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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K/A
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period from                    to
 Commission file number 0-29486
 MERGE HEALTHCARE INCORPORATED
  Wisconsin
    
    39-1600938(State or other jurisdiction 
of incorporation or organization)
    
    (I. R. S. Employer
Identification No.)
 6737 West Washington Street, Suite 2250, Milwaukee, Wisconsin 53214-5650
 (414) 977-4000
 Common Stock, $0.01 par value per share
 NONE
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller Reporting Company o(Do not check if a smaller reporting company)
 o þ




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MERGE HEALTHCARE INCORPORATED
 EXPLANATORY NOTE
 This Amendment No. 1 on Form 10-K/A (the Amendment) is being filed to provide the disclosure
required by Part III of Form 10-K . This information was intended to be incorporated by reference
from our Definitive Proxy Statement for our 2008 Annual Meeting of Shareholders and was omitted
from the initial filing pursuant to General Instruction G.3 on Form 10-K . Because we now do not
expect to file a Definitive Proxy Statement prior to the applicable incorporation by reference
deadline, we are hereby filing this Amendment to provide the required disclosure for Part III
(Items 10 through 14) and to refile certain information contained in Part IV (Item 15).
 2




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TABLE OF CONTENTS  PART IIIItem 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTItem 11. EXECUTIVE COMPENSATIONItem 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSItem 13. POLICIES AND PROCEDURES GOVERNING RELATED PERSON TRANSACTIONSItem 14. INDEPENDENT AUDITORSPART IVItem 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULESExhibit IndexSIGNATURESEX-31.1 SECTION 302, CERTIFICATION OF THE CEOEX-31.2 SECTION 302, CERTIFICATION OF THE CFOEX-32 SECTION 906, CERTIFICATION OF THE CEO AND CFO    Table of Contents  
 PART III
 
 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 Directors and Executive Officers
  Robert A. Barish, M.D.
    
    54
    
    DirectorGary D. Bowers
    
    55
    
    President, Merge Healthcare North AmericaDennis Brown
    
   60
    
    DirectorMichael D. Dunham
    
    62
    
    Chairman of BoardRobert T. Geras
    
    70
     
    DirectorAnna Marie Hajek
    
    59
     
    DirectorR. Ian Lennox
    
    55
    
    DirectorKevin E. Moley
    
    61
    
    DirectorSteven R. Norton
    
    46
    
    Executive Vice President and Chief
Financial OfficerKevin G. Quinn
    
    53
    
    DirectorRamamritham Ramkumar
    
    56
    
    DirectorKenneth D. Rardin
    
    57
    
    Director, President & Chief Executive
OfficerRichard A. Reck
    
    58
    
    DirectorLoris Sartor
    
    50
    
    President, Cedara Software
 Robert A. Barish, M. D
 Gary D. Bowers
 Dennis Brown
 Michael D. Dunham
 3




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Robert T. Geras
 Anna Marie Hajek
 R. Ian Lennox
 Kevin E. Moley
 Kevin G. Quinn
 4




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Steven R. Norton
 Ramamritham Ramkumar
 Kenneth D. Rardin
 Richard A. Reck
 Loris Sartor
 Audit Committee; Audit Committee Financial Expert
 www.mergehealthcare.com
 5




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Code of Ethics and Whistleblower Policy
 www.mergehealthcare.com
 Section 16(a) Beneficial Ownership Reporting Compliance
   6




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Item 11. EXECUTIVE COMPENSATION
 COMPENSATION DISCUSSION AND ANALYSIS
  Named Executive Officers
    
    TitleKenneth D. Rardin
    
    President and Chief Executive Officer since September 2006Steven R. Norton
    
    Executive Vice President, Chief Financial Officer and
Treasurer since January 2007Gary D. Bowers
    
    Senior Vice President, Strategic Business Initiatives from
November 2006 until February 2007; President, Merge
Healthcare North America since February 2007Jacques F. Cornet
    
    President of Merge Healthcare EMEA since November 2006,
resigned from his position with Merge Healthcare effective
March 31, 2008Loris Sartor
    
    Senior Vice President, Cedara President since November 2006Steven M. Oreskovich
    
    Chief Accounting Officer and
Interim Treasurer, Principal
Financial Officer from July 2006 to January 2007; Vice
President of Internal Audit since January 2007
 Compensation Philosophy
  
    
    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.
  Compensation Mix
  7




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##### Table of Contents



Compensation Committee
 Compensation Committee www.mergehealthcare.com
  Role of the Compensation Committee
   
    
    Amicas, Inc.
    
    Emageon Inc.
    
    Nighthawk Radiology Holdings, Inc.
    
    Virtual Radiologic Corp.
    
    Vital Images, Inc.
    
    WebMD Corp.
  
    
    the types of equity vehicles used by other companies as part of their long term
incentive plans, post FAS123;
 8




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
    
    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.
  Chief Executive Officer
  Elements of Compensation 1
  Base Salary
    
 1
    
    All Canadian dollar amounts included herein were
converted to US dollars using the exchange rate in effect at December 31, 2007
of $1.012 US dollars per Canadian dollar. 9




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
    
    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.
  Cash Incentive Compensation
 Year Ended December 31, 2007.
 
    
    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.
  10




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Target (as % of
    
    Maximum (as % ofName
    
    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
    %
    2007 Target
    
    2007 Bonus
    
    2007 Bonus
    
    2007 BonusBonus Amount
    
    Earned
    
    Paid in 2007
    
    Paid in 2008Mr. Rardin (1)
    
    $
    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
    
    
    $
    12,189Mr. Sartor
    
    $
    108,345
    
    
    $
    6,569
    
    
    $
    6,569
    
    
    $
    -0-Mr. Oreskovich
    
    $
    43,750
    
    
    $
    5,469
    
    
    $
    5,469
    
    
    $
    -0-
 
 (1)
    
    The bonus that Mr. Rardin earned and received in 2007 of $99,167 was guaranteed
under Mr. Rardins employment agreement. 11




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Name
    
    AmountMr. Oreskovich
    
    $
    105,000Mr. Cornet
    
    $
    121,440Mr. Sartor
    
    $
    75,900
 Year Ending December 31, 2008.
 
    
    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
    Equity Incentive Compensation
  12




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13




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PostEmployment Benefits
   Perquisites and Other Benefits
  COMPENSATION COMMITTEE REPORT
  Anna Marie Hajek, Chair
    
    Robert A. Barish, M.D.
    
    R. Ian Lennox
    
    Richard A. Reck
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COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
 SUMMARY COMPENSATION TABLE
  Non EquityStock
    
    
    Option
    
    
    Incentive Plan
    
    
    All OtherSalary
    
    
    Bonus
    
    
    Awards(2)
    
    
    Awards(2)
    
    
    Compensation
    
    
    Compensation
    
    
    TotalName and Principal Position
    
    Year
    
    
    ($)
    
    
    ($)(1)
    
    
    ($)
    
    
    ($)
    
    
    ($)(3)
    
    
    ($)
    
    
    ($)Kenneth D. Rardin
    
    
    2007
    
    
    
    425,000
    
    
    
    99,167
    
    
    
    15,376
    
    
    
    406,840
    
    
    
    
    
    
    
    11,254
    (4)
    
    
    957,637President & Chief Executive
Officer
    
    
    2006
    
    
    
    137,035
    
    
    
    94,950
    
    
    
    
    
    
    
    571,500
    
    
    
    
    
    
    
    37,232
    
    
    
    840,717Steven R. Norton
    
    
    2007
    
    
    
    294,423
    
    
    
    
    
    
    
    10,251
    
    
    
    157,782
    
    
    
    20,750
    
    
    
    16,228
    (4)
    
    
    499,434Executive Vice President and
Chief Financial OfficerGary D. Bowers
    
    
    2007
    
    
    
    235,000
    
    
    
    
    
    
    
    10,251
    
    
    
    109,239
    
    
    
    11,750
    
    
    
    26,221
    (4)
    
    
    392,461President, Merge Healthcare
North America
    
    
    2006
    
    
    
    71,901
    
    
    
    32,148
    
    
    
    
    
    
    
    129,484
    
    
    
    
    
    
    
    12,000
    
    
    
    245,533Jacques F. Cornet
    
    
    2007
    
    
    
    270,862
    
    
    
    121,440
    
    
    
    
    
    
    
    73,630
    
    
    
    25,326
    
    
    
    21,145
    (5)
    
    
    512,403President, Merge Healthcare EMEA
    
    
    2006
    
    
    
    207,834
    
    
    
    138,537
    
    
    
    
    
    
    
    59,069
    
    
    
    
    
    
    
    19,817
    
    
    
    425,257Loris Sartor
    
    
    2007
    
    
    
    270,862
    
    
    
    75,900
    
    
    
    10,251
    
    
    
    87,878
    
    
    
    6,569
    
    
    
    23,235
    (6)
    
    
    474,695President, Cedara Software
    
    
    2006
    
    
    
    139,584
    
    
    
    675
    
    
    
    
    
    
    
    69,419
    
    
    
    148,285
    
    
    
    29,952
    
    
    
    383,915Steven M. Oreskovich
    
    
    2007
    
    
    
    175,000
    
    
    
    130,000
    
    
    
    2,734
    
    
    
    165,166
    
    
    
    5,469
    
    
    
    9,514
    (4)
    
    
    487,883Vice President of Internal Audit
    
    
    2006
    
    
    
    159,375
    
    
    
    746
    
    
    
    
    
    
    
    223,363
    
    
    
    35,000
    
    
    
    3,906
    
    
    
    422,390
 
 (1)
    
    For 2007, reflects a guaranteed bonus of $99,167 for Mr. Rardin, retention bonuses
of $121,440, $75,900, and $105,000 for Mr. Cornet, Mr. Sartor, and Mr. Oreskovich,
respectively, and a discretionary bonus of $25,000 for Mr. Oreskovich.(2)
    
    Reflects that portion of the dollar amount of awards that we recognized for
financial statement reporting purposes in accordance with Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 123 (revised 2004), ShareBased Payment
(which we refer to as FAS 123R), for the fiscal year ended December 31, 2007 (disregarding the
estimate of forfeitures related to servicebased vesting). Based on this methodology, the
option amounts may include amounts from option awards granted in and prior to 2007.
Assumptions used in the calculation of these amounts are included in note 6 to our audited
financial statements for the fiscal year ended December 31, 2007 included in our Annual Report
on Form 10K filed with the Commission on April 1, 2008 or in note 7 to our audited financial
statements for the fiscal year ended December 31, 2006 included in our Annual Report on Form
10-K/A filed with the Commission on December 27, 2007.(3)
    
    Represents the cash incentive award earned under our 2007 performancebased cash
bonus plan.(4)
    
    Represents the Company matching contribution under our 401(k) employee retirement
savings plan ($6,750 for Mr. Norton and $5,250 for Mr. Oreskovich) and medical, dental,
optical and life insurance benefits ($11,254 for Mr. Rardin, $9,478 for Mr. Norton, $8,852 for
Mr. Bowers, and $4,264 for Mr. Oreskovich) and $17,369 paid to Mr. Bowers for transportation,
temporary lodging and other costs incurred related to commuting from his home in Alpharetta,
Georgia to his primary place of employment in Milwaukee, Wisconsin.(5)
    
    Represents a Company contribution of $8,126 under our DPSP for Canadian employees,
payment of $11,501 in medical, dental, optical and life insurance and related costs for the
benefit of Mr. Cornet, and $1,518 for the value of items stolen during a business trip.(6)
    
 Represents a Company contribution of $8,126 under our DPSP for Canadian employees
and the payment of $15,109 in medical, dental, optical and life insurance and related costs
for the benefit of Mr. Sartor. 15




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GRANTS OF PLAN-BASED AWARDS FOR FISCAL YEAR 2007
  All Other
    
    
    
    
    
    
    
    
    
    Grant DateEstimated Future Payouts Under
    
    Stock Awards:
    
    All Other Option
    
    Exercise
    
    Fair ValueNon-Equity Incentive Plan
    
    Number of
    
    Awards: Number of
    
    or Base Price
    
    of StockAwards(4)
    
    Shares of Stock
    
    Securities
    
    of Option
    
    and OptionThreshold
    
    Target
    
    Maximum
    
    or Units
    
    Underlying Options
    
    Awards
    
    Awards(3)Name
    
    Grant Date
    
    ($)
    
    ($)
    
    ($)
    
    (#)
    
    (#)
    
    ($/Sh)
    
    ($)Kenneth D. Rardin
    
    
    11/24/07
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    300,000
    
    
    
    
    
    
    
    
    
    
    
    450,000
    
    
    
    297,500
    
    
    
    446,250Steven R. Norton
    
    
    01/09/07
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    225,000
    
    
    
    6.02
    
    
    
    680,87011/24/07
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    300,000
    
    
    
    180,000
    
    
    
    270,000Gary D. Bowers
    
    
    11/24/07
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    300,000
    
    
    
    94,000
    
    
    
    141,000Jacques F. Cornet
    
    
    04/03/07
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,000
    
    
    
    4.99
    
    
    
    87,582
    
    
    
    108,345
    
    
    
    162,517Steven M. Oreskovich
    
    
    04/03/07
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,000
    
    
    
    4.99
    
    
    
    150,14111/24/07
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,333
    
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    43,750
    
    
    
    65,625Loris Sartor
    
    
    04/03/07
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,000
    
    
    
    4.99
    
    
    
    112,60611/24/07
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    300,000
    
    
    
    108,345
    
    
    
    162,517
 
 (1)
    
    Represents restricted stock granted pursuant to our Companys 2005 Equity Incentive
Plan. If certain performance criteria are achieved during 2008 and 2009, the restrictions on
one-third of the restricted shares will lapse on each of the first anniversary and 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.(2)
    
    Grant of options pursuant to our Companys 2005 Equity Incentive Plan.(3)
    
    Represent full grant date fair value as determined in accordance with FAS 123R.(4)
    
Represents threshold, target and maximum amounts payable under our 2007
performancebased cash bonus plan. Actual amounts earned are reflected in the non-equity
incentive plan compensation column of the summary compensation table. Employment Agreements
 Rardin Employment Agreement.
 16




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##### Table of Contents



Norton, Bowers, Cornet and Sartor Employment Agreements
  Oreskovich Letter Agreement
 Option Awards
  Stock Awards
  17




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OUTSTANDING EQUITY AWARDS AT 2007 FISCAL YEAR-END
  Option Awards
    
    Stock AwardsNumber ofSecurities
    
    Number of Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market Value ofUnderlying
    
    Underlying
    
    Option
    
    
    
    
    
    Number of Shares or
    
    Shares or Units ofUnexercised Options
    
    Unexercised Options
    
    Exercise
    
    Option
    
    Units of Stock That
    
    Stock That Have Not(#)
    
    (#)
    
    Price
    
    Expiration
    
    Have Not Vested
    
    VestedName
    
    Exercisable
    
    Unexercisable
    
    ($)
    
    Date
    
    (#)
    
    ($)(11)Kenneth D. Rardin
    
    
    225,000
    
    
    
    225,000
    (1)
    
    
    8.05
    
    
    
    09/05/2012
    
    
    
    300,000
    (10)
    
    
    357,000Steven R. Norton
    
    
    51,563
    
    
    
    173,437
    (2)
    
    
    6.02
    
    
    
    01/08/2013
    
    
    
    200,000
    (10)
    
    
    238,000Gary D. Bowers
    
    
    50,000
    
    
    
    50,000
    (1)
    
    
    8.05
    
    
    
    09/05/2012
    
    
    
    200,000
    (10)
    
    
    238,0006,250
    
    
    
    18,750
    (3)
    
    
    6.34
    
    
    
    11/16/2012Jacques F. Cornet
    
    
    18,750
    
    
    
    6,250
    (4)
    
    
    17.50
    
    
    
    05/31/201126,656
    
    
    
    0
    
    
    
    2.75
    
    
    
    05/11/20085,000
    
    
    
    5,000
    (5)
    
    
    17.82
    
    
    
    10/19/201112,500
    
    
    
    37,500
    (6)
    
    
    6.34
    
    
    
    11/16/20120
    
    
    
    35,000
    (7)
    
    
    4.99
    
    
    
    04/02/2013Steven M. Oreskovich
    
    
    15,000
    
    
    
    5,000
    (8)
    
    
    15.00
    
    
    
    03/31/2010
    
    
    
    53,333
    (10)
    
    
    63,4663,750
    
    
    
    1,250
    (9)
    
    
    12.96
    
    
    
    07/15/201017,500
    
    
    
    17,500
    (4)
    
    
    17.50
    
    
    
    05/31/201150,000
    
    
    
    50,000
    (1)
    
    
    8.05
    
    
    
    09/05/20120
    
    
    
    60,000
    (7)
    
    
    4.99
    
    
    
    04/02/2013Loris Sartor
    
    
    18,750
    
    
    
    6,250
    (4)
    
    
    17.50
    
    
    
    05/31/2011
    
    
    
    200,000
    (10)
    
    
    238,00024,458
    
    
    
    0
    
    
    
    2.75
    
    
    
    05/11/200810,000
    
    
    
    10,000
    (5)
    
    
    17.82
    
    
    
    10/19/201112,500
    
    
    
    37,500
    (6)
    
    
    6.34
    
    
    
    11/16/20120
    
    
    
    45,000
    (7)
    
    
    4.99
    
    
    
    04/02/2013
 
 (1)
    
    Fifty percent (50%) of the options will vest on each of September 6, 2008 and
September 6, 2009.(2)
    
    4,687.50 options will vest on a monthly basis through January 9, 2011.(3)
    
    6,250 options will vest on each of November 17, 2008, November 17, 2009 and November
17, 2010.(4)
    
    One hundred percent (100%) of the options will vest on June 1, 2008.(5)
    
Fifty percent (50%) of the options will vest on each of October 20, 2008 and October 20, 2009.(6)
    
12,500 options will vest on each of November 17, 2008, November 17, 2009 and November 17, 2010.(7)
    
    Twenty five percent (25%) of the options will vest on each of April 3, 2008, April
3, 2009, April 3, 2010 and April 3, 2011.(8)
    
    One hundred percent (100%) of the options will vest on April 1, 2008.(9)
    
    One hundred percent (100%) of the options will vest on July 16, 2008. 18




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##### Table of Contents



(10)
    
    One hundred percent (100%) of the restricted stock will vest on November 24, 2010,
or earlier upon each of November 24, 2008 and November 24, 2009 if certain performance targets
are achieved.(11)
    
    Reflects the value as calculated using the closing market price of our Common Stock
as of the last trading day in fiscal year 2007, December 31, 2007 ($1.19). POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
 Description of Agreements Providing for Potential Payments
   Rardin Employment Agreement
  Termination for Cause; Resignation without Good Reason
 Termination due to Disability or without Cause; Resignation for Good Reason
 
    
    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 twenty four (24) months after the date of
termination, and
    
    accelerated vesting of his outstanding stock options.
 19




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##### Table of Contents



Change in Control
  
    
    Mr. Rardins employment is involuntarily terminated within 120 days prior to or 365
days following the change in control, or
    
    Mr. Rardin 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.
  
    
    twenty four (24) months of thencurrent salary, to be paid in a single payment,
    
    an amount equal to two (2) times the maximum amount of thencurrent bonus (assuming
achievement of the highest performance targets), to be paid in a single payment, and
    
    continuation of healthcare, life and accidental death and dismemberment and
disability insurance benefits for twenty four (24) months following termination.
   Excise Tax Gross Ups
 Restrictive Covenants
 20




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##### Table of Contents



Oreskovich Key Officer and Letter Agreements
  Termination for Cause; Resignation without Good Reason
 Termination without Cause or Due to Disability; Resignation for Good Reason
 
    
    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 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.
  
    
    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
 21




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##### Table of Contents



(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.
   Restrictive Covenants
 Norton and Bowers Employment Agreement
  Termination for Cause; Resignation without Good Reason
 Termination without Cause or Due to Disability; Resignation for Good Reason
 
    
    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
 22




---



##### Table of Contents



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.
 Change in Control
  
    
    the executives employment is involuntarily terminated within 365 days following the
change in control, or
    
    the executive voluntarily terminates his employment with us within 365 days
following the change in control, following any of:
 
    
    a substantial 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 his principal place of employment by more than twenty (20)
miles from his current residence.
  
    
    any minimum severance required by law, and
    
    all of the following:
 
    
    twelve (12) months of his thencurrent salary, to be paid according
to normal payroll practices, plus
    
    an amount equal to the product of (i) onetwelfth (1/12th) of the
maximum amount of his thencurrent annual bonus determined without
regard to achievement of performance targets, multiplied by (ii) the
sum of 12 plus the number of months of the current plan year during
which he was employed, to be paid in a single payment at the same time
as the last salary equivalent payment, and
    
    healthcare, life and accidental death and dismemberment and
disability insurance benefits continuation for twelve (12) months after
the termination.
  23




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##### Table of Contents



Restrictive Covenants
 Cornet and Sartor Employment Agreements
  Termination for Cause; Resignation without Good Reason
 Termination without Cause or Due to Disability; Resignation for Good Reason
 
    
    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.
 Change in Control
  
    
    his employment is involuntarily terminated within 365 days following the change in
control, or
    
    he voluntarily terminates his employment with us within 365 days following the
change in control, following any of:
 
    
    a substantial reduction in his responsibilities or authority with respect to
the business,
 24




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##### Table of Contents




    
    any reduction in his compensation package, including thencurrent salary,
in effect immediately prior to the change in control, or
    
    the relocation of the executives principal place of employment to other
than the Toronto, Canada area.
  
    
    any minimum severance required by law, and
    
    all of the following:
 
    
    twelve (12) months of his thencurrent salary, to be paid according
to normal payroll practices, plus
    
    an amount equal to the product of (i) onetwelfth (1/12th) of the
maximum amount of his thencurrent annual bonus determined without
regard to achievement of performance targets, multiplied by (ii) the
sum of 12 plus the number of months of the current plan year during
which he was employed, to be paid in a single payment at the same time
as the last salary equivalent payment, and
    
    healthcare, life and accidental death and dismemberment and
disability insurance benefits continuation for twelve (12) months after
the termination.
  Restrictive Covenants
 Mr. Cornets Resignation.
 Summary of Termination Payments and Benefits
  25




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##### Table of Contents



KENNETH D. RARDIN
 Termination withoutCause or as aTermination for
    
    Result ofCause or
    
    Disability, or
    
    Change in Control
    
    Change in Control withResignation without
    
    Resignation For
    
    with no Qualifying
    
    a QualifyingType of Payment
    
    Good Reason
    
    Good Reason
    
    Termination
    
    TerminationCash
    
    $
    0
    
    
    $
    1,742,500
    
    
    $
    300,000
    (1)
    
    $
    2,721,900
    (2)Benefits
Continuation
    
    $
    0
    
    
    $
    22,508
    
    
    $
    0
    
    
    $
    22,508Accelerated Equity
Vesting(3)
    
    $
    0
    
    
    $
    357,000
    
    
    $
    357,000
    
    
    $
    357,000TOTAL
    
    $
    0
    
    
    $
    2,122,008
    
    
    $
    657,000
    
    
    $
    3,101,408
 
 (1)
    
    Reflects stay bonus payable twelve (12) months after the change in control
contingent on Mr. Rardins substantial performance of services requested by the acquiror.(2)
    
    Includes $679,400 as an excise tax gross up payment. For purposes of determining
whether any excise tax was triggered, we assumed we would be able to overcome any presumption
that stock option grants in 2006 were made in contemplation of a change in control pursuant to
regulations promulgated under Internal Revenue Code.(3)
    
    Reflects the value of unexercised and unvested equity awards that would be realized
in each case due to the accelerated vesting of such awards. Awards are valued based on the
closing market price of our Common Stock as of the last trading day in fiscal year 2007,
December 31, 2007 ($1.19). For purposes of this calculation, outstanding options having an
exercise price more than the closing price of our common stock on such date have a value of
$0. STEVEN R. NORTON
 Termination withoutCause or as aTermination for
    
    Result ofCause or
    
    Disability, or
    
    Change in Control
    
    Change in ControlResignation without
    
    Resignation For
    
    with no Qualifying
    
    with a QualifyingType of Payment
    
    Good Reason
    
    Good Reason
    
    Termination
    
    TerminationCash
    
    $
    0
    
    
    $
    819,250
    
    
    $
    0
    
    
    $
    819,250Benefits
Continuation
    
    $
    0
    
    
    $
    9,478
    
    
    $
    0
    
    
    $
    9,478Accelerated Equity
Vesting(1)
    
    $
    0
    
    
    $
    238,000
    
    
    $
    238,000
    
    
    $
    238,000TOTAL
    
    $
    0
    
    
    $
    1,066,728
    
    
    $
    238,000
    
    
    $
    1,066,728
 
 (1)
    
    Reflects the value of unexercised and unvested equity awards that would be realized
in each case due to the accelerated vesting of such awards. Awards are valued based on the
closing market price of our Common Stock as of the last trading day in fiscal year 2007,
December 31, 2007 ($1.19). For purposes of this calculation, outstanding options having an
exercise price more than the closing price of our common stock on such date have a value of
$0. 26




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##### Table of Contents



GARY D. BOWERS
 Termination withoutCause or as aTermination for
    
    Result ofCause or
    
    Disability, or
    
    Change in Control
    
    Change in ControlResignation without
    
    Resignation For
    
    with no Qualifying
    
    with a QualifyingType of Payment
    
    Good Reason
    
    Good Reason
    
    Termination
    
    TerminationCash
    
    $
    0
    
    
    $
    505,250
    
    
    $
    0
    
    
    $
    505,250Benefits
Continuation
    
    $
    0
    
    
    $
    8,852
    
    
    $
    0
    
    
    $
    8,852Accelerated Equity
Vesting(1)
    
    $
    0
    
    
    $
    238,000
    
    
    $
    238,000
    
    
    $
    238,000TOTAL
    
    $
    0
    
    
    $
    752,102
    
    
    $
    238,000
    
    
    $
    752,102
 
 (1)
    
    Reflects the value of unexercised and unvested equity awards that would be realized
in each case due to the accelerated vesting of such awards. Awards are valued based on the
closing market price of our Common Stock as of the last trading day in fiscal year 2007,
December 31, 2007 ($1.19). For purposes of this calculation, outstanding options having an
exercise price more than the closing price of our common stock on such date have a value of
$0. JACQUES CORNET
  
    
    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.
  27




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##### Table of Contents



LORIS SARTOR
 Terminationwithout Causeor as a Result ofTermination for
    
    Disability, orCause or
    
    Resignation
    
    Change in Control
    
    Change in ControlResignation without
    
    For Good
    
    with no Qualifying
    
    with a QualifyingType of Payment
    
    Good Reason
    
    Reason(
    
    Termination
    
    TerminationCash
    
    $
    0
    
    
    $
    480,983
    
    
    $
    0
    
    
    $
    480,983Benefits
Continuation
    
    $
    0
    
    
    $
    3,933
    
    
    $
    0
    
    
    $
    3,933Accelerated Equity
Vesting(1)
    
    $
    0
    
    
    $
    238,000
    
    
    $
    238,000
    
    
    $
    238,000TOTAL
    
    $
    0
    
    
    $
    722,916
    
    
    $
    238,000
    
    
    $
    722,916
 
 (1)
    
    Reflects the value of unexercised and unvested equity awards that would be realized
in each case due to the accelerated vesting of such awards. Awards are valued based on the
closing market price of our Common Stock as of the last trading day in fiscal year 2007,
December 31, 2007 ($1.19). For purposes of this calculation, outstanding options having an
exercise price more than the closing price of our common stock on such date have a value of
$0. 28




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##### Table of Contents



STEVEN M. ORESKOVICH
 Termination withoutCause or as aResult ofTermination
    
    Disability, orfor Cause or
    
    Resignation
    
    Change in
    
    Change inResignation
    
    For Good
    
    Control with
    
    Control withwithout
    
    Reason/Constructive
    
    no Qualifying
    
    a QualifyingType of Payment
    
    Good Reason
    
    Termination
    
    Termination
    
    TerminationCash
    
    $
    0
    
    
    $
    213,281
    
    
    $
    50,000
    (2)
    
    $
    263,281Benefits Continuation
    
    $
    0
    
    
    $
    4,264
    
    
    $
    0
    
    
    $
    4,264Accelerated Equity
Vesting(1)
    
    $
    0
    
    
    $
    63,466
    
    
    $
    63,466
    
    
    $
    63,466TOTAL
    
    $
    0
    
    
    $
    281,011
    
    
    $
    113,466
    
    
    $
    331,011
 
 (1)
    
    Reflects the value of unexercised and unvested equity awards that would be realized
in each case due to the accelerated vesting of such awards. Awards are valued based on the closing
market price of our Common Stock as of the last trading day in fiscal year 2007, December 31, 2007
($1.19). For purposes of this calculation, outstanding options having
an exercise price more than
the closing price of our common stock on such date have a value of $0. 29




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##### Table of Contents



DIRECTOR COMPENSATION FOR FISCAL YEAR 2007
  Fees Earned or
    
    OptionPaid in Cash
    
    Awards(1)
    
    TotalName
    
    ($)
    
    ($)
    
    ($)Robert A. Barish, M.D.
    
    
    59,625
    
    
    
    33,932
    
    
    
    93,557Dennis Brown
    
    
    69,375
    
    
    
    61,775
    
    
    
    131,150Michael D. Dunham
    
    
    58,500
    
    
    
    33,932
    
    
    
    92,432Robert T. Geras
    
    
    62,250
    
    
    
    33,932
    
    
    
    96,182Anna Marie Hajek
    
    
    66,375
    
    
    
    33,932
    
    
    
    100,307R. Ian Lennox
    
    
    57,750
    
    
    
    33,932
    
    
    
    91,682Kevin E. Moley
    
    
    60,000
    
    
    
    33,932
    
    
    
    93,932Kevin G. Quinn
    
    
    62,250
    
    
    
    33,932
    
    
    
    96,182Ramamritham Ramkumar
    
    
    62,250
    
    
    
    33,932
    
    
    
    96,182Richard A. Reck
    
    
    76,875
    
    
    
    33,932
    
    
    
    110,807
 
 (1)
    
    Amounts reflect that portion of the dollar amount of options that we recognized
for financial statement reporting purposes in accordance with FAS 123R for the fiscal year
ended December 31, 2007 (disregarding the estimate of forfeitures related to servicebased
vesting). Assumptions used in the calculation of these amounts are included in note 6 to our
audited financial statements for the fiscal year ended December 31, 2007 included in our
Annual Report on Form 10K filed with the Commission on April 1, 2008. During 2007, options
for 15,000 shares were granted to each board member in accordance with the Board compensation
plan in effect on the date of our 2007 annual meeting of Shareholders with a grant date fair
value of $3.02 per share or $45,300 in total for each director. Please refer to the following
table entitled Outstanding Equity Awards of Directors at Fiscal Year Endfor the aggregate
number of option awards outstanding as of December 31, 2007. Our directors do not hold any
stock awards. Annual Board / Committee Retainer Fees.
 Meeting Fees.
 Stock Option Grants.
 30




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##### Table of Contents



OUTSTANDING EQUITY AWARDS OF DIRECTORS AT FISCAL YEAR END
  Option Awards(1)Number of
    
    
    
    
    
    
    
    
    
    Aggregate NumberSecurities
    
    Exercise Price
    
    
    
    
    
    of SecuritiesUnderlying
    
    of Option
    
    
    
    
    
    UnderlyingOptions
    
    Awards
    
    Expiration
    
    OptionsName
    
    (#)
    
    ($/Sh)
    
    Date
    
    (#)Robert A. Barish, M.D.
    
    
    15,000
    
    
    
    6.59
    
    
    
    12/27/2016
    
    
    
    30,00015,000
    
    
    
    6.01
    
    
    
    05/10/2017Dennis Brown
    
    
    5,000
    
    
    
    9.78
    
    
    
    05/21/2013
    
    
    
    70,00010,000
    
    
    
    16.19
    
    
    
    05/20/201415,000
    
    
    
    17.50
    
    
    
    06/01/201515,000
    
    
    
    6.59
    
    
    
    12/27/201610,000
    
    
    
    5.52
    
    
    
    01/30/201715,000
    
    
    
    6.01
    
    
    
    05/10/2017Michael D. Dunham
    
    
    10,000
    
    
    
    6.00
    
    
    
    01/29/2008
    
    
    
    137,5002,500
    
    
    
    1.03
    
    
    
    08/23/20092,500
    
    
    
    2.13
    
    
    
    02/08/20102,500
    
    
    
    2.75
    
    
    
    04/10/20105,000
    
    
    
    1.40
    
    
    
    05/23/20115,000
    
    
    
    8.19
    
    
    
    05/23/201250,000
    (2)
    
    
    8.05
    
    
    
    09/05/20125,000
    
    
    
    9.78
    
    
    
    05/21/201310,000
    
    
    
    16.19
    
    
    
    05/20/201415,000
    
    
    
    17.50
    
    
    
    06/01/201515,000
    
    
    
    6.59
    
    
    
    12/27/201615,000
    
    
    
    6.01
    
    
    
    05/10/2017Robert T. Geras
    
    
    10,000
    
    
    
    6.00
    
    
    
    01/29/2008
    
    
    
    82,5002,500
    
    
    
    1.03
    
    
    
    08/23/20095,000
    
    
    
    1.40
    
    
    
    05/23/20115,000
    
    
    
    8.19
    
    
    
    05/23/20125,000
    
    
    
    9.78
    
    
    
    05/21/201310,000
    
    
    
    16.19
    
    
    
    05/20/201415,000
    
    
    
    17.50
    
    
    
    06/01/201515,000
    
    
    
    6.59
    
    
    
    12/27/2016
 31




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##### Table of Contents



Option Awards(1)Number of
    
    
    
    
    
    
    
    
    
    Aggregate NumberSecurities
    
    Exercise Price
    
    
    
    
    
    of SecuritiesUnderlying
    
    of Option
    
    
    
    
    
    UnderlyingOptions
    
    Awards
    
    Expiration
    
    OptionsName
    
    (#)
    
    ($/Sh)
    
    Date
    
    (#)15,000
    
    
    
    6.01
    
    
    
    05/10/2017Anna Marie Hajek
    
    
    5,000
    
    
    
    8.19
    
    
    
    05/23/2012
    
    
    
    65,0005,000
    
    
    
    9.78
    
    
    
    05/21/201310,000
    
    
    
    16.19
    
    
    
    05/20/201415,000
    
    
    
    17.50
    
    
    
    06/01/201515,000
    
    
    
    6.59
    
    
    
    12/27/201615,000
    
    
    
    6.01
    
    
    
    05/10/2017R. Ian Lennox(3)
    
    
    11,740
    
    
    
    12.49
    
    
    
    05/31/2008
    
    
    
    56,74015,000
    
    
    
    17.50
    
    
    
    06/01/201515,000
    
    
    
    6.59
    
    
    
    12/27/201615,000
    
    
    
    6.01
    
    
    
    05/10/2017Kevin E. Moley
    
    
    15,000
    
    
    
    6.59
    
    
    
    12/27/2016
    
    
    
    30,00015,000
    
    
    
    6.01
    
    
    
    05/10/2017Kevin G. Quinn
    
    
    15,000
    
    
    
    6.59
    
    
    
    12/27/2016
    
    
    
    30,00015,000
    
    
    
    6.01
    
    
    
    05/10/2017Ramamritham Ramkumar
    
    
    11,178
    
    
    
    19.38
    
    
    
    08/24/2015
    
    
    
    41,17815,000
    
    
    
    6.59
    
    
    
    12/27/201615,000
    
    
    
    6.01
    
    
    
    05/10/2017Richard A. Reck
    
    
    411
    
    
    
    7.46
    
    
    
    04/23/2013
    
    
    
    60,4115,000
    
    
    
    9.78
    
    
    
    05/21/201310,000
    
    
    
    16.19
    
    
    
    05/20/201415,000
    
    
    
    17.50
    
    
    
    06/01/201515,000
    
    
    
    6.59
    
    
    
    12/27/201615,000
    
    
    
    6.01
    
    
    
    05/10/2017
 
 (1)
    
    All options are fully vested and exercisable, with the exception of the options
granted on May 11, 2007 with a May 10, 2017 expiration date, which options were 75% vested and
exercisable at December 31, 2007.(2)
    
    Reflects a one time option award to Mr. Dunham in consideration of his agreement to
serve as principal executive officer from July 2, 2006 until September 6, 2006, as an
executive officer and not in consideration of his services as a director.(3)
    
    Includes a replacement option to purchase 11,740 shares issued on June 1, 2005 to
Mr. Lennox as a former director of Cedara in accordance with the Merger Agreement, dated as of
January 17, 2005, by and among Merge Technologies Incorporated, Cedara Software Corp. and
Corrida, Ltd. 32




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##### Table of Contents



Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 Securities Authorized for Issuance under Equity Compensation Plans
  Number ofSecuritiesRemaining Availablefor Future IssuanceNumber of
    
    
    
    
    
    under EquitySecurities to be
    
    
    
    
    
    Compensation PlansIssued upon
    
    Weighted-Average
    
    ExcludingExercise of
    
    Exercise Price of
    
    SecuritiesPlan Category
    
    Outstanding Options
    
    Outstanding Options
    
    Reflected in Column (a)(a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    4,056,310
    
    
    $
    8.48
    
    
    
    743,129Equity compensation
plans not approved
by security holders
    
    
    24,750
    
    
    $
    15.03
    
    
    
    4,081,060
    
    
    $
    8.52
    
    
    
    743,129
 Security Ownership of Certain Beneficial Owners and Management
  33




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##### Table of Contents



Shares BeneficiallyOwned (2)
    
    Percentage of TotalName and Address of Beneficial Owner (1)
    
    (3)
    
    OutstandingPrescott Group Capital Management, LLC (4)
    
    
    4,932,822
    
    
    
    13.81
    %Glenhill Advisors, LLC (5)
    
    
    2,800,000
    
    
    
    7.84
    %BlackRock, Inc. (6)
    
    
    1,908,513
    
    
    
    5.34
    %Robert A. Barish, M. D.
    
    
    92,781
    
    
    
    (*
    )Gary D. Bowers (7)
    
    
    257,810
    
    
    
    (*
    )Dennis Brown
    
    
    70,284
    
    
    
    (*
    )Jacques F. Cornet (7)
    
    
    79,549
    
    
    
    (*
    )Michael D. Dunham
    
    
    156,912
    
    
    
    (*
    )Robert T. Geras
    
    
    325,591
    
    
    
    (*
    )Anna Marie Hajek
    
    
    72,983
    
    
    
    (*
    )R. Ian Lennox (8)
    
    
    59,675
    
    
    
    (*
    )Kevin E. Moley
    
    
    36,249
    
    
    
    (*
    )Steven R. Norton (7)
    
    
    284,797
    
    
    
    (*
    )Steven M. Oreskovich (7)
    
    
    180,631
    
    
    
    (*
    )Kevin G. Quinn
    
    
    30,000
    
    
    
    (*
    )Ramamritham Ramkumar
    
    
    51,178
    
    
    
    (*
    )Kenneth D. Rardin (7)
    
    
    543,000
    
    
    
    1.52
    %Richard A. Reck
    
    
    88,439
    
    
    
    (*
    )Loris Sartor (7)(9)
    
    
    308,308
    
    
    
    (*
    )All Directors and Executive Officers as a Group (16 persons).
    
    
    2,638,187
    
    
    
    7.39
    %
 
 (*)
    
    Less than 1% of outstanding Common Stock.(1)
    
    The business address of each beneficial owner who is also a Director or
Named Executive Officer of Merge Healthcare Incorporated is c/o Merge Healthcare
Incorporated, 6737 West Washington Street, Suite 2250, Milwaukee, Wisconsin
532145650. The business address for Prescott Group Capital Management, L.L.C. is
1924 South Utica, Suite 1120, Tulsa, Oklahoma 741046529. The business address of
Glenhill Advisors, LLC is 598 Madison Avenue, 12th Floor, New York, New York 10022.
The business address of BlackRock, Inc. is 40 East 52nd Street, New York, New York
10022.(2)
    
    Except pursuant to applicable marital property laws or as indicated in
the footnotes to this table, to our knowledge, each shareholder identified in the
table possesses sole voting and investment power with respect to all Common Stock
shown as beneficially owned by such beneficial owner.(3)
    
    Includes the following number of shares of Common Stock which may be
acquired upon the exercise of stock options which are currently exercisable or
exercisable within 60 days of April 15, 2008: 30,000 for Dr. Barish; 56,250 for
Mr. Bowers; 70,000 for Mr. Brown; 77,906 for Mr. Cornet; 127,500 for Mr. Dunham;
72,500 for Mr. Geras; 65,000 for Ms. Hajek, 56,740 for Mr. Lennox; 30,000 for Mr.
Moley; 79,688 for Mr. Norton; 123,750 for Mr. Oreskovich; 30,000 for Mr. Quinn;
41,178 for Mr. Ramkumar; 225,000 for Mr. Rardin; 60,411 for Mr. Reck; and 83,208
for Mr. Sartor.(4)
    
    As reported on a Form 4 filed with the Commission on February 5, 2008
jointly by Prescott Group Capital Management LLC., an Oklahoma limited liability
company (Prescott Capital), and Mr. Phil Frohlich, manager of Prescott Capital,
with respect to the number of shares owned by Prescott Group Aggressive Small Cap
Master Fund, G. P. (the Master Fund) for the accounts of Prescott Group Aggressive
Small Cap, L. P. or Prescott Group Aggressive Small Cap II, L. P. (the Small Cap
Funds), the beneficial ownership of which both Prescott Capital and Mr. Frohlich
disclaim.(5)
    
    As reported on a Schedule 13G/A filed with the Commission on February 14,
2008 jointly by Glenhill Advisors, LLC, Glenn J. Krevlin, Glenhill Capital
Management, LLC and Glenhill Capital L P. Mr. Krevlin is the managing member and
control person of Glenhill Advisors, LLC. According to the Schedule 13G/A, each of
Glenhill Advisors, LLC and Mr. Krevlin have sole voting and dispositive power with
respect to 2,800,000 shares of our Common Stock.(6)
    
    As reported on a Schedule 13G filed with the Commission on February 8,
2008 by BlackRock, Inc., on behalf of its investment advisory subsidiaries,
BlackRock Advisors LLC, BlackRock Investment Management LLC and BlackRock (Channel
Islands) Ltd., as having shared voting and dispositive 34




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##### Table of Contents



power with respect to 1,908,513 shares of our Common Stock, the beneficial ownership
of which BlackRock, Inc. disclaims.(7)
    
    Includes the following number of shares of Restricted Common Stock
granted on November 24, 2007, which shares shall become vested and nonforfeitable
in increments of 33%, 33% and 34% on the first, second and third anniversaries of
the grant date, respectfully, subject to certain restrictions and conditions as set
by the Compensation Committee of our Board of Directors: 200,000 for Mr. Bowers;
200,000 for Mr. Norton; 53,333 for Mr. Oreskovich; 300,000 for Mr. Rardin; and
200,000 for Mr. Sartor.(8)
    
    Reflects 2,935 nonvoting exchangeable shares of Merge Cedara ExchangeCo
Limited, which exchangeable shares may be exchanged on a onetoone basis for
shares of Merge Healthcares Common Stock.(9)
    
    Reflects 100 nonvoting exchangeable shares of Merge Cedara ExchangeCo
Limited, which exchangeable shares may be exchanged on a onetoone basis for
shares of Merge Healthcares Common Stock. 35




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##### Table of Contents



Item 13. POLICIES AND PROCEDURES GOVERNING RELATED PERSON TRANSACTIONS
  
    
    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.
  Related Person Transactions
  36




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##### Table of Contents



Item 14. INDEPENDENT AUDITORS
   2007
    
    
    2006Audit fees (1)
    
    $
    1,450,000
    
    
    $
    1,085,000Audit-related fees(2)
    
    
    63,500
    
    
    
    0Tax fees (3)
    
    
    0
    
    
    
    6,000All other fees (4)
    
    
    1,500
    
    
    
    1,500Total fees
    
    $
    1,515,000
    
    
    $
    1,092,500
 
 (1)
    
    Audit fees include fees for the annual financial statement audit, quarterly reviews, audit of internal
control over financial reporting, consents, review of registration statements and review of, and assistance with,
Current Reports on Form 8K. In 2007, audit fees also included $439,662 for the audit of restated financial statements
in our 2006 Annual Report on Form 10-K/A.(2)
    
    Audit-related fees consist of professional services related to accounting consultation.(3)
    
    Tax fees consist of fees for tax compliance and tax consulting in Canada.(4)
    
    All other fees consist of access to an accounting research application.   37




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##### Table of Contents



PART IV
 
 Item 15. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
   
 Exhibit Index
 31.1
    
    Certification of Chief Executive Officer (principal executive
officer) Pursuant to Rule 13a14(a) under the Securities Exchange
Act of 1934.31.2
    
    Certification of Chief Financial Officer (principal accounting
officer) Pursuant to Rule 13a14(a) under the Securities Exchange
Act of 1934.32
    
    Certification of Chief Executive Officer (principal executive
officer) and Chief Financial Officer (principal accounting officer)
Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the SarbanesOxley Act of 2002.
 38




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##### Table of Contents



SIGNATURES
  Merge Healthcare IncorporatedDate: April 28, 2008
    By:
    /s/ Kenneth D. RardinKenneth D. RardinPresident and Chief Executive Officer
(principal executive officer)Date: April 28, 2008
    By:
    /s/ Steven R. NortonSteven R. NortonExecutive Vice President & Chief
Financial Officer
(principal financial officer and
principal accounting officer)  Date: April 28, 2008
    By:
    *Michael D. DunhamChairman of the BoardDate: April 28, 2008
    By:
    *Robert A. Barish, M. D.DirectorDate: April 28, 2008
    By:
    *Dennis BrownDirectorDate: April 28, 2008
    By:
    *Robert T. GerasDirectorDate: April 28, 2008
    By:
    *Anna Marie HajekDirectorDate: April 28, 2008
    By:
    *R. Ian LennoxDirectorDate: April 28, 2008
    By:
    *Kevin E. MoleyDirectorDate: April 28, 2008
    By:
    *Kevin G. QuinnDirector 39




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##### Table of Contents



Date: April 28, 2008
    By:
    *Ramamritham RamkumarDirectorDate: April 28, 2008
    By:
    *Kenneth D. RardinDirectorDate: April 28, 2008
    By:
    *Richard A. ReckDirectorDate: April 28, 2008
    By:
    /s/  Kenneth D. Rardin(Attorney-in-Fact) 40