of the merger. Each of these restricted stock awards and rights
to receive NDCHealth common stock will entitle the holder to receive the per
share merger consideration with respect to such shares. Accordingly, directors
and executive officers with unvested restricted stock awards or rights to
receive NDCHealth common stock may receive a benefit, in addition to that
available to NDCHealth stockholders generally, by virtue of the acceleration of
the unvested portion of such awards.
NON-EMPLOYEE DIRECTORS COMPENSATION
NDCHealth has established a compensation plan for its non-employee
directors. Under the terms of the merger agreement, restricted stock units
granted to non-employee directors will vest upon the consummation of the merger
and the holder of the resultant shares of NDCHealth common stock will be
entitled to the per share merger consideration for those shares.
In addition, NDCHealth has established a retirement plan for its
non-employee directors initially elected to the Board of Directors prior to
January 1, 1995. Pursuant to the terms of the retirement plan, in the event of a
qualified non-employee director's service as a director upon a change in control
transaction, he or she will be entitled to a yearly payment of 100% of the
annual director's fees, not to exceed $60,000, payable in any combination of
cash compensation and common stock of NDCHealth. For qualified non-employee
directors with less than fifteen years of board service, these retirement
payments will continue for not more than ten years. For non-employee directors
with fifteen or more years of board service, these retirement payments will
continue for not more than fifteen years. There are currently three former
directors receiving benefits under the plan and, as of September 1, 2005, only
one current director, Mr. Williams, is eligible for retirement benefits under
the plan, which will equal 100% of annual fees for fifteen years.
INDEMNIFICATION AND INSURANCE
For a period of six years after the effective time of the merger, NDCHealth
will indemnify the former directors, employees and agents of NDCHealth against
all liabilities arising out of their service to NDCHealth to the fullest extent
permitted by the bylaws of NDCHealth as in effect on the date the merger
agreement was signed. Per-Se also has agreed to obtain prepaid directors' and
officers' liability insurance coverage for matters occurring prior to the
effective time of the merger for six years from the effective time,
substantially equivalent to levels of coverage currently in effect under
NDCHealth's existing directors' and officers' liability insurance.
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SUMMARY OF POTENTIAL PAYMENTS TO NDCHEALTH'S EXECUTIVE OFFICERS AND DIRECTORS
<Table>
<Caption>
VESTED
POTENTIAL STOCK ACCELERATED ACCELERATED ACCELERATED
SEVERANCE OPTION STOCK OPTION DEFERRED RESTRICTED
EXECUTIVE OFFICERS PAYMENT PAYMENT PAYMENT COMPENSATION STOCK
- ------------------ ---------- -------- ------------ ------------ -----------
Lee Adrean........................... $1,000,000 $ 99,000 $297,000 -- $1,300,007
Executive Vice President, Finance
and Planning, and Chief Financial
Officer
Charlene Crusoe-Ingram............... $ 780,000 $ 47,875 $143,625 -- --
Executive Vice President, Human
Resources
James W. FitzGibbons................. $ 281,240 $ 13,200 $ 39,600 -- $ 156,000
Vice President, Finance and Chief
Accounting Officer
Walter M. Hoff....................... $1,400,000 $855,647 -- -- $1,344,291
Chairman, Chief Executive Officer
and Director
Randolph L.M. Hutto.................. $ 824,000 -- -- -- $ 229,086
Executive Vice President, Business
Development, General Counsel and
Corporate Secretary
Robert G. Kruger..................... $ 830,000 -- $192,000 -- $ 195,000
Executive Vice President and
Chief Technology Officer
OUTSIDE DIRECTORS
J. Veronica Biggins.................. -- $ 46,959 $ 10,252 -- $ 6,396
Terri A. Dial........................ -- $ 8,384 $ 10,252 $ 82,622 $ 6,396
Laurie H. Glimcher, M.D. ............ -- -- -- -- $ 4,212
Jeffrey P. Koplan, M.D. ............. -- $ 8,384 $ 10,252 -- $ 6,396
Kurt M. Landgraf..................... -- $ 8,384 $ 10,252 $140,459 $ 6,396
James F. McDonald.................... -- $ 8,384 $ 10,252 -- $ 6,396
Steven J. Shulman.................... -- -- -- -- $ 4,212
Neil Williams........................ -- $ 46,959 $ 10,252 $ 98,456 $ 6,396
</Table>
The board of directors of NDCHealth was aware of these interests and
considered them, among other matters, in making its recommendation.
FINANCING ARRANGEMENTS
In connection with the merger agreement, Per-Se has obtained a commitment
letter from Bank of America, N.A. to provide an aggregate of $460 million in
loans to finance the cash portion of the merger consideration, to repurchase
certain existing subordinated debt of NDCHealth, to refinance certain existing
indebtedness of Per-Se, and to pay transaction expenses on the terms and
conditions set forth in the commitment letter. Bank of America intends to
syndicate the loans to the broader market.
The commitment letter contemplates a $460 million senior secured facility
consisting of (i) a $50 million revolving credit facility and (ii) a $410
million term loan facility. The commitment letter also permits Per-Se to issue
subordinated debt, in an aggregate amount up to $250 million, to replace a
portion of the term loan facility. Any such subordinated debt issued by Per-Se
will result in a corresponding reduction in Bank of America's commitment under
the term loan facility.
The interest rate under the senior secured facility will be dependent on
Per-Se's debt rating and other factors. The facility will also contain certain
financial covenants, including a maximum leverage ratio and a minimum fixed
charge coverage ratio.
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The closing of the senior secured facility is subject to the negotiation of
definitive documentation. Bank of America's obligation to provide the financing
is also subject to numerous other conditions, including, without limitation, no
material adverse change in the business, assets, liabilities, operations or
financial condition of Per-Se or NDCHealth.
Per-Se's receipt of the financing under the commitment letter or otherwise
is not a condition to Per-Se's obligation to close the merger. As of the date of
this joint proxy statement/prospectus, Per-Se has not completed its financing,
and no assurance can be given that its financing will be completed. As of the
date of this joint proxy statement/prospectus, Per-Se has not yet determined the
amount of subordinated debt that it will seek to issue. The terms and final
pricing of any such subordinated debt are not expected to be finalized until
immediately prior to the closing of the merger. Per-Se does not currently have
any alternative financing commitments in the event that the financing with Bank
of America is not obtained.
ANTICIPATED ACCOUNTING TREATMENT
Per-Se prepares its financial statements in accordance with GAAP. The
merger will be accounted for using the purchase method of accounting with Per-Se
being considered the acquirer of NDCHealth for accounting purposes. This means
that Per-Se will allocate the purchase price to the fair value of assets
acquired and liabilities assumed from NDCHealth at the closing date, with the
excess purchase price being recorded as goodwill. Under the purchase method of
accounting, goodwill is not amortized but is tested for impairment at least
annually.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
The merger is subject to the HSR Act. Per-Se and NDCHealth each filed the
required notification and report forms under the HSR Act with the Antitrust
Division of the U.S. Department of Justice, referred to as the DOJ and the U.S.
Federal Trade Commission, referred to as the FTC, on September 8, 2005. On
September 29, 2005, Per-Se and NDCHealth announced that they had received
notification of early termination of the waiting period under the HSR Act with
respect to the merger.
NDCHealth's sale of its information management business to Wolters Kluwer,
the consummation of which is a condition to closing of the merger, is also
subject to the HSR Act. NDCHealth and Wolters Kluwer each filed the required
notification and report forms under the HSR Act with the DOJ and the FTC on
September 9, 2005. On September 29, 2005, NDCHealth announced that it had
received notification of early termination of the waiting period under the HSR
Act with respect to the sale of information management business.
RESTRICTIONS ON SALES OF SHARES OF PER-SE COMMON STOCK RECEIVED IN THE MERGER
Per-Se common stock issued pursuant to the merger agreement will not be
subject to any restrictions on transfer arising under the Securities Act, except
for shares issued to any NDCHealth stockholder who may be deemed to be an
"affiliate" of Per-Se or NDCHealth for purposes of Rule 145 under the Securities
Act.
Under Rule 145, former NDCHealth stockholders who were affiliates of
NDCHealth at the time of the NDCHealth annual meeting and who are not affiliates
of Per-Se after the completion of the merger, may sell their Per-Se common stock
at any time subject to the volume and sale limitations of Rule 144 under the
Securities Act. Further, so long as such former NDCHealth affiliates are not
considered affiliates of Per-Se following the completion of the merger, and a
period of at least one year has elapsed from the completion of the merger, such
former affiliates may sell their Per-Se common stock without regard to the
volume and sale limitations of Rule 144 under the Securities Act so long as
there is adequate current public information available about Per-Se in
accordance with Rule 144. After a period of two years has elapsed from the
completion of the merger, and so long as such former affiliates are not
affiliates of Per-Se and have not been for at least three months prior to such
sale, such former affiliates may freely sell
69
their Per-Se common stock. Former NDCHealth stockholders who become affiliates
of Per-Se after completion of the merger will still be subject to the volume and
sale limitations of Rule 144 under the Securities Act until each such
stockholder is no longer an affiliate of Per-Se. This joint proxy statement/
prospectus does not cover resales of Per-Se common stock received by any person
upon completion of the merger, and no person is authorized to make any use of
this joint proxy statement/prospectus in connection with any resale.
APPRAISAL RIGHTS OF DISSENTING NDCHEALTH STOCKHOLDERS
Under the DGCL, NDCHealth stockholders have the right to dissent from the
merger agreement and receive payment in cash for the fair value of their shares
of NDCHealth common stock, as determined by the Court of Chancery of the State
of Delaware. NDCHealth stockholders electing to exercise their appraisal rights
must comply with the provisions of Section 262 of the DGCL. A copy of Section
262 is attached to this joint proxy statement/prospectus as Annex E.
The following summary does not purport to be a complete statement of all of
the applicable requirements of Delaware law with respect to NDCHealth
stockholders' appraisal rights and is qualified in its entirety by reference to
Section 262. NDCHEALTH STRONGLY URGES YOU TO CAREFULLY REVIEW ALL OF THE TEXT OF
SECTION 262, WHICH IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS ANNEX
E. IF YOU FAIL TO TIMELY AND PROPERLY COMPLY WITH THE REQUIREMENTS OF SECTION
262, YOU WILL LOSE YOUR APPRAISAL RIGHTS UNDER DELAWARE LAW.
Section 262 requires stockholders to be notified of their dissenters'
appraisal rights not less than 20 days before a meeting of stockholders to vote
on a merger. A copy of Section 262 must be included with that notice. THIS JOINT
PROXY STATEMENT/PROSPECTUS CONSTITUTES NDCHEALTH'S NOTICE TO ITS STOCKHOLDERS AS
TO THE AVAILABILITY OF DISSENTERS' APPRAISAL RIGHTS IN CONNECTION WITH THE
PROPOSED TRANSACTION, IN COMPLIANCE WITH THE REQUIREMENTS OF SECTION 262.
If you elect to demand appraisal of your shares of NDCHealth common stock,
you must satisfy each of the following conditions:
- you must deliver to NDCHealth a written demand for appraisal of your
shares before the vote is taken on the merger agreement at the NDCHealth
special meeting. This written demand must be in addition to and separate
from any proxy or vote abstaining from or voting against adoption of the
merger agreement and approval of the merger. Voting against or failing to
vote for adoption of the merger agreement and approval of the merger
itself does not constitute a demand for appraisal under Section 262; and
- you must not vote in favor of adoption of the merger agreement and
approval of the merger. A vote in favor of adoption of the merger
agreement, by proxy or in person, will constitute a waiver of your
appraisal rights with respect to the shares so voted and will nullify any
previously filed written demand for appraisal.
If you fail to comply with either of these conditions and the merger is
completed, you will be entitled to receive the merger consideration available to
NDCHealth stockholders generally, as provided for in the merger agreement, but
you will have no appraisal rights with respect to your shares of NDCHealth
common stock.
All demands for appraisal should be addressed to NDCHealth Corporation, NDC
Plaza, Atlanta, Georgia, 30329-2010 Attention: Investor Relations, and should be
delivered before the vote on the proposed transaction is taken at the NDCHealth
special meeting. All demands for appraisal should be executed by, or on behalf
of, the record holder of the shares of NDCHealth common stock and must
reasonably inform NDCHealth of the identity of the demanding stockholder and the
stockholder's intention to demand appraisal of that stockholder's shares.
To be effective, a demand for appraisal by a holder of NDCHealth common
stock must be made by, or in the name of, the record stockholder, fully and
correctly, as the stockholder's name appears on his or
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her stock certificate(s) and cannot be made by the beneficial owner if he or she
is not also the record holder of the shares. The beneficial holder must, in
these cases, have the record owner submit the required demand in respect of the
beneficial holder's shares.
If shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of a demand for appraisal should be
made in the fiduciary capacity; and if the shares are owned of record by more
than one person, as in a joint tenancy or tenancy in common, the demand should
be executed by or for all joint owners. An authorized agent, including an
authorized agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record. However, the agent must identify the
record owner or owners and expressly disclose the fact that he or she is acting
as agent for the record owner in executing the demand. A record owner, such as a
broker, bank, or other nominee who holds shares as a nominee for others, may
exercise its right of appraisal with respect to the shares held for one or more
beneficial owners, while not exercising the right of appraisal for other
beneficial owners. If this is the case, then the written demand should state the
number of shares as to which appraisal is sought. Where no number of shares is
expressly mentioned, the demand will be presumed to cover all shares held in the
name of the record owner.
If your shares of NDCHealth common stock are held by a broker, bank or
other nominee in "street name" and you wish to exercise your appraisal rights,
you should consult with your broker, bank or other nominee to determine the
appropriate procedures for making a demand for appraisal by your broker, bank or
other nominee.
Within 10 days after the effective date of the merger, NDCHealth, as the
surviving corporation, must give written notice of the date the merger became
effective to each former NDCHealth stockholder who has properly filed a written
demand for appraisal and who did not vote in favor of adoption of the merger
agreement and approval of the merger. Within 120 days after the effective date
of the merger, either the surviving corporation or any former NDCHealth
stockholder who has complied with the requirements of Section 262 may file a
petition in the Court of Chancery of the State of Delaware demanding a
determination of the fair value of the shares held by all former NDCHealth
stockholders entitled to appraisal. The surviving corporation has no obligation
to file this petition in the event there are dissenting stockholders.
ACCORDINGLY, THE FAILURE OF A FORMER NDCHEALTH STOCKHOLDER TO FILE A PETITION
WITHIN THE PERIOD SPECIFIED COULD NULLIFY THAT FORMER NDCHEALTH STOCKHOLDER'S
PREVIOUS WRITTEN DEMAND FOR APPRAISAL.
At any time within 60 days after the effective date of the merger, any
former NDCHealth stockholder who has demanded an appraisal has the right to
withdraw the demand and to accept the merger consideration, consisting of shares
of Per-Se common stock and the cash payment, as specified in the merger
agreement, for shares of NDCHealth common stock. Any attempt to withdraw an
appraisal demand more than 60 days after the effective date of the merger will
require the written approval of NDCHealth. Within 120 days after the effective
date of the merger, any former NDCHealth stockholder who has complied with
Section 262 will be entitled, upon written request, to receive a statement
setting forth the aggregate number of shares of NDCHealth common stock with
respect to which demands for appraisal have been received and the aggregate
number of holders of these shares. If a petition for appraisal is duly filed by
a former NDCHealth stockholder and a copy of the petition is delivered to the
surviving corporation, then the surviving corporation will be obligated to
provide to the Chancery Court, within 20 days after receiving service of a copy
of the petition, with a duly verified list containing the names and addresses of
all former NDCHealth stockholders who have demanded an appraisal of their shares
and who have not reached agreements with the surviving corporation as to the
value of their shares. After notice to dissenting former NDCHealth stockholders,
the Chancery Court is empowered to conduct a hearing upon the petition, to
determine those former NDCHealth stockholders who have complied with Section 262
and who have become entitled to the appraisal rights provided thereby. The
Chancery Court may require the former NDCHealth stockholders who have demanded
payment for their shares to submit their certificates formerly representing
shares of NDCHealth common stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with this requirement, the Chancery Court may dismiss the
proceedings as to that stockholder.
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After determining the former NDCHealth stockholders entitled to appraisal
of their shares of NDCHealth common stock, the Chancery Court will appraise the
shares, determining their fair value exclusive of any element of value arising
from the accomplishment or expectation of the merger, together with a fair rate
of interest, if any, to be paid. When the value is determined, the Chancery
Court will direct the payment of this value, with interest thereon accrued
during the pendency of the proceeding, if the Chancery Court so determines, to
the former NDCHealth stockholders entitled to receive payment, upon surrender by
these former NDCHealth stockholders of their certificates formerly representing
shares of NDCHealth common stock.
In determining fair value, the Chancery Court is required to take into
account all relevant factors. THE FAIR VALUE OF YOUR SHARES OF NDCHEALTH COMMON
STOCK AS DETERMINED UNDER SECTION 262 COULD BE GREATER THAN, EQUAL TO OR LESS
THAN THE VALUE OF THE CONSIDERATION THAT YOU ARE ENTITLED TO RECEIVE PURSUANT TO
THE MERGER AGREEMENT.
Costs of the appraisal proceeding may be imposed by the Chancery Court, as
it deems equitable, on the surviving corporation and the former NDCHealth
stockholders participating in the appraisal proceeding. Upon the application of
a former NDCHealth stockholder, the Chancery Court may order all or a portion of
the expenses incurred by any former NDCHealth stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorneys' fees
and the fees and expenses of experts, to be charged pro rata against the value
of all shares entitled to appraisal. Any former NDCHealth stockholder who had
demanded appraisal rights will not, after the effective date of the merger, be
entitled to vote shares of Per-Se common stock subject to the demand for any
purpose or to receive payments of dividends or any other distribution with
respect to those shares (other than with respect to payment as of a record date
prior to the effective date). However, if no petition for appraisal is filed
within 120 days after the effective date of the merger, or if the former
NDCHealth stockholder delivers a written withdrawal of his or her demand for
appraisal and an acceptance of the merger within 60 days after the effective
date of the merger, then the right of the former NDCHealth stockholder to
appraisal will cease and the former NDCHealth stockholder will be entitled to
receive the shares of Per-Se common stock and the cash payment for his or her
shares of NDCHealth common stock pursuant to the merger agreement. Any
withdrawal of a demand for appraisal made more than 60 days after the effective
date of the merger may only be made with the written approval of Per-Se and must
be made within 120 days after the effective date.
IN VIEW OF THE COMPLEXITY OF SECTION 262, NDCHEALTH STOCKHOLDERS WISHING TO
DISSENT FROM THE MERGER AGREEMENT AND PURSUE APPRAISAL RIGHTS SHOULD CONSULT
THEIR LEGAL ADVISORS. FAILURE TO TAKE ANY REQUIRED STEP IN CONNECTION WITH
EXERCISING APPRAISAL RIGHTS MAY RESULT IN THE TERMINATION OR WAIVER OF APPRAISAL
RIGHTS.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax
consequences of the merger to U.S. holders (as defined below) who exchange their
shares of NDCHealth common stock for cash and shares of Per-Se common stock
pursuant to the merger. For purposes of this discussion, the term "U.S. holder"
means any of the following holders of NDCHealth common stock:
- a citizen or resident (as determined for U.S. federal income tax
purposes) of the United States;
- a corporation, or other entity taxable as a corporation for U.S. federal
income tax purposes, created or organized under the laws of the United
States, any state within the United States, or the District of Columbia;
- a trust if it (i) is subject to the primary supervision of a court within
the United States and one or more U.S. persons have the authority to
control all substantial decisions of the trust or (ii) has a valid
election in effect under applicable U.S. Treasury Regulations to be
treated as a U.S. person; or
- an estate the income of which is subject to U.S. federal income tax
regardless of its source.
This summary is based on provisions of the Internal Revenue Code, Treasury
Regulations promulgated thereunder, and administrative and judicial
interpretations of the Internal Revenue Code, all as in effect as of the date of
this joint proxy statement/prospectus, and all of which are subject to change,
possibly with retroactive effect. This summary does not address all aspects of
U.S. federal income taxation that may be applicable to NDCHealth stockholders in
light of their particular circumstances or to NDCHealth stockholders subject to
special treatment under U.S. federal income tax law, such as:
- entities treated as partnerships for U.S. federal income tax purposes or
NDCHealth stockholders that hold their shares through entities treated as
partnerships for U.S. federal income tax purposes;
- certain U.S. expatriates;
- NDCHealth stockholders that hold NDCHealth common stock as part of a
straddle, appreciated financial position, hedge, synthetic security,
conversion transaction or other integrated investment;
- NDCHealth stockholders whose functional currency is not the U.S. dollar;
- NDCHealth stockholders who acquired shares of NDCHealth common stock
through the exercise of employee stock options or otherwise as
compensation;
- NDCHealth stockholders subject to the U.S. alternative minimum tax;
- NDCHealth stockholders who do not hold their shares of NDCHealth common
stock as capital assets within the meaning of Section 1221 of the
Internal Revenue Code;
- non-U.S. persons and entities;
- financial institutions;
- insurance companies;
- tax-exempt entities;
- dealers in securities or foreign currencies; and
- traders in securities that mark-to-market.
Furthermore, this summary does not address any aspect of state, local or
foreign laws, or any federal laws other than those pertaining to income
taxation. NDCHEALTH STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE
APPLICATION AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME AND OTHER TAX LAWS.
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GENERAL U.S. FEDERAL INCOME TAX CONSIDERATIONS OF THE MERGER TO NDCHEALTH
STOCKHOLDERS
A U.S. holder's receipt of cash and shares of Per-Se common stock pursuant
to the merger will be a taxable transaction for U.S. federal income tax
purposes. In general, for U.S. federal income tax purposes, a U.S. holder will
recognize gain or loss, in the taxable year in which the merger closes, in an
amount equal to the difference between:
- the sum of (i) the amount of cash and (ii) the fair market value (as of
the date of the merger) of the shares of Per-Se common stock, in each
case received by the U.S. holder pursuant to the merger; and
- the U.S. holder's adjusted tax basis in the shares of NDCHealth common
stock surrendered pursuant to the merger.
In general, the gain or loss recognized by a U.S. holder will be a capital
gain or loss and will be a long-term capital gain or loss if the U.S. holder's
holding period for the shares of NDCHealth common stock exchanged in the merger
is greater than one year as of the date of the merger. Long-term capital gain of
non-corporate taxpayers is eligible for reduced rates of taxation. The
deductibility of capital losses is subject to certain limitations under the
Internal Revenue Code. A U.S. holder who acquired different blocks of NDCHealth
common stock at different times and different prices must determine such
holder's adjusted tax basis and holding period separately with respect to each
block of NDCHealth common stock.
A U.S. holder's tax basis in any shares of Per-Se common stock received in
the merger will be equal to the fair market value of such shares as of the date
of the merger. A U.S. holder's holding period for any shares of Per-Se common
stock received in the merger will begin on the day after the merger.
INFORMATION REPORTING AND BACKUP WITHHOLDING
NDCHealth stockholders may be subject to information reporting on Form 1099
on amounts they receive pursuant to the merger agreement, subject to certain
exceptions. In addition, NDCHealth stockholders may be subject to backup
withholding at applicable federal rates (currently 28%) on such amounts. Backup
withholding will not apply, however, to an NDCHealth stockholder who (i)
provides a correct taxpayer identification number to the exchange agent or (ii)
comes within certain exempt categories and, in each case, complies with
applicable certification requirements. If an NDCHealth stockholder does not
provide the exchange agent with its correct taxpayer identification number, the
holder may be subject to penalties imposed by the Internal Revenue Service. Any
amounts withheld under the backup withholding rules may be allowed as a refund
or a credit against the NDCHealth stockholder's U.S. federal income tax
liability, provided that the stockholder furnishes certain required information
to the Internal Revenue Service.
THE DISCUSSION OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER SET FORTH ABOVE IS INTENDED TO PROVIDE ONLY A GENERAL SUMMARY AND IS NOT
INTENDED TO BE A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL U.S. FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER. IN ADDITION, THE SUMMARY DOES NOT ADDRESS
TAX CONSEQUENCES THAT MAY VARY WITH, OR ARE CONTINGENT ON, INDIVIDUAL
CIRCUMSTANCES. MOREOVER, THE SUMMARY DOES NOT ADDRESS ANY NON-INCOME TAX OR ANY
FOREIGN, STATE, LOCAL OR OTHER TAX CONSEQUENCES OF THE MERGER. ACCORDINGLY, EACH
NDCHEALTH STOCKHOLDER IS STRONGLY URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX
ADVISORS TO DETERMINE THE PARTICULAR FEDERAL, STATE, LOCAL OR FOREIGN INCOME,
REPORTING OR OTHER TAX CONSEQUENCES OF THE MERGER TO THAT STOCKHOLDER.
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THE MERGER AGREEMENT
The following summarizes material provisions of the merger agreement which
is attached as Annex A to this joint proxy statement/prospectus and is
incorporated by reference herein. The rights and obligations of the parties are
governed by the express terms and conditions of the merger agreement and not by
this summary or any other information contained in this joint proxy
statement/prospectus. Per-Se and NDCHealth stockholders are urged to read the
merger agreement carefully and in its entirety as well as this joint proxy
statement/prospectus before making any decisions regarding the merger.
STRUCTURE OF THE MERGER
If all conditions to the merger are satisfied or waived, Royal Merger Co.,
a wholly owned subsidiary of Per-Se formed for purposes of the merger, will be
merged with and into NDCHealth. After the merger, NDCHealth will be the
surviving corporation and will be a wholly owned subsidiary of Per-Se.
MERGER CONSIDERATION
Upon completion of the merger, each share of NDCHealth common stock (other
than dissenting shares and shares held by Per-Se or Royal Merger Co.) issued and
outstanding immediately prior to the effective time of the merger will be
cancelled and automatically converted into the right to receive:
- $13.00 in cash; and
- a number of shares of Per-Se common stock equal to $6.50 divided by the
price per share of Per-Se common stock as described in accordance with
the procedures set forth in the merger agreement and described below.
Per-Se has the right to increase (but not decrease) the amount of cash that
each share of NDCHealth common stock will receive. If Per-Se makes this
adjustment, the dollar amount of Per-Se common stock that each share of
NDCHealth common stock will receive will be correspondingly reduced. If Per-Se
elects to adjust the merger consideration, it must issue a press release
announcing the adjusted merger consideration at least five business days prior
to the NDCHealth stockholders' meeting.
The number of shares of Per-Se common stock to be issued pursuant to the
merger agreement will be determined by dividing the (i) the applicable dollar
value (e.g., $6.50), by (ii) the average of the volume weighted sales prices per
share of Per-Se common stock on the Nasdaq National Market as reported by
Bloomberg Financial Markets for the 20 consecutive full trading days in which
shares of Per-Se common stock are traded on the Nasdaq National Market ending on
the third trading day prior to, but not including, the closing date. However, if
Per-Se issues any Per-Se common stock (or any security convertible or
exchangeable into or exercisable for Per-Se common stock) within 33 business
days prior to the closing date (subject to certain exceptions for stock-based
compensation and existing rights), then the number of shares of Per-Se common
stock to be issued pursuant to the merger agreement will be based on the lesser
of the twenty day weighted average sales price of Per-Se common stock described
above and the lowest price per share received by Per-Se pursuant to any such
issuance.
No fractional shares of Per-Se common stock will be issued pursuant to the
merger agreement. Each NDCHealth stockholder who otherwise would have been
entitled to a fraction of a share of Per-Se common stock will receive in lieu
thereof cash in an amount determined by multiplying the fractional share
interest by the twenty day weighted average sales price of Per-Se common stock
described above.
TREATMENT OF OPTIONS AND EQUITY AWARDS
Upon completion of the merger, each holder of an outstanding option to
acquire NDCHealth common stock, whether or not then vested or exercisable, will
receive the consideration such holder would be entitled to receive if he was an
NDCHealth stockholder holding a whole number of shares of NDCHealth common stock
(rounded downward to the nearest whole share) equal to (i) the product of (a)
the total number of shares of NDCHealth common stock subject to such option
multiplied by (b) the
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excess, if any, of $19.50 over the exercise price per share of such option
(rounded to the nearest cent), divided by (ii) $19.50. Any option to acquire
NDCHealth common stock that has an exercise price per share that is equal to or
greater than $19.50 will be cancelled as of the effective time of the merger
without any payment.
Upon completion of the merger, each outstanding NDCHealth restricted stock
award or stock unit will become fully vested and its holder will receive the
consideration payable in respect of the underlying shares.
PROCEDURES FOR EXCHANGE OF CERTIFICATES
As soon as practicable after completion of the merger, Per-Se's exchange
agent will mail to former NDCHealth stockholders a letter of transmittal and
instructions to be used in surrendering certificates that represented shares of
NDCHealth common stock prior to the completion of the merger. When a former
NDCHealth stockholder delivers these certificates to the exchange agent together
with a properly executed letter of transmittal and any other required documents,
the former NDCHealth stockholder will receive Per-Se stock certificates
representing the whole number of shares of Per-Se common stock to which the
stockholder is entitled under the merger agreement and a check for (i) the cash
that the stockholder is entitled to receive for such stockholder's shares under
the merger agreement, (ii) cash in lieu of any fractional shares of Per-Se
common stock to which such stockholder would be entitled and (iii) any dividends
or distributions to which such stockholder is entitled.
Upon the making of an affidavit that a certificate representing shares of
NDCHealth common stock has been lost, stolen or destroyed, and at Per-Se's
option upon the delivery of an indemnity bond, the exchange agent will issue the
merger consideration and any other dividends or distributions in respect of the
shares of NDCHealth common stock represented by the lost, stolen or destroyed
certificates to which the stockholder is entitled.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties of
Per-Se, Royal Merger Co. and NDCHealth, including representations and warranties
relating to, among other things:
- corporate organization, good standing and similar corporate matters;
- capital structure;
- due authorization, execution, delivery and enforceability of, and
required consents, approvals, orders and authorizations of governmental
authorities relating to, the merger agreement and the transactions
contemplated thereby and related matters;
- required stockholder vote of the stockholders of each of Per-Se and
NDCHealth;
- the receipt of fairness opinions from NDCHealth's financial advisors;
- conflicts with the companies' respective governing documents, applicable
laws or material contracts;
- compliance with laws;
- documents filed with the SEC, compliance with applicable SEC filing
requirements and accuracy of information contained in such documents;
- absence of material changes or events, including the absence of any event
or occurrence that has had a material adverse effect with respect to
Per-Se since June 30, 2005, and with respect to NDCHealth since May 27,
2005;
- the taking of appropriate actions under the respective stockholders'
rights agreements;
- filing of tax returns and payment of taxes;
- change in control payments to employees or directors;
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- pending or, to the knowledge of the companies, threatened litigation;
- specified contracts and commitments, and the enforceability of such
contracts and commitments;
- accuracy of information supplied by each of Per-Se and NDCHealth in
connection with this joint proxy statement/prospectus and the
registration statement of which it is a part;
- employee benefit plans and matters relating to ERISA;
- labor and employment matters with respect to NDCHealth;
- environmental laws and regulations with respect to NDCHealth;
- ownership and use of NDCHealth intellectual property;
- NDCHealth insurance policies;
- the absence of liabilities relating to the information management
business and the sufficiency of NDCHealth's assets, in each case
following the sale of that business to Wolters Kluwer;
- the receipt by Per-Se of a commitment letter for the financing of the
merger;
- engagement and payment of fees of brokers, finders and investment
bankers;
- regulatory compliance; and
- ethical business practices.
Certain of the representations and warranties are qualified as to "material
adverse effect." The merger agreement provides that a material adverse effect
means, when used in connection with Per-Se or NDCHealth, any event,
circumstance, change or effect that, individually or when taken together with
all other events, circumstances, changes and effects, is or is reasonably likely
to be materially adverse to the business, financial condition or results of
operations of the applicable party and its subsidiaries, taken as a whole, or
the ability of the applicable party to consummate the merger, other than any
event, circumstance, change or effect resulting from:
- changes in general economic or financial market conditions (which do not
have a materially disproportionate effect on the applicable party);
- general changes in the industries in which the applicable party operates
(which do not have a materially disproportionate effect on the applicable
party);
- changes in the trading price of the shares of common stock of the
applicable party between the date of the merger agreement and the
effective time of the merger;
- changes in applicable law or United States generally accepted accounting
principles;
- the direct effects of compliance with the merger agreement on the
operating performance of the applicable party, including expenses
incurred in consummating the merger;
- the announcement of the merger agreement or the merger, the fulfillment
of the applicable party's obligations under the merger agreement or the
consummation of the merger; or
- any outbreak or escalation of hostilities or act of terrorism or any
declaration of war (which do not have a materially disproportionate
effect on the applicable party).
The representations and warranties described above and included in the
merger agreement were made by each of Per-Se and NDCHealth to the other. These
representations and warranties were made as of specific dates, may be subject to
important qualifications and limitations agreed to by Per-Se and NDCHealth in
connection with negotiating the terms of the merger agreement (including a
contractual standard of materiality different from those generally applicable to
stockholders), and may have been included in the merger agreement for the
purpose of allocating risk between Per-Se and NDCHealth rather than to establish
matters as facts. The merger agreement is described in, and included as an annex
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to, this document only to provide you with information regarding its terms and
conditions, and is not intended to provide any other factual information
regarding Per-Se, NDCHealth or their respective businesses. Accordingly, the
representations and warranties and other provisions of the merger agreement
should not be read alone, but instead should be read only in conjunction with
the information provided elsewhere in this joint proxy statement/prospectus and
in the other public filings each of the parties makes with the SEC, which are
available without charge at www.sec.gov.
CONDUCT OF BUSINESS BY PER-SE AND NDCHEALTH PRIOR TO COMPLETION OF THE MERGER
Per-Se and NDCHealth have agreed that during the period from the date of
the merger agreement to the effective time of the merger, except as expressly
contemplated by the merger agreement or unless Per-Se or NDCHealth, as the case
may be, consents in writing, each of Per-Se and NDCHealth, and their respective
subsidiaries, will conduct their business in, and will not take any action
except in, the ordinary course of business and in a manner consistent with past
practice.
Further, except as expressly contemplated by the merger agreement,
NDCHealth will not, and will not permit any of its subsidiaries to, between the
date of the merger agreement and the effective time of the merger, unless Per-Se
consents in writing:
- amend its certificate of incorporation or bylaws or other equivalent
organizational documents;
- issue, sell, pledge, dispose of, grant or encumber (i) any shares of its
capital stock or any options, warrants, convertible securities or other
rights to acquire any shares of its capital stock (other than the
issuance of shares upon the exercise of stock awards, options or warrants
outstanding as of the date of the merger agreement) or (ii) any of its
assets, except in the ordinary course of business and in a manner
consistent with past practice;
- declare, make or pay any dividends or distributions in respect of any of
its capital stock;
- reclassify, combine, split, subdivide, purchase or redeem any of its
capital stock (except for such acquisitions permitted or contemplated by
the NDCHealth employee benefit plans in the ordinary course of business
and in a manner consistent with past practice);
- acquire or agree to acquire any corporation, partnership or other
business organization;
- incur or agree to incur any indebtedness (other than draws under its
current credit facility in the ordinary course of business consistent
with past practice) or issue or agree to issue any debt securities or
assume, guarantee or endorse, or otherwise become responsible for, the
obligations of any person;
- authorize, or make any commitment with respect to, any capital
expenditure other than in the ordinary course of business consistent with
past practice and in no event greater than $7,500,000 in the aggregate in
any fiscal quarter;
- (i) increase the compensation or benefits to its current or former
officers, directors, or employees or any of their beneficiaries or
dependents, except for increases in the ordinary course of business and
consistent with past practice, (ii) establish, terminate or amend any
employee benefit plan except as to satisfy the minimum requirements of
applicable law, (iii) loan or advance money or other property to any
current or former director or executive officer, or (iv) grant any stock
option or stock unit or any other equity or equity based awards;
- effectuate a "plant closing" or "mass layoff";
- change any accounting policies or procedures, other than changes required
to be taken in response to changes in GAAP or in applicable law;
- make, revoke or change any material tax election or material method of
tax accounting, file any amended tax return (unless required by law),
enter into any closing agreement relating to a material amount of taxes,
settle or compromise any material liability with respect to taxes or
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consent to any material claim or assessment relating to taxes or any
waiver of the statute of limitations for any such claim or assessment;
- pay any material claim, liability or obligation, other than in the
ordinary course of business and consistent with past practice, unless
such payment is made in accordance in all material respects with the
terms of such claim, liability or obligation as such terms existed on the
date of the merger agreement;
- amend or modify in any material respect, or consent to the termination
of, any material contract, or waive in any material respect its rights
under any material contract;
- commence or settle any legal proceeding, other than the settlement of
individual legal proceedings involving payments by NDCHealth or its
subsidiaries not to exceed $500,000; or
- enter into any related party contract or agreement.
NDCHealth will also continue to file, prosecute, and maintain all material
intellectual property and will provide Per-Se with timely notice of material
developments relating to its intellectual property.
In addition, except as expressly contemplated by the merger agreement,
Per-Se will not, and will not permit any of its subsidiaries to, between the
date of the merger agreement and the effective time of the merger, unless
NDCHealth consents in writing:
- amend its certificate of incorporation or bylaws or other equivalent
organizational documents in any manner adverse to the NDCHealth
stockholders;
- declare, make or pay any dividends or distributions in respect of any of
its capital stock;
- reclassify, combine, split, subdivide, purchase or redeem any of its
capital stock (except for such acquisitions permitted or contemplated by
the Per-Se employee benefit plans in the ordinary course of business and
in a manner consistent with past practice); or
- change any accounting policies or procedures, other than changes required
to be taken in response to changes in GAAP or in applicable law.
The merger agreement provides that, prior to the effective time of the
merger, each party will exercise, consistent with the terms and conditions of
the merger agreement, complete control and supervision over its operations.
SENIOR SUBORDINATED NOTES
At the request of Per-Se, NDCHealth will commence a tender offer and/or
consent solicitation in respect of NDCHealth's 10 1/2% Senior Subordinated Notes
due 2012. If commenced, Per-Se will specify and control the terms and conditions
of the tender offer/consent solicitation (provided that, the tender
offer/consent solicitation must be conditioned upon consummation of the merger
and must terminate immediately upon termination of the merger agreement).
NDCHealth agrees to use its reasonable efforts to cooperate with Per-Se and,
subject to applicable law, to use its reasonable best efforts to consummate the
tender offer/consent solicitation. If the tender offer/consent solicitation is
not commenced or is otherwise not consummated, NDCHealth will, at the request of
Per-Se, use a portion of the proceeds from the sale of NDCHealth's information
management business to redeem all of the notes in accordance with the indenture.
Per-Se will be responsible for all expenses of NDCHealth and, to the extent
NDCHealth is responsible, the note holders in connection with the tender
offer/consent solicitation or the redemption.
REGISTRATION STATEMENT; JOINT PROXY STATEMENT/PROSPECTUS
If, prior to the effective time of the merger, any information is
discovered by a party which should be set forth in an amendment or supplement to
the registration statement on Form S-4 of which this joint proxy
statement/prospectus forms a part or this joint proxy statement/prospectus, so
that either document would not include any misstatement of a material fact or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading, the party
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which discovers such information agrees to promptly notify the other parties and
an appropriate amendment or supplement describing such information will be
promptly filed with the SEC and, to the extent required by law, disseminated to
the stockholders of NDCHealth and Per-Se.
RECOMMENDATIONS TO STOCKHOLDERS
NDCHealth has agreed, subject to the provisions of the merger agreement
described below under "-- No Solicitation; Other Offers," through its board of
directors, to recommend to its stockholders the adoption of the merger agreement
and approval of the merger and the transactions contemplated thereby, and to use
all commercially reasonable efforts to obtain the requisite stockholder
approval.
Per-Se has agreed, subject to fiduciary duties under applicable law,
through its board of directors, to recommend to its stockholders the approval of
the issuance of Per-Se common stock pursuant to the merger agreement, and to use
all commercially reasonable efforts to obtain the requisite stockholder
approval.
NO SOLICITATION; OTHER OFFERS
Except as set forth below, NDCHealth and its subsidiaries and
representatives will not:
- solicit or otherwise facilitate any inquiries or the making of any
proposal or offer for a competing transaction;
- enter into or continue discussions or negotiations with any person for
the intended purpose of facilitating inquiries or the making of such a
proposal or offer;
- agree to or recommend any competing transaction or enter into any letter
of intent or other commitment relating to any competing transaction
(other than a confidentiality agreement otherwise in accordance with the
merger agreement);
- authorize or permit any representative of NDCHealth to take any such
action.
The term "competing transaction" means any of the following (other than the
merger and the sale of NDCHealth's information management business to Wolters
Kluwer in accordance with the terms of the information management sale
agreements):
- the acquisition of 15% or more of the number of shares of any class of
equity securities of NDCHealth outstanding before such acquisition;
- the acquisition of 15% or more of the consolidated assets of NDCHealth;
or
- a merger, tender offer, joint venture, dissolution, or other business
combination, or series of related transactions occurring
contemporaneously, involving NDCHealth or its subsidiaries as a result of
which any person or group collectively would acquire the assets or
securities described above.
NDCHealth has agreed to notify Per-Se within 24 hours after NDCHealth
receives any bona fide oral or written proposal or offer for a competing
transaction and to provide certain other information with respect to any such
proposal or offer.
Notwithstanding the restrictions described above, prior to the time the
NDCHealth stockholders have adopted the merger agreement and approved the
merger, NDCHealth may furnish non-public information to, and enter into
discussions with, a third party who has made an unsolicited, bona fide proposal
or offer for a competing transaction if:
- the NDCHealth board of directors has determined, in its good faith
judgment (after consulting with its financial advisor), that such
proposal or offer constitutes or could reasonably be expected to lead to
a superior proposal; and
- the NDCHealth board of directors has determined, in its good faith
judgment after consulting with its outside legal counsel, that, in light
of such proposal or offer, the failure to furnish such
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information or to enter into discussions with such third party would be
inconsistent with its fiduciary duties under applicable law.
NDCHealth must provide Per-Se at least two business days prior written
notice of its intent to furnish information or enter into discussions with such
third party. In addition, NDCHealth must obtain an executed confidentiality
agreement from such third party and must provide Per-Se with any new information
provided to the third party.
The term "superior proposal" means an unsolicited written bona fide offer
made by a third party with respect to a competing transaction (with the 15%
threshold contained in the definition of competing transaction increased to 80%
for purposes of this definition) on terms that the NDCHealth board of directors
determines, in its good faith judgment (after consulting with its financial
advisor) and taking into account all legal, financial, regulatory and other
aspects of the offer that it deems relevant, to be more favorable to the
NDCHealth stockholders than the merger.
Except as set forth below, the NDCHealth board of directors has agreed not
to:
- withdraw, qualify or modify, or propose publicly to withdraw, qualify or
modify, in a manner adverse to Per-Se, the approval by the NDCHealth
board of directors of the merger agreement or the recommendation of the
NDCHealth board of directors to the NDCHealth stockholders that they
adopt the merger agreement and approve the merger; or
- approve or recommend, or cause or permit NDCHealth to enter into any
letter of intent or other commitment with respect to, any competing
transaction (other than a confidentiality agreement otherwise in
accordance with the merger agreement).
Notwithstanding the restrictions described above, prior to the time the
NDCHealth stockholders have adopted the merger agreement and approved the
merger, the NDCHealth board of directors is permitted to make a change in
recommendation or approval and/or recommend a competing transaction if:
- the NDCHealth board of directors (or a committee of disinterested
directors thereof) by a majority vote has determined, in its good faith
judgment, (i) after consulting with its financial advisor, that an
unsolicited offer or proposal constitutes a superior proposal and (ii)
after consulting with outside legal counsel, that the failure to make a
change in recommendation would be inconsistent with its fiduciary duties
under applicable law;
- there has not been any breach of the non-solicitation and related
provisions set forth in the merger agreement with respect to such
unsolicited offer or proposal; and
- NDCHealth has provided Per-Se at least two business days advance written
notice that the NDCHealth board of directors has received a superior
proposal and Per-Se does not, prior to two business days after Per-Se's
receipt of the notice of superior proposal, make an offer that the
NDCHealth board of directors determines, in its good faith judgment
(after consulting with its financial advisor), to be at least as
favorable to the NDCHealth stockholders as the superior proposal.
Any disclosure that the NDCHealth board of directors is legally required to
make with respect to the receipt of a proposal or offer for a competing
transaction will not constitute a violation of the merger agreement.
ANTITRUST NOTIFICATION
Per-Se and NDCHealth have filed notifications under the HSR Act with
respect to the merger and have agreed to respond as promptly as practicable to
any inquiries and/or requests for information or documents received from any
governmental authority in connection with antitrust matters related to the
merger. No party may extend any waiting period under the HSR Act or enter into
any agreement with any governmental authority not to consummate merger without
the prior written consent of the other parties, which consent cannot be
unreasonably withheld or delayed. On September 29, 2005, Per-Se and
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NDCHealth announced that they had received notification of early termination of
the waiting period under the HSR Act with respect to the merger.
Per-Se and NDCHealth have agreed to use their respective commercially
reasonable efforts to avoid the entry of, or to have vacated or terminated, any
decree, order, or judgment that would restrain, prevent or delay the
consummation of the merger. However, Per-Se is not required to take any actions
in connection with, or agree to, any sale, divestiture or disposition of any
businesses, assets, properties or product lines of Per-Se or NDCHealth, or the
imposition of any material limitation on the ability of Per-Se to own or
exercise control of NDCHealth following the effective time of the merger.
Similarly, NDCHealth is not permitted to take any actions in connection with, or
agree to, any divestiture or disposition as a prerequisite for the antitrust
clearance of the merger or the sale of NDCHealth's information management
business.
EMPLOYEE BENEFIT MATTERS
If the merger is completed, Per-Se has agreed, until at least December 31,
2005, to provide NDCHealth employees with employee benefits which are generally
comparable in the aggregate to employee benefits provided to those employees as
of the effective time of the merger. However, Per-Se is not required to provide
any NDCHealth employee with any equity compensation.
Per-Se also agreed to take certain actions to limit the applicability of
Section 409A of the Code to severance payments to NDCHealth employees. If Per-Se
does not take those actions, it may be required to reimburse NDCHealth employees
for taxes and related payments required under Section 409A of the Code through a
gross-up payment.
Per-Se has further agreed to credit NDCHealth employees for unused vacation
days and other paid time off in accordance with NDCHealth's personnel policies
on the date of the merger agreement and to waive certain limitations on benefits
relating to pre-existing conditions under Per-Se's health insurance plans.
INDEMNIFICATION AND INSURANCE
Per-Se has agreed that NDCHealth's bylaws will contain provisions no less
favorable with respect to indemnification than are set forth in NDCHealth's
current bylaws and has agreed not to amend, repeal or otherwise modify those
provisions for a period of six years from the effective time of the merger in
any manner that would affect adversely the rights of individuals who, at or
prior to the effective time, were directors, officers, employees, fiduciaries or
agents of NDCHealth (unless required by law).
Per-Se has also agreed, effective upon completion of the merger, to obtain
prepaid (or "tail") directors' and officers' liability insurance providing for
coverage with respect to matters occurring prior to the effective time of the
merger for six years from the effective time of the merger. The coverage amount
of the "tail" insurance policy will be the same as the current directors' and
officers' liability insurance policies maintained by NDCHealth and the terms and
conditions must not be materially less favorable than the current policies.
CONDITIONS TO COMPLETION OF THE MERGER
Each of Per-Se, Royal Merger Co. and NDCHealth is required to complete the
merger only if the following specific conditions are satisfied or waived:
- the required approvals by the Per-Se stockholders and the NDCHealth
stockholders;
- the expiration or termination of all applicable waiting periods
applicable to the merger under the HSR Act (which has been satisfied);
- the absence of any applicable law or any restraining order, injunction or
other court order issued by any court of competent jurisdiction
prohibiting or preventing consummation of the merger or making the merger
illegal;
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- the effectiveness of, and the absence of any stop order or proceeding
seeking a stop order with respect to, and the absence of any similar
proceeding in respect of, the registration statement on Form S-4 of which
this joint proxy statement/prospectus forms a part and the receipt of all
necessary approvals under applicable securities laws (including state
securities laws) relating to the issuance or trading of Per-Se common
stock issuable pursuant to the merger;
- the approval for listing on the Nasdaq National Market, subject to
official notice of issuance, of the shares of Per-Se common stock
issuable to NDCHealth stockholders in connection with the merger; and
- the closing of the sale of NDCHealth's information management business to
Wolters Kluwer in accordance with the terms on the information management
sale agreements.
The obligation of Per-Se to complete the merger is subject to satisfaction
or waiver at or prior to the closing of the merger of the following additional
conditions:
- the representations and warranties of NDCHealth being true and correct in
all material respects (or, in the case of representations and warranties
containing materiality qualifications or references to an NDCHealth
material adverse effect, in all respects) both as of the date of the
merger agreement and as of the closing date (except for representations
or warranties expressly made as of a specific date, the accuracy of which
will be determined as of the specified date), except where the individual
or aggregate impact of all inaccuracies of the representations and
warranties of NDCHealth has not had, and would not reasonably be expected
to have, a material adverse effect with respect to NDCHealth;
- NDCHealth having performed in all material respects all obligations
required to be performed by it under the merger agreement at or prior to
the effective time of the merger;
- NDCHealth having delivered to Per-Se (i) a certificate to the effect that
each of the conditions specified above has been satisfied in all respects
and (ii) evidence of the receipt of all necessary NDCHealth board and
stockholder approvals;
- NDCHealth having timely filed or furnished all reports and other
documents with the SEC required to be filed or furnished by NDCHealth
following the date of the merger agreement and all such reports and other
documents having been prepared in accordance with the applicable
securities laws;
- The total number of shares of NDCHealth common stock dissenting from the
merger under applicable Delaware law not exceeding 15% of the outstanding
shares of NDCHealth common stock at the effective time of the merger; and
- The consent of Arclight System LLC to the merger and the information
management sale having become effective, including the cancellation, in
exchange for payment of $1,740,000, of a warrant to purchase 391,098
shares of NDCHealth common stock.
The obligation of NDCHealth to complete the merger is subject to
satisfaction or waiver at or prior to the closing of the merger of the following
additional conditions:
- the representations and warranties of Per-Se being true and correct in
all material respects (or, in the case of representations and warranties
containing materiality qualifications or references to a Per-Se material
adverse effect, in all respects) both as of the date of the merger
agreement and as of the closing date (except for representations or
warranties expressly made as of a specific date, the accuracy of which
will be determined as of the specified date), except where the individual
or
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aggregate impact of all inaccuracies of the representations and
warranties of Per-Se has not had, and would not reasonably be expected to
have, a material adverse effect with respect to Per-Se;
- Per-Se having performed in all material respects all obligations required
to be performed by it under the merger agreement at or prior to the
effective time of the merger; and
- Per-Se having delivered to NDCHealth (i) a certificate to the effect that
each of the conditions specified above has been satisfied in all respects
and (ii) evidence of the receipt of all necessary Per-Se board and
stockholder approvals.
Other than the conditions pertaining to stockholder approvals and the
legality of the merger, either Per-Se or NDCHealth may elect to waive conditions
to its own performance and complete the merger. Neither Per-Se nor NDCHealth has
any intention to waive any condition as of the date of this joint proxy
statement/prospectus.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the effective
time of the merger by the mutual written consent of Per-Se, Royal Merger Co. and
NDCHealth. In addition, the merger agreement may be terminated by either Per-Se
or NDCHealth if:
- the merger has not been completed by February 26, 2006, provided that the
right to terminate the merger agreement on such basis will not be
available to a party if that party's failure to perform, in any material
respect, any of its obligations under the merger agreement has been a
principal cause of, or resulted in, the failure of the merger to be
completed by that date, provided further that if NDCHealth and/or Wolters
Kluwer have terminated the information management sale agreements, then
Per-Se may elect to extend that date for 120 days following the
termination of the information management sale agreements;
- if any court or governmental authority has issued any injunction, order,
decree or ruling making consummation of the merger illegal or otherwise
preventing or prohibiting consummation of the merger and such injunction,
order, decree or ruling shall have become final and non-appealable,
provided, that the right to terminate the merger agreement on such basis
will not be available to a party whose failure to perform, in any
material respect, any of that party's obligations under the merger
agreement or whose other act or failure to act has been the primary cause
of, or resulted in, the application or imposition of such injunction,
order, decree or ruling;
- the merger agreement is not adopted and the merger is not approved by the
requisite vote of the NDCHealth stockholders at the NDCHealth special
meeting (including any adjournment or postponement thereof); or
- the issuance of Per-Se common stock pursuant to the merger agreement is
not approved by the requisite vote of the Per-Se stockholders at the
Per-Se special meeting (including any adjournment or postponement
thereof).
The merger agreement also may be terminated by Per-Se if:
- the NDCHealth board of directors has (i) made a change in recommendation
adverse to Per-Se or (ii) recommended a competing transaction or publicly
announced its intent to do so;
- NDCHealth has entered into a competing transaction agreement or accepted
a competing transaction;
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- a tender offer or exchange offer that, if successful, would result in any
person or group becoming the owner of 50% or more of the outstanding
shares of NDCHealth common stock is commenced and the NDCHealth board of
directors fails within 10 days to recommend that NDCHealth stockholders
reject such tender offer or exchange offer; or
- NDCHealth and/or Wolters Kluwer terminate the information management sale
agreements.
The merger agreement also may be terminated by NDCHealth if NDCHealth
enters into a definitive agreement with respect to a superior proposal, provided
that NDCHealth has not breached its obligations described above under "-- No
Solicitation; Other Offers."
EXPENSES AND TERMINATION FEES
Subject to the exceptions described below, all fees and expenses incurred
in connection with the merger agreement and the transactions contemplated by the
merger agreement will be paid by the party incurring those expenses, except that
Per-Se and NDCHealth will each pay one-half of all expenses relating to
printing, filing and mailing the registration Statement and this joint proxy
statement/prospectus and all SEC and other regulatory filing fees incurred in
connection with the registration statement and the joint proxy
statement/prospectus.
PER-SE ENTITLED TO A TERMINATION FEE OR EXPENSE REIMBURSEMENT
NDCHealth will pay Per-Se a termination fee in the amount of $26,763,750
(subject to adjustment, as described below) if the merger agreement is
terminated:
- by Per-Se because (i) the NDCHealth board of directors has (a) made a
change in recommendation adverse to Per-Se or (b) recommended a competing
transaction or publicly announced its intent to do so, (ii) NDCHealth has
entered into a competing transaction agreement or accepted a competing
transaction, or (iii) a tender offer or exchange offer that, if
successful, would result in any person or group becoming the owner of 50%
or more of the outstanding shares of NDCHealth common stock is commenced
and the NDCHealth board of directors fails within 10 days to recommend
that NDCHealth stockholders reject such tender offer or exchange offer;
- by Per-Se or NDCHealth because the merger has not been completed by
February 26, 2006 (or such other date to which it may have been extended
in accordance with the merger agreement) and, prior to the termination,
either (i) (a) the NDCHealth board of directors has (1) made a change in
recommendation adverse to Per-Se or (2) recommended a competing
transaction or publicly announced its intent to do so, (b) NDCHealth has
entered into a competing transaction agreement or accepted a competing
transaction, or (c) a tender offer or exchange offer that, if successful,
would result in any person or group becoming the owner of 50% or more of
the outstanding shares of NDCHealth common stock is commenced and the
NDCHealth board of directors fails within 10 days to recommend that
NDCHealth stockholders reject such tender offer or exchange offer, or
(ii) (a) an announcement or bona fide offer or proposal with respect to a
competing transaction shall have been made with respect to NDCHealth and
such announcement, offer or proposal shall not have been unconditionally
withdrawn at the time of such termination, and (b) within 9 months after
such termination, NDCHealth enters into an agreement providing for a
competing transaction or a competing transaction is consummated;
- by Per-Se or NDCHealth because the merger agreement is not adopted and
the merger is not approved by the requisite vote of the NDCHealth
stockholders at the NDCHealth special meeting and, at the time of the
NDCHealth special meeting, either (i) (a) the NDCHealth board of
directors has (1) made a change in recommendation adverse to Per-Se or
(2) recommended a competing transaction or publicly announced its intent
to do so, (b) NDCHealth has entered into a
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competing transaction agreement or accepted a competing transaction, or
(c) a tender offer or exchange offer that, if successful, would result in
any person or group becoming the owner of 50% or more of the outstanding
shares of NDCHealth common stock is commenced and the NDCHealth board of
directors fails within 10 days to recommend that NDCHealth stockholders
reject such tender offer or exchange offer, or (ii) (a) an announcement
or bona fide offer or proposal with respect to a competing transaction
shall have been made with respect to NDCHealth and such announcement,
offer or proposal shall not have been unconditionally withdrawn at the
time of the NDCHealth special meeting, and (b) within 9 months after such
termination, NDCHealth enters into an agreement providing for a competing
transaction or a competing transaction is consummated;
- by NDCHealth in order to enter into a definitive agreement with respect
to a superior proposal;
- by Per-Se because NDCHealth and/or Wolters Kluwer terminated the
information management sale agreements (unless such termination was
solely as a result of a material breach by Wolters Kluwer of the
information management sale agreements); or
- by Per-Se or NDCHealth because the merger has not been completed by
February 26, 2006 (or such other date to which it may have been extended
in accordance with the merger agreement) by reason of the sale of
NDCHealth's information management business not having occurred (unless
such termination was solely as a result of a material breach by Wolters
Kluwer of the information management sale agreements).
The termination fee will be reduced to $16,763,750 if, simultaneously with
the termination of the merger agreement, NDCHealth also terminates the
information management sale agreements and pays Wolters Kluwer a termination
fee. If the termination fee is reduced and within nine months after the date of
termination, a definitive agreement for a competing transaction or a sale or
other disposition of NDCHealth's information management business with or
involving Wolters Kluwer is entered into or consummated, then NDCHealth must pay
Per-Se an amount equal to the termination fee received by Wolters Kluwer.
NDCHealth will reimburse Per-Se for its reasonable out-of-pocket expenses
up to $10 million if the merger agreement is terminated by Per-Se or NDCHealth
because the merger agreement is not adopted and the merger is not approved by
the requisite vote of the NDCHealth stockholders at the NDCHealth special
meeting. However, NDCHealth will not reimburse Per-Se for its expenses if it has
already paid Per-Se a termination fee. Similarly, if NDCHealth subsequently is
required to pay Per-Se a termination fee, then any expense amount previously
reimbursed by NDCHealth will be credited against the termination fee.
NDCHEALTH ENTITLED TO EXPENSE REIMBURSEMENT
Per-Se will reimburse NDCHealth for its reasonable out-of-pocket expenses
up to $10 million if the merger is terminated:
- by Per-Se or NDCHealth because the issuance of Per-Se common stock
pursuant to the merger agreement is not approved by the requisite vote of
the Per-Se stockholders at the Per-Se special meeting; or
- by Per-Se or NDCHealth because the merger has not been completed by
February 26, 2006 (or such other date to which it may have been extended
in accordance with the merger agreement) by reason of Per-Se's failure to
obtain sufficient funds to consummate the merger.
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NDCHealth's right to receive reimbursement of its expenses is not its
exclusive remedy in the event of Per-Se's failure to obtain sufficient funds to
consummate the merger.
AMENDMENT AND WAIVER
To the extent permitted by law, the merger agreement may be amended by a
subsequent writing signed by Per-Se, Royal Merger Co. and NDCHealth, whether
before or after stockholder approval of the merger agreement has been obtained.
At any time prior to the effective time of the merger, any party may (i)
extend the time for the performance of any obligation or other act of any other
party, (ii) waive any inaccuracy in the representations and warranties of any
other party and (iii) waive compliance with any agreement of any other party or
any condition to its own obligations. Any such extension or waiver will be valid
if set forth in an instrument in writing signed by the party or parties to be
bound.
GOVERNING LAW
The merger agreement will be governed by and construed in accordance with
the laws of the State of Delaware, without regard to principles of conflicts of
law thereof. The parties have agreed that Delaware state courts and federal
courts located in Delaware will have exclusive jurisdiction with respect to any
claims arising out of the merger agreement or the merger.
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INFORMATION MANAGEMENT SALE AGREEMENTS
The following summarizes material provisions of the information management
sale agreements, including the stock purchase agreement included as an exhibit
to NDCHealth's Form 8-K filed on August 29, 2005. The rights and obligations of
the parties are governed by the express terms and conditions of the information
management sale agreements and not by this summary or any other information
contained in this joint proxy statement/prospectus. While neither Per-Se nor
NDCHealth stockholders are being asked to approve the information management
sale agreements, it is a condition to the merger that the sale of NDCHealth's
information management business to Wolters Kluwer be consummated in accordance
with the terms of the information management sale agreements.
STOCK PURCHASE AGREEMENT
On August 26, 2005, simultaneously with the execution of the merger
agreement, NDCHealth, NDCHealth Information Services (Arizona), Inc., a wholly
owned subsidiary of NDCHealth (referred to in this joint proxy
statement/prospectus as the information management subsidiary), and Wolters
Kluwer entered into a stock purchase agreement. The stock purchase agreement
provides that, upon satisfaction of the conditions set forth in the stock
purchase agreement, NDCHealth will transfer all of the shares of the information
management subsidiary to Wolters Kluwer in exchange for $382.1 million in cash.
The purchase price is subject to adjustment based on the net working capital,
deferred revenue and available net operating losses of the information
management subsidiary as of the completion of the sale.
The stock purchase agreement provides that, for five years following the
completion of the sale, NDCHealth will not compete in the provision of certain
types of information management products and services to pharmaceutical
manufacturers, medical device manufacturers and certain other markets currently
served by NDCHealth's information management business. NDCHealth and Wolters
Kluwer also agreed not to solicit or hire employees from each other for one year
following the completion of the sale.
Each party's obligation to close the sale is conditioned upon all
conditions to the closing of the merger agreement (other than the closing of the
sale of the information management business) having been satisfied or waived.
The sale is also subject to other conditions, including, without limitation, no
material adverse change with respect to the information management business.
The stock purchase agreement may be terminated at any time prior to the
completion of the sale by the mutual written consent of Wolters Kluwer and
NDCHealth. In addition, the stock purchase agreement may be terminated if the
sale has not been completed by February 26, 2005 (subject to certain
extensions). If the stock purchase agreement is terminated by NDCHealth under
circumstances where NDCHealth is required to pay Per-Se a break-up fee pursuant
to the merger agreement, then NDCHealth must pay Wolters Kluwer a termination
fee of $10 million.
Each party makes certain representations and warranties in the stock
purchase agreement; however, these representations and warranties do not survive
the completion of the sale and will not give rise to an indemnification claim if
the sale is completed.
CONTRIBUTION AGREEMENT
Immediately prior to the closing of the sale of the information management
business, NDCHealth and the information management subsidiary will enter into a
contribution agreement pursuant to which NDCHealth will contribute certain
assets relating to the information management business which are not already
owned by the information management subsidiary. The information management
subsidiary will also distribute certain assets which relate to NDCHealth's
network systems and services business.
The information management subsidiary will assume all liabilities of
NDCHealth incurred in connection with the information management business and
NDCHealth will assume all liabilities of the information management subsidiary
incurred in connection with the network systems and services business.
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DATA SUPPLY AND SERVICES AGREEMENT
Immediately prior to the closing of the sale of the information management
business, NDCHealth, the information management subsidiary and Per-Se will enter
into a data supply and services agreement. The data supply and services
agreement sets forth the terms and conditions pursuant to which NDCHealth and
Per-Se will provide the information management subsidiary with certain data and
related services following the completion of the sale.
The data NDCHealth is required to provide under the data supply and
services agreement is generally the data processed by NDCHealth's proprietary
network and currently provided to the information management business under
intercompany agreements or practices. Per-Se also agrees to use commercially
reasonable efforts to enable the delivery of certain Per-Se data to be processed
by NDCHealth's proprietary network.
Under the terms of the data supply and services agreement, the information
management subsidiary receives a ten year exclusive license to the provided data
for use in the provision of certain types of information management products and
services to pharmaceutical manufacturers, medical device manufacturers and
certain other markets currently served by NDCHealth's information management
business.
The information management subsidiary is required to pay certain fees for
the provision of data and grant of the license under the data supply and
services agreement. The fees generally increase during the term of the agreement
and with the amount of data provided. For the first five years of the agreement,
the information management subsidiary is not required to pay a fee to receive
the same volume of data that NDCHealth currently provides the information
management business. The information management subsidiary is also required to
reimburse NDCHealth for certain costs incurred in connection with NDCHealth's
performance under the agreement.
The term of the data supply and services agreement is 20 years. Each party
has limited rights to terminate the agreement for failure to pay amounts due
under the agreement and bankruptcy or insolvency of the other party.
The data supply and services agreement provides that, for a five year
period, the information management subsidiary will not compete in the provision
of certain types of products and services to pharmacies, healthcare providers,
third party non-government healthcare payers and consumers.
The data supply and services agreement contains extensive certification
procedures and audit rights to enable the parties to confirm compliance with
applicable laws, including HIPAA.
RETAIL INFORMATICS AND SERVICES AGREEMENT
Immediately prior to the closing of the sale of the information management
business, NDCHealth and the information management subsidiary will enter into a
retail informatics and services agreement. The retail informatics and services
agreement sets forth the terms and conditions pursuant to which the information
management subsidiary will provide NDCHealth with access to certain data and
related services following the completion of the sale.
The data to which the information management subsidiary is required to
provide access under the retail informatics and services agreement is generally
the pharmacy transaction data currently provided by the information management
business under intercompany agreements or practices.
Under the terms of the retail informatics and services agreement, NDCHealth
receives a ten year exclusive license to the provided data for use in the
provision of certain types of products and services to pharmacies, healthcare
providers, third party non-government healthcare payers and consumers.
The information management subsidiary is required to pay certain fees for
the provision of data and grant of the license under the retail informatics and
services agreement. The fees generally increase during the term of the agreement
and with the amount of data provided. NDCHealth is also required to
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reimburse the information management subsidiary for certain costs incurred in
connection with the information management subsidiary's performance under the
agreement.
The term of the retail informatics and services agreement is 20 years,
subject to NDCHealth's right to terminate the agreement upon the fifth
anniversary of the agreement. Each party has further limited rights to terminate
the agreement for failure to pay amounts due under the agreement and bankruptcy
or insolvency of the other party.
The retail informatics and services agreement contains extensive
certification procedures and audit rights to enable the parties to confirm
compliance with applicable laws, including HIPAA.
TRANSITION SERVICES AGREEMENT
Immediately prior to the closing of the sale of the information management
business, NDCHealth and the information management subsidiary will enter into a
transition services agreement. The transition services agreement will provide
that NDCHealth and the information management subsidiary will provide each other
services in such areas as information technology, financial accounting and
reporting, human resources and other areas where NDCHealth and Wolters Kluwer
may need transitional assistance and support. The party receiving a service will
be required to pay a fee for the service, which fee is generally based on an
estimate of the direct costs associated with the provision of the service. The
term of the transition services agreement will be 90 days for most services, but
may be terminated earlier under certain circumstances including failure to pay
amounts due under the agreement.
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INFORMATION ABOUT PER-SE
Per-Se was organized in 1985 under the laws of the State of Delaware and
provides integrated business management outsourcing services, Internet-enabled
connectivity and administrative software for the healthcare industry. Per-Se
delivers its services and products through its two operating divisions:
Physician Services and Hospital Services.
The Physician Services division provides business management outsourcing
services to the hospital-affiliated physician practice market, physicians in
academic settings and other large physician practices. The division provides a
complete outsourcing service, therefore, allowing physician groups to avoid the
infrastructure investment in their own in-house billing office. Services include
clinical data collection, data input, medical coding, billing, contract
management, cash collections and accounts receivable management. These services
are designed to assist healthcare providers with the business management
functions associated with the delivery of healthcare services, allowing
physicians to focus on providing quality patient care. These services also
assist physicians in improving cash flows and reducing administrative costs and
burdens. The division's offerings have historically focused on the back-end
processes required to ensure physicians are properly reimbursed for care
delivery. The division also has an ASP-based physician practice management
solution, named MedAxxis, that targets office-based physician groups.
The Hospital Services division products focus on optimizing the revenue
cycle and improving administrative efficiencies for hospitals. Solutions include
electronic claims processing, referral submissions, eligibility verification and
other electronic and paper transaction processing as well as patient and staff
scheduling systems.
Per-Se markets its products and services to constituents of the healthcare
industry, primarily to hospital-affiliated physician practices, physician groups
in academic settings, hospitals and integrated delivery networks. Per-Se
services more than 19,000 physicians and 2,000 hospitals.
This joint proxy statement/prospectus incorporates important business and
financial information about Per-Se from other documents that are not included in
or delivered with this joint proxy statement/ prospectus. For a listing of the
documents incorporated by reference in this joint proxy statement/ prospectus,
see the section entitled "Where You Can Find More Information" beginning on page
159.
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INFORMATION ABOUT NDCHEALTH
BUSINESS
Unless otherwise noted, all references in this report to a particular
fiscal year means NDCHealth's fiscal year as described in NDCHealth's
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" contained elsewhere in this joint proxy statement/prospectus.
GENERAL
NDCHealth Corporation is a Delaware corporation incorporated in 1967 and is
a leading healthcare information solutions company that provides products and
services to the major segments of the healthcare industry -- pharmacies,
hospitals, physicians, payers and pharmaceutical manufacturers.
NDCHealth is a leading provider of value-added electronic health
information processing services, in terms of the number of electronic
transactions processed. NDCHealth is connected to over 90% of the retail
pharmacy stores in the United States, more than 20% of the nation's hospitals
and over 1,000 healthcare payers. NDCHealth also provides information services
and solutions to more than 100 pharmaceutical manufacturers and has
approximately 100,000 medical professionals using NDCHealth's practice
management solutions. NDCHealth believes that its connectivity and relationships
across multiple segments of the healthcare industry position it to provide
integrated information solutions to improve the efficiency and effectiveness of
healthcare.
NDCHealth's strategy starts with the fundamental transaction in
healthcare's revenue cycle -- the submission of claims from providers to
third-party payers through the NDCHealth Intelligent Network. From NDCHealth's
network, where authorized by NDCHealth's customers, NDCHealth captures the claim
and related transaction information, combines that information with data
NDCHealth purchases, and creates information solutions for pharmaceutical
manufacturers and healthcare providers. NDCHealth's information strategy is to
continue to aggregate and integrate data from its processing network to create
unique new products to build additional streams of revenue and expand margins.
NDCHealth is currently executing a business strategy to evolve from a
value-added intelligent network and information products provider to an
integrated healthcare information solutions company. NDCHealth's strategy is to
continue to expand its markets and add new product and service applications as
it offers its customers high quality, quantifiable value-added information
solutions in healthcare. NDCHealth seeks to achieve this strategy by leveraging
the assets of its business segments -- Pharmacy Services and Systems, Hospital
Solutions, Physician Solutions and Information Management -- and growing a
sustainable business model with a consistent base of predictable, recurring
revenue.
Over the last two years, NDCHealth has undertaken efforts to streamline the
company and focus on its business segments it believes offer the greatest
potential for growth. NDCHealth implemented a number of actions, which included
selling certain businesses, discontinuing particular underperforming products
and eliminating overhead costs.
During the fourth quarter of fiscal 2004, NDCHealth's management performed
a review of its European businesses to determine alternatives to mitigate losses
associated with these operations and allow NDCHealth to focus on accelerating
the roll out of new pharmacy and hospital solutions, integrating the acquired
Arclight business, and developing new information solutions for the pharmacy and
pharmaceutical industries in the United States. As a result of this strategic
review, the board of directors, in the fourth quarter of fiscal 2004, authorized
the disposition of NDCHealth's European businesses. In the second quarter of
fiscal 2005, NDCHealth completed the sale of its United Kingdom operations,
including NDCHealth Limited and NDCHealth Holdings UK Ltd. In June 2005,
NDCHealth completed the sale of its German operations.
During the first half of fiscal 2005, management implemented a strategy to
dispose of certain North American assets to focus on the best U.S. market
opportunities and to help reduce outstanding debt. In March 2005, NDCHealth sold
its 49.5% ownership interest in HealthTrans, which had comprised
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NDCHealth's entire Pharmacy Benefit Services business segment. In addition, in
April 2005, NDCHealth completed the sale of its Canadian pharmacy systems and
claims processing services operations. Net cash proceeds from these transactions
were used to reduce debt.
Following the sale of its ownership interest in HealthTrans, NDCHealth is
no longer operating in its former Pharmacy Benefit Services business segment.
Given the current composition of the company following these dispositions,
NDCHealth currently reports the following segments: Pharmacy Services and
Systems, Hospital Solutions, Physician Solutions and Information Management.
The NDCHealth Intelligent Network is the cornerstone of NDCHealth's
Pharmacy Services and Systems and Hospital Solutions segments and transmits
information from pharmacies and hospitals to third party payers for
reimbursement. These payers include private insurance carriers, managed care
organizations, pharmacy benefit managers ("PBMs") and government agencies.
NDCHealth offers to its pharmacy customers transaction processes such as claims
submission, customized validation and proprietary message editing, eligibility
verification, remittance advice, prescription ordering, and refill
authorization. NDCHealth is strengthening its position in the point-of-service
prescription fulfillment area with the recent introduction of its NDC
PharmacyRx(TM), which is priced on a per transaction basis, and NDC
EnterpriseRx(TM) lines of system solutions, which are being sold using either a
license plus maintenance basis or a monthly per store fee, a transaction pricing
model designed to create a recurring revenue stream.
NDCHealth also offers claims processing and claims editing services to
hospitals and larger providers, which serves to increase claims acceptance rates
by payers of hospital claims and assists hospital management in improving cash
flow and reducing accounts receivable. NDC ePREMIS(R), the next-generation
revenue cycle management solution set launched in late fiscal 2003, expands the
functionality of NDCHealth's provider claims management system, and creates a
platform upon which new applications can be built. Using Internet technology,
this offering provides a path to upgrade NDCHealth's existing customer base
which, combined with the customers already converted to NDCHealth's new NDC
ePREMIS Claims Management Solutions, is approximately 1,800 hospital and large
provider facilities. Similar to NDCHealth's pharmacy offerings, the new workflow
features of NDC ePREMIS yield greater efficiency and better workload balancing.
NDC ePREMIS can also be integrated into hospital information systems provided by
various major companies which allows NDCHealth to further extend its market
reach.
In the Physician Solutions segment, NDCHealth focuses on a niche in the
one-to-two physician practice group market, and NDCHealth believes it currently
has a 40% share of this market with approximately 63,000 medical practices using
its physician office management software solutions. Physicians' offices utilize
NDCHealth's software and systems to handle patient scheduling and billing, and
to manage their accounts receivable. Because of the relative lack of
connectivity in small physician offices, NDCHealth believes these customers
represent a unique opportunity for expanded electronic claims processing and
electronic prescription ("e-prescribing") services. These electronic connections
assist NDCHealth's customers in improving their cash flow, provide an important
communication channel between payers and physicians, and improve patient safety
and care. NDCHealth has already connected systems for more than 16,000
physicians to a third party on-line network to process claims or write
prescriptions using an electronic data interchange ("EDI") network.
NDCHealth's pharmacy, hospital, and physician system solutions are the
entry and exit points for information to and from the NDCHealth Intelligent
Network. Through its network, NDCHealth is partnering with its customers to
improve financial and operational efficiency and effectiveness. Some examples
include: real time eligibility verification, drug formulary and inventory
management, and facilitation of prompt payment.
NDCHealth's Information Management segment provides innovative information
and decision support solutions enabling pharmaceutical manufacturers to better
evaluate and optimize their performance and develop strategies for improved
marketing, sales, and managed care rebate spending. NDCHealth collects data from
retail pharmacies, physicians, hospitals, drug wholesalers, the NDCHealth
Intelligent Network and third party networks and manufacturers to give its
customers a complete source of information with
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which to answer their business questions. NDCHealth also offers solutions from
its Intelligent Health Repository(TM), an integrated diagnosis-to-drug linked
longitudinal database of healthcare claims information utilized for
segmentation, targeting, compensation and market research analysis.
NDCHealth transforms these large volumes of drug sales data, prescribing
physician data and de-identified patient data into information solutions that
help its customers optimize their promotional and managed care expenditures.
NDCHealth's business generates revenue consisting of transaction processing
fees, maintenance and support fees, information management subscription fees and
single-use service sales, consulting services and software license revenue.
NDCHealth's applications help customers better manage their revenue cycle and
accelerate cash flow, reduce overhead costs, react quickly to changing market
conditions, improve business operations and streamline administrative processes.
NDCHealth believes that the healthcare market offers attractive
opportunities for renewed growth. As NDCHealth executes its strategy, it seeks
to increase both its penetration of existing markets and to enter new, related
markets through the development of new integrated information solutions.
ACQUISITIONS, INVESTMENTS AND STRATEGIC ALLIANCES
From time to time, NDCHealth has made acquisitions and investments and
entered into strategic alliances in an effort to obtain a competitive advantage
or an expanded presence in targeted markets. NDCHealth believes that selective
acquisitions, investments and strategic alliances are important to its ability
to compete effectively.
On December 31, 2003, NDCHealth acquired the continuing operations of
Arclight Systems LLC ("Arclight"), an information management company owned by a
major wholesale drug distribution company, Cardinal Health, Inc., and a number
of major retail pharmacy chains, including Albertson's Inc., CVS Corporation,
Kmart Corporation and Wal-Mart Stores, Inc. NDCHealth acquired fixed assets and
employees and obtained a seven-year exclusive license to certain of its assets.
The purchase price included 381,098 shares of unregistered NDCHealth common
stock with a market value as of the date of issuance of $10.0 million and a
five-year warrant to purchase an additional 381,098 shares of NDCHealth common
stock at an exercise price of $26.24 per share with an estimated value as of the
date of issuance using the Black-Scholes option pricing model of $4.4 million.
The assumptions used in estimating the warrant's value were a risk-free interest
rate of 3.3%, an expected dividend yield of 0.6%, an expected life of five
years, and expected volatility of 48%. Under the terms of the merger agreement
with Per-Se and the stock purchase agreement with Wolters Kluwer, this warrant
will be canceled for a payment of its fair value, equal to $1,740,000, which
will be paid by NDCHealth at the time of the merger.
The acquisition required the recording of transaction and lease termination
costs totaling $3.1 million and a $0.7 million receivable for future cash
payments from the remaining Arclight business to NDCHealth relating to a
previous agreement between the two parties. The owners of Arclight made a
transition payment of $2.0 million to NDCHealth at closing. The transition
payment resulted in a reduction in the consideration NDCHealth paid for
Arclight's business.
Additionally, NDCHealth will pay Arclight royalties on NDCHealth's future
sales of products utilizing Arclight data and the agreement to use certain data
may be extended for three additional years if certain business objectives are
met. These obligations will be assumed by the information management subsidiary
Wolters Kluwer is purchasing in connection with that transaction.
In April 2004, NDCHealth acquired McKesson Corporation's OmniLink(SM) pre-
and post-editing (PPE) assets and customer base for pharmacy claims processing
and editing for approximately $14.0 million in cash. In connection with the
transaction, NDCHealth signed an agreement to form a strategic alliance with
McKesson's pharmacy systems company that will enhance NDCHealth's offering of
value-added transactions services to pharmacies. NDCHealth is jointly marketing
NDCHealth's NDC Pre & Post Editing Service solutions to the McKesson Pharmacy
Systems customer base. At the time of
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this asset purchase, NDCHealth added more than 2,000 OmniLink store locations to
NDCHealth's existing base of more than 30,000 pharmacies using NDCHealth's PPE
services.
For additional information regarding NDCHealth's acquisitions, see "Note
3 -- Business Acquisitions and Investments" in the Notes to NDCHealth's
Consolidated Financial Statements included in this joint proxy
statement/prospectus.
PRODUCTS, SERVICES AND DISTRIBUTION CHANNELS
All of NDCHealth's products are designed to be compliant with the U.S.
government's Health Insurance Portability and Accountability Act of 1996, or
HIPAA, regulations, to the extent those regulations are applicable to such
products.
NDCHealth is now reporting its financial and operating results in four
business segments: Pharmacy Services and Systems, Hospital Solutions, Physician
Solutions and Information Management. The Information Management segment will be
divested to Wolters Kluwer in exchange for approximately $382 million in cash
immediately prior to the consummation of the merger.
<Table>
<Caption>
THREE MONTHS ENDED
--------------------------
SEPTEMBER 2, AUGUST 27,
2005 2004 2005 2004 2003
------------ ----------- ------------ ------------ ------------
(DOLLARS IN MILLIONS)
Revenue:
Pharmacy Services and
Systems............ $ 33.5 33% $31.2 34% $128.7 33% $130.4 33% $130.2 33%
Hospital Solutions... 17.6 18% 16.1 18% 64.3 17% 67.1 17% 69.1 17%
Physician Solutions.. 7.6 8% 6.5 7% 32.5 8% 39.6 10% 44.2 11%
Information
Management......... 41.3 41% 37.2 41% 162.1 42% 158.7 40% 157.2 39%
------ --- ----- --- ------ --- ------ --- ------ ---
$100.0 100% $91.0 100% $387.6 100% $395.8 100% $400.7 100%
====== === ===== === ====== === ====== === ====== ===
</Table>
For additional financial information regarding NDCHealth's segments and
geographic areas, see "Note 13 -- Segment Information" in the Notes to
NDCHealth's Consolidated Financial Statements included in this joint proxy
statement/prospectus.
PHARMACY SERVICES AND SYSTEMS
NDCHealth believes the NDCHealth Intelligent Network and point-of-service
systems offer opportunities to streamline its customers' workflow, improve their
cash flow, and provide real-time information to help providers better manage
their businesses. The NDCHealth Intelligent Network connects pharmacies to more
than 1,000 third-party payers or benefit plans, using real-time online
connectivity.
NDCHealth focuses on the fundamental transaction in healthcare's revenue
cycle -- the submission of electronic healthcare claims from providers
(pharmacies, hospitals and physicians) to third-party payers (commercial
insurers, Medicare and Medicaid). Through the NDCHealth Intelligent Network,
NDCHealth processes 5.7 billion transactions (1,475 transactions per second)
including 3.2 billion pharmacy claims annually, more than any other company in
America. NDCHealth treats healthcare claims as mission critical transactions
that keep healthcare dollars flowing. NDCHealth believes that the NDCHealth
Intelligent Network is the most reliable electronic healthcare transaction
network available in the U.S., with more than 99.9% up-time. It is a single
point of access, ensuring transactions are routed quickly and reliably to help
pharmacies, hospitals and physician offices streamline internal operations and
increase productivity 24 hours a day, 365 days a year.
The point-of-service systems that NDCHealth offers help its customers
improve efficiency and reduce costs while also serving as an additional source
of transaction volume for NDCHealth's intelligent network.
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NDCHealth offers real-time electronic connectivity through its NDCHealth
Intelligent Network for claims/encounter editing, submission, eligibility
verification, remittance advice, referral authorization, and claim status and
tracking.
NDCHealth believes that the growing acceptance of healthcare technology and
the need to speed payment, while reducing costs and improving the quality of
care, will result in an increase in the number and types of electronic
healthcare transactions. Many of the new transaction types may have broad impact
across the healthcare continuum. For example, new solutions such as electronic
prescriptions can create new information management needs and directly impact
the way physicians, hospitals, pharmacies and payers practice and do business.
Other examples include electronic referrals by physicians to hospitals and the
increased use of electronically available medical data by physicians, hospitals
and other providers to satisfy new types of healthcare information needs.
NDCHealth believes it is the foremost "total pharmacy solutions vendor" in
the U.S. with more than 90% of pharmacies relying upon its network for either
its efficient prescription claims processing or pre & post editing services.
State-of-the-art pharmacy management systems, decision support, and customer
loyalty solutions complement its Network services. NDCHealth Pharmacy solutions
address all of the major processes that impact the operational efficiency, cash
flow and revenue of chain, independent, mail order and specialty pharmacies. In
order to compete effectively in today's market, retail pharmacies must provide
the convenience of the traditional store, the cost effectiveness of mail order
and the interpersonal relationships required by the consumer. Through
NDCHealth's partnerships with chain and independent pharmacies, NDCHealth
understands the demands that are placed on retail pharmacies and NDCHealth
provides solutions to reduce cost and optimize efficiency for all dispensing
alternatives. NDCHealth's pharmacy management systems, including NDC
PharmacyRx(TM), NDC EnterpriseRx(TM), and NDC MailRx(TM), help optimize
prescription processing audits Retail Insight suite of products provides
critical, actionable, analytical information needed to develop and implement
business growth strategies and positively influence the pharmacy's bottom line.
As part of the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003, Medicare beneficiaries will begin to receive their prescription
drugs under the new benefit starting January 1, 2006. In May 2005, the Centers
for Medicare & Medicaid Services (CMS) awarded NDCHealth a one-year contract
with three potential one-year extensions to provide the network services as part
of a system for calculating beneficiaries' True Out-Of-Pocket (TrOOP) costs.
This contract requires NDCHealth to provide routing of claims for benefits paid
by supplemental insurance payers other than Medicare back to the prescription
drug plans to ensure that what seniors pay at pharmacy counters takes into
account the out-of-pocket payments and the proper level of their Medicare
coverage. In addition, CMS has contracted NDCHealth to be the primary
facilitator for Medicare Part D enrollee benefit eligibility, which will allow
retail pharmacies to electronically check primary and supplemental coverage for
approximately eight million seniors who have not received their new coverage
information.
NDCHealth believes it is positioned to take advantage of these
opportunities. Accordingly, NDCHealth expects future growth opportunities
through helping to further automate its existing customers. NDCHealth also
expects transactions to increase as the population ages and use of electronic
transmission for both existing and new transaction sets grows. NDCHealth has
developed and continues to expand distribution channels for its solutions
through its direct sales force, alliances, value-added resellers and direct
mail.
NDCHealth's primary competitors in providing Pharmacy Services and Systems
solutions are providers' own in-house solutions, Emdeon Corporation, eRx
Network, PDX, Inc., QS/1Data Systems and numerous smaller regional companies.
NDCHealth's pharmacy offerings allow its customers to increase the accuracy
and efficiency of claims management, to enhance the accuracy of reimbursements
thereby reducing costs, to understand and react quickly to changing market
conditions, to improve productivity and management of pharmacy operations and to
gain valuable insight into revenue management and profit improvement.
NDCHealth's
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pharmacy solutions are available to independent, regional and national chain and
mail-order pharmacies, and include:
Service Solutions:
- NDCHealth Intelligent Network processes real-time pharmacy transactions
for claims and eligibility efficiency and provides access to more than
1,000 payers.
- NDC Pre & Post Editing performs real-time validation and data management
of pharmacy claim submission data to minimize claim submission errors and
ensure accurate claims reimbursement.
- NDC PPE+ for CommunityRx provides a systematic review of community
pharmacy claims before and after they are submitted. Using a variety of
financial and clinical edits, PPE+ helps pharmacies maximize claim
reimbursement, minimize submission errors and can help prevent
prescription errors.
- NDC RxSafety Advisor(R) helps pharmacies manage prescription safety by
checking for preventable mistakes during the dispensing process such as
look-alike/sound-alike drug pairs, typical/atypical dosing logic,
pediatric and geriatric dose screening. (U.S. patent pending).
- ProviderPay(R) is an automated solution of the entire revenue cycle
providing next-day funding of third-party claims, online funding
reconciliation services and account aging by payer. (Provider Pay is a
registered trade mark of P5 E. Health Services, Inc.).
- NDC Electronic Prescription Service is a web-based service that
facilitates pharmacy and physician communications for electronic
prescription orders and refill authorizations, allowing pharmacies to
better manage workflow, check for drug interactions, validate
prescriptions and make refill requests quickly and easily.
Decision Support Solutions:
- NDC Retail Insight provides actionable analysis that combines NDCHealth's
customers' data with market data to create information that identifies
and quantifies specific opportunities to increase revenue, margin and
cash flow.
- NDC Prescriber Data Management Services provide a single-source solution
for keeping practitioner profile data accurate and up to date.
- PharmacyAide is a suite of pharmacy management services using a
combination of customer and NDCHealth data delivered through NDCHealth's
consulting partner.
- AWP Resubmission Services enables pharmacies to capture claims
reimbursement dollars that were not properly reimbursed by third party
payers, by identifying, reversing and resubmitting third-party claims
where the average wholesale price ("AWP") has increased and the claim was
paid using the old AWP in the reimbursement calculation. (U.S. patent
pending).
- Compliance and PersistencyRx is a patient-centered program that provides
education about drug, disease and lifestyle issues improving patient
adherence to prescribed long-term pharmaceutical therapies. The objective
is to maximize patient adherence to chronic medications, optimize
patients understanding of their medication and reduce overall healthcare
costs associated with non-compliance.
Systems Solutions:
- NDC EnterpriseRx is a next generation pharmacy management solution
designed to help regional and national chain pharmacies marshal resources
across the entire enterprise -- corporate headquarters, retail stores,
central fill, processing and mail order facilities -- to enable
standardization of business processes and economies of scale. NDC
EnterpriseRx will allow pharmacies to accept prescriptions from multiple
sources, process them wherever they choose, and meet customer
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preferences for script receipt. This integrated approach will help to
improve customer service and allows for more efficient use of resources
and better quality control. With timely access to enterprise-wide data,
pharmacies will be able to make more informed decisions that will
increase efficiencies, improve margins and enable more effective
expansion. The software will address the challenges facing the pharmacy
industry today -- dramatic growth in prescription volume, pronounced
pharmacist shortage, lower profit margins on prescriptions, increased
patient demand for service and increased competition for customers.
NDCHealth's software will allow a pharmacy to fill more prescriptions
with the same number of pharmacists, integrate all pharmacy applications
into one central system with a single source of customer files and retain
current customer base while increasing market share.
- NDC PharmacyRx is a low-cost network-based pharmacy solution specifically
designed to meet the needs of community pharmacists; it automates the
prescription fulfillment process and provides connectivity to NDCHealth's
Intelligent Network for independent and small chain pharmacies. Included
in the NDC PharmacyRx package are third-party claims transmissions via
the NDCHealth Intelligent Network, NDC Pre- and Post-Editing, software
and upgrades, centralized prescriber and product pricing data, automated
data backup and storage, digital signature capture, POS interface and a
variety of reports.
- NDC MailRx is a comprehensive, computer-based order processing and
fulfillment system for high-volume, mail order, central fill, and
specialty pharmacies that provides automation, configuration and
integration, allowing a seamless workflow from order creation to customer
delivery. This sophisticated and efficient system minimizes the need for
time-consuming human intervention, while at the same time providing users
with comprehensive patient and drug information to ensure high quality
service.
- Point of Sale is a low-cost, comprehensive, easy-to-use point of sale
solution. This Windows-based, scalable register interfaces with a variety
of systems and can accommodate multiple stores. It can handle UPC and
prescription bar codes and offers full audit trail capabilities.
- More than 90% of the pharmacies in North America are connected to the
NDCHealth Intelligent Network, totaling approximately 50,000 chain,
independent, mail order, managed care and institutional outlets.
NDCHealth's pharmacy solutions are currently offered through its direct
sales force and alliances. As a provider of pharmacy solutions, NDCHealth
competes with in-house capabilities as well as with many other vendors,
including PDX, Inc. and QS/1 Data Systems. Based on the number of pharmacies
served, NDCHealth believes that it is the largest provider of pharmacy systems
and transaction processing solutions in the United States.
HOSPITAL SOLUTIONS
NDCHealth has approximately 1,800 hospital and large provider customers. As
an established industry leader in revenue cycle management, NDCHealth offers its
customers software and service solutions that provide workflow management
offerings and support for many different transactions. NDC ePREMIS solutions
deliver comprehensive revenue cycle management tools for hospitals and other
healthcare facilities that enable the exchange of critical information
throughout the continuum of care to accelerate cash flow, reduce costs, and
improve productivity for its customers. NDCHealth's hospital solution set, NDC
ePREMIS, provides tools to allow its customers to manage the claims and
remittance process, accelerate and improve cash flow, reduce bad debt, track
accounts receivable and costs, and improve productivity. NDCHealth offers
world-class service and support professionals to help its customers maximize the
benefits they receive from its solutions. NDCHealth's hospital and healthcare
facility offerings include:
- NDC ePREMIS Claims Management -- A workflow-oriented, HIPAA-ready,
all-payer claims management system with industry-leading editing
capabilities. This next generation solution
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provides NDCHealth's customers with internet-based or hosted options,
claims status, denial management reporting, improved editing
capabilities, enhanced workflow, user managed routine maintenance and
real-time claims submission to the Medicare online system.
- NDC ePREMIS Xchange -- An internet-based, HIPAA-ready, claims validation
and delivery solution.
- NDC ePREMIS Remittance Management -- A process that automates the capture
of all third-party payment information from the payer, and is available
in interactive, batch or file transfer versions.
- NDC ePREMIS Verification Management Powered by Quovadx, Inc. -- An EDI
platform to manage a full set of HIPAA-ready transactions such as
eligibility verification, referrals/authorizations and
pre-certifications, claims status and credit/identity checking. The
solution, available as browser-based or integrated with a customer's
patient accounting system, offers the ability to route transactions
through a clearinghouse or direct to payers.
- NDC ePREMIS Medical Necessity Powered by 3M Health Information
Systems -- A solution that helps determine financial responsibility and
ensure that healthcare providers meet Medicare medical necessity checking
and compliance through the utilization of a combination of integrated
content and application solutions. Medical Necessity is included with NDC
ePREMIS Claims Management and is also available as a browser-based module
or integrated into NDC PREMIS or a customer's patient accounting system.
- NDC ePREMIS MedPrint Statements -- A service that provides high volume,
high speed generation of statements, past due notices, collection letters
and final notices. This service is available with internet-based
capabilities that include a patient payment portal and online statement
viewing and tracking.
NDCHealth competes with many companies in offering hospital revenue cycle
management solutions, including CareMedic, Emdeon Corporation, McKesson, Per-Se
Technologies, SSI Group, XactiMed and other national and regional providers.
NDCHealth believes that it is among the largest providers of network transaction
solutions to hospitals in North America in terms of number of hospitals.
NDCHealth's hospital solutions are offered in the United States through its
direct sales force as well as through multiple strategic alliances such as with
Siemens Medical Solutions and Achieve Healthcare Technologies.
PHYSICIAN SOLUTIONS
NDCHealth provides small-office physicians with the resources necessary to
streamline billing and other internal processes such as scheduling, increasing
productivity and optimizing accurate reimbursement. NDCHealth offers its
physician customers enhanced practice management capabilities, electronic
commerce solutions, and interactive training. NDCHealth's physician solutions
include:
- NDCMediSoft(TM) is practice management software that facilitates patient
appointment scheduling, claim form printing, tracking of insurance claims
and assures accurate patient demographic information. NDCMediSoft also
provides simplified patient billing and patient accounts receivable
reporting.
- NDCLytec(TM) helps physicians streamline their practice management tasks,
allowing physicians to efficiently manage accounts receivable, as well as
track authorizations and inventory. Other practice management enhancing
features include electronic or paper claims submission, appointment
scheduling, management of referrals and a selection of more than 25
reports.
- NDCConcept(TM) is a Microsoft Windows NT based practice management system
providing complete scheduling, patient demographics, electronic billing
and accounts receivable in a Windows environment.
- NDCHealth Transaction Solutions allow NDCMedisoft, NDCLytec and
NDCConcept customers to transmit electronic claims to payers, process
patient statements, write and submit electronic
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prescriptions. These and other electronic commerce services offered by
NDCHealth are designed to automate processes and improve the business of
healthcare.
NDCHealth's physician solutions are offered in the United States through
value-added resellers, NDCHealth's direct telephone sales force, and alliance
partners. NDCHealth's major competitors in providing physician solutions are
Emdeon Corporation, Misys plc, VitalWorks, Inc. and numerous smaller
competitors.
INFORMATION MANAGEMENT
NDCHealth provides innovative information and decision support solutions
enabling pharmaceutical manufacturers to optimize performance and evaluate
strategies for improved marketing, sales and managed care spending. NDCHealth
collects data from retail pharmacies, physicians, hospitals, drug wholesalers,
the NDCHealth Intelligent Network and pharmaceutical manufacturers to give its
customers a complete source of information with which to answer their business
questions and on which to base their business decisions.
NDCHealth's sales targeting and compensation solutions empower
pharmaceutical manufacturers to be more competitive and efficient and help them
determine how to design fewer but more productive sales activities. NDCHealth
offers a suite of products and services to monitor sales force performance;
provides information and decision support tools for sales compensation, sales
force sizing and alignment; and improves sales detailing effectiveness through
more accurate physician demographic information. NDCHealth's products and
services in this segment are offered for the United States and may be delivered
to customers in a variety of media, including electronically via file transfer
protocol, e-mail, CD-ROM or magnetic tape, and paper reports.
NDCHealth's sales targeting and compensation offerings include:
- NDC Territory Manager is its projected zip code-level prescription
information service designed as a sales performance measurement tool. NDC
Territory Manager is designed to report projected prescriber-linked
retail prescription data for specific customer-defined markets and sales
force alignments.
- NDC Sales & Marketing Analyzer is a web-enabled decision-support tool
enabling detailed analysis of sales, marketing and managed care
performance by customer-defined products and markets.
- NDC Hospital Outflow provides information needed to measure and
understand how prescribing practices impact a pharmaceutical
manufacturer's retail prescription sales.
- The NDC Pharmaceutical Audit Suite (PHAST) allows healthcare market
researchers and executives to view the most complete and timely source of
pharmaceutical sales information across all therapeutic areas,
geographies, classes of trade and manufacturers. PHAST is used for
determining new market licensing, acquisition and R&D opportunities,
evaluating co-promoting effectiveness, forecasting and tracking new
product launches.
- NDC LaunchTrac reports weekly prescribing activity for newly launched
pharmaceutical products, line extensions and existing products.
- NDC Prescriber allows pharmaceutical manufacturers to identify,
understand and target high-potential prescribers by using this projected
prescriber-level prescription database.
- NDC Non-Retail is a comprehensive source of detailed, customizable
non-retail sales information.
- NDC Practitioner ID and Consensus and NDC Linkmaster help pharmaceutical
manufacturers maximize the effectiveness of sales call files by providing
accurate up-to-date call file information to verify prescribers'
demographic information and validate names, registration numbers and
address information.
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- NDC Practitioner Validation Service (PVS) validates whether a
practitioner is eligible to receive samples in accordance with the
Prescription Drug Marketing Act.
NDCHealth's Managed Care Solutions use prescription information in order to
target prescribers by their plan affiliations and monitor product utilization
among health plan providers. Offerings include:
- NDC Payer Suite offers pharmaceutical manufacturers the information
needed to more accurately target and measure performance and compensation
by understanding the growing impact of managed care plans on prescribing
behavior. The Payer Suite offers three distinct views of managed care
influence. NDC Payer Prescriber identifies the most valuable prescribers
by method of payment; NDC Payer Organization measures prescription volume
for individual managed care plans; and NDC Payer Geographic identifies
the most valuable/important sales territories by method of payment.
- NDC Managed Care Analyzer is a web-enabled analysis and decision-support
tool that provides multiple levels of information on prescription
activity among third-party payers for pharmaceutical manufacturers to
deploy sales resources or devise strategies and track plan performance.
- NDC Managed Care Rx Navigator is a comprehensive software tool providing
plan level prescription and targeting information in a user-friendly
format.
NDCHealth's Intelligent Health Repository provides information, advanced
analytical solutions and industry expertise in the form of Outcomes Research,
Patient Studies, Forecasting and ad-hoc reporting to help sales and marketing
professionals transform market data into successful marketing strategies:
- Patient Studies give researchers insight into patient behavior through
de-identified, encrypted patient-linked longitudinal data, allowing
manufacturers to understand the dynamics of patient compliance,
persistency, product switching, patient share and counts as well as
measuring the impact of direct to consumer (DTC) campaigns on patient
use.
- Outcomes Research provides customized research studies for providing a
competitive advantage by investigating a wide range of disease treatment
information through managed care, physician and hospital claims data.
NDCHealth provides information management solutions to more than 100
pharmaceutical manufacturers. NDCHealth's information solutions are offered in
the United States. NDCHealth's primary competition in providing these solutions
includes IMS Health, Verispan and a number of smaller companies providing
managed care consulting or other analytical products.
Immediately prior to the closing of the merger, Wolters Kluwer will
purchase the shares of the operating subsidiary that conducts the information
management business in exchange for approximately $382 million in cash. Certain
other assets of the information management segment will be contributed to this
subsidiary prior to that transaction. For additional information regarding the
sale of the information management segment, please see the section entitled
"Information Management Sale Agreements" beginning on page 88.
OPERATIONS AND SYSTEMS INFRASTRUCTURE
NDCHealth operates multiple data and customer support facilities with
primary sites located in Atlanta, Georgia; Phoenix (primarily associated with
the Information Management segment) and Gilbert, Arizona; Tulsa, Oklahoma;
Pittsburgh, Pennsylvania; and Vancouver, British Columbia, Canada. During fiscal
2005, NDCHealth focused on leveraging technology to reduce operating costs,
expanding business continuity operations to ensure reliable services and
enhancing security of its networks consistent with HIPAA mandates.
Due to the large number and variety of its products and services, NDCHealth
does not rely on a single technology to satisfy its sophisticated computer
systems needs. NDCHealth employs technology suited to the particular processing
requirements for each of its business markets focusing on (i) fault-
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tolerant computers for high volume, real-time transaction processing; (ii)
client-server technology for end-user database applications; (iii) large scale
transaction and batch data processing systems for central host system
requirements; and (iv) Hewlett-Packard, SUN, IBM, UNIX, Dell, Linux, Oracle, NT
and Windows-based systems for specialized communication and database
applications systems. In addition, stringent procedures are in place within
NDCHealth's data centers and networks to ensure informational integrity and
customer privacy for personal health information data from the point of data
entry to claim adjudication.
NDCHealth's data centers are linked together to maximize the speed and
transfer of data between geographic locations. Larger systems are linked via
high speed, fiber-optic based networked backbones for file exchange and
inter-system communication purposes; other systems use high speed LAN and WAN
connections with the bulk of these connections utilizing the TCP/IP protocol.
Business continuity necessitates using fault-tolerant or redundant
communications equipment to provide "non-stop" operation or to enable service to
be quickly restored. NDCHealth's primary network control center and backup
control center are connected by a matrix communication switch allowing key
communications lines to be moved between control centers. Distributed network
communications equipment employs remote diagnostics and automated error
reporting, and auto-reloading of software from local ROMs. NDCHealth's data and
network equipment is supported 24 hours a day, 7 days a week by maintenance and
operations personnel. NDCHealth also maintains storage systems connected to the
backbones, including robotic tape libraries and optical storage, for archival
purposes. NDCHealth's systems are supported using advanced network control by
its experienced systems, operations and production control staffs.
NDCHealth's communications infrastructure linking NDCHealth to customers
and payers is composed of numerous discrete networks, each designed for the
particular requirements of NDCHealth's market segments. In addition to
NDCHealth's expanding support of the public Internet, NDCHealth maintains four
primary communications networks using fault-tolerant SONET ring technology. This
technology includes a dial-up, short transaction network; a private line
nationwide high bandwidth network; a frame relay network; and, a dial-up
voice/data network for interactive and voice traffic for file transfer systems.
NDCHealth also provides full-time, full-bandwidth, dial back-up capabilities to
both NDCHealth's leased line and frame relay networks. Additionally, NDCHealth
uses multiple telecommunications providers to further limit network service
vulnerabilities. NDCHealth also maintains a number of support services offering
Internet and ISDN connectivity. The network environment supports a diverse set
of telecommunication protocols to respond to individual customer requirements.
INTELLECTUAL PROPERTY
NDCHealth relies upon a combination of the following to protect the
intellectual property used in its business: (i) patent, trademark, copyright,
trade secret and other intellectual property related laws; (ii) contractual
covenants in license and service agreements, employee agreements and
nondisclosure agreements; and (iii) certain technical measures.
NDCHealth uses numerous trademarks, trade names and service marks to
identify its products and services, including without limitation NDC(R),
NDCHealth(R), NDCHealth Information Services(R), NDC PREMIS(R), NDC ePREMIS(TM),
NDCLytec(R), NDCMedisoft(R), NDCConcept(TM), NDC PharmacyRx(TM), NDC
EnterpriseRx(TM), National Community Pharmacy Network(R) and NCPN(R). In
addition, NDCHealth has a number of pending patent applications covering certain
of its network and systems technologies. While patents will, if granted, provide
certain protections for its intellectual property, NDCHealth's success depends
more on its ability to further develop, enhance and modify its current products
and services.
If NDCHealth were unable to protect its trademarks, patents and other
intellectual property adequately, this could have a material adverse effect on
its business and hurt NDCHealth in maintaining its existing brands and
establishing new ones. The steps NDCHealth has taken to protect its proprietary
rights may not be adequate. Third parties may infringe upon or misappropriate
NDCHealth's marks, patents and similar proprietary rights. In the future,
litigation may be necessary to enforce and protect
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NDCHealth's trademarks, patents and other intellectual property rights.
Litigation would divert management resources and be expensive and may not
effectively protect NDCHealth's intellectual property.
Substantial litigation regarding intellectual property rights exists in the
technology industry, and NDCHealth expects that software products and other
technologies may be increasingly subject to third-party infringement claims.
Although NDCHealth believes that its products do not infringe on the
intellectual property rights of others, NDCHealth cannot provide assurance that
such a claim will not be asserted against NDCHealth in the future, or that a
license or similar agreement will be available on reasonable terms in the event
of an unfavorable ruling on any such claim. The defense of an infringement claim
against NDCHealth could divert management and monetary resources and have a
negative impact on NDCHealth's ability to conduct its business in the manner
NDCHealth desires.
NDCHealth also relies on a variety of intellectual property rights that
NDCHealth licenses from third parties for use in certain systems and products.
These third party licenses may not continue to be available to NDCHealth on
commercially reasonable terms. NDCHealth's loss of or inability to maintain or
obtain upgrades to any of these licenses could have a material adverse effect on
its business.
RESEARCH AND DEVELOPMENT
During fiscal 2005, 2004 and 2003, NDCHealth expended $41.4 million, $42.2
million, and $36.8 million, respectively, on activities relating to the
development and improvement of new and existing products and services.
NDCHealth capitalizes the cost of developing software held for sale to its
customers as well as software used internally to provide services to its
customers. In accordance with Statement of Financial Accounting Standard No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed" and Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use," capitalization of costs begins
when technological feasibility has been established or during the application
development phase, respectively, and ends when the product is available for
general release to customers or the internal asset has been placed in service.
In accordance with these standards, approximately $23.0 million, $30.6 million,
and $29.8 million of NDCHealth's total development costs were capitalized in
fiscal 2005, 2004 and 2003, respectively. NDCHealth's current focus is
developing new products such as NDC EnterpriseRx, NDC MailRx, and NDCHealth's
Intelligent Health Repository and Arclight-related information products.
EMPLOYEES
On May 27, 2005, NDCHealth had approximately 1,500 employees, of which
approximately 450 work principally in NDCHealth's information management
business. Many of its employees are professionals and are highly skilled in
technical areas specific to the healthcare industry, and NDCHealth believes that
its current and future operations depend substantially on retaining such
employees. NDCHealth's employees are not represented by any labor union, and
NDCHealth believes its employee relations are good. NDCHealth is committed to
sustaining a workplace that enables all employees to contribute their full
skills, talents, and knowledge toward company goals.
PROPERTIES
NDCHealth's corporate headquarters is located at NDC Plaza in Atlanta,
Georgia. NDCHealth owns and occupies a two building campus with a total of
202,000 square feet. There is no outstanding debt on the facility.
Additionally, NDCHealth leases facilities in four primary locations: in the
Pharmacy Services and Systems, Hospital Solutions and Physician Solutions
Segments: Gilbert, Arizona; Tulsa, Oklahoma; Pittsburgh, Pennsylvania; and in
the Information Management segment: Phoenix, Arizona. NDCHealth also leases 10
sales and support offices throughout the US and one in Canada.
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NDCHealth believes its properties are suitable and adequate for NDCHealth's
business as presently conducted. For additional financial information regarding
NDCHealth's leased properties, see "Note 11 -- Debt and Lease Obligations" in
the Notes to NDCHealth's Consolidated Financial Statements included in this
joint proxy statement/prospectus.
LEGAL PROCEEDINGS
NDCHealth has sold its European operations in Germany and the United
Kingdom, which are now recorded as discontinued operations. Through these
entities that have now been sold, NDCHealth had been engaged in litigation since
2000 with IMS Health before the European Commission and the European Court of
Justice and in the German courts. With the sale of its interests in the entities
involved in this litigation, NDCHealth is no longer involved.
On October 14, 2003, NDCHealth filed suit in the 96th Judicial District
Court, Tarrant County, Texas, against 1-Rex, Inc., FDS, Inc., Healthcare
Computer Corporation, Freedom Drug Stores, Inc., Freedom Data Services, Inc. and
William Rex Akers (collectively the "Defendants") for breach of contract,
misappropriation of trade secrets, fraud, and negligent misrepresentation,
seeking unspecified damages for Defendants' wrongful conduct. On March 5, 2004,
Defendants filed a counterclaim against NDCHealth, asserting claims for tortious
interference with a prospective contract, violations of Section 15.05(b) of the
Texas Business and Commerce Code, civil conspiracy and seeking a declaratory
judgment in connection with various claims made by NDCHealth. On August 4, 2005,
the parties agreed to settle all claims between them. The terms of the
settlement are confidential.
On April 7, 2004, a putative securities class-action, captioned Garfield v.
NDCHealth Corporation, et al., was filed in the United States District Court for
the Northern District of Georgia against NDCHealth and Messrs. Hoff, Hutto,
Miller, Shenk, FitzGibbons and Adrean, as defendants. The complaint in that
action generally alleged, among other things, that members of a purported class
of stockholders who purchased common stock between August 21, 2002 and August 9,
2004 were damaged as a result of (i) improper revenue recognition practices in
NDCHealth's physician business unit; (ii) the failure to timely write-down
NDCHealth's investment in MedUnite; and (iii) the improper capitalization and
amortization of costs associated with software development. The second amended
complaint alleges that, as a result of such conduct, NDCHealth's previously
issued financial statements were materially false and misleading, thereby
causing the prices of its common stock to be inflated artificially. The second
amended complaint asserts violations of Section 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5
promulgated thereunder, and seeks unspecified monetary damages and other relief.
On July 27, 2005, NDCHealth's motion to dismiss all claims was granted by the
Court. Plaintiffs were granted 30 days within which to file a third amended
complaint. On August 26, 2005, rather than file a third amended complaint, the
Plaintiffs filed a notice of appeal with respect to the Court's decision
dismissing the complaint.
On May 10, 2005, a complaint captioned MMI Investments, L.P. v. NDCHealth
Corporation, et al., was filed in the United States District Court for the
Southern District of New York against NDCHealth and Messrs. Hoff, Hutto and
Shenk. The complaint generally alleges that plaintiff MMI Investments, L.P.
("MMI") was damaged as a result of its purchases of NDCHealth common stock at
artificially inflated prices from July 2003 through August 9, 2004. The
complaint seeks unspecified monetary and other relief. Following a pre-motion
conference on June 22, 2005, the Court granted defendants leave to file a motion
to dismiss the complaint and/or transfer the action to the United States
District Court for the Northern District of Georgia. That motion was filed on
July 22, 2005, and oral argument on the motion was heard on September 28, 2005.
The court denied NDCHealth's motion to transfer and NDCHealth's motion to
dismiss.
NDCHealth and AmerisourceBergen are named as defendants in a suit filed by
Prescription Counter, a pharmacy, on October 22, 2004, and removed to the
federal District Court of New Jersey. In the suit, plaintiff claims breach of
contract, breach of representations and warranties, breach of N.J. Consumer
Fraud Act, and negligent misrepresentation, and seeks unspecified damages in
excess of $1 million. NDCHealth has filed its answer denying these claims and
has asserted various affirmative defenses and a
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counterclaim against Prescription Counter for amounts due under NDCHealth's
contracts with the plaintiff. AmerisourceBergen has also answered, asserted
counterclaims, and has also asserted a cross-claim against NDCHealth for
indemnity and/or contribution. NDCHealth filed its answer to the cross-claim and
has denied any liability for indemnity or contribution. Discovery is proceeding
and NDCHealth intends to vigorously defend the litigation.
The Securities and Exchange Commission (SEC) has obtained a formal order of
investigation relating to accounting irregularities disclosed by NDCHealth.
NDCHealth is cooperating fully with the SEC investigation.
Additionally, NDCHealth is party to a number of other claims and lawsuits
incidental to its business. NDCHealth believes that the ultimate outcome of such
matters, in the aggregate, will not have a material adverse impact on its
financial position, liquidity or results of operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
NDCHealth is a leading provider of health information solutions to all
sectors of the healthcare industry. NDCHealth's electronic transaction solutions
automate the exchange of information among pharmacies, payers, hospitals and
physicians. NDCHealth's systems and information management solutions help
improve operational efficiencies and business decision making for providers,
retail pharmacies and pharmaceutical manufacturers.
HEALTHCARE MARKET
The U.S. government estimates that national health expenditures in the
United States are expected to reach $3.6 trillion in 2014, growing at an average
annual rate of 7.1% from approximately $1.7 trillion in health-related spending
during 2003. NDCHealth plays an important role in providing automation,
transaction processing and information solutions to improve the efficiency and
efficacy of healthcare.
NDCHealth believes the integrated services it offers to the healthcare
industry place it strategically in the center of a very dynamic marketplace.
Because of its position, NDCHealth manages healthcare-related information from
the point of patient contact through the point of payment and maintains the high
standards required for patient confidentiality.
There is a growing need in healthcare for technology-based services and
comprehensive information solutions. NDCHealth's integrated solutions provide
information and services useful in reducing administrative and other related
healthcare costs and expenses and enhancing the quality of care. Additionally,
NDCHealth believes an aging population is driving demand for improved
information technology services relating to the healthcare industry. Because a
high percentage of healthcare transactions are still handled using manual,
paper-based methods, or are not being consistently processed, NDCHealth believes
that the healthcare industry is one of the largest opportunities for growth in
providing integrated information solutions. NDCHealth's solutions provide the
tools to help providers and payers reduce administrative expense, while at the
same time providing a robust source for statistical and analytical information
required by its customers.
In recent years, the healthcare industry, including the healthcare
financing and reimbursement system, has changed significantly in an effort to
reduce costs while also striving to provide broader coverage for individuals.
These changes include increased use of managed care, cuts in payment and
reimbursement levels, changes in Medicare and Medicaid benefits, consolidation
of pharmaceutical and medical-surgical supply distributors, consolidation of
pharmaceutical manufacturers, consolidation of retail pharmacy chains, the
emergence of pharmacy benefit managers as significant players in the mail order
pharmaceuticals distribution and the development of large, sophisticated
purchasing groups. NDCHealth expects the healthcare industry to continue to
change significantly in the future. Some of these changes could have a material,
negative impact on NDCHealth's revenue and/or expenses.
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NDCHEALTH MARKET POSITION
NDCHealth is a leading provider of healthcare claims transaction processing
in terms of the number of electronic transactions processed and of related
value-added services for pharmacies, hospitals and physicians. NDCHealth is also
a leading provider of market research information for pharmaceutical
manufacturers based on the number of customers and the number of pharmaceutical
detail sales representatives compensated based on NDCHealth's data products.
NDCHealth processed over 5.7 billion electronic healthcare transactions for
retail pharmacies, hospitals and physicians in fiscal 2005. NDCHealth provides
information services to more than 100 pharmaceutical manufacturers in the United
States.
NDCHealth has leading market positions in all of its provider services and
systems solutions markets and believes that it is the only comprehensive
provider of both transaction processing services and market research information
in the healthcare industry. NDCHealth's involvement in these markets positions
it to provide integrated information solutions to its customers. NDCHealth will
benefit from increasing penetration of electronic claims processing in the
healthcare industry, from increasing utilization of prescription pharmaceuticals
by a growing elderly population, and from the pharmaceutical industry's growing
demand for access to more granular information and solutions to support their
sales, marketing and operational strategies.
BUSINESS POSITION AND STRATEGY
NDCHealth provides products and services to five major areas of the
healthcare industry: pharmacies (retail, mail order, internet based and
specialty); hospitals and health facilities; physicians; payers; and
pharmaceutical manufacturers. The key elements to NDCHealth's strategy include:
- growing claims volume as healthcare grows and through gains in market
share;
- increasing penetration of value added transaction services with
customers;
- taking full advantage of its extensive claims processing resources to
aggregate and integrate data for use in its information management
business; and
- continuing to invest in new, value-added systems products, information
management and transaction processing services to build additional
revenue streams and expand profit margins.
NDCHealth's strategy starts with the fundamental transaction in
healthcare's revenue cycle -- the submission of claims from providers to
third-party payers. NDCHealth estimates that it processes approximately 45% of
the electronic healthcare claims in the United States. NDCHealth provides
advanced edit processing and other value-added products and services to the
claims in real-time to add significant customer value. NDCHealth is generally
able to price incrementally for these additional products and services in
addition to the pricing for the base claim. Further, due to an aging population
and increasing automation in healthcare, claims volume should grow, also
generally increasing revenue.
In connection with the Information Management business, where authorized by
its customers, NDCHealth captures the claim and related transaction information
from NDCHealth's network, combines that information with data NDCHealth
purchases, and creates information solutions for pharmaceutical manufacturers
and providers.
BUSINESS SEGMENTS
The NDCHealth Intelligent Network is the cornerstone of NDCHealth's
provider services and systems businesses and consists of three communications
networks that transmit claims and other transaction data, as well as three data
support facilities. The data support facilities perform a variety of functions,
such as aggregating incoming data from the communications networks, processing
the data to conform each claim submission to the particular payer's format and
performing pre- and post-submission claim edits. Claim edits are based on
predetermined criteria and return informational messages to
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providers that are designed to help them avoid rejected claims and
resubmissions, enhance the accuracy of the reimbursement they receive from
payers and minimize costs.
NDCHealth's pharmacy, hospital, and physician systems are the entry and
exit points for information to and from its NDCHealth Intelligent Network.
Through its network, NDCHealth is partnering with NDCHealth's customers to
improve efficiency and effectiveness in healthcare. Some examples include: real
time eligibility verification, drug formulary and inventory management, and
facilitation of prompt payment for products and services. In instances in which
utilizing the data is allowed, de-identified transaction data derived from its
intelligent network enhances the pharmaceutical market research products that
NDCHealth provides to pharmaceutical manufacturers through NDCHealth's
Information Management segment.
Over the last two years, NDCHealth has undertaken efforts to streamline the
company and its focus on business areas it believes offer the greatest potential
for growth. During fiscal 2005, NDCHealth completed the sale of certain business
operations and interests that management and the board of directors decided were
not core to NDCHealth's future growth. Given the current composition of
NDCHealth following these dispositions, NDCHealth is now reporting four
segments, which are: Pharmacy Services and Systems, Hospital Solutions,
Physician Solutions and Information Management.
Pharmacy Services and Systems Segment
In its Pharmacy Services and Systems segment, NDCHealth is the leading
provider of retail pharmacy claims transaction processing and sophisticated
editing solutions, as well as a leading supplier of application systems for
retail, mail order and managed care pharmacy operations.
In Pharmacy, NDCHealth enables an electronic exchange of complex healthcare
claims data between retail pharmacies and payers, increasing efficiency and
quality of care while decreasing costs. NDCHealth provides its customers with
connectivity to over 1,000 payers. In conjunction with claims transmissions,
NDCHealth provides over 90 value-added transaction services and claims edits
that perform financial and administrative reviews on each transaction running
across its claims processing network to help pharmacies enhance the accuracy of
revenue from submitted claims, decrease receivable days outstanding and improve
labor efficiency. Examples of these real-time edits include checking the
submitted claim pricing for appropriateness, generic drug dispensing opportunity
reminders and confirming that the claim detail is valid prior to submission to
the third-party payer such as AWP (average wholesale price) validation,
appropriate DAW (dispense as written) codes, prescriber validation and coding
compliance edits.
NDCHealth also licenses point-of-service software systems to pharmacies
that integrate its electronic transactions services with standard business
management tools. These systems drive transaction volume on its network while
streamlining provider workflow, improving its customers' cash flow and providing
real-time information to facilitate efficient business management. NDCHealth
believes that it has a leading position in NDCHealth's Pharmacy services and
systems markets with connectivity to over 90% of the retail pharmacy stores, and
systems installed in more than 20% of pharmacies in the United States.
An increasing concentration of pharmacy prescriptions are occurring within
large pharmacy and grocery chains, such as Albertsons, CVS, Walgreen and
Wal-Mart. While NDCHealth has been very successful in growing NDCHealth's
pharmacy transaction processing market share, NDCHealth is generally paid a
lower per-transaction fee from large pharmacy chains, versus smaller regional
and independent pharmacies, due to transaction volume-based rate structures. As
a result, changes in volume mix can impact average revenue per claim and the
rate of increase. In addition, a greater portion of total prescriptions are
being filled by mail order pharmacies, with which NDCHealth generally has less
opportunity to provide services and generate revenue than with retail pharmacy
operators, limiting the prescription volume growth at retail pharmacies. If this
trend continues, it may have a negative impact on NDCHealth's pharmacy services'
revenue and profit.
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NDCHealth generates Pharmacy network transaction processing services
revenue from its customers generally on a per transaction basis. Historically,
NDCHealth has generated pharmacy systems revenue through the sale of software
licenses, upgrades and recurring maintenance and support fees.
NDCHealth's new line of systems products is being sold to customers with
varying pricing and revenue models. NDC PharmacyRx is designed for independent
and multi-store retail pharmacies to automate the prescription fulfillment
process and provide connectivity. Included in the enhanced solutions package are
third-party claims transmissions via the NDCHealth Intelligent Network, pre- and
post-edit transaction services, software and upgrades, centralized prescriber
and product pricing data, automated data backup and storage, electronic
prescription capability, digital signature capture, POS interface and a variety
of reports. NDC PharmacyRx is priced primarily on a per transaction basis. NDC
EnterpriseRx, designed for national and larger regional chains, will address the
challenges facing the pharmacy industry today -- dramatic growth in prescription
volume, a pronounced pharmacist shortage, lower profit margins on prescriptions,
increased patient demand for service, and increased competition for customers.
NDCHealth's software is designed to allow a pharmacy to fill more prescriptions
with the same number of pharmacists, integrate all pharmacy applications into
one central system with a single source of customer files and provide real-time
inventory management to increase turns. NDC EnterpriseRx will be priced on
either a license plus annual maintenance basis or a monthly per store fee,
depending on the customer.
Pharmacy Systems revenue has declined in each of the last two years due to
a decline in upgrade, maintenance and service fees from customers of its legacy
pharmacy systems, for which NDCHealth is no longer investing in new
functionality. Returning to growth in Pharmacy Systems revenue will be dependent
on achieving planned market acceptance and penetration of NDCHealth's newer
systems, most notably NDC EnterpriseRx. While NDCHealth is confident in the
functionality and market demand of its new pharmacy systems and is engaged in
active discussion with numerous potential customers, NDCHealth cannot predict
the exact time and cost to complete development of its NDC EnterpriseRx solution
and NDC MailRx, its mail order offering, or the rate of market acceptance,
customer installation, and revenue growth which will result.
Hospital Solutions Segment
NDCHealth is one of the leading providers of revenue cycle management
systems that help hospitals and health facilities accelerate cash flow.
NDCHealth also offers claims processing and editing services to increase the
acceptance rate by payers of hospital claims and assist facility management in
improving cash flow and reducing outstanding accounts receivable. NDC ePREMIS,
NDCHealth's platform for revenue cycle management launched in fiscal 2003,
incorporates new technology, expands functional attributes and creates the base
upon which new applications can be built. Using new application internet
technology, this offering allows NDCHealth to upgrade its existing base of
approximately 1,800 hospital and large provider facility customers, add new
large hospitals and provides the opportunity to penetrate the smaller hospital
market. Similar to its pharmacy offerings, the new workflow features of NDC
ePREMIS permit multiple people to work with claims simultaneously, yielding
greater efficiency and better workload balancing. NDC ePREMIS can also be
integrated into hospital information systems provided by various major companies
to further extend NDCHealth's market reach.
While NDCHealth anticipates accelerating market acceptance for NDC ePREMIS,
NDCHealth needs to continue to successfully execute on its timing of delivery
and quality of its customer implementations to maintain its sales momentum and
achieve planned revenue growth. Given the competitiveness and price sensitivity
within the hospital marketplace, any consolidation or pricing pressure or
addition of NDC Premis customers to other companies' solutions instead of NDC
ePREMIS could impact NDCHealth's revenue growth and profitability related to its
hospital customer group.
Physician Solutions Segment
NDCHealth provides practice management software for physicians and is
focused on a niche in the one-to-two physician practice group market. NDCHealth
believes it currently has a 40% share of this
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market with approximately 63,000 medical practices using its office management
software solutions to handle patient scheduling and billing, and to manage
accounts receivables. Because of the relative lack of automation in small
physician offices, NDCHealth believes these customers represent a unique
opportunity for expanded electronic claims processing services. This electronic
connection also assists its customers in improving their cash flow and provides
an important communication channel between the payer and the physician.
NDCHealth has connected systems for more than 16,000 physicians to a third party
on-line network to process claims using an electronic data interchange ("EDI")
network.
NDCHealth sells its physician software and services primarily to value
added resellers (VARs) who then sell into physician practices. The VARs' success
in selling their inventory of NDCHealth's products and the strength of its
relationships with its VARs following a period in which NDCHealth has stopped
offering credit terms on sales to its VARs could be a primary driver to the
number of new and upgraded products they purchase from NDCHealth in the future.
In addition, the physician market has been slow to adopt technology solutions
because of the cost, the multitude of small suppliers, and the perceived lack of
measurable financial benefits. These factors could negatively impact NDCHealth's
revenue from its physician customer group.
Information Management Segment
Pharmaceutical manufacturers and chain pharmacies require data on drug
sales volumes, physician prescribing patterns and payer drug cost management
activity to better analyze their markets, effectively deploy marketing resources
and, in the case of pharmaceutical manufacturers, to compensate their sales
forces. NDCHealth purchases prescription drug data from pharmacies, wholesalers,
specialty drug companies and others, and also generates data from its
intelligent network. NDCHealth uses this data to provide its pharmaceutical
company customers with proprietary market analysis tools. NDCHealth also
provides related consulting services to customers.
NDCHealth believes it is the second largest provider of healthcare
information services to the pharmaceutical industry in the United States. Its
Information Management revenue growth has remained relatively flat, due to
factors including: a cyclically low demand for information in the U.S.
pharmaceutical industry as new product introductions have declined, numerous
branded drugs have lost patent protection, consolidation within the
pharmaceutical industry has occurred and pharmaceutical manufacturers continue
to tightly constrain discretionary spending.
NDCHealth believes the pharmaceutical industry is looking for innovative
ways to utilize new solutions to increase sales efficiency and revenue growth.
To address this need, NDCHealth is building next-generation information products
by combining NDCHealth's network connectivity and the Arclight data it acquires
through NDCHealth's exclusive agreement to offer a broader database and more
accurate data at a granular level for compensation and targeting purposes.
NDCHealth expects the Information Management segment to be positioned to offer
the largest HIPAA-compliant, privacy-protected diagnosis-to-drug linked database
of information and connectivity to help change the way pharmaceutical
manufacturers do business.
The number of new molecular entities (NMEs) approved by the Food and Drug
Administration ("FDA") is expected to increase in both calendar 2006 and 2007
over 2005 estimates, according to industry data and certain estimates. As a
result, NDCHealth believes its customers should begin to increase their spending
as they roll out new drugs that are currently in the FDA review process. As
pharmaceutical manufacturers begin to accelerate the introduction of new drugs,
NDCHealth believes that discretionary spending will increase, supporting its
revenue growth.
NDCHealth's top three Information Management customers, in aggregate,
comprise approximately 39% of its Information Management segment revenue and any
consolidation of customers or significantly lower spending from its largest
customers could have an adverse impact on its business and financial results. In
addition, the majority of NDCHealth's contracts with pharmaceutical
manufacturers extend for two to three years. While NDCHealth signed contract
renewals or extensions with its largest customers during fiscal years 2004 and
2005, competitive pricing pressure, a weak discretionary spending environment
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or any change in NDCHealth's contract terms and pricing could cause NDCHealth to
lose significant revenue. NDCHealth's costs to purchase data also continue to
increase, and its ability to accelerate revenue growth faster than expenses is
an important driver of profit expansion in this segment.
Business Focus
During fiscal 2004 and 2005, the board of directors authorized the
disposition of NDCHealth's European businesses in Germany and the United
Kingdom, its investment in a Pharmacy Benefit Services business, as well as the
majority of its Canadian businesses. These dispositions have all been completed,
and are now classified as Discontinued Operations in NDCHealth's financial
statements.
GOVERNMENT REGULATION
The healthcare industry is highly regulated and is subject to changing
political, regulatory and other influences. Forced changes through legislation
can be disruptive to business processes and strategies, but at the same time can
provide opportunities for NDCHealth, given its scale, market presence, knowledge
base and information solutions scope. For example, NDCHealth expects the drug
benefit program under the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 to provide it with more transaction processing and
editing opportunities, as well as create a need for new insights from its
analytical offerings for both pharmaceutical manufacturers and pharmacies.
Under the Health Insurance Portability and Accountability Act of 1996, or
HIPAA, Congress required the adoption of rules to establish standards and
requirements for the electronic transmission of certain health information.
Rules include Standards for Electronic Transactions, published August 17, 2000,
Standards for Privacy of Individually Identifiable Health Information, published
December 28, 2000, Standards for Unique Employer Identifiers, published May 31,
2002, and Standards for the Security of Electronic Health Information, published
February 20, 2003, and which were effective in April 2005. These rules generally
restrict the use and disclosure, and mandate security, of personally
identifiable health information. The HIPAA rules apply to healthcare providers,
health plans, and healthcare clearinghouses as well as, in certain instances,
those who provide services on behalf of these entities which involve the receipt
or disclosure of health information. Certain of NDCHealth's operations are
subject to the HIPAA rules. Continued compliance with these final rules could be
costly and require complex changes in NDCHealth's systems as well as the systems
of its customers.
All of NDCHealth's products are designed to be compliant with HIPAA
regulations, to the extent applicable. However, additional federal or state
legislation relative to patient privacy or utilization of physician prescribing
information could adversely affect the scope of NDCHealth's informatics
offerings. As NDCHealth becomes aware of changes, it intends to incorporate
possibilities into strategy alternatives and be prepared to capitalize on
opportunities.
These factors affect the purchasing practices and operation of healthcare
organizations. Federal and state legislatures and agencies periodically consider
programs to reform or revise the U.S. healthcare system. These programs may
contain proposals to increase governmental involvement in healthcare, lower
reimbursement rates, restrict availability or use of data or otherwise change
the environment in which healthcare industry participants operate. In addition,
as the government and associated agencies become larger purchasers of healthcare
services, including those provided by NDCHealth, the government may lower the
prices it pays for NDCHealth's services, reducing average prices and revenues.
NDCHealth is unable to predict future proposals with any certainty or to predict
the effect they would have on its business.
Other state and federal statutes and regulations governing transmission of
healthcare information may affect NDCHealth's operations. For example, Medicaid
rules require some processing services and eligibility verification to be
maintained as separate and distinct operations. NDCHealth carefully reviews its
practices in an effort to ensure that it is in compliance with all applicable
state and federal laws. These laws, however, are complex and changing, and the
courts and other governmental authorities may take
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positions that are inconsistent with NDCHealth's practices thereby increasing
its costs of complying or otherwise adversely affecting its operations.
Federal and state laws govern patient referrals, physician financial
relationships and inducements to beneficiaries of federal healthcare programs.
The federal anti-kickback law prohibits any person or entity from offering,
paying, soliciting or receiving anything of value, directly or indirectly, for
the referral of patients covered by Medicare, Medicaid and other federal
healthcare programs or the leasing, purchasing, ordering or arranging for, or
recommending the lease, purchase, order or arrangement of, any item, good,
facility or service covered by these programs. The anti-kickback law is broad
and may apply to some of NDCHealth's activities or its relationships with its
customers or business partners. Penalties for violating the anti-kickback law
include imprisonment, fines and exclusion from participating, directly or
indirectly, in Medicare, Medicaid and other federal healthcare programs. Many
states have similar anti-kickback laws that are not necessarily limited to items
or services for which payment is made by a federal healthcare program. NDCHealth
carefully reviews its practices in an effort to ensure that it complies with all
applicable laws. However, the laws in this area are both broad and vague and it
is often difficult or impossible to determine precisely how the laws will be
applied. Any determination by a state or federal regulatory agency that any of
NDCHealth's practices violate any of these laws could subject NDCHealth to civil
or criminal penalties and require NDCHealth to change or terminate some portions
of its business.
In order to remain competitive and satisfy the requirements and needs of
its customers, NDCHealth must remain informed of and adapt to new regulations
governing the transmission, use and processing of personal information in
electronic commerce and over the Internet. Although many of these regulations
may not apply directly to its business, NDCHealth expects that these regulations
and any new laws regulating the solicitation, collection or processing of
personal or consumer information could indirectly affect its business.
NDCHealth's efforts to remain competitive and profitable and ensure compliance,
and NDCHealth's customers' compliance, with these regulations may require the
expenditure of significant sums in research and development and investments in
new technology and processes and will continue to require significant attention
from senior management.
ACQUISITIONS AND ALLIANCES
From time to time, NDCHealth has made acquisitions and investments and
entered into strategic alliances in an effort to obtain a competitive advantage
or an expanded presence in targeted markets. NDCHealth believes that selective
acquisitions, investments and strategic alliances are important to its ability
to compete effectively.
McKesson OmniLink
In April 2004, NDCHealth acquired McKesson Corporation's OmniLink(SM) PPE
assets and customer base for pharmacy claims processing and editing for
approximately $14.0 million in cash. In connection with the transaction,
NDCHealth signed an agreement to form a strategic alliance with McKesson's
pharmacy systems company that will enhance NDCHealth's offering of value-added
transactions services to pharmacies. NDCHealth is jointly marketing its NDC Pre
& Post Editing Service solutions to the base of 2,300 McKesson Pharmacy systems
customers. This asset purchase adds more than 2,000 OmniLink store locations to
its existing base of more than 30,000 pharmacies currently using NDCHealth's PPE
services.
Arclight
On December 31, 2003, through an agreement whereby NDCHealth acquired fixed
assets and employees and obtained a seven year exclusive license to certain of
its assets, NDCHealth acquired the continuing operations of Arclight, an
information management company owned by a major wholesale drug distribution
company, Cardinal Health, Inc., and a number of major retail pharmacy chains,
including Albertson's Inc., CVS Corporation, Kmart Corporation and Wal-Mart
Stores, Inc. The purchase price included 381,098 shares of unregistered
NDCHealth common stock with a market value as of the date of
111
issuance of $10.0 million and a five-year warrant to purchase an additional
381,098 shares of NDCHealth common stock at an exercise price of $26.24 per
share with an estimated value as of the date of issuance using the Black-Scholes
option pricing model of $4.4 million. The assumptions used in estimating the
warrant's value were a risk-free interest rate of 3.3%, an expected dividend
yield of 0.6%, an expected life of five years, and expected volatility of 48%.
Under the terms of the merger agreement with Per-Se and the stock purchase
agreement with Wolters Kluwer, this warrant will be canceled for a payment of
its fair value, equal to $1,740,000, which will be paid by NDCHealth at the time
of the merger.
Additionally, the acquisition required the recording of transaction and
lease termination costs totaling $3.1 million and a $0.7 million receivable for
future cash payments from the remaining Arclight business to NDCHealth relating
to a previous agreement between the two parties. The owners of Arclight made a
transition payment of $2.0 million to NDCHealth at closing. The transition
payment resulted in a reduction in the consideration NDCHealth paid for
Arclight's business.
As a part of the agreement, NDCHealth will pay Arclight royalties on its
future sales of products utilizing Arclight data and the agreement to use
certain data may be extended for three additional years if certain financial and
business objectives are met. These obligations will be assumed by the
Information Management subsidiary Wolters Kluwer is purchasing in connection
with that transaction.
RESULTS OF OPERATIONS FOR FISCAL 2005, 2004 AND 2003
NDCHealth operates its business as four fundamental segments: Pharmacy
Services and Systems, Hospital Solutions, Physician Solutions and Information
Management. Pharmacy Services and Systems provides claims transaction processing
and sophisticated claims editing solutions for retail pharmacy operations, and
also supplies application systems for retail, mail order and managed care
pharmacy operations. Pharmacy Services and Systems also provides independent,
regional and national chain and mail-order pharmacies NDCHealth's claims
management solutions, pharmacy management system solutions, and decision support
and revenue management solutions. Hospital Solutions provides revenue cycle
management to approximately 1,800 hospital and health system customers by
offering NDCHealth's customers software and services solutions that provide
workflow management offerings and support for many transactions. NDCHealth's
hospital solution set, ePREMIS, provides tools to allow NDCHealth's customers to
manage the claims and remittance process, accelerate and improve cash flow,
reduce bad debt, track accounts receivable and costs, and improve productivity.
Physician Solutions provides small-office physicians with resources necessary to
streamline billing and other internal processes such as scheduling, increasing
productivity and optimizing accurate reimbursement. NDCHealth offers its
physician customers enhanced practice management capabilities, electronic
commerce solutions, and interactive training. NDCHealth's physician solutions
include NDCMedisoft, NDCLytec, NDCConcept and NDC Electronic Claims Processing.
Information Management provides healthcare information and consulting services
to pharmaceutical manufacturers and pharmacy chains. Additional information
concerning NDCHealth's segments can be found in "-- Business Segments" beginning
on page 106 and Note 13 of the Notes to NDCHealth's Consolidated Financial
Statements included in this joint proxy statement/prospectus.
<Table>
<Caption>
2005 VS. 2004 2004 VS. 2003
CHANGE CHANGE
------------------ ------------------
2005 2004 2003 DOLLARS PERCENT DOLLARS PERCENT
------ ------ ------ ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Revenue:
Pharmacy Services and Systems.... $128.7 $130.4 $130.2 $ (1.7) (1.3)% $ 0.2 0.2%
Hospital Solutions............... 64.3 67.1 69.1 (2.8) (4.2)% (2.0) (2.9)%
Physician Solutions.............. 32.5 39.6 44.2 (7.1) (17.9)% (4.6) (10.4)%
Information Management........... 162.1 158.7 157.2 3.4 2.1% 1.5 1.0%
------ ------ ------ ------ ------
387.6 395.8 400.7 (8.2) (2.1)% (4.9) (1.2)%
------ ------ ------ ------ ------
</Table>
112
<Table>
<Caption>
2005 VS. 2004 2004 VS. 2003
CHANGE CHANGE
------------------ ------------------
2005 2004 2003 DOLLARS PERCENT DOLLARS PERCENT
------ ------ ------ ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Operating Expenses:
Cost of Service.................. 200.4 194.2 192.7 6.2 3.2% 1.5 0.8%
Sales, General and
Administrative................ 98.8 92.0 85.4 6.8 7.4% 6.6 7.7%
Depreciation and Amortization.... 39.9 35.6 29.8 4.3 12.1% 5.8 19.5%
Restructuring, Special Governance
and Other Charges............. 15.0 6.1 5.0 8.9 145.9% 1.1 22.0%
------ ------ ------ ------ ------
354.1 327.9 312.9 26.2 8.0% 15.0 4.8%
------ ------ ------ ------ ------
Operating Income:
Pharmacy Services and Systems.... 9.2 28.4 34.1 (19.2) (67.6)% (5.7) (16.7)%
Hospital Solutions............... 15.4 23.7 25.9 (8.3) (35.0)% (2.2) (8.5)%
Physician Solutions.............. 7.4 6.1 5.5 1.3 21.3% 0.6 10.9%
Information Management........... 8.1 12.5 22.3 (4.4) (35.2)% (9.8) (43.9)%
Other............................ (6.7) (2.8) -- (3.9) (139.3)% (2.8) --
------ ------ ------ ------ ------
33.4 67.9 87.8 (34.5) (50.8)% (19.9) (22.7)%
------ ------ ------ ------ ------
Other Expenses..................... (25.0) (31.7) (36.5) 6.7 (21.1)% 4.8 (13.1)%
Income from Continuing Operations
before Income Taxes.............. 8.4 36.2 51.3 (27.8) (76.8)% (15.1) (29.4)%
Provisions for Income Taxes........ 2.5 14.7 19.9 (12.2) (83.0)% (5.2) (26.1)%
------ ------ ------ ------ ------
Income from Continuing
Operations....................... 5.9 21.5 31.4 (15.6) (72.6)% (9.9) (31.5)%
Loss from Discontinued
Operations....................... (12.6) (14.6) (2.2) 2.0 13.7% (12.4) (563.6)%
------ ------ ------ ------ ------
Net Income (Loss).................. $ (6.6) $ 6.9 $ 29.2 $(13.5) (195.7)% $(22.3) (76.4)%
====== ====== ====== ====== ======
Diluted Earnings Per Share from
Continuing Operations............ $ 0.16 $ 0.60 $ .90 $(0.44) (73.3)% $(0.30) (33.3)%
====== ====== ====== ====== ======
Diluted Earnings (Loss) Per
Share............................ $(0.18) $ 0.19 $ 0.84 $(0.37) (194.7)% $(0.65) (77.4)%
====== ====== ====== ====== ======
</Table>
Revenue
Total revenue decreased $8.2 million or 2.1%, to $387.6 million in fiscal
2005 from $395.8 million in fiscal 2004. Total revenue decreased $4.9 million,
or 1.2%, to $395.8 million in fiscal 2004 from $400.7 million in fiscal 2003. An
analysis of revenue by segment is provided below.
Pharmacy Services and Systems
Revenue in the Pharmacy Services and Systems segment decreased $1.7
million, or 1.3%, to $128.7 million in fiscal 2005 from $130.4 million in fiscal
2004. Pharmacy transaction services revenue increased $5.8 million, or 8.0%, but
was partially offset by a $3.3 million decline in decision support solutions
revenue. Pharmacy systems revenue declined $3.7 million, or 8.0%, as increased
sales from NDCHealth's newer PharmacyRx solution and system for mail-order
pharmacies were offset by declining revenue from legacy systems customers.
Additionally, claim and pre- and post-editing transaction revenue increased over
the prior year, as an increasing percentage of NDCHealth's electronic
transaction service customers utilize these solutions, although revenue growth
lagged volume growth due to an increasing share of transactions coming from
larger pharmacy chains where pricing is lower than average due to volume rate
structures and some fixed-price contracts. NDCHealth expects a similar pattern
in future
113
transaction revenues, with downward pressure on unit pricing needing to be
offset by increased penetration of existing or new value-added edits and
services in order to grow transaction service revenues.
Revenue in the Pharmacy Services and Systems segment increased $0.2
million, or 0.2%, to $130.4 million in fiscal 2004 from $130.2 million in fiscal
2003 due primarily to declining revenue from NDCHealth's legacy pharmacy system
customers and lower revenue from traditional network transactions. The declining
revenue from NDCHealth's legacy system customers was partially offset by
increased revenue from its newer NDC PharmacyRx solution. Lower revenue from
traditional transactions was offset by increased revenue from other claims
management and decision support solutions.
Hospital Solutions
Revenue in the Hospital Solutions segment decreased $2.8 million or 4.2%,
to $64.3 million in fiscal 2005 from $67.1 million in fiscal 2004. This decrease
was due to lower ancillary customization and professional services revenue along
with lower statement printing revenue, offsetting NDCHealth's growth in NDC
ePREMIS sales and installations, which generated higher transactions with higher
revenue per transaction. Hospital Solutions segment revenue decreased $2.0
million, or 2.9%, to $67.1 million in fiscal 2004 from $69.1 million in fiscal
2003 due to a transition to NDCHealth's newest revenue cycle management
offering, NDC ePREMIS, that resulted in delayed revenue as part of a
fee-per-transaction model and lower non-recurring training and support services
revenue related to NDCHealth's legacy system product. NDC ePREMIS continues to
experience sales and installation momentum, which should provide a solid
platform for revenue growth as the Hospital product line transitions to a
greater percentage of recurring revenue at higher average per transaction
prices. Lower statement printing revenue resulted from lower statement printing
volumes from a major client.
Physician Solutions
Revenue in the Physician Solutions segment decreased $7.1 million, or
17.9%, to $32.5 million in fiscal 2005 from $39.6 million in fiscal 2004 due to
a $6.4 million reduction in revenue associated with certain service allowances
granted to NDCHealth's VARs that was discontinued in the fourth quarter of
fiscal 2004, and lower software sales in the year due to the change from selling
on credit terms in fiscal 2004's first three quarters to cash terms in the
fourth quarter of fiscal 2004 and in fiscal 2005, partially offset by an
increase of $3.2 million in deferred revenue recognized as a result of changing
NDCHealth's product exchange practices and collecting payments from certain VARs
from whom revenue is being recognized on a cash basis. Physician Solutions
segment revenue decreased $4.6 million, or 10.4%, to $39.6 million in fiscal
2004 from $44.2 million in fiscal 2003 due to a tightening of credit terms and a
change in business practice in selling software to VARs generally on a cash
basis instead of on credit terms, which led to significantly fewer system sales
in the second half of fiscal 2004. Physician system sales improved from the
prior year in the fourth quarter of fiscal 2005 and NDCHealth expects continuing
growth in fiscal 2006.
Information Management
Revenue in the Information Management segment increased in fiscal 2005
compared to fiscal 2004, increasing $3.4 million, or 2.1%, to $162.1 million in
fiscal 2005 from $158.7 million in fiscal 2004. Information Management segment
revenue increased $1.5 million, or 1.0%, to $158.7 million in fiscal 2004 from
$157.2 million in fiscal 2003. The increase in both years was the result of
growth in new product revenue such as the Intelligent Health Repository, a
diagnosis-to-drug linked longitudinal database, and other emerging new product
sets, offset by declines in certain legacy product offerings and compression
from certain of NDCHealth's pharmaceutical manufacturer customers. The
Information Management business is expected to face continued pricing pressure
from its pharmaceutical customers and will need to continue to develop and sell
new, more advanced information products to grow revenue in the future to
generate revenue growth.
114
COST OF SERVICE
<Table>
<Caption>
2005 2004 2003
------ ------ ------
(IN MILLIONS)
Revenue by Segment
Pharmacy Services and Systems............................ $128.7 $130.4 $130.2
Hospital Solutions....................................... 64.3 67.1 69.1
Physician Solutions...................................... 32.5 39.6 44.2
Information Management................................... 162.1 158.7 157.2
------ ------ ------
Total Revenue.............................................. $387.6 $395.8 $400.7
====== ====== ======
Cost of Service by Segment
Pharmacy Services and Systems............................ $ 63.2 $ 55.8 $ 58.0
Hospital Solutions....................................... 25.7 23.8 26.1
Physician Solutions...................................... 13.2 16.5 17.4
Information Management................................... 98.3 98.1 91.2
------ ------ ------
Total Cost of Service...................................... $200.4 $194.2 $192.7
====== ====== ======
Cost of Service as Percent of Revenue
Pharmacy Services and Systems............................ 49.1% 42.8% 44.5%
Hospital Solutions....................................... 40.0 35.5 37.8
Physician Solutions...................................... 40.6 41.7 39.4
Information Management................................... 60.6 61.8 58.0
Total.................................................... 51.7% 49.1% 48.1%
</Table>
Cost of Service ("COS") includes certain compensation, computer operations,
data costs, consulting services, telecommunications, customer support and
application maintenance expenses. COS increased $6.2 million, or 3.2%, to $200.4
million in fiscal 2005 from $194.2 million in fiscal 2004. COS increased $1.5
million, or 0.8%, to $194.2 million in fiscal 2004 from $192.7 million in fiscal
2003. An analysis of COS by segment is presented below.
COS in the Pharmacy Services and Systems segment increased by $7.4 million,
or 13.3%, to $63.2 million in fiscal 2005 from $55.8 million in fiscal 2004 due
primarily to increased net software development expense as the initial release
of NDCHealth's NDC EnterpriseRx system approached completion and the design work
for subsequent releases was initiated, prior to the point where technological
feasibility was established, causing this development spending to be expensed
and increased third party costs resulting from changes in revenue mix. COS
decreased $2.2 million or 3.8%, to $55.8 in fiscal 2004 from $58.0 million in
fiscal 2003 due primarily to decreased customer support expense as the support
organizations of NDCHealth and TechRx were combined during fiscal 2003 following
the May 2002 acquisition of TechRx.
COS in the Hospital Solutions segment increased by $1.9 million, or 8.0%,
to $25.7 million in fiscal 2005 from $23.8 million in fiscal 2004, resulting
from higher implementation cost associated with the increased number of NDC
ePREMIS installations combined with decreased development cost capitalization
associated with prior-year HIPAA initiatives. COS decreased $2.3 million or
8.8%, to $23.8 in fiscal 2004 from $26.1 million in fiscal 2003 resulting from
decreased statement printing activity.
COS in the Physician Solutions segment decreased by $3.3 million or 20.0%,
to $13.2 million in fiscal 2005 from $16.5 million in fiscal 2004, resulting
from reduced production cost associated with system sales, and reduced costs
associated with the discontinued VAR service allowance. COS decreased $0.9
million or 5.2%, to $16.5 million in fiscal 2004 from $17.4 million in fiscal
2003 resulting from increase in electronic claims processing cost of $1.2
million associated with higher transaction activity
115
offset by $1.9 million decrease in cost associated with lower VAR service
allowance cost and reduced production cost associated with lower software sales.
Information Management COS increased $0.2 million, or 0.2%, to $98.3
million in fiscal 2005 from $98.1 million in fiscal 2004. Information
Management's COS increased $6.9 million, or 7.6%, to $98.1 million in fiscal
2004 from $91.2 million in fiscal 2003. The cost increase in both periods was
the result of increased data costs described below, costs related to the
development of the Intelligent Health Repository products and ongoing costs
associated with the integration of Arclight data into Information Management
products partially offset by lower staffing levels.
Data Costs
Data costs are primarily recorded within the Information Management segment
in COS, but some data costs are also recorded in the Pharmacy Services and
Systems segment COS. Data costs increased $0.8 million, or 1.5%, to $55.2
million in fiscal 2005 from $54.4 million in fiscal 2004. Data costs increased
$3.4 million, or 6.7%, to $54.4 million in fiscal 2004 from $51.0 million in
fiscal 2003. The increase between fiscal year 2004 and fiscal year 2005 was due
to an increase in volume of data purchased partially offset by reduced average
pricing per unit of data from NDCHealth's data providers. The increase between
fiscal year 2003 and fiscal year 2004 was due to an increase in volume of data
purchased and an increase in the costs of such data. As a percent of revenue,
data costs increased at a slower rate from fiscal 2004 to fiscal 2005 than from
the fiscal 2003 to fiscal 2004 rate. NDCHealth is actively pursuing programs to
continue to contain data costs, which includes exploring new areas of
opportunity where data is less costly.
<Table>
<Caption>
2005 2004 2003
------ ------ ------
(IN MILLIONS)
Data costs................................................. $ 55.2 $ 54.4 $ 51.0
Revenue.................................................... $387.6 $395.8 $400.7
Percent of revenue......................................... 14.2% 13.7% 12.7%
</Table>
Software Costs
Software costs are related to the development of new products and
maintenance and enhancement of existing products. NDCHealth capitalizes certain
costs of developing software held for sale to its customers as well as software
used internally to provide services to its customers. NDCHealth expenses costs
associated with maintenance of existing products and costs associated with
developing products prior to the products reaching technological feasibility.
Total costs associated with software development decreased by $0.8 million,
or 1.9%, to $41.4 million for fiscal 2005 from $42.2 million for fiscal 2004. Of
the total, costs associated with software development for NDCHealth's new
pharmacy system, NDC EnterpriseRx, were $18.6 million for fiscal 2005 versus
$21.2 million for fiscal 2004. For fiscal 2005, approximately $11.6 million of
these development costs were capitalized, resulting in net development expense
associated with NDCHealth's new pharmacy system of approximately $7.0 million.
For fiscal 2004, approximately $17.1 million of these development costs were
capitalized resulting in net development expense associated with NDCHealth's new
pharmacy system of approximately $4.1 million.
As of May 27, 2005, NDCHealth has capitalized $54.3 million for NDC
EnterpriseRx in the aggregate. NDC EnterpriseRx must achieve anticipated market
acceptance over the next few years in order for future cash flows to support
this asset. Failure to achieve anticipated market acceptance could lead to a
write down of this software asset.
Development costs capitalized as a percent of total development costs
decreased to 55.6% in fiscal 2005 from 72.5% in fiscal 2004 as a result of the
initial release of NDCHealth's NDC EnterpriseRx system approaching completion
and the initiation of design work for subsequent releases which is not a
capitalizable activity. Amortization expenses associated with capitalized
software are discussed below under "Depreciation and Amortization."
116
<Table>
<Caption>
2005 2004 2003
------ ------ ------
(IN MILLIONS)
Total costs associated with software development........... $ 41.4 $ 42.2 $ 36.8
Less: Capitalization of internally developed software...... (23.0) (30.6) (29.8)
------ ------ ------
Net software development expense........................... 18.4 11.6 7.0
Software maintenance expense............................... 7.3 6.8 7.1
------ ------ ------
Total Net Software Expense................................. $ 25.7 $ 18.4 $ 14.1
====== ====== ======
Revenue.................................................... $387.6 $395.8 $400.7
Capitalization of internally developed software as a % of
revenue.................................................. 5.9% 7.7% 7.4%
Total net software expense as a % of revenue............... 6.6% 4.6% 3.5%
Capitalization of internally developed software as a % of
total costs associated with software development......... 55.6% 72.5% 81.0%
</Table>
SALES, GENERAL AND ADMINISTRATIVE EXPENSE
Sales, General and Administrative ("SG&A") expense consists primarily of
salaries, wages and expenses relating to sales, marketing, administrative and
management employees, employee training costs, and occupancy of leased space
directly related to these functions. SG&A expense increased $6.8 million, or
7.4%, to $98.8 million in fiscal 2005 from $92.0 million in fiscal 2004. SG&A
expense increased $6.6 million, or 7.7%, to $92.0 million in fiscal 2004 from
$85.4 million in fiscal 2003. As a percent of revenue, SG&A expense was 25.5%,
23.2%, and 21.3% during fiscal 2005, 2004, and 2003, respectively. The increase
in SG&A expense in fiscal years 2005 and 2004 from the previous year, in both
absolute dollars and as a percent of revenue, was caused by increased corporate
staff and professional fees in response to increased complexity and regulatory
requirements of NDCHealth's business; higher audit and insurance expenses; an
increase in equity compensation expense as NDCHealth relied less on stock
options and more on restricted stock as a form of equity compensation; and
expenses related to legal proceedings.
DEPRECIATION AND AMORTIZATION
Depreciation and Amortization expense increased in fiscal 2005 from fiscal
2004 as a result of new products being placed into service. Depreciation and
Amortization expense increased in fiscal 2004 from fiscal 2003 as a result of
new products being placed into service and the amortization of acquired
intangible assets. Depreciation and Amortization expense is expected to increase
in fiscal 2006 as newly developed products are placed in service. Following the
general availability of NDC EnterpriseRx, currently anticipated in the third
quarter of fiscal 2006, Depreciation and Amortization is expected to increase by
approximately $2.8 million per quarter, or $11.4 million per year, due to the
amortization of this asset.
<Table>
<Caption>
2005 2004 2003
------ ------ ------
(IN MILLIONS)
Depreciation and Amortization.............................. $ 39.9 $ 35.6 $ 29.8
Revenue.................................................... $387.6 $395.8 $400.7
Percent of revenue......................................... 10.3% 9.0% 7.4%
</Table>
117
RESTRUCTURING, SPECIAL GOVERNANCE AND OTHER CHARGES
<Table>
<Caption>
2005 2004 2003
------- ------ ------
(IN MILLIONS)
By Expense Type
Severance............................................... $ 5,305 $4,557 $ --
Exit-related costs...................................... 89 984 --
Special Governance Costs................................ 4,833 953 --
Legal Settlement Costs.................................. 4,750 -- --
Asset reserves.......................................... -- (691) 2,283
Acquisition related costs............................... -- 265 2,775
------- ------ ------
Total................................................... $14,977 $6,068 $5,058
======= ====== ======
By Segment
Pharmacy Services and Systems........................... $ 6,072 $2,301 $2,775
Hospital Solutions...................................... 881 259 --
Physician Solutions..................................... 714 (364) 2,283
Information Management.................................. 573 1,039 --
Other................................................... 6,737 2,833 --
------- ------ ------
Total................................................... $14,977 $6,068 $5,058
======= ====== ======
</Table>
During fiscal 2005, NDCHealth continued the review of the entirety of its
operations to identify opportunities for increased efficiencies and profit
improvement, which included an assessment of its organizational structure as
well as its physical operating locations. As a result of this review, NDCHealth
reduced its workforce by 70 employees and closed three office locations. Of the
$5.4 million severance and exit-related costs incurred in fiscal 2005, $4.8
million was cash and $0.6 million was a non-cash charge in accordance with FASB
Interpretation Number 44, "Accounting for Certain Transactions Involving Stock
Compensation" ("FIN 44").
Special governance costs of $4.8 million and $1.0 million in fiscal 2005
and 2004, respectively, include the legal and accounting costs associated with
NDCHealth's shareholder litigation, SEC investigation, restatement of its Annual
Report on Form 10-K for fiscal years ended May 28, 2004, and work performed
related to the NDCHealth board of directors decision to pursue the sale of
NDCHealth.
On August 4, 2005, NDCHealth reached an agreement to settle all claims in
the 1-Rex, Inc., FDS, Inc., HealthCare Computer Corporation, Freedom Drug
Stores, Inc., Freedom Data Services, Inc., and William Rex Akers case.
During fiscal 2004, NDCHealth began a review of the entirety of the company
to identify opportunities for increased operational efficiencies. This review
includes an assessment of its organizational structure as well as its physical
operating locations. NDCHealth took several actions in fiscal 2004 as a result
of this review, primarily related to the reduction of its workforce related to
redundant operations and activities. The severance charges reflect 131
specifically identified executives and employees who were informed of their
employment termination during fiscal 2004. The exit-related costs relate to the
closure of three offices and the reduction in size of one office. Also in the
second fiscal quarter of 2004, NDCHealth wrote-off a $0.2 million note
receivable related to a business that was exited in 2001.
In conjunction with the sale of its interest in MedUnite to ProxyMed,
NDCHealth also evaluated other aspects of NDCHealth's MedUnite relationship. As
part of this evaluation, NDCHealth identified $1.4 million of trade receivables
that NDCHealth believes became uncollectible as a result of the change in
relationship with MedUnite. Accordingly, a charge of $1.4 million is included in
Restructuring and Other Charges in fiscal 2003 to reserve for these receivables.
In addition, NDCHealth reserved
118
$0.9 million of the note receivable from ProxyMed during fiscal 2003, which was
subsequently reversed during the fourth quarter of 2004 because of the positive
payment history of ProxyMed.
Additionally, in conjunction with the second step of NDCHealth's TechRx
acquisition in fiscal 2003 and in accordance with APB No. 25 and FIN 44,
NDCHealth recorded $2.8 million and $0.3 million of acquisition related expense
for TechRx variable stock options in fiscal year 2003 and 2004, respectively.
In conjunction with the sale of its interest in MedUnite to ProxyMed,
NDCHealth also evaluated other aspects of its MedUnite relationship. NDCHealth
reserved $0.9 million of the note receivable from ProxyMed during fiscal 2003,
which was subsequently reversed during the fourth quarter of 2004 because of the
positive payment history of ProxyMed.
OPERATING INCOME
<Table>
<Caption>
2005 VS. 2004 2004 VS. 2003
CHANGE CHANGE
----------------- -----------------
2005 2004 2003 DOLLARS DOLLARS
----- ----- ----- ------- PERCENT ------- PERCENT
(IN MILLIONS)
Operating Income (Loss):
Pharmacy Services and Systems..... $ 9.2 $28.4 $34.1 $(19.2) (67.6)% $ (5.7) (16.7)%
Hospital Solutions................ 15.4 23.7 25.9 (8.3) (35.0)% (2.2) (8.5)%
Physician Solutions............... 7.4 6.1 5.5 1.3 21.3% 0.6 10.9%
Information Management............ 8.1 12.5 22.3 (4.4) (35.2)% (9.8) (43.9)%
Other............................. (6.7) (2.8) -- (3.9) (139.3)% (2.8) --
----- ----- ----- ------ ------
Total............................... $33.4 $67.9 $87.8 $(34.5) (50.8)% $(19.9) (22.7)%
===== ===== ===== ====== ======
</Table>
Operating Income in the Pharmacy Services and Systems segment decreased
$19.2 million or 67.6%, to $9.2 million in fiscal 2005 from $28.4 million in
fiscal 2004. This decrease was due to decreased revenue, increased software
development expense as a result of lower capitalization of software development,
increase in severance and legal settlement costs, an increase in the segment's
share of total general and administrative costs, increased software depreciation
expense and increased intangible amortization expense resulting from the
OmniLink acquisition in April 2004. Operating Income in the Pharmacy Services
and Systems segment decreased $5.7 million or 16.7%, to $28.4 million in fiscal
2004 from $34.1 million in fiscal 2003. This decrease was due to an increase in
the segment's share of total general and administrative costs and increased
intangible amortization expense resulting from the completion of the TechRx
acquisition in May 2003, partially offset by reduced customer support expense.
Operating Income in the Hospital Solutions segment decreased $8.3 million,
or 35.0% to $15.4 million in fiscal 2005 from $23.7 million in fiscal 2004. This
decrease was due to lower revenue of $2.8 million, $1.9 million increase in COS
associated with NDC ePREMIS growth, $1.0 million increase in Depreciation and
Amortization expense from new products coming on line, and a $1.7 million
increase in the segment's share of corporate SG&A costs. Operating Income in the
Hospital Solutions segment decreased $2.2 million or 8.5%, to $23.7 million in
fiscal 2004 from $25.9 million in fiscal 2003. This decrease was due to lower
revenue of $2.0 million, a $0.7 million increase in the segment's share of
corporate SG&A costs, a $0.9 million increase in Depreciation and Amortization
expense from new products coming on line, and decreased COS of $2.3 million
associated with the reduction in statement printing cost.
Operating Income in the Physician Solutions segment increased $1.3 million,
or 21.3%, to $7.4 million in fiscal 2005 from $6.1 million in fiscal 2004. This
increase was due to lower SG&A expense combined with higher deferred revenue
recognized from the prior year of $3.2 million. Operating Income in the
Physician Solutions segment increased $0.6 million or 10.9%, to $6.1 million in
fiscal 2004 from $5.5 million in fiscal 2003. This increase was due to a
positive effect from restructuring of $2.6 million offset by an increase in
systems reserves for bad debt combined with lower revenue.
119
Operating Income in the Information Management segment decreased $4.4
million, or 35.2%, to $8.1 million in fiscal 2005 from $12.5 million in fiscal
2004. Operating Income in the Information Management segment decreased $9.8
million, or 43.9%, to $12.5 million in fiscal 2004 from $22.3 million in fiscal
2003. The decrease in both periods was the result of increased segment data
costs and COS as discussed above and an increase in the segment share of
corporate SG&A expenses.
Operating Loss in Other was $6.7 million in fiscal 2005 and $2.8 million in
fiscal 2004, and is related to Restructuring, Special Governance and Other
Charges that are not attributable to a specific segment, including expenses
related to certain legal and governance costs discussed above.
OTHER INCOME (EXPENSE)
<Table>
<Caption>
2005 2004 2003
------ ------ ------
(IN MILLIONS)
Interest and Other Income................................ $ 0.5 $ 0.5 $ 2.1
Interest and Other Expense............................... (25.5) (27.6) (21.7)
Early Extinguishment of Debt............................. -- (0.1) (2.4)
Loss Related to Investments.............................. -- (4.5) (14.5)
------ ------ ------
Total...................................................... $(25.0) $(31.7) $(36.5)
====== ====== ======
</Table>
Interest and Other Income is derived primarily from interest earned in
overnight money market funds.
Interest and Other Expense consists of interest expense, amortization of
debt issuance costs and other miscellaneous non-operating expense. Interest and
Other Expense decreased $2.1 million, or 7.6%, to $25.5 million in fiscal 2005
from $27.6 million in fiscal 2004, due to reduced borrowings. Interest and Other
Expense increased $5.9 million, or 27.2%, to $27.6 million in fiscal 2004 from
$21.7 million in fiscal 2003. This increased interest expense in fiscal 2004 was
due to the additional debt and higher weighted average rates being in place in
fiscal 2004.
During the fourth quarter of fiscal 2004, NDCHealth made the decision to
de-emphasize its efforts in new physician e-prescribing activities. NDCHealth
will continue to leverage its market leadership to help connect pharmacies to
physician interface providers. This is the portion of e-prescribing where
NDCHealth currently brings the greatest strength, and intend to concentrate its
physician market efforts on its high-margin systems and EDI businesses. Due to
this strategic decision, NDCHealth incurred a non-cash charge of $4.5 million,
or $0.12 per diluted share, to write down its investment in an e-prescribing
company.
As of May 27, 2005, NDCHealth's total investment in this entity was
approximately $5.0 million. NDCHealth is currently amortizing NDCHealth's
prepaid asset through the end of NDCHealth's agreement (December 2008). Since
the e-prescribing industry is an emerging industry, it is difficult to predict
which companies will be successful. NDCHealth continues to monitor the
realizability of NDCHealth's investment and prepaid license fees. If their
company does not succeed, NDCHealth could record a significant impairment to
this asset in a future fiscal period.
The loss in 2003 relates to the write-down of NDCHealth's investment in
Medunite to its fair value.
PROVISION FOR INCOME TAXES
NDCHealth's estimated continuing effective tax rate in fiscal 2005, 2004,
and 2003 was 29.9%, 40.6%, and 38.8% respectively. NDCHealth expects its
effective tax rate to increase to approximately 39% for the next fiscal year.
The decrease in NDCHealth's effective tax rate in fiscal year 2005 was
primarily the result of additional federal income tax credits for research and
experimentation recognized in fiscal 2005 and true-up adjustments for prior
years taxes including certain issues settled with respect to its fiscal 2001 IRS
audit.
120
RESULTS OF OPERATIONS FOR THE FIRST QUARTER OF FISCAL 2006 VS. THE FIRST
QUARTER OF FISCAL 2005
NDCHealth's fiscal year begins on the Saturday closest to June 1 and ends
on the Friday closest to May 31. Interim quarters typically consist of thirteen
weeks ending the Friday closest to the last calendar day of August, November and
February. The first quarter ended September 2, 2005, and consisted of 14 weeks
due to this calendar methodology. The net effect of this 14th week in the first
quarter of fiscal 2006 was incremental revenue of $2.4 million, operating profit
of $0.2 million and net loss of $0.2 million or less than $0.01 diluted earnings
per share.
<Table>
<Caption>
THREE MONTHS ENDED CHANGE
----------------------------------- ------------------
SEPTEMBER 2, 2005 AUGUST 27, 2004 DOLLARS PERCENT
(DOLLARS IN THOUSANDS) ----------------- --------------- -------- -------
Revenue:
Pharmacy Services and Systems....... $33,510 $31,154 $2,356 7.6%
Hospital Solutions.................. 17,596 16,144 1,452 9.0%
Physician Solutions................. 7,599 6,477 1,122 17.3%
Information Management.............. 41,275 37,233 4,042 10.9%
------- ------- ------
Total................................. $99,980 $91,008 $8,972 9.9%
======= ======= ======
</Table>
REVENUE
Revenue growth in the first quarter fiscal year 2006 as compared to the
comparable prior year period was driven by growth in all four business segments
as described below.
Pharmacy Services and Systems
Pharmacy Services and Systems revenue increased $2.4 million, or 7.6%, to
$33.5 million in the first quarter of fiscal 2006 from $31.2 million in the
first quarter of fiscal 2005. The increase in revenue was due to a $1.7 million
increase in transaction services revenue and a $0.4 million increase in pharmacy
systems revenue. The impact of the 14th accounting week accounted for $1.2
million additional revenue. The remaining increase is the result of NDCHealth
receiving a larger percentage of transactions from certain of its largest chain
customers. NDCHealth experienced a $2.2 million increase in sales of its
PharmacyRx solution and its system for mail order pharmacies, but these gains
were offset by a $1.8 million decline in revenue from its legacy systems
customers. NDCHealth expects revenue in the upcoming second quarter to be lower
than the first quarter due to the benefit of the additional week realized in the
first quarter.
Transaction revenue growth lagged the growth in transactions due to the
transaction growth being derived primarily from the largest pharmacy chains, who
receive NDCHealth's best per-transaction pricing due to their large volumes.
Transaction-based revenue is expected to continue to grow more slowly than
transactions due to market share gains by large national chains and competitive
price pressure for transaction-based services. NDCHealth intends to offset these
pressures and grow transaction services revenue over time by continuing to
increase its share of core claim transactions and its penetration of pre-and
post-editing services and by introducing additional value-added transaction
services, such as its recently awarded Medicare Part D True Out Of Pocket
(TrOOP) services.
Hospital Solutions
Revenue in the Hospital Solutions segment increased $1.5 million, or 9.0%,
to $17.6 million in the first quarter of fiscal 2006 from $16.1 million in the
first quarter of fiscal 2005. This increase was due to increased sales and
installation of the NDC ePremis revenue cycle management solution to new
customers and the conversion of existing NDC legacy Premis customers to the
ePremis solution at higher per transaction revenues, which more than offset
attrition of legacy Premis customers. Transaction revenue increased 19% or $1.8
million, which included $0.8 million from the impact of the 14th accounting
week.
121
Lower ancillary customization and professional services revenue offset the
transaction revenue growth by $0.3 million.
Physician Solutions
Revenue in the Physician Solutions segment increased $1.1 million, or
17.3%, to $7.6 million in the first quarter of fiscal 2006 from $6.5 million in
the first quarter of fiscal 2005. This was primarily due to increased system
sales of $1.3 million offset by lower transaction services revenue of $0.2
million. The impact of the 14th accounting week accounted for $0.4 million
additional revenue.
Information Management
Information Management Revenue increased $4.0 million, or 10.9%, to $41.3
million in the first quarter of fiscal 2006 from $37.2 million in the first
quarter of fiscal 2005. This increase was due to growth in both core product and
service offerings as well as advanced analysis, market research and longitudinal
product solutions. The Information Management business faces some continuing
price pressure from its pharmaceutical clients and faces the risk of losing
existing customers to competing providers, particularly at the time of renewals.
The Information Management business must continue developing and selling new,
more advanced information products and/or add new clients in order to sustain
positive growth.
COST OF SERVICE
Cost of Service ("COS") includes certain compensation, computer operations,
data costs, consulting services, telecommunications, customer support, and
application maintenance expenses. COS increased $0.8 million, or 1.5%, to $51.2
million in the first quarter of fiscal 2006 from $50.4 million in the first
quarter of fiscal 2005.
<Table>
<Caption>
THREE MONTHS ENDED
------------------------- CHANGE
SEPTEMBER 2, AUGUST 27, -----------------
2005 2004 DOLLARS PERCENT
(DOLLARS IN THOUSANDS) ------------ ---------- ------- -------
Revenue by Segment
Pharmacy Services and Systems............... $33,510 $31,154 $2,356 7.6%
Hospital Solutions.......................... 17,596 16,144 1,452 9.0%
Physician Solutions......................... 7,599 6,477 1,122 17.3%
Information Management...................... 41,275 37,233 4,042 10.9%
------- ------- ------
Total Revenue................................. $99,980 $91,008 $8,972 9.9%
======= ======= ======
Cost of Service by Segment
Pharmacy Services and Systems............... $15,594 $15,943 $ (349) (2.2)%
Hospital Solutions.......................... 6,739 6,383 356 5.6%
Physician Solutions......................... 3,226 3,391 (165) (4.9)%
Information Management...................... 25,642 24,717 925 3.7%
------- ------- ------
Total Cost of Service......................... $51,201 $50,434 $ 767 1.5%
======= ======= ======
Cost of Service as Percent of Revenue
Pharmacy Services and Systems............... 46.5% 51.2%
Hospital Solutions.......................... 38.3% 39.5%
Physician Solutions......................... 42.5% 52.4%
Information Management...................... 62.1% 66.4%
Total.................................... 51.2% 55.4%
</Table>
122
COS in the Pharmacy Services and Systems segment decreased by $0.3 million,
or 2.2%, to $15.6 million in the first quarter of fiscal 2006 from $15.9 million
in the first quarter of fiscal 2005. This decrease is primarily due to reduced
telecommunications costs as NDCHealth continues to identify opportunities for
lower priced technologies and negotiate more favorable pricing with its vendors.
Although staffing levels in the current year's first quarter were lower than the
prior year, the resulting cost savings were offset by $0.4 million of additional
compensation expense due to the additional week in the fiscal quarter.
COS in the Hospital Solutions segment increased by $0.4 million, or 5.6%,
to $6.7 million in the first quarter of fiscal 2006 from $6.4 million in the
first quarter of fiscal 2005. This increase is primarily due to higher service
cost associated with the increased ePremis installations and higher software
development expense. The impact of the 14th accounting week accounted for $0.2
million additional expense.
COS in the Physician Solutions segment decreased by $0.2 million, or 4.9%,
to $3.2 million in the first quarter of fiscal 2006 from $3.4 million in the
first quarter of fiscal 2005. This decrease is primarily due to lower Physician
services cost associated with lower transaction revenue. The impact of the 14th
accounting week accounted for $0.1 million additional expense.
COS in the Information Management segment increased by $0.9 million, or
3.7%, to $25.6 million in the first quarter of fiscal 2006 from $24.7 million in
the first quarter of fiscal 2005. This increase is due primarily to one
additional week of compensation cost ($0.5 million) resulting from NDCHealth's
accounting period, incremental direct production costs related to the increased
revenue, increased development costs related to the Arclight and other product
development efforts partially offset by decreased data costs.
Data Costs
Data costs are primarily recorded within the Information Management segment
in COS, but some data costs are also recorded in Pharmacy Services and Systems
segment COS. The decrease in data costs in the first quarter of fiscal 2006 as
compared to the first quarter of fiscal 2005 was the result of initiatives to
negotiate lower per transaction data purchase costs as well as lower custom data
purchases necessary to support certain client deliverables.
<Table>
<Caption>
THREE MONTHS ENDED
------------------------- CHANGE
SEPTEMBER 2, AUGUST 27, -----------------
2005 2004 DOLLARS PERCENT
(DOLLARS IN THOUSANDS) ------------ ---------- ------- -------
Revenue....................................... $99,980 $91,008 $8,972 9.9%
Data costs.................................... $13,890 $14,308 $ (418) (2.9)%
Data costs as a Percent of Revenue............ 13.9% 15.7%
</Table>
Software Costs
Software costs are related to the development of new products and
maintenance and enhancement of existing products. NDCHealth capitalizes certain
costs of developing software held for sale to its customers, as well as software
used internally to provide services to its customers. NDCHealth expenses costs
associated with maintenance of existing products and costs associated with
developing products prior to the product's reaching technological feasibility.
The primary engine of growth for NDCHealth is the creation of new and
enhanced products. As such, software costs are an investment in the growth of
NDCHealth. As new products are developed, sold and installed, NDCHealth expects
to grow revenue, operating income, and increase cash flow. NDCHealth's current
focus is on developing products such as NDC EnterpriseRx and its Intelligent
Health Repository and ArcLight-related information products.
Total costs associated with software development decreased by $0.5 million,
or 5.2%, to $9.8 million in the first quarter of fiscal 2006 from $10.3 million
in the first quarter of fiscal 2005. Of the total, costs
123
associated with software development for NDCHealth's new pharmacy system,
EnterpriseRx, were $4.2 million in the first quarter of fiscal 2006 versus $4.8
million in the first quarter of fiscal 2005. In the first quarter of fiscal
2006, approximately $2.7 million of these development costs were capitalized,
resulting in net development expense associated with NDCHealth's new pharmacy
system of approximately $1.5 million. In the first quarter of fiscal 2005,
approximately $2.8 million of these development costs were capitalized resulting
in net development expense associated with NDCHealth's new pharmacy system of
approximately $2.0 million.
As of September 2, 2005, NDCHealth has capitalized $56.4 million for NDC
EnterpriseRx in the aggregate. NDC EnterpriseRx must achieve anticipated market
acceptance over the next few years in order for future cash flows to support
this asset. Failure to achieve anticipated market acceptance could lead to a
write down of this software asset.
As discussed above, development costs capitalized as a percent of total
development costs decreased to 53.5% in the first quarter of fiscal 2006 from
56.1% in the first quarter of fiscal 2005. Amortization expenses associated with
capitalized software are discussed below under "Depreciation and Amortization."
<Table>
<Caption>
THREE MONTHS ENDED
------------------------- CHANGE
SEPTEMBER 2, AUGUST 27, -----------------
2005 2004 DOLLARS PERCENT
(DOLLARS IN THOUSANDS) ------------ ---------- ------- -------
Total costs associated with software
development................................. $ 9,807 $10,348 $ (541) (5.2)%
Less: capitalization of internally developed
software.................................... (5,248) (5,807) (559) (9.6)%
------- ------- ------
Net software development expense.............. 4,559 4,541 (18) (0.4)%
Software maintenance expense.................. 2,341 2,231 110 4.9%
------- ------- ------
Total net software expense.................... $ 6,900 $ 6,772 $ 128 1.9%
======= ======= ======
Revenue....................................... $99,980 $91,008 $8,972 9.9%
Capitalization as a % of Revenue.............. 5.2% 6.4%
Total net software expense as a % of
Revenue..................................... 6.9% 7.4%
Capitalization of developed software as a % of
total costs associated with software
development................................. 53.5% 56.1%
</Table>
SALES, GENERAL AND ADMINISTRATIVE EXPENSE
<Table>
<Caption>
THREE MONTHS ENDED
------------------------- CHANGE
SEPTEMBER 2, AUGUST 27, -----------------
2005 2004 DOLLARS PERCENT
(DOLLARS IN THOUSANDS) ------------ ---------- ------- -------
Revenue....................................... $99,980 $91,008 $8,972 9.9%
SG&A.......................................... $23,708 $22,333 $1,376 6.2%
SG&A as a Percent of Revenue.................. 23.7% 24.5%
</Table>
Sales, General and Administrative ("SG&A") expense consists primarily of
salaries, wages and expenses relating to sales, marketing, administrative and
management employees, employee training costs, occupancy of leased space,
insurance costs and outside professional fees, including legal services.
The increase in SG&A expense was caused by increased corporate staff and
professional fees in response to increased complexity and regulatory
requirements of NDCHealth's business and approximately $1.0 million of
additional expense due to NDCHealth's 14th accounting week.
NDCHealth expects that SG&A expense as a percentage of Revenue will decline
slightly in the second quarter of fiscal 2006 compared to the first quarter of
fiscal 2006.
124
DEPRECIATION AND AMORTIZATION
<Table>
<Caption>
THREE MONTHS ENDED
------------------------- CHANGE
SEPTEMBER 2, AUGUST 27, -----------------
2005 2004 PERCENT DOLLAR
(DOLLARS IN THOUSANDS) ------------ ---------- ------- -------
Pharmacy Services and Systems................. $3,867 $ 4,450 $(583) (13.1)%
Hospital Solutions............................ 2,036 1,910 126 6.6%
Physician Solutions........................... 486 488 (2) (0.4)%
Information Management........................ 3,104 3,421 (317) (9.3)%
------ ------- -----
Total Depreciation and Amortization........... $9,493 $10,269 $(776) (7.6)%
====== ======= =====
</Table>
Depreciation and Amortization expense decreased in the first quarter of
fiscal 2006 from the first quarter of fiscal 2005, but is similar to the third
and fourth quarter of fiscal 2005.
The decline in depreciation and amortization in the first quarter of fiscal
2006 from the same quarter of fiscal 2005 was due to approximately $0.5 million
of additional amortization expense being recorded in the first quarter of fiscal
2005 in the Pharmacy Services and Systems segment related to the change in the
amortization period of one of the ePrescribing products. In addition, the
acquired developed technology intangible in the Information Management segment
completed amortization during fiscal 2005, which resulted in a reduction of
amortization of approximately $0.3 million per quarter.
Following the general availability of EnterpriseRx, currently anticipated
in the third quarter of fiscal 2006, Depreciation and Amortization will increase
by approximately $3.0 million per quarter, or $11.9 million per year, due to the
amortization of this asset.
When material intangible assets, such as goodwill and customer bases, are
acquired in conjunction with the purchase of a company, NDCHealth undertakes a
study by an independent third party to determine the allocation of the purchase
price to the assets acquired. Intangible assets are amortized over their
estimated useful life ranging from 3 to 10 years. In accordance with Statement
of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other
Intangible Assets," NDCHealth does not amortize goodwill. NDCHealth does,
however, assess the recoverability of goodwill on at least an annual basis
during its second quarter, or more frequently if circumstances suggest potential
impairment. NDCHealth completed its annual impairment testing during the second
quarter of fiscal 2005. For each of its reporting units, NDCHealth found that
the estimated fair value exceeded the net book value of the unit and therefore
impairment was not necessary.
However, the amount by which the estimated fair value exceeded the net book
value was less than in previous years due to declines in operating earnings of
NDCHealth's Pharmacy and Physician reporting units. If earnings do not recover
as expected in each of these reporting units, NDCHealth may face a write-down of
goodwill in the future. To achieve the expected recovery in its Pharmacy unit,
NDCHealth must successfully introduce its NDC EnterpriseRx pharmacy system and
achieve reasonable market acceptance and sales, and NDCHealth must continue to
grow pharmacy network services revenue from claims transaction growth, achieve
added penetration of value-added pre and post editing services, and have further
success in selling informatics services to pharmacy customers. To achieve the
expected recovery in its Physician unit operating earnings, NDCHealth must see
continued recovery in Physician system sales to its value-added reseller
channel, which declined following its conversion to offering only cash terms to
its resellers at the end of fiscal year 2004, but which showed improvement in
fiscal 2005 and the first quarter of fiscal 2006.
RESTRUCTURING, SPECIAL GOVERNANCE AND OTHER CHARGES
Special governance costs of $3.9 million and $0.4 million in the first
quarter of fiscal 2006 and 2005, respectively, include the legal and accounting
costs associated with NDCHealth's stockholder litigation,
125
SEC investigation, and work performed related to the Board of Directors'
decision to pursue the sale of NDCHealth. These expenses are recorded in the
Other segment.
OPERATING INCOME
<Table>
<Caption>
THREE MONTHS ENDED
------------------------- CHANGE
SEPTEMBER 2, AUGUST 27, -----------------
2005 2004 DOLLARS PERCENT
(DOLLARS IN THOUSANDS) ------------ ---------- ------- -------
Operating Income:
Pharmacy Services and Systems.............. $ 5,868 $3,159 $ 2,709 85.8%
Hospital Solutions......................... 5,445 4,279 1,166 27.2%
Physician Solutions........................ 1,879 556 1,323 237.9%
Information Management..................... 2,386 (22) 2,408 n/m
Other...................................... (3,926) (388) (3,538) n/m
------- ------ -------
Total Operating Income....................... $11,652 $7,584 $ 4,068 53.6%
======= ====== =======
</Table>
Operating Income in the Pharmacy Services and Systems segment increased
$2.7 million, or 85.8%, to $5.9 million in the first quarter of fiscal 2006 from
$3.2 million in the first quarter of fiscal 2005, due to the increase in
transaction services and pharmacy system revenue described above. There was a
$0.6 million positive impact due to the 14th accounting week.
Operating Income in the Hospital Solutions segment increased $1.2 million,
or 27.2%, to $5.4 million in the first quarter of fiscal 2006 from $4.3 million
in the first quarter of fiscal 2005, due to higher revenue of $1.5 million
partially offset by $0.4 million higher cost of service combined with lower SG&A
expenses of $0.3 million. The positive impact of the 14th accounting week
accounted for $0.6 million.
Operating Income in the Physician Solutions segment increased $1.3 million,
or 237.9%, to $1.9 million in the first quarter of fiscal 2006 from $0.5 million
in the first quarter of fiscal 2005, due to increased systems and services
revenue of $1.1 million combined with lower cost of service and SG&A cost of
$0.3 million. The positive impact of the 14th accounting week accounted for $0.2
million.
Operating Income in the Information Management segment increased $2.4
million to $2.4 million in the first quarter of fiscal 2006 as the result of
increased revenues, improved gross margin and flat to slightly decreased sales,
administrative and depreciation costs. There was a $0.8 million negative impact
due to the 14th accounting week.
OTHER INCOME (EXPENSE)
<Table>
<Caption>
THREE MONTHS ENDED CHANGE
------------------------- -----------------
SEPTEMBER 2, AUGUST 27,
2005 2004 DOLLARS PERCENT
(DOLLARS IN THOUSANDS) ------------ ---------- ------- -------
Other Income (Expense)
Interest and Other Income.................... $ 154 $ 61 $ 93 152.5%
Interest and Other Expense................... (7,046) (6,395) (651) 10.2%
------- ------- -----
Total.......................................... $(6,892) $(6,334) $(558) 8.8%
======= ======= =====
</Table>
Interest and Other Income results primarily from interest earned in
overnight money market funds.
Interest and Other Expense consists of interest expense, amortization of
debt issuance costs and other miscellaneous non-operating expense. Interest and
Other Expense increased $0.7 million, or 10.2%, to $7.0 million in the first
quarter of fiscal 2006 from $6.4 million in the first quarter of fiscal 2005.
The increase in Interest and Other Expense was primarily due to a $0.5 million
additional interest expense due to 14 weeks in the first quarter of fiscal 2006
versus 13 weeks in first quarter of fiscal 2005.
126
PROVISION FOR INCOME TAXES
NDCHealth's estimated effective tax rate in the first quarter of fiscal
years 2006 and 2005 was 44.6% and 39.0%, respectively. The increase in the first
quarter fiscal 2006 rate was due to certain company sale transaction costs which
were non-deductible for tax purposes.
DISCONTINUED OPERATIONS
During the fourth quarter of fiscal 2004, management performed a review of
NDCHealth's European businesses to determine alternatives to mitigate the losses
associated with these operations. In May 2004, management recommended and the
board of directors approved the sale of these European businesses. In October
2004, NDCHealth completed the sale of its United Kingdom business and recorded a
gain on this sale of $1.7 million. In May 2004, NDCHealth had recorded a $7.2
million after-tax write down of its United Kingdom operations' equity investment
in a joint venture.
In June 2005, NDCHealth completed the sale of its German business for $13.4
million. These proceeds were less than what NDCHealth had previously expected to
receive from this sale; therefore, NDCHealth wrote down the carrying value of
these assets by $7.3 million and $22.2 million in the fourth quarter and full
year of fiscal 2005, respectively.
In addition, NDCHealth sold its Pharmacy Benefit Services ("HealthTrans")
and its Canadian transaction processing business in the fourth fiscal quarter of
2005. NDCHealth recorded a $2.6 million and $1.3 million pre-tax gain on these
sales, respectively.
Accordingly, NDCHealth's financial statements have been prepared with the
net assets and liabilities, results of operations, and cash flows of these
operations displayed separately as Discontinued Operations with all historical
financial statements restated to conform to this presentation.
In the fourth quarter of 2005, NDCHealth was also notified by the Internal
Revenue Service ("IRS") that its settlement offer for certain items in its
fiscal 2001 tax return, including a worthless stock loss deduction taken related
to the divestiture of its management services business, was accepted. NDCHealth
reversed $3.2 million and $0.5 million of excess valuation allowance and tax
contingency reserves, respectively, in the fourth quarter of fiscal 2005.
LIQUIDITY AND CAPITAL RESOURCES
Payments from NDCHealth's customers are its greatest source of liquidity.
Additional sources of liquidity include NDCHealth's credit facility, financing
under capital lease arrangements, vendor financing, and issuances of common
stock and other instruments. The cash provided by these sources has a variety of
uses. Most importantly, NDCHealth must pay its employees and vendors for the
services and materials they supply. Additional uses include capital equipment,
development of additional products, investments in alliances, acquisitions,
payment of taxes, payment of dividends, extension of credit to its customers,
repayment of debt, and other general funding of NDCHealth's day-to-day
operations.
NDCHealth's operating cash requirements are generally satisfied with
customer receipts as NDCHealth receives a higher level of cash from its
customers than it expends for payments of salaries and other recurring operating
costs. Excess cash that NDCHealth generates after satisfying all of its
continuing operating requirements is shown on its statement of cash flows as net
cash provided by operating activities. This measure takes into account items
such as non-cash expenses included in its operating income, cash used to extend
credit to its customers and cash provided by its vendors extending credit to
NDCHealth.
As of May 27, 2005
Net cash provided by operating activities was $40.0 million in fiscal 2005,
a $58.4 million decrease from the $98.4 million of cash provided by operating
activities in fiscal 2004.
Net cash provided by operating activities was negatively impacted by a
reduction in the income from continuing operations adjusted for non-cash items
and an increase in use of working capital. NDCHealth
127
used cash of $21.4 million in increasing working capital in fiscal 2005 compared
to a provision of $7.2 million in cash from working capital in fiscal 2004.
Significant differences between fiscal 2005 and fiscal 2004 are accounts
receivable, accounts payable and accrued liabilities, and deferred revenue.
Collectively, these changes in working capital used $25.2 million of cash in
fiscal 2005 and provided $12.5 million of cash in fiscal 2004. Changes in
working capital are the result of the timing of payments to NDCHealth's vendors
and the timing difference between billing customers for services as required by
their contracts and NDCHealth's recognition of related revenue. Accounts
receivable provided $4.4 million of cash in fiscal 2005 and used $7.8 million of
cash in fiscal 2004. Accounts payable and accrued liabilities used $7.0 million
of cash in fiscal 2005 compared to providing $8.9 million in fiscal 2004. During
fiscal 2005, NDCHealth has made an effort to improve the working relationship
with its vendors and therefore reduced the number of days its payables remain
outstanding. Deferred revenue used $22.7 million in fiscal 2005 compared to
providing $11.5 million in fiscal 2004, which primarily resulted from the
prepayment of services for certain of NDCHealth's larger customers in fiscal
2004.
Due to NDCHealth's net operating loss carryforward position, cash payments
related to income tax were limited to certain state and local jurisdictions
which provide no or limited net operating loss carryforward opportunities.
NDCHealth's net operating loss carryforwards increased in fiscal 2005 primarily
due to the favorable tax treatment of certain items arising from its Continuing
Operations (primarily the deductibility of research and development costs and
accelerated depreciation on fixed assets). These favorable tax items had the
effect of increasing its net operating loss carryforward by approximately $5
million but had no effect on NDCHealth's net assets as the increase in deferred
tax assets (net operating loss carryforwards) was offset by an increase in
deferred tax liabilities (property, plant & equipment). NDCHealth's net deferred
tax assets increased during the year primarily due to adjustments of certain tax
attributes related to purchase accounting entries associated with prior
acquisitions and the creation of federal tax credit carryforwards. NDCHealth
expects fiscal 2006 cash payments for income taxes to be minor due to continued
utilization of NOL's.
The nature of an information services business is such that it requires a
substantial continuing investment in data, technology equipment and product
development in order to expand the business. Creation of new and enhanced
products is the engine of growth for NDCHealth, and NDCHealth continues to
invest in its future growth through a focus on product development.
Historically, NDCHealth has also expanded its business through acquisitions and
strategic investments in other businesses. The cash NDCHealth uses to expand its
business is shown as Net cash used in investing activities. Capital
expenditures, which reflect its investment in equipment and product development
such as capitalized software costs described above, were $31.2 million in fiscal
2005, including $23.0 million in capitalized software costs and $3.8 million in
capitalized interest; and $38.4 million in fiscal 2004, including $30.6 million
in capitalized software costs and $3.1 million in capitalized interest. Capital
expenditures were funded from cash from operations in both years. As NDCHealth
continues the launch of new products in fiscal 2006, it expects a similar level
of capital expenditures as in 2005 while improving its revenue growth, gross
profit and ultimately, cash flow.
NDCHealth used $2.9 million of cash in fiscal 2005 for payment of the
annual premium and benefits of a Supplemental Executive Retirement Plan ("SERP")
for certain executives, all of whom are either retired or are no longer with
NDCHealth, and for payment of other miscellaneous investments.
NDCHealth currently has in place a $225 million senior credit facility,
consisting of a $100 million five-year revolving credit facility and a $125
million six-year term loan, and has $200 million in senior 10 1/2% subordinated
notes due 2012 outstanding. Details of NDCHealth's indebtedness are described
below. NDCHealth believes that its current level of cash on hand, future cash
flows from operations and its credit facility are sufficient to meet NDCHealth's
operating needs in fiscal 2006. As of May 27, 2005, the fair market value of the
notes was approximately $212.0 million.
The credit facility has been amended eight times for the purpose of
reducing interest rate and relaxing certain covenants to provide NDCHealth added
flexibility. The $100 million revolving credit facility is available for working
capital and general corporate purposes and has a variable interest rate based on
128
market rates. The $125 million term loan has a variable interest rate tied to
LIBOR. During fiscal 2005, NDCHealth borrowed $88.5 million and repaid $59.4
million under the revolving credit facility. As of May 27, 2005, $29.1 million
was outstanding under the revolving credit facility. During the first quarter of
fiscal 2006, NDCHealth borrowed an additional $10.0 million under the revolving
credit facility. As of May 27, 2005, $41.4 million was outstanding under the
term loan, which has been reduced by $10.6 million in the first quarter of
fiscal 2006. The average debt outstanding under the credit facility during
fiscal 2005 was $68.8 million, which bore interest at a weighted average annual
interest rate of 5.03%.
Borrowings under the credit facility bear interest, at NDCHealth's option,
at a rate based on either (i) the applicable margin plus the base rate, which is
the higher of the per annum rate, which the administrative agent publicly
announces from time to time to be its prime lending rate, and the federal funds
rate, as published by the Federal Reserve Bank of New York, plus 0.5%, or (ii)
the applicable margin plus a one, two, three or six-month "LIBOR" rate. The
applicable margin was amended to incorporate changes in debt coverage ratios and
debt ratings with respect to term loan and revolving credit borrowings, and is a
percentage per annum equal to 2.00% for base rate borrowings and 3.00% for LIBOR
borrowings. The applicable margin with respect to borrowings under the revolving
credit facility is a percentage per annum equal to 1.75% for base rate
borrowings and 2.75% for LIBOR borrowings. The applicable margin is subject to
adjustments based on NDCHealth's debt rating and financial performance. Under
the credit agreement, there is no cap on the interest rate applicable to the
term loan or the revolving credit facility.
The credit facility contains certain financial and non-financial covenants
customary for financings of this nature. As of May 27, 2005, NDCHealth was in
compliance with all restrictive covenants. In the event that the proposed merger
is not consummated, NDCHealth expects to be in compliance with these financial
covenants for the next twelve months.
Mandatory prepayments of the credit facility are required after 90 days
following the end of each fiscal year beginning fiscal year 2004. NDCHealth is
obligated to prepay an aggregate principal amount of the loans, and cash
collateralize any Letter of Credit obligations in an amount equal to: (i) 75% of
excess cash flow for such fiscal year if the consolidated total leverage ratio
is greater than 2.00:1.00 at the end of such fiscal year, and (ii) 50% of such
excess cash flow for such fiscal year if the consolidated total leverage ratio
is less than or equal to 2.00:1.00 at the end of the fiscal year. Each such
payment shall be applied ratably first to the term facility pro rata to the
scheduled amortization payments until all are paid in full and second to the
revolving credit facility. A mandatory prepayment of $27.5 million was made in
August 2004 based on fiscal 2004 earnings. No mandatory prepayment is due based
on fiscal 2005 earnings and due to payments already made during the year.
NDCHealth believes that free cash flow, defined as net cash provided by
operating activities less capital expenditures and dividends paid, is a
meaningful measure of its ability to generate cash for reducing its level of
debt. Free cash flow is not a Generally Accepted Accounting Principle ("GAAP")
measurement and may not be comparable to free cash flow reported by other
companies.
<Table>
<Caption>
FISCAL YEAR ENDED FISCAL YEAR ENDED
MAY 27, 2005 MAY 28, 2004
----------------- -----------------
(IN THOUSANDS)
Net cash provided by operating activities............ $ 39,960 $ 98,419
Capital expenditures................................. (31,200) (38,441)
Dividends paid....................................... (2,880) (5,694)
-------- --------
Free cash flow....................................... $ 5,880 $ 54,284
======== ========
</Table>
Stock activities provide NDCHealth an additional source of liquidity. Stock
activities are primarily related to the exercises of employee stock options and
issues under the employee stock purchase plan. In fiscal 2005 and 2004, issuance
of shares of NDCHealth's common stock generated $0.4 million and $9.3 million,
respectively. Although the issuance of additional shares provides NDCHealth with
liquidity, it
129
results in a dilution of each individual stockholder's equity. Another use of
cash is the payment of dividends which totaled $2.9 million in fiscal 2005 and
$5.7 million in fiscal 2004. The NDCHealth board of directors determined on
April 5, 2005, to suspend its cash dividend in order to use available cash to
reduce debt outstanding.
Discontinued operations provided $19.9 million of cash in fiscal 2005,
including $28.3 million of sale proceeds, net of $8.3 million of operating uses
of cash, and used $8.1 million in fiscal 2004, and used $8.8 million in fiscal
2003.
A summary of NDCHealth's contractual obligations is presented below:
<Table>
<Caption>
PAYMENTS DUE BY PERIOD
-----------------------------------------------------
LESS THAN 5 YEARS
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 3-5 YEARS AND OVER
- ----------------------- ------ --------- --------- --------- --------
(IN MILLIONS)
Long-term Debt........................ $270.6 $ 31.5 $ 39.1 $ -- $200.0
Capital lease obligations............. 0.2 0.1 0.1 -- --
Operating leases...................... 54.3 13.2 21.3 19.8 --
Purchase obligations.................. 56.7 54.2 2.5 -- --
Interest.............................. 164.7 24.2 67.0 63.0 10.5
------ ------ ------ ----- ------
Total contractual obligations......... $546.5 $123.2 $130.0 $82.8 $210.5
====== ====== ====== ===== ======
</Table>
As of September 2, 2005
Net cash provided by operating activities was $9.4 million in the first
quarter of fiscal 2006, a $16.7 million increase from the $7.3 million of cash
used by operating activities in the first quarter of fiscal 2005.
Net cash provided by operating activities was positively impacted by an
increase in income from continuing operations adjusted for non-cash items and a
decrease in use of working capital. NDCHealth used $7.8 million of working
capital in the first quarter of fiscal 2006 compared to a use of $22.0 million
in the first quarter of fiscal 2005. Significant differences between the first
quarter of fiscal 2006 and the first quarter of fiscal 2005 are accounts
payable, accrued liabilities and deferred revenue. Collectively, these changes
in working capital used $11.6 million of cash in the first quarter of fiscal
2006 and used $20.6 million of cash in the first quarter of fiscal 2005. Changes
in working capital are the result of the timing of payments to NDCHealth's
vendors and the timing difference between billing customers for services as
required by their contracts and NDCHealth's recognition of related revenue.
Accounts payable and accrued liabilities used $10.8 million of cash in the first
quarter of fiscal 2006 compared to using $15.3 million in the first quarter of
fiscal 2005 due to timing of payments to vendors and employees. Deferred revenue
used $0.7 million in the first quarter of fiscal 2006 compared to using $5.3
million in the first quarter of fiscal 2005, due to timing of billing and
payments from NDCHealth's customers.
Due to NDCHealth's net operating loss (NOL) carryforward position, cash
payments related to income tax were limited to certain state and local
jurisdictions which provide no or limited net operating loss carryforward
opportunities. NDCHealth expects fiscal 2006 cash payments for income taxes to
be minor due to continued utilization of NOL's.
The nature of transaction and information services and application software
businesses are such that they require a substantial continuing investment in
data, technology equipment and product development in order to expand the
business. Creation of new and enhanced products is the engine of growth for
NDCHealth, and NDCHealth continues to invest in its future growth through a
focus on product development. Historically, NDCHealth has also expanded its
business through acquisitions and strategic investments in other businesses. The
cash NDCHealth uses to expand its business is shown as Net cash used in
investing activities. Capital expenditures, which reflect NDCHealth's investment
in equipment and product development such as capitalized software costs
described above, were $8.1 million in the first
130
quarter of fiscal 2006, including $5.2 million in capitalized software costs and
$1.1 million in capitalized interest; and $10.7 million in the first quarter of
fiscal 2005, including $5.8 million in capitalized software costs and $0.8
million in capitalized interest. As NDCHealth continues the launch of new
products in fiscal 2006, NDCHealth expects a similar level of capital
expenditures as in 2005 while improving its revenue growth, gross profit and
ultimately, cash flow.
NDCHealth currently has in place a $225 million senior credit facility,
consisting of a $100 million five-year revolving credit facility and a $125
million six-year term loan. NDCHealth also has $200 million outstanding under
NDCHealth's senior 10 1/2% subordinated notes due 2012. Details of NDCHealth's
indebtedness are described below. NDCHealth believes that its current level of
cash on hand, future cash flows from operations, and its credit facility are
sufficient to meet its operating needs in the next twelve months. NDCHealth
intends to utilize the proceeds from the sale of HIS to pay the outstanding
debt. As of September 2, 2005, the fair market value of the notes was
approximately $230.0 million.
The $100 million revolving credit facility is available for working capital
and general corporate purposes and has a variable interest rate based on market
rates. The $125 million term loan has a variable interest rate tied to LIBOR.
During the first quarter of fiscal 2006, NDCHealth borrowed $10.0 million and
repaid $15.0 million under the revolving credit facility. As of September 2,
2005, $24.1 million was outstanding under the revolving credit facility. As of
September 2, 2005, $30.4 million was outstanding under the term loan, which has
been reduced by $11.1 million in the first quarter of fiscal 2006. The average
debt outstanding under the credit facility during the first quarter of fiscal
2006 was $66.7 million, which bore interest at a weighted average annual
interest rate of 6.67%.
The credit facility contains certain financial and non-financial covenants
customary for financings of this nature. As of September 2, 2005, NDCHealth was
in compliance with all restrictive covenants. NDCHealth expects to be in
compliance with these covenants for the next twelve months.
Another use of cash is the payment of dividends, which totaled $1.4 million
in the first quarter of fiscal 2005. NDCHealth's Board of Directors determined
on April 5, 2005 to suspend its cash dividend in order to use available cash to
reduce debt outstanding.
Discontinued operations provided $10.9 million of cash in the first quarter
of fiscal 2006, including $11.6 million of sale proceeds, net of $0.7 million of
operating uses of cash for divestiture related to legal and investment banker
fees, and used $7.9 million in the first fiscal quarter of fiscal 2005.
NDCHealth believes that free cash flow, defined as net cash provided by
operating activities less capital expenditures and dividends paid, is a
meaningful measure of its ability to generate cash for reducing its level of
debt. Free cash flow is not a Generally Accepted Accounting Principle
measurement and may not be comparable to free cash flow reported by other
companies.
<Table>
<Caption>
THREE MONTHS ENDED
-------------------------
SEPTEMBER 2, AUGUST 27,
2005 2004
(IN THOUSANDS) ------------ ----------
Net cash provided (used) by operating activities............ $ 9,423 $ (7,288)
Capital expenditures........................................ (8,091) (10,682)
Dividends paid.............................................. -- (1,439)
------- --------
Free cash flow.............................................. $ 1,332 $(19,409)
======= ========
</Table>
OFF-BALANCE SHEET ARRANGEMENTS
NDCHealth did not have any off-balance sheet arrangements as of May 27,
2005.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires NDCHealth to make
estimates and assumptions. Critical accounting policies
131
are those policies that can have a significant impact on NDCHealth's financial
position and results of operations and require complex judgments and the most
significant use of these subjective estimates and assumptions. Because of the
uncertainty inherent in such estimates, actual results may differ from these
estimates. Specific risks inherent in NDCHealth's application of these critical
policies are described below. For all of these policies, NDCHealth cautions that
future events rarely develop exactly as forecasted, and the best estimates
routinely require adjustment. These policies also often require difficult
judgments on complex matters that may be subject to multiple sources of
authoritative guidance. Additional information concerning NDCHealth's accounting
policies can be found in Note 2 of the Notes to NDCHealth's Consolidated
Financial Statements included in this joint proxy statement/prospectus.
Revenue
Although NDCHealth has several sources of revenue, in all cases, in
accordance with criteria set forth in Staff Accounting Bulletin ("SAB") No. 104,
"Revenue Recognition," SOP No. 97-2, "Software Revenue Recognition," and other
authoritative literature, NDCHealth recognizes revenue when persuasive evidence
of an arrangement exists, the sales price is fixed or determinable, delivery and
performance has occurred, and collectibility is reasonably assured. The most
variable of these factors among NDCHealth's various businesses is determining
when delivery and performance has occurred. Additionally, NDCHealth has adopted
the provisions of Emerging Issues Task Force ("EITF") Issue 00-21, "Revenue
Arrangements with Multiple Deliverables," which requires companies to determine
whether an arrangement involving multiple deliverables contains more than one
unit of accounting on a prospective basis.
Within NDCHealth's Pharmacy Services and Systems, and NDCHealth's Hospital
solutions segments, the primary source of revenue is transaction fees charged
for network services. NDCHealth provides these services to NDCHealth's pharmacy,
hospital, physician, and payer customers. These fees are generally based on the
volume of services NDCHealth provides to each individual customer. In most
instances, this fee is charged per transaction, and type of transaction, while
in some instances these services are provided to large customers for a fixed
monthly fee, regardless of each month's actual transaction volume for a portion
of the contract term. NDCHealth has begun the rollout of hosted web browser
based applications for NDCHealth's pharmacy and hospital customers. The per
transaction or per store charges for these services includes charges for the use
of the application software, network, and other value added services. Revenue
for these services is recognized each month as the services are rendered.
Additionally, NDCHealth receives revenue from software licenses and related
maintenance and support agreements. SOP No. 97-2, as amended by SOP 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions" provide guidance on applying accounting principles generally
accepted in the United States for software revenue recognition transactions.
NDCHealth recognizes revenue based on these authoritative statements.
Revenue from the sale of bundled software licenses and implementation
services are recognized on the date that the software is in operation at the
customer site where vendor specific objective evidence ("VSOE") has been
established for the undelivered elements of the customer contract, which
typically is maintenance. In these cases, the maintenance revenue is recognized
over the term of the maintenance contract. Where VSOE cannot be established for
undelivered elements within the contract, all the arrangement's revenue is
deferred until the sooner of delivery of the last element or VSOE is
determinable for all of the undelivered elements.
NDCHealth generally licenses one of two types of software. The most common
software type performs functions such as scheduling and billing and is used by
NDCHealth's customers to manage their businesses and connect to its network.
Because this type of software has stand alone functionality (meaning that
connection to its network is not required for the software to be functional),
NDCHealth recognizes revenue for sales of products of this type that are
customer installed when the product is shipped. For products of this type that
are installed by one of NDCHealth's affiliates or NDCHealth, NDCHealth
recognizes revenue when the software is installed. The other type of software is
used by
132
NDCHealth's customers to process transactions through NDCHealth's network.
Because this software provides value to NDCHealth's customers only to the extent
that they are utilizing NDCHealth's network services, revenue is recognized over
the estimated life of the network services contract rather than when the
software is installed. In instances where revenue is recognized over the term of
a contract, or NDCHealth has contractual minimums, and NDCHealth incurs discrete
incremental costs in providing the initial deliverable, NDCHealth defers these
costs and recognize them ratably over the contract term.
NDCHealth provides software maintenance and customer support to its
customers on both an as needed and a contracted long-term basis. Services
provided outside a maintenance contract are on an as requested basis and revenue
is recognized as the services are provided. Revenue for services provided on a
contracted long-term basis is recognized ratably over the terms of the contract.
Within its Physician Solutions segment the primary source of revenue is
from the sale of customer installed software. Revenue related to NDCHealth's
software is generally recognized when the product is shipped.
The majority of NDCHealth's physician systems are sold indirectly through
value added resellers, or VARs. NDCHealth records revenue when the product is
shipped to the VAR. NDCHealth's historical practice had been to allow its VARs
the ability to return unused, unopened product in exchange for certain new
products. Because NDCHealth had the ability to estimate the amount of the
product returns, it recorded revenue in accordance with SFAS No. 48, "Revenue
Recognition When Right of Return Exists." NDCHealth recorded revenue when its
products were shipped and established a returns reserve against revenue for the
estimated amount of products it calculated would be returned during that
product's life cycle. No cash refunds were allowed for products sold. Beginning
on February 26, 2005, NDCHealth no longer allows VARs to exchange products
except when both the purchase and associated exchange of products occur within
the same fiscal quarter that a new software version is released. Therefore,
reserve for exchanges is no longer required to be recorded. NDCHealth recorded a
benefit of $1.6 million in revenue and $1.3 million in operating income in the
third quarter from the utilization of NDCHealth's exchange reserve.
Within its Information Management segment, NDCHealth has two primary
sources of revenue: database information reporting and consulting services.
Database information reporting typically involves the delivery of data providing
pharmaceutical information. Revenue for single deliverable products and services
is recognized when obligations to the customer have been fulfilled, which is
typically upon delivery.
NDCHealth's database information reporting products and services are
typically delivered over a period of time with multiple deliverables. NDCHealth
has not established fair value for its various products or services. NDCHealth
defers revenue until all products have started to be delivered and the revenue
from the entire contract is recognized ratably over the remaining term of the
contract, which is typically one to three years.
Consulting services are typically structured as fixed price service
contracts. Revenue for these services is primarily recognized upon completion of
the contract. Historically, NDCHealth recognized revenue from its consulting
services for its IHR product lines within the Information Management segment
upon the completion of performance milestones established within its contracts.
Upon the adoption of EITF 00-21, since NDCHealth had not established evidence of
the relative fair values of the individual components of certain of its
contracts; NDCHealth was required to account for these consulting service
contracts as one unit of accounting. The adoption of this pronouncement resulted
in a $3.9 million reduction in revenue in fiscal year 2004 which was deferred
for recognition at the end of the contracts in fiscal 2005. If it is determined
that NDCHealth will incur a loss on a contract, the loss is recognized at the
time of determination.
133
Capitalized Software
NDCHealth has two types of capitalized software: 1) Software that NDCHealth
develops for sale to its customers (shown as Capitalized External Use Software)
and 2) software that NDCHealth develops for internal use in providing services
to its customers (included in Property and Equipment). The costs associated with
developing software are capitalized differently depending on whether the
software is for sale or for internal use. In each instance, in accordance with
SFAS 86 or SOP 98-1, respectively, costs are capitalized only when the project
has reached the point of technological feasibility or the application
development stage. Costs incurred prior to this point are charged to earnings as
research and development expense.
For software sold to its customers, NDCHealth capitalizes both direct and
indirect development costs such as programmers' salaries and benefits, outside
contractor costs, computer time, and allocated facility costs. Completed
projects capitalized under SFAS 86 are amortized after reaching the point of
general availability using the greater of the amount computed using the
straight-line method or the ratio that current revenues bear to the total of
current and anticipated revenues, based on the estimated useful life of the
project. The life used for amortization is based on the projected period of time
that NDCHealth will sell the product, typically three to five years.
For software used internally, only direct development costs such as
programmers' salaries and benefits, and fees paid to others for development are
capitalized. Completed projects capitalized under SOP 98-1 are amortized using
the straight-line method. The life used for amortization is based on the
projected period of time that NDCHealth will use the software to provide
services, typically five years.
As the process for developing software changes, it is possible that the
achievement of technological feasibility, as defined in SFAS 86, will be later
in the development cycle. This would result in a greater amount of application
development costs to be recorded as expense.
The actual useful life of the product or software may be longer or shorter
than the estimated useful life. If the actual life is longer, NDCHealth would
continue to realize value from the asset while no longer recognizing a
corresponding expense. If the actual life is shorter or NDCHealth determines
that the investment will not be recovered through the future sales of products
or services, the remaining carrying amount may need to be amortized over a
shorter period or a non-cash charge to earnings could be required. The net
realizable value of capitalized software is monitored on a periodic basis to
confirm that the investment will be recovered through the future sale of
products or in the case of internal software, through use.
Investments
NDCHealth considers and selectively enter into a variety of alliances,
joint ventures and investments.
NDCHealth's investments in privately held entities are accounted for under
the cost, equity, or consolidation method, whichever is appropriate for the
particular investment. The appropriate method is determined by NDCHealth's
ability to exercise significant influence over the investee, through either
quantity of voting stock or other means. NDCHealth regularly reviews its
investments for impairment issues and propriety of current accounting treatment.
The primary method NDCHealth uses to determine whether or not an impairment
issue exists is to compare the valuation of its investment with the underlying
value of the entity in which NDCHealth has an investment. NDCHealth determines
the underlying value of the entity based on a number of factors, including the
execution of business strategy and the steps that it has and is taking in the
execution of that strategy, and the entity's subsequent financing activity. If
NDCHealth determines that an impairment issue exists, NDCHealth would realize
the loss in Other Income (Expense) in accordance with SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities."
Finally, NDCHealth also evaluates each investment for proper treatment
under FIN 46 "Consolidation of Variable Interest Entities."
134
Intangible assets
Intangible assets are created when the purchase price of an acquired
business exceeds the value of its tangible assets. For any significant business
it acquires, NDCHealth obtains a valuation from an independent specialist that
assists in the identification of any specific intangibles and provides
assistance in NDCHealth's determination of an estimated value and life for each.
Goodwill exists where NDCHealth's purchase price exceeds the value of tangible
assets plus these specifically identified intangible assets.
Specifically identified intangible assets primarily represent proprietary
technology, customer relationships, and data access rights. Identified
intangibles are assigned a value, generally as estimated in the valuation, and
amortized over the estimated life. Because of the complexity of assumptions and
judgment used in estimating the value and life of these assets, there is
significant risk that their actual value and life may vary from the original
estimate. NDCHealth periodically evaluates whether events and circumstances have
occurred that indicate the carrying amount of intangibles may warrant revision
or may not be recoverable. When factors indicate that an intangible should be
evaluated for possible impairment, NDCHealth estimates the present value of
future cash flows associated with the asset over its remaining life. NDCHealth
may determine that an intangible asset has diminished or has no remaining value
prior to it being fully amortized. In this instance, NDCHealth would be required
to record a charge to earnings to account for impairment of the asset.
SFAS 142, "Goodwill and Other Intangible Assets," requires that goodwill no
longer be amortized but be reviewed for impairment on a regular basis. The
goodwill impairment test has two steps. The first step is to compare the fair
value of each reporting unit with its book value. NDCHealth's reporting units
for goodwill testing are defined as its Pharmacy Services and Systems, Hospital
Solutions, and Physician Solutions and Information Management segments. If the
estimated current value of future cash flows of any reporting unit is calculated
as being lower than its book value, the second step would be to calculate the
possible impairment by comparing the implied fair value of goodwill with the
carrying amount. Any impairment would require a non-cash charge to earnings in
the period in which the impairment was identified.
NDCHealth completed NDCHealth's annual impairment testing during the second
quarter of fiscal 2005. For each of NDCHealth's reporting units, NDCHealth found
that the estimated fair value exceeded the net book value of the unit and
therefore the second step was not necessary. NDCHealth updated the study in the
fourth quarter of fiscal 2004 due to the discontinuance of NDCHealth's European
businesses and found that no impairment was necessary as a result of this event.
NDCHealth will conduct these same tests going forward at least annually during
NDCHealth's second fiscal quarter, and more frequently if circumstances suggest
potential impairment, to determine that goodwill carried on NDCHealth's Balance
Sheet is properly valued.
Allowance for Doubtful Accounts
Allowance for doubtful accounts reflects management's estimate of probable
losses based principally on experience and specific review and analysis. All
accounts or portions thereof deemed to be uncollectible or to require excessive
collection costs are written off against the allowance.
Recently Issued Accounting Pronouncements
There are a number of new accounting pronouncements that may impact
NDCHealth's financial results. These are described in Note 2 of the Notes to
NDCHealth's Consolidated Financial Statements included in this joint proxy
statement/prospectus.
135
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NDCHealth has performed a sensitivity analyses over the near term regarding
the risks listed below. Based on these sensitivity analyses, NDCHealth is not
exposed to, nor does it anticipate any, material market risk from changes in
interest rates, foreign currency rates and/or its equity prices.
INTEREST RATE
NDCHealth has a credit facility that has variable interest rates for
Eurodollar and other floating rate advances based on the LIBOR, Prime Rate, or
Federal Funds rate, in each case plus applicable margin. Accordingly, NDCHealth
is exposed to the impact of interest rate movement. NDCHealth has performed an
interest rate sensitivity analysis over the near term with a 10% change in
interest rates. Based on this analysis, NDCHealth's Net Income would be impacted
by approximately $0.3 million. There is speculation that floating interest rates
could rise 100 to 200 basis points in the next one to two years. This level of
interest rate increase would increase NDCHealth's interest expense $0.7 million
to $1.4 million annually.
FOREIGN CURRENCY RISK
NDCHealth currently has one operating location in British Columbia, Canada,
which represents a small portion of its operations. Because NDCHealth has
discontinued all other foreign operations, with the exception of the small
exposure in Canada, NDCHealth does not anticipate any material foreign exchange
rate risk from changes in foreign currency rates. NDCHealth has performed a
foreign exchange sensitivity analysis over the near term with a 10% change in
foreign exchange rates. Based on this analysis, NDCHealth's Net Income would be
impacted by approximately $0.1 million. As described in "Information About
NDCHealth -- Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Discontinued Operations," NDCHealth has discontinued
all foreign operations in the UK and Germany and no longer has any foreign
exchange rate risk in those countries.
PENSION PLAN
NDCHealth has a noncontributory defined benefit pension plan which covers
substantially all of its United States employees who had met the plan's
eligibility provisions as of May 31, 1998. The annual pension expense that
NDCHealth recognize in accordance with SFAS No. 87, "Employer's Accounting for
Pensions," is based on assumptions of key variables including discount rate and
the expected long-term rate of return on plan assets. The selection of
assumptions involves significant judgment. In selecting the long-term return on
asset and discount rate NDCHealth considers both current market conditions and
expected future market trends, including equity market performance and changes
in interest rates. Due to changes in the extended outlook of the investment
markets, NDCHealth reduced the long-term return on asset assumption to 8.0% from
10.0% effective March 1, 2003. In addition, due to changes in the interest rate
environment, NDCHealth reduced the discount rate to 6.0% from 6.5% effective May
27, 2005. Effective July 1, 2003, pension benefits were frozen based on current
compensation levels.
NDCHealth has a significant portion of its pension related investment
portfolio in long-term stock holdings. NDCHealth also holds a portion of the
investment balance in bonds and other instruments, which are directly influenced
by changes in interest rates. This means that a change in prevailing interest
rates may cause the fair value of the investments to fluctuate. NDCHealth has
performed a sensitivity analysis for changes in the assumed discount rate and
expected long-term rate of return on plan assets. Based on this analysis, a 0.50
percentage point change in the assumed discount rate or return on plan assets
would impact NDCHealth's annual Net Income by approximately $0.1 million or $0.2
million, respectively.
136
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to the common stock
of NDCHealth beneficially owned as November 30, 2005, by each person who is
known to NDCHealth to own, directly or indirectly, more than 5% of the
outstanding shares of common stock. The table reflects information presented in
each such person's Schedule 13G (and amendments thereto, if any) as filed with
the Securities and Exchange Commission and provided to NDCHealth.
<Table>
<Caption>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
- ------------------------------------ ----------------- ----------
Wellington Management Company, L.L.P.(2).................. 4,790,600 13.2%
75 State Street
Boston, MA 02109
Liberty Wanger Asset Management, L.P.(3).................. 4,084,700 11.3%
227 West Monroe Street, Suite 3000
Chicago, IL 60606
Reed Conner & Birdwell, LLC.(4)........................... 3,115,971 8.6%
11111 Santa Monica Blvd., Suite 1700
Los Angeles, CA 90025
Mellon Financial Corporation(5)........................... 1,815,316 5.0%
One Mellon Bank Center, 500 Grant Street
Pittsburgh, PA 15258-0001
</Table>
- ---------------
(1) Percent of Class is with respect to shares of Common Stock outstanding on
November 30, 2005 (36,299,858 shares).
(2) Based on Schedule 13G/A dated February 14, 2005 filed by Wellington
Management Company, L.L.P.
(3) Based on Schedule 13G/A dated February 11, 2005 filed by Liberty Wanger
Asset Management, L.P., WAM Acquisition GP, Inc. and Liberty Acorn Trust.
Liberty Wanger Asset Management, L.P. and WAM Acquisition GP, Inc. have
shared voting and shared dispositive power with respect to all shares.
Liberty Acorn Trust has shared voting and shared dispositive power with
respect to 4,084,700 shares.
(4) Based on Schedule 13G dated October 28, 2005, filed by Reed Conner &
Birdwell, LLC.
(5) Based on Schedule 13G dated February 10, 2005 filed by Mellon Financial
Corporation on behalf of the legal entities including: Mellon Capital
Management Corporation; The Dreyfus Corporation; The Boston Company Asset
Management, LLC; and Mellon Financial Corporation. The aggregate amount
beneficially owned by these reporting entities is 1,815,316 shares.
137
The following table sets forth certain information as of November 30, 2005
with respect to the beneficial ownership of NDCHealth common stock by directors
of NDCHealth, each of the named executive officers named in the Summary of
Potential Payments to NDCHealth's Executive Officer's and Directors table, and
the 14 persons, as a group, who are current directors and/or executive officers
of NDCHealth.
<Table>
<Caption>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
----------------------------------------------------------
COMMON STOCK OPTIONS
STOCK OR WARRANTS
BENEFICIALLY EXERCISABLE TOTAL
OWNED WITHIN COMMON PERCENT OF
EXCLUDING 60 DAYS AFTER STOCK CLASS
OPTIONS AND NOVEMBER 30, BENEFICIALLY BENEFICIALLY
EXECUTIVE OFFICERS AND DIRECTORS WARRANTS 2005 OWNED OWNED(1)
- -------------------------------- ------------ ------------- ------------ ------------
Lee Adrean.................................. 30,000 37,500 67,500 *
Executive Vice President, Finance and
Planning, and Chief Financial Officer
J. Veronica Biggins......................... 10,555 48,734 59,289 *
Director
Charlene Crusoe-Ingram...................... -- 12,500 12,500 *
Executive Vice President, Human Resources
Terri A. Dial............................... 9,363 8,830 18,193 *
Director
James W. FitzGibbons........................ 9,048 3,500 12,548 *
Vice President, Finance and
Chief Accounting Officer
Laurie H. Glimcher, M.D. ................... 4,131 1,821 5,952 *
Director
Walter M. Hoff.............................. 183,348 485,394 668,742 1.82%
Chairman, Chief Executive Officer and
Director
Randolph L.M. Hutto......................... 22,143 160,759 182,902 *
Executive Vice President,
Business Development, General Counsel and
Corporate Secretary
Jeffrey P. Koplan, M.D. .................... 5,627 6,318 11,945 *
Director
Kurt M. Landgraf............................ 15,169 8,830 23,999 *
Director
James F. McDonald........................... 6,848 16,318 23,166 *
Director
Steven J. Shulman........................... 4,131 1,821 5,952 *
Director
Neil Williams............................... 49,020 48,734 97,754 *
Director
All directors and executive officers as a
group (14 persons)........................ 359,383 841,059 1,200,442 3.23%
</Table>
- ---------------
* Represents beneficial ownership of less than 1% of NDCHealth's outstanding
common stock.
(1) Percent of Class is with respect to shares of Common Stock outstanding on
November 30, 2005 (36,299,858 shares) and stock options or warrants
exercisable within 60 days after November 30, 2005 held by such person or
group.
138
COMPARATIVE STOCK PRICES AND DIVIDENDS
The table below presents the last quoted sale price for Per-Se common
stock, as quoted on the Nasdaq National Market under the symbol "PSTI," the
closing market price of NDCHealth common stock, as reported on the NYSE
Composite Transaction Tape under the symbol "NDC" and the market value of a
share of NDCHealth common stock on an equivalent per share basis. These prices
are presented on four dates:
- February 23, 2005, the last trading day before the public announcement
that the NDCHealth board of directors engaged The Blackstone Group L.P.
to assist the board in its evaluation of strategic alternatives with the
objective of maximizing stockholder value over a reasonable period of
time.
- March 29, 2005, the last trading day before the public announcement of
the NDCHealth board of directors' decision to pursue a sale of NDCHealth.
- August 26, 2005, the last trading day before the public announcement of
the signing of the merger agreement and
- December 1, 2005, the latest practicable date before the date of this
joint proxy statement/ prospectus.
<Table>
<Caption>
NDCHEALTH EQUIVALENT
PER-SE COMMON PER SHARE
COMMON STOCK STOCK DATA(1)
------------ --------- ----------
February 23, 2005................................ $14.79 $15.03 $19.50
March 29, 2005................................... 14.87 15.04 19.50
August 26, 2005.................................. 20.04 17.77 19.50
December 1, 2005................................. 25.06 18.80 19.50
</Table>
- ---------------
(1) The equivalent per share data for NDCHealth common stock has been set at
$19.50 in the merger agreement.
139
MARKET PRICES
The following table sets forth the range of the reported high and low per
share sales prices of shares of Per-Se and NDCHealth common stock as shown on
the Nasdaq National Market and the NYSE, respectively, for the calendar quarters
indicated.
PER-SE
<Table>
<Caption>
HIGH LOW
------ ------
Year ending December 31, 2005:
First Quarter............................................. $16.25 $14.15
Second Quarter............................................ 21.55 14.94
Third Quarter............................................. 23.55 17.97
Fourth Quarter (through December 1, 2005)................. 25.63 19.63
Year ended December 31, 2004:
First Quarter............................................. $18.26 $10.68
Second Quarter............................................ 14.90 8.10
Third Quarter............................................. 15.10 11.47
Fourth Quarter............................................ 16.35 12.89
Year ended December 31, 2003:
First Quarter............................................. $ 9.07 $ 5.75
Second Quarter............................................ 11.74 7.78
Third Quarter............................................. 16.58 10.65
Fourth Quarter............................................ 17.25 11.64
</Table>
NDCHEALTH
<Table>
<Caption>
HIGH LOW
------- -------
Year ending May 26, 2006:
First Quarter............................................. $ 19.29 $ 16.38
Second Quarter (through December 1, 2005)................. 19.09 18.60
Year ended May 27, 2005:
First Quarter............................................. $ 23.54 $ 12.12
Second Quarter............................................ 18.50 13.51
Third Quarter............................................. 19.21 14.34
Fourth Quarter............................................ 17.33 13.29
Year ended May 28, 2004:
First Quarter............................................. $ 21.42 $ 17.70
Second Quarter............................................ 27.20 20.51
Third Quarter............................................. 30.75 25.00
Fourth Quarter............................................ 30.00 21.38
</Table>
DIVIDENDS
Per-Se has never paid a cash dividend on its common stock. Future dividends
declared and paid by Per-Se, if any, will be determined by Per-Se's board of
directors in light of circumstances existing from time to time, including growth
prospects, profitability, financial condition, results of operations, continued
existence of the restrictions contained in Per-Se's credit agreements and other
factors which Per-Se's board of directors deems relevant.
140
The following table sets for the quarterly cash dividends per share
declared by NDCHealth with respect to its common stock.
<Table>
<Caption>
DIVIDENDS
PER SHARE
---------
FISCAL 2006
First Quarter............................................... --
Second Quarter (through December 1, 2005)................... --
FISCAL 2005
First Quarter............................................... $0.04
Second Quarter.............................................. --
Third Quarter............................................... --
Fourth Quarter.............................................. --
FISCAL 2004
First Quarter............................................... $0.04
Second Quarter.............................................. 0.04
Third Quarter............................................... 0.04
Fourth Quarter.............................................. 0.04
</Table>
141
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet as of
September 30, 2005, and the unaudited pro forma condensed combined statement of
operations for the year ended December 31, 2004 and nine months ended September
30, 2005 are based on the historical financial statements of Per-Se and
NDCHealth after giving effect to the merger as a purchase of NDCHealth by Per-Se
using the purchase method of accounting and the assumptions and adjustments
described in the accompanying notes to the unaudited pro forma condensed
combined financial statements. As a condition precedent to Per-Se's acquisition
of NDCHealth, NDCHealth's Information Management business ("IM") will be sold to
an independent third party, Wolters Kluwer. The pro forma adjustments to reflect
the sale of the IM business are presented in a separate column in the Unaudited
Pro Forma Condensed Combined Financial Statements.
The unaudited pro forma condensed combined balance sheet as of September
30, 2005 is presented to give effect to the proposed merger as if it occurred on
September 30, 2005 and, due to different fiscal period ends, combines the
historical balance sheet of Per-Se at September 30, 2005 and the historical
balance sheet of NDCHealth at September 2, 2005. The unaudited pro forma
condensed combined statement of operations of Per-Se and NDCHealth for the year
ended December 31, 2004 and the nine months ended September 30, 2005 are
presented as if the combination had taken place on January 1, 2004 and, due to
different fiscal period ends, combines the historical results of Per-Se for the
year ended December 31, 2004 and nine months ended September 30, 2005 with the
historical results of NDCHealth for the twelve months ended November 26, 2004
and nine months ended September 2, 2005, respectively.
The pro forma financial statements are based on the historical financial
statements of Per-Se and NDCHealth and have been prepared using the purchase
method of accounting. Under the purchase method of accounting, the total
estimated purchase price, calculated as described in Note A to these unaudited
pro forma condensed combined financial statements, is allocated to the net
tangible and intangible assets of NDCHealth acquired in connection with the
merger, based on their fair values as of the completion of the merger.
Independent valuation specialists are currently conducting an independent
valuation in order to assist management of Per-Se in determining the fair values
of a significant portion of these assets. The preliminary work performed by the
independent valuation specialists has been considered in management's estimates
of the fair values reflected in these unaudited pro forma condensed combined
financial statements. A final determination of these fair values, which cannot
be made prior to the completion of the merger, will include management's
consideration of a final valuation prepared by the independent valuation
specialists. This final valuation will be based on the actual net tangible and
intangible assets of NDCHealth that exist as of the date of completion of the
merger.
Further, the unaudited pro forma condensed combined financial statements do
not include any adjustments for expenses or liabilities resulting from
integration, as management of Per-Se is in the process of making these
assessments and estimates of these costs are currently not known. However,
liabilities ultimately will be recorded for severance costs related to NDCHealth
employees or other costs associated with exiting activities of NDCHealth that
would affect amounts in the pro forma financial statements. In addition, Per-Se
may incur restructuring charges upon completion of the merger or in subsequent
periods for costs associated with exiting activities of Per-Se. The unaudited
pro forma condensed combined financial statements do not include any adjustments
for estimated operational and other cost synergies and also do not include any
adjustments for estimated revenue synergies that are expected to be achieved
after the transaction closes.
These unaudited pro forma condensed combined financial statements have been
prepared based on preliminary estimates of fair values. They do not include
liabilities resulting from integration planning which are not presently
estimable as discussed above. Amounts preliminarily allocated to intangible
assets with indefinite lives may significantly decrease or increase and amounts
allocated to intangible assets with finite lives may increase or decrease
significantly, which could result in a material increase or decrease in
142
amortization of intangible assets. Therefore, the actual amounts recorded as of
the completion of the merger may differ materially from the information
presented in these unaudited pro forma condensed combined financial statements.
In addition to the receipt of the final valuation, the impact of ongoing
integration activities, the timing of completion of the merger and other changes
in NDCHealth's net tangible and intangible assets which occur prior to
completion of the merger could cause material differences in the information
presented.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the historical consolidated financial statements and
accompanying notes of Per-Se and NDCHealth incorporated by reference or included
elsewhere in this joint proxy statement/prospectus and the summary selected
historical consolidated financial data included elsewhere in this joint proxy
statement/prospectus. The unaudited pro forma condensed combined financial
statements are not intended to represent or be indicative of the consolidated
results of operations or financial condition of Per-Se that would have been
reported had the merger been completed as of the dates presented, and should not
be taken as representative of the future consolidated results of operations or
financial condition of Per-Se.
143
PER-SE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 2005
<Table>
<Caption>
SALE OF IM OTHER
PER-SE NDC PRO FORMA PRO FORMA PER-SE
HISTORICAL HISTORICAL COMBINED ADJUSTMENTS(1) ADJUSTMENTS PRO FORMA
---------- ---------- ---------- -------------- ----------- ----------
(IN THOUSANDS)
CURRENT ASSETS:
Cash and cash equivalents....... $ 56,130 $ 14,269 $ 70,399 $382,081 $(288,500) (2) $ 69,630
402,500 (3)
(478,400) (4)
(18,450) (6)
Restricted cash................. 31 -- 31 -- -- 31
--------- -------- ---------- -------- --------- ----------
TOTAL CASH AND CASH
EQUIVALENTS................. 56,161 14,269 70,430 382,081 (382,850) 69,661
--------- -------- ---------- -------- --------- ----------
Accounts receivable, billed..... 56,171 48,027 104,198 (16,774) (2,586) (17) 84,838
Accounts receivable, unbilled... 303 -- 303 -- -- 303
Deferred income
taxes -- current, net......... 12,799 4,424 17,223 (665) (3,759) (16) 12,799
Prepaid expenses................ 3,191 18,495 21,686 (12,649) (1,262) (13) 7,775
Other........................... 7,616 9,352 16,968 (943) (4,203) (14) 11,707
(115) (17)
--------- -------- ---------- -------- --------- ----------
TOTAL CURRENT ASSETS.......... 136,241 94,567 230,808 351,050 (394,775) 187,083
Property and equipment, net of
accumulated depreciation........ 16,354 66,619 82,973 (29,478) -- 53,495
Goodwill.......................... 32,549 352,064 384,613 (37,729) (314,335) (7) 393,199
360,650 (8)
Other intangible assets, net of
accumulated amortization........ 19,202 59,418 78,620 (7,931) (51,487) (7) 204,202
195,000 (8)
(10,000) (11)
Capitalized external use software
held for sale, net.............. -- 72,481 72,481 -- (72,481) (7) 65,000
65,000 (8)
Deferred income taxes, net........ 15,316 18,019 33,335 40 (18,059) (16) 15,316
Debt issuance costs............... -- 10,842 10,842 -- (10,842) (2) 7,500
7,500 (3)
Other............................. 6,653 23,754 30,407 (1,840) (10,920) (15) 17,647
--------- -------- ---------- -------- --------- ----------
TOTAL ASSETS.................. $ 226,315 $697,764 $ 924,079 $274,112 $(254,749) $ 943,442
========= ======== ========== ======== ========= ==========
</Table>
144
<Table>
<Caption>
SALE OF IM OTHER
PER-SE NDC PRO FORMA PRO FORMA PER-SE
HISTORICAL HISTORICAL COMBINED ADJUSTMENTS(1) ADJUSTMENTS PRO FORMA
---------- ---------- ---------- -------------- ----------- ----------
(IN THOUSANDS)
CURRENT LIABILITIES:
Accounts payable................ $ 7,398 $ 21,102 $ 28,500 $ (9,886) $ (2,586) (17) $ 16,028
Accrued compensation............ 18,359 7,051 25,410 (2,026) 23,384
Accrued expenses................ 12,453 30,983 43,436 1,994 (500) (12) 44,815
(115) (17)
Accrued interest................ -- 5,631 5,631 -- -- 5,631
Current portion of long-term
debt.......................... 133 25,939 26,072 -- (25,813) (2) 259
Deferred revenue................ 26,616 33,655 60,271 (22,596) (7,426) (9) 30,249
--------- -------- ---------- -------- --------- ----------
TOTAL CURRENT LIABILITIES..... 64,959 124,361 189,320 (32,514) (36,440) 120,366
Long-term debt.................... 125,535 228,764 354,299 -- (228,687) (2) 535,612
410,000 (3)
Other obligations................. 5,358 25,563 30,921 (3,120) -- 27,801
Deferred revenue.................. -- 4,005 4,005 -- (4,005) (9) --
--------- -------- ---------- -------- --------- ----------
TOTAL LIABILITIES............. 195,852 382,693 578,545 (35,634) 140,868 683,779
--------- -------- ---------- -------- --------- ----------
STOCKHOLDERS' EQUITY:
Common stock.................... 331 4,526 4,857 -- 122 (5) 453
(4,526) (10)
Paid-in capital................. 801,375 248,728 1,050,103 -- 239,078 (5) 1,040,453
(248,728) (10)
Accumulated (deficit) retained
earnings...................... (730,328) 73,546 (656,782) 309,746 (44,842) (2) (740,328)
(438,303) (7)
11,431 (9)
126,125 (10)
(10,000) (11)
500 (12)
(1,262) (13)
(4,203) (14)
(10,920) (15)
(21,818) (16)
Treasury stock.................. (41,731) -- (41,731) -- (41,731)
Deferred stock unit plan
obligation.................... 1,343 (4,498) (3,155) 4,498 (10) 1,343
Accumulated other comprehensive
(loss) income................. (527) (7,231) (7,758) 7,231 (10) (527)
--------- -------- ---------- -------- --------- ----------
TOTAL STOCKHOLDERS' EQUITY.... 30,463 315,071 345,534 309,746 (395,617) 259,663
--------- -------- ---------- -------- --------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY........ $ 226,315 $697,764 $ 924,079 $274,112 $(254,749) $ 943,442
========= ======== ========== ======== ========= ==========
</Table>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
145
PER-SE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
<Table>
<Caption>
SALE OF IM OTHER
PER-SE NDC PRO FORMA PRO FORMA PER-SE PRO
HISTORICAL HISTORICAL COMBINED ADJUSTMENTS(1) ADJUSTMENTS FORMA
---------- ---------- -------- -------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUE........................ $352,791 $384,770 $737,561 $(156,042) $ (6,889) (2) $574,630
OPERATING EXPENSES
Cost of services............. 232,661 235,498 468,159 (110,879) (6,889) (2) 357,029
(6,362) (3)
13,000 (4)
Selling, general and
administrative............ 85,351 98,916 184,267 (25,068) (9,342) (3) 166,675
16,818 (4)
Other expenses............... 5,845 6,038 11,883 (859) -- 11,024
-------- -------- -------- --------- -------- --------
OPERATING INCOME............... 28,934 44,318 73,252 (19,236) (14,114) 39,902
INTEREST EXPENSE............... 6,825 25,587 32,412 -- (28,192) (5) 38,091
33,871 (6)
INTEREST INCOME................ (525) (339) (864) -- -- (864)
LOSS ON EXTINGUISHMENT OF DEBT/
INVESTMENTS.................. 5,896 4,618 10,514 -- -- 10,514
-------- -------- -------- --------- -------- --------
INCOME BEFORE INCOME TAXES..... 16,738 14,452 31,190 (19,236) (19,793) (7,839)
INCOME TAX (BENEFIT) EXPENSE... (28,101) 6,598 (21,503) -- (6,380) (7) (27,883)
-------- -------- -------- --------- -------- --------
INCOME FROM CONTINUING
OPERATIONS................... $ 44,839 $ 7,854 $ 52,693 $ (19,236) $(13,413) $ 20,044
======== ======== ======== ========= ======== ========
Income per common share from
continuing
operations -- basic.......... $ 1.45 $ 0.47
======== ========
WEIGHTED AVERAGE SHARES USED IN
COMPUTING BASIC INCOME PER
COMMON SHARE................. 30,843 12,162 (8) 43,005
======== ========
Income per common share from
continuing
operations -- diluted........ $ 1.36 $ 0.44
======== ========
WEIGHTED AVERAGE SHARES USED IN
COMPUTING DILUTED INCOME PER
COMMON SHARE................. 33,082 12,162 (8) 45,244
======== ========
</Table>
See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
146
PER-SE TECHNOLOGIES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005
<Table>
<Caption>
SALE OF IM OTHER PER-SE
PER-SE NDC PRO FORMA PRO FORMA PRO
HISTORICAL HISTORICAL COMBINED ADJUSTMENTS(1) ADJUSTMENTS FORMA
---------- ---------- -------- ---------------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUE.............................. $279,336 $299,850 $579,186 $(125,676) $ (8,126) (2) $445,384
OPERATING EXPENSES
Cost of services................... 185,596 174,808 360,404 (82,309) (8,126) (2) 274,331
(5,388) (3)
9,750 (4)
Selling, general and
administrative................... 63,032 78,906 141,938 (22,153) (7,406) (3) 124,993
12,614 (4)
Other expenses..................... -- 15,636 15,636 (140) -- 15,496
-------- -------- -------- --------- -------- --------
OPERATING INCOME..................... 30,708 30,500 61,208 (21,074) (9,570) 30,564
INTEREST EXPENSE..................... 4,360 19,892 24,252 -- (22,439) (5) 27,217
25,404 (6)
INTEREST INCOME...................... (1,075) (484) (1,559) -- -- (1,559)
-------- -------- -------- --------- -------- --------
INCOME BEFORE INCOME TAXES........... 27,423 11,092 38,515 (21,074) (12,535) 4,906
INCOME TAX EXPENSE................... 623 3,824 4,447 -- (4,260) (7) 187
-------- -------- -------- --------- -------- --------
INCOME FROM CONTINUING OPERATIONS.... $ 26,800 $ 7,268 $ 34,068 $ (21,074) $ (8,275) $ 4,719
======== ======== ======== ========= ======== ========
Income per common share from
continuing operations -- basic..... $ 0.89 $ 0.11
======== ========
WEIGHTED AVERAGE SHARES USED IN
COMPUTING BASIC INCOME PER COMMON
SHARE.............................. 30,019 12,162 (8) 42,181
======== ========
Income per common share from
continuing operations -- diluted... $ 0.81 $ 0.10
======== ========
WEIGHTED AVERAGE SHARES USED IN
COMPUTING DILUTED INCOME PER COMMON
SHARE.............................. 32,917 12,162 (8) 45,079
======== ========
</Table>
See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements.
147
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
A. BASIS OF PRO FORMA PRESENTATION
On August 26, 2005, Per-Se signed a definitive agreement to acquire
NDCHealth in a cash and stock transaction that will be accounted for as a
purchase under U.S. generally accepted accounting principles. The transaction
will result in consideration to NDCHealth's shareholders of $19.50 per share,
with at least $13.00 paid in cash and up to $6.50 paid in Per-Se stock, as to be
determined by Per-Se and announced prior to the NDCHealth stockholders' meeting.
As a condition precedent to Per-Se's acquisition of NDCHealth, NDCHealth's
Information Management business ("IM") will be sold to an independent third
party, Wolters Kluwer, for a total of $382.1 million in cash.
Upon completion of the merger, each holder of an outstanding option to
acquire NDCHealth common stock, whether or not then vested or exercisable, will
receive the consideration such holder would be entitled to receive if he was a
NDCHealth stockholder holding a whole number of shares of NDCHealth common stock
(rounded downward to the nearest whole share) equal to (i) the product of (X)
the total number of shares of NDCHealth common stock subject to such option
multiplied by (Y) the excess, if any, of $19.50 over the exercise price per
share of such option (rounded to the nearest cent), divided by (ii) $19.50. Any
option to acquire NDCHealth common stock that has an exercise price per share
that is equal to or greater than $19.50 will be cancelled as of the effective
time of the merger without any payment.
Consummation of the transaction requires approval by the stockholders of
each of Per-Se and NDCHealth. The parties expect to complete the transaction
within three to six months from the date of signing. The transaction is subject
to regulatory review under U.S. antitrust laws and other customary closing
conditions. The completion of Per-Se's transaction is also conditioned upon the
closing of the Wolters Kluwer transaction, which is expected to close
immediately prior to Per-Se's acquisition of NDCHealth.
The pro forma financial statements are based on the historical financial
statements of Per-Se and NDCHealth and have been prepared using the purchase
method of accounting. The unaudited pro forma condensed combined balance sheet
as of September 30, 2005, has been prepared assuming the NDCHealth acquisition
occurred on that date. The unaudited pro forma condensed combined statements of
operations for the year ended December 31, 2004, and the nine months ended
September 30, 2005, have been prepared assuming the NDCHealth acquisition
occurred on January 1, 2004. Per-Se's fiscal year ends on December 31 and
NDCHealth's fiscal year ends on the Friday closest to May 31. NDCHealth's
previously reported results have been adjusted to correspond with Per-Se's
fiscal year end by deducting interim period results from the most recent fiscal
year end information and adding the comparable preceding year interim period
results (see Note C).
The unaudited pro forma combined financial statements are based on
estimates and assumptions, which are preliminary and have been made solely for
purposes of developing such pro forma information. The estimated pro forma
adjustments arising from the proposed merger are derived from the estimated
purchase price and estimated fair value of the assets acquired and liabilities
assumed. The final determination of the purchase price allocation will be based
on the fair value of the assets acquired, including the fair value of in-process
research and development and other identifiable intangibles, and the fair value
of liabilities assumed as of the date the merger is consummated. The excess of
purchase price over the fair value of assets and liabilities acquired is
allocated to goodwill. The final determination of purchase price, fair value and
resulting goodwill may differ significantly from that reflected in the unaudited
pro forma condensed combined financial statements.
148
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS -- (CONTINUED)
A summary of the estimated purchase price allocation is as follows (in
thousands):
<Table>
Estimated consideration:
Value of Per-Se shares issued............................. $239,200
Cash consideration........................................ 478,400
Transaction costs......................................... 18,450
--------
Total estimated purchase consideration:................ $736,050
========
Preliminary allocation of the purchase consideration as of
September 30, 2005:
Fair value of net tangible assets acquired................ $115,400
Identifiable intangible assets............................ 250,000
In-process research and development....................... 10,000
Goodwill.................................................. 360,650
--------
$736,050
========
</Table>
Per-Se calculated the estimated cash consideration by multiplying the
estimated 36.8 million shares of NDCHealth common stock outstanding by the
$13.00 per share minimum cash consideration per the merger agreement. Per-Se
calculated the estimated value of Per-Se shares issued by multiplying the
estimated 36.8 million shares of NDCHealth common stock outstanding by $6.50 per
share, which represents the difference between the total per share consideration
of $19.50 and the estimated cash consideration per share of $13.00. The total
number of estimated shares of NDCHealth common stock used in these calculations
includes approximately 0.2 million equivalent shares for NDCHealth's outstanding
options to acquire NDCHealth common stock with an exercise price per share less
than $19.50. The minimum cash consideration per share may be increased, at
Per-Se's option, prior to the shareholders' meetings as discussed above. Any
such increase in the cash consideration per share would result in a
corresponding decrease in the per share consideration to be paid in Per-Se
shares. Per-Se has also included an estimated $18.45 million of its transaction
costs as purchase consideration, which includes Per-Se's legal and accounting
fees, investment bankers' fees, due diligence fees, filing and printing fees,
and fees paid for directors' and officers' liability insurance premiums.
The amount allocated to identifiable intangible assets represents Per-Se's
preliminary estimate of the identifiable intangible assets acquired from
NDCHealth, which include developed technology and customer relationships and
contracts. Recording the identifiable intangible assets results in the
establishment of a deferred tax liability of approximately $54.5 million, which
is offset by the release in like amount of Per-Se's valuation allowance on its
deferred tax assets. The amount allocated to in-process research and development
represents a preliminary estimate of the fair value of purchased in-process
technology for research and development projects that, as of the expected
closing date of the merger, will not have reached technological feasibility and
have no alternative future use. The amount allocated to in-process research and
development will be charged to the statement of operations in the period the
merger is consummated.
The pro forma balance sheet does not include any adjustments for
liabilities related to integration as management of Per-Se is in the process of
making these assessments and estimates of these costs are currently not known.
B. PRO FORMA ADJUSTMENTS
Pro forma adjustments reflect only those adjustments that are factually
supportable and do not include the impact of contingencies that will not be
known until the later of the closing of the merger or
149
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS -- (CONTINUED)
the resolution of the contingency. The following are brief descriptions of each
of the pro forma adjustments included in the unaudited pro forma condensed
combined financial statements:
FOOTNOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
1. To record the sale of NDCHealth's information management business for $382.1
million.
2. To record the payoff of NDCHealth's prior debt, including an estimated $34
million of costs to tender for NDCHealth's senior subordinated notes and the
elimination of NDCHealth's deferred debt issuance costs of $10.8 million.
3. To record the new debt of $410 million issued by Per-Se, including an
estimated $7.5 million of debt issuance costs.
4. To record Per-Se's cash consideration of $478.4 million for the acquisition
of NDCHealth.
5. To record Per-Se's equity consideration of $239.2 million for the
acquisition of NDCHealth.
6. Reflects estimated transaction costs of $18.45 million.
7. To reverse goodwill and other intangible assets from acquisitions previously
consummated by NDCHealth.
8. To record the preliminary estimated identifiable intangible assets and
goodwill from the acquisition of NDCHealth.
9. To adjust deferred revenue to the fair value associated with performance
obligations assumed by Per-Se. The deferred revenue related to
implementation and licensing fees for which the services have already been
provided and the funds received have been eliminated. The balance of
deferred revenue related to prepaid maintenance contracts has been reduced
by 50% to reflect the estimated fair value of these obligations.
10. To reverse NDCHealth's historical equity balances, as adjusted for other pro
forma adjustments.
11. To reflect the estimated fair value of in-process research and development.
Because this expense is directly attributable to the acquisition of
NDCHealth and will not have a continuing impact, it is not reflected in the
pro forma condensed combined statement of operations. However, this item
will be recorded as an expense in the period that the acquisition of
NDCHealth is completed.
12. To record the preliminary fair value of certain accrued expenses.
13. To adjust the value of certain alliances to their preliminary estimated
values.
14. To eliminate the current portion of capitalized deferred implementation
costs for certain pharmacy and hospital systems to conform to Per-Se's
accounting policies.
15. To eliminate the long-term portion of capitalized deferred implementation
costs for certain pharmacy and hospital systems to conform to Per-Se's
accounting policies, and to adjust the value of certain alliances to their
preliminary estimated values.
16. To record the income tax effect of the pro forma adjustments.
17. To eliminate the effects of normal business transactions between Per-Se and
NDCHealth. These transactions are related to Per-Se's provision of print and
mail services for NDCHealth. The amounts eliminated represent the estimated
intercompany receivables and payables as of September 30, 2005.
FOOTNOTES TO PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
1. To eliminate the operating results of NDCHealth's information management
business, which will be sold to a third party, Wolters Kluwer, prior to
Per-Se's acquisition of NDCHealth.
2. To eliminate the effects of normal business transactions between Per-Se and
NDCHealth. These transactions are related to Per-Se's provision of print and
mail services for NDCHealth.
150
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS -- (CONTINUED)
3. To reverse amortization of intangible assets resulting from acquisitions
previously consummated by NDCHealth.
4. To record the amortization expense for the estimated identifiable intangible
assets from the acquisition of NDCHealth by Per-Se. The preliminary estimated
identifiable intangible assets and their related estimated useful lives are
as follows:
<Table>
<Caption>
ESTIMATED FAIR ESTIMATED
INTANGIBLE ASSET VALUE USEFUL LIFE
- ---------------- -------------- -----------
(IN THOUSANDS)
Developed technology........................................ $ 65,000 5 years
Customer relationships and contracts........................ 185,000 11 years
In process research and development......................... 10,000 (a)
--------
Total identifiable intangible assets...................... $260,000
========
</Table>
------------------
(a) The amount allocated to in-process research and development will be
charged to the statement of operations in the period the merger is
consummated. Due to its non-recurring nature, the in-process research and
development expense has been excluded in the unaudited pro forma
condensed combined statement of operations.
5. To reverse the interest expense and amortization of debt issuance costs
related to NDCHealth's debt balances that will be paid off in conjunction
with Per-Se's acquisition of NDCHealth.
6. To record the interest expense resulting from the additional debt that will
be issued by Per-Se to effect the acquisition of NDCHealth. The interest
expense was calculated using an estimated interest rate of 8.0% on a debt
amount of $410 million. Each 0.5% change in the actual interest rate will
increase or decrease annual interest expense by $2.05 million. Estimated debt
issuance costs of $7.5 million were amortized over seven years, the estimated
term of the debt.
7. To adjust income tax expense (benefit) to reflect income tax expense of the
combined company based on the pro forma pre-tax income and the estimated
effective tax rate of the combined company. The resulting pro forma income
tax expense (benefit) is not intended to represent or be indicative of the
actual tax expense (benefit) that would have been reported had the merger
been completed as of January 1, 2004.
8. The pro forma weighted average common shares outstanding for the twelve
months ended December 31, 2004 and nine months ended September 30, 2005 are
calculated as follows:
<Table>
<Caption>
TWELVE MONTHS
ENDED NINE MONTHS ENDED
DECEMBER 31, 2004 SEPTEMBER 30, 2005
----------------- ------------------
(IN THOUSANDS) (IN THOUSANDS)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -- BASIC
Historical Per-Se weighted common shares
outstanding -- basic............................. 30,843 30,019
Shares estimated to be issued for NDCHealth
acquisition...................................... 12,162 12,162
------ ------
Pro forma weighted common shares
outstanding -- basic............................. 43,005 42,181
====== ======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING -- DILUTED
Historical Per-Se weighted common shares
outstanding -- diluted........................... 33,082 32,917
Shares estimated to be issued for NDCHealth
acquisition...................................... 12,162 12,162
------ ------
Pro forma weighted common shares
outstanding -- diluted........................... 45,244 45,079
====== ======
</Table>
151
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS -- (CONTINUED)
------------------
Based on the merger agreement, the actual number of shares of Per-Se
common stock to be issued pursuant to the merger agreement will be
determined by dividing the (1) the applicable dollar value (e.g., $6.50),
by (2) the average of the volume weighted sales prices per share of
Per-Se common stock on the Nasdaq National Market as reported by
Bloomberg Financial Markets for the 20 consecutive full trading days in
which shares of Per-Se common stock are traded on the Nasdaq National
Market ending on the third trading day prior to, but not including, the
closing date. However, if Per-Se issues any Per-Se common stock within 33
business days prior to the closing date, then the number of shares of
Per-Se common stock to be issued pursuant to the merger agreement will be
based on the lesser of the twenty day weighted average sales price of
Per-Se common stock described above and the lowest price per share
received by Per-Se pursuant to any such issuance.
For purposes of this pro forma information, the number of Per-Se shares
estimated to be issued for the NDCHealth acquisition were calculated by
dividing the estimated value of Per-Se shares to be issued ($239.2
million) by the average closing price of Per-Se's common stock for the
two days before and the two days after the date the definitive agreement
to acquire NDCHealth was signed ($19.67 per share).
C. ALIGNMENT OF HISTORICAL RESULTS OF NDCHEALTH WITH PER-SE'S FISCAL YEAR
Per-Se has a fiscal year end of December 31 and NDCHealth has a fiscal year
that ends on the Friday closest to May 31. Consequently, NDCHealth's historical
results have been adjusted to align with Per-Se's December 31 fiscal year.
Actual results reported by NDCHealth for the periods used to compute the pro
forma amounts for the year ended December 31, 2004 and for the nine months ended
September 30, 2005 were as follows (in thousands):
152
NDCHEALTH CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 2004
<Table>
<Caption>
SUBTRACT ADD
SIX MONTHS SIX MONTHS 12 MONTHS
FISCAL YEAR ENDED ENDED ENDED PRESENTATION
5/27/05 5/27/05 05/28/04 11/26/04 RECLASSIFICATIONS NDCHEALTH
----------- ---------- ---------- --------- ----------------- ---------
(IN THOUSANDS)
REVENUE.................. $387,558 $199,870 $197,082 $384,770 $ -- $384,770
OPERATING EXPENSES
Cost of services....... 200,441 97,857 98,301 200,885 34,613(1) 235,498
Selling, general and
administrative...... 98,828 52,128 47,736 94,436 4,480(1) 98,916
Depreciation and
amortization........ 39,902 19,327 18,518 39,093 (39,093)(1) --
Other expenses......... 14,977 11,710 2,771 6,038 6,038
-------- -------- -------- -------- -------- --------
OPERATING INCOME......... 33,410 18,848 29,756 44,318 -- 44,318
INTEREST EXPENSE......... 25,406 12,846 13,027 25,587 -- 25,587
INTEREST INCOME.......... (460) (330) (209) (339) -- (339)
LOSS ON EXTINGUISHMENT OF
DEBT/INVESTMENTS....... -- -- 4,618 4,618 -- 4,618
-------- -------- -------- -------- -------- --------
INCOME BEFORE INCOME
TAXES.................. 8,464 6,332 12,320 14,452 -- 14,452
INCOME TAX EXPENSE....... 2,534 1,703 5,767 6,598 -- 6,598
-------- -------- -------- -------- -------- --------
INCOME FROM CONTINUING
OPERATIONS............. $ 5,930 $ 4,629 $ 6,553 $ 7,854 $ -- $ 7,854
======== ======== ======== ======== ======== ========
</Table>
153
NDCHEALTH CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2005
<Table>
<Caption>
SUBTRACT NINE
FISCAL YEAR SIX MONTHS ADD THREE MONTHS
ENDED ENDED MONTHS ENDED PRESENTATION NDC
5/27/05 11/26/04 ENDED 9/2/05 9/02/05 RECLASSIFICATIONS HEALTH
----------- ---------- ------------ ---------- ----------------- ---------
(IN THOUSANDS)
REVENUE...................... $387,558 $187,688 $ 99,980 $299,850 $ -- $299,850
OPERATING EXPENSES
Cost of services........... 200,441 102,584 51,201 149,058 25,750(1) 174,808
Selling, general and
administrative........... 98,828 46,700 23,708 75,836 3,070(1) 78,906
Depreciation and
amortization............. 39,902 20,575 9,493 28,820 (28,820)(1) --
Other expenses............. 14,977 3,267 3,926 15,636 15,636
-------- -------- -------- -------- -------- --------
OPERATING INCOME............. 33,410 14,562 11,652 30,500 -- 30,500
INTEREST EXPENSE............. 25,406 12,560 7,046 19,892 -- 19,892
INTEREST INCOME.............. (460) (130) (154) (484) -- (484)
LOSS ON EXTINGUISHMENT OF
DEBT/INVESTMENTS........... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES... 8,464 2,132 4,760 11,092 -- 11,092
INCOME TAX EXPENSE........... 2,534 831 2,121 3,824 -- 3,824
-------- -------- -------- -------- -------- --------
INCOME FROM CONTINUING
OPERATIONS................. $ 5,930 $ 1,301 $ 2,639 $ 7,268 $ -- $ 7,268
======== ======== ======== ======== ======== ========
</Table>
- ---------------
(1) To reclassify depreciation and amortization, which NDCHealth has
historically included in a separate line item, to cost of services and
selling, general and administrative expenses, as applicable, to conform to
Per-Se's presentation. This reclassification had no impact on NDCHealth's
results of operations.
154
COMPARISON OF RIGHTS OF PER-SE AND NDCHEALTH STOCKHOLDERS
The rights of Per-Se and NDCHealth are currently governed by the Delaware
General Corporation Law ("DGCL"), and the respective certificates of
incorporation and by-laws of Per-Se and NDCHealth. Upon completion of the
merger, the rights of NDCHealth stockholders, who then become stockholders of
Per-Se, will be governed by the DGCL and by Per-Se's certificate of
incorporation and bylaws. The following description summarizes the material
differences that may affect the rights of the stockholders of Per-Se and
NDCHealth but does not purport to be a complete statement of all those
differences or a complete description of the specific provisions referred to in
this summary. The identification of specific differences is not intended to
indicate that other equally or more significant differences do not exist.
Stockholders should read carefully the relevant provisions of the DGCL, Per-Se's
certificate of incorporation and bylaws and NDCHealth's certificate of
incorporation and bylaws.
AUTHORIZED CAPITAL STOCK
Per-Se is authorized to issue a total of 220,600,000 shares of capital
stock of which 200,000,000 are shares of common stock, $.01 par value per share,
600,000 are shares of non-voting common stock, $.01 par value per share, and
20,000,000 are shares of preferred stock, no par value.
Per-Se preferred stock may be issued from time to time in one or more
series. The Per-Se board of directors has the authority to establish the number
of shares in each series and to fix the designations, rights, powers and
preferences of each series, and the qualifications, limitations or restrictions
of the shares of each series.
NDCHealth is authorized to issue a total of 201,000,000 shares of capital
stock of which 200,000,000 are shares of common stock, par value $.125 per share
and 1,000,000 are shares of preferred stock, par value of $1.00 per share.
Pursuant to the Certificate of Designation filed with the Delaware Secretary of
State on January 22, 1991, as amended on October 26, 1996, and on November 28,
2001, and the board resolutions adopted on March 26, 2001, NDCHealth currently
has 200,000 shares of preferred stock designated as Series A Junior
Participating Preferred Stock.
NDCHealth preferred stock may be issued from time to time in one or more
series. The NDCHealth board of directors has the authority to establish the
number of shares in each series and to fix the designations, rights, powers and
preferences of each series, and the qualifications, limitations or restrictions
of the shares of each series.
VOTING
Each share of Per-Se common stock entitles its holder to one vote. If any
Per-Se preferred stock is outstanding, then the holder of the outstanding shares
of preferred stock shall be entitled to vote as a class upon any proposed
amendment to the Restated Certificate of Incorporation if the amendment would
increase or decrease the aggregate number of authorized shares of preferred
stock, increase or decrease the par value of such shares, or alter or change the
powers, preferences, or any special rights of the shares of preferred stock so
as to affect them adversely.
Each share of NDCHealth common stock entitles its holder to one vote.
Unless otherwise provided by law, common stock and preferred stock votes
together as one class. In addition to any other vote or consent of stockholders
required by law or the Restated Certificate of Incorporation, each whole share
of the Series A Junior Participating Preferred Stock is entitled to vote as a
class on any matter with any other capital stock comprising part of the
Reference Package (defined in the Restated Certificate of Incorporation as 1,000
shares of common stock of NDCHealth, $.125 par value) and voting on such matter
and has the number of votes thereon that holder of the Reference Package would
have.
NUMBER OF DIRECTORS
Per-Se currently has a seven member board of directors. The number of
directors is determined by the board of directors but may not be less than three
nor more than ten.
155
NDCHealth currently has a nine member board of directors which is divided
into three classes of three directors, with the terms of office of each class
ending in successive years. Accordingly, the directors serve three year terms.
The number of directors of the NDCHealth board of directors is fixed by a
majority of the whole board of directors but may not be less than three.
REMOVAL OF DIRECTORS
Any director or the entire board of directors of Per-Se can be removed at
any time, with or without cause, by the affirmative vote of the holders of
record of a majority of the issued and outstanding stock entitled to vote on the
election of directors.
Any director or the entire board of directors of NDCHealth can be removed
at any time, with or without cause, by the affirmative vote of the holders of at
least 80% of all classes of stock of NDCHealth entitled to vote in the election
of the directors voting as one class for this purpose.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Any vacancy occurring on the Per-Se board of directors may be filled by the
affirmative vote of a majority of the remaining directors, though less than a
quorum, or by the sole remaining director. If the vacancy is not filled or no
director remains, then the majority of the stockholders entitled to vote on the
election of directors may fill the vacancies. Any vacancy created by the removal
of a director by a majority of the Per-Se stockholders may be filled by action
of such majority at the meeting at which the removal occurred, any subsequent
meeting or by consent.
Vacancies and newly created directorships resulting from an increase in the
authorized number of directors occurring on the NDCHealth board of directors may
be filled by the affirmative vote of a majority of the remaining directors,
though less than a quorum, or by the sole remaining director. Any newly created
or eliminated directorships resulting from an increase or decrease in the
authorized number of directors may be appointed by the board of directors so as
to maintain such classes as nearly equal as possible. If there are no directors
in office, then an election of directors may be held in the manner provided by
statute.
CALLING A SPECIAL MEETING OF THE STOCKHOLDERS
Special meetings of the Per-Se stockholders or any class thereof may be
called for any purpose by the chairman of the board of directors, if any, or the
President or by order of the board of directors and must be called by the
President or Secretary if the stockholders of record owning at least fifty
percent of the outstanding shares of stock entitled to vote at a special meeting
request in writing that the board of directors does so.
Special meetings of the NDCHealth stockholders may be called for any
purpose by the chairman of the board of directors or the President and must be
called by the chairman of the board of directors, the President or Secretary if
the majority of the members of the board of directors or stockholders owning a
majority of the entire capital stock issued, outstanding and entitled to vote
request in writing that the board of directors does so.
ACTION BY WRITTEN CONSENT IN LIEU OF A STOCKHOLDERS' MEETING
Per-Se stockholders may take any action that may be taken at any annual or
special meeting upon written consent signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting.
NDCHealth stockholders may not act by written consent in lieu of a meeting.
156
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
Per-Se can amend, alter, change or repeal any provision contained in its
certificate of incorporation in the manner now or hereafter prescribed by
statute.
NDCHealth can amend, alter, change or repeal any provision contained in its
certificate of incorporation in the manner now or hereafter prescribed by
statute.
The DGCL provides that the articles of incorporation may be amended if a
majority of the outstanding stock entitled to vote and a majority of the
outstanding stock of each class entitled to vote as a class votes in favor of
the amendment.
AMENDMENT TO THE BYLAWS
The bylaws of Per-Se may be altered, amended or repealed by either the
board of directors or by the affirmative vote of the holders of record of a
majority of the issued and outstanding Per-Se stock entitled to vote on these
matters.
The NDCHealth board of directors may alter, amend, repeal or adopt new
bylaws only upon the affirmative vote of at least two-thirds of the total number
of directors then holding office. Any bylaws adopted by the board of directors
may be altered, amended or repealed and new bylaws adopted by NDCHealth
stockholders upon the affirmative vote of the holders of at least eighty percent
of all classes of stock entitled to vote in the election of directors voting as
one class for this purpose.
INDEMNIFICATION/LIMITATION OF LIABILITY
Under Delaware law, a corporation may indemnify any person made a party or
threatened to be made a party to any type of proceeding because he or she is or
was an officer, director, 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 other entity, against expenses, judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with such proceeding if:
- he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the
corporation; and
- in the case of a criminal proceeding, he or she had no reasonable cause
to believe that his or her conduct was unlawful.
However, no indemnification is permitted if the person is adjudged to be liable
to the corporation, unless the Court of Chancery or the court in which the
action was brought determines that the person is entitled to indemnity.
Prior to indemnifying an individual, a determination must be made that such
person has met the applicable standard of conduct. Such determination shall be
made, with respect to a person who is a director or officer at the time of such
determination, by:
- a majority vote of the directors who are not parties to such proceeding,
even though less than a quorum;
- by a committee of such directors designated by majority vote of such
directors, even though less than a quorum;
- if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion; or
- by the stockholders.
Under Delaware law, a corporation may advance expenses incurred in such
proceeding to directors and officers as long as any director or officer
receiving an advance undertakes to repay the amounts advanced if it is
ultimately determined that such director or officer was not entitled to be
indemnified.
157
The Per-Se bylaws provide that Per-Se will indemnify its directors and
officers to the fullest extent authorized by the DGCL, subject to limited
exceptions. Per-Se is also expressly authorized to carry directors' and
officers' insurance providing indemnification for directors, officers and
certain employees for some liabilities.
The NDCHealth bylaws provide that NDCHealth will indemnify its directors
and officers to the fullest extent authorized by the DGCL. NDCHealth is also
expressly authorized to carry directors' and officers' insurance providing
indemnification for directors, officers and certain employees for some
liabilities.
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breaches of directors' fiduciary duties, except for any liability:
- for breach of duty of loyalty,
- for acts or omissions not in good faith or involving intentional
misconduct or knowing violation of law,
- under Section 174 of the DGCL (relating to unlawful payments of dividends
or unlawful purchasers or redemptions of stock), or
- for transactions from which the director derived an improper personal
benefit.
Both the Per-Se and NDCHealth certificates of incorporation include
provisions that eliminate the personal liability of directors for monetary
damages for breach of fiduciary duties, subject to the exceptions under the
DGCL.
These limitation of liability and indemnification provisions may discourage
stockholders from bringing a lawsuit against directors for breach of their
fiduciary duty.
STATE ANTI-TAKEOVER STATUTES
Section 203 of the DGCL imposes restrictions which, under certain
circumstances, may make it more difficult for an "interested stockholder," as
defined in Section 203, to effect various business combinations with the
corporation for a three year period from the time such person becomes an
interested stockholder. Under Section 203, a corporation's bylaws or certificate
of incorporation may exclude a corporation from the restrictions imposed by the
Section 203. Neither the bylaws nor the certificate of incorporation of either
Per-Se or NDCHealth contain such a provision.
LEGAL MATTERS
The validity of the shares of Per-Se common stock to be issued pursuant to
the merger agreement will be passed upon for Per-Se by its counsel, King &
Spalding LLP.
EXPERTS
The consolidated financial statements of Per-Se Technologies, Inc. and
subsidiaries at December 31, 2004 and 2003, and for each of the three years in
the period ended December 31, 2004, incorporated by reference in this joint
proxy statement/prospectus have been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their report thereon
incorporated by reference elsewhere herein, and are incorporated by reference in
reliance upon such report given on the authority of such firm as experts in
auditing and accounting.
The consolidated financial statements of NDCHealth Corporation and
subsidiaries at May 27, 2005, and May 28, 2004, and for each of the three fiscal
years in the period ended May 27, 2005, appearing in this joint proxy
statement/prospectus have been audited by Ernst & Young LLP, independent
registered
158
public accounting firm, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given on the authority of
such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Per-Se and NDCHealth file annual, quarterly and special reports, proxy
statements and other information with the SEC under the Exchange Act. You may
read and copy any of this information at the SEC's public reference room at 100
F Street, NE, Room 1580, Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. The SEC
also maintains an Internet site that contains reports, proxy statements and
other information regarding issuers, including Per-Se and NDCHealth, who file
electronically with the SEC. The address of that site is http://www.sec.gov. The
information contained on the SEC's website is expressly not incorporated by
reference in this joint proxy statement/prospectus.
Per-Se has filed with the SEC a registration statement of which this joint
proxy statement/prospectus forms a part. The registration statement registers
the shares of Per-Se common stock to be issued to NDCHealth stockholders in
connection with the merger. The registration statement, including the attached
exhibits and schedules, contains additional relevant information about Per-Se
common stock. The rules and regulations of the SEC allow Per-Se to omit certain
information included in the registration statement from this joint proxy
statement/prospectus.
In addition, the SEC allows Per-Se to disclose important information to you
by referring you to other documents filed separately with the SEC. This
information is considered to be a part of this joint proxy statement/prospectus,
except for any information that is superseded by information included directly
in this document.
This joint proxy statement/prospectus incorporates by reference the
documents listed below that Per-Se has previously filed or will file with the
SEC. They contain important information about Per-Se and its financial
condition.
- Annual Report on Form 10-K for the fiscal year ended December 31, 2004;
- Quarterly Report on Form 10-Q for the quarterly periods ended March 31,
2005, June 30, 2005 and September 30, 2005;
- Current Reports on Form 8-K filed February 22, 2005, March 9, 2005, March
15, 2005, April 4, 2005, May 10, 2005, May 23, 2005, July 29, 2005, August
29, 2005, August 30, 2005, September 29, 2005, and October 27, 2005;
- The information set forth under Item 5.02 of Per-Se's Current Report on
Form 8-K, filed March 3, 2005; and
- The description of Per-Se common stock contained in the Registration
Statement on Form 8-A/A dated May 22, 1996, and any amendment or report
filed for the purpose of updating such description.
In addition, Per-Se incorporates by reference any future filings it makes
with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this joint proxy statement/ prospectus and prior to the date of the
Per-Se special meeting. Such documents are considered to be a part of this joint
proxy statement/prospectus, effective as of the date such documents are filed.
In the event of conflicting information in these documents, the information in
the latest filed document should be considered correct.
You can obtain any of the other documents listed above from the SEC,
through the SEC's web site at the address described above, or from Per-Se by
requesting them in writing or by telephone at the following address:
Per-Se Technologies, Inc.
1145 Sanctuary Parkway
159
Suite 200
Alpharetta, Georgia 30004
Attention: Investor Relations
Telephone: (770) 237-4300
E-mail Address: investors@per-se.com
These documents are available from Per-Se without charge, excluding any
exhibits to them unless the exhibit is specifically listed as an exhibit to the
registration statement of which this joint proxy statement/ prospectus forms a
part. You may also access these materials by visiting the investor relations
website of Per-Se at http://www.per-se.com. The website is expressly not
incorporated by reference in this joint proxy statement/prospectus.
NDCHealth is an SEC reporting company and it files annual, quarterly and
current reports and other information with the SEC that have not been included
in or delivered with this joint proxy statement/ prospectus. You can obtain any
of these documents from the SEC, through the SEC's website at the address
described above, or NDCHealth will provide you with copies of these documents,
without charge, upon written or oral request to:
NDCHealth Corporation
NDC Plaza
Atlanta, Georgia 30329-2010
Attention: Investor Relations
Telephone: (404) 728-2000
E-mail Address: investorinfo@ndchealth.com
You can also access this information by visiting the investor relations
website of NDCHealth at http://www.ndchealth.com. NDCHealth makes available on
its Internet website, free of charge, NDCHealth's annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) of 15(d) of the
Exchange Act as soon as reasonably practicable after NDCHealth electronically
file such material with the SEC. In addition, the charters of the various
committees of the NDCHealth's board of directors, NDCHealth's board-adopted
Corporate Governance Guidelines and NDCHealth's Code of Business Conduct and
Ethics are available on NDCHealth's website. Website materials are not part of
this joint proxy statement/prospectus.
If you are a stockholder of Per-Se or NDCHealth and would like to request
documents, please do so by December 20, 2005 to receive them before the Per-Se
special meeting and the NDCHealth special meeting. If you request any documents
from Per-Se or NDCHealth, Per-Se or NDCHealth will mail them to you by first
class mail, or another equally prompt means, within one business day after
Per-Se or NDCHealth receives your request.
This document is a prospectus of Per-Se and is a joint proxy statement of
Per-Se and NDCHealth for the Per-Se special meeting and the NDCHealth special
meeting. Neither Per-Se nor NDCHealth has authorized anyone to give any
information or make any representation about the merger or Per-Se or NDCHealth
that is different from, or in addition to, that contained in this joint proxy
statement/ prospectus or in any of the materials that Per-Se has incorporated by
reference in this joint proxy statement/prospectus. Therefore, if anyone does
give you information of this sort, you should not rely on it. The information
contained in this document speaks only as of the date of this document unless
the information specifically indicates that another date applies.
STOCKHOLDER PROPOSALS
PER-SE
Under the Per-Se bylaws, for business to be properly brought before an
annual meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the secretary of Per-Se. To
160
be timely, a stockholder's notice must be received at the principal executive
offices of Per-Se not later than the 120th calendar day before the anniversary
date of Per-Se's proxy statement released to its stockholders in connection with
the previous year's annual meeting; provided, however, that in the event that
the date of the annual meeting has been changed by more than 30 days from the
date of the previous year's meeting, then notice by the stockholder must be
received not later than (i) the close of business on the 15th day following the
day on which Per-Se's notice of the date of the annual meeting was mailed or
Per-Se's public disclosure of the date of the annual meeting was made, whichever
first occurs; or (ii) such other reasonable time before Per-Se begins to print
and mail its proxy materials for the meeting as Per-Se may publicly disclose. A
stockholder's notice to the secretary shall set forth with respect to each
matter the stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and record address of the stockholder proposing such business, (iii) the class
and number of shares of Per-Se which are beneficially owned by the stockholder,
and (iv) any material interest of the stockholder in such business.
Stockholders interested in bringing a proposal before the stockholders at
the Per-Se 2006 annual meeting may do so by following the procedures described
above. To be timely, the required notice of such proposals must be received at
Per-Se's principal executive offices no later than December 7, 2005. In
addition, any stockholder proposal submitted pursuant to Rule 14a-8 under the
Exchange Act must be received at Per-Se's principal executive offices no later
than December 7, 2005, to be considered for inclusion in the statement for the
Per-Se 2006 annual meeting.
NDCHEALTH
If the merger is completed, there will be no public participation in any
future meetings of NDCHealth stockholders. If the merger is not completed,
NDCHealth stockholders will continue to be entitled to attend and participate in
NDCHealth stockholder meetings. Pending consummation of the merger, NDCHealth
does not intend to conduct its 2005 annual meeting of stockholders.
Under NDCHealth's bylaws, no business may be brought before an annual
meeting of stockholders unless it is specified in the notice of the meeting, or
is otherwise brought before the annual meeting by, or at the discretion of, the
NDCHealth board of directors, or by a stockholder entitled to vote who has
delivered written notice to NDCHealth (containing information specified in
NDCHealth's bylaws about the proposing stockholder and the proposed action) not
less than ninety (90) days nor more than one hundred twenty (120) days prior to
the anniversary date of the immediately preceding annual meeting of
stockholders. However, if an annual meeting is called for a date that is not
within twenty-five (25) days before or after the anniversary date of the
immediately preceding annual meeting, notice by the stockholder in order to be
timely must be received not later than the close of business on the tenth (10th)
day following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs. These requirements are separate from, and in addition
to, the SEC's requirements that a stockholder must meet in order to have a
stockholder proposal included in NDCHealth's proxy materials.
If the merger is not completed, NDCHealth will promptly provide notice of
the date by which stockholder proposals must be received in a Current Report on
Form 8-K or Quarterly Reports on Form 10-Q that NDCHealth will file in advance
of such date. Stockholder proposals should be submitted by certified mail,
return receipt requested, to NDCHealth Corporation, NDC Plaza, Atlanta, Georgia
30329, Attention: Randolph L.M. Hutto, Executive Vice President, General Counsel
and Secretary.
Stockholder proposals to be considered at the 2005 annual meeting, if the
2005 annual meeting is necessary, must be submitted as required and within the
times prescribed by NDCHealth's bylaws and Rule 14a-8 promulgated under the
Exchange Act.
161
INDEX TO FINANCIAL STATEMENTS
NDCHEALTH CORPORATION AND SUBSIDIARIES
<Table>
<Caption>
PAGE
----
Report of Ernst & Young LLP, Independent Registered Public
Accounting Firm........................................... F-2
Consolidated Statements of Operations for each of the three
fiscal years ended May 27, 2005, May 28, 2004, and May 30,
2003...................................................... F-3
Consolidated Statements of Cash Flows for each of the three
fiscal years ended May 27, 2005, May 28, 2004 and May 30,
2003...................................................... F-4
Consolidated Balance Sheets at May 27, 2005 and May 28,
2004...................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity
for each of the three fiscal years ended May 27, 2005, May
28, 2004 and May 30, 2003................................. F-6
Notes to Consolidated Financial Statements.................. F-7
Consolidated Schedule II -- Valuation and Qualifying
Accounts for each of the three fiscal years ended May 27,
2005, May 28, 2004 and May 30, 2003....................... F-41
Condensed Consolidated Statements of Operations for the
three months ended September 2, 2005 and August 27, 2004
(Unaudited)............................................... F-42
Condensed Consolidated Statements of Cash Flows for the
three months ended September 2, 2005 and August 27, 2004
(Unaudited)............................................... F-43
Condensed Consolidated Balance Sheets at September 2, 2005
(Unaudited) and May 27, 2005.............................. F-44
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-45
Unaudited Pro Forma Condensed Consolidated Financial
Statements................................................ F-54
</Table>
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and
Stockholders of NDCHealth Corporation.
We have audited the accompanying consolidated balance sheets of NDCHealth
Corporation and subsidiaries as of May 27, 2005 and May 28, 2004, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the three years in the period ended May 27, 2005. Our
audits also included the financial statement schedule appearing on page F-41.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NDCHealth
Corporation and subsidiaries at May 27, 2005 and May 28, 2004, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended May 27, 2005, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of
NDCHealth Corporation and subsidiaries' internal control over financial
reporting as of May 27, 2005, based on criteria established in Internal
Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated August 10, 2005
expressed an unqualified opinion on management's assessment and an adverse
opinion on the effectiveness of internal controls over financial reporting.
As described in Note 2 to the accompanying consolidated financial
statements, in 2003, the Company adopted Statement of Financial Accounting
Standards No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 14 and Technical Corrections.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
August 10, 2005
F-2
NDCHEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
YEAR ENDED
--------------------------------------
MAY 27, MAY 28, MAY 30,
2005 2004 2003
---------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue..................................................... $387,558 $395,815 $400,733
-------- -------- --------
Operating Expenses:
Cost of Service........................................ 200,441 194,206 192,702
Sales, General and Administrative...................... 98,828 92,013 85,352
Depreciation and Amortization.......................... 39,902 35,598 29,831
Restructuring, Special Governance and Other Charges.... 14,977 6,068 5,058
-------- -------- --------
354,148 327,885 312,943
-------- -------- --------
Operating Income............................................ 33,410 67,930 87,790
-------- -------- --------
Other Income (Expense):
Interest and Other Income.............................. 460 467 2,067
Interest and Other Expense............................. (25,406) (27,567) (21,739)
Loss Related to Investments............................ -- (4,475) (14,455)
Early Extinguishment of Debt........................... -- (143) (2,359)
-------- -------- --------
(24,946) (31,718) (36,486)
-------- -------- --------
Income from Continuing Operations before Income Taxes....... 8,464 36,212 51,304
Provision for Income Taxes.................................. 2,534 14,709 19,925
-------- -------- --------
Income from Continuing Operations........................... 5,930 21,503 31,379
Loss from Discontinued Operations........................... (12,569) (14,652) (2,194)
-------- -------- --------
Net Income (Loss)........................................... $ (6,639) $ 6,851 $ 29,185
======== ======== ========
Basic Earnings (Loss) Per Share:
Income from Continuing Operations......................... $ 0.17 $ 0.61 $ 0.91
======== ======== ========
Discontinued Operations................................... $ (0.35) $ (0.42) $ (0.06)
======== ======== ========
Total..................................................... $ (0.19) $ 0.20 $ 0.84
======== ======== ========
Weighted Average Shares Outstanding.................... 35,708 35,101 34,591
Diluted Earnings (Loss) Per Share:
Income from Continuing Operations......................... $ 0.16 $ 0.60 $ 0.90
======== ======== ========
Discontinued Operations................................... $ (0.35) $ (0.41) $ (0.06)
======== ======== ========
Total..................................................... $ (0.18) $ 0.19 $ 0.84
======== ======== ========
Weighted Average Shares Outstanding.................... 35,957 35,847 34,941
</Table>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-3
NDCHEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
YEAR ENDED
--------------------------------
MAY 27, MAY 28, MAY 30,
2005 2004 2003
-------- -------- ----------
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss)......................................... $ (6,639) $ 6,851 $ 29,185
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Loss on discontinued operations........................ 12,569 14,652 2,194
Loss related to investments............................ -- 4,475 14,455
Non-cash restructuring and other charges............... 547 453 2,283
Depreciation and amortization.......................... 39,902 35,598 29,831
Deferred income taxes.................................. 2,417 15,346 16,068
Allowance for doubtful accounts........................ 7,224 8,926 6,283
Other, net............................................. 5,300 4,877 6,118
-------- -------- ---------
Total................................................ 61,320 91,178 106,417
-------- -------- ---------
Changes in assets and liabilities, net of the effects of
acquisitions:
Accounts receivable, net............................... 4,397 (7,834) (7,658)
Prepaid expenses and other assets...................... 4,272 (2,756) (19,609)
Accounts payable and accrued liabilities............... (6,957) 8,928 (4,392)
Accrued interest....................................... (399) (2,550) 12,461
Deferred revenue....................................... (22,673) 11,453 8,987
-------- -------- ---------
Total................................................ (21,360) 7,241 (10,211)
-------- -------- ---------
Net cash provided by operating activities................. 39,960 98,419 96,206
-------- -------- ---------
Cash flows from investing activities:
Capital expenditures -- Property Acquisitions............. (15,626) (15,435) (22,051)
Capital expenditures -- Capitalized External Use
Software............................................... (15,574) (23,006) (21,021)
Proceeds from the sale of equipment....................... 1,966 3,187 --
Acquisitions and other investing activities............... (2,919) (20,446) (111,246)
-------- -------- ---------
Net cash used in investing activities..................... (32,153) (55,700) (154,318)
-------- -------- ---------
Cash flows from financing activities:
Net repayments/ borrowings under lines of credit.......... 29,100 -- (91,000)
Principal payments under long-term debt arrangements...... (61,174) (26,433) (7,799)
Net cash (used in) provided by refinancing activities..... -- (399) 168,006
Net proceeds from stock activities........................ 415 9,273 4,634
Dividends paid............................................ (2,880) (5,694) (5,568)
-------- -------- ---------
Net cash (used in) provided by financing activities....... (34,539) (23,253) 68,273
-------- -------- ---------
Cash provided by divestiture of discontinued operations... 28,274 -- --
Net cash used in discontinued operations.................. (8,337) (8,061) (8,769)
-------- -------- ---------
(Decrease) increase in cash and cash equivalents............ (6,795) 11,405 1,392
Cash and cash equivalents, beginning of period.............. 24,585 13,180 11,788
-------- -------- ---------
Cash and cash equivalents, end of period.................... $ 17,790 $ 24,585 $ 13,180
======== ======== =========
</Table>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-4
NDCHEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
MAY 27, MAY 28,
2005 2004
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE DATA)
ASSETS
Current Assets:
Cash and Cash Equivalents................................. $ 17,790 $ 24,585
Accounts Receivable (Less Allowance of $6,603 and $7,236,
respectively)........................................... 50,977 62,169
Prepaid Expenses.......................................... 22,777 25,287
Deferred Income Taxes..................................... 6,214 3,476
Other Current Assets...................................... 8,843 11,759
Assets of Discontinued Operations......................... 36,245 89,611
-------- --------
Total Current Assets.................................... 142,846 216,887
-------- --------
Property and Equipment, Net................................. 69,842 77,757
Capitalized External Use Software Held For Sale, Net........ 68,474 61,567
Goodwill.................................................... 351,474 356,928
Intangible Assets, Net...................................... 61,886 71,760
Debt Issuance Cost.......................................... 11,496 12,963
Deferred Income Taxes....................................... 18,350 15,092
Other Assets................................................ 25,299 22,561
-------- --------
Total Assets............................................ $749,667 $835,515
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-term Debt......................... $ 31,529 $ 33,511
Trade Accounts Payable.................................... 24,033 29,334
Accrued Compensation and Benefits......................... 9,901 6,034
Accrued Interest.......................................... 10,524 10,923
Other Accrued Liabilities................................. 34,772 30,403
Deferred Revenue.......................................... 33,795 53,801
Liabilities of Discontinued Operations.................... 11,967 37,894
-------- --------
Total Current Liabilities............................... 156,521 201,900
-------- --------
Deferred Revenue............................................ 4,602 7,208
Other Non-current Liabilities............................... 26,789 29,225
Long-term Debt.............................................. 239,255 269,347
-------- --------
Total Liabilities....................................... 427,167 507,680
-------- --------
Commitments and Contingencies............................... -- --
Stockholders' Equity:
Preferred Stock, par value $1.00 per share; 1,000,000
shares authorized, none issued.......................... -- --
Common Stock, par value $.125 per share; 200,000,000
shares authorized; 36,210,808 and 36,006,641 shares
issued, respectively.................................... 4,526 4,501
Capital in excess of par value............................ 248,446 245,314
Retained Earnings......................................... 70,907 80,426
Deferred Compensation..................................... (5,039) (7,694)
Other Comprehensive Income................................ 3,660 5,288
-------- --------
Total Stockholders' Equity.............................. 322,500 327,835
-------- --------
Total Liabilities and Stockholders' Equity.................. $749,667 $835,515
======== ========
</Table>
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-5
NDCHEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<Table>
<Caption>
COMMON STOCK CAPITAL IN
------------------ EXCESS OF
NUMBER PAR RETAINED DEFERRED
OF SHARES AMOUNT VALUE EARNINGS COMPENSATION
--------- ------ ---------- -------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Balance at May 31, 2002............ 34,644 $4,330 $212,026 $55,652 $(6,743)
Comprehensive income
Net income...................... 29,185
Cumulative translation
adjustment....................
Pension liability adjustment....
Unrealized holding loss.........
Total comprehensive income........
Cash dividends ($0.16 per
share).......................... (5,568)
Intrinsic Value of Stock
Options-repricing/amortization... 748 (434)
Stock issued, cancelled, and
exercised....................... 245 31 2,918 1,715
Tax benefit from exercise of stock
options......................... 464
Amortization of deferred
compensation.................... 1,161
------ ------ -------- ------- -------
Balance at May 30, 2003............ 34,889 4,361 216,156 79,269 (4,301)
Comprehensive income
Net income...................... 6,851
Cumulative translation
adjustment....................
Pension liability adjustment....
Unrealized holding loss.........
Total comprehensive income........
Cash dividends ($0.16 per
share).......................... (5,694)
Stock issued for acquisition...... 381 48 9,952
Intrinsic Value of Stock
Options-repricing/amortization... 314
Stock issued, cancelled, and
exercised....................... 737 92 12,592 (3,316)
Restricted stock Units............ 2,269 (2,269)
Warrants.......................... 4,364
Tax benefit from exercise of stock
options......................... (19)
Amortization of deferred
compensation.................... 1,878
------ ------ -------- ------- -------
Balance at May 28, 2004............ 36,007 4,501 245,314 80,426 (7,694)
Comprehensive income (loss)
Net loss........................ (6,639)
Cumulative translation
adjustment....................
Pension liability adjustment....
Total comprehensive income
(loss)..........................
Cash dividends ($0.08 per
share).......................... (2,880)
Intrinsic Value of Stock
Options-repricing/amortization... 121
Stock issued, cancelled, and
exercised....................... 204 25 298 (29)
Restricted stock Units............ 639 (639)
Tax benefit from exercise of stock
options......................... 2,195
Amortization of deferred
compensation.................... 3,202
------ ------ -------- ------- -------
Balance at May 27, 2005............ 36,211 $4,526 $248,446 $70,907 $(5,039)
====== ====== ======== ======= =======
<Caption>
ACCUMULATED OTHER COMPREHENSIVE
INCOME (LOSS)
--------------------------------------
UNREALIZED CUMULATIVE PENSION TOTAL
HOLDING TRANSLATION LIABILITY STOCKHOLDERS'
GAIN (LOSS) ADJUSTMENT ADJUSTMENT EQUITY
----------- ----------- ---------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Balance at May 31, 2002............ $(129) $(3,583) $(3,027) $258,526
Comprehensive income
Net income...................... 29,185
Cumulative translation
adjustment.................... 10,807 10,807
Pension liability adjustment.... (3,805) (3,805)
Unrealized holding loss......... 127 127
--------
Total comprehensive income........ 36,314
--------
Cash dividends ($0.16 per
share).......................... (5,568)
Intrinsic Value of Stock
Options-repricing/amortization... 314
Stock issued, cancelled, and
exercised....................... 4,664
Tax benefit from exercise of stock
options......................... 464
Amortization of deferred
compensation.................... 1,161
----- ------- ------- --------
Balance at May 30, 2003............ (2) 7,224 (6,832) 295,875
Comprehensive income
Net income...................... 6,851
Cumulative translation
adjustment.................... 5,044 5,044
Pension liability adjustment.... (148) (148)
Unrealized holding loss......... 2 2
--------
Total comprehensive income........ 11,749
--------
Cash dividends ($0.16 per
share).......................... (5,694)
Stock issued for acquisition...... 10,000
Intrinsic Value of Stock
Options-repricing/amortization... 314
Stock issued, cancelled, and
exercised....................... 9,368
Restricted stock Units............ --
Warrants.......................... 4,364
Tax benefit from exercise of stock
options......................... (19)
Amortization of deferred
compensation.................... 1,878
----- ------- ------- --------
Balance at May 28, 2004............ -- 12,268 (6,980) 327,835
Comprehensive income (loss)
Net loss........................ (6,639)
Cumulative translation
adjustment.................... 62 62
Pension liability adjustment.... (1,690) (1,690)
--------
Total comprehensive income
(loss).......................... (8,267)
--------
Cash dividends ($0.08 per
share).......................... (2,880)
Intrinsic Value of Stock
Options-repricing/amortization... 121
Stock issued, cancelled, and
exercised....................... 294
Restricted stock Units............ --
Tax benefit from exercise of stock
options......................... 2,195
Amortization of deferred
compensation.................... 3,202
----- ------- ------- --------
Balance at May 27, 2005............ $ -- $12,330 $(8,670) $322,500
===== ======= ======= ========
</Table>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-6
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS
NDCHealth Corporation ("NDCHealth", the "Company," or "we" and other
similar pronouns) conducts its business through four segments: Pharmacy Services
and Systems, Hospital Solutions, Physician Solutions, and Information
Management. Pharmacy Services and Systems provides claims transaction processing
and sophisticated claims editing solutions for retail pharmacy operations, and
also supplies application systems for retail, mail order and managed care
pharmacy operations. Pharmacy Services and Systems also provide independent,
regional and national chain and mail-order pharmacies our claims management
solutions, pharmacy management system solutions, and decision support and
revenue management solutions. Hospital Solutions provides revenue cycle
management to approximately 1,800 hospital and health system customers by
offering our customers software and services solutions that provide workflow
management offerings and support for many transactions. Our hospital solution
set provides tools to allow our customers to manage the claims and remittance
process, accelerate and improve cash flow, reduce bad debt, track accounts
receivable and costs, and improve productivity. Physician Solutions provides
small-office physicians with resources necessary to streamline billing and other
internal processes such as scheduling, increasing productivity and optimizing
accurate reimbursement. We offer our physician customers enhanced practice
management capabilities, electronic commerce solutions, and interactive
training. Our physician solutions include NDC Medisoft, NDCLytec, NDCConcept,
and NDC Electronic Claims Processing. The Information Management segment
provides data products and solutions primarily to pharmaceutical manufacturers.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of NDCHealth
Corporation and its majority-owned and controlled companies. Significant
inter-company transactions and balances have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform to the current year
presentation. Our fiscal year begins on the Saturday closest to June 1 and ends
on the Friday closest to May 31. Interim quarters typically consist of thirteen
weeks ending the Friday closest to the last calendar day of August, November,
and February. Unless otherwise noted, all references to a particular year shall
mean the Company's fiscal year.
In March and April 2005, we sold our Pharmacy Benefit Services and Canadian
businesses, respectively. In May 2004, we made the decision to divest our
European businesses. In October, 2004 and June, 2005, we sold our UK and Germany
companies, respectively. As a result of the sale of these businesses, our
financial statements have been prepared with these businesses' net assets,
results of operations, and cash flows displayed separately as Discontinued
Operations with all historical financial statements restated to conform to this
presentation, in accordance with Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets".
Starting in the fourth quarter of fiscal year 2005, we changed our
management structure and the internal reporting of financial results to have
better focus on our four key operating segments. As a result of these changes,
we determined that we now have four reportable segments: Pharmacy Services and
Systems, Hospital Solutions, Physician Solutions and Information Management. All
prior year results have been changed to reflect this change in our reporting
segments. See Note 13 -- Segment Information for more detail on these four
reporting segments.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
other estimates and assumptions. These estimates and
F-7
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assumptions affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenue and expenses during the
reported period. Actual results could differ from these estimates.
REVENUE RECOGNITION
In accordance with criteria set forth in Staff Accounting Bulletin ("SAB")
No. 104, "Revenue Recognition," Statement of Position ("SOP") No. 97-2,
"Software Revenue Recognition" and other authoritative literature, we recognize
revenue when persuasive evidence of an agreement exists, delivery and
performance has occurred, there is a fixed and determinable sales price, and
collectibility is reasonably assured.
Effective May 31, 2003, the Company prospectively adopted the provisions of
the Emerging Issues Task Force ("EITF") Issue No. 00-21, "Revenue Arrangements
with Multiple Deliverables" ("EITF 00-21"), which provides guidance on the
timing and method of revenue recognition for sales arrangements that include the
delivery of more than one product or service.
Within our Pharmacy Services and Systems and Hospital Solutions segments,
the primary source of revenue is transaction fees charged for network services.
In instances where we host web browser-based applications for our customers,
fees charged per transaction include the use of the application software,
network, and other value added services. Revenue for these services is
recognized each month as the services are provided.
Additionally, we receive revenue from the sale of software licenses and
subscription fees from related maintenance and support agreements. Revenue
related to software utilized by the customer to process transactions through our
network is recognized ratably over the estimated life of the network services
relationship beginning on the date of customer acceptance of the software. In
instances where revenue is deferred over the term of a contract and we incur
discrete incremental costs in providing the initial deliverable, we defer these
costs and recognize them ratably over the estimated life of the network services
relationship. Revenue related to software with stand alone functionality that is
installed by one of our affiliates or us is recognized upon the date that the
software is in operation at the customer site where vendor specific objective
evidence of fair value ("VSOE") has been established for the undelivered
elements of the customer contract, which typically is maintenance and customer
support. In these cases, the maintenance and customer support revenue is
recognized over the term of the contract. If VSOE cannot be established for any
of the undelivered elements, all the arrangement's revenue is deferred until the
sooner of delivery of the last element or VSOE is determinable for all of the
undelivered elements.
Within our Physician Solutions segment the primary source of revenue is
from the sale of customer installed software. Revenue related to our software is
generally recognized when the product is shipped or installed.
The majority of our physician systems are sold indirectly through value
added resellers, or VARs. We record revenue when the product is shipped to the
VAR. The Company's historical practice had been to allow our VARs the ability to
return unused, unopened product in exchange for certain new products. Because
the Company had the ability to estimate the amount of the product returns, we
recorded revenue in accordance with SFAS No. 48, "Revenue Recognition When Right
of Return Exists." We recorded revenue when our products were shipped and
established a returns reserve against revenue for the estimated amount of
products we calculated would be returned during that product's life cycle. No
cash refunds were allowed for products sold. Beginning on February 26, 2005, we
no longer allow VARs to exchange products except when both the purchase and
associated exchange of products occur within the same fiscal quarter that a new
software version is released. Therefore, reserve for exchanges is no longer
F-8
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
required to be recorded. We recorded a benefit of $1.6 million revenue and $1.3
million in operating income in the third quarter from the utilization of our
exchange reserve.
Within our Information Management segment, we have two primary sources of
revenue: database information reporting and consulting services. Database
information reporting typically involves the delivery of data providing
pharmaceutical information. These include products with a single delivery and
products where multiple deliveries are made over a period of time. Revenue for
single deliverable products and services is recognized when obligations to the
customer have been fulfilled, which is typically upon delivery.
Our database information reporting products and services are typically
delivered over a period of time with multiple deliverables. We have not
established fair value for our various products or services. We defer revenue
until all products have started to be delivered and the revenue from the entire
contract is then recognized ratably over the remaining term of the contract,
which is typically one to three years.
Our consulting services are typically structured as fixed price service
contracts. Revenue for these services is primarily recognized upon completion of
the contract. Historically, the Company recognized revenue from its consulting
services for its IHR product lines within the Information Management segment
upon the completion of performance milestones established within its contracts.
Upon the adoption of EITF 00-21, since the Company had not established evidence
of the relative fair values of the individual components of certain of its
contracts; we were required to account for these consulting service contracts as
one unit of accounting. The adoption of this pronouncement resulted in a $3.9
million reduction in revenue in fiscal year 2004, which was deferred for
recognition at the end of the contracts in fiscal 2005. If it is determined that
we will incur a loss on a contract, the loss is recognized at the time of
determination.
DATA COSTS
We purchase data from a variety of sources primarily for use in our
information products and services. These costs are typically held in deferred
cost at the time of purchase and expensed the following month as a Cost of
Service when the products utilizing this data are delivered to customers.
Occasionally product offerings are expanded by modifying current products for a
new market. In these cases, additional or new types of data costs may be
incurred in developing the database for these new products over several months
during which the product cannot be sold and the additional data costs are
deferred. These data costs are then amortized, beginning when sales of the new
products commence, over the expected life of the customer relationships
established around these new products, in all cases not to exceed three years.
RESEARCH AND DEVELOPMENT COSTS
The Company expenses research and development costs as incurred. The
Company recorded research and development costs of approximately $18.4 million,
$11.6 million and $7.0 million in fiscal 2005, 2004 and 2003, respectively.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Allowance for doubtful accounts reflects management's estimate of probable
losses based principally on historical experience and specific review and
analysis. All accounts or portions thereof deemed to be uncollectible or to
require excessive collection costs are written off against the allowance.
INCOME TAXES
Because the computation of income under Generally Accepted Accounting
Principles ("GAAP") differs from the calculation of taxable income, timing
differences occur between the time income tax expense is recorded and paid. This
difference results in deferred income taxes. Deferred income taxes are
F-9
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax laws and rates. In some cases, it is
more likely than not that some portion of deferred tax assets will not be
realized. A reserve on a tax asset is recorded when we forecast such an
inability to achieve the full benefit of these assets (see Note 10).
EARNINGS PER SHARE
Basic earnings per share is computed by dividing reported Net Income (Loss)
by weighted average shares outstanding during the period. Diluted earnings per
share is computed by dividing reported Net Income by weighted average shares
outstanding during the period and the impact of securities that, if exercised,
would have a dilutive effect on earnings per share. All options with an exercise
price less than the average market share price for the period have a dilutive
effect on earnings per share.
The following tables set forth the computation of basic and diluted
earnings for the fiscal years ending May 27, 2005, May 28, 2004 and May 30,
2003:
<Table>
<Caption>
YEAR ENDED
------------------------------------------------------------------------------------------
2005 2004 2003
---------------------------- --------------------------- -----------------------------
LOSS SHARES PER SHARE INCOME SHARES PER SHARE INCOME SHARES PER SHARE
------- ------ --------- ------ ------ --------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Basic EPS:
Net Income (Loss).... $(6,639) 35,708 $(0.19) $6,851 35,101 $0.20 $29,185 34,591 $0.84
Diluted EPS:
Effect of dilutive
securities:
Stock options...... -- 249 -- 746 -- 350
------- ------ ------ ------ ------- -------
Net Income (Loss)
plus assumed
conversions........ $(6,639) 35,957 $(0.18) $6,851 35,847 $0.19 $29,185 34,941 $0.84
======= ====== ====== ====== ====== ===== ======= ======= =====
</Table>
Income from continuing operations of $5.9 million, $21.5 million, and $31.4
million in fiscal 2005, 2004, and 2003 resulted in basic earnings per share of
$0.17, $0.61, and $0.91 and diluted earnings per share of $0.16, $0.60, and
$0.90, respectively.
Outstanding options to purchase 3,057,000, 1,267,000 and 2,134,000 shares
of common stock were not included in the computation of diluted earnings per
share in fiscal years 2005, 2004 and 2003, respectively, because the options'
exercise prices were greater than the average market price of NDCHealth common
stock. For the years ended May 27, 2005, May 28, 2004 and May 30, 2003 dividends
declared per common share were $0.04, $0.16, and $0.16, respectively. Our Board
of Directors determined on April 5, 2005 to suspend its cash dividend in order
to use available cash to reduce debt outstanding.
F-10
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTIONS
We have chosen the disclosure option under SFAS No. 123, "Accounting for
Stock Based Compensation" and SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- an amendment of FASB Statement No.
123," and continue to apply APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for our plans.
Accordingly, no compensation cost has been recognized for options granted under
the plans. The weighted average fair value of options granted in fiscal 2005,
2004, and 2003 was approximately $6.86, $9.97, and $10.64, respectively. Had
compensation cost for these plans been recognized based on the fair value of the
options at the grant dates in accordance with SFAS No. 123, the effect on our
Net Income and Earnings Per Share would have been as follows:
<Table>
<Caption>
2005 2004 2003
----------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net Income (Loss):
As reported.......................................... $ (6,639) $ 6,851 $29,185
Add: Stock-based compensation (restricted stock)
expense included in reported Net Income (Loss),
net of related tax effects........................ 1,931 1,148 744
Deduct: Total stock-based compensation expense
determined under fair value based methods for all
awards, net of related tax effects................ (9,145) (8,304) (7,658)
-------- ------- -------
Pro forma............................................ $(13,853) $ (305) $22,271
Basic Earnings (Loss) Per Share:
As reported.......................................... $ (0.19) $ 0.20 $ 0.84
Pro forma............................................ $ (0.39) $ (0.01) $ 0.64
Diluted Earnings (Loss) Per Share:
As reported.......................................... $ (0.18) $ 0.19 $ 0.84
Pro forma............................................ $ (0.39) $ (0.01) $ 0.64
</Table>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for the grants during the respective fiscal year:
<Table>
<Caption>
2005 2004 2003
--------- --------- ---------
Non-employee Directors Plan
Risk-free interest rates........................... 4.1% 3.4% 4.2%
Expected dividend yields........................... 1.2% 0.8% 0.7%
Expected lives..................................... 6 years 6 years 7 years
2000 Plan
Risk-free interest rates........................... 4.1% 3.4% 4.2%
Expected dividend yields........................... 1.2% 0.8% 0.7%
Expected lives..................................... 6 years 6 years 7 years
Employee Stock Purchase Plan
Risk-free interest rates........................... 1.9% 0.9% 1.6%
Expected dividend yields........................... 1.0% 0.9% 0.7%
Expected lives..................................... 0.25 year 0.25 year 0.25 year
Expected volatility-all plans........................ 54% 49% 47%
</Table>
F-11
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and all investments with a
maturity of three months or less when purchased.
PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases, are
stated at cost. Depreciation and amortization are calculated using the
straight-line method for financial reporting purposes, whereas accelerated
methods are used for income tax reporting purposes. Data center and technology
equipment is depreciated over three to five year lives, other equipment that
supports our data centers is depreciated over 10 to 15 year lives, and our
buildings are depreciated over 20 and 40 year lives. Leasehold improvements and
property acquired under capital leases are amortized over the shorter of the
useful life of the asset or the term of the lease. The costs of purchased
software are capitalized and amortized on a straight-line basis over their
estimated useful lives, not to exceed five years. The costs of internally
developed software are capitalized in accordance with SOP 98-1, "Accounting for
the Cost of Computer Software Developed or Obtained for Internal Use."
Capitalization of costs begins when the application development phase has been
initiated, and ends when the product is available for general use. Completed
projects are amortized on a straight-line basis over their estimated useful
lives, typically five years. The net realizable value of software capitalized
for internal use is monitored to ensure that the investment will be recovered
through its future use. Maintenance and repairs are charged to operations as
incurred.
CAPITALIZED EXTERNAL USE SOFTWARE
Capitalized external use software consists of development costs for
software held for sale to our customers. Capitalization of costs begins when
technological feasibility has been established. Completed projects are amortized
after reaching the point of general availability using the greater of the amount
computed using the straight-line method or the ratio that current revenue bears
to the total of current and anticipated revenue based on the estimated useful
life of the software, normally three to five years. The net realizable value of
capitalized software is monitored to ensure that the investment will be
recovered through future sales.
Additional information regarding our capitalized external use software is
as follows:
<Table>
<Caption>
2005 2004 2003
------- ------- -------
Amount capitalized...................................... $15,574 $23,006 $21,021
Amortization expense.................................... $ 6,996 $ 5,653 $ 3,000
</Table>
GOODWILL AND INTANGIBLE ASSETS
Goodwill is the excess of the purchase price over the fair value of
identifiable net assets acquired in business combinations accounted for as
purchases. Intangible assets are primarily customer bases and data rights. These
intangible assets are amortized over their estimated useful life ranging from 3
to 10 years. When material intangible assets, such as goodwill and customer
bases, are acquired in conjunction with the purchase of a company, NDCHealth
undertakes a study by an independent third party to determine the allocation of
the purchase price to the assets acquired.
We assess the recoverability of goodwill on at least an annual basis during
the Company's second quarter or more frequently if circumstances suggest
potential impairment. Recoverability of goodwill is evaluated using a two-step
process. The first step involves a comparison of the fair value of a reporting
unit with its carrying value. If the carrying amount of the reporting unit
exceeds its fair value, the second step of the process involves a comparison of
the fair value and carrying value of the goodwill of that
F-12
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reporting unit. If the carrying value of the goodwill of a reporting unit
exceeds the fair value of that goodwill, an impairment loss is recognized in an
amount equal to the excess.
LONG-LIVED ASSETS
We regularly evaluate whether events and circumstances have occurred that
indicate the carrying amount of long-lived assets we expect to hold and use may
warrant revision or may not be recoverable. When factors indicate that
long-lived assets should be evaluated for possible impairment, we use an
estimate of the future undiscounted net cash flows associated with the asset
over the remaining life of the asset in measuring whether the long-lived asset
is recoverable. If such evaluation indicates a potential impairment, we measure
this impairment loss, if any, based on the difference between the carrying
amount and fair value (calculated using discounted cash flows). Long-lived
assets to be disposed of, either by sale or abandonment, are reported at the
lower of carrying amount or fair value less cost to sell.
INVESTMENTS
At times we maintain investments in both publicly traded and privately held
entities. Investments in publicly traded entities are classified as
available-for-sale securities and are reported at fair value. Unrealized gains
and losses are reported, net of taxes, as a component of stockholders' equity.
Unrealized losses are charged against income when a decline in fair value is
determined to be other than temporary. The specific identification method is
used to determine the cost of securities sold. Realized gains or losses on
investments are included in Other Income (Expense) when realized.
Investments in privately held entities are accounted for under the cost,
equity, or consolidation method of accounting, whichever is appropriate for the
particular investment. The appropriate method is determined by our ability to
exercise significant influence over the investee, through either voting stock or
other means. These investments are regularly reviewed for impairment issues and
propriety of current accounting treatment.
We currently have an investment in and a prepaid reseller license asset
with an electronic prescription software developer. As of May 27, 2005, our
total investment in this entity was approximately $5.0 million. We are currently
amortizing our prepaid asset through the end of our agreement (December 2008).
Since the e-prescribing industry is an emerging industry, it is difficult to
predict which companies will be successful. We continue to monitor the
realizability of our investment and prepaid license fees. If their Company does
not succeed, we could record a significant impairment to this asset in a future
fiscal period.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, including cash, cash
equivalents, receivables, accounts payable and accrued expenses, deferred
revenue, and current maturities of long-term obligations, approximate fair
value. Cash equivalents consist primarily of funds held in short-term money
market accounts.
FOREIGN CURRENCY TRANSLATION
We maintain a subsidiary in Canada. The functional currency of this
subsidiary is its local currency. The assets and liabilities of this foreign
subsidiary are translated at the year-end rate of exchange, and income statement
items are translated at the average rates prevailing during the year. The
resulting translation adjustments are recorded as a component of stockholders'
equity. The effects of foreign currency gains and losses arising from these
translations of assets and liabilities are included as a component of
Accumulated Other Comprehensive Income.
F-13
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
Corrections," which clarifies the criteria under which extinguishments of debt
can be considered as extraordinary and rescinds the related Statement Nos. 4,
44, and 64 and also makes technical corrections to other Statements of Financial
Standards. We have adopted this statement and accordingly have recorded charges
related to the extinguishment of debt as ordinary expense.
In January 2004, the FASB issued Financial Staff Position ("FSP") 106-1,
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003." As permitted by FSP No. 106-1,
we elected to defer recognizing the effects of the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the "Act") until authoritative
guidance on accounting for the new federal subsidy was issued. In May 2004, the
FASB issued FSP No. 106-2 which provides accounting guidance for this new
subsidy. The Company sponsors a number of postretirement benefit plans. The
application of this new pronouncement did not have a material effect on our
financial statements.
In December 2004, the FASB issued SFAS 123 (R), "Share-Based Payment,"
("SFAS 123 (R)") which replaces SFAS 123 and supersedes APB 25. SFAS No. 123 (R)
requires that compensation cost relating to all share-based payment
transactions, including grants of employee stock options, be recognized in the
statement of operations based on their fair values. Pro forma disclosure is no
longer an alternative. SFAS 123 (R) is effective the first annual reporting
period that begins after June 15, 2005. NDCHealth expects to adopt SFAS 123 (R)
on June 3, 2006, the start of fiscal 2007, and expects to apply the modified
prospective method upon adoption. The modified prospective method requires
companies to record compensation cost beginning with the effective date (a)
based on the requirements of SFAS 123 (R) for all share-based payments granted
after the effective date and (b) based on the requirements of SFAS 123 for all
awards granted to employees prior to the effective date of SFAS 123 (R) that
remain unvested on the effective date.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets -- an amendment of APB Opinion No. 29," which amends APB Opinion No. 29,
"Accounting for Nonmonetary Transactions," to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. SFAS No. 153 is effective for nonmonetary exchanges occurring
in fiscal periods beginning after June 15, 2005. The Company does not expect the
adoption of SFAS No. 153 to have a material impact on its results of operations
or financial condition.
In March 2005, SEC Staff issued Staff Accounting Bulletin ("SAB") No. 107,
"Share-Based Payment", which provides guidance on the interaction between SFAS
No. 123(R) and certain SEC rules and regulations, as well as on the valuation of
share-based payments. SAB No. 107 does not modify any of the requirements under
SFAS No. 123(R). SAB No. 107 provides interpretive guidance related to valuation
methods (including assumptions such as expected volatility and expected term),
first-time adoption of SFAS No. 123(R) in an interim period, the classification
of compensation expense and disclosures subsequent to adoption of SFAS No.
123(R). We are currently evaluating the impact of SAB No. 107 on our
consolidated financial statements.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." SFAS No. 154 requires retrospective application of a voluntary
change in accounting principle to prior period financial statements unless it is
impracticable. SFAS No. 154 also requires that a change in method of
depreciation, amortization, or depletion for long-lived, non-financial assets be
accounted for as a change
F-14
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in accounting estimate effected by a change in accounting principle. SFAS No.
154 replaces APB Opinion No. 20, "Accounting Changes," and SFAS No. 3,
"Reporting Accounting Changes in Interim Financial Statements." SFAS No. 154 is
effective for fiscal years beginning after December 15, 2005. The Company does
not expect the adoption of the provisions of SFAS No. 154 to have a material
impact on its results of operations or financial condition.
NOTE 3 -- BUSINESS ACQUISITIONS AND INVESTMENTS
BUSINESS ACQUISITIONS
In December 2003, we completed the acquisition of 100% of Arclight Systems,
LLC. This acquisition was recorded using the purchase method of accounting, and
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair value as of the date of
acquisition. The operating results of this business are included in our
consolidated statements of operations from its respective date of acquisition.
Through an agreement whereby we acquired fixed assets and employees and
obtained a seven year exclusive license to certain of its assets, we acquired
the continuing operations of Arclight Systems LLC, an information management
company. The purchase price included 381,098 shares of unregistered NDCHealth
common stock with a market value as of the date of issuance of $10.0 million and
a five-year warrant to purchase an additional 381,098 shares of NDCHealth common
stock at an exercise price of $26.24 per share with an estimated value as of the
date of issuance using the Black-Scholes option pricing model of $4.4 million.
The assumptions used in estimating the warrant's value were a risk-free interest
rate of 3.3%, an expected dividend yield of 0.6%, an expected life of five
years, and expected volatility of 48%.
The acquisition required the recording of transaction and lease termination
costs totaling $3.1 million and a $0.7 million receivable for future cash
payments from the remaining Arclight business to NDCHealth relating to a
previous agreement between the two parties. Arclight made a transition payment
of $2.0 million to NDCHealth at closing. The transition payment resulted in a
reduction in the consideration we paid for Arclight's business.
Additionally, we will pay Arclight royalties on our future product sales
utilizing Arclight data and the agreement to use certain data may be extended
for three additional years if certain financial and business objectives are met.
If the agreement is extended for an additional three years, Arclight has the
option to receive an additional $10.0 million in either cash or NDCHealth common
stock.
We determined that $0.4 million of the assets acquired represented
in-process research and development ("IPRD"), the cost of which were
appropriately expensed in the third quarter of fiscal 2004 as required by FIN 4,
"Applicability of FASB Statement No. 2 to Business Combinations Accounted for by
the Purchase Method" as a component of Sales, General and Administrative
expense.
F-15
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Arclight's results have been consolidated into our financial statements as
of December 31, 2003, the date of the agreement. The net purchase price of $12.4
million was allocated as follows:
<Table>
<Caption>
(IN THOUSANDS)
ASSETS:
Prepaid and other current assets............................ $ 822
Property and equipment...................................... 2,357
IPRD........................................................ 350
Data Access Rights.......................................... 10,409
Goodwill.................................................... 2,377
-------
Total Assets.............................................. 16,315
LIABILITIES:
Accounts payable and accrued liabilities.................... 3,934
-------
NET PURCHASE PRICE (including transaction costs and
transition payments)...................................... $12,381
=======
</Table>
PRO FORMA
The following unaudited pro forma information for fiscal years 2004 and
2003 purchase acquisitions has been prepared as if the acquisitions had occurred
on the first day of fiscal 2003. The information is based on historical results
of the separate companies and is not necessarily indicative of the results that
have been achieved or of results that may occur in the future. The pro forma
information includes the expense for amortization of intangible assets resulting
from the transactions but does not reflect any synergies or operating cost
reductions that may be achieved from the combined operations.
<Table>
<Caption>
2004 2003
----------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
Revenue..................................................... $395,614 $400,733
Income from Continuing Operations........................... $ 20,697 $ 31,379
Diluted Earnings Per Share (Continuing Operations).......... $ 0.57 $ 0.89
</Table>
INVESTMENTS
OmniLink
In April 2004, we acquired McKesson's OmniLink(SM) pre-and post-editing
assets and customer base and signed an agreement to form a strategic alliance to
jointly market NDCHealth's pharmacy NDC Pre & Post Editing Service Solutions to
the base of 2,300 McKesson Pharmacy Systems customers. Based on an independent
valuation, $11.4 million of the $14.0 million purchase price was allocated to
the acquired customer base with the remainder allocated to other identifiable
intangibles.
ePrescribing
During the fourth quarter of 2004, we made the decision to de-emphasize our
efforts in new physician electronic prescribing activities. We will continue to
leverage our market leadership to help connect pharmacies to physician interface
providers, a profitable component of e-prescribing for us today. This is the
portion of e-prescribing where we currently bring the greatest strength, and
intend to concentrate our physician market efforts on our high-margin systems
and EDI businesses. Due to this strategic decision, we incurred a non-cash
charge of $4.5 million, or $0.12 per diluted share in the fourth quarter of
fiscal 2004, to write down our investment in an e-prescribing company.
F-16
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of May 27, 2005, our total investment in this entity was approximately
$5.0 million. We are currently amortizing our prepaid asset through the end of
our agreement (December 2008). Since the e-prescribing industry is an emerging
industry, it is difficult to predict which companies will be successful. We
continue to monitor the realizability of our investment and prepaid license
fees. If their Company does not succeed, we could record a significant
impairment to this asset in a future fiscal period.
NOTE 4 -- DISCONTINUED OPERATIONS
During the fourth quarter of fiscal 2004, NDCHealth management performed a
review of our European businesses to determine alternatives to mitigate the
losses associated with these operations. In May 2004, management recommended and
our Board of Directors approved the sale of these European businesses. In
October 2004, the Company completed the sale of its United Kingdom business and
recorded a gain on this sale of $1.7 million. In May 2004, the Company had
recorded a $7.2 million after-tax write down of its United Kingdom operations'
equity investment in a joint venture.
On June 7, 2005, NDCHealth completed the sale of NDCHealth Holdings GmbH &
Co., the holding company for NDCHealth's German information management
operations, to the 49% minority stockholder and former owner of this business.
Under the terms of the agreement, the company received 9.5 million Euro or
approximately $11.6 million at closing, with an additional 1.5 million euro or
approximately $1.8 million payable over three years and guaranteed by WestLB, a
Dusseldorf-based bank. The proceeds from this sale were used to paydown the
senior credit facility. These proceeds were less than what we had previously
expected to receive from this sale; therefore, we wrote down the carrying value
of these assets by $7.3 million and $22.2 million in the fourth quarter and full
year of fiscal 2005, respectively.
In addition, we sold our Pharmacy Benefit Services ("HealthTrans") and our
Canadian transaction processing business in the fourth fiscal quarter of 2005.
We recorded a $2.6 million and $1.3 million pre-tax gain on these sales,
respectively.
Accordingly, our financial statements have been prepared with the net
assets and liabilities, results of operations, and cash flows of these
operations displayed separately as Discontinued Operations with all historical
financial statements restated to conform to this presentation.
In the fourth quarter of 2005, we were also notified by the Internal
Revenue Service ("IRS") that the Company's settlement offer for various items in
its fiscal 2001 tax return, including a worthless stock loss deduction taken
related to the Company's divestiture of its management's services business, was
accepted. The Company reversed $3.2 million and $0.5 million of valuation
allowance and tax contingency reserves, respectively, in the fourth quarter of
fiscal 2005. The major components of the results of operations for discontinued
operations for the past three years is as follows:
<Table>
<Caption>
2005 2004 2003
-------- -------- -------
Revenue............................................... $ 86,551 $ 58,049 $32,450
-------- -------- -------
Operating Income/(Loss)............................... 1,446 (3,408) (1,019)
Provision for income taxes............................ (566) (4,081) (1,175)
-------- -------- -------
Income (loss) from operations, net.................... 880 (7,489) (2,194)
Asset valuation adjustments........................... (22,222) (7,163) --
Gain on sales......................................... 5,586 -- --
Provision for income taxes on gains................... (516) -- --
Tax provision adjustments............................. 3,703 -- --
-------- -------- -------
Loss from Discontinued Operations..................... $(12,569) $(14,652) $(2,194)
======== ======== =======
Diluted Loss Per Share................................ $ (0.35) $ (0.41) $ (0.06)
======== ======== =======
Share Count........................................... 35,957 35,847 34,941
</Table>
F-17
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total assets and liabilities of discontinued operations are summarized
as follows:
<Table>
<Caption>
2005 2004
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
ASSETS
Cash and Cash Equivalents................................... $ 1,376 $ 4,014
Accounts Receivable, Net.................................... 1,810 9,114
Prepaid Expenses............................................ 786 7,978
Other Current Assets........................................ 5,144 3,895
Property and Equipment, Net................................. 1,798 4,686
Goodwill.................................................... 17,877 56,240
Intangible Assets, Net...................................... 1,204 1,180
Deferred Tax Assets......................................... -- 280
Investments and Other Assets................................ 6,250 2,224
------- -------
Total Assets of Discontinued Operations..................... $36,245 $89,611
======= =======
LIABILITIES
Long-Term debt.............................................. $ -- $ 418
Accounts Payable and Accrued Liabilities.................... 3,740 21,139
Deferred Revenue............................................ 1,218 2,659
Deferred Tax Liabilities.................................... -- 5,059
Other Long-Term Liabilities................................. 2,581 2,532
Minority Interest........................................... 4,428 6,087
------- -------
Total Liabilities of Discontinued Operations................ $11,967 $37,894
======= =======
</Table>
Material contingent liabilities related to our discontinued operations are
described in Note 15 -- Commitments and Contingencies.
NOTE 5 -- RESTRUCTURING, SPECIAL GOVERNANCE AND OTHER CHARGES
<Table>
<Caption>
2005 2004 2003
------- ------ ------
By Expense Type:
Severance............................................... $ 5,305 $4,557 $ --
Exit-Related............................................ 89 984 --
Special Governance Fees................................. 4,833 953 --
Legal Settlement Costs.................................. 4,750 -- --
Asset reserves.......................................... -- (691) 2,283
Acquisition related costs............................... -- 265 2,775
------- ------ ------
Total..................................................... $14,977 $6,068 $5,058
======= ====== ======
By Segment:
Pharmacy Services and Systems........................... $ 6,072 $2,301 $2,775
Hospital Solutions...................................... 881 259 --
Physicians Solutions.................................... 714 (364) 2,283
Information Management.................................. 573 1,039 --
Other................................................... 6,737 2,833 --
------- ------ ------
Total..................................................... $14,977 $6,068 $5,058
======= ====== ======
</Table>
During fiscal 2005, we reviewed the entirety of NDCHealth's operations to
identify opportunities for increased efficiencies and profit improvement, which
included an assessment of our organizational structure
F-18
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
as well as our physical operating locations. As a result of this review, we
reduced our workforce by 70 employees and closed three office locations. Of the
$5.4 million severance and exit-related costs incurred in fiscal 2005, $4.8
million was cash and $0.6 million was a non-cash charge in accordance with FASB
Interpretation Number 44, "Accounting for Certain Transactions Involving Stock
Compensation" ("FIN 44").
Special governance costs of $4.8 million and $1.0 million in fiscal 2005
and 2004, respectively, include the legal and accounting costs associated with
our shareholder litigation, SEC investigation, restatement of our financial
statements for the three fiscal years ended May 28, 2004 and work performed
related to the Board of Directors decision to pursue the sale of our Company.
On August 4, 2005, we reached an agreement to settle all claims in the
1-Rex, Inc., FDS, Inc., HealthCare Computer Corporation, Freedom Drug Stores,
Inc., Freedom Data Services, Inc., and William Rex Akers case.
During fiscal 2004, we began a review of the entirety of NDCHealth to
identify opportunities for increased operational efficiencies. This ongoing
review included an assessment of our organizational structure as well as our
physical operating locations. We took several actions in fiscal 2004 as a result
of this review, primarily related to the reduction of our workforce related to
redundant operations and activities. The severance charges reflect 131
specifically identified executives and employees who were informed of their
employment termination during fiscal 2004. The exit-related costs relate to the
closure of three offices and the reduction in size of one office. Also in the
second fiscal quarter of 2004, we wrote-off a $0.2 million note receivable
related to a business that was exited in 2001.
In conjunction with the sale of our interest in MedUnite to ProxyMed, we
also evaluated other aspects of our MedUnite relationship. As part of this
evaluation we identified $1.4 million of trade receivables that we believe
became uncollectible as a result of the change in relationship with MedUnite.
Accordingly, a charge of $1.4 million is included in Restructuring and Other
Charges in fiscal 2003 to reserve for these receivables. In addition, we
reserved $0.9 million of the note receivable from ProxyMed during fiscal 2003,
which was subsequently reversed during the fourth quarter of 2004 because of the
positive payment history of ProxyMed.
Additionally, in conjunction with the second step of our TechRx acquisition
in fiscal 2003 and in accordance with APB No. 25 and FIN 44, we recorded $2.8
million and $0.3 million of acquisition related expense for TechRx variable
stock options in fiscal year 2003 and 2004, respectively.
The following table shows the activity related to the restructuring
liabilities, which are included in Other Accrued Liabilities in the consolidated
balance sheet:
<Table>
<Caption>
INFORMATION
PHARMACY HOSPITAL PHYSICIAN MANAGEMENT OTHER
------------------- --------- ------------------- ----------- ---------
EXIT EXIT
SEVERANCE RELATED SEVERANCE SEVERANCE RELATED SEVERANCE SEVERANCE TOTAL
--------- ------- --------- --------- ------- ----------- --------- -------
Balance at May 30, 2003.... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Current year expense....... 1,132 716 259 394 121 1,039 1,880 5,541
Cash Expenditures.......... (793) -- (112) (151) -- (864) (1,081) (3,001)
------- ----- ----- ----- ---- ------ ------- -------
Balance at May 28, 2004.... 339 716 147 243 121 175 799 2,540
------- ----- ----- ----- ---- ------ ------- -------
Current year expense....... 1,175 89 791 624 -- 573 1,597 4,849
Cash Expenditures.......... (1,097) (726) (175) (530) (78) (541) (1,411) (4,558)
------- ----- ----- ----- ---- ------ ------- -------
Balance, May 27, 2005...... $ 417 $ 79 $ 763 $ 337 $ 43 $ 207 $ 985 $ 2,831
======= ===== ===== ===== ==== ====== ======= =======
</Table>
F-19
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- PROPERTY AND EQUIPMENT, NET
As of May 27, 2005 and May 28, 2004, property and equipment consisted of
the following:
<Table>
<Caption>
CONTINUING OPERATIONS 2005 2004
- --------------------- -------- --------
(IN THOUSANDS)
Land........................................................ $ 1,602 $ 1,602
Buildings................................................... 11,289 11,289
Equipment................................................... 55,393 62,849
Software.................................................... 81,528 88,196
Leasehold improvements...................................... 9,535 8,999
Furniture and fixtures...................................... 6,283 6,452
-------- --------
165,630 179,387
Less: accumulated depreciation.............................. 95,788 101,630
-------- --------
$ 69,842 $ 77,757
======== ========
</Table>
NOTE 7 -- GOODWILL
Goodwill is the excess of the purchase price over the fair value of
identifiable net assets acquired in business combinations accounted for as
purchases.
The changes in the carrying amount of goodwill for the two years ended May
27, 2005, are as follows:
<Table>
<Caption>
PHARMACY SERVICES HOSPITAL PHYSICIAN INFORMATION
AND SYSTEMS SOLUTIONS SOLUTIONS MANAGEMENT TOTAL
----------------- --------- --------- ----------- --------
(IN THOUSANDS)
Balance as of May 30,
2003..................... $221,289 $49,582 $43,210 $36,812 $350,893
Goodwill recorded during
year from acquisitions... 171 2,206 2,377
Purchase price
adjustments.............. 3,658 -- 3,658
-------- ------- ------- ------- --------
Balance as of May 28,
2004..................... 225,118 49,582 43,210 39,018 356,928
Purchase price
adjustments.............. (4,165) (1,289) (5,454)
-------- ------- ------- ------- --------
Balance as of May 27,
2005..................... $220,953 49,582 43,210 $37,729 $351,474
======== ======= ======= ======= ========
</Table>
We assess the recoverability of goodwill on at least an annual basis during
the Company's second quarter or more frequently if circumstances suggest
potential impairment. Recoverability of goodwill is evaluated using a two-step
process. The first step involves a comparison of the fair value of a reporting
unit with its carrying value. If the carrying amount of the reporting unit
exceeds its fair value, the second step of the process involves a comparison of
the fair value and carrying value of the goodwill of that reporting unit. If the
carrying value of the goodwill of a reporting unit exceeds the fair value of
that goodwill, an impairment loss is recognized in an amount equal to the
excess. We completed our annual impairment testing during the second quarter of
fiscal 2005. For each of our reporting units, we found that the estimated fair
value exceeded the net book value of the unit and therefore the second step of
the impairment test was not necessary.
However, the amount by which the estimated fair value exceeded the net book
value was less than in previous years due to declines in operating earnings of
our Pharmacy and Physician reporting units. If earnings do not recover as
expected in each of these reporting units, we may face a write-down of goodwill
in the future. To achieve the expected recovery in our Pharmacy unit, we must
successfully introduce our
F-20
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NDC EnterpriseRx pharmacy system and achieve reasonable market acceptance and
sales, and we must continue to grow pharmacy network services revenue from
claims transaction growth, achieve added penetration of value-added pre and post
editing services, and have further success in selling informatics services to
pharmacy customers. To achieve the expected recovery in our Physician unit
operating earnings, we must see continued recovery in Physician system sales to
our value-added reseller channel, which declined following our conversion to
offering only cash terms to our resellers at the end of fiscal year 2004, but
which showed improvement in fiscal 2005.
NOTE 8 -- INTANGIBLE ASSETS, NET
The table below presents intangible assets by asset class.
<Table>
<Caption>
AS OF MAY 27, 2005 AS OF MAY 28, 2004
---------------------------------------------------- ---------------------------------
WEIGHTED AVERAGE
REMAINING GROSS GROSS
AMORTIZATION CARRYING ACCUMULATED CARRYING ACCUMULATED
PERIOD (YEARS) AMOUNT AMORTIZATION TOTAL AMOUNT AMORTIZATION TOTAL
---------------- -------- ------------ ------- -------- ------------ -------
(IN THOUSANDS)
Customer base............ 7 $80,828 $(29,599) $51,229 $80,828 $(22,012) $58,816
Data rights
agreement........... 6 10,409 (2,107) 8,302 10,409 (620) 9,789
Reseller and Other..... 3 3,600 (1,245) 2,355 3,600 (445) 3,155
------- -------- ------- ------- -------- -------
Total intangible
assets................. $94,837 $(32,951) $61,886 $94,837 $(23,077) $71,760
======= ======== ======= ======= ======== =======
</Table>
The aggregate amortization expense for fiscal year 2005 was $9.9 million
and estimated amortization expense for the next five fiscal years is as follows:
<Table>
<Caption>
(IN THOUSANDS)
ESTIMATED AMORTIZATION EXPENSE
For year Ending June 02, 2006............................... $9,873
For year Ending June 01, 2007............................... $9,823
For year Ending May 30, 2008................................ $9,533
For year Ending May 29, 2009................................ $9,418
For year Ending May 28, 2010................................ $9,000
</Table>
NOTE 9 -- RETIREMENT BENEFITS
The NDCHealth noncontributory defined benefit pension plan (the "Plan")
covers substantially all of our United States employees who met the eligibility
provisions of the Plan as of May 31, 1998. The defined benefit pension plan was
closed to new participants beginning June 1, 1998, and benefit accruals for
years of service ceased on July 31, 1998. Additionally, benefit accruals for
compensation level increases ceased on June 30, 2003. Plan provisions and
funding meet the requirements of the Employee Retirement Income Security Act of
1974, as amended.
F-21
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company uses a May 31 measurement date for its plans. The following
table provides a reconciliation of the changes in the Plan's benefit obligations
and fair value of assets over the two-year period ending May 27, 2005 and a
statement of funded status at May 27, 2005 and May 28, 2004:
<Table>
<Caption>
2005 2004
------- -------
(IN THOUSANDS)
CHANGES IN BENEFIT OBLIGATIONS
Balance at beginning of year................................ $30,811 $29,417
Interest cost............................................... 1,966 1,879
Benefits paid............................................... (1,155) (1,092)
Actuarial loss.............................................. 2,459 607
------- -------
Balance at end of year...................................... $34,081 $30,811
======= =======
</Table>
<Table>
<Caption>
2005 2004
------- -------
(IN THOUSANDS)
CHANGES IN PLAN ASSETS
Balance at beginning of year................................ $21,165 $18,458
Actual return on plan assets................................ 1,082 2,210
Employer contributions...................................... 3,121 1,589
Benefits paid............................................... (1,155) (1,092)
------- -------
Balance at end of year...................................... $24,213 $21,165
======= =======
</Table>
The accrued pension liability recognized in Other Non-current Liabilities
was as follows:
<Table>
<Caption>
2005 2004
-------- -------
(IN THOUSANDS)
Funded status............................................... $ (9,868) $(9,646)
Unrecognized net loss....................................... 12,376 9,921
Additional pension accrual.................................. (12,376) (9,921)
-------- -------
Accrued pension liability................................... $ (9,868) $(9,646)
======== =======
</Table>
Net pension cost included the following components for the following fiscal
years:
<Table>
<Caption>
2005 2004 2003
------- ------- -------
(IN THOUSANDS)
Interest cost on projected benefit obligation........... $ 1,966 $ 1,879 $ 1,955
Expected return on plan assets.......................... (1,745) (1,436) (1,800)
Net amortization and deferral........................... -- -- 14
Recognized actuarial loss............................... 668 735 485
------- ------- -------
Net pension cost........................................ $ 889 $ 1,178 $ 654
======= ======= =======
</Table>
Significant assumptions used in determining net pension expense and related
obligations were as follows:
<Table>
<Caption>
2005 2004
---- ----
Discount rate............................................... 6.00% 6.50%
Rate of increase in compensation levels..................... N/A N/A
Expected long-term rate of return on assets................. 8.00% 8.00%
</Table>
F-22
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Due to changes in the interest rate environment, we reduced the discount
rate to 6.0% from 6.5% effective May 27, 2005.
The benefit payout projections for the next ten fiscal years are as
follows:
<Table>
<Caption>
(IN THOUSANDS)
Benefit Payout Projections
For the year ended June 02, 2006............................ $1,168
For the year ended June 01, 2007............................ $1,256
For the year ended May 30, 2008............................. $1,326
For the year ended May 29, 2009............................. $1,415
For the year ended May 28, 2010............................. $1,502
For the five years ending May 29, 2015...................... $9,469
</Table>
Because of below target investment performance prior to fiscal year 2005,
at May 27, 2005 and May 28, 2004 we had an unfunded accumulated benefit
obligation that exceeds the accrued pension cost of the noncontributory defined
benefit pension plan. SFAS No. 87, "Employers' Accounting for Pensions" requires
that this liability be recognized on the consolidated balance sheet. Because
this liability is assumed to be only temporary, a charge to earnings is not
appropriate but instead a charge to other comprehensive income is required. At
May 27, 2005 and May 28, 2004, respectively, we have recognized $9.9 million and
$9.6 million in Other Non-current Liabilities, $7.6 million and $7.0 million in
Accumulated Other Comprehensive Income, and $4.8 million and $2.6 million in
Deferred Income Taxes to reflect this obligation. The Company expects to
contribute $0.8 million to its pension plan in fiscal 2006.
NDCHealth has a retirement plan for non-employee directors elected prior to
January 1, 1995 with five or more years of service (the "Directors' Plan"). The
Directors' Plan benefits are based on 50% of the annual director retainer amount
in effect on the date of a director's retirement plus 10% for each year of
service for a combined total of up to 100% of the base amount for 10 years'
service. The benefits are payable upon retirement, at or after age 70, for a
period equal to the number of years of service as a director, but not more than
15 years for participants with 15 or more years of board service as of the
effective date of the Directors' Plan and not more than 10 years for all other
participants. The plan was amended in fiscal 2004 to limit the retirement income
of an outside director to $60,000 payable in any combination of cash and stock.
The expense related to the Directors' Plan was not material to results of
operations in fiscal 2005, 2004 and 2003. The projected benefit obligation for
the plan was $0.9 million and $0.9 million as of May 27, 2005 and May 28, 2004,
respectively.
On June 1, 1997, we adopted a Supplemental Executive Retirement Plan
("SERP") for certain key executives, all of whom are either retired or no longer
with the Company. Benefits payable under this plan are based upon the
participant's highest three consecutive years of earnings of the last ten years
of service. Retirement benefits are reduced by a portion of the participant's
annual social security benefits and any retirement benefits under our
tax-qualified or non-qualified defined benefit plans. Benefits earned under the
SERP are fully vested after five years of service. Expense related to the plan
was $0.5 million, $0.6 million and $0.6 million in fiscal 2005, 2004, and 2003,
respectively. The projected benefit obligation for the plan was $8.2 million and
$7.9 million as of May 27, 2005 and May 28, 2004, respectively.
We sponsor a deferred compensation 401(k) plan that is available to
substantially all employees. The charges to expense for the employer match were
$1.3 million in fiscal 2005 and fiscal 2004 and $2.1 million in fiscal 2003.
F-23
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NDCHealth Corporation U.S. pension plan asset target allocation for fiscal
2006, and asset allocation at May 27, 2005 and May 28, 2004, are as follows:
<Table>
<Caption>
TARGET ACTUAL
ALLOCATION -----------
FOR 2006 2005 2004
---------- ---- ----
ASSET CATEGORY
Common Stocks............................................... 70% 68% 76%
Bonds....................................................... 25% 27% 19%
Money Market Instruments.................................... 5% 5% 5%
--- --- ---
100% 100% 100%
=== === ===
</Table>
All tax-qualified pension fund investments are held in the NDCHealth
Pension Trust. The pension fund strategy is to diversify investments across
broad categories of equity and fixed income securities with appropriate use of
alternate investment categories to minimize risk and volatility.
NOTE 10 -- INCOME TAXES
The provision for income taxes for continuing operations includes:
<Table>
<Caption>
2005 2004 2003
------ ------- -------
(IN THOUSANDS)
Current tax expense:
Federal................................................ $1,066 $ 114 $ 726
State.................................................. 77 224 101
------ ------- -------
1,143 338 827
------ ------- -------
Deferred tax expense:
Federal................................................ 254 13,091 17,372
State.................................................. 1,137 1,280 1,726
------ ------- -------
1,391 14,371 19,098
------ ------- -------
Total tax expense........................................ $2,534 $14,709 $19,925
====== ======= =======
</Table>
Our effective tax rates differ from federal statutory rates as follows:
<Table>
Pre-tax book income.................................... $8,464 $36,212 $51,304
Tax expense............................................ 2,534 14,709 19,925
------ ------- -------
Rate................................................... 29.9% 40.6% 38.8%
====== ======= =======
Federal statutory rate................................. 35.0% 35.0% 35.0%
State income taxes (net)............................... 0.6% 2.3% 2.2%
Valuation allowance.................................... 8.7% 0.0% 0.5%
Loss related to investment............................. 0.0% 4.3% 5.9%
Federal tax credits.................................... (7.8)% (2.3)% (1.9)%
Adjustment for prior years taxes....................... (9.2)% -- --
Other.................................................. 2.6% 1.3% (2.9)%
------ ------- -------
Total.................................................. 29.9% 40.6% 38.8%
====== ======= =======
</Table>
F-24
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal 2005, the Company recorded an additional deferred state
benefit of approximately $0.5 million to reflect changes in certain state tax
laws which will result in a lower effective state rate on the future reversal of
long-term deferred tax liabilities. The Company also recorded a benefits of
approximately $0.7 million and $0.8 million, respectively, during fiscal 2005
reflecting additional federal tax credits recognized and other true-ups related
to prior years income tax including the settlement of the fiscal 2001 IRS audit.
Deferred income taxes as of May 27, 2005 and May 28, 2004 reflect the
impact of temporary differences between the amounts of assets and liabilities
for financial accounting and income tax purposes. As of May 27, 2005 and May 28,
2004, principal components of deferred tax items were as follows:
<Table>
<Caption>
2005 2004
--------------------- ---------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT
------- ----------- ------- -----------
(IN THOUSANDS)
Deferred assets:
NOL and credits.......................... $ -- $ 50,430 $ -- $ 38,075
Acquired intangibles..................... -- 540 -- 5,119
Employee benefit plans................... -- 8,832 -- 7,817
Deferred revenue......................... -- 2,821 -- 3,797
Accrued expenses......................... 7,025 1,808 5,946 39
Loss related to investments.............. -- 1,719 -- 1,701
Valuation allowance...................... -- (10,652) -- (9,548)
------ -------- ------- --------
7,025 55,498 5,946 47,000
------ -------- ------- --------
Deferred liabilities:
PP&E..................................... -- (37,148) -- (31,908)
Prepaid and other........................ (811) -- (2,470) --
------ -------- ------- --------
(811) (37,148) (2,470) (31,908)
------ -------- ------- --------
$6,214 $ 18,350 $ 3,476 $ 15,092
====== ======== ======= ========
</Table>
At May 27, 2005, the Company had various federal, state and foreign net
operating loss and credit carryforwards. These tax attribute carryforwards will
expire in fiscal years 2006 through 2025. The Company believes it is more likely
than not that certain carryforwards will not be utilized before they expire;
therefore, the Company has established a valuation reserve of approximately
$10.7 million as of May 27, 2005. The valuation reserve increased approximately
$1.1 million principally due to additional allowance provided for state net
operating losses.
In the current year, the Company made adjustments to certain deferred tax
assets and liabilities which did not result in an adjustment to income tax
expense. These adjustments included an adjustment of approximately $2.2 million
with respect to current compensation expense for tax purposes associated with
the exercise of the Company's stock options, and a benefit of approximately $1.2
million with respect to future compensation expense recorded as part of the
Company's other comprehensive income. The Company also recorded adjustments of
approximately $6.2 million to goodwill with respect to changes in deferred taxes
associated with prior acquisitions.
F-25
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- DEBT AND LEASE OBLIGATIONS
DEBT
As of May 27, 2005 and May 28, 2004, Long-Term Debt consisted of the
following:
<Table>
<Caption>
MAY 27, MAY 28,
2005 2004
-------- --------
(IN THOUSANDS)
10 1/2% senior subordinated notes -- mature on December 1,
2012...................................................... $200,000 $200,000
Term loan -- variable rate due in quarterly installments
until November 2008....................................... 41,450 102,000
Line Of Credit.............................................. 29,100 --
Capital leases and other notes.............................. 234 858
-------- --------
270,784 302,858
Less: Current maturities.................................... 31,529 33,511
-------- --------
Net Long-Term Debt.......................................... $239,255 $269,347
======== ========
</Table>
The $200 million senior subordinated notes will mature on December 1, 2012.
The notes are fully and unconditionally guaranteed, jointly and severally, on an
unsecured senior subordinated basis by the subsidiary guarantors that guarantee
our credit facility. The notes bear interest at a rate of 10 1/2% per year and
interest is payable on June 1 and December 1 of each year. Interest is computed
on the basis of a 360-day year comprised of twelve 30-day months. As of May 27,
2005, the fair market value of the notes is approximately $212 million dollars.
The Company has a $225 million senior secured credit facility that consists
of a $100 million five-year revolving credit facility and a $125 million
six-year term loan. The credit facility has been amended eight times for the
purpose of reducing interest rate and relaxing certain covenants to provide us
added flexibility. The $100 million revolving credit facility is available for
working capital and general corporate purposes and has a variable interest rate
based on market rates. The $125 million term loan has a variable interest rate
tied to LIBOR. During fiscal 2005, we borrowed $88.5 million and repaid $59.4
million under the revolving credit facility. As of May 27, 2005, $29.1 million
was outstanding under the revolving credit facility. During the first quarter of
fiscal 2006, we borrowed an additional $10.0 million under the revolving credit
facility. As of May 27, 2005, $41.4 million was outstanding under the term loan
which was reduced by $10.6 million in the first quarter of fiscal 2006. The
average debt outstanding during fiscal 2005 was $68.8 million which bore
interest at a weighted average annual interest rate of 5.03%.
During fiscal 2005 and 2004, we capitalized interest of $3.8 million and
$3.1 million, respectively, related to our capitalized expenditures.
Borrowings under the amended credit facility bear interest, at our option,
at a rate based on either (1) the applicable margin plus the base rate, which is
the higher of the per annum rate, which the administrative agent publicly
announces from time to time to be its prime lending rate, and the federal funds
rate, as published by the Federal Reserve Bank of New York, plus 0.5%, or (2)
the applicable margin plus a one, two, three, or six month "LIBOR" rate. The
applicable margin was amended to incorporate changes in debt coverage ratios and
debt ratings with respect to term loan and revolving credit borrowings, and is a
percentage per annum equal to 2.00% for base rate borrowings and 3.00% for LIBOR
borrowings. The applicable margin with respect to borrowings under the revolving
credit facility is a percentage per annum equal to 1.75% for base rate
borrowings and 2.75% for LIBOR borrowings. The applicable margin is subject to
adjustments based on our debt rating and financial performance. Under the
F-26
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
credit agreement there is no cap on the interest rate applicable to the term
loan or the revolving credit facility.
Borrowings under the credit facility are guaranteed by our material
domestic subsidiaries. Our obligations under the credit facility are secured by
a pledge of the capital stock of our domestic subsidiaries and 66% of the voting
stock of our first-tier material foreign subsidiaries. Our obligations are also
secured by a perfected lien and security interest in substantially all of our
and such domestic subsidiaries' tangible and intangible assets. Under certain
circumstances, future material subsidiaries will be required to guarantee the
credit facility and to secure their guarantees with substantially all of their
tangible and intangible property. Similarly, under certain circumstances, we
will pledge 66% of the voting stock of our future first-tier foreign
subsidiaries to the lenders under the credit facility.
The credit facility contains certain financial and non-financial covenants
customary for financings of this nature, such as requiring us to maintain a
certain leverage ratio of debt to EBITDA. EBITDA is defined in the credit
agreement as income before equity in losses of affiliated companies, plus income
taxes, interest expense, depreciation and amortization, and certain other
non-cash losses on asset disposition, less minority interest in losses. As of
May 27, 2005, we were in compliance with all restrictive covenants.
In fiscal year 2004, we incurred $2.4 million in debt issuance costs
relating to the amendments to the term loan and the revolving credit facility.
In fiscal year 2005, we incurred an additional $1.1 million in debt issuance
costs relating to the amendments to the term loan and the revolving credit
facility. The debt issuance costs are being amortized over the life of the
credit facility and notes. In addition in 2004, we made the final payment on our
mortgage.
Scheduled maturities of our long-term debt during the fiscal years
subsequent to May 27, 2005 are as follows: $2.6 million in 2006, $2.6 million in
2007, $19.2 million in 2008, $9.4 million in 2009, and $200 million in 2013. The
amounts for fiscal 2007 and beyond do not include the mandatory prepayments (as
described below). As a result of the sale of our German business on June 7,
2005, the Company was required to pay down $10.6 million of the term loan from
$41.4 million to $30.8 million.
Mandatory prepayments of the credit facility are required after 90 days
following the end of each fiscal year beginning fiscal year 2004. NDCHealth is
obligated to prepay an aggregate principal amount of the loans, and cash
collateralize any Letter of Credit obligations in an amount equal to: (i) 75% of
excess cash flow for such fiscal year if the consolidated total leverage ratio
is greater than 2.00:1.00 at the end of such fiscal year, and (ii) 50% of such
excess cash flow for such fiscal year if the consolidated total leverage ratio
is less than or equal to 2.00:1.00 at the end of the fiscal year. Each such
payment shall be applied ratably first to the term facility pro rata to the
scheduled amortization payments until all are paid in full and second to the
revolving credit facility. Under the mandatory prepayment agreement $27.5
million was paid in August 2004 based on fiscal 2004 earnings. Under the
mandatory prepayment agreement no additional amount is due based on fiscal 2005
earnings and due to payments already made during the year.
LEASE OBLIGATIONS
We conduct a major part of our operations using leased facilities and
equipment. Many of these leases have renewal and purchase options and provide
that we pay the cost of property taxes, insurance and maintenance.
Rent expense on all operating leases for fiscal 2005, 2004 and 2003 was
approximately $13.7 million, $12.7 million, and $10.4 million, respectively.
F-27
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments for all non-cancelable leases at May 27, 2005
were as follows:
<Table>
<Caption>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
2006........................................................ $130 $13,238
2007........................................................ 109 9,403
2008........................................................ -- 6,391
2009........................................................ -- 5,523
2010........................................................ -- 5,331
Thereafter.................................................. -- 14,499
---- -------
Total future minimum lease payments......................... 239 $54,385
=======
Less: amount representing interest.......................... 5
----
Present value of net minimum capital lease payments......... 234
Less: current portion....................................... 126
----
Long-term obligations under capital leases at May 27,
2005...................................................... $108
====
</Table>
NOTE 12 -- STOCKHOLDERS' EQUITY
During fiscal 2004, the Board of Directors adopted the 2004 Non-Employee
Directors Compensation Plan (the "2004 Directors Plan"), replacing the 2002
Non-Employee Directors Compensation Plan. The 2004 Directors Plan is a formula
plan pursuant to which non-employee directors receive cash in payment of their
base annual retainer and any supplemental annual retainer, plus an annual grant
of restricted stock units. Shares issued in accordance with the 2004 Directors
Plan are granted, and reduce the number of shares available for future grant,
under our 2000 Long-Term Incentive Plan, which was approved by our stockholders
at the 1999 annual meeting, or under any successor equity compensation plan that
is approved by our stockholders. The base annual retainer is paid in cash to
each non-employee director at the beginning of each fiscal year, in an amount
set by the Board of Directors from time-to-time. Supplemental annual retainers,
in the amounts set by the Board of Directors from time-to-time, are paid in cash
at the beginning of each fiscal year to the lead director and to each
non-employee director who serves as the chair or a member of any committee of
the Board. The lead director's supplemental annual retainer is payable 50% in
cash and 50% in unrestricted shares of NDCHealth common stock, based on the fair
market value of the common stock on June 1 of the applicable plan year. A
non-employee director may irrevocably elect, prior to the beginning of each plan
year, to defer receipt of that year's annual base retainer or, supplemental
retainers in the form of deferred stock units that are payable in common stock
at a designated future date, not less than two years after the date of the
deferral election or thirty days after the director's termination of service as
a director. The number of deferred stock units received would be equal to the
dollar amount deferred, divided by the fair market value of NDCHealth common
stock on the first day of the plan year for which the deferral is elected. In
addition to annual retainers, commencing with the 2004 annual meeting of
stockholders, each non-employee Director will receive an annual grant of 3,500
restricted stock units, which will vest on the earlier of six months from the
grant date or termination of the director's service by reason of his or her
death, disability or retirement. Restricted stock units may be deferred through
an election to receive deferred stock units, payable at a designated date, not
less than two years after the date of the deferral election or thirty days after
the director's termination of service as a director. The number of deferred
stock units received would be equal to the number of restricted stock units
deferred and the deferred stock units would be subject to the same restrictions
and vesting requirements as the related restricted stock units.
F-28
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 28, 1999, we adopted a stock-based compensation plan, the 2000
Long-Term Incentive Plan (the "2000 Plan"). The number of shares available for
awards will be adjusted annually on the last day of our fiscal year through
fiscal 2004. The 2000 Plan authorizes the granting of awards to employees,
officers and directors of NDCHealth or its subsidiaries in the following forms:
(i) options to purchase shares of common stock, which may be incentive stock
options or nonqualified stock options, (ii) stock appreciation rights; (iii)
performance shares; (iv) restricted stock; (v) dividend equivalents; (vi) other
stock-based awards; or (vii) any other right or interest relating to common
stock or cash. During fiscal 2005, 2004 and 2003, we only granted awards in the
forms of options and restricted stock and restricted stock units. Not more than
15% of the total authorized shares may be granted as awards of restricted stock
or unrestricted stock awards. Shares awarded as restricted stock under the plan
are held in escrow and released to the grantee upon the grantee's satisfaction
of conditions set forth in the grantee's restricted stock agreement. Such awards
are recorded as deferred compensation, a reduction of stockholders' equity,
based on the quoted fair market value of NDCHealth common stock at the award
date. Compensation expense is recognized ratably during the escrow period of the
award. Options may be issued at, below, or above the fair market value of the
common stock at the time of grant. No awards have been granted below the fair
market value since the 2000 Plan's inception. Options granted become exercisable
in various annual increments and terminate over a period not to exceed 10 years.
We have two other employee stock option plans, the 1997 Stock Option Plan
(the "1997 Plan") and the 1987 Stock Option Plan (the "1987 Plan"), that
provided for the granting of options to certain officers and key employees to
purchase NDCHealth common stock. No additional options will be granted under the
1997 and 1987 Plans. Options granted under such plans become exercisable in
various annual increments and terminate over a period not to exceed 10 years.
The NDCHealth 1984 Non-Employee Directors Stock Option Plan (the "1984
Plan") provided for annual grants of options (each to purchase 5,000 shares of
common stock of NDCHealth), to non-employee directors. The maximum number of
shares for which options could have been granted is 545,000. No additional
options will be granted under the 1984 Plan. Options granted prior to October
26, 1995 are exercisable immediately at the current market value on the date of
grant. Options granted on or after October 26, 1995 vest 20% two years after the
date of grant, an additional 25% after three years, another 25% after four
years, and the remaining 30% after five years.
Under the 2000 Plan, there were 59,881, 278,601, and 58,069 shares of
NDCHealth common stock awarded as restricted stock during fiscal years 2005,
2004 and 2003, respectively. These awards have restriction periods of one to
seven years. As of May 27, 2005, 256,795 restricted shares remained in escrow.
Additionally, there were 28,000 and 100,000 restricted stock units awarded
during fiscal years 2005 and 2004, respectively. These awards have restriction
periods of six months to three years. As of May 27, 2005, 66,667 restricted
stock units remained in escrow. We expensed $3.0 million, $1.9 million and $1.2
million in fiscal 2005, 2004 and 2003, respectively, in connection with these
awards.
Other Stock Plans -- On October 26, 2000, we adopted an Employee Stock
Purchase Plan under which the sale of 1,500,000 shares of its common stock has
been authorized. During each quarterly offering period under the plan, employees
may authorize payroll deductions of up to 20% of compensation, which funds are
used to purchase shares of NDCHealth common stock at the end of the offering
period at a price equal to the lower of 85% of market value on the first day or
the last day of the offering period, subject to an annual purchase limit of
$25,000. At May 27, 2005, 373,754 shares have been issued under this plan, with
1,126,246 shares reserved for future issuance.
F-29
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized transactions under all the stock option plans are as follows:
<Table>
<Caption>
WEIGHTED AVERAGE
SHARES UNDER OPTION PRICE
OPTION PER SHARE
------------ ----------------
Outstanding at May 31, 2002.............................. 3,606,006 $20.07
Granted................................................ 1,229,194 20.69
Exercised.............................................. (125,344) 9.11
Expired or terminated.................................. (289,946) 22.08
---------
Outstanding at May 30, 2003.............................. 4,419,910 20.43
---------
Granted................................................ 1,258,316 20.34
Exercised.............................................. (427,266) 15.73
Expired or terminated.................................. (579,692) 22.45
---------
Outstanding at May 28, 2004.............................. 4,671,268 20.58
---------
Granted................................................ 753,433 13.81
Exercised.............................................. (499,464) 16.34
Expired or terminated.................................. (679,893) 20.92
---------
Outstanding at May 27, 2005.............................. 4,245,344 20.10
Exercisable at May 27, 2005.............................. 2,224,754 20.87
---------
Available for future grants as of May 27, 2005........... 1,184,420 --
=========
</Table>
The following table sets forth the exercise price range, number of shares,
weighted average exercise price and remaining contractual lives by groups of
similar price and grant dates:
<Table>
<Caption>
WEIGHTED NUMBER OF WEIGHTED
EXERCISE PRICE NUMBER OF WEIGHTED AVERAGE SHARES AVERAGE
RANGE SHARES AVERAGE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
- -------------- --------- ------------- ---------------- ----------- --------------
$12.90 - $13.77................ 704,292 $13.25 7.41 years 236,592 $13.66
$14.02 - $17.75................ 627,623 15.67 6.37 years 343,531 15.45
$18.00 - $19.58................ 810,948 19.50 7.55 years 265,175 19.53
$19.67 - $22.79................ 841,651 21.18 4.29 years 684,012 21.02
$22.92 - $23.10................ 561,092 22.93 6.48 years 200,076 22.94
$23.18 - $37.10................ 699,738 28.10 4.85 years 495,368 27.75
--------- ---------
4,245,344 $20.10 6.12 years 2,224,754 $20.87
========= =========
</Table>
NOTE 13 -- SEGMENT INFORMATION
We operate our business as four fundamental reportable segments: Pharmacy
Services and Systems, Hospital Solutions, Physician Solutions, which we offer to
healthcare providers and payers, and Information Management, which we offer
primarily to pharmaceutical manufacturers. Information Management provides
management information, research, and consulting services to pharmaceutical
manufacturers and pharmacy chains. Pharmacy Services and Systems provides claims
transaction processing and sophisticated claims editing solutions for retail
pharmacy operations, and also supplies application systems for retail, mail
order and managed care pharmacy operations. Pharmacy Services and Systems also
provide independent, regional and national chain and mail-order pharmacies our
claims management solutions, pharmacy management system solutions, and decision
support and revenue
F-30
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
management solutions. Hospital Solutions provides revenue cycle management to
approximately 1,800 hospital and health system customers by offering our
customers software and services solutions that provide workflow management
offerings and support for many transactions. Our hospital solution sets provide
tools to allow our customers to manage the claims and remittance process,
accelerate and improve cash flow, reduce bad debt, track accounts receivable and
costs, and improve productivity. Physician Solutions provides small-office
physicians with resources necessary to streamline billing and other internal
processes such as scheduling, increasing productivity and optimizing accurate
reimbursement. We offer our physician customers enhanced practice management
capabilities, electronic commerce solutions, and interactive training. Our
physician solutions include NDC Medisoft, NDCLytec, NDCConcept, and NDC
Electronic Claims Processing. The Information Management segment provides data
products and solutions primarily to pharmaceutical manufacturers. Other includes
Restructuring, special governance and other charges not directly identifiable to
a business segment and other charges. More detailed information about these four
business segments can be found under "Information About
NDCHealth -- Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Business Segments."
The accounting policies of the reportable segments are generally the same
as those described in the summary of significant accounting policies. Corporate
overhead is allocated to the segments based on various methodologies (i.e.,
percentage of revenue, square footage, headcount, etc.). These various
methodologies allow the Company to equitably allocate overhead costs based on
the demands of the segment. Income Taxes are not allocated to the segments
incurring them for internal evaluation purposes. Revenue is attributed to
geographic region based on the location of the business unit processing the
transactions and services. No individual foreign country accounted for more than
10% of consolidated revenue in any period presented. We have two customers that
each provides more than 10% of the revenue reported in the Information
Management segment.
In March 2005, we decided to divest our Pharmacy Benefit Services and
Canadian transaction processing business. In May 2004, we decided to pursue the
divestiture of our European businesses which are reflected separately as
Discontinued Operations. The information presented below excludes Discontinued
Operations, with the exception of segment assets where assets from discontinued
operations are listed as other.
<Table>
<Caption>
YEARS ENDED
--------------------------------
MAY 27, MAY 28, MAY 30,
2005 2004 2003
-------- -------- ----------
(IN THOUSANDS)
REVENUE
Pharmacy Services and Systems........................ $128,664 $130,372 $130,179
Hospital Solutions................................... 64,265 67,091 69,096
Physician Solutions.................................. 32,510 39,640 44,237
Information Management............................... 162,119 158,712 157,221
-------- -------- --------
Total.............................................. $387,558 $395,815 $400,733
======== ======== ========
OPERATING INCOME
Pharmacy Services and Systems........................ $ 9,245 $ 28,455 $ 34,068
Hospital Solutions................................... 15,408 23,715 25,941
Physician Solutions.................................. 7,424 6,095 5,503
Information Management............................... 8,070 12,498 22,278
Other................................................ (6,737) (2,833) --
-------- -------- --------
Operating Income..................................... $ 33,410 $ 67,930 $ 87,790
======== ======== ========
</Table>
F-31
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
YEARS ENDED
--------------------------------
MAY 27, MAY 28, MAY 30,
2005 2004 2003
-------- -------- ----------
(IN THOUSANDS)
DEPRECIATION AND AMORTIZATION
Pharmacy Services and Systems........................ $ 17,060 $ 13,739 $ 10,798
Hospital Solutions................................... 7,847 6,797 5,858
Physician Solutions.................................. 2,145 1,974 1,700
Information Management............................... 12,850 13,088 11,475
-------- -------- --------
Total.............................................. $ 39,902 $ 35,598 $ 29,831
======== ======== ========
EXPENDITURES FOR LONG-LIVED ASSETS
Pharmacy Services and Systems........................ $ 15,571 $ 19,984 $ 23,061
Hospital Solutions................................... 4,682 6,078 6,385
Physician Solutions.................................. 1,134 3,367 1,266
Information Management............................... 7,362 7,722 7,940
Other................................................ 2,451 1,290 4,420
-------- -------- --------
Total.............................................. $ 31,200 $ 38,441 $ 43,072
======== ======== ========
SEGMENT ASSETS, AT YEAR END
Pharmacy Services and Systems........................ $459,749 $465,636
Hospital Solutions................................... 95,310 101,080
Physician Solutions.................................. 55,369 57,209
Information Management............................... 38,482 39,895
Other................................................ 100,757 171,695
-------- --------
Total.............................................. $749,667 $835,515
======== ========
</Table>
The following table presents information about our continuing operations in
different geographic regions for and as of the years ended May 27, 2005 May 28,
2004 and May 30, 2003.
<Table>
<Caption>
2005 2004 2003
-------- -------- --------
(IN THOUSANDS)
Revenue:
United States...................................... $384,821 $392,951 $400,733
All other.......................................... 2,737 2,864 --
-------- -------- --------
Total revenue........................................ $387,558 $395,815 $400,733
======== ======== ========
Long-lived assets:
United States...................................... $ 69,727 $ 76,526
All other.......................................... 115 1,231
-------- --------
Total long-lived assets.............................. $ 69,842 $ 77,757
======== ========
</Table>
NOTE 14 -- RELATED PARTY TRANSACTIONS
Promissory notes totaling approximately $4.3 million were issued to
NDCHealth in fiscal 2001 by a partnership, of which a former director is sole
partner, for the exercise of stock options previously granted to the director
and transferred to the partnership. Treasury shares held at the time were issued
as a result
F-32
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the exercise of these options. The notes, with full recourse, were secured by
NDCHealth common stock owned by the partnership. The outstanding balance of
these notes was $1.7 million as of May 30, 2003 and was included in Deferred
Compensation and Other as a reduction of Stockholders' Equity. The notes were
paid in full in May 2004.
NOTE 15 -- COMMITMENTS AND CONTINGENCIES
We have sold our European operations in Germany and the United Kingdom,
which are now recorded as discontinued operations. Through these entities that
have now been sold, we had been engaged in litigation since 2000 with IMS Health
before the European Commission and the European Court of Justice and in the
German courts. With the sale of our interests in the entities involved in this
litigation, the Company is no longer involved.
On October 14, 2003, we filed suit in the 96th Judicial District Court,
Tarrant County, Texas, against 1-Rex, Inc., FDS, Inc., Healthcare Computer
Corporation, Freedom Drug Stores, Inc., Freedom Data Services, Inc. and William
Rex Akers (collectively the "Defendants") for breach of contract,
misappropriation of trade secrets, fraud, and negligent misrepresentation,
seeking unspecified damages for Defendants' wrongful conduct. On March 5, 2004,
Defendants filed a counterclaim against us, asserting claims for tortious
interference with a prospective contract, violations of Section 15.05(b) of the
Texas Business and Commerce Code, civil conspiracy, and seeking a declaratory
judgment in connection with various claims made by us. Defendants seek over $25
million in damages, plus attorneys' fees, pre-judgment and post-judgment
interest, and punitive damages. On August 4, 2005, the parties agreed to settle
all claims between them. The terms of the settlement are confidential.
A putative securities class-action, captioned Garfield v. NDCHealth
Corporation, et al., was filed in the United States District Court for the
Northern District of Georgia against NDCHealth and Messrs. Hoff, Hutto, Miller,
Shenk, FitzGibbons and Adrean, as defendants. The complaint in that action
generally alleged, among other things, that members of a purported class of
stockholders who purchased common stock between August 21, 2002 and August 9,
2004 were damaged as a result of (i) improper revenue recognition practices in
the Company's physician business unit; (ii) the failure to timely write-down the
Company's investment in MedUnite; and (iii) the improper capitalization and
amortization of costs associated with software development. The second amended
complaint alleges that, as a result of such conduct, the Company's previously
issued financial statements were materially false and misleading, thereby
causing the prices of the Company's common stock to be inflated artificially.
The second amended complaint asserts violations of Section 10(b) and 20(a) of
the Securities Exchange Act of 1934 as amended (the "Exchange Act"), and Rule
10b-5 promulgated thereunder, and seeks unspecified monetary damages and other
relief. On July 27, 2005, the Company's motion to dismiss all claims was granted
by the Court. Plaintiffs were granted 30 days within which to file a third
amended complaint.
On May 10, 2005, a complaint captioned MMI Investments, L.P. v. NDCHealth
Corporation, et al., was filed in the United States District Court for the
Southern District of New York against the Company and Messrs. Hoff, Hutto and
Shenk. The complaint generally alleges that plaintiff MMI Investments, L.P.
("MMI") was damaged as a result of its purchases of NDC common stock at
artificially inflated prices from July 2003 through August 9, 2004. The
complaint seeks unspecified monetary and other relief. Following a pre-motion
conference on June 22, 2005, the Court granted defendants leave to file a motion
to dismiss the complaint and/or transfer the action to the United States
District Court for the Northern District of Georgia. That motion was filed on
July 22, 2005, and is pending.
The Company and AmerisourceBergen are named as defendants in a suit filed
by Prescription Counter, a pharmacy, on October 22, 2004, and removed to the
federal District Court of New Jersey. In the suit, plaintiff claims breach of
contract, breach of representations and warranties, breach of N.J. Consumer
Fraud Act, and negligent misrepresentation, and seeks unspecified damages in
excess of
F-33
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$1 million. The Company has filed its answer denying these claims and has
asserted various affirmative defenses and a counterclaim against Prescription
Counter for amounts due under the Company's contracts with the plaintiff.
AmerisourceBergen has also answered, asserted counterclaims, and has also
asserted a cross-claim against the Company for indemnity and/or contribution.
The Company filed its answer to the cross-claim and has denied any liability for
indemnity or contribution. Discovery is proceeding and the Company intends to
vigorously defend the litigation.
Additionally, we are party to a number of other claims and lawsuits
incidental to our business. We believe that the ultimate outcome of such
matters, in the aggregate, will not have a material adverse impact on our
financial position, liquidity or results of operations.
NOTE 16 -- SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow disclosures and non-cash investing and financing
activities for the years ended May 27, 2005 May 28, 2004, and May 30, 2003 is as
follows:
<Table>
<Caption>
2005 2004 2003
------- ------- -------
(IN THOUSANDS)
Supplemental cash flow information:
Net income taxes (refunded) paid...................... $ 191 $ (155) $(1,558)
Interest paid......................................... 26,601 30,410 8,396
Supplemental non-cash investing and financing
activities:
Capital leases entered into in exchange for property
and equipment...................................... 234 1,275 94
Stock and warrants issued in the Arclight
acquisition........................................ -- 14,364 --
</Table>
In fiscal years 2004 and 2003, we acquired various businesses that were
accounted for as purchases (see Notes 3 and 7):
<Table>
<Caption>
2004 2003
-------- --------
(IN THOUSANDS)
Fair value of assets acquired............................... $ 16,315 $109,700
Stock issued................................................ (10,000) --
Warrants issued............................................. (4,364) --
Cash acquired............................................... 1,983 --
Liabilities assumed......................................... (3,934) --
-------- --------
Cash paid for acquisitions.................................. $ -- $109,700
======== ========
</Table>
F-34
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- QUARTERLY CONSOLIDATED FINANCIAL INFORMATION (UNAUDITED)
Quarterly results are shown in the tables below.
<Table>
<Caption>
AUGUST 27, NOVEMBER 26, FEBRUARY 25, MAY 27,
2004 2004 2005 2005
---------- ------------ ------------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR 2005
Revenue.................................. $91,008 $96,680 $100,115 $99,755
Operating Income......................... 7,584 6,978 13,083 5,765
Income from Continuing Operations........ 762 539 4,219 410
Net Income (Loss)........................ $(6,965) $(4,769) $ 4,839 $ 256
Basic Earnings (Loss) Per Share:
Income from Continuing Operations........ $ 0.02 $ 0.02 $ 0.12 $ 0.01
Discontinued Operations.................. $ (0.22) $ (0.15) $ 0.02 $ (0.00)
Basic Earnings (Loss) Per Share.......... $ (0.20) $ (0.13) $ 0.14 $ 0.01
Diluted Earnings (Loss) Per Share:
Income from Continuing Operations........ $ 0.02 $ 0.02 $ 0.12 $ 0.01
Discontinued Operations.................. $ (0.21) $ (0.15) $ 0.02 $ (0.00)
Diluted Earnings (Loss) Per Share........ $ (0.19) $ (0.13) $ 0.13 $ 0.01
</Table>
<Table>
<Caption>
AUGUST 29, NOVEMBER 28, FEBRUARY 27, MAY 28,
2003 2003 2004 2004
---------- ------------ ------------ --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL YEAR 2004
Revenue................................. $96,230 $102,503 $102,771 $ 94,311
Operating Income........................ 17,764 20,410 22,133 7,623
Income (Loss) from Continuing
Operations............................ 6,657 8,293 9,711 (3,158)
Net Income (Loss)....................... $ 6,627 $ 7,565 $ 9,210 $(16,551)
Basic Earnings (Loss) Per Share:
Income (Loss) from Continuing
Operations............................ $ 0.19 $ 0.24 $ 0.28 $ (0.09)
Discontinued Operations................. $ -- $ (0.02) $ (0.01) $ (0.38)
Basic Earnings (Loss) Per Share......... $ 0.19 $ 0.22 $ 0.26 $ (0.47)
Diluted Earnings (Loss) Per Share:
Income (Loss) from Continuing
Operations............................ $ 0.19 $ 0.23 $ 0.27 $ (0.09)
Discontinued Operations................. $ -- $ (0.02) $ (0.01) $ (0.38)
Diluted Earnings (Loss) Per Share....... $ 0.19 $ 0.21 $ 0.25 $ (0.47)
</Table>
NOTE 18 -- CONSOLIDATING FINANCIAL DATA OF SUBSIDIARY GUARANTORS
In fiscal year 2003, we issued $200 million aggregate principal amount of
10 1/2% senior subordinated notes due 2012. Our wholly-owned, material
subsidiaries, which include NDC Health Information Services (Arizona) Inc., and
NDC of Canada, Inc., have fully and unconditionally guaranteed the notes on a
joint and several basis.
F-35
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Presented below is our consolidating financial data, including the combined
financial data for our subsidiary guarantors and our subsidiary non-guarantors.
<Table>
<Caption>
STATEMENT OF OPERATIONS FOR THE
TWELVE MONTHS ENDED MAY 27, 2005 PARENT GUARANTOR NON-GUARANTORS ELIMINATIONS CONSOLIDATED
- -------------------------------- -------- --------- -------------- ------------ ------------
Revenue............................. $226,067 $158,754 $ 2,737 $ -- $387,558
Operating Expenses..................
Cost of Service..................... 95,481 102,031 2,929 -- 200,441
Other Operating Expenses............ 98,630 54,255 822 -- 153,707
-------- -------- -------- ----- --------
194,111 156,286 3,751 -- 354,148
Operating Income.................... 31,956 2,468 (1,014) -- 33,410
Other Income/Expense................ (25,078) (17) 149 -- (24,946)
Income from Continuing Operations... 6,878 2,451 (865) -- 8,464
Provision (Benefit) for Income
Taxes............................. 2,927 (599) 206 -- 2,534
Discontinued Operations............. (25) (771) (11,773) -- (12,569)
-------- -------- -------- ----- --------
Net Income (Loss)................... $ 3,926 $ 2,279 $(12,844) $ -- $ (6,639)
======== ======== ======== ===== ========
</Table>
<Table>
<Caption>
STATEMENT OF OPERATIONS FOR THE
TWELVE MONTHS ENDED MAY 28, 2004 PARENT GUARANTOR NON-GUARANTORS ELIMINATIONS CONSOLIDATED
- -------------------------------- -------- --------- -------------- ------------ ------------
Revenue............................. $238,479 $154,472 $ 2,864 $ -- $395,815
Operating Expenses..................
Cost of Service..................... 92,815 98,928 2,463 -- 194,206
Other Operating Expenses............ 87,381 45,401 897 -- 133,679
-------- -------- -------- ------- --------
180,196 144,329 3,360 -- 327,885
Operating Income.................... 58,283 10,143 (496) -- 67,930
Other Income/Expense................ (31,678) 1,026 (6) (1,060) (31,718)
Income (Loss) from Continuing
Operations........................ 26,605 11,169 (502) (1,060) 36,212
Provision (Benefit) for Income
Taxes............................. 9,997 5,305 (190) (403) 14,709
Discontinued Operations............. 754 133 (15,539) -- (14,652)
-------- -------- -------- ------- --------
Net Income (Loss)................... $ 17,362 $ 5,997 $(15,851) $ (657) $ 6,851
======== ======== ======== ======= ========
</Table>
F-36
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
STATEMENT OF OPERATIONS FOR THE
TWELVE MONTHS ENDED MAY 30, 2003 PARENT GUARANTOR NON-GUARANTORS ELIMINATIONS CONSOLIDATED
- -------------------------------- -------- --------- -------------- ------------ ------------
(IN THOUSANDS)
Revenue............................. $243,754 $154,500 $ 2,479 $ -- $400,733
Operating Expenses..................
Cost of Service..................... 94,301 93,908 2,925 1,568 192,702
Other Operating Expenses............ 73,921 46,170 432 (282) 120,241
-------- -------- ------- -------- --------
168,222 140,078 3,357 1,286 312,943
Operating Income.................... 75,532 14,422 (878) (1,286) 87,790
Other Income/Expense................ (51,267) 72,979 117 (58,315) (36,486)
Income from Continuing Operations... 24,265 87,401 (761) (59,601) 51,304
Provision (Benefit) for Income
Taxes............................. 9,038 10,692 (9) 204 19,925
Discontinued Operations............. -- 289 (2,483) -- (2,194)
-------- -------- ------- -------- --------
Net Income (Loss)................... $ 15,227 $ 76,998 $(3,235) $(59,805) $ 29,185
======== ======== ======= ======== ========
</Table>
<Table>
<Caption>
STATEMENT OF CASH FLOWS FOR THE NDCHEALTH SUBSIDIARY SUBSIDIARY
TWELVE MONTHS ENDED MAY 27, 2005 CORPORATION GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
- -------------------------------- ----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss).................. $ 3,926 $ 2,279 $(12,844) $ -- $ (6,639)
Adjustments to reconcile net income
(loss) to cash provided by
operating activities:........... 42,364 12,795 25,300 (12,500) 67,959
Changes in assets and liabilities
which provided (used) cash, net
of the effects of
acquisitions:................... 15,581 (7,433) (57,838) 28,330 (21,360)
-------- ------- -------- -------- --------
Net cash provided by operating
activities...................... 61,871 7,641 (45,382) 15,830 39,960
Cash flows from investing
activities:........................ (34,887) (7,142) 9,876 -- (32,153)
Cash flows from financing
activities:........................ (34,039) (500) 15,830 (15,830) (34,539)
Cash flows from discontinued
operations:........................ -- -- 19,937 -- 19,937
-------- ------- -------- -------- --------
Increase (decrease) in cash and cash
equivalents........................ (7,055) (1) 261 -- (6,795)
Cash and cash equivalents, beginning
of period.......................... 24,438 9 138 -- 24,585
-------- ------- -------- -------- --------
Cash and cash equivalents, end of
period............................. $ 17,383 $ 8 $ 399 $ -- $ 17,790
======== ======= ======== ======== ========
</Table>
F-37
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
STATEMENT OF CASH FLOWS FOR THE NDCHEALTH SUBSIDIARY SUBSIDIARY
TWELVE MONTHS ENDED MAY 28, 2004 CORPORATION GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
- -------------------------------- ----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss).................. $ 17,362 $ 5,997 $(15,851) $ (657) $ 6,851
Adjustments to reconcile net income
(loss) to cash provided by
operating activities:........... 57,370 11,972 15,758 (773) 84,327
Changes in assets and liabilities
which provided (used) cash, net
of the effects of
acquisitions:................... 7,496 (12,796) 5,990 6,551 7,241
-------- -------- -------- ------- --------
Net cash provided by operating
activities...................... 82,228 5,173 5,897 5,121 98,419
Cash flows from investing
activities:........................ (47,954) (4,926) (2,820) -- (55,700)
Cash flows from financing
activities:........................ (22,533) (721) 4,198 (4,197) (23,253)
Cash flows from discontinued
operations:........................ -- -- (7,137) (924) (8,061)
-------- -------- -------- ------- --------
Increase (decrease) in cash and cash
equivalents........................ 11,741 (474) 138 -- 11,405
Cash and cash equivalents, beginning
of period.......................... 12,697 483 -- -- 13,180
-------- -------- -------- ------- --------
Cash and cash equivalents, end of
period............................. $ 24,438 $ 9 $ 138 $ -- $ 24,585
======== ======== ======== ======= ========
</Table>
<Table>
<Caption>
STATEMENT OF CASH FLOWS FOR THE NDCHEALTH SUBSIDIARY SUBSIDIARY
TWELVE MONTHS ENDED MAY 30, 2003 CORPORATION GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
- -------------------------------- ----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
Cash flows from operating activities:
Net income (loss).................... $ 15,227 $ 76,998 $(3,235) $(59,805) $ 29,185
Adjustments to reconcile net income
(loss) to cash provided by
operating activities:............. 62,424 12,820 2,797 (809) 77,232
Changes in assets and liabilities
which provided (used) cash, net of
the effects of acquisitions:...... (4,943) (81,279) 3,449 72,562 (10,211)
--------- -------- ------- -------- ---------
Net cash provided by operating
activities........................ 72,708 8,539 3,011 11,948 96,206
Cash flows from investing
activities:.......................... (141,364) (7,339) (5,615) -- (154,318)
Cash flows from financing
activities:.......................... 70,336 (724) 10,237 (11,576) 68,273
Cash flows from discontinued
operations:.......................... (763) (1) (7,633) (372) (8,769)
--------- -------- ------- -------- ---------
Increase (decrease) in cash and cash
equivalents.......................... 917 475 -- -- 1,392
Cash and cash equivalents, beginning of
period............................... 11,780 8 -- -- 11,788
--------- -------- ------- -------- ---------
Cash and cash equivalents, end of
period............................... $ 12,697 $ 483 $ -- $ -- $ 13,180
========= ======== ======= ======== =========
</Table>
F-38
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
NDCHEALTH SUBSIDIARY SUBSIDIARY
BALANCE SHEET AS OF MAY 27, 2005 CORPORATION GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
- -------------------------------- ----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents.............. $ 17,383 $ 8 $ 399 $ -- $ 17,790
Accounts receivable.................... 35,902 14,894 181 -- 50,977
Prepaid expenses and other current
assets............................... 39,105 15,856 491 (17,618) 37,834
Total assets of discontinued
operations........................... -- -- 28,201 8,044 36,245
-------- -------- ------- --------- --------
Total current assets................. 92,390 30,758 29,272 (9,574) 142,846
-------- -------- ------- --------- --------
Property, equipment and capital use
software, net.......................... 109,902 28,326 88 -- 138,316
Goodwill and intangible assets, net...... 369,698 35,318 8,344 -- 413,360
Investments and other.................... 263,573 2,383 -- (210,811) 55,145
Intercompany receivables................. 82,330 (13,060) 783 (70,053) --
-------- -------- ------- --------- --------
Total assets......................... $917,893 $ 83,725 $38,487 $(290,438) $749,667
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt...... $ 31,529 $ -- $ -- $ -- $ 31,529
Accounts payable, accrued liabilities
and other............................ 81,438 30,852 735 -- 113,025
Total liabilities of discontinued
operations........................... -- -- 38,485 (26,518) 11,967
-------- -------- ------- --------- --------
Total current liabilities............ 112,967 30,852 39,220 (26,518) 156,521
-------- -------- ------- --------- --------
Long-term liabilities.................... 279,920 3,226 5,763 (18,263) 270,646
-------- -------- ------- --------- --------
Total liabilities.................... 392,887 34,078 44,983 (44,781) 427,167
-------- -------- ------- --------- --------
Stockholders' equity..................... 525,006 49,647 (6,496) (245,657) 322,500
-------- -------- ------- --------- --------
Total liabilities and stockholders'
equity................................. $917,893 $ 83,725 $38,487 $(290,438) $749,667
======== ======== ======= ========= ========
</Table>
F-39
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
NDCHEALTH SUBSIDIARY SUBSIDIARY
BALANCE SHEET AS OF MAY 28, 2004 CORPORATION GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
- -------------------------------- ----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents.............. $ 24,438 $ 9 $ 138 $ -- $ 24,585
Accounts receivable.................... 42,495 19,044 630 -- 62,169
Prepaid expenses and other current
assets............................... 40,280 13,669 258 (13,685) 40,522
Total assets of discontinued
operations........................... -- 7,904 85,511 (3,804) 89,611
-------- -------- ------- --------- --------
Total current assets................. 107,213 40,626 86,537 (17,489) 216,887
-------- -------- ------- --------- --------
Property, equipment and capital use
software, net.......................... 108,243 30,856 1,231 (1,006) 139,324
Goodwill and intangible assets, net...... 389,279 31,625 7,784 -- 428,688
Investments and other.................... 273,576 -- 28 (222,988) 50,616
Intercompany receivables................. 74,291 (16,874) (6,611) (50,806) --
-------- -------- ------- --------- --------
Total Assets......................... $952,602 $ 86,233 $88,969 $(292,289) $835,515
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt...... $ 33,011 $ 500 $ -- $ -- $ 33,511
Accounts payable, accrued liabilities
and other............................ 91,928 37,868 947 (248) 130,495
Total liabilities of discontinued
operations........................... -- 5,832 47,880 (15,818) 37,894
-------- -------- ------- --------- --------
Total current liabilities............ 124,939 44,200 48,827 (16,066) 201,900
-------- -------- ------- --------- --------
Long-term liabilities.................... 302,933 2,881 -- (34) 305,780
-------- -------- ------- --------- --------
Total liabilities.................... 427,872 47,081 48,827 (16,100) 507,680
-------- -------- ------- --------- --------
Minority interest in equity of
subsidiaries........................... -- -- -- -- --
Stockholders' equity..................... 524,730 39,152 40,142 (276,189) 327,835
-------- -------- ------- --------- --------
Total liabilities and stockholders'
equity................................. $952,602 $ 86,233 $88,969 $(292,289) $835,515
======== ======== ======= ========= ========
</Table>
F-40
NDCHEALTH CORPORATION
CONSOLIDATED SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<Table>
<Caption>
ADDITIONS
-----------------------
1 2
BALANCE AT CHARGED TO ACQUIRED/ UNCOLLECTIBLE BALANCE AT
BEGINNING COSTS AND (DIVESTED) ACCOUNTS END OF
DESCRIPTION OF PERIOD EXPENSES BALANCES WRITE-OFF PERIOD
- ----------- ---------- ---------- ---------- ------------- ----------
(IN THOUSANDS)
Trade Receivable Allowances
May 30, 2003........................... $5,022 $6,283 $-- $4,957 $6,348
May 28, 2004........................... $6,348 $8,926 $-- $8,038 $7,236
May 27, 2005........................... $7,236 $7,224 $-- $7,857 $6,603
</Table>
F-41
NDCHEALTH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
-------------------------
SEPTEMBER 2, AUGUST 27,
2005 2004
(IN THOUSANDS, EXCEPT PER SHARE DATA) ------------ ----------
Revenue..................................................... $99,980 $91,008
------- -------
Operating Expenses:
Cost of Service........................................... 51,201 50,434
Sales, General and Administrative......................... 23,708 22,333
Depreciation and Amortization............................. 9,493 10,269
Restructuring, Special Governance and Other Charges....... 3,926 388
------- -------
88,328 83,424
------- -------
Operating Income............................................ 11,652 7,584
------- -------
Other Income (Expense):
Interest and Other Income................................. 154 61
Interest and Other Expense................................ (7,046) (6,395)
------- -------
(6,892) (6,334)
------- -------
Income from Continuing Operations before Income Taxes....... 4,760 1,250
Provision for Income Taxes.................................. 2,121 488
------- -------
Income from Continuing Operations........................... 2,639 762
Loss from Discontinued Operations........................... -- (7,727)
------- -------
Net Income (Loss)........................................... $ 2,639 $(6,965)
======= =======
Basic Earnings (Loss) Per Share:
Continuing Operations..................................... $ 0.07 $ 0.02
======= =======
Discontinued Operations................................... $ -- $ (0.22)
======= =======
Basic Earnings (Loss) Per Share........................... $ 0.07 $ (0.20)
======= =======
Weighted Average Shares................................ 35,955 35,638
Diluted Earnings (Loss) Per Share:
Continuing Operations..................................... $ 0.07 $ 0.02
======= =======
Discontinued Operations................................... $ -- $ (0.21)
======= =======
Diluted Earnings (Loss) Per Share......................... $ 0.07 $ (0.19)
======= =======
Weighted Average Shares................................ 36,191 36,002
</Table>
The accompanying notes are an integral part of these Unaudited Condensed
Consolidated Financial Statements.
F-42
NDCHEALTH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
-------------------------
SEPTEMBER 2, AUGUST 27,
2005 2004
(IN THOUSANDS) ------------ ----------
Cash flows from operating activities:
Net income (loss)......................................... $ 2,639 $ (6,965)
Adjustments to reconcile net income (loss) to cash
provided (used in) by operating activities:
Loss on discontinued operations........................ -- 7,727
Depreciation and amortization.......................... 9,493 10,269
Deferred income taxes.................................. 2,121 529
Allowance for doubtful accounts........................ 1,547 1,960
Other, net............................................. 1,459 1,186
-------- --------
Total................................................ 17,259 14,706
-------- --------
Changes in assets and liabilities:
Accounts receivable, net............................... 1,431 (640)
Prepaid expenses and other assets...................... 7,183 4,597
Accounts payable and accrued liabilities............... (10,820) (15,291)
Accrued interest on long-term debt..................... (4,893) (5,379)
Deferred revenue....................................... (737) (5,281)
-------- --------
Total................................................ (7,836) (21,994)
-------- --------
Net cash provided by (used in) operating activities....... 9,423 (7,288)
-------- --------
Cash flows from investing activities:
Capital expenditures-Property Acquisitions................ (3,449) (6,677)
Capital expenditures-Capitalized External Use Software.... (4,642) (4,005)
Acquisitions and other investing activities............... (11) (1,838)
-------- --------
Net cash used in investing activities..................... (8,102) (12,520)
-------- --------
Cash flows from financing activities:
Net (repayments) borrowings under lines of credit......... (5,000) 38,500
Principal payments under long-term debt arrangements...... (11,081) (29,446)
Net issuances related to stock activities................. 345 (71)
Dividends paid............................................ -- (1,439)
-------- --------
Net cash (used in) provided by financing activities....... (15,736) 7,544
-------- --------
Cash provided by divestiture of discontinued operations... 11,609 --
Net cash used in discontinued operations.................. (715) (7,904)
-------- --------
Decrease in cash and cash equivalents....................... (3,521) (20,168)
Cash and cash equivalents, beginning of period.............. 17,790 24,585
-------- --------
Cash and cash equivalents, end of period.................... $ 14,269 $ 4,417
======== ========
Supplemental Disclosures:
Cash paid for Interest.................................... $ 11,662 $ 11,937
Income taxes paid (refunded).............................. 207 (404)
</Table>
The accompanying notes are an integral part of these Unaudited Condensed
Consolidated Financial Statements.
F-43
NDCHEALTH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<Table>
<Caption>
SEPTEMBER 2, MAY 27,
2005 2005
(IN THOUSANDS, EXCEPT SHARE DATA) ------------ --------
ASSETS
Current Assets:
Cash and Cash Equivalents................................. $ 14,269 $ 17,790
Accounts Receivable (Less Allowance of $7,539 and $6,603
respectively).......................................... 48,027 50,977
Prepaid Expenses.......................................... 18,495 22,777
Deferred Income Taxes..................................... 4,424 6,214
Other Current Assets...................................... 9,352 8,843
Total Assets of Discontinued Operations................... -- 36,245
-------- --------
Total Current Assets................................... 94,567 142,846
-------- --------
Property and Equipment, Net................................. 66,619 69,842
Capitalized External Use Software, Net...................... 72,481 68,474
Goodwill.................................................... 352,064 351,474
Intangible Assets, Net...................................... 59,418 61,886
Debt Issuance Cost.......................................... 10,842 11,496
Deferred Income Taxes....................................... 18,019 18,350
Other Assets................................................ 23,754 25,299
-------- --------
Total Assets.............................................. $697,764 $749,667
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-term Debt......................... $ 25,939 $ 31,529
Trade Accounts Payable.................................... 21,102 24,033
Accrued Compensation and Benefits......................... 7,051 9,901
Accrued Interest.......................................... 5,631 10,524
Deferred Revenue.......................................... 33,655 33,795
Other Accrued Liabilities................................. 30,983 34,772
Total Liabilities of Discontinued Operations.............. -- 11,967
-------- --------
Total Current Liabilities.............................. 124,361 156,521
-------- --------
Deferred Revenue............................................ 4,005 4,602
Other Non-current Liabilities............................... 25,563 26,789
Long-term Debt.............................................. 228,764 239,255
-------- --------
Total Liabilities...................................... 382,693 427,167
-------- --------
Commitments and Contingencies............................... -- --
Stockholders' Equity:
Preferred Stock, par value $1.00 per share; 1,000,000
shares authorized, none issued......................... -- --
Common Stock, par value $.125 per share; 200,000,000
shares authorized;..................................... -- --
36,206,400 and 36,210,808 shares issued, respectively..... 4,526 4,526
Capital in excess of par value............................ 248,728 248,446
Retained Earnings......................................... 73,546 70,907
Deferred Compensation and Other........................... (4,498) (5,039)
Other Comprehensive (Loss) Income......................... (7,231) 3,660
-------- --------
Total Stockholders' Equity............................. 315,071 322,500
-------- --------
Total Liabilities and Stockholders' Equity............. $697,764 $749,667
======== ========
</Table>
The accompanying notes are an integral part of these Unaudited Condensed
Consolidated Financial Statements.
F-44
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- NATURE OF OPERATIONS
NDCHealth conducts its business through four reportable segments: Pharmacy
Services and Systems, Hospital Solutions, Physician Solutions and Information
Management. Pharmacy Services and Systems provides claims transaction processing
and sophisticated claims editing solutions for independent, regional and
national chain retail pharmacy operations, and also supplies application systems
for retail, mail order and managed care pharmacy operations. Hospital Solutions
provides revenue cycle management to hospital and health system customers by
offering NDCHealth's customers software and services solutions that provide
workflow management offerings and support for claims processing and related
value-added transactions. NDCHealth's hospital solution set provides tools to
allow its customers to manage the claims and remittance process, accelerate and
improve cash flow, reduce bad debt, track accounts receivable and costs, and
improve productivity. Physician Solutions provides small-office physicians with
resources necessary to streamline billing and other internal processes such as
scheduling, increasing productivity and optimizing accurate reimbursement.
NDCHealth offers its physician customers enhanced practice management
capabilities, electronic commerce solutions, and interactive training.
NDCHealth's physician solutions include NDCMedisoft, NDCLytec, NDCConcept, and
NDC Electronic Claims Processing. The Information Management segment provides
data products and solutions primarily to pharmaceutical manufacturers.
On August 26, 2005, NDCHealth entered into an agreement and plan of merger
with Per-Se and its wholly-owned acquisition subsidiary pursuant to which
Per-Se's acquisition subsidiary will be merged with and into NDCHealth with
NDCHealth being the surviving corporation in the merger. NDCHealth will continue
as a wholly owned subsidiary of Per-Se. Upon consummation of the merger, each
outstanding share of NDCHealth common stock will be converted into and exchanged
for the right to receive (a) $13.00 in cash, plus (b) shares of Per-Se common
stock valued at $6.50, subject to Per-Se's option to increase the cash portion
of the per share merger consideration (with a corresponding decrease to the
stock portion). Subject to certain exceptions, the number of shares of Per-Se
common stock to be issued in the merger will be based on the volume weighted
sales prices per share of Per-Se common stock traded on the Nasdaq National
Market for twenty consecutive full trading days ending on the third trading day
prior to the closing date.
Simultaneously with the execution of the Per-Se merger agreement, NDCHealth
entered into a stock purchase agreement with Wolters Kluwer Health, Inc.
pursuant to which Wolters Kluwer will acquire all of the shares of NDCHealth
Health Information Services (Arizona), Inc., referred to as HIS, as well as
certain other assets used in NDCHealth's Information Management segment that
will be contributed by NDCHealth to HIS immediately prior to the closing.
NDCHealth will receive approximately $382.1 million in cash for the shares,
subject to certain adjustments. NDCHealth stockholders will not receive any
consideration from the sale of HIS distinct from the consideration received in
connection with the Per-Se merger.
The two transactions are cross-conditional and are expected to close
approximately simultaneously.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The Condensed Consolidated Financial Statements include the accounts of
NDCHealth Corporation and its majority-owned and controlled companies.
Significant inter-company transactions and balances have been eliminated in
consolidation. Certain prior-year amounts have been reclassified to conform to
the current year presentation. NDCHealth's fiscal year begins on the Saturday
closest to June 1 and ends on
F-45
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Friday closest to May 31. Interim quarters typically consist of thirteen
weeks ending the Friday closest to the last calendar day of August, November,
and February. The first quarter ended September 2, 2005 consisted of 14 weeks
due to this calendar methodology. The net effect of this 14th week in the first
quarter of fiscal 2006 was incremental revenue of $2.4 million, operating profit
of $0.2 million and net loss of $0.2 million or less than $0.01 diluted earnings
per share. Unless otherwise noted, all references to a particular year shall
mean NDCHealth's fiscal year.
The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared based upon Securities and Exchange Commission ("SEC") rules that
permit reduced disclosure for interim periods. In NDCHealth's opinion, these
statements include all adjustments necessary for a fair presentation of the
results of the interim periods presented. All adjustments are of a normal
recurring nature unless otherwise disclosed. Revenue, expenses, assets and
liabilities can vary during each quarter of the year. Therefore, the results and
trends in these interim financial statements may not be the same as those for
the full year. For a more complete discussion of NDCHealth's significant
accounting policies and other information, you should read this report in
conjunction with NDCHealth's financial statements and notes thereto contained in
NDCHealth's Annual Report on Form 10-K/A for the year ended May 27, 2005 filed
with the SEC.
In October 2004 and June 2005, NDCHealth sold its United Kingdom and
Germany companies, respectively. In March and April 2005, NDCHealth sold its
Pharmacy Benefit Services and Canadian businesses, respectively. As a result of
the sale of these businesses, NDCHealth's financial statements have been
prepared with these businesses' net assets, results of operations, and cash
flows displayed separately as Discontinued Operations with all historical
financial statements restated to conform to this presentation, in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets."
EARNINGS PER SHARE
SFAS No. 128, "Earnings per Share," requires a dual presentation of basic
and diluted earnings (loss) per share ("EPS"). Basic earnings per share is
computed by dividing reported Net Income (Loss) by weighted average shares
outstanding during the period. Diluted earnings per share is computed by
dividing reported Net Income (Loss) by weighted average shares outstanding
during the period and the impact of securities that, if exercised, would have a
dilutive effect on earnings per share. All options with an exercise price less
than the average market share price for the period have a dilutive effect on
earnings per share.
The following tables set forth the computation of basic and diluted
earnings for the three months ended September 2, 2005 and August 27, 2004:
<Table>
<Caption>
THREE MONTHS ENDED
----------------------------------------------------------
SEPTEMBER 2, 2005 AUGUST 27, 2004
--------------------------- ----------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA) ------ ------ --------- ------- ------ ---------
Basic Earnings (loss) Per Share:
Net Income (Loss)..................... $2,639 35,955 $0.07 $(6,965) 35,638 $(0.20)
Diluted Earnings (loss) Per Share:
Effect of dilutive securities:
Stock options and restricted stock.... 236 364
------ ------ ------- ------
Net Income (Loss)..................... $2,639 36,191 $0.07 $(6,965) 36,002 $(0.19)
====== ====== ======= ======
</Table>
F-46
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net Income from Continuing Operations of $2.6 million and $0.8 million in
the three months ended September 2, 2005 and August 27, 2004 resulted in basic
earnings per share of $0.07 and $0.02 and diluted earnings per share of $0.07
and $0.02, respectively.
Outstanding options to purchase 2,742,000 and 2,247,000 shares of common
stock were not included in the computation of diluted earnings per share for the
three months ended September 2, 2005 and August 27, 2004, respectively, because
the options' exercise prices were greater than the average market price of
NDCHealth common stock for those periods. Dividends declared per common share
were $0.00 and $0.04 for the three months ended September 2, 2005 and August 27,
2004, respectively.
STOCK OPTIONS
NDCHealth has chosen the disclosure option under SFAS No. 123, "Accounting
for Stock Based Compensation" ("SFAS 123") and SFAS 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure -- an amendment of FASB
Statement No. 123," and continue to apply APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plans. Accordingly, no compensation cost has been recognized for options granted
under the plans. The weighted average fair value of options granted during the
three months ended September 2, 2005 and August 27, 2004 was approximately $9.99
and $6.41, respectively. Had compensation cost for these plans been recognized
based on the fair value of the options at the grant dates in accordance with
SFAS No. 123, the effect on NDCHealth's Net (Loss) Income and Earnings (Loss)
Per Share would have been as follows:
<Table>
<Caption>
THREE MONTHS ENDED
-------------------------
SEPTEMBER 2, AUGUST 27,
2005 2004
(IN THOUSANDS, EXCEPT PER SHARE DATA) ------------ ----------
Net Income (Loss):
As reported............................................... $ 2,639 $(6,965)
Add: Stock-based compensation (restricted stock) expense
included in reported Net Income (Loss), net of related
tax effects............................................ 277 370
Deduct: Total stock-based compensation expense determined
under fair value based methods for all awards, net of
related tax effects.................................... (1,389) (2,286)
------- -------
Pro forma................................................. $ 1,527 $(8,881)
======= =======
Basic Earnings (Loss) Per Share:
As reported............................................... $ 0.07 $ (0.20)
Pro forma................................................. $ 0.04 $ (0.25)
Diluted Earnings (Loss) Per Share:
As reported............................................... $ 0.07 $ (0.19)
Pro forma................................................. $ 0.04 $ (0.25)
</Table>
NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS 123 (R), "Share-Based Payment,"
("SFAS 123 (R)") which replaces SFAS 123 and supersedes APB 25. SFAS No. 123 (R)
requires that compensation cost relating to all share-based payment
transactions, including grants of employee stock options, be recognized in the
statement of operations based on their fair values. Pro forma disclosure is no
longer an alternative. SFAS 123 (R) is effective the first annual reporting
period that begins after June 15, 2005. NDCHealth expects to adopt SFAS 123 (R)
on June 3, 2006, the start of fiscal 2007, and expects to apply the modified
prospective method upon adoption. The modified prospective method requires
companies to record compensation cost beginning with the effective date (a)
based on the requirements of
F-47
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS 123 (R) for all share-based payments granted after the effective date and
(b) based on the requirements of SFAS 123 for all awards granted to employees
prior to the effective date of SFAS 123 (R) that remain unvested on the
effective date.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." SFAS No. 154 requires retrospective application of a voluntary
change in accounting principle to prior period financial statements unless it is
impracticable. SFAS No. 154 also requires that a change in method of
depreciation, amortization, or depletion for long-lived, non-financial assets be
accounted for as a change in accounting estimate affected by a change in
accounting principle. SFAS No. 154 replaces APB Opinion No. 20, "Accounting
Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim Financial
Statements." SFAS No. 154 is effective for fiscal years beginning after December
15, 2005. NDCHealth does not expect the adoption of the provisions of SFAS No.
154 to have a material impact on its results of operations or financial
condition.
NOTE 3 -- DISCONTINUED OPERATIONS
During the fourth quarter of fiscal 2004, NDCHealth management performed a
review of NDCHealth's European businesses to determine alternatives to mitigate
the losses associated with these operations. In May 2004, management recommended
and NDCHealth's Board of Directors approved the sale of these European
businesses. In October 2004, NDCHealth completed the sale of its United Kingdom
business. NDCHealth sold its Pharmacy Benefit Services and its Canadian
transaction processing business in the fourth fiscal quarter of 2005. In
addition, on June 7, 2005, NDCHealth completed the sale of its German business.
Accordingly, NDCHealth's financial statements have been prepared with the
net assets and liabilities, results of operations, and cash flows of these
operations displayed separately as Discontinued Operations with all historical
financial statements restated to conform to this presentation.
The operating results of NDCHealth's Discontinued Operations are summarized
as follows:
<Table>
<Caption>
THREE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA) ---------------------
AUGUST 27, 2004
---------------------
Revenue..................................................... $23,406
Operating Income............................................ 110
Loss From Operations, net of tax............................ (119)
Asset Valuation Adjustment.................................. (7,608)
-------
Loss from Discontinued Operations........................... $(7,727)
=======
Diluted Loss per Share:
From Operations........................................... $ --
From Asset Valuation Adjustment........................... (0.21)
-------
Total....................................................... $ (0.21)
=======
</Table>
The Net Loss from Discontinued Operations for the three months August 27,
2004 is net of a tax benefit of $0.1 million.
NOTE 4 -- RESTRUCTURING, SPECIAL GOVERNANCE AND OTHER CHARGES
Special governance costs of $3.9 million and $0.4 million in the first
quarter of fiscal 2006 and 2005, respectively, include the legal and accounting
costs associated with NDCHealth's stockholder litigation, SEC investigation, and
work performed related to the Board of Directors decision to pursue the sale of
NDCHealth. These expenses are recorded in the Other segment.
F-48
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table shows the fiscal 2006 activity related to the
restructuring liabilities, which are included in Other Accrued Liabilities in
the Condensed Consolidated Balance Sheets:
<Table>
<Caption>
PHARMACY PHYSICIAN INFORMATION
PHARMACY EXIT HOSPITAL PHYSICIAN EXIT MANAGEMENT OTHER
SEVERANCE RELATED SEVERANCE SEVERANCE RELATED SEVERANCE SEVERANCE TOTAL
--------- -------- --------- --------- --------- ----------- --------- -------
Balance, May 27, 2005.... $ 417 $ 79 $ 763 $ 337 $ 43 $ 207 $ 985 $ 2,831
Cash Expenditures........ (272) (28) (354) (115) (25) (100) (247) (1,141)
----- ---- ----- ----- ---- ----- ----- -------
Balance, September 2,
2005................... $ 145 $ 51 $ 409 $ 222 $ 18 $ 107 $ 738 $ 1,690
===== ==== ===== ===== ==== ===== ===== =======
</Table>
NOTE 5 -- GOODWILL
Goodwill is the excess of the purchase price over the fair value of
identifiable net assets acquired in business combinations accounted for as
purchases.
The changes in the carrying amount of Goodwill for the three months ended
September 2, 2005 are as follows:
<Table>
<Caption>
PHARMACY SERVICES HOSPITAL PHYSICIAN INFORMATION
AND SYSTEMS SOLUTIONS SOLUTIONS MANAGEMENT TOTAL
----------------- --------- --------- ----------- --------
(IN THOUSANDS)
Balance as of May 27,
2005...................... $220,953 $49,582 $43,210 $37,729 $351,474
Currency translation........ 590 -- -- -- 590
-------- ------- ------- ------- --------
Balance as of September 2,
2005...................... $221,543 $49,582 $43,210 $37,729 $352,064
======== ======= ======= ======= ========
</Table>
NDCHealth assesses the recoverability of goodwill on at least an annual
basis during its second quarter or more frequently if circumstances suggest
potential impairment. Recoverability of goodwill is evaluated using a two-step
process. The first step involves a comparison of the fair value of a reporting
unit with its carrying value. If the carrying value of the reporting unit
exceeds its fair value, the second step of the process involves a comparison of
the fair value and carrying value of the goodwill of that reporting unit. If the
carrying value of the goodwill of a reporting unit exceeds the fair value of
that goodwill, an impairment loss is recognized in an amount equal to the
excess. NDCHealth completed its annual impairment testing during the second
quarter of fiscal 2005. For each of its reporting units, NDCHealth found that
the estimated fair value exceeded the net book value of the unit and therefore
the second step of the impairment test was not necessary.
However, the amount by which the estimated fair value exceeded the net book
value was less than in previous years due to declines in operating earnings of
NDCHealth's Pharmacy Services and Systems and Physician Solutions reporting
units. If earnings do not recover as expected in each of these reporting units,
NDCHealth may face a write-down of goodwill in the future. To achieve the
expected recovery in its Pharmacy Services and Systems unit, NDCHealth must
successfully introduce its NDC EnterpriseRx pharmacy system and achieve
reasonable market acceptance and sales, and NDCHealth must continue to grow
pharmacy network services revenue from claims transaction growth, achieve added
penetration of value-added pre and post editing services, and have further
success in selling informatics services to pharmacy customers. To achieve the
expected recovery in its Physician Solutions unit operating earnings, NDCHealth
must see continued recovery in Physician system sales to its value-added
reseller channel, which declined following NDCHealth's conversion to offering
only cash terms to its resellers at the end of fiscal year 2004, but which
showed improvement in fiscal 2005 and the first quarter of fiscal 2006.
F-49
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INTANGIBLE ASSETS, NET
The table below presents Intangible Assets by asset class:
<Table>
<Caption>
AS OF SEPTEMBER 2, 2005 AS OF MAY 27, 2005
WEIGHTED AVERAGE --------------------------------- ---------------------------------
REMAINING GROSS GROSS
AMORTIZATION CARRYING ACCUMULATED CARRYING ACCUMULATED
PERIOD (YEARS) AMOUNT AMORTIZATION TOTAL AMOUNT AMORTIZATION TOTAL
(IN THOUSANDS) ---------------- -------- ------------ ------- -------- ------------ -------
Customer base........ 7 $80,828 $(31,495) $49,333 $80,828 $(29,599) $51,229
Data rights
agreement.......... 5 10,409 (2,479) 7,930 10,409 (2,107) 8,302
Reseller and other... 2 3,600 (1,445) 2,155 3,600 (1,245) 2,355
------- -------- ------- ------- -------- -------
Total Intangible
Assets............. $94,837 $(35,419) $59,418 $94,837 $(32,951) $61,886
======= ======== ======= ======= ======== =======
</Table>
The aggregate amortization expense for the three months ended September 2,
2005 was $2.5 million and estimated amortization expense for the next five
fiscal years is as follows:
<Table>
<Caption>
ESTIMATED AMORTIZATION EXPENSE (IN THOUSANDS)
- ------------------------------ --------------
For year Ending June 02, 2006............................... $9,873
For year Ending June 01, 2007............................... $9,823
For year Ending May 30, 2008................................ $9,533
For year Ending May 29, 2009................................ $9,418
For year Ending May 28, 2010................................ $9,000
</Table>
NOTE 7 -- SEGMENT INFORMATION
Segment information for the three months ended September 2, 2005 and August
27, 2004 is presented below. NDCHealth operates its business as four fundamental
reportable segments: Pharmacy Services and Systems, Hospital Solutions,
Physician Solutions and Information Management. Pharmacy Services and Systems
provides claims transaction processing and sophisticated claims editing
solutions for independent, regional and national chain retail pharmacy
operations, and also supplies application systems for retail, mail order and
managed care pharmacy operations. Hospital Solutions provides revenue cycle
management to hospital and health system customers by offering software and
services solutions that provide workflow management offerings and support for
claims processing and related value-added transactions. NDCHealth's hospital
solution set provides tools to allow its customers to manage the claims and
remittance process, accelerate and improve cash flow, reduce bad debt, track
accounts receivable and costs, and improve productivity. Physician Solutions
provides small-office physicians with resources necessary to streamline billing
and other internal processes such as scheduling, increasing productivity and
optimizing accurate reimbursement. NDCHealth offers its physician customers
enhanced practice management capabilities, electronic commerce solutions, and
interactive training. NDCHealth's physician solutions include NDCMedisoft,
NDCLytec, NDCConcept, and NDC Electronic Claims Processing. The Information
Management segment provides data products and solutions primarily to
pharmaceutical manufacturers. Other includes Restructuring, Special Governance
and Other Charges not attributable to a specific segment. The information
presented below excludes Discontinued Operations. There has been no significant
change in the composition of the reportable segments from the presentation of
fiscal 2005
F-50
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
segment information included in NDCHealth's Annual Report on Form 10-K/A for the
fiscal year ended May 27, 2005 filed with the SEC.
<Table>
<Caption>
THREE MONTHS ENDED
-------------------------
SEPTEMBER 2, AUGUST 27,
2005 2004
(IN THOUSANDS) ------------ ----------
Revenue:
Pharmacy Services and Systems............................. $33,510 $31,154
Hospital Solutions........................................ 17,596 16,144
Physician Solutions....................................... 7,599 6,477
Information Management.................................... 41,275 37,233
------- -------
Total Revenue............................................... $99,980 $91,008
======= =======
Operating Income:
Pharmacy Services and Systems............................. $ 5,868 $ 3,159
Hospital Solutions........................................ 5,445 4,279
Physician Solutions....................................... 1,879 556
Information Management.................................... 2,386 (22)
Other..................................................... (3,926) (388)
------- -------
Total Operating Income...................................... $11,652 $ 7,584
======= =======
</Table>
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
NDCHealth has sold its European operations in Germany and the United
Kingdom, which were recorded as Discontinued Operations. NDCHealth had been
engaged in litigation since 2000 with IMS Health before the European Commission
and the European Court of Justice and in the German courts, with respect to its
German operations. With the sale of NDCHealth's interests in Germany, NDCHealth
is no longer involved in this litigation.
On October 14, 2003, NDCHealth filed suit in the 96th Judicial District
Court, Tarrant County, Texas, against 1-Rex, Inc., FDS, Inc., Healthcare
Computer Corporation, Freedom Drug Stores, Inc., Freedom Data Services, Inc. and
William Rex Akers (collectively the "Defendants") for breach of contract,
misappropriation of trade secrets, fraud, and negligent misrepresentation,
seeking unspecified damages for Defendants' wrongful conduct. On March 5, 2004,
Defendants filed a counterclaim against NDCHealth, asserting claims for tortious
interference with a prospective contract, violations of Section 15.05(b) of the
Texas Business and Commerce Code, civil conspiracy, and seeking a declaratory
judgment in connection with various claims made by NDCHealth. Defendants seek
over $25 million in damages, plus attorneys' fees, pre-judgment and
post-judgment interest, and punitive damages. On August 4, 2005, the parties
agreed to settle all claims between them. The terms of the settlement are
confidential.
A putative securities class-action, captioned Garfield v. NDCHealth
Corporation, et al., was filed in the United States District Court for the
Northern District of Georgia against NDCHealth and Messrs. Hoff, Hutto, Miller,
Shenk, FitzGibbons and Adrean, as defendants. The complaint in that action
generally alleged, among other things, that members of a purported class of
stockholders who purchased common stock between August 21, 2002 and August 9,
2004 were damaged as a result of (i) improper revenue recognition practices in
NDCHealth's physician business unit; (ii) the failure to timely write-down
NDCHealth's investment in MedUnite; and (iii) the improper capitalization and
amortization of costs associated with software development. The second amended
complaint alleges that, as a result of such conduct, NDCHealth's previously
issued financial statements were materially false and misleading, thereby
F-51
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
causing the prices of NDCHealth's common stock to be inflated artificially. The
second amended complaint asserts violations of Section 10(b) and 20(a) of the
Securities Exchange Act of 1934 as amended (the "Exchange Act"), and Rule 10b-5
promulgated thereunder, and seeks unspecified monetary damages and other relief.
On July 27, 2005, NDCHealth's motion to dismiss all claims was granted by the
Court. Plaintiffs were granted 30 days within which to file a third amended
complaint. On August 26, 2005, the Plaintiffs, in lieu of filing a third amended
complaint, filed a notice of appeal of the court's decision.
On May 10, 2005, a complaint captioned MMI Investments, L.P. v. NDCHealth
Corporation, et al., was filed in the United States District Court for the
Southern District of New York against NDCHealth and Messrs. Hoff, Hutto and
Shenk. The complaint generally alleges that plaintiff MMI Investments, L.P.
("MMI") was damaged as a result of its purchases of NDCHealth common stock at
artificially inflated prices from July 2003 through August 9, 2004. The
complaint seeks unspecified monetary and other relief. Following a pre-motion
conference on June 22, 2005, the Court granted defendants leave to file a motion
to dismiss the complaint and/or transfer the action to the United States
District Court for the Northern District of Georgia. That motion was filed on
July 22, 2005, and oral argument on the motion was heard on September 28, 2005.
The court denied NDCHealth's motion to transfer and NDCHealth's motion to
dismiss.
NDCHealth and AmerisourceBergen are named as defendants in a suit filed by
Prescription Counter, a pharmacy, on October 22, 2004, and removed to the
federal District Court of New Jersey. In the suit, plaintiff claims breach of
contract, breach of representations and warranties, breach of N.J. Consumer
Fraud Act, and negligent misrepresentation, and seeks unspecified damages in
excess of $1 million. NDCHealth has filed its answer denying these claims and
has asserted various affirmative defenses and a counterclaim against
Prescription Counter for amounts due under NDCHealth's contracts with the
plaintiff. AmerisourceBergen has also answered, asserted counterclaims, and has
also asserted a cross-claim against NDCHealth for indemnity and/or contribution.
NDCHealth filed its answer to the cross-claim and has denied any liability for
indemnity or contribution. Discovery is proceeding and NDCHealth intends to
vigorously defend the litigation.
Additionally, NDCHealth is party to a number of other claims and lawsuits
incidental to its business. NDCHealth believes that the ultimate outcome of such
matters, in the aggregate, will not have a material adverse impact on its
financial position, liquidity or results of operations.
NOTE 9 -- COMPREHENSIVE LOSS
Comprehensive loss includes unrealized gains and losses which are excluded
from the Condensed Consolidated Statements of Operations. The components of
comprehensive loss are as follows:
<Table>
<Caption>
THREE MONTHS ENDED
-------------------------
SEPTEMBER 2, AUGUST 27,
2005 2004
(IN THOUSANDS) ------------ ----------
Net income (loss)........................................... $ 2,639 $(6,965)
Foreign currency translation adjustment..................... (10,891) (420)
-------- -------
Total comprehensive loss.................................... $ (8,252) $(7,385)
======== =======
</Table>
The foreign currency translation adjustment in the first quarter of fiscal
2006 includes $11.5 million related to the recording of NDCHealth's divestiture
of its Germany operations.
NOTE 10 -- RETIREMENT BENEFITS
The NDCHealth noncontributory defined benefit pension plan (the "Plan")
covers substantially all of NDCHealth's United States employees who have met the
eligibility provisions of the Plan as of May 31,
F-52
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998. The defined benefit pension plan was closed to new participants beginning
June 1, 1998, and benefit accruals for years of service ceased on July 31, 1998.
Additionally, benefit accruals for compensation level increases ceased on June
30, 2003. Plan provisions and funding meet the requirements of the Employee
Retirement Income Security Act of 1974, as amended.
Net periodic pension cost for NDCHealth's pension plan during the first
quarter of fiscal 2006 and 2005 included the following components:
<Table>
<Caption>
THREE MONTHS ENDED
-------------------------
SEPTEMBER 2, AUGUST 27,
2005 2004
(IN THOUSANDS) ------------ ----------
Interest cost on projected benefit obligation............... $ 503 $ 483
Expected return on plan assets.............................. (473) (424)
Recognized actuarial loss................................... 221 145
----- -----
Net periodic pension cost................................... $ 251 $ 204
===== =====
</Table>
The expense listed above relates to continuing operations. There were no
pension costs related to discontinued operations.
NDCHealth did not make any pension contributions in the first fiscal
quarters of 2005 or 2006. NDCHealth expects to contribute $0.3 million to its
pension plan during the remainder of fiscal 2006.
F-53
NDCHEALTH CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheets as
of May 27, 2005, May 28, 2004 and September 2, 2005 and the condensed
consolidated statements of operations for the fiscal years ended May 27, 2005,
May 28, 2004 and May 30, 2003 and the fiscal quarters ended September 2, 2005
and August 27, 2004 are based on the historical financial statements of
NDCHealth giving effect to the potential discontinuance of its Information
Management operating segment by selling this unit to Wolters Kluwer.
The unaudited pro forma condensed consolidated financial information is
presented as if the sale of the Information Management business unit had
qualified to be presented as a discontinued operation in accordance with SFAS
144.
F-54
NDCHEALTH CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL QUARTER ENDED SEPTEMBER 2, 2005
<Table>
<Caption>
NDCHEALTH INFORMATION NDCHEALTH
HISTORICAL MANAGEMENT(1) PRO FORMA
(In thousands, except per share data) ---------- ------------- ---------
Revenue................................................ $99,980 $(41,275) $58,705
------- -------- -------
Operating Expenses:
Cost of Service................................... 51,201 (25,643) 25,558
Sales, General and Administrative................. 23,708 (6,654) 17,054
Depreciation and Amortization..................... 9,493 (3,104) 6,389
Restructuring, Special Governance and Other
Charges......................................... 3,926 -- 3,926
------- -------- -------
88,328 (35,401) 52,927
------- -------- -------
Operating Income....................................... 11,652 (5,874) 5,778
------- -------- -------
Other Income (Expense):
Interest and Other Income......................... 154 -- 154
Interest and Other Expense........................ (7,046) 1,168(2) (5,878)
------- -------- -------
(6,892) 1,168 (5,724)
------- -------- -------
Income from Continuing Operations before Income
Taxes................................................ 4,760 (4,706) 54
Provision for Income Taxes............................. 2,121 (1,734) 387
------- -------- -------
Income (Loss) from Continuing Operations............... $ 2,639 $ (2,972) $ (333)
======= ======== =======
Basic Earnings (Loss) Per Share........................ $ 0.07 $ (0.08) $ (0.01)
======= ======== =======
Weighted Average Shares......................... 35,955 35,955 35,955
Diluted Earnings (Loss) Per Share...................... $ 0.07 $ (0.08) $ (0.01)
======= ======== =======
Weighted Average Shares......................... 36,191 36,191 36,191
</Table>
F-55
NDCHEALTH CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL QUARTER ENDED AUGUST 27, 2004
<Table>
<Caption>
NDCHEALTH INFORMATION NDCHEALTH
HISTORICAL MANAGEMENT(1) PRO FORMA
(IN THOUSANDS, EXCEPT PER SHARE DATA) ---------- ------------- ---------
Revenue................................................ $91,008 $(37,233) $53,775
------- -------- -------
Operating Expenses:
Cost of Service................................... 50,434 (24,701) 25,733
Sales, General and Administrative................. 22,333 (5,908) 16,425
Depreciation and Amortization..................... 10,269 (3,421) 6,848
Restructuring, Special Governance and Other
Charges......................................... 388 -- 388
------- -------- -------
83,424 (34,030) 49,394
------- -------- -------
Operating Income....................................... 7,584 (3,203) 4,381
------- -------- -------
Other Income (Expense):
Interest and Other Income......................... 61 -- 61
Interest and Other Expense........................ (6,395) 1,293(2) (5,102)
------- -------- -------
(6,334) 1,293 (5,041)
------- -------- -------
Income (Loss) from Continuing Operations before Income
Taxes................................................ 1,250 (1,910) (660)
Provision (Benefit) for Income Taxes................... 488 (704) (216)
------- -------- -------
Income (Loss) from Continuing Operations............... $ 762 $ (1,206) $ (444)
======= ======== =======
Basic Earnings (Loss) Per Share........................ $ 0.02 $ (0.03) $ (0.01)
======= ======== =======
Weighted Average Shares......................... 35,638 35,638 35,638
Diluted Earnings (Loss) Per Share...................... $ 0.02 $ (0.03) $ (0.01)
======= ======== =======
Weighted Average Shares......................... 36,002 36,002 36,002
</Table>
F-56
NDCHEALTH CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDING MAY 27, 2005
<Table>
<Caption>
NDCHEALTH INFORMATION NDCHEALTH
HISTORICAL MANAGEMENT(1) PRO FORMA
(IN THOUSANDS, EXCEPT PER SHARE DATA) ---------- ------------- ---------
Revenue................................................ $387,558 $(162,119) $225,439
-------- --------- --------
Operating Expenses:
Cost of Service................................... 200,441 (98,261) 102,180
Sales, General and Administrative................. 98,828 (27,212) 71,616
Depreciation and Amortization..................... 39,902 (12,850) 27,052
Restructuring, Special Governance and Other
Charges......................................... 14,977 (573) 14,404
-------- --------- --------
354,148 (138,896) 215,252
-------- --------- --------
Operating Income....................................... 33,410 (23,223) 10,187
-------- --------- --------
Other Income (Expense):
Interest and Other Income......................... 460 -- 460
Interest and Other Expense........................ (25,406) 5,599(2) (19,807)
-------- --------- --------
(24,946) 5,599 (19,347)
-------- --------- --------
Income (Loss) from Continuing Operations before Income
Taxes................................................ 8,464 (17,624) (9,160)
Provision (Benefit) for Income Taxes................... 2,534 (6,495) (3,961)
-------- --------- --------
Income (Loss) from Continuing Operations............... $ 5,930 $ (11,129) $ (5,199)
======== ========= ========
Basic Earnings (Loss) Per Share........................ $ 0.17 $ (0.31) $ (0.15)
======== ========= ========
Weighted Average Shares......................... 35,708 35,708 35,708
Diluted Earnings (Loss) Per Share...................... $ 0.16 $ (0.31) $ (0.14)
======== ========= ========
Weighted Average Shares......................... 35,957 35,957 35,957
</Table>
F-57
NDCHEALTH CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDING MAY 28, 2004
<Table>
<Caption>
NDCHEALTH INFORMATION NDCHEALTH
HISTORICAL MANAGEMENT(1) PRO FORMA
(IN THOUSANDS, EXCEPT PER SHARE DATA) ---------- ------------- ---------
Revenue................................................. $395,815 $(158,712) $237,103
-------- --------- --------
Operating Expenses:
Cost of Service.................................... 194,206 (96,990) 97,216
Sales, General and Administrative.................. 92,013 (24,146) 67,867
Depreciation and Amortization...................... 35,598 (13,088) 22,510
Restructuring, Special Governance and Other
Charges.......................................... 6,068 (1,039) 5,029
-------- --------- --------
327,885 (135,263) 192,622
-------- --------- --------
Operating Income........................................ 67,930 (23,449) 44,481
-------- --------- --------
Other Income (Expense):
Interest and Other Income.......................... 467 -- 467
Interest and Other Expense......................... (27,567) 6,245(2) (21,322)
Loss Related to Investments........................ (4,475) -- (4,475)
Early Extinguishment of Debt....................... (143) -- (143)
-------- --------- --------
(31,718) 6,245 (25,473)
-------- --------- --------
Income from Continuing Operations before Income Taxes... 36,212 (17,204) 19,008
Provision for Income Taxes.............................. 14,709 (6,341) 8,368
-------- --------- --------
Income from Continuing Operations....................... $ 21,503 $ (10,863) $ 10,640
======== ========= ========
Basic Earnings Per Share................................ $ 0.61 $ (0.31) $ 0.30
======== ========= ========
Weighted Average Shares.......................... 35,101 35,101 35,101
Diluted Earnings Per Share.............................. $ 0.60 $ (0.30) $ 0.30
======== ========= ========
Weighted Average Shares.......................... 35,847 35,847 35,847
</Table>
F-58
NDCHEALTH CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDING MAY 30, 2003
<Table>
<Caption>
NDCHEALTH INFORMATION NDCHEALTH
HISTORICAL MANAGEMENT(1) PRO FORMA
(IN THOUSANDS, EXCEPT PER SHARE DATA) ---------- ------------- ---------
Revenue................................................. $400,733 $(157,221) $243,512
-------- --------- --------
Operating Expenses:
Cost of Service....................................... 192,702 (89,681) 103,021
Sales, General and Administrative..................... 85,352 (23,925) 61,427
Depreciation and Amortization......................... 29,831 (11,475) 18,356
Restructuring, Special Governance and Other Charges... 5,058 -- 5,058
-------- --------- --------
312,943 (125,081) 187,862
-------- --------- --------
Operating Income........................................ 87,790 (32,140) 55,650
-------- --------- --------
Other Income (Expense):
Interest and Other Income............................. 2,067 -- 2,067
Interest and Other Expense............................ (21,739) 5,625(2) (16,114)
Loss Related to Investments........................... (14,455) -- (14,455)
Early Extinguishment of Debt.......................... (2,359) -- (2,359)
-------- --------- --------
(36,486) 5,625 (30,861)
-------- --------- --------
Income from Continuing Operations before Income Taxes... 51,304 (26,515) 24,789
Provision for Income Taxes.............................. 19,925 (9,771) 10,154
-------- --------- --------
Income from Continuing Operations....................... $ 31,379 $ (16,744) $ 14,635
======== ========= ========
Basic Earnings Per Share................................ $ 0.91 $ (0.48) $ 0.42
======== ========= ========
Weighted Average Shares.......................... 34,591 34,591 34,591
Diluted Earnings Per Share.............................. $ 0.90 $ (0.48) $ 0.42
======== ========= ========
Weighted Average Shares.......................... 34,941 34,941 34,941
</Table>
F-59
NDCHEALTH CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 2, 2005
<Table>
<Caption>
NDCHEALTH INFORMATION NDCHEALTH
HISTORICAL MANAGEMENT(1) PRO FORMA
---------- ------------- ---------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and Cash Equivalents................................. $ 14,269 $ (19) $ 14,250
Accounts Receivable....................................... 48,027 (16,774) 31,253
Prepaid Expenses.......................................... 18,495 (12,649) 5,846
Deferred Income Taxes..................................... 4,424 (665) 3,759
Other Current Assets...................................... 9,352 (943) 8,409
Assets of Discontinued Operations......................... -- 107,988(3) 107,988
-------- -------- --------
Total Current Assets.................................. 94,567 (76,938) 171,505
-------- -------- --------
Property and Equipment, Net................................. 66,619 (29,478) 37,141
Capitalized External Use Software Held for Sale, Net........ 72,481 -- 72,481
Goodwill.................................................... 352,064 (37,729) 314,335
Intangible Assets, Net...................................... 59,418 (7,931) 51,487
Debt Issuance Cost.......................................... 10,842 -- 10,842
Deferred Income Taxes....................................... 18,019 40 18,059
Other Assets................................................ 23,754 (1,840) 21,914
-------- -------- --------
Total Assets.......................................... $697,764 $ -- $697,764
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-term Debt......................... $ 25,939 $ -- $ 25,939
Trade Accounts Payable.................................... 21,102 (9,886) 11,216
Accrued Compensation and Benefits......................... 7,051 (2,026) 5,025
Accrued Interest.......................................... 5,631 -- 5,631
Other Accrued Liabilities................................. 30,983 (9,706) 21,277
Deferred Revenue.......................................... 33,655 (22,596) 11,059
Liabilities of Discontinued Operations.................... -- 47,334(3) 47,334
-------- -------- --------
Total Current Liabilities............................. 124,361 3,120 127,481
-------- -------- --------
Deferred Revenue............................................ 4,005 -- 4,005
Other Non-current Liabilities............................... 25,563 (3,120) 22,443
Long-term Debt.............................................. 228,764 -- 228,764
-------- -------- --------
Total Liabilities..................................... 382,693 -- 382,693
-------- -------- --------
Commitments and Contingencies............................... -- -- --
Stockholders' Equity:
Preferred Stock........................................... -- -- --
Common Stock.............................................. 4,526 -- 4,526
Capital in excess of par value............................ 248,728 -- 248,728
Retained Earnings......................................... 73,546 -- 73,546
Deferred Compensation..................................... (4,498) -- (4,498)
Other Comprehensive Loss.................................. (7,231) -- (7,231)
-------- -------- --------
Total Stockholders' Equity............................ 315,071 -- 315,071
-------- -------- --------
Total Liabilities and Stockholders' Equity.................. $697,764 $ -- $697,764
======== ======== ========
</Table>
F-60
NDCHEALTH CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MAY 27, 2005
<Table>
<Caption>
NDCHEALTH INFORMATION NDCHEALTH
HISTORICAL MANAGEMENT(1) PRO FORMA
---------- ------------- ---------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and Cash Equivalents................................. $ 17,790 $ (8) $ 17,782
Accounts Receivable....................................... 50,977 (18,926) 32,051
Prepaid Expenses.......................................... 22,777 (15,030) 7,747
Deferred Income Taxes..................................... 6,214 (355) 5,859
Other Current Assets...................................... 8,843 (1,008) 7,835
Assets of Discontinued Operations......................... 36,245 115,174(3) 151,419
-------- -------- --------
Total Current Assets.................................... 142,846 79,847 222,693
-------- -------- --------
Property and Equipment, Net................................. 69,842 (30,132) 39,710
Capitalized External Use Software Held for Sale, Net........ 68,474 -- 68,474
Goodwill.................................................... 351,474 (37,729) 313,745
Intangible Assets, Net...................................... 61,886 (8,302) 53,584
Debt Issuance Cost.......................................... 11,496 -- 11,496
Deferred Income Taxes....................................... 18,350 (1,301) 17,049
Other Assets................................................ 25,299 (2,383) 22,916
-------- -------- --------
Total Assets............................................ $749,667 $ -- $749,667
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-term Debt......................... $ 31,529 $ -- $ 31,529
Trade Accounts Payable.................................... 24,033 (12,672) 11,361
Accrued Compensation and Benefits......................... 9,901 (4,264) 5,637
Accrued Interest.......................................... 10,524 -- 10,524
Other Accrued Liabilities................................. 34,772 (11,785) 22,987
Deferred Revenue.......................................... 33,795 (19,717) 14,078
Liabilities of Discontinued Operations.................... 11,967 52,062(3) 64,029
-------- -------- --------
Total Current Liabilities............................... 156,521 3,624 160,145
-------- -------- --------
Deferred Revenue............................................ 4,602 -- 4,602
Other Non-current Liabilities............................... 26,789 (3,624) 23,165
Long-term Debt.............................................. 239,255 -- 239,255
-------- -------- --------
Total Liabilities....................................... 427,167 -- 427,167
-------- -------- --------
Commitments and Contingencies............................... -- -- --
Stockholders' Equity:
Preferred Stock........................................... -- -- --
Common Stock.............................................. 4,526 -- 4,526
Capital in excess of par value............................ 248,446 -- 248,446
Retained Earnings......................................... 70,907 -- 70,907
Deferred Compensation..................................... (5,039) -- (5,039)
Other Comprehensive Income................................ 3,660 -- 3,660
-------- -------- --------
Total Stockholders' Equity.............................. 322,500 -- 322,500
-------- -------- --------
Total Liabilities and Stockholders' Equity.................. $749,667 $ -- $749,667
======== ======== ========
</Table>
F-61
NDCHEALTH CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MAY 28, 2004
<Table>
<Caption>
NDCHEALTH
NDCHEALTH INFORMATION PRO
HISTORICAL MANAGEMENT(1) FORMA
---------- ------------- ---------
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and Cash Equivalents................................. $ 24,585 $ (10) $ 24,575
Accounts Receivable....................................... 62,169 (21,972) 40,197
Prepaid Expenses.......................................... 25,287 (12,652) 12,635
Deferred Income Taxes..................................... 3,476 -- 3,476
Other Current Assets...................................... 11,759 (1,375) 10,384
Assets of Discontinued Operations......................... 89,611 118,971(3) 208,582
-------- -------- --------
Total Current Assets.................................... 216,887 82,962 299,849
-------- -------- --------
Property and Equipment, Net................................. 77,757 (33,179) 44,578
Capitalized External Use Software Held for Sale, Net........ 61,567 -- 61,567
Goodwill.................................................... 356,928 (39,018) 317,910
Intangible Assets, Net...................................... 71,760 (9,789) 61,971
Debt Issuance Cost.......................................... 12,963 -- 12,963
Deferred Income Taxes....................................... 15,092 -- 15,092
Other Assets................................................ 22,561 (976) 21,585
-------- -------- --------
Total Assets............................................ $835,515 $ -- $835,515
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-term Debt......................... $ 33,511 $ (500) $ 33,011
Trade Accounts Payable.................................... 29,334 (17,399) 11,935
Accrued Compensation and Benefits......................... 6,034 (2,173) 3,861
Accrued Interest.......................................... 10,923 -- 10,923
Other Accrued Liabilities................................. 30,403 (12,381) 18,022
Deferred Revenue.......................................... 53,801 (27,183) 26,618
Liabilities of Discontinued Operations.................... 37,894 63,539(3) 101,433
-------- -------- --------
Total Current Liabilities............................... 201,900 3,903 205,803
-------- -------- --------
Deferred Revenue............................................ 7,208 (451) 6,757
Other Non-current Liabilities............................... 29,225 (3,452) 25,773
Long-term Debt.............................................. 269,347 -- 269,347
-------- -------- --------
Total Liabilities....................................... 507,680 -- 507,680
-------- -------- --------
Commitments and Contingencies............................... -- -- --
Stockholders' Equity:
Preferred Stock........................................... -- -- --
Common Stock.............................................. 4,501 -- 4,501
Capital in excess of par value............................ 245,314 -- 245,314
Retained Earnings......................................... 80,426 -- 80,426
Deferred Compensation..................................... (7,694) -- (7,694)
Other Comprehensive Income................................ 5,288 -- 5,288
-------- -------- --------
Total Stockholders' Equity.............................. 327,835 -- 327,835
-------- -------- --------
Total Liabilities and Stockholders' Equity.................. $835,515 $ -- $835,515
======== ======== ========
</Table>
F-62
NDCHEALTH CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRO FORMA PRESENTATION
On August 26, 2005, Per-Se signed a definitive agreement to acquire
NDCHealth in a cash and stock transaction that will be accounted for as a
purchase under U.S. generally accepted accounting principles. The transaction
will result in consideration to NDCHealth's shareholders of $19.50 per share,
with at least $13.00 paid in cash and up to $6.50 paid in Per-Se stock, as to be
determined by Per-Se and announced prior to the NDCHealth stockholders' meeting.
As a condition precedent to Per-Se's acquisition of NDCHealth, NDCHealth's
Information Management business ("IM") will be sold to an independent third
party, Wolters Kluwer, for a total of $382.1 million in cash.
Upon completion of the merger, each holder of an outstanding option to
acquire NDCHealth common stock, whether or not then vested or exercisable, will
receive the consideration such holder would be entitled to receive if he was a
NDCHealth stockholder holding a whole number of shares of NDCHealth common stock
(rounded downward to the nearest whole share) equal to (i) the product of (X)
the total number of shares of NDCHealth common stock subject to such option
multiplied by (Y) the excess, if any, of $19.50 over the exercise price per
share of such option (rounded to the nearest cent), divided by (ii) $19.50. Any
option to acquire NDCHealth common stock that has an exercise price per share
that is equal to or greater than $19.50 will be cancelled as of the effective
time of the merger without any payment.
Consummation of the transaction requires approval by the stockholders of
each of Per-Se and NDCHealth. The parties expect to complete the transaction
within three to six months from the date of signing. The transaction is subject
to regulatory review under U.S. antitrust laws and other customary closing
conditions. The completion of Per-Se's transaction is also conditioned upon the
closing of Wolters Kluwer transaction, which is expected to close immediately
prior to Per-Se's acquisition of NDCHealth.
The pro forma financial statements are based on the historical financial
statements of NDCHealth and have been prepared as if the proposed sale of the
Information Management business had qualified as a discontinued operation as
defined in SFAS 144.
B. PRO FORMA ADJUSTMENTS
1. To record the discontinuance of the Information Management business.
2. To allocate interest expense related to NDCHealth's senior secured
credit facility to discontinued operations. In accordance with EITF
87-24, interest on debt that is required to be repaid as a result of
the disposal transaction should be allocated to discontinued
operations.
3. The recording of the Information Management's assets and liabilities as
discontinued operations.
F-63
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PER-SE TECHNOLOGIES, INC.
ROYAL MERGER CO.,
AND
NDCHEALTH CORPORATION
Dated as of August 26, 2005
TABLE OF CONTENTS
<Table>
ARTICLE 1 TRANSACTIONS AND TERMS OF MERGER............................ 1
1.1 Merger...................................................... 1
1.2 Time and Place of Closing................................... 2
1.3 Effective Time.............................................. 2
ARTICLE 2 TERMS OF MERGER............................................. 2
2.1 Certificate of Incorporation................................ 2
2.2 Bylaws...................................................... 2
2.3 Directors and Officers...................................... 2
ARTICLE 3 MANNER OF CONVERTING SHARES................................. 3
3.1 Conversion of Company Common Stock.......................... 3
3.2 Certain Adjustments......................................... 3
3.3 Shares Held by the Company, Parent or Purchaser............. 3
3.4 Dissenting Stockholders..................................... 4
3.5 Treatment of Options and Other Equity Awards................ 4
3.6 Intentionally Omitted....................................... 5
3.7 No Fractional Shares........................................ 5
ARTICLE 4 EXCHANGE OF SHARES.......................................... 5
4.1 Availability of Consideration............................... 5
4.2 Exchange of Shares.......................................... 5
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 7
5.1 Organization and Qualification; Subsidiaries................ 7
5.2 Certificate of Incorporation and Bylaws..................... 7
5.3 Capitalization.............................................. 7
5.4 Authority Relative to the Transactions...................... 8
5.5 No Conflict; Required Filings and Consents.................. 9
5.6 Permits; Compliance......................................... 9
5.7 SEC Filings; Financial Statements; Undisclosed
Liabilities................................................. 10
5.8 Absence of Certain Changes or Events........................ 12
5.9 Litigation.................................................. 12
5.10 Employee Benefit Plans...................................... 12
5.11 Labor and Employment Matters................................ 15
5.12 Real Property; Title to Assets.............................. 15
5.13 Intellectual Property....................................... 16
5.14 Taxes....................................................... 18
5.15 Environmental Matters....................................... 19
5.16 Company Rights Agreement.................................... 19
5.17 Material Contracts.......................................... 19
5.18 Insurance................................................... 20
5.19 Certain Business Practices.................................. 20
5.20 Healthcare Information Laws................................. 21
</Table>
<Table>
5.21 Opinion of Financial Advisors............................... 21
5.22 Brokers..................................................... 21
5.23 HIS Sale.................................................... 21
5.24 Note Indenture.............................................. 21
5.25 Statements True and Correct................................. 22
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER...... 22
6.1 Organization and Qualification; Subsidiaries................ 22
6.2 Certificate of Incorporation and Bylaws..................... 23
6.3 Capitalization.............................................. 23
6.4 Authority Relative to the Transactions...................... 23
6.5 No Conflict; Required Filings and Consents.................. 23
6.6 Permits; Compliance......................................... 24
6.7 SEC Filings; Financial Statements; Undisclosed
Liabilities................................................. 24
6.8 Absence of Certain Changes or Events........................ 26
6.9 Litigation.................................................. 26
6.10 Employee Benefit Plans...................................... 26
6.11 Taxes....................................................... 28
6.12 Parent Rights Agreement..................................... 29
6.13 Material Contracts.......................................... 29
6.14 Certain Business Practices.................................. 30
6.15 Healthcare Information Laws................................. 30
6.16 Statements True and Correct................................. 30
6.17 Financing................................................... 31
6.18 Stock Ownership............................................. 31
6.19 Brokers..................................................... 31
ARTICLE 7 CONDUCT OF BUSINESS PENDING CONSUMMATION.................... 31
7.1 Covenants of the Company.................................... 31
7.2 No Control of Other Party's Business........................ 33
7.3 Covenants of Parent......................................... 33
7.4 Adverse Changes in Condition................................ 34
7.5 Reports..................................................... 34
7.6 Notes Tender Offer; Discharge of Note Indenture............. 34
ARTICLE 8 ADDITIONAL AGREEMENTS....................................... 35
8.1 Registration Statement; Joint Proxy Statement/Prospectus;
Stockholder Approval........................................ 35
8.2 Other Offers, Etc. ......................................... 36
8.3 Exchange Listing............................................ 38
8.4 Antitrust Notification; Consents of Governmental
Authorities................................................. 38
8.5 Filings with State Offices.................................. 39
8.6 Agreement as to Efforts to Consummate....................... 39
8.7 Investigation and Confidentiality........................... 39
8.8 Public Announcements........................................ 40
8.9 State Takeover Laws......................................... 40
8.10 Intentionally Omitted....................................... 40
</Table>
ii
<Table>
8.11 Employee Benefits Plans..................................... 40
8.12 Indemnification; Insurance.................................. 41
8.13 Sale of HIS................................................. 42
8.14 Company Affiliates.......................................... 42
8.15 Stockholder Litigation...................................... 42
8.16 Letters of the Company's Accountants........................ 42
8.17 Exemption for Liability Under Section 16(b)................. 43
ARTICLE 9 CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE........... 43
9.1 Conditions to Obligations of Each Party..................... 43
9.2 Conditions to Obligations of Parent and Purchaser........... 44
9.3 Conditions to Obligations of the Company.................... 44
ARTICLE 10 TERMINATION................................................. 45
10.1 Termination................................................. 45
10.2 Effect of Termination....................................... 46
10.3 Non-Survival of Representations and Covenants............... 46
ARTICLE 11 MISCELLANEOUS............................................... 47
11.1 Definitions................................................. 47
11.2 Expenses; Effect of Termination............................. 52
11.3 Entire Agreement............................................ 54
11.4 Amendments.................................................. 54
11.5 Waivers..................................................... 54
11.6 Assignment.................................................. 55
11.7 Parties in Interest......................................... 55
11.8 Notices..................................................... 55
11.9 Governing Law; Venue; Waiver of Jury Trial.................. 55
11.10 Counterparts................................................ 56
11.11 Captions; Articles and Sections............................. 56
11.12 Interpretations............................................. 56
11.13 Enforcement of Agreement.................................... 56
11.14 Severability................................................ 56
</Table>
iii
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of August 26, 2005 by and among PER-SE TECHNOLOGIES, INC., a Delaware
corporation ("Parent"), ROYAL MERGER CO., a Delaware corporation and a wholly
owned subsidiary of Parent ("Purchaser"), and NDCHEALTH CORPORATION, a Delaware
corporation (the "Company"). Certain capitalized terms used in this Agreement
are defined in Section 11.1 of this Agreement.
PREAMBLE
WHEREAS, this Agreement provides for the business combination between
Parent and the Company upon the terms and subject to the conditions of this
Agreement as follows: Parent will acquire all of the capital stock of the
Company through the merger of Purchaser with and into the Company (the
"Merger"), with the Company as the surviving corporation;
WHEREAS, the Board of Directors of the Company has approved, and the
Company has entered into simultaneously with this Agreement, certain agreements
pursuant to which, prior to the Effective Time, (a) all of the Shareholder
Assets (as defined in the Contribution Agreement) will be transferred to or will
remain with, as the case may be, NDC Health Information Services (Arizona),
Inc., a wholly owned subsidiary of the Company ("HIS"), (b) HIS will assume or
retain, as the case may be, the Company Assumed Liabilities (as defined in the
Contribution Agreement), (c) all of the Company Assets (as defined in the
Contribution Agreement) will be transferred to or will remain with, as the case
may be, Parent, (d) Parent will assume or retain, as the case may be, the
Shareholder Assumed Liabilities (as defined in the Contribution Agreement), and
(e) all of the outstanding shares of common stock, par value $1.00 per share of
HIS (the "HIS Common Stock"), will be sold to Wolters Kluwer Health, Inc. (the
"Information Buyer") (the "Information Sale") (the foregoing transactions are
collectively referred to as the "Information Restructuring");
WHEREAS, the respective Boards of Directors of Parent, Purchaser and the
Company are of the opinion that the transactions described herein are advisable,
fair to and in the best interests of the Parties to this Agreement and their
respective stockholders. The Boards of Directors of Parent, Purchaser and the
Company have each approved the Merger in accordance with applicable law, upon
the terms and subject to the conditions set forth herein;
WHEREAS, the transactions described in this Agreement are subject to the
approvals of the stockholders of the Company, the stockholders of Parent,
expiration of the required waiting period under the HSR Act, and the
satisfaction of certain other conditions described in this Agreement;
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, the Parties agree
as follows:
ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER
1.1 Merger.
Subject to the terms and conditions of this Agreement, at the Effective
Time, Purchaser shall be merged with and into the Company in accordance with the
applicable provisions of the DGCL. The Company shall be the surviving
corporation resulting from the Merger (the "Surviving Corporation"), shall
become a wholly owned Subsidiary of Parent and shall continue to be governed by
the Laws of the State of Delaware.
1
1.2 Time and Place of Closing.
The closing of the transactions contemplated hereby (the "Closing") will
take place at 8:00 a.m. on the date that the Effective Time, as defined below,
occurs, or at such other time as the Parties, acting through their authorized
officers, may mutually agree. The Closing shall be held at such location as may
be mutually agreed upon by the Parties.
1.3 Effective Time.
The Merger and other transactions contemplated by this Agreement shall
become effective on the date and at the time the Certificate of Merger
reflecting the Merger (the "Certificate of Merger") shall each become effective
with the Secretary of State of the State of Delaware (the "Effective Time").
Subject to the terms and conditions of this Agreement, unless otherwise mutually
agreed upon in writing by the authorized officers of each Party, the Parties
shall cause the Effective Time to occur no later than the second Business Day
after the satisfaction of the conditions set forth in ARTICLE 9 of this
Agreement (other than (i) those conditions that are waived by the Party for
whose benefit such conditions exist, and (ii) any such conditions which, by
their terms, are not capable of being satisfied until the Closing, but subject
to those conditions).
ARTICLE 2
TERMS OF MERGER
2.1 Certificate of Incorporation.
The Certificate of Incorporation of the Company as in effect immediately
prior to the Effective Time shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by Law and such
Certificate of Incorporation.
2.2 Bylaws.
Unless otherwise determined by Parent prior to the Effective Time, subject
to Section 8.12, at the Effective Time, the Bylaws of the Company shall be
amended in the Merger to be identical to the Bylaws of the Purchaser, as in
effect immediately prior to the Effective Time, and shall be the Bylaws of the
Surviving Corporation until thereafter amended as provided by Law, the
Certificate of Incorporation of the Surviving Corporation and such Bylaws.
2.3 Directors and Officers.
The directors of Purchaser immediately prior to the Effective Time shall be
the initial directors of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation, and the officers of Purchaser immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified or
until their earlier death, resignation or removal.
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ARTICLE 3
MANNER OF CONVERTING SHARES
3.1 Conversion of Company Common Stock.
At the Effective Time, without any action on the part of the Parties or the
holders of Company Common Stock, the Merger shall be effected in accordance with
the following terms:
(a) Each share of common stock, par value $0.01 per share, of
Purchaser (the "Purchaser Common Stock") issued and outstanding immediately
prior to the Effective Time shall be converted into and exchanged for the
right to receive one share of common stock of the Surviving Corporation.
(b) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (excluding shares cancelled
pursuant to Section 3.3 and Dissenting Shares), together with the Company
Rights issued pursuant to the Company Rights Agreement (as such terms are
defined in Section 5.16), shall, subject to the provisions of Section 3.7,
be converted into and exchanged for the right to receive (i) $13.00 in cash
(without interest), plus (ii) a number of fully paid, nonassessable shares
of Parent Common Stock (together with the Parent Rights associated
therewith) equal to $6.50 divided by the Applicable Price (the "Exchange
Ratio") ((i) and (ii) collectively, the "Per Share Merger Consideration");
provided, however, Parent may, at its sole option, adjust the Per Share
Merger Consideration so that the Per Share Merger Consideration would
instead, subject to the provisions of Section 3.7, consist of (A) an amount
(determined by Parent) in cash (without interest) greater than $13.00 but
less than or equal to the Total Per Share Amount (the "Adjusted Cash
Amount"), plus (B) a number of fully paid, nonassessable shares of Parent
Common Stock (together with the Parent Rights associated therewith) equal
to (1) the amount, if any, by which the Total Per Share Amount exceeds the
Adjusted Cash Amount, divided by (2) the Applicable Price (the "Adjusted
Exchange Ratio"). If Parent adjusts the Per Share Merger Consideration in
accordance with the foregoing proviso, Parent shall deliver written notice
to the Company and the stockholders of the Company at least five (5)
Business Days prior to the Company Stockholders' Meeting (as hereinafter
defined), which written notice shall set forth the Adjusted Cash Amount and
the Adjusted Exchange Ratio. It is expressly understood that Parent may
satisfy such notice obligation with respect to stockholders of the Company
by issuing a press release in accordance with Parent's normal business
practices. The Exchange Ratio or the Adjusted Exchange Ratio, as
applicable, shall be rounded to the nearest one-ten thousandths of a share.
3.2 Certain Adjustments.
If after the date of this Agreement and at or prior to the Effective Time,
the outstanding shares of Parent Common Stock are changed into a different
number of shares by reason of any reclassification, recapitalization, split-up,
stock split, subdivision, combination or exchange of shares, or any dividend
payable in stock or other securities is declared thereon or rights issued in
respect thereof with a record date within such period, the Exchange Ratio or the
Adjusted Exchange Ratio, as applicable, will be adjusted accordingly, if
necessary and without duplication, to provide to the holders of Company Common
Stock the same economic effect as contemplated by this Agreement.
3.3 Shares Held by the Company, Parent or Purchaser.
Each share of Company Common Stock held in the treasury of the Company and
each share of Company Common Stock owned by Purchaser or Parent immediately
prior to the Effective Time shall be canceled without any conversion thereof and
no payment or distribution shall be made with respect thereto.
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3.4 Dissenting Stockholders.
(a) Notwithstanding any provision of this Agreement to the contrary, shares
(collectively, the "Dissenting Shares") of Company Common Stock that are
outstanding immediately prior to the Effective Time and that are held by
stockholders of the Company who have exercised and perfected appraisal rights
for such shares of Company Common Stock in accordance with Section 262 of the
DGCL (the "Dissenting Stockholders") shall not be converted into or represent
the right to receive the Per Share Merger Consideration pursuant to Section
3.1(b). Such Dissenting Stockholders shall be entitled to receive payment of the
appraised value of such Dissenting Shares in accordance with Section 262 of the
DGCL. All Dissenting Shares held by Dissenting Stockholders who shall have
failed to perfect or who effectively shall have withdrawn or lost their rights
to appraisal of such shares of Company Common Stock under the DGCL shall
thereupon be deemed to have been converted into and to have become exchangeable
for, as of the Effective Time, the right to receive the Per Share Merger
Consideration pursuant to Section 3.1(b), without any interest thereon, upon
surrender of the Certificate or Certificates that formerly evidenced such shares
of Company Common Stock, in the manner provided, and subject to the conditions
of ARTICLE 4.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of such demands, and any other
related instruments served pursuant to the DGCL and received by the Company and
(ii) prior to the Effective Time, the opportunity to participate in all
negotiations and proceedings with respect to demands for appraisal under the
DGCL. The Company shall not, except with the prior written consent of Parent,
which shall not be unreasonably withheld or delayed, make any payment with
respect to any demands for appraisal or offer to settle or settle any such
demands.
3.5 Treatment of Options and Other Equity Awards.
(a) Between the date of this Agreement and the Effective Time, the Company
shall take all necessary action (which action shall be effective as of the
Effective Time) to terminate, as of the Effective Time, any and all plans of the
Company in which there are outstanding options to acquire Company Common Stock
or under which any such options could be granted and each stock option agreement
granted otherwise than under such plans which shall themselves constitute
separate plans, each as amended through the date of this Agreement
(collectively, the "Company Stock Option Plans"), (ii) cancel, as of the
Effective Time, each outstanding option to purchase shares of Company Common
Stock granted under the Company Stock Option Plans (each, a "Company Stock
Option") that is outstanding and unexercised, whether or not vested or
exercisable, as of such date, and (iii) give effect to the remaining provisions
of this Section 3.5 (in each case, without the creation of additional liability
to the Company or any of its Subsidiaries).
(b) As of the Effective Time, each holder of a Company Stock Option,
whether or not vested or exercisable, immediately prior to the Effective Time
shall be entitled to receive the Per Share Merger Consideration pursuant to
Section 3.1(b) as if such holder was a stockholder of the Company holding a
whole number of shares of Company Common Stock (rounded downward to the nearest
whole share) equal to (i) the product of (X) the total number of shares of
Company Common Stock subject to such Company Stock Option multiplied by (Y) the
excess, if any, of the Total Per Share Amount over the exercise price per share
of such Company Stock Option (rounded to the nearest cent), divided by (ii) the
Total Per Share Amount. No holder of a Company Stock Option that has an exercise
price per share that is equal to or greater than the Total Per Share Amount
shall be entitled to any payment with respect to such cancelled Company Stock
Option before or after the Effective Time.
(c) As of the Effective Time, each outstanding Company Restricted Stock
Award, the restrictions of which have not lapsed immediately prior to the
Effective Time, shall become fully vested and the holder of the resultant shares
of Company Common Stock thereof shall be entitled to receive the Per Share
Merger Consideration pursuant to Section 3.1(b) for such shares.
(d) As of the Effective Time, each outstanding unit granted under the
Company Stock Option Plans representing the right to receive shares of Company
Common Stock in the future (each a "Stock Unit")
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that is outstanding as of immediately prior to the Effective Time, whether or
not vested, shall become fully vested and the holder of the resultant shares
thereof shall be entitled to receive the Per Share Merger Consideration pursuant
to Section 3.1(b) for such shares.
(e) Immediately following the execution and delivery of this Agreement, the
Company's 2000 Employee Stock Purchase Plan (the "ESPP") shall be terminated
and, in accordance with the ESPP, any cash balances then credited to the
Participants' Contribution Accounts (as defined in the ESPP) shall be
distributed as soon as practicable, without interest.
(f) On or as of the Effective Time, the Company shall cancel or cause to be
canceled, for a payment of not more than $1,740,000, that certain Warrant
Agreement dated December 31, 2003, between the Company and ArcLight System LLC
and the Warrant (the "Warrant Agreement"), to purchase 391,098 shares of Company
Common Stock at an exercise price of $26.24 per share issued to ArcLight System
LLC thereunder (the "Warrant").
3.6 Intentionally Omitted.
3.7 No Fractional Shares.
Notwithstanding any other provision of this Agreement, neither certificates
nor scrip for fractional shares of Parent Common Stock shall be issued in the
Merger. Each holder who otherwise would have been entitled to a fraction of a
share of Parent Common Stock shall receive in lieu thereof cash (without
interest) in an amount determined by multiplying the fractional share interest
to which such holder would otherwise be entitled (after taking into account all
shares of Company Common Stock owned by such holder at the Effective Time) by
the Average Price. No such holder shall be entitled to dividends, voting rights
or any other rights in respect of any fractional share.
ARTICLE 4
EXCHANGE OF SHARES
4.1 Availability of Consideration.
At or prior to the Effective Time, Parent shall (i) designate a bank or
trust company to act as exchange agent (which designation shall be subject to
the Company's reasonable consent) (the "Exchange Agent") and (ii) deposit, or
shall cause to be deposited, with the Exchange Agent, for the benefit of the
holders of certificates representing Company Common Stock (the "Company
Certificates"), for exchange in accordance with this ARTICLE 4, cash in an
amount sufficient to pay the cash consideration and the aggregate number of
shares of Parent Common Stock due to the stockholders pursuant to Section 3.1(b)
and any cash that may be payable in lieu of any fractional shares (such cash and
certificates for shares of Parent Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund"). The cash so deposited shall be invested by the Exchange Agent
as directed by Parent or, after the Effective Time, the Surviving Corporation;
provided that such investments shall be in obligations of the United States of
America. Any net profit resulting from, or interest or income produced by, such
investments will be payable to Parent.
4.2 Exchange of Shares.
(a) As soon as practicable after the Effective Time, the Exchange Agent
shall mail to each holder of record of a Company Certificate a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the certificates shall pass, only upon delivery of the
certificates to the Exchange Agent) and instructions for use in effecting the
surrender of the Company Certificates in exchange for cash, certificates
representing the shares of Parent Common Stock and cash in lieu of fractional
shares of Parent Common Stock, if any, into which the shares of Company Common
Stock represented by such certificate or certificates shall have been converted
pursuant to this Agreement. Upon proper surrender of a Company Certificate for
exchange and cancellation to the Exchange Agent, together
5
with a properly completed letter of transmittal, duly executed, the holder of
such Company Certificate shall be entitled to receive in exchange therefor, (i)
a certificate representing that number of shares of Parent Common Stock to which
such former holder of Company Common Stock shall have become entitled pursuant
to Section 3.1(b), (ii) a check representing that amount of cash to which such
former holder of Company Common Stock shall have become entitled pursuant to
Section 3.1(b), and (iii) a check representing the amount of cash (if any)
payable in lieu of fractional shares of Parent Common Stock, which such former
holder has the right to receive in respect of the Company Certificate
surrendered pursuant to the provisions of this ARTICLE 4, and the Company
Certificate so surrendered shall forthwith be cancelled. No interest will be
paid or accrued on the cash payable in respect of Company Common Stock pursuant
to Section 3.1(b) or this ARTICLE 4.
(b) No dividends or other distributions with a record date after the
Effective Time with respect to Parent Common Stock shall be paid to the holder
of any unsurrendered Company Certificate until the holder thereof shall
surrender such certificate in accordance with this ARTICLE 4. After the
surrender of a Company Certificate in accordance with this ARTICLE 4, the record
holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of Parent Common Stock represented by such
certificate.
(c) If any certificate representing shares of Parent Common Stock is to be
issued in the name of other than the registered holder of the Company
Certificate surrendered in exchange therefor, it shall be a condition of the
issuance thereof that the Company Certificate so surrendered shall be properly
endorsed (or accompanied by an appropriate instrument of transfer) and otherwise
in proper form for transfer, and that the person requesting such exchange shall
pay to the Exchange Agent in advance any transfer or other taxes required by
reason of the issuance of a certificate representing shares of Parent Common
Stock in the name of and payment of cash to any person other than the registered
holder of the Company Certificate surrendered, or required for any other reason
relating to such holder or requesting person, or shall establish to the
reasonable satisfaction of the Exchange Agent that such tax has been paid or is
not payable.
(d) At or after the Effective Time, there shall be no transfers on the
stock transfer books of the Company of the shares of Company Common Stock which
were issued and outstanding immediately prior to the Effective Time. If, after
the Effective Time, certificates representing such shares are presented for
transfer to the Exchange Agent, they shall be cancelled and exchanged for
certificates representing shares of Parent Common Stock and payment of cash as
provided in this ARTICLE 4.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of the Company for six months after the Effective Time shall be
paid, at the request of Parent, to Parent. Any stockholders of Parent who have
not theretofore complied with this ARTICLE 4 shall thereafter look only to
Parent for payment of the shares of Parent Common Stock, cash, cash in lieu of
any fractional shares and unpaid dividends and distributions on the Parent
Common Stock deliverable in respect of each share of Company Common Stock held
by such stockholder at the Effective Time as determined pursuant to this
Agreement, in each case, without any interest thereon. Notwithstanding anything
to the contrary contained herein, none of Parent, the Company, the Exchange
Agent or any other person shall be liable to any former holder of shares of
Company Common Stock for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(f) In the event any Company Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Company Certificate to be lost, stolen or destroyed and, if required by
Parent, the posting by such person of a bond in such amount as Parent may
determine is reasonably necessary as indemnity against any claim that may be
made against it with respect to such Company Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed Company Certificate
the shares of Parent Common Stock, cash, cash in lieu of fractional shares and
unpaid dividends and distributions deliverable in respect thereof pursuant to
this Agreement.
(g) Parent, Purchaser, the Company, the Surviving Corporation and the
Exchange Agent will each be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement or
6
the transactions contemplated hereby to any holder of Company Common Stock,
Company Stock Options, Warrant, Company Restricted Stock Awards or Stock Units
such amounts as such payors are required to deduct and withhold with respect to
the making of such payment under the Code, or any applicable provision of Tax
law. To the extent that such amounts are properly withheld by such payors, such
withheld amounts will be treated for all purposes of this Agreement as having
been paid to the relevant holder in respect of whom such deduction and
withholding were made.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As an inducement to Parent and Purchaser to enter into this Agreement, the
Company hereby represents and warrants to Parent and Purchaser that:
5.1 Organization and Qualification; Subsidiaries.
(a) Each of the Company and its Subsidiaries is a corporation or limited
liability company duly formed, validly existing and in good standing under the
laws of the jurisdiction of its formation and has the requisite power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as it is now being conducted. Each of
the Company and its Subsidiaries is duly qualified or licensed as a foreign
corporation or limited liability company to do business, and is in good
standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that would not be reasonably likely to have a Material
Adverse Effect.
(b) A true and complete list of all the Company's Subsidiaries, together
with the jurisdiction of formation of each such Subsidiary and the percentage of
the outstanding equity interests of each such Subsidiary owned by the Company
and each other such Subsidiary is set forth in Section 5.1(b) of the Company
Disclosure Schedule (the "Company Disclosure Schedule"), which has been prepared
by the Company and delivered by the Company to Parent and Purchaser prior to the
execution and delivery of this Agreement. Except as disclosed in Section 5.1(b)
of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries owns, directly or indirectly, any equity or similar interest in, or
any interest convertible into or exchangeable or exercisable for any equity or
similar interest in, any corporation, limited liability company, partnership,
joint venture or other business association or entity.
5.2 Certificate of Incorporation and Bylaws.
The Company has heretofore furnished to Parent a complete and correct copy
of the Certificate of Incorporation and the Bylaws or equivalent organizational
documents, each as amended to date, of the Company and each of its Subsidiaries.
Such Certificates of Incorporation, Bylaws or equivalent organizational
documents are in full force and effect.
5.3 Capitalization.
(a) The authorized capital stock of the Company consists of (i) 200,000,000
shares of common stock, par value $0.125 per share ("Company Common Stock") and
(ii) 1,000,000 shares of preferred stock, par value $1.00 per share ("Company
Preferred Stock"). As of August 25, 2005, (i) 36,205,601 shares of Company
Common Stock are issued and outstanding, all of which are validly issued, fully
paid and nonassessable, (ii) 799 shares of Company Common Stock held in the
treasury of the Company, (iii) 4,170,305 shares of Company Common Stock are
reserved for future issuance pursuant to outstanding Company Stock Options,
Stock Units and other rights (together with the Company Restricted Stock Awards,
the "Company Stock Awards") granted pursuant to the Company Stock Option Plans
and (iv) 381,098 shares of Company Common Stock are reserved for future issuance
pursuant to the Warrants. As of the date of this Agreement, no shares of Company
Preferred Stock are issued and
7
outstanding. Section 5.3(a) of the Company Disclosure Schedule sets forth a
correct and complete list, as of the date hereof, of the holders of all
outstanding Company Stock Awards, the type and number of each such Company Stock
Award, the date of grant of each such Company Stock Award and, if applicable,
the exercise price thereof. All outstanding Company Stock Awards are evidenced
by stock option agreements, restricted stock purchase agreements or other award
agreements, the forms of which have been delivered to Parent. There are no
bonds, debentures, notes or other indebtedness of the Company or any of its
Subsidiaries having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matter on which stockholders of the
Company or any of its Subsidiaries may vote. Except as set forth in this Section
5.3(a) or in Section 5.3(a) of the Company Disclosure Schedule, and except for
the Company Rights issued pursuant to the Company Rights Agreement, there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character that obligate the Company or any of its Subsidiaries to issue or
sell any shares of capital stock of, or other equity interests in, the Company
or any of its Subsidiaries. There are no outstanding contractual obligations of
the Company or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any shares of Company Common Stock or any capital stock of, or other
equity interests in, any of its Subsidiaries or to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any of
its Subsidiaries or any other person. All outstanding shares of Company Common
Stock, all outstanding Company Stock Awards, and all outstanding shares of
capital stock of, or other equity interests in, each of the Company's
Subsidiaries have been issued and granted in compliance with (i) all applicable
Securities Laws and other applicable Laws and (ii) all requirements set forth in
applicable contracts. No consent of any holder of any Company Stock Awards is
required in connection with the actions contemplated by Section 3.5.
(b) Each outstanding share of capital stock of, or other equity interests
in, each of the Company's Subsidiaries is duly authorized, validly issued, fully
paid and nonassessable, and, except as set forth in Section 5.3(b) to the
Company Disclosure Schedule, each such share or other equity interest that is
owned directly or indirectly by the Company is owned by the Company or another
of its Subsidiaries free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, charges and other encumbrances of any
nature whatsoever.
5.4 Authority Relative to the Transactions.
The Company has all requisite corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the Transactions (as defined below). The execution and delivery by the Company
of this Agreement and the consummation by the Company of the Transactions have
been duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the Transactions or the Information Restructuring
(other than, with respect to the Merger, the approval and adoption of this
Agreement by the holders of a majority of the then outstanding shares of Company
Common Stock (the "Company Stockholder Approval") and the filing and recordation
of appropriate merger documents as required by the DGCL). This Agreement has
been duly and validly executed and delivered by the Company and, assuming the
due authorization, execution and delivery by the other parties thereto,
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought). The Board of Directors of the Company, at a meeting duly called and
held, has (i) determined that this Agreement, the Merger and the transactions
contemplated hereby (collectively, the "Transactions"), are fair to, and in the
best interests of, the holders of Company Common Stock, (ii) approved, adopted
and declared advisable this Agreement and the Transactions (such approval and
adoption having been made in accordance with the DGCL, including, without
limitation, Section 203 thereof) and (iii) resolved, subject to Section 8.2(c),
to recommend that the holders of Company Common Stock approve and adopt this
Agreement and the Transactions. To the knowledge of
8
the Company, no state takeover statute (other than Section 203(a) of the DGCL)
is applicable to the Merger or the other Transactions.
5.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery by the Company of this Agreement do not, and
neither the performance by the Company of this Agreement nor the consummation of
the Transactions or the Information Restructuring will, (i) conflict with or
violate the Certificate of Incorporation or Bylaws or any equivalent
organizational documents of the Company or any of its Subsidiaries, (ii)
assuming that all consents, approvals, authorizations and other actions
described in Section 5.5(b) have been obtained or taken and all filings and
obligations described in Section 5.5(b) have been made or fulfilled, conflict
with or violate any United States or non-United States statute, law (including
common law), ordinance, regulation, rule, code, executive order, injunction,
judgment, decree or other order ("Law") applicable to the Company or any of its
Subsidiaries or by which any property or asset of the Company or any of its
Subsidiaries is bound or affected, or (iii) except as set forth in Section
5.5(a) of the Company Disclosure Schedule, result in any breach of or constitute
a default (or an event which, with notice or lapse of time or both, would become
a default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Company or any of its Subsidiaries
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation, except, with
respect to clause (iii), for any such conflicts, violations, breaches, defaults
or other occurrences which would not, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect.
(b) Except as set forth in Section 5.5(b) of the Company Disclosure
Schedule, the execution and delivery by the Company of this Agreement do not,
and neither the performance by the Company of this Agreement nor the
consummation of the Transactions or the Information Restructuring, will require
any consent, approval, authorization or permit of, or filing with or
notification to, any United States federal, state, county or local or non-United
States government, governmental, regulatory or administrative authority, agency,
instrumentality or commission or any court, tribunal, or judicial or arbitral
body (a "Governmental Authority"), except for (i) the pre-merger notification
requirements of the HSR Act, (ii) any applicable requirements of the Exchange
Act, the rules of the NYSE and state takeover Laws, (iii) the filing and
recordation of appropriate merger documents as required by the DGCL and (iv)
where the failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect.
5.6 Permits; Compliance.
(a) Each of the Company and its Subsidiaries is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any Governmental
Authority, in each case that are material to the Company and its Subsidiaries,
taken as a whole, necessary for each of the Company or its Subsidiaries to own,
lease and operate its properties or to carry on its business as it is now being
conducted (the "Company Permits"). No suspension or cancellation of any of the
Company Permits is pending or, to the knowledge of the Company, threatened.
(b) Each of the Company and its Subsidiaries is in compliance with (i) all
Laws applicable to the Company or such Subsidiary or by which any property or
asset of the Company or such Subsidiary is bound or affected, and (ii) all
notes, bonds, mortgages, indentures, contracts, agreements, leases, licenses,
Company Permits, franchises or other instruments or obligations to which the
Company or such Subsidiary is a party or by which the Company or such Subsidiary
or any property or asset of the Company or such Subsidiary is bound, in each
case, other than noncompliance which would not, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect. Except as set
forth in Section 5.6(b) of the Company Disclosure Schedule, there are no
proceedings, inquiries or investigations pending before any Governmental
Authority or, to the Company's knowledge, threatened by any Governmental
Authority with respect to the Company or any of its Subsidiaries, other than any
such proceedings, inquiries or
9
investigations which would not, individually or in the aggregate, be reasonably
likely to have a Material Adverse Effect.
(c) Except as set forth in Section 5.6(c) of the Company Disclosure
Schedule, to the knowledge of the Company, neither the Company, its
Subsidiaries, nor any of their respective officers, directors, employees or
agents have been, since May 31, 2002, or is currently being investigated,
charged or implicated in any violation of Laws relating to Medicare, Medicaid,
Tricare, or any other state or federally sponsored or funded health care
program. Neither the Company, its Subsidiaries, nor any of their respective
officers, directors, employees, independent contractors or agents have engaged
in any activities which may serve as grounds for any material penalties of any
kind under Title 11, Title 18 or Title 19 of the Social Security Act, the False
Claims Act (31 U.S.C. sec.3729 et seq.), the False Statements Act (18 U.S.C.
sec.1001), the Program Fraud Civil Penalties Act (31 U.S.C. sec.3801 et seq.),
the Food, Drug and Cosmetic Act (21 U.S.C. sec.301 et seq.) (all as amended or
superseded), or the anti-fraud and abuse provisions of the Health Insurance
Portability and Accountability Act of 1996 (18 U.S.C. sec.1347, 18 U.S.C.
sec.669, 18 U.S.C. sec.1035, 18 U.S.C. sec.1518) or any fraud and abuse, false
claims and anti-self referral statutes and regulations in each state or other
jurisdiction where the Company or its Subsidiaries have operations or any
related regulations or other Laws.
5.7 SEC Filings; Financial Statements; Undisclosed Liabilities.
(a) The Company has filed or furnished, as the case may be, all SEC
Documents required to be filed or furnished, as the case may be, by it with the
SEC since May 31, 2002 (collectively, the "Company SEC Reports"). The Company
SEC Reports (i) were prepared in accordance with either the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as the case may be, and
the rules and regulations promulgated thereunder and (ii) did not, at the time
they were filed, or, if amended or supplemented, as of the date of such
amendment or supplement, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. No Subsidiary of the Company is required to file
any form, report or other document with the SEC. Section 5.7(a) of the Company
Disclosure Schedule lists, and the Company has delivered to Parent copies of,
all comment letters received by the Company from the Staff of the SEC since May
31, 2002 and all responses to such comment letters by or on behalf of the
Company.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto), as restated to date, contained in the Company SEC Reports,
as amended to date, complied at the time it was filed as to form in all material
respects with the applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto in effect at the time of filing and
was prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto or, in the case of
unaudited interim statements, the omission of footnotes and otherwise as
permitted by Form 10-Q of the SEC) and each fairly presents, in all material
respects, the consolidated financial position, results of operations and cash
flows of the Company and its consolidated Subsidiaries as at the respective
dates thereof and for the respective periods indicated therein, except as
otherwise noted therein.
(c) Neither the Company nor any of its Subsidiaries has any liability or
obligation of any nature (whether accrued, absolute, contingent or otherwise)
which would be required to be reflected, reserved for or disclosed in a
consolidated balance sheet of the Company and its consolidated Subsidiaries,
including the notes thereto, prepared as of the date of this Agreement in
accordance with GAAP except (i) as reflected, reserved for or disclosed in the
consolidated balance sheet of the Company and the consolidated Subsidiaries as
at May 27, 2005, including the notes thereto (the "2005 Balance Sheet"), (ii) as
incurred in the ordinary course of business consistent with past practice since
May 27, 2005, (iii) as incurred pursuant to the Transactions, (iv) as would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, or (v) as set forth in Section 5.7(c) of the Company Disclosure
Schedule.
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(d) Except as set forth in Section 5.7(d) of the Company Disclosure
Schedule, the Company maintains disclosure controls and procedures required by
Rule 13a-15 or Rule 15d-15 under the Exchange Act; such controls and procedures
are effective to ensure that all material information concerning the Company and
its Subsidiaries is made known on a timely basis to the individuals responsible
for the preparation of the Company's SEC filings and other public disclosure
documents.
(e) Except as set forth in Section 5.7(e) of the Company Disclosure
Schedule, the Company and its Subsidiaries maintain accurate books and records
reflecting its assets and liabilities and maintain a system of internal
accounting controls which provide assurance that (i) transactions are executed
in accordance with management's authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's authorization, (iv) the recorded
accountability for assets is compared with the existing assets at regular
intervals and appropriate action is taken with respect to any differences, and
(v) accounts, notes and other receivables and inventory are recorded accurately,
and proper and adequate procedures are implemented to effect the collection
thereof on a current and timely basis. The Company has delivered to Parent
complete and correct copies of, all written descriptions of, and all policies,
manuals and other documents promulgating, such internal accounting controls.
(f) Section 5.7(f) of the Company Disclosure Schedule lists, and the
Company has delivered to Parent copies of, the documentation creating or
governing, all securitization transactions and "off-balance sheet arrangements"
(as defined in Item 303(a)(4) of Regulation S-K of the SEC) effected by the
Company or its Subsidiaries since May 31, 2002.
(g) Ernst & Young LLP, which has expressed its opinion with respect to the
financial statements of the Company and its Subsidiaries included in the Company
SEC Reports (including related notes), is and has been throughout the periods
covered by such financial statements (i) a registered public accounting firm (as
defined in Section 2(a)(12) of the Sarbanes-Oxley Act), (ii) "independent" with
respect to the Company within the meaning of Regulation S-X, and (iii) with
respect to the Company, in compliance with subsections (g) through (l) of
Section 10A of the Exchange Act and the related Rules of the SEC and the Public
Company Accounting Oversight Board. Section 5.7(g) of the Company Disclosure
Schedule lists all non-audit services performed by Ernst & Young LLP for the
Company and its Subsidiaries since May 27, 2005.
(h) The Chief Executive Officer and the Chief Financial Officer of the
Company have signed, and the Company has furnished to the SEC, all
certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act, and
the rules and regulations of the SEC promulgated thereunder with respect to the
Company's filings pursuant to the Exchange Act. Such certifications contain no
qualifications or exceptions to the matters certified therein and have not been
modified or withdrawn. Neither the Company nor any of its officers has received
notice from any Governmental Authority questioning or challenging the accuracy,
completeness, form or manner of filing or submission of such certifications. The
Company has provided to Parent complete and correct copies of all certifications
filed with the SEC pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act
and hereby reaffirms, represents and warrants to the Company the matters and
statements made in such certificates.
(i) Except as permitted by the Exchange Act, neither the Company nor any of
its Subsidiaries (i) has, since July 31, 2002, extended or maintained credit,
arranged for the extension of credit, or renewed, or (ii) permits to remain
outstanding, an extension of credit, in the form of a personal loan to or for
any director or executive officer (or equivalent thereof) of the Company.
(j) The Company is, or will timely be in all material respects, in
compliance with all listing and corporate governance requirements of the NYSE,
and is in compliance in all material respects with all rules, regulations, and
requirements of the Sarbanes-Oxley Act and the SEC.
(k) Each of the Company, its directors and its senior financial officers
has consulted with the Company's independent auditors and with the Company's
outside counsel with respect to, and (to the extent applicable to the Company)
is familiar in all material respects with all of the requirements of, the
11
Sarbanes-Oxley Act. The Company is in compliance with the provisions of the
Sarbanes-Oxley Act applicable to it as of the date hereof and has implemented
such programs and has taken reasonable steps, upon the advice of the Company's
independent auditors and outside counsel, respectively, to ensure the Company's
future compliance (not later than the relevant statutory and regulatory
deadlines therefore) with all provisions of the Sarbanes-Oxley Act which shall
become applicable to the Company after the date hereof.
5.8 Absence of Certain Changes or Events.
Since May 27, 2005, except as set forth in Section 5.8 of the Company
Disclosure Schedule, or as expressly contemplated by this Agreement, (a) there
has not been any Material Adverse Effect with respect to the Company and its
Subsidiaries, taken as a whole, and (b) none of the Company or any of its
Subsidiaries has taken any action that, if taken after the date of this
Agreement, would constitute a material breach of any of the covenants set forth
in Section 7.1.
5.9 Litigation.
Except as set forth in the Company SEC Reports or in Section 5.9 of the
Company Disclosure Schedule, there is no litigation, suit, claim, action,
proceeding or investigation (which investigation has been communicated to the
Company or of which the Company has knowledge) (an "Action") pending or, to the
knowledge of the Company, threatened against the Company or any of its
Subsidiaries, or any property or asset of the Company or any such Subsidiary,
before any Governmental Authority, except for Actions that, if determined
adversely to the Company or any such Subsidiary would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect. Except as
set forth in Section 5.9 of the Company Disclosure Schedule, neither the Company
nor any of its Subsidiaries nor any property or asset of the Company or any such
Subsidiary is subject to any continuing order of, consent decree, settlement
agreement or other similar written agreement with, or, to the knowledge of the
Company, continuing investigation by, any Governmental Authority, or any order,
writ, judgment, injunction, decree, determination or award of any Governmental
Authority. There are no Actions pending or, to the knowledge of the Company,
threatened against the Company or any of its Subsidiaries, that would reasonably
be expected to prevent or materially delay the consummation of the Transactions
or the Information Restructuring.
5.10 Employee Benefit Plans.
(a) Section 5.10(a) of the Company Disclosure Schedule lists all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) (whether or not such plans are
subject to ERISA) and all bonus, stock option, stock purchase, restricted stock,
incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, severance or other benefit plans, programs or
arrangements, including each plan, program, arrangement or scheme maintained or
required to be maintained under the Laws of a jurisdiction outside the United
States of America and all employment, retention, termination, severance or other
contracts or agreements, whether legally enforceable or not, to which the
Company or any of its Subsidiaries is a party, with respect to which the Company
or any such Subsidiary has any obligation or which are maintained, contributed
to or sponsored by the Company or any such Subsidiary for the benefit of any
current or former employee, officer or director (or other beneficiary or their
dependents or spouses) of the Company or any such Subsidiary (collectively, the
"Plans"). For each Plan, the Company has furnished or made available to Parent a
true and complete copy of each Plan document (including all amendments thereto)
and where such Plan is unwritten, a written description of the material terms
thereof, and has delivered or made available to Parent a true and complete copy
of the following: (i) each trust or other funding arrangement prepared in
connection with a Plan, (ii) each summary plan description and summary of
material modifications (or a description of any material oral communications)
provided by the Company or any of its Subsidiaries to any current or former
employees, officers, directors, or other beneficiaries or their dependents or
spouses of the Company or any of its Subsidiaries concerning the extent of the
benefits
12
provided under each Plan, (iii) the most recently filed Internal Revenue Service
("IRS") Forms 5500 for each Plan required to file such report, (iv) the most
recently received IRS determination letter for each Plan that has received such
IRS determination letter and (v) the three most recently prepared actuarial
reports or financial statements in connection with each Plan for which an
actuarial report or financial statement has been prepared (whether or not
required) and (vi) nondiscrimination and coverage testing data and results for
the three most recent years in connection with each Plan that is intended to be
qualified under Section 401(a) of the Code. Except as disclosed in Section
5.10(a) of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries has any express or implied commitment, whether legally enforceable
or not, (i) to create, incur liability with respect to or cause to exist any
other employee benefit plan, program or arrangement, (ii) to enter into any
contract or agreement to provide compensation or benefits to any individual, or
(iii) to modify, change or terminate any Plan, other than with respect to a
modification, change or termination required by this Agreement, the Transactions
or ERISA or the Code or to otherwise comply with applicable Law.
(b) Except as disclosed in Section 5.10(b) of the Company Disclosure
Schedule, neither the Company, any of its Subsidiaries (including any entity
that during the past six years was a Subsidiary of the Company) nor any Person
(whether incorporated or unincorporated) that together with the Company or any
of its Subsidiaries (including any entity that during the past six years was a
Subsidiary of the Company) would be deemed a "single employer" within the
meaning of Section 414 of the Code ("ERISA Affiliate") has now or at any time
contributed to, sponsored, or maintained (i) a pension plan (within the meaning
of Section 3(2) of ERISA) subject to Section 412 of the Code or Title IV of
ERISA, (ii) a multiemployer plan (within the meaning of Section 3(37) or
4001(a)(3) of ERISA) (a "Multiemployer Plan"), or (iii) a single employer
pension plan (within the meaning of Section 4001(a)(15) of ERISA) for which the
Company or any of its Subsidiaries could incur liability under Section 4063 or
4064 of ERISA (a "Multiple Employer Plan"). Except as disclosed in Section
5.10(b) of the Company Disclosure Schedule, no Plan exists that (A) provides for
the payment of separation, severance, termination or similar-type benefits to
any Person, (B) obligates the Company or any of its Subsidiaries to pay
separation, severance, termination or similar-type benefits solely or partially
as a result of the consummation of any Transaction or the Information
Restructuring, or (C) could result in the payment to any present or former
employee, director or consultant of the Company or any of its Subsidiaries of
any money or other property or accelerate or provide any other rights or
benefits to any current or former employee, director or consultant of the
Company or any of its Subsidiaries as a result of the consummation of the
Transactions or the Information Restructuring (whether alone or in connection
with any subsequent event). Except as disclosed in Section 5.10(b) of the
Company Disclosure Schedule, there is no contract, plan or arrangement (written
or otherwise) covering any current or former employee, director or consultant of
the Company or any of its Subsidiaries that, individually or collectively, could
give rise to the payment of any amount that would not be deductible pursuant to
the terms of Section 280G of the Code. Except as disclosed in Section 5.10(b) of
the Company Disclosure Schedule and to the extent required under ERISA Section
601 et. seq. and Code Section 4980B, none of the Plans provides for or promises
retiree medical, retiree disability or retiree life insurance benefits to any
current or former employee, officer, director or consultant of the Company or
any of its Subsidiaries. Except as disclosed in Section 5.10(b) of the Company
Disclosure Schedule, each of the Plans is subject only to the Laws of the United
States or a political subdivision thereof. Except as disclosed in Section
5.10(b) of the Company Disclosure Schedule, none of the Plans nor any plan,
program, arrangement, contract or agreement previously contributed to, sponsored
or maintained by the Company or its Subsidiaries during the past six years
(including any entity that during the past six years was a Subsidiary of the
Company) that would be a "plan" as described in Section 5.10(a) if currently in
effect ("Prior Company Plan" is or was a "multiple employer welfare arrangement"
(as defined in Section 3(40) of ERISA).
(c) Except as disclosed in Section 5.10(c) of the Company Disclosure
Schedule, each Plan is now and always has been, and each Prior Company Plan
always was, operated in all material respects in accordance with its terms and
the requirements of all applicable Laws including, without limitation, ERISA and
the Code. Except as disclosed in Section 5.10(c) of the Company Disclosure
Schedule, the Company and its Subsidiaries have performed all obligations
required to be performed by them under, are
13
not in any respect in default under or in violation of, and have no knowledge of
any default or violation by any party to, any Plan or Prior Company Plan. No
Action is pending or, to the knowledge of the Company, threatened with respect
to any Plan or Prior Company Plan (other than routine claims for benefits in the
ordinary course) and except as disclosed in Section 5.10(c) of the Company
Disclosure Schedule, no fact or event exists that could reasonably be expected
to give rise to any such Action. Except as disclosed in Section 5.10(c) of the
Company Disclosure Schedule, to the knowledge of the Company, no "qualification
failure" (within the meaning of Rev. Proc. 2003-44) exists with respect to any
Plan that is intended to be qualified under Section 401(a) of the Code.
(d) Except as disclosed in Section 5.10(d) of the Company Disclosure
Schedule, each Plan that is intended to be qualified under Section 401(a) of the
Code has timely received a favorable determination letter from the IRS covering
all of the provisions applicable to the Plan for which determination letters are
currently available that the Plan is so qualified and each trust established in
connection with any Plan which is intended to be exempt from federal income
taxation under Section 501(a) of the Code is so exempt, and no fact or event
exists that could reasonably be expected to result in the revocation of such
exemption.
(e) To the knowledge of the Company, there has not been any non-exempt
prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code) with respect to any Plan or Prior Company Plan.
(f) Except as set forth in Section 5.10(f) of the Company Disclosure
Schedule, all contributions, premiums or payments required to be made with
respect to any Plan have been made on or before their due dates. All such
contributions have been fully deducted for income tax purposes and no such
deduction has been challenged or disallowed by any Governmental Authority and,
to the knowledge of the Company, no fact or event exists which could reasonably
be expected to give rise to any such challenge or disallowance. The assets of
each Plan that has assets are reported at their fair market value on the
financial statements of each such Plan.
(g) The Company and its Subsidiaries are in compliance with the
requirements of the Workers Adjustment and Retraining Notification Act and any
similar state or local Law ("WARN") and have no liabilities pursuant to WARN
determined without regard to any terminations of employment that occur on or
after the Effective Time.
(h) In addition to the foregoing, with respect to each Plan listed in
Section 5.10(a) of the Company Disclosure Schedule that is not subject to United
States Law (a "Non-U.S. Benefit Plan"), which Plans are so identified on Section
5.10(h) of the Company Disclosure Schedule:
(i) all employer and employee contributions to each Non-U.S. Benefit
Plan required by Law or by the terms of such Non-U.S. Benefit Plan have
been made, or, if applicable, accrued in accordance with normal accounting
practices;
(ii) to the knowledge of the Company, each Non-U.S. Benefit Plan which
provides employee health and welfare benefits is administered by group
insurance providers pursuant to the terms of group policies which are in
good standing with the applicable insurance companies;
(iii) each Non-U.S. Benefit Plan maintained by the Company or any of
its Subsidiaries required to be registered or approved has been registered
or approved and has been maintained in good standing with applicable
Governmental Authorities. To the knowledge of the Company, each Non-U.S.
Benefit Plan is now and always has been operated in material compliance
with all applicable non-United States Laws; and
(iv) each Non-U.S. Benefit Plan which is a retirement savings plan and
which is contributed to, sponsored or maintained by the Company or any of
its Subsidiaries for the benefit of the employees in Canada provides only
defined contribution benefits which are dependent on investment performance
and does not require specified minimum guaranteed benefits to be paid.
14
5.11 Labor and Employment Matters.
(a) Neither the Company nor any of its Subsidiaries is a party to any
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or any such Subsidiary, nor, to the knowledge of
the Company, are there any activities or proceedings of any labor union to
organize any such employees. To the knowledge of the Company, there are no
unfair labor practice complaints pending against the Company or any of its
Subsidiaries before the National Labor Relations Board or any other Governmental
Authority or any current union representation questions involving employees of
the Company or any such Subsidiary. There is no strike, controversy, slowdown,
work stoppage or lockout occurring, or, to the knowledge of the Company, any
threat thereof in writing, by or with respect to any employees of the Company or
any of its Subsidiaries.
(b) Except as disclosed in Section 5.11(b) of the Company Disclosure
Schedule, the Company and its Subsidiaries have paid in full to all current and
former employees or adequately accrued for in accordance with GAAP consistently
applied all wages, salaries, commissions, bonuses, benefits and other
compensation due to or on behalf of such employees and there is no claim with
respect to payment of wages, salary or overtime pay that has been asserted or is
now pending or, to the knowledge of the Company, threatened before any
Governmental Authority with respect to any persons currently or formerly
employed by the Company or any such Subsidiary. Except as disclosed in Section
5.11(b) of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is a party to, or otherwise bound by, any consent decree with, or
citation by, any Governmental Authority relating to employees or employment
practices. There is no charge or proceeding with respect to a violation of any
occupational safety or health standards that has been asserted or is now pending
or, to the knowledge of the Company, threatened with respect to the Company or
its Subsidiaries. Except as disclosed in Section 5.11(b) of the Company
Disclosure Schedule, there is no charge of discrimination in employment or
employment practices, for any reason, including, without limitation, age,
gender, race, religion or other legally protected category, which has been
asserted or is now pending or, to the knowledge of the Company, threatened
before the United States Equal Employment Opportunity Commission, or any other
Governmental Authority in any jurisdiction in which the Company or any of its
Subsidiaries has employed or employ any person. Neither the Company nor any of
its Subsidiaries has received a claim from any Governmental Authority to the
effect that the Company or such Subsidiary has improperly classified an
individual as an independent contractor.
5.12 Real Property; Title to Assets.
(a) Each parcel of real property owned by the Company or any of its
Subsidiaries (i) is owned free and clear of all mortgages, pledges, liens,
security interests, conditional and installment sale agreements, encumbrances,
charges or other claims of third parties of any kind, including, without
limitation, any easement, right of way or other encumbrance to title, or any
option, right of first refusal, or right of first offer (collectively, "Liens"),
other than (A) Liens for current Taxes and assessments not yet past due and
payable, (B) inchoate mechanics' and materialmen's Liens for construction in
progress, (C) workmen's, repairmen's, warehousemen's and carriers' Liens arising
in the ordinary course of business of the Company or such Subsidiary consistent
with past practice and (D) all matters of record that would not, individually or
in the aggregate, be reasonably likely to have a Material Adverse Effect
(collectively, "Permitted Liens") and (ii) is neither subject to any
governmental decree or order to be sold nor is being condemned, expropriated or
otherwise taken by any Governmental Authority with or without payment of
compensation therefor, nor, to the knowledge of the Company, has any such
condemnation, expropriation or taking been proposed.
(b) All leases, subleases and licenses related to real property which are
material to the Company's business on a consolidated basis are in full force and
effect, are valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing material default or event
of default (or event which, with notice or lapse of time, or both, would
constitute a material default) by the Company or any of its Subsidiaries or, to
the Company's knowledge, by the other party to such lease, sublease or license.
15
(c) There are no contractual or legal restrictions or other arrangements
that preclude or restrict the ability of the Company or any of its Subsidiaries
to use all or any portion of any real property owned or leased by the Company or
any such Subsidiary for the purposes for which it is currently being used by the
Company or such Subsidiary. There are no material adverse physical conditions
known to the Company which materially and adversely affect the Company's and its
Subsidiaries' ability to use any real property, or improvements thereon, owned
or leased by the Company or any such Subsidiary for the purposes for which they
are currently being used.
(d) Each of the Company and its Subsidiaries has good and valid title to,
or, in the case of leased properties and assets, valid leasehold or subleasehold
interests in, all of its properties and assets, tangible and intangible, real,
personal and mixed, used or held for use in its business, free and clear of any
Liens, except for Permitted Liens or other defects of title which are not
reasonably likely to have a Material Adverse Effect.
5.13 Intellectual Property.
(a) The Company and its Subsidiaries own or have sufficient rights to all
Intellectual Property currently used in the operation of its business as
presently conducted. Except where the loss or impairment of such Intellectual
Property would not, in the aggregate, reasonably be expected to result in a
Material Adverse Effect, (i) neither the consummation of the Transactions nor
the Information Restructuring will result in the loss or impairment of any such
Intellectual Property, and (ii) each item of Intellectual Property owned or used
by the Company or its Subsidiaries immediately prior to the Closing will be
owned or available for use by the Company and its Subsidiaries on identical
terms and conditions immediately subsequent to the Closing. The Company and its
Subsidiaries have taken all commercially reasonable actions to maintain and
protect each item of Intellectual Property owned or used by them.
(b) To the knowledge of the Company, neither the Company nor any of its
Subsidiaries has, during the past three (3) years, interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties in any material respect. Except as set forth in
Section 5.13(b) of the Company Disclosure Schedule, neither the Company nor any
of its Subsidiaries has, during the past three (3) years, received any written
charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that it must
license or refrain from using any Intellectual Property rights of any third
party). To the knowledge of the Company, neither the Company nor any of its
Subsidiaries will interfere, infringe upon, misappropriate, or otherwise come
into conflict with, any Intellectual Property rights of third parties in any
material respect as a result of the continued operation of their businesses as
presently conducted.
(c) Except as set forth in Section 5.13(c) of the Company Disclosure
Schedule, to the knowledge of the Company, no third party (including any present
or former employee, consultant, independent contractor, or shareholder) has,
during the past three (3) years, interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of the Company or any of its Subsidiaries, except for any such
interference, infringement, misappropriation or conflict which are not
reasonably likely to have a Material Adverse Effect.
(d) Section 5.13(d) of the Company Disclosure Schedule identifies all
material Software products currently marketed, or proposed to be marketed within
the next two (2) years, to customers by the Company or any of its Subsidiaries.
With respect to each item identified in Section 5.13(d) of the Company
Disclosure Schedule:
(i) The Company or one of its Subsidiaries possesses all right, title,
and interest in and to the item, free and clear of any and all Liens other
than Permitted Liens.
(ii) The item is not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge.
16
(iii) No action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the knowledge of the Company,
threatened which challenges the legality, validity, enforceability, use, or
ownership of the item.
(iv) Except in connection with customer agreements entered into by the
Company or any of its Subsidiaries, neither the Company nor any of its
Subsidiaries has ever agreed to indemnify any Person for or against any
interference, infringement, misappropriation, or other conflict with
respect to the item.
(v) Neither the Company nor any of its Subsidiaries is under any
obligation to grant any right, license or permission to use, or with
respect to, the item other than pursuant to non-exclusive license
agreements with customers, resellers or distributors in the ordinary course
of business.
(vi) No (A) governmental funding; (B) facilities of a Governmental
Authority, university, college, other educational institution or research
center or (C) funding from any Person (other than funds received in
consideration for the Company's share capital) was used in the development
of the item by the Company or any of its Subsidiaries. No current or former
employee, consultant, or independent contractor of the Company or any of
its Subsidiaries, who was involved in, or who contributed to, the creation
or development of the item, has performed services for any Governmental
Authority, university, college, or other educational institution or
research center during a period of time during which such employee,
consultant, or independent contractor was also performing services for the
Company or any of its Subsidiaries.
(vii) Such item operates without malfunctions or design failures, and
is free from any defects, errors or "bugs" in each case, with the exception
of such de minimus malfunctions, design failures, defects, errors or "bugs"
which do not adversely affect in a material manner the intended use of such
item.
(viii) Such item was either developed (A) by employees of the Company
or one of its Subsidiaries within the scope of their employment or (B) by
independent contractors or consultants who have assigned all of their
rights in and to the item to the Company or one of its Subsidiaries
pursuant to written agreements.
(ix) The source code and system documentation relating to such item
(A) has been subject to commercially reasonable efforts by the Company and
its Subsidiaries to maintain the confidentiality thereof, (B) has been
disclosed only to employees who have a need to know in connection with the
performance of their duties to the Company and its Subsidiaries, and (C)
has not been disclosed to any third party not under an obligation to
maintain the confidential nature of such information.
(e) To the knowledge of the Company, the documentation relating to each
Trade Secret of the Company and its Subsidiaries is current, accurate, and
sufficient in detail and content for the conduct of the businesses of the
Company and its Subsidiaries. The Company and its Subsidiaries have taken
commercially reasonable precautions to protect the secrecy, confidentiality, and
value of its Trade Secrets.
(f) Except as set forth in Section 5.13(f) of the Company Disclosure
Schedule or where the failure thereof would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect, all current
and former employees of the Company and its Subsidiaries and all other Persons
who have been involved in the development of Intellectual Property by or on
behalf of the Company or its Subsidiaries have executed written agreements with
the Company or its Subsidiaries that assign to the Company or one of its
Subsidiaries all rights to any inventions, improvements, discoveries or
information of the Company and its Subsidiaries. Except as set forth in Section
5.13(f) of the Company Disclosure Schedule, no current or former employee of the
Company or any of its Subsidiaries has entered into any agreement that requires
the employee to transfer, assign or disclose information concerning his work to
anyone other than the Company or one of its Subsidiaries. No employee or former
employee has the right or has claimed a right to ownership of any of the
Intellectual Property in any invention or improvement made by him in the course
of his employment with the Company or any of its Subsidiaries.
17
(g) Except as would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect, the data and information used by the
Company and its Subsidiaries in providing products or services to their
customers (collectively, the "Company Data") (i) does not violate the privacy
rights of any Person, (ii) does not infringe upon, misappropriate, conflict with
or violate the Intellectual Property rights of any Person, (iii) was collected
and acquired in accordance with all applicable Laws or agreements to which the
Company or its Subsidiaries is bound, or both, and (iv) when used by the Company
and its Subsidiaries, in the manner in which the Company Data was used prior to
the date hereof, is in full accordance with all, and does not violate any,
applicable Laws or agreements to which the Company or its Subsidiaries is bound.
The Company and its Subsidiaries have taken all commercially reasonable steps to
maintain the confidentiality and proprietary nature of the Company Data.
5.14 Taxes.
(a) Except as set forth in Section 5.14(a) of the Company Disclosure
Schedule, the Company and its Subsidiaries have paid all Taxes due and owing and
have filed all Tax Returns that they were required to file and all such Tax
Returns were correct and complete in all material respects. Neither the Company
nor any of its Subsidiaries currently is the beneficiary of any extension of
time within which to file any Tax Return. There are no liens for Taxes (other
than Taxes not yet due and payable) upon any of the assets of the Company or any
of its Subsidiaries.
(b) Except as set forth in Section 5.14(b) of the Company Disclosure
Schedule, there is no dispute or claim pending or, to the knowledge of the
Company, threatened concerning any Tax liability of the Company or any of its
Subsidiaries.
(c) Except as set forth in Section 5.14(c) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(d) Except as set forth in Section 5.14(d) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries (i) has filed a
consent under Section 341(f) of the Code concerning collapsible corporations;
(ii) is a party to any agreement, contract, arrangement or plan that has
resulted or would result, separately or in the aggregate, in any payment that
would not be deductible pursuant to Code Section 162(m) or any "excess parachute
payment" within the meaning of Code Section 280G (or any corresponding provision
of state, local or foreign Tax Law); (iii) has been a United States real
property holding corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii); (iv) is a
party to or bound by any tax allocation or sharing agreement; (v) has been a
member of an affiliated group filing a consolidated federal income Tax return
(other than a group the common parent of which was the Company) or has any
liability for the Taxes of any Person other than the Company or any of its
Subsidiaries under Reg. sec. 1.1502-6 (or any similar provision of state, local
or foreign Tax law), as a transferee or successor, by contract, or otherwise;
(vi) has distributed stock of another corporation or has had its stock
distributed in a transaction that was purported or intended to be governed in
whole or in part by Code Section 355 or Code Section 361; or (vii) has
participated in any reportable transaction within the meaning of Code Section
6707A(c)(1).
(e) Except as set forth in Section 5.14(e) of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries will be required to
include any item of income in, or exclude any item of deduction from, taxable
income for any taxable period (or portion thereof) ending after the Effective
Time as a result of any (i) change in method of accounting for a taxable period
ending on or prior to the Effective Time; (ii) closing agreement as described in
Code section 7121 (or any corresponding or similar provision of state, local or
foreign Tax Law) executed on or prior to the Effective Time; (iii) intercompany
transactions or any excess loss account described in Treasury regulations under
Code section 1502 (or any corresponding or similar provision of state, local or
foreign Tax Law); (iv) installment sale or open transaction disposition made on
or prior to the Effective Time; or (v) prepaid amount received on or prior to
the Effective Time.
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(f) The accruals and reserves for Taxes reflected in the 2005 Balance Sheet
are adequate to satisfy all Taxes accruable through such date in accordance with
GAAP.
(g) The factual statements and representations made to the Internal Revenue
Service in connection with the Company's request for a private letter ruling
regarding certain federal income tax consequences of the transactions
contemplated by the Distribution Agreement, dated January 31, 2001, by and
between the Company and Global Payments, Inc. were true, correct and complete
when made, and no action which is inconsistent with any of such factual
statements or representations has been taken by the Company, any Subsidiary of
the Company, nor, to the knowledge of the Company, by Global Payments, Inc. or
any of its Affiliates. The Company and its Subsidiaries have complied with, and
to the knowledge of the Company, each of Global Payments, Inc. and its
Affiliates has complied with, each of the covenants set forth in Section 9.1 of
the Tax Sharing and Indemnification Agreement, dated January 31, 2001, by the
Company and Global Payments, Inc.
(h) The factual statements and representations made to Troutman Sanders LLP
in connection with the opinion delivered by such law firm on August 19, 2005
regarding certain federal income tax consequences of the acquisition by the
Company of the stock of TechRx Incorporated were true, correct and complete when
made, and no action which is inconsistent with any of such factual statements or
representations has been taken by the Company or any Subsidiary of the Company.
5.15 Environmental Matters.
Except as described in Section 5.15 of the Company Disclosure Schedule, (a)
neither the Company nor any of its Subsidiaries is in material violation of any
Environmental Law; (b) none of the properties currently or formerly owned,
leased or operated by the Company or any of its Subsidiaries (including, without
limitation, soils and surface and ground waters) has been contaminated by the
dumping, discharge, spillage, disposal or other release of Hazardous Substances
that requires investigation, removal, remediation or corrective action by the
Company or any such Subsidiary under applicable Environmental Laws; (c) none of
the Company or any of its Subsidiaries has been notified that it is actually or
potentially liable under or received any requests for information or other
correspondence or written notice that it is considered potentially liable for
any off-site contamination by Hazardous Substances; (d) each of the Company and
its Subsidiaries has all material permits, licenses and other authorizations
required under any Environmental Law ("Environmental Permits"); (f) each of the
Company and its Subsidiaries is in material compliance with its Environmental
Permits; and (g) neither the execution of this Agreement nor the consummation of
the Transactions or the Information Restructuring will require any
investigation, remediation or other action with respect to Hazardous Substances,
or any notice to or consent of Governmental Authorities or third parties,
pursuant to any applicable Environmental Law or Environmental Permit.
5.16 Company Rights Agreement.
The Company has taken all necessary action so that none of the execution or
delivery of this Agreement, the consummation of the Merger or the consummation
of any other Transactions or the Information Restructuring will result in any
Person becoming able to exercise any rights under the Stockholder Protection
Rights Agreement, dated as of March 26, 2001, between the Company and SunTrust
Bank, Atlanta, as rights agent, (the "Company Rights Agreement"), or enabling or
requiring the associated Series A Junior Participating Preferred Stock Purchase
Rights (the "Company Rights") to be separated from the shares of the Company
Common Stock to which they are attached or to be triggered or to be exercisable.
5.17 Material Contracts.
Other than any contract or amendment thereto filed as an exhibit to any
Company SEC Report and except as disclosed in Section 5.17 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries, nor any of
their respective assets, businesses, or operations, is a party to, or is bound
or
19
affected by, or receives benefits under, (i) any employment, severance,
termination, consulting, or retirement contract providing for aggregate payments
to any Person in any calendar year in excess of $500,000, (ii) any material
contract relating to the borrowing of money by the Company or any of its
Subsidiaries or the guarantee by the Company or such Subsidiary of any such
obligation (other than contracts evidencing trade payables), (iii) any contract
which prohibits or restricts, in any material respect, the Company or any of its
Subsidiaries from engaging in any business activities in any geographic area,
line of business, or customer segment or otherwise in competition with any other
Person, (iv) any contract granting material exclusive rights or "most favored
nation" status to the counterparty thereof, (v) any contract pursuant to which
the Company or any of its Subsidiaries have granted any material Intellectual
Property rights to a third party (other than non-exclusive license agreements
with customers, distributors or resellers in the ordinary course of business),
(vi) any contract pursuant to which the Company or any of its Subsidiaries has
received the right to use any material Intellectual Property (other than
commercially-available, off-the-shelf software programs having a license fee of
$100,000 or less), (vii) any indemnity agreement in favor of any Person, (viii)
any contract relating to any discontinued operation or any assets or business
sold or otherwise disposed of by the Company or its Subsidiaries within the
three (3) year period ended on the date hereof, or (ix) any other contract or
amendment thereto that would be required to be filed as an exhibit to a Form
10-K filed by the Company with the SEC on the date of this Agreement (such
contracts described in clauses (i) through (ix) of this Section 5.17 being
referred to collectively as the "Material Contracts"). With respect to each
Material Contract and except as disclosed in Section 5.17 of the Company
Disclosure Schedule: (A) the contract is in full force and effect; (B) neither
the Company nor any of its Subsidiaries is in default thereunder, other than
defaults which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect; (C) neither the Company nor any of its
Subsidiaries has repudiated or waived any material provision of any such
contract; and (D) no other party to any such contract is, to the knowledge of
the Company, in default in any respect, other than defaults which are not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect, or has repudiated or waived any material provision thereunder. The
Company has furnished or made available to Parent a true and correct copy of
each Material Contract.
5.18 Insurance.
Section 5.18 of the Company Disclosure Schedule sets forth a complete and
correct list of all material insurance policies owned or held by the Company and
each of its Subsidiaries. With respect to each such insurance policy: (i) the
policy is legal, valid and binding and enforceable in accordance with its terms
and, except for policies that have expired under their terms in the ordinary
course, is in full force and effect, (ii) all premiums due thereon have been
paid in full, (iii) neither the Company nor any of its Subsidiaries is in
material breach or default under the policy, (iv) neither the Company nor any of
its Subsidiaries has taken any action or failed to take any action which would
permit the termination or modification of the policy, (v) except as set forth in
Section 5.18 of the Company Disclosure Schedule, no insurer under the policy has
cancelled or generally disclaimed liability under any such policy or indicated
any intent to do so or not renew the policy, (vi) all material claims under the
policy have been filed in a timely fashion, and (vii) a true and correct copy of
the policy has been delivered to Parent.
5.19 Certain Business Practices.
None of the Company, any of its Subsidiaries or any directors or officers,
agents or employees of the Company or any such Subsidiary, has (i) used any
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses related to political activity; (ii) made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended; (iii) made any payment in the nature of
criminal bribery; or (iv) made any payment or received any payment for the
purposes of inducing purchases/sales in violation of the Social Security Act
sect. 1128 (b)(3), the "Federal Anti-kickback Statute," or any similar federal,
state or local Law.
20
5.20 Healthcare Information Laws.
The Company and its Subsidiaries are in material compliance with all
applicable Healthcare Information Laws. Each of the Company, and its
Subsidiaries (i) has undertaken all necessary surveys, audits, inventories,
reviews, analyses, or assessments (including any necessary risk assessments) on
all areas required for compliance under all Healthcare Information Laws, (ii)
has been in compliance with such Healthcare Information Laws since the
applicable compliance date of any such Law, (iii) has developed a plan for
maintaining compliance with all Healthcare Information Laws (the "Company
Compliance Plan") and (iii) has implemented those provisions of the Company
Compliance Plan to ensure that such entity is and will remain in compliance with
all Healthcare Information Laws. For purposes of this Agreement, the term
"Healthcare Information Laws" means any and all federal and state Laws relating
to patient or individual healthcare information, including the Administrative
Simplification requirements of the Health Insurance Portability and
Accountability Act of 1996, Pub. L. No. 104-191, as amended, and any rules or
regulations promulgated thereunder.
5.21 Opinion of Financial Advisors.
The Company has received the opinions of each of The Blackstone Group L.P.
and Goldman, Sachs & Co., each dated the date of this Agreement, to the effect
that, as of the date of this Agreement and based upon and subject to the factors
and assumptions set forth therein, the Per Share Merger Consideration is fair,
from a financial point of view, to the Company's stockholders.
5.22 Brokers.
No broker, finder or investment banker (other than The Blackstone Group
L.P. and Goldman, Sachs & Co.) is entitled to any brokerage, finder's or other
fee or commission in connection with the Transactions based upon arrangements
made by or on behalf of the Company or its Subsidiaries. The Company has
heretofore furnished to Parent a complete and correct copy of all agreements
between the Company and each of The Blackstone Group L.P. or Goldman, Sachs &
Co. pursuant to which such firms would be entitled to any payment or indemnity
relating to the Transactions.
5.23 HIS Sale.
(a) Except as specifically set forth in the Information Documents,
following consummation of the transactions contemplated by the Information
Documents, the Company will not have, or become obligated for, any liabilities
(whether accrued, contingent, absolute, known, unknown or otherwise) arising out
of or relating to the Information Management Business or the Information
Restructuring.
(b) Except for assets that are to be used to provide the services
contemplated by the Transition Services Agreement (as defined below), following
consummation of the transactions contemplated by the Information Documents, the
Company and its Subsidiaries shall own, free and clear of all Liens other than
Permitted Liens, or have the right to use from third parties, on the same terms
in effect prior to such consummation, all material assets and properties
currently used in, or necessary to, the operation of the Company's network
services and systems business.
5.24 Note Indenture.
The Company is not currently in default under or in violation of and, to
the Knowledge of the Company, no event, fact or circumstance exists that would,
with the giving of notice, the passage of time or both, cause a default under
the Indenture between the Company and Regions Bank, as Trustee, dated as of
November 26, 2002 (the "Note Indenture") or any of the 10 1/2% Senior
Subordinated Notes due 2012 (the "Senior Subordinated Notes") issued pursuant to
the Note Indenture, and the consummation of the Information Restructuring will
not constitute a violation of, cause a default under, or cause the occurrence of
an event that with the giving of notice, the passage of time or both would cause
a default under the Note Indenture or any of the Senior Subordinated Notes.
21
5.25 Statements True and Correct.
(a) No statement, certificate, instrument, or other writing furnished or to
be furnished by the Company to Parent pursuant to this Agreement or any other
document, agreement, or instrument referred to herein contains or will contain
any untrue statement of material fact or will omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(b) None of the information supplied or to be supplied by the Company for
inclusion in the Registration Statement to be filed by Parent with the SEC will,
(i) at the time the Registration Statement is filed with the SEC, (ii) at any
time it is amended or supplemented or (iii) at any time when the Registration
Statement becomes effective under the Securities Act, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
to make the statements therein not misleading.
(c) None of the information supplied or to be supplied by the Company for
inclusion in the Joint Proxy Statement/Prospectus to be mailed to the Company's
and Parent's stockholders in connection with the Stockholders' Meetings, the
Notes Tender Offer Documents, and any other documents to be filed by the Company
with the SEC or any other Governmental Authority in connection with the
Transactions, will, at the respective time such documents are filed, and with
respect to the Joint Proxy Statement/Prospectus, when first mailed to the
stockholders of the Company and stockholders of Parent, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or, in the case of the Joint Proxy
Statement/Prospectus or any amendment thereof or supplement thereto, at the time
of the Stockholders' Meetings, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Stockholders' Meetings.
(d) All documents that the Company is responsible for filing with any
Governmental Authority in connection with the Transactions will comply in all
material respects with the provisions of applicable Law.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
As an inducement to the Company to enter into this Agreement, Parent and
Purchaser hereby, jointly and severally, represent and warrant to the Company as
follows:
6.1 Organization and Qualification; Subsidiaries.
(a) Each of Parent and Purchaser is a corporation duly formed, validly
existing and in good standing under the laws of the jurisdiction of its
formation and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted. Each of Parent and the Purchaser is
duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified or licensed
and in good standing that would not be reasonably likely to have a Material
Adverse Effect.
(b) Parent or one of its Subsidiaries owns all of the issued and
outstanding shares of capital stock (or other equity interests) of each
Subsidiary set forth in Section 6.1(b) of Parent Disclosure Schedule (the
"Parent Disclosure Schedule"), which has been prepared by Parent and delivered
by Parent to the Company prior to the execution and delivery of this Agreement.
Except as disclosed in Section 6.1(b) of the Parent Disclosure Schedule, Parent
does not directly or indirectly own any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for any equity or
similar interest in, any corporation, limited liability company, partnership,
joint venture or other business association or entity.
22
6.2 Certificate of Incorporation and Bylaws.
Parent has heretofore furnished to the Company a complete and correct copy
of the Certificate of Incorporation and the Bylaws, each as amended to date, of
Parent and Purchaser. Such Certificates of Incorporation and Bylaws are in full
force and effect.
6.3 Capitalization.
The authorized capital stock of Parent consists of (i) 200,000,000 shares
of Parent Common Stock, (ii) 600,000 shares of non-voting common stock, par
value $.01 per share ("Parent Non-Voting Common Stock"), and (iii) 20,000,000
shares of preferred stock, no par value ("Parent Preferred Stock"). As of July
29, 2005, 32,943,419 shares of Parent Common Stock were issued and outstanding,
all of which are validly issued, fully paid and nonassessable As of the date of
this Agreement, no shares of Parent Non-Voting Common Stock or Parent Preferred
Stock are issued and outstanding.
6.4 Authority Relative to the Transactions.
Each of Parent and Purchaser has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the Transactions. The execution and delivery by each
of Parent and Purchaser of this Agreement and the consummation by each of Parent
and Purchaser of the Transactions have been duly and validly authorized by all
necessary corporate action, and no other corporate proceedings on the part of
Parent or Purchaser are necessary to authorize this Agreement or to consummate
the Transactions (other than, with respect to the issuance of Parent Common
Stock pursuant to this Agreement, the approval of such issuance by the holders
of a majority of the then outstanding shares of Parent Common Stock cast, in
person or by proxy, on such proposal ("Parent Stockholder Approval"), and the
filing and recordation of appropriate merger documents as required by the DGCL).
This Agreement has been duly and validly executed and delivered by each of
Parent and Purchaser and, assuming the due authorization, execution and delivery
by the other parties thereto, constitutes the legal, valid and binding
obligation of each of Parent and Purchaser, enforceable against each of Parent
and Purchaser in accordance with its terms (except in all cases as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought). The Board of Directors of Parent, at a meeting duly called and
held, has (i) determined that the Transactions contemplated hereby, are fair to,
and in the best interests of, the holders of Parent Common Stock, (ii) approved,
adopted and declared advisable this Agreement and the Transactions (such
approval and adoption having been made in accordance with the DGCL, including,
without limitation, Section 203 thereof) and (iii) resolved to recommend that
the holders of Parent Common Stock approve the issuance of Parent Common Stock
pursuant to this Agreement. To the knowledge of each of Parent and Purchaser, no
state takeover statute (other than Section 203(a) of the DGCL) is applicable to
the Merger or the other Transactions.
6.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery by each of Parent and Purchaser of this
Agreement do not, and the performance by each of Parent and Purchaser of this
Agreement will not, (i) conflict with or violate the Certificate of
Incorporation or Bylaws of Parent or Purchaser, (ii) assuming that all consents,
approvals, authorizations and other actions described in Section 6.5(b) have
been obtained or taken and all filings and obligations described in Section
6.5(b) have been made or fulfilled, conflict with or violate any Law applicable
to Parent or any of its Subsidiaries or by which any property or asset of Parent
or any such Subsidiary is bound or affected, or (iii) except as set forth in
Section 6.5(a) of the Parent Disclosure Schedule, result in any breach of or
constitute a default (or an event which, with notice or lapse of time or both,
would become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or other encumbrance on any property or asset of Parent or Purchaser pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease,
23
license, permit, franchise or other instrument or obligation, except, with
respect to clause (iii), for any such conflicts, violations, breaches, defaults
or other occurrences which would not, individually or in the aggregate, be
reasonably likely to have a Material Adverse Effect.
(b) Except as set forth in Section 6.5(b) of the Parent Disclosure
Schedule, the execution and delivery by each of Parent and Purchaser of this
Agreement do not, and the performance by each of Parent and Purchaser of this
Agreement will not, require any consent, approval, authorization or permit of,
or filing with or notification to, a Governmental Authority, except for (i) the
pre-merger notification requirements of the HSR Act, (ii) any applicable
requirements of the Exchange Act, the rules of the Nasdaq and state takeover
Laws, (iii) the filing and recordation of appropriate merger documents as
required by the DGCL and (iv) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect.
6.6 Permits; Compliance.
(a) Each of Parent and Parent's Subsidiaries is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exceptions, consents, certificates, approvals and orders of any Governmental
Authority, in each case that are material to Parent and its Subsidiaries, taken
as a whole, for each of Parent and its Subsidiaries to own, lease and operate
its properties or to carry on its business as it is now being conducted (the
"Parent Permits"). No suspension or cancellation of any of the Parent Permits is
pending or, to the knowledge of Parent, threatened.
(b) Each of Parent and its Subsidiaries is in compliance with (i) all Laws
applicable to each of Parent and its Subsidiaries or by which any property or
asset of Parent or such Subsidiary is bound or affected, and (ii) all notes,
bonds, mortgages, indentures, contracts, agreements, leases, licenses, Parent
Permits, franchises or other instruments or obligations to which Parent or such
Subsidiary is a party or by which Parent or such Subsidiary or any property or
asset of Parent or such Subsidiary is bound, in each case, other than
noncompliance which would not, individually or in the aggregate, be reasonably
likely to have a Material Adverse Effect. Except as set forth in Section 6.6(b)
of the Parent Disclosure Schedule, there are no proceedings, inquiries or
investigations pending before any Governmental Authority or, to Parent's
knowledge, threatened by any Governmental Authority with respect to Parent or
any of its Subsidiaries, other than any such proceedings, inquiries or
investigations which would not, individually or in the aggregate, be reasonably
likely to have a Material Adverse Effect.
(c) Except as set forth on Schedule 6.6(c), to the knowledge of Parent,
neither Parent, its Subsidiaries, nor any of their respective officers,
directors, employees or agents have been, since May 31, 2002, or is currently
being investigated, charged or implicated in any violation of Laws relating to
Medicare, Medicaid, Tricare, or any other state or federally sponsored or funded
health care program. Neither Parent, its Subsidiaries, nor any of their
respective officers, directors, employees, independent contractors or agents
have engaged in any activities which may serve as grounds for any material
penalties of any kind under Title 11, Title 18 or Title 19 of the Social
Security Act, the False Claims Act (31 U.S.C. sec.3729 et seq.), the False
Statements Act (18 U.S.C. sec.1001), the Program Fraud Civil Penalties Act (31
U.S.C. sec.3801 et seq.), the Food, Drug and Cosmetic Act (21 U.S.C. sec.301 et
seq.) (all as amended or superseded), or the anti-fraud and abuse provisions of
the Health Insurance Portability and Accountability Act of 1996 (18 U.S.C.
sec.1347, 18 U.S.C. sec.669, 18 U.S.C. sec.1035, 18 U.S.C. sec.1518) or any
fraud and abuse, false claims and anti-self referral statutes and regulations in
each state or other jurisdiction where Parent or its Subsidiaries have
operations or any related regulations or other federal or state Laws.
6.7 SEC Filings; Financial Statements; Undisclosed Liabilities.
(a) Parent has filed or furnished, as the case may be, all SEC Documents
required to be filed or furnished by it with the SEC since May 31, 2002
(collectively, the "Parent SEC Reports"). The Parent SEC Reports (i) were
prepared in accordance with either the requirements of the Securities Act or the
24
Exchange Act, as the case may be, and the rules and regulations promulgated
thereunder and (ii) did not, at the time they were filed, or, if amended or
supplemented, as of the date of such amendment or supplement, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. No
Subsidiary of Parent is required to file any form, report or other document with
the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any notes thereto), as restated to date, contained in the Parent SEC Reports, as
amended to date, complied at the time it was filed as to form in all material
respects with the applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto in effect at the time of filing and,
was prepared in accordance with GAAP applied on a consistent basis throughout
the periods indicated (except as may be indicated in the notes thereto or, in
the case of unaudited interim statements, the omission of footnotes and
otherwise as permitted by Form 10-Q of the SEC) and each fairly presents, in all
material respects, the consolidated financial position, results of operations
and cash flows of Parent and its consolidated Subsidiaries as at the respective
dates thereof and for the respective periods indicated therein, except as
otherwise noted therein.
(c) Neither Parent nor any of its Subsidiaries has any liability or
obligation of any nature (whether accrued, absolute, contingent or otherwise)
which would be required to be reflected, reserved for or disclosed in a
consolidated balance sheet of Parent and its consolidated Subsidiaries,
including the notes thereto, prepared as of the date of this Agreement in
accordance with GAAP, except (i) as reflected, reserved for or disclosed in the
consolidated balance sheet of Parent and the consolidated Subsidiaries as at
December 31, 2004, including the notes thereto (the "2004 Parent Balance Sheet")
or in the consolidated balance sheet of Parent and its consolidated Subsidiaries
as at June 30, 2005, including the notes thereto, (ii) as incurred in the
ordinary course of business consistent with past practice since December 31,
2004, (iii) as incurred pursuant to the Transactions, (iv) as would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, or (v) as set forth in Section 6.7(c) of the Parent Disclosure
Schedule.
(d) Except as set forth in Section 6.7(d) of the Parent Disclosure
Schedule, Parent maintains disclosure controls and procedures required by Rule
13a-15 or Rule 15d-15 under the Exchange Act; such controls and procedures are
effective to ensure that all material information concerning Parent and its
Subsidiaries is made known on a timely basis to the individuals responsible for
the preparation of Parent's SEC filings and other public disclosure documents.
(e) Except as set forth in Section 6.7(e) of the Parent Disclosure
Schedule, Parent and its Subsidiaries maintain accurate books and records
reflecting its assets and liabilities and maintain a system of internal
accounting controls which provide assurance that (i) transactions are executed
in accordance with management's authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management's authorization, (iv) the recorded
accountability for assets is compared with the existing assets at regular
intervals and appropriate action is taken with respect to any differences, and
(v) accounts, notes and other receivables and inventory are recorded accurately,
and proper and adequate procedures are implemented to effect the collection
thereof on a current and timely basis. Parent has made available to the Company
complete and correct copies of, all written descriptions of, and all policies,
manuals and other documents promulgating, such internal accounting controls.
(f) Section 6.7(f) of the Parent Disclosure Schedule lists, and Parent has
delivered to Company copies of, the documentation creating or governing, all
securitization transactions and "off-balance sheet arrangements" (as defined in
Item 303(a)(4) of Regulation S-K of the SEC) effected by Parent since December
31, 2002.
(g) Ernst & Young LLP, which has expressed its opinion with respect to the
financial statements of Parent and its Subsidiaries included in the Parent SEC
Reports (including related notes), is and has been
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throughout the periods covered by such financial statements (i) a registered
public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley
Act), (ii) "independent" with respect to Parent within the meaning of Regulation
S-X, and (iii) with respect to Parent, in compliance with subsections (g)
through (l) of Section 10A of the Exchange Act and the related Rules of the SEC
and the Public Company Accounting Oversight Board. Section 6.7(g) of the Company
Disclosure Schedule lists all non-audit services performed by Ernst & Young LLP
for Parent and its Subsidiaries since December 31, 2004.
(h) The Chief Executive Officer and the Chief Financial Officer of Parent
have signed, and Parent has furnished to the SEC, all certifications required by
Sections 302 and 906 of the Sarbanes-Oxley Act, and the rules and regulations of
the SEC promulgated thereunder with respect to Parent's filings pursuant to the
Exchange Act. Such certifications contain no qualifications or exceptions to the
matters certified therein and have not been modified or withdrawn. Neither
Parent nor any of its officers has received notice from any Governmental
Authority questioning or challenging the accuracy, completeness, form or manner
of filing or submission of such certifications. Parent has provided to the
Company complete and correct copies of all certifications filed with the SEC
pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act and hereby reaffirms,
represents and warrants to Parent the matters and statements made in such
certificates.
(i) Except as permitted by the Exchange Act, neither Parent nor any of its
Subsidiaries (i) has, since December 31, 2002, extended or maintained credit,
arranged for the extension of credit, or renewed, or (ii) permits to remain
outstanding, an extension of credit, in the form of a personal loan to or for
any director or executive officer (or equivalent thereof) of Parent.
(j) Parent is, or will timely be in all material respects, in compliance
with all listing and corporate governance requirements of the Nasdaq, and is in
compliance in all material respects with all rules, regulations, and
requirements of the Sarbanes-Oxley Act and the SEC.
6.8 Absence of Certain Changes or Events.
Since June 30, 2005, except as set forth in Section 6.8 of the Parent
Disclosure Schedule, or as expressly contemplated by this Agreement, (a) there
has not been any Material Adverse Effect with respect to Parent and its
Subsidiaries, taken as a whole, and (b) none of Parent or any of its
Subsidiaries has taken any action that, if taken after the date of this
Agreement, would constitute a material breach of any of the covenants set forth
in Section 7.3.
6.9 Litigation.
Except as set forth in Section 6.9 of the Parent Disclosure Schedule, there
is no Action pending or, to the knowledge of Parent, threatened against Parent
or any of its Subsidiaries, before any Governmental Authority, that would
reasonably be expected (i) to have a Material Adverse Effect on Parent or any of
its Subsidiaries or (ii) to prevent or materially delay the consummation of the
Transactions.
6.10 Employee Benefit Plans.
(a) Section 6.10(a) of the Parent Disclosure Schedule lists all employee
benefit plans (as defined in Section 3(3) of ERISA) (whether or not such plans
are subject to ERISA) and all bonus, stock option, stock purchase, restricted
stock, incentive, deferred compensation, retiree medical or life insurance,
supplemental retirement, severance or other benefit plans, programs or
arrangements, including each plan, program, arrangement or scheme maintained or
required to be maintained under the Laws of a jurisdiction outside the United
States of America, and all employment, retention, termination, severance or
other contracts or agreements, whether legally enforceable or not, to which
Parent or any of its Subsidiaries is a party, with respect to which Parent or
any of its Subsidiaries has any obligation or which are maintained, contributed
to or sponsored by Parent or any of its Subsidiaries for the benefit of any
current or former employee, officer or director of Parent or any of its
Subsidiaries (collectively, the "Parent Plans"). For each Parent Plan, Parent
has furnished or made available to the Company a true and complete copy of each
Parent Plan document (including all amendments thereto) and where such Parent
Plan is unwritten,
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a written description of the material terms thereof, and has delivered or made
available to the Company a true and complete copy of the following: (i) each
trust or other funding arrangement prepared in connection with a Parent Plan,
(ii) each summary plan description and summary of material modifications (or a
description of any material oral communications) provided by Parent or any of
its Subsidiaries to any current or former employees, officers, directors, or
other beneficiaries or their dependents or spouses of Parent or any of its
Subsidiaries concerning the extent of the benefits provided under each Parent
Plan, (iii) the most recently filed IRS Forms 5500 for each Parent Plan required
to file such report, (iv) the most recently received IRS determination letter
for each Parent Plan that has received such IRS determination letter, (v) the
three most recently prepared actuarial reports or financial statements in
connection with each Parent Plan for which an actuarial report or financial
statement has been prepared (whether or not required) and (vi) nondiscrimination
and coverage testing data and results for the three most recent years in
connection with each Parent Plan that is intended to be qualified under Section
401(a) of the Code. Except as disclosed in Section 6.10(a) of the Parent
Disclosure Schedule, neither Parent nor any of its Subsidiaries has any express
or implied commitment, whether legally enforceable or not, (i) to create, incur
liability with respect to or cause to exist any other employee benefit plan,
program or arrangement, (ii) to enter into any contract or agreement to provide
compensation or benefits to any individual, or (iii) to modify, change or
terminate any Parent Plan, other than with respect to a modification, change or
termination required by this Agreement, the Transactions or ERISA or the Code or
to otherwise comply with applicable Law.
(b) Except as disclosed in Section 6.10(b) of the Parent Disclosure
Schedule, neither Parent nor any of its Subsidiaries (including any entity that
during the past six years was a Subsidiary of Parent) nor any ERISA Affiliate of
Parent or any of its Subsidiaries has now or at any time contributed to,
sponsored, or maintained (i) a pension plan (within the meaning of Section 3(2)
of ERISA) subject to Section 412 of the Code or Title IV of ERISA, (ii) a
Multiemployer Plan, or (iii) a Multiple Employer Plan. Except as disclosed in
Section 6.10(b) of the Parent Disclosure Schedule, no Parent Plan exists that
(A) provides for the payment of separation, severance, termination or
similar-type benefits to any Person, (B) obligates Parent or any of its
Subsidiaries to pay separation, severance, termination or similar-type benefits
solely or partially as a result of any Transaction, or (C) could result in the
payment to any present or former employee, director or consultant of Parent or
any of its Subsidiaries of any money or other property or accelerate or provide
any other rights or benefits to any current or former employee of Parent or any
of its Subsidiaries as a result of the consummation of the Transactions (whether
alone or in connection with any subsequent event). Except as disclosed in
Section 6.10(b) of the Parent Disclosure Schedule, there is no contract, plan or
arrangement (written or otherwise) covering any current or former employee of
Parent or any of its Subsidiaries that, individually or collectively, could give
rise to the payment of any amount that would not be deductible pursuant to the
terms of Section 280G of the Code. Except to the extent required under ERISA
Section 601 et. seq. and Code Section 4980B, none of the Parent Plans provides
for or promises retiree medical, retiree disability or retiree life insurance
benefits to any current or former employee, director or consultant of Parent or
any of its Subsidiaries. Except as disclosed in Section 6.10(b) of the Parent
Disclosure Schedule, each of the Parent Plans is subject only to the Laws of the
United States or a political subdivision thereof. Except as disclosed in Section
6.10(b) of the Parent Disclosure Schedule, none of the Parent Plans nor any
plan, program, arrangement, contract or agreement previously contributed to,
sponsored or maintained by Parent or its Subsidiaries during the past six years
(including any entity that during the past six years was a Subsidiary of Parent)
that would be a "plan" as described in Section 6.10(a) if currently in effect
("Prior Parent Plan") is or was a "multiple employer welfare arrangement" (as
defined in Section 3(40) of ERISA).
(c) Except as disclosed in Section 6.10(c) of the Parent Disclosure
Schedule, each Parent Plan is now and always has been, and each Prior Parent
Plan always was, operated in all material respects in accordance with its terms
and the requirements of all applicable Laws including, without limitation, ERISA
and the Code. Except as disclosed in Section 6.10(c) of the Parent Disclosure
Schedule, Parent and its Subsidiaries have performed all obligations required to
be performed by them under, are not in any respect in default under or in
violation of, and have no knowledge of any default or violation by any party to,
any Parent Plan or Prior Parent Plan. No Action is pending or, to the knowledge
of Parent, threatened
27
with respect to any Parent Plan or Prior Parent Plan (other than routine claims
for benefits in the ordinary course) and except as disclosed in Section 6.10(c)
of the Parent Disclosure Schedule, no fact or event exists that could reasonably
be expected to give rise to any such Action. Except as disclosed in Section
6.10(c) of the Parent Disclosure Schedule, to the knowledge of Parent, no
"qualification failure" (within the meaning of Rev. Proc. 2003-44) exists with
respect to any Parent Plan that is intended to be qualified under Section 401(a)
of the Code.
(d) Each Parent Plan that is intended to be qualified under Section 401(a)
of the Code has timely received a favorable determination letter from the IRS
covering all of the provisions applicable to the Parent Plan for which
determination letters are currently available that the Parent Plan is so
qualified and each trust established in connection with any Parent Plan which is
intended to be exempt from federal income taxation under Section 501(a) of the
Code is so exempt, and no fact or event exists that could reasonably be expected
to result in the revocation of such exemption.
(e) To the knowledge of Parent, there has not been any non-exempt
prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code) with respect to any Parent Plan or Prior Plan.
(f) Except as set forth in Section 5.10(f) of the Parent Disclosure
Schedule, all contributions, premiums or payments required to be made with
respect to any Parent Plan have been made on or before their due dates. All such
contributions have been fully deducted for income tax purposes and no such
deduction has been challenged or disallowed by any Governmental Authority and,
to the knowledge of Parent, no fact or event exists which could reasonably be
expected to give rise to any such challenge or disallowance. The assets of each
Parent Plan that has assets are reported at their fair market value on the
financial statements of each such Parent Plan.
(g) In addition to the foregoing, with respect to each Parent Plan listed
in Section 6.10(a) of the Parent Disclosure Schedule that is a Non-U.S. Benefit
Plan, which Parent Plans are so identified on Section 6.10(g) of the Parent
Disclosure Schedule:
(i) all employer and employee contributions to each Non-U.S. Benefit
Plan required by Law or by the terms of such Non-U.S. Benefit Plan have
been made, or, if applicable, accrued in accordance with normal accounting
practices;
(ii) the fair market value of the assets of each funded Non-U.S.
Benefit Plan, the liability of each insurer for any Non-U.S. Benefit Plan
funded through insurance or the book reserve established for any Non-U.S.
Benefit Plan, together with any accrued contributions, is sufficient to
procure or provide for the benefits determined as if such plan is
maintained on any ongoing basis (actual or contingent) accrued to the date
of this Agreement with respect to all current and former participants under
such Non-U.S. Benefit Plan according to the actuarial assumptions and
valuations most recently used to determine employer contributions to such
Non-U.S. Benefit Plan, and none of the Transactions shall cause such assets
or insurance obligations to be less than such benefit obligations;
(iii) each Non-U.S. Benefit Plan maintained by Parent or any of its
Subsidiaries required to be registered or approved has been registered or
approved and has been maintained in good standing with applicable
regulatory authorities. Each Non-U.S. Benefit Plan is now and always has
been operated in material compliance with all applicable non-United States
Laws; and
(iv) each Non-U.S. Benefit Plan which is contributed to, sponsored or
maintained by Parent or any of its Subsidiaries for the benefit of the
employees in the United Kingdom provides only defined contribution benefits
which are dependent on investment performance and does not require
specified minimum guaranteed benefits to be paid.
6.11 Taxes.
(a) Parent and its Subsidiaries have paid all Taxes due and owing and have
filed all Tax Returns that they were required to file and all such Tax Returns
were correct and complete in all material respects.
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Neither Parent nor any of its Subsidiaries currently is the beneficiary of any
extension of time within which to file any Tax Return. There are no liens for
Taxes (other than Taxes not yet due and payable) upon any of the assets of
Parent or any of its Subsidiaries.
(b) Except as set forth in Section 6.11(b) of the Parent Disclosure
Schedule there is no dispute or claim pending or, to the knowledge of Parent,
threatened concerning any Tax liability of Parent or any of its Subsidiaries.
(c) Except as set forth in Section 6.11(c) of the Parent Disclosure
Schedule, neither Parent nor any of its Subsidiaries has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(d) Except as set forth in Section 6.11(d) of the Parent Disclosure
Schedule, neither Parent nor any of its Subsidiaries (i) has filed a consent
under Section 341(f) of the Code concerning collapsible corporations; (ii) is a
party to any agreement, contract, arrangement or plan that has resulted or would
result, separately or in the aggregate, in any payment that would not be
deductible pursuant to Code Section 162(m) or any "excess parachute payment"
within the meaning of Code Section 280G (or any corresponding provision of
state, local or foreign Tax Law); (iii) has been a United States real property
holding corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii); (iv) is a party to
or bound by any tax allocation or sharing agreement; (v) has been a member of an
affiliated group filing a consolidated federal income Tax return (other than a
group the common parent of which was Parent) or has any liability for the Taxes
of any Person other than Parent or any of its Subsidiaries under Reg.
sec. 1.1502-6 (or any similar provision of state, local or foreign Tax Law), as
a transferee or successor, by contract, or otherwise; (vi) has distributed stock
of another corporation or has had its stock distributed in a transaction that
was purported or intended to be governed in whole or in part by Code Section 355
or Code Section 361; or (vii) has participated in any reportable transaction
within the meaning of Code Section 6707A(c)(1).
(e) Except as set forth in Section 6.11(e) of the Parent Disclosure
Schedule, neither Parent nor any of its Subsidiaries will be required to include
any item of income in, or exclude any item of deduction from, taxable income for
any taxable period (or portion thereof) ending after the Effective Time as a
result of any (i) change in method of accounting for a taxable period ending on
or prior to the Effective Time; (ii) closing agreement as described in Code
Section 7121 (or any corresponding or similar provision of state, local or
foreign Tax Law) executed on or prior to the Effective Time; (iii) intercompany
transactions or any excess loss account described in Treasury regulations under
Code Section 1502 (or any corresponding or similar provision of state, local or
foreign Tax Law); (iv) installment sale or open transaction disposition made on
or prior to the Effective Time; or (v) prepaid amount received on or prior to
the Effective Time.
(f) The accruals and reserves for Taxes reflected in the 2004 Parent
Balance Sheet are adequate to satisfy all Taxes accruable through such date in
accordance with GAAP.
6.12 Parent Rights Agreement.
Parent has taken all necessary action so that none of the execution or
delivery of this Agreement, the consummation of the Merger or the consummation
of any other Transactions will result in any person becoming able to exercise
any rights under the Rights Agreement, dated as of February 11, 1999, as
amended, between Parent and American Stock Transfer & Trust Company, as rights
agent, (the "Parent Rights Agreement"), or enabling or requiring the associated
rights to purchase shares of Parent's Series A Junior Participating Preferred
Stock (the "Parent Rights") to be separated from the shares of the Parent Common
Stock to which they are attached or to be triggered or to be exercisable.
6.13 Material Contracts.
Other than any contract or amendment thereto filed as an exhibit to any
Parent SEC Report and except as disclosed in Section 6.13 of the Parent
Disclosure Schedule or otherwise reflected in Parent's
29
financial statements, neither Parent nor any of its Subsidiaries, nor any of
their respective assets, businesses, or operations, is a party to, or is bound
or affected by, or receives benefits under, (i) any employment, severance,
termination, consulting, or retirement contract providing for aggregate payments
to any Person in any calendar year in excess of $500,000, (ii) any material
contract relating to the borrowing of money by Parent or any of its Subsidiaries
or the guarantee by Parent or any such Subsidiary of any such obligation (other
than contracts evidencing trade payables) and (iii) any contract which prohibits
or restricts, in any material respect, Parent or any of its Subsidiaries from
engaging in any business activities in any geographic area, line of business or
otherwise in competition with any other Person. With respect to each such
contract and except as disclosed in Section 6.13 of the Parent Disclosure
Schedule: (A) the contract is in full force and effect; (B) neither Parent nor
any of its Subsidiaries is in default thereunder, other than defaults which are
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect; (C) neither Parent nor any of its Subsidiaries has repudiated or
waived any material provision of any such contract; and (D) no other party to
any such contract is, to the knowledge of Parent, in default in any respect,
other than defaults which are not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect, or has repudiated or waived any
material provision thereunder.
6.14 Certain Business Practices.
None of Parent, any of its Subsidiaries or any directors or officers,
agents or employees of Parent or any such Subsidiary, has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful expenses related
to political activity; (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns or violated any provision of the Foreign Corrupt Practices Act of
1977, as amended; (iii) made any payment in the nature of criminal bribery; or
(iv) made any payment or received any payment for the purposes of inducing
purchases/sales in violation of the Social Security Act sect. 1128 (b)(3), the
"Federal Anti-kickback Statute", or any similar federal, state or local Law.
6.15 Healthcare Information Laws.
Parent and its Subsidiaries are in material compliance with all applicable
Healthcare Information Laws. Each of Parent, and its Subsidiaries (i) has
undertaken all necessary surveys, audits, inventories, reviews, analyses, or
assessments (including any necessary risk assessments) on all areas required for
compliance under all Healthcare Information Laws, (ii) has been in compliance
with such Healthcare Information Laws since the applicable compliance date of
any such Laws, (iii) has developed a plan for maintaining compliance with all
Healthcare Information Laws (the "Parent Compliance Plan") and (iii) has
implemented those provisions of the Parent Compliance Plan to ensure that such
entity is and will remain in compliance with all Healthcare Information Laws.
6.16 Statements True and Correct.
(a) No statement, certificate, instrument, or other writing furnished or to
be furnished by Parent to the Company pursuant to this Agreement or any other
document, agreement, or instrument referred to herein contains or will contain
any untrue statement of material fact or will omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(b) None of the information supplied or to be supplied by Parent for
inclusion in the Registration Statement to be filed by Parent with the SEC will,
(i) at the time the Registration Statement is filed with the SEC, (ii) at any
time it is amended or supplemented or (iii) at any time when the Registration
Statement becomes effective under the Securities Act, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
to make the statements therein not misleading.
(c) None of the information supplied or to be supplied by Parent for
inclusion in the Joint Proxy Statement/Prospectus to be mailed to the Company's
and Parent's stockholders in connection with the Stockholders' Meetings, the
Notes Tender Offer Documents and any other documents to be filed by
30
Parent with the SEC or any other Governmental Authority in connection with the
Transactions will, at the respective time such documents are filed, and with
respect to the Joint Proxy Statement/Prospectus, when first mailed to the
stockholders of the Company and stockholders of Parent, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or, in the case of the Joint Proxy
Statement/Prospectus or any amendment thereof or supplement thereto, at the time
of the Stockholders' Meetings, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Stockholders' Meetings.
(d) All documents that Parent is responsible for filing with any
Governmental Authority in connection with the Transactions will comply in all
material respects with the provisions of applicable Law.
6.17 Financing.
Parent has received the commitment letter attached to the Parent Disclosure
Schedule. The funds proposed to be made available thereunder, together with
Parent's available cash and the proceeds from the Information Sale, will be
sufficient to permit Parent and Purchaser to consummate all the Transactions,
including, without limitation, the Merger.
6.18 Stock Ownership.
Neither Parent nor Purchaser is, nor at any time during the last three
years has been, an "interested stockholder" of the Company, as defined by
Section 203 of the DGCL.
6.19 Brokers.
No broker, finder or investment banker (other than Banc of America
Securities LLC) is entitled to any brokerage, finder's or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of Parent or Purchaser.
ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 Covenants of the Company.
The Company agrees that, between the date of this Agreement and the
Effective Time, except as expressly contemplated by this Agreement or as set
forth in Section 7.1 of the Company Disclosure Schedule, unless Parent shall
otherwise consent in writing:
(a) the businesses of the Company and its Subsidiaries shall be
conducted only in, and the Company and its Subsidiaries shall not take any
action except in, the ordinary course of business and in a manner
consistent with past practice and, to the extent consistent therewith, the
Company will use commercially reasonable efforts to preserve intact its
current business organization, keep available the services of its current
officers and employees and preserve its relationships with its customers,
suppliers, licensors, licensees, distributors, resellers and others having
business dealings with the Company or any of its Subsidiaries; and
(b) neither the Company nor any of its Subsidiaries shall, directly or
indirectly, do, or commit to do, any of the following:
(i) amend or otherwise change the Certificate of Incorporation or
Bylaws or equivalent organizational documents of the Company or any of
its Subsidiaries;
(ii) issue, sell, pledge, dispose of, grant or encumber, or
otherwise subject to any Lien, (A) any shares of any class of capital
stock of the Company or any of its Subsidiaries, or any
31
options, warrants, convertible securities or other rights of any kind to
acquire any shares of such capital stock, or any other ownership
interest, of the Company or any of its Subsidiaries (except for the
issuance of Company Common Stock issuable pursuant to Company Stock
Awards outstanding on the date of this Agreement and granted under
Company Stock Option Plans in effect on the date of this Agreement or
for Company Common Stock issuable upon the exercise of outstanding
Warrants) or (B) any assets of the Company or any of its Subsidiaries,
except in the ordinary course of business and in a manner consistent
with past practice;
(iii) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock;
(iv) reclassify, combine, split, subdivide or redeem, or purchase
or otherwise acquire, directly or indirectly, any of its capital stock
(except for such acquisitions permitted or otherwise contemplated by the
Plans in the ordinary course of business in a manner consistent with
past practice);
(v) (A) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets, investment or capital
contribution or any other business combination) any corporation,
partnership or other business organization; (B) incur any indebtedness
(other than draws under the Credit Facility in the ordinary course of
business consistent with past practice) or issue any debt securities or
assume, guarantee or endorse, or otherwise become responsible for, the
obligations of any person; (C) authorize, or make any commitment with
respect to, any capital expenditure other than in the ordinary course of
business consistent with past practice and in no event greater than
$7,500,000 in the aggregate in any fiscal quarter; or (D) enter into or
amend any contract, agreement, commitment or arrangement with respect to
any matter set forth in this Section 7.1(b)(v);
(vi) (A) increase the compensation payable or to become payable or
the benefits provided to its current or former officers, directors, or
employees or any of their beneficiaries or dependents, except for
increases in the ordinary course of business and consistent with past
practice, (B) establish, adopt, enter into, terminate or amend any Plan
except as required by this Agreement or the Transactions contemplated
hereby, or to satisfy the minimum requirements of ERISA, the Code or
other applicable Law, (C) loan or advance money or other property to any
current or former director or executive officer of the Company or any
other Person, or (D) grant any stock option or stock unit or any other
equity or equity based awards;
(vii) effectuate a "plant closing" or "mass layoff," as those terms
are defined in WARN (determined without regard to terminations of
employment occurring on or after the Effective Time);
(viii) change any accounting policies or procedures, other than
changes required to be taken in response to changes in GAAP or in Law;
(ix) make, revoke or change any material Tax election or material
method of Tax accounting, file any amended Tax Return (unless required
by Law), enter into any closing agreement relating to a material amount
of Taxes, settle or compromise any material liability with respect to
Taxes or consent to any material claim or assessment relating to Taxes
or any waiver of the statute of limitations for any such claim or
assessment;
(x) pay, discharge or satisfy any material claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than in the ordinary course of business and consistent
with past practice, unless such payment, discharge or satisfaction is
made in accordance in all material respects with the terms of such
claim, liability or obligation as such terms exist on the date of this
Agreement;
32
(xi) amend or modify in any material respect, or consent to the
termination of, any Material Contract, or amend, waive or modify in any
material respect, or consent to the termination of, the Company's or any
of its Subsidiaries' rights thereunder;
(xii) commence or settle any Action, other than the settlement of
Actions involving payments by the Company or its Subsidiaries not to
exceed, with respect to any individual Action, $500,000 (provided,
further, that the Company shall also consult in good faith with Parent
prior to the settlement of any individual Action for more than
$250,000); or
(xiii) enter into any contract or agreement with any current or
former director or officer of the Company or any of its Subsidiaries or
any of their respective affiliates (including any immediate family
member of such person) or any other Affiliate of the Company or any of
its Subsidiaries; and
(c) the Company shall continue to file, prosecute, and maintain all
material Intellectual Property of the Company and its Subsidiaries. The
Company shall provide Parent with timely notice of any material
developments in the prosecution and maintenance of the such Intellectual
Property. The Company will also provide timely notice to Parent if there is
a reasonable potential that such Intellectual Property may become lost or
lapsed, except for such lapses of unused Intellectual Property in the
ordinary course of business and consistent with past practice, or if the
Company or any of its Subsidiaries receives any written charge, complaint,
claim, demand or notice alleging any interference, infringement,
misappropriation or violation of the Intellectual Property rights of any
third party by the Company of any of its Subsidiaries.
7.2 No Control of Other Party's Business.
Nothing contained in this Agreement shall give Parent, directly or
indirectly, the right to control or direct the Company's or its Subsidiaries'
operations prior to the Effective Time, and nothing contained in this Agreement
shall give the Company, directly or indirectly, the right to control or direct
Parent's or its Subsidiaries operations prior to the Effective Time. Prior to
the Effective Time, each of the Company and Parent shall exercise, consistent
with the terms and conditions of this Agreement, complete control and
supervision over its Subsidiaries' respective operations.
7.3 Covenants of Parent.
Parent agrees that, between the date of this Agreement and the Effective
Time, except as expressly contemplated by this Agreement or as set forth in
Section 7.3 of the Parent Disclosure Schedule, unless the Company shall
otherwise consent in writing:
(a) the businesses of Parent and its Subsidiaries shall be conducted
only in, and Parent and its Subsidiaries shall not take any action except
in, the ordinary course of business and in a manner consistent with past
practice; and
(b) neither Parent nor any of its Subsidiaries shall, directly or
indirectly, do, or commit to do, any of the following:
(i) amend or otherwise change its Certificate of Incorporation or
Bylaws or equivalent organizational documents, in each case, in any
manner adverse to the holders of the Company Common Stock;
(ii) reclassify, combine, split, subdivide or redeem, or purchase
or otherwise acquire, directly or indirectly, any of its capital stock
(except for such acquisitions permitted or otherwise contemplated by the
Plans in the ordinary course of business in a manner consistent with
past practice);
(iii) declare, set aside, make or pay any dividend or other
distribution payable in cash or property, with respect to any of its
capital stock; or
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(iv) change any accounting policies or procedures, other than
changes required to be taken in response to changes in GAAP or in Law.
7.4 Adverse Changes in Condition.
Each Party agrees to give written notice promptly to the other Party upon
becoming aware of any fact, or of the occurrence or impending occurrence of any
event or circumstance, relating to it or any of its Subsidiaries which (a)
represents, or is reasonably likely to represent, either a material breach of
any representation, warranty, covenant or agreement of the other Party or which
has had or is reasonably likely to have a Material Adverse Effect or (b)
results, or is reasonably likely to result, in any of the conditions set forth
in ARTICLE 9 required to be satisfied by such Party not being satisfied. For
purposes of determining the satisfaction of the conditions to the consummation
of the Transactions contemplated by this Agreement, the fact that a Party has
given notice pursuant to this Section 7.4 shall not be considered.
7.5 Reports.
Each Party and its Subsidiaries shall file all reports required to be filed
by it with Governmental Authorities between the date of this Agreement and the
Closing and shall deliver to the other Party copies of all such material reports
promptly after the same are filed. If financial statements are contained in any
such reports filed with the SEC, such financial statements will fairly present
in all material respects the consolidated financial position of the entity
filing such statements as of the dates indicated and the consolidated results of
operations and cash flows for the periods then ended in accordance with GAAP
(subject in the case of interim financial statements to normal recurring
year-end adjustments that are not material). As of their respective dates, such
reports filed with the SEC will comply in all material respects with the
Securities Laws and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Any financial statements contained in any other
reports to another Governmental Authority shall be prepared in accordance with
Laws applicable to such reports.
7.6 Notes Tender Offer; Discharge of Note Indenture.
(a) Provided that this Agreement shall not have been terminated in
accordance with Section 10, at the request of Parent, the Company will commence
a tender offer or consent solicitation (collectively, the "Notes Tender Offer")
in respect of the Senior Subordinated Notes, as and at the time that Parent
shall request, with the cooperation of Parent. If commenced, the Notes Tender
Offer shall be in accordance with applicable Law and shall be solely on the
terms and conditions specified by Parent; provided, that the Notes Tender Offer
(and all obligations to make any payments to holders of all or any portion of
Senior Subordinated Notes in connection therewith or to modify the terms or
provisions of any Senior Subordinated Notes) shall be conditioned upon the
consummation of the Transactions, and shall terminate immediately upon the
termination of this Agreement prior to the consummation thereof. The Company
agrees to amend, supplement, consummate and/or terminate, as applicable, the
Notes Tender Offer upon, and only upon, the written consent of Parent. The
Company agrees to use its reasonable efforts to cooperate with Parent and,
subject to the preceding sentence and applicable Law, to use its reasonable best
efforts to consummate the Notes Tender Offer if so requested by Parent.
(b) If Parent elects to pursue the Notes Tender Offer, Parent shall
prepare, or cause to be prepared, an Offer to Purchase and Consent Solicitation
Statement in connection with the Notes Tender Offer in form and substance
reasonably satisfactory to the Company (as amended from time to time, the "Notes
Offer to Purchase"), together with related letters of transmittal and similar
ancillary agreements relating to the Notes Tender Offer (such documents,
together with all supplements and amendments thereto, being referred to herein
collectively as the "Notes Tender Offer Documents"). The Company shall provide
Parent with a list of the record holders of the Senior Subordinated Notes, and
to the extent known by the Company, the beneficial owners of the Senior
Subordinated Notes (collectively, the "Noteholders"). The Company shall provide
Parent with any information for inclusion in the
34
Notes Tender Offer Documents which may be required under applicable Law and
which is reasonably requested by Parent. If at any time prior to the acceptance
of Senior Subordinated Notes pursuant to the Notes Tender Offer, any event
should occur that is required by applicable Law, or otherwise determined by
Parent to be advisable, to be set forth in an amendment of, or a supplement to,
the Notes Tender Offer Documents, Parent will prepare and cause to be
disseminated such amendment or supplement; provided, however, that prior to such
dissemination, Parent shall consult with the Company with respect to such
amendment or supplement and shall afford the Company reasonable opportunity to
comment thereon.
(c) In the event the Notes Tender Offer is not commenced or otherwise
consummated other than for failure to consummate the Transactions, at the
request of Parent, immediately prior to the Effective Time, the Company will use
a portion of the proceeds from the Information Sale to provide for the
redemption of all of the Notes at the price set forth in the Notes Indenture and
the Senior Subordinated Notes in order to discharge and satisfy the entire
obligations under the Notes through the date of redemption in accordance with
Section 401 of the Indenture (the "Redemption").
(d) Parent shall pay for all expenses of the Company and, to the extent the
Company is responsible therefor, the Noteholders incurred in connection with the
Notes Tender Offer or the Redemption, as applicable.
ARTICLE 8
ADDITIONAL AGREEMENTS
8.1 Registration Statement; Joint Proxy Statement/Prospectus; Stockholder
Approval.
(a) As promptly as reasonably practicable after execution of this
Agreement, the Parties shall cooperate to promptly prepare, and Parent shall
file with the SEC, the Registration Statement, and Parent shall use its
reasonable efforts, and Parent and the Company shall each cooperate, to cause
the Registration Statement to become effective under the Securities Act, and
Parent shall take any action required to be taken under applicable state blue
sky Laws or the Securities Laws in connection with the issuance of the shares of
Parent Common Stock upon consummation of the Merger (other than qualifying to do
business in any jurisdiction in which it is not now so qualified or filing a
general consent to service of process). The Parties shall cooperate in the
preparation and filing of the Registration Statement and shall furnish all
information concerning it and the holders of its capital stock as Parent may
reasonably request in connection with such action. In connection with the Joint
Proxy Statement/Prospectus that is a part of the Registration Statement, the
Parties shall furnish to each other all information concerning them that each
may reasonably request in connection with such Joint Proxy Statement/Prospectus.
No filing of, or amendment or supplement to, the Registration Statement will be
made by Parent, and no filing of, or amendment or supplement to, the Joint Proxy
Statement/Prospectus shall be made by either Parent or the Company (including
the filing, furnishing, or mailing of additional solicitation material), in each
case without providing the other Party a reasonable opportunity to review and
comment thereon. As soon as practicable after the effectiveness of the
Registration Statement, each of Parent and the Company shall mail such Joint
Proxy Statement/Prospectus to its respective stockholders. The Parties shall
timely and properly make all necessary filings with respect to the Merger under
the Securities Laws. If at any time prior to the Effective Time, any information
relating to the Company or Parent or any of their respective Subsidiaries,
directors, officers or employees, or any information relating to the
Transactions or the Information Sale, is discovered by the Company or Parent
which should be set forth in an amendment or supplement to the Registration
Statement or the Joint Proxy Statement/Prospectus, so that either such document
would not include any misstatement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, the Party which
discovers such information shall promptly notify the other Parties hereto and an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by Law, disseminated to
the stockholders of the Company and Parent. Parent will advise the Company, as
promptly as reasonably practicable after Parent receives notice thereof,
35
of the time when the Registration Statement has become effective, of the
issuance of any stop order or the suspension of the qualification of Parent
Common Stock for offering or sale in any jurisdiction, of the initiation or
threat of any proceeding for any such purpose, or of the receipt of comments
from the SEC or its staff or of any request by the SEC for the amendment or
supplement of the Registration Statement or for additional information. Each
Party shall supply each other Party copies of (i) all correspondence between it
or any of its Representatives, on the one hand, and the SEC or its staff, on the
other, with respect to the Transactions, the Information Sale, the Registration
Statement or the Joint Proxy Statement/Prospectus and (ii) all orders of the SEC
relating to the Registration Statement.
(b) The Company shall, as promptly as reasonably practicable after the
execution of this Agreement, establish a record date for, duly call, give notice
of, convene and hold a Stockholders' Meeting (the "Company Stockholders'
Meeting"), to be held as promptly as practicable after the Registration
Statement has been declared effective by the SEC, solely for the purpose of
obtaining the Company Stockholder Approval and shall, subject to the provisions
of Section 8.2(c), through its Board of Directors, recommend to its stockholders
the adoption and approval of this Agreement and the Transactions contemplated
hereby, and shall use all commercially reasonable efforts to obtain Company
Stockholder Approval.
(c) Parent shall, as promptly as reasonably practicable after the execution
of this Agreement, establish a record date for, duly call, give notice of,
convene and hold a Stockholders' Meeting (the "Parent Stockholders' Meeting"),
to be held as soon as reasonably practicable after the Registration Statement
has been declared effective by the SEC, solely for the purpose of obtaining the
Parent Stockholder Approval and shall, subject to fiduciary duties under
applicable Law, through its Board of Directors, recommend to its stockholders
the approval of the issuance of Parent Common Stock pursuant to this Agreement,
and shall use all commercially reasonable efforts to obtain Parent Stockholder
Approval.
8.2 Other Offers, Etc.
(a) The Company agrees that neither it nor any of its Subsidiaries nor any
Representative of it or any such Subsidiary will, directly or indirectly, (i)
solicit, initiate or knowingly encourage (including by way of furnishing
nonpublic information), or take any other action designed to, or that could
reasonably be expected to, facilitate, any inquiries or the making of any
proposal or offer (including, without limitation, any proposal or offer to its
stockholders) for, or that could reasonably be expected to lead to, a Competing
Transaction (as defined below), or (ii) enter into or maintain or continue
discussions or negotiations with any Person for the intended purpose of
facilitating such inquiries or the making of such a proposal or offer, or (iii)
agree to, approve, endorse or recommend any Competing Transaction or enter into
any letter of intent or other contract, agreement or commitment providing for or
otherwise relating to any Competing Transaction (other than a confidentiality
agreement pursuant to the terms and conditions of Section 8.2(b)), or (iv)
authorize or permit any Representative of the Company or any of its Subsidiaries
to take any such action. The Company shall notify Parent as promptly as
practicable (and in any event within twenty-four (24) hours) after the Company
receives any bona fide oral or written proposal or offer for a Competing
Transaction, specifying the material terms and conditions thereof and the
identity of the party making such proposal or offer, and shall furnish to Parent
a copy of such proposal or offer (if it is in writing). The Company shall
thereafter keep Parent fully informed on a prompt basis of the status thereof,
including any modifications to the financial or other material terms of such
proposal or offer and shall provide to Parent as soon as practicable after
receipt or delivery thereof, copies of all correspondence and other written
communications received by the Company or any of its Subsidiaries from any
Person, or given by the Company or any of its Subsidiaries to any Person, that
relates to any such proposal or offer (which shall include correspondence and
other communications to or from the Information Buyer). The Company immediately
shall cease and cause to be terminated, and shall cause its Subsidiaries and its
and their respective Representatives to cease and cause to be terminated, all
discussions or negotiations (whether or not existing as of the date hereof) with
any Person conducted heretofore with respect to a Competing Transaction. Without
limiting the foregoing, it is agreed that any violation of the restrictions
36
set forth in this Section 8.2(a) by any Representative of the Company or its
Subsidiaries shall be a breach of this Section 8.2(a) by the Company.
Notwithstanding the aforementioned, nothing contained in this Section 8.2 shall
prohibit the Company and its Representatives from taking any action with respect
to the negotiation, execution and consummation of the Information Restructuring
in accordance with the terms of the Information Documents.
(b) Notwithstanding anything to the contrary in this Section 8.2, prior to
the time of obtaining the Company Stockholder Approval, the Company may furnish
non-public information to, and enter into discussions with, a Person who has
made an unsolicited, bona fide proposal or offer for a Competing Transaction, so
long as (A) neither the Company nor any of its Subsidiaries nor any of their
Representatives shall have breached any of the provisions of Section 8.2(a) with
respect to such unsolicited, bona fide proposal or offer and (B) (i) the Board
of Directors of the Company has determined, in its good faith judgment (after
consulting with its financial advisor), that such proposal or offer constitutes
or could reasonably be expected to lead to a Superior Proposal (as defined
below), (ii) the Board of Directors of the Company has determined, in its good
faith judgment after consulting with its outside legal counsel (who may be the
Company's regularly engaged outside legal counsel), that, in light of such
proposal or offer, the failure to furnish such information or to enter into
discussions with such Person would be inconsistent with its fiduciary duties
under applicable Law (taking into account the extent to which the Company
solicited, and participated in discussions and negotiations with respect to,
Competing Transactions prior to entering into this Agreement), (iii) the Company
has provided written notice to Parent at least two (2) business days prior to
taking any such action of its intent to furnish information or enter into
discussions with such Person, (iv) the Company has obtained from such Person an
executed confidentiality agreement (unless a confidentiality agreement already
exists) on terms no less favorable to the Company than those contained in the
Confidentiality Agreements (it being understood that such confidentiality
agreement and any related agreements shall not include any provision calling for
any exclusive right to negotiate with such Person or having the effect of
prohibiting the Company from satisfying its obligations under this Agreement or
the Information Documents), except that such confidentiality agreement may
permit such Person to share Evaluation Material (as defined in the
Confidentiality Agreements) with its Representatives and financing sources, and
(v) all information provided to such Person has been previously provided to
Parent or is provided to Parent prior to or concurrently with the time it is
provided to such Person making such offer or proposal.
(c) Except as set forth in this Section 8.2(c), neither the Board of
Directors of the Company nor any committee thereof shall withdraw, qualify or
modify, or propose publicly to withdraw, qualify or modify, in a manner adverse
to Parent, the approval by the Board of Directors of the Company or any such
committee of this Agreement or the Merger or the recommendation of the Board of
Directors of the Company to the Company stockholders that they give Company
Stockholder Approval (any of the foregoing being a "Change in the Company
Recommendation") or approve or recommend, or cause or permit the Company to
enter into any letter of intent or other contract, agreement or commitment with
respect to, any Competing Transaction (except for a confidentiality agreement as
contemplated by Section 8.2(b) above) (a "Competing Transaction Agreement").
Notwithstanding the foregoing, prior to the time of obtaining Company
Stockholder Approval and so long as neither the Company nor its Subsidiaries nor
any of its or their Representatives shall have breached any of the provisions of
Section 8.2(a) with respect to such unsolicited, bona fide proposal or offer,
the Board of Directors of the Company shall be permitted to (i) not recommend to
the stockholders of the Company that they give the Company Stockholder Approval,
(ii) make a Change in the Company Recommendation, and/or (iii) recommend a
Competing Transaction if the Board of Directors of the Company (or a committee
of disinterested directors thereof) by a majority vote has determined in its
good faith judgment, (w) after consulting with its financial advisor, that such
Competing Transaction constitutes a Superior Proposal, and (x) after consulting
with outside legal counsel (who may be the Company's regularly engaged outside
legal counsel), that the failure to make a Change in the Company Recommendation
would be inconsistent with its fiduciary duties under applicable Law (taking
into account the extent to which the Company solicited, and participated in
discussions and negotiations with respect to, Competing Transactions prior to
entering into this Agreement), but only (y) after providing written notice to
Parent at least two business
37
days in advance (a "Notice of Superior Proposal") advising Parent that the Board
of Directors of the Company has received a proposal or an offer of a Competing
Transaction that the Board of Directors of the Company (or such committee) has
determined is a Superior Proposal (the "Offer"), specifying the material terms
and conditions of such Offer and identifying the Person making such Offer with a
copy thereof and indicating that the Board of Directors of the Company intends
to effect a Change in the Company Recommendation and/or recommend a Competing
Transaction and (z) if Parent does not, prior to two (2) business days after
Parent's receipt of the Notice of Superior Proposal, make an offer that the
Board of Directors of the Company determines, in its good faith judgment (after
consulting with its financial advisor) to be at least as favorable to the
Company's stockholders as such Offer. Any disclosure that the Board of Directors
of the Company is legally required to make with respect to the receipt of a
proposal or offer for a Competing Transaction will not constitute a violation of
this Agreement.
(d) A "Competing Transaction" means any of the following (other than the
Transactions): (i) the acquisition by any Person in any manner of a number of
shares of any class of equity securities of the Company equal to or greater than
15% of the number of such shares outstanding before such acquisition, (ii) the
acquisition by any Person in any manner, directly or indirectly, of assets
(including securities of any Subsidiary) that constitute 15% or more of the
assets of the Company and its Subsidiaries taken as a whole, or (iii) a merger,
consolidation, tender offer, exchange offer, binding share exchange, joint
venture, dissolution, recapitalization, liquidation, business combination or
other similar transaction, or series of related transactions occurring
contemporaneously, involving the Company or any of its Subsidiaries as a result
of which any Person or Persons, collectively would acquire the assets or
securities described in either of clauses (i) or (ii) above. Notwithstanding the
foregoing, the Information Restructuring as set forth in the Information
Documents shall not be deemed a Competing Transaction.
(e) A "Superior Proposal" means an unsolicited (after the date hereof)
written bona fide offer made by a third party with respect to a Competing
Transaction (with all percentages contained in the definition of "Competing
Transaction" increased to 80% for purposes of this definition), in each case on
terms that the Board of Directors of the Company determines, in its good faith
judgment (after consulting with its financial advisor) and taking into account
all legal, financial, regulatory and other aspects of the offer that it deems
relevant (including whether such Competing Transaction is reasonably capable of
being completed taking into account all financial, legal, regulatory and other
aspects of such offer), to be more favorable to the Company stockholders than
the Merger.
8.3 Exchange Listing.
Parent shall use all commercially reasonable efforts to list, prior to the
Effective Time, on the Nasdaq National Market the shares of Parent Company
Common Stock to be issued to the holders of Company Common Stock pursuant to the
Merger, and Parent shall use all commercially reasonable efforts to give all
notices and make all filings with Nasdaq required in connection with the
transactions contemplated herein.
8.4 Antitrust Notification; Consents of Governmental Authorities.
(a) Each of the Parties undertake and agree to and to cause their
respective "ultimate parent entities" (as defined in the HSR Act) to file as
soon as practicable notifications under the HSR Act with the United States
Federal Trade Commission (the "FTC") and the Antitrust Division of the United
States Department of Justice (the "Antitrust Division"). Each of the Parties
further agrees to respond as promptly as practicable to any inquiries and/or
requests for information or documents received from any Governmental Authority
in connection with antitrust matters related to the Transactions contemplated by
this Agreement. Neither Parent, Purchaser or the Company shall extend any
waiting period under the HSR Act or enter into any agreement with the FTC or the
Antitrust Division not to consummate the Transactions contemplated by this
Agreement, except with the prior written consent of the other Parties, which
consent shall not be unreasonably withheld or delayed. Parent, Purchaser or the
Company shall, from the date hereof until the Effective Date, use their
respective commercially reasonable efforts to avoid
38
the entry of, or to have vacated or terminated, any decree, order, or judgment
that would restrain, prevent or delay the consummation of the Transactions.
(b) Notwithstanding anything to the contrary in this Agreement, (i) Parent
and Purchaser shall not be required to take any actions in connection with, or
agree to, any sale, divestiture or disposition of any businesses, assets,
properties or product lines of Parent, the Company or their respective
Subsidiaries, or the imposition of any material limitation on the ability of
Parent to own or exercise control of the Company or its Subsidiaries or their
respective businesses following the Effective Time and (ii) the Company shall
not be permitted to take any actions in connection with, or agree to, any
divestiture or disposition as a prerequisite for the FTC's or Antitrust
Division's clearance of the Merger or the Information Sale.
(c) In case, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Section 8.4, the proper
officers and directors of each party to this Agreement shall use their
commercially reasonable efforts to take all such action.
8.5 Filings with State Offices.
Upon the terms and subject to the conditions of this Agreement, Parent
shall use all commercially reasonable efforts to execute and file the
Certificate of Merger with the Secretary of State of the State of Delaware in
connection with the Closing.
8.6 Agreement as to Efforts to Consummate.
Subject to the terms and conditions of this Agreement, except as provided
in Section 8.4, each Party agrees to use, and to cause each of its Subsidiaries
to use all commercially reasonable efforts (a) to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the Transactions,
including using its reasonable efforts (i) to obtain all Permits, consents,
approvals, authorizations, qualifications and orders of Governmental Authorities
and parties to contracts with the Company and its Subsidiaries as are necessary
for the consummation of the Transactions and to fulfill the conditions to the
Merger, (ii) to lift or rescind any Order adversely affecting its ability to
consummate the Transactions, and (iii) to cause to be satisfied the conditions
referred to in ARTICLE 9, and (b) to cause the satisfaction of all conditions to
Closing; provided that nothing herein shall preclude either Party from
exercising its rights under this Agreement.
8.7 Investigation and Confidentiality.
(a) Prior to the Effective Time, each Party shall use all commercially
reasonable efforts to keep the other Parties promptly advised of all material
developments relevant to its business, the consummation of the Merger and the
other Transactions, and consummation of the Information Restructuring. The
Company shall afford to Parent (and its counsel, financial advisors, auditors
and other Representatives) reasonable access (including for the purpose of
coordinating integration activities and transition planning with employees of
the Company and its Subsidiaries) to the business, properties, personnel,
offices, books and records of the Company and its Subsidiaries and each of their
respective financial, legal and operating conditions as Parent reasonably
requests, provided that such access shall not interfere unreasonably with normal
operations of the Company or any of its Subsidiaries, as the case may be.
Without limiting the foregoing, the Company shall permit Parent's senior
officers to meet with the officers of the Company responsible for the Company's
financial statements, the internal controls of the Company and the disclosure
controls and procedures of the Company to discuss such matters as Parent may
deem reasonably necessary or appropriate for Parent to satisfy its obligations
under Sections 302 and 906 of Sarbanes-Oxley and any rules and regulations
relating thereto. During the period prior to the Effective Time (or the
termination of this Agreement), the Company shall promptly furnish to Parent (i)
a copy of each report, schedule, registration statement and other document filed
by it during such period pursuant to the
39
requirements of applicable Federal and state securities Laws and (ii) all other
information concerning the Company's and its Subsidiaries' business, properties,
and personnel as Parent may reasonably request.
(b) In addition to the Parties' respective obligations under the
Confidentiality Agreements, which are hereby reaffirmed and adopted, and
incorporated by reference herein, each Party shall, and shall cause its
Representatives to, maintain the confidentiality of all confidential information
furnished to it by the other Party concerning its and its Subsidiaries'
businesses, operations, and financial positions and shall not use such
information for any purpose except in furtherance of the transactions
contemplated by this Agreement. If this Agreement is terminated prior to the
Effective Time, each Party shall promptly return or certify the destruction of
all documents and copies thereof, and all work papers containing confidential
information received from the other Party.
8.8 Public Announcements.
Parent and the Company shall each issue an initial press release relating
to this Agreement the text of each of which has been agreed to by each of Parent
and the Company. Thereafter, unless otherwise required by applicable Law or the
requirements of the NYSE or Nasdaq, each of Parent and the Company shall each
use its commercially reasonable efforts to consult with each other before
issuing any press release or otherwise making any public statements with respect
to this Agreement, the Merger or any of the other Transactions
8.9 State Takeover Laws.
Each of the Parties shall (i) take all necessary action to ensure that no
Takeover Law or similar statute or regulation is or becomes applicable to this
Agreement or the Transactions and (ii) if any state Takeover Law or similar
statute or regulation is or becomes applicable to this Agreement or the
Transactions, take all reasonable action to ensure that the Transactions may be
promptly consummated on the terms contemplated by this Agreement and otherwise
to minimize the effect of, or challenge the validity or applicability of, any
applicable Takeover Law.
8.10 Intentionally Omitted.
8.11 Employee Benefits Plans.
(a) From and after the Effective Time and at least until December 31, 2005,
employees of the Company and its Subsidiaries shall be offered participation in
employee benefit plans, programs, policies and arrangements that are no less
favorable in the aggregate to those provided under the applicable employee
benefit plans (as defined in Section 3(3) of ERISA (excluding plans exempt under
Section 201(2) of ERISA)), programs, policies and arrangements of the Company
and its Subsidiaries in effect at the Effective Time (collectively, "Current
Plans"); provided, however, that nothing contained in this Section 8.11(a) shall
(i) obligate or commit Parent or its Subsidiaries to continue any particular
Current Plan after the Effective Time or to maintain in effect any particular
Current Plan or any level or type of benefits, (ii) obligate or commit Parent or
its Subsidiaries to provide any employee of the Company or any of its
Subsidiaries with any equity compensation pursuant to any equity compensation
plans, programs or arrangements sponsored or provided by Parent or any of its
Subsidiaries or Affiliates for the benefit of its employees, or (iii) prohibit
Parent or its Subsidiaries from making any changes to any Current Plans. In the
event that the operation of any severance pay plan or arrangement or any
deferred compensation plan or arrangement of the Company or its Subsidiaries
(the "Deferred Compensation Plans") after the Effective Time and through
December 31, 2006 causes an excise tax, interest, and/or penalties under Code
Section 409A to be assessed against an individual, Parent will, or will cause
the Company or Subsidiaries to, reimburse the individual for such excise tax,
interest, and/or penalties through a gross up payment to be made no later than
the date the excise tax, interest and/or penalties is due; provided, however,
(A) if the Closing does not occur on or before December 31, 2005 (or such later
date as may be provided by subsequent Treasury guidance prior to December 31,
2005 for the termination of deferral arrangements without consequence under Code
Section 409A) (the later of December 31, 2005
40
or such later date being the "409A Deadline"), or (B) if Parent, the Company or
any of their Subsidiaries offers to make a lump sum payment on or before the
409A Deadline of the aggregate payments due to an individual pursuant to any
such Deferred Compensation Plans and such offer is not accepted on a timely
basis by such individual, then, in either such case, neither Parent, the Company
nor any of their respective Subsidiaries shall have any liability to such
individual for any such gross up payment. In addition, notwithstanding anything
contained in this Agreement to the contrary, the Company shall have the right
prior to Closing to amend the Deferred Compensation Plans such that payments
made under the Deferred Compensation Plans will be in accordance with Code
Section 409A and will not be subject to an excise tax, interest and/or
penalties. Such amendment may include an amendment to cause currently non-vested
amounts to pay out in a lump sum upon a qualifying separation from service, and
such amendments may, but need not, be made contingent on the consummation of the
Transactions.
(b) Parent will, or will cause the Company and its Subsidiaries to, credit
each employee of the Company and its Subsidiaries as of the Effective Time with
such number of unused vacation days and other paid time off accrued by each such
employee with the Company and its Subsidiaries prior to the Effective Time in
accordance with the Company's personnel policies applicable to such employees on
the date hereof, copies of which have been made available to Parent; provided
that Parent may, in its sole discretion and to the extent permitted by
applicable Law, require that such vacation and other paid time off be taken by
each such employee prior to December 31, 2005.
(c) Employees of the Company and its Subsidiaries shall receive credit for
purposes of eligibility to participate and vesting (but not for benefit accruals
under any plan) under any employee benefit plan, program or arrangement
established or maintained by Parent or any of its Affiliates for service accrued
prior to the Effective Time with the Company or any of its Subsidiaries under
which such employee may be eligible to participate on or after the Effective
Time to the extent such service would have been recognized by the Company or any
such Subsidiary under comparable plans immediately prior to the Effective Time;
provided, however, that such crediting of service shall not operate to duplicate
any benefit or the funding of any such benefit.
(d) With respect to the welfare benefit plans, programs and arrangements
maintained, sponsored or contributed to by Parent or its Subsidiaries ("Parent
Welfare Benefit Plans") in which an employee of the Company and its Subsidiaries
may be eligible to participate on or after the Effective Time, Parent shall
waive, or cause its insurance carrier to waive, any limitations on benefits
relating to pre-existing conditions (if any) with respect to participation and
coverage requirements applicable to employees of the Company and its
Subsidiaries under Parent Welfare Benefit Plans to the same extent such
limitations are waived under any comparable plan of Parent or its Subsidiaries;
provided, however, that such pre-existing condition limitations shall not be
waived with respect to life insurance and disability benefits provided under the
Parent Plans or with respect to Parent Plans that are group health plans if the
employee (or the employee's dependent) has not been covered under a group health
plan for at least one year prior to the Effective Time.
8.12 Indemnification; Insurance.
(a) The Bylaws of the Surviving Corporation shall contain provisions no
less favorable with respect to indemnification than are set forth in Article VII
of the Bylaws of the Company, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would affect adversely the rights thereunder of individuals who, at
or prior to the Effective Time, were directors, officers, employees, fiduciaries
or agents of the Company (collectively, "Indemnified Directors/Officers"),
unless such modification shall be required by Law. Parent hereby unconditionally
guarantees the obligations of the Surviving Corporation under this Section
8.12(a).
(b) As of or prior to the Effective Time, Parent shall obtain prepaid (or
"tail") directors' and officers' liability insurance providing for coverage with
respect to matters occurring prior to the Effective Time for six years from the
Effective Time, which coverage amount shall be the same as, and which shall
41
contain terms and conditions that are not materially less favorable than, the
current directors' and officers' liability insurance policies maintained by the
Company.
(c) In the event Parent or the Surviving Corporation or any of their
respective successors or assigns (i) consolidates with or merges into any other
Person and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any Person, then, and in each such case, proper
provision shall be made so that the successors and assigns of Parent or the
Surviving Corporation, as the case may be, shall assume the obligations set
forth in this Section 8.12.
The provisions of this Section 8.12 are intended to be for the benefit of
and shall be enforceable by, each Indemnified Director/Officer and their
respective heirs and representatives.
8.13 Sale of HIS.
(a) Concurrently with the execution and delivery of this Agreement, the
Company shall execute and deliver the Stock Purchase Agreement and the related
documents listed in Section 8.13 of the Company Disclosure Schedule, each in the
form attached as exhibits to Section 8.13 of the Company Disclosure Schedule
(collectively the "Information Documents"). The Company shall not agree to
amend, modify or waive any term, condition or provision of the Information
Documents without the prior written consent of Parent.
(b) Immediately prior to the Effective Time and pursuant to the terms of
the Information Documents, the Company shall consummate the Information
Restructuring, including the Information Sale upon the terms and subject to the
conditions set forth in the Information Documents.
(c) The Company shall, and shall cause HIS to, comply with each of their
respective obligations under the Information Documents. The Company agrees to
give written notice promptly to Parent upon becoming aware of any fact, or the
occurrence or impending occurrence of any event or circumstance, which (i)
represents, or is reasonably likely to represent, either a material breach of
any representation, warranty, covenant or agreement of the Company or the
Information Buyer under the Information Documents, or (ii) results, or is
reasonably likely to result, in any of the conditions to the consummation of the
transactions contemplated by the Information Documents not being satisfied.
8.14 Company Affiliates.
No later than five (5) days prior to the Closing Date, the Company shall
deliver to Parent a list of names and addresses of those persons who were, in
the Company's reasonable judgment, on date of the Company Stockholders' Meeting,
"affiliates" (within the meaning of Rule 145 of the rules and regulations
promulgated under the Securities Act (each such person being a "Company
Affiliate")) of the Company. The Company shall provide Parent with such
information and documents as Parent shall reasonably request for purposes of
reviewing such list. Prior the Closing Date, the Company shall use its
commercially reasonable efforts to deliver or cause to be delivered to Parent
from each Company Affiliate an affiliate letter substantially in the form
attached hereto as Exhibit A.
8.15 Stockholder Litigation.
Except to the extent that the provisions of any insurance policies relevant
thereto prohibit or limit the Company from doing so, the Company shall give
Parent the reasonable opportunity to participate in the defense or settlement of
any stockholder Litigation against the Company and/or its directors relating to
the Merger or the other Transactions, and no such settlement shall be agreed to
by the Company without Parent's prior written consent, which consent shall not
be unreasonably withheld or delayed.
8.16 Letters of the Company's Accountants.
The Company shall use its commercially reasonable efforts to cause to be
delivered to Parent two letters from the Company's independent accountants, one
dated a date within two Business Days before
42
the date on which the Registration Statement will become effective and one dated
a date within two Business Days before the Closing Date, each addressed to
Parent, in form and substance reasonably satisfactory to Parent and customary in
scope and substance for comfort letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement.
8.17 Exemption for Liability Under Section 16(b).
Provided that Company delivers to Parent the Section 16 Information in a
timely fashion, the Board of Directors of Parent, or a committee of Non-Employee
Directors thereof (as such term is defined for purposes of Rule 16b-3(d) under
the Exchange Act), shall adopt a resolution providing that the receipt by
Company Insiders of Parent Common Stock in exchange for shares of Company Common
Stock pursuant to the Transactions contemplated hereby and to the extent such
securities are listed in the Section 16 Information are intended to be exempt
from liability pursuant to Section 16(b) under the Exchange Act.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 Conditions to Obligations of Each Party.
The respective obligations of each Party to perform this Agreement and
consummate the Merger and the other Transactions are subject to the satisfaction
of the following conditions, unless waived by the Parties pursuant to Section
11.5:
(a) Stockholder Approval. Company Stockholder Approval and Parent
Stockholder Approval shall have been obtained.
(b) Regulatory Approvals. All applicable waiting periods under the
HSR Act with respect to the Merger shall have expired or terminated.
(c) Legal Proceedings. No court or Governmental Authority of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any Law or Order (whether temporary, preliminary or permanent) or
taken any other action which prohibits, restricts or makes illegal
consummation of the Merger or any of the other Transactions; provided that,
subject to Section 8.4(b), each of the Parties shall have used all
commercially reasonable efforts to prevent the entry of any such Order and
to appeal as promptly as possible any Order that may be entered.
(d) Registration Statement. The Registration Statement shall be
effective under the Securities Act, no stop orders suspending the
effectiveness of the Registration Statement shall have been issued, no
order by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state
securities Laws or the Securities Act or Exchange Act relating to the
issuance or trading of the shares of Parent Common Stock issuable pursuant
to the Merger shall have been received.
(e) Exchange Listing. The shares of Parent Common Stock issuable
pursuant to the Merger shall have been approved for listing on the Nasdaq
National Market, subject to official notice of issuance.
(f) Sale of HIS. The Information Restructuring shall have been
consummated in accordance with the terms of the Information Documents
(including the satisfaction or waiver of all conditions set forth in the
Information Documents); provided, however, that any Party in material
breach or default of any covenant or agreement of such Party in the
Information Documents shall be deemed to have waived this condition.
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9.2 Conditions to Obligations of Parent and Purchaser.
The obligations of Parent and Purchaser to perform this Agreement and
consummate the Merger and the other Transactions are subject to the satisfaction
of the following conditions, unless waived by Parent pursuant to Section 11.5:
(a) Representations and Warranties. Each of the representations and
warranties of the Company set forth in this Agreement that do not contain
an exception or qualification relating to materiality or Material Adverse
Effect shall be true and correct in all material respects, on and as of the
Closing Date, with the same effect as though all such representations and
warranties had been made on and as of the Closing Date (provided that such
representations and warranties which are confined to a specified date shall
be true and correct in all material respects only as of such date). The
representations and warranties of the Company set forth in this Agreement
that contain an exception or qualification relating to materiality or
Material Adverse Effect shall be true and correct in all respects, on and
as of the Closing Date, with the same effect as though all such
representations and warranties had been made on and as of the Closing Date
(provided that such representations and warranties which are confined to a
specified date shall be true and correct in all respects only as of such
date); provided, however, that this condition shall be deemed to have been
satisfied unless the individual or aggregate impact of all inaccuracies of
such representations and warranties has had, or would reasonably be
expected to have, a Material Adverse Effect with respect to the Company.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of the Company to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all material respects.
(c) Certificates. The Company shall have delivered to Parent (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer or its chief financial officer, to the effect that
the conditions set forth in Section 9.1(a) as relates to the Company and in
Sections 9.2(a) and 9.2(b) have been satisfied, and (ii) certified copies
of resolutions duly adopted by the Company's Board of Directors and
stockholders evidencing the taking of all corporate action necessary to
authorize the execution, delivery and performance of this Agreement, and
the consummation of the Transactions, all in such reasonable detail as
Parent and its counsel shall reasonably request.
(d) Company SEC Reports. The Company shall have timely filed or
furnished, as the case may be, all Company SEC Reports required to be filed
or furnished, as the case may be, by the Company following the date of this
Agreement and all such Company SEC Reports shall have been prepared in
accordance with the requirements of the Securities Law.
(e) Appraisal Rights. The total number of Dissenting Shares shall not
exceed fifteen percent (15%) of the outstanding shares of Company Common
Stock at the Effective Time.
(f) Arclight Consent. The provisions of that certain letter agreement
dated August 5, 2005, between Arclight System LLC and the Company shall
have become effective, including with respect to the cancellation of the
Warrant Agreement in accordance with Section 3.5(f).
9.3 Conditions to Obligations of the Company.
The obligations of the Company to perform this Agreement and consummate the
Merger and the other Transactions are subject to the satisfaction of the
following conditions, unless waived by the Company pursuant to Section 11.5:
(a) Representations and Warranties. Each of the representations and
warranties of Parent set forth in this Agreement that do not contain an
exception or qualification relating to materiality or Material Adverse
Effect shall be true and correct in all material respects, on and as of the
Closing Date, with the same effect as though all such representations and
warranties had been made on and
44
as of the Closing Date (provided that such representations and warranties
which are confined to a specified date shall be true and correct in all
material respects only as of such date). The representations and warranties
of Parent set forth in this Agreement that contain an exception or
qualification relating to materiality or Material Adverse Effect shall be
true and correct in all respects, on and as of the Closing Date, with the
same effect as though all such representations and warranties had been made
on and as of the Closing Date (provided that such representations and
warranties which are confined to a specified date shall be true and correct
in all respects only as of such date); provided, however, that this
condition shall be deemed to have been satisfied unless the individual or
aggregate impact of all inaccuracies of such representations and warranties
has had, or would reasonably be expected to have, a Material Adverse Effect
with respect to Parent.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of Parent to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all material respects.
(c) Certificates. Parent shall have delivered to the Company (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer or its chief financial officer, to the effect that
the conditions set forth in Section 9.1(a) as relates to Parent and in
Sections 9.3(a) and 9.3(b) have been satisfied, and (ii) certified copies
of resolutions duly adopted by Parent's Board of Directors evidencing the
taking of all action necessary to authorize the execution, delivery and
performance of this Agreement, and the consummation of the Transactions,
all in such reasonable detail as the Company and its counsel shall
reasonably request.
ARTICLE 10
TERMINATION
10.1 Termination.
Notwithstanding any other provision of this Agreement, and notwithstanding
the approval of this Agreement by the stockholders of the Company and
stockholders of Parent or both, this Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) by mutual written agreement of the Parties; or
(b) by either Parent or the Company if the Effective Time shall not
have occurred within six months following the date hereof (the "Outside
Date"); provided, however, that the right to terminate this Agreement under
this Section 10.1(b) shall not be available to any Party whose failure to
perform, in any material respect, any of such Party's covenants or
agreements contained in this Agreement has been a principal cause of, or
resulted in, the failure of the Effective Time to occur on or before such
date; provided, further, that, (i) if the Company and/or the Information
Buyer shall terminate the Stock Purchase Agreement, then Parent shall have
the right, upon written notice to the Company, to extend the Outside Date
for 120 days following such termination of the Stock Purchase Agreement,
and (ii) if all waiting periods (and extensions thereof) applicable to the
consummation of the Merger and the other Transactions under the HSR Act
have not expired or terminated, then either Parent or the Company shall
have the right, upon written notice the other Party, to extend the Outside
Date to the date which is ten months following the date hereof; or
(c) by either Parent or the Company if any Governmental Authority
shall have enacted, issued, promulgated, enforced or entered any permanent
injunction, order, decree or ruling which is then in effect and has the
effect of making consummation of the Merger illegal or otherwise preventing
or prohibiting consummation of the Merger and such injunction, order,
decree or ruling shall have become final and non-appealable; provided,
however, that the right to terminate this Agreement under this Section
10.1(c) shall not be available to any Party whose failure to perform, in
any material respect, any of such Party's covenants or agreements contained
in this Agreement or whose other act
45
or failure to act has been the primary cause of, or resulted in, the
application or imposition of such injunction, order, decree or ruling; or
(d) by Parent if a Company Triggering Event (as defined below) shall
have occurred; or
(e) by either Parent or the Company, in the event the Company
Stockholder Approval is not obtained at the Company Stockholders' Meeting
(including any adjournment or postponement thereof); or
(f) by either Parent or the Company, in the event the Parent
Stockholder Approval is not obtained at the Parent Stockholders' Meeting
(including any adjournment or postponement thereof); or
(g) by the Company if it enters into a definitive agreement with
respect to a Superior Proposal (other than a confidentiality agreement as
contemplated by Section 8.2(b)); provided, however, that neither the
Company nor any of its Subsidiaries or Representatives shall have breached
any of the provisions of Section 8.2, including, without limitation, the
provisions of Section 8.2(c), and simultaneously with the termination under
this Section 10.1(g), the Company shall pay Parent the Fee pursuant to
Section 11.2(b); or
(h) by Parent if the Company and/or the Information Buyer shall have
terminated the Stock Purchase Agreement.
For purposes of this Agreement, a "Company Triggering Event" shall be
deemed to have occurred if: (i) a Change in Company Recommendation shall have
occurred; (ii) the Board of Directors of the Company shall have recommended to
the stockholders of the Company a Competing Transaction or shall have publicly
announced it intends to do so; (iii) the Company shall have entered into any
Competing Transaction Agreement or any agreement, contract or commitment
accepting any Competing Transaction; (iv) a tender offer or exchange offer that,
if successful, would result in any Person becoming a beneficial owner of 50% or
more of the outstanding shares of Company Common Stock is commenced and the
Board of Directors of the Company fails, within ten (10) days of commencement of
such tender offer or exchange offer, to recommend that the stockholders of
Company Common Stock reject such tender offer or exchange offer; or (v) the
Company shall have failed to include in the Joint Proxy Statement/Prospectus the
recommendation of the Board of Directors of the Company in favor of holders of
Company Common Stock approving this Agreement, the Merger and the other
Transactions contemplated herein.
10.2 Effect of Termination.
In the event of the termination of this Agreement pursuant to Section 10.1,
this Agreement shall forthwith become void, and there shall be no liability
under this Agreement on the part of any Party hereto, except (a) as set forth in
Section 11.2 and (b) nothing herein shall relieve any Party from liability for
any willful breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement prior to such termination; provided,
however, that the terms of Section 8.7(b) shall survive any termination of this
Agreement.
10.3 Non-Survival of Representations and Covenants.
The representations, warranties and agreements in this Agreement and in any
certificate delivered pursuant hereto shall terminate at the Effective Time or
upon the termination of this Agreement pursuant to Section 10.1, as the case may
be, except that the agreements set forth in ARTICLES 1, 2, 3, 4 and 11 and
Sections 8.4(c), 8.7(b), 8.11, 8.12 and 10.3 shall survive the Effective Time.
46
ARTICLE 11
MISCELLANEOUS
11.1 Definitions.
(a) Except as otherwise provided herein, the capitalized terms set forth
below shall have the following meanings:
"Affiliate" of a specified person means a Person who, directly or
indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with, such specified Person.
"Antitrust Laws" means the HSR Act, as amended, the Sherman Act, as
amended, the Clayton Act, as amended, the Federal Trade Commission Act, as
amended, and any other federal, state or foreign Law or order designed to
prohibit, restrict or regulate actions in order to promote or enhance
competition and/or prevent monopolization or restraint of trade.
"Applicable Price" means the Average Price; provided, however, if any
Parent Common Stock (or any security convertible or exchangeable into or
exercisable thereof) shall be issued, sold, granted or otherwise disposed
of by Parent within thirty-three (33) Business Days prior to the Closing
Date (except for (a) the issuance of Parent Common Stock (or any security
convertible or exchangeable into or exercisable thereof) pursuant to stock
options, units and other rights outstanding as of the date of this
Agreement, (b) the issuance of Parent Common Stock (or any security
convertible or exchangeable into or exercisable thereof) pursuant to stock
options, units and other rights hereafter granted pursuant to any employee
or director stock incentive plan approved by the Board of Directors of
Parent (or any committee thereof), and (c) the grant or issuance of Parent
Common Stock (or any security convertible or exchangeable into or
exercisable thereof) hereafter pursuant to any employee or director stock
incentive plan approved by the Board of Directors of Parent (or any
committee thereof)), then the Applicable Price shall mean the lesser of (i)
the Average Price or (ii) the lowest price per share received by Parent
pursuant to any such transaction or transactions.
"Assets" of a Person means all of the assets, properties, businesses
and rights of such Person of every kind, nature, character and description,
whether real, personal or mixed, tangible or intangible, absolute, accrued
or contingent, or otherwise relating to or utilized in such Person's
business, directly or indirectly, in whole or in part, whether or not
carried on the books and records of such Person, and whether or not owned
in the name of such Person or any Affiliate of such Person and wherever
located.
"Average Price" means the average of the volume weighted sales prices
per share of the Parent Common Stock on the Nasdaq National Market as
reported by Bloomberg Financial Markets (or, if not reported thereby, any
other authoritative source as the parties shall agree in writing) for the
twenty (20) consecutive full trading days in which such shares are traded
on the Nasdaq National Market ending on the third trading day, prior to,
but not including, the Closing Date. The Average Price shall be calculated
to the nearest one-hundredth of one cent.
"Beneficial Owner" has the meaning ascribed to such term under Rule
13d-3(a) of the Exchange Act.
"Business Day" means any day, other than a Saturday, Sunday or one on
which banks are authorized by Law to close in New York, New York.
"Closing Date" means the date on which the Closing occurs.
"Code" means the United States Internal Revenue Code of 1986, as
amended.
"Company Common Stock" means the $0.125 par value common stock of the
Company.
47
"Company Insiders" shall mean those officers and directors of the
Company who are subject to the reporting requirements of Section 16(a) of
the Exchange Act and who are listed in the Section 16 Information.
"Company Restricted Stock Award" means each share of Company Common
Stock outstanding immediately prior to the Effective Time that is subject
to a repurchase option, risk of forfeiture or other condition under the
Company Stock Option Plans or any applicable restricted stock purchase
agreement or other agreement with the Company.
"Confidentiality Agreements" means those certain Confidentiality
Agreements, dated June 29, 2005, and August 1, 2005 between the Company and
Parent.
"Consent" means any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by or filing of notice to any
Person pursuant to any Material Contract, Law, Order, or Permit.
"Contribution Agreement" means the Contribution Agreement included in
the Information Documents.
"Control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, or as trustee
or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of
voting securities, as trustee or executor, by contract or credit
arrangement or otherwise.
"Credit Facility" means that certain $225,000,000 Credit Agreement
among the Company, Merrill Lynch Capital, Credit Suisse First Boston, Bank
of America, N.A., LaSalle Bank National Association and the Other Lenders
Party thereto, dated as of November 26, 2002.
"DGCL" means the General Corporation Law of the State of Delaware.
"Environmental Laws" means any United States federal, state or local
Laws, regulations and enforceable governmental orders relating to pollution
or protection of the environment, human health and safety, or natural
resources, including, without limitation the Comprehensive Environmental
Response Compensation and Liability Act, 42 U.S.C. sec.sec.9601 et seq.
("CERCLA"), and the Resource Conservation and Recovery Act, 42 U.S.C.
sec.sec.6901 et seq. ("RCRA").
"Hazardous Substances" means those hazardous or toxic substances,
chemicals, wastes and pollutants defined in or regulated under any
Environmental Law, including, without limitation, RCRA hazardous wastes and
CERCLA hazardous substances.
"HIPAA" means the Health Insurance Portability and Accountability Act
of 1996, as amended, and the rules and regulations promulgated thereunder.
"HSR Act" means Section 7A of the Clayton Act, as added by Title II of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder.
"Information Management Business" means the Business (as defined in
the Contribution Agreement).
"Intellectual Property" means (i) all business names, trade names,
registered and unregistered trademarks (including common law marks), trade
dress and service marks (including all U.S. federal, state, Canada,
European Union and foreign registrations with respect to any of the
foregoing, and applications for registration of any of the foregoing); (ii)
all patents (including all reissues, divisions, continuations,
continuations in part, and extensions thereof), patent applications, and
inventions and discoveries that may be patentable; (iii) all copyrights in
both published and unpublished works, whether registered (if capable of
registration in any relevant jurisdiction) or unregistered (including all
U.S. and foreign registrations and applications for registration of the
foregoing); (iv) all computer software (in both source code and object
code) (collectively, "Software"), including (A) any and all
48
software implementations of algorithms, models and methodologies, whether
in source code or object code, (B) databases and compilations, including
any and all data and collections of data, whether machine readable or
otherwise, (C) descriptions, flow-charts and other work product used to
design, plan, organize and develop any of the foregoing, (D) the technology
supporting any Internet site(s), and (E) all documentation, including
system documentation, user manuals and training materials, relating to any
of the foregoing; (v) all internet domain names and internet domain name
registrations; (vi) all information, without regard to form, including, but
not limited to, technical or nontechnical data, prescription claims data,
hospital claims data, patient claims data, a formula, a pattern, a
compilation, a program, a device, a method, a technique, a drawing, a
process, product plans, or a list of actual or potential customers or
suppliers which is not commonly known by or available to the public and
which information: (A) derives economic value, actual or potential, from
not being generally known to, and not being readily ascertainable by proper
means by, other Persons who can obtain economic value from its disclosure
or use; and (B) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy (collectively, "Trade Secrets"); and
(vii) all other unregistered intellectual property rights, including
know-how, confidential information, customer lists, technical
documentation, technical information, data, technology, research records,
plans, drawings, schematics, compilations, devices, formulas, designs,
prototypes, methods, techniques, processes, procedures, programs, or codes,
whether tangible or intangible.
"Joint Proxy Statement/Prospectus" means the proxy statement used by
the Company and Parent to solicit the approval of their respective
stockholders of the Transactions, which shall include the prospectus of
Parent relating to the issuance of the Parent Common Stock pursuant to the
Merger.
"Knowledge" as used with respect to a Person (including references to
such Person being aware of a particular matter) means those facts that are
actually known by the chairman, president, chief financial officer, chief
accounting officer, chief operating officer, or general counsel.
"Litigation" means any action, suit, arbitration, cause of action,
lawsuit, claim, complaint, criminal prosecution, governmental or other
examination or investigation, audit (other than regular audits of financial
statements by outside auditors), compliance review, inspection, hearing,
administrative or other proceeding relating to or affecting a Party, its
business, its records, its policies, its practices, its compliance with
Law, its actions, its Assets.
"Material Adverse Effect" means, with respect to a Party, any event,
circumstance, change or effect that, individually or in the aggregate with
all other events, circumstances, changes and effects, is or is reasonably
likely to be materially adverse to (i) the business, financial condition or
results of operations of such Party and its Subsidiaries taken as a whole,
or (ii) the ability of such Party to consummate the Merger or the other
Transactions; provided, however, that the foregoing shall not include any
event, circumstance, change or effect resulting from (A) changes in general
economic or financial market conditions (which do not have a materially
disproportionate effect on such Party and its Subsidiaries), (B) general
changes in the industries in which such Party and its Subsidiaries operate
(which do not have a materially disproportionate effect on such Party and
its Subsidiaries), (C) changes in the trading price of the shares of common
stock of such Party between the date hereof and the Effective Time (it
being understood that any fact or development giving rise to or
contributing to such change in the trading price of the shares of common
stock of such Party may be the cause of a Material Adverse Effect), (D)
changes in Law or GAAP, (E) the direct effects of compliance with this
Agreement on the operating performance of such Party, including any
Expenses incurred by such Party in consummating the Merger or the other
Transactions, (F) the announcement of this Agreement or the Merger or any
of the other Transactions, the fulfillment of such Party's obligations
hereunder or the consummation of the Merger or the other Transactions, or
(G) any outbreak or escalation of hostilities or act of terrorism or any
declaration of war (which do not have a materially disproportionate effect
on such Party and its Subsidiaries).
"Nasdaq" means the Nasdaq Stock Market, Inc.
49
"Nasdaq National Market" means the National Market System of the
Nasdaq Stock Market, Inc.
"NYSE" means the New York Stock Exchange, Inc.
"Order" means any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency, or Governmental Authority,
whether temporary, preliminary or permanent.
"Parent Common Stock" means the $0.01 par value common stock of
Parent.
"Party" means any of the Company, Parent or Purchaser and
"Parties"means the Company, Parent and Purchaser.
"Permit" means any Company Permits, Parent Permits or Environmental
Permits.
"Person" means an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person (including,
without limitation, a "person" as defined in Section 13(d)(3) of the
Exchange Act), trust, association or entity or government, political
subdivision, agency or instrumentality of a government.
"Registration Statement" means the Registration Statement on Form S-4,
or other appropriate form, including any pre-effective or post-effective
amendments or supplements thereto, filed with the SEC by Parent under the
Securities Act with respect to the shares of Parent Common Stock to be
issued pursuant to the Merger and which shall contain the Joint Proxy
Statement/Prospectus.
"Representative" means, with respect to any Person, such Person's
officers, directors, employees, accountants, auditors, attorneys,
consultants, legal counsel, agents, investment banker, financial advisor
and other representatives.
"Sarbanes-Oxley Act" means the Sarbanes-Oxley Act of 2002, as amended,
and the rules and regulations promulgated thereunder.
"SEC" means the United States Securities and Exchange Commission.
"SEC Documents" means all forms, proxy statements, registration
statements, reports, schedules, and other documents, including all
certifications and statements required by (x) the SEC's Order dated June
27, 2002 pursuant to Section 21(a)(1) of the Exchange Act, (y) Rule 13a-14
or 15d-14 under the Exchange Act or (z) Section 906 of the Sarbanes-Oxley
Act with respect to any report that is an SEC Document, filed, or required
to be filed, by a Party or any of its Subsidiaries with any Governmental
Authority pursuant to the Securities Laws.
"Section 16 Information" shall mean information accurate in all
material respects regarding the Company Insiders, the number of shares of
Company Common Stock held by each such Company Insider and expected to be
exchanged for Parent Common Stock in the Merger.
"Securities Laws" means the Securities Act, the Exchange Act, the
Sarbanes-Oxley Act, the Investment Company Act of 1940, as amended, the
Investment Advisors Act of 1940, as amended, the Trust Indenture Act of
1939, as amended, and the rules and regulations of any Governmental
Authority promulgated thereunder.
"Stock Purchase Agreement" means the Stock Purchase Agreement included
in the Information Documents pursuant to which the Company has agreed to
sell the HIS Common Stock to the Information Buyer.
"Stockholders' Meetings" means the respective meetings of the
stockholders of the Company and stockholders of Parent to be held pursuant
to Section 8.1, including any adjournment or adjournments thereof.
50
"Subsidiaries" or "subsidiary" of the Company, the Surviving
Corporation, Parent or any other Person means any corporation or other
entity of which shares or other ownership interests having voting power to
elect a majority of the board of directors or other Persons performing
similar functions are directly or indirectly owned by such Person.
"Tax" or "Taxes" means any federal, state, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties,
capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property,
sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty or addition thereto, whether disputed or not and
including any obligations to indemnify or otherwise assume or succeed to
the Tax liability of any other Person.
"Tax Law" means any Law relating to Taxes.
"Tax Return" means any return, declaration, report, claim for refund
or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Total Per Share Amount" means $19.50.
(b) The terms set forth below shall have the meanings ascribed thereto in
the referenced sections:
<Table>
<Caption>
TERM PAGE
- ---- ----
2004 Parent Balance Sheet............. 25
2005 Balance Sheet.................... 10
409A Deadline......................... 41
Action................................ 12
Adjusted Cash Amount.................. 3
Adjusted Exchange Ratio............... 3
Agreement............................. 1
Antitrust Division.................... 38
CERCLA................................ 48
Certificate of Merger................. 2
Change in the Company Recommendation.. 37
Closing............................... 2
Company............................... 1
Company Affiliate..................... 42
Company Certificates.................. 5
Company Common Stock.................. 7
Company Compliance Plan............... 21
Company Data.......................... 18
Company Disclosure Schedule........... 7
Company Permits....................... 9
Company Preferred Stock............... 7
Company Rights........................ 19
Company Rights Agreement.............. 19
Company SEC Reports................... 10
Company Stock Awards.................. 7
Company Stock Option.................. 4
Company Stock Option Plans............ 4
</Table>
<Table>
<Caption>
TERM PAGE
- ---- ----
Company Stockholder Approval.......... 8
Company Stockholders' Meeting......... 36
Company Triggering Event.............. 46
Competing Transaction Agreement....... 37
Current Plans......................... 40
Deferred Compensation Plans........... 40
Dissenting Shares..................... 4
Dissenting Stockholders............... 4
Effective Time........................ 2
Environmental Permits................. 19
ERISA................................. 12
ESPP.................................. 5
Exchange Act.......................... 10
Exchange Agent........................ 5
Exchange Fund......................... 5
Exchange Ratio........................ 3
Expenses.............................. 52
Federal Anti-kickback Statute......... 20
Fee................................... 53
FTC................................... 38
GAAP.................................. 10
Governmental Authority................ 9
Healthcare Information Laws........... 21
HIS................................... 1
HIS Common Stock...................... 1
Indemnified Directors/Officers........ 41
Information Buyer Termination Fee..... 53
</Table>
51
<Table>
<Caption>
TERM PAGE
- ---- ----
Information Documents................. 42
Information Restructuring............. 1
Information Sale...................... 1
IRS................................... 13
Law................................... 9
Liens................................. 15
Material Contracts.................... 20
Merger................................ 1
Multiemployer Plan.................... 13
Multiple Employer Plan................ 13
Non-U.S. Benefit Plan................. 14
Note Indenture........................ 21
Noteholders........................... 34
Notes Offer to Purchase............... 34
Notes Tender Offer.................... 34
Notes Tender Offer Documents.......... 34
Notice of Superior Proposal........... 38
Offer................................. 38
Outside Date.......................... 45
Parent Compliance Plan................ 30
Parent Disclosure Schedule............ 22
Parent Non-Voting Common Stock........ 23
Parent Permits........................ 24
Parent Plans.......................... 26
Parent Preferred Stock................ 23
Parent Rights......................... 29
</Table>
<Table>
<Caption>
TERM PAGE
- ---- ----
Parent Rights Agreement............... 29
Parent SEC Reports.................... 24
Parent Stockholder Approval........... 23
Parent Stockholders' Meeting.......... 36
Parent Welfare Benefit Plans.......... 41
Per Share Merger Consideration........ 3
Permitted Liens....................... 15
Plans................................. 12
Prior Company Plan.................... 13
Prior Parent Plan..................... 27
Purchaser............................. 1
Purchaser Common Stock................ 3
RCRA.................................. 48
Redemption............................ 35
Securities Act........................ 10
Senior Subordinated Notes............. 21
Software.............................. 48
Stock Unit............................ 4
Subsidiary............................ 51
Surviving Corporation................. 1
Trade Secrets......................... 49
Transactions.......................... 8
WARN.................................. 14
Warrant............................... 5
Warrant Agreement..................... 5
</Table>
Any singular term in this Agreement shall be deemed to include the plural,
and any plural term the singular. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed followed by the
words "without limitation."
11.2 Expenses; Effect of Termination.
(a) Except as set forth in this Section 11.2, all Expenses (as defined
below) incurred in connection with this Agreement and the Merger shall be paid
by the Party incurring such Expenses, whether or not the Merger or any other
Transaction is consummated. However, the Company and Parent shall each pay
one-half of all Expenses relating to printing, filing and mailing the
Registration Statement and the Joint Proxy Statement/Prospectus and all SEC and
other regulatory filing fees incurred in connection with the Registration
Statement and the Joint Proxy Statement/Prospectus. "Expenses", as used in this
Agreement, shall mean all reasonable out-of-pocket expenses (including, without
limitation, all reasonable fees and expenses of counsel, accountants, auditors,
investment bankers, lenders, experts and consultants to a party hereto and its
affiliates) incurred after July 1, 2005 by a Party or on its behalf in
connection with or related to the investigation, authorization, preparation,
negotiation, execution and performance of this Agreement, the preparation,
printing, filing and mailing of the Registration Statement and Joint Proxy
Statement/Prospectus, the solicitation of stockholder proxies and all other
matters related to consummation of the Merger and the other Transactions.
52
(b) The Company agrees that:
(i) if Parent shall terminate this Agreement pursuant to Section
10.1(d); or
(ii) if Parent or the Company shall terminate this Agreement pursuant
to Section 10.1(b), and prior to any such termination, either (A) a Company
Triggering Event shall have occurred, or (B) (x) an announcement or bona
fide offer or proposal with respect to a Competing Transaction shall have
been made with respect to the Company and such announcement, offer or
proposal with respect to a Competing Transaction shall not have been
unconditionally withdrawn at the time of such termination, and (y) within 9
months after such termination, the Company enters into an agreement
providing for a Competing Transaction or a Competing Transaction is
consummated; or
(iii) if Parent or the Company shall terminate this Agreement pursuant
to Section 10.1(e) and at the time of the Company Stockholders' Meeting,
either (A) a Company Triggering Event shall have occurred, or (B) (x) an
announcement or bona fide offer or proposal with respect to a Competing
Transaction shall have been made with respect to the Company and such
announcement, offer or proposal with respect to a Competing Transaction
shall not have been unconditionally withdrawn at the time of the Company
Stockholders' Meeting, and (y) within 9 months the date of such termination
the Company enters into an agreement providing for a Competing Transaction
or a Competing Transaction is consummated; or
(iv) if the Company shall terminate this Agreement pursuant to Section
10.1(g); or
(v) if (A) Parent shall terminate this Agreement pursuant to Section
10.1(h) or (B) Parent or the Company shall terminate this Agreement
pursuant to Section 10.1(b) by reason of the failure to satisfy the
condition set forth in Section 9.1(f) (unless, in either case, such
termination is solely as a result of a material breach by the Information
Buyer of the Information Documents);
then the Company shall pay to Parent, simultaneously with the termination in the
case of Section 11.2(b)(iv) or, in the other cases, promptly (but in any event
no later than one business day after the first of all the conditions to any of
Section 11.2(b)(i), Section 11.2(b)(ii), Section 11.2(b)(iii) or Section
11.2(b)(v) shall have occurred) a fee (the "Fee") of $26,763,750, which amount
shall be payable in immediately available funds; provided, however, if,
simultaneously with the termination of this Agreement the Company also
terminates the Stock Purchase Agreement and pays the Information Buyer a
termination fee pursuant to Section 9.2(b) of the Stock Purchase Agreement (the
"Information Buyer Termination Fee"), then the Fee shall equal $16,763,750.
(c) The Company agrees that (except as provided in Section 11.2(b)) if
either Party shall terminate this Agreement pursuant to Section 10.1(e), then
the Company shall pay to Parent promptly (but in any event no later than one
business day after the termination date) an amount equal to the amount of
Parent's Expenses, which amount shall be payable in immediately available funds;
provided that the Company shall not be liable for any amount of Parent's
Expenses in excess of $10,000,000 in the aggregate; provided, further, that any
amount paid to Parent pursuant to this Section 11.2(c) shall be credited against
any amount required to be paid by the Company pursuant to Section 11.2(b).
(d) Parent agrees that if either Party shall terminate this Agreement
pursuant to Section 10.1(f), then Parent shall pay to the Company promptly (but
in any event no later than one business day after the termination date) an
amount equal to the amount of the Company's Expenses, which amount shall be
payable in immediately available funds; provided that Parent shall not be liable
for any amount of the Company's Expenses in excess of $10,000,000 in the
aggregate.
(e) Parent agrees that if (i) either Party shall terminate this Agreement
pursuant to Section 10.1(b) by reason of Parent's failure to have or obtain
sufficient funds to consummate the Merger and (ii) all conditions to the
consummation of the Merger and the other Transactions have been satisfied or
waived by the appropriate Party, then Parent shall pay to the Company promptly
(but in any event no later than one business day after the termination date) an
amount equal to the Company's Expenses, which amount shall be payable in
immediately available funds; provided that Parent shall not be liable for any
amount of the
53
Company's Expenses in excess of $10,000,000 in the aggregate. The right of the
Company to receive payment by Parent of the Company's Expenses under this
Section 11.2(e) shall be in addition to, and not in lieu of, any other rights or
remedies that the Company might have based upon or arising out of the failure of
Parent to have or obtain sufficient funds to consummate the Merger.
(f) Parent agrees that if either Party shall terminate this Agreement
pursuant to Section 10.1(b) by reason of the failure of the condition described
in Section 9.1(b), then Parent shall pay to the Company promptly (but in any
event no later than one Business Day after the termination date) an amount equal
to the amount of the Company's Expenses, which amount shall be payable in
immediately available funds; provided that Purchaser shall not be liable for any
amount of the Company's Expenses in excess of $10,000,000 in the aggregate.
(g) Notwithstanding anything contained herein to the contrary, in the event
that (i) the Fee is reduced by reason of the payment of the Information Buyer
Termination Fee pursuant to Section 11.2(b) and (ii) within nine (9) months
after the date of termination of this Agreement a definitive agreement for a
Competing Transaction or a sale or other disposition of all or substantially all
of the assets of the Information Business (whether by asset sale, stock sale,
merger or otherwise) with or involving Wolters Kluwer N.V. or any of its
Affiliates is entered into or consummated, then the Company shall pay to Parent,
simultaneously with the earlier of the execution of such definitive agreement or
such consummation, an amount equal to the Information Buyer Termination Fee,
which amount shall be payable in immediately available funds.
(h) Each of the Company and Parent acknowledges that the agreements
contained in this Section 11.2 are an integral part of the Transactions, and
that, without these agreements, the other Party would not enter into this
Agreement; accordingly, if either Party fails to pay in a timely manner any of
the amounts due pursuant to this Section 11.2, and, in order to obtain such
payment, the other Party makes a claim that results in a judgment against the
first Party, the first Party shall pay to the other Party its reasonable fees
and expenses (including reasonable attorneys' fees and expenses) in connection
with such suit, together with interest on the amounts due from each date for
payment until the date of payment at the prime rate of Bank of America, N.A. in
effect on the date such payment was required to be made.
11.3 Entire Agreement.
Except as otherwise expressly provided herein, this Agreement (including
the documents and instruments referred to herein) constitutes the entire
agreement between the Parties with respect to the Transactions contemplated
hereunder and supersedes all prior arrangements or understandings with respect
to the Transactions contemplated hereunder, written or oral (except, as to
Section 8.7(b), for the Confidentiality Agreements).
11.4 Amendments.
To the extent permitted by Law, this Agreement may be amended by a
subsequent writing signed by each of the Parties upon the approval of each of
the Parties, whether before or after stockholder approval of this Agreement has
been obtained.
11.5 Waivers.
At any time prior to the Effective Time, any Party may (a) extend the time
for the performance of any obligation or other act of any other Party, (b) waive
any inaccuracy in the representations and warranties of any other Party
contained herein or in any document delivered pursuant hereto and (c) waive
compliance with any agreement of any other Party or any condition to its own
obligations contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the Party or Parties to be bound
thereby.
54
11.6 Assignment.
This Agreement shall not be assigned (whether pursuant to a merger, by
operation of Law or otherwise), except that Parent and Purchaser may assign all
or any of their rights and obligations hereunder to any affiliate of Parent;
provided that no such assignment shall relieve the assigning party of its
obligations hereunder if such assignee does not perform such obligations.
11.7 Parties in Interest.
This Agreement shall be binding upon and inure solely to the benefit of
each Party, and nothing in this Agreement, express or implied, is intended to or
shall confer upon any other Person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement, other than Sections 8.11 and
8.12 (which is intended to be for the benefit of the Persons covered thereby and
may be enforced by such Persons).
11.8 Notices.
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered by hand, by facsimile
transmission, by registered or certified mail, postage pre-paid, or by courier
or overnight carrier, to the Persons at the addresses set forth below (or at
such other address as may be provided hereunder), and shall be deemed to have
been delivered as of the date so delivered:
<Table>
The Company: NDCHealth Corporation
NDC Plaza
Atlanta, Georgia 30329
Attention: General Counsel
Copy to Counsel: Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309
Facsimile Number: (404) 881-4777
Attention: Sidney J. Nurkin
Parent or Purchaser: Per-Se Technologies, Inc.
1145 Sanctuary Parkway
Suite 200
Alpharetta, Georgia 30004
Facsimile Number: (770) 237-6961
Attention: Paul J. Quiner
Copy to Counsel: King & Spalding LLP
191 Peachtree Street
Atlanta, Georgia 30303
Facsimile Number: (404) 572-5136
Attention: John D. Capers, Jr.
</Table>
11.9 Governing Law; Venue; Waiver of Jury Trial.
Regardless of any conflict of law or choice of law principles that might
otherwise apply, the Parties agree that this Agreement shall be governed by and
construed in all respects in accordance with the laws of the State of Delaware.
The Parties all expressly agree and acknowledge that the State of Delaware has a
reasonable relationship to the Parties and/or this Agreement. The Parties hereby
irrevocably submit to the jurisdiction of the courts of the State of Delaware
and the Federal courts of the United States of America located in the State of
Delaware solely in respect of the interpretation and enforcement of the
provisions of this Agreement and of the documents referred to in this Agreement,
and in respect of the Transactions, and hereby waive, and agree not to assert,
as a defense in any Litigation for the interpretation or enforcement of this
Agreement or of any such document, that it is not subject thereto or that such
Litigation may not be brought or is not maintainable in said courts or that the
venue thereof may not be appropriate or that this Agreement or any such document
may not be enforced in or by such
55
courts, and the Parties hereto irrevocably agree that all claims with respect to
such Litigation shall be heard and determined in such a Delaware State or
Federal court. The Parties hereby consent to and grant any such court
jurisdiction over such Parties solely for such purpose and over the subject
matter of such dispute and agree that mailing of process or other papers in
connection with any such Litigation in the manner provided in this Section 11.9
or in such other manner as may be permitted by Law shall be valid and sufficient
service thereof. Each Party acknowledges and agrees that any controversy which
may arise under this Agreement is likely to involve complicated and difficult
issues, and therefore each such Party hereby irrevocably and unconditionally
waives any right such Party may have to a trial by jury in respect of any
Litigation directly or indirectly arising out of or relating to this Agreement,
or the Transactions. Each Party certifies and acknowledges that (i) no
Representative of any other Party has represented, expressly or otherwise, that
such other Party would not, in the event of Litigation, seek to enforce the
foregoing waiver, (ii) each Party understands and has considered the
implications of this waiver, (iii) each Party makes this waiver voluntarily, and
(iv) each Party has been induced to enter into this Agreement by, among other
things, the mutual waivers and certifications in this Section 11.9.
11.10 Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one and the same instrument.
11.11 Captions; Articles and Sections.
The captions contained in this Agreement are for reference purposes only
and are not part of this Agreement. Unless otherwise indicated, all references
to particular Articles or Sections shall mean and refer to the referenced
Articles and Sections of this Agreement.
11.12 Interpretations.
Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved against any Party, whether under any rule of construction
or otherwise. No Party to this Agreement shall be considered the draftsman. The
Parties acknowledge and agree that this Agreement has been reviewed, negotiated,
and accepted by all Parties and their attorneys and shall be construed and
interpreted according to the ordinary meaning of the words used so as fairly to
accomplish the purposes and intentions of all Parties hereto.
11.13 Enforcement of Agreement.
The Parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement was not performed in accordance
with its specific terms or was otherwise breached. It is accordingly agreed that
the Parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
11.14 Severability.
Any term or provision of this Agreement which is invalid or unenforceable
in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement or affecting
the validity or enforceability of any of the terms or provisions of this
Agreement in any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
[SIGNATURES ON NEXT PAGE]
56
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its duly authorized officers as of the day and year
first above written.
NDCHEALTH CORPORATION
By: /s/ Randolph L.M. Hutto
------------------------------------
Name: Randolph L.M. Hutto
Its: Executive Vice President,
General Counsel,
and Secretary
PER-SE TECHNOLOGIES, INC.
By: /s/ Philip M. Pead
------------------------------------
Name: Philip M. Pead
Its: Chairman, Chief Executive
Officer and
President
ROYAL MERGER CO.
By: /s/ Philip M. Pead
------------------------------------
Name: Philip M. Pead
Its: Chairman, Chief Executive
Officer and
President
57
ANNEX B
[LETTERHEAD OF BANC OF AMERICA SECURITIES LLC]
August 26, 2005
Board of Directors
Per-Se Technologies, Inc.
1145 Sanctuary Parkway, Suite 200
Alpharetta, Georgia 30004
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to Per-Se Technologies, Inc. ("Per-Se") of the Merger Consideration (as
defined below) to be paid by Per-Se pursuant to the Agreement and Plan of
Merger, dated as of August 26, 2005 (the "Agreement"), among Per-Se, Royal
Merger Co., a wholly owned subsidiary of Per-Se ("Sub"), and NDCHealth
Corporation ("NDCHealth"). As more fully described in the Agreement, Sub will be
merged with and into NDCHealth (the "Merger"), with NDCHealth continuing as the
surviving corporation in the Merger, and each outstanding share of the common
stock, par value $0.125 per share, of NDCHealth ("NDCHealth Common Stock") will
be converted into the right to receive $19.50 (the "Merger Consideration"), of
which at least $13.00 will be payable in cash and the balance will be payable in
shares of the common stock, par value $0.01 per share, of Per-Se ("Per-Se Common
Stock") as specified in the Agreement. The Agreement also provides that
NDCHealth will sell its information management business (the "IM Business" and,
such sale, the "IMB Sale") prior to, and as a condition to the consummation of,
the Merger. The terms and conditions of the Merger are more fully set forth in
the Agreement.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
business and financial information of Per-Se and NDCHealth,
respectively;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning Per-Se and NDCHealth (excluding the IM
Business), respectively;
(iii) reviewed certain financial forecasts and estimates relating to
Per-Se and NDCHealth (excluding the IM Business) prepared by the
managements of Per-Se and NDCHealth, respectively, including the
estimate of the management of Per-Se as to the after-tax cash
proceeds to be received by NDCHealth pursuant to the IMB Sale;
(iv) reviewed and discussed with senior executives of Per-Se information
relating to certain cost savings and strategic, financial and
operational benefits anticipated by the management of Per-Se to
result from the Merger;
(v) discussed the past and current operations, financial condition and
prospects of Per-Se and NDCHealth (excluding the IM Business) with
senior executives of Per-Se, and discussed the past and current
operations, financial condition and prospects of NDCHealth (excluding
the IM Business) with senior executives of NDCHealth;
(vi) reviewed the potential pro forma financial impact of the Merger on
the estimated earnings per share and certain credit statistics of
Per-Se;
(vii) reviewed the reported prices and trading activity for Per-Se Common
Stock and NDCHealth Common Stock;
(viii) compared the financial performance of Per-Se and NDCHealth with that
of certain other publicly traded companies we deemed relevant;
(ix) compared certain financial terms of the Merger to financial terms, to
the extent publicly available, of certain other business combination
transactions we deemed relevant;
Board of Directors
Per-Se Technologies, Inc.
August 26, 2005
Page 2
(x) reviewed the Agreement;
(xi) discussed with the managements of Per-Se and NDCHealth and their
respective counsel certain matters pertaining to outstanding
litigation involving NDCHealth, including the status and possible
consequences thereof on NDCHealth; and
(xii) performed such other analyses and considered such other factors as
we have deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the financial and other information reviewed by us for the
purposes of this opinion. With respect to the financial forecasts relating to
Per-Se, including information relating to certain cost savings and strategic,
financial and operational benefits anticipated by the management of Per-Se to
result from the Merger, we have assumed, at the direction of Per-Se, that they
have been reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of the management of Per-Se as to the future
financial performance of Per-Se and the other matters covered thereby. With
respect to the financial forecasts relating to NDCHealth, upon the advice of
NDCHealth and at the direction of Per-Se, we have assumed that such forecasts
have been reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of the management of NDCHealth as to the
future financial performance of NDCHealth (after giving effect to the IMB Sale).
We have not made any independent valuation or appraisal of the assets or
liabilities (contingent or otherwise) of Per-Se or NDCHealth, nor have we been
furnished with any such valuations or appraisals. We have assumed, with your
consent, that the Merger and related transactions, including the IMB Sale, will
be consummated as provided in or contemplated by the Agreement, with full
satisfaction of all covenants and conditions set forth in the Agreement and
without any waivers thereof. With respect to the IMB Sale, we further have
assumed, at the direction of Per-Se, that the IMB Sale (including the transfer
of the assets and liabilities of the IM Business in connection therewith) and
related transactions, arrangements and agreements will be effected without any
adverse consequences to or impact on Per-Se, NDCHealth or the Merger and that
the after-tax cash proceeds to be received by NDCHealth in the IMB Sale will not
vary from the estimate thereof provided to us in any respect material to our
analyses.
We were not requested to, and we did not, participate in the negotiations of the
terms of the Merger Agreement or the transactions contemplated thereby
(including the IMB Sale and related transactions), nor were we requested to, and
we did not, provide any advice or services in respect of the Merger or the
related transactions other than the delivery of this opinion. We express no view
or opinion as to any terms or aspects of the Merger or any related transaction
other than the Merger Consideration to the extent expressly specified herein
(including, without limitation, the form of the Merger Consideration, the form
or structure of the Merger or any related transaction or any aspect or
implication of the IMB Sale or any related transaction). In addition, no opinion
is expressed as to the relative merits of the Merger in comparison to other
transactions available to Per-Se or in which Per-Se might engage or as to
whether any transaction might be more favorable to Per-Se as an alternative to
the Merger, nor are we expressing any opinion as to the underlying business
decision of the Board of Directors of Per-Se to proceed with or effect the
Merger. We are not expressing any opinion as to what the value of Per-Se Common
Stock actually will be when issued pursuant to the Merger or the prices at which
Per-Se Common Stock or NDCHealth Common Stock will trade at any time.
Board of Directors
Per-Se Technologies, Inc.
August 26, 2005
Page 3
We have acted as financial advisor to the Board of Directors of Per-Se
solely in connection with this opinion and will receive a fee for our services
upon rendering this opinion. As you aware, we will be acting as sole lead
arranger for a bank financing for Per-Se, the proceeds of which will be used to
finance the Merger, and our affiliate, Bank of America, N.A., will act as a
lender in, and serve as administrative agent for, such bank financing, for which
services we and such affiliate expect to receive compensation. We also may act
as sole initial purchaser for a high-yield debt securities offering of Per-Se,
the proceeds of which also will be used to finance the Merger, for which
services we would expect to receive compensation. We or our affiliates in the
past have provided and in the future may provide financial advisory and
financing services to Per-Se, and have received and would expect to receive
compensation for the rendering of these services, including having acted in the
past as joint book-running manager and co-lead arranger for existing credit
facilities of Per-Se, as sole manager of a convertible debt offering of Per-Se,
and as lead dealer manager in connection with a debt tender offer by Per-Se. In
addition, Bank of America, N.A. is a lender under, and serves as administrative
agent for, existing credit facilities of Per-Se and also is a lender under, and
serves as documentation agent for, existing credit facilities of NDCHealth. We
also currently are a market maker in Per-Se Common Stock. In the ordinary course
of our businesses, we and our affiliates may actively trade or hold the
securities or loans of Per-Se and NDCHealth for our own accounts or for the
accounts of customers and, accordingly, we or our affiliates may at any time
hold long or short positions in such securities or loans.
It is understood that this letter is for the benefit and use of the Board of
Directors of Per-Se in connection with and for purposes of its evaluation of the
Merger. Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. It should be understood that subsequent developments may affect
this opinion, and we do not have any obligation to update, revise or reaffirm
this opinion. In addition, we express no opinion or recommendation as to how any
stockholder should vote at the stockholders' meetings held in connection with
the Merger.
Based upon and subject to the foregoing, including the various assumptions and
limitations set forth herein, we are of the opinion on the date hereof that the
Merger Consideration to be paid by Per-Se pursuant to the Agreement is fair,
from a financial point of view, to Per-Se.
Very truly yours,
/s/ Banc of America Securities LLC
BANC OF AMERICA SECURITIES LLC
ANNEX C
[THE BLACKSTONE GROUP LOGO]
August 26, 2005
Board of Directors
NDCHealth Corporation
Two National Data Plaza
Atlanta, GA 30329
United States of America
Members of the Board:
NDCHealth Corporation ("NDCHealth" or the "Company"), and Per-Se Technologies,
Inc. ("Per-Se") are parties to the Agreement of Merger, dated August 26, 2005
(the "Merger Agreement"), which provides for, among other things, the
acquisition of all of the Company's outstanding common stock, par value $0.125
per share (the "Transaction"). Pursuant to the Merger Agreement, NDCHealth
shareholders will receive: i) cash consideration of at least $13.00 per share
plus ii) a to be determined number of shares of Per-Se common stock equal to
$6.50 divided by the lesser of (x) the average of the volume weighted sales
prices per share for the 20 consecutive full trading days ending on the third
trading day, prior to, but not including, the closing date or (y) the lowest
price per share of Per-Se common stock or equivalent thereof issued, sold,
granted or otherwise disposed of by Per-Se within thirty-three (33) business
days prior to the closing date (except for (aa) the issuance of Per-Se common
stock or equivalent pursuant to stock options, units and other rights
outstanding as of the date of the Merger Agreement, (bb) the issuance of Per-Se
common stock or equivalent pursuant to stock options, units and other rights
hereafter granted pursuant to any employee or director stock incentive plan
approved by the Board of Directors of Per-Se, and (cc) the grant or issuance of
Per-Se common stock or equivalent hereafter pursuant to any employee or director
stock incentive plan approved by the Board of Directors of Per-Se) that, when
taken together (i) and (ii) shall equal $19.50 per share (the "Consideration").
You have asked us whether, in our opinion, the Consideration to be received by
NDCHealth shareholders is fair to such shareholders from a financial point of
view.
In arriving at the opinion set forth below, we have, among other things:
- Reviewed certain publicly available information concerning the
business, financial condition, and operations of NDCHealth that we
believe to be relevant to our inquiry.
- Reviewed certain internal information concerning the business,
financial condition, and operations of NDCHealth that we believe to
be relevant to our inquiry.
- Reviewed certain internal financial analyses relating to NDCHealth,
prepared and furnished to us by the management of NDCHealth.
- Reviewed certain estimates and forecasts relating to NDCHealth,
prepared and furnished to us by the management of NDCHealth.
- Reviewed the draft Agreement of Merger, dated August 26, 2005 and
Stock Purchase Agreement between Wolters Kluwer U.S. Corporation and
NDCHealth Corporation dated August 26, 2005 (the "Stock Purchase
Agreement")
- Held discussions with members of management of NDCHealth, including
those at the operations and segment level, concerning NDCHealth's
business, operating and regulatory environment, financial condition,
prospects, and strategic objectives.
- Compared certain financial information for NDCHealth with similar
information for certain other companies in industries similar to
those in which NDCHealth participates, the securities of which are
publicly traded where applicable
- Reviewed the financial terms of certain recent business combinations
in industries similar to those in which NDCHealth participates.
- Performed discounted cash flow analyses utilizing NDCHealth's
financial projections.
- Reviewed certain publicly available information concerning the
business, financial condition, and operations of Per-Se that we
believe to be relevant to our inquiry.
- Held discussions with members of management of Per-Se concerning
Per-Se's business, operating and regulatory environment, financial
condition, prospects, and strategic objectives.
- Performed discounted cash flow analysis utilizing financial
projections for Per-Se based on NDCHealth's managements' guidance.
- Performed discounted cash flow analysis utilizing pro forma
financial projections based on Per-Se's and NDCHealth's managements'
guidance.
- Performed such other studies and analyses, and took into account
such other matters, as we deemed appropriate
In preparing this opinion, we have relied, without independent verification,
upon the accuracy and completeness of all financial and other information that
is available from public sources and all projections and other information
provided to us by NDCHealth or otherwise reviewed by us. We have assumed that
the financial and other projections prepared by NDCHealth, and the assumptions
underlying those projections, including the amounts and the timing of all
financial and other performance data, are reasonably prepared and represent
management's best estimates as of the date of their preparation. We have further
relied upon the assurances of the management of NDCHealth that they are not
aware of any facts that would make the information and projections provided by
them inaccurate, incomplete or misleading.
While we have reviewed NDCHealth's and Per-Se's historical and projected
financial results, we have not made an independent evaluation or appraisal of
either Company's assets or liabilities. We also have not performed due diligence
on either Company's physical properties or facilities; sales, marketing,
distribution or service organizations; or product markets. We have not
considered in reaching the conclusions set forth in this opinion the relative
merits of the Transaction as compared to any other business plan or opportunity
that might be available to the Company.
We have assumed that the transaction contemplated by the Agreement of Merger
will be consummated on substantially the terms set forth therein. This opinion
is necessarily based upon market, economic, financial and other conditions as
they exist and can be evaluated as of the date hereof only.
It is understood that this letter is for the information and assistance of the
full Board of Directors only and, without our prior written consent, is not to
be quoted, summarized, paraphrased or excerpted, in whole or in part, in any
registration statement, prospectus or proxy statement, or in any other report,
document, release or other written or oral communication prepared, issued or
transmitted by the Board of Directors. However, Blackstone understands that the
existence of any opinion may be disclosed by the Company in a press release and
a description of this opinion will be contained in, and a copy of this opinion
will be filed as an exhibit to, the disclosure documents relating to the
Transaction and agrees to not unreasonably withhold its written approval for
such use as appropriate following Blackstone's review of, and reasonable
opportunity to comment on, any such document.
C-2
We have acted as financial advisor to NDCHealth with respect to the Transaction
and will receive a fee from NDCHealth for our services which is contingent upon
the consummation of the Transaction. A portion of our fees will also be payable
upon delivery of this opinion. In addition, the Company has agreed to reimburse
us for out-of-pocket expense and to indemnify us for certain liabilities arising
out of the performance of such services (including, the rendering of this
opinion).
Based on the foregoing and subject to the qualifications set forth herein, we
are of the opinion that, as of the date hereof, the Consideration to be received
by the shareholders of NDCHealth is fair to such shareholders from a financial
point of view.
Very truly yours,
/s/ THE BLACKSTONE GROUP L.P.
The Blackstone Group L.P.
C-3
ANNEX D
(GOLDMAN, SACHS & CO. LOGO)
PERSONAL AND CONFIDENTIAL
August 26, 2005
Board of Directors
NDCHealth Corporation
National Data Plaza
Atlanta, GA 30329
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to the holders of the outstanding shares of common stock, par value $0.125 per
share (the "Shares"), of NDCHealth Corporation (the "Company") of the Per Share
Merger Consideration (as defined below) to be received by such holders pursuant
to the Agreement and Plan of Merger, dated as of August 26, 2005 (the
"Agreement"), by and among Per-Se Technologies, Inc. ("Per-Se"), Royal Merger
Co., a wholly owned subsidiary of Per-Se ("Purchaser"), and the Company.
Pursuant to the Agreement, Purchaser will be merged with and into the Company
(the "Merger") and each outstanding Share will be converted (i) into an amount
in cash equal to or greater than $13.00 but less than or equal to $19.50, as
determined by Per-Se no later than five business days prior to the meeting of
the Company's shareholders held to consider the Merger (the "Cash
Consideration") and (ii) that number of shares of common stock, par value $0.01
per share (the "Per-Se Common Stock"), of Per-Se equal to the amount, if any, by
which $19.50 exceeds the Cash Consideration divided by the lesser of the Average
Price and the lowest price per share of any Per-Se Common Stock received by
Per-Se pursuant to certain dispositions thereof within 33 business days prior to
the consummation of the Merger (the "Stock Consideration" and, together with the
Cash Consideration, the "Per Share Merger Consideration"). The obligations of
Per-Se, Purchaser and, provided it is not in material breach under the Stock
Purchase Agreement (as defined below), the Company to consummate the transaction
contemplated by the Agreement are conditioned upon, among other things, the
consummation of the Information Restructuring, including the sale of the
outstanding shares of NDC Health Information Services (Arizona), Inc., a wholly
owned subsidiary of the Company ("Information Services"), for $382,100,000 in
cash, subject to a working capital adjustment, pursuant to the Stock Purchase
Agreement, dated as of August 26, 2005 (the "Stock Purchase Agreement"), by and
among Wolters Kluwer U.S. Corporation ("Wolters Kluwer"), Wolters Kluwer
Acquisition Sub, Inc., a wholly owned subsidiary of Wolters Kluwer, Information
Services and the Company. Capitalized terms used but not defined herein shall
have the meanings specified in the Agreement.
Goldman, Sachs & Co. and its affiliates, as part of their investment banking
business, are continually engaged in performing financial analyses with respect
to businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and other transactions as
well as for estate, corporate and other purposes. We have acted as financial
advisor to the Company in connection with, and have participated in certain of
the negotiations leading to, the transactions contemplated by the Agreement,
including the Merger and the Information Restructuring (the "Transactions"). We
expect to receive fees for our services in connection with the Transactions, all
of which are contingent upon consummation of the Transactions, and the Company
has
Board of Directors
NDCHealth Corporation
August 26, 2005
Page Two
agreed to reimburse our expenses and indemnify us against certain liabilities
arising out of our engagement. In addition, we have provided certain investment
banking services to the Company from time to time, including providing ongoing
advisory services to the Company as well as having acted as its financial
advisor with respect to its acquisition of Arclight Systems LLC in May 2002; as
co-placement agent with respect to the offering of the $200 million aggregate
principal amount of senior subordinated notes of the Company in November 2002;
as its financial advisor with respect to the sale of its UK operations in
October 2004; and as its financial advisor in connection with the sale of its
German operations in June 2005. We have provided certain investment banking
services to Wolters Kluwer from time to time, including having acted as its
financial advisor with respect to its divestiture of Kluwer Academic Publishers
in January 2003. We also may provide investment banking services to the Company,
Per-Se and Wolters Kluwer in the future. In connection with the above-described
investment banking services we have received, and may receive, compensation.
Goldman, Sachs & Co. is a full service securities firm engaged, either directly
or through its affiliates, in securities trading, investment management,
financial planning and benefits counseling, risk management, hedging, financing
and brokerage activities for both companies and individuals. In the ordinary
course of these activities, Goldman, Sachs & Co. and its affiliates may provide
such services to the Company, Per-Se, Wolters Kluwer and their respective
affiliates, may actively trade the debt and equity securities (or related
derivative securities) of the Company, Per-Se and Wolters Kluwer for their own
account and for the accounts of their customers and may at any time hold long
and short positions of such securities.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Stock Purchase Agreement; the Information Documents; annual
reports to stockholders and Annual Reports on Form 10-K of the Company and
Per-Se for the five fiscal years ended May 27, 2005 and December 31, 2004,
respectively; certain interim reports to stockholders and Quarterly Reports on
Form 10-Q of the Company and Per-Se; certain other communications from the
Company and Per-Se to their respective stockholders; certain internal financial
analyses and forecasts for Per-Se prepared by the management of Per-Se; and
certain internal financial analyses and forecasts for the Company, Information
Services and Per-Se prepared by the management of the Company, including certain
cost savings and operating synergies projected by the management of the Company
to result from the Transactions. We also have held discussions with members of
the senior managements of the Company and Per-Se regarding their assessment of
the strategic rationale for, and the potential benefits of, the Transactions and
the past and current business operations, financial condition and future
prospects of their respective companies. In addition, we have reviewed the
reported price and trading activity for the Shares and the shares of Per-Se
Common Stock, compared certain financial and stock market information for the
Company and Per-Se with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in the healthcare information technology industry
specifically and in other industries generally and performed such other studies
and analyses, and considered such other factors, as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial,
accounting, legal, tax and other information discussed with or reviewed by us
and have assumed such accuracy and completeness for purposes of rendering this
opinion. As instructed by you, for purposes of our opinion, we have evaluated
certain sensitivities to the Company's forecasts to reflect your views of the
risks and uncertainties of the Company achieving its forecasts. In addition, we
have not made an independent evaluation or appraisal of the assets and
liabilities (including any contingent, derivative or off-balance-sheet assets
and liabilities) of the Company or Per-Se or any of their respective
subsidiaries and we have not been furnished with any such evaluation or
appraisal. We also have assumed that (i) all governmental, regulatory or other
consents and approvals necessary for the consummation of the Transactions will
be obtained without, and all outstanding actions, proceedings and investigations
will not have, any adverse effect on the Company or Per-Se or on the expected
D-2
Board of Directors
NDCHealth Corporation
August 26, 2005
Page Three
benefits of the Transactions in any way meaningful to our analysis and (ii) the
Information Restructuring will be consummated in accordance with the terms of
the Stock Purchase Agreement.
Our opinion does not address the underlying business decision of the Company to
engage in the Transactions, nor are we expressing any opinion as to the prices
at which the Shares or the shares of Per-Se Common Stock will trade at any time.
Our opinion is necessarily based on economic, monetary, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Our advisory services and the opinion expressed herein are provided
for the information and assistance of the Board of Directors of the Company in
connection with its consideration of the Transactions and such opinion does not
constitute a recommendation as to how any holder of Shares should vote with
respect to the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Per Share Merger Consideration to be received by holders of Shares
pursuant to the Agreement is fair from a financial point of view to such
holders.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
Goldman, Sachs & Co.
D-3
ANNEX E
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
Section 262 Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to sec.
251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or sec.
264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to sec.sec. 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to sec. 228 or
sec. 253 of this title, then, either a constituent corporation before the
effective date of the merger or consolidation, or the surviving or resulting
corporation within ten days thereafter, shall notify each of the holders of any
class or series of stock of such constituent corporation who are entitled to
appraisal rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such class or series of
stock of such constituent corporation, and shall include in such notice a copy
of this section. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such notice
did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a second
notice before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective
E-2
date. If no record date is fixed and the notice is given prior to the effective
date, the record date shall be the close of business on the day next preceding
the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
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(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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