UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

Payment of Filing Fee (Check the appropriate box)

MERGE HEALTHCARE INCORPORATED
350 North Orleans Street
Chicago, Illinois 60654

September 11, 2015

Dear Stockholder:

You are cordially invited to attend a special meeting of stockholders of Merge Healthcare Incorporated, a Delaware corporation (“Merge Healthcare,” the “Company,” “we,” “us” or “our”), to be held on October 13, 2015, at 10:00 a.m., local time, at our offices located at 350 North Orleans Street, First Floor, Chicago, Illinois 60654.

At the special meeting, you will be asked to consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of August 6, 2015, by and among International Business Machines Corporation (“IBM”), Datong Acquisition Corp. (“merger sub”), a wholly-owned subsidiary of IBM, and Merge Healthcare, as such agreement may be amended from time to time. Pursuant to the merger agreement, merger sub will merge with and into Merge Healthcare and as a result, under Delaware law, Merge Healthcare will become a wholly-owned subsidiary of IBM. We are also asking that you consider and vote upon proposals to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes in favor of adoption of the merger agreement at the time of the special meeting and to approve, on an advisory (non-binding) basis, the compensation arrangements disclosed in the accompanying proxy statement that may become payable to Merge Healthcare’s named executive officers in connection with the merger.

If the merger is completed, Merge Healthcare stockholders will be entitled to receive:

Our board of directors has determined that the terms and conditions of the merger and the merger agreement are fair to, and advisable and in the best interests of, Merge Healthcare and our stockholders. Accordingly, our board of directors has approved the merger agreement, the merger and the other transactions contemplated thereby, and recommends that you vote “FOR” the adoption of the merger agreement, “FOR” the approval of the proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes in favor of adoption of the merger agreement at the time of the special meeting and “FOR” the approval, on an advisory (non-binding) basis, of certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger.

Our board of directors considered a number of factors in evaluating the transaction and consulted with our legal and financial advisors. The enclosed proxy statement provides detailed information about the merger agreement and the merger. We encourage you to read this proxy statement carefully in its entirety.

Your vote is very important, regardless of the number of shares you own.

The proposal to adopt the merger agreement must be approved by the affirmative vote of the holders of a majority of the outstanding shares of our common stock and Series A Convertible Preferred Stock, voting as a single class and, in the case of our Series A Convertible Preferred Stock, on an as-converted basis in accordance

with the terms of the certificate of designation of the Series A Convertible Preferred Stock. Therefore, if you do not return your proxy card in the mail, submit a proxy via the Internet or telephone or attend the special meeting and vote in person, then your decision not to respond will have the same effect as if you voted “AGAINST” adoption of the merger agreement.

Approval of each of the other proposals (i) to adjourn the special meeting to a later date, if necessary or appropriate to solicit additional proxies in the event there are not sufficient votes in favor of the adoption of the merger agreement at the time of the special meeting and (ii) to approve, on an advisory (non-binding) basis, certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger, requires the affirmative vote of the holders of a majority of the shares of our common stock and Series A Convertible Preferred Stock present in person or represented by proxy and entitled to vote at the special meeting, voting as a single class and, in the case of our Series A Convertible Preferred Stock, on an as-converted basis in accordance with the terms of the certificate of designation of the Series A Convertible Preferred Stock, assuming a quorum is present. A failure to vote will have no effect on the outcome of the adjournment proposal or the proposal regarding compensation arrangements, assuming a quorum is present.

Only holders who owned shares of our common stock or Series A Convertible Preferred Stock at the close of business on September 10, 2015, the record date for the special meeting, will be entitled to vote at the special meeting. As of the close of business on the record date, our outstanding capital stock was entitled to votes representing the equivalent of 110,810,801 shares of our common stock, including (i) 99,290,064 shares of our common stock and (ii) 50,000 shares of our Series A Convertible Preferred Stock, which entitled the holders of record of such Series A Convertible Preferred Stock to voting rights equal to 11,520,737 shares of our common stock. To vote your shares, you may return your proxy card, submit a proxy via the Internet or telephone or attend the special meeting and vote in person. Even if you plan to attend the meeting, we urge you to promptly submit a proxy for your shares via the Internet or telephone or by completing, signing, dating and returning the enclosed proxy card.

If you sign, date and return your proxy card or submit a proxy via the Internet or telephone without indicating how you wish to vote, your proxy will be voted “FOR” the adoption of the merger agreement, “FOR” the adjournment of the special meeting to a later date, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes in favor of adoption of the merger agreement at the time of the special meeting and “FOR” the approval, on an advisory (non-binding) basis, of certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger. If you fail to submit a proxy, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting. If you attend the special meeting and wish to vote in person, you may revoke your proxy and vote in person.

Thank you for your continued support of Merge Healthcare.

Sincerely,

 

Justin C. Dearborn
Chief Executive Officer
President and Corporate Secretary

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosures in this proxy statement. Any representation to the contrary is a criminal offense.

This proxy statement is dated September 11, 2015 and is first being mailed to stockholders of Merge Healthcare on or about September 11, 2015.

MERGE HEALTHCARE INCORPORATED
350 North Orleans Street
Chicago, Illinois 60654

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS AND PROXY STATEMENT 

To the Stockholders of Merge Healthcare Incorporated:

Merge Healthcare Incorporated (“Merge Healthcare”) will hold a special meeting of stockholders at Merge Healthcare’s offices located at 350 North Orleans Street, First Floor, Chicago, Illinois 60654, at 10:00 a.m., local time, on October 13, 2015 for the following purposes:

Only record holders of Merge Healthcare common stock or Series A Convertible Preferred Stock at the close of business on September 10, 2015, the record date for the special meeting, are entitled to receive notice of, and will be entitled to vote at, the special meeting, including any adjournments or postponements of the special meeting. Your vote is important, regardless of the number of shares of Merge Healthcare common stock or Series A Convertible Preferred Stock that you own. At the close of business on September 10, 2015, Merge Healthcare outstanding capital stock was entitled to votes representing the equivalent of 110,810,801 shares of Merge Healthcare common stock, including (i) 99,290,064 shares of Merge Healthcare common stock, and (ii) 50,000 shares of Merge Healthcare Series A Convertible Preferred Stock, which entitle the holders of record of such Series A Convertible Preferred Stock to voting rights equal to 11,520,737 shares of Merge Healthcare common stock.

The proposal to adopt the merger agreement must be approved by the affirmative vote of the holders of a majority of the outstanding shares of our common stock and Series A Convertible Preferred Stock, voting as a single class and, in the case of our Series A Convertible Preferred Stock, on an as-converted basis in accordance with the terms of the certificate of designation of the Series A Convertible Preferred Stock. Approval of each of the other proposals (i) to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes in favor of the adoption of the merger agreement at the time of the special meeting and (ii) to approve, on an advisory (non-binding) basis, certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger, requires the affirmative vote of the holders of a majority of the shares of our common stock and Series A Convertible Preferred Stock present in person or represented by proxy and entitled to vote at the special meeting, voting as a single class and, in the case of our Series A Convertible Preferred Stock, on an as-converted basis in accordance with the terms of the certificate of designation of the Series A Convertible Preferred Stock, assuming a quorum is present.

Under Delaware law, if the merger is completed, holders of our common stock or Series A Convertible Preferred Stock who do not vote in favor of adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery. In order to exercise your appraisal rights, you must (i) submit a written demand for an appraisal of your shares prior to the stockholder vote on the merger agreement, (ii) not vote in favor of adoption of the merger agreement and (iii) comply with other Delaware law procedures explained in the accompanying proxy statement. See “The Merger – Appraisal Rights” beginning on page 45 of the proxy statement and Annex D to the proxy statement.

Holders of common stock and Series A Convertible Preferred Stock as of the close of business on September 10, 2015 are cordially invited to attend the special meeting in person. Whether or not you expect to attend the special meeting, please complete, date, sign and return the enclosed proxy, or vote over the telephone or the Internet as instructed in these materials, as promptly as possible in order to ensure your representation at the special meeting. A return envelope (which is postage prepaid if mailed in the United States) is enclosed for your convenience. Even if you have voted by proxy, you may still vote in person if you attend the special meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the special meeting, you must obtain a proxy issued in your name from that record holder. Please note that stockholders who wish to attend the special meeting are encouraged to register no later than October 6, 2015 on our website at http://www.merge.com/SpecialMeeting.aspx.

If you sign, date and return your proxy card or submit a proxy via the Internet or telephone without indicating how you wish to vote, your proxy will be voted “FOR” the adoption of the merger agreement, “FOR” the adjournment of the special meeting to a later date, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes in favor of adoption of the merger agreement at the time of the special meeting and “FOR” the approval, on an advisory (non-binding) basis, of certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger. If you fail to return your proxy card and do not submit your proxy via the Internet or by telephone, your shares will effectively be counted as a vote “AGAINST” the adoption of the merger agreement, will not be counted for purposes of determining whether a quorum is present at the special meeting and will have no effect on either (i) the proposal to adjourn the special meeting to a later date, if necessary or appropriate, to permit solicitations of additional proxies or (ii) the proposal to approve, on an advisory (non-binding) basis, certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger, assuming a quorum is present.

If you do attend the special meeting and wish to vote in person, you may revoke your proxy and vote in person. You may revoke your proxy in the manner described in the enclosed proxy statement at any time before it has been voted at the special meeting.

In addition, holders of Series A Convertible Preferred Stock are hereby notified that the merger will constitute a Change of Control as defined in the certificate of designation of the Series A Convertible Preferred Stock.

Our board of directors recommends that you vote “FOR” the adoption of the merger agreement, “FOR” the adjournment of the special meeting to a later date, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes in favor of adoption of the merger agreement at the time of the special meeting and “FOR” the approval, on an advisory (non-binding) basis, of certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger.

The merger is described in the accompanying proxy statement, which we urge you to read carefully. A copy of the merger agreement is attached as Annex A to the proxy statement.

	By Order of the Board of Directors,
	Justin C. Dearborn Chief Executive Officer, President and Corporate Secretary

Chicago, Illinois
September 11, 2015

YOUR VOTE IS IMPORTANT.

Whether or not you expect to attend the special meeting, please complete, date, sign and return the enclosed proxy card, or vote over the telephone or the Internet, as promptly as possible in order to ensure your representation at the special meeting. A return envelope (which is postage prepaid if mailed in the United States) is enclosed for your convenience. Even if you have voted by proxy, you may still vote in person if you attend the special meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the special meeting, you must obtain a proxy issued in your name from that record holder.

MERGE HEALTHCARE INCORPORATED
SPECIAL MEETING OF STOCKHOLDERS

TABLE OF CONTENTS

Annex A – Agreement and Plan of Merger

Annex B – Stockholders Agreement

Annex C – Opinion of Goldman, Sachs & Co.

Annex D – Section 262 of the General Corporation Law of the State of Delaware

Merge Healthcare Incorporated
350 North Orleans Street
Chicago, Illinois 60654
   
PROXY STATEMENT 

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following Q&A is intended to address some commonly asked questions regarding the special meeting of our stockholders and the merger. These questions and answers may not address all questions that may be important to you as a Merge Healthcare stockholder. We urge you to read carefully the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents we refer to in this proxy statement.

Except as otherwise specifically noted in this proxy statement, “Merge Healthcare,” the “Company,” “we,” “our,” “us” and similar words in this proxy statement refer to Merge Healthcare Incorporated. In addition, throughout this proxy statement, we refer to Datong Acquisition Corp. as “merger sub” and to International Business Machines Corporation as “IBM.” We refer to our common stock and Series A Convertible Preferred Stock collectively as our “capital stock” in this proxy statement. We refer to holders of our capital stock collectively as our “stockholders” in this proxy statement.

The Special Meeting

In addition, you are being asked to grant to the proxies identified in the enclosed proxy card discretionary authority to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes in favor of adoption of the merger agreement. If we do not receive proxies from stockholders holding a sufficient number of shares to adopt the merger agreement, we could use the additional time to solicit additional proxies in favor of adoption of the merger agreement.

Additionally, you are being asked to approve, on an advisory (non-binding) basis, certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger.

The Proposed Merger

As a result of the merger, holders of our Series A Convertible Preferred Stock will be entitled to receive $1,500.00 in cash, without interest and less any applicable withholding taxes, for each share of our Series A Convertible Preferred Stock they own as of the effective time of the merger. The common stock merger consideration and the Series A Convertible Preferred Stock merger consideration are referred to individually and collectively, as applicable, as the “merger consideration” in this proxy statement.

As a result of the merger, outstanding Merge Healthcare equity awards will either be cancelled and converted into a right to receive a cash payment at the effective time of the merger or, in some cases, converted into comparable awards for common stock of IBM or cancelled and converted into a right to potentially receive a cash payment at a later date.

Stock Options

Stock options to acquire Merge Healthcare’s common stock outstanding and unexercised at the effective time of the merger will be treated in one of the following manners:

Cash-Out Options. Each outstanding option to acquire shares of our common stock to the extent (i) vested (or vesting in connection with the merger), or (ii) such option (whether vested or unvested) is held by any of our or our subsidiaries’ non-employee directors, consultants or independent contractors will be cancelled at the effective time of the merger and will be converted into the right of the holder thereof to receive in consideration for such cancellation an amount in cash, without interest and less any applicable withholding taxes, payable at or as soon as practicable following the effective time of the merger, equal to the product of the number of shares of our common stock that are subject to such option and the excess, if any, of the common stock merger consideration of $7.13 per share over the exercise price per share of the common stock subject to such option. Each outstanding option to acquire shares of our common stock (whether vested or unvested) that has an exercise price per share greater than or equal to the common stock merger consideration of $7.13 per share will be cancelled for no consideration.

Rollover Options. Each outstanding option to acquire shares of our common stock that will not be cancelled in the manner described in the preceding paragraph will be converted into an option to acquire, on substantially the same terms and conditions as were applicable to such option prior to the effective time of the merger (other than with respect to exercisability prior to vesting or the ability to pay the exercise price by tendering previously owned shares of common stock), the number of shares of IBM’s common stock (rounded down to the nearest whole share) equal to the product of the number of shares of our common stock that are subject to such option and the exchange ratio. The exchange ratio is a fraction, the numerator of which is the common stock merger consideration of $7.13 per share and the denominator of which is the average closing price per share of IBM’s common stock on the New York Stock Exchange Composite Transactions Tape on the 20 trading days immediately prior to the date of the effective time of the merger. The exercise price of such converted option per share of IBM’s common stock as of immediately following such conversion will be equal to the per share exercise price for the shares of our common stock otherwise purchasable pursuant to such option prior to the effective time divided by the exchange ratio, rounded up to the nearest whole cent.

Restricted Shares

Restricted shares that are outstanding at the effective time of the merger will be treated in one of the following manners:

Cash-Out Restricted Shares. Each outstanding restricted share held by any of our or our subsidiaries’ non-employee directors, consultants or independent contractors will be cancelled at the effective time of the merger and will be converted into the right of the holder thereof to receive in consideration for such cancellation an amount in cash, without interest and less any applicable withholding taxes, equal to the common stock merger consideration of $7.13 per share.

Other Restricted Shares. Each outstanding restricted share held by our or any of our subsidiaries’ employees will be cancelled at the effective time of the merger and no consideration will be provided for such restricted shares except as provided further in this paragraph; provided, that, IBM will pay to each holder of restricted shares cancelled in this manner a cash payment equal to $7.13 multiplied by the number of such restricted shares that would have vested or in respect of which Merge Healthcare’s right to repurchase such restricted shares would have lapsed, with such cash payment to be made on or within 20 business days after the date or dates on which such vesting or lapse of restriction would have occurred had such restricted shares not been cancelled and converted into a right to receive a cash payment; provided further, that in order to receive such cash payment, the holder of restricted shares must be an employee of IBM or any of its affiliates on the applicable date at which such restricted shares would have vested or in respect of which Merge Healthcare’s right to repurchase such restricted shares would have lapsed.

Treatment of Purchase Rights under Merge Healthcare Incorporated 2000 Employee Stock Purchase Plan

Under the merger agreement, if the Merge Healthcare Incorporated 2000 Employee Stock Purchase Plan, which we refer to as the “ESPP” in this proxy statement, remains in effect on the last trading day before

the effective time of the merger, each purchase right outstanding under the ESPP will be terminated in exchange for a cash payment equal to the excess of (A) the common stock merger consideration of $7.13 per share over (B) 85% of the lesser of (i) the closing price of a share of our common stock on the NASDAQ Global Select Market on the last trading day before the commencement of the last offering period and (ii) the closing price of a share of our common stock on the NASDAQ Global Select Market on the last trading day before the effective time of the merger, subject to the limitations under the ESPP regarding the maximum number and value of shares of our common stock purchasable with respect to any offering period.

Voting and Proxy Procedures

Our bylaws provide that a quorum is present at the special meeting if the holders of a majority of the shares of capital stock issued and outstanding and entitled to vote at such meeting whether present in person or represented by proxy are present at such meeting.

Our bylaws provide that a quorum is present at the special meeting if the holders of a majority of the shares of capital stock issued and outstanding and entitled to vote at such meeting are present in person or represented by proxy at such meeting.

If your shares are held in “street name” through a broker or other nominee, you may provide voting instructions by completing and returning the voting form provided by your broker or nominee, or via the Internet or telephone through your broker or nominee, if such a service is provided. To provide voting instructions via the Internet or telephone through your broker or nominee, you should follow the instructions on the voting form provided by your broker or nominee.

Approval of each of the other proposals (i) to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes in favor of adoption of the merger agreement at the time of the special meeting and (ii) to approve, on an advisory (non-binding) basis, certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger, requires the affirmative vote of the holders of a majority of the shares of our common stock and Series A Convertible Preferred Stock present in person or represented by proxy and entitled to vote at the special meeting, voting as a single class and, in the case of our Series A Convertible Preferred Stock, on an as-converted basis in accordance with the terms of the certificate of designation of the Series A Convertible Preferred Stock, assuming a quorum is present. Therefore, if you do not vote in person or by proxy, it will have no effect on the outcome of such proposals, assuming a quorum is present.

If you have instructed a broker or other nominee to vote your shares, you may revoke your proxy only by following the directions received from your broker or nominee to change those instructions.

Revocation of a proxy will not affect any vote taken prior to revocation. Attendance at the special meeting will not in itself constitute the revocation of a proxy; you must vote in person at the special meeting to revoke a previously delivered proxy.

Merge Healthcare Incorporated
Attn: Investor Relations
350 North Orleans Street, First Floor
Chicago, IL 60654
Telephone: (312) 565–6868

Neither the Securities and Exchange Commission, which we refer to as the “SEC” in this proxy statement, nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosures in this proxy statement. Any representation to the contrary is a criminal offense.

FORWARD-LOOKING INFORMATION

This proxy statement contains “forward-looking statements,” as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act that are based on our current expectations, assumptions, beliefs, estimates and projections about our company and our industry. The forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “intend,” “plan,” “project” “should,” “could” and similar expressions. Factors that may affect those forward-looking statements include, among other things:

We caution you that reliance on any forward-looking statement involves risks and uncertainties and that, although we believe that the assumptions on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions could be incorrect. In light of these and other uncertainties, you should not conclude that we will necessarily achieve any plans and objectives or projected financial results referred to in any of the forward-looking statements. We do not undertake to release the results of any revisions of these forward-looking statements to reflect future events or circumstances.

SUMMARY

This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. To understand the merger fully and for a more complete description of the legal terms of the merger, you should read carefully this entire proxy statement, the annexes to this proxy statement and the documents we refer to in this proxy statement. See “Where You Can Find More Information” on page 75. The merger agreement is attached as Annex A to this proxy statement. We encourage you to read the merger agreement, which is the legal document governing the merger. Each item in this summary references another section of this proxy statement with more detailed disclosure about that item.

The Companies (page 17)

Merge Healthcare Incorporated
Attn: Investor Relations
350 North Orleans Street, First Floor
Chicago, IL 60654
Telephone: (312) 565–6868

We are a Delaware corporation that was founded in 1987. We develop enterprise imaging software solutions that facilitate the sharing of images to create a more effective and efficient electronic healthcare experience for patients and physicians. Our solutions are designed to help solve some of the most difficult challenges in health information exchange today, such as the incorporation of medical images and diagnostic information into broader healthcare IT applications, the interoperability of proprietary software solutions, and the ability to improve the efficiency and cost effectiveness of our customers’ businesses. We believe that our ability to innovate has driven consistent expansion of solutions and services and entry into new markets. Our solutions optimize processes for healthcare providers ranging in size from single provider practices to large health systems, to the sponsors of clinical trials and medical device manufacturers. Our Merge Healthcare segment markets, sells and implements interoperability, imaging and clinical solutions to healthcare providers. It generates revenue from the licensing of software (including upgrades), the sale of hardware, professional services, maintenance and electronic data interchange services. Our Merge DNA (Data and Analytics) segment derives the vast majority of its revenue from licensing our software on a hosted basis and providing professional services.

International Business Machines Corporation
1 New Orchard Road
Armonk, New York 10504
Telephone: (914) 499-1900

IBM, a New York corporation, creates value for clients through integrated solutions and products that leverage: data, information technology, deep expertise in industries and business processes, and a broad ecosystem of partners and alliances. IBM solutions typically create value by enabling new capabilities for clients that transform their businesses and help them engage with their customers and employees in new ways. These solutions draw from an industry-leading portfolio of consulting and IT implementation services, cloud and cognitive offerings, and enterprise systems and software; all bolstered by one of the world’s leading research organizations.

Datong Acquisition Corp.
1 New Orchard Road
Armonk, New York 10504
Telephone: (914) 499-1900

Datong Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of IBM, was organized solely for the purpose of entering into the merger agreement and completing the merger and the other transactions contemplated by the merger agreement. Merger sub has not conducted any business operations other than in connection with the transactions contemplated by the merger agreement. Upon consummation of the merger, merger sub will cease to exist, and Merge Healthcare will continue as the surviving corporation.

Merger Consideration (page 53)

As a result of the merger, holders (other than IBM or merger sub) of our common stock will be entitled to receive $7.13 in cash, without interest and less any applicable withholding taxes, for each share of our common stock they own as of the effective time of the merger. However, if you are an employee of Merge Healthcare or any of its subsidiaries and you hold restricted shares of our common stock as of the effective time, those shares will be cancelled and you will be entitled to receive the applicable merger consideration for those restricted shares on a deferred basis subject to the conditions described in this proxy statement and in the merger agreement.

As a result of the merger, holders of Series A Convertible Preferred Stock will be entitled to receive $1,500.00 in cash, without interest and less any applicable withholding taxes, for each share of our Series A Convertible Preferred Stock they own as of the effective time of the merger. However, if prior to the effective time of the merger, the holders of our Series A Convertible Preferred Stock convert their shares into shares of our common stock, such holders will be entitled to receive the common stock merger consideration of $7.13 in cash, without interest and less any applicable withholding taxes, for each share of our common stock they own on an as-converted basis, in accordance with the certificate of designation of the Series A Convertible Preferred Stock, as of the effective time of the merger.

As a result of the merger, outstanding Merge Healthcare equity awards will either be cancelled and converted into a right to receive a cash payment at the effective time of the merger or, in some cases, will be converted into comparable awards for common stock of IBM or cancelled and converted into a right to potentially receive a cash payment at a later date. See “Treatment of Outstanding Stock Options, Restricted Shares and Purchase Rights” below.

After the merger is completed, you will have the right to receive the applicable merger consideration, but you will no longer have any rights as a Merge Healthcare stockholder as a result of the merger. Holders of our common stock will receive the common stock merger consideration in exchange for their shares of common stock and holders of Series A Convertible Preferred Stock will receive the Series A Convertible Preferred Stock merger consideration in exchange for their shares of Series A Convertible Preferred Stock in accordance with the instructions contained in the letter of transmittal to be sent to holders of our common stock and Series A Convertible Preferred Shares, respectively, as soon as reasonably practicable after the closing of the merger (unless such holder has properly demanded appraisal of its shares, and except for holders of restricted shares who are employees of Merge Healthcare or any of its subsidiaries, who will be entitled to receive the applicable merger consideration for their restricted shares on a deferred basis subject to the conditions described in this proxy statement and in the merger agreement).

Treatment of Outstanding Stock Options, Restricted Shares and Purchase Rights (page 48)

Stock Options

Stock options to acquire our common stock outstanding and unexercised at the effective time of the merger will be treated in one of the following manners:

Cash-Out Options. Each outstanding option to acquire shares of our common stock to the extent (i) vested (or vesting in connection with the merger), or (ii) such option (whether vested or unvested) is held by any of our or our subsidiaries’ non-employee directors, consultants or independent contractors will be cancelled at the effective time of the merger and will be converted into the right of the holder thereof to receive in consideration for such cancellation an amount in cash, without interest and less any applicable withholding taxes, payable at or as soon as practicable following the effective time of the merger, equal to the product of the number of shares of our common stock that are subject to such option and the excess, if any, of the common stock merger consideration of $7.13 per share over the exercise price per share of the common stock subject to such option. Each outstanding option to acquire shares of our common stock (whether vested or unvested) that has an exercise price per share greater than or equal to the common stock merger consideration of $7.13 per share will be cancelled for no consideration.

Rollover Options. Each outstanding option to acquire shares of our common stock that will not be cancelled in the manner described in the preceding paragraph will be converted into an option to acquire, on substantially the same terms and conditions as were applicable to such option prior to the effective time of the merger (other than with respect to exercisability prior to vesting or the ability to pay the exercise price by tendering previously

owned shares of common stock), the number of shares of IBM’s common stock (rounded down to the nearest whole share) equal to the product of the number of shares of our common stock that are subject to such option and the exchange ratio. The exchange ratio is a fraction, the numerator of which is the common stock merger consideration of $7.13 per share and the denominator of which is the average closing price per share of IBM’s common stock on the New York Stock Exchange Composite Transactions Tape on the 20 trading days immediately prior to the date of the effective time of the merger. The exercise price of such converted option per share of IBM’s common stock as of immediately following such conversion will be equal to the per share exercise price for the shares of our common stock otherwise purchasable pursuant to such option prior to the effective time divided by the exchange ratio, rounded up to the nearest whole cent.

Restricted Shares

Restricted shares that are outstanding at the effective time of the merger will be treated in one of the following manners:

Cash-Out Restricted Shares. Each outstanding restricted share held by any of our or our subsidiaries’ non-employee directors, consultants or independent contractors will be cancelled at the effective time of the merger and will be converted into the right of the holder thereof to receive in consideration for such cancellation an amount in cash, without interest and less any applicable withholding taxes, equal to the common stock merger consideration of $7.13 per share.

Other Restricted Shares. Each outstanding restricted share held by our or any of our subsidiaries’ employees will be cancelled at the effective time of the merger and no consideration will be provided for such restricted shares except as provided further in this paragraph; provided, that IBM will pay to each holder of restricted shares cancelled in this manner a cash payment equal to $7.13 multiplied by the number of such restricted shares that would have vested or in respect of which Merge Healthcare’s right to repurchase such restricted shares would have lapsed, with such cash payment to be made on or within 20 business days after the date or dates on which such vesting or lapse of restriction would have occurred had such restricted shares not been cancelled and converted into a right to receive a cash payment; provided further, that in order to receive such cash payment, the holder of restricted shares must be an employee of IBM or any of its affiliates on the applicable date at which such restricted shares would have vested or in respect of which Merge Healthcare’s right to repurchase such restricted shares would have lapsed.

Treatment of Purchase Rights under Merge Healthcare Incorporated 2000 Employee Stock Purchase Plan

Under the merger agreement, participation in the ESPP will be limited to those employees who are participants in the ESPP on August 6, 2015, and participants may not generally increase their payroll deduction elections or rate of contributions from those in effect on that date. No offering period under the ESPP will be started after August 6, 2015, and the ESPP will terminate on the earlier of the first purchase date after August 6, 2015 and the last trading day before the effective time of the merger but after the exercise of purchase rights on such purchase date or termination on such last trading day. If the ESPP remains in effect on the last trading day before the effective time of the merger, each purchase right outstanding under the ESPP will be terminated in exchange for a cash payment equal to the excess of (A) the common stock merger consideration of $7.13 per share over (B) 85% of the lesser of (i) the closing price of a share of our common stock on the NASDAQ Global Select Market on the last trading day before the commencement of the last offering period and (ii) the closing price of a share of our common stock on the NASDAQ Global Select Market on the last trading day before the effective time of the merger, subject to the limitations under the ESPP regarding the maximum number and value of shares of our common stock purchasable with respect to any offering period.

Market Prices and Dividend Data (page 14)

Our common stock is listed on the NASDAQ Global Select Market under the symbol “MRGE.” On August 5, 2015, the last full trading day before the public announcement of the merger, the closing price for our common stock was $5.41 per share, and on September 10, 2015, the latest practicable trading day before the printing of this proxy statement, the closing price for our common stock was $7.10 per share.

We have not paid any dividends on our common stock in the 2015, 2014 or 2013 fiscal year.

Our Series A Convertible Preferred Stock is not listed on any exchange or quotation system. There is no established trading price for the Series A Convertible Preferred Stock. We issued the 50,000 shares of Series A

Convertible Preferred Stock on February 25, 2015. We paid dividends of $413,194 on March 31, 2015 and $1,062,500 on June 30, 2015 on our Series A Convertible Preferred Stock.

Material United States Federal Income Tax Consequences of the Merger (page 49)

The conversion of shares of our common stock into the right to receive $7.13 per share in cash and the conversion of shares of our Series A Convertible Preferred Stock into the right to receive $1,500.00 per share in cash will generally be a taxable transaction to our stockholders for U.S. federal income tax purposes. See “The Merger— Material United States Federal Income Tax Consequences of the Merger” beginning on page 49.

Tax matters can be complicated, and the tax consequences of the merger to you will depend on the facts of your own situation. We strongly recommend that you consult your own tax advisor to fully understand the tax consequences of the merger to you.

Recommendation of Merge Healthcare’s Board of Directors and Reasons for the Merger (page 25)

Our board of directors recommends that you vote “FOR” the adoption of the merger agreement, “FOR” the proposal to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes in favor of adoption of the merger agreement at the time of the special meeting and “FOR” the approval, on an advisory (non-binding) basis, of certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger. At a meeting of our board of directors on August 5, 2015, after consultation with our financial and legal advisors, our board of directors determined that the merger agreement, the merger, and the other transactions contemplated by the merger agreement are advisable, that it is in the best interests of Merge Healthcare and its stockholders for Merge Healthcare to enter into the merger agreement and consummate the merger and the other transactions contemplated by the merger agreement and that the applicable merger consideration to be paid to the Company’s stockholders in the merger is fair to such stockholders.

In the course of reaching its decision, our board of directors consulted with our senior management, financial advisor and legal counsel, reviewed a significant amount of information and considered a number of factors. For a discussion of the factors considered by our board of directors in reaching its decision to approve the merger agreement and recommend that our stockholders adopt the merger agreement, see “The Merger—Recommendation of Merge Healthcare’s Board of Directors and Reasons for the Merger” beginning on page 25.

Opinion of Merge Healthcare’s Financial Advisor (page 28 and Annex C)

Goldman, Sachs & Co., which we refer to in this proxy statement as “Goldman Sachs”, rendered its oral opinion to our board of directors on August 5, 2015, which was subsequently confirmed by a written opinion to our board of directors that, as of the date of the written opinion and based upon and subject to the factors, assumptions and limitations set forth therein, the merger consideration of $7.13 per share to be paid to the holders (other than IBM and its affiliates) of our common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Goldman Sachs, dated August 6, 2015, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C to this proxy statement. The summary of the Goldman Sachs opinion provided in this proxy statement is qualified in its entirety by reference to the full text of Goldman Sachs’ written opinion. Goldman Sachs’ advisory services and opinion were provided for the information and assistance of our board of directors in connection with its consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of our common stock or Series A Convertible Preferred Stock should vote with respect to the merger or any other matter.

The Special Meeting of Merge Healthcare’s Stockholders (page 14)

Date, Time and Place. A special meeting of our stockholders will be held on October 13, 2015 at Merge Healthcare’s corporate headquarters, 350 North Orleans Street, First Floor, Chicago, Illinois 60654, at 10:00 a.m., local time, to consider and vote upon:

Record Date and Voting Power. You are entitled to vote at the special meeting if you owned shares of our common stock or Series A Convertible Preferred Stock at the close of business on September 10, 2015, the record date for the special meeting. As of the close of business on the record date, our outstanding capital stock was entitled to votes representing the equivalent of 110,810,801 shares of our common stock, including (i) 99,290,064 shares of our common stock and (ii) 50,000 shares of our Series A Convertible Preferred Stock, which entitled the holders of record of such Series A Convertible Preferred Stock to voting rights equal to 11,520,737 shares of our common stock. Holders of shares of our common stock will have one vote per proposal at the special meeting for each share of our common stock owned by such holder at the close of business on the record date. Holders of shares of our Series A Convertible Preferred Stock will have the number of votes per proposal equal to the largest number of full shares of our common stock into which all Series A Convertible Preferred Stock held of record by such holder could then be converted at the close of business on the record date, subject to and in accordance with the terms of the certificate of designation of the Series A Convertible Preferred Stock.

Quorum. A quorum of stockholders is necessary to hold a valid special meeting. Under our bylaws, a quorum is present at the special meeting if the holders of a majority of the shares of our capital stock issued and outstanding and entitled to vote, whether present in person or represented by proxy, are present at the meeting.

Required Vote. The proposal to adopt the merger agreement must be approved by the affirmative vote of the holders of a majority of the outstanding shares of our common stock and Series A Convertible Preferred Stock, voting as a single class and, in the case of our Series A Convertible Preferred Stock, on an as-converted basis in accordance with the terms of the certificate of designation of the Series A Convertible Preferred Stock. Approval of each of the other proposals (i) to adjourn the special meeting to a later date, if necessary or appropriate to solicit additional proxies in the event there are not sufficient votes in favor of the adoption of the merger agreement at the time of the special meeting and (ii) to approve, on an advisory (non-binding) basis, certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger, requires the affirmative vote of the holders of a majority of the shares of our common stock and Series A Convertible Preferred Stock present in person or represented by proxy and entitled to vote at the special meeting, voting as a single class and, in the case of our Series A Convertible Preferred Stock, on an as-converted basis in accordance with the terms of the certificate of designation of the Series A Convertible Preferred Stock, assuming a quorum is present. In the event that a quorum is not present in person or represented by proxy at the special meeting, it is expected that the special meeting will be adjourned by the chairman of the meeting to solicit additional proxies.

Interests of Merge Healthcare’s Executive Officers and Directors in the Merger (page 35)

When considering the recommendation of Merge Healthcare’s board of directors, you should be aware that members of Merge Healthcare’s board of directors and Merge Healthcare’s executive officers have interests in the merger in addition to their interests as Merge Healthcare stockholders generally, as described below. These interests may be different from, or in conflict with, your interests as Merge Healthcare stockholders. The members of our board of directors were aware of these additional interests, and considered them, when they approved the merger agreement.

Each of Messrs. Dearborn, Oreskovich, Hammond and Tolle and Mses. Koenig and Wells has received and accepted an offer letter from IBM that is conditioned upon the closing of the merger and the executive officer’s continued employment with Merge Healthcare through the closing of the merger. Upon the closing of the merger and the effectiveness of such offer letters, each of the existing employment letter agreements with Merge Healthcare will terminate, and they will no longer be entitled to any payments or benefits under those employment letter agreements, other than as described in their offer letters with IBM. Each executive officer’s employment by IBM is “at will” and may be terminated at any time for any reason, subject to the obligations described below and applicable law.

Pursuant to offer letters between IBM and each of Messrs. Dearborn, Oreskovich, Hammond and Tolle and Mses. Koenig and Wells:

in a transition program providing a cash payment of up to $300,000 on the eighteen-month anniversary of the closing of the merger, subject to continued employment through the applicable payment date and the achievement of specified milestones described in his transition agreement; and

In addition, Merrick Venture Management Holdings, LLC and Merrick Ventures, LLC, which we refer to collectively as the “Merrick Entities” in this proxy statement and which are controlled by or affiliated with Michael W. Ferro, Jr., have executed a holder agreement with IBM which prohibits the Merrick Entities during a specified period from soliciting or hiring certain employees or consultants of Merge Healthcare or IBM. Mr. Ferro has executed a holder agreement with IBM which prohibits Mr. Ferro during a specified period from engaging in certain business activities and from soliciting or hiring certain employees or consultants of Merge Healthcare or IBM.

Each of Mr. Dearborn and Ms. Koenig has executed a holder agreement with IBM which prohibits each of them during a specified period from engaging in certain business activities and from soliciting any customers, clients, employees or consultants of Merge Healthcare or IBM. Additional details about the holder agreements are summarized under the heading “The Merger—Interests of Merge Healthcare Directors and Executive Officers in the Merger—Holder Agreements” beginning on page 39.

The surviving corporation will assume, and IBM will cause the surviving corporation and its successors and assigns to comply with and honor, all rights to indemnification, advancement of expenses and exculpation from liabilities for acts or omissions occurring at or prior to the effective time of the merger existing in favor of our and our subsidiaries’ current or former directors or officers as provided in our and their respective certificates of incorporation or bylaws (or comparable organizational documents) and any indemnification or other agreements as in effect on the date of the merger agreement and set forth on a schedule to the merger agreement. We have entered into indemnification agreements with each of our directors, the terms of which are summarized under the heading “The Merger – Indemnification and Insurance” beginning on page 69.

In the event the surviving corporation consolidates with or merges into another entity and is not the continuing or surviving entity of such consolidation or merger or transfers all or substantially all of its properties and assets to another entity, or if IBM dissolves the surviving corporation, IBM will cause the successors and assigns of the surviving corporation to comply with and honor the indemnification and other obligations set forth above.

IBM will obtain or will cause to be obtained as of the effective time of the merger a "tail" insurance policy with a claims period of six years from the effective time of the merger with respect to directors’ and officers’ liability insurance covering those persons who were, as of the date of the merger agreement, covered by our directors’ and officers’ liability insurance policy, for acts or omissions occurring prior to the effective time of the merger, subject to certain limitations.

Stockholders Agreement (page 71 and Annex B)

As a condition to IBM entering into the merger agreement, the Merrick Entities, which are controlled by or affiliated with Michael W. Ferro, Jr., executed and delivered to IBM a Stockholders Agreement dated August 6, 2015, which we refer to as the “stockholders agreement” in this proxy statement. At the close of business on the record date, the Merrick Entities collectively beneficially owned 26,031,298 shares of our common stock, which represents approximately 23.5% of the voting power of our capital stock (including our Series A Convertible Preferred Stock, which votes with our common stock as a single class on an as-converted basis in accordance with the terms of the certificate of designation of the Series A Convertible Preferred Stock). Pursuant to the

stockholders agreement, the Merrick Entities agreed, among other things, to vote or cause to be voted all shares of our capital stock that they own in favor of the merger and the merger agreement; provided that the merger agreement shall not have been amended or modified in a manner adverse to the Merrick Entities. In addition, the Merrick Entities agreed to grant IBM, and certain individuals appointed by IBM, an irrevocable proxy in respect thereof. The stockholders agreement is attached hereto as Annex B.

Legal Proceedings Regarding the Merger (page 44)

Since the announcement of the merger, our directors were named as defendants in a number of putative class actions brought by Merge Healthcare stockholders. These actions also name IBM and merger sub and, in some cases us and Goldman Sachs, as additional defendants.

These actions, purportedly brought on behalf of a class of our stockholders, generally allege that our directors, aided and abetted by IBM and merger sub and, in some cases, us and Goldman Sachs, purportedly breached their fiduciary duties in connection with the proposed merger and failed to maximize stockholder value. Each of the complaints includes requests for declaratory, injunctive and other equitable relief, including to enjoin us and IBM from consummating the merger, in addition to fees and costs. We believe that the claims are without merit.

Conditions to the Closing of the Merger (page 65)

Our, IBM’s and merger sub’s obligations to effect the merger are subject to the satisfaction or waiver of the following conditions:

IBM’s and merger sub’s obligations to effect the merger are further subject to the satisfaction by us or waiver by them of the following conditions:

product, or requiring any such party to dispose of, license or hold separate all or any portion of the business or assets or any product of us, IBM or any of our or its subsidiaries, in each case, as a result of or in connection with the merger or any of the other transactions contemplated by the merger agreement;

Our obligations to effect the merger are subject to the further satisfaction by IBM and/or merger sub or waiver by us of the following conditions:

No Solicitation of Acquisition Proposals by Merge Healthcare (page 61)

We have agreed that we will not, and will not authorize or permit any of our subsidiaries to, nor will we authorize or permit any of our or our subsidiaries’ directors, officers or employees or any of our or their investment bankers, attorneys, accountants or other advisors or representatives to, directly or indirectly:

Despite these general prohibitions, at any time prior to the adoption of the merger agreement by our stockholders and subject to the conditions described below under the heading “The Merger Agreement—Covenants—No Solicitation of Acquisition Proposals” beginning on page 61, in response to a bona fide written unsolicited takeover proposal that our board of directors determines in good faith is, or could reasonably be expected to lead to, a superior proposal (as defined in the merger agreement and described below under the heading “The Merger Agreement—Covenants—Board Recommendation”) and which did not result from our breach of the merger agreement, we may and may permit and authorize our subsidiaries and our and our subsidiaries representatives to:

Termination of the Merger Agreement (page 67)

The merger agreement may be terminated and the merger abandoned, whether before or after our stockholders approve the merger, under the following circumstances:

which in the reasonable good faith judgment of the board provides consideration that is more favorable to our stockholders than the consideration payable in the merger and is reasonably capable of being completed or (ii) an intervening event occurs that would cause our board of directors, after consulting with its outside legal counsel and financial advisor, to reasonably conclude in good faith that the failure to modify or withdraw its recommendation would be reasonably likely to result in a breach of its fiduciary duties;

Termination Fee and Expenses (page 68)

Each party will generally pay its own fees and expenses in connection with the merger agreement and the transactions contemplated by the merger agreement, whether or not the merger is consummated.

We will be required to pay a termination fee of $26.0 million to IBM, if:

Regulatory Matters (page 52)

The HSR Act prohibits us from completing the merger until we have furnished certain information and materials to the Antitrust Division of the Department of Justice and the Federal Trade Commission and the required waiting period has expired or been terminated. The parties filed their respective notification and report

forms pursuant to the HSR Act with the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission on August 21, 2015 and received early termination of the waiting period effective September 1, 2015.

Appraisal Rights (page 45 and Annex D)

Record holders of our common stock or Series A Convertible Preferred Stock as of the record date who do not vote in favor of the merger may elect to pursue their appraisal rights to receive the judicially determined “fair value” of their shares, which could be more or less than, or the same as, the per share merger consideration for the common stock or Series A Convertible Preferred Stock, but only if they comply with the procedures required under Delaware law. For a summary of these Delaware law procedures, see “The Merger— Appraisal Rights” beginning on page 45. An executed proxy that is not marked “AGAINST” or “ABSTAIN” will be voted “FOR” the adoption of the merger agreement and will disqualify the stockholder submitting that proxy from demanding appraisal rights.

A copy of Section 262 of the General Corporation Law of the State of Delaware, or DGCL, is included as Annex D to this proxy statement. Failure to follow the procedures set forth in Section 262 of the DGCL will result in the loss of appraisal rights. We encourage you to read these provisions carefully and in their entirety.

ANY MERGE HEALTHCARE STOCKHOLDER WHO WISHES TO EXERCISE APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE HIS, HER OR ITS RIGHT TO DO SO SHOULD REVIEW ANNEX D CAREFULLY AND SHOULD CONSULT HIS, HER OR ITS LEGAL ADVISORS, SINCE FAILURE TO TIMELY AND FULLY COMPLY WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN THE LOSS OF SUCH RIGHTS.

MARKET PRICES AND DIVIDEND DATA

Our common stock is listed on the NASDAQ Global Select Market under the symbol “MRGE.” This table shows, for the periods indicated, the range of intraday high and low per share sales prices for our common stock as reported on the NASDAQ Global Select Market.

The following table sets forth the closing price per share of our common stock, as reported on the NASDAQ Global Select Market on August 5, 2015, the last full trading day before the public announcement of the merger, and on September 10, 2015 the latest practicable trading day before the printing of this proxy statement:

You are encouraged to obtain current market quotations for our common stock in connection with voting your shares of common stock. If the merger is consummated, there will be no further market for our common stock, and our common stock will be delisted from the NASDAQ Global Select Market and deregistered under the Securities Exchange Act.

Our Series A Convertible Preferred Stock is not listed on any exchange or quotation system. There is no established trading price for the Series A Convertible Preferred Stock.

Dividends

We did not pay any dividends on our common stock in the 2015, 2014 or 2013 fiscal years.

We paid dividends of $413,194 on March 31, 2015, and $1,062,500 on June 30, 2015, on our Series A Convertible Preferred Stock.

THE SPECIAL MEETING

The enclosed proxy is solicited on behalf of the board of directors of Merge Healthcare for use at the special meeting of our stockholders or at any adjournment or postponement thereof.

Date, Time and Place

We will hold the special meeting at Merge Healthcare’s corporate headquarters, 350 North Orleans Street, First Floor, Chicago, Illinois 60654, at 10:00 a.m., local time, on October 13, 2015.

Purpose of the Special Meeting

At the special meeting, we will ask the holders of our common stock and Series A Convertible Preferred Stock to (i) adopt the merger agreement as it may be amended from time to time, (ii) if there are not sufficient votes in favor of adoption of the merger agreement, to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies and (iii) vote on a proposal with respect to the approval, on an advisory (non-binding) basis, of certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger.

Record Date; Shares Entitled to Vote; Quorum

Holders of record of our common stock and Series A Convertible Preferred Stock at the close of business on September 10, 2015, the record date, are entitled to notice of, and to vote at, the special meeting. At the close of business on the record date, our outstanding stock was entitled to votes representing the equivalent of 110,810,801 shares of our common stock, including (i) 99,290,064 shares of our common stock, and (ii) 50,000 shares of our Series A Convertible Preferred Stock, which entitle the holders of record of such Series A Convertible Preferred Stock to voting rights equal to 11,520,737 shares of our common stock. Holders of shares of our common stock will have one vote per proposal at the special meeting for each share of our common stock that such holder owns at the close of business on the record date. Holders of shares of our Series A Convertible Preferred Stock will have the number of votes per proposal equal to the largest number of full shares of our common stock into which all Series A Convertible Preferred Stock held of record by such holder could then be converted at the close of business on the record date, subject to and in accordance with the terms of the certificate of designation of the Series A Convertible Preferred Stock.

A quorum of stockholders is necessary to hold a valid special meeting. Under our bylaws, a quorum is present at the special meeting if the holders of a majority of the shares of our capital stock issued and outstanding and entitled to vote are present in person or represented by proxy at the meeting. In the event that a quorum is not present at the special meeting, it is expected that the special meeting will be adjourned by the chairman of the meeting to solicit additional proxies. For purposes of determining the presence of a quorum, abstentions will be counted as shares present and broker non-votes (where a broker or nominee does not exercise discretionary authority to vote on a matter), if any, will be counted as shares present.

Vote Required

The proposal to adopt the merger agreement must be approved by the affirmative vote of the holders of a majority of the outstanding shares of our common stock and Series A Convertible Preferred Stock, voting as a single class and, in the case of our Series A Convertible Preferred Stock, on an as-converted basis in accordance with the terms of the certificate of designation of the Series A Convertible Preferred Stock.

Approval of each of the other proposals (i) to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes in favor of the adoption of the merger agreement at the time of the special meeting and (ii) to approve, on an advisory (non-binding) basis, certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger, requires the affirmative vote of the holders of a majority of the shares of our common stock and Series A Convertible Preferred Stock present in person or represented by proxy and entitled to vote at the special meeting, voting as a single class and, in the case of our Series A Convertible Preferred Stock, on an as-converted basis in accordance with the terms of the certificate of designation of the Series A Convertible Preferred Stock, assuming a quorum is present.

Voting by Merge Healthcare Directors and Executive Officers

At the close of business on the record date, our directors and executive officers and their affiliates owned and were entitled to vote shares of our common stock representing approximately 26.5% of the voting power of our capital stock (including our Series A Convertible Preferred Stock, which votes with our common stock as a single class on an as-converted basis in accordance with the terms of the certificate of designation of the Series A Convertible Preferred Stock). We expect that these directors and executive officers will vote all of their shares of our common stock “FOR” adoption of the merger agreement, “FOR” the proposal to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies and “FOR” the proposal with respect to an approval, on an advisory (non-binding) basis, of certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger.

In addition, the Merrick Entities, which are controlled by or affiliated with Michael W. Ferro, Jr., entered into a stockholders agreement with IBM pursuant to which such stockholders agreed, among other things, to vote or cause to be voted all shares of common stock and Series A Convertible Preferred Stock that they own in favor of the merger and the merger agreement, provided that the merger agreement shall not have been amended or modified in a manner adverse to such stockholders. The terms of the stockholders agreement are discussed further under the heading “Stockholders Agreement.”

Voting of Proxies

If your shares of common stock or Series A Convertible Preferred Stock are registered in your name and you do not plan to attend the special meeting and vote in person, you may cause your shares to be voted at the special meeting by returning a signed proxy card. Additionally, you may submit a proxy authorizing the voting of your shares via the Internet or by telephone. You must have the enclosed proxy card available, and follow the instructions on the proxy card, in order to submit a proxy via the Internet or telephone.

If your shares of common stock or Series A Convertible Preferred Stock are registered in your name and you attend the special meeting and wish to vote in person, you will be given a ballot at the meeting. If your shares of common stock or Series A Convertible Preferred Stock are registered in your name, you are encouraged to submit a proxy card even if you plan to attend the special meeting in person. Please note that stockholders who wish to attend the special meeting are encouraged to register no later than October 6, 2015 on our website at http://www.merge.com/SpecialMeeting.aspx.

Voting instructions are included on your proxy card. All shares of common stock or Series A Convertible Preferred Stock represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in accordance with the instructions of the stockholder. Properly executed proxies that do not contain voting instructions will be voted “FOR” the adoption of the merger agreement, “FOR” the proposal to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies and “FOR” the proposal to approve, on an advisory (non-binding) basis, certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger, provided that no proxy that is specifically marked “AGAINST” the proposal to adopt the merger agreement will be voted “FOR” the adjournment proposal or the proposal regarding the compensation arrangements unless it is specifically marked “FOR” the adjournment proposal and/or “FOR” the proposal regarding the compensation arrangements.

If your shares are not registered in your name and are, instead, held in “street name” through a broker or other nominee, you may provide voting instructions to your broker or nominee by completing and returning the voting form provided by your broker or nominee or via the Internet or by telephone through your broker or nominee, if such a service is provided. To provide voting instructions via the Internet or telephone, you should follow the instructions on the voting form provided by your broker or nominee. If your shares are held in “street name” and you plan to attend the special meeting, you will need a proxy from your broker or nominee in order to be given a ballot to vote the shares. If you do not return your broker’s or nominee’s voting form, provide voting instructions via the Internet or telephone through your broker or nominee, if possible, or attend the special meeting and vote in person with a proxy from your broker or nominee, you will be unable to vote at the special meeting, and it will have the same effect as if you voted “AGAINST” the adoption of the merger agreement.

Revocability of Proxies

Any proxy that you give pursuant to this solicitation may be revoked by you at any time before it is voted. Proxies may be revoked as follows:

If you have sent a proxy directly to Merge Healthcare, you may revoke it by:

If you have instructed a broker or nominee to vote your shares, you may revoke your proxy only by following the directions received from your broker or nominee to change those instructions.

Revocation of a proxy will not affect any vote taken prior to revocation. Attendance at the special meeting will not in itself constitute the revocation of a proxy; you must vote in person at the special meeting to revoke a previously delivered proxy.

Board of Directors’ Recommendations

Our board of directors has approved the merger agreement and determined that the merger agreement and the merger are fair to and advisable and in the best interests of Merge Healthcare and its stockholders. Our board of directors recommends that Merge Healthcare stockholders (i) vote “FOR” the proposal to adopt the merger agreement, (ii) vote “FOR” the proposal to adjourn the special meeting to a later date, if necessary or appropriate, to permit the solicitation of additional proxies in the event there are not sufficient votes in favor of adoption of the merger agreement at the time of the special meeting and (iii) vote “FOR” the proposal to approve, on an advisory (non-binding) basis, certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger.

Abstentions and Broker Non-Votes

Stockholders that abstain from voting on a particular matter and shares held in “street name” by brokers or nominees who indicate on their proxies that they do not have discretionary authority to vote such shares as to a particular matter will not be counted as votes in favor of such matter. For purposes of determining the presence of a quorum, abstentions will be counted as shares present, and broker non-votes (where a broker or nominee does not exercise discretionary authority to vote on a matter), if any, will be counted as shares present. Abstentions and broker non-votes will have the same effect as votes “AGAINST” the adoption of the merger agreement. In addition, abstentions will have the same effect as votes “AGAINST” (i) the proposal to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes in favor of adoption of the merger agreement at the time of the special meeting and (ii) the proposal to approve, on an advisory (non-binding) basis, certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger. Assuming a quorum is present, broker non-votes will have no effect on the proposals other than the proposal regarding the adoption of the merger agreement.

Solicitation of Proxies

The expense of soliciting proxies in the enclosed form will be borne by Merge Healthcare. We may reimburse brokers, banks and other custodians, nominees and fiduciaries representing beneficial owners of shares for their expenses in forwarding soliciting materials to such beneficial owners. Proxies may be solicited by certain of our directors, officers and employees, personally or by telephone, facsimile or other means of communication. No additional compensation will be paid for such services.

Stockholder List

A list of our stockholders entitled to vote at the special meeting will be available for examination by any Merge Healthcare stockholder at the special meeting. For ten days prior to the special meeting, this stockholder list will be available for inspection by any stockholder for any purpose germane to the special meeting during ordinary business hours at our corporate offices located at Merge Healthcare Incorporated, 350 North Orleans Street, First Floor, Chicago, Illinois 60654.

THE COMPANIES

Merge Healthcare Incorporated

We are a Delaware corporation that was founded in 1987. We develop enterprise imaging software solutions that facilitate the sharing of images to create a more effective and efficient electronic healthcare experience for patients and physicians. Our solutions are designed to help solve some of the most difficult challenges in health information exchange today, such as the incorporation of medical images and diagnostic information into broader healthcare IT applications, the interoperability of proprietary software solutions, and the ability to improve the efficiency and cost effectiveness of our customers’ businesses. We believe that our ability to innovate has driven consistent expansion of solutions and services and entry into new markets. Our solutions optimize processes for healthcare providers ranging in size from single provider practices to large health systems, to the sponsors of clinical trials and medical device manufacturers. Our Merge Healthcare segment markets, sells and implements interoperability, imaging and clinical solutions to healthcare providers. It generates revenue from the licensing of

software (including upgrades), the sale of hardware, professional services, maintenance and electronic data interchange services. Our Merge DNA (Data and Analytics) segment derives the vast majority of its revenue from licensing our software on a hosted basis and providing professional services.

Merge Healthcare’s principal executive offices are located at 350 North Orleans Street, First Floor, Chicago, Illinois 60654. Merge Healthcare’s website is located at http://www.merge.com. Additional information regarding Merge Healthcare is contained in our filings with the SEC. See “Where You Can Find More Information” beginning on page 75.

International Business Machines Corporation

IBM, a New York corporation, creates value for clients through integrated solutions and products that leverage: data, information technology, deep expertise in industries and business processes, and a broad ecosystem of partners and alliances. IBM solutions typically create value by enabling new capabilities for clients that transform their businesses and help them engage with their customers and employees in new ways. These solutions draw from an industry-leading portfolio of consulting and IT implementation services, cloud and cognitive offerings, and enterprise systems and software; all bolstered by one of the world’s leading research organizations.

IBM’s principal executive offices are located at 1 New Orchard Road, Armonk, New York 10504 and its telephone number is (914) 499-1900. Additional information regarding IBM is contained in IBM’s filings with the SEC.

Datong Acquisition Corp.

Datong Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of IBM, was organized solely for the purpose of entering into the merger agreement and completing the merger and the other transactions contemplated by the merger agreement. Merger sub’s principal executive offices are located at 1 New Orchard Road, Armonk, New York 10504 and its telephone number is (914) 499-1900. Merger sub has not conducted any business operations other than in connection with the transactions contemplated by the merger agreement.

Upon consummation of the merger, merger sub will cease to exist, and Merge Healthcare will continue as the surviving corporation.

THE MERGER

The following discussion summarizes the material terms of the merger. We urge you to read carefully the merger agreement, which is attached as Annex A to this proxy statement.

Background to the Merger

As part of our regular strategic planning activities, our board of directors and senior management periodically review and assess our business operations, financial performance and competitive position, as well as industry trends and potential strategic initiatives. Over the past several years, we have considered a range of strategic alternatives with a view to increasing stockholder value, including potential commercial and strategic business partnerships, potential acquisitions and other business combination transactions, as well as the possible sale of our company to a third party or in a going private transaction.

In September 2012, as was previously disclosed, our board of directors retained Allen & Company LLC, a New York-based investment bank, which we refer to as “Allen & Co.” in this proxy statement, to assist in exploring and evaluating a broad range of strategic alternatives, including, but not limited to, a sale or a business combination. Among other activities conducted during its engagement, Allen & Co. contacted more than ten potential buyers with respect to their interest in a possible transaction with us. Several parties demonstrated some interest in pursuing a transaction with us, but our discussions with only two of those parties advanced to a stage where the party expressed an interest in acquiring us for a particular price. One interested party expressed interest in acquiring us at a price of $3.50 per share, while another party expressed interest in a transaction at between $3.00 and $3.25 per share. Each of these expressions of interest was conditioned on additional due diligence review, the negotiation of definitive agreements and various other factors. During this period, our common stock was trading in a range between $2.41 per share and $4.05 per share. For a number of reasons,

including the fact that these expressions of interest were not meaningfully in excess of the then-current trading price for our common stock, our board of directors decided not to pursue a transaction at that time, and Allen & Co.’s engagement as our financial advisor terminated in February 2013.

During this period, Merrick Ventures, LLC, which we refer to as “Merrick Ventures” in this proxy statement, which is our largest stockholder and is controlled by Michael W. Ferro, Jr., had a consulting agreement with us that, among other things, would have provided for a substantial payment to Merrick Ventures in the event that we consummated a strategic transaction. Mr. Ferro resigned from our board of directors in August 2013. The Merrick Ventures consulting agreement expired by its terms on December 31, 2013.

Since late 2012, we have continued to review and assess our strategic alternatives, and we have met with potential financial and strategic acquirors. During 2013 and early 2014, our senior management and members of our board of directors considered the trading price range for our common stock in relation to their view of the value of our various businesses and assets. Members of our senior management periodically communicated with various third parties, including both strategic and financial investors and potential acquirors, about the possible acquisition of, or investment in, certain of our businesses or our company as a whole. Certain of these discussions related to possible transactions with other healthcare information technology companies whereby the parties’ respective businesses would be combined, either through acquisition or a form of joint venture. Although certain third parties expressed interest in considering such acquisitions, investments or joint ventures, we did not receive any concrete proposals that our senior management and board of directors believed represented an attractive price for the relevant business or assets or would significantly increase stockholder value. Our senior management also continued to consider various other strategic transactions, including possible acquisitions by us that could expand our product portfolio or business operations.

In late October 2014, as part of our ongoing strategic review, we held an introductory meeting with a potential financial investor, which we refer to as “Party A” in this proxy statement. Mr. Dearborn met with representatives of Party A to discuss a potential minority investment in our company. On November 11, 2014, Party A entered into a confidentiality agreement with us to facilitate further discussions, including the sharing of certain limited confidential information. During November, Mr. Ferro, Mr. Dearborn and other Merge personnel engaged in a series of discussions with Party A regarding a transaction pursuant to which Party A would both make a minority investment directly in us and purchase a portion of Merrick Ventures’ interest in us. In early November 2014, Party A expressed interest in a transaction at a price of $2.60 per share. After various meetings and calls with representatives of Party A, we determined that we could not reach mutually satisfactory terms with Party A, including as to price. During that same month, our common stock traded in a range between $2.76 per share and $3.40 per share. In late November 2014, the parties terminated discussions with respect to Party A’s potential investment.

In November 2014, Mr. Ferro rejoined our board of directors and also was appointed as Chairman of our board of directors.

In early 2015, Mr. Ferro and our senior management team began an internal evaluation of future strategic product initiatives for our company. Based on this evaluation, Mr. Ferro and company personnel, including Steve Tolle, Merge Healthcare’s Chief Strategy Officer, and Jon DeVries, Merge Healthcare’s Vice President, Solutions Management, began to formulate a long-term strategy that would seek to utilize our access to millions of medical diagnostic images and the availability of cheaper and faster computing and artificial intelligence capabilities to develop a new business line for our company. We refer to Mr. Ferro, Mr. Tolle and Mr. DeVries as the “Merge eMed Team” in this proxy statement. This effort, code-named “eMed”, involved an internal assessment, as well as evaluations of the addressable market for the contemplated business. The eMed effort also included high-level, confidential, strategic discussions between the Merge eMed Team and selected customers, business partners and other industry participants to gauge their interest in the business line and willingness to participate in the development of the eMed concept, either by contributing strategic business assets or through cash investment. These discussions confirmed that at least certain market participants had interest in the eMed concept, but identified several significant impediments to its development, including large research and development expenditures, potentially exceeding $50 million. The Merge eMed Team reported on the eMed initiative to members of our board of directors, which considered our capital structure and the operating constraints under our existing credit facility on funding the eMed initiative. As a result, our board of directors concluded that it would

be difficult for us to commercialize the eMed concept without significant outside investment or partnering with a source of significant capital or other resources. Our board of directors authorized the Merge eMed Team to continue to meet and confer with industry participants, with the goal of identifying potential future business partners for the eMed concept.

As part of these efforts, the Merge eMed Team entered into various discussions with potential business partners with respect to the eMed concept. On April 13, 2015, Mr. Ferro and Mr. DeVries met with representatives of IBM at an industry conference and discussed our eMed concept, IBM’s Watson Health initiative and IBM’s recently-announced acquisitions of other healthcare information technology companies. Mr. Dearborn met with other IBM representatives at the same conference about other potential business relationships. Representatives of IBM expressed an interest in learning more about our eMed concept and invited the Merge eMed Team to Watson Health’s California location for a demonstration of IBM’s healthcare computing capabilities. On May 14, 2015, Mr. Ferro and Mr. Tolle visited IBM’s San Jose, California facility, with Mr. DeVries participating in certain meetings by phone. They viewed a demonstration of Watson Health’s operations and met with various IBM employees involved in the development of healthcare products and services.

Shortly after the meeting at Watson Health’s California location, Mr. Ferro contacted Virginia Rometty, IBM’s Chief Executive Officer, regarding the eMed concept and its potential relevance to IBM’s Watson Health operations. Ms. Rometty expressed IBM’s interest in learning more about our eMed concept and introduced Mr. Ferro to John Kelly, Senior Vice President, Solutions Portfolio and Research of IBM, who is responsible for IBM’s strategic planning related to Watson Health. Mr. Kelly invited the Merge eMed Team to visit IBM’s New York Watson Health facilities. On May 20, 2015, the Merge eMed Team visited IBM’s New York Watson Health office and met in person with Mr. Kelly. Two days later, the Merge eMed Team again met with Mr. Kelly and other IBM personnel in New York. During these meetings, Mr. Kelly told Mr. Ferro that IBM was interested in acquiring Merge. There was no discussion of specific transaction terms, including price, at that time.

In late May 2015, Mr. Ferro requested that our board of directors consider re-establishing a consulting agreement similar to what had been in place prior to his resignation as a director in August 2013. Mr. Ferro and various directors discussed various alternative compensation arrangements, including a potential consulting agreement with Merrick Ventures. On May 26, 2015, our board of directors met to receive a summary of the strategic discussions that had taken place with IBM, as well as to consider a compensation package for Mr. Ferro and/or Merrick Ventures for work on our behalf. Our board of directors also considered the possible engagement of a financial advisor in connection with a possible strategic transaction with IBM. Although our board of directors did not act on either issue, the compensation issue was referred to the Nominating and Governance Committee of our board of directors for further consideration.

On May 28, 2015, our board of directors again met to consider the engagement of a financial advisor and authorized the retention of Goldman Sachs for this role. In determining to retain Goldman Sachs, our board of directors considered Goldman Sachs’ reputation for high-quality investment banking services, Goldman Sachs’ experience in our industry, the positive recommendations about Goldman Sachs received by various members of our board of directors and the fact that a lead banker from Goldman Sachs was based in Chicago. Our board of directors and senior management also understood that, given the size and breadth of operations of both Goldman Sachs and IBM, it was likely that Goldman Sachs had various pre-existing investment banking and other business relationships with IBM that were unrelated to the proposed merger.

At that same May 28, 2015 meeting, our board of directors also concluded that, instead of a compensation package for Mr. Ferro, our board of directors would consider reinstating the prior consulting agreement with Merrick Ventures, an affiliate of Mr. Ferro, with revised economic provisions. Our board of directors then referred the matter to the Audit Committee of our board of directors for further review and consideration, given its charter responsibilities with respect to the review of agreements of this nature.

In recognition of the value of the services that Mr. Ferro and Merrick Ventures were providing and would continue to provide to us, on May 29, 2015, our Audit Committee approved, and recommended to our board of directors the approval of, an amended and restated consulting arrangement providing for the reinstatement and amendment of the consulting agreement between Merrick Ventures and us, which we refer to as the “Merrick consulting agreement” in this proxy statement. Later that day, our board of directors accepted our Audit Committee’s recommendation and approved the Merrick consulting agreement, and Merrick Ventures and we

entered into the Merrick consulting agreement. Pursuant to the terms of the Merrick consulting agreement, as reinstated and amended, (i) Merrick Ventures agreed to provide services to us that included, but were not limited to, product development and strategic planning, (ii) we agreed that, if we were to consummate a strategic transaction at an aggregate enterprise value of at least $1 billion, we would pay Merrick Ventures a one-time cash fee of $15 million and (iii) we agreed to reimburse Merrick Ventures’ expenses related to the performance of its services.

On May 29, 2015, we entered into a confidentiality agreement with IBM, and we subsequently made available to IBM certain preliminary due diligence materials.

From late May through early July, 2015, we regularly communicated with IBM regarding a possible strategic transaction. In particular, on June 4, 2015, Mr. Ferro met with Ms. Rometty and Mr. Kelly regarding a possible acquisition. At a meeting of our board of directors on June 17, 2015, Mr. Ferro updated our board of directors about our eMed initiatives and the discussions with IBM regarding a possible acquisition proposal. Mr. Ferro noted that there had been no discussions regarding the price of such a proposal.

On June 18 and 19, 2015, the Merge eMed Team met in person with Mr. Kelly and various other industry participants to discuss the market opportunity envisioned by the eMed concept and future product development possibilities. At this meeting, the Merge eMed Team discussed our eMed initiative and inquired as to whether the other companies participating in the meeting would consider investing in Merge or a possible new Merge subsidiary to fund our eMed initiative or entering into a joint venture arrangement with Merge and other possible joint venture participants. While some interest was expressed, none of the participants (other than IBM) made a specific proposal or requested further meetings to discuss our eMed initiative. At these meetings, Mr. Kelly reiterated IBM’s interest in acquiring us, but, again, price was not discussed.

During late May and June, our senior executives, including the Merge eMed Team, met and participated in numerous calls with IBM personnel responsible for IBM’s due diligence review, transaction evaluation process and integration planning activities. We provided IBM access to certain limited Merge business and financial information pursuant to the confidentiality agreement. These meetings and calls reflected IBM’s interest in acquiring the company, although the price of any proposal was not discussed.

On July 7, 2015, Leigh Price, Vice President, Mergers & Acquisitions of IBM, submitted to Mr. Dearborn a draft exclusivity agreement that reflected a proposed purchase price of $5.65 per share in cash for all of our outstanding common stock. IBM indicated that its willingness to continue its consideration of a transaction with us was conditioned on entry into such an exclusivity agreement effective through September 8, 2015. IBM also indicated that its willingness to enter into a definitive agreement with respect to its acquisition of us was subject both to its satisfactory completion of its due diligence review and to the parties reaching mutual agreement on acceptable definitive agreements, including customary employment and retention arrangements with certain members of our senior management team.

On July 8 and 9, 2015, our board of directors held meetings to consider, among other things, IBM’s draft exclusivity agreement, its proposed price for our outstanding common stock and other terms and conditions related to the possible transaction. Our management and representatives of Goldman Sachs reported on their respective discussions with IBM representatives. After discussion at its July 9, 2015 meeting, our board of directors instructed Mr. Ferro and Mr. Dearborn to convey to IBM that we were unwilling to enter into an exclusivity agreement at the proposed $5.65 per share price. Our board of directors then authorized Mr. Ferro and our senior management to enter into an appropriate exclusivity agreement with IBM if IBM responded with a higher proposed purchase price that better reflected our board of directors’ view of our value and provided an appropriate basis on which to negotiate the definitive agreements related to the possible transaction.

Later, on July 9, 2015, Mr. Dearborn called Mr. Price, and Mr. Ferro called Mr. Kelly, to discuss IBM’s draft exclusivity agreement and IBM’s indicated price of $5.65 per share. Mr. Ferro and Mr. Dearborn explained why our board of directors did not believe that the price was adequate. They also indicated that, if IBM substantially raised its proposed price, we would be willing to grant IBM exclusivity for a limited time to facilitate IBM’s due diligence and negotiation of a potential transaction with IBM at the raised purchase price. Representatives of IBM stated that they would consider our comments and respond as soon as they could. The IBM representatives also requested that we promptly provide our other comments on the draft exclusivity agreement.

On July 10, 2015, we sent to IBM a revised draft of the exclusivity agreement, reflecting our comments and proposing, among other changes, that the exclusivity period would expire on July 23, 2015. Later that day, IBM responded to our comments on the exclusivity agreement, indicated that IBM had increased its view of the enterprise value of our company to $1 billion, and provided a proposed calculation of the enterprise value which would result in a $6.75 per share purchase price. Mr. Dearborn then spoke with Mr. Price to discuss IBM’s methodology for calculating our enterprise value and indicated that we believed that at a $1 billion enterprise value, the purchase price would be $7.00 per share. Mr. Ferro then spoke with Mr. Kelly, and indicated that we would grant exclusivity to IBM, if IBM’s proposed purchase price was $7.00 per share. After further discussions between Mr. Dearborn and Mr. Price, we agreed with IBM to an exclusivity agreement that included an exclusivity period continuing through August 27, 2015 and reflected a proposed purchase price of $7.00 per share. On July 10, 2015, we signed the proposed exclusivity agreement and delivered it to IBM, and IBM returned a signed copy to us on July 13, 2015.

On July 13, 2015, Goldman Sachs and we executed a formal engagement letter setting forth, among other things, the terms of Goldman Sachs’ services for us and its compensation. The engagement letter noted that Goldman Sachs regularly engaged in advisory, underwriting, lending and financing, principal investing, sales and trading, research and investment management activities with a variety of clients and counterparties, that Goldman Sachs’ clients and counterparties may include persons and entities in our sector, or with which we have a relationship or that may be involved in our merger transaction, and that Goldman Sachs may be, may have been or may become involved in transactions and assignments with these clients and counterparties, which transactions or assignments are unrelated to Goldman Sachs’ work for us. Members of our board of directors and senior executives were aware that a prominent investment banking and financial services firm like Goldman Sachs would have relationships of this nature with such persons or entities.

On July 14, 2015, our board of directors met and discussed the progress of our negotiations with IBM, including IBM’s proposed increase of the price per share to $7.00. Representatives of our legal counsel, Jenner & Block LLP, which we refer to as “Jenner” in this proxy statement, reviewed for the directors their fiduciary duties generally and in connection with proposed transactions of this type. During the meeting, our board of directors (i) discussed various alternatives that we could consider with respect to a potential sale, (ii) reviewed the possibility of interest levels of other potential buyers of our company, (iii) considered the potential harm to our company if the possibility of a sale of our company became known to the public or to our customers and competitors, and (iv) considered the risk of jeopardizing IBM’s offer by soliciting other potential buyers. At the meeting, Goldman Sachs delivered a presentation providing a preliminary summary of (a) the historical stock price performance of our common stock, (b) the trading multiples of certain public companies and (c) certain research analyst perspectives and such analysts’ projections as to the future performance of our stock price. During the meeting, our management also presented our management’s projections as to our future operating performance.

On July 15, 2015, IBM commenced its formal legal, financial, technical and business due diligence review. IBM’s review continued through August and included various in-person IBM diligence meetings and company management presentations. We responded to numerous IBM requests for additional information as part of its review.

On July 21, 2015, our board of directors met to discuss our second quarter 2015 financial results and review a draft of our proposed earnings release, which was subsequently issued on July 23, 2015. During this meeting, Mr. Dearborn also updated our board of directors on the general status of the proposed transaction, including IBM’s due diligence review.

On July 24, 2015, Cravath, Swaine & Moore LLP, which we refer to as “Cravath” in this proxy statement, legal counsel to IBM, sent Jenner an initial draft of the merger agreement relating to the proposed transaction. Cravath also sent to Jenner an initial draft of a form of stockholders agreement that IBM requested from each of Merrick Ventures (and certain of its affiliates) and Guggenheim (and certain of its affiliates). IBM indicated that the execution of the stockholders agreements, as well as other restrictive covenant agreements that had not yet been provided, by Merrick Ventures and entities affiliated with Guggenheim Partners Investment Management, LLC, which we collectively refer to as “Guggenheim” in this proxy statement, would be a precondition to it entering into any definitive merger agreement. IBM also indicated that a separate restrictive covenant agreement with Mr. Ferro, personally, would be a further precondition, and that no additional consideration would be paid to Merrick Ventures, Guggenheim or Mr. Ferro for or pursuant to any of these contemplated agreements.

On July 26, 2015, representatives of IBM, Jenner, Cravath, Goldman Sachs and us held a telephonic discussion regarding the draft of the merger agreement and other related topics. During the call, Jenner indicated to IBM and its counsel that our board of directors was considering the formation of a special committee to negotiate the proposed merger with IBM in light of the fact that, with the changed price in the transaction, the Merrick consulting agreement would provide for a $15 million payment to Merrick Ventures. Jenner also raised with IBM and Cravath a number of questions regarding the proposed transaction and issues with the merger agreement. Jenner noted that the draft merger agreement (i) did not include a “go-shop” provision that would allow us to solicit alternative acquisition proposals for a period of time after signing, (ii) would not allow us to terminate the merger agreement in order to accept a superior proposal or if our board of directors changed its recommendation of the merger, and required us to submit the merger agreement to a vote of our stockholders even if our board of directors changed its recommendation, (iii) required the payment of a $35 million termination fee upon termination of the merger agreement under certain circumstances, and (iv) included an extensive set of company representations and warranties and a related closing condition that required our representations and warranties to be true and correct in all material respects at the time of closing. Jenner also noted that IBM had requested stockholders agreements from holders of a significant percentage of our voting equity securities, including Merrick Ventures and Guggenheim. In response, Cravath indicated that IBM’s $7.00 per share proposed price represented an attractive price for our company and that, as a result, IBM viewed such deal protection mechanisms as both necessary and appropriate from IBM’s perspective and reasonable to all parties under the circumstances.

During the week of July 24, representatives of Jenner, Cravath and Kirkland & Ellis LLP (counsel to Merrick Ventures and Mr. Ferro, personally), which we refer to as “Kirkland” in this proxy statement, held a number of telephone conferences and exchanged correspondence regarding the terms and conditions of the draft agreements. During this time, Cravath provided a draft of a form holders agreement, which included noncompetition provisions that IBM required from certain of our stockholders, including Merrick Ventures (and certain of its affiliates) and Guggenheim (and certain of its affiliates). During this time, members of our board of directors, senior management and Jenner discussed various considerations regarding the potential formation and use of a special committee that would not include Mr. Ferro to negotiate the merger with IBM in light of the payment that would become due under the Merrick consulting agreement.

On July 29, 2015, Mr. Ferro called Mr. Kelly to discuss whether IBM would be willing to increase its proposed price for the transaction. Mr. Ferro also suggested that if IBM were willing to increase the price paid to all stockholders, Merrick Ventures would consider waiving the contemplated consulting fee of $15 million. Mr. Kelly indicated that IBM would consider the request, and, later that evening, Mr. Price sent an e-mail to Mr. Dearborn indicating that IBM would raise its price to $7.13 per share if Merrick Ventures would waive the consulting fee. The additional $0.13 per share price represents an aggregate increase in total consideration to our stockholders of approximately $15 million, of which Merrick Ventures would only receive its pro rata share, or approximately $3.5 million.

On July 30, 2015, Jenner delivered a revised draft of the merger agreement to Cravath. The draft reflected a revised purchase price of $7.13 per share and contained various changes to IBM’s proposed deal protection provisions, including among other things, our request for (i) a “go-shop” provision, (ii) the ability to terminate the merger agreement to accept a superior proposal or if our board of directors changed its recommendation of the merger, (iii) a lower termination fee (as compared to the $35 million termination fee proposed by IBM), (iv) more limited representations and warranties and (v) modifications to the related closing conditions. Jenner also delivered a revised draft of the form of stockholders agreement, which included comments from Kirkland on behalf of Merrick Ventures.

On July 31, 2015, Jenner and Cravath discussed the revised draft of the merger agreement. Cravath indicated that IBM would not accept our proposed changes to various deal protection provisions of the merger agreement, including our requests for a “go-shop” provision and for the ability to terminate the merger agreement to accept a superior proposal or if our board of directors changed its recommendation. Cravath did indicate, however, that IBM would be willing to consider a lower termination fee. Jenner and Cravath then discussed the comments on the stockholders agreement, along with the status of the various holders agreements that IBM wanted certain of our stockholders (including Merrick Ventures and Guggenheim) and certain individuals affiliated with our company (including Mr. Ferro, Mr. Dearborn and Ms. Koenig) to sign as a precondition to the execution of the merger agreement.

On August 1, 2015, Cravath sent Jenner revised drafts of the merger agreement and the stockholders agreements. On August 2 and 3, 2015, counsel to the parties continued to negotiate the various definitive agreements in preparation for a final decision by each party as to whether to proceed.

On August 3, 2015, our board of directors met to review the then-current draft of the merger agreement and our proposed revisions to the merger agreement. Our senior management, a representative of Jenner and a representative of Goldman Sachs reviewed the status of negotiations with IBM with our board of directors. A representative of Jenner further reviewed various terms of the merger agreement, including, among other things, our representations, warranties and covenants in the merger agreement, the circumstances under which IBM would not be required to complete the acquisition, the ability of our board of directors to respond to a superior acquisition proposal by withdrawing its recommendation to stockholders, our inability to terminate the merger agreement to accept a superior proposal or if our board of directors changed its recommendation and our continuing obligation to submit the merger agreement to a vote of our stockholders, and the termination fee payable by us under various circumstances, including if IBM terminated the merger agreement after our board of directors withdrew or gave notice of its intent to withdraw its recommendation of the merger. A representative of Jenner also reviewed the terms of the proposed stockholders agreements. Our board of directors also discussed the process to date regarding the negotiations of the merger agreement, including IBM’s increase in the per share purchase price from $7.00 to $7.13 in exchange for Merrick Ventures’ waiver of the consulting fee. A representative of Jenner also reviewed with our directors their fiduciary duties under applicable Delaware corporate law in a transaction of this type. After further discussion, our board of directors authorized our senior management and Jenner to continue to negotiate with respect to the deal protections in the merger agreement, including requesting the ability to terminate the merger agreement in order to accept a superior proposal or if our board of directors changed its recommendation, the elimination of IBM’s requirement that Guggenheim execute a stockholders agreement with IBM and a reduced termination fee.

Later that day, representatives of IBM, Jenner, Cravath and us discussed various issues relating to the merger agreement, including the issues our board of directors had instructed Jenner to raise. Jenner also indicated that we believed that the termination fee should be reduced to $18 million. IBM and Cravath indicated that IBM would not agree to most of our requests, including a “go-shop” provision and an ability to terminate the merger agreement in order to accept a superior proposal or if our board of directors changed its recommendation. In addition, IBM and Cravath stated that IBM would require a stockholder’s agreement from Guggenheim and a termination fee substantially greater than our proposed amount.

From August 3, 2015 to August 5, 2015, representatives of IBM, Jenner, Cravath and us continued to finalize various matters, including our disclosure letter, in anticipation of a potential signing of the merger agreement. In addition, IBM, Cravath, Merrick Ventures and Kirkland continued to finalize the terms of the stockholders agreements and holders agreements that IBM also sought to have in place before it signed the merger agreement.

On August 4, 2015, a representative of IBM sent Mr. Dearborn a form of offer letter to be entered into between IBM and certain of our key executives. The form offer letter for each key executive included a proposed retention arrangement and was conditioned upon IBM completing the proposed acquisition. Our senior executives and IBM worked to finalize and execute the various offer letters with respect to post-closing employment that IBM sought to have completed prior to IBM’s signing of the merger agreement.

On August 5, 2015, our board of directors met to consider and, if appropriate, vote to approve the merger with IBM. At the meeting, representatives of Goldman Sachs presented certain financial analyses and then rendered Goldman Sachs’ oral opinion (which was subsequently confirmed in writing), to our board of directors that, as of the date of the written opinion and based upon and subject to the factors, assumptions and limitations set forth therein, the merger consideration of $7.13 per share to be paid to holders (other than IBM and its affiliates) of our common stock pursuant to the merger agreement was fair from a financial point of view to such holders. The representatives of Goldman Sachs also indicated that Goldman Sachs’ written fairness opinion would be delivered promptly after receipt of a copy of an executed merger agreement, and that written opinion was subsequently delivered to us on August 6, 2015. The full text of the opinion of Goldman Sachs, dated August 6, 2015, is attached to this proxy statement as Annex C and is incorporated by reference in this proxy statement in its entirety. See also, “The Merger—Opinion of Merge Healthcare’s Financial Advisor” beginning on page 28.

At the August 5, 2015 meeting of our board of directors, representatives of Jenner also reviewed the proposed terms and conditions of the merger agreement, including our representations, warranties and covenants in the merger agreement, the circumstances under which IBM would not be required to complete the acquisition after entering into the merger agreement, the ability of our board of directors to respond to a superior acquisition proposal by withdrawing its recommendation to stockholders, our inability to terminate the merger agreement to accept a superior proposal or if our board of directors changed its recommendation and our continuing obligation to submit the merger agreement to a vote of our stockholders, and the termination fee payable by us under certain circumstances, including if IBM were to terminate the merger agreement after our board of directors withdrew or gave notice of its intent to withdraw its recommendation of the merger. A representative of Jenner reviewed our directors’ fiduciary duties under applicable Delaware corporate law in connection with the proposed transaction and then reviewed the proposed resolutions to be considered by our board of directors for approval. A representative of Jenner also noted that Goldman Sachs had provided an excerpt from its draft fairness opinion, which excerpt provided additional details regarding investment banking and other financial services that Goldman Sachs had previously performed for IBM. After further review and discussion, our board of directors concluded that in its view such prior relationships with IBM had not affected Goldman Sachs’ independence or its ability to provide an appropriate fairness opinion to us. After further review and discussion, our board of directors resolved to approve the merger agreement and related matters and resolved to recommend that our stockholders adopt the merger agreement, which is attached hereto as Annex A. Mr. Dearborn recused himself from the vote with respect to the merger agreement, because, earlier that day, he had reached agreement with IBM, at IBM’s insistence, regarding his offer letter for post-closing employment by IBM. During the meeting of our board of directors, our compensation committee also met to consider the treatment of various outstanding stock options and shares of restricted stock in the merger agreement and unanimously resolved to approve the treatment of various outstanding options and shares of restricted stock contemplated by the merger agreement.

On August 5 and 6, 2015, the parties continued to finalize the merger agreement and other agreements. The merger agreement was finalized, executed and delivered by IBM and us early on August 6, 2015. At that time, (i) Merrick Ventures and certain of its affiliates had executed a stockholders agreement, and Merrick Ventures and Mr. Ferro had each executed a holders agreement with IBM; (ii) Merrick Ventures and we had amended the Merrick consulting agreement to waive payment of Merrick Ventures’ $15 million fee in connection with the merger; and (iii) ten of our senior executives, only one of whom is also a director, had entered into their respective offer letters for post-merger employment with IBM. Neither Merrick Ventures nor Mr. Ferro received or are to receive any additional consideration for or under the agreements that they signed with IBM. When the merger agreement was executed and delivered, Guggenheim had not executed a stockholders agreement or other agreement with IBM, and no such agreements were subsequently finalized. The signing of the merger agreement was publicly announced on the morning of August 6, 2015.

Recommendation of Merge Healthcare’s Board of Directors and Reasons for the Merger

At a meeting of our board of directors held on August 5, 2015, our board of directors determined that the merger agreement and the merger are fair to, advisable and in the best interests of Merge Healthcare and its stockholders. Accordingly, our board of directors approved the merger agreement, the merger and the other transactions contemplated thereby. Our board of directors recommends that you vote (i) “FOR” the adoption of the merger agreement, (ii) “FOR” the proposal to adjourn the special meeting to a later date, if necessary or appropriate, to solicit additional proxies in the event there are not sufficient votes in favor of adoption of the merger agreement at the time of the special meeting and (iii) “FOR” the proposal to approve, on an advisory (non-binding) basis, certain compensation arrangements that may become payable to Merge Healthcare’s named executive officers in connection with the merger.

In the course of reaching its decision to approve the merger agreement, to declare that the merger agreement and the merger are fair to, advisable and in the best interests of Merge Healthcare and its stockholders and to recommend that Merge Healthcare’s stockholders vote to adopt the merger agreement, our board of directors consulted with our senior management and Goldman Sachs. Our board of directors also consulted with outside legal counsel regarding its fiduciary duties, the terms of the merger agreement and related matters. The following discussion includes the material reasons and factors considered by our board of directors in making its decision and recommendation, but is not, and is not intended to be, exhaustive.

Factors considered by our board of directors weighing in favor of the merger included:

Merger Consideration. Our board of directors considered the following with respect to the merger consideration to be received by the Company’s stockholders:

Prospects in Remaining Independent. Our board of directors considered the possibility of continuing to operate the Company as an independent public company, including the perceived risks and uncertainties of remaining an independent public company. In considering the alternative of pursuing growth as an independent company, our board of directors considered the following factors:

Potential Alternative Acquisition by IBM. Our board of directors considered the possibility that, if we were not to combine with IBM at this time, IBM would acquire another company in the industry and, in such event, there would be less likelihood that IBM would be an interested acquirer of us in the future.

Opinion of Goldman Sachs. Our board of directors considered the financial analyses presented by representatives of Goldman Sachs, as well as the oral opinion of Goldman Sachs rendered to our board of directors on August 5, 2015 (subsequently confirmed in writing) in connection with its consideration of the merger to the effect that, as of the date of the written opinion and subject to the factors, assumptions and limitations set forth in Goldman Sachs’ written opinion (attached as Annex C to this proxy statement), the merger consideration of $7.13 per share to be paid to the holders (other than IBM and its affiliates) of our common stock pursuant to the merger agreement was fair from a financial point of view to such holders, as more fully described below under the caption “—Opinion of Merge Healthcare’s Financial Advisor” beginning on page 28.

Financial Forecasts. Our board of directors considered the financial forecasts provided by management and summarized below under “—Financial Forecasts” beginning on page 33. These financial forecasts were also provided to Goldman Sachs for purposes of the opinion described in the preceding paragraph.

Terms of the Merger Agreement. Our board of directors considered the terms and conditions of the merger agreement and the course of negotiations thereof, including:

In the course of its deliberations, our board of directors also considered a variety of risks and factors weighing against the merger, including:

Risks of Announcement and Closing. Our board of directors considered:

Limitations on Our Business. Our board of directors considered the potential limitations on our pursuit of business opportunities due to pre-closing covenants in the merger agreement whereby the Company agreed that it will carry on its business in the ordinary course of business consistent with past practice and, subject to specified exceptions, will not take certain actions related to the conduct of its business without the prior written consent of IBM.

Cash Transaction. Our board of directors considered that the merger consideration is cash and, as a result, our stockholders will forego any potential future increase in our value that might result from our possible growth, and that income realized as a result of the merger will generally be taxable to our stockholders.

Stockholder Vote. Our board of directors considered the requirement that the merger agreement obligates the Company to submit the merger agreement for adoption by the Company’s stockholders even if our board of directors withdraws its recommendation to our stockholders to adopt the merger agreement.

Termination Fee and Other Alternative Acquirers. Our board of directors considered the possibility that the $26.0 million termination fee payable to IBM under the circumstances set forth in the merger agreement might discourage a competing proposal to acquire the Company or reduce the price of any such proposal.

Interests of Directors and Officers. Our board of directors considered the interests that certain of our directors and executive officers may have with respect to the merger (including any compensation payable or to be paid in connection with the merger) in addition to their interests as stockholders generally, as described in “—Interests of Merge Healthcare’s Executive Officers and Directors in the Merger” on page 35.

The Independence of Goldman Sachs. Our board of directors considered the various relationships between IBM and Goldman Sachs that Goldman Sachs disclosed in its fairness opinion (including its representation of IBM in connection with certain securities offerings and acquisition transactions) and determined that such interests were not material and did not diminish the independence of Goldman Sachs in rendering its fairness opinion.

The foregoing discussion is not intended to be exhaustive, but we believe it addresses the material information and principal factors considered by our board of directors in its consideration of the merger.

In light of the variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, our board of directors did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the various factors considered in reaching its determination, and individual directors may have given different weight to different factors. In addition, our board of directors did not reach any specific conclusions with respect to any of the factors or reasons considered. Instead, our board of directors conducted an overall analysis of the factors and reasons described above and determined that, in the aggregate, the potential benefits considered outweighed the potential risks or possible negative consequences of approving the merger agreement and accordingly recommends that our stockholders vote “FOR” the adoption of the merger agreement.

Opinion of Merge Healthcare’s Financial Advisor

Goldman Sachs rendered its oral opinion, which was subsequently confirmed by a written opinion on August 6, 2015, to our board of directors that, as of the date of the written opinion and based upon and subject to the factors, assumptions and limitations set forth therein, the merger consideration of $7.13 per share to be paid to the holders (other than IBM and its affiliates) of our common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Goldman Sachs, dated August 6, 2015, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex C to this proxy statement. The summary of the Goldman Sachs opinion provided in this proxy statement is qualified in its entirety by reference to the full text of Goldman Sachs’ written opinion. Goldman Sachs’ advisory services and opinion were provided for the information and assistance of our board of directors in connection with its consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of our common stock or Series A Convertible Preferred Stock should vote with respect to the merger or any other matter.

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

Goldman Sachs held discussions with members of our senior management regarding our assessment of our past and current business operations, financial condition and future prospects; reviewed the reported price and trading activity for our common stock; compared certain financial and stock market information for Merge Healthcare with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the healthcare information software industry and in other industries; and performed such other studies and analyses, and considered such other factors, as Goldman Sachs deemed appropriate.

For purposes of rendering the opinion described above, Goldman Sachs, with our consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it, without assuming any responsibility for independent verification thereof. In that regard, Goldman Sachs has assumed, with our consent, that the Forecasts have been reasonably prepared on a basis reflecting the best currently available estimates and judgments of our management. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of Merge Healthcare, and it was not furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on the expected benefits of the merger in any way meaningful to its analysis. Goldman Sachs assumed that the merger will be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.

Goldman Sachs’ opinion does not address our underlying business decision to engage in the merger, or the relative merits of the merger as compared to any strategic alternatives that may be available to us; nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs was not requested to solicit, and did not solicit, interest from other parties with respect to an acquisition of, or other business combination with, Merge Healthcare or any alternative transaction. Goldman Sachs’ opinion addresses only the fairness from a financial point of view to the holders of our common stock (other than IBM and its affiliates), as of the date of the opinion, of the merger consideration of $7.13 per share to be paid to such holders of our common stock pursuant to the merger agreement. Goldman Sachs does not express any view on, and its opinion does not address, any other term or aspect of the merger agreement or the merger or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the merger, including the fairness of the merger to, or any other consideration received in connection therewith by, the holders of restricted shares who, as of immediately prior to the effective time of the merger are not non-employee directors, consultants or independent contractors of Merge Healthcare or any of its subsidiaries, or any other class of securities, creditors, or other constituencies of Merge Healthcare; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of Merge Healthcare, or class of such persons, in connection with the merger, whether relative to the consideration to be paid to the holders (other than IBM or merger sub) of our common stock pursuant to the merger agreement or otherwise. Goldman Sachs does not express any opinion as to the impact of the merger on the solvency or viability of Merge Healthcare or IBM or the ability of Merge Healthcare or IBM to pay their respective obligations when they come due. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ advisory services and its opinion were provided for the information and assistance of our board of directors in connection with its consideration of the merger and its opinion does not constitute a recommendation as to whether or not any holder of our common stock or Series A Convertible Preferred Stock should vote with respect to the merger or any other matter. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

Summary of Financial Analyses

The following is a summary of the material financial analyses delivered by Goldman Sachs to our board of directors in connection with rendering the opinion to our board of directors described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before August 5, 2015 and is not necessarily indicative of current market conditions.

Illustrative Present Value of Future Share Price Analysis

Goldman Sachs performed illustrative analyses of the present value of the potential future price per share of our common stock at the year-end of each of the fiscal years 2015 to 2018 using one-year forward earnings before interest, tax, depreciation and amortization (“EBITDA”) estimates per the Forecasts for the calendar years 2016 through 2019, respectively. Goldman Sachs first calculated illustrative enterprise values of Merge Healthcare at the year-end of each of the calendar years 2015 through 2018 by multiplying the respective one-year forward EBITDA estimates for the calendar years 2016 through 2019 by one-year forward enterprise value to EBITDA multiples ranging from 12.0x to 14.0x. Respective year-end debt and value of preferred equity were then subtracted from this implied enterprise value and year-end cash was added to calculate the implied future equity values. The implied future equity values in turn were divided by the projected year-end fully diluted shares of our common stock outstanding which included dilution from vested options and, for any future value of future stock price equal to or above $6.21 per share, from the assumed conversion of Series A Convertible Preferred Stock, calculated using data provided by us and the treasury stock method we approved, which resulted in an illustrative per share future value for our common stock ranging from $5.28 to $10.93. For any future value of future stock price less than $6.21 per share, Goldman Sachs, at our direction, assumed that the Series A Convertible Preferred Stock would not be converted to our common stock, and was treated as debt of $50 million. Goldman Sachs then calculated the present values of the implied per share future values of our common stock by discounting these implied future values to present values as of June 30, 2015 using an illustrative discount rate of 13.3%, reflecting an estimate of the cost of our equity. The following table presents the results of Goldman Sachs’ analysis:

Illustrative Discounted Cash Flow Analysis

Goldman Sachs performed an illustrative discounted cash flow analysis on Merge Healthcare using the Forecasts. Utilizing illustrative discount rates ranging from 10.0% to 12.0%, which reflect estimates of our weighted average cost of capital, Goldman Sachs derived a range of implied enterprise values for Merge Healthcare by discounting to June 30, 2015 (i) estimates of the unlevered free cash flows for Merge Healthcare for the six months ending December 31, 2015 and the four years ending December 31, 2019 per the Forecasts, and (ii) illustrative terminal values for Merge Healthcare as of December 31, 2019 derived by applying illustrative terminal year EBITDA exit multiples, ranging from 11.0x to 15.0x, and illustrative discount rates, which implied perpetuity growth rates ranging from 4.4% to 7.8%. Goldman Sachs then added the assumed amount of net cash and cash equivalents, and the present value of net operating losses, including a partial year credit for the 2015 fiscal year, and deducted the value of debt and Series A Convertible Preferred Stock in order to calculate the implied equity values. The present value of net operating losses was calculated using a discount rate of 7.0%, which reflects our cost of debt. The implied equity values per fully diluted outstanding share of our common stock were then derived using the projected year-end fully diluted shares of our common stock outstanding, including dilution from options and Series A Convertible Preferred Stock (based on a conversion

price equal to $4.14 per share plus applicable unpaid dividends when the price per share is equal to or above $6.21), calculated using data we provided and the treasury stock method we approved. Based on these assumptions, Goldman Sachs calculated a range of implied equity values per fully diluted outstanding share of our common stock of $5.87 to $8.24.

Selected Transactions Analysis

Goldman Sachs analyzed certain information relating to the following selected transactions in the healthcare information software industry and in other industries since 2005:

For each of the selected transactions, Goldman Sachs calculated and compared the target’s total enterprise value (“EV”), as implied by the precedent transaction, to the target’s EBITDA for the most recently reported latest 12-month period ending prior to the announcement of the transaction.

While none of the companies that participated in the selected transactions are directly comparable to us, the companies that participated in the selected transactions are companies with operations that, for the purposes of analysis, may be considered similar to certain of our results, market size and product profile. The following table presents the results of this analysis:

Based on a range of 12.0x to 21.0x for EV/LTM EBITDA, Goldman Sachs calculated a range of implied equity values per fully diluted outstanding share of our common stock of $3.55 to $7.94.

Selected Historical Premia Analysis

Goldman Sachs reviewed and analyzed the acquisition premia for all announced and completed all-cash and cash and stock transactions between $500 million and $2 billion involving United States acquirers and target companies from January 1, 2010 to August 5, 2015. Announced premia were calculated relative to the target’s closing share price one day prior to announcement.

The following table presents the results of this analysis:

By applying a range of 25% to 45% acquisition premia to the closing price per share of our common stock on August 5, 2015 of $5.41, Goldman Sachs calculated a range of implied equity values per outstanding share of our common stock of $6.76 to $7.84.

Historical Stock Price Performance

Goldman Sachs reviewed the historical trading prices for our common stock for the period beginning on August 3, 2012 and ending on August 5, 2015. In addition, Goldman Sachs compared the merger consideration of $7.13 per share of our common stock in relation to the closing price for our common stock as of August 5, 2015, the highest closing prices of our common stock for the three-year period ended August 5, 2015 and the 52-week period ended August 5, 2015, and the volume-weighted average closing prices of our common stock for the 30-day, three-month and six-month periods ended August 5, 2015, respectively.

The merger consideration represented:

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses.

Goldman Sachs prepared these analyses for purposes of Goldman Sachs providing its opinion to our board of directors as to the fairness from a financial point of view of the consideration to be paid to the holders (other than IBM and its affiliates) of our common stock pursuant to the merger agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results, including estimates of achievable synergies, are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of Merge Healthcare, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecasted.

The consideration to be paid to the holders (other than IBM and its affiliates) of our common stock pursuant to the merger agreement was determined through arm’s-length negotiations between us and IBM and was approved by our board of directors. Goldman Sachs provided advice to us during these negotiations. Goldman Sachs did not, however, recommend any amount of consideration to us or our board of directors or that any specific amount of consideration constituted the only appropriate amount of consideration for the merger.

As described above, Goldman Sachs’ opinion to our board of directors was one of a number of factors taken into consideration by our board of directors in making its determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex C to this proxy statement.

Goldman Sachs and its affiliates are engaged in advisory, underwriting and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of Merge Healthcare, IBM, any of their respective affiliates and third parties, including Merrick Ventures, a significant shareholder of Merge Healthcare, or any currency or commodity that may be involved in the merger. Goldman Sachs has acted as financial advisor to us in connection with, and has participated in certain of the negotiations leading to, the merger. Goldman Sachs has provided certain financial advisory and/or underwriting services to IBM and/or its affiliates from time to time for which Goldman Sachs’ Investment Banking Division has received, and may receive, compensation, including having acted as a joint bookrunner with respect to public offerings of IBM’s Floating Rate Notes due 2016 (aggregate principal amount $1,000,000,000), Floating Rate Notes due 2019 (aggregate principal amount $750,000,000), 1.95% Notes due 2019 (aggregate principal amount $750,000,000), and 3.625% Notes due 2024 (aggregate principal amount $2,000,000,000), each in February 2014, and 1.875% Notes Due November 6, 2020 (aggregate principal amount €1,500,000,000), and 2.875% Notes Due November 7, 2025 (aggregate principal amount €1,000,000,000), each in October 2013, as an active commercial paper dealer on IBM’s commercial paper program since January 2013, and as financial advisor to IBM on the divestiture of its Microelectronics business to GlobalFoundries in July 2015. During the two year period ended August 6, 2015, the Investment Banking Division of Goldman Sachs has received, or become entitled to receive, compensation for financial advisory and/or underwriting services provided to IBM and/or its affiliates of approximately $10 million. Goldman Sachs may in the future provide financial advisory and/or underwriting services to Merge Healthcare, IBM, Merrick Ventures and their respective affiliates for which its Investment Banking Division may receive compensation. Affiliates of Goldman Sachs also may have co-invested with Merrick Ventures and its affiliates from time to time and may have invested in limited partnership units of affiliates of Merrick Ventures from time to time and may do so in the future.

Our board of directors selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the merger. Pursuant to a letter agreement dated July 13, 2015, we engaged Goldman Sachs to act as our financial advisor in connection with the evaluation of strategic opportunities available to us, including a business combination with a third party. Pursuant to the terms of this engagement letter, we have agreed to pay Goldman Sachs a transaction fee of approximately $13 million, all of which is payable upon consummation of the merger. In addition, we have agreed to reimburse Goldman Sachs for its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities that may arise out of its engagement.

Financial Forecasts

We do not make public forecasts as to future performance or earnings beyond the current fiscal year due to the inherent unpredictability of the underlying assumptions and estimates. For internal planning purposes but not for public disclosure, our management team periodically prepares a long-term financial plan, which is presented to our board. Our current internal financial plan, which we refer to as the “company projections” in this proxy statement, was reviewed by our board of directors, used by Goldman Sachs in connection with its financial analysis of the merger consideration (see “—Opinion of Merge Healthcare’s Financial Advisor” beginning on page 28) and provided to IBM (except unlevered free cash flow and non-GAAP earnings per share). The company projections consist of financial forecasts for the fiscal years ending December 31, 2015, 2016, 2017,

2018 and 2019. The company projections did not give effect to the merger. The company projections, while presented with numerical specificity necessarily, were based on numerous estimates, variables and assumptions that are inherently uncertain and many of which are beyond our control. Because the company projections cover multiple years, by their nature, they become subject to greater uncertainty with each successive year. The assumptions upon which the company projections were based necessarily involve judgments with respect to, among other things, future economic, competitive and regulatory conditions and financial market conditions, all of which are difficult or impossible to predict accurately and many of which are beyond our control.

A summary of the company projections for the 2015 through 2019 fiscal years follows:

Non-GAAP revenue consists of GAAP revenue and the effect of the write down of the deferred revenue associated with purchase accounting for certain acquisitions. This effect is added back to GAAP revenue because we believe its inclusion provides a more accurate depiction of total revenue. Furthermore, non-GAAP revenue for 2015 includes revenue from DR Systems, Inc., which we acquired on February 25, 2015, as if we had owned it for the entire year. Non-GAAP gross profit was calculated by subtracting from non-GAAP revenue the cost of goods sold (including, for 2015, the cost of goods sold from DR Systems, Inc. as if we had owned it for the entire year). Non-GAAP EBITDA consists of GAAP earnings before interest, taxes, depreciation and amortization plus restructuring and acquisition-related charges. Non-GAAP EBIT consists of GAAP earnings before interest and taxes plus restructuring and acquisition-related charges. Restructuring and acquisition-related charges were only expected for 2015. Non-GAAP net income refers to non-GAAP net income available to common stockholders. Non-GAAP net income consists of GAAP net income plus restructuring and acquisition-related charges. Non-GAAP earnings per share refers to non-GAAP net income divided by shares of common stock outstanding. Unlevered free cash flow was calculated by adding back to tax-effected non-GAAP EBIT depreciation and amortization, adding or subtracting changes in working capital and subtracting capital expenditures and capitalized software.

Non-GAAP revenue, non-GAAP gross profit, non-GAAP EBITDA, non-GAAP EBIT, non-GAAP net income, non-GAAP earnings per share and unlevered free cash flow are non-GAAP measures that are used by our management as supplemental financial measurements to evaluate our operational trends and should not be considered as alternatives to revenue, gross profit, net income, earnings per share or cash flow as indicators of our operating performance. Non-GAAP revenue, non-GAAP gross profit, non-GAAP EBITDA, non-GAAP EBIT, non-GAAP net income, non-GAAP earnings per share and unlevered free cash flow are not defined under generally accepted accounting principles in the United States, which we refer to as “GAAP” in this proxy statement. Further, the items comprising these measures may differ from similarly named measures we publicly disclose in our quarterly earnings press releases, which we file on Form 8-K, and related conference calls. Accordingly, they have limitations in that they do not reflect all of the amounts associated with our company’s results of operations, as determined in accordance with GAAP, and may not be comparable measurements to those used by other companies or those we have previously used.

The summary of company projections above is included in this proxy statement to provide our stockholders access to certain nonpublic information considered by our board of directors in connection with its evaluation of the merger, provided to Goldman Sachs in connection with its opinion to our board of directors, as more fully described in the section entitled “—Opinion of Merge Healthcare’s Financial Advisor” beginning on page 28, and provided to IBM (except for unlevered free cash flow) for the purpose of allowing it to evaluate the merger.

The company projections stated above were prepared for internal use in connection with the merger and not with a view toward public disclosure or toward complying with GAAP, the published guidelines of the SEC regarding forecasts or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The company projections included in this proxy statement were prepared by, and are the responsibility of, our management. We do not assume any responsibility to update these company projections. Neither our independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the company projections contained herein, nor have they expressed any opinion or any other form of assurance on such forecasts or their achievability, and assume no responsibility for, and disclaim any association with, the company projections. Furthermore, the company projections do not take into account any circumstances or events occurring after the date the company projections were prepared that were unforeseen by our management at the time of preparation. We have made publicly available our actual results of operations for the quarter ended June 30, 2015. Our stockholders should review our Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 to obtain this information. See “Where You Can Find More Information” beginning on page 75.

The inclusion of this information should not be regarded as an indication to any stockholder that our board of directors or any other recipient of this information considered, or now considers, it to be predictive of actual future results, and they should not be relied on as such. The company projections reflect numerous estimates and assumptions with respect to industry performance, general business, economic, regulatory, market and financial conditions, as well as matters specific to our business, all of which are difficult to predict and many of which are beyond our control. As a result, there can be no assurance that the forecasted results will be realized or that actual results will not be significantly higher or lower than such forecasts. As the company projections cover multiple years, such information by its nature becomes less predictive with each successive year. Also, the economic and business environments can and do change quickly, which adds a significant level of unpredictability, unreliability and execution risk. These factors create significant doubt as to whether the forecasts for fiscal years ended December 31, 2015 and beyond are likely to be achieved. As a result, the company projections are not necessarily indicative of future results. In addition, our management prepared the company projections prior to the execution of the merger agreement and, accordingly, the company projections do not reflect the effects of the merger, which may cause results to differ materially. Accordingly, readers of this proxy statement are cautioned not to place undue reliance on the company projections.

None of our company or our affiliates, advisors, officers, directors or representatives has made or makes any representation to any stockholder or other person regarding the ultimate performance of our company compared to the information contained in the company projections or that forecasted results will be achieved.

BY INCLUDING IN THIS PROXY STATEMENT A SUMMARY OF OUR COMPANY PROJECTIONS, WE UNDERTAKE NO OBLIGATIONS TO UPDATE, OR PUBLICLY DISCLOSE ANY UPDATE TO, THESE COMPANY PROJECTIONS TO REFLECT CIRCUMSTANCES OR EVENTS, INCLUDING UNANTICIPATED EVENTS, THAT MAY HAVE OCCURRED OR THAT MAY OCCUR AFTER THE PREPARATION OF THESE COMPANY PROJECTIONS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE COMPANY PROJECTIONS ARE SHOWN TO BE IN ERROR OR CHANGE.

Interests of Merge Healthcare’s Executive Officers and Directors in the Merger

When considering the recommendation of our board of directors, you should be aware that members of our board of directors and our executive officers have interests in the merger in addition to their interests as Merge Healthcare stockholders generally, pursuant to certain agreements between such directors and executive officers and us and, in the case of certain of the executive officers, pursuant to offer letters with IBM. These interests are described below and may be different from, or in conflict with, your interests as a Merge Healthcare stockholder. The members of our board of directors were aware of the material facts as to these additional interests, and considered them, when they approved the merger agreement.

Pursuant to the SEC’s reporting rules, we are reporting the interests held by each of our current executive officers (Messrs. Dearborn, Oreskovich and Hammond and Mses. Koenig and Wells), a named executive officer and former executive officer who continues to be an employee of Merge Healthcare (Mr. Tolle), our current directors (Messrs. Cole, Devers Jr., Ferro, Jr., Maloney, Reck and Stearns, Jr.) and one former director (Mr. Brown).

Treatment of Equity Awards Held by Our Non-Employee Directors

Pursuant to the terms of the merger agreement and agreements evidencing equity awards granted to each of our non-employee directors, at the effective time of the merger, all of the then-unvested options and restricted shares held by our non-employee directors will be converted to receive the common stock merger consideration of $7.13 over the strike price of the applicable stock option and the common stock merger consideration of $7.13 per restricted share. All of the unvested stock options and restricted shares owned by non-employee directors will be vested and paid out pursuant to the preceding sentence.

The general treatment of options and restricted shares in the merger, including such awards held by our non-employee directors, is described below under “—Treatment of Outstanding Stock Options, Restricted Shares and Purchase Rights” beginning on page 48.

Merrick Consulting Agreement

We are party to a consulting agreement with Merrick Ventures, which was amended and restated on May 29, 2015 and amended further on August 6, 2015 in connection with our execution of the merger agreement. Merrick Ventures is controlled by and affiliated with Michael W. Ferro, Jr., a director of Merge Healthcare. Pursuant to the terms of the Merrick consulting agreement, as amended, Merrick Ventures will provide services to Merge Healthcare that include, but are not limited to, product development, strategic planning, industry marketing, investor relations, turn around management and various business relationship introductions.

Under the Merrick consulting agreement as amended prior to August 6, 2015, in consideration for Merrick Ventures’ services, if Merge Healthcare were to consummate, or enter into a definitive agreement to consummate and subsequently consummate, a merger, consolidation, business combination, sale or other disposition of all or substantially all of the equity interests or assets of Merge Healthcare in one transaction or a series of transactions, at a transaction value of at least $1 billion, then Merge Healthcare would have been required to pay Merrick Ventures a one-time cash fee of $15 million.

In connection with our execution of the merger agreement, on August 6, 2015, we entered into an amendment to the Merrick consulting agreement to provide that, notwithstanding anything in the consulting agreement to the contrary, the one-time cash fee of $15 million contemplated by the Merrick consulting agreement will not be paid or become payable in connection with the merger; provided that the waiver of the fee will only be effective with respect to the merger and not with respect to any other transactions. Pursuant to that amendment, we also agreed to pay Merrick Ventures’ and its affiliates’ reasonable expenses in connection with the negotiation of the merger agreement and other matters. As of the date of this proxy statement, the Merrick consulting agreement, as so amended on August 6, 2015, is still in effect.

Merge Healthcare Employment Letter Agreements

In June 2008, we entered into employment letter agreements with each of Messrs. Dearborn and Oreskovich and Mses. Koenig and Wells; in April 2010, we entered into an employment letter agreement with Mr. Hammond and in November 2012, we entered into an employment letter agreement with Mr. Tolle. Under these agreements (other than Ms. Wells’ agreement), if the executive officer’s employment is terminated by Merge Healthcare without “cause” or due to death or disability, then the executive officer would receive his or her base salary for a 12-month period following termination of employment; provided, however, that if the executive officer is a specified employee within the meaning of Internal Revenue Code Section 409A on the date of his or her separation from service and if, during the first six months severance, his or her severance payments will exceed two times his or her prior year’s base salary or two times the compensation limit in effect for the year of his or her separation, whichever is less, then the severance payments in excess of such limit that would have otherwise been paid during the first six months following the executive officer’s separation will instead be accumulated and paid in a lump sum on the first day of the seventh month following the month of his or her separation from service. Under her employment letter agreement, Ms. Wells will receive the greater of the minimum notice and severance as prescribed by the Ontario Employment Standards Act, 2000 or base salary for a 12-month period following termination of employment for any other reason than “just cause”. Ms. Wells will also be entitled to benefit continuation for the minimum period under the Ontario Employment Standards Act, 2000 or the 12-month period following termination of employment.

IBM Offer Letters

Each of Messrs. Dearborn, Oreskovich, Hammond and Tolle and Mses. Koenig and Wells has received and accepted an offer letter from IBM that is conditioned upon the closing of the merger and the executive officer’s continued employment with Merge Healthcare through the closing of the merger. Upon the closing of the merger and the effectiveness of such offer letters, each of the existing employment letter agreements between the executive officers and Merge Healthcare will terminate, and the executive officers will no longer be entitled to any payments or benefits under those employment letter agreements, other than as described in their offer letters with IBM. Each executive officer’s employment may be terminated at any time for any reason, subject to the obligations described below and applicable law.

Salary and Incentive Compensation. The offer letter provided by IBM to each executive officer, other than Mr. Oreskovich, provides that the base salary and target cash incentive opportunity to which he or she will be entitled upon his or her transition to IBM’s payroll will be determined by IBM following the closing of the merger; however, during the 3-year period following such closing, neither his or her base salary nor his target total cash opportunity will be reduced from the amounts in effect with Merge Healthcare as of immediately prior to the closing. The offer letter provided by IBM to Mr. Oreskovich provides that he will receive a gross monthly salary of $27,354, which amount represents an increase from his current monthly base salary to reflect an amount based on his former Merge Healthcare annual target cash incentive, which reflects the fact that Mr. Oreskovich will not be eligible to participate in IBM’s cash incentive plans. Pursuant to his IBM offer letter, Mr. Oreskovich is eligible for a bonus under Merge Healthcare’s incentive plans in place through the date of his transition to IBM’s payroll. The bonus, if any, is to be determined by IBM.

Treatment of Merge Healthcare Equity Awards. The general treatment of options and restricted shares in the merger, including such awards held by our executive officers, is described below under “—Treatment of Outstanding Stock Options, Restricted Shares and Purchase Rights” beginning on page 48. Unvested stock options held by Messrs. Dearborn and Oreskovich and Mses. Koenig and Wells have change in control provisions whereby such stock options will automatically vest in the event of a change in control of Merge Healthcare. Certain unvested stock options of Mr. Tolle will vest upon a change in control and none of Mr. Hammond’s unvested stock options will vest upon a change in control. The stock options that will vest and the value of such vested options are set forth below under “—Compensation Summary.” Pursuant to his offer letter with IBM, if Mr. Oreskovich’s employment is terminated by IBM without “cause” (as such term is described in his offer letter with IBM) prior to the 18-month anniversary of the closing of the merger and subject to execution of IBM’s standard release of claims or Mr. Oreskovich remains employed by IBM on the 18-month anniversary of the closing of the merger and certain milestones described in his offer letter with IBM have been satisfied, all of the converted Merge Healthcare options and restricted share payments held by Mr. Oreskovich that are unvested as of such date will vest in full.

Retention Program. Each executive officer, other than Mr. Oreskovich, will be entitled to participate in a retention program under the terms of the offer letter provided by IBM to each such executive officer, pursuant to which he or she will be eligible to receive the total payment disclosed below following each of four milestone periods, subject to continued employment through the applicable milestone period and the achievement of certain milestones set forth in his or her offer letter. The first milestone period begins on the closing date of the merger and ends on the 6-month anniversary of the closing date; the second milestone period begins on the 6-month anniversary of the closing date and ends on the 1-year anniversary of the closing date; the third milestone period begins on the 1-year anniversary of the closing date and ends on the 2-year anniversary of the closing date and the fourth milestone begins on the 2-year anniversary of the closing date and ends on the 3-year anniversary of the closing date. Up to 10% of the aggregate bonus may be paid at the end of the first milestone period; up to 10% may be paid at the end of the second milestone period; up to 30% may be paid at the end of the third milestone period and up to 50% may be paid at the end of the fourth milestone period. If the employment of any of the executive officers listed below (other than Ms. Wells) is terminated by IBM without “cause” (as such term is described in his or her offer letter with IBM) or due to his or her death or disability prior to the 3-year anniversary of the closing of the merger, he or she will be entitled to receive the retention payment for the then-applicable milestone period, subject to his or her execution of IBM’s standard release of claims.

Transition Program. Under the terms of the offer letter provided by IBM to Mr. Oreskovich, Mr. Oreskovich will be entitled to participate in a transition program pursuant to which he will be eligible to receive a cash payment equal to $300,000 payable on the 18-month anniversary of the closing of the merger, subject to continued employment through such date and the achievement of certain milestones set forth in his IBM offer letter. If Mr. Oreskovich’s employment is terminated by IBM without “cause” (as such term is described in his offer letter with IBM), or if his employment is terminated due to his death or disability, prior to the 18-month anniversary of the closing of the merger, he will be entitled to the full amount of his cash payment under the transition program, subject to the execution of IBM’s standard release of claims.

Severance Payment. The IBM offer letter with each executive officer, other than Messrs. Oreskovich and Hammond and Ms. Wells, provides that if his or her employment is terminated by IBM without “cause” (as such term is described in his or her offer letter with IBM) on or prior to the 2-year anniversary of the closing of the merger, he or she will be entitled to a lump-sum cash payment equal to the amount below, less any amounts received or receivable under the retention program described above as of the date of his or her termination. The severance payment is contingent on executing IBM’s standard release of claims. Mr. Hammond will not be entitled to any severance payment in connection with a termination.

The IBM offer letter with Ms. Wells provides that if her employment is terminated without cause at any point during the 3-year anniversary of closing, IBM will be obligated to provide Ms. Wells through its subsidiary IBM Canada Ltd. with a severance payment that is the greater of (i) the next scheduled milestone award under the retention program discussed above; (ii) the severance payment and benefits that Ms. Wells would be entitled to under the Ontario Employment Standards Act (or the applicable employment/labor standards legislation of the province in which Ms. Wells is working on the date of the termination of her employment with IBM); or (iii) a separation payment in lieu of notice of termination of employment equivalent to one week’s base salary for each fully completed six months of service based on Ms. Wells’ service reference date up to a maximum of 52 weeks of base salary pursuant to IBM’s separation policy. Notwithstanding the severance provided for in the preceding sentence, if Ms. Wells’ employment is terminated by IBM without “cause” (as such term is described in her offer letter with IBM) on or prior to the 1-year anniversary of the closing of the merger, she will be entitled to a lump-sum cash payment equal to CDN$226,000, less any amounts received under the retention program described above as of the date of her termination. The severance payment is contingent on executing IBM’s standard release of claims.

Definition of “Cause.” “Cause” is described in each IBM offer letter as cause, as determined by IBM in accordance with its standard policies and procedures, which includes, among other things, any violation of IBM policy and/or failure to perform satisfactorily, and without regard to how “cause” is defined in any plan, policy or program, any offer letter, any agreement between the executive and Merge Healthcare or any of its affiliates or any amendment thereto.

Non-Competition. The IBM offer letter provides that until the later of one year following termination of employment and two years following the closing of the merger, Messrs. Hammond and Tolle and Ms. Wells will be subject to restrictive covenants that generally prohibit them, in any capacity, directly or indirectly, from having any relationship with a business that involves engaging or assisting in medical imaging systems or radiology systems, including any aspect of handling, storing, archiving, printing, communication, analysis and transmitting medical information, clinical trials, or study planning, study or trial management or analytics relating to healthcare organizations. Mr. Dearborn and Ms. Koenig have non-competition provisions as set forth in their respective holder agreements, which are described in more detail below.

Holder Agreements

The Merrick Entities have executed a holder agreement, dated August 6, 2015, with IBM which prohibits the Merrick Entities from, directly or indirectly, during the four-year period following the closing of the merger, soliciting or hiring certain employees or consultants of Merge Healthcare or the IBM business unit into which Merge Healthcare will be integrated.

Mr. Ferro has executed a holder agreement, dated August 6, 2015, with IBM which provides that for one year following the closing of the merger, Mr. Ferro will be subject to restrictive covenants that generally prohibit him, in any capacity, directly or indirectly, from having any relationship with a business that involves engaging or assisting in medical imaging systems or radiology systems for deployment or use by healthcare organizations, or founding or owning more than 50% of the voting equity of a business that engages in clinical trial systems. Such agreement also prohibits Mr. Ferro from, directly or indirectly, during the four-year period following the closing of the merger, soliciting or hiring certain employees or consultants of Merge Healthcare or the IBM business unit into which Merge Healthcare will be integrated.

Each of Mr. Dearborn and Ms. Koenig has executed a holder agreement, dated August 6, 2015, with IBM, which provides that until the later of two years following the closing of the merger and one year following termination of his or her association with IBM or its subsidiaries or affiliates as an employee, consultant, contractor, officer and/or director, each will be subject to restrictive covenants that generally prohibit them, in any capacity, directly or indirectly, from having any relationship with a business that involves engaging or assisting in medical imaging systems or radiology systems, for deployment or use by healthcare organizations or clinical trial systems. During the restricted period, each such agreement also prohibits each executive from soliciting any customers, clients, employees or consultants of Merge Healthcare or the IBM business unit into which Merge Healthcare will be integrated.

Compensation Summary

The following table sets forth the following cash compensation for each of our executive officers:

The table below sets forth, as of August 17, 2015 (which is the assumed date of the closing of the merger solely for purposes of presenting this transaction-related compensation disclosure), for each of our directors and executive officers, the total number of all vested and unvested, in-the-money stock options held and the dollar value of such stock options.

The table below sets forth, as of August 17, 2015 (which is the assumed date of the closing of the merger solely for purposes of presenting this transaction-related compensation disclosure), for each of our directors and executive officers, the number of restricted shares to be paid out at the effective time of the merger and the dollar value of such restricted shares, as well as the number of all restricted shares held (including those paid out at the effective time of the merger and those restricted shares which will not be paid out at the effective time of the merger) and the dollar value of such restricted shares.

Potential Payments in Connection with a Change in Control

The following table is intended to comply with Item 402(t) of Regulation S-K and sets forth the amount of payments and benefits that may be paid or become payable to each named executive officer of Merge Healthcare in connection with the merger pursuant to the Merge Healthcare employment and consulting arrangements and the IBM offer letters described above, assuming (i) the consummation of the merger occurred on August 17, 2015 and (ii) for purposes of estimating severance and equity acceleration benefits, that the service of the named executive officer also terminated on such date or under the circumstances described below immediately following the two-year anniversary of the closing of the merger and that all applicable retention milestones were met.

Merger-Related Compensation

the merger and subject to his execution of IBM’s release of claims. However, as described in footnote 10 below, in the event of such a termination, Mr. Tolle would be entitled to receive a portion of the retention payment in the “Other” column, and his severance payment would be reduced by an equal amount, in addition to any amounts previously received pursuant to the retention program. In such a situation Mr. Tolle would receive $35,000 as a result of such severance payment. This would constitute a “double trigger” benefit as it is contingent on a qualifying termination of Mr. Tolle’s employment following the merger.

Indemnification and Insurance

The surviving corporation will assume, and IBM will cause the surviving corporation and its successors and assigns to comply with and honor, all rights to indemnification, advancement of expenses and exculpation from liabilities for acts or omissions occurring at or prior to the effective time of the merger existing in favor of our and our subsidiaries’ current or former directors or officers as provided in our and their respective certificates of incorporation or bylaws (or comparable organizational documents) and any indemnification or other agreements as in effect on the date of the merger agreement and set forth on a schedule to the merger agreement.

We have entered into indemnification agreements with each of our directors. Each indemnification agreement provides that we will indemnify the director to the fullest extent permitted by applicable law against (i) all liabilities and expenses actually incurred by or on behalf of such director in connection with a proceeding other than proceedings by or in the right of Merge Healthcare or any claim, issue or matter therein, if such director acted in good faith and in a manner such director reasonably believed to be in or not opposed to the best interests of Merge Healthcare and, with respect to any criminal proceeding, had no reasonable cause to believe such director’s conduct was unlawful and (ii) all liabilities and expenses actually incurred by or on behalf of such director in connection with a proceeding by or in the right of Merge Healthcare if such director acted in good faith and in a manner that such director reasonably believed to be in or not opposed to the best interests of Merge Healthcare; provided, however, if applicable law so provides, no indemnification against such liabilities or expenses shall be made in respect of any claim, issue or matter in such proceeding as to which such director shall have been adjudged to be liable to Merge Healthcare, unless and to the extent that a Delaware court shall determine that such indemnification may be made.

In the event the surviving corporation consolidates with or merges into another entity and is not the continuing or surviving entity of such consolidation or merger or transfers all or substantially all of its properties and assets to another entity, or if IBM dissolves the surviving corporation, IBM will cause the successors and assigns of the surviving corporation to comply with and honor the indemnification and other obligations set forth above.

IBM will obtain or will cause to be obtained as of the effective time of the merger a “tail” insurance policy with a claims period of six years from the effective time of the merger with respect to directors’ and officers’ liability insurance covering those persons who were, as of the date of the merger agreement, covered by our directors’ and officers’ liability insurance policy, for acts or omissions occurring prior to the effective time of the merger, on terms that are no less favorable than our policies in effect on the date of the merger agreement. Prior to the closing of the merger, IBM will prepay such insurance for the six-year period, but in no event will IBM or the surviving corporation be required to pay, with respect to the entire six-year period following the effective time of the merger, premiums for insurance which in the aggregate exceed 300% of the aggregate premiums paid by us for the period from June 4, 2015 to, and including, June 4, 2016.

Legal Proceedings Regarding the Merger

Since the announcement of the merger, our directors were named as defendants in a number of putative class actions brought by Merge Healthcare stockholders. The first, which names us, IBM and merger sub as additional defendants, was filed on August 12, 2015 in the Circuit Court of Cook County, Illinois County Department, Chancery Division and is captioned Shawn Hazen v. Merge Healthcare Incorporated, et al., Case No. 2015CH12090. The second, which names us, IBM and merger sub as additional defendants, was filed on August 13, 2015 in the Court of Chancery of the State of Delaware and is captioned Steven Merola v. Merge Healthcare Incorporated, et al., Case No. 11388-VCG. The third, which names IBM and merger sub as additional defendants, was filed on August 14, 2015 in the Circuit Court of Cook County, Illinois County Department, Chancery Division and is captioned, Michael Cohn v. Justin C. Dearborn, et al., Case No. 2015CH12218. The fourth, which names IBM and merger sub as additional defendants, was filed on August 19, 2015 in the Circuit Court of Cook County, Illinois County Department, Chancery Division and is captioned Andrei Savu v. Michael P. Cole, et al., Case No. 2015CH12408. The fifth, which names us, IBM and merger sub as additional defendants, was filed on August 20, 2015 in the Circuit Court of Cook County, Illinois County Department, Chancery Division and is captioned, Monique Lozoya v. Merge Healthcare Incorporated, et al., Case No. 2015CH12493. The sixth, which names IBM, merger sub and Goldman Sachs as additional defendants, was filed on August 25, 2015 in the Court of Chancery of the State of Delaware and is captioned Mathias Turtz v. Michael W. Ferro, Jr., et al., Case No. 11426-VCG. The seventh, which names us, IBM and merger sub as additional defendants, was filed on August 25, 2015 in the Circuit Court of Cook County, Illinois County Department, Chancery Division, and is captioned Howard Gerard, Sr. v. Merge Healthcare, Inc., et al., Case No. 2015CH12740. The eighth, which names us, IBM and merger sub as additional defendants, was filed on August 25, 2015 in the Circuit Court of Cook County, Illinois County Department, Chancery Division and is captioned Monte Montierth v. Merge Healthcare Incorporated, et al., Case No. 2015CH12749. The ninth, which names IBM, merger sub and Goldman Sachs as additional defendants, was filed on August 26, 2015 in the Court of Chancery of the State of Delaware and is captioned Monique Lozoya v. Michael W. Ferro, Jr., et al., Case No. 11433-VCG. The tenth, which names us, IBM and merger sub as additional defendants, was filed on August 28, 2015 in the Court of Chancery of the State of Delaware and is captioned William Federman v. Merge Healthcare Incorporated, et al., Case No. 11445-VCG. The eleventh, which names us, IBM and merger sub as additional defendants, was filed on September 2, 2015 in the Court of Chancery of the State of Delaware and is captioned Susan Molinaro v. Merge Healthcare Incorporated, et al., Case No. 11458-VCG.

These actions, purportedly brought on behalf of a class of our stockholders, generally allege that our directors, aided and abetted by IBM and merger sub and, in some cases, us and Goldman Sachs, purportedly breached their fiduciary duties in connection with the proposed merger and failed to maximize stockholder value. Each of the complaints includes requests for declaratory, injunctive and other equitable relief, including to enjoin us and IBM from consummating the merger, in addition to fees and costs. We believe that the claims are without merit.

On August 20, 2015, the plaintiff in the Hazen case moved to consolidate the Illinois cases. On August 31, 2015, the Circuit Court of Cook County, Illinois County Department, Chancery Division entered an order consolidating the other pending Illinois cases (the Cohn, Savu, Lozoya, Gerard, Sr. and Montierth cases) with the Hazen case.

On September 8, 2015, the plaintiff in the Illinois Hazen case filed a motion for expedited discovery. On September 8, 2015, the plaintiff in the Delaware Molinaro case filed a motion for expedited proceedings and a motion for preliminary injunction.

Appraisal Rights

If you do not vote for the adoption of the merger agreement at the special meeting and otherwise comply with the applicable statutory procedures of Section 262 of the DGCL, summarized herein, you may be entitled to appraisal rights under Section 262 of the DGCL. In order to exercise and perfect appraisal rights, a record holder of our common stock or Series A Convertible Preferred Stock must follow the steps prescribed in Section 262 of the DGCL and summarized below properly and in a timely manner.

Section 262 of the DGCL is reprinted in its entirety as Annex D to this proxy statement. Set forth below is a summary description of Section 262 of the DGCL. The following summary describes the material aspects of Section 262 of the DGCL and the law relating to appraisal rights and is qualified in its entirety by reference to Annex D. All references in Section 262 and this summary to “stockholder” are to the record holder of the shares of our common stock and/or Series A Convertible Preferred Stock immediately prior to the effective time of the merger as to which appraisal rights are asserted. Failure to comply strictly with the procedures set forth in Section 262 of the DGCL will result in the loss of appraisal rights.

ANY MERGE HEALTHCARE STOCKHOLDER WHO WISHES TO EXERCISE APPRAISAL RIGHTS OR WHO WISHES TO PRESERVE HIS, HER OR ITS RIGHT TO DO SO SHOULD REVIEW ANNEX D CAREFULLY AND SHOULD CONSULT HIS, HER OR ITS LEGAL ADVISORS, SINCE FAILURE TO TIMELY AND FULLY COMPLY WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN THE LOSS OF SUCH RIGHTS.

Under the DGCL, holders of our common stock or Series A Convertible Preferred Stock who follow the procedures set forth in Section 262 of the DGCL will be entitled to have their shares appraised by the Delaware Court of Chancery, which we refer to as the “Delaware Court” in this proxy statement, and to receive payment in cash of the “fair value” of those shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any, on the amount determined to be the fair value.

Under Section 262 of the DGCL, where a merger agreement relating to a proposed merger is to be submitted for adoption at a meeting of stockholders, as in the case of the special meeting, the corporation, not less than 20 days prior to such meeting, must notify each of its stockholders who was a stockholder on the record date with respect to the shares for which appraisal rights are available, that appraisal rights are so available, and must include in each such notice a copy of Section 262 of the DGCL. This proxy statement constitutes such notice to our stockholders and Section 262 of the DGCL is attached to this proxy statement as Annex D. Any stockholder who wishes to exercise such appraisal rights or who wishes to preserve his, her or its right to do so should review the following discussion and Annex D carefully and should consult his, her or its legal advisors, because failure to timely and properly comply with the procedures specified will result in the loss of appraisal rights under the DGCL.

If you wish to exercise appraisal rights you must not vote for the adoption of the merger agreement and must deliver to Merge Healthcare, before the vote on the proposal to adopt the merger agreement, a written demand for appraisal of your shares of our common stock or Series A Convertible Preferred Stock. If you sign and return a proxy card or vote by submitting a proxy by telephone, through the Internet or by fax, without expressly directing that your shares of our common stock or Series A Convertible Preferred Stock be voted against the adoption of the merger agreement, you will effectively waive your appraisal rights because such shares represented by the proxy will be voted for the adoption of the merger agreement. Accordingly, if you desire to exercise and perfect appraisal rights with respect to any of your shares of common stock or Series A Convertible Preferred Stock, you must either refrain from executing and returning the enclosed proxy card and from voting in person or by submitting a proxy by telephone, through the Internet or by fax, in favor of the

proposal to adopt the merger agreement or check either the “against” or the “abstain” box next to the proposal on such card or vote in person or by submitting a proxy by telephone, through the Internet or by fax, against the proposal or register in person an abstention with respect thereto. A vote or proxy against the adoption of the merger agreement will not, in and of itself, constitute a demand for appraisal.

A demand for appraisal will be sufficient if it reasonably informs Merge Healthcare of the identity of the stockholder and that such stockholder intends thereby to demand appraisal of such stockholder’s shares of common stock or Series A Convertible Preferred Stock. This written demand for appraisal must be separate from any proxy or vote abstaining from or voting against the adoption of the merger agreement. If you wish to exercise your appraisal rights you must be the record holder of such shares of our common stock on the date the written demand for appraisal is made and you must continue to hold such shares through the effective time of the merger. Accordingly, a stockholder who is the record holder of shares of common stock or Series A Convertible Preferred Stock on the date the written demand for appraisal is made, but who thereafter transfers such shares prior to the effective time of the merger, will lose any right to appraisal in respect of such shares.

Only a holder of record of shares of our common stock or Series A Convertible Preferred Stock on September 10, 2015, the record date for the special meeting, is entitled to assert appraisal rights for such shares of our common stock or Series A Convertible Preferred Stock registered in that holder’s name. A demand for appraisal should be executed by or on behalf of the holder of record, fully and correctly, as the holder’s name appears on the stock certificates and must state that such person intends thereby to demand appraisal of his, her or its shares. If the shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand for appraisal should be made in that capacity, and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or on behalf of all joint owners. An authorized agent, including one for two or more joint owners, may execute the demand for appraisal on behalf of a holder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for such owner or owners.

A record holder such as a broker who holds shares as nominee for several beneficial owners may exercise appraisal rights with respect to the shares of our common stock or Series A Convertible Preferred Stock held for one or more beneficial owners while not exercising such rights with respect to the shares held for other beneficial owners; in such case, the written demand should set forth the number of shares as to which appraisal is sought. Where the number of shares of our common stock or Series A Convertible Preferred Stock is not expressly stated, the demand will be presumed to cover all shares held in the name of the record owner. If you hold your shares in brokerage accounts or other nominee forms and wish to exercise your appraisal rights, you are urged to consult with your broker to determine the appropriate procedures for the making of a demand for appraisal.

All written demands for appraisal of shares must be mailed or delivered to: Merge Healthcare Incorporated, 900 Walnut Ridge Drive, Hartland, Wisconsin 53029, Attention: Merge Equities Director & Assistant Corporate Secretary.

Within ten days after the effective time of the merger, we will notify each stockholder who properly asserted appraisal rights under Section 262 and has not voted for the adoption of the merger agreement of the effective time of the merger. Within 120 days after the effective time of the merger, but not thereafter, we or any stockholder who has complied with the statutory requirements summarized above may commence an appraisal proceeding by filing a petition in the Delaware Court demanding a determination of the fair value of the shares held by such stockholder. If no such petition is filed, appraisal rights will be lost for all stockholders who had previously demanded appraisal of their shares. We are not under any obligation, and we have no present intention, to file a petition with respect to appraisal of the value of the shares. Accordingly, if you wish to exercise your appraisal rights, you should regard it as your obligation to take all steps necessary to perfect your appraisal rights in the manner prescribed in Section 262 of the DGCL.

Within 120 days after the effective time of the merger, any stockholder who has complied with the provisions of Section 262 of the DGCL will be entitled, upon written request, to receive from us a statement setting forth the aggregate number of shares of our common stock or Series A Convertible Preferred Stock not voted in favor of adoption of the merger agreement and with respect to which demands for appraisal were received by us, and the number of holders of such shares. Such statement must be mailed within ten days after

the written request therefor has been received by us or within ten days after expiration of the period for delivery of appraisal demands, whichever is later. A person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person may, in such person’s own name, file an appraisal petition or request from us the statement described in this paragraph.

If a petition for an appraisal is timely filed and a copy thereof served upon us, we will then be obligated, within 20 days after such service, to file with the Delaware Register in Chancery a duly verified list containing the names and addresses of the stockholders who have demanded appraisal of their shares and with whom agreements as to the value of their shares have not been reached. After notice to the stockholders as required by the Delaware Court, the Delaware Court is empowered to conduct a hearing on such petition to determine those stockholders who have complied with Section 262 and who have become entitled to appraisal rights thereunder. The Delaware Court may require the stockholders who demanded appraisal rights of our shares of common stock to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceeding; and if any stockholder fails to comply with such direction, the Delaware Court may dismiss the proceedings as to such stockholder.

After the Delaware Court determines which stockholders are entitled to appraisal, the appraisal proceeding shall be conducted in accordance with the rules of the Delaware Court, including any rules specifically governing appraisal proceedings. Through such proceeding the Delaware Court shall determine the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger, together with interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Delaware Court shall take into account all relevant factors. Unless the Delaware Court in its discretion determines otherwise for good cause shown, interest from the effective date of the merger through the date of payment of the judgment shall be compounded quarterly and shall accrue at 5% over the Federal Reserve discount rate (including any surcharge) as established from time to time during the period between the effective date of the merger and the date of payment of the judgment. If you are considering seeking appraisal, you should be aware that the fair value of your shares as determined under Section 262 of the DGCL could be more than, the same as or less than the consideration you are entitled to receive pursuant to the merger agreement if you did not seek appraisal of your shares and that investment banking opinions as to the fairness from a financial point of view of the consideration payable in a merger are not necessarily opinions as to fair value under Section 262 of the DGCL.

The Delaware Court will direct the payment of the fair value of the shares of our stock to those stockholders who have perfected appraisal rights, together with interest, if any. The Delaware Court will determine the amount of interest, if any, to be paid on the amounts to be received by persons whose shares of our common stock or Series A Convertible Preferred Stock have been appraised. The costs of the action (which do not include attorneys or expert fees or expenses) may be determined by the Delaware Court and taxed upon the parties as the Delaware Court deems equitable. The Delaware Court may also order that all or a portion of the expenses incurred by any stockholder in connection with an appraisal, including without limitation reasonable attorneys’ fees and the fees and expenses of experts utilized in the appraisal proceeding, be charged pro rata against the value of all of the shares entitled to appraisal. In the absence of such determination or assessment, each party bears its own expenses.

Any stockholder who has duly demanded and perfected an appraisal in compliance with Section 262 of the DGCL will not, after the effective time of the merger, be entitled to vote his, her or its shares for any purpose or be entitled to the payment of dividends or other distributions thereon, except dividends or other distributions payable to holders of record of shares of our common stock or Series A Convertible Preferred Stock as of a date prior to the effective time of the merger.

At any time within 60 days after the effective time of the merger, any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party will have the right to withdraw his, her or its demand for appraisal and to accept the cash payment for his, her or its shares pursuant to the merger agreement. After this period, a stockholder may withdraw his, her or its demand for appraisal only with our written consent. If no petition for appraisal is filed with the Delaware Court within 120 days after the effective time of the merger, a stockholder’s right to appraisal will cease and he, she or it will be entitled to receive the cash payment for his, her or its shares pursuant to the merger agreement, as if he, she or it had not demanded appraisal of his, her or its shares. No petition timely filed in the Delaware Court demanding appraisal will be dismissed as to any stockholder without the approval of the Delaware Court, and such approval may be conditioned on such terms as

the Delaware Court deems just; provided, however, that any stockholder who has not commenced an appraisal proceeding or joined that proceeding as a named party may withdraw his, her or its demand for appraisal and accept the merger consideration offered pursuant to the merger agreement within 60 days after the effective date of the merger.

If you properly demand appraisal of your shares of our common stock or Series A Convertible Preferred Stock under Section 262 and you fail to perfect, or effectively withdraw or lose, your right to appraisal, as provided in the DGCL, your shares will be converted into the right to receive the consideration receivable with respect to such shares in accordance with the merger agreement. You will fail to perfect, or effectively lose or withdraw, your right to appraisal if, among other things, no petition for appraisal is filed within 120 days after the effective time of the merger, or if you deliver to us a written withdrawal of your demand for appraisal. Any such attempt to withdraw an appraisal demand more than 60 days after the effective time of the merger will require our written approval.

If you desire to exercise your appraisal rights, you must not vote for the adoption of the merger agreement and must strictly comply with the procedures set forth in Section 262 of the DGCL.

Failure to take any required step in connection with the exercise of appraisal rights will result in the termination or waiver of such rights.

THE PROCESS OF DEMANDING AND EXERCISING APPRAISAL RIGHTS REQUIRES STRICT COMPLIANCE WITH TECHNICAL PREREQUISITES. THOSE INDIVIDUALS OR ENTITIES WISHING TO EXERCISE THEIR APPRAISAL RIGHTS SHOULD CONSULT WITH THEIR OWN LEGAL COUNSEL IN CONNECTION WITH COMPLIANCE UNDER SECTION 262 OF THE DGCL. TO THE EXTENT THERE ARE ANY INCONSISTENCIES BETWEEN THE FOREGOING SUMMARY AND SECTION 262 OF THE DGCL, THE DGCL SHALL GOVERN.

Treatment of Outstanding Stock Options, Restricted Shares and Purchase Rights

Stock Options

Stock options to acquire Merge Healthcare’s common stock outstanding and unexercised at the effective time of the merger will be treated in one of the following manners:

Cash-Out Options. Each outstanding option to acquire shares of our common stock to the extent (i) vested (or vesting in connection with the merger), or (ii) such option (whether vested or unvested) is held by any of our or our subsidiaries’ non-employee directors, consultants or independent contractors will be cancelled at the effective time of the merger and will be converted into the right of the holder thereof to receive in consideration for such cancellation an amount in cash, without interest and less any applicable withholding taxes, payable at or as soon as practicable following the effective time of the merger, equal to the product of the number of shares of our common stock that are subject to such option and the excess, if any, of the common stock merger consideration of $7.13 per share over the exercise price per share of the common stock subject to such option. Each outstanding option to acquire shares of our common stock (whether vested or unvested) that has an exercise price per share greater than or equal to the common stock merger consideration of $7.13 per share will be cancelled for no consideration.

Rollover Options. Each outstanding option to acquire shares of our common stock that will not be cancelled in the manner described in the preceding paragraph will be converted into an option to acquire, on substantially the same terms and conditions as were applicable to such option prior to the effective time of the merger (other than with respect to exercisability prior to vesting or the ability to pay the exercise price by tendering previously owned shares of common stock), the number of shares of IBM’s common stock (rounded down to the nearest whole share) equal to the product of the number of shares of our common stock that are subject to such option and the exchange ratio. The exchange ratio is a fraction, the numerator of which is the common stock merger consideration of $7.13 per share and the denominator of which is the average closing price per share of IBM’s common stock on the New York Stock Exchange Composite Transactions Tape on the 20 trading days immediately prior to the date of the effective time of the merger. The exercise price of such converted option per share of IBM’s common stock as of immediately following such conversion will be equal to the per share exercise price for the shares of our common stock otherwise purchasable pursuant to such option prior to the effective time divided by the exchange ratio, rounded up to the nearest whole cent.

Restricted Shares

Restricted shares that are outstanding at the effective time of the merger will be treated in one of the following manners:

Cash-Out Restricted Shares. Each outstanding restricted share held by any of our or our subsidiaries’ non-employee directors, consultants or independent contractors will be cancelled at the effective time of the merger and will be converted into the right of the holder thereof to receive in consideration for such cancellation an amount in cash, without interest and less any applicable withholding taxes, equal to the common stock merger consideration of $7.13 per share.

Other Restricted Shares. Each outstanding restricted share held by our or any of our subsidiaries’ employees will be cancelled at the effective time of the merger and no consideration will be provided for such restricted shares except as provided further in this paragraph; provided, that, IBM will pay to each holder of restricted shares cancelled in this manner a cash payment equal to $7.13 multiplied by the number of such restricted shares that would have vested or in respect of which Merge Healthcare’s right to repurchase such restricted shares would have lapsed, with such cash payment to be made on or within 20 business days after the date or dates on which such vesting or lapse of restriction would have occurred had such restricted shares not been cancelled and converted into a right to receive a cash payment; provided further, that in order to receive such cash payment, the holder of restricted shares must be an employee of IBM or any of its affiliates on the applicable date at which such restricted shares would have vested or in respect of which Merge Healthcare’s right to repurchase such restricted shares would have lapsed.

Treatment of Purchase Rights under Merge Healthcare Incorporated 2000 Employee Stock Purchase Plan

Under the merger agreement, participation in the ESPP will be limited to those employees who are participants in the ESPP on August 6, 2015, and participants may not generally increase their payroll deduction elections or rate of contributions from those in effect on that date. No offering period under the ESPP will be started after August 6, 2015 and the ESPP will terminate on the earlier of the first purchase date after August 6, 2015 and the last trading day before the effective time of the merger, but after the exercise of purchase rights on such purchase date or termination. If the ESPP remains in effect on the last trading day before the effective time of the merger, each purchase right outstanding under the ESPP will be terminated in exchange for a cash payment equal to the excess of (A) the common stock merger consideration of $7.13 per share over (B) 85% of the lesser of (i) the closing price of a share of our common stock on the NASDAQ Global Select Market on the last trading day before the commencement of the last offering period and (ii) the closing price of a share of our common stock on the NASDAQ Global Select Market on the last trading day before the effective time of the merger, subject to the limitations under the ESPP regarding the maximum number and value of shares of our common stock purchasable with respect to any offering period.

Effective Time of the Merger

The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware or at such later time as is agreed upon by IBM and us and specified in such certificate of merger. The filing of the certificate of merger will occur as soon as practicable on or after the closing, which will take place on a date to be specified by IBM, merger sub and us and which will be no later than the fifth business day after satisfaction or waiver of the conditions to the closing of the merger set forth in the merger agreement and described in this proxy statement, unless IBM and we agree to hold the closing at a different time. We currently anticipate the merger to be completed in the fourth quarter of 2015.

Delisting and Deregistration of Our Common Stock

If the merger is completed, our common stock will be delisted from and will no longer be traded on the NASDAQ Global Select Market and will be deregistered under the Securities Exchange Act. Following the closing of the merger, we will no longer be an independent public company.

Material United States Federal Income Tax Consequences of the Merger

The following discussion summarizes the material U.S. federal income tax consequences of the merger to holders of Merge Healthcare common stock and Series A Convertible Preferred Stock. This discussion is based upon the provisions of the Internal Revenue Code of 1986, as amended, which we refer to as the “Code” in this

proxy statement, the U.S. Treasury Regulations promulgated thereunder and judicial and administrative rulings, all as in effect as of the date of this proxy statement and all of which are subject to change or varying interpretation, possibly with retroactive effect. Any such changes could affect the accuracy of the statements and conclusions set forth herein.

This discussion assumes that holders of Merge Healthcare common stock and Series A Convertible Preferred Stock hold their shares as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all aspects of U.S. federal income taxation that may be relevant to a holder of Merge Healthcare common stock or Series A Convertible Preferred Stock in light of such holder’s particular circumstances, nor does it discuss the special considerations applicable to holders of our common stock or Series A Convertible Preferred Stock subject to special treatment under the U.S. federal income tax laws, such as, for example, financial institutions or broker-dealers, mutual funds, partnerships or other pass-through entities and their partners or members, tax-exempt organizations, insurance companies, dealers in securities or foreign currencies, traders in securities who elect mark-to-market method of accounting, controlled foreign corporations, passive foreign investment companies, U.S. expatriates, holders who acquired their Merge Healthcare common stock or Series A Convertible Preferred Stock through the exercise of options or otherwise as compensation, holders who hold their Merge Healthcare common stock or Series A Convertible Preferred Stock as part of a hedge, straddle, constructive sale or conversion transaction, U.S. holders (as defined below) whose functional currency is not the U.S. dollar and holders who exercise appraisal rights. This discussion does not address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, nor does it address any aspect of foreign, state, local, alternative minimum, estate, gift or other tax law that may be applicable to a holder.

We intend this discussion to provide only a general summary of the material U.S. federal income tax consequences of the merger to holders of Merge Healthcare common stock and Series A Convertible Preferred Stock. We do not intend it to be a complete analysis or description of all potential U.S. federal income tax consequences of the merger. The U.S. federal income tax laws are complex and subject to varying interpretation. Accordingly, no assurance can be given that the Internal Revenue Service will not assert, or that a court could not sustain, a position contrary to the tax consequences described in this proxy statement.

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds Merge Healthcare common stock or Series A Convertible Preferred Stock, the tax treatment of a partner in such partnership will generally depend on the status of the partner and activities of the partnership. If you are a partner of a partnership holding Merge Healthcare common stock or Series A Convertible Preferred Stock, you should consult your own tax advisor.

All holders should consult their own tax advisors to determine the particular tax consequences to them (including the application and effect of any state, local or foreign income and other tax laws) of the receipt of cash in exchange for shares of Merge Healthcare common stock or Series A Convertible Preferred Stock pursuant to the merger.

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of Merge Healthcare common stock or Series A Convertible Preferred Stock that is, for U.S. federal income tax purposes:

A “non-U.S. holder” is a beneficial owner (other than a partnership) of Merge Healthcare common stock that is not a U.S. holder.

U.S. Holders

The conversion of shares of Merge Healthcare common stock or Series A Convertible Preferred Stock into cash pursuant to the merger will be a taxable transaction to a U.S. holder for U.S. federal income tax purposes. A U.S. holder will generally recognize gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received pursuant to the merger and such U.S. holder’s adjusted tax basis in the shares converted into cash pursuant to the merger. Such gain or loss will generally be capital gain or loss, and will be long-term capital gain or loss if the holder’s holding period for such shares exceeds one year as of the date of the merger. Long-term capital gains for certain non-corporate U.S. holders, including individuals, are generally eligible for a reduced rate of federal income taxation. The deductibility of capital losses is subject to limitations. If a U.S. holder acquired different blocks of Merge Healthcare common stock or Series A Convertible Preferred Stock at different times or different prices, such U.S. holder must determine its tax basis, holding period, and gain or loss separately with respect to each block of Merge Healthcare common stock or Series A Convertible Preferred Stock.

A U.S. holder may, under certain circumstances, be subject to information reporting and backup withholding at the applicable rate (currently, 28%) with respect to the cash received pursuant to the merger, unless such holder properly establishes an exemption or provides its correct tax identification number and otherwise complies with the applicable requirements of the backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules can be refunded or credited against a payee’s U.S. federal income tax liability, if any, provided that such U.S. holder furnishes the required information to the Internal Revenue Service in a timely manner.

Non-U.S. Holders

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

A non-U.S. holder will be subject to information reporting and, in certain circumstances, backup withholding (currently, at a rate of 28%) will apply with respect to the cash received by such holder pursuant to the merger, unless such non-U.S. holder certifies under penalties of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that the holder is a United States person as defined under the Code) or such holder otherwise establishes an exemption from backup withholding. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules may be refunded or credited against a non-U.S. holder’s U.S. federal income tax liability, if any.

THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT A COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX CONSEQUENCES RELEVANT TO MERGE HEALTHCARE

STOCKHOLDERS. THE TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER. YOU SHOULD CONSULT YOUR TAX ADVISOR CONCERNING THE FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES OF THE MERGER TO YOU.

Regulatory Matters

HSR Act

The closing of the merger is subject to expiration or termination of the applicable waiting periods under the HSR Act and the rules thereunder. Under the HSR Act and the rules thereunder, the merger may not be completed unless certain information has been furnished to the Antitrust Division of the U.S. Department of Justice and to the Federal Trade Commission and applicable waiting periods expire or are terminated. The HSR Act requires the parties to observe a 30-day waiting period (the “initial 30-day waiting period”), during which time the merger may not be consummated, unless that initial 30-day waiting period is terminated early. If, before the expiration of the initial 30-day waiting period, the Antitrust Division of the U.S. Department of Justice or the Federal Trade Commission issues a request for additional information, the parties may not consummate the transaction until 30 days after Merge Healthcare and IBM have each substantially complied with such request for additional information (unless this period is shortened pursuant to a grant of earlier termination). Merge Healthcare and IBM filed their respective notification and report forms pursuant to the HSR Act with the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission on August 21, 2015 and received early termination of the waiting period effective September 1, 2015.

At any time before the effective time of the merger, the Federal Trade Commission, the Antitrust Division of the U.S. Department of Justice, state attorneys general or private parties can file suit under the antitrust laws to enjoin consummation of the merger or to impose conditions on the merger. There can be no assurance that the merger will not be challenged on antitrust grounds or, if such a challenge is made, that the challenge will not be successful.

THE MERGER AGREEMENT

The following summary describes certain material provisions of the merger agreement. This summary is not complete and is qualified in its entirety by reference to the complete text of the merger agreement, which is attached to this proxy statement as Annex A and incorporated into this proxy statement by reference. We urge you to read carefully the merger agreement in its entirety because this summary may not contain all the information about the merger agreement that is important to you.

The merger agreement and the following description have been included to provide you with information regarding the terms of the merger agreement. It is not intended to provide any other factual information about Merge Healthcare or IBM. Such information can be found elsewhere in this proxy statement and in the other public filings we and IBM make with the SEC, which are available, without charge, at http://www.sec.gov.

The representations and warranties described below and included in the merger agreement were made for the purposes of the merger agreement by Merge Healthcare and IBM to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the merger agreement and may be subject to important qualifications and limitations agreed to by Merge Healthcare and IBM in connection with negotiating the terms of that agreement. Moreover, the representations and warranties may be subject to a contractual standard of materiality that may be different from what may be viewed as material to stockholders, or may have been made for the purpose of allocating risk between Merge Healthcare and IBM rather than establishing the matters addressed by such representations and warranties as facts. The merger agreement is described in this proxy statement and included as Annex A only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding Merge Healthcare and IBM or their respective businesses.

The Merger

Subject to the terms and conditions of the merger agreement and in accordance with Delaware law, at the effective time of the merger, merger sub, a wholly owned subsidiary of IBM and a party to the merger agreement, will merge with and into us. We will survive the merger as a wholly owned subsidiary of IBM, and the separate corporate existence of merger sub will cease.

Effective Time; Closing

The merger will become effective upon the filing of a certificate of merger with the Secretary of State of the State of Delaware or at such later time as is agreed upon by IBM and us and specified in the certificate of merger. The filing of the certificate of merger will occur as soon as practicable on or after the date of closing, which will take place on a date to be specified by IBM, merger sub and us and which will be no later than the fifth business day after satisfaction or waiver of the conditions to the closing of the merger set forth in the merger agreement and described in this proxy statement, or at such other time as is agreed upon by IBM and us. Although we expect to complete the merger as soon as possible following the special meeting of our stockholders (if our stockholders adopt the merger agreement), we cannot specify when or assure that we and IBM will satisfy or waive all of the conditions to the closing of the merger. See “—Conditions to the Closing of the Merger” beginning on page 65.

Merger Consideration

As a result of the merger, our holders of common stock will be entitled to receive $7.13 in cash, without interest and less any applicable withholding taxes, for each share of our common stock they own as of the effective time of the merger. However, if you are an employee of Merge Healthcare or any of its subsidiaries and you hold restricted shares of our common stock as of the effective time, those shares will be cancelled and you will be entitled to receive the applicable merger consideration for those restricted shares on a deferred basis subject to the conditions described in this proxy statement.

As a result of the merger, holders of Series A Convertible Preferred Stock will be entitled to receive $1,500.00 in cash, without interest and less any applicable withholding taxes, for each share of our Series A Convertible Preferred Stock they own as of the effective time of the merger.

As a result of the merger, outstanding Merge Healthcare equity awards will either be cancelled and converted into a right to receive a cash payment at the effective time of the merger or, in some cases, converted into comparable awards for common stock of IBM or cancelled and converted into a right to potentially receive a cash payment at a later date, as described under “Treatment of Outstanding Stock Options, Restricted Shares and Purchase Rights” below.

If any of our stockholders perfect appraisal rights with respect to any of our shares of common stock or Series A Convertible Preferred Stock, we will treat those shares as described under “The Merger—Appraisal Rights” beginning on page 45.

Treatment of Outstanding Stock Options, Restricted Shares and Purchase Rights

Stock Options

Stock options to acquire Merge Healthcare’s common stock outstanding and unexercised at the effective time of the merger will be treated in one of the following manners:

Cash-Out Options. Each outstanding option to acquire shares of our common stock to the extent (i) vested (or vesting in connection with the merger), or (ii) such option (whether vested or unvested) is held by any of our or our subsidiaries’ non-employee directors, consultants or independent contractors will be cancelled at the effective time of the merger and will be converted into the right of the holder thereof to receive in consideration for such cancellation an amount in cash, without interest and less any applicable withholding taxes, payable at or as soon as practicable following the effective time of the merger, equal to the product of the number of shares of our common stock that are subject to such option and the excess, if any, of the common stock merger consideration of $7.13 per share over the exercise price per share of the common stock subject to such option. Each outstanding option to acquire shares of our common stock (whether vested or unvested) that has an exercise price per share greater than or equal to the common stock merger consideration of $7.13 per share will be cancelled for no consideration.

Rollover Options. Each outstanding option to acquire shares of our common stock that will not be cancelled in the manner described in the preceding paragraph will be converted into an option to acquire, on substantially the same terms and conditions as were applicable to such option prior to the effective time of the merger (other than with respect to exercisability prior to vesting or the ability to pay the exercise price by tendering previously owned shares of common stock), the number of shares of IBM’s common stock (rounded down to the nearest

whole share) equal to the product of the number of shares of our common stock that are subject to such option and the exchange ratio. The exchange ratio is a fraction, the numerator of which is the common stock merger consideration of $7.13 per share and the denominator of which is the average closing price per share of IBM’s common stock on the New York Stock Exchange Composite Transactions Tape on the 20 trading days immediately prior to the date of the effective time of the merger. The exercise price of such converted option per share of IBM’s common stock as of immediately following such conversion will be equal to the per share exercise price for the shares of our common stock otherwise purchasable pursuant to such option prior to the effective time divided by the exchange ratio, rounded up to the nearest whole cent.

Restricted Shares

Restricted shares that are outstanding at the effective time of the merger will be treated in one of the following manners:

Cash-Out Restricted Shares. Each outstanding restricted share held by any of our or our subsidiaries’ non-employee directors, consultants or independent contractors will be cancelled at the effective time of the merger and will be converted into the right of the holder thereof to receive in consideration for such cancellation an amount in cash, without interest and less any applicable withholding taxes, equal to the common stock merger consideration of $7.13 per share.

Other Restricted Shares. Each outstanding restricted share held by our or any of our subsidiaries’ employees will be cancelled at the effective time of the merger and no consideration will be provided for such restricted shares except as provided further in this paragraph; provided, that, IBM will pay to each holder of restricted shares cancelled in this manner a cash payment equal to $7.13 multiplied by the number of such restricted shares that would have vested or in respect of which Merge Healthcare’s right to repurchase such restricted shares would have lapsed, with such cash payment to be made on or within 20 business days after the date or dates on which such vesting or lapse of restriction would have occurred had such restricted shares not been cancelled and converted into a right to receive a cash payment; provided further, that in order to receive such cash payment, the holder of restricted shares must be an employee of IBM or any of its affiliates on the applicable date at which such restricted shares would have vested or in respect of which Merge Healthcare’s right to repurchase such restricted shares would have lapsed.

Treatment of Purchase Rights under Merge Healthcare Incorporated 2000 Employee Stock Purchase Plan

Under the merger agreement, participation in the ESPP will be limited to those employees who are participants in the ESPP on August 6, 2015, and participants may not generally increase their payroll deduction elections or rate of contributions from those in effect on that date. No offering period under the ESPP will be started after August 6, 2015, and the ESPP will terminate on the earlier of the first purchase date after August 6, 2015 and the last trading day before the effective time of the merger but after the exercise of purchase rights on such purchase date or termination on such last trading day. If the ESPP remains in effect on the last trading day before the effective time of the merger, each purchase right outstanding under the ESPP will be terminated in exchange for a cash payment equal to the excess of (A) the common stock merger consideration of $7.13 per share over (B) 85% of the lesser of (i) the closing price of a share of our common stock on the NASDAQ Global Select Market on the last trading day before the commencement of the last offering period and (ii) the closing price of a share of our common stock on the NASDAQ Global Select Market on the last trading day before the effective time of the merger, subject to the limitations under the ESPP regarding the maximum number and value of shares of our common stock purchasable with respect to any offering period.

Surrender of Stock Certificates; Payment of Merger Consideration; Lost Certificates

Prior to the effective time of the merger, IBM will designate a paying agent and, from time to time after the effective time of the merger, IBM will make available to the paying agent funds in amounts as necessary for the payment of the merger consideration.

As soon as reasonably practicable after the effective time of the merger, the paying agent will mail to each person who was a holder of record of our common stock or Series A Convertible Preferred Stock immediately prior to the effective time of the merger a letter of transmittal containing instructions for exchanging certificates representing such shares of our common stock or Series A Convertible Preferred Stock. Such letter of transmittal will be accompanied by a substitute IRS Form W-9 or the applicable IRS Form W-8. After the effective time of

the merger, each holder of a certificate previously representing such shares of our common stock or Series A Convertible Preferred Stock will, upon surrender to the paying agent of a certificate, together with a properly completed letter of transmittal, be entitled to receive the merger consideration of $7.13 in cash, less any applicable withholding taxes, for each share of our common stock represented by such certificate and $1,500.00 in cash, less any applicable withholding taxes, for each share of our Series A Convertible Preferred Stock represented by such certificate.

No interest will be paid or shall accrue on the cash payable upon surrender of any such certificate. The cash paid upon surrender of any such certificate will be deemed to have been paid in full satisfaction of all rights pertaining to the shares of our common stock formerly represented by such certificate.

If any such certificate has been lost, stolen, defaced or destroyed, the paying agent or the surviving corporation, as the case may be, will pay the applicable merger consideration with respect to each share of our common stock or Series A Convertible Preferred Stock formerly represented by such certificate upon the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen, defaced or destroyed and, if required by the surviving corporation, the posting by such person of a bond in an amount as the surviving corporation may direct as indemnity against any claim that may be made against the surviving corporation with respect to such certificate.

At any time following the six-month anniversary of the closing date of the merger, the surviving corporation may require the paying agent to deliver to it any funds previously made available to the paying agent that have not been disbursed to holders of certificates that formerly represented shares of our common stock or Series A Convertible Preferred Stock. After that point, stockholders will no longer be able to receive the merger consideration from the paying agent. Instead, they will be required to seek to obtain the merger consideration only from IBM and the surviving corporation and in so doing will be treated as general creditors with respect to the payment of any such merger consideration, without any interest thereon.

Directors and Officers

The merger agreement provides that merger sub’s directors and officers immediately prior to the effective time of the merger will be the directors and officers, respectively, of the surviving corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be.

Representations and Warranties

We have made a number of representations and warranties to IBM and merger sub in the merger agreement regarding aspects of our business and other matters pertinent to the merger. The topics covered by these representations and warranties include the following:

Some of our representations and warranties are qualified by a material adverse effect standard. The merger agreement provides that a material adverse effect means:

provided that in no event will any of the following events, effects or circumstances be deemed, either alone or in combination, to constitute or be taken into account in determining whether there has been or would be, a material adverse effect:

IBM and merger sub have made a number of representations and warranties to us regarding various matters pertinent to the merger. The topics covered by these representations and warranties include the following:

The representations and warranties of each of the parties to the merger agreement will expire upon the effective time of the merger.

Covenants

Conduct of Our Business Prior to the Merger

In the merger agreement, we have agreed that before the effective time of the merger, subject to certain exceptions, we will carry on our, and we will cause each of our subsidiaries to carry on their, business in the ordinary course consistent with past practice and use commercially reasonable efforts to comply with all applicable laws and, to the extent consistent therewith, use commercially reasonable efforts to keep available the services of present officers, software developers and other employees, to preserve assets and technology and relationships with customers, suppliers, licensors, licensees, distributors and others having material business dealings with us and our subsidiaries and to maintain franchises, rights and permits.

In addition, we have agreed, with specified exceptions, to various restrictions, including restrictions on our and our subsidiaries ability to:

the ordinary course of business consistent with past practice, in each case, the payment, discharge, settlement or satisfaction of which does not include any obligation (other than paying money) to be performed by us or our subsidiaries following the closing of the merger;

cancellation or material acceleration, loss of material benefit under, material lien upon properties or assets of us, IBM or any of their respective subsidiaries, or to any increased, guaranteed, accelerated or additional rights to any person except, in each case, as required by applicable law;