(2)	Acquisitions

AMICAS, Inc.

On April 28, 2010, we completed our acquisition of AMICAS through a successful tender offer for 37,009,990 outstanding shares of common stock of AMICAS at $6.05 per share in cash. Following the tender offer, we purchased the remaining shares pursuant to a merger of a subsidiary of Merge with and into AMICAS. Total transaction consideration was approximately $223,910. In addition, shortly before the completion of the acquisition, AMICAS paid cash to holders of vested, in-the-money stock options for the difference between $6.05 per share and the exercise price of such options. The holders of shares of restricted stock were paid $6.05 per share in cash. The total consideration paid to option and restricted stock holders was approximately $22,906. We financed the transaction with $200 million aggregate principal amount of 11.75% Senior Secured Notes due 2015 (Notes), cash already available at the two companies and proceeds of $41,750 from the issuance of preferred and common stock. See Notes 7, 8 and 11 for further information regarding the Notes and preferred and common stock issuance.

Reasons for the Transaction

We believe that this acquisition allows our customers to benefit from the combined company's enhanced suite of products ranging from point solutions to end-to-end solutions for imaging workflow. The acquisition also creates an opportunity to cross-sell our solutions to different provider bases and to expand such solutions globally using our international footprint. In addition, the acquisition created significant cost synergies.

Accounting

The acquisition of AMICAS was accounted for in accordance with ASC Topic No. 805, Business Combinations. Merge was considered the accounting acquirer. Under the acquisition method of accounting, the total purchase price of approximately $223,910 was allocated to the net tangible and intangible assets acquired and liabilities assumed, based on various estimates of their respective fair values. The allocation of the purchase consideration was based upon estimates made by us with the assistance of independent valuation specialists. The purchase price allocation, based on AMICAS' assets and liabilities as of April 28, 2010, was as follows:

	Estimated Fair Value
Cash	$	15,125
Other tangible assets		46,081
Liabilities assumed		(32,080	)
Purchased and developed software		19,200
Customer relationships		30,400
Backlog		8,100
Trade names		3,600
Non-competes		3,100
Goodwill		130,384
Total consideration	$	223,910

The amounts allocated to purchased and developed software, customer relationships, trade names, employee non-compete agreements and backlog were estimated by us based on the work performed by independent valuation specialists, primarily through the use of discounted cash flow techniques. Appraisal assumptions utilized under these methods include a forecast of estimated future net cash flows, as well as discounting the future net cash flows to their present value. Acquired intangible assets are being amortized over the estimated useful lives as set forth in the following table:

	Years		Amortization Method
Purchased and developed software		8.0	Straight-line
Customer relationships		9.7	Other
Backlog		4.7	Other
Trade names		12.0	Straight-line
Non-competes		7.0	Straight-line
Goodwill	Indefinite		N/A

The estimated asset lives are determined based on projected future economic benefits and expected life cycles of the acquired intangible assets. The amount assigned to goodwill is not being amortized, but will be tested for impairment annually or under circumstances that may indicate a potential impairment. Of the $130,384 assigned to goodwill, $12,700 will be deductible for federal income tax purposes.

Pro Forma Results

The following unaudited pro forma condensed combined results of operations for the year ended December 31, 2010 are based on the historical financial statements of Merge and AMICAS giving effect to the business combination as if it had occurred at the beginning of the period presented. This pro forma data has been adjusted to exclude pre-acquisition revenue and cost of sales related to sales by Merge to AMICAS as well as the amortization of intangible assets acquired by AMICAS, while including amortization of purchased intangible assets, interest on the Notes and preferred stock dividends during the entire applicable periods. This data is not necessarily indicative of the results of operations that would have been generated if the transactions had occurred at the beginning of the respective periods. Moreover, this data is not intended to be indicative of future results of operations.

	Year Ended
	December 31, 2010
Revenue	$	177,019
Net loss available to common shareholders		(48,893	)
Loss per share:
Basic	$	(0.59	)
Diluted	$	(0.59	)