News | May 21, 2008

Merge Healthcare Announces $20 Million Financing

May 22, 2008 - Merge Healthcare entered into a securities purchase agreement and related agreements with Merrick RIS for $20 million in financing through a private placement, which placement was made pursuant to an exemption from the registration requirements under the Securities Act of 1933, as amended ("Securities Act").

The private placement is scheduled to close on or about June 3, 2008, subject to customary closing conditions and the delivery of the shareholder notice. The company intends to sell a $15 million senior secured term note due 2010 and 6,800,000 shares of its common stock as partial consideration for the term note and 14,285,715 shares of its common stock at a price per share of $.35.

The term note will bear interest at 13.0 percent per annum, payable quarterly. The company is required to prepay at the closing the first two interest payments. The principal amount of the term note will be payable in a single installment on the second anniversary date of the closing of the transaction. Merrick may require Merge to redeem the term note in full if a change of control occurs. If the change of control results in the payment of consideration to the company's shareholders equal to or exceeding $1.75 per share, the redemption price of the term note shall be at par. If such consideration is less than $1.75 per share, the redemption premium shall be (i) 120 percent of par if the change of control occurs within one year of the closing date, or (ii) 118 percent of par if the change of control occurs anytime thereafter. The term note may also be voluntarily prepaid at 120 percent of par at any time.

The term note contains various operating and financial covenants, including a requirement that the company have positive adjusted EBITDA for the last fiscal quarter of 2008 and cumulatively thereafter through the term of the note. The term note also contains event of default provisions including, but not limited to, failure to pay, breach of financial or operating covenants, and certain events of bankruptcy or insolvency. The term note will be a senior secured obligation and will be senior to the company’s existing and future indebtedness. The term note will be secured by all of the company’s U.S. and Canadian assets.

In connection with the private placement, Merrick shall be entitled to designate five persons to replace five of the eleven current directors on Merge’s board of directors, effective immediately upon the closing of the private placement. The company has also agreed that Merrick will continue to have the right to designate five persons to be nominated for election to the Board of Directors in the future, subject to reduction upon a decrease in Merrick’s ownership percentage in the company.

The company has entered into a registration rights agreement in connection with the private placement pursuant to which it has agreed to register with the Securities and Exchange Commission for public resale the common stock under certain circumstances.

Merge amended its Rights Agreement so that the private placement and related transactions do not trigger the distribution of rights under the plan.

The term note and the shares of the company’s common stock to be issued in the private placement will not be registered under the Securities Act, or any state securities laws and once issued may not be offered or sold in the U.S. absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state securities laws. The term note and shares of the company’s common stock are being sold pursuant to an exemption from the registration requirements of the Securities Act afforded by Regulation D of the Securities Act. Resale of the term note and the shares of the company. The term note will bear interest at 13.0 percent per annum, payable quarterly. The Company is required to prepay at the closing the first two interest payments. The principal amount of the term note will be payable in a single installment on the second anniversary date of the closing of the transaction. Merrick may require the company to redeem the term note in full if a change of control occurs. If the change of control results in the payment of consideration to the company's shareholders equal to or exceeding $1.75 per share, the redemption price of the term note shall be at par. If such consideration is less than $1.75 per share, the redemption premium shall be (i) 120 percent of par if the change of control occurs within one year of the closing date, or (ii) 118 percent of par if the change of control occurs anytime thereafter. The term note may also be voluntarily prepaid at 120 percent of par at any time.

For more information: www.mergehealthcare.com

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