MRGE Mirage Energy Corporation (PK)

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 (Amendment No.  )

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Merge Healthcare Incorporated (Name of Registrant as Specified In Its Charter)

 

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Merge Healthcare Incorporated
6737 West Washington Street
Milwaukee, Wisconsin 53214 – 5650
(414) 977 – 4000

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To the Shareholders of Merge Healthcare Incorporated:

     We invite you to attend our 2008 Annual Meeting of Shareholders on August 19, 2008, at 9:00 a.m., Central Time, at the Company’s headquarters located at 6737 West Washington Street, Suite 2250, Milwaukee, Wisconsin 53214. At the Annual Meeting, as we describe in the accompanying Proxy Statement, we will ask you to vote on the following matters:

	1.		the election of seven (7) directors;
	2.		an amendment to the Merge Healthcare Incorporated 2005 Equity Incentive Plan to increase the shares of common stock authorized for issuance thereunder by 3,000,000 shares;
	3.		an amendment to our Amended and Restated Articles of Incorporation (or the Certificate of Incorporation of the Surviving Corporation of the Merger described below) allowing our board of directors, in its discretion at any time prior to August 19, 2009, to effect a reverse stock split of our outstanding common stock with an exchange ratio of either two-for-three or one-for-two in an attempt to raise the per share price of our Common Stock in an effort to maintain compliance with the listing requirements of The NASDAQ Global Market;
	4.		the change in our state of incorporation from Wisconsin to Delaware by approving and adopting an Agreement and Plan of Merger providing for our merger into our wholly-owned subsidiary incorporated in Delaware;
	5.		the ratification of our appointment of the firm of BDO Seidman, LLP as our independent registered public accounting firm for 2008; and
	6.		such other business as may properly come before the Annual Meeting, or any adjournment or postponement thereof.

     You are entitled to vote at the Annual Meeting only if you were a Shareholder of record at the close of business on July 11, 2008. A Proxy Statement and proxy card are enclosed. Whether or not you expect to attend the Annual Meeting, it is important that you promptly complete, sign, date and mail the proxy card in the enclosed envelope so that you may vote your shares.

Milwaukee, Wisconsin
July ___, 2008

Our 2007 Summary Annual Report (including our Company’s Annual Report on Form 10–K) is enclosed with this Notice and Proxy Statement.

TABLE OF CONTENTS

PROXY STATEMENT
FOR THE
2008 ANNUAL MEETING OF SHAREHOLDERS OF
MERGE HEALTHCARE INCORPORATED
AUGUST 19, 2008

      Unless the context otherwise requires, all references in this Proxy Statement to “we,” our,” “us,” or the “Company” are to Merge Healthcare Incorporated and its subsidiaries.

Why have I received this Proxy Statement?

     We are furnishing this Proxy Statement to the holders of shares of our Common Stock (whom we refer to as “you” or our “Shareholders”), in connection with the solicitation of proxies by our Board of Directors (which we refer to as our “Board”) for use at the 2008 Annual Meeting of Shareholders to be held on August 19, 2008, or any adjournment or postponement thereof (which we refer to as the “Annual Meeting”). We first sent this Proxy Statement, the enclosed Notice and proxy card to Shareholders on or about July ___, 2008.

When will the Annual Meeting be held?

     The Annual Meeting will be convened at approximately 9:00 a.m. Central Time on August 19, 2008. Any adjournment or postponement thereof will be announced at the Annual Meeting.

Who is entitled to vote at the Annual Meeting?

     You are entitled to vote at the Annual Meeting only if you were a Shareholder of record at the close of business on July 11, 2008. In addition, shares of our Common Stock represented by properly executed proxies in the accompanying form received by our Board prior to the Annual Meeting and our Preferred Series 3 Special Voting Share will be voted at the Annual Meeting. A complete list of Shareholders eligible to vote will be available for inspection at our offices beginning two (2) business days after the date of this Notice and Proxy Statement.

How many shares will be entitled to vote at the Annual Meeting?

     At the close of business on July 11, 2008, there were [56,804,385] shares of our Common Stock outstanding that have voting rights, including: (i)[55,118,845] shares of our Common Stock, and (ii) one Preferred Series 3 Special Voting Share, which entitles the holder of record of such share to voting rights equal to [1,685,540] shares of our Common Stock. The Preferred Series 3 Special Voting Share was issued by us in connection with our business combination with Cedara Software Corp. (which we refer to as “Cedara”) to provide voting rights to holders of Merge Cedara ExchangeCo Limited Exchangeable Shares (which we refer to as “Exchangeable Shares”), which shares are exchangeable into shares of our Common Stock. The Preferred Series 3 Special Voting Share will be treated as Common Stock having [1,685,540] votes at the Annual Meeting. Our current directors and Executive Officers beneficially own [27,355,229] shares of our Common Stock, or approximately [51.96]% of our total outstanding Common Stock, which they intend to vote in favor of the proposals.

How many shares are required to be present at the Annual Meeting?

     A quorum of Shareholders is necessary to hold a valid meeting. The presence in person or representation by proxy at any meeting of our Shareholders of a majority of the outstanding shares of our Common Stock entitled to vote at the meeting constitutes a quorum. If a quorum is not present, then the Annual Meeting may be postponed or adjourned, without notice other than announcement at the Annual Meeting, until a quorum is present or represented. At any subsequent reconvening of the Annual Meeting, all proxies will be voted in the same manner as the proxies would have been voted at the original convening of the Annual Meeting, except for any proxies that have been effectively revoked or withdrawn prior to the subsequent meeting.

     Broker non–votes are counted for purposes of determining whether a quorum is present at the Annual Meeting, but are not counted for purposes of determining whether a proposal has been approved. A broker non–vote occurs on an item when a broker does not have discretionary voting authority to vote on a proposal and has not received instructions from the beneficial owner of the shares as to how to vote on the proposal.

How will my vote be counted?

     If you specify a choice with respect to any matter to be acted upon in the enclosed proxy and return it to our Board, the shares of our Common Stock represented by that proxy will be voted as specified. If you do not specify a choice in an otherwise properly executed proxy with respect to any proposal referred to therein, the shares of our Common Stock represented by that proxy will be voted with respect to that proposal in accordance with the recommendations of our Board described herein. Votes cast by proxy or in person at the Annual Meeting will be counted by an inspector of election appointed for the Annual Meeting, who will also determine whether or not a quorum is present.

May I change my vote after returning this proxy?

     If you sign and return a proxy in the accompanying form, you may revoke it by: (i) giving written notice of revocation to us before the proxy is voted at the Annual Meeting; (ii) executing and delivering a later–dated proxy before the proxy is voted at the Annual Meeting; or (iii) attending the Annual Meeting and voting your shares of Common Stock in person.

What vote is required to approve the proposals?

     The seven (7) nominees receiving the highest vote totals of the eligible shares of our Common Stock will be elected as our directors. With regard to the election of directors, votes may be cast in favor or withheld; votes that are withheld will be excluded entirely from the vote and will have no effect. For approval of the proposed amendment to our 2005 Equity Incentive Plan, the affirmative vote of holders of a majority of the shares of our Common Stock that are cast at the Annual Meeting is required. The proposed change in our state of incorporation by means of an Agreement and Plan of Merger will be approved if it receives the affirmative vote of a majority of the shares of our Common Stock entitled to vote on the matter and present or represented by proxy at the meeting, provided a quorum is present. The proposed amendment to our Amended and Restated Articles of Incorporation, the ratification of our appointment of the firm of BDO Seidman, LLP as our independent registered public accounting firm for 2008, as well as any other matter that is properly brought before the Annual Meeting, will be approved if the votes cast in favor of the proposal exceed the votes cast against it and there is a quorum.

Are there any dissenters’ or appraisal rights for those who vote against any of the proposals?

     No. None of the matters to be presented and acted upon at the Annual Meeting will entitle any Shareholder to appraisal or dissenters’ rights pursuant to Wisconsin law.

Who will pay solicitation costs associated with this Proxy Statement?

     We will make arrangements with brokerage houses, banks and other custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of the shares of our Common Stock held of record by those persons. We may reimburse these custodians, nominees and fiduciaries for their reasonable out–of–pocket expenses incurred in forwarding proxy materials to these beneficial owners. We will bear the cost of soliciting proxies, although we currently do not intend to solicit proxies. In addition to the use of the mail, proxies may be solicited by our directors, officers or employees, who will not be specifically compensated for these services, by means of personal calls upon, or telephonic, telegraphic or facsimile communications with, Shareholders or their representatives.

     The mailing address of our principal executive offices is 6737 West Washington Street, Suite 2250, Milwaukee, Wisconsin 53214–5650. Our Shareholder email address is shareholderinfo@mergehealthcare.com and our web site is located at www.mergehealthcare.com . The shares of our Common Stock are included for quotation on The Nasdaq Global Market under the symbol “MRGE.”

     WE INTEND TO BEGIN MAILING THIS PROXY STATEMENT ON OR ABOUT JULY ___, 2008.

PROPOSAL ONE: ELECTION OF DIRECTORS

     Seven (7) individuals will be elected at the Annual Meeting to serve as directors until our next annual meeting of Shareholders or otherwise as provided in our Amended and Restated By-laws adopted on September 6, 2006 (which we refer to as our “By-laws”). The individuals named as proxy voters in the accompanying proxy, or their substitutes, will vote for the following nominees with respect to all proxies we receive unless instructions to the contrary are provided. If any nominee becomes unavailable for any reason, the votes will be cast for a substitute nominee designated by our Board. Our directors have no reason to believe that any of the nominees named below will be unable to serve if elected.

     As a result of the transaction with Merrick RIS, LLC (which we refer to as “Merrick”) that we describe below under “Corporate Governance – Related Person Transactions,” Merrick had the continuing right under the agreement governing the transaction to designate five (5) persons to be nominated to our Board, subject to reduction upon a decrease in Merrick’s ownership percentage in our Company. As previously announced, effective upon the election of directors at the Annual Meeting, four (4) of our directors will resign and our Board will consist of the seven (7) nominees listed below. In connection with this reduction of the size of our Board, on July 1, 2008, Merrick and us amended such agreement, effective upon adoption of Proposal No. 1 set forth in this Proxy Statement, pursuant to which (i) Merrick will give up its contractual right to nominate persons to our Board and (ii) Merrick will no longer be obligated to vote for the slate of directors nominated by the Company.

     The following table lists the names of the seven (7) of our current directors who are candidates for reelection, and their respective ages and positions with us, followed by a brief biography of each individual, including their business experience during the past five years.

Dennis Brown			60			Director
Justin C. Dearborn			38			Director and Chief Executive Officer
Michael W. Ferro, Jr.			41			Chairman of Board
Robert T. Geras			70			Director
Gregg G. Hartemayer			55			Director
Richard A. Reck			58			Director
Neele E. Stearns, Jr.			72			Director

      Dennis Brown served as vice president of finance, chief financial officer and treasurer of Apogent Technologies Inc. (which we refer to as “Apogent”), a New York Stock Exchange company from January 2003 to December 2004. Fisher Scientific International Inc. acquired Apogent in August 2004, and after completion of a transition period, Mr. Brown retired from Apogent in December 2004. From December 2000 through January 2003, Mr. Brown served as a financial consultant to Apogent. Mr. Brown also served as vice president of finance, chief financial officer and treasurer of Apogent’s predecessor, Sybron International Corporation (which we refer to as “Sybron”), a publicly traded company formerly headquartered in Milwaukee, Wisconsin, from January 1993 through December 2000, at which time Sybron’s life sciences group was relocated to Portsmouth, New Hampshire, and Sybron was renamed Apogent. Mr. Brown is a Fellow of the Chartered Institute of Management Accountants (England). Mr. Brown has served on our Board since May 2003 and previously served on our Board from the date of our initial public offering in February 1998 until May 2000.

      Justin C. Dearborn served as Managing Director and General Counsel of Merrick Ventures, LLC (which we refer to as “Merrick Ventures”) from January 2007 until his appointment as Chief Executive Officer of the Company on June 4, 2008. Mr. Dearborn has diverse experience in operational, financial and legal roles. Prior to joining Merrick Ventures, Mr. Dearborn worked over nine years for Click Commerce, Inc. (which we refer to as “Click Commerce”), a publicly traded software and services company that was acquired by Illinois Tool Works Inc. in October 2006. From May 2003 until May, 2005, Mr. Dearborn served as Vice President of Corporate Legal Affairs and Human Resources at Click Commerce. Mr. Dearborn was appointed Corporate Secretary of Click Commerce on May 2, 2003. Prior to Click Commerce, Mr. Dearborn worked at Motorola, Inc. where he specialized in intellectual property transactions and also held management positions in Motorola’s Semiconductor and Corporate Groups. Mr. Dearborn is a C.P.A. and a member of the Illinois Bar Association and holds a B.A. from Illinois State University and a J.D. from DePaul University.

      Michael W. Ferro, Jr. , has served as a director and chairman of our Board since June 4, 2008. Since May 2007, Mr. Ferro has served as Chairman and Chief Executive Officer of Merrick Ventures, a private investment firm. From June 1996 until October 2006, Mr. Ferro served as Chief Executive Officer and Chairman of the Board

of Click Commerce. Mr. Ferro is currently a member of the Board of Trustees of the Chicago Museum of Science and Industry, the Field Museum, the Joffrey Ballet, Northwestern University and the Lyric Opera of Chicago. He also serves on the boards of directors of the Chicago Community Trust, Children’s Memorial Hospital, Northwestern Memorial Foundation, Big Shoulders Foundation, and AfterSchool Matters. Mr. Ferro holds a B.A. from the University of Illinois.

      Robert T. Geras has been a shareholder since May 1989 and a director since prior to our initial public offering in 1998. Since January 2004, Mr. Geras has been a director of Capital Growth Systems, Inc., a public reporting holding company and for Nexvu Technologies LLC, an application performance management software company. Mr. Geras has been a private venture investor for more than 26 years and has participated as a director of, investor in, and/or advisor to numerous small businesses in fields ranging from medical equipment, computer software, banking, telecommunications, industrial distribution and the internet. He has also assisted in corporate planning, capital formation and management for his various investments. Mr. Geras holds a B.S.B.A. from Northwestern University.

      Gregg G. Hartemayer has served as a director since June 4, 2008 and is a member of our Nominating and Corporate Governance Committee and our Compensation Committee. Since May 2007, Mr. Hartemayer has served as a special advisor to Merrick Ventures. Prior to his association with Merrick Ventures, he served in various capacities at Arthur Anderson LLP, and its then affiliate, Accenture, for 28 years. Mr. Hartemayer retired from Accenture in February 2004 where he was Chief Executive for Global Technology, Outsourcing and Global Delivery. Mr. Hartemayer holds an M.B.A. and a B.A. in Mathematics from the University of Michigan.

      Richard A. Reck is the president of Business Strategy Advisors LLC, a business strategy consulting firm, and has served in such capacity since August 2002. Mr. Reck joined the certified public accounting firm of KPMG LLP in June 1973 and remained employed there until his retirement as a partner in July 2002. He currently serves on the boards of Interactive Intelligence, Inc., a publicly held software company, and Advanced Life Sciences Holdings Inc., a publicly held biopharmaceutical company, as well as the boards of several private and not–for–profit entities. Mr. Reck is a certified public accountant and holds a B.A. in Mathematics from DePauw University and an M.B.A. in Accounting from the University of Michigan. Mr. Reck has been a director of our Company since April 2003.

      Neele E. Stearns, Jr. , has served as a director since June 4, 2008 and is chairman of our Audit Committee. Since February 2001, Mr. Stearns has served as Chairman of Financial Investments Corporation, a private equity investment firm. From July 2004 to April 2007, he also served as the interim Chief Executive Officer for Boulevard Healthcare, LLC, an owner and operator of nursing homes. From September 15, 2003 to January 15, 2004, Mr. Stearns took a leave of absence from Financial Investments Corporation to serve as Interim Chairman and CEO of Footstar, Inc. In March 2004, Footstar filed for protection under Chapter 11 of the Bankruptcy Code. Previously, Mr. Stearns was Chairman of the Board of Wallace Computer Services, Inc., then a provider of printed products and print management services, from January 2000 through November 2000. Prior to 1995, he was President and Chief Executive Officer of CC Industries, Inc., a diversified holding company. Mr. Stearns holds an M.B.A. from Harvard Business School and a B.A. in Economics from Carleton College.

     The four (4) current directors whose biographies follow below are not candidates for reelection; they will resign effective upon the election of directors at the Annual Meeting.

      Anna Marie Hajek has been president and chief executive officer of Clarity Group, Inc., a healthcare risk and quality management company specializing in patient safety solutions and the management of professional liability insurance operations since she co–founded the firm in 2000. From 1995 to 2000, Ms. Hajek served as executive vice president and president of the Healthcare Risk Services Group operating division of MMI Companies, Inc., a New York Stock Exchange company specializing in risk management and liability insurance to the healthcare industry. Ms. Hajek has worked in hospital and academic medical center settings in her capacity as a medical technologist and educator. She received her B.A. with honors from the College of St. Teresa, Winona, Minnesota, and her Masters Degree in Health Professions Education from the University of Illinois at Chicago. She holds an active Medical Technologist Certification from the American Society of Clinical Pathologists. Ms. Hajek joined our Board in May 2001.

      Nancy J. Koenig has served as a director and as President Merge Fusion since June 4, 2008. Prior to her appointment as an officer of our Company, Ms. Koenig served as a Vice President of Merrick Ventures and Chief Executive Officer of Merrick Healthcare Solutions, a portfolio company of Merrick Ventures. Prior to joining Merrick Ventures in the fall of 2007, Ms. Koenig was the President of Click Commerce during its integration as a subsidiary of Illinois Tool Works Inc. Ms. Koenig joined Click Commerce in 1999 as the Director of Business Consulting and held various positions, including serving as the head of European Operations, its Vice President of Product Operations and Marketing and its Executive Vice President — Operations. Ms. Koenig was appointed President of Click Commerce in 2006.

      Kevin E. Moley most recently served as U. S. Ambassador representing the United States of America to the United Nations and other international organizations in Geneva from September 2001 to April 2006. Prior to this position, Ambassador Moley was a private investor and served on the board of several public and private companies. Additionally, he served as president and chief executive officer of Integrated Medical Systems Inc., then one of the largest physician networking services, from 1996 to 1998, and was a senior vice president of PCS Health Systems, Inc. from 1993 to 1996. From 1992 to 1993 Ambassador Moley served as Deputy Secretary of the U. S. Department of Health and Human Services. He began his government career at Health and Human Services in 1984. Ambassador Moley previously served on our Company’s Board from 1998 to 2001, and currently serves on the board of directors of Cephalon, a NASDAQ Global Market international biopharmaceutical company. Ambassador Moley was appointed to our Board in September 2006.

      Kevin G. Quinn has been, since 1999, president of Wye River Group, Inc., a private investment and advisory company specializing in corporate and public finance. From 1994 to 1999, Mr. Quinn was managing director and head of investment banking at H.C. Wainwright & Co., which served as one of the underwriters of our Company’s initial public offering. Mr. Quinn’s previous positions include Alex. Brown & Sons, where Mr. Quinn served as a managing director and manager of public finance from 1982 to 1994. He currently serves on the boards of directors of several public and private companies, including CareFirst, Inc., one of the largest health care insurers in the mid–Atlantic region, as well as Securities Finance Trust Company and Old Mutual Asset Management Trust Company. Mr. Quinn was appointed to the Board in September 2006. Mr. Quinn earned J.D. and M.B.A. degrees from the University of Maryland and a B.A. from Loyola College.

     We strongly encourage our directors to attend the Annual Meeting of Shareholders. At the 2007 Annual Meeting of Shareholders, all but one of the directors then serving attended.

      RECOMMENDATION OF THE BOARD: The Board recommends and nominates Messrs. Brown, Dearborn, Ferro, Geras, Hartemayer, Reck and Stearns for election as directors of our Company by the Shareholders at the Annual Meeting to serve until the next Annual Meeting of Shareholders or as otherwise provided in the By-laws.

CORPORATE GOVERNANCE

Board of Directors – General

     Our Board is required to meet at least once per year, either in person or by telephonic conference. Our Board met fourteen (14) times during 2007, including one (1) occasion that included only the non-employee directors. All of the directors attended at least eighty-five percent (85%) of the meetings of the Board, and at least ninety-three percent (93%) of the meetings of all committees on which they served.

     Our Board has determined that each of Messrs. Brown, Geras, Hartemayer, Reck and Stearns is independent under listing standards of the NASDAQ Global Market (which we refer to as “Nasdaq”). Our Board generally uses the director independence standards set forth by Nasdaq as its subjective independence criteria for directors, and then makes an affirmative determination as to each director’s independence by taking into account other, objective criteria as applicable.

Board Committees

     Our Board has three standing committees: an Audit Committee, a Compensation Committee and a Nominating and Governance Committee.

      Audit Committee . Our Audit Committee adopted an amended and restated charter in August 2007, to replace the charter which had previously been in effect. The charter is available on our web site at www.mergehealthcare.com . Our Audit Committee recommends engagement of our Company’s independent accountants, approves services performed by these accountants, and reviews and evaluates our Company’s accounting system and its system of internal accounting controls. The Audit Committee met thirteen (13) times in 2007. The directors who currently serve on the Audit Committee are Mr. Stearns, as chair, and Messrs. Brown and Reck. Mr. Brown is the designated financial expert. All of the members of the Audit Committee are “independent,” as defined in Marketplace Rule 4200 of Nasdaq (which we refer to as “Rule 4200”).

      Compensation Committee . Our Compensation Committee adopted a charter May 2007, and the charter is available on our web site at www.mergehealthcare.com . Our Compensation Committee is responsible for reviewing, monitoring, administering and establishing the compensation of our executive officers. This committee also reviews and administers stock option and other equity grants under our stock option plans. The directors who currently serve on our Compensation Committee are Ms. Hajek, as chair, and Messrs. Hartemayer and Geras. Following the Annual Meeting, we expect that Mr. Brown will replace Ms. Hajek as a member on and as chair of the Compensation Committee. All of the members of the Compensation Committee are currently “independent,” as defined in Rule 4200. Our Compensation Committee met twelve (12) times in 2007.

     We utilized the services of a compensation consultant during 2007 in determining the appropriate amount and type of equity incentive compensation for our executive officers and board members and also the amount of cash compensation for attendance and participation in board of directors and committee meetings during 2007. We provide more information about the compensation consultant’s engagement under the heading “Compensation Discussion and Analysis – Role of the Compensation Committee” below.

      Nominating and Governance Committee . Our Nominating and Governance Committee has a formal written charter, which is available on our web site at www.mergehealthcare.com . Our Nominating and Governance Committee nominates candidates for our Board and will consider nominees recommended by Shareholders. The Nominating and Governance Committee also is responsible for developing, reviewing and recommending corporate governance guidelines and otherwise taking a leadership role in shaping the corporate governance of the Company. The Nominating and Governance Committee met four (4) times in 2007. The directors who currently serve on our Nominating and Governance Committee are Mr. Geras, as chair, Ms. Hajek and Mr. Hartemayer, each of whom is “independent,” as defined in Rule 4200. Following the Annual Meeting, we expect that the Mr. Brown will replace Ms. Hajek on the Nominating and Governance Committee.

Nominating and Governance Committee Composition and Procedures

     The Nominating and Governance Committee will consider for nomination as a director candidates recommended by Shareholders, directors, officers, third–party search firms and other sources. In evaluating candidates, the Nominating and Governance Committee considers the attributes of the candidate (including public company experience, healthcare and information technology background, integrity, strategic contribution and ability to devote requisite time) and the needs of the Board, and will review all candidates in the same manner, regardless of the source of the recommendation. The Nominating and Governance Committee will consider individuals recommended by Shareholders for nomination as a director in accordance with the procedures described in our By–laws. [Shareholders submitted no candidates for nomination for election as a director to our Nominating and Governance Committee in connection with the Annual Meeting.] According to our By–laws, a Shareholder must give advance notice and furnish certain information in order to submit a nomination for election as a director. Any Shareholder who wishes to present a candidate for consideration by our Nominating and Governance Committee should send a timely notice identifying the name of the candidate and summary of the candidate’s qualifications, along with other supporting documentation, in each case as described in Section 2.13 of our By–laws, to the Nominating and Governance Committee.

Policies and Procedures Governing Related Person Transactions

     In March 2007, our Board adopted written policies and procedures regarding related person transactions. For purposes of these policies and procedures:

	•		a “related person” means any of our directors, executive officers, nominees for director, holder of five percent (5%) or more of our Common Stock or any of their immediate family members; and
	•		a “related person transaction” generally is a transaction (including any indebtedness or a guarantee of indebtedness) in which we were or are to be a participant and the amount involved exceeds $50,000, and in which a related person had or will have a direct or indirect material interest.

     Each of our executive officers, directors or nominees for director is required to disclose to our Audit Committee certain information relating to related person transactions for review, approval or ratification by our Audit Committee. Disclosure to our Audit Committee should occur before, if possible, or as soon as practicable after the related person transaction is effected, but in any event as soon as practicable after the executive officer, director or nominee for director becomes aware of the related person transaction. Our Audit Committee’s decision whether or not to approve or ratify a related person transaction is to be made in light of our Audit Committee’s determination that consummation of the transaction is not or was not contrary to our best interests. Any related person transaction must be disclosed to our full Board.

     Because the policies and procedures do not apply to directors or executive officers prior to their becoming directors or executive officers, the policies and procedures did not require review, approval or ratification of the relationship described below under “Related Person Transactions.”

Related Person Transactions

     On June 4, 2008, we consummated the transactions contemplated by a Securities Purchase Agreement (which we refer to as the “Purchase Agreement”), dated May 21, 2008, that we had previously entered into with certain of our subsidiaries and Merrick, an affiliate of Merrick Ventures. In connection with the closing of the transactions, we issued (i) a $15 million senior secured Term Note (which we refer to as the “Term Note”), (ii) 6,800,000 shares of our Common Stock as partial consideration for the Term Note and (iii) an additional 14,285,715 shares of our Common Stock at a price per share of $0.35 to Merrick. We refer to the shares issued in the transaction collectively as the “Shares.” Merrick obtained the funds to purchase the Term Note and the Shares through equity contributions made by its members. The Shares represent approximately 38% of our outstanding voting securities after the consummation of the transactions contemplated by the Purchase Agreement (which we refer to as the “Closing”). Prior to the Closing, no person beneficially owned more than 15% of our voting securities.

     At the Closing, we issued the Term Note to Merrick. The Term Note bears interest at 13.0% per annum, payable quarterly, and becomes payable in a single installment on the second anniversary date of the closing of the

transaction. The Term Note is secured by a first priority lien on all of the assets of our and our subsidiaries’ U.S. and Canadian operations.

     Also at the Closing, we entered into a Registration Rights Agreement (which we refer to as the “Registration Rights Agreement”) with Merrick. The Registration Rights Agreement requires us, upon Merrick’s request, to file and maintain the effectiveness of a registration statement covering the Shares. If we do not fulfill certain of our obligations under the Registration Rights Agreement with respect to registering the Shares, we will be required to pay additional interest on the outstanding principal of the Term Note as liquidated damages for our breach under the Registration Rights Agreement.

     Pursuant to the terms of the Purchase Agreement, Merrick had the continuing right to designate five (5) persons to be nominated to our Board in the future, subject to reduction upon a decrease in Merrick’s ownership percentage in our Company. On July 1, 2008, the Company and Merrick amended the Purchase Agreement, effective upon adoption of Proposal No. 1 set forth in this Proxy Statement, pursuant to which (i) Merrick will give up its contractual right to nominate persons to our Board and (ii) Merrick will no longer be obligated to vote for the slate of directors nominated by the Company.

     As discussed above, upon consummation of the transactions contemplated by the Purchase Agreement, Merrick acquired the Term Note with a principal amount of $15 million and bearing interest at 13% per annum, payable quarterly and acquired 21,085,715 shares of our Common Stock with a value of approximately $14.5 million on the date of the Closing. Michael W. Ferro, Jr. and trusts for the benefit of Mr. Ferro’s family members beneficially own the outstanding equity interests in Merrick. Mr. Ferro also serves as the chairman and chief executive officer of Merrick. In addition, Mr. Ferro is the chairman and chief executive officer of Merrick Ventures, as well as the beneficial owner of a majority of the equity interests in Merrick Ventures. Accordingly, as of the date of the Closing, Mr. Ferro indirectly owns or controls the Term Note and all of the Shares.

     Mr. Hartemayer, Mr. Dearborn and Ms. Koenig own immaterial economic interests in Merrick Ventures. Until their appointments as officers of our Company, Mr. Dearborn served as the general counsel and a managing director of Merrick Ventures, and Ms. Koenig served as the CEO of Merrick Healthcare, LLC, a portfolio company of Merrick Ventures. Mr. Dearborn and Ms. Koenig resigned from all of their positions with Merrick Ventures and its affiliates (other than our Company and our subsidiaries) upon joining our Company.

     In addition to the transactions described above, Merrick has established a written plan pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange Act”). The plan provides for Merrick’s purchase of up to 1,000,000 shares of our Common Stock at predetermined times and conditions.

Code of Ethics and Whistleblower Policy

     We have adopted a Code of Ethics that applies to all of our directors, employees and officers, including our principal executive officer, our principal financial officer, our controller and persons performing similar functions. Our Code of Ethics and the related Whistleblower Policy are available on our web site at www.mergehealthcare.com . Future material amendments or waivers relating to the Code of Ethics and/or the corresponding Whistleblower Policy will be disclosed on our web site referenced in this paragraph within four (4) business days following the date of such amendment or waiver.

MANAGEMENT

Directors

     For the names of and biographical information regarding each of the directors and a discussion of Board committees, see the discussions under the headings “Proposal One: Election of Directors” and “Corporate Governance.”

Executive Officers

     The names of our current executive officers, and their respective ages and positions with our Company, are as follows:

Name		Age				Position
Justin C. Dearborn			38			Chief Executive Officer, Director
Steven M. Oreskovich			36			Chief Financial Officer
Nancy J. Koenig			43			President Merge Fusion, Director
Antonia Wells			49			President Merge OEM

     Mr. Dearborn’s and Ms. Koenig’s biographies appear above under the heading “Proposal One: Election of Directors.”

      Steven M. Oreskovich was appointed Chief Financial Officer in June 2008. Prior to his appointment as Chief Financial Officer, Mr. Oreskovich served as our Vice President of Internal Audit since January 2007, as our Chief Accounting Officer and interim Treasurer and interim Secretary from July 2006 to January 2007 and as our Vice President and Corporate Controller from April 2004 to July 2006. Prior to joining our Company, Mr. Oreskovich served as Vice President of Finance and Operations at Truis, Inc., a company that provided customer intelligence solutions for business-to-business enterprises, from April 2000 to January 2003, and had previously also worked as an auditor at PriceWaterhouseCoopers LLP from September 1994 to April 2000. Mr. Oreskovich holds a B.S. degree in Accounting from Marquette University and is a C.P.A.

      Antonia Wells was appointed President Merge OEM in June 2008. Prior to her appointment as President Merge OEM, Ms. Wells served as Merge OEM Vice President of Customer Operations since June 2005. Since joining our Company in 1999, Ms. Wells has been responsible for Merge OEM’s contract management, quality/regulatory affairs, manufacturing, order management, professional services and internal infrastructure. Ms. Wells has over 25 years of business management experience, including leadership roles in IT, enterprise system implementation, process re-engineering, and human resources.

COMPENSATION DISCUSSION AND ANALYSIS

     The following discussion and analysis relates to the compensation awarded, earned, or paid in 2007 by the executives listed below, whom we refer to as our “Named Executive Officers.” As a result of the recent transaction involving Merrick Ventures, which is described above under the heading “Corporate Governance – Related Person Transactions,” significant changes in our senior executive team have occurred since the end of 2007. Due to these actions, a number of persons are deemed to be Named Executive Officers who are no longer our employees. Under the rules of the Securities and Exchange Commission (which we refer to as the “Commission”), however, we are required to discuss and analyze the compensation earned for 2007 by all of the Named Executive Officers. The only Named Executive Officer who is a current member of our senior management team is Mr. Oreskovich.

Named Executive Officers		Title
Kenneth D. Rardin		President and Chief Executive Officer from September 2006 to June 2008
Steven R. Norton		Executive Vice President, Chief Financial Officer and Treasurer from January 2007 until June 2008
Gary D. Bowers		Senior Vice President, Strategic Business Initiatives from November 2006 until February 2007; President, Merge Healthcare North America from February 2007 until June 2008
Jacques F. Cornet		President of Merge Healthcare EMEA from November 2006 until March 31, 2008
Loris Sartor		Senior Vice President, Cedara President from November 2006 until June 2008
Steven M. Oreskovich		Chief Accounting Officer, Interim Treasurer and Principal Financial Officer from July 2006 to January 2007; Vice President of Internal Audit from January 2007 to June 2008; Chief Financial Officer since June 2008

Compensation Philosophy

			The primary objectives of our executive compensation policies are as follows:
	•		to attract and retain talented executives by providing compensation that is competitive with the compensation provided to executives at companies of comparable size and growth trajectory in the health care information technology industry, while maintaining compensation within levels that are consistent with our annual budget, financial objectives and operating performance;
	•		to provide appropriate incentives for executives to work toward the achievement of our annual financial performance and business goals based on our annual budget;
	•		to more closely align the interests of the executive officers with those of our Shareholders and the long-term interests of our Company; and
	•		to achieve internal parity in compensation across our multi-national organization.

               Our incentive compensation programs are designed to reward executive contributions to the success of our organization. Specifically, they are designed to reward achievement of our annual financial performance and business goals based on our annual budget and creation of shareholder value.

Compensation Mix

          Historically, we have used a mix of short-term compensation (base salaries and annual cash incentive bonuses) and long-term compensation (stock option grants and restricted stock awards) to meet the objectives of our compensation programs. We do not have a fixed policy for allocating between long-term and short-term compensation or between cash and non-cash compensation. We determined the exact mix of compensation structures on a case-by-case basis, basing our determination on competitive market data provided by a compensation consultant or gathered in informal internal market studies, the experience and judgment of our Compensation Committee, and the recommendation of our Chief Executive Officer (except with respect to his own compensation). As a result, the mix may have differed for each individual. Because we believe that it is important to align the interests of our executives with those of our Shareholders, equity incentive compensation has made up a significant portion of each executive’s overall compensation package, and our Named Executive Officers have received minimal perquisites.

          In the future, we plan to continue to use a varied mix of short-term and long-term compensation, which we will continue to implement on a case-by-case basis. To enhance the alignment of our executives’ interests with the interests of our Shareholders, however, we currently intend to provide an increasingly large portion of executive compensation in the form of long-term, equity-based awards.

Compensation Committee

          Our Compensation Committee adopted a charter in May 2007, and the charter is available on our web site at www.mergehealthcare.com. Our Compensation Committee is responsible for reviewing, monitoring, administering and establishing the compensation of our executive officers. This committee also reviews and administers stock option and other equity grants under our stock option plans. The directors who currently serve on our Compensation Committee are Ms. Hajek, as chair, and Messrs. Hartemayer and Geras. Prior to June 4, 2008, the members of the Compensation Committee were Ms. Hajek, as chair, and Messrs. Barish, Lennox and Reck. All of the current members of the Compensation Committee are “independent,” as defined in Rule 4200. Our Compensation Committee met twelve (12) times in 2007. Following the Annual Meeting, we expect that Mr. Brown will replace Ms. Hajek on the Compensation Committee and will serve as the Committee’s chair.

          We utilized the services of a compensation consultant during 2007 in determining the appropriate amount and type of equity incentive compensation for our executive officers and directors and also the amount of cash compensation for attendance and participation in board of directors and committee meetings during 2007. We have also had discussions with a compensation consultant in 2008 in connection with changes we are considering with respect to our director compensation programs, described below under “Changes to Compensation in 2008.”

Role of the Compensation Committee

          The Compensation Committee of our Board is responsible for administering our compensation practices and ensuring they are competitive and designed to drive corporate performance. Our Compensation Committee reviews compensation policies affecting our executive officers annually, taking into consideration our financial performance, our annual budget, our position within the health care information technology industry, the executive compensation policies of similar companies in similar industries and, when reviewing individual compensation levels, certain individual factors, including the executive’s level of experience and responsibility and the personal contribution that the individual has made to our success.

          During 2007, our Compensation Committee engaged Compensation Resources, Inc., an independent compensation consultant, to perform a benchmarking study of executive compensation among certain companies in the healthcare software and services industry. The companies included in the study were the following:

	•		Amicas, Inc.
	•		Emageon Inc.

	•		Nighthawk Radiology Holdings, Inc.
	•		Virtual Radiologic Corp.
	•		Vital Images, Inc.
	•		WebMD Corp.

Compensation Resources was asked to provide information to the Committee regarding:

	•		the types of equity vehicles used by other companies as part of their long term incentive plans after the adoption of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (which we refer to as “FAS 123R”);
	•		how other companies determine the number of shares granted and how such companies address the issue of parity among staff;
	•		the percentage of outstanding stock that is generally deemed appropriate for public companies to allocate for management, staff and directors; and
	•		issues to consider when granting restricted stock versus stock options and other equity awards as part of a long term incentive plan.

The Compensation Committee also used information on compensation paid by peer companies in the healthcare information technology industry provided by the international executive search firm hired to perform our chief financial officer search.

Elements of Compensation ¹

          The compensation that we pay our Named Executive Officers consists of the following elements: base salary, cash incentive compensation, equity incentive compensation, post-employment benefits, and, in limited circumstances, perquisites and other benefits. The following discussion explains the reason we pay each element of compensation, how the amount of each element is determined, and how each element fits into our overall compensation philosophy and affects decisions regarding other elements.

Base Salary

          We seek to pay executives a base salary competitive with salaries of executives at companies of comparable position in the healthcare information technology industry. We have not historically attempted to make base salary a certain percentage of total compensation.

          Our Compensation Committee reviews the base salaries of all executive officers annually and may adjust these salaries to ensure external competitiveness and to reflect adequately on the executive’s individual position and performance, as well as the performance of our Company. In addition to these factors, our Compensation Committee considers the recommendations of our Chief Executive Officer when adjusting base salaries of our Named Executive Officers other than himself. We may also make base salary adjustments during the year if the scope of an executive officer’s responsibility changes relative to the other executives.

          Historically, our Compensation Committee has approved, in connection with our Company’s business planning and budgeting process, a target salary increase of between three percent (3%) and five percent

(5%) across our Company as a whole, with a portion of this pool to be allocated to executive officer base salaries and the remainder to be allocated to other employees. The Compensation Committee has not used any formula or specific criteria to determine how much of this pool to allocate to the executive officers, but has instead taken into consideration a variety of corporate and individual performance factors and its views on whether the base salaries for executive officers within the general industry were increasing.

          The annual base salaries of our Named Executive Officers were not adjusted during 2007 since we adjusted the annual base salaries of certain of our Named Executive Officers during late 2006 as shown below. In addition, the salaries for Mr. Rardin and Mr. Bowers had just recently been established in connection with the commencement of their employment on September 5, 2006. As noted, the adjustments reflect promotions to a current position, significant personal achievements and our need to continue to provide a competitive and attractive compensation package in light of the distressed nature of our organization, as applicable. The amounts of salary paid to our Named Executive Officers in 2007 are shown in the “Salary” column of the Summary Compensation Table.

	•		On November 15, 2006, we increased Mr. Bowers’ salary from $215,000 to $235,000 due to increased responsibilities with respect to the development and implementation of an offshore software development and customer support center in India. In February 2007, we entered into an employment agreement with Mr. Bowers to, among other things, reflect his promotion to President, Merge Healthcare North America. We did not change Mr. Bower’s compensation at that time since it was already consistent with the salaries of our other division presidents.
	•		On November 15, 2006, we increased Mr. Cornet’s salary from CDN$240,000 (In US Dollars–$210,729 at November 15, 2006) to CDN$267,650 (In US Dollars–$235,000 at November 15, 2006 and $270,862 at December 31, 2007) due to his promotion to President, Merge Healthcare EMEA. In determining the increase, we reviewed compensation information from our peer group, as discussed earlier, and determined what we deemed to be a fair increase. We also determined to pay each of our division presidents the same salary.
	•		On November 15, 2006, we increased Mr. Sartor’s salary from CDN$150,000 (In US Dollars–$131,706 at November 15, 2006) to CDN$267,650 (In US Dollars–$235,000 at November 15, 2006 and $270,862 at December 31, 2007)) due to his promotion to President of Cedara and to reflect that he would no longer be a participant in a Company-sponsored sales commission plan. In determining the increase, we reviewed compensation information from peer companies in the industry and determined what we deemed to be a fair increase. We also determined to pay each of our division presidents the same salary.

          In establishing the base salary of Mr. Norton in January 2007 ($300,000 per year) pursuant to the arm’s length negotiations that preceded his becoming our Executive Vice President and Chief Financial Officer, our Board and Compensation Committee relied heavily on benchmarking data provided by an international executive search firm, the Compensation Committee’s experience, compensation information related to the peer group discussed earlier and historical compensation data gathered during the interview processes. The committee set Mr. Norton’s base salary at market consensus based upon the benchmarking data provided by the committee’s consultant.

Cash Incentive Compensation

           Year Ended December 31, 2007 . For 2007, we implemented a performance-based cash bonus plan for our Named Executive Officers and senior management team. The goals of the plan included the following:

	•		provide an incentive to achieve the goals and objectives of the organization as set by our Chief Executive Officer and Board; and
	•		enable us to attract and retain key executive talent.

               Under the plan, the members of our senior management team were eligible for a bonus based on Company-wide or a combination of Company-wide and business unit performance, as measured against predetermined revenue and EBITDA targets. The Committee determined to use revenue and EBITDA targets because they are good indicators of overall Company financial performance. We define EBITDA as operating income excluding depreciation and amortization, interest, income taxes, FAS 123R expense, and other expenses that are not typically incurred in the normal operations of our Company. For 2007, the revenue and EBITDA targets were high relative to the conservative forecast and would have required us to meet an aggressive forecast for payout of the bonuses.

               Each of our Named Executive Officers’ employment agreements include a target bonus amount, expressed as a percentage of his base salary. Half of the bonus amount was based on achievement of the revenue target under the plan, and the other half was based on achievement of the EBITDA target under the plan. If the targets were exceeded, the bonus amounts could increase, up to one hundred fifty percent (150%) of the target amount. The revenue and EBITDA targets were determined by the Committee after considering historical Company performance and forecasted revenue and EBITDA amounts and were set at a level to require an exceptional performance on the part of our Company to meet maximum bonus payouts.

               For our Named Executive Officers, target and maximum bonus percentages of base salary for 2007 were as follows:

		Target (as % of				Maximum (as % of
Name		Base Salary)				Base Salary)
Mr. Rardin			70	%			105	%
Mr. Norton			60	%			90	%
Mr. Bowers			40	%			60	%
Mr. Cornet			40	%			60	%
Mr. Sartor			40	%			60	%
Mr. Oreskovich			25	%			37.5	%

               Half of the bonus amounts would be earned and paid based on quarterly performance, and half would be earned and paid based on annual performance.

               Mr. Rardin’s employment agreement provided that he was eligible for an annual performance bonus with a target of seventy percent (70%) of his base salary. The Board, at its discretion, could award additional bonus above the seventy percent (70%). As discussed above and in accordance with our bonus program, Mr. Rardin, like the other executive officers, was eligible to receive up to 150% of his target bonus depending on our revenue and EBITDA results during the year. In the first twelve months of the employment agreement (through September 6, 2007), fifty percent (50%) of the bonus target was guaranteed to Mr. Rardin, while the remaining fifty percent (50%) was dependent on achievement of Company performance targets of revenue and EBITDA discussed previously

               During 2007, our Named Executive Officers earned and received the following amounts under the Company’s performance-based cash bonus plan.

		2007 Target				2007 Bonus				2007 Bonus				2007 Bonus Paid
		Bonus Amount				Earned				Paid in 2007				in 2008
Mr. Rardin 2		$	297,500			$	99,167			$	99,167			$	0
Mr. Norton			180,000				20,750				20,750				0
Mr. Bowers			94,000				11,750				11,750				0
Mr. Cornet			108,345				25,326				13,137				12,189
Mr. Sartor			108,345				6,569				6,569				0
Mr. Oreskovich			43,750				5,469				5,469				0

               During 2007, we also paid to Mr. Oreskovich a $25,000 bonus in connection with the timely filing of our 2006 annual report on Form 10-K. The Compensation Committee determined such bonus amount using its discretion to reward Mr. Oreskovich for his extraordinary efforts in helping to complete the Form 10-K.

               Due to the difficulties that we faced in 2006, including the restatement of the previously issued 2003 and 2004 financial statements and the first two quarters of 2005 financial statements, we were unable to establish a corporate business plan for 2006 or to determine corporate financial targets for 2006 that would serve as appropriate targets under a short-term cash incentive bonus program. Accordingly, we did not utilize a company performance-based cash bonus plan in 2006. The Compensation Committee instead created a one-time retention bonus for certain key employees, including some of our Named Executive Officers, to retain the services of employees with the skills and experience to make a significant contribution to our Company during the transition period. The amounts of the retention bonuses were set in the Compensation Committee’s discretion. The following retention bonus amounts were paid to the Named Executive Officers in 2007 and reflected in the 2007 amounts of the Summary Compensation Table:

Name		Amount
Mr. Oreskovich		$	105,000
Mr. Cornet			121,440
Mr. Sartor			75,900

                Year Ending December 31, 2008 . For 2008, we implemented a performance-based cash bonus plan for our Named Executive Officers and senior management team substantially consistent with the 2007 bonus plan. The goals of the plan are identical to those identified for the 2007 bonus plan. Under the 2008 plan, the members of our senior management team are eligible for a bonus based on a number of factors, including:

	•		company-wide or company-wide and business unit revenues for the year;
	•		the level of new orders received or contracts signed during the year;
	•		customer retention rates;
	•		results of a customer satisfaction survey;
	•		cash flow from operations; and
	•		cash balance at the end of the year

               If only certain predetermined targets are met, the bonus amount will be prorated. If the targets are exceeded, the bonus amounts may increase, up to one hundred fifty percent (150%) of the target amount.

               Target and maximum bonus amounts for our Named Executive Officers for 2008 are the same as for 2007. Due to Mr. Cornet’s resignation on March 31, 2008, he is not a participant in the 2008 performance-based bonus plan. Due to their resignations on June 4, 2008, none of Messrs. Rardin, Norton, Bower or Sartor are participants in the 2008 performance-based bonus plan. Our Compensation Committee is currently considering implementing a new cash incentive compensation program for our current executive officers.

               We also may, from time to time, at our discretion, award bonuses to executives based on such other terms and conditions as our Compensation Committee and Chief Executive Officer may determine appropriate in specific situations.

Equity Incentive Compensation

               We provide long-term incentive compensation through equity awards under our 2005 Equity Incentive Plan, which authorizes the grant of stock, restricted stock, options to purchase stock, stock units, performance units and stock appreciation rights from time to time to our officers, employees, directors and consultants. We provide long-term incentive compensation to focus our executive officers’ attention on the long-term performance of our Company and the future prospects of its business and to align the interests of our executives more closely with the interests of our Shareholders.

               We believe that long-term stock-based incentive compensation should be structured so as to closely align the interests of our executive officers with the interests of our Shareholders and, in particular, to provide only limited value (if any) in the event that our stock price fails to increase over time. We have, as a result, relied on stock option grants as the principal vehicle for payment of long-term incentive compensation. Under our 2005 Equity Incentive Plan, the Compensation Committee is responsible for approving awards of stock option grants to executive officers, taking into account the relative contributions of each executive, competitive conditions in the industry, negotiations with the executive in connection with his or her initial employment or promotion, as well as the recommendations of the Chief Executive Officer with respect to the other executive officers. We grant stock options, in part, to reward executive officers for their long-term strategic management of our Company and to motivate the executive officers to improve Shareholder value by increasing this component of their compensation package, and accomplish our Compensation Committee’s objective to provide a greater portion of compensation for executive officers in the form of long-term equity based awards.

               In January 2007, in connection with his appointment as our Chief Financial Officer, we granted Mr. Norton 225,000 stock options that were to have vested on a monthly basis in equal increments over the 48 months following the announcement of his appointment. The options are subject to the terms of our 2005 Equity Incentive Plan and were granted with an exercise price equal to the closing price of our Common Stock on the date of the grant. The Compensation Committee determined the size of the stock option grant to Mr. Norton based partially on the executive compensation policies of similar companies in similar industries provided by the international executive search firm that conducted the officer search. Of the options granted in January 2007 to Mr. Norton, 150,007 that were not vested at the time of his resignation on June 4, 2008 were forfeited pursuant to the terms of our 2005 Equity Incentive Plan and Mr. Norton agreed to forfeit his vested options.

               In addition, in April 2007, as part of our broader grant of stock options to the Merge Healthcare employees, we granted 35,000 stock options to Mr. Cornet, 60,000 stock options to Mr. Oreskovich, and 45,000 stock options to Mr. Sartor in consideration of the fact that many of their currently issued and outstanding options had exercise prices that were significantly higher than the current market price of our Common Stock and did not continue to provide the incentive that the committee deemed appropriate given the then facts and circumstances surrounding the company. The number of new options received was equal to the number of options then issued and outstanding that had an exercise price in excess of $8.05 per share. Each of these options has a term of 6 years and an exercise price of $4.99, the fair market value of the Common Stock on the date of grant, and vests in increments of 25% on each of the first four anniversary dates of the date of grant. Messrs. Cornet and Sartor forfeited all of these options upon their resignations in 2008.

               Starting in November 2007, we began granting restricted stock to certain of our officers and consultants. The Committee engaged Compensation Resources, Inc. to advise the Committee on contemporary long term incentive programs, including the use of restricted stock grants. After consultation with our consultant, we determined that restricted stock is an appropriate equity vehicle given the shares’ intrinsic value, built-in retention qualities and alignment with other Shareholders’ interests. We granted 953,333 shares of restricted stock to our Named Executive Officers (300,000 for Mr. Rardin; 200,000 for each of Mr. Norton, Mr. Bowers and Mr. Sartor and 53,333 for Mr. Oreskovich). The Committee determined the number of shares to grant to the Named Executive Officers based on peer information received from our compensation consultant, recommendations from Mr. Rardin and the Committee’s desire to further incentivize management given the value of stock options to purchase our Common Stock. The restrictions on the sale of the shares of stock lapse on the 3 year anniversary of the grant date. If certain performance criteria, as established by the Compensation Committee, are achieved during 2008, the restrictions on one third of the restricted shares will lapse on the first anniversary of the grant date. Also, if certain performance criteria, as established by the Compensation Committee, are achieved during 2009, the restrictions on one third of the restricted shares will lapse on the second anniversary of the grant date. Any shares where the

restrictions have not lapsed on the third anniversary of the grant date will lapse at that time. Messrs. Rardin, Norton, Bowers and Sartor became fully vested in their restricted stock in connection with their resignations on June 4, 2008.

               We have no set policy as to when stock options or other awards should be granted, although historically we have awarded stock options to our executive officers on an annual basis and upon the initial hire. We plan to continue to grant stock option or restricted stock awards as part of our regular executive compensation practices to be reviewed periodically, but not necessarily annually. Stock option agreements under the 2005 Equity Incentive Plan provide that the exercise price of each stock option is the closing price on the date on which the options are granted. Each grant is subject to vesting conditions established at the date of the grant and the stock options generally vest in equal annual installments over a period of four years. Our Compensation Committee, pursuant to the terms of our 2005 Equity Incentive Plan, exercises discretion as to the actual vesting period.

Post-Employment Benefits

               To help provide for our executive officers’ financial security in retirement, we encourage them to participate in our long-term profit sharing plans, which consist of a 401(k) Profit Sharing Plan for U. S. employees and a Deferred Profit Sharing Plan (“DPSP”) for Canadian employees, and we made matching contributions under both plans through the first quarter of 2008 and continue to make matching contributions to the 401(k) for the Merge Healthcare North America and corporate employees. Historically, we have not made fixed profit-sharing contributions under either of these plans. All salaried employees of our Company and our subsidiaries are eligible to participate in one of these plans, and our executive officers’ participation is on the same terms as the participation of all other participants in these plans. The U.S. 401(k) Profit Sharing Plan provides for and Canadian the DPSP provided for matching contributions by us of fifty percent (50%) of an employee’s contribution, up to the lesser of three percent (3%) of the employee’s base pay or U.S. $7,750 in the United States of America and CDN$10,000 in Canada.

               We had contractually agreed to provide severance benefits to our Named Executive Officers upon their termination of employment with us under certain circumstances, including certain circumstances in connection with a change of control of our Company. We intended these severance benefits to provide economic protection to the executives following a change in control of our Company so that executives can remain focused on our business without undue concern for their personal circumstances. We believe that the amount of severance benefits we offered to our Named Executive Officers under the terms of the executive employment agreements was similar to the amounts offered to executive officers by similarly situated companies in our industry based on information we have received from executive search firms, data we gathered from reviewing filings of other similarly situated companies and the individual experiences of the members of the Compensation Committee. Detailed information regarding these employment agreements is included in the text following the Summary Compensation Table and the Potential Payments Upon Termination or Change-in-Control section.

Perquisites and Other Benefits

               In the U.S., executive officers participate in our broad-based benefit plans on the same terms generally applicable to all U.S.-based employees. Our Canadian executives have an enhanced benefits program when compared with the general Canadian employee base. This regional difference reflects the very different nature of the healthcare systems in Canada and the U.S. and is consistent with the general industry practices of these two countries. Except as described above, we provide limited perquisites and other benefits to our Named Executive Officers.

Chief Executive Officer

               Mr. Rardin, our former President and Chief Executive Officer, was appointed to that position on September 6, 2006. Mr. Rardin’s compensation package was established pursuant to the arm’s length negotiations that preceded our engaging him as our new President and Chief Executive Officer. In connection with his agreement to become our President and Chief Executive Officer, we entered into an employment agreement with Mr. Rardin effective as of September 6, 2006. Mr. Rardin’s employment agreement was subsequently modified on

December 27, 2007 to make the benefits available to Mr. Rardin in connection with disability consistent with the other executive officers and to also change the location of his job responsibilities to our Global Administrative Offices in Alpharetta, Georgia. As noted above, Mr. Rardin resigned from our Company on June 4, 2008.

Changes to Compensation in 2008

               Beginning in June 2008, in connection with the investment of Merrick in our Company, several changes occurred in the makeup of our senior management team. Specifically, effective on the closing of the Merrick investment, Mr. Dearborn became our Chief Executive Officer, Mr. Oreskovich became our Chief Financial Officer, Ms. Koenig became our President Merge Fusion and Ms. Wells became our President Merge OEM. At the same time, Messrs. Rardin, Norton, Bowers and Sartor resigned from our Company. The resignations of Messrs. Rardin, Norton, Bowers and Sartor were treated as resignations with “good reason” under their existing employment arrangements, and we are in the process of entering into separation agreements with these individuals. In connection with these changes, our Board and the Compensation Committee have proposed, or are considering, several modifications to our executive officer and director compensation programs to ensure that we offer competitive compensation that will help us to retain our executive officers and to reflect the views of the current members of our Board and the Compensation Committee on appropriate compensation structures.

	•		We propose to enter into employment letter agreements with our current executive officers and replace the existing key person agreement of Mr. Oreskovich. The agreements will formalize and confirm the base compensation and target annual bonus amounts and the stock option grants that we agreed to in connection with the hiring of our current executive officers and Mr. Oreskovich’s and Ms. Wells’ promotions, and provide for 12 months’ base salary as severance upon a termination other than for cause or other than due to the executive officer’s death or disability, conditioned on the executive officer’s execution of a release agreement. The agreements will not include a definition of “cause.” Upon a change of control of the Company, all of the executive officers’ stock options will vest. We have proposed the amounts of these severance benefits and the triggering events based solely on the subjective judgments and experiences of the members of the Compensation Committee indicating that these amounts are consistent with market practice and that the triggering events are likely to involve circumstances in which it is customary and appropriate to offer the protections embodied in the employment agreements.
	•		The Compensation Committee is considering implementing a new cash incentive bonus program for our current executive officers. The Compensation Committee has not yet taken action with respect to these changes.
	•		We are considering implementing a new director compensation program for our non-employee directors. The Nominating and Governance Committee has not yet taken action with respect to this program, but is currently considering a program that would consist entirely of grants of options to each continuing non-employee director (other than Mr. Ferro, our Chairman of the Board) to purchase between 200,000 and 300,000 shares of Common Stock. Option grants to Mr. Ferro have not yet been considered. The grants would be made in 2008 but would be intended to cover services, and would be subject to vesting, over the four years following the grant. Under the proposal that will likely be considered by the Nominating and Governance Committee, during the next four years, no other option or other equity grants to directors (except to new non-employee directors) would be made, and our non-employee directors would receive no cash retainer or other cash payments. We will also offer either $30,000 or granting up to 30,000 shares of stock to each of our departing non-employee directors in recognition of their past contributions to our Company generally and, in particular, for services for which they have not been compensated in 2008. In connection with its consideration of a new director compensation program, the Nominating and Governance Committee had discussions with a compensation consultant with respect to the program being considered.

               We established the terms of the compensation arrangements with our current executive officers at the time of the closing of the Merrick investment through an arm’s length negotiation with each executive officer. Under the arrangements, Mr. Dearborn receives an annual base salary of $250,000 and has a target annual bonus equal to his annual base salary; Mr. Oreskovich receives an annual base salary of $200,000 and has a target an annual bonus equal to 50% of his annual base salary; and each of Ms. Koenig and Ms. Wells receive an annual base salary of $200,000 and has a target annual bonus equal to their annual base salary. Achievement of bonus for each of the current executive officers will be tied to factors defined by the Compensation Committee and could result in a bonus amount that is more or less than the targeted bonus.

               In addition, in connection with their appointment as executive officers of our Company, we granted Mr. Dearborn, Mr. Oreskovich, Ms. Koenig and Ms. Wells options to purchase 400,000, 200,000, 200,000 and 200,000 shares of our Common Stock, respectively, at a per share price equal to $0.68, the closing price for a share of our Common Stock on the date of grant. The options are non-qualified stock options, expire on the sixth anniversary of the grant date and vest at a rate of 25% per year, contingent on the executive officer’s continuous employment through the applicable vesting date. The vesting of the options will accelerate on a change in control of our Company. We granted the options pursuant to our 2005 Equity Incentive Plan.

COMPENSATION COMMITTEE REPORT

               The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth above with management and, based on such review and discussions, the Compensation Committee recommended to our Board that the Compensation Discussion and Analysis be included in this Proxy Statement.

Anna Marie Hajek, Chair		Gregg G. Hartemayer		Robert T. Geras

COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE

     The following table relates to the compensation earned by our Named Executive Officers in 2007 and 2006.

																						Non Equity
														Stock				Option				Incentive Plan				All Other
						Salary				Bonus				Awards (2)				Awards (2)				Compensation				Compensation				Total
Name and Principal Position		Year				($)				($) (1)				($)				($)				($) (3)				($)				($)
Kenneth D. Rardin			2007				425,000				99,167				15,376				406,840				—				11,254	(4)			957,637
President & Chief Executive Officer			2006				137,035				94,950				—				571,500				—				37,232				840,717
Steven R. Norton Executive Vice President and Chief Financial Officer			2007				294,423				—				10,251				157,782				20,750				16,228	(4)			499,434
Gary D. Bowers			2007				235,000				—				10,251				109,239				11,750				26,221	(4)			392,461
President,Merge Healthcare North America			2006				71,901				32,148				—				129,484				—				12,000				245,533
Jacques F. Cornet			2007				270,862				121,440				—				73,630				25,326				21,145	(5)			512,403
President, Merge Healthcare EMEA			2006				207,834				138,537				—				59,069				—				19,817				425,257
Loris Sartor			2007				270,862				75,900				10,251				87,878				6,569				23,235	(6)			474,695
President, Cedara Software			2006				139,584				675				—				69,419				148,285				29,952				383,915
Steven M. Oreskovich			2007				175,000				130,000				2,734				165,166				5,469				9,514	(4)			487,883
Vice President of Internal Audit			2006				159,375				746				—				223,363				35,000				3,906				422,390

GRANTS OF PLAN-BASED AWARDS FOR FISCAL YEAR 2007

     The following table contains information on the plan-based equity and non-equity awards granted to our Named Executive Officers in 2007.

						Estimated Future Payouts Under
						Non-Equity Incentive Plan
						Awards (4)
																		All Other				All Other
																		Stock				Option								Grant Date
																		Awards:				Awards:				Exercise or				Fair Value of
																		Number of				Number of				Base Price				Stock and
																		Shares of				Securities				of Option				Option
						Threshold								Maximum				Stock or				Underlying				Awards				Awards (3)
Name		Grant Date				($)				Target ($)				($)				Units (#)				Options (#)				(S/Sh)				($)
Kenneth D. Rardin			11/24/07	(1)															300,000												450,000
							—				297,500				446,250
Steven R. Norton			01/09/07	(2)																			225,000				6.02				680,870
			11/24/07	(1)															200,000												300,000
							—				180,000				270,000
Gary D. Bowers			11/24/07	(1)															200,000												300,000
							—				94,000				141,000
Jacques F. Cornet			04/03/07	(2)																			35,000				4.99				87,582
							—				108,345				162,517
Steven M. Oreskovich			04/03/07	(2)																			60,000				4.99				150,141
			11/24/07	(1)															53,333												80,000
							—				43,750				65,625
Loris Sartor			04/03/07	(2)																			45,000				4.99				112,606
			11/24/07	(1)															200,000												300,000
							—				108,345				162,517

Employment Agreements

                Rardin Employment Agreement . On September 6, 2006, our Board approved, and our Company entered into, an employment agreement with Kenneth D. Rardin, pursuant to which we agreed to employ Mr. Rardin as our Company’s President and Chief Executive Officer and also to appoint Mr. Rardin as a director of our Company. Mr. Rardin’s employment agreement was subsequently amended on December 27, 2007 to make the benefits available to Mr. Rardin in connection with disability consistent with the other executive officers and to also change the location of his job responsibilities to our Global Administrative Offices in Alpharetta, Georgia. Mr. Rardin’s employment agreement was amended again on June 3, 2008 for compliance with Section 409A of the Internal Revenue Code, and the agreement was thereafter terminated upon Mr. Rardin’s resignation on June 4, 2008. The employment agreement obligated our Company to pay Mr. Rardin a salary at a rate of no less than $425,000 per year. Options to purchase 450,000 of our Common Shares were granted to Mr. Rardin under our Company’s 2005 Equity Incentive Plan on September 6, 2006. In addition, the employment agreement provided that Mr. Rardin was eligible for annual performance bonuses with a target of seventy percent (70%) of base salary. Our Board, in its discretion, was permitted to award an additional bonus above the seventy percent (70%) target. In the first twelve months of the employment agreement, fifty percent (50%) of the bonus target was guaranteed to Mr. Rardin, while the remaining fifty percent (50%) was dependent on achievement of defined Company and individual performance targets. For the period from the end of the initial twelve months to year-end 2007, our Board and Mr. Rardin mutually agreed to determine his bonus consistent with the terms of the 2007 performance based cash bonus plan in place for the other Named Executive Officers. Mr. Rardin was also entitled to receive all non-wage benefits our Company provides generally for its executive employees.

                Norton, Bowers, Cornet and Sartor Employment Agreements . On January 8, 2007, we entered into an employment agreement with Steven R. Norton, our Executive Vice President and Chief Financial Officer. On February 5, 2007, we entered into an employment agreement with Gary D. Bowers, pursuant to which we agreed to employ Mr. Bowers as the President of Merge Healthcare North American. We amended the employment agreements of Messrs. Norton and Bowers on June 3, 2008, for compliance with Section 409A of the Internal Revenue Code. On March 31, 2007, we entered into an employment agreement with each of Jacques Cornet and Loris Sartor, pursuant to which we agreed to employ Mr. Cornet as the President of Merge Healthcare Europe, Middle-East, and Africa and Mr. Sartor as the President of Cedara Software Corp. The agreements remained in effect until the employment of Messrs. Norton, Bowers, Cornet and Sartor terminated in 2008.

               The employment agreements obligated our Company to pay no less than the following annual base salaries: Mr. Norton - U.S. $300,000; Mr. Bowers — U.S. $235,000; and Messrs. Cornet and Sartor- Canadian $267,650. In addition, the employment agreements provided that each executive will be eligible for annual performance bonuses with a target of the following percentages of base salary: Mr. Norton — 60% and Messrs. Bowers, Cornet and Sartor — 40%. Finally, the agreements provided that each executive would be eligible for stock option grants and all non-wage benefits we provide generally for our executive employees.

                Oreskovich Letter Agreement . On July 2, 2006, we entered into a letter agreement (which we refer to as the “Oreskovich Agreement”) with Steven M. Oreskovich, our Chief Accounting Officer and Interim Treasurer and Interim Secretary. Under the Oreskovich Agreement, we agreed to increase Mr. Oreskovich’s base salary to $175,000 per year, effective July 1, 2006, and pay Mr. Oreskovich a cash retention bonus in an amount equal to sixty percent (60%) of his base salary at the time of payout within thirty (30) days of June 30, 2007. In 2008, we have proposed to enter in a new employment agreement with Mr. Oreskovich, which is described above under “Compensation Discussion and Analysis – Changes to Compensation in 2008.”

Option Awards

               All of the stock options that we granted in 2007 were non-qualified stock options granted pursuant to the terms of our 2005 Equity Incentive Plan. All of the options have an exercise price equal to the closing price of our Common Stock on the date on which they were granted. The options vest in 25% increments on each of the first four anniversary dates of the grant date with the exception of Mr. Norton’s options, which vested on a monthly basis equally over a period of 48 months, subject to the employee’s continued employment with us. Following a

termination of service for any reason other than gross negligence, commission of a felony or a material violation of any of our established policies, vested options remain exercisable for six months, unless the Committee determines to extend this period. Each of the employment agreements of our Named Executive Officers provided that all unvested stock options immediately vest upon a change of control of our Company. In addition, our Board may accelerate the vesting of the options of any other employees on a change of control of our Company, at the Committee’s discretion. As a result of their terminations of employment in 2008, Messrs. Norton, Bowers, Cornet and Sartor forfeited options to purchase 150,007, 68,750, 83,750 and 81,250 shares of our Common Stock, respectively, pursuant to the terms of our 2005 Equity Incentive Plan. In addition, Mr. Norton agreed to forfeit his 74,993 vested stock options, and Mr. Bowers agreed to forfeit his 56,250 vested stock options. Mr. Rardin’s employment agreement provided for accelerated vesting of his options in connection with his resignation.

Stock Awards

               The restrictions on the sale of the shares of restricted stock that were awarded during 2007 lapse on the 3 year anniversary of the grant date. If certain performance criteria, as established by the Compensation Committee, are achieved during 2008, the restrictions on one third of the restricted shares will lapse on the first anniversary of the grant date. Also, if certain performance criteria, as established by the Compensation Committee, are achieved during 2009, the restrictions on one third of the restricted shares will lapse on the second anniversary of the grant date. Any shares where the restrictions have not lapsed on the third anniversary of the grant date will lapse at that time. The restrictions will lapse upon certain events resulting in the separation of service of the executives or upon a change in control of our Company. Such provisions are discussed below under “Potential Payments Upon Termination or Change-In-Control.” Messrs. Rardin, Norton, Bowers and Sartor became fully vested in their restricted stock in connection with their resignations on June 4, 2008.

OUTSTANDING EQUITY AWARDS AT 2007 FISCAL YEAR-END

     The following table contains information concerning equity awards held by our Named Executive Officers that were outstanding as of December 31, 2007.

						Option Awards												Stock Awards
		Number of				Number of
		Securities				Securities												Number of				Market Value of
		Underlying				Underlying				Option								Shares or				Shares or Units
		Unexercised				Unexercised				Exercise				Option				Units of Stock				of Stock That
		Options (#)				Options (#)				Price				Expiration				That Have Not				Have Not Vested
Name		Exercisable				Unexercisable				($)				Date				Vested (#)				($) (11)
Kenneth D. Rardin			225,000				225,000	(1)			8.05				09/05/2012				300,000	(10)			357,000
Steven T. Norton			51,563				173,437	(2)			6.02				01/08/2013				200,000	(10)			238,000
Gary D. Bowers			50,000				50,000	(1)			8.05				09/05/2012				200,000	(10)			238,000
			6,250				18,750	(3)			6.34				11/16/2012
Jacques F. Cornet			18,750				6,250	(4)			17.50				05/31/2011
			26,656				0				2.75				05/11/2008
			5,000				5,000	(5)			17.82				10/19/2011
			12,500				37,500	(6)			6.34				11/16/2012
			0				35,000	(7)			4.99				04/02/2013
Steven M. Oreskovich			15,000				5,000	(8)			15.00				03/31/2010				53,333	(10)			63,466
			3,750				1,250	(9)			12.96				07/15/2010
			26,250				8,750	(4)			17.50				05/31/2011
			50,000				50,000	(1)			8.05				09/05/2012
			0				60,000	(7)			4.99				04/02/2013
Loris Sartor			18,750				6,250	(4)			17.50				05/31/2011				200,000	(10)			238,000
			24,458				0				2.75				05/11/2008
			10,000				10,000	(5)			17.82				10/19/2011
			12,500				37,500	(6)			6.34				11/16/2012
							45,000	(7)			4.99				04/02/2013

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL

Description of Agreements Providing for Potential Payments

               Prior to the closing of the investment by Merrick in our Company, we had in place agreements that required us to provide compensation to certain of our executive officers in the event of a termination of employment. These agreements generally called for increased payments if the termination of employment occurred under certain circumstances in connection with a change of control. A summary of these agreements follows in this section.

               Pursuant to the restricted stock award agreements of the Named Executive Officers (other than Mr. Cornet), the restrictions lapsed and the restricted stock became fully vested upon the resignation for good reason (as defined in the agreement) on June 4, 2008 of the Named Executive Officers other than Mr. Oreskovich. The agreements also provided for the lapse of the restrictions and full vesting upon: (a) the Named Executive Officer’s termination of employment due to disability; (b) the Named Executive Officer’s termination of employment by us without cause; (c) the Named Executive Officer’s involuntary termination of employment within 365 days after a change in control; (d) the Named Executive Officer’s resignation for good reason within 365 days of a change in control; or (e) the sale by us of the business unit with respect to which the Named Executive Officer primarily performs services.

Rardin Employment and Separation Agreements

               Mr. Rardin’s employment agreement provided for payments and benefits on certain terminations and changes of control of our Company. On June 4, 2008, Mr. Rardin resigned with “good reason” as defined in his employment agreement. As a result, he became entitled to receive the following:

	•		twenty four (24) months’ then-current salary, to be paid in equal installments over the twenty four (24) month period,
	•		an amount equal to two (2) times the maximum amount of his then-current annual bonus that could be earned assuming the achievement of the highest performance targets for each month of

			the current plan year during which he was employed, to be paid in equal installments over the twenty four (24) month period,
	•		continuation of healthcare, life and accidental death and dismemberment and disability insurance benefits for eighteen (18) months after the date of termination, and
	•		accelerated vesting of his outstanding stock options.

               Payments under Mr. Rardin’s employment agreement are further described under “Summary of Termination Payments and Benefits.”

                Excise Tax Gross Ups . Mr. Rardin’s employment agreement required us to make him whole with respect to any payments or benefits from us if any excise taxes were imposed on such payments or benefits under Section 4999 of the Internal Revenue Code of 1986, as amended.

                Restrictive Covenants . Mr. Rardin’s employment agreement included customary provisions with regard to non-competition and non-solicitation (including during the 24 month period following termination of employment), as well as confidentiality.

                Separation Agreement . In connection with his resignation, we are currently in the process of negotiating a separation agreement with Mr. Rardin.

Oreskovich Key Officer and Letter Agreements

               Our Key Officer and Letter Agreements with Mr. Oreskovich provide for payments and benefits on certain terminations and changes of control of our Company, which are described below. In 2008, we have proposed to enter in a new employment agreement with Mr. Oreskovich, which is described above under “Compensation Discussion and Analysis – Changes to Compensation in 2008,” which would supersede the Key Officer and Letter Agreements.

                Termination for Cause; Resignation without Good Reason . If we terminate Mr. Oreskovich’s employment for “cause” or he resigns without “good reason” (as such terms are defined in the Key Officer Agreement), he will receive only the salary that is accrued through the date of termination. “Cause” is defined in the Key Officer Agreement as a termination for gross negligence, commission of a felony or material violation of a corporate policy. “Good reason” is defined in the Key Officer Agreement as constructive termination or a material reduction in Mr. Oreskovich’s base salary or responsibility.

                Termination without Cause or Due to Disability; Resignation for Good Reason . If we terminate Mr. Oreskovich’s employment without cause or due to his disability, or he terminates his employment for good reason, then under the Key Officer Agreement, if Mr. Oreskovich executes a release, we will pay to him an amount equal to:

	•		twelve (12) months of then-current salary, to be paid in equal installments over the twelve (12) month period,
	•		one-twelfth of his then current calculated bonus, determined by taking the maximum amount of bonus in effect for the then-current year during which he was employed, plus an additional 12 months, to be paid in equal installments over the twelve (12) month period, and
	•		continuation of healthcare, life and accidental death and dismemberment and disability insurance benefits for twelve (12) months after the date of termination.

                Change in Control . Mr. Oreskovich’s Key Officer Agreement provides that, in the event of a change in control of our Company, as defined in the Key Officer Agreement, all options then held by Mr. Oreskovich will immediately vest and become exercisable.

          In addition, under the Key Officer Agreement, Mr. Oreskovich will be entitled to additional payments in the event of a change in control, if.

	•		Mr. Oreskovich’s employment is involuntarily terminated within 365 days following the change in control, or
	•		Mr. Oreskovich voluntarily terminates his employment with us within 365 days following the change in control, following:

	•		a reduction in his responsibilities or authority with respect to the business,
	•		any reduction in his compensation package, including then-current salary, in effect immediately prior to the change in control, or
	•		the relocation of our principal place of business by more than thirty (30) miles.

Under this scenario, Mr. Oreskovich will be entitled to the following additional benefits:

	•		twelve (12) months of his then-current salary, to be paid in a single payment within thirty (30) days of termination of his employment, and
	•		an amount equal to one-twelfth (1/12th) of the maximum amount of his then-current annual bonus determined without regard to achievement of performance targets for each month of the current plan year during which he was employed, plus an additional twelve (12) months, to be paid in a single payment within thirty (30) days of the termination of his employment, and
	•		continuation of health care, life and accidental death and dismemberment, and disability insurance benefits for twelve (12) months after the termination.

          Further, upon a change in control, we will deposit $50,000 into an interest-bearing escrow account as a “stay bonus” to help assure a smooth transition if the acquiror requests that Mr. Oreskovich continue his employment with us. The amount held in escrow will be paid to Mr. Oreskovich twelve (12) months after the change in control if he has substantially performed the services requested by the acquiror. If the acquiror does not request Mr. Oreskovich’s service after the change in control, he will not receive the escrowed amount. If the acquiror requests less than a full year of service, Mr. Oreskovich will receive a pro rata amount of the escrowed amount based on the number of months worked. At the end of the “stay bonus” performance period, Mr. Oreskovich will have a 30-day period following termination of such services or 365 days following the change of control, whichever is later, to terminate his services with us and be entitled to receive the change of control payments in addition to the “stay bonus.”

          A “change in control” is defined in the Key Officer Agreement as a change in the ownership of fifty percent (50%) or more of our outstanding Common Stock in a transaction or series of transactions effected by a third party or group, a change of at least fifty percent (50%) of our Board in a transaction or series of transactions effected by a third party or group (other than pursuant to a nomination of a new slate of directors where there has been no material change in beneficial ownership of our Common Stock within the year preceding such nomination) or a sale of substantially all of our assets.

           Restrictive Covenants . The Key Officer Agreement contains customary provisions with regard to non-competition and non-solicitation (including during the twelve (12) month period following termination of employment), as well as confidentiality.

Norton and Bowers Employment and Separation Agreements

          The employment agreements with each of Mr. Norton and Mr. Bowers provided for payments and benefits on certain terminations and changes of control of our Company. On June 4, 2008, Mr. Norton and Mr. Bowers each resigned. As a result, they each became entitled to receive the greater of the following:

	•		any minimum severance payments required under applicable federal, state and local common law, or
	•		all of the following:

	•		twelve (12) months of then-current salary, to be paid in equal installments over the twelve (12) month period,
	•		an amount equal to the product of (i) one-twelfth (1/12th) of the maximum bonus amount for the then-current year multiplied by (ii) the sum of the number of months of the current plan year during which he was employed, plus an additional twelve (12) months, to be paid in equal installments over the twelve (12) month period, and
	•		continuation of healthcare, life and accidental death and dismemberment and disability insurance benefits for twelve (12) months after the date of termination.

          Payments under the employment agreements of Messrs. Norton and Bowers are further described under “Summary of Termination Payments and Benefits.”

           Restrictive Covenants . The employment agreements required the executives to preserve confidential information and not to compete with our Company or solicit customers or employees of our Company for the twelve (12) months following any termination of employment.

           Separation Agreements. In connection with their respective resignations, we are currently in the process of negotiating separation agreements with each of Mr. Norton and Mr. Bowers.

Cornet and Sartor Employment and Separation Agreements

          In March 2007, we entered into employment agreements with each of Mr. Cornet and Mr. Sartor provided for payments and benefits on certain terminations and changes of control of our Company. Effective March 31, 2008 and June 4, 2008, respectively, Messrs Cornet and Sartor resigned. As a result, they each became entitled to receive the greater of the following:

	•		any minimum severance required by law, and
	•		all of the following:

	•		twelve (12) months of then-current salary, to be paid in equal installments over the twelve (12) month period,
	•		an amount, to be paid in equal installments over the twelve (12) month period, equal to the product of (i) one-twelfth (1/12th) of the target bonus for the then-current year, multiplied by (ii) the sum of the number of months of the current plan year during which he was employed, plus an additional twelve (12) months, multiplied by (iii) a factor representing the previous year’s performance, and
	•		continuation of healthcare, life and accidental death and dismemberment and disability insurance benefits for twelve (12) months after the date of termination.

          Payments under the employment agreements of Messrs. Cornet and Sartor are further described under “Summary of Termination Payments and Benefits.”

           Restrictive Covenants . The agreements of Messrs. Cornet and Sartor required each of them to preserve confidential information and not to compete with us or solicit our customers or employees for the twelve (12) months following any termination of employment.

           Separation Agreements . In connection with their respective resignations, we entered into a separation agreement with Mr. Cornet and are currently in the process of negotiating a separation agreement with Mr. Sartor. Mr. Cornet’s separation agreement provides that he will be entitled to receive severance benefits in accordance with his employment contract.

Proposed Executive Officer Employment Agreements

          We have proposed to enter into written employment agreements with each of our current executive officers. The agreements will formalize and confirm the base compensation and target annual bonus amounts and the stock option grants that we agreed to in connection with the hiring of our current executive officers and Mr. Oreskovich’s and Ms. Wells’ promotions, and provide for 12 months’ base salary as severance upon a termination other than for cause or other than due to the executive officer’s death or disability. The severance benefits will be conditioned on the executive officer’s execution of a release agreement approved by us. The employment letter agreements will also provide that the executive officer’s stock options will vest upon a change in control of our Company. The agreements will not include a definition of “cause.”

Summary of Termination Payments and Benefits

          The following tables summarize the value of the termination and change in control payments and benefits to which each of our Named Executive Officers would have been entitled if he had terminated employment on December 31, 2007 under the circumstances indicated. For each of the Named Executive Officers whose employment terminated in 2008, we also describe the actual benefits paid or to be paid in connection with the termination. The amounts shown in the tables do not include accrued but unpaid salary, earned annual bonus for 2007, or payments and benefits to the extent they are provided on a non-discriminatory basis to salaried employees generally upon termination of employment or change in control.

KENNETH D. RARDIN

						Termination
						Without
						Cause or as a
		Termination for				Result of				Change in
		Cause or				Disability, or				Control				Change in
		Resignation				Resignation				with no				Control with
		Without				For				Qualifying				a Qualifying
Type of Payment		Good Reason				Good Reason				Termination				Termination
Cash		$	0			$	1,742,500			$	300,000	(1)		$	2,721,900	(2)
Benefits Continuation		$	0				22,508				0				22,508
Accelerated Equity Vesting (3)		$	0				357,000				357,000				357,000
TOTAL		$	0			$	2,122,008			$	657,000			$	3,101,408

Mr. Rardin’s resignation in June 2008 has been treated as with “good reason” as defined in his employment agreement. As a result, assuming payments are made in accordance with the terms described above, Mr. Rardin will receive the following amounts:

Type of Payment		Resignation For Good Reason
Cash		$	1,742,500
Benefits Continuation			22,508
Accelerated Equity Vesting (1)			204,000
TOTAL		$	1,969,008

Mr. Rardin is required to preserve confidential information and not to compete with our Company or solicit customers or employees of our Company for twenty-four months following his termination. In connection with his resignation, we are in the process of negotiating a separation agreement with Mr. Rardin.

STEVEN R. NORTON

						Termination
						Without
						Cause or as a
		Termination for				Result of				Change in				Change in
		Cause or				Disability, or				Control				Control
		Resignation				Resignation				with no				with a
		Without				For				Qualifying				Qualifying
Type of Payment		Good Reason				Good Reason				Termination				Termination
Cash		$	0			$	819,250			$	0			$	819,250
Benefits Continuation		$	0				9,478				0				9,478
Accelerated Equity Vesting (1)		$	0				238,000				238,000				238,000
TOTAL		$	0			$	1,066,728			$	238,000			$	1,066,728

Mr. Norton’s resignation on June 4, 2008 has been treated as with “good reason” as defined in his employment agreement. As a result, assuming payments are made in accordance with the terms described above, Mr. Norton will receive the following amounts:

Type of Payment		Resignation For Good Reason
Cash		$	819,250
Benefits Continuation			9,478
Accelerated Equity Vesting (1)			153,000
TOTAL		$	981,728

Mr. Norton is required to preserve confidential information and not to compete with our Company or solicit customers or employees of our Company for twelve months following his termination. In connection with his resignation, we are in the process of negotiating a separation agreement with Mr. Norton.

GARY D. BOWERS

						Termination
						Without
						Cause or as a
		Termination for				Result of				Change in				Change in
		Cause or				Disability, or				Control				Control
		Resignation				Resignation				with no				with a
		Without				For				Qualifying				Qualifying
Type of Payment		Good Reason				Good Reason				Termination				Termination
Cash		$	0			$	505,250			$	0			$	505,250
Benefits Continuation		$	0				8,852				0				8,852
Accelerated Equity Vesting (1)		$	0				238,000				238,000				238,000
TOTAL		$	0			$	752,102			$	238,000			$	752,102

Mr. Bowers’ resignation on June 4, 2008 has been treated as with “good reason” as defined in his employment agreement. As a result, assuming payments are made in accordance with the terms described above, Mr. Bowers will receive the following amounts:

Type of Payment		Resignation For Good Reason
Cash		$	505,250
Benefits Continuation			8,852
Accelerated Equity Vesting (1)			136,000
TOTAL		$	650,102

Mr. Bowers is required to preserve confidential information and not to compete with our Company or solicit customers or employees of our Company for twelve months following his termination. In connection with his resignation, we are in the process of negotiating a separation agreement with Mr. Bowers.

JACQUES CORNET

          As noted above, effective March 31, 2008, Mr. Cornet resigned from our Company. He will receive the following severance in accordance with his Separation Agreement, which we entered on April 16, 2008:

	•		continuation of his annual salary at the time of his termination of CDN $267,650;
	•		CDN $33,456.25 for his 2008 pro rata bonus;
	•		continuation of certain health, dental and life insurance benefits through March 31, 2009 or until Mr. Cornet commences employment with another employer;
	•		CDN $37,059.23 for Mr. Cornet’s accrued vacation days at the time of his termination; and
	•		CDN $25,000 for Mr. Cornet’s contribution to the successful spin-off of Cedara Software SARL.

The sum of the cash payments to Mr. Cornet is equal to CDN $363,165.48, in each case less applicable income and employment tax withholding. The cash payments under will be paid over a 12 month period. In addition,

Mr. Cornet will be entitled to exercise his stock options that have vested on or before March 31, 2008 on or before September 27, 2008, with the exception of one option grant which expires earlier by its terms. Mr. Cornet’s employment agreement was terminated as of March 31, 2008, however, Mr. Cornet continues to be bound by the confidentiality, non-competition and other obligations under sections 15-18 of the employment contract.

LORIS SARTOR

						Termination
						Without
						Cause or as a
		Termination for				Result of				Change in				Change in
		Cause or				Disability, or				Control				Control
		Resignation				Resignation				with no				with a
		Without				For				Qualifying				Qualifying
Type of Payment		Good Reason				Good Reason				Termination				Termination
Cash		$	0			$	480,983			$	0			$	480,983
Benefits Continuation		$	0				3,933				0				3,933
Accelerated Equity Vesting (1)		$	0				238,000				238,000				238,000
TOTAL		$	0			$	722,916			$	238,000			$	752,916

Mr. Sartor’s resignation in June 2008 has been treated as with “good reason” as defined in his employment agreement. Accordingly, assuming payments are made in accordance with the transactions described above, Mr. Sartor will receive the following amounts:

Type of Payment		Resignation For Good Reason
Cash		$	480,983
Benefits Continuation			3,933
Accelerated Equity Vesting (1)			136,000
TOTAL		$	620,916

Mr. Sartor is required to preserve confidential information and not to compete with our Company or solicit customers or employees of our Company for twelve months following his termination. In connection with his resignation, we are in the process of negotiating a separation agreement with Mr. Sartor.

STEVEN M. ORESKOVICH ⁽¹⁾

						Termination without
		Termination				Cause or as a Result
		for Cause or				of Disability, or				Change in				Change in
		Resignation				Resignation For Good				Control with				Control with a
		without Good				Reason/Constructive				no Qualifying				Qualifying
		Reason				Termination				Termination				Termination
Type of Payment		($)				($)				($)				($)
Cash		$	0			$	213,281			$	50,000	(3)		$	263,281	(3)
Benefits Continuation		$	0			$	4,264			$	0			$	4,264
Accelerated Equity Vesting (2)		$	0			$	63,466			$	63,466			$	63,466
TOTAL		$	0			$	283,828			$	155,000			$	333,828

DIRECTOR COMPENSATION FOR FISCAL YEAR 2007

               The following tables provide information about the compensation earned by our directors during 2007 regardless of when paid and their equity holdings as of December 31, 2007. The tables do not include Mr. Rardin, who received no additional compensation for his services as a director. As described above under “Compensation Discussion and Analysis — Changes to Compensation in 2008,” we are considering, but have not taken action with respect to, changes in our director compensation program.

		Fees Earned or				Option
		Paid in Cash				Awards(1)				Total
Name		($)				($)				($)
Robert A. Barish, M.D.			59,625				33,932				93,557
Dennis Brown			69,375				61,775				131,150
Michael D. Dunham			58,500				33,932				92,432
Robert T. Geras			62,250				33,932				96,182
Anna Marie Hajek			66,375				33,932				100,307
R. Ian Lennox			57,750				33,932				91,682
Kevin E. Moley			60,000				33,932				93,932
Kevin G. Quinn			62,250				33,932				96,182
Ramamritham Ramkumar			62,250				33,932				96,182
Richard A. Reck			76,875				33,932				110,807

Annual Board/Committee Retainer Fees . Non-employee Directors each receive an annual participation award of $40,000 per year, such amount to be earned and payable in increments of $10,000 per quarter. The non-employee Directors who serve as the Chair of the Board of Directors and Chair of the Audit Committee receive an additional $15,000 annual participation award, such amount to be earned and payable in increments of $3,750 per quarter. The non-employee Director who serves as the Chair of the Compensation Committee receives an additional $7,500 annual participation award, such amount to be earned and payable in increments of $1,875 per quarter. The non-employee Director who serves as the Chair of the Nominating and Governance Committee receives an additional $3,500 annual participation award, such amount to be earned and payable in increments of $875 per quarter.

Meeting Fees . Non-employee Directors also received a fee of $1,500 for each Board of Directors meeting or Board Committee meeting attended in person, and a fee of $750 for each Board of Directors or Board Committee meeting attended via teleconference. Directors are also reimbursed for certain expenses incurred in connection with attendance at Board of Directors and Board Committee meetings.

Stock Option Grants . On the date of our Annual Meeting of Shareholders, Directors who are not employees of Merge Healthcare receive nonqualified stock options to purchase 15,000 shares of Common Stock of Merge Healthcare under Merge Healthcare’s 2005 Equity Incentive Plan (“Equity Incentive Plan”), with an exercise price equal to the closing price of Merge Healthcare’s shares of Common Stock on such date. The nonqualified stock options vest in four (4) equal quarterly increments following the grant date. Stock options granted to the non-employee Directors under the Equity Incentive Plan expire at the earliest to occur of: (i) the expiration of the option term (no more than ten (10) years), or (ii) the expiration of six (6) months from the date the Director ceases to serve on our Board. Options granted to non-employee Directors under the Equity Incentive Plan may be exercised, once vested, in whole or in part until termination of the exercise period. If a Director is elected or appointed after the date of the Annual Meeting, the amount of options issued will be prorated to coincide with the time Directors are elected or appointed for the following annual term, and that Director’s stock option exercise price will be equal to the

closing price of Merge Healthcare’s shares of Common Stock as of the date of such new Director’s election or appointment to the Board of Directors. Each option granted to Directors under the Equity Incentive Plan is evidenced by a written agreement between Merge Healthcare and the Director.

               The Nominating and Governance Committee is considering implementing a new director compensation program for our non-employee directors. The Nominating and Governance Committee has not yet taken action with respect to this program, but is currently considering a program that would consist entirely of grants of options to each continuing non-employee director to purchase between 200,000 and 300,000 shares of Common Stock. Option grants to Mr. Ferro, our Chairman of the Board, have not yet been considered. The grants would be made in 2008 but would be intended to cover services, and would be subject to vesting, over the four years following the grant. Under the proposal that will likely be considered by the Nominating and Governance Committee, during the next four years, no other option or other equity grants to directors (except to new non-employee directors) would be made, and our non-employee directors would receive no cash retainer or other cash payments.

OUTSTANDING EQUITY AWARDS OF DIRECTORS AT FISCAL YEAR END

               The following table contains information concerning equity awards held by our directors that were outstanding as of December 31, 2007.

		Option Awards (1)
		Number of												Aggregate
		Securities												Number of
		Underlying				Exercise Price								Securities
		Options				of Option Awards				Expiration				Underlying
Name		(#)				(S/Sh)				Date				Options (#)
Robert A. Barish, M.D.			15,000				6.59				12/27/2016				30,000
			15,000				6.01				05/10/2017
Dennis Brown			5,000				9.78				05/21/2013				70,000
			10,000				16.19				05/20/2014
			15,000				17.50				06/01/2015
			15,000				6.59				12/27/2016
			10,000				5.52				01/30/2017
			15,000				6.01				05/10/2017
Michael D. Dunham			10,000				6.00				01/29/2008				137,500
			2,500				1.03				08/23/2009
			2,500				2.13				02/08/2010
			2,500				2.75				04/10/2010
			5,000				1.40				05/23/2011
			5,000				8.19				05/23/2012
			50,000	(2)			8.05				09/05/2012
			5,000				9.78				05/21/2013
			10,000				16.19				05/20/2014
			15,000				17.50				06/01/2015
			15,000				6.59				12/27/2016
			15,000				6.01				05/10/2017
Robert T. Geras			10,000				6.00				01/29/2008				82,500
			2,500				1.03				08/23/2009
			5,000				1.40				05/23/2011
			5,000				8.19				05/23/2012
			5,000				9.78				05/21/2013
			10,000				16.19				05/20/2014
			15,000				17.50				06/01/2015
			15,000				6.59				12/27/2016
			15,000				6.01				05/10/2017
Anna Marie Hajek			5,000				8.19				05/23/2012				65,000
			5,000				9.78				05/21/2013
			10,000				16.19				05/20/2014
			15,000				17.50				06/01/2015
			15,000				6.59				12/27/2016

		Option Awards (1)
		Number of												Aggregate
		Securities												Number of
		Underlying				Exercise Price								Securities
		Options				of Option Awards				Expiration				Underlying
Name		(#)				(S/Sh)				Date				Options (#)
			15,000				6.01				05/10/2017
R. Ian Lennox (3)			11,740				12.49				05/31/2008				56,740
			15,000				17.50				06/01/2015
			15,000				6.59				12/27/2016
			15,000				6.01				05/10/2017
Kevin E. Moley			15,000
			15,000				6.59				12/27/2016				30,000
							6.01				05/10/2017
Kevin G. Quinn			15,000
			15,000				6.59				12/27/2016				30,000
							6.01				05/10/2017
Ramamritham Ramkumar			11,178				19.38				08/24/2015				41,178
			15,000				6.59				12/27/2016
			15,000				6.01				05/10/2017
Richard A. Reck			411				7.46				04/23/2013				60,411
			5,000				9.78				05/21/2013
			10,000				16.19				05/20/2014
			15,000				17.50				06/01/2015
			15,000				6.59				12/27/2016
			15,000				6.01				05/10/2017