UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

Filed by the Registrant þ

Filed by a Party other than the Registrant

Check the appropriate box:

þ		Preliminary Proxy Statement Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) Definitive Proxy Statement Definitive Additional Materials Soliciting Material Pursuant to Rule 14a-12

Per-Se Technologies, Inc.

Payment of Filing Fee (Check the appropriate box):

No fee required.

þ		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:
			Common stock, par value $0.01 per share (“Per-Se common stock”)
	(2)		Aggregate number of securities to which transaction applies:
			48,015,300 shares of Per-Se common stock, consisting of (i) 39,258,473 shares of Per-Se common stock issued and outstanding as of November 30, 2006, (ii) 2,538,752 shares of Per-Se common stock issuable upon conversion at $28.00 per share of the Per-Se 3.25% convertible subordinated debentures due 2024; (iii) options to purchase 5,448,318 shares of Per-Se common stock outstanding with exercise prices below $28.00 per share; (iv) 122,312 shares of Per-Se common stock with respect to outstanding deferred amount stock units and enhancement bonus stock units; (v) a maximum of 505,186 shares of Per-Se common stock with respect to outstanding performance-based restricted stock units; and (vi) 142,259 shares of Per-Se common stock with respect to outstanding service-based restricted stock units.
	(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):
			The filing fee was determined based upon the sum of (a) 39,258,473 shares of Per-Se common stock, multiplied by $28.00 per share; (b) 2,538,752 shares of Per-Se common stock issuable upon conversion of the Per-Se 3.25% convertible subordinated debentures due 2024, multiplied by $28.00 per share; (c) options to purchase 5,448,318 shares of Per-Se common stock outstanding with exercise prices below $28.00 per share, multiplied by $15.44 per share (which is the excess of $28.00 over the weighted average exercise price per share); (d) 122,312 shares of Per-Se common stock with respect to outstanding deferred amount stock units and enhancement bonus stock units, multiplied by $28.00 per share; (e) a maximum of 505,186 shares of Per-Se common stock with respect to outstanding performance-based restricted stock units multiplied by $28.00 per share; and (f) 142,259 shares of Per-Se common stock with respect to outstanding service-based restricted stock units multiplied by $28.00 per share. In accordance with Section 14(g)(1)(A) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying 0.000107 by the sum of the amounts calculated pursuant to clauses (a), (b), (c), (d), (e) and (f) of the preceding sentence.
	(4)		Proposed maximum aggregate value of transaction:
			$1,275,997,525.92
	(5)		Total fee paid:
			$136,531.74

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.

	(1)		Amount Previously Paid:
	(2)		Form, Schedule or Registration Statement No.:
	(3)		Filing Party:
	(4)		Date Filed:

 

PRELIMINARY PROXY STATEMENT, SUBJECT TO COMPLETION

 

 

December  , 2006

 

Dear Stockholder:

 

You are cordially invited to attend a special meeting of the stockholders of Per-Se Technologies, Inc., which will be held at the offices of King & Spalding LLP, 1180 Peachtree Street, Atlanta, Georgia 30309 on          , 2007, beginning at 10:00 a.m., local time.

 

At the special meeting, we will ask you to consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of November 5, 2006, among McKesson Corporation (“McKesson”), Packet Merger Sub Inc. and Per-Se Technologies, Inc. (“Per-Se,” “we,” “us,” or “our”), providing for the acquisition of Per-Se by McKesson. If the merger is completed, Per-Se will become a wholly owned subsidiary of McKesson, and you will receive $28.00 in cash, without interest and less any applicable withholding taxes, for each share of our common stock that you own and you will cease to have an ownership interest in the continuing business of Per-Se. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement and you are encouraged to read it in its entirety.

 

Our board has unanimously approved and declared advisable the merger and the merger agreement and unanimously determined that the terms of the merger agreement are fair to, and in the best interests of, Per-Se and its stockholders. OUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE MERGER AGREEMENT.

 

The proxy statement attached to this letter provides you with information about the merger and the special meeting. Please read the entire proxy statement carefully. You may also obtain additional information on us from documents we filed with the Securities and Exchange Commission.

 

Whether or not you plan to attend the special meeting in person, please grant a proxy by telephone, over the Internet or by completing, signing, dating and returning promptly the enclosed proxy card. If you hold shares through a broker or other nominee, you should follow the procedures provided by your broker or nominee. These actions will not limit your right to vote in person if you wish to attend the special meeting and vote in person.

 

If you have any questions or need assistance voting your shares, please call MacKenzie Partners, Inc., which is assisting us, toll-free at (800) 322-2885.

 

On behalf of the board of directors of Per-Se, I thank you in advance for your cooperation and continued support.

 

On behalf of your Board of Directors,

 

Philip M. Pead

Chairman, President and Chief Executive Officer

 

 

This proxy statement is dated December  , 2006 and is first being mailed to stockholders on or about December  , 2006.

 

 

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON          , 2007

 

TO THE STOCKHOLDERS OF PER-SE TECHNOLOGIES, INC.:

 

NOTICE IS HEREBY GIVEN that the special meeting of stockholders of Per-Se Technologies, Inc. will be held at the offices of King & Spalding LLP, 1180 Peachtree Street, Atlanta, Georgia 30309, on          , 2007, beginning at 10:00 a.m., local time, for the following purposes:

 

1. Adoption of the Merger Agreement with McKesson Corporation.  To consider and vote on a proposal to adopt the Agreement and Plan of Merger, dated as of November 5, 2006 (as it may be amended from time to time), among McKesson Corporation, Packet Merger Sub Inc. and Per-Se Technologies, Inc., and the merger contemplated thereby.

 

2. Adjournment of the Special Meeting.  To approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the merger agreement.

 

3. Other Matters.  To transact such other business as may properly come before the meeting or any adjournment thereof.

 

The board of directors of Per-Se has fixed the close of business on December  , 2006 as the record date for the special meeting and any adjournment or postponement thereof. Only stockholders of record of our common stock as of the close of business on the record date will be entitled to notice of, and to vote at, the special meeting and any adjournment or postponement of the special meeting.

 

Your vote is important, regardless of the number of shares of our common stock you own. Even if you plan to attend the meeting in person, we request that you grant a proxy by telephone, over the Internet or by completing, signing, dating and returning the enclosed proxy and thus ensure that your shares will be represented at the meeting if you are unable to attend. If you sign, date and mail your proxy card without indicating how you wish to vote, your vote will be counted as a vote “FOR” the adoption of the merger agreement, “FOR” the proposal to adjourn the meeting, if necessary or appropriate, to permit further solicitation of proxies, and in accordance with the recommendation of the board on any other matters properly brought before the meeting for a vote. The adoption of the merger agreement requires the affirmative vote of the holders of a majority of the shares of our common stock issued and outstanding on the record date for the special meeting. The approval of the proposal to adjourn the meeting, if necessary or appropriate, to permit further solicitation of proxies requires the affirmative vote of a majority of the votes cast at the special meeting on the proposal.

 

If you fail to vote by proxy or in person, it will have the same effect as a vote against the adoption of the merger agreement, but will not affect the adjournment, if necessary or appropriate, to permit further solicitation of proxies. If you are a stockholder of record and wish to vote in person at the special meeting, you may withdraw your proxy and vote in person.

 

Holders of Per-Se’s common stock who do not vote in favor of the adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares if the merger is completed, but only if they comply with all applicable requirements of Delaware law, which are summarized in the accompanying proxy statement. See “Appraisal Rights” beginning on page 52 and Annex D.

 

Please carefully read the proxy statement and other material concerning our company, the merger and the other proposals enclosed with this notice for a more complete statement regarding the matters to be acted upon at the special meeting.

 

By Order of the Board of Directors,

 

Paul J. Quiner

Senior Vice President, General Counsel and

Secretary

 

TABLE OF CONTENTS

 

 

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the special meeting and the proposed merger. These questions and answers may not address all questions that may be important to you as our stockholder. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement.

 

 

 

SUMMARY

	•	Each outstanding option to purchase shares of our common stock having an exercise price of less than $28.00 per share, whether or not then exercisable or vested, will be canceled and converted into the right to receive a cash payment equal to the difference between $28.00 and the exercise price per share

		of the option, multiplied by the number of shares of our common stock subject to the option, without interest and less any applicable withholding tax.

	•	Each outstanding option with an exercise price equal to or greater than $28.00 per share will be cancelled without payment for such option and will have no further force or effect.
	•	Each outstanding performance-based restricted stock unit, whether vested or unvested, will be canceled and converted into the right to receive a cash payment equal to $28.00 multiplied by the number of shares of our common stock subject to such performance-based restricted stock unit, without interest and less any applicable withholding tax.
	•	Each outstanding service-based restricted stock unit will cease to represent a right to receive, upon settlement, shares of our common stock and will instead be assumed by McKesson and converted into the right to receive, upon settlement, a number of shares of McKesson common stock equal to the number of shares of our common stock subject to such service-based restricted stock unit multiplied by the ratio of $28.00 to the closing price of McKesson common stock on the closing date of the merger.
	•	Each outstanding deferred amount stock unit and enhancement bonus stock unit will cease to represent a right to receive, upon distribution, shares of our common stock and will instead be assumed by McKesson and converted into the right to receive, upon distribution, a number of shares of McKesson common stock equal to the number of shares of our common stock subject to such stock unit multiplied by the ratio of $28.00 to the closing price of McKesson common stock on the closing date of the merger.

	•	the adoption by our stockholders of the merger agreement;
	•	the expiration or termination of the applicable waiting period in the United States under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which we refer to as the HSR Act (the Federal Trade Commission granted early termination of the waiting period on December 4, 2006);
	•	the absence of a governmental order prohibiting the merger;
	•	performance by each of the parties of its covenants under the merger agreement in all material respects; and
	•	the accuracy of our representations and warranties, except, with certain exceptions, to the extent the failure of such representations and warranties to be true and correct would not constitute a material adverse effect.

	•	by either McKesson or us if:

	•	the merger is not completed on or before April 6, 2007; provided that (1) this right to terminate the merger agreement is not available to any party whose breach of a representation, warranty or covenant has been a principal cause of or resulted in the failure of the merger to be completed on or before such date and (2) if the waiting period under the HSR Act has not been terminated or expired as of April 6, 2007 but all of the other conditions to closing have been satisfied, then the termination date can be extended by either party until July 6, 2007;
	•	a final, non-appealable governmental order prohibits the merger;
	•	our stockholders do not adopt the merger agreement at the special meeting or any adjournment or postponement of the special meeting;
	•	there is a breach by the non-terminating party of its representations, warranties, covenants or agreements in the merger agreement such that the closing conditions would not be satisfied;

	•	by McKesson if:

	•	our board of directors withdraws or adversely modifies, or makes any public statement that is materially inconsistent with, its recommendation or approval of the merger agreement;
	•	we breach our obligations with respect to non-solicitation of third-party proposals, calling a stockholders meeting to obtain stockholder approval, and recommendation of the merger agreement, the merger and the transactions contemplated thereby (other than inadvertent breaches or breaches that can be cured);
	•	our board of directors fails to publicly reaffirm its adoption and recommendation of the merger agreement, the merger or the other transactions contemplated by the merger agreement within 10 business days of a written request by McKesson to provide such reaffirmation following a third party’s acquisition proposal that is publicly announced or otherwise becomes publicly known; or

	•	by us in order to enter into an agreement constituting a superior proposal in accordance with the provisions described under “The Merger Agreement — Acquisition Proposals; Change in the Recommendation of Our Board of Directors” beginning on page 40.

	•	determined that it was advisable, fair to and in the best interests of Per-Se and our stockholders for us to enter into the merger agreement and consummate the merger and the other transactions contemplated by the merger agreement; and
	•	approved the merger agreement and the merger and directed that they be submitted to our stockholders for approval at a special meeting of our stockholders.

	•	our directors and executive officers will receive cash consideration for their vested and unvested stock options and certain vested and unvested restricted stock units;
	•	McKesson will assume our obligations with respect to deferred amount stock units, enhancement bonus stock units and service-based restricted stock units held by our directors and executive officers and such deferred amount stock units, enhancement bonus stock units and service-based restricted stock units will be converted into the right to receive McKesson common stock (rather than Per-Se common stock) upon settlement or distribution, as applicable;
	•	our executive officers are parties to employment agreements that provide certain enhanced severance payments and benefits to the executives if, in connection with the closing of the merger, we terminate the executive’s employment without “cause” (as defined in each employment agreement) or, in some cases, the executive terminates his or her employment for “good reason” (as defined in each employment agreement); and
	•	the merger agreement provides for indemnification arrangements for each of our current and former directors and officers, including the obligations of McKesson to maintain or obtain comparable relevant insurance policies for the benefit of our directors and officers.

 

This proxy statement, and the documents to which we refer you in this proxy statement, contain forward-looking statements about our plans, objectives, expectations and intentions. Forward-looking statements include information concerning possible or assumed future results of operations of our company, the expected completion and timing of the merger and other information relating to the merger. Generally these forward-looking statements can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “estimate,” “expect,” “may,” “should,” “plan,” “intend,” “project” and similar expressions. You should read statements that contain these words carefully. They discuss our future expectations or state other forward-looking information, and may involve known and unknown risks over which we have no control. Those risks include, without limitation:

 

 

We believe that the assumptions on which our forward-looking statements are based are reasonable. However, we cannot assure you that the actual results or developments we anticipate will be realized or, if realized, that they will have the expected effects on our business or operations. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this proxy statement and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Forward-looking statements speak only as of the date of this proxy statement or the date of any document incorporated by reference in this document. Except as required by applicable law or regulation, we do not undertake to release the results of any revisions of these forward-looking statements to reflect future events or circumstances.

 

This proxy statement is furnished in connection with the solicitation of proxies in connection with a special meeting of our stockholders. This proxy statement, the notice of the special meeting and the enclosed form of proxy are first being mailed to our stockholders on December   , 2006.

 

We will hold the special meeting at the offices of King & Spalding LLP, 1180 Peachtree Street, Atlanta, Georgia 30309, on          , 2007, beginning at 10:00 a.m., local time.

 

At the special meeting, we will ask you to (1) adopt the merger agreement and the merger, and (2) approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the merger agreement and the merger. A copy of the merger agreement is attached to this proxy statement as Annex A. In addition, you will be asked to transact any other business that is properly brought before the special meeting. We are not aware of any additional business that may come before the special meeting.

 

Our board of directors (1) approved and adopted the merger agreement and approved the merger and the transactions contemplated by the merger agreement and (2) determined that the merger is advisable and in the best interests of our stockholders. Accordingly, our board of directors recommends that you vote “FOR” adoption of the merger agreement and “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the merger agreement.

 

Only holders of record of our common stock at the close of business on December   , 2006, the record date, are entitled to notice of and to vote at the special meeting. On the record date, [          ] shares of our common stock were issued and outstanding and held by approximately [          ] holders of record. Each holder of record of our common stock will be entitled to one vote per share at the special meeting on the proposal to adopt the merger agreement and the merger, the proposal to adjourn the special meeting and, if necessary or appropriate, any other business that may come before the special meeting.

 

The holders of a majority of the outstanding shares of our common stock on the record date must be present, either in person or by proxy, to constitute a quorum at the special meeting. We will count abstentions, either in person or by proxy, and broker non-votes (discussed below) for the purpose of establishing a quorum. Once a share is represented at the special meeting it will be counted for the purpose of determining a quorum at the special meeting and any adjournment or postponement of the special meeting. However, if a new record date is set for an adjourned or postponed special meeting, then a new quorum will have to be established.

 

If a quorum is not present at the special meeting, the holders of a majority of the common stock represented at the special meeting may adjourn the meeting to solicit additional proxies. In the event that a quorum is not present at the special meeting, it is expected that the meeting will be adjourned or postponed to solicit additional proxies.

 

The adoption of the merger agreement and the merger requires the affirmative vote of the holders of a majority of the shares of our common stock issued and outstanding on the record date for the special meeting. If you abstain from voting, either in person or by proxy, or do not instruct your broker or other nominee how to vote your shares, it will effectively be a vote against Proposal 1, adoption of the merger agreement, because

adoption of this proposal requires the affirmative vote of a majority of the issued and outstanding shares of our common stock, but will not count as a vote cast on Proposal 2, adjournment of the special meeting, if necessary, to solicit additional proxies, and will not affect the outcome of the vote on such proposal.

 

Per-Se is soliciting your proxy. In addition to the solicitation of proxies by use of the mail, officers and other employees of Per-Se may solicit the return of proxies by personal interview, telephone, e-mail or facsimile. We will not pay additional compensation to our officers and employees for their solicitation efforts, but we will reimburse them for any out-of-pocket expenses they incur in their solicitation efforts. We will request that brokerage houses and other custodians, nominees and fiduciaries forward solicitation materials to the beneficial owners of stock registered in their names. We will bear all costs of preparing, assembling, printing and mailing the notice of special meeting of stockholders, this proxy statement, the enclosed proxy and any additional materials, as well as the cost of forwarding solicitation materials to the beneficial owners of stock and all other costs of solicitation.

 

We have retained MacKenzie Partners, Inc. to aid in the solicitation of proxies for the special meeting. MacKenzie Partners, Inc. will receive a base fee of $10,000 plus reimbursement of out-of-pocket fees and expenses.

 

To vote your shares, you should grant a proxy by telephone, over the Internet or by marking, signing, dating and returning the enclosed proxy card in the enclosed postage-paid envelope. Voting by proxy does not prohibit you from voting in person should you decide to attend the special meeting. If your shares are held in the name of a bank, broker or other nominee, you will be provided voting instructions from the nominee and, in order to vote at the special meeting, you must obtain a legal proxy, executed in your name, from the nominee.

 

If you return your proxy card and it is completed, signed and dated, your shares will be voted at the special meeting in accordance with your instructions. If you return your proxy card and it is unsigned, then your vote cannot be counted. If you return your proxy card and it is signed and dated, but you do not fill out the voting instructions on the proxy card, the shares represented by your proxy will be voted “FOR” the adoption of the merger agreement and “FOR” the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the merger agreement and in accordance with the recommendation of our board on any other matters properly brought before the special meeting for a vote.

 

Stockholders of record and many stockholders who hold their shares through a broker or bank may have the option to submit their proxies or voting instructions via the Internet or by telephone. The Internet and telephone voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to grant a proxy and to allow stockholders to confirm that their instructions have been properly recorded. There are separate arrangements for using the Internet and telephone to submit your proxy depending on whether you are a stockholder of record or your shares are held in “street name” by your broker. Per-Se stockholders of record may submit their proxies:

 

 

Stockholders who hold their shares of our common stock in “street name,” meaning in the name of a bank, broker or other nominee who is the record holder, should follow the directions provided by their bank, broker or other nominee to see which options are available and the procedures to be followed.

We do not expect that any matter other than the ones discussed in this proxy statement will be brought before the special meeting. If, however, any other matters are properly presented, the persons named as proxies will vote in accordance with their judgment as to matters that they believe to be in the best interests of our stockholders.

 

DO NOT SEND YOUR STOCK CERTIFICATES WITH YOUR PROXY. A LETTER OF TRANSMITTAL WITH INSTRUCTIONS FOR THE SURRENDER OF YOUR COMMON STOCK CERTIFICATES WILL BE MAILED TO YOU AS SOON AS PRACTICABLE AFTER COMPLETION OF THE MERGER.

 

Our directors and officers beneficially owned [          ] shares of our common stock as of the record date. These shares represent in total approximately [     ]% of the total voting power of our voting securities outstanding and entitled to vote as of the record date. We currently expect that our directors and officers will vote their shares in favor of the merger proposal.

 

Concurrent with the execution of the merger agreement, our largest stockholder, ValueAct Capital Master Fund, L.P., and certain of its affiliates, entered into a voting agreement with McKesson and, for limited purposes, Per-Se, pursuant to which ValueAct and certain of its affiliates agreed to vote their shares of Per-Se common stock, which represent approximately 15.4% of Per-Se’s outstanding common stock, in favor of the merger. The voting agreement will terminate upon any termination of the merger agreement and in certain other specified circumstances. A copy of the voting agreement is attached to this proxy statement as Annex B.

 

If you hold your shares in your name, you have the unconditional right to revoke your proxy at any time prior to its exercise by employing any of the following three methods:

 

 

Any written notice of revocation should be delivered to our Secretary at or before the taking of the vote at the special meeting. Revocation of your proxy, without any further action, will mean your shares will not be voted at the special meeting or counted towards satisfying the quorum requirements. Your attendance at the special meeting will not revoke your proxy unless you specifically request to vote at the special meeting.

 

If you have instructed your broker to vote your shares, you must follow directions received from your broker to change your vote. You cannot vote shares held in “street name” by returning a proxy card directly to us or by voting in person at the special meeting, unless you obtain a legal proxy from your bank or broker.

 

Stockholders who have questions regarding the materials, need assistance voting their shares or require additional copies of the proxy statement or proxy card, should contact or call (toll free):

 

MACKENZIE PARTNERS, INC.

105 Madison Avenue

New York, NY 10016

(800) 322-2885

 

Please do not send any certificates representing shares of our common stock with your proxy card. For a description of procedures for exchanging certificates representing shares of our common stock, see “Proposal 1 — The Merger Agreement — Payment Procedures” beginning on page 36.

 

We are not currently aware of any business to be acted upon at the special meeting other than the matters discussed in this proxy statement. Under the DGCL, business transacted at the special meeting is limited to matters specifically designated in the notice of special meeting, which is provided at the beginning of this proxy statement. If other matters do properly come before the special meeting, we intend that shares of our common stock represented by properly submitted proxies will be voted by the persons named as proxies on the proxy card in accordance with the recommendation of our board.

 

In addition, the grant of a proxy will confer discretionary authority on the persons named as proxies on the proxy card to vote in accordance with their best judgment on procedural matters incident to the conduct of the special meeting. Any adjournment or postponement may be made without notice by an announcement made at the special meeting. If the persons named as proxies on the proxy card are asked to vote for one or more adjournments of the meeting for matters incidental to the conduct of the meeting, such persons will have the authority to vote in their discretion on such matters. However, if the persons named as proxies on the proxy card are asked to vote for one or more adjournments of the meeting to permit further solicitation of proxies if there are not sufficient votes at the time of the meeting to adopt the merger agreement, they will only have the authority to vote on such matter as instructed by you or your proxy or, if no instructions are provided, in favor of such adjournment. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow our stockholders who have already granted their proxies to revoke them at any time prior to their use.

 

Per-Se, a corporation organized in 1985 under the laws of the State of Delaware, 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 three operating divisions: Physician Solutions, Hospital Solutions and Pharmacy Solutions. 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, healthcare organizations, integrated delivery networks and retail, mail order and managed care pharmacies. Per-Se services more than 115,000 physicians, 3,000 hospitals and 50,000 pharmacies. Per-Se’s principal executive officers are located at 1145 Sanctuary Parkway, Suite 200, Alpharetta, Georgia 30004 and its telephone number is (770) 237-4300.

 

McKesson, a corporation organized under the laws of the State of Delaware, is a leading healthcare services company dedicated to helping its customers deliver high-quality healthcare by reducing costs, streamlining processes and improving the quality and safety of patient care. Over the course of its 173-year history, McKesson has grown by providing pharmaceutical supply management across the spectrum of care; medical-surgical supplies to non-acute care settings; healthcare information technology for hospitals, physicians, homecare and payors; pharmacy automation; and services for manufacturers and payors designed to improve outcomes for patients. McKesson’s principal executive offices are located at 1 Post Street, San Francisco, California 94104 and its telephone number is (415) 983-8300.

 

Packet Merger Sub Inc., a corporation organized under the laws of the State of Delaware, is a direct wholly owned subsidiary of McKesson, formed solely for the purpose of facilitating the merger. Packet’s principal executive offices are located at 1 Post Street, San Francisco, California 94104.

 

Our board periodically evaluates our prospects and growth opportunities, including assessing various strategic alternatives available to us. In particular, our board regularly considers our ability to maximize stockholder value through profitable revenue growth and efficiency gains, as well as the limits on our ability to achieve such objectives, particularly the limits on organic growth based on our historic growth performance and market penetration. In evaluating our prospects and growth opportunities, we also regularly consider the dynamics with respect to each of our business segments and the industries in which those segments operate.

 

In our Hospital Solutions division, our claims management solutions compete in a mature market that is facing increased competition from enterprise-wide financial and clinical software vendors. Meaningful revenue and earnings growth in the division is dependent upon the expansion of our revenue cycle management outsourcing services, which is a newly emerging market. From a competitive standpoint, it is a highly fragmented market primarily consisting of smaller regional vendors with larger, better capitalized vendors entering the market to compete for market share. While Per-Se considers the outsourcing services business to be a growth opportunity, we may need to acquire additional small outsourcing vendors to establish critical mass as well as make investments in technology and infrastructure over the coming years to support the business.

 

In our Pharmacy Solutions division, our value added network services compete in a mature market with significant pricing pressure. Substantial revenue and earnings growth in the division is dependent upon the success of new product introductions in our pharmacy systems business.

 

In our Physician Solutions division, meaningful growth and margin expansion is dependent upon sales execution and client retention in the outsourcing segment. It is a highly competitive market with larger, better capitalized IT outsourcing and consulting vendors beginning to enter the market.

 

In light of the foregoing factors among others, each of our divisions faces challenges to achieve growth targets due to not only the successful execution of new solution offerings but also from a growing spectrum of competition from larger, better capitalized companies and others entering into our markets. To capitalize on our growth plans and to meet competitive pressures, increased investment in each of our business segments would be required.

 

The board also regularly considers acquisition opportunities and the impact such acquisitions would have on stockholder value, including the costs and risks associated with the integration of acquisitions, the availability of additional potential acquisitions, the opportunity to consummate such acquisitions at prices that maximize stockholder value and our ability to integrate such acquisitions. In evaluating our prospects and growth opportunities, our board has also considered whether the sale of Per-Se would be in the best interests of our stockholders. In addition, our board has considered on several occasions specific sale opportunities proposed by large, potential strategic acquirers. In each of these cases, we and the potential acquiror terminated discussions prior to the consummation of any transaction for a variety of reasons.

 

Following our acquisition of NDCHealth Corporation in January 2006, our management team developed plans to approach McKesson about opportunities to license certain of our pharmacy solutions and to utilize our pharmacy network to improve the added value of products and solutions that McKesson offers to its customers. Our Chairman, President and Chief Executive Officer, Philip Pead, arranged to meet with John Hammergren, Chairman, President and Chief Executive Officer of McKesson on May 25, 2006. At that meeting, Mr. Pead and Mr. Hammergren discussed McKesson’s licensing and branding certain of our software and network services and other joint venture and joint marketing opportunities. Following that meeting, Scott MacKenzie, our President, Pharmacy Solutions, Chris Perkins, our Chief Operating Officer, and other members of our management team continued to develop ideas for the joint branding or joint marketing of our software and continued to work to identify which of our pharmacy solutions would most appropriately fit the needs of McKesson’s clients. On July 13, 2006, Mr. Pead, Mr. Perkins, and Mr. MacKenzie met with Mr. Hammergren, Marc Owen, McKesson’s EVP, Corporate Strategy and Business Development and Pam Pure, McKesson’s

EVP, President McKesson Provider Technologies. At that meeting, the participants discussed in depth the opportunities for the companies to work together.

 

Mr. Pead and Mr. Hammergren met again on August 29, 2006 at McKesson’s headquarters to discuss further opportunities for the companies to work together. At that meeting, Mr. Hammergren introduced the possibility of McKesson acquiring Per-Se. In the conversation, Mr. Hammergren outlined his preliminary views as to why McKesson was the most logical partner for Per-Se. Mr. Hammergren also stressed that McKesson did not have any interest in becoming involved in a multi-bidder process and would only proceed on an exclusive basis. Mr. Pead indicated that Per-Se’s willingness to move forward, particularly on an exclusive basis, would depend on the valuation proposed by McKesson. Mr. Hammergren and Mr. Pead agreed to continue their discussions.

 

On September 1, 2006, the board convened by conference call, at which all members were present, for Mr. Pead to describe for the board his conversations with Mr. Hammergren. The board discussed generally the merits of a sale of Per-Se. In addition, the board expressed concerns about the pricing for the transaction, certainty of closing and the size of any termination fee that would be payable to McKesson in the event that Per-Se terminated a merger agreement with McKesson to pursue a superior offer from a third party. The board instructed management to continue to assess McKesson’s interest in Per-Se and to keep the board apprised of developments in the discussions.

 

Following those meetings, Mr. Hammergren and Mr. Pead continued to have conversations about a potential acquisition. On September 12, 2006, Mr. Hammergren advised Mr. Pead that he would be sending a letter outlining an offer by McKesson to acquire all of our shares of common stock at a cash purchase price of $27.50 to $28.50 per share. Mr. Hammergren sent that letter on September 12, 2006. The proposal was subject to due diligence and required that we negotiate exclusively with McKesson for 30 days. After discussions with several board members, Mr. Pead responded back to Mr. Hammergren that the purchase price was not sufficient and that he would not recommend that the board authorize management to proceed or allow McKesson to conduct due diligence.

 

On September 11, 2006, we engaged King & Spalding LLP, our primary outside counsel, to serve as counsel to Per-Se for any transaction with McKesson. During the week of September 11, 2006, Mr. Pead and Mr. Hammergren continued to discuss the valuation of Per-Se and purchase price. In these discussions, Mr. Hammergren and Mr. Pead discussed the potential fit between the companies. Mr. Pead expressed the board’s concern about certainty of closing and the size of any termination fee that would be payable by Per-Se. Mr. Pead advised Mr. Hammergren that in light of the fact that McKesson would only proceed in the event we agreed not to contact other potential bidders for Per-Se during an exclusivity period, the size of the termination fee was viewed by our board as a very integral part of the transaction. Also, during that week, at the request of Per-Se and McKesson, counsel for McKesson, Simpson Thacher & Bartlett LLP, began negotiating a nondisclosure and exclusivity agreement with King & Spalding.

 

On September 15, 2006, Mr. Hammergren informed Mr. Pead that he would send Mr. Pead a revised letter increasing McKesson’s proposed price range for an acquisition of all of our common stock to $28.00 to $29.00 per share. In this conversation, Mr. Hammergren indicated that the increase in the proposed purchase price was based on McKesson’s view about potential synergies achievable by the combination of the two companies. Mr. Hammergren also confirmed that the revised proposal would continue to be subject to due diligence, would require that we enter into exclusive negotiations with McKesson until October 31, 2006, and would confirm McKesson’s agreement that the termination fee would be between 2.00% and 2.50% of Per-Se’s enterprise value.

 

On September 15, 2006, our board convened again to discuss the expected proposal. All board members were in attendance, except Mr. Macnab who was unavoidably absent. Also in attendance at the meeting were attorneys from King & Spalding. At that meeting, Mr. Pead reviewed with the board the discussions to date with Mr. Hammergren, the original proposal from McKesson and the expected new proposal. Mr. Pead also described for the board McKesson’s proposed diligence schedule for the transaction, including management presentations and related due diligence meetings and the expectation that McKesson would confirm the price by October 13, 2006, with a potential merger agreement being finalized and signed by October 31, 2006.

King & Spalding also reviewed the board members’ fiduciary duties with respect to such proposal. Following a discussion, our board authorized management to move forward to allow McKesson to conduct due diligence and to grant McKesson exclusivity based on the price range to be set forth in the revised proposal and based on McKesson’s agreement regarding the size of any termination fee. On September 18, 2006, we received McKesson’s revised non-binding proposal, and we and McKesson entered into a nondisclosure and exclusivity agreement granting McKesson exclusivity until 11:59 p.m. on October 31, 2006.

 

On September 28, 2006, our board convened again for an update on the status of the proposed transaction, including a review of the due diligence process and timeline. Additionally, the board instructed management to engage The Blackstone Group L.P. to assist management and the board in its evaluation of the proposed transaction. In making its decision to engage Blackstone, our board considered Blackstone’s representation of NDCHealth in our purchase of NDCHealth and that Blackstone’s recent representations in transactions involving competitors provided it with unique and recent insight into our industries, the potential purchasers and the value drivers for any such transaction.

 

During the period from October 2 through October 20, 2006, McKesson’s management and advisors conducted due diligence, including attending management presentations in Atlanta. Also during those weeks, King & Spalding and Simpson Thacher began negotiations on a draft merger agreement. Simpson Thacher also advised King & Spalding that McKesson would require that ValueAct and certain of its affiliates execute a voting agreement.

 

During the week of October 16, 2006, Mr. Pead and Mr. Owen discussed McKesson’s progress in due diligence. They also discussed McKesson’s confirmation of the proposed purchase price. Mr. Owen indicated that McKesson was continuing to perform due diligence but was not yet in a position to confirm its proposed purchase price. Specifically, Mr. Owen indicated that McKesson was concerned that Per-Se had historically not met its internal budgets and what that implied with respect to the future projections provided by Per-Se. Mr. Owen indicated that the revenue growth reflected in the projections was significantly greater than Per-Se’s historic performance and McKesson’s view of Per-Se’s potential in light of its view of current market conditions. In light of these observations regarding our projections and McKesson’s view of the market potential, Mr. Owen noted that in order to maintain the $28.00 to $29.00 per share proposed purchase price, McKesson would need additional time to confirm the existence of significant synergies, including top-line synergies.

 

McKesson continued to conduct due diligence during the week of October 23, 2006. From October 26 through October 27, 2006, Mr. Hammergren and Mr. Pead continued to discuss their respective views regarding the transaction, during which conversations Mr. Hammergren indicated to Mr. Pead that McKesson continued to have the concerns previously expressed, including McKesson’s differing view as to our projected growth rates. Mr. Hammergren noted that, as such, while McKesson remained interested in pursuing the transaction, McKesson would need a modest amount of additional time to complete its confirmation of synergies. Following these conversations, Simpson Thacher, on behalf of McKesson, discussed with King & Spalding that, assuming the parties continued to pursue the transaction, it was unlikely that the parties would be in a position to execute the merger agreement by October 31, 2006 and requested that the exclusivity period be extended for one week.

 

On October 26 and 27, 2006, our board met in person to review and consider, among other things, the status of the transaction. All board members were present in person. Representatives of King & Spalding and Blackstone also attended the meeting. Our management provided our board with an update regarding the process and the status of the due diligence, including a summary of the conversations between Mr. Pead and Mr. Hammergren. At this meeting, King & Spalding reviewed with the board its fiduciary duties with respect to the proposed transaction and also advised each board member to disclose and discuss any relationships any such director may have with us or McKesson that may bring into question his independence. In response, the board discussed the fact that Mr. McDowell was formerly an officer of McKesson. Mr. McDowell confirmed that he has no financial interest or relationship with McKesson and had not had any such interest or business relationship for several years. Our board also discussed the terms of our option plans and the employment agreements with certain of our officers and the fact that our outstanding stock options and performance-based restricted stock units would, by their terms, fully vest upon either the closing of the merger or the approval of

the merger by our stockholders. Blackstone reviewed with our board the proposed purchase price ranges and provided advice comparing the lowest end of the range to our then recent market price, historic average price and with respect to various valuation methodologies, including valuation based on our management’s budgets. Blackstone additionally advised the board with respect to the high market price of our common stock relative to what might be considered peer companies and the fact that Per-Se had historically not met its internal budgets. The board discussed the failure to meet internal budgets and how such optimistic budgets impacted certain valuation methodologies used by Blackstone in its analysis. Finally, King & Spalding discussed with the board McKesson’s request that ValueAct and its affiliates execute a voting agreement.

 

During the week of October 30, 2006, our management team, together with King & Spalding, continued negotiations on the merger agreement with McKesson and Simpson Thacher. Also during that week, McKesson and Simpson Thacher negotiated the voting agreement with ValueAct and its affiliates.

 

On October 31, 2006, Mr. Hammergren called Mr. Pead to discuss the status of McKesson’s due diligence and to confirm McKesson’s purchase price at $28.00 per share. On October 31, 2006, our board met by telephone conference call during which Mr. Pead provided our board with an update on the status of the proposed transaction and authorized an extension of the exclusivity agreement. On October 31, 2006, we extended the exclusivity period until November 6, 2006.

 

During the course of November 5, 2006, our management, King & Spalding, McKesson management, and Simpson Thacher, finalized the merger agreement and Simpson Thacher and ValueAct finalized the voting agreement. Beginning at 7:00 p.m. on November 5, 2006, our board met again by telephone conference call at which all directors were present. At that meeting, King & Spalding discussed again with the board its fiduciary duties in the transaction. The board members confirmed again their independence with respect to the transaction and McKesson. In addition, the board reviewed our option plans and the employment agreements with certain of our officers and the fact that our outstanding stock options and performance-based restricted stock units would, by their terms, fully vest upon either the closing of the merger or the approval of the merger by our stockholders and the fact that under the merger agreement the service-based restricted stock units, the deferred amount stock units and the enhancement bonus stock units would be assumed by McKesson and converted into the right to receive, upon distribution or settlement, shares of McKesson common stock rather than being paid at the closing of the merger. Blackstone then reviewed its analysis of the proposed $28.00 per share merger consideration and stated that it was prepared to deliver its opinion that the consideration to be received by the holders of our common stock in the proposed merger was fair to our stockholders from a financial point of view, which opinion was delivered concurrent with the execution of the merger agreement and voting agreement. During the course of Blackstone’s presentation, representatives of Blackstone responded to questions from members of our board confirming or clarifying their understanding of the analyses performed by Blackstone as described under “The Merger — Opinion of The Blackstone Group L.P.” beginning on page 18. Our board then unanimously approved the merger agreement, the voting agreement and the transactions contemplated by the merger agreement and voting agreement, determined the merger to be advisable, fair to and in the best interests of our stockholders and resolved to recommend that our stockholders vote to adopt the merger agreement. That evening, we and McKesson executed the merger agreement and we, McKesson and ValueAct executed the voting agreement. Prior to the opening of U.S. financial markets on November 6, 2006, we and McKesson jointly announced the execution of the merger agreement.

 

In reaching its determination that the merger is advisable and in the best interests of our stockholders, our board of directors consulted with senior management and legal and financial advisors. The following describes material reasons, factors and information taken into account by our board of directors in deciding to approve and adopt the merger agreement and the transactions contemplated thereby and to recommend that our stockholders adopt the merger agreement:

 

 

 

 

 

 

 

 

 

Our board of directors also identified and considered a variety of risks and other potentially negative factors relating to the merger in its deliberations, including the following:

 

 

 

The foregoing discussion summarizes the material factors considered by our board of directors in its consideration of the merger. After considering these factors, our board of directors, by unanimous vote, concluded that the positive factors relating to the merger agreement and the merger outweighed the negative factors. In view of the wide variety of factors considered by our board of directors, the board did not find it practicable to quantify or otherwise assign relative weights to the foregoing factors. In addition, individual directors may have assigned different weights to various factors. Our board of directors adopted and recommended the merger agreement and the merger based upon the totality of the information presented to and considered by it.

 

On November 5, 2006, after evaluating a variety of business, financial and market factors and consulting with our legal and financial advisors, and after due discussion and due consideration, our board of directors determined that the merger with McKesson is advisable, fair to and in the best interests of Per-Se and our stockholders and unanimously approved, adopted and declared advisable the merger agreement and the transactions contemplated thereby, including the merger. ACCORDINGLY, OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF PER-SE VOTE “FOR” THE ADOPTION OF THE MERGER AGREEMENT.

 

Per-Se retained Blackstone to provide it with financial advisory services in connection with a possible sale, merger or other strategic business combination involving a change of control of Per-Se. The company selected Blackstone to act as its financial advisor based on Blackstone’s qualifications, experience and reputation as an advisor to boards in change of control transactions and its specific experience in representing NDCHealth Corporation in Per-Se’s acquisition and representing parties in transactions involving our competitors. At the meeting of the board on November 5, 2006, Blackstone rendered its oral opinion, subsequently confirmed in writing, that as of November 5, 2006, and based upon and subject to the assumptions, qualifications and limitations set forth in the opinion, the consideration to be received by the holders of shares of Per-Se 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 Blackstone, dated as of November 5, 2006, is attached to this proxy statement as Annex C. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Blackstone in rendering its opinion. Holders of Per-Se common stock are encouraged to read the entire opinion carefully. Blackstone’s opinion is directed to the board of directors of Per-Se and addresses only the fairness from a financial point of view of the consideration to be received by the holders of shares of Per-Se common stock, pursuant to the merger agreement, as of the date of the opinion. It does not address any other aspects or implications of the merger. The opinion, and the other views and analyses of Blackstone referenced throughout this proxy statement, do not constitute a recommendation to any holder of Per-Se common stock as to how to vote or otherwise act on any matter in connection with this transaction. The summary of the opinion of Blackstone set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion.

 

In connection with rendering its opinion, Blackstone, among other things:

 

 

 

In preparing its opinion, Blackstone relied upon the accuracy and completeness of information that was available from public sources and other information provided to Blackstone by Per-Se. Blackstone further relied upon the assurances of the management of Per-Se that they are not aware of any facts that would make the information provided by them inaccurate, incomplete or misleading. Blackstone also assumed that the merger would be consummated on substantially the terms set forth in the merger agreement. Blackstone is not a legal, tax, or regulatory advisor and relied upon, without independent verification, the assessment of Per-Se and its legal, tax and regulatory advisors with respect to such matters.

 

In reaching the conclusions set forth in Blackstone’s opinion, Blackstone did not consider the relative merits of the merger as compared to any other business plan or opportunity that might be available to Per-Se, or the underlying business decision of Per-Se to enter into the merger. Blackstone did not make any independent valuation or appraisal of the assets or liabilities of Per-Se, nor was Blackstone furnished with any such valuations or appraisals. Blackstone did not perform due diligence on Per-Se’s physical properties and facilities; sales, marketing, distribution or service organizations; or product markets. Blackstone’s opinion was necessarily based upon market, economic, financial, and other conditions as they existed and could be evaluated as of, November 5, 2006. Though events occurring after such date may affect Blackstone’s opinion and the assumptions used in preparing it, Blackstone does not assume or otherwise have any obligations to update, revise, or reaffirm this opinion.

 

Blackstone is an internationally recognized investment banking and advisory firm. Blackstone, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions and restructurings, and valuations for corporate and other purposes. Funds operated by affiliates of Blackstone may in the ordinary course of business buy or sell securities of Per-Se as well as securities of McKesson.

 

In connection with the review of the merger by the board of directors, Blackstone performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Blackstone considered the results of all of its analyses as a whole and did not attribute any

particular weight to any analysis or factor they considered. Blackstone believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinions. As a result, the ranges of valuations resulting from any particular analysis described below should not be taken to be Blackstone’s view of the actual value of Per-Se. In performing its analyses, Blackstone made numerous assumptions with respect to industry performance, general business and economic conditions and other matters. Many of these assumptions are beyond the control of Per-Se. Any estimates contained in Blackstone’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

 

Blackstone conducted the analyses described below solely as part of its analysis of the fairness from a financial point of view of the consideration to be received by holders of Per-Se common stock pursuant to the merger agreement in connection with the delivery of its opinion dated November 5, 2006, to the board of directors of Per-Se. These analyses do not purport to be appraisals or to reflect the prices at which shares of common stock of Per-Se might actually trade. The summary below describes the material analyses performed by Blackstone but does not purport to be a complete description of the analyses performed by Blackstone.

 

The merger consideration was determined through negotiations between Per-Se and McKesson and was approved by the board of directors. Blackstone did not recommend any specific merger consideration to Per-Se, its board of directors or that any specific merger consideration constituted the only appropriate consideration for the merger. In addition, Blackstone’s opinion and its presentation to the board of directors were one of many factors taken into consideration by the board of directors in deciding to approve the merger.

 

Financial Analyses of Blackstone

 

The following is a summary of the material analyses performed by Blackstone in connection with its oral opinion and the preparation of its written opinion letter dated November 5, 2006. Some of these summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Blackstone, 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.

 

Historical Share Price Analysis.  Blackstone performed a historical share price analysis to obtain background information and perspective with respect to the historical share prices of Per-Se common stock. Blackstone reviewed the historical price performance and average closing prices of Per-Se common stock for various periods ending on November 2, 2006 and compared them to the proposed merger consideration of $28.00. Blackstone observed the following:

 

 

Premiums Paid Analysis.  Blackstone performed a premiums paid analysis based upon the premiums paid in precedent public merger and acquisition transactions identified that were announced since 2002. Using publicly available information, Blackstone considered several hundred precedent transactions which were composed of three sub-sets:

 

 

Blackstone analyzed the transactions to determine the premium paid for the target as determined using the stock price on the date that was four weeks prior to the deal announcement. This analysis indicated a premiums range of 25% to 30%, which Blackstone applied to Per-Se’s stock price on October 6, 2006. This resulted in a valuation range of $29.21 to $30.38 per share. Blackstone noted that the proposed merger consideration per share to be received by holders of Per-Se common stock was $28.00.

 

Equity Comparables Analysis.  Blackstone analyzed the market values and trading multiples of Per-Se and of 18 publicly traded companies in the healthcare information technology, or HCIT, software and services, network services and business process outsourcing industries that were viewed as being similar to Per-Se in one or more respects. There are no publicly traded comparable companies which are identical to Per-Se due to the complexity and variation of Per-Se’s businesses. 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:

 

 

Selected multiples, which are commonly used by participants and investors in the HCIT, network services and business process outsourcing industries, for Per-Se and each of the comparable companies were reviewed in this analysis. The selected multiples analyzed for these companies included the following:

 

 

The enterprise value of a company is equal to the value of its diluted common equity plus debt, the liquidation value of outstanding convertible preferred stock, if any, and minority interests, if any, minus cash and the value of certain other assets. Except as otherwise noted herein, all historical data was derived from publicly available sources and all projected data for the selected companies was obtained from publicly available research reports.

 

Based on the analysis of the relevant metrics for each of the comparable companies, Blackstone selected representative ranges of financial multiples of the comparable companies and applied these ranges of multiples to the relevant Per-Se financial statistic using the management projections. The selected companies analysis indicated the following estimated implied valuation ranges of Per-Se common stock:

 

 

 

 

From this analysis, Blackstone derived an implied valuation range of $15.00 to $24.00 per share. Blackstone noted that the proposed merger consideration per share to be received by holders of Per-Se common stock was $28.00.

 

No company utilized in the equity comparable analysis is identical to Per-Se. In evaluating equity comparables, Blackstone made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Per-Se, such as the impact of competition on the businesses of Per-Se and the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of Per-Se or the industry or in the financial markets in general.

 

Precedent Transactions Analysis.  Blackstone reviewed and compared the proposed financial terms offered for Per-Se to corresponding publicly available financial terms in 29 selected acquisitions and announced offers to acquire. In selecting these transactions Blackstone reviewed certain transactions which have occurred since 2001 in the HCIT software, HCIT services, network services and business process outsourcing industries. In its analysis, Blackstone reviewed the following precedent transactions as of the date of announcement:

 

 

Blackstone derived from these selected transactions a reference multiple range for enterprise value divided by 2006 estimated EBITDA and a reference multiple range for enterprise value divided by 2006 estimated EBIT. The enterprise value divided by 2006 estimated EBITDA reference multiple range for the selected transactions ranged from 10.0x to 11.0x. The enterprise value divided by 2006 estimated EBIT reference multiple range for the selected transactions ranged from 14.0x to 19.0x. From this analysis Blackstone derived an implied valuation range of $20.50 to $28.00 per share. Blackstone noted that the consideration per share to be received by holders of Per-Se common stock was $28.00.

 

No company or transaction utilized in the precedent transactions analysis is identical to Per-Se or the merger. In evaluating the precedent transactions, Blackstone made judgments and assumptions with regard to industry performance, general business, market and financial conditions and other matters, many of which are beyond the control of Per-Se, such as the impact of competition on the business of Per-Se or the industry generally, industry growth and the absence of any adverse material change in the financial condition of Per-Se or the industry or in the financial markets in general.

 

Discounted Cash Flow Analysis.  Using the management projections for 2007 to 2011, Blackstone performed an analysis to determine the present value of the free cash flows that Per-Se could generate from 2007 and beyond. Blackstone assumed a range of discount rates from 10% to 12%. The discount rates of 10% to 12% were selected based on a weighted average cost of capital calculation which factored in the unlevered betas for similar companies identified above under the heading “— Equity Comparables Analysis” beginning on page 21, as well as Per-Se. The discounted cash flow analysis determined the discounted present value of the unlevered free cash flow generated over the period covered by the financial forecasts and then added a terminal value based on a range of multiples of estimated fiscal year 2011 EBITDA of 9.0x to 11.0x. The terminal EBITDA multiples ranging from 9.0x to 11.0x were selected based on a review of current and historical trading multiples reviewed in connection with companies identified above under the heading “— Equity Comparables Analysis” beginning on page 21, as well as Per-Se, adjusted for the expected growth characteristics of Per-Se in 2011. This resulted in an implied valuation range for Per-Se of $31.00 to $37.00 per share. Because management’s projections were higher than Per-Se’s historical experience and

Per-Se had historically not met its internal budgeted growth rates, Blackstone performed a sensitivity analysis on the discounted cash flow analysis to reflect a range of growth rates, including at the low end growth rates reflective of Per-Se’s actual growth rates and at the high end growth rates reflective of the management projections for 2007 to 2011. Using the same discount rates and terminal EBITDA multiples mentioned above, Blackstone illustrated a range of 2007 to 2011 EBITDA CAGR’s (compound annual growth rates) from 2.5% to the management forecasted CAGR of 16.7%. Blackstone noted that the 2003 to 2006 EBITDA CAGR on a pro forma basis was expected to be approximately 2.1%. Based on this analysis, Blackstone derived an implied valuation range for Per-Se of $20.00 to $29.00 per share. Blackstone noted that the proposed merger consideration per share to be received by holders of Per-Se common stock was $28.00.

 

Leveraged Buyout Analysis.  Using the management projections for 2007 to 2011, Blackstone analyzed Per-Se from the perspective of a potential purchaser that was a financial buyer. Based on its experience, Blackstone assumed that a financial sponsor could sell its Per-Se investment at the end of calendar year 2011 at an aggregate value range that represented a multiple of 9.0x to 11.0x forecasted 2011 EBITDA. The terminal EBITDA multiples ranging from 9.0x to 11.0x were selected based on a review of current and historical trading multiples reviewed in connection with companies identified above under the heading “— Equity Comparables Analysis” beginning on page 21, as well as Per-Se, adjusted for the expected growth characteristics of Per-Se in 2011. Blackstone added Per-Se’s forecasted ending 2011 cash balance and subtracted Per-Se’s forecasted ending 2011 debt outstanding to calculate Per-Se’s ending 2011 implied equity value range. Based on Per-Se’s assumed 2011 equity value range, Blackstone derived an implied current valuation range of $19.00 to $22.00 per share, representing implied values per share that a financial sponsor might be willing to pay to acquire Per-Se in a leveraged buyout. Blackstone noted that the proposed merger consideration per share to be received by holders of Per-Se common stock was $28.00.

 

     Blackstone Fees.

 

Under the terms of its engagement letter, with respect to the provision of financial advisory services to our board of directors (including rendering a fairness opinion in connection with the merger), Per-Se agreed to pay Blackstone a fee of $4.5 million, a portion of which became payable upon the delivery of Blackstone’s opinion and the remainder of which will be payable upon the closing of the merger. In addition, Per-Se has agreed to indemnify Blackstone and any of its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Blackstone or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, relating to or arising out of its engagement and any related transactions.

 

Additionally, prior to and in connection with Per-Se’s acquisition of NDCHealth Corporation, which was completed on January 6, 2006, Blackstone provided financial advisory services to NDCHealth Corporation (now an affiliate of Per-Se) for aggregate fees of approximately $9 million.

 

In connection with McKesson’s due diligence review of Per-Se and in the course of the negotiations between the parties, we prepared and provided McKesson with certain financial projections for fiscal years 2007 to 2009, which are summarized below. The projections were not prepared with a view towards public disclosure or compliance with published guidelines of the Securities and Exchange Commission, the guidelines established by the American Institute of Certified Public Accountants for Prospective Financial Information or generally accepted accounting principles. Our certified public accountants have not examined or compiled any of the projections or expressed any conclusion or provided any form of assurance with respect to the projections and, accordingly, assume no responsibility for them.

 

The projections summarized below are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, and are subject to risks and uncertainties that could cause actual results to differ materially from those statements and should be read with caution. They are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and recent developments. While presented

with numerical specificity, the projections were not prepared by us in the ordinary course and are based upon a variety of estimates and hypothetical assumptions made by our management including:

 

 

None of the assumptions underlying the projections may be realized, and they are inherently subject to significant business, economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond our control. Accordingly, there can be no assurance that the assumptions made in preparing the projections will prove accurate, and actual results may materially differ.

 

Per-Se Technologies, Inc.

 

Selected Prospective Financial Information

(amounts in thousands)

 

 

While Per-Se has historically used projections similar to these for its internal management and evaluation, we have not historically achieved the budgeted revenue growth rates and margin improvements included in such projections. For all of the foregoing reasons, as well as the bases and assumptions on which the projections were compiled, the inclusion of the information set forth above should not be regarded as an indication that the projections will be an accurate prediction of future events, and they should not be relied on as such. Neither we nor our board of directors assumes any responsibility for the reasonableness, completeness, accuracy or reliability of the projections. No one has made, or makes, any representation regarding the information contained in the projections and, except as required by applicable securities laws, we do not intend to update or otherwise revise the projections to reflect circumstances existing after the date when made or to reflect the occurrences of future events even in the event that any or all of the assumptions are shown to be in error.

 

If the merger agreement is adopted by our stockholders and the other conditions to the closing of the merger are either satisfied or waived, a wholly owned subsidiary of McKesson created solely for the purpose of engaging in the transactions contemplated by the merger agreement, will be merged with and into us, and we will be the surviving corporation. When the merger is completed, we will cease to be a publicly traded company and will instead become a wholly owned subsidiary of McKesson.

 

When the merger is completed, each share of our common stock issued and outstanding immediately prior to the effective time of the merger (other than shares owned by us, McKesson or any of their respective direct or indirect wholly owned subsidiaries and other than shares held by stockholders who have properly demanded and perfected their appraisal rights in accordance with Delaware law, which shares shall be entitled to only such rights as are granted by Delaware law) will be converted into the right to receive $28.00 in cash, without interest, subject to any applicable withholding tax. Each outstanding option to purchase shares of our common stock with an exercise price of less than $28.00 per share, whether or not then exercisable or vested,

will be canceled and converted into the right to receive a cash payment equal to the difference between $28.00 and the exercise price per share of the option, multiplied by the number of shares of our common stock subject to the option, without interest and less any applicable withholding tax. Each outstanding option with an exercise price equal to or greater than $28.00 per share will be canceled without payment for such option. Each outstanding performance-based restricted stock unit, whether vested or unvested, will be canceled and converted into the right to receive a cash payment equal to $28.00 multiplied by the number of shares of Per-Se common stock subject to such restricted stock unit, without interest and less any applicable withholding tax. Each outstanding service-based restricted stock unit will cease to represent a right to receive, upon settlement, shares of our common stock and will instead be assumed by McKesson and converted into the right to receive, upon settlement, a number of shares of McKesson common stock equal to the number of shares of Per-Se common stock subject to such service-based restricted stock unit multiplied by the ratio of $28.00 to the closing price of McKesson common stock on the closing date of the merger. Each outstanding deferred amount stock unit and enhancement bonus stock unit will cease to represent a right to receive, upon distribution, shares of our common stock and will instead be assumed by McKesson and converted into the right to receive, upon distribution, a number of shares of McKesson common stock equal to the number of shares of Per-Se common stock subject to such stock unit multiplied by the ratio of $28.00 to the closing price of McKesson common stock on the closing date of the merger.

 

When the merger becomes effective, the directors and officers of the wholly owned subsidiary of McKesson that will be merged with and into us will be the directors and officers of the surviving corporation. Also at the effective time of the merger, our amended and restated certificate of incorporation will be amended as set forth in the merger agreement, and as so amended, will become the certificate of incorporation of the surviving corporation following the consummation of the merger until such time as it is amended in accordance with applicable law. The bylaws of Packet Merger Sub Inc., as in effect immediately prior to the effective time of the merger, will be become the bylaws of the surviving corporation following the consummation of the merger until such time as they are amended in accordance with applicable law.

 

At the effective time of the merger, our stockholders will have the right to receive the merger consideration but will cease to have ownership interests in us or rights as our stockholders. Therefore, our stockholders will not participate in our future earnings or growth and will not benefit from any appreciation in our value.

 

Our common stock is currently registered under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act, and is quoted on the Nasdaq National Market under the symbol “PSTI”. As a result of the merger, we will become a wholly owned subsidiary of McKesson, our common stock will cease to be quoted on the Nasdaq National Market and there will be no public market for our common stock. In addition, registration of our common stock under the Exchange Act will be terminated and we will not file periodic reports with the SEC.

 

In the event that the merger agreement is not adopted by our stockholders or if the merger is not completed for any other reason, our stockholders will not receive any payment for their shares in connection with the merger. Instead, we will remain an independent public company and our common stock will continue to be quoted on the Nasdaq National Market. In addition, if the merger is not completed, we expect that management will operate our business in a manner similar to that in which it is being operated today and that our stockholders will continue to be subject to the same risks and opportunities to which they are currently subject.

 

Accordingly, if the merger is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future value of your shares of our common stock. In the event the merger is not completed, our board will continue to evaluate and review our business operations, properties, dividend policy and capitalization, among other things, make such changes as are deemed appropriate and continue to seek to

identify strategic alternatives to enhance stockholder value. If the merger agreement is not adopted by our stockholders or if the merger is not consummated for any other reason, there can be no assurance that any other transaction acceptable to us will be offered or that our business, prospects or results of operation will not be adversely impacted.

 

If the merger agreement is terminated under certain circumstances, we will be obligated to pay a termination fee of $44 million to McKesson as a condition to, upon or following such termination. For a description of the circumstances triggering payment of the termination fee, see “Proposal 1 — The Merger Agreement — Termination Fee and Expenses” beginning on page 50.

 

In addition to their interests in the merger as stockholders, certain of our directors and executive officers have interests in the merger that differ from, or are in addition to, your interests as a stockholder. In considering the recommendation of our board of directors to vote “FOR” the adoption of the merger agreement and the merger, you should be aware of these interests. Our board of directors was aware of, and considered the interests of, our directors and executive officers in approving the merger agreement, the merger and the transactions contemplated by the merger agreement. All interests are described below, to the extent material, and except as described below such persons to our knowledge have no material interest in the merger that differ from your interests generally.

 

Stock Options.

 

The merger agreement provides that all unexpired and unexercised options to purchase our common stock that were granted under our various equity compensation plans and that are outstanding at the effective time of the merger with an exercise price of less than $28.00 per share, whether or not then exercisable or vested, will be canceled and converted into the right to a cash payment equal to the difference between $28.00 and the exercise price per share of the option, multiplied by the number of shares of our common stock subject to the option, without interest and less any applicable withholding tax. Each outstanding option with an exercise price equal to or greater than $28.00 per share will be canceled without payment for such option.

Based on the number of shares underlying options and exercise prices of such options held on November 30, 2006 by our directors and executive officers as set forth in the following table, our directors and executive officers will receive the following amounts (before any applicable withholding tax) in settlement of their respective options if the merger is completed:

 

 

 

 

Performance-Based Restricted Stock Units.

 

Each outstanding performance-based restricted stock unit, whether vested or unvested, will be canceled and converted into the right to receive a cash payment equal to $28.00 multiplied by the total number of shares of Per-Se common stock subject to such restricted stock unit, without interest and less any applicable withholding tax.

 

As of November 30, 2006, the following executive officers held the performance-based restricted stock units entitling such officer to receive up to the number of shares of Per-Se common stock shown below, and each individual listed below will receive up to the following amounts (before any applicable withholding tax) in settlement of their respective performance-based restricted stock units:

 

 

Other than Mr. Pead, none of our directors hold any performance-based restricted stock units.

Service-Based Restricted Stock Units, Deferred Amount Stock Units and Enhancement Bonus Stock Units.

 

Each outstanding service-based restricted stock unit will cease to represent a right to receive upon settlement shares of our common stock and will instead be assumed by McKesson and converted into the right to receive, upon settlement, a number of shares of McKesson common stock equal to the number of shares of Per-Se common stock subject to such service-based restricted stock unit multiplied by the ratio of $28.00 to the closing price of McKesson common stock on the closing date of the merger. The vesting schedule for each such assumed service-based restricted stock unit will not change, and pursuant to the terms of such service-based restricted stock unit, the unit will fully vest if the holder thereof is terminated without “cause” (as defined in our 2006 Long-Term Incentive Plan) or the participant resigns for good reason (to the extent the award agreement includes such provision or the participant is a party to an employment, severance or similar agreement that provides for a good reason for termination) within two years following the closing of the merger. Each outstanding deferred amount stock unit and enhancement bonus stock unit will cease to represent a right to receive, upon distribution, shares of our common stock and will instead be assumed by McKesson and converted into the right to receive, upon distribution, a number of shares of McKesson common stock equal to the number of shares of Per-Se common stock subject to such stock unit multiplied by the ratio of $28.00 to the closing price of McKesson common stock on the closing date of the merger. Following the closing of the merger, each holder of deferred amount stock units or enhancement bonus stock units will be entitled to receive the shares of McKesson common stock as calculated above within 3 months of the date on which such holder ceases to be a director or employee of Per-Se for any reason.

 

The following table shows the number of service-based restricted stock units, deferred amount stock units and enhancement bonus stock units held by our directors and executive officers as of November 30, 2006, and, using the assumption described in note (1) below, the total number of shares of McKesson common stock our directors and executive officers will receive upon distribution or settlement of such converted service-based restricted stock units, deferred amount stock units and enhancement bonus stock units following completion of the merger:

 

 

 

Change-of-Control/Severance Payments.

 

We previously have entered into employment agreements containing certain change of control provisions with the following executive officers and/or directors of Per-Se that may be triggered as a result of the merger: Philip M. Pead, Chris E. Perkins, Philip J. Jordan, Patrick J. Leonard, David F. Mason, G. Scott Mackenzie, Paul J. Quiner, David E. McDowell, and Stephen M. Scheppmann.

 

The employment agreements of Messrs. Pead, Perkins, Jordan, Leonard, Mason, Quiner, and Scheppmann provide for our payment of the financial benefits described below if (i) the executive’s employment is terminated by us in connection with or in anticipation of a change in control, (ii) at any time within 1 year following a change in control, we terminate the executive’s employment without “cause” (as defined in each agreement) or the executive terminates his employment for “good reason” (as defined in each agreement), (iii) the executive’s employment is terminated by us at the request of or pursuant to an agreement with a third party who has taken steps reasonably calculated to effect a change in control or (iv) the executive terminates employment for good reason within 1 year following any action taken by us at the request of or pursuant to an agreement with a third party who has taken steps reasonably calculated to effect a change in control or any action taken by us with or in anticipation of a change in control, in each case, which action constitutes good reason.

 

In the case of Mr. MacKenzie, the employment agreement provides for our payment of the financial benefits described below if within 36 months following a change in control (or if the executive can show that termination by us is in anticipation of a change in control), (i) the executive is terminated other than for “cause” (as defined in the agreement) or “disability” (as defined in the agreement), (ii) the executive terminates for “good reason” (as defined in the agreement), or (iii) we do not extend the executive’s employment period as permitted under the agreement.

 

In the case of Mr. McDowell, the employment agreement provides for our payment of the financial benefits described below if the executive’s employment is terminated by the executive or by us, for whatever reason, within 120 calendar days after the change in control.

 

The term “good reason” is generally defined in the employment agreements to include the following:

 

 

The financial benefits payable to the executives following a termination of his or her employment under the circumstances described above are as follows:

 

 

Messrs. MacKenzie, McDowell and Pead are entitled to an additional payment (“gross-up payment”) in the event that the payments or benefits that become payable to them as a result of a change in control (“change in control payments”) are subject to excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended, (“Section 4999”). The gross-up payment for Messrs. MacKenzie and Pead generally is that amount that after payment of the excise tax, interest, penalties and income taxes and excise tax imposed on the gross-up payment would enable the executive to retain a net amount equal to the excise tax. However, if the net after-tax benefit to Mr. MacKenzie would not be at least $50,000, his change in control payments will be reduced such that the reduced amount of change in control payments will not give rise to an excise tax under Section 4999. Mr. McDowell’s gross-up payment is equal to that amount that after the deduction of the Section 4999 excise tax, interest and penalties, and all taxes will enable him to retain an amount equal to the change in control payments.

 

Directors’ and Officers’ Indemnification and Insurance.

 

McKesson has agreed to cause the surviving corporation to assume all rights to indemnification, advancement of expenses and exculpation by us existing on the date of the merger agreement in favor of each of our present and former directors and officers as provided in our certificate of incorporation or bylaws in effect on the date of the merger agreement, or pursuant to any other agreements in effect on the date of the merger agreement following the effective time of the merger. Subject to certain monetary limitations on premiums, McKesson has agreed that, at or prior to the effective time of the merger, it or the surviving

corporation in the merger will purchase a six-year “tail” officers’ and directors’ liability insurance policy in respect of acts or omissions occurring at or prior to the effective time of the merger covering each of the individuals covered by our existing directors’ and officers’ liability insurance policy. If the surviving corporation later merges or consolidates with or sells all or substantially all of its assets to another entity, McKesson will cause the entity surviving such transaction to assume these indemnification and insurance obligations.

 

The following is a discussion of the material United States federal income tax consequences of the merger to holders of our common stock who exchange their shares for cash in the merger. The discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations and judicial and administrative decisions in effect as of the date of this proxy statement, all of which are subject to change (possibly with retroactive effect) or to different interpretations. The following discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to you. This discussion applies only to stockholders who, on the date on which the merger is completed, hold shares of our common stock as a capital asset. The following discussion does not address taxpayers subject to special treatment under U.S. federal income tax laws, such as insurance companies, financial institutions, dealers in securities, traders in securities who elect to mark their securities to market, tax-exempt organizations, mutual funds, real estate investment trusts, S corporations, taxpayers subject to the alternative minimum tax and persons holding their shares as part of a hedge, straddle, conversion transaction, or other integrated transaction. In addition, the following discussion may not apply to stockholders who acquired their shares of our common stock upon the exercise of employee stock options or otherwise as compensation for services or through a tax-qualified retirement plan. This discussion does not address the receipt of cash in connection with the cancellation of stock options, restricted stock units, deferred amount stock units, enhancement bonus stock units, or any other matters related to equity compensation or benefit plans.

 

For purposes of this summary, a “U.S. holder” is a holder of shares of our common stock who or that is, for U.S. federal income tax purposes:

 

 

A “non-U.S. holder” is a person who or that is not a U.S. holder.

 

If shares of our common stock are held by a partnership, the U.S. federal income tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships that hold shares of our common stock and partners in such partnerships are urged to consult their own tax advisors regarding the tax consequences to them of the merger. The following discussion does not address potential foreign, state, local and other tax consequences of the merger. All stockholders are urged to consult their own tax advisors regarding the U.S. federal income tax consequences, as well as the foreign, state and local tax consequences, of the disposition of their shares in the merger.

U.S. Holders

 

For U.S. federal income tax purposes, the merger will be treated as a taxable sale of our common stock for cash by each of our stockholders. Accordingly, if you are a U.S. holder, the U.S. federal income tax consequences to you generally will be as follows:

 

 

Cash payments made pursuant to the merger will be reported to our stockholders and the Internal Revenue Service to the extent required by the Code and applicable Treasury regulations. These amounts ordinarily will not be subject to withholding of U.S. federal income tax. However, backup withholding at applicable rates may apply to all cash payments to which a non-corporate U.S. holder is entitled pursuant to the merger agreement if such holder (1) fails to (A) supply the paying agent with such holder’s taxpayer identification number (Social Security number, in the case of individuals, or employer identification number, in the case of other stockholders), (B) certify that such number is correct, and (C) otherwise comply with the backup withholding rules, (2) has received notice from the Internal Revenue Service of a failure to report all interest and dividends as required, or (3) is subject to backup withholding in certain other cases. Accordingly, each U.S. holder will be asked to complete and sign a Substitute Form W-9, which will be included in the appropriate letter of transmittal for the shares of our common stock, to provide the information and certifications necessary to avoid backup withholding, unless an exemption applies and is established in a manner satisfactory to the paying agent.

 

Backup withholding is not an additional tax. Any amounts withheld from your proceeds under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability provided the required information is timely furnished to the Internal Revenue Service.

 

Non-U.S. Holders

 

Any gain realized on the receipt of cash in the merger by a non-U.S. holder generally will not be subject to United States federal income tax unless:

 

 

A non-U.S. holder described in the first bullet point above will be subject to tax on its net gain in the same manner as if it were a U.S. person as defined under the Code. In addition, if a non-U.S. holder that is a foreign corporation falls under the first bullet point above, such holder may be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty. An individual non-U.S. holder described in the second bullet point above will be

subject to a flat 30% tax on the gain derived from the merger, which may be offset by U.S. source capital losses, even though the individual is not considered a resident of the United States.

 

Per-Se believes that it is not and has not been a “United States real property holding corporation” for U.S. federal income tax purposes.

 

Cash received by a non-U.S. holder in the merger will be subject to information reporting and backup withholding, unless the non-U.S. holder certifies its exempt non-U.S. status under penalties of perjury or otherwise establishes an exemption.

 

Backup withholding is not an additional tax. Any amounts withheld from your proceeds under the backup withholding rules may be allowed as a refund or a credit against your U.S. federal income tax liability provided that the required information is timely furnished to the Internal Revenue Service.

 

The foregoing discussion of certain material U.S. federal income tax consequences is included for general informational purposes only and is not intended to be, and should not be construed as, legal or tax advice to any holder of shares of our common stock. We urge you to consult your own tax advisor to determine the particular tax consequences to you (including the application and effect of any state, local or foreign income and other tax laws) of the receipt of cash in exchange for shares of our common stock pursuant to the merger.

 

We expect that the merger will be accounted for by McKesson using the purchase method of accounting, in accordance with generally accepted accounting principles. This means that McKesson will record as goodwill the excess, if any, of the purchase price over the fair value of our identifiable assets, including intangible assets, and liabilities.

 

On November 7, 2006, a purported stockholder class action lawsuit challenging the proposed merger was filed by a putative stockholder of Per-Se in the Superior Court of Fulton County naming us and each of our directors as defendants. The lawsuit, Lou Ann Murphy v. Per-Se Technologies, Inc. et al. (Case No. 2006CU125407), alleges, among other things, that the $28.00 per share in cash to be paid to our stockholders in connection with the merger is inadequate and that the individual defendants breached their duties to our stockholders in negotiating and approving the merger agreement. The complaint seeks, among other things, compensatory damages and injunctive relief to enjoin defendants and their representatives from proceeding with or consummating the merger, to rescind and set aside the merger in the event it is consummated and to order defendants to permit a stockholders’ committee to ensure a fair procedure, adequate procedural safeguards and independent input from plaintiff and other members of the class with respect to any transaction involving shares of Per-Se.

 

The lawsuit is in its preliminary stage. We believe this lawsuit is without merit and intend to vigorously defend the action.

 

Our stockholders have the right under Delaware law to dissent from the approval of the merger, to exercise appraisal rights and to receive payment in cash for the fair value of their shares of our common stock determined in accordance with Delaware law. The fair value of shares of our common stock, as determined in accordance with Delaware law, may be more or less than the merger consideration to be paid to non-dissenting stockholders in the merger. To preserve their rights, stockholders who wish to exercise appraisal rights must not vote in favor of the adoption of the merger agreement and must follow specific procedures. Dissenting stockholders must precisely follow these specific procedures to exercise appraisal rights, or their appraisal rights may be lost. These procedures are described in this proxy statement, and the provisions of Delaware law that grant appraisal rights and govern such procedures are attached as Annex D to this proxy statement. You

are encouraged to read these provisions carefully and in their entirety. See “Appraisal Rights” beginning on page 52.

 

The HSR Act and related rules provide that transactions such as the merger may not be completed until the parties submit a Notification and Report Form to the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission and certain waiting period requirements have been satisfied. On November 20, 2006, Per-Se and McKesson each filed its Notification and Report Form and requested early termination of the waiting period. The Federal Trade Commission granted early termination of the waiting period initiated by these filings on December 4, 2006.

 

Under the merger agreement, we and McKesson have agreed to consult in good faith with each other to determine whether any other filing, application or notice must be made or approval must be obtained pursuant to any applicable law, and to use commercially reasonable efforts to furnish to each other all information required for, any such filing, application or notice to be timely made or approval to be obtained pursuant to any applicable law, in connection with the merger and other transactions contemplated by the merger agreement. In addition, we and McKesson have agreed to use our reasonable best efforts to resolve such objections, if any, as may be asserted by any governmental authority with respect to the transactions contemplated by the merger agreement under antitrust laws. We and McKesson will use reasonable best efforts to take such action as may be required to cause the expiration of the notice periods under antitrust laws with respect to such transactions as promptly as practicable, including initiating or defending any litigation necessary to obtain such approval. Neither Per-Se nor McKesson, however, will be required to hold separate or otherwise, sell, divest or dispose of any assets or businesses, in connection with obtaining approval under any antitrust laws.

 

Except as noted above with respect to the required filings under the HSR Act (for which the FTC granted early termination) and the filing of a certificate of merger in Delaware at or before the effective date of the merger, we are unaware of any material federal, state or foreign regulatory requirements or approvals required for the execution of the merger agreement or completion of the merger.

 

In connection with the approval, execution and delivery of the merger agreement, Per-Se amended its rights agreement with American Stock Transfer & Trust Company, dated February 11, 1999 (as amended from time to time). The amendment amends certain sections and definitions of the rights agreement to render the rights agreement inapplicable to the acquisition by McKesson of the shares of Per-Se common stock in the merger or the execution by McKesson, ValueAct and Per-Se of the voting agreement and to cause the rights agreement to expire upon completion of the merger.

 

The merger agreement is the legal document that governs the merger. This section of the proxy statement describes the material provisions of the merger agreement but may not contain all of the information about the merger agreement that is important to you. The merger agreement is included as Annex A to this proxy statement and is incorporated into this proxy statement by reference. We encourage you to read the merger agreement in its entirety. The merger agreement attached as Annex A to this proxy statement has been included to provide you with information regarding its terms. It is a commercial document that establishes and governs the legal relations between us and McKesson with respect to the transactions described in this proxy statement. It is not intended to be a source of factual, business or operational information about us or McKesson. The representations, warranties and covenants made by us and McKesson are qualified and subject to important limitations agreed to by us and McKesson in connection with negotiating the terms of the merger agreement. Furthermore, the representations and warranties may be subject to standards of materiality applicable to us and McKesson that may be different from that which is applicable to you. These representations and warranties may or may not have been accurate as of any specified date and do not purport to be accurate as of the date of this proxy statement. Accordingly, you should not rely on the representations and warranties as characterizations of the actual state of facts at the time they were made or otherwise.

 

Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, at the effective time of the merger, Packet Merger Sub Inc., a wholly owned subsidiary of McKesson created solely for the purpose of engaging in the transactions contemplated by the merger agreement, will merge with and into us. The separate corporate existence of Packet Merger Sub Inc. will cease, and we will continue as the surviving corporation and will become a wholly owned subsidiary of McKesson.

 

The merger will become effective upon the filing of the certificate of merger with the Secretary of State of the State of Delaware or at such later time as is agreed upon by McKesson and us and specified in the certificate of merger.

 

The closing of the merger will occur no later than the second business day after the conditions to the merger set forth in the merger agreement have been satisfied or waived or at such other date agreed to by us and McKesson. Although we expect to complete the merger shortly after the special meeting of our stockholders, we cannot specify when, or assure you that, we and McKesson will satisfy or waive all conditions to the merger.

 

The directors of Packet Merger Sub Inc. immediately prior to the effective time of the merger will be the initial directors of the surviving corporation.

 

Our officers immediately prior to the effective time of the merger will be the initial officers of the surviving corporation. The directors and officers will serve in accordance with the certificate of incorporation and bylaws of the surviving corporation until their respective successors are duly elected and qualified or until the earlier of their resignation or removal.

 

At the effective time of the merger:

 

 

 

At the effective time of the merger, each outstanding share of our common stock, other than (1) shares owned directly by McKesson, (2) shares owned directly by us and (3) shares held by dissenting stockholders who properly exercise and perfect their appraisal rights under Delaware law, will be converted into the right to receive $28.00 in cash, without interest. Shares owned by McKesson or us will be canceled at the effective time of the merger without any payment. Our stockholders will receive the merger consideration after exchanging their stock certificates in accordance with the instructions contained in the letter of transmittal to be sent to our stockholders shortly after completion of the merger. The price of $28.00 per share was determined through negotiations between McKesson and us.

 

McKesson, the surviving corporation and the paying agent will be entitled to deduct and withhold from the consideration otherwise payable to any holder of shares of our common stock, restricted stock units or stock options such amounts that it is required to deduct and withhold with respect to making such payment under the Internal Revenue Code, or any other applicable state, local or foreign tax law.

 

We have agreed to take all necessary action such that immediately prior to the effective time of the merger, (1) all outstanding options to purchase shares of our common stock granted under our equity compensation plans will, to the extent not then vested, accelerate and become fully vested and exercisable and (2) all outstanding deferred amount stock units, enhancement bonus stock units and restricted stock units at the effective time of the merger will be (a) canceled and paid or (b) converted as described below.

 

At the effective time of the merger, each outstanding option to purchase shares of our common stock with an exercise price of less than $28.00 per share, whether or not then exercisable or vested, will be canceled and converted into the right to receive a cash payment equal to the difference between $28.00 and the exercise price per share of the option, multiplied by the number of shares of Per-Se common stock subject to the option, without interest and less any applicable withholding tax. Each outstanding option with an exercise price equal to or greater than $28.00 per share will be canceled without payment for such option.

 

Each outstanding performance-based restricted stock unit, whether vested or unvested, will be canceled and converted into the right to receive a cash payment equal to $28.00 multiplied by the number of shares of Per-Se common stock subject to such restricted stock unit, without interest and less any applicable withholding tax.

 

Each outstanding service-based restricted stock unit will cease to represent a right to receive, upon settlement, shares of our common stock and will instead be assumed by McKesson and converted into the right to receive, upon settlement, a number of shares of McKesson common stock equal to the number of shares of Per-Se common stock subject to such service-based restricted stock unit multiplied by the ratio of $28.00 to the closing price of McKesson common stock on the closing date of the merger.

 

Each outstanding deferred amount stock unit and enhancement bonus stock unit will cease to represent a right to receive, upon distribution, shares of our common stock and will instead be assumed by McKesson and converted into the right to receive, upon distribution, a number of shares of McKesson common stock equal to the number of shares of Per-Se common stock subject to such stock unit multiplied by the ratio of $28.00 to the closing price of McKesson common stock on the closing date of the merger.

 

Prior to the effective time of the merger, McKesson will designate The Bank of New York (or another bank or trust company agreed to by McKesson and us) to act as the paying agent under the merger agreement.

McKesson will deposit with the paying agent cash in an amount equal to the aggregate cash consideration payable in the merger. As soon as reasonably practicable after the effective time of the merger, the paying agent will mail to each holder of record of a certificate or certificates that immediately prior to the effective time of the merger represented outstanding shares of our common stock, a letter of transmittal and instructions for use in effecting the surrender of the stock certificate or stock certificates representing shares of our common stock in exchange for cash. The letter of transmittal will specify that delivery will be effected, and risk of loss and title to the certificates representing shares of our common stock will pass, only upon proper delivery of the certificates to the paying agent. You should not return your stock certificates with the enclosed proxy. Upon surrender to the paying agent of a stock certificate representing shares of our common stock, together with a duly executed letter of transmittal and any other documents that may be reasonably required by the paying agent, you will be entitled to receive from the paying agent $28.00 in cash, without interest and less any applicable withholding taxes, for each share represented by the stock certificate, and the certificate surrendered will be canceled.

 

From and after the effective time of the merger, until it is surrendered, each certificate that previously evidenced shares of our common stock will be deemed to represent only the right to receive $28.00 in cash per share represented by such certificate less any applicable withholding taxes. No interest will be paid or accrue on any merger consideration payable upon the surrender of the share certificates representing shares of our common stock.

 

In the event of a transfer of ownership of our common stock that is not registered in our records, the cash consideration for shares of our common stock may be paid to a person other than the person in whose name the surrendered certificate is registered if the certificate surrendered is properly endorsed or otherwise in proper form for transfer and the person requesting such payment shall pay all transfer and other taxes required by reason of the payment of the merger consideration to a person other than the registered holder of the certificate surrendered or shall have established to the satisfaction of McKesson that such taxes either have been paid or are not applicable.

 

McKesson may request the paying agent to deliver to it any funds unclaimed by our stockholders six months after the effective time of the merger. Any holders of our share certificates who have not surrendered such certificates in compliance with the above-described procedures may thereafter look only to McKesson for payment of their claim for the merger consideration.

 

If any share certificate for our common stock has been lost, stolen or destroyed, upon the making of an affidavit by the owner of such certificate claiming such certificate has been lost, stolen or destroyed and, if required by McKesson, the posting of a bond by such person in the amount reasonably required by McKesson as indemnity against any claim that may be made against McKesson with respect to that certificate, the paying agent will deliver to such person the merger consideration, without interest and less any applicable withholding taxes, with respect to the shares formerly represented by such lost, stolen or destroyed certificate.

 

Share certificates should not be surrendered by our stockholders before the effective time of the merger and should be sent only pursuant to instructions set forth in the letters of transmittal to be mailed to our stockholders promptly following the effective time of the merger. In all cases, the merger consideration will be provided only in accordance with the procedures set forth in such letters of transmittal.

 

The merger consideration paid to you upon exchange of your shares of our common stock will be paid in full satisfaction of all rights relating to the shares of our common stock.

 

Conditions to Each Party’s Obligation

 

Each party’s obligation to complete the merger is subject to the satisfaction or waiver (to the extent permitted by law) of the following conditions:

 

 

 

Additional Conditions to Our Obligation

 

Our obligations to complete the merger are subject to the satisfaction or waiver (to the extent permitted by law) of the following conditions:

 

 

Additional Conditions to McKesson’s and Packet Merger Sub Inc.’s Obligations

 

The obligations of McKesson and Packet Merger Sub Inc. to complete the merger are subject to the satisfaction or waiver (to the extent permitted by law) of the following conditions:

 

 

As a result of the conditions to the completion of the merger, even if the requisite stockholder approval is obtained, there can be no assurance that the merger will be completed.

 

We have agreed that we, our subsidiaries and each of our respective directors and officers will not, nor will we authorize or permit any of our respective employees, agents or representatives to, directly or indirectly:

 

 

This covenant does not prohibit us from furnishing information to (pursuant to a customary confidentiality agreement no less restrictive of such person than the confidentiality agreement entered into between us and McKesson), or participating in discussions or negotiations with, any person or entity that makes a bona fide, written acquisition proposal prior to the adoption of the merger agreement by our stockholders if:

 

 

We are required to promptly (but in any event within 24 hours) advise McKesson orally and in writing of the receipt of any acquisition proposal, including the material terms and conditions of the acquisition proposal and the identity of the person making the acquisition proposal and as soon as practicable to provide

McKesson with copies of all correspondence and other written material received by us or our subsidiaries in connection with an acquisition proposal that describes the terms or conditions of such proposal. We will continue to keep McKesson fully informed of the status and details of any acquisition proposal, including any changes to the terms thereof.

 

Except as set forth below, our board of directors (and each applicable committee of our board of directors) has agreed not to (1) withdraw (or modify or qualify in a manner adverse to McKesson) or publicly propose to withdraw (or modify in a manner adverse to McKesson) its recommendation that our stockholders vote in favor of the merger agreement, (2) approve, adopt or recommend, or publicly propose to approve, adopt or recommend, or allow us or any of our subsidiaries to enter into, a letter of intent, memorandum of understanding, agreement in principle, merger agreement, acquisition agreement, option agreement, joint venture agreement, partnership agreement or other similar agreement or any tender offer, constituting or related to, or that is intended to or could reasonably be expected to lead to, an acquisition proposal, or (3) waive any provision of, terminate, amend, restate or otherwise modify our stockholder rights plan or redeem the rights granted thereunder.

 

If prior to the adoption of the merger agreement by our stockholders, our board of directors reasonably determines in good faith that a bona fide written third party acquisition proposal constitutes a superior proposal that was not solicited in violation of the applicable terms of the merger agreement (after consultation with, and taking into account the advice of, its outside legal advisors and a financial advisor of nationally recognized reputation), and determines in good faith (after consultation with, and taking into account the advice of, our outside legal advisors) that its failure to do so would be inconsistent with its fiduciary duties to our stockholders under applicable law, our board of directors may:

 

 

We are not allowed to terminate the merger agreement, and any such termination will be null and void unless prior to or concurrent with such termination we pay McKesson $44 million.

 

In any such case, however, our board of directors may only take such action at a time that is after the third business day following McKesson’s receipt of written notice advising McKesson that our board of directors intends to take such action and specifying the reasons for such action, including the terms and conditions of any superior proposal that is the basis of the proposed action and the identity of the person making the proposal. During such three business day period, we are required to provide an opportunity for McKesson to propose adjustments to the terms and conditions of the merger agreement to enable us to proceed with our recommendation to our stockholders.

 

In addition, if (1) at any time prior to the adoption of the merger agreement by our stockholders, a material development or change in circumstances occurs or arises after the date of the merger agreement that does not relate to an acquisition proposal (and that was not known to, or reasonably foreseeable by, the board of directors at the time the merger agreement was entered into), and (2) our board of directors determines in good faith (after consultation with, and taking into account the advice of, our outside legal advisors) that its failure to do so would result in a breach of its fiduciary duties to our stockholders under applicable law, our board of directors may:

 

 

 

In any such case, however, our board of directors may only take such action at a time that is after the third business day (unless such material event or change in circumstances arises fewer than three business days prior to the special meeting of our stockholders, then as promptly as practicable but in any event within 24 hours) following McKesson’s receipt of written notice advising McKesson that our board of directors intends to take such action and specifying the reasons for such action. During the three business day period, we are required to provide an opportunity for McKesson to propose adjustments to the terms and conditions of the merger agreement to enable us to proceed with our recommendation to our stockholders.

 

As described in this proxy statement, “acquisition proposal” means any inquiry, proposal or offer from any third party relating to, or that could reasonably be expected to lead to, (1) any direct or indirect acquisition of assets or businesses that constitute 15% or more of the revenues, net income or assets of us and our subsidiaries, taken as a whole, or 15% or more of any class of equity securities of the Company or any Subsidiary, (2) any tender offer or exchange offer that if consummated would result in any person beneficially owning 15% or more of any class of equity securities of us, or (3) any merger, consolidation, business combination, recapitalization, liquidation, dissolution, joint venture, share exchange or similar transaction involving us or any of our subsidiaries pursuant to which any third party (or its stockholders) would own 15% or more of any class of equity securities of us or any resulting parent company of us (other than the transactions pursuant to the merger agreement).

 

McKesson has agreed to cause, following the effective time of the merger, the surviving corporation to assume the obligations with respect to all rights to indemnification, advancement of expenses and exculpation for acts or omissions by us existing on the date of the merger agreement in favor of each of our present and former directors and officers as provided in our certificate of incorporation or bylaws in effect on the date of the merger agreement, or pursuant to any other agreements in effect on the date of the merger agreement.

 

Subject to certain monetary limitations on premiums, McKesson has agreed that it will maintain in effect our current directors’ and officers’ liability insurance or, at or prior to the effective time of the merger, purchase a six-year “tail” officers’ and directors’ liability insurance policy in respect of acts or omissions occurring at or prior to the effective time of the merger covering each of the individuals covered by our existing directors’ and officers’ liability insurance policy.

 

If the surviving corporation later merges or consolidates with or sells all or substantially all of its assets to another entity, McKesson will cause the entity surviving such transaction to assume these indemnification and insurance obligations.

 

The merger agreement contains representations and warranties made by each of the parties regarding aspects of their respective businesses, financial condition and structure, as well as other facts pertinent to the merger. These representations and warranties relate to the following subject matters with respect to each party:

 

 

 

In addition, we made additional representations and warranties related to the following subject matters:

 

 

McKesson and Packet Merger Sub Inc. made additional representations and warranties related to the following subject matters:

 

 

Conduct of Business Pending the Merger

 

Until the effective time of the merger and unless otherwise contemplated by the merger agreement, subject to certain identified exceptions, we will and will cause each of our subsidiaries to:

 

 

We agree that between the date of the merger agreement and the effective time of the merger, without McKesson’s prior written consent or except as provided for in specified circumstances, we will not, nor will we permit any of our subsidiaries to:

 

 

 

 

 

Access to Information

 

Until the effective time of the merger, we will afford McKesson and its representatives reasonable access during normal business hours and upon reasonable prior notice to our properties, books, contracts, commitments, personnel and records and will furnish to McKesson all information concerning us and our subsidiaries’ business, properties and personnel that McKesson may reasonably request.

 

Further Actions; Reasonable Best Efforts

 

Each party to the merger agreement agrees to use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to complete the transactions contemplated by the merger agreement, including:

 

 

Pursuant to the merger agreement, on November 20, 2006, we and McKesson filed with the U.S. Federal Trade Commission and the Antitrust Division of the Department of Justice the notification and report form required under the HSR Act with respect to the transactions contemplated by the merger agreement. We requested early termination of the waiting period to complete the merger under the HSR Act which was granted on December 4, 2006.

 

In connection with, and without limiting the foregoing, we will take all action reasonably necessary to ensure that no state anti-takeover statute or similar statute or regulation is or becomes operative with respect to the merger agreement, the merger or any other transactions contemplated by the merger agreement. If any state anti-takeover statute or similar statute or regulation becomes operative with respect to the merger agreement, the merger or any other transaction contemplated by the merger agreement, we will take all action reasonably necessary to ensure that the merger agreement, the merger and any other transactions contemplated by the merger agreement may be completed as promptly as practicable on the terms contemplated by the merger agreement and otherwise to minimize the effect of such statute or regulation on the merger agreement, the merger and the other transactions contemplated by the merger agreement.

 

The parties to the merger agreement have also agreed that, if there are any objections relating to the merger or the merger agreement under applicable antitrust or competition law, or if any suit or proceeding is instituted by a governmental entity or other person challenging the merger or the merger agreement as violative of applicable antitrust or competition law, they will use their reasonable best efforts to resolve such objections, suit or proceeding. However, McKesson is not required to agree to divest or hold separate any assets or portion of the business of McKesson, us or any of its or our respective subsidiaries.

 

Public Announcements

 

We and McKesson agree to consult each other before issuing any press release or otherwise making any public statements with respect to the merger agreement or the merger, except as we or McKesson, as the case may be, reasonably conclude may be required by law, court process or any listing agreement with a national securities exchange or national securities quotation system. We are not required to consult with McKesson if we make a public announcement in order for our board of directors to (1) withdraw (or modify in a manner adverse to McKesson), or publicly propose to withdraw its approval, recommendation, or declaration of the advisability of the merger agreement, the merger or the other transactions contemplated by the merger agreement, or (2) recommend, adopt or approve, or publicly propose to recommend, adopt or approve, a third party acquisition proposal (in the manner described above under “— Acquisition Proposals; Change in the Recommendation of Our Board of Directors” beginning on page 40).

 

Benefits Continuation; Credited Service

 

For a period of twelve months following the effective time of the merger our employees who remain actively employed by us or any of our subsidiaries following the merger (the “continuing employees”) will receive employee benefits (excluding bonuses) and base salary that, in the aggregate, are substantially similar to those provided under our benefit plans (without giving effect to plans or arrangements providing for the issuance of capital stock or rights in respect of capital stock or defined benefit pension plans) as in effect immediately prior to the effective time of the merger. However, neither McKesson nor the surviving corporation nor any of their subsidiaries has any obligation to issue or adopt plans or arrangements providing for the issuance of capital stock, warrants, options, stock appreciation rights or other rights in respect of capital stock.

 

Except as would result in a duplication of benefits or to the extent that continuing employees continue to participate in our employee benefit plans following the effective time of the merger, continuing employees will be given credit for all service with us and our subsidiaries (1) for purposes of vesting (but not benefit accrual) under any defined benefit pension plan, (2) for purposes of eligibility for vacation, (3) for purposes of eligibility and participation under any health or welfare plan (other than any post-employment health or post-employment welfare plan except to the extent required by applicable law), (4) for purposes of eligibility for any company matching contributions and (5) unless covered under another arrangement with or of Per-Se under

which any continuing employee may be entitled to receive severance benefits, for benefit accrual purposes under any severance plan. For any welfare plan maintained by McKesson in which continuing employees are eligible to participate after the effective time of the merger, McKesson will waive all limitations as to pre-existing conditions and exclusions relating to participation and coverage requirements (to the extent such conditions and exclusions were satisfied or did not apply to such employees under plans maintained by us and our subsidiaries prior to the effective time of the merger) and will provide continuing employees with credit for any co-payments and deductibles paid prior to the effective time of the merger for satisfaction of analogous deductibles or out-of-pocket requirements, to the extent credited under the welfare plans maintained by us or our subsidiaries prior to the effective time of the merger.

 

The merger agreement may be amended, at any time before or after our stockholders adopt the merger agreement. However, after adoption of the merger agreement by our stockholders, no amendment can be made that will require further approval by our stockholders.

 

Prior to the effective time of the merger, each of the parties to the merger agreement may:

 

 

For purposes of the merger agreement, “material adverse effect” means any change, effect, event, occurrence, state of facts or development that individually or in the aggregate is or would reasonably be expected to:

 

 

However, none of the following shall be deemed, either alone or in combination, to constitute, and none of the following shall be taken into account in determining whether there has been or will be, a material adverse effect or a material adverse change:

 

 

The parties to the merger agreement have agreed that irreparable damage would occur in the event that any provision of the merger agreement is not performed in accordance with its specific terms or is otherwise breached. The parties will be entitled to seek an injunction or injunctions to prevent breaches of the provisions of the merger agreement and to enforce specifically the merger agreement and its terms and provisions.

 

The merger agreement may be terminated and the merger may be abandoned at any time prior to the effective time of the merger, whether before or after the special meeting:

 

 

 

Generally, all fees and expenses incurred in connection with the merger agreement, the merger and the other transactions contemplated by the merger agreement will be paid by the party incurring such fees and expenses, whether or not the merger is completed. We have agreed, however, to pay McKesson a termination fee of $44 million if:

 

 

Also, if we terminate the merger agreement to enter into an agreement contemplating a superior proposal in accordance with the provisions described under “— Acquisition Proposals; Change in the Recommendation of Our Board of Directors” beginning on page 40 prior to obtaining stockholder approval, we are required to pay McKesson the termination fee prior to or concurrent with such termination. If we do not pay the fee concurrent with, or prior to, such termination, such termination is null and void.

 

In addition, if:

 

 

 

 

 

then, in each case, if within 12 months after the termination of the merger agreement, we enter into a definitive agreement to complete, or we otherwise complete, a third party acquisition proposal, we are required to pay McKesson the termination fee on the date we enter into such an agreement or otherwise complete a third party acquisition proposal (provided that, for purposes of determining whether such an agreement or completed acquisition would trigger our obligation to pay the termination fee, references to “15%” in the definition of “acquisition proposal” are deemed to be references to “greater than 50%”).

 

If we fail promptly to pay to McKesson any termination fee due and McKesson commences a lawsuit to obtain such payment that results in a judgment against us for the termination fee, we will pay to McKesson the costs and expenses (including attorneys’ fees and expenses) in connection with such lawsuit, together with interest at the prime rate of Citibank, N.A. in effect on the date such payment was required to be paid, up to $5 million.

 

The following is a summary of the material terms of the voting agreement among McKesson, the ValueAct stockholder parties thereto and, for limited purposes, Per-Se. A copy of the voting agreement is included as Annex B to this proxy statement and is incorporated into this proxy statement by reference. We encourage you to read the voting agreement in its entirety.

 

Concurrent with the execution of the merger agreement, ValueAct Capital Master Fund, L.P., VA Partners, L.L.C. and ValueAct Capital Management, L.P., which we collectively refer to as the ValueAct stockholders, entered into a voting agreement with McKesson and, for limited purposes, Per-Se. As of the date of the voting agreement, the ValueAct stockholders were the beneficial owners of 6,051,644 shares of our common stock, which represents approximately 15.4% of Per-Se’s outstanding common stock and which made ValueAct (along with its affiliates) our largest stockholder. Jeffrey Ubben, a member of our board of directors, is a managing member of ValueAct’s general partner. We refer to the Per-Se shares beneficially owned by the ValueAct stockholders, together with any shares of common stock over which the ValueAct stockholders acquire beneficial ownership after the date of the voting agreement as the covered shares.

 

Pursuant to the voting agreement, the ValueAct stockholders have agreed that, during the period from and including November 5, 2006 through and including the earliest to occur of (a) the closing of the merger and (b) the termination of the merger agreement in accordance with its terms, they will vote or execute consents with respect to the covered shares as to which they control the right to vote:

 

 

Under the voting agreement, each ValueAct stockholder has agreed not to transfer or encumber his, her or its covered shares. In addition, the ValueAct stockholders have agreed that during the term of the voting agreement, they will not solicit or initiate any alternative acquisition proposal or engage in any negotiations with or furnish any nonpublic information relating to Per-Se to any person that may be considering making, or has made or agreed to endorse, an alternative acquisition proposal.

 

The voting agreement will terminate upon any termination of the merger agreement. In addition each of the ValueAct stockholders has the right to terminate the voting agreement by written notice to McKesson if the terms of the merger agreement are amended or waived in a manner that materially affects the stockholder without the written consent of such stockholder.

 

The discussion of the provisions set forth below is not a complete summary regarding your appraisal rights under Delaware law and is qualified in its entirety by reference to the text of the relevant provisions of Delaware law, which are attached to this proxy statement as Annex D. Stockholders intending to exercise appraisal rights should carefully review Annex D. Failure to follow precisely any of the statutory procedures set forth in Annex D may result in a termination or waiver of these rights.

 

If the merger is consummated, dissenting holders of record of our common stock who follow the procedures specified in Section 262 of the DGCL within the appropriate time periods will be entitled to have their shares of our common stock appraised by a court and to receive the “fair value” of such shares in cash as determined by the Delaware Court of Chancery in lieu of the consideration that such stockholder would otherwise be entitled to receive pursuant to the merger agreement.

 

The following is a brief summary of Section 262, which sets forth the procedures for dissenting from the merger and demanding statutory appraisal rights. Failure to follow the procedures set forth in Section 262 precisely could result in the loss of appraisal rights. This proxy statement constitutes notice to holders of our common stock concerning the availability of appraisal rights under Section 262. A stockholder of record wishing to assert appraisal rights must hold the shares of stock on the date of making a demand for appraisal rights with respect to such shares and must continuously hold such shares through the effective time of the merger.

 

Stockholders who desire to exercise their appraisal rights must satisfy all of the conditions of Section 262. A written demand for appraisal of shares must be filed with us before the beginning of the special meeting. This written demand for appraisal of shares must be in addition to and separate from a vote against the merger. Stockholders electing to exercise their appraisal rights must not vote “FOR” the merger. Any proxy or vote against the merger will not constitute a demand for appraisal within the meaning of Section 262.

 

A demand for appraisal must be executed by or for the stockholder of record, fully and correctly, as such stockholder’s name appears on the share certificate. If the shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, this demand must be executed by or for the fiduciary. If the shares are owned by or for more than one person, as in a joint tenancy or tenancy in common, such demand must be executed by or for all joint owners. An authorized agent, including an 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 and expressly disclose the fact that, in exercising the demand, he is acting as agent for the record owner. A person having a beneficial interest in our common stock held of record in the name of another person, such as a broker or nominee, must act promptly to cause the record holder to follow the steps summarized herein and in a timely manner to perfect appraisal rights with respect to common shares held for such beneficial owner.

 

A stockholder who elects to exercise appraisal rights should mail or deliver his, her or its written demand to us at our address at 1145 Sanctuary Parkway, Suite 200, Alpharetta, Georgia 30004, Attention: Secretary.

The written demand for appraisal should specify the stockholder’s name and mailing address, and that the stockholder is thereby demanding appraisal of his, her or its share of our common stock. Within ten days after the effective time of the merger, we must provide notice of the effective time of the merger to all of our stockholders who have complied with Section 262 and have not voted for the merger.

 

Within 120 days after the effective time of the merger (but not thereafter), any stockholder who has satisfied the requirements of Section 262 may deliver to us a written demand for a statement listing the aggregate number of shares not voted in favor of the merger and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. We, as the surviving corporation in the merger, must mail such written statement to the stockholder no later than the later of 10 days after the stockholder’s request is received by us or 10 days after the latest date for delivery of a demand for appraisal under Section 262.

 

Not later than 120 days after the effective time of the merger, either we or any stockholder who has complied with the required conditions of Section 262 and who is otherwise entitled to appraisal rights may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares of our common stock owned by stockholders entitled to appraisal rights. We have no present intention to file such a petition if demand for appraisal is made.

 

Upon the filing of any petition by a stockholder in accordance with Section 262, service of a copy must be made upon us. We must, within 20 days after 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 we have not reached agreements as to the value of their shares. If we file a petition, the petition must be accompanied by the verified list. The Register in Chancery, if so ordered by the court, will give notice of the time and place fixed for the hearing of such petition by registered or certified mail to us and to the stockholders shown on the list at the addresses therein stated, and notice will also be given by publishing a notice at least one 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 must be approved by the court, and we will bear the costs thereof. The Delaware Court of Chancery may require the stockholders who have demanded an appraisal for their shares (and who hold stock represented by certificates) to submit their stock certificates to the Register in Chancery for notation of the pendency of the appraisal proceedings and the Delaware Court of Chancery may dismiss the proceedings as to any stockholder that fails to comply with such direction.

 

If a petition for an appraisal is filed in a timely fashion, after a hearing on the petition, the court will determine which stockholders are entitled to appraisal rights and will appraise the shares owned by these stockholders, determining the fair value of such shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest to be paid, if any, upon the amount determined to be the fair value.

 

Stockholders considering seeking appraisal of their shares should note that the fair value of their shares determined under Section 262 could be more, the same or less than the consideration they would receive pursuant to the merger agreement if they did not seek appraisal of their shares. The costs of the appraisal proceeding may be determined by the court and taxed against the parties as the court deems equitable under the circumstances. Upon application of a dissenting stockholder, the court may order that all or a portion of the expenses incurred by any dissenting stockholder in connection with the appraisal proceeding, including reasonable attorneys’ fees and the fees and expenses of experts, be charged pro rata against the value of all shares entitled to appraisal. In the absence of a determination or assessment, each party bears his, her or its own expenses. The exchange of shares for cash pursuant to the exercise of appraisal rights generally will be a taxable transaction for United States federal income tax purposes and possibly state, local and foreign income tax purposes as well. See “The Merger — Material United States Federal Income Tax Consequences of the Merger” beginning on page 32.

 

Any stockholder who has duly demanded appraisal in compliance with Section 262 will not, after the effective time of the merger, be entitled to vote for any purpose the shares subject to demand or to receive

payment of dividends or other distributions on such shares, except for dividends or distributions payable to stockholders of record at a date prior to the effective time of the merger.

 

At any time within 60 days after the effective time of the merger, any stockholder will have the right to withdraw his, her or its demand for appraisal and to accept the terms offered in the merger agreement. After this period, a stockholder may withdraw his, her or its demand for appraisal and receive payment for his, her or its shares as provided in the merger agreement only with our consent. If no petition for appraisal is filed with the court within 120 days after the effective time of the merger, stockholders’ rights to appraisal (if available) will cease. Inasmuch as we have no obligation to file such a petition, any stockholder who desires a petition to be filed is advised to file it on a timely basis. No petition timely filed in the court demanding appraisal may be dismissed as to any stockholder without the approval of the court, which approval may be conditioned upon such terms as the court deems just.

 

Failure by any stockholder to comply fully with the procedures described above and set forth in Annex D to this proxy statement may result in termination of such stockholder’s appraisal rights, in which case the stockholder will be entitled to receive the consideration specified in the merger agreement.

 

The following table provides information as of November 30, 2006 regarding the beneficial ownership of our common stock by:

 

 

 

 

 

If we fail to receive a sufficient number of votes to adopt the merger agreement, we may propose to adjourn the special meeting, if a quorum is present, for a period of not more than 120 days for the purpose of soliciting additional proxies to adopt the merger agreement. We currently do not intend to propose adjournment of our special meeting if there are sufficient votes to adopt the merger agreement. Approval of the proposal to adjourn our special meeting for the purpose of soliciting additional proxies requires the affirmative vote of a majority of the votes cast at the special meeting on the proposal.

 

Our board of directors recommends that you vote “FOR” the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the meeting to adopt the merger agreement.

 

Other Business at the Special Meeting

 

The board of directors currently knows of no other business that will be presented for consideration at the special meeting. Nevertheless, should any business other than that set forth in the notice of special meeting of stockholders properly come before the meeting, the enclosed proxy confers discretionary authority to vote with respect to such matters, including matters that the board of directors does not know, a reasonable time before proxy solicitation, are to be presented at the meeting. If any of these matters are presented at the meeting, then the proxy agents named in the enclosed proxy card will vote in accordance with their judgment.

 

Advance Notice Procedures

 

We will only hold an annual meeting of stockholders in 2007 if the merger is not completed. Under the By-laws, 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 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 being released to 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 our public disclosure of the date of the annual meeting was made, whichever first occurs; or (ii) such other reasonable time before we begin to print and mail our proxy materials for the meeting as we 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.

 

Stockholder Proposals for the 2007 Annual Meeting

 

Stockholders interested in bringing a proposal before the stockholders at the 2007 Annual Meeting of Stockholders 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 19, 2006. 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 19, 2006, to be considered for inclusion in our proxy statement for the 2007 Annual Meeting of Stockholders.

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that we file with the SEC at its Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room.

 

Our public filings are also available to the public from document retrieval services and at the Internet site maintained by the SEC at www.sec.gov.

 

If you have any questions about this proxy statement, the special meeting or the merger or need assistance with the voting procedures, you should contact MacKenzie Partners, Inc., our proxy solicitor, toll free at (800) 322-2885.

 

The SEC allows us to incorporate by reference information into this proxy statement. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. Information that we file later with the SEC, prior to the closing of the merger, will automatically update and supersede the previously filed information and be incorporated by reference into this proxy statement.

 

We incorporate by reference any documents that may be filed with the SEC between the date of this proxy statement and prior to the date of the special meeting of our stockholders. These include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy statements (except for information furnished to the SEC that is not deemed to be “filed” for purposes of the Exchange Act).

 

Any person, including any beneficial owner, to whom this proxy statement is delivered may request copies of reports, proxy statements or other information concerning us, without charge, by written or telephonic request directed to us at Per-Se Technologies, Inc., Attention: Investor Relations and Corporate Communications, 1145 Sanctuary Parkway, Alpharetta, Georgia 30004, Telephone: (770) 237-4300. If you would like to request documents, please do so by [          ], in order to receive them before the special meeting. In addition, these documents may also be obtained through our website at www.per-se.com.

 

You should only rely on information provided in this proxy statement. No persons have been authorized to give any information or to make any representations other than those contained in this proxy statement and, if given or made, such information or representations must not be relied upon as having been authorized by us or any other person.

 

This proxy statement is dated December  , 2006. You should not assume that the information contained in this proxy statement is accurate as of any date other than that date, and the mailing of this proxy statement to stockholders shall not create any implication to the contrary.

ANNEX A

 

 

AGREEMENT AND PLAN OF MERGER
by and among
MCKESSON CORPORATION
PACKET MERGER SUB INC.
and
PER-SE TECHNOLOGIES, INC.
Dated as of
November 5, 2006

 

TABLE OF CONTENTS

 

ARTICLE I
THE MERGER