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PROSPECTUS
420,000 SHARES
OF
MERGE TECHNOLOGIES INCORPORATED
COMMON STOCK
($0.01 PAR VALUE)
This Prospectus relates to our public offering of up to 420,000 shares
of Common Stock, $.01 par value (the "Shares" or the "Common Stock").
We, 3032854 Nova Scotia Company ("NS Company") and Interpra Medical
Imaging Network, Ltd. ("Interpra") entered into a Purchase Agreement which
resulted in us owning 100% of NS Company, and NS Company owning 100% of the
voting equity securities of Interpra. At the same time as it entered into the
Purchase Agreement, Interpra issued certain non-voting exchangeable Interpra
shares (the "Exchangeable Shares") to the old Interpra shareholders. The
Exchangeable Shares allow Interpra shareholders to exchange each Exchangeable
Share for one share of our Common Stock. (For a description of the conversion
provisions of the Exchangeable Shares, see "Plan of Distribution").
Our Shares trade on the Nasdaq SmallCap Market under the symbol "MRGE."
On April 7, 2000, the last reported bid price was $3.875 for the Shares.
SEE "RISK FACTORS" FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE
The date of this Prospectus is April 10, 2000
DOCUMENTS INCORPORATED BY REFERENCE
We are incorporating in this Prospectus by reference the following
documents filed by the Company with the Commission:
1. Our Annual Report on Form 10-KSB, for fiscal year ended
December 31, 1999.
2. All documents we subsequently filed pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), prior to the
termination of the offering made by this Prospectus are
incorporated by reference in this Prospectus.
3. The Company's Form 8-A dated January 9, 1998.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which is also deemed to be incorporated by
reference herein modifies or supersedes such statements. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute part of this Prospectus.
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THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN EXHIBITS
THERETO) ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST BY ANY
PERSON TO WHOM THIS PROSPECTUS HAS BEEN DELIVERED, FROM US. REQUESTS TO OBTAIN
SUCH DOCUMENTS SHOULD BE DIRECTED TO US AT 1126 SOUTH 70TH STREET, SUITE 107B,
MILWAUKEE, WISCONSIN 53214-3151 (TELEPHONE: (414) 977-4000).
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RISK FACTORS
This offering involves a high degree of risk. Prospective investors in
the Shares should consider carefully, among other things, the following risk
factors with respect to us and this offering.
LACK OF CONSISTENT PROFITABILITY; HISTORY OF OPERATING LOSSES
Although we experienced significant revenue growth from fiscal 1994
through fiscal 1996, we incurred net losses of approximately $2,898,821 in
fiscal 1999 and approximately $1,919,970 in fiscal 1998, respectively. There can
be no assurance that we will achieve profitability in the future. As of December
31, 1999 we had working capital of approximately $4,323,000.
OPERATING RESULTS MAY FLUCTUATE
Our operating results are subject to quarterly and other fluctuations
due to a variety of factors. A significant portion of our business is derived
from orders placed by OEMs, and the timing of such orders could cause material
fluctuations in our business and operating results. Other factors that may cause
our operating results to fluctuate include changes in sales volumes through our
distribution channels, changes in the mix of products sold, the timing of new
product announcements and introductions by us and our competitors, market
acceptance of new or enhanced versions of our products, availability and cost of
products from our suppliers, competitive pricing pressures, the gain or loss of
significant customers, increased research and development expense associated
with new product introductions and economic conditions generally or in various
geographic areas. All of the above factors are difficult for us to forecast, and
these or other factors can materially affect our operating results for one
quarter or series of quarters. In addition, our gross margins may decrease in
the future as a result of increasing sales of lower margin products and volume
discounts. We expect to continue to increase our operating expenses for
personnel and new product development. If we do not achieve increased levels of
sales commensurate with these increased levels of operating expenses, our
business and operating results will be materially adversely affected. There can
be no assurance that we will be profitable on a quarterly or annual basis.
Fluctuations in operating results may also result in fluctuations in the price
of our Common Stock.
INCREASED CREDIT AND PAYMENT RISKS ASSOCIATED WITH END-USER SALES
We currently market and sell a significant portion of our products to
OEMs. We have not, in the past, experienced significant nonpayment or delays in
payment on receivables from these customers. Increased direct sales to
end-users, such as hospitals, may create delays in payment of receivables to us
and may also increase the risk of nonpayment of receivables. We may bear
increased interest expense if we experience delays in receipt of payment on
receivables as a result of increased sales directly to end-users as a percentage
of total sales.
WE MUST RESPOND TO TECHNOLOGICAL CHANGE; RISKS OF OUR INVOLVEMENT WITH RAPIDLY
DEVELOPING TECHNOLOGY
The markets for our Company's products are characterized by rapid
technological advances, product obsolescence, changes in customer requirements
and evolving regulatory requirements and industry standards. Our future
prospects will depend in part on our ability to enhance our medical image
networking and information management products in a timely manner and to
identify, develop and achieve market acceptance of new products that address new
technologies and standards and meet customer needs in the medical imaging
network and information management markets. There can be no assurance that we
will be able to respond to technological advances, changes in customer
requirements or changes in regulatory requirements or industry standards or that
we will be able to develop and market new products successfully. Any failure by
us to anticipate or to respond adequately to technological developments in its
industry, changes in customer requirements, or changes in regulatory
requirements or industry standards, or any significant delays in the
development, introduction or shipment of products, could have a material adverse
effect on our business and operating results. In anticipation of new product
introductions by us or its competitors, customers could refrain from purchasing
our existing products. New products could render certain of our existing
products obsolete. Any of these events could materially adversely affect our
business and operating results. In addition, third-party payers, such as
governmental programs and private insurance plans, can indirectly affect the
pricing or relative attractiveness of our products by regulating the maximum
amount of reimbursement that they will provide for the taking, storing and
interpretation of medical images. A decrease in the reimbursement amounts for
radiological procedures may decrease the amount which physicians, clinics and
hospitals are able to charge patients for such services. As a result, adoption
of new
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technologies may slow as capital investment budgets are reduced, thereby
significantly reducing the demand for our products.
WE DEPEND ON MAJOR CUSTOMERS
We sell a majority of our products to a relatively limited number of
OEMs, VARs and dealers. Aggregate sales to our ten largest customers represented
approximately 70% and 71% of our net sales in 1998 and 1999, respectively.
During 1999, Marconi and Konica accounted for approximately 18% each of our net
sales. During 1999, Marconi accounted for 17% of our net sales and Konica,
Philips and Fuji accounted for approximately 11% each of our net sales. There
can be no assurance that our current customers will continue to place orders
with us or that we will be able to obtain orders from new customers. The loss of
any one or more of our major customers could materially adversely affect our
business and operating results. None of our customers is subject to any minimum
purchase requirements, and many of our VAR and OEM customers offer competitive
systems manufactured by third parties. Each of our VAR and OEM customers and
dealers, including Picker, can cease marketing products at their respective
option, and the loss of one or more significant customers could materially
adversely affect our business and operating results.
EXPANSION OF INTERNATIONAL SALES EFFORTS; CURRENCY RISK
An important component of our business plan includes increasing our
sales to customers outside the United States, which represented 39% of our net
sales as of December 31, 1999. In order to increase overseas sales, it may be
necessary or desirable for us to expand our sales force, or establish additional
offices outside the United States. The increased costs of hiring new personnel
or establishing offices could have a material adverse effect on our results of
operations and financial condition.
We do not hedge against risks associated with receipt of foreign
currency. We do, however, anticipate that if sales denominated in foreign
currency increase in the future, we may deem it advisable to hedge against risks
associated with receipt of foreign currency. No assurance can be given that such
hedging, if undertaken, will prevent us from incurring losses due to currency
fluctuation.
In order to increase foreign sales, it may be necessary or desirable
for us to expand our sales force, or establish additional offices outside the
United States. The increased costs of hiring new personnel or establishing
offices could have a material adverse effect on our results of operations and
financial condition.
DEPENDENCE UPON KEY PERSONNEL
Our continued success will depend to a significant degree upon the
efforts and abilities of our senior management, in particular, William C.
Mortimore, our President and Chief Executive Officer, William L. Stafford, Vice
President, Sales-OEM/VAR, David M. Noshay, Vice President, Strategic Marketing,
Michael J. Franco, Vice President, Engineering and Chief Technology Officer,
Anton van Kimmenade, Vice President, Woldwide Service and Colleen M. Doan, Chief
Financial Officer. Of these key personnel, only Mr. Mortimore and Mr. van
Kimmenade have employment agreements with us. The loss of the services of any of
these officers could have a material adverse effect on us. We presently maintain
a term life insurance policy covering the life of Mr. Mortimore, the proceeds of
which would be payable to us.
POTENTIAL DIFFICULTY IN HIRING ADDITIONAL SALES AND ENGINEERING PERSONNEL
Our ability to carry out our business plan depends in part upon our
ability to hire and retain skilled sales and marketing professionals and
engineering specialists. Although we believe we will be able to hire qualified
personnel for such purposes, an inability to do so could materially adversely
affect our ability to market, sell and enhance our product lines. The market for
qualified experienced sales and marketing professionals and engineering
specialists has historically been, and we expect that we will continue to be,
intensely competitive. The inability to recruit and retain qualified employees
could materially adversely affect our results of operations and financial
condition.
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PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
We have received U.S. Patent No. 5,740,428 dated April 14, 1998, U.S.
Patent No. 5,950,207 dated September 7, 1999, New Zealand Patent No. 306009
dated February 7, 1996 and Australia Patent No. 704804 dated August 12, 1999 for
our CaseWorks product. A U.S. patent has been applied for Distributed
Architecture for Health Care Environment, Patent Application No. 09/151902. We
have also applied for additional foreign patents; however we generally do not
rely solely on patent protection with respect to our products. Instead, we rely
on a combination of copyright and trade secret laws, employee and third party
confidentiality agreements and other measures to protect intellectual property
rights pertaining to our systems and technology. There can be no assurance,
however, that applicable copyright or trade secret laws or these agreements will
provide meaningful protection of our copyrights, trade secrets, know-how or
other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such copyrights, trade secrets, know-how or
other proprietary information. In addition, the laws of certain foreign
countries do not protect our intellectual property rights to the same extent as
do the laws of the United States. There can be no assurance that third parties
will not assert patent, copyright or other intellectual property infringement
claims against us with respect to our products or technology or other matters.
Any such claims against us, with or without merit, as well as claims initiated
by us against third parties, can be time-consuming and expensive to defend or
prosecute and resolve. To date, we have not initiated any intellectual property
infringement claims, and no such claims have been asserted against us.
GOVERNMENT REGULATION
The manufacturing and marketing of our products are subject to
government regulation as medical devices in the United States by the United
States Food and Drug Administration (the "FDA") and in other countries by
corresponding foreign regulatory authorities. The process of obtaining and
maintaining required regulatory clearances and approvals is lengthy, expensive
and uncertain. We believe that our success depends upon commercial sales of
improved versions of our products, certain of which cannot be marketed in the
United States and other regulated markets unless and until we obtain clearance
or approval from the FDA and its foreign counterparts. Failure to comply with
applicable regulatory requirements could result, among other things, in warning
letters, seizures of our products, total or partial suspension of our production
operations, refusal of the government to grant market clearance or pre-market
approval, withdrawal of approvals or criminal prosecution.
We are also subject to other federal, state and local laws and
regulations relating to safe working conditions and manufacturing practices. In
addition, sales of our products outside the United States are subject to various
foreign regulatory requirements. The extent of government regulation that might
result from any future legislation or administrative action cannot be predicted.
Failure to comply with domestic regulatory requirements or to obtain any
necessary foreign certifications or regulatory approvals, or any other failure
to comply with regulatory requirements outside the United States could have a
material adverse effect on our business, financial condition and results of
operations.
PRODUCT LIABILITY; RISK OF PRODUCT DEFECTS
We have licensing agreements with certain of our customers, which
typically contain provisions designed to limit our exposure to potential product
liability claims. However, it is possible that the limitation of liability
provisions contained in our license agreements may not be effective under the
laws of certain jurisdictions. Furthermore, although we try to include
provisions limiting our exposure to product liability in our sales agreements,
we are not always successful in doing so. Moreover, some of our products are
sold without agreements addressing product liability claims at all. Although we
have not experienced any product liability claims to date, the sale and support
of products by us may entail the risk of such claims, and there can be no
assurance that we will not be subject to such claims in the future. Although we
have procured product liability insurance, there can be no assurance that we
will continue to obtain such insurance on favorable terms or that such insurance
will be sufficient to fully protect us against a successful product liability
claim. A successful product liability claim brought against us could have a
material adverse effect on our business, results of operations and financial
condition. Software products such as those offered by us occasionally contain
errors or failures, especially when first introduced or when new versions are
released. Although we conduct extensive product testing, we could in the future
lose or delay recognition of revenues as a result of software errors or defects,
the failure of our products to meet customer specifications or otherwise.
Although to date, our business has not been materially adversely affected by any
such errors, defects or failure to meet specifications, there can be no
assurance that defects will not be found in new products or releases after
commencement of commercial shipments or that such products will meet customer
specifications, resulting in loss or deferral of revenues, diversion of
resources, damage to our reputation, or
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increased service and warranty and other costs, any of which could have a
material adverse effect upon our business, operating results and financial
condition.
MARKETS FOR OUR COMPANY'S PRODUCTS ARE HIGHLY COMPETITIVE
The markets for our products are highly competitive. Many of our
customers purchase products from both us and our competitors. We have two
primary competitors in the imaging acquisition network business, which includes
our MergeMVP product. In the DICOM software package business, we primarily
compete directly and indirectly with a number of other entities, including the
Radiological Society of North America ("RSNA"), which offers a version of DICOM
(originally developed by Mallinckrodt Institute of Radiology) as "freeware"
available to be downloaded without charge from the Internet, but which offers
more limited features and no user support. We also face competition from picture
archiving and communication systems ("PACS") manufacturers.
In the application of MergeWorks Connectivity Products specifically for
hardcopy film networks, which include the MergeAPS print server and the MergeXPI
printer interface, we compete with multiple film vendors. However, since the
MergeAPS print server works with any of the laser film printers available from
these vendors, these companies also have purchased products from us when they
have needed to interface with other competing manufacturers' products. We expect
competition to increase in the future from existing competitors and from other
companies that may enter our existing or future markets. We could also face
competition from networking equipment and telecommunications manufacturers if
such companies were either to develop DICOM capability for their products, or
purchase from one of our competitors products that provide DICOM capability.
We have one primary competitor with a similarly broad product line in
the market for integrating the management of clinical and administrative medical
information in the manner of the Integrated Healthcare Enterprise ("IHE")
framework that was formulated by a joint activity of RSNA and the Hospital
Information Management System Society ("HIMSS"). Competition could also arise
from medical imaging companies or healthcare IT companies which choose to offer
a wider product suite embracing the IHE framework.
Many of our current and potential competitors have greater resources
than we have in areas including finance, research and development, intellectual
property and marketing. Many of these competitors also have broader product
lines and longer standing relationships with customers in the medical imaging
field than those we have.
We believe that our ability to compete successfully depends on a number
of factors both within and outside of our control, including: applications
innovation; product quality and performance; price; experienced sales, marketing
and service organizations; rapid development of new products and features;
continued active involvement in the development of DICOM and other medical
communication standards; and product and policy decisions announced by our
competitors. There can be no assurance that we will be able to compete
successfully with existing or new competitors.
ADDITIONAL FUNDING MAY BE NECESSARY
Internally generated cash flows are expected to be sufficient to
support operations during the next 12 months. Thereafter, if cash generated from
operations is insufficient to satisfy our projected requirements, or if we elect
to use funds for additional acquisitions or other matters, we may be required to
sell additional equity or debt securities or obtain bank financing or other
credit facilities.
NO INTENTION TO DECLARE OR PAY DIVIDENDS
We do not currently intend to declare or pay any cash dividends on the
Common Stock in the foreseeable future and we anticipate that earnings, if any,
will be used to finance the development and expansion of our business. We also
anticipate that we may in the future seek to obtain a loan, revolving credit
agreement or other financing arrangement, the terms of which, although not known
to us at this time, may prohibit the declaration and payment of dividends
without prior lender approval. Any payment of future dividends and the amounts
thereof will be dependent upon our earnings, financial requirements and other
factors deemed relevant by our Board of Directors, including our contractual
obligations.
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POTENTIAL ADVERSE IMPACT OF PREFERRED STOCK ON RIGHTS OF COMMON STOCK
Our Articles of Incorporation authorize the issuance of "blank check"
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, our Board
of Directors will have the authority to issue up to 5,000,000 shares of
Preferred Stock and to determine the price, rights, preferences and privileges
of those shares without any further vote or action by the shareholders. The
rights of the holders of Common Stock will be subject to, and may be materially
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock. We have
issued one share of preferred stock in connection with a voting trust
established for the benefit of holders of Exchangeable Shares. Although we have
no present plans to issue additional shares of Preferred Stock, there can be no
assurance that we will not do so in the future.
ANTITAKEOVER MEASURES
Our Articles of Incorporation and By-Laws, along with Wisconsin
statutory law, contain provisions that could discourage potential acquisition
proposals and might delay or prevent a change in control of us. Such provisions
could result in us being less attractive to a potential acquirer and could
result in the shareholders receiving less for their Common Stock than otherwise
might be available in the event of a takeover attempt.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains certain forward-looking statements including: (i)
anticipated trends in the Company's financial condition and results of
operations, including expected changes in the Company's gross profit, sales and
marketing expense, product research and development expense, general and
administrative expense and professional expenses; (ii) the Company's business
strategy for future growth in the market, including the Company's plans
regarding anticipated hiring; and (iii) the Company's ability to distinguish
itself from its current and future competitors. When used in the Prospectus, the
words "believes," "intends," "anticipates," "expects," and similar expressions
are intended to identify forward-looking statements. These forward-looking
statements are based largely on the Company's current expectations and are
subject to a number of risks and uncertainties. In addition to the other risks
described elsewhere in this "Risk Factors" Section, important factors to
consider in evaluating such forward-looking statements include: (i) changes in
external competitive market factors which might impact trends in the Company's
results of operations; (ii) unanticipated working capital and other cash
requirements; (iii) general changes in the industries in which the Company
competes; and (iv) various other competitive factors that may prevent the
Company from competing successfully in the marketplace. In light of these risks
and uncertainties, many of which are described in greater detail elsewhere in
this "Risk Factors" Section, actual results could differ materially from the
forward-looking statements contained in this Prospectus.
THE COMPANY
Merge Technologies Incorporated is an international provider of
clinical information systems integration solutions for healthcare organizations.
Current offerings include software, hardware, and integration component products
that facilitate networking and information management of image-producing and
image-using devices in diagnostic radiology. A hospital or an imaging center can
use our components to create a communications bridge between incompatible
devices, permit radiologists to use video images on electronic workstations or
film as a diagnostic medium and create a diagnostic-quality electronic archive
of imaging results. In addition, our products can convert the data generated by
medical imaging devices into concise electronic reports with relevant images
that may be distributed in a health care organization's information network or
included in an electronic patient record ("EPR"). We also have products for
integrating the management of clinical and administrative medical information in
the manner of the IHE framework that was formulated by a joint activity of RSNA
and HIMSS.
The incompatibility of the various "legacy" imaging devices in a
typical radiology department or diagnostic imaging center has made the sharing
of diagnostic information difficult. Our MergeBOX(TM) products convert the
output of medical image-producing devices such as Computed Tomography ("CT")
scanners and Magnetic Resonance ("MR") scanners into an industry-standard
network communications protocol known as DICOM (Digital
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Imaging Communications for Medicine or the "DICOM standard"). Our component
products also connect various legacy diagnostic image printers and workstations
and other image-using devices to a DICOM network. Our MergeCOM(TM)
communications software is used worldwide by most medical imaging device
manufacturers to build DICOM into new scanners and image-using devices. Our
MergePort component product connects healthcare information systems to medical
image management systems via DICOM and the HL-7 Healthcare Information
Communication Standard.
Other Merge products store medical images into a permanent electronic
archive, facilitate the creation of electronic reports containing relevant
diagnostic images, and manage the secure distribution of reports via fax or an
intra/extranet. Still other products support the web-based access of healthcare
professionals to the medical and administrative information that can improve the
timeliness and accuracy of their work. In addition, we also provide consulting
services to assist customers in the planning and implementation of electronic
imaging information systems.
Radiology departments and diagnostic imaging centers and their
customers benefit from our solutions in a variety of ways including: (i)
networking of multiple image-producing and image-using devices eliminates
redundancy, resulting in reduced capital equipment expenditures; (ii) permanent
electronic archives of diagnostic-quality imaging results can be created,
enabling the retrieval of these images and reports at any time in the future;
(iii) the modular architecture of our products allows radiology departments and
other diagnostic imaging centers to build their electronic image management
systems in an incremental, flexible and cost-effective manner; (iv) with the
continued development of health care information technology, diagnostic images
and reports collected and managed with our technology can readily be
incorporated into a patient's EPR; and (v) the combining of medical and
administrative information management with an integrated product suite that
promotes the timeliness and accuracy of results, which can translate into
improved financial performance.
We are a Wisconsin corporation and were incorporated on November 25,
1987. Our executive offices are located at 1126 South 70th Street, Suite 107B
Milwaukee, Wisconsin 53214-3151, our telephone number is (414) 977-4000 and our
Internet address is www.merge.com.
USE OF PROCEEDS
Since we will issue all Shares in exchange for the Exchangeable Shares,
we will not receive any cash proceeds.
PLAN OF DISTRIBUTION
ISSUANCE OF COMMON STOCK UPON EXCHANGE OF EXCHANGEABLE SHARES
We, NS Company and Interpra entered into a Purchase Agreement which
resulted in our owning 100% of NS Company, and NS Company owning 100% of the
voting equity securities of Interpra. At the same time as it entered into the
Purchase Agreement, Interpra issued the Exchangeable Shares to the old Interpra
shareholders. The Exchangeable Shares allow Interpra shareholders to exchange
each Exchangeable Share for one share of our Common Stock.
Under the terms of the Share Exchange Agreement, each holder of
Exchangeable Shares is entitled (i) at any time through and including August 31,
2004 to require us to exchange any or all of the Exchangeable Shares for shares
of our Common Stock, plus (a) cash in the amount of any cash dividends declared
but not paid and (b) delivery of any non-cash dividends declared but not paid;
and (ii) at any time between August 31, 2004 and September 30, 2004, to require
us to redeem any or all of the Exchangeable Shares for $4.50 per Exchangeable
Share. In the event that we are liquidated, each Exchangeable Share shall be
exchanged automatically for Shares.
On September 30, 2004, we shall purchase all of the then outstanding
Exchangeable Shares for an amount per share equal to the current market price of
the Shares plus declared and unpaid dividends.
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To request an exchange of any Exchangeable Shares represented by one or
more certificates, a signed Retraction Request (one blank form is enclosed)
needs to be sent to the registered office of Interpra located at 100 Sheppard
Avenue, Suite 440, Toronto, Ontario M2N 6N5, fax no.: 416-250-5374, to the
attention of the President, along with a copy sent to the registered office of
Merge located at 1126 South 70th Street, Suite S107B, Milwaukee, Wisconsin
53214-3151, U.S.A., fax no.: 414-977-4200, to the attention of the President and
of the Chief Financial Officer. In each case, the Retraction Request may be sent
by mail (postage prepaid), telecopy or by delivery to the respective address and
fax number set out above. In addition, the holder shall deliver to us a signed
Notice of Retraction in the form attached as Exhibit A to this Prospectus. Upon
receipt of all necessary documents, we shall issue to the holder certificates
representing Shares and pay any declared but unpaid dividends, whether in cash
or in the form of shares.
DESCRIPTION OF SECURITIES
The total number of shares of stock which we have authority to issue is
10,000,000 shares of Common Stock, $0.01 par value and 5,000,000 shares of
Preferred Stock ("Preferred Stock"), $0.01 par value.
The following description of our capital stock is a summary and is
qualified in its entirety by the provisions of our Articles of Incorporation and
By-Laws, copies of which are on file with the Securities and Exchange
Commission.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share of Common
Stock beneficially owned on each matter submitted to a vote at a meeting of
shareholders, subject to Section 180.1150 of the Wisconsin Business Corporation
Law ("WBCL") (described below under "Certain Statutory and Other Provisions").
The Common Stock does not have cumulative voting rights, which means that the
holders of a majority of voting shares voting for the election of Directors can
elect all of the members of the Board of Directors. The Common Stock has no
preemptive rights and no redemption or conversion privileges. Subject to any
preferences of any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive dividends out of assets legally available at such times and
in such amounts as the Board of Directors may, from time to time, determine, and
upon liquidation and dissolution are entitled to receive all assets available
for distribution to the shareholders. Our Articles state that a majority vote of
shares represented at a meeting at which a quorum is present is sufficient for
all actions that require the vote of shareholders. However, under the WBCL,
certain actions require enhanced approval by either a supermajority of
two-thirds of all outstanding shares entitled to vote and certain actions
require a majority of all outstanding shares entitled to vote. All of the
outstanding shares of the Common Stock are, and the shares to be sold by us as
part of the Offering when legally issued and paid for will be, fully paid and
nonassessable, except for certain statutory liabilities which may be imposed by
Section 180.0622(2)(b) of the WBCL for unpaid employee wages.
PREFERRED STOCK
Pursuant to the Articles, our Board of Directors may, without further
action by our shareholders, from time to time, issue shares of the Preferred
Stock in series and may, at the time of issuance, determine the rights,
preferences, and limitations of each series. Any dividend preference of any
Preferred Stock which may be issued would reduce the amount of funds available
for the payment of dividends on Common Stock. Also, holders of the Preferred
Stock would normally be entitled to receive a preference payment in the event of
our liquidation, dissolution, or winding-up before any payment is made to the
holders of Common Stock. The issuance of preferred stock will be approved by a
majority of our independent directors who do not have an interest in the
transaction and who have access, at our expense, to us or independent legal
counsel. Under certain circumstances, the issuance of such Preferred Stock may
discourage bids for the Common Stock at a premium or otherwise adversely affect
the market price of the Common Stock or may render more difficult or tend to
discourage a merger, tender offer, proxy contest, the assumption of control by a
holder of a large block of our securities or the removal of incumbent
management. Although we presently have no plans to issue any of our shares of
the Preferred Stock, our Board of Directors, without shareholder approval, may
issue the Preferred Stock with voting and conversion rights which could
adversely affect the holders of Common Stock.
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LIMITATION OF DIRECTOR LIABILITY
Section 180.0828 of the WBCL provides that officers and directors of
domestic corporations may be personally liable only for intentional breaches of
fiduciary duties, criminal acts, transactions from which the director derived an
improper personal profit and willful misconduct. These provisions may have the
effect of reducing the likelihood of derivative litigation against directors and
may discourage or deter shareholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though such an action,
if successful, might otherwise have benefited us and our shareholders. The
employment agreements of certain directors and officers contain a provision
similar to the provisions of the WBCL.
INDEMNIFICATION
Under the WBCL, our directors and officers are entitled to mandatory
indemnification from us against certain liabilities and expenses (a) to the
extent such officers or directors are successful in the defense of a proceeding
and (b) in proceedings in which the director or officer is not successful in the
defense thereof, unless (in the latter case only) it is determined that the
director or officer breached or failed to perform his or her duties to us and
such breach or failure constituted: (i) a willful failure to deal fairly with us
or our shareholders in connection with a matter in which the director or officer
had a material conflict of interest; (ii) a violation of the criminal law unless
the director or officer had reasonable cause to believe his or her conduct was
lawful or had no reasonable cause to believe his or her conduct was unlawful;
(iii) a transaction from which the director or officer derived an improper
personal profit; or (iv) willful misconduct. The WBCL allows a corporation to
limit its obligation to indemnify officers and directors by providing so in its
articles of incorporation. Our By-Laws provide for indemnification of directors
and officers to the fullest extent permitted by Wisconsin law.
CERTAIN STATUTORY AND OTHER PROVISIONS
The provisions of our By-Laws and the WBCL described in this section
may delay or make more difficult acquisitions or changes of control of us not
approved by our Board of Directors. Such provisions have been implemented to
enable us, particularly (but not exclusively) in the initial years of our
existence as a publicly-traded company, to develop our business in a manner
which will foster our long-term growth without disruption caused by the threat
of a takeover not deemed by our Board of Directors to be in our best interests
and our shareholders. Such provisions could have the effect of discouraging
third parties from making proposals involving an acquisition or change of
control of us, although such proposals, if made, might be considered desirable
by a majority of our shareholders. Such provisions may also have the effect of
making it more difficult for third parties to cause the replacement of our
current management without the concurrence of the Board of Directors.
Number of Directors; Removal; Vacancies. The By-Laws currently provide
that the number of Directors shall be five. The authorized number of Directors
may be changed by amendment of the By-Laws. We expect that the By-Laws will be
amended before the nominees are elected to the Board of Directors to provide
that the number of Directors shall be not less than three nor greater than
eleven. The By-Laws also provide that our Board of Directors shall have the
exclusive right to fill vacancies on the Board of Directors, including vacancies
created by expansion of the Board or removal of a Director, and that any
Director elected to fill a vacancy shall serve until the next annual meeting of
shareholders. The By-Laws further provide that Directors may be removed by the
shareholders only by the affirmative vote of the holders of at least a majority
of the votes then entitled to be cast in an election of Directors. This
provision, in conjunction with the provisions of the By-Laws authorizing the
Board to fill vacant directorships, could prevent shareholders from removing
incumbent Directors and filling the resulting vacancies with their own nominees.
Amendments to the Articles of Incorporation. The WBCL provides
authority to us to amend our Articles at any time to add or change a provision
that is required or permitted to be included in the Articles or to delete a
provision that is not required to be included in the Articles. Our Board of
Directors may propose one or more amendments to our Articles for submission to
shareholders and may condition our submission of the proposed amendment on any
basis if the Board of Directors notifies each shareholder, whether or not
entitled to vote, of the shareholders' meeting at which the proposed amendment
will be voted upon.
Constituency or Stakeholder Provision. Under Section 180.0827 of the
WBCL (the "Wisconsin Stakeholder Provision"), in discharging his or her duties
to us and in determining what he or she believes to be in our best interests, a
director or officer may, in addition to considering the effects of any action on
shareholders, consider the
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effects of the action on employees, suppliers, customers, the communities in
which we operate and any other factors that the director or officer considers
pertinent.
Wisconsin Antitakeover Statutes. Sections 180.1140 to 180.1144 of the
WBCL (the "Wisconsin Business Combination Statute") regulate the broad range of
"business combinations" between a "resident domestic corporation" (such as the
Company) and an "interested stockholder." The Wisconsin Business Combination
Statute defines a "business combination" to include a merger or share exchange,
or a sale, lease, exchange, mortgage, pledge, transfer or other disposition of
assets equal to at least 5% of the market value of the stock or assets of the
corporation or 10% of its earning power, or the issuance of stock or rights to
purchase stock with a market value equal to at least 5% of the outstanding
stock, the adoption of a plan of liquidation or dissolution and certain other
transactions involving an "interested stockholder," defined as a person who
beneficially owns 10% of the voting power of the outstanding voting stock of the
corporation or who is an affiliate or associate of the corporation and
beneficially owned 10% of the voting power of the then outstanding voting stock
within the last three years. Section 180.1141 of the Wisconsin Business
Combination Statute prohibits a corporation from engaging in a business
combination (other than a business combination of a type specifically excluded
from the coverage of the statute) with an interested stockholder for a period of
three years following the date such person becomes an interested stockholder,
unless the board of directors approved the business combination or the
acquisition of the stock that resulted in a person becoming an interested
stockholder before such acquisition. Accordingly, the Wisconsin Business
Combination Statute's prohibition on business combinations cannot be avoided
during the three-year period by subsequent action of the board of directors or
shareholders. Business combinations after the three-year period following the
stock acquisition date are permitted only if (i) the board of directors approved
the acquisition of the stock by the interested stockholder prior to the
acquisition date, (ii) the business combination is approved by a majority of the
outstanding voting stock not beneficially owned by the interested stockholder,
or (iii) the consideration to be received by shareholders meets certain
requirements of the statute with respect to form and amount.
In addition, the WBCL provides in Sections 180.1130 to 180.1133, that
business combinations involving a "significant shareholder" (as defined below)
and a "resident domestic corporation" (such as the Company) are subject to a
two-thirds supermajority vote of shareholders (the "Wisconsin Fair Price
Statute"), in addition to any approval otherwise required. A "significant
shareholder," with respect to a resident domestic corporation, is defined as a
person who beneficially owns, directly or indirectly, 10% or more of the voting
stock of the corporation, or an affiliate of the corporation which beneficially
owned, directly or indirectly, 10% or more of the voting stock of the
corporation within the last two years. As a result of completing its initial
public offering of Common Stock in 1998, the Company is an "issuing public
corporation." Under Section 180.1131 and Section 180.1132 of the WBCL, the
business combinations described above must be approved by 80% of the voting
power of the corporation's stock and at least two-thirds of the voting power of
the corporation's stock not beneficially held by the significant shareholder who
is party to the relevant transaction or any of its affiliates or associates, in
each case voting together as a single group, unless the following fair price
standards have been met: (i) the aggregate value of the per share consideration
is equal to the higher of (a) the highest price paid for any common stock of the
corporation by the significant shareholder in the transaction in which it became
a significant shareholder of within two years before the date of the business
combination, (b) the market value of the corporation's shares on the date of
commencement of any tender offer by the significant shareholder, the date on
which the person became a significant shareholder or the date of the first
public announcement of the proposed business combination, whichever is highest,
or (c) the highest liquidation or dissolution distribution to which holders of
the shares would be entitled, and (ii) either cash, or the form of consideration
used by the significant shareholder to acquire the largest number of shares, is
offered.
Section 180.1134 of the WBCL (the "Wisconsin Defensive Action
Restrictions") provides that, in addition to the vote otherwise required by law
or the articles of incorporation of an issuing public corporation, the approval
of the holders of a majority of the shares entitled to vote is required before
such corporation can take certain action while a takeover offer is being made or
after a takeover offer has been publicly announced and before it is concluded.
Under the Wisconsin Defensive Action Restrictions, shareholder approval is
required for the corporation to (i) acquire more than 5% of the outstanding
voting shares at a price above the market price from any individual who or
organization which owns more than 3% of the outstanding voting shares and has
held such shares for less than two years, unless a similar offer is made to
acquire all voting shares, or (ii) sell or option assets of the corporation
which amount to at least 10% of the market value of the corporation, unless the
corporation has at least three independent directors (directors who are not
officers or employees) and a majority of the independent directors vote not to
have this provision apply to the corporation. The restrictions described in
clause (i) above may have the effect of deterring a shareholder from acquiring
shares of our Common Stock with the goal of seeking to have us repurchase such
shares at a premium over the market price.
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Section 180.1150 of the WBCL provides that the voting power of shares
of public Wisconsin corporations such as us held by any person or persons acting
as a group in excess of 20% of the voting power in the election of directors is
limited to 10% of the full voting power of those shares. This statutory voting
restriction does not apply to shares acquired directly from us or in certain
specified transactions or shares for which full voting power has been restored
pursuant to a vote of shareholders.
Certain Antitakeover Effects. Certain provisions of our Articles and
By-Laws may have significant antitakeover effects, including the ability of the
remaining directors to fill vacancies, and the ability of the Board of Directors
to issue "blank check" preferred stock which, in turn, allows the directors to
adopt a so-called "rights plan" which would entitle shareholders (other than a
hostile bidder) to acquire our stock at a discount.
The explicit grant in the Wisconsin Stakeholder Provision of discretion
to directors to consider nonshareholder constituencies could, in the context of
an "auction" of us, have antitakeover effects in situations where the interests
of our stakeholders, including employees, suppliers, customers and communities
in which we do business, conflict with the short-term maximization of
shareholder value.
The Wisconsin Fair Price Statute may discourage any attempt by a
shareholder to squeeze out other shareholders without offering an appropriate
premium purchase price. In addition, the Wisconsin Defensive Action Restrictions
may have the effect of deterring a shareholder from acquiring the Common Stock
with the goal of seeking to have us repurchase the Common Stock at a premium.
The WBCL statutory provisions and our Articles and By-Law provisions referenced
above are intended to encourage persons seeking to acquire control of us to
initiate such an acquisition through arms-length negotiations with our Board of
Directors and to ensure that sufficient time for consideration of such a
proposal, and any alternatives, is available. Such measures are also designed to
discourage investors from attempting to accumulate a significant minority
position in us and then use the threat of a proxy contest as a means to pressure
us to repurchase shares of Common Stock at a premium over the market value. To
the extent that such measures make it more difficult for, or discourage, a proxy
contest or the assumption of control by a holder of a substantial block of our
Common Stock, they could increase the likelihood that incumbent Directors will
retain their positions and may also have the effect of discouraging a tender
offer or other attempt to obtain control of us, even though such attempt might
be beneficial to us and our shareholders.
The Board of Directors and the Shareholders have approved resolutions
for us to "opt-out" of Section 180.1141, Section 180.1131 and Section 180.1150
of the WBCL.
TRANSFER AGENT
The transfer agent for the Common Stock is Firstar Trust Company.
LEGAL MATTERS
The validity of the issuance of the Shares offered hereby has been
passed on for us by Shefsky & Froelich Ltd., Chicago, Illinois.
EXPERTS
The consolidated balance sheets of Merge Technologies Incorporated as
of and for the years ended December 31, 1999 and December 31, 1998 and the
related consolidated statements of operations, stockholders' equity, cash flows,
and comprehensive income for the years ended December 31, 1999, December 31,
1998 and December 31, 1997, incorporated by reference in this Prospectus, have
been audited by KPMG LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said reports.
AVAILABLE INFORMATION
We have filed with the Commission a Registration Statement (of which
this Prospectus is a part) on Form S-3 under the Securities Act with respect to
the Shares offered hereby. This Prospectus does not contain all of the
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information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. The
Registration Statement and any amendments thereto, including exhibits filed as a
part thereof, are available for inspection and copying as set forth below.
We are subject to the informational requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. These reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; New
York Regional Office, Public Reference Room, Seven World Trade Center, 13th
Floor, New York, New York 10048; and Chicago Regional Office, Suite 1400, 500
West Madison Street, Chicago, Illinois 60661. Copies of this material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Our Common Stock is
included for quotation on the Nasdaq SmallCap Market and these reports, proxy
statements and other information concerning us may be inspected at the office of
the Nasdaq SmallCap Market, 1735 K Street, N.W., Washington, D.C. 20006.
<TABLE>
<CAPTION>
619914
<S> <C>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS 420,000 SHARES
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN MERGE TECHNOLOGIES INCORPORATED
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD
BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE COMMON STOCK
AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED ($0.01 PAR VALUE)
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
</TABLE>
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EXHIBIT A
NOTICE OF RETRACTION
To the Corporation and Merge Technologies Incorporated:
This notice is given pursuant to Article 6 of the Exchangeable Share
Provisions (the "Share Provisions") attaching to the share(s) represented by
this certificate and all capitalized words and expressions used in this notice
which are defined in the Share Provisions have the meanings ascribed to such
words and expressions in such Share Provisions.
The undersigned hereby notifies the Corporation that, subject to the
Retraction Call Right referred to below, the undersigned desires to have the
Corporation redeem in accordance with Article 6 of the Share Provisions:
/ / all share(s) represented by this certificate; or
/ / share(s) only.
The undersigned hereby notifies the Corporation that the Retraction
Date shall be _____________.
NOTE: The Retraction Date must be a Business Day and must not be less
than 10 Business Days nor more than 15 Business Days after the date
upon which this notice is received by the Corporation. In the event
that no such Business Day is specified above, the Retraction Date shall
be deemed to be the tenth Business Day after the date on which this
notice is received by the Corporation.
The undersigned acknowledges the Retraction Call Right of Merge or its
Designee to purchase all but not less than all the Retracted Shares from the
undersigned and that the giving of this notice to Merge shall be deemed to be a
revocable offer by the undersigned to sell the Retracted Shares to Merge or its
Designee in accordance with the Retraction Call Right on the Retraction Date for
the Retraction Price or Cash Retraction Price, as applicable, and on the other
terms and conditions set out in Section 6.3 of the Share Provisions. If Merge
determines not to exercise the Retraction Call Right, the Corporation will
notify the undersigned of such fact as soon as possible. This notice of
retraction and offer to sell the Retracted Shares to Merge or its Designee may
be revoked and withdrawn by the undersigned by notice in writing given to the
Corporation at any time before the close of business on the Business Day
immediately preceding the Retraction Date. If this Notice of Retraction has not
been revoked and withdrawn by the undersigned by such time, the undersigned
shall be deemed to have agreed to sell the Retracted Shares to Merge or its
Designee in accordance with the Retraction Call Right.
The undersigned acknowledges that if, as a result of solvency
provisions of applicable law, the Corporation is not permitted to redeem all
Retracted Shares, the undersigned will be deemed to have exercised the Exchange
Right (as defined in the Share Exchange Agreement) so as to require Merge or its
Designee to purchase the unredeemed Retracted Shares in accordance with the
provisions of the Share Exchange Agreement.
The undersigned hereby represents and warrants to the Corporation,
Merge and its Designee that the undersigned has good title to, and owns, the
share(s) represented by this certificate to be acquired by the Corporation,
Merge or its Designee, as the case may be, free and clear of all liens, claims
and encumbrances.
--------------------------------
(Date)
--------------------------------
(Signature of Shareholder)
Address of Shareholder:
------------------------
------------------------
------------------------
------------------------
NOTE: If the notice of retraction is for less than all of the share(s)
represented by this certificate, a certificate representing the remaining shares
of the Corporation will be issued and registered in the name of the shareholder
as it appears on the register of the Corporation.
14
