Securities Law & Instruments

Headnote

Subsection 74(1) - Registrationand prospectus relief granted in respect of trades in connectionwith merger transaction in which exchangeable shares are issuedwhere statutory exemptions are unavailable for technical reasons- first trade deemed a distribution unless trade is made throughan exchange or market outside of Canada or to a person or companyoutside of Canada.

Applicable Statutes

Securities Act, R.S.O. 1990,c. S.5, as am., sections 25, 53 and 74(1).

Applicable Rules

Rule 45-501 - Exempt Distributions.

Rule 72-501 - First Trade Overa Market Outside Ontario.

Applicable Instruments

Multilateral Instrument 45-102- Resale of Securities.

IN THE MATTER OF

THE SECURITIES ACT,

R.S.O. 1990, CHAPTER S.5,AS AMENDED (THE "ACT")

AND

IN THE MATTER OF

E-FILM MEDICAL INC. AND

MERGE TECHNOLOGIES INC.

RULING

(SUBSECTION 74(1))

UPON the applicationof Merge Technologies Incorporated ("Merge") and E-FilmMedical Inc. ("E-Film") to the Ontario SecuritiesCommission (the "Commission") for a ruling pursuantto section 74(1) of the Act that certain trades made in connectionwith an acquisition (the "Transaction") of E-Filmby Merge pursuant to a reorganization agreement entered intoon or about April 15, 2002, between E-Film, certain shareholdersof E-Film, Merge, and Merge's subsidiary, Merge TechnologiesHoldings Co. ("Holdco") (the "ReorganizationAgreement") shall not be subject to sections 25 or 53 ofthe Act;

AND UPON consideringthe application and the recommendation of staff of the Commission;

AND UPON Merge and E-Filmhaving represented to the Commission as follows:

1. Merge was incorporatedunder the laws of the state of Wisconsin on November 25, 1987.

2. The common stock of Merge(the "Merge Shares") are quoted on NASDAQ and Mergewill apply to NASDAQ to quote the Merge Shares issuable inconnection with the Transaction. Merge is currently subjectto the informational requirements of the United States ExchangeAct of 1934, as amended (the "Exchange Act"). Mergeis not a "reporting issuer" under the Act or underthe securities legislation of any other province or territoryof Canada.

3. Merge is an internationalprovider of clinical information systems integration solutionsfor healthcare organizations. Merge offers software, hardwareand integration component products that facilitate networkingand information management of image-producing and image-usingdevices in diagnostic radiology.

4. Merge will file with NASDAQthe required form of application for the listing of all additionalMerge Shares issuable in connection with the Transaction,including pursuant to the exchange of all issuable ExchangeableShares (as defined below), and will pay to NASDAQ all requiredfees in connection therewith.

5. Merge's principal executiveoffices are located at 1126 South 70th Street, Milwaukee,Wisconsin, USA.

6. The authorized capitalstock of Merge consists of 30,000,000 Merge Shares, par valueU.S.$0.01 per share, 4,000,000 shares of preferred stock and1,000,000 shares of Series A Preferred Stock. As of March31, 2002, 7,105,447 Merge Shares, one share of preferred stockand 637,236 shares of Series A Preferred Stock were issuedand outstanding.

7. E-Film was formed underthe laws of Canada on March 28, 2000.

8. E-Film is a "privatecompany" as defined in the Act, and is not a "reportingissuer" under the Act or under the securities legislationof any other province or territory of Canada.

9. E-Film is in the businessof developing medical imaging work-flow products and services.

10. E-Film's principal executiveoffices are located at 500 University Avenue, Suite 300, Toronto,Ontario, Canada.

11. The authorized capitalof E-Film consists of an unlimited number of common shares(the "E-Film Common Shares"), of which 100,000 E-FilmCommon Shares are issued and outstanding as at the date hereof.All eight holders of E-Film Common Shares are resident inOntario.

12. Holdco was formed on September1, 1999 under the laws of the Province of Nova Scotia as aprivate company and it or another subsidiary or affiliateof Merge (the "Designee") will hold some or allof the New E-Film Common Shares (as defined below) and thevarious call rights related to the Exchangeable Shares. Holdcois not a "reporting issuer" under the Act or underthe securities legislation of any other province or territoryof Canada.

13. The first step of theTransaction will be effected through an amendment to the articlesof incorporation of E-Film (the "Amendment") toprovide (i) for the creation of a class of exchangeable shares(the "Exchangeable Shares") exchangeable for MergeShares and (ii) that each outstanding E-Film Common Sharewill be converted into 10 Exchangeable Shares. The Amendmentmust be approved by the holders of not less than 66-2/3% ofthe E-Film Common Shares present in person or by proxy andvoting at the E-Film shareholders' meeting to be held on May30, 2002, or by a resolution in writing signed by the holdersof all of the outstanding E-Film Common Shares.

14. In connection with theE-Film shareholders' meeting, E-Film will deliver to the holdersof E-Film Common Shares a management information circular(the "E-Film Circular"). The E-Film Circular willcontain a description of the Transaction and will containdisclosure relating to the business and affairs of Merge asrequired pursuant to the Exchange Act, and related rules ofthe United States Securities Exchange Commission for reportson Form 10-KSB and proxy statements on Schedule 14A.

15. Pursuant to the Amendment,holders of E-Film Common Shares (except holders of E-FilmCommon Shares who exercise their rights of dissent) will receive10 Exchangeable Shares for each E-Film Common Share.

16. Upon completion of theconditions set out in the Reorganization Agreement, E-Filmwill issue 100 common shares (the "New E-Film CommonShares") to Merge (or Holdco) for an aggregate purchaseprice of $10.00.

17. The Exchangeable Shares,together with the Share Exchange Agreement, Support Agreementand Trust Agreement described below, will provide holdersof the Exchangeable Shares with a security of a Canadian issuerhaving economic and voting rights which are, as nearly aspracticable, equivalent to those of a Merge Share. ExchangeableShares will be received by certain holders of E-Film CommonShares on a Canadian tax-deferred rollover basis. The ExchangeableShares will be exchangeable by a holder thereof for MergeShares on a one-for-one basis at any time at the option ofthe holder and will be required to be exchanged upon the occurrenceof certain events, as more fully described below. Subjectto applicable law, dividends will be payable on the ExchangeableShares contemporaneously and in the equivalent amount pershare as dividends on the Merge Shares, although currentlyno dividends are anticipated to be paid on the Merge Shares.The number of Exchangeable Shares exchangeable for the MergeShares is subject to adjustment or modification in the eventof a stock split or other change to the capital structureof Merge so as to maintain at all times the initial one-to-onerelationship between the Exchangeable Shares and Merge Shares.

18. The Exchangeable Shareshave preference over the New E-Film Common Shares and anyother shares ranking junior to the Exchangeable Shares withrespect to the payment of dividends and the distribution ofproperty or assets in the event of the liquidation, dissolutionor winding-up of E-Film, whether voluntary of involuntary,or any other distribution of property or assets of E-Filmamong its shareholders for the purpose of winding-up its affairs.

19. Holders of ExchangeableShares are entitled to receive:

(a) in the case of a cashdividend declared on the Merge Shares, for each ExchangeableShare, an amount in cash equal to the Canadian dollar equivalentof the cash dividend declared on each Merge Share;

(b) in the case of a sharedividend declared on Merge Shares to be paid in Merge Shares,for each Exchangeable Share, a number of Exchangeable Sharesequal to the number of Merge Shares to be paid on each MergeShare; and

(c) in the case of a dividenddeclared on the Merge Shares to be paid in property (otherthan cash or Merge Shares), for each Exchangeable Share,a type and amount of property which is the same as or economicallyequivalent to the type and amount of property declared asa dividend on each Merge Share.

All dividends will be paidout of money, assets or property of E-Film properly applicableto the payment of dividends, or out of authorized but unissuedshares of E-Film.

20. So long as any of theExchangeable Shares are outstanding, E-Film will not without,but may at any time with, the approval of the holders of theExchangeable Shares, given as specified in the ExchangeableShare provisions:

(a) amend the constatingdocuments of E-Film in a manner which would prejudiciallyaffect the holders of Exchangeable Shares in any materialrespect;

(b) initiate the voluntaryliquidation, dissolution or winding-up of E-Film or takeany action or omit to take any action that is designed toresult in the liquidation, dissolution or winding-up ofE-Film; or

(c) (if any dividends requiredto have been declared and paid on the outstanding ExchangeableShares have not been declared and paid in full) issue anyshares of E-Film ranking equally with, or superior to, theExchangeable Shares, other than by way of stock dividendsto the holders of Exchangeable Shares.

21. So long as any of theExchangeable Shares are outstanding and any dividends requiredto have been declared and paid on the outstanding ExchangeableShares pursuant to the Exchangeable Share provisions havenot been declared and paid in full, E-Film will not without,but may at any time with, the approval of the holders of theExchangeable Shares given as specified in the ExchangeableShare provisions:

(a) pay any dividends orother distributions on the New E-Film Common Shares or anyother shares ranking junior to the Exchangeable Shares,other than stock dividends payable in New E-Film CommonShares, or any other shares ranking junior to the ExchangeableShares, as the case may be;

(b) redeem or purchase ormake any capital distribution in respect of the New E-FilmCommon Shares, or any other shares ranking junior to theExchangeable Shares; or

(c) redeem or purchase anyother shares of E-Film ranking with respect to the paymentof dividends or other distributions or on any liquidationdistribution equally with, or superior to, the ExchangeableShares with respect to the payment of dividends or on anyliquidation distribution.

22. On the liquidation ofE-Film, each holder of Exchangeable Shares has the right (the"Liquidation Right") to receive an amount per shareequal to the Canadian dollar equivalent of the fair marketvalue of one Merge Share at that time (to be fully paid andsatisfied by the delivery of one Merge Share) plus an additionalamount representing any declared and unpaid dividends on theExchangeable Share, subject to Merge's (or its Designee's)overriding call right (the "Liquidation Call Right")to acquire the Exchangeable Share in consideration for oneMerge Share plus those additional amounts.

23. Exchangeable Shares maybe retracted by the holder (the "Share Retraction Right")until the date which is five years following the completionof the Transaction (the "Sunset Date") for a retractionprice per share equal to the Canadian dollar equivalent ofthe fair market value of one Merge Share at the time of retraction(to be fully paid and satisfied by the delivery of one MergeShare) plus an additional amount representing any declaredand unpaid dividends on the Exchangeable Share, subject toMerge's (or its Designee's) overriding call right (the "ShareRetraction Call Right") to acquire the Exchangeable Sharein consideration for one Merge Share plus those additionalamounts.

24. Merge (or its Designee)must purchase on the Sunset Date (or, in certain circumstancesset out in the Share Exchange Agreement, an earlier date)(the "Purchase Date") all of the then outstandingExchangeable Shares (the "Purchase Right") for anamount per share equal to the Canadian dollar equivalent ofthe fair market value of one Merge Share at the time of purchase(to be fully paid and satisfied by the delivery of one MergeShare) plus an additional amount representing any declaredand unpaid dividends on the Exchangeable Shares, except ifMerge has directed and caused E-Film to redeem such ExchangeableShares pursuant to the Exchangeable Share provisions. If directedby Merge pursuant to the Share Exchange Agreement, each ExchangeableShare must be redeemed by E-Film on the Sunset Date for aredemption price per share equal to the Canadian dollar equivalentof the fair market value of one Merge Share at the time ofredemption (to be fully paid and satisfied by the deliveryof one Merge Share) plus an additional amount representingany declared and unpaid dividends on the Exchangeable Share.If Merge does not direct E-Film to exercise its redemptionrights under the Exchangeable Share Conditions, the ExchangeableShares shall be purchased by Merge (or its Designee) pursuantto the Purchase Right on the Purchase Date.

25. Subject to applicablelaw and the prior written consent of Merge, E-Film may atany time and from time to time purchase for cancellation allor any part of the outstanding Exchangeable Shares at anyprice by agreement with a holder of record of ExchangeableShares then outstanding or through the facilities of any stockexchange on which the Exchangeable Shares are listed or quotedat any price per share together with an amount equal to alldeclared and unpaid dividends thereon (the "E-Film PurchaseRight").

26. Subject to applicablelaw, the Exchangeable Shares are non-voting except in certaincircumstances described in the Exchangeable Share provisions.

27. Contemporaneously withthe closing of the Transaction, Merge will enter into a ShareExchange Agreement pursuant to which:

(a) if, as a result of solvencyrequirements or applicable law, E-Film is not permittedto redeem Exchangeable Shares tendered by a holder uponthe exercise of a Share Retraction Right, the holder ofExchangeable Shares has a right (the "Exchange Right")to require Merge (or its Designee) to purchase those ExchangeableShares for a price per share equal to, the Canadian dollarequivalent of the fair market value of one Merge Share atthe time of redemption (to be fully paid and satisfied bythe delivery of one Merge Share);

(b) Merge (or its Designee)will have the overriding Liquidation Call Right, Share RetractionCall Right, and Purchase Right referred to above;

(c) upon the occurrenceof certain Merge liquidation, dissolution or winding-upevents, all of the outstanding Exchangeable Shares willbe automatically exchanged by Merge (or its Designee) forMerge Shares (the "Automatic Exchange Right");and

(d) subject to Merge havingdirected E-Film to redeem the Exchangeable Shares on theSunset Date, Merge (or its Designee) shall purchase on thePurchase Date all of the then outstanding Exchangeable Sharesunder the Purchase Right.

28. It is anticipated that,subject to applicable law, Merge (or its Designee) will exercisethe Liquidation Call Right, Share Retraction Call Right, andthe Purchase Right on each occasion when such rights are available.

29. Contemporaneously withthe closing of the Transaction, Merge and E-Film will enterinto a Support Agreement which will provide:

(a) that Merge will notdeclare or pay any dividends or make any distributions onthe Merge Shares unless E-Film is able to declare and pay,and simultaneously declares and pays or makes, as the casemay be, an equivalent dividend or distribution on the ExchangeableShares; and

(b) that Merge will ensurethat E-Film will be able to honour the redemption rights,Share Retraction Right and Liquidation Right that are attributesof the Exchangeable Shares under the Exchangeable Shareprovisions.

30. Contemporaneously withthe closing of the Transaction, Merge, E-Film and a trustee(the "Trustee") will enter into a Trust Agreement,pursuant to which, among other things:

(a) Merge will issue tothe Trustee one special voting share (the "Merge VotingShare") carrying voting rights equivalent to that numberof Merge Shares as is from time to time equal to the numberof Exchangeable Shares from time to time issued and outstanding;

(b) the holders of ExchangeableShares will, through the Trustee, indirectly have a voteas Merge shareholders; and

(c) except as provided in(b) above, the Trustee will hold legal title to the MergeVoting Share solely for the benefit of Merge.

31. The steps under the Transactionand the attributes of the Exchangeable Shares contained inthe Exchangeable Share provisions, the Support Agreement,the Share Exchange Agreement and the Trust Agreement involveor may involve a number of trades of securities, includingtrades related to the issuance of the Exchangeable Sharespursuant to the Transaction or upon the issuance of MergeShares in exchange for Exchangeable Shares and there may beno registration or prospectus exemptions available under theAct for certain of the trades. The trades to which the Transactiongives rise are the following:

(a) the conversion of E-FilmCommon Shares into Exchangeable Shares pursuant to the Amendment;

(b) the issuance of theNew E-Film Common Shares to Merge or Holdco;

(c) the creation by E-Filmof the Liquidation Call Right and the Share Retraction CallRight in favour of Merge (or its Designee) pursuant to theExchangeable Share provisions and the Share Exchange Agreement;

(d) the creation by Mergeof the Exchange Right, the Purchase Right and the AutomaticExchange Right pursuant to the Share Exchange Agreement;

(e) the creation by Mergeof certain voting rights pursuant to the Trust Agreement;

(f) the issuance by Merge,pursuant to the Trust Agreement, of the Merge Voting Shareto the Trustee;

(g) the issuance and intra-grouptransfers of Merge Shares and related issuances of sharesof Merge affiliates in consideration therefor, all by andbetween Merge and its affiliates, from time to time to enableE-Film to deliver Merge Shares to a holder of ExchangeableShares upon the exercise of the Liquidation Right or ShareRetraction Right by that holder, and the subsequent deliverythereof by E-Film upon that retraction;

(h) the transfer of ExchangeableShares by the holder to E-Film upon the holder's exerciseof the Liquidation Right or Share Retraction Right;

(i) the issuance and intra-grouptransfers of Merge Shares and related issuances of sharesof Merge affiliates in consideration therefor, all by andbetween Merge and its affiliates, to enable Merge (or itsDesignee) to deliver Merge Shares to a holder of ExchangeableShares in connection with Merge's (or its Designee's) exerciseof its overriding Liquidation Call Right or Share RetractionCall Right and the subsequent delivery thereof upon theexercise of those overriding rights;

(j) the transfer of ExchangeableShares by the holder to Merge (or its Designee) upon Merge(or its Designee) exercising its overriding LiquidationCall Right or Share Retraction Call Right;

(k) the issuance and intra-grouptransfers of Merge Shares and related issuances of sharesof Merge affiliates in consideration therefor, all by andbetween Merge and its affiliates, to enable E-Film to deliverMerge Shares to holders of Exchangeable Shares upon theredemption of the Exchangeable Shares, and the subsequentdelivery thereof by E-Film upon that redemption;

(l) the transfer of ExchangeableShares by holders to E-Film upon the redemption of ExchangeableShares;

(m) the issuance and intra-grouptransfers of Merge Shares and related issuances of sharesof Merge affiliates in consideration therefor, all by andbetween Merge and its affiliates, to enable Merge (or itsDesignee) to deliver Merge Shares to holders of ExchangeableShares in connection with the Purchase Right granted byMerge (or its Designee) and the subsequent delivery thereofby Merge (or its Designee) pursuant to the Purchase Right;

(n) the transfer of ExchangeableShares by holders to Merge (or its Designee) pursuant tothe Purchase Right;

(o) the issuance and deliveryof Merge Shares by Merge to a holder of Exchangeable Sharesupon the exercise of the Exchange Right by that holder;

(p) the transfer of ExchangeableShares by a holder to Merge (or its Designee) upon the exerciseof the Exchange Right by that holder;

(q) the issuance and intra-grouptransfers of Merge Shares and related issuances of sharesof Merge affiliates in consideration therefor all by andbetween Merge and its affiliates to enable Merge (or itsDesignee) to deliver Merge Shares to holders of ExchangeableShares pursuant to the Automatic Exchange Right;

(r) the transfer of ExchangeableShares by a holder to Merge (or its Designee) pursuant tothe Automatic Exchange Right; and

(s) the transfer of ExchangeableShares by a holder to E-Film upon the exercise by E-Filmof the E-Film Purchase Rights (collectively, the "Trades").

32. If the current Ontarioshareholders of E-Film acquired the maximum number of MergeShares to which they are entitled pursuant to the ExchangeableShare provisions, persons or companies who were in Ontarioand who beneficially owned Merge Shares would constitute lessthan 10% of the total number of beneficial holders of MergeShares, but would hold approximately 14% of the total issuedand outstanding Merge Shares.

33. The fundamental investmentdecision to be made by a holder of E-Film Common Shares willbe made at the time of the Amendment, when that holder votesin respect of the Amendment. As a result of that decision,a holder (other than a dissenting holder) will ultimatelyreceive Exchangeable Shares in exchange for the E-Film CommonShares held by that holder. The Exchangeable Shares will providecertain Canadian tax benefits to certain Canadian holdersbut will otherwise be, as nearly as practicable, the economicand voting equivalent of the Merge Shares, and as such allsubsequent exchanges of Exchangeable Shares are in furtheranceof the holder's initial investment decision.

34. Merge will send concurrentlyto all holders of Exchangeable Shares and Merge Shares residentin Canada all disclosure material furnished to holders ofMerge Shares resident in the United States including, withoutlimitation, copies of its annual financial statements andall proxy solicitation materials.

35. There is no public marketin Canada for the Merge Shares and no such public market isexpected to develop.

AND UPON the Commissionbeing satisfied that to do would not be prejudicial to the publicinterest;

IT IS HEREBY RULED pursuantto section 74(1) of the Act that the Trades shall not be subjectto sections 25 and 53 of the Act, provided that the first tradein Exchangeable Shares or Merge Shares received pursuant tothe Transaction will be a distribution unless the first tradeis made through an exchange or market outside of Canada or toa person or company outside of Canada.

June 11, 2002.

"Paul M. Moore"                    "LorneMorphy"