Faced with the prospect of declaring bankruptcy and after deciding to dump most of its overseas interests, Merge Healthcare, Inc. has agreed to a $20 million financing deal in an effort to shore up its books and settle a class action securities lawsuit.
Company officials announced last week that the developer of medical imaging and clinical software applications has entered into a securities purchase agreement and related agreements with Merrick RIS LLC for $20 million in financing through a private placement. The company will well a $15 million senior secured term note due in 2010 and 6.8 million shares of common stock as partial consideration for the term note, and will sell another 14.3 million shares of common stock for 35 cents per share.
The private placement, scheduled to close on or about June 3, will net the company approximately $16.6 million.
The financing will enable the company to pay $3 million to settle a consolidated securities class action suit filed against the company, in which the company and some key officers were charged with misrepresenting the company's financial health. Merge's insurance carriers will pay another $13 million as part of the settlement deal.
The agreement with Merrick, based in Delaware, allows the financier to replace five members of Merge Healthcare's 11-member board of directors with its own designees.
"We are pleased that Merrick has partnered with the company and provided this financial package," said Merge Healthcare President and CEO Kenneth Rardin in a press release. "The financing should provide us with the necessary liquidity as we continue our attempts to grow our revenues and align expenses with the revenues of the business and regain our position as a growing and profitable provider of healthcare diagnostic imaging software and services."
"This financing combined with the ongoing cost reduction plans that started with the February restructuring and the refocusing of the business on the North America RIS-PACS and teleradiology markets and the Cedara OEM business allows the company to focus on its core strengths," Rardin added. "Additionally, we look forward to the strategic advice and counsel Merrick will provide to the Company as we move forward."
In May, following a ninth straight quarter of operating losses, company officials announced the sale of its subsidiaries in China and France and the impending divestiture of its EMEA business unit, a branch office in Nuenen, the Netherlands. In a 10-Q report filed May 9 with the Securities and Exchange Commission, officials said the company's financial problems were leading to a loss of customers, a failure to attract new customers and low employee morale and could prompt them to file for bankruptcy by the end of the year.
"We are considering all strategic options and also options for generating additional cash and revenues to fund our continuing business operations, including equity offerings, assets sales and debt financings," the report stated. "If adequate funds are not available or are not available on acceptable terms, we will likely not be able to fund our new teleradiology business, take advantage of unanticipated opportunities, develop or enhance services or products, respond to competitive pressures, or continue as a going concern beyond June 30, 2008, and may have to seek bankruptcy protection."
Merge recently announced the release of Fusion PACS MX3.0, featuring integrated Merge Mammo 7.10, its latest PACS workstation and digital mammography application.
Will this deal keep Merge Healthcare afloat? What else should the company do to return to solid footing? E-mail Managing Editor Eric Wicklund at eric.wicklund@medtechpublishing.com.