A Medical Device Daily
Merge Healthcare (Milwaukee), a provider of medical-imaging software and services, replaced top management and said it would cut one-sixth of its work force following the successful completion of a $20 million financing.
In conjunction with the management changes, Merge reported that it is reorganizing and renaming its operating divisions. Merge Healthcare North America (MHNA) has been renamed Merge Fusion, and Cedara (Toronto), its operating division, will be renamed Merge OEM.
The company reported that total head count will be reduced by about 60 people, to approximately 300 employees. It is anticipated that these reductions will result in a charge of at least $6 million in its financial statements for the second quarter ending June 30.
Merge has been sailing over rough waters in recent years, leading to yesterday's changes.
In 2006, the company's CEO, CFO, treasurer and secretary, and senior VP of strategic development resigned after an audit committee completed an investigation following a number of anonymous letters alleging improprieties relating to the company's financial reporting.
Later that year, the company reported a "reorganization and right-sizing initiative", including reduction of about 150 jobs, 28% of its workforce, with anticipated cost savings of $13 million to $16 million annually. The down-sizing was expected to take the company from about 550 personnel to 400.
Merge said at the time it expected to ramp staffing up to the 550 level within three to six months, using "off-shore resources" in India, where it planned a software development and support center with an anticipated run-rate of $4 million to $6 million.
The current $20 million financing is pursuant to that certain securities purchase agreement with Merrick RIS, an affiliate of Merrick Ventures, entered into on May 21. Merge issued to Merrick a $15 million senior secured term note due 2010 and 6.8 million shares of the company's common stock as partial consideration for the term note and 14,285,715 shares of the company's common stock at a price per share of 35 cents.
The private placement was made pursuant to an exemption from the registration requirements under the Securities Act of 1933, as amended. After giving effect to the payment of certain transactions costs, closing fees and prepaid interest, net proceeds of the private placement to the company equal approximately $16.6 million.
The company also has entered into a registration rights agreement in connection with the private placement pursuant to which it has agreed to register with the Securities and Exchange Commission for public resale the common stock under certain circumstances.
In connection with the private placement, five of the 11 members of the board of directors of the company resigned.
Merge reported that it expects to incur additional costs associated with the early termination of certain, undisclosed vendor contracts. It also anticipates incurring additional non-cash charges associated with the reorganization during the second quarter ending June 30. These non-cash charges include approximately $1 million of trade name impairment costs and approximately $2 million of stock-based compensation costs associated with the accelerated vesting of certain restricted stock and stock options of terminated employees.
The executives who resigned include Kenneth Rardin, CEO; Steven Norton, CFO; Gary Bowers, president of the company's Merge North America division; and Loris Sartor, president of Cedara/Merge OEM division.
Justin Dearborn, managing director and general counsel for Merrick Ventures, was named as the new CEO.